10-Q 1 slab-20210930x10q.htm 10-Q
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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 October 2, 2021

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     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 October 19, 2021, 40,187,246 shares of common stock of Silicon Laboratories Inc. were outstanding.

Table of Contents

Part I. Financial Information

Page
Number

Item 1.

Financial Statements (Unaudited):

Condensed Consolidated Balance Sheets at October 2, 2021 and January 2, 2021

3

Condensed Consolidated Statements of Income for the three and nine months ended October 2, 2021 and October 3, 2020

4

Condensed Consolidated Statements of Comprehensive Income for the three and nine months ended October 2, 2021 and October 3, 2020

5

Condensed Consolidated Statements of Changes in Stockholders’ Equity for the three and nine months ended October 2, 2021 and October 3, 2020

6

Condensed Consolidated Statements of Cash Flows for the nine months ended October 2, 2021 and October 3, 2020

7

Notes to Condensed Consolidated Financial Statements

8

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

21

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

30

Item 4.

Controls and Procedures

30

Part II. Other Information

Item 1.

Legal Proceedings

30

Item 1A.

Risk Factors

30

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

45

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

Part I. Financial Information

Item 1. Financial Statements

Silicon Laboratories Inc.

Condensed Consolidated Balance Sheets

(In thousands, except per share data)

(Unaudited)

October 2,

January 2,

    

2021

    

2021

Assets

Current assets:

Cash and cash equivalents

$

1,362,412

$

202,720

Short-term investments

 

1,364,095

 

521,963

Accounts receivable, net

 

72,596

 

95,169

Inventories

 

59,114

 

47,861

Prepaid expenses and other current assets

 

61,936

 

87,103

Current assets of discontinued operations

21,005

Total current assets

 

2,920,153

 

975,821

Property and equipment, net

 

143,340

 

135,803

Goodwill

 

376,389

 

376,389

Other intangible assets, net

 

129,512

 

163,483

Other assets, net

 

70,108

 

76,675

Non-current assets of discontinued operations

265,316

Total assets

$

3,639,502

$

1,993,487

Liabilities and Stockholders’ Equity

Current liabilities:

Accounts payable

$

57,975

$

54,949

Current portion of convertible debt, net

134,480

Deferred revenue and returns liability

11,329

12,986

Other current liabilities

389,071

 

81,650

Current liabilities of discontinued operations

433

Total current liabilities

458,375

 

284,498

Convertible debt, net

445,110

428,945

Other non-current liabilities

88,434

 

79,752

Non-current liabilities of discontinued operations

451

Total liabilities

991,919

 

793,646

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; 40,547 and 43,925 shares issued and outstanding at October 2, 2021 and January 2, 2021, respectively

4

 

4

Additional paid-in capital

 

204,359

Retained earnings

2,648,190

 

993,664

Accumulated other comprehensive income (loss)

(611)

 

1,814

Total stockholders' equity

2,647,583

 

1,199,841

Total liabilities and stockholders’ equity

$

3,639,502

$

1,993,487

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

Nine Months Ended

    

October 2,

    

October 3,

    

October 2,

    

October 3,

2021

2020

2021

2020

Revenues

$

184,831

$

132,731

$

512,180

$

365,099

Cost of revenues

75,322

 

57,247

214,619

 

154,189

Gross profit

109,509

 

75,484

297,561

 

210,910

Operating expenses:

Research and development

72,656

 

58,929

201,503

 

174,631

Selling, general and administrative

46,128

 

40,154

131,535

 

124,956

Operating expenses

118,784

 

99,083

333,038

 

299,587

Operating loss

(9,275)

(23,599)

(35,477)

 

(88,677)

Other income (expense):

Interest income and other, net

5,516

2,044

9,038

 

8,562

Interest expense

(6,595)

(8,604)

(24,405)

 

(25,923)

Loss from continuing operations before income taxes

(10,354)

(30,159)

(50,844)

 

(106,038)

Provision (benefit) for income taxes

9,386

 

(3,457)

12,543

 

(11,900)

Loss from continuing operations

(19,740)

(26,702)

(63,387)

(94,138)

Income from discontinued operations, net of income taxes

2,106,796

29,864

2,183,884

97,721

Net income

$

2,087,056

$

3,162

$

2,120,497

$

3,583

Basic earnings (loss) per share:

Continuing operations

$

(0.45)

$

(0.61)

$

(1.44)

$

(2.15)

Net income

$

48.11

$

0.07

$

48.08

$

0.08

Diluted earnings (loss) per share:

Continuing operations

$

(0.45)

$

(0.61)

$

(1.44)

$

(2.15)

Net income

$

46.76

$

0.07

$

46.71

$

0.08

Weighted-average common shares outstanding:

Basic

43,385

43,815

44,103

43,737

Diluted

44,634

44,328

45,394

44,254

 

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

Nine Months Ended

October 2,

    

October 3,

    

October 2,

    

October 3,

    

2021

2020

2021

2020

Net income

$

2,087,056

$

3,162

$

2,120,497

$

3,583

Other comprehensive income (loss), before tax

Net changes to available-for-sale securities

Unrealized gains (losses) arising during the period

(492)

(760)

(1,892)

1,839

Reclassification for (gains) losses included in net income

25

(253)

(372)

(475)

Net changes to cash flow hedges

Unrealized losses arising during the period

(246)

(516)

 

(652)

Reclassification for (gains) losses included in net income

30

62

(290)

825

Other comprehensive income (loss), before tax

(683)

(951)

(3,070)

 

1,537

Provision (benefit) for income taxes

(143)

 

(200)

(645)

 

323

Other comprehensive income (loss)

(540)

 

(751)

(2,425)

 

1,214

Comprehensive income

$

2,086,516

$

2,411

$

2,118,072

$

4,797

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 October 2, 2021

Shares

Stock

Capital

Earnings

Income (Loss)

Equity

Balance as of July 3, 2021

44,764

$

4

$

200,716

$

1,027,105

$

(71)

$

1,227,754

Net income

 

2,087,056

2,087,056

Other comprehensive loss

 

 

 

 

(540)

 

(540)

Stock issuances, net of shares withheld for taxes

30

 

 

(1,430)

 

 

 

(1,430)

Repurchases of common stock

(4,247)

(210,204)

(465,971)

(676,175)

Stock-based compensation

 

 

10,918

 

 

 

10,918

Balance as of October 2, 2021

40,547

$

4

$

$

2,648,190

$

(611)

$

2,647,583

    

    

    

Additional

    

    

Accumulated Other

    

Total

Common

Paid-In

Retained

Comprehensive

Stockholders’

Three Months Ended October 3, 2020

Shares

Stock

Capital

Earnings

Income (Loss)

Equity

Balance as of July 4, 2020

43,796

$

4

$

173,477

$

981,554

$

2,611

$

1,157,646

Net income

 

 

 

3,162

 

 

3,162

Other comprehensive loss

 

 

 

 

(751)

 

(751)

Stock issuances, net of shares withheld for taxes

31

 

 

(408)

 

 

 

(408)

Stock-based compensation

 

 

14,538

 

 

 

14,538

Convertible debt activity

 

 

(4,136)

 

 

 

(4,136)

Balance as of October 3, 2020

43,827

$

4

$

183,471

$

984,716

$

1,860

$

1,170,051

    

    

    

Additional

    

    

Accumulated Other 

    

Total

Common

Paid-In

Retained

Comprehensive 

Stockholders’

Nine Months Ended October 2, 2021

Shares

Stock

Capital

Earnings

Income (Loss)

Equity

Balance as of January 2, 2021

 

43,925

$

4

$

204,359

$

993,664

$

1,814

$

1,199,841

Net income

 

 

 

 

2,120,497

 

 

2,120,497

Other comprehensive loss

 

 

 

 

 

(2,425)

 

(2,425)

Stock issuances, net of shares withheld for taxes

 

484

 

 

(12,774)

 

 

 

(12,774)

Repurchases of common stock

(4,390)

(229,187)

(465,971)

(695,158)

Stock-based compensation

 

 

 

38,350

 

 

 

38,350

Convertible debt activity

528

(748)

(748)

Balance as of October 2, 2021

 

40,547

$

4

$

$

2,648,190

$

(611)

$

2,647,583

    

    

    

Additional

    

    

Accumulated Other

    

Total

Common

Paid-In

Retained

Comprehensive 

Stockholders’

Nine Months Ended October 3, 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

 

 

 

 

3,583

 

3,583

Other comprehensive income

 

 

 

 

 

1,214

 

1,214

Stock issuances, net of shares withheld for taxes

 

541

 

 

(9,407)

 

 

 

(9,407)

Repurchases of common stock

 

(210)

 

 

(16,287)

 

 

 

(16,287)

Stock-based compensation

44,337

44,337

Convertible debt activity

 

 

 

31,035

 

 

 

31,035

Balance as of October 3, 2020

 

43,827

$

4

$

183,471

$

984,716

$

1,860

$

1,170,051

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)

Nine Months Ended

October 2,

October 3,

    

2021

    

2020

Operating Activities

Net income

$

2,120,497

$

3,583

Adjustments to reconcile net income to cash provided by operating activities of
continuing operations:

Income from discontinued operations, net of income taxes

(2,183,884)

(97,721)

Depreciation of property and equipment

12,925

 

11,789

Amortization of intangible assets and other assets

33,971

 

31,118

Amortization of debt discount and debt issuance costs

17,278

14,946

Loss on extinguishment of convertible debt

3,370

3,977

Stock-based compensation expense

36,916

 

36,252

Deferred income taxes

(3,132)

 

(7,382)

Changes in operating assets and liabilities:

Accounts receivable

22,573

 

(2,902)

Inventories

(11,320)

 

12,499

Prepaid expenses and other assets

27,598

 

(5,602)

Accounts payable

(4,522)

 

6,103

Other current liabilities and income taxes

(10,981)

 

3,608

Deferred revenue and returns liability

(1,657)

 

2,643

Other non-current liabilities

(11,388)

7,525

Net cash provided by operating activities of continuing operations

48,244

 

20,436

Investing Activities

Purchases of marketable securities

(1,212,572)

 

(418,227)

Sales and maturities of marketable securities

368,416

 

427,235

Purchases of property and equipment

(19,468)

 

(13,589)

Purchases of other assets

(578)

(920)

Acquisition of business, net of cash acquired

(316,809)

Net cash used in investing activities of continuing operations

(864,202)

 

(322,310)

Financing Activities

Proceeds from issuance of debt

845,000

Payments on debt

(140,572)

(618,729)

Repurchases of common stock

(688,373)

(16,287)

Payment of taxes withheld for vested stock awards

(21,393)

(17,562)

Proceeds from the issuance of common stock

8,619

8,155

Net cash provided by (used in) financing activities of continuing operations

(841,719)

 

200,577

Discontinued Operations

Operating activities

69,685

106,527

Investing activities

2,747,684

(2,018)

Net cash provided by discontinued operations

2,817,369

104,509

Increase in cash and cash equivalents

1,159,692

 

3,212

Cash and cash equivalents at beginning of period

202,720

 

227,146

Cash and cash equivalents at end of period

$

1,362,412

$

230,358

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

7

Table of Contents

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 October 2, 2021 and January 2, 2021, the condensed consolidated results of its operations for the three and nine months ended October 2, 2021 and October 3, 2020, the Condensed Consolidated Statements of Comprehensive Income for the three and nine months ended October 2, 2021 and October 3, 2020, the Condensed Consolidated Statements of Changes in Stockholders’ Equity for the three and nine months ended October 2, 2021 and October 3, 2020, and the Condensed Consolidated Statements of Cash Flows for the nine months ended October 2, 2021 and October 3, 2020. All intercompany balances and transactions have been eliminated in consolidation. The condensed consolidated results of operations for the three and nine months ended October 2, 2021 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 2, 2021, included in the Company’s Form 10-K filed with the Securities and Exchange Commission (SEC) on February 3, 2021.

The Company prepares financial statements on a 52- or 53-week fiscal year that ends on the Saturday closest to December 31. Fiscal 2021 will have 52 weeks. Fiscal 2020 had 53 weeks with the extra week occurring in the first quarter of the year. In a 52-week year, each fiscal quarter consists of 13 weeks.

Use of Estimates

The preparation of financial statements in conformity with U.S. 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

Table of Contents

Silicon Laboratories Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

Recent Accounting Pronouncements

In August 2020, the Financial Accounting Standards Board (FASB) issued 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). This ASU simplifies the accounting for certain convertible instruments, amends the guidance on derivative scope exceptions for contracts in an entity’s own equity and requires the use of the if-converted method for calculating diluted earnings per share. The ASU removes separation models for convertible debt with a cash conversion feature. Such convertible instruments will be accounted for as a single liability measured at amortized cost, as long as no other features require bifurcation and recognition as derivatives. This ASU is effective for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years, using one of two retrospective transition methods. Early adoption is permitted for fiscal periods beginning after December 15, 2020. The Company expects the primary impacts of this new standard will be to increase the carrying value of its convertible debt by approximately $78.5 million, with an offsetting reduction in additional paid-in capital, and reduce its reported interest expense. In addition, should the Company be required to use the if-converted method for calculating diluted earnings per share, the number of shares used in such calculation could potentially increase. The Company will continue to evaluate the effect that the adoption of this ASU will have on its financial statements.

2. Discontinued Operations

On April 22, 2021, the Company entered into an Asset Purchase Agreement pursuant to which Skyworks Solutions, Inc. agreed to acquire certain assets, rights, and properties, and assume certain liabilities, comprising the Company’s infrastructure and automotive business for $2.75 billion in cash. The transaction closed on July 26, 2021. The financial results of the infrastructure and automotive business, which are readily distinguishable from other components of the Company, have been presented as discontinued operations in the Condensed Consolidated Financial Statements.

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):

    

Three Months Ended

    

Nine Months Ended

October 2,

October 3,

October 2,

October 3,

2021

    

2020

    

2021

    

2020

Revenues

$

28,203

$

88,619

$

233,915

$

278,661

Costs of revenues and operating expenses

 

11,395

 

55,397

142,312

 

169,345

 

16,808

 

33,222

91,603

 

109,316

Gain on sale of discontinued operations

2,423,161

2,423,161

Income from discontinued operations before income taxes

2,439,969

33,222

2,514,764

109,316

Provision for income taxes

 

333,173

 

3,358

330,880

 

11,595

Income from discontinued operations

$

2,106,796

$

29,864

$

2,183,884

$

97,721

Income from discontinued operations per share:

  

 

  

  

 

  

Basic

$

48.56

$

0.68

$

49.52

$

2.23

Diluted

$

47.20

$

0.67

$

48.11

$

2.21

9

Table of Contents

Silicon Laboratories Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

The following table summarizes the assets and liabilities of the infrastructure and automotive business (in thousands):

    

January 2,

2021

Assets

 

  

Inventories

$

18,801

Prepaid expenses and other current assets

 

2,204

Goodwill

 

255,543

Other assets

 

9,773

Total assets

$

286,321

Liabilities

 

  

Other current liabilities

$

433

Other non-current liabilities

 

451

Total liabilities

$

884

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 will sublease certain premises to Skyworks and provide various temporary support services for three to eighteen months, depending on the service provided. Although the services provided under the TSA will generate continuing cash flows between the Company and Skyworks for the duration of the TSA, the amounts are not expected to be material to the ongoing operations of either entity. In addition, the Company has no contractual ability through the TSA or any other agreement to significantly influence the operating or financial policies of Skyworks. The TSA fees were approximately $2.1 million for the nine months ended October 2, 2021.

3. Earnings (Loss) Per Share

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

Three Months Ended

Nine Months Ended

    

October 2,

    

October 3,

    

October 2,

    

October 3,

2021

2020

2021

2020

Loss from continuing operations

$

(19,740)

$

(26,702)

$

(63,387)

$

(94,138)

Shares used in computing basic loss per share

43,385

 

43,815

44,103

 

43,737

Effect of dilutive securities:

Stock-based awards and convertible debt

 

 

Shares used in computing diluted loss per share

43,385

 

43,815

44,103

 

43,737

Loss per share:

Basic

$

(0.45)

$

(0.61)

$

(1.44)

$

(2.15)

Diluted

$

(0.45)

$

(0.61)

$

(1.44)

$

(2.15)

Diluted shares for the three months ended October 2, 2021 and October 3, 2020 and the nine months ended October 2, 2021 and October 3, 2020 excluded 1.2 million, 0.5 million, 1.3 million and 0.5 million shares, respectively, due to the Company’s loss from continuing operations for the periods.

10

Table of Contents

Silicon Laboratories Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

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 using the treasury stock method 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 the three months ended October 2, 2021 and October 3, 2020 and the nine months ended October 2, 2021 and October 3, 2020, approximately 0.7 million, 0.1 million, 0.8 million and 0.2 million shares, respectively, were included in the denominator for the calculation of diluted earnings per share from net income and discontinued operations. See Note 8, Debt, to the Condensed Consolidated Financial Statements for additional information.

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

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.

11

Table of Contents

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 October 2, 2021 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:

​</