What changed in this filing

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Item 1. Financial Statements

2020-10-28 compared with 2020-07-29 · 123 added, 115 removed, 441 unchanged (35% of the section changed)

28 unchanged sentences

250,000 shares authorized;

43,796 and 43,496 shares issued and outstanding at July 4, 2020 and December 28, 2019, respectively

43,827 and 43,496 shares issued and outstanding at October 3, 2020 and December 28, 2019, respectively

Additional paid-in capital

5 unchanged sentences

Silicon Laboratories Inc.

Condensed Consolidated Statements of Operations

Condensed Consolidated Statements of Income

(In thousands, except per share data)

Three Months Ended

Six Months Ended

Nine Months Ended

September 28,

Cost of revenues

7 unchanged sentences

Interest expense

Income (loss) before income taxes

Income before income taxes

Provision (benefit) for income taxes

Net income (loss)

Earnings (loss) per share:

Earnings per share:

Weighted-average common shares outstanding:

1 unchanged sentence

Silicon Laboratories Inc.

Condensed Consolidated Statements of Comprehensive Income (Loss)

Condensed Consolidated Statements of Comprehensive Income

(In thousands)

Three Months Ended

Six Months Ended

Net income (loss)

Other comprehensive income, before tax

Nine Months Ended

September 28,

Other comprehensive income (loss), before tax

Net changes to available-for-sale securities

Unrealized gains arising during the period

Reclassification for gains included in net income (loss)

Net changes to cash flow hedges

Unrealized gains (losses) arising during the period

Reclassification for losses included in net income (loss)

Other comprehensive income, before tax

Provision for income taxes

Other comprehensive income

Comprehensive income (loss)

Reclassification for gains included in net income

Net changes to cash flow hedges

Unrealized losses arising during the period

Reclassification for losses included in net income

Other comprehensive income (loss), before tax

Provision (benefit) for income taxes

Other comprehensive income (loss)

Comprehensive income

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

5 unchanged sentences

Stockholders’

Three Months Ended July 4, 2020

Three Months Ended October 3, 2020

Income (Loss)

Balance as of April 4, 2020

Net income (loss)

Other comprehensive income

Balance as of July 4, 2020

Other comprehensive loss

Stock issuances, net of shares withheld for taxes

Stock-based compensation

Convertible debt issuance

Balance as of July 4, 2020

Convertible debt activity

Balance as of October 3, 2020

Accumulated Other

1 unchanged sentence

Stockholders’

Three Months Ended June 29, 2019

Three Months Ended September 28, 2019

Income (Loss)

Balance as of March 30, 2019

Net income (loss)

Other comprehensive income

Balance as of June 29, 2019

Other comprehensive loss

Stock issuances, net of shares withheld for taxes

1 unchanged sentence

Stock-based compensation

Balance as of June 29, 2019

Balance as of September 28, 2019

Accumulated Other

1 unchanged sentence

Stockholders’

Six Months Ended July 4, 2020

Nine Months Ended October 3, 2020

Income (Loss)

1 unchanged sentence

Cumulative effect of adoption of accounting standard

Net income (loss)

Other comprehensive income

2 unchanged sentences

Stock-based compensation

Convertible debt issuance

Balance as of July 4, 2020

Convertible debt activity

Balance as of October 3, 2020

Accumulated Other

1 unchanged sentence

Stockholders’

Six Months Ended June 29, 2019

Nine Months Ended September 28, 2019

Income (Loss)

Balance as of December 29, 2018

Net income (loss)

Other comprehensive income

2 unchanged sentences

Stock-based compensation

Balance as of June 29, 2019

Balance as of September 28, 2019

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

2 unchanged sentences

(In thousands)

Six Months Ended

Nine Months Ended

September 28,

Operating Activities

Net income (loss)

Adjustments to reconcile net income (loss) to cash provided by operating activities:

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

Depreciation of property and equipment

26 unchanged sentences

Net cash provided by (used in) financing activities

Increase (decrease) in cash and cash equivalents

Increase in cash and cash equivalents

Cash and cash equivalents at beginning of period

7 unchanged sentences

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.

and its subsidiaries (collectively, the “Company”) at October 3, 2020 and December 28, 2019, the condensed consolidated results of its operations for the three and nine months ended October 3, 2020 and September 28, 2019, the Condensed Consolidated Statements of Comprehensive Income for the three and nine months ended October 3, 2020 and September 28, 2019, the Condensed Consolidated Statements of Changes in Stockholders’ Equity for the three and nine months ended October 3, 2020 and September 28, 2019, and the Condensed Consolidated Statements of Cash Flows for the nine months ended October 3, 2020 and September 28, 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 condensed consolidated results of operations for the three and nine months ended October 3, 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.

32 unchanged sentences

Payments are typically due within 30 days of invoicing and do not include a significant financing component.

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):

Recent Accounting Pronouncements

In August 2020, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No.

2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging— Contracts in Entity’s Own Equity (Subtopic 815-40).

This ASU simplifies the accounting for certain convertible instruments, amends the guidance on derivative scope exceptions for contracts in an entity’s own equity and requires the use of the if-converted method for calculating diluted earnings per share.

The ASU removes separation models for convertible debt with a cash conversion feature.

Such convertible instruments will be accounted for as a single liability measured at amortized cost, as long as no other features require bifurcation and recognition as derivatives.

This ASU is effective for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years, using one of two retrospective methods.

Early adoption is permitted for fiscal periods beginning after December 15, 2020.

The Company expects the primary impacts of this new standard will be to potentially increase the carrying value of its convertible debt and reduce its reported interest expense.

In addition, should the Company be required to use the if-converted method for calculating diluted earnings per share, the number of shares used in such calculation could potentially increase.

The Company will continue to evaluate the effect that the adoption of this ASU will have on its financial statements.

Earnings Per Share

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

Three Months Ended

Six Months Ended

Net income (loss)

Shares used in computing basic earnings (loss) per share

Nine Months Ended

September 28,

Shares used in computing basic earnings per share

Effect of dilutive securities:

Stock-based awards and convertible debt

Shares used in computing diluted earnings (loss) per share

Earnings (loss) per share:

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.

Shares used in computing diluted earnings per share

Earnings per share:

Silicon Laboratories Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

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.

1 unchanged sentence

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.

For the three months ended October 3, 2020 and September 28, 2019 and the nine months ended October 3, 2020 and September 28, 2019, approximately 0.1 million, 0.6 million, 0.2 million and 0.3 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.

Silicon Laboratories Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

Fair Value of Financial Instruments

7 unchanged sentences

Fair Value Measurements

at July 4, 2020 Using

at October 3, 2020 Using

Quoted Prices in

41 unchanged sentences

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):

The following summarizes the contractual underlying maturities of the Company’s available-for-sale investments at October 3, 2020 (in thousands):

Due in one year or less

6 unchanged sentences

12 Months or Greater

As of July 4, 2020

As of October 3, 2020

Government debt securities

7 unchanged sentences

Auction rate securities

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 gross unrealized losses as of October 3, 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.

3 unchanged sentences

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.

As of October 3, 2020, there were no material declines in the market value of available-for-sale investments due to credit-related factors.

At October 3, 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

2 unchanged sentences

Fair Value at

October 3, 2020

Valuation Technique

Unobservable Input

Weighted Average

Discounted cash flow

7 unchanged sentences

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):

The following summarizes the activity in Level 3 financial instruments for the three and nine months ended October 3, 2020 (in thousands):

Auction Rate Securities

Beginning balance

Loss included in other comprehensive income

Balance at July 4, 2020

Loss included in other comprehensive income (loss)

Balance at October 3, 2020

Fair values of other financial instruments

2 unchanged sentences

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.

As of October 3, 2020 and December 28, 2019, the fair value of the 1.375 % convertible senior notes was $ 174.5 million and $ 524.0 million, respectively.

The fair value of the 0.625 % convertible senior notes as of October 3, 2020 was $ 575.8 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.

10 unchanged sentences

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.

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 Income based on an assessment of the contracts at the time of termination.

Silicon Laboratories Inc.

1 unchanged sentence

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.

As of October 3, 2020, all contracts have matured.

The fair value of the contracts, contract 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.

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.

If the credit facility or the interest rate swap agreement is terminated prior to maturity, the fair value of the interest rate swap recorded in accumulated other comprehensive loss may be recognized in the Consolidated Statement of Income based on an assessment of the agreements at the time of termination.

The Company 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.

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 into earnings.

Non-designated Hedges

2 unchanged sentences

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 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 July 4, 2020, the Company held three foreign currency forward contracts denominated in Singapore Dollars with a notional value of $ 17.8 million.

As of October 3, 2020, the Company held three foreign currency forward contracts denominated in Singapore Dollars with a notional value of $ 17.5 million.

The fair value of foreign contracts and contract losses recognized in income were not material for any of the periods presented.

27 unchanged sentences

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.

Revenues attributable to the Redpine Signals business from the date of acquisition to October 3, 2020 were $ 5.8 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.

The Company recorded approximately $ 1.5 million of acquisition-related costs in selling, general and administrative expenses during the nine months ended October 3, 2020.

0.625 % Convertible Senior Notes

29 unchanged sentences

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.

During the nine months ended October 3, 2020, the Company paid $ 299.1 million in cash to repurchase $ 254.4 million aggregate principal amount of the 2022 Notes.

The Company recognized a loss on debt extinguishment of $ 4.0 million during the nine months ended October 3, 2020, which was recorded in interest expense in the Condensed Consolidated Statements of Income.

The principal balances of the notes were separated into liability and equity components, and recorded initially at fair value.

13 unchanged sentences

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.

As of October 3, 2020, the remaining period over which the debt discount and debt issuance costs will be amortized was 4.7 years for the 2025 Notes and 1.4 years for the 2022 Notes.

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

Three Months Ended

Six Months Ended

Nine Months Ended

September 28,

Contractual interest expense

11 unchanged sentences

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.

As of October 3, 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.

6 unchanged sentences

Stockholders’ Equity

The Company issued 0.5 million shares of common stock during the six months ended July 4, 2020.

The Company issued 0.5 million shares of common stock during the nine months ended October 3, 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.

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 nine months ended October 3, 2020 and September 28, 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):

Reclassifications From Accumulated Other Comprehensive Income

The following table summarizes the effect on net income from reclassifications out of accumulated other comprehensive income (in thousands):

Three Months Ended

Six Months Ended

Nine Months Ended

September 28,

Reclassification

3 unchanged sentences

Operating expenses

Income tax expense

Income tax expense (benefit)

Total reclassifications

2 unchanged sentences

Three Months Ended

Six Months Ended

Nine Months Ended

September 28,

Internet of Things

Infrastructure and automotive

Silicon Laboratories Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

The Company has combined its previous product groups, Infrastructure, Broadcast and Access, into the Infrastructure and automotive product group.

Prior periods were retrospectively adjusted.

Silicon Laboratories Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

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.

During the three months ended October 3, 2020 and September 28, 2019 and the nine months ended October 3, 2020 and September 28, 2019, the Company recognized revenue of $ 18.4 million, $ 14.1 million, $ 16.1 million and $ 16.9 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

Nine Months Ended

September 28,

Direct customers

7 unchanged sentences

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):

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

Three Months Ended

Six Months Ended

Nine Months Ended

September 28,

Cost of revenues

1 unchanged sentence

Selling, general and administrative

Income tax (expense) benefit

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.

Income tax benefit

The Company had approximately $ 89.4 million of total unrecognized compensation costs related to equity grants from the 2009 Plan as of October 3, 2020 that are expected to be recognized over a weighted-average period of approximately 2.2 years.

There were no significant stock-based compensation costs capitalized into assets in any of the periods presented.

2 unchanged sentences

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.

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.

Income tax expense (benefit) was $( 0.1 ) million and $ 1.7 million for the three months ended October 3, 2020 and September 28, 2019, resulting in effective tax rates of ( 3.3 )% and 7.7 %, respectively.

Income tax expense (benefit) was $( 0.3 ) million and $ 28.5 million for the nine months ended October 3, 2020 and September 28, 2019, resulting in effective tax rates of ( 9.3 )% and 74.9 %, respectively.

The decrease in the effective tax rate for the three months ended October 3, 2020 as compared to the prior period was primarily due to the impact of permanent tax differences relative to the decreased current period pre-tax book income.

The significant decrease in the effective tax rate for the nine months ended October 3, 2020 as compared to the prior period was primarily due to the impact in the prior period of a change in the Company’s position related to the treatment of stock-based compensation within its intercompany cost-sharing arrangement.

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.

As of October 3, 2020, the Company had gross unrecognized tax benefits, inclusive of interest, of $ 2.9 million, of which $ 2.0 million would affect the effective tax rate if recognized.

During the nine months ended October 3, 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 (benefit) 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.

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 - 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.

6 unchanged sentences

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.

The Company does not expect material changes to its gross unrecognized tax benefits in the next 12 months.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements