Electronic Design
The Method Behind Our Mathematics

The Method Behind Our Mathematics

Times are tough, and the competition is tight. How did your company fare on our annual list of the top 50 employers in electronic design? For our 2010 edition, we started with a pool of 97 public companies and gathered data from 2009 and 2008, mainly from company 10-K reports filed with the Securities and Exchange Commission, reflecting the 2009 fiscal year (see “Despite Tough Times, Top Companies Know How To Thrive”).

In many cases, the fiscal year did not mirror the calendar of January to December 2009. Xilinx did not file its 10-K until June 1, 2010, so due to time constraints, its data reflects the fiscal year ending March 28, 2009 versus the comparable period in 2008.

In last year’s rankings, we had many issues with restatement of prior years’ data, due to ongoing investigations regarding the valuing of employee stock grants and options. While it appears that these issues were mostly cleaned up for 2009 reports, we did use the 2008 financial data as reflected on the 2009 10-K filed so we wouldn’t have any discrepancies.

While we analyzed 98 companies last year, we looked at 97 this year. Motors Liquidation Corp. reported the same results that General Motors achieved in last year’s analysis, as it is working its way through its Chapter 11 filing. We skipped it for this year’s analysis.

The “new” General Motors LLC is mostly owned by the U.S. government and somewhat owned by the Canadian government. It is a downsized, restructured version of the old GM. The 2009 10-K only showed results from July 10 through December 31, with many income and balance sheet adjustments, which makes comparisons difficult. We can reinstate the analysis of the “new” GM next year if warranted.

The Categories

Employee data was mostly gathered from 10-K reports. In the few instances where these reports could not be found, we used annual reports or company Web sites. In most cases, the 2008 data had to be gathered from the 2008 10-K report, as most companies did not include the previous year’s employee count on the 2009 10-K. Employee count is typically reflected as of the last day of the fiscal/calendar year being reported.

When employees were reported separately by U.S. and international segments, both numbers were added together as long as a comparable breakout was available for the prior comparison year.

In the case of acquisitions or divestitures, we used our best guess so we wouldn’t severely credit or penalize a company based on year-over-year changes. Employee data pertaining to the unit acquired or divested typically isn’t separated for the time frames required, if it’s available at all. In cases where a reasonable assumption could not be made, the line score was adjusted, again in the spirit of not severely penalizing or crediting a company.

Furthermore, sales or total revenues were gathered from 2009 10-K reports. Pretax income was gathered from 2009 10-K reports. For most companies, it’s reported as “income before income taxes” or with similar terminology. The emphasis was on comparing the profit/loss generated solely by the operations of the company, but we also included interest expense, which is a result of business strategy or the nature of the business. We also wanted to be as consistent as possible across companies.

Pretax income margin, another criteria, is simply pretax income divided by sales. We also used long-term debt and stockholder’s equity data taken from the 2009 balance sheets, reasonably trying to include all non-current debt, even though at times it is not specifically labeled “long term debt” on the balance sheet. With respect to stockholder’s equity, we always took the previous year’s balance from the current year’s 10-K, as prior-year restatements can affect that balance.

Another factor, long-term debt to shareholder’s equity ratio, is simply the former divided by the latter. In cases where a company has a negative stockholder’s equity position as of the balance sheet date, the resulting negative number does not have much meaning, though a negative equity position is never a good situation.

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We included 2009’s total patents issued as taken from a report sorted by company generated by the U.S. Patent and Trademark Office. High, low, and closing stock prices for 2009 were taken from Yahoo Finance for all companies. Stock data was gathered on a calendar-year basis, so the timeframe may differ from that of the financial data for those companies who don’t report on a calendar-year basis. Closing prices were adjusted for dividends and splits.

Research and development expenses came mainly from a separate note contained within the 10-K or, in some cases, a line on the income statement. Most companies do not separate R&D as a separate line on the income statement. For Comcast and Verizon only, capital expenditures were used for the comparison instead of R&D, as it is a more relevant expense for these companies.

We determined our final rankings based on what we call our total line score. First, we ranked each company based on employee growth, sales growth, pretax income growth, pretax margin improvement points, long-term debt to S/H equity ratio improvement points, change in total number of patents issued, and R&D expense change, all from 2008 to 2009, as well as the total number of patents issued in 2009 and 2009’s stock price closing as a percentage of the 2009 stock price high.

The Survey Says…

We provided bonus points based on employee responses to five key questions on the 2009 Electronic Design reader survey (see “Engineers Give Back Gains In 2009”). Points were accumulated based on individual employee responses to each question and then averaged by the total number of respondents for each company. These questions included:

• How satisfied are you in your current position?
• Do you feel that you are being challenged intellectually with the engineering projects you work on at your present job?
• To the best of your knowledge, what is the engineering employment outlook at your company in the coming year?
• Do you feel that your organization is more focused on employee retention this year as compared to a year ago?
• Given the current economic climate, how concerned are you about your job security?

The maximum total line score was 100, comprising nine categories with a maximum of 10 points each, plus the reader survey responses for a maximum of 10 bonus points. Apple achieved the highest actual total for this year’s report, scoring 88 points to take first place for the fourth year in a row.

We had to make some adjustments along the way, though. For example, we awarded two points to companies whenever the result for a category wasn’t available so those companies weren’t overly penalized. We awarded the same two points when there were improvements in pretax income, pretax margin, and debt-to-equity positions but a pretax loss or negative equity still existed so we wouldn’t overly reward the improvement.

We also used our own judgment in rewarding companies excessively for employee, sales, or pretax income growth derived by non-organic means, namely acquisitions. In many cases, proper accounting allows companies to reflect the acquired company’s financial results as of the date of acquisition. We made these adjustments where appropriate, but not to significantly alter total line scores for a company and overly penalize or reward them, as acquisition is a viable business strategy.

Where a company’s growth came mainly as a result of a single acquisition, we reduced the line scores for appropriate categories using some judgment, typically no more than by a couple of points. If a company’s growth came largely from multiple acquisitions but such acquisitions have been the company’s growth strategy for multiple years, then we made no adjustment. We made a similar upward line score adjustment due to declines as a result of a divestiture, if the impact was quantifiable.

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