Skyworks Solutions - 10-Q quarterly report FY2010 Q2

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. þ Yes o No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).o Yes o No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). o Yes þ No

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

SKYWORKS SOLUTIONS, INC.

QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED APRIL 2, 2010

TABLE OF CONTENTS

(Unaudited, in thousands, except per share amounts)

The accompanying notes are an integral part of these consolidated financial statements.

(Unaudited, in thousands, except per share amounts)

The accompanying notes are an integral part of these consolidated financial statements.

(Unaudited, in thousands)

The accompanying notes are an integral part of these consolidated financial statements.

Skyworks Solutions, Inc. together with its consolidated subsidiaries, (“Skyworks” or the “Company”) is an innovator of high reliability analog and mixed signal semiconductors. Leveraging core technologies, Skyworks offers diverse standard and custom linear products supporting automotive, broadband, cellular infrastructure, energy management, industrial, medical, military and cellular handset applications. The Company’s portfolio includes amplifiers, attenuators, detectors, diodes, directional couplers, front-end modules, hybrids, infrastructure RF subsystems, mixers/demodulators, phase shifters, PLLs/synthesizers/VCOs, power dividers/combiners, receivers, switches and technical ceramics.

The accompanying unaudited interim consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”) for interim financial reporting. Certain information and footnote disclosures, normally included in annual consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”), have been condensed or omitted pursuant to those rules and regulations. However, in the opinion of management, the financial information reflects all adjustments, consisting of adjustments of a normal recurring nature necessary to present fairly the financial position, results of operations, and cash flows of the Company for the periods presented. The results of operations for the three and six-month periods ended April 2, 2010 are not necessarily indicative of the results to be expected for the full year. This information should be read in conjunction with the Company’s financial statements and notes thereto contained in the Company’s Form 10-K for the fiscal year ended October 2, 2009 as filed with the SEC.

The Company evaluates its estimates on an ongoing basis using historical experience and other factors, including the current economic environment. The current volatility in the capital markets and the global economy has increased the uncertainty in our estimates, including our estimates impacting marketable securities and long-lived assets. Significant judgment is required in determining the fair value of marketable securities in inactive markets as well as determining when declines in fair value constitute an other-than-temporary impairment. In addition, significant judgment is required in determining whether a potential indicator of impairment of our long-lived assets exists and in estimating future cash flows for any necessary impairment tests. As future events unfold and their effects cannot be determined with precision, actual results could differ significantly from management’s estimates.

The Company’s fiscal year ends each year on the Friday closest to September 30. Fiscal 2010 consists of 52 weeks and ends on October 1, 2010. Fiscal 2009 consisted of 52 weeks and ended on October 2, 2009. The second quarters of fiscal 2010 and fiscal 2009 each consisted of 13 weeks and ended on April 2, 2010 and April 3, 2009, respectively.

The Company accounts for its investment in debt and equity securities in accordance with ASC 320-Investments-Debt and Equity Securities, and classifies them as “available for sale”. At April 2, 2010, these securities consisted of $3.2 million in auction rate securities (“ARS”), which are long-term debt instruments that provide liquidity through a Dutch auction process that resets interest rates each period. The uncertainties in the credit markets have caused the ARS to become illiquid, resulting in failed auctions.

During the fiscal year ended October 3, 2008, the Company performed a comprehensive valuation and discounted cash flow analysis on the ARS. The Company concluded the value of the ARS was $2.3 million, thus the carrying value of these securities was reduced by $0.9 million, reflecting this change in fair value. The Company assessed the decline in fair value to be temporary and recorded this reduction in shareholders’ equity in accumulated other comprehensive loss. The Company will continue to closely monitor the ARS and evaluate the appropriate accounting treatment in each reporting period. If in a future period, the Company determines that the impairment is other than temporary, the Company will impair the security to its fair value and charge the loss to earnings.

Conversely, if the fair value of the ARS increases in a future period the Company will write up the security to that fair value. The Company holds no other auction rate securities.

On October 4, 2008, the Company adopted ASC 820-Fair Value Measurements and Disclosure (“ASC 820”) for financial assets and liabilities measured at fair value. The Company adopted ASC 820-10-55 for non-financial assets and liabilities including intangible assets and reporting units measured at fair value in the first step of a goodwill impairment test on October 3, 2009.

In accordance with ASC 820, the Company groups its financial assets and liabilities measured at fair value on a recurring basis in three levels, based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value. These levels are:

The Company has cash equivalents classified as Level 1 and has no Level 2 assets. The Company’s ARS discussed in Note 2, Marketable Securities, are classified as Level 3 assets. There have been no transfers between Level 1, Level 2 or Level 3 assets during the three and six-month periods ended April 2, 2010. There have been no purchases, sales, issuances or settlements of the marketable securities classified as Level 3 assets during the three and six-month periods ended April 2, 2010.

The following table presents the balances of cash equivalents and marketable securities measured at fair value on a recurring basis as of April 2, 2010 (in thousands):

The Company’s non-financial assets, such as goodwill, intangible assets, and property and equipment are measured at fair value at the date of acquisition and when there is an indicator of impairment and recorded at fair value only when an impairment charge is recognized. There was no impairment recognized during the three or six-month periods ended April 2, 2010.

Inventories consist of the following (in thousands):

Property, plant and equipment consist of the following (in thousands):

Goodwill and intangible assets consist of the following (in thousands):

Amortization expense related to intangible assets are as follows (in thousands):

The changes in the gross carrying amount of goodwill and intangible assets are as follows (in thousands):

The Company tests its goodwill for impairment annually as of the first day of its fourth fiscal quarter and in interim periods if certain events occur indicating that the carrying value of goodwill may be impaired.

Annual amortization expense related to intangible assets for the next five years is expected to be as follows (in thousands):

Long-term debt consists of the following (in thousands):

On March 2, 2007, the Company issued $200.0 million aggregate principal amount of convertible subordinated notes (“2007 Convertible Notes”). The offering contained two tranches. The first tranche consisted of $100.0 million of 1.25% convertible subordinated notes due March 2010 (the “1.25% Notes”). The Company cash settled the remaining principal balance on the 1.25% Notes ($27.6 million) during the quarter ended April 2, 2010. The second tranche consisted of $100.0 million aggregate principal amount of 1.50% convertible subordinated notes due March 2012 (the “1.50% Notes”). The Company pays interest in cash semi-annually in arrears on March 1 and September 1 of each year. The conversion price of the 1.50% Notes is 105.0696 shares per $1,000 principal amount of notes to be redeemed, which is the equivalent of a conversion price of approximately $9.52 per share, plus accrued and unpaid interest, if any, to the conversion date. Holders of the 1.50% Notes may require the Company to repurchase the 2007 Convertible Notes upon a change in control of the Company.

On October 3, 2009, the Company adopted ASC 470-20 — Debt, Debt with Conversions and Other Options(“ASC 470-20”). ASC 470-20 requires the issuer of convertible debt instruments with cash settlement features to separately account for the liability and equity components of the convertible debt instrument and requires retrospective application to all periods presented in the financial statements to which it is applicable. ASC 470-20 applies to the Company’s 2007 Convertible Notes. Using a non-convertible borrowing rate of 6.86%, the Company estimated the fair value of the liability components of the 1.50% Notes to be $77.3 million. As of the issuance date, the difference between the fair value of the liability component of the 1.50% Notes and the corresponding aggregate principal amount of such notes which is equal to the fair value of the equity component of such notes ($22.7 million for the 1.50% Notes), was retrospectively recorded as a debt discount and as an increase to additional paid-in capital, net of tax. The discount of the liability component of the 1.50% Notes is being amortized over the respective terms of such notes.

During the six-month period ended April 2, 2010, the Company redeemed in full the aggregate principal amount of $32.6 million of the 1.25% Notes at a cash premium of $15.1 million. After applying ASC 470-20, the Company recorded a loss on the transactions of approximately $0.1 million (including commissions and deferred financing).

The following tables provide additional information about the Company’s 2007 Convertible Notes (in thousands):

The remaining period over which the unamortized discount will be amortized for the 1.50% Notes is twenty-three months. As of April 2, 2010, the if-converted value of the 2007 Convertible Notes exceeds its principal amount for the notes due on March 1, 2012 by approximately $29.5 million in the aggregate. As of April 2, 2010 and October 2, 2009, the shares underlying the remaining 2007 Convertible Notes were 4.9 million and 8.4 million, respectively.

The retrospective application of ASC 470-20 had the following effect on the Company’s Consolidated Statements of Operations for the three and six-month periods ended April 3, 2009 (in thousands):

The retrospective application of ASC 470-20 had the following effect on the Company’s Consolidated Balance Sheet as of October 2, 2009 (in thousands):

The retrospective application of ASC 470-20 had the following effect on the Company’s Consolidated Statement of Cash Flows for the six-months ended April 3, 2009 (in thousands):

Short-term debt consists of the following (in thousands):

On July 15, 2003, the Company entered into a receivables purchase agreement under which it has agreed to sell from time to time certain of its accounts receivable to Skyworks USA, Inc. (“Skyworks USA”), a wholly-owned special purpose entity that is consolidated for accounting purposes. Concurrently, Skyworks USA entered into an agreement with Wachovia Bank, N.A. providing for a $50.0 million credit facility (“Facility Agreement’’) secured by the purchased accounts receivable. As a part of the consolidation, any interest incurred by Skyworks USA related to monies it borrows under the Facility Agreement is recorded as interest expense in the Company’s results of operations. The Company performs collections and administrative functions on behalf of Skyworks USA. The Company renewed the Facility Agreement on July 9, 2009 for a one year term. Interest related to the Facility Agreement is at LIBOR plus 0.75%. As of April 2, 2010, Skyworks USA had borrowed $50.0 million under this agreement.

The Company recorded tax provisions of $9.1 million and $21.9 million for the three and six-month periods ended April 2, 2010, and $0.0 million and $1.3 million for the three and six-month periods ended April 3, 2009, respectively. The Company’s effective tax rates were 24.7% and 28.2% for the three and six-month periods ended April 2, 2010, and 0.4% and 6.6% for the three and six-month periods ended April 3, 2009, respectively. For the three and six-month periods ended April 2, 2010, the difference between the Company’s effective tax rate and the 35% federal statutory rate resulted primarily from expected foreign earnings for fiscal year 2010 taxed at rates lower than the federal statutory rate and the change in assessment as to reinvestment of earnings to United States deferred taxes related to the transfer of assets to an affiliated foreign company. For the three and six-month periods ended April 3, 2009, the difference between the Company’s effective tax rate and the 35% federal statutory rate resulted primarily from a tax benefit related to a reduction in the federal and state deferred tax asset valuation allowance, and from foreign earnings taxed at rates lower than the federal statutory rate.

As noted in the Company’s most recent Annual Report on Form 10-K, filed with the SEC on November 30, 2009, as amended on February 1, 2010, no benefit has been recognized for certain acquisition related deferred tax assets. The benefit from the recognition of these deferred items reduces the carrying value of goodwill instead of reducing income tax expense. The Company will evaluate the realization of the acquisition related deferred tax assets on a quarterly basis and adjust the provision for income taxes accordingly. As a result, the effective tax rate may vary in subsequent quarters.

The Company utilizes the asset and liability method of accounting for income taxes as set forth in ASC 740 — Income Taxes (formerly referenced as Financial Accounting Standards Board (“FASB”) Interpretation No. 48, Accounting for Uncertainty in Income Taxes-an interpretation of FASB Statement No. 109) (“ASC 740”). Under the asset and liability method, deferred taxes are determined based on the temporary differences between the financial statement and tax basis of assets and liabilities using tax rates expected to be in effect during the years in which the basis differences reverse. A valuation allowance is recorded when it is more likely than not that some of the deferred tax assets will not be realized.

In accordance with GAAP, management has determined that it is more likely than not that a portion of the Company’s historic and current year income tax benefits will not be realized. Accordingly, as of April 2, 2010, the Company has maintained a valuation allowance of $25.0 million related to certain of its United States deferred tax assets. Deferred tax assets are also recognized for foreign operations when management believes that it is more likely than not that they will be recovered during the carryforward period. Management has also previously determined that it is more likely than not that a portion of the Company’s foreign income tax benefits will not be realized and maintains a valuation allowance of $1.6 million related to certain of its foreign deferred tax assets.

The Company will continue to evaluate its valuation allowance in future periods and depending upon the outcome of that assessment, additional amounts could be reversed or recorded and recognized as a reduction to goodwill or an adjustment to income tax benefit or expense. Such adjustments could cause the Company’s effective income tax rate to vary in future periods. The Company will need to generate $202.4 million of future United States federal taxable income to utilize all of its United States deferred tax assets, consisting of net operating loss carryforwards, research and experimentation tax credit carryforwards, and deferred income tax temporary differences as of April 2, 2010.

On September 29, 2007, the Company adopted ASC 740. ASC 740 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with GAAP. ASC 740 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. This statement also provides guidance on derecognition, classification, interest and penalties, accounting in the interim periods, disclosure, and transition. The provisions of ASC 740 are applied to all income tax provisions commencing from that date.

During the quarter ended April 2, 2010, there was a change in the Company’s gross unrecognized tax benefits of $0.9 million. Of the total unrecognized tax benefits at April 2, 2010, $7.5 million would impact the effective tax rate, if recognized. There are no positions which the Company anticipates could change within the next twelve months. Total year to date accrued interest related to the Company’s unrecognized tax benefits is not significant. The Company’s policy is to recognize accrued interest and penalties, if incurred, on any unrecognized tax benefits as a component of income tax expense.

The Company’s major tax jurisdictions as of the adoption of ASC 740 are the United States federal and the states of California and Iowa. For United States federal income tax, the statute of limitations is closed on years before fiscal 2006, but because of carryforwards, certain items are open back to fiscal 1998. For California, the statute of limitations is closed on years before fiscal 2005, but because of carryforwards, certain items are open back to fiscal 2002. For Iowa, the statute of limitations is closed on years before fiscal 2006, but because of carryforwards, certain items are open back to fiscal year 2002.

From time to time, various lawsuits, claims and proceedings have been, and may in the future be, instituted or asserted against the Company, including those pertaining to patent infringement, intellectual property, environmental, product liability, safety and health, employment and contractual matters.

Additionally, 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 is also involved in legal proceedings in the ordinary course of business.

The Company believes that there is no litigation pending that will have, individually or in the aggregate, a material adverse effect on its business.

The Company has made no 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.

On January 22, 2009, the Company implemented a restructuring plan to realign its costs given current business conditions.

The Company exited its mobile transceiver product area and reduced global headcount by approximately 4%, or 150 employees. The Company recorded various charges associated with this action. In total, the Company recorded $16.0 million of restructuring and other charges and $3.5 million in inventory write-downs that were charged to cost of goods sold.

The $16.0 million restructuring charge includes the following charges: severance and employee benefits associated with termination, impairment of certain long-lived assets which were written down to their salvage values, the exit of certain operating leases, the impairment of technology licenses and design software, and other charges.

The Company made cash payments related to the restructuring plan of $0.3 million and $1.1 million during the three and six-month periods ended April 2, 2010, respectively.

Activity and liability balances related to the fiscal 2009 restructuring actions are as follows (in thousands):

The remaining restructuring reserve at April 2, 2010 of $2.2 million is classified as other current liabilities. The Company anticipates the restructuring plan will be substantially completed by the end of fiscal year 2010.

The Company follows ASC 280-Segment Reporting (“ASC 280”). ASC 280 establishes standards for the way public business enterprises report information about operating segments in annual financial statements and in interim reports to shareholders. The method for determining what information to report is based on the way that management organizes the segments within the Company for making operating decisions and assessing financial performance. Based on the guidance in ASC 280, the Company has one operating segment for financial reporting purposes, which designs, develops, manufactures and markets proprietary semiconductor products, including intellectual property, for manufacturers of wireless communication products.

Net income for the three-month periods ended April 2, 2010 and April 3, 2009 included share-based compensation expense under ASC 718-Compensation-Stock Compensation (“ASC 718”) of $8.7 million and $4.3 million, respectively. Net income for the six-month periods ended April 2, 2010 and April 3, 2009 included share-based compensation expense under ASC 718 of $16.8 million and $10.8 million, respectively.

The following table summarizes share-based compensation expense related to employee stock options, restricted stock grants, performance stock grants, employee stock purchases, and management incentive compensation under ASC 718 for the three and six-month periods ended April 2, 2010 and April 3, 2009, which were allocated as follows:

The Company utilized the following weighted average assumptions in calculating its share-based compensation expense using the Black Scholes model at April 2, 2010 and April 3, 2009:

Basic earnings per share is calculated by dividing net income by the weighted average number of common shares outstanding. Diluted earnings per share includes the dilutive effect of equity based awards using the treasury stock method and the 2007 Convertible Notes using the treasury stock method, if their effect is dilutive.

Equity based awards exercisable for approximately 5.8 million shares and 5.9 million shares were outstanding but not included in the computation of earnings per share for the three and six-month periods ended April 2, 2010, respectively, as their effect would have been anti-dilutive.

Equity based awards exercisable for approximately 22.0 million shares and 23.3 million shares were outstanding but not included in the computation of earnings per share for the three and six-month periods ended April 3, 2009, respectively, as their effect would have been anti-dilutive.

In addition, the Company issued $200.0 million aggregate principal amount of convertible subordinated notes in March 2007. These 2007 Convertible Notes contain cash settlement provisions, which permit the application of the treasury stock method in determining potential share dilution of the conversion spread should the share price of the Company’s common stock exceed $9.52. It has been the Company’s historical practice to cash settle the principal and interest components of convertible debt instruments, and it is our intention to continue to do so in the future.

The Company retired $27.6 million and $32.6 million of aggregate principal amount of the 2007 Convertible Notes in the three and six-month periods ended April 2, 2010, respectively. The Company retired $0.0 million and $40.5 million of aggregate principal amount of the 2007 Convertible Notes in the three and six-month periods ended April 3, 2009, respectively. These shares have not been included in the computation of earnings per share for the three and six-month periods ended April 3, 2009 as their effect would have been anti-dilutive. The maximum potential dilution from the settlement of the 2007 Convertible Notes would have been approximately 10.2 million shares and 10.9 million shares for the three and six-month periods ended April 3, 2009, respectively.

The following table sets forth the results of our operations expressed as a percentage of net revenues for the three and six-month periods ended April 2, 2010 and April 3, 2009:

During the six-month period ended April 2, 2010, certain key factors contributed to our overall results of operations and cash flows from operations. Specifically:

We market and sell our products directly to Original Equipment Manufacturers (“OEMs”) of communication electronic products, third-party Original Design Manufacturers (“ODMs”) and contract manufacturers, and indirectly through electronic components distributors. We periodically enter into revenue generating arrangements that leverage our broad intellectual property portfolio by licensing or selling our non-core patents or other intellectual property. We anticipate continuing this intellectual property strategy in future periods.

We generated net revenue of $238.1 million for the three-month period ended April 2, 2010 compared to $173.0 million in the corresponding period in fiscal 2009. We also generated $483.2 million of net revenue for the six-month period ended April 2, 2010, as compared to net revenue of $383.2 million for the corresponding period in the prior fiscal year. This growth represents an increase of 37.6% and 26.1% for the three-month and six-month periods, respectively. The revenue growth for both the three and six-month periods ended April 2, 2010 was principally attributable to market share gain in targeted markets, increased overall demand for mobile internet, energy management and diversified analog applications.

Gross profit represents net revenues less cost of goods sold. Cost of goods sold consists primarily of purchased materials, labor and overhead (including depreciation and equity based compensation expense) associated with product manufacturing.

We increased gross profit by $35.0 million in the three-month period ended April 2, 2010, as compared to the three-month period ended April 3, 2009 and increased gross profit by $53.7 million for the six-month period in fiscal 2010 as compared to the same period in fiscal 2009. This translated into a gross profit margin increase to 41.9% from 37.5% for the comparative three-month period and an increase to 41.9% from 38.8% for the comparative six-month period. This increase in gross profit in aggregate dollars and as a percentage of revenue is primarily the result of the aforementioned increase in net revenues as well as continued factory process and productivity enhancements, product end-to-end yield improvements and year-over-year material cost reductions. During the three and six-month periods ended April 2, 2010 and the corresponding periods in fiscal year 2009, we continued to benefit from higher contribution margins associated with the licensing and/or sale of intellectual property.

Research and development expenses consist principally of direct personnel costs, costs for pre-production evaluation and testing of new devices, masks and engineering prototypes, equity based compensation expense and design and test tool costs.

Research and development expenses in aggregate dollars increased by 12.1% or $3.5 million for the three-month period ended April 2, 2010, as compared to the corresponding period in the previous fiscal year primarily as the result of increased labor and other compensation expenses and variable and fixed material and supply costs. Research and development expenses for the six-month period ended April 2, 2010 was relatively unchanged from the corresponding period in fiscal 2009. The decreases in research and development costs as a percentage of revenues for both the three and six-month periods ended April 2, 2010, as compared to the corresponding periods in fiscal 2009 are directly a result of the aforementioned increase in net revenues.

Selling, general and administrative expenses include legal, accounting, treasury, human resources, information systems, customer service, bad debt expense, sales commissions, equity based compensation expense, advertising, marketing and other costs.

Selling, general and administrative expenses increased in aggregate dollars for the three and six-month periods ended April 2, 2010 primarily due to an increase in labor costs, management incentives and sales commissions which was offset by a decline in legal expenditures. Selling, general and administrative expenses decreased as a percentage of revenue for the three and six-month periods ended April 2, 2010, as compared to the corresponding period in fiscal year 2009, primarily due to the aforementioned increase in net revenues.

The increase in amortization expense during the three and six-month periods ended April 2, 2010, as compared to the corresponding periods of fiscal 2009, was due to an increase in amortization of intangible assets associated with an acquisition in May 2009. Amortization expenses as a percentage of revenues was relatively unchanged during the comparative periods.

On January 22, 2009, we implemented a restructuring plan to realign our costs given current business conditions. We exited our mobile transceiver product area and reduced global headcount by approximately 4%, or 150 employees which resulted in a reduction to annual operating expenditures of $19.4 million. We recorded various charges associated with this action. In total, we recorded $16.0 million of restructuring and other charges and $3.5 million in inventory write-downs that were charged to cost of goods sold.

The $16.0 million charge includes the following charges: severance and benefits, impairment of certain long-lived assets which were written down to their salvage values, the exit of certain operating leases, the impairment of technology licenses and design software and other charges.

For additional information regarding restructuring charges and liability balances, see Note 10 of Notes to Unaudited Interim Consolidated Financial Statements.

Interest expense is comprised principally of payments in connection with the $50.0 million credit facility between Skyworks USA, Inc., our wholly owned subsidiary, and Wachovia Bank, N.A. (“Facility Agreement”), the Company’s 1.25% Notes and the 1.50% Notes (collectively, the “2007 Convertible Notes”) and amortization of discount on the 2007 Convertible Notes.

The decrease in interest expense, both in aggregate dollars and as a percentage of net revenues for the three and six-month periods ended April 2, 2010, as compared to the corresponding periods in fiscal 2009, was due to a decline in coupon interest payments and amortization of discount associated with the 2007 Convertible Notes as a result of the retirements and conversion of our 1.25% Notes. During the six month period ended April 2, 2010, we retired and settled $32.6 million of aggregate principal balances. See Note 7 of Notes to Unaudited Interim Consolidated Financial Statements for information related to our borrowing arrangements.

In the three and six-month periods ended April 2, 2010, we retired and settled $27.6 million and $32.6 million of aggregate principal amount of the 2007 Convertible Notes due in March 2010. We recorded a net loss of $0.1 million during the three and six-month periods ended April 2, 2010, respectively, related to the early retirement of these notes. In the three and six-month periods ended April 3, 2009 we retired $0.0 million and $40.5 million of

aggregate principal amount of our 2007 Convertible Notes due in 2012. We recorded a gain of $4.9 million in the first quarter of fiscal 2009 related to the early retirement of these notes.

Other (loss) income, net is comprised primarily of interest income on invested cash balances, other non-operating income and expense items and foreign exchange gains/losses.

The decreases in other income in aggregate dollars for the three and six-month periods ended April 2, 2010, as compared to the corresponding period in fiscal 2009, is due to an overall decline in interest income on invested cash balances due to lower interest rates in the first and second fiscal quarters of 2010 and foreign exchange losses incurred in the first quarter of fiscal 2010.

The provision for income taxes for the three and six-month periods ended April 2, 2010 consists of approximately $8.8 million and $21.3 million, respectively, of United States income taxes. The provision for income taxes for the three and six-month periods ended April 3, 2009 consists of approximately $(0.3) million and $0.6 million, respectively, of United States income taxes. Of the total United States income tax provision, there were no charges reducing the carrying value of goodwill for the three and six-month periods ended April 2, 2010 and April 3, 2009. For the three and six-month periods ended April 2, 2010, the difference between the our effective tax rate and the 35% federal statutory rate resulted primarily from expected foreign earnings for fiscal year 2010 taxed at rates lower than the federal statutory rate and one-time adjustments to United States deferred taxes related to the transfer of assets to an affiliated foreign company. For the three and six-month periods ended April 3, 2009, the difference between our effective tax rate and the 35% federal statutory rate resulted primarily from a tax benefit related to a reduction in the federal and state deferred tax asset valuation allowance, and from foreign earnings taxed at rates lower than the federal statutory rate.

The provision for income taxes for the three and six-month periods ended April 2, 2010 consists of approximately $0.3 million and $0.6 million, respectively, of foreign income taxes. The provision for income taxes for the three and six-month periods ended April 3, 2009 consists of approximately $0.3 million and $0.6 million, respectively, of foreign income taxes.

In accordance with ASC 740 – Income Taxes (“ASC 740”), management has determined that it is more likely than not that a portion of our historic and current year income tax benefits will not be realized. Accordingly, as of April 2, 2010, we have maintained a valuation allowance of $25.0 million related to our United States deferred tax assets. Deferred tax assets have been recognized for foreign operations when management believes that it is more likely than not that they will be recovered during the carryforward period. We have also previously determined that it is more likely than not that a portion of our foreign income tax benefits will not be realized and maintain a valuation allowance of $1.6 million related to our foreign deferred tax assets.

Realization of benefits from our deferred tax asset (principally state research and experimentation credits) is dependent upon generating United States source taxable income in the future, which may result in the existing valuation reserve being reversed to the extent that the related deferred tax assets no longer require a valuation allowance under the provisions of ASC 740.

We will continue to evaluate our valuation allowance in future periods and depending upon the outcome of that assessment, additional amounts could be reversed or recorded and recognized as a reduction to goodwill or an adjustment to income tax benefit or expense. Such adjustments could cause our effective income tax rate to vary in future periods. We will need to generate $202.4 million of future United States federal taxable income to utilize all of our United States deferred tax assets, consisting of net operating loss carryforwards, research and experimentation tax credit carryforwards, and deferred income tax temporary differences as of April 2, 2010.

As noted in our Annual Report on Form 10-K, filed with the SEC on November 30, 2009, as amended on February 1, 2010, no benefit has been recognized for certain acquisition related deferred tax assets. The benefit from the recognition of these deferred items reduces the carrying value of goodwill instead of reducing income tax expense. We will evaluate the realization of the acquisition related deferred tax assets on a quarterly basis and adjust the provision for income taxes accordingly. As a result, the effective tax rate may vary in subsequent quarters.

We adopted ASC 740- Income Taxes (formerly referenced as FASB Interpretation No. 48,Accounting for Uncertainty in Income Taxes-an interpretation of FASB Statement No. 109), as of the beginning of fiscal year 2008. During the quarter ended April 2, 2010, there was a change in our gross unrecognized tax benefits of $0.9 million. Of the total unrecognized tax benefits at April 2, 2010, $7.5 million would impact the effective tax rate, if recognized. There are no positions which we anticipate could change within the next twelve months. Total year to date accrued interest related to our unrecognized tax benefits is not significant. Our policy is to recognize accrued interest and penalties, if incurred, on any unrecognized tax benefits as a component of income tax expense.

Our major tax jurisdictions as of the adoption of ASC 740 are the United States federal and the states of California and Iowa. For United States federal income tax, the statute of limitations is closed on years before fiscal 2006, but because of carryforwards, certain items are open back to fiscal 1998. For California, the statute of limitations is closed on years before fiscal 2005, but because of carryforwards, certain items are open back to fiscal 2002. For Iowa, the statute of limitations is closed on years before fiscal 2006, but because of carryforwards, certain items are open back to fiscal year 2002.

Based on our results of operations for the first six months of fiscal year 2010, along with current trends, we expect our existing sources of liquidity, together with cash expected to be generated from operations, will be sufficient to fund our research and development, capital expenditures, debt obligations, working capital and other cash requirements for at least the next 12 months. However, we cannot be certain that the capital required to fund these expenses will be available in the future. In addition, any strategic investments and acquisitions that we may make to help us grow our business may require additional capital resources. If we are unable to obtain sufficient capital to meet our capital needs on a timely basis and on favorable terms (if at all), our business and operations could be materially adversely affected.

Cash and cash equivalent balances increased $41.2 million to $405.4 million at April 2, 2010 from $364.2 million at October 2, 2009. This increase was due to $113.2 million in cash that we generated from operations during the six-month period ended April 2, 2010, as well as $14.7 million in net proceeds from stock option exercises, offset by the early retirement and settlement of $32.6 million of aggregate principal amount of the 2007 Convertible Notes, reacquisition of equity instruments of $15.1 million (relating to the aforementioned adoption of ASC 470-20), capital expenditures of $34.3 million and $3.6 million in repurchases of common stock (relating to tax withholding on vesting of restricted stock). The number of days sales outstanding at April 2, 2010 decreased to 41 from 59 at April 3, 2009. This improvement was primarily due to improved sales linearity in the quarter ended April 2, 2010.

During the six-month period ended April 2, 2010, we generated net income of $55.8 million. We experienced a decrease in accounts receivable of $7.1 million and an increase in accounts payable and other accrued liabilities of $7.5 million and $1.0 million, respectively. We also incurred multiple non-cash charges (e.g., depreciation, amortization, contribution of common shares to savings and retirement plans, deferred income taxes, and share-based compensation expense) totaling $62.3 million. This was offset by an increase in inventories of $18.4 million and an increase in other current and long-term assets of $2.1 million.

Cash used in investing activities for the six-month period ended April 2, 2010 consisted of investments in capital equipment of $34.3 million primarily to expand fabrication and assembly and test capacity. We believe a focused program of capital expenditures will be required to sustain our current manufacturing capabilities. We expect that future capital expenditures will be funded by the generation of positive cash flows from operations. We may also consider future acquisition opportunities to extend our technology portfolio and design expertise and to expand our product offerings.

Cash used in financing activities for the six-month period ended April 2, 2010 consisted of the early retirement and settlement of $32.6 million of aggregate principal amount of our 1.25% Notes, the $15.1 million reacquisition of the equity component on our 1.25% Notes as a result of such early retirements and settlement (pursuant to the adoption of ASC 470-20) and the repurchase of common stock of $3.6 million (related to tax withholding on vesting of restricted stock), offset by cash provided by stock option exercises of $14.7 million.

Our invested cash balances primarily consist of money market funds and repurchase agreements where the underlying securities primarily consist of United States treasury obligations, United States agency obligations, overnight repurchase agreements backed by United States treasuries and/or United States agency obligations and highly rated commercial paper. Our invested cash balances also include time deposits/certificates of deposit. At April 2, 2010, we also held a $3.2 million aggregate principal amount auction rate security which historically has provided liquidity through a Dutch auction process. Disruptions in the credit markets have substantially eliminated the liquidity of this process resulting in failed auctions. During the fiscal year ended October 3, 2008, we performed a comprehensive valuation and discounted cash flow analysis on the auction rate security. We concluded the value of the auction rate security was $2.3 million, and the carrying value of these securities was reduced by $0.9 million, reflecting this change in fair value. Accordingly, in the fiscal year ended October 3, 2008, we recorded unrealized losses on this auction rate security of approximately $0.9 million. We assessed these declines in fair market value to be temporary and consider the security to be illiquid until there is a successful auction or the security matures. Accordingly, the remaining auction rate security balance has been reclassified to non-current other assets and the loss has been recorded in other comprehensive income. We will continue to monitor the liquidity and accounting classification of this security in future periods. If, in a future period, we determine that the impairment is other than temporary, we will impair the security to its fair value and charge the loss to earnings.

On July 15, 2003, we entered into a receivables purchase agreement under which we have agreed to sell from time to time certain of our accounts receivable to Skyworks USA, Inc. (“Skyworks USA”), a wholly-owned special purpose entity that is fully consolidated for accounting purposes. Concurrently, Skyworks USA entered into an agreement with Wachovia Bank, N.A. providing for a $50.0 million credit facility (“Facility Agreement’’) secured by the purchased accounts receivable. As a part of the consolidation, any interest incurred by Skyworks USA related to monies it borrows under the Facility Agreement is recorded as interest expense in the Company’s results of operations. We perform collections and administrative functions on behalf of Skyworks USA. Interest related to the Facility Agreement is at LIBOR plus 0.75%. We renewed the Facility Agreement for another year in July 2009, and as of April 2, 2010, Skyworks USA had borrowed $50.0 million under this agreement.

Our contractual obligations disclosure in our annual report on Form 10-K for the year ended October 2, 2009 has not materially changed since we filed that report, with the exception that we fully settled our 1.25% Notes as of March 1, 2010. Our short-term and long-term borrowing arrangements are more fully described in Note 7 of Notes to Unaudited Interim Consolidated Financial Statements in this Form 10-Q.

In September 2009, the FASB reached a consensus on Accounting Standards Update (“ASU”)-2009-13-Revenue Recognition (“ASC 605”) – Multiple-Deliverable Revenue Arrangements (“ASU 2009-13”) and ASU 2009-14- Software (“ASC 985”) – Certain Revenue Arrangements That Include Software Elements (“ASU 2009-14”). ASU 2009-13 modifies the requirements that must be met for an entity to recognize revenue from the sale of a delivered item that is part of a multiple-element arrangement when other items have not yet been delivered. ASU 2009-13 eliminates the requirement that all undelivered elements must have either: i) Vendor Specific Objective Evidence (“VSOE”) or ii) third-party evidence, or TPE, before an entity can recognize the portion of an overall arrangement consideration that is attributable to items that already have been delivered. In the absence of VSOE or TPE of the standalone selling price for one or more delivered or undelivered elements in a multiple-element arrangement, entities will be required to estimate the selling prices of those elements. Overall arrangement consideration will be allocated to each element (both delivered and undelivered items) based on their relative selling prices, regardless of whether those selling prices are evidenced by VSOE or TPE or are based on the entity’s estimated selling price. The residual method of allocating arrangement consideration has been eliminated. ASU 2009-14 modifies the software revenue recognition guidance to exclude from its scope tangible products that contain both software and non-software components that function together to deliver a product’s essential functionality. These new updates are effective for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010. Early adoption is permitted. The Company is currently evaluating the impact that the adoption of these ASUs will have on our consolidated financial statements.

We are subject to foreign currency, investment, market and interest rate risks as described below.

Our exposure to interest and market risk relates principally to our investment portfolio, which as of April 2, 2010 consisted of the following (in millions):

The main objective of our investment activities is the liquidity and preservation of capital. Credit risk associated with our investments is not significant as our investment policy prescribes high credit quality standards and limits the amount of credit exposure to any one issuer. We do not use derivative instruments for trading, speculative or investment purposes.

In general, our cash and cash equivalent investments have short-term maturity periods which dampen the impact of significant market or interest rate risk. We are, however, subject to overall financial market risks, such as changes in market liquidity, credit quality and interest rates. Available for sale securities carry a longer maturity period (contractual maturities exceed ten years). In fiscal 2008, we experienced what we believe will be a temporary unrealized loss on our investment in auction rate securities primarily caused by a disruption in the liquidity of the Dutch auction process which resets interest rates each period. We classified auction rate securities in prior periods as current assets under “Short Term Investments”. Given the failed auctions, the auction rate securities are effectively illiquid until there is a successful auction. Accordingly, the remaining auction rate securities balance has been reclassified to non-current other assets. However, it is not more likely-than-not that we will be required to sell the auction rate securities prior to maturity.

Our short-term debt consists of borrowings under our credit facility with Wachovia Bank, N.A. of $50.0 million. Interest related to our borrowings under our credit facility with Wachovia Bank, N.A. is at LIBOR plus 0.75% and was approximately 0.98% at April 2, 2010. Consequently, given current market conditions we do not have significant cash flow exposure on this short-term debt or interest rate risk.

Our long-term debt at April 2, 2010 consists of $42.6 million aggregate principal amount of 1.5% Notes. These 2007 Convertible Notes contain cash settlement provisions, which permit the application of the treasury stock method in determining potential share dilution of the conversion spread should the share price of the Company’s common stock exceed $9.52. It has been the Company’s historical practice to cash settle the principal and interest components of convertible debt instruments, as evidenced by the full cash settlement of the remaining 1.25% Notes on March 1, 2010 and it is our intention to continue to do so in the future. These shares have been included in the computation of earnings per share for the fiscal year ended April 2, 2010.

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 small percentage of our international operational expenses are denominated in foreign currencies. Exchange rate volatility could negatively or positively impact those operating costs. Increases in the value of the U.S. 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. Fluctuations in currency exchange rates could have a greater effect on our business in the future to the extent our expenses increasingly become denominated in foreign currencies.

Our management, with the participation of our chief executive officer and chief financial officer, evaluated the effectiveness of our disclosure controls and procedures as of April 2, 2010. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives, and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on management’s evaluation of our disclosure controls and procedures as of April 2, 2010, our chief executive officer and chief financial officer concluded that, as of such date, our disclosure controls and procedures were effective at the reasonable assurance level.

No changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) occurred during the fiscal quarter ended April 2, 2010 that have materially affected, or is reasonably likely to materially affect, Skyworks’ internal control over financial reporting.

There have been no significant changes in the risk factors disclosed in Item 1A of our Annual Report on Form 10-K for the year ended October 2, 2009.

(c) The following table provides information regarding repurchases of common stock made by us during the fiscal quarter ended April 2, 2010: