What changed in this filing

/stocks — the workspaceLOADING

Item 9A. Controls and Procedures

2021-02-03 compared with 2020-01-29 · 328 added, 389 removed, 842 unchanged (46% of the section changed)

2 unchanged sentences

We have performed an evaluation under the supervision and with the participation of our management, including our Chief Executive Officer (CEO) and Chief Financial Officer (CFO), of the effectiveness of our disclosure controls and procedures, as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934 (the Exchange Act).

Based on that evaluation, our management, including our CEO and CFO, concluded that our disclosure controls and procedures were effective as of December 28, 2019 to provide reasonable assurance that information required to be disclosed by us in the reports filed or submitted by us under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.

Based on that evaluation, our management, including our CEO and CFO, concluded that our disclosure controls and procedures were effective as of January 2, 2021 to provide reasonable assurance that information required to be disclosed by us in the reports filed or submitted by us under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.

Such disclosure controls and procedures include controls and procedures designed to ensure that information required to be disclosed is accumulated and communicated to our management, including our CEO and CFO, to allow timely decisions regarding required disclosures.

Changes in Internal Control over Financial Reporting

There was no change in our internal controls during the fiscal quarter ended December 28, 2019 that materially affected, or is reasonably likely to materially affect, our internal controls over financial reporting.

There was no change in our internal controls during the fiscal quarter ended January 2, 2021 that materially affected, or is reasonably likely to materially affect, our internal controls over financial reporting.

Management’s Report on Internal Control over Financial Reporting

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Our internal control system was designed to provide reasonable assurance to our management and Board of Directors regarding the preparation and fair presentation of published financial statements.

Our management assessed the effectiveness of our internal control over financial reporting as of December 28, 2019.

Our management assessed the effectiveness of our internal control over financial reporting as of January 2, 2021.

In making this assessment, it used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control—Integrated Framework (2013 framework).

Based on our assessment we concluded that, as of December 28, 2019, our internal control over financial reporting is effective based on those criteria.

Based on our assessment we concluded that, as of January 2, 2021, our internal control over financial reporting is effective based on those criteria.

Our independent registered public accounting firm, Ernst & Young LLP, issued an attestation report on our internal control over financial reporting.

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Report of independent registered public accounting firm

Consolidated Balance Sheets at December 28, 2019 and December 29, 2018

Consolidated Statements of Income for the fiscal years ended December 28, 2019, December 29, 2018 and December 30, 2017

Consolidated Statements of Comprehensive Income for the fiscal years ended December 28, 2019, December 29, 2018 and December 30, 2017

Consolidated Statements of Changes in Stockholders' Equity for the fiscal years ended December 28, 2019, December 29, 2018 and December 30, 2017

Consolidated Statements of Cash Flows for the fiscal years ended December 28, 2019, December 29, 2018 and December 30, 2017

Consolidated Balance Sheets at January 2, 2021 and December 28, 2019

Consolidated Statements of Income for the fiscal years ended January 2, 2021, December 28, 2019 and December 29, 2018

Consolidated Statements of Comprehensive Income for the fiscal years ended January 2, 2021, December 28, 2019 and December 29, 2018

Consolidated Statements of Changes in Stockholders' Equity for the fiscal years ended January 2, 2021, December 28, 2019 and December 29, 2018

Consolidated Statements of Cash Flows for the fiscal years ended January 2, 2021, December 28, 2019 and December 29, 2018

Notes to Consolidated Financial Statements

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The exhibits listed on the accompanying index to exhibits immediately following the Consolidated Financial Statements are filed as part of, or hereby incorporated by reference into, this Form 10-K.

Agreement and Plan of Merger, dated December 7, 2017, by and among Silicon Laboratories Inc., Seguin Merger Subsidiary, Inc.

and Sigma Designs, Inc.

(filed as Exhibit 2.1 to the Form 8-K filed on December 8, 2017).

Asset Purchase Agreement, dated March 11, 2020, by and among Silicon Laboratories Inc., Silicon Laboratories International Pte.

and Redpine Signals, Inc.

(filed as Exhibit 2.1 to the Form 8-K filed on March 12, 2020).

Form of Fourth Amended and Restated Certificate of Incorporation of Silicon Laboratories Inc.

7 unchanged sentences

Form of 1.375% Convertible Senior Note due 2022 (filed as Exhibit 4.2 to the Form 8-K filed on March 6, 2017).

Indenture between Silicon Laboratories Inc.

and Wilmington Trust, National Association, as trustee, dated June 1, 2020 (filed as Exhibit 4.1 to the Form 8-K filed on June 1, 2020).

Form of 0.625% Convertible Senior Note due 2025 (filed as Exhibit 4.2 to the Form 8-K filed on June 1, 2020).

Form of Indemnification Agreement between Silicon Laboratories Inc.

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Third Amendment to Credit Agreement, dated August 7, 2019, by and among Silicon Laboratories Inc., the subsidiaries of the borrower identified therein, Wells Fargo Bank, National Association and the lenders party thereto (filed as Exhibit 10.1 to the Form 8-K filed on August 7, 2019).

Fourth Amendment to Credit Agreement, dated May 26, 2020, by and among Silicon Laboratories Inc., the subsidiaries of the borrower identified therein, Wells Fargo Bank, National Association and the lenders party thereto (filed as Exhibit 10.1 to the Form 8-K filed on May 27, 2020).

Security and Pledge Agreement, dated July 31, 2012, by and among Silicon Laboratories Inc., with the other parties identified as “Obligors” (as defined therein) and such other parties that may become Obligors thereunder after the date thereof, and Bank of America, N.A (filed as Exhibit 10.2 to the Form 8-K filed August 1, 2012).

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Form 10-K Summary

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, in Austin, Texas, on January 29, 2020.

SILICON LABORATORIES INC.

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Chairman of the Board

January 29, 2020

February 3, 2021

President, Chief Executive Officer and Director

(Principal Executive Officer)

January 29, 2020

February 3, 2021

Senior Vice President and Chief Financial Officer

(Principal Financial Officer and Principal Accounting Officer)

January 29, 2020

February 3, 2021

/s/ William G.

January 29, 2020

February 3, 2021

/s/ Gregg Lowe

January 29, 2020

February 3, 2021

/s/ Nina Richardson

January 29, 2020

February 3, 2021

Nina Richardson

/s/ Sumit Sadana

January 29, 2020

February 3, 2021

/s/ William P.

January 29, 2020

February 3, 2021

/s/ Christy Wyatt

January 29, 2020

February 3, 2021

Christy Wyatt

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Opinion on Internal Control Over Financial Reporting

We have audited Silicon Laboratories Inc.’s internal control over financial reporting as of December 28, 2019, based on criteria established in Internal Control— Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria).

We have audited Silicon Laboratories Inc.’s internal control over financial reporting as of January 2, 2021, based on criteria established in Internal Control— Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria).

In our opinion, Silicon Laboratories Inc.

(the Company) maintained, in all material respects, effective internal control over financial reporting as of December 28, 2019, based on the COSO criteria.

(the Company) maintained, in all material respects, effective internal control over financial reporting as of January 2, 2021, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of Silicon Laboratories Inc.

as of December 28, 2019 and December 29, 2018, the related consolidated statements of income, comprehensive income, stockholders’ equity and cash flows for each of the three years in the period ended December 28, 2019, and the related notes and our report dated January 29, 2020 expressed an unqualified opinion thereon.

as of January 2, 2021 and December 28, 2019, the related consolidated statements of income, comprehensive income, changes in stockholders’ equity and cash flows for each of the three years in the period ended January 2, 2021, and the related notes and our report dated February 3, 2021 expressed an unqualified opinion thereon.

Basis for Opinion

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Austin, Texas

January 29, 2020

February 3, 2021

Report of Independent Registered Public Accounting Firm

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We have audited the accompanying consolidated balance sheets of Silicon Laboratories Inc.

(the Company) as of December 28, 2019 and December 29, 2018, the related consolidated statements of income, comprehensive income, stockholders' equity and cash flows for each of the three years in the period ended December 28, 2019, and the related notes (collectively referred to as the “consolidated financial statements”).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 28, 2019 and December 29, 2018, and the results of its operations and its cash flows for each of the three years in the period ended December 28, 2019, in conformity with U.S.

(the Company) as of January 2, 2021 and December 28, 2019, the related consolidated statements of income, comprehensive income, changes in stockholders' equity and cash flows for each of the three years in the period ended January 2, 2021, and the related notes (collectively referred to as the “consolidated financial statements”).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at January 2, 2021 and December 28, 2019, and the results of its operations and its cash flows for each of the three years in the period ended January 2, 2021, in conformity with U.S.

generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 28, 2019, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated January 29, 2020 expressed an unqualified opinion thereon.

Adoption of ASU 2014-09 and ASU 2016-02

As discussed in Note 2 to the consolidated financial statements, the Company changed its method of accounting for revenue from sales to distributors in 2018 due to the adoption of ASU No.

2014-09, Revenue from Contracts with Customers (Topic 606) .

The Company changed its method of accounting for leases in 2019 due to the adoption of ASU No.

2016-02, Leases (Topic 842) .

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of January 2, 2021, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated February 3, 2021 expressed an unqualified opinion thereon.

Basis for Opinion

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Description of the Matter

At December 28, 2019, the Company’s returns liability, which is included in the Deferred revenues and returns liability in the consolidated balance sheet, was $19.3 million.

At January 2, 2021, the Company’s revenue returns liability, which is included in the Deferred revenues and returns liability in the consolidated balance sheet, was $13 million.

As discussed in Note 2 of the consolidated financial statements, when recording revenue for its contracts with customers the Company estimates variable consideration at the most likely amount to which it expects to be entitled.

Variable consideration that does not meet revenue recognition criteria is deferred and a returns liability amount is recorded.

The variable consideration estimate considers both the likelihood of a return and the amount of a potential price concession.

Auditing management’s estimate of the returns liability was judgmental because the calculation involves subjective management assumptions about estimates of expected price concessions and product returns.

For example, the estimated variable consideration included in the transaction price reflects management’s evaluation of contractual terms, historical experience and assumptions about future economic conditions.

Variable consideration that does not meet revenue recognition criteria is deferred and a revenue returns liability is recorded.

The variable consideration estimate considers both the likelihood of a return and the amount of potential price concession.

Auditing management’s estimate of the revenue returns liability was judgmental because the calculation involves subjective management assumptions about the estimates of expected future price concessions and/or product returns.

For example, the estimated variable consideration included in the transaction price reflects management’s evaluation of contractual terms, historical experience, assumptions about future economic conditions and the quantity of products distributors are expected to sell.

Changes in those assumptions can have a material effect on the amount of variable consideration recognized.

How We Addressed the Matter in Our Audit

We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over the measurement and valuation of the variable consideration recognized as revenue and the returns liability.

For example, we tested controls over management’s review of the variable consideration methodology, the significant assumptions and the historical data utilized in the estimate for assumed product returns and expected price concessions.

To test the variable consideration recognized as revenue and the returns liability, we performed audit procedures that included, among others, an evaluation of the Company’s methodology and significant assumptions, and tested the completeness and accuracy of the historical data utilized in the estimate.

In our assessment of the methodology, we considered changes in the business and changes to specific distributor contracts.

We evaluated significant assumptions used by comparison to current trends and recent transactions.

We also evaluated the accuracy of management’s assumed product returns and expected price concession at prior periods by comparing to subsequent actual activity.

Uncertain Tax Positions

To test the variable consideration recognized as revenue and the revenue returns liability, we performed audit procedures that included, among others, an evaluation of the Company’s methodology and significant assumptions, and tested the completeness and accuracy of the historical data utilized in the estimate.

In our assessment of the methodology, we considered changes in the business, changes to specific distributor contracts and evaluated significant assumptions used by comparison to current trends and recent transactions.

We also evaluated the accuracy of management’s assumed product returns and expected price concessions from prior periods by comparing to subsequent actual activity.

Accounting for Acquisition

Description of the Matter

As discussed in Note 2 of the consolidated financial statements, uncertain tax positions must meet a more-likely-than-not threshold to be recognized in the consolidated financial statements and the tax benefits recognized are measured based on the largest benefit that has a greater than 50% likelihood of being realized upon final settlement.

The Company is a party to many transactions in the ordinary course of business where the ultimate tax outcome is uncertain.

To account for this uncertainty, the Company uses significant judgment in determining whether a tax position is more likely than not to be sustained and measuring the amount of tax benefit that qualifies for recognition.

As described in Note 17 of the consolidated financial statements, at December 28, 2019 the Company had gross unrecognized tax benefits, inclusive of interest, of $2.4 million.

Auditing management’s analysis of the uncertainties in its tax positions was complex and judgmental because the evaluation and measurement of each tax position is based on interpretations of tax laws and legal rulings.

As discussed in Note 8 of the financial statements, on April 28, 2020, the Company acquired the Wi-Fi and Bluetooth business of Redpine Signals, Inc.

for total acquisition consideration of $317 million.

The transaction was accounted for as a business combination in accordance with Accounting Standards Codification (ASC) 805.

Auditing the Company’s accounting for the Redpine Signals acquisition was complex and judgmental due to the significant estimation required by management to determine the fair value of the acquired intangible assets, including developed technology and in-process research and development assets of $62 million and $12 million, respectively.

The Company used variations of the income valuation approach, including the discounted expected future cash flow method, to measure the fair value of these intangible assets.

Significant assumptions used to estimate the fair value of these intangible assets included revenue growth rates, technology migration curves and discount rates.

These assumptions are forward-looking and could be affected by future economic and market conditions.

How We Addressed the Matter in Our Audit

We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over the existence of uncertain tax positions and measurement of the benefit of those positions.

For example, we tested controls over management’s review of the technical merits of tax positions, the events and information that impacted tax positions, the estimate of the most likely outcome, and the data utilized in the estimate.

To test the valuation of uncertain tax positions, our audit procedures included, among others, analyzing the Company’s assumptions and data used to determine the amount of tax benefit to recognize and tested the accuracy of the calculations.

In considering the measurement criteria, we involved our tax professionals to assess the technical merits of the Company’s tax positions.

This included assessing the Company’s correspondence with the relevant tax authorities and evaluating income tax opinions or other third-party advice obtained by the Company.

We also used our knowledge of, and experience with, the application of international and local income tax laws by the relevant income tax authorities to evaluate the Company’s accounting for those tax positions.

We also evaluated the Company’s income tax disclosures included in Note 17 to the consolidated financial statements in relation to these matters.

We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over the Company’s accounting for acquisitions.

For example, we tested controls over management’s review of the valuation of acquired intangible assets, including the review of the valuation models and significant assumptions used in the valuation models.

To test the estimated fair value of these intangible assets, our audit procedures included, among others, evaluating the Company’s valuation methodology, evaluating the significant assumptions used by the Company and evaluating the completeness and accuracy of the underlying data supporting the significant assumptions and estimates.

For example, we compared the significant assumptions used to current industry, market and economic trends, to the assumptions used to value similar assets in other acquisitions, and to the historical results of both the Company and the acquiree.

We also involved our valuation specialists to assist with our evaluation of the methodology used by the Company and significant assumptions included in the fair value estimates.

/s/ Ernst & Young LLP

1 unchanged sentence

Austin, Texas

January 29, 2020

February 3, 2021

Silicon Laboratories Inc.

13 unchanged sentences

Accounts payable

Current portion of convertible debt, net

Deferred revenue and returns liability

1 unchanged sentence

Total current liabilities

Convertible debt

Convertible debt, net

Other non-current liabilities

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250,000 shares authorized;

43,496 and 43,088 shares issued and outstanding at December 28, 2019 and December 29, 2018, respectively

43,925 and 43,496 shares issued and outstanding at January 2, 2021 and December 28, 2019, respectively

Additional paid-in capital

Retained earnings

Accumulated other comprehensive income (loss)

Accumulated other comprehensive income

Total stockholders' equity

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Net changes to available-for-sale securities:

Unrealized gains (losses) arising during the period

Unrealized gains arising during the period

Reclassification for (gains) losses included in net income

Net changes to cash flow hedges:

Unrealized losses arising during the period

Reclassification for (gains) losses included in net income

Unrealized gains (losses) arising during the period

Reclassification for losses included in net income

Other comprehensive income (loss), before tax

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Cumulative effect of adoption of accounting standard

Other comprehensive income (loss)

Other comprehensive loss

Stock issuances, net of shares withheld for taxes

Repurchases of common stock

Stock-based compensation

Convertible debt issuance

Balance as of December 29, 2018

Cumulative effect of adoption of accounting standard

Other comprehensive income (loss)

Other comprehensive income

Stock issuances, net of shares withheld for taxes

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Balance as of December 28, 2019

Other comprehensive income (loss)

Cumulative effect of adoption of accounting standard

Other comprehensive income

Stock issuances, net of shares withheld for taxes

1 unchanged sentence

Stock-based compensation

Balance as of December 28, 2019

Convertible debt activity

Balance as of January 2, 2021

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

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Amortization of debt discount and debt issuance costs

Loss on extinguishment of convertible debt

Stock-based compensation expense

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Other current liabilities and income taxes

Deferred income, deferred revenue and returns liability

Deferred revenue and returns liability

Other non-current liabilities

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Financing Activities

Proceeds from issuance of long-term debt

Payment of debt issuance costs

Proceeds from issuance of debt

Payments on debt

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Notes to Consolidated Financial Statements

December 28, 2019

January 2, 2021

Description of Business

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The Company prepares financial statements on a 52 - or 53 -week fiscal year that ends on the Saturday closest to December 31.

Fiscal 2019, 2018 and 2017 had 52 weeks and ended on December 28, 2019, December 29, 2018 and December 30, 2017, respectively.

Fiscal 2020 had 53 weeks with the extra week occurring in the first quarter of the year and ended on January 2, 2021.

Fiscal 2019 and 2018 had 52 weeks and ended on December 28, 2019 and December 29, 2018, respectively.

The accompanying Consolidated Financial Statements include the accounts of the Company and its wholly owned subsidiaries.

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Actual results could differ from those estimates, and such differences could be material to the financial statements.

Adoption of New Lease Accounting Standard

The Company adopted Accounting Standards Codification (ASC) Topic 842, Leases , on December 30, 2018, the first day of its fiscal year ended December 28, 2019.

We elected the package of practical expedients permitted under the transition guidance within the new standard, which allowed us to not reassess historical lease classifications, initial direct costs of existing leases or whether any expired or existing contracts were or contained leases.

The Company elected the retrospective 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):

Financial Statement Line Item

Prepaid expenses and other current assets

Other assets, net

Other current liabilities

Other non-current liabilities

The primary impact of the Company’s adoption of ASC 842 resulted from the recognition of right-of-use assets and operating lease liabilities.

The adoption had no significant impact to the Consolidated Statements of Income or to cash provided by or used in net operating, investing or financing activities in the Consolidated Statements of Cash Flows.

Adoption of New Financial Instruments Accounting Standard

The Company adopted Financial Accounting Standards Board (FASB) 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 ended January 2, 2021.

The adoption did not have a material impact on its financial statements.

Silicon Laboratories Inc.

Notes to Consolidated Financial Statements (Continued)

December 28, 2019

January 2, 2021

Significant Accounting Policies (Continued)

Adoption of New Revenue Accounting Standard

The Company adopted Accounting Standards Codification (ASC) Topic 606, Revenue from Contracts with Customers , on December 31, 2017, the first day of its fiscal year ended December 29, 2018.

The Company elected the modified retrospective method of adoption which only applies to those contracts which were not completed as of December 31, 2017.

Prior periods have not been adjusted.

In connection with its adoption of ASC 606, the Company recorded a cumulative-effect adjustment to retained earnings of $ 26.2 million on December 31, 2017.

The following reflects the material changes recorded in connection with the cumulative-effect adjustment (in thousands):

Financial Statement Line Item

Increase (Decrease)

Accounts receivable, net

Prepaid expenses and other current assets

Other assets, net

Deferred revenue and returns liability

Deferred income on shipments to distributors

Other current liabilities

Retained earnings

The primary impact of the Company’s adoption of ASC 606 resulted from the acceleration of the timing of revenue recognition on sales to distributors.

The Company previously deferred revenue and cost of revenue on such sales until the distributors sold the product to the end customers.

The Company now recognizes revenue at the time of sale to the distributor provided all other revenue recognition criteria have been met.

The Company records a right of return asset and a returns liability in place of the deferred income on shipments to distributors previously recorded under ASC 605.

Fair Value of Financial Instruments

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Investments in which the Company has the ability and intent, if necessary, to liquidate in order to support its current operations (including those with contractual maturities greater than one year from the date of purchase) are classified as short-term.

Silicon Laboratories Inc.

Notes to Consolidated Financial Statements (Continued)

December 28, 2019

Significant Accounting Policies (Continued)

The Company reviews its available-for-sale investments as of the end of each reporting period for other-than-temporary declines in fair value based on the specific identification method.

The Company considers various factors in determining whether an impairment is other-than-temporary, including the severity and duration of the impairment, changes in underlying credit ratings, forecasted recovery, its 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.

When the Company concludes that an other-than-temporary impairment has occurred, the Company assesses whether it intends to sell the security or if it is more likely than not that it will be required to sell the security before recovery.

The Company reviews its available-for-sale investments as of the end of each reporting period for declines in fair value based on the specific identification method.

The Company records an allowance for credit loss when a decline in fair value is due to credit-related factors.

The Company considers various factors in determining whether an investment is impaired, including the severity of the impairment, changes in underlying credit ratings, forecasted recovery, its 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.

When the Company concludes that a credit-related impairment has occurred, the Company assesses whether it intends to sell the security or if it is more likely than not that it will be required to sell the security before recovery.

If either of these two conditions is met, the Company recognizes a charge in earnings equal to the entire difference between the security’s amortized cost basis and its fair value.

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All other non-marketable equity investments are recorded at cost minus impairment, if any, plus or minus changes resulting from qualifying observable price changes.

The Company periodically reviews its equity investments for other-than-temporary declines in fair value based on the specific identification method and writes down investments to their fair values when it determines that an other-than-temporary decline has occurred.

The Company periodically reviews its equity investments for declines in fair value based on the specific identification method and writes down investments to their fair values when it determines that a decline has occurred.

Silicon Laboratories Inc.

Notes to Consolidated Financial Statements (Continued)

January 2, 2021

Significant Accounting Policies (Continued)

Derivative Financial Instruments

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Leasehold improvements are depreciated over the lease term or their useful life, whichever is shorter.

Silicon Laboratories Inc.

Notes to Consolidated Financial Statements (Continued)

December 28, 2019

Significant Accounting Policies (Continued)

The Company owns the facilities it had previously leased for its headquarters in Austin, Texas.

The Company owns the facilities for its headquarters in Austin, Texas.

The buildings are located on land which is leased through 2099 from a third party.

The rents for these ground leases were prepaid for the term of the leases by the previous lessee.

The rents for these ground leases were prepaid for the term of the leases.

The buildings and leasehold interest in ground leases are being depreciated on a straight-line basis over their estimated useful lives of 40 years and 86 years , respectively.

Business Combinations

The Company records business combinations using the acquisition method of accounting and, accordingly, allocates the fair value of purchase consideration to the assets acquired and liabilities assumed based on their fair values at the acquisition date.

The Company records business combinations using the acquisition method of accounting and, accordingly, allocates the fair value of acquisition consideration to the assets acquired and liabilities assumed based on their fair values at the acquisition date.

The excess of the fair value of purchase consideration over the fair value of the assets acquired and liabilities assumed is recorded as goodwill.

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Long-Lived Assets

Purchased intangible assets are stated at cost, net of accumulated amortization, and are amortized using the straight-line method over their estimated useful lives, ranging from four to twelve years .

Purchased intangible assets are stated at cost, net of accumulated amortization, and are amortized using the straight-line method over their estimated useful lives, ranging from two to twelve years .

Fair values are determined primarily using the income approach, in which the Company projects future expected cash flows and applies an appropriate discount rate.

Silicon Laboratories Inc.

Notes to Consolidated Financial Statements (Continued)

January 2, 2021

Significant Accounting Policies (Continued)

Long-lived assets “held and used” by the Company are reviewed for impairment whenever events or changes in circumstances indicate that their net book value may not be recoverable.

1 unchanged sentence

Impairment, if any, is based on the excess of the carrying amount over the fair value of those assets and is recorded in the period in which the determination was made.

The carrying value of goodwill is reviewed at least annually by the Company for possible impairment.

The goodwill impairment test is a two-step process.

The first step of the impairment analysis compares the fair value of the reporting unit to the net book value of the reporting unit.

In determining fair value, several valuation methodologies are allowed, although quoted market prices are the best evidence of fair value.

If the results of the first step demonstrate that the net book value is greater than the fair value, the Company must proceed to step two of the analysis.

Step two of the analysis compares the implied fair value of goodwill to its carrying amount.

If the carrying amount of goodwill exceeds its implied fair value, an impairment loss is recognized equal to that excess.

The Company tests goodwill for impairment annually as of the first day of its fourth fiscal quarter and in interim periods if events occur that would indicate that the carrying value of goodwill may be impaired.

The Company assesses goodwill for impairment by comparing the fair value of the reporting unit to its carrying amount.

In determining fair value, several valuation methodologies are allowed, although quoted market prices are the best evidence of fair value.

If the fair value of the reporting unit is less than its carrying amount, an impairment loss is recognized equal to that excess amount.

At the commencement date of a lease, the Company recognizes a liability to make lease payments and an asset representing the right to use the underlying asset during the lease term.

7 unchanged sentences

Lease agreements that contain both lease and non-lease components are generally accounted for separately.

Silicon Laboratories Inc.

Notes to Consolidated Financial Statements (Continued)

December 28, 2019

Significant Accounting Policies (Continued)

Revenue Recognition

14 unchanged sentences

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

Silicon Laboratories Inc.

Notes to Consolidated Financial Statements (Continued)

January 2, 2021

Significant Accounting Policies (Continued)

Shipping and Handling

8 unchanged sentences

Advertising costs are expensed as incurred.

Advertising expenses were $ 1.6 million, $ 1.9 million and $ 1.4 million in fiscal 2019, 2018 and 2017, respectively.

Silicon Laboratories Inc.

Notes to Consolidated Financial Statements (Continued)

December 28, 2019

Significant Accounting Policies (Continued)

The Company accounts for income taxes using the asset and liability method whereby deferred tax asset and liability account balances are determined based on differences between the financial reporting and the tax bases of assets and liabilities and are measured using the enacted tax laws and related rates that will be in effect when the differences are expected to reverse.

Advertising expenses were not material for any of the periods presented.

The Company accounts for income taxes using the liability method whereby deferred tax asset and liability account balances are determined based on differences between the financial reporting and the tax bases of assets and liabilities and are measured using the enacted tax laws and related rates that will be in effect when the differences are expected to reverse.

These differences result in deferred tax assets and liabilities, which are included in the Company’s Consolidated Balance Sheet.

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Recent Accounting Pronouncements

In January 2017, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No.

2017-04 , Intangibles—Goodwill and Other (Topic 350):

Simplifying the Test for Goodwill Impairment.

This ASU eliminates Step 2 from the goodwill impairment test, which previously measured an impairment loss by comparing the implied fair value of goodwill with its carrying amount.

Instead, an entity should recognize an impairment charge for the amount by which the carrying value exceeds the reporting unit’s fair value, not to exceed the total amount of goodwill allocated to that reporting unit.

This ASU is effective for annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019.

The Company expects that the adoption will not have a material impact on its financial statements.

In June 2016, the FASB issued ASU No.

2016-13, Financial Instruments—Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments.

This ASU requires instruments measured at amortized cost to be presented at the net amount expected to be collected.

Entities are also required to record allowances for available-for-sale debt securities rather than reduce the carrying amount.

This ASU is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years.

The Company expects that the adoption will not have a material impact on its financial statements.

In August 2020, the FASB issued ASU No.

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

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

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

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

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

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

The Company expects the primary impacts of this new standard will be to 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.

Silicon Laboratories Inc.

Notes to Consolidated Financial Statements (Continued)

January 2, 2021

Earnings Per Share

5 unchanged sentences

Earnings per share:

Silicon Laboratories Inc.

Notes to Consolidated Financial Statements (Continued)

December 28, 2019

Earnings Per Share (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 fiscal 2019 and 2018, approximately 0.4 million shares and 0.1 million shares, respectively, were included in the denominator for the calculation of diluted earnings per share.

For fiscal 2017, no such shares were included in the denominator for the calculation of diluted earnings per share.

For fiscal 2020, 2019 and 2018, approximately 0.2 million shares, 0.4 million shares and 0.1 million shares, respectively, were included in the denominator for the calculation of diluted earnings per share.

See Note 10, Debt , to the Consolidated Financial Statements for additional information.

Silicon Laboratories Inc.

Notes to Consolidated Financial Statements (Continued)

January 2, 2021

Fair Value of Financial Instruments

2 unchanged sentences

Fair Value Measurements

at December 28, 2019 Using

at January 2, 2021 Using

Quoted Prices in

5 unchanged sentences

Corporate debt securities

Government debt securities

Total cash equivalents

7 unchanged sentences

Notes to Consolidated Financial Statements (Continued)

December 28, 2019

January 2, 2021

Fair Value of Financial Instruments (Continued)

8 unchanged sentences

Corporate debt securities

Government debt securities

Total cash equivalents

12 unchanged sentences

The Company’s derivative instruments are valued using discounted cash flow models.

The assumptions used in preparing the valuation models include foreign exchange rates, forward and spot prices for currencies, and market observable data of similar instruments.

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 (loss) in the Consolidated Balance Sheet.

The following summarizes the contractual underlying maturities of the Company’s available-for-sale investments at December 28, 2019 (in thousands):

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 January 2, 2021 (in thousands):

Due in one year or less

3 unchanged sentences

Notes to Consolidated Financial Statements (Continued)

December 28, 2019

January 2, 2021

Fair Value of Financial Instruments (Continued)

2 unchanged sentences

12 Months or Greater

As of December 28, 2019

As of January 2, 2021

Government debt securities

7 unchanged sentences

Auction rate securities

The gross unrealized losses as of December 28, 2019 and December 29, 2018 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 January 2, 2021 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.

1 unchanged sentence

The Company is unable to predict if these funds will become available before their maturity date.

The Company considers the declines in market value of its marketable securities investment portfolio to be temporary in nature.

When evaluating an investment for other-than-temporary impairment, the Company reviews factors such as the severity and duration 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 December 28, 2019, the Company has determined that no other-than-temporary impairment losses existed.

At December 28, 2019 and December 29, 2018, there were no material unrealized gains associated with the Company's available-for-sale investments.

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 January 2, 2021, there were no material declines in the market value of available-for-sale investments due to credit-related factors.

At January 2, 2021 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

December 28, 2019

January 2, 2021

Valuation Technique

6 unchanged sentences

Notes to Consolidated Financial Statements (Continued)

December 28, 2019

January 2, 2021

Fair Value of Financial Instruments (Continued)

The Company has followed an established internal control procedure used in valuing auction rate securities.

The procedure involves the analysis of valuation techniques and evaluation of unobservable inputs commonly used by market participants to price similar instruments, and which have been demonstrated to provide reasonable estimates of prices obtained in actual market transactions.

Outputs from the valuation process are assessed against various market sources when they are available, including marketplace quotes, recent trades of similar illiquid securities, benchmark indices and independent pricing services.

The technique and unobservable input parameters may be recalibrated periodically to achieve an appropriate estimation of the fair value of the securities.

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.

1 unchanged sentence

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 years ended December 28, 2019 and December 29, 2018 (in thousands):

The following summarizes the activity in Level 3 financial instruments for the years ended January 2, 2021 and December 28, 2019 (in thousands):

Auction Rate Securities

Beginning balance

Gain (loss) included in other comprehensive income (loss)

Losses included in other comprehensive income (loss)

Ending balance

Fair values of other financial instruments

The Company’s debt is recorded at cost, but is measured at fair value for disclosure purposes.

1 unchanged sentence

The notes are traded in less active markets and are therefore classified as a Level 2 fair value measurement.

As of December 28, 2019 and December 29, 2018, the fair value of the convertible senior notes was $ 524.0 million and $ 419.0 million, respectively.

As of January 2, 2021 and December 28, 2019, the fair value of the 1.375 % convertible senior notes was $ 194.8 million and $ 524.0 million, respectively.

The fair value of the 0.625 % convertible senior notes as of January 2, 2021 was $ 671.4 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.

8 unchanged sentences

If the foreign currency forward contracts are terminated or can no longer qualify as hedging instruments prior to maturity, the fair value of the contracts recorded in accumulated other comprehensive income (loss) may be recognized in the Consolidated Statement of Income based on an assessment of the contracts at the time of termination.

The Company has entered into foreign currency forward contracts for a portion of its forecasted operating expenses denominated in the Euro, Norwegian Krone and Hungarian Forint.

As of January 2, 2021, the contracts had maturities of one to twelve months and an aggregate notional value of $ 29.3 million.

Gains expected to be reclassified into earnings in the next twelve months were not material.

The fair value of the contracts, contract gains or losses recognized in other comprehensive income (loss) and amounts reclassified from accumulated other comprehensive income (loss) into earnings were not material for any of the periods presented.

Silicon Laboratories Inc.

Notes to Consolidated Financial Statements (Continued)

December 28, 2019

January 2, 2021

Derivative Financial Instruments (Continued)

The Company has entered into foreign currency forward contracts for a portion of its forecasted operating expenses denominated in the Norwegian Krone.

As of December 28, 2019, the contracts had maturities of one to seven months and an aggregate notional value of $ 5.0 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 (loss) and amounts reclassified from accumulated other comprehensive income (loss) into earnings were not material for any of the periods presented.

Interest Rate Swaps

The Company entered into an interest rate swap agreement with an original notional value of $ 72.5 million in connection with its Credit Facility in July 2016.

The Company terminated the swap agreement in March 2017, which resulted in the reclassification of $ 1.8 million of unrealized gains into earnings during fiscal 2017.

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

4 unchanged sentences

The Company does not apply hedge accounting to these foreign currency forward contracts.

As of December 28, 2019, the Company held one foreign currency forward contract denominated in Singapore Dollars with a notional value of $ 6.2 million.

As of January 2, 2021, the Company held two foreign currency forward contracts denominated in Singapore Dollars with a notional value of $ 11.9 million.

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

1 unchanged sentence

The following tables show the details of selected Consolidated Balance Sheet items (in thousands):

Accounts Receivable, Net

Accounts receivable

Allowance for doubtful accounts

Work in progress

Finished goods

Prepaid Expenses and Other Current Assets

Distributor advances

Silicon Laboratories Inc.

Notes to Consolidated Financial Statements (Continued)

December 28, 2019

January 2, 2021

Balance Sheet Details (Continued)

8 unchanged sentences

Accrued compensation and benefits

Accrued price protection credits

Risks and Uncertainties

2 unchanged sentences

The Company places its cash equivalents and investments primarily in municipal bonds, money market funds, corporate bonds, variable-rate demand notes, U.S.

Treasury bills, U.S.

government securities, agency securities, asset-back securities, commercial paper and auction-rate securities.

Concentrations of credit risk with respect to accounts receivable are primarily due to customers with large outstanding balances.

The Company’s customers that accounted for greater than 10% of accounts receivable consisted of the following:

Edom Technology

The Company’s customers that accounted for greater than 10% of accounts receivable consisted of the following distributors:

Arrow Electronics

Edom Technology

* Less than 10% of accounts receivable

The Company performs periodic credit evaluations of its customers' financial condition and generally requires no collateral from its customers.

The Company provides an allowance for potential credit losses based upon the expected collectibility of such receivables.

The Company provides an allowance for expected credit losses based upon the net amount expected to be collected on such receivables.

Losses have not been significant for any of the periods presented.

The Company holds two notes receivable from a privately held company.

The total carrying value of the notes was $ 1.2 million as of December 28, 2019.

The Company holds three notes receivable from a privately held company.

The total carrying value of the notes was $ 1.6 million as of January 2, 2021.

The Company holds an equity investment in another privately held company.

The investment is accounted for using the equity method and had a carrying value of $ 6.7 million as of December 28, 2019.

The investment is accounted for using the equity method and had a carrying value of $ 10.1 million as of January 2, 2021.

The notes receivable and the investment were recorded in other assets, net in the Consolidated Balance Sheet.

1 unchanged sentence

Notes to Consolidated Financial Statements (Continued)

December 28, 2019

January 2, 2021

Risks and Uncertainties (Continued)

17 unchanged sentences

Although the Company actually sells the products to, and is paid by, distributors and contract manufacturers, the Company refers to the end customer as its customer.

None of the Company’s end customers or contract manufacturers accounted for greater than 10% of revenue during fiscal 2019, 2018 or 2017.

None of the Company’s end customers accounted for greater than 10% of revenue during fiscal 2020, 2019 or 2018.

The Company’s distributors that accounted for greater than 10% of revenue consisted of the following:

2 unchanged sentences

Less than 10% of revenue

On April 18, 2018, the Company completed the acquisition of the Z-Wave business from Sigma Designs, Inc.

for $ 243 million in cash.

Z-Wave is an Internet of Things (IoT) technology for smart home solutions.

Silicon Laboratories Inc.

Notes to Consolidated Financial Statements (Continued)

December 28, 2019

Acquisitions (Continued)

This strategic acquisition expanded the Company’s IoT connectivity portfolio in the connected home and security market, while further scaling the Company's engineering team.

These factors contributed to a purchase price that was in excess of the fair value of the net assets acquired and, as a result, the Company recorded goodwill.

January 2, 2021

Redpine Signals

On April 28, 2020, the Company acquired the Wi-Fi and Bluetooth business of Redpine Signals.

The Company believes the acquisition will accelerate its 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.

7 unchanged sentences

Customer relationships

Cash and cash equivalents

Accounts receivable

1 unchanged sentence

Other non-current assets

Accounts payable

Other current liabilities

Other non-current liabilities

Current liabilities

Non-current liabilities

Total purchase price

The following unaudited pro forma financial information presents combined results of operations for each of the periods presented, giving effect to the acquisition as if it had been completed on January 1, 2017.

The pro forma financial information includes charges for the fair value write-up associated with acquired inventory, adjustments for amortization expense of acquired intangible assets and tax-related expenses.

The pro forma results of operations are presented for informational purposes only and are not necessarily indicative of the results of operations that would have been achieved if the acquisition had taken place on January 1, 2017 or of results that may occur in the future (in thousands, except per share data):

Earnings per share:

On January 20, 2017, the Company acquired Zentri, Inc., a private company.

Zentri was an innovator in low-power, cloud-connected Wi-Fi technologies for the IoT.

The Company acquired Zentri for approximately $ 18.1 million, including initial cash consideration of approximately $ 14.3 million, and potential additional consideration with an estimated fair value of approximately $ 3.8 million at the date of acquisition.

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.

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 fiscal 2020.

Silicon Laboratories Inc.

Notes to Consolidated Financial Statements (Continued)

December 28, 2019

Acquisitions (Continued)

The purchase price was allocated as follows:

intangible assets—$ 6.7 million;

goodwill—$ 12.1 million;

and other net liabilities—$ 0.7 million.

The goodwill is not deductible for tax purposes.

Pro forma information related to this acquisition has not been presented because it would not be materially different from amounts reported.

In October 2019, the Company acquired IEEE 1588 precision time protocol (PTP) software and module assets from Qulsar.

The transaction was accounted for as a business combination, which was not material to the Company.

January 2, 2021

Goodwill and Other Intangible Assets

The following summarizes the activity in goodwill for the years ended December 28, 2019 and December 29, 2018 (in thousands):

The following summarizes the activity in goodwill for the years ended January 2, 2021 and December 28, 2019 (in thousands):

Beginning balance

4 unchanged sentences

Weighted-Average

December 28, 2019

January 2, 2021

December 28, 2019

Core and developed technology

Subject to amortization:

Developed technology

Customer relationships

Gross intangible assets decreased $ 26.6 million in fiscal 2019 due to the removal of fully amortized assets.

This decrease was offset by $ 3.0 million for the addition of certain assets acquired from Qulsar.

Not subject to amortization:

In-process research and development

Not amortized

Total intangible assets

Gross intangible assets increased $ 76.5 million in fiscal 2020 due to assets acquired from Redpine Signals.

This increase was offset by $ 19.6 million for the removal of fully amortized assets.

Amortization expense related to intangible assets for fiscal 2020, 2019 and 2018 was $ 44.7 million, $ 39.5 million and $ 38.0 million, respectively.

Research and development expense included intangible asset amortization expense of $ 33.2 million, $ 29.5 million and $ 27.3 million in fiscal 2020, 2019 and 2018, respectively.

Selling, general and administrative expense included intangible asset amortization expense of $ 11.5 million, $ 10.0 million and $ 10.7 million in fiscal 2020, 2019 and 2018, respectively.

There was no intangible asset amortization expense recorded in cost of revenues in any of the periods presented.

The estimated aggregate amortization expense for intangible assets subject to amortization for each of the five succeeding fiscal years is as follows (in thousands):

1 unchanged sentence

Notes to Consolidated Financial Statements (Continued)

December 28, 2019

January 2, 2021

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.

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 will mature on March 1, 2022, unless repurchased, redeemed or converted at an earlier date.

The Company used $ 72.5 million of the proceeds to pay off the then remaining balance under its credit agreement.

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.

8 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.

The principal balance of the Notes was separated into liability and equity components, and was recorded initially at fair value.

The excess of the principal amount of the liability component over its carrying amount represents the debt discount, which is amortized to interest expense over the term of the Notes using the effective interest method.

The carrying amount of the liability component was estimated by discounting the contractual cash flows of similar non-convertible debt at an appropriate market rate at the date of issuance.

Silicon Laboratories Inc.

Notes to Consolidated Financial Statements (Continued)

January 2, 2021

Debt (continued)

The Company incurred debt issuance costs of approximately $ 10.6 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 2022 Notes using the effective interest method.

During fiscal 2020, the Company paid $ 305.1 million in cash to repurchase $ 259.4 million aggregate principal amount of the 2022 Notes.

The Company recognized a loss on debt extinguishment of $ 4.1 .

million during fiscal 2020, which was recorded in interest expense in the Consolidated Statements of Income.

On January 6, 2021, the Company issued a notice of redemption for the remaining $ 140.6 million principal amount of the 2022 Notes.

The redemption will occur on March 22, 2021, unless earlier converted.

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.

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

5 unchanged sentences

Net carrying amount

The liability component of the Notes is recorded in convertible debt on the Consolidated Balance Sheet.

The equity component of the Notes is recorded in additional paid-in capital.

The effective interest rate for the liability component was 4.75 %.

As of December 28, 2019, the remaining period over which the debt discount and debt issuance costs will be amortized was 2.2 years.

Silicon Laboratories Inc.

Notes to Consolidated Financial Statements (Continued)

December 28, 2019

Debt (Continued)

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 January 2, 2021, the remaining period over which the debt discount and debt issuance costs will be amortized was 4.5 years for the 2025 Notes and 0.2 years for the 2022 Notes.

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

3 unchanged sentences

Credit Facility

On August 7, 2019, the Company and certain of its domestic subsidiaries (the “Guarantors”) amended its existing credit agreement.

The amended agreement (the “Credit Facility”) consists of a $ 400 million revolving credit facility with a maturity date of August 7, 2024.

The Company and certain of its domestic subsidiaries (the “Guarantors”) have a $ 400 million revolving credit facility with a maturity date of August 7, 2024.

The credit facility includes a $ 25 million letter of credit sublimit and a $ 10 million swingline loan sublimit.

The Company also has an option to increase the size of the borrowing capacity by up to the greater of an aggregate of $ 250 million and 100 % of EBITDA, plus an amount that would not cause a secured leverage ratio (funded debt secured by assets/EBITDA) to exceed 3.25 to 1.00, subject to certain conditions.

The revolving 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.

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.

Silicon Laboratories Inc.

Notes to Consolidated Financial Statements (Continued)

January 2, 2021

Debt (continued)

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 leverage ratio (funded debt/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 December 28, 2019, the Company was in compliance with all covenants of 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 January 2, 2021, the Company was in compliance with all covenants of the credit facility.

The Company’s obligations under the credit facility are guaranteed by the Guarantors and are secured by a security interest in substantially all assets of the Company and the Guarantors.

2 unchanged sentences

The Company adopted ASC Topic 842, Leases , on December 30, 2018, the first day of its fiscal 2019.

Lease costs for operating leases were $ 5.8 million during fiscal 2019.

Lease costs for operating leases were $ 5.6 million and $ 5.8 million during fiscal 2020 and 2019, respectively.

The Company elected the practical expedient to not provide comparable presentation for periods prior to adoption.

Rent expense for operating leases was $ 6.0 million and $ 5.5 million for fiscal 2018 and 2017, respectively.

Rent expense for operating leases was $ 6.0 million for fiscal 2018.

Supplemental Lease Information

3 unchanged sentences

Cash Flow Information (in thousands)

December 28, 2019

Cash paid for operating lease liabilities

Right-of-use assets obtained in exchange for operating lease obligations

Silicon Laboratories Inc.

Notes to Consolidated Financial Statements (Continued)

December 28, 2019

Leases (Continued)

Operating Lease Information

1 unchanged sentence

Weighted-average discount rate

The maturities of operating lease liabilities as of December 28, 2019 were as follows (in thousands):

Silicon Laboratories Inc.

Notes to Consolidated Financial Statements (Continued)

January 2, 2021

Leases (Continued)

The maturities of operating lease liabilities as of January 2, 2021 were as follows (in thousands):

Total lease payments

3 unchanged sentences

Investment Commitment

The Company has committed to invest up to $ 10.0 million in a limited partnership, of which approximately $ 6.6 million was funded through December 28, 2019.

The Company has committed to invest up to $ 10.0 million in a limited partnership, of which approximately $ 7.8 million was funded through January 2, 2021.

Legal Proceedings

4 unchanged sentences

Share Repurchase Programs

The Company’s existing share repurchase program has an authorization amount of $ 200 million and a termination date of December 2020.

This program allows for repurchases to be made in the open market or in private transactions, including structured or accelerated transactions, subject to applicable legal requirements and market conditions.

The Company repurchased 0.3 million shares and 0.4 million shares of its common stock for $ 26.7 million and $ 39.3 million during fiscal 2019 and 2018, respectively.

The Company did not repurchase any shares of its common stock during fiscal 2017.

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, 0.3 million shares and 0.4 million shares of its common stock for $ 16.3 million, $ 26.7 million and $ 39.3 million during fiscal 2020, 2019 and 2018, respectively.

These shares were retired upon repurchase.

Silicon Laboratories Inc.

Notes to Consolidated Financial Statements (Continued)

December 28, 2019

Stockholders’ Equity (Continued)

Reclassifications From Accumulated Other Comprehensive Income (Loss)

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

Reclassification

Gains (losses) on available-for-sales securities to:

Interest income and other, net

Gains (losses) on cash flow hedges to:

Operating expenses

Interest expense

Income tax (expense) benefit

Total reclassifications

Income Tax Allocated to the Components of Other Comprehensive Income (Loss)

The income tax effects of the components of other comprehensive income (loss) were as follows (in thousands):

Income tax (expense) benefit on:

Net changes to available-for-sale securities:

Unrealized gains (losses) arising during the period

Reclassification for gains (losses) included in net income

Net changes to cash flow hedges:

Unrealized losses arising during the period

Reclassification for gains (losses) included in net income

The Company groups its revenues into four categories, based on the markets and applications in which its products may be used.

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):

Internet of Things

Infrastructure

(1) Under the modified retrospective method, amounts prior to fiscal 2018 have not been adjusted.

Infrastructure and automotive

Silicon Laboratories Inc.

Notes to Consolidated Financial Statements (Continued)

December 28, 2019

January 2, 2021

Revenues (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.

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.

The Company recognized revenue of $ 17.6 million and $ 24.3 million during fiscal 2019 and 2018, respectively, from performance obligations that were satisfied in previous reporting periods.

The Company recognized revenue of $ 17.7 million, $ 17.6 million and $ 24.3 million during fiscal 2020, 2019 and 2018, respectively, from performance obligations that were satisfied in previous reporting periods.

The following disaggregates the Company's revenue by sales channel (in thousands):

Direct customers

(1) Under the modified retrospective method, amounts prior to fiscal 2018 have not been adjusted.

The Company periodically reviews the assumptions used to estimate consideration it will be entitled to receive from customers.

In fiscal 2020, the Company adjusted certain assumptions used to estimate the constraint on variable consideration based on an analysis of prior period estimates versus actual experience.

These updated assumptions and resulting revision in estimates of variable consideration increased revenue by $ 11.9 million in the fourth quarter of fiscal 2020.

Stock-Based Compensation

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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.

The purpose of the amendments was to authorize additional shares of common stock for issuance, to comply with changes in applicable law, to improve the Company’s corporate governance and to implement other best practices.

2009 Stock Incentive Plan

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To the extent awards granted under the 2009 Plan terminate, expire or lapse for any reason, or are settled in cash, shares subject to such awards will again be available for grant.

Stock Grants and Modifications

The Company granted to its employees 0.7 million, 0.7 million and 0.6 million shares of full value awards and no stock options from the 2009 Plan during fiscal 2020, 2019 and 2018, respectively.

There were no significant modifications made to any stock grants during fiscal 2019, 2018 or 2017.

Included in the full value awards granted under the 2009 Plan in fiscal 2019, 2018 and 2017 were a total of 93 thousand, 41 thousand and 54 thousand market-based stock awards, respectively.

Silicon Laboratories Inc.

Notes to Consolidated Financial Statements (Continued)

January 2, 2021

Stock-Based Compensation (Continued)

Included in the full value awards granted under the 2009 Plan in fiscal 2020, 2019 and 2018 were a total of 82,000 , 93,000 and 41,000 market-based stock awards, respectively.

The awards, also known as market stock units (MSUs), provide the rights to acquire a number of shares of common stock for no cash consideration based upon achievement of specified levels of market conditions.

The requisite service period for these MSUs is also the vesting period, which is generally three years .

The performance criteria of the MSUs measure the difference between the total stockholders’ return of the Company against that of the PHLX Semiconductor Sector Total Return Index.

Also included in the full value awards granted under the 2009 Plan during fiscal 2018 and 2017 were 41 thousand and 54 thousand performance-based stock awards (PSUs), respectively.

There were no PSUs granted during fiscal 2019.

The performance criteria of the MSUs granted in 2018 measures the difference between the total stockholders’ return of the Company against that of the PHLX Semiconductor Sector Total Return Index.

MSUs granted in 2019 and 2020 measure the relative performance of the total stockholders' return of the Company against that of a selected benchmarked group of companies.

Also included in the full value awards granted under the 2009 Plan during fiscal 2018 were 41,000 performance-based stock awards (PSUs).

There were no PSUs granted during fiscal 2020 or 2019.

PSUs provide for the rights to acquire a number of shares of common stock for no cash consideration based upon the achievement of specified revenue objectives during the year.

The requisite service period for these PSUs is approximately three years from the date of grant.

Silicon Laboratories Inc.

Notes to Consolidated Financial Statements (Continued)

December 28, 2019

Stock-Based Compensation (Continued)

2009 Employee Stock Purchase Plan

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Each offering period will be comprised of a series of one or more successive and/or overlapping purchase intervals and has a maximum term of 24 months .

During fiscal 2019, 2018 and 2017, the Company issued 208 thousand, 223 thousand and 239 thousand shares, respectively, under the 2009 Purchase Plan to its employees.

During fiscal 2020, 2019 and 2018, the Company issued 177,000 , 208,000 and 223,000 shares, respectively, under the 2009 Purchase Plan to its employees.

The weighted-average fair value for purchase rights granted in fiscal 2020 under the 2009 Purchase Plan was $ 36.12 per share.

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Changes in estimated forfeitures are recognized through a cumulative catch-up adjustment in the period of change and will also impact the amount of stock-based compensation expense to be recognized in future periods.

Silicon Laboratories Inc.

Notes to Consolidated Financial Statements (Continued)

January 2, 2021

Stock-Based Compensation (Continued)

The fair values of stock options and RSUs are amortized as compensation expense on a straight-line basis over the vesting period of the grants.

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Compensation expense recognized is shown in the operating activities section of the Consolidated Statements of Cash Flows.

Silicon Laboratories Inc.

Notes to Consolidated Financial Statements (Continued)

December 28, 2019

Stock-Based Compensation (Continued)

The fair values estimated from the Black-Scholes option-pricing model for ESPP granted were calculated using the following assumptions:

The fair values estimated from the Black-Scholes option-pricing model for ESPP shares granted were calculated using the following assumptions:

Employee Stock Purchase Plan

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Dividend yield

The fair values estimated from Monte Carlo simulation for MSUs were calculated using the following assumptions:

The fair values estimated from the Monte Carlo simulation for MSUs were calculated using the following assumptions:

Expected volatility

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Outstanding at December 28, 2019

Vested at December 28, 2019 and expected to vest

Exercisable at December 28, 2019

Outstanding at January 2, 2021

Vested at January 2, 2021 and expected to vest

Exercisable at January 2, 2021

Weighted-Average

3 unchanged sentences

Cancelled or forfeited

Outstanding at December 28, 2019

Outstanding at December 28, 2019 and expected to vest

Outstanding at January 2, 2021

Outstanding at January 2, 2021 and expected to vest

Silicon Laboratories Inc.

Notes to Consolidated Financial Statements (Continued)

January 2, 2021

Stock-Based Compensation (Continued)

Weighted-Average

3 unchanged sentences

Cancelled or forfeited

Outstanding at December 28, 2019

Outstanding at December 28, 2019 and expected to vest

Silicon Laboratories Inc.

Notes to Consolidated Financial Statements (Continued)

December 28, 2019

Stock-Based Compensation (Continued)

Outstanding at January 2, 2021

Outstanding at January 2, 2021 and expected to vest

The following summarizes the Company’s weighted average fair value at the date of grant:

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Grant date fair value of RSUs that vested

Intrinsic value of MSUs that vested

Intrinsic value of PSUs and MSUs that vested

Grant date fair value of PSUs and MSUs that vested

The Company received cash of $ 14.5 million for the issuance of common stock, and paid $ 16.3 million for shares withheld for taxes, during fiscal 2019.

The Company received $ 15.0 million cash for the issuance of common stock, and paid $ 18.1 million for shares withheld for taxes, during fiscal 2020.

The Company issues shares from the shares reserved under its stock plans upon the exercise of stock options, vesting of RSUs, PSUs and MSUs, and purchases through employee stock purchase plans.

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The decrease in income tax benefit in fiscal 2019 was primarily due to a change in the Company’s position related to the treatment of stock-based compensation within its intercompany cost-sharing arrangement.

The decrease in income tax benefit in fiscal 2018 was due to the reduced current and future deductibility of executive stock compensation as a result of the Tax Cuts and Jobs Act.

See Note 17, Income Taxes , to the Consolidated Financial Statements for additional information.

The Company had approximately $ 59.6 million of total unrecognized compensation costs related to granted stock options and awards as of December 28, 2019 that are expected to be recognized over a weighted-average period of approximately 2.0 years.

The Company had approximately $ 78.6 million of total unrecognized compensation costs related to equity grants from the 2009 Plan as of January 2, 2021 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.

As of December 28, 2019, the Company had reserved shares of common stock for future issuance as follows (in thousands):

Silicon Laboratories Inc.

Notes to Consolidated Financial Statements (Continued)

January 2, 2021

Stock-Based Compensation (Continued)

As of January 2, 2021, the Company had reserved shares of common stock for future issuance as follows (in thousands):

2009 Stock Incentive Plan

1 unchanged sentence

Total shares reserved

Silicon Laboratories Inc.

Notes to Consolidated Financial Statements (Continued)

December 28, 2019

Employee Benefit Plan

10 unchanged sentences

Notes to Consolidated Financial Statements (Continued)

December 28, 2019

January 2, 2021

Income Taxes (Continued)

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GILTI and Subpart F income

Nondeductible (nontaxable) foreign expenses

Nondeductible (nontaxable) foreign items

State tax expense

1 unchanged sentence

Nondeductible officer compensation

Other tax effects of equity compensation

Change in cost-sharing treatment of stock-based compensation

1 unchanged sentence

Change in prior period valuation allowance

Transition tax on unremitted foreign earnings

Revaluation of deferred tax balances

Other deferred tax impacts of tax reform

One-time impacts of tax reform

Nondeductible (nontaxable) domestic items

Effective Tax Rate

The effective tax rate for fiscal 2020 decreased from fiscal 2019 primarily due to a fiscal 2019 change in the Company’s position related to the treatment of stock-based compensation within its intercompany cost-sharing arrangement offset by the increased impact of fiscal 2020 permanent tax differences.

The effective tax rate for fiscal 2019 increased from fiscal 2018 primarily due to a change in the Company’s financial statement position related to the treatment of stock-based compensation within its intercompany cost-sharing arrangement.

The effective tax rate for fiscal 2018 decreased from fiscal 2017 primarily due to the reduction in the U.S.

federal statutory rate as well as the inclusion of one-time tax impacts recorded in 2017 from the enactment of the Tax Cuts and Jobs Act ("the Act").

This decrease in the effective tax rate was offset by a decrease in the Company’s foreign tax rate benefit.

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.

In February 2016, the U.S.

Internal Revenue Service appealed the decision to the U.S Court of Appeals for the Ninth Circuit (the “Ninth Circuit”).

On June 7, 2019, the Ninth Circuit reversed the 2015 decision of the U.S.

As a result of this decision, the Company no longer reflects a tax benefit related to the removal of stock-based compensation from its intercompany cost-sharing arrangement within its financial statements.

During the three months ended June 29, 2019, the Company removed the deferred tax assets and a deferred tax liability associated with this matter from its financial statements.

This removal resulted in a full year discrete income tax expense of $ 27.2 million.

On November 12, 2019, the Ninth Circuit denied a petition for rehearing the case en banc.

The Company will continue to monitor ongoing developments in this matter and potential impacts to its financial statements.

The Company’s operations in Singapore are subject to reduced tax rates through June 30, 2024, as long as certain conditions are met.

Without the impact of a one-time transition tax, the income tax benefit from the reduced Singapore tax rate reflected in earnings was approximately $ 1.5 million (representing $ 0.03 per diluted share) in fiscal 2019, $ 5.4 million (representing $ 0.12 per diluted share) in fiscal 2018 and approximately $ 11.0 million (representing $ 0.25 per diluted share) in fiscal 2017.

The Act was enacted in the U.S.

The impact of the tax holiday decreased foreign taxes by $ 1.8 million in fiscal 2020 (representing $ 0.04 per diluted share), by $ 4.0 million in fiscal 2019 (representing $ 0.09 per diluted share), and by $ 8.1 million in fiscal 2018 (representing $ 0.18 per diluted share).

The Tax Cuts and Jobs Act was enacted in the U.S.

on December 22, 2017 and required companies to pay a one-time transition tax on earnings of certain foreign subsidiaries that were previously deferred from U.S income tax under U.S.

The Company elected to pay the transition tax over the eight-year period provided in the Act.

As of December 28, 2019, the unpaid balance of its transition tax obligation is $ 21.3 million, which is payable between April 2022 and April 2025.

As of January 2, 2021, the unpaid balance of its transition tax obligation is $ 21.4 million, which is payable between April 2022 and April 2025.

This is recorded as a component of other non-current liabilities in the Consolidated Balance Sheet.

Silicon Laboratories Inc.

Notes to Consolidated Financial Statements (Continued)

December 28, 2019

January 2, 2021

Income Taxes (Continued)

1 unchanged sentence

Deferred tax assets and liabilities are recorded for the estimated tax impact of temporary differences between the tax basis and book basis of assets and liabilities.

Significant components of the Company’s deferred taxes as of December 28, 2019 and December 29, 2018 are as follows (in thousands):

Significant components of the Company’s deferred taxes as of January 2, 2021 and December 28, 2019 are as follows (in thousands):

Deferred tax assets:

Net operating loss carryforwards

Research and development tax credit carryforwards

Tax credit carryforwards

Stock-based compensation

Depreciation and amortization

Intangible assets

Capitalized research and development

Deferred income on shipments to distributors

Expected future cost-sharing adjustment

Accrued liabilities and other

1 unchanged sentence

Deferred tax liabilities:

Acquired intangible assets

Depreciation and amortization

Long-term debt

Intangible assets

Prepaid expenses and other

Net deferred tax assets

As of December 28, 2019, the Company had federal net operating loss and research and development tax credit carryforwards of approximately $ 27.9 million and $ 1.9 million, respectively, as a result of the Silicon Clocks, Spectra Linear and Ember acquisitions.

Net deferred tax assets (liabilities)

As of January 2, 2021, the Company had federal net operating loss and research and development tax credit carryforwards of approximately $ 23.2 million and $ 1.9 million, respectively, as a result of the Silicon Clocks, Spectra Linear and Ember acquisitions.

These carryforwards expire in fiscal years 2021 through 2031.

Recognition of these loss and credit carryforwards is subject to an annual limit, which may cause them to expire before they are used.

Additionally, as of December 28, 2019, the Company had generated $ 3.3 million of federal research and development credit carryforwards.

These credits expire in 2039 and are not currently subject to an annual limitation.

Additionally, as of January 2, 2021, the Company had generated $ 10.5 million of federal research and development credit carryforwards and $ 0.6 million of foreign tax credit carryforwards.

The federal research and development credits expire in fiscal years 2039 through 2040, and the foreign tax credits expire in 2030.

These credits are not currently subject to an annual limitation.

The Company also had state loss, state tentative minimum tax credit, and state research and development tax credit carryforwards of approximately $ 31.6 million, $ 0.1 million, and $ 13.0 million, respectively.

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Recognition of some of these loss and credit carryforwards is subject to an annual limit, which may cause them to expire before they are used.

A valuation allowance is established against a deferred tax asset when it is more likely than not that the deferred tax asset will not be realized.

The Company maintains a valuation allowance with respect to certain deferred tax assets relating to state research and development tax credit and state net operating loss carryforwards.

Silicon Laboratories Inc.

Notes to Consolidated Financial Statements (Continued)

December 28, 2019

January 2, 2021

Income Taxes (Continued)

A valuation allowance is established against a deferred tax asset when it is more likely than not that the deferred tax asset will not be realized.

The Company maintains a valuation allowance with respect to certain deferred tax assets relating to state research and development tax credit and state net operating loss carryforwards.

The following table summarizes the activity related to the valuation allowance for deferred tax assets (in thousands):

Other Accounts

End of Period

Year ended December 28, 2019

Year ended January 2, 2021

Year ended December 28, 2019

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Ending balance

As of December 28, 2019, December 29, 2018 and December 30, 2017, the Company had gross unrecognized tax benefits, inclusive of interest, of $ 2.4 million, $ 2.1 million and $ 3.2 million, respectively, of which $ 1.9 million, $ 2.1 million and $ 3.2 million, respectively, would affect the effective tax rate if recognized.

The Company recognizes interest and penalties related to unrecognized tax benefits in the provision for income taxes.

As of January 2, 2021, December 28, 2019 and December 29, 2018, the Company had gross unrecognized tax benefits, inclusive of interest, of $ 3.0 million, $ 2.4 million and $ 2.1 million, respectively, of which $ 2.1 million, $ 1.9 million and $ 2.1 million, respectively, would affect the effective tax rate if recognized.

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.

The adjustment to the pricing of the intercompany transaction results in approximately $ 16.0 million additional Norwegian income tax.

The adjustment to the pricing of the intercompany transaction results in approximately 141.3 million Norwegian kroner, or $ 16.5 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.

Silicon Laboratories Inc.

Notes to Consolidated Financial Statements (Continued)

December 28, 2019

January 2, 2021

Income Taxes (Continued)

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.

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

Segment Information

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The chief operating decision maker allocates resources and assesses performance of the business and other activities at the operating segment level.

The Company groups its products into four categories, based on the markets and applications in which the products may be used.

The Company groups its products into two categories, based on the markets and applications in which the products may be used.

See Note 14, Revenues , for a summary of the Company’s revenue by product category.

8 unchanged sentences

Quarterly financial information for fiscal 2020 and 2019 is as follows.

All quarterly periods reported here had 13 weeks (in thousands, except per share amounts):

The first quarter of fiscal 2020 had 14 weeks.

All other quarterly periods reported here had 13 weeks (in thousands, except per share amounts):

Operating income

2 unchanged sentences

Operating income

Earnings per share:

Net income (loss)

Earnings (loss) per share:

(1) Includes an adjustment of $11.9 million to increase revenue resulting from a change in the assumptions used to estimate variable consideration.

(2) Includes a discrete charge to the income tax provision of $28.1 million ($0.64 per share) related to a net deferred tax asset previously recognized in connection with intercompany cost sharing arrangements.

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-K

Item 9A. Controls and Procedures