NOTES TO THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(unaudited)
1. Basis of Presentation
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 26, 2022, included in our Annual Report on Form 10-K filed with the Commission on May 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.
2. Recently Issued Accounting Pronouncements
In October 2021, the FASB issued ASU No. 2021-08, Business Combinations (Topic 805) – Accounting for Contract Assets and Contract Liabilities from Contracts with Customers, which requires contract assets and contract liabilities acquired in a business combination to be recognized and measured at the acquisition date in accordance with Revenue from Contracts with Customers (Topic 606) as if the acquirer had originated the contracts. Prior to the issuance of this ASU, contract assets and liabilities were recognized at fair value on the acquisition date. This ASU is effective for fiscal years beginning after December 15, 2022, including interim periods within that fiscal year, with early adoption permitted, and should be applied on a prospective basis. The Company is currently evaluating the impact of this guidance, but does not expect a material impact to the financial statements upon adoption.
In November 2021, the FASB issued ASU No. 2021-10, Government Assistance (Topic 832) – Disclosures by Business Entities about Government Assistance, which requires annual disclosures about transactions with a government that are accounted for by applying a grant or contribution type accounting model. The disclosures would require information about the nature and related policy used for the transactions, the line items on the balance sheet and income statement that are affected and the amounts applicable to each financial statement line item, and significant terms and conditions of the transactions. This ASU is effective for financial statements issued for annual periods beginning after December 15, 2021, with early adoption permitted, and can be applied on a prospective or retrospective basis. The Company is currently evaluating the impact of this guidance, but does not expect a material impact to the financial statements upon adoption.
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 September 24, 2022 (in thousands): | | | | | | | | | | | | | | | | | | | | | | | |
As of September 24, 2022 | Amortized Cost | | Gross Unrealized Gains | | Gross Unrealized Losses | | Estimated Fair Value (Net Carrying Amount) |
Corporate debt securities | $ | 69,730 | | | $ | — | | | $ | (2,962) | | | $ | 66,768 | |
Non-U.S. government securities | 511 | | | — | | | (12) | | | 499 | |
U.S. Treasury securities | 5,520 | | | — | | | (264) | | | 5,256 | |
| | | | | | | |
Agency discount notes | 384 | | | — | | | (25) | | | 359 | |
Total securities | $ | 76,145 | | | $ | — | | | $ | (3,263) | | | $ | 72,882 | |
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 $3.3 million related to securities with total amortized costs of approximately $75.9 million at September 24, 2022. Securities in a continuous unrealized loss position for more than
12 months as of September 24, 2022 had an aggregate amortized cost of $21.5 million and an aggregate unrealized loss of $1.2 million. 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 September 24, 2022, 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 26, 2022 (in thousands):
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As of March 26, 2022 | Amortized Cost | | Gross Unrealized Gains | | Gross Unrealized Losses | | Estimated Fair Value (Net Carrying Amount) |
Corporate debt securities | $ | 70,296 | | | $ | 2 | | | $ | (2,133) | | | $ | 68,165 | |
Non-U.S. government securities | 509 | | | — | | | (9) | | | 500 | |
U.S. Treasury securities | 5,483 | | | — | | | (169) | | | 5,314 | |
| | | | | | | |
Agency discount notes | 385 | | | — | | | (14) | | | 371 | |
Total securities | $ | 76,673 | | | $ | 2 | | | $ | (2,325) | | | $ | 74,350 | |
The Company's specifically identified gross unrealized losses of $2.3 million related to securities with total amortized costs of approximately $75.5 million at March 26, 2022. Securities in a continuous unrealized loss position for more than 12 months as of March 26, 2022 had an aggregate amortized cost of $3.5 million and an aggregate unrealized loss of $0.1 million. As of March 26, 2022, 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):
| | | | | | | | | | | | | | | | | | | | | | | |
| September 24, 2022 | | March 26, 2022 |
| Amortized | | Estimated | | Amortized | | Estimated |
| Cost | | Fair Value | | Cost | | Fair Value |
Within 1 year | $ | 24,416 | | | $ | 23,869 | | | $ | 10,697 | | | $ | 10,601 | |
After 1 year | 51,729 | | | 49,013 | | | 65,976 | | | 63,749 | |
Total | $ | 76,145 | | | $ | 72,882 | | | $ | 76,673 | | | $ | 74,350 | |
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, 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 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 September 24, 2022, there are no amounts drawn under the credit facility and the fair value is zero.
As of September 24, 2022 and March 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 or six months ended September 24, 2022.
The following summarizes the fair value of our financial instruments at September 24, 2022 (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 | $ | 303,181 | | | $ | — | | | $ | — | | | $ | 303,181 | |
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Available-for-sale securities | | | | | | | |
Corporate debt securities | $ | — | | | $ | 66,768 | | | $ | — | | | $ | 66,768 | |
Non-U.S. government securities | — | | | 499 | | | — | | | 499 | |
U.S. Treasury securities | 5,256 | | | — | | | — | | | 5,256 | |
| | | | | | | |
Agency discount notes | — | | | 359 | | | — | | | 359 | |
| | | | | | | |
| $ | 5,256 | | | $ | 67,626 | | | $ | — | | | $ | 72,882 | |
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The following summarizes the fair value of our financial instruments at March 26, 2022 (in thousands):
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| 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 | $ | 217,151 | | | $ | — | | | $ | — | | | $ | 217,151 | |
Commercial paper | — | | | 249 | | | — | | | 249 | |
| $ | 217,151 | | | $ | 249 | | | $ | — | | | $ | 217,400 | |
| | | | | | | |
Available-for-sale securities | | | | | | | |
Corporate debt securities | $ | — | | | $ | 68,165 | | | $ | — | | | $ | 68,165 | |
Non-U.S. government securities | — | | | 500 | | | — | | | 500 | |
U.S. Treasury securities | 5,314 | | | — | | | — | | | 5,314 | |
| | | | | | | |
Agency discount notes | — | | | 371 | | | — | | | 371 | |
| $ | 5,314 | | | $ | 69,036 | | | $ | — | | | $ | 74,350 | |
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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" in the consolidated condensed statements of income. The Company does not apply hedge accounting to these foreign currency derivative instruments.
As of September 24, 2022, the Company held one foreign currency forward contract denominated in British Pound Sterling with a notional value of $8.4 million. The fair value of this contract was not material as of September 24, 2022.
The before-tax effect of derivative instruments not designated as hedging instruments was as follows (in thousands):
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| | Three Months Ended | | Six Months Ended | | |
| | September 24, | | September 25, | | September 24, | | September 25, | | |
| | 2022 | | 2021 | | 2022 | | 2021 | | Location |
Loss recognized in income: | | | | | | | | | | |
Foreign currency forward contracts | | $ | (576) | | | $ | (397) | | | $ | (795) | | | $ | (65) | | | Other income |
6. Accounts Receivable, net
The following are the components of accounts receivable, net (in thousands): | | | | | | | | | | | |
| September 24, | | March 26, |
| 2022 | | 2022 |
Gross accounts receivable | $ | 304,546 | | | $ | 240,264 | |
Allowance for doubtful accounts | — | | | — | |
Accounts receivable, net | $ | 304,546 | | | $ | 240,264 | |
The increase in accounts receivable is due primarily to the volume and timing of shipments in the current fiscal quarter versus the fourth quarter of fiscal year 2022.
7. Inventories
Inventories are comprised of the following (in thousands): | | | | | | | | | | | |
| September 24, | | March 26, |
| 2022 | | 2022 |
Work in process | $ | 122,107 | | | $ | 95,188 | |
Finished goods | 42,464 | | | 43,248 | |
| $ | 164,571 | | | $ | 138,436 | |
8. Revolving Credit Facility
On July 8, 2021, the Company entered into a second amended and restated credit agreement (the “Second Amended Credit Agreement”) with Wells Fargo Bank, National Association, as administrative agent, and the lenders party thereto. The Second Amended Credit Agreement provides for a $300 million senior secured revolving credit facility (the “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"). The Revolving Credit Facility is secured by substantially all the assets of Cirrus Logic and any Subsidiary Guarantors, except for certain excluded assets.
Borrowings under the Revolving Credit Facility may, at Cirrus Logic’s 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 0.75% per annum for Base Rate Loans and 1.00% to 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”). 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 Fee accrues at a rate per annum ranging from 0.175% to 0.275% (based on the Consolidated Leverage Ratio) on the average daily unused portion of the commitment of the lenders.
The Second Amended Credit Agreement contains customary affirmative covenants, including, among others, covenants regarding the payment of taxes and other obligations, maintenance of insurance, reporting requirements, and compliance with applicable laws and regulations. Further, the Second Amended Credit Agreement contains customary negative covenants limiting the ability of Cirrus Logic or any Subsidiary 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”) and (b) the ratio of consolidated EBITDA for the prior four consecutive quarters to consolidated interest expense paid or payable in cash for the prior four consecutive quarters must not be less than 3.00 to 1.00 (the “Consolidated Interest Coverage Ratio”).
As of September 24, 2022, the Company had no amounts outstanding under the Revolving Credit Facility and was in compliance with all covenants under the Second Amended Credit Agreement.
9. Revenues
Disaggregation of revenue
We disaggregate revenue from contracts with customers by product line and ship to location of the customer. Sales are designated in the respective 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).
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| | Three Months Ended | | Six Months Ended |
| | September 24, | | September 25, | | September 24, | | September 25, |
| | 2022 | | 2021 | | 2022 | | 2021 |
Audio Products | | $ | 337,811 | | | $ | 300,775 | | | $ | 592,307 | | | $ | 518,130 | |
High-Performance Mixed-Signal Products | | 202,763 | | | 165,111 | | | 341,906 | | | 225,009 | |
| | $ | 540,574 | | | $ | 465,886 | | | $ | 934,213 | | | $ | 743,139 | |
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 | | Six Months Ended |
| September 24, | | September 25, | | September 24, | | September 25, |
| 2022 | | 2021 | | 2022 | | 2021 |
China | $ | 350,254 | | | $ | 303,193 | | | $ | 611,745 | | | $ | 471,518 | |
United States | 13,102 | | | 5,337 | | | 20,299 | | | 11,356 | |
Rest of World | 177,218 | | | 157,356 | | | 302,169 | | | 260,265 | |
| $ | 540,574 | | | $ | 465,886 | | | $ | 934,213 | | | $ | 743,139 | |
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 rights of return, warranties, price protection and stock rotation. 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. 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 | | Six Months Ended |
| September 24, | | September 25, | | September 24, | | September 25, |
| 2022 | | 2021 | | 2022 | | 2021 |
Income before income taxes | $ | 117,797 | | | $ | 97,090 | | | $ | 172,884 | | | $ | 116,712 | |
Provision for income taxes | $ | 30,609 | | | $ | 11,994 | | | $ | 45,989 | | | $ | 14,407 | |
Effective tax rate | 26.0 | % | | 12.4 | % | | 26.6 | % | | 12.3 | % |
Our income tax expense was $30.6 million and $12.0 million for the second quarters of fiscal years 2023 and 2022, respectively, resulting in effective tax rates of 26.0% and 12.4%, respectively. Our income tax expense was $46.0 million and $14.4 million for the first six months of fiscal years 2023 and 2022, respectively, resulting in effective tax rates of 26.6% and 12.3%, respectively. Our effective tax rates for the second quarter and first six months of fiscal year 2023 increased significantly year over year and were higher than the federal statutory rate primarily due to a provision in the Tax Cuts and Jobs Act of 2017 whereby research and development expenditures incurred in tax years beginning after December 31, 2021 must be capitalized and amortized ratably over five or fifteen years for tax purposes, depending on the location in which the research activities are conducted. The resulting capitalization of research and experimental costs impacts the calculation of the Company's global intangible low-taxed income, which is treated as a period cost, beginning in the first quarter of fiscal year 2023. Our effective tax rates for the second quarter and first six months of fiscal year 2022 were 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.
The Company records unrecognized tax benefits for the estimated risk associated with tax positions taken on tax returns. At September 24, 2022, the Company had unrecognized tax benefits of $32.9 million, all of which would impact the effective tax rate if recognized. The Company’s total unrecognized tax benefits are classified as “Non-current income taxes" in the consolidated condensed balance sheets. The Company recognizes interest and penalties related to unrecognized tax benefits in the provision for income taxes. As of September 24, 2022, the balance of accrued interest and penalties, net of tax, was $5.8 million.
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 2022 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 are under examination by the U.S. Internal Revenue 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 adequate amounts have been reserved for any adjustments to the provision for income taxes that may ultimately result. However, if the IRS prevails in these matters, 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.
11. Net Income Per Share
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 following table details the calculation of basic and diluted earnings per share for the three and six months ended September 24, 2022 and September 25, 2021 (in thousands, except per share amounts):
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| Three Months Ended | | Six Months Ended |
| September 24, | | September 25, | | September 24, | | September 25, |
| 2022 | | 2021 | | 2022 | | 2021 |
Numerator: | | | | | | | |
Net income | $ | 87,188 | | | $ | 85,096 | | | $ | 126,895 | | | $ | 102,305 | |
Denominator: | | | | | | | |
Weighted average shares outstanding | 55,726 | | | 57,364 | | | 56,002 | | | 57,473 | |
Effect of dilutive securities | 1,692 | | | 2,087 | | | 1,618 | | | 2,012 | |
Weighted average diluted shares | 57,418 | | | 59,451 | | | 57,620 | | | 59,485 | |
Basic earnings per share | $ | 1.56 | | | $ | 1.48 | | | $ | 2.27 | | | $ | 1.78 | |
Diluted earnings per share | $ | 1.52 | | | $ | 1.43 | | | $ | 2.20 | | | $ | 1.72 | |
The weighted outstanding shares excluded from our diluted calculation for the three and six months ended September 24, 2022 were 265 thousand and 288 thousand, respectively, as the shares were anti-dilutive. The weighted outstanding shares excluded from our diluted calculation for the three and six months ended September 25, 2021 were 95 thousand and 99 thousand, respectively, as the shares were anti-dilutive.
12. Commitments and Contingencies
Capacity Reservation Agreement
On July 28, 2021, the Company entered into a Capacity Reservation and Wafer Supply Commitment Agreement (the “Capacity Reservation Agreement”) with GLOBALFOUNDRIES Singapore Pte. Ltd. (“GlobalFoundries”) to provide the Company a wafer capacity commitment and wafer pricing for Company products for calendar years 2022-2026 (the “Commitment Period”).
The Capacity Reservation Agreement requires GlobalFoundries to provide, and the Company to purchase, a defined number of wafers on a quarterly basis for the Commitment Period, subject to shortfall payments. In exchange for GlobalFoundries’ capacity commitment, the Company paid a $60 million non-refundable capacity reservation fee. This reservation fee is recorded in "Other current assets" and "Other assets" on the consolidated condensed balance sheets within the short-term or long-term classification, as appropriate, and amortized over the Commitment Period. In addition, the Company pre-paid GlobalFoundries $195 million for future wafer purchases, which will be credited back to the Company as a portion of the price of wafers purchased beginning in the third quarter of calendar year 2023. This prepayment is currently recorded in "Long-term prepaid wafers" and "Other current assets" on the consolidated condensed balance sheets.
13. Legal Matters
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.
14. Stockholders' Equity
Common Stock
The Company issued a net 0.1 million shares of common stock during both the three and six months ended September 24, 2022, and a net 0.1 million shares of common stock during both the three and six months ended September 25, 2021, pursuant to the Company's equity incentive plans.
Share Repurchase Program
In January 2021, the Board of Directors authorized the repurchase of $350 million of the Company’s common stock. Since inception, approximately $263.9 million of the Company’s common stock has been repurchased under the 2021 share repurchase program, leaving approximately $86.1 million available for repurchase under this plan as of September 24, 2022. During the three months ended September 24, 2022, the Company repurchased 0.6 million shares of its common stock under the 2021 plan for $50.0 million, at an average cost of $85.78 per share. During the six months ended September 24, 2022, the Company repurchased 1.3 million shares of its common stock under the 2021 plan for $106.4 million, at an average cost of $81.35 per share. Additionally, in July 2022, the Company announced that the Board of Directors authorized a share repurchase program of up to $500 million of the Company's common stock. No shares have been repurchased under the 2022 plan as of September 24, 2022.
15. Segment Information
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 one reportable segment, but reports revenue in two 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 9 - Revenues.