Published: 2022-11-14 00:00:00 ET

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Principles of Consolidation and Basis of Presentation —We have one reportable operating segment that designs, develops, manufactures and markets semiconductors and modules. The accompanying consolidated financial statements include our accounts and the accounts of our majority-owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.

We have a 52- or 53-week fiscal year ending on the Friday closest to the last day of September. Fiscal years 2022 and 2021 included 52 weeks, and fiscal year 2020 included 53 weeks. To offset the effect of holidays, for fiscal years in which there are 53 weeks, we typically include the extra week arising in our fiscal years in the first quarter. Our first quarter of fiscal year 2020, ended January 3, 2020, included 14 weeks.

 Use of Estimates—The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the U.S. requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities during the reporting periods, the reported amounts of revenue and expenses during the reporting periods and the disclosure of contingent assets and liabilities at the date of the financial statements. On an ongoing basis, we base estimates and assumptions on historical experience, currently available information and various other factors that management believes to be reasonable under the circumstances. Actual results may differ from these estimates and assumptions.

Foreign Currency Translation and Remeasurement—Our consolidated financial statements are presented in U.S. dollars. While the majority of our foreign operations use the U.S. dollar as the functional currency, the financial statements of our foreign operations for which the functional currency is not the U.S. dollar are translated into U.S. dollars at the exchange rates in effect at the balance sheet dates (for assets and liabilities) and at average exchange rates (for revenue and expenses). The unrealized translation gains and losses on the net investment in these foreign operations are accumulated as a component of other comprehensive (loss) income.

The financial statements of our foreign operations where the functional currency is the U.S. dollar, but where the underlying transactions are transacted in a different currency, are remeasured at the exchange rate in effect at the balance sheet date with respect to monetary assets and liabilities. Nonmonetary assets and liabilities, such as inventories and property and equipment and related statements of operations accounts, such as cost of revenue and depreciation, are remeasured at historical exchange rates. Revenue and expenses, other than cost of revenue, amortization and depreciation, are translated at the average exchange rate for the period in which the transaction occurred. The net gains and losses on foreign currency remeasurement are reflected in selling, general and administrative expense in the accompanying Consolidated Statements of Operations. Net foreign exchange transaction gains and losses for all periods presented were not material.

Cash and Cash Equivalents—Cash equivalents are primarily composed of short-term, highly-liquid instruments with an original maturity of 90 days or less and consist primarily of money market funds.

Investments— Short-term investments: We classify our short-term investments as available-for-sale. Our investments classified as available-for-sale are recorded at fair value at period end. Unrealized gains and losses that are deemed to be unrelated to credit losses are recorded in accumulated other comprehensive income and loss as a separate component of stockholders’ equity.

A decline in the fair value of any debt security below cost that is deemed to be attributable to credit loss results in a charge to earnings and the corresponding establishment of an allowance for credit losses against the cost basis of the security. Premiums and discounts are amortized (accreted) over the life of the related security as an adjustment to its yield. Dividend and interest income are recognized when earned. Realized gains and losses are included in Other income (expense), net in our Consolidated Statements of Operations and are derived using the specific identification method for determining the cost of investments sold.

Other investments: We use the equity method to account for investments in companies if the investment provides us with the ability to exercise significant influence over operating and financial policies of the investee. Our proportionate share of the net income (loss) resulting from these investments are reported within the Other income (expense), net line in our Consolidated Statements of Operations.

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The carrying value of our equity method investment is reported in Other investments in our Consolidated Balance Sheets. Our equity method investment was reported at cost and adjusted each period for our share of the investee’s income or loss and dividends paid, if any, as well as any changes attributable to the equity of the investee that would impact our ownership.

Other investments that are not controlled, and over which we do not have the ability to exercise significant influence, are accounted for as an equity security and reported in Other investments in our Consolidated Balance Sheets. We have elected to measure our equity security, which does not have a readily determinable fair value and does not qualify for the practical expedient under Accounting Standards Codification (“ASC”) 820, Fair Value Measurement, at cost less any impairment. The investment is periodically evaluated for impairment. An impairment loss is recorded whenever there is a decline in value of an investment below its carrying amount that is determined to be other than temporary.

Refer to Note 4 - Investments, for additional information.

Inventories—Inventories are stated at the lower of cost or net realizable value. We use a combination of standard cost and moving weighted-average cost methodologies to determine the cost basis for our inventories, approximating a first-in, first-out basis. The standard cost of finished goods and work-in-process inventory is composed of material, labor and manufacturing overhead, which approximates actual cost. In addition to stating inventory at the lower of cost or net realizable value, we also evaluate inventory each reporting period for excess quantities and obsolescence, establishing reserves when necessary based upon historical experience, assessment of economic conditions and expected demand. Once recorded, these reserves are considered permanent adjustments to the carrying value of inventory.

Property and Equipment—Property and equipment is stated at cost, less accumulated depreciation and amortization. Expenditures for maintenance and repairs are charged to expense as incurred, whereas major improvements that significantly extend the useful life of the assets are capitalized as additions to property and equipment.

Property and equipment are depreciated or amortized using the straight-line method over the following estimated useful lives:

Asset Classification			Estimated Useful Life (In Years)
Buildings and improvements			20 - 40
Computer equipment and software			2 - 5
Furniture and fixtures			7 - 10
Finance lease assets and leasehold improvements			Shorter of useful life or term of lease
Machinery and equipment			2 - 7

 

Goodwill and Indefinite-Lived Intangible Assets—We have goodwill and certain intangible assets with indefinite lives which are not subject to amortization. These are reviewed for impairment annually as of the end of our fiscal August month end and more frequently if events or changes in circumstances indicate that the assets may be impaired. For our assessment of goodwill impairment, we compare the fair value to the carrying value of the reporting unit. For our assessment of indefinite-lived assets we compare the carrying value of the asset to the estimated fair value of the asset. If impairment exists, a loss is recorded to write down the value of the assets to their fair values. We performed our annual impairment tests of our goodwill and indefinite-lived intangible assets and the results of these tests indicated that our goodwill and indefinite-lived intangible assets were not impaired as of August 26, 2022 or August 27, 2021.

Long-Lived Asset Valuation and Impairment Assessment—Long-lived assets include property and equipment and definite-lived intangible assets subject to amortization. We evaluate long-lived assets for recoverability when events or changes in circumstances indicate that their carrying amounts may not be recoverable. Circumstances which could trigger a review include, but are not limited to, significant decreases in the market price of the asset or asset group, significant adverse changes in the business climate or legal factors, the accumulation of costs significantly in excess of the amount originally expected for the acquisition or construction of the asset, current period cash flow or operating losses combined with a history of losses or a forecast of continuing losses associated with the use of the asset and a current expectation that the asset will more likely than not, be sold or disposed of significantly before the end of its previously estimated useful life.

In evaluating a long-lived asset for recoverability, we estimate the undiscounted cash flows expected to result from our use and eventual disposition of the asset. If the sum of the expected undiscounted cash flows is less than the carrying amount of the asset group, an impairment loss, equal to the excess of the carrying amount over the fair value of the asset, is recognized.

Other Intangible Assets—Our other intangible assets, including acquired technology and customer relationships, are definite-lived assets and are subject to amortization. We amortize definite-lived assets over their estimated useful lives, which range from five to fourteen years, generally based on the pattern over which we expect to receive the economic benefit from these assets.

Leases—We have operating leases for certain facilities, as well as manufacturing and office equipment. We have financing leases for our corporate headquarters, including our fabrication facility, and to a lesser extent, various manufacturing equipment.

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These leases expire at various dates through 2038, and certain of these leases have renewal options with the longest ranging up to two ten-year periods.

We determine that a contract contains a lease at lease inception if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. In evaluating whether the right to control an identified asset exists, we assess whether we have the right to direct the use of the identified asset and obtain substantially all of the economic benefit from the use of the identified asset. Leases with a term greater than one year are recognized on the balance sheet as right-of-use (“ROU”) assets and lease liabilities. For leases with a term of one year or less, categorized as short-term leases, we elected not to recognize the lease liability for these arrangements and the lease payments are recognized in the Consolidated Statements of Operations on a straight-line basis over the lease term. ROU assets and lease liabilities are recognized at the present value of future minimum lease payments over the lease term on the commencement date. ROU assets are initially measured as the amount of the initial lease liability, adjusted for initial direct costs, lease payments made at or before the commencement date, and reduced by lease incentives received. We include options to renew or terminate when determining the lease term when it is reasonably certain that the option will be exercised. Our lease agreements do not contain any material residual value guarantees or restrictive covenants.

Our leases may contain lease and non-lease components. We elected to account for lease and non-lease components in a contract as part of a single lease component. Fixed payments are considered part of the single lease component and included in the ROU assets and lease liabilities. Additionally, lease contracts typically include variable payments and other costs that do not transfer a separate good or service, such as reimbursement for real estate taxes and insurance, which are expensed as incurred.

Our leases generally do not provide an implicit interest rate. As a result, we utilize our incremental borrowing rates, which are the rates incurred to borrow on a collateralized basis over a similar term and amount equal to the lease payments in a similar economic environment.

Revenue Recognition—Substantially all of our revenue is derived from sales of high-performance RF, microwave, millimeter wave and lightwave semiconductor solutions into three primary markets: Telecom, I&D and Data Center.

We recognize revenue within the scope of ASC 606, Revenue from Contracts with Customers. Revenue is recognized when a customer obtains control of products or services in an amount that reflects the consideration which we expect to receive in exchange for those goods or services. To determine revenue recognition for arrangements within the scope of ASC 606, we perform the following five steps: (1) identify the contract(s) with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to the performance obligations in the contract; and (5) recognize revenue when (or as) we satisfy performance obligations. Sales, value add and other taxes collected on behalf of third parties are excluded from revenue. Our revenue arrangements do not contain significant financing components.

Contracts with our customers principally contain only one distinct performance obligation, which is the sale of products. However, due to multiple products potentially being sold on a single order, we are required to allocate consideration based on the estimated relative standalone selling prices of the promised products.

Periodically, we enter into non-product development and license contracts with certain customers. We generally recognize revenue from these contracts over-time as services are provided based on the terms of the contract. Non-product development and license revenue is not significant to our Revenue or Consolidated Statements of Operations for the periods presented. Revenue is deferred for amounts billed or received prior to delivery of the services. Certain contracts may contain multiple performance obligations for which we allocate revenue to each performance obligation based on the relative stand-alone selling price.

Our product revenue is recognized when the customer obtains control of the product, which generally occurs at a point in time, and is based on the contractual shipping terms of a contract. Non-product revenue is generally recognized over time. For each contract, the promise to transfer the control of the products or services, each of which is individually distinct, is considered to be the identified performance obligation. We provide an assurance type warranty which is not sold separately and does not represent a separate performance obligation. Therefore, we account for such warranties under ASC 460, Guarantees, and the estimated costs of warranty claims are generally accrued as cost of revenue in the period the related revenue is recorded.

We have agreements with certain distribution customers which may include certain rights of return and pricing programs, including returns for aged inventory, stock rotation and price protection which affect the transaction price. Sales to these customers and programs offered are in accordance with terms set forth in written agreements, which require us to assess the potential revenue effects of this variable consideration utilizing the expected value method. Variable consideration is included in the transaction price if, in our judgment, it is probable that a significant future reversal of cumulative revenue under the contract will not occur. As such, revenue on sales to customers that include rights of return and pricing programs are recorded net of estimated variable consideration, utilizing the expected value method based on historical sales data. We believe that the judgments and estimates we utilize are reasonable based upon current facts and circumstances, however utilizing different judgments and estimates could result in different amounts.

Practical Expedients and Elections—ASC 606 requires that we disclose the aggregate amount of transaction price that is allocated to performance obligations that have not yet been satisfied as of the reporting periods presented. The guidance provides certain practical expedients that limit this requirement and, therefore, we do not disclose the value of unsatisfied performance obligations for

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(i) contracts with an original expected length of one year or less and (ii) contracts for which revenue is recognized at the amount to which we have the right to invoice for services performed. We have elected not to disclose the aggregate amount of transaction prices associated with unsatisfied or partially unsatisfied performance obligations for contracts where these criteria are met.

Our policy is to capitalize any incremental costs incurred to obtain a customer contract, only to the extent that the benefit associated with the costs is expected to be longer than one year. Capitalizable contract costs were not significant as of September 30, 2022 and October 1, 2021.

We account for shipping and handling activities related to contracts with customers as costs to fulfill the promise to transfer the associated products. When shipping and handling costs are incurred after a customer obtains control of the products, we have elected to account for these as costs to fulfill the promise and not as a separate performance obligation. Shipping and handling costs associated with the distribution of products to customers are recorded in costs of revenue generally when the related product is shipped to the customer.

Research and Development Costs—Costs incurred in the research and development of products are expensed as incurred.

Income Taxes—Deferred tax assets and liabilities are recognized based on temporary differences between the financial reporting and income tax bases of assets and liabilities, using rates anticipated to be in effect when such temporary differences reverse. A valuation allowance against net deferred tax assets is required if, based upon the available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized. On a periodic basis, we reassess the valuation allowance on our deferred income tax assets weighing positive and negative evidence, including both historical and prospective information, with greater weight given to evidence that is objectively verifiable, to assess the recoverability of our deferred tax assets. The periodic assessments include, among other things, our recent financial performance and our future projections.

We provide reserves for potential payments of tax to various tax authorities related to uncertain tax positions and other issues. Reserves are based on a determination of whether and how much of a tax benefit is taken by us in our tax filings or positions that are more likely than not to be realized following an examination by taxing authorities. We recognize the financial statement benefit of an uncertain tax position only after considering the probability that a tax authority would sustain the position in an examination. For tax positions meeting a “more-likely-than-not” threshold, the amount recognized in the financial statements is the benefit expected to be realized upon settlement with the tax authority. For tax positions not meeting the threshold, no financial statement benefit is recognized. Potential interest and penalties associated with such uncertain tax positions are recorded as a component of income tax expense.

Earnings Per Share—Basic net income (loss) per share is computed by dividing net income (loss) by the weighted-average number of common shares outstanding during the period, excluding the dilutive effect of common stock equivalents. Diluted net income (loss) per share reflects the dilutive effect of common stock equivalents, such as stock options, warrants, restricted stock units using the treasury stock method and convertible debt using the if-converted method.

Fair Value Measurements—Financial assets and liabilities are measured at fair value. Fair value is an exit price, representing the amount that would be received from the sale of an asset or paid to transfer a liability at the measurement date under current market conditions in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for considering such assumptions, we group financial assets and liabilities in a three-tier fair value hierarchy, according to the inputs used in measuring fair value as follows:

•Level 1—observable inputs such as quoted prices in active markets for identical assets and liabilities;

•Level 2—inputs other than quoted prices in active markets that are observable either directly or indirectly, such as quoted prices in active markets for similar assets and liabilities, quoted prices for identical assets and liabilities in markets that are not active and model-based valuation techniques for which significant assumptions are observable in active markets; and,

•Level 3—unobservable inputs for which there is little or no market data, requiring us to develop our own assumptions for model-based valuation techniques.

This hierarchy requires us to use observable market data, when available, and to minimize the use of unobservable inputs when determining fair value. We recognize transfers between levels of the fair value hierarchy at the end of the reporting period.

Money market funds are actively traded and consist of highly liquid investments with original maturities of 90 days or less. They are measured at their fair value and classified as Level 1. Corporate and agency bonds and commercial paper are categorized as Level 2 assets except where sufficient quoted prices exist in active markets, in which case such securities are categorized as Level 1 assets. These securities are valued using third-party pricing services. These services may use, for example, model-based pricing methods that utilize observable market data as inputs. We generally use quoted prices for recent trading activity of assets with similar characteristics to the debt security or bond being valued. The securities and bonds priced using such methods are generally classified as Level 2. Broker dealer bids or quotes on securities with similar characteristics may also be used. Our common stock warrants were classified as Level 3 due to unobservable inputs.

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The carrying amounts of cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities approximate fair value due to the short-term nature of these assets and liabilities.

Share-Based Compensation—We account for all share-based compensation arrangements using the fair value method. We recognize compensation expense using the straight-line method for service-based awards and the accelerated method for performance-based awards, and providing that the minimum amount of compensation recorded is equal to the vested portion of the award. We record the expense in the Consolidated Statements of Operations in the same manner in which the award recipients’ salary costs are classified. For restricted stock awards, we use the closing stock price on the date of grant to estimate the fair value of the awards. For restricted stock units with both service and performance conditions, this grant-date fair value is also impacted by the number of units that are expected to vest during the performance period and is adjusted through the related stock-based compensation expense at each reporting period based on the probability of achievement of that performance condition. If we determine that an award is unlikely to vest, any previously recorded stock-based compensation expense is reversed in the period of that determination. We use the Monte Carlo Simulation analysis to estimate the fair value of restricted stock units and stock options with market conditions, inclusive of assumptions for risk free interest rates, expected term, expected volatility and the target price. We derive the risk-free interest rate assumption from the U.S. Treasury’s rates for U.S. Treasury zero-coupon bonds with maturities similar to the expected term of the award being valued. We base the assumed dividend yield on our expectation of not paying dividends in the foreseeable future. We calculate the weighted-average expected term of the options using historical data. In addition, we calculate our estimated volatility using our historical stock price volatility data. We use the Black-Scholes option-pricing model to estimate the fair value of stock options with service and performance conditions, inclusive of assumptions for risk-free interest rates, dividends, expected terms and estimated volatility. We account for forfeitures when they occur.

Share-based awards that are settled in cash are recorded as liabilities. The measurement of the liability and compensation cost for these awards is based on the fair value of the award as of each period end date, which is equivalent to the closing price of a share of our common stock on the period end date multiplied by the number of units earned, and is recorded in operating income over the award’s vesting period. Changes in our payment obligation prior to the settlement date of a stock-based award are recorded as compensation expense in operating income in the period of the change. The final payment amount for such awards is established on the date of vesting.

Guarantees and Indemnification Obligations—We enter into agreements in the ordinary course of business with, among others, customers, distributors and OEMs. Most of these agreements require us to indemnify the other party against third-party claims alleging that a Company product infringes a patent and/or copyright. Certain agreements in which we grant limited licenses to Company intellectual property require us to indemnify the other party against third-party claims alleging that the use of the licensed intellectual property infringes a third-party's intellectual property. Certain of these agreements require us to indemnify the other party against certain claims relating to property damage, personal injury or the acts or omissions, its employees, agents or representatives. In addition, from time to time, we have made certain guarantees in the form of warranties regarding the performance of Company products to customers.

We have agreements with certain vendors, creditors, lessors and service providers pursuant to which we have agreed to indemnify the other party for specified matters, such as acts and omissions, its employees, agents or representatives.

We have procurement or license agreements with respect to technology used in our products and agreements in which we obtain rights to a product from an OEM. Under some of these agreements, we have agreed to indemnify the supplier for certain claims that may be brought against such party with respect to our acts or omissions relating to the supplied products or technologies.

Our certificate of incorporation and agreements with certain of our directors and officers and certain of our subsidiaries’ directors and officers provide them indemnification rights, to the extent legally permissible, against liabilities incurred by them in connection with legal actions in which they may become involved by reason of their service as a director or officer. As a matter of practice, we maintain director and officer liability insurance coverage, including coverage for directors and officers of acquired companies.

We have not experienced any losses related to these indemnification obligations in any period presented and no claims with respect thereto were outstanding as of September 30, 2022 and October 1, 2021. We do not expect significant claims related to these indemnification obligations and, consequently, have concluded that the fair value of these obligations is negligible. No liabilities related to indemnification liabilities have been established.

Recent Accounting Pronouncements

Pronouncements Adopted in Fiscal Year 2022

On the first day of fiscal year 2022, we adopted Accounting Standards Update (“ASU”) 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity. This ASU simplifies the accounting for certain financial instruments with characteristics of liability and equity, including convertible instruments and contracts on an entity’s own equity. The standard reduces the number of models used to account for convertible instruments, removes certain settlement conditions that are required for equity contracts to qualify for the derivative scope exception, and requires the if-converted method for calculation of

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diluted earnings per share for all convertible instruments. We adopted this standard using the modified retrospective approach transition method. Therefore, the consolidated financial statements for fiscal year 2022 are presented under the new standard, while the comparative periods presented are not adjusted and continue to be reported in accordance with the Company’s historical accounting policy. Refer to Note 15 - Debt for the impact of adoption on our 2026 Convertible Notes (as defined below).

Pronouncements for Adoption in Subsequent Periods

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, which provides optional expedients and exceptions to applying the guidance on contract modifications, hedge accounting, and other transactions, to simplify the accounting for transitioning from the London Interbank Offered Rate, and other interbank offered rates expected to be discontinued, to alternative reference rates. The guidance in this Update was effective upon its issuance. If elected, the guidance is to be applied prospectively through December 31, 2022. We are currently evaluating the effect the potential adoption of this ASU will have on our consolidated financial statements, including but not limited to our Credit Agreement, as defined in Note 15 - Debt.

Disaggregation of Revenue

We disaggregate revenue from contracts with customers by markets and geography, as we believe it best depicts how the nature, amount, timing and uncertainty of revenue and cash flows are affected by economic factors.

The following tables present our revenue disaggregated by markets and geography (in thousands):

			Fiscal Years
			2022						2021						2020
Telecom			$	242,702					$	188,391					$	209,477
Industrial & Defense			294,341						280,221						194,506
Data Center			138,127						138,308						126,054
Total			$	675,170					$	606,920					$	530,037

			Fiscal Years
Revenue by Geographic Region			2022						2021						2020
United States			$	315,276					$	277,850					$	217,474
China			175,978						165,931						192,989
Asia Pacific, excluding China (1)			107,112						93,572						84,997
Other Countries (2)			76,804						69,567						34,577
Total			$	675,170					$	606,920					$	530,037

(1)Asia Pacific primarily represents Taiwan, Japan, Singapore, Thailand, South Korea, Australia and Malaysia.

(2)No country or region represented greater than 10% of our total revenue as of the dates presented, other than the United States, China and the Asia Pacific region as presented above.

Contract Balances

We record contract assets or contract liabilities depending on the timing of revenue recognition, billings and cash collections on a contract-by-contract basis. Our contract liabilities primarily relate to deferred revenue, including advanced consideration received from customers for contracts prior to the transfer of control to the customer, and therefore revenue is subsequently recognized upon delivery of products and services.

As of September 30, 2022, October 1, 2021 and October 2, 2020 our contract liabilities were $3.9 million, $2.8 million and $9.9 million, respectively. During the fiscal years ended September 30, 2022, October 1, 2021 and October 2, 2020, we recognized net sales of $1.6 million, $9.4 million and $1.9 million, respectively, that were included in the contract liabilities balance at the beginning of the period. The increase in contract liabilities during the fiscal year ended September 30, 2022 was primarily related to the deferral of revenue for invoiced products and services prior to when certain of our customers obtained control of the product and or services.

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All short-term investments are invested in corporate bonds and commercial paper, and are classified as available-for-sale. The amortized cost, gross unrealized holding gains or losses and fair value of our available-for-sale investments by major investments type are summarized in the tables below (in thousands): 

			September 30, 2022
			Amortized Cost						Gross Unrealized Holding Gains						Gross Unrealized Holding Losses						Aggregate Fair Value
Corporate bonds						$	146,163					$	5					$	(4,492)					$	141,676
Commercial paper						326,318						—						(1,414)						324,904
Total investments						$	472,481					$	5					$	(5,906)					$	466,580

			October 1, 2021
			Amortized Cost						Gross Unrealized Holding Gains						Gross Unrealized Holding Losses						Aggregate Fair Value
Corporate bonds						$	73,653					$	151					$	(171)					$	73,633
Commercial paper						114,718						21						(7)						114,732
Total investments						$	188,371					$	172					$	(178)					$	188,365

The contractual maturities of available-for-sale investments were as follows (in thousands):

			September 30, 2022
Less than 1 year			$	368,141
Over 1 year			98,439
Total investments			$	466,580

We have determined that the gross unrealized losses on available for sale securities at September 30, 2022 and October 1, 2021 are temporary in nature and/or do not relate to credit loss, therefore there is no expense for credit losses recorded in our Consolidated Statements of Operations. The techniques used to measure the fair value of our investments are described in Note 2 - Summary of Significant Accounting Policies. We review our investments to identify and evaluate investments that have indications of possible impairment due to credit loss. Factors considered in determining whether a loss is due to credit loss include the extent to which fair value has been less than the cost basis, adverse conditions, the financial condition and near-term prospects of the investee, and our intent and ability to hold the investment for a period of time sufficient to allow for any anticipated recovery in market value. All of our fixed income securities are rated investment grade as of September 30, 2022.

During the fiscal years ended September 30, 2022, October 1, 2021 and October 2, 2020, we received proceeds from sales and maturities of available-for-sale securities of $244.6 million, $209.3 million and $183.9 million, respectively. During the fiscal years ended September 30, 2022, October 1, 2021 and October 2, 2020, gross realized gains were less than $0.1 million, $0.5 million and $0.3 million, respectively. During the fiscal years ended September 30, 2022, October 1, 2021 and October 2, 2020, gross realized losses were $0.4 million, less than $0.1 million and $0.1 million, respectively. Gross realized gains and losses were recorded within other expense in each period presented.

Other Investments — As of September 30, 2022 and October 1, 2021 we held a non-marketable equity investment classified as other long-term investments, which is an investment in a Series B preferred stock ownership of a privately held manufacturing corporation with preferred liquidation rights over other equity shares. As the equity securities do not have a readily determinable fair value and do not qualify for the practical expedient under ASC 820, Fair Value Measurement, we have elected to account for this investment at cost less any impairment. During fiscal year 2020, we identified impairment indicators for this investment and recorded an impairment charge of $2.5 million to Other income (expense), net. As of September 30, 2022 and October 1, 2021, the carrying value of this investment was $2.5 million.

As of October 1, 2021, also included in long-term investments, was a non-controlling investment of less than 10% of the outstanding equity of a private company that was acquired in conjunction with our divestiture of the Compute business during our fiscal year 2018. This investment’s carrying value was updated quarterly based on our proportionate share of the gains or losses, as well as any changes in the private company’s equity, utilizing the equity method. As of October 1, 2021, the carrying value of this investment was $12.8 million.

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On December 23, 2021, we sold our investment in the private company to one of the other limited liability company members, pursuant to the terms of a previously negotiated call option included in the private company’s limited liability company agreement, as amended and restated (the “LLC Agreement”), in exchange for a predetermined fixed price as set forth in the LLC Agreement of approximately $127.8 million in cash consideration. As of December 23, 2021, the carrying value of this investment was approximately $9.5 million. As a result of this transaction, we recorded a gain of $118.2 million in Other income (expense), net in our Consolidated Statements of Operations.

During fiscal years 2022, 2021 and 2020, we recorded $3.3 million, $2.4 million and $3.4 million, respectively, of non-cash net losses associated with this equity method investment in Other income (expense), net in our Consolidated Statements of Operations. The net loss amounts for fiscal years 2021 and 2020 include non-cash gains of $9.8 million and $16.6 million, respectively, associated with changes in the private company’s equity.

Assets and Liabilities Measured and Recorded at Fair Value on a Recurring Basis

We measure certain assets and liabilities at fair value on a recurring basis such as our financial instruments. There have been no transfers between Level 1, 2 or 3 assets or liabilities during the fiscal year ended September 30, 2022.

Assets and liabilities measured at fair value on a recurring basis consist of the following (in thousands):

 

			September 30, 2022
			Fair Value						Active Markets for Identical Assets (Level 1)						Observable Inputs (Level 2)						Unobservable Inputs (Level 3)
Assets
Money market funds			$	1,392					$	1,392					$	—					$	—
Commercial paper			324,904						—						324,904						—
Corporate bonds			141,676						—						141,676						—
Total assets measured at fair value			$	467,972					$	1,392					$	466,580					$	—

			October 1, 2021
			Fair Value						Active Markets for Identical Assets (Level 1)						Observable Inputs (Level 2)						Unobservable Inputs (Level 3)
Assets
Money market funds			$	26,363					$	26,363					$	—					$	—
Commercial paper			114,732						—						114,732						—
Corporate bonds			73,633						—						73,633						—
Total assets measured at fair value			$	214,728					$	26,363					$	188,365					$	—

Summarized below is the activity in our accounts receivable allowances, including compensation credits and doubtful accounts as follows (in thousands):

			Fiscal Years
			2022						2021						2020
Balance - beginning of year			$	2,795					$	2,893					$	5,047
Provision, net			7,097						16,213						10,774
Charge-offs			(7,446)						(16,311)						(12,928)
Balance - end of year			$	2,446					$	2,795					$	2,893

The balances at the end of fiscal years 2022, 2021 and 2020 are comprised primarily of compensation credits of $2.1 million, $2.6 million and $2.8 million, respectively.

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Inventories consist of the following (in thousands):

			September 30, 2022						October 1, 2021
Raw materials			$	72,595					$	50,950
Work-in-process			12,455						9,201
Finished goods			29,910						22,548
Total			$	114,960					$	82,699

Property and equipment consists of the following (in thousands):

			September 30, 2022						October 1, 2021
Construction in process			$	10,837					$	24,086
Machinery and equipment			227,844						200,843
Leasehold improvements			35,651						24,347
Furniture and fixtures			2,535						2,377
Computer equipment and software			18,347						17,749
Finance lease assets			34,417						35,589
Total property and equipment			329,631						304,991
Less accumulated depreciation and amortization			(205,930)						(184,465)
Property and equipment — net			$	123,701					$	120,526

Depreciation and amortization expense related to property and equipment for fiscal years 2022, 2021 and 2020 was $23.8 million, $23.7 million and $28.5 million, respectively. Accumulated amortization on finance lease assets as of September 30, 2022 and October 1, 2021 was $5.8 million and $4.9 million, respectively.

Amortization expense related to intangible assets is as follows (in thousands):

			Fiscal Years
			2022						2021						2020
Cost of revenue			$	7,839					$	15,296					$	17,462
Selling, general and administrative			25,592						30,917						32,868
Total			$	33,431					$	46,213					$	50,330

Intangible assets consist of the following (in thousands):

			September 30, 2022						October 1, 2021
Acquired technology			$	179,434					$	179,434
Customer relationships			245,870						245,870
Trade name, indefinite lived			3,400						3,400
Total			428,704						428,704
Less accumulated amortization			(377,450)						(344,019)
Intangible assets — net			$	51,254					$	84,685

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As of September 30, 2022, our estimated amortization of our intangible assets in future fiscal years, was as follows (in thousands):

			2023			2024			2025			2026			2027			Thereafter
Amortization expense			$	26,048		15,410			3,490			1,644			1,262			—

Accumulated amortization for the acquired technology and customer relationships was $175.2 million and $202.3 million, respectively, as of September 30, 2022, and $167.3 million and $176.7 million, respectively, as of October 1, 2021.

A summary of the activity in intangible assets and goodwill follows (in thousands):

			Gross Intangible Assets
			Total Intangibles						Acquired Technology						Customer Relationships												Trade Name						Total Goodwill
Balance as of October 2, 2020			$	428,704					$	179,434					$	245,870											$	3,400					$	315,012
Currency translation adjustments			—						—						—												—						(772)
Balance as of October 1, 2021			428,704						179,434						245,870												3,400						314,240
Currency translation adjustments			—						—						—												—						(2,823)
Balance as of September 30, 2022			$	428,704					$	179,434					$	245,870											$	3,400					$	311,417

Accrued liabilities consist of the following (in thousands):

 

			September 30, 2022						October 1, 2021
Compensation and benefits			$	34,856					$	33,468
Distribution costs			5,818						8,444
Current portion of operating leases			6,476						7,457
Product warranty			1,898						2,225
Deferred revenue			3,916						1,904
Professional fees			2,034						1,188
Other			10,477						8,688
Total accrued liabilities			$	65,475					$	63,374

We have periodically implemented restructuring actions in connection with broader plans to reduce staffing, our internal manufacturing footprint and overall operating costs. The restructuring expenses are primarily comprised of direct and incremental costs related to headcount reductions including severance and outplacement fees for the terminated employees, as well as facility closure costs.

There were no restructuring charges incurred during fiscal years 2022 and 2021 and $1.1 million was incurred in fiscal year 2020. Restructuring charges incurred during fiscal year 2020 related primarily to the 2019 Plan (as defined below). There were adjustments of less than $0.1 million for other restructuring actions that were completed prior to fiscal year 2020.

2019 Plan

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We establish a product warranty liability at the time of revenue recognition. Product warranties generally have terms of 12 months and cover nonconformance with specifications and defects in material or workmanship. For sales to distributors, our warranty generally begins when the product is resold by the distributor. The liability is based on estimated costs to fulfill customer product warranty obligations and utilizes historical product failure rates. Should actual warranty obligations differ from estimates, revisions to the warranty liability may be required.

Product warranty liability activity is as follows (in thousands):

									Fiscal Years
			2022						2021						2020
Balance — beginning of year			$	2,225					$	1,858					$	3,273
Provisions (benefit)			4,567						5,677						2,271
(Payments) direct charges			(4,894)						(5,310)						(3,686)
Balance — end of year			$	1,898					$	2,225					$	1,858

Asset Retirement Obligations—We are obligated under certain facility leases to restore those facilities to the condition in which we or our predecessors first occupied the facilities. We are required to remove leasehold improvements and equipment installed in these facilities prior to termination of the leases. As of the end of fiscal years 2022 and 2021, the estimated costs for the removal of these assets are recorded as asset retirement obligations in other long-term liabilities were $1.9 million and $1.9 million, respectively.

Purchase Commitments—As of September 30, 2022, we had outstanding non-cancelable purchase commitments of $95.5 million primarily for purchases of services and inventory supply arrangements. In addition, we have $27.2 million in fixed payments associated with a power purchase agreement that is expected to commence in fiscal 2023 and has a 15-year term. See Note 16- Financing Obligation for additional detail on the power purchase agreement.

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The following represents the outstanding balances and effective interest rates (in thousands, except percentages):

			September 30, 2022									October 1, 2021
			Principal Balance			Effective Interest Rate						Principal Balance			Effective Interest Rate
LIBOR plus 2.25% term loans due May 2024			$	120,766		4.77		%				$	120,766		2.33		%
0.25% convertible notes due March 2026			450,000			0.54		%				450,000			4.25		%
Total principal amount outstanding			570,766									570,766
Less: Unamortized discount on term loans and deferred financing costs			(4,846)									(5,567)
Less: Unamortized discount on convertible notes			—									(73,102)
Less: Current portion of long term debt			—									—
Total long-term debt			$	565,920								$	492,097

Term Loans

As of September 30, 2022, we are party to a credit agreement dated as of May 8, 2014 with a syndicate of lenders and Goldman Sachs Bank USA, as administrative agent (as amended on February 13, 2015, August 31, 2016, March 10, 2017, May 19, 2017, May 2, 2018 and May 9, 2018, the “Credit Agreement”).

The Credit Agreement consists of term loans with an original principal amount of $700.0 million (“Term Loans”) that will mature in May 2024 and bear interest at: (i) for LIBOR loans for any interest period, a rate per annum equal to the LIBOR rate as determined by the administrative agent, plus an applicable margin of 2.25%; and (ii) for base rate loans, a rate per annum equal to the greater of (a) the prime rate quoted in the print edition of the Wall Street Journal, Money Rates Section, (b) the federal funds rate plus one-half of 1.00% and (c) the LIBOR rate applicable to a one-month interest period plus 1.00% (but, in each case, not less than 1.00%), plus an applicable margin of 1.25%.

The Credit Agreement had a revolving credit facility with an aggregate, undrawn borrowing capacity of $160.0 million (“Revolving Facility”) that expired on November 8, 2021.

During fiscal year 2021, we repaid $543.6 million in principal under the Term Loans using $443.6 million of the net proceeds from our 2026 Convertible Notes offering, described below, as well as existing cash and short-term investments. In connection with these prepayments, during fiscal year 2021, we expensed unamortized deferred financing costs and recognized losses on extinguishment of debt of $4.4 million within the Other income (expense), net line in our Consolidated Statements of Operations. The loss on extinguishment is a non-cash adjustment to cash flows from operating activities in our Consolidated Statements of Cash Flows for the fiscal year 2021.

As of September 30, 2022, there are no minimum principal repayments on the Term Loans until 2024 when the remaining principal balance of $120.8 million becomes due. The fair value of the Term Loan was estimated to be approximately $120.2 million as of September 30, 2022 and October 1, 2021 and was determined using Level 2 inputs, including a quoted price from a financial institution.

As of September 30, 2022, approximately $0.6 million of deferred financing costs remain unamortized related to the Term Loans and is recorded as a direct reduction of the recognized debt liabilities in our accompanying Consolidated Balance Sheets.

The Term Loans are secured by a first priority lien on substantially all of our assets and provide that we must comply with certain financial and non-financial covenants.

2026 Convertible Notes

On March 25, 2021, we issued 0.25% convertible senior notes due in 2026, pursuant to an indenture dated as of such date (the “Indenture”), between the Company and U.S. Bank National Association, as trustee, with an aggregate principal amount of $400.0 million (the “Initial Notes”), and on April 6, 2021, we issued an additional $50.0 million aggregate principal amount (the “Additional Notes”) (together, the “2026 Convertible Notes”). No additional 2026 Convertible Notes will be issued and the aggregate principal balance is $450.0 million. The 2026 Convertible Notes will mature on March 15, 2026, unless earlier converted, redeemed or repurchased.

The Additional Notes were issued and sold to the initial purchaser of the Initial Notes, pursuant to the option to purchase the Additional Notes granted by the Company to the initial purchaser and have the same terms as the Initial Notes.

Holders of the 2026 Convertible Notes may convert their notes at their option at any time prior to the close of business on the business day immediately preceding December 15, 2025 in multiples of $1,000 principal amount, only under the following

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circumstances: (i) during any fiscal quarter commencing after the fiscal quarter ending on July 2, 2021 (and only during such fiscal quarter), if the last reported sale price of our common stock for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on the last trading day of the immediately preceding fiscal quarter is greater than or equal to 130% of the conversion price for the notes on each applicable trading day; (ii) during the five business day period after any five consecutive trading day period (the “Measurement Period”) in which the “trading price” (as defined in the Indenture) per $1,000 principal amount of the notes for each trading day of the Measurement Period was less than 98% of the product of the last reported sale price of our common stock and the conversion rate for the notes on each such trading day; (iii) if we call such notes for redemption, at any time prior to the close of business on the second scheduled trading day immediately preceding the applicable redemption date; or (iv) upon the occurrence of specified corporate events described in the Indenture. On or after December 15, 2025 until the close of business on the second scheduled trading day immediately preceding the maturity date, holders may convert their notes in multiples of $1,000 principal amount, regardless of the foregoing circumstances.

The initial conversion rate for the 2026 Convertible Notes is 12.1767 shares of common stock per $1,000 principal amount of the notes, equivalent to an initial conversion price of approximately $82.12 per share of common stock. The conversion rate will be subject to adjustment upon the occurrence of certain specified events in the Indenture.

Upon conversion of the 2026 Convertible Notes, we had the option to pay or deliver, as the case may be, cash, shares of our common stock or a combination of cash and shares of our common stock, at our election (subject to, and in accordance with, the settlement provisions of the Indenture). In November 2021, we made an irrevocable election to pay cash up to the aggregate principal amount of the notes to be converted and pay or deliver, as the case may be, cash, shares of our common stock or a combination of cash and shares of our common stock, at our election, in respect of the remainder, if any, of our conversion obligation in excess of the aggregate principal amount of the notes being converted (subject to, and in accordance with, the settlement provisions of the Indenture). We may not redeem the notes prior to March 20, 2024. We may redeem for cash all or any portion of the notes, at our option, on or after March 20, 2024 if the last reported sale price per share of our common stock has been at least 130% of the conversion price then in effect for at least 20 trading days (whether or not consecutive), including the trading day immediately preceding the date on which we provide notice of redemption, during any 30 consecutive trading day period ending on, and including, the trading day immediately preceding the date on which we provide notice of redemption, at a redemption price equal to 100% of the principal amount of the notes to be redeemed, plus accrued and unpaid interest, to, but not including, the redemption date.

The Indenture does not contain any financial or operating covenants or restrictions on the payments of dividends, the making of investments, the incurrence of indebtedness or the purchase or prepayment of securities by us or any of our subsidiaries.

Prior to the adoption of ASU 2020-06 on October 2, 2021, the proceeds from the issuance of the 2026 Convertible Notes were allocated between the conversion feature recorded as equity and the liability for the notes themselves. The carrying amount of the liability component was calculated by measuring the fair value of a similar debt instrument that does not have an associated convertible feature. The carrying amount of the equity component representing the conversion option was determined by deducting the fair value of the liability component from the par value of the 2026 Convertible Notes. The difference of $80.7 million between the principal amount of the 2026 Convertible Notes and the liability component (the “Debt Discount”) was amortized to interest expense using the effective interest method over the term of the 2026 Convertible Notes until the adoption of ASU 2020-06. For fiscal year 2021, accretion of the Debt Discount included in interest expense was $7.6 million. The equity component of the 2026 Convertible Notes was included in additional paid-in capital in the Consolidated Balance Sheets and was not to be remeasured as long as it continued to meet the conditions for equity classification.

Prior to the adoption of ASU 2020-06, to account for the transaction costs related to the 2026 Convertible Notes, we allocated the total amount incurred of approximately $5.7 million to the liability and equity components of the 2026 Convertible Notes based on the proportion of the proceeds allocated to the debt and equity components. Issuance costs attributable to the liability component were approximately $4.7 million, were recorded as additional Debt Discount and were amortized to interest expense over the contractual terms of the 2026 Convertible Notes. Issuance costs attributable to the equity component were approximately $1.0 million and were recorded as a reduction of additional paid in capital in stockholders’ equity.

In connection with the adoption of ASU 2020-06, we reclassified $72.2 million, consisting of $73.1 million of principal and issuance costs of $0.9 million, previously allocated to the conversion feature, from additional paid-in capital to long-term debt on our Consolidated Balance Sheets as of October 2, 2021. The reclassification was recorded to combine the two legacy units of account into a single instrument classified as a liability. We also recognized a cumulative effect adjustment of $7.5 million to accumulated deficit on our Consolidated Balance Sheets as of October 2, 2021, that was primarily driven by the derecognition of interest expense related to the accretion of the Debt Discount as required under the legacy accounting guidance. Under ASU 2020-06, we will no longer incur non-cash interest expense related to the accretion of the debt discount associated with the embedded conversion option.

For fiscal year 2022, total interest expense for the 2026 Convertible Notes was $1.1 million.

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The fair values of our 2026 Convertible Notes, including the conversion feature, were $411.4 million and $479.4 million as of September 30, 2022 and October 1, 2021, respectively, and were determined based on quoted prices in markets that are not active, which is considered a Level 2 valuation input.

There are no future minimum principal payments under the notes as of September 30, 2022; the full amount of $450.0 million is due in fiscal 2026.

On July 17, 2020, we entered into a power purchase agreement, which includes installation of electric power and thermal energy producing systems at our fabrication facility in Lowell, Massachusetts. This system is expected to reduce our consumption of energy while delivering sustainable, resilient energy for heating and cooling. We do not own these systems; however, we control the use of the assets during construction and operation. As of September 30, 2022 and October 1, 2021, the asset in Property and equipment, net was $9.8 million and $8.9 million, respectively, and the corresponding liability was $9.8 million and $8.9 million, respectively, classified in Financing obligation on our Consolidated Balance Sheets. The financing obligation was calculated based on future fixed payments allocated to the power generator of $16.8 million over the 15-year term, discounted at an implied discount rate of 7.4%, and the remaining future minimum payments are for power purchases. In total, we have $27.2 million in fixed payments associated with the power purchase agreement which is expected to commence in fiscal 2023 and has a 15-year term.

As of September 30, 2022, expected future minimum payments for the financing obligation were as follows (in thousands):

Fiscal year ending:						Amount
2023						$	934
2024						960
2025						984
2026						1,009
2027						1,033
Thereafter						11,827
Total lease payments						$	16,747
Less: interest						6,986
Present value of lease liabilities						$	9,761

.

Included in our Consolidated Balance Sheets were the following amounts related to operating and finance lease assets and liabilities (in thousands):

						September 30, 2022						October 1, 2021			Consolidated Balance Sheets Classification
Assets:
Operating lease ROU assets						$	25,521					$	29,946		Other long-term assets
Finance lease assets						28,632						30,664			Property and equipment, net
Total lease assets						$	54,153					$	60,610
Liabilities:
Current:
Operating lease liabilities						$	6,476					$	7,457		Accrued liabilities
Finance lease liabilities						1,006						958			Current portion of finance lease obligations
Long-term:
Operating lease liabilities						24,115						28,607			Other long-term liabilities
Finance lease liabilities						27,032						28,037			Finance lease obligations, less current portion
Total lease liabilities						$	58,629					$	65,059

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The weighted-average remaining lease terms and weighted-average discount rates for operating and finance leases were as follows:

			September 30, 2022			October 1, 2021
Weighted-average remaining lease term (in years):
Operating leases			5.6			6.0
Finance leases			15.5			16.4
Weighted-average discount rate:
Operating leases			5.6		%	5.9		%
Finance leases			6.6		%	6.6		%

The components of lease expense were as follows (in thousands):

			Fiscal Year Ended
			September 30, 2022			October 1, 2021
Finance lease cost:
Amortization of lease assets			$	2,032		$	2,462
Interest on lease liabilities			1,878			1,979
Total finance lease cost			$	3,910		$	4,441
Operating lease cost			$	8,415		$	9,732
Variable lease cost			$	3,524		$	3,091
Short-term lease cost			$	21		$	217
Sublease income			$	912		$	694

Cash paid for amounts included in the measurement of lease liabilities were as follows (in thousands):

			Fiscal Year Ended
			September 30, 2022			October 1, 2021
Cash paid for amounts included in measurement of lease liabilities:
Operating cash flows from operating leases			$	9,427		$	10,383
Operating cash flows from finance leases			$	1,878		$	1,979
Financing cash flows from finance leases			$	957		$	1,368
Non-cash activities:
Operating lease ROU assets obtained in exchange for new lease liabilities			$	2,536		$	4,890

As of September 30, 2022, maturities of lease payments by fiscal year were as follows (in thousands):

Fiscal year ending:						Operating Leases						Finance Leases
2023						$	7,969					$	2,820
2024						7,431						2,856
2025						5,156						2,783
2026						4,217						2,680
2027						3,524						2,718
Thereafter						7,459						31,754
Total lease payments						$	35,756					$	45,611
Less: interest						(5,165)						(17,573)
Present value of lease liabilities						$	30,591					$	28,038

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We have authorized 10 million shares of $0.001 par value preferred stock and 300 million shares of $0.001 par value common stock as of September 30, 2022 and October 1, 2021. The outstanding shares of common stock as of September 30, 2022 and October 1, 2021, presented in the accompanying Consolidated Statements of Stockholders’ Equity, exclude 2,768 and 2,093 unvested shares of restricted stock awards, respectively, issued as compensation to employees that were subject to forfeiture.

Common Stock Warrants—In March 2012, we issued warrants to purchase 1,281,358 shares of common stock for $14.05 per share. During November 2020, Summit Partners Private Equity Fund VII-A, L.P., Summit Partners Private Equity Fund VII-B, L.P., Summit Investors I, LLC, Summit Investors I (UK), L.P. and Mainsail Partners II, L.P. made cashless exercises of warrants for 1,281,358 shares at an exercise price of $14.05 per share, resulting in the issuance of 857,631 shares of common stock.

Through the date of exercise, we recorded the estimated fair values of the warrants as a long-term liability in the accompanying Consolidated Balance Sheets with changes in the estimated fair value being recorded in the accompanying Consolidated Statements of Operations. As of October 1, 2021, no warrants remain outstanding.

Stock Plans

We have five equity incentive plans: the Amended and Restated 2009 Omnibus Stock Plan (“2009 Plan”), the 2012 Omnibus Incentive Plan, as amended (“2012 Plan”), the 2021 Omnibus Incentive Plan (“2021 Plan”), the 2012 Employee Stock Purchase Plan, as amended and restated (“2012 ESPP”) and the 2021 Employee Stock Purchase Plan (“2021 ESPP”).

Upon the closing of our initial public offering, all shares that were reserved under the 2009 Plan but not awarded were assumed by the 2012 Plan. No additional awards will be made under the 2009 Plan. The 2021 Plan replaced the 2012 Plan and, following the adoption of the 2021 Plan on March 4, 2021, no additional awards have been or will be made under the 2012 Plan. We have outstanding awards under the 2021 Plan, as well as the 2012 Plan. Under the 2021 Plan, we have the ability to issue incentive stock options (“ISOs”), non-statutory stock options (“NSOs”), stock appreciation rights (“SARS”), restricted stock awards (“RSAs”), unrestricted stock awards, stock units (including restricted stock units (“RSUs”) and performance-based restricted stock units (“PRSUs”)), performance awards, cash awards, and other share-based awards to employees, directors, consultants and advisors. The ISOs and NSOs must be granted at an exercise price, and the SARS must be granted at a base value, per share of not less than 100% of the closing price of a share of our common stock on the date of grant (or, if no closing price is reported on that date, the closing price on the immediately preceding date on which a closing price was reported) (110% in the case of certain ISOs). Options granted primarily vested based on certain market-based and performance-based criteria as described below and generally have a term of four to seven years. Certain of the share-based awards granted and outstanding as of September 30, 2022, are subject to accelerated vesting upon a sale of the Company or similar changes in control.

As of September 30, 2022, we had 5.3 million shares available for future issuance under the 2021 Plan and 1.4 million shares available for issuance under our 2021 ESPP.

Incentive Stock Units

Outside of the five equity plans described above, we also grant incentive stock units (“ISUs”) to certain of our international employees which typically vest over three or four years and for which the fair value is determined by our underlying stock price, which are classified as liabilities and settled in cash upon vesting.

During fiscal years 2022, 2021 and 2020, the fair value of awards granted was $1.8 million, $1.6 million and $2.5 million, respectively. ISU awards were paid out at a fair value of $4.0 million, $4.2 million and $1.9 million for the fiscal years 2022, 2021 and 2020, respectively. As of September 30, 2022 and October 1, 2021, the fair value of outstanding awards was $4.9 million and $8.9 million, respectively, and the associated accrued compensation liability was $3.6 million and $6.2 million, respectively.

During fiscal years 2022, 2021 and 2020, we recorded an expense for these ISU awards of $1.1 million, $5.8 million and $4.4 million, respectively. These expenses are not included in the share-based compensation expense totals below.

Employee Stock Purchase Plan

The 2021 ESPP allows eligible employees to purchase shares of our common stock at a discount through payroll deductions of up to 15% of their eligible compensation, subject to any plan limitations. In administering the 2021 ESPP, the board of directors has limited discretion to set the length of the offering periods thereunder. In fiscal year 2022, 121,697 shares of common stock were issued under the 2021 ESPP. In fiscal years 2021 and 2020, 166,275 and 272,469 shares of common stock were issued under the 2012 ESPP, respectively.

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Share-Based Compensation

The following table shows a summary of share-based compensation expense included in the Consolidated Statements of Operations during the periods presented (in thousands): 

			Fiscal Years
			2022						2021						2020
Cost of revenue			$	4,038					$	3,298					$	3,609
Research and development			14,940						13,332						12,794
Selling, general and administrative			22,207						18,368						19,271
Total			$	41,185					$	34,998					$	35,674

As of September 30, 2022, the total unrecognized compensation costs related to outstanding stock options, restricted stock awards and units including awards with time-based, performance-based, and market-based vesting was $46.0 million, which we expect to recognize over a weighted-average period of 2.0 years. As of September 30, 2022, total unrecognized compensation cost related to the 2021 ESPP was $0.2 million.

Restricted Stock Awards and Units

A summary of RSU, PRSU and RSA activity for fiscal year 2022 is as follows (in thousands, except per share amounts):

			Number of Shares						Weighted-Average Grant Date Fair Value
Issued and unvested - October 1, 2021			2,351						$	24.57
Granted			669						64.51
Performance-based adjustment (1)			350						20.66
Vested			(1,355)						22.78
Forfeited, canceled or expired			(143)						38.34
Issued and unvested - September 30, 2022			1,872						$	40.44

(1) The amount shown represents performance adjustments for performance-based awards. These were granted in prior fiscal years and vested during 2022 based on the Company’s achievement of adjusted earnings per share performance conditions.

The total fair value of restricted stock awards and units vested was $92.9 million, $64.1 million and $19.1 million for the fiscal years 2022, 2021 and 2020, respectively. RSUs granted generally vest over a period of three or four years.

In addition to RSUs, we issue PRSUs with specific performance vesting criteria. These PRSUs have both a service and performance-based vesting condition and awards are typically divided into three equal tranches and vest based on achieving certain adjusted earnings per share growth metrics. The service condition requires participants to be employed in November following the performance period in which the performance condition was met, when the Company's annual financial performance is announced to the financial markets. Depending on the actual performance achieved, a participant may earn between 0% to 300% of the targeted shares for each tranche, which is determined based on a straight-line interpolation applied for the achievement between the specified performance ranges. During fiscal year 2022, we granted 58,807 PRSUs, at a weighted average grant date fair value of $66.34 per share, and 11,091 were forfeited. During fiscal year 2022, the performance condition for 175,100 target shares issued in prior years were earned at 300%, and therefore 525,300 shares vested in November 2021 when the service condition was achieved. As of September 30, 2022, the amount of incremental PRSU awards that could ultimately vest if all performance criteria are achieved would be 1,128,097 shares assuming a maximum of 300% of the targeted shares.

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We also granted 161,349 market-based PRSUs during fiscal year 2022, at a weighted average grant date fair value of $89.82 per share, and 5,062 were forfeited. Recipients may earn between 0% and 200% of the target number of shares based on the Company's achievement of total stockholder return in comparison to a peer group of companies in the Nasdaq composite index over a period of approximately three years. The fair value of the awards was estimated using a Monte Carlo simulation and compensation expense is recognized ratably over the service period based on the grant date fair value of the awards subject to the market condition. The expected volatility of the Company's common stock was estimated based on the historical average volatility rate over the three-year period. The dividend yield assumption was based on historical and anticipated dividend payouts. The risk-free rate assumption was based on observed interest rates consistent with the three-year measurement period. The assumptions used to value the awards are as follows:

			Fiscal Year
			2022
Grant date stock price			$	66.12
Average stock price at the start of the performance period			$	64.11
Risk free interest rate			0.8%
Years to maturity			3.00
Expected volatility rate			57.8%
Dividend yield			—

Stock Options

A summary of stock option activity for fiscal year 2022 is as follows (in thousands, except per share amounts and contractual term):

			Number of Shares						Weighted-Average Exercise Price per Share						Weighted-Average Remaining Contractual Term (in Years)						Aggregate Intrinsic Value
Options outstanding, vested and exercisable - October 1, 2021			205						$	14.29
Granted			—						—
Exercised			(190)						14.15
Forfeited, canceled or expired			—						—
Options outstanding, vested and exercisable - September 30, 2022			15						$	16.06					3.10						$	536

Aggregate intrinsic value represents the difference between our closing stock price on September 30, 2022, and the exercise price of outstanding, in-the-money options. The total intrinsic value of options exercised was $11.0 million, $5.3 million and $1.4 million for fiscal years 2022, 2021 and 2020, respectively.

There were no stock options granted for fiscal years 2022, 2021 and 2020.

Stock options with Market-based Vesting Criteria

We granted NSOs that were subject to vesting only upon the market price of our underlying public stock closing above a certain price target within seven years of the date of grant. Share-based compensation expense is recognized regardless of the number of awards that are earned based on the market condition and is recognized on a straight-line basis over the estimated service period of approximately three years. If the required service period is not met for these options, then the share-based compensation expense would be reversed.

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The domestic and foreign income (loss) from operations before taxes were as follows (in thousands):

			Fiscal Years
			2022						2021						2020
United States			$	215,140					$	15,984					$	(65,915)
Foreign			27,980						26,961						24,353
Income (loss) from operations before income taxes			$	243,120					$	42,945					$	(41,562)

The components of the provision (benefit) for income taxes are as follows (in thousands):

			Fiscal Years
			2022						2021						2020
Current:
Federal			$	72					$	32					$	(834)
State			644						73						48
Foreign			2,890						2,403						1,958
Current provision			3,606						2,508						1,172
Deferred:
Federal			34,616						9,596						(8,635)
State			285						(2,379)						(22,613)
Foreign			2,211						3,177						9,686
Change in valuation allowance			(237,553)						(7,930)						24,906
Deferred (benefit) provision			(200,441)						2,464						3,344
Total (benefit) provision			$	(196,835)					$	4,972					$	4,516

We recognize deferred tax assets to the extent that we believe that these assets are more likely than not to be realized. In making this determination, we consider available positive and negative evidence and factors that may impact the valuation of our deferred tax asset including results of recent operations, future reversals of existing taxable temporary differences, projected future taxable income, and tax-planning strategies. In the fiscal fourth quarter of 2022, we reassessed our valuation allowances and considered positive evidence including significant cumulative consolidated and U.S. income over the three years ended September 30, 2022, continued revenue growth combined with profitability and expectations regarding financial forecasts, and negative evidence, including the uncertainty posed by the current economic and geopolitical environment and the global supply chain. After assessing the evidence, we released the valuation allowance on the majority of our domestic NOLs and R&D tax credit carryforwards and other deferred tax assets as of September 30, 2022, resulting in a benefit from income taxes of $202.8 million.

We had a $30.7 million valuation allowance as of September 30, 2022 related primarily to state NOLs and tax credit carryforwards of $23.1 million and a partial valuation allowance on tax credits in Canada of $7.2 million whose recovery is not considered more likely than not. The $250.3 million of valuation allowance as of October 1, 2021 related primarily to federal and state NOLs, tax credit carryforwards and a partial valuation allowance on tax credits in Canada of $7.1 million, for which recovery was not considered likely. The change during the fiscal year ended September 30, 2022 of $237.6 million included in the income tax benefit in the Statement of Operations primarily relates to the release of the valuation allowance on the majority of our domestic NOLs and R&D tax credit carryforwards and other deferred tax assets.

The change in the valuation allowance in the Consolidated Balance Sheets between September 30, 2022 and October 1, 2021 was $219.6 million compared to $237.6 million included in the fiscal year 2022 income tax benefit in the Consolidated Statements of Operations. The difference relates to the deferred tax liability of $18.0 million associated with the 2026 Convertible Notes that was eliminated upon adoption of ASU 2020-06 and resulted in an increase to the valuation allowance but had no impact to the fiscal year 2022 income tax benefit.

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Our effective tax rates differ from the federal and statutory rate as follows:

 

			Fiscal Years
			2022						2021						2020
Federal statutory rate			21.0%						21.0%						21.0%
Benefit from income taxes attributable to valuation allowances			(97.5)						(19.4)						(60.5)
Global intangible low taxed income			2.5						17.0						(11.4)
Research and development credits			(3.7)						(8.3)						20.7
Warrant liability			—						5.4						(6.5)
Foreign rate differential			(1.6)						(5.0)						9.1
Share-based compensation			(1.1)						(5.0)						(4.1)
Provision to return adjustments			(0.5)						2.7						25.4
State taxes net of federal benefit			0.6						2.0						0.9
Intra-entity license transfer			—						—						(4.6)
Other permanent differences			(0.7)						1.2						(0.9)
Effective income tax rate			(81.0)%						11.6%						(10.9)%

 

For fiscal years 2022, 2021 and 2020, the effective tax rates on $243.1 million, $42.9 million and $(41.6) million, respectively, of pre-tax income (loss) from continuing operations were (81.0)%, 11.6% and (10.9)%, respectively. The effective income tax rates for fiscal years 2022, 2021 and 2020 were impacted by a lower income tax rate in many foreign jurisdictions in which our foreign subsidiaries operate, changes in valuation allowance, research and development tax credits, a fair market value adjustment of our warrant liability and the inclusion of Global Intangible Low Taxed Income. For fiscal year 2020, the effective tax rate was also impacted by an adjustment in our Section 382 limitation which increased our California NOL carryforwards. For fiscal year 2019, the effective tax rate was impacted by a change in our NOL carryforward due to an adjustment in our Section 382 limitation from a prior period acquisition and was also impacted by the immediate recognition of the current and deferred income tax effects totaling $39.8 million from an intra-entity transfer of a license for intellectual property to a higher taxed jurisdiction that received a tax basis step-up.

In 2022, the change in the “Benefit from income taxes attributable to valuation allowances” on deferred tax assets in the tax rate reconciliation table above was primarily related to the release of our valuation allowances on the majority of our domestic NOLs and R&D tax credit carryforwards and other deferred tax assets related to the U.S. jurisdiction.

On March 27, 2020, the U.S. Congress enacted the Coronavirus Aid Relief & Economic Security Act (“CARES Act”). The CARES Act made a technical correction to the Tax Act impacting the Company’s NOL carryforward for the fiscal year ending September 29, 2018 by limiting it to a 20-year carryforward period, rather than having an indefinite life carryforward without the 80% limitation. This technical correction resulted in the Company increasing its indefinite lived deferred tax liability by $1.4 million during fiscal year 2020, with an offsetting adjustment to tax expense.

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Deferred income taxes reflect the net effect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and amounts used for income tax purposes. The components of our deferred tax assets and liabilities are as follows (in thousands):

 

			September 30, 2022						October 1, 2021
Deferred tax assets:
Net operating loss and credit carryforward			$	231,763					$	268,450
Intangible assets			23,173						20,853
Accrued expenses			19,098						17,938
Lease obligations			13,144						13,481
Minority equity investments			582						1,564
Gross deferred tax asset			287,760						322,286
Less valuation allowance			(30,704)						(250,287)
Deferred tax asset, net of valuation allowance			$	257,056					$	71,999
Deferred tax liabilities:
Convertible notes			$	(112)					$	(17,734)
Right of use lease asset			(14,191)						(14,680)
Property and equipment			(5,338)						(2,307)
Deferred tax liabilities			(19,641)						(34,721)
Net deferred tax asset			$	237,415					$	37,278

As of September 30, 2022, deferred income taxes of $237.4 million were recorded as long-term assets in our consolidated balance sheet. As of October 1, 2021, our consolidated balance sheet included $39.5 million of deferred income taxes recorded as long-term assets and $2.2 million of deferred income taxes recorded in Other long-term liabilities.

As of September 30, 2022, we had $645.8 million of gross federal net operating loss (“NOL”) carryforwards, primarily related to acquisitions made in prior fiscal years. The federal NOL carryforwards will expire at various dates through 2038 for losses generated prior to the tax period ended September 27, 2019. For losses generated during the tax period ended September 27, 2019 and future years, the NOL carryforward period is indefinite but the loss utilization will be limited to 80% of taxable income. The reported net operating loss carryforward includes any limitation under Sections 382 and 383 of the Internal Revenue Code of 1986, as amended, which applies to an ownership change as defined under Section 382.

As of September 30, 2022, we had state NOL carryforwards of $36.5 million which will expire starting in fiscal year 2027 through fiscal year 2040, offset by a partial valuation allowance of $22.0 million. As of September 30, 2022, we had federal and state research and development tax credit carryforwards of $51.2 million, comprised of $40.1 million that will expire starting in fiscal year 2023 through fiscal year 2042 and $11.1 million with an indefinite life.

The liability for unrecognized tax benefits was zero as of September 30, 2022 and October 1, 2021, and $0.3 million as of October 2, 2020. During the fiscal year ending October 1, 2021, we reported a reduction of $0.3 million in unrecognized tax benefits due to closure of the related audit periods. During the fiscal year ending September 30, 2022, we reported no change in unrecognized tax benefits.

A summary of the fiscal tax years that remain subject to examination, as of September 30, 2022, for the Company’s significant tax jurisdictions are:

Jurisdiction			Fiscal Years Subject to Examination
United States—federal			Fiscal Year 2018 - forward
United States—various states			Fiscal Year 2017 - forward
Ireland			Fiscal Year 2017 - forward

Generally, we are no longer subject to federal income tax examinations for fiscal years before 2018, except to the extent of loss and tax credit carryforwards from those years.

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The following table sets forth the computation for basic and diluted net income (loss) per share of common stock (in thousands, except per share data): 

			Fiscal Years
			2022						2021						2020
Numerator:
Net income (loss) attributable to common stockholders			$	439,955					$	37,973					$	(46,078)
Denominator:
Weighted average common shares outstanding-basic			69,783						68,449						66,606
Dilutive effect of equity awards			1,383						2,025						—
Weighted average common shares outstanding-diluted			71,166						70,474						66,606
Net income (loss) per common share- basic			$	6.30					$	0.55					$	(0.69)
Net income (loss) per common share-diluted			$	6.18					$	0.54					$	(0.69)

Through November 2020, we had warrants outstanding which were measured at fair value. When calculating earnings per share we are required to adjust for the dilutive effect of outstanding common stock equivalents, including adjustment to the numerator for the dilutive effect of contracts that must be settled in common stock, including warrants. During fiscal years 2021 and 2020, we excluded the effects of the warrants and the respective 87,494 and 639,133 potential shares of common stock issuable upon exercise of warrants as the inclusion would be anti-dilutive. The table excludes the effects of 87,494, and 1,755,973 shares for fiscal years 2021 and 2020, respectively, of potential shares of common stock issuable upon exercise of stock options, restricted stock, restricted stock units and warrants as the inclusion would be anti-dilutive. The 2026 Convertible Notes did not have an impact on diluted earnings per share for fiscal years 2022 and 2021.

The following is supplemental cash flow information for the periods presented (in thousands):

			Fiscal Years
			2022						2021						2020
Cash paid for interest			$	6,739					$	11,836					$	24,672
Cash paid (refunded) for income taxes			$	2,194					$	1,621					$	(17,465)
Non-cash activities:
Non-cash capital expenditures			$	1,000					$	9,398					$	636
Issuance of common stock for the cashless exercise of warrants			$	—					$	36,442					$	—

During fiscal year 2022 and fiscal year 2021, we capitalized $0.9 million and $8.9 million, respectively, of non-cash costs to property and equipment associated with construction of a power generator that are paid by our service provider and is included in non-cash capital expenditures above. See Note 16- Financing Obligation.

For additional information on the issuance of common stock for the cashless exercise of warrants, see Note 18- Stockholders’ Equity.

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The components of accumulated other comprehensive income (loss), net of income taxes, are as follows (in thousands):

			Foreign Currency Items						Other Items						Total
Balance - October 2, 2020			$	4,788					$	221					$	5,009
Foreign currency translation gain, net of tax			(661)						—						(661)
Unrealized gain on short-term investments, net of tax			—						(198)						(198)
Balance - October 1, 2021			4,127						23						4,150
Foreign currency translation gain, net of tax			(4,106)						—						(4,106)
Unrealized gain on short-term investments, net of tax			—						(5,895)						(5,895)
Balance - September 30, 2022			$	21					$	(5,872)					$	(5,851)

We have one reportable operating segment that designs, develops, manufactures and markets semiconductors and modules. The determination of reportable operating segments is based on the chief operating decision maker’s (“CODM”) use of financial information provided for the purposes of assessing performance and making operating decisions. The Company's CODM is its President and Chief Executive Officer. In evaluating financial performance and making operating decisions, the CODM primarily uses consolidated metrics. The Company assesses its determination of operating segments at least annually. We continue to evaluate our internal reporting structure and the potential impact of any changes on our segment reporting.

For information regarding revenue by geographic regions, based upon customer locations, see Note 3 - Revenue. Information regarding net property and equipment in different geographic regions is presented below (in thousands):

			As of
			September 30, 2022						October 1, 2021
Net Property and Equipment by Geographic Region
United States			$	108,569					$	103,527
Europe (1)			11,572						12,766
Other Countries (2)			3,560						4,233
Total			$	123,701					$	120,526

(1) Europe represents France, Ireland and Italy.

(2) Other than the United States and Europe, no country or region represented greater than 10% of the total net property and equipment as of the dates presented.

The following is a summary of customer concentrations as a percentage of total sales and accounts receivable as of and for the periods presented:

			Fiscal Years
Revenue			2022						2021						2020
Customer A			—						11		%				14		%
Customer B			—						—						12		%
Customer C			—						—						12		%

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