What changed in this filing

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Item 1. Financial Statements

2023-07-26 compared with 2023-04-26 · 109 added, 56 removed, 316 unchanged (34% of the section changed)

15 unchanged sentences

Accounts payable

Current portion of convertible debt, net

Revolving line of credit

Deferred revenue and returns liability

11 unchanged sentences

250,000 shares authorized;

31,997 and 31,994 shares issued and outstanding at April 1, 2023 and December 31, 2022, respectively

31,861 and 31,994 shares issued and outstanding at July 1, 2023 and December 31, 2022, respectively

Retained earnings

7 unchanged sentences

Three Months Ended

Six Months Ended

Cost of revenues

17 unchanged sentences

Three Months Ended

Six Months Ended

Other comprehensive income (loss), before tax

3 unchanged sentences

Net changes to cash flow hedges

Unrealized gains (losses) arising during the period

Reclassification for gains included in net income

Unrealized losses arising during the period

Reclassification for losses included in net income

Other comprehensive income (loss), before tax

9 unchanged sentences

Stockholders’

Three Months Ended April 1, 2023

Balance as of December 31, 2022

Three Months Ended July 1, 2023

Income (Loss)

Balance as of April 1, 2023

Other comprehensive income

2 unchanged sentences

Stock-based compensation

Convertible debt activity

Balance as of July 1, 2023

Accumulated Other

Comprehensive

Stockholders’

Three Months Ended July 2, 2022

Income (Loss)

Balance as of April 2, 2022

Other comprehensive loss

Stock issuances, net of shares withheld for taxes

Repurchases of common stock

Stock-based compensation

Balance as of July 2, 2022

Accumulated Other

1 unchanged sentence

Stockholders’

Three Months Ended April 2, 2022

Six Months Ended July 1, 2023

Income (Loss)

Balance as of December 31, 2022

Other comprehensive income

Stock issuances, net of shares withheld for taxes

Repurchases of common stock

Stock-based compensation

Convertible debt activity

Balance as of July 1, 2023

Accumulated Other

Comprehensive

Stockholders’

Six Months Ended July 2, 2022

Income (Loss)

Balance as of January 1, 2022

4 unchanged sentences

Stock-based compensation

Balance as of April 2, 2022

Balance as of July 2, 2022

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

2 unchanged sentences

(In thousands)

Three Months Ended

Six Months Ended

Operating Activities

3 unchanged sentences

Amortization of debt issuance costs

Loss on extinguishment of convertible debt

Stock-based compensation expense

14 unchanged sentences

Purchases of property and equipment

Purchases of other assets

Net cash provided by (used in) investing activities of continuing operations

Financing Activities

Proceeds from revolving line of credit

Payments on debt

Repurchases of common stock

Payment of taxes withheld for vested stock awards

Proceeds from the issuance of common stock

Net cash used in financing activities of continuing operations

2 unchanged sentences

Net cash used in discontinued operations

Increase (decrease) in cash and cash equivalents

Decrease in cash and cash equivalents

Cash and cash equivalents at beginning of period

11 unchanged sentences

All intercompany balances and transactions have been eliminated in consolidation.

The condensed consolidated results of operations for the three months ended April 1, 2023 are not necessarily indicative of the results to be expected for the full year.

The condensed consolidated results of operations for the three and six months ended July 1, 2023 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 December 31, 2022, included in the Company’s Form 10-K filed with the Securities and Exchange Commission (“SEC”) on February 1, 2023.

4 unchanged sentences

The preparation of financial statements in conformity with U.S.

generally accepted accounting principles (GAAP) requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes.

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.

22 unchanged sentences

Three Months Ended

Six Months Ended

Shares used in computing basic earnings per share

3 unchanged sentences

Earnings per share:

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 April 1, 2023 and April 2, 2022, approximately 1.2 million and 1.0 million shares, respectively, were included in the denominator for the calculation of diluted earnings per share.

See Note 6, Debt , to the Condensed Consolidated Financial Statements for additional information.

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

In June 2023, the Company paid $ 535.0 million in cash and issued 0.9 million shares of common stock in connection with the conversions and redemptions of the 2025 convertible senior notes.

For the three and six months ended July 1, 2023 and July 2, 2022, approximately 0.9 million, 0.6 million, 1.1 million, and 0.8 million shares, respectively, were included in the denominator for the calculation of diluted earnings per share (related to the not yet converted or redeemed convertible senior notes.) See Note 6, Debt, to the Condensed Consolidated Financial Statements for additional information.

Fair Value of Financial Instruments

10 unchanged sentences

Fair Value Measurements

at April 1, 2023 Using

at July 1, 2023 Using

Quoted Prices in

35 unchanged sentences

The Company’s available-for-sale 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 Condensed Consolidated Balance Sheet.

The following summarizes the contractual underlying maturities of the Company’s available-for-sale investments at April 1, 2023 (in thousands):

The following summarizes the contractual underlying maturities of the Company’s available-for-sale investments at July 1, 2023 (in thousands):

Due in one year or less

4 unchanged sentences

12 Months or Greater

As of April 1, 2023

As of July 1, 2023

Corporate debt securities

5 unchanged sentences

Government debt securities

The gross unrealized losses as of April 1, 2023 and December 31, 2022 were due primarily to changes in market interest rates.

At April 1, 2023 and December 31, 2022, there were no material unrealized gains associated with the Company’s available-for-sale investments.

The gross unrealized losses as of July 1, 2023 and December 31, 2022 were due primarily to changes in market interest rates.

At July 1, 2023 and December 31, 2022, there were no material unrealized gains associated with the Company’s available-for-sale investments.

Silicon Laboratories Inc.

3 unchanged sentences

When evaluating an investment for impairment, the Company reviews factors such as the severity of the impairment, changes in underlying credit ratings, forecasted recovery, the Company’s intent to sell or the likelihood that it would be required to sell the investment before its anticipated recovery in market value and the probability that the scheduled cash payments will continue to be made.

As of April 1, 2023, there were no material declines in the market value of available-for-sale investments due to credit-related factors.

As of July 1, 2023, there were no material declines in the market value of available-for-sale investments due to credit-related factors.

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 April 1, 2023 and December 31, 2022, the fair value of the notes was $ 803.4 million and $ 671.9 million, respectively.

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

The fair value of the Company’s convertible senior notes was determined using observable market prices.

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

As of December 31, 2022, the fair value of the notes was $ 671.9 million.

No notes were outstanding as of July 1, 2023.

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.

12 unchanged sentences

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 April 1, 2023, the contracts had maturities of three to nine months and an aggregate notional value of $ 15.5 million.

As of July 1, 2023, the contracts had maturities of two to six months and an aggregate notional value of $ 10.3 million.

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

2 unchanged sentences

Notes to Condensed Consolidated Financial Statements (Continued)

Derivative Financial Instruments (Continued)

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 1, 2023, the Company held foreign currency forward contracts denominated in Hungarian Forint and Singapore Dollars with an aggregate notional value of $ 8.1 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 $ 0.7 million and $ 1.9 million during the three months ended April 1, 2023 and April 2, 2022, respectively.

Lease income from operating leases was $ 1.4 million and $ 3.7 million during the six months ended July 1, 2023 and July 2, 2022, respectively.

Silicon Laboratories Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

0.625 % Convertible Senior Notes

On June 1, 2020, the Company completed a private placement 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 were scheduled to mature on June 15, 2025.

The 2025 Notes bore interest semi-annually at a rate of 0.625 % per year and were scheduled to mature on June 15, 2025.

On March 22, 2023, the Company issued a notice of redemption for the 2025 Notes.

The redemption will occur on June 20, 2023 for any of the 2025 Notes outstanding that have not been previously converted.

Prior to the consummation of the redemption, the noteholders are entitled to convert their notes into shares of our common stock at a rate of 8.1980 shares per $1,000 principal amount of the 2025 Notes, which is equivalent to a conversion price of $ 121.98 per share.

Such conversion right will expire on June 16, 2023.

Noteholders that convert their 2025 Notes will also receive an additional 0.4101 shares per $1,000 principal amount of 2025 Notes.

The Company irrevocably elected cash settlement for the principal amount of the 2025 Notes and intends to settle any excess value with a combination of shares of the Company’s common stock and cash for fractional shares, if any.

The excess value will be determined pursuant to the settlement upon conversion procedure as described in the 2025 Notes indenture.

The 2025 Notes were classified as current liabilities at April 1, 2023 due to the pending redemption.

Prior to the redemption, the Company received conversion notices representing $ 533.6 million principal amount of the notes.

The Company paid $ 533.6 million in cash and issued 0.9 million shares of common stock, as well as $ 47 thousand in lieu of fractional shares, for the conversions.

Notes representing $ 1.4 million principal amount were redeemed at par, plus accrued interest.

All note conversions and redemptions were completed in June 2023.

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

1 unchanged sentence

Net carrying amount

Silicon Laboratories Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

Debt (Continued)

The 2025 Notes are recorded in convertible debt, net on the Condensed Consolidated Balance Sheet.

The 2025 Notes were recorded in convertible debt, net on the Condensed Consolidated Balance Sheet.

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

The remaining balance of the debt issuance costs will be recognized in stockholders’ equity for 2025 Notes that are converted or as debt extinguishment loss for 2025 Notes that are redeemed prior to conversion in the second quarter of fiscal 2023.

The remaining balance of the debt issuance costs was recognized in stockholders’ equity for 2025 Notes that were converted and as debt extinguishment loss for 2025 Notes that were redeemed in the second quarter of fiscal 2023.

Interest expense related to the 2025 Notes was comprised of the following (in thousands):

Three Months Ended

Six Months Ended

Contractual interest expense

1 unchanged sentence

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 Company and certain of its domestic subsidiaries (the “Guarantors”) have a $ 400 million revolving credit facility, as amended on June 30, 2023, with a maturity date of June 30, 2028.

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.

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 April 1, 2023, 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 April 1, 2023, no amounts were outstanding on the credit facility.

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 net leverage ratio (funded debt secured by assets/EBITDA) to exceed 3.50 to 1.00, subject to certain conditions.

Silicon Laboratories Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

Debt (Continued)

The credit facility, other than swingline loans, will bear interest at the Adjusted Term Secured Overnight Financing Rate (“SOFR”) 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 Adjusted Term SOFR 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 Adjusted Term SOFR 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 consolidated net leverage ratio (funded indebtedness less cash and cash equivalents up to $ 750 million and divided by EBITDA) of no more than 4.25 to 1, and a minimum interest coverage ratio (EBITDA/interest payments) of no less than 2.50 to 1.

As of July 1, 2023, 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 1, 2023, $ 80.0 million was outstanding on the credit facility.

Commitments and Contingencies

4 unchanged sentences

Three Months Ended

Six Months Ended

Industrial & Commercial

1 unchanged sentence

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

During the three months ended April 1, 2023 and April 2, 2022, the Company recognized revenue of $ 4.9 million and $ 21.5 million, respectively, from performance obligations that were satisfied in previous reporting periods.

During the three and six months ended July 1, 2023, the Company did no t recognize any revenue related to performance obligations that were satisfied in previous reporting periods.

During the three and six months ended July 2, 2022, the Company recognized revenue of $ 36.5 million and $ 32.0 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

Direct customers

8 unchanged sentences

Three Months Ended

Six Months Ended

Cost of revenues

2 unchanged sentences

Income tax benefit

The Company had approximately $ 110.9 million of total unrecognized compensation cost related to equity grants as of April 1, 2023 that is expected to be recognized over a weighted-average period of approximately 2.1 years.

The Company had approximately $ 140.1 million of total unrecognized compensation cost related to equity grants as of July 1, 2023 that is 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.

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, global intangible low-taxed income and Subpart F income inclusions and other permanent differences.

Income tax expense was $ 7.8 million and $ 11.7 million for the three months ended April 1, 2023 and April 2, 2022, resulting in effective tax rates of 35.7 % and 33.8 %, respectively.

The increase in the effective tax rate for the three months ended April 1, 2023 is primarily due to a decrease in the Company’s foreign tax rate benefit and an increase to nondeductible stock-based compensation, partially offset by an increase in the Company’s Federal research and development credit benefit year over year, further impacted by these items’ relation to pre-tax book income.

Income tax expense was $ 12.3 million and $ 11.0 million for the three months ended July 1, 2023 and July 2, 2022, resulting in effective tax rates of 53.0 % and 33.2 %, respectively.

Income tax expense was $ 20.1 million and $ 22.7 million for the six months ended July 1, 2023 and July 2, 2022, resulting in effective tax rates of 44.6 % and 33.5 %, respectively.

The increase in the effective tax rate for the three and six months ended July 1, 2023 was primarily due to a decrease to forecasted pre-tax book income, as the impact of permanent items is greater when pre-tax book income is lower, partially offset by a discrete state return-to-provision benefit recorded in the recent quarter.

Uncertain Tax Positions

As of April 1, 2023, 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 three months ended April 1, 2023, the Company did not release any unrecognized tax benefits.

As of July 1, 2023, the Company had gross unrecognized tax benefits, inclusive of interest, of $ 5.1 million, all of which would affect the effective tax rate if recognized.

During the six months ended July 1, 2023, 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

Tax years 2015 through 2023 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’s 2021 tax year is currently under examination in India.

Although the outcome of tax audits is always uncertain, the Company believes that the results of the examination will not materially impact its financial position or results of operations.

The Company is not currently under audit in any other major taxing jurisdiction.

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

Subsequent Event

In July 2023, the U.S.

Treasury Department released IRS Notice 2023-55, which temporarily relieves taxpayers from the application of certain foreign tax credit Treasury regulations until January 1, 2024.

The Company estimates that it will recognize a net tax benefit of approximately $ 3.3 million as a result, most of which will be recognized in the third quarter of 2023.

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