# Cirrus Logic, Inc.: Form 10-Q for the period ended Dec 28, 2019

- Company: [Cirrus Logic, Inc.](/companies/crus.md) (CIK 772406)
- Form: 10-Q
- Filed: 2020-01-29
- Accepted by EDGAR: Jan 29, 2020, 21:29 ET
- Period: 2019-12-28
- Accession: 0000772406-20-000003
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/772406/000077240620000003/crus-20191228.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/772406/000077240620000003/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2019-12-28.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2019-09-29 to 2019-12-28 | $374.7m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Revenue | 9 months, 2019-03-31 to 2019-12-28 | $1.00bn | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Cost of revenue | 3 months, 2019-09-29 to 2019-12-28 | $177.2m | us-gaap:CostOfGoodsAndServicesSold |
| Cost of revenue | 9 months, 2019-03-31 to 2019-12-28 | $473.9m | us-gaap:CostOfGoodsAndServicesSold |
| Gross profit | 3 months, 2019-09-29 to 2019-12-28 | $197.5m | us-gaap:GrossProfit |
| Gross profit | 9 months, 2019-03-31 to 2019-12-28 | $527.9m | us-gaap:GrossProfit |
| Research and development | 3 months, 2019-09-29 to 2019-12-28 | $88.7m | us-gaap:ResearchAndDevelopmentExpense |
| Research and development | 9 months, 2019-03-31 to 2019-12-28 | $265.8m | us-gaap:ResearchAndDevelopmentExpense |
| Selling, general and administrative | 3 months, 2019-09-29 to 2019-12-28 | $36.1m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Selling, general and administrative | 9 months, 2019-03-31 to 2019-12-28 | $98.7m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Operating income | 3 months, 2019-09-29 to 2019-12-28 | $72.7m | us-gaap:OperatingIncomeLoss |
| Operating income | 9 months, 2019-03-31 to 2019-12-28 | $163.5m | us-gaap:OperatingIncomeLoss |
| Income tax | 3 months, 2019-09-29 to 2019-12-28 | $6.0m | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 9 months, 2019-03-31 to 2019-12-28 | $19.6m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2019-09-29 to 2019-12-28 | $68.5m | us-gaap:NetIncomeLoss |
| Net income | 9 months, 2019-03-31 to 2019-12-28 | $149.3m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2019-09-29 to 2019-12-28 | $1.13 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 9 months, 2019-03-31 to 2019-12-28 | $2.47 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2019-09-29 to 2019-12-28 | $1.18 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 9 months, 2019-03-31 to 2019-12-28 | $2.56 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2019-09-29 to 2019-12-28 | 60,492,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 9 months, 2019-03-31 to 2019-12-28 | 60,395,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 9 months, 2019-03-31 to 2019-12-28 | $246.5m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 9 months, 2019-03-31 to 2019-12-28 | $13.3m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Share repurchases | 9 months, 2019-03-31 to 2019-12-28 | $70.0m | us-gaap:PaymentsForRepurchaseOfCommonStock |
| Cash and equivalents | at 2019-12-28 | $342.3m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2019-12-28 | $714.6m | us-gaap:AssetsCurrent |
| Total assets | at 2019-12-28 | $1.65bn | us-gaap:Assets |
| Current liabilities | at 2019-12-28 | $178.3m | us-gaap:LiabilitiesCurrent |
| Shareholders' equity | at 2019-12-28 | $1.26bn | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 29,074 characters.

The following discussion should be read along with the unaudited consolidated condensed financial statements and notes thereto included in Item 1 of this Quarterly Report on Form 10-Q, as well as the audited consolidated financial statements and notes thereto and Management’s Discussion and Analysis of Financial Condition and Results of Operations for the fiscal year ended March 30, 2019, contained in our fiscal year 2019 Annual Report on Form 10-K filed with the Securities and Exchange Commission (the “Commission”) on May 24, 2019. We maintain a website at investor.cirrus.com, which makes available free of charge our most recent annual report and all other filings we have made with the Commission.

This Management’s Discussion and Analysis of Financial Condition and Results of Operations and certain information incorporated herein by reference contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements are based on current expectations, estimates, forecasts and projections and the beliefs and assumptions of our management. In some cases, forward-looking statements are identified by words such as “expect,” “anticipate,” “target,” “project,” “believe,” “goals,” “estimates,” “intend,” and variations of these types of words and similar expressions which are intended to identify these forward-looking statements. In addition, any statements that refer to our plans, expectations, strategies or other characterizations of future events or circumstances are forward-looking statements. Readers are cautioned that these forward-looking statements are predictions and are subject to risks, uncertainties and assumptions that are difficult to predict. Therefore, actual results may differ materially and adversely from those expressed in any forward-looking statements. We undertake no obligation, and expressly disclaim any duty, to revise or update publicly any forward-looking statement for any reason.

For additional information regarding known material factors that could cause our actual results to differ from our projected results, please see “*Item 1A – Risk Factors”* in our 2019 Annual Report on Form 10-K filed with the Commission on

May 24, 2019, and in Part II, Item 1A “*Risk Factors”* within this quarterly report on Form 10-Q. Readers should carefully review these risk factors, as well as those identified in other documents filed by us with the Commission.

### Overview

Cirrus Logic, Inc. (“Cirrus Logic,” “We,” “Us,” “Our,” or the “Company”) is a leader in low-power, high-precision mixed-signal processing solutions that create innovative user experiences for the world’s top mobile and consumer applications.

### Critical Accounting Policies

Our discussion and analysis of the Company’s financial condition and results of operations are based upon the unaudited consolidated condensed financial statements included in this report, which have been prepared in accordance with U.S. GAAP. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts. We evaluate the estimates on an on-going basis. We base these estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions and conditions.

The Company adopted ASC Topic 842, *Leases* as of March 31, 2019. The impact of this new guidance on our accounting policies and operating results is described below, in Note 2 - Recently Issued Accounting Pronouncements as well as in Note 9 - Leases. During the nine months ended December 28, 2019, there have been no other significant changes in our “*Critical Accounting Policies”* included in our fiscal year 2019 Annual Report on Form 10-K for the fiscal year ended March 30, 2019.

### Recently Issued Accounting Pronouncements

In February 2016, the FASB issued ASU No. 2016-02, *Leases*, which the Company adopted in the first quarter of fiscal year 2020. The new standard provides a number of optional practical expedients in transition. We elected the use-of-hindsight practical expedient and the ‘package of practical expedients’ which permits us not to reassess under the new standard our prior conclusions about lease identification, lease classification and initial direct costs. The new standard also provides practical expedients for an entity’s ongoing accounting. We elected the short-term lease recognition exemption for all leases that qualify. This means, for qualifying leases, which are those with terms of less than twelve months, we will not recognize ROU assets or lease liabilities. We also do not separate lease and non-lease components for all classes of assets. Most of our operating lease commitments were subject to the new standard and recognized as ROU assets and operating lease liabilities upon adoption, which materially increased the total assets and total liabilities that we report relative to such amounts prior to adoption.

In applying the use-of-hindsight practical expedient, we re-assessed whether we were reasonably certain to exercise extension options within our lease agreements. This resulted in the lease term being extended on a number of leases. The previously capitalized initial direct costs and accrued lease payments were recalculated assuming these extended lease terms had always applied, resulting in an adjustment of $0.7 million net of tax, to opening retained earnings on transition.

On adoption, we recognized additional operating liabilities, with corresponding ROU assets based on the present value of the remaining minimum rental payments under current leasing contracts for existing operating leases. In addition, existing capitalized initial direct costs and accrued lease payments were reclassified from prepayments and accruals to the ROU asset. There was no income statement or cash flow statement impact on adoption, nor were prior periods adjusted.

The effects of the changes made to our balance sheet at adoption were as follows (in thousands):

| Financial statement line item: | Balance at March 30, 2019 | Impact from ASU 2016-02 Adoption | Balance at March 31, 2019 |
| --- | ---: | ---: | ---: |
| Prepaid assets | $30,794 | $(2,833) | $27,961 |
| Right-of-use lease assets | — | 149,746 | 149,746 |
| Lease liabilities | — | (14,899) | (14,899) |
| Other accrued liabilities | (16,339) | 11,071 | (5,268) |
| Non-current lease liabilities | — | (143,085) | (143,085) |
| Other long-term liabilities | (9,889) | (965) | (10,854) |
| Accumulated deficit | (222,430) | 965 | (221,465) |

In June 2016, the FASB issued ASU No. 2016-13, *Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.* This ASU requires credit losses on available-for-sale debt securities to be presented as an allowance rather than a write-down. Unlike current U.S. GAAP, the credit losses could be reversed with changes in estimates, and recognized in current year earnings. This ASU is effective for annual periods beginning after December 15, 2019, and interim periods within those annual periods. Early adoption is permitted for annual periods beginning after December 15, 2018, including interim periods. The Company is currently evaluating the impact of this ASU, but does not expect a material impact to the financial statements upon adoption in the first quarter of fiscal year 2021.

In January 2017, the FASB issued ASU No. 2017-04, *Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment.* This ASU eliminates step two of the goodwill impairment test. An impairment charge is to be recognized for the amount by which the current value exceeds the fair value. This ASU is effective for annual periods beginning after December 15, 2019, including interim periods. Early adoption is permitted, for interim or annual goodwill impairment tests performed after January 1, 2017, and should be applied prospectively. An entity is required to disclose the nature of and reason for the change in accounting principle upon transition. That disclosure should be provided in the first annual period and in the interim period within the first annual period when the entity initially adopts the amendments in this update. The Company is currently evaluating the impact of this ASU, but does not expect a material impact to the financial statements upon adoption.

In February 2018, the FASB issued ASU No. 2018-02, *Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income*. This ASU allows for the classification of stranded tax effects resulting from the Tax Cuts and Jobs Act (the “Tax Act”) from accumulated other comprehensive income to retained earnings. This ASU is effective for annual periods beginning after December 15, 2018, with early adoption permitted. The standard should be applied in the period of adoption or retrospectively to each period (or periods) in which the effect of the change in tax rate is recognized. The Company adopted this ASU in the first quarter of fiscal year 2020 and elected to reclassify the stranded tax effects of $0.3 million from accumulated other comprehensive income to retained earnings in the period of adoption.

In June 2018, the FASB issued ASU No. 2018-07, *Compensation - Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting*. This ASU expands the scope of Topic 718 to include all share-based payment transactions for acquiring goods and services from nonemployees and will apply to all share-based payment transactions in which the grantor acquires goods and services to be used or consumed in its own operations by issuing share-based payment awards. This ASU is effective for fiscal years beginning after December 15, 2018, including interim periods within that fiscal year, with early adoption permitted. The Company adopted this ASU in the first quarter of fiscal year 2020, with no material impact to the financial statements.

In August 2018, the FASB issued ASU No. 2018-13, *Fair Value Measurement (Topic 820): Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement*. This ASU adjusts current required disclosures related to fair value measurements. This ASU is effective for fiscal years beginning after December 15, 2019, including interim periods within that fiscal year, with early adoption permitted. The Company is currently evaluating the impact of this ASU, but does not expect a material impact to the financial statements upon adoption.

In August 2018, the Commission adopted the final rule under SEC Release No. 33-10532, *Disclosure Update and Simplification*, amending certain disclosure requirements that were redundant, duplicative, overlapping, outdated or superseded. In addition, the amendments expanded the disclosure requirements on the analysis of stockholders' equity for interim financial statements. Under the amendments, an analysis of changes in each caption of stockholders' equity presented in the balance sheet must be provided in a note or separate statement. The analysis should present a reconciliation of the beginning balance to the ending balance of each period for which a statement of comprehensive income is required to be filed. The final rule was published in the Federal Register on October 4, 2018, effective November 5, 2018. The Company adopted the amendments in the first quarter of fiscal year 2020. See consolidated condensed statements of stockholders' equity.

In December 2019, the FASB issued ASU No. 2019-12, *Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes*. The ASU removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application. This ASU is effective for fiscal years beginning after December 15, 2020, including interim periods within that fiscal year, with early adoption permitted. The Company is currently evaluating the impact of this ASU, but does not expect a material impact to the financial statements upon adoption.

### Results of Operations

Our fiscal year is the 52- or 53-week period ending on the last Saturday in March. Fiscal years 2020 and 2019 are both 52-week fiscal years.

The following table summarizes the results of our operations for the first three and nine months of fiscal years 2020 and 2019, respectively, as a percentage of net sales. All percentage amounts were calculated using the underlying data in thousands, unaudited:

|  | Three Months Ended December 28, 2019 | December 29, 2018 | Nine Months Ended December 28, 2019 | December 29, 2018 |
| --- | ---: | ---: | ---: | ---: |
| Net sales | 100% | 100% | 100% | 100% |
| Gross margin | 53% | 50% | 53% | 50% |
| Research and development | 24% | 27% | 27% | 30% |
| Selling, general and administrative | 10% | 9% | 10% | 10% |
| Income from operations | 19% | 14% | 16% | 10% |
| Interest income | 1% | —% | 1% | —% |
| Interest expense | —% | —% | —% | —% |
| U.K. pension settlement | —% | (4)% | —% | (1)% |
| Other income (expense) | —% | —% | —% | —% |
| Income before income taxes | 20% | 10% | 17% | 9% |
| Provision for income taxes | 2% | 1% | 2% | —% |
| Net income | 18% | 9% | 15% | 9% |

#### Net Sales

Net sales for the third quarter of fiscal year 2020 increased $50.4 million, or 16 percent, to $374.7 million from $324.3 million in the third quarter of fiscal year 2019. Net sales from our portable products increased $56.2 million, primarily due to increased unit volumes and content for smartphones, including higher sales of boosted amplifiers at Android customers. Non-portable and other product sales decreased $5.8 million for the quarter versus the comparable period in the prior fiscal year.

Net sales for the first nine months of fiscal year 2020 increased $56.7 million, or 6%, to $1,001.8 million from $945.1 million in the first nine months of fiscal year 2019. Net sales from our portable products increased $72.2 million, primarily due to increased content in smartphones, including higher sales of boosted amplifiers at Android customers. Non-portable and other product sales decreased $15.5 million for the first nine months of fiscal year 2020 versus the comparable period in the prior fiscal year.

Sales to non-U.S. customers, principally located in Asia, including sales to U.S.-based end customers that manufacture products through contract manufacturers or plants located overseas, were approximately 99 percent and 98 percent of net sales for the third quarter of fiscal years 2020 and 2019, respectively and 99 percent and 98 percent for the first nine months of fiscal years 2020 and 2019, respectively. Our sales are denominated primarily in U.S. dollars.

Since the components we produce are largely proprietary, we consider our end customer to be the entity specifying the use of our component in their design. These end customers may purchase our products directly from us, through distributors or third-party manufacturers contracted to produce their designs. For the third quarter of fiscal years 2020 and 2019, our ten largest end customers represented approximately 94 percent and 92 percent of our net sales, respectively. For the first nine months of fiscal years 2020 and 2019, our ten largest end customers represented approximately 93 percent and 91 percent of our net sales, respectively.

We had one end customer, Apple Inc., that purchased through multiple contract manufacturers and represented approximately 83 percent of the Company’s total net sales for each of the third quarters of fiscal years 2020 and 2019, and 80 percent and 81 percent for the first nine months of fiscal years 2020 and 2019, respectively.

No other end customer or distributor represented more than 10 percent of net sales for the three and nine months ending December 28, 2019 or December 29, 2018.

For more information, please see Part II—Item 1A—Risk Factors— “We depend on a limited number of customers and distributors for a substantial portion of our sales, and the loss of, or a significant reduction in orders from, or pricing on products sold to, any key customer or distributor could significantly reduce our sales and our profitability.”

#### Gross Margin

Gross margin was 52.7 percent in the third quarter of fiscal year 2020, up from 50.3 percent in the third quarter of fiscal year 2019. The increase was primarily driven by favorable product mix and cost reductions on certain products, and to a lesser extent, lower reserves and supply chain efficiencies in the current fiscal quarter versus the third quarter of fiscal year 2019.

Gross margin was 52.7 percent for the first nine months of fiscal year 2020, up from 50.0 percent for the first nine months of fiscal year 2019. The increase was primarily driven by favorable product mix and cost reductions on certain products, and to a lesser extent, lower reserves and supply chain efficiencies, in the first nine months of fiscal year 2020 versus the first nine months of fiscal year 2019.

#### Research and Development Expense

Research and development expense for the third quarter of fiscal year 2020 was $88.7 million, an increase of $0.1 million, from $88.6 million in the third quarter of fiscal year 2019. The primary drivers were increased employee-related expenses, primarily variable compensation and stock-based compensation, and product development costs, offset by increased R&D incentives and decreases in costs related to asset impairment, the amortization of acquisition-related intangibles, and facilities.

Research and development expense for the first nine months of fiscal year 2020 was $265.8 million, a decrease of $17.1 million, or 6% percent, from $282.9 million for the first nine months of fiscal year 2019. The primary drivers were decreased amortization of acquisition-related intangibles, increased R&D incentives and decreased asset impairment costs during the current fiscal year, partially offset by increased employee-related expenses, primarily variable compensation and stock-based compensation.

#### Selling, General and Administrative Expense

Selling, general and administrative expense for the third quarter of fiscal year 2020 was $36.1 million, an increase of $5.7 million, or 19% percent, from $30.4 million in the third quarter of fiscal year 2019. The increase was primarily driven by increases in employee-related expenses, primarily variable compensation and stock-based compensation, as well as facilities-related costs.

Selling, general and administrative expense for the first nine months of fiscal year 2020 was $98.7 million, an increase of $2.4 million, or 2% percent, from $96.3 million for the first nine months of fiscal year 2019, primarily due to an increase in employee-related expenses, primarily variable compensation.

#### Interest Income

The Company reported interest income of $2.7 million and $7.7 million, for the three and nine months ended December 28, 2019, respectively and $2.0 million and $5.5 million for the three and nine months ended December 29, 2018, respectively. Interest income increased in the current period due to higher yields on higher average cash, cash equivalent and marketable securities balances, compared to the prior period.

#### Interest Expense

The Company reported interest expense of $0.3 million and $0.8 million for the three and nine months ended December 28, 2019, respectively and $0.3 million and $0.8 million for the three and nine months ended December 29, 2018, respectively. Interest expense consists primarily of unused commitment fees.

#### U.K. Pension Settlement

The Company settled its defined benefit pension scheme in the third quarter of fiscal year 2019. A settlement loss of $13.8 million was recognized, which was the amount of the previously recorded unamortized actuarial pension loss in AOCI. The loss is presented as a separate line item in the consolidated condensed statement of income under the caption "U.K. pension settlement". The Company will have no further contribution obligations going forward.

#### Other Income (Expense)

For the three and nine months ended December 28, 2019, the Company reported $0.6 million and $1.5 million, respectively, in other expense and immaterial amounts for the three and nine months ended December 29, 2018, primarily related to remeasurement on foreign currency denominated monetary assets and liabilities.

#### Income Taxes

Our provision for income taxes is based on estimated effective tax rates derived from an estimate of annual consolidated earnings before taxes, adjusted for nondeductible expenses, other permanent items and any applicable credits.

The following table presents the provision for income taxes (in thousands) and the effective tax rates:

|  | Three Months Ended December 28, 2019 | December 29, 2018 | Nine Months Ended December 28, 2019 | December 29, 2018 |
| --- | ---: | ---: | ---: | ---: |
| Income before income taxes | $74,508 | $32,314 | $168,917 | $84,539 |
| Provision for income taxes | $5,996 | $2,381 | $19,577 | $705 |
| Effective tax rate | 8.0% | 7.4% | 11.6% | 0.8% |

Our income tax expense for the third quarter of fiscal year 2020 was $6.0 million compared to $2.4 million of income tax expense for the third quarter of fiscal year 2019, resulting in effective tax rates of 8.0% and 7.4% for the third quarter of fiscal years 2020 and 2019, respectively. Our income tax expense was $19.6 million for the first nine months of fiscal year 2020 compared to income tax expense of $0.7 million for the first nine months of fiscal year 2019, resulting in effective tax rates of 11.6% and 0.8%, respectively.

Our effective tax rates for the third quarter and first nine months of fiscal year 2020 were lower than the federal statutory rate primarily due to the effect of income earned in certain foreign jurisdictions that is taxed below the federal statutory rate, the release of prior year unrecognized tax benefits in the third quarter due to the lapse of the statute of limitations applicable to a tax position taken on a prior year tax return, as well as excess tax benefits from stock-based compensation. Our effective tax rate for the first nine months of fiscal year 2020 was further reduced by the release of prior year unrecognized tax benefits due to the closure of the tax audit of the Company's U.K. subsidiaries in the second quarter of fiscal year 2020.

Our effective tax rates for the third quarter and first nine months of fiscal year 2019 were lower than the federal statutory rate primarily due to the U.S. federal research and development tax credit and the effect of income earned in certain foreign jurisdictions that is taxed below the federal statutory rate. Our effective tax rate for the first nine months of fiscal year 2019 was further reduced by adjustments recorded to reduce the provisional amount of the Tax Cuts and Jobs Act's transition tax in the second quarter of fiscal year 2019.

### Liquidity and Capital Resources

We require cash to fund our operating expenses and working capital requirements, including outlays for inventory, capital expenditures, share repurchases, and strategic acquisitions. Our principal sources of liquidity are cash on hand, cash generated from operations, cash generated from the sale and maturity of marketable securities, and available borrowings under our $300 million senior secured revolving credit facility.

Cash generated by operating activities is net income adjusted for certain non-cash items and changes in working capital. Cash flow from operations was $246.5 million for the first nine months of fiscal year 2020 as compared to $197.1 million for the corresponding period of fiscal year 2019. The cash flow from operations during the first nine months of fiscal year 2020 was related to the cash components of our net income and a $4.9 million favorable change in working capital, primarily as a result of increases in accounts payable and decreases in inventories, partially offset by increases in accounts receivable. The cash flow from operations during the corresponding period of fiscal year 2019 was related to the cash components of our net income and a $2.1 million favorable change in working capital, primarily as a result of decreases in inventories and increases in accounts payable, partially offset by increases in accounts receivable.

Net cash used in investing activities was $50.3 million during the first nine months of fiscal year 2020 as compared to $51.5 million used in investing activities during the first nine months of fiscal year 2019. The cash used in investing activities in the first nine months of fiscal year 2020 is primarily related to net purchases of marketable securities of $32.2 million and capital expenditures and technology investments of $18.2 million. The cash used in investing activities in the corresponding period in fiscal year 2019 was primarily related to capital expenditures and technology investments of $26.1 million and net purchases of marketable securities of $25.3 million.

Net cash used in financing activities was $70.1 million during the first nine months of fiscal year 2020. The cash used during the first nine months of fiscal year 2020 was primarily associated with stock repurchases of $70.0 million. The cash used in financing activities was $162.0 million for the first nine months of fiscal year 2019. The use of cash during the first nine months of fiscal year 2019 was primarily associated with stock repurchases during the period of $150.0 million.

Our future capital requirements will depend on many factors, including the rate of sales growth, market acceptance of our products, the timing and extent of research and development projects, potential acquisitions of companies or technologies and the expansion of our sales and marketing activities. We believe our expected future cash earnings, existing cash, cash equivalents, investment balances, and available borrowings under our Credit Facility will be sufficient to meet our capital requirements through at least the next 12 months, although we could be required, or could elect, to seek additional funding prior to that time.

#### Revolving Credit Facilities

On July 12, 2016, Cirrus Logic entered into an amended and restated credit agreement (the “Credit Agreement”) with Wells Fargo Bank, National Association, as Administrative Agent, and the Lenders party thereto, for the purpose of refinancing an existing credit facility and providing ongoing working capital. The Credit Agreement provides for a $300 million senior secured revolving credit facility (the “Credit Facility”). The Credit Facility matures on July 12, 2021. The Credit Facility is required to be guaranteed by all of Cirrus Logic’s material domestic subsidiaries (the “Subsidiary Guarantors”). The Credit Facility is secured by substantially all of the assets of Cirrus Logic and any Subsidiary Guarantors, except for certain excluded assets.

Borrowings under the Credit Facility may, at our election, bear interest at either (a) a base rate plus the applicable margin (“Base Rate Loans”) or (b) a LIBOR rate plus the applicable margin (“LIBOR Rate Loans”). The applicable margin ranges from 0% to 0.50% per annum for Base Rate Loans and 1.25% to 2.00% per annum for LIBOR Rate Loans based on the Leverage Ratio (as defined below). A commitment fee accrues at a rate per annum ranging from 0.20% to 0.30% (based on the Leverage Ratio) on the average daily unused portion of the commitment of the lenders. The Credit Agreement contains certain financial covenants providing that (a) the ratio of consolidated funded indebtedness to consolidated EBITDA for the prior four fiscal quarters must not be greater than 3.00 to 1.00 (the “Leverage Ratio”) and (b) the ratio of consolidated EBITDA for the prior four consecutive fiscal quarters to consolidated fixed charges (including amounts paid in cash for consolidated interest expenses, capital expenditures, scheduled principal payments of indebtedness, and income taxes) for the prior four consecutive fiscal quarters must not be less than 1.25 to 1.00 as of the end of each fiscal quarter. The Credit Agreement also contains negative covenants limiting the Company’s or any Subsidiary’s ability to, among other things, incur debt, grant liens, make investments, effect certain fundamental changes, make certain asset dispositions, and make certain restricted payments.

As of December 28, 2019, the Company had no amounts outstanding under the Credit Facility and was in compliance with all covenants under the Credit Agreement.

## Market risk

As filed, 1,081 characters.

We are exposed to market risks associated with interest rates on our debt securities, currency movements on non-U.S. dollar denominated assets and liabilities, and the effect of market factors on the value of our marketable securities. We assess these risks on a regular basis and have established policies that are designed to protect against the adverse effects of these and other potential exposures. Beginning in the first quarter of fiscal year 2020, we began using forward contracts to manage exposure to foreign currency exchange risk attributable to non-U.S. dollar exposures. Gains and losses from these foreign currency forward contracts are recognized currently in earnings along with the gains and losses resulting from remeasuring the underlying exposures. For further description of our market risks, see “*Part II – Item 7A – Quantitative and Qualitative Disclosures about Market Risk”* in our fiscal year 2019 Annual Report on Form 10-K filed with the Commission on May 24, 2019. For related financial statement impact see Note 5 - Derivative Financial Instruments.

## Controls and procedures

As filed, 1,427 characters.

#### Evaluation of disclosure controls and procedures

As required by Rule 13a-15(b) of the Exchange Act, we have evaluated, under the supervision and with the participation of our management, including our chief executive officer (CEO) and chief financial officer (CFO), the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act) as of the end of the period covered by this Form 10-Q. Our disclosure controls and procedures are designed to provide reasonable assurance that the information required to be disclosed by us in reports that we file or submit under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in the Commission rules and forms and (ii) accumulated and communicated to our management, including our CEO and CFO, as appropriate, to allow timely decisions regarding required disclosure.

Based upon the evaluation, our management, including our CEO and CFO, has concluded that our disclosure controls and procedures were effective as of December 28, 2019.

#### Changes in control over financial reporting

There has been no change in the Company’s internal control over financial reporting during the quarter ended December 28, 2019, that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

## Risk factors

As filed, 5,293 characters.

In evaluating all forward-looking statements, you should specifically consider risk factors that may cause actual results to vary from those contained in the forward-looking statements. Various risk factors associated with our business are included in our Annual Report on Form 10-K for the year ended March 30, 2019, as filed with the Commission on May 24, 2019, and available at www.sec.gov. Other than as set forth below, there have been no material changes to those risk factors previously disclosed in our Annual Report on Form 10-K for the fiscal year ended March 30, 2019.

***We depend on a limited number of customers and distributors for a substantial portion of our sales, and the loss of, or a significant reduction in orders from, or pricing on products sold to, any key customer or distributor could significantly reduce our sales and our profitability.***

While we generate sales from a broad base of customers worldwide, the loss of any of our key customers, or a significant reduction in sales or selling prices to any key customer, or reductions in selling prices made to retain key customer relationships, would significantly reduce our revenue, margins and earnings and adversely affect our business. For the third quarter of fiscal years 2020 and 2019, our ten largest end customers represented approximately 94 percent and 92 percent of our net sales, respectively. For the first nine months of fiscal years 2020 and 2019, our ten largest end customers represented approximately 93 percent and 91 percent of our net sales, respectively. We had one end customer, Apple Inc. that purchased through multiple contract manufacturers and represented approximately 83 percent of the Company’s total net sales for each of the third quarters of fiscal years 2020 and 2019 and 80 percent and 81 percent of the Company’s total net sales for the first nine months of fiscal years 2020 and 2019, respectively. No other end customer or distributor represented more than 10 percent of net sales for the three and nine months ending December 28, 2019, or December 29, 2018.

We may not be able to maintain or increase sales to certain of our key customers for a variety of reasons, including the following:

- most of our customers can stop incorporating our products into their own products with limited notice to us and suffer little or no penalty;
- our agreements with our customers typically do not require them to purchase a minimum quantity of our products;
- many of our customers have pre-existing or concurrent relationships with our current or potential competitors that may affect the customers’ decisions to purchase our products;
- our customers face intense competition from other manufacturers that do not use our products; and
- our customers regularly evaluate alternative sources of supply in order to diversify their supplier base, which increases their negotiating leverage with us and their ability to obtain components from alternative sources.

In addition, our dependence on a limited number of key customers may make it easier for key customers to pressure us to reduce the prices of the products we sell to them. We have experienced pricing pressure from certain key customers, and we expect that the average selling prices for certain of our products will decline, reducing our revenue, our margins, and our earnings.

Our key customer relationships often require us to develop new products that may involve significant technological challenges. Our customers frequently place considerable pressure on us to meet their tight development schedules. In addition, we may from time to time enter into customer agreements providing for exclusivity periods during which we may only sell specified products or technologies to that customer. Accordingly, we may have to devote a substantial amount of resources to strategic relationships, which could detract from or delay our completion of other important development projects or the development of next generation products and technologies.

***We have significant international sales and operations and face risks related to health epidemics that could impact our sales and operating results.***

Our business could be adversely affected by the effects of a widespread outbreak of contagious disease, including the recent outbreak of respiratory illness caused by a novel coronavirus first identified in Wuhan, Hubei Province, China. Any outbreak of contagious diseases, and other adverse public health developments, particularly in Asia, could have a material and adverse effect on our business operations. These could include disruptions or restrictions on our ability to travel or to distribute our products, as well as temporary closures of our facilities or the facilities of our suppliers or customers and their contract manufacturers. Any disruption of our suppliers or customers and their contract manufacturers would likely impact our sales and operating results. In addition, a significant outbreak of contagious diseases in the human population could result in a widespread health crisis that could adversely affect the economies and financial markets of many countries, resulting in an economic downturn that could affect demand for our end customers’ products and likely impact our operating results.

Filed Jan 29, 2020.
Source: SEC EDGAR, the filing index for accession 0000772406-20-000003. Last ingested by Listed: Oct 24, 2026, 14:56 ET. No prices; not investment advice.