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Silicon Laboratories 10-Q 2016

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 April 2, 2016

 

or

 

¨         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  ¨ 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  ¨ 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 April 19, 2016, 41,751,123 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 April 2, 2016 and January 2, 2016

3

 

 

 

 

 

 

Condensed Consolidated Statements of Income for the three months ended
April 2, 2016 and April 4, 2015

4

 

 

 

 

 

 

Condensed Consolidated Statements of Comprehensive Income for the three
months ended April 2, 2016 and April 4, 2015

5

 

 

 

 

 

 

Condensed Consolidated Statements of Cash Flows for the three months ended
April 2, 2016 and April 4, 2015

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

53

 

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)

 

 

 

April 2,
2016

 

January 2,
2016

 

Assets

 

 

 

 

 

Current assets:

 

 

 

 

 

Cash and cash equivalents

 

$

126,690

 

$

114,085

 

Short-term investments

 

126,824

 

128,901

 

Accounts receivable, net of allowances for doubtful accounts of $657 at April 2, 2016 and $671 at January 2, 2016

 

74,591

 

73,601

 

Inventories

 

48,923

 

53,895

 

Prepaid expenses and other current assets

 

44,222

 

52,658

 

Total current assets

 

421,250

 

423,140

 

Long-term investments

 

6,845

 

7,126

 

Property and equipment, net

 

130,099

 

131,132

 

Goodwill

 

272,722

 

272,722

 

Other intangible assets, net

 

113,800

 

121,354

 

Other assets, net

 

53,566

 

55,989

 

Total assets

 

$

998,282

 

$

1,011,463

 

 

 

 

 

 

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

Current liabilities:

 

 

 

 

 

Accounts payable

 

$

42,579

 

$

42,127

 

Current portion of long-term debt

 

10,000

 

10,000

 

Accrued expenses

 

58,391

 

52,131

 

Deferred income on shipments to distributors

 

41,042

 

35,448

 

Income taxes

 

3,084

 

2,615

 

Total current liabilities

 

155,096

 

142,321

 

Long-term debt

 

65,000

 

67,500

 

Other non-current liabilities

 

28,739

 

40,528

 

Total liabilities

 

248,835

 

250,349

 

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; 41,743 and 41,727 shares issued and outstanding at April 2, 2016 and January 2, 2016, respectively

 

4

 

4

 

Additional paid-in capital

 

 

13,868

 

Retained earnings

 

750,256

 

747,749

 

Accumulated other comprehensive loss

 

(813

)

(507

)

Total stockholders’ equity

 

749,447

 

761,114

 

Total liabilities and stockholders’ equity

 

$

998,282

 

$

1,011,463

 

 

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

 

 

 

April 2,
2016

 

April 4,
2015

 

Revenues

 

$

162,025

 

$

163,705

 

Cost of revenues

 

66,494

 

67,336

 

Gross margin

 

95,531

 

96,369

 

Operating expenses:

 

 

 

 

 

Research and development

 

49,046

 

46,857

 

Selling, general and administrative

 

39,637

 

42,300

 

Operating expenses

 

88,683

 

89,157

 

Operating income

 

6,848

 

7,212

 

Other income (expense):

 

 

 

 

 

Interest income

 

271

 

192

 

Interest expense

 

(655

)

(745

)

Other income (expense), net

 

(391

)

408

 

Income before income taxes

 

6,073

 

7,067

 

Provision for income taxes

 

265

 

689

 

Net income

 

$

5,808

 

$

6,378

 

 

 

 

 

 

 

Earnings per share:

 

 

 

 

 

Basic

 

$

0.14

 

$

0.15

 

Diluted

 

$

0.14

 

$

0.15

 

 

 

 

 

 

 

Weighted-average common shares outstanding:

 

 

 

 

 

Basic

 

41,629

 

42,412

 

Diluted

 

42,199

 

43,149

 

 

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

 

 

 

April 2,
2016

 

April 4,
2015

 

Net income

 

$

5,808

 

$

6,378

 

Other comprehensive loss, before tax:

 

 

 

 

 

Net changes to available-for-sale securities:

 

 

 

 

 

Unrealized losses arising during the period

 

(251

)

(20

)

Reclassification for losses included in net income

 

 

10

 

 

 

 

 

 

 

Net changes to cash flow hedges:

 

 

 

 

 

Unrealized losses arising during the period

 

(286

)

(626

)

Reclassification for losses included in net income

 

66

 

130

 

 

 

 

 

 

 

Other comprehensive loss, before tax

 

(471

)

(506

)

 

 

 

 

 

 

Benefit from income taxes

 

(165

)

(177

)

 

 

 

 

 

 

Other comprehensive loss

 

(306

)

(329

)

Comprehensive income

 

$

5,502

 

$

6,049

 

 

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)

 

 

 

Three Months Ended

 

 

 

April 2,
2016

 

April 4,
2015

 

Operating Activities

 

 

 

 

 

Net income

 

$

5,808

 

$

6,378

 

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

 

 

 

 

 

Depreciation of property and equipment

 

3,310

 

2,987

 

Amortization of other intangible assets and other assets

 

7,980

 

6,521

 

Stock-based compensation expense

 

10,344

 

10,519

 

Income tax benefit (shortfall) from stock-based awards

 

(1,025

)

1,773

 

Excess income tax benefit from stock-based awards

 

(6

)

(1,785

)

Deferred income taxes

 

(38

)

6,844

 

Changes in operating assets and liabilities:

 

 

 

 

 

Accounts receivable

 

(990

)

6,564

 

Inventories

 

4,580

 

(6,424

)

Prepaid expenses and other assets

 

9,159

 

8,584

 

Accounts payable

 

1,559

 

447

 

Accrued expenses

 

6,260

 

(5,046

)

Deferred income on shipments to distributors

 

5,558

 

(1,049

)

Income taxes

 

494

 

(8,409

)

Other non-current liabilities

 

(10,584

)

(3,816

)

Net cash provided by operating activities

 

42,409

 

24,088

 

 

 

 

 

 

 

Investing Activities

 

 

 

 

 

Purchases of available-for-sale investments

 

(44,547

)

(13,037

)

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

 

46,654

 

57,739

 

Purchases of property and equipment

 

(2,303

)

(1,991

)

Purchases of other assets

 

(1,107

)

(935

)

Acquisition of business, net of cash acquired

 

 

(76,899

)

Net cash used in investing activities

 

(1,303

)

(35,123

)

 

 

 

 

 

 

Financing Activities

 

 

 

 

 

Payment of taxes withheld for vested stock awards, net of proceeds from the issuance of common stock

 

(7,523

)

(2,561

)

Excess income tax benefit from stock-based awards

 

6

 

1,785

 

Repurchases of common stock

 

(18,484

)

(10,138

)

Payment of acquisition-related contingent consideration

 

 

(4,464

)

Payments on debt

 

(2,500

)

(2,583

)

Net cash used in financing activities

 

(28,501

)

(17,961

)

 

 

 

 

 

 

Increase (decrease) in cash and cash equivalents

 

12,605

 

(28,996

)

Cash and cash equivalents at beginning of period

 

114,085

 

141,706

 

Cash and cash equivalents at end of period

 

$

126,690

 

$

112,710

 

 

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 April 2, 2016 and January 2, 2016, the condensed consolidated results of its operations for the three months ended April 2, 2016 and April 4, 2015, the Condensed Consolidated Statements of Comprehensive Income for the three months ended April 2, 2016 and April 4, 2015, and the Condensed Consolidated Statements of Cash Flows for the three months ended April 2, 2016 and April 4, 2015. All intercompany balances and transactions have been eliminated in consolidation. The condensed consolidated results of operations for the three months ended April 2, 2016 are not necessarily indicative of the results to be expected for the full year.

 

The accompanying unaudited Condensed Consolidated Financial Statements do not include certain footnotes and financial presentations normally required under U.S. generally accepted accounting principles (GAAP). Therefore, these Condensed Consolidated Financial Statements should be read in conjunction with the audited Consolidated Financial Statements and notes thereto for the year ended January 2, 2016, included in the Company’s Form 10-K filed with the Securities and Exchange Commission (SEC) on February 5, 2016.

 

The Company prepares financial statements on a 52- or 53-week fiscal year that ends on the Saturday closest to December 31. Fiscal 2016 will have 52 weeks and fiscal 2015 had 52 weeks. In a 52-week year, each fiscal quarter consists of 13 weeks.

 

Use of Estimates

 

The preparation of financial statements in conformity with accounting principles generally accepted in the United States 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, stock-based compensation, investments in auction-rate securities, acquired intangible assets, goodwill, long-lived assets and income taxes. Actual results could differ from those estimates, and such differences could be material to the financial statements.

 

Revenue Recognition

 

Revenues are generated predominately by sales of the Company’s products. 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 March 2016, the Financial Accounting Standards Board (FASB) issued FASB Accounting Standards Update (ASU) No. 2016-09, Compensation—Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting. The amendments in this update simplify several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities and classification on the statement of cash flows. This ASU is effective for annual periods beginning after December 15, 2016, and interim periods within those annual periods. Earlier application is permitted in any interim or annual period. The Company is currently evaluating the effect that the adoption of this ASU will have on its financial statements.

 

In February 2016, the FASB issued FASB ASU No. 2016-02, Leases (Topic 842). The core principle of Topic 842 is that a lessee should recognize the assets and liabilities that arise from leases. For operating leases, a lessee is required to recognize a right-of-use asset and a lease liability, initially measured at the present value of the lease payments, in the statement of financial position. For leases with a term of 12 months or less, a lessee is permitted to make an accounting policy election by class of underlying asset not to recognize lease assets and lease liabilities. The accounting applied by a lessor is largely unchanged from that applied under previous GAAP. This ASU is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Earlier application is permitted. In transition, lessees and lessors are required to recognize and measure leases at the beginning of the earliest period presented using a modified retrospective approach. The Company is currently evaluating the effect that the adoption of this ASU will have on its financial statements.

 

In January 2016, the FASB issued FASB ASU No. 2016-01, Financial Instruments—Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities. The amendments in this update address certain aspects of recognition, measurement, presentation and disclosure of financial instruments. This ASU requires equity investments to be measured at fair value with changes in fair value recognized in net income; simplifies the impairment assessment of equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment; eliminates the requirement for public business entities to disclose the method(s) and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet; requires public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes; requires an entity to present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair value in accordance with the fair value option for financial instruments; requires separate presentation of financial assets and financial liabilities by measurement category and form of financial asset on the balance sheet or the accompanying notes to the financial statements; and clarifies that an entity should evaluate the need for a valuation allowance on a deferred tax asset related to available-for-sale securities in combination with the entity’s other deferred tax assets. This ASU is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. Earlier application is permitted for financial statements of fiscal years or interim periods that have not yet been issued. The Company is currently evaluating the effect that the adoption of this ASU will have on its financial statements.

 

In July 2015, the FASB issued FASB ASU No. 2015-11, Inventory (Topic 330): Simplifying the Measurement of Inventory. The amendments in this update require inventory to be measured at the lower of cost and net realizable value. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. This ASU is effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. The amendments in this update should be applied prospectively with earlier application permitted. The Company does not expect that the adoption of this ASU will have a material impact on its financial statements.

 

8



Table of Contents

 

Silicon Laboratories Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

 

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. In August 2015, the FASB issued FASB ASU No. 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date, which deferred the effective date of ASU 2014-09 by one year. ASU 2014-09 is now effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period, using one of two retrospective application methods. Early application is permitted only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period. In March 2016, the FASB issued FASB ASU No. 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net). ASU 2016-08 clarifies the implementation guidance on principal versus agent considerations. The Company is currently evaluating the effect that the adoption of ASU 2014-09, ASU 2015-14 and ASU 2016-08 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

 

 

 

April 2,
2016

 

April 4,
2015

 

Net income

 

$

5,808

 

$

6,378

 

 

 

 

 

 

 

Shares used in computing basic earnings per share

 

41,629

 

42,412

 

 

 

 

 

 

 

Effect of dilutive securities:

 

 

 

 

 

Stock options and other stock-based awards

 

570

 

737

 

Shares used in computing diluted earnings per share

 

42,199

 

43,149

 

 

 

 

 

 

 

Earnings per share:

 

 

 

 

 

Basic

 

$

0.14

 

$

0.15

 

Diluted

 

$

0.14

 

$

0.15

 

 

For the three months ended April 2, 2016 and April 4, 2015, approximately 0.8 million and 0.1 million shares, respectively, were not included in the diluted earnings per share calculation since the shares were anti-dilutive.

 

9



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 April 2, 2016 consisted of municipal bonds, money market funds, variable-rate demand notes, corporate bonds, U.S. government bonds, asset-back securities, commercial paper, 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 April 2, 2016, 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 April 2, 2016, $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 April 2, 2016. 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 April 2, 2016.

 

10



Table of Contents

 

Silicon Laboratories Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

 

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

 

 

 

April 2, 2016

 

 

 

Cost

 

Gross
Unrealized
Losses

 

Gross
Unrealized
Gains

 

Fair Value

 

Cash and cash equivalents:

 

 

 

 

 

 

 

 

 

Cash on hand

 

$

76,197

 

$

 

$

 

$

76,197

 

Available-for-sale securities:

 

 

 

 

 

 

 

 

 

Money market funds

 

40,720

 

 

 

40,720

 

Municipal bonds

 

5,724

 

 

 

5,724

 

Certificates of deposit

 

2,849

 

 

 

2,849

 

Commercial paper

 

1,200

 

 

 

1,200

 

Total available-for-sale securities

 

50,493

 

 

 

50,493

 

 

 

 

 

 

 

 

 

 

 

Total cash and cash equivalents

 

$

126,690

 

$

 

$

 

$

126,690

 

 

 

 

 

 

 

 

 

 

 

Short-term investments:

 

 

 

 

 

 

 

 

 

Available-for-sale securities:

 

 

 

 

 

 

 

 

 

Municipal bonds

 

$

85,668

 

$

(14

)

$

55

 

$

85,709

 

Variable-rate demand notes

 

18,395

 

 

 

18,395

 

Corporate bonds

 

8,021

 

(18

)

 

8,003

 

U.S. government bonds

 

6,004

 

 

5

 

6,009

 

Asset-backed securities

 

3,995

 

 

3

 

3,998

 

Commercial paper

 

2,489

 

 

 

2,489

 

International government bonds

 

2,220

 

 

1

 

2,221

 

Total short-term investments

 

$

126,792

 

$

(32

)

$

64

 

$

126,824

 

 

 

 

 

 

 

 

 

 

 

Long-term investments:

 

 

 

 

 

 

 

 

 

Available-for-sale securities:

 

 

 

 

 

 

 

 

 

Auction rate securities

 

$

8,000

 

$

(1,155

)

$

 

$

6,845

 

Total long-term investments

 

$

8,000

 

$

(1,155

)

$

 

$

6,845

 

 

11



Table of Contents

 

Silicon Laboratories Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

 

 

 

January 2, 2016

 

 

 

Cost

 

Gross
Unrealized
Losses

 

Gross
Unrealized
Gains

 

Fair Value

 

Cash and cash equivalents:

 

 

 

 

 

 

 

 

 

Cash on hand

 

$

59,071

 

$

 

$

 

$

59,071

 

Available-for-sale securities:

 

 

 

 

 

 

 

 

Money market funds

 

37,721

 

 

 

37,721

 

Commercial paper

 

11,272

 

 

 

11,272

 

Certificates of deposit

 

2,845

 

 

 

2,845

 

U.S. government agency

 

1,599

 

 

 

1,599

 

Municipal bonds

 

1,576

 

 

1

 

1,577

 

Total available-for-sale securities

 

55,013

 

 

1

 

55,014

 

 

 

 

 

 

 

 

 

 

 

Total cash and cash equivalents

 

$

114,084

 

$

 

$

1

 

$

114,085

 

 

 

 

 

 

 

 

 

 

 

Short-term investments:

 

 

 

 

 

 

 

 

 

Available-for-sale securities:

 

 

 

 

 

 

 

 

 

Municipal bonds

 

$

93,506

 

$

(32

)

$

42

 

$

93,516

 

Commercial paper

 

11,176

 

 

 

11,176

 

Variable-rate demand notes

 

8,995

 

 

 

8,995

 

Certificates of deposit

 

8,000

 

 

 

8,000

 

U.S. government agency

 

3,997

 

 

1

 

3,998

 

International government bonds

 

2,227

 

(7

)

 

2,220

 

Corporate bonds

 

999

 

(3

)

 

996

 

Total short-term investments

 

$

128,900

 

$

(42

)

$

43

 

$

128,901

 

 

 

 

 

 

 

 

 

 

 

Long-term investments:

 

 

 

 

 

 

 

 

 

Available-for-sale securities:

 

 

 

 

 

 

 

 

 

Auction rate securities

 

$

8,000

 

$

(874

)

$

 

$

7,126

 

Total long-term investments

 

$

8,000

 

$

(874

)

$

 

$

7,126

 

 

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 April 2, 2016

 

Fair
Value

 

Gross
Unrealized
Losses

 

Fair
Value

 

Gross
Unrealized
Losses

 

Fair
Value

 

Gross
Unrealized
Losses

 

Municipal bonds

 

$

27,767

 

$

(11

)

$

2,708

 

$

(3

)

$

30,475

 

$

(14

)

Corporate bonds

 

8,003

 

(18

)

 

 

8,003

 

(18

)

Auction rate securities

 

 

 

6,845

 

(1,155

)

6,845

 

(1,155

)

 

 

$

35,770

 

$

(29

)

$

9,553

 

$

(1,158

)

$

45,323

 

$

(1,187

)

 

12



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 2, 2016

 

Fair
Value

 

Gross
Unrealized
Losses

 

Fair
Value

 

Gross
Unrealized
Losses

 

Fair
Value

 

Gross
Unrealized
Losses

 

Municipal bonds

 

$

29,271

 

$

(30

)

$

1,198

 

$

(2

)

$

30,469

 

$

(32

)

Auction rate securities

 

 

 

7,126

 

(874

)

7,126

 

(874

)

International government bonds

 

2,220

 

(7

)

 

 

2,220

 

(7

)

Corporate bonds

 

996

 

(3

)

 

 

996

 

(3

)

 

 

$

32,487

 

$

(40

)

$

8,324

 

$

(876

)

$

40,811

 

$

(916

)

 

The gross unrealized losses as of April 2, 2016 and January 2, 2016 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 April 2, 2016 (in thousands):

 

 

 

Cost

 

Fair
Value

 

Due in one year or less

 

$

114,458

 

$

114,470

 

Due after one year through ten years

 

41,002

 

41,022

 

Due after ten years

 

29,825

 

28,670

 

 

 

$

185,285

 

$

184,162

 

 

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 Credit Facilities) and, effectively, converted the Eurodollar portion of the variable-rate interest payments to fixed-rate interest payments through July 2017.

 

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.

 

13



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 Credit Facilities 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 April 2, 2016, 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

 

April 2,
2016

 

January 2,
2016

 

Interest rate swap

 

Other assets, net

 

$

 

$

92

 

 

 

Other non-current liabilities

 

129

 

 

 

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

 

 

 

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

 

 

 

April 2,
2016

 

April 4,
2015

 

 

 

April 2,
2016

 

April 4,
2015

 

Interest rate swaps

 

$

(286

)

$

(626

)

Interest expense

 

$

(66

)

$

(130

)

 

The Company expects to reclassify $0.1 million of its interest rate swap losses included in accumulated other comprehensive loss as of April 2, 2016 into earnings in the next 12 months, which would be offset by lower interest payments.

 

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.

 

14



Table of Contents

 

Silicon Laboratories Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

 

As of April 2, 2016 and April 4, 2015, the Company held one foreign currency forward contract denominated in Norwegian Krone with a notional value of $4.8 million and $6.8 million, respectively. The fair value of the contracts was not material as of April 2, 2016 or April 4, 2015. The contract held as of April 2, 2016 has a maturity date of June 29, 2016 and it was not designated as a hedging instrument.

 

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

 

 

 

Three Months Ended

 

 

 

Gain (Loss) Recognized in Income

 

April 2,
2016

 

April 4,
2015

 

Location

 

Foreign currency forward contracts

 

$

(300

)

$

550

 

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.

 

15



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 April 2, 2016 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

 

$

40,720

 

$

 

$

 

$

40,720

 

Municipal bonds

 

 

5,724

 

 

5,724

 

Certificates of deposit

 

 

2,849

 

 

2,849

 

Commercial paper

 

 

1,200

 

 

1,200

 

Total cash equivalents

 

$

40,720

 

$

9,773

 

$

 

$

50,493

 

 

 

 

 

 

 

 

 

 

 

Short-term investments:

 

 

 

 

 

 

 

 

 

Municipal bonds

 

$

 

$

85,709

 

$

 

$

85,709

 

Variable-rate demand notes

 

 

18,395

 

 

18,395

 

Corporate bonds

 

 

8,003

 

 

8,003

 

U.S. government bonds

 

6,009

 

 

 

6,009

 

Asset-backed securities

 

 

3,998

 

 

3,998

 

Commercial paper

 

 

2,489

 

 

2,489

 

International government bonds

 

 

2,221

 

 

2,221

 

Total short-term investments

 

$

6,009

 

$

120,815

 

$

 

$

126,824

 

 

 

 

 

 

 

 

 

 

 

Long-term investments:

 

 

 

 

 

 

 

 

 

Auction rate securities

 

$

 

$

 

$

6,845

 

$

6,845

 

Total long-term investments

 

$

 

$

 

$

6,845

 

$

6,845

 

 

 

 

 

 

 

 

 

 

 

Total

 

$

46,729

 

$

130,588

 

$

6,845

 

$

184,162

 

 

 

 

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

 

 

Other non-current liabilities:

 

 

 

 

 

 

 

 

 

Derivative instruments

 

$

 

$

129

 

$

 

$

129

 

Total

 

$

 

$

129

 

$

 

$

129

 

 

16



Table of Contents

 

Silicon Laboratories Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

 

 

 

Fair Value Measurements
at January 2, 2016 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

 

$

37,721

 

$

 

$

 

$

37,721

 

Commercial paper

 

 

11,272

 

 

11,272

 

Certificates of deposit

 

 

2,845

 

 

2,845

 

U.S. government agency

 

 

1,599

 

 

1,599

 

Municipal bonds

 

 

1,577

 

 

1,577

 

Total cash equivalents

 

$

37,721

 

$

17,293

 

$

 

$

55,014

 

 

 

 

 

 

 

 

 

 

 

Short-term investments:

 

 

 

 

 

 

 

 

 

Municipal bonds

 

$

 

$

93,516

 

$

 

$

93,516

 

Commercial paper

 

 

11,176

 

 

11,176

 

Variable-rate demand notes

 

 

8,995

 

 

8,995

 

Certificates of deposit

 

 

8,000

 

 

8,000

 

U.S. government agency

 

 

3,998

 

 

3,998

 

International government bonds

 

 

2,220

 

 

2,220

 

Corporate bonds

 

 

996

 

 

996

 

Total short-term investments

 

$

 

$

128,901

 

$

 

$

128,901

 

 

 

 

 

 

 

 

 

 

 

Long-term investments:

 

 

 

 

 

 

 

 

 

Auction rate securities

 

$

 

$

 

$

7,126

 

$

7,126

 

Total long-term investments

 

$

 

$

 

$

7,126

 

$

7,126

 

 

 

 

 

 

 

 

 

 

 

Other assets, net:

 

 

 

 

 

 

 

 

 

Derivative instruments

 

$

 

$

92

 

$

 

$

92

 

Total

 

$

 

$

92

 

$

 

$

92

 

 

 

 

 

 

 

 

 

 

 

Total

 

$

37,721

 

$

146,286

 

$

7,126

 

$

191,133

 

 

 

 

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

 

 

Accrued expenses:

 

 

 

 

 

 

 

 

 

Contingent consideration

 

$

 

$

 

$

4,749

 

$

4,749

 

 

 

 

 

 

 

 

 

 

 

Other non-current liabilities:

 

 

 

 

 

 

 

 

 

Contingent consideration

 

$

 

$

 

$

9,324

 

$

9,324

 

 

 

 

 

 

 

 

 

 

 

Total

 

$

 

$

 

$

14,073

 

$

14,073