CIRRUS LOGIC, INC.

FORM 10-Q QUARTERLY REPORT

TABLE OF CONTENTS

The unaudited consolidated condensed financial statements have been prepared by Cirrus Logic, Inc. (“Cirrus Logic,” “we,” “us,” “our,” or the “Company”) pursuant to the rules and regulations of the Securities and Exchange Commission (the “Commission”).  The accompanying unaudited consolidated condensed financial statements do not include complete footnotes and financial presentations.  As a result, these financial statements should be read along with the audited consolidated financial statements and notes thereto for the year ended March 27, 2021,26, 2022, included in our Annual Report on Form 10-K filed with the Commission on May 21, 2021.20, 2022.  In our opinion, the financial statements reflect all material adjustments, including normal recurring adjustments, necessary for a fair presentation of the financial position, operating results and cash flows for those periods presented.  The preparation of financial statements in conformity with United States (“U.S.”) generally accepted accounting principles (“GAAP”) requires management to make estimates and assumptions that affect reported assets, liabilities, revenues and expenses.  Actual results could differ from those estimates and assumptions.  Moreover, the results of operations for the interim periods presented are not necessarily indicative of the results that may be expected for the entire year.

The following table is a summary of available-for-sale securities at March 27, 202126, 2022 (in thousands):

The Company has determined that the only material assets and liabilities in the Company’s financial statements that are required to be measured at fair value on a recurring basis are the Company’s cash equivalents and marketable securities portfolio.  The Company defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.  The Company applies the following fair value hierarchy, which prioritizes the inputs used to measure fair value into three levels and bases the categorization within the hierarchy upon the lowest level of input that is available and significant to the fair value measurement.  The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements).

The Company’s cash equivalents and marketable securities portfolio consist of money market funds, commercial paper, debt securities, non-U.S. government securities, U.S Treasury securities and securities of U.S. government-sponsored enterprises and are reflected on our consolidated condensed balance sheets under the headings cash and cash equivalents, marketable securities, and long-term marketable

The Company's long-term revolving credit facility, described in Note 8,9, bears interest at a base rate plus applicable margin or LIBOR plus applicable margin. As of June 26, 2021,25, 2022, there are no amounts drawn under the credit facility and the fair value is 0.zero.

As of June 26, 202125, 2022 and March 27, 2021,26, 2022, the Company has no material Level 3 assets or liabilities.  There were no transfers between Level 1, Level 2, or Level 3 measurements for the three months ended June 26, 2021.25, 2022. 

The following summarizes the fair value of our financial instruments at March 27, 202126, 2022 (in thousands):

As of June 26, 2021,25, 2022, the Company held 1 foreign currency forward contract denominated in British Pound Sterling with a notional value of $12.1$1.8 million. The fair value of this contract was not material as of June 26, 2021.25, 2022.

On July 12, 2016, Cirrus Logic20, 2021, the Company completed the acquisition of Lion Semiconductor, Inc. ("Lion") (the "Acquisition"). Lion's switched-capacitor architectures deliver higher efficiency and better heat dissipation for the rapidly developing fast-charging market and are used today in numerous flagship and mid-tier smartphones. The Acquisition is expected to bring unique intellectual property and products for power applications in smartphones, laptops and other devices and accelerate growth of the Company’s high-performance mixed-signal product line.

On July 8, 2021, the Company entered into ana second amended and restated credit agreement (the “Credit“Second Amended Credit Agreement”) with Wells Fargo Bank, National Association, as Administrative Agent,administrative agent, and the Lenderslenders party thereto, for the purpose of refinancing an existing credit facility and providing ongoing working capital.thereto. The Second Amended Credit Agreement provides for a $300 million senior secured revolving credit facility (the “Credit“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 (the “Subsidiary Guarantors”"Subsidiary Guarantors"). The Revolving Credit Facility is secured by substantially all of the assets of Cirrus Logic and any Subsidiary Guarantors, except for certain excluded assets.

Borrowings under the Revolving Credit Facility may, at ourCirrus Logic’s election, bear interest at either (a) a base rate plus the applicable margin (“("Base Rate Loans”Loans") or (b) a LIBOR rate plus the applicable margin (“("LIBOR Rate Loans”Loans"). The applicable margin ranges from 0% to 0.50%0.75% per annum for Base Rate Loans and 1.25%1.00% to 2.00%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 (as defined below)Ratio”). The Second Amended Credit Agreement further provides a method for determining an alternative rate of interest if the LIBOR Rate is no longer available or upon the occurrence of certain other events. A commitment feeCommitment Fee accrues at a rate per annum ranging from 0.20%0.175% to 0.30%0.275% (based on the

The Second Amended Credit Agreement contains certain financialcustomary affirmative covenants, providing that (a)including, among others, covenants regarding the ratiopayment of consolidated funded indebtedness to consolidated EBITDA fortaxes and other obligations, maintenance of insurance, reporting requirements, and compliance with applicable laws and regulations. Further, the prior four fiscal quarters must not be greater than 3.00 to 1.00 (the “Leverage Ratio”) and (b) the ratio of consolidated EBITDA for the prior four consecutive fiscal quarters to consolidated fixed charges (including amounts paid in cash for consolidated interest expenses, capital expenditures, scheduled principal payments of indebtedness, and income taxes) for the prior four consecutive fiscal quarters must not be less than 1.25 to 1.00 as of the end of each fiscal quarter.  TheSecond Amended Credit Agreement also contains customary negative covenants limiting the Company’sability of Cirrus Logic or any Subsidiary’s abilitySubsidiary 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”)

As of June 26, 2021,25, 2022, the Company had 0no amounts outstanding under the Revolving Credit Facility and was in compliance with all covenants under the Second Amended Credit Agreement.  

We disaggregate revenue from contracts with customers by product line and ship to location of the customer. During the fourth quarter of fiscal year 2021, we adjusted how we report product line revenue to better represent our business and strategic focus. Sales are designated in the respective product line categories of Audio and High-Performance Mixed-Signal.

Payments are typically due within 30 to 60 days of invoicing and terms do not include significant financing components or noncash consideration. There have been no material impairment losses on accounts receivable. There are no material contract assets or contract liabilities recorded on the consolidated condensed balance sheets.

The transaction price is the amount of consideration to which the Company expects to be entitled in exchange for transferring the promised goods to the customer. Fixed pricing is the consideration that is agreed upon in the customer contract. Variable pricing includes rebates, rights of return, warranties, price protection and stock rotation. Rebates are granted as a customer account credit, based on agreed-upon sales thresholds. Rights of return and warranty costs are estimated using the "most likely amount" method by reviewing historical returns to determine the most likely customer return rate and applying materiality thresholds. Price protection includes price adjustments available to certain distributors based upon established book price and a stated adjustment period. Stock rotation is also available to certain distributors based on a stated maximum of prior billings.

The Company estimates all variable consideration at the most likely amount that it expects to be entitled to receive. The estimate is based on current and historical information, including recent sales activity and pricing, available to the Company. Variable consideration is only included in the transaction price to the extent that it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is resolved. The Company defers all variable consideration that does not meet the revenue recognition criteria.

Our provision for income taxes is based on estimated effective tax rates derived from an estimate of annual consolidated earnings before taxes, adjusted for nondeductible expenses, other permanent items, and any applicable income tax credits.

On July 27, 2015, the U.S. Tax Court issued an opinion in Altera Corp. et al. v. Commissioner which concluded that the regulations relating to the treatment of stock-based compensation expense in intercompany cost-sharing arrangements were invalid. In 2016 the U.S. Internal Revenue Service appealed the decision to the U.S. Court of Appeals for the Ninth Circuit (the “Ninth Circuit”). On July 24, 2018, the Ninth Circuit issued a decision that was subsequently withdrawn and a reconstituted panel conferred on the appeal. On June 7, 2019, the Ninth Circuit reversed the decision of the U.S. Tax Court and upheld the cost-sharing regulations. On February 10, 2020, Altera Corp. filed a Petition for a Writ of Certiorari with the Supreme Court of the United States, which was denied by the Supreme Court on June 22, 2020. Although the issue is now resolved in the Ninth Circuit, the Ninth Circuit's opinion is not binding in other circuits. The potential impact of this issue on the Company, which is not located within the jurisdiction of the Ninth Circuit, is unclear at this time. We will continue to monitor developments related to this issue and the potential impact of those developments on the Company's current and prior fiscal years.

The Company and its subsidiaries are subject to U.S. federal income tax as well as income tax in multiple state and foreign jurisdictions. Fiscal years 2017 through 20212022 remain open to examination by the major taxing jurisdictions to which the Company is subject, although carry forward attributes that were generated in tax years prior to fiscal year 2017 may be adjusted upon examination by the tax authorities if they have been, or will be, used in a future period. 

The Company's fiscal year 2017, 2018, and 2019 federal income tax returns for fiscal years 2017, 2018, and 2019 are under examination by the U.S. Internal Revenue Service.Service ("IRS").  The IRS has proposed adjustments that would increase U.S. taxable income related to transfer pricing matters with respect to our U.S. and U.K. affiliated companies, and in the first quarter of fiscal year 2023 issued a Revenue Agent’s Report asserting additional tax of approximately $170.5 million, excluding interest, and imposing penalties of approximately $63.7 million. We do not agree with the IRS's positions and we intend to vigorously dispute the proposed adjustments. We intend to pursue resolution through the administrative process with the IRS Independent Office of Appeals and, if necessary, through judicial remedies. We expect it could take a number of years to reach resolution on these matters. Although the final resolution of these matters is uncertain, the Company believes it has accrued adequate reserves relatedamounts have been reserved for any adjustments to the provision for income taxes that may ultimately result. However, if the IRS prevails in these matters, under examination.the amount of assessed tax, interest, and penalties, if any, could be material and may have an adverse impact on our financial position, results of operations, and cash flows in future periods. The Company is not under an income tax audit in any other major taxing jurisdiction.

Basic net income per share is based on the weighted effect of common shares issued and outstanding and is calculated by dividing net income by the basic weighted average shares outstanding during the period.  Diluted net income per share is calculated by dividing net income by the weighted average number of common shares used in the basic net income per share calculation, plus the equivalent number of common shares that would be issued assuming exercise or conversion of all potentially dilutive common shares outstanding.  These potentially dilutive items consist primarily of outstanding stock options and restricted stock grants.

The weighted outstanding shares excluded from our diluted calculation for the three months ended June 25, 2022 and June 26, 2021 and June 27, 2020 were 114386 thousand and 240114 thousand, respectively, as the shares were anti-dilutive.

From time to time, we are involved in legal proceedings concerning matters arising in connection with the conduct of our business activities.  We regularly evaluate the status of legal proceedings in which we are involved in order to assess whether a loss is probable or there is a reasonable possibility that a loss or additional loss may have been incurred, and to determine if accruals are appropriate.  We further evaluate each legal proceeding to assess whether an estimate of possible loss or range of loss can be made.    

Based on current knowledge, management does not believe that there are any pending matters that could potentially have a material adverse effect on our business, financial condition, results of operations or cash flows.  However, we are engaged in various legal actions in the normal course of business.  There can be no assurances in light of the inherent uncertainties involved in any potential legal proceedings, some of which are beyond our control, and an adverse outcome in any legal proceeding could be material to our results of operations or cash flows for any particular reporting period.

The Company issued an immaterial number of shares of common stock during the three months ended June 25, 2022, pursuant to the Company's equity incentive plans. The Company issued a net 0.1 million shares of common stock during each of the three months ended June 26, 2021, and June 27, 2020, pursuant to the Company's equity incentive plans.

We determine our operating segments in accordance with FASB guidelines.  Our Chief Executive Officer (“CEO”) has been identified as the chief operating decision maker under these guidelines. 

The Company operates and tracks its results in 1 reportable segment, but reports revenue in 2 product lines, Audio and High-Performance Mixed-Signal.  Our CEO receives and uses enterprise-wide financial information to assess financial performance and allocate resources, rather than detailed information at a product line level.  Additionally, our product lines have similar characteristics and customers.  They share support functions such as sales, public relations, supply chain management, various research and development and engineering support, in addition to the general and administrative functions of human resources, legal, finance and information technology.  Therefore, there is no complete, discrete financial information maintained for these product lines. Revenue by product line is disclosed in Note 910 - Revenues.

In addition,July 2022, the Commitment Agreement providesBoard of Directors authorized the Companyrepurchase of an option to reserve a specified portionadditional $500 million of the capacity commitment for wafers that include certain additional technology beginningCompany's common stock, in calendar year 2023. If the Company exercises that option by August 31, 2021, then GlobalFoundries agrees to provide up to a maximum portion of the wafers pursuantaddition to the capacity commitment with$136.1 million remaining from the additional technology. In exchange for the capacity commitment with the additional technology, the Company would pay an additional $10 million non-refundable fee and pre-pay an additional $20 million for future wafer purchases.Board's previous share repurchase authorization in January 2021, described above in Note 15.

This quarterly reportQuarterly 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.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.

Cirrus Logic, Inc. (“Cirrus Logic,” “We,” “Us,” “Our,” or the “Company”) is a leader in low-power, high-precision mixed-signal processing solutions that create innovative user experiences for the world’s top mobile and consumer applications.

The Company recently announced the acquisitionWe remain committed to our three-pronged strategy for growing our business: first, maintaining our leadership position in smartphone audio; second, broadening sales of Lion Semiconductor, a leading provider of proprietary fast-chargingaudio components in key profitable applications beyond smartphones; and power ICs, for $335 millionthird, applying our mixed-signal engineering expertise to develop solutions in cash. We entered the transaction with the expectation that the Acquisition would accelerate growth of ournew, adjacent high-performance mixed-signal product line in the coming years. See additional information in Note 16 - Subsequent Events of the Notes to the Consolidated Condensed Financial Statementsapplications and Item 1A. Risk Factors below.markets.

As capacity constraints persist, Cirrus Logic has been experiencingcontinues to experience demand significantly in excess of available capacity. While our teams have focused on working with our suppliers to meet as much demand as possible in the near term,supply. In fiscal year 2022, we have also entered into a long-term Capacity Reservation and Wafer Supply Commitment Agreement with GlobalFoundries, a foundry partner for many of our strategic products. This willto expand our ability to address unprecedented market demand and provide customers with much-needed supply assurance. GivenWe are working with our anticipated strong cash generation, we believe this agreement is a good use of our financial resources: it secures supplier commitmentspartners to expand capacity expansion in support of our sales growth, alleviates some of the supply uncertainty currently affecting the Company and its customers, and ensures supplier investment in additional technologies for future products. We have agreed to $225 million in payments to GlobalFoundries in the short-term under this agreement.where possible. See additional information in Note 1613 - Subsequent EventsCommitments and Contingencies of the Notes to the Consolidated Condensed Financial Statements and Item 1A. Risk Factors below.Statements.

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 worldwideWe continue to work remotelyexpect that COVID-19 will have an adverse effect on our business, financial condition, and remain subjectresults of operations and, with the pandemic ongoing, we are unable to travel restrictions, due to COVID-19. Despitepredict the full extent and nature of these challenges, all teams acrossimpacts at this time. The COVID-19 pandemic will likely heighten or exacerbate many of the organization remain highly productive and we currently anticipate thatother risks described in the Company will be able to continue to maintain a similar level of productivityrisk factors listed in our Form 10-K for the foreseeable future. Although we have not experienced a significant reductionyear ended March 26, 2022, and in our overall productivity through fiscal year 2022 to date, any increased or additional disruptions to our business operations due to these restrictions would likely impact our ability to continue to maintain current levels of productivity.other filings with the Commission.