Home Jersey sale CIRRUS LOGIC, INC. MANAGEMENT REPORT AND ANALYSIS OF FINANCIAL POSITION AND OPERATING RESULTS (Form 10-Q)

CIRRUS LOGIC, INC. MANAGEMENT REPORT AND ANALYSIS OF FINANCIAL POSITION AND OPERATING RESULTS (Form 10-Q)

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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.


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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 best mobile and consumer applications. audience in the world.

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.

In addition, the Company has observed increased competition in hiring and retaining qualified management and employees, which is expected to result in increased research and development costs in future periods. For more information, please see section 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.

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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, see Note 2 of the Notes to the Condensed Consolidated Financial Statements.

Operating results

Our fiscal year is the 52 or 53 week period ending on the last Saturday in March. Both fiscal 2022 and fiscal 2021 are 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                                         Nine Months Ended
                                         December 25,                 December 26,                 December 25,                 December 26,
                                             2021                         2020                         2021                         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.
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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 accounted for more than 10% of net sales for the three and nine months ended December 25, 2021 Where 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 costs

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 expenses

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.


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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 (expenses)

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 consolidated annual profit before tax, adjusted for non-deductible 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                    Nine Months Ended
                               December 25,       December 26,      

December 25th, December 26,

                                   2021               2020               2021               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.

Cash 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
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generated from operations, cash generated from the sale and maturity of marketable securities and borrowings available 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 FY2021 Annual Report on Form 10-K for the 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
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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").

From December 25, 2021the Company had no amounts outstanding under the revolving credit facility and was in compliance with all covenants under the second amended credit agreement.

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