What changed in this filing

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Item 7. Management’s Discussion and Analysis

2022-02-02 compared with 2021-02-03 · 135 added, 116 removed, 181 unchanged (58% of the section changed)

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Our fiscal year-end financial reporting periods are a 52- or 53-week fiscal year that ends on the Saturday closest to December 31.

Fiscal 2020 was a 53-week year with the extra week occurring in the first quarter of the year and ended on January 2, 2021.

Fiscal 2019 and 2018 were 52-week years and ended on December 28, 2019 and December 29, 2018, respectively.

Fiscal 2021 had 52 weeks.

Fiscal 2020 had 53 weeks with the extra week occurring in the first quarter of the year.

Fiscal 2019 had 52 weeks.

Fiscal 2021, 2020 and 2019 ended on January 1, 2022, January 2, 2021 and December 28, 2019, respectively.

Impact of COVID-19

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An extended period of global supply chain and economic disruption could materially affect our business, results of operations, access to sources of liquidity and financial condition.

We are a leading provider of silicon, software and solutions for a smarter, more connected world.

Our award-winning technologies are shaping the future of the Internet of Things (IoT), internet infrastructure, industrial automation, consumer and automotive markets.

Our world-class engineering team creates products focused on performance, energy savings, connectivity and simplicity.

Our primary semiconductor products are mixed-signal integrated circuits (ICs), which are electronic components that convert real-world analog signals, such as sound and radio waves, into digital signals that electronic products can process.

We are a leader in secure, intelligent wireless technology for a more connected world.

Our integrated hardware and software platform, intuitive development tools, industry leading ecosystem and robust support enable customers in building advanced industrial, commercial, home and life applications.

We make it easy for developers to solve complex wireless challenges throughout the product lifecycle and get to market quickly with innovative solutions that transform industries, grow economies and improve lives.

We provide analog-intensive, mixed-signal solutions for use in a variety of electronic products in a broad range of applications for the Internet of Things (IoT) including connected home and security, industrial automation and control, smart metering, smart lighting, commercial building automation, consumer electronics, asset tracking and medical instrumentation.

As a fabless semiconductor company, we rely on third-party semiconductor fabricators in Asia, and to a lesser extent the United States and Europe, to manufacture the silicon wafers that reflect our IC designs.

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Testing performed by such third parties facilitates faster delivery of products to our customers (particularly those located in Asia), shorter production cycle times, lower inventory requirements, lower costs and increased flexibility of test capacity.

Our expertise in analog-intensive, high-performance, mixed-signal ICs and software enables us to develop highly differentiated solutions that address multiple markets.

We group our products into the following categories:

● Internet of Things products, which include wireless connectivity, microcontroller (MCU) and sensor products;

● Infrastructure and automotive products, which include timing products (clocks and oscillators);

power products (isolation and Power over Ethernet (PoE) devices);

broadcast products (consumer and automotive radio devices);

and access products (Voice over IP (VoIP) products and embedded modems).

We have combined our previous product groups, Infrastructure, Broadcast and Access, into the Infrastructure and automotive product group.

Prior periods were retrospectively adjusted.

The sales cycle for our ICs can be as long as 12 months or more.

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Accordingly, if we incur substantial research and development costs without developing a commercially successful product, our operating results, as well as our growth prospects, could be adversely affected.

Because some of our ICs are designed for use in consumer products such as televisions, set-top boxes and radios, we expect that the demand for our products will be typically subject to some degree of seasonal demand.

Because some of our ICs are designed for use in consumer products, we expect that the demand for our products will be typically subject to some degree of seasonal demand.

However, rapid changes in our markets and across our product areas make it difficult for us to accurately estimate the impact of seasonal factors on our business.

Current Period Highlights

Revenues increased $49.1 million in fiscal 2020 compared to fiscal 2019 due to increased revenues from both our IoT products and Infrastructure and automotive products.

Discontinued Operations

On April 22, 2021, we entered into an Asset Purchase Agreement pursuant to which Skyworks Solutions, Inc.

agreed to acquire certain assets, rights, and properties, and assume certain liabilities, comprising our infrastructure and automotive business for $2.75 billion in cash.

The sale was completed pursuant to the terms of the Agreement on July 26, 2021.

The results of operations of the sold component have been presented in the accompanying consolidated financial statements as discontinued operations and, therefore, are excluded from the following discussion of the results of our continuing operations.

Current Period Highlights of Continuing Operations

Revenues increased $209.9 million in fiscal 2021 compared to fiscal 2020 due to increased demand for our products.

Gross profit increased $130.6 million during the same period due primarily to increased product sales.

Gross margin decreased to 59.5% in fiscal 2020 compared to 60.9% in fiscal 2019 primarily due to variations in product mix.

Operating expenses increased $35.6 million in fiscal 2020 compared to fiscal 2019 due primarily to increased personnel-related expenses, new product introduction costs, amortization of intangible assets and occupancy costs.

Operating income in fiscal 2020 was $38.3 million compared to $56.7 million in fiscal 2019.

We ended fiscal 2020 with $724.7 million in cash, cash equivalents and short-term investments.

Gross margin increased to 59.0% in fiscal 2021 compared to 57.7% in fiscal 2020 primarily due to variations in product mix.

Operating expenses increased $56.3 million in fiscal 2021 compared to fiscal 2020 due primarily to increased personnel-related expenses, new product introduction costs, occupancy costs and amortization of intangible assets.

Operating loss in fiscal 2021 was $32.8 million compared to $107.1 million in fiscal 2020.

We ended fiscal 2021 with $2.0 billion in cash, cash equivalents and short-term investments.

Net cash provided by operating activities was $91.2 million during fiscal 2021.

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Inventory was $49.3 million at January 1, 2022, representing 55 days of inventory (DOI).

In fiscal 2020, we repurchased 0.2 million shares of our common stock for $16.3 million.

Through acquisitions and internal development efforts, we have continued to diversify our product portfolio and introduce new products and solutions with added functionality and further integration.

On April 28, 2020, we acquired the Wi-Fi and Bluetooth business of Redpine Signals for approximately $317 million in cash.

We believe the acquisition will accelerate our roadmap for Wi-Fi and Bluetooth silicon and software solutions.

In fiscal 2020, we introduced a Z-Wave Long Range (LR) solution enabling one mile connectivity for Z-Wave 700 Series products;

highly integrated modules designed to simplify implementation of IEEE 1588 in communications, smart grid, financial trading and industrial applications;

new isolated gate drivers that cut latency by 50 percent while significantly increasing transient immunity;

new small form-factor, high-performance crystal oscillators (XOs) and voltage-controlled crystal oscillators (VCXOs) for applications that require low jitter and frequency-flexible clock synthesis;

a Bluetooth Low Energy system-in-package (SiP) that adds turnkey Bluetooth connectivity to extremely small products;

a major upgrade to our Integrated Developer Environment (IDE) with the launch of Simplicity Studio 5;

energy-friendly power management ICs (PMICs) that enhance the energy efficiency of battery-powered applications;

a Power over Ethernet (PoE) portfolio that reduces the cost and complexity of adding 90 W PoE to power sourcing equipment (PSE) and powered devices (PD);

Secure Vault technology, an award-winning suite of state-of-the-art security with features designed to help connected device manufacturers address escalating IoT security threats and regulatory pressures;

secure, proprietary wireless system-on-chip (SoC) devices designed for power- and size-constrained IoT products such as electronic shelf labels;

secure, ultra-low-power SoCs optimized for Zigbee Green Power applications powered by coin cell batteries or energy-harvesting sources;

and a Bluetooth SoC solution delivering a combination of security features, wireless performance, energy efficiency, and software tools and stacks to meet the market demand for high-volume, battery-powered IoT products.

We plan to continue to introduce products that increase the content we provide for existing applications, thereby enabling us to serve markets we do not currently address and expand our total available market opportunity.

In fiscal 2021, we repurchased 6.5 million shares of our common stock for an aggregate cost of $1.15 billion, including 4.0 million shares through a tender offer, 1.7 million shares through an ASR agreement and 0.8 million shares through our existing share repurchase program.

During fiscal 2021, we paid $140.6 million in cash and issued 528,022 shares of common stock in connection with the redemption of the remaining principal of our 2022 convertible senior notes.

Through acquisitions and internal development efforts, we have continued to diversify our portfolio and introduce new products and solutions with added functionality and integration.

In fiscal 2021, we introduced a 3D virtual smart home platform that takes users through innovative smart home solutions, various applicable protocols, and ecosystem connections;

Z-Wave 800 system-on-chips (SoCs) and modules for the Z-Wave smart home and automation ecosystem;

Custom Part Manufacturing Service (CPMS) to support IoT companies with the implementation of ‘Zero Trust’ security architectures to meet emerging cybersecurity standards;

the Unify Software Development Kit (SDK), which provides the common building blocks for connectivity across IoT ecosystems;

new sub-1-GHz SoCs delivering wireless solutions that combine long-range RF and energy efficiency with certified ARM PSA Level 3 security;

a fully integrated, certified Wi-SUN® solution simplifying Low Power Wide Area Network (LPWAN) deployment for smart cities;

wireless solutions for development of Matter end products that support Thread, Wi-Fi, and Bluetooth protocols;

and a new 32-bit MCU on our award-winning xG22 platform for IoT edge applications.

We plan to continue introducing products that increase the content we provide for existing applications, thereby enabling us to serve markets we do not currently address and expand our total available market opportunity.

During fiscal 2021, 2020 and 2019, we had no customer that represented more than 10% of our revenues.

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Although we actually sell the products to, and are paid by, the distributors and contract manufacturers, we refer to such end customer as our customer.

Three of our distributors who sell to our customers, Arrow Electronics, Edom Technology and Sekorm, each represented 26%, 22% and 11% of our revenues during fiscal 2020, respectively.

Arrow and Edom, each represented 26% and 20% of our revenues during fiscal 2019, and 21% and 17% of our revenues during fiscal 2018, respectively.

Three of our distributors who sell to our customers, Arrow Electronics, Edom Technology and Sekorm, each represented 28%, 18% and 12% of our revenues during fiscal 2021, 28%, 19% and 14% of our revenues during fiscal 2020, and 26%, 18% and 10% of our revenues during fiscal 2019, respectively.

The percentage of our revenues derived from outside of the United States was 86% in fiscal 2021, 88% in fiscal 2020 and 87% in fiscal 2019.

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Interest Income and Other, Net.

Interest income and other, net reflects interest earned on our cash, cash equivalents and investment balances, foreign currency remeasurement adjustments, income or loss on equity method investments, and other non-operating income and expenses.

Interest income and other, net reflects interest earned on our cash, cash equivalents and investment balances, foreign currency remeasurement adjustments, and other non-operating income and expenses.

Interest Expense.

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Interest expense on our convertible senior notes includes contractual interest, amortization of the debt discount and amortization of debt issuance costs.

Equity-method Earnings.

Equity-method earnings represents income or loss on our equity-method investment.

Provision (Benefit) for Income Taxes.

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Operating expenses

Operating income

Operating loss

Other income (expense):

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Interest expense

Income before income taxes

Loss from continuing operations before income taxes

Provision (benefit) for income taxes

Equity-method earnings

Loss from continuing operations

Income from discontinued operations, net of income taxes

Comparison of Fiscal 2021 to Fiscal 2020

(in millions)

Internet of Things

Infrastructure and automotive

The change in revenues in fiscal 2020 was due to:

● Increased revenues of $25.5 million for our IoT products, due primarily to increased demand for our MCU products and wireless connectivity products and the addition of revenues from an acquisition.

● Increased revenues of $23.6 million for our Infrastructure and automotive products, due primarily to increased demand for our power and timing products.

The increase in revenues in fiscal 2020 was also due to an adjustment of $11.9 million resulting from a change in the assumptions used to estimate variable consideration.

Unit volumes of our products increased by 13.8% and average selling prices decreased by 6.7% compared to fiscal 2019.

The average selling prices of our products may fluctuate significantly from period to period due to changes in product mix and other factors.

The change in revenues in fiscal 2021 was due to increased demand for our IoT products.

Unit shipment volumes of our products increased by 37.1% while average selling prices increased by 2.7% compared to fiscal 2020.

The average selling prices of our products may fluctuate significantly from period to period due to changes in product mix, pricing decisions and other factors.

In general, as our products become more mature, we expect to experience decreases in average selling prices.

We anticipate that newly announced, higher priced, next generation products and product derivatives will offset some of these decreases.

(in millions)

Gross profit increased in fiscal 2021 due primarily to increased product sales.

The change in gross profit in fiscal 2020 was due to an increase in gross profit of $11.7 million for our Infrastructure and automotive products and $5.5 million for our Internet of Things products.

Gross margin decreased in fiscal 2020 primarily due to lower gross margins on our IoT products.

Gross margin declines resulted primarily from lower average selling prices on such products in fiscal 2020.

We may experience declines in the average selling prices of certain of our products.

This creates downward pressure on gross margin and may be offset to the extent we are able to introduce higher margin new products and gain market share with our products;

Gross margin increased in fiscal 2021 primarily due to variations in product mix.

We may experience variations in the average selling prices of certain of our products.

Increases in average selling prices may occur during periods of increased demand, but such demand may be short-lived and could be accompanied by higher product costs.

Declines in average selling prices create downward pressure on gross margin and may be offset to the extent we are able to introduce higher margin new products and gain market share with our products;

reduce costs of existing products through improved design;

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Percent of revenue

The increase in research and development expense in fiscal 2020 was primarily due to increases of $18.5 million for personnel-related expenses, including costs associated with increased headcount and an acquisition, $5.5 million for new product introduction costs, $3.7 million for the amortization of intangible assets and $1.0 million for occupancy costs.

The increase in research and development expense in fiscal 2021 was primarily due to increases of $23.9 million for personnel-related expenses, $8.8 million for new product introduction costs, $2.1 million for occupancy costs and $1.0 million for the amortization of intangible assets.

The decrease in research and development expense as a percent of revenues in fiscal 2021 was due to our increased revenues.

We expect that research and development expense will increase in absolute dollars in the first quarter of 2022 compared to the fourth quarter of 2021.

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Percent of revenue

The increase in selling, general and administrative expense in fiscal 2021 was primarily due to an increase of $18.9 million for personnel-related expenses.

The decrease in selling, general and administrative expense as a percent of revenues in fiscal 2021 was due to our increased revenues.

We expect that selling, general and administrative expense will decrease in absolute dollars in the first quarter of 2022 compared to the fourth quarter of 2021.

Interest Income and Other, Net

Interest income and other, net in fiscal 2021 was $5.7 million compared to $9.0 million in fiscal 2020.

The decrease in interest income and other, net in fiscal 2021 was primarily due to lower interest rates on the underlying instruments.

Interest Expense

Interest expense in fiscal 2021 was $31.0 million compared to $34.1 million in fiscal 2020.

The decrease in interest expense in fiscal 2021 was primarily due to a net decrease of $2.7 million in interest resulting from the reduction in the aggregate balance of convertible notes outstanding and a decrease in borrowings from our existing credit facility.

Provision (Benefit) for Income Taxes

(in millions)

Provision (benefit) for income taxes

Effective tax rate

The provision for income taxes for fiscal 2021 compared to the benefit from income taxes in fiscal 2020 was primarily due to the reallocation of income tax benefit from continuing operations to discontinued operations under Financial Accounting Standards Board (FASB) Accounting Standards Update (ASU) 2019-12, Simplifying the Accounting for Income Taxes, and an increase in the beginning of year valuation allowance on deferred tax assets for state attribute carryforwards.

Additionally, tax expense on the gain from the divestiture of the infrastructure and automotive business to Skyworks Solutions of $346.9 million was recorded in discontinued operations for the period, net of tax benefits associated with discontinued operations before the gain on sale of $7.2 million for fiscal 2021.

Equity-method Earnings

Equity-method earnings in fiscal 2021 were $13.7 million compared to $2.1 million in fiscal 2020.

The increase in equity-method earnings in fiscal 2021 was due to an increase in the unrealized gain on an equity-method investment.

Income from discontinued operations, net of income taxes

(in millions)

Income from discontinued operations, net of income taxes

The increase in income from discontinued operations, net of income taxes in fiscal 2021 was primarily due to a gain on sale of $2.1 billion, net of tax, in fiscal 2021.

See Note 3, Discontinued Operations , to the Consolidated Financial Statements for additional information.

Comparison of Fiscal 2020 to Fiscal 2019

(in millions)

The change in revenues in fiscal 2020 was due to increased demand for our IoT products.

Unit shipment volumes of our products increased by 17.0% while average selling prices decreased by 7.4% compared to fiscal 2019.

(in millions)

Gross profit increased in fiscal 2020 due primarily to increased product sales.

Gross margin decreased in fiscal 2020 primarily due to variations in product mix.

Research and Development

(in millions)

Research and development

Percent of revenue

The increase in research and development expense in fiscal 2020 was primarily due to increases of $18.0 million for personnel-related expenses, including costs associated with increased headcount and an acquisition, $5.2 million for new product introduction costs, $3.5 million for the amortization of intangible assets and $1.1 million for occupancy costs.

Selling, General and Administrative

(in millions)

Selling, general and administrative

Percent of revenue

The increase in selling, general and administrative expense in fiscal 2020 was primarily due to an increase of $3.3 million for personnel-related expenses, including costs associated with increased headcount.

We expect that selling, general and administrative expense will remain relatively stable in absolute dollars in the first quarter of 2021 compared to the fourth quarter of 2020.

Interest Income and Other, Net

Interest income and other, net in fiscal 2020 was $9.0 million compared to $12.9 million in fiscal 2019.

The decrease in interest income and other, net in fiscal 2020 was primarily due to lower interest rates on the underlying instruments, offset by a net gain of $1.8 million recorded in connection an equity investment.

The decrease in interest income and other, net in fiscal 2020 was primarily due to lower interest rates on the underlying instruments.

Interest Expense

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Effective tax rate

The decrease in the effective tax rate for fiscal 2020 as compared to fiscal 2019 was primarily due to the impact in fiscal 2019 of a change in our position related to the treatment of stock-based compensation within our intercompany cost-sharing arrangement offset by the increased impact of fiscal 2020 permanent tax differences.

The decrease in the provision for income taxes for fiscal 2020 as compared to fiscal 2019 was primarily due to the impact in fiscal 2019 of a change in our position related to the treatment of stock-based compensation within our intercompany cost-sharing arrangement offset by the increased impact of fiscal 2020 permanent tax differences.

The incremental, discrete income tax expense recognized in fiscal 2019 for the cost-sharing change was $18.4 million.

The effective tax rates for each of the periods presented differ from the U.S.

federal statutory tax rates of 21% due to the amount of income earned in foreign jurisdictions where the tax rate may be higher or lower than the federal statutory tax rate, and other permanent items including research and development tax credits, the tax effects of stock-based compensation and global intangible low-tax income (“GILTI”).

Comparison of Fiscal 2019 to Fiscal 2018

A discussion of changes in our results of operations from fiscal 2018 to fiscal 2019 has been omitted from this Form 10-K, but may be found in “Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Form 10-K filed with the Securities and Exchange Commission on January 29, 2020.

Equity-method Earnings

Equity-method earnings in fiscal 2020 were $2.1 million compared to $0.3 million in fiscal 2019.

The increase in equity-method earnings in fiscal 2020 was due to an increase in the unrealized gain on an equity-method investment.

Income from discontinued operations, net of income taxes

(in millions)

Income from discontinued operations, net of income taxes

The increase in income from discontinued operations, net of income taxes in fiscal 2020 was primarily due to a decrease in the provision for income taxes in fiscal 2020.

Business Outlook

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Liquidity and Capital Resources

Our principal sources of liquidity as of January 2, 2021 consisted of $724.7 million in cash, cash equivalents and short-term investments, of which approximately $572.8 million was held by our U.S.

Our principal sources of liquidity as of January 1, 2022 consisted of $2.0 billion in cash, cash equivalents and short-term investments, of which approximately $730.7 million was held by our U.S.

The remaining balance was held by our foreign subsidiaries.

Our cash equivalents and short-term investments consisted of government debt securities, which include agency bonds, municipal bonds, variable-rate demand notes, U.S.

Treasury bills and U.S.

Our cash equivalents and short-term investments consisted of government debt securities, which include agency bonds, agency discount notes, municipal bonds and U.S.

government securities;

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Operating Activities

Net cash provided by operating activities was $135.7 million during fiscal 2020, compared to net cash provided of $166.5 million during fiscal 2019.

Operating cash flows during fiscal 2020 reflect our net income of $12.5 million, adjustments of $141.6 million for depreciation, amortization, stock-based compensation and deferred income taxes, and a net cash outflow of $18.4 million due to changes in our operating assets and liabilities.

Net cash provided by operating activities was $166.5 million during fiscal 2019, compared to net cash provided of $173.5 million during fiscal 2018.

Operating cash flows during fiscal 2019 reflect our net income of $19.3 million, adjustments of $147.8 million for depreciation, amortization, stock-based compensation and deferred income taxes, and a net cash outflow of $0.6 million due to changes in our operating assets and liabilities.

Accounts receivable increased to $95.2 million at January 2, 2021 from $75.6 million at December 28, 2019.

Net cash provided by operating activities was $91.2 million during fiscal 2021, compared to net cash used of $8.8 million during fiscal 2020.

Operating cash flows during fiscal 2021 reflect our net income of $2.1 billion, adjustments of $(2.0) billion for income from discontinued operations, depreciation, amortization, stock-based compensation, equity-method earnings and deferred income taxes, and a net cash inflow of $20.7 million due to changes in our operating assets and liabilities.

Net cash used in operating activities was $8.8 million during fiscal 2020, compared to net cash provided of $22.1 million during fiscal 2019.

Operating cash flows during fiscal 2020 reflect our net income of $12.5 million, adjustments of $(2.8) million for income from discontinued operations, depreciation, amortization, stock-based compensation, equity-method earnings and deferred income taxes, and a net cash outflow of $18.5 million due to changes in our operating assets and liabilities.

Accounts receivable increased to $98.3 million at January 1, 2022 from $95.2 million at January 2, 2021.

The increase in accounts receivable resulted primarily from normal variations in the timing of collections and billings.

Our average DSO was 35 days at January 2, 2021 and 31 days at December 28, 2019.

Inventory decreased to $66.7 million at January 2, 2021 from $73.1 million at December 28, 2019.

Our inventory level is primarily impacted by our need to make purchase commitments to support forecasted demand and variations between forecasted and actual demand.

Our DOI was 59 days at January 2, 2021 and 76 days at December 28, 2019.

The decline in DOI was primarily due to lower inventory levels at January 2, 2021 resulting from supplier capacity constraints and higher demand for our products.

Our average DSO was 42 days at January 1, 2022 and 35 days at January 2, 2021.

Inventory increased to $49.3 million at January 1, 2022 from $47.9 million at January 2, 2021.

Our inventory levels will vary based on the availability of supply, and to a lesser extent, the impact of variations between forecasted demand used for purchasing inventory and actual demand.

Our DOI was 55 days at January 1, 2022 and 70 days at January 2, 2021.

Investing Activities

Net cash used in investing activities was $476.7 million during fiscal 2021, compared to net cash used of $358.3 million during fiscal 2020.

The increase in cash outflows was principally due to a payment of $316.8 million for the acquisition of the Wi-Fi and Bluetooth business of Redpine Signals, offset by a decrease in cash outflows of $57.4 million from net purchases and sales of marketable securities in fiscal 2020.

The increase in cash outflows was principally due to an increase in cash outflows of $424.7 million from net purchases and sales of marketable securities in fiscal 2021, offset by a cash payment of $316.8 million for the acquisition of the Wi-Fi and Bluetooth business of Redpine Signals in fiscal 2020.

Net cash used in investing activities was $358.3 million during fiscal 2020, compared to net cash used of $102.8 million during fiscal 2019.

The decrease in cash outflows was principally due to a decrease of $237.2 million in net payments for the acquisition of businesses, offset by an increase in cash outflows of $157.8 million in net purchases and sales of marketable securities in fiscal 2019.

The increase in cash outflows was principally due a cash payment of $316.8 million for the acquisition of a business in fiscal 2020, offset by a decrease in cash outflows of $57.4 million from net purchases and sales of marketable securities in fiscal 2019.

Financing Activities

Net cash used in financing activities was $1.3 billion during fiscal 2021, compared to cash provided of $200.9 million during fiscal 2020.

The increase in cash outflows was principally due to an increase of $1.1 billion for repurchases of our common stock in fiscal 2021 and $845.0 million in proceeds from the issuance of debt in fiscal 2020, offset by a decrease of $484.2 million in payments on debt in fiscal 2021.

During fiscal 2021, we repurchased 6.5 million shares, including purchases of 4.0 million shares through a tender offer, 1.7 million shares through an ASR agreement and 0.8 million shares through our existing share repurchase program.

Net cash provided by financing activities was $200.9 million during fiscal 2020, compared to cash used of $29.6 million during fiscal 2019.

The increase in cash inflows was principally due to $845.0 million in proceeds from the issuance of debt and a decrease of $10.4 million for repurchases of our common stock, offset by $623.6 million in payments on debt in fiscal 2020.

Net cash used in financing activities was $29.6 million during fiscal 2019, compared to cash used of $48.8 million during fiscal 2018.

The decrease in cash outflows was principally due to a decrease of $12.6 million for repurchases of our common stock during fiscal 2019.

As of January 2, 2021, our debt included $535 million principal amount convertible senior notes (the “2025 Notes”) and $140.6 million principal amount convertible senior notes (the “2022 Notes”) and we had an undrawn $400 million revolving credit facility.

Discontinued Operations

Net cash provided by discontinued operations was $2.6 billion during fiscal 2021, compared to net cash provided of $141.9 million during fiscal 2020.

The increase in cash inflows was principally due to $2.75 billion in proceeds from the sale of our infrastructure and automotive business, offset by a payment of $252.8 million for incomes taxes on the gain on sale.

Net cash provided by discontinued operations was $141.9 million during fiscal 2020, compared to net cash provided of $140.4 million during fiscal 2019.

As of January 1, 2022, our debt included $535 million principal amount of convertible senior notes (the “2025 Notes”).

We also had an undrawn $400 million revolving credit facility.

We have an option to increase the size of the borrowing capacity of the revolving credit facility by up to the greater of an aggregate of $250 million and 100% of EBITDA, plus an amount that would not cause a secured leverage ratio to exceed 3.25 to 1.00, subject to certain conditions.

On March 27, 2020, we borrowed $310 million under the revolving credit facility.

On June 1, 2020, we used $310.0 million of the 2025 Notes proceeds to repay the revolving credit facility in full.

We used the remainder of the proceeds, along with cash on hand, to repurchase approximately $236.8 million aggregate principal amount of its outstanding 2022 Notes.

We had increased our borrowings as a precautionary measure in order to increase our cash position and preserve financial flexibility in light of current uncertainty in the global markets resulting from the COVID-19 pandemic.

On January 6, 2021, we issued a notice of redemption for the remaining 2022 Notes.

The redemption will occur on March 22, 2021, unless earlier converted.

On January 1, 2022, a condition regarding early conversion of the 2025 Notes was met, and as a result, holders have the right to convert their notes at any time during the quarter ending March 31, 2022.

On January 2, 2022, we irrevocably elected cash settlement for the principal amount of the 2025 Notes.

On January 6, 2021, we issued a notice of redemption for the remaining 2022 convertible senior notes (the “2022 Notes”).

During fiscal 2021, we paid $140.6 million in cash and issued 528,022 shares of common stock in connection with the redemption of the remaining 2022 Notes.

See Note 11, Debt , to the Consolidated Financial Statements for additional information.

Capital Requirements

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 existing cash, cash equivalents, investments and credit under our Credit Facility are 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.

We believe our existing cash, cash equivalents, investments, credit under our Credit Facility, and cash generated from operations are sufficient to meet our short-term and long-term capital requirements, although we could be required, or could elect, to seek additional funding prior to that time.

We may enter into acquisitions or strategic arrangements in the future which also could require us to seek additional equity or debt financing.

Contractual Obligations

The following table summarizes our contractual obligations as of January 2, 2021 (in thousands):

Payments due by period

Long‑term debt obligations (1)

Interest on long‑term debt obligations (2)

Operating lease obligations (3)

Purchase obligations (4)

Other long‑term obligations (5)

(1) Long-term debt obligations represent the principal portion of the 2022 Notes and 2025 Notes.

The remaining principal balance of the 2022 Notes will be redeemed in 2021, and, therefore, has been reclassified to short-term debt.

(2) Interest on our long-term debt obligations primarily represents contractual interest on the 2022 Notes and 2025 Notes.

Interest excludes non-cash amortization of the debt discount and debt issuance costs.

(3) Operating lease obligations include amounts for leased facilities.

(4) Purchase obligations include contractual arrangements in the form of purchase orders with suppliers where there is a fixed non-cancelable payment schedule or minimum payments due with a reduced delivery schedule.

(5) Other long-term obligations primarily represent non-current income taxes and software license obligations.

We are unable to make a reasonably reliable estimate as to when or if cash settlement with taxing authorities will occur for our unrecognized tax benefits.

Therefore, our liability of $3.0 million for unrecognized tax benefits is not included in the table above.

See Note 17, Income Taxes, to the Consolidated Financial Statements for additional information.

Off-Balance Sheet Arrangements

As of January 2, 2021, we had no significant off-balance sheet arrangements.

Our purchase obligations primarily include contractual arrangements in the form of purchase orders with suppliers.

As of January 1, 2022, such purchase obligations were $190.2 million.

For a description of other contractual obligations, see Note 11, Debt , and Note, 12, Leases , to the Consolidated Financial Statements

Critical Accounting Policies and Estimates

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In order to achieve this core principle, we apply a five-step process.

As part of this process, we analyze the performance obligations in a customer contract and estimate the consideration we expect to receive.

As part of this process, we analyze the performance obligations in a customer contract and estimate the variable consideration we expect to receive.

The evaluation of performance obligations requires that we identify the promised goods and services in the contract.

For contracts that contain more than one promised good and service, we then must determine whether the promises are capable of being distinct and if they are separately identifiable from other promises in the contract.

Additionally, for our sales to distributors, we must estimate the impact that price adjustments and rights of return will have on consideration.

Variable consideration primarily includes sales made to distributors under agreements allowing certain rights of return, referred to as stock rotation, and credits issued to the distributor due to price protection.

We estimate variable consideration at the most likely amount to which we expect to be entitled.

We make these estimates based on available information, including recent sales activity and pricing data.

We apply a constraint to our variable consideration estimate which considers both the likelihood of a return and the amount of a potential price concession.

If our evaluation of performance obligations is incorrect, we may recognize revenue sooner or later than is appropriate.

If our estimates of consideration are inaccurate, we may recognize too much or too little revenue in a period.

If our estimates of variable consideration are inaccurate, we may recognize too much or too little revenue in a period.

We may adjust assumptions used to estimate consideration periodically based on analysis of prior estimates.

See Note 14, Revenues , to the Consolidated Financial Statements for additional information.

Stock-based compensation – We recognize the fair-value of stock-based compensation transactions in the Consolidated Statements of Income.

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This process involves calculating the actual current tax liability together with assessing temporary differences in recognition of income (loss) for tax and accounting purposes.

These differences result in deferred tax assets and liabilities, which are included in our Consolidated Balance Sheet.

These differences result in deferred tax assets and liabilities, which are included in our Consolidated Balance Sheets.

We record a valuation allowance when it is more likely than not that some portion or all of the deferred tax assets will not be realized.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis