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Silicon Laboratories 10-Q 2014

Documents found in this filing:

  1. 10-Q
  2. Ex-31.1
  3. Ex-31.2
  4. Ex-32.1
  5. Ex-32.1

Table of Contents

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

 

x      QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended June 28, 2014

 

or

 

o         TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from                  to                

 

Commission file number:  000-29823

 

SILICON LABORATORIES INC.

(Exact name of registrant as specified in its charter)

 

Delaware

 

74-2793174

(State or other jurisdiction of incorporation or organization)

 

(I.R.S. Employer Identification No.)

 

 

 

400 West Cesar Chavez, Austin, Texas

 

78701

(Address of principal executive offices)

 

(Zip Code)

 

(512) 416-8500

(Registrant’s telephone number, including area code)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  x Yes  o No

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  x Yes  o No

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer x

 

Accelerated filer o

 

Non-accelerated filer o

 

Smaller reporting company o

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  o Yes  x No

 

As of July 15, 2014, 43,421,471 shares of common stock of Silicon Laboratories Inc. were outstanding.

 

 

 



Table of Contents

 

Table of Contents

 

 

 

Page
Number

Part I. Financial Information

 

 

 

 

Item 1.

Financial Statements (Unaudited):

 

 

 

 

 

Condensed Consolidated Balance Sheets at June 28, 2014 and December 28, 2013

3

 

 

 

 

Condensed Consolidated Statements of Income for the three and six months ended June 28, 2014 and June 29, 2013

4

 

 

 

 

Condensed Consolidated Statements of Comprehensive Income for the three and six months ended June 28, 2014 and June 29, 2013

5

 

 

 

 

Condensed Consolidated Statements of Cash Flows for the six months ended June 28, 2014 and June 29, 2013

6

 

 

 

 

Notes to Condensed Consolidated Financial Statements

7

 

 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

23

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

35

 

 

 

Item 4.

Controls and Procedures

35

 

 

 

Part II. Other Information

 

 

 

 

Item 1.

Legal Proceedings

35

 

 

 

Item 1A.

Risk Factors

36

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

51

 

 

 

Item 3.

Defaults Upon Senior Securities

51

 

 

 

Item 4.

Mine Safety Disclosures

51

 

 

 

Item 5.

Other Information

51

 

 

 

Item 6.

Exhibits

52

 

Cautionary Statement

 

Except for the historical financial information contained herein, the matters discussed in this report on Form 10-Q (as well as documents incorporated herein by reference) may be considered “forward-looking” statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Such forward-looking statements include declarations regarding the intent, belief or current expectations of Silicon Laboratories Inc. and its management and may be signified by the words “believe,” “estimate,” “expect,” “intend,” “anticipate,” “plan,” “project,” “will” or similar language. You are cautioned that any such forward-looking statements are not guarantees of future performance and involve a number of risks and uncertainties. Actual results could differ materially from those indicated by such forward-looking statements. Factors that could cause or contribute to such differences include those discussed under “Risk Factors” and elsewhere in this report. Silicon Laboratories disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

 

2



Table of Contents

 

Part I.  Financial Information

Item 1.  Financial Statements

 

Silicon Laboratories Inc.

Condensed Consolidated Balance Sheets

(In thousands, except per share data)

(Unaudited)

 

 

 

June 28,
2014

 

December 28,
2013

 

Assets

 

 

 

 

 

Current assets:

 

 

 

 

 

Cash and cash equivalents

 

$

93,290

 

$

95,800

 

Short-term investments

 

235,645

 

179,593

 

Accounts receivable, net of allowances for doubtful accounts of $788 at June 28, 2014 and $797 at December 28, 2013

 

69,042

 

72,124

 

Inventories

 

45,557

 

45,271

 

Deferred income taxes

 

17,658

 

18,878

 

Prepaid expenses and other current assets

 

47,785

 

47,651

 

Total current assets

 

508,977

 

459,317

 

Long-term investments

 

10,993

 

10,632

 

Property and equipment, net

 

129,357

 

132,445

 

Goodwill

 

228,781

 

228,781

 

Other intangible assets, net

 

124,106

 

131,593

 

Other assets, net

 

22,251

 

28,382

 

Total assets

 

$

1,024,465

 

$

991,150

 

 

 

 

 

 

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

Current liabilities:

 

 

 

 

 

Accounts payable

 

$

24,745

 

$

22,126

 

Current portion of long-term debt

 

10,000

 

7,500

 

Accrued expenses

 

65,672

 

45,975

 

Deferred income on shipments to distributors

 

33,437

 

30,853

 

Income taxes

 

896

 

2,693

 

Total current liabilities

 

134,750

 

109,147

 

Long-term debt

 

82,500

 

87,500

 

Other non-current liabilities

 

29,610

 

55,941

 

Total liabilities

 

246,860

 

252,588

 

Commitments and contingencies

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

Preferred stock — $0.0001 par value; 10,000 shares authorized; no shares issued and outstanding

 

 

 

Common stock — $0.0001 par value; 250,000 shares authorized; 43,406 and 42,779 shares issued and outstanding at June 28, 2014 and December 28, 2013, respectively

 

4

 

4

 

Additional paid-in capital

 

65,199

 

48,630

 

Retained earnings

 

713,001

 

690,612

 

Accumulated other comprehensive loss

 

(599

)

(684

)

Total stockholders’ equity

 

777,605

 

738,562

 

Total liabilities and stockholders’ equity

 

$

1,024,465

 

$

991,150

 

 

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

 

3



Table of Contents

 

Silicon Laboratories Inc.

Condensed Consolidated Statements of Income

(In thousands, except per share data)

(Unaudited)

 

 

 

Three Months Ended

 

Six Months Ended

 

 

 

June 28,
2014

 

June 29,
2013

 

June 28,
2014

 

June 29,
2013

 

Revenues

 

$

154,918

 

$

141,543

 

$

300,609

 

$

286,918

 

Cost of revenues

 

56,255

 

52,770

 

114,841

 

110,773

 

Gross margin

 

98,663

 

88,773

 

185,768

 

176,145

 

Operating expenses:

 

 

 

 

 

 

 

 

 

Research and development

 

41,844

 

37,387

 

84,329

 

74,969

 

Selling, general and administrative

 

36,017

 

32,357

 

70,628

 

61,510

 

Operating expenses

 

77,861

 

69,744

 

154,957

 

136,479

 

Operating income

 

20,802

 

19,029

 

30,811

 

39,666

 

Other income (expense):

 

 

 

 

 

 

 

 

 

Interest income

 

200

 

152

 

502

 

487

 

Interest expense

 

(780

)

(831

)

(1,578

)

(1,673

)

Other income (expense), net

 

(6

)

114

 

61

 

62

 

Income before income taxes

 

20,216

 

18,464

 

29,796

 

38,542

 

Provision for income taxes

 

5,937

 

5,852

 

7,407

 

5,896

 

Net income

 

$

14,279

 

$

12,612

 

$

22,389

 

$

32,646

 

 

 

 

 

 

 

 

 

 

 

Earnings per share:

 

 

 

 

 

 

 

 

 

Basic

 

$

0.33

 

$

0.30

 

$

0.52

 

$

0.77

 

Diluted

 

$

0.32

 

$

0.29

 

$

0.51

 

$

0.76

 

 

 

 

 

 

 

 

 

 

 

Weighted-average common shares outstanding:

 

 

 

 

 

 

 

 

 

Basic

 

43,462

 

42,552

 

43,271

 

42,370

 

Diluted

 

44,218

 

43,269

 

44,137

 

43,191

 

 

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

 

 

 

June 28,
2014

 

June 29,
2013

 

June 28,
2014

 

June 29,
2013

 

Net income

 

$

14,279

 

$

12,612

 

$

22,389

 

$

32,646

 

Other comprehensive income (loss), before tax

 

 

 

 

 

 

 

 

 

Net changes to available-for-sale securities

 

 

 

 

 

 

 

 

 

Unrealized gains (losses) arising during the period

 

59

 

(1,093

)

472

 

(1,207

)

Reclassification for gains included in net income

 

 

(232

)

 

(232

)

 

 

 

 

 

 

 

 

 

 

Net changes to cash flow hedges

 

 

 

 

 

 

 

 

 

Unrealized gains (losses) arising during the period

 

(486

)

1,101

 

(627

)

1,144

 

Reclassification for losses included in net income

 

143

 

141

 

286

 

322

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive income (loss), before tax

 

(284

)

(83

)

131

 

27

 

 

 

 

 

 

 

 

 

 

 

Provision (benefit) for income taxes

 

(99

)

(29

)

46

 

10

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive income (loss)

 

(185

)

(54

)

85

 

17

 

Comprehensive income

 

$

14,094

 

$

12,558

 

$

22,474

 

$

32,663

 

 

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

 

5



Table of Contents

 

Silicon Laboratories Inc.

Condensed Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)

 

 

 

Six Months Ended

 

 

 

June 28,
2014

 

June 29,
2013

 

Operating Activities

 

 

 

 

 

Net income

 

$

22,389

 

$

32,646

 

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

 

 

 

 

 

Depreciation of property and equipment

 

6,427

 

6,634

 

Amortization of other intangible assets and other assets

 

8,839

 

5,635

 

Stock-based compensation expense

 

18,559

 

13,684

 

Income tax benefit (shortfall) from stock-based awards

 

377

 

(489

)

Excess income tax benefit from stock-based awards

 

(589

)

(243

)

Deferred income taxes

 

4,665

 

9,277

 

Changes in operating assets and liabilities:

 

 

 

 

 

Accounts receivable

 

3,082

 

9,388

 

Inventories

 

(123

)

(1,028

)

Prepaid expenses and other assets

 

3,394

 

5,023

 

Accounts payable

 

3,846

 

(2,271

)

Accrued expenses

 

(4,902

)

(6,013

)

Deferred income on shipments to distributors

 

2,584

 

293

 

Income taxes

 

(5,130

)

(6,439

)

Net cash provided by operating activities

 

63,418

 

66,097

 

 

 

 

 

 

 

Investing Activities

 

 

 

 

 

Purchases of available-for-sale investments

 

(117,744

)

(121,994

)

Proceeds from sales and maturities of available-for-sale investments

 

61,803

 

146,870

 

Purchases of property and equipment

 

(3,339

)

(6,498

)

Purchases of other assets

 

(2,726

)

(2,438

)

Net cash provided by (used in) investing activities

 

(62,006

)

15,940

 

 

 

 

 

 

 

Financing Activities

 

 

 

 

 

Proceeds from issuance of common stock, net of shares withheld for taxes

 

8,943

 

9,512

 

Excess income tax benefit from stock-based awards

 

589

 

243

 

Repurchases of common stock

 

(10,954

)

 

Payments on debt

 

(2,500

)

(3,750

)

Net cash provided by (used in) financing activities

 

(3,922

)

6,005

 

 

 

 

 

 

 

Increase (decrease) in cash and cash equivalents

 

(2,510

)

88,042

 

Cash and cash equivalents at beginning of period

 

95,800

 

105,426

 

Cash and cash equivalents at end of period

 

$

93,290

 

$

193,468

 

 

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

 

6



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 June 28, 2014 and December 28, 2013, the condensed consolidated results of its operations for the three and six months ended June 28, 2014 and June 29, 2013, the Condensed Consolidated Statements of Comprehensive Income for the three and six months ended June 28, 2014 and June 29, 2013, and the Condensed Consolidated Statements of Cash Flows for the six months ended June 28, 2014 and June 29, 2013. All intercompany balances and transactions have been eliminated in consolidation. The condensed consolidated results of operations for the three and six months ended June 28, 2014 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 December 28, 2013, included in the Company’s Form 10-K filed with the Securities and Exchange Commission (SEC) on January 31, 2014.

 

The Company prepares financial statements on a 52-53 week year that ends on the Saturday closest to December 31. Fiscal 2014 will have 53 weeks with the extra week occurring in the fourth quarter of the year. Fiscal 2013 had 52 weeks.  In a 52-week year, each fiscal quarter consists of 13 weeks.

 

Revenue Recognition

 

Revenues are generated predominately by sales of the Company’s integrated circuits (ICs). The Company recognizes revenue when all of the following criteria are met: 1) there is persuasive evidence that an arrangement exists, 2) delivery of goods has occurred, 3) the sales price is fixed or determinable, and 4) collectibility is reasonably assured. Generally, revenue from product sales to direct customers and contract manufacturers is recognized upon shipment.

 

A portion of the Company’s sales are made to distributors under agreements allowing certain rights of return and price protection related to the final selling price to the end customers. Accordingly, the Company defers revenue and cost of revenue on such sales until the distributors sell the product to the end customers. The net balance of deferred revenue less deferred cost of revenue associated with inventory shipped to a distributor but not yet sold to an end customer is recorded in the deferred income on shipments to distributors liability on the Consolidated Balance Sheet. Such net deferred income balance reflects the Company’s estimate of the impact of rights of return and price protection.

 

A small portion of the Company’s revenues is derived from the sale of patents. The above revenue recognition criteria for patent sales are generally met upon the execution of the patent sale agreement.

 

7



Table of Contents

 

Silicon Laboratories Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

 

Recent Accounting Pronouncements

 

In June 2014, the Financial Accounting Standards Board (FASB) issued FASB Accounting Standards Update (ASU) No. 2014-12, Compensation — Stock Compensation (Topic 718): Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period. The amendments in this update require that a performance target that affects vesting and that could be achieved after the requisite service period should be treated as a performance condition. A reporting entity should apply existing guidance in Topic 718 as it relates to awards with performance conditions that affect vesting to account for such awards. As such, the performance target should not be reflected in estimating the grant-date fair value of the award. ASU 2014-12 is effective for annual periods and interim periods within those annual periods beginning after December 15, 2015. Earlier adoption is permitted. The Company is currently evaluating the effect that the adoption of this ASU will have on its financial statements.

 

In May 2014, the FASB issued FASB ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606), which supersedes the revenue recognition requirements in ASC 605, Revenue Recognition. The core principle of ASU 2014-09 is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The guidance provides a five-step process to achieve that core principle. ASU 2014-09 requires disclosures enabling users of financial statements to understand the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. Additionally, qualitative and quantitative disclosures are required about contracts with customers, significant judgments and changes in judgments, and assets recognized from the costs to obtain or fulfill a contract. ASU 2014-09 is effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period, using one of two retrospective application methods. Early application is not permitted. The Company is currently evaluating the effect that the adoption of this ASU will have on its financial statements.

 

In April 2014, the FASB issued FASB ASU No. 2014-08, Presentation of Financial Statements (Topic 205) and Property, Plant, and Equipment (Topic 360): Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity. The amendments in this update require a disposal of a component of an entity or a group of components of an entity to be reported in discontinued operations if the disposal represents a strategic shift that has (or will have) a major effect on an entity’s operations and financial results. ASU 2014-08 expands disclosure requirements about discontinued operations and adds new disclosures for individually significant dispositions that do not qualify as discontinued operations. ASU 2014-08 is effective prospectively for annual periods beginning on or after December 15, 2014, and interim periods within annual periods beginning on or after December 15, 2015. Early adoption is permitted, but only for disposals that have not been reported in financial statements previously issued. The adoption of this ASU is not expected to have a material impact on the Company’s financial statements.

 

8



Table of Contents

 

Silicon Laboratories Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

 

2. Earnings Per Share

 

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

 

 

 

Three Months Ended

 

Six Months Ended

 

 

 

June 28,
2014

 

June 29,
2013

 

June 28,
2014

 

June 29,
2013

 

Net income

 

$

14,279

 

$

12,612

 

$

22,389

 

$

32,646

 

 

 

 

 

 

 

 

 

 

 

Shares used in computing basic earnings per share

 

43,462

 

42,552

 

43,271

 

42,370

 

 

 

 

 

 

 

 

 

 

 

Effect of dilutive securities:

 

 

 

 

 

 

 

 

 

Stock options and other stock-based awards

 

756

 

717

 

866

 

821

 

Shares used in computing diluted earnings per share

 

44,218

 

43,269

 

44,137

 

43,191

 

 

 

 

 

 

 

 

 

 

 

Earnings per share:

 

 

 

 

 

 

 

 

 

Basic

 

$

0.33

 

$

0.30

 

$

0.52

 

$

0.77

 

Diluted

 

$

0.32

 

$

0.29

 

$

0.51

 

$

0.76

 

 

For the three months ended June 28, 2014 and June 29, 2013 and the six months ended June 28, 2014 and June 29, 2013, approximately 0.1 million, 0.5 million, 0.2 million and 0.4 million shares, respectively, were not included in the diluted earnings per share calculation since the shares were anti-dilutive.

 

3. Cash, Cash Equivalents and Investments

 

The Company’s cash equivalents and short-term investments as of June 28, 2014 consisted of municipal bonds, corporate bonds, variable-rate demand notes, commercial paper, money market funds, certificates of deposit, asset-backed securities, international government bonds, U.S. government bonds and U.S. government agency. The Company’s long-term investments consisted of auction-rate securities. In fiscal 2008, auctions for many of the Company’s auction-rate securities failed because sell orders exceeded buy orders. As of June 28, 2014, the Company held $12.4 million par value auction-rate securities, all of which have experienced failed auctions. The underlying assets of the securities consisted of student loans and municipal bonds, of which $10.4 million were guaranteed by the U.S. government and the remaining $2.0 million were privately insured. As of June 28, 2014, $6.0 million had credit ratings of AA, $2.0 million had a credit rating of A and $4.4 million of the auction-rate securities had credit ratings of BBB. These securities have contractual maturity dates ranging from 2033 to 2046 at June 28, 2014. The Company is receiving the underlying cash flows on all of its auction-rate securities. The principal amounts associated with failed auctions are not expected to be accessible until a successful auction occurs, the issuer redeems the securities, a buyer is found outside of the auction process or the underlying securities mature. The Company is unable to predict if these funds will become available before their maturity dates.

 

9



Table of Contents

 

Silicon Laboratories Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

 

The Company does not expect to need access to the capital represented by any of its auction-rate securities prior to their maturities. The Company does not intend to sell, and believes it is not more likely than not that it will be required to sell, its auction-rate securities before their anticipated recovery in market value or final settlement at the underlying par value. The Company believes that the credit ratings and credit support of the security issuers indicate that they have the ability to settle the securities at par value. As such, the Company has determined that no other-than-temporary impairment losses existed as of June 28, 2014.

 

The Company’s cash, cash equivalents and investments consist of the following (in thousands):

 

 

 

June 28, 2014

 

 

 

Cost

 

Gross
Unrealized
Losses

 

Gross
Unrealized
Gains

 

Fair Value

 

Cash and Cash Equivalents:

 

 

 

 

 

 

 

 

 

Cash on hand

 

$

56,959

 

$

 

$

 

$

56,959

 

Available-for-sale securities:

 

 

 

 

 

 

 

 

 

Money market funds

 

16,670

 

 

 

16,670

 

Commercial paper

 

13,446

 

 

 

13,446

 

Certificates of deposit

 

5,315

 

 

 

5,315

 

Municipal bonds

 

900

 

 

 

900

 

Total available-for-sale securities

 

36,331

 

 

 

36,331

 

 

 

 

 

 

 

 

 

 

 

Total cash and cash equivalents

 

$

93,290

 

$

 

$

 

$

93,290

 

 

 

 

 

 

 

 

 

 

 

Short-term Investments:

 

 

 

 

 

 

 

 

 

Available-for-sale securities:

 

 

 

 

 

 

 

 

 

Municipal bonds

 

$

157,600

 

$

(2

)

$

290

 

$

157,888

 

Corporate bonds

 

32,470

 

(15

)

67

 

32,522

 

Variable-rate demand notes

 

29,645

 

 

 

29,645

 

Commercial paper

 

6,542

 

 

 

6,542

 

Asset-backed securities

 

4,410

 

(3

)

2

 

4,409

 

International government bonds

 

2,539

 

(1

)

1

 

2,539

 

Certificates of deposit

 

850

 

 

 

850

 

U.S. government bonds

 

650

 

 

 

650

 

U.S. government agency

 

601

 

(1

)

 

600

 

Total short-term investments

 

$

235,307

 

$

(22

)

$

360

 

$

235,645

 

 

 

 

 

 

 

 

 

 

 

Long-term Investments:

 

 

 

 

 

 

 

 

 

Available-for-sale securities:

 

 

 

 

 

 

 

 

 

Auction rate securities

 

$

12,425

 

$

(1,432

)

$

 

$

10,993

 

Total long-term investments

 

$

12,425

 

$

(1,432

)

$

 

$

10,993

 

 

10



Table of Contents

 

Silicon Laboratories Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

 

 

 

December 28, 2013

 

 

 

Cost

 

Gross
Unrealized
Losses

 

Gross
Unrealized
Gains

 

Fair Value

 

Cash and Cash Equivalents:

 

 

 

 

 

 

 

 

 

Cash on hand

 

$

45,544

 

$

 

$

 

$

45,544

 

Available-for-sale securities:

 

 

 

 

 

 

 

 

 

Money market funds

 

39,538

 

 

 

39,538

 

Certificates of deposit

 

7,768

 

 

 

7,768

 

Commercial paper

 

2,499

 

 

 

2,499

 

Municipal bonds

 

451

 

 

 

451

 

Total available-for-sale securities

 

50,256

 

 

 

50,256

 

 

 

 

 

 

 

 

 

 

 

Total cash and cash equivalents

 

$

95,800

 

$

 

$

 

$

95,800

 

 

 

 

 

 

 

 

 

 

 

Short-term Investments:

 

 

 

 

 

 

 

 

 

Available-for-sale securities:

 

 

 

 

 

 

 

 

 

Municipal bonds

 

$

119,289

 

$

(11

)

$

182

 

$

119,460

 

Variable-rate demand notes

 

38,025

 

 

 

38,025

 

Corporate bonds

 

17,788

 

(4

)

60

 

17,844

 

Commercial paper

 

3,748

 

 

 

3,748

 

Asset-backed securities

 

515

 

 

1

 

516

 

Total short-term investments

 

$

179,365

 

$

(15

)

$

243

 

$

179,593

 

 

 

 

 

 

 

 

 

 

 

Long-term Investments:

 

 

 

 

 

 

 

 

 

Available-for-sale securities:

 

 

 

 

 

 

 

 

 

Auction rate securities

 

$

12,425

 

$

(1,793

)

$

 

$

10,632

 

Total long-term investments

 

$

12,425

 

$

(1,793

)

$

 

$

10,632

 

 

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

 

As of June 28, 2014

 

Fair
Value

 

Gross
Unrealized
Losses

 

Fair
Value

 

Gross
Unrealized
Losses

 

Fair
Value

 

Gross
Unrealized
Losses

 

Auction rate securities

 

$

 

$

 

$

10,993

 

$

(1,432

)

$

10,993

 

$

(1,432

)

Corporate bonds

 

10,992

 

(15

)

 

 

10,992

 

(15

)

Municipal bonds

 

8,154

 

(2

)

 

 

8,154

 

(2

)

Asset-backed securities

 

2,791

 

(3

)

 

 

2,791

 

(3

)

International government bond

 

1,471

 

(1

)

 

 

1,471

 

(1

)

U.S. government agency

 

600

 

(1

)

 

 

600

 

(1

)

 

 

$

24,008

 

$

(22

)

$

10,993

 

$

(1,432

)

$

35,001

 

$

(1,454

)

 

11



Table of Contents

 

Silicon Laboratories Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

 

 

 

Less Than 12 Months

 

12 Months or Greater

 

Total

 

As of December 28, 2013

 

Fair
Value

 

Gross
Unrealized
Losses

 

Fair
Value

 

Gross
Unrealized
Losses

 

Fair
Value

 

Gross
Unrealized
Losses

 

Municipal bonds

 

$

11,079

 

$

(11

)

$

 

$

 

$

11,079

 

$

(11

)

Auction rate securities

 

 

 

10,632

 

(1,793

)

10,632

 

(1,793

)

Corporate bonds

 

2,605

 

(4

)

 

 

2,605

 

(4

)

 

 

$

13,684

 

$

(15

)

$

10,632

 

$

(1,793

)

$

24,316

 

$

(1,808

)

 

The gross unrealized losses as of June 28, 2014 and December 28, 2013 were due primarily to the illiquidity of the Company’s auction-rate securities and, to a lesser extent, to changes in market interest rates.

 

The following summarizes the contractual underlying maturities of the Company’s available-for-sale investments at June 28, 2014 (in thousands):

 

 

 

Cost

 

Fair
Value

 

Due in one year or less

 

$

128,339

 

$

128,444

 

Due after one year through ten years

 

116,829

 

117,062

 

Due after ten years

 

38,895

 

37,463

 

 

 

$

284,063

 

$

282,969

 

 

4. Derivative Financial Instruments

 

The Company is exposed to interest rate fluctuations in the normal course of its business, including through its Credit Facilities. The interest payments on the facility are calculated using a variable-rate of interest. The Company has entered into an interest rate swap agreement with an original notional value of $100 million (equal to the full amount borrowed under the Term Loan Facility) and, effectively, converted the LIBOR portion of the variable-rate interest payments to fixed-rate interest payments through July 2017 (the maturity date of the Term Loan Facility). The Company’s objective is to offset increases and decreases in expenses resulting from changes in interest rates with gains and losses on the derivative contract, thereby reducing volatility of earnings. The Company does not use derivative contracts for speculative purposes.

 

The Company’s interest rate swap agreement is designated and qualifies as a cash flow hedge. The effective portion of the gain or loss on the interest rate swap is recorded in accumulated other comprehensive loss as a separate component of stockholders’ equity and is subsequently recognized in earnings when the hedged exposure affects earnings. Cash flows from derivatives are classified according to the nature of the cash receipt or payment in the Consolidated Statement of Cash Flows.

 

The Company estimates the fair values of derivatives based on quoted prices and market observable data of similar instruments. If the Term Loan Facility or the interest rate swap agreement is terminated prior to maturity, the fair value of the interest rate swap recorded in accumulated other comprehensive loss may be recognized in the Consolidated Statement of Income based on an assessment of the agreements at the time of termination. The Company did not discontinue any cash flow hedges in any of the periods presented.

 

12



Table of Contents

 

Silicon Laboratories Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

 

The Company measures the effectiveness of its cash flow hedge by comparing the change in fair value of the hedged variable interest payments with the change in fair value of the interest rate swap. The Company recognizes ineffective portions of the hedge, as well as amounts not included in the assessment of effectiveness, in the Consolidated Statement of Income. As of June 28, 2014, no portion of the gains or losses from the Company’s hedging instrument was excluded from the assessment of effectiveness. Hedge ineffectiveness was not material for any of the periods presented.

 

The Company’s derivative financial instrument consisted of the following (in thousands):

 

 

 

 

 

Fair Value

 

 

 

Balance Sheet Location

 

June 28,
2014

 

December 28,
2013

 

Interest rate swap

 

Other assets, net

 

$

172

 

$

513

 

 

The before-tax effect of derivative instruments in cash flow hedging relationships was as follows (in thousands):

 

 

 

Gain (Loss) Recognized
in OCI on Derivatives
(Effective Portion)
during the:

 

 

 

Loss Reclassified
from Accumulated
OCI into Income
(Effective Portion)
during the:

 

 

 

Three Months Ended

 

Location of Loss

 

Three Months Ended

 

 

 

June 28,
 2014

 

June 29,
 2013

 

Reclassified into
Income

 

June 28,
 2014

 

June 29,
 2013

 

Interest rate swaps

 

$

(486

)

$

1,101

 

Interest expense

 

$

(143

)

$

(141

)

 

 

 

Six Months Ended

 

 

 

Six Months Ended

 

 

 

June 28,
 2014

 

June 29,
 2013

 

 

 

June 28,
 2014

 

June 29,
 2013

 

Interest rate swaps

 

$

(627

)

$

1,144

 

Interest expense

 

$

(286

)

$

(322

)

 

The Company expects to reclassify $0.5 million of its interest rate swap losses included in accumulated other comprehensive loss as of June 28, 2014 into earnings in the next 12 months, which would be offset by lower interest payments.

 

5. Fair Value of Financial Instruments

 

The fair values of the Company’s financial instruments are recorded using a hierarchal 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.

 

13



Table of Contents

 

Silicon Laboratories Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

 

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 June 28, 2014 Using

 

 

 

Description

 

Quoted Prices in
Active Markets for
Identical Assets
(Level 1)

 

Significant Other
Observable
Inputs
(Level 2)

 

Significant
Unobservable
Inputs
(Level 3)

 

Total

 

Assets:

 

 

 

 

 

 

 

 

 

Cash Equivalents:

 

 

 

 

 

 

 

 

 

Money market funds

 

$

16,670

 

$

 

$

 

$

16,670

 

Commercial paper

 

 

13,446

 

 

13,446

 

Certificates of deposit

 

 

5,315

 

 

5,315

 

Municipal bonds

 

 

900

 

 

900

 

Total cash equivalents

 

$

16,670

 

$

19,661

 

$

 

$

36,331

 

 

 

 

 

 

 

 

 

 

 

Short-term Investments:

 

 

 

 

 

 

 

 

 

Municipal bonds

 

$

 

$

157,888

 

$

 

$

157,888

 

Corporate bonds

 

 

32,522

 

 

32,522

 

Variable-rate demand notes

 

 

29,645

 

 

29,645

 

Commercial paper

 

 

6,542

 

 

6,542

 

Asset-backed securities

 

 

4,409

 

 

4,409

 

International government bonds

 

 

2,539

 

 

2,539

 

Certificates of deposit

 

 

850

 

 

850

 

U.S. government bond

 

650

 

 

 

650

 

U.S. government agency

 

 

600

 

 

600

 

Total short-term investments

 

$

650

 

$

234,995

 

$

 

$

235,645

 

 

 

 

 

 

 

 

 

 

 

Long-term Investments:

 

 

 

 

 

 

 

 

 

Auction rate securities

 

$

 

$

 

$

10,993

 

$

10,993

 

Total long-term investments

 

$

 

$

 

$

10,993

 

$

10,993

 

 

 

 

 

 

 

 

 

 

 

Other assets, net:

 

 

 

 

 

 

 

 

 

Derivative instruments

 

$

 

$

172

 

$

 

$

172

 

Total

 

$

 

$

172

 

$

 

$

172

 

 

 

 

 

 

 

 

 

 

 

Total

 

$

17,320

 

$

254,828

 

$

10,993

 

$

283,141

 

 

 

 

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

 

 

Accrued expenses:

 

 

 

 

 

 

 

 

 

Contingent consideration

 

$

 

$

 

$

3,202

 

$

3,202

 

 

 

 

 

 

 

 

 

 

 

Other non-current liabilities:

 

 

 

 

 

 

 

 

 

Contingent consideration

 

$

 

$

 

$

8,753

 

$

8,753

 

Total

 

$

 

$

 

$

11,955

 

$

11,955

 

 

14



Table of Contents

 

Silicon Laboratories Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

 

 

 

Fair Value Measurements
at December 28, 2013 Using

 

 

 

Description

 

Quoted Prices in
Active Markets for
Identical Assets
(Level 1)

 

Significant Other
Observable
Inputs
(Level 2)

 

Significant
Unobservable
Inputs
(Level 3)

 

Total

 

Assets:

 

 

 

 

 

 

 

 

 

Cash Equivalents:

 

 

 

 

 

 

 

 

 

Money market funds

 

$

39,538

 

$

 

$

 

$

39,538

 

Certificates of deposit

 

 

7,768

 

 

7,768

 

Commercial paper

 

 

2,499

 

 

2,499

 

Municipal bonds

 

 

451

 

 

451

 

Total cash equivalents

 

$

39,538

 

$

10,718

 

$

 

$

50,256