Company Quick10K Filing
Silicon Laboratories
Price113.94 EPS0
Shares45 P/E533
MCap5,086 P/FCF38
Net Debt-237 EBIT38
TEV4,849 TEV/EBIT127
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

SLAB 10Q Quarterly Report

Part I. Financial Information
Item 1. Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II. Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 4. Mine Safety Disclosures
Item 5. Other Information
Item 6. Exhibits
EX-31.1 slab-20200404xex31d1.htm
EX-31.2 slab-20200404xex31d2.htm
EX-32.1 slab-20200404xex32d1.htm

Silicon Laboratories Earnings 2020-04-04

Balance SheetIncome StatementCash Flow
1.71.41.00.70.30.02012201420172020
Assets, Equity
0.30.20.10.1-0.0-0.12012201420172020
Rev, G Profit, Net Income
0.40.30.1-0.0-0.2-0.32012201420172020
Ops, Inv, Fin

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Table of Contents

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

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: 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.

Table of Contents

Table of Contents

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.

2

Table of Contents

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.

3

Table of Contents

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.

4

Table of Contents

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.

5

Table of Contents

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.

6

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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.

7

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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.

12

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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.

13

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.

14

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Silicon Laboratories Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

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