Skyworks Reports Q4 and Full Year FY19 Results

DISCUSSION REGARDING THE USE OF NON-GAAP FINANCIAL MEASURES

Our earnings release contains 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.

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 acquisition-related intangibles, settlements, gains, losses and impairments, restructuring-related charges, certain deferred executive compensation 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, acquisition-related expenses, amortization of acquisition-related intangibles, settlements, gains, losses and impairments, and restructuring-related charges. We calculate non-GAAP operating income by excluding from GAAP operating income, share-based compensation expense, acquisition-related expenses, amortization of acquisition-related intangibles, settlements, gains, losses and impairments, restructuring-related charges, 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 acquisition-related intangibles, settlements, gains, losses and impairments, restructuring-related charges, certain deferred executive compensation, 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, and acquisition-related expenses 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 necessarily reflect the performance of our ongoing operations for the period in which such charges or reversals are incurred.

Restructuring-Related Charges - these charges have no direct correlation to our future business operations and including such charges or reversals does not necessarily reflect the performance of our ongoing operations for the period in which such charges or reversals are incurred.

Settlements, Gains, Losses and Impairments - because such settlements, gains, losses and impairments (1) are not considered by management in making operating decisions, (2) are infrequent in nature, (3) are generally not directly controlled by management, (4) do not necessarily reflect the performance of our ongoing operations for the period in which such charges are recognized and/or (5) can vary significantly in amount between companies and make comparisons less reliable.

Deferred Executive Compensation - including charges related to any contingent obligation pursuant to an executive severance agreement, because that expense has no direct correlation with our recurring business operations and including such expenses or reversals does not accurately reflect the compensation expense for the period in which incurred.

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.

Our earnings release contains forward-looking estimates of non-GAAP diluted earnings per share for the first quarter of our 2020 fiscal year (“Q1 2020”). We provide this non-GAAP measure to investors on a prospective basis for the same reasons (set forth above) that we provide it to investors on a historical basis. We are unable to provide a reconciliation of our forward-looking estimate of Q1 2020 GAAP diluted earnings per share to a forward-looking estimate of Q1 2020 non-GAAP diluted earnings per share because certain information needed to make a reasonable forward-looking estimate of GAAP diluted earnings per share for Q1 2020 (other than estimated share-based compensation expense of $0.10 to $0.14 per diluted share, estimated amortization of intangibles of $0.05 to $0.07 per diluted share and certain tax items of $0.00 to $0.05 per diluted share) is difficult to predict and estimate and is often dependent on future events that may be uncertain or outside of our control. Such events may include unanticipated changes in our GAAP effective tax rate, unanticipated one-time charges related to asset impairments (fixed assets, inventory, intangibles or goodwill), unanticipated acquisition-related expenses, unanticipated settlements, gains, losses and impairments and other unanticipated non-recurring items not reflective of ongoing operations. The probable significance of these unknown items, in the aggregate, is estimated to be in the range of $0.00 to $0.08 in quarterly earnings per diluted share on a GAAP basis. Our forward-looking estimates of both GAAP and non-GAAP measures of our financial performance may differ materially from our actual results and should not be relied upon as statements of fact.

[a]

These charges represent expense recognized in accordance with ASC 718 - Compensation, Stock Compensation. For the three months ended September 27, 2019, approximately $4.8 million, $9.7 million and $7.0 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, 2019, approximately $13.0 million, $41.6 million and $25.5 million were included in cost of goods sold, research and development expense and selling, general and administrative expense, respectively.

 

For the three months ended September 28, 2018, approximately $2.8 million, $10.4 million and $8.3 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 28, 2018, approximately $14.4 million, $42.6 million and $50.8 million were included in cost of goods sold, research and development expense and selling, general and administrative expense, respectively.

[b]

The acquisition-related expenses recognized during the fiscal year ended September 27, 2019, include a $3.3 million charge primarily associated with acquisitions completed or contemplated during the period and a $1.9 million charge to cost of goods sold related to the fair market value step-up associated with the sale of acquired inventory, partially offset by a $3.1 million benefit for a fair value adjustment to reduce the contingent consideration accrued.

 

The acquisition-related expenses recognized during the three months ended September 28, 2018, include a $3.8 million charge to general and administrative expenses primarily associated with acquisitions completed or contemplated during the period and a $4.5 million charge to cost of goods sold related to the sale of acquired inventory, partially offset by a $4.0 million benefit for fair value adjustments to reduce contingent considerations. The acquisition-related expenses recognized during the fiscal year ended September 28, 2018, include a $4.7 million charge to general and administrative expenses primarily associated with acquisitions completed or contemplated during the period and a $4.5 million charge to cost of goods sold related to the sale of acquired inventory, partially offset by an $11.8 million benefit for fair value adjustments to reduce contingent considerations.

[c]

During the three months and fiscal year ended September 27, 2019, the Company incurred $5.9 million and $21.1 million, respectively, in amortization of acquisition-related intangibles included in cost of goods sold and $4.0 million and $22.6 million, respectively, in amortization of acquisition-related intangibles included in selling, general and administrative expense.

 

During the three months and fiscal year ended September 28, 2018, the Company incurred $2.3 million in amortization of acquisition-related intangibles included in cost of goods sold and $6.4 million and $18.4 million, respectively, in amortization of acquisition-related intangibles included in selling, general and administrative expense.

[d]

During the three months and fiscal year ended September 27, 2019, the Company incurred $12.8 million and $83.2 million in non-recurring charges, respectively. During the three months ended September 27, 2019, the $12.8 million in charges primarily related to losses on the disposition of assets. During the fiscal year ended September 27, 2019, the $83.2 million in charges included $70.4 million consisting primarily of inventory-related charges due to lower expected demand as a result of the U.S. Bureau of Industry and Security of the U.S. Department of Commerce placing Huawei Technologies Co., Ltd. and certain of its affiliates on the Bureau’s Entity List.

 

During the three months and fiscal year ended September 28, 2018, the Company recognized $2.2 million in non-recurring charges and a $2.8 million impairment charge included in cost of goods sold.

[e]

During the three months and fiscal year ended September 27, 2019, the Company incurred $5.5 million and $7.3 million, respectively, in restructuring charges primarily related to employee termination benefits and a charge on a leased facility resulting from restructuring plans that were implemented during the period.

 

During the three months and fiscal year ended September 28, 2018, the Company recognized a $0.2 million restructuring benefit and a $0.8 million restructuring charge, respectively, related to a leased facility included in a previously announced restructuring plan.

[f]

These amounts represent the changes in the estimated amount to be paid for executive severance agreements.

[g]

During the three months and fiscal year ended September 27, 2019 and September 28, 2018, these amounts primarily represent certain deferred tax charges and benefits that do not result in a current tax payment or tax refund as well as other adjustments, including but not limited to, tax items unrelated to the current fiscal year or that are not indicative of our ongoing business operations.

 

Included in these amounts for the fiscal year ended September 28, 2018, is a one-time charge of $224.6 million related to the mandatory deemed repatriation tax on foreign earnings and a one-time charge of $18.3 million related to the revaluation of deferred tax assets and liabilities related to tax reform.

SKYWORKS SOLUTIONS, INC.

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

 

 

 

 

 

 

 

(in millions)

 

September 27,
2019

 

September 28,
2018

Assets

 

 

 

 

Cash, cash equivalents and marketable securities

 

$

1,082.2

 

 

$

1,050.2

 

Accounts receivable, net

 

465.3

 

 

655.8

 

Inventory

 

609.7

 

 

490.2

 

Property, plant and equipment, net

 

1,205.6

 

 

1,140.9

 

Goodwill and intangible assets, net

 

1,297.7

 

 

1,333.5

 

Other assets

 

179.1

 

 

158.3

 

Total assets

 

$

4,839.6

 

 

$

4,828.9

 

 

 

 

 

 

Liabilities and Equity

 

 

 

 

Accounts payable

 

$

190.5

 

 

$

229.9

 

Accrued and other liabilities

 

526.8

 

 

502.0

 

Stockholders’ equity

 

4,122.3

 

 

4,097.0

 

Total liabilities and equity

 

$

4,839.6

 

 

$

4,828.9

 

SKYWORKS SOLUTIONS, INC.

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Twelve Months Ended

(in millions)

September 27,
2019

 

September 28,
2018

 

September 27,
2019

 

September 28,
2018

Cash flow from operating activities

 

 

 

 

 

 

 

 

 

Net income

$

210.6

 

 

$

285.5

 

 

$

853.6

 

 

$

918.4

 

 

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

 

 

 

 

Share-based compensation

21.5

 

 

21.5

 

 

80.1

 

 

107.8

 

 

 

Depreciation

79.5

 

 

73.6

 

 

314.9

 

 

272.5

 

 

 

Amortization of intangible assets, including inventory step-up

13.4

 

 

10.2

 

 

56.7

 

 

26.7

 

 

 

Deferred income taxes

6.0

 

 

(8.3

)

 

(6.1

)

 

27.3

 

 

 

Changes in fair value of contingent consideration

 

 

(4.1

)

 

(3.1

)

 

(11.9

)

 

 

Other, net

16.7

 

 

(1.0

)

 

16.8

 

 

(0.7

)

 

Changes in operating assets:

 

 

 

 

 

 

 

 

 

Receivables, net

92.5

 

 

(180.1

)

 

190.5

 

 

(193.8

)

 

 

Inventory

(29.9

)

 

22.1

 

 

(119.6

)

 

11.9

 

 

 

Other current and long-term assets

27.4

 

 

33.6

 

 

(16.7

)

 

(12.2

)

 

 

Accounts payable

(8.5

)

 

(69.7

)

 

(33.0

)

 

(126.0

)

 

 

Other current and long-term liabilities

(12.2

)

 

24.3

 

 

33.3

 

 

240.6

 

 

 

Net cash provided by operations

417.0

 

 

207.6

 

 

1,367.4

 

 

1,260.6

 

Cash flow from investing activities

 

 

 

 

 

 

 

 

 

Capital expenditures

(84.4

)

 

(112.3

)

 

(398.4

)

 

(422.3

)

 

 

Purchased intangibles

(13.2

)

 

 

 

(25.0

)

 

(8.6

)

 

 

Purchases of marketable securities

(116.8

)

 

(160.5

)

 

(360.5

)

 

(683.7

)

 

 

Sales and maturities of marketable securities

112.6

 

 

335.6

 

 

447.0

 

 

368.2

 

 

 

Payments for acquisitions, net of cash

 

 

(404.0

)

 

 

 

(404.0

)

 

 

Net cash used in investing activities

(101.8

)

 

(341.2

)

 

(336.9

)

 

(1,150.4

)

Cash flow from financing activities

 

 

 

 

 

 

 

 

 

Repurchase of common stock — payroll tax withholdings on equity awards

(1.1

)

 

(0.5

)

 

(22.7

)

 

(48.0

)

 

 

Repurchase of common stock — stock repurchase program

(146.3

)

 

(235.0

)

 

(657.6

)

 

(759.5

)

 

 

Dividends paid

(75.1

)

 

(68.0

)

 

(273.9

)

 

(243.2

)

 

 

Net proceeds from exercise of stock options

7.4

 

 

4.0

 

 

22.0

 

 

38.8

 

 

 

Proceeds from employee stock purchase plan

8.4

 

 

8.3

 

 

19.7

 

 

18.2

 

 

 

Net cash used in financing activities

(206.7

)

 

(291.2

)

 

(912.5

)

 

(993.7

)

 

 

Net increase (decrease) in cash and cash equivalents

108.5

 

 

(424.8

)

 

118.0

 

 

(883.5

)

 

 

Cash and cash equivalents at beginning of period

742.8

 

 

1,158.1

 

 

733.3

 

 

1,616.8

 

 

 

Cash and cash equivalents at end of period

$

851.3

 

 

$

733.3

 

 

$

851.3

 

 

$

733.3

 


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