Cirrus Logic(CRUS) - 2020 Q4 - Annual Report

PART I Business Cirrus Logic specializes in low-power, high-precision mixed-signal processing for mobile and consumer applications, with 79% of FY2020 sales from Apple - Cirrus Logic is a leader in low-power, high-precision mixed-signal processing solutions for top mobile and consumer applications[7] - The company's strategy involves developing custom components, leveraging its analog and mixed-signal expertise, and building strong engineering relationships with customers' product teams to secure design wins[8] Product Line Overview | Product Line | Description | Applications | | :--- | :--- | :--- | | Portable Products | Low-power, low-latency, high-precision analog and mixed-signal components | Smartphones, tablets, wearables, digital headsets | | Non-Portable and Other Products | High-precision analog and mixed-signal components | Home theater systems, laptops, automotive entertainment systems, industrial and energy applications | - The company has a high customer concentration, with its ten largest end customers accounting for 93% of sales in fiscal year 2020, and Apple, Inc. alone representing approximately 79% of total sales in the same period[13] - As a fabless semiconductor company, Cirrus Logic outsources wafer fabrication, assembly, and testing to third parties, primarily TSMC, GLOBALFOUNDRIES, and ASE, Inc[14] - As of March 28, 2020, the company held approximately 3,400 pending and issued patents worldwide and employed 1,443 full-time employees[16][22] Risk Factors The company faces significant risks including heavy customer dependence, supply chain disruptions, market fluctuations, and international trade policy changes - The COVID-19 pandemic is expected to have an adverse effect on business, financial condition, and results of operations, potentially disrupting the supply chain, operations, and customer demand[25] - Dependence on a limited number of customers is a major risk, with the ten largest customers accounting for 93% of sales in FY2020, and Apple Inc. alone representing 79%[25] - The company is exposed to risks from changes in government trade policies, including U.S. tariffs on Chinese imports and export restrictions, which could adversely impact sales and customer relationships, particularly in China[29][30] - Reliance on third-party manufacturing and supply chain relationships poses risks such as insufficient capacity, inadequate yields, potential price increases, and supply disruptions[36] - The integrated circuit (IC) industry is intensely competitive, characterized by rapid technological change and price erosion, with competition from large international manufacturers and smaller emerging companies[35] - International sales represented 99% of net sales in fiscal year 2020, exposing the company to risks associated with political and economic instability, currency fluctuations, and changes in import/export regulations[38] Unresolved Staff Comments The company reports no unresolved staff comments from the Securities and Exchange Commission - None[54] Properties Cirrus Logic's principal facilities include owned space in Austin, Texas, and leased space in Edinburgh, Scotland, totaling over 470,000 square feet - The company owns its principal facilities in Austin, Texas, consisting of approximately 155,000 square feet of office space and a 27,000 square foot failure analysis facility[55] - The company leases approximately 110,000 square feet of office space and 27,000 square feet of lab space in Edinburgh, Scotland, having sold its previously owned headquarters there in fiscal year 2019[55] Legal Proceedings The company is involved in various legal proceedings, none of which are expected to materially impact its financial condition or operations - Management does not believe there are any pending legal matters that could have a material adverse effect on the company's business, financial condition, results of operations, or cash flows[57] Mine Safety Disclosures This item is not applicable to the company - Not applicable[58] PART II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The company's common stock trades on NASDAQ under CRUS; it repurchased 0.7 million shares for $50.0 million in Q4 FY2020, with mixed stock performance against benchmarks Q4 FY2020 Share Repurchases | Period | Total Shares Purchased (thousands) | Average Price Paid Per Share | Approximate Dollar Value Remaining Under Program (thousands) | | :--- | :--- | :--- | :--- | | Dec 29, 2019 - Jan 25, 2020 | — | — | — | | Jan 26, 2020 - Feb 22, 2020 | 255 | $78.43 | $149,981 | | Feb 23, 2020 - Mar 28, 2020 | 428 | $70.06 | $120,001 | | Total Q4 FY2020 | 683 | $73.18 | $120,001 | - The Board of Directors authorized a $200 million share repurchase program in January 2019, with approximately $120.0 million remaining available as of March 28, 2020[61] Five-Year Cumulative Total Stockholder Return (Assuming $100 Investment on 3/28/2015) | Company/Index | 3/28/2020 Value | | :--- | :--- | | Cirrus Logic, Inc. | $186.00 | | S&P 500 Index | $136.61 | | S&P 500 Semiconductors Index | $210.86 | Selected Financial Data This section summarizes five-year financial data, showing FY2020 net sales of $1.28 billion and net income of $159.5 million, with overall year-over-year growth Selected Financial Data (in thousands, except per share amounts) | Metric | FY 2020 | FY 2019 | FY 2018 | | :--- | :--- | :--- | :--- | | Net sales | $1,281,124 | $1,185,524 | $1,532,186 | | Net income | $159,498 | $89,991 | $161,995 | | Diluted earnings per share | $2.64 | $1.46 | $2.46 | | Total assets | $1,592,677 | $1,352,640 | $1,430,117 | | Total stockholders' equity | $1,229,779 | $1,140,240 | $1,161,728 | Management's Discussion and Analysis of Financial Condition and Results of Operations FY2020 net sales increased 8.1% to $1.28 billion, gross margin improved to 52.6%, and net income rose to $159.5 million, with strong cash flow and liquidity despite a restructuring charge Critical Accounting Policies Critical accounting policies involve significant judgments in revenue recognition, inventory valuation, asset impairment, legal contingencies, and income tax provisions - Key areas requiring significant management estimates include revenue recognition, inventory write-downs based on forecasted demand, impairment of goodwill and intangible assets, loss contingencies for legal matters, and income tax calculations, including the valuation of deferred tax assets[69][70] Results of Operations FY2020 net sales increased 8.1% to $1.28 billion, gross margin improved to 52.6%, and net income reached $159.5 million, despite a $21.9 million restructuring charge Net Sales by Product Line (in thousands) | Product Line | FY 2020 | FY 2019 | FY 2018 | | :--- | :--- | :--- | :--- | | Portable Products | $1,146,918 | $1,032,049 | $1,363,876 | | Non-Portable and Other Products | $134,206 | $153,475 | $168,310 | | Total | $1,281,124 | $1,185,524 | $1,532,186 | - Gross margin increased to 52.6% in FY2020 from 50.4% in FY2019, primarily due to favorable product mix, cost reductions, and lower reserves[82] - Research and development expenses decreased by 7% to $347.6 million in FY2020, while Selling, general and administrative expenses increased by 4% to $131.1 million[83][84] - The company recorded a restructuring charge of approximately $21.9 million in Q4 FY2020 related to the discontinuation of its MEMS microphone product line[85] - The effective tax rate for FY2020 was 12.0%, lower than the U.S. statutory rate of 21.0%, due to income earned in lower-tax foreign jurisdictions and excess benefits from stock-based compensation[91] Liquidity and Capital Resources In FY2020, the company generated $295.8 million in cash from operations, used $120.0 million for share repurchases, and maintained strong liquidity with no outstanding debt Cash Flow Summary (in millions) | Cash Flow Activity | FY 2020 | FY 2019 | FY 2018 | | :--- | :--- | :--- | :--- | | Net cash provided by operating activities | $295.8 | $206.7 | $318.7 | | Net cash used in investing activities | ($100.2) | ($54.7) | ($184.7) | | Net cash used in financing activities | ($119.6) | ($171.5) | ($249.6) | - The company utilized approximately $120.0 million in cash to repurchase and retire its common stock in fiscal year 2020[94] - As of March 28, 2020, the company had no amounts outstanding under its $300 million revolving credit facility and was in compliance with all covenants[95] Quantitative and Qualitative Disclosures about Market Risk The company manages market risks from interest rates and foreign currency fluctuations; a 100 basis point interest rate increase would cause a $5.3 million portfolio decline, while foreign currency impacts are immaterial - A hypothetical 100 basis point increase in interest rates would cause a $5.3 million decline in the fair market value of the company's investment portfolio as of March 28, 2020[100] - The company uses foreign currency forward contracts to manage exposure to exchange rate fluctuations on non-U.S. dollar balance sheet items, resulting in an immaterial pretax gain or loss from a hypothetical 10% fluctuation in exchange rates[101] Financial Statements and Supplementary Data This section presents the audited consolidated financial statements for FY2020, including balance sheets, income statements, and cash flow statements, with detailed notes on accounting policies and key financial figures Consolidated Balance Sheets As of March 28, 2020, total assets increased to $1.59 billion, total liabilities to $362.9 million, and total stockholders' equity to $1.23 billion, reflecting growth in cash and lease assets Consolidated Balance Sheet Highlights (in thousands) | Account | March 28, 2020 | March 30, 2019 | | :--- | :--- | :--- | | Cash and cash equivalents | $292,119 | $216,172 | | Total current assets | $650,196 | $624,983 | | Total assets | $1,592,677 | $1,352,640 | | Total current liabilities | $158,637 | $115,540 | | Total liabilities | $362,898 | $212,400 | | Total stockholders' equity | $1,229,779 | $1,140,240 | Consolidated Statements of Income For FY2020, net sales were $1.28 billion, gross profit $674.2 million, income from operations $173.5 million (including a $21.9 million restructuring charge), and net income $159.5 million Consolidated Statement of Income Highlights (in thousands, except per share data) | Metric | FY 2020 | FY 2019 | FY 2018 | | :--- | :--- | :--- | :--- | | Net sales | $1,281,124 | $1,185,524 | $1,532,186 | | Gross profit | $674,167 | $597,497 | $760,716 | | Income from operations | $173,480 | $100,769 | $262,461 | | Net income | $159,498 | $89,991 | $161,995 | | Diluted earnings per share | $2.64 | $1.46 | $2.46 | Consolidated Statements of Cash Flows In FY2020, net cash from operations was $295.8 million, net cash used in investing was $100.2 million, and net cash used in financing was $119.6 million, ending with $292.1 million in cash Consolidated Statement of Cash Flows Highlights (in thousands) | Cash Flow Activity | FY 2020 | FY 2019 | FY 2018 | | :--- | :--- | :--- | :--- | | Net cash provided by operating activities | $295,815 | $206,694 | $318,711 | | Net cash used in investing activities | ($100,221) | ($54,662) | ($184,716) | | Net cash used in financing activities | ($119,647) | ($171,464) | ($249,557) | | Net increase (decrease) in cash | $75,947 | ($19,432) | ($115,562) | | Cash and cash equivalents at end of period | $292,119 | $216,172 | $235,604 | Notes to Consolidated Financial Statements Notes detail revenue recognition, 79% FY2020 revenue from Apple Inc, a $21.9 million restructuring charge, share repurchase programs, and income tax provisions - The company's single performance obligation for revenue recognition is the delivery of promised goods to the customer, satisfied upon transfer of control[149] - A single end customer, Apple Inc., represented approximately 79%, 78%, and 81% of total sales for fiscal years 2020, 2019, and 2018, respectively[148] - In Q4 FY2020, the company approved a restructuring plan to discontinue its MEMS microphone product line, resulting in a total charge of $21.9 million, which included equipment disposal costs and intangible asset impairments[185][186] - Under its January 2019 share repurchase program, the company has repurchased 1.2 million shares for $80.0 million, with approximately $120.0 million remaining available for repurchase as of March 28, 2020[210] - The company's effective tax rate for FY2020 was 12.0%, and as of March 28, 2020, it had gross unrecognized tax benefits of $36.2 million[216][220] Changes in and Disagreements with Accountants on Accounting and Financial Disclosure The company reports no changes in or disagreements with its accountants on accounting and financial disclosure - None[228] Controls and Procedures Management concluded that the company's disclosure controls and internal control over financial reporting were effective as of March 28, 2020, with no material changes in Q4 FY2020 - Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of March 28, 2020[229] - Management concluded that the company's internal control over financial reporting was effective as of March 28, 2020[229] PART III Directors, Executive Officers and Corporate Governance Information on directors, executive officers, and corporate governance is incorporated by reference from the company's July 31, 2020 proxy statement - Information is incorporated by reference from the registrant's proxy statement for the annual meeting of stockholders to be held July 31, 2020[231] Executive Compensation Information on executive compensation is incorporated by reference from the company's July 31, 2020 proxy statement - Information is incorporated by reference from the registrant's proxy statement for the annual meeting of stockholders to be held July 31, 2020[232] Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Information on security ownership and related stockholder matters is incorporated by reference from the company's July 31, 2020 proxy statement - Information is incorporated by reference from the registrant's proxy statement for the annual meeting of stockholders to be held July 31, 2020[233] Certain Relationships and Related Transactions, and Director Independence Information on certain relationships, related transactions, and director independence is incorporated by reference from the company's July 31, 2020 proxy statement - Information is incorporated by reference from the registrant's proxy statement for the annual meeting of stockholders to be held July 31, 2020[233] Principal Accountant Fees and Services Information on principal accountant fees and services is incorporated by reference from the company's July 31, 2020 proxy statement - Information is incorporated by reference from the registrant's proxy statement for the annual meeting of stockholders to be held July 31, 2020[234] PART IV Exhibits and Financial Statement Schedules This section lists the consolidated financial statements and exhibits filed as part of the Form 10-K, noting the omission of financial statement schedules as information is included elsewhere - This section lists the consolidated financial statements and exhibits filed as part of the Form 10-K[235][237] - All financial statement schedules have been omitted because the required information is not present, not in sufficient amounts, or is included in the consolidated financial statements or notes[236]