CRUS Filings — Cirrus Logic, Inc.

CRUS Filings — Cirrus Logic, Inc. - FilingSpy

10-Q · Quarter ended Jun 27, 2026 · SEC filing ↗

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Management's Discussion and Analysis

The following discussion should be read along with the unaudited consolidated condensed financial statements and notes thereto included in Item 1 of this Quarterly Report on Form 10-Q, as well as the audited consolidated financial statements and notes thereto and Management’s Discussion and Analysis of Financial Condition and Results of Operations for the fiscal year ended March 28, 2026, contained in our fiscal year 2026 Annual Report on Form 10-K filed with the Securities and Exchange Commission (the “Commission”) on May 21, 2026. We maintain a website at investor.cirrus.com, which makes available free of charge our most recent annual report and all other filings we have made with the Commission. Special Note Regarding Forward-Looking Statements This Quarterly Report on Form 10-Q including Management’s Discussion and Analysis of Financial Condition and Results of Operations and certain information incorporated herein by reference contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These forward-looking statements are based on expectations, estimates, forecasts and projections and the beliefs and assumptions of our management as of the filing of this Form 10-Q. In some cases, forward-looking statements are identified by words such as “expect,” “anticipate,” “target,” “project,” “believe,” “goals,” “estimates,” “intend,” and variations of these types of words and similar expressions which are intended to identify these forward-looking statements. In addition, any statements that refer to our plans, expectations, strategies or other characterizations of future events or circumstances are forward-looking statements. Readers are cautioned that these forward-looking statements are subject to risks, uncertainties and assumptions that are difficult to predict. Therefore, actual results may differ materially and adversely from those expressed in any forward-looking statements and readers should not place undue reliance on such statements. We undertake no obligation, and expressly disclaim any duty, to revise or update publicly any forward-looking statement for any reason, except as required by law. For additional information regarding known material factors that could cause our actual results to differ from our projected results, please see “Item 1A - Risk Factors” in our 2026 Annual Report on Form 10-K filed with the Commission on May 21, 2026, and in “Part II, Item 1A - Risk Factors” within this Quarterly Report on Form 10-Q. Readers should carefully review these risk factors, as well as those identified in other documents filed by us with the Commission. 17 Overview Cirrus Logic, Inc. (“Cirrus Logic,” “We,” “Us,” “Our,” or the “Company”) is a leader in low-power, high-precision mixed-signal processing solutions that create innovative user experiences for the world’s top mobile and consumer applications. During the first quarter of fiscal year 2027, we saw strong demand for our custom products shipping into smartphones. We also made good progress in the development of our next-generation camera controller and new smart power IC for 3D sensing applications. The latter is part of a broader set of power and battery opportunities that we believe will diversify our product portfolio and support long-term growth. Beyond smartphones, the PC market remains our largest near-term growth opportunity. In the current quarter, we were encouraged by our design win activity and customer engagement, which included interest in our latest smart codec for AI-enabled PCs. Additionally, in June multiple customers announced new PCs based on NVIDIA’s RTX Spark™ platform, which are expected to ship later this year with Cirrus Logic amplifiers and codecs. In our general market business, we also continued to expand across a broad base of customers in the professional audio, automotive, industrial, and imaging markets. Our progress in the first quarter of fiscal year 2027 included taping out a new high-performance analog front-end (AFE) component for metrology applications, which we expect to begin sampling in the September quarter. While this component will initially be used for smart meters, we believe over time the underlying technology can extend into adjacent applications such as data center DC metrology, energy storage, EV charging, and grid monitoring. We remain optimistic about our opportunities to continue leveraging our mixed-signal design and signal processing expertise to drive growth across new applications and markets in future years. Finally, we recently signed a new Capacity Reservation and Wafer Supply Agreement with GlobalFoundries. This agreement builds on our existing partnership and secures dedicated wafer capacity and pricing for calendar 2027 and 2028, further supporting the broad range of opportunities we see ahead. We are also continuing to collaborate with GlobalFoundries on next-generation process technologies and progressing towards manufacturing products in the United States at their facility in Malta, New York. Critical Accounting Policies and Estimates Our discussion and analysis of the Company’s financial condition and results of operations are based upon the unaudited consolidated condensed financial statements included in this report, which have been prepared in accordance with U.S. GAAP. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts. We evaluate the estimates on an ongoing basis. We base these estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions and conditions. There have been no significant changes during the three months ended June 27, 2026, to the information provided under the headings “Critical Accounting Estimates” and “Summary of Significant Accounting Policies” included in our fiscal year 2026 Annual Report on Form 10-K for the fiscal year ended March 28, 2026. Recently Issued Accounting Pronouncements For a discussion of recently issued accounting pronouncements, refer to Note 2 of the Notes to the Consolidated Condensed Financial Statements. 18 Results of Operations Our fiscal year is the 52- or 53-week period ending on the last Saturday in March. Fiscal years 2027 and 2026 are 52-week fiscal years. The following table summarizes the results of our operations for the three months of fiscal years 2027 and 2026, respectively, as a percentage of net sales. All percentage amounts were calculated using the underlying data in thousands, unaudited. Percentages are rounded to the nearest whole percent and, as a result, may not sum to subtotals presented. Three Months Ended June 27, June 28, 2026 2025 Net sales 100 % 100 % Gross margin 53 % 53 % Research and development 25 % 25 % Selling, general and administrative 9 % 10 % Income from operations 18 % 18 % Interest income 2 % 2 % Interest expense — % — % Other expense — % — % Income before income taxes 20 % 20 % Provision for income taxes 4 % 5 % Net income 17 % 15 % Net Sales Net sales for the first quarter of fiscal year 2027 increased $52.5 million, or 13 percent, to $459.7 million from $407.3 million in the first quarter of fiscal year 2026. Net sales from our audio products increased $9.0 million, primarily driven by higher sales of components shipping in smartphones, partially offset by declines in average sales prices ("ASPs") due to previously anticipated pricing reductions. Net sales from HPMS products increased $43.5 million for the quarter versus the first quarter of fiscal year 2026, primarily due to higher sales of components shipping in smartphones, partially offset by declines in ASPs due to previously anticipated pricing reductions. International sales, including sales to U.S.-based end customers that manufacture products through contract manufacturers or plants located overseas, were approximately 99 percent of net sales for each of the first quarters of fiscal years 2027 and 2026. Our sales are denominated primarily in U.S. dollars. Since the components we produce are largely proprietary, we consider our end customer to be the entity specifying the use of our component in their design. These end customers may purchase our products directly from us, through distributors, or third-party manufacturers contracted to produce their designs. For the first quarters of fiscal years 2027 and 2026, our ten largest end customers represented approximately 96 percent and 95 percent of our net sales, respectively. We had one end customer, Apple Inc., that purchased through multiple contract manufacturers and represented approximately 90 percent and 86 percent of the Company’s total net sales for the first quarters of fiscal years 2027 and 2026, respectively. No other end customer or distributor represented more than 10 percent of net sales for the three months ended June 27, 2026 or June 28, 2025. For more information, please see “Part II, Item 1A - Risk Factors” — “We depend on a limited number of customers and distributors for a substantial portion of our sales, and the loss of, or a significant reduction in orders from, or pricing on products sold to, any key customer or distributor could significantly reduce our sales and our profitability.” 19 Gross Margin Gross margin was 52.6 percent in the first quarter of fiscal years 2027 and 2026, remaining flat for the period, as a favorable product mix was partially offset by higher freight and supply chain costs. Research and Development Expense Research and development expense for the first quarter of fiscal year 2027 was $115.0 million, an increase of $12.1 million, from $102.9 million in the first quarter of fiscal year 2026. Significant drivers included increased employee-related, product development, variable compensation, and IT and facilities-related costs during the quarter. Selling, General and Administrative Expense Selling, general and administrative expense for the first quarter of fiscal year 2027 was $42.4 million, an increase of $3.7 million, from $38.7 million in the first quarter of fiscal year 2026, due primarily to increased employee-related costs and professional fees for the quarter. Interest Income The Company reported interest income of $10.4 million and $8.8 million for the three months ended June 27, 2026, and June 28, 2025, respectively. Interest income increased in the current period due to higher average cash, cash equivalents and marketable securities balances, partially offset by marginally lower interest rates compared to the prior period. Interest Expense The Company reported interest expense of $0.3 million and $0.2 million for the three months ended June 27, 2026, and June 28, 2025, respectively. Interest expense consists primarily of commitment fees and debt issuance cost amortization associated with the Company's Revolving Credit Facility (see Note 8 - Revolving Credit Facility of the Notes to the Consolidated Condensed Financial Statements). Other Expense For the three months ended June 27, 2026 and June 28, 2025, the Company reported other expense of $0.4 million and $0.4 million, respectively. This activity primarily related to non-investment related expense and remeasurement on foreign currency denominated monetary assets and liabilities. 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 credits. The following table presents the provision for income taxes (in thousands) and the effective tax rates: Three Months Ended June 27, June 28, 2026 2025 Income before income taxes $ 94,155 $ 80,628 Provision for income taxes $ 17,304 $ 19,931 Effective tax rate 18.4 % 24.7 % Our income tax expense for the first quarter of fiscal year 2027 was $17.3 million compared to $19.9 million for the first quarter of fiscal year 2026, resulting in effective tax rates of 18.4 percent and 24.7 percent, respectively. The effective tax rate for the first quarter of fiscal year 2027 was lower than the prior period presented, primarily due to the July 4, 2025 enactment of the One Big Beautiful Bill Act that reinstated immediate expensing of U.S. R&D expenditures. The effective tax rate for the first quarter of fiscal year 2026 was unfavorably impacted by the Tax Cuts and Jobs Act of 2017 provision that required worldwide R&D expenditures to be capitalized and amortized, which resulted in increased GILTI 20 inclusions in the period, and by U.S. tax rules related to refundable tax credits, including R&D expenditure credits available to us in the United Kingdom, that reduced the amount of foreign tax credits available to offset GILTI. Liquidity and Capital Resources We require cash to fund our operating expenses and working capital requirements, including outlays for inventory, capital expenditures, share repurchases, and strategic acquisitions. Our principal sources of liquidity are cash on hand, cash generated from operations, cash generated from the sale and maturity of marketable securities, and available borrowings under our $350 million Revolving Credit Facility. Cash generated from our operating activities is net income adjusted for certain non-cash items and changes in working capital. Cash generated from operations was $64.1 million for the first three months of fiscal year 2027 versus $116.1 million generated for the corresponding period of fiscal year 2026. The cash flow from operations during the first three months of fiscal year 2027 was related to the cash components of our net income and a $42.0 million unfavorable change in working capital, primarily as a result of increases in accounts receivables and inventory, and decreases in accounts payable and other accrued liabilities, partially offset by increases in prepaid wafer usage (related to the Capacity Reservation Agreement). The cash flow from operations during the corresponding period of fiscal year 2026 was related to the cash components of our net income and a $27.4 million favorable change in working capital, primarily as a result of decreases in inventory, increases in prepaid wafer usage (related to the Capacity Reservation Agreement) and income taxes payable, partially offset by decreases in accounts payable and other accrued liabilities. Net cash used in investing activities was $19.4 million during the first three months of fiscal year 2027 versus $6.2 million during the first three months of fiscal year 2026. The cash used in investing activities in the first three months of fiscal year 2027 was related to net purchases of marketable securities of $3.9 million and capital expenditures and technology investments of $15.5 million. The cash used in investing activities in the corresponding period in fiscal year 2026 was related to net purchases of marketable securities of $3.4 million and capital expenditures and technology investments of $2.8 million. Net cash used in financing activities was $35.0 million during the first three months of fiscal year 2027 and was primarily associated with stock repurchases for the period of $31.5 million. The cash used in financing activities during the first three months of fiscal year 2026 of $100.7 million was primarily associated with stock repurchases during the period of $100.0 million. Our future capital requirements will depend on many factors, including the rate of sales growth, market acceptance of our products, the timing and extent of research and development projects, potential future acquisitions of companies or technologies, inventory build, and commitments under the Capacity Reservation and Commitment Agreements with GlobalFoundries (discussed further in Note 12 - Commitments and Contingencies of the Notes to the Consolidated Condensed Financial Statements). We believe our expected future cash earnings, existing cash, cash equivalents, investment balances, and available borrowings under our Revolving Credit Facility will be sufficient to meet our capital requirements both domestically and internationally, in the short-term (i.e. the next 12 months) and in the long-term, although we could be required, or could elect, to seek additional funding prior to that time. Revolving Credit Facility On May 4, 2026, the Company entered into a third amended and restated credit agreement (the “Third Amended Credit Agreement”) with Wells Fargo Bank, National Association, as administrative agent, and the lenders party thereto. The Third Amended Credit Agreement provides for a $350 million senior secured revolving credit facility (the “Revolving Credit Facility”). The Revolving Credit Facility matures on May 4, 2031 (the “Maturity Date”). The Revolving Credit Facility is required to be guaranteed by all of Cirrus Logic’s 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. As of June 27, 2026, the Company had no amounts outstanding under the Revolving Credit Facility and was in compliance with all covenants under the Third Amended Credit Agreement. See Note 8 — Revolving Credit Facility of the Notes to the Consolidated Condensed Financial Statements for additional information including material terms and related covenants. 21

Risk Factors

In evaluating all forward-looking statements, you should specifically consider risk factors that may cause actual results to vary from those contained in the forward-looking statements. Various risk factors associated with our business are included in our Annual Report on Form 10-K for the year ended March 28, 2026, as filed with the Commission on May 21, 2026, and available at www.sec.gov. Other than as set forth below, there have been no material changes to those risk factors previously disclosed in our Annual Report on Form 10-K for the fiscal year ended March 28, 2026. We depend on a limited number of customers and distributors for a substantial portion of our sales, and the loss of, or a significant reduction in orders from, or pricing on products sold to, any key customer or distributor could significantly reduce our sales and our profitability. While we generate sales from a broad base of customers worldwide, the loss of any of our key customers, or a significant reduction in sales or selling prices to any key customer, or reductions in selling prices made to retain key customer relationships, would significantly reduce our revenue, margins and earnings and adversely affect our business. For the first 22 quarter of fiscal years 2027 and 2026, our ten largest end customers represented approximately 96 percent and 95 percent of our net sales, respectively. We had one end customer, Apple Inc., that purchased through multiple contract manufacturers and represented approximately 90 percent and 86 percent of the Company’s total net sales for the first quarter of fiscal years 2027 and 2026, respectively. No other end customer or distributor represented more than 10 percent of net sales for the three months ended June 27, 2026, or June 28, 2025. We may not be able to maintain or increase sales to certain of our key customers for a variety of reasons, including: - most of our customers can stop incorporating our products into their own products with limited notice to us and suffer little or no penalty; - our agreements with our customers typically do not require them to purchase a minimum quantity of our products; - many of our customers have pre-existing or concurrent relationships with our current or potential competitors that may affect the customers’ decisions to purchase our products; - many of our customers have sufficient resources to internally develop technology solutions and semiconductor components that could replace the products that we currently supply in our customers’ end products; - our customers face intense competition from other manufacturers that do not use our products; - our customers may be subject to investigations and litigation that could result in injunctive or other relief that negatively impacts sales of their products, which in turn would result in a decrease in demand for our products; - our customers regularly evaluate alternative sources of supply in order to diversify their supplier base, which increases their negotiating leverage with us and their ability to either obtain or dual-source components from other suppliers; and - our current customers may be hesitant in some cases to award new business to us based on their desire to manage their supply chain risks around any potential over-dependence on a supplier or supply chain. In addition, our dependence on a limited number of key customers may make it easier for them to demand favorable commercial terms or to pressure us on price reductions or to not accept price increases resulting from unexpected or additional cost increases or fees associated with our suppliers. We have experienced pricing pressure from certain key customers, and we expect that the average selling prices ("ASPs") for certain of our products will decline from time to time, potentially reducing our revenue, margins, and earnings. Our key customer relationships often require us to develop new products that may involve significant technological challenges. Our customers frequently place considerable pressure on us to meet tight development schedules. In addition, we have entered, and may again enter in the future, into customer agreements providing for exclusivity periods during which we may only sell specified products or technology to a specific customer. Even without exclusivity periods, the products that we develop are often specific to our customer's system architecture and frequently cannot be sold to other customers. Accordingly, we have in the past and may in the future devote a substantial amount of resources to strategic relationships, which could detract from or delay our completion of other important development projects or the development of next-generation products and technologies. Notwithstanding our efforts, our customers are not always obligated to purchase new products that we develop for them, and their failure to do so could have a material effect on our operating results, financial condition, and cash flows. Our reliance on certain customers may continue to increase, which could heighten the risks associated with having key customers, including making us more vulnerable to significant reductions in revenue, margins, and earnings; pricing pressure; and other adverse effects on our business. We have long-term capacity reservation and wafer supply agreements with GlobalFoundries, which include obligations to purchase wafers from GlobalFoundries through calendar year 2028. If our requirements are different from the number of wafers that we have committed to purchase from GlobalFoundries, or if GlobalFoundries is not able to satisfy our manufacturing requirements, our results of operations and financial condition could be adversely impacted. In 2021, in an effort to alleviate some of our future expected supply constraints, the Company entered into a Capacity Reservation and Wafer Supply Commitment Agreement with GlobalFoundries on July 28, 2021 to reserve capacity and set wafer pricing for products purchased pursuant to the agreement through 2026. In February 2025, this agreement was amended 23 to reflect an agreed change in the number of wafers to be shipped on a quarterly basis during calendar years 2025 and 2026. On June 30, 2026, the Company entered into a new Capacity Reservation and Wafer Supply Commitment Agreement with GlobalFoundries to reserve capacity and set wafer pricing for products pursuant to the agreement for calendar years 2027-2028. Although we believe these agreements are a good use of our financial resources and secure capacity for certain products through 2028, the agreements with GlobalFoundries involve certain risks that have resulted and may in the future result in excess inventory, or may place us at a competitive disadvantage, have a negative impact on our liquidity, or adversely affect our results of operations and financial condition. Pursuant to the agreements, the Company is required to purchase, and GlobalFoundries is required to supply, a certain number of wafers on a quarterly basis. Customers, on occasion, cancel, reschedule orders, or change future product plans on short notice, which can lead to our actual wafer requirements being less than the number of wafers required to meet the applicable wafer purchase requirements, potentially resulting in excess inventory or higher inventory unit costs, both of which may adversely impact our gross margin and our results of operations. Additionally, the agreements set forth pricing for wafer purchases pursuant to the agreements through 2028. If market conditions change and wafer prices in the market decrease significantly below what is contemplated in the agreements, the agreements may put us at a competitive disadvantage relative to our competitors. Even with long-term supply agreements, we are still subject to risks that GlobalFoundries will be unable to meet its supply commitments, achieve anticipated manufacturing yields, manufacture our products on a timely basis, or provide additional wafer capacity beyond its current contractual commitments sufficient to meet our customers' product demands. If this were to occur, we may experience delays in product launches or supply shortages for certain products, which could cause an unanticipated decline in our sales and damage our existing customer relationships and our ability to establish new customer relationships. In addition, if GlobalFoundries experiences financial difficulties or goes into bankruptcy, it could be difficult or impossible, or may require substantial time and expense, for us to recover any or all of our prepayments made as part of the agreements. Any of the foregoing could materially harm our liquidity, financial condition and results of operations and could put us at a disadvantage relative to our competitors. We could be subject to changes in tax laws, the adoption of new U.S. or international tax legislation or exposure to additional tax liabilities. We are subject to taxes in the U.S. and numerous foreign jurisdictions, including the United Kingdom (“U.K.”), where a number of our subsidiaries are organized. Due to economic and political conditions, tax laws in various jurisdictions may be subject to significant change. For example, many countries have started to implement legislation and other guidance to align their international tax rules with the Organization of Economic Cooperation and Development’s Base Erosion and Profit Shifting recommendations and action plan that aim to standardize and modernize global corporate tax policy, including implementation of a global minimum tax (“Pillar Two”). In another example, the U.K. government has proposed legislation relating to the treatment of foreign permanent establishments for U.K. tax purposes. If enacted, interpreted or applied in a manner adverse to our structure or operations, such changes could alter the treatment of income, expenses, tax attributes or incentives associated with U.K. foreign branch operations, including by reducing the availability or value of the U.K. research and expenditure credit or other tax benefits, and could adversely affect our provision for income taxes, effective tax rate, operating results, cash flows and financial condition. These and other changes in tax laws and regulations may impact both our international and domestic tax liabilities and result in increased complexity and uncertainty and may adversely affect our provision for income taxes. Our future effective tax rates could be affected by changes in the mix of earnings in countries with differing statutory tax rates, changes in the valuation of deferred tax assets and liabilities, or changes in tax laws or their interpretation. If our effective tax rates were to increase, particularly in the U.S. or the U.K., or if the ultimate determination of taxes owed is for an amount in excess of amounts previously accrued, our operating results, cash flows, and financial condition could be adversely affected. Significant judgment is required in the calculation of our tax provision and the resulting tax liabilities. Our estimates of future taxable income and the regional mix of this income can change as new information becomes available. Any such changes in our estimates or assumptions can significantly impact our tax provision in a given period. For discussion of our income taxes, see Note 10 - Income Taxes, of the Notes to Consolidated Condensed Financial Statements contained in Part I, Item 1. We are also subject to the examination of our tax returns and other tax matters by the U.S Internal Revenue Service (“IRS”) and other tax authorities and governmental bodies. We regularly assess the likelihood of an adverse outcome resulting 24 from these examinations to determine the adequacy of our provision for taxes. There can be no assurance as to the outcome of these examinations. The Company’s fiscal year 2017, 2018, and 2019 federal income tax returns are under examination by the 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. The final Revenue Agent’s Report asserted additional tax of approximately $168.3 million, excluding interest, and imposing penalties of approximately $63.7 million. We do not agree with the IRS’s positions and we continue to vigorously dispute the proposed adjustments, including through ongoing discussions as part of the administrative process with the IRS Independent Office of Appeals. If an acceptable outcome cannot be reached with IRS Appeals, we are prepared to pursue judicial remedies, which could take a number of years to resolve. 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, the ultimate 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. Our debt obligations may be a burden on our future cash flows and cash resources. On May 4, 2026, the Company entered into a third amended and restated credit agreement (the “Third Amended Credit Agreement”) which provides for a $350 million senior secured revolving credit facility (the “Revolving Credit Facility”). The Revolving Credit Facility matures on May 4, 2031 (the “Maturity Date”). As of June 27, 2026, the Company did not have an outstanding balance under the Revolving Credit Facility. To the extent the Company has an outstanding balance, our ability to repay the principal of, to pay interest on, or to refinance our indebtedness, depends on our future performance, which is subject to economic, financial, competitive, regulatory, and other factors, some of which are beyond our control. Our business may not generate cash flow from operations in the future sufficient to satisfy our obligations or to make necessary capital expenditures. If we are unable to generate such cash flow, we may be required to adopt one or more alternatives, such as reducing or delaying investments or capital expenditures, selling assets, or refinancing or obtaining additional equity capital on terms that may be onerous or highly dilutive. Our ability to refinance any indebtedness will depend on the capital markets and our financial condition at such time. We may not be able to engage in any of these activities or engage in these activities on desirable terms, which could result in a default on the Third Amended Credit Agreement. Our Third Amended Credit Agreement contains restrictions that could limit our flexibility in operating our business. Our Third Amended Credit Agreement contains various covenants that could limit our ability to engage in specified types of transactions under certain conditions. These covenants could limit our ability to, among other things: - pay dividends on, repurchase, or make distributions in respect of our capital stock or make other restricted payments; - incur additional indebtedness or issue certain preferred shares; - make certain investments; - sell certain assets; - create liens; - consolidate, merge, sell, or otherwise dispose of all or substantially all of our assets; and - enter into certain transactions with our affiliates. A breach of any of these covenants could result in a default under the Third Amended Credit Agreement. In the event of a default, the lenders could elect to declare all amounts then outstanding to be immediately due and payable. If our lenders accelerate the repayment of borrowings, we may not be able to repay our debt obligations. If we were unable to repay amounts due to the lenders under our credit facility, those lenders could proceed against the collateral granted to them to secure that indebtedness. 25

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Management's Discussion and Analysis

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Risk Factors