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Silicon Laboratories 10-Q 2015

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 July 4, 2015

 

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 ¨

 

 

 

Non-accelerated filer ¨

 

Smaller reporting company ¨

 

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

 

As of July 21, 2015, 42,968,204 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 July 4, 2015 and January 3, 2015

 

3

 

 

 

 

 

Condensed Consolidated Statements of Income for the three and six months ended July 4, 2015 and June 28, 2014

 

4

 

 

 

 

 

Condensed Consolidated Statements of Comprehensive Income for the three and six months ended July 4, 2015 and June 28, 2014

 

5

 

 

 

 

 

Condensed Consolidated Statements of Cash Flows for the six months ended July 4, 2015 and June 28, 2014

 

6

 

 

 

 

 

Notes to Condensed Consolidated Financial Statements

 

7

 

 

 

 

Item 2.

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

 

25

 

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

 

36

 

 

 

 

Item 4.

Controls and Procedures

 

37

 

 

 

 

Part II. Other Information

 

 

 

 

 

 

Item 1.

Legal Proceedings

 

37

 

 

 

 

Item 1A.

Risk Factors

 

38

 

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

 

52

 

 

 

 

Item 3.

Defaults Upon Senior Securities

 

52

 

 

 

 

Item 4.

Mine Safety Disclosures

 

52

 

 

 

 

Item 5.

Other Information

 

52

 

 

 

 

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)

 

 

 

July 4,
2015

 

January 3,
2015

 

Assets

 

 

 

 

 

Current assets:

 

 

 

 

 

Cash and cash equivalents

 

$

125,051

 

$

141,706

 

Short-term investments

 

147,556

 

193,489

 

Accounts receivable, net of allowances for doubtful accounts of $624 at July 4, 2015 and $786 at January 3, 2015

 

71,403

 

70,367

 

Inventories

 

60,746

 

52,631

 

Deferred income taxes

 

17,815

 

21,173

 

Prepaid expenses and other current assets

 

59,025

 

49,171

 

Total current assets

 

481,596

 

528,537

 

Long-term investments

 

7,179

 

7,419

 

Property and equipment, net

 

130,994

 

132,820

 

Goodwill

 

263,925

 

228,781

 

Other intangible assets, net

 

128,196

 

115,021

 

Other assets, net

 

24,041

 

29,983

 

Total assets

 

$

1,035,931

 

$

1,042,561

 

 

 

 

 

 

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

Current liabilities:

 

 

 

 

 

Accounts payable

 

$

34,553

 

$

38,922

 

Current portion of long-term debt

 

10,000

 

10,000

 

Accrued expenses

 

49,327

 

73,646

 

Deferred income on shipments to distributors

 

38,573

 

38,662

 

Income taxes

 

942

 

2,084

 

Total current liabilities

 

133,395

 

163,314

 

Long-term debt

 

74,562

 

77,500

 

Other non-current liabilities

 

41,761

 

43,691

 

Total liabilities

 

249,718

 

284,505

 

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; 42,908 and 42,225 shares issued and outstanding at July 4, 2015 and January 3, 2015, respectively

 

4

 

4

 

Additional paid-in capital

 

44,152

 

29,501

 

Retained earnings

 

742,586

 

728,633

 

Accumulated other comprehensive loss

 

(529

)

(82

)

Total stockholders’ equity

 

786,213

 

758,056

 

Total liabilities and stockholders’ equity

 

$

1,035,931

 

$

1,042,561

 

 

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

 

 

 

July 4,
2015

 

June 28,
2014

 

July 4,
2015

 

June 28,
2014

 

Revenues

 

$

164,856

 

$

154,918

 

$

328,561

 

$

300,609

 

Cost of revenues

 

67,428

 

56,255

 

134,764

 

114,841

 

Gross margin

 

97,428

 

98,663

 

193,797

 

185,768

 

Operating expenses:

 

 

 

 

 

 

 

 

 

Research and development

 

47,465

 

41,844

 

94,322

 

84,329

 

Selling, general and administrative

 

40,960

 

36,017

 

83,260

 

70,628

 

Operating expenses

 

88,425

 

77,861

 

177,582

 

154,957

 

Operating income

 

9,003

 

20,802

 

16,215

 

30,811

 

Other income (expense):

 

 

 

 

 

 

 

 

 

Interest income

 

166

 

200

 

358

 

502

 

Interest expense

 

(728

)

(780

)

(1,473

)

(1,578

)

Other income (expense), net

 

90

 

(6

)

498

 

61

 

Income before income taxes

 

8,531

 

20,216

 

15,598

 

29,796

 

Provision for income taxes

 

956

 

5,937

 

1,645

 

7,407

 

Net income

 

$

7,575

 

$

14,279

 

$

13,953

 

$

22,389

 

 

 

 

 

 

 

 

 

 

 

Earnings per share:

 

 

 

 

 

 

 

 

 

Basic

 

$

0.18

 

$

0.33

 

$

0.33

 

$

0.52

 

Diluted

 

$

0.17

 

$

0.32

 

$

0.32

 

$

0.51

 

 

 

 

 

 

 

 

 

 

 

Weighted-average common shares outstanding:

 

 

 

 

 

 

 

 

 

Basic

 

42,823

 

43,462

 

42,617

 

43,271

 

Diluted

 

43,461

 

44,218

 

43,305

 

44,137

 

 

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 4,
2015

 

June 28,
2014

 

July 4,
2015

 

June 28,
2014

 

Net income

 

$

7,575

 

$

14,279

 

$

13,953

 

$

22,389

 

Other comprehensive income (loss), before tax

 

 

 

 

 

 

 

 

 

Net changes to available-for-sale securities

 

 

 

 

 

 

 

 

 

Unrealized gains (losses) arising during the period

 

(312

)

59

 

(332

)

472

 

Reclassification for gains included in net income

 

 

 

10

 

 

 

 

 

 

 

 

 

 

 

 

Net changes to cash flow hedges

 

 

 

 

 

 

 

 

 

Unrealized gains (losses) arising during the period

 

50

 

(486

)

(576

)

(627

)

Reclassification for losses included in net income

 

81

 

143

 

211

 

286

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive income (loss), before tax

 

(181

)

(284

)

(687

)

131

 

 

 

 

 

 

 

 

 

 

 

Provision (benefit) for income taxes

 

(63

)

(99

)

(240

)

46

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive income (loss)

 

(118

)

(185

)

(447

)

85

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Comprehensive income

 

$

7,457

 

$

14,094

 

$

13,506

 

$

22,474

 

 

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

 

 

 

July 4,
2015

 

June 28,
2014

 

Operating Activities

 

 

 

 

 

Net income

 

$

13,953

 

$

22,389

 

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

 

 

 

 

 

Depreciation of property and equipment

 

6,029

 

6,427

 

Amortization of other intangible assets and other assets

 

14,697

 

8,839

 

Stock-based compensation expense

 

21,576

 

18,559

 

Income tax benefit from stock-based awards

 

2,781

 

377

 

Excess income tax benefit from stock-based awards

 

(2,056

)

(589

)

Deferred income taxes

 

3,892

 

4,665

 

Changes in operating assets and liabilities:

 

 

 

 

 

Accounts receivable

 

1,724

 

3,082

 

Inventories

 

(6,534

)

(123

)

Prepaid expenses and other assets

 

452

 

3,394

 

Accounts payable

 

(3,359

)

3,846

 

Accrued expenses

 

(1,027

)

19,697

 

Deferred income on shipments to distributors

 

(2,132

)

2,584

 

Income taxes

 

(7,171

)

(5,130

)

Other non-current liabilities

 

(5,622

)

(24,599

)

Net cash provided by operating activities

 

37,203

 

63,418

 

 

 

 

 

 

 

Investing Activities

 

 

 

 

 

Purchases of available-for-sale investments

 

(46,908

)

(117,744

)

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

 

92,759

 

61,803

 

Purchases of property and equipment

 

(4,714

)

(3,339

)

Purchases of other assets

 

(1,871

)

(2,726

)

Acquisition of business, net of cash acquired

 

(76,899

)

 

Net cash used in investing activities

 

(37,633

)

(62,006

)

 

 

 

 

 

 

Financing Activities

 

 

 

 

 

Proceeds from issuance of common stock, net of cash paid for withheld taxes

 

1,684

 

8,943

 

Excess income tax benefit from stock-based awards

 

2,056

 

589

 

Repurchases of common stock

 

(10,418

)

(10,954

)

Payment of acquisition-related contingent consideration

 

(4,464

)

 

Payments on debt

 

(5,083

)

(2,500

)

Net cash used in financing activities

 

(16,225

)

(3,922

)

 

 

 

 

 

 

Decrease in cash and cash equivalents

 

(16,655

)

(2,510

)

Cash and cash equivalents at beginning of period

 

141,706

 

95,800

 

Cash and cash equivalents at end of period

 

$

125,051

 

$

93,290

 

 

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 July 4, 2015 and January 3, 2015, the condensed consolidated results of its operations for the three and six months ended July 4, 2015 and June 28, 2014, the Condensed Consolidated Statements of Comprehensive Income for the three and six months ended July 4, 2015 and June 28, 2014, and the Condensed Consolidated Statements of Cash Flows for the six months ended July 4, 2015 and June 28, 2014. All intercompany balances and transactions have been eliminated in consolidation. The condensed consolidated results of operations for the three and six months ended July 4, 2015 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 3, 2015, included in the Company’s Form 10-K filed with the Securities and Exchange Commission (SEC) on February 6, 2015.

 

The Company prepares financial statements on a 52-53 week year that ends on the Saturday closest to December 31. Fiscal 2015 will have 52 weeks. Fiscal 2014 had 53 weeks with the extra week occurring in the fourth quarter of the year. In a 52-week year, each fiscal quarter consists of 13 weeks.

 

Reclassifications

 

Certain reclassifications have been made to prior year financial statements to conform to current year presentation.

 

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 April 2015, the Financial Accounting Standards Board (FASB) issued FASB Accounting Standards Update (ASU) No. 2015-03, Interest—Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs. The amendments in this update require that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability. ASU 2015-03 is to be applied retrospectively and represents a change in accounting principle. This ASU is effective for fiscal years beginning after December 15, 2015, including interim periods within those fiscal years. Earlier adoption is permitted for financial statements that have not been previously issued. 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.

 

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

 

 

 

July 4,
2015

 

June 28,
2014

 

July 4,
2015

 

June 28,
2014

 

Net income

 

$

7,575

 

$

14,279

 

$

13,953

 

$

22,389

 

 

 

 

 

 

 

 

 

 

 

Shares used in computing basic earnings per share

 

42,823

 

43,462

 

42,617

 

43,271

 

 

 

 

 

 

 

 

 

 

 

Effect of dilutive securities:

 

 

 

 

 

 

 

 

 

Stock options and other stock-based awards

 

638

 

756

 

688

 

866

 

Shares used in computing diluted earnings per share

 

43,461

 

44,218

 

43,305

 

44,137

 

 

 

 

 

 

 

 

 

 

 

Earnings per share:

 

 

 

 

 

 

 

 

 

Basic

 

$

0.18

 

$

0.33

 

$

0.33

 

$

0.52

 

Diluted

 

$

0.17

 

$

0.32

 

$

0.32

 

$

0.51

 

 

For the three months ended July 4, 2015 and June 28, 2014 and the six months ended July 4, 2015 and June 28, 2014, approximately 0.1 million, 0.1 million, 0.1 million and 0.2 million shares, respectively, were not included in the diluted earnings per share calculation since the shares were anti-dilutive.

 

8



Table of Contents

 

Silicon Laboratories Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

 

3. Cash, Cash Equivalents and Investments

 

The Company’s cash equivalents and short-term investments as of July 4, 2015 consisted of municipal bonds, money market funds, variable-rate demand notes, commercial paper, corporate bonds, certificates of deposit and international government bonds. 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 July 4, 2015, the Company held $8.0 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 $6.0 million were guaranteed by the U.S. government and the remaining $2.0 million were privately insured. As of July 4, 2015, $6.0 million of the auction-rate securities had credit ratings of AA and $2.0 million had a credit rating of A. These securities have contractual maturity dates ranging from 2033 to 2046 at July 4, 2015. 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.

 

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 July 4, 2015.

 

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

 

 

 

July 4, 2015

 

 

 

Cost

 

Gross
Unrealized
Losses

 

Gross
Unrealized
Gains

 

Fair Value

 

Cash and Cash Equivalents:

 

 

 

 

 

 

 

 

 

Cash on hand

 

$

65,449

 

$

 

$

 

$

65,449

 

Available-for-sale securities:

 

 

 

 

 

 

 

 

 

Money market funds

 

43,689

 

 

 

43,689

 

Commercial paper

 

9,823

 

 

 

9,823

 

Certificates of deposit

 

5,547

 

 

 

5,547

 

Municipal bonds

 

543

 

 

 

543

 

Total available-for-sale securities

 

59,602

 

 

 

59,602

 

 

 

 

 

 

 

 

 

 

 

Total cash and cash equivalents

 

$

125,051

 

$

 

$

 

$

125,051

 

 

 

 

 

 

 

 

 

 

 

Short-term Investments:

 

 

 

 

 

 

 

 

 

Available-for-sale securities:

 

 

 

 

 

 

 

 

 

Municipal bonds

 

$

122,148

 

$

(45

)

$

96

 

$

122,199

 

Variable-rate demand notes

 

14,495

 

 

 

14,495

 

Corporate bonds

 

7,431

 

(6

)

1

 

7,426

 

International government bonds

 

2,240

 

(3

)

 

2,237

 

Commercial paper

 

1,199

 

 

 

1,199

 

Total short-term investments

 

$

147,513

 

$

(54

)

$

97

 

$

147,556

 

 

 

 

 

 

 

 

 

 

 

Long-term Investments:

 

 

 

 

 

 

 

 

 

Available-for-sale securities:

 

 

 

 

 

 

 

 

 

Auction rate securities

 

$

8,000

 

$

(821

)

$

 

$

7,179

 

Total long-term investments

 

$

8,000

 

$

(821

)

$

 

$

7,179

 

 

9



Table of Contents

 

Silicon Laboratories Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

 

 

 

January 3, 2015

 

 

 

Cost

 

Gross
Unrealized
Losses

 

Gross
Unrealized
Gains

 

Fair Value

 

Cash and Cash Equivalents:

 

 

 

 

 

 

 

 

 

Cash on hand

 

$

52,144

 

$

 

$

 

$

52,144

 

Available-for-sale securities:

 

 

 

 

 

 

 

 

 

Money market funds

 

71,415

 

 

 

71,415

 

Certificates of deposit

 

7,739

 

 

 

7,739

 

Commercial paper

 

5,348

 

 

 

5,348

 

Municipal bonds

 

1,756

 

 

1

 

1,757

 

U.S. government agency

 

1,202

 

 

 

1,202

 

Corporate bonds

 

1,101

 

 

 

1,101

 

U.S. government bonds

 

1,000

 

 

 

1,000

 

Total available-for-sale securities

 

89,561

 

 

1

 

89,562

 

 

 

 

 

 

 

 

 

 

 

Total cash and cash equivalents

 

$

141,705

 

$

 

$

1

 

$

141,706

 

 

 

 

 

 

 

 

 

 

 

Short-term Investments:

 

 

 

 

 

 

 

 

 

Available-for-sale securities:

 

 

 

 

 

 

 

 

 

Municipal bonds

 

$

129,005

 

$

(25

)

$

172

 

$

129,152

 

Corporate bonds

 

33,043

 

(35

)

25

 

33,033

 

Variable-rate demand notes

 

12,915

 

 

 

12,915

 

Commercial paper

 

8,995

 

 

 

8,995

 

Asset-backed securities

 

5,380

 

(3

)

 

5,377

 

International government bonds

 

2,526

 

(10

)

 

2,516

 

U.S. government bonds

 

650

 

 

 

650

 

U.S. government agency

 

601

 

 

 

601

 

Certificates of deposit

 

250

 

 

 

250

 

Total short-term investments

 

$

193,365

 

$

(73

)

$

197

 

$

193,489

 

 

 

 

 

 

 

 

 

 

 

Long-term Investments:

 

 

 

 

 

 

 

 

 

Available-for-sale securities:

 

 

 

 

 

 

 

 

 

Auction rate securities

 

$

8,000

 

$

(581

)

$

 

$

7,419

 

Total long-term investments

 

$

8,000

 

$

(581

)

$

 

$

7,419

 

 

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 July 4, 2015

 

Fair
Value

 

Gross
Unrealized
Losses

 

Fair
Value

 

Gross
Unrealized
Losses

 

Fair
Value

 

Gross
Unrealized
Losses

 

Municipal bonds

 

$

26,686

 

$

(45

)

$

 

$

 

$

26,686

 

$

(45

)

Auction rate securities

 

 

 

7,179

 

(821

)

7,179

 

(821

)

Corporate bonds

 

6,315

 

(6

)

 

 

6,315

 

(6

)

International government bonds

 

2,237

 

(3

)

 

 

2,237

 

(3

)

 

 

$

35,238

 

$

(54

)

$

7,179

 

$

(821

)

$

42,417

 

$

(875

)

 

10



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 January 3, 2015

 

Fair
Value

 

Gross
Unrealized
Losses

 

Fair
Value

 

Gross
Unrealized
Losses

 

Fair
Value

 

Gross
Unrealized
Losses

 

Municipal bonds

 

$

23,735

 

$

(25

)

$

 

$

 

$

23,735

 

$

(25

)

Corporate bonds

 

20,327

 

(35

)

 

 

20,327

 

(35

)

Auction rate securities

 

 

 

7,419

 

(581

)

7,419

 

(581

)

Asset-backed securities

 

5,080

 

(3

)

 

 

5,080

 

(3

)

International government bond

 

2,516

 

(10

)

 

 

2,516

 

(10

)

 

 

$

51,658

 

$

(73

)

$

7,419

 

$

(581

)

$

59,077

 

$

(654

)

 

The gross unrealized losses as of July 4, 2015 and January 3, 2015 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 July 4, 2015 (in thousands):

 

 

 

Cost

 

Fair
Value

 

Due in one year or less

 

$

157,646

 

$

157,704

 

Due after one year through ten years

 

37,754

 

37,739

 

Due after ten years

 

19,715

 

18,894

 

 

 

$

215,115

 

$

214,337

 

 

4. Derivative Financial Instruments

 

The Company uses derivative financial instruments to manage certain exposures to the variability of interest rates and 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.

 

Interest Rate Swaps

 

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 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 as interest expense in the Consolidated Statement of Income when the hedged exposure affects earnings.

 

11



Table of Contents

 

Silicon Laboratories Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

 

The Company estimates the fair values of interest rate swaps 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.

 

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 July 4, 2015, 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 in cash flow hedging relationships consisted of the following (in thousands):

 

 

 

 

 

Fair Value

 

 

 

Balance Sheet Location

 

July 4,
2015

 

January 3,
2015

 

Interest rate swap

 

Other assets, net

 

$

 

$

331

 

 

 

Other non-current liabilities

 

35

 

 

 

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:

 

Location of Loss
Reclassified into
Income

 

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

 

 

 

Three Months Ended

 

 

 

Three Months Ended

 

 

 

July 4,
2015

 

June 28,
2014

 

 

 

July 4,
2015

 

June 28,
2014

 

Interest rate swaps

 

$

50

 

$

(486

)

Interest expense

 

$

(81

)

$

(143

)

 

 

 

Six Months Ended

 

 

 

Six Months Ended

 

 

 

July 4,
2015

 

June 28,
2014

 

 

 

July 4,
2015

 

June 28,
2014

 

Interest rate swaps

 

$

(576

)

$

(627

)

Interest expense

 

$

(211

)

$

(286

)

 

The Company expects to reclassify $0.3 million of its interest rate swap losses included in accumulated other comprehensive loss as of July 4, 2015 into earnings in the next 12 months, which would be offset by lower interest payments.

 

12



Table of Contents

 

Silicon Laboratories Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

 

Foreign Currency Forward Contracts

 

The Company uses foreign currency forward contracts to manage exposure to foreign exchange risk. These instruments are used 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 other income (expense), 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 its foreign currency derivative instruments.

 

As of July 4, 2015, the Company held one foreign currency forward contract denominated in Norwegian Krone with a notional value of $5.7 million. The fair value of the contract was not material as of July 4, 2015. The contract has a maturity date of September 30, 2015 and it was not designated as a hedging instrument. The Company held no foreign currency forward contracts during the three and six months ended June 28, 2014.

 

The before-tax effect of derivative instruments not designated as hedging instruments was as follows (in thousands):

 

 

 

Three Months Ended

 

Six Months Ended

 

 

 

Gain (Loss) Recognized in Income

 

July 4,
2015

 

June 28,
2014

 

July 4,
2015

 

June 28,
2014

 

Location

 

Foreign currency forward contracts

 

$

(104

)

$

 

$

446

 

$

 

Other income (expense), net

 

 

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 July 4, 2015 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

 

$

43,689

 

$

 

$

 

$

43,689

 

Corporate bonds

 

 

9,823

 

 

9,823

 

Certificates of deposit

 

 

5,547

 

 

5,547

 

Municipal bonds

 

 

543

 

 

543

 

Total cash equivalents

 

$

43,689

 

$

15,913

 

$

 

$

59,602

 

 

 

 

 

 

 

 

 

 

 

Short-term Investments:

 

 

 

 

 

 

 

 

 

Municipal bonds

 

$

 

$

122,199

 

$

 

$

122,199

 

Variable-rate demand notes

 

 

14,495

 

 

14,495

 

Corporate bonds

 

 

7,426

 

 

7,426

 

International government bonds

 

 

2,237

 

 

2,237

 

Commercial paper

 

 

1,199

 

 

1,199

 

Total short-term investments

 

$

 

$

147,556

 

$

 

$

147,556

 

 

 

 

 

 

 

 

 

 

 

Long-term Investments:

 

 

 

 

 

 

 

 

 

Auction rate securities

 

$

 

$

 

$

7,179

 

$

7,179

 

Total long-term investments

 

$

 

$

 

$

7,179

 

$

7,179

 

 

 

 

 

 

 

 

 

 

 

Total

 

$

43,689

 

$

163,469

 

$

7,179

 

$

214,337

 

 

 

 

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

 

 

Accrued expenses:

 

 

 

 

 

 

 

 

 

Contingent consideration

 

$

 

$

 

$

3,965

 

$

3,965

 

 

 

 

 

 

 

 

 

 

 

Other non-current liabilities:

 

 

 

 

 

 

 

 

 

Contingent consideration

 

$

 

$

 

$

11,127

 

$

11,127

 

Derivative instruments

 

 

35

 

 

35

 

 

 

$

 

$

35

 

$

11,127

 

$

11,162

 

 

 

 

 

 

 

 

 

 

 

Total

 

$

 

$

35

 

$

15,092

 

$

15,127

 

 

14



Table of Contents

 

Silicon Laboratories Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

 

 

 

Fair Value Measurements
at January 3, 2015 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

 

$

71,415

 

$