GLOBALFOUNDRIES Inc 6-K, filed Nov 22, 2022
GLOBALFOUNDRIES Inc. (GFS)
6-K
2022-11-22
For: 2022-09-30
View Original
Added on
April 09, 2026
About this 6-K
GLOBALFOUNDRIES Inc filed this 6-K on November 22, 2022.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 6-K
REPORT OF FOREIGN PRIVATE ISSUER PURSUANT TO RULE 13a-16 OR 15d-16 UNDER THE SECURITIES EXCHANGE ACT OF 1934
For the month of November 2022
Commission File Number 001-40974
400 Stonebreak Road Extension
Malta, NY 12020
(Address of principal executive offices)
Indicate by check mark whether the registrant files or will file annual reports under cover Form 20-F or Form 40-F.
Form 20-F ☒ Form 40-F ☐
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1): ____
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7): ____
Attached hereto are the following exhibits.
Part I – Financial Information
Part II – Other Information
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| GLOBALFOUNDRIES Inc. | |||||||||||
| Date: November 22, 2022 | By: | /s/ Dr. Thomas Caulfield | |||||||||
| Name: | Dr. Thomas Caulfield | ||||||||||
| Title: | President & Chief Executive Officer | ||||||||||
GLOBALFOUNDRIES INC.
TABLE OF CONTENTS
| Unaudited Statements | Page | ||||
Notes to Interim Condensed Consolidated Financial Statements | |||||
- 1 -
GLOBALFOUNDRIES INC.
INTERIM CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
AS OF SEPTEMBER 30, 2022 AND DECEMBER 31, 2021
| As of | ||||||||||||||
(in millions except for share amounts) | September 30, 2022 | December 31, 2021 | ||||||||||||
ASSETS | ||||||||||||||
Current assets: | ||||||||||||||
| Cash and cash equivalents | $ | $ | ||||||||||||
| Marketable securities | ||||||||||||||
| Receivables, prepayments and other assets | ||||||||||||||
| Inventories | ||||||||||||||
Total current assets | ||||||||||||||
Noncurrent assets: | ||||||||||||||
| Property, plant and equipment, net | ||||||||||||||
| Goodwill and intangible assets, net | ||||||||||||||
| Marketable securities | ||||||||||||||
| Other noncurrent financial assets | ||||||||||||||
| Deferred tax assets | ||||||||||||||
| Receivables, prepayments and other assets | ||||||||||||||
Total noncurrent assets | ||||||||||||||
Total assets | $ | $ | ||||||||||||
LIABILITIES AND EQUITY | ||||||||||||||
Current liabilities: | ||||||||||||||
| Trade payables and other current liabilities | $ | $ | ||||||||||||
| Provisions | ||||||||||||||
| Current portion of deferred income from government grants | ||||||||||||||
| Current portion of lease obligations | ||||||||||||||
| Current portion of long-term debt | ||||||||||||||
Total current liabilities | ||||||||||||||
Noncurrent liabilities | ||||||||||||||
| Noncurrent portion of deferred income from government grants | ||||||||||||||
| Provisions | ||||||||||||||
| Noncurrent portion of lease obligations | ||||||||||||||
| Noncurrent portion of long-term debt | ||||||||||||||
| Other noncurrent liabilities | ||||||||||||||
Total noncurrent liabilities | ||||||||||||||
Total liabilities | $ | $ | ||||||||||||
Equity: | ||||||||||||||
| Share capital | ||||||||||||||
Ordinary shares, $ | ||||||||||||||
| Additional paid-in capital | ||||||||||||||
| Accumulated deficit | ( | ( | ||||||||||||
| Accumulated other comprehensive loss | ( | ( | ||||||||||||
| Equity attributable to the shareholders of GLOBALFOUNDRIES INC. | ||||||||||||||
| Non-controlling interest | ||||||||||||||
Total equity | ||||||||||||||
Total liabilities and equity | $ | $ | ||||||||||||
The accompanying notes are an integral part of these interim condensed consolidated financial statements
-2-
GLOBALFOUNDRIES INC.
INTERIM CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2022 AND 2021
(in millions except per share amounts) | Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||||||||||||
| Net revenue | $ | $ | $ | $ | ||||||||||||||||||||||
| Cost of revenue | ||||||||||||||||||||||||||
| Gross profit | ||||||||||||||||||||||||||
| Research and development expenses | ||||||||||||||||||||||||||
| Selling, general and administrative expenses | ||||||||||||||||||||||||||
| Operating expenses | ||||||||||||||||||||||||||
| Profit (loss) from operations | ( | |||||||||||||||||||||||||
| Finance expenses, net | ( | ( | ( | ( | ||||||||||||||||||||||
| Share of profit of joint ventures | ||||||||||||||||||||||||||
| Other income (expense), net | ( | |||||||||||||||||||||||||
| Profit (loss) before income taxes | ( | |||||||||||||||||||||||||
| Income tax expense | ( | ( | ( | ( | ||||||||||||||||||||||
| Net income (loss) for the period | $ | $ | $ | $ | ( | |||||||||||||||||||||
| Attributable to: | ||||||||||||||||||||||||||
| Shareholders of GLOBALFOUNDRIES INC. | ( | |||||||||||||||||||||||||
| Non-controlling interest | ( | ( | ( | ( | ||||||||||||||||||||||
| Net income (loss) for the period | $ | $ | $ | $ | ( | |||||||||||||||||||||
| Net earnings (loss) per share attributable to the equity holders of the Company: | ||||||||||||||||||||||||||
| Basic weighted average common shares outstanding | ||||||||||||||||||||||||||
| Diluted weighted average common shares outstanding | ||||||||||||||||||||||||||
| Basic earnings (loss) per share | $ | $ | $ | $ | ( | |||||||||||||||||||||
| Diluted earnings (loss) per share | $ | $ | $ | $ | ( | |||||||||||||||||||||
The accompanying notes are an integral part of these interim condensed consolidated financial statements
-3-
GLOBALFOUNDRIES INC.
INTERIM CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (LOSS)
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2022 AND 2021
(in millions) | Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||||||||||||
| Net income (loss) for the period | ||||||||||||||||||||||||||
| Attributable to: | ||||||||||||||||||||||||||
| Shareholders of GLOBALFOUNDRIES INC. | ( | |||||||||||||||||||||||||
| Non-controlling interest | ( | ( | ( | ( | ||||||||||||||||||||||
| Net income (loss) for the period | $ | $ | $ | $ | ( | |||||||||||||||||||||
| Other comprehensive income (loss), net of tax: | ||||||||||||||||||||||||||
| Items that may be reclassified subsequently to profit or loss: | ||||||||||||||||||||||||||
| Share of foreign exchange fluctuation reserve of joint ventures | ( | ( | ( | ( | ||||||||||||||||||||||
| Effective portion of changes in the fair value of cash flow hedges | ( | ( | ||||||||||||||||||||||||
| Fair value (loss) on investments measured at fair value through other comprehensive income | ( | ( | ||||||||||||||||||||||||
| Income tax effect | ( | |||||||||||||||||||||||||
| Total other comprehensive income (loss) for the period | $ | ( | $ | ( | $ | ( | $ | ( | ||||||||||||||||||
| Attributable to: | ||||||||||||||||||||||||||
| Shareholders of GLOBALFOUNDRIES INC. | $ | $ | ( | $ | $ | ( | ||||||||||||||||||||
| Non-controlling interest | $ | ( | $ | ( | $ | ( | $ | ( | ||||||||||||||||||
| Total other comprehensive income (loss) for the period | $ | ( | $ | ( | $ | ( | $ | ( | ||||||||||||||||||
| Total comprehensive income (loss) for the period | $ | $ | ( | $ | $ | ( | ||||||||||||||||||||
| Attributable to: | ||||||||||||||||||||||||||
| Shareholders of GLOBALFOUNDRIES INC. | ( | ( | ||||||||||||||||||||||||
| Non-controlling interest | ( | ( | ( | ( | ||||||||||||||||||||||
| Total comprehensive income (loss) for the period | $ | $ | ( | $ | $ | ( | ||||||||||||||||||||
The accompanying notes are an integral part of these interim condensed consolidated financial statements
-4-
GLOBALFOUNDRIES INC
INTERIM STATEMENTS OF CHANGES IN EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2021 AND 2022
| Equity Attributable to Shareholders of GLOBALFOUNDRIES Inc. | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| (in millions, except share amounts) | Common Shares | Additional Paid-In Capital | Loan from Shareholder | Accumulated Deficit | Hedging Reserve | Foreign Currency Translation and Investments Reserves | Total | Non Controlling Interest | Total Equity | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
As of December 31, 2020 | $ | $ | $ | $ | ( | $ | ( | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Repayment of loan from shareholder | — | — | — | ( | — | — | — | ( | — | ( | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Share-based compensation | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net loss | — | — | — | — | ( | — | — | ( | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive loss | — | — | — | — | — | ( | ( | ( | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
As of September 30, 2021 | $ | $ | $ | $ | $( | $( | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
As of December 31, 2021 | $ | $ | $ | $ | ( | $ | ( | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Proceeds from issuance of equity instruments | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Share-based compensation | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | — | — | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive income (loss) | — | — | — | — | — | ( | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
As of September 30, 2022 | $ | $ | $ | $ | ( | $ | ( | $ | ( | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||||||||||||||||
The accompanying notes are an integral part of these interim condensed consolidated financial statements
-5-
GLOBALFOUNDRIES INC
INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2022 AND 2021
(in millions) | Nine Months Ended September 30, | ||||||||||||||||
| 2022 | 2021 | ||||||||||||||||
| CASH FLOWS FROM OPERATING ACTIVITIES | |||||||||||||||||
| Net income (loss) | $ | $ | ( | ||||||||||||||
| Adjustments to reconcile net income (loss) to net cash provided by operating activities: | |||||||||||||||||
| Depreciation | |||||||||||||||||
| Amortization of intangible assets | |||||||||||||||||
| Share-based compensation | |||||||||||||||||
| Interest and income taxes paid | ( | ( | |||||||||||||||
| Finance expenses, net | |||||||||||||||||
| Amortization of deferred income from government grants | ( | ( | |||||||||||||||
| Deferred income taxes, net | |||||||||||||||||
| Gain on disposal of property, plant and equipment and other | ( | ( | |||||||||||||||
| Change in assets and liabilities: | |||||||||||||||||
| Receivables, prepayments, other assets and other noncurrent assets | ( | ||||||||||||||||
| Inventories | ( | ( | |||||||||||||||
| Trade and other payables | |||||||||||||||||
| Net cash provided by operating activities | |||||||||||||||||
| CASH FLOWS FROM INVESTING ACTIVITIES | |||||||||||||||||
| Purchases of property, plant and equipment | ( | ( | |||||||||||||||
| Purchase of investment in marketable securities | ( | ||||||||||||||||
| Proceeds from sale of marketable securities | |||||||||||||||||
| Purchases of intangible assets | ( | ( | |||||||||||||||
| Advances and proceeds from sale of property, plant and equipment and intangible assets | |||||||||||||||||
| Other investing activities | ( | ( | |||||||||||||||
| Net cash used in investing activities | ( | ( | |||||||||||||||
| CASH FLOWS FROM FINANCING ACTIVITIES | |||||||||||||||||
| Net proceeds from borrowings | |||||||||||||||||
| Repayments of debt and finance lease obligations | ( | ( | |||||||||||||||
| Proceeds from issuance of equity instruments and other | |||||||||||||||||
| Repayments of shareholder loan | ( | ||||||||||||||||
| Net cash provided by (used in) financing activities | ( | ||||||||||||||||
| Effect of exchange rate changes on cash and cash equivalents | ( | ( | |||||||||||||||
| Net increase/(decrease) in cash and cash equivalents | ( | ||||||||||||||||
| Cash and cash equivalents at the beginning of the period | |||||||||||||||||
| Cash and cash equivalents at the end of the period | $ | $ | |||||||||||||||
| Noncash investing and financing activities: | |||||||||||||||||
| Amounts payable for property, plant and equipment | $ | $ | |||||||||||||||
| Property, plant and equipment acquired through lease | $ | $ | |||||||||||||||
| Amounts payable for intangible assets | $ | $ | |||||||||||||||
The accompanying notes are an integral part of these interim condensed consolidated financial statements
-6-
GLOBALFOUNDRIES INC.
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Corporate Information
Company Operations
GLOBALFOUNDRIES Inc. (“GLOBALFOUNDRIES”) is an exempted company with limited liability incorporated under the laws of the Cayman Islands. The address of GLOBALFOUNDRIES’ registered office is P.O. Box 309, Ugland House, Grand Cayman, KY1-1104 Cayman Islands.
GLOBALFOUNDRIES and its subsidiaries (together referred to as the “Company”, “GlobalFoundries”, “GF”, “we”, or “us”) is one of the world’s leading semiconductor foundries and offers a full range of mainstream wafer fabrication services and technologies. The Company manufactures a broad range of semiconductor devices, including microprocessors, mobile application processors, baseband processors, network processors, radio frequency modems, microcontroller, and power management units.
Note 2. Basis of Presentation and Summary of Significant Accounting Policies
Statement of Compliance— The accompanying interim condensed consolidated financial statements have been prepared by management of the Company in accordance with the rules and regulations of the International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”). The interim condensed consolidated financial statements do not include all the information and disclosures required in the annual consolidated financial statements prepared in accordance with IFRS as issued by the IASB and should be read in conjunction with the Company’s annual consolidated financial statements, included in GLOBALFOUNDRIES' Annual Report on Form 20-F for the year ended December 31, 2021.
The interim condensed consolidated financial statements were authorized by the Audit, Risk and Compliance Committee of GLOBALFOUNDRIES’ Board of Directors on November 21, 2022, to be issued and subsequent events have been evaluated for their potential effect on the interim condensed consolidated financial statements through November 22, 2022.
Significant Accounting Judgments, Estimates and Assumptions — The preparation of financial statements in accordance with International Accounting Standards (“IAS”) 34, Interim Financial Reporting, requires the use of certain critical accounting estimates. It also requires management to exercise judgment in applying the Company’s accounting policies. In the opinion of management, all adjustments, consisting solely of normal recurring adjustments necessary for a fair presentation of the financial information for the periods indicated, have been included. The results for the three and nine month periods ended September 30, 2022 are not necessarily indicative of the results that may be expected for the year ending December 31, 2022.
Change in Presentation — After a review of the Company’s financial statements, certain format changes have been made to the statements of financial position as of December 31, 2021. These format changes include the presentation of the Company’s current assets, noncurrent assets, current liability, noncurrent liability and equity based on degree of liquidity. IAS 1 does not mandate a specific order or classification of accounts on the statement of financial position. This change is not a change in estimate or a change in accounting policy. The format changes did not result in a change to the previously reported financial position.
Significant Accounting Policies —The accounting policies (including accounting judgements, estimates and assumptions) adopted in the preparation of the interim condensed consolidated financial statements are consistent with those followed in the preparation of the Company's annual audited consolidated financial statements contained in our Annual Report on Form 20-F for the year ended December 31, 2021.
Recent Accounting Pronouncements, Adopted:
Amendments to IFRS 9, IAS 39, IFRS 7 and IFRS 16 Interest Rate Benchmark Reform (“IBOR reform”)
Refer to the audited consolidated financial statements included in the Company's Annual Report on Form 20-F for the year ended December 31, 2021.
- 7 -
GLOBALFOUNDRIES INC.
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 3. Net Revenue
On an ongoing basis the Company reviews the categories that best depict how the nature, timing and uncertainty of revenue cash flows are affected by economic factors. The following table presents the Company’s revenue disaggregated based on revenue source and timing of revenue recognition for the three and nine month periods ended September 30, 2022 and 2021. The Company believes these categories best depict the nature and timing of revenue:
| (in millions) | Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| Type of goods and services: | |||||||||||||||||||||||
| Wafer fabrication | $ | $ | $ | $ | |||||||||||||||||||
| Engineering and other pre-fabrication services | |||||||||||||||||||||||
| $ | $ | $ | $ | ||||||||||||||||||||
| Timing of revenue recognition: | |||||||||||||||||||||||
| Revenue recognized over time | $ | $ | $ | $ | |||||||||||||||||||
| Revenue recognized at a point in time | |||||||||||||||||||||||
| $ | $ | $ | $ | ||||||||||||||||||||
Note 4. Income taxes
For tax reporting purposes, the Company consolidates its entities under GLOBALFOUNDRIES Inc., a Cayman Islands entity. As a Cayman Islands corporation, the Company’s domestic statutory income tax rate is 0.0 %. The difference between the Company’s domestic statutory income tax rate and its (provision) benefit for income taxes is due to the effect of the tax rates in the other jurisdictions in which the Company operates.
The effective tax rate for the nine months ended September 30, 2022 and 2021 was 9.1 % and (21.3 )%, respectively. The increase for the nine months ended September 30, 2022 compared to the prior year was primarily due to a higher mix of income in jurisdictions with higher tax rates than the Cayman statutory tax rate and incremental withholding taxes incurred.
- 8 -
GLOBALFOUNDRIES INC.
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 5. Earnings (Loss) Per Share
The following table sets forth the computation of basic and diluted earnings per share:
| (in millions except per share amounts) | Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| Net income (loss) attributable to equity shareholders of the Company | $ | $ | $ | $ | ( | ||||||||||||||||||
| Weighted average shares outstanding | |||||||||||||||||||||||
| Basic | |||||||||||||||||||||||
| Diluted | |||||||||||||||||||||||
| Total basic and diluted EPS attributable to equity shareholders | |||||||||||||||||||||||
| Basic | $ | $ | $ | $ | ( | ||||||||||||||||||
| Diluted | $ | $ | $ | $ | ( | ||||||||||||||||||
Note 6. Receivables, Prepayments and Other Assets
| (in millions) | September 30, 2022 | December 31, 2021 | |||||||||
| Current: | |||||||||||
Trade receivables, other than related parties | $ | $ | |||||||||
Unbilled accounts receivable (1) | |||||||||||
| Other receivables | |||||||||||
| Receivables from government grants | |||||||||||
| Receivables from related parties | |||||||||||
| Derivative assets | |||||||||||
| $ | $ | ||||||||||
| Non-current: | |||||||||||
Advances to suppliers (2) | $ | $ | |||||||||
| Non-trade receivables | |||||||||||
| Other | |||||||||||
| Total | $ | $ | |||||||||
(1) Unbilled accounts receivable represents amounts recognized on revenue contracts less associated advances and progress billings. These amounts will be billed in accordance with the agreed-upon contractual terms or rendering services.
- 9 -
GLOBALFOUNDRIES INC.
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The following table summarizes the activity in the Company’s unbilled accounts receivable for the nine months ended September 30, 2022 and the twelve months ended December 31, 2021, respectively:
| (in millions) | September 30, 2022 | December 31, 2021 | |||||||||
| Balance, beginning of period | $ | $ | |||||||||
| Revenue recognized during the period | |||||||||||
| Amounts invoiced | ( | ( | |||||||||
| Other | |||||||||||
| Balance, end of period | $ | $ | |||||||||
Note 7. Inventories
The Company records inventories at the lower of cost or net realizable value for finished goods, work-in-progress, raw materials, and supplies. The Company makes inventory write-downs on an item-by-item basis, except where it may be appropriate to group similar or related items.
| (in millions) | September 30, 2022 | December 31, 2021 | |||||||||
| Work in progress, net | $ | $ | |||||||||
| Raw materials and supplies, net | |||||||||||
| Total | $ | $ | |||||||||
- 10 -
GLOBALFOUNDRIES INC.
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 8. Long Term Debt
The following table outlines the terms and amounts of the Company’s debt:
| Description | Currency | Nominal Interest Rate | Year of Maturity | September 30, 2022 | December 31, 2021 | |||||||||||||||
| (in millions) | ||||||||||||||||||||
| 2018 Tool Equipment Purchase and Lease Financing | USD | LIBOR + | 2023 | |||||||||||||||||
| 2019 Tool Equipment Purchase and Lease Financing | USD | LIBOR + | 2024 | |||||||||||||||||
| 2019 USD Dresden Equipment Financing | USD | LIBOR + | 2024 | |||||||||||||||||
| 2020 USD Equipment Financing | USD | LIBOR + | 2025 | |||||||||||||||||
| 2019 EUR Dresden Equipment Financing | EUR | EURIBOR + | 2026 | |||||||||||||||||
| Various | EUR, USD | Various | 2024-2026 | |||||||||||||||||
| Current total | ||||||||||||||||||||
| 2019 Tool Equipment Purchase and Lease Financing | USD | LIBOR + | 2024 | |||||||||||||||||
| 2019 USD Dresden Equipment Financing | USD | LIBOR + | 2024 | |||||||||||||||||
| 2020 USD Equipment Financing | USD | LIBOR + | 2025 | |||||||||||||||||
| USD Term Loan A | USD | LIBOR + | 2025 | |||||||||||||||||
| EUR Term Loan A | EUR | EURIBOR + | 2025 | |||||||||||||||||
| 2019 EUR Dresden Equipment Financing | EUR | EURIBOR + | 2026 | |||||||||||||||||
| 2021 SGD EDB Loan | SGD | 2041 | ||||||||||||||||||
| Various | EUR, USD | Various | 2024-2027 | |||||||||||||||||
| Noncurrent total | ||||||||||||||||||||
| Total | $ | $ | ||||||||||||||||||
- 11 -
GLOBALFOUNDRIES INC.
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The following table summarizes unutilized credit facilities available to the Company to maintain liquidity necessary to fund operations:
| (in millions) | September 30, 2022 | December 31, 2021 | |||||||||
| Citibank Revolving Credit Facility | |||||||||||
| SGD EDB Loan | $ | $ | |||||||||
Societe Generale Singapore Revolving Credit Facility(1) | |||||||||||
| Societe Generale Singapore Factoring | |||||||||||
Other(1) | |||||||||||
| Total | $ | $ | |||||||||
(1) subject to lender approval before draw-down or being usable.
Note 9. Related Party Disclosures
Related party balances disclosed in the interim condensed consolidated statements of financial position relates to Silicon Manufacturing Partners Pte Ltd. ("SMP"). SMP is a joint venture with LSI Technology (Singapore) Pte. Ltd. The Company holds a 49 % interest in SMP and manages all aspects of its manufacturing operations. The total amounts of $12 million and $8 million due from related parties as of September 30, 2022 and December 31, 2021, respectively, have been included in receivables, prepayments and other assets (see Note 6). The $12 million and $9 million due to related parties as of September 30, 2022 and December 31, 2021, respectively, have been included in trade and other payables.
The following table presents the related party transactions included in the interim condensed consolidated statements of operations and comprehensive income (loss):
| (in millions) | Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||
| Purchases from: * | 2022 | 2021 | 2022 | 2021 | ||||||||||||||||
| SMP | $ | $ | $ | $ | ||||||||||||||||
| Other transactions with: | ||||||||||||||||||||
| SMP (reimbursement of expenses and contribution of tools) | $ | $ | $ | $ | ||||||||||||||||
| $ | $ | $ | $ | |||||||||||||||||
* Purchases from SMP were primarily comprised of wafer purchases.
- 12 -
GLOBALFOUNDRIES INC.
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 10. Commitments and Contingencies
Commitments – The Company’s unconditional purchase commitments are as follows:
| (in millions) | September 30, 2022 | December 31, 2021 | |||||||||
| Contracts for capital expenditures | $ | $ | |||||||||
| Contracts for operating expenditures | |||||||||||
| $ | $ | ||||||||||
| Due within the next 12 months | $ | $ | |||||||||
In addition to the above, the Company obtained letters of credit to primarily guarantee payments for utility supplies and foreign statutory payroll related charges. The Company has available letters of credit of $20 3
Contingencies — From time to time, the Company is a party to claims that arise in the normal course of business. These claims include allegations of infringement of intellectual property rights of others as well as other claims of liability. In addition, the Company, on a case by case basis, includes intellectual property indemnification provisions in the terms of sale and technology licenses with third parties. The Company is also subject to various taxes in the different jurisdictions in which it operates. These include property, goods and services, and other non-income taxes. The Company accrues costs associated with these matters when they become probable and reasonably estimable. The Company does not believe it is probable that losses associated with these matters beyond those already recognized will be incurred in amounts that would be material to the interim condensed consolidated statements of financial position or interim condensed consolidated statements of operations and comprehensive income (loss).
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GLOBALFOUNDRIES INC.
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 11. Fair Value Measurements
The fair value of a financial instrument is the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The Company uses the following hierarchy for determining and disclosing the fair value of financial instruments by valuation technique:
•Level 1: observable inputs such as quoted prices in active markets for identical assets or liabilities;
•Level 2: inputs other than quoted prices in active markets in Level 1, such as quoted prices for similar assets or liabilities in active markets, quoted prices for similar assets or liabilities that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the asset or liability; and
•Level 3: unobservable inputs for which little or no market data exists, therefore requiring management judgment to develop the Company’s own models with estimates and assumptions.
Cash Equivalents - Cash equivalents include investments in government obligation-based money market funds, other money market instruments and interest-bearing deposits with initial or remaining terms of three months or less. The fair value of cash equivalents approximates its carrying value due to the short-term nature of these instruments.
Marketable Securities - Marketable securities include U.S. Treasury Securities, U.S. Government Sponsored Enterprises, floating rate securities, money market mutual funds, corporate debt instruments and other Notes, bonds or debt securities issued by non-U.S. sovereign or multilateral entities, as these securities all have quoted prices in active markets.
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GLOBALFOUNDRIES INC.
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The following table presents the Company’s assets and liabilities measured at fair value on a recurring basis:
| (in millions) | Quoted Prices Identical Assets/ Liabilities | Significant Other Inputs | Significant Unobservable Inputs | ||||||||||||||||||||
| Total | (Level 1) | (Level 2) | (Level 3) | ||||||||||||||||||||
| December 31, 2021 | |||||||||||||||||||||||
| Assets: | |||||||||||||||||||||||
Cash equivalents(1) | $ | $ | $ | $ | |||||||||||||||||||
Investments in equity instruments(2) | $ | $ | $ | $ | |||||||||||||||||||
Derivatives(3) | $ | $ | $ | $ | |||||||||||||||||||
| Liabilities: | |||||||||||||||||||||||
Derivatives(3) | $ | $ | $ | $ | |||||||||||||||||||
| September 30, 2022 | |||||||||||||||||||||||
| Assets: | |||||||||||||||||||||||
Cash equivalents(1) | $ | $ | $ | $ | |||||||||||||||||||
Investments in equity instruments(2) | $ | $ | $ | $ | |||||||||||||||||||
Derivatives(3) | $ | $ | $ | $ | |||||||||||||||||||
| Marketable securities | $ | $ | $ | $ | |||||||||||||||||||
| Liabilities: | |||||||||||||||||||||||
Derivatives(3) | $ | $ | $ | $ | |||||||||||||||||||
(1) Included in cash and cash equivalents on the Company’s interim condensed consolidated statements of financial position.
(2) Included in current and non-current receivables, prepayments and other assets on the Company’s interim condensed consolidated statements of financial position.
During the nine months ended September 30, 2022 and 2021, there were no transfers between Level 1, Level 2 or Level 3 fair value measurements.
Assets Measured and Recorded at Fair Value on a Non- Recurring Basis
Certain assets and liabilities, such as equity method investments, intangible assets and property, plant and equipment, and other non-financial assets are recorded at fair value only if an impairment or observable price adjustment is recognized in the current period.
Financial Instruments Not Recorded at Fair Value on a Recurring Basis
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GLOBALFOUNDRIES INC.
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Financial instruments not recorded at fair value on a recurring basis include grants receivable, loans receivable, lease obligations and the Company’s current and noncurrent portion of long-term debt.
The carrying and fair values of the Company’s financial instruments not recorded at fair value on a recurring basis are presented in the following table, classified according to the categories of financial liabilities at amortized cost (“FLAC”):
| (in millions) | September 30, 2022 | December 31, 2021 | ||||||||||||||||||||||||
| Financial Liabilities | Category | Carrying Amount | Fair Value | Carrying Amount | Fair Value | |||||||||||||||||||||
| Long-term debt | FLAC | |||||||||||||||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||||||||||||
Estimated fair values of long-term debt are based on quoted prices for similar liabilities for which significant inputs are observable and represents a Level 2 valuation. The fair values are estimated based on the type of debt and their maturities. The Company estimates the fair value using market interest rates of debts with similar maturities.
Note 12. Share-Based Compensation
We measure and recognize compensation expense related to share-based transactions, including employee, consultant, and non-employee director share option awards, in our consolidated financial statements based on fair value. We estimate the share option fair value at the date of grant using the Black-Scholes option pricing model, which requires management to make certain assumptions of future expectations based on historical and current data. The assumptions include the expected term of the share option, expected volatility, dividend yield, and risk-free interest rate. The expected term represents the amount of time that options granted are expected to be outstanding, based on forecasted exercise behavior. The risk-free rate is based on the rate at grant date of zero - coupon Treasury notes with a term comparable to the expected term of the option. We estimate expected volatility based on the historical volatility of comparable public entities’ share price from the same industry. We base our dividend yield on forecasted expected payments, which we expect to be zero for the immediate future. We recognize compensation expense over the vesting period of the award on a graded attribution basis, and we estimate forfeitures.
Employee Stock Purchase Plan
In connection with, and prior to the consummation of, the Company's initial public offering, the Company's board of
directors adopted the GLOBALFOUNDRIES Inc. 2021 Employee Stock Purchase Plan (the “ESPP”). The ESPP is administered by the Company's board of directors or, as applicable, its delegate (the “ESPP Administrator”).
Subject to certain equitable adjustments in connection with certain events affecting the outstanding ordinary shares
reserved for issuance as awards, the maximum aggregate number of our ordinary shares that may be issued or transferred under the ESPP with respect to awards is 7,500,000 ordinary shares; provided that the share reserve under the ESPP will, unless otherwise determined by our board of directors, automatically increase on January 1 of each year for 8 years commencing on January 1, 2023 and ending on (and including) January 1, 2031 in an amount equal to 0.25 % of the total number of ordinary shares outstanding on December 31 of the preceding year. In no event will the number of ordinary shares that may be issued or transferred pursuant to rights granted under the ESPP exceed 18,750,000 , in the aggregate, subject to the adjustments described above.
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GLOBALFOUNDRIES INC.
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Performance Stock Units
During the second quarter of 2022, the Company awarded Performance Stock Units (“PSUs”) to certain senior level employees, which will vest if certain financial performance objectives are achieved over 2 years to 3 years performance periods and the grantee remains employed by the Company through that performance period. Each PSU represents a contingent right to receive shares of the Company’s stock if the Company meets certain performance measures over the requisite period. The PSU awards entitle recipients to receive, upon vesting, a number of shares that ranges from 0 % to 200 % of the number of PSUs awarded, depending on the level of achievement of the specified performance conditions.
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Management Discussion and Analysis of Financial Condition and Results of Operations
Forward-looking Statements
This document includes “forward-looking statements” that reflect our current expectations and views of future events. These forward-looking statements are made under the "safe harbor" provisions of the U.S. Private Securities Litigation Reform Act of 1995 and include but are not limited to, statements regarding our financial outlook, future guidance, product development, business strategy and plans, and market trends, opportunities and positioning. These statements are based on current expectations, assumptions, estimates, forecasts, projections and limited information available at the time they are made. Words such as “expect,” “anticipate,” “should,” “believe,” “hope,” “target,” “project,” “goals,” “estimate,” “potential,” “predict,” “may,” “will,” “might,” “could,” “intend,” “shall,” "outlook," "on track," and variations of these terms or the negative of these terms and similar expressions are intended to identify these forward-looking statements, although not all forward-looking statements contain these identifying words. Forward-looking statements are subject to a broad variety of risks and uncertainties, both known and unknown. Any inaccuracy in our assumptions and estimates could affect the realization of the expectations or forecasts in these forward-looking statements. For example, our business could be impacted by the COVID-19 pandemic and supply chain disruptions due to the Russia/Ukraine conflict and actions taken in response to such events; the market for our products may develop more slowly than expected or than it has in the past; our operating results may fluctuate more than expected; there may be significant fluctuations in our results of operations and cash flows related to our revenue recognition or otherwise; a network or data security incident that allows unauthorized access to our network or data or our customers’ data could damage our reputation; we could experience interruptions or performance problems associated with our technology, including a service outage; and global economic conditions could deteriorate, including due to increasing interest rates, rising inflation, and any potential recession. It is not possible for us to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results or outcomes to differ materially from those contained in any forward-looking statements we may make. Moreover, we operate in a competitive and rapidly changing market, and new risks may emerge from time to time. You should not rely upon forward-looking statements as predictions of future events. These statements are based on our historical performance and on our current plans, estimates and projections in light of information currently available to us, and therefore you should not place undue reliance on them.
Although we believe that the expectations reflected in our statements are reasonable, we cannot guarantee that the future results, levels of activity, performance or events and circumstances described in the forward-looking statements will be achieved or occur. Moreover, neither we, nor any other person, assumes responsibility for the accuracy and completeness of these statements. Recipients are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date such statements are made and should not be construed as statements of fact. Except to the extent required by federal securities laws, we undertake no obligation to update any information or any forward-looking statements as a result of new information, subsequent events, or any other circumstances after the date hereof, or to reflect the occurrence of unanticipated events. For a discussion of potential risks and uncertainties, please refer to the risk factors and cautionary statements in GLOBALFOUNDRIES’ Annual Report on Form 20-F for the year ended December 31, 2021, current reports on Form 6-K and other reports filed with the Securities and Exchange Commission (the “SEC”). Copies of our SEC filings are available on our Investor Relations website, investors.gf.com, or from the SEC website, www.sec.gov.
OPERATING AND FINANCIAL REVIEWS AND PROSPECTS
Overview
GLOBALFOUNDRIES Inc. (“We,” “GF,” or the “Company”) is one of the world’s leading semiconductor foundries. We manufacture complex, feature-rich integrated circuits (“ICs”) that enable billions of electronic devices that are pervasive throughout nearly every sector of the global economy. With our specialized foundry manufacturing processes, a library consisting of thousands of IP titles, and differentiated transistor and device technology, we serve a broad range of customers, including the global leaders in IC design, and provide optimized solutions for the function, performance and power requirements of critical applications driving key secular growth end markets.
The combination of our highly-differentiated technology and our scaled manufacturing footprint enables us to attract a large share of single-sourced products and long-term supply agreements, providing a high degree of revenue visibility and significant operating leverage, resulting in improved financial performance and bottom line growth. As of September 30, 2022, the aggregate long-term revenue commitment reflected by these agreements amounted to $27 billion, including more than $10 billion during the period from January 2022 through December 2023 and more than $3.5 billion in advanced payments and capacity reservation fees. These agreements include binding, multi-year, reciprocal annual (and, in some cases, quarterly) minimum purchase and supply commitments with wafer pricing and associated mechanics outlined for the contract term. Through an intense focus on collaboration, we have built deep strategic partnerships with a broad base of more than 38 customers as of September 30, 2022, many of whom are the global leaders in their field.
Against the backdrop of increasing macroeconomic and geopolitical uncertainty, recently, some customers under long term agreements (“LTAs”) have requested to adjust downward their 2023 demand outlook, which could eventually lead to softening orders and revenue. We continue to pay close attention to the overall economic environment and are working closely with customers to monitor demand.
Components of Results of Operations
Net Revenue
We generate the majority of our revenue from volume production and sales of semiconductor wafers, which are priced on a per-wafer basis for the applicable design. We also generate revenue from pre-fabrication services such as rendering of non-recurring engineering (“NRE”) services, mask production and post-fabrication services such as bump, test, and packaging. Pricing is typically agreed prior to production and then updated based on subsequent period negotiations.
Cost of Revenue
Cost of revenue consists primarily of material expenses, depreciation and amortization, employee-related expenses, facility costs and costs of fixed assets, including maintenance and spare parts. Material expenses primarily include the costs of raw wafers, test wafers, photomasks, resists, process gases, process chemicals, other operating supplies and external service costs for wafer manufacturing. Costs related to NRE services are also included within the cost of revenue. We expect cost of revenue to grow at a pace lower than our revenue growth. As it pertains to inflation and inflationary-headwinds we are facing within our business, while we have experienced an increase in costs for materials and energy in the current period, we continue to estimate the impact of these inflationary costs to our current year financial results to not be material.
Depreciation and amortization charges primarily include the depreciation of clean room production equipment. We depreciate equipment on a straight-line basis over a two-to-ten-year period and buildings on a straight-line basis up to 26 years (or the remaining lease term of related land on which the buildings are erected, if shorter).
Operating Expenses
Our operating expenses consist of research and development ("R&D") and selling, general and administrative expenses. Personnel costs are the most significant component of our operating expenses and consist of salaries, benefits, bonuses, share-based compensation, and commissions.
Research and Development (“R&D”)
Our R&D efforts are focused on developing highly-differentiated process technologies and solutions. As part of our strategic repositioning in 2018, we focus our efforts on technologies where we can deliver a highly-differentiated solution. Our R&D expense includes personnel costs, material costs, software license and intellectual property expenses, facility costs, supplies, professional and consulting fees, and depreciation on equipment used in R&D activities. Our development roadmap includes new platform investments, platform features and extensions, and investments in emerging technology capabilities and solutions. We expense R&D costs as incurred and we believe that continued investment in our technology portfolio is important for our future growth and acquisition of new customers.
Selling, General and Administrative (“SG&A”)
SG&A expenses consist primarily of personnel-related costs, including sales commissions to independent sales representatives and professional fees, including the costs of audit, accounting, information technology, legal, regulatory and tax compliance. Additionally, costs related to advertising, trade shows, corporate marketing and allocated overhead costs are also included in SG&A expenses. Since we became a publicly-traded company in October 2021, we have and will continue to incur increased audit, accounting, legal, information technology, regulatory, compliance, director and officer insurance costs as well as investor and public relations expenses associated with operating as a public company.
Finance Expenses, net
Finance expenses, net consist primarily of interest on borrowings, amortization of debt issuance costs under our term loans, revolving credit facility, finance leases and the other credit facilities we maintain with various financial institutions, net of interest income related to investing activities.
Share of Profit from Joint Ventures
Share of profit from joint ventures relates to our portion of profit and loss in investments that we do not consolidate.
Other Income (Expense), net
Other income (expense), net consists of one-time gains and losses and other miscellaneous income and expense items unrelated to our core operations.
Income Tax Expense
Income tax expense consists primarily of income taxes in jurisdictions in which we conduct business, which mainly include Germany, Singapore and the United States.
A. Results of Operations
The following table sets forth our consolidated statements of operations data for the periods indicated:
| (in millions) | Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||||||||||||
| Net revenue | $ | 2,074 | $ | 1,700 | $ | 6,007 | $ | 4,738 | ||||||||||||||||||
| Cost of revenue | 1,464 | 1,400 | 4,390 | 4,108 | ||||||||||||||||||||||
| Gross profit | 610 | 300 | 1,617 | 630 | ||||||||||||||||||||||
| Research and development expenses | 124 | 114 | 372 | 349 | ||||||||||||||||||||||
| Selling, general and administrative expenses | 129 | 134 | 366 | 427 | ||||||||||||||||||||||
| Operating expenses | 253 | 248 | 738 | 776 | ||||||||||||||||||||||
| Income (Loss) from operations | 357 | 52 | 879 | (146) | ||||||||||||||||||||||
| Finance expenses, net | (11) | (27) | (58) | (82) | ||||||||||||||||||||||
| Share of profit of joint ventures and associates | 1 | 1 | 3 | 3 | ||||||||||||||||||||||
| Other income (expense), net | 8 | 1 | 32 | (19) | ||||||||||||||||||||||
| Income (Loss) before income taxes | 355 | 27 | 856 | (244) | ||||||||||||||||||||||
| Income tax expense | (19) | (22) | (78) | (52) | ||||||||||||||||||||||
| Net income (loss) for the period | $ | 336 | $ | 5 | $ | 778 | $ | (296) | ||||||||||||||||||
Comparison of Three months and Nine months ended September 30, 2022 and 2021
Net Revenue
| (in millions) | Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||||||||||||||||||||||||||||
| 2022 | 2021 | Change | % Change | 2022 | 2021 | Change | % Change | |||||||||||||||||||||||||||||||||||||||||||
| Net revenue | $ | 2,074 | $ | 1,700 | $ | 374 | 22.0 | % | $ | 6,007 | $ | 4,738 | $ | 1,269 | 26.8 | % | ||||||||||||||||||||||||||||||||||
Net revenue increased by $374 million, or 22.0%, for the three months ended September 30, 2022, compared to the three months ended September 30, 2021. The increase was primarily a result of higher wafer shipment volumes and average selling prices (“ASP”). For the three months ended September 30, 2022, wafer shipments were 637 thousand (300mm equivalent), a 4.5% increase from the prior year. ASP per wafer increased 14% year over year, driven by ramping long-term customer agreements with better pricing, and continued improvement in product mix.
Net revenue increased by $1,269 million, or 26.8%, for the nine months ended September 30, 2022, compared to the nine months ended September 30, 2021. The increase was primarily a result of higher wafer shipment volumes and ASP. For the nine months ended September 30, 2022, wafer shipments were approximately 1.9 million (300mm equivalent), an 8% increase from the prior year. ASP per wafer increased 16% year over year, driven by ramping long-term customer agreements with better pricing, and improved mix.
Cost of Revenue
| (in millions) | Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||||||||||||||||||||||||||||
| 2022 | 2021 | Change | % Change | 2022 | 2021 | Change | % Change | |||||||||||||||||||||||||||||||||||||||||||
| Cost of revenue | $ | 1,464 | $ | 1,400 | $ | 64 | 4.6 | % | $ | 4,390 | $ | 4,108 | $ | 282 | 6.9 | % | ||||||||||||||||||||||||||||||||||
| Gross margin | 29.4 | % | 17.6 | % | +1,180bps | 26.9 | % | 13.3 | % | +136bps | ||||||||||||||||||||||||||||||||||||||||
Cost of revenue increased by $64 million, or 4.6%, for the three months ended September 30, 2022, compared to the three months ended September 30, 2021. The increase was primarily a result of a 4.5% increase in wafer shipments partially offset by increased fixed cost absorption from factory utilization. Share-based compensation also increased by $6 million.
Cost of revenue increased by $282 million, or 6.9%, for the nine months ended September 30, 2022, compared to the nine months ended September 30, 2021. The increase was primarily a result of a 8% increase in wafer shipments partially offset by increased fixed cost absorption from higher factory utilization. Share-based compensation also increased by $42 million.
Operating Expenses
Research and Development Expenses
| (in millions) | Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||||||||||||||||||||||||||||
| 2022 | 2021 | Change | % Change | 2022 | 2021 | Change | % Change | |||||||||||||||||||||||||||||||||||||||||||
| Research and development expenses | $ | 124 | $ | 114 | $ | 10 | 8.8 | % | $ | 372 | $ | 349 | $ | 23 | 6.6 | % | ||||||||||||||||||||||||||||||||||
| As a % of revenue | 6.0% | 6.7% | 6.2% | 7.4% | ||||||||||||||||||||||||||||||||||||||||||||||
Research and development expenses increased by $10 million, or 8.8%, for the three months ended September 30, 2022, compared to the three months ended September 30, 2021. The increase was primarily a result of a $10 million increase in R&D technology portfolio investments, and a $4 million increase in share-based compensation, partially offset by $3 million reduction in R&D pre-production costs.
Research and development expenses increased by $23 million, or 6.6%, for the nine months ended September 30, 2022, compared to the nine months ended September 30, 2021. The increase was primarily a result of $23 million increase in R&D technology portfolio investments, $12 million increase in share-based compensation and employee-related expenses, partially offset by $12 million reduction in R&D pre-production costs.
Selling, General and Administrative Expenses
| (in millions) | Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||||||||||||||||||||||||||||
| 2022 | 2021 | Change | % Change | 2022 | 2021 | Change | % Change | |||||||||||||||||||||||||||||||||||||||||||
| Selling, general and administrative expenses | $ | 129 | $ | 134 | $ | (5) | (3.7) | % | $ | 366 | $ | 427 | $ | (61) | (14.3) | % | ||||||||||||||||||||||||||||||||||
| As a % of revenue | 6.2 | % | 7.9 | % | 6.1 | % | 9.0 | % | ||||||||||||||||||||||||||||||||||||||||||
Selling, general and administrative expenses decreased by $5 million, or 3.7%, for the three months ended September 30, 2022, compared to the three months ended September 30, 2021. The decline was primarily a result of a decrease in share-based compensation of $6 million.
Selling, general and administrative expenses decreased by $61 million, or 14.3%, for the nine months ended September 30, 2022, compared to the nine months ended September 30, 2021. The decrease was primarily a result of $52 million reduction in share-based compensation, lower employee-related expenses of $45 million, partially offset by $36 million increased costs associated with operating as a public company.
Finance expense, net
| (in millions) | Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||||||||||||||||||||||||||||
| 2022 | 2021 | Change | % Change | 2022 | 2021 | Change | % Change | |||||||||||||||||||||||||||||||||||||||||||
| Finance expenses, net | $ | (11) | $ | (27) | $ | 16 | (59.3) | % | $ | (58) | $ | (82) | $ | 24 | (29.3) | % | ||||||||||||||||||||||||||||||||||
Finance expense, net decreased by $16 million, or 59.3%, for the three months ended September 30, 2022, compared to the three months ended September 30, 2021. The decrease was primarily a result of $17 million higher interest income generated from money market funds and investments in marketable debt securities.
Finance expense, net decreased by $24 million, or 29.3%, for the nine months ended September 30, 2022, compared to the nine months ended September 30, 2021. The decrease was primarily a result of $25 million higher interest income generated from money market funds and investments in marketable debt securities.
Other income (expense), net
| (in millions) | Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||||||||||||||||||||||||||||
| 2022 | 2021 | Change | % Change | 2022 | 2021 | Change | % Change | |||||||||||||||||||||||||||||||||||||||||||
| Other income (expense), net | $ | 8 | $ | 1 | $ | 7 | 700.0 | % | $ | 32 | $ | (19) | $ | 51 | 268.4 | % | ||||||||||||||||||||||||||||||||||
Other income (expense), net increased by $7 million, for the three months ended September 30, 2022, compared to the three months ended September 30, 2021. The increase was primarily a result of $7 million increased tool sales to third parties in 2022.
Other income (expense), net increased by $51 million, for the nine months ended September 30, 2022, compared to the nine months ended September 30, 2021. The increase was primarily a result of a $34 million provision for settlement with our previous joint venture in China recorded in 2021 and $22 million increase in tool sales to third parties in 2022.
Income Tax Expense
| (in millions) | Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||||||||||||||||||||||||||||
| 2022 | 2021 | Change | % Change | 2022 | 2021 | Change | % Change | |||||||||||||||||||||||||||||||||||||||||||
| Income tax expense | $ | (19) | $ | (22) | $ | 3 | (13.6) | % | $ | (78) | $ | (52) | $ | (26) | (50.0) | % | ||||||||||||||||||||||||||||||||||
Income tax expense decreased by $3 million, or 13.6%, for the three months ended September 30, 2022, compared to the three months ended September 30, 2021. The decrease was primarily a result of an improved mix of income in certain jurisdictions, with higher tax rates offset by withholding tax accrued in the United States.
Income tax expense increased by $26 million, or 50.0%, for the nine months ended September 30, 2022, compared to the nine months ended September 30, 2021. The increase was primarily due to a higher mix of income in jurisdictions with higher tax rates and additional withholding tax accrued in the United States.
B. Liquidity and Capital Resources
We have financed operations primarily through cash and cash equivalents, marketable securities, as well as cash generated from our business operations, including customers' prepayments under long term agreements, debt and government funding. As of September 30, 2022, our cash, cash equivalent and marketable securities balances of $3,473 million included $2,541 million of cash and cash equivalent and $932 million of marketable securities.
As of September 30, 2022 and December 31, 2021, we had an undrawn revolving credit facility of $1,000 million. In addition to our available revolvers, which were undrawn as of September 30, 2022 and December 31, 2021, we had $2,216 million and $2,013 million of debt outstanding as of September 30, 2022 and December 31, 2021, respectively, which was primarily comprised of multiple term loans in various currencies. Our future capital requirements will depend on many factors, including our revenue growth rate, the timing and the amount we receive from customers, the timing and extent of spending to support development efforts, the introduction of new and enhanced products and solutions, and the continuing market adoption of our platform. We may from time to time seek to raise additional capital to support our growth. As of September 30, 2022, we believe that our existing cash, cash equivalents, investment in marketable securities, credit under our revolving credit facility, and expected cash generated from operations are sufficient to meet our capital requirements.
Cash Flows
The following table shows a summary of our cash flows for the periods presented:
| Nine Months Ended September 30, | ||||||||||||||
| 2022 | 2021 | |||||||||||||
| Net cash provided by operating activities | $ | 2,133 | $ | 1,692 | ||||||||||
| Net cash used in investing activities | (3,007) | (824) | ||||||||||||
| Net cash provided by (used in) by financing activities | 482 | (749) | ||||||||||||
Effect of exchange rate changes on cash and cash equivalents | $ | (6) | $ | (8) | ||||||||||
| Net increase/(decrease) in cash and cash equivalents | $ | (398) | $ | 111 | ||||||||||
Operating Activities
Net cash provided by operating activities was $2,133 million for the nine months ended September 30, 2022 an increase of $441 million compared to $1,692 million for the nine month period ended September 30, 2021. The change was primarily attributable to a significant increase in net income of $1,074 million offset by unfavorable changes in working capital of $554 million. Working capital changes were driven by changes in trade and other payables of $647 million primarily due to lower customer prepayments and $63 million of increased inventory levels to support higher sales. This was partially offset by a decrease of $156 million in receivables, prepayments and other assets due to lower prepayments made to suppliers.
Investing Activities
Net cash used in investing activities was $3,007 million for the nine months ended September 30, 2022, an increase of $2,183 million from a use of $824 million for the nine months ended September 30, 2021. The increase was primarily attributable to capital expenditures of $2,068 million, an increase of $950 million from prior period, principally associated with activities to expand capacity within certain of our fabrication facilities, net purchases of marketable securities of $938 million and $257 million of reduced proceeds from the sale of equipment.
Financing Activities
Net cash provided by financing activities was $482 million for the nine months ended September 30, 2022, an increase of $1,231 million from a use of $749 for the nine months ended September 30, 2021. The increase was primarily attributable to $568 million of reduced repayments related to a shareholder loan, $412 million of reduced repayments of debt and financing lease obligations, $183 million due to lower proceeds from borrowings and $142 million increased proceeds from the issuance of equity instruments from options exercised. This increase was slightly offset by a reduction in proceeds from government grants and restricted cash.
Other Information
The information presented below updates, and should be read in conjunction with, the risks described under Item 3.D. “Key Information - Risk Factors,” in our Annual Report on From 20-F for the fiscal year ended December 31, 2021. Except as set forth below, there have been no material changes to the Company’s risk factors as disclosed in Item 3.D, “Key Information - Risk Factors,” in such Annual Report. These risks are not exclusive, and additional risks to which we are subject include, but are not limited to, the factors mentioned under “Forward-Looking Statements”.
If we are unable to obtain adequate supplies of raw materials in a timely manner and at commercially reasonable prices our revenue and profitability may decline.
Our production operations require that we obtain adequate supplies of raw materials, such as silicon wafers, gases, chemicals and photoresist, on a timely` basis and at commercially reasonable prices, many of which are not commodities easily replaced with substitutions. In the past, shortages in the supply of some materials, whether by specific vendors or by the industry generally, have resulted in occasional industry-wide price adjustments and delivery delays. Moreover, major natural disasters, trade barriers and political or economic turmoil occurring within the country of origin of such raw materials may also significantly disrupt the availability of such raw materials or increase their prices. Further, since we procure some of our raw materials from sole-sourced suppliers, including raw materials that are significant to our production operations, there is a risk that our need for such raw materials may not be met or that back-up supplies may not be readily available. In addition, recent trade tensions between the United States and China and the conflict in Ukraine have resulted in the price volatility and reduced the availability of raw materials, including rare earth metals and natural gases used in our products or in our production operations.. Tariffs, sanctions, export control or other non-tariff barriers, and other measures undertaken by state actors due to global or local economic conditions could also affect material cost and availability. If the availability of such raw materials is disrupted, manufacturing lines may be stopped or significantly disrupted, impacting our supply chain, which could materially and adversely affect our results of operations. From time to time, including recently, we are advised of shortages of raw materials that could impact our operations. In these instances, including currently, we seek alternative suppliers and substitute materials and work closely with our existing vendors to support their efforts to provide us with uninterrupted supply.
Certain raw materials and other inputs, such as electricity and water, necessary for our production operations may experience substantial price volatility in regions where we operate our fabs. Hedging transactions for many of those raw materials and other inputs are not available to us or are not available on terms we believe are commercially acceptable. Economic and financial hedges that we enter into with respect to certain inputs, such as electricity, or alternative energy supplies we may seek to secure, may not be effective to avoid disruptions to our manufacturing operations. Additionally, once our prices with a customer are negotiated, we are generally unable to revise pricing with that customer until our next regularly scheduled price adjustment. As a result, if market prices for essential components increase, we will often be unable to pass the price increases through to our customers for products purchased under an existing agreement. Consequently, we are exposed to the risks associated with the volatility of prices for these components and our cost of revenue could increase and our gross margins could decrease in the event of price increases. Recently, as a result of demand driven by the semiconductor supply shortage, the costs of raw wafers as well as certain other raw materials are relatively high. Failure to obtain adequate supplies could result in our being unable to meet commitments under our contracts with customers, which could expose us to substantial liquidated damages and other claims, which could materially and adversely affect our results of operations, financial condition, business and prospects.