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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 3, 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 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 20, 2021, 44,748,946 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 April 3, 2021 and January 2, 2021

3

Condensed Consolidated Statements of Income for the three months ended April 3, 2021 and April 4, 2020

4

Condensed Consolidated Statements of Comprehensive Income for the three months ended April 3, 2021 and April 4, 2020

5

Condensed Consolidated Statements of Changes in Stockholders’ Equity for the three months ended April 3, 2021 and April 4, 2020

6

Condensed Consolidated Statements of Cash Flows for the three months ended April 3, 2021 and April 4, 2020

7

Notes to Condensed Consolidated Financial Statements

8

Item 2.

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

19

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

26

Item 4.

Controls and Procedures

27

Part II. Other Information

Item 1.

Legal Proceedings

27

Item 1A.

Risk Factors

27

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

41

Item 3.

Defaults Upon Senior Securities

41

Item 4.

Mine Safety Disclosures

41

Item 5.

Other Information

41

Item 6.

Exhibits

42

Cautionary Statement

Except for the historical financial information contained herein, the matters discussed in this report on Form 10-Q (as well as documents incorporated herein by reference) may be considered “forward-looking” statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Such forward-looking statements include declarations regarding the intent, belief or current expectations of Silicon Laboratories Inc. and its management and may be signified by the words “believe,” “estimate,” “expect,” “intend,” “anticipate,” “plan,” “project,” “will” or similar language. You are cautioned that any such forward-looking statements are not guarantees of future performance and involve a number of risks and uncertainties. Actual results could differ materially from those indicated by such forward-looking statements. Factors that could cause or contribute to such differences include those discussed under “Risk Factors” and elsewhere in this report. Silicon Laboratories disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

2

Part I. Financial Information

Item 1. Financial Statements

Silicon Laboratories Inc.

Condensed Consolidated Balance Sheets

(In thousands, except per share data)

(Unaudited)

April 3,

January 2,

    

2021

    

2021

Assets

Current assets:

Cash and cash equivalents

$

205,224

$

202,720

Short-term investments

 

367,708

 

521,963

Accounts receivable, net

 

103,699

 

95,169

Inventories

 

79,244

 

66,662

Prepaid expenses and other current assets

 

105,056

 

89,307

Total current assets

 

860,931

 

975,821

Property and equipment, net

 

141,000

 

139,439

Goodwill

 

631,932

 

631,932

Other intangible assets, net

 

154,379

 

166,084

Other assets, net

 

82,381

 

80,211

Total assets

$

1,870,623

$

1,993,487

Liabilities and Stockholders’ Equity

Current liabilities:

Accounts payable

$

68,998

$

54,949

Current portion of convertible debt, net

134,480

Deferred revenue and returns liability

13,450

12,986

Other current liabilities

 

68,351

 

82,083

Total current liabilities

 

150,799

 

284,498

Convertible debt, net

434,288

428,945

Other non-current liabilities

 

78,557

 

80,203

Total liabilities

 

663,644

 

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; 44,749 and 43,925 shares issued and outstanding at April 3, 2021 and January 2, 2021, respectively

 

4

 

4

Additional paid-in capital

 

199,576

 

204,359

Retained earnings

 

1,007,173

 

993,664

Accumulated other comprehensive income

 

226

 

1,814

Total stockholders' equity

 

1,206,979

 

1,199,841

Total liabilities and stockholders’ equity

$

1,870,623

$

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

    

April 3,

    

April 4,

2021

2020

Revenues

$

255,505

$

214,877

Cost of revenues

104,922

 

85,711

Gross profit

150,583

 

129,166

Operating expenses:

Research and development

76,474

 

71,223

Selling, general and administrative

51,950

 

53,996

Operating expenses

128,424

 

125,219

Operating income

22,159

 

3,947

Other income (expense):

Interest income and other, net

2,875

 

3,251

Interest expense

(11,324)

 

(5,541)

Income before income taxes

13,710

 

1,657

Provision (benefit) for income taxes

201

 

(587)

Net income

$

13,509

$

2,244

Earnings per share:

Basic

$

0.31

$

0.05

Diluted

$

0.29

$

0.05

Weighted-average common shares outstanding:

Basic

44,160

43,642

Diluted

45,832

44,388

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

4

Silicon Laboratories Inc.

Condensed Consolidated Statements of Comprehensive Income

(In thousands)

(Unaudited)

Three Months Ended

    

April 3,

    

April 4,

2021

2020

Net income

$

13,509

$

2,244

Other comprehensive loss, before tax:

Net changes to available-for-sale securities:

Unrealized losses arising during the period

(836)

 

(469)

Reclassification for gains included in net income

(358)

(100)

Net changes to cash flow hedges:

Unrealized losses arising during the period

(657)

(809)

Reclassification for (gains) losses included in net income

(159)

 

141

Other comprehensive loss, before tax

(2,010)

 

(1,237)

Provision (benefit) for income taxes

(422)

 

(260)

Other comprehensive loss

(1,588)

 

(977)

Comprehensive income

$

11,921

$

1,267

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

5

Silicon Laboratories Inc.

Condensed Consolidated Statements of Changes in Stockholders’ Equity

(In thousands)

(Unaudited)

    

    

    

Additional

    

    

Accumulated Other

    

Total

Common

Paid-In

Retained

Comprehensive

Stockholders’

Three Months Ended April 3, 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

 

 

 

13,509

13,509

Other comprehensive loss

 

 

 

 

(1,588)

 

(1,588)

Stock issuances, net of shares withheld for taxes

296

 

 

(17,817)

 

 

 

(17,817)

Stock-based compensation

 

 

13,782

 

 

 

13,782

Convertible debt activity

528

(748)

(748)

Balance as of April 3, 2021

44,749

$

4

$

199,576

$

1,007,173

$

226

$

1,206,979

    

    

    

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 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

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

6

Silicon Laboratories Inc.

Condensed Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)

Three Months Ended

April 3,

April 4,

    

2021

    

2020

Operating Activities

Net income

$

13,509

$

2,244

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation of property and equipment

4,529

 

4,183

Amortization of other intangible assets and other assets

11,705

 

9,827

Amortization of debt discount and debt issuance costs

6,456

3,736

Loss on extinguishment of convertible debt

3,370

Stock-based compensation expense

13,826

 

15,313

Deferred income taxes

(3,197)

 

(2,364)

Changes in operating assets and liabilities:

Accounts receivable

(8,530)

 

1,542

Inventories

(12,626)

 

4,777

Prepaid expenses and other assets

(13,621)

 

23,576

Accounts payable

14,116

 

2,748

Other current liabilities and income taxes

(13,429)

 

(9,134)

Deferred revenue and returns liability

464

 

4,114

Other non-current liabilities

(2,066)

(862)

Net cash provided by operating activities

14,506

 

59,700

Investing Activities

Purchases of marketable securities

(8,251)

 

(70,910)

Sales and maturities of marketable securities

161,392

 

126,920

Purchases of property and equipment

(6,176)

 

(4,135)

Purchases of other assets

(578)

(370)

Net cash provided by investing activities

146,387

 

51,505

Financing Activities

Proceeds from revolving line of credit

310,000

Payments on debt

(140,572)

Repurchases of common stock

(16,287)

Payment of taxes withheld for vested stock awards

(17,817)

(16,294)

Net cash provided by (used in) financing activities

(158,389)

 

277,419

Increase in cash and cash equivalents

2,504

 

388,624

Cash and cash equivalents at beginning of period

202,720

 

227,146

Cash and cash equivalents at end of period

$

205,224

$

615,770

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 April 3, 2021 and January 2, 2021, the condensed consolidated results of its operations for the three months ended April 3, 2021 and April 4, 2020, the Condensed Consolidated Statements of Comprehensive Income for the three months ended April 3, 2021 and April 4, 2020, the Condensed Consolidated Statements of Changes in Stockholders’ Equity for the three months ended April 3, 2021 and April 4, 2020, and the Condensed Consolidated Statements of Cash Flows for the three months ended April 3, 2021 and April 4, 2020. All intercompany balances and transactions have been eliminated in consolidation. The condensed consolidated results of operations for the three months ended April 3, 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)

1. Significant Accounting Policies (Continued)

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. 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 3,

    

April 4,

2021

2020

Net income

$

13,509

$

2,244

Shares used in computing basic earnings per share

44,160

 

43,642

Effect of dilutive securities:

Stock-based awards and convertible debt

1,672

 

746

Shares used in computing diluted earnings per share

45,832

 

44,388

Earnings per share:

Basic

$

0.31

$

0.05

Diluted

$

0.29

$

0.05

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 the three months ended April 3, 2021 and April 4, 2020, approximately 1.1 million and 0.3 million shares, respectively, 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.

9

Table of Contents

Silicon Laboratories Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

3. Fair Value of Financial Instruments (Continued)

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.

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 3, 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:

Money market funds

$

67,279

$

$

$

67,279

Corporate debt securities

1,202

1,202

Total cash equivalents

$

67,279

$

1,202

$

$

68,481

Short-term investments:

Government debt securities

$

5,226

$

80,124

$

$

85,350

Corporate debt securities

282,358

282,358

Total short-term investments

$

5,226

$

362,482

$

$

367,708

Other assets, net:

Auction rate securities

$

$

$

5,262

$

5,262

Total

$

$

$

5,262

$

5,262

Total

$

72,505

$

363,684

$

5,262

$

441,451

Fair Value Measurements

at January 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:

Money market funds

$

75,606

$

$

$

75,606

Corporate debt securities

 

14,995

 

 

14,995

Government debt securities

2,355

2,564

4,919

Total cash equivalents

$

77,961

$

17,559

$

$

95,520

Short-term investments:

Government debt securities

$

38,461

$

104,112

$

$

142,573

Corporate debt securities

379,390

379,390

Total short-term investments

$

38,461

$

483,502

$

$

521,963

Other assets, net:

Auction rate securities

$

$

$

5,340

$

5,340

Total

$

$

$

5,340

$

5,340

Total

$

116,422

$

501,061

$

5,340

$

622,823

10

Table of Contents

Silicon Laboratories Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

3. Fair Value of Financial Instruments (Continued)

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 foreign exchange rates, forward and spot prices for currencies and market observable data of similar instruments.

Contractual maturities of investments

The Company’s investments are reported at fair value, with unrealized gains and losses, net of tax, recorded as a component of accumulated other comprehensive income in the Consolidated Balance Sheet. The following summarizes the contractual underlying maturities of the Company’s available-for-sale investments and money market funds at April 3, 2021 (in thousands):

    

    

Fair

Cost

Value

Due in one year or less

$

270,863

$

271,720

Due after one year through ten years

 

151,369

151,669

Due after ten years

 

18,800

 

18,062

$

441,032

$

441,451

Available-for-sale investments

The available-for-sale investments that were in a continuous unrealized loss position, aggregated by length of time that individual securities have been in a continuous loss position, were as follows (in thousands):

Less Than 12 Months

12 Months or Greater

Total

Gross

Gross

Gross

Fair

Unrealized

Fair

Unrealized

Fair

Unrealized

As of April 3, 2021

    

Value

    

Losses

    

Value

    

Losses

    

Value

    

Losses

Government debt securities

$

6,719

$

(6)

$

$

$

6,719

$

(6)

Corporate debt securities

 

59,542

 

(56)

 

 

 

59,542

 

(56)

Auction rate securities

5,262

(738)

5,262

(738)

$

66,261

$

(62)

$

5,262

$

(738)

$

71,523

$

(800)

Less Than 12 Months

12 Months or Greater

Total

Gross

Gross

Gross

Fair

Unrealized

Fair

Unrealized

Fair

Unrealized

As of January 2, 2021

    

Value

    

Losses

    

Value

    

Losses

    

Value

    

Losses

Government debt securities

$

10,146

$

(5)

$

$

$

10,146

$

(5)

Corporate debt securities

 

51,909

(74)

51,909

(74)

Auction rate securities

5,340

(660)

5,340

(660)

$

62,055

$

(79)

$

5,340

$

(660)

$

67,395

$

(739)

The gross unrealized losses as of April 3, 2021 and January 2, 2021 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.

11

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Silicon Laboratories Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

3. Fair Value of Financial Instruments (Continued)

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 3, 2021, there were no material declines in the market value of available-for-sale investments due to credit-related factors.

At April 3, 2021 and January 2, 2021, 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 3, 2021

 

(000s)

    

Valuation Technique

    

Unobservable Input

    

Weighted Average

 

$

5,262

 

Discounted cash flow

 

Estimated yield

 

1.18

%

 

Expected holding period

10 years

 

Estimated discount rate

 

2.57

%

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 3, 2021 (in thousands):

    

Three Months

Auction Rate Securities

    

Ended

Beginning balance

$

5,340

Loss included in other comprehensive loss

 

(78)

Balance at April 3, 2021

$

5,262

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 3, 2021 and January 2, 2021, the fair value of the 0.625% convertible senior notes due in 2025 was $691.2 million and $671.4 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. The Company’s objective is to offset increases and decreases in expenses resulting from these exposures with gains and losses on the derivative contracts, thereby reducing volatility of earnings. The Company does not use derivative contracts for speculative or trading purposes. The Company recognizes derivatives, on a gross basis, in the Consolidated Balance Sheet at fair value. Cash flows from derivatives are classified according to the nature of the cash receipt or payment in the Consolidated Statement of Cash Flows.

Cash Flow Hedges

Foreign Currency Forward Contracts

The Company uses foreign currency forward contracts to reduce the earnings impact that exchange rate fluctuations have on operating expenses denominated in currencies other than the U.S. dollar. Changes in the fair value of the contracts are recorded in accumulated other comprehensive income (loss) in the Consolidated Balance Sheet and subsequently reclassified into earnings in the period during which the hedged transaction is recognized. The reclassified amount is reported in the same financial statement line item as the hedged item. If the foreign currency forward contracts are terminated or can no longer qualify as hedging instruments prior to maturity, the fair value of the contracts recorded in accumulated other comprehensive income (loss) may be recognized in the Consolidated Statement of Income based on an assessment of the contracts at the time of termination.

The Company has entered into foreign currency forward contracts for a portion of its forecasted operating expenses denominated in the Euro, Norwegian Krone and Hungarian Forint. As of April 3, 2021, the contracts had maturities of one to twelve months and an aggregate notional value of $22.0 million. Gains expected to be reclassified into earnings in the next twelve months were not material. The fair value of the contracts, contract gains or losses recognized in other comprehensive income (loss) and amounts reclassified from accumulated other comprehensive income 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.

As of April 3, 2021, the Company held three foreign currency forward contracts denominated in Singapore Dollars with a notional value of $16.5 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 3,

    

January 2,

2021

2021

Work in progress

$

68,747

$

56,165

Finished goods

 

10,497

 

10,497

$

79,244

$

66,662

13

Table of Contents

Silicon Laboratories Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

6. Debt

0.625% Convertible Senior Notes

On June 1, 2020, the Company completed a private offering of $535 million principal amount convertible senior notes (the “2025 Notes”). The 2025 Notes bear interest semi-annually at a rate of 0.625% per year and mature on June 15, 2025.

The 2025 Notes are convertible at an initial conversion rate of 8.1498 shares of common stock per $1,000 principal amount of the 2025 Notes, or approximately 4.4 million shares of common stock, which is equivalent to a conversion price of approximately $122.70 per share. The conversion rate is subject to adjustment under certain circumstances. Holders may convert the 2025 Notes under the following circumstances: during any calendar quarter after the calendar quarter ended on September 30, 2020 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 $159.51 per share, representing 130% of the conversion price of the 2025 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 March 15, 2025. The Company may redeem all or any portion of the 2025 Notes, at its option, on or after June 20, 2023, 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 2025 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 Company incurred debt issuance costs of approximately $10.4 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 2025 Notes using the effective interest method.

1.375% Convertible Senior Notes

On March 6, 2017, the Company completed a private offering of $400 million principal amount convertible senior notes (the “2022 Notes”). The Notes bore interest semi-annually at a rate of 1.375% per year and were scheduled to mature on March 1, 2022.

On January 6, 2021, the Company issued a notice of redemption for the remaining $140.6 million principal amount of the 2022 Notes. Prior to the redemption, the Company received conversion notices representing $130.4 million principal amount of the notes. The Company paid $130.4 million in cash and issued 528,022 shares of common stock for the conversions. Notes representing $10.2 million principal amount were redeemed at par, plus accrued interest. All note conversions and redemptions were completed by March 22, 2021. The Company recognized a loss on debt extinguishment of $3.4 million during the three months ended April 3, 2021, which was recorded in interest expense in the Condensed Consolidated Statements of Income.

Convertible Debt, Net

The principal balances of the 2025 Notes and 2022 Notes (together, the “Notes”) were separated into liability and equity components, and recorded initially at fair value. The excess of the principal amounts of the liability components over their carrying amounts represent the debt discount, which are amortized to interest expense over the term of the Notes using the effective interest method. The carrying amounts of the liability components was estimated by discounting the contractual cash flows of similar non-convertible debt at an appropriate market rate at the date of issuance.

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Silicon Laboratories Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

6. Debt (Continued)

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

    

April 3,

    

January 2,

2021

2021

Liability component

  

 

  

Principal

$

535,000

$

675,567

Unamortized debt discount

 

(93,693)

 

(103,953)

Unamortized debt issuance costs

 

(7,019)

 

(8,189)

Net carrying amount

$

434,288

$

563,425

Equity component

 

 

Net carrying amount

$

107,927

$

108,438

The liability components of the Notes are recorded in convertible debt on the Consolidated Balance Sheet. The equity components of the Notes are recorded in additional paid-in capital. The effective interest rate for the liability component was 5.336% for the 2025 Notes and 4.75% for the 2022 Notes. As of April 3, 2021, the remaining period over which the debt discount and debt issuance costs will be amortized was 4.2 years for the 2025 Notes.

Interest expense related to the Notes was comprised of the following (in thousands):

Three Months Ended

April 3,

 

April 4,

    

2021

    

2020

Contractual interest expense

$

1,163

$

1,467

Amortization of debt discount

5,938

 

3,246

Amortization of debt issuance costs

518

 

490

$

7,619

$

5,203

Credit Facility

The Company and certain of its domestic subsidiaries (the “Guarantors”) have a $400 million revolving credit facility with a maturity date of August 7, 2024. The credit facility includes a $25 million letter of credit sublimit and a $10 million swingline loan sublimit. The Company also has an option to increase the size of the borrowing capacity by up to the greater of an aggregate of $250 million and 100% of EBITDA, plus an amount that would not cause a secured leverage ratio (funded debt secured by assets/EBITDA) to exceed 3.25 to 1.00, subject to certain conditions.

The credit facility, other than swingline loans, will bear interest at the Eurodollar rate plus an applicable margin or, at the option of the Company, a base rate (defined as the highest of the Wells Fargo prime rate, the Federal Funds rate plus 0.50% and the Eurodollar Base Rate plus 1.00%) plus an applicable margin. Swingline loans accrue interest at the base rate plus the applicable margin for base rate loans. The applicable margins for the Eurodollar rate loans range from 1.00% to 1.75% and for base rate loans range from 0.00% to 0.75%, depending in each case, on the leverage ratio as defined in the credit facility.

The credit facility contains various conditions, covenants and representations with which the Company must be in compliance in order to borrow funds and to avoid an event of default, including financial covenants that the Company must maintain a net leverage ratio (funded indebtedness/EBITDA) of no more than 4.25 to 1, a secured leverage ratio of no more than 3.50 to 1, and a minimum interest coverage ratio (EBITDA/interest payments) of no less than 2.50 to 1. As of April 3, 2021, the Company was in compliance with all covenants of the credit facility. The Company’s obligations under the credit facility are guaranteed by the Guarantors and are secured by a security interest in substantially all assets of the Company and the Guarantors.

15

Table of Contents

Silicon Laboratories Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

7. Commitments and Contingencies

Legal Proceedings

The Company is involved in various legal proceedings that have arisen in the normal course of business. While the ultimate results cannot be predicted with certainty, the Company does not expect them to have a material adverse effect on its Consolidated Financial Statements.

8. Revenues

The Company groups its revenues into two categories, based on the markets and applications in which its products may be used. The following disaggregates the Company's revenue by product category (in thousands):

Three Months Ended

    

April 3,

    

April 4,

2021

2020

Internet of Things

$

158,245

$

118,041

Infrastructure and automotive

97,260

 

 

96,836

$

255,505

 

$

214,877

A portion of the Company's sales are made to distributors under agreements allowing certain rights of return and/or price protection related to the final selling price to the end customers. These factors impact the timing and uncertainty of revenues and cash flows. During the three months ended April 3, 2021 and April 4, 2020, the Company recognized revenue of $12.0 million and $11.1 million, respectively, from performance obligations that were satisfied in previous reporting periods. The following disaggregates the Company's revenue by sales channel (in thousands):

Three Months Ended

    

April 3,

    

April 4,

    

2021

    

2020

Distributors

$

202,266

$

163,463

Direct customers

53,239

 

51,414

$

255,505

$

214,877

9. Stock-Based Compensation

In fiscal 2009, the stockholders of the Company approved the 2009 Stock Incentive Plan (the “2009 Plan”) and the 2009 Employee Stock Purchase Plan (the “2009 Purchase Plan”). In fiscal 2017, the stockholders of the Company approved amendments to both the 2009 Plan and the 2009 Purchase Plan. The purpose of the amendments was to authorize additional shares of common stock for issuance, to comply with changes in applicable law, to improve the Company’s corporate governance and to implement other best practices.

Stock-based compensation costs are based on the fair values on the date of grant for stock awards and stock options and on the date of enrollment for the employee stock purchase plans. The fair values of stock awards (such as restricted stock awards (RSUs), performance stock units (PSUs) and restricted stock awards (RSAs)) are estimated based on their intrinsic values. The fair values of market stock awards (MSUs) are estimated using a Monte Carlo simulation. The fair values of stock options and employee stock purchase plans are estimated using the Black-Scholes option-pricing model.

16

Table of Contents

Silicon Laboratories Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

9. Stock-Based Compensation (Continued)

The following table presents details of stock-based compensation costs recognized in the Condensed Consolidated Statements of Income (in thousands):