| 2016 Annual Report Notice of 2017 Annual Meeting and Proxy Statement We are empowering the wireless networking revolution. Our highly innovative analog semiconductors are connecting people, places and things spanning a number of new and previously unimagined applications within the automotive, broadband, cellular infrastructure, connected home, industrial, medical, military, smartphone, tablet and wearable markets. - Page 1 - Enabling the Wireless Ecosystem with a Broad Spectrum of Technologies and Products ers • LTE Tx/R x S ol u ti o 3 lifi p m A r e w o P Massive Machine-type Communication s n Enhanced Mobile Broadband Conn ectivit y M o d u l e s • L T E C A T M / N B 1 Ultra-reliable and Low Latency Communication S m all Cells • Integrated Filte r s • A n t VR u a T n n e n ers - Page 2 - TM Dear Stockholders, As we look back on fiscal 2016, Skyworks once again delivered strong financial results while executing on our ambitious vision of Connecting Everyone and Everything, All the Time. Our connectivity engines are at the heart of new and extraordinary applications spanning Mobile and Internet of Things (IoT) ecosystems—transforming the way we live, work and play. As our record revenue and profitability reflect, we are capitalizing on powerful macro trends, diversifying across new markets, advancing our technology leadership and ultimately broadening Skyworks’ portfolio to address the world’s most exciting communications platforms. | Connectivity—The Critical Function Mobile and IoT ecosystems are growing at an unprecedented rate. With a rapidly expanding user base and increasing levels of profitability, stakeholders are monetizing vast flows of data, fostering entirely new wireless-centric business models. This dynamic is creating an economic sea change, underpinned by enormous growth in e-commerce, mobile advertising, social media and cloud-based services— collectively driving trillions of transactions each year. The common thread powering this secular trend is high-speed, reliable, always- on connectivity. Connected platforms require scores of ultra-complex devices working across dozens of frequency bands amidst an increasingly crowded spectrum. The task of aggregating, harmonizing and optimizing performance can be daunting and inefficient. At Skyworks, we take a collaborative, system-level approach as our experienced engineering teams work in concert with customers to turn complexity into simplified architectures. This demands not only comprehensive technology breadth and depth, but also flexibility and configurability to ensure exceptional product functionality. In these fast- paced markets, our scale, innovative designs, robust quality and world-class supply chain provide us with tremendous competitive advantages. | Enhancing Mobile Within Mobile, Skyworks is facilitating ubiquitous data creation, delivery and storage as smartphones transmit and receive immense amounts of content supporting multimedia streaming, social networking, gaming and emerging virtual reality. To enable these applications, we deliver highly integrated solutions leveraging our amplification, filtering, tuning, power management and packaging capabilities to continuously push the performance envelope. Liam K. Griffin President and Chief Executive Officer - Page 3 - In fiscal 2016, our proprietary SkyOne® and DRx™ platforms gained significant design traction across all strategic accounts, seamlessly delivering uplink and downlink carrier aggregation and global roaming. Beyond core cellular, we successfully extended our footprint with differentiated Wi-Fi, GPS, voltage regulator and signal conditioning portfolios. Facing demands for higher speed data, increased system efficiency and intricate architectural requirements, Skyworks is uniquely positioned to resolve complexity, while unburdening our customers. | Enabling the Internet of Things At the same time, connectivity is proliferating into an adjacent set of IoT markets. From smart homes to the smart grid and from industrial to wearables, the number of connected devices is increasing exponentially. In fact, IHS projects the IoT market to grow from an installed base of 15 billion units in 2015 to more than 75 billion units by 2025. Today we are facilitating Internet access for fitness trackers, home appliances, security systems, smart meters, drones, robotics and virtual assistants. In the automotive sector, we are broadening our presence by supporting vehicle-to-vehicle communications, 4G telematics, infotainment and keyless entry. Skyworks’ demonstrated ability to create solutions supporting various standards such as Wi-Fi, Bluetooth®, ZigBee®, Thread and LoRa, makes it easier, faster and cost-effective for customers to bring their products to market. | Superior Operational and Financial Results Our successful product launches and expanding market penetration, coupled with operational discipline, translated into record revenue, earnings and cash flow in fiscal 2016. Specifically, we grew revenue to $3.3 billion and increased GAAP operating income to over $1.1 billion ($1.2 billion non-GAAP), yielding GAAP diluted earnings per share of $5.18 ($5.57 non-GAAP).* We also generated operating cash flow of $1.1 billion, allowing us to return $727 million in cash to our shareholders in the form of dividends and share repurchases—more than double the amount returned in fiscal 2015. Total Revenue (Dollars in Millions) $3,258 $3,289 $2,292 $1,792 Operating Income* (Dollars in Millions) GAAP Non-GAAP $1,245 $1,119 $1,171 $1,023 $687 $457 $565 FY13 FY14 FY15 FY16 $345 FY13 FY14 FY15 FY16 *Please see table on page 69 for a full reconciliation of non-GAAP results to GAAP results. - Page 4 - | Looking to the Future As we address the deployment of 4G across developed and emerging economies and prepare for a significant 5G upgrade cycle, we see a market that continues to present substantial opportunities for Skyworks. Projections suggest 5G data rates will approach 10 times the fastest 4G speeds of today. To put this in perspective, downloading a full-length HD movie in 3G took one day, while in 4G the same file takes minutes. On a 5G network, this content will appear in mere seconds. The autonomous car is another emerging segment that will become a growth vector for our 5G technologies, transmitting staggering amounts of data. By some estimates, one car will generate 4,000 gigabytes of data per day in positioning, navigation and real-time vehicle diagnostics—equivalent to the daily data consumed by more than 2,600 current smartphone users. Clearly, the key catalysts for Skyworks are the insatiable demand for data and the profitable usage model for both Mobile and IoT applications—as each connection becomes more valuable and vital. Looking ahead, we will remain a leader in unwiring the planet. We sincerely thank our customers and partners, who collaborate with us to continuously improve the user experience. We also recognize our employees, who are committed to developing and delivering breakthrough technologies and innovative designs. Finally, we express our gratitude to you, our stockholders, for your unwavering support as we strive to take Skyworks to the next level of market and financial outperformance. Liam K. Griffin President and Chief Executive Officer Operating Margin* (Percent of Sales) Earnings Per Share* (In Dollars) Cash Flow From Operations (Dollars in Millions) GAAP Non-GAAP GAAP Non-GAAP 36% 38% 34% 31% 30% 25% 26% 19% $5.27 $5.57 $5.18 $1,096 $993 $3.24 $4.10 $772 $2.20 $2.38 $500 FY13 FY14 FY15 FY16 $1.45 FY13 FY14 FY15 FY16 FY13 FY14 FY15 FY16 *Please see table on page 69 for a full reconciliation of non-GAAP results to GAAP results. - Page 5 - Liam K. Griffin President and Chief Executive Officer Carlos S. Bori Vice President, Sales and Marketing Peter L. Gammel Chief Technology Officer Laura A. Gasparini Vice President, Human Resources Reza Kasnavi Vice President and GM, Open Market Platforms Joel R. King Vice President and GM, Advanced Mobile Solutions Steven C. Machuga Vice President, Worldwide Operations Thomas S. Schiller Vice President, Strategy and Corporate Development Kris Sennesael Senior Vice President and Chief Financial Officer David Stasey Vice President and GM, Diversified Analog Solutions Robert J. Terry Vice President, General Counsel and Secretary - Page 6 - March 31, 2017 April 3, 2017 Dear Stockholder: I am pleased to invite you to attend the 2017 Annual Meeting of stockholders of Skyworks Solutions, Inc. to be held at 2:00 p.m., local time, on Wednesday, May 10, 2017, at the Hilton Boston/Woburn, 2 Forbes Road, Woburn, Massachusetts (the “Annual Meeting”). We look forward to your participation in person or by proxy. The attached Notice of Annual Meeting of Stockholders 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 proxy submission methods, 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 it 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 (or other nominee) 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 and submit 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 revoke a previously submitted proxy at that time by voting in person at the meeting. Sincerely yours, David J. Aldrich Chairman of the Board and Executive Chairman - Page 7 - - Page 7 - 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 WEDNESDAY, MAY 10, 2017 To the Stockholders of Skyworks Solutions, Inc.: The 2017 Annual Meeting of stockholders of Skyworks Solutions, Inc., a Delaware corporation (the ‘‘Company’’), will be held at 2:00 p.m., local time, on Wednesday, May 10, 2017, at the Hilton Boston/Woburn, 2 Forbes Road, Woburn, Massachusetts (the ‘‘Annual Meeting’’) to consider and act upon the following proposals: 1. To elect nine individuals nominated to serve as directors of the Company with terms expiring at the 2018 Annual Meeting of stockholders and named in the Proxy Statement; 2. To ratify the selection by the Company’s Audit Committee of KPMG LLP as the independent registered public accounting firm for the Company for fiscal year 2017; 3. 4. To approve, on an advisory basis, the compensation of the Company’s named executive officers; To approve, on an advisory basis, the frequency of future advisory votes on the compensation of the Company’s named executive officers; and 5. To transact such other business as may properly come before the Annual Meeting. Only stockholders of record at the close of business on March 16, 2017, are entitled to notice of and to vote at the Annual Meeting. To ensure your representation at the Annual Meeting, we urge you to submit a proxy promptly in one of the following ways whether or not you plan to attend the Annual Meeting: (a) by completing, signing, and dating the accompanying proxy card and returning it in the postage-prepaid envelope enclosed for that purpose; (b) by completing and submitting your proxy using the toll-free telephone number listed on the proxy card; or (c) by completing and submitting your proxy via the Internet by visiting the website address listed on the proxy card. The Proxy Statement accompanying this notice describes each of the items of business listed above in more detail. Our Board of Directors recommends: a vote ‘‘FOR’’ the election of the nominees for director named in Proposal 1 of the Proxy Statement; a vote ‘‘FOR’’ Proposal 2, ratifying the selection of KPMG LLP as the independent registered public accounting firm of the Company for fiscal year 2017; a vote ‘‘FOR’’ Proposal 3, approving, on an advisory basis, the compensation of the Company’s named executive officers; and a vote for every ‘‘ONE YEAR’’ with respect to Proposal 4, the advisory vote on the frequency of future advisory votes on the compensation of the Company’s named executive officers. Irvine, California April 3, 2017 By Order of the Board of Directors, 27MAR201717592459 ROBERT J. TERRY Vice President, General Counsel and Secretary 8 - Page 8 - 28MAR201712061992 Skyworks Solutions, Inc. 20 Sylvan Road Woburn, MA 01801 (781) 376-3000 5221 California Avenue Irvine, CA 92617 (949) 231-3000 Proxy Statement 2017 Annual Meeting of Stockholders Table of Contents General Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Proposal 1: Election of Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Election of Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Nominees for Election . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Corporate Governance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Committees of the Board of Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Role of the Board of Directors in Risk Oversight . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Compensation Committee Interlocks and Insider Participation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Certain Relationships and Related Person Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Proposal 2: Ratification of Independent Registered Public Accounting Firm . . . . . . . . . . . . . . . . . . . . . . . . Audit Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Report of the Audit Committee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Proposal 3: Advisory Vote on the Compensation of Our Named Executive Officers (‘‘Say-on-Pay Vote’’) . . . . Proposal 4: Advisory Vote on the Frequency of Future Advisory Votes on the Compensation of Our Named Executive Officers (‘‘Say-on-Frequency Vote’’) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Information About Executive and Director Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Summary and Highlights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Compensation Discussion and Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Compensation Tables for Named Executive Officers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Director Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Equity Compensation Plan Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Compensation Committee Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Security Ownership of Certain Beneficial Owners and Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other Proposed Action . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Appendix: Unaudited Reconciliations of Non-GAAP Financial Measures . . . . . . . . . . . . . . . . . . . . . . . . . . . Discussion Regarding the Use of Non-GAAP Financial Measures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 16 16 17 21 23 27 27 28 28 29 30 31 32 33 33 35 45 61 63 64 65 67 67 69 71 10 - Page 10 - Proxy Statement General Information How do we refer to Skyworks in this Proxy Statement? The stockholders will also act on any other business that may properly come before the meeting. The terms ‘‘Skyworks,’’ ‘‘the Company,’’ ‘‘we,’’ ‘‘us,’’ ‘‘our’’ refer to Skyworks Solutions, Inc., a and Delaware consolidated and subsidiaries. corporation, its When and where is our Annual Meeting? The Company’s 2017 Annual Meeting of stockholders is to be held on Wednesday, May 10, 2017, at the Hilton Boston/Woburn, 2 Forbes Road, Woburn, Massachusetts, at 2:00 p.m., local time, or at any adjournment or postponement thereof (the ‘‘Annual Meeting’’). What is the purpose of the Annual Meeting? At the Annual Meeting, stockholders will consider and vote on the following matters: 1. 2. 3. 4. The election of the nine nominees named in this Proxy Statement to our Board of Directors to serve until the 2018 Annual Meeting of stockholders. our The ratification of the selection of KPMG LLP as public accounting firm for the fiscal year ending September 29, 2017 (‘‘fiscal year 2017’’). independent registered The approval, on a non-binding basis, of the compensation of our Named Executive Officers, ‘‘Compensation as described below under Discussion and Analysis,’’ and in the executive compensation accompanying narrative disclosures in this Proxy Statement. tables and The approval, on a non-binding basis, of the frequency of future advisory votes on the compensation of the Company’s named executive officers. What is included in our proxy materials? The Company’s Annual Report, which includes financial statements and ‘‘Management’s Discussion and Analysis of Financial Condition and Results of Operation’’ for the fiscal year ended September 30, 2016 (‘‘fiscal year 2016’’), is being mailed together with this Proxy Statement to all stockholders of record entitled to vote at the Annual Meeting. This Proxy Statement and form of proxy are being first mailed to stockholders on or about April 3, 2017. The Proxy Statement and the Company’s Annual Report are available at http://www.skyworksinc.com/annualreport. Who can vote at our Annual Meeting? Only stockholders of record at the close of business on March 16, 2017 (the ‘‘Record Date’’), are entitled to notice of and to vote at the Annual Meeting. As of March 16, 2017, there were 184,491,592 shares of Skyworks’ common stock issued and outstanding. Pursuant to Skyworks’ Restated Certificate of Incorporation and Third Amended and Restated By-laws (‘‘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. Is my vote important? Yes. Your vote is important no matter how many shares you own. Please take the time to vote in the way that is easiest and most convenient for you, and cast your vote as soon as possible. How do I vote if I am a stockholder of record? As a stockholder of record, you may vote in one of the following three ways whether or not you plan to attend the Annual Meeting: (a) by completing, signing, and - Page 11 - 11 Proxy Statement for dating the accompanying proxy card and returning it in the postage-prepaid envelope enclosed that purpose, (b) by completing and submitting your proxy using the toll-free telephone number listed on the proxy card, or (c) by completing and submitting 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 Annual Meeting even if you have previously submitted your proxy by mail, telephone, or via the Internet (and your vote at the Annual Meeting will automatically revoke your previously submitted proxy, although mere attendance at the meeting without voting in person will not have that result). How do I vote if I am a beneficial owner of shares held in ‘‘street name’’? If your shares are held on your behalf by a third party such as your broker or another person or entity who holds shares of the Company on your behalf and for your benefit, which person or entity we refer to as a ‘‘nominee,’’ and your broker (or other nominee) is the stockholder of record of such shares, then you are the beneficial owner of such shares and we refer to those shares as being held in ‘‘street name.’’ As the beneficial owner of your ‘‘street name’’ shares, you are entitled to instruct your broker (or other nominee) as to how to vote your shares. Your broker (or other nominee) will provide you with information regarding how to instruct your broker (or other nominee) as to the voting of your ‘‘street name’’ shares. How do I vote if I am a participant in the Skyworks 401(k) Savings and Investment Plan? If you are a participant in the Skyworks 401(k) Savings and Investment Plan (the ‘‘401(k) Plan’’), you will receive an instruction card for the Skyworks shares you own through the 401(k) Plan. That instruction 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. Can I change my vote after I have voted? 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 (a) 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, (b) 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 (c) attending the Annual Meeting and voting there 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 executive offices at Skyworks Solutions, Inc., 5221 California Avenue, Irvine, CA 92617, Attention: Secretary, or hand delivered to the Secretary of the Company, before the taking of the vote at the Annual Meeting. Can I attend the Annual Meeting? If you plan to attend the Annual Meeting, please be sure to indicate your intent to attend by checking the if you are designated box on your proxy card submitting a proxy via mail, or by indicating when prompted if you are submitting a proxy through either Skyworks’ telephone or Internet proxy submission procedures. In either case, save the admission ticket attached to your proxy (the top half) and bring that with you to the Annual Meeting. If your shares are held in ‘‘street name’’ by your broker (or other nominee), you should consult your instruction card to determine how to indicate your intent to attend the Annual Meeting. If your instruction card does not provide any such indication, you should contact your broker (or other nominee) to determine what you will need to do to be able to attend and vote at the Annual Meeting. In order to be admitted to the Annual Meeting, you will need to present your admission ticket or the appropriate documentation from your broker (or other nominee), as well as provide valid picture identification, such as a driver’s license or passport. - Page 12 - 12 If I vote by proxy, how will my vote be cast? What is a ‘‘broker non-vote’’? Proxy Statement The persons named as attorneys-in-fact in this Proxy Statement, Liam K. Griffin and Robert J. Terry, were selected by the Board of Directors and are officers of the Company. As attorneys-in-fact, Messrs. Griffin and Terry will vote any shares represented at the meeting by proxy. Each executed proxy card returned by a stockholder of record or proxy vote recorded via telephone or the Internet by a stockholder of record in the manner provided on the proxy card prior to the taking of the vote at the Annual Meeting will be voted. Where a choice has been specified 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 choices specified. How will my shares be voted if I do not give specific voting instructions when I deliver my proxy? If you are a stockholder of record and deliver a proxy but do not give specific voting instructions, then the proxy holders will vote your shares as recommended by the Board of Directors. If your shares are held in ‘‘street name,’’ your broker (or other nominee) is required to vote those shares in accordance with your instructions. If you do not give instructions to your broker (or other nominee), your broker (or other nominee) will only be entitled to vote your shares with respect to ‘‘discretionary’’ matters, as described below, but will not be permitted to vote the shares with respect to ‘‘non-discretionary’’ matters. If you beneficially own shares that are held in ‘‘street name’’ by your broker (or other nominee), we strongly encourage you to provide instructions to your broker (or other nominee) as to how to vote on the election of directors and all of the Proposals by signing, dating, and returning to your broker (or other nominee) the instruction card provided by your broker (or other nominee). If you are a participant in the 401(k) Plan, the trustee of the 401(k) Plan will not vote your 401(k) Plan shares trustee does not receive voting instructions from you by 11:59 p.m. Eastern Time on May 5, 2017, unless otherwise required by law. the if A ‘‘broker non-vote’’ occurs when your broker (or other nominee) submits a proxy for your shares (because the broker (or other nominee) has either received instructions from you on one or more proposals, but not all, or has not received instructions from you but is entitled to vote on a particular ‘‘discretionary’’ matter) but does not indicate a vote ‘‘FOR’’ a particular proposal because the broker (or other nominee) either does not have authority to vote on that proposal and has not received voting instructions from you or has ‘‘discretionary’’ authority on the proposal but chooses not to exercise it. ‘‘Broker ‘‘FOR’’ or non-votes’’ are not counted as votes ‘‘AGAINST’’ in question or as abstentions, nor are they counted to determine the number of votes present for the particular proposal. We do, however, count ‘‘broker non-votes’’ for the purpose of determining a quorum for the Annual Meeting. If your shares are held in ‘‘street name’’ by your broker (or other nominee), please check the instruction card provided by your broker (or other nominee) or contact your broker (or other nominee) to determine whether you will be able to vote by telephone or via the Internet. the proposal What vote is required for each matter? Election of Directors. Pursuant to the Company’s By-laws, a nominee will be elected to the Board of Directors if the votes cast ‘‘FOR’’ the nominee’s election at the Annual Meeting exceed the votes cast ‘‘AGAINST’’ the nominee’s election (as long as the only director nominees are those individuals set forth in this Proxy Statement). Abstentions and ‘‘broker non-votes’’ will not count as votes ‘‘FOR’’ or ‘‘AGAINST.’’ If the shares you own are held in ‘‘street name,’’ your broker (or other nominee), as the record holder of your shares, is required to vote your shares according to your instructions. Because Proposal 1 constitutes an uncontested election of directors (an election where the number of nominees for election as directors is equal to or less than the number of directors to be elected), it is not considered to be a ‘‘discretionary’’ matter for certain brokers. If you do not instruct your broker how to vote with respect to this item, your broker may not vote your shares with respect to the election of directors. In such case, a ‘‘broker - Page 13 - 13 Proxy Statement non-vote’’ may occur, which will have no effect on the outcome of Proposal 1. of Ratification Independent Registered Public Accounting Firm. The affirmative vote of a majority of the shares present in person, or represented by proxy at the Annual Meeting, and entitled to vote on such matter at the Annual Meeting, is required to approve Proposal 2. Proposal 2 involves a matter on which a broker (or other nominee) does have ‘‘discretionary’’ authority to vote. If you do not instruct your broker how to vote with respect to this item, your broker may still vote your shares with respect to this proposal in its discretion. With respect to Proposal 2, a vote of ‘‘ABSTAIN’’ will have the same effect as a vote of ‘‘AGAINST.’’ Say-on-Pay Vote. The affirmative vote of a majority of the shares present in person, or represented by proxy at the Annual Meeting, and entitled to vote on such matter at the Annual Meeting, is required to approve Proposal 3. Proposal 3 is not considered to be a ‘‘discretionary’’ matter for certain brokers. If you do not instruct your broker how to vote with respect to this item, your broker may not vote your shares with respect to this proposal. In such case, a ‘‘broker non-vote’’ may occur, which will have no effect on the outcome of Proposal 3. Votes that are marked ‘‘ABSTAIN’’ are counted as present and entitled to vote with respect to Proposal 3 and will have the same impact as a vote that for purposes of ‘‘AGAINST’’ Proposal 3. is marked the shares present Say-on-Frequency Vote. The affirmative vote of a majority of in person, or represented by proxy at the Annual Meeting, and entitled to vote on such matter at the Annual Meeting, is required to approve one of the three frequency options under Proposal 4. If none of the frequency alternatives (one year, two years, or three years) receives such a majority vote, we will consider the frequency that receives the highest number of votes by stockholders to be the frequency that has been selected by stockholders. However, because this vote is advisory and not binding on us or the Board of Directors, the Board of Directors may decide that it is in our and our stockholders’ best interests to hold an advisory vote on executive compensation more or less frequently than the alternative approved by our stockholders. Proposal 4 is not considered to be a ‘‘discretionary’’ matter for certain brokers. If you do not instruct your broker how to vote with respect to this item, your broker may not vote your shares with respect to this proposal. In such case, a ‘‘broker non-vote’’ may occur, which will have no effect on the outcome of Proposal 4. Votes that are marked ‘‘ABSTAIN’’ are counted as present and entitled to vote with respect to Proposal 4 but will not count as a vote for any of the three frequency alternatives. How does the Board of Directors recommend that I vote? The Board of Directors recommends that you vote: FOR the election of each of the nine director nominees (Proposal 1). FOR the ratification of the selection of KPMG LLP as our independent registered public accounting firm for fiscal year 2017 (Proposal 2). FOR the approval, on a non-binding basis, of the compensation of our Named Executive Officers, as described below under ‘‘Compensation Discussion and Analysis,’’ and in the executive compensation tables and accompanying narrative disclosures (Proposal 3). For every ONE YEAR with respect to the advisory vote on the frequency of future advisory votes on the compensation of the Company’s named executive officers (Proposal 4). How will the votes cast at our Annual Meeting be counted? An automated system administered by the Company’s transfer agent tabulates the votes at the Annual Meeting. The vote on each matter submitted to stockholders will be tabulated separately. Where can I find the voting results of our Annual Meeting? We expect to announce the preliminary voting results at our Annual Meeting. The final voting results will be reported in a Current Report on Form 8-K that will be - Page 14 - 14 Proxy Statement filed with the Securities and Exchange Commission (the ‘‘SEC’’) within four business days after the end of our Annual Meeting and will be posted on our website. Will my vote be kept confidential? Yes. We will keep your vote confidential unless (1) we are required by law to disclose your vote (including in connection with the pursuit or defense of a legal or administrative action or proceeding), or (2) there is a contested election for the Board of Directors. The inspector of elections will forward any written comments that you make on the proxy card to management without providing your name, unless you expressly request on your proxy card that your name be disclosed. What is the quorum requirement for our Annual Meeting? The holders of a majority of the issued and outstanding stock of the Company present either in person or by proxy at the Annual Meeting constitute a quorum for the transaction of business at the Annual Meeting. Shares that abstain from voting on any proposal and ‘‘broker non-votes’’ will be counted as shares that are present for purposes of determining whether a quorum exists at the Annual Meeting. If a ‘‘broker non-vote’’ occurs with respect to any shares of the Company’s common stock on any matter, then 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 purposes of determining whether a quorum exists because they are entitled to vote on other matters) and will not be voted. When will Skyworks next hold an advisory vote on the frequency of say-on-pay votes? Following the Annual Meeting, the next advisory vote on the frequency of say-on-pay votes is expected to be held at our 2023 Annual Meeting of stockholders. What is ‘‘householding’’? 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) 231-3223. 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 completed and submitted by telephone or via the Internet, as described on the proxy card). 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. - Page 15 - 15 Proxy Statement Proposal 1: Election of Directors Election of Directors Under this Proposal 1, you are being asked to consider nine nominees for election to our Board of Directors (all of our currently serving directors) to serve until the 2018 Annual Meeting of stockholders and until their successors are elected and qualified or until their earlier resignation or removal. The names of the nine nominees for election as directors, their current positions and offices, the year such nominees were first elected as directors of the Company and their Board committee memberships are set forth in the table below. Each nominee 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. If a nominee is unable or unwilling to serve, the attorneys-in-fact named in this Proxy Statement will vote any shares represented at the meeting by proxy for the election of another individual nominated by the Board of Directors, if any. No nominee or executive officer is related by blood, marriage, or adoption to any other director, nominee, or executive officer. No arrangements or understandings exist between any director or person nominated for election as a director and any other person pursuant to which such person is to be selected as a director or nominee for election as a director. Nominee Position(s) with the Company Chairman of the Board and Executive Chairman David J. Aldrich Lead Independent Director David J. McLachlan Director Kevin L. Beebe Director Timothy R. Furey President, Chief Executive Officer, and Director Liam K. Griffin Director Balakrishnan S. Iyer Director Christine King David P. McGlade Director Robert A. Schriesheim Director First Year of Service Audit Committee Compensation Committee Nominating and Corporate Governance Committee 2000 2000 2004 1998 2016 2002 2014 2005 2006 M M M C M M C M M M C M ‘‘C’’ indicates Chair and ‘‘M’’ indicates Member of the respective committee Immediately below this proposal is biographical information about each of the director nominees, including information regarding each nominee’s business experience for the past five years, and the names of other public companies for which each nominee has served as a director during the past five years. The information presented below regarding the specific experience, qualifications, attributes, and skills of each nominee led our Nominating and Corporate Governance Committee and our Board of Directors to conclude that he or she should serve as a director. In addition, we believe that all of our nominees have integrity, business acumen, good judgment, knowledge of our business and industry, experience in one or more areas relevant to our business and strategy, and the willingness to devote the time needed to be an effective director. Majority Vote Standard for Election of Directors A nominee for election as a director in an uncontested election (an election where the number of nominees for election as directors is equal to or less than the number of directors to be elected) will be elected if the number of votes cast ‘‘FOR’’ such nominee’s election exceed the number of votes cast ‘‘AGAINST’’ the nominee’s election. In a contested election (in which the number of nominees for election as directors exceeds the number of directors to be elected at such meeting), directors are elected by a plurality of all votes cast in such election. - Page 16 - 16 Proxy Statement The election of directors at this Annual Meeting will be uncontested. As a result, each nominee for election as a director at the Annual Meeting will only be elected if the votes cast ‘‘FOR’’ such nominee exceed the number of votes cast ‘‘AGAINST’’ such nominee. As required by our corporate governance guidelines, which are available on the Investor Relations portion of the Company’s website at http://www.skyworksinc.com, each incumbent director who is a nominee for election as a director at the Annual Meeting submitted to the Board of Directors an irrevocable resignation that would become effective if the votes cast ‘‘FOR’’ such nominee’s election do not exceed the votes cast ‘‘AGAINST’’ such nominee’s election and our Board of Directors determines to accept his or her resignation. Upon such resignation by a nominee and pursuant to the procedures set forth in the corporate governance guidelines, the Nominating and Corporate Governance Committee will evaluate the best interests of our Company and stockholders and will recommend to our Board of Directors the action to be taken with respect to the resignation. The Board of Directors will then decide whether to accept, reject, or modify the Nominating and Corporate Governance Committee’s recommendation, and the Company will publicly disclose such decision by the Board of Directors with respect to the director nominee. Shares represented by all proxies received by the Board of Directors that are properly completed, but do not specify a choice as to the election of directors and are not marked as to withhold authority to vote for the nominees, will be voted ‘‘FOR’’ the election of all nine of the nominees. THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE ‘‘FOR’’ THE ELECTION OF EACH OF THE NINE NOMINEES IN PROPOSAL 1 Nominees for Election David J. Aldrich, age 60, has served as Chairman of the Board and Executive Chairman since May 2016. Previously, he served as Chairman of the Board and Chief Executive Officer from May 2014 to May 2016 and as President and Chief Executive Officer and as a director from April 2000 to May 2014. From September 1999 to April 2000, Mr. Aldrich served as President and Chief Operating Officer. From May 1999 to September 1999, he served as Executive Vice President, and from May 1996 to May 1999, he 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 Officer and Treasurer. Prior to joining Skyworks, he held senior management positions at Adams-Russell Company and M/A-COM, Inc. Mr. Aldrich has also served since February 2007 as a director of Belden Inc. (a publicly traded designer and manufacturer of cable products and transmission solutions). We believe that Mr. Aldrich is qualified to serve as a director because of his leadership experience, his strategic decision making ability, his knowledge of the semiconductor industry and his in-depth knowledge of Skyworks’ business. Mr. Aldrich brings to the Board of Directors his thorough knowledge of Skyworks’ business, strategy, people, operations, competition, financial position, and investors. Further, as a result of his service as a director for Belden Inc., a multinational public company, Mr. Aldrich provides the Board of Directors with another organizational perspective and other cross-board experience. David J. McLachlan, age 78, has been a director since 2000 and Lead Independent Director since May 2014. He served as Chairman of the Board from May 2008 to May 2014. Mr. McLachlan served as a senior advisor to the Chairman and Chief Executive Officer of Genzyme Corporation (a publicly traded biotechnology company) from 1999 to 2004. He also was the Executive Vice President and Chief Financial Officer of Genzyme from 1989 to 1999. Prior to joining Genzyme, Mr. McLachlan served as Vice President and Chief Financial Officer of Adams-Russell Company (an electronic component supplier and cable television franchise owner). He previously served as a director of Dyax Corp. until January 2016, when it was acquired by Shire plc. - Page 17 - 17 Proxy Statement We believe that Mr. McLachlan, the current Lead Independent Director, is qualified to serve as a director because he possesses a broad range of business experience as a result of his service as both chief financial officer and director for several public companies. In particular, Mr. McLachlan has in-depth experience handling complex accounting and finance issues for a broad range of companies. He has also served on the boards and audit and governance committees of other public companies (including as chairman of the audit committee), and serves as a designated ‘‘audit committee financial expert’’ for Skyworks’ Audit Committee. Kevin L. Beebe, age 58, has been a director since January 2004. Since November 2007, he has been President and Chief Executive Officer of 2BPartners, LLC (a partnership that provides strategic, financial, and operational advice to private equity investors and management). In 2014, Mr. Beebe became a founding partner of Astra Capital Management (a private equity firm based in Washington, D.C.). Previously, beginning in 1998, he was Group President of Operations at ALLTEL Corporation (a telecommunications services company). From 1996 to 1998, Mr. Beebe served as Executive Vice President of Operations for 360(cid:3) Communications Co. (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 Administration for Sprint Cellular, Director of Marketing for Sprint North Central Division, Director of Engineering and Operations Staff and Director of Product Management and Business Development for Sprint Southeast Division, as well as Staff Director of Product Services at Sprint Corporation. Mr. Beebe began his career at AT&T/Southwestern Bell as a Manager. Mr. Beebe also serves as chairman of the board of directors of NII Holdings, Inc. (a publicly traded provider of wireless telecommunications services in Latin America), and as a director for SBA Communications Corporation (a publicly traded operator of wireless communications towers in North, South, and Central America), Syniverse Technologies, Inc. (a privately held provider of support services for wireless carriers), and Logix Communications (a privately held provider of facilities- based communications services). We believe that Mr. Beebe is qualified to serve as a director because of his two decades of experience as an operating executive in the wireless telecommunications industry. For example, as Group President of Operations at ALLTEL, he was instrumental in expanding ALLTEL’s higher margin retail business, which significantly enhanced ALLTEL’s competitive position in a dynamic, consolidating industry. In addition, as Chief Executive Officer of 2BPartners, LLC, Mr. Beebe continues to gain a broad range of business experience and to build business relationships by advising leading private equity firms that are transacting business in the global capital markets. Mr. Beebe provides cross-board experience by serving as a director for several public and private companies (including service on both audit and governance committees). Further, Mr. Beebe has served as a director of Skyworks since 2004 and has gained significant familiarity with Skyworks’ business. Timothy R. Furey, age 58, has been a director since 1998. He has been Chief Executive Officer of MarketBridge (a privately owned digital marketing software and services firm) since 1991. MarketBridge provides digital marketing, predictive analytics, and sales effectiveness solutions to Fortune 1000 companies in the software, communications, financial services, life sciences, and consumer products sectors. Mr. Furey also serves as Managing Partner of the Technology Marketing Group (which advises and invests in emerging growth companies in the social media, mobile, and marketing automation markets). Prior to 1991, Mr. Furey worked with the Boston Consulting Group, Strategic Planning Associates, Kaiser Associates, and the Marketing Science Institute. We believe that Mr. Furey is qualified to serve as a director because his experience as Chief Executive Officer of MarketBridge, as well as his engagements with MarketBridge’s clients (many of which are Fortune 1000 companies), provide him with a broad range of knowledge regarding business operations and growth strategies. In addition, Mr. Furey has extensive knowledge regarding Skyworks’ business, which he has acquired through over 18 years of service on the Board of Directors. 18 - Page 18 - Proxy Statement Liam K. Griffin, age 50, is President and Chief Executive Officer and a director of the Company. Prior to his appointment as Chief Executive Officer and to the board of directors in May 2016, he had served as President since May 2014. He served as Executive Vice President and Corporate General Manager from November 2012 to May 2014, Executive Vice President and General Manager, High Performance Analog from May 2011 to November 2012, and Senior Vice President, Sales and Marketing from August 2001 to May 2011. Previously, Mr. Griffin 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. Mr. Griffin also serves as a director of Vicor Corp. (a publicly traded designer, developer, manufacturer and marketer of modular power components and complete power systems). We believe that Mr. Griffin is qualified to serve as a director because of his breadth of leadership experience and in-depth understanding of Skyworks’ business gained through serving in several different executive positions at Skyworks over the past 15 years. Mr. Griffin brings to the Board of Directors strong relationships with Skyworks’ key customers, investors, employees, and other stakeholders, as well as a deep understanding of the semiconductor industry and its competitive landscape. His service as a director for Vicor Corp. gives Mr. Griffin added perspective regarding the challenges confronting public technology companies. Balakrishnan S. Iyer, age 60, has been a director since June 2002. He served as Senior Vice President and Chief Financial Officer of Conexant Systems, Inc., from October 1998 to June 2003. Prior to joining Conexant, Mr. Iyer served as Senior Vice President and Chief Financial Officer 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 boards of directors of Power Integrations, Inc., and IHS Markit Ltd. (each a publicly traded company). He served as a director of Conexant from February 2002 until April 2011, as a director of Life Technologies Corp. from July 2001 until February 2014, when it was acquired by Thermo Fisher Scientific Inc., as a director of IHS Inc. from December 2003 until July 2016, when it completed a merger with Markit Ltd., and as a director of QLogic Corporation from June 2003 until August 2016, when it was acquired by Cavium, Inc. We believe that Mr. Iyer is qualified to serve as a director because his experience as an executive officer of companies in the technology industry provides him with leadership, strategic, and financial experience. Through his experiences as a director at the public companies listed above (including as a member of certain audit, governance, and compensation committees) he provides the Board of Directors with significant financial expertise as a designated ‘‘audit committee financial expert’’ for Skyworks’ Audit Committee, bringing specific application to our industry, as well as a broad understanding of corporate governance topics. Christine King, age 67, has been a director since January 2014. Ms. King served as Executive Chairman of QLogic Corporation (a publicly traded developer of high performance server and storage networking connectivity products) from August 2015 until August 2016, when it was acquired by Cavium, Inc. Previously, she served as a director and as Chief Executive Officer of Standard Microsystems Corporation (a publicly traded developer of silicon- based integrated circuits utilizing analog and mixed-signal technologies) from 2008 until the company’s acquisition in 2012 by Microchip Technology, Inc. Prior to Standard Microsystems, Ms. King was Chief Executive Officer of AMI Semiconductor, Inc., a publicly traded company, from 2001 until it was acquired by ON Semiconductor Corp. in 2008. From 1973 to 2001, Ms. King held various engineering, business, and management positions at IBM Corp., including Vice President of Semiconductor Products. Ms. King currently serves as a director of Cirrus Logic, Inc., and IDACORP, Inc. (each a publicly traded company), and as a director of Idaho Power Company (a subsidiary of IDACORP). She previously served as a director of QLogic Corporation, Analog Devices, Inc., and Atheros Communications, Inc., prior to its acquisition by Qualcomm, Inc. 19 - Page 19 - Proxy Statement We believe that Ms. King is qualified to serve as a director because of her extensive management and operational experience in the high tech and semiconductor industries. In particular, through her experience as Executive Chairman of QLogic and as Chief Executive Officer of Standard Microsystems and AMI Semiconductor, as well as her service as a director of other public companies, Ms. King provides the Board of Directors with significant strategic, operational, and financial expertise. David P. McGlade, age 56, has been a director since February 2005. He has served as Executive Chairman of Intelsat S.A. (a publicly traded worldwide provider of satellite communication services) since April 2015, prior to which he served as Chairman and Chief Executive Officer. Mr. McGlade joined Intelsat in April 2005 and was the Deputy Chairman of Intelsat from August 2008 until April 2013. Previously, Mr. McGlade served as an Executive Director of mmO2 PLC and as the Chief Executive Officer of O2 UK (a subsidiary of mmO2), a position he held from October 2000 until March 2005. Before joining O2 UK, Mr. McGlade was President of the Western Region for Sprint PCS. We believe that Mr. McGlade is qualified to serve as a director because of his 32 years of experience in the telecommunications business, which have allowed him to acquire significant operational, strategic, and financial business acumen. Most recently, as a result of his work as the Chief Executive Officer of Intelsat, Mr. McGlade gained significant leadership and operational experience, as well as knowledge about the global capital markets. Robert A. Schriesheim, age 56, has been a director since May 2006. He served as Executive Vice President and Chief Financial Officer of Sears Holdings from August 2011 to October 2016. From January 2010 to October 2010, Mr. Schriesheim was Chief Financial Officer of Hewitt Associates, Inc. (a global human resources consulting and outsourcing company that was acquired by Aon Corporation). From October 2006 until December 2009, he was the Executive Vice President and Chief Financial Officer of Lawson Software, Inc. (a publicly traded ERP software provider). From August 2002 to October 2006, he was affiliated with ARCH Development Partners, LLC (a seed stage venture capital fund). Before joining ARCH, Mr. Schriesheim held executive positions at Global TeleSystems, SBC Equity Partners, Ameritech, AC Nielsen, and Brooke Group Ltd. Mr. Schriesheim currently serves as a director of Houlihan Lokey Inc. (a publicly traded financial services firm) and NII Holdings, Inc. (a publicly traded provider of wireless telecommunications services in Latin America), and previously served as a director of Lawson Software until its sale in July 2011. In addition, from 2004 until 2007, he was also a director of Dobson Communications Corp. (a former publicly traded wireless services communications company that was acquired by AT&T Inc.) and from 2007 until 2009 he served as a director of MSC Software Corp. (a former publicly traded provider of integrated simulation solutions for designing and testing manufactured products that was acquired by Symphony Technology Group). We believe that Mr. Schriesheim is qualified to serve as a director because of his extensive knowledge of the capital markets, experience with corporate financial capital structures, and long history of evaluating and structuring merger and acquisition transactions within the technology sector. Mr. Schriesheim also has significant experience, as a senior executive and director in both public and private companies in the technology sector, leading companies through major strategic and financial corporate transformations while doing business in the global marketplace. He also serves as a designated ‘‘audit committee financial expert’’ for Skyworks’ Audit Committee. In addition to the information presented above regarding each director’s specific experience, qualifications, attributes and skills that led our Board of Directors to conclude that he or she should serve as a director, we also believe that each of our directors has a reputation for integrity, honesty and adherence to high ethical standards. They have each demonstrated business acumen, an ability to exercise sound judgment, and a commitment of service to Skyworks. 20 - Page 20 - Proxy Statement Corporate Governance Board of Director Meetings The Board of Directors met eight (8) times during fiscal year 2016. During fiscal year 2016 (or the portion thereof during which the director served), each director attended at least 75% of the aggregate of the total number of meetings of the Board of Directors and the total number of meetings held by all committees of the Board of Directors on which he or she served. The Company’s policy with respect to directors’ attendance at the Annual Meeting is available on the Investor Relations portion of the Company’s website at http://www.skyworksinc.com (see corporate governance guidelines). At the 2016 Annual Meeting, each director then in office was in attendance, with the exception of Mr. Schriesheim. 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 the applicable Listing Rules of the NASDAQ Stock Market LLC (the ‘‘NASDAQ Rules’’) and who the Board of Directors affirmatively 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 a member of the Company’s Board of Directors is a director or executive officer. After evaluating these factors, the Board of Directors has determined that a majority of the members of the Board of Directors, namely, Kevin L. Beebe, Timothy R. Furey, Balakrishnan S. Iyer, Christine King, David J. McLachlan, David P. McGlade, and Robert A. Schriesheim, do not have any relationships that would interfere with the exercise of independent judgment in carrying out their responsibilities as directors and that each such director is an independent director of the Company within the meaning of applicable NASDAQ Rules. Corporate Governance Guidelines The Board of Directors has adopted corporate governance practices to help fulfill 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 of Directors 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 of the Company’s 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 four (4) times during fiscal year 2016. Mr. McLachlan, the Lead Independent Director, served as 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 letter addressed directly to such individual or individuals at the following address: c/o Skyworks Solutions, Inc., 20 Sylvan Road, Woburn, MA 01801. The Company will forward to each director to whom such communication is - Page 21 - 21 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 office to the address specified by such director and the Chairman of the Board. Proxy Statement Code of Ethics We have adopted a written code of business conduct and ethics that applies to our directors, officers, and employees, including our principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions. We make available our code of business conduct and ethics through our website at http://www.skyworksinc.com. We intend to disclose any amendments to, or waivers from, our code of business conduct and ethics that are required to be publicly disclosed by posting any such amendment or waivers on our website pursuant to SEC requirements and NASDAQ Rules. Executive Officer and Director Stock Ownership Requirements As described in detail below under ‘‘Compensation Discussion and Analysis,’’ we have adopted Executive Officer and Director Stock Ownership programs that require our executive officers (including those Named Executive Officers who are still currently serving as executive officers) and non-employee directors to hold a significant equity interest in Skyworks with the objective of more closely aligning the interests of our executive officers and directors with those of our stockholders. All of our Named Executive Officers who remain executive officers of the Company and all of our directors have met the stock ownership guidelines as of the date hereof, with the exception of Messrs. Griffin and Sennesael (each of whom has until the third anniversary of the date he assumed his current position to meet the stock ownership guidelines). Based on the vesting schedule of certain RSUs, Mr. Griffin is expected to meet his ownership guidelines prior to the date of the Annual Meeting. Board Leadership Structure Our Board of Directors selects the Company’s Chairman of the Board and Chief Executive Officer in the manner it determines to be in the best interests of the Company. In May 2014, our Board of Directors appointed Mr. Aldrich, who had previously served as the Company’s President and Chief Executive Officer, to serve as Chairman of the Board and Chief Executive Officer, and in May 2016, our Board of Directors appointed Mr. Aldrich to serve as Chairman of the Board and Executive Chairman. At the time of Mr. Aldrich’s appointment as Chairman of the Board in May 2014, our Board of Directors appointed Mr. McLachlan, the prior Chairman of the Board and an independent director within the meaning of applicable NASDAQ Rules (see above under ‘‘Director Independence’’), as the Lead Independent Director. At the time of Mr. Aldrich’s appointment as Executive Chairman in May 2016, our Board of Directors appointed Mr. Griffin to serve as President and Chief Executive Officer and elected Mr. Griffin to serve as a director. Mr. McLachlan’s duties as Lead Independent Director, as set forth in our corporate governance guidelines, include the following: (cid:127) Presiding at all meetings of the Board of Directors at which the Chairman of the Board is not present, including executive sessions of the independent directors; (cid:127) Calling meetings of the independent directors, as he deems appropriate, and assuring that the independent directors meet independently at least twice each year; (cid:127) Providing leadership to the Board of Directors if circumstances arise in which the Chairman of the Board may be, or may be perceived to be, in conflict with the interests of the Company and its stockholders with regard to a particular matter; 22 - Page 22 - Proxy Statement (cid:127) Facilitating communications and serving as a liaison, when necessary, between the independent directors and the Chairman of the Board and/or the Chief Executive Officer; (cid:127) Consulting with the Chairman of the Board in the preparation of the schedules, agendas, and information provided to the Board of Directors for each meeting, and ensuring that there is sufficient time at each meeting for discussion of all agenda items; (cid:127) Retaining independent advisors on behalf of the Board of Directors as the Board of Directors or the independent directors may deem necessary or appropriate; and (cid:127) Being available for consultation and direct communication upon the reasonable request of major stockholders. Committees of the Board of Directors The Board of Directors has a standing Audit Committee, Compensation Committee, and Nominating and Corporate Governance Committee. Audit Committee We have established an Audit Committee consisting of the following individuals, each of whom the Board of Directors has determined is ‘‘independent’’ within the meaning of applicable NASDAQ Rules and meets the criteria for independence set forth in Rule 10A-3(b)(1) under the Securities Exchange Act of 1934, as amended (the ‘‘Exchange Act’’): Messrs. Schriesheim (Chairman), Beebe, Iyer, and McLachlan. The primary responsibility of the Audit Committee is the oversight of the quality and integrity of the Company’s financial statements, the Company’s internal financial and accounting processes, and the independent audit process. Additionally, the Audit Committee has the responsibilities and authority necessary to comply with Rule 10A-3 under the Exchange Act. The Audit Committee meets privately with the independent registered public accounting firm, reviews their performance and independence from management, and has the sole authority to retain and dismiss the independent registered public accounting firm. These and other aspects of the Audit Committee’s authority are more particularly described in the Company’s Audit Committee Charter, which the Board of Directors adopted and 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 registered public accounting firm, KPMG LLP. The policy requires that all services provided by KPMG LLP, including audit services and permitted audit-related and non-audit services, be preapproved by the Audit Committee. The Audit Committee preapproved all audit and non-audit services provided by KPMG LLP for fiscal year 2016. The Audit Committee met nine (9) times during fiscal year 2016. Audit Committee Financial Expert The Board of Directors has determined that each of Messrs. Schriesheim (Chairman), Iyer, and McLachlan, meets the qualifications of an ‘‘audit committee financial expert’’ under SEC rules and the qualifications of ‘‘financial sophistication’’ under the applicable NASDAQ Rules, and qualifies as ‘‘independent’’ as defined under the applicable NASDAQ Rules. The Board of Directors has also determined that Ms. King and Mr. McGlade each would meet the qualifications of an ‘‘audit committee financial expert’’ under current SEC rules and the qualifications of ‘‘financial sophistication’’ under current NASDAQ Rules if appointed to serve on the audit committee in the future. - Page 23 - 23 Compensation Committee Proxy Statement We have established a Compensation Committee consisting of the following individuals, each of whom the Board of Directors has determined is ‘‘independent’’ within the meaning of applicable NASDAQ Rules: Ms. King (Chairman) and Messrs. Furey, Beebe, and McGlade. The Compensation Committee met five (5) times during fiscal year 2016. The functions of the Compensation Committee include establishing the appropriate level of compensation, including short and long-term incentive compensation of the Chief Executive Officer, all other executive officers, and any other officers or employees who report directly to the Chief Executive Officer. The Compensation Committee also administers Skyworks’ equity-based compensation plans. The Compensation Committee’s authority to grant equity awards to the Company’s executive officers may not be delegated to the Company’s management or others. The Board of Directors has adopted a written charter for the Compensation Committee, and it is available on the Investor Relations portion of the Company’s website at http://www.skyworksinc.com. The Compensation Committee has engaged Aon/Radford Consulting (‘‘Aon/Radford’’) to assist it in determining the components and amounts of executive compensation. The consultant reports directly to the Compensation Committee, through its Chairman, and the Compensation Committee retains the right to terminate or replace the consultant at any time. The process and procedures followed by the Compensation Committee in considering and determining executive and director compensation are described below under ‘‘Compensation Discussion and Analysis.’’ Nominating and Corporate Governance Committee We have established a Nominating and Corporate Governance Committee consisting of the following individuals, each of whom the Board of Directors has determined is ‘‘independent’’ within the meaning of applicable NASDAQ Rules: Messrs. Iyer (Chairman), Furey, McGlade, and McLachlan. The Nominating and Corporate Governance Committee met three (3) times during fiscal year 2016. The Nominating and Corporate Governance Committee is responsible for evaluating and recommending individuals for election or reelection to the Board of Directors and its committees, including any recommendations that may be submitted by stockholders, the annual self-evaluations 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 the Board of Directors adopted and is available on the Investor Relations portion of the Company’s website at http://www.skyworksinc.com. Director Nomination Procedures 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 affairs 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 qualifications, including the following: (cid:127) A director must have substantial or significant business or professional experience or an understanding of technology, finance, marketing, financial reporting, international business, or other disciplines relevant to the business of the Company. - Page 24 - 24 Proxy Statement (cid:127) 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. (cid:127) 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: (cid:5) economic, technical, scientific, academic, financial, accounting, legal, marketing, or other expertise applicable to the business of the Company; (cid:5) leadership or substantial achievement in their particular fields; (cid:5) demonstrated ability to exercise sound business judgment; (cid:5) integrity and high moral and ethical character; (cid:5) potential to contribute to the diversity of viewpoints, backgrounds, or experiences of the Board of Directors as a whole; (cid:5) capacity and desire to represent the balanced, best interests of the Company as a whole and not primarily a special interest group or constituency; (cid:5) ability to work well with others; (cid:5) high degree of interest in the business of the Company; (cid:5) dedication to the success of the Company; (cid:5) commitment to the responsibilities of a director; and (cid:5) international business or professional experience. The committee does not have a formal policy with respect to diversity, but believes that our Board of Directors, taken as a whole, should embody a diverse set of skills, experiences, and backgrounds in order to better inform its decisions. The committee will also take into account the fact that a majority of the Board of Directors must meet the independence requirements of the applicable NASDAQ 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 each director’s past attendance at meetings and participation in and contributions to the activities of the Board of Directors. The committee identifies candidates for director nominees in consultation with the Chief Executive Officer of the Company and the Chairman of the Board of Directors, through the use of search firms or other advisors or through such other methods as the committee deems to be helpful to identify candidates. Once candidates have been identified, the committee confirms that the candidates meet all of the minimum qualifications 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. 25 - Page 25 - Stockholder Nominees Proxy Statement The Nominating and Corporate Governance Committee will consider director candidates recommended by stockholders provided such stockholders follow the procedures set forth below. The committee does not intend to alter the manner in which it evaluates candidates, including the criteria set forth above, based on whether the candidate was recommended by a stockholder or otherwise. Stockholders who wish to nominate director candidates for election at the 2018 Annual Meeting, but who are not to be included in the Company’s proxy materials pursuant to the proxy access provisions in our By-laws, may do so in accordance with the provisions of our By-laws by submitting a written recommendation to the Secretary of the Company at the address below no earlier than the close of business on January 10, 2018, and no later than the close of business on February 9, 2018. In the event that the 2018 Annual Meeting is held more than thirty (30) days before or after the first anniversary of the Company’s 2017 Annual Meeting, then the required notice must be delivered in writing to the Secretary of the Company at the address below no earlier than 120 days prior to the date of the 2018 Annual Meeting and no later than the later of 90 days prior to the 2018 Annual Meeting or the 10th day following the day on which the public announcement of the date of the 2018 Annual Meeting is first made by the Company. For nominees 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: (cid:127) name of the stockholder, whether an entity or an individual, making the recommendation; (cid:127) a written statement disclosing such stockholder’s beneficial ownership of the Company’s capital stock; (cid:127) name of the individual recommended for consideration as a director nominee; (cid:127) a written statement from the stockholder making the recommendation stating why such recommended candidate would be able to fulfill the duties of a director; (cid:127) a written statement from the stockholder making the recommendation stating how the recommended candidate meets the independence requirements established by the SEC and the applicable NASDAQ Rules; (cid:127) a written statement disclosing the recommended candidate’s beneficial ownership of the Company’s capital stock; and (cid:127) a written statement disclosing relationships between the recommended candidate and the Company that may constitute a conflict of interest. A stockholder (or a group of up to twenty stockholders) who has owned at least three percent of the Company’s outstanding shares of common stock continuously for at least three years, and has complied with the other requirements in the Company’s By-laws, may nominate and include in the Company’s proxy materials a number of director nominees up to the greater of two individuals or 20% of the Board of Directors. Written notice of a proxy access nomination for inclusion in our proxy statement for the 2018 Annual Meeting of stockholders must be submitted to the Secretary of the Company at the address below no earlier than the open of business on December 11, 2017, and no later than the close of business on January 10, 2018. In the event that the 2018 Annual Meeting is held more than thirty (30) days before, or more than sixty (60) days after, the first anniversary of the Company’s 2017 Annual Meeting, then the required notice must be delivered in writing to the Secretary of the Company at the address below no earlier than 150 days prior to the date of the 2018 Annual Meeting and no later than the later of 120 days prior to the 2018 Annual Meeting or the 10th day following the day on which the public announcement of the date of the 2018 Annual Meeting is first made by the Company. - Page 26 - 26 Proxy Statement Written notice of proxy access nominations and written recommendations for nomination may be sent to the Secretary of the Company via U.S. mail or expedited delivery service to Skyworks Solutions, Inc., 20 Sylvan Road, Woburn, Massachusetts 01801. Role of the Board of Directors in Risk Oversight Our Board of Directors oversees our risk management processes directly and through its committees. Our management team is responsible for risk management on a day-to-day basis. The role of our Board of Directors and its committees is to oversee the risk management activities of our management team. They fulfill this duty by discussing with management the policies and practices utilized by management in assessing and managing risks and providing input on those policies and practices. In general, our Board of Directors oversees risk management activities relating to business strategy, capital allocation, organizational structure, certain operational risks, and acquisitions; our Audit Committee oversees risk management activities related to financial controls and legal and compliance risks; our Compensation Committee oversees risk management activities relating to our compensation policies and practices as well as management succession planning; and our Nominating and Corporate Governance Committee oversees risk management activities relating to Board composition. Each committee reports to the Board of Directors on a regular basis, including reports with respect to the committee’s risk oversight activities as appropriate. In addition, since risk issues often overlap, committees from time to time request that the Board of Directors discuss particular risks. Our Compensation Committee does not believe that any risks arising from our employee compensation policies and practices are reasonably likely to have a material adverse effect on our company. Our Compensation Committee believes that any such risks are mitigated by: (cid:127) The multiple elements of our compensation packages, including base salary, our annual short-term incentive compensation plan and (for our executive officers and other key employees) equity awards that vest (or are issuable) over multiple years and are intended to motivate employees to take a long-term view of our business. (cid:127) The structure of our short-term incentive compensation plan (described in greater detail in this Proxy Statement under ‘‘Compensation Discussion and Analysis’’), which is based on (i) a number of different financial and operating performance metrics to avoid employees placing undue emphasis on any particular performance metric at the expense of other aspects of our business, and (ii) performance targets that we believe are appropriately aggressive yet will not require undue risk-taking to achieve. Further, the structure of the short-term incentive compensation plan aids in driving sustained long-term financial performance as the goals and targets from the prior year’s plan are significant factors used in determining goals for the current year’s plan. Compensation Committee Interlocks and Insider Participation The Compensation Committee of the Board of Directors currently consists of, and during fiscal year 2016 consisted of, Ms. King and Messrs. Beebe, Furey, and McGlade. Mr. Furey served as chairman of the committee until May 11, 2016, when Ms. King succeeded him as chairman of the committee. No member of this committee was at any time during fiscal year 2016 an officer or employee of the Company, was formerly an officer of the Company or any of its subsidiaries, or had any employment relationship with the Company or any of its subsidiaries. No executive officer of the Company has served as a director or member of the compensation committee (or other committee serving an equivalent function) of any other entity, one of whose executive officers served as a director of or member of the Compensation Committee. - Page 27 - 27 Certain Relationships and Related Person Transactions Proxy Statement Other than compensation agreements and other arrangements described below under ‘‘Information About Executive and Director Compensation,’’ since October 3, 2015, there has not been a transaction or series of related transactions to which the Company was or is a party involving an amount in excess of $120,000 and in which any director, executive officer, holder of more than five percent (5%) of any class of our voting securities, or any member of the immediate family of any of the foregoing persons, had or will have a direct or indirect material interest. In January 2008, the Board of Directors adopted a written related person transaction approval policy that sets forth the Company’s policies and procedures for the review, approval or ratification of any transaction required to be reported in its filings with the SEC. The Company’s policy with regard to related person transactions is that all related person transactions between the Company and any related person (as defined in Item 404 of Regulation S-K) or their affiliates, in which the amount involved is equal to or greater than $120,000, be reviewed by the Company’s General Counsel and approved in advance by the Audit Committee. In addition, the Company’s code of business conduct and ethics requires that employees discuss with the Company’s Compliance Officer any significant relationship (or transaction) that might raise doubt about such employee’s ability to act in the best interest of the Company. Proposal 2: Ratification of Independent Registered Public Accounting Firm The Audit Committee has selected KPMG LLP as the Company’s independent registered public accounting firm for fiscal year 2017 and has further directed that management submit the selection of the independent registered public accounting firm for ratification by the stockholders at the Annual Meeting. KPMG LLP was the independent registered public accounting firm for the Company for fiscal year 2016, and has been the independent registered public accounting firm for the Company and its predecessor, Alpha Industries, Inc., since 1975. We are asking the stockholders to ratify the selection of KPMG LLP as the Company’s independent registered public accounting firm for fiscal year 2017. 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 ratification of the selection of KPMG LLP as the Company’s independent registered public accounting firm 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 ratification as a matter of good corporate practice. The affirmative vote of a majority of the shares present in person or represented by proxy at the Annual Meeting and entitled to vote on such matter at the Annual Meeting is required to approve the selection of KPMG LLP as the Company’s independent registered public accounting firm. In the event stockholders fail to ratify the appointment, the Audit Committee may reconsider this appointment. Even if the appointment is ratified, the Audit Committee, in its discretion, may direct the appointment of a different independent registered public accounting firm 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. - Page 28 - 28 Audit Fees Proxy Statement KPMG LLP provided audit services to the Company consisting of the annual audit of the Company’s 2016 consolidated financial statements contained in the Company’s Annual Report on Form 10-K and reviews of the financial statements contained in the Company’s Quarterly Reports on Form 10-Q for fiscal year 2016. The following table summarizes the fees of KPMG LLP billed to the Company for the last two fiscal years. Fee Category Audit Fees(1) Audit-Related Fees Tax Fees(2) All Other Fees(3) Total Fees Fiscal Year 2016 ($) % of Total (%) Fiscal Year 2015 ($) % of Total (%) 1,769,135 — 76,300 43,650 1,889,085 94 — 4 2 100 1,624,175 — 66,800 1,650 1,692,625 96 — 4 — 100 (1) (2) (3) Audit fees consist of fees for the audit of our annual financial statements, review of the interim financial statements included in our quarterly reports on Form 10-Q, statutory audits and related filings in various foreign locations and audit procedures related to acquisition activity during fiscal years 2016 and 2015. Fiscal year 2016 and 2015 audit fees included fees for services incurred in connection with rendering an opinion under Section 404 of the Sarbanes-Oxley Act. Fiscal year 2015 audit fees also included fees for the review of registration statement auditor consents to incorporate by reference prior year financial statement opinions in Form S-8 filings. Tax fees consist of fees for tax compliance, tax advice and tax planning services. Tax compliance services, which primarily relate to the review of our U.S. tax returns and certain trade and customs forms, accounted for $72,500 and $60,000 of the total tax fees for fiscal year 2016 and 2015, respectively. All other fees for fiscal year 2016 relate to fees incurred for conflict mineral reporting compliance and licenses to accounting and research software. All other fees for fiscal year 2015 relate to fees incurred for licenses to accounting and research software. In 2003, the Audit Committee adopted a formal policy concerning approval of audit and non-audit services to be provided to the Company by its independent registered public accounting firm, KPMG LLP. The policy requires that all services provided by KPMG LLP, including audit services and permitted audit-related and non-audit services, be preapproved by the Audit Committee. The Audit Committee preapproved all audit and non-audit services provided by KPMG LLP during fiscal year 2016 and our fiscal year ended October 2, 2015 (‘‘fiscal year 2015’’). THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE ‘‘FOR’’ THE RATIFICATION OF THE SELECTION OF KPMG LLP AS THE INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM OF THE COMPANY FOR FISCAL YEAR 2017 - Page 29 - 29 Proxy Statement 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 four directors, each of whom is independent within the meaning of applicable NASDAQ Rules and meets the criteria for independence set forth in Rule 10A-3(b)(1) under the Exchange Act. The Audit Committee operates under a written charter approved by the Board of Directors. Management is responsible for the Company’s internal control and financial reporting process. The Company’s independent registered public accounting firm is responsible for performing an independent audit of Skyworks’ consolidated financial statements in accordance with generally accepted auditing standards and for issuing a report concerning such financial 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 representatives of KPMG LLP, the Company’s independent registered public accounting firm, and reviewed and discussed the audited financial statements for fiscal year 2016, results of the internal and external audit examinations, evaluations of the Company’s internal controls, and the overall quality of Skyworks’ financial reporting. The Audit Committee also discussed with the independent registered public accounting firm the matters required to be discussed by Auditing Standard No. 16, ‘‘Communications with Audit Committees,’’ issued by the Public Company Accounting Oversight Board. In addition, the Audit Committee has received the written disclosures and the letter from its independent registered public accounting firm required by applicable requirements of the Public Company Accounting Oversight Board regarding the independent accountant’s communications with the Audit Committee concerning independence and has discussed with the independent registered public accounting firm the independent registered public accounting firm’s independence from the Company and its management, including the matters in the written disclosures and letter that were received by the committee from such firm. Based upon the Audit Committee’s review and discussions described above, the Audit Committee recommended that the Board of Directors include the audited consolidated financial statements in the Company’s Annual Report on Form 10-K for fiscal year 2016, as filed with the SEC. THE AUDIT COMMITTEE Kevin L. Beebe Balakrishnan S. Iyer David J. McLachlan Robert A. Schriesheim, Chairman - Page 30 - 30 Proxy Statement Proposal 3: Advisory Vote on the Compensation of Our Named Executive Officers (‘‘Say-on-Pay Vote’’) We are providing our stockholders with the opportunity to vote to approve, on a non-binding basis, the compensation of our Named Executive Officers as described below under ‘‘Information About Executive and Director Compensation’’ pursuant to Section 14A of the Exchange Act. At our 2016 Annual Meeting of stockholders, approximately 96% of the votes cast by our stockholders were in favor of the compensation of the Company’s named executive officers as disclosed in the proxy statement delivered to our stockholders in connection with the 2016 Annual Meeting. As we describe below under ‘‘Compensation Discussion and Analysis,’’ our executive compensation program embodies a pay-for-performance philosophy that supports our business strategy and aligns the interests of our executives with our stockholders. In addition, our Board of Directors believes that the Company’s financial performance over the last fiscal year demonstrates that our executive compensation program was designed appropriately and is working effectively to support long-term value creation. Our Board of Directors is asking stockholders to approve a non-binding advisory vote on the following resolution: RESOLVED, that the Company’s stockholders approve, on an advisory basis, the compensation paid to the Company’s named executive officers, as disclosed pursuant to the compensation disclosure rules of the including the Compensation Discussion and Analysis, the Securities and Exchange Commission, compensation tables, and any related material disclosed in this Proxy Statement. As an advisory vote, this proposal is not binding and will not overrule any decision by the Company or the Board of Directors (or any committee thereof), nor will it create or imply any change or addition to the fiduciary duties of the Company or the Board of Directors (or any committee thereof). However, our Compensation Committee and Board of Directors value the opinions expressed by our stockholders in their vote on this proposal and will consider the outcome of the vote when making future compensation decisions for Named Executive Officers. Unless the Board of Directors modifies its policy on the frequency of future say-on-pay votes, the next non-binding say-on-pay vote will be held at our 2018 Annual Meeting of stockholders. THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE TO APPROVE THE COMPENSATION OF OUR NAMED EXECUTIVE OFFICERS BY VOTING ‘‘FOR’’ PROPOSAL 3 - Page 31 - 31 Proxy Statement Proposal 4: Advisory Vote on the Frequency of Future Advisory Votes on the Compensation of Our Named Executive Officers (‘‘Say-on-Frequency Vote’’) Pursuant to Section 14A of the Exchange Act, we are providing our stockholders with the opportunity to vote, on a non-binding basis, on the frequency of future advisory votes on the compensation of the Company’s named executive officers, which is commonly referred to as ‘‘say-on-frequency.’’ Stockholders may indicate whether they would prefer that we conduct future advisory say-on-pay votes once every one, two, or three years, or they may abstain from casting a vote on this Proposal 4. We last held an advisory say-on-frequency vote at our 2011 Annual Meeting of stockholders, in which approximately 80% of the votes cast by our stockholders were in favor of the Company holding advisory say-on-pay votes every year. Following such vote in 2011, the Board of Directors determined that the Company would hold advisory say-on-pay votes on an annual basis until the Board of Directors determines that a different frequency for such votes is in the best interests of the Company’s stockholders. We continue to believe that advisory say-on-pay votes should be conducted on an annual basis, to allow stockholders to express their views on the compensation of our named executive officers and to react to emerging trends in compensation. As an advisory vote, this proposal is not binding and will not overrule any decision by the Company or the Board of Directors (or any committee thereof), nor will it create or imply any change or addition to the fiduciary duties of the Company or the Board of Directors (or any committee thereof). However, our Compensation Committee and Board of Directors value the opinions expressed by our stockholders in their votes on this proposal and will consider the outcome of the vote when making future decisions regarding the frequency of say-on-pay votes. Section 14A of the Exchange Act requires that the say-on-frequency vote be held at least once every six years. Following the Annual Meeting, the next advisory say-on-frequency vote is expected to be held at our 2023 Annual Meeting of stockholders. THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE TO HOLD FUTURE ADVISORY SAY-ON-PAY VOTES EVERY ‘‘ONE YEAR’’ - Page 32 - 32 Proxy Statement Information About Executive and Director Compensation Summary and Highlights Financial Performance (cid:127) For fiscal year 2016, we achieved record net revenue of approximately $3.3 billion, operating margin of approximately 34% on a GAAP basis (approximately 38% on a non-GAAP basis), and diluted earnings per share of $5.18 on a GAAP basis ($5.57 on a non-GAAP basis).1 (cid:127) During fiscal year 2016, we returned approximately $727 million to shareholders through repurchasing eight million shares of our common stock for $526 million and through payments of $201 million in cash dividends, which together represented a 102% increase over the $360 million returned to shareholders during fiscal year 2015. (cid:127) Our ending cash and cash equivalents balance increased 4% to $1,084 million in fiscal year 2016 from $1,044 million in fiscal year 2015. This was the result of a 10% increase in cash from operations to $1,096 million in fiscal year 2016 due to higher net income partially offset by changes in working capital. In addition, during fiscal year 2016, we invested approximately $189 million in capital expenditures and $132 million related to business acquisition activity. (cid:127) Total stockholder return (‘‘TSR’’) for the five-year period ending September 30, 2016, was 336%, compared with a weighted average TSR of 201% for the 12 publicly traded semiconductor companies in our peer group (which consists of the Comparator Group, as described below, excluding Altera, Broadcom, and Freescale, all of which were acquired during fiscal year 2016) and a weighted average TSR of 143% for the companies in the S&P 500 Semiconductors Index. Compensation Program Alignment with Long-Term Interests of Stockholders (cid:127) We emphasize pay-for-performance and tie a significant amount of our Named Executive Officers’ annual compensation to our performance in the form of incentive-based compensation, with the majority being in equity-based compensation. We believe that through the combination of our equity-based incentive compensation program and executive stock ownership guidelines, the interests of our executives are strongly aligned with those of our long-term stockholders—namely, increasing stockholder value over time. (cid:127) The table below shows the target total direct compensation mix for fiscal year 2016 for Mr. Griffin, who was our Chief Executive Officer at the end of fiscal year 2016, for Mr. Aldrich, who was our Executive Chairman at the end of fiscal year 2016, and the average for the other Named Executive Officers. The target total direct compensation mix for fiscal year 2016 reflects actual salary, target short-term incentive award, and the grant date fair value of stock option, performance share, and restricted stock unit awards, 1 Please see table on page 69 for a full reconciliation of non-GAAP results to GAAP results. - Page 33 - 33 Proxy Statement including long-term stock-based awards granted in connection with a Named Executive Officer’s promotion or commencement of employment. Chief Executive Officer Executive Chairman Average of Other Named Executive Officers 9% 10% 15% 11% 16% 11% 80% 74% 74% Base Salary Short-Term Incentive Long-Term Stock Incentive (cid:127) We provide short-term incentive compensation to motivate executives to achieve key near-term (i.e., a year or less) financial and/or operational objectives. Because the Company failed to achieve the nominal non-GAAP operating income performance goal in fiscal year 2016, no short-term compensation awards were paid to the Named Executive Officers. (cid:127) We provide longer-term equity-based compensation in the form of performance share awards and stock options to incentivize our executive officers to achieve goals each year that we believe will result in significant increases in stockholder value over the longer term, thereby aligning their interests with those of our stockholders. (cid:5) Stock options closely align the long-term interests of our executives with those of our stockholders because the recipient will only realize a return on the option if our stock price increases over the life of the option. In addition, awards of stock options align with our growth strategy and provide significant financial upside if our growth objectives are achieved, while placing a significant portion of our executives’ compensation at risk if our objectives are not achieved. (cid:5) Shares are received under performance share awards only upon satisfaction of ‘‘performance’’ and ‘‘continued employment’’ conditions (i.e., to receive all shares earned based on actual performance, the executive would typically need to remain employed for three years following the grant of a performance share award). Based on the Company’s non-GAAP operating margin achieved and TSR percentile ranking obtained during fiscal year 2016, each Named Executive Officer earned 36.9% of the ‘‘target’’ number of shares under the performance share awards granted in November 2015. (cid:127) The Compensation Committee of our Board of Directors, with assistance from its independent compensation consultant, annually reviews our executive compensation program to ensure that it is competitive with the companies in our industry with which we compete for executive talent. We generally target the median of our comparison group for our base salary and short-term incentive compensation levels. For fiscal year 2016, we granted equity-based incentive awards with a target incentive level at approximately the median of our comparison group, with the opportunity to earn above the target incentive levels based on performance. We feel that this level of executive compensation, with its emphasis on long-term results, alignment with stockholder interests, and long-term retention, enables us to attract and retain the executive talent necessary to meet our business objectives. Corporate Governance and Compensation Best Practices (cid:127) As part of its commitment to strong corporate governance and best practices, our Compensation Committee has engaged an independent compensation consultant, Aon/Radford, to perform an annual comprehensive analysis of our executive compensation practices and pay levels, using analytical tools such as market data, tally sheets, compensation history, and walk-away analysis for each executive. 34 - Page 34 - Proxy Statement (cid:127) We have adopted Executive Officer and Director Stock Ownership programs that require our executive officers and non-employee directors to hold a significant equity interest in the Company with the objective of more closely aligning the interests of our executive officers and directors with those of our stockholders. (cid:127) We prohibit our directors, officers, and employees from hedging or pledging their economic interests in Company securities and from engaging in any short-term, speculative securities transactions, including purchasing securities on margin, engaging in short sales, or buying or selling put or call options. (cid:127) Equity awards granted to our Named Executive Officers under the 2015 Long-Term Incentive Plan are not subject to automatic accelerated vesting solely upon a change in control of the Company. (cid:127) None of the Named Executive Officers is entitled to any future excise tax gross-up payment in connection with a change in control of the Company. Compensation Discussion and Analysis This Compensation Discussion and Analysis section discusses the compensation policies and programs for our Chief Executive Officer, our Chief Financial Officer and our three next most highly paid executive officers during fiscal year 2016 as determined under the rules of the SEC. We refer to this group of executive officers as our ‘‘Named Executive Officers.’’ For fiscal year 2016, our Named Executive Officers were: (cid:127) David J. Aldrich, Executive Chairman (served as Chief Executive Officer until May 11, 2016); (cid:127) Liam K. Griffin, President and Chief Executive Officer (assumed role as Chief Executive Officer on May 11, 2016); (cid:127) Kris Sennesael, Senior Vice President and Chief Financial Officer (assumed role as Chief Financial Officer on August 29, 2016); (cid:127) Donald W. Palette, Former Executive Vice President and Chief Financial Officer (retired as Chief Financial Officer and as an executive officer effective as of August 29, 2016); (cid:127) Bruce J. Freyman, Former Executive Vice President, Worldwide Operations (retired as Executive Vice President, Worldwide Operations and as an executive officer effective as of February 2, 2017); (cid:127) Peter L. Gammel, Chief Technology Officer; and (cid:127) Mark V.B. Tremallo, Former Vice President, General Counsel and Secretary (retired as General Counsel and as an executive officer effective as of November 10, 2016). Approach for Determining Form and Amounts of Compensation The Compensation Committee, which is composed solely of independent directors within the meaning of applicable NASDAQ Rules, outside directors within the meaning of Section 162 of the Internal Revenue Code (‘‘IRC’’), and non-employee directors within the meaning of Rule 16b-3 under the Exchange Act, is responsible for determining all components and amounts of compensation to be paid to our Named Executive Officers, as well as any other executive officers or employees who report directly to the Chief Executive Officer. The Compensation Committee sets compensation for the Named Executive Officers, including base salary, short-term incentives, and - Page 35 - 35 Proxy Statement long-term stock-based incentives, at levels generally intended to be competitive with the compensation of comparable executives in semiconductor companies with which the Company competes for executive talent. Compensation Program Objectives The objectives of our executive compensation program are to attract, retain and motivate highly qualified executives to operate our business, and to link the compensation of those executives to improvements in the Company’s financial performance and increases in stockholder value. Accordingly, the Compensation Committee’s goals in establishing our executive compensation program include: (cid:127) ensuring that our executive compensation program is competitive with a group of companies in the semiconductor industry with which we compete for executive talent; (cid:127) providing a base salary that serves as the foundation of a compensation package that attracts and retains the executive talent needed to achieve our business objectives; (cid:127) providing short-term variable compensation that motivates executives and rewards them for achieving Company financial performance targets; (cid:127) providing long-term stock-based compensation that aligns the interest of our executives with stockholders by rewarding them for long-term increases in stockholder value; and (cid:127) ensuring that our executive compensation program is perceived as fundamentally fair to all of our employees. Retention of Compensation Consultant The Compensation Committee has engaged Aon/Radford to assist in determining the components and amount of executive compensation. Aon/Radford reports directly to the Compensation Committee, through its chairperson, and the Compensation Committee retains the right to terminate or replace the consultant at any time. The consultant advises the Compensation Committee on such compensation matters as are requested by the Compensation Committee. The Compensation Committee considers the consultant’s advice on such matters in addition to any other information or factors it considers relevant in making its compensation determinations. In fiscal year 2016, Aon/Radford received $149,615 for survey data and compensation consulting services to the Compensation Committee. The Compensation Committee has considered the relationships that Aon/Radford has with the Company, the members of the Compensation Committee and our executive officers, as well as the policies that Aon/Radford has in place to maintain its independence and objectivity, and has determined that Aon/Radford’s work for the Compensation Committee has not raised any conflicts of interest. Company management has separately engaged Aon Risk Solutions, an affiliate of Aon/Radford, for risk management and insurance brokerage services. The Company paid $400,000 to Aon Risk Solutions in fiscal year 2016 for those services. The Company’s management did not seek the Compensation Committee’s approval for the engagement of Aon Risk Solutions. Role of Chief Executive Officer The Compensation Committee also considers the recommendations of the Chief Executive Officer regarding the compensation of the other Named Executive Officers and each of his other direct reports. These recommendations include an assessment of each individual’s responsibilities, experience, performance and - Page 36 - 36 Proxy Statement contribution to the Company’s performance, 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 current environment for attracting and retaining executives. Establishment of Comparator Group Data In determining compensation for each of the Named Executive Officers, the committee utilizes ‘‘Comparator Group’’ data for each position. For fiscal year 2016, the Compensation Committee approved Comparator Group data consisting of a 50/50 blend of (i) Aon/Radford survey data of 20 semiconductor companies (where sufficient data was not available in the Aon/Radford semiconductor survey data for a given executive position, the Comparator Group data also included survey data regarding high-technology companies), and (ii) the ‘‘peer’’ group data for 15 publicly traded semiconductor companies with which the Company competes for executive talent: *Altera *Analog Devices *Applied Materials *Avago Technologies *Broadcom *Freescale Semiconductor *Linear Technology *Marvell Technology Group *Maxim Integrated Products *Microchip Technology *Micron Technology *NVIDIA *Qorvo *Texas Instruments *Xilinx Use of Comparator Group Data The Compensation Committee annually compares the components and amounts of compensation that we provide to our Chief Executive Officer and other Named Executive Officers with the components and amounts of compensation provided to their counterparts in the Comparator Group and uses this comparison data as a guideline in its review and determination of base salaries, short-term incentives, and long-term stock-based compensation awards, as discussed in further detail below under ‘‘Components of Compensation.’’ In addition, in setting fiscal year 2016 compensation, the Compensation Committee sought and received input from Aon/Radford regarding the base salaries for the Chief Executive Officer and each of the other executive officers, the incentive targets relating to the short-term incentive program for executive officers, and the individual stock-based compensation awards for executive officers, as well as the related vesting schedules. After reviewing the data and considering the input, the Compensation Committee established (and the full Board of Directors was advised of) the base salary, short-term incentive target, and long-term stock-based compensation award for each Named Executive Officer. In establishing individual compensation, the Compensation Committee also considered the input of the Chief Executive Officer, as well as the individual experience and performance of each executive. In determining the compensation of Mr. Aldrich for his service as Chief Executive Officer for fiscal year 2016, the Compensation Committee focused on (i) competitive levels of compensation for chief executive officers who are leading a company of similar size and complexity, (ii) the importance of retaining a chief executive officer with the strategic, financial, and leadership skills necessary to ensure our continued growth and success, (iii) our Chief Executive Officer’s role relative to the other Named Executive Officers, (iv) input from the full Board of Directors on our Chief Executive Officer’s performance, and (v) the considerable length of Mr. Aldrich’s service to the Company. Aon/Radford advised the Compensation Committee that the base salary, annual performance targets, short-term incentive target opportunity, and equity-based compensation established by the Compensation Committee for fiscal year 2016 were competitive for chief executive officers leading companies of similar size and complexity in the semiconductor industry. Mr. Aldrich was not present during the voting or deliberations of the Compensation Committee concerning his compensation. As stated above, however, the Compensation Committee did consider the - Page 37 - 37 Proxy Statement recommendations of the Chief Executive Officer regarding the compensation of the other Named Executive Officers and each of his other direct reports. Response to Stockholder Vote on Executive Compensation at 2016 Annual Meeting At our 2016 Annual Meeting of stockholders, approximately 96% of the votes cast approved the compensation of the Company’s named executive officers as disclosed in the proxy statement delivered to our stockholders in connection with the 2016 Annual Meeting. We understood this to mean that stockholders generally approved of our compensation policies and determinations in 2016. However, the Compensation Committee still undertook a review of our compensation policies and determinations following the 2016 Annual Meeting with the assistance of Aon/Radford. After this review and consideration of evolving best practices in executive compensation by public companies generally, upon the recommendation of the Compensation Committee, we determined not to make any significant changes to our executive compensation decisions and policies. The Compensation Committee periodically reviews the goals we would like to achieve through our executive compensation practices and explores ways to modify those practices to either achieve new goals or to enhance our ability to achieve existing goals. Components of Compensation The key elements of compensation for our Named Executive Officers are base salary, short-term incentives, long-term stock-based incentives, 401(k) plan retirement benefits, medical, dental, vision, life and disability insurance, and financial planning benefits. Consistent with our objective of ensuring that executive compensation is perceived as fair to all employees, the Named Executive Officers do not receive any retirement benefits beyond those generally available to our full-time employees, and we do not provide medical, dental, vision, or other insurance benefits to Named Executive Officers that are different from those offered to other full-time employees. Base Salary Base salaries provide our executive officers with a degree of financial certainty and stability. The Compensation Committee determines a competitive base salary for each executive officer using the Comparator Group data and input provided by Aon/Radford. Based on these factors, base salaries of the Named Executive Officers for fiscal year 2016 were generally targeted at the Comparator Group median, with consideration given to role, responsibility, performance and length of service. After taking these factors into account, the base salary for each Named Executive Officer for fiscal year 2016 increased on average 6.3% from the Named Executive Officer’s base salary in fiscal year 2015 (excluding Mr. Sennesael, whose employment with the Company commenced in August 2016) as a result of market-based salary adjustments recommended by Aon/Radford, with increases ranging from 3.0% to 10.0%. When Mr. Griffin was promoted to Chief Executive Officer in May 2016, the Compensation Committee determined that his base salary would be equal to the $850,000 base salary that had been approved for Mr. Aldrich, his predecessor, for fiscal year 2016. In setting Mr. Griffin’s base salary, the Compensation Committee relied on Aon/ Radford’s guidance on current market practices related to promotions to chief executive officer in addition to Comparator Group data, the Company’s internal compensation structure, and Mr. Griffin’s experience and long tenure. Concurrently with Mr. Griffin’s appointment as Chief Executive Officer and Mr. Aldrich’s appointment as Executive Chairman in May 2016, the Compensation Committee determined that Mr. Aldrich’s base salary would be reduced to $800,000. In determining Mr. Aldrich’s base salary as Executive Chairman, the Compensation Committee relied on Aon/Radford’s guidance on current market practices related to chief executive officer transitions in addition - Page 38 - 38 Proxy Statement to Comparator Group data, the Company’s internal compensation structure, and Mr. Aldrich’s experience and long tenure. Mr. Sennesael was appointed Senior Vice President and Chief Financial Officer in August 2016, at which time the Compensation Committee set his base salary based on current market practices for chief financial officers in the semiconductor industry in companies with similar revenue in addition to Comparator Group data, the Company’s internal compensation structure, and Mr. Sennesael’s experience and existing compensation package. Short-Term Incentives Our short-term incentive compensation plan for executive officers is established annually by the Compensation Committee. For fiscal year 2016, the Compensation Committee adopted the 2016 Executive Incentive Plan (the ‘‘Incentive Plan’’). The Incentive Plan established short-term incentive awards that could be earned annually by certain officers of the Company, including the Named Executive Officers, based on the Company’s achievement of certain corporate performance goals established on an annual basis. Short-term incentive compensation is intended to motivate and reward executives by tying a significant portion of their total compensation to the Company’s achievement of pre-established performance goals that are generally short-term (i.e., one year or less). Pursuant to the Incentive Plan, the Compensation Committee sets a range of short-term compensation that can be earned by each executive officer based on the Comparator Group data, which is expressed as a percentage of the executive officer’s base salary and which corresponds to the level of achievement of the performance goals. The low end of that range, referred to as the ‘‘threshold’’ percentage, is equal to the amount of compensation payable to the executive if the level of achievement of each performance goal applicable to the executive was at the minimum set by the Compensation Committee to be eligible to receive a payment for that goal under the Incentive Plan (referred to as the ‘‘threshold’’ level). At the threshold payout level, the short-term compensation was designed to result in a payout less than the median short-term compensation of the Comparator Group. The middle of the range, referred to as the ‘‘target’’ percentage, is equal to the amount of short-term compensation payable to the executive if the level of achievement of each performance goal applicable to the executive met the expectations set by the Compensation Committee (referred to as the ‘‘target’’ level). Achievement of all performance goals at the ‘‘target’’ level would result in a short-term compensation payout equal to the ‘‘target’’ percentage, which is designed to be the median short-term compensation of the Comparator Group. The high end of the range, referred to as the ‘‘maximum’’ percentage, is equal to the amount of compensation payable to the executive if the level of achievement of each performance goal applicable to the executive reached the high-end target set by the Compensation Committee for such goal (referred to as the ‘‘maximum’’ level). Achievement of all performance goals at the ‘‘maximum’’ level would result in a short-term compensation payout at the ‘‘maximum’’ percentage, which is designed to be above the median short-term compensation of the Comparator Group. Absent an exercise of discretion by the Compensation Committee, the total short-term compensation paid to each executive would not exceed the ‘‘maximum’’ percentage and, in the event that the level of achievement of all performance goals was below the ‘‘threshold’’ level, no short-term compensation payment would be made to the executive. The following table shows the range of short-term compensation that each Named Executive Officer could earn in fiscal year 2016 as a percentage of such executive officer’s annual base salary. Chief Executive Officer and Executive Chairman(1) President(1) Chief Financial Officer Other Executive Officers Threshold Target Maximum 80% 50% 45% 35% 160% 100% 90% 70% 320% 200% 180% 140% (1) Effective as of May 11, 2016, at the time of Mr. Griffin’s promotion from President to Chief Executive Officer, the threshold, target, and maximum levels of his short-term incentive compensation were increased from 50%, 100%, and 200% of his annual base salary, respectively, to 80%, 160%, and 320% of his annual base salary, respectively. Pursuant to the Aldrich Agreement, described below, which was entered into effective as of May 11, 2016, at the time of Mr. Aldrich’s transition from Chief Executive Officer to Executive Chairman, Mr. Aldrich’s short-term incentive opportunity under the Incentive Plan remained unchanged at the level for the Chief Executive Officer. - Page 39 - 39 Proxy Statement The actual total amount of short-term compensation payable to an executive depends on the level of achievement of each performance goal assigned to him. For fiscal year 2016 the Compensation Committee determined that the short-term incentive compensation payable under the Incentive Plan would be based on the Company’s performance for the entire fiscal year, consistent with the Compensation Committee’s approach for the prior fiscal year. The Compensation Committee established performance goals for fiscal year 2016 based on achieving revenue, non-GAAP gross margin, and non-GAAP free cash flow targets. Each of the three performance goals was weighted equally (331⁄3% each) toward each Named Executive Officer’s payment under the Incentive Plan. The non-GAAP gross margin performance goal is based on the Company’s non-GAAP gross margin, which it calculates by excluding from GAAP gross profit share-based compensation expense and acquisition-related expenses. The non-GAAP free cash flow performance goal is based on the Company’s non-GAAP free cash flow, which it calculates by deducting capital expenditures from, and making certain other adjustments to, GAAP cash from operations. The Compensation Committee determines with respect to each performance goal the ‘‘threshold,’’ ‘‘target’’ and ‘‘maximum’’ levels of achievement, which correspond to the matching descriptions set forth above. For Company performance goals, the levels of achievement will be consistent across the executives to which such goals apply. Following the end of the fiscal year, the Compensation Committee determines the total amount of short-term compensation payable to each executive for such period by comparing the actual level of achievement of each performance goal assigned to such executive against the ‘‘threshold,’’ ‘‘target,’’ and ‘‘maximum’’ levels of achievement that it set for that performance goal. The Compensation Committee determines the amount of short-term compensation the executive is eligible to receive with respect to each performance goal as follows: (cid:127) If the level of achievement for that performance goal falls below the ‘‘threshold’’ level, then the executive will not earn any short-term compensation with respect to that performance goal (absent an exercise of discretion by the Compensation Committee). (cid:127) If the level of achievement for that performance goal is equal to the ‘‘threshold,’’ ‘‘target’’ or ‘‘maximum’’ level, then the executive earns the product obtained by multiplying (i) the ‘‘threshold,’’ ‘‘target’’ or ‘‘maximum’’ percentage, as applicable, times (ii) the executive’s base salary during the fiscal year, times (iii) the weighting assigned to that performance goal. (cid:127) If the level of achievement for the performance goal falls in between either the ‘‘threshold’’ and ‘‘target’’ levels or the ‘‘target’’ and ‘‘maximum’’ levels, the executive would earn short-term compensation equal to the short-term compensation payable at the ‘‘threshold’’ or ‘‘target’’ level, respectively, plus a pro rata amount of the difference between the short-term compensation payable for that performance goal at, respectively, the ‘‘threshold’’ and ‘‘target’’ levels or the ‘‘target’’ and ‘‘maximum’’ levels. (cid:127) Absent an exercise of discretion by the Compensation Committee, if the level of achievement for the performance goal exceeds the ‘‘maximum’’ level, the executive will only earn the amount payable for achievement at the ‘‘maximum’’ level. Each executive’s short-term compensation under the Incentive Plan is calculated by evaluating achievement of each performance goal individually, determining the portion of the total eligible bonus earned with respect to each such performance goal, and totaling the resulting amounts. - Page 40 - 40 Proxy Statement The target level performance goals established by the Compensation Committee under the Incentive Plan are based on the Company’s historical operating results and growth rates as well as the Company’s expected future results and are designed to require significant effort and operational success on the part of our executives and the Company. The maximum level performance goals established by the Compensation Committee have historically been difficult to achieve and are designed to represent outstanding performance that the Compensation Committee believes should be rewarded. Typically, financial performance goals are set with the expectation that the ‘‘target’’ level will be higher than the consensus analyst estimates for the Company. The Incentive Plan stipulated that all payouts to executives under the Incentive Plan were conditioned upon the Company achieving a nominal performance goal based on non-GAAP operating income (after accounting for any incentive award payments, including those to be made under the Incentive Plan). The nominal non-GAAP operating income performance goal is based on the Company’s actual non-GAAP operating income, which it calculates by excluding from GAAP operating income share-based compensation expense, acquisition-related expenses, amortization of intangibles, restructuring-related charges, litigation settlement gains, losses and expenses, and certain the deferred executive compensation. The Compensation Committee retains recommendation of the Chief Executive Officer, to make payments even if the threshold performance metrics are not met or to make payments in excess of the maximum level if the Company’s performance exceeds the maximum metrics. The Compensation Committee believes it is appropriate to retain this discretion in order to make short-term compensation awards in extraordinary circumstances. the discretion, based on The Company failed to achieve the nominal non-GAAP operating income performance goal in fiscal year 2016, with the result that no short-term compensation awards were paid to the Named Executive Officers. Long-Term Stock-Based Compensation The Compensation Committee generally makes long-term stock-based compensation awards to executive officers on an annual basis. Long-term stock-based compensation awards are intended to align the interests of our executive officers with our stockholders, and to reward our executive officers for increases in stockholder value over long periods of time (i.e., greater than one year). It is the Company’s practice to make stock-based compensation awards to executive officers in November of each year at a prescheduled Compensation Committee meeting. For fiscal year 2016, the Compensation Committee made awards to each of the Named Executive Officers (with the exception of Mr. Sennesael) on November 9, 2015, at a regularly scheduled Compensation Committee meeting. Stock options awarded to the Named Executive Officers at the meeting had an exercise price equal to the closing sale price on the meeting date of the Company’s common stock on the NASDAQ Global Select Market. In making annual stock-based compensation awards to executive officers for fiscal year 2016, the Compensation Committee first reviewed the Comparator Group data to determine the percentage of the total number of outstanding shares of stock that companies in the Comparator Group typically made for annual awards under employee equity compensation programs. The Compensation Committee then set the number of shares of the Company’s common stock that would be made available for annual equity awards at approximately the median of the Comparator Group after its evaluation of the Company’s business needs for the attraction and retention of executives and employees, internal and external circumstances impacting the Company and its employees, and proxy advisor (e.g., ISS) guidelines. The Compensation Committee then reviewed the Comparator Group competitive grant data by executive position. The Compensation Committee then used that data and the Comparator Group data to determine a dollar value equivalent for the long-term equity-based award for each executive officer. Forty percent (40%) of that dollar equivalent value served as the basis for determining a number of stock options to award to the executive using an estimated Black-Scholes value, and the remaining sixty percent (60%) of the dollar equivalent value served as the basis for determining a number of performance share awards (‘‘PSAs’’) for the executive using the fair market value of the Company’s common stock on the date of such award and an assumption that the Company would achieve the - Page 41 - 41 Proxy Statement ‘‘target’’ level of performance required to earn the PSA. The Compensation Committee’s rationale for awarding PSAs is to further align the executive’s interest with those of the Company’s stockholders by using equity awards that will vest only if the Company achieves pre-established performance metrics. A description of the PSAs, including the method by which they vest and the related performance metrics, is set forth below in the ‘‘Grants of Plan-Based Awards Table.’’ On May 11, 2016, the Compensation Committee granted to Mr. Griffin a one-time restricted stock unit (‘‘RSU’’) award and stock option award in connection with his promotion to Chief Executive Officer. The number of shares subject to the equity awards granted to him by the Compensation Committee was determined based on competitive data on chief executive officer transitions, prepared by Aon/Radford. The stock option award to Mr. Griffin had an exercise price equal to the closing price of the Company’s common stock on May 11, 2016. A description of the RSU and option awards granted to Mr. Griffin, including the vesting conditions thereof, is set forth below in the ‘‘Grants of Plan-Based Awards Table.’’ On August 29, 2016, the Compensation Committee granted to Mr. Sennesael a long-term stock-based compensation award in connection with the commencement of his employment with the Company, which was intended to incentivize him to accept an offer of employment with the Company and to align his performance with the goals and objectives of the executive team. The award to Mr. Sennesael consisted of an RSU award and a stock option award. The number of shares subject to the equity awards granted to him by the Compensation Committee was determined based on competitive data on new-hire awards to chief financial officers in the semiconductor industry. The stock option award to Mr. Sennesael had an exercise price equal to the closing price of the Company’s common stock on August 29, 2016. A description of the RSU and option awards granted to Mr. Sennesael, including the vesting conditions thereof, is set forth below in the ‘‘Grants of Plan-Based Awards Table.’’ Other Compensation and Benefits We provide other benefits to our executive officers that are intended to be part of a competitive overall compensation program and are not tied to any company performance criteria. Consistent with the Compensation Committee’s goal of ensuring that executive compensation is perceived as fair to all stakeholders, the Company offers medical, dental, vision, life and disability insurance plans to executive officers under the same terms as such benefits are offered to other employees. Additionally, executive officers are permitted to participate in the Company’s 401(k) Savings and Investment Plan and Employee Stock Purchase Plan under the same terms as other employees. The Company does not provide executive officers with any enhanced retirement benefits (i.e., executive officers are subject to the same limits on contributions as other employees, as the Company does not offer any supplemental executive retirement plan or other similar non-qualified deferred compensation plan), and they are eligible for 401(k) company- match contributions under the same terms as other employees. In fiscal year 2016, the Company offered executives the opportunity to participate in financial planning services through The Ayco Company, L.P. (‘‘Ayco’’), at a cost of up to approximately $16,000 per executive paid by the Company. In fiscal year 2016, Messrs. Aldrich, Palette, and Tremallo received financial planning services through Ayco. Mr. Aldrich, however, elected to pay personally for such services. In prior fiscal years certain executive officers were provided an opportunity to participate in the Company’s Executive Compensation Plan (the ‘‘Executive Compensation Plan’’), an unfunded, non-qualified deferred compensation plan, under which participants were allowed to defer a portion of their compensation. As a result of deferred compensation legislation under Section 409A of the IRC, effective December 31, 2005, the Company no longer permits employees to make contributions to the plan. Upon retirement, as defined in the Executive Compensation Plan, or other separation from service, or, if so elected, upon any earlier change in control of the Company, a participant is entitled to a payment of his vested account balance, either in a single lump sum or in annual installments, as elected in advance by the participant. Although the Company had discretion to make additional - Page 42 - 42 Proxy Statement contributions to the accounts of participants while the Executive Compensation Plan was active, it never did so. Mr. Aldrich is the only Named Executive Officer who participated in the Executive Compensation Plan while it was active. Severance and Change-in-Control Benefits None of our executive officers, including the Named Executive Officers, has an employment agreement that provides a specific term of employment with the Company. Accordingly, the employment of any such employee may be terminated at any time. We do provide certain benefits to our Named Executive Officers upon certain qualifying terminations of employment and in connection with terminations of employment under certain circumstances following a change in control. A description of the material terms of our severance and change-in-control arrangements with the Named Executive Officers can be found immediately below and further below under ‘‘Potential Payments Upon Termination or Change in Control.’’ The Compensation Committee believes that severance protections can play a valuable role in recruiting and retaining superior talent. Severance and other termination benefits are an effective way to offer executives financial security to incent them to forego an opportunity with another company. These agreements also protect the Company as the Named Executive Officers are bound by restrictive non-compete and non-solicit covenants for up to two years after termination of employment. Outside of the change-in-control context, each Named Executive Officer is entitled to severance benefits if his employment is involuntarily terminated by the Company without cause and, in the case of the Executive Chairman and the Chief Executive Officer, if he terminates his own employment for good reason (as defined in each executive’s respective agreement). In addition, provided he does not voluntarily terminate his employment with the Company before the date of the Company’s 2017 annual meeting of stockholders, the Executive Chairman is entitled to certain severance benefits upon the expiration of the term of his agreement. The Compensation Committee believes that this provision facilitates his retention with the Company. The level of each Named Executive Officer’s severance or other termination benefit is generally tied to his respective annual base salary and any short-term incentive earned. Additionally, each Named Executive Officer would receive enhanced severance benefits and accelerated vesting of equity awards if his employment were terminated under certain circumstances in connection with a change in control of the Company. These benefits are described in detail further below under ‘‘Potential Payments Upon Termination or Change in Control.’’ The Compensation Committee believes these enhanced severance benefits and accelerated vesting are appropriate because the occurrence, or potential occurrence, of a change-in-control transaction would likely create uncertainty regarding the continued employment of executive officers that typically occurs in a change-in-control context, and such severance benefits and accelerated vesting encourage the Named Executive Officers to remain employed with the Company through the change-in-control process and to focus on enhancing stockholder value both before and during the process. In addition, the vesting protection helps assure the Named Executive Officers that they will not lose the expected value of their equity awards because of a change in control of the Company. Executive Officer Stock Ownership Requirements We have adopted Executive Stock Ownership guidelines with the objective of more closely aligning the interests of our executive officers (including those Named Executive Officers who are still currently serving as executive officers) with those of our stockholders. Under the Executive Officer Ownership guidelines, our Executive Chairman and our Chief Executive Officer are each required to hold the lower of (a) the number of shares with a fair market value equal to six (6) times such executive’s current base salary, or (b) 160,000 or 170,000 shares, respectively; our Senior Vice President and Chief Financial Officer is required to hold the lower of (a) the number of shares with a fair market value equal to two and one-half (21⁄2) times such executive’s current base salary, or (b) 35,400 shares; and - Page 43 - 43 Proxy Statement our Chief Technology Officer is required to hold the lower of (a) the number of shares with a fair market value equal to two (2) times his current base salary, or (b) 25,400 shares. For purposes of the Executive Stock Ownership guidelines, the fair market value of the Company’s common stock is the average closing price per share of the Company’s common stock as reported on the NASDAQ Global Select Market (or if the common stock is not then traded on such market, such other market on which the common stock is traded) for the twelve (12) month period ending with the determination date. All of our Named Executive Officers who remain executive officers of the Company have met the stock ownership guidelines as of the date hereof, with the exception of Messrs. Griffin and Sennesael (each of whom has until the third anniversary of the date he assumed his current position to meet the stock ownership guidelines). Based on the vesting schedule of certain RSUs, Mr. Griffin is expected to meet his ownership guidelines prior to the date of the Annual Meeting. Compliance with Internal Revenue Code Section 162(m) Section 162(m) of the IRC generally disallows a tax deduction for compensation in excess of $1 million paid to our Chief Executive Officer and any of our three other most highly compensated executive officers, other than our Chief Financial Officer. Certain compensation, including qualified performance-based compensation, will not be subject to the deduction limit if applicable requirements are met. The Compensation Committee reviews the potential effect of Section 162(m) periodically and generally seeks to structure the compensation of our executive officers in a manner that is intended to avoid disallowance of deductions under Section 162(m). However, the Compensation Committee reserves the right to use its judgment to authorize compensation payments that may be subject to the limit when the Compensation Committee believes such payments are appropriate and in the best interests of the Company and our stockholders, after taking into consideration changing business conditions and the performance of our employees. 44 - Page 44 - Proxy Statement Compensation Tables for Named Executive Officers Summary Compensation Table The following table summarizes compensation earned by, or awarded or paid to, our Named Executive Officers for fiscal year 2016, fiscal year 2015, and our fiscal year ended October 3, 2014 (‘‘fiscal year 2014’’). Name and Principal Position David J. Aldrich(4) Executive Chairman and Former Chief Executive Officer Liam K. Griffin(5) President and Chief Executive Officer Kris Sennesael(6) Senior Vice President and Chief Financial Officer Donald W. Palette(7) Former Executive Vice President and Chief Financial Officer Bruce J. Freyman Former Executive Vice President, Worldwide Operations Peter L. Gammel Chief Technology Officer Mark V.B. Tremallo(8) Former Vice President, General Counsel and Secretary Salary ($) Year Stock Awards ($)(1) Non-Equity Incentive Plan Option Awards Compensation Compensation ($)(1) All Other ($)(3) ($)(2) Total ($) 2016 822,981 3,720,250 2,457,108 2015 771,635 4,603,190 2,443,320 2014 747,769 2,474,753 1,455,384 2016 660,404 3,465,060 2,591,488 932,904 2015 513,558 1,752,182 675,714 2014 485,923 2,657,829 926,700 40,865 1,880,500 2016 2016 457,962 1,190,480 2015 418,750 1,336,410 2014 413,535 1,983,526 744,050 2016 423,750 2015 410,846 816,695 2014 406,615 1,639,190 818,455 2016 379,900 742,450 2015 364,700 467,453 2014 316,763 669,645 2016 387,596 742,450 2015 363,942 412,459 2014 359,731 764,434 710,784 415,824 546,024 488,664 332,659 546,024 399,816 259,890 436,819 399,816 228,703 — 2,325,000 2,220,000 — 927,000 807,243 — — 672,000 610,500 — 576,800 560,000 — 407,000 346,500 — 401,500 389,400 7,015,382 15,043 14,910 10,158,055 6,912,623 14,717 6,728,703 11,751 4,137,054 11,410 4,637,934 11,225 2,848,143 78 30,721 29,278 27,664 12,992 12,694 11,666 18,075 16,218 17,426 29,554 27,976 27,246 2,443,597 3,167,222 3,451,049 1,726,816 2,305,699 2,950,130 1,762,454 1,930,184 1,408,033 1,523,614 1,935,684 1,417,539 (1) (2) The amounts in the Stock Awards and Option Awards columns represent the grant date fair values, computed in accordance with the provisions of FASB ASC Topic 718—Compensation—Stock Compensation (‘‘ASC 718’’), of stock options, PSAs, and RSUs granted during the applicable fiscal year, without regard to estimated forfeiture rates. For fiscal years 2014, 2015, and 2016, assuming the highest level of performance achievement with respect to the PSAs, the grant date fair values of the Stock Awards would be as follows: Mr. Aldrich (FY 2014: $3,611,003; FY 2015: $6,493,260; FY 2016: $5,842,500), Mr. Griffin (FY 2014: $3,213,329; FY 2015: $2,471,628; FY 2016: $4,483,740), Mr. Palette (FY 2014: $2,324,401; FY 2015: $1,885,140; FY 2016: $1,869,600), Mr. Freyman (FY 2014: $1,916,940; FY 2015: $1,152,030; FY 2016: $1,168,500), Mr. Gammel (FY 2014: $682,078; FY 2015: $1,047,300; FY 2016: $1,285,350) and Mr. Tremallo (FY 2014: $601,834; FY 2015: $1,047,300; FY 2016: $1,051,650). For a description of the assumptions used in calculating the fair value of equity awards in 2016 under ASC 718, see Note 9 of the Company’s financial statements included in the Company’s Annual Report on Form 10-K filed with the SEC on November 22, 2016. Reflects amounts paid to the Named Executive Officers pursuant to the executive incentive plan adopted by the Compensation Committee for each year indicated. For fiscal year 2016, no short-term compensation awards were paid. For fiscal years 2014 and 2015, the portion of the respective executive incentive plan attributable to Company performance above the ‘‘target’’ performance metric was paid in the form of unrestricted common stock of the Company as follows: Mr. Aldrich (FY 2014: $1,110,000; FY 2015: $1,162,500), Mr. Griffin (FY 2014: $403,622; FY 2015: $463,500), Mr. Palette (FY 2014: $305,250; FY 2015: $336,000), Mr. Freyman (FY 2014: $280,000; FY 2015: $288,400), Mr. Gammel (FY 2014: $173,250; FY 2015: $203,500), and Mr. Tremallo (FY 2014: $194,700; FY 2015: $200,750). The number of shares awarded in lieu of cash was based on the fair market value of the Company’s common stock on November 10, 2014, - Page 45 - 45 Proxy Statement with respect to fiscal year 2014, and on November 9, 2015, with respect to fiscal year 2015, which are the respective dates that the payments under the respective executive incentive plans were approved by the Compensation Committee. ‘‘All Other Compensation’’ includes the Company’s contributions to the executive’s 401(k) Plan account, the cost of group term life insurance premiums, financial planning services, and dividend accruals on unvested shares of restricted stock (which became payable when the underlying shares vested). Mr. Aldrich served as Chief Executive Officer until May 11, 2016, when he was appointed to serve as Executive Chairman. Mr. Griffin served as President until May 11, 2016, when he was appointed to serve as President and Chief Executive Officer. Mr. Sennesael began his employment with the Company, and assumed the role of Chief Financial Officer, on August 29, 2016. Mr. Palette retired as Chief Financial Officer effective as of August 29, 2016. He remains employed by the Company in a non-executive transition capacity, as discussed below. Mr. Tremallo retired as Vice President, General Counsel and Secretary effective as of November 10, 2016. He remains employed by the Company in a non-executive transition capacity, as discussed below. (3) (4) (5) (6) (7) (8) Grants of Plan-Based Awards Table The following table summarizes all grants of plan-based awards made to the Named Executive Officers in fiscal year 2016, including incentive awards payable under our Fiscal Year 2016 Executive Incentive Plan. Estimated Future Payouts Under Non-Equity Incentive Plan Awards(1) Estimated Future Payouts Under Equity Incentive Plan Awards(2) Grant Date Threshold ($) Target Maximum Threshold Target Maximum (#) (#) (#) ($) ($) All Other Option Awards: All Other Stock Awards: Exercise or Base Number of Price of Number of Securities Option Stock Or Underlying Awards ($/Sh) Options (5) (#)(4) Units (#)(3) Grant Date Fair Value of Stock and Option Awards ($) 664,242 1,328,485 2,656,970 431,515 863,030 1,726,061 25,000 50,000 100,000 12,000 24,000 48,000 207,900 415,800 831,600 148,750 297,500 595,000 133,350 266,700 533,400 136,500 273,000 546,000 8,000 16,000 32,000 5,000 10,000 20,000 5,500 11,000 22,000 4,500 9,000 18,000 11/9/2015 11/9/2015 11/9/2015 11/9/2015 5/11/2016 5/11/2016 8/29/2016 8/29/2016 11/9/2015 11/9/2015 11/9/2015 11/9/2015 11/9/2015 11/9/2015 11/9/2015 11/9/2015 26,000 25,000 90,000 3,720,250(6) 84.89 2,457,108(7) 43,000 73,000 40,000 1,785,720(5) 84.89 1,173,952(6) 1,679,340(8) 64.59 1,417,536(6) 1,880,500(9) 926,700(6) 75.22 28,000 84.89 1,190,480(5) 764,434(6) 20,000 84.89 20,000 84.89 16,000 84.89 744,050(5) 546,024(6) 818,455(5) 546,024(6) 669,645(5) 436,819(6) Name David J. Aldrich Liam K. Griffin Kris Sennesael Donald W. Palette Bruce J. Freyman Peter L. Gammel Mark V.B. Tremallo (1) The amounts shown represent the potential value of awards earned under the Incentive Plan. The amounts actually paid to the Named Executive Officers under the Incentive Plan are shown above in the ‘‘Summary Compensation Table’’ under ‘‘Non-Equity Incentive Plan Compensation.’’ For a more complete description of the Incentive Plan, please see description above under ‘‘Components of Compensation—Short-Term Incentives.’’ - Page 46 - 46 Proxy Statement (2) The amounts shown represent shares potentially issuable pursuant to PSAs granted on November 9, 2015, under the Company’s Amended and Restated 2005 Long-Term Incentive Plan (the ‘‘FY16 PSAs’’). The FY16 PSAs have both ‘‘performance’’ and ‘‘continued employment’’ conditions that must be met in order for the executive to receive shares underlying the award. The ‘‘performance’’ condition guides the initial eligibility of the grantee to receive shares under the PSA and compares the non-GAAP operating margin achieved (related to fifty percent (50%) of the shares underlying the award) and the total stockholder return, or TSR, percentile ranking achieved with respect to our peer group (related to the other fifty percent (50%) of the shares underlying the award) during the performance period against a range of pre-established targets. The peer group for purposes of the TSR percentile ranking metric includes each of the companies in the Comparator Group and excludes any such company that during fiscal year 2016 is acquired by or merged with (or enters into an agreement to be acquired by or merged with) another entity. The Compensation Committee determines the ‘‘threshold’’ or minimum level of performance that would be acceptable to the Company to justify a payout. The ‘‘maximum’’ level represents a best-case performance scenario. The middle of the range is referred to by the Company as the ‘‘target’’ level and represents the expected performance of the Company. The number of shares issuable under the FY16 PSAs corresponds to the level of achievement of the performance goals. The ‘‘target’’ number of shares is determined with reference to the competitive level of long-term equity compensation determined by the Compensation Committee in the manner described above. Performance at the ‘‘threshold’’ level results in an issuance of a number of shares equal to one-half (1⁄2) the ‘‘target’’ number of shares, and performance at the ‘‘maximum’’ level results in the issuance of a number of shares equal to two (2) times the ‘‘target’’ number of shares. Performance in between either the ‘‘threshold’’ and ‘‘target’’ levels or the ‘‘target’’ and ‘‘maximum’’ levels results in an issuance of a number of shares between the number of shares issuable under the FY16 PSAs at, respectively, the ‘‘threshold’’ and ‘‘target’’ levels or the ‘‘target’’ and ‘‘maximum’’ levels. The ‘‘continued employment’’ condition of the FY16 PSAs provides that, to the extent that the non-GAAP operating margin and TSR percentile ranking performance metrics are met for the fiscal year, then twenty-five percent (25%) of the total shares for which the performance metric was met would be issuable to the executive on the first anniversary of the grant date, twenty-five percent (25%) of such shares would be issuable to the executive on the second anniversary of the grant date, and the remaining fifty percent (50%) of such shares would be issuable to the executive on the third anniversary of the grant date, provided that the executive remains employed by the Company through each such vesting date. In the event of termination by reason of death or permanent disability, the holder of an FY16 PSA (or his estate) would receive any shares that would have been issuable thereunder during the remaining term of the award (i.e., earned but unissued shares). Represents shares underlying RSU awards granted under the Company’s 2015 Long-Term Incentive Plan. The RSU award vests over four years at a rate of twenty-five percent (25%) per year commencing one year after the date of grant and on each subsequent anniversary of the grant date for the following three years, provided the executive remains employed by the Company through each such vesting date. The options vest over four years at a rate of twenty-five percent (25%) per year commencing one year after the date of grant and on each subsequent anniversary of the grant date for the following three years, provided the executive remains employed by the Company through each such vesting date. Options may not be exercised more than three months after the executive ceases to be employed by the Company, except in the event of certain qualifying terminations of employment, including by reason of death or permanent disability, in which event the option may be exercised for specific periods following the termination of employment (but in no case shall the period of exercisability be extended beyond the expiration of the option’s maximum term). Stock options awarded to executive officers have an exercise price equal to the closing price of the Company’s common stock on the grant date. Reflects the grant date fair value of the FY16 PSAs granted on November 9, 2015, computed in accordance with the provisions of ASC 718, using (a) a Monte Carlo simulation (which weights the probability of multiple potential outcomes) to value the portion of the award related to TSR percentile ranking, and (b) a price of $84.89 per share, which was the (3) (4) (5) (6) - Page 47 - 47 Proxy Statement closing sale price of the Company’s common stock on the NASDAQ Global Select Market on November 9, 2015, to value the portion of the award related to non-GAAP operating margin, assuming performance at the ‘‘target’’ level. For a description of the assumptions used in calculating the fair value of equity awards granted in fiscal year 2016 under ASC 718, see Note 9 of the Company’s financial statements included in the Company’s Annual Report on Form 10-K filed with the SEC on November 22, 2016. Reflects the grant date fair value of the stock options, computed in accordance with the provisions of ASC 718 using the Black-Scholes model of option valuation based on the applicable date of grant. The actual value, if any, the executive may realize will depend on the excess of the stock price over the exercise price on the date the option is exercised. For a description of the assumptions used in calculating the fair value of equity awards granted in fiscal year 2016 under ASC 718, see Note 9 of the Company’s financial statements included in the Company’s Annual Report on Form 10-K filed with the SEC on November 22, 2016. Reflects the grant date fair value of the RSUs granted on May 11, 2016, computed in accordance with the provisions of ASC 718 using a price of $64.59 per share, which was the closing sale price of the Company’s common stock on the NASDAQ Global Select Market on May 11, 2016. Reflects the grant date fair value of the RSUs granted on August 29, 2016, computed in accordance with the provisions of ASC 718 using a price of $75.22 per share, which was the closing sale price of the Company’s common stock on the NASDAQ Global Select Market on August 29, 2016. (7) (8) (9) - Page 48 - 48 Outstanding Equity Awards at Fiscal Year End Table Proxy Statement The following table summarizes the unvested stock awards and all stock options held by the Named Executive Officers as of the end of fiscal year 2016. Option Awards Stock Awards Name David J. Aldrich Liam K. Griffin Kris Sennesael Donald W. Palette Bruce J. Freyman Peter L. Gammel Mark V.B. Tremallo Number of Securities Underlying Unexercised Options (#) Exercisable Number of Securities Underlying Unexercised Options (#) Unexercisable Option Exercise Price ($) 17,709 50,715 27,500 0 12,500 15,000 16,250 10,500 0 0 0 0 0 0 0 11,250 9,000 8,000 5,500 0 500 2,500 2,400 6,250 4,500 0 4,850 7,750 4,500 0 45,075(2) 70,000(3) 82,500(4) 90,000(5) 0 15,000(2) 32,500(3) 31,500(4) 43,000(5) 73,000(6) 40,000(7) 10,500(2) 20,000(3) 24,000(4) 28,000(5) 0 9,000(2) 16,000(3) 16,500(4) 20,000(5) 0 0 2,400(2) 12,500(3) 13,500(4) 20,000(5) 5,500(2) 11,000(3) 13,500(4) 16,000(5) 20.02 25.25 60.97 84.89 19.08 20.02 25.25 60.97 84.89 64.59 75.22 20.02 25.25 60.97 84.89 19.08 20.02 25.25 60.97 84.89 24.32 19.08 20.02 25.25 60.97 84.89 20.02 25.25 60.97 84.89 Number of Shares or Units of Stock that Have Not Vested (#) 90,000(8) 93,000(9) 18,449(10) 44,000(8) 35,400(9) 8,856(10) 17,500(11) 26,000(12) 25,000(13) 27,000(8) 27,000(9) 5,904(10) 30,000(14) 22,000(8) 16,500(9) 3,689(10) 25,000(14) Market Value of Shares or Units of Stock that Have Not Vested ($)(1) 6,852,600 7,081,020 1,404,707 3,350,160 2,695,356 674,296 1,332,450 1,979,640 1,903,500 2,055,780 2,055,780 449,531 2,284,200 1,675,080 1,256,310 280,880 1,903,500 17,000(8) 15,000(9) 4,057(10) 1,294,380 1,142,100 308,900 15,000(8) 15,000(9) 3,320(10) 1,142,100 1,142,100 252,785 Option Expiration Date 11/8/2019 11/7/2020 11/10/2021 11/9/2022 11/10/2018 11/8/2019 11/7/2020 11/10/2021 11/9/2022 5/11/2023 8/29/2023 11/8/2019 11/7/2020 11/10/2021 11/9/2022 11/10/2018 11/8/2019 11/7/2020 11/10/2021 11/9/2022 6/10/2018 11/10/2018 11/8/2019 11/7/2020 11/10/2021 11/9/2022 11/8/2019 11/7/2020 11/10/2021 11/9/2022 (1) (2) (3) (4) Reflects a price of $76.14 per share, which was the closing sale price of the Company’s common stock on the NASDAQ Global Select Market on September 30, 2016. These options were granted on November 8, 2012, and vested at a rate of twenty-five percent (25%) per year on each anniversary of the grant date until they became fully vested on November 8, 2016. These options were granted on November 7, 2013, and vest at a rate of twenty-five percent (25%) per year on each anniversary of the grant date through November 7, 2017. These options were granted on November 10, 2014, and vest at a rate of twenty-five percent (25%) per year on each anniversary of the grant date through November 10, 2018. - Page 49 - 49 Proxy Statement (5) (6) (7) (8) (9) (10) (11) (12) (13) (14) These options were granted on November 9, 2015, and vest at a rate of twenty-five percent (25%) per year on each anniversary of the grant date through November 9, 2019. These options were granted on May 11, 2016, and vest at a rate of twenty-five percent (25%) per year on each anniversary of the grant date through May 11, 2020. These options were granted on August 29, 2016, and vest at a rate of twenty-five percent (25%) per year on each anniversary of the grant date through August 29, 2020. Represents shares issuable under the PSAs granted on November 7, 2013, under the Company’s Amended and Restated 2005 Long-Term Incentive Plan (the ‘‘FY14 PSAs’’). Twenty-five percent (25%) of the shares earned under the FY14 PSAs were issued on each of November 10, 2014, and November 7, 2015, and the remaining fifty percent (50%) of the shares earned were issued on November 7, 2016. Represents shares issuable under the PSAs granted on November 10, 2014, under the Company’s Amended and Restated 2005 Long-Term Incentive Plan (the ‘‘FY15 PSAs’’). Twenty-five percent (25%) of the shares earned under the FY15 PSAs were issued on each of November 10, 2015, and November 10, 2016, and the remaining fifty percent (50%) of the shares earned will be issued on November 10, 2017, provided the executive meets the continued employment condition. Represents shares issuable under the FY16 PSAs (awarded on November 9, 2015, as described in footnote 2 of the ‘‘Grants of Plan-Based Awards Table’’ above). With respect to the FY16 PSAs, the Company achieved 36.9% of the ‘‘target’’ level of performance and, accordingly, on November 9, 2016, the Company issued twenty-five percent (25%) of the number of shares earned by each executive under his FY16 PSA. Twenty-five percent (25%) of the shares earned under the FY16 PSAs will be issued on November 9, 2017, and the remaining fifty percent (50%) of the shares earned will be issued on November 9, 2018, provided the executive meets the continued employment condition. Represents shares issuable under an RSU award granted on May 6, 2014, under the Company’s Amended and Restated 2005 Long-Term Incentive Plan. The RSU award vests at a rate of twenty-five percent (25%) per year on each anniversary of the grant date through May 6, 2018. Represents shares issuable under an RSU award granted on May 11, 2016, under the Company’s 2015 Long-Term Incentive Plan. The RSU award vests at a rate of twenty-five percent (25%) per year on each anniversary of the grant date through May 11, 2020. Represents shares issuable under an RSU award granted on August 29, 2016, under the Company’s 2015 Long-Term Incentive Plan. The RSU award vests at a rate of twenty-five percent (25%) per year on each anniversary of the grant date through August 29, 2020. Represents shares issuable under an RSU award granted on May 6, 2014, under the Company’s Amended and Restated 2005 Long-Term Incentive Plan. The RSU award vests in full on May 6, 2017. - Page 50 - 50 Option Exercises and Stock Vested Table Proxy Statement The following table summarizes the Named Executive Officers’ option exercises and stock award vesting during fiscal year 2016. Name David J. Aldrich Liam K. Griffin Kris Sennesael Donald W. Palette Bruce J. Freyman Peter L. Gammel Mark V.B. Tremallo Option Awards Stock Awards Number of Shares Acquired on Exercise (#) 261,000 — — 61,000 — 3,000 15,000 Value Realized on Exercise ($)(1) 12,835,282 — — 2,999,212 — 168,928 899,121 Number of Shares Acquired on Vesting (#) 192,002 79,970 — 52,436 42,694 20,235 27,468 Value Realized on Vesting ($)(2) 16,158,930 6,558,042 — 4,410,612 3,599,434 1,695,149 2,309,159 (1) (2) The value realized on exercise is based on the amount by which the market price of a share of the Company’s common stock on the dates of exercise exceeded the applicable exercise price per share of the exercised option. The value realized upon vesting is determined by multiplying (a) the number of shares underlying the stock awards that vested, by (b) the closing price of the Company’s common stock on the NASDAQ Global Select Market on the applicable vesting date. Nonqualified Deferred Compensation Table As described above under ‘‘Components of Compensation—Other Compensation and Benefits,’’ Mr. Aldrich is the only Named Executive Officer who participated in the Executive Compensation Plan while it was active, and he elected to be paid his aggregate account balance under the plan in a single lump sum upon his future retirement or other separation from service. Mr. Aldrich’s contributions are credited with earnings/losses based upon the performance of the investments he selects. The following table summarizes Mr. Aldrich’s aggregate earnings and aggregate account balance under the Executive Compensation Plan in fiscal year 2016. In fiscal year 2016, there were no withdrawals by or distributions to Mr. Aldrich. Name David J. Aldrich Aggregate Earnings in Last Fiscal Year ($) Aggregate Balance at Last Fiscal Year-End ($)(1) 96,804 1,250,876 (1) Balance as of September 30, 2016. This amount consists of Mr. Aldrich’s individual contributions and the return/(loss) generated from the investment of those contributions. The full amount of Mr. Aldrich’s individual contributions was previously reported as compensation to Mr. Aldrich in the Summary Compensation Tables of the fiscal years in which such contributions were made. - Page 51 - 51 Potential Payments Upon Termination or Change in Control Proxy Statement Mr. Aldrich On May 11, 2016, in connection with the transition of Mr. Aldrich from Chief Executive Officer to Executive Chairman of the Company, the Company entered into a second amended and restated Change of Control / Severance Agreement with Mr. Aldrich (the ‘‘Aldrich Agreement’’). The Aldrich Agreement sets out severance benefits that become payable if, while employed by the Company, other than following a change of control, Mr. Aldrich either (i) is terminated without cause, or (ii) terminates his employment for good reason. The severance benefits provided to Mr. Aldrich under either of these circumstances would consist of: (i) a lump-sum payment equal to two (2) times the sum of (A) his then-current annual base salary immediately prior to such termination and (B) the Bonus Amount (as defined below), and (ii) full acceleration of the vesting of all of Mr. Aldrich’s outstanding stock options, which stock options would become exercisable for a period of two (2) years after the termination date (but not beyond the expiration of their respective maximum terms), full acceleration of the vesting of all outstanding restricted stock awards, and the right to receive the number of performance shares under outstanding PSAs that he would have earned had he remained employed through the end of the applicable performance period. The Bonus Amount is an amount equal to the greater of (x) the average of the short-term cash incentive awards received for the three (3) years prior to the year in which the termination occurs, and (y) the target annual short-term cash incentive award for the year in which the termination occurs. The Aldrich Agreement also sets out severance benefits that become payable if (i) within two (2) years after a change of control, Mr. Aldrich’s employment is either (A) terminated by the Company without cause, or (B) terminated by him for good reason, or (ii) the term of the Aldrich Agreement expires within ninety (90) days following a change of control. The severance benefits provided to Mr. Aldrich in such circumstances would consist of: (i) a lump-sum payment equal to two and one-half (21⁄2) times the sum of (A) his annual base salary immediately prior to the change of control, and (B) the CIC Bonus Amount (as defined below); (ii) Mr. Aldrich’s then-outstanding stock options would become exercisable for a period of thirty (30) months after the termination date (but not beyond the expiration of their respective maximum terms); and (iii) provided he is eligible for and timely elects to continue receiving group medical coverage, certain COBRA continuation for him and his eligible dependents (‘‘COBRA continuation’’) for a period of eighteen (18) months after the termination. Additionally, except as may otherwise be provided in an award agreement documenting an award made under the Company’s 2015 Long-Term Incentive Plan with respect to a change in control (as that term is defined in the 2015 Long-Term Incentive Plan), in the event of a change of control, the Aldrich Agreement provides for full acceleration of the vesting of all of Mr. Aldrich’s then-outstanding stock options and restricted stock awards and partial acceleration of any outstanding PSAs. The CIC Bonus Amount is an amount equal to the greater of (x) the average of the annual short-term cash incentive awards received for the three (3) years prior to the year in which the change of control occurs and (y) the target annual short-term cash incentive award for the year in which the change of control occurs. The Aldrich Agreement also sets out the benefits that become payable upon the earlier of the expiration of the term of the Aldrich Agreement (including an early expiration of the term that occurs following the Company’s 2017 annual meeting of stockholders by mutual agreement of the Company and Mr. Aldrich) or Mr. Aldrich’s death or disability, provided that Mr. Aldrich does not voluntarily terminate his employment with the Company before the date on which the Company’s 2017 annual meeting of stockholders occurs. The benefits provided to Mr. Aldrich under these circumstances would consist of: (i) a lump-sum payment equal to one (1) times the sum of (A) his then-current annual base salary and (B) the Bonus Amount; (ii) full acceleration of the vesting of all of Mr. Aldrich’s outstanding stock options, which stock options would become exercisable for a period of two (2) years after the termination date (but not beyond the expiration of their respective maximum terms), full acceleration of the vesting of all outstanding restricted stock awards, and the right to receive the number of performance shares under outstanding PSAs that he would have earned had he remained employed through the end of the applicable performance period - Page 52 - 52 Proxy Statement (provided that such acceleration shall only apply to a prorated portion of any awards granted to Mr. Aldrich in the final fiscal year of the term of the Aldrich Agreement, based on the number of days he performed services for the Company in such fiscal year); (iii) COBRA continuation for a period of eighteen (18) months after the termination; and (iv) a lump-sum payment of his annual short-term incentive award for the fiscal year in which termination occurs, based on the achievement of any and all applicable performance milestones determined by the Board of Directors in accordance with the terms of the applicable executive bonus plan and prorated based on the number of days he performed services for the Company in such fiscal year. The Aldrich Agreement sets Mr. Aldrich’s annual base salary at $800,000. Mr. Aldrich will be eligible to participate in any fiscal year executive incentive plan adopted by the Company during the term of the agreement. His annual cash bonus opportunity (i) under the Incentive Plan remained in effect for fiscal year 2016, and (ii) under any executive bonus plan adopted by the Company for any other fiscal year during the term of the Aldrich Agreement shall be the same as the annual cash bonus opportunity for the Company’s then-Chief Executive Officer. The Aldrich Agreement also provides that Mr. Aldrich will be eligible to receive an annual award of stock options and PSAs in each fiscal year during the term of the Aldrich Agreement at the same time as annual equity awards are made to the Company’s executives, in each case, in such amount as is equal to 90% of any such award made by the Company to the Company’s then-Chief Executive Officer. The Aldrich Agreement has an initial term that lasts until the date on which the Company’s 2018 annual meeting of stockholders occurs and that automatically extends until the date on which the Company’s 2019 annual meeting of stockholders occurs, unless either the Company or Mr. Aldrich timely provides a notice of non-renewal to the other. The Aldrich Agreement is intended to be compliant with Section 409A of the IRC. Additionally, the Aldrich Agreement requires Mr. Aldrich to sign a release of claims in favor of the Company before he is eligible to receive any benefits under the agreement, and contains non-compete and non-solicitation provisions applicable to him while he is employed by the Company and for a period of twenty-four (24) months following the termination of his employment. Additionally, award agreements for any equity awards granted to Mr. Aldrich under the Company’s 2015 Long-Term Incentive Plan, which became effective on May 18, 2015, provide that, notwithstanding the provision in the Aldrich Agreement providing that his equity awards would vest automatically upon a change of control of the Company, such new equity awards shall instead be governed by the terms of the 2015 Long-Term Incentive Plan, which does not provide for automatic accelerated vesting of outstanding equity awards solely upon a change of control. The terms ‘‘change of control,’’ ‘‘cause,’’ and ‘‘good reason’’ are each defined in the Aldrich Agreement. Change of control means, in summary: (i) the acquisition by a person or a group of 40% or more of the outstanding stock of the Company; (ii) a change, without approval by the Board of Directors, of a majority of the Board of Directors of the Company; (iii) the acquisition of the Company by means of a reorganization, merger, consolidation, or asset sale; or (iv) stockholder approval of a liquidation or dissolution of the Company. Cause means, in summary: (i) deliberate dishonesty that is significantly detrimental to the best interests of the Company; (ii) conduct constituting an act of moral turpitude; (iii) willful disloyalty or insubordination; or (iv) incompetent performance or substantial or continuing inattention to or neglect of duties. Good reason means, in summary: (i) a material diminution in his base salary, authority, duties, or responsibilities; (ii) a requirement that Mr. Aldrich report to a corporate officer or employee instead of reporting directly to the Board of Directors; (iii) a material change in his office location; or (iv) any action or inaction constituting a material breach by the Company of the terms of the agreement. Mr. Griffin On May 11, 2016, in connection with the appointment of Mr. Griffin as Chief Executive Officer, the Company entered into an amended and restated Change in Control / Severance Agreement with Mr. Griffin (the ‘‘Griffin - Page 53 - 53 Proxy Statement Agreement’’). The Griffin Agreement sets out severance benefits that become payable if, while employed by the Company, other than following a change in control, Mr. Griffin either (i) is terminated without cause, or (ii) terminates his employment for good reason. The severance benefits provided to Mr. Griffin under either of these circumstances would consist of: (i) a lump-sum payment equal to two (2) times the sum of (A) his then-current annual base salary immediately prior to such termination and (B) the Bonus Amount; (ii) full acceleration of the vesting of all of Mr. Griffin’s outstanding stock options, which stock options would become exercisable for a period of two (2) years after the termination date (but not beyond the expiration of their respective maximum terms), full acceleration of the vesting of all outstanding restricted stock awards, and the right to receive the number of performance shares under outstanding PSAs that are earned but unissued and that he would have earned had he remained employed through the end of the applicable performance period; and (iii) COBRA continuation for up to fifteen (15) months after the termination date. The Griffin Agreement also sets out severance benefits that become payable if, within the period of time commencing three (3) months prior to and ending two (2) years following a change in control, Mr. Griffin’s employment is either (i) terminated by the Company without cause, or (ii) terminated by him for good reason (a ‘‘Qualifying Termination’’). The severance benefits provided to Mr. Griffin in such circumstances would consist of the following: (i) a lump-sum payment equal to two and one-half (21⁄2) times the sum of (A) his annual base salary immediately prior to the change in control, and (B) the CIC Bonus Amount; (ii) all of Mr. Griffin’s then-outstanding stock options would become exercisable for a period of thirty (30) months after the termination date (but not beyond the expiration of their respective maximum terms); and (iii) COBRA continuation for up to eighteen (18) months after the termination date. The Griffin Agreement also provides that in the event of a Qualifying Termination, Mr. Griffin is entitled to full acceleration of the vesting of all of his outstanding equity awards (including stock options, restricted stock awards, RSU awards, and all earned but unissued performance-based equity awards) granted after January 22, 2015. At the time of a change in control, all such outstanding equity awards would continue to be subject to the same time-based vesting schedule to which the awards were subject prior to the change in control (including performance-based equity awards that are deemed earned at the time of the change in control as described below). For performance-based equity awards where the change in control occurs prior to the end of the performance period, such awards would be deemed earned as to the greater of (i) the target level of shares for such awards, or (ii) the number of shares that would have been earned pursuant to the terms of such awards based upon performance up through and including the day prior to the date of the change in control. In the event that the successor or surviving company does not agree to assume, or to substitute for, such outstanding equity awards on substantially similar terms with substantially equivalent economic benefits as exist for such award immediately prior to the change in control, then such awards would accelerate in full as of the change in control. The Griffin Agreement also provides that all outstanding equity awards held by Mr. Griffin on January 22, 2015, that were granted under the Company’s Amended and Restated 2005 Long-Term Incentive Plan will continue, following January 22, 2015, to be governed by the terms of the 2005 Long-Term Incentive Plan and the applicable award agreements thereunder, which terms include automatic accelerated vesting upon a change in control event; provided, however, that for purposes of these awards, a ‘‘change in control event’’ will be deemed to have occurred in the event of a change in control as defined in the Griffin Agreement. In the event of Mr. Griffin’s death or permanent disability (within the meaning of Section 22(e)(3) of the IRC), the Griffin Agreement provides for full acceleration of the vesting of all then-outstanding equity awards subject to time-based vesting (including stock options, restricted stock awards, RSU awards, and all performance-based equity awards where the performance period has ended and the shares are earned but unissued). The Griffin Agreement also provides that if Mr. Griffin’s death or permanent disability occurs prior to the end of the performance period of a performance-based equity award, each such award would be deemed earned as to the greater of (i) the target level of - Page 54 - 54 Proxy Statement shares for such award, or (ii) the number of shares that would have been earned pursuant to the terms of such award had he remained employed through the end of the performance period, and such earned shares would become vested and issuable to him after the performance period ends. In addition, all outstanding stock options would be exercisable for a period of twelve (12) months following the termination of employment (but not beyond the expiration of their respective maximum terms). The Griffin Agreement is intended to be exempt from or compliant with Section 409A of the IRC and has an initial two (2) year term from May 11, 2016, and thereafter renews automatically on an annual basis for up to five (5) additional years unless either the Company or Mr. Griffin timely provides a notice of non-renewal to the other prior to the end of the then-current term. The payments due to Mr. Griffin under the Griffin Agreement are subject to potential reduction in the event that such payments would otherwise become subject to excise tax incurred under Section 4999 of the IRC, if such reduction would result in his retaining a larger amount, on an after-tax basis, than if he had received all of the payments due. Additionally, the Griffin Agreement requires that Mr. Griffin sign a release of claims in favor of the Company before he is eligible to receive any benefits under the Griffin Agreement and contains a non-solicitation provision applicable to Mr. Griffin while he is employed by the Company and for twelve (12) months following the termination of his employment. The terms ‘‘change in control,’’ ‘‘cause,’’ and ‘‘good reason’’ are each defined in the Griffin Agreement. Change in control means, in summary: (i) the acquisition by a person or a group of 40% or more of the outstanding stock of the Company; (ii) a change, without approval by the Board of Directors, of a majority of the Board of Directors of the Company; (iii) the acquisition of the Company by means of a reorganization, merger, consolidation, or asset sale; or (iv) stockholder approval of a liquidation or dissolution of the Company. Cause means, in summary: (i) deliberate dishonesty that is significantly detrimental to the best interests of the Company; (ii) conduct constituting an act of moral turpitude; (iii) willful disloyalty or insubordination; or (iv) incompetent performance or substantial or continuing inattention to or neglect of duties. Good reason means, in summary: (i) a material diminution in his base compensation, authority, duties, responsibilities, or budget over which he retains authority; (ii) a requirement that Mr. Griffin report to a corporate officer or employee instead of reporting directly to the Board of Directors; (iii) a material change in his office location; or (iv) any action or inaction constituting a material breach by the Company of the terms of the agreement. Messrs. Sennesael, Palette, Freyman, Gammel, and Tremallo On December 16, 2014, the Company entered into new Change in Control / Severance Agreements with each of Messrs. Palette, Freyman, Gammel, and Tremallo that became effective on January 22, 2015. On August 29, 2016, the Company entered into a Change in Control / Severance Agreement with Mr. Sennesael. Each such Change in Control / Severance Agreement is referred to herein as a ‘‘CIC Agreement.’’ The CIC Agreements for Mr. Palette and Mr. Tremallo were subsequently amended pursuant to transition letters as further discussed below. Each CIC Agreement sets out severance benefits that become payable if, within the period of time commencing three (3) months prior to and ending twelve (12) months following a change in control, the executive officer’s employment is either (i) terminated by the Company without cause, or (ii) terminated by the executive for good reason (for each such executive, a ‘‘Qualifying Termination’’). The severance benefits provided to the executive in such circumstances would consist of the following: (i) a lump sum payment equal to two (2) times (one and one-half (11⁄2) times, in the case of Mr. Sennesael) the sum of (A) his annual base salary immediately prior to the change in control, and (B) the CIC Bonus Amount; (ii) all of the executive’s then-outstanding stock options would remain exercisable for a period of eighteen (18) months after the termination date (but not beyond the expiration of - Page 55 - 55 Proxy Statement their respective maximum terms); and (iii) COBRA continuation for up to eighteen (18) months after the termination date. Each CIC Agreement also provides that in the event of a Qualifying Termination, the executive is entitled to full acceleration of the vesting of all of his outstanding equity awards (including stock options, restricted stock awards, RSU awards, and all earned but unissued performance-based equity awards) granted after January 22, 2015. At the time of a change in control, all such outstanding equity awards would continue to be subject to the same time-based vesting schedule to which the awards were subject prior to the change in control (including performance-based equity awards that are deemed earned at the time of the change in control as described below). For performance-based equity awards where the change in control occurs prior to the end of the performance period, such awards would be deemed earned as to the greater of (i) the target level of shares for such awards, or (ii) the number of shares that would have been earned pursuant to the terms of such awards based upon performance up through and including the day prior to the date of the change in control. In the event that the successor or surviving company does not agree to assume, or to substitute for, such outstanding equity awards on substantially similar terms with substantially equivalent economic benefits as exist for such award immediately prior to the change in control, then such awards would accelerate in full as of the change in control. The CIC Agreement for each of Messrs. Palette, Freyman, Gammel, and Tremallo also provides that all outstanding equity awards held by the executive on January 22, 2015, that were granted under the Company’s Amended and Restated 2005 Long-Term Incentive Plan will continue, following January 22, 2015, to be governed by the terms of the 2005 Long-Term Incentive Plan and the applicable award agreements thereunder, which terms include automatic accelerated vesting upon a change in control event; provided, however, that for purposes of these awards, a ‘‘change in control event’’ will be deemed to have occurred in the event of a change in control as defined in the CIC Agreement. On May 18, 2015, the Company’s stockholders approved the 2015 Long-Term Incentive Plan, which does not provide for automatic accelerated vesting of outstanding equity awards upon a change in control. Since May 18, 2015, no awards have been made, and in the future no awards will be made, to the Named Executive Officers or other employees under the 2005 Long-Term Incentive Plan. Each CIC Agreement also sets out severance benefits outside a change in control that become payable if the executive’s employment is terminated by the Company without cause. The severance benefits provided to the executive under such circumstance would consist of the following: (i) in the case of Messrs. Palette, Gammel, and Tremallo, a lump sum payment equal to the sum of (x) his annual base salary, and (y) any short-term cash incentive award then due, and in the case of Messrs. Sennesael and Freyman, biweekly compensation continuation payments for a period of twelve (12) months, with each such compensation continuation payment being equal to the aggregate payment amount divided by twenty-six (26), where the aggregate payment is equal to the sum of (x) his annual base salary, and (y) any short-term cash incentive award then due; (ii) all then-vested outstanding stock options would remain exercisable for a period of twelve (12) months after the termination date (but not beyond the expiration of their respective maximum terms); and (iii) COBRA continuation coverage for up to twelve (12) months after the termination date. In the event of the executive’s death or permanent disability (within the meaning of Section 22(e)(3) of the IRC), each CIC Agreement provides for full acceleration of the vesting of all then-outstanding equity awards subject to time-based vesting (including stock options, restricted stock awards, RSU awards, and all performance-based equity awards where the performance period has ended and the shares are earned but unissued). Each CIC Agreement also provides that for a performance-based equity award where the executive’s death or permanent disability occurs prior to the end of the performance period, such award would be deemed earned as to the greater of (i) the target level of shares for such award, or (ii) the number of shares that would have been earned pursuant to the terms of such award had the executive remained employed through the end of the performance period, and such earned shares would become vested and issuable to the executive after the performance period ends. In addition, all outstanding stock options would remain exercisable for a period of twelve (12) months following the termination of employment (but not beyond the expiration of their respective maximum terms). 56 - Page 56 - Proxy Statement Each CIC Agreement is intended to be exempt from or compliant with Section 409A of the IRC and has an initial two (2) year term, and thereafter renews automatically on an annual basis for up to five (5) additional years unless either the Company or the executive timely provides a notice of non-renewal to the other prior to the end of the then-current term. The payments due to each executive under his CIC Agreement are subject to potential reduction in the event that such payments would otherwise become subject to excise tax incurred under Section 4999 of the IRC, if such reduction would result in the executive retaining a larger amount, on an after-tax basis, than if he had received all of the payments due. Additionally, each CIC Agreement requires that the executive sign a release of claims in favor of the Company before he is eligible to receive any benefits under the agreement. The CIC Agreement for each of Messrs. Palette, Gammel, and Tremallo contains non-compete and non-solicitation provisions applicable to the executive while he is employed by the Company and for a period of twenty-four (24) months following the termination of his employment. The CIC Agreement for each of Messrs. Sennesael and Freyman contains non-solicitation provisions applicable to the executive while he is employed by the Company and for a period of twelve (12) months following the termination of his employment. Effective as of August 29, 2016, Mr. Palette retired from his position as Chief Financial Officer of the Company. Mr. Palette will continue to serve as a non-executive employee of the Company through May 31, 2017, after which transition period his employment with the Company will end. In connection with his transition, the Company amended Mr. Palette’s CIC Agreement through a new transition letter agreement dated August 26, 2016 (the ‘‘Palette Transition Letter’’). Under the Palette Transition Letter, Mr. Palette will generally receive ongoing compensation and benefits during the transition period consistent with those in effect prior to his retirement as Chief Financial Officer, except that he will cease to be eligible for short-term cash incentives, other cash bonus programs, or any equity incentives related to fiscal year 2017. If Mr. Palette remains employed until May 31, 2017, the Company will thereafter pay a portion of his COBRA premiums for up to eighteen (18) months, and any outstanding stock options that have vested by such date will remain exercisable for up to one (1) year. If the Company terminates Mr. Palette’s employment without cause (as defined in his CIC Agreement) before May 31, 2017, he will receive a lump-sum severance payment equal to twice his annual base salary, the Company-paid portion of COBRA premiums for twelve (12) months, and the extended option exercisability. The new arrangements under the Palette Transition Letter replace and supersede the financial terms of his CIC Agreement other than in the event of death or disability. If Mr. Palette resigns before May 31, 2017, or is terminated for cause, he will not receive any additional compensation or benefits. Effective as of November 10, 2016, Mark V.B. Tremallo retired from his position as Vice President, General Counsel and Secretary of the Company. Mr. Tremallo will continue to serve as an employee of the Company serving in a non-executive transition role. In connection with this transition, the Company entered into a letter agreement with Mr. Tremallo dated November 8, 2016 (the ‘‘Tremallo Transition Letter’’). During the transition period, Mr. Tremallo will receive a base salary equal to twenty-five percent of his base salary as of November 8, 2016, and continue to be eligible for benefits consistent with those he was receiving as of such date; provided, however, that he will not be eligible to participate in any cash incentive plan, receive any cash bonus, or receive any equity incentive award related to fiscal year 2017. If Mr. Tremallo remains employed until November 15, 2017, the Company will thereafter pay a portion of his COBRA premiums for up to eighteen (18) months, and any outstanding stock options that have vested by such date will remain exercisable for up to one (1) year. If the Company terminates Mr. Tremallo’s employment without cause (as defined in his CIC Agreement) before November 15, 2017, he will receive a lump-sum severance payment equal to twice his annual base salary, the Company-paid portion of COBRA premiums for twelve (12) months, and the extended option exercisability. The new arrangements under the Tremallo Transition Letter replace and supersede the financial terms of his CIC Agreement other than in the event of death or disability. If Mr. Tremallo resigns before November 15, 2017, or is terminated for cause, he will not receive any additional compensation or benefits. 57 - Page 57 - Proxy Statement Effective as of February 2, 2017, Bruce J. Freyman retired from his position as Executive Vice President, Worldwide Operations of the Company. Mr. Freyman will continue to serve as an employee of the Company serving in a non-executive transition role. In connection with this transition, the Company entered into a letter agreement with Mr. Freyman dated February 1, 2017 (the ‘‘Freyman Transition Letter’’). During the transition period, Mr. Freyman will receive a base salary equal to his base salary as of February 1, 2017, and continue to be eligible for benefits consistent with those he was receiving as of such date; provided, however, that he will not be eligible to participate in any cash incentive plan, receive any cash bonus, or receive any equity incentive award. If Mr. Freyman remains employed until May 31, 2017, the Company will thereafter pay a portion of his COBRA premiums for up to eighteen (18) months, and any outstanding stock options that have vested by such date will remain exercisable for up to one (1) year. If the Company terminates Mr. Freyman’s employment without cause (as defined in his CIC Agreement) before May 31, 2017, he will receive a lump-sum severance payment equal to twice his annual base salary, the Company-paid portion of COBRA premiums for twelve (12) months, and the extended option exercisability. The new arrangements under the Freyman Transition Letter replace and supersede the financial terms of his CIC Agreement other than in the event of death or disability. If Mr. Freyman resigns before May 31, 2017, or is terminated for cause, he will not receive any additional compensation or benefits. The terms ‘‘change in control,’’ ‘‘cause,’’ and ‘‘good reason’’ are each defined in the CIC Agreements. Change in control means, in summary: (i) the acquisition by a person or a group of 40% or more of the outstanding stock of the Company; (ii) a change, without approval by the Board of Directors, of a majority of the Board of Directors of the Company; (iii) the acquisition of the Company by means of a reorganization, merger, consolidation, or asset sale; or (iv) stockholder approval of a liquidation or dissolution of the Company. Cause means, in summary: (i) deliberate dishonesty that is significantly detrimental to the best interests of the Company; (ii) conduct constituting an act of moral turpitude; (iii) willful disloyalty or insubordination; or (iv) incompetent performance or substantial or continuing inattention to or neglect of duties. Good reason means, in summary: (i) a material diminution in the executive’s base compensation, authority, duties, or responsibilities; (ii) a material diminution in the authority, duties, or responsibilities of the executive’s supervisor; (iii) a material change in the executive’s office location; or (iv) any action or inaction constituting a material breach by the Company of the terms of the agreement. The following table summarizes the payments and benefits that would be made to the Named Executive Officers as of September 30, 2016, in the following circumstances as of such date: (cid:127) termination without cause outside of a change in control (or for Mr. Palette, a change in his responsibilities); (cid:127) termination without cause or for good reason in connection with a change in control; (cid:127) in the event of a termination of employment because of death or disability; and (cid:127) upon a change in control not involving a termination of employment. 58 - Page 58 - The accelerated equity values in the table reflect a price of $76.14 per share, which was the closing sale price of the Company’s common stock on the NASDAQ Global Select Market on September 30, 2016. The table does not reflect any equity awards made after September 30, 2016. Proxy Statement Name David J. Aldrich(2)(3) Liam K. Griffin(2) Kris Sennesael(2) Benefit Salary and Short-Term Incentive Accelerated Options Accelerated PSAs Medical TOTAL Salary and Short-Term Incentive Accelerated Options Accelerated RSUs Accelerated PSAs Medical TOTAL Salary and Short-Term Incentive Accelerated Options Accelerated RSUs Medical TOTAL Donald W. Palette(2)(10) Payments in Connection with Ceasing CFO Duties Bruce J. Freyman(2) Peter L. Gammel(2) Mark V.B. Tremallo(2) TOTAL Salary and Short-Term Incentive Accelerated Options Accelerated RSUs Accelerated PSAs Medical TOTAL Salary and Short-Term Incentive Accelerated Options Accelerated PSAs Medical TOTAL Salary and Short-Term Incentive Accelerated Options Accelerated PSAs Medical TOTAL Termination w/o Cause Outside Change in Control ($) Termination w/o Cause or for Good Reason, After Change in Control ($) Change in Control w/o Death/ Disability Termination ($) ($)(1) 5,291,135(4) 7,343,434 15,338,327 — 2,645,567 6,613,918(5) 7,343,434 7,343,434 15,338,327 15,338,327 25,671 25,671 — 7,343,434 13,933,620 — 27,972,896 29,321,350 25,352,999 21,277,054 3,426,061(6) 3,816,730 3,312,090 6,719,812 19,617 4,282,576(7) 3,816,730 3,312,090 6,719,812 23,540 — 3,816,730 3,312,090 6,719,812 — — 2,973,580 1,332,450 6,045,516 — 17,294,310 18,154,748 13,848,632 10,351,546 425,000(8) — — 17,114 637,500(9) 36,800 1,903,500 25,671 — 36,800 1,903,500 — 442,114 2,603,471 1,940,300 — — N/A N/A N/A N/A — — — — — N/A N/A 425,000(8) — — — 17,114 1,784,817(4) 1,569,625 1,903,500 3,212,347 25,671 — 1,569,625 1,903,500 3,212,347 — — 1,569,625 1,903,500 2,931,390 — 442,114 8,495,960 6,685,472 6,404,515 381,000(8) — — 17,114 1,324,899(4) 975,608 2,745,532 25,671 — 975,608 2,745,532 — — 975,608 2,436,480 — 398,114 5,071,710 3,721,140 3,412,088 390,000(8) — — 17,114 1,429,901(4) 1,073,245 2,537,061 25,671 — 1,073,245 2,537,061 — — 1,073,245 2,284,200 — 407,114 5,065,878 3,610,306 3,357,445 (1) Represents the value of unvested equity awards granted to Named Executive Officers under the 2005 Long-Term Incentive Plan, which accelerate automatically upon a change in control of the Company. Equity awards granted to Named Executive Officers under the 2015 Long-Term Incentive Plan are not subject to accelerated vesting solely upon a change in control of the Company (unless the successor or surviving company does not agree to assume, or to substitute for, outstanding equity awards on substantially similar terms with substantially equivalent economic benefits as exist for - Page 59 - 59 (2) (3) (4) (5) (6) (7) (8) (9) (10) Proxy Statement such award immediately prior to the change in control, in which case the awards would accelerate in full as of the change in control). Excludes the value of accrued vacation/paid time off required by law to be paid upon termination. Mr. Aldrich did not receive any payments in connection with his transition from serving as Chief Executive Officer to serving as Executive Chairman. The table summarizes the payments and benefits that Mr. Aldrich would receive pursuant to the Aldrich Agreement described above, but excludes any distributions that would be made to Mr. Aldrich under the Executive Compensation Plan (see the discussion above regarding this inactive plan in the ‘‘Nonqualified Deferred Compensation Table’’). Represents an amount equal to two (2) times the sum of (A) the Named Executive Officer’s annual base salary as of September 30, 2016, and (B) an Incentive Plan payment, which is equal to the three (3) year average of the actual incentive payments made to the Named Executive Officer for fiscal years 2013, 2014 and 2015, since such average is greater than the ‘‘target’’ payout level. Represents an amount equal to two and one-half (21⁄2) times the sum of (A) Mr. Aldrich’s annual base salary as of September 30, 2016, and (B) an Incentive Plan payment equal to the three (3) year average of the actual incentive payments made to Mr. Aldrich for fiscal years 2013, 2014 and 2015, since such average is greater than the ‘‘target’’ payout level. Represents an amount equal to two (2) times the sum of (A) Mr. Griffin’s annual base salary as of September 30, 2016, and (B) an Incentive Plan payment, which is equal to Mr. Griffin’s ‘‘target’’ short-term cash incentive award for fiscal year 2016, since such ‘‘target’’ payout level is greater than the three (3) year average of the actual incentive payments made to Mr. Griffin for fiscal years 2013, 2014 and 2015. Represents an amount equal to two and one-half (21⁄2) times the sum of (A) Mr. Griffin’s annual base salary as of September 30, 2016, and (B) an Incentive Plan payment, which is equal to Mr. Griffin’s ‘‘target’’ short-term cash incentive award for fiscal year 2016, since such ‘‘target’’ payout level is greater than the three (3) year average of the actual incentive payments made to Mr. Griffin for fiscal years 2013, 2014 and 2015. Represents an amount equal to the Named Executive Officer’s annual base salary as of September 30, 2016. Represents an amount equal to one and one-half (11⁄2) times Mr. Sennesael’s annual base salary as of September 30, 2016. Mr. Palette did not receive any payments in connection with his retirement as Chief Financial Officer of the Company on August 29, 2016. Pursuant to the Palette Transition Letter described above, during the transition period ending May 31, 2017, Mr. Palette will generally receive ongoing compensation and benefits consistent with those in effect prior to his retirement as Chief Financial Officer, including continued vesting of outstanding equity awards according to their original vesting schedules. If Mr. Palette remains employed until May 31, 2017, the Company will pay a portion of his COBRA premiums for up to eighteen (18) months, with such COBRA continuation payments valued at $17,704. If the Company terminates Mr. Palette’s employment without cause before May 31, 2017, he will receive a lump-sum severance payment equal to $924,000 and a portion of his COBRA premiums for twelve (12) months, with such COBRA continuation payments valued at $11,803. - Page 60 - 60 Proxy Statement Director Compensation Cash Compensation Prior to February 2016, non-employee directors of the Company were paid, in quarterly installments, an annual retainer of $60,000. Effective as of February 2016, the annual retainer for non-employee directors was increased to $70,000. Additional annual retainers for Chairman and/or committee service (paid in quarterly installments) are as follows: the Chairman of the Board ($50,000); the Chairman of the Audit Committee ($20,000, which increased to $24,000 as of February 2016); the Chairman of the Compensation Committee ($15,000, which increased to $20,000 as of February 2016); the Chairman of the Nominating and Governance Committee ($10,000); non-chair member of Audit Committee ($10,000, which increased to $12,000 as of February 2016); non-chair member of Compensation Committee ($7,500, which increased to $10,000 as of February 2016); and non-chair member of Nominating and Corporate Governance Committee ($5,000). If the Chairman of the Board is an employee of the Company, the Chairman’s retainer will be paid to the Lead Independent Director, if one has been appointed. In addition, the Compensation Committee continues to retain discretion to recommend to the full Board of Directors that additional cash payments be made to a non-employee director for extraordinary service during a fiscal year. Equity Compensation Effective as of February 2016, any newly appointed non-employee director will receive an initial equity grant composed of a combination of a stock option and a restricted stock unit award having an aggregate value of approximately $260,000, with such value allocated equally (i.e., 50%/50%) between the stock option and the restricted stock unit award, and with the stock option having an exercise price equal to the fair market value of the common stock on the date of grant. Prior to the 2016 Annual Meeting of stockholders, at each annual meeting of stockholders each non-employee director who was reelected received a restricted stock award having a value of approximately $170,000, which vested in three (3) equal annual installments on the anniversary of the date of grant. Effective as of February 2016, following each annual meeting of stockholders, each non-employee director who is reelected will receive a restricted stock unit award having a value of approximately $200,000. The number of shares subject to a non-employee director’s initial restricted stock unit award or annual award is determined by dividing the approximate value of the award, as disclosed above, by the average closing price per share of the Company’s common stock as reported on the NASDAQ Global Select Market (or if the common stock is not then traded on such market, such other market on which the common stock is traded) for each trading day during the 30 consecutive trading day period ending on, and including, the grant date. Unless otherwise determined by the Board of Directors, (a) any stock options awarded as part of a non-employee director’s initial equity grant will vest in four (4) equal annual installments on the anniversary of the date of grant, (b) any restricted stock units awarded as part of a non-employee director’s initial equity grant will vest in three (3) equal annual installments on the anniversary of the date of grant, and (c) effective as of February 2016, any restricted stock units awarded as part of a non-employee director’s annual equity grant will vest on the first anniversary of the date of grant. In the event of a change in control of the Company, the outstanding options and restricted stock under the 2008 Director Long-Term Incentive Plan will become fully exercisable and deemed fully vested, respectively. No director who is also an employee receives separate compensation for services rendered as a director. David J. Aldrich and Liam K. Griffin are currently the only directors who are also employees of the Company. - Page 61 - 61 Director Compensation Table Proxy Statement The following table summarizes the compensation paid to the Company’s non-employee directors for fiscal year 2016. Name David J. McLachlan, Lead Independent Director Kevin L. Beebe Timothy R. Furey Balakrishnan S. Iyer Christine King David P. McGlade Robert A. Schriesheim Fees Earned or Paid in Cash ($) Stock Awards ($)(1)(2) Option Awards ($)(1) All Other Compensation ($)(3) 134,000 88,375 88,750 89,000 81,875 81,875 90,500 179,237 179,237 179,237 179,237 179,237 179,237 179,237 — — — — — — — 5,198 5,198 5,198 5,198 5,674 5,198 5,198 Total ($) 318,435 272,810 273,185 273,435 266,786 266,310 274,935 (1) The non-employee members of the Board of Directors who held such positions on September 30, 2016, held the following aggregate number of unexercised options and unvested restricted stock and RSU awards as of such date: Name David J. McLachlan, Lead Independent Director Kevin L. Beebe Timothy R. Furey Balakrishnan S. Iyer Christine King David P. McGlade Robert A. Schriesheim Number of Securities Underlying Unexercised Options Number of Unvested Shares of Restricted Stock Number of Shares Subject to Unvested RSUs — 15,000 — — 9,606 — — 2,626 2,626 2,626 2,626 3,944 2,626 2,626 2,775 2,775 2,775 2,775 2,775 2,775 2,775 (2) (3) Reflects the grant date fair value of 2,775 RSUs granted on May 11, 2016, to each non-employee director elected at the 2016 Annual Meeting of stockholders, computed in accordance with the provisions of ASC 718 using a price of $64.59 per share, which was the closing sale price of the Company’s common stock on the NASDAQ Global Select Market on May 11, 2016. Reflects dividend accruals on unvested shares of restricted stock granted prior to April 2014, when Skyworks declared its first quarterly dividend, because these dividends were not included in the grant date fair value of such restricted stock awards. Accrued dividends become payable when the underlying shares of restricted stock vest. Director Stock Ownership Requirements We have adopted Director Stock Ownership guidelines with the objective of more closely aligning the interests of our directors with those of our stockholders. The minimum number of shares of the Company’s common stock that the Director Stock Ownership guidelines require non-employee directors to hold while serving in their capacity as directors is the director base compensation (currently $70,000) multiplied by five (5), divided by the fair market value of the Company’s common stock (rounded to the nearest 100 shares). For purposes of the Director Stock Ownership guidelines, the fair market value of the Company’s common stock is the average closing price per share of the Company’s common stock as reported on the NASDAQ Global Select Market (or if the common stock is not then traded on such market, such other market on which the common stock is traded) for the twelve (12) month period ending with the determination date. All of our directors have met the stock ownership guidelines as of the date hereof. - Page 62 - 62 Equity Compensation Plan Information Proxy Statement As of September 30, 2016, the Company has the following equity compensation plans under which its equity securities were authorized for issuance to its employees and/or directors: (cid:127) the 1999 Employee Long-Term Incentive Plan (cid:127) the Directors’ 2001 Stock Option Plan (cid:127) the Non-Qualified Employee Stock Purchase Plan (cid:127) the 2002 Employee Stock Purchase Plan (cid:127) the 2005 Long-Term Incentive Plan (cid:127) the 2008 Director Long-Term Incentive Plan (cid:127) the 2015 Long-Term Incentive Plan (cid:127) AATI 2005 Equity Incentive Plan Except for the 1999 Employee Long-Term Incentive Plan (the ‘‘1999 Employee Plan’’) and the Non-Qualified Employee Stock Purchase Plan (the ‘‘Non-Qualified ESPP’’), each of the foregoing equity compensation plans was approved by the Company’s stockholders. A description of the material features of each non-stockholder approved plan is provided below under the headings ‘‘1999 Employee Long-Term Incentive Plan’’ and ‘‘Non-Qualified Employee Stock Purchase Plan.’’ The following table presents information about these plans as of September 30, 2016. Number of Securities to be Issued Upon Exercise of Outstanding Options, Weighted Average Exercise Price of Outstanding Options, Warrants, and Rights (#) Warrants and Rights ($) (a) (b) Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans (Excluding Securities Reflected in Column (a)) (#) (c) Equity compensation plans approved by security holders Equity compensation plans not approved by security holders TOTAL 4,516,864(1) 274,554 4,791,418 43.39 7.97 41.36 19,802,625(2) 235,597(3) 20,038,222 (1) (2) (3) Excludes 530,872 unvested shares under restricted stock and RSU awards and 2,684,950 unvested shares under PSAs, which figure assumes achievement of performance goals under the FY16 PSAs at target levels. Includes 735,105 shares available for future issuance under the 2002 Employee Stock Purchase Plan, 18,368,206 shares available for future issuance under the 2015 Long-Term Incentive Plan, and 699,314 shares available for future issuance under the 2008 Director Long-Term Incentive Plan. No further grants will be made under the Directors’ 2001 Stock Option Plan, the AATI 2005 Equity Incentive Plan, or the 2005 Long-Term Incentive Plan. Represents shares available under the Non-Qualified ESPP. No further grants will be made under the 1999 Employee Plan. 1999 Employee Long-Term Incentive Plan The 1999 Employee Plan provided for the grant of non-qualified stock options to purchase shares of the Company’s common stock to employees, other than officers and non-employee directors. The term of these options may not exceed 10 years. The 1999 Employee Plan contains provisions, which permit restrictions on vesting or transferability, as well as continued exercisability upon a participant’s termination of employment with the Company, - Page 63 - 63 Proxy Statement of options granted thereunder. The 1999 Employee Plan provides for full acceleration of the vesting of options granted thereunder upon a ‘‘change in control’’ of the Company, as defined in the 1999 Employee Plan. The Board of Directors generally may amend, suspend or terminate the 1999 Employee Plan in whole or in part at any time; provided that any amendment that affects outstanding options be consented to by the holder of the options. As of April 26, 2009, no additional grants were issuable under the 1999 Employee Long-Term Incentive Plan. Non-Qualified Employee Stock Purchase Plan The Company also maintains the Non-Qualified ESPP 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-Qualified ESPP 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 six-month offering period. Compensation Committee Report The Compensation Committee has reviewed and discussed the Compensation Discussion and Analysis included herein with management, and based on the review and discussions, the Compensation Committee recommended to the Board of Directors that the Compensation Discussion and Analysis be included in this Proxy Statement for the 2017 Annual Meeting of stockholders. THE COMPENSATION COMMITTEE Kevin L. Beebe Timothy R. Furey Christine King, Chairman David P. McGlade - Page 64 - 64 Proxy Statement Security Ownership of Certain Beneficial Owners and Management To the Company’s knowledge, the following table sets forth the beneficial ownership of the Company’s common stock as of March 16, 2017, by the following individuals or entities: (i) each person or entity who beneficially owns five percent (5%) or more of the outstanding shares of the Company’s common stock as of March 16, 2017; (ii) the Named Executive Officers (as defined above under ‘‘Information About Executive Compensation’’); (iii) each director and nominee for director; and (iv) all current executive officers and directors of the Company, as a group. Beneficial ownership is determined in accordance with the rules of the SEC, is not necessarily indicative of beneficial ownership for any other purpose, and does not constitute an admission that the named stockholder is a direct or indirect beneficial owner of those shares. As of March 16, 2017, there were 184,491,592 shares of the Company’s common stock issued and outstanding. In computing the number of shares of Company common stock beneficially 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 sixty (60) days of March 16, 2017, 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 Beneficial Owners(1) Capital Research Global Investors The Vanguard Group, Inc. BlackRock, Inc. David J. Aldrich Kevin L. Beebe Bruce J. Freyman Timothy R. Furey Peter L. Gammel Liam K. Griffin Balakrishnan S. Iyer Christine King David P. McGlade David J. McLachlan Donald W. Palette Robert A. Schriesheim Kris Sennesael Mark V.B. Tremallo All current directors and executive officers as a group (13 persons) Number of Shares Beneficially Owned(2) Percent of Class 23,024,590(3) 17,356,526(4) 12,036,014(5) 397,019(6) 53,046 49,045(6) 19,947 54,701(6) 130,709(6) 13,555 17,366 62,921 64,221 41,713(6) 64,647 — 10,336(6) 901,691(6) 12.48% 9.41% 6.52% (*) (*) (*) (*) (*) (*) (*) (*) (*) (*) (*) (*) (*) (*) (*) * (1) (2) Less than 1% Unless otherwise set forth in the following notes, each person’s address is the address of the Company’s principal executive offices at Skyworks Solutions, Inc., 20 Sylvan Road, Woburn, MA 01801, and stockholders have sole voting and sole investment power with respect to the shares, except to the extent such power may be shared by a spouse or otherwise subject to applicable community property laws. Includes the number of shares of Company common stock subject to stock options held that are currently exercisable or will become exercisable within sixty (60) days of March 16, 2017 (the ‘‘Current Options’’), as follows: Mr. Aldrich— 225,999 shares under Current Options; Mr. Freyman—5,000 shares under Current Options; Mr. Gammel—34,300 shares under Current Options; Mr. Griffin—31,750 shares under Current Options; Ms. King—7,205 shares under Current - Page 65 - 65 Proxy Statement Options; Mr. Palette—7,000 shares under Current Options; Mr. Tremallo—4,000 shares under Current Options; current directors and executive officers as a group (13 persons)—307,487 shares under Current Options. Also includes the number of shares of Company common stock to be issued upon the vesting of restricted stock units within sixty (60) days of March 16, 2017 (the ‘‘Vesting RSUs’’), as follows: Mr. Freyman—25,000 shares under Vesting RSUs; Mr. Griffin— 15,250 shares under Vesting RSUs; Mr. Palette—30,000 shares under Vesting RSUs. The table does not reflect the number of shares of Company common stock to be issued pursuant to unvested restricted stock units (the ‘‘Unvested RSUs’’) and earned, but unissued, performance share awards subject to time-based vesting only (the ‘‘Unvested PSAs’’) that are not scheduled to vest within sixty (60) days of March 16, 2017, as follows: Mr. Aldrich—13,906 shares under Unvested RSUs and 75,837 shares under Unvested PSAs; Mr. Beebe—2,775 shares under Unvested RSUs; Mr. Freyman—3,090 shares under Unvested RSUs and 13,767 shares under Unvested PSAs; Mr. Furey—2,775 shares under Unvested RSUs; Mr. Gammel—2,832 shares under Unvested RSUs and 13,043 shares under Unvested PSAs; Mr. Griffin—43,701 shares under Unvested RSUs and 30,242 shares under Unvested PSAs; Mr. Iyer—2,775 shares under Unvested RSUs; Ms. King—2,775 shares under Unvested RSUs; Mr. McGlade—2,775 shares under Unvested RSUs; Mr. McLachlan—2,775 shares under Unvested RSUs; Mr. Palette—22,428 shares under Unvested PSAs; Mr. Schriesheim—2,775 shares under Unvested RSUs; Mr. Sennesael—28,734 shares under Unvested RSUs; Mr. Tremallo—12,490 shares under Unvested PSAs; current directors and executive officers as a group (13 persons)—116,936 shares under Unvested RSUs and 130,089 shares under Unvested PSAs. Consists of shares beneficially owned by Capital Research Global Investors (‘‘Capital Research’’), a division of Capital Research and Management Company. Capital Research has sole voting power and sole dispositive power with respect to 23,024,590 shares. With respect to the information relating to Capital Research, the Company has relied on information supplied by Capital Research on a Schedule 13G/A filed with the SEC on February 13, 2017. The address of Capital Research is 333 South Hope Street, Los Angeles, CA, 90071. Consists of shares beneficially owned by The Vanguard Group, Inc. (‘‘Vanguard’’), which has sole voting power with respect to 295,096 shares, shared voting power with respect to 32,992 shares, sole dispositive power with respect to 17,030,961 shares and shared dispositive power with respect to 325,565 shares. Vanguard Fiduciary Trust Company, a wholly owned subsidiary of Vanguard, is the beneficial owner of 239,873 shares as a result of its serving as investment manager of collective trust accounts. Vanguard Investments Australia, Ltd., a wholly owned subsidiary of Vanguard, is the beneficial owner of 140,915 shares as a result of its serving as investment manager of Australian investment offerings. With respect to the information relating to Vanguard, the Company has relied on information supplied by Vanguard on a Schedule 13G/A filed with the SEC on February 13, 2017. The address of Vanguard is 100 Vanguard Blvd., Malvern, PA, 19355. Consists of shares beneficially owned by BlackRock, Inc. (‘‘BlackRock’’), in its capacity as a parent holding company of various subsidiaries under Rule 13d-1(b)(1)(ii)(G). In its capacity as a parent holding company or control person, BlackRock has sole voting power with respect to 10,409,167 shares and sole dispositive power with respect to 12,036,014 shares which are held by the following of its subsidiaries: BlackRock (Luxembourg) S.A., BlackRock (Netherlands) B.V., BlackRock (Singapore) Limited, BlackRock Advisors (UK) Limited, BlackRock Advisors, LLC, BlackRock Asset Management Canada Limited, BlackRock Asset Management Deutschland AG, BlackRock Asset Management Ireland Limited, BlackRock Asset Management North Asia Limited, BlackRock Asset Management Schweiz AG, BlackRock Capital Management, BlackRock Financial Management, Inc., BlackRock Fund Advisors, BlackRock Fund Managers Ltd, BlackRock Institutional Trust Company, N.A., BlackRock International Limited, BlackRock Investment Management Investment Management, LLC, BlackRock Japan Co Ltd, and BlackRock Life Limited. With respect to the information relating to BlackRock and its affiliated entities, the Company has relied on information supplied by BlackRock on a Schedule 13G/A filed with the SEC on January 27, 2017. The address of BlackRock is 55 East 52nd Street, New York, NY, 10055. (Australia) Limited, BlackRock Investment Management (UK) Ltd, BlackRock (3) (4) (5) (6) Includes shares held in the Company’s 401(k) Savings and Investment Plan as of March 16, 2017. - Page 66 - 66 Proxy Statement Other Proposed Action As of the date of this Proxy Statement, the directors know of no other business that is expected to come before the Annual Meeting. 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. Section 16(a) Beneficial Ownership Reporting Compliance Other Matters Section 16(a) of the Exchange Act requires our directors, executive officers and beneficial owners of more than 10% of our equity securities to file reports of holdings and transactions in 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 written representations provided to us, with respect to fiscal year 2016, we believe that all Section 16(a) filing requirements applicable to our directors, executive officers and beneficial owners of more than 10% of the Company’s common stock with respect to such fiscal year were timely made, with the exception of one late Form 4 filed by Mr. Gammel on May 18, 2016, to report a transaction dated as of May 5, 2016. 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, officers, or employees of the Company, who will receive no additional compensation for any such services. We have retained D.F. King & Co. to assist in the solicitation of proxies, at a cost to the Company of approximately $9,500, plus reasonable out-of-pocket expenses. Electronic Delivery of Proxy Materials We are able to distribute our Annual Report and this Proxy Statement to our stockholders in a fast and efficient manner via the Internet. This reduces the amount of paper delivered to a stockholder’s address and eliminates the cost of sending these documents by mail. Stockholders may elect to view all future annual reports and proxy statements on the Internet instead of receiving them by mail. You may make this election when voting your proxy this year. Simply follow the instructions to vote via the Internet to register your consent. Your election to view proxy materials online is perpetual unless you revoke it later. Future proxy cards will contain the Internet website address and instructions to view the materials. You will continue to have the option to vote your shares by telephone, mail, or via the Internet. Annual Report on Form 10-K A copy of our 2016 Annual Report accompanies this Proxy Statement. You also may obtain, free of charge, a copy of the Company’s Annual Report on Form 10-K for fiscal year 2016, as filed with the SEC, 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. - Page 67 - 67 Stockholder List Proxy Statement A list of stockholders of record as of March 16, 2017, will be available for inspection during ordinary business hours at our headquarters at 20 Sylvan Road, Woburn, MA 01801, from April 28, 2017, to May 10, 2017, as well as at our Annual Meeting. Stockholder Proposals Proposals to be considered for inclusion in the proxy materials for the Company’s 2018 Annual Meeting of stockholders pursuant to Rule 14a-8 under the Exchange Act must meet the requirements of Rule 14a-8 and be delivered in writing to the Secretary of the Company at its executive offices at 20 Sylvan Road, Woburn, MA 01801, no later than December 4, 2017. The submission of a stockholder proposal does not guarantee that it will be included in the proxy materials for the Company’s 2018 Annual Meeting. According to the applicable provisions of our By-laws, if a stockholder wishes to present a proposal at our 2018 Annual Meeting outside the processes of Rule 14a-8, with such proposal not to be considered for inclusion in the proxy materials for such meeting, then the stockholder must give written notice to the Secretary of the Company at the address noted above no earlier than the close of business on January 10, 2018, and no later than the close of business on February 9, 2018. In the event that the 2018 Annual Meeting is held more than thirty (30) days before or after the first anniversary of the Company’s 2017 Annual Meeting, then the required notice must be delivered in writing to the Secretary of the Company at the address above no earlier than 120 days prior to the date of the 2018 Annual Meeting and no later than the later of 90 days prior to the 2018 Annual Meeting or the 10th day following the day on which the public announcement of the date of the 2018 Annual Meeting is first made by the Company. A proposal that is submitted outside of these time periods will not be considered to be timely and, pursuant to Rule 14a-4(c)(1) under the Exchange Act and if a stockholder properly brings the proposal before the meeting, the proxies that management solicits for that meeting will have ‘‘discretionary’’ authority to vote on the stockholder’s proposal. Even if a stockholder makes timely notification, the proxies may still exercise ‘‘discretionary’’ authority in accordance with the SEC’s proxy rules. OUR BOARD OF DIRECTORS ENCOURAGES STOCKHOLDERS TO ATTEND THE ANNUAL MEETING. WHETHER OR NOT YOU PLAN TO ATTEND, YOU ARE URGED TO SUBMIT A PROXY PROMPTLY IN ONE OF THE FOLLOWING WAYS: (A) BY COMPLETING, SIGNING, AND DATING THE ACCOMPANYING PROXY CARD AND RETURNING IT IN THE POSTAGE-PREPAID ENVELOPE ENCLOSED FOR THAT PURPOSE; (B) BY COMPLETING AND SUBMITTING YOUR PROXY USING THE TOLL-FREE TELEPHONE NUMBER LISTED ON THE PROXY CARD; OR (C) BY COMPLETING AND SUBMITTING YOUR PROXY VIA THE INTERNET BY VISITING THE WEBSITE ADDRESS LISTED ON THE PROXY CARD. A PROMPT RESPONSE WILL GREATLY FACILITATE ARRANGEMENTS FOR THE MEETING AND YOUR COOPERATION WILL BE APPRECIATED. - Page 68 - 68 Appendix: Unaudited Reconciliations of Non-GAAP Financial Measures GAAP operating income Share-based compensation expense[a] Acquisition-related expenses[b] Amortization of intangibles[c] Restructuring and other charges[d] Litigation settlement gains, losses and expenses[e] Deferred executive compensation[f] Non-GAAP operating income GAAP operating margin % Non-GAAP operating margin % GAAP net income per share, diluted Share-based compensation expense[a] Acquisition-related expenses[b] Amortization of intangibles[c] Restructuring and other charges[d] Litigation settlement gains, losses and expenses[e] Deferred executive compensation[f] Merger termination fee[g] Interest expense on seller-financed debt[h] Tax adjustments[i] Year Ended Sept. 30, 2016 Oct. 2, 2015 Oct. 3, 2014 Sept. 27, 2013 (In millions, except per share amounts) $ $ 1,118.7 78.0 7.5 33.4 4.8 1.7 0.6 $ 1,023.1 99.9 8.4 33.5 3.4 3.0 0.1 $ 565.2 86.0 5.7 25.9 0.3 3.9 — $ 1,244.7 $ 1,171.4 $ 687.0 $ 34.0% 37.8% 31.4% 36.0% 24.7% 30.0% 345.1 71.7 2.1 29.1 6.4 1.8 0.5 456.7 19.3% 25.5% Sept. 30, 2016 Oct. 2, 2015 Oct. 3, 2014 Sept. 27, 2013 $ $ 5.18 0.41 0.04 0.17 0.02 0.01 0.01 (0.46) 0.01 0.18 4.10 0.51 0.04 0.17 0.02 0.01 — — 0.01 0.41 5.27 $ $ 2.38 0.45 0.03 0.13 — 0.02 — — — 0.23 3.24 $ $ 1.45 0.37 0.01 0.15 0.03 0.01 — — — 0.18 2.20 Non-GAAP net income per share, diluted $ 5.57 $ [a] These charges represent expense recognized in accordance with ASC 718—Compensation—Stock Compensation. Approximately $11.3 million, $32.2 million and $34.5 million were included in cost of goods sold, research and development expense and selling, general and administrative expense, respectively, for the fiscal year ended September 30, 2016. These charges represent expense recognized in accordance with ASC 718—Compensation—Stock Compensation. Approximately $14.5 million, $45.5 million and $39.9 million were included in cost of goods sold, research and development expense and selling, general and administrative expense, respectively, for the fiscal year ended October 2, 2015. Approximately $11.2 million, $36.3 million and $38.5 million were included in cost of goods sold, research and development expense and selling, general and administrative expense, respectively, for the fiscal year ended October 3, 2014. Approximately $10.2 million, $28.2 million and $33.3 million were included in cost of goods sold, research and development expense and selling, general and administrative expense, respectively, for the fiscal year ended September 27, 2013. - Page 69 - 69 [b] The acquisition-related expenses recognized during the fiscal year ended September 30, 2016, include a $1.4 million charge, to cost of goods sold related to the sale of acquired inventory and $6.1 million, in general and administrative expenses primarily associated with acquisitions completed or contemplated during the year. Appendix The acquisition-related expenses recognized during the fiscal year ended October 2, 2015, include a $0.2 million charge to cost of sales related to the sale of acquired inventory and $8.2 million in transaction costs included in general and administrative expenses associated with potential acquisitions and with the purchase of an interest in a joint venture with Panasonic Corporation on August 1, 2014. The acquisition-related expenses recognized during the fiscal year ended October 3, 2014, include a $2.3 million charge to cost of sales related to the sale of acquired inventory and $3.4 million in transaction costs included in general and administrative expenses associated with the purchase of an interest in a joint venture with Panasonic Corporation on August 1, 2014. For additional information regarding the joint venture, please refer to the Company’s Current Reports on Form 8-K filed with the Securities and Exchange Commission on July 10, 2014, and August 7, 2014. The acquisition-related expenses recognized during the fiscal year ended September 27, 2013, include a $1.3 million charge to cost of sales related to the sale of acquired inventory and $0.8 million in transaction costs included in general and administrative expenses associated with past acquisitions. During the fiscal years ended September 30, 2016, October 2, 2015, October 3, 2014, and September 27, 2013, the Company incurred $33.4 million, $33.5 million, $25.9 million and $29.1 million, respectively, in amortization of intangibles. During the fiscal year ended September 30, 2016, the Company incurred a $4.8 million charge in employee severance costs primarily related to restructuring plans that were implemented during the year. During the fiscal year ended October 2, 2015, the Company incurred $3.4 million in employee severance costs primarily related to restructuring plans that were implemented during the year. During the fiscal year ended October 3, 2014, the Company recorded a $0.3 million charge related to a restructuring plan implemented in the prior fiscal year. During the fiscal year ended September 27, 2013, the Company recorded a $6.4 million charge related to the implementation of restructuring plans to reduce global headcount. During the fiscal years ended September 30, 2016, October 2, 2015, October 3, 2014, and September 27, 2013, the Company recognized $1.7 million, $3.0 million, $3.9 million, and $1.8 million charges, respectively, primarily related to general and administrative expenses associated with ongoing litigation(s). During the fiscal years ended September 30, 2016, October 2, 2015, and September 27, 2013, the Company incurred deferred executive compensation expenses of $0.6 million, $0.1 million, and $0.5 million, respectively. During the fiscal year ended September 30, 2016, PMC-Sierra, Inc. (‘‘PMC’’), notified the Company on November 23, 2015, that it had terminated the Amended and Restated Agreement and Plan of Merger entered into between the parties in order to accept a superior acquisition proposal. As a result, on November 24, 2015, PMC paid the Company a $88.5 million merger termination fee. [c] [d] [e] [f] [g] - Page 70 - 70 Appendix [h] [i] During the fiscal years ended September 30, 2016, October 2, 2015, and October 3, 2014, the Company recognized $1.1 million, $1.3 million and $0.2 million, respectively, in interest expense associated with the accretion of the present value of the $76.5 million liability related to the future purchase of the remaining 34% interest in the joint venture between the Company and Panasonic. The Company acquired the remaining 34% interest from Panasonic on August 1, 2016. During the fiscal year ended September 30, 2016, these amounts primarily represent the use of net operating loss and research and development tax credit carryforwards, deferred tax expense not affecting taxes payable, tax deductible share- based compensation expense in excess of GAAP share-based compensation expense, the tax attributable to the merger termination fee, the release of previously reserved items that are no longer required as a result of the IRS audits, and non-cash expense (benefit) related to uncertain tax positions. During the fiscal year ended October 2, 2015, these amounts primarily represent the use of net operating loss and research and development tax credit carryforwards, deferred tax expense not affecting taxes payable, tax deductible share- based compensation expense in excess of GAAP share-based compensation expense and non-cash expense (benefit) related to uncertain tax positions. During the fiscal year ended October 3, 2014, these amounts primarily represent the use of net operating loss and research and development tax credit carryforwards, deferred tax expense not affecting taxes payable, tax deductible share- based compensation expense in excess of GAAP share-based compensation expense, and non-cash expense (benefit) related to uncertain tax positions. As a result of the settlement of the IRS audit of our fiscal year 2011 federal tax return, a tax benefit related to the release of previously reserved items was included in the GAAP expense for uncertain tax positions. During the fiscal year ended September 27, 2013, these amounts primarily represent the utilization of net operating loss and research and development tax credit carryforwards and non-cash expense related to uncertain tax positions. As a result of the passage of the American Taxpayer Relief Act of 2012, the GAAP tax rate includes a retroactive adjustment for the recognition of research and development tax credits earned in fiscal year 2012. Discussion Regarding the Use of Non-GAAP Financial Measures Our annual report and this proxy statement contain some or all of the following financial measures that have not been calculated in accordance with United States Generally Accepted Accounting Principles (‘‘GAAP’’): (i) non-GAAP gross profit and gross margin, (ii) non-GAAP operating income and operating margin, (iii) non-GAAP net income, and (iv) non-GAAP diluted earnings per share. As set forth in the ‘‘Unaudited Reconciliations of Non-GAAP Financial Measures’’ table found above, we derive such non-GAAP financial measures by excluding certain expenses and other items from the respective GAAP financial measure that is most directly comparable to each non-GAAP financial measure. Management uses these non-GAAP financial measures to evaluate our operating performance and compare it against past periods, make operating decisions, forecast for future periods, compare our operating performance against peer companies and determine payments under certain compensation programs. These non-GAAP financial measures provide management with additional means to understand and evaluate the operating results and trends in our ongoing business by eliminating certain non-recurring expenses and other items that management believes might otherwise make comparisons of our ongoing business with prior periods and competitors more difficult, obscure trends in ongoing operations or reduce management’s ability to make forecasts. - Page 71 - 71 Appendix We provide investors with non-GAAP gross profit and gross margin, non-GAAP operating income and operating margin, non-GAAP net income and non-GAAP diluted earnings per share because we believe it is important for investors to be able to closely monitor and understand changes in our ability to generate income from ongoing business operations. We believe these non-GAAP financial measures give investors an additional method to evaluate historical operating performance and identify trends, an additional means of evaluating period-over-period operating performance and a method to facilitate certain comparisons of our operating results to those of our peer companies. We also believe that providing non-GAAP operating income and operating margin allows investors to assess the extent to which our ongoing operations impact our overall financial performance. We further believe that providing non-GAAP net income and non-GAAP diluted earnings per share allows investors to assess the overall financial performance of our ongoing operations by eliminating the impact of share-based compensation expense, acquisition-related expenses, amortization of intangibles, restructuring-related charges, litigation settlement gains, losses and expenses, certain deferred executive compensation, merger termination fees, interest expense on seller- financed debt and certain tax items which may not occur in each period presented and which may represent non-cash items unrelated to our ongoing operations. We believe that disclosing these non-GAAP financial measures contributes to enhanced financial reporting transparency and provides investors with added clarity about complex financial performance measures. We calculate non-GAAP gross profit by excluding from GAAP gross profit, share-based compensation expense and acquisition-related expenses. We calculate non-GAAP operating income by excluding from GAAP operating income, share-based compensation expense, acquisition-related expenses, amortization of intangibles, restructuring-related charges, litigation settlement gains, losses and expenses and certain deferred executive compensation. We calculate non-GAAP net income and diluted earnings per share by excluding from GAAP net income and diluted earnings per share, share-based compensation expense, acquisition-related expenses, amortization of intangibles, restructuring-related charges, litigation settlement gains, losses and expenses, certain deferred executive compensation, merger termination fees, interest expense on seller-financed debt and certain tax items. We exclude the items identified above from the respective non-GAAP financial measure referenced above for the reasons set forth with respect to each such excluded item below: Share-Based Compensation—because (1) the total amount of expense is partially outside of our control because it is based on factors such as stock price volatility and interest rates, which may be unrelated to our performance during the period in which the expense is incurred, (2) it is an expense based upon a valuation methodology premised on assumptions that vary over time, and (3) the amount of the expense can vary significantly between companies due to factors that can be outside of the control of such companies. Acquisition-Related Expenses—including such items as, when applicable, amortization of acquired intangible assets, fair value adjustments to contingent consideration, fair value charges incurred upon the sale of acquired inventory, acquisition-related professional fees, deemed compensation expenses and interest expense on seller- financed debt, because they are not considered by management in making operating decisions and we believe that such expenses do not have a direct correlation to our future business operations and thereby including such charges does not accurately reflect the performance of our ongoing operations for the period in which such charges are incurred. Restructuring-Related Charges—because, to the extent such charges impact a period presented, we believe that they have no direct correlation to our future business operations and including such charges does not necessarily reflect the performance of our ongoing operations for the period in which such charges are incurred. 72 - Page 72 - Appendix Litigation Settlement Gains, Losses and Expenses—including gains, losses and expenses related to the resolution of other-than-ordinary-course threatened and actually filed lawsuits and other-than-ordinary-course contractual disputes, because (1) they are not considered by management in making operating decisions, (2) such litigation has been infrequent in nature, (3) such gains, losses and expenses are generally not directly controlled by management, (4) we believe such gains, losses and expenses do not necessarily reflect the performance of our ongoing operations for the period in which such charges are recognized and (5) the amount of such gains or losses and expenses can vary significantly between companies and make comparisons less reliable. Deferred Executive Compensation—including charges related to any contingent obligation pursuant to an executive severance agreement, because we believe the period over which the obligation is amortized may not reflect the period of benefit and that such expense has no direct correlation with our recurring business operations and including such expenses does not accurately reflect the compensation expense for the period in which incurred. Merger Termination Fees—because we believe such non-recurring fees have no direct correlation to our business operations or performance during the period in which they are received or for any future period. Certain Income Tax Items—including certain deferred tax charges and benefits that do not result in a current tax payment or tax refund and other adjustments, including but not limited to, items unrelated to the current fiscal year or that are not indicative of our ongoing business operations. The non-GAAP financial measures presented in the table above should not be considered in isolation and are not an alternative for the respective GAAP financial measure that is most directly comparable to each such non-GAAP financial measure. Investors are cautioned against placing undue reliance on these non-GAAP financial measures and are urged to review and consider carefully the adjustments made by management to the most directly comparable GAAP financial measures to arrive at these non-GAAP financial measures. Non-GAAP financial measures may have limited value as analytical tools because they may exclude certain expenses that some investors consider important in evaluating our operating performance or ongoing business performance. Further, non-GAAP financial measures are likely to have limited value for purposes of drawing comparisons between companies because different companies may calculate similarly titled non-GAAP financial measures in different ways because non-GAAP measures are not based on any comprehensive set of accounting rules or principles. 73 - Page 73 - (This page has been left blank intentionally.) - Page 74 - 74 28MAR201712062121 Annual Report Table of Contents Cautionary Statement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Industry Background . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Business Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Management’s Discussion and Analysis of Financial Condition and Results of Operations . . . . . . . . . . . . . . Quantitative and Qualitative Disclosures About Market Risk . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Consolidated Statements of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Consolidated Statements of Comprehensive Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Consolidated Balance Sheets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Consolidated Statements of Cash Flows . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Consolidated Statements of Stockholders’ Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Report of Independent Registered Public Accounting Firm . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Changes in and Disagreements with Accountants on Accounting and Financial Disclosure . . . . . . . . . . . . . . Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Comparative Stock Performance Graph . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76 78 79 80 83 93 94 95 96 97 98 99 100 125 126 126 128 Cautionary Statement 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 (the ‘‘Exchange Act’’), and is subject to the ‘‘safe harbor’’ created by those sections. Any statements that are not statements of historical fact should be considered to be forward-looking statements. Words such as ‘‘anticipates’’, ‘‘believes’’, ‘‘continue’’, ‘‘could’’, ‘‘estimates’’, ‘‘expects’’, ‘‘intends’’, ‘‘may’’, ‘‘plans’’, ‘‘potential’’, ‘‘predicts’’, ‘‘projects’’, ‘‘seek’’, ‘‘should’’, ‘‘targets’’, ‘‘will’’, ‘‘would’’, 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: (cid:127) our plans to develop and market new products, enhancements or technologies and the timing of these development and marketing plans; (cid:127) our estimates regarding our capital requirements and our needs for additional financing; (cid:127) our estimates of our expenses, future revenues and profitability; (cid:127) our estimates of the size of the markets for our products and services; (cid:127) our expectations related to the rate and degree of market acceptance of our products; and (cid:127) our estimates of the success of other competing technologies that may become available. Although forward-looking statements in this Annual Report reflect 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 financial results and outcomes may differ 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 financial results to differ 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 - Page 76 - 76 Annual Report in the other documents filed by us with the Securities and Exchange Commission (‘‘SEC’’) in evaluating our forward- looking statements. We have no plans, and undertake no obligation, to revise or update our forward-looking statements to reflect 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 important 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 differ materially and adversely from those expressed in the estimates made by the independent parties and by us. In this document, the words ‘‘we’’, ‘‘our’’, ‘‘ours’’, ‘‘us’’, and ‘‘the Company’’ refer only to Skyworks Solutions, Inc., and its consolidated subsidiaries and not any other person or entity. In addition, the following is a list of industry standards that may be referenced throughout the document: (cid:127) BiFET (Bipolar Field Effect Transistor): integrates indium gallium phosphide based heterojunction bipolar transistors with field effect transistors on the same gallium arsenide substrate (cid:127) DC (Direct Current): unidirectional flow of an electrical charge (cid:127) CMOS (Complementary Metal Oxide Semiconductor): a technology of constructing integrated circuits (cid:127) GaAs (Gallium Arsenide): a compound of the elements gallium and arsenic that is used in the production of semiconductors (cid:127) HBT (Heterojunction Bipolar Transistor): a type of bipolar junction transistor which uses differing semiconductor materials for the emitter and base regions, creating a heterojunction (cid:127) IoT (Internet of Things): is the interconnection of uniquely identifiable embedded computing devices within the existing internet infrastructure (cid:127) LED (Light Emitting Diode): a two-lead semiconductor light source (cid:127) LTE (Long Term Evolution): 4th generation (‘‘4G’’) radio technologies designed to increase the capacity and speed of mobile telephone networks (cid:127) pHEMT (Pseudomorphic High Electron Mobility Transistor): a type of field effect transistor incorporating a junction between two materials with different band gaps (cid:127) RF (Radio Frequency): electromagnetic wave frequencies that lie in the range extending from around 3 kHz to 300 GHz (cid:127) SAW (Surface Acoustic Wave): electrical input signal is converted to an acoustic wave for filtering and converted back into an electrical signal by interdigitated transducers on a piezoelectric substrate. (cid:127) SOI (Silicon On Insulator): technology refers to the use of layered silicon-insulator-silicon substrate in place of conventional silicon substrates in semiconductor manufacturing (cid:127) TC-SAW (Temperature Compensated Surface Acoustic Wave): SAW filters that have been designed to reduce shift in frequency over temperature. Skyworks, the star design logo, SkyOne, SkyBlue, and SkyLiTE are trademarks or registered trademarks of Skyworks Solutions, Inc. or its subsidiaries in the United States and in other countries. All other brands and names listed are trademarks of their respective companies. 77 - Page 77 - Annual Report Introduction Skyworks Solutions, Inc., together with its consolidated subsidiaries (‘‘Skyworks’’ or the ‘‘Company’’), is empowering the wireless networking revolution. Our highly innovative analog semiconductors are connecting people, places, and things, spanning a number of new and previously unimagined applications within the automotive, broadband, cellular infrastructure, connected home, industrial, medical, military, smartphone, tablet and wearable markets. Our key customers include Arris, Bose, Cisco, Dell, Foxconn, Fujitsu, General Electric, Google, Honeywell, HTC, Huawei, Landis & Gyr, Lenovo, LG Electronics, Microsoft, Nest, Netgear, Northrop Grumman, OPPO, Rockwell Collins, Samsung, Sonos, VIVO, and ZTE. Our competitors include Analog Devices, Broadcom, Maxim Integrated Products, Murata Manufacturing, NXP Semiconductors, QUALCOMM and Qorvo. We are a Delaware corporation that was formed in 1962. We changed our corporate name from Alpha Industries, Inc. to Skyworks Solutions, Inc. on June 25, 2002, following a business combination. We operate worldwide with engineering, manufacturing, sales and service facilities throughout Asia, Europe and North America. Our Internet address is www.skyworksinc.com. We make available free of charge on our website our Annual Report, quarterly reports on Form 10-Q, current reports on Form 8-K, Section 16 filings on Forms 3, 4 and 5, and amendments to those reports as soon as practicable after we electronically submit such material to the SEC. The information contained on our website is not incorporated by reference in this Annual Report. You may read and copy materials that we have filed with the SEC at the SEC public reference room located at 100 F Street, N.E., Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further information on the public reference room. Our SEC filings are also available to the public at www.sec.gov. In August 2016, we acquired the remaining 34% interest in a joint venture that was initially created in August 2014 with Panasonic Corporation, through its Automotive & Industrial Systems Company (‘‘Panasonic’’) for the design, manufacture and sale of Panasonic’s SAW and TC-SAW filter products. The joint venture was dissolved and is now a wholly-owned subsidiary of the Company. With the overall demand for SAW and TC-SAW filters increasing as the technology and product architectures become more complex and the number of required bands grows, this investment assists us in securing a consistent supply of SAW and TC-SAW filters, in addition to allowing us to integrate filters into the design and production of our own products. In January 2012, we acquired Advanced Analogic Technologies Inc. (‘‘AATI’’) and accelerated our entry into vertical markets with highly complementary analog semiconductor product lines, including battery chargers, DC/DC converters, voltage regulators and LED drivers. Power management semiconductors represent a strategic growth market for us in applications like voltage regulation, energy efficiency and panel backlighting within the consumer electronics, computing and communications markets. In June 2011, we acquired SiGe Semiconductor, Inc. (‘‘SiGe’’) and expanded our RF front-end solutions to facilitate wireless multimedia across a wide range of new applications. The acquisition of SiGe complemented our strong position in wide area front-end solutions by adding SiGe’s innovative short range, silicon-based products. As a result, today we offer customers a comprehensive wireless networking portfolio, supporting all key operating frequencies with greater architectural flexibility to address a variety of high growth applications. - Page 78 - 78 Annual Report Industry Background Wireless connectivity is exploding, fueled by a powerful underlying demand to connect everyone and everything all the time. Semiconductor devices continue becoming smaller, more powerful, and easier to integrate across multiple communication protocols, which is enabling the Internet of Things. The billions of connected devices that comprise the Internet of Things are being enabled and powered by a combination of sensors, microcontrollers, as well as connectivity and power management solutions. According to Cisco’s Annual Visual Networking report, between 2015 and 2020, the Internet of Things will grow faster than any other category of connected devices. In particular, the number of machine-to-machine connections is expected to grow from 4.9 billion in 2015 to 12.2 billion in 2020, with machine-to-machine connections representing nearly half of total connected devices. As a result, these trends provide the Company with growth opportunities across new and emerging markets and applications. This is helping to fuel our growth and expand our served markets. In fact, today there are a number of groundbreaking devices leveraging Skyworks’ technology—from the newest smartphones to the factory floor to hospitals and medical providers to the automated home, connected car, and wearables. Skyworks is enabling these opportunities with highly customized system solutions supporting a broad set of wireless protocols, including cellular LTE, Wi-Fi, Bluetooth, Zigbee and emerging 5G standards. Within smartphones and other mobile platforms, we are benefiting from the complexity associated with the increasing number of frequency bands as well as from the multitude of RF design challenges brought about as consumers use their devices to stream video, make purchases, network on social media platforms, participate in online gaming, pay bills and much more. These design challenges require a broad set of core competencies to ensure seamless handoffs between multiple air interface standards and to effectively address signal transmission and conditioning, power management, voltage regulation, filtering and tuning complexities. As a result, our customers’ needs have dramatically moved away from discrete components toward customized integrated solutions that integrate adjacent functionality and analog content. At the same time, in emerging markets around the world, the demand for mobile connectivity continues to grow as the industry drives toward connecting the billions of people who remain unconnected. According to the Global Semiconductor Market Association, more than 65 percent of the global population will use smartphones by 2020, with emerging markets forecasted to lead this growth. Solving Connectivity Challenges The transition to ubiquitous connectivity, however, does not come without challenges to existing architectures. RF solutions in ultra-thin, high performance consumer products must increase data rates, solve signal interference problems, and occupy minimal board space while at the same time increasing battery life. Meeting these design challenges requires broad competencies including signal transmission and conditioning, the ability to ensure seamless hand-offs between multiple standards, power management, voltage regulation, battery charging, filtering and tuning, among others. This complexity plays directly to our strengths. We have a strong heritage in analog systems design and have spent the last decade investing in key technologies and resources. We are at the forefront of advanced multi-chip module integration and offer unmatched technology breadth, providing deep expertise in CMOS, SOI, GaAs and filters and maintaining strategic partnerships with outside foundries. - Page 79 - 79 Annual Report Business Overview Our overall strategy is to enable all forms of connectivity through semiconductor innovation. Key elements of our strategy include: Industry-Leading Technology As the industry migrates to more complex LTE architectures across a multitude of wireless broadband applications, we are uniquely positioned to help mobile device manufacturers handle growing levels of system complexity in the transmit and receive chain. The trend towards increasing front-end and analog design challenges in smartphones and other mobile devices plays directly into our core strengths and positions us to address these challenges. We believe that we offer the broadest portfolio of radio and analog solutions from the transceiver to the antenna as well as all required manufacturing process technologies. Our expertise includes BiFET, CMOS, HBT, pHEMT, SOI and silicon germanium processes. We also hold strong technology leadership positions in passive devices, advanced integration including proprietary shielding and 3-D die stacking, as well as SAW and TC SAW filters. Our product portfolio is reinforced by a library of approximately 2,600 worldwide patents and other intellectual property that we own and control. Together, our industry-leading technology enables us to deliver the highest levels of product performance and integration. Customer Relationships Given our scale and technology leadership, we are engaged with key original equipment manufacturers (‘‘OEM’’), smartphone providers and baseband reference design partners. Our customers value our supply chain strength, our innovative technology and our system engineering expertise resulting in deep customer loyalty. We partner with our customers to support their long-term product road maps and are valued as a system solutions provider rather than just a point product vendor. Diversification We are diversifying our business in three areas: our addressed markets, our customer base and our product offerings to enable stronger and more consistent financial returns. By leveraging core analog and mixed signal technologies, we are expanding our family of solutions to a set of increasingly diverse end markets and customers. We are steadily growing our business beyond just mobile devices (where we support all top-tier manufacturers, including the leading smartphone suppliers and key baseband vendors) into additional high-performance analog markets, including automotive, home and factory automation, infrastructure, medical, smart energy and wireless networking. In these markets we leverage our scale, intellectual property and worldwide distribution network, which spans over 2,000 customers and over 2,500 analog components. Delivering Operational Excellence We either vertically integrate our supply chain where we can create a competitive advantage, or enter into alliances and strategic relationships for leading-edge capabilities. This hybrid manufacturing model allows us to better balance our manufacturing capacity with the demands of the marketplace. Internally, our capacity utilization remains high and we have therefore been able to maintain margins and achieve our desired return on invested capital on a broader range of revenue. Additionally, we continue to strive to achieve the industry’s shortest product design and manufacturing cycle times and highest product yields. The combination of agile, flexible capacity and world-class module manufacturing - Page 80 - 80 Annual Report and scale advantage allows us to achieve low product costs while integrating multiple technologies into highly sophisticated multi-chip modules. Maintaining a Performance Driven Culture We consider our people and corporate culture to be a major competitive advantage and a key driver of our overall strategy. We create key performance indicators that align employee performance with corporate strategy and link responsibilities with performance measurement. Accountability is paramount and we compensate our employees through a pay-for-performance methodology. We strive to be an employer-of-choice among peer companies and have created a work environment in which turnover is well below semiconductor industry averages. Generating Superior Operating Results and Shareholder Returns We seek to generate financial returns that are comparable to a highly diversified analog semiconductor company while delivering high growth rates representative of a mobile internet company. Given our product volume and overall utilization we strive to achieve a best-in-class return on investment and operating income to reward shareholders with increasing returns. OUR PRODUCT PORTFOLIO Our product portfolio consists of various solutions, including: (cid:127) Amplifiers: the modules that strengthen the signal so that it has sufficient energy to reach a base station (cid:127) Attenuators: circuits that allow a known source of power to be reduced by a predetermined factor (usually expressed as decibels) (cid:127) Circulators/Isolators: ferrite-based components commonly found on the output of high-power amplifiers used to protect receivers in wireless transmission systems (cid:127) DC/DC Converters: an electronic circuit which converts a source of direct current from one voltage level to another (cid:127) Demodulators: a device or an RF block used in receivers to extract the information that has been modulated onto a carrier or from the carrier itself (cid:127) Detectors: devices used to measure and control RF power in wireless systems (cid:127) Diodes: semiconductor devices that pass current in one direction only (cid:127) Directional Couplers: transmission coupling devices for separately sampling the forward or backward wave in a transmission line (cid:127) Diversity Receive Modules: devices used to improve receiver sensitivity in high data rate LTE applications (cid:127) Filters: devices for recovering and separating mixed and modulated data in RF stages (cid:127) Front-End Modules: power amplifiers that are integrated with switches, duplexers, filters and other components to create a single package front-end solution 81 - Page 81 - (cid:127) Hybrid: a type of directional coupler used in radio and telecommunications Annual Report (cid:127) LED Drivers: devices which regulate the current through a light emitting diode or string of diodes for the purpose of creating light (cid:127) Low Noise Amplifiers: devices used to reduce system noise figure in the receive chain (cid:127) Mixers: devices that enable signals to be converted to a higher or lower frequency signal and thereby allowing the signals to be processed more effectively (cid:127) Modulators: devices that take a baseband input signal and output a radio frequency modulated signal (cid:127) Optocouplers/Optoisolators: semiconductor devices that allow signals to be transferred between circuits or systems while ensuring that the circuits or systems are electrically isolated from each other (cid:127) Phase Locked Loops: closed-loop feedback control system that maintains a generated signal in a fixed phase relationship to a reference signal (cid:127) Phase Shifters: designed for use in power amplifier distortion compensation circuits in base station applications (cid:127) Power Dividers/Combiners: utilized to equally split signals into in-phase signals as often found in balanced signal chains and local oscillator distribution networks (cid:127) Receivers: electronic devices that change a radio signal from a transmitter into useful information (cid:127) Switches: components that perform the change between the transmit and receive function, as well as the band function for cellular handsets (cid:127) Synthesizers: devices that provide ultra-fine frequency resolution, fast switching speed, and low phase-noise performance (cid:127) Technical Ceramics: polycrystalline oxide materials used for a wide variety of electrical, mechanical, thermal and magnetic applications (cid:127) Voltage Regulators: generate a fixed level which ideally remains constant over varying input voltage or load conditions (cid:127) Voltage Controlled Oscillators/Synthesizers: fully integrated, high performance signal source for high dynamic range transceivers We believe we possess broad technology capabilities and one of the most complete wireless communications product portfolios in the industry. 82 - Page 82 - Annual Report Management’s Discussion and Analysis of Financial Condition and Results of Operations The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial 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 differ substantially and adversely from those referred to herein due to a number of factors, including, but not limited to, those described below and elsewhere in this Annual Report. OVERVIEW We, together with our consolidated subsidiaries, are empowering the wireless networking revolution. Our highly innovative analog semiconductors are connecting people, places, and things spanning a number of new and previously unimagined applications within the automotive, broadband, cellular infrastructure, connected home, industrial, medical, military, smartphone, tablet and wearable markets. Our key customers include Arris, Bose, Cisco, Dell, Ericsson, Foxconn, Fujitsu, General Electric, Google, Honeywell, HTC, Huawei, Landis & Gyr, Lenovo, LG Electronics, Microsoft, Nest, Netgear, Northrop Grumman, OPPO, Rockwell Collins, Samsung, Sonos, VIVO, and ZTE. Our competitors include Analog Devices, Broadcom, Maxim Integrated Products, Murata Manufacturing, NXP Semiconductors, QUALCOMM, and Qorvo. RESULTS OF OPERATIONS FISCAL YEARS ENDED SEPTEMBER 30, 2016, OCTOBER 2, 2015, AND OCTOBER 3, 2014. The following table sets forth the results of our operations expressed as a percentage of net revenue: Net revenue Cost of goods sold Gross profit Operating expenses: Research and development Selling, general and administrative Amortization of intangibles Restructuring and other charges Total operating expenses Operating income Other (expense) income, net Merger termination fee Income before income taxes Provision for income taxes Net income September 30, 2016 October 2, 2015 October 3, 2014 100.0% 49.4 50.6 9.5 6.0 1.0 0.1 16.6 34.0 (0.2) 2.7 36.5 6.2 100.0% 52.3 100.0% 55.4 47.7 9.3 5.9 1.0 0.1 16.3 31.4 — — 31.4 6.9 44.6 11.0 7.8 1.1 — 19.9 24.7 — — 24.7 4.7 30.3% 24.5% 20.0% - Page 83 - 83 GENERAL Annual Report During the fiscal year ended September 30, 2016, the following key factors contributed to our overall results of operations, financial position and cash flows: (cid:127) Net revenue increased to approximately $3.3 billion, an increase of 1% as compared to the prior fiscal year. This increase in revenue was primarily related to our continued growth as smartphones displace traditional cellular phones, increased strength in emerging markets due to the adoption of 3G and 4G technologies, increases in applications for the Internet of Things, and the expansion of our analog product portfolio to address additional content within the handset and tablet markets as well as new vertical markets including automotive, industrial, medical and military, partially offset by decreased end-market demand for certain smartphone models. (cid:127) Our ending cash and cash equivalents balance increased 4% to approximately $1,084 million in fiscal 2016 from $1,044 million in fiscal 2015. This was the result of an approximately 10% increase in cash from operations to $1,096 million in fiscal 2016 from $993 million in fiscal 2015 due to higher net income, partially offset by changes in working capital. In addition, we returned approximately $726 million to shareholders through repurchasing eight million shares of our common stock for $526 million together with payments of $201 million in cash dividends. Lastly, we invested approximately $189 million in capital expenditures and $132 million related to business acquisition activity during the fiscal year. NET REVENUE (dollars in millions) Net revenue Fiscal Years Ended September 30, 2016 Change October 2, 2015 Change October 3, 2014 $ 3,289.0 0.9% $ 3,258.4 42.2% $ 2,291.5 We market and sell our products directly to OEMs of communications and electronics products, third-party original design manufacturers and contract manufacturers, and indirectly through electronic components distributors. We generally experience seasonal peaks during the second half of the calendar year, primarily as a result of increased worldwide production of consumer electronics in anticipation of increased holiday sales, whereas our second fiscal quarter is typically lower and in line with seasonal industry trends. The $30.6 million increase in revenue in fiscal 2016 as compared to fiscal 2015 was primarily driven by our ability to capture a higher share of the increasing RF and analog content per device as smartphones continue to displace traditional cellular phones, increased strength in emerging markets due to the adoption of 3G and 4G technologies, the increasing number of applications for the Internet of Things, and our expanding analog product portfolio supporting new vertical markets including automotive, industrial, medical and military. These increases were partially offset due to a decrease in demand during fiscal 2016 for our components from a key smartphone customer as a result of a decline in overall market demand for certain products. The $966.9 million increase in revenue in fiscal 2015 as compared to fiscal 2014 was primarily driven by our ability to capture a higher share of the increasing RF and analog content per device due to more complex smartphones continuing to displace traditional cellular phones, increased strength in emerging markets due to the adoption of 3G and 4G technologies, the increasing popularity of tablet computing and wearables, and our expanding analog product portfolio supporting new vertical markets including automotive, industrial, medical and military. - Page 84 - 84 For information regarding net revenue by geographic region and customer concentration, see Note 16 of Annual Report Item 8 of this Annual Report. GROSS PROFIT (dollars in millions) Gross profit % of net revenue September 30, 2016 $ 1,665.2 50.6% Fiscal Years Ended October 2, 2015 Change 7.1% $ 1,554.5 47.7% Change 52.0% $ October 3, 2014 1,022.7 44.6% Gross profit represents net revenue less cost of goods sold. Our cost of goods sold consists primarily of purchased materials, labor and overhead (including depreciation and share-based compensation expense) associated with product manufacturing. Erosion of average selling prices of established products is typical of the semiconductor industry. Consistent with trends in the industry, we anticipate that average selling prices for our established products will continue to decline at a normalized rate of five to ten percent per year. As part of our normal course of business, we mitigate the gross margin impact of declining average selling prices with efforts to increase unit volumes, reduce material costs, improve manufacturing efficiencies, lower manufacturing costs of existing products and by introducing new and higher value-added products. Gross profit was $110.7 million greater in fiscal 2016 as compared to fiscal 2015. The increase in gross profit was primarily the result of higher unit volumes and lower overall per-unit material and manufacturing costs, with an aggregate gross profit benefit of $177.4 million. These benefits were partially offset by the erosion of average selling price and changes in product mix that combined to negatively impact gross profit by $66.7 million. As a result of these impacts, gross profit margin increased to 50.6% of net revenue for fiscal 2016. Gross profit was $531.8 million greater in fiscal 2015 as compared to fiscal 2014. The increase in gross profit was primarily the result of higher unit volumes, lower overall per-unit material and manufacturing costs with an aggregate gross profit benefit of $687.8 million. These benefits were partially offset by the erosion of average selling price, unfavorable changes in product mix and other costs that combined to negatively impact gross profit by $156.0 million. As a result of these impacts, gross profit margin increased to 47.7% of net revenue for fiscal 2015. RESEARCH AND DEVELOPMENT (dollars in millions) Research and development % of net revenue September 30, 2016 $ 312.4 9.5% Fiscal Years Ended October 2, 2015 Change 3.0% $ 303.2 9.3% Change 20.2% $ October 3, 2014 252.2 11.0% Research and development expenses consist primarily of direct personnel costs including share-based compensation expense, costs for pre-production evaluation and testing of new devices, masks, engineering prototypes and design tool costs. The increase in research and development expense in fiscal 2016 as compared to fiscal 2015 is primarily related to increased product development-related expenses partially offset by a decrease in variable compensation expense, including share-based compensation. Research and development expense increased slightly as a percentage of net revenue due to the aforementioned factors. - Page 85 - 85 Annual Report The increase in research and development expense in fiscal 2015 as compared to fiscal 2014 is primarily related to increased employee compensation expense, including share-based compensation, of approximately $26.7 million and increased product development and other related expenses of approximately $24.3 million. Research and development expense decreased as a percentage of net revenue due to the aforementioned increase in net revenue. SELLING, GENERAL AND ADMINISTRATIVE (dollars in millions) Selling, general and administrative % of net revenue September 30, 2016 $ 195.9 6.0% Fiscal Years Ended October 2, 2015 Change 2.4% $ 191.3 5.9% Change 6.8% $ October 3, 2014 179.1 7.8% Selling, general and administrative expenses include legal and related costs, accounting, treasury, human resources, information systems, customer service, bad debt expense, sales commissions, share-based compensation expense, advertising, marketing, costs associated with business combinations completed or contemplated during the period or prior periods and other costs. The increase in selling, general and administrative expenses in fiscal 2016 as compared to fiscal 2015 was primarily related to legal and related costs and professional services costs incurred during the period, partially offset by decreased variable compensation expense, including share-based compensation. Selling, general and administrative expenses increased slightly as a percentage of net revenue due to the aforementioned factors. The increase in selling, general and administrative expenses in fiscal 2015 as compared to fiscal 2014 was primarily related to increased compensation expense, including share-based compensation, and legal expenses related to acquisitions completed and contemplated during the period. Selling, general and administrative expenses decreased as a percentage of net revenue due to the aforementioned increase in net revenue. AMORTIZATION OF INTANGIBLES (dollars in millions) Amortization of intangibles % of net revenue Fiscal Years Ended September 30, 2016 $ 33.4 1.0% Change (0.3)% $ October 2, 2015 33.5 1.0% Change 29.3% $ October 3, 2014 25.9 1.1% Amortization expense for fiscal 2016 is the result of intangible assets acquired during fiscal 2016, partially offset by the end of the estimated useful lives of certain fully amortized intangible assets that were acquired in prior fiscal years. The increase in amortization expense for fiscal 2015 as compared to fiscal 2014 was primarily due to the intangible assets that were acquired in fiscal 2015 and fiscal 2014, partially offset by the end of the estimated useful lives of certain fully amortized intangible assets that were acquired in prior fiscal years. - Page 86 - 86 RESTRUCTURING AND OTHER CHARGES Annual Report (dollars in millions) Restructuring and other charges % of net revenue Fiscal Years Ended September 30, 2016 $ 4.8 0.1% Change 41.2% $ October 2, 2015 3.4 0.1% Change 1,033.3% $ October 3, 2014 0.3 —% Restructuring and other charges incurred in fiscal 2016 are primarily related to restructuring plans to reduce redundancies associated with the acquisitions made during fiscal 2016. We do not anticipate any further significant charges associated with these restructuring activities and substantially all of the remaining cash payments related to these restructuring plans are expected to occur during the next fiscal year. Restructuring and other charges incurred in fiscal 2015 are primarily related to severance costs associated with restructuring plans initiated during fiscal 2015. MERGER TERMINATION FEE (dollars in millions) Merger termination fee % of net revenue Fiscal Years Ended September 30, 2016 $ 88.5 2.7% Change 100.0% $ October 2, 2015 Change October 3, 2014 — —% —% $ — —% On October 29, 2015, we entered into an Amended and Restated Agreement and Plan of Merger (the ‘‘Merger Agreement’’) with PMC-Sierra, Inc. (‘‘PMC’’), providing for, subject to the terms and conditions of the Merger Agreement, our cash acquisition of PMC. On November 23, 2015, PMC notified us that it had terminated the Merger Agreement. As a result, on November 24, 2015, PMC paid us a termination fee of $88.5 million pursuant to the Merger Agreement. PROVISION FOR INCOME TAXES (dollars in millions) Provision for income taxes % of net revenue Fiscal Years Ended September 30, 2016 $ 205.4 6.2% Change (8.8)% $ October 2, 2015 225.3 6.9% Change 109.6% $ October 3, 2014 107.5 4.7% The annual effective tax rate for fiscal 2016 of 17.1% was less than the United States federal statutory rate of 35% primarily due to benefits of 13.7% related to foreign earnings taxed at a rate less than the United States federal rate, 1.6% related to a domestic production activities deduction, 2.8% related to the recognition of federal research and development tax credits, and 1.8% from the settlement of the Internal Revenue Service (‘‘IRS’’) audit of our fiscal 2012 and 2013 income tax returns, partially offset by income tax rate expense impact of 1.6% related to a change in our tax reserves. During fiscal 2016, we concluded an IRS examination of our federal income tax returns for fiscal years 2012 and 2013. We agreed to various adjustments to our fiscal year 2012 and 2013 tax returns that resulted in the recognition of current year tax expense of $2.6 million during fiscal 2016. With the conclusion of the audit, we - Page 87 - 87 Annual Report decreased the reserve for uncertain tax positions, which resulted in the recognition of an income tax benefit of $24.0 million in fiscal 2016. We operate under a tax holiday in Singapore, which is effective through September 30, 2020. This tax holiday is conditioned upon our compliance with certain employment and investment thresholds in Singapore. The impact of the tax holiday decreased the taxes we owe in Singapore by $30.8 million and $26.6 million for fiscal 2016 and fiscal 2015, respectively. This resulted in tax benefits of $0.16 and $0.14 of diluted earnings per share for fiscal 2016 and fiscal 2015, respectively. The annual effective tax rate for fiscal 2015 of 22.0% was less than the United States federal statutory rate of 35% primarily due to benefits of 11.8% related to foreign earnings taxed at a rate less than the United States federal rate, 1.9% related to a domestic production activities deduction, and 1.5% related to the recognition of federal research and development tax credits, partially offset by income tax rate expense impact of 2.5% related to a change in our tax reserves. LIQUIDITY AND CAPITAL RESOURCES (in millions) Cash and cash equivalents at beginning of period Net cash provided by operating activities Net cash used in investing activities Net cash used in financing activities Cash and cash equivalents at end of period Cash flow provided by operating activities: Fiscal Years Ended September 30, 2016 October 2, 2015 October 3, 2014 $ $ $ 1,043.6 1,095.7 (250.9) (804.6) $ 805.8 992.8 (454.7) (300.3) 1,083.8 $ 1,043.6 $ 511.1 772.4 (357.1) (120.6) 805.8 Cash flow provided by operating activities consists of net income for the period adjusted for certain non-cash items and changes in certain operating assets and liabilities. For fiscal 2016, we generated $1,095.7 million in cash flow from operations, an increase of $102.9 million when compared to $992.8 million generated in fiscal 2015. The increase in cash flow from operating activities during the fiscal year ended September 30, 2016, was related to higher net income combined with a net cash inflow from changes in operating assets and liabilities. Specifically, the changes in operating assets and liabilities that were sources of cash were: $121.4 million in accounts receivable due to the timing of customer collections and $27.9 million primarily related to tax liabilities, payroll related accruals and other accrued expenses. These sources of cash were offset by uses of cash of: $181.5 million in accounts payable related to the timing of vendor payments, $147.3 million related to increased inventory primarily resulting from the insourcing and ramp of our filter business, and $20.4 million related to changes in other current and long-term assets. Cash flow used in investing activities: Cash flow used in investing activities consists primarily of capital expenditures and cash paid for acquisitions, net of cash acquired. Cash flow used in investing activities was $250.9 million during fiscal 2016, compared to $454.7 million during fiscal 2015. The decrease was primarily related to the prior year’s expansion of our assembly and test facility in Mexicali, Mexico and the construction of a new filter fabrication facility in Osaka, Japan. Capital expenditures in fiscal 2016 primarily relate to the continuation of the aforementioned expansions of the facilities in Mexico and Japan, and to a lesser extent, to our wafer fabrication facilities in the United States. In addition, we paid $55.6 million in cash to complete two acquisitions and paid cash of $6.0 million to acquire intangible assets during the fiscal year. - Page 88 - 88 Cash flow used in financing activities: Annual Report Cash flow used in financing activities consists primarily of cash transactions related to debt and equity. During fiscal 2016, we had net cash outflows of $804.6 million, compared to $300.3 million in fiscal 2015. The increase in cash used in financing activities primarily related to the increased share repurchase activity and dividend payments during fiscal 2016. During fiscal 2016 we had the following significant uses of cash: (cid:127) $525.6 million related to our repurchase of approximately 8.0 million shares of our common stock pursuant to the share repurchase programs approved by our Board of Directors on July 19, 2016, and November 10, 2015; (cid:127) $201.0 million related to the payment of cash dividends on our common stock; (cid:127) $76.5 million related to the exercise of the option to acquire the remaining 34% interest in the filter joint venture from Panasonic; and (cid:127) $73.3 million related to the minimum statutory payroll tax withholdings upon vesting of employee performance and restricted stock awards. These uses of cash were partially offset by the excess tax benefit from stock option exercises of $43.7 million and net proceeds from employee stock option exercises of $28.1 million during fiscal 2016. Liquidity: Cash and cash equivalent balances were $1,083.8 million at September 30, 2016, representing an increase of $40.2 million from October 2, 2015. The increase resulted from $1,095.7 million in cash generated from operations which was partially offset by $525.6 million used to repurchase 8.0 million shares of stock, and $201.0 million in cash dividend payments during fiscal 2016, $189.3 million in capital expenditures and $132.1 million related to business acquisition activity. Based on our historical results of operations, we expect that our cash and cash equivalents on hand and the cash we expect to generate from operations will be sufficient to fund our research and development, capital expenditures, potential acquisitions, working capital, quarterly cash dividend payments (if such dividends are declared by the Board of Directors), outstanding commitments and other liquidity requirements associated with existing operations for at least the next 12 months. However, we cannot be certain that our cash on hand and cash generated from operations will be available in the future to fund all of our capital and operating requirements. In addition, any future strategic investments and acquisitions may require additional cash and capital resources. If we are unable to obtain sufficient cash or capital to meet our needs on a timely basis and on favorable terms, our business and operations could be materially and adversely affected. Our invested cash balances primarily consist of highly liquid term deposits with original maturities of 90 days or less and money market funds where the underlying securities primarily consist of United States treasury obligations, United States agency obligations and repurchase agreements collateralized by United States government and agency obligations. Our cash and cash equivalent balance of $1,083.8 million at September 30, 2016, consisted of $607.2 million held domestically and $476.6 million held by foreign subsidiaries. Of the cash and cash equivalents held by our foreign subsidiaries at September 30, 2016, $441.2 million is considered by us to be indefinitely reinvested and would be subject to material tax effects if repatriated. The remaining $35.4 million of foreign cash and cash equivalents was repatriated subsequent to the fiscal year ended September 30, 2016. The Company did not incur any tax impact as a 89 - Page 89 - Annual Report result of this repatriation and the repatriated cash and cash equivalents will be reported as domestic cash on a go-forward basis. OFF-BALANCE SHEET ARRANGEMENTS All significant contractual obligations are recorded on our consolidated balance sheet or fully disclosed in the notes to our consolidated financial statements. We have no material off-balance sheet arrangements as defined in SEC Regulation S-K-303(a)(4)(ii). CONTRACTUAL CASH FLOWS Set forth below is a summary of our contractual payment obligations related to our operating leases, other commitments and long-term liabilities at September 30, 2016 (in millions): Obligation Other long-term liabilities(1) Operating lease obligations Contingent consideration for business combinations (2) Other commitments (3) Total Payments Due By Period Total Less Than 1 Year 1-3 Years 3-5 Years Thereafter $ $ $ 82.9 98.2 7.9 6.8 $ 3.7 23.9 6.5 6.2 4.0 39.0 1.4 0.6 $ $ 1.0 18.0 — — 195.8 $ 40.3 $ 45.0 $ 19.0 $ 74.2 17.3 — — 91.5 (1) (2) (3) Other long-term liabilities include our gross unrecognized tax benefits, as well as executive deferred compensation, which are both classified as beyond five years due to the uncertain nature of the liabilities. Contingent consideration related to business combinations is recorded at fair value and actual results could differ. See Note 3 and Note 4 of Item 8 of this Annual Report for further detail. Other commitments consist of contractual license and royalty payments and other purchase obligations. See Note 11 of Item 8 of this Annual Report. CRITICAL ACCOUNTING ESTIMATES The discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with generally accepted accounting principles, or GAAP. The preparation of these financial statements requires us to make estimates and judgments in applying our most critical accounting policies that can have a significant impact on the results we report in our financial statements. The SEC has defined critical accounting policies as those that are both most important to the portrayal of our financial condition and results and which require our most difficult, complex or subjective judgments or estimates. Based on this definition, our most critical accounting policies include revenue recognition, which impacts the recording of net revenue; inventory valuation, which impacts the cost of goods sold and gross margin; assessment of goodwill and long-lived assets, which impacts the impairment of the respective assets; business combinations, which impacts the fair value of acquired assets and assumed liabilities; share-based compensation, which impacts cost of goods sold and operating expenses; loss contingencies, which impacts operating expenses; and income taxes, which impacts the income tax provision. These policies and significant judgments involved are discussed further below. We have other significant accounting policies that do not generally require subjective estimates or judgments or would not have a material impact on our results of operations. Our significant accounting policies are described in Note 2 of Item 8 on this Annual Report. - Page 90 - 90 Annual Report Revenue Recognition. We recognize revenue in accordance with the Financial Accounting Standards Board’s (‘‘FASB’’) Accounting Standards Codification (‘‘ASC’’) 605 Revenue Recognition net of estimated reserves. Our revenue reserves contain uncertainties because they require management to make assumptions and to apply judgment to estimate the value of future credits to customers for price protection and stock rotation for products sold to certain electronic component distributors. Our estimates of the amount and timing of the reserves is based primarily on historical experience and specific contractual arrangements. Historically, we have not experienced material differences between our estimated sales reserves and actual results. Inventory Valuation. We value our inventory at the lower of cost or fair market value. Reserves for excess and obsolete inventory are established on a quarterly basis and are based on a detailed analysis of forecasted demand in relation to on-hand inventory, saleability of our inventory, general market conditions, and product life cycles. Once reserves are established, write-downs of inventory are considered permanent adjustments to the cost basis of inventory. Our reserves contain uncertainties because the calculation requires management to make assumptions and to apply judgment regarding historical experience, forecasted demand and technological obsolescence. Changes in actual demand or market conditions could adversely impact our reserve calculations. Historically, we have not experienced material differences between our estimated inventory reserves and actual results. Goodwill and Long-Lived Assets. We evaluate goodwill and long-lived assets for impairment annually on the first day of the fourth fiscal quarter and whenever events or circumstances arise that may indicate that the carrying value of the goodwill or other intangibles may not be recoverable. Our impairment analysis contains uncertainties because it requires management to make assumptions and to apply judgment to items such as: determination of the reporting unit and asset groupings, estimated control premiums, discount rate, future cash flows, the profitability of future business strategies and useful lives. Historically, we have not experienced material differences between our impairment calculations and actual results. Business Combinations. We apply significant estimates and judgments in order to determine the fair value of the identified tangible and intangible assets acquired, liabilities assumed and goodwill recognized in business combinations. The value of all assets and liabilities are recognized at fair value as of the acquisition date using a market participant approach. In measuring the fair value, we utilize a number of valuation techniques consistent with the market approach, income approach and/ or cost approach. The valuation of the identifiable assets and liabilities includes assumptions such as projected revenue, royalty rates, weighted average cost of capital, discount rates and estimated useful lives. These assessments can be significantly affected by our judgments. Historically, we have not experienced material differences in our assigned values and actual results. Share-Based Compensation. We have a share-based compensation plan which includes non-qualified stock options, restricted and performance share awards and units, employee stock purchase plan and other special share- based awards. Note 9 of Item 8 of this Annual Report details our current share-based compensation programs. We determine the fair value of our share-based compensation items with pricing models as of the date of grant using a number of highly complex and subjective variables and assumptions including, but not limited to: our expected stock price volatility over the term of the award, correlation coefficients, risk-free rate, the expected life of the award, forfeiture rates, dividend yield, estimated performance against metrics, etc. Compensation expense is recognized over the requisite service period of the underlying awards. Management periodically evaluates these assumptions and updates share-based compensation expense accordingly. Historically, we have not experienced material differences in our estimates and actual results. 91 - Page 91 - Annual Report Loss Contingencies. We record an estimate for loss contingencies such as a legal proceeding or claims if it is probable that an asset has been impaired or a liability has been incurred and the amount of the loss can be reasonably estimated. We disclose material loss contingencies if there is at least a reasonable possibility that a loss has been incurred. Our loss contingency analysis contains uncertainties because it requires management to assess the degree of probability of an unfavorable outcome and to make a reasonable estimate of the amount of potential loss. Historically, we have not experienced material differences between our estimates and actual results. Income Taxes. We account for income taxes using the asset and liability method, under which deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between tax and financial reporting. We record a valuation allowance to reduce deferred tax assets to the amount that is believed more likely than not to be realized. Significant management judgment is required in developing our provision for income taxes, including the determination of deferred tax assets and liabilities and any valuation allowances that might be required against the deferred tax assets. The application of tax laws and regulations to calculate our tax liabilities is subject to legal and factual interpretation, judgment, and uncertainty in a multitude of jurisdictions. Tax laws and regulations themselves are subject to change as a result of changes in fiscal policy, changes in legislation, the evolution of regulations, and court rulings. We recognize potential liabilities for anticipated tax audit issues in the United States and other tax jurisdictions based on our estimate of whether, and the extent to which, additional taxes and interest will be due. We record an amount as an estimate of probable additional income tax liability at the largest amount that we feel is more likely than not, based upon the technical merits of the position, to be sustained upon audit by the relevant tax authority. Historically, we have not experienced material differences between our estimates and actual results. OTHER MATTERS Inflation did not have a material impact on our results of operations during the three-year period ended September 30, 2016. 92 - Page 92 - Annual Report Quantitative and Qualitative Disclosures About Market Risk We are subject to overall financial market risks, such as changes in market liquidity, credit quality investment risk, interest rate risk and foreign exchange rate risk as described below. Investment and Interest Rate Risk Our exposure to interest rate and general market risks related principally to our investment portfolio, and consisted of the following (in millions): Cash and cash equivalents (time deposits, certificates of deposit and money market funds) Available for sale securities (auction rate security) at carrying value Total September 30, 2016 $ $ 1,083.8 2.3 1,086.1 The main objectives of our investment activities are the liquidity and preservation of capital. Our cash equivalent investments have short-term maturity periods that dampen the impact of market or interest rate risk. Credit risk associated with our investments is not material because our money market and deposits are diversified across several financial institutions with high credit ratings, which reduces the amount of credit exposure to any one counterparty. Based on our results of operations for the fiscal year ended September 30, 2016, a hypothetical reduction in the interest rates on our cash and cash equivalents to zero would result in an immaterial reduction of interest income with a de minimis impact on income before taxes. We own $3.2 million of par value auction rate securities that are currently valued at $2.3 million as of September 30, 2016. In the event that the market conditions change in the future and our auction rate security becomes fully and permanently impaired, the impact to income before income taxes would be the par value of the auction rate security of approximately $3.2 million as of September 30, 2016. Given the low interest rate environment, the objectives of our investment activities, and the relatively low interest income generated from our cash and cash equivalents and other investments, we do not believe that market, investment or interest rate risks pose material exposures to our current business or results of operations. Foreign Exchange Rate Risk Substantially all sales to customers and arrangements with third-party manufacturers provide for pricing and payment in United States dollars, thereby reducing the impact of foreign exchange rate fluctuations on our results. A percentage of our international operational expenses are denominated in foreign currencies and exchange rate volatility could positively or negatively impact those operating costs. For the fiscal years ended September 30, 2016, October 2, 2015, and October 3, 2014, we had foreign exchange (losses)/gains of ($0.3) million, $1.7 million and $0.1 million, respectively. Increases in the value of the United States dollar relative to other currencies could make our products more expensive, which could negatively impact our ability to compete. Conversely, decreases in the value of the United States dollar relative to other currencies could result in our suppliers raising their prices to continue doing business with us. Given the relatively small number of customers and arrangements with third-party - Page 93 - 93 Annual Report manufacturers denominated in foreign currencies, we do not believe that foreign exchange volatility has a material impact on our current business or results of operations. However, fluctuations in currency exchange rates could have a greater effect on our business or results of operations in the future to the extent our expenses increasingly become denominated in foreign currencies. We may enter into foreign currency forward and option contracts with financial institutions to protect against foreign exchange risks associated with certain existing assets and liabilities, certain firmly committed transactions, forecasted future cash flows and net investments in foreign subsidiaries. However, we may choose not to hedge certain foreign exchange exposures for a variety of reasons, including, but not limited to, accounting considerations and the prohibitive economic cost of hedging particular exposures. Selected Financial Data You should read the data set forth below in conjunction with Management’s Discussion and Analysis of Financial Condition and Results of Operations, and our consolidated financial statements and related notes appearing elsewhere in this Annual Report. Our fiscal year ends on the Friday closest to September 30. Fiscal 2016, 2015, 2013, and 2012 each consisted of 52 weeks and ended on September 30, 2016, October 2, 2015, September 27, 2013, and September 28, 2012, respectively. Fiscal 2014 consisted of 53 weeks and ended on October 3, 2014. The following table represents the selected financial data (in millions, except per share data): Statement of Operations Data: Net revenue Operating income Operating margin Net income Earnings per share: Basic Diluted Cash dividends declared per share Balance Sheet Data: Working capital Property, plant and equipment, net Total assets Stockholders’ equity September 30, 2016(1) October 2, 2015 October 3, 2014 September 27, 2013 September 28, 2012 Fiscal Years Ended $ $ $ $ $ $ 3,289.0 $ 1,118.7 $ 34.0% 995.2 $ 3,258.4 $ 1,023.1 $ 31.4% 798.3 $ 2,291.5 $ 565.2 $ 24.7% 457.7 $ 1,792.0 $ 345.1 $ 19.3% 278.1 $ 5.27 $ 5.18 $ 1.06 $ 4.21 $ 4.10 $ 0.65 $ 2.44 $ 2.38 $ 0.22 $ 1.48 $ 1.45 $ — $ 1,568.6 255.6 16.3% 202.0 1.09 1.05 — As of September 30, 2016(1) October 2, 2015 October 3, 2014 September 27, 2013 September 28, 2012 $ $ $ $ 1,791.9 $ 806.3 $ 3,855.4 $ 3,541.4 $ 1,450.8 $ 826.4 $ 3,719.4 $ 3,159.2 $ 1,131.6 $ 555.9 $ 2,973.8 $ 2,532.4 $ 893.6 $ 328.6 $ 2,333.1 $ 2,101.1 $ 700.6 279.4 2,136.6 1,905.5 (1) Fiscal 2016 net income and earnings per share include other income of $88.5 million related to the receipt of the PMC-Sierra merger termination fee. - Page 94 - 94 Annual Report SKYWORKS SOLUTIONS, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (In millions, except per share amounts) Net revenue Cost of goods sold Gross profit Operating expenses: Research and development Selling, general and administrative Amortization of intangibles Restructuring and other charges Total operating expenses Operating income Other (expense) income, net Merger termination fee Income before income taxes Provision for income taxes Net income Earnings per share: Basic Diluted Weighted average shares: Basic Diluted Cash dividends declared and paid per share Fiscal Years Ended September 30, 2016 October 2, 2015 October 3, 2014 $ $ 3,289.0 1,623.8 1,665.2 $ 3,258.4 1,703.9 1,554.5 2,291.5 1,268.8 1,022.7 312.4 195.9 33.4 4.8 546.5 1,118.7 (6.6) 88.5 1,200.6 205.4 995.2 5.27 5.18 188.7 192.1 $ $ $ 303.2 191.3 33.5 3.4 531.4 1,023.1 0.5 — 1,023.6 225.3 798.3 4.21 4.10 189.5 194.9 $ $ $ 1.06 $ 0.65 $ $ $ $ $ 252.2 179.1 25.9 0.3 457.5 565.2 — — 565.2 107.5 457.7 2.44 2.38 187.2 192.6 0.22 See accompanying Notes to Consolidated Financial Statements. - Page 95 - 95 Annual Report SKYWORKS SOLUTIONS, INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (In millions) Net income Other comprehensive income, net of tax Pension adjustments Foreign currency translation adjustment Comprehensive income Fiscal Years Ended September 30, 2016 October 2, 2015 October 3, 2014 $ $ 995.2 $ 798.3 $ 457.7 (1.8) (0.9) (0.2) (3.1) 992.5 $ 795.0 $ — (4.0) 453.7 See accompanying Notes to Consolidated Financial Statements. - Page 96 - 96 Annual Report SKYWORKS SOLUTIONS, INC. CONSOLIDATED BALANCE SHEETS (In millions, except per share amounts) As of September 30, 2016 October 2, 2015 ASSETS Current assets: Cash and cash equivalents Receivables, net of allowance for doubtful accounts of $0.5 and $0.4, respectively Inventory Other current assets $ Total current assets Property, plant and equipment, net Goodwill Intangible assets, net Deferred tax assets, net Other assets Total assets LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities: Accounts payable Accrued compensation and benefits Other current liabilities Total current liabilities Long-term tax liabilities Other long-term liabilities Total liabilities Commitments and contingencies (Note 11 and Note 12) Stockholders’ equity: Preferred stock, no par value: 25.0 shares authorized, no shares issued Common stock, $0.25 par value: 525.0 shares authorized; 222.5 shares issued and 184.9 shares outstanding as of September 30, 2016, and 219.0 shares issued and 190.3 shares outstanding as of October 2, 2015 Additional paid-in capital Treasury stock, at cost Retained earnings Accumulated other comprehensive loss Total stockholders’ equity $ 1,083.8 416.6 424.0 77.7 2,002.1 806.3 873.3 67.0 54.1 52.6 1,043.6 538.0 267.9 65.2 1,914.7 826.4 856.7 45.0 56.3 20.3 $ 3,855.4 $ 3,719.4 $ $ 110.4 42.3 57.5 210.2 71.8 32.0 314.0 291.1 81.5 91.3 463.9 71.0 25.3 560.2 — — 46.2 2,686.0 (1,443.5) 2,263.6 (10.9) 3,541.4 47.6 2,495.2 (844.6) 1,469.2 (8.2) 3,159.2 Total liabilities and stockholders’ equity $ 3,855.4 $ 3,719.4 See accompanying Notes to Consolidated Financial Statements. - Page 97 - 97 Annual Report SKYWORKS SOLUTIONS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (In millions) Cash flows from operating activities: Net income Adjustments to reconcile net income to net cash provided by operating activities: Share-based compensation Depreciation Amortization of intangible assets Contribution of common shares to savings and retirement plans Deferred income taxes Excess tax benefit from share-based compensation Other Changes in assets and liabilities net of acquired balances: Receivables, net Inventory Other current and long-term assets Accounts payable Other current and long-term liabilities Net cash provided by operating activities Cash flows from investing activities: Capital expenditures Payments for acquisitions, net of cash acquired Purchased intangibles Net cash used in investing activities Cash flows from financing activities: Payments for obligations recorded for business combinations Excess tax benefit from share-based compensation Repurchase of common stock—payroll tax withholdings on equity awards Repurchase of common stock—share repurchase program Dividends paid Net proceeds from exercise of stock options Net cash used in financing activities Net increase in cash and cash equivalents Cash and cash equivalents at beginning of period Cash and cash equivalents at end of period Supplemental cash flow disclosures: Income taxes paid $ $ Fiscal Years Ended September 30, 2016 October 2, 2015 October 3, 2014 $ 995.2 $ 798.3 $ 457.7 78.0 214.4 33.4 18.0 — (43.7) 0.3 121.4 (147.3) (20.4) (181.5) 27.9 1,095.7 (189.3) (55.6) (6.0) (250.9) (76.5) 43.7 (73.3) (525.6) (201.0) 28.1 (804.6) 40.2 1,043.6 1,083.8 165.9 $ $ 99.8 162.3 33.5 20.9 (3.9) (57.3) 0.5 (222.2) 3.6 (39.2) 90.5 106.0 992.8 (430.1) (24.6) — (454.7) — 57.3 (54.2) (237.3) (123.1) 57.0 (300.3) 237.8 805.8 1,043.6 126.1 $ $ 86.0 96.8 25.9 17.1 3.3 (40.8) 1.0 (12.4) (6.1) 7.3 74.2 62.4 772.4 (208.6) (148.5) — (357.1) — 40.8 (22.1) (165.7) (41.4) 67.8 (120.6) 294.7 511.1 805.8 63.2 See accompanying Notes to Consolidated Financial Statements. - Page 98 - 98 Annual Report SKYWORKS SOLUTIONS, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (In millions) Shares of Par value of Shares of treasury common common stock stock stock Value of treasury stock Additional paid-in capital Accumulated other Total Retained earnings comprehensive stockholders’ loss equity 187.9 $ — 47.0 — 19.6 $ — (365.3) $ 2,041.4 $ — — 378.9 $ 457.7 (0.9) $ — 2,101.1 457.7 Balance at September 27, 2013 Net income Exercise and settlement of share based awards and related tax benefit, net of shares withheld for taxes Share-based compensation expense Share repurchase program Dividends declared Other comprehensive loss Balance at October 3, 2014 Net income Exercise and settlement of share based awards and related tax benefit, net of shares withheld for taxes Share-based compensation expense Share repurchase program Dividends declared Other comprehensive loss Balance at October 2, 2015 Net income Exercise and settlement of share based awards and related tax benefit, net of shares withheld for taxes Share-based compensation expense Share repurchase program Dividends declared Other comprehensive loss Balance at September 30, 2016 184.9 $ 5.8 — (4.5) — — 189.2 $ — 4.0 — (2.9) — — 190.3 $ — 2.6 — (8.0) — — 1.4 — (1.1) — — 47.3 — 1.0 — (0.7) — — 47.6 — 0.6 — (2.0) — — 46.2 0.9 — 4.5 — — (22.1) — (165.7) — — 129.9 75.8 1.1 — — — — — (41.7) — — — — — (4.0) 25.0 $ — (553.1) $ 2,248.2 $ — — 794.9 $ 798.3 (4.9) $ — 0.8 — 2.9 — — (54.2) — (237.3) — — 156.7 89.6 0.7 — — — — — (124.0) — — — — — (3.3) 28.7 $ — (844.6) $ 2,495.2 $ — — 1,469.2 $ 995.2 (8.2) $ — 0.9 — 8.0 — — (73.3) — (525.6) — — 109.1 79.7 2.0 — — — — — (200.8) — — — — — (2.7) 109.2 75.8 (165.7) (41.7) (4.0) 2,532.4 798.3 103.5 89.6 (237.3) (124.0) (3.3) 3,159.2 995.2 36.4 79.7 (525.6) (200.8) (2.7) 37.6 $ (1,443.5) $ 2,686.0 $ 2,263.6 $ (10.9) $ 3,541.4 See accompanying Notes to Consolidated Financial Statements. - Page 99 - 99 Annual Report Notes to Consolidated Financial Statements 1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION Skyworks Solutions, Inc., together with its consolidated subsidiaries (‘‘Skyworks’’ or the ‘‘Company’’), is empowering the wireless networking revolution. The Company’s highly innovative analog semiconductors are connecting people, places, and things, spanning a number of new and previously unimagined applications within the automotive, broadband, cellular infrastructure, connected home, industrial, medical, military, smartphone, tablet and wearable markets. The Company has evaluated subsequent events through the date of issuance of the audited consolidated financial statements. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES PRINCIPLES OF CONSOLIDATION All Skyworks subsidiaries are included in the Company’s consolidated financial statements and all intercompany balances are eliminated in consolidation. FISCAL YEAR The Company’s fiscal year ends on the Friday closest to September 30. Fiscal years 2016 and 2015 each consisted of 52 weeks and ended on September 30, 2016, and October 2, 2015, respectively. Fiscal year 2014 consisted of 53 weeks and ended on October 3, 2014. USE OF ESTIMATES The preparation of consolidated financial statements in conformity with generally accepted accounting principles (‘‘GAAP’’) in the United States requires management to make estimates and assumptions that affect the amounts of assets, liabilities, revenue, expenses, comprehensive income and accumulated other comprehensive loss during the reporting period. The Company evaluates its estimates on an ongoing basis using historical experience and other factors, including the current economic environment. Significant judgment is required in determining the reserves for and fair value of items such as allowance for doubtful accounts, overall fair value assessments of assets and liabilities, particularly those classified as Level 2 or Level 3 in the fair value hierarchy, inventory, intangible assets associated with business combinations, share-based compensation, loss contingencies, and income taxes. In addition, significant judgment is required in determining whether a potential indicator of impairment of long-lived assets exists and in estimating future cash flows for any necessary impairment testing. Actual results could differ significantly from these estimates. CASH AND CASH EQUIVALENTS The Company invests excess cash in time deposits, certificate of deposits and money market funds which primarily consist of United States treasury obligations, United States agency obligations, and repurchase agreements collateralized by United States government and agency obligations. The Company considers highly liquid investments with original maturities of 90 days or less when purchased as cash equivalents. - Page 100 - 100 ALLOWANCE FOR DOUBTFUL ACCOUNTS Annual Report The Company maintains general allowances for doubtful accounts related to potential losses that could arise due to customers’ inability to make required payments. These reserves require management to apply judgment in deriving these estimates. In addition, the Company performs ongoing credit evaluations of its customers’ financial condition and if it becomes aware of any specific receivables which may be uncollectable, they perform additional analysis including, but not limited to, factors such as a customer’s credit worthiness, intent and ability to pay and overall financial position, and reserves are recorded if deemed necessary. If the data the Company uses to calculate the allowance for doubtful accounts does not reflect the future ability to collect outstanding receivables, additional provisions for doubtful accounts may be needed and results of operations could be materially affected. INVESTMENTS The Company classifies its investment in marketable securities as ‘‘available for sale’’. Available for sale securities are carried at fair value with unrealized holding gains or losses recorded in other comprehensive income. Gains or losses are included in earnings in the period in which they are realized. DERIVATIVES The Company may utilize derivative financial instruments to manage market risks associated with fluctuations in foreign currency exchange rates on specific transactions that occur in the normal course of business. The criteria the Company uses for designating an instrument as a hedge is the instrument’s effectiveness in risk reduction. To receive hedge accounting treatment, hedges must be highly effective at offsetting the impact of the hedge transaction. All derivatives, whether designated as hedging relationships or not, are recorded at fair value and are included as either an asset or liability on the balance sheet. FAIR VALUE Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principle or most advantageous market in an orderly transaction between market participants at the measurement date. Applicable accounting guidance provides a hierarchy for inputs used in measuring fair value that prioritize the use of observable inputs over the use of unobservable inputs, when such observable inputs are available. The three levels of inputs that may be used to measure fair value are as follows: (cid:127) Level 1—Quoted prices in active markets for identical assets or liabilities. (cid:127) Level 2—Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities, quoted prices in markets with insufficient volume or infrequent transactions (less active markets), or model-driven valuations in which all significant inputs are observable or can be derived principally from, or corroborated with, observable market data. (cid:127) Level 3—Fair value is derived from valuation techniques in which one or more significant inputs are unobservable, including assumptions and judgments made by the Company. It is the Company’s policy to maximize the use of observable inputs and minimize the use of unobservable inputs when developing fair value measurements. When available, the Company uses quoted market prices to measure fair value. If market prices are not available, the Company is required to make judgments about assumptions market participants would use to estimate the fair value of a financial instrument. The Company measures certain assets and liabilities at fair value on a recurring basis in three levels, based on the market in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair 101 - Page 101 - Annual Report value. It recognizes transfers within the fair value hierarchy at the end of the fiscal quarter in which the change in circumstances that caused the transfer occurred. The carrying value of cash and cash equivalents, accounts receivable, other current assets, accounts payable and accrued liabilities approximates fair value due to short-term maturities of these assets and liabilities. INVENTORY Inventory is stated at the lower of cost or market on a first-in, first-out basis. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment are carried at cost less accumulated depreciation, with significant renewals and betterments being capitalized and retired equipment written off in the respective periods. Maintenance and repairs are expensed as incurred. Depreciation is calculated using the straight-line method over the estimated useful lives, which range from five to thirty years for buildings and improvements and three to ten years for machinery and equipment. Leasehold improvements are depreciated over the lesser of the economic life or the life of the associated lease. VALUATION OF LONG-LIVED ASSETS Definite lived intangible assets are carried at cost less accumulated amortization. Amortization is calculated based on the pattern of benefit to be recognized from the underlying asset over its estimated useful life. Carrying values for long-lived assets and definite lived intangible assets are reviewed for possible impairment as circumstances warrant. Factors considered important that could result in an impairment review include significant underperformance relative to expected, historical or projected future operating results, significant changes in the manner of use of assets or the Company’s business strategy, or significant negative industry or economic trends. In addition, impairment reviews are conducted at the judgment of management whenever asset/asset group values are deemed to be unrecoverable relative to future undiscounted cash flows expected to be generated by that particular asset/asset group. The determination of recoverability is based on an estimate of undiscounted cash flows expected to result from the use of an asset/asset group and its eventual disposition. Such estimates require management to exercise judgment and make assumptions regarding factors such as future revenue streams, operating expenditures, cost allocation and asset utilization levels, all of which collectively impact future operating performance. The Company’s estimates of undiscounted cash flows may differ from actual cash flows due to, among other things, technological changes, economic conditions, changes to its business model or changes in its operating performance. If the sum of the undiscounted cash flows (excluding interest) is less than the carrying value of an asset/asset group, the Company would recognize an impairment loss, measured as the amount by which the carrying value exceeds the fair value of the asset or asset group. GOODWILL AND INDEFINITE INTANGIBLE ASSETS Goodwill and indefinite-lived intangible assets are not amortized but are tested at least annually as of the first day of the fourth fiscal quarter for impairment or more frequently if indicators of impairment exist during the fiscal year. Indefinite-lived intangible assets comprise an insignificant portion of the total book value of the Company’s intangible assets. The Company assesses its conclusion regarding segments and reporting units in conjunction with its annual goodwill impairment test, and has determined that it has one reporting unit for the purposes of allocating and testing goodwill. 102 - Page 102 - Annual Report The goodwill impairment test is a two-step process. The first step of the Company’s impairment analysis compares its fair value to its net book value to determine if there is an indicator of impairment. In the Company’s calculation of fair value, it considers the closing price of its common stock on the selected testing date, the number of shares of its common stock outstanding and other marketplace activity such as a related control premium. If the calculated fair value is determined to be less than the book value of the Company, then the Company performs step two of the impairment analysis. Step two of the analysis compares the implied fair value of the Company’s goodwill to its book value. If the book value of the Company’s goodwill exceeds its implied fair value, an impairment loss is recognized equal to that excess. BUSINESS COMBINATIONS The Company uses the acquisition method of accounting for business combinations and recognizes assets acquired and liabilities assumed at their fair values on the date acquired. Goodwill represents the excess of the purchase price over the fair value of the net assets. The fair values of the assets and liabilities acquired are determined based upon the Company’s valuation using a combination of market, income or cost approaches. The valuation involves making significant estimates and assumptions, which are based on detailed financial models including the projection of future cash flows, the weighted average cost of capital and any cost savings that are expected to be derived in the future. EMPLOYEE RETIREMENT BENEFIT PLANS The funded status of benefit pension plans, or the balance of plan assets and benefit obligations is recognized on the consolidated balance sheet and pension liability adjustments, net of tax, are recorded in Accumulated Other Comprehensive Income. The Company determines discount rates considering the rates of return on high-quality fixed income investments, and the expected long-term rate of return on pension plan assets by considering the current and expected asset allocations, as well as historical and expected returns on various categories of plan assets. Decreases in discount rates lead to increases in benefit obligations that, in turn, could lead to an increase in amortization cost through amortization of actuarial gain or loss. A decline in the market values of plan assets will generally result in a lower expected rate of return, which would result in an increase of future retirement benefit costs. REVENUE RECOGNITION Revenue from product sales is recognized when there is persuasive evidence of an arrangement, the price to the buyer is fixed and determinable, delivery and transfer of title have occurred in accordance with the shipping terms specified in the arrangement with the customer and collectability is reasonably assured. Revenue from license fees and intellectual property is recognized when due and payable, and all other criteria previously noted have been met. The Company ships product on consignment to certain customers and only recognizes revenue when the customer notifies the Company that the inventory has been consumed. Revenue recognition is deferred in all instances where the earnings process is incomplete. Certain product sales are made to electronic component distributors under agreements allowing for price protection and stock rotation on unsold products. Reserves for sales returns and allowances are recorded based on historical experience or pursuant to contractual arrangements necessitating revenue reserves. SHARE-BASED COMPENSATION The Company recognizes compensation expense for all share-based payment awards made to employees and directors including non-qualified employee stock options, share awards and units, employee stock purchase plan and other special share-based awards based on estimated fair values. 103 - Page 103 - Annual Report The fair value of share-based payment awards is amortized over the requisite service period, which is defined as the period during which an employee is required to provide service in exchange for an award. The Company uses a straight-line attribution method for all grants that include only a service condition. Awards with both performance and service conditions are expensed over the service period for each separately vesting tranche. Share-based compensation expense recognized during the period includes actual expense on vested awards and expense associated with unvested awards that has been reduced for estimated forfeitures. Forfeitures are estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. The Company reviews actual forfeitures at least annually. The Company determines the fair value of share-based option awards based on the Company’s closing stock price on the date of grant using a Black-Scholes options pricing model. Under the Black-Scholes model, a number of highly complex and subjective variables are used including, but not limited to: the expected stock price volatility over the term of the award, the risk-free rate, the expected life of the award and dividend yield. The determination of fair value of restricted and certain performance share awards and units is based on the value of the Company’s stock on the date of grant with performance awards and units adjusted for the actual outcome of the underlying performance condition. For more complex performance awards including units with market-based performance conditions the Company employs a Monte Carlo simulation valuation method to calculate the fair value of the awards based on the most likely outcome. Under the Monte Carlo simulation, a number of highly complex and subjective variables are used including, but not limited to: the expected stock price volatility over the term of the award, a correlation coefficient, the risk-free rate, the expected life of the award, and dividend yield. RESEARCH AND DEVELOPMENT COSTS Research and development costs are expensed as incurred. LOSS CONTINGENCIES The Company records its best estimates of a loss contingency when it is considered probable and the amount can be reasonably estimated. When a range of loss can be reasonably estimated with no best estimate in the range, the minimum estimated liability related to the claim is recorded. As additional information becomes available, the Company assesses the potential liability related to the potential pending loss contingency and revises its estimates. Loss contingencies are disclosed if there is at least a reasonable possibility that a loss or an additional loss may have been incurred and legal costs are expensed as incurred. RESTRUCTURING A liability for post-employment benefits is recorded when payment is probable, the amount is reasonably estimable, and the obligation relates to rights that have vested or accumulated. FOREIGN CURRENCIES The Company’s primary functional currency is the United States dollar. Gains and losses related to foreign currency transactions, conversion of foreign denominated cash balances and translation of foreign currency financial statements are included in current results. For certain foreign entities that utilize local currencies as their functional currency, the resulting unrealized translation gains and losses are reported as currency translation adjustment through other comprehensive income (loss) for each period. 104 - Page 104 - INCOME TAXES Annual Report The Company uses the asset and liability method of accounting for income taxes. Under the asset and liability method, deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. This method also requires the recognition of future tax benefits such as net operating loss carry forwards, to the extent that realization of such benefits is more likely than not. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. The carrying value of the Company’s net deferred tax assets assumes the Company will be able to generate sufficient future taxable income in certain tax jurisdictions, based on estimates and assumptions. If these estimates and related assumptions change in the future, the Company may be required to record additional valuation allowances against its deferred tax assets resulting in additional income tax expense in its Consolidated Statement of Operations. Management evaluates the realizability of the deferred tax assets and assesses the adequacy of the valuation allowance quarterly. Likewise, in the event the Company were to determine that it would be able to realize its deferred tax assets in the future in excess of their net recorded amount, an adjustment to the deferred tax assets would increase income or decrease the carrying value of goodwill in the period such determination was made. The determination of recording or releasing tax valuation allowances is made, in part, pursuant to an assessment performed by management regarding the likelihood that the Company will generate future taxable income against which benefits of its deferred tax assets may or may not be realized. This assessment requires management to exercise significant judgment and make estimates with respect to its ability to generate revenues, gross profits, operating income and taxable income in future periods. Amongst other factors, management must make assumptions regarding overall business and semiconductor industry conditions, operating efficiencies, the Company’s ability to develop products to its customers’ specifications, technological change, the competitive environment and changes in regulatory requirements which may impact its ability to generate taxable income and, in turn, realize the value of its deferred tax assets. The calculation of the Company’s tax liabilities includes addressing uncertainties in the application of complex tax regulations and is based on the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. The Company recognizes liabilities for anticipated tax audit issues in the United States and other tax jurisdictions based on its recognition threshold and measurement attribute of whether it is more likely than not that the positions the Company has taken in tax filings will be sustained upon tax audit, and the extent to which, additional taxes would be due. If payment of these amounts ultimately proves to be unnecessary, the reversal of the liabilities would result in tax benefits being recognized in the period in which it is determined the liabilities are no longer necessary. If the estimate of tax liabilities proves to be less than the ultimate assessment, a further charge to expense would result. The Company recognizes any interest or penalties, if incurred, on any unrecognized tax benefits as a component of income tax expense. EARNINGS PER SHARE Basic earnings per share are computed using the weighted average number of common shares outstanding during the period. Diluted earnings per share incorporate the potentially dilutive incremental shares issuable upon the assumed exercise of stock options, the assumed vesting of outstanding restricted stock units and performance stock units, and the assumed issuance of common stock under the stock purchase plan using the treasury share method. 105 - Page 105 - RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS Annual Report In August 2015, the FASB deferred the effective date of Accounting Standards Update (‘‘ASU’’) 2014-09, Revenue from Contracts with Customers (Topic 606), which outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and will supersede most current revenue recognition guidance. The guidance will be effective for the first quarter of the Company’s fiscal year 2019. Early adoption is permitted, but not before the first quarter of fiscal year 2018. The new guidance is required to be applied retrospectively to each prior reporting period presented or retrospectively with the cumulative effect of initially applying it recognized at the date of initial application. The Company has not yet selected a transition method and is still evaluating the impact of this ASU on its consolidated financial statements and related disclosure. In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), which requires lessees to reflect most leases on their balance sheet as assets and obligations. The effective date for the standard is for fiscal years beginning after December 15, 2018, with early adoption permitted. The standard is to be applied under the modified retrospective method, with elective reliefs, which requires application of the new guidance for all periods presented. The Company is evaluating the effects that this ASU will have on its consolidated financial statements and related disclosures. In March 2016, the FASB Issued ASU 2016-09, Compensation-Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting. The updated guidance changes how companies account for certain aspects of share-based payment awards to employees, including the accounting for income taxes, forfeitures, and statutory tax withholding requirements, as well as classification in the statement of cash flows. The effective date for the standard is for fiscal years beginning after December 15, 2016, with early adoption permitted. The Company does not anticipate it will adopt this ASU early and is evaluating the effects that this ASU will have on its consolidated financial statements. In August 2016, the FASB issued ASU 2016-15, Classification of Certain Cash Receipts and Cash Payments. The standard addresses the classification and presentation of eight specific cash flow issues that currently result in diverse practices. This pronouncement is effective for annual reporting periods beginning after December 15, 2017. The amendments in this ASU should be applied using a retrospective approach. The Company is evaluating the effects that this ASU will have on its consolidated financial statements. There have been no other recent accounting pronouncements or changes in accounting pronouncements that are of significance, or potential significance, to the Company. 3. BUSINESS COMBINATIONS On October 29, 2015, the Company entered into an Amended and Restated Agreement and Plan of Merger (the ‘‘Merger Agreement’’) with PMC-Sierra, Inc. (‘‘PMC’’), providing for, subject to the terms and conditions of the Merger Agreement, the cash acquisition of PMC by the Company. On November 23, 2015, PMC notified the Company that it had terminated the Merger Agreement. As a result, on November 24, 2015, PMC paid the Company a termination fee of $88.5 million pursuant to the Merger Agreement. During the fiscal year ended September 30, 2016, the Company acquired two businesses for total aggregate cash consideration of $55.6 million together with future contingent payments. The total future contingent consideration payments range from zero to $10.0 million and are based upon the achievement of specified objectives that are payable up to two years from the anniversary of the acquisitions, which at closing had a total estimated fair value of $7.4 million. In allocating the total purchase consideration for these acquisitions based on preliminary estimated fair values, the Company recorded $16.6 million of goodwill and $35.5 million of identifiable intangibles 106 - Page 106 - Annual Report assets. Intangible assets acquired primarily included customer relationships and developed technology with weighted average useful lives of 4.0 years. These acquisitions are treated as asset purchases for tax purposes and accordingly, the goodwill resulting from these acquisitions is expected to be deductible. The fair value estimates for the assets acquired and liabilities assumed for acquisitions completed during the fiscal year ended September 30, 2016, were based upon preliminary calculations and valuations, and the Company’s estimates and assumptions for each of these acquisitions are subject to change as it obtains additional information during the respective measurement periods (up to one year from the respective acquisition dates). Net revenue and net income from these acquisitions has been included in the Consolidated Statements of Operations from the acquisition date through the end of the fiscal year on September 30, 2016. The impact of these acquisitions to the ongoing operations on the Company’s net revenue and net income was not significant for the fiscal year ended September 30, 2016. The Company incurred immaterial transaction-related costs during the period fiscal year September 30, 2016, which were included within the sales, administrative and general account. Due to the materiality of these acquisitions, the disclosures required by the applicable accounting guidance have been excluded. On August 1, 2016, the Company exercised its purchase option on the joint venture with Panasonic with respect to the design, manufacture and sale of Panasonic filter products, and paid Panasonic $76.5 million in cash. As a result of exercising the purchase option, the Company owns 100% of the filter joint venture. On October 7, 2016, the Company acquired a business for $14.4 million in cash and contingent consideration ranging from zero to $20.0 million payable over a three-year period. Due to the timing of the acquisition and the date of this filing, the Company has yet to assess the fair value of the assets acquired and liabilities assumed and accordingly, the disclosures required have been omitted. 4. FAIR VALUE Assets and Liabilities Measured and Recorded at Fair Value on a Recurring Basis The Company measures certain assets and liabilities at fair value on a recurring basis such as its financial instruments and derivatives. There have been no transfers between Level 1, 2 or 3 assets or liabilities during the fiscal year ended September 30, 2016. Level 3 assets include an auction rate security that is classified as available for sale and recorded in other current assets and that is scheduled to mature in 2017. Due to the illiquid market for this security the Company has classified the carrying value as a Level 3 asset with the difference between the par and carrying value being categorized as a temporary loss and recorded in accumulated other comprehensive loss. On August 1, 2016, the Company exercised its option and paid cash for the remaining interest in the joint venture with Panasonic as detailed in Note 3 of these Notes to Consolidated Financial Statements. This purchase option was recorded as a Level 3 liability as of October 2, 2015. The Company held foreign currency call and put options (‘‘foreign currency options’’) that were intended to hedge the potential cash exposure related to the Panasonic purchase option. These foreign currency options expired unexercised during the fiscal year ended September 30, 2016, as the call and put options were out of the money, 107 - Page 107 - Annual Report The Company classifies its contingent consideration related to its business combinations as detailed in Note 3 of these Notes to Consolidated Financial Statements, made during the fiscal year ended September 30, 3016, as Level 3 liabilities. This assessment is based on management judgment involved in computing the expected achievements of specified objectives that are payable up to two years from the anniversary of the acquisitions. The Company reassesses the fair value of the contingent consideration on a quarterly basis and records any applicable adjustments to earnings in the period they are determined. Assets and liabilities recorded at fair value on a recurring basis consisted of the following (in millions): As of September 30, 2016 As of October 2, 2015 Fair Value Measurements Fair Value Measurements Total Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Assets Money market funds Auction rate security Foreign currency derivative assets Total Liabilities $ 408.7 $ 408.7 $ — $ — $ 464.6 $ 464.6 $ — $ — 2.3 3.3 2.3 3.3 2.3 — 2.3 — — — — — — — — — $ 411.0 $ 408.7 $ — $ 2.3 $ 470.2 $ 464.6 $ — $ 5.6 Purchase obligation recorded for business combinations Foreign currency derivative liabilities Contingent consideration liability recorded for business combinations Total $ — $ — $ — $ — $ — 7.9 — — — — — 7.9 75.4 $ — $ — $ — 2.8 — 75.4 2.8 0.5 — — 0.5 $ 7.9 $ — $ — $ 7.9 $ 78.7 $ — $ — $ 78.7 The following table summarizes changes to the fair value of the Level 3 assets (in millions): Balance as of October 2, 2015 Changes in fair value included in earnings Balance as of September 30, 2016 Auction rate security Foreign currency derivative $ $ 2.3 — 2.3 $ $ 3.3 (3.3) — The following table summarizes changes to the fair value of the Level 3 liabilities (in millions): Balance as of October 2, 2015 Increases to Level 3 liabilities Changes in fair value included in earnings Decreases of Level 3 liabilities Balance as of September 30, 2016 Purchase obligation Foreign currency derivative Contingent consideration $ $ $ 75.4 — — (75.4) $ 2.8 — (2.8) — — $ — $ 0.5 7.4 — — 7.9 Assets Measured and Recorded at Fair Value on a Nonrecurring Basis The Company’s non-financial assets and liabilities, such as goodwill, intangible assets, and other long-lived assets resulting from business combinations are measured at fair value using income approach valuation methodologies at the date of acquisition and are subsequently re-measured if there are indicators of impairment. - Page 108 - 108 5. INVENTORY Inventory consists of the following (in millions): Annual Report Raw materials Work-in-process Finished goods Finished goods held on consignment by customers Total inventory 6. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment net consists of the following (in millions): Land and improvements Buildings and improvements Furniture and fixtures Machinery and equipment Construction in progress Total property, plant and equipment, gross Accumulated depreciation Total property, plant and equipment, net 7. GOODWILL AND INTANGIBLE ASSETS The changes to the carrying amount of goodwill are as follows (in millions): Goodwill at beginning of the period Goodwill recognized through business combinations (Note 3) Goodwill adjustments Impairments Goodwill at the end of the period As of September 30, 2016 October 2, 2015 $ $ $ 18.5 255.5 140.4 9.6 424.0 $ 30.0 192.4 38.0 7.5 267.9 As of September 30, 2016 October 2, 2015 $ $ 11.6 133.5 29.5 1,533.3 59.9 1,767.8 (961.5) $ 806.3 $ 11.6 101.7 26.9 1,285.4 159.8 1,585.4 (759.0) 826.4 As of September 30, 2016 October 2, 2015 $ $ $ 856.7 16.6 — — 873.3 $ 851.0 3.3 2.4 — 856.7 The changes in goodwill during the fiscal year ended September 30, 2016, relate to the amounts recognized through the business combinations completed during the period as detailed in Note 3, Business Combinations, in these Notes to the Consolidated Financial Statements. The Company performed an impairment test of its goodwill as of the first day of the fourth fiscal quarter in accordance with its regularly scheduled testing. The results of this test indicated that the Company’s goodwill was not impaired. There were no other indicators of impairment noted during the fiscal year ended September 30, 2016. - Page 109 - 109 Intangible assets consist of the following (in millions): Annual Report Weighted average amortization period remaining (years) 4.2 5.8 Indefinite As of September 30, 2016 As of October 2, 2015 Gross carrying amount Accumulated amortization Net carrying amount Gross carrying amount Accumulated amortization Net carrying amount $ $ 78.5 $ 133.8 1.6 (57.7) $ (89.2) — 213.9 $ (146.9) $ 20.8 $ 44.6 1.6 67.0 $ 57.2 $ 99.7 1.6 (48.7) $ (64.8) — 158.5 $ (113.5) $ 8.5 34.9 1.6 45.0 Customer relationships Developed technology and other Trademarks Total intangible assets The net carrying amount of intangible assets increased for the fiscal year ended September 30, 2016, primarily due to the identifiable intangible assets acquired during the fiscal year as discussed in Note 3, Business Combinations, in these Notes to the Consolidated Financial Statements. Annual amortization expense for the next five years related to intangible assets is expected to be as follows (in millions): Amortization expense $ 23.6 $ 11.0 $ 9.3 $ 7.4 $ 5.3 $ 8.8 2017 2018 2019 2020 2021 Thereafter 8. INCOME TAXES Income before income taxes consists of the following components (in millions): Fiscal Years Ended September 30, 2016 October 2, 2015 October 3, 2014 United States Foreign Income before income taxes $ $ 697.5 503.1 1,200.6 $ $ 602.1 421.5 1,023.6 The provision for income taxes consists of the following (in millions): Current tax expense (benefit): Federal State Foreign Deferred tax expense (benefit): Federal Foreign Fiscal Years Ended September 30, 2016 October 2, 2015 $ $ 181.8 0.1 25.8 207.7 (0.8) (1.5) (2.3) 199.5 (0.5) 33.9 232.9 (2.0) (5.6) (7.6) $ $ $ Provision for income taxes $ 205.4 $ 225.3 $ 346.8 218.4 565.2 October 3, 2014 88.2 (0.5) 13.5 101.2 12.3 (6.0) 6.3 107.5 - Page 110 - 110 The actual income tax expense is different than that which would have been computed by applying the federal statutory tax rate to income before income taxes. A reconciliation of income tax expense as computed at the United States federal statutory income tax rate to the provision for income tax expense is as follows (in millions): Annual Report Tax expense at United States statutory rate Foreign tax rate difference Research and development credits Change in tax reserve Change in valuation allowance Domestic production activities deduction Audit settlements and adjustments Other, net Provision for income taxes Fiscal Years Ended September 30, 2016 October 2, 2015 October 3, 2014 $ $ 420.2 (164.1) (33.7) 18.9 13.9 (19.1) (21.4) (9.3) $ 358.3 (120.9) (15.0) 25.5 4.4 (19.7) — (7.3) $ 205.4 $ 225.3 $ 197.8 (77.3) (2.8) 11.0 9.8 (10.9) (19.7) (0.4) 107.5 The Company operates in foreign jurisdictions with income tax rates lower than the United States tax rate of 35%. The Company’s tax benefits related to foreign earnings taxed at a rate less than the United States federal rate were $164.1 million and $120.9 million for the fiscal years ended September 30, 2016, and October 2, 2015, respectively. During the fiscal year ended September 30, 2016, the Company concluded an IRS examination of its federal income tax returns for fiscal years 2012 and 2013. The Company agreed to various adjustments to its fiscal year 2012 and 2013 tax returns that resulted in the recognition of current year tax expense of $2.6 million during the fiscal year ended September 30, 2016. With the conclusion of the audit, the Company decreased the reserve for uncertain tax positions, which resulted in the recognition of an income tax benefit of $24.0 million in fiscal 2016. In December 2015, the United States Congress enacted the Protecting Americans from Tax Hikes Act of 2015, extending numerous tax provisions that had expired. This legislation included a permanent extension of the federal research and experimentation tax credit. As a result of the enactment of this legislation, $11.6 million of federal research and experimentation tax credits that were earned in the fiscal year ended October 2, 2015, reduced the Company’s tax expense and tax rate during the fiscal year ended September 30, 2016. The federal tax credit available under the Internal Revenue Code for research and development expenses expired on December 31, 2014. As of October 2, 2015, the United States Congress had not taken action to extend the Research and Experimentation Tax Credit. Accordingly, the income tax provision for the year ended October 2, 2015, did not reflect the impact of any research and development tax credits that would have been earned after December 31, 2014, had the federal tax credit not expired. On December 19, 2014, the Tax Increase Prevention Act of 2014 was signed into law, extending the Research and Experimentation Tax Credit to reinstate and retroactively extend credits earned in calendar year 2014. As a result of the enactment of this law, $11.0 million of federal research and development tax credits that were earned in fiscal 2014 reduced the tax rate during fiscal 2015. These credits were not reflected in the fiscal 2014 tax rate. During the fourth quarter of fiscal 2014, the Company concluded an IRS examination of its federal income tax return for fiscal year 2011. As a result of the conclusion of the IRS examination, the Company agreed to various adjustments to its fiscal 2011 tax return that resulted in the recognition of tax expense of $0.7 million and $1.9 million for fiscal years 2014 and 2013, respectively. In addition, the conclusion of the IRS examination also resulted in a decrease in the uncertain tax positions of $20.9 million in fiscal 2014, of which $20.4 million was recognized as a benefit to tax expense. - Page 111 - 111 Annual Report In December 2013, Mexico enacted a comprehensive tax reform package, which became effective on January 1, 2014. As a result of this change, the Company adjusted its deferred taxes in that jurisdiction, resulting in the recognition of a tax benefit that reduced the Company’s foreign income tax expense by $4.6 million for year ended October 3, 2014. On October 2, 2010, the Company expanded its presence in Asia by launching operations in Singapore. The Company operates under a tax holiday in Singapore, which is effective through September 30, 2020 and is conditional upon the Company’s compliance with certain employment and investment thresholds in Singapore. The impact of the tax holiday decreased Singapore’s taxes by $30.8 million and $26.6 million for the fiscal years ended September 30, 2016, and October 2, 2015, respectively, which resulted in tax benefits of $0.16 and $0.14 of diluted earnings per share, respectively. Deferred income tax assets and liabilities consist of the tax effects of temporary differences related to the following (in millions): Deferred tax assets: Current: Inventory Bad debts Accrued compensation and benefits Product returns, allowances and warranty Restructuring Other, net Current deferred tax assets Less valuation allowance Net current deferred tax assets Long-term: Intangible assets Share-based and other deferred compensation Net operating loss carry forwards Non-United States tax credits State tax credits Other, net Long-term deferred tax assets Less valuation allowance Net long-term deferred tax assets Deferred tax assets Less valuation allowance Net deferred tax assets Deferred tax liabilities: Current: Prepaid insurance Current deferred tax liabilities Long-term: Property, plant and equipment Intangible assets Long-term deferred tax liabilities Net deferred tax liabilities Total net deferred tax assets - Page 112 - 112 Fiscal Years Ended September 30, 2016 October 2, 2015 $ $ 8.1 0.2 5.4 8.6 0.8 3.1 26.2 (12.2) 14.0 11.6 40.2 7.4 14.7 64.0 2.5 140.4 (66.9) 73.5 166.6 (79.1) 87.5 (0.8) (0.8) (16.5) (8.4) (24.9) (25.7) $ 61.8 $ 4.9 0.1 5.2 4.3 0.1 0.6 15.2 (6.4) 8.8 11.6 44.6 7.4 11.5 53.4 2.4 130.9 (58.8) 72.1 146.1 (65.2) 80.9 (0.8) (0.8) (10.1) (8.2) (18.3) (19.1) 61.8 Annual Report In accordance with GAAP, management has determined that it is more likely than not that a portion of its historic and current year income tax benefits will not be realized. As of September 30, 2016, the Company has maintained a valuation allowance of $79.1 million. This valuation allowance is comprised of $64.0 million related to United States state tax credits, and $15.1 million related to foreign deferred tax assets. The Company does not anticipate sufficient taxable income or tax liability to utilize these state and foreign credits. If these benefits are recognized in a future period the valuation allowance on deferred tax assets will be reversed and up to a $79.1 million income tax benefit may be recognized. The Company will need to generate $137.5 million of future United States federal taxable income to utilize our United States deferred tax assets as of September 30, 2016. The Company believes that future reversals of taxable temporary differences, and its forecast of continued earnings in its domestic and foreign jurisdictions, support its decision to not record a valuation allowance on other deferred tax assets. Deferred tax assets are recognized for foreign operations when management believes it is more likely than not that the deferred tax assets will be recovered during the carry forward period. The Company will continue to assess its valuation allowance in future periods. As of September 30, 2016, the Company has United States federal net operating loss carry forwards of approximately $9.3 million. The utilization of these net operating losses is subject to certain annual limitations as required under Internal Revenue Code section 382 and similar state income tax provisions. The United States federal net operating loss carry forwards expire at various dates through 2035. The Company also has state income tax credit carry forwards of $64.0 million, net of federal benefits, for which the Company has provided a valuation allowance. The state tax credits relate primarily to California research tax credits that can be carried forward indefinitely. The Company has continued to expand its operations and increase its investments in numerous international jurisdictions. These activities will increase the Company’s earnings attributable to foreign jurisdictions. As of September 30, 2016, no provision has been made for United States federal, state, or additional foreign income taxes related to approximately $1,676.8 million of undistributed earnings of foreign subsidiaries which have been or are intended to be permanently reinvested due to its foreign operations. It is not practicable to determine the United States federal income tax liability, if any, which would be payable if such earnings were not permanently reinvested. A reconciliation of the beginning and ending amount of gross unrecognized tax benefits is as follows (in millions): Balance at October 2, 2015 Increases based on positions related to prior years Increases based on positions related to current year Decreases relating to settlements with taxing authorities Decreases relating to lapses of applicable statutes of limitations Balance at September 30, 2016 Unrecognized tax benefits $ $ 81.2 2.0 19.7 (22.6) (0.6) 79.7 Of the total unrecognized tax benefits at September 30, 2016, $60.8 million would impact the effective tax rate, if recognized. The remaining unrecognized tax benefits would not impact the effective tax rate, if recognized, due to the Company’s valuation allowance and certain positions that were required to be capitalized. During the fiscal year ended September 30, 2016, the Company concluded an IRS examination of its federal income tax returns for fiscal 2012 and 2013. The conclusion of the IRS examination resulted in a decrease in the uncertain tax positions of $24.0 million in fiscal 2016, all of which was recognized as a benefit to its tax expense in fiscal 2016. The Company anticipates reversals within the next 12 months related to items such as the lapse of the statute of limitations, audit closures, and other items that occur in the normal course of business. During the fiscal year ended September 30, - Page 113 - 113 Annual Report 2016, the Company recognized $0.6 million of previously unrecognized tax benefits related to the expiration of the statute of limitations and $1.9 million of accrued interest or penalties related to unrecognized tax benefits. The Company’s major tax jurisdictions as of September 30, 2016, are the United States, California, Canada, Luxembourg, Mexico and Singapore. For the United States, the Company has open tax years dating back to fiscal 1999 due to the carry forward of tax attributes. For California, the Company has open tax years dating back to fiscal 1999 due to the carry forward of tax attributes. For Canada, the Company has open tax years dating back to fiscal 2008. For Luxembourg, the Company has open tax years back to fiscal 2011. For Mexico, the Company has open tax years back to fiscal 2009. For Singapore, the Company has open tax years dating back to fiscal 2011. The Company is subject to audit examinations by the respective taxing authorities on a periodic basis, of which the results could impact our financial position, results of operations or cash flows. 9. STOCKHOLDERS’ EQUITY COMMON STOCK At September 30, 2016, the Company is authorized to issue 525.0 million shares of common stock, par value $0.25 per share, of which 222.5 million shares are issued and 184.9 million shares are outstanding. Holders of the Company’s common stock are entitled to dividends in the event declared by the Company’s Board of Directors out of funds legally available for such purpose. Dividends may not be paid on common stock unless all accrued dividends on preferred stock, if any, have been paid or declared and set aside. In the event of the Company’s liquidation, dissolution or winding up, the holders of common stock will be entitled to share pro rata in the assets remaining after payment to creditors and after payment of the liquidation preference plus any unpaid dividends to holders of any outstanding preferred stock. Each holder of the Company’s common stock is entitled to one vote for each such share outstanding in the holder’s name. No holder of common stock is entitled to cumulate votes in voting for directors. The Company’s restated certificate of incorporation as amended to date, (the ‘‘Certificate of Incorporation’’) provides that, unless otherwise determined by the Company’s Board of Directors, no holder of stock has any preemptive right to purchase or subscribe for any stock of any class which the Company may issue or sell. PREFERRED STOCK The Company’s Certificate of Incorporation has authorized and permits the Company to issue up to 25.0 million shares of preferred stock without par value in one or more series and with rights and preferences that may be fixed or designated by the Company’s Board of Directors without any further action by the Company’s stockholders. The designation, powers, preferences, rights and qualifications, limitations and restrictions of the preferred stock of each series will be fixed by the certificate of designation relating to such series, which will specify the terms of the preferred stock. At September 30, 2016, the Company had no shares of preferred stock issued or outstanding. SHARE REPURCHASE On July 19, 2016, the Board of Directors approved a new share repurchase program, pursuant to which the Company is authorized to repurchase up to $400.0 million of its common stock from time to time on the open market or in privately negotiated transactions as permitted by securities laws and other legal requirements. The repurchase program is set to expire on July 19, 2018; however, it may be suspended, discontinued or extended by the Board of Directors at any time prior to its expiration on July 19, 2018. This authorized stock repurchase program replaced in its entirety the November 10, 2015, stock repurchase program. These repurchases have been and will be funded with the Company’s working capital. - Page 114 - 114 Annual Report During the fiscal year ended September 30, 2016, the company paid approximately $525.6 million (including commissions) in connection with the repurchase of 8.0 million shares of its common stock (paying an average price of $65.70 per share) under the July 19, 2016, share repurchase plan and the replaced November 10, 2015, share repurchase plan. As of September 30, 2016, $201.4 million remained available under the July 19, 2016, share repurchase plan. During the fiscal year ended October 2, 2015, the Company paid approximately $237.3 million (including commissions) in connection with the repurchase of 2.9 million shares of its common stock (paying an average price of $83.29 per share). DIVIDENDS On November 3, 2016, the Company announced that the Board of Directors declared a cash dividend on the Company’s common stock of $0.28 per share. This dividend is payable on December 8, 2016, to the Company’s stockholders of record as of the close of business on November 17, 2016. Future dividends are subject to declaration by the Board of Directors. The dividends charged to retained earnings in fiscal 2016 and 2015 were as follows (in millions except per share amounts): First quarter Second quarter Third quarter Fourth quarter Fiscal Years Ended September 30, 2016 October 2, 2015 Per Share Total Per Share Total $ $ 0.26 0.26 0.26 0.28 1.06 $ $ $ 49.8 49.3 49.5 52.2 200.8 $ 0.13 0.13 0.13 0.26 0.65 $ $ 24.7 24.9 24.8 49.6 124.0 EMPLOYEE STOCK BENEFIT PLANS As of September 30, 2016, the Company has the following equity compensation plans under which its equity securities were authorized for issuance to its employees and/or directors: (cid:127) the 1999 Employee Long-Term Incentive Plan (cid:127) the Directors’ 2001 Stock Option Plan (cid:127) the Non-Qualified Employee Stock Purchase Plan (cid:127) the 2002 Employee Stock Purchase Plan (cid:127) the 2005 Long-Term Incentive Plan (cid:127) the AATI 2005 Equity Incentive Plan (cid:127) the 2008 Director Long-Term Incentive Plan (cid:127) the 2015 Long-Term Incentive Plan Except for the 1999 Employee Long-Term Incentive Plan and the Non-Qualified Employee Stock Purchase Plan, each of the foregoing equity compensation plans was approved by the Company’s stockholders. As of September 30, 2016, a total of 100.7 million shares are authorized for grant under the Company’s share- based compensation plans, with 4.8 million options outstanding. The number of common shares reserved for future awards to employees and directors under these plans was 19.1 million at September 30, 2016. The Company grants new equity awards under the 2015 Long-Term Incentive Plan to employees, which replaced the 2005 Long-Term Incentive Plan on May 19, 2015, and the 2008 Director Long-Term Incentive Plan for non-employee directors. 115 - Page 115 - Annual Report 2015 Long-Term Incentive Plan. Under this plan, officers, employees, non-employee directors and certain consultants may be granted stock options, restricted stock awards and units, performance stock awards and units and other share-based awards. The plan has been approved by the stockholders. Under the plan, up to 27.1 million shares have been authorized for grant. A total of 18.4 million shares are available for new grants as of September 30, 2016. The maximum contractual term of options under the plan is seven years from the date of grant. Options granted under the plan are exercisable at the determination of the compensation committee and generally vest ratably over four years. Restricted stock awards and units granted under the plan at the determination of the compensation committee generally vest over four or more years. With respect to restricted stock awards, dividends are accumulated and paid when the underlying shares vest. If the underlying shares are forfeited for any reason, the rights to the dividends with respect to such shares are also forfeited. No dividends or dividend equivalents are paid or accrued with respect to restricted stock unit awards or other awards until the shares underlying such awards become vested and are issued to the award holder. Performance stock awards and units are contingently granted depending on the achievement of certain predetermined performance goals and generally vest over three or more years. 2008 Director Long-Term Incentive Plan. Under this plan, non-employee directors may be granted stock options, restricted stock awards and other share-based awards. The plan has been approved by the stockholders. Under the plan a total of 1.5 million shares have been authorized for grant. A total of 0.7 million shares are available for new grants as of September 30, 2016. The maximum contractual term of options granted under the plan is ten years from the date of grant. Options granted under the plan are generally exercisable over four years. Restricted stock awards and units granted under the plan generally vest over one or more years. With respect to restricted stock awards, dividends are accumulated and paid when the underlying shares vest. If the underlying shares are forfeited for any reason, the rights to the dividends with respect to such shares are also forfeited. Employee Stock Purchase Plans. The Company maintains a domestic and an international employee stock purchase plan. Under these plans, eligible employees may purchase common stock through payroll deductions of up to 10% of their compensation. The price per share is the lower of 85% of the fair market value of the common stock at the beginning or end of each offering period (generally six months). The plans provide for purchases by employees of up to an aggregate of 9.7 million shares. Shares of common stock purchased under these plans in the fiscal years ended September 30, 2016, October 2, 2015, and October 3, 2014, were 0.3 million, 0.3 million, and 0.5 million, respectively. At September 30, 2016, there are 1.0 million shares available for purchase. The Company recognized compensation expense of $4.6 million, $4.7 million and $4.1 million for the fiscal years ended September 30, 2016, October 2, 2015, and October 3, 2014, respectively, related to the employee stock purchase plan. The unrecognized compensation expense on the employee stock purchase plan at September 30, 2016, was $1.5 million. The weighted average period over which the cost is expected to be recognized is approximately four months. Stock Options The following table represents a summary of the Company’s stock options: Balance outstanding at October 2, 2015 Granted Exercised Canceled/forfeited Balance outstanding at September 30, 2016 Exercisable at September 30, 2016 Shares (in millions) Weighted average exercise price Weighted average remaining contractual life (in years) Aggregate intrinsic value (in millions) 5.4 $ 0.8 $ (1.3) $ (0.1) $ 4.8 $ 2.1 $ 30.08 82.36 21.14 45.49 41.35 25.00 3.9 $ 2.6 $ 174.0 108.3 - Page 116 - 116 Annual Report The weighted-average grant date fair value per share of employee stock options granted during the fiscal years ended September 30, 2016, October 2, 2015, and October 3, 2014, was $26.30, $23.26, and $11.91, respectively. The total grant date fair value of the options vested during the fiscal years ending September 30, 2016, October 2, 2015, and October 3, 2014, was $21.9 million, $16.6 million and $21.8 million, respectively. Restricted and Performance Awards and Units The following table represents a summary of the Company’s restricted and performance awards and units: Non-vested awards outstanding at October 2, 2015 Granted(1) Vested Canceled/forfeited Non-vested awards outstanding at September 30, 2016 Shares (In millions) Weighted average grant date fair value 4.8 1.3 (2.4) (0.1) 3.6 $ $ $ $ $ 23.20 84.89 33.81 25.73 25.01 (1) includes performance shares granted and earned based on maximum performance under the underlying performance metrics The weighted average grant date fair value per share for awards granted during the fiscal years ended September 30, 2016, October 2, 2015, and October 3, 2014, was $84.89, $63.56, and $26.69, respectively. The total grant date fair value of the awards vested during the fiscal years ending September 30, 2016, October 2, 2015, and October 3, 2014, was $197.6 million, $149.0 million and $63.1 million, respectively. The following table summarizes the total intrinsic value for stock options exercised and awards vested (in millions): Options Awards Valuation and Expense Information Fiscal Years Ended September 30, 2016 October 2, 2015 October 3, 2014 $ $ 68.9 197.6 $ $ 170.8 149.0 $ $ 101.3 63.1 The following table summarizes pre-tax share-based compensation expense by financial statement line and related tax benefit (in millions): Cost of goods sold Research and development Selling, general and administrative Total share-based compensation expense Share-based compensation tax benefit Capitalized share-based compensation expense Fiscal Years Ended September 30, 2016 October 2, 2015 October 3, 2014 $ $ $ $ 11.3 32.2 34.5 78.0 22.5 3.7 $ $ $ $ 14.5 45.4 39.9 99.8 29.3 2.3 $ $ $ $ 11.3 36.2 38.5 86.0 25.6 1.7 - Page 117 - 117 The following table summarizes total compensation costs related to unvested share based awards not yet recognized and the weighted average period over which it is expected to be recognized at September 30, 2016: Annual Report Options Awards Unrecognized compensation cost for unvested awards (in millions) $ $ 33.5 63.2 Weighted average remaining recognition period (in years) 2.0 1.0 The fair value of the restricted stock awards and units is equal to the closing market price of the Company’s common stock on the date of grant. The Company issued performance share units during fiscal 2016, fiscal 2015 and fiscal 2014 that contained market-based conditions. The fair value of these performance share units was estimated on the date of the grant using a Monte Carlo simulation with the following weighted average assumptions: Volatility of common stock Average volatility of peer companies Average correlation coefficient of peer companies Risk-free interest rate Dividend yield Fiscal Year Ended September 30, 2016 October 2, 2015 October 3, 2014 38.24% 34.76% 0.49 0.44% 1.23 37.51% 28.42% 0.55 0.12% 0.85 36.96% 29.59% 0.47 0.11% —% The fair value of each stock option is estimated on the date of the grant using the Black-Scholes option pricing model with the following weighted average assumptions: Expected volatility Risk-free interest rate Dividend yield Expected option life (in years) Fiscal Years Ended September 30, 2016 October 2, 2015 October 3, 2014 42.93% 0.98% 1.23 4.0 45.75% 1.33% 1.16 4.5 47.40% 1.83% 0.83 4.6 The Company used a historical volatility calculated by the mean reversion of the weekly-adjusted closing stock price over the expected life of the options. The risk-free interest rate assumption is based upon observed treasury bill interest rates appropriate for the expected life of the Company’s employee stock options. The dividend yield was included in the Black-Scholes option pricing model for options granted after the Company declared its first dividend. The expected life of employee stock options represents a calculation based upon the historical exercise, cancellation and forfeiture experience for the Company across its demographic population. The Company believes that this historical data is the best estimate of the expected life of a new option and that generally all groups of the Company’s employees exhibit similar behavior. - Page 118 - 118 Annual Report 10. EMPLOYEE BENEFIT PLAN, PENSIONS AND OTHER RETIREE BENEFITS The Company maintains a 401(k) plan covering substantially all of its employees based in the United States under which all employees at least twenty-one years old are eligible to receive discretionary Company contributions. Discretionary Company contributions in the form of cash are determined by the Board of Directors. The Company has generally contributed a match of up to 4% of an employee’s contributed annual eligible compensation. The Company no longer provides shares of its common stock as contributions to the 401(k) plan and recognized expense of $2.8 million for the fiscal year ended September 30, 2016. For the fiscal years ended October 2, 2015, and October 3, 2014, the Company contributed shares of 0.1 million, and 0.2 million, respectively, and recognized expense of $7.2 million and $6.2 million, respectively. Defined Benefit Pension: The Company has a defined benefit pension plan for certain employees in Japan. This plan has been frozen and new employees are not eligible. However, the Company is obligated to make future contributions to fund benefits to the participants with the benefits under the plan being based primarily on a combination of years of service and compensation. The net amount of the unfunded obligation recognized in other long-term liabilities on the Balance Sheet consists of (in millions): Pension benefit obligations at the end of the fiscal year Fair value of plan assets at the end of the fiscal year Funded status Net periodic benefit costs Fiscal Year Ended September 30, 2016 October 2, 2015 $ $ $ 19.0 11.4 (7.6) 0.1 $ $ $ 14.9 9.8 (5.1) 0.1 The pension obligation has an immaterial impact to the Company’s results of operations and financial position and accordingly, the disclosures required have been excluded from this Annual Report. 11. COMMITMENTS The Company has various operating leases primarily for buildings, computers and equipment. Rent expense amounted to $19.5 million, $16.5 million, and $11.1 million in the fiscal years ended September 30, 2016, October 2, 2015, and October 3, 2014, respectively. Future minimum payments under these non-cancelable leases are as follows (in millions): Future minimum payments $ 23.9 22.0 17.0 13.2 4.7 17.3 $ 98.1 2017 2018 2019 2020 2021 Thereafter Total In addition, the Company has entered into licensing agreements for intellectual property rights and maintenance and support services. Pursuant to the terms of these agreements, the Company is committed to making aggregate payments of $6.2 million, $0.5 million and $0.1 million in the fiscal years 2017, 2018, and 2019, respectively. - Page 119 - 119 12. CONTINGENCIES Legal Matters Annual Report From time to time, various lawsuits, claims and proceedings have been, and may in the future be, instituted or asserted against the Company, including those pertaining to patent infringement, intellectual property, environmental hazards, product liability and warranty, safety and health, employment and contractual matters. The semiconductor industry is characterized by vigorous protection and pursuit of intellectual property rights. From time to time, third parties have asserted and may in the future assert patent, copyright, trademark and other intellectual property rights to technologies that are important to the Company’s business and have demanded and may in the future demand that the Company license their technology. The outcome of any such litigation cannot be predicted with certainty and some such lawsuits, claims or proceedings may be disposed of unfavorably to the Company. Generally speaking, intellectual property disputes often have a risk of injunctive relief, which, if imposed against the Company, could materially and adversely affect the Company’s financial condition, or results of operations. From time to time the Company may also be involved in legal proceedings in the ordinary course of business. The Company monitors the status of legal proceedings and other contingencies on an ongoing basis to ensure amounts are recognized and/or disclosed in its financial statements and footnotes as required. At the time of this filing, the Company recorded an estimated $13.0 million accrual for loss contingencies, which is recorded in other current liabilities as of September 30, 2016. The Company does not believe that the possible range of loss is significantly different than the amount currently accrued. The Company also does not believe there are any additional pending legal proceedings that are reasonably possible to result in a material loss. The Company is engaged in various legal actions in the normal course of business and, while there can be no assurances, the Company believes the outcome of all pending litigation involving the Company will not have, individually or in the aggregate, a material adverse effect on its business. 13. GUARANTEES AND INDEMNITIES The Company has made no significant contractual guarantees for the benefit of third parties. However, the Company generally indemnifies its customers from third-party intellectual property infringement litigation claims related to its products and, on occasion, also provides other indemnities related to product sales. In connection with certain facility leases, the Company has indemnified its lessors for certain claims arising from the facility or the lease. The Company indemnifies its directors and officers to the maximum extent permitted under the laws of the state of Delaware. The duration of the indemnities varies, and in many cases is indefinite. The indemnities to customers in connection with product sales generally are subject to limits based upon the amount of the related product sales and in many cases are subject to geographic and other restrictions. In certain instances, the Company’s indemnities do not provide for any limitation of the maximum potential future payments the Company could be obligated to make. The Company has not recorded any liability for these indemnities in the accompanying consolidated balance sheets and does not expect that such obligations will have a material adverse impact on its financial condition or results of operations. 14. RESTRUCTURING AND OTHER CHARGES As of September 30, 2016, the Company recorded restructuring and other charges of approximately $4.8 million primarily related to restructuring plans to reduce redundancies associated with acquisitions during the year. The Company began formulating the plan prior to the date of acquisition. The Company does not anticipate any 120 - Page 120 - Annual Report further significant charges associated with these restructuring activities and substantially all of the remaining cash payments related to these restructuring plans are expected to occur during the next fiscal year. As of October 2, 2015, the Company recorded restructuring and other charges of approximately $3.4 million related to costs associated with organizational restructuring plans initiated in the fiscal year. The Company does not anticipate any material charges in future periods related to these plans. As of October 3, 2014, the Company recorded restructuring and other charges of approximately $0.3 million related to costs associated with organizational restructuring plans initiated in the prior fiscal year. The Company does not anticipate any material charges in future periods related to these plans. Activity and liability balances related to the Company’s restructuring actions are as follows (in millions): Balance at September 27, 2013 Current Charges Cash Payments Balance at October 3, 2014 FY13 restructuring programs Employee severance costs Other restructuring Employee severance costs, lease and other contractual obligations Total FY13 restructuring programs Employee severance costs Other restructuring Employee severance costs, lease and other contractual obligations Total FY16 restructuring programs Employee severance costs FY13 restructuring programs Employee severance costs Other restructuring Employee severance costs, lease and other contractual obligations Total $ $ $ $ $ $ 0.6 $ 0.3 $ (0.6) $ 0.4 1.0 $ — 0.3 $ (0.2) (0.8) $ 0.3 0.2 0.5 Balance at October 3, 2014 Current Charges Cash Payments Balance at October 2, 2015 0.3 $ — $ (0.2) $ 0.2 0.5 $ 3.4 3.4 $ (3.3) (3.5) $ 0.1 0.3 0.4 Balance at October 2, 2015 Current Charges Cash Payments September 30, 2016 Balance at — $ 0.1 0.3 0.4 $ 4.8 $ — — 4.8 $ (2.4) (0.1) (0.3) (2.8) $ 2.4 — — 2.4 - Page 121 - 121 15. EARNINGS PER SHARE Annual Report The following table sets forth the computation of basic and diluted earnings per share (in millions, except per share amounts): Net income Weighted average shares outstanding—basic Dilutive effect of equity based awards Weighted average shares outstanding—diluted Net income per share—basic Net income per share—diluted Anti-dilutive common stock equivalents Fiscal Years Ended September 30, 2016 October 2, 2015 October 3, 2014 $ $ $ 995.2 $ 798.3 $ 188.7 3.4 192.1 5.27 5.18 1.5 $ $ 189.5 5.4 194.9 4.21 4.10 0.3 $ $ 457.7 187.2 5.4 192.6 2.44 2.38 0.9 Basic earnings per share are calculated by dividing net income by the weighted average number of shares of the Company’s common stock outstanding during the period. The calculation of diluted earnings per share includes the dilutive effect of equity based awards that were outstanding during the fiscal years ending September 30, 2016, October 2, 2015, and October 3, 2014, using the treasury stock method. Certain of the Company’s outstanding share- based awards, noted in the table above, were excluded because they were anti-dilutive, but they could become dilutive in the future. 16. SEGMENT INFORMATION AND CONCENTRATIONS The Company considers itself to be a single reportable operating segment which designs, develops, manufactures and markets similar proprietary semiconductor products, including intellectual property. In reaching this conclusion, management considers the definition of the chief operating decision maker (‘‘CODM’’), how the business is defined by the CODM, the nature of the information provided to the CODM and how that information is used to make operating decisions, allocate resources and assess performance. The Company’s CODM is the president and chief executive officer. The results of operations provided to and analyzed by the CODM are at the consolidated level and accordingly, key resource decisions and assessment of performance is performed at the consolidated level. The Company assesses its determination of operating segments at least annually. - Page 122 - 122 GEOGRAPHIC INFORMATION Annual Report Net revenue by geographic area presented based upon the country of destination are as follows (in millions): United States Other Americas Total Americas China Taiwan South Korea Other Asia-Pacific Total Asia-Pacific Europe, Middle East and Africa Total Fiscal Years Ended September 30, 2016 October 2, 2015 October 3, 2014 $ $ 63.3 28.8 92.1 $ 66.8 33.0 99.8 2,324.6 474.2 94.8 252.2 3,145.8 51.1 2,249.2 506.9 100.0 249.7 3,105.8 52.8 $ 3,289.0 $ 3,258.4 $ 47.5 25.5 73.0 1,574.4 322.2 107.4 166.9 2,170.9 47.6 2,291.5 The Company’s revenues by geography do not necessarily correlate to end market demand by region. For example, the Company’s revenues reflected in the China line item above include sales of products to a company that is not headquartered in China but that manufactures its products in China for sale to consumers throughout the world, including in the United States, Europe, China, and other markets in Asia. The Company’s revenue to external customers is generated principally from the sale of semiconductor products that facilitate various wireless communication applications. Accordingly, the Company considers its product offerings to be similar in nature and therefore not segregated for reporting purposes. Net property, plant and equipment balances, based on the physical locations within the indicated geographic areas are as follows (in millions): Mexico Singapore United States Japan Rest of world CONCENTRATIONS September 30, 2016 As of October 2, 2015 October 3, 2014 $ $ $ 355.9 180.1 140.5 121.6 8.2 $ 406.1 89.9 148.8 173.8 7.8 806.3 $ 826.4 $ 290.1 60.8 138.7 58.8 7.5 555.9 Financial instruments that potentially subject the Company to concentration of credit risk consist principally of trade accounts receivable. Trade accounts receivable are primarily derived from sales to manufacturers of communications and consumer products and electronic component distributors. Ongoing credit evaluations of customers’ financial condition are performed and collateral, such as letters of credit and bank guarantees, are required whenever deemed necessary. In fiscal 2016 and fiscal 2014, Foxconn Technology Group (together with its affiliates and other suppliers to a large OEM for use in multiple applications including smartphones, tablets, routers, desktop and notebook computers, - Page 123 - 123 Annual Report ‘‘Foxconn’’) and Samsung—each constituted more than ten percent of the Company’s net revenue. In fiscal 2015, Foxconn constituted more than ten percent of the Company’s net revenue. The Company’s greater than ten percent customers comprised the following percentages of net revenue: Company A Company B * Customer did not represent greater than ten percent of net revenue Fiscal Years Ended September 30, 2016 October 2, 2015 October 3, 2014 40% 10% 44% * 34% 10% At September 30, 2016, the Company’s three largest accounts receivable balances comprised 54% of aggregate gross accounts receivable. This concentration was 62% and 58% at October 2, 2015, and October 3, 2014, respectively. 17. QUARTERLY FINANCIAL DATA (UNAUDITED) Net income and earnings per share for the first fiscal quarter of 2016 include other income related to the receipt of the PMC merger termination fee as detailed in Note 3, Business Combinations, in these Notes to the Consolidated Financial Statements. The following table summarizes the quarterly and annual results (in millions, except per share data): Fiscal 2016 Net revenue Gross profit Net income Per share data (1) Net income, basic Net income, diluted Fiscal 2015 Net revenue Gross profit Net income Per share data (1) Net income, basic Net income, diluted First quarter Second quarter Third quarter Fourth quarter Fiscal year $ $ $ $ $ $ 926.8 472.1 355.3 1.87 1.82 805.5 373.0 195.2 1.03 1.01 $ $ $ $ $ $ 775.1 390.4 208.1 1.09 1.08 762.1 352.2 166.5 0.88 0.85 $ $ $ $ $ $ 751.7 378.3 185.0 0.98 0.97 810.0 393.1 207.4 1.09 1.06 $ $ $ $ $ $ 835.4 424.4 246.8 1.33 1.31 880.8 436.2 229.2 1.21 1.18 $ $ $ $ $ $ 3,289.0 1,665.2 995.2 5.27 5.18 3,258.4 1,554.5 798.3 4.21 4.10 (1) Earnings per share calculations for each of the quarters are based on the weighted average number of shares outstanding and included common stock equivalents in each period. Therefore, the sums of the quarters do not necessarily equal the full year earnings per share. - Page 124 - 124 Annual Report 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 as of September 30, 2016 and October 2, 2015, and the related consolidated statements of operations, comprehensive income, cash flows, and stockholders’ equity for each of the years in the three-year period ended September 30, 2016. In connection with our audits of the consolidated financial statements, we also have audited the financial statement schedule listed in Item 15 of the 2016 Form 10-K. We also have audited Skyworks Solutions, Inc.’s internal control over financial reporting as of September 30, 2016, based on criteria established in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Skyworks Solutions, Inc.’s management is responsible for these consolidated financial statements and financial statement schedule, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Annual Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedule, and an opinion on the Company’s internal control over financial reporting 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 audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the consolidated financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions. A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Skyworks Solutions, Inc. and subsidiaries as of September 30, 2016 and October 2, 2015, and the results of its operations and its cash flows for each of the years in the three-year period ended September 30, 2016, in conformity with U.S. generally accepted accounting principles. Also in our opinion, the related financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein. Also in our opinion, Skyworks Solutions, Inc. maintained, in all material respects, effective internal control over financial reporting as of September 30, 2016, based on criteria established in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). /s/ KPMG LLP Boston, Massachusetts November 22, 2016 - Page 125 - 125 Annual Report 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 MARKET INFORMATION AND DIVIDENDS Our common stock is traded on the NASDAQ Global Select Market under the symbol ‘‘SWKS’’. The following table sets forth the range of high and low closing prices for our common stock, as reported by NASDAQ, and the cash dividends announced per share of common stock for the periods indicated. First quarter Second quarter Third quarter Fourth quarter Fiscal Years Ended September 30, 2016 October 2, 2015 High Low Dividends High Low Dividends $ $ $ $ 87.92 78.18 78.21 77.02 $ $ $ $ 74.63 55.85 58.01 58.82 $ $ $ $ 0.26 0.26 0.26 0.28 $ $ $ $ 74.49 102.05 110.92 103.97 $ $ $ $ 45.32 69.83 92.25 79.07 $ $ $ $ 0.13 0.13 0.13 0.26 The number of stockholders of record of our common stock as of November 14, 2016, was 19,882. On November 3, 2016, the Board of Directors declared a cash dividend of $0.28 per share of common stock, payable on December 8, 2016, to stockholders of record as of November 17, 2016. We intend to continue to pay quarterly dividends subject to capital availability and our view that cash dividends are in the best interests of our stockholders. Future dividends may be affected by, among other items, our views on potential future capital requirements, including those relating to research and development, creation and expansion of sales distribution channels and investments and acquisitions, legal risks, stock repurchase programs, debt issuance, changes in federal and state income tax law and changes to our business model. ISSUER PURCHASES OF EQUITY SECURITIES The following table provides information regarding repurchases of common stock made during the fiscal quarter ended September 30, 2016: Period 7/02/16-7/29/16 7/30/16-8/26/16 8/27/16-9/30/16 Total (1) Total Number of Shares Purchased Average Price Paid per Share 751,023(2)(3) 1,601,858(2)(4) 652,146(2)(5) $ $ $ 3,005,027 65.09 66.15 67.62 Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs(1) Maximum Number (or Approximately Dollar Value) of Shares that May Yet Be Purchased Under the Plans or Programs(1) 750,000 1,600,732 650,000 3,000,732 $ $ $ 351.2 million 245.3 million 201.4 million The stock repurchase program approved by the Board of Directors on July 19, 2016, authorizes the repurchase of up to $400.0 million of our common stock from time to time on the open market or in privately negotiated transactions as - Page 126 - 126 Annual Report permitted by securities laws and other legal requirements. The share repurchase program is scheduled to expire on July 19, 2018. Represents shares repurchased by us at the fair market value of the common stock as of the applicable purchase date, in connection with the satisfaction of tax withholding obligations under restricted stock agreements. 750,000 shares were repurchased at an average price of $65.09 per share as part of our stock repurchase program and 1,023 shares were withheld for tax obligations under restricted stock agreements with an average price of $65.23. 1,600,732 shares were repurchased at an average price of $66.15 per share as part of our stock repurchase program and 1,126 shares were withheld for tax obligations under restricted stock agreements with an average price of $68.72. 650,000 shares were repurchased at an average price of $67.59 per share as part of our stock repurchase program and 2,146 shares were withheld for tax obligations under restricted stock agreements with an average price of $75.65. (2) (3) (4) (5) - Page 127 - 127 Annual Report Comparative Stock Performance Graph The following graph shows the change in Skyworks’ cumulative total stockholder return for the last five fiscal 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 on September 30, 2011, and shows a ‘‘Total Return’’ that assumes reinvestment of dividends, if any, and is based on market capitalization at the beginning of each period. Comparison of Cumulative Five-Year Total Return 500 400 S R A L L O D 300 200 100 0 9/30/11 Skyworks Solutions, Inc. S&P 500 Index S&P 500 Semiconductors 9/28/12 9/27/13 10/3/14 10/2/15 9/30/16 Years Ending 17MAR201717501252 Total Return to Shareholders (Includes reinvestment of dividends) ANNUAL RETURN PERCENTAGE Company / Index Skyworks Solutions, Inc. S&P 500 Index S&P 500 Semiconductors INDEXED RETURNS Company / Index Skyworks Solutions, Inc. S&P 500 Index S&P 500 Semiconductors Years Ending 9/28/12 9/27/13 10/3/14 10/2/15 9/30/16 31.18 30.20 9.03 5.14 20.07 19.35 124.12 18.93 39.19 53.35 1.23 (1.62) (7.95) 13.56 36.62 Base Period 9/30/11 9/28/12 9/27/13 10/3/14 10/2/15 9/30/16 Years Ending 100 100 100 131.18 130.20 109.03 137.92 156.33 130.12 309.10 185.93 181.12 474.02 188.21 178.19 436.35 213.73 243.44 128 - Page 128 - | Executive Management Liam K. Griffin President, Chief Executive Officer and Director Carlos S. Bori Vice President, Sales and Marketing Peter L. Gammel Chief Technology Officer Laura A. Gasparini Vice President, Human Resources Reza Kasnavi Vice President and General Manager, Open Market Platforms Joel R. King Vice President and General Manager, Advanced Mobile Solutions Steven C. Machuga Vice President, Worldwide Operations Thomas S. Schiller Vice President, Strategy and Corporate Development Kris Sennesael Senior Vice President and Chief Financial Officer David Stasey Vice President and General Manager, Diversified Analog Solutions Robert J. Terry Vice President, General Counsel and Secretary | Transfer Agent and Registrar American Stock Transfer & Trust Company 6201 15th Avenue Brooklyn, NY 11219 (800) 937-5449 (United States and Canada) (718) 921-8124 (outside United States) www.amstock.com Our transfer agent can help you with a variety of stockholder related services including change of address, lost stock certificates, stock transfers, account status and other administrative matters. | Investor Relations You can contact Skyworks’ Investor Relations team directly to order an Investor’s Kit or to ask investment-oriented questions about Skyworks at: Investor Relations Skyworks Solutions, Inc. 5221 California Ave. Irvine, CA 92617 (949) 231-3433 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. | Board of Directors David J. Aldrich Chairman of the Board and Executive Chairman Skyworks Solutions, Inc. Kevin L. Beebe President and Chief Executive Officer 2BPartners, LLC Timothy R. Furey Chief Executive Officer MarketBridge Liam K. Griffin President and Chief Executive Officer Skyworks Solutions, Inc. Balakrishnan S. Iyer Retired Senior Vice President and Chief Financial Officer Conexant Systems, Inc. Christine King Retired Executive Chairman QLogic Corporation David P. McGlade Executive Chairman Intelsat S.A. David J. McLachlan Lead Independent Director, Skyworks Solutions, Inc. Retired Chief Financial Officer and Senior Advisor to Chairman and Chief Executive Officer, Genzyme Corporation Robert A. Schriesheim Retired Executive Vice President and Chief Financial Officer Sears Holdings | Annual Meeting The annual meeting of stockholders will be held on May 10, 2017, in Woburn, Massachusetts. | Common Stock Skyworks common stock is traded on the NASDAQ Global Select Market© under the symbol SWKS. | Independent Registered Public Accountants KPMG LLP Boston, Massachusetts | Corporate Headquarters Skyworks Solutions, Inc. 20 Sylvan Road Woburn, MA 01801 (781) 376-3000 www.skyworksinc.com ------------------ . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ---------------- 0 SKYWORKS SOLUTIONS, INC. Proxy for Annual Meeting of Stockholders May 10, 2017 SOLICITED BY THE BOARD OF DIRECTORS The undersigned hereby appoints Liam K. Griffin and Robert J. Terry, and each of them singly, proxies, with full power of substitution to vote all shares of stock of Skyworks Solutions, Inc. (the "Company"), that the undersigned is entitled to vote at the Annual Meeting of Stockholders of Skyworks Solutions, Inc., to be held at 2:00 p.m., local time, on May 10, 2017, at the Hilton Boston/Woburn, 2 Forbes Road, Woburn, Massachusetts, or at any adjournment or postponement thereof, upon matters set forth in the Notice of Annual Meeting of Stockholders and 2017 Proxy Statement, a copy of which has been received by the undersigned. The proxies are further authorized to vote, in their discretion, upon such other business as may properly come before the meeting or any adjournment or postponement thereof. OUR BOARD OF DIRECTORS ENCOURAGES STOCKHOLDERS TO ATTEND THE ANNUAL MEETING. WHETHER OR NOT YOU PLAN TO ATTEND, YOU ARE URGED TO SUBMIT A PROXY PROMPTLY IN ONE OF THE FOLLOWING WAYS: (A) BY COMPLETING, SIGNING, AND DATING THE ACCOMPANYING PROXY CARD AND RETURNING IT IN THE POSTAGE-PREPAID ENVELOPE ENCLOSED FOR THAT PURPOSE; (B) BY COMPLETING AND SUBMITTING YOUR PROXY USING THE TOLL-FREE TELEPHONE NUMBER LISTED ON THE OTHER SIDE OF THIS PROXY CARD; OR (C) BY COMPLETING AND SUBMITTING YOUR PROXY VIA THE INTERNET BY VISITING THE WEBSITE ADDRESS LISTED ON THE OTHER SIDE OF THIS PROXY CARD. A PROMPT RESPONSE WILL GREATLY FACILITATE ARRANGEMENTS FOR THE MEETING AND YOUR COOPERATION WILL BE APPRECIATED. 1.1 (Continued and to be signed on the reverse side) 14475 SAMPLE ANNUAL MEETING OF STOCKHOLDERS OF SKYWORKS SOLUTIONS, INC. May 10, 2017 GO GREEN e-Consent makes it easy to go paperless. With e-Consent, you can quickly access your proxy materials, statements and other eligible documents online, while reducing costs, clutter and paper waste. Enroll today via www.astfinancial.com to enjoy online access. NOTICE OF INTERNET AVAILABILITY OF PROXY MATERIALS: The Notice of Meeting, Proxy Statement, and sample proxy card are available at www.skyworksinc.com/annualreport Please sign, date, and mail your proxy card in the postage-prepaid envelope provided as soon as possible. Please detach along perforated line and mail in the envelope provided. 00003333333333340100 2 051017 THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE ELECTION OF EACH OF THE NOMINEES FOR DIRECTOR NAMED IN PROPOSAL 1, "FOR" PROPOSALS 2 AND 3, AND FOR “1 YEAR” ON PROPOSAL 4. PLEASE SIGN, DATE, AND RETURN PROMPTLY IN THE ENCLOSED ENVELOPE. PLEASE MARK YOUR VOTE IN BLUE OR BLACK INK AS SHOWN HERE x THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED BY THE UNDERSIGNED STOCKHOLDER(S). IF NO DIRECTION IS GIVEN, THIS PROXY WILL BE VOTED "FOR" THE ELECTION OF EACH OF THE NOMINEES FOR DIRECTOR NAMED IN PROPOSAL 1, "FOR" PROPOSALS 2 AND 3, AND FOR “1 YEAR” ON PROPOSAL 4. THE PROXIES WILL VOTE IN THEIR DISCRETION ON ANY OTHER BUSINESS AS MAY PROPERLY COME BEFORE THE MEETING AND ANY ADJOURNMENT OR POSTPONEMENT THEREOF. ELECTRONIC ACCESS TO FUTURE DOCUMENTS If you would like to receive future shareholder communications over the Internet exclusively, and no longer receive any material by mail, please visit http://www.astfinancial.com. Click on Shareholder Account Access to enroll. Please enter your account number and tax identification number to log in, then select Receive Company Mailings via E-Mail and provide your e-mail address. 1. To elect the following nine individuals nominated to serve as directors of the Company with terms expiring at the next annual meeting of stockholders. FOR AGAINST ABSTAIN David J. Aldrich Kevin L. Beebe Timothy R. Furey Liam K. Griffin Balakrishnan S. Iyer Christine King David P. McGlade David J. McLachlan Robert A. Schriesheim 2. To ratify the selection by the Company’s Audit Committee of KPMG LLP as the independent registered public accounting firm for the Company for fiscal year 2017. 3. To approve, on an advisory basis, the compensation of the Company’s named executive officers, as described in the Company's Proxy Statement. 1 YEAR 2 YEARS 3 YEARS ABSTAIN 4. To approve, on an advisory basis, the frequency of future advisory votes on the compensation of the Company’s named executive officers. To change the address on your account, please check the box at right and indicate your new address in the address space above. Please note that changes to the registered name(s) on the account may not be submitted via this method. I/We will attend the annual meeting. Signature of Stockholder Date: Signature of Stockholder Date: Note: Please sign exactly as your name or names appear on this Proxy. When shares are held jointly, each holder should sign. When signing as executor, administrator, attorney, trustee, or guardian, please give full title as such. If the signer is a corporation, partnership, limited liability company, or other entity, please sign full entity name by duly authorized officer, giving full title as such. SAMPLE ANNUAL MEETING OF STOCKHOLDERS OF SKYWORKS SOLUTIONS, INC. May 10, 2017 PROXY VOTING INSTRUCTIONS INTERNET - Access “www.voteproxy.com” and follow the on-screen instructions or scan the QR code on the right with your smartphone. Have your proxy card available when you access the website. TELEPHONE - Call toll-free 1-800-PROXIES (1-800-776-9437) in the United States or 1-718-921-8500 from foreign countries from any touch-tone telephone and follow the instructions. Have your proxy card available when you call. Vote online or by phone until 11:59 PM EDT the day before the meeting. MAIL - Sign, date, and mail your proxy card in the postage-prepaid envelope provided as soon as possible. IN PERSON - You may vote your shares in person by attending the Annual Meeting. GO GREEN - e-Consent makes it easy to go paperless. With e-Consent, you can quickly access your proxy materials, statements and other eligible documents online, while reducing costs, clutter and paper waste. Enroll today via www.astfinancial.com to enjoy online access. COMPANY NUMBER ACCOUNT NUMBER NOTICE OF INTERNET AVAILABILITY OF PROXY MATERIALS: The Notice of Meeting, Proxy Statement, and sample proxy card are available at www.skyworksinc.com/annualreport. Please detach along perforated line and mail in the envelope provided IF you are not voting via telephone or the Internet. 00003333333333340100 2 051017 THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE ELECTION OF EACH OF THE NOMINEES FOR DIRECTOR NAMED IN PROPOSAL 1, "FOR" PROPOSALS 2 AND 3, AND FOR “1 YEAR” ON PROPOSAL 4. PLEASE SIGN, DATE, AND RETURN PROMPTLY IN THE ENCLOSED ENVELOPE. PLEASE MARK YOUR VOTE IN BLUE OR BLACK INK AS SHOWN HERE x THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED BY THE UNDERSIGNED STOCKHOLDER(S). IF NO DIRECTION IS GIVEN, THIS PROXY WILL BE VOTED "FOR" THE ELECTION OF EACH OF THE NOMINEES FOR DIRECTOR NAMED IN PROPOSAL 1, "FOR" PROPOSALS 2 AND 3, AND FOR “1 YEAR” ON PROPOSAL 4. THE PROXIES WILL VOTE IN THEIR DISCRETION ON ANY OTHER BUSINESS AS MAY PROPERLY COME BEFORE THE MEETING AND ANY ADJOURNMENT OR POSTPONEMENT THEREOF. ELECTRONIC ACCESS TO FUTURE DOCUMENTS If you would like to receive future shareholder communications over the Internet exclusively, and no longer receive any material by mail, please visit http://www.astfinancial.com. Click on Shareholder Account Access to enroll. Please enter your account number and tax identification number to log in, then select Receive Company Mailings via E-Mail and provide your e-mail address. 1. To elect the following nine individuals nominated to serve as directors of the Company with terms expiring at the next annual meeting of stockholders. FOR AGAINST ABSTAIN David J. Aldrich Kevin L. Beebe Timothy R. Furey Liam K. Griffin Balakrishnan S. Iyer Christine King David P. McGlade David J. McLachlan Robert A. Schriesheim JOHN SMITH 1234 MAIN STREET APT. 203 NEW YORK, NY 10038 2. To ratify the selection by the Company’s Audit Committee of KPMG LLP as the independent registered public accounting firm for the Company for fiscal year 2017. 3. To approve, on an advisory basis, the compensation of the Company’s named executive officers, as described in the Company's Proxy Statement. 1 YEAR 2 YEARS 3 YEARS ABSTAIN 4. To approve, on an advisory basis, the frequency of future advisory votes on the compensation of the Company’s named executive officers. To change the address on your account, please check the box at right and indicate your new address in the address space above. Please note that changes to the registered name(s) on the account may not be submitted via this method. I/We will attend the annual meeting. Signature of Stockholder Date: Signature of Stockholder Date: Note: Please sign exactly as your name or names appear on this Proxy. When shares are held jointly, each holder should sign. When signing as executor, administrator, attorney, trustee, or guardian, please give full title as such. If the signer is a corporation, partnership, limited liability company, or other entity, please sign full entity name by duly authorized officer, giving full title as such. SAMPLE www.skyworksinc.com