UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from _________to _________
Commission file number:
(Exact name of registrant as specified in its charter)
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(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
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(Address of principal executive offices) | (Zip Code) |
(
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class |
| Trading Symbol(s) |
| Name of each exchange |
The |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
☒
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
☒
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
As of April 19, 2022,
Table of Contents
Page | ||
Condensed Consolidated Balance Sheets at April 2, 2022 and January 1, 2022 | 3 | |
4 | ||
5 | ||
6 | ||
7 | ||
8 | ||
Management’s Discussion and Analysis of Financial Condition and Results of Operations | 20 | |
29 | ||
29 | ||
29 | ||
29 | ||
44 | ||
44 | ||
44 | ||
44 | ||
45 |
Cautionary Statement
Except for the historical financial information contained herein, the matters discussed in this report on Form 10-Q (as well as documents incorporated herein by reference) may be considered “forward-looking” statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Such forward-looking statements include declarations regarding the intent, belief or current expectations of Silicon Laboratories Inc. and its management and may be signified by the words “believe,” “estimate,” “expect,” “intend,” “anticipate,” “plan,” “project,” “will” or similar language. You are cautioned that any such forward-looking statements are not guarantees of future performance and involve a number of risks and uncertainties. Actual results could differ materially from those indicated by such forward-looking statements. Factors that could cause or contribute to such differences include those discussed under “Risk Factors” and elsewhere in this report. Silicon Laboratories disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.
2
Part I. Financial Information
Item 1. Financial Statements
Silicon Laboratories Inc.
Condensed Consolidated Balance Sheets
(In thousands, except per share data)
(Unaudited)
April 2, | January 1, | |||||
| 2022 |
| 2022 | |||
Assets | ||||||
Current assets: | ||||||
Cash and cash equivalents | $ | $ | ||||
Short-term investments |
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Accounts receivable, net |
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Inventories |
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Prepaid expenses and other current assets |
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Total current assets |
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Property and equipment, net |
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Goodwill |
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Other intangible assets, net |
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Other assets, net |
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Total assets | $ | $ | ||||
Liabilities and Stockholders’ Equity | ||||||
Current liabilities: | ||||||
Accounts payable | $ | $ | ||||
Current portion of convertible debt, net | — | |||||
Deferred revenue and returns liability | | |||||
Other current liabilities |
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Total current liabilities |
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Convertible debt, net | | — | ||||
Other non-current liabilities |
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Total liabilities |
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Commitments and contingencies | ||||||
Stockholders’ equity: | ||||||
Preferred stock – $ | ||||||
Common stock – $ |
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Retained earnings | |
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Accumulated other comprehensive loss | ( |
| ( | |||
Total stockholders’ equity | |
| | |||
Total liabilities and stockholders’ equity | $ | | $ | |
The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
3
Silicon Laboratories Inc.
Condensed Consolidated Statements of Income
(In thousands, except per share data)
(Unaudited)
Three Months Ended | ||||||
| April 2, |
| April 3, | |||
2022 | 2021 | |||||
Revenues | $ | $ | ||||
Cost of revenues |
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Gross profit |
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Operating expenses: | ||||||
Research and development |
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Selling, general and administrative |
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Operating expenses |
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Operating income (loss) |
| ( | ||||
Other income (expense): | ||||||
Interest income and other, net |
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Interest expense | ( |
| ( | |||
Income (loss) from continuing operations before income taxes |
| ( | ||||
Provision for income taxes |
| |||||
Equity-method earnings | ||||||
Income (loss) from continuing operations | ( | |||||
Income from discontinued operations, net of income taxes | — | |||||
Net income | $ | $ | ||||
Basic earnings (loss) per share: | ||||||
Continuing operations | $ | | $ | ( | ||
Net income | $ | | $ | | ||
Diluted earnings (loss) per share: | ||||||
Continuing operations | $ | | $ | ( | ||
Net income | $ | | $ | | ||
Weighted-average common shares outstanding: | ||||||
Basic | | | ||||
Diluted | | |
The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
4
Silicon Laboratories Inc.
Condensed Consolidated Statements of Comprehensive Income
(In thousands)
(Unaudited)
Three Months Ended | ||||||
| April 2, |
| April 3, | |||
2022 | 2021 | |||||
Net income | $ | | $ | | ||
Other comprehensive loss, before tax: | ||||||
Net changes to available-for-sale securities: | ||||||
Unrealized losses arising during the period | ( | ( | ||||
Reclassification for (gains) losses included in net income | ( | |||||
Net changes to cash flow hedges: | ||||||
Unrealized losses arising during the period | ( |
| ( | |||
Reclassification for gains included in net income | — | ( | ||||
Other comprehensive loss, before tax | ( |
| ( | |||
Provision (benefit) for income taxes | ( |
| ( | |||
Other comprehensive loss | ( |
| ( | |||
Comprehensive income | $ | $ | |
The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
5
Silicon Laboratories Inc.
Condensed Consolidated Statements of Changes in Stockholders’ Equity
(In thousands)
(Unaudited)
|
|
| Additional |
|
| Accumulated Other |
| Total | |||||||||
Common | Paid-In | Retained | Comprehensive | Stockholders’ | |||||||||||||
Three Months Ended April 2, 2022 | Shares | Stock | Capital | Earnings | Income (Loss) | Equity | |||||||||||
Balance as of January 1, 2022 |
| | $ | | $ | | $ | | $ | ( | $ | | |||||
Cumulative effect of adoption of accounting standard | — |
| — |
| — |
| ( |
| — |
| ( | ||||||
Net income | — |
| — |
| — |
| |
| — |
| | ||||||
Other comprehensive loss | — | — | — | — | ( | ( | |||||||||||
Stock issuances, net of shares withheld for taxes |
| — |
| ( |
| — |
| — |
| ( | |||||||
Repurchases of common stock | ( | — | ( | ( | — | ( | |||||||||||
Stock-based compensation | — | — | | — | — | ||||||||||||
Balance as of April 2, 2022 | $ | | $ | | $ | $ | ( | $ |
|
|
| Additional |
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| Accumulated Other |
| Total | |||||||||
Common | Paid-In | Retained | Comprehensive | Stockholders’ | |||||||||||||
Three Months Ended April 3, 2021 | Shares | Stock | Capital | Earnings | Income (Loss) | Equity | |||||||||||
Balance as of January 2, 2021 |
| | $ | | $ | | $ | | $ | | $ | | |||||
Net income |
| — |
| — |
| — |
| | — |
| | ||||||
Other comprehensive loss |
| — |
| — |
| — |
| — |
| ( |
| ( | |||||
Stock issuances, net of shares withheld for taxes |
| |
| — |
| ( |
| — |
| — |
| ( | |||||
Stock-based compensation | — | — | | — | — | | |||||||||||
Convertible debt activity |
| |
| — |
| ( |
| — |
| — |
| ( | |||||
Balance as of April 3, 2021 |
| | $ | | $ | | $ | | $ | | $ | |
The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
6
Silicon Laboratories Inc.
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
Three Months Ended | ||||||
April 2, | April 3, | |||||
| 2022 |
| 2021 | |||
Operating Activities | ||||||
Net income | $ | $ | ||||
Adjustments to reconcile net income to cash provided by (used in) operating activities of continuing operations: | ||||||
Income from discontinued operations, net of income taxes | — | ( | ||||
Depreciation of property and equipment | |
| | |||
Amortization of other intangible assets | |
| | |||
Amortization of debt discount and debt issuance costs | | | ||||
Loss on extinguishment of convertible debt | — | | ||||
Stock-based compensation expense | |
| | |||
Equity-method earnings | ( | ( | ||||
Deferred income taxes | ( |
| ( | |||
Changes in operating assets and liabilities: | ||||||
Accounts receivable | |
| ( | |||
Inventories | ( |
| ( | |||
Prepaid expenses and other assets | |
| ( | |||
Accounts payable | |
| | |||
Other current liabilities and income taxes | |
| ( | |||
Deferred revenue and returns liability | |
| | |||
Other non-current liabilities | ( | ( | ||||
Net cash provided by (used in) operating activities of continuing operations |
| ( | ||||
Investing Activities | ||||||
Purchases of marketable securities | ( |
| ( | |||
Sales of marketable securities | |
| | |||
Maturities of marketable securities | | | ||||
Purchases of property and equipment | ( |
| ( | |||
Purchases of other assets | — | ( | ||||
Net cash provided by (used in) investing activities of continuing operations | ( |
| | |||
Financing Activities | ||||||
Payments on debt | — | ( | ||||
Repurchases of common stock | ( | — | ||||
Payment of taxes withheld for vested stock awards | ( | ( | ||||
Net cash used in financing activities of continuing operations | ( |
| ( | |||
Discontinued Operations | ||||||
Operating activities | ( | | ||||
Investing activities | | ( | ||||
Net cash provided by (used in) discontinued operations | ( | | ||||
Increase (decrease) in cash and cash equivalents | ( |
| | |||
Cash and cash equivalents at beginning of period | |
| | |||
Cash and cash equivalents at end of period | $ | | $ | | ||
The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
7
Silicon Laboratories Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
1. Significant Accounting Policies
Basis of Presentation and Principles of Consolidation
The Condensed Consolidated Financial Statements included herein are unaudited; however, they contain all normal recurring accruals and adjustments which, in the opinion of management, are necessary to present fairly the condensed consolidated financial position of Silicon Laboratories Inc. and its subsidiaries (collectively, the “Company”) at April 2, 2022 and January 1, 2022, the condensed consolidated results of its operations for the three months ended April 2, 2022 and April 3, 2021, the Condensed Consolidated Statements of Comprehensive Income for the three months ended April 2, 2022 and April 3, 2021, the Condensed Consolidated Statements of Changes in Stockholders’ Equity for the three months ended April 2, 2022 and April 3, 2021, and the Condensed Consolidated Statements of Cash Flows for the three months ended April 2, 2022 and April 3, 2021. The Condensed Consolidated Balance Sheet as of January 1, 2022 was derived from the Company’s audited Consolidated Financial Statements. All intercompany balances and transactions have been eliminated in consolidation. The condensed consolidated results of operations for the three months ended April 2, 2022 are not necessarily indicative of the results to be expected for the full year.
The accompanying unaudited Condensed Consolidated Financial Statements do not include certain footnotes and financial presentations normally required under U.S. generally accepted accounting principles (GAAP). Therefore, these Condensed Consolidated Financial Statements should be read in conjunction with the audited Consolidated Financial Statements and notes thereto for the year ended January 1, 2022, included in the Company’s Form 10-K filed with the Securities and Exchange Commission (SEC) on February 2, 2022.
The Company prepares financial statements on a
Use of Estimates
The preparation of financial statements in conformity with U.S. generally accepted accounting principles (GAAP) requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Among the significant estimates affecting the financial statements are those related to inventories, goodwill, acquired intangible assets, other long-lived assets, revenue recognition, stock-based compensation and income taxes. Actual results could differ from those estimates, and such differences could be material to the financial statements.
Revenue Recognition
Revenue is recognized when control of the promised goods or services is transferred to the customer, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods or services. Substantially all of the Company’s contracts with customers contain a single performance obligation, the sale of mixed-signal integrated circuit (IC) products. This performance obligation is satisfied when control of the product is transferred to the customer, which typically occurs upon delivery. Unsatisfied performance obligations primarily represent contracts for products with future delivery dates. The Company has opted to not disclose the amount of unsatisfied performance obligations as these contracts have original expected durations of less than one year.
The transaction price reflects the Company’s expectations about the consideration it will be entitled to receive from the customer and may include fixed or variable amounts. Variable consideration primarily includes sales made to distributors under agreements allowing certain rights of return, referred to as stock rotation, and credits issued to the distributor due to price protection. The Company estimates variable consideration at the most likely amount to which it expects to be entitled. The estimate is based on information available to the Company, including recent sales activity and pricing data. The Company applies a constraint to its variable consideration estimate which considers both the likelihood of a return and the amount of a potential price concession. Variable consideration that does not meet revenue recognition criteria is deferred. The Company records a right of return asset in prepaid expenses and other current assets for the costs of distributor inventory not meeting revenue recognition criteria. A corresponding deferred revenue and returns liability amount is recorded for unrecognized revenue associated with such costs. The Company’s products carry a one-year replacement warranty. Payments are typically due within 30 days of invoicing and do not include a significant financing component.
8
Silicon Laboratories Inc.
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
Adoption of New Accounting Standard
Convertible Instruments
The Company adopted Financial Accounting Standards Board (FASB) Accounting Standards Update (ASU) No. 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging— Contracts in Entity’s Own Equity (Subtopic 815-40, on January 2, 2022, the first day of its fiscal year ending December 31, 2022. The Company elected the modified retrospective transition method of adoption at the beginning of the period of adoption through a cumulative-effect adjustment. Prior periods have not been adjusted.
| Increase | ||
Financial Statement Line Item | (Decrease) | ||
Current portion of convertible debt, net | $ | | |
Other non-current liabilities | $ | ( | |
Retained earnings | $ | ( |
The primary impact of the Company’s adoption of ASU 2020-06 was to increase the carrying value of its convertible debt, representing the unamortized debt discount, and reduce deferred tax liabilities related to convertible debt. The adoption reduced reported interest expense recorded in connection with convertible debt, which increased basic earnings per share and diluted earnings per share by $
2. Discontinued Operations
On April 22, 2021, the Company entered into an Asset Purchase Agreement to sell its infrastructure and automotive business to Skyworks Solutions, Inc. for $
The following table presents the financial results of the infrastructure and automotive business (the “discontinued operations”) in the Company’s Condensed Consolidated Statements of Income (in thousands, except per share data):
| Three Months Ended | ||
April 3, | |||
2021 | |||
Revenues | $ | | |
Costs of revenues |
| | |
Operating expenses | | ||
Income from discontinued operations before income taxes |
| | |
Provision (benefit) for income taxes | ( | ||
Income from discontinued operations | $ | | |
Income from discontinued operations per share: |
|
| |
Basic | $ | ||
Diluted | $ |
9
Silicon Laboratories Inc.
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
Continuing Involvement
In connection with the closing of the sale, the Company entered into certain ancillary agreements with Skyworks, including a Transition Services Agreement (“TSA”). Through the TSA, the Company has subleased certain premises to Skyworks and will provide or provides various temporary support services for
3. Earnings (Loss) Per Share
The following table sets forth the computation of basic and diluted earnings (loss) per share from continuing operations (in thousands, except per share data):
Three Months Ended | ||||||
| April 2, |
| April 3, | |||
2022 | 2021 | |||||
Income (loss) from continuing operations | $ | | $ | ( | ||
Shares used in computing basic income (loss) per share |
| | ||||
Effect of dilutive securities: | ||||||
Convertible debt and stock-based awards |
| — | ||||
Shares used in computing diluted income (loss) per share |
| | ||||
Income (loss) per share: | ||||||
Basic | $ | $ | ( | |||
Diluted | $ | $ | ( |
The Company has irrevocably elected to settle the principal amount of its convertible senior notes in cash and intends to settle any excess value in shares in the event of a conversion. For the three months ended April 2, 2022 and April 3, 2021, approximately
4. Fair Value of Financial Instruments
The fair values of the Company’s financial instruments are recorded using a hierarchical disclosure framework based upon the level of subjectivity of the inputs used in measuring assets and liabilities. The three levels are described below:
Level 1 – Inputs are unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date.
Level 2 – Inputs other than Level 1 that are directly or indirectly observable, such as quoted prices for similar assets or liabilities and quoted prices in less active markets.
Level 3 – Inputs are unobservable for the asset or liability and are developed based on the best information available in the circumstances, which might include the Company’s own data.
10
Silicon Laboratories Inc.
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
The following summarizes the valuation of the Company’s financial instruments (in thousands). The tables do not include either cash on hand or assets and liabilities that are measured at historical cost or any basis other than fair value.
Fair Value Measurements | ||||||||||||
at April 2, 2022 Using | ||||||||||||
Quoted Prices in | Significant Other | Significant | ||||||||||
Active Markets for | Observable | Unobservable | ||||||||||
Identical Assets | Inputs | Inputs | ||||||||||
Description |
| (Level 1) |
| (Level 2) |
| (Level 3) |
| Total | ||||
Assets: |
|
|
|
| ||||||||
Cash equivalents: | ||||||||||||
Money market funds | $ | | $ | — | $ | — | $ | | ||||
Corporate debt securities | — | | — | | ||||||||
Total cash equivalents | $ | | $ | | $ | — | $ | | ||||
Short-term investments: | ||||||||||||
Government debt securities | $ | | $ | | $ | — | $ | | ||||
Corporate debt securities | — | | — | | ||||||||
Total short-term investments | $ | | $ | | $ | — | $ | | ||||
Other assets, net: | ||||||||||||
Auction rate securities | $ | — | $ | — | $ | | $ | | ||||
Total | $ | — | $ | — | $ | | $ | | ||||
Total | $ | | $ | | $ | | $ | |
Fair Value Measurements | ||||||||||||
at January 1, 2022 Using | ||||||||||||
Quoted Prices in | Significant Other | Significant | ||||||||||
Active Markets for | Observable | Unobservable | ||||||||||
Identical Assets | Inputs | Inputs | ||||||||||
Description |
| (Level 1) |
| (Level 2) |
| (Level 3) |
| Total | ||||
Assets: |
|
|
|
| ||||||||
Cash equivalents: | ||||||||||||
Money market funds | $ | | $ | — | $ | — | $ | | ||||
Corporate debt securities | — |
| |
| — |
| | |||||
Government debt securities | — | | | |||||||||
Total cash equivalents | $ | | $ | | $ | — | $ | | ||||
Short-term investments: | ||||||||||||
Government debt securities | $ | | $ | | $ | — | $ | | ||||
Corporate debt securities | — | | — | | ||||||||
Total short-term investments | $ | | $ | | $ | — | $ | | ||||
Other assets, net: | ||||||||||||
Auction rate securities | $ | — | $ | — | $ | | $ | | ||||
Total | $ | — | $ | — | $ | | $ | | ||||
Total | $ | | $ | | $ | | $ | |
11
Silicon Laboratories Inc.
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
Valuation methodology
The Company’s cash equivalents and short-term investments that are classified as Level 2 are valued using non-binding market consensus prices that are corroborated with observable market data; quoted market prices for similar instruments in active markets; quoted prices in less active markets; or pricing models, such as a discounted cash flow model, with all significant inputs derived from or corroborated with observable market data. Investments classified as Level 3 are valued using a discounted cash flow model. The assumptions used in preparing the discounted cash flow model include estimates for interest rates, amount of cash flows, expected holding periods of the securities and a discount to reflect the Company’s inability to liquidate the securities. The Company’s foreign currency derivative instruments are valued using discounted cash flow models. The assumptions used in preparing the valuation models include foreign exchange rates, forward and spot prices for currencies and market observable data of similar instruments.
Contractual maturities of investments
The Company’s investments are reported at fair value, with unrealized gains and losses, net of tax, recorded as a component of accumulated other comprehensive loss in the Consolidated Balance Sheet.
|
| Fair | ||||
Cost | Value | |||||
Due in one year or less | $ | $ | ||||
Due after one year through ten years | ||||||
Due after ten years | ||||||
$ | $ |
Available-for-sale investments
The available-for-sale investments that were in a continuous unrealized loss position, aggregated by length of time that individual securities have been in a continuous loss position, were as follows (in thousands):
Less Than 12 Months | 12 Months or Greater | Total | ||||||||||||||||
Gross | Gross | Gross | ||||||||||||||||
Fair | Unrealized | Fair | Unrealized | Fair | Unrealized | |||||||||||||
As of April 2, 2022 |
| Value |
| Losses |
| Value |
| Losses |
| Value |
| Losses | ||||||
Government debt securities | $ | $ | ( | $ | $ | ( | $ | $ | ( | |||||||||
Corporate debt securities |
|
| ( |
|
| ( |
|
| ( | |||||||||
Auction rate securities | — | — | | ( | | ( | ||||||||||||
$ | $ | ( | $ | $ | ( | $ | $ | ( |
Less Than 12 Months | 12 Months or Greater | Total | ||||||||||||||||
Gross | Gross | Gross | ||||||||||||||||
Fair | Unrealized | Fair | Unrealized | Fair | Unrealized | |||||||||||||
As of January 1, 2022 |
| Value |
| Losses |
| Value |
| Losses |
| Value |
| Losses | ||||||
Government debt securities | $ | | $ | ( | $ | — | $ | — | $ | | $ | ( | ||||||
Corporate debt securities |
| | ( | | ( | | ( | |||||||||||
Auction rate securities | — | — | | ( | | ( | ||||||||||||
$ | | $ | ( | $ | | $ | ( | $ | | $ | ( |
The gross unrealized losses as of April 2, 2022 and January 1, 2022 were due primarily to changes in market interest rates and the illiquidity of the Company’s auction-rate securities. The Company’s auction-rate securities have been illiquid since 2008 when auctions for the securities failed because sell orders exceeded buy orders. These securities have a contractual maturity date of 2046. The Company is unable to predict if these funds will become available before their maturity date.
12
Silicon Laboratories Inc.
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
The Company records an allowance for credit loss when a decline in investment market value is due to credit-related factors. When evaluating an investment for impairment, the Company reviews factors such as the severity of the impairment, changes in underlying credit ratings, forecasted recovery, the Company’s intent to sell or the likelihood that it would be required to sell the investment before its anticipated recovery in market value and the probability that the scheduled cash payments will continue to be made. As of April 2, 2022, there were no material declines in the market value of available-for-sale investments due to credit-related factors.
At April 2, 2022 and January 1, 2022, there were no material unrealized gains associated with the Company’s available-for-sale investments.
Level 3 fair value measurements
The following summarizes quantitative information about Level 3 fair value measurements.
Auction rate securities
Fair Value at | |||||||
April 2, 2022 | |||||||
(000s) |
| Valuation Technique |
| Unobservable Input |
| Weighted Average | |
$ |
| Discounted cash flow |
| Estimated yield |
| ||
| Expected holding period | ||||||
| Estimated discount rate |
|
Significant changes in any of the unobservable inputs used in the fair value measurement of auction rate securities in isolation could result in a significantly lower or higher fair value measurement. An increase in expected yield would result in a higher fair value measurement, whereas an increase in expected holding period or estimated discount rate would result in a lower fair value measurement. Generally, a change in the assumptions used for expected holding period is accompanied by a directionally similar change in the assumptions used for estimated yield and discount rate.
The following summarizes the activity in Level 3 financial instruments for the three months ended April 2, 2022 (in thousands):
Assets
| Three Months | ||
Auction Rate Securities |
| Ended | |
Beginning balance | $ | | |
Loss included in other comprehensive loss |
| ( | |
Balance at April 2, 2022 | $ |
Fair values of other financial instruments
The Company’s debt is recorded at cost, but is measured at fair value for disclosure purposes. The fair value of the Company’s convertible senior notes is determined using observable market prices. The notes are traded in less active markets and are therefore classified as a Level 2 fair value measurement. As of April 2, 2022 and January 1, 2022, the fair value of the notes was $
The Company’s other financial instruments, including cash, accounts receivable and accounts payable, are recorded at amounts that approximate their fair values due to their short maturities.
13
Silicon Laboratories Inc.
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
5. Derivative Financial Instruments
The Company uses derivative financial instruments to manage certain exposures to the variability of foreign currency exchange rates. The Company’s objective is to offset increases and decreases in expenses resulting from these exposures with gains and losses on the derivative contracts, thereby reducing volatility of earnings. The Company does not use derivative contracts for speculative or trading purposes. The Company recognizes derivatives, on a gross basis, in the Consolidated Balance Sheet at fair value. Cash flows from derivatives are classified according to the nature of the cash receipt or payment in the Consolidated Statement of Cash Flows.
Cash Flow Hedges
Foreign Currency Forward Contracts
The Company uses foreign currency forward contracts to reduce the earnings impact that exchange rate fluctuations have on operating expenses denominated in currencies other than the U.S. dollar. Changes in the fair value of the contracts are recorded in accumulated other comprehensive income (loss) in the Consolidated Balance Sheet and subsequently reclassified into earnings in the period during which the hedged transaction is recognized. The reclassified amount is reported in the same financial statement line item as the hedged item. If the foreign currency forward contracts are terminated or can no longer qualify as hedging instruments prior to maturity, the fair value of the contracts recorded in accumulated other comprehensive income (loss) may be recognized in the Consolidated Statement of Income based on an assessment of the contracts at the time of termination.
The Company has entered into foreign currency forward contracts for a portion of its forecasted operating expenses denominated in the Euro, Norwegian Krone, Indian Rupee and Hungarian Forint. As of April 2, 2022, the contracts had maturities of
Non-designated Hedges
Foreign Currency Forward Contracts
The Company uses foreign currency forward contracts to reduce the earnings impact that exchange rate fluctuations have on non-U.S. dollar balance sheet exposures. The Company recognizes gains and losses on the foreign currency forward contracts in interest income and other, net in the Consolidated Statement of Income in the same period as the remeasurement loss and gain of the related foreign currency denominated asset or liability. The Company does not apply hedge accounting to these foreign currency forward contracts.
As of April 2, 2022, the Company held
6. Supplemental Information
The following shows the details of selected Condensed Consolidated Balance Sheet items (in thousands):
Inventories
| April 2, |
| January 1, | |||
2022 | 2022 | |||||
Work in progress | $ | $ | | |||
Finished goods |
|
| | |||
$ | | $ | |
14
Silicon Laboratories Inc.
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
Lease income
The Company leases a portion of its headquarter facilities to other tenants. Lease income from operating leases was $
7. Debt
On June 1, 2020, the Company completed a private placement of $
The 2025 Notes are convertible at a conversion rate of
The Sales Price Trigger condition was met on January 1, 2022, and as a result, holders had the option to convert their 2025 Notes at any time during the calendar quarter ended March 31, 2022. The Sales Price Trigger condition was not met during the three months ended April 2, 2022. Accordingly, the net carrying amount of the 2025 Notes was reclassified into non-current liabilities.
The principal balance of the 2025 Notes was separated into liability and equity components, and recorded initially at fair value. The excess of the principal amount of the liability component over its carrying amount represented the debt discount, which was amortized to interest expense over the term of the 2025 Notes using the effective interest method. With the Company’s adoption of ASU 2020-06 in fiscal 2022, the principal balance of the 2025 Notes is no longer separated between liability and equity components. This resulted in an increase to the carrying value of its convertible debt, representing the unamortized debt discount as of January 2, 2022, with an offsetting reduction in stockholders’ equity.
The Company incurred debt issuance costs of approximately $
15
Silicon Laboratories Inc.
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)