What changed in this filing

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Item 7. Management’s Discussion and Analysis

2023-11-17 compared with 2022-11-23 · 63 added, 50 removed, 137 unchanged (45% of the section changed)

6 unchanged sentences

Impact of COVID-19

The COVID-19 pandemic and the resulting economic downturn are affecting business conditions in our industry.

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.

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.

The COVID-19 pandemic has affected business conditions in our industry.

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 uncertain and could still result in significant disruptions to our business operations, as well as negative impacts to our financial condition.

RESULTS OF OPERATIONS

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

Fiscal Years Ended September 29, 2023, September 30, 2022, and October 1, 2021.

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.

See Part II, Item 7 of our Annual Report on Form 10-K for the fiscal year ended September 30, 2022, filed with the SEC on November 23, 2022, as amended by Amendment No.

1 to such Annual Report on Form 10-K, filed with the SEC on January 27, 2023 (the “2022 10-K”), for Management’s Discussions and Analysis of Financial Condition and Results of Operations for the fiscal year ended October 1, 2021.

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September 29,

2022 October 1,

2023 September 30,

2022 October 1,

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Interest expense (1.3) (0.9) (0.3)

Other income (expense), net 0.4 — —

Income before income taxes 22.6 26.9 31.3

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During the fiscal year ended September 29, 2023, 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.

• Net revenue decreased 13.0% to $4,772.4 million in fiscal 2023, as compared to $5,485.5 million in fiscal 2022, driven primarily by a decrease in demand for our mobile products from smartphone customers in the Android ecosystem and for our connectivity solutions in consumer and enterprise markets.

• Our ending cash, cash equivalents, and marketable securities balance increased 26% to $738.5 million in fiscal 2023, as compared to $586.8 million in fiscal 2022.

The increase in cash, cash equivalents, and marketable securities during fiscal 2023 was primarily due to cash generated from operations of $1,856.4 million, partially offset by

repayments of debt of $900.0 million, dividend payments of $405.2 million, and capital expenditures of $210.3 million.

Fiscal Years Ended

September 29,

2022 Change October 1,

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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 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.

The decrease in net revenue in fiscal 2023, as compared to fiscal 2022, was driven primarily by a decrease in demand for our mobile products from smartphone customers in the Android ecosystem and for our connectivity solutions in consumer and enterprise markets.

For information regarding net revenue by geographic region and customer concentration, see Note 14 to Item 8 of this Annual Report on Form 10-K.

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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 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.

Erosion of average selling prices of established products is typical of the semiconductor industry.

Consistent with trends in the industry, we anticipate that average selling prices for our established products will continue to decline over time.

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

The decrease in gross profit in fiscal 2023, as compared to fiscal 2022, was primarily the result of lower unit volumes, impairment charges on long-term supply capacity deposits, and lower average selling prices with a gross profit impact of $572.0 million, $47.5 million, and $41.8 million, respectively, partially offset by a favorable product mix with a gross profit impact of $261.2 million.

Research and Development

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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.

The decrease in research and development expense in fiscal 2023, as compared to fiscal 2022, was primarily related to a decrease in headcount-related expenses.

Selling, General, and Administrative

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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 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.

The decrease in selling, general, and administrative expenses in fiscal 2023, as compared to fiscal 2022, was primarily related to a decrease in headcount-related expenses, including share-based compensation.

Amortization of Intangibles

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% of net revenue 0.7 % 1.8 % 0.7 %

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.

The decrease in amortization expense for fiscal 2023, as compared to fiscal 2022, was primarily due to certain intangible assets that were acquired in prior fiscal years reaching the end of their useful lives.

Restructuring, Impairment, and Other Charges

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% of net revenue 0.6 % 0.6 % 0.2 %

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 2023 were primarily due to employee severance costs and impairment charges on divested assets.

Restructuring, impairment, and other charges incurred in fiscal 2022 were primarily related to the abandonment of previously capitalized in-process research and development projects.

Interest Expense

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% of net revenue 1.3 % 0.9 % 0.3 %

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

The increase in interest expense for fiscal 2023, as compared to fiscal 2022, was due to an increase in the variable interest rate associated with the borrowing on the Term Loans, partially offset by a lower average balance of debt outstanding.

Other Income (Expense), net

Fiscal Years Ended

September 29,

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2022 Change October 1,

(dollars in millions)

Other income (expense), net

$ 18.2 828.0% $ (2.5) 316.7% $ (0.6)

% of net revenue 0.4 % — % — %

The increase in other income for fiscal 2023, as compared to fiscal 2022, was due to an increase in interest income as a result of higher interest rates.

Provision for Income Taxes

Fiscal Years Ended

September 29,

2023 Change September 30,

2022 Change October 1,

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% of net revenue 2.0 % 3.7 % 2.0 %

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.

We recorded a provision for income taxes of $96.0 million (which consisted of $62.0 million and $34.0 million related to United States and foreign income taxes, respectively) and $201.4 million (which consisted of $132.8 million and $68.6 million related to United States and foreign income taxes, respectively) for fiscal 2023 and fiscal 2022, respectively.

The decrease in income tax expense for fiscal 2023, as compared with the corresponding period in fiscal 2022, was primarily due to lower income from operations, a decrease in tax on global intangible low-taxed income (“GILTI”), an increase in the benefit from foreign-derived intangible income deduction (“FDII”), partially offset by a current period shortfall in tax deductions for share-based compensation, compared to windfall deductions in the prior year.

In August 2022, the U.S.

government enacted the Inflation Reduction Act, which imposes a corporate alternative minimum tax (“CAMT”) of 15% on corporations with three-year average annual adjusted financial statement income exceeding $1.0 billion, as well as a 1% excise tax on corporate stock repurchases made after December 31, 2022.

We are currently evaluating the impact this law may have on our effective tax rate.

CAMT is effective for the Company in fiscal year 2024.

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

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(in millions) September 29,

2022 October 1,

2023 September 30,

2022 October 1,

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Net cash used in investing activities (224.4) (378.9) (3,133.2)

Net cash provided by (used in) financing activities (1,362.6) 1,677.4 (907.7)

Net cash (used in) provided by financing activities (1,479.2) (1,362.6) 1,677.4

Cash and cash equivalents at end of period $ 718.8 $ 566.0 $ 882.9

1 unchanged sentence

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 $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.

The $431.8 million increase in cash provided by operating activities for fiscal 2023, as compared to fiscal 2022, was primarily related to favorable changes in working capital of $988.5 million, due primarily to a decrease in accounts receivable and inventory, partially offset by lower net income.

Cash used in investing activities:

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:

The $154.5 million decrease in cash used in investing activities for fiscal 2023, as compared to fiscal 2022, was primarily related to a decrease of $279.1 million in cash used for capital expenditures, partially offset by a decrease of $117.9 million in the net sale of marketable securities.

Cash 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”).

The $116.6 million increase in cash used in financing activities for fiscal 2023, as compared to fiscal 2022, was primarily related to an increase of $850.0 million for the repayment of debt, an increase of $32.1 million in dividend payments, partially offset by a decrease of $711.5 million in stock repurchase activity, and a decrease of $52.6 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 $738.5 million as of September 29, 2023, representing an increase of $151.7 million from September 30, 2022.

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

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 of the Infrastructure and Automotive business of Silicon Laboratories Inc.

and to pay fees and expenses incurred in connection therewith.

During fiscal 2023, 2022, and 2021, we repaid $400.0 million, $50.0 million, and $250.0 million, of outstanding borrowings under the Term Loans, respectively.

As of September 29, 2023, there were $300.0 million of borrowings outstanding under the Term Credit Agreement.

2 unchanged sentences

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.

For a description of contractual obligations, such as taxes, leases, purchase commitments, and debt, see Note 8, Note 10, Note 11, and Note 16 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, 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:

1 unchanged sentence

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.

Our invested cash balances primarily consist of highly liquid marketable securities that are available to meet near-term cash requirements including:

term deposits, certificates of deposit, money market funds, U.S.

Treasury securities, agency securities, corporate debt securities, and commercial paper.

money market funds, U.S.

Treasury securities, municipal bonds, and agency securities.

CRITICAL ACCOUNTING ESTIMATES

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The preparation of these financial statements requires us to make estimates and judgments in applying our most critical accounting policies that can have a significant impact on the results we report in our financial statements.

The SEC has defined critical accounting policies as those that are both most important to the portrayal of our financial condition and results and which require our most difficult, complex, or subjective judgments or estimates.

Based on this definition, our most critical accounting policies include revenue recognition, which impacts the recording of net revenue;

The SEC has defined critical accounting estimates as those that are both most important to the portrayal of our financial condition and results and which require our most difficult, complex, or subjective judgments or estimates.

Based on this definition, our most critical accounting estimates include revenue recognition, which impacts the recording of net revenue;

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

20 unchanged sentences

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