0001104659-22-050740.txt : 20220427 0001104659-22-050740.hdr.sgml : 20220427 20220427091722 ACCESSION NUMBER: 0001104659-22-050740 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 62 CONFORMED PERIOD OF REPORT: 20220402 FILED AS OF DATE: 20220427 DATE AS OF CHANGE: 20220427 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SILICON LABORATORIES INC. CENTRAL INDEX KEY: 0001038074 STANDARD INDUSTRIAL CLASSIFICATION: SEMICONDUCTORS & RELATED DEVICES [3674] IRS NUMBER: 742793174 STATE OF INCORPORATION: DE FISCAL YEAR END: 0101 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-29823 FILM NUMBER: 22856663 BUSINESS ADDRESS: STREET 1: 400 W CESAR CHAVEZ CITY: AUSTIN STATE: TX ZIP: 78701 BUSINESS PHONE: 5124168500 MAIL ADDRESS: STREET 1: 400 W CESAR CHAVEZ CITY: AUSTIN STATE: TX ZIP: 78701 FORMER COMPANY: FORMER CONFORMED NAME: SILICON LABORATORIES INC DATE OF NAME CHANGE: 20000105 10-Q 1 slab-20220402x10q.htm FORM 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 April 2, 2022

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 April 19, 2022, 36,580,584 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 2, 2022 and January 1, 2022

3

Condensed Consolidated Statements of Income for the three months ended April 2, 2022 and April 3, 2021

4

Condensed Consolidated Statements of Comprehensive Income for the three months ended April 2, 2022 and April 3, 2021

5

Condensed Consolidated Statements of Changes in Stockholders’ Equity for the three months ended April 2, 2022 and April 3, 2021

6

Condensed Consolidated Statements of Cash Flows for the three months ended April 2, 2022 and April 3, 2021

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

29

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

44

Item 4.

Mine Safety Disclosures

44

Item 5.

Other Information

44

Item 6.

Exhibits

45

Cautionary Statement

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

2

Part I. Financial Information

Item 1. Financial Statements

Silicon Laboratories Inc.

Condensed Consolidated Balance Sheets

(In thousands, except per share data)

(Unaudited)

April 2,

January 1,

    

2022

    

2022

Assets

Current assets:

Cash and cash equivalents

$

765,911

$

1,074,623

Short-term investments

 

1,167,807

 

964,582

Accounts receivable, net

 

79,233

 

98,313

Inventories

 

55,515

 

49,307

Prepaid expenses and other current assets

 

54,932

 

51,748

Total current assets

 

2,123,398

 

2,238,573

Property and equipment, net

 

147,940

 

146,516

Goodwill

 

376,389

 

376,389

Other intangible assets, net

 

108,627

 

118,978

Other assets, net

 

87,408

 

77,839

Total assets

$

2,843,762

$

2,958,295

Liabilities and Stockholders’ Equity

Current liabilities:

Accounts payable

$

64,388

$

47,327

Current portion of convertible debt, net

450,599

Deferred revenue and returns liability

21,640

13,849

Other current liabilities

160,180

 

157,052

Total current liabilities

246,208

 

668,827

Convertible debt, net

528,086

Other non-current liabilities

61,813

 

77,044

Total liabilities

836,107

 

745,871

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; 37,204 and 38,481 shares issued and outstanding at April 2, 2022 and January 1, 2022, respectively

4

 

4

Retained earnings

2,018,117

 

2,214,839

Accumulated other comprehensive loss

(10,466)

 

(2,419)

Total stockholders’ equity

2,007,655

 

2,212,424

Total liabilities and stockholders’ equity

$

2,843,762

$

2,958,295

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

3

Silicon Laboratories Inc.

Condensed Consolidated Statements of Income

(In thousands, except per share data)

(Unaudited)

Three Months Ended

    

April 2,

    

April 3,

2022

2021

Revenues

$

233,814

$

157,857

Cost of revenues

78,042

 

66,103

Gross profit

155,772

 

91,754

Operating expenses:

Research and development

77,542

 

64,015

Selling, general and administrative

44,647

 

42,454

Operating expenses

122,189

 

106,469

Operating income (loss)

33,583

 

(14,715)

Other income (expense):

Interest income and other, net

1,499

 

1,149

Interest expense

(1,680)

 

(11,324)

Income (loss) from continuing operations before income taxes

33,402

 

(24,890)

Provision for income taxes

11,689

 

1,992

Equity-method earnings

1,194

1,726

Income (loss) from continuing operations

22,907

(25,156)

Income from discontinued operations, net of income taxes

38,665

Net income

$

22,907

$

13,509

Basic earnings (loss) per share:

Continuing operations

$

0.60

$

(0.57)

Net income

$

0.60

$

0.31

Diluted earnings (loss) per share:

Continuing operations

$

0.58

$

(0.57)

Net income

$

0.58

$

0.29

Weighted-average common shares outstanding:

Basic

38,003

44,160

Diluted

39,523

45,832

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

4

Silicon Laboratories Inc.

Condensed Consolidated Statements of Comprehensive Income

(In thousands)

(Unaudited)

Three Months Ended

    

April 2,

    

April 3,

2022

2021

Net income

$

22,907

$

13,509

Other comprehensive loss, before tax:

Net changes to available-for-sale securities:

Unrealized losses arising during the period

(9,692)

(836)

Reclassification for (gains) losses included in net income

49

(358)

Net changes to cash flow hedges:

Unrealized losses arising during the period

(544)

 

(657)

Reclassification for gains included in net income

(159)

Other comprehensive loss, before tax

(10,187)

 

(2,010)

Provision (benefit) for income taxes

(2,140)

 

(422)

Other comprehensive loss

(8,047)

 

(1,588)

Comprehensive income

$

14,860

$

11,921

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

5

Silicon Laboratories Inc.

Condensed Consolidated Statements of Changes in Stockholders’ Equity

(In thousands)

(Unaudited)

    

    

    

Additional

    

    

Accumulated Other

    

Total

Common

Paid-In

Retained

Comprehensive

Stockholders’

Three Months Ended April 2, 2022

Shares

Stock

Capital

Earnings

Income (Loss)

Equity

Balance as of January 1, 2022

 

38,481

$

4

$

$

2,214,839

$

(2,419)

$

2,212,424

Cumulative effect of adoption of accounting standard

 

 

 

(59,963)

 

 

(59,963)

Net income

 

 

 

22,907

 

 

22,907

Other comprehensive loss

(8,047)

(8,047)

Stock issuances, net of shares withheld for taxes

142

 

 

(8,755)

 

 

 

(8,755)

Repurchases of common stock

(1,419)

(4,114)

(159,666)

(163,780)

Stock-based compensation

12,869

12,869

Balance as of April 2, 2022

37,204

$

4

$

$

2,018,117

$

(10,466)

$

2,007,655

    

    

    

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

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

6

Silicon Laboratories Inc.

Condensed Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)

Three Months Ended

April 2,

April 3,

    

2022

    

2021

Operating Activities

Net income

$

22,907

$

13,509

Adjustments to reconcile net income to cash provided by (used in) operating activities of continuing operations:

Income from discontinued operations, net of income taxes

(38,665)

Depreciation of property and equipment

5,156

 

4,108

Amortization of other intangible assets

10,351

 

11,451

Amortization of debt discount and debt issuance costs

496

6,456

Loss on extinguishment of convertible debt

3,370

Stock-based compensation expense

12,875

 

11,368

Equity-method earnings

(1,194)

(1,726)

Deferred income taxes

(4,202)

 

(3,197)

Changes in operating assets and liabilities:

Accounts receivable

19,080

 

(8,530)

Inventories

(6,215)

 

(4,908)

Prepaid expenses and other assets

1,704

 

(12,735)

Accounts payable

8,932

 

14,116

Other current liabilities and income taxes

8,345

 

(13,432)

Deferred revenue and returns liability

7,791

 

463

Other non-current liabilities

(817)

(1,972)

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

85,209

 

(20,324)

Investing Activities

Purchases of marketable securities

(435,690)

 

(8,251)

Sales of marketable securities

9,106

 

121,557

Maturities of marketable securities

213,750

39,835

Purchases of property and equipment

(4,554)

 

(5,705)

Purchases of other assets

(578)

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

(217,388)

 

146,858

Financing Activities

Payments on debt

(140,572)

Repurchases of common stock

(157,778)

Payment of taxes withheld for vested stock awards

(8,755)

(17,817)

Net cash used in financing activities of continuing operations

(166,533)

 

(158,389)

Discontinued Operations

Operating activities

(10,000)

34,827

Investing activities

(468)

Net cash provided by (used in) discontinued operations

(10,000)

34,359

Increase (decrease) in cash and cash equivalents

(308,712)

 

2,504

Cash and cash equivalents at beginning of period

1,074,623

 

202,720

Cash and cash equivalents at end of period

$

765,911

$

205,224

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 2, 2022 and January 1, 2022, the condensed consolidated results of its operations for the three months ended April 2, 2022 and April 3, 2021, the Condensed Consolidated Statements of Comprehensive Income for the three months ended April 2, 2022 and April 3, 2021, the Condensed Consolidated Statements of Changes in Stockholders’ Equity for the three months ended April 2, 2022 and April 3, 2021, and the Condensed Consolidated Statements of Cash Flows for the three months ended April 2, 2022 and April 3, 2021. The Condensed Consolidated Balance Sheet as of January 1, 2022 was derived from the Company’s audited Consolidated Financial Statements. All intercompany balances and transactions have been eliminated in consolidation. The condensed consolidated results of operations for the three months ended April 2, 2022 are not necessarily indicative of the results to be expected for the full year.

The accompanying unaudited Condensed Consolidated Financial Statements do not include certain footnotes and financial presentations normally required under U.S. generally accepted accounting principles (GAAP). Therefore, these Condensed Consolidated Financial Statements should be read in conjunction with the audited Consolidated Financial Statements and notes thereto for the year ended January 1, 2022, included in the Company’s Form 10-K filed with the Securities and Exchange Commission (SEC) on February 2, 2022.

The Company prepares financial statements on a 52- or 53-week fiscal year that ends on the Saturday closest to December 31. Fiscal 2022 will have 52 weeks and fiscal 2021 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 U.S. generally accepted accounting principles (GAAP) requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Among the significant estimates affecting the financial statements are those related to inventories, goodwill, acquired intangible assets, other long-lived assets, revenue recognition, stock-based compensation and income taxes. Actual results could differ from those estimates, and such differences could be material to the financial statements.

Revenue Recognition

Revenue is recognized when control of the promised goods or services is transferred to the customer, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods or services. Substantially all of the Company’s contracts with customers contain a single performance obligation, the sale of mixed-signal integrated circuit (IC) products. This performance obligation is satisfied when control of the product is transferred to the customer, which typically occurs upon delivery. Unsatisfied performance obligations primarily represent contracts for products with future delivery dates. The Company has opted to not disclose the amount of unsatisfied performance obligations as these contracts have original expected durations of less than one year.

The transaction price reflects the Company’s expectations about the consideration it will be entitled to receive from the customer and may include fixed or variable amounts. Variable consideration primarily includes sales made to distributors under agreements allowing certain rights of return, referred to as stock rotation, and credits issued to the distributor due to price protection. The Company estimates variable consideration at the most likely amount to which it expects to be entitled. The estimate is based on information available to the Company, including recent sales activity and pricing data. The Company applies a constraint to its variable consideration estimate which considers both the likelihood of a return and the amount of a potential price concession. Variable consideration that does not meet revenue recognition criteria is deferred. The Company records a right of return asset in prepaid expenses and other current assets for the costs of distributor inventory not meeting revenue recognition criteria. A corresponding deferred revenue and returns liability amount is recorded for unrecognized revenue associated with such costs. The Company’s products carry a one-year replacement warranty. Payments are typically due within 30 days of invoicing and do not include a significant financing component.

8

Table of Contents

Silicon Laboratories Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

Adoption of New Accounting Standard

Convertible Instruments

The Company adopted Financial Accounting Standards Board (FASB) Accounting Standards Update (ASU) No. 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging— Contracts in Entity’s Own Equity (Subtopic 815-40, on January 2, 2022, the first day of its fiscal year ending December 31, 2022. The Company elected the modified retrospective transition method of adoption at the beginning of the period of adoption through a cumulative-effect adjustment. Prior periods have not been adjusted. The following reflects the material changes recorded in connection with the cumulative-effect adjustment (in thousands):

    

Increase

Financial Statement Line Item

(Decrease)

Current portion of convertible debt, net

$

76,991

Other non-current liabilities

$

(17,028)

Retained earnings

$

(59,963)

The primary impact of the Company’s adoption of ASU 2020-06 was to increase the carrying value of its convertible debt, representing the unamortized debt discount, and reduce deferred tax liabilities related to convertible debt. The adoption reduced reported interest expense recorded in connection with convertible debt, which increased basic earnings per share and diluted earnings per share by $0.11 and $0.10, respectively, for the three months ended April 2, 2022.

2. Discontinued Operations

On April 22, 2021, the Company entered into an Asset Purchase Agreement to sell its infrastructure and automotive business to Skyworks Solutions, Inc. for $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 because the sale represented a strategic shift for the Company.

The following table presents the financial results of the infrastructure and automotive business (the “discontinued operations”) in the Company’s Condensed Consolidated Statements of Income (in thousands, except per share data):

    

Three Months Ended

April 3,

2021

Revenues

$

97,649

Costs of revenues

 

38,819

Operating expenses

21,956

Income from discontinued operations before income taxes

 

36,874

Provision (benefit) for income taxes

(1,791)

Income from discontinued operations

$

38,665

Income from discontinued operations per share:

 

  

Basic

$

0.88

Diluted

$

0.84

9

Table of Contents

Silicon Laboratories Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

Continuing Involvement

In connection with the closing of the sale, the Company entered into certain ancillary agreements with Skyworks, including a Transition Services Agreement (“TSA”). Through the TSA, the Company has subleased certain premises to Skyworks and will provide or provides various temporary support services for 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. Fees received by the Company under the TSA were approximately $1.9 million for the three months ended April 2, 2022.

3. Earnings (Loss) Per Share

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

Three Months Ended

    

April 2,

    

April 3,

2022

2021

Income (loss) from continuing operations

$

22,907

$

(25,156)

Shares used in computing basic income (loss) per share

38,003

 

44,160

Effect of dilutive securities:

Convertible debt and stock-based awards

1,520

 

Shares used in computing diluted income (loss) per share

39,523

 

44,160

Income (loss) per share:

Basic

$

0.60

$

(0.57)

Diluted

$

0.58

$

(0.57)

The Company has irrevocably elected to settle the principal amount of its convertible senior notes in cash and intends to settle any excess value in shares in the event of a conversion. For the three months ended April 2, 2022 and April 3, 2021, approximately 1.0 million and 1.1 million shares, respectively, were included in the denominator for the calculation of diluted earnings per share. See Note 7, 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 other than Level 1 that are directly or indirectly observable, such as quoted prices for similar assets or liabilities and quoted prices in less active markets.

Level 3 – Inputs are unobservable for the asset or liability and are developed based on the best information available in the circumstances, which might include the Company’s own data.

10

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 April 2, 2022 Using

Quoted Prices in

Significant Other

Significant

Active Markets for

Observable

Unobservable

Identical Assets

Inputs

Inputs

Description

    

(Level 1)

    

(Level 2)

    

(Level 3)

    

Total

Assets:

    

    

    

    

Cash equivalents:

Money market funds

$

489,907

$

$

$

489,907

Corporate debt securities

31,417

31,417

Total cash equivalents

$

489,907

$

31,417

$

$

521,324

Short-term investments:

Government debt securities

$

209,331

$

85,053

$

$

294,384

Corporate debt securities

873,423

873,423

Total short-term investments

$

209,331

$

958,476

$

$

1,167,807

Other assets, net:

Auction rate securities

$

$

$

4,944

$

4,944

Total

$

$

$

4,944

$

4,944

Total

$

699,238

$

989,893

$

4,944

$

1,694,075

Fair Value Measurements

at January 1, 2022 Using

Quoted Prices in

Significant Other

Significant

Active Markets for

Observable

Unobservable

Identical Assets

Inputs

Inputs

Description

    

(Level 1)

    

(Level 2)

    

(Level 3)

    

Total

Assets:

    

    

    

    

Cash equivalents:

Money market funds

$

845,740

$

$

$

845,740

Corporate debt securities

 

3,552

 

 

3,552

Government debt securities

2,950

2,950

Total cash equivalents

$

845,740

$

6,502

$

$

852,242

Short-term investments:

Government debt securities

$

71,509

$

119,612

$

$

191,121

Corporate debt securities

773,461

773,461

Total short-term investments

$

71,509

$

893,073

$

$

964,582

Other assets, net:

Auction rate securities

$

$

$

4,980

$

4,980

Total

$

$

$

4,980

$

4,980

Total

$

917,249

$

899,575

$

4,980

$

1,821,804

11

Table of Contents

Silicon Laboratories Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

Valuation methodology

The Company’s cash equivalents and short-term investments that are classified as Level 2 are valued using non-binding market consensus prices that are corroborated with observable market data; quoted market prices for similar instruments in active markets; quoted prices in less active markets; or pricing models, such as a discounted cash flow model, with all significant inputs derived from or corroborated with observable market data. Investments classified as Level 3 are valued using a discounted cash flow model. The assumptions used in preparing the discounted cash flow model include estimates for interest rates, amount of cash flows, expected holding periods of the securities and a discount to reflect the Company’s inability to liquidate the securities. The Company’s foreign currency derivative instruments are valued using discounted cash flow models. The assumptions used in preparing the valuation models include foreign exchange rates, forward and spot prices for currencies and market observable data of similar instruments.

Contractual maturities of investments

The Company’s investments are reported at fair value, with unrealized gains and losses, net of tax, recorded as a component of accumulated other comprehensive loss in the Consolidated Balance Sheet. The following summarizes the contractual underlying maturities of the Company’s available-for-sale investments at April 2, 2022 (in thousands):

    

    

Fair

Cost

Value

Due in one year or less

$

638,424

$

636,611

Due after one year through ten years

572,449

562,613

Due after ten years

6,000

4,944

$

1,216,873

$

1,204,168

Available-for-sale investments

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

Less Than 12 Months

12 Months or Greater

Total

Gross

Gross

Gross

Fair

Unrealized

Fair

Unrealized

Fair

Unrealized

As of April 2, 2022

    

Value

    

Losses

    

Value

    

Losses

    

Value

    

Losses

Government debt securities

$

290,078

$

(3,907)

$

478

$

(12)

$

290,556

$

(3,919)

Corporate debt securities

 

628,199

 

(7,707)

 

2,629

 

(34)

 

630,828

 

(7,741)

Auction rate securities

4,944

(1,056)

4,944

(1,056)

$

918,277

$

(11,614)

$

8,051

$

(1,102)

$

926,328

$

(12,716)

Less Than 12 Months

12 Months or Greater

Total

Gross

Gross

Gross

Fair

Unrealized

Fair

Unrealized

Fair

Unrealized

As of January 1, 2022

    

Value

    

Losses

    

Value

    

Losses

    

Value

    

Losses

Government debt securities

$

126,957

$

(750)

$

$

$

126,957

$

(750)

Corporate debt securities

 

418,917

(1,451)

326

(1)

419,243

(1,452)

Auction rate securities

4,980

(1,020)

4,980

(1,020)

$

545,874

$

(2,201)

$

5,306

$

(1,021)

$

551,180

$

(3,222)

The gross unrealized losses as of April 2, 2022 and January 1, 2022 were due primarily to changes in market interest rates and the illiquidity of the Company’s auction-rate securities. The Company’s auction-rate securities have been illiquid since 2008 when auctions for the securities failed because sell orders exceeded buy orders. These securities have a contractual maturity date of 2046. The Company is unable to predict if these funds will become available before their maturity date.

12

Table of Contents

Silicon Laboratories Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

The Company records an allowance for credit loss when a decline in investment market value is due to credit-related factors. When evaluating an investment for impairment, the Company reviews factors such as the severity of the impairment, changes in underlying credit ratings, forecasted recovery, the Company’s intent to sell or the likelihood that it would be required to sell the investment before its anticipated recovery in market value and the probability that the scheduled cash payments will continue to be made. As of April 2, 2022, there were no material declines in the market value of available-for-sale investments due to credit-related factors.

At April 2, 2022 and January 1, 2022, there were no material unrealized gains associated with the Company’s available-for-sale investments.

Level 3 fair value measurements

The following summarizes quantitative information about Level 3 fair value measurements.

Auction rate securities

Fair Value at

April 2, 2022

(000s)

    

Valuation Technique

    

Unobservable Input

    

Weighted Average

$4,944

 

Discounted cash flow

 

Estimated yield

 

1.01%

 

Expected holding period

10 years

 

Estimated discount rate

 

3.58%

Significant changes in any of the unobservable inputs used in the fair value measurement of auction rate securities in isolation could result in a significantly lower or higher fair value measurement. An increase in expected yield would result in a higher fair value measurement, whereas an increase in expected holding period or estimated discount rate would result in a lower fair value measurement. Generally, a change in the assumptions used for expected holding period is accompanied by a directionally similar change in the assumptions used for estimated yield and discount rate.

The following summarizes the activity in Level 3 financial instruments for the three months ended April 2, 2022 (in thousands):

Assets

    

Three Months

Auction Rate Securities

    

Ended

Beginning balance

$

4,980

Loss included in other comprehensive loss

 

(36)

Balance at April 2, 2022

$

4,944

Fair values of other financial instruments

The Company’s debt is recorded at cost, but is measured at fair value for disclosure purposes. The fair value of the Company’s convertible senior notes is determined using observable market prices. The notes are traded in less active markets and are therefore classified as a Level 2 fair value measurement. As of April 2, 2022 and January 1, 2022, the fair value of the notes was $728.2 million and $944.3 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.

13

Table of Contents

Silicon Laboratories Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

5. Derivative Financial Instruments

The Company uses derivative financial instruments to manage certain exposures to the variability of foreign currency exchange rates. The Company’s objective is to offset increases and decreases in expenses resulting from these exposures with gains and losses on the derivative contracts, thereby reducing volatility of earnings. The Company does not use derivative contracts for speculative or trading purposes. The Company recognizes derivatives, on a gross basis, in the Consolidated Balance Sheet at fair value. Cash flows from derivatives are classified according to the nature of the cash receipt or payment in the Consolidated Statement of Cash Flows.

Cash Flow Hedges

Foreign Currency Forward Contracts

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

The Company has entered into foreign currency forward contracts for a portion of its forecasted operating expenses denominated in the Euro, Norwegian Krone, Indian Rupee and Hungarian Forint. As of April 2, 2022, the contracts had maturities of one to nine months and an aggregate notional value of $47.6 million. Gains and losses 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 2, 2022, the Company held two foreign currency forward contracts denominated in Indian Rupees with an aggregate notional value of $9.1 million and two foreign currency forward contracts denominated in Hungarian Forint with an aggregate notional value of $3.8 million. The fair value of the foreign contracts and contract gains and losses recognized in income were not material for any of the periods presented.

6. Supplemental Information

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

Inventories

    

April 2,

    

January 1,

2022

2022

Work in progress

$

43,415

$

36,078

Finished goods

 

12,100

 

13,229

$

55,515

$

49,307

14

Table of Contents

Silicon Laboratories Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

Lease income

The Company leases a portion of its headquarter facilities to other tenants. Lease income from operating leases was $1.9 million and $0.8 million during the three months ended April 2, 2022 and April 3, 2021, respectively.

7. Debt

0.625% Convertible Senior Notes

On June 1, 2020, the Company completed a private placement 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 a conversion rate of 8.1980 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 $121.98 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 (“the Sales Price Trigger”); 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. As of January 1, 2022, upon conversion, the 2025 Notes could be settled in cash, shares of the Company’s common stock or a combination of cash and shares, at the Company’s election. On January 2, 2022, the Company irrevocably elected cash settlement for the principal amount of the 2025 Notes. The Company intends to settle any excess value in shares in the event of a conversion.

The Sales Price Trigger condition was met on January 1, 2022, and as a result, holders had the option to convert their 2025 Notes at any time during the calendar quarter ended March 31, 2022. The Sales Price Trigger condition was not met during the three months ended April 2, 2022. Accordingly, the net carrying amount of the 2025 Notes was reclassified into non-current liabilities.

The principal balance of the 2025 Notes was separated into liability and equity components, and recorded initially at fair value. The excess of the principal amount of the liability component over its carrying amount represented the debt discount, which was amortized to interest expense over the term of the 2025 Notes using the effective interest method. With the Company’s adoption of ASU 2020-06 in fiscal 2022, the principal balance of the 2025 Notes is no longer separated between liability and equity components. This resulted in an increase to the carrying value of its convertible debt, representing the unamortized debt discount as of January 2, 2022, with an offsetting reduction in stockholders’ equity.

The Company incurred debt issuance costs of approximately $10.4 million, which were allocated to the liability and equity components in proportion to the allocation of the proceeds. Upon the adoption of ASU 2020-06, the equity component was reclassified to liabilities and remeasured to reflect cumulative amortization since the issuance of the 2025 Notes.

15

Table of Contents

Silicon Laboratories Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

The carrying amount of the 2025 Notes consisted of the following (in thousands):

    

April 2,

    

January 1,

2022

2022

Liability component

  

 

  

Principal

$

535,000

$

535,000

Unamortized debt discount

 

 

(78,519)

Unamortized debt issuance costs

 

(6,914)

 

(5,882)

Net carrying amount

$

528,086

$

450,599

Equity component

 

 

Net carrying amount

$

$

107,928

The liability component of the 2025 Notes is recorded in convertible debt on the Consolidated Balance Sheet. Prior to the Company’s adoption of ASU 2020-06, the equity component of the 2025 Notes was recorded in stockholders’ equity. The effective interest rate for the liability component was 5.336%. As of April 2, 2022, the remaining period over which the debt issuance costs will be amortized was 3.2 years.

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

Three Months Ended

April 2,

 

April 3,

    

2022

    

2021

Contractual interest expense

$

845

$

1,163

Amortization of debt discount

 

5,938

Amortization of debt issuance costs