Notice of 2004 Annual Meeting and Proxy Statement
2003 Annual Report
About Skyworks Solutions, Inc.
Skyworks Solutions is the industry(cid:146)s leading wireless semiconductor company focused on radio
frequency and complete cellular system solutions for mobile communications applications. The
company provides front-end modules, RF subsystems and cellular systems to handset, wireless LAN
and infrastructure customers.
Skyworks is headquartered in Woburn, Massachusetts with executive offices in Irvine, California. The
company has design, engineering, manufacturing, marketing, sales and service facilities throughout North
America, Europe, Japan, Korea, Taiwan, China and India.
DEAR STOCKHOLDER,
Skyworks(cid:146) (cid:222)rst full year was a period of substantial progress.
of the world(cid:146)s first single-chip GPRS DCR(cid:153) transceiver
solution yielded a 10-fold increase in shipments from 2 mil-
During (cid:222)scal 2003 we generated revenues of $618 million,
lion units in (cid:222)scal 2002 to over 20 million units last (cid:222)scal
up from combined company revenues of $543 million in the
year. Building on this success, we captured several key
prior year. Even more noteworthy, pro forma operating
design wins with our next generation EDGE RF Subsystem
income was $3 million for the year compared to a $72 mil-
while our Single Package Radio(cid:153) solution successfully
lion loss in (cid:222)scal 2002*. This dramatic improvement exem-
passed (cid:222)eld type approval ahead of schedule. Represent-
pli(cid:222)es the hard work our employee teams invested in re(cid:222)ning
ing a fusion of Skyworks(cid:146) core capabilities, our SPR(cid:153) solu-
our product portfolio, while streamlining our organization
tion is a complete radio in a single package, saving our
and operating model to better serve our customers.
customers board space, costs associated with procuring
discrete components from multiple suppliers and, most
Our strategy is quite simple and straightforward: to grow
importantly, time-to-market.
signi(cid:222)cantly faster than the overall wireless semiconductor
market by offering innovative solutions and higher levels
During the year, we also launched our Pegasus(cid:153) GPRS
of product integration that reduce our customers(cid:146) bill of
cellular system platform, incorporating all of the required
materials and time-to-market. We believe our close
semiconductor and software content necessary to build
relationships with all leading OEMs and emerging ODMs,
a wireless terminal. Truly embodying breakthrough
product breadth, research and development scale and low
simplicity and based on our portfolio of field-proven
product cost structure are differentiators and the primary
components, Skyworks has the unique ability to enable
means to achieving this end.
customers to move from concept to volume handset pro-
duction in a matter of just months. For instance, we ramped
By exploiting these advantages, we demonstrated signi(cid:222)-
at Samsung, enabling models targeting Europe, Russia,
cant product traction throughout (cid:222)scal 2003. We unveiled the
Southeast Asia, South Africa and the Middle East, and
industry(cid:146)s smallest GSM and CDMA power amplifier
launched multiple platforms at Vitelcom as they support
modules to further our market leading position and introduced
Telefonica subscribers in Europe and Latin America. We
complete front-end modules in form factors 40% smaller
also support the majority of China(cid:146)s local suppliers with our
than existing implementations. Meanwhile, our launch
system solution, providing a substantial opportunity as their
government mandates that an increasing number of cellular
phones originate domestically.
*Please see the table on page A-1 for a full reconciliation of these non-GAAP
(cid:222)nancial measures to GAAP.
We are also quite excited about wireless LAN and its
was an improvement from $53 million of cash exiting last
promise of ubiquitous, high-speed Internet access without
(cid:222)scal year to $171 million at the end of (cid:222)scal 2003.
wires. Exiting the year, we celebrated shipment of our
75 millionth switch and control solution for 802.11 appli-
In summary, we closed (cid:222)scal 2003 in a strong position. We
cations and captured several signi(cid:222)cant design wins with the
streamlined and focused our organization, achieved operating
world(cid:146)s (cid:222)rst fully integrated front-end modules for wire-
pro(cid:222)tability, enhanced our product pipeline and strengthened
less networking. Much like our handset integration strategy,
our balance sheet, all positioning us to realize our vision of
we(cid:146)re combining our leading power amplifiers, switches
becoming the premier supplier of wireless semiconductor
and (cid:222)lter functions into a single low-cost package to reduce
solutions. We would like to thank you, our stockholders, as
our customers(cid:146) overall system cost, while simultaneously
well as our customers and employees, for your continued
increasing our addressable semiconductor content. We look
support. Our prospects have never been brighter and we
forward to this particular product area driving signi(cid:222)cant
look forward to sharing Skyworks(cid:146) achievements with you
volumes in (cid:222)scal 2004.
as the year progresses.
From a (cid:222)nancial perspective, we retired the short-term note
related to our acquisition of the Mexicali, Mexico assem-
bly and test facility, established a credit facility and raised
$102 million through an equity transaction. The net effect
David J. Aldrich
President and Chief Executive Officer
February 2, 2004
Dear Stockholder:
I am pleased to invite you to attend the 2004 annual meeting of stockholders of Skyworks Solutions, Inc.
to be held at 2:00 p.m. Eastern Standard Time on Tuesday, March 30, 2004, at the Boston Marriott
Burlington, One Mall Road, Burlington, Massachusetts (the ""Annual Meeting''). We look forward to your
attending either in person or by proxy. Details regarding admission to the Annual Meeting and the business to
be conducted at the Annual Meeting are included in the attached Notice of Annual Meeting and Proxy
Statement. Stockholders may also access the Notice of Annual Meeting and the Proxy Statement via the
Internet on the company's website at http://www.skyworksinc.com.
Enclosed in this package is a proxy card for you to record your vote and a return envelope for your proxy
card. Your vote is important. Whether or not you plan to attend the Annual Meeting, I hope that you will vote
as soon as possible. You may vote via the Internet, by telephone or by completing and mailing the enclosed
proxy card. Voting via the Internet, by telephone or by written proxy will ensure your representation at the
Annual Meeting, if you do not attend in person. Please review the instructions on the proxy card regarding
each of these voting options.
If you plan to attend the Annual Meeting, please check the box on your proxy card indicating your desire
to attend or indicate your intention to attend when voting by telephone or via the Internet, and save the
admission ticket attached to your proxy.
Sincerely yours,
Dwight W. Decker
Chairman of the Board
SKYWORKS SOLUTIONS, INC.
20 Sylvan Road
Woburn, MA 01801
(781) 376-3000
5221 California Avenue
Irvine, CA 92612
(949) 231-3000
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MARCH 30, 2004
To the Stockholders of Skyworks Solutions, Inc.:
The 2004 annual meeting of stockholders of Skyworks Solutions, Inc., a Delaware corporation (the
""Company''), will be held at 2:00 p.m. Eastern Standard Time on Tuesday, March 30, 2004, at the Boston
Marriott Burlington, One Mall Road, Burlington, Massachusetts (the ""Annual Meeting'') to consider and act
upon the following proposals:
1. To elect three members of the Board of Directors of the Company as Class II directors with terms
expiring at the 2007 annual meeting of stockholders.
2. To ratify the selection of KPMG LLP as independent auditors for the Company for Ñscal year 2004.
3. To transact such other business as may properly come before the 2004 Annual Meeting or any
adjournment thereof.
Only stockholders of record at the close of business on January 30, 2004, are entitled to notice of and to
vote at the Annual Meeting. All stockholders are cordially invited to attend the Annual Meeting in person.
However, to ensure your representation at the Annual Meeting, you are urged to vote in one of the following
three ways whether or not you plan to attend the Annual Meeting: (1) by completing, signing and dating the
accompanying proxy card and returning it in the postage-prepaid envelope enclosed for that purpose, (2) by
completing your proxy using the toll-free number listed on the proxy card, or (3) by completing your proxy via
the Internet at the website address listed on your proxy card. You may revoke your proxy in the manner
described in the accompanying Proxy Statement at any time before it has been voted at the Annual Meeting.
Any stockholder attending the Annual Meeting may vote in person even if he or she has returned a proxy,
voted by telephone or via the Internet.
By Order of the Board of Directors,
DANIEL N. YANNUZZI
Vice President and Assistant Secretary
Irvine, California
February 2, 2004
SKYWORKS SOLUTIONS, INC.
20 Sylvan Road
Woburn, MA 01801
(781) 376-3000
5221 California Avenue
Irvine, CA 92612
(949) 231-3000
PROXY STATEMENT
This Proxy Statement is being furnished in connection with the solicitation of proxies by the Board of
Directors of Skyworks Solutions, Inc., a Delaware corporation (the ""Company'' or ""Skyworks''), for use at
the Company's annual meeting of stockholders to be held on Tuesday, March 30, 2004, at the Boston Marriott
Burlington, One Mall Road, Burlington, Massachusetts or at any adjournments thereof (the ""Annual
Meeting''). The Company's Annual Report, which includes Ñnancial statements and Management's Discus-
sion and Analysis of Financial Condition and Results of Operations for the Ñscal year ended October 3, 2003,
is being mailed together with this Proxy Statement to all stockholders entitled to vote at the Annual Meeting.
This Proxy Statement and form of proxy are expected to be mailed to stockholders on or about February 9,
2004.
Only stockholders of record at the close of business on January 30, 2004 (the ""Record Date''), are
entitled to notice of and to vote at the Annual Meeting. As of the Record Date, there were 149,083,148 shares
of Skyworks' common stock issued and outstanding. Pursuant to Skyworks' CertiÑcate of Incorporation and
By-Laws, and applicable Delaware law, each share of common stock entitles the holder of record at the close
of business on the Record Date to one vote on any proposal or matter considered at the Annual Meeting. As a
stockholder, you may vote in one of the following three ways whether or not you plan to attend the Annual
Meeting: (1) by completing, signing and dating the accompanying proxy card and returning it in the postage-
prepaid envelope enclosed for that purpose, (2) by completing your proxy using the toll-free telephone
number listed on the proxy card, or (3) by completing your proxy via the Internet at the website address listed
on the proxy card. If you attend the Annual Meeting, you may vote in person even if you have previously
returned your proxy card or voted by telephone or via the Internet. If your shares are held in ""street name,''
please check your proxy card or contact your broker or nominee to determine whether you will be able to vote
by telephone or via the Internet.
Any proxy given pursuant to this solicitation may be revoked by the person giving it at any time before it
is voted. Proxies may be revoked by (i) Ñling with the Secretary of the Company, before the taking of the vote
at the Annual Meeting, a written notice of revocation bearing a later date than the proxy, (ii) duly completing
a later-dated proxy relating to the same shares and delivering it to the Secretary of the Company before the
taking of the vote at the Annual Meeting or (iii) attending the Annual Meeting and voting in person
(although attendance at the Annual Meeting will not in and of itself constitute a revocation of a proxy). Any
written notice of revocation or subsequent proxy should be sent so as to be delivered to Skyworks Solutions,
Inc., 20 Sylvan Road, Woburn, MA 01801, Attention: Secretary, at or before the taking of the vote at the
Annual Meeting.
The representation in person or by proxy of at least a majority of the outstanding common stock entitled
to vote at the Annual Meeting is necessary to constitute a quorum for the transaction of business. Votes
withheld from any nominee, abstentions and broker ""non-votes'' will be counted as present or represented for
purposes of determining the presence or absence of a quorum for the Annual Meeting. A ""non-vote'' occurs
when a nominee holding shares for a beneÑcial owner votes on one proposal, but does not vote on another
proposal because, in respect of such other proposal, the nominee does not have discretionary voting power and
has not received instructions from the beneÑcial owner.
In the election of directors, the nominees receiving a plurality of the votes of the shares present or
represented and entitled to vote at the Annual Meeting shall be elected as directors. On all other matters being
submitted to stockholders, an aÇrmative vote of a majority of the shares present or represented and voting on
each such matter is required for approval. An automated system administered by the Company's transfer
agent tabulates the votes. The vote on each matter submitted to stockholders is tabulated separately.
Abstentions and broker ""non-votes'' will be counted toward establishment of the required quorum, but will not
be counted for any purpose in determining whether a matter has been approved.
The persons named as attorneys-in-fact in the proxies, David J. Aldrich and Paul E. Vincent, were
selected by the Board of Directors and are oÇcers of the Company. All properly executed proxies returned in
time to be counted at the Annual Meeting will be voted. Where a choice has been speciÑed on the proxy with
respect to the foregoing matters, the shares represented by the proxy will be voted in accordance with the
speciÑcations. If no such speciÑcations are indicated, such proxies will be voted FOR the nominees to the
Board of Directors and FOR ratifying the selection of KPMG LLP, independent public accountants, as
auditors of the Company for the 2004 Ñscal year.
If you plan to attend the Annual Meeting please be sure to check the box on your proxy card indicating
your desire to attend and save the admission ticket attached to your proxy (the top portion); or, indicate your
desire to attend through Skyworks' telephone or Internet voting procedures, and save the admission ticket
attached to your proxy. If your shares are held in ""street name,'' please check your proxy card or contact your
broker or nominee to determine whether you will be able to indicate such desire by telephone or via the
Internet. In order to be admitted to the Annual Meeting, you will need to present your admission ticket, as
well as provide a valid picture identiÑcation, such as a driver's license or passport. If your shares are not
registered in your own name, in addition to bringing your admission ticket, you should contact your broker or
agent in whose name your shares are registered to obtain a broker's proxy and bring that to the Annual
Meeting in order to vote.
In order to reduce printing and postage costs, American Stock Transfer and Trust Company (""AST&T'')
has undertaken an eÅort to deliver only one Annual Report and one Proxy Statement to multiple stockholders
sharing an address. This delivery method, called ""householding,'' is not being used, however, if AST&T has
received contrary instructions from one or more of the stockholders sharing an address. If your household has
received only one Annual Report and one Proxy Statement, the Company will promptly deliver a separate
copy of the Annual Report and the Proxy Statement to any stockholder who sends a written request to
Skyworks Solutions, Inc., 5221 California Avenue, Irvine, CA 92612, Attention: Investor Relations. You can
also notify AST&T that you would like to receive separate copies of our Annual Report and Proxy Statement
in the future by contacting AST&T at 800-937-5449 or via its website at http://www.amstock.com. Even if
your household has received only one Annual Report and one Proxy Statement, a separate proxy card should
have been provided for each stockholder account. Each individual proxy card should be signed, dated, and
returned in the enclosed self-addressed envelope (or voted by telephone or via the Internet, as described
therein). If your household has received multiple copies of our Annual Report and Proxy Statement, you can
request the delivery of single copies in the future by completing the enclosed consent, if applicable, or writing
or calling AST&T directly at 800-937-5449.
If you are a participant in the Skyworks 401(k) Savings and Investment Plan, you will receive a proxy
card for the Skyworks shares you own through the 401(k) Plan. That proxy card will serve as a voting
instruction card for the trustee of the 401(k) Plan, and your 401(k) Plan shares will be voted as you instruct.
2
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
To the Company's knowledge, the following table sets forth the beneÑcial ownership of the Company's
common stock as of January 20, 2004, by the following individuals or entities: (i) each person who beneÑcially
owns 5% or more of the outstanding shares of the Company's common stock as of January 20, 2004; (ii) the
Named Executives (as deÑned herein under the heading ""Compensation of Executive OÇcers''); (iii) each
director and nominee for director; and (iv) all current executive oÇcers and directors of the Company, as a
group.
BeneÑcial ownership is determined in accordance with the rules of the Securities and Exchange
Commission (""SEC''). As of January 20, 2004, there were 148,987,299 shares of Skyworks common stock
issued and outstanding.
In computing the number of shares of Company common stock beneÑcially owned by a person and the
percentage ownership of that person, shares of Company common stock that will be subject to stock options
held by that person that are currently exercisable or that will become exercisable within 60 days of January 20,
2004, are deemed outstanding. These shares are not, however, deemed outstanding for the purpose of
computing the percentage ownership of any other person.
Names and Addresses of BeneÑcial Owners(1)
David J. Aldrich ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Kevin D. Barber ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Donald R. Beall ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Moiz M. BeguwalaÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Dwight W. Decker ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Timothy R. FureyÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Liam K. GriÇn ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Balakrishnan S. IyerÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Allan M. Kline ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Thomas C. Leonard ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
George M. LeVan ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
David J. McLachlan ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Paul E. Vincent(7) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
All directors and executive oÇcers as a group ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
* Less than 1%
Number of Shares
BeneÑcially Owned(2)
Percent of Class
546,331(3)
107,909(3)(4)
493,922(4)(5)
358,050(4)
1,361,407(4)
105,750
77,901(3)
361,822(4)
5,000
80,307(3)(6)
92,104(3)
58,850(2)
236,331(3)
(*)
(*)
(*)
(*)
(*)
(*)
(*)
(*)
(*)
(*)
(*)
(*)
(*)
3,885,684(3)(4)(5) 2.61%
(1) Each person's address is the address of the Company. Unless otherwise noted, stockholders have sole
voting and investment power with respect to shares, except to the extent such power may be shared by a
spouse or otherwise subject to applicable community property laws.
(2) Includes the number of shares of Company common stock subject to stock options held by that person
that are currently exercisable or will become exercisable within 60 days of January 20, 2004 (the
""Current Options''), as follows: Aldrich Ó 491,250 shares under Current Options; Barber Ó 103,219 shares
under Current Options; Beall Ó 267,995 shares under Current Options; Beguwala Ó 346,010 shares under
Current Options; Decker Ó 1,310,277 shares under Current Options; Furey Ó 105,750 shares under
Current Options; GriÇn Ó 75,000 shares under Current Options; Iyer Ó 355,687 shares under Current
Options; Leonard Ó 33,750 shares under Current Options; LeVan Ó 80,001 shares under Current Options;
McLachlan Ó 56,250 shares under Current Options; Vincent Ó 160,500 shares under Current Options; all
directors and executive oÇcers as a group Ó 3,385,689 shares under Current Options.
(3) Includes shares held in the Company's 401(k) savings plan.
(4) Includes shares held in savings plan(s) of Conexant Systems, Inc., and/or Rockwell Automation, Inc.,
resulting from the distribution of Skyworks' shares for shares of Conexant Systems, Inc. held in those
3
plans in connection with the merger of the wireless communications business of Conexant Systems, Inc.
with Skyworks on June 25, 2002.
(5) Excludes 3,510 shares of Company common stock, and 101,151 shares of Company common stock
subject to stock options that are currently exercisable, held in trust for the beneÑt of third parties, all of
which Mr. Beall disclaims beneÑcial ownership.
(6) Excludes 1,179 shares of Company common stock held in trust for the beneÑt of third parties, all of
which Mr. Leonard disclaims beneÑcial ownership.
(7) Mr. Vincent was the Chief Financial OÇcer and an executive oÇcer through January 4, 2004. He has
been succeeded by Mr. Allan M. Kline as Chief Financial OÇcer, eÅective January 5, 2004.
4
PROPOSALS TO BE VOTED
PROPOSAL 1
ELECTION OF DIRECTORS
The Company's CertiÑcate of Incorporation and By-Laws provide that the Board of Directors shall be
divided into three classes, each class consisting, as nearly as possible, of one-third of the total number of
directors, with each class having a three-year term. A director elected by the Board of Directors to Ñll a
vacancy (including a vacancy created by an increase in the authorized number of directors) shall serve for the
remainder of the full term of the class of directors in which the vacancy occurred and until such director's
successor is elected and has been duly qualiÑed or until his earlier death, resignation or removal.
The Board of Directors currently comprises nine members. The ninth member, added to Ñll an existing
vacancy, is Kevin L. Beebe. Mr. Beebe was recommended for the Board of Director's selection by our
Nominating and Corporate Governance Committee, which is comprised solely of independent directors within
the meaning of the applicable listing standards of The Nasdaq Stock Market (the ""NASD Rules''), and he
was appointed by the full Board of Directors on January 26, 2004.
Messrs. Beebe, Furey and McLachlan are nominated for election as Class II directors to hold oÇce until
the 2007 annual meeting of stockholders and thereafter until their successors have been duly elected and
qualiÑed. The nominees have not been nominated pursuant to any arrangement or understanding with any
person. Directors are elected by a plurality of the votes present in person or represented by proxy and entitled
to vote at the meeting. Shares represented by all proxies received by the Board of Directors and not so marked
as to withhold authority to vote for the nominees will be voted FOR the election of the three nominees. Each
person nominated for election has agreed to serve if elected, and the Board of Directors knows of no reason
why any nominee should be unable or unwilling to serve, but if such should be the case, proxies will be voted
for the election of some other person or for Ñxing the number of directors at a lesser number.
Set forth below is biographical information for each person nominated and each person whose term of
oÇce as a director will continue after the Annual Meeting.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS
A VOTE ""FOR'' THE NOMINEES LISTED BELOW
At least a majority of the members of the Board of Directors of Skyworks must be independent directors
within the meaning of the applicable NASD Rules by our 2005 annual meeting of stockholders. The Company
expects to have a majority of independent directors on its Board of Directors by the deadline mandated under
the NASD Rules. In connection with these compliance eÅorts, the Company currently expects that one or
more non-independent directors will resign from our Board of Directors prior to the 2005 annual meeting of
stockholders. Accordingly, the Board of Directors has unanimously determined to reclassify certain directors
to avoid the potential re-election at the 2004 Annual Meeting of any non-independent directors who may
resign in the coming year as additional independent directors are elected to the Board of Directors. The Board
of Directors, as reclassiÑed, is set forth below.
5
The following table sets forth the nominees to be elected at the Annual Meeting and, for each director
whose term of oÇce will extend beyond the Annual Meeting, the year such nominee or director was Ñrst
elected a director, the positions currently held by the nominee and each director with the Company, the year
each nominee's or director's term will expire and class of director of each nominee and each director:
Nominee's or Director's Name
and Year He or She
First Became a Director
Position(s) with the Company
Year Term
Will Expire
Class of
Director
Nominees:
Kevin L. Beebe (2004)(1)(2)(3) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Non-Employee Director
Timothy R. Furey (1998)(1)(2)(3) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Non-Employee Director
David J. McLachlan (2000)(1)(2)(3) ÏÏÏÏÏÏÏÏÏÏÏÏÏ Non-Employee Director
Continuing Directors:
Donald R. Beall (2002) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Non-Employee Director
Balakrishnan S. Iyer (2002) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Non-Employee Director
Thomas C. Leonard (1996)ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Non-Employee Director
David J. Aldrich (2000)ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ President, Chief Executive
OÇcer and Director
Moiz M. Beguwala (2002) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Non-Employee Director
Dwight W. Decker (2002)ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Non-Employee Director
2007
2007
2007
2006
2006
2006
2005
2005
2005
II
II
II
I
I
I
III
III
III
and Chairman of the
Board
(1) Member of the Audit Committee
(2) Member of the Compensation Committee
(3) Member of the Nominating and Corporate Governance Committee
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth for each director of the Company and the current executive oÇcers of the
Company, their ages and present positions with the Company:
Name
Dwight W. Decker ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
David J. AldrichÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Allan M. Kline ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Kevin D. Barber ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Liam K. GriÇn ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
George M. LeVan ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Donald R. Beall ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Kevin L. Beebe ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Moiz M. BeguwalaÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Timothy R. Furey ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Balakrishnan S. Iyer ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Thomas C. Leonard ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
David J. McLachlan ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Age
53
47
58
43
37
58
65
44
57
45
47
69
65
Title
Chairman of the Board
President, Chief Executive OÇcer and Director
Vice President and Chief Financial OÇcer
Senior Vice President, RF Solutions
Vice President, Sales and Marketing
Vice President, Human Resources
Director
Director
Director
Director
Director
Director
Director
Dwight W. Decker, age 53, has been Chairman of the Board since June 2002. Dr. Decker has also served
as Chairman of the Board and Chief Executive OÇcer of Conexant Systems, Inc. (a broadband communica-
tion semiconductor company) since November 1998 and has served as a director since 1996. He served as
Senior Vice President of Rockwell International Corporation (now, Rockwell Automation, Inc.) (electronic
6
controls and communications); President, Rockwell Semiconductor Systems (now Conexant) from July 1998
to December 1998; Senior Vice President of Rockwell; and President, Rockwell Semiconductor Systems and
Electronic Commerce prior thereto. Dr. Decker is also a director of Mindspeed Technologies, Inc.
(networking infrastructure semiconductors), PaciÑc Mutual Holding Company (life insurance) and Jazz
Semiconductor, Inc. (semiconductor wafer foundry). He is also a director or member of numerous
professional and civic organizations.
David J. Aldrich, age 47, has served as Chief Executive OÇcer, President and Director of the Company
since April 2000. From September 1999 to April 2000, Mr. Aldrich served as President and Chief Operating
OÇcer. From May 1996 to May 1999, when he was appointed Executive Vice President, Mr. Aldrich served
as Vice President and General Manager of the semiconductor products business unit. Mr. Aldrich joined us in
1995 as our Vice President, Chief Financial OÇcer and Treasurer. From 1989 to 1995, Mr. Aldrich held
senior management positions at M/A-COM, Inc., a developer and manufacturer of radio frequency and
microwave semiconductors, components and IP networking solutions, including Manager Integrated Circuits
Active Products, Corporate Vice President Strategic Planning, Director of Finance and Administration and
Director of Strategic Initiatives with the Microelectronics Division.
Allan M. Kline, age 58, has been Vice President and Chief Financial OÇcer since January 2004.
Previously, he was Chief Financial OÇcer of Fibermark, Inc., a producer of specialty Ñber based materials in
2003. Prior to this, Mr. Kline served as Chief Financial OÇcer for Acterna Corporation, a global
communications test and management company from 1996 to 2002, which Ñled a voluntary petition for
reorganization under Chapter 11 of the United States Bankruptcy Code on May 6, 2003. He has also served as
Chief Financial OÇcer for CrossComm Corp., a provider of internetworking systems from 1995 to 1996 and
for Cabot Safety Corporation, a subsidiary of Cabot Corporation, a basic materials manufacturer from 1990 to
1994. Mr. Kline was also a Vice President at O'Connor, Wright Wyman, Inc., an M&A advisory Ñrm from
2002 to 2003, and served on the Board of Directors of Acterna and CrossComm as well as the Massachusetts
Telecommunications Council. He began his career at Arthur Young & Co. in 1969, where he was a partner for
six years.
Kevin D. Barber, age 43, has served as Senior Vice President and General Manager of RF Solutions since
September 2003. Mr. Barber served as Senior Vice President, Operations from June 2002 to September 2003;
Senior Vice President, Operations of Conexant Systems, Inc. (broadband communication semiconductors)
from February 2001 to June 2002; Vice President, Internal Manufacturing from August 2000 to February
2001; Vice President, Device Manufacturing from March 1999 to August 2000; Vice President, Strategic
Sourcing from November 1998 to March 1999; and Director, Material Sourcing of Rockwell Semiconductor
Systems (now Conexant) from May 1997 to November 1998. Prior to this, Mr. Barber held various
engineering and operational roles at Rockwell Semiconductor Systems since April 1984.
Liam K. GriÇn, age 37, has served as Vice President, Sales and Marketing since August 2001.
Previously, Mr. GriÇn was employed by Vectron International, a division of Dover Corp., as Vice President of
Worldwide Sales from 1997 to 2001, and as Vice President of North American Sales from 1995 to 1997. His
prior experience included positions as a Marketing Manager at AT&T Microelectronics, Inc. and Product and
Process Engineer at AT&T Network Systems.
George M. LeVan, age 58, has served as Vice President, Human Resources since June 2002. Previously,
Mr. LeVan served as Director, Human Resources, from 1991 to 2002 and has managed our human resource
department since joining us in 1982. Prior to 1982, he held human resources positions at Data Terminal
Systems, Inc., W.R. Grace & Co., Compo Industries, Inc. and RCA.
Donald R. Beall, age 65, has been a director since June 2002. He retired from Rockwell International
Corporation in 1998, after serving as Chairman, Chief Executive OÇcer or President for nearly 20 years.
Mr. Beall is Chairman of the Executive Committee, and advisor to and a director of Rockwell Collins, Inc.
(avionics and communications). Mr. Beall is also a director of Conexant Systems, Inc., Mindspeed
Technologies, Inc., Jazz Semiconductor, Inc. and CT Realty. He is a former director of The Procter &
Gamble Company, Amoco Corporation, ArvinMeritor, Inc., Rockwell International Corporation and The
Times Mirror Company. He is a trustee of California Institute of Technology, a member of various University
7
of California, Irvine supporting organizations, and an overseer of the Hoover Institute at Stanford University.
He is an investor, director, and/or advisor with several venture capital groups, private companies and
investment partnerships.
Kevin L. Beebe, age 44, has been a director since January 2004. He has been Group President of
Operations at ALLTEL Corporation, a telecommunications services company, since 1998. From 1996 to
1998, Mr. Beebe served as Executive Vice President of Operations for 360 Corporation, a wireless
communication company. He has held a variety of executive and senior management positions at several
divisions of Sprint, including Vice President of Operations and Vice President of Marketing and Administra-
tion for Sprint Cellular, Director of Marketing for Sprint North Central Division, Director of Engineering and
Operations StaÅ and Director of Product Management and Business Development for Sprint Southeast
Division, as well as StaÅ Director of Product Services at Sprint Corporation. Mr. Beebe began his career at
AT&T/Southwestern Bell as a Manager.
Moiz M. Beguwala, age 57, has been a director since June 2002. He is an executive employee of Conexant
Systems, Inc. He served as Senior Vice President and General Manager of the Wireless Communications
business unit of Conexant from January 1999 to June 2002. Prior to Conexant's spin-oÅ from Rockwell
International Corporation, Mr. Beguwala served as Vice President and General Manager, Wireless Communi-
cations Division, Rockwell Semiconductor Systems, Inc. from October 1998 to December 1998; Vice
President and General Manager Personal Computing Division, Rockwell Semiconductor Systems, Inc. from
January 1998 to October 1998; and Vice President, Worldwide Sales, Rockwell Semiconductor Systems, Inc.
from October 1995 to January 1998.
Timothy R. Furey, age 45, has been a director since 1998. He has been Chief Executive OÇcer of
MarketBridge, a privately-owned sales and marketing strategy and technology professional services Ñrm, since
1991. His company's clients include organizations such as IBM, British Telecom and other global Fortune 500
companies selling complex technology products and services into both OEM and end-user markets. Prior to
1991, Mr. Furey held a variety of consulting positions with Boston Consulting Group, Strategic Planning
Associates, Kaiser Associates and the Marketing Science Institute.
Balakrishnan S. Iyer, age 47, has been a director since June 2002. He served as Senior Vice President
and Chief Financial OÇcer of Conexant Systems, Inc. from December 1998 to June 2003, and as a director of
Conexant since February 2002. Prior to joining Conexant, Mr. Iyer served as Senior Vice President and Chief
Financial OÇcer of VLSI Technology Inc. Prior to that, he was corporate controller for Cypress Semiconduc-
tor Corp. and Director of Finance for Advanced Micro Devices, Inc. Mr. Iyer serves on the Board of Directors
of Conexant, Invitrogen Corporation and QLogic Corporation.
Thomas C. Leonard, age 69, has been a director since August 1996. From April 2000 until June 2002 he
served as Chairman of the Board. From September 1999 to April 2000, he served as Chief Executive OÇcer.
From July 1996 to September 1999, he served as President and Chief Executive OÇcer. Mr. Leonard joined
us in 1992 as a Division General Manager and was elected a Vice President in 1994. Mr. Leonard has over
thirty years' experience in the microwave industry, having held a variety of executive and senior level
management and marketing positions at M/A-COM, Inc., Varian Associates, Inc. and Sylvania.
David J. McLachlan, age 65, has been a director since 2000. He also was the Executive Vice President
and Chief Financial OÇcer of Genzyme Corporation, a biotechnology company, from 1989 to 1999.
Mr. McLachlan is currently a senior adviser to Genzyme's Chairman and Chief Executive OÇcer. Prior to
joining Genzyme, Mr. McLachlan served as Vice President, Finance of Adams-Russell Company, an
electronic component supplier and cable television franchise owner. Mr. McLachlan also serves on the Boards
of Directors of Dyax Corporation, a biotechnology company, and HearUSA, Ltd., a hearing care services
company.
As part of the terms of the merger of Alpha Industries, Inc. (""Alpha'') with the wireless business of
Conexant Systems, Inc. (""Conexant''), four designees of Conexant Ì Donald R. Beall, Moiz M. Beguwala,
Dwight W. Decker and Balakrishnan S. Iyer Ì were appointed to the Skyworks Board of Directors, joining
four members who had been serving on the Board of Directors having been previously elected by the
8
stockholders of Alpha. Each of the four Conexant designees to the Board of Directors continues to have a
business relationship with Conexant. Mr. Decker currently serves as the Chief Executive OÇcer, as well as the
Chairman of the Board, of Conexant. Mr. Iyer currently serves as a non-employee director of Conexant and
recently retired as Conexant's Chief Financial OÇcer. Mr. Beguwala is a current employee, as well as a former
executive oÇcer, of Conexant. Mr. Beall is a non-employee director of Conexant. Conexant has made, during
our last full Ñscal year, and proposes to make during our current Ñscal year, payments to us for services in
excess of Ñve percent of our consolidated gross revenues for our last full Ñscal year, and in excess of Ñve
percent of Conexant's consolidated gross revenues for its last full Ñscal year. These payments are in respect of
goods and/or services provided as described in this Proxy Statement under the heading ""Certain Business
Relationships and Related Transactions.''
CORPORATE GOVERNANCE
Board of Director and Stockholder Meetings: The Board of Directors met seven times during the Ñscal
year ended October 3, 2003 (""Ñscal year 2003''). All directors attended at least 75% of the Board of Directors
meetings and assigned committee meetings in Ñscal year 2003. While the Company encourages all members
of the Board of Directors to attend the Annual Meeting, there is no formal policy as to their attendance at
each of the annual meetings of stockholders. Beginning after this Annual Meeting, the Company anticipates
that a meeting of the Board of Directors will be held on the same date as the annual stockholder meeting and,
accordingly, directors will be expected to be present at such stockholder meetings. A majority of the members
of the Board of Directors attended the 2003 annual meeting of stockholders.
Board of Director Independence: Each year, the Board of Directors reviews the relationships that each
director has with the Company and with other parties. Only those directors who do not have any of the
categorical relationships that preclude them from being independent within the meaning of applicable NASD
Rules and who the Board of Directors aÇrmatively determines have no relationships that would interfere with
the exercise of independent judgment in carrying out the responsibilities of a director, are considered to be
independent directors. The Board of Directors has reviewed a number of factors to evaluate the independence
of each of its members. These factors include its members' current and historic relationships with the
Company and its competitors, suppliers and customers; their relationships with management and other
directors; the relationships their current and former employers have with the Company; and the relationships
between the Company and other companies of which the Company's board members are directors or
executive oÇcers. After evaluating these factors the Board of Directors has determined that Kevin L. Beebe,
Timothy R. Furey, and David J. McLachlan, are independent directors of the Company within the meaning of
applicable NASD Rules.
Independent members of the Board of Directors of the Company meet in executive session without
management present, and are scheduled to do so at least two times per year. The Board of Directors has
designated Timothy R. Furey as the presiding director for these meetings.
Stockholder Communications: Our stockholders may communicate directly with the members of the
Board of Directors or the individual chairman of standing Board of Directors committees by writing directly to
those individuals at the following address: 20 Sylvan Road, Woburn, MA 01801. The Company's general
policy is to forward, and not to intentionally screen, any mail received at the Company's corporate oÇce that is
sent directly to an individual unless the Company believes the communication may pose a security risk.
Codes of Ethics: The Board of Directors has adopted a Code of Business Conduct and Ethics that
applies to all of our employees, oÇcers and directors, and a Code of Ethics For Principal Financial OÇcers.
Links to these codes of ethics are on the Investor Relations portion of our website at:
http://www.skyworksinc.com.
COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors has a standing Audit Committee, Compensation Committee, and Nominating
and Corporate Governance Committee. The Board of Directors has determined that all of the directors who
9
serve on these committees, are independent within the meaning of applicable NASD Rules and Sec-
tion 10A(m)(3) of the Securities Exchange Act of 1934 (the ""Exchange Act'').
The Board of Directors has adopted a charter for each of the three standing committees. Links to these
committee charters are on the Investor Relations portion our website at: http://www.skyworksinc.com.
Audit Committee: The members of the Audit Committee are Mr. McLachlan, who serves as the
chairman, and Messrs. Beebe and Furey. Each of the members of the committee are independent within the
meaning of applicable NASD Rules. The Board of Directors has determined that the Chairman of the Audit
Committee, Mr. McLachlan, is an ""audit committee Ñnancial expert'' as deÑned in Item 401(h) of
Regulation S-K.
The Audit Committee has oversight responsibility for the quality and integrity of Skyworks' Ñnancial
statements. The committee meets privately with the independent auditors, has the sole authority to retain and
dismiss the independent auditors and reviews their performance and independence from management. The
independent auditors have unrestricted access and report directly to the committee. The Audit Committee
met nine times during Ñscal year 2003. The primary functions of the Audit Committee are to oversee: (i) the
audit of the Ñnancial statements of the Company provided to the SEC, the Corporation's stockholders and to
the general public; (ii) the Corporation's internal Ñnancial and accounting processes; and (iii) the indepen-
dent audit process. Additionally, the Audit Committee has responsibilities and authority necessary to comply
with Rule 10A-3(b)(2), (3), (4), and (5) under the Exchange Act. These and other aspects of the Audit
Committee's authority are more particularly described in the Audit Committee Charter adopted by the Board
of Directors in September 2002, Ñled with last year's Proxy Statement and available on the Investor Relations
portion our website at: http://www.skyworksinc.com.
In 2003, the Audit Committee adopted a formal policy concerning approval of audit and non-audit
services to be provided to the Company by its independent auditor, KPMG, LLP. The policy requires that all
services to be provided by KPMG, LLP, including audit services and permitted audit-related and non-audit
services, must be pre-approved by the Audit Committee. The Audit Committee approved all audit and non-
audit services provided by KPMG, LLP during Ñscal year 2003.
Compensation Committee: The members of the Compensation Committee are Mr. Furey, who serves
as the chairman, and Messrs. Beebe and McLachlan each of whom are non-employee directors and are also
independent within the meaning of NASD Rules. The Compensation Committee met three times during
Ñscal year 2003. The functions of the Compensation Committee include making recommendations to the
Board of Directors concerning compensation, including incentive compensation, of the Chief Executive
OÇcer, all other executive oÇcers and any other oÇcers or employees who report directly to the Chief
Executive OÇcer. The Compensation Committee also administers Skyworks' stock option plans.
Nominating and Corporate Governance Committee:
In November 2003 the Board of Directors renamed
and reconstituted its Nominating Committee as a fully independent Nominating and Corporate Governance
Committee. The members of the Nominating and Corporate Governance Committee, all of whom are
independent within the meaning of the applicable NASD Rules, are Mr. Furey, who serves as the chairman,
and Messrs. Beebe and McLachlan. The prior Nominating Committee held no meetings in Ñscal year 2003.
The reconstituted Nominating and Corporate Governance Committee held three formal meetings since its
inception and several informal meetings to discuss its charter and board composition.
The Nominating and Corporate Governance Committee is responsible for evaluating and recommending
individuals for election or reelection to the Board of Directors and its committees, including those
recommendations submitted by stockholders, the evaluation of the performance of the Board of Directors and
its committees, and the evaluation and recommendation of the corporate governance policies.
It is a policy of the Nominating and Corporate Governance Committee that candidates for director
possess the highest personal and professional integrity, have demonstrated exceptional ability and judgment,
and have skills and expertise appropriate for the Company and serving the long-term interest of the
Company's stockholders. The committee's process for identifying and evaluating nominees is as follows: (1) in
the case of incumbent directors whose terms of oÇce are set to expire, the committee reviews such directors'
10
overall service to the Company during their term, including the number of meetings attended, level of
participation, quality of performance, and any related party transactions with the Company during the
applicable time period; and (2) in the case of new director candidates, the committee Ñrst conducts any
appropriate and necessary inquiries into the backgrounds and qualiÑcations of possible candidates after
considering the function and needs of the Board of Directors. The committee meets to discuss and consider
such candidates' qualiÑcations, including whether the nominee is independent for purposes of the NASD
Rules, and then selects a candidate for recommendation to the Board of Directors by majority vote. In seeking
potential nominees, the Nominating and Corporate Governance Committee uses its network of contacts to
compile a list of potential candidates, but may also engage, if it deems appropriate, a professional search Ñrm.
To date, the Nominating and Corporate Governance Committee has not paid a fee to any third party to assist
in the process of identifying or evaluating director candidates, nor has the committee rejected a timely director
nominee from a stockholder(s) holding more than 5% of the Company's voting stock.
The Nominating and Corporate Governance Committee will consider director candidates recommended
by stockholders provided the stockholders follow the procedures set forth below. The committee does not
intend to alter the manner in which it evaluates candidates, including the criteria set forth above, based on
whether the candidate was recommended by a stockholder or otherwise.
Stockholders who wish to recommend individuals for consideration by the Nominating and Corporate
Governance Committee to become nominees for election to the Board of Directors may do so by submitting a
written recommendation to the committee in accordance with the procedures set forth below in this Proxy
Statement under the heading ""Stockholder Proposals.'' For nominees for election to the Board of Directors
proposed by stockholders to be considered, the following information concerning each nominee must be timely
submitted in accordance with the required procedures: (1) the nominee's name, age, business address,
residence address, principal occupation or employment, the class and number of shares of the Company's
capital stock the nominee beneÑcially owns and any other information relating to the nominee that is required
to be disclosed in solicitations for proxies for election of directors pursuant to Section 14 of the Exchange Act
and the rules and regulations thereunder; and (2) as to the stockholder proposing such nominee, that
stockholder's name and address, the class and number of shares of the Company's capital stock the
stockholder beneÑcially owns, a description of all arrangements and understandings between the stockholder
and the nominee or any other person (including their names) pursuant to which the nomination is made, a
representation that the stockholder intends to appear in person or by proxy at the meeting to nominate the
person named in its notice and any other information relating to the stockholder that is required to be
disclosed in solicitations for proxies for election of directors pursuant to Section 14 of the Exchange Act and
the rules and regulations thereunder. The notice must also be accompanied by a written consent of the
proposed nominee to being named as a nominee and to serve as a director if elected.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee of the Board of Directors comprises Messrs. Beebe, Furey and McLach-
lan. No member of this committee was at any time during the past Ñscal year an oÇcer or employee of the
Company, was formerly an oÇcer of the Company or any of its subsidiaries, or had any employment
relationship with the Company. No ""compensation committee interlocks'' existed during Ñscal year 2003.
11
PROPOSAL 2
RATIFICATION OF THE SELECTION OF KPMG LLP AS
INDEPENDENT AUDITORS OF THE COMPANY
The Audit Committee, subject to stockholder approval, has selected KPMG LLP as the Company's
independent auditors for the current Ñscal year ending October 1, 2004, and has further directed that
management submit the selection of independent auditors for ratiÑcation by the stockholders at the Annual
Meeting. KPMG LLP were the independent auditors for the Company for the Ñscal year ended October 3,
2003, and have been the independent auditors for the Company's predecessor, Alpha Industries, Inc., since
1975. The Ñrm is a member of the SEC Practice Section of the American Institute of CertiÑed Public
Accountants. We are asking the stockholders to ratify the appointment of KPMG, LLP as the Company's
independent auditors for the Ñscal year 2004.
Representatives of KPMG LLP are expected to attend the Annual Meeting. They will have an
opportunity to make a statement if they desire to do so and will be available to respond to appropriate
stockholder questions.
Stockholder ratiÑcation of the selection of KPMG LLP as the Company's independent public account-
ants is not required by the Company's By-Laws or other applicable legal requirements. However, the Audit
Committee is submitting the selection of KPMG LLP to the stockholders for ratiÑcation as a matter of good
corporate practice. In the event stockholders fail to ratify the appointment, the Audit Committee may
reconsider this appointment. Even if the appointment is ratiÑed, the Audit Committee, in its discretion, may
direct the appointment of a diÅerent independent accounting Ñrm at any time during the year if the Audit
Committee determines that such a change would be in the Company's and our stockholders' best interests.
AUDIT FEES
KPMG LLP provided audit services to the Company consisting of the annual audit of the Company's
2003 consolidated Ñnancial statements contained in the Company's Annual Report on Form 10-K and reviews
of the Ñnancial statements contained in the Company's Quarterly Reports on Form 10-Q for Ñscal year 2003.
Fee Category
Audit Fees ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Audit-Related FeesÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Tax Fees ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
All Other Fees ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Fiscal Year
2003
$ 426,000
$ 221,600
$ 160,100
$ 202,300
% of Total
42%
22%
16%
20%
Fiscal Year
2002
$445,000
$ 52,000
$ 93,000
Ì
$
% of Total
75%
9%
16%
0%
Total Fees ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$1,010,000
100%
$590,000
100%
FINANCIAL INFORMATION SYSTEMS DESIGN AND IMPLEMENTATION
KPMG LLP did not provide any services related to the Ñnancial information systems design and
implementation during Ñscal year 2003.
The aÇrmative vote of the holders of a majority of the shares represented and entitled to vote at the
meeting will be required to ratify the selection of KPMG LLP as the Company's independent public
accountants for the Ñscal year ending October 1, 2004. Abstentions and broker ""non-votes'' will be counted
toward a quorum, but will not be counted for any purpose in determining whether this matter has been
approved.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE ""FOR''
THE RATIFICATION OF THE SELECTION OF KPMG LLP
AS INDEPENDENT AUDITORS OF THE COMPANY
12
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The following Report of the Compensation Committee shall not be deemed to be ""soliciting material'' or
to be ""Ñled'' with the SEC nor shall this information be incorporated by reference into any Ñling under the
Securities Act of 1933 (the ""Securities Act'') or the Exchange Act, except to the extent that Skyworks
speciÑcally incorporates it by reference into such Ñling.
The Compensation Committee, which is comprised solely of independent directors within the meaning of
applicable NASD Rules and non-employee directors within the meaning of Section 162 of the Internal
Revenue Code and Rule 16b-3 under the Exchange Act, is responsible for determining the compensation to be
paid to the Chief Executive OÇcer of Skyworks, each of the Company's executive oÇcers, and any other
oÇcers or employees who report directly to the Chief Executive OÇcer (collectively, the ""Senior Execu-
tives''). The committee approves and continually evaluates our compensation policies applicable to the Senior
Executives, including the Chief Executive OÇcer, and reviews the performance of such Senior Executives.
The committee strongly believes that executive compensation should be directly linked to continuous
improvements in corporate performance and increases in stockholder value and its objectives are to provide:
(1) levels of compensation that enable Skyworks to attract and retain key talent needed to obtain its business
objectives; (2) variable compensation opportunities linked directly to Company performance; and (3) equity
compensation opportunities that link executive compensation to stockholder value. The elements of compen-
sation for the Senior Executives are base salary, short-term cash incentives, and long-term stock-based
incentives.
Compensation for Skyworks' Senior Executives, including salary and short-term and long-term incen-
tives, is established at levels intended to be competitive with the compensation of comparable executives in
similar companies. The Compensation Committee periodically utilizes studies from independent compensa-
tion experts on executive compensation in comparable high technology and semiconductor companies. Based
on these studies, the Compensation Committee establishes base salaries, incentive bonuses and long-term
incentives so as to target the overall compensation at near the median of the range indicated by the studies. In
establishing individual compensation, the Compensation Committee considers the individual experience and
performance of the executive, as well as the performance of Skyworks. The Chief Executive OÇcer is not
present during voting or deliberations of the Compensation Committee concerning his compensation.
However, the Compensation Committee does consider the recommendations of the Chief Executive OÇcer
regarding the compensation of the other Senior Executives.
Short-term incentive compensation for each Senior Executive is established annually by the Compensa-
tion Committee by tying a signiÑcant portion of each Senior Executive's total cash compensation to the
accomplishment of speciÑc Ñnancial objectives. The Compensation Committee established aggressive for-
ward-looking incentive targets for Skyworks' Senior Executives for Ñscal year 2003. Due to the challenging
business environment in that time period, the Company did not achieve these targets. Consequently, no short-
term incentive compensation was awarded to Skyworks' Senior Executives for Ñscal year 2003.
The Compensation Committee provides our Senior Executives with long-term incentive compensation
under Skyworks' long-term incentive plan (the ""LTIP''). Under the LTIP, the Compensation Committee has,
in the past, awarded nonqualiÑed stock options, and incentive stock options. The committee is responsible for
determining who should receive the grants, when the grants should be made, the exercise price per share and
the number of shares to be granted. These grants are intended to tie the value of our Senior Executive's
compensation to the long-term value of Skyworks' common stock. The stock options granted by the
committee utilize vesting periods in order to encourage key employees to remain employed by Skyworks. The
committee can also make restricted stock awards, which can be similarly beneÑcial to executives as the value
of the award relates to stock price. For Ñscal year 2003, no restricted stock awards were made to any Senior
Executives.
Skyworks also permits Senior Executives and other employees to purchase Skyworks common stock at a
discount through the Company's Employee Stock Purchase Plan. Skyworks' employees, including the Senior
Executives, may also participate in the Company's 401(k) Plan, under which Skyworks' employer contribu-
tion has in recent years been made in the form of Skyworks common stock. The committee believes that these
13
programs, along with stock options, provide our Senior Executives with the opportunity to acquire long-term
stock ownership positions, and helps to align the executives' interests with stockholders' interests. The
committee believes that this directly motivates Senior Executives to maximize long-term stockholder value.
A Ñnal component of executive compensation provides executives and other highly compensated
employees with a means to defer recognition of income. Senior Executives designated by the Compensation
Committee may participate in this Executive Compensation Plan, which is discussed under ""Executive
Compensation'' in the Proxy Statement.
With regard to Mr. Aldrich, the Company's President and Chief Executive OÇcer, the Compensation
Committee made an overall assessment of Mr. Aldrich's leadership in establishing and executing long-term
and short-term strategic, operational and business goals for the Company. Additionally, as part of the review
process, the Compensation Committee assessed Skyworks' Ñnancial and business results compared to other
companies within the high-technology industry; Skyworks' Ñnancial performance relative to its Ñnancial
performance in prior periods; Skyworks' market competitiveness as measured by new business creation and
product generation; and the health of the Skyworks organization as measured by the ability to attract and
retain key employees. As a result of this review, the Compensation Committee awarded a mix of base salary
and bonus opportunity, along with an equity position to align Mr. Aldrich's compensation with the
performance of Skyworks. The resulting total compensation package was in the middle range of those for chief
executive oÇcers running companies of comparable size and complexity according to studies prepared by
independent compensation consultants. During Ñscal year 2003, Mr. Aldrich received a base salary of
$510,000. As a result of the challenging business environment that persisted during the last Ñscal year,
Skyworks did not exceed the performance targets that the Board of Directors had established in Mr. Aldrich's
compensation plan, and no incentive bonus was awarded to Mr. Aldrich for Ñscal year 2003.
Section 162(m) of the Internal Revenue Code limits the tax deductibility by a publicly held corporation
of compensation in excess of $1 million paid to certain of its executive oÇcers. However, this deduction
limitation does not apply to certain ""qualiÑed performance-based compensation'' within the meaning of the
Internal Revenue Code and the regulations promulgated thereunder. The Compensation Committee has
considered the limitations on deductions imposed by Section 162(m), and it is the Compensation Commit-
tee's intention to structure executive compensation to minimize the application of the deduction limitations of
Section 162(m) insofar as consistent with the Compensation Committee's overall compensation objectives.
Based on the recommendations of the Compensation Committee, Skyworks has entered into severance
agreements with certain Senior Executives. Such agreements do not guarantee salary, position or beneÑts, but
provide salary continuation and other beneÑts in the event of a termination after a change in control or certain
other terminations, as described in this Proxy Statement under the heading ""Severance Agreements.''.
THE COMPENSATION COMMITTEE
Donald R. Beall(1)
Timothy R. Furey, Chairman
David J. McLachlan
(1) Mr. Beall was Chairman of the Compensation Committee during Ñscal year 2003, the period covered by
this report, but is no longer a member of such committee. Mr. Beebe became a member of the
Compensation Committee upon his appointment to the Board of Directors in Ñscal year 2004.
14
REPORT OF THE AUDIT COMMITTEE
The following Report of the Audit Committee shall not be deemed to be ""soliciting material'' or to be
""Ñled'' with the SEC nor shall this information be incorporated by reference into any Ñling under the
Securities Act or the Exchange Act, except to the extent that Skyworks speciÑcally incorporates it by reference
into such Ñling.
The Audit Committee of Skyworks' Board of Directors is responsible for providing independent, objective
oversight of Skyworks' accounting functions and internal controls. The Audit Committee is composed of three
directors, each of whom is independent within the meaning of applicable NASD Rules. The Audit Committee
operates under a written charter approved by the Board of Directors.
Management is responsible for the Company's internal control and Ñnancial reporting process. The
independent accountants are responsible for performing an independent audit of Skyworks' consolidated
Ñnancial statements in accordance with generally accepted auditing standards and for issuing a report
concerning such Ñnancial statements. The Audit Committee's responsibility is to monitor and oversee these
processes.
In connection with these responsibilities, the Audit Committee met with management and representa-
tives of KPMG LLP, the Company's independent auditors, to review and discuss the Ñnancial statements for
the year ended October 3, 2003, results of the internal and external audit examinations, evaluations of the
Company's internal controls and the overall quality of Skyworks' Ñnancial reporting. The Audit Committee
also discussed with the independent auditors the matters required by Statement of Auditing Standards No. 61
(Communications with Audit Committees). The Audit Committee also received written disclosures and a
letter from the independent auditors required by Independence Standards Board Standard No. 1 (Indepen-
dence Discussions with Audit Committees), and the Audit Committee discussed with the independent
accountants that Ñrm's independence vis-fia-vis the Company.
Based upon the Audit Committee's discussions with management and the independent accountants, and
the Audit Committee's review of the representations of management and the independent auditors, the Audit
Committee recommended that the Board of Directors include the audited consolidated Ñnancial statements in
the Company's Annual Report on Form 10-K for the year ended October 3, 2003, as Ñled with the SEC.
THE AUDIT COMMITTEE
Donald R. Beall(1)
Timothy R. Furey
David J. McLachlan, Chairman
(1) Mr. Beall was a member of the Audit Committee during Ñscal year 2003, the period covered by this
report, but is no longer a member of such committee. Mr. Beebe became a member of the Audit
Committee upon his appointment to the Board of Directors in Ñscal year 2004.
15
COMPENSATION OF EXECUTIVE OFFICERS
The following table presents information about total compensation during the last three completed Ñscal
years for the Chief Executive OÇcer and the four next most highly compensated persons serving as executive
oÇcers during the year (the ""Named Executives'').
Name and Principal
Position
David J. Aldrich ÏÏÏÏÏÏÏÏÏÏÏ
President and
Chief Executive OÇcer
Kevin D. BarberÏÏÏÏÏÏÏÏÏÏÏÏ
Senior Vice President,
RF Solutions
Liam K. GriÇn ÏÏÏÏÏÏÏÏÏÏÏÏ
Vice President,
Sales and Marketing
George M. LeVan ÏÏÏÏÏÏÏÏÏÏ
Vice President,
Human Resources
Paul E. Vincent(6) ÏÏÏÏÏÏÏÏÏ
Vice President and
Chief Financial OÇcer
SUMMARY COMPENSATION TABLE
Annual Compensation
Fiscal
Year(1)
Salary
Bonus
Long-Term
Compensation Awards
Restricted
Stock
Awards(#)
Securities
Underlying
Option(#)
All Other
Compensation(2)
2003
$480,000
2002-S $174,462
$351,154
2002
2001
$336,615
2003(3) $307,615
2002(3) $253,846
2001(3) $232,766
2003
$259,423
2002-S $115,885
$130,039
2002
2003
$197,885
2002-S $ 72,692
$144,807
2002
$129,038
2001
2003
$255,461
2002-S $112,431
$226,385
2002
$217,462
2001
Ì
Ì
Ì
$
Ì
Ì
$
Ì
Ì
$
Ì
Ì
$
Ì
Ì
$
Ì
Ì
$
$ 74,850
Ì
$115,000(5) Ì
$
Ì
$ 25,000(5) Ì
Ì
$
Ì
$
Ì
$
Ì
$
Ì
$
Ì
$
Ì
$
Ì
$
Ì
Ì
Ì
Ì
Ì
Ì
Ì
Ì
Ì
475,000
160,000
150,000
Ì
84,552
14,304
Ì
100,000
100,000
Ì
75,000
25,000
18,467
Ì
90,000
50,000
60,000
$ 9,548
$ Ì
$ 8,922
$ 8,550
$ 6,890
$ 7,685
$26,711(4)
$ 7,315
$ Ì
$ 1,062
$10,334
$ 3,431
$ 6,878
$12,432
$ 9,834
$ Ì
$ 8,956
$ 9,681
(1) References to 2002-S refer to the period beginning March 29, 2002, and ending September 27, 2002.
References to the Company's 2002 and 2001 Ñscal years refer to the Ñscal years of Alpha Industries, Inc.
ended March 31, 2002, and April 1, 2001, respectively. In connection with the merger of the wireless
communications business of Conexant Systems, Inc. (the ""Washington Business'') with Alpha Indus-
tries, Inc. on June 25, 2002 (the ""Merger''), the Company changed its Ñscal year-end from the Sunday
closest to March 31 to the Friday closest to September 30.
(2) ""All Other Compensation'' includes service and short-term proÑt-sharing awards, the Company's
contributions to the executive oÇcer's 401(k) plan account (including contributions for the fourth
quarter of each Ñscal year, which were included in the year of accrual but not distributed until the
subsequent Ñscal year), and the cost of term life insurance premiums.
(3) Mr. Barber joined the Company as an executive oÇcer in connection with the Merger on June 25, 2002.
Prior to June 25, 2002, Mr. Barber was an executive oÇcer of Washington/Mexicali. References to the
Ñscal year for Mr. Barber refer to the Ñscal years of Skyworks ending October 3, 2003 and September 27,
2002, and the prior Ñscal year of Washington/Mexicali ended September 2001. The reference to
""Washington/Mexicali'' refers to the Washington Business and Conexant's semiconductor assembly,
module manufacturing and test facility located in Mexicali, Mexico and certain related operations, which
Skyworks acquired from Conexant immediately following the Merger.
(4) Includes Washington/Mexicali's contributions to the executive oÇcer's 401(k) and $21,154 cashout of
accrued vacation.
(5) As incentives for joining the Company in July 2001, Mr. GriÇn received a sign-on bonus of $25,000 and
was guaranteed a one-time bonus of $115,000.
16
(6) Mr. Vincent was the Chief Financial OÇcer and an executive oÇcer of the Company through January 4,
2004. He has been succeeded by Mr. Allan M. Kline, eÅective January 5, 2004.
The following tables provide information about stock options granted to and exercised by each of the
Named Executives in Ñscal year 2003, if any, and the value of options held by each at October 3, 2003.
OPTION GRANTS IN LAST FISCAL YEAR
There were no stock option grants made to any of the Named Executives during Ñscal year 2003.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND
FISCAL YEAR END OPTION VALUES
Shares
Acquired On
Exercise(#)
Value
Realized($)
Number of
Securities Underlying
Unexercised Options
at October 3, 2003(#)
Value of Unexercised
In-The-Money Options
at October 3, 2003($)
Exercisable
Unexercisable
Exercisable
Unexercisable
David J. Aldrich ÏÏÏÏÏÏÏÏ
Kevin D. Barber ÏÏÏÏÏÏÏÏ
Liam K. GriÇnÏÏÏÏÏÏÏÏÏ
George M. LeVan ÏÏÏÏÏÏ
Paul E. Vincent ÏÏÏÏÏÏÏÏ
Ì
Ì
Ì
Ì
Ì
$
$
$
$
$
Ì
Ì
Ì
Ì
Ì
472,500
103,219
75,000
80,001
153,000
516,500
68,095
125,000
79,966
125,000
$921,036
$ 90,938
$ 60,625
$170,716
$356,300
$1,091,250
$ 272,813
$ 181,875
$ 109,125
$ 145,500
The values of unexercised options in the foregoing table are based on the diÅerence between the $9.84
closing price of Skyworks' common stock on October 3, 2003, the end of the 2003 Ñscal year, on the Nasdaq
National Market, and the respective option exercise price.
LONG-TERM INCENTIVE AWARDS
There were no long-term incentive awards granted to any of the Named Executives in Ñscal year 2003.
EXECUTIVE COMPENSATION
Our executives are eligible for awards of nonqualiÑed stock options, incentive stock options and restricted
stock awards under our applicable stock option plans. These stock option plans are administered by the
Compensation Committee of the Board of Directors. Generally, the exercise price at which an executive may
purchase Skyworks' common stock pursuant to a stock option is the fair market value of Skyworks' common
stock on the date of grant. Stock options are granted subject to restrictions on vesting, with equal portions of
the total grant generally vesting over a period of four years. Our stock options are subject to forfeiture (after
certain grace periods) upon termination of employment, retirement, disability or death. Restricted stock
awards involve the issuance of shares of common stock that may not be transferred or otherwise encumbered,
subject to certain exceptions, for varying amounts of time, and which will be forfeited, in whole or in part, if
the executive terminates his or her employment with Skyworks. No restricted stock awards or stock option
grants were made to Named Executives in Ñscal year 2003.
The Named Executives were also eligible to receive target incentive compensation under which a
percentage of each executive's total cash compensation is tied to the accomplishment of speciÑc Ñnancial
objectives during Ñscal year 2003. As a result of a challenging economic and business environment during the
Ñscal year, the Company did not achieve the annual performance targets set by the Board of Directors, and no
incentive bonuses were paid to any of the Named Executives with respect to Ñscal year 2003, except for Liam
GriÇn, who was paid a guaranteed one-time bonus that was promised to him in July 2001 as an incentive for
joining the Company. Named Executives also may participate in the Company's Executive Compensation
Plan (the ""Executive Compensation Plan''), an unfunded, non-qualiÑed deferred compensation plan, under
which participants may defer a portion of their compensation. Deferred amounts are held in a trust.
Participants defer recognizing taxable income on the amount held for their beneÑt until the amounts are paid.
17
The Company, in its sole discretion, may make additional contributions to the accounts of participants.
Participants normally receive the deferred amounts upon retirement.
COMPENSATION OF DIRECTORS
Directors who are not employees of Skyworks are paid a quarterly retainer of $7,500 plus an additional
$1,000 for each Board of Directors meeting attended in person or $500 for each Board of Directors meeting
attended by telephone. Directors who serve as chairman of a committee of the Board of Directors receive an
additional quarterly retainer of $625, and those who serve on a committee but are not chairman receive an
additional quarterly retainer of $312.50. In addition, each new non-employee director receives an option to
purchase 45,000 shares of common stock immediately following the earlier of Skyworks' annual meeting of
stockholders at which the director is Ñrst elected by the stockholders or following his initial appointment by
the Board of Directors. Additionally, following each annual meeting of stockholders each director who is
continuing in oÇce or re-elected receives an option to purchase 15,000 shares of common stock. The exercise
price of stock options granted to directors is equal to the fair market value of the common stock on the date of
grant. During Ñscal year 2001 and prior years, option grants to directors were made from the 1994 and 1997
Non-QualiÑed Stock Option Plans for Non-Employee Directors. Stock option grants to directors for Ñscal
years 2002 and 2003 were made under the 2001 Directors' Stock Option Plan.
In connection with his appointment to the Board of Directors, Mr. Beebe was granted an option to
purchase 45,000 shares of common stock on January 27, 2004, at an exercise price equal to the fair market
value of the common stock on the date of grant under our Directors' 2001 Stock Option Plan.
In connection with their continued service on the Board of Directors, each of Messrs. Beall, Beguwala,
Decker, Furey, Iyer, Leonard and McLachlan were granted an option to purchase 15,000 shares of common
stock on March 30, 2003, at an exercise price equal to the fair market value of the common stock on the date
of grant.
In connection with the Merger of the wireless business of Conexant with Skyworks, Conexant option
holders received options to purchase shares of Skyworks common stock pursuant to the Washington Sub, Inc.
2002 Stock Option Plan (the ""Washington Sub Plan'') with the same vesting provisions and terms as the
original Conexant options from which they were derived. Following the Merger, Conexant extended the
expiration date of certain Conexant options granted to Mr. Donald Beall, one of our directors and also a
director of Conexant, until ten years after the original date of grant of the Conexant options. We were
informed by Conexant that the failure to extend these Conexant options prior to the Merger resulted from an
administrative error. In November 2002, our Board of Directors, acting upon a request from Conexant to
make a corresponding adjustment to Mr. Beall's derivative Skyworks options to assist it in correcting this prior
administrative error, extended the expiration dates of an aggregate of 310,268 derivative options to purchase
Skyworks common stock held by Mr. Beall under the Washington Sub Plan. Mr. Beall's options were
extended so that, instead of expiring on June 30, 2003, such options would continue to be exercisable until the
tenth anniversary of their original grant on dates ranging from December 2004 to December 2006.
SEVERANCE AGREEMENTS
The Company currently has severance agreements with the Messrs. Aldrich, Barber, GriÇn, Kline,
LeVan and Vincent under which each is entitled to receive certain beneÑts in the event that his employment is
terminated following a change in control of the Company, or, with the exception of Mr. Kline, if his
employment is terminated by the Company without cause. In the case of Messrs. Aldrich and Vincent, each
may receive salary and bonus payments and certain beneÑts for up to two years. In the case of Mr. Barber, he
may receive salary and certain beneÑts for up to eighteen (18) months. In the case of Messrs. GriÇn, Kline
and LeVan, each may receive salary and certain beneÑts for up to one year. Furthermore, with respect to
Messrs. Aldrich and Vincent, all of their stock options will vest immediately upon such termination.
Mr. Aldrich's severance agreement provides that he is also entitled to various beneÑts in the event he
voluntarily terminates his employment for certain reasons. Whereas the severance provisions for Messrs.
Aldrich and Vincent are indeÑnite, these provisions for Messrs. Barber, GriÇn, Kline and LeVan expire over
the next two years.
18
STOCK PERFORMANCE GRAPH
The following graph shows the change in Skyworks' cumulative total stockholder return for the last Ñve
Ñscal years, based upon the market price of Skyworks' common stock, compared with: (i) the cumulative total
return on the Standard & Poor's 500 Index and (ii) the Standard & Poor's 500 Semiconductor Index. The
graph assumes a total initial investment of $100 as of September 30, 1998, and shows a ""Total Return'' that
assumes reinvestment of dividends, if any, and is based on market capitalization at the beginning of each
period.
1,400
1,200
1,000
800
600
400
200
0
S
R
A
L
L
O
D
Skyworks Solutions, Inc.
S&P 500 Index
S&P 500 Semiconductors
Sep98
Sep99
Sep00
Sep01
Sep02
Sep03
Years Ending
ANNUAL RETURN PERCENTAGE TABLE
Company/Index
Skyworks Solutions, Inc. ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
S&P 500 Index ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
S&P 500 Semiconductors ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
1999
643.82
27.80
93.53
Years Ending September 30,
2002
2001
2000
20.78
13.28
31.26
(43.13)
(26.62)
(60.74)
(76.61)
(20.49)
(36.38)
2003
106.29
26.75
90.74
INDEXED RETURNS TABLE
Company/Index
Years Ending September 30,
Base Period
1998
1999
2000
2001
2002
2003
Skyworks Solutions, Inc. ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
S&P 500 Index ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
S&P 500 Semiconductors ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
100
100
100
743.82
127.80
193.53
898.35
144.78
254.03
510.86
106.24
99.73
119.47
84.48
63.45
246.46
107.07
121.02
The stock price information shown on the above stock performance graph, annual return percentage table
and indexed returns table are not necessarily indicative of future price performance. Information used on the
graph and in the tables was obtained from Standard & Poor's, a source believed to be reliable, but the
Company is not responsible for any errors or omissions in such information.
Skyworks' common stock is traded on the Nasdaq National Market under the ""SWKS'' ticker symbol.
Prior to June 25, 2002, Skyworks' common stock was traded on the Nasdaq National Market under the
""AHAA'' ticker symbol.
The foregoing stock performance information, including the Stock Performance Graph shall not be
deemed to be ""soliciting material'' or to be ""Ñled'' with the SEC nor shall this information be incorporated by
19
reference into any Ñling under the Securities Act or the Exchange Act, except to the extent that Skyworks
speciÑcally incorporates it by reference into such Ñling.
CERTAIN BUSINESS RELATIONSHIPS AND RELATED TRANSACTIONS
Skyworks was formed through the merger of the wireless business of Conexant Systems, Inc. and Alpha
Industries, Inc. on June 25, 2002. Immediately following the Merger, the Company purchased Conexant's
semiconductor assembly and test facility located in Mexicali, Mexico and certain related operations (the
""Mexicali Operations''). Shortly thereafter, Alpha changed its corporate name to Skyworks Solutions, Inc. In
connection with the Merger, Skyworks and Conexant have engaged in various transactions, including, without
limitation, the transactions described below.
SENIOR NOTES
We issued to Conexant, and have outstanding, 15% convertible senior subordinated notes in a principal
amount of $45 million due June 30, 2005 (the ""Senior Notes''). The Senior Notes were issued under an
indenture entered into by us and Wachovia Bank, National Association, as trustee. We may redeem the Senior
Notes in whole or in part, at any time after May 12, 2004, subject to a redemption premium of 3% of the then
outstanding principal amount thereof. Under the terms of the Senior Notes, Conexant has the right to convert
the outstanding principal amount thereof (or any portion thereof) into a number of shares of our common
stock equal to the principal amount of the Senior Notes to be so converted, divided by the applicable
conversion price, as determined pursuant to the terms of the Senior Notes. Upon maturity, the Senior Notes
are payable in shares of our common stock based on the applicable conversion price as of the maturity date,
although interest on the Senior Notes, as well as the outstanding principal if certain events of default occur, is
payable by us in cash. The initial conversion price of the Senior Notes is $7.87 per share, subject to adjustment
generally as follows:
‚ if the average closing price per share of our common stock for the ten trading days immediately prior
to, but not including, the applicable date of conversion (the ""Market Price'') is less than the
conversion price but greater than or equal to 80% of the then current conversion price (the ""Floor
Price''), the conversion price shall be adjusted to equal the Market Price; and
‚ if the Market Price is less than the Floor Price, the conversion price shall be adjusted to equal the Floor
Price.
We also entered into a registration rights agreement with Conexant, which will provide for the registration
under the Securities Act, as amended, of the resale by Conexant (or any transferee thereof) of the Senior
Notes and the shares of our common stock underlying the Senior Notes. We have agreed to maintain the
registration statement contemplated by the registration rights agreement eÅective and available for use until
December 31, 2005, subject to certain limitations.
TAX ALLOCATION AGREEMENT
At the time of the Merger, we entered into a tax allocation agreement with Conexant, which allocates
responsibilities, liabilities and beneÑts relating to taxation between us and our aÇliates and Conexant and its
aÇliates. In general, Conexant is responsible for tax liabilities of the wireless business for periods prior to the
Merger and we are responsible for tax liabilities of the wireless business for periods after the Merger.
Subsequent to the execution of the tax allocation agreement, on November 6, 2002, we amended the tax
allocation agreement to limit our indemniÑcation obligations thereunder to a reduced set of circumstances.
We remain responsible, however, for various other tax obligations and for compliance with various representa-
tions and covenants as set forth in the tax allocation agreement.
TRANSITION SERVICES AGREEMENTS
On June 25, 2002, in connection with the Merger, we entered into transition services agreements with
Conexant to cover information technology services as well as other transition services following the Merger.
20
Payments due to Conexant for the services rendered under these agreements during Ñscal year 2003 totaled
approximately $12 million.
EÅective November 2003, we terminated the portions of the information technology services relating to
applications and programming services support, and subsequently agreed to terminate the remaining
information technology services, eÅective May 31, 2004.
JAZZ AND CONEXANT WAFER SUPPLY AGREEMENT
Under supply agreements entered into with Conexant and Jazz Semiconductor, Inc. (""Jazz''), we receive
wafer fabrication, wafer probe and certain other services from Jazz. Pursuant to these supply agreements, we
are committed to obtain certain minimum wafer volumes from Jazz. Our expected minimum purchase
obligations under these supply agreements are anticipated to be approximately $39 million and $13 million in
Ñscal 2004 and 2005, respectively. Based on our current business outlook, we anticipate purchasing
approximately $110 million in wafers from Jazz during Ñscal year 2004. We anticipate that these purchases
could result in an obligation to Conexant of approximately $2 million in Ñscal year 2004.
MEXICALI SUPPLY AGREEMENT
Under a device supply and services agreement with Conexant, Conexant obtains certain semiconductor
processing, packaging and testing services from us, including: assembly services; Ñnal testing; post-test
processing; and shipping. Under this agreement, Conexant purchases products manufactured using technolo-
gies qualiÑed as of the time of the agreement and, upon mutual agreement, products manufactured using
certain subsequently qualiÑed technologies. These services are generally performed at our Mexicali, Mexico
facility, for a term of three years from the Merger with additional one-year renewal terms as may be mutually
agreed. During Ñscal year 2003, amounts due to us from Conexant were approximately $53 million under this
agreement and we anticipate approximately $40 million due from them in Ñscal year 2004.
OTHER PROPOSED ACTION
As of the date of this Proxy Statement, the directors know of no business which is expected to come
before the Annual Meeting other than the election of the nominees to the Board of Directors and the
ratiÑcation of the selection of KPMG LLP as independent auditors for the Company for Ñscal year 2004.
However, if any other business should be properly presented to the Annual Meeting, the persons named as
proxies will vote in accordance with their judgment with respect to such matters.
OTHER MATTERS
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16 (a) of the Securities Exchange Act of 1934, as amended (the ""Exchange Act''), requires our
directors and executive oÇcers to Ñle reports of holdings and transactions of securities of Skyworks with the
SEC. Based on our records, and other information, we believe that all Section 16(a) Ñling requirements
applicable to its directors and executive oÇcers with respect to the our Ñscal year ended October 3, 2003, were
timely made.
SOLICITATION EXPENSES
Skyworks will bear the expenses of the preparation of the proxy materials and the solicitation by the
Board of Directors of proxies. Proxies may be solicited on behalf of the company in person or by telephone,
e-mail, facsimile or other electronic means by directors, oÇcers or employees of the company, who will receive
no additional compensation for any such services. We have retained Mellon Investor Services to assist in the
solicitation of proxies, at a cost to the Company of approximately $7,500, plus out-of-pocket expenses.
21
ANNUAL REPORT ON FORM 10-K
Copies of the Company's Annual Report on Form 10-K for the Ñscal year ended October 3, 2003, as Ñled
with the SEC are available to stockholders without charge via the Company's website at
http://www.skyworksinc.com, or upon written request addressed to Investor Relations, Skyworks Solutions,
Inc., 5221 California Avenue, Irvine, CA 92612.
STOCKHOLDER PROPOSALS
Pursuant to Rule 14a-8 under the Exchange Act, some stockholder proposals may be eligible for
inclusion in the Company's Proxy Statement for the Company's 2005 Annual Meeting. To be eligible for
inclusion in the Company's 2005 Proxy Statement, any such proposals must be delivered in writing to the
Secretary of the Company no later than October 5, 2004, and must meet the requirements of Rule 14a-8
under the Exchange Act. The submission of a stockholder proposal does not guarantee that it will be included
in the Company's Proxy Statement.
With respect to the Company's 2005 Annual Meeting, under the Company's By-laws, a stockholder
proposal or nomination must be submitted in writing to the Secretary at the principal executive oÇces of the
Corporation not later than the close of business on the 90th day nor earlier than the close of business on the
120th day prior to the Ñrst anniversary of the preceding year's annual meeting, or in the event that the date of
the annual meeting is more than 30 days before or after such anniversary date, notice by the stockholder to be
timely must be so delivered not earlier than the close of business on the 120th day prior to such annual
meeting and not later than the close of business on the later of the 90th day prior to such annual meeting or
the 10th day following the day on which public announcement of the date of such meeting is Ñrst made by the
Corporation. In no event shall the public announcement of an adjournment of an annual meeting commence a
new time period for the giving of a stockholder's notice as described above.
The stockholder's submission must include certain speciÑed information concerning the proposal or
nominee, as the case may be, and information as to the stockholder's ownership of common stock of the
Company. Proposals or nominations not meeting these requirements will not be entertained at the Annual
Meeting. If the stockholder does not also comply with the requirements of Rule 14a-4 under the Exchange
Act, the Company may exercise discretionary voting authority under proxies it solicits to vote in accordance
with its best judgment on any such proposal or nomination submitted by a stockholder.
22
2003 ANNUAL REPORT
CONSOLIDATED FINANCIAL STATEMENTS
TABLE OF CONTENTS
Industry BackgroundÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Business OverviewÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Our Strategy ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Management's Discussion and Analysis of Financial Condition and Results of OperationsÏÏÏÏÏÏÏÏÏÏ
Quantitative and Qualitative Disclosures About Market Risk ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Caution Concerning Forward-Looking Statements ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Selected Financial Data ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Consolidated Balance Sheets ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Consolidated Statements of Operations ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Consolidated Statements of Stockholder's Equity ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Consolidated Statements of Cash Flow ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Notes to Consolidated Financial Statements ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Independent Auditors' Report, KPMG LLP ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Independent Auditors' Report, Deloitte & Touche LLP ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure ÏÏÏÏÏÏÏÏÏ
Market for Skyworks' Common Stock and Related Stockholder Matters ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
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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 communica-
tions applications. We oÅer front-end modules, RF subsystems and cellular systems to leading wireless
handset and infrastructure customers.
From the power ampliÑer, through the radio and to the baseband, we have developed one of the industry's
broadest product portfolios 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 product 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 business of Conexant Systems, Inc.
(""Conexant'') and Alpha Industries, Inc. (""Alpha'') on June 25, 2002. Immediately following the Merger,
the Company purchased Conexant's semiconductor assembly and test facility located in Mexicali, Mexico and
certain related operations (the ""Mexicali Operations''). Shortly thereafter, 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, Section 16 Ñlings on Forms 3, 4
and 5, and amendments to those reports as soon as practicable after we electronically Ñle such material with
the Securities and Exchange Commission (""SEC''). The information contained in our website is not
incorporated by reference in this Annual Report.
INDUSTRY BACKGROUND
We believe that the wireless industry is on the verge of another substantial growth cycle. Traditional voice
services oÅered by wireless carriers are being rapidly supplemented or augmented by the emergence of the
next-generation wireless technologies and WiFi-based (802.11) wireless data applications. All of these new
technologies are geared to make high-speed wireless data available on handset, PDA, notebook and other
platforms in a variety of environments.
The cellular handset market has grown signiÑcantly over the past Ñve years despite the broad technology
slowdown in 2001 and 2002. According to market research Ñrm EMC, handset sales have increased by
approximately 300% from 1997 to 2002 with volume reaching 400 million units in 2002. Exiting 2002, the
worldwide penetration rate of wireless services was at 18% and is expected to climb to 28% by 2005. This
increased penetration implies that approximately 650 million new subscribers will begin using wireless services
over the next three years, approaching the 1.8 billion worldwide subscriber mark in 2005 Ì roughly a fourth of
the world's population.
In parallel, handset growth is being driven by replacement units purchased by existing subscribers as
carriers introduce updated models, smaller form factors, added features and new applications. In particular,
color displays and camera phones are expected to be two major growth drivers in the coming years. According
to the Shosteck Group, sales of color-display phones will increase from roughly 85 million units in 2002 to over
350 million units by 2005. Meanwhile, handsets with built-in cameras are forecasted to increase from
20 million units in 2002 to almost 250 million units by 2005. These new wireless phones will also feature
higher data rate services driven by 2.5G and 3G standards such as GPRS, CDMA 2000, EDGE and
WCDMA. According to EMC, the combination of new subscriber additions and higher replacement rates is
expected to drive total handset sales from 400 million units in 2002 to approximately 544 million units in 2005.
In response to this rapidly growing market, handset original equipment manufacturers, or OEMs, are
signiÑcantly shortening product development cycles, seeking simpliÑed architectures and streamlining manu-
facturing processes. Traditional OEMs are shifting to low-cost suppliers around the world. In turn, original
1
design manufacturers, or ODMs, 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. ODMs and contract manufacturers seek to manage low-cost handset manufacturing and assembly,
freeing OEMs to focus on marketing and distribution aspects of their business. Established handset
manufacturers and new market entrants alike are demanding complete semiconductor system solutions that
include the RF system, all baseband processing, protocol stack and user interface software, plus comprehen-
sive 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 ODMs to enter the high volume handset market without requiring 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 that supply wireless infrastructure base stations to network operators are increasingly
relying on mobile communications semiconductor suppliers that can provide highly integrated RF and mixed
signal processing functionality.
Additionally, as service providers migrate cellular subscribers to data intensive next generation applica-
tions, 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 manufactur-
ing process technologies and a full range of systems-level expertise.
BUSINESS OVERVIEW
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 leading wireless handset and infrastructure customers.
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.
2
The following diagram illustrates our products that are used in a digital cellular handset:
Front End Modules Ì PA Modules are increasingly integrating band-select switches, t/r switches,
diplexers, Ñlters and other components to create a single chip front end solution
‚ Switch: performs the transmit and receive switching as well as band switching for cellular handsets
‚ Power AmpliÑer (""PA'') Module: ampliÑes signal to provide suÇcient energy to reach a base station
RF Subsystems/SPRTM Solution Ì Combines the transceiver, PA and associated controller, SAW Ñlters,
and a switchplexer module that includes switches and low-pass Ñlters in a compact 13x13mm MCM package
‚ Receiver (""Rx''): receives the RF signal from the antenna, down-converts the signal and delivers it to
the baseband
‚ Transmitter (""Tx''): transmits the RF signal to the PA Module
‚ DCR Transceiver (""Tx/Rx''): encompasses the complete RF transmit and receive functions
Complete Cellular Systems
‚ Hardware: includes all the RF devices referenced above, as well as baseband processors that handle
mixed-signal functions (converting analog signals to digital) and ARM/DSP digital devices that act as
the cellular handset's central processor
‚ Software: complete handset software with protocol stack and customizable user interface (""MMI'')
‚ Worldwide Development Support: comprehensive layout, integration, factory and Ñeld test; necessary
to bring new entrants to market quickly
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 RF and mixed signal processing functions within
the wireless infrastructure.
3
We have a comprehensive RF 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.
The Skyworks Advantage
‚ Best-in-Class Wireless Semiconductor and Systems Portfolio
‚ Market Leadership in Key Product Segments
‚ Commitment to Technology Innovation
‚ Continuously Developing Unique Component and System Solutions
‚ World-Class Manufacturing Capabilities and Scale
Skyworks' vision is to become the premier supplier of wireless semiconductor solutions. Key elements in
OUR STRATEGY
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 this approach creates 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 the
use of 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 their 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 Nokia Corporation, Motorola, Inc.,
Samsung Electronics Co., Sony/Ericsson and LG Electronics, Inc. as well as emerging ODMs and contract
manufacturers such as BenQ, Compal, Flextronics and Quanta. With the industry's move towards outsourc-
ing, 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 world-class manufacturing technologies and enables highly
integrated modules as well as system-level solutions. Skyworks will vertically integrate where it can
diÅerentiate or will otherwise enter alliances and partnerships for leading-edge capabilities. These partnerships
4
and alliances are designed to ensure product leadership and competitive advantage in the marketplace. We are
focused on achieving the industry's shortest cycle times, highest yields and ultimately the lowest cost
structure.
5
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
In addition to historical information, the following discussion contains forward-looking statements that
are subject to risks and uncertainties. Actual results may diÅer substantially and adversely from those referred
to herein due to a number of factors, including but not limited to risk factors, risks and cautionary statements
described from time to time in our Ñlings with the SEC, such as our annual report on Form 10-K for the Ñscal
year ended October 3, 2003.
Overview
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 communica-
tions applications. We oÅer front-end modules, RF subsystems and cellular systems to leading wireless
handset and infrastructure customers.
On June 25, 2002, pursuant to an Agreement and Plan of Reorganization, dated as of December 16, 2001,
as amended as of April 12, 2002, by and among Alpha Industries, Inc. (""Alpha''), Conexant Systems, Inc.
(""Conexant'') and Washington Sub, Inc. (""Washington''), a wholly owned subsidiary of Conexant to which
Conexant spun oÅ its wireless communications business, including its gallium arsenide wafer fabrication
facility located in Newbury Park, California, but excluding certain assets and liabilities, Washington merged
with and into Alpha with Alpha as the surviving entity (the ""Merger''). Following the Merger, Alpha changed
its corporate name to Skyworks Solutions, Inc.
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. For purposes of these Ñnancial statements, 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
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 and are not indicative of the historical results that would have resulted if the Merger had occurred
at the beginning of a historical Ñnancial period.
We entered into agreements with Conexant providing for the supply to us of transition services by
Conexant and 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 also entered into agreements with Conexant and Jazz Semiconductor, Inc., a Newport Beach, California
foundry joint venture between Conexant and the Carlyle Group (""Jazz Semiconductor''), providing for the
supply to us of silicon-based wafer fabrication, wafer probe and certain other services by Jazz Semiconductor.
Historically, Washington/Mexicali obtained a portion of its silicon-based semiconductors from the Newport
Beach wafer fabrication facility that is now Jazz Semiconductor. We also provide semiconductor assembly and
test services to Conexant at our Mexicali facility.
6
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.
Basis of Presentation
The 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. We
believe the assumptions underlying the Ñnancial statements are reasonable. However, the Ñnancial information
included herein and in our consolidated Ñnancial statements may not be indicative of the combined assets,
liabilities, operating results and cash Öows of the Company in the future and is not indicative of what they
would have been had Washington/Mexicali been a separate stand-alone entity and independent of Conexant
during the historical periods presented.
Our Ñscal year ends on the Friday closest to September 30. Fiscal 2003 consisted of 53 weeks and ended
on October 3, 2003 and Ñscal years 2002 and 2001 each consisted of 52 weeks and ended on September 27,
2002 and September 28, 2001, 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, 2003, 2002
and 2001 contained in this discussion refer to our actual Ñscal year-end.
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. 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 of operations may be aÅected. We believe the following critical accounting
policies aÅect the more signiÑcant judgments and estimates used in the preparation of our consolidated
Ñnancial statements.
Allowance for doubtful accounts Ì 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.
Inventories Ì We assess the recoverability of inventories through an on-going review of inventory levels
relative to sales backlog and forecasts, product marketing plans and product life cycles. When the inventory on
hand exceeds the foreseeable demand (generally in excess of six months), we write down the value of those
excess inventories. We sell our products to communications equipment original equipment manufacturers
(""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. 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
7
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.
Valuation of long-lived assets, goodwill and intangible assets Ì Carrying values for long-lived assets
and deÑnitive-lived intangible assets, excluding goodwill, are reviewed for possible impairment as circum-
stances warrant in connection with Statement of Financial Accounting Standards (""SFAS'') No. 144,
""Accounting for the Impairment or Disposal of Long-Lived Assets,'' which was adopted on October 1, 2002.
Impairment reviews are conducted at the judgment of management 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.
Carrying values of goodwill and other intangible assets with indeÑnite lives are reviewed annually for
possible impairment in accordance with SFAS No. 142, ""Goodwill and Other Intangible Assets,'' which was
adopted on October 1, 2002. The goodwill impairment test is a two-step process. The Ñrst step of the
impairment analysis compares our fair value to our net book value. In determining fair value, SFAS No. 142
allows for the use of several valuation methodologies, although it states quoted market prices are the best
evidence of fair value. Step two of the analysis compares the implied fair value of goodwill to its carrying
amount in a manner similar to purchase price allocation. If the carrying amount of goodwill exceeds its
implied fair value, an impairment loss is recognized equal to that excess. We test our goodwill for impairment
annually as of the Ñrst day of our fourth Ñscal quarter and in interim periods if certain events occur indicating
that the carrying value of goodwill may be impaired.
Deferred income taxes Ì 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 our statement of operations. The future realization of certain tax deferred
assets will be applied to reduce the carrying value of goodwill. The portion of the valuation allowance for these
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 $44 million. We evaluate the realizability of the
deferred tax assets and assess the need for a valuation allowance quarterly. In Ñscal 2002, we recorded a tax
beneÑt of approximately $23 million related to the impairment of our Mexicali assets. A valuation allowance
has not been established because we believe that the related deferred tax asset will be recovered during the
carryforward period.
Revenue recognition Ì 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. We reduce revenue to the extent of our estimate for distributor claims of price protection and/or
right of return on unsold product. A reserve for sales returns and allowances for customers is recorded based
on historical experience or speciÑc identiÑcation of an event necessitating a reserve.
8
Results of Operations
General
Net revenues increased $160.0 million, or 35%, in Ñscal 2003 when compared to Ñscal 2002 primarily as
the result of increasing demand for our wireless product portfolio and the exclusion of Alpha's revenues for
periods prior to the Merger. Since the Merger, we have also expanded our customer base and geographical
market presence resulting in higher revenues in Ñscal 2003. Gross margin improved in Ñscal 2003 when
compared to Ñscal 2002 reÖecting increased revenues and improved utilization of our manufacturing facilities.
In Ñscal 2003, we recorded special charges of $34.5 million, principally related to the impairment of assets
related to our infrastructure products and certain restructuring charges.
We adopted SFAS No. 142, ""Goodwill and Other Intangible Assets,'' October 1, 2002 and performed a
transitional impairment test for goodwill. The goodwill impairment test is a two-step process. The Ñrst step of
the impairment analysis compares our fair value to our net book value. In determining fair value,
SFAS No. 142 allows for the use of several valuation methodologies, although it states quoted market prices
are the best evidence of fair value. As part of the Ñrst step, we determined that we have one reporting unit for
purposes of performing the fair-value based test of goodwill. This reporting unit is consistent with our single
operating segment, which management determined is appropriate under the provisions of SFAS No. 131,
""Disclosures about Segments of an Enterprise and Related Information.'' We completed step one and
determined that our goodwill and unamortized intangible assets were impaired. Step two of the analysis
compares the implied fair value of goodwill to its carrying amount in a manner similar to purchase price
allocation. If the carrying amount of goodwill exceeds its implied fair value, an impairment loss is recognized
equal to that excess. We completed step two and determined that the carrying amount of our goodwill was
$397.1 million greater than its implied fair value. This transitional impairment charge was recorded as a
cumulative eÅect of a change in accounting principle in Ñscal 2003. In addition, we completed our annual
goodwill impairment test for Ñscal 2003 and determined that as of July 1, 2003, our goodwill was not further
impaired.
9
Years Ended September 30, 2003, 2002 and 2001
The following table sets forth the results of our operations expressed as a percentage of net revenues for
the Ñscal years below:
2003
2002
2001
Net revenues ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Cost of goods soldÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
100.0% 100.0%
61.6
72.4
Gross margin ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Operating expenses:
38.4
27.6
Research and development ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Selling, general and administrative ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Amortization of intangible assets ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Purchased in-process research and development ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Special charges ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Total operating expenses ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
24.6
13.0
0.7
Ì
5.6
43.8
29.0
11.0
2.8
14.3
25.4
82.5
Operating loss ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Interest expenseÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Other income (expense), netÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
(5.4)
(3.5)
0.2
(54.9)
(0.9)
Ì
100.0%
119.6
(19.6)
42.6
19.7
5.9
Ì
34.1
102.3
(121.9)
Ì
0.1
Loss before income taxes and cumulative eÅect of change in
accounting principle ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
(8.7)
(55.8)
(121.8)
Provision (beneÑt) for income taxes before cumulative eÅect of
change in accounting principle ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
0.1
Loss before cumulative eÅect of change in accounting principle ÏÏÏÏ
Cumulative eÅect of change in accounting principle, net of tax ÏÏÏÏÏ
(8.8)
(64.3)
(4.3)
(51.6)
Ì
0.7
(122.5)
Ì
Net loss ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
(73.1)% (51.6)% (122.5)%
Net Revenues
2003
Change
Years Ended September 30,
2002
(In thousands)
Change
2001
Net revenues ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$617,789
35.0% $457,769
75.8% $260,451
We market and sell our semiconductor products and system solutions to leading OEMs of communica-
tion electronics products, third-party original design manufacturers (""ODMs'') and contract manufacturers
and indirectly through electronic components distributors. Samsung Electronics Co. accounted for 15%, 35%,
and 44% of net revenues for the Ñscal years 2003, 2002 and 2001, respectively. Motorola, Inc. accounted for
11% of net revenues for the Ñscal years 2003 and 2002, and represented less than 10% of net revenues for Ñscal
2001. Conexant accounted for less than 10% of net revenues for the Ñscal years 2003 and 2002 and represented
17% of net revenues for Ñscal 2001. Nokia Corporation accounted for less than 10% of net revenues for the
Ñscal years 2003 and 2002 and represented 12% of net revenues for Ñscal 2001.
Revenues derived from customers located in the Americas region accounted for 25%, 17% and 27% of net
revenues for the Ñscal years 2003, 2002 and 2001, respectively. Revenues derived from customers located in
the Asia-PaciÑc region were 61%, 77% and 64% of net revenues for the Ñscal years 2003, 2002 and 2001,
respectively. Revenues derived from customers located in the Europe/Middle East/Africa region were 14%,
6% and 9% of net revenues for the Ñscal years 2003, 2002 and 2001, respectively. Our revenues by geography
do not necessarily correlate to end handset demand by region. For example, if we sell a power ampliÑer
module to a customer in South Korea, we record the sale within the South Korea account although that
10
customer, in turn, may integrate that module into a product sold to a service provider (its customer) in Africa,
China, Europe, the Middle East, the Americas or within South Korea.
The foregoing percentages are based on sales representing Washington/Mexicali sales for Ñscal 2001 and
Ñscal 2002 up to the time of the Merger, and sales of the combined company for the post-Merger period from
June 26, 2002 through the end of the Ñscal year and for Ñscal 2003.
Net revenues increased in Ñscal 2003 when compared to Ñscal 2002 primarily reÖecting increasing
demand for our wireless product portfolio and the exclusion of Alpha's revenues for periods prior to the
Merger. More speciÑcally, GSM direct conversion transceivers and complete cellular systems as well as
CDMA RF subsystems exhibited strong year-over-year growth. Additionally, we have launched a number of
more highly integrated product oÅerings, added to our customer base and expanded our geographical market
presence.
These increases in net revenues in Ñscal 2003 when compared to Ñscal 2002 were tempered by a decrease
in average selling prices of our front-end module products and an industry-wide component and handset
inventory correction. In addition, lower CDMA handset subsidies in Korea also adversely aÅected net
revenues in Ñscal 2003 when compared to Ñscal 2002. In certain global markets, wireless operators provide
subsidies on handset sales to their customers, ultimately decreasing the cost of the handset to the customer.
Net revenues increased 75.8% in Ñscal 2002, when compared to Ñscal 2001, 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.
Gross Margin
Gross margin ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
% of net revenues ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
2003
Years Ended September 30,
2002
(In thousands)
$126,161
$237,324
2001
$(51,052)
38.4%
27.6%
(19.6)%
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 and sustaining engineering expenses pertaining to products sold.
Cost of goods sold for the periods prior to the Merger also includes allocations from Conexant 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 in Ñscal 2003 compared to Ñscal 2002 reÖects increased revenues,
improved utilization of our manufacturing facilities and a decrease in depreciation expense that resulted from
the write-down of our Mexicali facility assets in the third quarter of Ñscal 2002. 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 in Ñscal 2003 was also favorably aÅected by $4.8 million when we reevaluated our
obligation under a wafer fabrication supply agreement with Conexant and Jazz Semiconductor and reduced
our liability and cost of sales in the Ñrst quarter of Ñscal 2003. Pursuant to the terms of wafer supply
agreements with Conexant and Jazz Semiconductor, we are committed to obtain certain minimum wafer
volumes from Jazz Semiconductor. As of September 30, 2003, we expect to meet all of these purchase
obligations. 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.
11
The improvement in gross margin in Ñscal 2002, compared to 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. Gross margin for Ñscal 2002 was 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 signiÑcant
additional costs are expected to be incurred in connection with this issue.
In addition, we originally estimated our obligation under our wafer supply agreement with Conexant and
Jazz Semiconductor, Inc. would result in excess costs of approximately $12.9 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 mil-
lion of subsequent sales of inventories written down to a zero cost basis. The inventories that were written
down to a zero cost basis in Ñscal 2001 were either sold or scrapped during Ñscal 2003, 2002 and 2001. During
Ñscal 2003, 2002 and 2001, we sold $2.7 million, $12.5 million and $4.5 million, respectively, and scrapped
$2.7 million, $1.8 million and $34.5 million, respectively. As of September 30, 2003, we no longer held
inventories which were written down to a zero cost basis in Ñscal 2001.
The inventory write-downs recorded in Ñscal 2001 resulted from the sharply reduced end-customer
demand we experienced, primarily associated with our RF 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.
Research and Development
2003
Change
Years Ended September 30,
2002
(In thousands)
Change
2001
Research and development ÏÏÏÏÏÏÏÏÏÏÏÏÏ
% of net revenues ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$151,762
14.4% $132,603
19.4% $111,053
24.6%
29.0%
42.6%
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 for
the periods prior to the Merger also include allocated costs for shared research and development services
provided by Conexant, 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 2003 compared to Ñscal 2002 represents our
commitment to design new products and processes and address new opportunities to meet our customers'
demands. We have 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. The
increase in research and development expenses in Ñscal 2003 when compared to the previous year is also
12
related to our research and development expenses representing those of the combined company after the
Merger whereas those expenses in 2002 are representative of only Washington/Mexicali prior to June 25,
2002.
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, GPRS, and 3G wireless
standards in both the digital cellular handset and infrastructure markets.
Selling, General and Administrative
2003
Change
Years Ended September 30,
2002
(In thousands)
Change
2001
Selling, general and administrative ÏÏÏÏÏÏÏÏÏÏ
% of net revenues ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$80,222
60.0% $50,178
(2.1)% $51,267
13.0%
11.0%
19.7%
Selling, general and administrative expenses include personnel costs (legal, accounting, treasury, human
resources, information systems, customer service, etc.), sales representative commissions, advertising and
other marketing costs. Selling, general and administrative expenses also include allocated general and
administrative expenses from Conexant for the periods prior to the Merger for a variety of these shared
functions.
The increase in selling, general and administrative expenses in Ñscal 2003 when compared to Ñscal 2002 is
primarily related to our selling, general and administrative expenses representing those of the combined
company after the Merger whereas those expenses for the same period in 2002 are representative of only
Washington/Mexicali prior to June 25, 2002.
The decrease in selling, general and administrative expenses in Ñscal 2002 compared to Ñscal 2001
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.
Amortization of Intangible Assets
2003
Change
Years Ended September 30,
2002
(In thousands)
Change
2001
Amortization of intangible assets ÏÏÏÏÏÏÏÏÏÏÏÏ
% of net revenues ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$4,386
(66.1)% $12,929
(15.3)% $15,267
0.7%
2.8%
5.9%
In 2002, we recorded $36.4 million of intangible assets related to the Merger consisting of developed
technology, customer relationships and a trademark. These assets are principally being amortized on a
straight-line basis over a 10-year period. Amortization expense for Ñscal 2003 primarily represents the
amortization of these intangible assets. Amortization expense for Ñscal 2002 and 2001 primarily represents
amortization of goodwill and intangible assets acquired in connection with Washington/Mexicali's acquisition
of Philsar Semiconductor, Inc. (""Philsar'') in Ñscal 2000. Philsar was a developer of RF semiconductor
solutions for personal wireless connectivity, including emerging standards such as Bluetooth, and RF
components for third-generation digital cellular handsets. We wrote oÅ all goodwill and other intangible assets
associated with our acquisition of the Philsar Bluetooth business in the third quarter of Ñscal 2002. The lower
amortization expense in Ñscal 2003 when compared to Ñscal 2002 and Ñscal 2001, primarily resulted from the
adoption of Statement of Financial Accounting Standards (""SFAS'') No. 142, ""Goodwill and Other
Intangible Assets,'' on October 1, 2002. Had the Company ceased amortizing goodwill on October 1, 2000,
amortization expense would have been $10.7 million and $13.9 million less in Ñscal 2002 and Ñscal 2001,
respectively.
13
We adopted SFAS No. 142, ""Goodwill and Other Intangible Assets,'' on October 1, 2002 and performed
a transitional impairment test for goodwill. The goodwill impairment test is a two-step process. The Ñrst step
of the impairment analysis compares our fair value to our net book value. In determining fair value,
SFAS No. 142 allows for the use of several valuation methodologies, although it states quoted market prices
are the best evidence of fair value. As part of the Ñrst step, we determined that we have one reporting unit for
purposes of performing the fair-value based test of goodwill. This reporting unit is consistent with our single
operating segment, which management determined is appropriate under the provisions of SFAS No. 131,
""Disclosures about Segments of an Enterprise and Related Information.'' We completed step one and
determined that our goodwill and unamortized intangible assets were impaired. Step two of the analysis
compares the implied fair value of goodwill to its carrying amount in a manner similar to purchase price
allocation. If the carrying amount of goodwill exceeds its implied fair value, an impairment loss is recognized
equal to that excess. We completed step two and determined that the carrying amount of our goodwill was
$397.1 million greater than its implied fair value. This transitional impairment charge was recorded as a
cumulative eÅect of a change in accounting principle in Ñscal 2003. In addition, we completed our annual
goodwill impairment test for Ñscal 2003 and determined that as of July 1, 2003, our goodwill was not further
impaired.
Purchased In-Process Research and Development
2003
Change
Years Ended September 30,
2002
(In thousands)
$65,500
N/A
Change
2001
$Ì
Purchased in-process research and development ÏÏÏÏÏ
$Ì N/A
In connection with the Merger in Ñscal 2002, $65.5 million was allocated to purchased in-process
research and development (""IPR&D'') 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. The charges represent the
estimated fair values of the portion of IPR&D projects that had been completed by Alpha at the time of the
Merger.
Prior to the Merger, Alpha was in the process of developing new technologies in its semiconductor and
ceramics segments. The objective of the IPR&D eÅort was to develop new semiconductor processes, ceramic
materials and related products to satisfy customer requirements in the wireless and broadband markets.
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.
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
14
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 were associated
with our ability to successfully Ñnish the creation of viable prototypes and successful design of the chips,
masks and manufacturing processes required. We expected to beneÑt from the in-process projects as the
individual products that contained the in-process technology were put into production and sold to end-users.
The release dates for each of the products within the product families were varied. The fair value of the
IPR&D was determined using the income approach. Under the income approach, the fair value reÖected the
present value of the projected cash Öows that were expected to be generated by the products incorporating the
IPR&D, if successful. The projected cash Öows were discounted to approximate fair value. The discount rate
applicable to the cash Öows of each project reÖected the stage of completion and other risks inherent in each
project. The weighted average discount rate used in the valuation of IPR&D was 30 percent. As of
September 30, 2003, the Company had either completed or abandoned each of these projects. The completed
IPR&D projects commenced generating cash Öows in Ñscal 2003. Due to the nature of these projects and the
related technology, the revenue streams derived from these projects cannot be separately identiÑed.
Special Charges
2003
Change
Years Ended September 30,
2002
(In thousands)
Change
2001
Special charges ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$34,493
(70.3)% $116,321
(30.9)% $88,876
Asset Impairments
During the fourth quarter of Ñscal 2003, we recorded a $26.0 million charge for the impairment of assets
related to certain infrastructure products manufactured in our Woburn, Massachusetts and Adamstown,
Maryland facilities. The Woburn facility primarily manufactures semiconductor products based on both
silicon wafer technology and gallium arsenide technology. Our Adamstown, Maryland facility primarily
manufactures ceramics components. We experienced a signiÑcant decline in factory utilization resulting from
a downturn in the market for products manufactured at these two facilities and a decision to discontinue
certain products. The impairment charge was based on a recoverability analysis prepared by management
based on these factors and the related impact on our current and projected outlook. We projected lower
revenues and new order volume for these products and management believed these factors indicated that the
carrying value of the related assets (machinery, equipment and intangible assets) 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 these products over a Ñve-year period. Since the
estimated undiscounted cash Öows were less than the carrying value of the related assets, it was concluded that
an impairment loss should be recognized. In accordance with SFAS No. 144, ""Accounting for the Impairment
or Disposal of Long-Lived Assets,'' 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 16%, which management believed was
commensurate with the underlying risks associated with the projected future cash Öows. Management 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. The anticipated pre-tax cost
savings related to these impairment charges is expected to be $17.4 million over the next Ñve years (Ñscal 2004
through Ñscal 2008) and $8.6 million over the subsequent Ñfteen years (Ñscal 2009 through 2023).
In addition, during the fourth quarter of Ñscal 2003 we recorded a $2.3 million charge for the impairment
of our Haverhill, Massachusetts property that is currently being held for sale. In Ñscal 2003, we relocated our
operations from this facility to our Woburn, Massachusetts facility. We are actively marketing the property
located in Haverhill, Massachusetts.
15
During 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.
We experienced a severe decline in factory utilization at our 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. Management 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 Ñscal 2002, we recorded a $45.8 million charge for the write-oÅ of goodwill and other intangible
assets associated with our acquisition of Philsar in Ñscal 2000. Management determined that we would not
support the technology associated with the Philsar Bluetooth business. Accordingly, this product line was
discontinued and the employees associated with the product line were either 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 were impaired.
During the third quarter of Ñscal 2001 we recorded an $86.2 million charge for the impairment of our
manufacturing facility and related wafer fabrication machinery and equipment at our 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 our then-current and projected business outlook. Through the third quarter of Ñscal 2001, we 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.
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.
16
Restructuring Charges
During the second and fourth quarters of Ñscal 2003, we recorded $3.3 million and $2.9 million,
respectively, in restructuring charges to provide for workforce reductions and the consolidation of 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 2002, we implemented a number of cost reduction initiatives to more closely align our cost
structure with the then-current business environment. We recorded restructuring charges of approximately
$3.0 million for costs related to the workforce reduction and the consolidation of certain facilities.
Substantially all amounts accrued for these actions have been paid.
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. We have paid all amounts accrued for these actions.
Activity and liability balances related to the Ñscal 2002 and Ñscal 2003 restructuring actions are as follows
(in thousands):
Fiscal 2002
Workforce
Reductions
Fiscal 2002
Facility Closings
and Other
Fiscal 2003
Workforce
Reductions
Fiscal 2003
Facility Closings
and Other
Charged to costs and
expenses ÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Cash paymentsÏÏÏÏÏÏÏÏÏÏÏ
2,923
(2,225)
Restructuring balance,
September 30, 2002ÏÏÏÏÏ
698
Charged to costs and
expenses ÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Cash paymentsÏÏÏÏÏÏÏÏÏÏÏ
Restructuring balance,
Ì
(698)
97
(13)
84
Ì
(47)
Ì
Ì
Ì
Ì
Ì
Ì
Total
3,020
(2,238)
782
4,819
(3,510)
1,405
(1,236)
6,224
(5,491)
September 30, 2003ÏÏÏÏÏ
$ Ì
$ 37
$ 1,309
$
169
$ 1,515
In addition, we assumed approximately $7.8 million of restructuring reserves from Alpha in connection
with the Merger. During the Ñscal years ended September 30, 2003 and 2002, payments related to the
restructuring reserves assumed from Alpha were $4.7 million and $1.1 million, respectively. On September 30,
2003, this balance was $2.0 and primarily relates to payments on a lease that expires in 2008.
Interest Expense
2003
Years Ended September 30,
Change
2002
Change
2001
Interest expenseÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$21,403
(In thousands)
406.3% $4,227
N/A
$Ì
Our debt at September 30, 2003 consists of $230 million of convertible subordinated Junior notes,
$45 million of convertible senior subordinated notes, $41.7 million of borrowings under our receivable
purchase agreement and a loan that matures in December 2003.
Our long-term debt primarily consists of $230 million of convertible subordinated Junior notes at a Ñxed
interest rate of 4.75 percent due 2007. These Junior 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. We may redeem the Junior notes at any time after November 20, 2005. The redemption price of the
Junior notes during the period between November 20, 2005 through November 14, 2006 will be $1,011.875
per $1,000 principal amount of notes to be redeemed, plus accrued and unpaid interest, if any, to the
17
redemption date, and the redemption price of the notes beginning on November 15, 2006 and thereafter will
be $1,000 per $1,000 principal amount of notes to be redeemed, plus accrued and unpaid interest, if any, to the
redemption date. Holders may require that we repurchase the Junior notes upon a change in control of the
Company. We pay interest in cash semi-annually in arrears on May 15 and November 15 of each year.
In addition, our long-term debt includes $45 million of convertible senior subordinated notes at a Ñxed
rate of 15 percent due June 30, 2005, which were issued as part of our debt reÑnancing with Conexant
completed on November 13, 2002. These Senior notes can be converted into our 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 our common stock. Based on this adjustable conversion price, we expect that
the maximum number of shares that could be issued under the Senior notes is approximately 7.1 million
shares, subject to adjustment for stock splits and other similar dilutive occurrences. If the holder(s) of these
Senior notes converted the notes at a price that is less than the original conversion price ($7.87) as the result
of a decrease in the market price of our stock, we would be required to record a charge to interest expense in
the period of conversion. At maturity (including upon certain acceleration events), we will pay the principal
amount of the Senior notes by issuing a number of shares of common stock equal to the principal amount of
the Senior notes then due and payable divided by the applicable conversion price in eÅect on such date,
together with cash in lieu of any fractional shares. We may redeem the Senior notes at any time after May 12,
2004 at $1,030 per $1,000 principal amount of Senior notes to be redeemed, plus accrued and unpaid interest.
The holder(s) may require that we repurchase the Senior notes upon a change in control of the Company. We
pay interest in cash on the Senior notes on the last business day of each March, June, September and
December of each year. Interest on the Senior notes is not deductible for tax purposes because of the
conversion feature.
We entered into a receivables purchase agreement under which we have agreed to sell from time to time
certain of our accounts receivable to Skyworks USA, Inc. (""Skyworks USA''), a wholly-owned, special
purpose entity that is fully consolidated for accounting purposes. Concurrently, Skyworks USA entered into an
agreement with Wachovia Bank, National Association providing for a $50 million credit facility (""Facility
Agreement'') secured by the purchased accounts receivable. Our short-term debt consists primarily of funds
borrowed under the Facility Agreement. As a part of the consolidation, any interest incurred by Skyworks
USA related to monies it borrows under the Facility Agreement is recorded as interest expense in our results
of operations. Interest related to the Facility Agreement is LIBOR plus 0.4% and was approximately 1.5% at
September 30, 2003. We perform collections and administrative functions on behalf of Skyworks USA. As of
September 30, 2003, Skyworks USA had borrowed $41.7 million under this agreement.
In addition, our short-term debt includes the remaining portion of a ten-year $960,000 loan from the
State of Maryland under the Community Development Block Grant program due December 2003 at an
interest rate of 5 percent.
Other Income (Expense), Net
2003
Years Ended September 30,
2002
Change
(In thousands)
Change
2001
Other income (expense), net ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$1,317
nm
$(56)
(126.7)% $210
nm • not meaningful
Other income (expense), net is comprised primarily of interest income on invested cash balances, foreign
exchange gains/losses and other non-operating income and expense items.
Provision for Income Taxes
Provision (beneÑt) for income taxes ÏÏÏÏÏÏÏÏÏÏÏ
$652
2003
18
Change
Years Ended September 30,
2002
(In thousands)
$(19,589)
nm
Change
nm
2001
$1,619
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 our foreign operations. Consequently, no United States
income tax beneÑt has been recognized relating to the U.S. operating losses. As of September 30, 2003, 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 2003, 2002 and 2001 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 provision for foreign income taxes was oÅset by a tax beneÑt of
approximately $23 million related to the impairment of our Mexicali assets.
No provision has been made for United States, state, or additional foreign income taxes related to
approximately $3.8 million of undistributed earnings of foreign subsidiaries which have been or are intended to
be permanently reinvested. It is not practical to determine the United States federal income tax liability, if
any, which would be payable if such earnings were not permanently reinvested.
Cumulative EÅect of Change in Accounting Principle
We adopted SFAS No. 142, ""Goodwill and Other Intangible Assets,'' on October 1, 2002, and performed
a transitional impairment test for goodwill. The goodwill impairment test is a two-step process. The Ñrst step
of the impairment analysis compares our fair value to our net book value. In determining fair value,
SFAS No. 142 allows for the use of several valuation methodologies, although it states quoted market prices
are the best evidence of fair value. As part of the Ñrst step, we determined that we have one reporting unit for
purposes of performing the fair-value based test of goodwill. This reporting unit is consistent with our single
operating segment, which management determined is appropriate under the provisions of SFAS No. 131,
""Disclosures about Segments of an Enterprise and Related Information.'' We completed step one and
determined that our goodwill and unamortized intangible assets were impaired. Step two of the analysis
compares the implied fair value of goodwill to its carrying amount. If the carrying amount of goodwill exceeds
its implied fair value, an impairment loss is recognized equal to that excess. We completed step two and
determined that the carrying amount of our goodwill was $397.1 million greater than its implied fair value.
This transitional impairment charge was recorded as a cumulative eÅect of a change in accounting principle in
Ñscal 2003. In addition, we completed our annual goodwill impairment test for Ñscal 2003 and determined that
as of July 1, 2003, our goodwill was not further impaired.
Liquidity and Capital Resources
2003
Years Ended September 30
2002
(In thousands)
2001
Cash and cash equivalents at beginning of periodÏÏÏÏÏÏÏÏÏÏÏ
Net cash provided by (used in) operating activities ÏÏÏÏÏÏÏ
Net cash provided by (used in) investing activities ÏÏÏÏÏÏÏ
Net cash provided by (used in) Ñnancing activities ÏÏÏÏÏÏÏ
$ 53,358
(72,052)
(44,282)
224,482
$
1,998
(99,094)
70,042
80,412
$
4,179
(89,406)
(51,118)
138,343
Cash and cash equivalents at end of periodÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$161,506
$ 53,358
$
1,998
Cash and cash equivalents at September 30, 2003, 2002 and 2001 totaled $161.5 million, $53.4 million
and $2.0 million, respectively. Working capital at September 30, 2003 was approximately $249.3 million
compared to $79.8 million at September 30, 2002 and $60.5 million at September 30, 2001. Inventory turns
were approximately 6.5 for Ñscal 2003.
Cash used in operating activities was $72.1 million for Ñscal 2003, reÖecting a net loss of $451.4 million,
oÅset by non-cash charges (primarily asset impairments, depreciation and amortization) of $489.2 million and
19
a net decrease in working capital items of approximately $109.9 million, including $40.0 million of merger-
related expense payments. As of September 30, 2003, substantially all amounts accrued for merger-related
expenses have been paid. We adopted SFAS No. 142, ""Goodwill and Other Intangible Assets,'' on October 1,
2002 and recorded a $397.1 million cumulative eÅect of a change in accounting principle, representing the
diÅerence between the implied fair value and carrying value of our goodwill. Operating results in Ñscal 2003
improved when compared to Ñscal 2002, primarily as the result of increased revenues and improved utilization
of our manufacturing facilities.
Cash used in investing activities for Ñscal 2003 primarily consisted of capital expenditures of $40.3 mil-
lion. The capital expenditures for Ñscal 2003 represent our continued investment in production and test
facilities in addition to our commitment to invest in the capital needed to design new products and processes
and address new opportunities to meet our customers' demands. We believe 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. Cash used in investing activities for Ñscal 2003 also included $4.0 million of purchases of short-term
investments. Our short-term investments are classiÑed as held-to-maturity and consist primarily of commer-
cial paper with original maturities of more than 90 days and less than twelve months.
On August 11, 2003 we Ñled a shelf registration statement on Form S-3 with the SEC with respect to the
issuance of up to $250 million aggregate principal amount of securities, including debt securities, common or
preferred shares, warrants or any combination thereof. This registration statement, which the SEC declared
eÅective on August 28, 2003, provides us with greater Öexibility and access to capital. On September 9, 2003
we issued 9.2 million shares of common stock under our shelf registration statement. Cash provided by
Ñnancing activities for Ñscal 2003 included approximately $102.2 million of net proceeds from this oÅering.
We may from time to time issue securities under the remaining balance of the shelf registration statement for
general corporate purposes.
Cash provided by Ñnancing activities for Ñscal 2003 also included the net impact of our private placement
of $230 million of 4.75 percent convertible subordinated notes due 2007 and related debt reÑnancing with
Conexant on November 13, 2002. These subordinated 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 $105 million of the $150 million
debt to Conexant relating to the purchase of the Mexicali Operations and prepay the $65 million principal
amount outstanding as of November 13, 2002 under a separate loan facility with Conexant. In connection with
our prepayment of $105 million of the $150 million debt owed to Conexant relating to the purchase of the
Mexicali Operations, the remaining $45 million principal balance was exchanged for new 15 percent
convertible senior subordinated notes with a maturity date of June 30, 2005. These senior subordinated notes
can be converted into our 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 our common stock. Based on this
adjustable conversion price, we expect that the maximum number of shares that could be issued under the
senior subordinated notes 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. In addition, as of September 30, 2003, Skyworks USA had borrowed
$41.7 million under our $50 million Facility Agreement secured by the purchased accounts receivable with
Wachovia Bank, National Association.
Cash used in operating activities was $99.1 million and $89.4 million for Ñscal 2002 and 2001,
respectively. Operating cash Öows for Ñscal 2002 and 2001 reÖect net losses of $236.1 million and
$318.9 million, respectively, oÅset by non-cash charges (depreciation and amortization, asset impairments and
an in-process research and development charge) of $221.6 million and $220.8 million, respectively, and a net
increase in working capital of approximately $84.6 million and a net decrease of $8.7 million, respectively.
During 2002 we consolidated facilities, reduced our 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 when compared to Ñscal 2001.
20
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. 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 provided by Ñnancing activities consisted of net transfers from Conexant, pre-Merger, of $50.4 mil-
lion and $138.3 million for Ñscal 2002 and 2001, respectively. Cash provided by Ñnancing activities for Ñscal
2002 also consisted of $30.0 million of proceeds from borrowings against the revolving credit facility with
Conexant. Historically, Conexant 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.
Following is a summary of our contractual payment obligations for consolidated debt, purchase
agreements and operating leases at September 30, 2003 (see Notes 8 and 13 of the consolidated Ñnancial
statements), in thousands:
Obligation
Total
1-3 Years
4-5 Years
Thereafter
Debt ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Purchase obligations ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Operating leases ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$316,681
51,507
34,132
$ 86,681
51,507
18,285
$230,000
Ì
8,813
$ Ì
Ì
7,034
$402,320
$156,473
$238,813
$7,034
Under supply agreements entered into with Conexant and Jazz Semiconductor, we receive wafer
fabrication, wafer probe and certain other services from Jazz Semiconductor. Pursuant to these supply
agreements, we are committed to obtain certain minimum wafer volumes from Jazz Semiconductor. Our
expected minimum purchase obligations under these supply agreements are anticipated to be approximately
$39 million and $13 million in Ñscal 2004 and 2005, respectively.
Based on our Ñscal 2003 results of operations and current trends, and after giving eÅect to the net
proceeds we received in our private placement of 4.75 percent convertible subordinated notes due 2007, our
debt reÑnancing with Conexant, our common stock public oÅering and our Facility Agreement, we expect our
existing sources of liquidity, together with cash expected to be generated from operations, will be suÇcient to
fund our research and development, capital expenditures, debt obligations, purchase obligations, working
capital and other cash requirements for at least the next twelve months.
Other Matters
InÖation did not have a signiÑcant impact upon our results of operations during the three-year period
ended September 30, 2003.
In July 2001, the Financial Accounting Standards Board (""FASB'') issued SFAS No. 142, ""Goodwill
and Other Intangibles.'' SFAS No. 142 addresses Ñnancial accounting and reporting for acquired goodwill and
other intangible assets. Goodwill and intangible assets that have indeÑnite useful lives are not amortized into
results of operations, but instead are evaluated at least annually for impairment and written down when the
recorded value exceeds the estimated fair value. We adopted SFAS No. 142 on October 1, 2002, and
performed a transitional impairment test for goodwill. The goodwill impairment test is a two-step process. The
Ñrst step of the impairment analysis compares our fair value to our net book value. In determining fair value,
SFAS No. 142 allows for the use of several valuation methodologies, although it states quoted market prices
are the best evidence of fair value. As part of the Ñrst step, we determined that we have one reporting unit for
purposes of performing the fair-value based test of goodwill. This reporting unit is consistent with its single
operating segment, which management determined is appropriate under the provisions of SFAS No. 131,
""Disclosures about Segments of an Enterprise and Related Information.'' We completed step one and
determined that our goodwill and unamortized intangible assets were impaired. Step two of the analysis
21
compares the implied fair value of goodwill to its carrying amount. If the carrying amount of goodwill exceeds
its implied fair value, an impairment loss is recognized equal to that excess. We completed step two and
determined that the carrying amount of our goodwill was $397.1 million greater than its implied fair value.
This transitional impairment charge was recorded as a cumulative eÅect of a change in accounting principle in
Ñscal 2003. In addition, we completed our annual goodwill impairment test for Ñscal 2003 and determined that
as of July 1, 2003, our goodwill was not further impaired.
In June 2001, the FASB issued SFAS No. 143, ""Accounting for Asset Retirement Obligations,'' which
addresses Ñnancial accounting and reporting for obligations associated with the retirement of tangible long-
lived assets and the associated asset retirement costs. It requires that the fair value of a liability for an asset
retirement obligation be recognized in the period in which it is incurred if a reasonable estimate of fair value
can be made. We adopted the provisions or SFAS No. 143 on October 1, 2002 and its adoption did not have a
material impact on our Ñnancial position or results of operations.
In August 2001, the FASB 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. We adopted SFAS No. 144 on
October 1, 2002 and recorded asset impairment charges in accordance with its guidance during the fourth
quarter of Ñscal 2003. These charges primarily related to certain infrastructure products manufactured at our
Woburn, Massachusetts and Adamstown, Maryland facilities.
In April 2002, the FASB issued SFAS No. 145, ""Rescission of FASB Statement No.'s 4, 44, and 64,
Amendment of SFAS 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 similar to sale-leaseback transactions.
This Statement also amends other existing authoritative pronouncements to make various technical correc-
tions, clarify meanings or describe their applicability under changed conditions. We adopted SFAS No. 145 on
October 1, 2002 and its adoption did not have a material impact on our Ñnancial position or results of
operations.
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 adopted SFAS No. 146 on
October 1, 2002 and its adoption did not have a material impact on our Ñnancial position or results of
operations.
In November 2002, the FASB issued Interpretation No. 45, ""Guarantor's Accounting and Disclosure
Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others'' (""FIN 45'').
FIN 45 requires that upon issuance of a guarantee, a guarantor must recognize a liability for the fair value of
an obligation assumed under a guarantee. FIN 45 also requires additional disclosures by a guarantor in its
interim and annual Ñnancial statements about the obligations associated with guarantees issued. The
recognition provisions of FIN 45 are eÅective for any guarantees that are issued or modiÑed after
December 31, 2002. We adopted FIN 45 on January 1, 2003 and its adoption did not have a material impact
on our Ñnancial position or results of operations.
In December 2002, the FASB issued SFAS No. 148, ""Accounting for Stock-Based Compensation Ì
Transition and Disclosure.'' SFAS No. 148 amends SFAS No. 123, ""Accounting for Stock-Based Compensa-
tion,'' to provide alternative methods of transition for a voluntary change to the fair value method of
accounting for stock-based employee compensation. In addition, SFAS No. 148 amends the disclosure
requirements of SFAS No. 123 to require prominent disclosures in both annual and interim Ñnancial
statements about the method of accounting for stock-based employee compensation and the eÅect of the
method on reported results. SFAS No. 148 is eÅective for Ñnancial statements for Ñscal years and interim
22
periods ending after December 15, 2002. The Company adopted the disclosure provisions of SFAS No. 148 on
December 15, 2002 and continues to follow APB No. 25, ""Accounting for Stock Issued to Employees,'' in
accounting for employee stock options.
In January 2003, the FASB issued Interpretation No. 46, ""Consolidation of Variable Interest Entities''
(""FIN 46''). FIN 46 clariÑes situations in which entities shall be subject to consolidation. FIN 46 is eÅective
for all variable interest entities created after January 31, 2003. We adopted FIN 46 on April 1, 2003 and its
adoption did not have an impact on our Ñnancial position or results of operations.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are subject to market risks, such as changes in currency and interest rates, that arise from normal
business operation. 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 30, 2003, the carrying value of our cash and cash equivalents
approximates fair value.
Our short-term debt primarily consists of borrowings under our receivables purchase agreement. As of
September 30, 2003, we had borrowed $41.7 million under this agreement. In addition, our short-term debt
includes the remaining portion of a ten-year $960,000 loan from the State of Maryland under the Community
Development Block Grant program due December 2003 at an interest rate of 5 percent. Interest related to our
short-term debt is at a Ñxed rate. Consequently, we do not have signiÑcant cash Öow exposure on our short-
term debt.
We issued Ñxed-rate debt, which is convertible into our common stock at a predetermined or market
related conversion price. Convertible debt has characteristics that give rise to both interest-rate risk and
market risk because the fair value of the convertible security is aÅected by both the current interest-rate
environment and the price of the underlying common stock. For the year ended September 30, 2003 our
convertible debt, on an if-converted basis, was not dilutive and, as a result, had no impact on our net income
per share (assuming dilution). In future periods, the debt may be converted, or the if-converted method may
be dilutive and net income per share (assuming dilution) would be reduced. Our long-term debt consists of
$230 million of 4.75 percent unsecured convertible subordinated notes due November 2007 and $45 million of
15 percent unsecured convertible senior subordinated notes due June 2005. We do not believe that we have
signiÑcant cash Öow exposure on our long-term debt.
Based on our overall evaluation of our market risk exposures from all of our Ñnancial instruments at
September 30, 2003 a near-term change in market rates would not materially aÅect our consolidated Ñnancial
position, results of operations or cash Öows.
CAUTION CONCERNING FORWARD-LOOKING STATEMENTS
This Annual Report contains forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the Securities and Exchange Act of 1934, as
amended, and are subject to the ""safe harbor'' created by those sections. Words such as ""believes,'' ""expects,''
""may,'' ""will,'' ""would,'' ""should,'' ""could,'' ""seek,'' ""intends,'' ""plans,'' ""potential,'' ""continue,'' ""estimates,''
""anticipates,'' ""predicts,'' and similar expressions or variations or negatives of such words are intended to
identify forward-looking statements, but are not the exclusive means of identifying forward-looking statements
in this Annual Report. Additionally, statements concerning future matters such as the development of new
products, enhancements or technologies, sales levels, expense levels and other statements regarding matters
that are not historical are forward-looking statements. Although forward-looking statements in this Annual
Report reÖect the good faith judgment of our management, such statements can only be based on facts and
23
factors currently known by us. Consequently, forward-looking statements involve inherent risks and uncertain-
ties and actual results and outcomes may diÅer materially and adversely from the results and outcomes
discussed in or anticipated by the forward-looking statements. A number of important factors could cause
actual results to diÅer materially and adversely from those in the forward-looking statements. We urge you to
consider the risks and uncertainties discussed elsewhere in this report and in the other documents Ñled with
the SEC in evaluating our forward-looking statements, including but not limited to our annual report on
Form 10-K for the Ñscal year ended October 3, 2003. We have no plans, and undertake no obligation, to revise
or update our forward-looking statements to reÖect any event or circumstance that may arise after the date of
this report. We caution readers not to place undue reliance upon any such forward-looking statements, which
speak only as of the date made.
24
SELECTED FINANCIAL DATA
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 2003 consisted of 53 weeks and ended on October 3, 2003 and Ñscal years 2002 and 2001
each consisted of 52 weeks and ended on September 27, 2002 and September 28, 2001, respectively. For
convenience, the consolidated Ñnancial statements have been shown as ending on the last day of the calendar
month. The following balance sheet data and statements of operations data for the Ñve years ended
September 30, 2003 were derived from our audited consolidated Ñnancial statements. Consolidated balance
sheets at September 30, 2003 and 2002 and the related consolidated statements of operations and of cash Öows
for each of the three years in the period ended September 30, 2003 and notes thereto appear elsewhere in this
annual report.
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 state-
ments 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.
Statement of Operations Data:
Net revenues ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Cost of goods sold(2)ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Gross proÑt (loss)ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Operating expenses:
Research and development ÏÏÏÏÏÏÏÏÏÏ
Selling, general and administrative ÏÏÏÏ
Amortization of intangible assets(3) ÏÏ
Purchased in-process research and
development(4)ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Special charges(5) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
2003
2002(1)
Fiscal Year
2001(1)
(In thousands)
2000(1)
1999(1)
$ 617,789
380,465
$ 457,769
331,608
$ 260,451
311,503
$378,416
270,170
$216,415
134,539
237,324
126,161
(51,052)
108,246
81,876
151,762
80,222
4,386
Ì
34,493
132,603
50,178
12,929
65,500
116,321
377,531
111,053
51,267
15,267
Ì
88,876
91,616
52,422
5,327
24,362
Ì
66,457
27,202
Ì
Ì
1,432
266,463
173,727
95,091
Total operating expenses ÏÏÏÏÏÏÏÏÏÏ
270,863
Operating loss ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Interest expenseÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Other income (expense), netÏÏÏÏÏÏÏÏÏÏÏ
(33,539)
(21,403)
1,317
(251,370)
(4,227)
(56)
(317,515)
(65,481)
(13,215)
Ì
210
Ì
142
Ì
(54)
Loss before income taxes and cumulative
eÅect of change in accounting principle
Provision (beneÑt) for income taxes ÏÏÏÏ
Loss before cumulative eÅect of change
(53,625)
652
(255,653)
(19,589)
(317,305)
1,619
(65,339)
1,140
(13,269)
1,646
in accounting principle ÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
(54,277)
(236,064)
(318,924)
(66,479)
(14,915)
Cumulative eÅect of change in
accounting principle, net of tax(6) ÏÏÏÏ
(397,139)
Ì
Ì
Ì
Ì
Net loss ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$ (451,416)
$ (236,064)
$(318,924)
$(66,479)
$(14,915)
25
2003
2002(1)
Fiscal Year
2001(1)
(In thousands)
2000(1)
1999(1)
Per share information(7):
Loss before income taxes and cumulative
eÅect of change in accounting principle
Cumulative eÅect of change in
accounting principle, net of tax(6) ÏÏÏÏ
Net loss ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$
$
$
(0.39)
$
(1.72)
(2.85)
Ì
(3.24)
$
(1.72)
Balance Sheet Data:
Working capital ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Total assets ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Long-term liabilities ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Stockholders' equity ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$ 249,279
1,090,668
280,677
673,175
$
79,769
1,346,912
184,309
1,014,976
$
60,540
314,287
3,806
287,661
$135,649
501,553
3,767
466,416
$ 55,374
291,909
3,335
275,568
(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) Amounts in Ñscal 2003 primarily reÖect amortization of current technology and customer relationships
acquired in the Merger. Amounts in Ñscal 2002, 2001 and 2000, primarily reÖect amortization of goodwill
and other intangible assets related to the acquisition of Philsar Semiconductor Inc. in Ñscal 2000.
(4) 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.
(5) In Ñscal 2003, the Company recorded special charges of $34.5 million, principally related to the
impairment of assets related to the Company's infrastructure products and certain restructuring charges.
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 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.
(6) The Company adopted Statement of Financial Accounting Standards No. 142, ""Goodwill and Other
Intangible Assets,'' on October 1, 2002. As a result of this adoption, the Company performed a
transitional evaluation of its goodwill and intangible assets with indeÑnite lives. Based on this transitional
evaluation, the Company determined that its goodwill was impaired and recorded a $397.1 million
cumulative eÅect of a change in accounting principle in Ñscal 2003.
(7) Prior to the Merger with Alpha Industries, Inc., Washington/Mexicali had no separate capitalization.
Therefore, a calculation cannot be performed for weighted average shares outstanding to then calculate
earnings per share.
26
CONSOLIDATED BALANCE SHEETS
Current assets:
ASSETS
Cash and cash equivalents ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Short-term investments ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Restricted cash ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Receivables, net of allowance for doubtful accounts of $1,979 and $1,324,
respectively ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Inventories ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Other current assetsÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Total current assets ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Property, plant and equipment, less accumulated depreciation and
amortization of $232,480 and $202,436, respectively ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Property held for sale ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Goodwill ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Intangible assets, less accumulated amortization of $4,460 and $915,
respectively ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Deferred tax asset ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Other assets ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
September 30,
2003
2002
(In thousands, except per
share amounts)
$ 161,506
3,988
5,312
$
53,358
Ì
Ì
144,267
58,168
12,854
386,095
121,556
6,209
505,514
22,181
22,766
26,347
94,425
55,643
23,970
227,396
143,773
Ì
905,219
35,467
22,487
12,570
Total assets ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$1,090,668
$1,346,912
Current liabilities:
LIABILITIES AND STOCKHOLDERS' EQUITY
Current maturities of long-term debtÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Short-term debt ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Accounts payable ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Accrued compensation and beneÑtsÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Other current liabilities ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$
Total current liabilities ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Long-term debt, less current maturities ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Other long-term liabilities ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Total liabilities ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Commitments and contingencies ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
29
41,652
50,369
16,963
27,803
136,816
275,000
5,677
417,493
Ì
$
129
Ì
45,350
17,585
84,563
147,627
180,039
4,270
331,936
Ì
Stockholders' equity:
Preferred stock, no par value: 25,000 authorized, no shares issued ÏÏÏÏÏÏÏÏÏÏ
Common stock, $0.25 par value: 525,000 shares authorized; 148,604 and
137,589 shares issued and outstanding, respectivelyÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Additional paid-in capital ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Accumulated deÑcitÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Accumulated comprehensive lossÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Deferred compensation, net of accumulated amortization of $137 and $53,
respectively ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Ì
Ì
37,151
1,258,265
(621,609)
(632)
34,397
1,150,856
(170,193)
Ì
Ì
(84)
Total stockholders' equity ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
673,175
1,014,976
Total liabilities and stockholders' equity ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$1,090,668
$1,346,912
The accompanying notes are an integral part of these consolidated Ñnancial statements.
27
CONSOLIDATED STATEMENTS OF OPERATIONS
Net revenues ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Cost of goods soldÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
2003
Years Ended September 30,
2002
(In thousands, except per share amounts)
$ 457,769
331,608
$ 617,789
380,465
$ 260,451
311,503
2001
Gross proÑt (loss)ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
237,324
126,161
(51,052)
Operating expenses:
Research and development ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Selling, general and administrative ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Amortization of intangible assets ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Purchased in-process research and development ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Special charges ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
151,762
80,222
4,386
Ì
34,493
Total operating expenses ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
270,863
132,603
50,178
12,929
65,500
116,321
377,531
111,053
51,267
15,267
Ì
88,876
266,463
Operating loss ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Interest expenseÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Other income (expense), netÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
(33,539)
(21,403)
1,317
(251,370)
(4,227)
(56)
(317,515)
Ì
210
Loss before income taxes and cumulative eÅect of change in
accounting principle ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Provision (beneÑt) for income taxes ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
(53,625)
652
(255,653)
(19,589)
(317,305)
1,619
Loss before cumulative eÅect of change in accounting principle
(54,277)
(236,064)
(318,924)
Cumulative eÅect of change in accounting principle, net of tax ÏÏ
(397,139)
Ì
Ì
Net loss ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$(451,416)
$(236,064)
$(318,924)
Per share information:
Loss before cumulative eÅect of change in accounting principle,
basic and diluted(1) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$
(0.39)
$
(1.72)
Cumulative eÅect of change in accounting principle, net of tax,
basic and diluted(1) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
(2.85)
Ì
Net loss, basic and diluted(1)ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$
(3.24)
$
(1.72)
Number of weighted-average shares used in per share
computations, basic and diluted(1) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
139,376
137,416
(1) See Note 2 to the consolidated Ñnancial statements
The accompanying notes are an integral part of these consolidated Ñnancial statements.
28
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Common Stock
Par
Value
Shares
Additional
Paid-in
Capital
Conexant's
Net
Investment
Retained
Earnings
(In thousands)
Accumulated
Other
Comprehensive
Income
(Loss)
Unearned
Compensation
Balance at September 30,
2000ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Net lossÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Foreign currency translation
adjustment ÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Contribution of additional
assets related to business
acquiredÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Net transfers from Conexant
Balance at September 30,
2001ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Net lossÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Foreign currency translation
adjustment ÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Net transfers from Conexant
Dividend(1) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Recapitalization as a result of
purchase accounting under
a reverse acquisitionÏÏÏÏÏÏÏ
Issuance of common shares
for purchase plans, 401k
and stock options ÏÏÏÏÏÏÏÏÏ
Amortization of unearned
compensation ÏÏÏÏÏÏÏÏÏÏÏÏ
Compensation expense ÏÏÏÏÏÏ
Balance at September 30,
Ì
Ì
Ì
Ì
Ì
Ì
Ì
Ì
Ì
Ì
Ì
Ì
Ì
Ì
Ì
Ì
Ì
Ì
Ì
Ì
466,468
(318,924)
Ì
2,058
138,343
Ì
Ì
287,945
(66,280)
Ì
50,404
(204,716)
137,368
34,342
1,149,965
(67,353)
221
Ì
Ì
55
Ì
Ì
861
Ì
30
Ì
Ì
Ì
Ì
Ì
Ì
Ì
Ì
Ì
(170,193)
Ì
Ì
Ì
Ì
Ì
Ì
Ì
(52)
Ì
(232)
Ì
Ì
(284)
Ì
409
Ì
Ì
Ì
Ì
Ì
Ì
Ì
Ì
Ì
Ì
Ì
Ì
(125)
(137)
Ì
Ì
Ì
2002ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 137,589 $34,397 $1,150,856
Ì
Ì
Ì
$
Ì $(170,193)
Ì (451,416)
$ Ì
Ì
Net lossÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Issuance of common shares in
oÅering, net of expenses ÏÏÏ
Issuance of common shares
for purchase plans, 401k
and stock options ÏÏÏÏÏÏÏÏÏ
Amortization of unearned
compensation ÏÏÏÏÏÏÏÏÏÏÏÏ
Adjustment to recapitalization
as a result of purchase
accounting under a reverse
acquisition(2) ÏÏÏÏÏÏÏÏÏÏÏÏ
Minimum pension liability
adjustment ÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Issuance of common shares in
trademark settlement ÏÏÏÏÏÏ
Balance at September 30,
9,200
2,300
99,888
1,769
Ì
Ì
Ì
46
442
Ì
Ì
Ì
12
8,607
Ì
(1,543)
Ì
457
Ì
Ì
Ì
Ì
Ì
Ì
Ì
Ì
Ì
Ì
Ì
Ì
Ì
Ì
Ì
Ì
(632)
Ì
Ì
53
Ì
$ (84)
Ì
Ì
Ì
84
Ì
Ì
Ì
2003ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 148,604 $37,151 $1,258,265
$
Ì $(621,609)
$(632)
$ Ì
(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.
(2) Represents an adjustment to recapitalization as a result of purchase accounting under a reverse
acquisition, as reported in Ñscal 2002, based on Ñnal valuations derived in Ñscal 2003.
The accompanying notes are an integral part of these consolidated Ñnancial statements.
29
CONSOLIDATED STATEMENTS OF CASH FLOWS
2003
Years Ended September 30,
2002
(In thousands)
2001
Cash Öows from operating activities:
Net loss ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $(451,416)
Adjustments to reconcile net loss to net cash used in operating activities:
$ (236,064)
$(318,924)
Depreciation ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Amortization ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Amortization of deferred Ñnancing costs ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Contribution of common shares to Savings and Retirement Plan ÏÏÏÏÏÏÏÏÏÏ
Gain on sales of assetsÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Deferred income taxes ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Purchased in-process research and development ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Asset impairments ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Provision for losses (recoveries) on accounts receivable ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Inventory provisions ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Changes in assets and liabilities, net of acquisition:
Receivables ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
InventoriesÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Other assets ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Accounts payable ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Other liabilities ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Net cash provided by (used in) operating activities ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Cash Öows from investing activities:
Capital expendituresÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Cash, cash equivalents and short-term investments of acquired business ÏÏÏÏÏÏ
Sale of short-term investments ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Purchase of short-term investments ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Dividend to Conexant ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
36,941
4,386
2,123
7,482
1,802
351
Ì
425,407
1,156
9,577
(50,998)
(12,102)
6,369
5,019
(58,149)
(72,052)
(40,294)
Ì
Ì
(3,988)
Ì
47,695
12,931
Ì
874
209
(23,117)
65,500
111,817
(512)
6,225
(85,590)
(7,934)
(8,292)
36,635
(19,471)
(99,094)
(29,412)
67,102
35,422
Ì
(3,070)
58,708
15,267
Ì
Ì
80
Ì
Ì
86,209
(468)
60,978
27,276
(8,378)
(1,604)
(2,547)
(6,003)
(89,406)
(51,118)
Ì
Ì
Ì
Ì
Net cash provided by (used in) investing activities ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
(44,282)
70,042
(51,118)
Cash Öows from Ñnancing activities:
Proceeds from unsecured notes oÅering ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Net proceeds from common stock public oÅering ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Deferred Ñnancing costs ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Restricted cash ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Net transfers from Conexant ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Proceeds from short-term debt ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Payments on long-term debt ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Exercise of stock options ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Net cash provided by (used in) Ñnancing activitiesÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Net increase (decrease) in cash and cash equivalentsÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Cash and cash equivalents at beginning of period ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
230,000
102,188
(10,474)
(5,312)
Ì
41,652
(135,139)
1,567
224,482
108,148
53,358
Cash and cash equivalents at end of period ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ 161,506
Supplemental cash Öow disclosures:
Taxes paid ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $
517
Interest paid ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $
21,061
$
$
$
Ì
Ì
Ì
Ì
50,404
30,000
(34)
42
80,412
51,360
1,998
53,358
832
323
Supplemental disclosure of non-cash activities:
Acquisition of Alpha Industries, Inc. ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $
Ì $1,183,105
Dividend to Conexant ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $
Ì $ 201,646
$
$
$
$
$
Conexant debt reÑnancingÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $
45,000
Stock issued for trademark settlementÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $
469
$
$
Ì $
Ì $
Ì
Ì
Ì
Ì
138,343
Ì
Ì
Ì
138,343
(2,181)
4,179
1,998
Ì
Ì
Ì
Ì
Ì
Ì
The accompanying notes are an integral part of these consolidated Ñnancial statements.
30
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Description of Business and Basis of Presentation
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 communica-
tions applications. The Company oÅers front-end modules, RF subsystems and cellular systems to leading
wireless handset and infrastructure customers.
On June 25, 2002, pursuant to an Agreement and Plan of Reorganization, dated as of December 16, 2001,
as amended as of April 12, 2002, by and among Alpha Industries, Inc. (""Alpha''), Conexant Systems, Inc.
(""Conexant'') and Washington Sub, Inc. (""Washington''), a wholly owned subsidiary of Conexant to which
Conexant spun oÅ its wireless communications business, including its gallium arsenide wafer fabrication
facility located in Newbury Park, California, but excluding certain assets and liabilities, Washington merged
with and into Alpha with Alpha as the surviving entity (the ""Merger''). Following the Merger, Alpha changed
its corporate name to Skyworks Solutions, Inc.
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. For purposes of these Ñnancial statements, 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
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 and are not indicative of the historical results that would have resulted if the Merger had occurred
at the beginning of a historical Ñnancial period.
The 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.
Management believes the assumptions underlying the Ñnancial statements are reasonable. However, there can
be no assurance 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.
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.
31
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
Historically, Conexant provided Ñnancing for Washington/Mexicali and incurred debt at the parent level.
The Ñnancial statements for the periods prior to June 25, 2002 of Washington/Mexicali do 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 for the periods prior to the Merger 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. Since the date of the Merger, the Company
has been performing these functions using its own resources or purchased services, including certain services
obtained from Conexant pursuant to a transition services agreement, most of which expired on December 31,
2002. The Company expects to transition the remaining services from Conexant to third party providers before
the end of Ñscal 2004.
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 2003 consisted of 53 weeks
and Ñscal years 2002 and 2001 each consisted of 52 weeks. Fiscal years 2003, 2002 and 2001 ended on
October 3, 2003, September 27, 2002 and September 28, 2001, 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 accounting principles generally
accepted in the United States of America requires management to make estimates and assumptions that aÅect
the reported amounts of assets and liabilities and disclosure of contingent liabilities at the date of the Ñnancial
statements and the reported amounts of revenues and expenses during the reporting period. 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, the
Company 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
32
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
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 customers is recorded based on historical experience or speciÑc
identiÑcation of an event necessitating a reserve.
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.
Short-term Investments:
The Company's short-term investments are classiÑed as held-to-maturity. These investments consist of
commercial paper with original maturities of more than 90 days but less than twelve months. Such short-term
investments are carried at amortized cost, which approximates fair value, due to the short period of time to
maturity. Gains and losses are included in investment income in the period they are realized.
Restricted Cash:
Restricted cash is used to collateralize the Company's obligation under a receivables purchase agreement
under which it has agreed to sell from time to time certain of its accounts receivable to Skyworks USA, Inc.
(""Skyworks USA''), a wholly-owned special purpose entity that is fully consolidated for accounting purposes.
Concurrently, Skyworks USA entered into an agreement with Wachovia Bank, National Association
providing for a $50 million credit facility (""Facility Agreement'') secured by the purchased accounts
receivable. See Note 8.
Accounts Receivable:
Accounts receivable consist of amounts due from normal business activities. 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 in excess of 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 less accumulated depreciation and amortization.
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.
33
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
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 lesser of
the economic life or the life of the associated lease.
Property Held for Sale:
Property held for sale at September 30, 2003 relates to land and buildings no longer in use and is recorded
at estimated fair value less estimated selling costs. The Company is actively marketing the property held for
sale.
Valuation of Long-lived Assets:
Carrying values for long-lived assets and deÑnitive lived intangible assets, excluding goodwill, are
reviewed for possible impairment as circumstances warrant in connections with Statement of Financial
Accounting Standards (""SFAS'') No. 144, ""Accounting for the Impairment or Disposal of Long-Lived
Assets,'' which was adopted on October 1, 2002. Impairment reviews are conducted at the judgment of
management 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. The
Company's estimates of undiscounted cash Öows may diÅer from actual cash Öows due to, among other things,
technological changes, economic conditions, changes to the Company's business model or changes in its
operating performance. If the sum of the undiscounted cash Öows (excluding interest) is less than the carrying
value, the Company recognizes 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.
Goodwill and Intangible Assets:
Goodwill and intangible assets are principally the result of the Merger with Washington/Mexicali
completed on June 25, 2002. The Company adopted SFAS No. 142, ""Goodwill and Other Intangibles,'' on
October 1, 2002 and performed a transitional impairment test for goodwill in Ñscal 2003. SFAS No. 142
addresses Ñnancial accounting and reporting for acquired goodwill and other intangible assets. Goodwill and
intangible assets that have indeÑnite useful lives are not amortized into results of operations, but instead are
evaluated at least annually for impairment and written down when the recorded value exceeds the estimated
fair value. The goodwill impairment test is a two-step process. The Ñrst step of the impairment analysis
compares the Company's fair value to its net book value. In determining fair value, SFAS No. 142 allows for
the use of several valuation methodologies, although it states quoted market prices are the best evidence of fair
value. As part of the Ñrst step, the Company determined that it has one reporting unit for purposes of
performing the fair-value based test of goodwill. This reporting unit is consistent with the Company's single
operating segment, which management determined is appropriate under the provisions of SFAS No. 131,
""Disclosures about Segments of an Enterprise and Related Information.'' The Company completed step one
and determined that its goodwill and unamortized intangible assets were impaired. Step two of the analysis
compares the implied fair value of goodwill to its carrying amount. If the carrying amount of goodwill exceeds
its implied fair value, an impairment loss is recognized equal to that excess. The Company completed step two
and determined that the carrying amount of its goodwill was $397.1 million greater than its implied fair value.
This transitional impairment charge was recorded as a cumulative eÅect of a change in accounting principle in
Ñscal 2003. The Company tests its goodwill for impairment annually as of the Ñrst day of its fourth Ñscal
quarter and in interim periods if certain events occur indicating that the carrying value of goodwill may be
impaired. The Company completed its annual goodwill impairment test for Ñscal 2003 and determined that as
of July 1, 2003, its goodwill was not further impaired.
34
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
Deferred Financing Costs:
Financing costs are capitalized as an asset on the Company's balance sheet and amortized on a straight-
line basis over the life of the Ñnancing.
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 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.
Research and Development Expenditures:
Research and development costs are expensed as incurred.
Product Warranties:
Warranties are oÅered on the sale of certain products and an accrual is recorded for estimated claims.
The changes in the warranty reserve are as follows:
Warranty balance, September 30, 2001 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Additions ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Cash payments and reductions ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Warranty balance, September 30, 2002 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Additions ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Cash payments and reductions ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$ 3,414
14,000
(4,042)
13,372
Ì
(7,241)
Warranty balance, September 30, 2003 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$ 6,131
Foreign Currency Translation and Remeasurement:
The foreign operations of the Company are subject to exchange rate Öuctuations and foreign currency
transaction costs. The functional currency for the Company's foreign operations is the U.S. dollar. Exchange
gains and losses resulting from transactions denominated in currencies other than the functional currency are
included in the results of operations for the year. 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.
35
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
Gains and losses resulting from these remeasurements are included in results of operations. The Company
recorded a gain of $0.4 million related to these remeasurements in Ñscal 2003.
Stock Option Plans:
The Company has elected to follow Accounting Principles Board Opinion (""APB'') No. 25, ""Accounting
for Stock Issued to Employees,'' and related interpretations, in accounting for employee stock options rather
than the alternative fair value accounting allowed by SFAS No. 123, ""Accounting for Stock-Based
Compensation.'' APB No. 25 provides that compensation expense relative to the Company's employee stock
options is measured based on the intrinsic value of stock options granted and the Company recognizes
compensation expense in its statement of operations using the straight-line method over the vesting period for
Ñxed awards. Under SFAS No. 123, the fair value of stock options at the date of grant is recognized in
earnings over the vesting period of the options. In December 2002, the Financial Accounting Standards Board
(""FASB'') issued SFAS No. 148, ""Accounting for Stock-Based Compensation Ì Transition and Disclo-
sure.'' SFAS No. 148 amends SFAS No. 123 to provide alternative methods of transition for a voluntary
change to the fair value method of accounting for stock-based employee compensation. In addition,
SFAS No. 148 amends the disclosure requirements of SFAS No. 123 to require prominent disclosures in both
annual and interim Ñnancial statements about the method of accounting for stock-based employee compensa-
tion and the eÅect of the method on reported results. SFAS No. 148 is eÅective for Ñnancial statements for
Ñscal years and interim periods ending after December 15, 2002. The Company adopted the disclosure
provisions of SFAS No. 148 on December 27, 2002 and continues to follow APB No. 25 in accounting for
employee stock options.
No stock-based employee compensation cost is reÖected in net income, as all options granted under the
Company's stock-based employee compensation plans had an exercise price equal to the market value of the
underlying common stock on the date of grant. Prior to the Merger with Alpha Industries, Inc., Conexant's
wireless business had no separate capitalization. Therefore, the Company had no stock-based compensation
prior to June 25, 2002.
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, the Company's net income (loss) would have been as follows:
Reported net loss ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Total stock-based employee compensation expense determined under
Years Ended September 30,
2003
2002
(In thousands, except per
share amounts)
$(451,416)
$(236,064)
fair value based method for all awards, net of related tax eÅects ÏÏÏÏ
4,923
285
Adjusted net loss ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Per share information:
Basic and diluted:
Reported net loss ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Total stock-based employee compensation expense determined under
$(456,339)
$(236,349)
$
(3.24)
$
(1.72)
fair value based method for all awards, net of related tax eÅects ÏÏÏÏ
(0.03)
Ì
Adjusted net loss ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$
(3.27)
$
(1.72)
36
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
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 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Risk free interest rate ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Dividend yield ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Expected option life (years) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Weighted average fair value of options granted ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
2003
2002
95%
2.5%
Ì
4.5
$2.57
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.
Earnings Per Share:
Prior to the Merger with Alpha, 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 and a
stock warrant, using the treasury stock method, and debt securities on an if converted basis, if their eÅect is
dilutive. For the year ended September 30, 2003, debt securities convertible into 31.1 million shares, stock
options exercisable into 25.8 million shares and a warrant to purchase 1.0 million shares were outstanding but
not included in the computation of diluted earnings per share as the net loss for this period would have made
their eÅect anti-dilutive. For the year ended September 30, 2002, options to purchase 31.3 million shares were
outstanding but not included in the computation of diluted earnings per share as the net loss for this period
would have made their eÅect anti-dilutive.
Pensions and Retiree Medical BeneÑts:
In connection with Conexant's spin-oÅ of its Washington/Mexicali business, Conexant transferred
obligations to Washington/Mexicali for its pension plan and retiree beneÑts. The amounts that were
transferred relate to approximately twenty Washington/Mexicali employees that had enrolled in Conexant's
Voluntary Early Retirement Plan (""VERP'') in 1998. The VERP also provides health care beneÑts to
members of the plan. The Company currently does not oÅer pension plans or retiree beneÑts to its employees.
The costs and obligations of the Company's pension and retiree medical plans are calculated using many
assumptions, the amount of which cannot be completely determined until the beneÑt payments cease. The
most signiÑcant assumptions, as presented in Note 12 to the Consolidated Financial Statements, include
discount rate, expected return on plan assets and future trends in health care costs. The selection of
assumptions is based on historical trends and known economic and market conditions at the time of valuation.
Actual results may diÅer substantially from these assumptions. These diÅerences may signiÑcantly impact
future pension or retiree medical expenses.
Annual pension and retiree medical expense is principally the sum of three components: 1) increase in
liability from interest; less 2) expected return on plan assets; and 3) other gains and losses as described below.
The expected return on plan assets is calculated by applying an assumed long-term rate of return to the fair
37
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
value of plan assets. In any given year, actual returns can diÅer signiÑcantly from the expected return.
DiÅerences between the actual and expected return on plan assets are combined with gains or losses resulting
from the revaluation of plan liabilities. Plan liabilities are revalued annually, based on updated assumptions
and information about the individuals covered by the plan. The combined gain or loss is generally expensed
evenly over the remaining years that employees are expected to work.
Comprehensive Income (Loss):
The Company accounts for comprehensive income (loss) in accordance with the provisions of
SFAS No. 130, ""Reporting Comprehensive Income.'' SFAS No. 130 is a Ñnancial statement presentation
standard that 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. Comprehensive loss, for periods subsequent to the Merger, consists of an adjustment to the Company's
minimum pension liability.
An analysis of other comprehensive income (loss) follows (in thousands):
Balance as of September 30, 2001 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Change in period ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Balance retained by ConexantÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Foreign
Currency
Translation
$(284)
409
(125)
Balance as of September 30, 2002 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Change in period ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Ì
Ì
Pension
Adjustments
Accumulated
Other
Comprehensive
Income (Loss)
$ Ì
Ì
Ì
Ì
(632)
$(284)
409
(125)
Ì
(632)
Balance as of September 30, 2003 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$ Ì
$(632)
$(632)
ReclassiÑcations:
Certain reclassiÑcations have been made to the prior years' Ñnancial statements to conform to the current
year's presentation.
Recent Accounting Pronouncements:
During Ñscal 2003, the Company adopted the provisions of SFAS No. 146, ""Accounting for Costs
Associated with Exit or Disposal Activities'', FASB Interpretation No. (""FIN'') 45, ""Guarantor's Accounting
and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others'' and
FIN 46, ""Consolidation of Variable Interest Entities'' with no material impact to the consolidated Ñnancial
statements. The disclosure requirements of FIN 45 are addressed in Note 15.
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 spun oÅ its wireless business into Washington, including its
gallium arsenide wafer fabrication facility located in Newbury Park, California, but excluding certain assets
38
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
and liabilities, 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 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. 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 and are
not indicative of 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.
The total purchase price was valued at approximately $1.2 billion and is summarized as follows:
Fair market value of Alpha common stock ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Fair value of Alpha stock options ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Estimated transaction costs of acquirer ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
(In thousands)
$1,054,111
95,388
33,606
Total ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$1,183,105
The purchase price was allocated as follows:
Working capital ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Property, plant and equipment ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Amortized intangible assets ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Unamortized intangible assets ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Goodwill ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
In-process research and development ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Long-term debt ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Other long-term liabilities ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Deferred compensation ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
(In thousands)
$ 120,977
59,767
34,082
2,300
902,653
65,500
(73)
(2,236)
135
Total ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$1,183,105
39
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
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.
Years Ended September 30,
2002
2001
(In thousands, except per
share data)
Net revenue ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Net loss ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Net loss per share (basic and diluted)(1) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$ 543,091
$(301,684)
(2.20)
$
$ 458,352
$(328,981)
(1) See Note 2 to the consolidated Ñnancial statements
In connection with the Merger, $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.
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.
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 were associated
with our ability to successfully Ñnish the creation of viable prototypes and successful design of the chips,
masks and manufacturing processes required. We expected to beneÑt from the in-process projects as the
individual products that contained the in-process technology were put into production and sold to end-users.
40
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
The release dates for each of the products within the product families were varied. The fair value of the
IPR&D was determined using the income approach. Under the income approach, the fair value reÖected the
present value of the projected cash Öows that were expected to be generated by the products incorporating the
IPR&D, if successful. The projected cash Öows were discounted to approximate fair value. The discount rate
applicable to the cash Öows of each project reÖected the stage of completion and other risks inherent in each
project. The weighted average discount rate used in the valuation of IPR&D was 30 percent. As of
September 30, 2003, the Company had either completed or abandoned each of these projects. The completed
IPR&D projects commenced generating cash Öows in Ñscal 2003. Due to the nature of these projects and the
related technology, the revenue streams derived from these projects cannot be separately identiÑed.
Note 4.
Inventory
Inventories consist of the following (in thousands):
September 30,
2003
2002
Raw materialsÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Work-in-process ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Finished goods ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$ 8,475
35,797
13,896
$13,496
27,764
14,383
$58,168
$55,643
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.
Note 5. Property, Plant and Equipment
Property, plant and equipment consist of the following (in thousands):
Land ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Land and leasehold improvements ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Buildings ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Machinery and equipment ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Construction in progress ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
September 30,
2003
2002
$
9,423
3,410
58,340
249,124
33,739
354,035
$
11,578
6,583
60,386
250,500
17,162
346,209
Accumulated depreciation and amortizationÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
(232,480)
(202,436)
$ 121,556
$ 143,773
Note 6. Goodwill and Intangible Assets
The Company adopted SFAS No. 142, ""Goodwill and Other Intangibles,'' on October 1, 2002 and
performed a transitional impairment test for goodwill. The goodwill impairment test is a two-step process. The
41
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
Ñrst step of the impairment analysis compares the Company's fair value to its net book value. In determining
fair value, SFAS No. 142 allows for the use of several valuation methodologies, although it states quoted
market prices are the best evidence of fair value. As part of the Ñrst step, the Company determined that it has
one reporting unit for purposes of performing the fair-value based test of goodwill. This reporting unit is
consistent with its single operating segment, which management determined is appropriate under the
provisions of SFAS No. 131, ""Disclosures about Segments of an Enterprise and Related Information.'' The
Company completed step one and determined that its goodwill and unamortized intangible assets were
impaired. Step two of the analysis compares the implied fair value of goodwill to its carrying amount. If the
carrying amount of goodwill exceeds its implied fair value, an impairment loss is recognized equal to that
excess. The Company completed step two and determined that the carrying amount of its goodwill was
$397.1 million greater than its implied fair value. This transitional impairment charge was recorded as a
cumulative eÅect of a change in accounting principle in Ñscal 2003. The Company tests its goodwill for
impairment annually as of the Ñrst day of its fourth Ñscal quarter and in interim periods if certain events occur
indicating that the carrying value of goodwill may be impaired. The Company completed its annual goodwill
impairment test for Ñscal 2003 and determined that as of July 1, 2003, its goodwill was not further impaired.
Goodwill and intangible assets consist of the following (in thousands):
Goodwill ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Amortized intangible assets:
Developed technology ÏÏÏÏ
Customer relationships ÏÏÏ
Other ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Unamortized intangible
assets:
TrademarksÏÏÏÏÏÏÏÏÏÏÏÏÏ
Weighted
Average
Amortization
Period
(Years)
September 30, 2003
September 30, 2002
Gross
Carrying
Amount
Accumulated
Amortization
Net
Carrying
Amount
Gross
Carrying
Amount
Accumulated
Amortization
Net
Carrying
Amount
$505,514
$ Ì
$505,514
$905,219
$ Ì
$905,219
10
10
3
10
10,550
12,700
122
23,372
(2,806)
(1,598)
(56)
(4,460)
7,744
11,102
66
18,912
21,260
12,700
122
34,082
(576)
(328)
(11)
(915)
20,684
12,372
111
33,167
3,269
Ì
3,269
2,300
Ì
2,300
$532,155
$(4,460)
$527,695
$941,601
$(915)
$940,686
Annual amortization expense related to intangible assets are as follows (in thousands):
Years Ended September 30,
2002
2001
2003
Amortization expense ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$3,545
$12,687
$15,267
42
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
The changes in the gross carrying amount of goodwill and intangible assets are as follows:
Goodwill
Developed
Technology
Customer
Relationships
Trademarks
Other
Total
Balance as of September 30,
2001 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$
71,412
$
5,995
$ Ì
$ Ì
$ 793
$
78,200
Additions (deductions) during
year ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Impairment losses ÏÏÏÏÏÏÏÏÏÏÏ
Balance as of September 30,
905,219
(71,412)
21,260
(5,995)
12,700
Ì
2,300
Ì
122
(793)
941,601
(78,200)
2002 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
905,219
21,260
12,700
2,300
122
941,601
Additions (deductions) during
year ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Transitional impairment loss ÏÏ
Impairment losses ÏÏÏÏÏÏÏÏÏÏÏ
Balance as of September 30,
(2,566)
(397,139)
Ì
Ì
Ì
(10,710)
Ì
Ì
Ì
969
Ì
Ì
Ì
Ì
Ì
(1,597)
(397,139)
(10,710)
2003 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$ 505,514
$ 10,550
$12,700
$3,269
$ 122
$ 532,155
The additions (deductions) in Ñscal 2003 primarily reÖect income tax refunds and gains on the sale of
acquired assets related to Alpha and the acquisition of a trademark. Impairment losses in Ñscal 2003 represent
the write-down of assets related to the Company's infrastructure business and are included in special charges
in the accompanying consolidated statements of operations.
The additions (deductions) in Ñscal 2002 reÖect the results of the purchase price allocation of Alpha in
the Merger. Impairment losses in Ñscal 2002 represent the write-down of all goodwill and other intangible
assets associated with the Company's acquisition of the Philsar Bluetooth business and are included in special
charges in the accompanying consolidated statements of operations.
In accordance with SFAS No. 142, the following table provides net loss and related per share amounts for
Ñscal 2002 and 2001, as reported and adjusted as if the Company had ceased amortizing goodwill eÅective
October 1, 2000.
Years Ended September 30,
2002
2001
(In thousands, except per
share amounts)
Reported net loss ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Goodwill amortization, net of taxÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$(236,064)
10,699
$(318,924)
13,909
Adjusted net loss ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$(225,365)
$(305,015)
Per share information(1):
Basic and diluted:
Reported net loss ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Goodwill amortization, net of taxÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$
(1.72)
0.08
Adjusted net loss ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$
(1.64)
(1) See Note 2 to the consolidated Ñnancial statements
Annual amortization expense related to intangible assets is expected to be as follows (in thousands):
2004
2005
2006
2007
2008
Amortization expense ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$2,285
$2,161
$2,144
$2,144
$2,144
43
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
Note 7. Other Current Liabilities
Other current liabilities consist of the following (in thousands):
Product warranty accrual ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Accrued merger expenses ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Other ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$ 6,131
452
21,220
$13,372
42,764
28,427
$27,803
$84,563
September 30,
2003
2002
Note 8. Borrowing Arrangements
Long-term Debt
Long-term debt consists of the following (in thousands):
Junior notes ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Senior notes ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Conexant Mexicali note ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Conexant revolving credit line used ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
CDBG Grant ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Less Ì current maturities ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
September 30,
2003
2002
$230,000
45,000
Ì
Ì
29
275,029
29
$
Ì
Ì
150,000
30,000
168
180,168
129
$275,000
$180,039
Junior notes represent the Company's 4.75 percent convertible subordinated notes due 2007. These
Junior 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 Company may redeem the Junior
notes at any time after November 20, 2005. The redemption price of the Junior notes during the period
between November 20, 2005 through November 14, 2006 will be $1,011.875 per $1,000 principal amount of
notes to be redeemed, plus accrued and unpaid interest, if any, to the redemption date, and the redemption
price of the notes beginning on November 15, 2006 and thereafter will be $1,000 per $1,000 principal amount
of notes to be redeemed, plus accrued and unpaid interest, if any, to the redemption date. Holders may require
the Company to repurchase the Junior notes upon a change in control of the Company. The Company will pay
interest in cash semi-annually in arrears on May 15 and November 15 of each year.
Senior notes represent the Company's 15 percent convertible senior subordinated notes due June 30,
2005, which were issued as part of the Company's debt reÑnancing with Conexant completed on Novem-
ber 13, 2002. These Senior 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 Senior notes is approximately
7.1 million shares, subject to adjustment for stock splits and other similar dilutive occurrences. If the
holder(s) of these Senior notes converted the notes at a price that is less than the original conversion price
($7.87) as the result of a decrease in the market price of the Company's stock, the Company would be
required to record a charge to interest expense in the period of conversion. At maturity (including upon certain
acceleration events), the Company will pay the principal amount of the Senior notes by issuing a number of
shares of common stock equal to the principal amount of the Senior notes then due and payable divided by the
44
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
applicable conversion price in eÅect on such date, together with cash in lieu of any fractional shares. The
Company may redeem the Senior notes at any time after May 12, 2004 at $1,030 per $1,000 principal amount
of Senior notes to be redeemed, plus accrued and unpaid interest. The holder(s) may require the Company to
repurchase the Senior notes upon a change in control of the Company. The Company pays interest in cash on
the Senior notes on the last business day of each March, June, September and December of each year.
Interest on the Senior notes is not deductible for tax purposes because of the conversion feature.
The Company has a ten-year $960,000 loan from the State of Maryland under the Community
Development Block Grant (""CDBG'') program. Quarterly payments are due through December 2003 and
represent principal plus interest at 5 percent of the unamortized balance.
Aggregate annual maturities of long-term debt are as follows (in thousands):
Fiscal Year
2004 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
2005 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
2006 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
2007 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
2008 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$
29
45,000
Ì
Ì
230,000
$275,029
Short-term Debt
On July 15, 2003, the Company entered into a receivables purchase agreement under which it has agreed
to sell from time to time certain of its accounts receivable to Skyworks USA, Inc. (""Skyworks USA''), a
wholly-owned special purpose entity that is fully consolidated for accounting purposes. Concurrently,
Skyworks USA entered into an agreement with Wachovia Bank, National Association providing for a
$50 million credit facility (""Facility Agreement'') secured by the purchased accounts receivable. As a part of
the consolidation, any interest incurred by Skyworks USA related to monies it borrows under the Facility
Agreement is recorded as interest expense in the Company's results of operations. The Company performs
collections and administrative functions on behalf of Skyworks USA. As of September 30, 2003, Skyworks
USA had borrowed $41.7 million under this agreement.
Note 9.
Income Taxes
Income (loss) before income taxes and cumulative eÅect of change in accounting principle consists of the
following components (in thousands):
United StatesÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Foreign ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$(59,379)
5,754
$(151,214)
(104,439)
$(323,642)
6,337
$(53,625)
$(255,653)
$(317,305)
Years Ended September 30,
2002
2001
2003
45
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
The provision for income taxes from continuing operations consists of the following (in thousands):
Years Ended September 30,
2002
2003
2001
Current tax expense:
Federal ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
State ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Foreign ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Deferred tax expense (beneÑt):
Federal ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
State ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Foreign ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Net income tax expense (beneÑt) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$ Ì $
Ì
1,414
Ì $ Ì
Ì
Ì
1,619
3,506
1,414
3,506
1,619
Ì
Ì
(762)
Ì
Ì
(23,095)
Ì
Ì
Ì
(762)
$ 652
(23,095)
$(19,589)
Ì
$1,619
The actual income tax expense (beneÑt) 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 expense
(beneÑt). 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
2003
Tax (beneÑt) expense at U.S. statutory rate ÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Foreign tax rate diÅerence ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Nondeductible amortization of intangible assets ÏÏÏÏÏÏÏÏÏÏÏ
Nondeductible in-process research and development ÏÏÏÏÏÏÏ
Nondeductible interest expense ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Pre-distribution loss not available to Skyworks ÏÏÏÏÏÏÏÏÏÏÏÏ
Research and development credits ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
State income taxes, net of federal beneÑt ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Change in valuation allowance ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Other, netÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$(18,769)
(1,362)
Ì
Ì
2,113
Ì
(5,369)
Ì
25,168
(1,129)
$(89,479)
3,529
16,151
22,925
Ì
21,968
(711)
Ì
5,947
81
$(111,057)
(599)
5,099
Ì
Ì
Ì
(4,921)
(11,672)
123,466
1,303
$
652
$(19,589)
$
1,619
46
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
Deferred income tax assets and liabilities consist of the tax eÅects of temporary diÅerences related to the
following (in thousands):
Current:
Inventories ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Deferred revenue ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Accrued compensation and beneÑtsÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Product returns, allowances and warranty ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Restructuring ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Deferred state taxes ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Other Ì net ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$
Current deferred income taxes ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Long-term:
Property, plant and equipment ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Intangible assets ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Retirement beneÑts and deferred compensation ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Net operating loss carryforwards ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Federal tax credits ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
State investment credits ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Restructuring ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Other Ì net ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
September 30,
2003
2002
11,878
Ì
1,907
4,259
1,295
Ì
1,494
20,833
46,356
8,837
1,172
61,049
7,798
5,541
2,978
855
$14,352
258
1,914
8,097
5,475
Ì
523
30,619
51,321
(13,029)
931
27,003
3,904
2,672
2,688
(416)
Long-term deferred income taxes ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
134,586
75,074
Total deferred income taxes ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
155,419
105,693
Valuation allowance ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
(131,975)
(83,206)
Net deferred tax assets ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$
23,444
$22,487
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, 2003,
the Company has established a valuation allowance against all of its net U.S. deferred tax assets. The net
change in the valuation allowance of $48.8 million is principally due to the generation of additional tax
attributes, i.e. federal and state net operating loss and credit carryovers, and other intangibles associated with
the Mexicali transaction. The future realization of certain deferred assets will be applied to reduce the carrying
value of goodwill. The portion of the valuation allowance for these 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 $44 million. Deferred tax assets have been recognized for foreign operations when
management believes they will be recovered during the carry-forward period. The Company does 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 its Mexicali assets. A
valuation allowance has not been established because the Company believes that the related deferred tax asset
will be recovered during the carryforward period.
47
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
As of September 30, 2003, the Company has U.S. federal net operating loss carryforwards of
approximately $164.5 million which will expire at various dates through 2023 and aggregate state net operating
loss carryforwards of approximately $59.5 million which will expire at various dates through 2008. The
Company also has U.S. federal and state income tax credit carryforwards of approximately $12.4 million. The
U.S. federal tax credits expire at various dates through 2023. 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 change 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.
No provision has been made for United States, state, or additional foreign income taxes related to
approximately $3.8 million of undistributed earnings of foreign subsidiaries which have been or are intended to
be permanently reinvested. It is not practical to determine the United States federal income tax liability, if
any, which would be payable if such earnings were not permanently reinvested.
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. Subsequent to the execution of the tax allocation agreement, and in connection with
the reÑnancing agreement and amended Ñnancing agreement with Conexant, we entered into a letter
agreement on November 6, 2002 with Conexant that amends the tax allocation agreement to limit our
indemniÑcation obligations under the tax allocation agreement to a reduced set of circumstances that could
trigger such indemniÑcation. However, the tax allocation agreement continues to provide that we will be
responsible for various other tax obligations and for compliance with various representations and covenants
made under the tax allocation agreement.
Note 10. Stockholders' Equity
Prior to the Merger with Alpha, Conexant's wireless business had no separate capitalization. The
following information represents the Company's capital structure following the Merger.
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 deter-
mined 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.
On August 11, 2003 the Company Ñled a shelf registration statement on Form S-3 with the Securities
and Exchange Commission (""SEC'') with respect to the issuance of up to $250 million aggregate principal
amount of securities, including debt securities, common or preferred shares, warrants or any combination
48
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
thereof. This registration statement, which the SEC declared eÅective on August 28, 2003, provides the
Company with greater Öexibility and access to capital. On September 9, 2003 the Company issued 9.2 million
shares of common stock under its shelf registration statement. The Company may from time to time issue
securities under the remaining balance of the shelf registration statement for general corporate purposes.
At September 30, 2003, the Company had 148,604,137 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, 2003, the Company had no shares of preferred stock issued or 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 30, 2003, 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 14.2 million at September 30, 2003.
Pursuant to an exchange oÅer dated June 16, 2003 (the ""Exchange OÅer''), the Company oÅered a stock
option exchange program to its employees, other than its executive oÇcers under Section 16 of the Securities
Exchange Act of 1934, as amended, giving them the right to tender outstanding stock options with an exercise
price of $13.00 per share or more in exchange for new options to be issued six months and one day after the
close of the Exchange OÅer. On July 3, 2003, the expiration date of the Company's Exchange OÅer, the
Company accepted for exchange from eligible employees options to purchase an aggregate of 5,328,085 shares
of the Company's common stock. These stock options were cancelled as of that date. Pursuant to the
Exchange OÅer, a ratio was applied to the options accepted for exchange from eligible employees and the
Company expects that it will issue, on January 5, 2004, new options to purchase approximately
3,428,881 shares of the Company's common stock with an exercise price at fair market value in exchange for
the options cancelled in connection with the oÅer. These new options will vest ratably over an eighteen-month
period. The Exchange OÅer qualiÑes for Ñxed accounting and thus the Company does not expect to recognize
compensation expense in connection with the grant of the replacement options pursuant to the Exchange
OÅer.
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.
49
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
A summary of stock option transactions follows (shares in thousands):
Weighted Average
Exercise Price
of Shares
Under Plan
Shares
Balance outstanding prior to the close of the Merger ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Ì
$ Ì
Recapitalization as a result of the Merger:
Alpha options assumed ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Conexant options assumed ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Balance outstanding at June 25, 2002 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
8,277
23,188
31,465
Granted ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Exercised ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
CancelledÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
998
(20)
(1,111)
18.97
20.80
$20.32
4.69
2.08
23.35
Balance outstanding at September 30, 2002 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
31,332
$19.73
Granted ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Exercised ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Accepted for exchange ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
CancelledÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
6,372
(496)
(5,328)
(6,117)
5.06
6.37
23.38
20.21
Balance outstanding at September 30, 2003 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
25,763
$15.44
Options exercisable at the end of each Ñscal year (shares in thousands):
Shares
Weighted Average
Exercise Price
2003 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
2002 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
15,141
16,080
$19.03
$19.86
The following table summarizes information concerning currently outstanding and exercisable options as
of September 30, 2003 (shares in thousands):
Range of Exercise Prices
$0.00-$9.99ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$10.00-$19.99ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$20.00-$29.99ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$30.00-$39.99ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$40.00-$59.99ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$60.00-$210.35ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Weighted
Average
Remaining
Contractual
Life (Years)
Weighted
Average
Outstanding
Option Price
Number
Outstanding
8,731
8,659
6,841
1,224
231
77
25,763
8.2
5.2
6.7
4.7
6.0
4.2
6.6
$ 5.44
$15.82
$21.97
$37.57
$45.76
$82.98
$15.44
Options
Exercisable
1,636
7,184
5,012
1,073
174
62
15,141
Weighted
Average
Exercise
Price
$ 5.74
$16.03
$21.87
$38.04
$45.80
$83.05
$19.03
50
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
Stock Option Distribution
The following table summarizes information concerning currently outstanding options as of Septem-
ber 30, 2003 (shares in thousands):
Stock options held by non-employees (excluding directors)ÏÏÏÏÏÏÏÏÏ
Stock options held by employees and directors ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Number
Outstanding
% of Total
Common Stock
Outstanding
14,352
11,411
25,763
9.7%
7.7%
17.4%
As of September 30, 2003, the Company's ratio of options outstanding as a percentage of total common
stock outstanding (""overhang'') was 17.4%. The overhang attributable to options held by non-employees
(other than its non-employee directors) was 9.7% and the overhang attributable to employees and directors
was 7.7%.
In connection with the Merger, as of September 30, 2003 and 2002 non-employees, excluding directors,
held 14,351,737 and 18,184,701 options at a weighted average price of $16.76 and $20.49, respectively.
EÅective June 25, 2002, in connection with the Merger each Conexant option holder, other than holders of
options granted to employees of Conexant's former Mindspeed Technologies segment on March 30, 2001 and
options held by persons in certain foreign locations, received an option to purchase an equal number of shares
of common stock of the Washington subsidiary. In the Merger, each outstanding Washington option was
converted into an option to purchase Skyworks common stock. The conversion of Washington options into
Skyworks' options was done in such a manner that (1) the aggregate intrinsic value of the options immediately
before and after the conversion was the same, (2) the ratio of the exercise price per option to the market value
per option was not reduced, and (3) the vesting provisions and options period of the Skyworks' options were
the same as the original vesting terms and option period of the corresponding Washington options. As a result,
there are a large number of options held by persons other than Skyworks' employees and directors. More
speciÑcally, non-employees hold a greater number of options to purchase Skyworks' common stock than do
Skyworks' employees.
Restricted Stock Awards
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 during Ñscal years 2003 and 2002.
Stock Option Plans for 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 2003, 114,000 options were granted under these plans at a weighted average price of $6.66. At
51
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
September 30, 2003, a total of 627,000 options, net of cancellations, at a weighted average price of $13.84 have
been granted under these three plans and 301,500 shares were exercisable at a weighted average price of
$19.45. During Ñscal 2003 and 2002, no options were exercised under these plans. Non-employee directors of
the Company are also eligible to receive option grants under the Company's 1996 Long-Term Incentive Plan.
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 1,880,000 shares
through December 31, 2012. Shares of 704,921 and 65,668 were purchased under these plans in Ñscal 2003
and 2002, respectively.
Stock Warrants
In connection with the Merger, the Company issued to Jazz Semiconductor, Inc. (""Jazz Semiconduc-
tor'') a warrant to purchase 1,017,900 shares of Skyworks common stock at a price of $24.02 per share. This
warrant became 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 $0.8 million and $0.2 million was included in amortization of intangible assets related to this
item in Ñscal 2003 and 2002, respectively. The warrant expires on January 20, 2005.
Note 11. 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% of an employee's annual salary.
For Ñscal years 2003 and 2002, the Company contributed 560,516 and 128,836 shares, respectively, of the
Company's common stock valued at $4.2 million and $0.6 million, respectively, to fund the Company's
obligation under the 401(k) plan.
Conexant sponsored 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 and $1.3 million for
Ñscal years 2002 and 2001, respectively.
Note 12. Pensions and Other Retiree BeneÑts
In connection with Conexant's spin-oÅ of its Washington/Mexicali business, Conexant transferred
obligations to Washington/Mexicali for its pension plan and retiree beneÑts. The amounts that were
transferred relate to approximately twenty Washington/Mexicali employees that had enrolled in Conexant's
Voluntary Early Retirement Plan (""VERP'') in 1998. The VERP also provides health care beneÑts to
members of the plan. The Company currently does not oÅer pension plans or retiree beneÑts to its employees.
52
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
The components of deÑned beneÑt expense for Ñscal 2003 are as follows (in thousands):
Retiree
Pension Medical
BeneÑts
BeneÑts
Service cost-beneÑts earned ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Interest cost on beneÑt obligation ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Estimated return on assets ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Net amortization ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$ Ì
175
(59)
3
Net periodic beneÑt cost ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$119
$ Ì
70
Ì
50
$120
The funded status of the Company's principal deÑned beneÑt and retiree medical beneÑt plans and the
amounts recognized in the balance sheet for Ñscal 2003 are as follows (in thousands):
Pension
BeneÑts
Retiree
Medical
BeneÑts
Change in beneÑt obligation:
Balance at beginning of yearÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
BeneÑt payments ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Service and interest costs ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Actuarial (gains) lossesÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$ 2,652
$ 1,014
(256)
175
323
(38)
70
Ì
Balance at end of yearÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$ 2,894
$ 1,046
Change in fair value of plan assets:
Balance at beginning of yearÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Actual return on plan assets ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Employer contribution ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
BeneÑt payments ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$ 1,419
77
579
(256)
$ Ì
Ì
Ì
Ì
Balance at end of yearÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$ 1,819
$ Ì
BeneÑt obligations in excess of plan assets ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Unrecognized net actuarial loss ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$(1,075)
632
$(1,046)
Ì
Net accrued beneÑt cost ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$ (443)
$(1,046)
The assumptions used in determining retirement beneÑt obligations for Ñscal 2003 are as follows:
Retiree
Pension Medical
BeneÑts
BeneÑts
Discount rate ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Long-term rate of return on assetsÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
6%
4%
7%
N/A
An increase in the health care cost trend rate by 1% would increase the accumulated retirement medical
obligation by $0.1 million at September 30, 2003 and would not aÅect retirement medical expense.
Consequently, a decrease in the health care cost trend rate by 1% would decrease the accumulated retirement
medical obligation by $0.1 million at September 30, 2003 and would not aÅect retirement medical expense.
53
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
Note 13. Commitments
The Company has various operating leases primarily for computer equipment and buildings. Rent
expense amounted to $10.4 million, $7.1 million and $4.9 million in Ñscal 2003, 2002 2001, respectively.
Purchase options may be exercised, at fair market value, at various times for some of these leases. Future
minimum payments under these noncancelable leases are as follows (in thousands):
Fiscal Year
2004 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
2005 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
2006 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
2007 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
2008 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Thereafter ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$ 7,328
6,051
4,906
4,465
4,348
7,034
$34,132
Under supply agreements entered into with Conexant and subsequently with Jazz Semiconductor the
Company receives wafer fabrication, wafer probe and certain other services from Jazz Semiconductor's
Newport Beach, California foundry.
Pursuant to the terms of these agreements, the Company is committed to obtaining certain minimum
wafer volumes from Jazz Semiconductor. The Company's expected minimum purchase obligations under
these supply agreements will be approximately $39 million and $13 million in Ñscal 2004 and 2005,
respectively. The Company originally estimated its obligation under this agreement would result in excess
costs of approximately $12.9 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, the Company reevaluated this obligation and
reduced its liability and cost of sales by approximately $8.1 million in the quarter. During the Ñrst quarter of
Ñscal 2003, the Company reevaluated the remaining $4.8 million obligation related to Jazz Semiconductor and
reduced its liability and cost of sales by approximately $4.8 million in the quarter. The Company currently
anticipates meeting each of the annual minimum purchase obligations under these supply agreements.
Note 14. Contingencies
From time to time various lawsuits, claims and proceedings have been, and may in the future be,
instituted or asserted against Skyworks, including those pertaining to patent infringement, intellectual
property, environmental, product liability, safety and health, employment and contractual matters. In addition,
in connection with the Merger, Skyworks 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. The outcome of litigation cannot be predicted with certainty
and some lawsuits, claims or proceedings may be disposed of unfavorably to Skyworks. Intellectual property
disputes often have a risk of injunctive relief which, if imposed against Skyworks, could materially and
adversely aÅect the Ñnancial condition or results of operations of Skyworks.
Additionally, the semiconductor industry is characterized by vigorous protection and pursuit of intellec-
tual 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. At the present time, the
Company is in discussions with Qualcomm Incorporated (""Qualcomm'') regarding claims that both the
Company and Qualcomm Ñled and Ñrst served against each other on December 4, 2003 asserting violations of
certain of each company's respective intellectual property rights. The purpose of these discussions is to arrive
at a business resolution that avoids protracted litigation for both parties. The Company believes Qualcomm's
54
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
claims are without merit and if the Company is not successful resolving this matter outside of litigation, it is
prepared to vigorously defend against Qualcomm's claims and fully prosecute its claims against them.
Note 15. Guarantees
The Company has made guarantees and indemnities, under which it may be required to make payments
to a guaranteed or indemniÑed party, in relation to certain transactions. In connection with the Merger, the
Company assumed responsibility for all contingent liabilities and then-current and future litigation (including
environmental and intellectual property proceedings) against Conexant or its subsidiaries to the extent related
to the operations or assets of the wireless business of Conexant. The Company may also be responsible for
certain federal income tax liabilities that relate to Washington/Mexicali's spin-oÅ from Conexant under the
Tax Allocation Agreement, dated as of June 25, 2002, between the Company and Conexant, which provides
that the Company will be responsible for certain taxes imposed on Conexant or its shareholders. The
Company's obligations under the tax allocation agreement have been limited by a letter dated November 6,
2002 entered into in connection with the debt reÑnancing with Conexant.
In connection with the sales of its products, the Company provides certain intellectual property
indemnities to its customers. In connection with certain facility leases, the Company has indemniÑed its
lessors for certain claims arising from the facility or the lease. The Company indemniÑes its directors and
oÇcers to the maximum extent permitted under the laws of the state of Delaware. The duration of the
guarantees and indemnities varies, and in many cases is indeÑnite. The guarantees and indemnities to
customers in connection with product sales generally are subject to limits based upon the amount of the
related product sales and in many cases are subject to geographic and other restrictions. In certain instances,
the Company's guarantees and indemnities do not provide for any limitation of the maximum potential future
payments the Company could be obligated to make. The Company has not recorded any liability for these
guarantees and indemnities in the accompanying consolidated balance sheets.
Note 16. Special Charges
Asset Impairments
During the fourth quarter of Ñscal 2003, the Company recorded a $26.0 million charge for the
impairment of assets related to certain infrastructure products manufactured in its Woburn, Massachusetts
and Adamstown, Maryland facilities. The Woburn facility primarily manufactures semiconductor products
based on both silicon wafer technology and gallium arsenide technology. The Company's Adamstown,
Maryland facility primarily manufactures ceramics components. The Company experienced a signiÑcant
decline in factory utilization resulting from a downturn in the market for products manufactured at these two
facilities and a decision to discontinue certain products. The impairment charge was based on a recoverability
analysis prepared by management based on these factors and the related impact on its current and projected
outlook. The Company projected lower revenues and new order volume for these products and management
believed these factors indicated that the carrying value of the related assets (machinery, equipment and
intangible assets) 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 these products over a Ñve-year period. Since the estimated undiscounted cash Öows were less than the
carrying value of the related assets, it was concluded that an impairment loss should be recognized. In
accordance with SFAS No. 144 ""Accounting for the Impairment or Disposal of Long-Lived Assets,'' 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 16%, which management believed was commensurate with the
underlying risks associated with the projected future cash Öows. Management 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. The anticipated pre-tax cost savings related to these
55
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
impairment charges is expected to be $17.4 million over the next Ñve years (Ñscal 2004 through Ñscal 2008)
and $8.6 million over the subsequent Ñfteen years (Ñscal 2009 through 2023).
In addition, during the fourth quarter of Ñscal 2003 the Company recorded a $2.3 million charge for the
impairment of its Haverhill, Massachusetts property currently being held for sale. In Ñscal 2003, the Company
relocated its operations from this facility to its Woburn, Massachusetts facility. The Company is actively
marketing the property located in Haverhill, Massachusetts.
During 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 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. Management 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 Ñscal 2002, the Company recorded a $45.8 million charge for the write-oÅ of goodwill and other
intangible assets associated with its acquisition of Philsar Semiconductor Inc. (""Philsar'') in Ñscal 2000.
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 digital
cellular handsets. Management determined that the Company would not support the technology associated
with the Philsar Bluetooth business. Accordingly, this product line was discontinued and the employees
associated with the product line were either 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 were 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
56
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
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.
Restructuring Charges
During the second and fourth quarters of Ñscal 2003, the Company recorded $3.3 million and
$2.9 million, respectively, in restructuring charges to provide for workforce reductions and the consolidation of
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 2002, the Company implemented a number of cost reduction initiatives to more closely
align its cost structure with the then-current business environment. The Company recorded restructuring
charges of approximately $3.0 million for costs related to the workforce reduction and the consolidation of
certain facilities. Substantially all amounts accrued for these actions have been paid.
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. The Company has paid all amounts accrued for these actions.
Activity and liability balances related to the Ñscal 2002 and Ñscal 2003 restructuring actions are as follows
(in thousands):
Fiscal 2002
Workforce
Reductions
Fiscal 2002
Facility
Closings
and Other
Fiscal 2003
Workforce
Reductions
Fiscal 2003
Facility
Closings
and Other
Charged to costs and expenses ÏÏÏÏÏ
Cash payments ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
2,923
(2,225)
Restructuring balance,
September 30, 2002 ÏÏÏÏÏÏÏÏÏÏÏÏ
Charged to costs and expenses ÏÏÏÏÏ
Cash payments ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
698
Ì
(698)
97
(13)
84
Ì
(47)
Ì
Ì
Ì
Ì
Ì
4,819
(3,510)
Ì
1,405
(1,236)
Total
3,020
(2,238)
782
6,224
(5,491)
Restructuring balance,
September 30, 2003 ÏÏÏÏÏÏÏÏÏÏÏÏ
$ Ì
$ 37
$ 1,309
$
169
$ 1,515
In addition, the Company assumed approximately $7.8 million of restructuring reserves from Alpha in
connection with the Merger. During the Ñscal years ended September 30, 2003 and 2002, payments related to
the restructuring reserves assumed from Alpha were $4.7 million and $1.1 million, respectively. On
September 30, 2003 this balance was $2.0 and primarily relates to payments on a lease that expires in 2008.
57
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
Note 17. Segment Information and Concentrations
The Company follows 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 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.
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.
Geographic Information
Net revenues by geographic area are presented based upon the country of destination. Net revenues by
geographic area are as follows (in thousands):
Years Ended September 30,
2002
2003
2001
United StatesÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Other AmericasÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$ 87,691
69,559
$ 72,185
4,615
$ 63,948
5,455
Total Americas ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
South Korea ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Other Asia-PaciÑcÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Total Asia-PaciÑc ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Europe, Middle East and Africa ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
157,250
157,772
218,817
376,589
83,950
76,800
237,681
114,974
352,655
28,314
69,403
142,459
23,898
166,357
24,691
$617,789
$457,769
$260,451
The Company's revenues by geography do not necessarily correlate to end handset demand by region. For
example, if the Company sells a power ampliÑer module to a customer in South Korea, the sale is recorded
within the South Korea account although that customer, in turn, may integrate that module into a product
sold to a service provider (its customer) in Africa, China, Europe, the Middle East, the Americas or within
South Korea.
Long-lived assets by geographic area are as follows (in thousands):
United States ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Mexico ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Other ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$101,871
21,223
4,671
$109,975
30,427
3,371
$127,765
$143,773
September 30,
2003
2002
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
58
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
performed and collateral, such as letters of credit and bank guarantees, are required whenever deemed
necessary. Samsung Electronics, Co. accounted for 18% and 27% of the Company's gross accounts receivable
balances at September 30, 2003 and 2002, respectively.
The following customers accounted for 10% or more of net revenues:
Years Ended
September 30,
2002
2003
2001
Samsung Electronics Co., ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Motorola, Inc. ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Conexant ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Nokia Corporation ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
15% 35% 44%
11% 11%
*
*
*
17%
12%
*
*
* Represents less than 10% of net revenues
The foregoing percentages are based on sales representing Washington/Mexicali sales for Ñscal 2001 and
Ñscal 2002 up to the time of the Merger, and sales of the combined company for the post-Merger period from
June 26, 2002 through the end of the Ñscal year and for Ñscal 2003.
Note 18. Quarterly Financial Data (Unaudited)
Fiscal 2003
Net revenues ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Gross proÑt ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Income (loss) before cumulative eÅect of
change in accounting principle ÏÏÏÏÏÏÏÏ
Cumulative eÅect of change in accounting
principle, net of taxÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Net loss ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Per share data(2)
Income (loss) before cumulative eÅect
of change in accounting principle,
basic and diluted ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Cumulative eÅect of change in
accounting principle, net of tax, basic
and diluted ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Net loss, basic and dilutedÏÏÏÏÏÏÏÏÏÏÏÏ
Fiscal 2002
Net revenues ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Gross proÑt ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Net loss ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Per share data(2)
First
Quarter(1)
Fourth
Third
Second
Quarter
Quarter
Quarter
(In thousands, except per share data)
Year
$ 160,194
65,120
$157,364
63,519
$ 150,199
56,078
$150,032
52,607
$ 617,789
237,324
791
(5,955)
(6,186)
(42,927)
(54,277)
(397,139)
(396,348)
Ì
(5,955)
Ì
(6,186)
Ì
(42,927)
(397,139)
(451,416)
0.01
(0.04)
(0.04)
(0.30)
(0.39)
(2.88)
(2.87)
Ì
(0.04)
Ì
(0.04)
Ì
(0.30)
(2.85)
(3.24)
$
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)
Net loss, basic and dilutedÏÏÏÏÏÏÏÏÏÏÏÏ
Ì
Ì
(1.33)
(0.01)
(1.72)
(1) The Company adopted SFAS No. 142, ""Goodwill and Other Intangible Assets,'' on October 1, 2002 and
recorded a cumulative eÅect of a change in accounting principle of $397.1 million, which is reÖected in
the above table as of the beginning of Ñscal 2003.
59
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
(2) 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.
60
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Skyworks Solutions, Inc.:
We have audited the accompanying consolidated balance sheets of Skyworks Solutions, Inc. and
subsidiaries (the ""Company'') as of September 30, 2003 and 2002 and the related consolidated statements of
operations, stockholders' equity and cash Öows for each of the years then ended. Our audits also included the
Ñnancial statement schedule listed in the Index at Item 15 for the years ended September 30, 2003 and 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 audits provide 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 as of September 30, 2003 and
2002, and the results of their operations and their cash Öows for each of the years then ended in conformity
with accounting principles generally accepted in the United States of America. Also, in our opinion, the
related Ñnancial statement schedule for the years ended September 30, 2003 and 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.
As discussed in Note 6 to the consolidated Ñnancial statements, eÅective October 1, 2002, the Company
adopted the provisions of Statement of Financial Accounting Standards No. 142, ""Goodwill and Other
Intangible Assets.''
/s/ KPMG LLP
KPMG LLP
Boston, Massachusetts
November 12, 2003, except for the third paragraph of Note 14, as to which the date is December 4, 2003
61
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Skyworks Solutions, Inc.:
We have audited the accompanying consolidated statements of operations, stockholders' equity (formerly
Conexant's net investment and comprehensive income), and cash Öows of Skyworks Solutions, Inc. and
subsidiaries (formerly the Washington Business and the Mexicali Operations of Conexant Systems, Inc.) for
the year ended September 30, 2001. Our audit also included the Ñnancial statement schedule listed in the
Index at Item 15 for the year ended September 30, 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 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 Ñnancial statements referred to above present fairly, in all material respects, the
results of operations and cash Öows for Skyworks Solutions, Inc. and subsidiaries (formerly the Washington
Business and the Mexicali Operations of Conexant Systems, Inc.) for the year ended September 30, 2001, in
conformity with accounting principles generally accepted in the United States of America. Also, in our
opinion, such 2001 Ñnancial statement schedule when considered in relation to the basic 2001 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
62
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
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 is being
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 consumma-
tion 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.
The report of Deloitte & Touche on Washington/Mexicali's Ñnancial statements for the Ñscal year ended
September 30, 2001 did not contain an adverse opinion or a disclaimer of opinion, nor was such report
qualiÑed or modiÑed as to uncertainty, audit scope or accounting principles. The decision to change
accountants was approved by the Board of Directors.
During Washington/Mexicali's Ñscal year ended September 30, 2001 and through the subsequent interim
period to June 25, 2002, Washington/Mexicali did not have any disagreement with Deloitte & Touche on any
matter of accounting principles or practices, Ñnancial statement disclosure, or auditing scope or procedure
that, if not resolved to Deloitte & Touche's satisfaction, would have caused Deloitte & Touche to make
reference to the subject matter of the disagreement in connection with its report. During that time, there were
no ""reportable events'' as set forth in Item 304(a)(1)(v)(A)-(D) of Regulation S-K (""Regulation S-K'')
adopted by the SEC.
KPMG (or its predecessors) has been Alpha's independent accountant since 1975 and Alpha has
regularly consulted KPMG (or its predecessors) since that time. Washington/Mexicali, as the continuing
reporting entity for accounting purposes, did not consult KPMG during Washington/Mexicali's Ñscal year
ended September 30, 2001 and through the interim period to June 25, 2002 regarding any of the matters
speciÑed in Item 304(a)(2) of Regulation S-K.
63
MARKET FOR SKYWORKS' COMMON STOCK AND RELATED STOCKHOLDER MATTERS
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, as
reported by Nasdaq. Such quotations represent inter-dealer prices without retail markup, markdown or
commission and may not necessarily represent actual transactions. 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' common stock as of November 28, 2003 was approximately 38,931.
Fiscal year ended October 3, 2003:
First quarter ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Second quarter ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Third quarter ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Fourth quarter ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Fiscal year ended September 27, 2002:
First quarter ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Second quarter ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Third quarter, until June 25, 2002 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Third quarter, on and after June 26, 2002 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Fourth quarter ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
High
Low
$12.73
9.57
8.10
12.28
$31.84
24.24
17.54
6.00
6.00
$ 4.00
5.96
4.94
6.52
$15.64
14.05
5.22
4.71
2.89
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 future earnings, if any, to Ñnance future growth.
64
SKYWORKS SOLUTIONS, INC.
RECONCILIATION TO GAAP
(unaudited)
(in millions)
Revenue
Supplemental
Information
Less:
Alpha(a)
Adjustments(b)
GAAP
Fiscal 2002 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$543
85
Ì
$ 458
Operating income (loss)
Supplemental
Information
Less:
Alpha(a)
Adjustments(b)
GAAP
Fiscal 2003 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Fiscal 2002 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$
3
(72)
Ì
(29)
(37)
(208)
$ (34)
(251)
(a) The pro forma information assumes Alpha Industries, Inc. and Conexant Systems, Inc.'s wireless
business had been combined from the beginning of Ñscal 2002. The GAAP results reÖect the application
of reverse merger accounting principles which provide that the historical results of Conexant's wireless
business be treated as the historical results of the combined entity. Therefore, the GAAP results reÖect
Conexant's wireless business only through June 25, 2002, the date the merger closed, and combined
results for all periods thereafter.
(b) In Ñscal 2003, these amounts consist of the recording of and changes in estimates of merger-related
reserves and restructuring expenses of $7 million, write-down of assets related to the company's
infrastructure business of $26 million, and amortization of intangible assets of $4 million.
In Ñscal 2002, these amounts consist of the recording of and changes in estimates of merger-related
reserves and restructuring expenses of $17 million, purchased in-process research and development of
$66 million, write-downs of goodwill and manufacturing assets of $112 million, and amortization of
intangible assets of $13 million.
A-1
CORPORATE INFORMATION
EXECUTIVE MANAGEMENT
BOARD OF DIRECTORS
David J. Aldrich
President and
Chief Executive Officer
Allan M. Kline
Vice President and
Chief Financial Officer
Mohy F. Abdelgany
Vice President, RF Solutions
Dwight W. Decker
Chairman of the Board
Chairman and
Chief Executive Officer
Conexant Systems, Inc.
David J. Aldrich
President and
Chief Executive Officer
Skyworks Solutions, Inc.
Kevin D. Barber
Senior Vice President and General
Manager, RF Solutions
Donald R. Beall
Advisor to and Director of
Rockwell Collins, Inc.
Liam K. Griffin
Vice President, Sales and Marketing
George M. LeVan
Vice President, Human Resources
Karl E. Mentzel
Vice President, Operations
Nien-Tsu Shen
Vice President, Quality
Paul E. Vincent
Vice President, Finance
Gregory L. Waters
Vice President and General Manager,
Cellular Systems
Daniel N. Yannuzzi
Vice President and Assistant Secretary
CORPORATE HEADQUARTERS
Skyworks Solutions, Inc.
20 Sylvan Road
Woburn, MA 01801
(781) 376-3000
www.skyworksinc.com
Kevin L. Beebe
Group President
ALLTEL Corporation
Moiz M. Beguwala
Senior Vice President
Conexant Systems, Inc.
Timothy R. Furey
Chairman and
Chief Executive Officer
MarketBridge
Balakrishnan S. Iyer
Retired Senior Vice President and
Chief Financial Officer
Conexant Systems, Inc.
Thomas C. Leonard
Retired Chairman and
Chief Executive Officer
Alpha Industries, Inc.
David J. McLachlan
Consultant to Chairman and
Chief Executive Officer,
Retired Vice President and
Chief Financial Officer
Genzyme Corporation
TRANSFER AGENT AND
REGISTRAR
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
Our transfer agent can help you with a
variety of shareholder related services
including change of address, lost stock
certi(cid:222)cates, stock transfers, account status
and other administrative matters.
INVESTOR RELATIONS
You can contact the Skyworks Investor
Relations team directly to order an
Investor(cid:146)s Kit or to ask investment-oriented
questions about Skyworks at:
Investor Relations
Skyworks Solutions, Inc.
5221 California Avenue
Irvine, CA 92612
(949) 231-4700
You can also view this Annual Report along
with other (cid:222)nancial-related information and
our public (cid:222)lings with the U.S. Securities
and Exchange Commission at:
www.skyworksinc.com
ANNUAL MEETING
The annual meeting of shareholders will
be held on March 30, 2004 in Burlington,
Massachusetts.
COMMON STOCK
Skyworks(cid:146) common stock is traded on The
Nasdaq Stock Market' under the symbol
SWKS.
INDEPENDENT ACCOUNTANTS
KPMG LLP
Boston, Massachusetts
Skyworks Solutions, Inc.
20 Sylvan Road
Woburn, MA 01801
(781) 376-3000
www.skyworksinc.com
AR2003