Skyworks Solutions, Inc. (SWKS) announced that it retired $20.4 million of convertible notes with an original maturity date of March 2012 in the last week.
The early retirement of debt eliminated the potential future dilution of 2.1 million shares. As of April 2, 2010, Skyworks had cash and equivalents of $411.5 million against long-term convertible debt of $47 million. On October 2, 2009, Skyworks had a total debt of $129.7 million.
Management has been making efforts to reduce debt over the last two years. The company held $228 million in cash and cash equivalents and $200 million in long-term debt two years ago.
In May 2008, the Financial Accounting Standards Board (FASB) issued ASC 470-20-Debt, Debt with Conversion and Other Options (“ASC 470-20″). Management plans to adopt this standard in fiscal 2010.
The adoption of this standard alters the accounting treatment for convertible debt instruments that allow either mandatory or optional cash settlements. This accounting standard will result in significantly higher non-cash interest expense in fiscal 2010 and beyond, as well as non-cash interest expense in prior periods.
In particular, it will significantly increase the company’s interest expense associated with the existing 1.25% and 1.50% convertible notes, and previously held 4.75% convertible notes including interest expense in prior periods.
Hence, the retirement of convertible debt will help lessen the interest expense burden for the company. The strong cash flow generated by the company in the past six years has enabled it to retire debt consistently and deleverage its balance sheet.
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