SILICON LABORATORIES INC. 10-Q

Item 1. Financial Statements ​ Silicon Laboratories Inc. Condensed Consolidated Balance Sheets (In thousands, except per share data) (Unaudited) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ July 3, ​ January 2, ​ 2021 2021 Assets ​ ​ ​ ​ ​ ​ Current assets: ​ ​ ​ ​ ​ ​ Cash and cash equivalents ​ $ 303,084 ​ $ 202,720 Short-term investments ​ 314,183 ​ 521,963 Accounts receivable, net ​ 99,546 ​ 95,169 Inventories ​ 52,269 ​ 47,861 Prepaid expenses and other current assets ​ 94,378 ​ 87,103 Current assets held for sale ​ ​ 297,543 ​ ​ 21,005 Total current assets ​ 1,161,003 ​ 975,821 Property and equipment, net ​ 139,362 ​ 135,803 Goodwill ​ 376,389 ​ 376,389 Other intangible assets, net ​ 140,581 ​ 163,483 Other assets, net ​ 78,667 ​ 76,675 Non-current assets held for sale ​ ​ — ​ ​ 265,316 Total assets ​ $ 1,896,002 ​ $ 1,993,487 Liabilities and Stockholders’ Equity ​ ​ ​ ​ ​ ​ Current liabilities: ​ ​ ​ ​ ​ ​ Accounts payable ​ $ 70,820 ​ $ 54,949 Current portion of convertible debt, net ​ ​ — ​ ​ 134,480 Deferred revenue and returns liability ​ ​ 12,811 ​ ​ 12,986 Other current liabilities ​ 70,552 ​ 81,650 Current liabilities held for sale ​ ​ 699 ​ ​ 433 Total current liabilities ​ 154,882 ​ 284,498 Convertible debt, net ​ ​ 439,654 ​ ​ 428,945 Other non-current liabilities ​ 73,712 ​ 79,752 Non-current liabilities held for sale ​ ​ — ​ ​ 451 Total liabilities ​ 668,248 ​ 793,646 Commitments and contingencies ​ ​ ​ ​ ​ ​ Stockholders’ equity: ​ ​ ​ ​ ​ ​ Preferred stock – $ 0.0001 par value; 10,000 shares authorized; no shares issued ​ — ​ — Common stock – $ 0.0001 par value; 250,000 shares authorized; 44,764 and 43,925 shares issued and outstanding at July 3, 2021 and January 2, 2021, respectively ​ 4 ​ 4 Additional paid-in capital ​ 200,716 ​ 204,359 Retained earnings ​ 1,027,105 ​ 993,664 Accumulated other comprehensive income (loss) ​ ( 71 ) ​ 1,814 Total stockholders' equity ​ 1,227,754 ​ 1,199,841 Total liabilities and stockholders’ equity ​ $ 1,896,002 ​ $ 1,993,487 ​ The accompanying notes are an integral part of these Condensed Consolidated Financial Statements. ​ 3 Table of Contents Silicon Laboratories Inc. Condensed Consolidated Statements of Operations (In thousands, except per share data) (Unaudited) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended ​ Six Months Ended ​ July 3, July 4, July 3, July 4, ​ ​ 2021 ​ 2020 ​ 2021 ​ 2020 Revenues ​ $ 169,492 ​ $ 114,350 ​ $ 327,349 ​ $ 232,368 Cost of revenues ​ ​ 73,194 ​ 47,771 ​ ​ 139,297 ​ 96,942 Gross profit ​ ​ 96,298 ​ 66,579 ​ ​ 188,052 ​ 135,426 Operating expenses: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Research and development ​ ​ 64,832 ​ 57,992 ​ ​ 128,847 ​ 115,702 Selling, general and administrative ​ ​ 42,953 ​ 40,350 ​ ​ 85,407 ​ 84,802 Operating expenses ​ ​ 107,785 ​ 98,342 ​ ​ 214,254 ​ 200,504 Operating loss ​ ​ ( 11,487 ) ​ ​ ( 31,763 ) ​ ​ ( 26,202 ) ​ ( 65,078 ) Other income (expense): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Interest income and other, net ​ ​ 647 ​ ​ 3,267 ​ ​ 3,522 ​ 6,518 Interest expense ​ ​ ( 6,486 ) ​ ​ ( 11,778 ) ​ ​ ( 17,810 ) ​ ( 17,319 ) Loss from continuing operations before income taxes ​ ​ ( 17,326 ) ​ ​ ( 40,274 ) ​ ​ ( 40,490 ) ​ ( 75,879 ) Provision (benefit) for income taxes ​ ​ 1,165 ​ ( 4,229 ) ​ ​ 3,157 ​ ( 8,443 ) Loss from continuing operations ​ ​ ( 18,491 ) ​ ​ ( 36,045 ) ​ ​ ( 43,647 ) ​ ​ ( 67,436 ) Income from discontinued operations, net of income taxes ​ ​ 38,423 ​ ​ 34,222 ​ ​ 77,088 ​ ​ 67,857 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Net income (loss) ​ $ 19,932 ​ $ ( 1,823 ) ​ $ 33,441 ​ $ 421 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Basic earnings (loss) per share: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Continuing operations ​ $ ( 0.41 ) ​ $ ( 0.82 ) ​ $ ( 0.98 ) ​ $ ( 1.54 ) Net income ​ $ 0.44 ​ $ ( 0.04 ) ​ $ 0.75 ​ $ 0.01 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Diluted earnings (loss) per share: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Continuing operations ​ $ ( 0.41 ) ​ $ ( 0.82 ) ​ $ ( 0.98 ) ​ $ ( 1.54 ) Net income ​ $ 0.44 ​ $ ( 0.04 ) ​ $ 0.73 ​ $ 0.01 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Weighted-average common shares outstanding: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Basic ​ ​ 44,803 ​ ​ 43,761 ​ ​ 44,481 ​ ​ 43,699 Diluted ​ ​ 45,756 ​ ​ 43,761 ​ ​ 45,794 ​ ​ 44,219 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ The accompanying notes are an integral part of these Condensed Consolidated Financial Statements. ​ 4 Table of Contents Silicon Laboratories Inc. Condensed Consolidated Statements of Comprehensive Income (In thousands) (Unaudited) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended ​ Six Months Ended ​ ​ July 3, July 4, July 3, July 4, ​ 2021 ​ 2020 ​ 2021 ​ 2020 Net income (loss) ​ $ 19,932 ​ $ ( 1,823 ) ​ $ 33,441 ​ $ 421 Other comprehensive income (loss), before tax ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Net changes to available-for-sale securities ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Unrealized gains (losses) arising during the period ​ ​ ( 564 ) ​ 3,068 ​ ​ ( 1,400 ) ​ 2,598 Reclassification for gains included in net income (loss) ​ ​ ( 39 ) ​ ​ ( 121 ) ​ ​ ( 397 ) ​ ​ ( 222 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Net changes to cash flow hedges ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Unrealized gains (losses) arising during the period ​ ​ 388 ​ ​ 496 ​ ​ ( 269 ) ​ ​ ( 311 ) Reclassification for (gains) losses included in net income (loss) ​ ​ ( 160 ) ​ ​ 282 ​ ​ ( 320 ) ​ 423 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Other comprehensive income (loss), before tax ​ ​ ( 375 ) ​ ​ 3,725 ​ ​ ( 2,386 ) ​ 2,488 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Provision (benefit) for income taxes ​ ​ ( 78 ) ​ 783 ​ ​ ( 501 ) ​ 523 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Other comprehensive income (loss) ​ ​ ( 297 ) ​ 2,942 ​ ​ ( 1,885 ) ​ 1,965 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Comprehensive income ​ $ 19,635 ​ $ 1,119 ​ $ 31,556 ​ $ 2,386 ​ The accompanying notes are an integral part of these Condensed Consolidated Financial Statements. ​ 5 Table of Contents Silicon Laboratories Inc. Condensed Consolidated Statements of Changes in Stockholders’ Equity (In thousands) (Unaudited) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Additional ​ ​ Accumulated Other Total ​ ​ ​ ​ Common ​ Paid-In ​ Retained ​ Comprehensive ​ Stockholders’ Three Months Ended July 3, 2021 ​ Shares ​ Stock ​ Capital ​ Earnings ​ Income (Loss) ​ Equity Balance as of April 3, 2021 ​ 44,749 ​ $ 4 ​ $ 199,576 ​ $ 1,007,173 ​ $ 226 ​ $ 1,206,979 Net income ​ — ​ — ​ — ​ 19,932 ​ ​ — ​ ​ 19,932 Other comprehensive loss ​ — ​ — ​ — ​ — ​ ( 297 ) ​ ( 297 ) Stock issuances, net of shares withheld for taxes ​ 157 ​ — ​ 6,473 ​ — ​ — ​ 6,473 Repurchases of common stock ​ ( 142 ) ​ ​ — ​ ​ ( 18,982 ) ​ ​ — ​ ​ — ​ ​ ( 18,982 ) Stock-based compensation ​ — ​ — ​ 13,649 ​ — ​ — ​ 13,649 Balance as of July 3, 2021 ​ 44,764 ​ $ 4 ​ $ 200,716 ​ $ 1,027,105 ​ $ ( 71 ) ​ $ 1,227,754 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Additional ​ ​ Accumulated Other Total ​ ​ ​ ​ Common ​ Paid-In ​ Retained ​ Comprehensive ​ Stockholders’ Three Months Ended July 4, 2020 ​ Shares ​ Stock ​ Capital ​ Earnings ​ Income (Loss) ​ Equity Balance as of April 4, 2020 ​ 43,670 ​ $ 4 ​ $ 116,553 ​ $ 983,377 ​ $ ( 331 ) ​ $ 1,099,603 Net loss ​ — ​ — ​ — ​ ( 1,823 ) ​ — ​ ( 1,823 ) Other comprehensive income ​ — ​ — ​ — ​ — ​ 2,942 ​ 2,942 Stock issuances, net of shares withheld for taxes ​ 126 ​ — ​ 7,295 ​ — ​ — ​ 7,295 Stock-based compensation ​ — ​ — ​ 14,458 ​ — ​ — ​ 14,458 Convertible debt issuance ​ — ​ — ​ 35,171 ​ — ​ — ​ 35,171 Balance as of July 4, 2020 ​ 43,796 ​ $ 4 ​ $ 173,477 ​ $ 981,554 ​ $ 2,611 ​ $ 1,157,646 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Additional ​ ​ Accumulated Other Total ​ ​ ​ ​ Common ​ Paid-In ​ Retained ​ Comprehensive ​ Stockholders’ Six Months Ended July 3, 2021 ​ Shares ​ Stock ​ Capital ​ Earnings ​ Income (Loss) ​ Equity Balance as of January 2, 2021 43,925 ​ $ 4 ​ $ 204,359 ​ $ 993,664 ​ $ 1,814 ​ $ 1,199,841 Net income — ​ — ​ — ​ 33,441 ​ — ​ 33,441 Other comprehensive loss — ​ — ​ — ​ — ​ ( 1,885 ) ​ ( 1,885 ) Stock issuances, net of shares withheld for taxes 453 ​ — ​ ( 11,344 ) ​ — ​ — ​ ( 11,344 ) Repurchases of common stock ​ ( 142 ) ​ ​ — ​ ​ ( 18,982 ) ​ ​ — ​ ​ — ​ ​ ( 18,982 ) Stock-based compensation — ​ — ​ 27,431 ​ — ​ — ​ 27,431 Convertible debt activity ​ 528 ​ ​ — ​ ​ ( 748 ) ​ ​ — ​ ​ — ​ ​ ( 748 ) Balance as of July 3, 2021 44,764 ​ $ 4 ​ $ 200,716 ​ $ 1,027,105 ​ $ ( 71 ) ​ $ 1,227,754 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Additional ​ ​ Accumulated Other Total ​ ​ ​ ​ Common ​ Paid-In ​ Retained ​ Comprehensive ​ Stockholders’ Six Months Ended July 4, 2020 ​ Shares ​ Stock ​ Capital ​ Earnings ​ Income (Loss) ​ Equity Balance as of December 28, 2019 43,496 ​ $ 4 ​ $ 133,793 ​ $ 980,608 ​ $ 646 ​ $ 1,115,051 Cumulative effect of adoption of accounting standard ​ — ​ ​ — ​ ​ — ​ ​ 525 ​ ​ — ​ ​ 525 Net income — ​ — ​ — ​ 421 ​ ​ — ​ 421 Other comprehensive income — ​ — ​ — ​ — ​ 1,965 ​ 1,965 Stock issuances, net of shares withheld for taxes 509 ​ — ​ ( 8,999 ) ​ — ​ — ​ ( 8,999 ) Repurchases of common stock ( 209 ) ​ — ​ ( 16,287 ) ​ — ​ — ​ ( 16,287 ) Stock-based compensation ​ — ​ ​ — ​ ​ 29,799 ​ ​ — ​ ​ — ​ ​ 29,799 Convertible debt issuance — ​ — ​ 35,171 ​ — ​ — ​ 35,171 Balance as of July 4, 2020 43,796 ​ $ 4 ​ $ 173,477 ​ $ 981,554 ​ $ 2,611 ​ $ 1,157,646 ​ The accompanying notes are an integral part of these Condensed Consolidated Financial Statements. 6 Table of Contents Silicon Laboratories Inc. Condensed Consolidated Statements of Cash Flows (In thousands) (Unaudited) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Six Months Ended ​ ​ July 3, ​ July 4, ​ 2021 2020 Operating Activities ​ ​ ​ ​ ​ ​ Net income ​ $ 33,441 ​ $ 421 Adjustments to reconcile net income to cash provided by operating activities of continuing operations: ​ ​ ​ ​ ​ ​ Income from discontinued operations, net of income taxes ​ ​ ( 77,088 ) ​ ​ ( 67,857 ) Depreciation of property and equipment ​ ​ 8,184 ​ 7,711 Amortization of intangible assets and other assets ​ ​ 22,902 ​ 20,486 Amortization of debt discount and debt issuance costs ​ ​ 11,822 ​ ​ 8,359 Loss on extinguishment of convertible debt ​ ​ 3,370 ​ ​ 3,685 Stock-based compensation expense ​ ​ 22,620 ​ 24,461 Deferred income taxes ​ ​ ( 5,644 ) ​ 1,177 Changes in operating assets and liabilities: ​ ​ ​ ​ ​ ​ Accounts receivable ​ ​ ( 4,377 ) ​ 7,070 Inventories ​ ​ ( 4,447 ) ​ 8,021 Prepaid expenses and other assets ​ ​ ( 5,489 ) ​ 22,976 Accounts payable ​ ​ 14,711 ​ ( 769 ) Other current liabilities and income taxes ​ ​ ( 10,626 ) ​ ( 15,480 ) Deferred revenue and returns liability ​ ​ ( 175 ) ​ 6,678 Other non-current liabilities ​ ​ ( 3,464 ) ​ ​ 1,146 Net cash provided by operating activities of continuing operations ​ ​ 5,740 ​ 28,085 ​ ​ ​ ​ ​ ​ ​ Investing Activities ​ ​ ​ ​ ​ ​ Purchases of marketable securities ​ ​ ( 80,426 ) ​ ( 199,347 ) Sales and maturities of marketable securities ​ ​ 286,649 ​ 255,112 Purchases of property and equipment ​ ​ ( 10,779 ) ​ ( 9,051 ) Purchases of other assets ​ ​ ( 578 ) ​ ​ ( 820 ) Acquisition of business, net of cash acquired ​ ​ — ​ ​ ( 316,809 ) Net cash provided by (used in) investing activities of continuing operations ​ ​ 194,866 ​ ( 270,915 ) ​ ​ ​ ​ ​ ​ ​ Financing Activities ​ ​ ​ ​ ​ ​ Proceeds from issuance of debt ​ ​ — ​ ​ 845,000 Payments on debt ​ ​ ( 140,572 ) ​ ​ ( 597,446 ) Repurchases of common stock ​ ​ ( 18,982 ) ​ ​ ( 16,287 ) Payment of taxes withheld for vested stock awards ​ ​ ( 19,732 ) ​ ​ ( 16,756 ) Proceeds from the issuance of common stock ​ ​ 8,388 ​ ​ 7,757 Net cash provided by (used in) financing activities of continuing operations ​ ​ ( 170,898 ) ​ 222,268 ​ ​ ​ ​ ​ ​ ​ Discontinued Operations ​ ​ ​ ​ ​ ​ Operating activities ​ ​ 72,674 ​ ​ 72,418 Investing activities ​ ​ ( 2,018 ) ​ ​ ( 1,343 ) Net cash provided by discontinued operations ​ ​ 70,656 ​ ​ 71,075 ​ ​ ​ ​ ​ ​ ​ Increase in cash and cash equivalents ​ ​ 100,364 ​ 50,513 Cash and cash equivalents at beginning of period ​ ​ 202,720 ​ 227,146 Cash and cash equivalents at end of period ​ $ 303,084 ​ $ 277,659 ​ The accompanying notes are an integral part of these Condensed Consolidated Financial Statements. ​ ​ 7 Table of Contents Silicon Laboratories Inc. Notes to Condensed Consolidated Financial Statements (Unaudited) 1. Significant Accounting Policies ​ Basis of Presentation and Principles of Consolidation ​ The Condensed Consolidated Financial Statements included herein are unaudited; however, they contain all normal recurring accruals and adjustments which, in the opinion of management, are necessary to present fairly the condensed consolidated financial position of Silicon Laboratories Inc. and its subsidiaries (collectively, the “Company”) at July 3, 2021 and January 2, 2021, the condensed consolidated results of its operations for the three and six months ended July 3, 2021 and July 4, 2020, the Condensed Consolidated Statements of Comprehensive Income for the three and six months ended July 3, 2021 and July 4, 2020, the Condensed Consolidated Statements of Changes in Stockholders’ Equity for the three and six months ended July 3, 2021 and July 4, 2020, and the Condensed Consolidated Statements of Cash Flows for the six months ended July 3, 2021 and July 4, 2020. All intercompany balances and transactions have been eliminated in consolidation. The condensed consolidated results of operations for the three and six months ended July 3, 2021 are not necessarily indicative of the results to be expected for the full year. ​ The accompanying unaudited Condensed Consolidated Financial Statements do not include certain footnotes and financial presentations normally required under U.S. generally accepted accounting principles (GAAP). Therefore, these Condensed Consolidated Financial Statements should be read in conjunction with the audited Consolidated Financial Statements and notes thereto for the year ended January 2, 2021, included in the Company’s Form 10-K filed with the Securities and Exchange Commission (SEC) on February 3, 2021. ​ The Company prepares financial statements on a 52 - or 53 -week fiscal year that ends on the Saturday closest to December 31. Fiscal 2021 will have 52 weeks. Fiscal 2020 had 53 weeks with the extra week occurring in the first quarter of the year. In a 52-week year, each fiscal quarter consists of 13 weeks. ​ Use of Estimates ​ The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Among the significant estimates affecting the financial statements are those related to inventories, goodwill, acquired intangible assets, other long-lived assets, revenue recognition, stock-based compensation and income taxes. Actual results could differ from those estimates, and such differences could be material to the financial statements. ​ Revenue Recognition ​ Revenue is recognized when control of the promised goods or services is transferred to the customer, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods or services. Substantially all of the Company’s contracts with customers contain a single performance obligation, the sale of mixed-signal integrated circuit (IC) products. This performance obligation is satisfied when control of the product is transferred to the customer, which typically occurs upon delivery. Unsatisfied performance obligations primarily represent contracts for products with future delivery dates. The Company has opted to not disclose the amount of unsatisfied performance obligations as these contracts have original expected durations of less than one year. ​ The transaction price reflects the Company’s expectations about the consideration it will be entitled to receive from the customer and may include fixed or variable amounts. Variable consideration primarily includes sales made to distributors under agreements allowing certain rights of return, referred to as stock rotation, and credits issued to the distributor due to price protection. The Company estimates variable consideration at the most likely amount to which it expects to be entitled. The estimate is based on information available to the Company, including recent sales activity and pricing data. The Company applies a constraint to its variable consideration estimate which considers both the likelihood of a return and the amount of a potential price concession. Variable consideration that does not meet revenue recognition criteria is deferred. The Company records a right of return asset in prepaid expenses and other current assets for the costs of distributor inventory not meeting revenue recognition criteria. A corresponding deferred revenue and returns liability amount is recorded for unrecognized revenue associated with such costs. The Company’s products carry a one-year replacement warranty. Payments are typically due within 30 days of invoicing and do not include a significant financing component. ​ 8 Table of Contents Silicon Laboratories Inc. Notes to Condensed Consolidated Financial Statements (Continued) (Unaudited) 1. Significant Accounting Policies (Continued) ​ Recent Accounting Pronouncements ​ In August 2020, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging— Contracts in Entity’s Own Equity (Subtopic 815-40) . This ASU simplifies the accounting for certain convertible instruments, amends the guidance on derivative scope exceptions for contracts in an entity’s own equity and requires the use of the if-converted method for calculating diluted earnings per share. The ASU removes separation models for convertible debt with a cash conversion feature. Such convertible instruments will be accounted for as a single liability measured at amortized cost, as long as no other features require bifurcation and recognition as derivatives. This ASU is effective for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years, using one of two retrospective transition methods. Early adoption is permitted for fiscal periods beginning after December 15, 2020. The Company expects the primary impacts of this new standard will be to increase the carrying value of its convertible debt by approximately $ 78.5 million, with an offsetting reduction in additional paid-in capital, and reduce its reported interest expense. In addition, should the Company be required to use the if-converted method for calculating diluted earnings per share, the number of shares used in such calculation could potentially increase. The Company will continue to evaluate the effect that the adoption of this ASU will have on its financial statements. ​ 2. Discontinued Operations ​ On April 22, 2021, the Company entered into an Asset Purchase Agreement pursuant to which Skyworks Solutions, Inc. agreed to acquire certain assets, rights, and properties, and assume certain liabilities, comprising the Company’s infrastructure and automotive business for $ 2.75 billion in cash. The transaction closed on July 26, 2021. The financial results of the infrastructure and automotive business, which are readily distinguishable from other components of the Company, have been presented as discontinued operations in the Condensed Consolidated Financial Statements. The following table presents the financial results of the infrastructure and automotive business (the “discontinued operations”) in the Company’s condensed consolidated statements of operations (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended Six Months Ended ​ ​ July 3, ​ July 4, ​ July 3, ​ July 4, ​ ​ 2021 2020 2021 2020 Revenues ​ $ 108,064 ​ $ 93,183 ​ $ 205,712 ​ $ 190,042 Costs of revenues and operating expenses ​ 70,143 ​ 54,352 ​ 130,917 ​ 113,948 Income from discontinued operations before income taxes ​ 37,921 ​ 38,831 ​ 74,795 ​ 76,094 Provision (benefit) for income taxes ​ ( 502 ) ​ 4,609 ​ ( 2,293 ) ​ 8,237 Income from discontinued operations ​ $ 38,423 ​ $ 34,222 ​ $ 77,088 ​ $ 67,857 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Income from discontinued operations per share: ​ ​ ​ ​ Basic ​ $ 0.86 ​ $ 0.78 ​ $ 1.73 ​ $ 1.55 Diluted ​ $ 0.84 ​ $ 0.78 ​ $ 1.68 ​ $ 1.53 ​ 9 Table of Contents Silicon Laboratories Inc. Notes to Condensed Consolidated Financial Statements (Continued) (Unaudited) 2. Discontinued Operations (Continued) The following table summarizes the assets and liabilities of the infrastructure and automotive business held for sale (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ July 3, January 2, ​ ​ 2021 ​ 2021 Assets ​ ​ Inventories ​ $ 30,176 ​ $ 18,801 Prepaid expenses and other current assets ​ ​ 1,876 ​ 2,204 Goodwill ​ ​ 255,543 ​ 255,543 Other assets ​ ​ 9,947 ​ 9,772 Total assets held for sale ​ $ 297,543 ​ $ 286,321 ​ ​ ​ ​ ​ ​ ​ Liabilities ​ ​ ​ ​ Other current liabilities ​ $ 699 ​ $ 433 Other non-current liabilities ​ ​ — ​ 451 Total liabilities held for sale ​ $ 699 ​ $ 884 ​ Continuing Involvement ​ In connection with the closing of the sale, the Company entered into certain ancillary agreements with Skyworks, including a Transition Services Agreement ("TSA"). Through the TSA, the Company will sublease certain premises to Skyworks and provide various temporary support services for three to eighteen months , depending on the service provided. Although the services provided under the TSA will generate continuing cash flows between the Company and Skyworks for the duration of the TSA, the amounts are not expected to be material to the ongoing operations of either entity. In addition, the Company has no contractual ability through the TSA or any other agreement to significantly influence the operating or financial policies of Skyworks. ​ 3. Earnings (Loss) Per Share ​ The following table sets forth the computation of basic and diluted loss per share from continuing operations (in thousands, except per share data): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended ​ Six Months Ended ​ July 3, July 4, July 3, July 4, ​ ​ 2021 ​ 2020 ​ 2021 ​ 2020 Loss from continuing operations ​ $ ( 18,491 ) ​ $ ( 36,045 ) ​ $ ( 43,647 ) ​ $ ( 67,436 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Shares used in computing basic loss per share ​ ​ 44,803 ​ 43,761 ​ ​ 44,481 ​ 43,699 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Effect of dilutive securities: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Stock-based awards and convertible debt ​ ​ — ​ — ​ ​ — ​ — Shares used in computing diluted loss per share ​ ​ 44,803 ​ 43,761 ​ ​ 44,481 ​ 43,699 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Loss per share: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Basic ​ $ ( 0.41 ) ​ $ ( 0.82 ) ​ $ ( 0.98 ) ​ $ ( 1.54 ) Diluted ​ $ ( 0.41 ) ​ $ ( 0.82 ) ​ $ ( 0.98 ) ​ $ ( 1.54 ) ​ 10 Table of Contents Silicon Laboratories Inc. Notes to Condensed Consolidated Financial Statements (Continued) (Unaudited) 3. Earnings (Loss) Per Share (Continued) ​ For the three months ended July 3, 2021 and July 4, 2020 and the six months ended July 3, 2021 and July 4, 2020, approximately 0.0 million, 0.4 million, 0.0 million and 0.3 million shares, respectively, consisting primarily of restricted stock awards (RSUs) and market stock awards (MSUs) granted under our 2009 Stock Incentive Plan, were not included in the diluted loss per share calculation since the shares were anti-dilutive. Further, diluted shares for the three months ended July 3, 2021 and July 4, 2020 and the six months ended July 3, 2021 and July 4, 2020 excluded 1.0 million, 0.3 million, 1.3 million and 0.5 million shares, respectively, due to the Company’s loss from continuing operations for the periods. The Company intends to settle the principal amount of its convertible senior notes in cash and any excess value in shares in the event of a conversion. Accordingly, shares issuable upon conversion of the principal amount using the treasury stock method have been excluded from the calculation of diluted earnings per share. If the market value of the notes under certain prescribed conditions exceeds the conversion amount, the excess is included in the denominator for the computation of diluted earnings per share using the treasury stock method. For the three months ended July 3, 2021 and July 4, 2020 and the six months ended July 3, 2021 and July 4, 2020, approximately 0.5 million, 0.0 million, 0.8 million and 0.2 million shares, respectively, were included in the denominator for the calculation of diluted earnings per share. See Note 8, Debt , to the Condensed Consolidated Financial Statements for additional information. ​ 4. Fair Value of Financial Instruments ​ The fair values of the Company’s financial instruments are recorded using a hierarchical disclosure framework based upon the level of subjectivity of the inputs used in measuring assets and liabilities. The three levels are described below: ​ Level 1 – Inputs are unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date. ​ Level 2 – Inputs are inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. ​ Level 3 – Inputs are unobservable for the asset or liability and are developed based on the best information available in the circumstances, which might include the Company’s own data. ​ 11 Table of Contents Silicon Laboratories Inc. Notes to Condensed Consolidated Financial Statements (Continued) (Unaudited) 4. Fair Value of Financial Instruments (Continued) ​ The following summarizes the valuation of the Company’s financial instruments (in thousands). The tables do not include either cash on hand or assets and liabilities that are measured at historical cost or any basis other than fair value. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Fair Value Measurements ​ ​ ​ ​ ​ at July 3, 2021 Using ​ ​ ​ ​ ​ Quoted Prices in ​ Significant Other ​ Significant ​ ​ ​ ​ ​ Active Markets for ​ Observable ​ Unobservable ​ ​ ​ ​ ​ Identical Assets ​ Inputs ​ Inputs ​ ​ ​ Description (Level 1) (Level 2) (Level 3) Total Assets: ​ ​ ​ ​ ​ ​ ​ ​ Cash equivalents: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Money market funds ​ $ 161,586 ​ $ — ​ $ — ​ $ 161,586 Corporate debt securities ​ ​ — ​ ​ — ​ ​ — ​ ​ — Total cash equivalents ​ $ 161,586 ​ $ — ​ $ — ​ $ 161,586 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Short-term investments: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Government debt securities ​ $ 18,313 ​ $ 56,305 ​ $ — ​ $ 74,618 Corporate debt securities ​ ​ — ​ ​ 239,565 ​ ​ — ​ ​ 239,565 Total short-term investments ​ $ 18,313 ​ $ 295,870 ​ $ — ​ $ 314,183 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Other assets, net: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Auction rate securities ​ $ — ​ $ — ​ $ 5,100 ​ $ 5,100 Total ​ $ — ​ $ — ​ $ 5,100 ​ $ 5,100 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Total ​ $ 179,899 ​ $ 295,870 ​ $ 5,100 ​ $ 480,869 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Fair Value Measurements ​ ​ ​ ​ ​ at January 2, 2021 Using ​ ​ ​ ​ ​ Quoted Prices in ​ Significant Other ​ Significant ​ ​ ​ ​ ​ Active Markets for ​ Observable ​ Unobservable ​ ​ ​ ​ ​ Identical Assets ​ Inputs ​ Inputs ​ ​ ​ Description (Level 1) (Level 2) (Level 3) Total Assets: ​ ​ ​ ​ ​ ​ ​ ​ Cash equivalents: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Money market funds ​ $ 75,606 ​ $ — ​ $ — ​ $ 75,606 Corporate debt securities ​ ​ — ​ 14,995 ​ — ​ 14,995 Government debt securities ​ ​ 2,355 ​ ​ 2,564 ​ ​ — ​ ​ 4,919 Total cash equivalents ​ $ 77,961 ​ $ 17,559 ​ $ — ​ $ 95,520 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Short-term investments: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Government debt securities ​ $ 38,461 ​ $ 104,112 ​ $ — ​ $ 142,573 Corporate debt securities ​ ​ — ​ ​ 379,390 ​ ​ — ​ ​ 379,390 Total short-term investments ​ $ 38,461 ​ $ 483,502 ​ $ — ​ $ 521,963 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Other assets, net: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Auction rate securities ​ $ — ​ $ — ​ $ 5,340 ​ $ 5,340 Total ​ $ — ​ $ — ​ $ 5,340 ​ $ 5,340 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Total ​ $ 116,422 ​ $ 501,061 ​ $ 5,340 ​ $ 622,823 ​ 12 Table of Contents Silicon Laboratories Inc. Notes to Condensed Consolidated Financial Statements (Continued) (Unaudited) 4. Fair Value of Financial Instruments (Continued) ​ Valuation methodology ​ The Company’s cash equivalents and short-term investments that are classified as Level 2 are valued using non-binding market consensus prices that are corroborated with observable market data; quoted market prices for similar instruments in active markets; or pricing models, such as a discounted cash flow model, with all significant inputs derived from or corroborated with observable market data. Investments classified as Level 3 are valued using a discounted cash flow model. The assumptions used in preparing the discounted cash flow model include estimates for interest rates, amount of cash flows, expected holding periods of the securities and a discount to reflect the Company’s inability to liquidate the securities. The Company’s derivative instruments are valued using discounted cash flow models. The assumptions used in preparing the valuation models include foreign exchange rates, forward and spot prices for currencies and market observable data of similar instruments. ​ Contractual maturities of investments ​ The Company’s investments are reported at fair value, with unrealized gains and losses, net of tax, recorded as a component of accumulated other comprehensive income (loss) in the Consolidated Balance Sheet. The following summarizes the contractual underlying maturities of the Company’s available-for-sale investments and money market funds at July 3, 2021 (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Fair ​ ​ Cost ​ Value Due in one year or less ​ $ 324,890 ​ $ 325,468 Due after one year through ten years ​ 149,864 ​ ​ 150,001 Due after ten years ​ 6,300 ​ 5,400 ​ ​ $ 481,054 ​ $ 480,869 ​ Available-for-sale investments ​ The available-for-sale investments that were in a continuous unrealized loss position, aggregated by length of time that individual securities have been in a continuous loss position, were as follows (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Less Than 12 Months ​ 12 Months or Greater ​ Total ​ ​ ​ ​ ​ Gross ​ ​ ​ ​ Gross ​ ​ ​ ​ Gross ​ ​ Fair ​ Unrealized ​ Fair ​ Unrealized ​ Fair ​ Unrealized As of July 3, 2021 Value Losses Value Losses Value Losses Government debt securities ​ $ 21,082 ​ $ ( 26 ) ​ $ — ​ $ — ​ $ 21,082 ​ $ ( 26 ) Corporate debt securities ​ 47,314 ​ ( 68 ) ​ — ​ — ​ 47,314 ​ ( 68 ) Auction rate securities ​ ​ — ​ ​ — ​ ​ 5,100 ​ ​ ( 900 ) ​ ​ 5,100 ​ ​ ( 900 ) ​ ​ $ 68,396 ​ $ ( 94 ) ​ $ 5,100 ​ $ ( 900 ) ​ $ 73,496 ​ $ ( 994 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Less Than 12 Months ​ 12 Months or Greater ​ Total ​ ​ ​ ​ ​ Gross ​ ​ ​ ​ Gross ​ ​ ​ ​ Gross ​ ​ Fair ​ Unrealized ​ Fair ​ Unrealized ​ Fair ​ Unrealized As of January 2, 2021 Value Losses Value Losses Value Losses Government debt securities ​ $ 10,146 ​ $ ( 5 ) ​ $ — ​ $ — ​ $ 10,146 ​ $ ( 5 ) Corporate debt securities ​ 51,909 ​ ​ ( 74 ) ​ ​ — ​ ​ — ​ ​ 51,909 ​ ​ ( 74 ) Auction rate securities ​ ​ — ​ ​ — ​ ​ 5,340 ​ ​ ( 660 ) ​ ​ 5,340 ​ ​ ( 660 ) ​ ​ $ 62,055 ​ $ ( 79 ) ​ $ 5,340 ​ $ ( 660 ) ​ $ 67,395 ​ $ ( 739 ) ​ The gross unrealized losses as of July 3, 2021 and January 2, 2021 were due primarily to changes in market interest rates and the illiquidity of the Company’s auction-rate securities. The Company’s auction-rate securities have been illiquid since 2008 when auctions for the securities failed because sell orders exceeded buy orders. These securities have a contractual maturity date of 2046. The Company is unable to predict if these funds will become available before their maturity date. ​ 13 Table of Contents Silicon Laboratories Inc. Notes to Condensed Consolidated Financial Statements (Continued) (Unaudited) 4. Fair Value of Financial Instruments (Continued) ​ The Company records an allowance for credit loss when a decline in investment market value is due to credit-related factors. When evaluating an investment for impairment, the Company reviews factors such as the severity of the impairment, changes in underlying credit ratings, forecasted recovery, the Company’s intent to sell or the likelihood that it would be required to sell the investment before its anticipated recovery in market value and the probability that the scheduled cash payments will continue to be made. As of July 3, 2021, there were no material declines in the market value of available-for-sale investments due to credit-related factors. ​ At July 3, 2021 and January 2, 2021, there were no material unrealized gains associated with the Company’s available-for-sale investments. ​ Level 3 fair value measurements ​ The following summarizes quantitative information about Level 3 fair value measurements. ​ Auction rate securities ​ ​ ​ ​ ​ ​ ​ ​ ​ Fair Value at ​ ​ ​ ​ ​ ​ July 3, 2021 ​ ​ ​ ​ ​ ​ (000s) Valuation Technique Unobservable Input Weighted Average $ 5,100 Discounted cash flow Estimated yield 1.19 % ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Expected holding period ​ 10 years ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Estimated discount rate 2.26 % ​ Significant changes in any of the unobservable inputs used in the fair value measurement of auction rate securities in isolation could result in a significantly lower or higher fair value measurement. An increase in expected yield would result in a higher fair value measurement, whereas an increase in expected holding period or estimated discount rate would result in a lower fair value measurement. Generally, a change in the assumptions used for expected holding period is accompanied by a directionally similar change in the assumptions used for estimated yield and discount rate. ​ The following summarizes the activity in Level 3 financial instruments for the three and six months ended July 3, 2021 (in thousands): ​ Assets ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Six Months Auction Rate Securities Ended Ended Beginning balance ​ $ 5,262 ​ $ 5,340 Loss included in other comprehensive income (loss) ​ ( 162 ) ​ ( 240 ) Balance at July 3, 2021 ​ $ 5,100 ​ $ 5,100 ​ Fair values of other financial instruments ​ The Company’s debt is recorded at cost, but is measured at fair value for disclosure purposes. The fair value of the Company’s convertible senior notes is determined using observable market prices. The notes are traded in less active markets and are therefore classified as a Level 2 fair value measurement. As of July 3, 2021 and January 2, 2021, the fair value of the 0.625 % convertible senior notes due in 2025 was $ 743.2 million and $ 671.4 million, respectively. ​ The Company’s other financial instruments, including cash, accounts receivable and accounts payable, are recorded at amounts that approximate their fair values due to their short maturities. 14 Table of Contents Silicon Laboratories Inc. Notes to Condensed Consolidated Financial Statements (Continued) (Unaudited) 5. Derivative Financial Instruments ​ The Company uses derivative financial instruments to manage certain exposures to the variability of foreign currency exchange rates. The Company’s objective is to offset increases and decreases in expenses resulting from these exposures with gains and losses on the derivative contracts, thereby reducing volatility of earnings. The Company does not use derivative contracts for speculative or trading purposes. The Company recognizes derivatives, on a gross basis, in the Consolidated Balance Sheet at fair value. Cash flows from derivatives are classified according to the nature of the cash receipt or payment in the Consolidated Statement of Cash Flows. ​ Cash Flow Hedges ​ Foreign Currency Forward Contracts ​ The Company uses foreign currency forward contracts to reduce the earnings impact that exchange rate fluctuations have on operating expenses denominated in currencies other than the U.S. dollar. Changes in the fair value of the contracts are recorded in accumulated other comprehensive income (loss) in the Consolidated Balance Sheet and subsequently reclassified into earnings in the period during which the hedged transaction is recognized. The reclassified amount is reported in the same financial statement line item as the hedged item. If the foreign currency forward contracts are terminated or can no longer qualify as hedging instruments prior to maturity, the fair value of the contracts recorded in accumulated other comprehensive income (loss) may be recognized in the Consolidated Statement of Income based on an assessment of the contracts at the time of termination. ​ The Company has entered into foreign currency forward contracts for a portion of its forecasted operating expenses denominated in the Euro, Norwegian Krone, Indian Rupee and Hungarian Forint. As of July 3, 2021, the contracts had maturities of one to six months and an aggregate notional value of $ 23.1 million. Gains expected to be reclassified into earnings in the next twelve months were not material. The fair value of the contracts, contract gains or losses recognized in other comprehensive income (loss) and amounts reclassified from accumulated other comprehensive income into earnings were not material for any of the periods presented. ​ Non-designated Hedges ​ Foreign Currency Forward Contracts ​ The Company uses foreign currency forward contracts to reduce the earnings impact that exchange rate fluctuations have on non-U.S. dollar balance sheet exposures. The Company recognizes gains and losses on the foreign currency forward contracts in interest income and other, net in the Consolidated Statement of Income in the same period as the remeasurement loss and gain of the related foreign currency denominated asset or liability. The Company does not apply hedge accounting to these foreign currency forward contracts. ​ As of July 3, 2021, the Company held two foreign currency forward contracts denominated in Singapore Dollars with a notional value of $ 8.9 million and one foreign currency forward contract denominated in Indian Rupees with a notional value of $ 5.3 million. The fair value of foreign contracts and contract losses recognized in income were not material for any of the periods presented. ​ 6. Balance Sheet Details ​ The following shows the details of selected Condensed Consolidated Balance Sheet items (in thousands): ​ Inventories ​ ​ ​ ​ ​ ​ ​ ​ ​ July 3, January 2, ​ ​ 2021 ​ 2021 Work in progress ​ $ 45,306 ​ $ 41,747 Finished goods ​ 6,963 ​ 6,114 ​ ​ $ 52,269 ​ $ 47,861 ​ ​ ​ 15 Table of Contents Silicon Laboratories Inc. Notes to Condensed Consolidated Financial Statements (Continued) (Unaudited) 7. Acquisition Redpine Signals On April 28, 2020, the Company acquired the Wi-Fi® and Bluetooth® business of Redpine Signals for $ 316.8 million in cash. This strategic acquisition accelerated the Company’s roadmap for Wi-Fi and Bluetooth silicon and software solutions, while further scaling the Company’s engineering team. 8. Debt 0.625 % Convertible Senior Notes On June 1, 2020, the Company completed a private offering of $ 535 million principal amount convertible senior notes (the “2025 Notes”). The 2025 Notes bear interest semi-annually at a rate of 0.625 % per year and mature on June 15, 2025. The 2025 Notes are convertible at an initial conversion rate of 8.1498 shares of common stock per $1,000 principal amount of the 2025 Notes, or approximately 4.4 million shares of common stock, which is equivalent to a conversion price of approximately $ 122.70 per share. The conversion rate is subject to adjustment under certain circumstances. Holders may convert the 2025 Notes under the following circumstances: during any calendar quarter after the calendar quarter ended on September 30, 2020 if the closing price of the Company’s common stock for at least 20 trading days in the 30 consecutive trading days ending on the last trading day of the preceding calendar quarter is greater than or equal to $ 159.51 per share, representing 130 % of the conversion price of the 2025 Notes; during the five business day period after any ten consecutive trading day period (the “measurement period”) in which the trading price per $1,000 principal amount of notes for each trading day of the measurement period was less than 98 % of the product of the closing sale price of our common stock and the conversion rate on each such trading day; if specified distributions or corporate events occur; if the Notes are called for redemption; or at any time after March 15, 2025. The Company may redeem all or any portion of the 2025 Notes, at its option, on or after June 20, 2023, if the last reported sale price of the Company’s common stock has been at least 130 % of the conversion price then in effect for at least 20 trading days during any 30 consecutive trading day period. Upon conversion, the 2025 Notes may be settled in cash, shares of the Company’s common stock or a combination of cash and shares, at the Company’s election. ​ The Company incurred debt issuance costs of approximately $ 10.4 million, which was allocated to the liability and equity components in proportion to the allocation of the proceeds. The costs allocated to the liability component are being amortized as interest expense over the term of the 2025 Notes using the effective interest method. ​ 1.375 % Convertible Senior Notes ​ On March 6, 2017, the Company completed a private offering of $ 400 million principal amount convertible senior notes (the “2022 Notes”). The Notes bore interest semi-annually at a rate of 1.375 % per year and were scheduled to mature on March 1, 2022. ​ On January 6, 2021, the Company issued a notice of redemption for the remaining $ 140.6 million principal amount of the 2022 Notes. Prior to the redemption, the Company received conversion notices representing $ 130.4 million principal amount of the notes. The Company paid $ 130.4 million in cash and issued 528,022 shares of common stock for the conversions. Notes representing $ 10.2 million principal amount were redeemed at par, plus accrued interest. All note conversions and redemptions were completed by March 22, 2021. The Company recognized a loss on debt extinguishment of $ 3.4 million during the three months ended April 3, 2021, which was recorded in interest expense in the Condensed Consolidated Statements of Operations. ​ 16 Table of Contents Silicon Laboratories Inc. Notes to Condensed Consolidated Financial Statements (Continued) (Unaudited) 8. Debt (Continued) ​ Convertible Debt, Net ​ The principal balances of the 2025 Notes and 2022 Notes (together, the “Notes”) were separated into liability and equity components, and recorded initially at fair value. The excess of the principal amounts of the liability components over their carrying amounts represent the debt discount, which are amortized to interest expense over the term of the Notes using the effective interest method. The carrying amounts of the liability components was estimated by discounting the contractual cash flows of similar non-convertible debt at an appropriate market rate at the date of issuance. ​ The carrying amount of the Notes consisted of the following (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ July 3, January 2, ​ ​ 2021 ​ 2021 Liability component ​ ​ ​ Principal ​ $ 535,000 ​ $ 675,567 Unamortized debt discount ​ ( 88,701 ) ​ ( 103,953 ) Unamortized debt issuance costs ​ ( 6,645 ) ​ ( 8,189 ) Net carrying amount ​ $ 439,654 ​ $ 563,425 ​ ​ ​ ​ ​ ​ ​ Equity component ​ ​ ​ ​ Net carrying amount ​ $ 107,927 ​ $ 108,438 ​ The liability components of the Notes are recorded in convertible debt on the Consolidated Balance Sheet. The equity components of the Notes are recorded in additional paid-in capital. The effective interest rate for the liability component was 5.336 % for the 2025 Notes and 4.75 % for the 2022 Notes. As of July 3, 2021, the remaining period over which the debt discount and debt issuance costs will be amortized was 4.0 years for the 2025 Notes. ​ Interest expense related to the notes was comprised of the following (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended ​ Six Months Ended ​ ​ July 3, ​ July 4, ​ July 3, July 4, ​ 2021 2020 2021 2020 Contractual interest expense ​ $ 836 ​ $ 1,374 ​ $ 1,999 ​ $ 2,841 Amortization of debt discount ​ ​ 4,992 ​ ​ 4,132 ​ ​ 10,930 ​ 7,378 Amortization of debt issuance costs ​ ​ 374 ​ ​ 491 ​ ​ 892 ​ 981 ​ ​ $ 6,202 ​ $ 5,997 ​ $ 13,821 ​ $ 11,200 ​ Credit Facility ​ The Company and certain of its domestic subsidiaries (the “Guarantors”) have a $ 400 million revolving credit facility with a maturity date of August 7, 2024. The credit facility includes a $ 25 million letter of credit sublimit and a $ 10 million swingline loan sublimit. The Company also has an option to increase the size of the borrowing capacity by up to the greater of an aggregate of $ 250 million and 100 % of EBITDA of the last four fiscal quarters, plus an amount that would not cause a secured leverage ratio (funded debt secured by assets/EBITDA) to exceed 3.25 to 1.00, subject to certain conditions. ​ The credit facility, other than swingline loans, will bear interest at the Eurodollar rate plus an applicable margin or, at the option of the Company, a base rate (defined as the highest of the Wells Fargo prime rate, the Federal Funds rate plus 0.50 % and the Eurodollar Base Rate plus 1.00 %) plus an applicable margin. Swingline loans accrue interest at the base rate plus the applicable margin for base rate loans. The applicable margins for the Eurodollar rate loans range from 1.00 % to 1.75 % and for base rate loans range from 0.00 % to 0.75 %, depending in each case, on the leverage ratio as defined in the credit facility. ​ ​ 17 Table of Contents Silicon Laboratories Inc. Notes to Condensed Consolidated Financial Statements (Continued) (Unaudited) 8. Debt (Continued) ​ The credit facility contains various conditions, covenants and representations with which the Company must be in compliance in order to borrow funds and to avoid an event of default, including financial covenants that the Company must maintain a net leverage ratio (funded indebtedness/EBITDA) of no more than 4.25 to 1, a secured leverage ratio of no more than 3.50 to 1, and a minimum interest coverage ratio (EBITDA/interest payments) of no less than 2.50 to 1. As of July 3, 2021, the Company was in compliance with all covenants of the credit facility. The Company’s obligations under the credit facility are guaranteed by the Guarantors and are secured by a security interest in substantially all assets of the Company and the Guarantors. ​ 9. Commitments and Contingencies ​ Legal Proceedings ​ The Company is involved in various legal proceedings that have arisen in the normal course of business. While the ultimate results cannot be predicted with certainty, the Company does not expect them to have a material adverse effect on its Consolidated Financial Statements. ​ ​ 10. Revenues ​ A portion of the Company's sales are made to distributors under agreements allowing certain rights of return and/or price protection related to the final selling price to the end customers. These factors impact the timing and uncertainty of revenues and cash flows. During the three months ended July 3, 2021 and July 4, 2020 and the six months ended July 3, 2021 and July 4, 2020, the Company recognized revenue of $ 8.4 million, $ 8.5 million, $ 9.3 million and $ 9.5 million, respectively, from performance obligations that were satisfied in previous reporting periods. The following disaggregates the Company's revenue by sales channel (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended ​ Six Months Ended ​ July 3, July 4, July 3, July 4, ​ 2021 2020 2021 2020 Distributors ​ $ 137,933 ​ $ 96,244 ​ $ 265,919 ​ $ 193,765 Direct customers ​ ​ 31,559 ​ 18,106 ​ ​ 61,430 ​ 38,603 ​ ​ $ 169,492 ​ $ 114,350 ​ $ 327,349 ​ $ 232,368 ​ ​ 11. Stock-Based Compensation ​ In fiscal 2009, the stockholders of the Company approved the 2009 Stock Incentive Plan (the “2009 Plan”) and the 2009 Employee Stock Purchase Plan (the “2009 Purchase Plan”). In fiscal 2017, the stockholders of the Company approved amendments to both the 2009 Plan and the 2009 Purchase Plan. The purpose of the amendments was to authorize additional shares of common stock for issuance, to comply with changes in applicable law, to improve the Company’s corporate governance and to implement other best practices. ​ Stock-based compensation costs are based on the fair values on the date of grant for stock awards and stock options and on the date of enrollment for the employee stock purchase plans. The fair values of stock awards (such as restricted stock awards (RSUs), performance stock units (PSUs) and restricted stock awards (RSAs)) are estimated based on their intrinsic values. The fair values of market stock awards (MSUs) are estimated using a Monte Carlo simulation. The fair values of stock options and employee stock purchase plans are estimated using the Black-Scholes option-pricing model. ​ 18 Table of Contents Silicon Laboratories Inc. Notes to Condensed Consolidated Financial Statements (Continued) (Unaudited) 11. Stock-Based Compensation (Continued) ​ The following table presents details of stock-based compensation costs recognized in the Condensed Consolidated Statements of Operations (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended ​ Six Months Ended ​ ​ July 3, ​ July 4, ​ July 3, ​ July 4, ​ 2021 2020 2021 2020 Cost of revenues ​ $ 199 ​ $ 200 ​ $ 436 ​ $ 375 Research and development ​ ​ 5,488 ​ ​ 5,612 ​ ​ 11,118 ​ 11,534 Selling, general and administrative ​ ​ 5,565 ​ ​ 6,006 ​ ​ 11,066 ​ 12,552 ​ ​ ​ 11,252 ​ ​ 11,818 ​ ​ 22,620 ​ 24,461 Income tax benefit ​ ​ 577 ​ ​ 945 ​ ​ 1,259 ​ 2,122 ​ ​ $ 10,675 ​ $ 10,873 ​ $ 21,361 ​ $ 22,339 ​ The Company had approximately $ 110.8 million of total unrecognized compensation costs related to equity grants under the 2009 Plan as of July 3, 2021 that are expected to be recognized over a weighted-average period of approximately 2.4 years. There were no significant stock-based compensation costs capitalized into assets in any of the periods presented. ​ 12. Income Taxes ​ Provision (benefit) for income taxes includes both domestic and foreign income taxes at the applicable tax rates adjusted for non-deductible expenses, research and development tax credits and other permanent differences. Income tax expense (benefit) was $ 1.2 million and $( 4.2 ) million for the three months ended July 3, 2021 and July 4, 2020, resulting in effective tax rates of ( 6.7 )% and 10.5 %, respectively. Income tax expense (benefit) was $ 3.2 million and $( 8.4 ) million for the six months ended July 3, 2021 and July 4, 2020, resulting in effective tax rates of ( 7.8 )% and 11.1 %, respectively. ​ The higher provision for income taxes for the three and six months ended July 3, 2021 was primarily due to the adoption of ASU 2019-12 Simplifying the Accounting for Income Taxes, as of the beginning of the current fiscal year and its requirement to reallocate income tax benefit from continuing operations to discontinued operations. Under ASU 2019-12, which is being applied prospectively from the date of adoption, the income tax benefit of a loss from continuing operations should be reallocated to discontinued operations if the Company would be unable to benefit from the loss without considering the income from discontinued operations. As such, the income tax benefit of $ 9.6 million associated with continuing operations for the three and six months ended July 3, 2021 was reallocated to discontinued operations. Prior to ASU 2019-12, if the Company reported a loss from continuing operations and income from discontinued operations, income from discontinued operations would be considered in determining the income tax benefit allocated to continuing operations. Uncertain Tax Positions ​ As of July 3, 2021, the Company had gross unrecognized tax benefits, inclusive of interest, of $ 3.4 million, of which $ 2.7 million would affect the effective tax rate if recognized. During the six months ended July 3, 2021, the Company did not release any of its unrecognized tax benefits. ​ The Company recognizes interest and penalties related to unrecognized tax benefits in the provision (benefit) for income taxes. These amounts were not material for any of the periods presented. 19 Table of Contents Silicon Laboratories Inc. Notes to Condensed Consolidated Financial Statements (Continued) (Unaudited) 12. Income Taxes (Continued) ​ 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 141.3 million Norwegian kroner, or $ 16.4 million additional Norwegian income tax. The Company disagrees with the NTA’s assessment and believes the Company’s position on this matter is more likely than not to be sustained. The Company plans to exhaust all available administrative remedies, and if unable to resolve this matter through administrative remedies with the NTA, the Company plans to pursue judicial remedies. ​ The Company believes that it has accrued adequate reserves related to all matters contained in tax periods open to examination. Should the Company experience an unfavorable outcome in the NTA matter, however, such an outcome could have a material impact on its financial statements. ​ Tax years 2015 through 2021 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 expect material changes to its gross unrecognized tax benefits in the next 12 months. ​ 13. Subsequent Event ​ On April 22, 2021, the Company entered into an Asset Purchase Agreement (the “Agreement”) pursuant to which Skyworks Solutions, Inc. agreed to acquire certain assets, rights, and properties, and assume certain liabilities, comprising the Company’s infrastructure and automotive business for $ 2.75 billion in cash. The sale was completed pursuant to the terms of the Agreement on July 26, 2021. The Company expects to record a gain on sale, net of income tax, of approximately $ 2.1 billion in its third fiscal quarter of 2021 upon the close of the sale. ​ ​ ​ 20 Table of Contents