Skyworks Solutions, Inc. — Q1 Fiscal 2012 Form 10-Q
Reporting period: The 13-week quarter ended December 30, 2011; comparison is with the 13 weeks ended December 31, 2010. Skyworks designs and sells analog and mixed-signal semiconductors for communications and other markets.
Financial performance
| Metric | Q1 FY2012 | Prior-year quarter | Change / context |
|---|---|---|---|
| Revenue | $393.7 million | $335.1 million | Up 17.5% |
| Gross profit / margin | $171.9 million / 43.6% | $148.5 million / 44.3% | Gross profit up 15.7%; margin down 0.7 percentage points |
| Operating income / margin | $75.0 million / 19.0% | $77.3 million / 23.1% | Operating income down 3.1% |
| Net income | $57.1 million | $60.9 million | Down 6.1% |
| Diluted EPS | $0.30 | $0.32 | Down 6.3% |
| Operating cash flow | $77.2 million | $64.8 million | Up $12.4 million |
| Cash and cash equivalents | $445.6 million | $410.1 million at September 30, 2011 | Quarter-end balance; restricted cash was an additional $0.9 million |
Operating expenses rose to $96.9 million from $71.2 million, notably reflecting acquisition-related costs ($7.2 million versus $0.4 million) and intangible amortization ($6.3 million versus $1.6 million). Research and development expense increased 21.8%, mainly due to added headcount and product-development activity. The effective tax rate was 23.5%, compared with 20.7%; the prior-year quarter included $4.4 million of retroactive federal R&D tax credits.
Balance sheet, cash flow and capital allocation
- Total assets were $1.915 billion and stockholders’ equity was $1.664 billion at December 30, 2011. Current assets were $856.3 million and current liabilities were $212.5 million.
- Reported short-term debt was $17.1 million, representing the net carrying amount of convertible notes. The company retired the remaining notes after quarter-end, paying $32.8 million including premium. Quarter cash flows included $14.9 million to retire $9.4 million principal.
- Investing activities used $6.4 million, primarily for capital expenditures, versus $37.0 million in the prior-year quarter, when capital spending and an acquisition contributed to outflows.
- Financing activities used $35.3 million. The company repurchased 750,000 shares for approximately $12.4 million under its authorization; $117.6 million remained available at quarter-end. It also used $15.4 million for payroll tax withholding on equity awards.
- Inventory declined to $177.5 million from $198.2 million at fiscal year-end; receivables increased to $199.0 million from $177.9 million.
Material developments, outlook and risks
- Management attributed revenue growth to prior-year acquisitions and growth in the core business. It cited product mix and higher share-based compensation as pressures on gross margin, partly offset by higher factory utilization and contributions from intellectual-property licensing or sales.
- On January 10, 2012, after quarter-end, Skyworks acquired Advanced Analogic Technologies, Inc. (AATI) for approximately $200 million in cash, net of cash acquired. The acquisition expands its analog product portfolio. The quarter’s statements do not include AATI’s results, and purchase accounting disclosures were incomplete due to timing.
- Management expected existing liquidity and operating cash generation to fund anticipated requirements for at least the next 12 months, including research and development, capital spending, debt obligations, contingent consideration and working capital. This is not a quantified revenue or earnings forecast; the filing provides no clear numerical guidance for future results.
- Contingent consideration for prior business combinations was a $59.4 million Level 3 liability. Auction-rate securities had a $2.3 million carrying value against $3.2 million par value; the company reported no impairment indicators for goodwill or other long-lived assets during the quarter.
- The company disclosed consolidated shareholder litigation related to the AATI merger, alleging fiduciary-duty breaches and seeking, among other remedies, damages or transaction-related relief. Skyworks considered the claims without merit and intended to defend them. The filing also notes general intellectual-property litigation risks, including potential injunctive relief.
- Unrecognized tax benefits increased to $36.0 million; $23.9 million would affect the effective tax rate if recognized. The company maintained a $39.4 million valuation allowance against deferred tax assets. Management reported no material off-balance-sheet arrangements and stated disclosure controls were effective.
Important facts for investors to verify
- How the AATI acquisition’s completed purchase accounting, integration costs, and subsequent results affect earnings, cash and contingent obligations.
- Whether revenue growth and core-business demand persist, and whether gross-margin pressure from product mix and compensation costs continues.
- The final cash cost and balance-sheet effects of retiring the convertible notes after quarter-end.
- The status and potential financial or operational effects of the AATI shareholder litigation and the company’s tax reserves and deferred-tax-asset valuation allowance.
- Whether operating cash flow remains strong as receivables, inventory, investment needs and acquisition-related spending evolve.