Skyworks Solutions, Inc. Annual Report 2002
Skyworks Solutions, Inc. is the world’s largest company focused exclusively on wireless semiconductor solutions.
The company offers front-end modules, radio frequency subsystems and cellular systems to leading wireless
handset and infrastructure customers.
Skyworks is headquartered in Woburn, Massachusetts and has executive offices in Irvine, California. The company
has design, engineering, manufacturing, marketing, sales and service facilities throughout North America, Europe,
Japan and Asia Pacific.
T O O U R S H A R E H O L D E R S
Fiscal 2002 was an exciting time for our business and will be remembered as the birth year of Skyworks Solutions,
formed through the merger of Alpha Industries and Conexant Systems’ wireless business.
Entering the period as Alpha, we recognized a rapidly changing wireless market landscape, one characterized by shorter
product life cycles, simplified cellular handset architectures and higher levels of semiconductor integration. At the same
time, our customers were seeking to dramatically reduce their supplier base in order to intensify their efforts on
branding, distribution and defining the handset’s look and feel.
These accelerating trends presented a significant opportunity for a focused supplier with a comprehensive portfolio
of wireless technologies and products. With this premise in mind, we set out to find a complementary partner with a
shared vision of the industry’s evolution.
C R E A T I N G S K Y W O R K S
We found our perfect match in Conexant’s wireless business, and in December of 2001 we embarked on a journey to
create a new company differentiated by the industry’s broadest technology portfolio and a diversified customer base.
Further, the new entity would possess the size to drive economies of scale in manufacturing and the critical mass to
remain at the leading edge of technological development, enabling us to take share in a rapidly expanding market.
We crafted the name Skyworks as it defines who we are and what we do. “Sky” represents the vast and growing
nature of wireless communications, and “works” addresses our ability to solve problems and provide customers with
integrated solutions. Additionally, we adopted the tagline “Breakthrough Simplicity” to convey our goal of turning
complexity into simplicity, and simplicity into competitive advantage.
Q U A R T E R L Y R E V E N U E C O M P A R I S O N
(dollars in millions)
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150
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$127
$129
$151
$137
$99
Sept.
Dec.
March
June
Sept.
2001
2002
I N T E G R A T I O N A C C O M P L I S H M E N T S
Ahead of our launch, we assembled a team of over 100 people across both companies to develop the best organ-
izational, logistical and operational solutions for our new company. On June 26, 2002, our very first day as Skyworks,
we implemented a set of change initiatives aimed at:
_ Reducing our cost structure
_ Streamlining the organization while improving our speed and agility
_ Focusing on leadership products and exploiting our differential advantages
_ Shortening manufacturing cycle times and improving capacity utilization
_ Eliminating duplicate operations, functions and processes
I am particularly pleased to report that our integration teams exceeded all expectations. We successfully reduced
our quarterly break-even by $30 million, completed our consolidation activities more than three months ahead of
schedule and transitioned our employees to 50% fewer facilities. In parallel, we didn’t miss a single customer
commitment and, in fact, grew our business in each and every quarter from the time of the merger announcement.
Most importantly, we reached our publicly stated goal of achieving a $600 million annualized revenue run-rate
with operating profitability in our very first full quarter as Skyworks. Subsequently, we completed an accretive trans-
action to finance our Mexicali, Mexico assembly and test facility acquisition as well as retire virtually all of our
short-term debt, significantly enhancing our balance sheet.
F R O M L E F T T O R I G H T
Paul E. Vincent, Chief Financial Officer
Kevin Barber, Senior Vice President, Operations
Liam Griffin, Vice President, Sales and Marketing
George LeVan, Vice President, Human Resources
Nien-Tsu Shen, Vice President, Quality
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O P E R A T I N G P R O F I T P E R F O R M A N C E
(dollars in millions)
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$(23)
$(23)
$(19)
$(31)
Sept.
Dec.
March
June
Sept.
2001
2002
O U R V I S I O N
Quite simply, our vision is to become the premier supplier of wireless semiconductor solutions. With our integration
activities now behind us, we enter fiscal year 2003 with an intensified focus on realizing this vision through three
powerful strategic goals:
_ Leveraging our product depth and breadth across our diversified customer base with truly differentiated solutions
_ Growing significantly faster than the overall market through share gains coupled with capture of an increasing
amount of semiconductor content within the handset
_ Steadily marching towards our target model of 45% gross margins and operating margins in excess of 15%
T H E S K Y W O R K S A D V A N T A G E
With a legacy of success and the spirit of a start-up, Skyworks is poised to capture a disproportionate share of
a $10 billion total addressable market, driven by four key factors:
First, we have the unique ability to bridge the divide between RF, mixed-signal and digital technologies. As the
market leader in switches, power amplifier modules and single-chip direct conversion transceivers, we are at
the forefront of integrating the entire RF section into a single package. Further, our complete cellular system
solution, which adds DSP and software functionality, is rapidly becoming the solution of choice across our
customer base of original equipment manufacturers (OEM), original development manufacturers (ODM) and contract
manufacturers.
F R O M L E F T T O R I G H T
Mohy Abdelgany, Vice President, RF Systems
Klaus Buehring, Vice President, Power Amplifier Modules
David Fryklund, Vice President, Switch and Control Products
Richard Langman, Vice President, Wireless Infrastructure
Products
Murthy Renduchintala, Vice President, Cellular Systems
The graphs above reflect revenue and operating results for FY02 by quarter, excluding
one-time items, assuming Alpha and Conexant’s wireless business had been combined
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“
O U R V I S I O N I S T O B E C O M E T H E P R E M I E R S U P P L I E R O F W I R E L E S S
S E M I C O N D U C T O R S O L U T I O N S . ”
Second, we are vertically integrated where we can differentiate ourselves for the lowest cost performance. We
have state-of-the-art GaAs HBT and PHEMT fabrication facilities coupled with access to key analog, RF CMOS, SiGe
and digital CMOS process technologies. In addition, we have an unparalleled assembly and test operation located
in Mexicali, Mexico enabling the production of our multi-chip module solutions.
Third, we possess a highly skilled and motivated team. With roughly 750 engineers worldwide and 100 dedi-
cated sales, marketing and technical support personnel throughout Asia, we are well positioned to respond to the
growing needs of regional partners.
And finally, we have an extraordinarily diverse customer base. We have strategic relationships with virtually all of
the industry leaders who are defining next-generation platforms, setting industry standards and shaping the future
of wireless communications.
With all of these key elements now in place, we are squarely focused on realizing our vision of becoming the
premier supplier of wireless semiconductor solutions.
In closing, I would like to thank our shareholders and customers who supported us through this transitional year
as well as our dedicated team of employees whose perseverance enabled us to achieve our goals ahead of
schedule and whose sights are aimed on building an even brighter future for Skyworks.
I look forward to reporting on our progress throughout the upcoming year.
David J. Aldrich
President and Chief Executive Officer
January 15, 2003
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C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S
T A B L E O F C O N T E N T S
Recent Developments
Industry Background
Business Overview
Our Strategy
Management's Discussion and Analysis of Financial Condition and
Results of Operations
Quantitative and Qualitative Disclosures About Market Risk
Caution Concerning Forward-Looking Statements
Selected Financial Data
Consolidated Financial Statements
Independent Auditors' Report, KPMG LLP
Independent Auditors' Report, Deloitte & Touche LLP
Market for Skyworks' Common Stock and Related Stockholder Matters
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Skyworks Solutions, Inc. (""Skyworks'' or the ""Company'') is a leading wireless semiconductor company focused
exclusively on radio frequency (RF) and complete cellular system solutions for mobile communications applications.
We oÅer front-end modules, RF subsystems and cellular systems to top wireless handset and infrastructure
customers.
From the radio to the baseband, we have developed one of the industry's broadest product portfolio including
leadership switches and power ampliÑer modules. Additionally, we oÅer a highly integrated direct conversion
transceiver and have launched a comprehensive cellular system for next generation handsets.
With our extensive portfolio and signiÑcant systems-level expertise, Skyworks is the ideal partner for both top-tier
wireless manufacturers and new market entrants who demand simpliÑed architectures, faster development cycles and
fewer overall suppliers.
Skyworks was formed through the merger (""Merger'') of the wireless communications business of Conexant
Systems, Inc. (""Conexant'') and Alpha Industries, Inc. (""Alpha'') on June 25, 2002. Following the Merger, Alpha
changed its corporate name to Skyworks Solutions, Inc. We are headquartered in Woburn, Massachusetts, and have
executive oÇces in Irvine, California. We have design, engineering, manufacturing, marketing, sales and service
facilities throughout North America, Europe, and the Asia/PaciÑc region. Our Internet address is
www.skyworksinc.com. We make available on our Internet website free of charge our annual report on Form 10-K,
quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports as soon as
practicable after we electronically Ñle such material with the SEC. The information contained in our website is not
incorporated by reference in this Annual Report.
R E C E N T D E V E L O P M E N T S
On November 13, 2002, Skyworks successfully closed a private placement of $230 million of 4.75 percent convertible
subordinated notes due 2007. These notes can be converted into 110.4911 shares of common stock per $1,000
principal balance, which is the equivalent of a conversion price of approximately $9.05 per share. The net proceeds
from the note oÅering were principally used to prepay debt owed to Conexant under a Ñnancing agreement entered
into with Conexant immediately following the Merger. The payments to Conexant retired $105 million of the
$150 million note relating to the purchase of Conexant's semiconductor assembly, module manufacturing and test
facility located in Mexicali, Mexico, and certain related operations (""Mexicali Operations'') and repaid the $65 million
principal amount outstanding as of November 13, 2002 under the loan facility, dissolving the $100 million facility and
resulting in the release of Conexant's security interest in the assets and properties of the Company.
In connection with the prepayment by the Company of $105 million of the $150 million note owed to Conexant relating
to the purchase of the Mexicali Operations, the remaining $45 million principal balance on the note was exchanged for
new 15% convertible debt securities with a maturity date of June 30, 2005. These notes can be converted into the
Company's common stock at a conversion rate based on the applicable conversion price, which is subject to
adjustment based on, among other things, the market price of the Company's common stock. Based on this
adjustable conversion price, the Company expects that the maximum number of shares that could be issued under
the note is approximately 7.1 million shares, subject to adjustment for stock splits and other similar dilutive
occurrences.
In addition to the retirement of $170 million in principal amount of indebtedness owing to Conexant, we also retained
approximately $53 million of net proceeds of the private placement to support our working capital needs.
I N D U S T R Y B A C K G R O U N D
We believe that cellular services and personal communications services are increasingly expanding to oÅer more than
just traditional voice services, with emerging mobile communications technologies oÅering consumers and businesses
wireless access to data and information across a wide range of applications. High-speed mobile access has the
potential to dramatically enhance use of the Internet, thereby facilitating the growth of electronic commerce. At the
center of these developments are the continuing evolution of the mobile phone and the corresponding growth of the
wireless communications infrastructure.
The cellular handset market has grown considerably over the past Ñve years with unit sales of approximately
400 million units in 2001, according to Gartner Dataquest, a market research Ñrm, up 500% from 1996 levels. As
additional wireless cellular capacity became available, an intensely competitive pricing environment for wireless
services developed at the same time that lower-priced, feature-rich mobile phones were being introduced,
contributing substantially to the growth of new subscribers. We expect this trend to continue, enabling further
wireless expansion and increased market penetration worldwide. Market penetration measures the portion of users or
subscribers within the entire population of a speciÑed geographic area. In the United States, market research Ñrm
EMC forecasts a growth in wireless penetration from approximately 46% in 2001 to almost 75% by 2005. On a
worldwide basis, market penetration of wireless phones was just 16% in 2001 and could approach 30% by 2005,
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based on data from EMC. We believe that this anticipated dramatic market growth will create signiÑcant demand for
wireless handsets as well as for wireless infrastructure equipment to meet future network capacity requirements.
New mobile phones with improved battery life and expanded features are being introduced at a rapid rate, made
possible by signiÑcant technological advances that render earlier models obsolete after only one or two years.
According to market research Ñrm Strategy Analytics, roughly half of the 2001 worldwide cellular handset sales were
replacements of previous models. We expect this replacement market to continue contributing to the growth of the
digital cellular handset industry, led by the transition to next generation services, such as CDMA2000, GPRS and
EDGE wireless standards, which support wireless data capacity. We anticipate that transition to third-generation
services, which will enable even higher bandwidth applications, including streaming video, digital audio and digital
camera functionality, should further bolster the replacement market. Additionally, in emerging markets where wireline
infrastructure is inadequate or limited, we believe that digital wireless networks are providing a viable and economic
alternative that can be rapidly deployed.
In response to this rapidly changing market, handset original equipment manufacturers, or OEMs, are signiÑcantly
shortening product development cycles, seeking simpliÑed architectures and streamlining manufacturing processes.
Traditional OEMs are shifting to low-cost suppliers around the world. In turn, original design manufacturers and
contract manufacturers, who lack RF and systems-level expertise, are entering the high volume mobile phone market
to support OEMs as well as to develop handset platforms of their own. Original design manufacturers and contract
manufacturers can manage low-cost manufacturing and assembly of handsets, freeing OEMs to focus on the higher
value marketing and distribution aspects of their business. Established handset manufacturers and new market
entrants alike are demanding complete semiconductor system solutions that include the radio frequency system, all
baseband processing, protocol stack and user interface software, plus comprehensive reference designs and
development platforms. With these solutions, traditional handset OEMs can accelerate time-to-market cycles with
lower investments in engineering and system design. These solutions also enable original design manufacturers to
enter the high volume handset market without the need to make signiÑcant investments in RF and systems-level
expertise.
Similarly, cellular and personal communications services network operators are developing and deploying next
generation services. These service providers are incorporating packet-switching capability in their networks to deliver
data communications and Internet access to digital cellular and other wireless devices. Over the long-term, service
providers are seeking to establish a global network that can be accessed by subscribers at any time, anywhere in the
world and that can provide subscribers with multimedia services. To meet this goal, OEMs who supply wireless
infrastructure base stations to network operators are increasingly relying on mobile communications semiconductor
suppliers who can provide highly integrated radio frequency and mixed signal processing functionality.
Additionally, as service providers migrate cellular subscribers to data intensive next generation 2.5G and 3G
applications, base stations that transmit and receive signals in the backbone of cellular and personal communications
services systems will be under further capacity constraints. To meet the related demand, OEMs will be challenged to
increase base station transceiver performance and functionality, while reducing size, power consumption and overall
system costs.
We believe that these market trends create a potentially signiÑcant opportunity for a broad-based wireless
semiconductor supplier with a comprehensive product portfolio supported by specialized wireless manufacturing
process technologies and a full range of systems-level expertise.
B U S I N E S S O V E R V I E W
Skyworks is a leading wireless semiconductor company focused exclusively on RF and complete cellular system
solutions for mobile communications applications. We oÅer front-end modules, RF subsystems and cellular systems to
top wireless handset and infrastructure customers. Skyworks operates in one business segment, which designs,
develops, manufactures and markets proprietary semiconductor products and system solutions for manufacturers of
wireless communication products.
Skyworks possesses a broad wireless technology capability and one of the most complete wireless communications
product portfolios, coupled with customer relationships with virtually all major handset and infrastructure
manufacturers. Our product portfolio includes almost every key semiconductor found within a digital cellular handset,
including:
switches and Ñlters (components that switch signals and incorporate Ñltering functionality);
power ampliÑer (PA) modules (devices that amplify a signal to provide suÇcient energy for it to reach the base
station);
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RF transceivers (devices that perform radio frequency transmit and receive functions);
synthesizers (devices used to tune to the correct channel to receive the RF signal from the base station);
mixed signal processors (devices that convert analog signals into digital signals);
digital signal processors (DSP) (digital devices that act as the cellular handset's central processor);
audio (components that enable voice communication);
physical interface DSP Ñrmware (channel coding and equalization software);
network access software (protocol stack supporting encoding and decoding); and
MMI/applications (user interface software).
The following diagram illustrates our products that are used in a digital cellular handset:
Filter
Switch
PA Module
Receiver
Mixed Signal
Synthesizer
Transmitter
DSP
Audio
Physical Interface
DSP Firmware
Network Access
Software
MMI /
Applications
Complete Portfolio of Hardware and Software Solutions
Skyworks also oÅers a broad product portfolio addressing next generation wireless infrastructure applications,
including ampliÑer drivers, ceramic resonators, couplers and detectors, Ñlters, synthesizers and front-end receivers.
These components support a variety of radio frequency and mixed signal processing functions within the wireless
infrastructure.
We have a comprehensive radio frequency and mixed signal processing and packaging portfolio, extensive circuit
design libraries and a proven track record in component and system design. We believe that these capabilities
position us to address the growing need of wireless infrastructure manufacturers for base station products with
increased transceiver performance and functionality with reduced size, power consumption and overall system costs.
O U R S T R A T E G Y
Skyworks' vision is to become the leading supplier of wireless semiconductor solutions. Key elements in our strategy
include:
Leveraging Core Technologies
Skyworks deploys technology building blocks such as radio frequency integrated circuits, analog/mixed-signal
processing cores and digital baseband engines as well as software across multiple product platforms. We believe that
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this approach enables creation of economies of scale in research and development and facilitates a reduction in the
time-to-market for key products.
Increasing Integration Levels
High levels of integration enhance the beneÑts of our products by reducing production costs through fewer external
components, reduced board space and improved system assembly yields. By combining all of the necessary
communications functions for a complete system solution, Skyworks can deliver additional semiconductor content,
thereby oÅering existing and potential customers more compelling and cost-eÅective solutions.
Capturing an Increasing Amount of Semiconductor Content
We enable our customers to start with individual components as necessary, and then migrate up the product
integration ladder. We believe that our highly integrated solutions will enable these customers to speed time-to-
market while focusing their resources on product diÅerentiation through a broader range of more sophisticated, next-
generation features.
Diversifying Customer Base
Skyworks supports virtually every wireless handset OEM including Motorola, Inc., Nokia Corporation, Samsung
Electronics Co. and Sony/Ericsson as well as emerging original development manufacturers (ODMs) and contract
manufacturers such as BenQ, Compal, Flextronics and Quanta. With the industry's move towards outsourcing, we
believe that we are particularly well-positioned to address the growing needs of new market entrants who seek RF
and system-level integration expertise.
Delivering Operational Excellence
The Skyworks operations team leverages best-in-class manufacturing technologies and enables highly integrated
modules as well as system-level solutions. We are focused on achieving the industry's shortest cycle times, highest
yields and ultimately the lowest cost structure.
Building Industry Partnerships
Skyworks will vertically integrate where it can diÅerentiate or will otherwise enter alliances and partnerships for
leading-edge capabilities. These partnerships and alliances are designed to ensure product leadership and
competitive advantage in the marketplace. For example, we recently licensed LSI Logic's digital signal processor core
to support future GSM/GPRS baseband products. Additionally, we work with Advanced Wireless Semiconductor
Company (AWSC), Jazz Semiconductor, Inc. and United Microelectronics Corporation (UMC) on a foundry basis.
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M A N A G E M E N T ' S D I S C U S S I O N A N D A N A L Y S I S O F
F I N A N C I A L
C O N D I T I O N A N D R E S U L T S O F O P E R A T I O N S
Overview
On December 16, 2001, Alpha, Conexant and Washington Sub, Inc. (""Washington''), a wholly owned subsidiary of
Conexant, entered into a deÑnitive agreement providing for the combination of Conexant's wireless business with
Alpha. Under the terms of the agreement, Conexant would spin oÅ its wireless business into Washington, including its
gallium arsenide wafer fabrication facility located in Newbury Park, California, but excluding certain assets and
liabilities, to be followed immediately by the Merger of this wireless business into Alpha with Alpha as the surviving
entity in the Merger. The Merger was completed on June 25, 2002. Following the Merger, Alpha changed its corporate
name to Skyworks Solutions, Inc.
Immediately following completion of the Merger, the Company purchased the Mexicali Operations for $150 million. For
Ñnancial accounting purposes, the sale of the Mexicali Operations by Conexant to Skyworks was treated as if
Conexant had contributed the Mexicali Operations to Washington as part of the spin-oÅ, and the $150 million
purchase price was treated as a return of capital to Conexant. Accordingly, our consolidated Ñnancial results include
the assets, liabilities, operating results and cash Öows of the Washington business and the Mexicali Operations for all
periods presented, and also include the results of operations of Alpha from June 25, 2002, the date of acquisition. The
Washington business and the Mexicali Operations are collectively referred to as Washington/Mexicali. References to
the ""Company'' refer to Washington/Mexicali for all periods prior to June 26, 2002, and to the combined company
following the Merger.
The Merger was accounted for as a reverse acquisition whereby Washington was treated as the acquirer and Alpha as
the acquiree, primarily because Conexant shareholders owned a majority, approximately 67 percent, of the Company
upon completion of the Merger. Under a reverse acquisition, the purchase price of Alpha was based upon the fair
market value of Alpha common stock for a reasonable period of time before and after the announcement date of the
Merger and the fair value of Alpha stock options. The purchase price of Alpha was allocated to the assets acquired
and liabilities assumed by Washington, as the acquiring company for accounting purposes, based upon their
estimated fair market value at the acquisition date. Because the Merger was accounted for as a purchase of Alpha,
the historical Ñnancial statements of Washington/Mexicali became the historical Ñnancial statements of the Company
after the Merger. Because the historical Ñnancial statements of the Company after the Merger do not include the
historical Ñnancial results of Alpha for periods prior to June 26, 2002, the Ñnancial statements may not be indicative of
future results of operations or the historical results that would have resulted if the Merger had occurred at the
beginning of a historical Ñnancial period.
Alpha's independent accountant was KPMG LLP (""KPMG'') and Washington/Mexicali's independent accountant
was Deloitte & Touche LLP (""Deloitte & Touche''). KPMG has continued to serve as the Company's independent
accountant after consummation of the Merger. Because the Merger was accounted for as a reverse acquisition, the
Ñnancial statements of Washington/Mexicali constitute the Ñnancial statements of the Company as of the
consummation of the Merger. Therefore, upon the consummation of the Merger on June 25, 2002, there was a change
in the independent accountant for the Company's Ñnancial statements from Deloitte & Touche to KPMG, and
accordingly, Deloitte & Touche was dismissed as the Company's independent accountant.
Skyworks' Ñscal year ends on the Friday closest to September 30. Fiscal years 2002, 2001 and 2000 each comprised
52 weeks and ended on September 27, September 28 and September 29, respectively. For convenience, the
consolidated Ñnancial statements have been shown as ending on the last day of the calendar month. Accordingly,
references to September 30, 2002, 2001 and 2000 contained in this discussion refer to the actual Ñscal year-end of
the Company.
Skyworks is a leading wireless semiconductor company focused on providing front-end modules, radio frequency
subsystems and complete system solutions to wireless handset and infrastructure customers worldwide. We oÅer a
comprehensive family of components and RF subsystems, and also provide complete antenna-to-microphone
semiconductor solutions that support advanced 2.5G and 3G services.
We have entered into various agreements with Conexant providing for the supply of gallium arsenide wafer fabrication
and assembly and test services to Conexant, initially at substantially the same volumes as historically obtained by
Conexant from Washington/Mexicali. We have also entered into agreements with Conexant providing for the supply to
us of transition services by Conexant and silicon-based wafer fabrication services by Jazz Semiconductor, Inc., a
Newport Beach, California foundry joint venture between Conexant and The Carlyle Group to which Conexant
contributed its Newport Beach wafer fabrication facility. Historically, Washington/Mexicali obtained a portion of its
silicon-based semiconductors from the Newport Beach wafer fabrication facility. Pursuant to our supply agreement
with Conexant, we are initially obligated to obtain certain minimum volume levels from Jazz Semiconductor based on a
contractual agreement between Conexant and Jazz Semiconductor.
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The wireless communications semiconductor industry is highly cyclical and is characterized by constant and rapid
technological change, rapid product obsolescence and price erosion, evolving standards, short product life cycles
and wide Öuctuations in product supply and demand. Our operating results have been, and our operating results may
continue to be, negatively aÅected by substantial quarterly and annual Öuctuations and market downturns due to a
number of factors, such as changes in demand for end-user equipment, the timing of the receipt, reduction or
cancellation of signiÑcant customer orders, the gain or loss of signiÑcant customers, market acceptance of our
products and our customers' products, our ability to develop, introduce and market new products and technologies
on a timely basis, availability and cost of products from suppliers, new product and technology introductions by
competitors, changes in the mix of products produced and sold, intellectual property disputes, the timing and extent
of product development costs and general economic conditions. In the past, average selling prices of established
products have generally declined over time and this trend is expected to continue in the future.
Critical Accounting Policies
The preparation of Ñnancial statements in accordance with accounting principles generally accepted in the United
States requires us to make estimates and assumptions that aÅect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the Ñnancial statements and the reported amounts of
revenues and expenses during the reporting period. Among the signiÑcant estimates aÅecting our consolidated
Ñnancial statements are those relating to allowances for doubtful accounts, inventories, long-lived assets, income
taxes, warranties, restructuring costs and other contingencies. We regularly evaluate our estimates and assumptions
based upon historical experience and various other factors that we believe to be reasonable under the circumstances,
the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not
readily apparent from other sources. To the extent actual results diÅer from those estimates, our future results
operations may be aÅected. We believe the following critical accounting policies aÅect our more signiÑcant judgments
and estimates used in the preparation of our consolidated Ñnancial statements.
Revenue Recognition Ó Revenues from product sales are recognized upon shipment and transfer of title, in
accordance with the shipping terms speciÑed in the arrangement with the customer. 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 on unsold products. A reserve for
sales returns and allowances for non-distributor customers is recorded based on historical experience or speciÑc
identiÑcation of an event necessitating a reserve. Development revenue is recognized when services are performed
and has not been signiÑcant for any of the periods presented.
Inventories Ó We assess the recoverability of inventories through an on-going review of inventory levels in relation to
sales backlog and forecasts, product marketing plans and product life cycles. When the inventory on hand exceeds
the foreseeable demand, we write down the value of those excess inventories. We sell our products to
communications equipment OEMs that have designed our products into equipment such as cellular handsets. These
design wins are gained through a lengthy sales cycle, which includes providing technical support to the OEM
customer. Moreover, once a customer has designed a particular supplier's components into a cellular handset,
substituting another supplier's components requires substantial design changes which involve signiÑcant cost, time,
eÅort and risk. In the event of the loss of business from existing OEM customers, we may be unable to secure new
customers for our existing products without Ñrst achieving new design wins. Consequently, when the quantities of
inventory on hand exceed forecasted demand from existing OEM customers into whose products our products have
been designed, we generally will be unable to sell our excess inventories to others, and the net realizable value of
such inventories is generally estimated to be zero. The amount of the write-down is the excess of historical cost over
estimated realizable value (generally zero). Once established, these write-downs are considered permanent
adjustments to the cost basis of the excess inventory. Demand for our products may Öuctuate signiÑcantly over time,
and actual demand and market conditions may be more or less favorable than those projected by management. In the
event that actual demand is lower than originally projected, additional inventory write-downs may be required.
Impairment of long-lived assets Ó Long-lived assets, including Ñxed assets, goodwill and intangible assets, are
continually monitored and are reviewed for impairment whenever events or changes in circumstances indicate that the
carrying amount of any such asset may not be recoverable. The determination of recoverability is based on an
estimate of undiscounted cash Öows expected to result from the use of an asset and its eventual disposition. The
estimate of cash Öows is based upon, among other things, certain assumptions about expected future operating
performance. Our estimates of undiscounted cash Öows may diÅer from actual cash Öows due to, among other things,
technological changes, economic conditions, changes to our business model or changes in our operating
performance. If the sum of the undiscounted cash Öows (excluding interest) is less than the carrying value, we
recognize an impairment loss, measured as the amount by which the carrying value exceeds the fair value of the
asset. Fair value is determined using discounted cash Öows.
Deferred income taxes Ó We have provided a valuation allowance related to our substantial United States deferred tax
assets. If suÇcient evidence of our ability to generate suÇcient future taxable income in certain tax jurisdictions
becomes apparent, we may be required to reduce our valuation allowance, which may result in income tax beneÑts in
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our statement of operations. Reduction of a portion of the valuation allowance may be applied to reduce the carrying
value of goodwill. The portion of the valuation allowance for deferred tax assets for which subsequently recognized tax
beneÑts may be applied to reduce goodwill related to the purchase consideration of the Merger is approximately
$24 million. We evaluate the realizability of the deferred tax assets and assess the need for a valuation allowance
quarterly. In Ñscal 2002, the Company recorded a tax beneÑt of approximately $23 million related to the impairment of
our Mexicali assets. A valuation allowance has not been established because the Company believes that the related
deferred tax asset will be recovered during the carry forward period.
Warranties Ó Reserves for estimated product warranty costs are provided at the time revenue is recognized. Although
we engage in extensive product quality programs and processes, our warranty obligation is aÅected by product failure
rates and costs incurred to rework or replace defective products. Should actual product failure rates or costs diÅer
from estimates, additional warranty reserves could be required, which could reduce our gross margins.
Allowance for doubtful accounts Ó We maintain allowances for doubtful accounts for estimated losses resulting from
the inability of our customers to make required payments. If the Ñnancial condition of our customers were to
deteriorate, our actual losses may exceed our estimates, and additional allowances would be required.
Results of Operations
General
In Ñscal 2002, our revenues from product sales to third parties increased approximately 94% from Ñscal 2001, as a
result of renewed demand for our wireless product portfolio. The increased demand is partially due to reduction in the
level of excess channel inventories that had adversely aÅected the digital cellular handset markets during Ñscal 2001.
Revenues attributable to Alpha, post Merger, included in Ñscal 2002 were approximately $36 million. During 2002 the
Company consolidated facilities, reduced its work force and continued to implement cost saving initiatives. In
addition, increased revenues and improved utilization of our manufacturing facilities contributed to an improvement in
operating results in Ñscal 2002. Cost of goods sold for Ñscal 2002 was adversely aÅected by a charge of $5.1 million
in connection with expected losses for certain wafer fabrication commitments made under a supply agreement with
Conexant whereby we are initially obligated to obtain certain minimum volume levels from Jazz Semiconductor, Inc.
Cost of goods sold for Ñscal 2002 also reÖects approximately $3.1 million of additional costs related to the Merger.
During Ñscal 2001, we Ì like many of our customers and competitors Ì were adversely impacted by a broad
slowdown aÅecting the wireless communications sector, including most of the end-markets for our products. Our net
revenues for Ñscal 2001 reÖected deterioration in the digital cellular handset market resulting from excess channel
inventories due to a slowdown in demand for mobile phones and a slower transition to next-generation phones. The
eÅect of weakened end-customer demand was compounded by higher than normal levels of component inventories
among manufacturer, subcontractor and distributor customers. The overall slowdown in the wireless communications
markets also aÅected our gross margins and operating income. Cost of goods sold for Ñscal 2001 was adversely
aÅected by the signiÑcant underutilization of manufacturing capacity. Cost of goods sold for Ñscal 2001 also reÖects
$58.7 million of inventory write-downs across our product portfolio resulting from the sharply reduced end-customer
demand for digital cellular handsets.
Expense Reduction and Restructuring Initiatives
During Ñscal 2002, the Company reduced its workforce through involuntary severance programs and recorded
restructuring charges of approximately $3.0 million for costs related to the workforce reduction and the consolidation
of certain facilities. The charges were based upon estimates of the cost of severance beneÑts for aÅected employees
and lease cancellation, facility sales, and other costs related to the consolidation of facilities. Substantially all amounts
accrued for these actions are expected to be paid within one year.
In Ñscal 2001, we implemented a number of expense reduction and restructuring initiatives to more closely align our
cost structure with the then-current business environment. The cost reduction initiatives included workforce
reductions, temporary shutdowns of manufacturing facilities and signiÑcant reductions in capital spending.
Through involuntary severance programs and attrition, we reduced our workforce in Ñscal 2001 by approximately 250
employees (principally in our manufacturing operations). In addition, we periodically idled our Newbury Park,
California wafer fabrication facility and, for a portion of Ñscal 2001, implemented a reduced workweek at our Mexicali
facility.
We recorded restructuring charges of $2.7 million in Ñscal 2001 related to the workforce reductions completed
through September 30, 2001. The restructuring initiatives and other expense reduction actions resulted in a quarterly
reduction of operating expenses of approximately $4.8 million for the fourth quarter of Ñscal 2001 as compared with
the second quarter of Ñscal 2001.
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Asset Impairments
During the third quarter of Ñscal 2002, the Company recorded a $66.0 million charge for the impairment of the
assembly and test machinery and equipment and related facility in Mexicali, Mexico. The impairment charge was
based on a recoverability analysis prepared by management as a result of a signiÑcant downturn in the market for test
and assembly services for non-wireless products and the related impact on our current and projected outlook.
The Company experienced a severe decline in factory utilization at its Mexicali facility for non-wireless products and
projected decreasing revenues and new order volume. Management believed these factors indicated that the carrying
value of the assembly and test machinery and equipment and related facility may have been impaired and that an
impairment analysis should be performed. In performing the analysis for recoverability, management estimated the
future cash Öows expected to result from the manufacturing activities at the Mexicali facility over a ten-year period.
The estimated future cash Öows were based on a gradual phase-out of services sold to Conexant and modest volume
increases consistent with management's view of the outlook for the business, partially oÅset by declining average
selling prices. The declines in average selling prices were consistent with historical trends and management's
decision to reduce capital expenditures for future capacity expansion. Since the estimated undiscounted cash Öows
were less than the carrying value (approximately $100 million based on historical cost) of the related assets, it was
concluded that an impairment loss should be recognized. The impairment charge was determined by comparing the
estimated fair value of the related assets to their carrying value. The fair value of the assets was determined by
computing the present value of the estimated future cash Öows using a discount rate of 24%, which management
believed was commensurate with the underlying risks associated with the projected future cash Öows. We believe the
assumptions used in the discounted cash Öow model represented a reasonable estimate of the fair value of the
assets. The write down established a new cost basis for the impaired assets.
During the third quarter of Ñscal 2002, the Company recorded a $45.8 million charge for the write-oÅ of goodwill and
other intangible assets associated with our May 2000 acquisition of Philsar Semiconductor Inc. (""Philsar''). Philsar
was a developer of radio frequency semiconductor solutions for personal wireless connectivity, including emerging
standards such as Bluetooth, and radio frequency components for third-generation (3G) digital cellular handsets.
Management determined that the Company would not support the technology associated with the Philsar Bluetooth
business. Accordingly, this product line has been discontinued and the employees associated with the product line
have either been severed or relocated to other operations. As a result of the actions taken, management determined
that the remaining goodwill and other intangible assets associated with the Philsar acquisition had been impaired.
Goodwill and intangible assets resulting from the Merger will be tested for impairment following the guidelines
established in SFAS 142, which addresses Ñnancial accounting and reporting for acquired goodwill and other
intangible assets. We will adopt SFAS 142 in the beginning of our 2003 Ñscal year, and are required to perform a
transitional impairment test for goodwill upon adoption. We may be required to record a substantial transitional
impairment charge as a result of adopting SFAS 142. The carrying value of goodwill and intangible assets, subject to
the transitional impairment test, is approximately $907.5 million at September 30, 2002.
During the third quarter of Ñscal 2001, the Company recorded an $86.2 million charge for the impairment of the
manufacturing facility and related wafer fabrication machinery and equipment at the Company's Newbury Park,
California facility. This impairment charge was based on a recoverability analysis prepared by management as a result
of the dramatic downturn in the market for wireless communications products and the related impact on the then-
current and projected business outlook of the Company. Through the third quarter of Ñscal 2001, the Company
experienced a severe decline in factory utilization at the Newbury Park wafer fabrication facility and decreasing
revenues, backlog, and new order volume. Management believed these factors, together with its decision to
signiÑcantly reduce future capital expenditures for advanced process technologies and capacity beyond the then-
current levels, indicated that the value of the Newbury Park facility may have been impaired and that an impairment
analysis should be performed. In performing the analysis for recoverability, management estimated the future cash
Öows expected to result from the manufacturing activities at the Newbury Park facility over a ten-year period. The
estimated future cash Öows were based on modest volume increases consistent with management's view of the
outlook for the industry, partially oÅset by declining average selling prices. The declines in average selling prices were
consistent with historical trends and management's decision to focus on existing products based on the current
technology. Since the estimated undiscounted cash Öows were less than the carrying value (approximately
$106 million based on historical cost) of the related assets, it was concluded that an impairment loss should be
recognized. The impairment charge was determined by comparing the estimated fair value of the related assets to
their carrying value. The fair value of the assets was determined by computing the present value of the estimated
future cash Öows using a discount rate of 30%, which management believed was commensurate with the underlying
risks associated with the projected cash Öows. The Company believes the assumptions used in the discounted cash
Öow model represented a reasonable estimate of the fair value of the assets. The write-down established a new cost
basis for the impaired assets.
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Years Ended September 30, 2002, 2001 and 2000
The following table sets forth the results of our operations expressed as a percentage of net revenues for the Ñscal
years below:
Net revenues
Cost of goods sold
Gross margin
Operating expenses:
Research and development
Selling, general and administrative
Amortization of intangible assets
Purchased in-process research and development
Special charges
Total operating expenses
Operating loss
Other income (expense), net
Loss before income taxes
Provision (beneÑt) for income taxes
Net loss
Net Revenues
(in thousands)
Net revenues:
Third parties
Conexant
2002
$418,344
39,425
$457,769
2002
100.0%
72.4
27.6
2000
2001
100.0% 100.0%
119.6
(19.6)
71.4
28.6
29.0
11.0
2.8
14.3
25.4
82.5
(54.9)
(0.9)
(55.8)
(4.3)
42.6
19.7
5.9
Ì
34.1
102.3
(121.9)
0.1
(121.8)
24.2
13.9
1.4
6.4
Ì
45.9
(17.3)
Ì
(17.3)
0.3
0.7
(51.6)% (122.5)% (17.6)%
Years Ended September 30,
Change
2001
Change
2000
(12.3)%
94.1% $215,502
44,949
75.8% $260,451
(31.1)% $312,983
(31.3)%
65,433
(31.2)% $378,416
We market and sell our semiconductor products and system solutions to leading OEMs of communication electronics
products, third-party original design manufacturers, or ODMs, and contract manufacturers and indirectly through
electronic components distributors. Samsung Electronics Co. accounted for 38%, 44% and 28% of net revenues from
customers other than Conexant for the Ñscal years ended September 30, 2002, 2001 and 2000 respectively.
Motorola, Inc. accounted for 12% of net revenues from customers other than Conexant for the Ñscal year ended
September 30, 2002. Revenues derived from customers other than Conexant located in the Americas region
decreased from 11% and 13% in 2001 and 2000, respectively, to 9% in Ñscal 2002. Revenues derived from
customers other than Conexant located in the Asia-PaciÑc region increased from 77% and 68% in 2001 and 2000,
respectively, to 84% in Ñscal 2002. Revenues derived from customers other than Conexant located in the Europe/
Middle East/Africa region decreased from 12% and 19% in 2001 and 2000, respectively, to 7% in Ñscal 2002. The
foregoing percentages are based on sales representing Washington/Mexicali sales for the full Ñscal year during 2002,
2001 and 2000 and including sales of Skyworks for the post-Merger period from June 26, 2002 through the end of the
Ñscal year.
We recognize revenues from product sales directly to our customers and to distributors upon shipment and transfer of
title. Provision for sales returns is made at the time of sale based on experience. An insigniÑcant portion of product
sales are made to electronic component distributors under agreements allowing for price protection and/or a right of
return on unsold products.
Revenues from product sales to customers other than Conexant, which represented 91%, 83% and 83% of total net
revenues for the Ñscal years 2002, 2001 and 2000, respectively, increased 94% in 2002 principally reÖecting
increased sales of GSM products, including power ampliÑer modules and complete cellular systems. We also
experienced increased demand for our power ampliÑer modules for CDMA and TDMA applications from a number of
our key customers. Revenues attributable to Alpha, post Merger, included in Ñscal 2002 were approximately
$36 million. Revenues from product sales to customers other than Conexant decreased 31% when comparing Ñscal
2001 to Ñscal 2000 principally resulting from the signiÑcant decrease in demand throughout the industry during this
period.
Revenues from wafer fabrication and semiconductor assembly and test services provided to Conexant represented
9%, 17% and 17% of total revenues for Ñscal 2002, 2001 and 2000, respectively. The decrease in 2002 when
compared to the prior years is primarily attributable to lower demand for assembly and test services from Conexant's
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Mindspeed Technologies and broadband access businesses due to the broad slowdown aÅecting most of the
communications electronics end-markets for Conexant's products.
Gross Margin
(in thousands)
Gross margin:
Third parties
Percent of net revenues from third parties
Conexant
Percent of net revenues from Conexant
Years Ended September 30,
2002
2001
2000
$124,195
$(53,247)
$105,533
30%
(25)%
34%
$ 1,966
$ 2,195
$ 2,713
5%
5%
4%
Gross margin represents net revenues less cost of goods sold. Cost of goods sold consists primarily of purchased
materials, labor and overhead (including depreciation) associated with product manufacturing, royalty and other
intellectual property costs, warranties and sustaining engineering expenses pertaining to products sold. Cost of
goods sold also includes allocations from Conexant through June 25, 2002 of manufacturing cost variances, process
engineering and other manufacturing costs which are not included in our unit costs but are expensed as incurred.
The improvement in gross margin from third party sales for Ñscal 2002, compared with Ñscal 2001, reÖects increased
revenues, improved utilization of our manufacturing facilities and a decrease in depreciation expense that resulted
from the write-down of the Newbury Park wafer fabrication assets in the third quarter of Ñscal 2001 and the Mexicali
facility assets in the third quarter of 2002. The eÅect of the write-down of the Newbury Park wafer fabrication assets
and the Mexicali facility assets on Ñscal 2002 gross margin was approximately $10.5 million and $5.5 million,
respectively. Although recent revenue growth has increased the level of utilization of our manufacturing facilities,
these facilities continue to operate below optimal capacity and underutilization continues to adversely aÅect our unit
cost of goods sold and gross margin. Gross margin for Ñscal 2002 was also adversely impacted by additional warranty
costs of $14.0 million. The additional warranty costs were the result of an agreement with a major customer for the
reimbursement of costs the customer incurred in connection with the failure of a product when used in a certain
adverse environment. Although we developed and sold the product to the customer pursuant to mutually agreed-
upon speciÑcations, the product experienced unusual failures when used in an environment in which the product had
not been previously tested. The product has since been modiÑed and no additional costs are expected to be incurred
in connection with this issue. In addition, under a wafer fabrication supply agreement with Conexant, we are initially
obligated to obtain certain minimum volume levels from Jazz Semiconductor, Inc. based on a contractual agreement
between Conexant and Jazz Semiconductor. We originally estimated our obligation under this agreement would result
in excess costs of approximately $13.2 million when recorded as a liability and charged to cost of sales in the third
quarter of Ñscal 2002. During the fourth quarter of Ñscal 2002, we reevaluated this obligation and reduced our liability
and cost of sales by approximately $8.1 million in the quarter. Gross margin for the year ended September 30, 2002
beneÑted by approximately $12.5 million as a result of the sale of inventories having a historical cost of $12.5 million
that were written down to a zero cost basis during Ñscal year 2001; such sales resulted from sharply increased
demand beginning in the fourth quarter of Ñscal 2001 that was not anticipated at the time of the write-downs. Gross
margin for Ñscal 2001 was adversely aÅected by inventory write-downs of approximately $58.7 million, partially oÅset
by approximately $4.5 million of subsequent sales of inventories written down to a zero cost basis.
The inventory write-downs recorded in Ñscal 2001 resulted from the sharply reduced end-customer demand we
experienced, primarily associated with our radio frequency components, as a result of the rapidly changing demand
environment for digital cellular handsets during that period. As a result of these market conditions, we experienced a
signiÑcant number of order cancellations and a decline in the volume of new orders, beginning in the Ñscal 2001 Ñrst
quarter and becoming more pronounced in the second quarter.
During Ñscal 2002, we sold an additional $12.5 million of inventories previously written down to a zero cost basis. As
of September 30, 2002, we continued to hold inventories with an original cost of approximately $5.4 million which
were previously written down to a zero cost basis. We currently intend to hold these remaining inventories and will sell
these inventories if we experience renewed demand for these products. While there can be no assurance that we will
be able to do so, if we are able to sell a portion of the inventories that are carried at zero cost basis, our gross margins
will be favorably aÅected. To the extent that we do not experience renewed demand for the remaining inventories,
they will be scrapped as they become obsolete. Approximately $1.8 million and $34.5 million of inventories that were
carried at zero cost basis were scrapped during Ñscal 2002 and 2001, respectively.
Under supply agreements entered into with Conexant in connection with the Merger, we will receive wafer fabrication,
wafer probe and certain other services from Jazz Semiconductor's Newport Beach, California foundry, and we will
provide wafer fabrication, wafer probe, Ñnal test and other services to Conexant at our Newbury Park facility, in each
case, for a three-year period after the Merger. We will also provide semiconductor assembly and test services to
Conexant at our Mexicali facility.
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During the term of one of our supply agreements with Conexant, our unit cost of goods supplied by Jazz
Semiconductor Inc.'s Newport Beach foundry will continue to be aÅected by the level of utilization of the Newport
Beach foundry joint venture's wafer fabrication facility and other factors outside our control. Pursuant to the terms of
this supply agreement with Conexant, we are committed to obtain a minimum level of service from Jazz
Semiconductor, Inc., a Newport Beach, California foundry joint venture between Conexant and The Carlyle Group to
which Conexant contributed its Newport Beach wafer fabrication facility. We estimate that our obligation under this
agreement will result in excess costs of approximately $5.1 million and we have recorded this liability in the current
period. In addition, our costs will be aÅected by the extent of our use of outside foundries and the pricing we are able
to obtain. During periods of high industry demand for wafer fabrication capacity, we may have to pay higher prices to
secure wafer fabrication capacity.
Research and Development
(in thousands)
Research and development
Percent of net revenues
2002
$132,603
29%
Years Ended September 30,
Change
2001
19% $111,053
Change
21%
43%
2000
$91,616
24%
Research and development expenses consist principally of direct personnel costs, costs for pre-production evaluation
and testing of new devices and design and test tool costs. Research and development expenses also include
allocated costs for shared research and development services provided by Conexant through June 25, 2002,
principally in the areas of advanced semiconductor process development, design automation and advanced package
development, for the beneÑt of several of Conexant's businesses.
The increase in research and development expenses in Ñscal 2002 compared to Ñscal 2001 primarily reÖects the
opening of a new design center in Le Mans, France and higher headcount and personnel-related costs. Subsequent to
the Ñrst quarter of Ñscal 2001, we expanded customer support engagements as well as development eÅorts targeting
semiconductor solutions using the CDMA2000, GSM, General Packet Radio Services, or GPRS, and third-generation,
or 3G, wireless standards in both the digital cellular handset and infrastructure markets.
During Ñscal 2001, the Company focused its research and development investment principally on wireless
communications applications such as next generation power ampliÑers, radio frequency subsystems and cellular
systems. In particular, the Company has focused a signiÑcant amount of research and development resources in
developing complete network protocol stacks and user interface software in support of its cellular systems initiative.
The increase in research and development expenses for Ñscal 2001 primarily reÖects higher headcount and
personnel-related costs to support the Company's expanded development eÅorts and the accelerated launch of new
products. The higher Ñscal 2001 research and development expenses also include costs of approximately $5.6 million
resulting from the acquisition of Philsar in Ñscal 2000.
Under transition services agreements with Conexant entered into in connection with the Merger, Conexant will
continue to perform various research and development services for us at actual cost generally until December 31,
2002, unless the parties otherwise agree. To the extent we use these services subsequent to the expiration of the
speciÑed term, the pricing is subject to negotiation.
Selling, General and Administrative
(in thousands)
Selling, general and administrative
Percent of net revenues
2002
$ 50,178
11%
Years Ended September 30,
Change
Change
2001
(2)% $ 51,267
2000
(2)% $52,422
20%
14%
Selling, general and administrative expenses include personnel costs, sales representative commissions, advertising
and other marketing costs. Selling, general and administrative expenses also include allocated general and
administrative expenses from Conexant through June 25, 2002 for a variety of shared functions, including legal,
accounting, treasury, human resources, real estate, information systems, customer service, sales, marketing, Ñeld
application engineering and other corporate services.
The decrease in selling, general and administrative expenses in Ñscal 2002 compared to Ñscal 2001 and in Ñscal 2001
compared to Ñscal 2000 primarily reÖects lower headcount and personnel-related costs resulting from the expense
reduction and restructuring actions initiated during Ñscal 2001 and lower provisions for uncollectible accounts
receivable.
Under the transition services agreement, Conexant will continue to perform various services for us at actual cost until
December 31, 2002, unless the parties otherwise agree. To the extent we use these services subsequent to the
expiration of the speciÑed term, the pricing is subject to negotiation.
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Amortization of Intangible Assets
(in thousands)
Amortization of intangible assets
Percent of net revenues
nm • not meaningful
2002
$ 12,929
3%
Years Ended September 30,
Change
2001
(15)% $ 15,267
Change
nm
6%
2000
$ 5,327
1%
In 2002, the Company recorded $36.4 million of intangible assets related to the Merger consisting of developed
technology, customer relationships and a trademark. These assets are being amortized over their estimated useful
lives (principally ten years).
We will adopt SFAS 142 in the beginning of our 2003 Ñscal year, and are required to perform a transitional impairment
test for goodwill upon adoption. We may be required to record a substantial transitional impairment charge as a result
of adopting SFAS 142. The carrying value of goodwill and intangible assets, subject to the transitional impairment
test, is approximately $907.5 million at September 30, 2002.
In connection with the Ñscal 2000 acquisition of Philsar, we recorded an aggregate of $78.2 million of identiÑed
intangible assets and goodwill. These assets have been amortized over their estimated useful lives (principally Ñve
years). During the third quarter of Ñscal 2002, the Company recorded a $45.8 million charge for the write-oÅ of
goodwill and other intangible assets associated with our acquisition of the Philsar Bluetooth business. Management
has determined that the Company will not support the technology associated with the Philsar Bluetooth business.
Accordingly, this product line has been discontinued and the employees associated with the product line have either
been severed or relocated to other operations. As a result of the actions taken, management determined that the
remaining goodwill and other intangible assets associated with the Philsar acquisition had been impaired. The Philsar
write-oÅ resulted in a decrease in amortization expense in Ñscal 2002.
The increase in amortization of intangible assets in Ñscal 2001 compared to Ñscal 2000 is the result of the Philsar
acquisition in 2000 and the associated amortization of the recorded goodwill and intangible assets that were related
to this transaction.
Purchased In-Process Research and Development
In connection with the Merger in the third quarter of Ñscal 2002, $65.5 million was allocated to purchased in-process
research and development and expensed immediately upon completion of the acquisition (as a charge not deductible
for tax purposes) because the technological feasibility of certain products under development had not been
established and no future alternative uses existed.
Prior to the Merger, Alpha was in the process of developing new technologies in its semiconductor and ceramics
segments. The objective of the in-process research and development eÅort was to develop new semiconductor
processes, ceramic materials and related products to satisfy customer requirements in the wireless and broadband
markets. The following table summarizes the signiÑcant assumptions underlying the valuations of the Alpha in-process
research and development (IPR&D) at the time of acquisition.
(in millions)
Alpha
Date Acquired
June 25, 2002
IPRD
$65.5
Estimated costs to
complete projects
$10.3
Discount rate
applied to IPRD
30%
The semiconductor segment was involved in several projects that have been aggregated into the following categories
based on the respective technologies:
Power AmpliÑer
Power ampliÑers are designed and manufactured for use in diÅerent types of wireless handsets. The main
performance attributes of these ampliÑers are eÇciency, power output, operating voltage and distortion. Current
research and development is focused on expanding the oÅering to all types of wireless standards, improving
performance by process and circuit improvements and oÅering a higher level of integration.
Control Products
Control products consist of switches and switch Ñlters that are used in wireless applications for signal routing. Most
applications are in the handset market enabling multi-mode, multi-band handsets. Current research and development
is focused on performance improvement and cost reduction by reducing chip size and increasing functionality.
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Broadband
The products in this grouping consist of radio frequency (RF) and millimeter wave semiconductors and components
designed and manufactured speciÑcally to address the needs of high-speed, wireline and wireless network access.
Current and long-term research and development is focused on performance enhancement of speed and bandwidth
as well as cost reduction and integration.
Silicon Diode
These products use silicon processes to fabricate diodes for use in a variety of RF and wireless applications. Current
research and development is focused on reducing the size of the device, improving performance and reducing cost.
Ceramics
The ceramics segment was involved in projects that relate to the design and manufacture of ceramic-based
components such as resonators and Ñlters for the wireless infrastructure market. Current research and development is
focused on performance enhancements through improved formulations and electronic designs.
The material risks associated with the successful completion of the in-process technology are associated with the
Company's ability to successfully Ñnish the creation of viable prototypes and successful design of the chips, masks
and manufacturing processes required. The Company expects to beneÑt from the in-process projects as the individual
products that contain the in-process technology are put into production and sold to end-users. The release dates for
each of the products within the product families are varied. The fair value of the in-process research and development
was determined using the income approach. Under the income approach, the fair value reÖects the present value of
the projected cash Öows that are expected to be generated by the products incorporating the in-process research
and development, if successful.
The projected cash Öows were discounted to approximate fair value. The discount rate applicable to the cash Öows of
each project reÖects the stage of completion and other risks inherent in each project. The weighted average discount
rate used in the valuation of in-process research and development was 30 percent. The IPR&D projects were
expected to commence generating cash Öows in Ñscal 2003.
Special Charges
Asset Impairments
During the third quarter of Ñscal 2002, the Company recorded a $66.0 million charge for the impairment of the
assembly and test machinery and equipment and related facility in Mexicali, Mexico. The impairment charge was
based on a recoverability analysis prepared by management as a result of a signiÑcant downturn in the market for test
and assembly services for non-wireless products and the related impact on the Company's current and projected
outlook.
The Company has experienced a severe decline in factory utilization at its Mexicali facility for non-wireless products
and projected decreasing revenues and new order volume. Management believes these factors indicated that the
carrying value of the assembly and test machinery and equipment and related facility may have been impaired and
that an impairment analysis should be performed. In performing the analysis for recoverability, management estimated
the future cash Öows expected to result from the manufacturing activities at the Mexicali facility over a ten-year period.
The estimated future cash Öows were based on a gradual phase-out of services sold to Conexant and modest volume
increases consistent with management's view of the outlook for the business, partially oÅset by declining average
selling prices. The declines in average selling prices are consistent with historical trends and management's decision
to reduce capital expenditures for future capacity expansion. Since the estimated undiscounted cash Öows were less
than the carrying value (approximately $100 million based on historical cost) of the related assets, it was concluded
that an impairment loss should be recognized. The impairment charge was determined by comparing the estimated
fair value of the related assets to their carrying value. The fair value of the assets was determined by computing the
present value of the estimated future cash Öows using a discount rate of 24%, which management believed was
commensurate with the underlying risks associated with the projected future cash Öows. The Company believes the
assumptions used in the discounted cash Öow model represented a reasonable estimate of the fair value of the
assets. The write down established a new cost basis for the impaired assets.
During the third quarter of Ñscal 2002, the Company recorded a $45.8 million charge for the write-oÅ of goodwill and
other intangible assets associated with our Ñscal 2000 acquisition of the Philsar Bluetooth business. Management has
determined that the Company will not support the technology associated with the Philsar Bluetooth business.
Accordingly, this product line will be discontinued and the employees associated with the product line have either
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been severed or relocated to other operations. As a result of the actions taken, management determined that the
remaining goodwill and other intangible assets associated with the Philsar acquisition had been impaired.
During the third quarter of Ñscal 2001, the Company recorded an $86.2 million charge for the impairment of the
manufacturing facility and related wafer fabrication machinery and equipment at the Company's Newbury Park,
California facility. This impairment charge was based on a recoverability analysis prepared by management as a result
of the dramatic downturn in the market for wireless communications products and the related impact on the then-
current and projected business outlook of the Company. Through the third quarter of Ñscal 2001, the Company
experienced a severe decline in factory utilization at the Newbury Park wafer fabrication facility and decreasing
revenues, backlog, and new order volume. Management believed these factors, together with its decision to
signiÑcantly reduce future capital expenditures for advanced process technologies and capacity beyond the then-
current levels, indicated that the value of the Newbury Park facility may have been impaired and that an impairment
analysis should be performed. In performing the analysis for recoverability, management estimated the future cash
Öows expected to result from the manufacturing activities at the Newbury Park facility over a ten-year period. The
estimated future cash Öows were based on modest volume increases consistent with management's view of the
outlook for the industry, partially oÅset by declining average selling prices. The declines in average selling prices are
consistent with historical trends and management's decision to focus on existing products based on the current
technology. Since the estimated undiscounted cash Öows were less than the carrying value (approximately $106
million based on historical cost) of the related assets, it was concluded that an impairment loss should be recognized.
The impairment charge was determined by comparing the estimated fair value of the related assets to their carrying
value. The fair value of the assets was determined by computing the present value of the estimated future cash Öows
using a discount rate of 30%, which management believed was commensurate with the underlying risks associated
with the projected cash Öows. The Company believes the assumptions used in the discounted cash Öow model
represented a reasonable estimate of the fair value of the assets. The write-down established a new cost basis for the
impaired assets.
Restructuring Charges
During Ñscal 2002, the Company reduced its workforce through involuntary severance programs and recorded
restructuring charges of approximately $3.0 million for costs related to the workforce reduction and the consolidation
of certain facilities. The charges were based upon estimates of the cost of severance beneÑts for aÅected employees
and lease cancellation, facility sales, and other costs related to the consolidation of facilities. Substantially all amounts
accrued for these actions are expected to be paid within one year.
During Ñscal 2001, Washington/Mexicali reduced its workforce by approximately 250 employees, including
approximately 230 employees in manufacturing operations. Restructuring charges of $2.7 million were recorded for
such actions and were based upon estimates of the cost of severance beneÑts for the aÅected employees.
Substantially all amounts accrued for these actions are expected to be paid within one year.
Activity and liability balances related to the Ñscal 2001 and Ñscal 2002 restructuring actions are as follows (in
thousands):
Charged to costs and expenses
Cash payments
Restructuring balance, September 30, 2001
Charged to costs and expenses
Cash payments
Restructuring balance, September 30, 2002
Fiscal 2001
actions
Fiscal 2002
Fiscal 2002
workforce facility closings
and other
reductions
Total
$ 2,667
(1,943)
724
65
(789)
$ Ì
$ Ì
2,923
(2,225)
698
$
$ Ì $
97
724
3,085
(13) (3,027)
$ 84 $
782
In addition, the Company assumed approximately $7.8 million of restructuring reserves from Alpha in connection with
the Merger. On September 27, 2002 this balance was $6.7 million and substantially all amounts accrued are expected
to be paid within one year.
Other Income (Expense), Net
Other income (expense), net is comprised primarily of interest expense, interest income on invested cash balances,
gains/losses on the sale of assets, foreign exchange gains/losses and other non-operating income and expense
items. The decrease to $4.3 million of other expense, net in Ñscal 2002 from $0.2 million of other income, net in Ñscal
2001 is principally the result of approximately $4.1 million of additional interest expense related to the short-term note
to Conexant for the Mexicali facility purchase.
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Provision for Income Taxes
The net operating loss carryforwards and other tax beneÑts relating to the historical operations of Washington/
Mexicali were retained by Conexant in the spin-oÅ transaction, and will not be available to be utilized in our future
separate tax returns. As a result of our history of operating losses and the expectation of future operating results, we
determined that it is more likely than not that historic and current year income tax beneÑts will not be realized except
for certain future deductions associated with Mexicali in the post-spin-oÅ period. Consequently, no United States
income tax beneÑt has been recognized relating to the U.S. operating losses. As of September 30, 2002, we have
established a valuation allowance against all of our net U.S. deferred tax assets. Deferred tax assets have been
recognized for foreign operations when management believes they will be recovered during the carry forward period.
The provision (beneÑt) for income taxes for Ñscal 2002, 2001 and 2000 consists of foreign income taxes incurred by
foreign operations. We do not expect to recognize any income tax beneÑts relating to future operating losses
generated in the United States until management determines that such beneÑts are more likely than not to be
realized. In 2002, the Company recorded a tax beneÑt of approximately $23 million related to the impairment of our
Mexicali assets.
Liquidity and Capital Resources
Cash and cash equivalents at September 30, 2002, 2001 and 2000 totaled $53.4 million, $2.0 million and $4.2 million,
respectively. Working capital at September 30, 2002 was approximately $79.8 million compared to $60.5 million at
September 30, 2001. Annualized inventory turns were approximately 6.9 for the fourth quarter of Ñscal 2002.
Additionally, days sales outstanding included in accounts receivable for the fourth quarter of Ñscal 2002 was
approximately 57 days.
Cash used in operating activities was $99.1 million for Ñscal 2002, reÖecting a net loss of $236.1 million, oÅset by non-
cash charges (depreciation and amortization, asset impairments and an in-process research and development
charge) of $216.6 million and a net increase in the non-cash components of working capital of approximately
$79.6 million. During 2002 the Company consolidated facilities, reduced its work force and continued to implement
cost saving initiatives. In addition, increased revenues and improved utilization of our manufacturing facilities
contributed to improved operating results in Ñscal 2002.
Cash provided by investing activities for Ñscal 2002 consisted of capital expenditures of $29.4 million and dividends
to Conexant of $3.1 million oÅset by cash received of $67.1 million as a result of the Merger and $35.4 million from the
sale of short-term investments acquired in the Merger. The capital expenditures for Ñscal 2002 reÖect a signiÑcant
reduction from annual capital expenditures in Ñscal 2001, a key component of the cost reduction initiatives
implemented in Ñscal 2002.
Cash provided by Ñnancing activities for Ñscal 2002 principally consisted of net transfers from Conexant, pre-Merger,
of $50.4 million and $30.0 million of proceeds from borrowings against the revolving credit facility with Conexant.
On September 30, 2002, the Company had $150 million in short-term promissory notes payable to Conexant pursuant
to a Ñnancing agreement entered into in connection with the purchase of the Mexicali Operations. The notes were
secured by the assets and properties of the Company. Unless paid earlier at the option of the Company or pursuant to
mandatory prepayment provisions contained in the Ñnancing agreement with Conexant, Ñfty percent of the principal
portion of the short-term promissory notes was due on March 24, 2003, and the remaining Ñfty percent of the notes
was due on June 24, 2003. Interest on these notes was payable quarterly at a rate of 10% per annum for the Ñrst
ninety days following June 25, 2002, 12% per annum for the next ninety days and 15% per annum thereafter.
Because the Company reÑnanced these notes, the principal amount was classiÑed on September 30, 2002 as a long-
term note payable. In addition, on September 30, 2002 the Company had available a short-term $100 million loan
facility from Conexant under the Ñnancing agreement to fund the Company's working capital and other requirements.
$75 million of this facility became available on or after July 10, 2002, and the remaining $25 million balance of the
facility would have become available if the Company had more than $150 million of eligible domestic receivables. The
entire principal of any amounts borrowed under the facility was due on June 24, 2003. There were $30 million of
borrowings as of September 30, 2002 under this facility. Because the Company reÑnanced the amounts borrowed
under this loan facility, the principal amount was classiÑed on September 30, 2002 as a long-term note payable.
On November 13, 2002, Skyworks successfully closed a private placement of $230 million of 4.75 percent convertible
subordinated notes due 2007. These notes can be converted into 110.4911 shares of common stock per $1,000
principal balance, which is the equivalent of a conversion price of approximately $9.05 per share. The net proceeds
from the note oÅering were principally used to prepay debt owed to Conexant under the Ñnancing agreement. The
payments to Conexant retired $105 million of the $150 million note relating to the purchase of the Mexicali Operations
and repaid the $65 million principal amount outstanding as of November 13, 2002 under the loan facility, dissolving
the $100 million facility and resulting in the release of Conexant's security interest in all assets and properties of the
Company.
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In connection with the prepayment by the Company of $105 million of the $150 million note owed to Conexant relating
to the purchase of the Mexicali Operations, the remaining $45 million principal balance of the note was exchanged for
new 15% convertible debt securities with a maturity date of June 30, 2005. These notes can be converted into the
Company's common stock at a conversion rate based on the applicable conversion price, which is subject to
adjustment based on, among other things, the market price of the Company's common stock. Based on this
adjustable conversion price, the Company expects that the maximum number of shares that could be issued under
the note is approximately 7.1 million shares, subject to adjustment for stock splits and other similar dilutive
occurrences.
In addition to the retirement of $170 million in principal amount of indebtedness owing to Conexant, Skyworks also
retained approximately $53 million of net proceeds of the private placement to support our working capital needs.
Cash used in operating activities was $89.4 million and $53.8 million for Ñscal 2001 and 2000, respectively. Operating
cash Öows for Ñscal 2001 and 2000 reÖect net losses of $318.9 million and $66.5 million, respectively, oÅset by non-
cash charges (depreciation and amortization, asset impairments and an in-process research and development
charge) of $220.8 million and $98.1 million, respectively, and a net decrease in the non-cash components of working
capital of approximately $8.7 million and a net increase of $85.4 million, respectively.
Cash used in investing activities for Ñscal 2001 consisted of capital expenditures of $51.1 million. The capital
expenditures for Ñscal 2002 reÖect a signiÑcant reduction from annual capital expenditures in Ñscal 2001, a key
component of the cost reduction initiatives implemented in Ñscal 2002. Cash used in investing activities for Ñscal
2000 consisted of capital expenditures of $100.4 million partially oÅset by cash received of $7.7 million in the
acquisition of Philsar. The capital expenditures for Ñscal 2001 reÖect a signiÑcant reduction from annual capital
expenditures in Ñscal 2000, a key component of the cost reduction initiatives implemented in Ñscal 2001.
Cash provided by Ñnancing activities consisted of net transfers from Conexant of $138.3 million and $148.7 million for
Ñscal 2001 and 2000, respectively. Historically, Conexant has managed cash on a centralized basis. Cash receipts
associated with Washington/Mexicali's business were generally collected by Conexant, and Conexant generally
made disbursements on behalf of Washington/Mexicali.
During Ñscal years 1998 through 2001, we made a series of capital investments which increased the capacity of our
Newbury Park gallium arsenide wafer fabrication facility. We made these investments to support then-current and
anticipated future growth in sales of our wireless communications products, such as power ampliÑers, that use the
gallium arsenide process. During the same period, we made a series of capital investments at our Mexicali facility to
expand our integrated circuit assembly capacity, including the addition of assembly lines using surface mount
technology processes for the production of multi-chip modules, which the Mexicali facility principally produces for us.
The capital investments also increased the Mexicali facility's test capacity, including radio frequency capable
equipment for testing wireless communications products. We invested in the Mexicali facility to support then-current
and anticipated future growth in sales of our wireless communications products and to support increasing demand for
assembly and test services from Conexant.
Capital investments for the Newbury Park wafer fabrication facility totaled $0.7 million, $27.3 million and $35.5 million
during Ñscal 2002, Ñscal 2001 and Ñscal 2000, respectively. A signiÑcant portion of the Ñscal 2001 capital
investments were made to continue or complete capital investment programs that we had initiated during Ñscal 2000.
During the second quarter of Ñscal 2001, in response to the broad slowdown aÅecting the wireless communications
sector, including us and Conexant, we sharply curtailed our capital expenditure programs.
Although reduced capital expenditures are a key component of the cost reduction initiatives, a focused program of
capital expenditures will be required to sustain our current manufacturing capabilities. We may also consider
acquisition opportunities to extend our technology portfolio and design expertise and to expand our product oÅerings.
Following is a summary of consolidated debt and lease obligations at September 30, 2002 (see Notes 5 and 9 of the
consolidated Ñnancial statements), in thousands:
Obligation
Debt
Operating leases
Total debt and operating lease obligations
Total
$180,168
40,215
$220,383
1-3 Years
$45,168
19,350
$64,518
4-5 Years
$135,000
9,212
$144,212
Thereafter
$ Ì
11,653
$11,653
Under supply agreements entered into with Conexant in connection with the Merger, the Company's expected
minimum purchase obligations will be approximately $64 million, $39 million and $13 million in Ñscal 2003, 2004 and
2005, respectively. These agreements are related to wafer fabrication, wafer probe and certain other services the
Company will receive from Jazz Semiconductor's Newport Beach, California foundry. With the exception of $5.1
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million related to Ñscal 2003 purchase obligations, which has been accrued in Ñscal 2002, we currently anticipate
meeting each of the annual minimum purchase obligations under the long-term supply agreement with Conexant.
Based on the closing of the private placement, the debt reÑnancing with Conexant and current trends, the Company
expects to generate suÇcient operating cash to meet our short-term and long-term cash requirements.
Q U A N T I T A T I V E A N D Q U A L I T A T I V E D I S C L O S U R E S A B O U T M A R K E T R I S K
Our Ñnancial instruments include cash and cash equivalents, short-term debt and long-term debt. Our main
investment objective is the preservation of investment capital. Consequently, we invest with only high-credit-quality
issuers and we limit the amount of our credit exposure to any one issuer. We do not use derivative instruments for
speculative or investment purposes.
Our cash and cash equivalents are not subject to signiÑcant interest rate risk due to the short maturities of these
instruments. As of September 27, 2002, the carrying value of our cash and cash equivalents approximates fair value.
Our long-term debt consists of a ten-year $960,000 loan from the State of Maryland under the Community
Development Block Grant program. Quarterly payments are due through December 2003 and represent principal plus
interest at 5% of the unamortized balance. Our short-term debt on September 27, 2002 consists of the current portion
of this loan. In addition, because we reÑnanced the note payable to Conexant for the acquisition of the Mexicali
Operations and our loan facility with Conexant, the principal amount of $180 million was classiÑed as long-term debt
on September 27, 2002. We do not believe that we have signiÑcant cash Öow exposure on our short-term or long-term
debt.
C A U T I O N C O N C E R N I N G F O R W A R D - L O O K I N G S T A T E M E N T S
This annual report contains ""forward-looking statements'' intended to qualify for the safe harbor from liability
established by the Private Securities Litigation Reform Act of 1995. These forward-looking statements include
information relating to future results of Skyworks and other statements regarding matters that are not historical facts
(including certain projections and business trends). Some of the forward-looking statements can be identiÑed by the
use of forward-looking terms such as ""believes,'' ""expects,'' ""may,'' ""will,'' ""should,'' ""could,'' ""seek,'' ""intends,''
""plans,'' ""estimates,'' ""anticipates'' or other comparable terms. All such statements are subject to certain risks and
uncertainties that could cause actual results to diÅer materially from those projected, and may aÅect our future
operating results, Ñnancial position and cash Öows.
These risks and uncertainties include, but are not limited to, the following: the failure to meet our expectations with
respect to our future performance; the cyclical nature of the wireless communications semiconductor industry and the
markets addressed by our products and our customers' products; general economic and business conditions that
may adversely aÅect us or our suppliers, distributors or customers; pricing pressures and other competitive factors;
demand for and market acceptance of new and existing products; successful development of new products and the
timing of new product introductions; the availability and extent of utilization of manufacturing capacity and raw
materials; Öuctuations in manufacturing yields; complex and specialized manufacturing processes; product
obsolescence; our ability to develop and implement new technologies and to obtain protection of the related
intellectual property; our ability to attract and retain qualiÑed personnel; our reliance on Ñnancial markets for future
capital requirements; our dependence on third parties for the manufacture, assembly and testing of our products, and
for the supply of raw materials; the impact of new accounting policies; our existing indebtedness and its eÅect on our
cash Öow; the disproportionate impact of our business relationships with large customers, and our reliance on
international sales; the uncertainties of litigation; and other risks and uncertainties, including those detailed from time
to time in our Ñlings with the Securities and Exchange Commission, such as our Annual Report on Form 10-K for the
Ñscal year ended September 27, 2002.
These forward-looking statements are made only as of the date hereof, and we undertake no obligation to update or
revise the forward-looking statements, whether as a result of new information, future events or otherwise.
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S E L E C T E D F I N A N C I A L D A T A
You should read the data set forth below in conjunction with Management's Discussion and Analysis of Financial
Condition and Results of Operations and our consolidated Ñnancial statements and related notes appearing
elsewhere in this Annual Report. The Company's Ñscal year ends on the Friday closest to September 30. Fiscal years
2002, 2001 and 2000 each comprised 52 weeks and ended on September 27, September 28 and September 29,
respectively. For convenience, the consolidated Ñnancial statements have been shown as ending on the last day of
the calendar month. The selected consolidated Ñnancial data set forth below as of September 30, 2002 and 2001 and
for the Ñscal years 2002, 2001 and 2000 have been derived from our audited consolidated Ñnancial statements and
are included elsewhere in this Annual Report. The selected combined Ñnancial data set forth below as of
September 30, 2000, 1999 and 1998 and for the Ñscal years 1999 and 1998 have been derived from our combined
Ñnancial statements that are not included in this Annual.
Because the Merger was accounted for as a reverse acquisition, a purchase of Alpha by Washington/Mexicali, the
historical Ñnancial statements of Washington/Mexicali became the historical Ñnancial statements of Skyworks after
the Merger. The historical information provided below does not include the historical Ñnancial results of Alpha for
periods prior to June 25, 2002, the date the Merger was consummated. The historical Ñnancial information may not be
indicative of the Company's future performance and does not reÖect what the results of operations and Ñnancial
position prior to the Merger would have been had Washington/Mexicali operated independently of Conexant during
the periods presented prior to the Merger or had the results of Alpha been combined with those of Washington/
Mexicali during the periods presented prior to the Merger.
(In thousands)
Statement of Operations Data:
Net revenues:
Third parties
Conexant
Total net revenues
Cost of goods sold (2):
Third parties
Conexant
Total cost of goods sold
Gross margin
Operating expenses:
Research and development
Selling, general and administrative
Amortization of intangible assets (4)
Purchased in process research and
development (5)
Special charges (3)
Total operating expenses
Operating loss
Interest expense
Other income (expense), net
Loss before income taxes
Provision (beneÑt) for income taxes
Net loss
Balance Sheet Data:
Working capital
Total assets
Long-term liabilities
Shareholders' equity
2002(1)
Fiscal Year
2000
2001
1999
1998
$ 418,344 $ 215,502 $312,983 $176,015 $ 79,066
33,205
112,271
40,400
216,415
65,433
378,416
44,949
260,451
39,425
457,769
294,149
37,459
331,608
126,161
132,603
50,178
12,929
207,450
268,749
62,720
42,754
311,503
270,170
(51,052) 108,246
111,053
51,267
15,267
91,616
52,422
5,327
96,699
37,840
134,539
81,876
66,457
27,202
Ì
44,503
33,350
77,853
34,418
56,748
21,211
Ì
65,500
116,321
377,531
Ì 24,362
Ì
173,727
(251,370) (317,515) (65,481) (13,215) (43,761)
Ì
1,432
95,091
Ì
220
78,179
88,876
266,463
(4,227)
(56)
Ì
210
Ì
142
Ì
(54)
Ì
1,559
(255,653) (317,305) (65,339) (13,269) (42,202)
(19,589)
1,619
1,140
1,646
1,082
$ (236,064) $(318,924) $(66,479) $(14,915) $(43,284)
$
79,769 $ 60,540 $135,649 $ 55,374 $ 17,831
203,313
501,553
2,063
3,767
187,196
466,416
291,909
3,335
275,568
314,287
3,806
287,661
1,346,912
184,309
1,014,976
(1) The Merger was completed on June 25, 2002. Financial statements for periods prior to June 26, 2002 represent Washington/Mexicali's
combined results and Ñnancial condition. Financial statements for periods after June 26, 2002 represent the consolidated results and
Ñnancial condition of Skyworks, the combined company.
(2) In Ñscal 2001, the Company recorded $58.7 million of inventory write-downs.
(3) In Ñscal 2002, the Company recorded special charges of $116.3 million, principally related to the impairment of the assembly and test
machinery and equipment and the related facility in Mexicali, Mexico, and the write-oÅ of goodwill and other intangible assets related to the
Ñscal 2000 acquisition of Philsar Semiconductor Inc. In Ñscal 2001, the Company recorded special charges of $88.9 million, principally
related to the impairment of certain wafer fabrication assets and restructuring activities.
(4) In Ñscal 2000, Philsar Semiconductor Inc. was acquired and as a result of the acquisition, during Ñscal 2002, 2001 and 2000, the Company
recorded $12.9 million, $15.3 million and $5.3 million, respectively, in amortization of goodwill and other acquisition-related intangible assets.
(5) In Ñscal 2002 and Ñscal 2000 the Company recorded purchased in-process research and development charges of $65.5 million and
$24.4 million, respectively, related to the Merger and the acquisition of Philsar Semiconductor Inc., respectively.
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Consolidated Balance Sheets
(In thousands, except per share amounts)
ASSETS
Current assets:
Cash and cash equivalents
Receivables, net of allowance for doubtful accounts of $1,324 and $3,206
Inventories
Other current assets
Total current assets
Property, plant and equipment, less accumulated depreciation and amortization of
$305,709 and $284,879
Goodwill and intangible assets, less accumulated amortization of $915 and $20,594
Deferred tax asset
Other assets
Total assets
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt
Accounts payable
Accrued compensation and beneÑts
Other current liabilities
Total current liabilities
Long-term debt, less current maturities
Long-term liabilities
Total liabilities
Commitments and contingencies
Stockholders' equity:
Preferred stock, no par value: 25,000 authorized; no shares issued
Common stock, $0.25 par value: 525,000 shares authorized; 137,589 shares issued
and outstanding at September 30, 2002
Additional paid-in capital
Accumulated deÑcit
Unearned compensation, net of accumulated amortization of $53
Conexant's net investment
Total stockholders' equity
Total liabilities and stockholders' equity
September 30,
2002
2001
$
53,358
94,425
55,643
23,970
227,396
143,773
940,686
22,487
12,570
$1,346,912
$
129
45,350
17,585
84,563
147,627
180,039
4,270
331,936
Ì
$ 1,998
40,754
37,383
3,225
83,360
169,547
57,606
Ì
3,774
$314,287
$
Ì
2,653
12,363
7,804
22,820
Ì
3,806
26,626
Ì
Ì
Ì
34,397
1,150,856
(170,193)
(84)
Ì
Ì
Ì
Ì
Ì 287,661
287,661
$314,287
1,014,976
$1,346,912
The accompanying notes are an integral part of these consolidated Ñnancial statements.
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Consolidated Statements of Operations
(in thousands, except per share amounts)
Net revenues:
Third parties
Conexant
Total net revenues
Cost of goods sold:
Third parties
Conexant
Total cost of goods sold
Gross margin
Operating expenses:
Research and development
Selling, general and administrative
Amortization of intangible assets
Purchased in-process research and development
Special charges
Total operating expenses
Operating loss
Interest expense
Other income (expense), net
Loss before income taxes
Provision (beneÑt) for income taxes
Net loss
Years Ended September 30,
2002
2001
2000
$ 418,344
39,425
457,769
$ 215,502
44,949
260,451
$312,983
65,433
378,416
294,149
37,459
331,608
126,161
132,603
50,178
12,929
65,500
116,321
377,531
(251,370)
(4,227)
(56)
(255,653)
(19,589)
268,749
42,754
311,503
(51,052)
207,450
62,720
270,170
108,246
111,053
51,267
15,267
Ì
88,876
266,463
(317,515)
Ì
210
91,616
52,422
5,327
24,362
Ì
173,727
(65,481)
Ì
142
(317,305)
1,619
(65,339)
1,140
$(236,064) $(318,924) $(66,479)
Pro forma net loss per share, basic and diluted (unaudited) (1)
$
(1.72)
Pro forma number of weighted-average shares used in per share
computation (unaudited) (1)
137,416
(1) See Note 2 to the consolidated Ñnancial statements
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The accompanying notes are an integral part of these consolidated Ñnancial statements.
Consolidated Statements Of Stockholders' Equity
Common stock
Shares
Par value
Additional
Paid-in
Capital
Ì
Ì
Ì
Ì
Ì
Ì
Ì
Ì
Ì
Ì
Ì
Ì
Ì
Ì
Ì
Ì
Ì
Ì
Ì
Ì
Ì
Ì
Ì
Ì
Ì
Ì
Ì
Ì
Ì
Ì
108,495
148,706
466,468
(318,924)
2,058
138,343
287,945
(66,280)
Ì
50,404
(204,716)
(in thousands)
Balance at
September 30, 1999
Net loss
Foreign currency
translation adjustment
Contribution of business
acquired by Conexant
Net transfers from
Conexant
Balance at
September 30, 2000
Net loss
Foreign currency
translation adjustment
Contribution of
additional assets
related to business
acquired
Net transfers from
Conexant
Balance at
September 30, 2001
Net loss
Foreign currency
translation adjustment
Net transfers from
Conexant
Dividend (1)
Recapitalization as a
result of purchase
accounting under a
reverse acquisition
Issuance of common
Accumulated
Other
Net Comprehensive
Income (Loss)
Conexant's
Investment
275,746
(66,479)
(178)
Ì
Accumulated
Unearned
DeÑcit Compensation
Ì
Ì
Ì
Ì
Ì
Ì
Ì
Ì
Ì
Ì
Ì
Ì
Ì
Ì
Ì
Ì
Ì
Ì
Ì
Ì
Ì
Ì
Ì
Ì
Ì
Ì
Ì
Ì
Ì
Ì
Ì
Ì
Ì
Ì
Ì
(137)
Ì
Ì
Ì
53
Ì
126
Ì
Ì
(52)
Ì
(232)
Ì
Ì
(284)
409
Ì
Ì
Ì
Ì
Ì
Ì
Ì
Ì (170,193)
137,368
34,342
1,149,965
(67,353)
(125)
shares to 401(k) plan
129
Exercise of stock
options
Employee stock
purchase plan
Amortization of
unearned
compensation
Compensation expense
Balance at
26
66
Ì
Ì
31
7
17
Ì
Ì
513
35
313
Ì
30
September 30, 2002
137,589 $34,397 $1,150,856 $
Ì
Ì
Ì
Ì
Ì
Ì
$ Ì $(170,193)
$ (84)
(1) The dividend to Conexant represents the payment for the Mexicali operations ($150 million), the net assets retained by Conexant in
connection with the spin-oÅ, primarily accounts receivable net of accounts payable, and the assumption of certain Conexant liabilities by the
Company.
The accompanying notes are an integral part of these consolidated Ñnancial statements.
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Consolidated Statements of Cash Flows
(In thousands)
Cash Öows from operating activities:
Net loss
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation
Amortization of intangible assets
Amortization of deferred compensation
Contribution of common shares to Savings and Retirement Plan
Compensation expense
Deferred income taxes
Provision for (recoveries of) losses on accounts
Receivable
Purchased in-process research and development charge
Inventory provisions
Asset impairments
Loss on sale of assets
Changes in assets and liabilities net of acquisition:
Receivables
Inventories
Accounts payable
Accrued expenses and other current liabilities
Other
Net cash used in operating activities
Cash Öows from investing activities:
Capital expenditures
Cash and cash equivalents of acquired business
Sale of short-term investments
Dividend to Conexant
Net cash provided by (used in) investing activities
Cash Öows from Ñnancing activities:
Net transfers from Conexant
Short-term note to Conexant
Payments on notes payable
Exercise of stock options
Net cash provided by Ñnancing activities
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period
Supplemental disclosure of non-cash activities:
Acquisition of Alpha Industries, Inc.
Dividend to Conexant
Supplemental cash Öow disclosures:
Taxes paid
Interest paid
Years Ended September 30,
2002
2001
2000
$ (236,064) $(318,924) $ (66,479)
47,695
12,878
53
874
30
(23,117)
(1,178)
65,500
2,704
111,817
209
(84,924)
(4,413)
36,635
(19,471)
(8,322)
(99,094)
(29,412)
67,102
35,422
(3,070)
70,042
50,404
30,000
(34)
42
80,412
51,360
1,998
53,358
$
$1,183,105
$ 201,646
$
$
832
323
58,708
15,267
Ì
Ì
Ì
Ì
(468)
Ì
60,978
86,209
80
27,276
(8,378)
(2,547)
(6,003)
(1,604)
(89,406)
61,710
5,327
Ì
Ì
Ì
Ì
3,538
24,362
3,132
Ì
4
(39,846)
(65,150)
1,961
14,210
3,401
(53,830)
(51,118)
(100,424)
Ì
Ì
Ì
7,655
Ì
Ì
(51,118)
(92,769)
138,343
Ì
Ì
Ì
138,343
(2,181)
4,179
1,998
$
148,706
Ì
Ì
Ì
148,706
2,107
2,072
4,179
Ì $
Ì $
Ì $
Ì $
Ì
Ì
Ì
Ì
$
$
$
$
$
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The accompanying notes are an integral part of these consolidated Ñnancial statements.
Notes To Consolidated Financial Statements
Note 1 Description of Business and Basis of Presentation
On December 16, 2001, Alpha Industries, Inc. (""Alpha''), Conexant Systems, Inc. (""Conexant'') and Washington
Sub, Inc. (""Washington''), a wholly owned subsidiary of Conexant, entered into a deÑnitive agreement providing for
the combination of Conexant's wireless business with Alpha. Under the terms of the agreement, Conexant would spin
oÅ its wireless business into Washington, including its gallium arsenide wafer fabrication facility located in Newbury
Park, California, but excluding certain assets and liabilities, to be followed immediately by a merger (the ""Merger'') of
this wireless business into Alpha with Alpha as the surviving entity in the merger. This merger was completed on
June 25, 2002. Following the merger, Alpha changed its corporate name to Skyworks Solutions, Inc (the ""Company'',
""Skyworks'').
Immediately following completion of the Merger, the Company purchased Conexant's semiconductor assembly,
module manufacturing and test facility located in Mexicali, Mexico, and certain related operations (""Mexicali
Operations'') for $150 million. For Ñnancial accounting purposes, the sale of the Mexicali Operations by Conexant to
Skyworks Solutions was treated as if Conexant had contributed the Mexicali Operations to Washington as part of the
spin-oÅ, and the $150 million purchase price was treated as a return of capital to Conexant. The accompanying
consolidated Ñnancial statements include the assets, liabilities, operating results and cash Öows of the Washington
business and the Mexicali Operations for all periods presented, and the results of operations of Alpha from June 25,
2002, the date of acquisition. For purposes of these combined Ñnancial statements, the Washington business and the
Mexicali Operations are collectively referred to as Washington/Mexicali.
The Merger has been accounted for as a reverse acquisition whereby Washington was treated as the acquirer and
Alpha as the acquiree, primarily because Conexant shareholders owned a majority, approximately 67 percent, of the
Company upon completion of the merger. Under a reverse acquisition, the purchase price of Alpha was based upon
the fair market value of Alpha common stock for a reasonable period of time before and after the announcement date
of the Merger and the fair value of Alpha stock options. The purchase price of Alpha was allocated to the assets
acquired and liabilities assumed by Washington, as the acquiring company for accounting purposes, based upon their
estimated fair market value at the acquisition date. Because the Merger was accounted for as a purchase of Alpha,
the historical Ñnancial statements of Washington/ Mexicali became the historical Ñnancial statements of the Company
after the Merger. Since the historical Ñnancial statements of the Company after the Merger do not include the
historical Ñnancial results of Alpha for periods prior to June 25, 2002, the Ñnancial statements may not be indicative of
future results of operations or the historical results that would have resulted if the Merger had occurred at the
beginning of a historical Ñnancial period.
The Company is a leading wireless semiconductor company focused on providing front-end modules, radio frequency
(RF) subsystems, semiconductor components and complete system solutions to wireless handset and infrastructure
customers worldwide. The Company oÅers a comprehensive family of components and RF subsystems, and also
provides complete antenna-to-microphone semiconductor solutions that support advanced 2.5G and 3G services.
Basis of Presentation:
The combined Ñnancial statements prior to the Merger were prepared using Conexant's historical basis in the assets
and liabilities and the historical operating results of Washington/Mexicali during each respective period. The
Company believes the assumptions underlying the Ñnancial statements are reasonable. However, we cannot assure
you that the Ñnancial information included herein reÖects the combined assets, liabilities, operating results and cash
Öows of the Company in the future or what they would have been had Washington/Mexicali been a separate stand-
alone entity and independent of Conexant during the periods presented.
Under purchase accounting, the operating results of the acquirer (Washington/Mexicali) are included for all periods
being presented, whereas the operating results of the acquiree (Alpha) are included only after the date of acquisition
(June 25, 2002) through the end of the period. Therefore, the historical Ñnancial information included herein does not
necessarily reÖect the combined assets, liabilities, operating results and cash Öows of the Company in the future.
Conexant used a centralized approach to cash management and the Ñnancing of its operations. Cash deposits from
Washington/Mexicali were transferred to Conexant on a regular basis and were netted against Conexant's net
investment. As a result, none of Conexant's cash, cash equivalents, marketable securities or debt was allocated to
Washington/Mexicali in the Ñnancial statements. Cash and cash equivalents in the Ñnancial statements, prior to the
acquisition, represented amounts held by certain foreign operations of Washington/Mexicali. Changes in equity
represented funding from Conexant for working capital and capital expenditure requirements after giving eÅect to
Washington/ Mexicali's transfers to and from Conexant for its cash Öows from operations through June 25, 2002.
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Historically, Conexant provided Ñnancing for Washington/Mexicali and incurred debt at the parent level. The Ñnancial
statements of Washington/Mexicali did not include an allocation of Conexant's debt or the related interest expense.
Therefore, the Ñnancial statements do not necessarily reÖect the Ñnancial position and results of operations of
Washington/ Mexicali had it been an independent company as of the dates, and for the periods, presented.
The Ñnancial statements also include allocations of certain Conexant operating expenses for research and
development, legal, accounting, treasury, human resources, real estate, information systems, distribution, customer
service, sales, marketing, engineering and other corporate services provided by Conexant, including executive
salaries and other costs. The operating expense allocations have been determined on bases that management
considered to be reasonable reÖections of the utilization of services provided to, or the beneÑt received by,
Washington/Mexicali. Management believes that the expenses allocated to Washington/Mexicali are representative
of the operating expenses that would have been incurred had Washington/Mexicali operated as an independent
company.
After the spin-oÅ and the Merger, the Company is performing these functions using its own resources or purchased
services, including services obtained from Conexant pursuant to a transition services agreement which expires on
December 31, 2002 unless extended by mutual agreement.
Note 2 Summary of SigniÑcant Accounting Policies
Principles of Consolidation:
The Ñnancial statements include the accounts of the Company and its subsidiaries. All signiÑcant intercompany
accounts and transactions have been eliminated in consolidation.
Fiscal Year:
The Company's Ñscal year ends on the Friday closest to September 30. Fiscal years 2002, 2001 and 2000 each
comprised 52 weeks and ended on September 27, September 28 and September 29, respectively. For convenience,
the consolidated Ñnancial statements have been shown as ending on the last day of the calendar month.
Use of Estimates:
The preparation of consolidated Ñnancial statements in conformity with generally accepted accounting principles in
the United States of America requires management to make estimates and assumptions that aÅect the amounts
reported in the combined Ñnancial statements and accompanying notes. Among the signiÑcant estimates aÅecting
the Ñnancial statements are those related to inventories, long-lived assets and income taxes. On an ongoing basis,
management reviews its estimates based upon currently available information. Actual results could diÅer materially
from those estimates.
The combined Ñnancial statements have been prepared using Conexant's historical basis in the assets and liabilities
and the historical operating results of Washington/Mexicali during each respective period. The Company believes the
assumptions underlying the Ñnancial statements are reasonable. However, we cannot assure you that the Ñnancial
information included herein reÖects the combined assets, liabilities, operating results and cash Öows of the Company
in the future or what they would have been had Washington/Mexicali been a separate stand-alone entity and
independent of Conexant during the periods presented.
Revenue Recognition:
Revenues from product sales are recognized upon shipment and transfer of title, in accordance with the shipping
terms speciÑed in the arrangement with the customer. 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 on unsold products. A reserve for sales returns and
allowances for non-distributor customers is recorded based on historical experience or speciÑc identiÑcation of an
event necessitating a reserve. Development revenue is recognized when services are performed and was not
signiÑcant for any of the periods presented.
Research and Development Expenditures:
Research and development costs are expensed as incurred.
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Cash and Cash Equivalents
Cash and cash equivalents include cash deposited in demand deposits at banks and highly liquid investments with
original maturities of 90 days or less.
Bad Debt
The Company maintains allowances for doubtful accounts for estimated losses resulting from the inability of its
customers to make required payments. If the Ñnancial condition of the Company's customers were to deteriorate,
resulting in an impairment of their ability to make future payments, additional allowances may be required.
Inventories:
Inventories are stated at the lower of cost, determined on a Ñrst-in, Ñrst-out basis, or market. The Company provides
for estimated obsolescence or unmarketable inventory based upon assumptions about future demand and market
conditions. The recoverability of inventories is assessed through an on-going review of inventory levels in relation to
sales backlog and forecasts, product marketing plans and product life cycles. When the inventory on hand exceeds
the foreseeable demand (generally over six months), the value of such inventory that is not expected to be sold at
the time of the review is written down. The amount of the write-down is the excess of historical cost over estimated
realizable value (generally zero). Once established, these write-downs are considered permanent adjustments to the
cost basis of the excess inventory. If actual demand and market conditions are less favorable than those projected by
management, additional inventory write-downs may be required.
Property, Plant and Equipment:
Property, plant and equipment are carried at cost. Depreciation is calculated using the straight-line method for
Ñnancial reporting and accelerated methods for tax purposes. SigniÑcant renewals and betterments are capitalized
and replaced units are written oÅ. Maintenance and repairs, as well as renewals of a minor amount, are expensed as
incurred.
Estimated useful lives used for depreciation purposes are 5 to 30 years for buildings and improvements and 3 to
10 years for machinery and equipment. Leasehold improvements are depreciated over the life of the associated lease.
Goodwill and Intangible Assets:
Goodwill and intangible assets are principally the result of the Merger with Washington/Mexicali completed on
June 25, 2002 and a business acquisition completed in Ñscal 2000. The Company adopted the provisions of
Statement of Financial Accounting Standards (SFAS) No. 141, Business Combinations as of July 1, 2001. Goodwill
and intangible assets determined to have an indeÑnite useful life acquired in a purchase business combination
completed after June 30, 2001, but before SFAS No. 142, Goodwill and Other Intangible Assets, is adopted in full, are
not amortized. Goodwill and intangible assets acquired in business combinations completed before July 1, 2001
continued to be amortized. Business acquisitions are accounted for by assigning the purchase price to tangible and
intangible assets and liabilities, including purchased in-process research and development (IPRD) projects, which
have not yet reached technological feasibility and have no alternative future use. Assets acquired and liabilities
assumed are recorded at their estimated fair values; the excess of the purchase price over the net assets acquired is
recorded as goodwill. The value of IPRD is immediately charged to expense upon completion of the acquisition.
Developed technology, customer relationships and other intangibles are amortized on a straight-line basis over their
estimated useful lives (principally 10 years).
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
diÅerences between the Ñnancial statement carrying amounts of existing assets and liabilities and their respective tax
bases. This method also requires the recognition of future tax beneÑts such as net operating loss carryforwards, to the
extent that realization of such beneÑts 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 diÅerences are expected
to be recovered or settled. The eÅect 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 that the Company will be able to generate
suÇcient 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 the Company's consolidated
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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 that the Company was to determine that it would
be able to realize its deferred tax assets in the future in excess of its 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.
Concentrations:
Financial instruments that potentially subject the Company to concentration of credit risk consist principally of trade
accounts receivable. Trade receivables are primarily derived from sales to manufacturers of communications and
consumer products. Ongoing credit evaluations of customers' Ñnancial condition are performed and collateral, such
as letters of credit and bank guarantees, are required whenever deemed necessary. The following customers
accounted for 10% or more of trade receivables from customers other than Conexant:
Samsung Electronics Co.
Motorola, Inc.
September 30,
2001
2002
27%
Ì
63%
13%
The following customers accounted for 10% or more of net revenues from customers other than Conexant:
Samsung Electronics Co.
Motorola, Inc.
Nokia Corporation
Ericsson
LG Electronics
Years Ended
September 30,
2001
2002
2000
38%
12%
Ì
Ì
44%
12%
Ì
Ì
28%
Ì
18%
10%
The foregoing percentages are based on sales representing Washington/Mexicali sales for the full Ñscal year during
2002, 2001 and 2000 and including sales of Skyworks for the post-Merger period from June 26, 2002 through the end
of the Ñscal year.
Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed of:
The Company accounts for impairment of long-lived assets in accordance with SFAS No. 121, ""Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of.'' This statement requires that long-
lived assets and certain identiÑable intangibles be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be
held and used is measured by a comparison of the carrying amount of an asset to undiscounted future net cash Öows
expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized
is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to
be disposed of are reported at the lower of the carrying amount or fair value less costs to sell.
Product Warranties:
Warranties are oÅered on the sale of certain products and an accrual is recorded for estimated claims at the time of
the sale. Such accruals are based on historical experience and management's estimate of future claims.
Foreign Currency Translation and Remeasurment:
The foreign operations of the Company are subject to exchange rate Öuctuations and foreign currency transaction
costs. The functional currency for our foreign operations is the U.S. dollar. Inventories, property, plant and equipment;
goodwill and intangible assets; costs of goods sold; and depreciation and amortization are remeasured from the
foreign currency into U.S. dollars at historical exchange rates; other accounts are translated at current exchange
rates. Gains and losses resulting from these remeasurements are included in income. Gains and losses resulting from
foreign currency transactions are recognized currently in income.
Stock Option Plans:
The Company accounts for its stock-based compensation under the provisions of Accounting Principles Board
Opinion No. 25, ""Accounting for Stock Issued to Employees'' and related interpretations and provides disclosure
related to its stock-based compensation under the provisions of SFAS No. 123, ""Accounting for Stock-Based
Compensation.''
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Earnings Per Share:
Prior to the Merger with Alpha Industries, Inc., Conexant's wireless business had no separate capitalization, therefore
a calculation cannot be performed for weighted average shares outstanding to then calculate earnings per share.
Basic earnings per share is calculated by dividing net income (loss) by the assumed weighted average number of
common shares outstanding. Diluted earnings per share includes the dilutive eÅect of stock options, if their eÅect is
dilutive, using the treasury stock method. Options to purchase approximately 31.3 million shares were outstanding
but not included in the computation of diluted earnings per share as the net loss for the Ñscal year ended
September 30, 2002 would have made their eÅect anti-dilutive.
Comprehensive (Loss) Income:
The Company accounts for comprehensive (loss) income in accordance with the provisions of SFAS No. 130,
""Reporting Comprehensive Income.'' SFAS No. 130 is a Ñnancial statement presentation standard, which requires the
Company to disclose non-owner changes included in equity but not included in net income or loss. Comprehensive
loss presented in the combined Ñnancial statements of Conexant's net investment consists of Washington/Mexicali's
net loss and foreign currency translation adjustments prior to the Merger. The foreign currency translation adjustments
are not recorded net of any tax eÅect, as management does not expect to incur any tax liability or beneÑt related
thereto. Accumulated other comprehensive loss, prior to the Merger, is included in Conexant's net investment in the
combined balance sheets.
Supplemental Cash Flow Information:
Conexant made all income tax payments, prior to the Merger, on behalf of the Washington/Mexicali business.
Recent Accounting Pronouncements:
In July 2001, the Financial Accounting Standards Board (FASB) issued Statements No. 141, ""Business
Combinations'' (SFAS 141), and No. 142, ""Goodwill and Other Intangibles'' (SFAS 142). SFAS 141 requires the use
of the purchase method of accounting and eliminates the use of the pooling-of-interest method of accounting for
business combinations. SFAS 141 also requires that the Company recognize acquired intangible assets apart from
goodwill if the acquired intangible assets meet certain criteria. SFAS 141 applies to all business combinations initiated
after June 30, 2001 and for purchase business combinations completed on or after July 1, 2001. The Company has
adopted the provisions of SFAS 141. SFAS 142 addresses Ñnancial accounting and reporting for acquired goodwill
and other intangible assets. Goodwill and intangible assets that have indeÑnite useful lives will not be amortized into
results of operations, but instead will be evaluated at least annually for impairment and written down when the
recorded value exceeds the estimated fair value. The Company will adopt SFAS 142 in the beginning of Ñscal 2003,
and are required to perform a transitional impairment test for goodwill upon adoption. Upon adoption of SFAS No. 142,
the Company is required to evaluate its existing intangible assets and goodwill that were acquired in purchase
business combinations, and to make any necessary reclassiÑcations in order to conform with the new classiÑcation
criteria in SFAS No. 141 for recognition separate from goodwill. The Company will be required to reassess the useful
lives and residual values of all intangible assets acquired, and make any necessary amortization period adjustments
by the end of the Ñrst interim period after adoption. If an intangible asset is identiÑed as having an indeÑnite useful life,
the Company will be required to test the intangible asset for impairment in accordance with the provisions of
SFAS No. 142 within the Ñrst interim period. Impairment is measured as the excess of carrying value over the fair value
of an intangible asset with an indeÑnite life. Any impairment loss will be measured as of the date of adoption and
recognized as the cumulative eÅect of a change in accounting principle in the Ñrst interim period.
In connection with SFAS No. 142's transitional goodwill impairment evaluation, the Statement requires the Company
to perform an assessment of whether there is an indication that goodwill is impaired as of the date of adoption. To
accomplish this, the Company must identify its reporting units and determine the carrying value of each reporting unit
by assigning the assets and liabilities, including the existing goodwill and intangible assets, to those reporting units as
of October 1, 2002. The Company will then have up to six months from October 1, 2002 to determine the fair value of
each reporting unit and compare it to the carrying amount of the reporting unit. To the extent the carrying amount of a
reporting unit exceeds the fair value of the reporting unit, an indication exists that the reporting unit goodwill may be
impaired and the Company must perform the second step of the transitional impairment test. The second step is
required to be completed as soon as possible, but no later than the end of the year of adoption. In the second step,
the Company must compare the implied fair value of the reporting unit goodwill with the carrying amount of the
reporting unit goodwill, both of which would be measured as of the date of adoption. The implied fair value of goodwill
is determined by allocating the fair value of the reporting unit to all of the assets (recognized and unrecognized) and
liabilities of the reporting unit in a manner similar to a purchase price allocation, in accordance with SFAS No. 141. The
residual fair value after this allocation is the implied fair value of the reporting unit goodwill. Any transitional impairment
loss will be recognized as the cumulative eÅect of a change in accounting principle in the Company's statement of
operations. The Company may be required to record a substantial transitional impairment charge as a result of
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adopting SFAS 142. The carrying value of goodwill and intangible assets, subject to the transitional impairment test, is
approximately $907.5 million at September 30, 2002.
In August 2001, the Financial Accounting Standards Board issued SFAS No. 144, ""Accounting for the Impairment or
Disposal of Long-Lived Assets,'' which supersedes previous guidance on Ñnancial accounting and reporting for the
impairment or disposal of long-lived assets and for segments of a business to be disposed of. Adoption of SFAS 144
is required no later than the beginning of Ñscal 2003. Management does not expect the adoption of SFAS 144 to have
a signiÑcant impact on our Ñnancial position or results of operations. However, future impairment reviews may result in
charges against earnings to write down the value of long-lived assets.
In April 2002 the FASB issued SFAS No. 145, ""Rescission of FASB Statement No.'s 4, 44, and 64, Amendment of
FASB Statement No. 13 and Technical Corrections'', eÅective for Ñscal years beginning May 15, 2002 or later. It
rescinds SFAS No. 4, ""Reporting Gains and Losses From Extinguishments of Debt'', SFAS No. 64, ""Extinguishments
of Debt to Satisfy Sinking-Fund Requirements'', and SFAS No. 44, ""Accounting for Intangible Assets of Motor
Carriers''. This Statement also amends SFAS No. 13, ""Accounting for Leases'' to eliminate an inconsistency between
the required accounting for sale-leaseback transactions and the required accounting for certain lease modiÑcations
that have economic eÅects that are similar to sale-leaseback transactions. This Statement also amends other existing
authoritative pronouncements to make various technical corrections, clarify meanings or describe their applicability
under changed conditions. The Company does not believe the impact of adopting SFAS No. 145 will have a material
impact on its Ñnancial statements.
In June 2002 the FASB issued SFAS No. 146, ""Accounting for Costs Associated With Exit or Disposal Activities''.
SFAS No. 146 requires companies to recognize costs associated with exit or disposal activities when they are
incurred rather than at the date of commitment to an exit or disposal plan. This statement is eÅective for exit or
disposal activities initiated after December 31, 2002. We are assessing the impact that adoption of SFAS No. 146 will
have on our Ñnancial statements.
Note 3 Business Combinations
Merger with Conexant Systems, Inc.'s Wireless Business
On December 16, 2001, Alpha, Conexant and Washington, a wholly owned subsidiary of Conexant, entered into a
deÑnitive agreement providing for the combination of Conexant's wireless business with Alpha. Under the terms of the
agreement, Conexant would spin oÅ its wireless business into Washington, including its gallium arsenide wafer
fabrication facility located in Newbury Park, California, but excluding certain assets and liabilities, to be followed
immediately by the Merger of this wireless business into Alpha with Alpha as the surviving entity in the Merger. The
Merger was completed on June 25, 2002. Following the Merger, Alpha changed its corporate name to Skyworks
Solutions, Inc.
Immediately following completion of the Merger, the Company purchased the Mexicali Operations for $150 million. For
Ñnancial accounting purposes, the sale of the Mexicali Operations by Conexant to Skyworks Solutions was treated as
if Conexant had contributed the Mexicali Operations to Washington as part of the spin-oÅ, and the $150 million
purchase price was treated as a return of capital to Conexant.
The Merger has been accounted for as a reverse acquisition whereby Washington was treated as the acquirer and
Alpha as the acquiree, primarily because Conexant shareholders owned a majority, approximately 67 percent, of the
Company upon completion of the Merger. Under a reverse acquisition, the purchase price of Alpha was based upon
the fair market value of Alpha common stock for a reasonable period of time before and after the announcement date
of the merger and the fair value of Alpha stock options. The purchase price of Alpha was allocated to the assets
acquired and liabilities assumed by Washington, as the acquiring company for accounting purposes, based upon their
estimated fair market value at the acquisition date. Because the Merger was accounted for as a purchase of Alpha,
the historical Ñnancial statements of Washington/Mexicali became the historical Ñnancial statements of the Company
after the merger. Since the historical Ñnancial statements of the Company after the Merger do not include the
historical Ñnancial results of Alpha for periods prior to June 25, 2002, the Ñnancial statements may not be indicative of
future results of operations or the historical results that would have resulted if the Merger had occurred at the
beginning of a historical Ñnancial period.
In connection with the Merger, the Company identiÑed duplicate facilities resulting in a write-down of Ñxed assets with
historical carrying values of $92.4 million to $20.2 million, a reduction in workforce of approximately 210 employees at
a cost of $4.8 million and facility exit or closing costs of $3.1 million. The eÅects of these actions are reÖected in the
purchase price allocation below.
4
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The total purchase price was valued at approximately $1.2 billion and is summarized as follows:
(in thousands)
Fair market value of Alpha common stock
Fair value of Alpha stock options
Estimated transaction costs of acquirer
Total
The purchase price was allocated as follows:
(in thousands)
Working capital
Property, plant and equipment
Amortized intangible assets
Unamortized intangible assets
Goodwill
In-process research and development
Long-term debt
Other long-term liabilities
Deferred compensation
Total
$1,054,111
95,388
33,606
$1,183,105
$ 119,478
58,700
34,082
2,300
905,219
65,500
(73)
(2,236)
135
$1,183,105
The allocation of the purchase price is subject to revision, which is not expected to be material, based on the Ñnal
valuation of plant, property and equipment acquired.
The following unaudited pro forma Ñnancial information presents the consolidated operations of the Company as if the
June 25, 2002 Merger had occurred as of the beginning of the periods presented. This information gives eÅect to
certain adjustments including increased amortization of intangibles and increased interest expense related to debt
issued in conjunction with the Merger. In-process research and development of $65.5 million and other Merger-related
expenses of $28.8 million have been excluded from the pro forma results as they are non-recurring and not indicative
of normal operating results. This information is provided for illustrative purposes only, and is not necessarily indicative
of the operating results that would have occurred had the Merger been consummated at the beginnings of the periods
presented, nor is it necessarily indicative of any future operating results.
(in thousands, except per share data)
Net revenue
Net loss
Net loss per share (basic and diluted)
Years Ended September 30,
2001
$ 458,352
$(328,981)
2002
$ 543,091
$(301,684)
(2.20)
$
In connection with the Merger in the third quarter of Ñscal 2002, $65.5 million was allocated to purchased in-process
research and development and expensed immediately upon completion of the acquisition (as a charge not deductible
for tax purposes) because the technological feasibility of certain products under development had not been
established and no future alternative uses existed.
Prior to the Merger, Alpha was in the process of developing new technologies in its semiconductor and ceramics
segments. The objective of the in-process research and development eÅort was to develop new semiconductor
processes, ceramic materials and related products to satisfy customer requirements in the wireless and broadband
markets. The following table summarizes the signiÑcant assumptions underlying the valuations of the Alpha in-process
research and development (IPR&D) at the time of acquisition.
(in millions)
Alpha
Date Acquired
June 25, 2002
IPRD
$65.5
Estimated costs to
complete projects
$10.3
Discount rate
applied to IPRD
30%
The semiconductor segment was involved in several projects that have been aggregated into the following categories
based on the respective technologies:
Power AmpliÑer
Power ampliÑers are designed and manufactured for use in diÅerent types of wireless handsets. The main
performance attributes of these ampliÑers are eÇciency, power output, operating voltage and distortion. Current
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5
research and development is focused on expanding the oÅering to all types of wireless standards, improving
performance by process and circuit improvements and oÅering a higher level of integration.
Control Products
Control products consist of switches and switch Ñlters that are used in wireless applications for signal routing. Most
applications are in the handset market enabling multi-mode, multi-band handsets. Current research and development
is focused on performance improvement and cost reduction by reducing chip size and increasing functionality.
Broadband
The products in this grouping consist of radio frequency (RF) and millimeter wave semiconductors and components
designed and manufactured speciÑcally to address the needs of high-speed, wireline and wireless network access.
Current and long-term research and development is focused on performance enhancement of speed and bandwidth
as well as cost reduction and integration.
Silicon Diode
These products use silicon processes to fabricate diodes for use in a variety of RF and wireless applications. Current
research and development is focused on reducing the size of the device, improving performance and reducing cost.
Ceramics
The ceramics segment was involved in projects that relate to the design and manufacture of ceramic-based
components such as resonators and Ñlters for the wireless infrastructure market. Current research and development is
focused on performance enhancements through improved formulations and electronic designs.
The material risks associated with the successful completion of the in-process technology are associated with the
Company's ability to successfully Ñnish the creation of viable prototypes and successful design of the chips, masks
and manufacturing processes required. The Company expects to beneÑt from the in-process projects as the individual
products that contain the in-process technology are put into production and sold to end-users. The release dates for
each of the products within the product families are varied. The fair value of the in-process research and development
was determined using the income approach. Under the income approach, the fair value reÖects the present value of
the projected cash Öows that are expected to be generated by the products incorporating the in-process research
and development, if successful.
The projected cash Öows were discounted to approximate fair value. The discount rate applicable to the cash Öows of
each project reÖects the stage of completion and other risks inherent in each project. The weighted average discount
rate used in the valuation of in-process research and development was 30 percent. The IPR&D projects were
expected to commence generating cash Öows in Ñscal 2003.
Conexant's Acquisition of Philsar Semiconductor Inc.
In May 2000, Conexant acquired Philsar Semiconductor Inc. (""Philsar''), which became a part of Conexant's wireless
communications business. This acquisition has been accounted for as a contribution to the wireless business by
Conexant and such contribution has been recorded in Conexant's net investment in the combined Ñnancial
statements. Philsar was a developer of radio frequency semiconductor solutions for personal wireless connectivity,
including emerging standards such as Bluetooth, and radio frequency components for third-generation (3G) digital
cellular handsets. To eÅect the acquisition of Philsar, all of the then-outstanding capital stock of Philsar was
exchanged for Philsar securities exchangeable at the option of the holders into an aggregate of approximately
2.5 million shares of Conexant common stock (including 248,000 exchangeable shares issued in Ñscal 2001 upon the
expiration of an indemniÑcation period). The outstanding Philsar stock options were converted into options to
purchase an additional 525,000 shares of Conexant common stock.
The total value of the consideration for the Philsar acquisition was $110.0 million. The value of the consideration paid
was based on market prices of Conexant common stock at the time of announcement of the acquisition or, in the case
of the additional consideration, at the time of resolution of the contingency. The value of the options converted (an
average fair value of $36.12 per share) was determined using the Black-Scholes option pricing model, based upon
their various exercise prices (which ranged from $5.47 to $9.41) and remaining contractual lives (ranging from 1.4 to
9.8 years) and the following additional assumptions: estimated volatility of 60%, risk-free interest rate of 5.9% and no
dividend yield). The value of the consideration has been allocated among the assets and liabilities acquired, including
identiÑed intangible assets and IPRD, based upon estimated fair values. The excess of the value of the consideration
over the net assets acquired was allocated to goodwill. The tangible assets acquired totaled $8.0 million, net of
liabilities of $2.2 million, and included $7.7 million in cash. The total goodwill associated with this acquisition was
$71.4 million and such amount is not deductible for tax purposes.
6
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In connection with the acquisition of Philsar, $24.4 million was allocated to IPRD and expensed immediately upon
completion of the acquisition (as a charge not deductible for tax purposes) because the technological feasibility of
products under development had not been established and no future alternative uses existed. The fair value of the
IPRD was determined using the income approach. Under the income approach, expected future after-tax cash Öows
from each of the projects or product families (projects) under development are estimated and discounted to their net
present value at an appropriate risk-adjusted rate of return. Each project was analyzed to determine the technological
innovations included in the project; the existence and utilization of core technology; the complexity, cost and time to
complete the remaining development eÅorts; the existence of any alternative future use or current technological
feasibility; and the stage of completion in development.
Future cash Öows for each project used in the income approach were estimated based on forecasted revenues and
costs, taking into account the expected life cycles of the products and the underlying technology, relevant market
sizes and industry trends. The projected revenues used in the income approach were the revenues expected to be
generated upon completion of the IPRD projects and the beginning of commercial sales, as estimated by
management. The projections assume that the projects will be successful and that the products' development and
commercialization meet management's estimated time schedule. The projected gross margins and operating
expenses reÖect the costs expected to be incurred for production, marketing, and ongoing development of the
product families as estimated by management. The IPRD projects were expected to commence generating net cash
inÖows in Ñscal 2001.
The projects were then classiÑed as developed technology, IPRD or future development. The estimated future cash
Öows for each were discounted to approximate fair value. Discount rates of 30% for IPRD and 25% for developed
technology were derived from a weighted-average cost of capital analysis, adjusted upward to reÖect additional risks
inherent in the development process, including the probability of achieving technological success and market
acceptance. The IPRD charge includes the fair value of the portion of IPRD completed as of the date of acquisition.
The fair values assigned to IPRD to-be-completed and future development are included in goodwill. Management is
responsible for the amounts determined for IPRD, as well as developed technology, and believes the amounts are
representative of fair values and do not exceed the amounts an independent party would pay for these projects.
The results of operations of Philsar are included in the combined Ñnancial statements from the date of acquisition. The
pro forma combined statement of operations data for Ñscal 2000 below assumes that the acquisition of Philsar had
been completed as of the beginning of the Ñscal year and includes amortization of goodwill and identiÑed intangible
assets from that date. However, the impact of the charge for IPRD has been excluded. This pro forma data is
presented for informational purposes only, and is not necessarily indicative of the results of future operations nor of
the results that would have been achieved had the acquisition of Philsar taken place at the beginning of Ñscal 2000.
(Unaudited, in thousands)
Net revenues
Net loss
2000
$379,161
$(62,326)
During the third quarter of Ñscal 2002, the Company recorded a $45.8 million charge for the write-oÅ of goodwill and
other intangible assets associated with our Ñscal 2000 acquisition of the Philsar Bluetooth business. Management has
determined that the Company will not support the technology associated with the Philsar Bluetooth business.
Accordingly, this product line will be discontinued and the employees associated with the product line have either
been severed or relocated to other operations. As a result of the actions taken, management determined that the
remaining goodwill and other intangible assets associated with the Philsar acquisition had been impaired.
Note 4 Supplemental Financial Statement Data
Inventories consisted of the following:
(in thousands)
Raw materials
Work-in-process
Finished goods
September 30,
2002
$ 9,377
32,639
13,627
$55,643
2001
$ 3,626
19,164
14,593
$37,383
Cost of goods sold for Ñscal 2001 includes inventory write-downs of $58.7 million. These write-downs resulted from
the sharply reduced end-customer demand experienced for digital cellular handsets in Ñscal 2001. As a result of these
market conditions, the Company experienced a signiÑcant number of order cancellations and a decline in the volume
of new orders during Ñscal 2001. The inventories written down during Ñscal 2001 principally consisted of power
ampliÑers and radio frequency subsystem components which, in many cases, had been purchased or manufactured
to satisfy expected customer demand.
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The assessment of the recoverability of inventories, and the amounts of any write-downs, is based on currently
available information and assumptions about future demand and the market conditions. Demand for products may
Öuctuate signiÑcantly over time, and actual demand and market conditions may be more or less favorable than those
projected by management. In the event that actual demand is lower than originally projected, additional inventory
write-downs may be required.
Some or all of the inventories which have been written-down may be retained and made available for sale. In the event
that actual demand is higher than originally projected, a portion of these inventories may be able to be sold in the
future. Inventories which have been written-down and are identiÑed as obsolete are generally scrapped.
Property, plant and equipment consist of the following:
(in thousands)
Land
Land and leasehold improvements
Buildings
Machinery and equipment
Construction in progress
Accumulated depreciation and amortization
Goodwill and intangible assets consist of the following (in thousands):
Goodwill
Developed technology
Customer relationships
Trademark
Other
$
September 30,
2002
$ 11,578
6,583
72,457
341,702
17,162
449,482
2001
8,336
11,730
18,285
396,268
19,807
454,426
(305,709)
(284,879)
$ 143,773
$ 169,547
September 30,
2002
$ 905,219
21,260
12,700
2,300
122
941,601
2001
$ 71,412
5,995
Ì
Ì
793
78,200
(20,594)
Accumulated depreciation and amortization
(915)
Other current assets consist of the following (in thousands):
Prepaid expenses
Other
Other current liabilities consist of the following (in thousands):
Accrued merger expenses
Product warranty accrual
Restructuring charges and exit costs
Accrued take or pay obligations
Other
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$ 940,686
$ 57,606
September 30,
2002
$ 17,050
6,920
$ 23,970
$
$
2001
Ì
3,225
3,225
$
September 30,
2002
$ 42,764
13,372
7,436
5,143
15,848
$ 84,563
$
2001
Ì
3,414
Ì
Ì
4,390
7,804
Note 5 Borrowing Arrangements And Commitments
Long-Term Debt
Long-term debt consisted of the following (in thousands):
Conexant Mexicali note
Conexant revolving credit line used
CDBG Grant
Less Ì current maturities
$
September 30,
2002
$ 150,000
30,000
168
180,168
129
$ 180,039
$
2001
Ì
Ì
Ì
Ì
Ì
Ì
On September 30, 2002, the Company had $150 million in short-term promissory notes payable to Conexant pursuant
to a Ñnancing agreement entered into in connection with the purchase of the Mexicali Operations. The notes were
secured by the assets and properties of the Company. Unless paid earlier at the option of the Company or pursuant to
mandatory prepayment provisions contained in the Ñnancing agreement with Conexant, Ñfty percent of the principal
portion of the short-term promissory notes was due on March 24, 2003, and the remaining Ñfty percent of the notes
was due on June 24, 2003. Interest on these notes was payable quarterly at a rate of 10% per annum for the Ñrst
ninety days following June 25, 2002, 12% per annum for the next ninety days and 15% per annum thereafter.
Because the Company reÑnanced these notes, the principal amount was classiÑed on September 30, 2002 as a long-
term note payable. In addition, on September 30, 2002 the Company had available a short-term $100 million loan
facility from Conexant under the Ñnancing agreement to fund the Company's working capital and other requirements.
$75 million of this facility became available on or after July 10, 2002, and the remaining $25 million balance of the
facility would have become available if the Company had more than $150 million of eligible domestic receivables. The
entire principal of any amounts borrowed under the facility was due on June 24, 2003. There were $30 million of
borrowings as of September 30, 2002 under this facility. Because the Company reÑnanced the amounts borrowed
under this loan facility, the principal amount was classiÑed on September 30, 2002 as a long-term note payable.
On November 13, 2002, Skyworks successfully closed a private placement of $230 million of 4.75 percent convertible
subordinated notes due 2007. These notes can be converted into 110.4911 shares of common stock per $1,000
principal balance, which is the equivalent of a conversion price of approximately $9.05 per share. The net proceeds
from the note oÅering were principally used to prepay debt owed to Conexant under the Ñnancing agreement. The
payments to Conexant retired $105 million of the $150 million note relating to the purchase of the Mexicali Operations
and repaid the $65 million principal amount outstanding as of November 13, 2002 under the loan facility, dissolving
the $100 million facility and resulting in the release of Conexant's security interest in all assets and properties of the
Company.
In connection with the prepayment by the Company of $105 million of the $150 million note owed to Conexant relating
to the purchase of the Mexicali Operations, the remaining $45 million principal balance was exchanged for a new 15%
convertible debt security with a maturity date of June 30, 2005. These notes can be converted into the Company's
common stock at a conversion rate based on the applicable conversion price, which is subject to adjustment based
on, among other things, the market price of the Company's common stock. Based on this adjustable conversion price,
the Company expects that the maximum number of shares that could be issued under the note is approximately
7.1 million shares, subject to adjustment for stock splits and other similar dilutive occurrences.
The Company obtained a ten-year $960,000 loan from the State of Maryland under the Community Development
Block Grant program. Quarterly payments are due through December 2003 and represent principal plus interest at
5% of the unamortized balance.
Aggregate annual maturities of long-term debt are as follows (in thousands):
Fiscal Year
2003
2004
2005
2006
2007
$
129
39
45,000
Ì
135,000
$180,168
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Note 6 Income Taxes
Loss before income taxes consisted of the following components (in thousands):
Years Ended September 30,
2002
2001
2000
United States
Foreign
$(151,214) $(323,642) $(67,995)
(104,439)
6,337
2,656
$(255,653) $(317,305) $(65,339)
The provision for income taxes from continuing operations consists of the following (in thousands):
Years Ended September 30,
2002
2001
2000
Current tax expense
Federal
Foreign
State
Deferred tax expense (beneÑt)
Federal
Foreign
State
Net income tax expense (beneÑt)
$
Ì $
Ì $
3,506
Ì
3,506
Ì
(23,095)
Ì
(23,095)
$ (19,589) $
1,619
Ì
1,619
Ì
Ì
Ì
Ì
1,619
Ì
1,140
Ì
1,140
Ì
Ì
Ì
Ì
$ 1,140
The actual income tax expenses (beneÑts) reported from operations are diÅerent than those which would have been
computed by applying the federal statutory tax rate to income (loss) before income tax expenses (beneÑts). A
reconciliation of income tax expense (beneÑt) as computed at the U.S. Federal statutory income tax rate to the
provision for income tax expense (beneÑt) as follows (in thousands):
Years Ended September 30,
2002
2001
2000
Tax (beneÑt) expense at U.S. statutory rate
Foreign tax rate diÅerence
Nondeductible amortization of intangible assets
Nondeductible in-process research and development
Pre-distribution loss not available to Skyworks
Research and development credits
State income taxes, net of federal beneÑt
Change in valuation allowance
Other, net
$ (89,479) $(111,057) $(22,869)
3,529
16,151
22,925
21,968
(711)
Ì
5,947
81
$ (19,589) $
(599)
5,099
Ì
Ì
210
1,752
8,527
Ì
(4,921)
(11,672)
123,466
1,303
1,619
(3,937)
(3,283)
19,870
870
$ 1,140
0
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0
2
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Deferred income tax assets and liabilities consist of the tax eÅects of temporary diÅerences related to the following:
(in thousands)
Current:
Inventories
Deferred revenue
Accrued compensation and beneÑts
Product returns, allowances and warranty
Restructuring
Deferred state taxes
Other Ó net
Current deferred income taxes
Long-term:
Property, plant and equipment
Intangible assets
Retirement beneÑts and deferred compensation
Net operating loss carryforwards
Federal tax credits
State investment credits
Restructuring
Deferred state taxes
Other Ó net
Long-term deferred income taxes
Total deferred income taxes
Valuation allowance
Net deferred tax assets
September 30,
2002
2001
$14,352
258
1,914
8,097
5,475
Ì
523
30,619
25,712
(13,029)
931
27,003
3,904
2,672
28,297
Ì
(416)
75,074
105,693
(83,206)
$22,487
$ 31,836
2,779
1,872
3,686
Ì
(1,822)
1,470
39,821
30,876
(2,337)
1,299
125,456
16,918
4,801
Ì
(10,071)
531
167,473
207,294
(207,294)
$
Ì
Based upon a history of signiÑcant operating losses, management has determined that it is more likely than not that
historic and current year income tax beneÑts will not be realized except for certain future deductions associated with
the Mexicali Operations in the post-Merger period. Consequently, no United States income tax beneÑt has been
recognized relating to the U.S. operating losses. As of September 30, 2002, we have established a valuation
allowance against all of our net U.S. deferred tax assets. The net change in the valuation allowance is principally due
to Conexant retaining certain tax attributes, i.e. federal and state net operating loss and credit carryovers. Reduction
of a portion of the valuation allowance may be applied to reduce the carrying value of goodwill. The portion of the
valuation allowance for deferred tax assets for which subsequently recognized tax beneÑts will be applied to reduce
goodwill related to the purchase consideration of the Merger with Alpha is approximately $24 million. Deferred tax
assets have been recognized for foreign operations when management believes they will be recovered during the
carry forward period. We do not expect to recognize any income tax beneÑts relating to future operating losses
generated in the United States until management determines that such beneÑts are more likely than not to be
realized. In 2002, the Company recorded a tax beneÑt of approximately $23 million related to the impairment of our
Mexicali assets. A valuation allowance has not been established because the Company believes that the related
deferred tax asset will be recovered during the carry forward period.
To the extent that Washington/Mexicali had Ñled separate tax returns as of September 30, 2001, the U.S. federal net
operating loss carryforwards would have been approximately $316.3 million, which would expire at various dates
through 2021, and aggregate state net operating loss carryforwards would have been approximately $295.3 million,
which would expire at various dates through 2011. Washington/Mexicali would also have had U.S. Federal and state
research and development tax credit carryforwards of approximately $11.5 million and $5.4 million, respectively. The
U.S. Federal tax credits would expire at various dates through 2021, while the state credits would have no expiration
date. California Manufacturers' Investment Credits of approximately $4.8 million would expire at various dates through
2009. These tax attributes include certain amounts that were retained by Conexant and are not available to be utilized
in the separate tax returns of the combined company subsequent to the Merger and the combined company's
purchase of the Mexicali Operations.
The research and development credits and the net operating losses shown above that relate to periods prior to the
Merger are calculated as if Washington/Mexicali had Ñled separate tax returns. These tax attributes include certain
amounts that were retained by Conexant and are not available to be utilized in the separate tax returns of the
combined company subsequent to the Merger and the combined company's purchase of the Mexicali Operations.
As of September 30, 2002, the Company has U.S. federal net operating loss carryforwards of approximately
$71.1 million which will expire at various dates through 2022 and aggregate state net operating loss carryforwards of
approximately $33.4 million which will expire at various dates through 2007. The Company also has U.S. federal and
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1
state income tax credit carryforwards of approximately $5.7 million. The U.S. federal tax credits expire at various
dates through 2022. The use of the pre-Merger net operating loss and tax credit carryovers from Alpha will be limited
due to statutory tax restrictions resulting from the Merger and related changes in ownership. The annual limit on the
utilization of pre-merger net operating losses has been estimated at $14 million. Pre-Merger credits would also be
subject to the tax equivalent of the annual net operating loss limitation.
As part of the spin-oÅ and the Merger, Washington, Conexant and Alpha entered into a tax allocation agreement
which provides, among other things, for the allocation between Conexant and the combined company of certain tax
liabilities relating to the Washington Business. In general, Conexant assumed and is responsible for tax liabilities of the
Washington Business and Washington for periods prior to the Merger and the combined company has assumed and is
responsible for tax liabilities of the Washington Business for periods after the Merger. Skyworks' obligations under the
tax allocation agreement have been limited by the letter agreement dated November 6, 2002 entered into as part of
the debt reÑnancing with Conexant.
Note 7 Stockholders' Equity
Common Stock
The Company is authorized to issue (1) 525,000,000 shares of common stock, par value $0.25 per share, and
(2) 25,000,000 shares of preferred stock, without par value.
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 second
amended and restated certiÑcate of incorporation provides that, unless otherwise determined by the Company's
board of directors, no holder of common stock has any preemptive right to purchase or subscribe for any stock of any
class which the Company may issue or sell.
At September 30, 2002 the Company had 137,589,146 shares of common stock issued and outstanding.
Preferred Stock
The Company's second amended and restated certiÑcate of incorporation permits the Company to issue up to
25,000,000 shares of preferred stock in one or more series and with rights and preferences that may be Ñxed or
designated by the Company's board of directors without any further action by the Company's stockholders. The
designation, powers, preferences, rights and qualiÑcations, limitations and restrictions of the preferred stock of each
series will be Ñxed by the certiÑcate of designation relating to such series, which will specify the terms of the preferred
stock.
At September 30, 2002 the Company had no shares of preferred stock issued and outstanding.
Stock Options
The Company has stock option plans under which employees may be granted options to purchase common stock.
Options are generally granted with exercise prices at not less than the fair market value on the grant date, generally
vest over four years and expire ten years after the grant date. As of September 27, 2002, a total of 24.1 million shares
are authorized for grant under the Company's long-term incentive plans. The number of common shares reserved for
granting of future awards was 15.9 million at September 30, 2002.
In connection with Conexant's spin-oÅ of Washington, options to purchase shares of Conexant common stock were
adjusted so that immediately following the spin-oÅ, option holders held options to purchase shares of Conexant
common stock and options to purchase Washington common stock. In connection with the Merger, those options to
purchase shares of Washington common stock were converted into options to purchase the Company's common
stock, par value $0.25 per share. The terms of options to purchase the Company's common stock will be governed by
the Washington Sub, Inc. 2002 Stock Option Plan, which was assumed by Skyworks in the Merger and which
provides that such options will generally have the same terms and conditions applicable to the original Conexant
options. These options are included in the following schedules and options related to non-employees are disclosed
separately below.
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A summary of stock option transactions follows (shares in thousands):
Balance outstanding prior to the close of the Merger
Recapitalization as a result of the Merger:
Alpha options assumed
Conexant options assumed
Balance outstanding at June 25, 2002
Granted
Exercised
Cancelled
Balance outstanding at September 30, 2002
Options exercisable at the end of each Ñscal year (shares in thousands):
2002
Weighted average
exercise price of
shares under plan
$ Ì
18.97
20.80
$20.32
4.69
2.08
23.35
$19.73
Shares
Ì
8,277
23,188
31,465
998
(20)
(1,111)
31,332
Shares
16,080
Weighted average
exercise price
$19.86
The following table summarizes information concerning currently outstanding and exercisable options as of
September 30, 2002 (shares in thousands):
Range of exercise
prices
$0.00 Ì $9.99
$10.00 Ì $19.99
$20.00 Ì $29.99
$30.00 Ì $39.99
$40.00 Ì $59.99
$60.00 Ì $210.35
Restricted Stock Awards
Number
Weighted
average
remaining
contractual
outstanding life (years)
6.5
5.7
6.7
5.9
7.1
4.6
6.1
4,056
13,157
10,333
2,431
1,111
244
31,332
Weighted
average
outstanding
option price
$ 6.15
$15.82
$21.97
$36.20
$45.05
$82.41
$19.73
Weighted
average
exercise
price
$ 5.18
$16.03
$21.83
$36.69
$45.11
$83.39
$19.86
Options
exercisable
1,529
7,671
5,025
1,197
525
133
16,080
The Company's long-term incentive plans provide for awards of restricted shares of common stock and other stock-
based incentive awards to oÇcers and other employees and certain non-employees. Restricted stock awards are
subject to forfeiture if employment terminates during the prescribed retention period (generally within two years of the
date of award) or, in certain cases, if prescribed performance criteria are not met. The fair value of restricted stock
awards is charged to expense over the vesting period. There were no restricted stock grants in Ñscal 2002.
Stock Option Plans For Directors and Other Directors
The Company has three stock option plans for non-employee directors Ì the 1994 Non-QualiÑed Stock Option Plan,
the 1997 Non-QualiÑed Stock Option Plan and the Directors' 2001 Stock Option Plan. Under the three plans, a total of
826,000 shares have been authorized for option grants. The three plans have substantially similar terms and
conditions and are structured to provide options to non-employee directors as follows: a new director receives a total
of 45,000 options upon becoming a member of the Board; and continuing directors receive 15,000 options after each
Annual Meeting of Shareholders. Under these plans, the option price is the fair market value at the time the option is
granted. Beginning in Ñscal 2001, all options granted become exercisable 25% per year beginning one year from the
date of grant. Options granted prior to Ñscal 2001 become exercisable at a rate of 20% per year beginning one year
from the date of grant. During Ñscal 2002, 180,000 options were granted under these plans at a weighted average
price $6.31. At September 30, 2002, a total of 522,000 options, net of cancellations, have been granted under these
three plans. During Ñscal 2002, no options were exercised under these plans. At September 30, 2002, 522,000
shares were outstanding and 256,500 shares were exercisable. Non-employee directors of the Company are also
eligible to receive option grants under the Company's 1996 Long-Term Incentive Plan.
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Non-Employees Related to the Merger
In connection with the Merger, as of September 30, 2002 non-employees, excluding directors, held 18,184,701
options at a weighted average price of $20.49. EÅective June 25, 2002, a signiÑcant portion of Conexant's options
outstanding were converted to Skyworks' options of equivalent value. The conversion of Conexant options into
Skyworks' options was done in such a manner that (1) the aggregate intrinsic value of the options immediately before
and after the exchange is the same, (2) the ratio of the exercise price per option to the market value per option is not
reduced, and (3) the vesting provisions and options period of the replacement Skyworks' options are the same as
the original vesting terms and option period of the Conexant options.
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 compensation. The price per
share is the lower of 85% of the market price at the beginning or end of each six-month oÅering period. The plans
provide for purchases by employees of up to an aggregate of 900,000 shares through December 31, 2006. The
Company dissolved its employee stock purchase plan during the fourth quarter of Ñscal 2002 and implemented a plan
with substantially similar terms. Shares of 65,668 were purchased under this plan in Ñscal 2002.
Accounting for Stock-Based Compensation
The Company applies Accounting Principles Board Opinion No. 25, ""Accounting for Stock Issued to Employees'' and
related interpretations in accounting for its stock option and employee stock purchase plans. Had compensation cost
for the Company's stock option and stock purchase plans been determined based upon the fair value at the grant
date for awards under these plans consistent with the methodology prescribed under SFAS No. 123, ""Accounting for
Stock-based Compensation,'' the Company's net (loss) income would have been as follows:
Pro forma information regarding net loss is required by SFAS No. 123. This information is required to be determined as
if stock-based awards to employees had been accounted for under the fair value method of that Statement. Had
compensation cost for stock option awards to employees of the Company been determined based on the fair value at
the grant date for awards in Ñscal 2002 the pro forma net loss would have been approximately $236.6 million.
For purposes of pro forma disclosures under SFAS No. 123, the estimated fair value of the options is assumed to be
amortized to expense over the options' vesting period. The fair value of the options granted has been estimated at the
date of the grant using the Black-Scholes option pricing model with the following assumptions:
Expected volatility
Risk free interest rate
Dividend yield
Expected option life (years)
Weighted average fair value of options granted
2002
70%
2.2%
Ì
4.5
$1.87
The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options that
have no vesting restrictions and are fully transferable. In addition, option valuation models require input of highly
subjective assumptions, including the expected stock price volatility. Because options held by employees and
directors have characteristics signiÑcantly diÅerent from those of traded options, and because changes in the
subjective input assumptions can materially aÅect the fair value estimate, in the opinion of management, the existing
models do not necessarily provide a reasonable measure of the fair value of these options.
Stock Warrants
In connection with the Merger, the Company issued to Jazz Semiconductor, Inc. a warrant to purchase
1,017,900 shares of Skyworks common stock at a price of $24.02 per share. This warrant becomes exercisable in
increments of 25% as of June 25, 2002, March 11, 2003, September 11, 2003 and March 11, 2004. The Company
applied the Black-Scholes model to determine the fair value estimate and approximately $0.2 million was included in
Ñscal 2002 selling, general and administrative expenses related to this item. The warrant expires on January 20, 2005.
Note 8 Employee BeneÑt Plan
The Company maintains a 401(k) plan covering substantially all of its employees. All of the Company's employees
who are at least 21 years old are eligible to receive a Company contribution. 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
contributes a match of 100% of the Ñrst 4%. For Ñscal 2002, the Company contributed 128,836 shares of the
Company's common stock valued at $0.6 million to fund the Company's obligation under the 401(k) plan in Ñscal
2002.
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Conexant sponsors various beneÑt plans for its eligible employees, including a 401(k) retirement savings plan, a
retirement medical plan and a pension plan. Expenses allocated from Conexant under these employee beneÑt plans
for Washington/Mexicali participants prior to the Merger were $1.0 million for Ñscal 2002 and $1.3 million for both
Ñscal 2000 and 2001, respectively.
Note 9 Commitments
The Company has various operating leases primarily for computer equipment and buildings. Rent expense amounted
to $7.1 million, $4.9 million and $3.7 million in Ñscal 2002, 2001 2000, respectively. Purchase options may be
exercised at various times for some of these leases. Future minimum payments under these noncancelable leases are
as follows (in thousands):
Fiscal Year
2003
2004
2005
2006
2007
Thereafter
$ 6,927
6,799
5,624
4,755
4,457
11,653
$40,215
Under supply agreements entered into with Conexant in connection with the Merger, we will receive wafer fabrication,
wafer probe and certain other services from Jazz Semiconductor's Newport Beach, California foundry, and we will
provide wafer fabrication, wafer probe, Ñnal test and other services to Conexant at our Newbury Park facility, in each
case, for a three-year period after the Merger. We will also provide semiconductor assembly and test services to
Conexant at our Mexicali facility.
During the term of one of our supply agreements with Conexant, our unit cost of goods supplied by Jazz
Semiconductor Inc.'s Newport Beach foundry will continue to be aÅected by the level of utilization of the Newport
Beach foundry joint venture's wafer fabrication facility and other factors outside our control. Pursuant to the terms of
this supply agreement with Conexant, we are committed to obtain a minimum level of service from Jazz
Semiconductor, Inc., a Newport Beach, California foundry joint venture between Conexant and The Carlyle Group to
which Conexant contributed its Newport Beach wafer fabrication facility. The Company's expected minimum
purchase obligations under the supply agreement will be approximately $64 million, $39 million and $13 million in
Ñscal 2003, 2004 and 2005, respectively. The Company estimated its obligation under this agreement would result in
excess costs of approximately $13.2 million, which was recorded as a liability and charged to cost of sales in the third
quarter of Fiscal 2002. During the fourth quarter of Ñscal 2002, the Company reevaluated this obligation and reduced
its liability and cost of sales by approximately $8.1 million in the quarter. With the exception of $5.1 million of The
Company currently anticipates meeting each of the annual minimum purchase obligations under the supply
agreement with Conexant.
Note 10 Contingencies
Various lawsuits, claims and proceedings have been or may be instituted or asserted against the Company including
those pertaining to product liability, intellectual property, environmental, safety and health, and employment matters.
Management believes these are adequately provided for or will result in no signiÑcant additional liability to the
Company.
On June 8, 2002 Skyworks Technologies, Inc. (""STI''), Ñled a complaint in the United States District Court, in the
Central District of California, Southern Division, alleging trademark infringement, false designation of origin, unfair
competition, and false advertising by the Company. Without a material impact to the Ñnancial statements, the
Company reached an agreement on this matter with STI, which includes a release of all pending claims and an
arrangement for mutual coexistence using the name Skyworks.
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 our business and have demanded and may in the
future demand that we license their technology.
The Company has assumed responsibility for all then current and future litigation (including environmental and
intellectual property proceedings) against Conexant or its subsidiaries in respect of the operations of Conexant's
wireless business in connection with the Merger.
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The outcome of litigation cannot be predicted with certainty and some lawsuits, claims or proceedings may be
disposed of unfavorably to the Company. Many intellectual property disputes have a risk of injunctive relief and there
can be no assurance that a license will be granted. Injunctive relief could materially and adversely aÅect the Ñnancial
condition or results of operations of the Company. Based on its evaluation of matters which are pending or asserted,
and taking into account any reserves for such matters, management believes the disposition of such matters will not
have a material adverse eÅect on the Ñnancial condition or results of operations of the Company.
Note 11 Special Charges
Asset Impairments
During the third quarter of Ñscal 2002, the Company recorded a $66.0 million charge for the impairment of the
assembly and test machinery and equipment and related facility in Mexicali, Mexico. The impairment charge was
based on a recoverability analysis prepared by management as a result of a signiÑcant downturn in the market for test
and assembly services for non-wireless products and the related impact on the Company's current and projected
outlook.
The Company has experienced a severe decline in factory utilization at its Mexicali facility for non-wireless products
and projected decreasing revenues and new order volume. Management believes these factors indicated that the
carrying value of the assembly and test machinery and equipment and related facility may have been impaired and
that an impairment analysis should be performed. In performing the analysis for recoverability, management estimated
the future cash Öows expected to result from the manufacturing activities at the Mexicali facility over a ten-year period.
The estimated future cash Öows were based on a gradual phase-out of services sold to Conexant and modest volume
increases consistent with management's view of the outlook for the business, partially oÅset by declining average
selling prices. The declines in average selling prices are consistent with historical trends and management's decision
to reduce capital expenditures for future capacity expansion. Since the estimated undiscounted cash Öows were less
than the carrying value (approximately $100 million based on historical cost) of the related assets, it was concluded
that an impairment loss should be recognized. The impairment charge was determined by comparing the estimated
fair value of the related assets to their carrying value. The fair value of the assets was determined by computing the
present value of the estimated future cash Öows using a discount rate of 24%, which management believed was
commensurate with the underlying risks associated with the projected future cash Öows. The Company believes the
assumptions used in the discounted cash Öow model represented a reasonable estimate of the fair value of the
assets. The write down established a new cost basis for the impaired assets.
During the third quarter of Ñscal 2002, the Company recorded a $45.8 million charge for the write-oÅ of goodwill and
other intangible assets associated with our Ñscal 2000 acquisition of the Philsar Bluetooth business. Management has
determined that the Company will not support the technology associated with the Philsar Bluetooth business.
Accordingly, this product line will be discontinued and the employees associated with the product line have either
been severed or relocated to other operations. As a result of the actions taken, management determined that the
remaining goodwill and other intangible assets associated with the Philsar acquisition had been impaired.
During the third quarter of Ñscal 2001, the Company recorded an $86.2 million charge for the impairment of the
manufacturing facility and related wafer fabrication machinery and equipment at the Company's Newbury Park,
California facility. This impairment charge was based on a recoverability analysis prepared by management as a result
of the dramatic downturn in the market for wireless communications products and the related impact on the then-
current and projected business outlook of the Company. Through the third quarter of Ñscal 2001, the Company
experienced a severe decline in factory utilization at the Newbury Park wafer fabrication facility and decreasing
revenues, backlog, and new order volume. Management believed these factors, together with its decision to
signiÑcantly reduce future capital expenditures for advanced process technologies and capacity beyond the then-
current levels, indicated that the value of the Newbury Park facility may have been impaired and that an impairment
analysis should be performed. In performing the analysis for recoverability, management estimated the future cash
Öows expected to result from the manufacturing activities at the Newbury Park facility over a ten-year period. The
estimated future cash Öows were based on modest volume increases consistent with management's view of the
outlook for the industry, partially oÅset by declining average selling prices. The declines in average selling prices are
consistent with historical trends and management's decision to focus on existing products based on the current
technology. Since the estimated undiscounted cash Öows were less than the carrying value (approximately
$106 million based on historical cost) of the related assets, it was concluded that an impairment loss should be
recognized. The impairment charge was determined by comparing the estimated fair value of the related assets to
their carrying value. The fair value of the assets was determined by computing the present value of the estimated
future cash Öows using a discount rate of 30%, which management believed was commensurate with the underlying
risks associated with the projected cash Öows. The Company believes the assumptions used in the discounted cash
Öow model represented a reasonable estimate of the fair value of the assets. The write-down established a new cost
basis for the impaired assets.
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Restructuring Charges
During Ñscal 2002, the Company reduced its workforce through involuntary severance programs and recorded
restructuring charges of approximately $3.0 million for costs related to the workforce reduction and the consolidation
of certain facilities. The charges were based upon estimates of the cost of severance beneÑts for aÅected employees
and lease cancellation, facility sales, and other costs related to the consolidation of facilities. Substantially all amounts
accrued for these actions are expected to be paid within one year.
During Ñscal 2001, Washington/Mexicali reduced its workforce by approximately 250 employees, including
approximately 230 employees in manufacturing operations. Restructuring charges of $2.7 million were recorded for
such actions and were based upon estimates of the cost of severance beneÑts for the aÅected employees.
Substantially all amounts accrued for these actions are expected to be paid within one year.
Activity and liability balances related to the Ñscal 2001 and Ñscal 2002 restructuring actions are as follows (in
thousands):
Charged to costs and expenses
Cash payments
Restructuring balance, September 30, 2001
Charged to costs and expenses
Cash payments
Restructuring balance, September 30, 2002
Fiscal 2001
actions
$ 2,667
(1,943)
724
65
(789)
$ Ì
Fiscal 2002
workforce
reductions
Fiscal 2002
facility closings
and other
Total
$ Ì
2,923
(2,225)
698
$
$ Ì $
97
724
3,085
(13) (3,027)
$ 84 $
782
In addition, the Company assumed approximately $7.8 million of restructuring reserves from Alpha in connection with
the Merger. On September 27, 2002 this balance was $6.7 million and substantially all amounts accrued are expected
to be paid within one year.
Note 12 Related Party Transactions
Historically, a signiÑcant portion of Conexant's semiconductor product assembly and test function has been
performed by the Mexicali Operations. In addition, Conexant has purchased certain semiconductor products from the
Newbury Park wafer fabrication facility included in Conexant's wireless business. Revenues and related costs of
goods sold for products manufactured in the Newbury Park wafer fabrication facility and assembled and tested by the
Mexicali Operations for Conexant have been separately presented in the combined statements of operations.
The Company has entered into various agreements with Conexant providing for the supply of gallium arsenide wafer
fabrication and assembly and test services to Conexant, initially at substantially the same volumes as historically
obtained by Conexant from Washington/Mexicali. The Company has also entered into agreements with Conexant
providing for the supply to the Company of transition services by Conexant and silicon-based wafer fabrication
services by Jazz Semiconductor, Inc., the Newport Beach, California foundry joint venture between Conexant and The
Carlyle Group to which Conexant contributed its Newport Beach wafer fabrication facility. Historically, Washington/
Mexicali has obtained a portion of its silicon-based semiconductors from the Newport Beach wafer fabrication facility.
Pursuant to the supply agreement with Conexant, the Company is initially obligated to obtain certain minimum volume
levels from Jazz Semiconductor based on a contractual agreement between Conexant and Jazz Semiconductor. The
Company estimates that its minimum purchase obligation under this agreement will result in excess costs of
approximately $5.1 million and has recorded this liability and charged cost of sales in Ñscal 2002.
Under transition services agreements with Conexant entered into in connection with the Merger, Conexant will
continue to perform various research and development services for the Company at actual cost generally until
December 31, 2002, unless the parties otherwise agree. To the extent the Company uses these services subsequent
to the expiration of the speciÑed term, the pricing is subject to negotiation.
Note 13 Segment Information
The Company operates in one business segment, which designs, develops, manufactures and markets proprietary
semiconductor products and system solutions for manufacturers of wireless communication products.
The Company has adopted SFAS No. 131, ""Disclosures About Segments of an Enterprise and Related Information.''
SFAS No. 131 establishes standards for the way public business enterprises report information about operating
segments in annual Ñnancial statements and in interim reports to shareholders. The method for determining what
information to report is based on the way that management organizes the segments within the Company for making
operating decisions and assessing Ñnancial performance. In evaluating Ñnancial performance, management uses
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sales and operating proÑt as the measure of the segments' proÑt or loss. Based on the guidance in SFAS No. 131, the
Company has one operating segment for Ñnancial reporting purposes.
Geographic Information
Net revenues from customers other than Conexant by geographic area are presented based upon the country of
destination. Net revenues from customers other than Conexant by geographic area are as follows:
(In thousands)
United States
Other Americas
Total Americas
South Korea
Other Asia-PaciÑc
Total Asia-PaciÑc
Europe, Middle East and Africa
$
Years Ended September 30,
2002
$ 32,760
4,615
37,375
237,681
114,974
352,655
28,314
$ 418,344
2001
18,999
5,455
24,454
142,459
23,898
166,357
24,691
$ 215,502
2000
$ 32,726
8,146
40,872
167,269
46,255
213,524
58,587
$ 312,983
Long-lived assets principally consist of property, plant and equipment, goodwill and intangible assets. Long-lived
assets by geographic area are as follows:
(In thousands)
Assets
United States
Mexico
Canada
Other
September 30,
2002
2001
$1,063,163
52,730
387
3,236
$1,119,516
$ 44,539
126,730
58,373
1,285
$ 230,927
Note 14 Quarterly Financial Data (unaudited)
(In thousands, except per share data)
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
Year
Fiscal 2002
Sales
Gross proÑt
Net loss
Per share data(1)
Net loss basic
Net loss diluted
Fiscal 2001
Sales
Gross proÑt
Net loss
$ 93,760
15,954
(34,297)
$ 100,356
29,433
(18,339)
$ 112,980
20,063
(181,945)
$150,673
60,711
(1,483)
$ 457,769
126,161
(236,064)
Ì
Ì
Ì
Ì
(1.33)
(1.33)
(0.01)
(0.01)
(1.72)
(1.72)
$ 85,496
(7,020)
(53,964)
$
57,503
(46,426)
(100,160)
$
51,045
(12,414)
(142,425)
$ 66,407
14,808
(22,375)
$ 260,451
(51,052)
(318,924)
(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. Prior
to the Merger with Alpha Industries, Inc., Conexant's wireless business had no separate capitalization, therefore a calculation cannot be
performed for weighted average shares outstanding to then calculate earnings per share.
Note 15 Subsequent Event
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On November 13, 2002, the Company successfully closed a private placement of $230 million of 4.75 percent
convertible subordinated notes due 2007. These notes can be converted into 110.4911 shares of common stock per
$1,000 principal balance, which is the equivalent of a conversion price of approximately $9.05 per share. The net
proceeds from the note oÅering were principally used to prepay debt owed to Conexant under a Ñnancing agreement
entered into with Conexant immediately following the Merger. The payments to Conexant retired $105 million of the
$150 million note relating to the purchase of the Mexicali Operations and repaid the $65 million principal amount
outstanding as of November 13, 2002 under the loan facility, dissolving the $100 million facility and resulting in the
release of Conexant's security interest in all assets and properties of the Company.
In connection with the prepayment by the Company of $105 million of the $150 million note owed to Conexant relating
to the purchase of the Mexicali Operations, the remaining $45 million principal balance on the note was exchanged for
new 15% convertible debt securities with a maturity date of June 30, 2005. These notes can be converted into the
Company's common stock at a conversion rate based on the applicable conversion price, which is subject to
adjustment based on, among other things, the market price of the Company's common stock. Based on this
adjustable conversion price, the Company expects that the maximum number of shares that could be issued under
the note is approximately 7.1 million shares, subject to adjustment for stock splits and other similar dilutive
occurrences.
In addition to the retirement of $170 million in principal amount of indebtedness owing to Conexant, the Company also
retained approximately $53 million of net proceeds of the private placement to support its working capital needs.
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I N D E P E N D E N T A U D I T O R S ' R E P O R T
The Board of Directors and Stockholders
Skyworks Solutions, Inc.:
We have audited the accompanying consolidated balance sheet of Skyworks Solutions, Inc. and subsidiaries as of
September 30, 2002 and the related consolidated statement of operations, stockholders' equity and cash Öows for
the year then ended. We have also audited the Ñnancial statement schedule for the year ended September 30, 2002.
These consolidated Ñnancial statements and Ñnancial statement schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated Ñnancial statements and Ñnancial
statement schedule based on our audit.
We conducted our audit in accordance with auditing standards generally accepted in the United States of America.
Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the
Ñnancial statements are free of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the Ñnancial statements. An audit also includes assessing the accounting
principles used and signiÑcant estimates made by management, as well as evaluating the overall Ñnancial statement
presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated Ñnancial statements referred to above present fairly, in all material respects, the
Ñnancial position of Skyworks Solutions, Inc. and subsidiaries at September 30, 2002, and the results of their
operations and their cash Öows for the year ended September 30, 2002 in conformity with accounting principles
generally accepted in the United States of America. Also, in our opinion, the related Ñnancial statement schedule for
the year ended September 30, 2002, when considered in relation to the basic consolidated Ñnancial statements taken
as a whole, presents fairly, in all material respects, the information set forth therein.
KPMG LLP
Boston, Massachusetts
November 15, 2002
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The Board of Directors and Stockholders
Skyworks Solutions, Inc.:
We have audited the accompanying consolidated balance sheet of Skyworks Solutions, Inc. and subsidiaries
(formerly the combined balance sheet of the Washington Business and the Mexicali Operations of Conexant Systems,
Inc.) as of September 30, 2001, and the related consolidated statements of operations, stockholders' equity
(formerly Conexant's net investment and comprehensive income), and cash Öows for the years ended September 30,
2000 and 2001. Our audits also included the Ñnancial statement schedule listed in the Index at Item 15 for the years
ended September 30, 2000 and 2001. These Ñnancial statements and the Ñnancial statement schedule are the
responsibility of the Company's management. Our responsibility is to express an opinion on these Ñnancial statements
and the Ñnancial statements schedule based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United States of America.
Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the
Ñnancial statements are free of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the Ñnancial statements. An audit also includes addressing the accounting
principles used and signiÑcant estimates made by the management, as well as evaluating the overall Ñnancial
statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the Ñnancial statements referred to above present fairly, in all material respects, the Ñnancial position of
Skyworks Solutions, Inc. and subsidiaries (formerly the Washington Business and the Mexicali Operations of
Conexant Systems, Inc.) at September 30, 2001, and the results of their operations and and their cash Öows for the
years ended September 30, 2000 and 2001, in conformity with accounting principles generally accepted in the United
States of America. Also, in our opinion, such Ñnancial statement schedule when considered in relation to the basic
Ñnancial statements taken as a whole presents fairly, in all material respects, the information set forth therein.
DELOITTE & TOUCHE LLP
Costa Mesa, California
February 14, 2002
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M A R K E T F O R S K Y W O R K S '
C O M M O N S T O C K A N D R E L A T E D
S T O C K H O L D E R M A T T E R S
Our common stock is traded on the Nasdaq National Market under the symbol SWKS. The following table sets forth
the range of high and low sale prices for our common stock for the periods indicated. The merger of the wireless
business of Conexant with Alpha and the acquisition of the Mexicali Operations (""Washington/Mexicali'') was
completed on June 25, 2002. Market price range information for periods on and after June 26, 2002 reÖects sale
prices for the common stock of the combined company, and market price range information for all periods on and prior
to June 25, 2002 reÖects prices for the common stock of Alpha on the Nasdaq National Market under the symbol
AHAA. Washington/Mexicali was not publicly traded prior to the Merger. The number of stockholders of record of
Skyworks as of December 4, 2002 was approximately 48,381.
Neither Skyworks nor its corporate predecessor, Alpha, have paid cash dividends on common stock since an Alpha
dividend made in Ñscal 1986, and Skyworks does not anticipate paying cash dividends in the foreseeable future. Our
expectation is to retain all of our earnings to Ñnance future growth.
Fiscal year ended September 27, 2002:
First quarter
Second quarter
Third quarter, until June 25, 2002
Third quarter, on and after June 26, 2002
Fourth quarter
Fiscal year ended September 28, 2001:
First quarter
Second quarter
Third quarter
Fourth quarter
High
Low
$30.05
22.92
16.97
5.70
5.90
$54.00
35.94
29.70
40.36
$16.55
15.25
5.56
4.99
2.90
$24.75
13.94
13.56
18.72
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I N V E S T O R R E L A T I O N S
You can contact the Skyworks Investor
Relations team directly to order an
Investor’s Kit or to ask investment-
oriented questions about Skyworks at:
Investor Relations
Skyworks Solutions, Inc.
5221 California Street
Irvine, CA 92612
(949) 231-4700
You can also view this Annual Report
along with other financial-related infor-
mation at: www.skyworksinc.com
A N N U A L M E E T I N G
The annual meeting of shareholders
will be held on March 10, 2003 in
Burlington, Massachusetts.
C O M M O N S T O C K
Skyworks’ common stock is traded on
The Nasdaq Stock Market © under the
symbol SWKS.
I N D E P E N D E N T A C C O U N T A N T S
KPMG LLP
Boston, Massachusetts
L E G A L C O U N S E L
Testa, Hurwitz & Thibeault, LLP
Boston, Massachusetts
C O R P O R A T E I N F O R M A T I O N
S E N I O R M A N A G E M E N T T E A M
David J. Aldrich
President and Chief Executive Officer
Paul E. Vincent
Chief Financial Officer
Mohy Abdelgany
Vice President, RF Systems
Kevin Barber
Senior Vice President, Operations
Klaus Buehring
Vice President, Power Amplifier
Modules
David Fryklund
Vice President, Switch and Control
Products
Liam Griffin
Vice President, Sales and Marketing
Richard Langman
Vice President Wireless Infrastructure
Products
George LeVan
Vice President, Human Resources
Murthy Renduchintala
Vice President, Cellular Systems
Nien-Tsu Shen
Vice President, Quality
B O A R D O F D I R E C T O R S
Dwight W. Decker
Chairman of the Board
Chairman and Chief Executive Officer
Conexant Systems, Inc.
David J. Aldrich
President and Chief Executive Officer
Donald R. Beall
Chairman of the Board
Rockwell Collins, Inc.
Moiz M. Beguwala
Senior Vice President and Special
Advisor to the CEO
Conexant Systems, Inc.
Timothy R. Furey
Chief Executive Officer
MarketBridge
Balakrishnan S. Iyer
Senior Vice President and Chief
Financial Officer
Conexant Systems, Inc.
Thomas C. Leonard
Chairman and Chief Executive Officer
Alpha Industries, Inc., retired
David J. McLachlan
Consultant to Genzyme Corporation’s
Chairman and CEO, Former Executive
Vice President and Chief Financial
Officer of Genzyme Corporation
C O R P O R A T E H E A D Q U A R T E R S
Skyworks Solutions, Inc.
20 Sylvan Road
Woburn, MA 01801
(781) 376-3000
www.skyworksinc.com
T R A N S F E R A G E N T
A N D R E G I S T R A R
American Stock Transfer & Trust
Company
59 Maiden Lane
New York, NY 10038
(877) 366-6437 (U.S. and Canada)
(212) 936-5100 (outside the U.S.)
www.amstock.com/shareholder
Our transfer agent can help you with
a variety of shareholder related serv-
ices including change of address, lost
stock certificates, stock transfers,
account status and other administra-
tive matters.
Skyworks Solutions, Inc.
20 Sylvan Road
Woburn, MA 01801
781.376.3000