What changed in this filing

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Item 1. Financial Statements

2022-10-26 compared with 2022-07-27 · 103 added, 70 removed, 416 unchanged (29% of the section changed)

29 unchanged sentences

250,000 shares authorized;

34,223 and 38,481 shares issued and outstanding at July 2, 2022 and January 1, 2022, respectively

33,530 and 38,481 shares issued and outstanding at October 1, 2022 and January 1, 2022, respectively

Retained earnings

7 unchanged sentences

Three Months Ended

Six Months Ended

Nine Months Ended

Cost of revenues

22 unchanged sentences

Three Months Ended

Six Months Ended

Nine Months Ended

Other comprehensive loss, before tax

3 unchanged sentences

Net changes to cash flow hedges

Unrealized gains (losses) arising during the period

Unrealized losses arising during the period

Reclassification for (gains) losses included in net income

10 unchanged sentences

Stockholders’

Three Months Ended July 2, 2022

Three Months Ended October 1, 2022

Income (Loss)

Balance as of April 2, 2022

Balance as of July 2, 2022

Other comprehensive loss

2 unchanged sentences

Stock-based compensation

Balance as of July 2, 2022

Balance as of October 1, 2022

Accumulated Other

1 unchanged sentence

Stockholders’

Three Months Ended July 3, 2021

Three Months Ended October 2, 2021

Income (Loss)

Balance as of April 3, 2021

Balance as of July 3, 2021

Other comprehensive loss

2 unchanged sentences

Stock-based compensation

Balance as of July 3, 2021

Balance as of October 2, 2021

Accumulated Other

1 unchanged sentence

Stockholders’

Six Months Ended July 2, 2022

Nine Months Ended October 1, 2022

Income (Loss)

5 unchanged sentences

Stock-based compensation

Balance as of July 2, 2022

Balance as of October 1, 2022

Accumulated Other

1 unchanged sentence

Stockholders’

Six Months Ended July 3, 2021

Nine Months Ended October 2, 2021

Income (Loss)

5 unchanged sentences

Convertible debt activity

Balance as of July 3, 2021

Balance as of October 2, 2021

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

2 unchanged sentences

(In thousands)

Six Months Ended

Nine Months Ended

Operating Activities

Adjustments to reconcile net income to cash provided by operating activities of continuing operations:

Adjustments to reconcile net income to net cash provided by operating activities of continuing operations:

Income from discontinued operations, net of income taxes

( 2,183,884 )

Depreciation of property and equipment

15 unchanged sentences

Purchases of marketable securities

( 1,212,572 )

Sales of marketable securities

17 unchanged sentences

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

Silicon Laboratories Inc.

Notes to Condensed Consolidated Financial Statements

Significant Accounting Policies

6 unchanged sentences

All intercompany balances and transactions have been eliminated in consolidation.

The condensed consolidated results of operations for the three and six months ended July 2, 2022 are not necessarily indicative of the results to be expected for the full year.

The condensed consolidated results of operations for the three and nine months ended October 1, 2022 are not necessarily indicative of the results to be expected for the full year.

These Condensed Consolidated Financial Statements should be read in conjunction with the audited Consolidated Financial Statements and notes thereto for the year ended January 1, 2022, included in the Company’s Form 10-K filed with the Securities and Exchange Commission (SEC) on February 2, 2022.

24 unchanged sentences

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

Silicon Laboratories Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

Significant Accounting Policies (Continued)

11 unchanged sentences

The primary impact of the Company’s adoption of ASU 2020-06 was to increase the carrying value of its convertible debt, representing the unamortized debt discount, and reduce deferred tax liabilities related to convertible debt.

The adoption reduced reported interest expense recorded in connection with convertible debt, which increased basic earnings per share and diluted earnings per share by $ 0.11 and $ 0.11 , respectively, for the three months ended July 2, 2022, and by $ 0.22 and $ 0.21 , respectively, for the six months ended July 2, 2022.

The adoption reduced reported interest expense recorded in connection with convertible debt, which increased basic earnings per share and diluted earnings per share by $ 0.12 and $ 0.12 , respectively, for the three months ended October 1, 2022, and by $ 0.34 and $ 0.33 , respectively, for the nine months ended October 1, 2022.

Discontinued Operations

4 unchanged sentences

Three Months Ended

Six Months Ended

Nine Months Ended

Costs of revenues

Operating expenses

Operating income from discontinued operations

Gain on sale of discontinued operations

Income from discontinued operations before income taxes

Provision (benefit) for income taxes

Provision for income taxes

Income from discontinued operations

Income from discontinued operations per share:

Silicon Laboratories Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

Discontinued Operations (Continued)

3 unchanged sentences

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 have not been nor are expected to be material to the ongoing operations of either entity.

In addition, the Company has no contractual ability through the TSA or any other agreement to significantly influence the operating or financial policies of Skyworks.

Fees received by the Company under the TSA were approximately $ 3.5 million for the six months ended July 2, 2022.

Fees received by the Company under the TSA were approximately $ 4.8 million for the nine months ended October 1, 2022.

Earnings (Loss) Per Share

1 unchanged sentence

Three Months Ended

Six Months Ended

Nine Months Ended

Income (loss) from continuing operations

Shares used in computing basic income (loss) per share

Shares used in computing basic earnings (loss) per share

Effect of dilutive securities:

Convertible debt and stock-based awards

Shares used in computing diluted income (loss) per share

Income (loss) per share:

Stock-based awards and convertible debt

Shares used in computing diluted earnings (loss) per share

Earnings (loss) per share:

Diluted shares for the three and nine months ended October 2, 2021 excluded 1.2 million and 1.3 million shares, respectively, due to the Company’s loss from continuing operations for the periods.

The Company has irrevocably elected to settle the principal amount of its convertible senior notes in cash and intends to settle any excess value in shares in the event of a conversion.

For the three months ended July 2, 2022 and July 3, 2021 and the six months ended July 2, 2022 and July 3, 2021, approximately 0.6 million, 0.5 million, 0.8 million and 0.8 million shares, respectively, were included in the denominator for the calculation of diluted earnings per share.

For the three months ended October 1, 2022 and October 2, 2021 and the nine months ended October 1, 2022 and October 2, 2021, approximately 0.4 million, 0.7 million, 0.7 million and 0.8 million shares, respectively, were included in the denominator for the calculation of diluted earnings per share.

See Note 7, Debt , to the Condensed Consolidated Financial Statements for additional information.

5 unchanged sentences

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.

Silicon Laboratories Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

Fair Value of Financial Instruments (Continued)

2 unchanged sentences

Fair Value Measurements

at July 2, 2022 Using

at October 1, 2022 Using

Quoted Prices in

28 unchanged sentences

Auction rate securities

Silicon Laboratories Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

Fair Value of Financial Instruments (Continued)

10 unchanged sentences

The Company’s investments are reported at fair value, with unrealized gains and losses, net of tax, recorded as a component of accumulated other comprehensive loss in the Consolidated Balance Sheet.

The following summarizes the contractual underlying maturities of the Company’s available-for-sale investments at July 2, 2022 (in thousands):

The following summarizes the contractual underlying maturities of the Company’s available-for-sale investments at October 1, 2022 (in thousands):

Due in one year or less

5 unchanged sentences

12 Months or Greater

As of July 2, 2022

As of October 1, 2022

Government debt securities

6 unchanged sentences

Auction rate securities

The gross unrealized losses as of July 2, 2022 were due primarily to changes in market interest rates.

The gross unrealized losses as of October 1, 2022 were due primarily to changes in market interest rates.

The gross unrealized losses as of January 1, 2022 were due primarily to changes in market interest rates and the illiquidity of the Company’s auction-rate securities.

Silicon Laboratories Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

Fair Value of Financial Instruments (Continued)

1 unchanged sentence

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 2, 2022, there were no material declines in the market value of available-for-sale investments due to credit-related factors.

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

As of October 1, 2022, there were no material declines in the market value of available-for-sale investments due to credit-related factors.

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

Level 3 fair value measurements

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

The following summarizes the activity in Level 3 financial instruments for the nine months ended October 1, 2022 (in thousands):

Auction Rate Securities

2 unchanged sentences

Gain included in other comprehensive loss

Balance at July 2, 2022

Balance at October 1, 2022

(1) On May 31, 2022, the Company sold its prior remaining holding of auction-rate securities for $ 5.7 million.

3 unchanged sentences

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

As of July 2, 2022 and January 1, 2022, the fair value of the notes was $ 671.0 million and $ 944.3 million, respectively.

As of October 1, 2022 and January 1, 2022, the fair value of the notes was $ 636.2 million and $ 944.3 million, respectively.

The Company’s other financial instruments, including cash, accounts receivable and accounts payable, are recorded at amounts that approximate their fair values due to their short maturities.

5 unchanged sentences

Cash flows from derivatives are classified according to the nature of the cash receipt or payment in the Consolidated Statement of Cash Flows.

Silicon Laboratories Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

Derivative Financial Instruments (Continued)

6 unchanged sentences

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

As of July 2, 2022, the contracts had maturities of one to six months and an aggregate notional value of $ 32.0 million.

As of October 1, 2022, the contracts had maturities of one to three months and an aggregate notional value of $ 16.3 million.

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

The fair value of the contracts, contract gains or losses recognized in other comprehensive loss and amounts reclassified from accumulated other comprehensive loss 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 2, 2022, the Company held foreign currency forward contracts denominated in Hungarian Forint and Indian Rupees with an aggregate notional value of $ 6.3 million.

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

Supplemental Information

3 unchanged sentences

The Company leases a portion of its headquarter facilities to other tenants.

Lease income from operating leases was $ 3.7 million and $ 1.6 million during the six months ended July 2, 2022 and July 3, 2021, respectively.

Lease income from operating leases was $ 5.4 million and $ 3.1 million during the nine months ended October 1, 2022 and October 2, 2021, respectively.

Silicon Laboratories Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

0.625 % Convertible Senior Notes

14 unchanged sentences

The 2025 Notes were classified as current liabilities at January 1, 2022 due to the Sales Price Trigger condition being met on January 1, 2022.

The Sales Price Trigger condition has not been met during the six months ended July 2, 2022, therefore the net carrying amount of the 2025 Notes is now classified as a non-current liability.

The Sales Price Trigger condition has not been met during the nine months ended October 1, 2022, therefore the net carrying amount of the 2025 Notes is now classified as a non-current liability.

The principal balance of the 2025 Notes was initially separated into liability and equity components, and recorded at fair value.

4 unchanged sentences

Upon the adoption of ASU 2020-06, the equity component was reclassified to liabilities and remeasured to reflect cumulative amortization since the issuance of the 2025 Notes.

Silicon Laboratories Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

Debt (Continued)

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

5 unchanged sentences

Net carrying amount

Debt (Continued)

The liability component of the 2025 Notes is recorded in convertible debt on the Consolidated Balance Sheet.

1 unchanged sentence

The effective interest rate for the liability component was 5.336 %.

As of July 2, 2022, the remaining period over which the debt issuance costs will be amortized was 3.0 years.

As of October 1, 2022, the remaining period over which the debt issuance costs will be amortized was 2.7 years.

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

Three Months Ended

Six Months Ended

Nine Months Ended

Contractual interest expense

9 unchanged sentences

The credit facility contains various conditions, covenants and representations with which the Company must be in compliance in order to borrow funds and to avoid an event of default, including financial covenants that the Company must maintain a net leverage ratio (funded indebtedness/EBITDA) of no more than 4.25 to 1, a secured leverage ratio of no more than 3.50 to 1, and a minimum interest coverage ratio (EBITDA/interest payments) of no less than 2.50 to 1.

As of July 2, 2022, the Company was in compliance with all covenants of the credit facility.

As of October 1, 2022, 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.

As of July 2, 2022, no amounts were outstanding on the credit facility.

As of October 1, 2022, no amounts were outstanding on the credit facility.

Silicon Laboratories Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

Commitments and Contingencies

Legal Proceedings

The Company is involved in various legal proceedings that have arisen in the normal course of business.

On August 11, 2022, August 26, 2022 and October 11, 2022, Bell Semiconductor, LLC (“Bell”) filed three separate patent infringement actions against the Company in the U.S.

District Court for the District of Massachusetts.

Bell alleges in these actions that four U.S.

patents are infringed by the use of certain computer-aided-design (CAD) tools to design integrated circuits.

The patents in these suits are U.S.

7,007,259, 7,149,989, 7,260,803 and 7,396,760.

In each of these actions, Bell seeks unspecified damages, attorney fees and a permanent injunction.

On October 14, 2022, Bell filed a complaint with the U.S.

International Trade Commission (“ITC”) alleging violations of Section 337 of the Tariff Act of 1930 based on alleged importation of articles and components that infringe U.S.

The ITC complaint seeks institution of an investigation and an exclusion order to prevent the importation and sale of allegedly infringing products in the U.S.

The Company intends to vigorously defend against these allegations.

Bell has brought similar claims against Skyworks Solutions, Inc.

(“Skyworks”), and Skyworks has requested indemnification from the Company under the Asset Purchase Agreement dated April 22, 2021.

The Company is unable to predict the outcome of these matters due to the many uncertainties associated with such actions, nor is it able to reasonably estimate the amount or range of possible losses, if any.

As of October 1, 2022, no loss contingencies have been accrued for these matters in the Company’s Condensed Consolidated Financial Statements.

The Company is involved in various other 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.

2 unchanged sentences

Three Months Ended

Six Months Ended

Nine Months Ended

Industrial & Commercial

1 unchanged sentence

These factors impact the timing and uncertainty of revenues and cash flows.

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

In the second quarter of fiscal 2022, the Company adjusted certain assumptions used to estimate the constraint on variable consideration, which increased revenue by $ 11.4 million and $ 5.0 million in the three and six months ended July 2, 2022, respectively.

During the three months ended July 2, 2022 and July 3, 2021 and the six months ended July 2, 2022 and July 3, 2021, the Company recognized revenue of $ 36.5 million, $ 8.4 million, $ 32.0 million and $ 9.3 million, respectively, from performance obligations that were satisfied in previous reporting periods.

During the three months ended October 1, 2022 and October 2, 2021 and the nine months ended October 1, 2022 and October 2, 2021, the Company recognized revenue of $ 4.5 million, $ 10.0 million, $ 30.7 million and $ 10.9 million, respectively, from performance obligations that were satisfied in previous reporting periods.

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

Three Months Ended

Six Months Ended

Nine Months Ended

Direct customers

Silicon Laboratories Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

Stock-Based Compensation

5 unchanged sentences

Three Months Ended

Six Months Ended

Nine Months Ended

Cost of revenues

1 unchanged sentence

Selling, general and administrative

Income tax benefit

Income tax (provision) benefit

Share-based compensation – continuing operations

Share-based compensation – discontinued operations, net

The Company had approximately $ 130.4 million of total unrecognized compensation cost related to equity grants as of July 2, 2022 that is expected to be recognized over a weighted-average period of approximately 2.4 years.

The Company had approximately $ 123.4 million of total unrecognized compensation cost related to equity grants as of October 1, 2022 that is expected to be recognized over a weighted-average period of approximately 2.3 years.

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

Provision 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 was $ 11.0 million and $ 1.2 million for the three months ended July 2, 2022 and July 3, 2021, resulting in effective tax rates of 33.2 % and ( 6.7 )%, respectively.

Income tax expense was $ 22.7 million and $ 3.2 million for the six months ended July 2, 2022 and July 3, 2021, resulting in effective tax rates of 33.5 % and ( 7.8 )%, respectively.

The increase in the effective tax rate for the three and six months ended July 2, 2022 was primarily due to the application of FASB ASU 2019-12, Simplifying the Accounting for Income Taxes, to the three and six months ended July 3, 2021 and the required adoption of new U.S.

tax rules regarding expensing of research and experimental costs in the current fiscal year.

Income tax expense was $ 14.2 million and $ 9.4 million for the three months ended October 1, 2022 and October 2, 2021, resulting in effective tax rates of 40.3 % and ( 90.7 )%, respectively.

Income tax expense was $ 36.9 million and $ 12.5 million for the nine months ended October 1, 2022 and October 2, 2021, resulting in effective tax rates of 35.8 % and ( 24.7 )%, respectively.

The increase in the effective tax rate for the three and nine months ended October 1, 2022 was primarily due to the recognition of certain tax benefits for the three and nine months ended October 2, 2021 in discontinued operations under FASB ASU 2019-12, Simplifying the Accounting for Income Taxes, and the required adoption of new U.S.

tax rules regarding the capitalization of research and experimental costs in the current fiscal year.

Under ASU 2019-12, the income tax benefit of a loss from continuing operations should be recognized in discontinued operations if the Company would be unable to benefit from the loss without considering the income from discontinued operations.

As such, tax benefits associated with losses incurred for the three and six months ended July 3, 2021 were recognized in discontinued operations.

As such, tax benefits associated with losses incurred for the three and nine months ended October 2, 2021 were recognized in discontinued operations.

The Tax Cuts and Jobs Act (the “Act”) was enacted on December 22, 2017.

1 unchanged sentence

The Company has elected to treat global intangible low-taxed income (GILTI) as a period cost so the capitalization of research and experimental costs in GILTI increases the Company’s provision for income taxes.

Silicon Laboratories Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

Income Taxes (Continued)

Uncertain Tax Positions

As of July 2, 2022, the Company had gross unrecognized tax benefits, inclusive of interest, of $ 4.3 million, all of which would affect the effective tax rate if recognized.

During the six months ended July 2, 2022, the Company did not release any unrecognized tax benefits.

As of October 1, 2022, the Company had gross unrecognized tax benefits, inclusive of interest, of $ 4.6 million, all of which would affect the effective tax rate if recognized.

During the nine months ended October 1, 2022, the Company did not release any unrecognized tax benefits.

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

11 unchanged sentences

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

What changed 10-Q

Item 1. Financial Statements