SILICON LABORATORIES INC. 10-Q

Item 1. Financial Statements ​ Silicon Laboratories Inc. Condensed Consolidated Balance Sheets (In thousands, except per share data) (Unaudited) ​ ​ ​ ​ ​ ​ ​ ​ ​ July 4, December 28, ​ ​ 2020 ​ 2019 Assets ​ ​ ​ ​ ​ ​ Current assets: ​ ​ ​ ​ ​ ​ Cash and cash equivalents ​ $ 277,659 ​ $ 227,146 Short-term investments ​ ​ 445,685 ​ 498,825 Accounts receivable, net ​ ​ 70,487 ​ 75,639 Inventories ​ ​ 70,022 ​ 73,057 Prepaid expenses and other current assets ​ ​ 53,584 ​ 69,192 Total current assets ​ ​ 917,437 ​ 943,859 Property and equipment, net ​ ​ 140,200 ​ 135,939 Goodwill ​ ​ 631,932 ​ 398,402 Other intangible assets, net ​ ​ 189,923 ​ 134,279 Other assets, net ​ ​ 44,215 ​ 62,374 Total assets ​ $ 1,923,707 ​ $ 1,674,853 ​ ​ ​ ​ ​ ​ ​ Liabilities and Stockholders’ Equity ​ ​ ​ ​ ​ ​ Current liabilities: ​ ​ ​ ​ ​ ​ Accounts payable ​ $ 40,245 ​ $ 38,899 Deferred revenue and returns liability ​ ​ 26,358 ​ 19,251 Other current liabilities ​ ​ 68,397 ​ 79,551 Total current liabilities ​ ​ 135,000 ​ 137,701 Convertible debt ​ ​ 571,774 ​ ​ 368,257 Other non-current liabilities ​ ​ 59,287 ​ 53,844 Total liabilities ​ ​ 766,061 ​ 559,802 Commitments and contingencies ​ ​ ​ ​ ​ ​ Stockholders' equity: ​ ​ ​ ​ ​ ​ Preferred stock – $ 0.0001 par value; 10,000 shares authorized; no shares issued ​ ​ — ​ — Common stock – $ 0.0001 par value; 250,000 shares authorized; 43,796 and 43,496 shares issued and outstanding at July 4, 2020 and December 28, 2019, respectively ​ ​ 4 ​ 4 Additional paid-in capital ​ ​ 173,477 ​ 133,793 Retained earnings ​ ​ 981,554 ​ 980,608 Accumulated other comprehensive income ​ ​ 2,611 ​ 646 Total stockholders’ equity ​ ​ 1,157,646 ​ 1,115,051 Total liabilities and stockholders’ equity ​ $ 1,923,707 ​ $ 1,674,853 ​ The accompanying notes are an integral part of these Condensed Consolidated Financial Statements. ​ 3 Table of Contents Silicon Laboratories Inc. Condensed Consolidated Statements of Operations (In thousands, except per share data) (Unaudited) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended ​ Six Months Ended ​ July 4, June 29, July 4, June 29, ​ ​ 2020 ​ 2019 ​ 2020 ​ 2019 Revenues ​ $ 207,533 ​ $ 206,709 ​ $ 422,410 ​ $ 394,822 Cost of revenues ​ ​ 81,222 ​ 79,660 ​ ​ 166,933 ​ 151,899 Gross profit ​ ​ 126,311 ​ 127,049 ​ ​ 255,477 ​ 242,923 Operating expenses: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Research and development ​ ​ 70,838 ​ 63,856 ​ ​ 142,061 ​ 125,422 Selling, general and administrative ​ ​ 48,404 ​ 48,637 ​ ​ 102,400 ​ 97,853 Operating expenses ​ ​ 119,242 ​ 112,493 ​ ​ 244,461 ​ 223,275 Operating income ​ ​ 7,069 ​ ​ 14,556 ​ ​ 11,016 ​ 19,648 Other income (expense): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Interest income and other, net ​ ​ 3,267 ​ ​ 3,696 ​ ​ 6,518 ​ 6,519 Interest expense ​ ​ ( 11,778 ) ​ ​ ( 5,005 ) ​ ​ ( 17,319 ) ​ ( 10,002 ) Income (loss) before income taxes ​ ​ ( 1,442 ) ​ ​ 13,247 ​ ​ 215 ​ 16,165 Provision (benefit) for income taxes ​ ​ 381 ​ 29,276 ​ ​ ( 206 ) ​ 26,796 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Net income (loss) ​ $ ( 1,823 ) ​ $ ( 16,029 ) ​ $ 421 ​ $ ( 10,631 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Earnings (loss) per share: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Basic ​ $ ( 0.04 ) ​ $ ( 0.37 ) ​ $ 0.01 ​ $ ( 0.25 ) Diluted ​ $ ( 0.04 ) ​ $ ( 0.37 ) ​ $ 0.01 ​ $ ( 0.25 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Weighted-average common shares outstanding: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Basic ​ ​ 43,761 ​ 43,386 ​ ​ 43,699 ​ ​ 43,287 Diluted ​ ​ 43,761 ​ 43,386 ​ ​ 44,219 ​ ​ 43,287 ​ The accompanying notes are an integral part of these Condensed Consolidated Financial Statements. ​ 4 Table of Contents Silicon Laboratories Inc. Condensed Consolidated Statements of Comprehensive Income (Loss) (In thousands) (Unaudited) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended ​ Six Months Ended ​ July 4, June 29, July 4, June 29, ​ ​ 2020 ​ 2019 ​ 2020 ​ 2019 Net income (loss) ​ $ ( 1,823 ) ​ $ ( 16,029 ) ​ $ 421 ​ $ ( 10,631 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Other comprehensive income, before tax ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Net changes to available-for-sale securities ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Unrealized gains arising during the period ​ ​ 3,068 ​ 1,207 ​ ​ 2,598 ​ 2,632 Reclassification for gains included in net income (loss) ​ ​ ( 121 ) ​ ​ — ​ ​ ( 222 ) ​ ​ — ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Net changes to cash flow hedges ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Unrealized gains (losses) arising during the period ​ ​ 496 ​ ​ 44 ​ ​ ( 311 ) ​ ​ 56 Reclassification for losses included in net income (loss) ​ ​ 282 ​ ​ 194 ​ ​ 423 ​ 431 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Other comprehensive income, before tax ​ ​ 3,725 ​ ​ 1,445 ​ ​ 2,488 ​ 3,119 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Provision for income taxes ​ ​ 783 ​ 304 ​ ​ 523 ​ 655 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Other comprehensive income ​ ​ 2,942 ​ 1,141 ​ ​ 1,965 ​ 2,464 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Comprehensive income (loss) ​ $ 1,119 ​ $ ( 14,888 ) ​ $ 2,386 ​ $ ( 8,167 ) ​ The accompanying notes are an integral part of these Condensed Consolidated Financial Statements. ​ 5 Table of Contents Silicon Laboratories Inc. Condensed Consolidated Statements of Changes in Stockholders’ Equity (In thousands) (Unaudited) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Additional ​ ​ Accumulated Other Total ​ ​ ​ ​ Common ​ Paid-In ​ Retained ​ Comprehensive ​ Stockholders’ Three Months Ended July 4, 2020 ​ Shares ​ Stock ​ Capital ​ Earnings ​ Income (Loss) ​ Equity Balance as of April 4, 2020 ​ 43,670 ​ $ 4 ​ $ 116,553 ​ $ 983,377 ​ $ ( 331 ) ​ $ 1,099,603 Net income (loss) ​ — ​ — ​ — ​ ( 1,823 ) ​ ​ — ​ ​ ( 1,823 ) Other comprehensive income ​ — ​ — ​ — ​ — ​ 2,942 ​ 2,942 Stock issuances, net of shares withheld for taxes ​ 126 ​ — ​ 7,295 ​ — ​ — ​ 7,295 Stock-based compensation ​ — ​ — ​ 14,458 ​ — ​ — ​ 14,458 Convertible debt issuance ​ — ​ ​ — ​ ​ 35,171 ​ ​ — ​ ​ — ​ ​ 35,171 Balance as of July 4, 2020 ​ 43,796 ​ $ 4 ​ $ 173,477 ​ $ 981,554 ​ $ 2,611 ​ $ 1,157,646 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Additional ​ ​ Accumulated Other Total ​ ​ ​ ​ Common ​ Paid-In ​ Retained ​ Comprehensive ​ Stockholders’ Three Months Ended June 29, 2019 ​ Shares ​ Stock ​ Capital ​ Earnings ​ Income (Loss) ​ Equity Balance as of March 30, 2019 ​ 43,341 ​ $ 4 ​ $ 90,988 ​ $ 966,741 ​ $ ( 251 ) ​ $ 1,057,482 Net income (loss) ​ — ​ — ​ — ​ ( 16,029 ) ​ — ​ ( 16,029 ) Other comprehensive income ​ — ​ — ​ — ​ — ​ 1,141 ​ 1,141 Stock issuances, net of shares withheld for taxes ​ 127 ​ — ​ 6,713 ​ — ​ — ​ 6,713 Repurchases of common stock ​ ( 124 ) ​ — ​ ( 11,712 ) ​ — ​ — ​ ( 11,712 ) Stock-based compensation ​ — ​ — ​ 13,676 ​ — ​ — ​ 13,676 Balance as of June 29, 2019 ​ 43,344 ​ $ 4 ​ $ 99,665 ​ $ 950,712 ​ $ 890 ​ $ 1,051,271 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Additional ​ ​ Accumulated Other Total ​ ​ ​ ​ Common ​ Paid-In ​ Retained ​ Comprehensive ​ Stockholders’ Six Months Ended July 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 (loss) — ​ — ​ — ​ 421 ​ — ​ 421 Other comprehensive income — ​ — ​ — ​ — ​ 1,965 ​ 1,965 Stock issuances, net of shares withheld for taxes 509 ​ — ​ ( 8,999 ) ​ — ​ — ​ ( 8,999 ) Repurchases of common stock ( 209 ) ​ — ​ ( 16,287 ) ​ — ​ — ​ ( 16,287 ) Stock-based compensation — ​ — ​ 29,799 ​ — ​ — ​ 29,799 Convertible debt issuance ​ — ​ ​ — ​ ​ 35,171 ​ ​ — ​ ​ — ​ ​ 35,171 Balance as of July 4, 2020 43,796 ​ $ 4 ​ $ 173,477 ​ $ 981,554 ​ $ 2,611 ​ $ 1,157,646 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Additional ​ ​ Accumulated Other Total ​ ​ ​ ​ Common ​ Paid-In ​ Retained ​ Comprehensive ​ Stockholders’ Six Months Ended June 29, 2019 ​ Shares ​ Stock ​ Capital ​ Earnings ​ Income (Loss) ​ Equity Balance as of December 29, 2018 43,088 ​ $ 4 ​ $ 107,517 ​ $ 961,343 ​ $ ( 1,574 ) ​ $ 1,067,290 Net income (loss) — ​ — ​ — ​ ( 10,631 ) ​ — ​ ( 10,631 ) Other comprehensive income — ​ — ​ — ​ — ​ 2,464 ​ 2,464 Stock issuances, net of shares withheld for taxes 557 ​ — ​ ( 7,400 ) ​ — ​ — ​ ( 7,400 ) Repurchases of common stock ( 301 ) ​ — ​ ( 26,716 ) ​ — ​ — ​ ( 26,716 ) Stock-based compensation — ​ — ​ 26,264 ​ — ​ — ​ 26,264 Balance as of June 29, 2019 43,344 ​ $ 4 ​ $ 99,665 ​ $ 950,712 ​ $ 890 ​ $ 1,051,271 ​ The accompanying notes are an integral part of these Condensed Consolidated Financial Statements. 6 Table of Contents Silicon Laboratories Inc. Condensed Consolidated Statements of Cash Flows (In thousands) (Unaudited) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Six Months Ended ​ July 4, June 29, ​ ​ 2020 ​ 2019 Operating Activities ​ ​ ​ ​ ​ ​ Net income (loss) ​ $ 421 ​ $ ( 10,631 ) Adjustments to reconcile net income (loss) to cash provided by operating activities: ​ ​ ​ ​ ​ ​ Depreciation of property and equipment ​ ​ 8,428 ​ 8,447 Amortization of other intangible assets and other assets ​ ​ 21,568 ​ 20,476 Amortization of debt discount and debt issuance costs ​ ​ 8,359 ​ ​ 6,659 Loss on extinguishment of convertible debt ​ ​ 3,685 ​ ​ — Stock-based compensation expense ​ ​ 29,770 ​ 26,253 Deferred income taxes ​ ​ 1,177 ​ 24,043 Changes in operating assets and liabilities: ​ ​ ​ ​ ​ ​ Accounts receivable ​ ​ 7,070 ​ 893 Inventories ​ ​ 6,767 ​ 1,118 Prepaid expenses and other assets ​ ​ 21,821 ​ 11,326 Accounts payable ​ ​ ( 769 ) ​ 5,321 Other current liabilities and income taxes ​ ​ ( 15,442 ) ​ ( 18,101 ) Deferred revenue and returns liability ​ ​ 6,678 ​ ( 1,228 ) Other non-current liabilities ​ ​ 970 ​ ​ ( 3,222 ) Net cash provided by operating activities ​ ​ 100,503 ​ 71,354 ​ ​ ​ ​ ​ ​ ​ Investing Activities ​ ​ ​ ​ ​ ​ Purchases of available-for-sale investments ​ ​ ( 199,347 ) ​ ( 184,170 ) Sales and maturities of available-for-sale investments ​ ​ 255,112 ​ 151,428 Purchases of property and equipment ​ ​ ( 10,394 ) ​ ( 9,402 ) Purchases of other assets ​ ​ ( 820 ) ​ ​ ( 2,588 ) Acquisition of business, net of cash acquired ​ ​ ( 316,809 ) ​ ​ — Net cash used in investing activities ​ ​ ( 272,258 ) ​ ( 44,732 ) ​ ​ ​ ​ ​ ​ ​ Financing Activities ​ ​ ​ ​ ​ ​ Proceeds from issuance of debt ​ ​ 845,000 ​ ​ — Payments on debt ​ ​ ( 597,446 ) ​ ​ — Repurchases of common stock ​ ​ ( 16,287 ) ​ ​ ( 26,716 ) Payment of taxes withheld for vested stock awards ​ ​ ( 16,756 ) ​ ​ ( 14,509 ) Proceeds from the issuance of common stock ​ ​ 7,757 ​ ​ 7,109 Net cash provided by (used in) financing activities ​ ​ 222,268 ​ ( 34,116 ) ​ ​ ​ ​ ​ ​ ​ Increase (decrease) in cash and cash equivalents ​ ​ 50,513 ​ ( 7,494 ) Cash and cash equivalents at beginning of period ​ ​ 227,146 ​ 197,043 Cash and cash equivalents at end of period ​ $ 277,659 ​ $ 189,549 ​ 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 July 4, 2020 and December 28, 2019, the condensed consolidated results of its operations for the three and six months ended July 4, 2020 and June 29, 2019, the Condensed Consolidated Statements of Comprehensive Income (Loss) for the three and six months ended July 4, 2020 and June 29, 2019, the Condensed Consolidated Statements of Changes in Stockholders’ Equity for the three and six months ended July 4, 2020 and June 29, 2019, and the Condensed Consolidated Statements of Cash Flows for the six months ended July 4, 2020 and June 29, 2019. All intercompany balances and transactions have been eliminated in consolidation. The condensed consolidated results of operations for the three and six months ended July 4, 2020 are not necessarily indicative of the results to be expected for the full year. ​ The accompanying unaudited Condensed Consolidated Financial Statements do not include certain footnotes and financial presentations normally required under U.S. generally accepted accounting principles (GAAP). Therefore, these Condensed Consolidated Financial Statements should be read in conjunction with the audited Consolidated Financial Statements and notes thereto for the year ended December 28, 2019, included in the Company’s Form 10-K filed with the Securities and Exchange Commission (SEC) on January 29, 2020. ​ The Company prepares financial statements on a 52 - or 53 -week fiscal year that ends on the Saturday closest to December 31. Fiscal 2020 will have 53 weeks with the extra week occurring in the first quarter of the year. Fiscal 2019 had 52 weeks. In a 52-week year, each fiscal quarter consists of 13 weeks. ​ Use of Estimates ​ The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Among the significant estimates affecting the financial statements are those related to inventories, goodwill, acquired intangible assets, other long-lived assets, revenue recognition, stock-based compensation and income taxes. Actual results could differ from those estimates, and such differences could be material to the financial statements. ​ Adoption of New Accounting Standard ​ The Company adopted Accounting Standards Update (ASU) No. 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments , on December 29, 2019, the first day of its fiscal year ending January 2, 2021. The adoption did not have a material impact on its financial statements. ​ Revenue Recognition ​ Revenue is recognized when control of the promised goods or services is transferred to customers, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods or services. Substantially all of the Company’s contracts with customers contain a single performance obligation, the sale of mixed-signal integrated circuit (IC) products. This performance obligation is satisfied when control of the product is transferred to the customer, which typically occurs upon delivery. Unsatisfied performance obligations primarily represent contracts for products with future delivery dates. The Company has opted to not disclose the amount of unsatisfied performance obligations as these contracts have original expected durations of less than one year. ​ 8 Table of Contents Silicon Laboratories Inc. Notes to Condensed Consolidated Financial Statements (Continued) (Unaudited) The transaction price reflects the Company’s expectations about the consideration it will be entitled to receive from the customer and may include fixed or variable amounts. Variable consideration primarily includes sales made to distributors under agreements allowing certain rights of return, referred to as stock rotation, and credits issued to the distributor due to price protection. The Company estimates variable consideration at the most likely amount to which it expects to be entitled. The estimate is based on information available to the Company, including recent sales activity and pricing data. The Company applies a constraint to its variable consideration estimate which considers both the likelihood of a return and the amount of a potential price concession. Variable consideration that does not meet revenue recognition criteria is deferred. The Company records a right of return asset in prepaid expenses and other current assets for the costs of distributor inventory not meeting revenue recognition criteria. A corresponding deferred revenue and returns liability amount is recorded for unrecognized revenue associated with such costs. The Company’s products carry a one-year replacement warranty. Payments are typically due within 30 days of invoicing and do not include a significant financing component. ​ 2. Earnings (Loss) Per Share ​ The following table sets forth the computation of basic and diluted earnings (loss) per share (in thousands, except per share data): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended ​ Six Months Ended ​ July 4, June 29, July 4, June 29, ​ ​ 2020 ​ 2019 ​ 2020 ​ 2019 Net income (loss) ​ $ ( 1,823 ) ​ $ ( 16,029 ) ​ $ 421 ​ $ ( 10,631 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Shares used in computing basic earnings (loss) per share ​ ​ 43,761 ​ 43,386 ​ ​ 43,699 ​ 43,287 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Effect of dilutive securities: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Stock-based awards and convertible debt ​ ​ — ​ — ​ ​ 520 ​ — Shares used in computing diluted earnings (loss) per share ​ ​ 43,761 ​ 43,386 ​ ​ 44,219 ​ 43,287 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Earnings (loss) per share: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Basic ​ $ ( 0.04 ) ​ $ ( 0.37 ) ​ $ 0.01 ​ $ ( 0.25 ) Diluted ​ $ ( 0.04 ) ​ $ ( 0.37 ) ​ $ 0.01 ​ $ ( 0.25 ) ​ For the three months ended July 4, 2020 and June 29, 2019 and the six months ended July 4, 2020 and June 29, 2019, approximately 0.4 million, 0.0 million, 0.3 million and 0.5 million shares, respectively, consisting of restricted stock awards (RSUs) and market stock awards (MSUs), were not included in the diluted earnings (loss) per share calculation since the shares were anti-dilutive. Further, diluted shares used in calculating net loss per share for the three months ended July 4, 2020 and the three and six months ended June 29, 2019 excluded 0.3 million shares, 0.6 million shares and 0.6 million shares, respectively, due to the Company’s net loss for the periods. The Company intends to settle the principal amount of its convertible senior notes in cash and any excess value in shares in the event of a conversion. Accordingly, shares issuable upon conversion of the principal amount have been excluded from the calculation of diluted earnings per share. If the market value of the notes under certain prescribed conditions exceeds the conversion amount, the excess is included in the denominator for the computation of diluted earnings per share using the treasury stock method. For three and six months ended July 4, 2020, approximately 0.0 million shares and 0.2 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. ​ 9 Table of Contents Silicon Laboratories Inc. Notes to Condensed Consolidated Financial Statements (Continued) (Unaudited) 3. Fair Value of Financial Instruments ​ The fair values of the Company's financial instruments are recorded using a hierarchical disclosure framework based upon the level of subjectivity of the inputs used in measuring assets and liabilities. The three levels are described below: ​ Level 1 - Inputs are unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date. ​ Level 2 - Inputs are inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. ​ 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 July 4, 2020 Using ​ ​ ​ ​ Quoted Prices in Significant Other Significant ​ ​ ​ ​ Active Markets for ​ Observable ​ Unobservable ​ ​ ​ ​ ​ Identical Assets ​ Inputs ​ Inputs ​ ​ ​ Description ​ (Level 1) ​ (Level 2) ​ (Level 3) ​ Total Assets: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Cash equivalents: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Money market funds ​ $ 179,239 ​ $ — ​ $ — ​ $ 179,239 Corporate debt securities ​ ​ — ​ ​ 2,397 ​ ​ — ​ ​ 2,397 Government debt securities ​ ​ — ​ ​ 22,344 ​ ​ — ​ ​ 22,344 Total cash equivalents ​ $ 179,239 ​ $ 24,741 ​ $ — ​ $ 203,980 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Short-term investments: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Government debt securities ​ $ 77,409 ​ $ 45,443 ​ $ — ​ $ 122,852 Corporate debt securities ​ ​ — ​ ​ 322,833 ​ ​ — ​ ​ 322,833 Total short-term investments ​ $ 77,409 ​ $ 368,276 ​ $ — ​ $ 445,685 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Other assets, net: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Auction rate securities ​ $ — ​ $ — ​ $ 5,400 ​ $ 5,400 Total ​ $ — ​ $ — ​ $ 5,400 ​ $ 5,400 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Total ​ $ 256,648 ​ $ 393,017 ​ $ 5,400 ​ $ 655,065 ​ 10 Table of Contents Silicon Laboratories Inc. Notes to Condensed Consolidated Financial Statements (Continued) (Unaudited) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Fair Value Measurements ​ ​ ​ ​ ​ at December 28, 2019 Using ​ ​ ​ ​ Quoted Prices in Significant Other Significant ​ ​ ​ ​ Active Markets for ​ Observable ​ Unobservable ​ ​ ​ ​ ​ Identical Assets ​ Inputs ​ Inputs ​ ​ ​ Description ​ (Level 1) ​ (Level 2) ​ (Level 3) ​ Total Assets: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Cash equivalents: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Money market funds ​ $ 92,379 ​ $ — ​ $ — ​ $ 92,379 Corporate debt securities ​ ​ — ​ ​ 1,325 ​ ​ — ​ ​ 1,325 Total cash equivalents ​ $ 92,379 ​ $ 1,325 ​ $ — ​ $ 93,704 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Short-term investments: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Government debt securities ​ $ 85,189 ​ $ 86,682 ​ $ — ​ $ 171,871 Corporate debt securities ​ — ​ ​ 326,954 ​ ​ — ​ ​ 326,954 Total short-term investments ​ $ 85,189 ​ $ 413,636 ​ $ — ​ $ 498,825 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Other assets, net: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Auction rate securities ​ $ — ​ $ — ​ $ 5,647 ​ $ 5,647 Total ​ $ — ​ $ — ​ $ 5,647 ​ $ 5,647 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Total ​ $ 177,568 ​ $ 414,961 ​ $ 5,647 ​ $ 598,176 ​ Valuation methodology ​ The Company’s cash equivalents and short-term investments that are classified as Level 2 are valued using non-binding market consensus prices that are corroborated with observable market data; quoted market prices for similar instruments in active markets; or pricing models, such as a discounted cash flow model, with all significant inputs derived from or corroborated with observable market data. Investments classified as Level 3 are valued using a discounted cash flow model. The assumptions used in preparing the discounted cash flow model include estimates for interest rates, amount of cash flows, expected holding periods of the securities and a discount to reflect the Company’s inability to liquidate the securities. The Company’s derivative instruments are valued using discounted cash flow models. The assumptions used in preparing the valuation models include quoted interest swap rates, foreign exchange rates, forward and spot prices for currencies, and market observable data of similar instruments. ​ Available-for-sale investments ​ The Company's investments are reported at fair value, with unrealized gains and losses, net of tax, recorded as a component of accumulated other comprehensive income in the Consolidated Balance Sheet. The following summarizes the contractual underlying maturities of the Company’s available-for-sale investments at July 4, 2020 (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Fair ​ ​ Cost ​ Value Due in one year or less ​ $ 438,505 ​ $ 439,825 Due after one year through ten years ​ ​ 207,194 ​ ​ 209,840 Due after ten years ​ ​ 6,000 ​ ​ 5,400 ​ ​ $ 651,699 ​ $ 655,065 ​ 11 Table of Contents Silicon Laboratories Inc. Notes to Condensed Consolidated Financial Statements (Continued) (Unaudited) 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 July 4, 2020 ​ Value ​ Losses ​ Value ​ Losses ​ Value ​ Losses Government debt securities ​ $ 8,186 ​ $ ( 1 ) ​ $ — ​ $ — ​ $ 8,186 ​ $ ( 1 ) Corporate debt securities ​ ​ 57,574 ​ ​ ( 65 ) ​ ​ — ​ ​ — ​ ​ 57,574 ​ ​ ( 65 ) Auction rate securities ​ ​ — ​ ​ — ​ ​ 5,400 ​ ​ ( 600 ) ​ ​ 5,400 ​ ​ ( 600 ) ​ ​ $ 65,760 ​ $ ( 66 ) ​ $ 5,400 ​ $ ( 600 ) ​ $ 71,160 ​ $ ( 666 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Less Than 12 Months ​ 12 Months or Greater ​ Total ​ ​ ​ Gross ​ ​ Gross ​ ​ Gross ​ ​ Fair ​ Unrealized ​ Fair ​ Unrealized ​ Fair ​ Unrealized As of December 28, 2019 ​ Value ​ Losses ​ Value ​ Losses ​ Value ​ Losses Government debt securities ​ $ 11,947 ​ $ ( 19 ) ​ $ 7,183 ​ $ ( 7 ) ​ $ 19,130 ​ $ ( 26 ) Corporate debt securities ​ ​ 68,116 ​ ​ ( 81 ) ​ ​ 20 ​ ​ — ​ ​ 68,136 ​ ​ ( 81 ) Auction rate securities ​ ​ — ​ ​ — ​ ​ 5,647 ​ ​ ( 353 ) ​ ​ 5,647 ​ ​ ( 353 ) ​ ​ $ 80,063 ​ $ ( 100 ) ​ $ 12,850 ​ $ ( 360 ) ​ $ 92,913 ​ $ ( 460 ) ​ The gross unrealized losses as of July 4, 2020 and December 28, 2019 were due primarily to changes in market interest rates and the illiquidity of the Company’s auction-rate securities. The Company’s auction-rate securities have been illiquid since 2008 when auctions for the securities failed because sell orders exceeded buy orders. These securities have a contractual maturity date of 2046. The Company is unable to predict if these funds will become available before their maturity date. ​ 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 July 4, 2020, there were no material declines in the market value of available-for-sale investments due to credit-related factors. ​ At July 4, 2020 and December 28, 2019, there were no material unrealized gains associated with the Company's available-for-sale investments. ​ Level 3 fair value measurements ​ The following summarizes quantitative information about Level 3 fair value measurements. ​ Auction rate securities ​ ​ ​ ​ ​ ​ ​ ​ ​ Fair Value at ​ ​ ​ ​ ​ ​ July 4, 2020 ​ ​ ​ ​ ​ ​ (000s) Valuation Technique Unobservable Input Weighted Average $ 5,400 Discounted cash flow Estimated yield ​ 2.22 % ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Expected holding period ​ 10 years ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Estimated discount rate ​ 2.15 % ​ 12 Table of Contents Silicon Laboratories Inc. Notes to Condensed Consolidated Financial Statements (Continued) (Unaudited) 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 and six months ended July 4, 2020 (in thousands): ​ Assets ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Six Months Auction Rate Securities ​ Ended Ended Beginning balance ​ $ 5,400 ​ $ 5,647 Loss included in other comprehensive income ​ — ​ ( 247 ) Balance at July 4, 2020 ​ $ 5,400 ​ $ 5,400 ​ Fair values of other financial instruments ​ The Company’s debt is recorded at cost, but is measured at fair value for disclosure purposes. The fair value of the Company’s convertible senior notes is determined using observable market prices. The notes are traded in less active markets and are therefore classified as a Level 2 fair value measurement. As of July 4, 2020 and December 28, 2019, the fair value of the 1.375 % convertible senior notes was $ 196.5 million and $ 524.0 million, respectively. The fair value of the 0.625 % convertible senior notes as of July 4, 2020 was $ 569.1 million. ​ 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. ​ 4. Derivative Financial Instruments ​ The Company uses derivative financial instruments to manage certain exposures to the variability of foreign currency exchange rates and interest rates. The Company’s objective is to offset increases and decreases in expenses resulting from these exposures with gains and losses on the derivative contracts, thereby reducing volatility of earnings. The Company does not use derivative contracts for speculative or trading purposes. The Company recognizes derivatives, on a gross basis, in the Consolidated Balance Sheet at fair value. Cash flows from derivatives are classified according to the nature of the cash receipt or payment in the Consolidated Statement of Cash Flows. ​ Cash Flow Hedges ​ Foreign Currency Forward Contracts ​ The Company uses foreign currency forward contracts to reduce the earnings impact that exchange rate fluctuations have on operating expenses denominated in currencies other than the U.S. dollar. Changes in the fair value of the contracts are recorded in accumulated other comprehensive income 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 may be recognized in the Consolidated Statement of Operations based on an assessment of the contracts at the time of termination. ​ 13 Table of Contents Silicon Laboratories Inc. Notes to Condensed Consolidated Financial Statements (Continued) (Unaudited) The Company has entered into foreign currency forward contracts for a portion of its forecasted operating expenses denominated in the Norwegian Krone. As of July 4, 2020, the contracts had a maturity of less than one month and an aggregate notional value of $ 1.2 million. Losses expected to be reclassified into earnings in the next 12 months were not material. The fair value of the contracts, contract losses recognized in other comprehensive income and amounts reclassified from accumulated other comprehensive income into earnings were not material for any of the periods presented. ​ Interest Rate Swaps The Company uses interest rate swap agreements to manage exposure to interest rate risks. The effective portion of the gain or loss on the interest rate swap is recorded in accumulated other comprehensive loss as a separate component of stockholders’ equity and is subsequently recognized as interest expense in the Consolidated Statement of Operations when the hedged exposure affects earnings. If the credit facility or the interest rate swap agreement is terminated prior to maturity, the fair value of the interest rate swap recorded in accumulated other comprehensive loss may be recognized in the Consolidated Statement of Operations based on an assessment of the agreements at the time of termination. ​ The Company entered into an interest rate swap agreement with an original notional value of $ 310 million in connection with borrowing from its credit facility on March 27, 2020. The Company terminated the swap agreement on June 1, 2020 in connection with the repayment in full of its credit facility. The termination of the swap agreement resulted in the reclassification of $ 0.4 million of unrealized losses that were previously recorded in accumulated other comprehensive income (loss) into earnings. ​ 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 Operations 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 July 4, 2020, the Company held three foreign currency forward contracts denominated in Singapore Dollars with a notional value of $ 17.8 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 ​ ​ ​ ​ ​ ​ ​ ​ ​ July 4, December 28, ​ ​ 2020 ​ 2019 Work in progress ​ $ 48,777 ​ $ 52,350 Finished goods ​ 21,245 ​ 20,707 ​ ​ $ 70,022 ​ $ 73,057 ​ ​ 14 Table of Contents Silicon Laboratories Inc. Notes to Condensed Consolidated Financial Statements (Continued) (Unaudited) 6. Acquisition ​ Redpine Signals ​ On April 28, 2020, the Company acquired the Wi-Fi® and Bluetooth® business of Redpine Signals. The acquisition will accelerate the Company’s roadmap for Wi-Fi and Bluetooth silicon and software solutions. The purchase price was in excess of the fair value of the net assets acquired and, as a result, the Company recorded goodwill. A portion of the goodwill is deductible for tax purposes. The purchase price was allocated as follows (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Weighted-Average ​ ​ ​ ​ ​ Amortization Period ​ ​ Amount ​ (Years) Intangible assets: ​ ​ ​ In-process research and development ​ $ 11,753 Not amortized Developed technology ​ 61,674 8 Customer relationships ​ 2,450 2 Trademarks ​ 661 2 ​ ​ 76,538 ​ ​ ​ ​ ​ ​ ​ ​ Accounts receivable ​ 1,395 Inventory ​ 4,375 Other current assets ​ 1,251 Goodwill ​ 233,530 Other non-current assets ​ 673 Current liabilities ​ ( 856 ) Non-current liabilities ​ ( 97 ) Total purchase price ​ $ 316,809 ​ In-process research and development (IPR&D) represents Wi-Fi and Bluetooth technology that had not achieved technological feasibility as of the acquisition date. The fair value of IPR&D was determined using the income approach. The discount rate applied to the projected cash flows was 13.8 %, which reflects the risks related to the projects. The allocation of the purchase price is preliminary and subject to change, primarily for the valuation of consideration, intangible assets and the finalization of income tax matters. ​ Revenues attributable to the Redpine Signals business from the date of acquisition to July 4, 2020 were $ 2.4 million. Pro forma information related to this acquisition has not been presented because it would not be materially different from amounts reported. The Company recorded approximately $ 1.5 million of acquisition-related costs in selling, general and administrative expenses during the six months ended July 4, 2020. ​ ​ 7. 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 Company used $ 310.0 million of the proceeds to repay in full the outstanding balance under its credit facility and the remainder of the proceeds, along with cash on hand, to repurchase approximately $ 236.8 million aggregate principal amount of its outstanding 1.375 % convertible senior notes. ​ 15 Table of Contents Silicon Laboratories Inc. Notes to Condensed Consolidated Financial Statements (Continued) (Unaudited) 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 bear interest semi-annually at a rate of 1.375 % per year and mature on March 1, 2022. ​ The 2022 Notes are convertible at an initial conversion rate of 10.7744 shares of common stock per $1,000 principal amount of the 2022 Notes, or approximately 4.3 million shares of common stock, which is equivalent to a conversion price of approximately $ 92.81 per share. The conversion rate is subject to adjustment under certain circumstances. Holders may convert the 2022 Notes under the following circumstances: during any calendar quarter after the calendar quarter ended on June 30, 2017 if the closing price of the Company’s common stock for at least 20 trading days in the 30 consecutive trading days ending on the last trading day of the preceding calendar quarter is greater than or equal to $ 120.66 per share, representing 130 % of the conversion price of the 2022 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 2022 Notes are called for redemption; or at any time after December 1, 2021. The Company may redeem all or any portion of the 2022 Notes, at its option, on or after March 6, 2020, if the last reported sale price of the Company’s common stock has been at least 130 % of the conversion price then in effect for at least 20 trading days during any 30 consecutive trading day period. Upon conversion, the 2022 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. ​ On June 1, 2020, the Company paid $ 276.9 million in cash to repurchase $ 236.8 million aggregate principal amount of the 2022 Notes. The Company recognized a loss on debt extinguishment of $ 3.7 million during the three months ended July 4, 2020, which was recorded in interest expense in the Condensed Consolidated Statements of Operations. ​ The principal balances of 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. ​ 16 Table of Contents Silicon Laboratories Inc. Notes to Condensed Consolidated Financial Statements (Continued) (Unaudited) The carrying amount of the notes consisted of the following (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ July 4, December 28, ​ ​ 2020 ​ 2019 Liability component ​ ​ ​ ​ ​ Principal ​ $ 698,217 ​ $ 400,000 Unamortized debt discount ​ ( 117,008 ) ​ ​ ( 27,580 ) Unamortized debt issuance costs ​ ( 9,435 ) ​ ​ ( 4,163 ) Net carrying amount ​ $ 571,774 ​ $ 368,257 ​ ​ ​ ​ ​ ​ ​ Equity component ​ ​ ​ ​ ​ Net carrying amount ​ $ 113,932 ​ $ 57,735 ​ 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 July 4, 2020, the remaining period over which the debt discount and debt issuance costs will be amortized was 5.0 years for the 2025 Notes and 1.7 years for the 2022 Notes. ​ Interest expense related to the notes was comprised of the following (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended ​ Six Months Ended ​ ​ July 4, ​ June 29, ​ July 4, June 29, ​ 2020 2019 2020 2019 Contractual interest expense ​ $ 1,374 ​ $ 1,360 ​ $ 2,841 ​ $ 2,750 Amortization of debt discount ​ ​ 4,132 ​ ​ 2,900 ​ ​ 7,378 ​ 5,786 Amortization of debt issuance costs ​ ​ 491 ​ ​ 437 ​ ​ 981 ​ 873 ​ ​ $ 5,997 ​ $ 4,697 ​ $ 11,200 ​ $ 9,409 ​ 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. On March 27, 2020, the Company borrowed $ 310 million under the credit facility. On June 1, 2020, the Company repaid in full the outstanding balance of the credit facility. ​ 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 July 4, 2020, 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. ​ 17 Table of Contents Silicon Laboratories Inc. Notes to Condensed Consolidated Financial Statements (Continued) (Unaudited) 8. 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. ​ ​ 9. Stockholders’ Equity ​ Common Stock ​ The Company issued 0.5 million shares of common stock during the six months ended July 4, 2020. ​ Share Repurchase Program ​ In April 2020, the Board of Directors terminated the Company's existing share repurchase program, effective immediately, which had an authorization amount of $ 200 million and a termination date of December 2020. The Company repurchased 0.2 million shares and 0.3 million shares of its common stock for $ 16.3 million and $ 26.7 million during the six months ended July 4, 2020 and June 29, 2019, respectively. These shares were retired upon repurchase. ​ Reclassifications From Accumulated Other Comprehensive Income (Loss) ​ The following table summarizes the effect on net income (loss) from reclassifications out of accumulated other comprehensive income (loss) (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended ​ Six Months Ended ​ July 4, June 29, July 4, June 29, Reclassification ​ 2020 ​ 2019 2020 ​ 2019 Gains on available-for-sales securities to: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Interest income and other, net ​ $ 121 ​ $ — ​ $ 222 ​ $ — ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Losses on cash flow hedges to: ​ ​ ​ ​ ​ ​ ​ ​ Operating expenses ​ ​ ( 282 ) ​ ​ ( 194 ) ​ ​ ( 423 ) ​ ​ ( 431 ) ​ ​ ( 161 ) ​ ​ ( 194 ) ​ ​ ( 201 ) ​ ​ ( 431 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Income tax expense ​ 34 ​ 41 ​ ​ 40 ​ 91 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Total reclassifications $ ( 127 ) ​ $ ( 153 ) ​ $ ( 161 ) ​ $ ( 340 ) ​ ​ 10. 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 ​ Six Months Ended ​ July 4, June 29, July 4, June 29, ​ ​ 2020 ​ 2019 ​ 2020 ​ 2019 Internet of Things ​ $ 115,055 ​ $ 124,664 ​ $ 233,096 ​ $ 231,085 Infrastructure and automotive ​ ​ 92,478 82,045 ​ ​ 189,314 163,737 ​ ​ $ 207,533 $ 206,709 ​ $ 422,410 $ 394,822 ​ 18 Table of Contents Silicon Laboratories Inc. Notes to Condensed Consolidated Financial Statements (Continued) (Unaudited) The Company has combined its previous product groups, Infrastructure, Broadcast and Access, into the Infrastructure and automotive product group. Prior periods were retrospectively adjusted. ​ 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 July 4, 2020 and June 29, 2019 and the six months ended July 4, 2020 and June 29, 2019, the Company recognized revenue of $ 13.5 million, $ 13.5 million, $ 14.6 million and $ 15.4 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 ​ Six Months Ended ​ July 4, June 29, July 4, June 29, ​ 2020 2019 2020 2019 Distributors ​ $ 167,016 ​ $ 151,180 ​ $ 330,479 ​ $ 285,309 Direct customers ​ ​ 40,517 ​ 55,529 ​ ​ 91,931 ​ 109,513 ​ ​ $ 207,533 ​ $ 206,709 ​ $ 422,410 ​ $ 394,822 ​ ​ 11. 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. These amendments authorized additional shares of common stock for issuance, to comply with changes in applicable law, 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 units (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. ​ The following table presents details of stock-based compensation costs recognized in the Condensed Consolidated Statements of Operations (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended ​ Six Months Ended ​ ​ July 4, ​ June 29, ​ July 4, ​ June 29, ​ 2020 2019 2020 2019 Cost of revenues ​ $ 376 ​ $ 326 ​ $ 711 ​ $ 645 Research and development ​ ​ 7,072 ​ ​ 6,459 ​ ​ 14,442 ​ 12,556 Selling, general and administrative ​ ​ 7,009 ​ ​ 6,884 ​ ​ 14,617 ​ 13,052 ​ ​ ​ 14,457 ​ ​ 13,669 ​ ​ 29,770 ​ 26,253 Income tax (expense) benefit ​ ​ 760 ​ ​ ( 2,186 ) ​ ​ 2,125 ​ 1,134 ​ ​ $ 13,697 ​ $ 15,855 ​ $ 27,645 ​ $ 25,119 ​ The Company had approximately $ 100.1 million of total unrecognized compensation costs related to granted stock options and awards as of July 4, 2020 that are expected to be recognized over a weighted-average period of approximately 2.4 years. There were no significant stock-based compensation costs capitalized into assets in any of the periods presented. ​ 19 Table of Contents Silicon Laboratories Inc. Notes to Condensed Consolidated Financial Statements (Continued) (Unaudited) 12. Income Taxes ​ Provision (benefit) for income taxes includes both domestic and foreign income taxes at the applicable tax rates adjusted for non-deductible expenses, research and development tax credits and other permanent differences. Income tax expense (benefit) was $ 0.4 million and $ 29.3 million for the three months ended July 4, 2020 and June 29, 2019, resulting in effective tax rates of ( 26.4 )% and 221.0 %, respectively. Income tax expense (benefit) was $( 0.2 ) million and $ 26.8 million for the six months ended July 4, 2020 and June 29, 2019, resulting in effective tax rates of ( 95.8 )% and 165.8 %, respectively. The significant change in the effective tax rate for the three and six months ended July 4, 2020 as compared to the prior periods was primarily due to the impact in the prior periods of a change in the Company’s position related to the treatment of stock-based compensation within its intercompany cost-sharing arrangement as well as a change in the proportion of permanent tax impacts relative to a decrease in current year pre-tax book income. ​ On July 27, 2015, the U.S. Tax Court issued an opinion in Altera Corp. v. Commissioner which concluded that related parties in an intercompany cost-sharing arrangement are not required to share costs related to stock-based compensation. On June 7, 2019, the U.S Court of Appeals for the Ninth Circuit (the “Ninth Circuit”) reversed the 2015 decision of the U.S. Tax Court, thus requiring related parties in an intercompany cost-sharing agreement to share stock-based compensation costs. As a result of the Ninth Circuit decision, the Company no longer reflects a tax benefit related to the removal or exclusion of stock-based compensation from its intercompany cost-sharing arrangement within its financial statements. On June 22, 2020, the U.S. Supreme Court denied Altera’s petition for writ of certiorari, declining to review the Ninth Circuit’s decision. Based on the Supreme Court’s denial to hear the Altera case, until and unless there is further litigation on this matter in the future, the Company considers the matter resolved. ​ Uncertain Tax Positions ​ As of July 4, 2020, the Company had gross unrecognized tax benefits, inclusive of interest, of $ 2.4 million, of which $ 2.0 million would affect the effective tax rate if recognized. During the six months ended July 4, 2020, the Company did not release any of its unrecognized tax benefits. ​ The Company recognizes interest and penalties related to unrecognized tax benefits in the provision for income taxes. These amounts were not material for any of the periods presented. ​ Following the completion of the Norwegian Tax Administration (“NTA”) examination of the Company’s Norwegian subsidiary for income tax matters relating to fiscal years 2013, 2014, 2015 and 2016, the Company received an assessment from the NTA in December 2017 concerning an adjustment to its 2013 taxable income related to the pricing of an intercompany transaction. The Company is currently appealing the assessment. The adjustment to the pricing of the intercompany transaction results in approximately 141.3 million Norwegian kroner, or $ 14.9 million additional Norwegian income tax. The Company disagrees with the NTA’s assessment and believes the Company’s position on this matter is more likely than not to be sustained. The Company plans to exhaust all available administrative remedies, and if unable to resolve this matter through administrative remedies with the NTA, the Company plans to pursue judicial remedies. ​ The Company believes that it has accrued adequate reserves related to all matters contained in tax periods open to examination. Should the Company experience an unfavorable outcome in the NTA matter, however, such an outcome could have a material impact on its financial statements. ​ Tax years 2015 through 2020 remain open to examination by the major taxing jurisdictions in which the Company operates. The Company is not currently under audit in any major taxing jurisdiction. ​ The Company does not believe gross unrecognized tax benefits will decrease in the next 12 months. ​ ​ ​ 20 Table of Contents