# Cirrus Logic, Inc.: Form 10-Q for the period ended Dec 25, 2021

- Company: [Cirrus Logic, Inc.](/companies/crus.md) (CIK 772406)
- Form: 10-Q
- Filed: 2022-01-31
- Accepted by EDGAR: Jan 31, 2022, 21:01 ET
- Period: 2021-12-25
- Accession: 0000772406-22-000006
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/772406/000077240622000006/crus-20211225.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/772406/000077240622000006/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2021-12-25.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2021-09-26 to 2021-12-25 | $548.3m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Revenue | 9 months, 2021-03-28 to 2021-12-25 | $1.29bn | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Cost of revenue | 3 months, 2021-09-26 to 2021-12-25 | $258.8m | us-gaap:CostOfGoodsAndServicesSold |
| Cost of revenue | 9 months, 2021-03-28 to 2021-12-25 | $626.6m | us-gaap:CostOfGoodsAndServicesSold |
| Gross profit | 3 months, 2021-09-26 to 2021-12-25 | $289.5m | us-gaap:GrossProfit |
| Gross profit | 9 months, 2021-03-28 to 2021-12-25 | $664.9m | us-gaap:GrossProfit |
| Research and development | 3 months, 2021-09-26 to 2021-12-25 | $107.1m | us-gaap:ResearchAndDevelopmentExpense |
| Research and development | 9 months, 2021-03-28 to 2021-12-25 | $294.9m | us-gaap:ResearchAndDevelopmentExpense |
| Selling, general and administrative | 3 months, 2021-09-26 to 2021-12-25 | $38.2m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Selling, general and administrative | 9 months, 2021-03-28 to 2021-12-25 | $111.5m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Operating income | 3 months, 2021-09-26 to 2021-12-25 | $144.2m | us-gaap:OperatingIncomeLoss |
| Operating income | 9 months, 2021-03-28 to 2021-12-25 | $258.5m | us-gaap:OperatingIncomeLoss |
| Income tax | 3 months, 2021-09-26 to 2021-12-25 | $16.4m | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 9 months, 2021-03-28 to 2021-12-25 | $30.8m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2021-09-26 to 2021-12-25 | $127.6m | us-gaap:NetIncomeLoss |
| Net income | 9 months, 2021-03-28 to 2021-12-25 | $229.9m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2021-09-26 to 2021-12-25 | $2.16 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 9 months, 2021-03-28 to 2021-12-25 | $3.88 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2021-09-26 to 2021-12-25 | $2.23 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 9 months, 2021-03-28 to 2021-12-25 | $4.01 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2021-09-26 to 2021-12-25 | 59,031,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 9 months, 2021-03-28 to 2021-12-25 | 59,317,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 9 months, 2021-03-28 to 2021-12-25 | −$133.5m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 9 months, 2021-03-28 to 2021-12-25 | $18.1m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Share repurchases | 9 months, 2021-03-28 to 2021-12-25 | $92.5m | us-gaap:PaymentsForRepurchaseOfCommonStock |
| Cash and equivalents | at 2021-12-25 | $195.1m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2021-12-25 | $763.5m | us-gaap:AssetsCurrent |
| Total assets | at 2021-12-25 | $2.07bn | us-gaap:Assets |
| Current liabilities | at 2021-12-25 | $239.5m | us-gaap:LiabilitiesCurrent |
| Shareholders' equity | at 2021-12-25 | $1.56bn | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 26,492 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 27, 2021, contained in our fiscal year 2021 Annual Report on Form 10-K filed with the Securities and Exchange Commission (the “Commission”) on May 21, 2021. 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.

### Special Note Regarding Forward-Looking Statements

This Quarterly Report on Form 10-Q including 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, (the "Exchange Act"). These forward-looking statements are based on expectations, estimates, forecasts and projections and the beliefs and assumptions of our management as of the filing of this Form 10-Q. 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 and readers should not place undue reliance on such 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 2021 Annual Report on Form 10-K filed with the Commission on May 21, 2021, 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.

In the second quarter of fiscal year 2022, the Company acquired Lion Semiconductor, Inc. ("Lion") (the "Acquisition"), a leading provider of proprietary fast-charging and power ICs. We entered the transaction with the expectation that the Acquisition would accelerate growth of our high-performance mixed-signal product line in the coming years. See additional information in Note 8 - Acquisition of the Notes to the Consolidated Condensed Financial Statements and Item 1A. Risk Factors below.

Cirrus Logic continues to experience demand significantly above available capacity and are actively working with our suppliers to meet as much demand as possible while also balancing our customer relationships and financial health. In the second quarter of fiscal year 2022, we entered into a long-term Capacity Reservation and Wafer Supply Commitment Agreement with GlobalFoundries, a foundry partner for many of our strategic products. This will expand our ability to address unprecedented market demand and provide customers with much-needed supply assurance. We agreed to $255 million in payments to GlobalFoundries under this agreement, which includes the previously announced $225 million in capacity commitments and an additional $30 million associated with a technology option that was exercised in the second quarter of fiscal year 2022. These payments were made in the third quarter of fiscal year 2022. See additional information in Note 14 - Commitments and Contingencies of the Notes to the Consolidated Condensed Financial Statements and Item 1A. Risk Factors below.

Additionally, the Company has observed increased competition in hiring and retaining qualified executives and employees, which is expected to result in increased research and development costs in future periods. For more information, please see Item 1A “*Risk Factors”.*

### Impact of COVID-19

The Company remains committed to the safety and well-being of our employees, their families and our communities across the globe, while maintaining business continuity and continuing to provide outstanding support to our customers. At this time, the majority of our employees worldwide continue to work remotely and remain subject to travel restrictions, due to COVID-19. Despite these challenges, all teams across the organization remain highly productive and we currently anticipate that the Company will be able to continue to maintain a similar level of productivity for the foreseeable future. Although we have not experienced a significant reduction in our overall productivity through fiscal year 2022 to date, any increased or additional disruptions to our business operations or those of our suppliers, or additional supply chain costs or constraints, would likely impact our ability to continue to maintain current levels of productivity.

The COVID-19 pandemic is likely to continue to cause volatility and uncertainty in customer demand, worldwide economies and financial markets for some period of time. To date, any negative impact of COVID-19 on the overall demand for our products, cash flow from operations, need for capital expenditures, and our liquidity position has been limited, although we are addressing capacity constraints in our supply chain as described above. The Company has not accessed its Revolving Credit Facility or raised capital in the public or private markets. Given our strong net cash position and available borrowings under our $300 million Revolving Credit Facility, we believe the Company has sufficient liquidity to satisfy our cash needs for the foreseeable future.

### 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.

There have been no significant changes during the nine months ended December 25, 2021, to the information provided under the heading “*Critical Accounting Policies”* included in our fiscal year 2021 Annual Report on Form 10-K for the fiscal year ended March 27, 2021, with the exception of the following as a result of the Acquisition.

#### Business combinations

We account for business combinations using the acquisition method of accounting and allocate the fair value of acquisition consideration to the assets acquired and liabilities assumed based on their fair values at the acquisition date. The excess of the fair value of purchase consideration over the fair value of the assets acquired and liabilities assumed is recorded as goodwill. The results of operations of the business acquired is included in our consolidated condensed statements of income beginning on the date of the acquisition.

### Recently Issued Accounting Pronouncements

For a discussion of recently issued accounting pronouncements, refer to Note 2 of the Notes to the Consolidated Condensed Financial Statements.

### Results of Operations

Our fiscal year is the 52- or 53-week period ending on the last Saturday in March. Fiscal years 2022 and 2021 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 2022 and 2021, respectively, as a percentage of net sales. All percentage amounts were calculated using the underlying data in thousands, unaudited:

|  | Three Months Ended December 25, 2021 | December 26, 2020 | Nine Months Ended December 25, 2021 | December 26, 2020 |
| --- | ---: | ---: | ---: | ---: |
| Net sales | 100% | 100% | 100% | 100% |
| Gross margin | 53% | 52% | 51% | 52% |
| Research and development | 20% | 18% | 23% | 23% |
| Selling, general and administrative | 7% | 7% | 8% | 9% |
| Restructuring costs | —% | —% | —% | —% |
| Income from operations | 26% | 27% | 20% | 20% |
| Interest income | —% | —% | —% | —% |
| Interest expense | —% | —% | —% | —% |
| Other income | —% | —% | —% | —% |
| Income before income taxes | 26% | 27% | 20% | 20% |
| Provision for income taxes | 3% | 3% | 2% | 2% |
| Net income | 23% | 24% | 18% | 18% |

#### Net Sales

Net sales for the third quarter of fiscal year 2022 increased $62.5 million, or 13 percent, to $548.3 million from $485.8 million in the third quarter of fiscal year 2021. Net sales from high-performance mixed-signal products increased $102.5 million for the quarter versus the third quarter of fiscal year 2021, primarily due to content gains in smartphones and, to a lesser extent, higher sales of fast-charging ICs in smartphones. Net sales from our audio products decreased $40.0 million, primarily driven by lower volumes of smartphone components, partly due to a later product launch in calendar 2020 versus 2021; as a result, our inventory build and initial volumes for this cycle began in the September quarter. This decrease was partially offset by increases in audio products in laptops.

Net sales for the first nine months of fiscal year 2022 increased $215.8 million, or 20.1 percent, to $1.29 billion from $1.08 billion in the first nine months of fiscal year 2021. Net sales from high-performance mixed-signal products increased $224.0 million for the first nine months of fiscal year 2022 versus the comparable period in the prior fiscal year due to content gains in smartphones and, to a lesser extent, higher sales of fast-charging ICs in smartphones. Net sales from our audio products decreased $8.2 million, primarily due to lower volumes in smartphones and headwinds in wired headset codecs, partially offset by an increase in audio products in laptops.

International sales, including sales to U.S.-based end customers that manufacture products through contract manufacturers or plants located overseas, were approximately 98 percent of net sales for each of the third quarters and first nine month periods of fiscal years 2022 and 2021. 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 2022 and 2021, our ten largest end customers represented approximately 93 percent and 95 percent of our net sales, respectively. For the first nine months of fiscal years 2022 and 2021, our ten largest customers represented approximately 93 percent and 94 percent of our net sales, respectively.

We had one end customer, Apple Inc., that purchased through multiple contract manufacturers and represented approximately 82 percent and 87 percent, of the Company’s total net sales for the third quarters of fiscal years 2022 and 2021, respectively and 79 percent and 84 percent for the first nine months of fiscal years 2022 and 2021, respectively.

No other end customer or distributor represented more than 10 percent of net sales for the three and nine months ended December 25, 2021 or December 26, 2020.

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 52.8 percent in the third quarter of fiscal year 2022, up from 51.8 percent in the third quarter of fiscal year 2021. The increase reflects the phasing in of price increases across a number of our products in response to escalating costs within our supply chain.

Gross margin was 51.5 percent for the first nine months of fiscal year 2022, down from 52.0 percent for the first nine months of fiscal year 2021. The decrease was due primarily to increased supply chain costs, amortization of the fair value adjustment of inventory as a result of the Acquisition and higher reserves, offset by the phasing in of price increases across a number of our products in response to escalating costs within our supply chain.

#### Research and Development Expense

Research and development expense for the third quarter of fiscal year 2022 was $107.1 million, an increase of $17.7 million, from $89.4 million in the third quarter of fiscal year 2021. The primary drivers were increased amortization of acquisition intangibles, employee-related expenses, acquisition-related costs, stock compensation and variable compensation costs, offset by reduced product development costs.

Research and development expense for the first nine months of fiscal year 2022 was $294.9 million, an increase of $41.9 million, from $253.0 million for the first nine months of fiscal year 2021 primarily due to increased employee-related expenses, including costs associated with the expansion of our power-related products team, amortization of acquisition intangibles, variable compensation, acquisition-related, stock compensation and facilities-related costs, offset by decreased product development costs and increased R&D incentives.

#### Selling, General and Administrative Expense

Selling, general and administrative expense for the third quarter of fiscal year 2022 was $38.2 million, an increase of $5.8 million, from $32.4 million in the third quarter of fiscal year 2021 primarily due to increases in employee-related expenses, stock compensation and professional services costs.

Selling, general and administrative expense for the first nine months of fiscal year 2022 was $111.5 million, an increase of $18.1 million, from $93.4 million for the first nine months of fiscal year 2021. The increase was primarily due to increased employee-related expenses, professional services costs, variable compensation and stock compensation costs during the year.

#### Restructuring Costs

During the fourth quarter of fiscal year 2020, the Company approved the MEMS Restructuring, including discontinuing efforts relating to the MEMS microphone product line. The Company recorded charges of approximately $0.4 million in the first quarter of fiscal year 2021, which included equipment disposal costs and other nonrecurring costs. See Note 11 - Restructuring Costs for additional details.

#### Interest Income

The Company reported interest income of $0.1 million and $1.4 million, for the three and nine months ended December 25, 2021, respectively and $1.5 million and $5.0 million for the three and nine months ended December 26, 2020, respectively. Interest income decreased in the current periods due to lower yields on lower combined average cash, cash equivalent and marketable securities balances, compared to the prior periods.

#### Interest Expense

The Company reported interest expense of $0.2 million and $0.7 million for the three and nine months ended December 25, 2021, respectively and $0.3 million and $0.8 million for the three and nine months ended December 26, 2020, respectively. Interest expense consists primarily of commitment fees associated with the Company's Revolving Credit Facility (see Note 9).

#### Other Income (Expense)

For the three and nine months ended December 25, 2021, the Company reported $0.1 million in other expense and $1.5 million in other income, respectively, and $0.2 million in other expense and $0.7 million in other income for the three and nine months ended December 26, 2020, respectively, 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 25, 2021 | December 26, 2020 | Nine Months Ended December 25, 2021 | December 26, 2020 |
| --- | ---: | ---: | ---: | ---: |
| Income before income taxes | $144,009 | $130,649 | $260,721 | $217,326 |
| Provision for income taxes | $16,373 | $16,281 | $30,780 | $25,263 |
| Effective tax rate | 11.4% | 12.5% | 11.8% | 11.6% |

Our income tax expense for the third quarter of fiscal year 2022 was $16.4 million compared to $16.3 million for the third quarter of fiscal year 2021, resulting in effective tax rates of 11.4% and 12.5%, respectively. Our income tax expense was $30.8 million and $25.3 million for the first nine months of fiscal years 2022 and 2021, respectively, resulting in effective tax rates of 11.8% and 11.6%, respectively. Our effective tax rates for the third quarter and first nine months of fiscal year 2022 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 and excess tax benefits from stock-based compensation. Our effective tax rates for the third quarter and first nine months of fiscal year 2021 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 and excess tax benefits from stock-based compensation. The effective tax rate for the first nine months of fiscal year 2021 was further impacted by the favorable remeasurement of previously unrecognized tax benefits recognized as a discrete item in the second quarter of fiscal year 2021.

### 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 Revolving Credit Facility.

Cash from operating activities is net income adjusted for certain non-cash items and changes in working capital. Cash used in operations was $133.5 million for the first nine months of fiscal year 2022 versus cash provided by operations of $176.4 million for the corresponding period of fiscal year 2021. The cash flow used in operations during the first nine months of fiscal year 2022 was related to the cash components of our net income and a $450.5 million unfavorable change in working capital, primarily as a result of increases in long-term prepaid wafers associated with terms of the Capacity Reservation Agreement with GlobalFoundries (discussed further in Note 14 - Commitments and Contingencies of the Notes to the Consolidated Condensed Financial Statements), accounts receivables and other assets (a large portion of which resulted from terms of the Capacity Reservation Agreement with GlobalFoundries), partially offset by increases in acquisition-related liabilities and decreases in inventory for the period. The cash flow from operations during the corresponding period of fiscal year 2021 was related to the cash components of our net income and a $97.4 million unfavorable change in working capital, primarily as a result of increases in accounts receivable and decreases in income taxes payable.

Net cash used in investing activities was $9.6 million during the first nine months of fiscal year 2022 versus $69.1 million during the first nine months of fiscal year 2021. The cash used in investing activities in the first nine months of fiscal year 2022 was related to the Acquisition, net of cash obtained, of $276.9 million and capital expenditures and technology investments of $21.6 million. Cash used in investing activities was partially offset by net sales of marketable securities of $288.9 million in fiscal year 2022. The cash used in investing activities in the corresponding period in fiscal year 2021 was related to net purchases of marketable securities of $56.1 million and capital expenditures and technology investments of $13.0 million.

Net cash used in financing activities was $104.0 million during the first nine months of fiscal year 2022 and was primarily associated with stock repurchases for the period of $92.5 million. The cash used in financing activities during the first nine months of fiscal year 2021 of $72.1 million was primarily associated with stock repurchases during the period of $65.0 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, the Acquisition (discussed further in Note 8 - Acquisition of the Notes to the Consolidated Condensed Financial Statements and Item 1A. Risk Factors below) and potential future acquisitions of companies or technologies, commitments under the Capacity Reservation Agreement with GlobalFoundries (discussed further in Note 14 - Commitments and Contingencies of the Notes to the Consolidated Condensed Financial Statements and Item 1A. Risk Factors below), 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 Revolving 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.

#### Contractual Obligations

See Note 14 - Commitments and Contingencies, for material changes to our contractual obligations from those previously disclosed in our fiscal year 2021 Annual Report on Form 10-K for the fiscal year ended March 27, 2021.

#### Revolving Credit Facility

On July 8, 2021, the Company entered into a second amended and restated credit agreement (the “Second Amended Credit Agreement”) with Wells Fargo Bank, National Association, as administrative agent, and the lenders party thereto. The Second Amended Credit Agreement provides for a $300 million senior secured revolving credit facility (the “Revolving Credit Facility”). The Revolving Credit Facility matures on July 8, 2026 (the “Maturity Date”). The Revolving Credit Facility is required to be guaranteed by all of Cirrus Logic’s material domestic subsidiaries ("Subsidiary Guarantors"). The Revolving Credit Facility is secured by substantially all the assets of Cirrus Logic and any Subsidiary Guarantors, except for certain excluded assets.

Borrowings under the Revolving Credit Facility may, at Cirrus Logic’s 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 0.75% per annum for Base Rate Loans and 1.00% to 1.75% per annum for LIBOR Rate Loans based on the ratio of consolidated funded indebtedness to consolidated EBITDA for the most recently ended period of four consecutive fiscal quarters (the “Consolidated Leverage Ratio”). The Second Amended Credit Agreement further provides a method for determining an alternative rate of interest if the LIBOR Rate is no longer available or upon the occurrence of certain other events. A Commitment Fee accrues at a rate per annum ranging from 0.175% to 0.275% (based on the Consolidated Leverage Ratio) on the average daily unused portion of the commitment of the lenders.

The Second Amended Credit Agreement contains customary affirmative covenants, including, among others, covenants regarding the payment of taxes and other obligations, maintenance of insurance, reporting requirements, and compliance with applicable laws and regulations. Further, the Second Amended Credit Agreement contains customary negative covenants limiting the ability of Cirrus Logic or any Subsidiary to, among other things, incur debt, grant liens, make investments, effect certain fundamental changes, make certain asset dispositions, and make certain restricted payments. The Revolving Credit Facility also contains certain financial covenants providing that (a) the ratio of consolidated funded indebtedness (minus up to $200 million of unrestricted cash and cash equivalents available on such date) to consolidated EBITDA for the prior four consecutive quarters must not be greater than 3.00 to 1.00 (the “Consolidated Net Leverage Ratio”) and (b) the ratio of consolidated EBITDA for the prior four consecutive quarters to consolidated interest expense paid or payable in cash for the prior four consecutive quarters must not be less than 3.00 to 1.00 (the “Consolidated Interest Coverage Ratio”).

As of December 25, 2021, the Company had no amounts outstanding under the Revolving Credit Facility and was in compliance with all covenants under the Second Amended Credit Agreement.

## Market risk

As filed, 1,039 characters.

We are exposed to market risks associated with interest rates on our debt securities, currency movements on non-functional currency 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. We use forward contracts to manage exposure to foreign currency exchange risk attributable to certain non-U.S. dollar balance sheet 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 2021 Annual Report on Form 10-K filed with the Commission on May 21, 2021. For related financial statement impact see Note 5 - Derivative Financial Instruments.

## Controls and procedures

As filed, 1,447 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 Quarterly Report on 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 25, 2021.

#### 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 25, 2021, that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

## Risk factors

As filed, 17,634 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 27, 2021, as filed with the Commission on May 21, 2021, 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 27, 2021.

***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 2022 and 2021, our ten largest end customers represented approximately 93 percent and 95 percent of our net sales, respectively. For the first nine month periods of fiscal years 2022 and 2021, our ten largest end customers represented approximately 93 percent and 94 percent of our net sales, respectively. We had one end customer, Apple Inc., that purchased through multiple contract manufacturers and represented approximately 82 percent and 87 percent of the Company’s total net sales for the third quarter of fiscal years 2022 and 2021, respectively and 79 percent and 84 percent for the first nine months of fiscal years 2021 and 2020, respectively. No other end customer or distributor represented more than 10 percent of net sales for the three months ended December 25, 2021, or December 26, 2020.

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;
- many of our customers have sufficient resources to internally develop technology solutions and semiconductor components that could replace the products that we currently supply in our customers' end 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. Even without exclusivity periods, the products that we develop are often specific to our customer's system architecture and frequently cannot be sold to other customers. 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.

Moreover, our reliance on certain customers may continue to increase, which could heighten the risks associated with having key customers, including making us more vulnerable to significant reductions in revenue, margins and earnings, pricing pressure, and other adverse effects on our business.

***We have a long-term capacity reservation and wafer supply agreement with GlobalFoundries, which includes obligations to purchase wafers from GlobalFoundries through calendar year 2026. If our requirements are different from the number of*** ***wafers that we have committed to purchase from GlobalFoundries, or if GlobalFoundries is not able to satisfy our manufacturing requirements, our results of operations and financial condition could be adversely impacted.***

Due to recent industry-wide capacity constraints, and in an effort to alleviate some of our future expected supply constraints, the Company entered into a Capacity Reservation and Wafer Supply Commitment Agreement with GlobalFoundries on July 28, 2021. In exchange for GlobalFoundries’ capacity commitment, the Company paid a $60 million non-refundable capacity reservation fee. In addition, the Company pre-paid GlobalFoundries $195 million for future wafer purchases, which will be credited back to the Company as a portion of the price of wafers purchased beginning in the third quarter of calendar year 2023. Pursuant to the agreement, the Company expects to purchase at least $1.6 billion in wafers for calendar years 2022 through 2026. The agreement further sets wafer pricing for products purchased pursuant to the agreement through 2026. Although we believe this agreement is a good use of our financial resources and secures capacity for certain products through 2026, the agreement with GlobalFoundries involves certain risks that may result in excess inventory, place us at a competitive disadvantage, have a negative impact on our liquidity, or materially and adversely affect our results of operations and financial condition.

Pursuant to the agreement, the Company is required to purchase, and GlobalFoundries is required to supply, a certain number of wafers on a quarterly basis. If our actual wafer requirements are less than the number of wafers required to meet the applicable wafer purchase requirements, we could have excess inventory or higher inventory unit costs, both of which may adversely impact our gross margin and our results of operations.

Additionally, the agreement sets forth pricing for wafer purchases pursuant to the agreement through 2026. If market conditions change and wafer prices in the market decrease significantly below what is contemplated in the agreement, the agreement may put us at a competitive disadvantage relative to our competitors.

Even with a long-term supply agreement, we are still subject to risks that GlobalFoundries will be unable to meet their supply commitments, achieve anticipated manufacturing yields, manufacture our products on a timely basis, or provide additional wafer capacity beyond its current contractual commitments sufficient to meet our customers' product demands. If so, we may experience delays in product launches or supply shortages for certain products, which could cause an unanticipated decline in our sales and damage our existing customer relationships and our ability to establish new customer relationships. In addition, if GlobalFoundries experiences financial difficulties or goes into bankruptcy, it could be difficult or impossible, or may require substantial time and expense, for us to recover any or all of our prepayments made as part of the agreement.

Any of the foregoing could materially harm our liquidity, financial condition and results of operations and could put us at a disadvantage relative to our competitors.

***We are dependent on third-party manufacturing and supply chain relationships for all of our products. Our reliance on third-party foundries and suppliers involves certain risks that may result in increased costs, delays in meeting our customers’ demand, and loss of revenue.***

We do not own or operate a semiconductor fabrication facility and do not have the resources to manufacture our products internally. We use third parties to manufacture, assemble, package and test the vast majority of our products. As a result, we are subject to risks associated with these third parties, including:

- insufficient capacity available to meet our demand on time;
- inability for our suppliers to obtain the equipment or replacement parts necessary to fully operate their facilities or expand available manufacturing capacity;
- inadequate manufacturing yields and excessive costs;
- inability of these third parties to obtain an adequate supply of raw materials;
- extended lead times on supplies used in the manufacturing of our products;
- difficulties selecting and integrating new subcontractors;
- limited warranties on products supplied to us;
- potential increases in prices (including the cost of freight); and
- increased exposure to potential misappropriation of our intellectual property.

Outside of our long-term supply agreement for wafer fabrication supply with GlobalFoundries, our outside foundries and assembly and test suppliers generally manufacture our products on a purchase order basis, and we have few other long-term supply arrangements with these suppliers. Therefore, our third-party manufacturers and suppliers are not obligated to supply us with products for any specific period of time, quantity, or price, except as may be provided in any particular purchase order or in relation to an existing supply agreement. A manufacturing or supply disruption experienced by one or more of our outside suppliers or a disruption of our relationship with an outside foundry could negatively impact the production of certain of our products for a substantial period of time.

Like many others in the semiconductor industry, we have experienced the effects of industry-wide manufacturing capacity constraints. These supply challenges are currently limiting our ability to fully satisfy recent increases in demand for some of our products. We do not typically manufacture the majority of these products at more than one foundry or more than one assembly and test subcontractor, and the costs and effort associated with the potential transfer of any portion of our supply chain to a backup supplier would likely be substantial. Therefore, if one or more of our third-party manufacturers and suppliers are not able to provide us sufficient capacity to meet our current demand, we may not be able to ship our products to customers on time and in the quantity requested, which could cause an unanticipated decline in our sales and damage our existing customer relationships and our ability to establish new customer relationships. Capacity constraints could further result in increased prices in our supply chain, which, if we are unable to increase our selling price to our customers or if we have previously committed to pricing with them, could result in lower revenues and margins that could adversely affect our financial results.

In addition, difficulties associated with adapting our technology and product design to the proprietary process technology and design rules of outside foundries can lead to reduced yields of our products. Since low yields may result from either design or process technology failures, yield problems may not be effectively determined or resolved until an actual product exists that can be analyzed and tested to identify process sensitivities relating to the design rules that are used. As a result, yield problems may not be identified until well into the production process, and resolution of yield problems may require cooperation between our manufacturer and us. This risk could be compounded by the offshore location of certain of our manufacturers, increasing the effort and time required to identify, communicate and resolve manufacturing yield problems. Manufacturing defects that we do not discover during the manufacturing or testing process may lead to costly product recalls. These risks may lead to increased costs or delayed product delivery, which would harm our profitability and customer relationships.

In some cases, our requirements may represent a small portion of the total production of the third-party suppliers. As a result, we are subject to the risk that a producer will cease production of an older or lower-volume process that it uses to produce our parts. We cannot provide any assurance that our external foundries will continue to devote resources to the production of parts for our products or continue to advance the process design technologies on which the manufacturing of our products are based. Each of these events could increase our costs, lower our gross margin, and cause us to hold more inventories, or materially impact our ability to deliver our products on time.

***Our acquisition of Lion Semiconductor involves several risks, including, among others, integration risks, risks associated with our ability to retain key employees following the acquisition, and risks associated with our ability to achieve anticipated revenue goals. If the Company fails to manage these risks effectively, the financial and business results of the Company could be adversely affected.***

On July 20, 2021, we completed the acquisition of Lion Semiconductor, Inc. In connection with the transaction, Lion Semiconductor became a wholly-owned subsidiary of the Company. We entered the transaction with the expectation that the acquisition would accelerate growth of our high-performance mixed-signal product line and contribute approximately $60 million in revenue before the end of fiscal year 2022, with strong growth potential in the coming years.

The benefits we expect to realize from the acquisition will depend, in part, on our ability to integrate the businesses successfully and efficiently, and our ability to retain, motivate and support key management, engineering, technical and other personnel. These expected benefits may be further impacted by supply constraints, customer order cancellations or the failure of customers to place orders consistent with current forecasts for Lion Semiconductor’s fast-charging IC products. In addition, a significant portion of our expectations for strong revenue in the coming years depends on products currently under development, which are subject to product development risks associated with the successful completion, testing, and commercial launch of these new products.

If we fail to manage these risks effectively, the financial and business results of the Company could be adversely affected.

***If we fail to attract, hire and retain qualified personnel, we may not be able to develop, market, or sell our products or successfully manage our business.***

Competition for highly qualified personnel in our industry, particularly for qualified executives and employees with technical backgrounds, is intense. The number of technology companies in the geographic areas in which we operate is greater than it has been historically and competition for qualified personnel has intensified, and we expect that it will continue. In this environment, we believe that our ability to attract and retain personnel depends on maintaining a strong workplace culture while providing competitive salaries and benefits. If other employers offer greater compensation, workplace flexibility, or other employee benefits than us, we may experience difficulty in attracting, retaining, and motivating the employees necessary to support our strategic plan.

In addition, there is a risk that changes in immigration laws and regulations, or the administration or enforcement of such laws or regulations, could also impair our ability to attract and retain qualified engineering personnel. In the United States, where the majority of our research and development teams are located, future tightening of immigration controls may adversely affect the employment status of non-U.S. engineers and other key technical employees or further impact our ability to hire new non-U.S. employees. Moreover, certain immigration policies in the United States may make it more difficult for us to recruit and retain highly skilled foreign national graduates of universities in the United States, additionally limiting the pool of available talent. In the U.K., where we maintain several design centers, changes to the immigration system brought about by Brexit will likely make it more difficult to employ E.U. nationals to work in the U.K., also limiting our ability to attract and retain qualified technical personnel.

There are significant costs to the Company associated with attracting and retaining qualified personnel in key technology positions. The loss of the services of key personnel or our inability to hire new personnel with the requisite skills or to assimilate talent could restrict our ability to develop new products or enhance existing products in a timely manner, sell products to our customers, or manage our business effectively, any or all of which could have an adverse impact on our results of operations and financial condition.

Filed Jan 31, 2022.
Source: SEC EDGAR, the filing index for accession 0000772406-22-000006. Last ingested by Listed: Oct 24, 2026, 14:56 ET. No prices; not investment advice.