What changed in this filing

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Item 7. Management’s Discussion and Analysis

2022-11-23 compared with 2021-11-24 · 58 added, 70 removed, 129 unchanged (50% of the section changed)

4 unchanged sentences

We, together with our consolidated subsidiaries, are empowering the wireless networking revolution.

Our highly innovative analog semiconductors are connecting people, places, and things spanning a number of new and previously unimagined applications within the aerospace, automotive, broadband, cellular infrastructure, connected home, entertainment and gaming, industrial, medical, military, smartphone, tablet, and wearable markets.

Our highly innovative analog and mixed-signal semiconductors are connecting people, places, and things, spanning a number of new and previously unimagined applications within the aerospace, automotive, broadband, cellular infrastructure, connected home, defense, entertainment and gaming, industrial, medical, smartphone, tablet, and wearable markets.

Impact of COVID-19

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The duration, severity, and future impact of the pandemic, including as a result of more contagious variants of the virus that causes COVID-19, continue to be highly uncertain and could still result in significant disruptions to our business operations, as well as negative impacts to our financial condition.

The semiconductor industry is experiencing various supply constraints due to the pandemic.

Like many companies in the semiconductor industry, we are experiencing various supply constraints due to the pandemic.

While we are working with our global supply chain partners to mitigate this risk, the duration and extent of the supply chain disruptions remain uncertain.

RESULTS OF OPERATIONS

Fiscal Years Ended October 1, 2021, October 2, 2020, and September 27, 2019.

Fiscal Years Ended September 30, 2022, October 1, 2021, and October 2, 2020.

The following table sets forth the results of our operations expressed as a percentage of net revenue.

See Part II, Item 7 of our Annual Report on Form 10-K for the fiscal year ended October 1, 2021, filed with the SEC on November 24, 2021, as amended by Amendment No.

1 to such Annual Report on Form 10-K, filed with the SEC on January 29, 2021 (the “2020 10-K”), for Management’s Discussions and Analysis of Financial Condition and Results of Operations for the fiscal year ended September 27, 2019.

2021 October 2,

1 to such Annual Report on Form 10-K, filed with the SEC on January 28, 2022 (the “2021 10-K”), for Management’s Discussions and Analysis of Financial Condition and Results of Operations for the fiscal year ended October 2, 2020.

Fiscal Years Ended

September 30,

2022 October 1,

2021 October 2,

Net revenue 100.0 % 100.0 % 100.0 %

9 unchanged sentences

Interest expense (0.9) (0.3) —

Other income (expense), net — — 0.3

Income before income taxes 26.9 31.3 26.6

1 unchanged sentence

Net income 23.2 % 29.3 % 24.3 %

During the fiscal year ended October 1, 2021, the following key factors contributed to our overall results of operations, financial position, and cash flows:

• Net revenue increased 52.3% to $5,109.1 million, as compared to fiscal 2020.

This increase in revenue was driven primarily by an increase in overall demand for wireless connectivity products coupled with the onset of technology upgrade cycles, including for 5G and Wi-Fi 6 solutions.

Additionally, our average content per device for these next-generation solutions increased.

• Our ending cash, cash equivalents, and marketable securities balance increased 4.8% to $1,027.2 million as of October 1, 2021, from $980.0 million as of October 2, 2020.

The increase in cash, cash equivalents, and marketable securities during fiscal 2021 was primarily due to cash generated from operations of $1,772.0 million, the borrowing of $1,000.0 million in Term Loans, $500.0 million of Senior Notes due 2023 (the “2023 Notes”), $500.0 million of Senior Notes due 2026 (the “2026 Notes”), and $500.0 million of Senior Notes due 2031 (the “2031 Notes” and, together with the 2023 Notes and the 2026 Notes, the “Notes”), partially offset by payments for acquisitions of $2,751.0 million, capital expenditures of $637.8 million, dividend payments of $340.6 million, repayments of Term Loans of $250.0 million, and the repurchase of 1.4 million shares of common stock for $195.6 million.

During the fiscal year ended September 30, 2022, the following key factors contributed to our overall results of operations, financial position, and cash flows:

• Net revenue increased 7.4% to $5,485.5 million in fiscal 2022, as compared to $5,109.1 million in fiscal 2021.

This increase in revenue was driven primarily by our acquisition in the fourth quarter of fiscal 2021 of the Infrastructure and Automotive business of Silicon Laboratories Inc.

(the “Acquisition”) to support high-growth market segments, such as automotive including electric and hybrid vehicles, industrial and motor control, power supply, 5G wireless infrastructure, optical data communication and data center, and smart home.

The increase in net revenue was also driven in part by an increase in demand for next-generation wireless connectivity products, including for 5G and advanced Wi-Fi solutions, from major OEMs and the associated increases in average content per device for these products, offset by a decrease in demand for our mobile products from smartphone customers in China.

• Our ending cash, cash equivalents, and marketable securities balance decreased 43% to $586.8 million in fiscal 2022, as compared to $1,027.2 million in fiscal 2021.

The decrease in cash, cash equivalents, and marketable securities during fiscal 2022 was primarily due to the repurchase of 6.5 million shares of common stock for $886.8 million, capital expenditures of $489.4 million, and dividend payments of $373.1 million, partially offset by cash generated from operations of $1,424.6 million.

Fiscal Years Ended

September 30,

2022 Change October 1,

2020 Change September 27,

2021 Change October 2,

(dollars in millions)

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We generally experience seasonal peaks during our fourth and first fiscal quarters (which correspond to the second half of the calendar year), primarily as a result of increased worldwide production of consumer electronics in anticipation of increased holiday sales, whereas our second and third fiscal quarters are typically lower and in line with seasonal industry trends.

The increase in net revenue in fiscal 2021, as compared to fiscal 2020, was driven by an increase in overall demand for wireless connectivity products coupled with the onset of technology upgrade cycles, including for 5G and Wi-Fi 6 solutions.

Additionally, our average content per device for these next-generation solutions increased.

The increase in net revenue in fiscal 2022, as compared to fiscal 2021, was driven primarily by the Acquisition in the fourth quarter of fiscal 2021 to support high-growth market segments, such as automotive including electric and hybrid vehicles, industrial and motor control, power supply, 5G wireless infrastructure, optical data communication and data center, and smart home.

The increase in net revenue was also driven in part by an increase in demand for next-generation wireless connectivity products, including 5G and advanced Wi-Fi solutions, from major OEMs and the associated increases in average content per device for these products, offset by a decrease in demand for our mobile products from smartphone customers in China.

For information regarding net revenue by geographic region and customer concentration, see Note 15 to Item 8 of this Annual Report on Form 10-K.

Fiscal Years Ended

September 30,

2022 Change October 1,

2020 Change September 27,

2021 Change October 2,

(dollars in millions)

2 unchanged sentences

Gross profit represents net revenue less cost of goods sold.

Our cost of goods sold consists primarily of purchased materials, labor, and overhead (including depreciation and share-based compensation expense) associated with product manufacturing.

Our cost of goods sold consists primarily of purchased materials, labor, and overhead (including depreciation, share-based compensation, and amortization of acquisition intangibles, including inventory step-up expense) associated with product manufacturing.

As part of our normal course of business, we intend to improve gross profit with efforts to increase unit volumes, improve manufacturing efficiencies, lower manufacturing costs of existing products, and by introducing new and higher value-added products.

The increase in gross profit in fiscal 2021, as compared to fiscal 2020, was primarily the result of a favorable product mix and higher unit volumes with a gross profit impact of $950.2 million, partially offset by lower average selling prices and an increase in amortization of acquisition intangibles, including inventory step-up, as a result of the Acquisition completed during the period.

Gross profit as a percentage of net revenue is estimated to decrease in fiscal 2022 due to amortization of intangibles acquired during fiscal 2021.

The increase in gross profit in fiscal 2022, as compared to fiscal 2021, was primarily the result of a favorable product mix, including volume increases for new product introductions, with a gross profit impact of $453.8 million, partially offset by lower comparable unit volumes and an increase in amortization of acquisition intangibles, including inventory step-up due to additional intangible assets acquired as part of the Acquisition during the fourth quarter of fiscal 2021.

Research and Development

Fiscal Years Ended

September 30,

2022 Change October 1,

2020 Change September 27,

2021 Change October 2,

(dollars in millions)

1 unchanged sentence

% of net revenue 11.3 % 10.4 % 13.8 %

Research and development expenses consist primarily of direct personnel costs including share-based compensation expense, costs for pre-production evaluation and testing of new devices, masks, engineering prototypes, and design tool costs.

Research and development expenses consist primarily of direct personnel costs including share-based compensation expense, costs for pre-production evaluation and testing of new devices, non-production masks, engineering prototypes, and design tool costs.

The increase in research and development expense in fiscal 2022, as compared to fiscal 2021, was primarily related to headcount-related expenses, including share-based compensation, as a result of our increased investment in developing new technologies and products.

The increase in headcount was partially due to the Acquisition in the fourth quarter of fiscal 2021.

Selling, General, and Administrative

Fiscal Years Ended

September 30,

2022 Change October 1,

2020 Change September 27,

2021 Change October 2,

(dollars in millions)

2 unchanged sentences

Selling, general, and administrative expenses include legal and related costs, accounting, treasury, human resources, information systems, customer service, bad debt expense, sales commissions, share-based compensation expense, advertising, marketing, costs associated with business combinations completed or contemplated during the period, and other costs.

The increase in selling, general, and administrative expenses in fiscal 2021, as compared to fiscal 2020, was primarily related to increases in costs associated with the Acquisition completed during the period and increases in headcount-related expenses, including share-based compensation.

The increase in selling, general, and administrative expenses in fiscal 2022, as compared to fiscal 2021, was primarily related to increases in headcount-related expenses, partially offset by a decrease in acquisition costs each as a result of the Acquisition in the fourth quarter of fiscal 2021.

Amortization of Intangibles

Fiscal Years Ended

September 30,

2022 Change October 1,

2020 Change September 27,

2021 Change October 2,

(dollars in millions)

1 unchanged sentence

% of net revenue 1.8 % 0.7 % 0.4 %

The increase in amortization expense for fiscal 2021, as compared to fiscal 2020, was primarily due to additional intangible assets acquired during fiscal 2021.

See Note 3 to Item 8 of this Annual Report on Form 10-K for a detailed discussion of intangible assets acquired.

Amortization expense is estimated to increase in fiscal 2022 due to amortization of intangibles acquired during fiscal 2021.

The increase in amortization expense for fiscal 2022, as compared to fiscal 2021, was primarily due to the intangible assets acquired during the fourth quarter of fiscal 2021 as part of the Acquisition.

Restructuring, Impairment, and Other Charges

Fiscal Years Ended

September 30,

2022 Change October 1,

2020 Change September 27,

2021 Change October 2,

(dollars in millions)

1 unchanged sentence

% of net revenue 0.6 % 0.2 % 0.4 %

Restructuring, impairment, and other charges incurred in fiscal 2022 were primarily related to the abandonment of previously capitalized in-process research and development (“IPR&D”) projects.

Restructuring, impairment, and other charges incurred in fiscal 2021 were primarily related to an impairment on property, plant, and equipment.

Restructuring, impairment, and other charges incurred in fiscal 2020 were primarily related to the abandonment of a previously capitalized in-process research and development (“IPR&D”) project.

Interest Expense

Fiscal Years Ended

September 30,

2022 Change October 1,

2020 Change September 27,

2021 Change October 2,

(dollars in millions)

1 unchanged sentence

% of net revenue 0.9 % 0.3 % — %

The increase in interest expense for fiscal 2021, as compared to fiscal 2020, was due to the issuance of the Notes in May 2021 and the borrowing of the Term Loans (as defined below) in July 2021.

Interest expense is estimated to increase in fiscal 2022 as our average borrowings outstanding are expected to be higher than in fiscal 2021.

The increase in interest expense for fiscal 2022, as compared to fiscal 2021, was due to the issuance of the Notes (as defined below) in May 2021 and the borrowing of the Term Loans (as defined below) in July 2021.

Provision for Income Taxes

Fiscal Years Ended

September 30,

2022 Change October 1,

2020 Change September 27,

2021 Change October 2,

(dollars in millions)

1 unchanged sentence

% of net revenue 3.7 % 2.0 % 2.3 %

The annual effective tax rate for fiscal 2021 of 6.3% was less than the United States federal statutory rate of 21.0% resulting primarily from foreign earnings taxed at rates lower than the federal statutory rate, a benefit related to a change in the reserve for uncertain tax positions, a benefit from foreign-derived intangible income deduction (“FDII”), windfall tax deductions, research and development credits, and foreign tax credits, partially offset by a tax on global intangible low-taxed income (“GILTI”).

The decrease in the effective tax rate for fiscal 2021, as compared to the 11.2% effective rate for fiscal 2020, was primarily due to benefits related to favorable changes in the reserves for uncertain tax positions.

During fiscal 2021, we concluded an IRS examination of our federal income tax returns for fiscal 2015 and 2016.

With the conclusion of the audit, we decreased the reserve for uncertain tax positions, including interest and penalties, which resulted in the recognition of an income tax benefit of $34.8 million in fiscal 2021.

In addition, the statute of limitations expired on the federal income tax return for fiscal 2017 and, as a result, we decreased the related reserve for uncertain tax positions of $25.5 million.

The increase in income tax expense in fiscal 2021, as compared to fiscal 2020, was primarily due to increased income from operations, partially offset by a decrease in the reserve for uncertain tax positions.

The annual effective tax rate for fiscal 2022 of 13.6% was less than the United States federal statutory rate of 21.0% resulting primarily from foreign earnings taxed at rates lower than the federal statutory rate, a benefit from foreign-derived intangible income deduction (“FDII”), windfall tax deductions, research and development credits, and foreign tax credits, partially offset by a tax on global intangible low-taxed income (“GILTI”) and an increase in the reserves for uncertain tax positions.

The increase in income tax expense in fiscal 2022, as compared to fiscal 2021, was primarily due to a prior period decrease in the reserve for uncertain tax positions, partially offset by a decrease in income from operations and an increase in windfall tax deductions in the current period.

See Note 9 to Item 8 of this Annual Report on Form 10-K for additional information regarding income taxes.

2 unchanged sentences

Fiscal Years Ended

(in millions) October 1,

(in millions) September 30,

2022 October 1,

2020 September 27,

2021 October 2,

Cash and cash equivalents at beginning of period $ 882.9 $ 566.7 $ 851.3

5 unchanged sentences

Cash provided by operating activities consists of net income for the period adjusted for certain non-cash items and changes in certain operating assets and liabilities.

The $567.5 million increase in cash provided by operating activities for fiscal 2021, as compared to fiscal 2020, was primarily related to a $683.5 million increase in net income, partially offset by $170.4 million of unfavorable changes in working capital, due primarily to an increase in accounts receivable which resulted from higher revenue during the period.

The $347.4 million decrease in cash provided by operating activities for fiscal 2022, as compared to fiscal 2021, was primarily related to unfavorable changes in working capital of $523.7 million, due primarily to increases in inventory and cash with deposits with suppliers.

Cash used in investing activities:

Cash used in investing activities consists primarily of cash paid for acquisitions, capital expenditures, purchased intangibles, and marketable securities, offset by cash received related to the sale or maturity of marketable securities.

The $2,551.8 million increase in cash used in investing activities for fiscal 2021, as compared to fiscal 2020, was primarily related to a $2,751.0 million increase in cash paid for acquisitions and a $248.4 million increase in cash used for capital expenditures, partially offset by $452.8 million cash provided by the net sales of marketable securities.

Cash provided by financing activities:

Cash provided by financing activities consists primarily of proceeds and payments related to our long-term borrowings and cash transactions related to equity.

The $2,585.1 million increase in cash provided by financing activities for fiscal 2021, as compared to fiscal 2020, was primarily related to an increase of $2,488.1 million in long-term debt issued and a decrease of $451.9 million in stock repurchase activity, partially offset by repayments of Term Loans of $250.0 million, a decrease of $45.5 million in net proceeds from employee stock option exercises, an increase of $33.6 million in dividend payments, and an increase of $22.1 million related to the minimum statutory payroll tax withholdings upon vesting of employee performance and restricted stock awards.

Cash, cash equivalents, and marketable securities totaled $1,027.2 million as of October 1, 2021, representing an increase of $47.3 million from October 2, 2020.

We have outstanding $500.0 million of Notes Due 2023, $500.0 million of Notes Due 2026, and $500.0 million of Notes Due 2031.

Cash used in investing activities consists primarily of capital expenditures and cash paid related to the purchase of marketable securities, offset by cash received related to the sale or maturity of marketable securities.

The $2,754.3 million decrease in cash used in investing activities for fiscal 2022, as compared to fiscal 2021, was primarily related to a $2,751.0 million decrease in cash payments made for the fiscal 2021 acquisitions.

Cash provided by (used in) financing activities:

Cash used in financing activities consists primarily of proceeds and payments related to our long-term borrowings and cash transactions related to equity.

The $3,040.0 million decrease in cash provided by financing activities for fiscal 2022, as compared to fiscal 2021, was primarily related to a decrease of $2,488.2 million in cash provided by long-term borrowings, an increase of $691.2 million in stock repurchase activity, a decrease of $200.0 million in repayments of Term Loans (as defined below), an increase of $33.3 million related to the minimum statutory payroll tax withholdings upon vesting of employee performance and restricted stock awards, and an increase of $32.5 million in dividend payments.

Cash, cash equivalents, and marketable securities totaled $586.8 million as of September 30, 2022, representing a decrease of $440.3 million from October 1, 2021.

We have outstanding $500.0 million of Notes Due 2023, $500.0 million of Notes Due 2026, and $500.0 million of Notes Due 2031 (the “Notes”).

We have a term credit agreement (the “Term Credit Agreement”) providing for a $1.0 billion term loan facility (the “Term Loan Facility”).

On July 26, 2021, the Company borrowed $1.0 billion in aggregate principal amount of term loans (the “Term Loans”) under the Term Loan Facility to finance a portion of the purchase price for the Acquisition and to pay fees and expenses incurred in connection therewith.

During fiscal 2021, the Company repaid $250.0 million of outstanding borrowings under the Term Loans.

As of October 1, 2021, there were $750.0 million of borrowings outstanding under the Term Credit Agreement.

During fiscal 2022 and 2021, the Company repaid $50.0 million and $250.0 million of outstanding borrowings under the Term Loans, respectively.

As of September 30, 2022, there were $700.0 million of borrowings outstanding under the Term Credit Agreement.

We have a Revolving Credit Agreement (the “Revolving Credit Agreement”) under which we may borrow up to $750.0 million for general corporate purposes and working capital needs of the Company and its subsidiaries.

As of October 1, 2021, there were no borrowings outstanding under the revolving credit facility (the “Revolver”).

As of September 30, 2022, there were no borrowings outstanding under the revolving credit facility (the “Revolver”).

The Revolving Credit Agreement expires July 26, 2026.

For a description of contractual obligations, such as taxes, leases, and debt, see Note 9, Note 11, and Note 17 to Item 8 of this Annual Report on Form 10-K, respectively.

Based on our historical results of operations, we expect that our cash, cash equivalents, and marketable securities on hand, and the cash we expect to generate from operations, and funds from our Revolver, will be sufficient to fund our short-term and long-term liquidity requirements primarily arising from:

Based on our historical results of operations, we expect that our cash, cash equivalents, and marketable securities on hand, the cash we expect to generate from operations, and funds from our Revolver, will be sufficient to fund our short-term and long-term liquidity requirements primarily arising from:

research and development, capital expenditures, potential acquisitions, working capital, quarterly cash dividend payments (if such dividends are declared by the Board of Directors), outstanding commitments, and other liquidity requirements associated with existing operations.

However, we cannot be certain that our cash on hand, cash generated from operations, and funds from our Revolver will be available in the future to fund all of our capital and operating requirements.

In addition, any future strategic investments and significant acquisitions may require additional

cash and capital resources.

In addition, any future strategic investments and significant acquisitions may require additional cash and capital resources.

If we are unable to obtain sufficient cash or capital to meet our needs on a timely basis and on favorable terms, our business and operations could be materially and adversely affected.

8 unchanged sentences

inventory valuation, which impacts the cost of goods sold and gross margin;

business combinations, which impacts the fair value of acquired assets and assumed liabilities;

and income taxes, which impacts the income tax provision.

6 unchanged sentences

We base these estimates on the expected value method considering all reasonably available information, including our historical experience and current expectations, and are reflected in the transaction price when sales are recorded.

Changes in actual demand or market conditions could adversely or beneficially impact our reserve calculations.

Inventory Valuation .

9 unchanged sentences

We record an amount as an estimate of probable additional income tax liability at the largest amount that we feel is more likely than not, based upon the technical merits of the position, to be sustained upon audit by the relevant tax authority.

Business Combinations .

We allocate the fair value of the purchase consideration of a business acquisition to the tangible assets, liabilities, and intangible assets acquired, including IPR&D, based on their estimated fair values.

The excess of the fair value of purchase consideration over the fair values of these identifiable assets and liabilities is recorded as goodwill.

IPR&D is initially capitalized at fair value as an intangible asset with an indefinite life and assessed for impairment thereafter.

When an IPR&D project is completed, the IPR&D is reclassified as an amortizable purchased intangible asset and amortized over the asset’s estimated useful life.

Our valuation of acquired assets and assumed liabilities requires significant estimates, especially with respect to intangible assets.

The valuation of intangible assets, in particular, requires that we use valuation techniques such as the income approach.

The income approach includes the use of a discounted cash flow model, which includes discounted cash flow scenarios and requires the following significant estimates:

future expected revenue, expenses, capital expenditures and other costs, and discount rates.

We estimate the fair value based upon assumptions we believe to be reasonable, but which are inherently uncertain and unpredictable and, as a result, actual results may differ from estimates.

For finite-lived intangible assets valued during fiscal 2021, a hypothetical change of ten percent to our valuation estimate would impact amortization of acquisition intangibles by $106.0 million over a weighted-average amortization period of 4.4 years.

Estimates associated with

the accounting for acquisitions may change as additional information becomes available regarding the assets acquired and liabilities assumed.

Acquisition-related expenses are recognized separately from the business combination and are expensed as incurred.

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