Silicon Laboratories Earnings 2020-04-04

Balance Sheet	Income Statement	Cash Flow
Assets, Equity	Rev, G Profit, Net Income	Ops, Inv, Fin

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

☑	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended April 4, 2020

☐	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: 000-29823

SILICON LABORATORIES INC.

(Exact name of registrant as specified in its charter)

Delaware		74-2793174
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)


400 West Cesar Chavez, Austin, Texas		78701
(Address of principal executive offices)		(Zip Code)

(512) 416-8500

(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 on which registered
Common Stock, $0.0001 par value	SLAB	The NASDAQ Stock Market LLC

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. ☑ Yes ◻ No

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). ☑ Yes ◻ No

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.

Large accelerated filer þ Accelerated filer ☐ Non-accelerated filer ☐ Smaller reporting company ☐ Emerging growth company ☐

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). ☐ Yes ☑ No

As of April 21, 2020 ,43,687,288 shares of common stock of Silicon Laboratories Inc. were outstanding.

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Part I. Financial Information		Page Number

Item 1.	Financial Statements (Unaudited):

	Condensed Consolidated Balance Sheets at April 4, 2020 and December 28, 2019	3

	Condensed Consolidated Statements of Income for the three months ended April 4, 2020 and March 30, 2019	4

	Condensed Consolidated Statements of Comprehensive Income for the three months ended April 4, 2020 and March 30, 2019	5

	Condensed Consolidated Statements of Changes in Stockholders’ Equity for the three months ended April 4, 2020 and March 30, 2019	6

	Condensed Consolidated Statements of Cash Flows for the three months ended April 4, 2020 and March 30, 2019	7

	Notes to Condensed Consolidated Financial Statements	8

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	20

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	28

Item 4.	Controls and Procedures	29

Part II. Other Information

Item 1.	Legal Proceedings	29

Item 1A.	Risk Factors	29

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	44

Item 3.	Defaults Upon Senior Securities	45

Item 4.	Mine Safety Disclosures	45

Item 5.	Other Information	45

Item 6.	Exhibits	46

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.

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Part I. Financial Information

Item 1. Financial Statements

Silicon Laboratories Inc.

Condensed Consolidated Balance Sheets

(In thousands, except per share data)

(Unaudited)


	April 4,		December 28,
	2020		2019
Assets
Current assets:
Cash and cash equivalents	$	615,770	$	227,146
Short-term investments		442,493		498,825
Accounts receivable, net		74,620		75,639
Inventories		68,160		73,057
Prepaid expenses and other current assets		46,994		69,192
Total current assets		1,248,037		943,859
Property and equipment, net		136,391		135,939
Goodwill		398,402		398,402
Other intangible assets, net		124,604		134,279
Other assets, net		63,648		62,374
Total assets	$	1,971,082	$	1,674,853

Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	42,147	$	38,899
Revolving line of credit		310,000		—
Deferred revenue and returns liability		23,365		19,251
Other current liabilities		71,221		79,551
Total current liabilities		446,733		137,701
Convertible debt		371,993		368,257
Other non-current liabilities		52,753		53,844
Total liabilities		871,479		559,802
Commitments and contingencies
Stockholders' equity:
Preferred stock – $0.0001 par value; 10,000 shares authorized; no shares issued		—		—
Common stock – $0.0001 par value; 250,000 shares authorized; 43,670 and 43,496 shares issued and outstanding at April 4, 2020 and December 28, 2019, respectively		4		4
Additional paid-in capital		116,553		133,793
Retained earnings		983,377		980,608
Accumulated other comprehensive income (loss)		(331)		646
Total stockholders’ equity		1,099,603		1,115,051
Total liabilities and stockholders’ equity	$	1,971,082	$	1,674,853

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

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Silicon Laboratories Inc.

Condensed Consolidated Statements of Income

(In thousands, except per share data)

(Unaudited)


	Three Months Ended
	April 4,		March 30,
	2020		2019
Revenues	$	214,877	$	188,113
Cost of revenues		85,711		72,239
Gross profit		129,166		115,874
Operating expenses:
Research and development		71,223		61,566
Selling, general and administrative		53,996		49,216
Operating expenses		125,219		110,782
Operating income		3,947		5,092
Other income (expense):
Interest income and other, net		3,251		2,823
Interest expense		(5,541)		(4,997)
Income before income taxes		1,657		2,918
Provision (benefit) for income taxes		(587)		(2,480)

Net income	$	2,244	$	5,398

Earnings per share:
Basic	$	0.05	$	0.12
Diluted	$	0.05	$	0.12

Weighted-average common shares outstanding:
Basic		43,642		43,189
Diluted		44,388		43,716

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

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Silicon Laboratories Inc.

Condensed Consolidated Statements of Comprehensive Income

(In thousands)

(Unaudited)


	Three Months Ended
	April 4,		March 30,
	2020		2019
Net income	$	2,244	$	5,398

Other comprehensive income (loss), before tax:
Net changes to available-for-sale securities:
Unrealized gains (losses) arising during the period		(469)		1,426
Reclassification for (gains) losses included in net income		(100)		—

Net changes to cash flow hedges:
Unrealized gains (losses) arising during the period		(809)		12
Reclassification for losses included in net income		141		237

Other comprehensive income (loss), before tax		(1,237)		1,675

Provision (benefit) for income taxes		(260)		352

Other comprehensive income (loss)		(977)		1,323

Comprehensive income	$	1,267	$	6,721

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

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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 4, 2020	Shares	Stock		Capital		Earnings		Income (Loss)		Equity
Balance as of December 28, 2019	43,496	$	4	$	133,793	$	980,608	$	646	$	1,115,051
Cumulative effect of adoption of accounting standard	—		—		—		525		—		525
Net income	—		—		—		2,244		—		2,244
Other comprehensive income (loss)	—		—		—		—		(977)		(977)
Stock issuances, net of shares withheld for taxes	384		—		(16,294)		—		—		(16,294)
Repurchases of common stock	(210)		—		(16,287)		—		—		(16,287)
Stock-based compensation	—		—		15,341		—		—		15,341
Balance as of April 4, 2020	43,670	$	4	$	116,553	$	983,377	$	(331)	$	1,099,603


				Additional				Accumulated Other		Total
		Common		Paid-In		Retained		Comprehensive		Stockholders’
Three Months Ended March 30, 2019	Shares	Stock		Capital		Earnings		Income (Loss)		Equity
Balance as of December 29, 2018	43,088	$	4	$	107,517	$	961,343	$	(1,574)	$	1,067,290
Net income	—		—		—		5,398		—		5,398
Other comprehensive income (loss)	—		—		—		—		1,323		1,323
Stock issuances, net of shares withheld for taxes	430		—		(14,113)		—		—		(14,113)
Repurchases of common stock	(177)		—		(15,004)		—		—		(15,004)
Stock-based compensation	—		—		12,588		—		—		12,588
Balance as of March 30, 2019	43,341	$	4	$	90,988	$	966,741	$	(251)	$	1,057,482

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

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Silicon Laboratories Inc.

Condensed Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)


	Three Months Ended
	April 4,		March 30,
	2020		2019
Operating Activities
Net income	$	2,244	$	5,398
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation of property and equipment		4,183		4,137
Amortization of other intangible assets and other assets		9,827		10,320
Amortization of debt discount and debt issuance costs		3,736		3,321
Stock-based compensation expense		15,313		12,584
Deferred income taxes		(2,364)		(3,530)
Changes in operating assets and liabilities:
Accounts receivable		1,542		3,323
Inventories		4,777		4,488
Prepaid expenses and other assets		23,576		6,410
Accounts payable		2,748		714
Other current liabilities and income taxes		(9,134)		(15,996)
Deferred revenue and returns liability		4,114		1,477
Other non-current liabilities		(862)		(631)
Net cash provided by operating activities		59,700		32,015

Investing Activities
Purchases of available-for-sale investments		(70,910)		(63,577)
Sales and maturities of available-for-sale investments		126,920		99,068
Purchases of property and equipment		(4,135)		(3,874)
Purchases of other assets		(370)		(414)
Net cash provided by investing activities		51,505		31,203

Financing Activities
Proceeds from revolving line of credit		310,000		—
Repurchases of common stock		(16,287)		(15,004)
Payment of taxes withheld for vested stock awards		(16,294)		(14,113)
Net cash provided by (used in) financing activities		277,419		(29,117)

Increase in cash and cash equivalents		388,624		34,101
Cash and cash equivalents at beginning of period		227,146		197,043
Cash and cash equivalents at end of period	$	615,770	$	231,144

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

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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 4, 2020 and December 28, 2019, the condensed consolidated results of its operations for the three months ended April 4, 2020 and March 30, 2019, the Condensed Consolidated Statements of Comprehensive Income for the three months ended April 4, 2020 and March 30, 2019, the Condensed Consolidated Statements of Changes in Stockholders’ Equity for the three months ended April 4, 2020 and March 30, 2019, and the Condensed Consolidated Statements of Cash Flows for the three months ended April 4, 2020 and March 30, 2019. All intercompany balances and transactions have been eliminated in consolidation. The condensed consolidated results of operations for the three months ended April 4, 2020 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 December 28, 2019, included in the Company’s Form 10-K filed with the Securities and Exchange Commission (SEC) on January 29, 2020.

The Company prepares financial statements on a 52- or 53-week fiscal year that ends on the Saturday closest to December 31. Fiscal 2020 will have 53 weeks with the extra week occurring in the first quarter of the year. Fiscal 2019 had 52 weeks. In a 52-week year, each fiscal quarter consists of 13 weeks.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States 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.

Adoption of New Accounting Standard

The Company adopted Accounting Standards Update (ASU) No. 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, on December 29, 2019, the first day of its fiscal year ending January 2, 2021. The adoption did not have a material impact on its financial statements.

Revenue Recognition

Revenue is recognized when control of the promised goods or services is transferred to customers, 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.

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Silicon Laboratories Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

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.

2. Earnings Per Share

The following table sets forth the computation of basic and diluted earnings per share (in thousands, except per share data):


	Three Months Ended
	April 4,		March 30,
	2020		2019
Net income	$	2,244	$	5,398

Shares used in computing basic earnings per share		43,642		43,189

Effect of dilutive securities:
Stock-based awards and convertible debt		746		527
Shares used in computing diluted earnings per share		44,388		43,716

Earnings per share:
Basic	$	0.05	$	0.12
Diluted	$	0.05	$	0.12

For the three months ended April 4, 2020 and March 30, 2019, approximately 0.2 million and 0.5 million shares, respectively, consisting of restricted stock awards (RSUs) and market stock awards (MSUs), were not included in the diluted earnings per share calculation since the shares were anti-dilutive.

The Company intends to settle the principal amount of its convertible senior notes in cash and any excess value in shares in the event of a conversion. Accordingly, shares issuable upon conversion of the principal amount have been excluded from the calculation of diluted earnings per share. If the market value of the notes under certain prescribed conditions exceeds the conversion amount, the excess is included in the denominator for the computation of diluted earnings per share using the treasury stock method. For three months ended April 4, 2020, approximately 0.3 million shares were included in the denominator for the calculation of diluted earnings per share. For three months ended March 30, 2019, no such shares were included in the denominator for the calculation of diluted earnings per share. See Note 6, Debt, to the Condensed Consolidated Financial Statements for additional information.

3. 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 are inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly.

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Silicon Laboratories Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

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.

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 4, 2020 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	$	167,636	$	—	$	—	$	167,636
Corporate debt securities		—		5,847		—		5,847
Total cash equivalents	$	167,636	$	5,847	$	—	$	173,483

Short-term investments:
Government debt securities	$	85,519	$	52,852	$	—	$	138,371
Corporate debt securities		—		304,122		—		304,122
Total short-term investments	$	85,519	$	356,974	$	—	$	442,493

Other assets, net:
Auction rate securities	$	—	$	—	$	5,400	$	5,400
Total	$	—	$	—	$	5,400	$	5,400

Total	$	253,155	$	362,821	$	5,400	$	621,376


	Fair Value Measurements
	at December 28, 2019 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	$	92,379	$	—	$	—	$	92,379
Corporate debt securities		—		1,325		—		1,325
Total cash equivalents	$	92,379	$	1,325	$	—	$	93,704

Short-term investments:
Government debt securities	$	85,189	$	86,682	$	—	$	171,871
Corporate debt securities		—		326,954		—		326,954
Total short-term investments	$	85,189	$	413,636	$	—	$	498,825

Other assets, net:
Auction rate securities	$	—	$	—	$	5,647	$	5,647
Total	$	—	$	—	$	5,647	$	5,647

Total	$	177,568	$	414,961	$	5,647	$	598,176

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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; 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 derivative instruments are valued using discounted cash flow models. The assumptions used in preparing the valuation models include quoted interest swap rates, foreign exchange rates, forward and spot prices for currencies, and market observable data of similar instruments.

Available-for-sale 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 income (loss) in the Consolidated Balance Sheet. The following summarizes the contractual underlying maturities of the Company’s available-for-sale investments at April 4, 2020 (in thousands):


			Fair
	Cost		Value
Due in one year or less	$	414,159	$	414,699
Due after one year through ten years		200,796		201,277
Due after ten years		6,000		5,400
	$	620,955	$	621,376

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 4, 2020	Value		Losses		Value		Losses		Value		Losses
Government debt securities	$	5,428	$	(13)	$	—	$	—	$	5,428	$	(13)
Corporate debt securities		164,259		(967)		—		—		164,259		(967)
Auction rate securities		—		—		5,400		(600)		5,400		(600)
	$	169,687	$	(980)	$	5,400	$	(600)	$	175,087	$	(1,580)


	Less Than 12 Months				12 Months or Greater				Total
			Gross				Gross				Gross
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
As of December 28, 2019	Value		Losses		Value		Losses		Value		Losses
Government debt securities	$	11,947	$	(19)	$	7,183	$	(7)	$	19,130	$	(26)
Corporate debt securities		68,116		(81)		20		—		68,136		(81)
Auction rate securities		—		—		5,647		(353)		5,647		(353)
	$	80,063	$	(100)	$	12,850	$	(360)	$	92,913	$	(460)

The gross unrealized losses as of April 4, 2020 and December 28, 2019 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.

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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 4, 2020, there were no material declines in the market value of available-for-sale investments due to credit-related factors.

At April 4, 2020 and December 28, 2019, 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 4, 2020
(000s)		Valuation Technique	Unobservable Input	Weighted Average
$	5,400	Discounted cash flow	Estimated yield	2.85%

			Expected holding period	10 years

			Estimated discount rate	3.28%

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 4, 2020 (in thousands):

Assets


	Three Months
Auction Rate Securities	Ended
Beginning balance	$	5,647
Loss included in other comprehensive income (loss)		(247)
Balance at April 4, 2020	$	5,400

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 4, 2020 and December 28, 2019, the fair value of the convertible senior notes was $423.2 million and $524.0 million, respectively.

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.

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Silicon Laboratories Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

4. Derivative Financial Instruments

The Company uses derivative financial instruments to manage certain exposures to the variability of foreign currency exchange rates and interest 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 Norwegian Krone. As of April 4, 2020, the contracts had maturities of one to three months and an aggregate notional value of $2.8 million. Losses expected to be reclassified into earnings in the next 12 months were not material. The fair value of the contracts, contract losses recognized in other comprehensive income (loss) and amounts reclassified from accumulated other comprehensive income (loss) into earnings were not material for any of the periods presented.

Interest Rate Swaps

The Company uses interest rate swap agreements to manage exposure to interest rate risks. The effective portion of the gain or loss on the interest rate swap is recorded in accumulated other comprehensive loss as a separate component of stockholders’ equity and is subsequently recognized as interest expense in the Consolidated Statement of Income when the hedged exposure affects earnings. If the Credit Facility or the interest rate swap agreement is terminated prior to maturity, the fair value of the interest rate swap recorded in accumulated other comprehensive loss may be recognized in the Consolidated Statement of Income based on an assessment of the agreements at the time of termination. The Company did not discontinue any cash flow hedges of interest rates in any of the periods presented.

The Company entered into an interest rate swap agreement with an original notional value of $310 million in connection with its Credit Facility on March 27, 2020. The interest rate swap agreement effectively converted the Eurodollar portion of the variable-rate interest payments to fixed-rate interest payments through April 1, 2021. Losses expected to be reclassified into earnings in the next 12 months were not material as of April 4, 2020. Hedge ineffectiveness, the fair value of the swap agreement, contract losses recognized in other comprehensive income (loss) and amounts reclassified from accumulated other comprehensive income (loss) into earnings were not material for any of the periods presented.

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.

Table of Contents

Silicon Laboratories Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

As of April 4, 2020, the Company held one foreign currency forward contract denominated in Singapore Dollars with a notional value of $6.1 million. The fair value of foreign contracts and contract losses recognized in income were not material for any of the periods presented.

5. Balance Sheet Details

The following shows the details of selected Condensed Consolidated Balance Sheet items (in thousands):

Inventories


	April 4,		December 28,
	2020		2019
Work in progress	$	47,273	$	52,350
Finished goods		20,887		20,707
	$	68,160	$	73,057

6. Debt

1.375% Convertible Senior Notes

On March 6, 2017, the Company completed a private offering of $400 million principal amount convertible senior notes (the “Notes”). The Notes bear interest semi-annually at a rate of 1.375% per year and will mature on March 1, 2022, unless repurchased, redeemed or converted at an earlier date. The Company used $72.5 million of the proceeds to pay off the then remaining balance under its credit agreement.

The Notes are convertible at an initial conversion rate of 10.7744 shares of common stock per $1,000 principal amount of the Notes, or approximately 4.3 million shares of common stock, which is equivalent to a conversion price of approximately $92.81 per share. The conversion rate is subject to adjustment under certain circumstances. Holders may convert the Notes under the following circumstances: during any calendar quarter after the calendar quarter ended on June 30, 2017 if the closing price of the Company’s common stock for at least 20 trading days in the 30 consecutive trading days ending on the last trading day of the preceding calendar quarter is greater than or equal to $120.66 per share, representing 130% of the conversion price of the Notes; during the five business day period after any ten consecutive trading day period (the “measurement period”) in which the trading price per $1,000 principal amount of notes for each trading day of the measurement period was less than 98% of the product of the closing sale price of our common stock and the conversion rate on each such trading day; if specified distributions or corporate events occur; if the Notes are called for redemption; or at any time after December 1, 2021. The Company may redeem all or any portion of the Notes, at its option, on or after March 6, 2020, if the last reported sale price of the Company’s common stock has been at least 130% of the conversion price then in effect for at least 20 trading days during any 30 consecutive trading day period. Upon conversion, the Notes may be settled in cash, shares of the Company’s common stock or a combination of cash and shares, at the Company’s election.

The principal balance of the Notes was separated into liability and equity components, and was recorded initially at fair value. The excess of the principal amount of the liability component over its carrying amount represents the debt discount, which is amortized to interest expense over the term of the Notes using the effective interest method. The carrying amount of the liability component was estimated by discounting the contractual cash flows of similar non-convertible debt at an appropriate market rate at the date of issuance.

The Company incurred debt issuance costs of approximately $10.6 million, which was allocated to the liability and equity components in proportion to the allocation of the proceeds. The costs allocated to the liability component are being amortized as interest expense over the term of the Notes using the effective interest method.

Table of Contents

Silicon Laboratories Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

The carrying amount of the Notes consisted of the following (in thousands):

Price	113.94	EPS	0
Shares	45	P/E	533
MCap	5,086	P/FCF	38
Net Debt	-237	EBIT	38
TEV	4,849	TEV/EBIT	127
TTM 2019-09-28, in MM, except price, ratios

10-Q	2020-04-04	Filed 2020-04-29
10-K	2019-12-28	Filed 2020-01-29
10-Q	2019-09-28	Filed 2019-10-23
10-Q	2019-06-29	Filed 2019-07-24
10-Q	2019-03-30	Filed 2019-05-03
10-K	2018-12-29	Filed 2019-01-30
10-Q	2018-09-29	Filed 2018-10-24
10-Q	2018-06-30	Filed 2018-07-25
10-Q	2018-03-31	Filed 2018-04-25
10-K	2017-12-30	Filed 2018-01-31
10-Q	2017-09-30	Filed 2017-10-25
10-Q	2017-07-01	Filed 2017-07-26
10-Q	2017-04-01	Filed 2017-04-26
10-K	2016-12-31	Filed 2017-02-01
10-Q	2016-10-01	Filed 2016-10-26
10-Q	2016-07-02	Filed 2016-07-27
10-Q	2016-04-02	Filed 2016-04-27
10-K	2016-01-02	Filed 2016-02-05
10-Q	2015-10-03	Filed 2015-10-28
10-Q	2015-07-04	Filed 2015-07-29
10-Q	2015-04-04	Filed 2015-04-29
10-K	2015-01-03	Filed 2015-02-06
10-Q	2014-09-27	Filed 2014-10-23
10-Q	2014-06-28	Filed 2014-07-25
10-Q	2014-03-29	Filed 2014-04-29
10-K	2013-12-28	Filed 2014-01-31
10-Q	2013-09-28	Filed 2013-10-24
10-Q	2013-06-29	Filed 2013-07-25
10-Q	2013-03-30	Filed 2013-04-24
10-K	2012-12-29	Filed 2013-02-01
10-Q	2012-09-29	Filed 2012-10-24
10-Q	2012-06-30	Filed 2012-07-25
10-Q	2012-03-31	Filed 2012-04-26
10-K	2011-12-31	Filed 2012-02-15
10-Q	2011-10-01	Filed 2011-10-31
10-Q	2011-07-02	Filed 2011-08-01
10-Q	2011-04-02	Filed 2011-04-28
10-K	2011-01-01	Filed 2011-02-10
10-Q	2010-10-02	Filed 2010-10-28
10-Q	2010-07-03	Filed 2010-07-29
10-Q	2010-04-03	Filed 2010-04-29
10-K	2010-01-02	Filed 2010-02-10

8-K	2020-04-29	Earnings, Exhibits
8-K	2020-04-28	M&A, Exhibits
8-K	2020-04-21	Shareholder Vote
8-K	2020-03-27	Off-BS Arrangement
8-K	2020-03-12	Regulation FD, Exhibits
8-K	2020-03-11	Enter Agreement, Exhibits
8-K	2020-01-29	Earnings, Exhibits
8-K	2020-01-23	Officers, Exhibits
8-K	2019-10-23	Earnings, Exhibits
8-K	2019-08-07	Enter Agreement, Off-BS Arrangement, Exhibits
8-K	2019-07-24	Earnings, Exhibits
8-K	2019-04-24	Earnings, Exhibits
8-K	2019-04-18	Shareholder Vote
8-K	2019-01-30	Earnings, Exhibits
8-K	2019-01-24	Officers, Exhibits
8-K	2019-01-24	Officers
8-K	2018-10-24	Earnings, Exhibits
8-K	2018-10-23	Officers, Exhibits
8-K	2018-07-25	Earnings, Exhibits
8-K	2018-04-25	Earnings, Exhibits
8-K	2018-04-19	Shareholder Vote
8-K	2018-04-18	M&A, Exhibits
8-K	2018-01-31	Earnings, Exhibits
8-K	2018-01-25	Officers, Exhibits

EX-31.1	slab-20200404xex31d1.htm
EX-31.2	slab-20200404xex31d2.htm
EX-32.1	slab-20200404xex32d1.htm

SLAB 10Q Quarterly Report

Silicon Laboratories Earnings 2020-04-04