NOTICE OF 2005 ANNUAL MEETING AND PROXY STATEMENT 2004 ANNUAL REPORT
Skyworks Solutions, Inc. is a global leader in analog,
mixed signal and digital semiconductors for mobile
communications applications. The Company’s power
amplifiers,
front-end modules, direct conversion
transceivers and complete system solutions are at the
heart of many of today’s leading-edge multimedia
handsets, cellular base stations and wireless networking
platforms. Skyworks also offers a portfolio of highly
innovative linear products, supporting a diverse set of
automotive, broadband,
industrial and medical
customers.
Headquartered in Woburn, Massachusetts, Skyworks is
worldwide with engineering, manufacturing, sales and
service facilities throughout Asia, Europe and North
America.
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Dear Stockholders,
Skyworks’ fiscal year 2004 was a tremendous success.
Our strong performance reflects two key
line results, we strengthened our balance
dynamics: the degree to which we effectively
sheet through the conversion of $45 million
executed to the strategy set forth when we
in long-term debt into equity, and ended the
created our company in June 2002, and the
year with well over $200 million in cash.
rapid customer adoption of our highly
integrated and differentiated products.
We achieved these milestones through
Very simply, our core strategy is to:
development, culminating in significant
focused execution and accelerated product
•
Leverage product capability breadth
market share gains. Our family of power
and depth to support our customers
amplifiers, RF transceivers and complete
with innovative solutions
cellular system solutions within our Mobile
Create competitive advantages by rais-
Platforms business continued to push the
ing the product integration bar
envelope of integration, enabling smaller
Increase our total dollar content per
footprints, lower bills of materials and faster
mobile platform, and
time to market for our customers, while
Grow substantially faster than the over-
increasing our addressable dollar content
•
•
•
all market.
per platform—a true win-win situation. At
the same time, our Linear Products business
In fiscal 2004, this approach produced
expanded beyond cellular infrastructure and
record results. We generated revenues of
wireless networking applications, into a
$784 million, up 27 percent from $618
broad range of adjacent high-growth
million in fiscal 2003. More importantly, we
communications segments that utilize our
exhibited strong operating leverage with
analog skill sets.
pro forma operating income up more than
twenty fold year over year, from $3 million
to $64 million*. In turn, we yielded pro
forma diluted earnings per share of $0.31,
versus a loss of $0.13 in the prior year. In
addition to achieving record top and bottom
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* Please see the table on page 103 for a full reconciliation of pro forma information to GAAP.
MOBILE PLATFORMS
at several new customers including NEC,
Sanyo, Arima, CEC Telecom, Lenovo and
During the fiscal year, we surpassed an
Mio Technology, as they launched next-gen-
unprecedented half a billion power amplifier
eration handsets based on our Pegasus™ plat-
module shipments and exited 2004 with
form. Given Skyworks’ unique ability to
nearly 40 percent worldwide market share.
offer seamless front-end module, radio,
Of special note, we were first to market with
baseband and protocol stack integration,
a complete front-end module, fusing power
supported by local technical teams, handset
amplifier, switch and filter functionality into
manufacturers are free to focus their atten-
a single package. The trajectory of our ramp—
tion on differentiated industrial designs,
from product launch to over 10 million unit
multimedia feature sets and accelerated
shipments in less than two years—under-
time-to-market.
scores our strong relationships with leading
handset suppliers, such as Motorola, Sony
Ericsson and Ningbo Bird, as they designed
LINEAR PRODUCTS
around our innovative front-end solutions.
In parallel, our highly integrated radios saw
Historically, our analog and mixed signal
increasing market acceptance as Nokia,
competencies have been at the heart of our
Samsung, LG, Siemens, BenQ, Compal,
cellular handset, infrastructure and wireless
Quanta and others deployed our core RF
networking solutions. With the establish-
technology within their mobile phones.
ment of our Linear Products business unit
in fiscal 2004, we are aggressively leveraging
Further, Helios™, our EDGE radio solution,
these technologies across a variety of new
gained considerable design win and order
market applications. These solutions are
momentum. Helios™ incorporates our
critical links between analog and digital
patent-pending Polar Loop™ transmit modu-
worlds, as they detect, measure, amplify and
lation approach, eliminating expensive
convert temperature, pressure and audio
components such as SAW filters, and saving
information into the digital realm.
handset designers significant space, cost
and design-cycle time, while enhancing
Our goal within Linear Products is to be a
performance.
worldwide leader in innovative analog com-
ponents that utilize our core capabilities,
Our cellular systems product area outgrew
deliver superior gross margins and have long
the overall market as well, fueled by ramps
product life cycles.
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REVENUE
(Dollars in millions)
PRO FORMA
OPERATING INCOME
(Dollars in millions)
PRO FORMA
EARNINGS PER SHARE
(Dollars)
$784
$64
$618
$543
$3
$0.31
$(0.13)
FY02
FYO3
FY04
FY02
FYO3
FY04
FY02
FYO3
FY04
$(72)
$(0.59)
To that end, we are taking advantage of our:
Given that all of our analog product offer-
•
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Core linear product portfolio
ings make use of Skyworks’ existing core
Modeling design capabilities
expertise, have longer product life cycles,
Mixed signal and engineering skill sets
high barriers to entry and commensurate
Strong catalog sales channels, and
gross margins, we are extremely excited
Specialized representative and distribu-
about Linear Products’ long-term growth
tor networks.
prospects.
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Only six months into this initiative, we’re
making significant progress and have already
secured several strategic design wins in sup-
OUR FUTURE
port of automotive, broadband, industrial
and medical applications. More specifically,
In summary, in fiscal 2004 we distanced
we introduced tire pressure sensing and
ourselves from our peer group. We gained
personal area networking solutions, and
market share across the business, captured a
initiated volume production of ultra-linear
higher degree of handset content, launched
control ICs for multiple Research in Motion
our Linear Products business and strength-
(RIM) Blackberry™ devices.
ened our financial position.
GEORGE M. LE VAN
Vice President
Human Resources
KARL E. MENTZEL
Vice President
Operations
Looking to the future, we are well posi-
We thank our customers for their confidence
tioned to support our customers’ transi-
in us, our employees whose dedication
tion to next-generation technologies and
and tenacity is reflected in our record
to capture a disproportionate share of the
results and you, our shareholders, for your
overall market, particularly as worldwide
commitment to our business. Throughout
mobile phone penetration rates increase,
2005 and beyond, our efforts will remain
and consumers upgrade to multimedia-
focused on creating shareholder value, as
intensive platforms—where form factor,
we develop and launch breakthrough
battery life and system cost are critical. In
simplicity ® technologies in support of a
fact, as the industry migrates to 3G servic-
wireless world.
es, an amalgamation of CDMA and
GSM/GPRS/EDGE air interfaces, Skyworks
is poised to benefit, as we are one of only a
few suppliers in the industry that currently
supports these dual standards with high
market share across both.
Our product pipeline is strong and we
remain committed to achieving our vision
of becoming a global leader in analog,
mixed signal and digital semiconductors
for mobile communications.
David J. Aldrich
President and Chief Executive Officer
DAVID J. ALDRICH
President, Chief Executive Officer and Director
ALLAN M. KLINE
Vice President and Chief Financial Officer
STAN A. SWEARINGEN
Vice President and General Manager
Linear Products
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GREGORY L. WATERS
Vice President and General Manager
Cellular Systems
NIEN-TSU SHEN
Vice President
Quality
KEVIN D. BARBER
Senior Vice President and General Manager
RF Solutions
LIAM K. GRIFFIN
Vice President
Sales and Marketing
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March 8, 2005
Dear Stockholder:
I am pleased to invite you to attend the 2005 annual meeting of stockholders of Skyworks Solutions, Inc.
to be held at 2:00 p.m. Eastern Daylight Time on Thursday, April 28, 2005, at the Boston Marriott Burlington,
One Mall Road, Burlington, Massachusetts (the ""Annual Meeting''). We look forward to your participation
in person or by proxy. The attached Notice of Annual Meeting and Proxy Statement describe the matters that
we expect to be acted upon at the Annual Meeting.
If you plan to attend the Annual Meeting, please check the designated box on the enclosed proxy card.
Or, if you utilize our telephone or Internet voting systems, please indicate your plans to attend the Annual
Meeting when prompted to do so. If you are a stockholder of record, you should bring the top half of your
proxy card as your admission ticket and present the ticket upon entering the Annual Meeting. If you are
planning to attend the Annual Meeting and your shares are held in ""street name'' by your broker (or other
nominee), you should ask the broker for a proxy issued in your name and present it at the meeting.
Whether or not you plan to attend the Annual Meeting, and regardless of how many shares you own, it is
important that your shares be represented at the Annual Meeting. Accordingly, we urge you to complete the
enclosed proxy and return it to us promptly in the postage-prepaid envelope provided, or to complete your
proxy by telephone or via the Internet in accordance with the instructions on the proxy card. If you do attend
the Annual Meeting and wish to vote in person, you may withdraw your proxy at that time.
Sincerely yours,
Dwight W. Decker
Chairman of the Board
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SKYWORKS SOLUTIONS, INC.
20 Sylvan Road
Woburn, MA 01801
(781) 376-3000
5221 California Avenue
Irvine, CA 92617
(949) 231-3000
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To Be Held On THURSDAY, APRIL 28, 2005
To the Stockholders of Skyworks Solutions, Inc.:
The 2005 annual meeting of stockholders of Skyworks Solutions, Inc., a Delaware corporation (the
""Company''), will be held at 2:00 p.m. Eastern Daylight Time on Thursday, April 28, 2005, at the Boston
Marriott Burlington, One Mall Road, Burlington, Massachusetts (the ""Annual Meeting'') to consider and act
upon the following proposals:
1. To elect four members of the Board of Directors of the Company as Class III directors with terms
expiring at the 2008 annual meeting of stockholders.
2. To approve the adoption of the Company's 2005 Long-Term Incentive Plan.
3. To approve an amendment to the Company's 2001 Directors' Stock Option Plan.
4. To ratify the selection of KPMG LLP as independent auditors for the Company for Ñscal year 2005.
5. To transact such other business as may properly come before the Annual Meeting or any
adjournment or postponement thereof.
Only stockholders of record at the close of business on March 1, 2005, are entitled to notice of and to vote
at the Annual Meeting and any adjournment or postponement thereof. All stockholders are cordially invited to
attend the Annual Meeting. To ensure your representation at the Annual Meeting, however, we urge you to
vote promptly in one of the following 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 by visiting the website address listed on your proxy card. Should
you receive more than one proxy card because your shares are held in multiple accounts or registered in
diÅerent names or addresses, please complete, sign, date and return each proxy card, or complete each proxy
by telephone or the Internet, to ensure that all of your shares are voted. Your proxy may be revoked at any
time prior to the Annual Meeting. Any stockholder attending the Annual Meeting may vote at the meeting
even if he or she previously submitted a proxy by mail, telephone or via the Internet. If your shares are held in
""street name'' by your broker (or other nominee), your vote in person at the Annual Meeting will not be
eÅective unless you have obtained and present a proxy issued in your name from the broker.
By Order of the Board of Directors,
MARK V.B. TREMALLO
Vice President, General Counsel and Secretary
Woburn, Massachusetts
March 8, 2005
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SKYWORKS SOLUTIONS, INC.
20 Sylvan Road
Woburn, MA 01801
(781) 376-3000
5221 California Avenue
Irvine, CA 92617
(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 (""Skyworks'' or the ""Company''), for use at
the Company's annual meeting of stockholders to be held at 2:00 p.m. Eastern Daylight Time on Thursday,
April 28, 2005, at the Boston Marriott Burlington, One Mall Road, Burlington, Massachusetts or at any
adjournment or postponement thereof (the ""Annual Meeting''). The Company's Annual Report, which
includes Ñnancial statements and Management's Discussion and Analysis of Financial Condition and Results
of Operations for the Ñscal year ended October 1, 2004, 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 Ñrst mailed to stockholders on or about March 12, 2005.
Only stockholders of record at the close of business on March 1, 2005 (the ""Record Date''), are entitled
to notice of and to vote at the Annual Meeting. As of the Record Date, there were 157,379,530 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 each 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 at the meeting even if you have previously completed
your proxy by mail, telephone or via the Internet. If your shares are held in ""street name'' by your broker (or
other nominee), the broker is required to vote those shares in accordance with your instructions. If you do not
give instructions to your broker, the broker will be entitled to vote the shares with respect to ""discretionary''
items as described below but will not be permitted to vote the shares with respect to ""non-discretionary'' items
(in which case any shares voted by the broker will be treated as ""broker non-votes''). If your shares are held in
""street name'' by your broker (or other nominee), please check your proxy card or contact your broker (or
other 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 at the Annual Meeting. Proxies may be revoked by (i) delivering to 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 presenting 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 delivered to the
Company's principal executive oÇces at Skyworks Solutions, Inc., 20 Sylvan Road, Woburn, MA 01801,
Attention: Secretary, or hand delivered to the Secretary of the Company, before the taking of the vote at the
Annual Meeting.
The representation in person or by proxy of at least a majority of the issued and outstanding common
shares entitled to vote at the Annual Meeting is necessary to constitute a quorum for the transaction of
business. Shares that abstain from voting on any proposal and ""broker non-votes'' will be counted as shares
that are present and entitled to vote for purposes of determining whether a quorum exists at the Annual
Meeting. For purposes of determining the outcome of any matter as to which a broker (or other nominee) has
indicated that it does not have discretionary voting authority, those shares will be treated as not present and
not entitled to vote with respect to that matter (even though those shares are considered entitled to vote for
quorum purposes and may be entitled to vote on other matters).
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Pursuant to the Company's by-laws, directors are elected by a plurality vote and, therefore, the four
nominees who receive the most votes will be elected. Stockholders will not be allowed to cumulate their votes
in the election of directors. Accordingly, abstentions, which will not be voted, will not aÅect the outcome of
the election of the nominees to the Board of Directors. In addition, the election of directors is a
""discretionary'' matter on which a broker (or other nominee) is authorized to vote in the absence of
instruction from the beneÑcial owner. Therefore, no ""broker non-votes'' will result from Proposal 1.
On all other matters to be acted upon at the Annual Meeting, an aÇrmative vote of a majority of the
shares present in person or represented by proxy at the Annual Meeting, and entitled to vote on each such
matter, is required for approval. Proposals 2 and 3 involve matters on which a broker (or other nominee) does
not have discretionary authority to vote. Accordingly, these proposals may result in ""broker non-votes.''
Proposal 4 involves a matter on which a broker (or other nominee) does have discretionary authority to vote.
Therefore, Proposal 4 will not result in ""broker non-votes.'' With respect to Proposals 2, 3, and 4, an
abstention will have the same eÅect as a ""no'' vote. An automated system administered by the Company's
transfer agent tabulates the votes. The vote on each matter submitted to stockholders is tabulated separately.
The persons named as attorneys-in-fact in the proxies, David J. Aldrich and Allan M. Kline, were
selected by the Board of Directors and are oÇcers of the Company. Each executed proxy returned in time to
be counted at the Annual Meeting will be voted. Where a choice has been speciÑed in an executed proxy with
respect to the matters to be acted upon at the Annual Meeting, 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, FOR the approval of the Company's 2005 Long-Term Incentive
Plan, FOR the approval of the amendment to the Company's 2001 Directors' Stock Option Plan, and FOR
the ratiÑcation of the selection of KPMG LLP as independent auditors of the Company for the 2005 Ñscal
year.
If you plan to attend the Annual Meeting, please be sure to check the designated box on your proxy card
indicating your intent to attend, and save the admission ticket attached to your proxy (the top half); or,
indicate your intent 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'' by your broker (or other
nominee), please check your proxy card or contact your broker (or other nominee) to determine whether you
will be able to indicate your intent to attend 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 held in ""street name'' by your broker (or
other nominee), you should contact your broker (or other nominee) to obtain a proxy in your name and
present it at the Annual Meeting in order to vote.
Some brokers (or other nominees) may be participating in the practice of ""householding'' proxy
statements and annual reports. This means that only one copy of this Proxy Statement and our Annual Report
may have been sent to multiple stockholders in your household. If you are a stockholder and your household or
address 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 you, upon your written request to Skyworks
Solutions, Inc., 5221 California Avenue, Irvine, CA 92617, Attention: Investor Relations, or oral request to
Investor Relations at (949) 231-4700. If you would like to receive separate copies of our Annual Report and
Proxy Statement in the future, you should direct such request to your broker (or other nominee). Even if your
household or address 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 postage-prepaid 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 contacting your broker (or other nominee), or the
Company at the address or telephone number above.
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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.
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 February 25, 2005, 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 February 25,
2005; (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''), is not necessarily indicative of beneÑcial ownership for any other purpose, and does
not constitute an admission that the named stockholder is a direct or indirect beneÑcial owner of those shares.
As of February 25, 2005, there were 157,375,086 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 are subject to stock options or
other rights held by that person that are currently exercisable or that will become exercisable within 60 days of
February 25, 2005, 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)
Delaware Management Holdings(3) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
David J. Aldrich ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Kevin D. Barber ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Donald R. Beall ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Kevin L. BeebeÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Moiz M. BeguwalaÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Dwight W. Decker ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Timothy R. FureyÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Liam K. GriÇn ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Balakrishnan S. IyerÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Allan M. Kline ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Thomas C. Leonard ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
David P. McGlade ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
David J. McLachlan ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Gregory L. Waters ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
All directors and executive oÇcers as a group (16 persons)ÏÏ
* Less than 1%
Number of Shares
BeneÑcially Owned(2)
10,659,803
928,041(4)
190,520(4)
624,515(5)(6)
15,000
378,290(5)
1,491,525(5)
135,000
179,845(4)
410,534(5)
75,635(4)(7)
107,736
Ì
92,600
152,395(4)
4,969,406(4)(5)(6)(7)
Percent of Class
6.82%
(*)
(*)
(*)
(*)
(*)
(*)
(*)
(*)
(*)
(*)
(*)
(*)
(*)
(*)
3.16%
(1) Unless otherwise noted, each person's address is the address of the Company's principal executive oÇces
at Skyworks Solutions, Inc., 20 Sylvan Road, Woburn, MA 01801 and 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. The address of Delaware Management
Holdings, as set forth on Schedule 13G Ñled by Delaware Management Holdings with the SEC on
February 9, 2005, is 2005 Market Street, Philadelphia, Pennsylvania 19103.
(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 sixty (60) days of February 25, 2005 (the
""Current Options''), as follows: Aldrich Ó 870,250 shares under Current Options; Barber Ó 186,314 shares
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under Current Options; Beall Ó 293,509 shares under Current Options; Beebe Ó 15,000 shares under
Current Options; Beguwala Ó 366,260 shares under Current Options; Decker Ó 1,440,210 shares under
Current Options; Furey Ó 135,000 shares under Current Options; GriÇn Ó 165,000 shares under Current
Options; Iyer Ó 404,455 shares under Current Options; Kline Ó 70,000 shares under Current Options;
Leonard Ó 60,000 shares under Current Options; McLachlan Ó 90,000 shares under Current Options;
Waters Ó 137,500 shares under Current Options; directors and executive oÇcers as a group (16 per-
sons) Ó 4,400,465 shares under Current Options.
(3) Consists of shares beneÑcially owned by Delaware Management Holdings, Inc., a registered investment
advisor wholly-owned by Delaware Management Business Trust. Delaware Management Business Trust
is a wholly-owned subsidiary of Lincoln National Corp. Delaware Management Holdings, Inc. may be
deemed to share beneÑcial ownership with the various Delaware Investments Family of Funds. Of the
shares beneÑcially owned, Delaware Management Holdings, Inc. and Delaware Management Business
Trust (through its ownership Delaware Management Holdings, Inc.) have sole voting power with respect
to 10,610,883 shares, sole disposition power with respect to 10,653,903 shares, and shared disposition
power with respect to 5,900 shares. With respect to the information relating to the aÇliated Delaware
Management Holdings entities, the Company has relied on information supplied by such entities on a
Schedule 13G Ñled with the SEC on February 9, 2005.
(4) Includes shares held in the Company's 401(k) savings plan.
(5) 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
plans in connection with the merger of the wireless communications business of Conexant Systems, Inc.
with Alpha Industries, Inc. on June 25, 2002 (""Merger'').
(6) Includes 106,828 shares of Company common stock held in trust for the beneÑt of other persons, as to all
of which Mr. Beall disclaims beneÑcial ownership.
(7) Includes 250 shares of Company common stock held in trust for the beneÑt of other persons, as to all of
which Mr. Kline disclaims beneÑcial ownership.
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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 is currently comprised of ten members. On February 1, 2005, the Board of
Directors appointed Mr. David P. McGlade as its tenth member to Ñll a vacancy created by an increase in the
size of the Board. Mr. McGlade 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'').
Messrs. Aldrich, Beguwala, Decker and McGlade are nominated for election as Class III directors to
hold oÇce until the 2008 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 four 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.
Set forth below is summary information for each person nominated and each person whose term of oÇce
as a director will continue after the Annual Meeting, including 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. This
information is followed by additional biographical information about these individuals, as well as the
Company's other executive oÇcers.
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THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS
A VOTE ""FOR'' THE NOMINEES LISTED BELOW
Nominee's or Director's
Name (and Year He
First Became a Director)
Position(s) with the Company
Year
Director
Term Will
Expire
Class of
Director
Nominees:
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
2008
2008
2008
and Chairman of the
Board
David P. McGlade (2005) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Non-Employee Director
2008
Continuing Directors:
Donald R. Beall (2002)* ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Non-Employee Director
Balakrishnan S. Iyer (2002) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Non-Employee Director
Thomas C. Leonard (1996)ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Non-Employee Director
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
2006
2006
2006
2007
2007
2007
III
III
III
III
I
I
I
II
II
II
(1) Member of the Audit Committee
(2) Member of the Compensation Committee
(3) Member of the Nominating and Corporate Governance Committee
* Mr. Beall has notiÑed Skyworks of his intention to resign eÅective April 28, 2005. Assuming Mr. Beall's
resignation, and unless another director is appointed in the near future, promptly following the Annual
Meeting, Skyworks expects to reduce the size of the Board of Directors from ten (10) to nine (9), and
reclassify the Board such that each class of director be comprised of three (3) directors.
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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 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
David J. Aldrich ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Donald R. Beall ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Kevin L. Beebe ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Moiz M. Beguwala ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Timothy R. Furey ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Balakrishnan S. Iyer ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Thomas C. Leonard ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
David P. McGlade ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
David J. McLachlanÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Allan M. Kline ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Kevin D. Barber ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Liam K. GriÇn ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
George M. LeVanÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Mark V.B. Tremallo ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Gregory L. Waters ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Age
54
48
66
45
58
46
48
70
44
66
59
44
38
59
48
44
Title
Chairman of the Board
President, Chief Executive OÇcer and Director
Director
Director
Director
Director
Director
Director
Director
Director
Vice President and Chief Financial OÇcer
Senior Vice President and General Manager, RF Solutions
Vice President, Sales and Marketing
Vice President, Human Resources
Vice President, General Counsel and Secretary
Vice President and General Manager, Cellular Systems
Dwight W. Decker, age 54, has been Chairman of the Board since June 2002. Dr. Decker has also served
as Chairman of the Board of Conexant Systems, Inc. (a broadband communication semiconductor company)
since December 1998 and has served as a director of Conexant since 1996. Since November 2004, Dr. Decker
has also served as Conexant's Chief Executive OÇcer, a position he previously held from December 1998 until
March 2004. He served as Senior Vice President of Rockwell International Corporation (now, Rockwell
Automation, Inc.) (electronic controls and communications) and 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 48, 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 the
Company in 1995 as Vice President, Chief Financial OÇcer and Treasurer. From 1989 to 1995, Mr. Aldrich
held senior management positions at M/A-COM, Inc. (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.
Donald R. Beall, age 66, has been a director since June 2002. He retired from Rockwell International
Corporation in 1998, after holding positions as Chairman, Chief Executive OÇcer and President for nearly
20 years. Mr. Beall is Chairman of the Executive Committee 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 former trustee of California Institute of Technology (1990-2004), a member
of various University of California, Irvine supporting organizations, and an overseer of the Hoover Institute at
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Stanford. He is an investor, director, and/or advisor with several private companies and investment
partnerships.
Kevin L. Beebe, age 45, 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 360ƒCorporation, 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 58, has been a director since June 2002. He is an executive employee of Conexant
Systems, Inc., and 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. Mr. Beguwala serves on the Board of Directors of SIRF Technology.
Timothy R. Furey, age 46, 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 48, 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 has been 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
Semiconductor Corp. and Director of Finance for Advanced Micro Devices, Inc. Mr. Iyer serves on the Board
of Directors of Conexant, Invitrogen Corporation, Power Integrations and QLogic Corporation.
Thomas C. Leonard, age 70, has been a director since August 1996. From April 2000 until June 2002 he
served as Chairman of the Board of the Company, and from September 1999 to April 2000, he served the
Company as Chief Executive OÇcer. From July 1996 to September 1999, he served as President and Chief
Executive OÇcer. Mr. Leonard joined the Company 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 P. McGlade, age 44, has been a director since February 2005. Beginning in April 2005, he will
serve as the Chief Executive OÇcer of Intelsat, a worldwide provider of satellite communications services.
Currently, Mr. McGlade is an Executive Director of mmO2 PLC, and serves as the Chief Executive OÇcer of
O2 UK, a subsidiary of mmO2, a position he has held since October 2000. Before joining O2 UK,
Mr. McGlade was President of the Western Region for Sprint PCS; Chief Executive OÇcer and co-founder of
Pure Matrix, a US software company that enables the creation of services on mobile phones; Chief Executive
OÇcer of CatchTV, an Internet/TV convergence company; and Vice President, Operations at TCI.
David J. McLachlan, age 66, has been a director since 2000. Mr. McLachlan served as a senior advisor to
the Chairman and Chief Executive OÇcer of Genzyme Corporation, a biotechnology company, from 1999 to
2004. He also was the Executive Vice President and Chief Financial OÇcer of Genzyme Corporation from
1989 to 1999. 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
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on the Boards of Directors of Dyax Corporation, a biotechnology company, and HearUSA, Ltd., a hearing
care services company.
Allan M. Kline, age 59, has been Vice President and Chief Financial OÇcer since January 2004. In 2003,
Mr. Kline served as Chief Financial OÇcer of Fibermark, Inc., a producer of specialty Ñber-based materials
that Ñled a voluntary petition for reorganization under Chapter 11 of the United States Bankruptcy Code
(""U.S.B.C.'') on November 15, 2004. Prior to this, from 1996 to 2002, Mr. Kline served as Chief Financial
OÇcer for Acterna Corporation, a global communications test and management company that Ñled a
voluntary petition for reorganization under Chapter 11 of the U.S.B.C. 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., a merger and acquisition
advisory Ñrm from 2002 to 2003, and served on the Board of Directors of Acterna and CrossComm. Mr. Kline
also serves as a director of 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 44, 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 38, 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 59, 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 the human resource
department since joining the Company in 1982. Prior to 1982, he held human resources positions at Data
Terminal Systems, Inc., W.R. Grace & Co., Compo Industries, Inc. and RCA.
Mark V.B. Tremallo, age 48, joined the Company in April 2004 and serves as Vice President, General
Counsel and Secretary. Previously, from January 2003 to April 2004, Mr. Tremallo was Senior Vice President
and General Counsel at TAC Worldwide Companies, a technical workforce solutions provider. Prior to TAC,
from May 1997 to May 2002, he was Vice President, General Counsel and Secretary at Acterna Corp., a
global communications test equipment and solutions provider which Ñled a voluntary petition for reorganiza-
tion under Chapter 11 of the U.S.B.C. on May 6, 2003. Earlier, Mr. Tremallo served as Vice President,
General Counsel and Secretary at Cabot Safety Corporation.
Gregory L. Waters, age 44, joined the Company in April 2003 and is Vice President and General
Manager of the Company's Cellular Systems business. Most recently, from February 2001 until April 2003,
Mr. Waters served as Senior Vice President of Strategy and Business Development at Agere Systems and,
beginning in 1998, held positions there as Vice President of the Wireless Communications business and Vice
President of the Broadband Communications business. Prior to working at Agere, Mr. Waters held a variety of
senior management positions within Texas Instruments, including Director of Network Access Products and
Director of North American Sales.
As part of the terms of the Merger, four designees of Conexant Ì Donald R. Beall, Moiz M. Beguwala,
Dwight W. Decker and Balakrishnan S. Iyer Ì were appointed to our Board of Directors. Each of the four
Conexant designees to the Board 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. Mr. Beguwala is a current employee, as well as a
former executive oÇcer, of Conexant. Mr. Beall is a non-employee director of Conexant.
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CORPORATE GOVERNANCE
Board of Director and Stockholder Meetings: The Board of Directors met six (6) times during the Ñscal
year ended October 1, 2004 (""Ñscal year 2004''). Each director attended at least 75% of the Board of
Directors meetings and meetings of Board of Director committees on which he served in Ñscal year 2004. The
Company's policy is that directors are encouraged to attend the annual meeting of stockholders and expected
to do so when such meeting is held in conjunction with a regular Board meeting. A majority of the members of
the Board of Directors attended the 2004 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 listing
standards of The Nasdaq Stock Market (the ""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, on the date of the Annual Meeting, a majority of the members of the Board of
Directors, consisting of Kevin L. Beebe, Timothy R. Furey, Thomas Leonard, David J. McLachlan, and David
P. McGlade, will be independent directors of the Company within the meaning of applicable NASD Rules.
Corporate Governance Guidelines: The Board of Directors has adopted corporate governance practices
to help fulÑll its responsibilities to the stockholders in overseeing the work of management and the Company's
business results. These guidelines are intended to ensure that the Board has the necessary authority and
practices in place to review and evaluate the Company's business operations, as needed, and to make decisions
that are independent of the Company's management. In addition, the guidelines are intended to align the
interests of directors and management with those of the Company's stockholders. A copy of the Company's
Corporate Governance Guidelines is available on the Investor Relations portion our website at:
http://www.skyworksinc.com.
In accordance with these Corporate Governance Guidelines, independent members of the Board of
Directors of the Company met in executive session without management present twice during Ñscal year 2004.
The Board of Directors has designated Mr. Furey as the presiding director for these meetings.
Stockholder Communications: Our stockholders may communicate directly with the Board of Directors
as a whole or to individual directors by writing directly to those individuals at the following address: 20 Sylvan
Road, Woburn, MA 01801. The Company will forward to each director to whom such communication is
addressed, and to the Chairman of the Board in his capacity as representative of the entire Board of Directors,
any mail received at the Company's corporate oÇce to the address speciÑed by such director and the
Chairman of the Board.
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, as well as 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 each of the directors who
serve on these committees, is independent within the meaning of applicable NASD Rules and, for members of
the Audit Committee, Section 10A(m)(3) of the Securities Exchange Act of 1934 (the ""Exchange Act'').
Audit Committee: Skyworks has established a separately designated Audit Committee in accordance
with Section 3(a)(58)(A) of the Exchange Act. 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 is
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independent within the meaning of applicable NASD Rules and Section 10A(m)(3) of the Exchange Act.
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 met
nine (9) times during Ñscal year 2004.
The primary responsibility of the Audit Committee is the oversight of the quality and integrity of the
Company's Ñnancial statements, the Company's internal Ñnancial and accounting processes, and the
independent 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. The committee meets privately
with the independent auditors, reviews their performance and independence from management and has the
sole authority to retain and dismiss the independent auditors. These and other aspects of the Audit
Committee's authority are more particularly described in the Company's Audit Committee Charter, which is
reviewed annually by the committee and is available on the Investor Relations portion of our website at:
http://www.skyworksinc.com.
The Audit Committee has 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
provided by KPMG LLP, including audit services and permitted audit-related and non-audit services, be pre-
approved by the Audit Committee. The Audit Committee pre-approved all audit and non-audit services
provided by KPMG LLP for Ñscal year 2004.
Compensation Committee: The members of the Compensation Committee are Mr. Furey, who serves
as the chairman, and Messrs. Beebe and McLachlan each of whom is independent within the meaning of
applicable NASD Rules. The Compensation Committee met three (3) times during Ñscal year 2004. The
functions of the Compensation Committee include establishing the appropriate level of 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. The Board of Directors has adopted a written charter for the
Compensation Committee, which is available on the Investor Relations portion of our website at:
http://www.skyworksinc.com.
Nominating and Corporate Governance Committee: The members of the Nominating and Corporate
Governance Committee, all of whom are independent within the meaning of applicable NASD Rules, are
Mr. Furey, who serves as the chairman, and Messrs. Beebe and McLachlan. The Nominating and Corporate
Governance Committee met once in Ñscal year 2004. The Nominating and Corporate Governance Committee
is responsible for evaluating and recommending individuals for election or re-election to the Board of Directors
and its committees, including any recommendations that may be 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. These and other aspects of the Nominating and Corporate Governance
Committee's authority are more particularly described in the Nominating and Corporate Governance
Committee Charter, which is available on the Investor Relations portion of our website at:
http://www.skyworksinc.com.
The Nominating and Corporate Governance Committee evaluates director candidates in the context of
the overall composition and needs of the Board of Directors, with the objective of recommending a group that
can best manage the business and aÅairs of the Company and represent the interests of the Company's
stockholders using its diversity of experience. The committee seeks directors who possess certain minimum
qualiÑcations, including the following:
‚ A director must have substantial or signiÑcant business or professional experience or an understanding
of technology, Ñnance, marketing, Ñnancial reporting, international business or other disciplines
relevant to the business of the Company.
‚ A director (other than an employee-director) must be free from any relationship that, in the opinion of
the Board of Directors, would interfere with the exercise of his or her independent judgment as a
member of the Board of Directors or of a Board committee.
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‚ The committee also considers the following qualities and skills, among others, in its selection of
directors and as candidates for appointment to the committees of the Board of Directors:
‚ Economic, technical, scientiÑc, academic, Ñnancial, accounting, legal, marketing, or other
expertise applicable to the business of the Company;
‚ Leadership or substantial achievement in their particular Ñelds;
‚ Demonstrated ability to exercise sound business judgment;
‚ Integrity and high moral and ethical character;
‚ Potential to contribute to the diversity of viewpoints, backgrounds, or experiences of the Board of
Directors as a whole;
‚ Capacity and desire to represent the balanced, best interests of the Company as a whole and not
primarily a special interest group or constituency;
‚ Ability to work well with others;
‚ High degree of interest in the business of the Company;
‚ Dedication to the success of the Company;
‚ Commitment to the responsibilities of a director; and
‚ International business or professional experience.
In addition, the committee will consider that a majority of the Board of Directors must meet the
independence requirements promulgated by the applicable NASD Rules. The Company expects that a
director's existing and future commitments will not materially interfere with such director's obligations to the
Company. For candidates who are incumbent directors, the committee considers such director's past
attendance at meetings and participation in and contributions to the activities of the Board of Directors. The
committee identiÑes candidates for director nominees in consultation with the Chief Executive OÇcer of the
Company and the Chairman of the Board of Directors, through the use of search Ñrms or other advisors or
through such other methods as the committee deems to be helpful to identify candidates. Once candidates
have been identiÑed, the committee conÑrms that the candidates meet all of the minimum qualiÑcations for
director nominees set forth above through interviews, background checks, or any other means that the
committee deems to be helpful in the evaluation process. The committee then meets to discuss and evaluate
the qualities and skills of each candidate, both on an individual basis and taking into account the overall
composition and needs of the Board of Directors. Based on the results of the evaluation process, the committee
recommends candidates for director nominees for election to the Board of Directors. In February 2005, the
Nominating Committee recommended to the Board of Directors that Mr. David P. McGlade be elected to the
Board of Directors. Mr. McGlade was identiÑed by the committee for consideration through an independent
third-party search Ñrm hired by the committee, for which a fee was paid to identify and pre-screen potential
nominees.
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. To date, the Nominating and
Corporate Governance Committee has not received a director nominee from any stockholder of the
Company's voting stock.
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 not later than November 12, 2005, in accordance with the
procedures set forth below in this Proxy Statement under the heading ""Stockholder Proposals.'' For nominees
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for election to the Board of Directors proposed by stockholders to be considered, the recommendation for
nomination must be in writing and must include the following information:
‚ Name of the stockholder, whether an entity or an individual, making the recommendation;
‚ A written statement disclosing such stockholder's beneÑcial ownership of the Company's capital stock;
‚ Name of the individual recommended for consideration as a director nominee;
‚ A written statement from the stockholder making the recommendation stating why such recommended
candidate would be able to fulÑll the duties of a director;
‚ A written statement from the stockholder making the recommendation stating how the recommended
candidate meets the independence requirements established by the SEC and The Nasdaq Stock
Market;
‚ A written statement disclosing the recommended candidate's beneÑcial ownership of the Company's
capital stock; and
‚ A written statement disclosing relationships between the recommended candidate and the Company
which may constitute a conÖict of interest.
Nominations may be sent to the attention of the committee via U.S. mail or expedited delivery service to
Skyworks Solutions, Inc., 20 Sylvan Road, Woburn, Massachusetts 01801, Attn: Nominating and Corporate
Governance Committee, c/o Secretary of Skyworks Solutions, Inc.
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,'' within the meaning of Item 402(j)
of Regulation S-K, existed during Ñscal year 2004.
PROPOSAL 2
APPROVAL OF THE ADOPTION OF THE 2005 LONG-TERM INCENTIVE PLAN
Skyworks is requesting that stockholders vote in favor of adopting the 2005 Long-Term Incentive Plan
(the ""2005 LTIP''), which was adopted by our Board of Directors on February 1, 2005, subject to stockholder
approval. If approved by stockholders, the 2005 LTIP will be eÅective as of February 1, 2005. The Company is
requesting 5,000,000 shares of common stock to be authorized for issuance upon grants of nonqualiÑed stock
options under the plan with a maximum term of seven (7) years. NonqualiÑed stock option awards with up to
a seven (7) year term will be counted against the shares authorized for issuance under the plan at a 1:1 ratio;
however, any stock that is subject to an award under the Plan, other than a nonqualiÑed stock option with up
to a seven (7) year term, shall be counted against the share limit at a 1.5:1 ratio. The 2005 LTIP is intended to
replace the 1996 Long-Term Incentive Plan (the ""1996 LTIP'') and the 1999 Employee Long-Term
Incentive Plan (the ""1999 LTIP'') programs, with the 2005 LTIP providing the Company with Öexibility to
transition to greater use of performance-based restricted stock, performance shares and other alternative
equity vehicles. Approval of this plan will assist the Company in transitioning all of its plans to stockholder-
approved plans.
Background of Our Equity-Based Compensation Philosophy
Skyworks' vision is to become a global leader in analog, mixed signal and digital semiconductors for
mobile communications applications. Successful execution of the Company's strategy depends on attracting
and retaining highly skilled and dedicated employees. As the source of our technological and product
innovations, our key technical personnel represent a signiÑcant asset. The loss of the services of one or more of
our key employees or our inability to attract, retain and motivate qualiÑed personnel could have a material
adverse eÅect on our ability to operate our business. The wireless semiconductor markets are characterized by
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intense competition and our manufacturing processes are extremely complex and specialized. The ability to
attract and retain qualiÑed personnel to contribute to the design, development, manufacture and sale of new
products is critical to our success. The purpose of the 2005 LTIP is to enable the Company to attract and
retain top quality employees, oÇcers and consultants, and to provide these persons with an incentive to
enhance stockholder returns.
We believe equity-based compensation, which has always been a part of our compensation program,
provides a signiÑcant incentive to our employees for improved performance. The Board of Directors has
determined that the adoption of a new long-term incentive plan that provides for alternative vehicles beyond
stock options is necessary to give the Company the Öexibility and advantages needed to adapt its compensation
practices to today's changing global marketplace. The future success of Skyworks will depend on its ability to
attract, retain and motivate key executives and employees with equity-based compensation awards, while also
aligning those employees' interests with those of stockholders. The Company is concerned with retaining key
talent in its organization, particularly given the complexity of its manufacturing process and specialized
expertise of its engineers. Like many technology companies, equity has become an important part of
employees' total compensation package. In addition, the Company believes that Öexibility to develop
performance-based equity programs tied to achievement of speciÑc milestones will motivate and retain
employees and assist the Company in achieving its goals.
We only have a limited number of shares available for future grants under our existing equity-based
compensation plans. Skyworks currently grants options under three long-term equity incentive plans. The
1996 LTIP and 2001 Directors' Stock Option Plan (the ""Directors' Plan'') are both stockholder approved
plans and, as of December 31, 2004, had approximately 700 shares and 70,000 shares remaining available for
future grant, respectively. The 1999 LTIP is a non-stockholder approved plan that as of December 31, 2004,
had approximately 2.2 million shares remaining available for future grant. We anticipate that the shares
currently available under our existing equity-based compensation plans will not be suÇcient to meet our needs
over the next year.
We do not believe the ""overhang'' from our equity-based compensation awards is signiÑcant. As of
December 31, 2004, the Company had a total of 34,048,563 shares reserved for issuance pursuant to options
outstanding with a weighted average exercise price of $13.18 and a weighted average life of seven (7) years.
As a result of the Merger, 29% of these outstanding options are held by non-employees, which represent 6.3%
of the Company's total overhang. We deÑne ""overhang'' as the total number of common shares underlying
equity-based awards granted but not yet exercised (excluding shares issuable under our employee stock
purchase plan), plus shares available for grant, divided by the total number of common shares outstanding at
the end of the reporting period. When stock options held by non-employees are excluded from the overhang
calculation, the Company's total overhang is 16.9%, which we believe is low relative to our peers.
We have committed to a lower ""burn rate'' for future equity-based compensation awards. The Company
has a practice of awarding stock options to all its employees. Although the Company's average ""burn rate''
since the Merger is competitive with its peers, beginning in Ñscal year 2005, the Company has committed to a
lower burn rate of 3.5% of total shares outstanding. We calculate ""burn rate'' as the total number of common
shares underlying equity-based awards granted in any given year (excluding shares issuable under our
employee stock purchase plan) divided by the total number of common shares outstanding at the end of the
reporting period. The number of equity awards used in the burn rate calculation is not reduced by cancelled or
forfeited options or shares acquired or retained by us during the reporting period.
The 2005 Long-Term Incentive Plan has been designed to minimize the risk of potentially adverse equity-
based compensation practices. The 2005 LTIP has, among other things, the following features:
‚ Prohibits the granting of stock options with an exercise price below the fair market value of the
common stock on the grant date;
‚ A discounted ""share reduction'' formula in the pool of available shares, whereby the issuance of any
award, other than a nonqualiÑed stock option with up to a seven (7) year term, will reduce the pool of
available shares by 1.5 shares. For example, if no nonqualiÑed stock options were to be issued under the
2005 LTIP, the maximum number of shares of common stock subject to other awards would be
3,333,333 shares.
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‚ Prohibits repricing, or reducing the exercise price of a stock option, without obtaining stockholder
approval; and,
‚ Does not include any ""evergreen'' or ""reload'' provisions.
We strongly believe that our equity-based compensation programs have been integral to our success in
the past and will be important to our ability to succeed in the future. Therefore, we consider approval of the
2005 LTIP vital to our future success. A summary description of the 2005 LTIP follows.
Description of the 2005 LTIP
This summary is qualiÑed in its entirety by reference to the 2005 LTIP, a copy of which is attached to the
electronic copy of this Proxy Statement Ñled with the SEC and may be accessed from the SEC's home page
(www.sec.gov). In addition, a copy of the 2005 LTIP may be obtained from the Secretary of the Company.
Types of Awards
The 2005 LTIP provides for the grant of nonqualiÑed stock options, restricted stock awards, stock
appreciation rights and other stock-based awards, including the grant of shares based upon certain conditions
such as performance-based conditions and the grant of securities convertible into common stock (collectively,
""Awards'').
NonqualiÑed Stock Options. Optionees receive the right to purchase a speciÑed number of shares of
common stock at a speciÑed option price and subject to such other terms and conditions as are speciÑed in
connection with the option grant. Options may be granted at an exercise price that is no less than 100% of the
fair market value of the common stock on the date of grant. Options may not be granted for a term in excess of
seven (7) years. The 2005 LTIP permits the following forms of payment of the exercise price of options:
(i) payment by cash, check or in connection with a ""cashless exercise'' through a broker, (ii) surrender to the
Company of shares of common stock, (iii) delivery to the Company of a promissory note, (iv) any other
lawful means, or (v) any combination of these forms of payment.
Unless such action is approved by the Company's stockholders: (1) no outstanding option may be
amended to provide an exercise price per share that is lower than the then-current exercise price per share of
the option (other than adjustments to reÖect stock splits, stock dividends, recapitalizations, spin-oÅs and other
similar changes in capitalization) and (2) the Board may not cancel any outstanding option and grant in
substitution therefor new Awards under the Plan covering the same or a diÅerent number of shares of common
stock and having an exercise price per share lower than the then-current exercise price per share of the
cancelled option. No option shall contain any provision entitling the optionee to the automatic grant of
additional options in connection with any exercise of the original option.
Restricted Stock Awards. Restricted stock Awards entitle recipients to acquire shares of common stock,
subject to the right of the Company to repurchase all or part of such shares from the recipient in the event that
the conditions speciÑed in the applicable Award are not satisÑed prior to the end of the applicable restriction
period established for such Award. Instead of issuing common stock that is subject to repurchase, the Board
may grant Awards known as restricted stock units that entitle recipients to receive unrestricted shares of
common stock in the event that the conditions speciÑed in the applicable Award are satisÑed prior to the end
of the applicable restriction period established for such Award.
Stock Appreciation Rights. Stock appreciation rights entitle recipients to receive the appreciation in the
value of the common stock over the value of the Common on the date of grant of the stock appreciation right.
Stock appreciation rights will be settled by the delivery of shares of common stock. Stock appreciation rights
may be issued in tandem with options or as stand-alone rights.
Other Stock-Based Awards. Under the 2005 LTIP, the Board of Directors has the right to grant other
Awards based upon the common stock having such terms and conditions as the Board of Directors may
determine, including the grant of shares based upon certain conditions such as performance-based conditions
and the grant of securities convertible into common stock.
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Eligibility to Receive Awards
Employees, oÇcers, consultants and advisors of the Company and its subsidiaries, and of other business
ventures in which the Company has a signiÑcant interest, are eligible to be granted Awards under the 2005
LTIP. The maximum number of shares with respect to which Awards may be granted to any participant under
the 2005 LTIP is 750,000 shares per calendar year.
Plan BeneÑts
As of February 25, 2005, approximately 4,000 persons would be eligible to receive Awards under the 2005
LTIP if it were approved, including the Company's seven (7) executive oÇcers. The granting of Awards under
the 2005 LTIP is discretionary, and the Company cannot now determine the number or type of Awards to be
granted in the future to any particular person or group. On February 25, 2005, the last reported sale price of
the Company common stock on the Nasdaq Stock Market was $7.40.
Administration
The 2005 LTIP is administered by the Board of Directors. The Board of Directors has the authority to
adopt, amend and repeal the administrative rules, guidelines and practices relating to the 2005 LTIP and to
interpret the provisions of the 2005 LTIP. Pursuant to the terms of the 2005 LTIP, the Board of Directors
may delegate authority under the 2005 LTIP to one or more committees or subcommittees of the Board of
Directors. The Board of Directors has authorized the Compensation Committee to administer certain aspects
of the 2005 LTIP, including the granting of options to executive oÇcers.
Subject to any applicable limitations contained in the 2005 LTIP, the Board of Directors, the
Compensation Committee, or any other committee to whom the Board of Directors delegates authority, as the
case may be, selects the recipients of Awards and determines (i) the number of shares of common stock
covered by options and the dates upon which such options become exercisable, (ii) the exercise price of
options (which may not be less than 100% of the fair market value of the common stock), (iii) the duration of
options (which may not exceed seven (7) years) and (iv) the number of shares of common stock subject to
any restricted stock or other stock-based Awards and the terms and conditions of such Awards, including
conditions for repurchase, issue price and repurchase price.
The Board of Directors is required to make appropriate adjustments in connection with the 2005 LTIP
and any outstanding Awards to reÖect stock splits, stock dividends, recapitalizations, spin-oÅs and other
similar changes in capitalization. The 2005 LTIP also contains provisions addressing the consequences of any
Reorganization Event, which is deÑned as (i) any merger or consolidation of the Company with or into
another entity as a result of which all of the common stock of the Company is converted into or exchanged for
the right to receive cash, securities or other property or (b) any exchange of all of the common stock of the
Company for cash, securities or other property pursuant to a share exchange transaction. Upon the occurrence
of a Reorganization Event, all outstanding options are to be assumed, or substituted for, by the acquiring or
succeeding corporation. However, if the acquiring or succeeding corporation does not agree to assume, or
substitute for, outstanding options, then the Board of Directors must either accelerate the options to make
them fully exercisable prior to consummation of the Reorganization Event or provide for a cash out of the
value of any outstanding options. Upon the occurrence of a Reorganization Event, the repurchase and other
rights of the Company under each outstanding restricted stock Award will inure to the beneÑt of the acquiring
or succeeding corporation. The Board of Directors will specify the eÅect of a Reorganization Event on any
other Award at the time the Award is granted.
If a Change in Control Event occurs, except to the extent speciÑcally provided to the contrary in any
Award agreement or any other agreement between a Participant and the Company, any options outstanding as
of the date the Change of Control occur and not then exercisable shall automatically become fully exercisable
and all restrictions and conditions on all Restricted Stock Awards shall automatically be deemed terminated or
satisÑed. A ""Change in Control Event'' occurs if the Continuing Directors (as deÑned below) cease for any
reason to constitute a majority of the Board. A ""Continuing Director'' will include any member of the Board
as of the eÅective date of the Plan and any individual nominated for election to the Board by a majority of the
then Continuing Directors.
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If any Award expires or is terminated, surrendered, canceled or forfeited, the unused shares of common
stock covered by such Award will again be available for grant under the 2005 LTIP.
Amendment or Termination
The Board of Directors may at any time amend, suspend or terminate the 2005 LTIP, except that no
Award designated as subject to Section 162(m) of the Code by the Board of Directors after the date of such
amendment shall become exercisable, realizable or vested (to the extent such amendment was required to
grant such Award) unless and until such amendment shall have been approved by the Company's
stockholders. No Award may be granted under the 2005 LTIP after February 1, 2015, but Awards previously
granted may extend beyond that date.
If stockholders do not approve the adoption of the 2005 LTIP, the 2005 LTIP will not go into eÅect, and
the Company will not grant any Awards under the 2005 LTIP. In such event, the Board of Directors will
consider whether to adopt alternative arrangements based on its assessment of the needs of the Company.
Federal Income Tax Consequences
The following summarizes the United States federal income tax consequences that generally will arise
with respect to awards granted under the plan. This summary is based on the tax laws in eÅect as of the date of
this Proxy Statement. Changes to these laws could alter the tax consequences described below.
NonqualiÑed Stock Options. A participant will not have income upon the grant of a nonqualiÑed stock
option. A participant will have compensation income upon the exercise of a nonqualiÑed stock option equal to
the value of the stock on the day the participant exercised the option less the exercise price. Upon sale of the
stock, the participant will have capital gain or loss equal to the diÅerence between the sales proceeds and the
value of the stock on the day the option was exercised. This capital gain or loss will be long-term if the
participant has held the stock for more than one year and otherwise will be short-term.
Restricted Stock; Restricted Stock Units. A participant will not have income upon the grant of restricted
stock unless an election under Section 83(b) of the Code is made within 30 days of the date of grant. If a
timely 83(b) election is made, then a participant will have compensation income equal to the value of the
stock less the purchase price. When the stock is sold, the participant will have capital gain or loss equal to the
diÅerence between the sales proceeds and the value of the stock on the date of grant. If the participant does
not make an 83(b) election, then when the stock vests the participant will have compensation income equal to
the value of the stock on the vesting date less the purchase price. When the stock is sold, the participant will
have capital gain or loss equal to the sales proceeds less the value of the stock on the vesting date. Any capital
gain or loss will be long-term if the participant held the stock for more than one year and otherwise will be
short-term. The tax treatment of a restricted stock unit and the stock issued upon the vesting of a restricted
stock unit is the same as described above for restricted stock, except that no Section 83(b) election may be
made with respect to restricted stock units.
Stock Appreciation Rights. A participant will not have income upon the grant of a stock appreciation
right. A participant will have compensation income upon the exercise of a stock appreciation right equal to the
appreciation in the value of the stock underlying the stock appreciation right. When the stock distributed in
settlement of the stock appreciation right is sold, the participant will have capital gain or loss equal to the sales
proceeds less the value of the stock on the exercise date. Any capital gain or loss will be long-term if the
participant held the stock for more than one year and otherwise will be short-term.
Tax Consequences to the Company. There will be no tax consequences to the Company except that we
will be entitled to a deduction when a participant has compensation income. Any such deduction will be
subject to the limitations of Section 162(m) of the Code.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE ""FOR'' APPROVAL
OF THE ADOPTION OF THE 2005 LONG-TERM INCENTIVE PLAN
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PROPOSAL 3
APPROVAL OF AN AMENDMENT TO THE 2001 DIRECTORS' STOCK OPTION PLAN
The Board of Directors believes that the future success of Skyworks will depend on its ability to attract
and retain key outside director talent. The compensation package awarded to the Company's outside directors
is heavily weighted with equity. As discussed elsewhere in this Proxy Statement, the Company is endeavoring
to continue to improve the independence of its Board of Directors by nominating another new, independent
director. The 2001 Directors' Stock Option Plan (the ""Directors' Plan'') was approved by the Board of
Directors in April 2001 and by the stockholders in September 2001 and June 2002. Non-employee directors
currently receive an option to purchase 45,000 shares of Skyworks common stock upon initial appointment and
an option to purchase 15,000 shares following each annual meeting of stockholders. Of the 565,000 shares
previously authorized for issuance under the Directors' Plan, there were only 70,000 shares remaining as of
December 31, 2004. The Board of Directors therefore is requesting the stockholders approve an amendment to
the Directors' Plan to increase the number of shares authorized for issuance thereunder by 500,000 shares of
common stock, to an aggregate of 1,065,000 shares. The Company believes that the proposed increase in
shares authorized under the Directors' Plan will be suÇcient to meet the Company's needs pursuant to the
automatic grant provisions described above over the next three (3) Ñscal years. The Directors' Plan requires
that options have a maximum term of ten (10) years, and the plan will terminate on or about September 10,
2011. A summary description of the Directors' Plan follows.
Description of the Directors' Plan
This summary is qualiÑed in its entirety by reference to the Directors' Plan, a copy of which is attached to
the electronic copy of this Proxy Statement Ñled with the SEC and may be accessed from the SEC's home
page (www.sec.gov). In addition, a copy of the Directors' Plan may be obtained from the Secretary of the
Company.
Purpose. The Directors' Plan is intended to provide Skyworks' directors with long-term incentives and
rewards, to assist the Company in attracting and retaining experienced and able directors, and to align the
interests of Skyworks' directors more closely with those of the Company's stockholders.
Administration. The Directors' Plan is administered by the Board of Directors (the ""Board'').
Stock Available for Awards. Without giving eÅect to the proposed amendment, a maximum of
565,000 shares of Skyworks common stock are currently authorized for issuance under the Directors' Plan.
The shares of Skyworks common stock to be delivered under the Directors' Plan may be either authorized but
unissued shares, treasury shares, shares reacquired by Skyworks for such purpose or shares previously reserved
for issuance upon exercise of directors' options (under the Directors' Plan or other plans) which have expired
or been terminated.
Eligibility; Grants of Awards. Grants of options are made to non-employee directors upon their election
and re-election to the Skyworks board. Under the Directors' Plan, each new non-employee director receives an
option to purchase 45,000 shares of Skyworks common stock immediately following the earlier of Skyworks'
annual meeting of stockholders at which the director is Ñrst elected by the Skyworks stockholders or
immediately following the director's initial appointment by the board of directors. In addition, 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 Skyworks common stock. The Directors' Plan is not intended to be a means of
compensating executive oÇcers of Skyworks; directors who are also executive oÇcers of Skyworks are not
eligible to participate in the Directors' Plan. As of February 25, 2005, there were nine (9) non-employee
directors.
Price; Exercise; Restrictions. Stock options are rights to purchase shares of Skyworks common stock at
a Ñxed exercise price for a predetermined period of time. The exercise price of all options to be granted under
the Directors' Plan will be the fair market value of Skyworks common stock on the date the option is granted
or the par value of the shares of common stock if that is higher. This price must be paid in full upon exercise of
the option either in cash or by delivery of shares of common stock (as permitted by the Skyworks board of
directors), or any combination of cash and stock (as permitted by the Skyworks board of directors). All
options under the Directors' Plan will become exercisable in four equal increments over a period of four years
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from the date of grant and must be exercised within ten years after the date the option is granted. The options
may not be assigned or transferred except by will or under the laws of descent and distribution, or pursuant to a
qualiÑed domestic relations order. During the lifetime of a director, the option may be exercisable only by the
director. All of the options granted under the Directors' Plan will be nonqualiÑed stock options under the
Code.
Rights in the Event of Cessation of Service.
In the event of the cessation of service of a director, the
director's options may be exercised as follows: (1) in the event of death, all unvested options will become fully
vested and all options may be exercised by the heirs of the director for twelve months after the date of death
(or until the expiration of the option, if sooner); (2) in the event of a director's permanent and total disability,
only vested options may be exercised, and only for a period of six months after the cessation of service (or until
the expiration of the option, if sooner); (3) in the event a director ceases to serve as a director for any other
reason, except for cause, only vested options may be exercised, and only for a period of three months after the
cessation of service (or until the expiration of the option, if sooner). In the event a director is removed from
oÇce for cause, all remaining options cease to be exercisable whether or not previously vested.
Indemnity. The Directors' Plan provides that the Skyworks board of directors shall not be liable for any
act, omission, interpretation, construction or determination made in good faith in connection with their
responsibilities with respect to the Directors' Plan. Skyworks agrees to indemnify the directors in respect of
any claim, loss, damage or expense (including counsel fees) arising from any such act, omission, interpreta-
tion, construction or determination to the full extent permitted by law.
Amendment; Termination. The Skyworks board of directors may at any time, and from time to time,
amend, suspend or terminate the Directors' Plan in whole or in part, provided that the provisions of the
Directors' Plan relating to the amount and price of Skyworks common stock to be awarded and the timing of
such awards may not be amended more than once every six months other than to comport with changes in the
Code, the Employee Retirement Income Security Act or the rules under either statute. No amendment,
suspension or termination of the Directors' Plan may aÅect the rights of any participant to whom an option has
been granted without such participant's consent.
Share Adjustments.
If Skyworks' outstanding common stock is increased or decreased, or changed into
or exchanged for a diÅerent number or kind of shares or other securities by reason of a recapitalization,
reclassiÑcation, stock split, combination of shares, separation (including a spin-oÅ) or stock dividend, there
will be an equitable adjustment in the exercise prices of outstanding options and the number and kind of
shares as to which outstanding options shall be exercisable as determined by the Skyworks board of directors.
If Skyworks is a party to any merger or consolidation, any purchase or acquisition of property or stock, or any
separation, reorganization or liquidation, the Skyworks board of directors (or, if Skyworks is not the surviving
corporation, the board of directors of the surviving corporation) shall have the power to make arrangements
for the substitution of new options for, or the assumption by another corporation of, any options then
outstanding under the Directors' Plan.
Change of Control. Upon the occurrence of a change of control of Skyworks (as deÑned in the
Directors' Plan) each outstanding and unvested option will become exercisable.
Duration. Awards may be made under the Directors' Plan for a period of ten years ending on
September 10, 2011. The period during which a stock option or other award may be exercised, however, may
extend beyond that time.
Federal Income Tax Consequences
The following summarizes the United States federal income tax consequences that generally will arise
with respect to awards granted under Directors' Plan. This summary is based on the tax laws in eÅect as of the
date of this Proxy Statement. Changes to these laws could alter the tax consequences described below.
NonqualiÑed Stock Options. A participant will not have income upon the grant of a nonqualiÑed stock
option. A participant will have compensation income upon the exercise of a nonqualiÑed stock option equal to
the value of the stock on the day the participant exercised the option less the exercise price. Upon sale of the
stock, the participant will have capital gain or loss equal to the diÅerence between the sales proceeds and the
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value of the stock on the day the option was exercised. This capital gain or loss will be long-term if the
participant has held the stock for more than one year and otherwise will be short-term.
Tax Consequences to the Company. There will be no tax consequences to the Company except that we
will be entitled to a deduction when a participant has compensation income. Any such deduction will be
subject to the limitations of Section 162(m) of the Code.
Awards to be Granted under the Directors' Plan.
In the event the amendment to the Directors' Plan is
approved by the stockholders, the table below states the number of shares of Skyworks common stock that the
Company anticipates will be granted under the Directors' Plan on April 28, 2005.
2001 Directors' Stock Option Plan Awards(1)
Name and Position
Dollar
Value(2)
Number of
Options
Current Chief Executive OÇcer and each other Executive OÇcer ÏÏÏÏÏÏÏÏ
Dwight W. Decker, Chairman of the Board ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Kevin L. Beebe, Director ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Moiz M. Beguwala, Director ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Timothy R. Furey, Director ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Balakrishnan S. Iyer, Director ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Thomas C. Leonard, DirectorÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
David P. McGlade, Director ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
David J. McLachlan, Director ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Current Executive OÇcers, as a group ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Current Directors who are not Executive OÇcers, as a group ÏÏÏÏÏÏÏÏÏÏÏÏ
All employees who are not Executive OÇcers, as a group ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Ì
0
0
0
0
0
0
0
0
Ì
0
Ì
Ì
15,000
15,000
15,000
15,000
15,000
15,000
15,000
15,000
Ì
120,000
Ì
(1) Assumes approval of the amendment to the Directors' Plan and re-election of all directors nominated for
re-election at the Annual Meeting; assumes that no new directors are elected prior to the Annual
Meeting.
(2) Based upon the diÅerence between the market value of the underlying shares on the date of grant and the
exercise price of the stock options. Since options under the Directors' Plan will be granted with an
exercise price equal to the fair market value of the Company's common stock on the date of grant, the
dollar value upon the date of grant is zero. This valuation does not take into account any appreciation in
the market value of the underlying shares which may occur over the term of the options. On February 25,
2005, the last reported sale price of the Company common stock on the Nasdaq Stock Market was $7.40.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE ""FOR'' APPROVAL
OF AN AMENDMENT TO THE 2001 DIRECTORS' STOCK OPTION PLAN
EQUITY COMPENSATION PLAN INFORMATION
The Company maintains nine equity compensation plans under which equity securities of the Company
are authorized for issuance to employees, consultants and/or directors:
‚ 1986 Long-Term Incentive Plan;
‚ Directors' 1994 Non-QualiÑed Stock Option Plan;
‚ 1996 Long-Term Incentive Plan;
‚ Directors' 1997 Non-QualiÑed Stock Option Plan;
‚ 1999 Employee Long-Term Incentive Plan;
‚ Directors' 2001 Stock Option Plan;
‚ Non-QualiÑed Employee Stock Purchase Plan;
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‚ 2002 Employee Stock Purchase Plan; and
‚ Washington Sub, Inc. 2002 Stock Option Plan.
Except for the 1999 Employee Long-Term Incentive Plan, the Washington Sub, Inc. 2002 Stock Option
Plan and the Non-QualiÑed Employee Stock Purchase Plan, each of the foregoing equity compensation plans
was approved by our stockholders.
The following table presents information about these plans as of September 30, 2004.
Plan Category
Number of Securities
to be Issued Upon
Exercise of Outstanding
Options, Warrants,
and Rights
(a)
Weighted-Average
Exercise Price of
Outstanding
Options, Warrants
and Rights
(b)
Equity compensation plans approved by
security holdersÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Equity compensation plans not approved by
security holdersÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
8,942,745
22,819,791
Total ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
31,762,536(3)
$15.65
$12.84
$13.63
Number of Securities
Remaining Available for
Future Issuance Under
Equity Compensation
Plans (Excluding
Securities ReÖected
in Column (a))
(c)
726,705(1)
4,911,065(2)
5,637,770
(1) No further grants will be made under the 1986 Long-Term Incentive Plan, the 1994 Non-QualiÑed Stock
Option Plan and the Directors' 1997 Non-QualiÑed Stock Option Plan.
(2) No further grants may be made under the Washington Sub Inc. 2002 Stock Option Plan.
(3) Includes 10,662,628 options held by non-employees (excluding directors).
1999 EMPLOYEE LONG-TERM INCENTIVE PLAN
The purposes of the Company's 1999 Employee Long-Term Incentive Plan (the ""1999 LTIP'') are (i) to
provide long-term incentives and rewards to those employees of the Company and its subsidiaries, other than
oÇcers and non-employee directors, who are in a position to contribute to the long-term success and growth of
the Company and its subsidiaries, (ii) to assist the Company in retaining and attracting employees with
requisite experience and ability, and (iii) to associate more closely the interests of such employees with those
of the Company's stockholders. The 1999 LTIP provides for the grant of nonqualiÑed stock options to
purchase shares of the Company's common stock. The term of these options may not exceed ten years. The
1999 LTIP contains provisions which permit restrictions on vesting or transferability, as well as continued
exercisability upon a participant's termination of employment with the Company, of options granted
thereunder. The 1999 LTIP provides for full acceleration of the vesting of options granted thereunder upon a
""change in control'' of the Company, as deÑned in the 1999 LTIP. The Board of Directors generally may
amend, suspend or terminate the 1999 LTIP in whole or in part at any time; provided that any amendment
which aÅects outstanding options be consented to by the holder of the options.
WASHINGTON SUB, INC. 2002 STOCK OPTION PLAN
The Washington Sub, Inc. 2002 Stock Option Plan (the ""Washington Sub Plan'') became eÅective on
June 25, 2002, in connection with the Merger. At the time of the spin-oÅ of Conexant's wireless business,
outstanding Conexant options granted pursuant to certain Conexant stock incentive plans were converted so
that following the spin-oÅ and Merger each holder of those certain Conexant options held (i) options to
purchase shares of Conexant common stock and (ii) options to purchase shares of Skyworks common stock.
The purpose of the Washington Sub Plan is to provide a means for the Company to perform its obligations
with respect to these converted stock options. The only participants in the Washington Sub Plan are those
persons who, at the time of the Merger, held outstanding options granted pursuant to certain Conexant stock
option plans. No further options to purchase shares of Skyworks common stock will be granted under the
Washington Sub Plan. The Washington Sub Plan contains a number of sub-plans, which contain terms and
conditions that are applicable to certain portions of the options subject to the Washington Sub Plan, depending
upon the Conexant stock option plan from which the Skyworks options granted under the Washington Sub
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Plan were derived. The outstanding options under the Washington Sub Plan generally have the same terms
and conditions as the original Conexant options from which they are derived. Most of the sub-plans of the
Washington Sub Plan contain provisions related to the eÅect of a participant's termination of employment
with the Company, if any, and/or with Conexant on options granted pursuant to such sub-plan. Several of the
sub-plans under the Washington Sub Plan contain speciÑc provisions related to a change in control of the
Company.
NON-QUALIFIED ESPP
The Company also maintains a Non-QualiÑed Employee Stock Purchase Plan to provide employees of
the Company and participating subsidiaries with an opportunity to acquire a proprietary interest in the
Company through the purchase, by means of payroll deductions, of shares of the Company's common stock at
a discount from the market price of the common stock at the time of purchase. The Non-QualiÑed Employee
Stock Purchase Plan is intended for use primarily by employees of the Company located outside the United
States. Under the plan, 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 oÅering period, which is generally six months.
PROPOSAL 4
RATIFICATION OF THE SELECTION OF KPMG LLP AS
INDEPENDENT AUDITORS OF THE COMPANY
The Audit Committee has selected KPMG LLP as the Company's independent auditors for the current
Ñscal year ending September 30, 2005, 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 1, 2004, 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 2005.
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 stockholders' best interests.
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AUDIT FEES
KPMG LLP provided audit services to the Company consisting of the annual audit of the Company's
2004 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 2004.
Fee Category
Audit Fees(1) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Audit-Related Fees(2)ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Tax Fees(3) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
All Other Fees(4) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Fiscal Year
2004
$574,500
$ 21,220
$ 65,000
1,350
$
% of Total
87%
3%
10%
0%
Fiscal Year
2003
$ 426,000
$ 221,600
$ 160,100
$ 202,300
% of Total
42%
22%
16%
20%
Total Fees ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$662,070
100%
$1,010,000
100%
(1) Audit fees consist of fees for the audit of our Ñnancial statements, the review of the interim Ñnancial
statements included in our quarterly reports on Form 10-Q, and other professional services provided in
connection with statutory and regulatory Ñlings or engagements.
(2) Audit related fees consist of fees for assurance and related services that are reasonably related to the
performance of the audit and the review of our Ñnancial statements and which are not reported under
""Audit Fees.'' These services relate to the employee beneÑt audit, registration statement Ñlings for
Ñnancing activities and consultations concerning Ñnancial accounting and reporting standards.
(3) Tax fees consist of fees for tax compliance, tax advice and tax planning services. Tax compliance services,
which relate to preparation or review of original and amended tax returns, claims for refunds and tax
payment-planning services, accounted for $65,000 of the total tax fees for Ñscal year 2004 and $84,100 of
the total tax fees for Ñscal year 2003. Tax advice and tax planning services relate to assistance with tax
audits.
(4) All other fees for Ñscal year 2004 consist of a license for accounting research software. All other fees for
Ñscal year 2003 consist of assistance with Sarbanes-Oxley documentation.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE ""FOR''
THE RATIFICATION OF THE SELECTION OF KPMG LLP
AS INDEPENDENT AUDITORS OF THE COMPANY
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COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee, which is comprised solely of independent directors within the meaning of
applicable NASD Rules, outside directors within the meaning of Section 162 of the Code and non-employee
directors within the meaning of Rule 16b-3 under the Exchange Act, is responsible for determining all
components of 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 Executives''). The committee approves and periodically evaluates the
Company's 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 corporate performance and increases in stockholder value. 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 compensation for the Senior Executives are base salary, short-term cash incentives,
and long-term stock-based incentives.
Compensation for Skyworks' Senior Executives, including salary, short-term incentives and long-term
incentives, is established at levels intended to be competitive with the compensation of comparable executives
in similar companies. In determining competitive compensation standards, the Compensation Committee
utilized studies from third-party compensation experts at Pearl Meyer & Partners on executive compensation
in comparable high technology and semiconductor companies. At the request of the committee, Pearl
Meyer & Partners, assisted by management, selected, as a comparator, a peer group of 18 publicly-traded,
U.S.-based corporations with which the Company may compete in recruiting executive talent. The compara-
tor group selected has been approved by the committee. Following a review of these studies, the Compensation
Committee established base salaries, short-term incentive bonuses and long-term incentives. Base salaries and
long-term incentives were generally targeted at the market median, and in certain instances were targeted
closer to the 75th percentile of the Company's peers based on roles, responsibilities and performance. Total
cash compensation (i.e., base salary plus short-term incentive bonus) was also targeted at the market median
with the opportunity for executives to earn above the market median based on performance. 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. These recommendations include an assessment of the
individual's responsibilities, experience, individual performance and contribution to the Company's perform-
ance, and also generally take into account internal factors such as historical compensation and level in the
organization, in addition to external factors such as the competitive environment for attracting and retaining
executives. In light of the considerations discussed above in determining base salaries, the Company's
continuing improvement in Ñnancial performance during Ñscal year 2004, and the recommendations of the
Compensation Committee's compensation consultant, the committee increased the base salaries of the Senior
Executives an average of 4% for Ñscal year 2005.
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 annual incentive targets for Skyworks' Senior Executives for Ñscal year 2004. During Ñscal 2004,
the Company's Ñnancial performance exceeded these targets, resulting in the Chief Executive OÇcer
receiving an annual incentive payment equal to 200% of his base salary, and each of the other Senior
Executives receiving an annual incentive payment of between 80% and 120% of their respective annual base
salaries.
The Compensation Committee provides Senior Executives with long-term equity incentive compensation
under Skyworks' long-term equity incentive plan (the ""LTIP''). Under the LTIP, the Compensation
Committee has, in the past, awarded nonqualiÑed stock options, and incentive stock options. The committee
determines who should receive grants, when grants should be made, the exercise price per share and the
number of shares to be subject to options. These grants are intended to tie the value of Senior Executives'
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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
Compensation Committee can also make restricted stock awards, which can be similarly beneÑcial to
executives, as the value of the award relates to stock price. In general, the Compensation Committee bases its
decisions to grant stock-based incentives on recommendations of management and the committee's third-
party compensation consultant, with the intention of keeping the executives' overall compensation, including
the equity component of that compensation, at a competitive level with the Skyworks' comparator group. The
Compensation Committee also considers the number of shares of common stock outstanding, the number of
shares of common stock authorized for issuance under its equity compensation plans, the number of options
and shares held by the Senior Executive for whom an award is being considered and the other elements of the
Senior Executive's compensation, as well as the Company's compensation objectives and policies described
above. As with the determination of base salaries and short term incentive payments, the Committee exercises
subjective judgment and discretion in view of the above criteria. During Ñscal year 2004, the Compensation
Committee made stock option grants to each of the Senior Executives under the LTIP targeted at the market
median of the Company's peers, with adjustments to reÖect roles within the Company and individual
performance.
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
programs, along with stock options, provide the Senior Executives with the opportunity to acquire long-term
stock ownership positions, and help 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. Certain Senior Executives designated by the
Compensation Committee may participate in this Executive Compensation Plan, which is discussed in this
Proxy Statement under the heading ""Executive Compensation.''
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 the
Company's semiconductor peers; 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 short-term cash
incentive, along with a long-term, stock-based incentive, designed to align Mr. Aldrich's compensation with
the performance of Skyworks. The resulting total cash compensation was targeted at the market median of
chief executive oÇcers of the comparator group utilized by the Committee's third-party compensation
consultants. During Ñscal year 2004, Mr. Aldrich received a base salary of $530,000, which was equivalent to
the 55th percentile of this peer group. As discussed above, the Compensation Committee also established
aggressive forward-looking incentive targets for Mr. Aldrich for Ñscal year 2004. During Ñscal 2004, the
Company's Ñnancial performance exceeded these forward-looking incentive targets, resulting in Mr. Aldrich
receiving an annual incentive bonus equal to 200% of his annual base salary. Mr. Aldrich also received a stock
option grant in Ñscal 2004 with a Black-Scholes value targeted at the 55th percentile of the Company's peers.
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.
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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
Kevin L. Beebe
Timothy R. Furey, Chairman
David J. McLachlan
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REPORT OF THE AUDIT COMMITTEE
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, and reviewed and discussed the audited Ñnancial
statements for the year ended October 1, 2004, 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 (Independence Discussions with Audit Committees), and the Audit Committee discussed with the
independent auditors that Ñrm's independence vis-fia-vis the Company.
Based upon the Audit Committee's review and discussions described above, 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 1, 2004, as Ñled with the SEC.
THE AUDIT COMMITTEE
Kevin L. Beebe
Timothy R. Furey
David J. McLachlan, Chairman
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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'').
SUMMARY COMPENSATION TABLE
Name and Principal
Position
David J. Aldrich ÏÏÏÏÏÏÏÏÏÏ
President and
Chief Executive OÇcer
Kevin D. Barber(3) ÏÏÏÏÏÏÏ
Senior Vice President
and General Manager,
RF Solutions
Liam K. GriÇn ÏÏÏÏÏÏÏÏÏÏÏ
Vice President,
Sales and Marketing
Allan M. Kline(6) ÏÏÏÏÏÏÏÏ
Vice President, Chief
Financial OÇcer
Annual Compensation
Fiscal
Year(1)
Salary
Bonus
$527,539
2004
2003
$480,000
2002-S $174,462
$351,154
2002
$329,646
2004
$307,615
2003
$253,846
2002
$1,060,000
Ì
$
Ì
$
$
Ì
$ 397,000
Ì
$
Ì
$
Ì
Ì
Ì
Ì
Ì
Ì
Ì
$278,769
2004
2003
$259,423
2002-S $115,885
$130,039
2002
$237,500
2004
$
2003
$
2002
Ì $
Ì $
$ 336,000
Ì
$ 115,000(5) Ì
$
Ì
Ì
25,000(5)
$
$ 390,000
Ì
Ì
Ì
Ì
Ì
Gregory L. Waters(8) ÏÏÏÏÏ
Vice President and
General Manager,
Cellular Systems
2004
2003
2002
$295,385
$117,288
$
$ 360,000
$
Ì $
Ì
60,000(8) Ì
Ì
Ì
Long-Term
Compensation Awards
Securities
Underlying
Awards(#) Options(#)
Restricted
Stock
All Other
Compensation(2)
500,000
Ì
475,000
160,000
210,000(4)
Ì
107,365
110,000
Ì
100,000
100,000
280,000(7)
Ì
Ì
$12,608
$ 9,548
$ Ì
$ 8,922
$13,397
$ 6,890
$ 7,685
$ 8,298
$ 7,315
$ Ì
$ 1,062
$ 6,413
$ Ì
$ Ì
100,000
225,000(7)
Ì
$22,039(8)
$ 4,165
$ Ì
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(1) References to 2002-S refer to the period beginning March 29, 2002, and ending September 27, 2002.
References to the Company's 2002 Ñscal year refer to the Ñscal year of Alpha Industries, Inc. and ended
March 31, 2002. In connection with the merger of the wireless communications business of Conexant
Systems, Inc. (the ""Washington Business'') with Alpha Industries, Inc. on June 25, 2002, 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 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), the cost of term life insurance
premiums, and de minimis service awards.
(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. 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) Mr. Barber received an annual stock option grant to purchase 110,000 shares in January 2004, and a one-
time stock option grant to purchase 100,000 shares in connection with his promotion to Senior Vice
President and General Manager, RF Solutions in November 2003.
(5) As incentives for joining the Company in August 2001, Mr. GriÇn received a sign-on bonus of $25,000
and was guaranteed a one-time bonus of $115,000.
(6) Mr. Kline joined the Company as an executive oÇcer on January 5, 2004.
(7) As an incentive for joining the Company, Messrs. Kline and Waters received one-time new hire stock
option grants to purchase 280,000 shares and 225,000 shares, respectively.
(8) Mr. Waters joined the Company on April 17, 2003, and was appointed an executive oÇcer on February 6,
2004. As an incentive for joining the Company, Mr. Waters received a sign on bonus of $60,000.
Mr. Waters also received $9,591 in relocation reimbursements, which is included in ""All Other
Compensation.''
The following tables provide information about stock options granted to each of the Named Executives in
Ñscal year 2004, if any, and the value of options held by each at October 1, 2004.
OPTION GRANTS IN LAST FISCAL YEAR
Individual Grants
Number of
Securities
Underlying
Options
Granted(#)
Percent of
Total Options
Granted to
Employees in
Fiscal Year(%)
Exercise or
Base Price
($/Share)
500,000
100,000
110,000
110,000
280,000
100,000
4.7
0.9
1.0
1.0
2.6
0.9
$9.18
$8.32
$9.18
$9.18
$9.00
$9.18
Potential Realizable Value
at Assumed Annual Rates of
Stock Price Appreciation for
Option Term
5%
10%
$2,886,626
$ 523,177
$ 635,058
$ 635,058
$1,584,814
$ 577,325
$7,315,278
$1,325,834
$1,609,361
$1,609,361
$4,016,231
$1,463,055
Expiration
Date
1/07/2014
11/14/2013
1/07/2014
1/07/2014
1/02/2014
1/07/2014
Name
David J. Aldrich ÏÏÏÏÏ
Kevin D. Barber(1) ÏÏ
Liam K. GriÇnÏÏÏÏÏÏ
Allan M. Kline(2) ÏÏÏ
Gregory L. Waters ÏÏÏ
(1) Mr. Barber received an annual stock option grant to purchase 110,000 shares in January 2004, and a one-
time stock option grant to purchase 100,000 shares in connection with his promotion to Senior Vice
President and General Manager, RF Solutions in November 2003.
(2) As an incentive for joining the Company, Mr. Kline received a one-time new hire stock option grant to
purchase 280,000 shares in January 2004.
The options have an exercise price equal to the fair market value of the Company's common stock on the
date of grant, a maximum term of ten years, and vest at a rate of 25% per year commencing one year after the
date of grant, provided the holder of the option remains employed by the Company. Options may not be
exercised beyond three months after the holder ceases to be employed by the Company, except in the event of
termination by reason of death or permanent disability, in which event the option may be exercised for speciÑc
periods not exceeding one year following termination. The assumed annual rates of stock price appreciation
stated in the table are dictated by regulations of the Securities and Exchange Commission, and are
compounded annually for the full term of the options; actual outcomes may diÅer.
The following table sets forth information regarding stock options exercised during Ñscal year 2004 and
the number and value of unexercised stock options held as of October 1, 2004, by each of the Named
Executives.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR END OPTION VALUES
Name
David J. AldrichÏÏÏÏÏÏÏ
Kevin D. Barber ÏÏÏÏÏÏÏ
Liam K. GriÇn ÏÏÏÏÏÏÏ
Allan M. Kline ÏÏÏÏÏÏÏÏ
Gregory L. Waters ÏÏÏÏÏ
Shares
Acquired On
Exercise(#)
Value
Realized($)
Number of
Securities Underlying
Unexercised Options
at October 1, 2004(#)
Value of Unexercised
In-The-Money Options
at October 1, 2004($)
Exercisable
Unexercisable
Exercisable
Unexercisable
Ì
Ì
Ì
Ì
Ì
$
$
$
$
$
Ì
Ì
Ì
Ì
Ì
692,750
133,814
125,000
Ì
56,250
796,250
247,500
185,000
280,000
268,750
$1,319,886
$ 187,500
$ 125,000
$
$ 262,688
$1,155,000
$ 443,700
$ 214,100
Ì $ 277,200
$ 869,063
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The values of unexercised options in the foregoing table are based on the diÅerence between the $9.99
closing price of Skyworks' common stock on October 1, 2004, the end of the 2004 Ñscal year, on the Nasdaq
Stock Market, and the respective option exercise price.
LONG-TERM INCENTIVE AWARDS
There were no long-term cash incentive awards granted to any of the Named Executives in Ñscal 2004.
EXECUTIVE COMPENSATION
The Company's executive oÇcers 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.
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 2004. The Company achieved the annual performance targets set by the Board of
Directors, and the incentive bonuses were paid to the Named Executives with respect to Ñscal year 2004 and
are reÖected in the ""Summary Compensation Table''. Certain 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. Although the Company, in its sole discretion, may make additional contributions
to the accounts of participants, it presently has no plans to do so and has never done so in the past. Participants
normally receive the deferred amounts upon retirement.
COMPENSATION OF DIRECTORS
Directors who are not employees of Skyworks are paid, in quarterly installments, an annual retainer of
$30,000, 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. EÅective beginning Ñscal year 2005, the Chairman of the
Board of Directors is paid an annual retainer of $45,000. Additional annual retainers are paid to the Chairman
of the Audit Committee ($9,000); the Chairman of the Compensation Committee ($6,000); and the
Chairman of the Nominating and Governance Committee ($2,500). In addition, Directors who serve on
Committees in roles other than as Chairman are annually paid $3,000 (Audit Committee); $2,000
(Compensation Committee); and $1,250 (Nominating and Corporate Governance Committee). 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 non-employee 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. Stock option grants to directors for
Ñscal years 2002, 2003 and 2004 were made under the 2001 Directors' Stock Option Plan.
In connection with his appointment to the Board of Directors, Mr. McGlade was granted an option to
purchase 45,000 shares of common stock on February 1, 2005, 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, Beebe,
Beguwala, Decker, Furey, Iyer, Leonard and McLachlan was granted an option to purchase 15,000 shares of
common stock on March 30, 2004, at an exercise price equal to the fair market value of the common stock on
the date of grant.
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SEVERANCE AGREEMENTS
The Company currently has severance agreements with Messrs. Aldrich, Barber, Kline and Waters 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 Messrs. Kline and Waters, if their employment is
terminated by the Company without cause. In the case of Mr. Aldrich, he 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. Kline and Waters, each may receive salary and
certain beneÑts for up to one year. Furthermore, with respect to Mr. Aldrich, all of his stock options will vest
immediately upon such termination. Mr. Aldrich's severance agreement also provides that he is entitled to
various beneÑts in the event he voluntarily terminates his employment for certain reasons. Whereas the term
of the severance agreement for Mr. Aldrich is indeÑnite, the terms of the severance agreements for
Messrs. Barber, Kline and Waters expire over the next year.
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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, 1999, and shows a ""Total Return'' that
assumes reinvestment of dividends, if any, and is based on market capitalization at the beginning of each
period.
S
R
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L
L
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250
200
150
100
50
0
Skyworks Solutions, Inc.
S&P 500 Index
S&P 500 Semiconductors
Sep99
Sep00
Sep01
Sep02
Sep03
Sep04
Years Ending
ANNUAL RETURN PERCENTAGE
Company/Index
Skyworks Solutions Inc. ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
S&P 500 Index ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
S&P 500 Semiconductors ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
2000
20.78
13.28
31.26
Years Ended September 30,
2003
2002
2001
(43.13)
(26.62)
(60.74)
(76.61)
(20.49)
(36.38)
106.29
26.75
90.74
2004
1.52
11.80
(19.43)
INDEXED RETURNS
Company/Index
Years Ended September 30,
Base Period
1999
2000
2001
2002
2003
2004
Skyworks Solutions Inc. ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
S&P 500 Index ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
S&P 500 Semiconductors ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
100
100
100
120.78
113.28
131.26
68.68
83.13
51.53
16.06
66.10
32.79
33.13
83.78
62.54
33.64
93.66
50.38
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 Stock Market under the symbol ""SWKS''. Prior to
June 25, 2002, Skyworks' common stock was traded on the Nasdaq Stock Market under the symbol
""AHAA''.
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Except as may be disclosed elsewhere in this Proxy Statement, the Company has no reportable ""certain
relationships and transactions.''
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 (i) the election of the nominees to the Board of Directors, (ii) the
approval of the adoption of the Company's 2005 Long-Term Incentive Plan, (iii) the approval of an
amendment to the Company's 2001 Directors' Stock Option Plan, and (iv) the ratiÑcation of the selection of
KPMG LLP as independent auditors for the Company for Ñscal year 2005. 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, executive oÇcers and holders of 10% or more of our common stock to Ñle reports of holdings and
transactions of securities of Skyworks with the SEC. Based solely on a review of Forms 3, 4 and 5 and any
amendments thereto furnished to us, and other information provided to us, with respect our Ñscal year ended
October 1, 2004, we believe that all Section 16(a) Ñling requirements applicable to our directors and executive
oÇcers with respect to our Ñscal year ended October 1, 2004, 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 $9,500, plus out-of-pocket expenses.
ANNUAL REPORT ON FORM 10-K
Copies of the Company's Annual Report on Form 10-K for the Ñscal year ended October 1, 2004, 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 92617.
STOCKHOLDER PROPOSALS
Pursuant to Rule 14a-8 under the Exchange Act, some stockholder proposals or nominations may be
eligible for inclusion in the Company's Proxy Statement for the Company's 2006 annual meeting of
stockholders. To be eligible for inclusion in the Company's 2006 proxy statement, any such proposals or
nominations must meet the requirements of Rule 14a-8 under the Exchange Act and be delivered in writing to
the Secretary of the Company at its principal oÇces at 20 Sylvan Road, Woburn, MA 01801, no later than
November 12, 2005, 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.
Additionally, the Company must have notice of any stockholder proposal or nomination to be submitted at the
2006 annual meeting (but not required to be included in the proxy statement) not later than January 28, 2006
or, in the event that the 2006 annual meeting is held more than thirty (30) days before or after the Ñrst
anniversary of the Company's 2005 annual meeting, the later of January 28, 2006 or the 10th day following the
day on which public announcement of the date of the 2006 annual meeting is Ñrst made by the Company, or
such proposal will be considered untimely pursuant to Rule 14a-5(e) under the Exchange Act and persons
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named in the proxies solicited by management may exercise discretionary voting authority with respect to such
proposal.
The stockholder's submission must include, with respect to the stockholder giving the notice and the
beneÑcial owner, if any, on whose behalf the nomination or proposal is made, the name and address and the
number of shares of common stock of the Company which are owned beneÑcially and of record and must also
set forth: (i) as to each person proposed for nomination for election or re-election as a director, all information
relating to such person that is required to be disclosed in solicitations of proxies for election of directors in an
election contest, or is otherwise required, in each case pursuant to Regulation 14A under the Exchange Act
(including such person's written consent to being named in the proxy statement as a nominee and to serving as
a director if elected); and (ii) as to any other business proposed to be brought before the meeting, a brief
description of the business desired to be brought before the meeting, the reasons for conducting such business
at the meeting and any material interest in such business of such stockholder and the beneÑcial owner, if any,
on whose behalf the proposal is made. Proposals or nominations not meeting these requirements will not be
entertained at the 2006 annual meeting.
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2004 ANNUAL REPORT
CONSOLIDATED FINANCIAL STATEMENTS
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TABLE OF CONTENTS
Introduction ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Industry Background ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Business Overview ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Management's Discussion and Analysis of Financial Condition and Results of Operation ÏÏÏÏÏÏÏÏÏÏÏ
Quantitative and Qualitative Disclosures About Market Risk ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Selected Financial Data ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Consolidated Balance Sheets ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Consolidated Statements of OperationsÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Consolidated Statements of Stockholders' Equity and Comprehensive Income ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Consolidated Statements of Cash Flows ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Notes to Consolidated Financial Statements ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Report of Independent Registered Public Accounting Firm ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure ÏÏÏÏÏÏÏÏÏ
Market for Registrant's Common Equity, Related Stockholders Matters and Issuer Purchases of
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102
Equity Securities ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
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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, forward-looking statements include, but are not limited to:
‚ our plans to develop and market new products, enhancements or technologies and the timing of these
development programs;
‚ our estimates regarding our capital requirements and our needs for additional Ñnancing;
‚ our estimates of expenses and future revenues and proÑtability;
‚ our estimates of the size of the markets for our products and services;
‚ the rate and degree of market acceptance of our products; and
‚ the success of other competing technologies that may become available.
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 factors currently known by us. Consequently,
forward-looking statements involve inherent risks and uncertainties 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 Securities and Exchange Commissions
(""SEC'') in evaluating our forward-looking statements. 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.
This Annual Report also contains estimates made by independent parties and by us relating to market
size and growth and other industry data. These estimates involve a number of assumptions and limitations and
you are cautioned not to give undue weight to such estimates. In addition, projections, assumptions and
estimates of our future performance and the future performance of the industries in which we operate are
necessarily subject to a high degree of uncertainty and risk due to a variety of factors, including those
described in ""Management's Discussion and Analysis of Financial Condition and Results of Operations.''
These and other factors could cause results to diÅer materially from those expressed in the estimates made by
the independent parties and by us.
In this document, the words ""we,'' ""our,'' ""ours'' and ""us'' refer only to Skyworks Solutions, Inc. and its
consolidated subsidiaries and not any other person or entity.
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INTRODUCTION
Skyworks Solutions, Inc. (""Skyworks'' or the ""Company'') is a global leader in analog, mixed signal and
digital semiconductors for mobile communications applications. The company's power ampliÑers, front-end
modules, direct conversion transceivers and complete system solutions are at the heart of many of today's
leading-edge multimedia handsets, cellular base stations and wireless networking platforms. Skyworks also
oÅers a portfolio of highly innovative linear products, supporting a diverse set of automotive, broadband,
industrial and medical customers.
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, 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,
Conexant and Washington Sub, Inc. (""Washington''), a wholly owned subsidiary of Conexant to which
Conexant spun oÅ its wireless communications business. 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''). For purposes of this Annual Report, the Washington business
and the Mexicali Operations are collectively referred to as Washington/Mexicali. 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 Asia, Europe and North America. 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 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 ARC Group, handset sales have increased by
approximately 75% from 1999 to 2003 with volume reaching 483 million units in 2003. Exiting 2003, the
worldwide penetration rate of wireless services was at 22% according to market research Ñrm EMC, and is
expected to climb to 33% by 2006. This increased penetration implies that approximately 750 million new
subscribers will begin using wireless services over the next three years, approaching the 2.1 billion worldwide
subscriber mark in 2006 Ì roughly a third 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 multimedia applications. In
particular, camera phones and multimedia services are expected to be two major growth drivers in the coming
years.
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
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
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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 a full range of systems-level
expertise.
BUSINESS OVERVIEW
Skyworks Solutions, Inc. (""Skyworks'' or the ""Company'') is a global leader in analog, mixed signal and
digital semiconductors for mobile communications applications. The Company's power ampliÑers, front-end
modules, direct conversion transceivers and complete system solutions are at the heart of many of today's
leading-edge multimedia handsets, cellular base stations and wireless networking platforms. Skyworks also
oÅers a portfolio of highly innovative linear products, supporting a diverse set of automotive, broadband,
industrial and medical customers.
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 possesses a broad technology capability and one of the most complete wireless communications
product portfolios, coupled with customer relationships with virtually all major handset and infrastructure
manufacturers.
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The following diagram illustrates how our products 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/Single Package Radio (""SPR'')TM 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 Ì Turnkey multimedia solutions.
‚ 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.
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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.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION
The following discussion and analysis of our Ñnancial condition and results of operations should be read
in conjunction with our consolidated Ñnancial statements and related notes that appear elsewhere in this
Annual Report. In addition to historical information, the following discussion contains forward-looking
statements that are subject to risks and uncertainties. Actual results may diÅer materially 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 in our Ñlings with the SEC, such as our annual report on Form 10-K for the
Ñscal year ended October 1, 2004.
Overview
Skyworks Solutions, Inc. (""Skyworks'' or the ""Company'') is a global leader in analog, mixed signal and
digital semiconductors for mobile communications applications. The Company's power ampliÑers, front-end
modules, direct conversion transceivers and complete system solutions are at the heart of many of today's
leading-edge multimedia handsets, cellular base stations and wireless networking platforms. Skyworks also
oÅers a portfolio of highly innovative linear products, supporting a diverse set of automotive, broadband,
industrial and medical customers.
The wireless communications semiconductor industry is highly cyclical and is characterized by 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.
Skyworks' vision is to become a global leader in analog, mixed signal and digital semiconductors for
OUR STRATEGY
mobile communications.
Key elements in our strategy include:
Leveraging Core Technologies
Skyworks deploys technology building blocks, such as radio frequency integrated circuits, analog/mixed
signal processing cores and digital baseband engines, as well as software across multiple product platforms. We
believe that 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, Skyworks can deliver additional
semiconductor content, thereby oÅering existing and potential customers more compelling and cost-eÅective
solutions.
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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. Additionally, we supply ODMs such as
Arima, BenQ, Chi Mei, Compal and Quanta, as well as emerging domestic handset suppliers throughout
China. With the industry's move to outsourcing to enable increased OEM focus on brand and channel
development, we believe we are particularly well-positioned to address the growing needs of new market
entrants and established suppliers alike 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
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.
Basis of Presentation
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 26, 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.
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We entered into agreements with Conexant providing for the supply to us of transition services by
Conexant and for the supply by us 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, 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 owned by Jazz Semiconductor.
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 2004 and 2002 each consisted of 52 weeks and ended on October 1, 2004
and September 27, 2002, 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, 2004, 2003
and 2002 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
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.
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Valuation of long-lived assets, goodwill and intangible assets Ì Carrying values for long-lived assets
and deÑnite-lived intangible assets, excluding goodwill, are reviewed for possible impairment as circumstances
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 deferred tax
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 $43 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.
Results Of Operations
General
During Ñscal 2004, we made progress in several key areas that contributed to an improvement in
operating results and the generation of positive cash Öows from operations. More speciÑcally, we:
‚ experienced an increase in demand for our products and launched and ramped new highly integrated
products;
‚ experienced a 53% increase in units sold countered by a 17% aggregate decrease in the average selling
price of our products;
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‚ reduced the number of days sales were outstanding in the fourth quarter of Ñscal 2004 to 65.8 from 87.5
for the same period in the previous Ñscal year;
‚ reduced research and development expenses and selling, general and administrative expense as a
percentage of net revenues to 31.9% in Ñscal 2004 from 39.1% for the previous Ñscal year;
‚ converted our 15 percent convertible senior subordinated notes into shares of our common stock,
ultimately reducing our future cash outÖows and expenses related to the interest incurred on these
senior subordinated notes; and
‚ invested $60.0 million in capital equipment primarily related to the design of new highly integrated
products and processes enabling us to address new opportunities and to meet our customers' demands.
Years Ended September 30, 2004, 2003 and 2002
The following table sets forth the results of our operations expressed as a percentage of net revenues for
the Ñscal years below:
2004
2003
2002
Net revenues ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Cost of goods soldÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
100.0% 100.0% 100.0%
60.0
60.1
72.0
Gross margin ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Operating expenses:
39.9
40.0
28.0
Research and development ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Selling, general and administrative ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Amortization of intangible assets ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Purchased in-process research and development ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Special charges ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Total operating expenses ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
19.5
12.4
0.4
Ì
2.2
34.5
25.3
13.8
0.7
Ì
5.6
45.4
29.2
11.2
2.8
14.3
25.4
82.9
Operating income (loss) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Interest expenseÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Other income (expense), netÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
5.4
(2.3)
0.2
(5.4)
(3.5)
0.2
(54.9)
(0.9)
Ì
Income (loss) before income taxes and cumulative eÅect of change
in accounting principle ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Provision (beneÑt) for income taxes before cumulative eÅect of
change in accounting principle ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Income (loss) before cumulative eÅect of change in accounting
principle ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Cumulative eÅect of change in accounting principle, net of tax ÏÏÏÏÏÏ
3.4
0.5
2.9
Ì
(8.7)
(55.8)
0.1
(4.3)
(8.8)
(64.2)
(51.6)
Ì
Net income (loss) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
2.9% (73.0)% (51.6)%
Net Revenues
2004
Change
Years Ended September 30,
2003
(In thousands)
Change
2002
Net revenues ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$784,023
26.9% $617,789
35.0% $457,769
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.
Net revenues increased for Ñscal 2004 when compared to the previous Ñscal year primarily as the result of
increased demand for our wireless product portfolio. More speciÑcally, we have launched a number of more
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highly integrated product oÅerings, added to our customer base and expanded our geographical market
presence. Additionally, power ampliÑers, front-end modules, RF subsystems and complete cellular systems
exhibited strong year-over-year growth. These increases in net revenues were tempered by a decrease in
average selling prices primarily within our single function products and a decrease of approximately
$15 million in net revenues for our assembly and test services as demand for these services declined in Ñscal
2004. During Ñscal 2004, the number of units we sold increased by approximately 53% when compared to
Ñscal 2003, however our average selling price across all products decreased in the aggregate by approximately
17% when compared to the previous Ñscal year.
Net revenues increased in Ñscal 2003 when compared to Ñscal 2002 primarily reÖecting the exclusion of
Alpha's revenues for periods prior to the Merger and increasing demand for our wireless product portfolio.
Had Alpha's revenue been included for the nine month period prior to the Merger, net revenue in Ñscal 2002
would have been $543 million, as compared to the $458 million reported. Accordingly, the majority of the
increase in revenue in Ñscal 2003 is attributable to the exclusion of Alpha's revenue up to the time of the
Merger. On an operational basis, the revenue increase in Ñscal 2003 primarily resulted from an increase in the
number of RF subsystem units shipped (in both GSM and CDMA) due to the ramping of new product
oÅerings. An increase in unit volumes of front-end modules, however, was oÅset by a decline in the average
selling price of such products. 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.
For information regarding net revenues by geographic region and customer concentration for each of the
last three Ñscal years, see Note 16 of the ""Notes to Consolidated Financial Statements'' included in this
Annual Report.
Gross ProÑt
Gross proÑt ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
% of net revenues ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
2004
Years Ended September 30,
2003
(In thousands)
$246,849
$313,216
2002
$128,068
39.9%
40.0%
28.0%
Gross proÑt 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.
Gross proÑt for Ñscal 2004 beneÑted from increased operational eÇciency through capacity utilization
when compared to the previous Ñscal year. This beneÑt was partially oÅset by the aforementioned decline in
average selling prices and additional costs we incurred as we launched and ramped a number of more highly
integrated RF product oÅerings including our front-end modules and single package radios. Gross proÑt for
Ñscal 2003 was favorably aÅected by $4.8 million, or 70 basis points, when we reevaluated our obligation under
wafer fabrication supply agreements and reduced our liability and cost of sales. At the end of the third quarter
of Ñscal 2002, we estimated that we would not be able to meet our minimum purchase obligation under the
wafer supply agreement with Conexant and Jazz Semiconductor. Accordingly, we recorded this liability in
cost of sales for the third quarter of Ñscal 2002. The following external factors contributed to the reductions in
cost of sales in the fourth quarter of Ñscal 2002 and the Ñrst quarter of Ñscal 2003 relating to this liability:
‚ an increase in demand for our products that resulted in the Company increasing its purchases from the
wafer supplier, Jazz Semiconductor ; and
‚ an increase in orders for wafers placed by Conexant to Jazz Semiconductor that, when combined with
our purchases from Jazz Semiconductor, resulted in the Company having no liability related to its
minimum purchase obligation.
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Because of the increase in demand for our products and the annual reduction in our minimum purchase
obligations, as speciÑed in the agreement, the Company has met its minimum purchase obligation for each of
the periods subsequent to September 30, 2002. Furthermore, the Company currently expects to meet the
remaining minimum purchase obligations of $12.9 million for Ñscal 2005 and will have no further minimum
purchase obligations under the wafer supply agreement subsequent to March 2005. 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.
The improvement in gross proÑt 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 revenue growth in
Ñscal 2003 increased the level of utilization of our manufacturing facilities, these facilities continued to operate
below optimal capacity and underutilization continued to adversely aÅect our unit cost of goods sold and gross
proÑt.
Gross proÑt in Ñscal 2003 was also favorably aÅected by the aforementioned $4.8 million reduction to our
liability and cost of sales in the Ñrst quarter of Ñscal 2003 when we reevaluated our obligation under the wafer
supply agreement with Conexant and Jazz Semiconductor.
Research and Development
2004
Change
Years Ended September 30,
2003
(In thousands)
Change
2002
Research and development ÏÏÏÏÏÏÏÏÏÏÏÏÏ
% of net revenues ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$152,633
(2.2)% $156,077
16.8% $133,614
19.5%
25.3%
29.2%
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 decrease in research and development expenses in Ñscal 2004 when compared to the previous Ñscal
year is primarily attributable to our commitment to streamlining our processes and focusing our product
development on integrated products to meet the needs of our customers. In addition, research and
development expenses were lower in Ñscal 2004 when compared to the previous year as we realized beneÑts
from cost saving initiatives implemented in the previous two Ñscal years. More speciÑcally, we focused our
product development on core front-end modules, RF subsystems, cellular systems, infrastructure and next
generation solutions.
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 expanded customer support engagements as well as development eÅorts targeting semiconduc-
tor 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 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.
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Selling, General and Administrative
2004
Change
Years Ended September 30,
2003
(In thousands)
Change
2002
Selling, general and administrative ÏÏÏÏÏÏÏÏÏÏ
% of net revenues ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$97,522
14.2% $85,432
67.3% $51,074
12.4%
13.8%
11.2%
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 2004 when compared to the previous
year is primarily attributable to an increase of approximately $5 million in legal expenses related to protecting
our intellectual property portfolio. In addition, we incurred performance related compensation expenses in
Ñscal 2004, which were not incurred in Ñscal 2003. We tie incentive compensation to the accomplishment of
speciÑc Ñnancial objectives each Ñscal year and met these objectives in Ñscal 2004, whereas these objectives
were not met in Ñscal 2003. During Ñscal 2004, we also incurred information systems conversion costs,
whereas these expenses were not incurred in Ñscal 2003. We transitioned our information systems services
from Conexant Systems, Inc. to a third-party service provider during the third quarter of Ñscal 2004. These
increases in selling, general and administrative expenses for Ñscal 2004 when compared to the previous year
were partially oÅset by realization of the beneÑt of cost saving initiatives implemented in the previous two
Ñscal years.
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.
Amortization of Intangible Assets
2004
Change
Years Ended September 30,
2003
(In thousands)
Change
2002
Amortization of intangible assets ÏÏÏÏÏÏÏÏÏÏÏÏÏ
% of net revenues ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$3,043
(30.6)% $4,386
(66.1)% $12,929
0.4%
0.7%
2.8%
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 in Ñscal 2004 and Ñscal 2003 primarily
represents the amortization of these intangible assets. During the fourth quarter of Ñscal 2003, we wrote down
certain intangible assets related to our infrastructure business based on a recoverability analysis prepared by
management in response to a decline in demand for, and a decision to discontinue, certain infrastructure
products. This write-down established a new cost basis for these assets and resulted in a decrease in
amortization expense for Ñscal 2004 when compared to Ñscal 2003.
Amortization expense for Ñscal 2002 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, 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 less in Ñscal 2002.
For additional information regarding goodwill and intangible assets, see Note 6 to the Consolidated
Financial Statements.
Purchased In-Process Research and Development
Purchased in-process research and development ÏÏÏÏÏ
$Ì N/A
$Ì N/A
$65,500
Years Ended September 30,
2004
Change
2003
Change
2002
(In thousands)
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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.
For additional information regarding purchased in-process research and development, see Note 3 to the
Consolidated Financial Statements.
Special Charges
2004
Change
Years Ended September 30,
2003
(In thousands)
Change
2002
Special charges ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$17,366
(49.7)% $34,493
(70.3)% $116,321
Special charges consists of charges for asset impairments and restructuring activities, as follows:
Asset Impairments
During the second quarter of Ñscal 2004, we recorded a $13.2 million charge primarily related to the
impairment of obsolete baseband technology licenses that were established prior to the Merger. This charge
includes approximately $1.8 million of contractual payment obligations, which we expect to pay within one
year. The impairment charge was based on a recoverability analysis prepared by management in response to
the decision to discontinue certain products and the related impact on its current and projected outlook.
Management believed these factors indicated that the carrying value of the related assets (intangible assets,
machinery and equipment) were 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 (salvage value). 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 write
down established a new cost basis for the impaired assets.
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 from Ñscal 2004 through Ñscal
2008 and $8.6 million from Ñscal 2009 through Ñscal 2023.
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In addition, during the fourth quarter of Ñscal 2003 we recorded a $2.3 million charge for the impairment
of our Haverhill, Massachusetts property. In Ñscal 2003, we relocated our operations from this facility to our
Woburn, Massachusetts facility. We actively marketed the property located in Haverhill, Massachusetts and
in March 2004, entered into a contractual agreement for the sale of the property, contingent upon obtaining
speciÑc regulatory approvals within the next two years.
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.
Restructuring Charges
During Ñscal 2004, we consolidated cellular systems software design centers in an eÅort to improve our
overall time to market for next generation multimedia systems development. These actions aligned our
structure with our current business environment. We implemented reductions in force at three remote
facilities and recorded restructuring charges of approximately $4.2 million for costs related to severance
beneÑts for aÅected employees and lease obligations. Substantially all amounts accrued for these actions are
expected to be paid within one year.
During Ñscal 2003, we recorded $6.2 million 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 have been paid and the remaining amounts 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. All amounts
accrued for these actions have been paid.
For additional information regarding restructuring charges and liability balances, see Note 15 to the
Consolidated Financial Statements.
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Interest Expense
2004
Change
Years Ended September 30,
2003
(In thousands)
Change
2002
Interest expense ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$17,947
(16.1)% $21,403
406.3% $4,227
The decrease in interest expense for Ñscal 2004 when compared to the previous Ñscal year is primarily
related to the conversion of our $45 million of senior subordinated notes into shares of our common stock
during the third quarter of Ñscal 2004. On April 22, 2004, we notiÑed the holder of the senior notes that we
would redeem such notes in full on May 12, 2004. On May 6, 2004, the holder of the senior notes converted
such notes in full for approximately 5.7 million shares of our common stock. We paid interest in cash on the
senior notes on the last business day of each March, June, September and December of each year. Interest
paid on the senior notes is not deductible for tax purposes because of the conversion feature.
The Company entered into borrowing arrangements at the time of the Merger, therefore the increase in
interest expense for Ñscal 2003, when compared to the previous year is primarily the result of Ñscal 2002
representing approximately three months of interest incurred, whereas Ñscal 2003 includes interest for twelve
months.
For additional information regarding our borrowing arrangements, see Note 7 to the Consolidated
Financial Statements.
Other Income (Expense), Net
2004
Years Ended September 30,
2003
Change
(In thousands)
Change
2002
Other income (expense), net ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$1,691
28.4% $1,317
nm
$(56)
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
2004
Years Ended September 30,
Change
2003
Change
Provision (beneÑt) for income taxes ÏÏÏÏÏÏÏÏÏÏÏ
$3,984
nm
(In thousands)
$652
nm
2002
$(19,589)
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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, 2004, 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.
During the fourth quarter of Ñscal 2004, we reduced the carrying value of our deferred tax assets by
$3.5 million. This charge primarily originated from foreign currency translation errors after establishing the
$23.1 million tax beneÑt recorded in Ñscal 2002 for the impairment of our assembly and test machinery and
equipment in Mexicali, Mexico immediately following completion of the Merger. The cumulative eÅect of
these errors is being reported in the provision for income taxes line of the statement of operations in the fourth
quarter of Ñscal 2004, as it did not have a material impact in prior periods. The aggregate $3.5 million charge
listed by Ñscal year would be approximately $1.2 million, $2.0 million and $0.3 million for Ñscal 2004, 2003
and 2002, respectively.
In addition, the provision (beneÑt) for income taxes for Ñscal 2004, 2003 and 2002 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.
No provision has been made for United States, state, or additional foreign income taxes related to
approximately $16.7 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
Cumulative eÅect of change in accounting principle
$Ì
2004
Change
Years Ended September 30,
2003
(In thousands)
nm% $(397,139)
nm
Change
2002
$Ì
We adopted SFAS No. 142, ""Goodwill and Other Intangible Assets,'' October 1, 2002 and performed a
transitional impairment test for goodwill. As a result, we 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 and is reÖected in our results of operations as of the
beginning of Ñscal 2003. The signiÑcant impairment charge to goodwill shortly after the Merger resulted from
a signiÑcant decline in the market price of our common stock. The Ñrst step of the goodwill impairment
analysis compares fair value to 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.
We hired a third-party Ñrm to perform the fair value calculation for the Merger and subsequent SFAS 142
valuation. The fair value calculation used to determine the purchase price for the Merger was performed in
December 2001, the date at which the principal terms of the Merger were agreed upon by both parties. The
calculation was based on the average market price of our common stock over a seven-day period. This same
methodology was used to determine our fair value at October 1, 2002 for the required transitional impairment
test upon the adoption of SFAS No. 142. Between the time of the Merger calculation in December 2001 and
the SFAS No. 142 calculation in October 2002, the market price of our common stock declined as the wireless
semiconductor industry experienced a downturn in demand amid concerns about terrorism, deÖation,
decreased consumer conÑdence, reduced capital spending, adverse business conditions and liquidity concerns
in the telecommunications and related industries. Since our fair value is directly linked to the market price of
our common stock, a signiÑcant decline in the market price of our common stock could, and in this case did,
result in an impairment charge to goodwill. 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. We completed our annual goodwill impairment test for Ñscal 2004 and determined
that as of July 5, 2004, our goodwill was not impaired.
Liquidity and Capital Resources
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
2002
2004
Years Ended September 30
2003
(In thousands)
$ 53,358
(72,052)
(44,282)
224,482
$161,506
91,913
(61,010)
11,130
$
1,998
(99,094)
70,042
80,412
Cash and cash equivalents at end of periodÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$203,539
$161,506
$ 53,358
Fiscal 2004
During Ñscal 2004, we made progress in several key areas as we focused our eÅorts on both cash and
inventory management. We signiÑcantly reduced the number of days sales were outstanding in the fourth
quarter of Ñscal 2004 to 65.8 from 87.5 for the same period in the previous Ñscal year. Annualized inventory
turns for the fourth quarter of Ñscal 2004 were 6.6. Inventory management remains an area of focus as we
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balance the need to maintain strategic inventory levels to ensure competitive lead times against the risk of
inventory obsolescence because of rapidly changing technology and customer requirements. During Ñscal
2004, we also converted our 15 percent convertible senior subordinated notes into shares of our common stock,
ultimately reducing our future cash outÖows and expenses related to the interest incurred on these senior
subordinated notes.
In Ñscal 2004, we generated $91.9 million in cash from operating activities as we experienced a signiÑcant
improvement in our operating results when compared to the previous Ñscal year. This improvement was
primarily attributable to increased net revenues in Ñscal 2004, when compared to the previous Ñscal year,
primarily resulting from increased demand for our wireless product portfolio. More speciÑcally, we have
launched a number of more highly integrated product oÅerings, added to our customer base and expanded our
geographical market presence. In addition, we reduced research and development expenses and selling,
general and administrative expense as a percentage of net revenues to 31.9% in Ñscal 2004, from 39.1% for the
previous Ñscal year. During Ñscal 2004, we invested $60.0 million in capital equipment primarily related to the
design of new highly integrated products and processes, enabling us to address new opportunities and 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. We expect our capital expenditures for
Ñscal 2005 to return to levels more comparable to Ñscal 2003.
Cash provided by Ñnancing activities in Ñscal 2004 primarily represents an increase in borrowings under
our $50 million credit facility secured by the purchased accounts receivable with Wachovia Bank, National
Association. For additional information regarding our borrowing arrangements, see Note 7 to the Consolidated
Financial Statements.
Fiscal 2003 and Fiscal 2002
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
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 had been paid. We adopted SFAS No. 142, ""Goodwill and Other Intangible Assets,'' on October 1,
2002, and recorded a $397.1 million charge for the 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 operating activities was $99.1 million for
Ñscal 2002. Operating cash Öows for Ñscal 2002 reÖect a net loss of $236.1 million, oÅset by non-cash charges
(depreciation and amortization, asset impairments and an in-process research and development charge) of
$221.6 million and a net increase in working capital of approximately $84.6 million. 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.
Cash used in investing activities for Ñscal 2003 primarily consisted of capital expenditures of $40.3 mil-
lion. The capital expenditures for Ñscal 2003 represented 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. 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 commercial paper with original maturities of more than
90 days and less than twelve months. 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.
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
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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 to 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. On April 22, 2004, we notiÑed the
holder of the senior notes that we would redeem such notes in full on May 12, 2004. On May 6, 2004, the
holder of the senior notes converted such notes in full for approximately 5.7 million shares of our common
stock. 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, we had borrowings outstanding of $41.7 million under our
$50 million credit facility secured by the purchased accounts receivable with Wachovia Bank, National
Association. For additional information regarding our borrowing arrangements, see Note 7 to the Consolidated
Financial Statements. Cash provided by Ñnancing activities consisted of net transfers from Conexant, pre-
Merger, of $50.4 million for Ñscal 2002. 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.
Following is a summary of our contractual payment obligations for consolidated debt, purchase
agreements and operating leases at September 30, 2004 (see Notes 7 and 12 of the consolidated Ñnancial
statements), in thousands:
Payments Due By Period
Obligation
Total
Less Than 1 Year
1-3 Years
3-5 Years
Thereafter
Debt ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Purchase obligations ÏÏÏÏÏÏÏÏÏÏ
Operating leases ÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Other commitmentsÏÏÏÏÏÏÏÏÏÏÏ
$280,000
12,877
26,957
6,225
$326,059
$50,000
12,877
6,153
3,200
$72,230
$ Ì $230,000
Ì
7,833
Ì
Ì
9,419
3,025
$ Ì
Ì
3,552
Ì
$12,444
$237,833
$3,552
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 through
March 2005. Our expected minimum purchase obligations under these supply agreements are anticipated to
be approximately $12.9 million in Ñscal 2005.
Based on our results of operations for Ñscal 2004 and current trends, 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. However, we cannot assure you that the capital required to
fund these expenses will be available in the future. In addition, any strategic investments and acquisitions that
we may make to help us grow our business may require additional capital resources. If we are unable to obtain
enough capital to meet our capital needs on a timely basis or at all, our business and operations could be
materially adversely aÅected.
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Other Matters
InÖation did not have a signiÑcant impact upon our results of operations during the three-year period
ended September 30, 2004.
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 investments,
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, 2004, the carrying value of our cash and cash equivalents
approximates fair value.
Our short-term debt primarily consists of borrowings under our credit facility with Wachovia Bank, N.A.
As of September 30, 2004, we had borrowings of $50.0 million outstanding under this credit facility. Interest
related to our short-term debt is at LIBOR plus 0.4% and was approximately 2.2% at September 30, 2004.
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 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, 2004, 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. 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, 2004, a near-term change in interest rates would not materially aÅect our consolidated Ñnancial
position, results of operations or cash Öows.
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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 Operation,'' 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 2004 and 2002
each consisted of 52 weeks and ended on October 1, 2004 and September 27, 2002, 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, 2004 were derived from our audited consolidated Ñnancial statements. Consolidated balance
sheets at September 30, 2004 and 2003 and the related consolidated statements of operations and of cash Öows
for each of the three years in the period ended September 30, 2004 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 26, 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 revenuesÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Cost of goods sold(2) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Gross proÑt (loss) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Operating expenses:
Research and development ÏÏÏÏÏÏÏÏÏ
Selling, general and administrative ÏÏ
Amortization of intangible assets(3)
Purchased in-process research and
development(4) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Special charges(5)ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
152,633
97,522
3,043
Ì
17,366
Total operating expenses ÏÏÏÏÏÏÏÏÏ
270,564
Operating income (loss) ÏÏÏÏÏÏÏÏÏÏÏÏÏ
Interest expense ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Other income (expense), net ÏÏÏÏÏÏÏÏÏ
42,652
(17,947)
1,691
2004
2003
Fiscal Year
2002(1)
(In thousands)
2001(1)
2000(1)
$ 784,023
470,807
$ 617,789
370,940
$ 457,769
329,701
$ 260,451
311,503
$378,416
270,170
313,216
246,849
128,068
(51,052)
108,246
156,077
85,432
4,386
Ì
34,493
280,388
(33,539)
(21,403)
1,317
133,614
51,074
12,929
65,500
116,321
379,438
(251,370)
(4,227)
(56)
111,053
51,267
15,267
Ì
88,876
91,616
52,422
5,327
24,362
Ì
266,463
173,727
(317,515)
(65,481)
Ì
210
Ì
142
Income (loss) before income taxes and
cumulative eÅect of change in
accounting principle ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Provision (beneÑt) for income taxes ÏÏÏ
Income (loss) before cumulative eÅect
26,396
3,984
(53,625)
652
(255,653)
(19,589)
(317,305)
1,619
(65,339)
1,140
of change in accounting principleÏÏÏÏ
22,412
(54,277)
(236,064)
(318,924)
(66,479)
Cumulative eÅect of change in
accounting principle, net of tax(6) ÏÏ
Ì
(397,139)
Ì
Ì
Ì
Net income (loss) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$
22,412
$ (451,416)
$ (236,064)
$(318,924)
$(66,479)
Per share information(7):
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2004
2003
Fiscal Year
2002(1)
(In thousands)
2001(1)
2000(1)
Income (loss) before cumulative eÅect
of change in accounting principle,
basic and diluted ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Cumulative eÅect of change in
accounting principle, net of tax, basic
and diluted(6) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$
0.15
$
(0.39)
$
(1.72)
Ì
(2.85)
Ì
Net income (loss), basic and diluted ÏÏ
$
0.15
$
(3.24)
$
(1.72)
Balance Sheet Data:
Working capital ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Total assets ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Long-term liabilities ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Stockholders' equityÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$ 282,613
1,168,806
235,932
751,623
$ 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
(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 25, 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 2004, the Company recorded special charges of $17.4 million, principally related to the
impairment of legacy technology licenses related to the Company's cellular systems business and certain
restructuring charges. 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 Semicon-
ductor 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 charge
for the 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.
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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 $1,987 and $1,979,
respectively ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Inventories ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Other current assetsÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Total current assets ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Property, plant and equipment, less accumulated depreciation and
amortization of $261,260 and $232,480, respectively ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Property held for sale ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Goodwill ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Intangible assets, less accumulated amortization of $6,746 and $4,460,
respectively ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Deferred tax assetsÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Other assets ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
September 30,
2004
2003
(In thousands, except per
share amounts)
$ 203,539
5,000
6,013
$ 161,506
3,988
5,312
157,772
79,572
11,968
463,864
143,534
6,475
504,493
19,895
19,372
11,173
144,267
58,168
12,854
386,095
121,556
6,209
505,514
22,181
22,766
26,347
Total assets ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$1,168,806
$1,090,668
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
$
Ì $
50,000
73,405
36,630
21,216
181,251
230,000
5,932
417,183
29
41,652
50,369
16,963
27,803
136,816
275,000
5,677
417,493
Stockholders' equity:
Preferred stock, no par value: 25,000 shares authorized, no shares issued ÏÏÏÏ
Common stock, $0.25 par value: 525,000 shares authorized; 156,012 and
148,604 shares issued and outstanding, respectivelyÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Additional paid-in capital ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Accumulated deÑcitÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Accumulated other comprehensive income (loss) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Ì
Ì
39,003
1,312,603
(599,197)
(786)
37,151
1,258,265
(621,609)
(632)
Total stockholders' equity ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
751,623
673,175
Total liabilities and stockholders' equity ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$1,168,806
$1,090,668
The accompanying notes are an integral part of these consolidated Ñnancial statements.
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CONSOLIDATED STATEMENTS OF OPERATIONS
Net revenues ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Cost of goods soldÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
2004
Years Ended September 30,
2003
(In thousands, except per share amounts)
$ 457,769
$ 617,789
$784,023
329,701
370,940
470,807
2002
Gross proÑt ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
313,216
246,849
128,068
Operating expenses:
Research and development ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Selling, general and administrative ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Amortization of intangible assets ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Purchased in-process research and development ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Special charges ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
152,633
97,522
3,043
Ì
17,366
Total operating expenses ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
270,564
156,077
85,432
4,386
Ì
34,493
280,388
133,614
51,074
12,929
65,500
116,321
379,438
Operating income (loss) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Interest expenseÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Other income (expense), netÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
42,652
(17,947)
1,691
(33,539)
(21,403)
1,317
(251,370)
(4,227)
(56)
Income (loss) before income taxes and cumulative eÅect of
change in accounting principle ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Provision (beneÑt) for income taxes ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
26,396
3,984
(53,625)
652
(255,653)
(19,589)
Income (loss) before cumulative eÅect of change in accounting
principle ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Cumulative eÅect of change in accounting principle, net of tax ÏÏÏ
22,412
Ì
(54,277)
(397,139)
(236,064)
Ì
Net income (loss) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$ 22,412
$(451,416)
$(236,064)
Per share information:
Income (loss) before cumulative eÅect of change in accounting
principle, basic and diluted ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$
0.15
$
(0.39)
$
(1.72)
Cumulative eÅect of change in accounting principle, net of tax,
basic and diluted ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Ì
(2.85)
Ì
Net income (loss), basic and diluted ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$
0.15
$
(3.24)
$
(1.72)
Number of weighted-average shares used in per share
computations, basicÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
152,090
139,376
137,416
Number of weighted-average shares used in per share
computations, diluted ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
154,242
139,376
137,416
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The accompanying notes are an integral part of these consolidated Ñnancial statements.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME
Common Stock
Par
Value
Shares
Additional Conexant's
Paid-in
Capital
Net
Investment
Accumulated
Other
Comprehensive
Income
(Loss)
Retained
Earnings
(In thousands)
Unearned
Compensation
Total
Stockholders'
Equity
Balance at September 30, 2001 ÏÏÏÏÏÏÏÏÏÏ
Ì $ Ì $
Ì $ 287,945
$
Ì
$(284)
$ Ì
$ 287,661
Ì
Ì
Ì
Ì
Ì
Ì
Ì
Ì
Net loss ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Foreign currency translation adjustment
Recapitalization as a result of purchase
accounting under a reverse acquisition
Other comprehensive income ÏÏÏÏÏÏÏÏÏÏÏÏ
Comprehensive income (loss) ÏÏÏÏÏÏÏÏÏÏÏ
Dividend(1) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Net transfers from Conexant ÏÏÏÏÏÏÏÏÏÏÏÏ
Recapitalization as a result of purchase
Ì
Ì
Ì
Ì
Ì
Ì
Ì
Ì
Ì
Ì
Ì
Ì
(66,280)
Ì
(170,193)
Ì
Ì
Ì
Ì
Ì
Ì
Ì
Ì (204,716)
50,404
Ì
accounting under a reverse acquisitionÏÏÏ 137,368
34,342
1,149,965
(67,353)
Issuance of common shares for stock
purchase plans, 401k and stock option
plansÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Amortization of unearned compensation ÏÏÏ
Compensation expenseÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
221
Ì
Ì
55
Ì
Ì
861
Ì
Ì
Ì
Ì
Balance at September 30, 2002 ÏÏÏÏÏÏÏÏÏÏ 137,589
34,397
1,150,856
Net loss ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Pension adjustment ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Other comprehensive loss ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Comprehensive income (loss) ÏÏÏÏÏÏÏÏÏÏÏ
Issuance of common shares in oÅering, net
of expenses ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Issuance of common shares for stock
purchase plans, 401k and stock option
plansÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Amortization of unearned compensation ÏÏÏ
Adjustment to recapitalization as a result of
purchase accounting under a reverse
acquisition(2) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Issuance of common shares in trademark
settlement ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Ì
Ì
Ì
Ì
Ì
Ì
Ì
Ì
Ì
9,200
2,300
99,888
1,769
Ì
Ì
46
442
Ì
Ì
12
8,607
Ì
(1,543)
457
Ì (170,193)
Ì (451,416)
Ì
Ì
Ì
Ì
Ì
Ì
Ì
Ì
Ì
Ì
Ì
Ì
Ì
Ì
Balance at September 30, 2003 ÏÏÏÏÏÏÏÏÏÏ 148,604
37,151
1,258,265
Ì (621,609)
Net income ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Pension adjustment ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Other comprehensive loss ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Comprehensive income (loss) ÏÏÏÏÏÏÏÏÏÏÏ
Issuance of common shares for stock
purchase plans, 401k and stock option
plansÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Issuance of common shares in conversion
Ì
Ì
Ì
Ì
Ì
Ì
Ì
Ì
Ì
1,690
423
11,251
of senior notes, net of expenses ÏÏÏÏÏÏÏÏ
5,718
1,429
42,908
Adjustment to issuance of common shares
in oÅering, net of expenses ÏÏÏÏÏÏÏÏÏÏÏÏ
Ì
Ì
179
Ì
Ì
Ì
Ì
Ì
Ì
22,412
Ì
Ì
Ì
Ì
Ì
Ì
409
(125)
284
Ì
Ì
Ì
Ì
Ì
Ì
Ì
Ì
(632)
(632)
Ì
Ì
Ì
Ì
Ì
(632)
Ì
(154)
(154)
Ì
Ì
Ì
Ì
Ì
Ì
Ì
Ì
Ì
(236,473)
409
(125)
284
(236,189)
(204,716)
50,404
(137)
1,116,817
Ì
53
Ì
916
53
30
(84)
1,014,976
Ì
Ì
Ì
Ì
Ì
84
Ì
Ì
Ì
Ì
Ì
Ì
Ì
Ì
Ì
(451,416)
(632)
(632)
(452,048)
102,188
9,049
84
(1,543)
469
673,175
22,412
(154)
(154)
22,258
11,674
44,337
179
Balance at September 30, 2004 ÏÏÏÏÏÏÏÏÏÏ 156,012
$39,003
$1,312,603
$
Ì $(599,197)
$(786)
$ Ì
$ 751,623
(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.
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CONSOLIDATED STATEMENTS OF CASH FLOWS
2004
Years Ended September 30,
2003
(In thousands)
2002
$ 22,412
$(451,416) $ (236,064)
Cash Öows from operating activities:
Net income (loss) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Adjustments to reconcile net income (loss) to net cash provided by (used in)
operating activities:
Depreciation ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Amortization ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Amortization of deferred Ñnancing costs ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Contribution of common shares to Savings and Retirement Plan ÏÏÏÏÏÏÏÏÏÏÏ
Gain on sales of assetsÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Deferred income taxes ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Purchased in-process research and development ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Asset impairments ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Provision for losses (recoveries) on accounts receivable ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Changes in assets and liabilities, net of acquisition:
35,829
3,043
2,176
8,162
34
3,394
Ì
10,853
377
Receivables ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
InventoriesÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Other assets ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Accounts payable ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Other liabilities ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Net cash provided by (used in) operating activities ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
(13,882)
(21,404)
4,523
23,036
13,360
91,913
36,941
4,386
2,123
7,482
1,802
351
Ì
425,407
1,156
(50,998)
(2,525)
6,369
5,019
(58,149)
(72,052)
Cash Öows from investing activities:
Capital expendituresÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Cash, cash equivalents and short-term investments of acquired business ÏÏÏÏÏÏÏ
Sale of short-term investments ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Purchase of short-term investments ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Dividend to Conexant ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Net cash provided by (used in) investing activities ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Cash Öows from Ñnancing activities:
Proceeds from unsecured notes oÅering ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Net proceeds from common stock public oÅering ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Deferred Ñnancing costs ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Restricted cash ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Net transfers from Conexant ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Proceeds from short-term debt ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Payments on long-term debt ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Exercise of stock options ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Net cash provided by (used in) Ñnancing activitiesÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Net increase (decrease) in cash and cash equivalentsÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Cash and cash equivalents at beginning of period ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Cash and cash equivalents at end of period ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
(59,998)
(40,294)
Ì
3,988
(5,000)
Ì
Ì
Ì
(3,988)
Ì
(61,010)
(44,282)
Ì
Ì
Ì
(701)
Ì
8,290
29
3,512
11,130
42,033
161,506
$203,539
230,000
102,188
(10,474)
(5,312)
Ì
41,652
(135,139)
1,567
224,482
108,148
53,358
$ 161,506
Supplemental cash Öow disclosures:
Taxes paid ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$
2,206
Interest paid ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$ 15,845
Supplemental disclosure of non-cash activities:
Senior Notes conversion ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$ 45,000
$
$
$
517
21,061
47,695
12,929
Ì
874
209
(23,117)
65,500
111,817
(512)
(85,590)
(1,709)
(8,290)
36,635
(19,471)
(99,094)
(29,412)
67,102
35,422
Ì
(3,070)
70,042
Ì
Ì
Ì
Ì
50,404
30,000
(34)
42
80,412
51,360
1,998
53,358
832
323
$
$
$
Acquisition of Alpha Industries, Inc ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Dividend to Conexant ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Conexant debt reÑnancingÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Stock issued for trademark settlementÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$
$
$
$
Ì $
Ì $
Ì $
Ì
Ì $1,183,105
Ì $ 201,646
Ì $
45,000
Ì $
469
$
$
Ì
Ì
The accompanying notes are an integral part of these consolidated Ñnancial statements.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Description of Business and Basis of Presentation
Skyworks Solutions, Inc. (""Skyworks'' or the ""Company'') is a global leader in analog, mixed signal and
digital semiconductors for mobile communications applications. The Company's power ampliÑers, front-end
modules, direct conversion transceivers and complete system solutions are at the heart of many of today's
leading-edge multimedia handsets, cellular base stations and wireless networking platforms. Skyworks also
oÅers a portfolio of highly innovative linear products, supporting a diverse set of automotive, broadband,
industrial and medical 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 26, 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.
Historically, Conexant provided Ñnancing for Washington/Mexicali and incurred debt at the parent level.
The Ñnancial statements for the periods prior to June 26, 2002 of Washington/Mexicali do not include an
71
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allocation of Conexant's debt or the related interest expense. Therefore, the Ñnancial statements for Ñscal 2002
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 transitioned the remaining services from Conexant to third party providers during the
third quarter 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 2004 and 2002 each consisted of 52 weeks. Fiscal years 2004, 2003 and 2002 ended on
October 1, 2004, October 3, 2003 and September 27, 2002, 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
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.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
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. For further information regarding the Facility Agreement, please see Note 7 of the Consolidated
Financial Statements.
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. Some or all of the inventories which have been written-down may be retained
and made available for sale. In the event that actual demand is higher than originally projected, a portion of
these inventories may be able to be sold in the future. Inventories which have been written-down and are
identiÑed as obsolete are generally scrapped.
Property, Plant and Equipment:
Property, plant and equipment are carried at cost less accumulated depreciation and amortization.
Depreciation is calculated using the straight-line method. SigniÑcant renewals and betterments are capitalized
and replaced units are written oÅ. Maintenance and repairs, as well as renewals of a minor amount, are
expensed as incurred.
Estimated useful lives used for depreciation purposes are Ñve to 30 years for buildings and improvements
and three to 10 years for machinery and equipment. Leasehold improvements are depreciated over the lesser
of the economic life or the life of the associated lease.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
Property Held for Sale:
Property held for sale at September 30, 2004, relates to land and buildings no longer in use and is
recorded at estimated fair value less estimated selling costs. The Company actively marketed the property
located in Haverhill, Massachusetts and in March 2004, the Company entered into a contractual agreement
for the sale of the property, contingent upon obtaining speciÑc regulatory approvals within the next two years.
Valuation of Long-lived Assets:
Carrying values for long-lived assets and deÑnite lived intangible assets, excluding goodwill, are reviewed
for possible impairment as circumstances warrant in connection with Statement of Financial Accounting
Standards (""SFAS'') No. 144, ""Accounting for the Impairment or Disposal of Long-Lived Assets.''
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 with indeÑnite lives are tested at least annually for impairment in
accordance with the provisions of SFAS No. 142, ""Goodwill and Other Intangible Assets.'' 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. The Company basis
its fair value calculation on the average market price of its common stock over a seven-day period and its
outstanding common stock. 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. Indicators such as unexpected adverse business
conditions, economic factors, unanticipated technological change or competitive activities, loss of key
personnel, and acts by governments and courts, may signal that an asset has become impaired. Intangible
assets with estimable lives and other long-lived assets are reviewed for impairment whenever events or changes
in circumstances indicate that the carrying amount of an asset or asset group may not be recoverable in
accordance with SFAS No. 144. Recoverability of intangible assets with estimable lives and other long-lived
assets is measured by a comparison of the carrying amount of an asset or asset group to future net
undiscounted pretax cash Öows expected to be generated by the asset or asset group. If these comparisons
indicate that an asset is not recoverable, the impairment loss recognized is the amount by which the carrying
amount of the asset or asset group exceeds the related estimated fair value. Estimated fair value is based on
either discounted future pretax operating cash Öows or appraised values, depending on the nature of the asset.
The Company determines the discount rate for this analysis based on the expected internal rate of return for
the related business and does not allocate interest charges to the asset or asset group being measured.
Considerable judgment is required to estimate discounted future operating cash Öows.
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.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
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 was recorded for estimated claims.
The changes in the warranty reserve are as follows:
Warranty balance, September 30, 2002 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Additions ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Cash payments and reductions ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$13,372
Ì
(7,241)
Warranty balance, September 30, 2003 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Additions ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Cash payments and reductions ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
6,131
1,359
(7,490)
Warranty balance, September 30, 2004 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$ Ì
Financial Instruments:
The carrying value of cash and cash equivalents, accounts payable, and accrued liabilities approximates
fair value due to short-term maturities of these assets and liabilities. Fair values of long-term debt, short-term
debt, and short-term investments are based on quoted market prices at the date of measurement.
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.
Gains and losses resulting from the remeasurement of the Company's deferred tax assets are included in
provision (beneÑt) for income taxes and amounted to $2.2 million of expense in Ñscal 2004. Gains and losses
75
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
resulting from the remeasurement of all other accounts are included in other income (expense), net. The
Company recognized a gain of $0.5 million related to these remeasurements in Ñscal 2004.
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 at the grant date and the Company
recognizes compensation expense, if any, 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 Transi-
tion and Disclosure.'' 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.
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 26, 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 income (loss) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Total stock-based employee compensation expense
determined under fair value based method for all awards,
net of related tax eÅectsÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Adjusted net income (loss) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Per share information, basic and diluted:
Reported net income (loss) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Total stock-based employee compensation expense
determined under fair value based method for all awards,
net of related tax eÅectsÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Years Ended September 30,
2004
2003
2002
(In thousands, except per share amounts)
$(451,416)
$22,412
$(236,064)
17,992
4,923
285
$ 4,420
$(456,339)
$(236,349)
$
0.15
$
(3.24)
$
(1.72)
(0.12)
(0.03)
Ì
Adjusted net income (loss) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$
0.03
$
(3.27)
$
(1.72)
76
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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:
2004
2003
2002
Expected volatilityÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Risk free interest rate ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Dividend yield ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Expected option life (years) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Weighted average fair value of options grantedÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
91%
1.9%
Ì
5.0
$3.80
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:
Basic earnings per share is calculated by dividing net income (loss) by the 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, 2004, debt securities convertible into 25.4 million shares, stock
options exercisable into 19.0 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 their eÅect would have been anti-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 11 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
value of plan assets. In any given year, actual returns can diÅer signiÑcantly from the expected return.
77
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2
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
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 Ñnancial statements consists of adjustments to the
Company's minimum pension liability.
An analysis of accumulated other comprehensive income (loss) follows (in thousands):
Balance as of September 30, 2002 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Change in period ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Balance as of September 30, 2003 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Change in period ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Accumulated
Other
Comprehensive
Income
(Loss)
Pension
Adjustments
$ Ì
$ Ì
(632)
(632)
(154)
(632)
(632)
(154)
Balance as of September 30, 2004 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$(786)
$(786)
ReclassiÑcations:
Certain reclassiÑcations have been made to the prior years' Ñnancial statements to conform to the current
year's presentation.
Note 3. Business Combinations
Merger with Conexant Systems, Inc.'s Wireless Business
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 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Fair value of Alpha stock options ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Estimated transaction costs of acquirer ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
(In thousands)
$1,054,111
95,388
33,606
Total ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$1,183,105
78
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2
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
The purchase price was allocated as follows:
Working capital ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Property, plant and equipmentÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Amortized intangible assets ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Unamortized intangible assets ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
GoodwillÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
In-process research and development ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Long-term debt ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Other long-term liabilities ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Deferred compensation ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
(In thousands)
$ 120,977
59,767
34,082
2,300
902,653
65,500
(73)
(2,236)
135
Total ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$1,183,105
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.
Net revenue ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Net loss ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Net loss per share (basic and diluted) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Year Ended
September 30, 2002
(In thousands, except
per share data)
$ 543,091
$(301,684)
(2.20)
$
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.
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 in-
process research and development (""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. The Company had either completed or abandoned each of these projects prior to
the completion of Ñscal 2003. 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. The Company decided to abandon the projects noted as such below
because of continuing technology problems, downturn in demand, major delays and insuÇcient technical
79
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
features for the competitive marketplace. The Company does not believe that its decision to abandon any of
the projects listed below individually or in the aggregate had a material eÅect on its results of operations.
Power AmpliÑer Ì $19.9 million value: 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.
‚ Indium Gallium Phosphide Heterojunction Bipolar Transistor: This technology enables power ampli-
Ñer devices to operate with high linearity, high eÇciency, and high gain. It is also suitable for high-
performance wireless and Ñber optic applications. This project is complete.
‚ Delay Line Filters: Developed for multi-carrier power ampliÑers used in Base Station radio frequency
transmitter chain, with a range of Ñxed delays between 2nS and 30nS. This project is complete.
Control Products Ì $22.0 million value: 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.
‚ 0.5 um Advanced Switch Pseudomorphic High Electron Mobility Transistor: This technology provides
a signiÑcant reduction in on-resistance (""Ron''). This improved device characteristic enables switches
with lower insertion loss or smaller size. This project is complete.
‚ Low Temperature Co-Ñred Ceramics: This design and prototype capability used for switch-Ñlter and
power ampliÑer modules. This project was abandoned subsequent to the Merger.
Broadband Ì $18.9 million value: 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.
‚ 0.5 um multifunctional Pseudomorphic High Electron Mobility Transistor: This technology provides a
signiÑcant reduction in Ron. This improved device characteristic enables switches with lower insertion
loss or smaller size. This project was abandoned subsequent to the Merger.
‚ Heterojunction Bipolar Transistor (""HBT'') Linear Power AmpliÑers: Development of a single-supply
linear power HBT ampliÑer line for wireless LAN, HiPERLAN, Bluetooth and 802.11 broadband
applications based on the enhanced InGaP HBT process. Development of a high linearity and power
density InGaP cell structure, characterization and modeling of linearity, power, noise and s-parameter
behavior of the devices and development of custom application-speciÑc and generic line of power
ampliÑers and gain block ampliÑers based on these models and data. This project is complete.
‚ InP: Develop InP bipolar process for high-speed Ñber-optic applications (40Gb/s) including single and
double hetero structures with ft above 150GHZ. This project was abandoned subsequent to the
Merger.
Silicon Diode Ì $3.9 million value: 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.
‚ Chip Scale Package: This technology uses micro-machining technology to produce a small package
with low parasitic inductances for wireless applications. This project was abandoned subsequent to the
Merger.
Ceramics Ì $0.8 million value: 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
80
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
market. Current research and development is focused on performance enhancements through improved
formulations and electronic designs.
‚ Ceramic Materials: Develop a higher low dielectric loss (""Q'') material to meet new applications for
Base Station Ñlters for 2, 2.5 and 3G systems and to oÅer a lower cost solution for existing high Q
materials. Develop new material for the dielectric constant range 42 to 46 for Base Station radio
frequency near antenna Ñlter resonator applications, with improved temperature and frequency linearity
over a wide temperature range. This project is complete.
Note 4.
Inventory
Inventories consist of the following (in thousands):
Raw materialsÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Work-in-process ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Finished goods ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$12,176
50,717
16,679
$ 8,475
35,797
13,896
September 30,
2004
2003
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
$79,572
$58,168
September 30,
2004
2003
$
9,423
4,103
50,305
335,572
5,391
404,794
$
9,423
3,410
58,340
249,124
33,739
354,035
Accumulated depreciation and amortizationÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
(261,260)
(232,480)
$ 143,534
$ 121,556
Note 6. Goodwill and Intangible Assets
The Company adopted SFAS No. 142, ""Goodwill and Other Intangible Assets,'' on October 1, 2002, and
performed a transitional impairment test for goodwill. As a result, management 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 and is reÖected in the
Company's results of operations as of the beginning of Ñscal 2003. The signiÑcant impairment charge to
goodwill shortly after the Merger resulted from a signiÑcant decline in the market price of our common stock.
The Ñrst step of the goodwill 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. The Company hired a third-party Ñrm to perform the
fair value calculation for the Merger and subsequent SFAS 142 valuation. The fair value calculation used to
determine the purchase price for the Merger was performed in December 2001, the date at which the principal
terms of the Merger were agreed upon by both parties. The calculation was based on the average market price
of the Company's common stock over a seven-day period. This same methodology was used to determine the
fair value of the Company at October 1, 2002 for the required transitional impairment test upon the adoption
of SFAS No. 142. Between the time of the Merger calculation in December 2001 and the SFAS No. 142
81
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A
U
N
N
A
4
0
0
2
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
calculation in October 2002, the market price of the Company's common stock declined as the wireless
semiconductor industry experienced a downturn in demand amid concerns about inÖation, decreased
consumer conÑdence, reduced capital spending, adverse business conditions and liquidity concerns in the
telecommunications and related industries. Since the Company's fair value is directly linked to the market
price of its common stock, a signiÑcant decline in the market price of its common stock could, and in this case
did, result in an impairment charge to goodwill. 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 2004 and determined that as of July 5, 2004, its goodwill was not impaired.
Goodwill and intangible assets consist of the following (in thousands):
Weighted
Average
Amortization
Period
(Years)
September 30, 2004
September 30, 2003
Gross
Carrying
Amount
Accumulated
Amortization
Net
Carrying
Amount
Gross
Carrying
Amount
Accumulated
Amortization
Net
Carrying
Amount
Goodwill ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$504,493
$ Ì
$504,493
$505,514
$ Ì
$505,514
Amortized intangible assets:
Developed technology ÏÏÏÏ
Customer relationships ÏÏÏ
Other ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
10
10
3
Unamortized intangible
assets:
Tradenames ÏÏÏÏÏÏÏÏÏÏÏÏ
10,550
12,700
122
23,372
(3,777)
(2,868)
(101)
(6,746)
6,773
9,832
21
16,626
10,550
12,700
122
23,372
(2,806)
(1,598)
(56)
(4,460)
7,744
11,102
66
18,912
3,269
Ì
3,269
3,269
Ì
3,269
Total intangible assets ÏÏÏÏÏÏ
$ 26,641
$(6,746)
$ 19,895
$ 26,641
$(4,460)
$ 22,181
Annual amortization expense related to intangible assets are as follows (in thousands):
Years Ended September 30,
2002
2003
2004
Amortization expense ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$2,286
$3,545
$12,687
The changes in the gross carrying amount of goodwill and intangible assets are as follows:
Goodwill
Developed
Technology
Customer
Relationships
Tradenames
Other
Total
Intangible Assets
Balance as of September 30, 2002 ÏÏÏÏ
Additions (deductions) during year ÏÏÏ
Transitional impairment loss ÏÏÏÏÏÏÏÏÏ
Impairment lossesÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$905,219
(2,566)
(397,139)
$21,260
Ì
Ì
Ì (10,710)
Balance as of September 30, 2003 ÏÏÏÏ
Additions (deductions) during year ÏÏÏ
505,514
(1,021)
10,550
Ì
$12,700
Ì
Ì
Ì
12,700
Ì
$2,300
969
Ì
Ì
3,269
Ì
$36,382
$122
969
Ì
Ì
Ì
Ì (10,710)
122
Ì
26,641
Ì
Balance as of September 30, 2004 ÏÏÏÏ
$504,493
$10,550
$12,700
$3,269
$122
$26,641
The deductions to goodwill in Ñscal 2004 primarily reÖect the recognition of a portion of the deferred tax
assets for which no beneÑt was previously recognized as of the date of the Merger. The future realization of
certain pre-Merger deferred tax assets will be applied to reduce the carrying value of goodwill. The remaining
portion of the valuation allowance for these pre-Merger deferred tax assets for which subsequently recognized
tax beneÑts may be applied to reduce goodwill is approximately $43.0 million at September 30, 2004.
82
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2
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
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 tradename. 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.
In accordance with SFAS No. 142, the following table provides net loss and related per share amounts for
Ñscal 2002, as reported and adjusted as if the Company had ceased amortizing goodwill eÅective October 1,
2001.
Reported net loss ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Goodwill amortization, net of tax ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Year Ended
September 30, 2002
(In thousands,
except per share
amounts)
$(236,064)
10,699
Adjusted net lossÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$(225,365)
Per share information:
Basic and diluted:
Reported net loss ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Goodwill amortization, net of tax ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Adjusted net lossÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$
$
(1.72)
0.08
(1.64)
Annual amortization expense related to intangible assets is expected to be as follows (in thousands):
2005
2006
2007
2008
2009
Amortization expense ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$2,161
$2,144
$2,144
$2,144
$2,144
Note 7. Borrowing Arrangements
Long-term Debt
Long-term debt consists of the following (in thousands):
September 30,
2004
2003
Junior notes ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Senior notes ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
CDBG Grant ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$230,000
Ì
Ì
Less Ì current maturities ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
230,000
Ì
$230,000
45,000
29
275,029
29
$230,000
$275,000
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.
83
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2
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
Senior notes represented 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. On April 22, 2004, the Company notiÑed the holder of the senior notes that it would redeem
such notes in full on May 12, 2004. On May 6, 2004, the holder of the senior notes converted such notes in full
for approximately 5.7 million shares of the Company's common stock. The Company paid interest in cash on
the senior notes on the last business day of each March, June, September and December of each year. Interest
paid on the senior notes is not deductible for tax purposes because of the conversion feature.
The Company had a ten-year $960,000 loan from the State of Maryland under the Community
Development Block Grant (""CDBG'') program. Quarterly payments were due through December 2003, and
represented principal plus interest at Ñve percent of the unamortized balance. The Company paid this loan in
full during the Ñrst quarter of Ñscal 2004.
Aggregate annual maturities of long-term debt are as follows (in thousands):
Fiscal Year
2005 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
2006 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
2007 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
2008 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$
Ì
Ì
Ì
230,000
$230,000
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, 2004, Skyworks
USA had borrowed $50.0 million under this agreement.
Note 8.
Income Taxes
Income (loss) before income taxes and cumulative eÅect of change in accounting principle consists of the
following components (in thousands):
United StatesÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Foreign ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$15,029
11,367
$(59,379)
5,754
$(151,214)
(104,439)
$26,396
$(53,625)
$(255,653)
Years Ended September 30,
2004
2003
2002
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U
N
N
A
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0
0
2
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,
2003
2002
2004
Current tax expense:
Federal ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
State ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Foreign ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Deferred tax expense (beneÑt):
Federal ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
State ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Foreign ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Charge in lieu of tax expense ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$ Ì $ Ì $
(1,040)
837
Ì
1,414
(203)
1,414
Ì
Ì
3,165
3,165
1,022
Ì
Ì
(762)
(762)
Ì
Ì
Ì
3,506
3,506
Ì
Ì
(23,095)
(23,095)
Ì
Net income tax expense (beneÑt) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$ 3,984
$ 652
$(19,589)
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,
2003
2002
2004
Tax (beneÑt) expense at U.S. statutory rate ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Foreign tax rate diÅerence ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Nondeductible amortization of intangible assets ÏÏÏÏÏÏÏÏÏÏÏÏÏ
Nondeductible in-process research and development ÏÏÏÏÏÏÏÏÏ
Nondeductible interest expense ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Pre-distribution loss not available to Skyworks ÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Research and development credits ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
State income taxes ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Change in valuation allowance ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Charge in lieu of tax expense ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Other, netÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$ 9,239
23
Ì
Ì
1,162
Ì
(4,600)
(1,040)
(2,466)
1,022
644
$(18,769)
(1,362)
Ì
Ì
2,113
Ì
(5,369)
Ì
25,168
Ì
(1,129)
$(89,479)
3,529
16,151
22,925
Ì
21,968
(711)
Ì
5,947
Ì
81
$ 3,984
$
652
$(19,589)
The charge in lieu of tax expense resulted from partial recognition of certain acquired tax beneÑts that
were subject to a valuation allowance at the time of acquisition, the realization of which required a reduction
of goodwill.
85
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A
U
N
N
A
4
0
0
2
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:
September 30,
2004
2003
Inventories ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Accrued compensation and beneÑtsÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Product returns, allowances and warranty ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Restructuring ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Other Ì net ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$
5,680
2,464
4,027
624
1,720
$
Current deferred income taxes ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
14,515
Long-term:
Property, plant and equipment ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Intangible assets ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Retirement beneÑts and deferred compensation ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Net operating loss carryforwards ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Federal tax credits ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
State investment credits ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Restructuring ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Other Ì net ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
29,919
8,240
1,098
71,454
15,076
5,711
1,683
2,202
Long-term deferred income taxes ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
135,383
Total deferred income taxes ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
149,898
11,878
1,907
4,259
1,295
1,494
20,833
46,356
8,837
1,172
61,049
7,798
5,541
2,978
855
134,586
155,419
Valuation allowance ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
(129,509)
(131,975)
Net deferred tax assets ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$
20,389
$
23,444
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, 2004,
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 $2.5 million is principally due to the generation of additional tax
attributes, i.e. federal and state net operating loss and credit carryovers, reduced by the utilization of other
deferred tax assets. As noted above, during the year the Company realized a portion of the acquired deferred
tax assets that were subject to the valuation allowance, which resulted in a reduction of goodwill. The
remaining amount of 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
$43 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. During the fourth quarter of Ñscal
2004, the Company reduced the carrying value of its deferred tax assets by $3.5 million. This charge primarily
originated from foreign currency translation errors after establishing the aforementioned tax beneÑt recorded
in Ñscal 2002 for the impairment of its Mexicali assets immediately following completion of the Merger. The
cumulative eÅect of these errors is being reported in the provision for income taxes line of the statement of
86
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A
U
N
N
A
4
0
0
2
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
operations in the fourth quarter of Ñscal 2004, as it did not have a material impact in prior periods. The
aggregate $3.5 million charge listed by Ñscal year would be approximately $1.2 million, $2.0 million and
$0.3 million for Ñscal 2004, 2003 and 2002, respectively.
As of September 30, 2004, the Company has U.S. federal net operating loss carryforwards of
approximately $187.1 million which will expire at various dates through 2024 and aggregate state net operating
loss carryforwards of approximately $78.0 million which will expire at various dates through 2009. The
Company also has U.S. federal and state income tax credit carryforwards of approximately $19.9 million. The
U.S. federal tax credits expire at various dates through 2024. 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 is
approximately $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 $16.7 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.
Note 9. 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 determined by the Company's Board of
Directors, no holder of common stock has any preemptive right to purchase or subscribe for any stock of any
class which the Company may issue or sell.
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
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, 2004, the Company had 156,012,551 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
87
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2
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
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, 2004, 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, 2004, 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 5.7 million at September 30, 2004.
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 approximately
5.3 million 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 on January 5, 2004, the Company issued new options to purchase approximately 3.4 million
shares of the Company's common stock with an exercise price at fair market value ($9.60) in exchange for the
options cancelled in connection with the oÅer. These new options vest ratably over an eighteen-month period.
The Exchange OÅer qualiÑes for Ñxed accounting, and thus the Company did not 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.
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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
8,277
23,188
18.97
20.80
Balance outstanding at June 25, 2002 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
31,465
$20.32
Granted ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Exercised ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
CancelledÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
998
(20)
(1,111)
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
Granted ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Granted for options accepted for exchange ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Exercised ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
CancelledÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
7,351
3,377
(685)
(4,043)
9.16
9.60
5.05
15.61
Balance outstanding at September 30, 2004 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
31,763
$13.63
Options exercisable at the end of each Ñscal year (shares in thousands):
2004 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
2003 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
2002 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Shares
17,671
15,141
16,080
Weighted Average
Exercise Price
$17.59
$19.03
$19.86
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The following table summarizes information concerning currently outstanding and exercisable options as
of September 30, 2004 (shares in thousands):
Weighted
Average
Remaining
Contractual
Life (Years)
Weighted
Average
Outstanding
Option
Price
Number
Outstanding
16,375
8,262
5,880
1,007
177
62
31,763
8.5
4.6
6.0
4.1
5.1
3.7
6.8
$ 7.59
$15.61
$21.88
$37.64
$45.45
$81.60
$13.63
Options
Exercisable
3,625
7,311
5,567
936
170
62
17,671
Weighted
Average
Exercise
Price
$ 6.74
$15.99
$21.77
$37.91
$45.39
$81.63
$17.59
Range of Exercise Prices
$0.00-$9.99 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$10.00-$19.99 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$20.00-$29.99 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$30.00-$39.99 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$40.00-$59.99 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$60.00-$170.44 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Stock Option Distribution
The following table summarizes information concerning currently outstanding options as of Septem-
ber 30, 2004 (shares in thousands):
Stock options held by employees and directors ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Stock options held by non-employees (excluding directors)ÏÏÏÏÏÏÏÏÏ
Number
Outstanding
% of Total
Common Stock
Outstanding
21,100
10,663
31,763
13.5%
6.8%
20.3%
As of September 30, 2004, the Company's ratio of options outstanding as a percentage of total common
stock outstanding (""overhang'') was 20.3%. The overhang attributable to options held by non-employees
(other than its non-employee directors) was 6.8% and the overhang attributable to employees and directors
was 13.5%.
In connection with the Merger, as of September 30, 2004 and 2003, non-employees, excluding directors,
held 10,662,628 and 14,351,737 options at a weighted average price of $20.44 and $16.76, 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.
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 2004, 2003 and 2002.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
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 2004, 150,000 options were granted under these plans at a weighted average price of $9.44. At
September 30, 2004, a total of 699,000 options, net of cancellations, at a weighted average price of $10.81 have
been granted under these three plans and 306,000 shares were exercisable at a weighted average price of
$12.46. During Ñscal 2004, 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 common stock purchased under these plans in Ñscal 2004, 2003 and
2002 were 616,760, 704,921 and 65,668, respectively. The Company did not recognize compensation expense
under these plans in Ñscal 2004, 2003 or 2002.
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. Jazz Semiconductor has not exercised any portion of the warrant as of September 30,
2004. The Company applied the Black-Scholes model to determine the fair value estimate and approximately
$0.8 million, $0.8 million and $0.2 million was included in amortization of intangible assets related to this item
in Ñscal 2004, 2003 and 2002, respectively. The warrant expires on January 20, 2005.
Note 10. 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 2004, 2003 and 2002, the Company contributed 392,744, 560,516 and 128,836 shares,
respectively, of the Company's common stock valued at $3.6 million, $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 was $1.0 million for Ñscal year 2002.
Note 11. 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
91
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
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 components of deÑned beneÑt expense are as follows (in thousands):
Pension BeneÑts
2003
2004
Retiree
Medical BeneÑts
2003
2004
Service cost-beneÑts earned ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Interest cost on beneÑt obligation ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Estimated return on assets ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Net amortization ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$ Ì $ Ì $ Ì
72
175
Ì
(59)
53
3
186
(108)
30
Net periodic beneÑt cost ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$ 108
$119
$125
$ 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 are as follows (in thousands):
Pension BeneÑts
2003
2004
Retiree
Medical BeneÑts
2003
2004
Change in beneÑt obligation:
Balance at beginning of yearÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
BeneÑt payments ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Service and interest costs ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Actuarial (gains) lossesÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$2,894
$2,652
$1,046
$1,014
(258)
187
273
(256)
175
323
(45)
72
137
(38)
70
Ì
Balance at end of yearÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$3,096
$2,894
$1,210
$1,046
Change in fair value of plan assets:
Balance at beginning of yearÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Actual return on plan assets ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Employer contribution ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
BeneÑt payments ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$1,819
95
471
(258)
$1,419
77
579
(256)
$ Ì $ Ì
Ì
Ì
Ì
Ì
Ì
Ì
Balance at end of yearÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$2,127
$1,819
$ Ì $ Ì
BeneÑt obligations in excess of plan assets ÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Unrecognized net actuarial loss ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$ 969
(786)
$1,075
(632)
$1,210
Ì
$1,046
Ì
Net accrued beneÑt cost ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$ 183
$ 443
$1,210
$1,046
The Company measures its plan assets and beneÑt obligations for its pension beneÑt plan and retiree
medical beneÑt plan as of June 30th for each Ñscal year. During Ñscal 2004 and Ñscal 2003, the Company
allocated approximately 60% of its plan assets for the pension beneÑt plan and the retiree medical beneÑt plan
to equity securities and the remaining 40% of plan assets were allocated to debt securities. The Company plans
to continue utilizing this allocation of plan assets as its investment policy.
The Company expects to contribute approximately $0.3 million to the pension beneÑt plan in Ñscal 2005.
The Company's expected beneÑt payments as of September 30, 2004 were $0.3 million for each Ñscal year
through 2009 and $1.2 million in the aggregate for Ñscal 2010 through 2014.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
The assumptions used in determining retirement beneÑt obligations are as follows:
Pension
BeneÑts
Retiree Medical
BeneÑts
2004
2003
2004
2003
Discount rateÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Long-term rate of return on assets ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
6%
6%
6%
6%
4% N/A N/A
7%
During Ñscal 2004, the health care cost trend rate assumed for next year was 11% and was expected to
decline by 0.5% each year until reaching the ultimate trend rate of 5.5% in Ñscal 2016. 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, 2004, 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, 2004, and would not aÅect retirement medical expense.
Note 12. Commitments
The Company has various operating leases primarily for computer equipment and buildings. Rent
expense amounted to $9.8 million, $10.4 million and $7.1 million in Ñscal 2004, 2003 and 2002, 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
2005 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
2006 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
2007 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
2008 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
2009 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Thereafter ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$ 6,153
4,944
4,475
4,351
3,482
3,552
$26,957
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.
Pursuant to the terms of these agreements, the Company is committed to obtaining certain minimum
wafer volumes from Jazz Semiconductor through March 2005. The Company's expected minimum purchase
obligations under these supply agreements will be approximately $12.9 million in Ñscal 2005. The Company
currently anticipates meeting each of the annual minimum purchase obligations under these supply
agreements.
In addition, the Company entered into licensing agreements for intellectual property rights and
maintenance and support services during Ñscal 2004. Pursuance to the terms of these agreements, the
Company is committed to aggregate payments of $3.2 million and $3.0 million in Ñscal 2005 and Ñscal 2006,
respectively.
Note 13. Contingencies
From time to time, various lawsuits, claims and proceedings have been, and may in the future be,
instituted or asserted against the Company, including those pertaining to patent infringement, intellectual
property, environmental, product liability, safety and health, employment and contractual matters. In addition,
in connection with the Merger, the Company has assumed responsibility for all then current and future
litigation (including environmental and intellectual property proceedings) against Conexant or its subsidiaries
in respect of the operations of Conexant's wireless business. The outcome of litigation cannot be predicted
with certainty and some lawsuits, claims or proceedings may be disposed of unfavorably to the Company.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
Intellectual property disputes often have a risk of injunctive relief which, if imposed against the Company,
could materially and adversely aÅect the Company's Ñnancial condition or results of operations.
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 litigation 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 Company believes Qualcomm's claims
are without merit and is vigorously defending against Qualcomm's claims and fully prosecuting its claims
against them.
Note 14. Guarantees and Indemnities
The Company does not currently have any guarantees. The Company generally indemniÑes its customers
from third-party intellectual property infringement litigation claims related to its products. 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 indemnities varies, and in many cases is indeÑnite. The
indemnities to customers in connection with product sales generally are subject to limits based upon the
amount of the related product sales and in many cases are subject to geographic and other restrictions. In
certain instances, the Company's indemnities do not provide for any limitation of the maximum potential
future payments the Company could be obligated to make. The Company has not recorded any liability for
these indemnities in the accompanying consolidated balance sheets.
Note 15. Special Charges
Special charges consists of the following (in thousands):
Years Ended September 30,
2003
2002
2004
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2
Asset impairments ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Restructuring ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$13,183
4,183
$28,269
6,224
$113,301
3,020
$17,366
$34,493
$116,321
Special charges consists of charges for asset impairments and restructuring activities, as follows:
Asset Impairments
During the second quarter of Ñscal 2004, the Company recorded a $13.2 million charge primarily related
to the impairment of obsolete baseband technology licenses that were established prior to the Merger. This
charge includes approximately $1.8 million of contractual payment obligations, which the Company expects to
pay within one year. The impairment charge was based on a recoverability analysis prepared by management
based on the decision to discontinue certain products and the related impact on its current and projected
outlook. Management believed these factors indicated that the carrying value of the related assets (intangible
assets, machinery and equipment) were 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 (salvage value). 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 write
down established a new cost basis for the impaired assets.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
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.
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. In addition, during the fourth
quarter of Ñscal 2003 we recorded a $2.3 million charge for the impairment of our Haverhill, Massachusetts
property. The Company actively marketed the property located in Haverhill, Massachusetts and in March
2004, the Company entered into a contractual agreement for the sale of the property, contingent upon
obtaining speciÑc regulatory approvals within the next two years.
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.
95
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
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.
Restructuring Charges
2004 Corporate Restructuring Plan
During Ñscal 2004, the Company consolidated cellular systems software design centers in an eÅort to
improve the Company's overall time to market for next-generation multimedia systems development. These
actions aligned the Company's structure with its current business environment. The Company implemented
reductions in force at three remote facilities and recorded restructuring charges of approximately $4.2 million
for costs related to severance beneÑts for aÅected employees and lease obligations. Substantially all amounts
accrued for these actions are expected to be paid within one year.
Activity and liability balances related to the Ñscal 2004 restructuring actions are as follows (in
thousands):
Workforce
Reductions
Facility
Closings
Total
Charged to costs and expenses ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Cash payments ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$ 3,685
(3,530)
$ 498
(287)
$ 4,183
(3,817)
Restructuring balance,
September 30, 2004 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$
155
$ 211
$
366
2003 and 2002 Corporate Restructuring Plans
During Ñscal 2003 and Ñscal 2002, the Company recorded $6.2 million and $3.0 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. As of September 30, 2004, substantially all
amounts accrued for these actions have been paid and the remaining amounts are expected to be paid within
one year.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
Activity and liability balances related to the Ñscal 2003 and Ñscal 2002 restructuring actions are as follows
(in thousands):
2003
2002
Workforce
Reductions
Facility
Closings
and Other
Workforce
Reductions
Facility
Closings
and Other
Total
Charged to costs and expenses ÏÏÏÏÏÏÏ
Cash payments ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$ Ì $ Ì $ 2,923
Ì
Ì
(2,225)
$ 97
(13)
$ 3,020
(2,238)
Restructuring balance,
September 30, 2002 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Charged to costs and expenses ÏÏÏÏÏÏÏ
Cash payments ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$ Ì $ Ì
$ 1,405
(1,236)
4,819
(3,510)
698
Ì
(698)
Restructuring balance,
September 30, 2003 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Charged to costs and expenses ÏÏÏÏÏÏÏ
Cash payments ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$ 1,309
475
(1,777)
$
169
Ì
(116)
$ Ì
Ì
Ì
84
Ì
(47)
$ 37
Ì
(37)
782
$ 6,224
(5,491)
$ 1,515
475
(1,930)
Restructuring balance,
September 30, 2004 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$
7
$
53
$ Ì
$ Ì
$
60
Pre-Merger Alpha Restructuring Plan
In addition, the Company assumed approximately $7.8 million of restructuring reserves from Alpha in
connection with the Merger. During Ñscal 2004 and the Ñscal years ended September 30, 2003 and 2002,
payments related to the restructuring reserves assumed from Alpha were $0.2 million, $4.7 million and
$1.1 million, respectively. In addition, the Company reduced this restructuring reserve by approximately
$0.5 million in Ñscal 2004 primarily related to a reduction in facility closure costs. This reduction of expenses
is reÖected in the special charges line of the Company's results of operations. As of September 30, 2004, the
restructuring reserve balance related to Alpha was $1.3 million and primarily relates to estimated future
payments on a lease that expires in 2008.
Note 16. 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.
97
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
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,
2003
2004
2002
United StatesÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Other AmericasÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$ 74,105
51,537
$ 87,691
69,559
$ 32,713
44,048
Total Americas ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
China ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
South Korea ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Other Asia-PaciÑcÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Total Asia-PaciÑc ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Europe, Middle East and Africa ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
125,642
206,364
188,090
133,696
528,150
130,231
157,250
119,385
157,772
99,432
376,589
83,950
76,761
40,844
237,040
74,771
352,655
28,353
$784,023
$617,789
$457,769
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.
The signiÑcant growth in net revenues derived from China in Ñscal 2004 and Ñscal 2003 when compared
to the previous Ñscal years reÖects the Company's market share gains across a number of domestic cellular
handset suppliers in the region and primarily represents sales of complete cellular systems, DCR transceivers
and front-end modules.
Geographic property, plant and equipment balances, including property held for sale, are based on the
physical locations within the indicated geographic areas and are as follows (in thousands):
United States ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Mexico ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Other ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$ 81,356
61,702
6,951
$ 76,347
45,933
5,485
$150,009
$127,765
September 30,
2004
2003
Concentrations
Financial instruments that potentially subject the Company to concentration of credit risk consist
principally of trade accounts receivable. Trade receivables are primarily derived from sales to manufacturers of
communications and consumer products. Ongoing credit evaluations of customers' Ñnancial condition are
performed and collateral, such as letters of credit and bank guarantees, are required whenever deemed
necessary. As of September 30, 2004 Motorola, Inc. represented approximately 12% and Samsung Electronics
Co. and RTI International each accounted for approximately 10% of the Company's gross accounts receivable.
Samsung Electronics, Co. accounted for 18% of the Company's gross accounts receivable balance at
September 30, 2003.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
The following customers accounted for 10% or more of net revenues:
Years Ended
September 30,
2003
2004
2002
Motorola, Inc. ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Samsung Electronics Co. ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
14% 11% 11%
12% 15% 35%
The foregoing percentages are based on sales representing Washington/Mexicali sales for 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 Ñscal 2002 and for Ñscal 2003 and Ñscal 2004.
Note 17. Quarterly Financial Data (Unaudited)
Fiscal 2004
Net revenues ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Gross proÑtÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Net income (loss) ÏÏÏÏÏÏÏÏÏÏÏÏÏ
Per share data(2)
Net income (loss), basic ÏÏÏÏÏ
Net income (loss), diluted ÏÏÏÏ
Fiscal 2003
Net revenues ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Gross proÑtÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Income (loss) before
cumulative eÅect of change
in accounting principle ÏÏÏÏÏ
Cumulative eÅect of change in
accounting principle, net of
tax ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Net loss ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Per share data(2)
Income (loss) before
cumulative eÅect of change
in accounting principle, basic
and diluted ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Cumulative eÅect of change in
accounting principle, net of
tax, basic and diluted ÏÏÏÏÏÏ
Net loss, basic and diluted ÏÏÏÏ
First
Quarter(1)
Third
Second
Quarter
Quarter
(In thousands, except per share data)
Fourth
Quarter(3)
Year(3)
$ 175,108
69,568
4,172
$183,471
72,204
(9,421)
$207,377
83,784
13,030
$218,067
87,660
14,631
$ 784,023
313,216
22,412
0.03
0.03
(0.06)
(0.06)
0.09
0.08
0.09
0.09
0.15
0.15
$ 160,194
67,320
$157,364
65,968
$150,199
58,444
$150,032
55,117
$ 617,789
246,849
791
(5,955)
(6,186)
(42,927)
(54,277)
(397,139)
(396,348)
Ì
Ì
Ì
(5,955)
(6,186)
(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)
(1) The Company adopted SFAS No. 142, ""Goodwill and Other Intangible Assets,'' on October 1, 2002 and
recorded a charge for the 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.
(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.
(3) During the fourth quarter of Ñscal 2004, the Company reduced the carrying value of its deferred tax assets
by $3.5 million. This charge primarily originated from foreign exchange translation errors after
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
establishing the $23.1 million tax beneÑt recorded in Ñscal 2002 for the impairment of the Company's
assembly and test machinery and equipment in Mexicali, Mexico immediately following completion of
the Merger. The cumulative eÅect of these errors is being reported in the provision for income taxes line
of the statement of operations in the fourth quarter of Ñscal 2004, as it did not have a material impact in
prior periods. The aggregate $3.5 million charge and the eÅect on earnings per share, if any, are listed in
the following table.
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
Year
Fiscal 2004
Reduction to Mexicali deferred tax asset ÏÏ
EÅect on diluted earnings per share, if any
$(280)
Ì
$
(62)
Ì
$(742)
Ì
$
(72)
Ì
$(1,156)
(0.01)
Fiscal 2003
Reduction to Mexicali deferred tax asset ÏÏ
EÅect on diluted earnings per share, if any
$
62
Ì
$(1,153)
(0.01)
$ 453
Ì
$(1,414)
(0.01)
$(2,052)
(0.01)
Fiscal 2002
Reduction to Mexicali deferred tax asset ÏÏ
EÅect on diluted earnings per share, if any
$ Ì $ Ì $ Ì $ (256)
Ì
Ì
Ì
Ì
$ (256)
Ì
100
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
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, 2004 and 2003 and the related consolidated statements of
operations, stockholders' equity and comprehensive income, and cash Öows for each of the years in the three-
year period ended September 30, 2004. Our audits also included the Ñnancial statement schedule listed in the
Index at Item 15 for the years ended September 30, 2004, 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 audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight
Board (United States). 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, 2004 and
2003, and the results of their operations and their cash Öows for each of the years in the three-year period
ended September 30, 2004 in conformity with U.S. generally accepted accounting principles. Also, in our
opinion, the related Ñnancial statement schedule for the years ended September 30, 2004, 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
December 10, 2004
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CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS
AND ISSUER PURCHASES OF EQUITY SECURITIES
Our common stock is traded on the NASDAQ Stock 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 the NASDAQ Stock Market. Such quotations represent inter-dealer prices without retail markup,
markdown or commission and may not necessarily represent actual transactions. The number of stockholders
of record of Skyworks' common stock as of March 1, 2005 was approximately 36,917.
Fiscal year ended October 1, 2004:
First quarter ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Second quarter ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Third quarter ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Fourth quarter ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Fiscal year ended October 3, 2003:
First quarter ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Second quarter ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Third quarter ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Fourth quarter ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
High
Low
$11.25
12.45
12.68
10.04
$12.73
9.57
8.10
12.28
$7.40
9.13
7.98
6.98
$4.00
5.96
4.94
6.52
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. On
March 1, 2005, the last reported sale price of the Company common stock on the NASDAQ Stock Market
was $7.46.
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SKYWORKS SOLUTIONS, INC.
UNAUDITED RECONCILIATION OF PRO FORMA NON-GAAP MEASURES
(In millions, except per share amounts)
GAAP operating income (loss)ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Oct 1,
2004
$43
Reduction to purchase obligation®a© ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Ì
14
Asset impairments®b©ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Restructuring charges®c© ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
4
Purchased in-process research and development ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Ì
3
Amortization of intangible assets ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Alpha®e© ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Ì
Year Ended
Oct 3,
2003
$(34)
(4)
28
9
Ì
4
Ì
Sept. 27,
2002
$(251)
Ì
112
17
66
13
(29)
Pro forma operating income (loss) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$64
$
3
$ (72)
GAAP net income (loss) per share, dilutedÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Reduction to purchase obligation®a© ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Asset impairments®b© ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Restructuring charges®c© ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Purchased in-process research and development ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Amortization of intangible assets ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Goodwill impairment®d© ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Alpha®e©ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Tax adjustments®f© ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Oct 1,
2004
$0.15
Ì
0.10
0.03
Ì
0.01
Ì
Ì
0.02
Oct 3,
2003
$(3.24)
(0.03)
0.20
0.06
Ì
0.03
2.85
Ì
Ì
Sept. 27,
2002
$(1.72)
Ì
0.82
0.12
0.48
0.09
Ì
(0.21)
(0.17)
Pro forma net income (loss) per share, diluted ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$0.31
$(0.13)
$(0.59)
GAAP net revenues ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Alpha®e© ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Oct 1,
2004
$784
Ì
Pro forma net revenuesÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$784
Oct 3,
2003
$618
Ì
$618
Sept. 27,
2002
$458
85
$543
®a© Represents a change in the estimate of the Company's excess costs related to its purchase obligation with
Jazz Semiconductor, Inc. which was included in cost of goods sold.
®b© In Ñscal 2004, these changes primarily consist of a write-down of legacy technology licenses related to the
Company's cellular systems business which was included in operating expenses, except for $0.7 million
which was included in cost of goods sold.
In Ñscal 2003, these charges primarily consist of a write-down of assets related to the Company's
infrastructure business which was included in operating expenses.
In Ñscal 2002, these charges primarily consist of a write-down of goodwill associated with the acquisition
of the Philsar Bluetooth business and a write-down of assets related the Company's assembly and test
capacity.
®c© Represents certain costs incurred to implement facility consolidations which were included in special
charges, except for $0.3 million which was included in cost of goods sold for the year ended October 1,
2004, and $2.6 million which was included in selling, general and administrative expenses for the year
ended October 3, 2003.
®d© The Company adopted SFAS No. 142, ""Goodwill and Other Intangible Assets'' during Ñscal 2003. As a
result of the adoption of SFAS No. 142, the Company was required to evaluate for impairment goodwill
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and intangible assets that have indeÑnite lives. Based on this evaluation, the Company determined that its
goodwill was impaired. The amount of this impairment charge was $397.1 million.
®e© 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.
®f© In Ñscal 2004, represents a cumulative non-cash tax charge of $3.5 million to reduce the carrying value of
a deferred tax asset primarily due to foreign exchange translation errors made after establishing the tax
beneÑt recorded for the impairment of assembly and test machinery and equipment in Mexicali, Mexico.
In Ñscal 2002, represents a deferred tax beneÑt related to the write-down of assembly and test capacity.
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CORPORATE INFORMATION
executive management
David J. Aldrich
President, Chief Executive Officer and Director
Allan M. Kline
Vice President and Chief Financial Officer
Kevin D. Barber
Senior Vice President and General Manager, RF Solutions
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
Stan A. Swearingen
Vice President and General Manager, Linear Products
Mark V.B. Tremallo
Vice President, General Counsel and Secretary
Paul E. Vincent
Vice President, Finance
Gregory L. Waters
Vice President and General Manager, Cellular Systems
corporate headquarters
Skyworks Solutions, Inc.
20 Sylvan Road
Woburn, MA 01801
(781) 376-3000
www.skyworksinc.com
board of directors
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.
Donald R. Beall
Retired Chairman and Chief Executive Officer
Rockwell International Corporation
Kevin L. Beebe
Group President
ALLTEL Corporation
Moiz M. Beguwala
Executive
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
Retired Senior Executive
Genzyme Corporation
David P. McGlade
Chief Executive Officer
Intelsat
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 U.S.)
www.amstock.com
Our transfer agent can help you with a variety of shareholder
related services including change of address, lost stock
certificates, stock transfers, account status and other
administrative matters.
investor relations
To ask investment-oriented questions about
Skyworks, or to obtain a free copy of the Company’s
most recent annual report on Form 10-K, contact the
Skyworks Investor Relations team directly at:
Investor Relations
Skyworks Solutions, Inc.
5221 California Avenue
Irvine, CA 92617
(949) 231-4700
You can also view this annual report along with other financial-
related information and other public filings with the U.S.
Securities and Exchange Commission at:
www.skyworksinc.com
annual meeting
The annual meeting of shareholders will be held on April 28,
2005 in Burlington, Massachusetts.
common stock
Skyworks common stock is traded on the NASDAQ Stock
Market© under the symbol SWKS.
independent accountants
KPMG LLP
Boston, Massachusetts
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SKYWORKS SOLUTIONS, INC. 20 SYLVAN ROAD, WOBURN, MA 01801 781.376.3000 WWW.SKYWORKSINC.COM