crus-20210626

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


☑			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 26, 2021


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Transition Period from ____ to ____

Commission File Number 0-17795

CIRRUS LOGIC, INC.

(Exact name of registrant as specified in its charter)

Delaware

77-0024818

(State or other jurisdiction of incorporation or organization)

(I.R.S. Employer Identification No.)

800 W. 6th Street

Austin,

Texas

78701

(Address of principal executive offices)

(Zip Code)

Registrant’s telephone number, including area code:

(512)

851-4000

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol

Name of each exchange on which registered

Common stock, $0.001 par value

CRUS

The NASDAQ Stock Market LLC

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☑ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.


Large Accelerated Filer	☑	Accelerated Filer	☐
Non-accelerated Filer	☐	Smaller Reporting Company	☐
		Emerging Growth Company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ☐ No ☑

The number of shares of the registrant's common stock, $0.001 par value, outstanding as of July 26, 2021 was 57,597,723.

CIRRUS LOGIC, INC.

FORM 10-Q QUARTERLY REPORT

QUARTERLY PERIOD ENDED JUNE 26, 2021

TABLE OF CONTENTS


PART I - FINANCIAL INFORMATION








Item 1.	Financial Statements

	Consolidated Condensed Balance Sheets - June 26, 2021 (unaudited) and March 27, 2021	3

	Consolidated Condensed Statements of Income (unaudited) - Three Months Ended June 26, 2021 and June 27, 2020	4

	Consolidated Condensed Statements of Comprehensive Income (unaudited) - Three Months Ended June 26, 2021 and June 27, 2020	5

	Consolidated Condensed Statements of Cash Flows (unaudited) - Three Months Ended June 26, 2021 and June 27, 2020	6

	Consolidated Condensed Statements of Stockholders' Equity (unaudited) - Three Months Ended June 26, 2021 and June 27, 2020	7

	Notes to Consolidated Condensed Financial Statements (unaudited)	8

Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	16

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	21

Item 4.	Controls and Procedures	21

PART II - OTHER INFORMATION

Item 1.	Legal Proceedings	22

Item 1A.	Risk Factors	22

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	24

Item 3.	Defaults Upon Senior Securities	24

Item 4.	Mine Safety Disclosures	24

Item 5.	Other Information	24

Item 6.	Exhibits	25

	Signatures	26

Part I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

CIRRUS LOGIC, INC.

CONSOLIDATED CONDENSED BALANCE SHEETS

(in thousands)


	June 26,		March 27,
	2021		2021
	(unaudited)
Assets
Current assets:
Cash and cash equivalents	$	385,127	$	442,164
Marketable securities	60,503		55,697
Accounts receivable, net	136,534		108,712
Inventories	192,722		173,263
Prepaid assets	37,064		37,576
Other current assets	27,394		25,107
Total current assets	839,344		842,519

Long-term marketable securities	311,643		312,759
Right-of-use lease assets	131,446		133,548
Property and equipment, net	158,451		154,942
Intangibles, net	18,429		22,031
Goodwill	287,518		287,518
Deferred tax assets	19,482		9,977
Other assets	47,693		67,320
Total assets	$	1,814,006	$	1,830,614

Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable	$	95,232	$	102,744
Accrued salaries and benefits	37,220		54,849
Software license agreements	23,089		28,006
Current lease liabilities	14,662		14,573
Other accrued liabilities	16,298		13,438
Total current liabilities	186,501		213,610

Long-term liabilities:

Software license agreements	30,087		36,096
Non-current income taxes	64,245		64,020
Non-current lease liabilities	126,442		127,883

Total long-term liabilities	220,774		227,999

Stockholders' equity:
Capital stock	1,514,549		1,498,819
Accumulated deficit	(109,754)		(112,689)
Accumulated other comprehensive income	1,936		2,875
Total stockholders' equity	1,406,731		1,389,005
Total liabilities and stockholders' equity	$	1,814,006	$	1,830,614

The accompanying notes are an integral part of these consolidated condensed financial statements.

CIRRUS LOGIC, INC.

CONSOLIDATED CONDENSED STATEMENTS OF INCOME

(in thousands, except per share amounts; unaudited)


	Three Months Ended
	June 26,		June 27,
	2021		2020
Net sales	$	277,253	$	242,573
Cost of sales	137,307		115,101
Gross profit	139,946		127,472
Operating expenses
Research and development	85,696		78,741
Selling, general and administrative	35,147		29,704
Restructuring costs	—		352
Total operating expenses	120,843		108,797
Income from operations	19,103		18,675
Interest income	1,020		1,835
Interest expense	(259)		(259)
Other income (expense)	(242)		111
Income before income taxes	19,622		20,362
Provision for income taxes	2,413		2,153
Net income	$	17,209	$	18,209

Basic earnings per share	$	0.30	$	0.31
Diluted earnings per share	$	0.29	$	0.30
Basic weighted average common shares outstanding	57,582		58,313
Diluted weighted average common shares outstanding	59,513		60,280

The accompanying notes are an integral part of these consolidated condensed financial statements.

CIRRUS LOGIC, INC.

CONSOLIDATED CONDENSED STATEMENTS OF COMPREHENSIVE INCOME

(in thousands; unaudited)


	Three Months Ended
	June 26,		June 27,
	2021		2020
Net income	$	17,209	$	18,209
Other comprehensive income (loss), before tax
Foreign currency translation gain (loss)	(52)		1,014
Unrealized gain (loss) on marketable securities	(1,123)		9,488

Benefit (provision) for income taxes	236		(1,992)
Comprehensive income	$	16,270	$	26,719

The accompanying notes are an integral part of these consolidated condensed financial statements.

CIRRUS LOGIC, INC.

CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS

(in thousands; unaudited)


	Three Months Ended
	June 26,		June 27,
	2021		2020
Cash flows from operating activities:
Net income	$	17,209	$	18,209
Adjustments to reconcile net income to net cash (used in) generated by operating activities:
Depreciation and amortization	11,898		11,745
Stock-based compensation expense	14,985		13,306
Deferred income taxes	(9,270)		673


Other non-cash adjustments	108		107
MEMS restructuring charges	—		352
Net change in operating assets and liabilities:
Accounts receivable, net	(27,822)		17,459
Inventories	(19,459)		(52,607)
Other assets	(6,457)		(3,545)
Accounts payable and other accrued liabilities	(21,740)		2,553
Income taxes payable	13,752		(7,750)
Net cash (used in) generated by operating activities	(26,796)		502

Cash flows from investing activities:
Maturities and sales of available-for-sale marketable securities	49,158		33,965
Purchases of available-for-sale marketable securities	(53,969)		(41,017)
Purchases of property, equipment and software	(10,835)		(2,054)
Investments in technology	(1,068)		(77)



Net cash used in investing activities	(16,714)		(9,183)

Cash flows from financing activities:


Issuance of common stock, net of shares withheld for taxes	746		3,061
Repurchase of stock to satisfy employee tax withholding obligations	(1,772)		(577)
Repurchase and retirement of common stock	(12,501)		—
Net cash (used in) generated by financing activities	(13,527)		2,484

Net decrease in cash and cash equivalents	(57,037)		(6,197)

Cash and cash equivalents at beginning of period	442,164		292,119
Cash and cash equivalents at end of period	$	385,127	$	285,922

The accompanying notes are an integral part of these consolidated condensed financial statements.

CIRRUS LOGIC, INC.

CONSOLIDATED CONDENSED STATEMENTS OF STOCKHOLDERS' EQUITY

(in thousands; unaudited)


	Common Stock			Additional Paid-In Capital		Accumulated Deficit		Accumulated Other Comprehensive Income / (Loss)		Total
Three Months Ended	Shares	Amount
Balance, March 28, 2020	58,242	$	58	$	1,434,871	$	(201,681)	$	(3,469)	$	1,229,779
Net income	—	—		—		18,209		—		18,209
Change in unrealized gain (loss) on marketable securities, net of tax	—	—		—		—		7,496		7,496
Change in foreign currency translation adjustments	—	—		—		—		1,014		1,014
Issuance of stock under stock option plans and other, net of shares withheld for employee taxes	139	—		3,062		(577)		—		2,485

Stock-based compensation	—	—		13,306		—		—		13,306
Balance, June 27, 2020	58,381	$	58	$	1,451,239	$	(184,049)	$	5,041	$	1,272,289

Balance, March 27, 2021	57,652	$	58	$	1,498,761	$	(112,689)	$	2,875	$	1,389,005
Net income	—	—		—		17,209		—		17,209
Change in unrealized gain (loss) on marketable securities, net of tax	—	—		—		—		(887)		(887)
Change in foreign currency translation adjustments	—	—		—		—		(52)		(52)
Issuance of stock under stock option plans and other, net of shares withheld for employee taxes	61	—		745		(1,773)		—		(1,028)
Repurchase and retirement of common stock	(166)	—		—		(12,501)		—		(12,501)
Stock-based compensation	—	—		14,985		—		—		14,985
Balance, June 26, 2021	57,547	$	58	$	1,514,491	$	(109,754)	$	1,936	$	1,406,731

The accompanying notes are an integral part of these consolidated condensed financial statements.

CIRRUS LOGIC, INC.

NOTES TO THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(unaudited)

1. Basis of Presentation

The 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, included in our Annual Report on Form 10-K filed with the Commission on May 21, 2021. 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.

2. Recently Issued Accounting Pronouncements

In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. The ASU removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application. This ASU is effective for fiscal years beginning after December 15, 2020, including interim periods within that fiscal year, with early adoption permitted. The Company adopted this ASU in the first quarter of fiscal year 2022, with no material impact to the financial statements.

In January 2020, the FASB issued ASU No. 2020-01, Investments - Equity Securities (Topic 321) - Investments - Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815) – Clarifying the Interactions between Topic 321, Topic 323, and Topic 815 (a consensus of the FASB Emerging Issues Task Force). This ASU clarifies the interaction of the accounting for equity securities and investments accounted for under the equity method of accounting, and the accounting for certain forward contracts and purchased options. This ASU is effective for fiscal years beginning after December 15, 2020, including interim periods within that fiscal year, with early adoption permitted. The Company adopted this ASU in the first quarter of fiscal year 2022, with no material impact to the financial statements.

In May 2020, the SEC adopted final rules that amend the financial statement requirements for significant business acquisitions and dispositions. Among other things, the rules modify the significance tests and improve the disclosure requirements for acquired or to be acquired businesses and related pro forma financial information, the periods those financial statements must cover, and the form and content of the pro forma financial information. The final rules were effective January 1, 2021. The Company is currently evaluating the final rules and will incorporate applicable changes in conjunction with its recently-announced business acquisition described in Note 16 - Subsequent Events.

3. Marketable Securities

The Company’s investments have been classified as available-for-sale securities in accordance with U.S. GAAP. Marketable securities are categorized on the consolidated condensed balance sheet as "Marketable securities", within the short-term or long-term classification, as appropriate.

The following table is a summary of available-for-sale securities at June 26, 2021 (in thousands):


As of June 26, 2021	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value (Net Carrying Amount)
Corporate debt securities	$	353,303	$	2,343	$	(315)	$	355,331
Non-U.S. government securities	12,945		121		(6)		13,060


Agency discount notes	3,757		1		(3)		3,755
Total securities	$	370,005	$	2,465	$	(324)	$	372,146

The Company typically invests in highly-rated securities with original maturities generally ranging from one to three years. The Company's specifically identified gross unrealized losses of $0.3 million related to securities with total amortized

costs of approximately $125.6 million at June 26, 2021. There were no securities that had been in a continuous unrealized loss position for more than 12 months as of June 26, 2021. The Company may sell certain of its marketable securities prior to their stated maturities for strategic reasons including, but not limited to, anticipated or actual changes in credit rating and duration management. The Company records an allowance for credit loss when a decline in investment market value is due to credit-related factors. When evaluating an investment for impairment, the Company reviews factors including the length of time and extent to which fair value has been below cost basis, the financial condition of the issuer, changes in market interest rates and whether it is more likely than not the Company will be required to sell the investment before recovery of the investment’s cost basis. As of June 26, 2021, the Company does not consider any of its investments to be impaired.

The following table is a summary of available-for-sale securities at March 27, 2021 (in thousands):


As of March 27, 2021	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value (Net Carrying Amount)
Corporate debt securities	$	348,971	$	3,403	$	(313)	$	352,061
Non-U.S. government securities	13,462		172		(1)		13,633


Agency discount notes	2,759		4		(1)		2,762
Total securities	$	365,192	$	3,579	$	(315)	$	368,456

The Company's specifically identified gross unrealized losses of $0.3 million related to securities with total amortized costs of approximately $92 million at March 27, 2021. There were no securities that had been in a continuous unrealized loss position for more than 12 months as of March 27, 2021. As of March 27, 2021, the Company did not consider any of its investments to be impaired.

The cost and estimated fair value of available-for-sale securities by contractual maturities were as follows (in thousands):


	June 26, 2021				March 27, 2021
	Amortized		Estimated		Amortized		Estimated
	Cost		Fair Value		Cost		Fair Value
Within 1 year	$	59,717	$	60,503	$	54,895	$	55,698
After 1 year	310,288		311,643		310,297		312,758
Total	$	370,005	$	372,146	$	365,192	$	368,456

4. Fair Value of Financial Instruments

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).

•Level 1 - Quoted prices in active markets for identical assets or liabilities.

•Level 2 - Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

•Level 3 - Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

The Company’s cash equivalents and marketable securities portfolio consist of money market funds, debt securities, non-U.S. government 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

securities. The Company determines the fair value of its marketable securities portfolio by obtaining non-binding market prices from third-party pricing providers on the last day of the quarter, whose sources may use quoted prices in active markets for identical assets (Level 1 inputs) or inputs other than quoted prices that are observable either directly or indirectly (Level 2 inputs) in determining fair value.

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

As of June 26, 2021 and March 27, 2021, 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.

The following summarizes the fair value of our financial instruments at June 26, 2021 (in thousands):


	Quoted Prices in Active Markets for Identical Assets Level 1		Significant Other Observable Inputs Level 2		Significant Unobservable Inputs Level 3		Total
Assets:
Cash equivalents
Money market funds	$	333,623	$	—	$	—	$	333,623



Available-for-sale securities
Corporate debt securities	$	—	$	355,331	$	—	$	355,331
Non-U.S. government securities	—		13,060		—		13,060


Agency discount notes	—		3,755		—		3,755

	$	—	$	372,146	$	—	$	372,146

The following summarizes the fair value of our financial instruments at March 27, 2021 (in thousands):


	Quoted Prices in Active Markets for Identical Assets Level 1		Significant Other Observable Inputs Level 2		Significant Unobservable Inputs Level 3		Total
Assets:
Cash equivalents
Money market funds	$	405,819	$	—	$	—	$	405,819

Available-for-sale securities
Corporate debt securities	$	—	$	352,061	$	—	$	352,061
Non-U.S. government securities	—		13,633		—		13,633


Agency discount notes	—		2,762		—		2,762
	$	—	$	368,456	$	—	$	368,456

5. Derivative Financial Instruments

Foreign Currency Forward Contracts

The Company uses foreign currency forward contracts to reduce the earnings impact that exchange rate fluctuations have on non-functional currency balance sheet exposures. The Company recognizes both the gains and losses on foreign currency forward contracts and the gains and losses on the remeasurement of non-functional currency assets and liabilities within "Other income (expense)" in the consolidated condensed statements of income. The Company does not apply hedge accounting to these foreign currency derivative instruments.

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

The before-tax effect of derivative instruments not designated as hedging instruments was as follows (in thousands):


	Three Months Ended
	June 26,		June 27,
	2021		2020		Location
Gain (loss) recognized in income:
Foreign currency forward contracts	$	332	$	1,183	Other income (expense)

6. Accounts Receivable, net

The following are the components of accounts receivable, net (in thousands):


	June 26,		March 27,
	2021		2021
Gross accounts receivable	$	136,534	$	108,712
Allowance for doubtful accounts	—		—
Accounts receivable, net	$	136,534	$	108,712

7. Inventories

Inventories are comprised of the following (in thousands):


	June 26,		March 27,
	2021		2021
Work in process	$	83,453	$	92,073
Finished goods	109,269		81,190
	$	192,722	$	173,263

8. Revolving Credit Facility

On July 12, 2016, Cirrus Logic entered into an amended and restated credit agreement (the “Credit Agreement”) with Wells Fargo Bank, National Association, as Administrative Agent, and the Lenders party thereto, for the purpose of refinancing an existing credit facility and providing ongoing working capital. The Credit Agreement provides for a $300 million senior secured revolving credit facility (the “Credit Facility”). The Credit Facility is required to be guaranteed by all of Cirrus Logic’s material domestic subsidiaries (the “Subsidiary Guarantors”). The 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 Credit Facility may, at our election, bear interest at either (a) a base rate plus the applicable margin (“Base Rate Loans”) or (b) a LIBOR rate plus the applicable margin (“LIBOR Rate Loans”). The applicable margin ranges from 0% to 0.50% per annum for Base Rate Loans and 1.25% to 2.00% per annum for LIBOR Rate Loans based on the Leverage Ratio (as defined below). A commitment fee accrues at a rate per annum ranging from 0.20% to 0.30% (based on the

Leverage Ratio) on the average daily unused portion of the commitment of the lenders. The Credit Agreement contains certain financial covenants providing that (a) the ratio of consolidated funded indebtedness to consolidated EBITDA for 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. The Credit Agreement also contains negative covenants limiting the Company’s or any Subsidiary’s ability to, among other things, incur debt, grant liens, make investments, effect certain fundamental changes, make certain asset dispositions, and make certain restricted payments.

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

See Note 16 - Subsequent Events for details on second amended and restated credit agreement related to this Credit Facility.

9. Revenues

Disaggregation of revenue

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 product line categories of Audio and High-Performance Mixed-Signal.

Total net sales based on the product line disaggregation criteria described above are shown in the table below (in thousands). Prior periods were retrospectively adjusted to conform to the new product line categories.


	Three Months Ended
	June 26,		June 27,
	2021		2020
Audio Products	$	217,355	$	206,449
High-Performance Mixed-Signal Products	59,898		36,124
	$	277,253	$	242,573

The geographic regions that are reviewed are China, the United States, and the rest of the world. Total net sales based on the geographic disaggregation criteria described are as follows (in thousands):


	Three Months Ended
	June 26,		June 27,
	2021		2020
China	$	168,325	$	195,471
United States	6,019		4,076
Rest of World	102,909		43,026
	$	277,253	$	242,573

Performance obligations

The Company's single performance obligation is the delivery of promised goods to the customer. The promised goods are explicitly stated in the customer contract and are comprised of either a single type of good or a series of goods that are substantially the same, have the same pattern of transfer to the customer, and are neither capable of being distinct nor separable from the other promised goods in the contract. This performance obligation is satisfied upon transfer of control of the promised goods to the customer, as defined per the shipping terms within the customer's contract. The vast majority of the Company's contracts with customers have an original expected term length of one year or less. As allowed by Accounting Standards Codification ("ASC") 606, Revenue from Contracts with Customers, the Company has not disclosed the value of any unsatisfied performance obligations related to these contracts.

The Company’s products typically include a warranty period of one to three years. These warranties qualify as assurance-type warranties, as goods can be returned for product non-conformance and defect only. As such, these warranties are accounted for under ASC 460, Guarantees, and are not considered a separate performance obligation.

Contract balances

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.

Transaction price

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.

10. Restructuring Costs

During the fourth quarter of fiscal year 2020, the Company approved a restructuring plan (the “MEMS Restructuring”), including discontinuing efforts relating to the microelectromechanical systems ("MEMS") microphone product line, which allowed the Company to concentrate resources on projects with an anticipated larger return on investment. The MEMS Restructuring was substantially complete as of the first quarter of fiscal year 2021 with a $0.4 million "Restructuring Costs" charge to the income statement. No additional restructuring charges have been incurred since the first quarter of fiscal year 2021.

11. Income Taxes

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.

The following table presents the provision for income taxes (in thousands) and the effective tax rates:


	Three Months Ended
	June 26,			June 27,
	2021			2020
Income before income taxes	$	19,622		$	20,362
Provision for income taxes	$	2,413		$	2,153
Effective tax rate	12.3		%	10.6		%

Our income tax expense was $2.4 million and $2.2 million for the first quarters of fiscal years 2022 and 2021, respectively, resulting in effective tax rates of 12.3% and 10.6% for the first quarters of fiscal years 2022 and 2021, respectively. Our effective tax rate for the first quarter of fiscal year 2022 was lower than the federal statutory rate primarily due to the effect of income earned in certain foreign jurisdictions that is taxed below the federal statutory rate. Our effective tax rate for the first quarter of fiscal year 2021 was lower than the federal statutory rate primarily due to the effect of income earned in certain foreign jurisdictions that is taxed below the federal statutory rate and excess tax benefits from stock-based compensation.

The Company records unrecognized tax b

SEC Form 10-Q filed by Cirrus Logic, Inc.