Silicon Laboratories Annual Report 2014

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FY2014 Annual Report · Silicon Laboratories

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2014 SILICON LABS ANNUAL REPORT

We are engineers. We are innovators. We are Silicon Labs.

www.silabs.com | The leader in energy-friendly solutions for a smarter, more connected world.

To Our Shareholders

Silicon Labs exited 2014 with growing momentum, achieving

solutions to address the IoT market. Our multi-year investment

record revenue of $621M and growing seven percent from

strategy is yielding results, where we have strengthened our

2013. Broad-Based products targeting Internet of Things

portfolio organically and through key acquisitions. Unlike vertical

(IoT) and Internet Infrastructure applications led the way, and

markets dominated by a few large customers, the IoT is a green

now represent over half our revenue as we continue to gain

field of tens of thousands of prospective customers, ranging from

share in these large and dynamic markets. Geographically,

Kickstarter funded start-ups to established brand names. We

we saw growth across all regions led by the Americas, fueled

saw over 20% annual growth in our MCU, wireless and sensor

by expansion in industrial and consumer markets as we

revenue as we continue to gain traction in IoT related applications

increase our leadership in the IoT. Year-on-year design win

including home automation, security systems, wearables and

activity increased almost 20 percent, and our customer base

smart metering.

grew nearly 30 percent to approximately 25,000. Broadcast

and Access delivered strong results as well, reflecting the

Our goal is to provide complete solutions for the IoT

differentiation and sustainability of these products.

market where our IC is at the heart of the system and we

can control the integration path. Our solutions begin with a

Silicon Labs was founded on principles of conservative

comprehensive portfolio of energy-friendly MCUs, diverse

financial management, and has delivered solid operating

wireless connectivity options, and smart sensors. We believe

performance through semiconductor cycles. As a result,

Silicon Labs is one of the few semiconductor companies today

cash flow from operations has been positive for nearly every

with the ability to integrate these essential silicon building

quarter since we went public in 2000. In 2014, the company

blocks into system-on-chip platforms to serve this broad

established a new record, with operating cash flows of

market opportunity.

$137 million. Strong cash generation enabled the company

to repurchase approximately $72 million in shares, and the

We are driving the future of wireless connectivity for the IoT

company ended the year with $343 million in cash, cash

as a leading supplier of ZigBee and sub-GHz solutions, a

equivalents and investments.

founding member of the Thread Group, and now a prominent

provider of Bluetooth and Wi-Fi modules and software with

The company’s operating expenses continue to reflect significant

our recent acquisition of Bluegiga. Our customers are now

investment in R&D, primarily related to products, software and

able to leverage our ICs, software, modules, development

Non-GAAP Financials*
In thousands, except per share data

REVENUE (000’S)

% GROWTH

GROSS MARGIN

% OF REVENUE

R&D

% OF REVENUE

SG&A

% OF REVENUE

OPERATING EXPENSES

% OF REVENUE

OPERATING INCOME

% OF REVENUE

NET INCOME

% OF REVENUE

EARNINGS

FY2014

$145,691

-0.4%

$87,690

60.2%

$34,997

24.0%

$28,492

19.6%

$63,489

43.6%

$24,201

16.6%

$18,420

12.6%

$0.42

$154,918

6.3%

$99,231

64.1%

$34,413

22.2%

$31,333

20.3%

$65,746

42.5%

$33,485

21.6%

$25,540

16.5%

$0.58

$158,144

2.1%

$96,702

61.1%

$34,796

22.0%

$32,078

20.2%

$66,874

42.2%

$29,828

18.9%

$22,954

14.5%

$0.52

$161,951

$620,704

2.4%

7.0%

$97,299

60.1%

$37,225

23.0%

$32,294

19.9%

$69,519

42.9%

$27,780

17.2%

$24,458

15.1%

$380,922

61.4%

$141,431

22.8%

$124,197

20.0%

$265,628

42.8%

$115,294

18.6%

$91,372

14.7%

$0.57

$2.09

*Please see the supplemental tables provided in this report for a reconciliation of GAAP to non-GAAP results in Appendix I. Past performance does not
guarantee future results. This Annual Report to Shareholders contains forward-looking statements, and actual results could differ materially. Risk factors that
could cause actual results to differ are set forth in the “Risk Factors” section and throughout our 2014 Form 10-K, which is included in this Annual Report.

kits and Simplicity Studio to advance quickly from design

friendly. By targeting the largest growth segments of the

idea to final product.

IoT and expanding our portfolio into new markets such as

Bluetooth Smart and wireless modules, we will expand our

Accelerating demands for bandwidth are driving the transition

SAM and further differentiate ourselves as the leading IoT

to higher speed networks. Timing technology is essential for

semiconductor company.

network upgrades, and Silicon Labs is a leading supplier of

timing products for Internet infrastructure. Further market

It’s exhilarating to be at the forefront of the IoT. We believe

penetration and a strong pipeline of new product introductions

we have the core products and technologies in place and

drove record 2014 design wins in Timing as we continue to

are now focused on execution. We are well positioned for

expand our high-performance, frequency-flexible portfolio

growth in 2015 and beyond and look forward to introducing

and development tools to meet the stringent demands of data

new and disruptive silicon and software solutions that solve

center, wireless base station and core network applications.

our customers’ toughest challenges.

Our Broadcast products continue to deliver strong results

We appreciate your investment in Silicon Labs.

with industry-leading performance, scalability and integration.

Delivering 45 percent growth year-on-year, our automotive

radio products continue to gain traction in the market with a

growing list of design wins at tier 1 suppliers to automotive

OEMs in the Americas, Europe and the Asia-Pacific region.

Our TV tuners achieved more than 55 percent share of the

worldwide TV market in 2014.

Looking ahead to 2015, we are very excited about our

product pipeline. We see many opportunities ahead in the

IoT market where we plan to deliver platform solutions that

will give us a technology edge over our competitors, while

Tyson Tuttle

making the “things” in our lives smart, connected and energy

Chief Executive Officer

Nav Sooch

Chairman

Revenue
In millions

BROAD-BASED

BROADCAST

ACCESS

$621

$563

$580

$493

$492

$441

FY09

FY10

FY11

FY12

FY13

FY14

We’re not interested
in good enough.

Good enough doesn’t move the needle.
It doesn’t push the envelope. Good enough
didn’t get us to the moon.

It’s not enough to imagine the world we want to live in—we have to
build it. Driven by relentless curiosity and a passion for exceeding
expectations we set out to solve the unsolvable. We know we can do
things that have never been done before because we’ve done them.

Imagine. Tinker. Innovate. Integrate. Build.

Your success isn’t defined by any singular metric. Neither is ours.
Power, size, cost, reliability and performance are non-negotiable.
You expect features and efficiency, you need to do more with less
and you demand performance without penalty.

At Silicon Labs we create the silicon, software and tools that
become your unfair advantage. We make it simple for engineers
and designers to create products that disrupt industries. Because
today’s challenges don’t require a bigger hammer—just a sharper nail.

Together we will do incredible things.

Sixth-generation TV Tuners

Nine out of the world’s top ten TV makers have
adopted Silicon Labs’ TV tuner technology,
now in its sixth generation. Optimized for the
China market, the Si2151/41 TV tuner family
provides unsurpassed RF performance, the
smallest footprint and BOM cost, and the
lowest power consumption for TV and set-
top box designs.

Automotive Radio Tuners

Designed to be a truly global automotive
radio solution, the Si4790x tuner family
supports all leading broadcast standards
worldwide. Our scalable architecture enables
infotainment system suppliers to leverage
their investments across multiple product
lines ranging from entry-level car radios
to cutting-edge multi-tuner, multi-antenna
radios for premium vehicles.

Clock-Tree-on-a-Chip

T h e S i 5 3 4x f a m i l y of fe r s t h e m o s t
frequency-flexible clock solution with the
lowest jitter and highest integration for
high-speed networking, communications
and data center equipment providing the
foundation for Internet infrastructure. The
combination of clock synthesis and jitter
attenuation simplifies “clock trees” for
complex timing applications.

We believe that
engineering is
ultimately about
humanity.

It’s about solving today’s problems with
solutions that don’t exist—yet.

We are a family of engineers, designers and innovators dedicated
to solving our customers’ toughest challenges with energy-friendly
MCU and wireless solutions. We make it simple for engineers and
designers to create the next generation of devices that push the
limits of possibility. With unmatched simplicity, performance and
reliability we help them get to market faster and give them the tools
and support to maintain their competitive edge.

Because we know that the technology isn’t all that matters—it’s
what you’re able to do with it. And seeing what you do with our
software and solutions inspires us. This is what drives us ahead.
Its what moves us forward.

We are engineers.

Jinwen Xiao

Director of Engineering, Microcontroller and Wireless Products

Jinwen Xiao directs the development of Silicon Labs’ next-generation, energy-friendly MCUs
and wireless connectivity solutions that will accelerate the promise of the IoT. For nearly a
decade, Jinwen has been a leader in MCU technology innovation at Silicon Labs and holds
15 patents with 6 patents pending. She has a Ph.D. in Electrical Engineering and Computer
Science from the University of California at Berkley.

“While time to market is critical to our industry, innovation is the lifeblood of a technology
company. Designers must have a high sense of urgency in today’s competitive environment
and continue to push boundaries. Innovations that provide superior performance,
significant cost reduction and breakthroughs in bottleneck issues are the goal of successful
engineers everywhere.”

Augustus “Skip” Ashton

Vice President of Software Engineering

Skip Ashton is a driving force behind Silicon Labs’ software solutions for the IoT including
ZigBee, Thread and sub-GHz wireless and MCU driver software and libraries. A nationally
recognized expert in wireless technology, Skip has focused on wireless mesh networking
and ZigBee technology for more than a decade. He is a board member for the ZigBee and
Connected Lighting alliances, and he chairs the ZigBee Technical Committee and Test and
Certification Committee. Skip also serves as Vice President of Technology for the Thread
Group, which is guiding the future of IP-based mesh networking. His team developed the
industry’s first version of Thread protocol for the connected home.

“While some engineers approach the IoT from the ‘I’ or Internet level, we tackle IoT
challenges at the “T” level—creating “things” that connect seamlessly to the Internet.
IoT devices are amazingly complex under the cover, but they must masquerade to
consumers as very simple devices, and they must operate simply and flawlessly. The
key to this simplicity is software.”

Scott Caudle

Manager, Corporate Product and Test Engineering

Scott leads a team of operations engineers who are dedicated to delivering our products
at the highest quality and the lowest cost. He and his team designed test equipment and
best practices using Silicon Labs’ own technology to produce products to the exacting
standards that our customers expect. Scott joined Silicon Labs in 2003 as a software
engineer, before transitioning to test engineering and also spent two years mentoring
our engineers in Singapore.

“The IoT doesn’t just connect things; it gives us more ways of using
things to connect humans. A more connected human world accelerates
innovation, collaboration, and cultural understanding. I’m passionate
about discovering simple, elegant, and efficient solutions to complex
problems. This is truly a golden age for engineering.”

We make it
look easy.

Mathematics and passion. Physics and
inspiration. Power and efficiency.

There was a time when all you needed was an idea and a workbench
in the garage. While the Internet of Things (IoT) has created
unprecedented opportunity, It has also introduced much greater
technical challenges making the barriers to entry higher. We know
what engineers and designers are up against.

Existing at the intersection of science and creativity—we thrive
in solving the toughest engineering challenges. Our products
are designed by some of the world’s best engineers—not by a
marketing department.

With a proven track record of deep mixed-signal integration, we
combine MCU, wireless and CMOS to create the highest performing
low-power solutions available. The resulting longer battery life and
increased functionality enable entirely new categories of devices
to be realized.

This ability to deliver highly-integrated SoC solutions will continue
to be our key differentiator. We build the silicon, software and tools
that are the foundation of the Internet of Things.

We are innovators.

Biometric Sensors

Thread Mesh Network Software

Multiprotocol Wireless Technology

Our newest optical sensors are the industry’s
first single-chip digital ultraviolet index
sensor ICs designed to track UV sun
exposure, heart rate and blood oximetry.
This unprecedented mix of functionality
makes these sensors ideal for UV index
and biometric sensing applications used
in fitness trackers, smart watches and
smartphone handsets.

As a founding member of the Thread
Group, Silicon Labs is spearheading the
development of Thread software for IP-
based mesh networks in smart homes.
Silicon Labs is the first to develop a Thread
software stack, up and running on Silicon
Labs’ wireless MCUs at key customers.

Our EZRadioPRO® ICs offer a versatile
multiprotocol wireless connectivity platform
for an array of IoT applications. Operable on
a single coin-cell battery, our latest radios
offer the highest levels of RF performance
and single-chip integration in the sub-GHz
wireless IC market.

This is where it all
comes together.

We are delivering the building blocks
that power the IoT.

Modern system solutions need to increasingly draw less power.
These system solutions must support high performance, high
bandwidth networks, and they have to be able to capture more
data about their environment, and then communicate that data
across reliable networks.

We are extraordinarily well positioned in the key growth areas of
home automation, security, wearables and smart metering. The
IoT market offers many exciting opportunities as we deliver new
platform solutions that will give us a technology edge over our
competitors, while making the “things” in our lives smart, connected
and energy-friendly.

The future is all about connectivity, and all about the IoT.

We are Silicon Labs.

Compute

Our mixed-signal 8-bit and 32-bit
MCUs enable ultra low power and energy-
friendly smart applications.

Connect

We offer the world’s most integrated,
robust, reliable and designer-friendly
wireless and RF IC solutions.

Sense

Our sensor portfolio streamlines the
development of IoT products by enabling easy
measurement of key environmental factors.

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

(Mark One)

FORM 10-K

(cid:1) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended January 3, 2015

(cid:2) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934
For the transition period from

Commission file number: 000-29823

SILICON LABORATORIES INC.

(Exact name of registrant as specified in its charter)

Delaware
(State or other jurisdiction of
incorporation or organization)

400 West Cesar Chavez, Austin, Texas
(Address of principal executive offices)

74-2793174
(I.R.S. Employer
Identification No.)

78701
(Zip Code)

(512) 416-8500
(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Name of exchange on which registered

Common Stock, $0.0001 par value

The NASDAQ Stock Market LLC

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities

Act. (cid:1) Yes (cid:2) No

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the

Act. (cid:2) Yes (cid:1) No

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. (cid:1) Yes (cid:2) No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, 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). (cid:1) Yes (cid:2) No

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter)

is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. (cid:1)

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 (cid:1)

Smaller reporting company (cid:2)

Non-accelerated filer (cid:2)

Accelerated filer (cid:2)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

(cid:2) Yes (cid:1) No

The aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to

the price at which the common equity was last sold as of the last business day of the registrant’s most recently completed
second fiscal quarter (June 27, 2014) was $1,981,015,271 (assuming, for this purpose, that only directors and officers are deemed
affiliates).

There were 42,137,503 shares of the registrant’s common stock issued and outstanding as of January 27, 2015.

Portions of the Proxy Statement for the registrant’s 2014 Annual Meeting of Stockholders are incorporated by reference

into Part III of this Form 10-K.

DOCUMENTS INCORPORATED BY REFERENCE

Table of Contents

Part I

Part II

Part III

Part IV

Item 1.
Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 1A. Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 1B. Unresolved Staff Comments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 2.
Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 3.
Mine Safety Disclosures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 4.

Item 5.

Market for Registrant’s Common Equity, Related Stockholder Matters

Item 6.
Item 7.

and Issuer Purchases of Equity Securities . . . . . . . . . . . . . . . . . . . . .
Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Management’s Discussion and Analysis of Financial Condition and

Results of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 7A. Quantitative and Qualitative Disclosures about Market Risk . . . . . . . . .
Financial Statements and Supplementary Data . . . . . . . . . . . . . . . . . . .
Item 8.
Changes in and Disagreements with Accountants on Accounting and
Item 9.

Financial Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 9A. Controls and Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 9B. Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Item 10. Directors, Executive Officers and Corporate Governance . . . . . . . . . . . .
Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 11.
Security Ownership of Certain Beneficial Owners and Management and
Item 12.

Related Stockholder Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Item 13.

Certain Relationships and Related Transactions, and Director

Item 14.

Independence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Principal Accounting Fees and Services . . . . . . . . . . . . . . . . . . . . . . . . .

Item 15.

Exhibits and Financial Statement Schedules . . . . . . . . . . . . . . . . . . . . .

Page
Number

2
12
26
27
27
28

29
31

32
46
46

46
47
47

48
51

51
51

Cautionary Statement

Except for the historical financial information contained herein, the matters discussed in this report on

Form 10-K (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.

Item 1. Business

General

Part I

Silicon Laboratories Inc. designs and develops proprietary, analog-intensive, mixed-signal

integrated circuits (ICs) for a broad range of applications. Mixed-signal ICs are electronic components
that convert real-world analog signals, such as sound and radio waves, into digital signals that electronic
products can process. Therefore, mixed-signal ICs are critical components in products addressing a
variety of markets, including communications, consumer, industrial and automotive.

Our world-class, mixed-signal ICs leverage standard complementary metal oxide semiconductor
(CMOS), a low cost, widely available process technology. This enables smaller, more cost effective and
energy efficient solutions. Our expertise in analog-intensive, mixed-signal IC design in CMOS allows us
to develop new and innovative products that are highly integrated, simplifying our customers’ designs
and improving their time-to-market.

Industry Background

The pervasiveness of connectivity and the explosion in mobile computing is driving semiconductor

consumption. Intelligence is being added to electronic systems to enable remote monitoring, power
efficiency and an improved user experience. This in turn is increasing the demand for bandwidth,
requiring more infrastructure to support higher performance networks. The nearly ubiquitous
availability of Internet access and the increasing intelligence of electronic devices and mobility are
enabling what is called the Internet of Things (IoT), a term that describes the exponential increase in
IP-enabled devices connected to the Internet.

These trends require more and more interaction between the analog world we live in and the

digital world of computing, and therefore require analog-intensive, mixed-signal circuits. Traditional
mixed-signal designs relied upon solutions built with numerous, complex discrete analog and digital
components. While these traditional designs provide the required functionality, they are often
inefficient and inadequate for use in markets where size, cost, power consumption and performance are
increasingly important product differentiators. In order to improve their competitive position,
electronics manufacturers need to reduce the cost and complexity of their systems and enable new
features or functionality to differentiate themselves from their competitors.

Simultaneously, these manufacturers face accelerating time-to-market demands and must be able

to rapidly adapt to evolving industry standards and new technologies. Because analog-intensive, mixed-
signal IC design expertise is difficult to find, these manufacturers increasingly are turning to third
parties, like us, to provide advanced mixed-signal solutions. Mixed-signal design requires specific
expertise and relies on creative, experienced engineers to deliver solutions that optimize speed, power
and performance, despite the noisy digital environment, and within the constraints of standard
manufacturing processes. The development of this design expertise typically requires years of practical
analog design experience under the guidance of a senior engineer, and engineers with the required
level of skill and expertise are in short supply.

Many IC providers lack sufficient analog expertise to develop compelling mixed-signal ICs. As a
result, manufacturers of electronic devices value IC providers that can supply them with mixed-signal
solutions with greater functionality, smaller size and lower power requirements at a reduced cost and
shorter time-to-market.

Products

We provide analog-intensive, mixed-signal solutions for use in a variety of electronic products in a
broad range of applications including portable devices, AM/FM radios and other consumer electronics,
networking equipment, test and measurement equipment, industrial monitoring and control, home
automation and customer premises equipment. Our products integrate complex mixed-signal functions
that are frequently performed by numerous discrete components in competing products into a single
chip or chipset. By doing so, we are able to create products that, when compared to many competing
products:

(cid:127) Require less printed circuit board (PCB) space;

(cid:127) Reduce the use of external components lowering the system cost and simplifying design;

(cid:127) Offer superior performance improving our customers’ end products;

(cid:127) Provide increased reliability and manufacturability, improving customer yields; and/or

(cid:127) Reduce system power requirements enabling smaller form factors and/or longer battery life.

We group our products into the following categories:

(cid:127) Broad-based products, which include our microcontroller (MCU), wireless and sensor products,

timing products (clocks and oscillators), and power and isolation devices;

(cid:127) Broadcast products, which include our broadcast audio and video products; and

(cid:127) Access products, which include our Voice over IP (VoIP) products, embedded modems and our

Power over Ethernet (PoE) devices.

The following table summarizes the diverse product areas and applications for the various ICs that

we have introduced to customers:

Product Areas and Description

Broad-based Products

Microcontrollers

We offer a family of products ideal for embedded systems that
include, 8-bit mixed-signal microcontrollers, 32-bit wireless
MCUs and ultra low-power 32-bit MCUs based on scalable,
ARM(cid:4) Cortex-M0/M3/M4 cores, as well as peripheral devices
such as our EZRadio(cid:4) family of fully integrated, low power
transceivers. These products generally integrate intelligent data
capture, high performance processing, and communication
interfaces in a single system on a chip. This family of products
addresses a variety of end-markets, including the IoT,
automotive, communications, consumer, industrial, medical and
power management markets.

Applications

(cid:127) Connected devices for the IoT
(cid:127) Home automation
(cid:127) Security systems
(cid:127) Smart energy
(cid:127) Automotive sensors and

controls

(cid:127) Medical instrumentation
(cid:127) Electronic test and

measurement equipment
(cid:127) Industrial automation and

control

(cid:127) Consumer electronics
(cid:127) Wearables
(cid:127) Computer peripherals
(cid:127) White goods
(cid:127) Smart metering
(cid:127) Remote controls

Product Areas and Description

Timing Devices

Robust demand for bandwidth is driving the deployment of
next-generation Internet infrastructure equipment to deliver
higher speed, higher performance and more flexible networks.
This transition puts unique requirements on the clocks and
oscillators used to provide timing and synchronization for the
equipment responsible for switching, transporting, processing and
storing network traffic. To meet this need, we provide low jitter,
frequency flexible, easily customizable timing solutions that
simplify design, minimize cost and improve system reliability.
Our high-performance ‘‘clock-tree-on-a-chip’’ family offers highly
integrated single-chip IC solutions for clock synthesis and jitter
attenuation, offering superior jitter performance and frequency
flexibility for high data rate applications.

Power and Isolation Products

Our isolation techniques enable customers to meet safety
standards for isolation and solve difficult electronic noise issues.
Products include multi-channel isolators and isolated drivers that
simplify design, improve reliability, minimize noise emissions,
and reduce system cost.

Sensors

Our sensor products include optical, proximity, ambient light and
relative humidity (RH) / temperature sensors. These devices
leverage our mixed-signal capability to provide high accuracy,
quicker response time and lower power consumption than
competing parts.

Broadcast Products

Video Tuners and Demodulators

Our complete, globally-compliant hybrid TV tuners with analog
TV demodulator in a single CMOS IC leverage our proven
digital low-IF architecture and exceed the performance of
traditional discrete TV tuners, enabling TV makers to deliver
improved picture quality and better reception for both analog
and digital broadcasts. Our small, low power and high
performance digital video demodulators support DVB-T/T2,
DVB-S/S2, and/or DVB-C/C2 in a single chip and are ideal for
equipment receiving digital terrestrial, satellite and/or cable
services.

Applications

(cid:127) Networking equipment
(cid:127) Telecommunications
(cid:127) Optical networking
(cid:127) Wireless base stations and

backhaul

(cid:127) Broadcast video systems
(cid:127) Servers and storage systems
(cid:127) Test and measurement

equipment

(cid:127) HDTV cameras
(cid:127) High-speed data acquisition

(cid:127) Motor control
(cid:127) Solar inverters
(cid:127) Hybrid / Electric automotive

drive trains

(cid:127) Industrial networking
(cid:127) Switch mode power supplies
(cid:127) Isolated analog data

acquisition

(cid:127) Electronic ballasts for lighting

(cid:127) Smart home sensing
(cid:127) Consumer health & fitness

(wearables)

(cid:127) Industrial controls
(cid:127) Toys and consumer electronics
(cid:127) Monitors and lavatory controls

(cid:127) Integrated digital televisions

(iDTV)

(cid:127) Free-to-Air (FtA) or pay-TV

set-top box receivers

(cid:127) PC-TV applications
(cid:127) DVD/HDD personal video

recorders

Product Areas and Description

Broadcast Radio Receivers and Transmitters

Our AM and FM receivers deliver the entire tuner from antenna
input to audio output in a single chip. The broadcast audio
products are based on an innovative digital architecture that
enables significant improvements in performance, which
translates to a better consumer experience, while reducing
system cost and board space for our customers.

Access Products
ProSLIC(cid:4) Subscriber Line Interface Circuits for VoIP

Our ProSLIC provides the analog subscriber line interface on
the source end of the telephone which generates dial tone, busy
tone, caller ID and ring signal. Our offerings are well suited for
the rapidly expanding market for Voice over IP telephony
applications deployed over cable, DSL, optical and wireless fixed
terminal networks.

ISOmodem(cid:4) Embedded Modems

The ISOmodem embedded modems leverage innovative silicon
direct access arrangement (DAA) technology and a digital signal
processor to deliver a globally compliant, compact analog
modem for embedded applications.

Applications

(cid:127) Automotive infotainment

systems

(cid:127) Stand-alone AM/FM radios
(cid:127) Portable audio devices
(cid:127) MP3/digital media players
(cid:127) Navigation/GPS devices
(cid:127) Satellite radios
(cid:127) Home stereos

(cid:127) Voice functionality for cable,

DSL and optical digital
modems and terminal adapters

(cid:127) VoIP residential gateways
(cid:127) Wireless local loop remote

access systems

(cid:127) PBXs

(cid:127) Fax machines and multi-

function printers

(cid:127) Industrial monitoring
(cid:127) Postage meters
(cid:127) Security systems
(cid:127) Remote medical monitoring
(cid:127) Point of sale (POS) terminals

Power over Ethernet

Our Power over Ethernet power source equipment and powered
device ICs offer highly differentiated solutions with a reduced
total bill of materials (BOM) and improved performance and
reliability. Our solutions offer a higher level of integration not
available with competing solutions.

(cid:127) Enterprise networking routers

and switches

(cid:127) Wireless access points (WAP)
(cid:127) VoIP phones
(cid:127) Radio frequency identification

(RFID) tag readers

(cid:127) POS terminals
(cid:127) Security cameras

Revenues during fiscal 2014, 2013 and 2012 were generated predominately by sales of our mixed-

signal products. The following summarizes our revenue by product category (in thousands):

Broad-based . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Broadcast . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Access . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$317,128
204,256
99,320

$281,777
199,837
98,473

$270,098
186,067
107,129

Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$620,704

$580,087

$563,294

Fiscal Year

2014

2013

2012

Customers, Sales and Marketing

We market our products through our direct sales force and through a network of independent
sales representatives and distributors. Direct and distributor customers buy on an individual purchase
order basis, rather than pursuant to long-term agreements.

We consider our customer to be the end customer purchasing either directly from a distributor, a

contract manufacturer or us. An end customer purchasing through a contract manufacturer typically
instructs such contract manufacturer to obtain our products and incorporate such products with other
components for sale by such contract manufacturer to the end customer. Although we actually sell the
products to, and are paid by, the distributors and contract manufacturers, we refer to such end
customer as our customer.

Two of our distributors, Edom Technology and Avnet, represented 20% and 12% of our revenues
during fiscal 2014, respectively. No other distributor accounted for 10% or more of revenues for fiscal
2014.

During fiscal 2014, our ten largest end customers accounted for 36% of our revenues. We had one

customer, Samsung, whose purchases across a variety of product areas represented 12% of our
revenues during this period. Our major customers include Cisco, Garmin, Harman Becker, Huawei, LG
Electronics, Pace, Samsung, Technicolor, Varian Medical Systems and ZTE.

We maintain numerous sales offices in North America, Europe and Asia. Revenue is attributed to

a geographic area based on the shipped-to location. The percentage of our revenues derived from
outside of the United States was 86% in fiscal 2014. For further information regarding our revenues
and long-lived assets by geographic area, see Note 18, Segment Information, to the Consolidated
Financial Statements.

Our direct sales force is comprised of a number of sales professionals who possess varied levels of

responsibility and experience, including directors, country managers, regional sales managers, district
sales managers, strategic account managers, field sales engineers and sales representatives. We also
utilize independent sales representatives and distributors to generate sales of our products. We have
relationships with many independent sales representatives and distributors worldwide whom we have
selected based on their understanding of the mixed-signal IC marketplace and their ability to provide
effective field sales applications support for our products.

Our marketing efforts are targeted at both identified industry leaders and emerging market
participants. Direct marketing activities are supplemented by a focused marketing communications
effort that seeks to raise awareness of our company and products. Our public relations efforts are
focused on leading trade and business publications. Our external website is used to deliver corporate
and product information. We also pursue targeted advertising in key trade publications and we have a
cooperative marketing program that allows our distributors and representatives to promote our
products to their local markets in conjunction with their own advertising activities. Finally, we maintain
a presence at strategic trade shows and industry events. These activities, in combination with direct
sales activities, help drive demand for our products.

Due to the complex and innovative nature of our ICs, we employ experienced applications
engineers who work closely with customers to support the design-win process, and can significantly
accelerate the customer’s time to market. A design-win occurs when a customer has designed our ICs
into its product architecture and ordered product from us. A considerable amount of effort to assist the
customer in incorporating our ICs into its products is typically required prior to any sale. In many
cases, our innovative ICs require significantly different implementations than existing approaches and,
therefore, successful implementations may require extensive communication with potential customers.
The amount of time required to achieve a design-win can vary substantially depending on a customer’s
development cycle, which can be relatively short (such as three months) or very long (such as two

years) based on a wide variety of customer factors. Not all design wins ultimately result in revenue.
However, once a completed design architecture has been implemented and produced in high volumes,
our customers are reluctant to significantly alter their designs due to this extensive design-win process.
We believe this process, coupled with our intellectual property protection, promotes relatively longer
product life cycles for our ICs and high barriers to entry for competitive products, even if such
competing products are offered at lower prices. Our close collaboration with our customers provides us
with knowledge of derivative product ideas or completely new product line offerings that may not
otherwise arise in other new product discussions.

Research and Development

Through our research and development efforts, we leverage experienced analog and mixed-signal

engineering talent and expertise to create new ICs that integrate functions typically performed
inefficiently by multiple discrete components. This integration generally results in lower costs, smaller
die sizes, lower power demands and enhanced price/performance characteristics. We attempt to reuse
successful techniques for integration in new applications where similar benefits can be realized. We
believe that we have attracted many of the best engineers in our industry. We believe that reliable and
precise analog and mixed-signal ICs can only be developed by teams of engineers who have significant
analog experience and are familiar with the intricacies of designing these ICs for commercial volume
production. The development of test methodologies is just one example of a critical activity requiring
experience and know-how to enable the rapid release of a new product for commercial success. We
have accumulated a vast set of trade secrets that allow us to pursue innovative approaches to mixed-
signal problems that are difficult for competitors to duplicate. We highly value our engineering talent
and strive to maintain a very high bar when bringing new recruits to the company.

Research and development expenses were $173.0 million, $157.8 million and $138.0 million in fiscal

2014, 2013 and 2012, respectively.

Technology

Our product development process facilitates the design of highly-innovative, analog-intensive,
mixed-signal ICs. Our engineers’ deep knowledge of existing and emerging standards and performance
requirements helps us to assess the technical feasibility of a particular IC. We target areas where we
can provide compelling product improvements. Once we have solved the primary challenges, our field
application engineers continue to work closely with our customers’ design teams to maintain and
develop an understanding of our customers’ needs, allowing us to formulate derivative products and
refined features.

In providing mixed-signal ICs for our customers, we believe our key competitive advantages are:

(cid:127) Analog and RF design expertise in CMOS;

(cid:127) Digital signal processing, firmware and system design expertise;

(cid:127) Microcontroller and system on a chip design expertise;

(cid:127) Software expertise; and

(cid:127) Our broad understanding of systems technology and trends.

To fully capitalize on these advantages, we have assembled a world-class development team with

exceptional analog and mixed-signal design expertise led by accomplished senior engineers.

Analog and RF Design Expertise in CMOS

We believe that our most significant core competency is world-class analog and RF design
capability. Additionally, we strive to design substantially all of our ICs in standard CMOS processes.
While it is often significantly more difficult to design analog ICs in CMOS, CMOS provides multiple
benefits versus existing alternatives, including significantly reduced cost, reduced technology risk and
greater worldwide foundry capacity. CMOS is the most commonly used process technology for
manufacturing digital ICs and as a result is most likely to be used for the manufacturing of ICs with
finer line geometries. These finer line geometries can enable smaller and faster ICs. By designing our
ICs in CMOS, we enable our products to benefit from this trend towards finer line geometries, which
allows us to integrate more digital functionality into our mixed-signal ICs.

Designing analog and mixed-signal ICs is significantly more complicated than designing stand alone

digital ICs. While advanced software tools exist to help automate digital IC design, there are far fewer
tools for advanced analog and mixed-signal IC design. In many cases, our analog circuit design efforts
begin at the fundamental transistor level. We believe that we have a demonstrated ability to design the
most difficult analog and RF circuits using standard CMOS technologies.

Digital Signal Processing, Firmware and System Design Expertise

We consider the partitioning of a circuit to be a proprietary and creative design technique. Deep

systems knowledge allows us to use our digital signal processing (DSP) design expertise to maximize
the price/performance characteristics of both the analog and digital functions and allow our ICs to work
in an optimized manner to accomplish particular tasks. Generally, we attempt to move analog functions
into the digital domain as quickly as possible, creating system efficiencies without compromising
performance. These patented approaches require our advanced DSP and systems expertise. We then
leverage our firmware know-how to change the ‘personality’ of our devices, optimizing features and
functions needed by various markets we serve. For example, our broadcast audio products use a proven
digital low-IF receiver and transmitter architecture to deliver superior RF performance and
interference rejection compared to traditional, analog-only approaches. Digital signal processing is
utilized to optimize sound quality under varying signal conditions, enabling a better consumer
experience. Firmware has enabled us to rapidly expand the portfolio to address multiple markets
without substantial silicon changes, including shortwave, longwave, analog tuned, digital tuned and even
high performance HD-capable automotive radios.

Microcontroller and System on a Chip Design Expertise

We have the talent and circuit integration methodologies required to combine precision analog,

high-speed digital, flash memory and in-system programmability into a single, monolithic CMOS
integrated circuit. Our microcontroller products are designed to capture an external analog signal,
convert it to a digital signal, compute digital functions on the stream of data and then communicate the
results through a standard digital interface. The ability to develop standard products with the broadest
possible customer application base while being cost efficient with the silicon area of the monolithic
CMOS integrated circuit requires a keen sense of customer value and engineering capabilities.
Additionally, to manage the wide variety of signals on a monolithic piece of silicon including electrical
noise, harmonics and other electronic distortions requires a fundamental knowledge of device physics
and accumulated design expertise.

Software Expertise

Our software expertise allows us to develop products for markets where intelligent data capture,
high-performance processing and communication are increasingly important product differentiators. The
software we have developed to address these markets enable machine-to-machine communications,

providing intelligence to electronic systems. Our products integrate high-performance, low-power
wireless and microcontroller ICs with reliable and scalable software into a flexible and robust
networking platform.

The demand for low-power, small-footprint wireless technology is accelerating as more and more

IP-enabled end points are being connected to the Internet of Things (IoT). Our software enables a
broad range of power-sensitive applications for the IoT, including smart energy, home automation,
security and other connected products. We believe that the combination of our software and IC design
expertise differentiates us from many of our competitors.

Understanding of Systems Technology and Trends

Our focused expertise in mixed-signal ICs is the result of the breadth of engineering talent we

have assembled with experience working in analog-intensive CMOS design for a wide variety of
applications. This expertise, which we consider a competitive advantage, is the foundation of our
in-depth understanding of the technology and trends that impact electronic systems and markets. Our
expertise includes:

(cid:127) Isolation, which is critical for existing and emerging industrial applications and telecom

networks;

(cid:127) Frequency synthesis, which is core technology for wireless and clocking applications;

(cid:127) Integration, which enables the elimination of discrete components in a system; and

(cid:127) Signal processing and precision analog, which forms the heart of consumer, industrial, medical

and automotive electronics applications.

Our understanding of the role of analog/digital interfaces within electronic systems, standards

evolution, and end market drivers enables us to identify product development opportunities and
capitalize on market trends.

Manufacturing

As a fabless semiconductor company, we conduct IC design and development in our facilities and
electronically transfer our proprietary IC designs to third-party semiconductor fabricators who process
silicon wafers to produce the ICs that we design. Our IC designs typically use industry-standard CMOS
manufacturing process technology to achieve a level of performance normally associated with more
expensive special-purpose IC fabrication technology. We believe the use of CMOS technology facilitates
the rapid production of our ICs within a lower cost framework. Our IC production employs submicron
process geometries which are readily available from leading foundry suppliers worldwide, thus
increasing the likelihood that manufacturing capacity will be available throughout our products’ life
cycles. We currently partner with Taiwan Semiconductor Manufacturing Co. (TSMC) or TSMC’s
affiliates and Semiconductor Manufacturing International Corporation (SMIC) to manufacture the
majority of our semiconductor wafers. We believe that our fabless manufacturing model significantly
reduces our capital requirements and allows us to focus our resources on design, development and
marketing of our ICs.

Once the silicon wafers have been produced, they are shipped directly to our third-party assembly

subcontractors. The assembled ICs are then moved to the final testing stage. This operation can be
performed by the same contractor that assembled the IC, other third-party test subcontractors or within
our internal facilities prior to shipping to our customers. During fiscal 2014, most of our units shipped
were tested by offshore third-party test subcontractors. We expect that our utilization of offshore third-
party test subcontractors will remain substantial during fiscal 2015.

Backlog

As of January 3, 2015, our backlog was approximately $122.4 million, compared to approximately

$109.9 million as of December 28, 2013. We include in backlog accepted product purchase orders from
customers and worldwide distributor stocking orders. We only include orders with an expected shipping
date from us within six months. Product orders in our backlog are subject to changes in delivery
schedules or cancellation at the option of the purchaser typically without penalty. Our backlog may
fluctuate significantly depending upon customer order patterns which may, in turn, vary considerably
based on rapidly changing business circumstances. Shipments to distributors are not recognized as
revenue until the products are sold by the distributors. Additionally, our arrangements with distributors
typically provide for price protection and stock rotation activities. Accordingly, we do not believe that
our backlog at any time is necessarily representative of actual sales for any succeeding period.

Competition

The markets for semiconductors generally, and for analog and mixed-signal ICs in particular, are
intensely competitive. We anticipate that the market for our products will continually evolve and will be
subject to rapid technological change. We believe the principal competitive factors in our industry are:

(cid:127) Product size;
(cid:127) Level of integration;
(cid:127) Product capabilities;
(cid:127) Reliability;
(cid:127) Price;
(cid:127) Performance;

(cid:127) Power requirement;
(cid:127) Customer support;
(cid:127) Reputation;
(cid:127) Ability to rapidly introduce new products to market;
(cid:127) Intellectual property; and
(cid:127) Software.

We believe that we are competitive with respect to these factors, particularly because our ICs
typically are smaller in size, are highly integrated, achieve high performance specifications at lower
price points than competitive products and are manufactured in standard CMOS which generally
enables us to supply them on a relatively rapid basis to customers to meet their product introduction
schedules. However, disadvantages we face include our relatively short operating history in certain of
our markets and the need for customers to redesign their products and modify their software to
implement our ICs in their products.

Due to our diversified product portfolio and the numerous markets and applications we serve, we

target a relatively large number of competitors. We compete with Analog Devices, Atmel, Conexant,
Cypress, Epson, Freescale, IDT, Laird, Lantiq, Marvell Technology Group, Maxim Integrated Products,
MaxLinear, Microchip, Microsemi, NXP Semiconductors, Renesas, STMicroelectronics, Texas
Instruments, Vectron International and others. We expect to face competition in the future from our
current competitors, other manufacturers and designers of semiconductors and start-up semiconductor
design companies. Our competitors may also offer bundled solutions offering a more complete product,
which may negatively impact our competitive position despite the technical merits or advantages of our
products. In addition, our customers could develop products or technologies internally that would
replace their need for our products and would become a source of competition. We could also face
competition from module makers or other systems suppliers that may include mixed-signal components
in their products that could eliminate the need for our ICs.

Many of our competitors and potential competitors have longer operating histories, greater name

recognition, access to larger customer bases, complementary product offerings, and significantly greater
financial, sales and marketing, manufacturing, distribution, technical and other resources than us.
Current and potential competitors have established or may establish financial and strategic relationships
between themselves or with our existing or potential customers, resellers or other third parties.
Accordingly, it is possible that new competitors or alliances among competitors could emerge and
rapidly acquire significant market share.

Intellectual Property

Our future success depends in part upon our proprietary technology. We seek to protect our
technology through a combination of patents, copyrights, trade secrets, trademarks and confidentiality
procedures. As of January 3, 2015, we had approximately 1,484 issued or pending United States patents
in the IC field. We also frequently file for patent protection in a variety of international jurisdictions
with respect to the proprietary technology covered by our U.S. patents and patent applications. There
can be no assurance that patents will ever be issued with respect to these applications. Furthermore, it
is possible that any patents held by us may be invalidated, circumvented, challenged or licensed to
others. In addition, there can be no assurance that such patents will provide us with competitive
advantages or adequately safeguard our proprietary rights. While we continue to file new patent
applications with respect to our recent developments, existing patents are granted for prescribed time
periods and will expire at various times in the future.

We claim copyright protection for proprietary documentation for our products. We have filed for

registration, or are in the process of filing for registration, the visual images of certain ICs with the
U.S. Copyright Office. We have registered the ‘‘Silicon Labs’’ logo and a variety of other product and
product family names as trademarks in the United States and selected foreign jurisdictions. All other
trademarks, service marks or trade names appearing in this report are the property of their respective
owners. We also attempt to protect our trade secrets and other proprietary information through
agreements with our customers, suppliers, employees and consultants, and through other customary
security measures. We intend to protect our rights vigorously, but there can be no assurance that our
efforts will be successful. In addition, the laws of other countries in which our products are sold may
not protect our products and intellectual property rights to the same extent as the laws of the United
States.

While our ability to effectively compete depends in large part on our ability to protect our

intellectual property, we believe that our technical expertise and ability to introduce new products in a
timely manner will be an important factor in maintaining our competitive position.

Many participants in the semiconductor and electronics industries have a significant number of

patents and have frequently demonstrated a readiness to commence litigation based on allegations of
patent and other intellectual property infringement. From time to time, third parties may assert
infringement claims against us. We may not prevail in any such litigation or may not be able to license
any valid and infringed patents from third parties on commercially reasonable terms, if at all.
Litigation, regardless of the outcome, is likely to result in substantial cost and diversion of our
resources, including our management’s time. Any such litigation could materially adversely affect us.

Our licenses include industry standard licenses with our vendors, such as wafer fabrication tool

libraries, third-party core libraries, computer-aided design applications and business software
applications.

Employees

As of January 3, 2015, we employed 1,107 people. Our success depends on the continued service of

our key technical and senior management personnel and on our ability to continue to attract, retain
and motivate highly skilled analog and mixed-signal engineers. The competition for such personnel is
intense. We have never had a work stoppage and none of our U.S. employees are represented by a
labor organization. We consider our employee relations to be good.

Environmental Regulation

Federal, state and local regulations impose various environmental controls on the storage, use,

discharge and disposal of certain chemicals and gases used in the semiconductor industry. Our
compliance with these laws and regulations has not had a material impact on our financial position or
results of operations.

Available Information

Our website address is www.silabs.com. Our annual report on Form 10-K, quarterly reports on
Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant
to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 are available through the investor
relations page of our website free of charge as soon as reasonably practicable after we electronically file
such material with, or furnish it to, the Securities and Exchange Commission (SEC). Our website and
the information contained therein or connected thereto are not intended to be incorporated into this
Annual Report on Form 10-K.

Item 1A. Risk Factors

Risks Related to our Business

We may not be able to maintain our historical growth and may experience significant period-to-period
fluctuations in our revenues and operating results, which may result in volatility in our stock price

Although we have generally experienced revenue growth in our history, we may not be able to

sustain this growth. We may also experience significant period-to-period fluctuations in our revenues
and operating results in the future due to a number of factors, and any such variations may cause our
stock price to fluctuate. In some future period our revenues or operating results may be below the
expectations of public market analysts or investors. If this occurs, our stock price may drop, perhaps
significantly.

A number of factors, in addition to those cited in other risk factors applicable to our business, may

contribute to fluctuations in our revenues and operating results, including:

(cid:127) The timing and volume of orders received from our customers;

(cid:127) The timeliness of our new product introductions and the rate at which our new products may

cannibalize our older products;

(cid:127) The rate of acceptance of our products by our customers, including the acceptance of new

products we may develop for integration in the products manufactured by such customers, which
we refer to as ‘‘design wins’’;

(cid:127) The time lag and realization rate between ‘‘design wins’’ and production orders;

(cid:127) The demand for, and life cycles of, the products incorporating our ICs;

(cid:127) The rate of adoption of mixed-signal ICs in the markets we target;

(cid:127) Deferrals or reductions of customer orders in anticipation of new products or product

enhancements from us or our competitors or other providers of ICs;

(cid:127) Changes in product mix;

(cid:127) The average selling prices for our products could drop suddenly due to competitive offerings or

competitive predatory pricing;

(cid:127) The average selling prices for our products generally decline over time;

(cid:127) Changes in market standards;

(cid:127) Impairment charges related to inventory, equipment or other long-lived assets;

(cid:127) The software used in our products, including software provided by third parties, may not meet

the needs of our customers;

(cid:127) Significant legal costs to defend our intellectual property rights or respond to claims against us;

and

(cid:127) The rate at which new markets emerge for products we are currently developing or for which

our design expertise can be utilized to develop products for these new markets.

The markets for consumer electronics, for example, are characterized by rapid fluctuations in
demand and seasonality that result in corresponding fluctuations in the demand for our products that
are incorporated in such devices. Additionally, the rate of technology acceptance by our customers
results in fluctuating demand for our products as customers are reluctant to incorporate a new IC into
their products until the new IC has achieved market acceptance. Once a new IC achieves market
acceptance, demand for the new IC can quickly accelerate to a point and then level off such that rapid
historical growth in sales of a product should not be viewed as indicative of continued future growth. In
addition, demand can quickly decline for a product when a new IC product is introduced and receives
market acceptance. Due to the various factors mentioned above, the results of any prior quarterly or
annual periods should not be relied upon as an indication of our future operating performance.

If we are unable to develop or acquire new and enhanced products that achieve market acceptance in a timely
manner, our operating results and competitive position could be harmed

Our future success will depend on our ability to develop or acquire new ICs and product

enhancements that achieve market acceptance in a timely and cost-effective manner. The development
of mixed-signal ICs is highly complex, and we have at times experienced delays in completing the
development and introduction of new products and product enhancements. Successful product
development and market acceptance of our products depend on a number of factors, including:

(cid:127) Requirements of customers;

(cid:127) Accurate prediction of market and technical requirements;

(cid:127) Timely completion and introduction of new designs;

(cid:127) Timely qualification and certification of our ICs for use in our customers’ products;

(cid:127) Commercial acceptance and volume production of the products into which our ICs will be

incorporated;

(cid:127) Availability of foundry, assembly and test capacity;

(cid:127) Achievement of high manufacturing yields;

(cid:127) Quality, price, performance, power use and size of our products;

(cid:127) Availability, quality, price and performance of competing products and technologies;

(cid:127) Our customer service, application support capabilities and responsiveness;

(cid:127) Successful development of our relationships with existing and potential customers;

(cid:127) Technology, industry standards or end-user preferences; and

(cid:127) Cooperation of third-party software providers and our semiconductor vendors to support our

chips within a system.

We cannot provide any assurance that products which we recently have developed or may develop
in the future will achieve market acceptance. We have introduced to market or are in development of
many ICs. If our ICs fail to achieve market acceptance, or if we fail to develop new products on a
timely basis that achieve market acceptance, our growth prospects, operating results and competitive
position could be adversely affected. The growth of the Internet of Things (IoT) market is dependent

on the adoption of industry standards to permit devices to connect and communicate with each other.
If the industry cannot agree on a common set of standards, then the growth of the IoT market may be
slower than expected.

Our research and development efforts are focused on a limited number of new technologies and products, and
any delay in the development, or abandonment, of these technologies or products by industry participants, or
their failure to achieve market acceptance, could compromise our competitive position

Our ICs are used as components in electronic devices in various markets. As a result, we have

devoted and expect to continue to devote a large amount of resources to develop products based on
new and emerging technologies and standards that will be commercially introduced in the future.
Research and development expense during fiscal 2014 was $173.0 million, or 27.9% of revenues. A
number of large companies are actively involved in the development of these new technologies and
standards. Should any of these companies delay or abandon their efforts to develop commercially
available products based on new technologies and standards, our research and development efforts with
respect to these technologies and standards likely would have no appreciable value. In addition, if we
do not correctly anticipate new technologies and standards, or if the products that we develop based on
these new technologies and standards fail to achieve market acceptance, our competitors may be better
able to address market demand than we would. Furthermore, if markets for these new technologies and
standards develop later than we anticipate, or do not develop at all, demand for our products that are
currently in development would suffer, resulting in lower sales of these products than we currently
anticipate.

We depend on a limited number of customers for a substantial portion of our revenues, and the loss of, or a
significant reduction in orders from, any key customer could significantly reduce our revenues

The loss of any of our key customers, or a significant reduction in sales to any one of them, would

significantly reduce our revenues and adversely affect our business. During fiscal 2014, our ten largest
customers accounted for 36% of our revenues. Some of the markets for our products are dominated by
a small number of potential customers. Therefore, our operating results in the foreseeable future will
continue to depend on our ability to sell to these dominant customers, as well as the ability of these
customers to sell products that incorporate our IC products. In the future, these customers may decide
not to purchase our ICs at all, purchase fewer ICs than they did in the past or alter their purchasing
patterns, particularly because:

(cid:127) We do not have material long-term purchase contracts with our customers;

(cid:127) Substantially all of our sales to date have been made on a purchase order basis, which permits

our customers to cancel, change or delay product purchase commitments with little or no notice
to us and without penalty;

(cid:127) Some of our customers may have efforts underway to actively diversify their vendor base which

could reduce purchases of our ICs; and

(cid:127) Some of our customers have developed or acquired products that compete directly with products
these customers purchase from us, which could affect our customers’ purchasing decisions in the
future.

While we have been a significant supplier of ICs used in many of our customers’ products, our

customers regularly evaluate alternative sources of supply in order to diversify their supplier base,
which increases their negotiating leverage with us and protects their ability to secure these components.
We believe that any expansion of our customers’ supplier bases could have an adverse effect on the
prices we are able to charge and volume of product that we are able to sell to our customers, which
would negatively affect our revenues and operating results.

Significant litigation over intellectual property in our industry may cause us to become involved in costly and
lengthy litigation which could seriously harm our business

In recent years, there has been significant litigation in the United States involving patents and

other intellectual property rights. From time to time, we receive letters from various industry
participants alleging infringement of patents, trademarks or misappropriation of trade secrets or from
customers or suppliers requesting indemnification for claims brought against them by third parties. The
exploratory nature of these inquiries has become relatively common in the semiconductor industry. We
respond when we deem appropriate and as advised by legal counsel. We have been involved in
litigation to protect our intellectual property rights in the past and may become involved in such
litigation again in the future. We are currently involved in litigation with Cresta Technology in which we
and certain of our customers have been accused of patent infringement related to our television tuner
products. In the future, we may become involved in additional litigation to defend allegations of
infringement asserted by others, both directly and indirectly as a result of certain industry-standard
indemnities we may offer to our customers or suppliers. Legal proceedings could subject us to
significant liability for damages or invalidate our proprietary rights. Legal proceedings initiated by us to
protect our intellectual property rights could also result in counterclaims or countersuits against us. Any
litigation, regardless of its outcome, would likely be time-consuming and expensive to resolve and
would divert our management’s time and attention. Intellectual property litigation also could force us
to take specific actions, including:

(cid:127) Cease selling or manufacturing products that use the challenged intellectual property;

(cid:127) Obtain from the owner of the infringed intellectual property a right to a license to sell or use
the relevant technology, which license may not be available on reasonable terms, or at all;

(cid:127) Redesign those products that use infringing intellectual property; or

(cid:127) Pursue legal remedies with third parties to enforce our indemnification rights, which may not

adequately protect our interests.

Any acquisitions we make could disrupt our business and harm our financial condition

As part of our growth and product diversification strategy, we continue to evaluate opportunities
to acquire other businesses, intellectual property or technologies that would complement our current
offerings, expand the breadth of our markets or enhance our technical capabilities. The acquisitions
that we have made and may make in the future entail a number of risks that could materially and
adversely affect our business and operating results, including:

(cid:127) Problems integrating the acquired operations, technologies or products with our existing business

and products;

(cid:127) Diversion of management’s time and attention from our core business;

(cid:127) Need for financial resources above our planned investment levels;

(cid:127) Difficulties in retaining business relationships with suppliers and customers of the acquired

company;

(cid:127) Risks associated with entering markets in which we lack prior experience;

(cid:127) Risks associated with the transfer of licenses of intellectual property;

(cid:127) Increased operating costs due to acquired overhead;

(cid:127) Tax issues associated with acquisitions;

(cid:127) Acquisition-related disputes, including disputes over earn-outs and escrows;

(cid:127) Potential loss of key employees of the acquired company; and

(cid:127) Potential impairment of related goodwill and intangible assets.

In contrast to the ICs that we have historically developed, our acquisition of Bluegiga will entail

additional efforts to develop modules, which are products that incorporate ICs as well as additional
software. We have limited experience with developing modules. Modules tend to have higher average
selling prices but lower overall gross margins than ICs. Bluegiga’s modules currently incorporate
products from some of our competitors. Any disruption in supply of those products would adversely
affect our business.

Future acquisitions also could cause us to incur debt or contingent liabilities or cause us to issue

equity securities that could negatively impact the ownership percentages of existing shareholders.

We may be unable to protect our intellectual property, which would negatively affect our ability to compete

Our products rely on our proprietary technology, and we expect that future technological advances
made by us will be critical to sustain market acceptance of our products. Therefore, we believe that the
protection of our intellectual property rights is and will continue to be important to the success of our
business. We rely on a combination of patent, copyright, trademark and trade secret laws and
restrictions on disclosure to protect our intellectual property rights. We also enter into confidentiality or
license agreements with our employees, consultants, intellectual property providers and business
partners, and control access to and distribution of our documentation and other proprietary
information. Despite these efforts, unauthorized parties may attempt to copy or otherwise obtain and
use our proprietary technology. Monitoring unauthorized use of our technology is difficult, and we
cannot be certain that the steps we have taken will prevent unauthorized use of our technology,
particularly in foreign countries where the laws may not protect our proprietary rights as fully as in the
United States. We cannot be certain that patents will be issued as a result of our pending applications
nor can we be certain that any issued patents would protect or benefit us or give us adequate
protection from competing products. For example, issued patents may be circumvented or challenged
and declared invalid or unenforceable. We also cannot be certain that others will not develop effective
competing technologies on their own.

Failure to manage our distribution channel relationships could impede our future growth

The future growth of our business will depend in large part on our ability to manage our

relationships with current and future distributors and sales representatives, develop additional channels
for the distribution and sale of our products and manage these relationships. During fiscal 2014, 62%
of our revenue was derived from distributors. As we execute our indirect sales strategy, we must
manage the potential conflicts that may arise with our direct sales efforts. For example, conflicts with a
distributor may arise when a customer begins purchasing directly from us rather than through the
distributor. The inability to successfully execute or manage a multi-channel sales strategy could impede
our future growth. In addition, relationships with our distributors often involve the use of price
protection and inventory return rights. This often requires a significant amount of sales management’s
time and system resources to manage properly.

We are subject to increased inventory risks and costs because we build our products based on forecasts
provided by customers before receiving purchase orders for the products

In order to ensure availability of our products for some of our largest customers, we start the
manufacturing of our products in advance of receiving purchase orders based on forecasts provided by
these customers. However, these forecasts do not represent binding purchase commitments and we do
not recognize sales for these products until they are shipped to the customer. As a result, we incur
inventory and manufacturing costs in advance of anticipated sales. Because demand for our products

may not materialize, manufacturing based on forecasts subjects us to increased risks of high inventory
carrying costs, increased obsolescence and increased operating costs. These inventory risks are
exacerbated when our customers purchase indirectly through contract manufacturers or hold
component inventory levels greater than their consumption rate because this causes us to have less
visibility regarding the accumulated levels of inventory for such customers. A resulting write-off of
unusable or excess inventories would adversely affect our operating results.

Our products are complex and may contain errors which could lead to product liability, an increase in our
costs and/or a reduction in our revenues

Our products are complex and may contain errors, particularly when first introduced or as new
versions are released. Our new products are increasingly being designed in more complex processes
which further increases the risk of errors. We rely primarily on our in-house testing personnel to design
test operations and procedures to detect any errors prior to delivery of our products to our customers.
Because our products are manufactured by third parties, should problems occur in the operation or
performance of our ICs, we may experience delays in meeting key introduction dates or scheduled
delivery dates to our customers. These errors also could cause us to incur significant re-engineering
costs, divert the attention of our engineering personnel from our product development efforts and
cause significant customer relations and business reputation problems. Any defects could require
product replacement or recall or we could be obligated to accept product returns. Any of the foregoing
could impose substantial costs and harm our business.

Product liability claims may be asserted with respect to our products. Our products are typically

sold at prices that are significantly lower than the cost of the end-products into which they are
incorporated. A defect or failure in our product could cause failure in our customer’s end-product, so
we could face claims for damages that are disproportionately higher than the revenues and profits we
receive from the products involved. Furthermore, product liability risks are particularly significant with
respect to medical and automotive applications because of the risk of serious harm to users of these
products. There can be no assurance that any insurance we maintain will sufficiently protect us from
any such claims.

We rely on third parties to manufacture, assemble and test our products and the failure to successfully manage
our relationships with our manufacturers and subcontractors would negatively impact our ability to sell our
products

We do not have our own wafer fab manufacturing facilities. Therefore, we rely on third-party

vendors to manufacture the ICs we design. We also currently rely on Asian third-party assembly
subcontractors to assemble and package the silicon chips provided by the wafers for use in final
products. Additionally, we rely on these offshore subcontractors for a substantial portion of the testing
requirements of our products prior to shipping. We expect utilization of third-party subcontractors to
continue in the future.

The cyclical nature of the semiconductor industry drives wide fluctuations in available capacity at
third-party vendors. On occasion, we have been unable to adequately respond to unexpected increases
in customer demand due to capacity constraints and, therefore, were unable to benefit from this
incremental demand. We may be unable to obtain adequate foundry, assembly or test capacity from our
third-party subcontractors to meet our customers’ delivery requirements even if we adequately forecast
customer demand.

There are significant risks associated with relying on these third-party foundries and

subcontractors, including:

(cid:127) Failure by us, our customers or their end customers to qualify a selected supplier;

(cid:127) Potential insolvency of the third-party subcontractors;

(cid:127) Reduced control over delivery schedules and quality;

(cid:127) Limited warranties on wafers or products supplied to us;

(cid:127) Potential increases in prices or payments in advance for capacity;

(cid:127) Increased need for international-based supply, logistics and financial management;

(cid:127) Their inability to supply or support new or changing packaging technologies; and

(cid:127) Low test yields.

We typically do not have long-term supply contracts with our third-party vendors which obligate
the vendor to perform services and supply products to us for a specific period, in specific quantities,
and at specific prices. Our third-party foundry, assembly and test subcontractors typically do not
guarantee that adequate capacity will be available to us within the time required to meet demand for
our products. In the event that these vendors fail to meet our demand for whatever reason, we expect
that it would take up to 12 months to transition performance of these services to new providers. Such a
transition may also require qualification of the new providers by our customers or their end customers.

Most of the silicon wafers for the products that we sold during fiscal 2014 were manufactured
either by Taiwan Semiconductor Manufacturing Co. (TSMC) or TSMC’s affiliates or by Semiconductor
Manufacturing International Corporation (SMIC). Our customers typically complete their own
qualification process. If we fail to properly balance customer demand across the existing semiconductor
fabrication facilities that we utilize or are required by our foundry partners to increase, or otherwise
change the number of fab lines that we utilize for our production, we might not be able to fulfill
demand for our products and may need to divert our engineering resources away from new product
development initiatives to support the fab line transition, which would adversely affect our operating
results.

We monitor the financial condition of our third-party foundries and subcontractor partners. In
August 2014, we received notice that Telefunken Semiconductors GmbH & Co (TSG), a wafer supplier
for our high-voltage products, had filed an insolvency proceeding in Germany. Currently, the operations
of TSG are being managed by a trustee appointed by the local court of Heilbronn, Germany.

It is unclear whether TSG will emerge from its insolvency as an ongoing business. We have
negotiated with the trustee to purchase a limited number of wafers from TSG through the end of the
first quarter of 2015 in an attempt to mitigate the impact of TSG’s insolvency on our customers. In
addition, we have expedited our previously-planned transition of the manufacturing of certain
high-voltage products to another of our foundry partners, Vanguard International Semiconductor
Corporation. If there is a disruption in the supply of wafers or if our customers or their end-customers
take longer than expected to qualify our replacement products, we may experience a short term decline
in revenue or a longer term decline in revenue if our customers shift their demand to alternative
suppliers. Either of these conditions would adversely affect our operating results.

Our customers require our products to undergo a lengthy and expensive qualification process without any
assurance of product sales

Prior to purchasing our products, our customers require that our products undergo an extensive
qualification process, which involves testing of the products in the customer’s system as well as rigorous
reliability testing. This qualification process may continue for six months or longer. However,
qualification of a product by a customer does not ensure any sales of the product to that customer.
Even after successful qualification and sales of a product to a customer, a subsequent revision to the IC
or software, changes in the IC’s manufacturing process or the selection of a new supplier by us may

require a new qualification process, which may result in delays and in us holding excess or obsolete
inventory. After our products are qualified, it can take an additional six months or more before the
customer commences volume production of components or devices that incorporate our products.
Despite these uncertainties, we devote substantial resources, including design, engineering, sales,
marketing and management efforts, toward qualifying our products with customers in anticipation of
sales. If we are unsuccessful or delayed in qualifying any of our products with a customer, such failure
or delay would preclude or delay sales of such product to the customer, which may impede our growth
and cause our business to suffer.

We have substantial international activities, which subjects us to additional business risks including logistical
and financial complexity, political instability and currency fluctuations

We have established international subsidiaries and have opened offices in international markets to

support our activities in Europe and Asia. This has included the establishment of a headquarters in
Singapore for non-U.S. operations. The percentage of our revenues derived from outside of the United
States was 86% during fiscal 2014. We may not be able to maintain or increase international market
demand for our products. Our international operations are subject to a number of risks, including:

(cid:127) Complexity and costs of managing international operations and related tax obligations, including

our headquarters for non-U.S. operations in Singapore;

(cid:127) Protectionist laws and business practices that favor local competition in some countries;

(cid:127) Difficulties related to the protection of our intellectual property rights in some countries;

(cid:127) Multiple, conflicting and changing tax and other laws and regulations that may impact both our
international and domestic tax and other liabilities and result in increased complexity and costs;

(cid:127) Longer sales cycles;

(cid:127) Greater difficulty in accounts receivable collection and longer collection periods;

(cid:127) High levels of distributor inventory subject to price protection and rights of return to us;

(cid:127) Political and economic instability;

(cid:127) Greater difficulty in hiring and retaining qualified technical sales and applications engineers and

administrative personnel; and

(cid:127) The need to have business and operations systems that can meet the needs of our international

business and operating structure.

To date, all of our sales to international customers and purchases of components from

international suppliers have been denominated in U.S. dollars. As a result, an increase in the value of
the U.S. dollar relative to foreign currencies could make our products more expensive for our
international customers to purchase, thus rendering our products less competitive. Similarly, a decrease
in the value of the U.S. dollar could reduce our buying power with respect to international suppliers.

Our products incorporate technology licensed from third parties

We incorporate technology (including software) licensed from third parties in our products. We
could be subjected to claims of infringement regardless of our lack of involvement in the development
of the licensed technology. Although a third-party licensor is typically obligated to indemnify us if the
licensed technology infringes on another party’s intellectual property rights, such indemnification is
typically limited in amount and may be worthless if the licensor becomes insolvent. See Significant
litigation over intellectual property in our industry may cause us to become involved in costly and lengthy
litigation which could seriously harm our business. Furthermore, any failure of third-party technology to
perform properly would adversely affect sales of our products incorporating such technology.

Our inability to manage growth could materially and adversely affect our business

Our past growth has placed, and any future growth of our operations will continue to place, a
significant strain on our management personnel, systems and resources. We anticipate that we will need
to implement a variety of new and upgraded sales, operational and financial enterprise-wide systems,
information technology infrastructure, procedures and controls, including the improvement of our
accounting and other internal management systems to manage this growth and maintain compliance
with regulatory guidelines, including Sarbanes-Oxley Act requirements. To the extent our business
grows, our internal management systems and processes will need to improve to ensure that we remain
in compliance. We also expect that we will need to continue to expand, train, manage and motivate our
workforce. All of these endeavors will require substantial management effort, and we anticipate that we
will require additional management personnel and internal processes to manage these efforts and to
plan for the succession from time to time of certain persons who have been key management and
technical personnel. If we are unable to effectively manage our expanding global operations, including
our international headquarters in Singapore, our business could be materially and adversely affected.

We are subject to risks relating to product concentration

We derive a substantial portion of our revenues from a limited number of products, and we expect

these products to continue to account for a large percentage of our revenues in the near term.
Continued market acceptance of these products, is therefore, critical to our future success. In addition,
substantially all of our products that we have sold include technology related to one or more of our
issued U.S. patents. If these patents are found to be invalid or unenforceable, our competitors could
introduce competitive products that could reduce both the volume and price per unit of our products.
Our business, operating results, financial condition and cash flows could therefore be adversely affected
by:

(cid:127) A decline in demand for any of our more significant products;

(cid:127) Failure of our products to achieve continued market acceptance;

(cid:127) Competitive products;

(cid:127) New technological standards or changes to existing standards that we are unable to address with

our products;

(cid:127) A failure to release new products or enhanced versions of our existing products on a timely

basis; and

(cid:127) The failure of our new products to achieve market acceptance.

We are subject to credit risks related to our accounts receivable

We do not generally obtain letters of credit or other security for payment from customers,
distributors or contract manufacturers. Accordingly, we are not protected against accounts receivable
default or bankruptcy by these entities. Our ten largest customers or distributors represent a substantial
majority of our accounts receivable. If any such customer or distributor, or a material portion of our
smaller customers or distributors, were to become insolvent or otherwise not satisfy their obligations to
us, we could be materially harmed.

We depend on our key personnel to manage our business effectively in a rapidly changing market, and if we
are unable to retain our current personnel and hire additional personnel, our ability to develop and
successfully market our products could be harmed

We believe our future success will depend in large part upon our ability to attract and retain highly

skilled managerial, engineering, sales and marketing personnel. We believe that our future success will

be dependent on retaining the services of our key personnel, developing their successors and certain
internal processes to reduce our reliance on specific individuals, and on properly managing the
transition of key roles when they occur. There is currently a shortage of qualified personnel with
significant experience in the design, development, manufacturing, marketing and sales of analog and
mixed-signal ICs. In particular, there is a shortage of engineers who are familiar with the intricacies of
the design and manufacturability of analog elements, and competition for such personnel is intense.
Our key technical personnel represent a significant asset and serve as the primary source for our
technological and product innovations. We may not be successful in attracting and retaining sufficient
numbers of technical personnel to support our anticipated growth. The loss of any of our key
employees or the inability to attract or retain qualified personnel both in the United States and
internationally, including engineers, sales, applications and marketing personnel, could delay the
development and introduction of, and negatively impact our ability to sell, our products.

Any dispositions could harm our financial condition

Any disposition of a product line would entail a number of risks that could materially and

adversely affect our business and operating results, including:

(cid:127) Diversion of management’s time and attention from our core business;

(cid:127) Difficulties separating the divested business;

(cid:127) Risks to relations with customers who previously purchased products from our disposed product

line;

(cid:127) Reduced leverage with suppliers due to reduced aggregate volume;

(cid:127) Risks related to employee relations;

(cid:127) Risks associated with the transfer and licensing of intellectual property;

(cid:127) Security risks and other liabilities related to the transition services provided in connection with

the disposition;

(cid:127) Tax issues associated with dispositions; and

(cid:127) Disposition-related disputes, including disputes over earn-outs and escrows.

Our stock price may be volatile

The market price of our common stock has been volatile in the past and may be volatile in the
future. The market price of our common stock may be significantly affected by the following factors:

(cid:127) Actual or anticipated fluctuations in our operating results;

(cid:127) Changes in financial estimates by securities analysts or our failure to perform in line with such

estimates;

(cid:127) Changes in market valuations of other technology companies, particularly semiconductor

companies;

(cid:127) Announcements by us or our competitors of significant technical innovations, acquisitions,

strategic partnerships, joint ventures or capital commitments;

(cid:127) Introduction of technologies or product enhancements that reduce the need for our products;

(cid:127) The loss of, or decrease in sales to, one or more key customers;

(cid:127) A large sale of stock by a significant shareholder;

(cid:127) Dilution from the issuance of our stock in connection with acquisitions;

(cid:127) The addition or removal of our stock to or from a stock index fund;

(cid:127) Departures of key personnel; and

(cid:127) The required expensing of stock awards.

The stock market has experienced extreme volatility that often has been unrelated to the
performance of particular companies. These market fluctuations may cause our stock price to fall
regardless of our performance.

Most of our current manufacturers, assemblers, test service providers, distributors and customers are
concentrated in the same geographic region, which increases the risk that a natural disaster, epidemic, labor
strike, war or political unrest could disrupt our operations or sales

Most of our foundries and several of our assembly and test subcontractors’ sites are located in
Taiwan and most of our other foundry, assembly and test subcontractors are located in the Pacific Rim
region. In addition, many of our customers are located in the Pacific Rim region. The risk of
earthquakes in Taiwan and the Pacific Rim region is significant due to the proximity of major
earthquake fault lines in the area. Earthquakes, tsunamis, fire, flooding, lack of water or other natural
disasters, an epidemic, political unrest, war, labor strikes or work stoppages in countries where our
semiconductor manufacturers, assemblers and test subcontractors are located, likely would result in the
disruption of our foundry, assembly or test capacity. There can be no assurance that alternate capacity
could be obtained on favorable terms, if at all.

A natural disaster, epidemic, labor strike, war or political unrest where our customers’ facilities are
located would likely reduce our sales to such customers. North Korea’s geopolitical maneuverings have
created unrest. Such unrest could create economic uncertainty or instability, could escalate to war or
otherwise adversely affect South Korea and our South Korean customers and reduce our sales to such
customers, which would materially and adversely affect our operating results. In addition, a significant
portion of the assembly and testing of our products occurs in South Korea. Any disruption resulting
from these events could also cause significant delays in shipments of our products until we are able to
shift our manufacturing, assembling or testing from the affected subcontractor to another third-party
vendor.

The semiconductor manufacturing process is highly complex and, from time to time, manufacturing yields
may fall below our expectations, which could result in our inability to satisfy demand for our products in a
timely manner and may decrease our gross margins due to higher unit costs

The manufacturing of our products is a highly complex and technologically demanding process.
Although we work closely with our foundries and assemblers to minimize the likelihood of reduced
manufacturing yields, we have from time to time experienced lower than anticipated manufacturing
yields. Changes in manufacturing processes or the inadvertent use of defective or contaminated
materials could result in lower than anticipated manufacturing yields or unacceptable performance
deficiencies, which could lower our gross margins. If our foundries fail to deliver fabricated silicon
wafers of satisfactory quality in a timely manner, we will be unable to meet our customers’ demand for
our products in a timely manner, which would adversely affect our operating results and damage our
customer relationships. Additionally, we are beginning to utilize microelectromechanical systems
(MEMS) in certain of our timing products rather than the pure CMOS manufacturing process that we
have traditionally utilized. We have less operating history with MEMS IC design and MEMS IC
manufacturing processes. If we are unable to successfully execute the design and product qualification
of MEMS-based products we may encounter lower yields and reduced manufacturing capacity.

We depend on our customers to support our products, and some of our customers offer competing products

We rely on our customers to provide hardware, software, intellectual property indemnification and

other technical support for the products supplied by our customers. If our customers do not provide
the required functionality or if our customers do not provide satisfactory support for their products, the
demand for these devices that incorporate our products may diminish or we may otherwise be
materially adversely affected. Any reduction in the demand for these devices would significantly reduce
our revenues.

In certain products, some of our customers offer their own competitive products. These customers

may find it advantageous to support their own offerings in the marketplace in lieu of promoting our
products.

Our debt could adversely affect our operations and financial condition

We believe we have the ability to service our debt under our credit facilities, but our ability to
make the required payments thereunder when due depends upon our future performance, which will be
subject to general economic conditions, industry cycles and other factors affecting our operations,
including risk factors described under this Item 1A, many of which are beyond our control. Our credit
facilities also contain covenants, including financial covenants. If we breach any of the covenants under
our credit facilities and do not obtain appropriate waivers, then, subject to any applicable cure periods,
our outstanding indebtedness thereunder could be declared immediately due and payable.

We could seek to raise additional debt or equity capital in the future, but additional capital may not be
available on terms acceptable to us, or at all

We believe that our existing cash, cash equivalents, investments and credit under our credit

facilities will be sufficient to meet our working capital needs, capital expenditures, investment
requirements and commitments for at least the next 12 months. However, our ability to borrow further
under the credit facilities is dependent upon our ability to satisfy various conditions, covenants and
representations. It is possible that we may need to raise additional funds to finance our activities or to
facilitate acquisitions of other businesses, products, intellectual property or technologies. We believe we
could raise these funds, if needed, by selling equity or debt securities to the public or to selected
investors. In addition, even though we may not need additional funds, we may still elect to sell
additional equity or debt securities or obtain credit facilities for other reasons. However, we may not be
able to obtain additional funds on favorable terms, or at all. If we decide to raise additional funds by
issuing equity or convertible debt securities, the ownership percentages of existing shareholders would
be reduced.

We are a relatively small company with limited resources compared to some of our current and potential
competitors and we may not be able to compete effectively and increase market share

Some of our current and potential competitors have longer operating histories, significantly greater

resources and name recognition and a larger base of customers than we have. As a result, these
competitors may have greater credibility with our existing and potential customers. They also may be
able to adopt more aggressive pricing policies and devote greater resources to the development,
promotion and sale of their products than we can to ours. In addition, some of our current and
potential competitors have already established supplier or joint development relationships with the
decision makers at our current or potential customers. These competitors may be able to leverage their
existing relationships to discourage their customers from purchasing products from us or persuade them
to replace our products with their products. Our competitors may also offer bundled solutions offering
a more complete product despite the technical merits or advantages of our products. These competitors
may elect not to support our products which could complicate our sales efforts. These and other

competitive pressures may prevent us from competing successfully against current or future
competitors, and may materially harm our business. Competition could decrease our prices, reduce our
sales, lower our gross margins and/or decrease our market share.

Provisions in our charter documents and Delaware law could prevent, delay or impede a change in control of
us and may reduce the market price of our common stock

Provisions of our certificate of incorporation and bylaws could have the effect of discouraging,
delaying or preventing a merger or acquisition that a stockholder may consider favorable. For example,
our certificate of incorporation and bylaws provide for:

(cid:127) The division of our Board of Directors into three classes to be elected on a staggered basis, one

class each year;

(cid:127) The ability of our Board of Directors to issue shares of our preferred stock in one or more

series without further authorization of our stockholders;

(cid:127) A prohibition on stockholder action by written consent;

(cid:127) Elimination of the right of stockholders to call a special meeting of stockholders;

(cid:127) A requirement that stockholders provide advance notice of any stockholder nominations of

directors or any proposal of new business to be considered at any meeting of stockholders; and

(cid:127) A requirement that a supermajority vote be obtained to amend or repeal certain provisions of

our certificate of incorporation.

We also are subject to the anti-takeover laws of Delaware which may discourage, delay or prevent

someone from acquiring or merging with us, which may adversely affect the market price of our
common stock.

Risks related to our industry

We are subject to the cyclical nature of the semiconductor industry, which has been subject to significant
fluctuations

The semiconductor industry is highly cyclical and is characterized by constant and rapid

technological change, rapid product obsolescence and price erosion, evolving standards, short product
life cycles and wide fluctuations in product supply and demand. The industry has experienced
significant fluctuations, often connected with, or in anticipation of, maturing product cycles and new
product introductions of both semiconductor companies’ and their customers’ products and fluctuations
in general economic conditions. Deteriorating general worldwide economic conditions, including
reduced economic activity, concerns about credit and inflation, increased energy costs, decreased
consumer confidence, reduced corporate profits, decreased spending and similar adverse business
conditions, would make it very difficult for our customers, our vendors, and us to accurately forecast
and plan future business activities and could cause U.S. and foreign businesses to slow spending on our
products. We cannot predict the timing, strength, or duration of any economic slowdown or economic
recovery. If the economy or markets in which we operate deteriorate, our business, financial condition,
and results of operations would likely be materially and adversely affected.

Downturns have been characterized by diminished product demand, production overcapacity, high

inventory levels and accelerated erosion of average selling prices. In the recent past, we believe the
semiconductor industry suffered a downturn due in large part to adverse conditions in the global credit
and financial markets, including diminished liquidity and credit availability, declines in consumer
confidence, declines in economic growth, increased unemployment rates and general uncertainty

regarding the economy. Such downturns may have a material adverse effect on our business and
operating results.

Upturns have been characterized by increased product demand and production capacity constraints

created by increased competition for access to third-party foundry, assembly and test capacity. We are
dependent on the availability of such capacity to manufacture, assemble and test our ICs. None of our
third-party foundry, assembly or test subcontractors have provided assurances that adequate capacity
will be available to us.

The average selling prices of our products could decrease rapidly which may negatively impact our revenues
and gross margins

We may experience substantial period-to-period fluctuations in future operating results due to the

erosion of our average selling prices. We have reduced the average unit price of our products in
anticipation of or in response to competitive pricing pressures, new product introductions by us or our
competitors and other factors. If we are unable to offset any such reductions in our average selling
prices by increasing our sales volumes, increasing our sales content per application or reducing
production costs, our gross margins and revenues will suffer. To maintain our gross margin percentage,
we will need to develop and introduce new products and product enhancements on a timely basis and
continually reduce our costs. Our failure to do so could cause our revenues and gross margin
percentage to decline.

Competition within the numerous markets we target may reduce sales of our products and reduce our market
share

The markets for semiconductors in general, and for mixed-signal ICs in particular, are intensely

competitive. We expect that the market for our products will continually evolve and will be subject to
rapid technological change. In addition, as we target and supply products to numerous markets and
applications, we face competition from a relatively large number of competitors. We compete with
Analog Devices, Atmel, Conexant, Cypress, Epson, Freescale, IDT, Lantiq, Maxim Integrated Products,
Marvell Technology Group, MaxLinear, Microchip, Microsemi, NXP Semiconductors, Renesas,
STMicroelectronics, Texas Instruments, Vectron International and others. We expect to face
competition in the future from our current competitors, other manufacturers and designers of
semiconductors, and start-up semiconductor design companies. As the markets for communications
products grow, we also may face competition from traditional communications device companies. These
companies may enter the mixed-signal semiconductor market by introducing their own ICs or by
entering into strategic relationships with or acquiring other existing providers of semiconductor
products. In addition, large companies may restructure their operations to create separate companies or
may acquire new businesses that are focused on providing the types of products we produce or acquire
our customers.

Our products must conform to industry standards and technology in order to be accepted by end users in our
markets

Generally, our products comprise only a part of a device. All components of such devices must

uniformly comply with industry standards in order to operate efficiently together. We depend on
companies that provide other components of the devices to support prevailing industry standards. Many
of these companies are significantly larger and more influential in affecting industry standards than we
are. Some industry standards may not be widely adopted or implemented uniformly, and competing
standards may emerge that may be preferred by our customers or end users. If larger companies do not
support the same industry standards that we do, or if competing standards emerge, market acceptance
of our products could be adversely affected which would harm our business.

Products for certain applications are based on industry standards that are continually evolving. Our
ability to compete in the future will depend on our ability to identify and ensure compliance with these
evolving industry standards. The emergence of new industry standards could render our products
incompatible with products developed by other suppliers. As a result, we could be required to invest
significant time and effort and to incur significant expense to redesign our products to ensure
compliance with relevant standards. If our products are not in compliance with prevailing industry
standards for a significant period of time, we could miss opportunities to achieve crucial design wins.

Our pursuit of necessary technological advances may require substantial time and expense. We may

not be successful in developing or using new technologies or in developing new products or product
enhancements that achieve market acceptance. If our ICs fail to achieve market acceptance, our growth
prospects, operating results and competitive position could be adversely affected.

We may be subject to information technology failures that could damage our reputation, business operations
and financial condition

We rely on information technology for the effective operation of our business. Our systems are

subject to damage or interruption from a number of potential sources, including natural disasters,
accidents, power disruptions, telecommunications failures, acts of terrorism or war, computer viruses,
physical or electronic break-ins, cyber attacks, sabotage, vandalism, or similar events or disruptions. Our
security measures may not detect or prevent such security breaches. Any such compromise of our
information security could result in the theft or unauthorized publication or use of our confidential
business or proprietary information, result in the unauthorized release of customer, supplier or
employee data, result in a violation of privacy or other laws, expose us to a risk of litigation or damage
our reputation. In addition, our inability to use or access these information systems at critical points in
time could unfavorably impact the timely and efficient operation of our business, which could
negatively affect our business and operating results.

Third parties with which we conduct business, such as foundries, assembly and test contractors, and

distributors, have access to certain portions of our sensitive data. In the event that these third parties
do not properly safeguard our data that they hold, security breaches could result and negatively impact
our business, operations and financial results.

Customer demands and new regulations related to conflict-free minerals may adversely affect us

The Dodd-Frank Wall Street Reform and Consumer Protection Act imposes new disclosure
requirements regarding the use of ‘‘conflict’’ minerals mined from the Democratic Republic of Congo
and adjoining countries in products, whether or not these products are manufactured by third parties.
These new requirements could affect the pricing, sourcing and availability of minerals used in the
manufacture of semiconductor devices (including our products). There will be additional costs
associated with complying with the disclosure requirements, such as costs related to determining the
source of any conflict minerals used in our products. Our supply chain is complex and we may be
unable to verify the origins for all metals used in our products. We may also encounter challenges with
our customers and stockholders if we are unable to certify that our products are conflict free.

Item 1B. Unresolved Staff Comments

None.

Item 2. Properties

Our corporate headquarters, housing engineering, sales and marketing, administration and test
operations, is located in Austin, Texas. Our headquarters facilities consist of two buildings, which we
purchased in 2012, that are located on land which we have leased through 2099. The buildings contain
approximately 441,000 square feet of floor space, of which approximately 141,000 square feet were
leased to other tenants. In addition to these properties, we lease smaller facilities in various locations in
the United States, China, France, Germany, Hungary, India, Italy, Japan, Norway, Singapore, South
Korea, Taiwan and the United Kingdom for engineering, sales and marketing, administrative and
manufacturing support activities. We believe that these facilities are suitable and adequate to meet our
current operating needs.

Item 3. Legal Proceedings

Patent Litigation

On January 21, 2014, Cresta Technology Corporation (‘‘Cresta Technology’’), a Delaware

corporation, filed a lawsuit against us, Samsung Electronics Co., Ltd., Samsung Electronics
America, Inc., LG Electronics Inc. and LG Electronics U.S.A., Inc. in the United States District Court
in the District of Delaware, alleging infringement of United States Patent Nos. 7,075,585, 7,265,792 and
7,251,466. The lawsuit relates to our family of television tuner products. Cresta Technology seeks
unspecified compensatory and enhanced damages, attorney fees and a permanent injunction. On
January 28, 2014, Cresta Technology also filed a complaint with the United States International Trade
Commission (‘‘ITC’’) alleging infringement of the same patents against us, Samsung and LG
Electronics and seeking to prevent the importation and sale of allegedly infringing products in the
United States. The ITC instituted an investigation based on Cresta Technology’s complaint on
February 27, 2014. An evidentiary hearing in this ITC Investigation concluded on December 5, 2014.
The ITC Administrative Law Judge is scheduled to issue an Initial Determination on February 27,
2015, and the Final Determination by the ITC is scheduled to issue on June 29, 2015. The Delaware
District Court action has been stayed pending completion of the proceedings in the ITC. We intend to
vigorously defend against these allegations.

On April 11, 2014, we filed a lawsuit against Cresta Technology in the United States District Court

in the Western District of Texas, Austin Division, alleging infringement of United States Patent
Nos. 6,308,055, 6,965,761 and 7,353,011. On July 14, 2014, the Court dismissed the lawsuit without
prejudice due to the lack of commercial activity by Cresta Technology in the Western District of Texas.
On July 16, 2014, we refiled our claims for the ‘055, ‘761 and ‘011 patents in a lawsuit in the United
States District Court in the Northern District of California. In addition, we added additional claims
alleging infringement of United States Patent Nos. 6,304,146, 6,137,372 and 6,233,441. We are seeking a
permanent injunction stopping the sale of all allegedly infringing Cresta Technology products and an
award of damages and attorney fees.

On May 6, 2014, we filed a complaint with the ITC alleging infringement of United States Patent

Nos. 6,137,372 and 6,233,441 against Cresta Technology, Hauppauge Digital, Inc., Hauppague
Computer Works, Inc., PCTV Systems, S.a.r.l., Luxembourg and PCTV Systems S.a.r.l., seeking to
prevent the importation and sale of allegedly infringing products in the United States. On June 6, 2014,
the ITC instituted an investigation based on our complaint. On June 13, 2014, Cresta Technology
proposed a consent order whereby Cresta Technology will not sell for importation, import or sell in the
United States television tuners that infringe the patent claims asserted by us. On July 1, 2014, the
Administrative Law Judge accepted the proposed consent order. Accordingly, this ITC investigation has
been terminated in its entirety. Under the consent order, Cresta Technology is prohibited from selling
for importation, importing or selling in the United States television tuners that infringe our United
States Patent Nos. 6,137,372 and 6,233,441.

As is customary in the semiconductor industry, we provide indemnification protection to our
customers for intellectual property claims related to our products. We have not accrued any material
liability on our consolidated balance sheet related to such indemnification obligations in connection
with the Cresta Technology litigation.

At this time, we cannot predict the outcome of these matters or the resulting financial impact to

us, if any.

Other

We are involved in various other legal proceedings that have arisen in the normal course of

business. While the ultimate results of these matters cannot be predicted with certainty, we do not
expect them to have a material adverse effect on our consolidated financial statements.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases

Part II

of Equity Securities

Market Information and Holders

Our registration statement (Registration No. 333-94853) under the Securities Act of 1933, as
amended, relating to our initial public offering of our common stock became effective on March 23,
2000. Our common stock is quoted on the NASDAQ National Market (NASDAQ) under the symbol
‘‘SLAB’’. The table below shows the high and low per-share sales prices of our common stock for the
periods indicated, as reported by NASDAQ. As of January 27, 2015, there were 97 holders of record of
our common stock.

Fiscal Year 2013

First Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Second Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Third Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fourth Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Fiscal Year 2014

High

Low

$47.41
44.00
46.21
44.19

$54.00
53.78
50.05
48.50

$39.65
38.04
38.16
37.57

$41.19
42.41
39.28
36.29

Dividend Policy

We have never declared or paid any cash dividends on our common stock and we do not intend to
pay cash dividends in the foreseeable future. We currently expect to retain any future earnings to fund
the operation and expansion of our business.

Stock Performance Graph

The graph depicted below shows a comparison of cumulative total stockholder returns for an
investment in Silicon Laboratories Inc. common stock, the NASDAQ Composite Index and the PHLX
Semiconductor Index.

D
O
L
L
A
R
S

250

200

150

100

01/02/10

01/01/11

12/31/11

12/29/12

12/28/13

01/03/15

Silicon Laboratories Inc.

NASDAQ Composite

PHLX Semiconductor Index
30JAN201516230336

Company / Index

01/02/10

01/01/11

12/31/11

12/29/12

12/28/13

01/03/15

Silicon Laboratories Inc.
. . . . . . . . . . . . .
NASDAQ Composite . . . . . . . . . . . . . . . .
PHLX Semiconductor Index . . . . . . . . . . .

$100.00
$100.00
$100.00

$ 95.12
$118.02
$115.90

$ 89.75
$117.04
$103.96

$ 85.76
$134.77
$109.37

$ 87.54
$191.67
$156.59

$ 98.20
$220.62
$206.44

(1) The graph assumes that $100 was invested in our common stock and in each index at the market
close on January 2, 2010, and that all dividends were reinvested. No cash dividends have been
declared on our common stock.

(2) Stockholder returns over the indicated period should not be considered indicative of future

stockholder returns.

Issuer Purchases of Equity Securities

The following table summarizes repurchases of our common stock during the three months ended

January 3, 2015 (in thousands, except per share amounts):

Period

Total Number
of Shares
Purchased

Average Price
Paid per
Share

Total Number of
Shares Purchased
as Part of Publicly
Announced Plans
or Programs

Approximate
Dollar Value of
Shares that May
Yet Be Purchased
Under the Plans
or Programs

September 28, 2014 - October 25, 2014 . .

October 26, 2014 - November 22, 2014 . .

November 23, 2014 - January 3, 2015 . . .

Total . . . . . . . . . . . . . . . . . . . . . . . . . . .

263

424

$40.01

$44.74

$44.82

$41.83

263

424

$100,000

$ 97,197

$ 92,785

In October 2014, the Board of Directors authorized a program to repurchase up to $100 million of

our common stock through December 2015 (and terminated the $35.6 million remaining authorization
under the previously announced share repurchase program). The programs allow for repurchases to be
made in the open market or in private transactions, including structured or accelerated transactions,
subject to applicable legal requirements and market conditions.

Item 6. Selected Financial Data

Please read this selected consolidated financial data in conjunction with ‘‘Management’s Discussion
and Analysis of Financial Condition and Results of Operations,’’ our Consolidated Financial Statements
and the notes to those statements included in this Form 10-K.

Fiscal Year

2014

2013

2012

2011

2010

(in thousands, except per share data)

Consolidated Statements of Income Data

Revenues . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating income . . . . . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . .

$ 620,704
51,421
$
38,021
$

$580,087
$ 64,310
$ 49,819

$563,294
$ 85,675
$ 63,548

$491,625
$ 50,074
$ 35,472

$493,341
$ 86,671
$ 73,242

Earnings per share:

Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . .

$
$

0.88
0.87

$
$

1.17
1.14

$
$

1.51
1.47

$
$

0.82
0.79

$
$

1.63
1.57

Consolidated Balance Sheet Data

Cash, cash equivalents and investments (1) . .
Working capital . . . . . . . . . . . . . . . . . . . . . .
Total assets . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term obligations . . . . . . . . . . . . . . . . .
Total stockholders’ equity . . . . . . . . . . . . . . .

$ 342,614
365,223
1,042,561
121,191
758,056

$286,025
350,170
991,150
143,441
738,562

$293,360
361,304
871,966
115,615
649,973

$324,967
370,211
705,991
24,214
598,939

$383,362
414,073
727,658
22,372
625,430

(1) Reflects repurchases of $72 million, $26 million, $62 million, $110 million and $140 million of our

common stock in fiscal 2014, 2013, 2012, 2011 and 2010, respectively.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of financial condition and results of operations should be
read in conjunction with the Consolidated Financial Statements and related notes thereto included
elsewhere in this report. This discussion contains forward-looking statements. Please see the
‘‘Cautionary Statement’’ and ‘‘Risk Factors’’ above for discussions of the uncertainties, risks and
assumptions associated with these statements. Our fiscal year-end financial reporting periods are a 52-
or 53-week year ending on the Saturday closest to December 31st. Fiscal 2014 was a 53-week year with
the extra week occurring in the fourth quarter of the year and ended on January 3, 2015. Fiscal 2013
and 2012 were 52-week years and ended on December 28, 2013 and December 29, 2012, respectively.

Overview

We design and develop proprietary, analog-intensive, mixed-signal integrated circuits (ICs) for a
broad range of applications. Mixed-signal ICs are electronic components that convert real-world analog
signals, such as sound and radio waves, into digital signals that electronic products can process.
Therefore, mixed-signal ICs are critical components in products addressing a variety of markets,
including communications, consumer, industrial and automotive. Our major customers include Cisco,
Garmin, Harman Becker, Huawei, LG Electronics, Pace, Samsung, Technicolor, Varian Medical Systems
and ZTE.

As a fabless semiconductor company, we rely on third-party semiconductor fabricators in Asia, and

to a lesser extent the United States and Europe, to manufacture the silicon wafers that reflect our IC
designs. Each wafer contains numerous die, which are cut from the wafer to create a chip for an IC.
We rely on third parties in Asia to assemble, package, and, in most cases, test these devices and ship
these units to our customers. Testing performed by such third parties facilitates faster delivery of
products to our customers (particularly those located in Asia), shorter production cycle times, lower
inventory requirements, lower costs and increased flexibility of test capacity.

Our expertise in analog-intensive, high-performance, mixed-signal ICs enables us to develop highly

differentiated solutions that address multiple markets. We group our products into the following
categories:

(cid:127) Broad-based products, which include our microcontroller (MCU), wireless and sensor products,

timing products (clocks and oscillators), and power and isolation devices;

(cid:127) Broadcast products, which include our broadcast audio and video products; and

(cid:127) Access products, which include our Voice over IP (VoIP) products, embedded modems and our

Power over Ethernet (PoE) devices.

Through acquisitions and internal development efforts, we have continued to diversify our product

portfolio and introduce next-generation ICs with added functionality and further integration. On
February 28, 2014, we purchased the full product portfolio and intellectual property of Touchstone
Semiconductor, including op-amps, current sense amplifiers, low-power analog-to-digital converters
(ADCs), comparators, power management ICs, timers, and voltage detectors and references.

In fiscal 2014, we introduced digital TV demodulators offering expanded support for emerging and

established satellite, terrestrial and cable standards; a new family of PCI Express (PCIe) Gen1/2/3
fanout buffers designed for data center applications; next-generation EZRadio and EZRadioPRO(cid:4)
wireless ICs offering outstanding power efficiency, wireless range and flexibility; the sixth generation of
our high-performance TV tuner ICs addressing global hybrid TV and digital TV markets; a small
PCIe-compliant clock generator targeting consumer and embedded applications; sensor development
kits to accelerate Internet of Things (IoT) system design; high-performance automotive tuner ICs
designed to enhance AM/FM digital radio performance for car radio systems supporting broadcast

standards worldwide; ultra-low-jitter, frequency-flexible clock solutions for high-speed data centers and
Internet infrastructure; digital isolators offering high channel count, reliability and data rates for
cost-sensitive consumer electronics applications; energy-efficient capacitive sensing MCUs for human-
machine interfaces (HMI); a comprehensive software solution designed to simplify the development of
wirelessly connected smart meters; a 32-bit hardware and firmware development kit designed to
accelerate the design of Made for iPod(cid:4)/iPhone(cid:4)/iPad(cid:4) (MFi) accessories; a new version of the
Simplicity Studio(cid:5) development ecosystem that provides unified support for our energy-friendly 32-bit
EFM32(cid:5) Gecko MCUs and 8-bit MCUs; the expansion of our ARM-based Ember(cid:4) ZigBee(cid:4)
system-on-chip (SoC) family for advanced smart energy and home automation applications; and
single-chip digital ultraviolet (UV) index sensors designed to track UV exposure, ambient light and
biometrics for smartphones and wearables. We plan to continue to introduce products that increase the
content we provide for existing applications, thereby enabling us to serve markets we do not currently
address and expand our total available market opportunity.

During fiscal 2014, 2013 and 2012, we had one customer, Samsung, whose purchases across a
variety of product areas represented 12%, 15% and 19% of our revenues, respectively. In addition to
direct sales to customers, some of our end customers purchase products indirectly from us through
distributors and contract manufacturers. An end customer purchasing through a contract manufacturer
typically instructs such contract manufacturer to obtain our products and incorporate such products
with other components for sale by such contract manufacturer to the end customer. Although we
actually sell the products to, and are paid by, the distributors and contract manufacturers, we refer to
such end customer as our customer. Two of our distributors, Edom Technology and Avnet, represented
20% and 12% of our revenues during fiscal 2014, 21% and 11% of our revenues during fiscal 2013, and
22% and 11% of our revenues during fiscal 2012, respectively. There were no other distributors or
contract manufacturers that accounted for more than 10% of our revenues in fiscal 2014, 2013 or 2012.

The percentage of our revenues derived from outside of the United States was 86% in fiscal 2014,

88% in fiscal 2013 and 88% in fiscal 2012. All of our revenues to date have been denominated in
U.S. dollars. We believe that a majority of our revenues will continue to be derived from customers
outside of the United States.

The sales cycle for our ICs can be as long as 12 months or more. An additional three to six
months or more are usually required before a customer ships a significant volume of devices that
incorporate our ICs. Due to this lengthy sales cycle, we typically experience a significant delay between
incurring research and development and selling, general and administrative expenses, and the
corresponding sales. Consequently, if sales in any quarter do not occur when expected, expenses and
inventory levels could be disproportionately high, and our operating results for that quarter and,
potentially, future quarters would be adversely affected. Moreover, the amount of time between initial
research and development and commercialization of a product, if ever, can be substantially longer than
the sales cycle for the product. Accordingly, if we incur substantial research and development costs
without developing a commercially successful product, our operating results, as well as our growth
prospects, could be adversely affected.

Because many of our ICs are designed for use in consumer products such as televisions, set-top

boxes and radios, we expect that the demand for our products will be typically subject to some degree
of seasonal demand. However, rapid changes in our markets and across our product areas make it
difficult for us to accurately estimate the impact of seasonal factors on our business.

Results of Operations

The following describes the line items set forth in our Consolidated Statements of Income:

Revenues. Revenues are generated predominately by sales of our ICs. We recognize revenue on

sales 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, we recognize revenue from product sales to direct customers and
contract manufacturers upon shipment. Certain of our sales are made to distributors under agreements
allowing certain rights of return and price protection on products unsold by distributors. Accordingly,
we defer the revenue and cost of revenue on such sales until the distributors sell the product to the
end customer. A small portion of our 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.
Our products typically carry a one-year replacement warranty. Replacements have been insignificant to
date.

Our revenues are subject to variation from period to period due to the volume of shipments made

within a period, the mix of products we sell and the prices we charge for our products. The vast
majority of our revenues were negotiated at prices that reflect a discount from the list prices for our
products. These discounts are made for a variety of reasons, including: 1) to establish a relationship
with a new customer, 2) as an incentive for customers to purchase products in larger volumes, 3) to
provide profit margin to our distributors who resell our products or 4) in response to competition. In
addition, as a product matures, we expect that the average selling price for such product will decline
due to the greater availability of competing products. Our ability to increase revenues in the future is
dependent on increased demand for our established products and our ability to ship larger volumes of
those products in response to such demand, as well as our ability to develop or acquire new products
and subsequently achieve customer acceptance of newly introduced products.

Cost of Revenues. Cost of revenues includes the cost of purchasing finished silicon wafers

processed by independent foundries; costs associated with assembly, test and shipping of those
products; costs of personnel and equipment associated with manufacturing support, logistics and quality
assurance; costs of software royalties, other intellectual property license costs and certain acquired
intangible assets; and an allocated portion of our occupancy costs.

Research and Development. Research and development expense consists primarily of personnel-

related expenses, including stock-based compensation, as well as new product masks, external consulting
and services costs, equipment tooling, equipment depreciation, amortization of intangible assets, and an
allocated portion of our occupancy costs. Research and development activities include the design of
new products, refinement of existing products and design of test methodologies to ensure compliance
with required specifications.

Selling, General and Administrative. Selling, general and administrative expense consists
primarily of personnel-related expenses, including stock-based compensation, as well as an allocated
portion of our occupancy costs, sales commissions to independent sales representatives, applications
engineering support, professional fees, legal fees and promotional and marketing expenses.

Interest Income.
investment balances.

Interest income reflects interest earned on our cash, cash equivalents and

Interest Expense.

Interest expense consists of interest on our short and long-term obligations,

including our Credit Facilities.

Other Income (Expense), Net. Other income (expense), net consists primarily of foreign currency

remeasurement adjustments as well as other non-operating income and expenses.

Provision for Income Taxes. Provision for income taxes includes both domestic and foreign

income taxes at the applicable tax rates adjusted for non-deductible expenses, research and
development tax credits and other permanent differences.

The following table sets forth our Consolidated Statements of Income data as a percentage of

revenues for the periods indicated:

Fiscal Year

2014

2013

2012

Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cost of revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

100.0% 100.0% 100.0%
39.2
39.0

40.0

Gross margin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

61.0

60.8

60.0

Operating expenses:

Research and development . . . . . . . . . . . . . . . . . . . . . .
Selling, general and administrative . . . . . . . . . . . . . . . .

Operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Other income (expense):

Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other income (expense), net . . . . . . . . . . . . . . . . . . . . .

Income before income taxes . . . . . . . . . . . . . . . . . . . . . . .
Provision for income taxes . . . . . . . . . . . . . . . . . . . . . . . .

27.9
24.8

52.7

8.3

0.2
(0.6)
0.0

7.9
1.8

27.2
22.5

49.7

11.1

0.2
(0.6)
0.0

10.7
2.1

24.5
20.3

44.8

15.2

0.2
(0.2)
0.1

15.3
4.0

Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

6.1% 8.6% 11.3%

Comparison of Fiscal 2014 to Fiscal 2013

Revenues

(in millions)

Fiscal Year

2014

2013

Change

Broad-based . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Broadcast
. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Access . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$317.1
204.3
99.3

$281.8
199.8
98.5

Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$620.7

$580.1

$35.3
4.5
0.8

$40.6

The change in revenues in fiscal 2014 was due primarily to:

%
Change

12.5%
2.2%
0.9%

7.0%

(cid:127) Increased revenues of $35.3 million for our Broad-based ICs, due primarily to market share
gains for our MCU, wireless and sensor products, including products acquired from Energy
Micro in July 2013. Broad-based revenue growth was offset in part by a decline in revenue for
our touch controller ICs due to our exit from this market.

(cid:127) Increased revenues of $4.5 million for Broadcast, due primarily to an increase in market share

for our video ICs and the sale of patents of $7.1 million. The increase in Broadcast revenues was
offset by decreased revenues for our audio ICs due to declines in market share.

Unit volumes of our products increased compared to fiscal 2013 by 5.2%. Average selling prices

increased compared to the same period by 0.7%. The average selling prices of our products may
fluctuate significantly from period to period. In general, as our products become more mature, we
expect to experience decreases in average selling prices. We anticipate that newly announced, higher
priced, next generation products and product derivatives will offset some of these decreases.

Gross Margin

(in millions)

Fiscal Year

2014

2013

Change

Gross margin . . . . . . . . . . . . . . . . . . . . . . . . . . .
Percent of revenue . . . . . . . . . . . . . . . . . . . . . . .

$378.6

$352.9

$25.7

61.0% 60.8% 0.2%

The increased dollar amount of gross margin in fiscal 2014 was due to increases in gross margin of

$25.3 million for our Broad-based products and $2.2 million for our Broadcast products, offset by a
decrease in gross margin of $1.9 million for our Access products. Fiscal 2014 includes gross margin
from the sale of patents of $7.1 million, which had no associated cost of revenues.

We may experience declines in the average selling prices of certain of our products. This creates
downward pressure on gross margin as a percentage of revenues and may be offset to the extent we are
able to: 1) introduce higher margin new products and gain market share with our ICs; 2) reduce costs
of existing products through improved design; 3) achieve lower production costs from our wafer
suppliers and third-party assembly and test subcontractors; 4) achieve lower production costs per unit
as a result of improved yields throughout the manufacturing process; or 5) reduce logistics costs.

Research and Development

(in millions)

Fiscal Year

2014

2013

Change

%
Change

Research and development . . . . . . . . . . . . . . . . .
Percent of revenue . . . . . . . . . . . . . . . . . . . . . . .

$173.0

$157.8

$15.2

9.6%

27.9% 27.2%

The increase in research and development expense in fiscal 2014 was principally due to increases

of (a) $11.0 million for personnel-related expenses, including personnel costs associated with
(i) increased headcount, and (ii) the acquisition of Energy Micro, and (b) $2.9 million for the
amortization of intangible assets primarily related to our acquisition of Energy Micro. We expect that
research and development expense will increase in absolute dollars in the first quarter of 2015,
primarily due to costs associated with the acquisition of Bluegiga.

Recent development projects include digital TV demodulators offering expanded support for
emerging and established satellite, terrestrial and cable standards; a new family of PCIe Gen1/2/3
fanout buffers designed for data center applications; next-generation EZRadio and EZRadioPRO
wireless ICs offering outstanding power efficiency, wireless range and flexibility; the sixth generation of
our high-performance TV tuner ICs addressing global hybrid TV and digital TV markets; a small
PCIe-compliant clock generator targeting consumer and embedded applications; sensor development
kits to accelerate IoT system design; high-performance automotive tuner ICs designed to enhance
AM/FM digital radio performance for car radio systems supporting broadcast standards worldwide;
ultra-low-jitter, frequency-flexible clock solutions for high-speed data centers and Internet
infrastructure; digital isolators offering high channel count, reliability and data rates for cost-sensitive
consumer electronics applications; energy-efficient capacitive sensing MCUs for HMI; a comprehensive
software solution designed to simplify the development of wirelessly connected smart meters; a 32-bit
hardware and firmware development kit designed to accelerate the design of MFi accessories; a new
version of the Simplicity Studio development ecosystem that provides unified support for our energy-
friendly 32-bit EFM32 Gecko MCUs and 8-bit MCUs; the expansion of our ARM-based Ember ZigBee
SoC family for advanced smart energy and home automation applications; and single-chip digital
UV index sensors designed to track UV exposure, ambient light and biometrics for smartphones and
wearables.

Selling, General and Administrative

(in millions)

Fiscal Year

2014

2013

Change

%
Change

Selling, general and administrative . . . . . . . . . . .
Percent of revenue . . . . . . . . . . . . . . . . . . . . . . .

$154.1

$130.8

$23.3

17.9%

24.8% 22.5%

The increase in selling, general and administrative expense in fiscal 2014 was principally due to

increases of (a) $11.0 million for adjustments to the fair value of acquisition-related contingent
consideration, (b) $7.5 million for legal fees, primarily related to litigation, and (c) $7.5 million for
personnel-related expenses, primarily associated with (i) increased headcount, and (ii) the acquisition of
Energy Micro. The increase in selling, general and administrative expense in fiscal 2014 was offset in
part by acquisition-related costs of $1.5 million in fiscal 2013. We expect that selling, general and
administrative expense will decrease in absolute dollars in the first quarter of 2015, primarily due to
declines in legal fees related to patent litigation.

Interest Income

Interest income in fiscal 2014 was $1.0 million compared to $0.9 million in fiscal 2013.

Interest Expense

Interest expense in fiscal 2014 was $3.2 million compared $3.3 million in fiscal 2013.

Other Income (Expense), Net

Other income (expense), net in fiscal 2014 was $(0.2) million compared to $0.2 million in fiscal

2013.

Provision for Income Taxes

(in millions)

Fiscal Year

2014

2013

Change

Provision for income taxes . . . . . . . . . . . . . . . . .
Effective tax rate . . . . . . . . . . . . . . . . . . . . . . . .

$ 11.0

$ 12.2

$ (1.2)

22.5% 19.7%

The effective tax rate for fiscal 2014 increased from fiscal 2013, primarily due to the recognition of

the fiscal 2012 federal research and development tax credit in fiscal 2013 due to the enactment of the
American Taxpayer Relief Act of 2012 on January 2, 2013, as well as a decrease in the foreign tax rate
benefit in fiscal 2014. This increase in the effective tax rate was partially offset by the reduction to a
valuation allowance recorded in a prior year related to certain state loss and research and development
tax credit carryforwards and the release in fiscal 2014 of prior year unrecognized tax benefits due to the
lapse of the statute of limitations applicable to a tax deduction claimed on a prior year foreign tax
return. We expect our effective tax rate for fiscal 2015 to decrease, primarily due to an expected
increase in the ratio of foreign income to total income resulting from the completion of payments
related to an intercompany licensing transaction. This expected decrease in the effective tax rate will be
partially offset by the expiration of the federal research and development tax credit on December 31,
2014.

The effective tax rates for each of the periods presented differ from the federal statutory rate of
35% due to the amount of income earned in foreign jurisdictions where the tax rate may be lower than
the federal statutory rate, research and development tax credits and other permanent items including
changes to the liability for unrecognized tax benefits.

Comparison of Fiscal 2013 to Fiscal 2012

Revenues

(in millions)

Fiscal Year

2013

2012

Change

%
Change

$281.8
199.8
98.5

$270.1
186.1
107.1

$11.7
13.7
(8.6)

4.3%
7.4%
(8.1)%

Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$580.1

$563.3

$16.8

3.0%

The change in revenues in fiscal 2013 was due primarily to:

(cid:127) Increased revenues of $11.7 million for our Broad-based ICs, due primarily to the addition of

revenues from the acquisition of Energy Micro in July 2013 and Ember in July 2012 and market
share gains for our timing ICs. Broad-based revenue growth was offset in part by declines in
revenue for our touch controller ICs due to our planned exit from this market.

(cid:127) Increased revenues of $13.7 million for our Broadcast ICs, due primarily to market share gains
for our video ICs. Broadcast revenue growth was offset in part by declines in revenue for our
audio ICs, which decreased primarily due to declines in market share.

(cid:127) Decreased revenues of $8.6 million for our Access ICs. The decrease in Access revenues resulted

primarily due to declines in market share for our VoIP ICs.

Unit volumes of our products decreased compared to fiscal 2012 by 8.1%. Average selling prices

increased compared to the same period by 12.1%.

Gross Margin

(in millions)

Fiscal Year

2013

2012

Change

Gross margin . . . . . . . . . . . . . . . . . . . . . . . . . . .
Percent of revenue . . . . . . . . . . . . . . . . . . . . . . .

$352.9

$338.0

$14.9

60.8% 60.0% 0.8%

The increased dollar amount of gross margin in fiscal 2013 was due primarily to increases in gross

margin of $15.2 million for our Broad-based products and $11.4 million for our Broadcast products,
offset by a decrease in gross margin of $11.7 million for our Access products.

Research and Development

(in millions)

Fiscal Year

2013

2012

Change

%
Change

Research and development . . . . . . . . . . . . . . . . .
Percent of revenue . . . . . . . . . . . . . . . . . . . . . . .

$157.8

$138.0

$19.8

14.4%

27.2% 24.5%

The increase in research and development expense in fiscal 2013 was principally due to increases

of (a) $11.4 million for personnel-related expenses, including personnel costs associated with
(i) increased headcount, and (ii) the acquisition of Energy Micro and Ember, and (b) $4.0 million for
the amortization of intangible assets primarily related to our acquisition of Energy Micro.

Selling, General and Administrative

(in millions)

Fiscal Year

2013

2012

Change

%
Change

Selling, general and administrative . . . . . . . . . . .
Percent of revenue . . . . . . . . . . . . . . . . . . . . . . .

$130.8

$114.4

$ 16.4

14.3%

22.5% 20.3%

The increase in selling, general and administrative expense in fiscal 2013 was principally due to a
net gain of $8.5 million in fiscal 2012 from the purchase of our headquarters. Furthermore, the increase
in selling, general and administrative expense in fiscal 2013 was also due to increases of (a) $2.5 million
for sales commissions, (b) $2.1 million for personnel-related expenses, primarily associated with
(i) increased headcount, and (ii) the acquisition of Energy Micro and Ember, and (c) $1.5 million for
legal fees, primarily related to litigation and acquisition-related costs.

Interest Income

Interest income in fiscal 2013 was $0.9 million compared to $1.3 million in fiscal 2012.

Interest Expense

Interest expense in fiscal 2013 was $3.3 million compared $1.1 million in fiscal 2012. The increase

in fiscal 2013 was principally due to higher average debt balances in the period on our Term Loan
Facility under our Credit Agreement.

Other Income (Expense), Net

Other income (expense), net in fiscal 2013 was $0.2 million compared to $0.5 million in fiscal 2012.

Provision for Income Taxes

(in millions)

Fiscal Year

2013

2012

Change

Provision for income taxes . . . . . . . . . . . . . . . . .
Effective tax rate . . . . . . . . . . . . . . . . . . . . . . . .

$ 12.2

$ 22.8

$(10.6)

19.7% 26.4%

The effective tax rate for fiscal 2013 decreased from fiscal 2012, primarily due to the fiscal 2012

tax charge related to the intercompany license of certain technology associated with the acquisition of
Ember during fiscal 2012 and the recognition of the fiscal 2012 and fiscal 2013 federal research and
development tax credits in fiscal 2013 as a result of the enactment of the American Taxpayer Relief Act
of 2012 (the ‘‘Act’’) on January 2, 2013. The decrease in the effective tax rate for fiscal 2013 was
partially offset by the release during fiscal 2012 of unrecognized tax benefits that were determined to
be effectively settled during fiscal 2012.

Business Outlook

We expect revenues in the first quarter of fiscal 2015 to be in the range of $156 to $162 million.

Furthermore, we expect our diluted earnings per share to be in the range of $0.08 to $0.14.

Liquidity and Capital Resources

Our principal sources of liquidity as of January 3, 2015 consisted of $335.2 million in cash, cash
equivalents and short-term investments, of which approximately $225.7 million was held by our U.S.
entities. The remaining balance was held by our foreign subsidiaries. Our cash equivalents and
short-term investments consisted of municipal bonds, money market funds, corporate bonds,
commercial paper, variable-rate demand notes, certificates of deposit, asset-backed securities,
international government bonds, U.S. government agency and U.S. government bonds.

Our long-term investments consisted of auction-rate securities. In fiscal 2008, auctions for many of

our auction-rate securities failed because sell orders exceeded buy orders. As of January 3, 2015, we
held $8.0 million par value auction-rate securities, all of which have experienced failed auctions. These
securities have contractual maturity dates ranging from 2033 to 2046. We are receiving the underlying
cash flows on all of our 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 security, a
buyer is found outside of the auction process or the underlying securities mature. We are unable to
predict if these funds will become available before their maturity dates. We do not expect to need
access to the capital represented by any of our auction-rate securities prior to their maturities.

Operating Activities

Net cash provided by operating activities was $137.4 million during fiscal 2014, compared to net
cash provided of $120.2 million during fiscal 2013. Operating cash flows during fiscal 2014 reflect our
net income of $38.0 million, adjustments of $72.4 million for depreciation, amortization, stock-based
compensation and deferred income taxes, and a net cash inflow of $27.0 million due to changes in our
operating assets and liabilities.

Net cash provided by operating activities was $120.2 million during fiscal 2013, compared to net
cash provided of $97.1 million during fiscal 2012. Operating cash flows during fiscal 2013 reflect our net
income of $49.8 million, adjustments of $62.7 million for depreciation, amortization, stock-based
compensation and deferred income taxes, and a net cash inflow of $7.7 million due to changes in our
operating assets and liabilities.

Accounts receivable decreased to $70.4 million at January 3, 2015 from $72.1 million at

December 28, 2013. The decrease in accounts receivable resulted primarily from normal variations in
the timing of collections and billings. Our average days sales outstanding (DSO) was 39 days at
January 3, 2015 and 44 days at December 28, 2013.

Inventory increased to $52.6 million at January 3, 2015 from $45.3 million at December 28, 2013.

Our inventory level is primarily impacted by our need to make purchase commitments to support
forecasted demand and variations between forecasted and actual demand. Our average days of
inventory (DOI) was 73 days at January 3, 2015 and 71 days at December 28, 2013.

Investing Activities

Net cash used in investing activities was $26.3 million during fiscal 2014, compared to net cash
used of $105.9 million during fiscal 2013. The decrease in cash outflows was principally due to a net
payment of $86.4 million for the acquisition of Energy Micro during fiscal 2013, offset by a decrease of
$6.5 million of net proceeds from sales and maturities of marketable securities. In fiscal 2013, we
acquired Energy Micro for approximately $140.6 million. See Note 9, Acquisitions, for additional
information.

Net cash used in investing activities was $105.9 million during fiscal 2013, compared to net cash

used of $139.3 million during fiscal 2012. The decrease in cash outflows was principally due to a

decrease of $91.6 million for purchases of property and equipment, offset by an increase of
$46.1 million for net purchases of marketable securities.

We anticipate capital expenditures of approximately $14 to $16 million for fiscal 2015. Additionally,

as part of our growth strategy, we expect to evaluate opportunities to invest in or acquire other
businesses, intellectual property or technologies that would complement or expand our current
offerings, expand the breadth of our markets or enhance our technical capabilities.

Financing Activities

Net cash used in financing activities was $65.2 million during fiscal 2014, compared to net cash

used of $23.9 million during fiscal 2013. The increase in cash outflows was principally due to an
increase of $45.7 million for repurchases of our common stock. In October 2014, the Board of
Directors authorized a program to repurchase up to $100 million of our common stock through
December 2015 (and terminated the $35.6 million remaining authorization under the previously
announced share repurchase program).

Net cash used in financing activities was $23.9 million during fiscal 2013, compared to net cash

provided of $52.7 million during fiscal 2012. The increase in cash outflows was principally due to net
proceeds of $98.3 million from the issuance of long-term debt in fiscal 2012, offset by a decline of
$36.0 million for repurchases of our common stock in fiscal 2013.

Debt

On July 31, 2012, we entered into a $230 million five-year Credit Agreement (the ‘‘Agreement’’).

The Agreement consists of a $100 million Term Loan Facility and a $130 million Revolving Credit
Facility.

The Term Loan Facility provides for quarterly principal amortization (equal to 5% of the principal

in each of the first two years and 10% of the principal in each of the next three years) with the
remaining balance payable upon the maturity date. The Revolving Credit Facility includes a $25 million
letter of credit sublimit and a $10 million swingline loan sublimit. We have an option to increase the
size of the Revolving Credit Facility by up to an aggregate of $50 million in additional commitments,
subject to certain conditions. On September 27, 2012, we borrowed $100 million under the Term Loan
Facility. To date, we have not borrowed under the Revolving Credit Facility.

The Term Loan Facility and Revolving Credit Facility, other than swingline loans, will bear interest
at LIBOR plus an applicable margin or, at our option, a base rate (defined as the highest of the Bank
of America prime rate, the Federal Funds rate plus 0.50% and a daily rate equal to one-month LIBOR
plus 1.00%) plus an applicable margin. Swingline loans accrue interest at the base rate plus the
applicable margin for base rate loans. The applicable margins for the LIBOR rate loans range from
1.50% to 2.50% and for base rate loans range from 0.50% to 1.50%, depending in each case, on the
leverage ratio as defined in the Agreement. We also pay a commitment fee on the unused amount of
the Revolving Credit Facility.

In connection with the closing of the Credit Agreement, we entered into a security and pledge
agreement. Under the security and pledge agreement, we pledged equity securities of certain of our
subsidiaries, subject to exceptions and limitations. The Credit Facilities contain various conditions,
covenants and representations with which we must be in compliance in order to borrow funds and to
avoid an event of default, including financial covenants that we must maintain a leverage ratio (funded
debt/EBITDA) of no more than 2.5 to 1 and a minimum fixed charge coverage ratio (EBITDA/debt
payments, income taxes and capital expenditures) of no less than 1.50 to 1. As of January 3, 2015, the
Company was in compliance with all covenants of the Credit Facilities. See Note 11, Debt, to the
Consolidated Financial Statements for additional information.

We have entered into an interest rate swap agreement as a hedge against the LIBOR portion of

the variable interest payments under the Term Loan Facility and effectively converted the LIBOR
portion of the interest on the Term Loan Facility to a fixed interest rate through the maturity date. See
Note 5, Derivative Financial Instruments, to the Consolidated Financial Statements for additional
information.

Our future capital requirements will depend on many factors, including the rate of sales growth,

market acceptance of our products, the timing and extent of research and development projects,
potential acquisitions of companies or technologies and the expansion of our sales and marketing
activities. We believe our existing cash, cash equivalents, investments and credit under our Credit
Facilities are sufficient to meet our capital requirements through at least the next 12 months, although
we could be required, or could elect, to seek additional funding prior to that time. We may enter into
acquisitions or strategic arrangements in the future which also could require us to seek additional
equity or debt financing.

Contractual Obligations

The following table summarizes our contractual obligations as of January 3, 2015 (in thousands):

Total

2015

2016

2017

2018

2019

Thereafter

Payments due by period

Long-term debt obligations (1) . . . . . . . . . $87,500 $10,000 $10,000 $67,500 $ — $ — $ —
Interest on long-term debt obligations (2)
—
.
6,398
Operating lease obligations (3) . . . . . . . . .
—
Purchase obligations (4) . . . . . . . . . . . . . .
—
Other long-term obligations (5) . . . . . . . . .

2,241
4,137
—
— 8,993

5,926
22,403
38,156
21,012

1,189
3,398
—
5,054

—
1,490
—
2,472

—
2,517
—
4,493

2,496
4,463
38,156

(1) Long-term debt obligations represent the principal due under our Term Loan Facility and include

amounts classified as current portion of long-term debt.

(2) Interest on our long-term debt obligations is based on LIBOR plus an applicable margin. We have
entered into an interest rate swap agreement as a hedge against the LIBOR portion of such
variable interest payments and effectively converted the LIBOR portion of the interest on the
Term Loan Facility to a fixed interest rate through the maturity date. As of January 3, 2015, the
combined interest rate on the Term Loan Facility was 2.514%. The impact of the interest rate swap
was factored into the calculation of the future interest payments on our long-term debt obligations.

(3) Operating lease obligations include amounts for leased facilities.

(4) Purchase obligations include contractual arrangements in the form of purchase orders with

suppliers where there is a fixed non-cancelable payment schedule or minimum payments due with
a reduced delivery schedule.

(5) Other long-term obligations represent estimated contingent consideration payments due in

connection with the acquisition of Energy Micro and software license obligations.

We are unable to make a reasonably reliable estimate as to when or if cash settlement with taxing
authorities will occur for our unrecognized tax benefits. Therefore, our liability of $3.9 million for
unrecognized tax benefits is not included in the table above. See Note 17, Income Taxes, to the
Consolidated Financial Statements for additional information.

Off-Balance Sheet Arrangements

As of January 3, 2015, we had no significant off-balance sheet arrangements.

Critical Accounting Policies and Estimates

The preparation of financial statements and accompanying notes in conformity with U.S. generally

accepted accounting principles requires that we make estimates and assumptions that affect the
amounts reported. Changes in facts and circumstances could have a significant impact on the resulting
estimated amounts included in the financial statements. We believe the following critical accounting
policies affect our more complex judgments and estimates. We also have other policies that we consider
to be key accounting policies, such as our policies for revenue recognition, including the deferral of
revenues and cost of revenues on sales to distributors; however, these policies do not meet the
definition of critical accounting estimates because they do not generally require us to make estimates or
judgments that are difficult or subjective.

Inventory valuation—We assess the recoverability of inventories through the application of a set of
methods, assumptions and estimates. In determining net realizable value, we write down inventory that
may be slow moving or have some form of obsolescence, including inventory that has aged more than
12 months. We also adjust the valuation of inventory when its manufacturing cost exceeds the estimated
market value less selling costs. We assess the potential for any unusual customer returns based on
known quality or business issues and write-off inventory losses for scrap or non-saleable material.
Inventory not otherwise identified to be written down is compared to an assessment of our 12-month
forecasted demand. The result of this methodology is compared against the product life cycle and
competitive situations in the marketplace to determine the appropriateness of the resulting inventory
levels. Demand for our products may fluctuate significantly over time, and actual demand and market
conditions may be more or less favorable than those that we project. In the event that actual demand is
lower or market conditions are worse than originally projected, additional inventory write-downs may
be required.

Stock-based compensation—We recognize the fair-value of stock-based compensation transactions in

the Consolidated Statements of Income. The fair value of our full-value stock awards (with the
exception of market-based performance awards) equals the fair market value of our stock on the date
of grant. The fair value of our market-based performance awards is estimated at the date of grant using
a Monte-Carlo simulation. The fair value of our stock option and employee stock purchase plan grants
is estimated at the date of grant using the Black-Scholes option pricing model. In addition, we are
required to estimate the expected forfeiture rate of our stock grants and only recognize the expense for
those shares expected to vest. If our actual experience differs significantly from the assumptions used to
compute our stock-based compensation cost, or if different assumptions had been used, we may have
recorded too much or too little stock-based compensation cost. See Note 13, Stock-Based
Compensation, to the Consolidated Financial Statements for additional information.

Investments in auction-rate securities—We determine the fair value of our investments in
auction-rate securities using a discounted cash flow model. The assumptions used in preparing the
discounted cash flow model include estimates for interest rates, amount of cash flows, expected holding
periods of the securities and a discount to reflect our inability to liquidate the securities. For
available-for-sale auction-rate securities, if the calculated value is below the carrying amount of the
securities, we then determine if the decline in value is other-than-temporary. We consider various
factors in determining whether an impairment is other-than-temporary, including the severity and
duration of the impairment, changes in underlying credit ratings, forecasted recovery, our intent to sell
or the likelihood that we would be required to sell the investment before its anticipated recovery in
market value and the probability that the scheduled cash payments will continue to be made. When we
conclude that an other-than-temporary impairment has occurred, we assess whether we intend to sell
the security or if it is more likely than not that we will be required to sell the security before recovery.
If either of these two conditions is met, we recognize a charge in earnings equal to the entire
difference between the security’s amortized cost basis and its fair value. If we do not intend to sell a

security and it is not more likely than not that we will be required to sell the security before recovery,
the unrealized loss is separated into an amount representing the credit loss, which is recognized in
earnings, and the amount related to all other factors, which is recorded in accumulated other
comprehensive loss.

Acquired intangible assets—When we acquire a business, a portion of the purchase price is typically
allocated to identifiable intangible assets, such as acquired technology and customer relationships. Fair
value of these assets is determined primarily using the income approach, which requires us to project
future cash flows and apply an appropriate discount rate. We amortize intangible assets with finite lives
over their expected useful lives. Our estimates are based upon assumptions believed to be reasonable
but which are inherently uncertain and unpredictable. Assumptions may be incomplete or inaccurate,
and unanticipated events and circumstances may occur. Incorrect estimates could result in future
impairment charges, and those charges could be material to our results of operations.

Impairment of goodwill and other long-lived assets—We review long-lived assets which are held and

used, including fixed assets and purchased intangible assets, for impairment whenever changes in
circumstances indicate that the carrying amount of the assets may not be recoverable. Such evaluations
compare the carrying amount of an asset to future undiscounted net cash flows expected to be
generated by the asset over its expected useful life and are significantly impacted by estimates of future
prices and volumes for our products, capital needs, economic trends and other factors which are
inherently difficult to forecast. If the asset is considered to be impaired, we record an impairment
charge equal to the amount by which the carrying value of the asset exceeds its fair value determined
by either a quoted market price, if any, or a value determined by utilizing a discounted cash flow
technique.

We test our goodwill for impairment annually as of the first day of our fourth fiscal quarter and in

interim periods if certain events occur indicating that the carrying value of goodwill may be impaired.
The goodwill impairment test is a two-step process. The first step of the impairment analysis compares
our fair value to our net book value. In determining fair value, the accounting guidance allows for the
use of several valuation methodologies, although it states quoted market prices are the best evidence of
fair value. If the fair value is less than the net book value, the second step of the analysis compares the
implied fair value of our goodwill to its carrying amount. If the carrying amount of goodwill exceeds its
implied fair value, we recognize an impairment loss equal to that excess amount.

Income taxes—We are required to calculate income taxes in each of the jurisdictions in which we

operate. This process involves calculating the actual current tax liability together with assessing
temporary differences in recognition of income (loss) for tax and accounting purposes. These
differences result in deferred tax assets and liabilities, which are included in our Consolidated Balance
Sheet. We record a valuation allowance when it is more likely than not that some portion or all of the
deferred tax assets will not be realized. In assessing the need for a valuation allowance, we are required
to estimate the amount of expected future taxable income. Judgment is inherent in this process and
differences between the estimated and actual taxable income could result in a material impact on our
Consolidated Financial Statements.

We recognize liabilities for uncertain tax positions based on a two-step process. The first step
requires us to determine whether the weight of available evidence indicates that the tax position has
met the threshold for recognition. Therefore, we must evaluate whether it is more likely than not that
the position will be sustained on audit, including resolution of any related appeals or litigation
processes. The second step requires us to measure the tax benefit of the tax position taken, or expected
to be taken, in an income tax return as the largest amount that is more than 50% likely of being
realized upon ultimate settlement. This measurement step is inherently complex and requires subjective
estimations of such amounts to determine the probability of various possible outcomes. We re-evaluate
the uncertain tax positions each quarter based on factors including, but not limited to, changes in facts

or circumstances, changes in tax law, expirations of statutes of limitation, effectively settled issues under
audit, and new audit activity. Such a change in recognition or measurement would result in the
recognition of a tax benefit or an additional charge to the tax provision in the period.

Although we believe the measurement of our liabilities for uncertain tax positions is reasonable, no

assurance can be given that the final outcome of these matters will not be different than what is
reflected in the historical income tax provisions and accruals. If additional taxes are assessed as a result
of an audit or litigation, it could have a material effect on our income tax provision and net income in
the period or periods for which that determination is made. We operate within multiple taxing
jurisdictions and are subject to audit in these jurisdictions. These audits can involve complex issues
which may require an extended period of time to resolve and could result in additional assessments of
income tax. We believe adequate provisions for income taxes have been made for all periods.

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. We are currently evaluating the effect that the
adoption of this ASU will have on our 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. We are currently evaluating the
effect that the adoption of this ASU will have on our 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 our financial statements.

Item 7A. Quantitative and Qualitative Disclosures about Market Risk

Interest Income

Our investment portfolio includes cash, cash equivalents, short-term investments and long-term

investments. Our main investment objectives are the preservation of investment capital and the
maximization of after-tax returns on our investment portfolio. Our interest income is sensitive to
changes in the general level of U.S. interest rates. Our investment portfolio holdings as of January 3,
2015 and December 28, 2013 yielded less than 100 basis points. A decline in yield to zero basis points
on our investment portfolio holdings as of January 3, 2015 and December 28, 2013 would decrease our
annual interest income by approximately $1.0 million and $0.9 million, respectively. We believe that our
investment policy, which defines the duration, concentration, and minimum credit quality of the
allowable investments, meets our investment objectives.

Interest Expense

We are exposed to interest rate fluctuations in the normal course of our business, including
through our Credit Facilities. The interest payments on the facility are calculated using a variable-rate
of interest. We have 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 variable-rate interest payments on the Term Loan Facility to fixed-rate interest payments
through July 2017.

Foreign currency exchange rate risk

We are exposed to foreign currency exchange rate risk primarily through assets and liabilities of

our subsidiaries denominated in currencies other than the U.S. dollar. Gains and losses resulting from
remeasuring transactions denominated in currencies other than U.S. dollars are recorded in other
income (expense), net in the Consolidated Statements of Income. We use foreign currency forward
contracts to manage exposure to foreign exchange risk. Gains and losses on foreign currency forward
contracts are recognized in earnings in the same period as the remeasurement loss and gain of the
related foreign currency denominated asset or liability.

Investments in Auction-rate Securities

In fiscal 2008, auctions for many of our auction-rate securities failed because sell orders exceeded

buy orders. As of January 3, 2015, we held $8.0 million par value auction-rate securities, all of which
have experienced failed auctions. 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. We are unable to predict if
these funds will become available before their maturity dates. Additionally, if we determine that an
other-than-temporary decline in the fair value of any of our available-for-sale auction-rate securities has
occurred, we may be required to adjust the carrying value of the investments through an impairment
charge.

Item 8. Financial Statements and Supplementary Data

The Financial Statements and supplementary data required by this item are included in Part IV,

Item 15 of this Form 10-K and are presented beginning on page F-1.

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

None.

Item 9A. Controls and Procedures

We have performed an evaluation under the supervision and with the participation of our

management, including our Chief Executive Officer (CEO) and Chief Financial Officer (CFO), of the
effectiveness of our disclosure controls and procedures, as defined in Rule 13a-15(e) under the
Securities Exchange Act of 1934 (the Exchange Act). Based on that evaluation, our management,
including our CEO and CFO, concluded that our disclosure controls and procedures were effective as
of January 3, 2015 to provide reasonable assurance that information required to be disclosed by us in
the reports filed or submitted by us under the Exchange Act is recorded, processed, summarized and
reported within the time periods specified in the SEC’s rules and forms. Such disclosure controls and
procedures include controls and procedures designed to ensure that information required to be
disclosed is accumulated and communicated to our management, including our CEO and CFO, to
allow timely decisions regarding required disclosures. There was no change in our internal controls
during the fiscal quarter ended January 3, 2015 that materially affected, or is reasonably likely to
materially affect, our internal controls over financial reporting.

Management’s Report on Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over
financial reporting. Our internal control system was designed to provide reasonable assurance to our
management and Board of Directors regarding the preparation and fair presentation of published
financial statements.

Our management assessed the effectiveness of our internal control over financial reporting as of

January 3, 2015. In making this assessment, it used the criteria set forth by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control—Integrated
Framework (2013 framework). Based on our assessment we concluded that, as of January 3, 2015, our
internal control over financial reporting is effective based on those criteria.

Our independent registered public accounting firm, Ernst & Young LLP, issued an attestation

report on our internal control over financial reporting. This report appears on page F-1.

Item 9B. Other Information

None.

Part III

Certain information required by Part III is omitted from this report because we intend to file a
definitive Proxy Statement pursuant to Regulation 14A (the ‘‘Proxy Statement’’) no later than 120 days
after the end of the fiscal year covered by this report, and certain information to be included therein is
incorporated herein by reference.

Item 10. Directors, Executive Officers and Corporate Governance

Set forth below is information regarding the executive officers and directors of Silicon Laboratories

as of January 31, 2015.

Name

Age

Position

Navdeep S. Sooch . . . . . . . . . .
G. Tyson Tuttle . . . . . . . . . . . .
William G. Bock . . . . . . . . . . .
John C. Hollister . . . . . . . . . . .
. . . . . . . . . . . . .
Kurt W. Hoff
Sandeep Kumar . . . . . . . . . . .
David R. Welland . . . . . . . . . .
Alf-Egil Bogen . . . . . . . . . . . .
Harvey B. Cash . . . . . . . . . . . .
R. Ted Enloe III . . . . . . . . . . .
Jack R. Lazar . . . . . . . . . . . . .
Laurence G. Walker . . . . . . . .
William P. Wood . . . . . . . . . . .

President and Director

Senior Vice President of Worldwide Sales
Senior Vice President of Worldwide Operations

52 Chairman of the Board
47 Chief Executive Officer and Director
64
45 Chief Financial Officer and Senior Vice President
57
50
59 Vice President and Director
48 Director
76 Director
76 Director
49 Director
66 Director
59 Director

Navdeep S. Sooch co-founded Silicon Laboratories in August 1996 and has served as Chairman of

the Board since our inception. Mr. Sooch served as our Chief Executive Officer from our inception
through the end of fiscal 2003 and served as interim Chief Executive Officer from April 2005 to
September 2005. From March 1985 until founding Silicon Laboratories, Mr. Sooch held various
positions at Crystal Semiconductor/Cirrus Logic, a designer and manufacturer of integrated circuits,
including Vice President of Engineering, as well as Product Planning Manager of Strategic Marketing
and Design Engineer. From May 1982 to March 1985, Mr. Sooch was a Design Engineer with AT&T
Bell Labs. Since October 2011, Mr. Sooch has served as the CEO of Ketra, Inc., a private company in
the field of solid state lighting. Mr. Sooch holds a B.S. in Electrical Engineering from the University of
Michigan, Dearborn and an M.S. in Electrical Engineering from Stanford University. Mr. Sooch’s prior
experience as our Chief Executive Officer as well as a semiconductor designer provides him with
extensive insight into our industry and our operations and qualifies him to serve as Chairman of our
Board of Directors.

G. Tyson Tuttle has served as a director and our Chief Executive Officer since April 2012.
Mr. Tuttle served as our Chief Operating Officer and Senior Vice President from May 2011 to April
2012. From January 2010 to May 2011, Mr. Tuttle served as our Chief Technical Officer. From May
2005 to December 2009, he was our Vice President and General Manager of Broadcast products
including the audio and video product families. Mr. Tuttle joined Silicon Laboratories in 1997 as a
senior design engineer. From 1999 to 2005, Mr. Tuttle served in a variety of product management,
marketing and business leadership positions. Previously, Mr. Tuttle held senior design engineering
positions at Crystal Semiconductor/Cirrus Logic and Broadcom Corporation where he focused on
high-speed mixed-signal circuit design for mass storage and Ethernet applications. Mr. Tuttle holds an
M.S. in Electrical Engineering from UCLA and a B.S. in Electrical Engineering from Johns Hopkins
University. Mr. Tuttle has been granted over 70 patents covering many fundamental semiconductor
inventions including key aspects of wireless communications. Mr. Tuttle’s intimate knowledge of our

company and the industry and his service as our Chief Executive Officer qualify him to serve as a
member of our Board of Directors.

William G. Bock has served as our President since June 2013. He served Silicon Laboratories as

Interim Chief Financial Officer and Senior Vice President from February 2013 until June 2013. He
served as Chief Financial Officer from November 2006 to July 2011 and Senior Vice President of
Finance and Administration from July 2011 through December 2011. He joined Silicon Laboratories as
a director in March 2000, and served as Chairman of the audit committee until November 2006 when
he stepped down from the Board of Directors to assume the CFO role. Mr. Bock rejoined Silicon
Laboratories’ Board of Directors in July of 2011. From 2001 to 2006, Mr. Bock participated in the
venture capital industry, principally as a partner with CenterPoint Ventures. Before his venture career,
Mr. Bock held senior executive positions with three venture-backed companies, Dazel Corporation,
Tivoli Systems and Convex Computer Corporation. Mr. Bock began his career with Texas Instruments.
He also serves on the Board of Directors of Borderfree and is Chair of the Audit Committee.
Mr. Bock currently serves on the Board of Directors of Entropic Communications and as a member of
the Audit Committee. Mr. Bock holds a B.S. in Computer Science from Iowa State University and an
M.S. in Industrial Administration from Carnegie Mellon University. Mr. Bock’s extensive financial and
executive experience and his in-depth knowledge of Silicon Laboratories qualify him to serve as a
member of our Board of Directors.

John C. Hollister has served Silicon Laboratories as our Chief Financial Officer since June 2013.
Prior to this role, Mr. Hollister was our Vice President, Business Development since April 2012, and also
served as our Chief Information Officer since November 2012. Mr. Hollister served as our Vice
President, Manufacturing and Asia Operations from November 2009 to April 2012. From April 2007 to
October 2009, he was Managing Director, Asia Operations. Mr. Hollister joined Silicon Laboratories in
2004 and held financial management positions until April 2007. Prior to joining Silicon Laboratories,
Mr. Hollister’s experience included Vice President of Finance at Cicada Semiconductor as well as various
finance positions at Cirrus Logic, Veritas DGC, 3-D Geophysical and PricewaterhouseCoopers LLP.
Mr. Hollister is a Certified Public Accountant and has a master’s degree in Accounting and a bachelor’s
degree in Business Administration from the University of Texas at Austin.

Kurt W. Hoff has served as our Senior Vice President of Worldwide Sales since April 2012. He

previously served as our Vice President of Worldwide Sales from July 2007 to April 2012. From 2005
until July 2007, he managed the company’s European sales and operations. Prior to joining Silicon
Laboratories in 2005, Mr. Hoff served as president, Chief Executive Officer and director of Cognio.
Mr. Hoff also managed the operations and sales of C-Port Corporation, a network processor company
acquired by Motorola in May 2000. Additionally, Mr. Hoff spent 10 years in various sales positions at
AMD. Mr. Hoff holds a B.S. in Physics from the University of Illinois and an M.B.A. from the
University of Chicago.

Dr. Sandeep Kumar has served as Senior Vice President of Worldwide Operations since July 2013.

He previously served as Vice President of Operations Engineering from September 2009 to July 2013.
He joined Silicon Laboratories in July 2006 as Engineering Director. Prior to joining Silicon
Laboratories, Dr. Kumar managed global test engineering teams and was responsible for worldwide
product and test engineering for the storage business at Agere Systems, Lucent technologies and AT&T
Bell Labs. Dr. Kumar has a bachelor’s degree in Electrical Engineering from the Indian Institute of
Technology in Bombay, a M.S. in Electrical Engineering from the University of Evansville in Indiana
and a Ph.D. in Electrical Engineering from Lehigh University.

David R. Welland co-founded Silicon Laboratories in August 1996, has served as a Vice President
and director since our inception and was appointed Fellow in March 2004. From November 1991 until
founding Silicon Laboratories, Mr. Welland held various positions at Crystal Semiconductor/Cirrus
Logic, a designer and manufacturer of integrated circuits, including Senior Design Engineer.

Mr. Welland holds a B.S. in Electrical Engineering from the Massachusetts Institute of Technology.
Mr. Welland’s years of experience as a semiconductor designer provide him with extensive insight into
our operations and qualifies him to serve as a member of our Board of Directors.

Alf-Egil Bogen has served as a director of Silicon Laboratories since October 2013. Mr. Bogen is a

20-year semiconductor veteran and one of the inventors of the highly successful AVR microcontroller.
He is currently the chief executive officer and a member of the Board of Directors of Novelda AS, a
privately held semiconductor company based in Norway specializing in nanoscale wireless low-power
technology for ultra-high-resolution impulse radar. Prior to Novelda, he was chief marketing officer of
Energy Micro AS until it was acquired by Silicon Laboratories in July 2013. Mr. Bogen also held
various management positions during his 17 years at Atmel Corporation, including managing director of
the AVR business unit as well as vice president of corporate marketing and chief marketing officer. He
began his career at Nordic VLSI in Norway. Mr. Bogen holds an M.S. in Electrical Engineering and
Computer Science from Norwegian University of Science and Technology and a B.S. in Electrical and
Computing Engineering from Trondheim University College. Mr. Bogen’s combination of independence
and his experience, including past experience in the semiconductor industry, qualifies him to serve as a
member of our Board of Directors.

Harvey B. Cash has served as a director of Silicon Laboratories since June 1997. Mr. Cash has
served as general partner of InterWest Partners, a venture capital firm, since 1986. Mr. Cash currently
serves on the Board of Directors of the following public companies: Ciena Corporation, a designer and
manufacturer of dense wavelength division multiplexing systems for fiber optic networks; Argo Group
International Holdings, Ltd., a specialty insurance company; and First Acceptance Corp, a provider of
low-cost auto insurance. Mr. Cash holds a B.S. in Electrical Engineering from Texas A&M University
and an M.B.A. from Western Michigan University. Mr. Cash’s independence and experience as a
director of various public companies, as well as his prior operational experience as an executive,
qualifies him to serve as a member of our Board of Directors.

R. Ted Enloe III has served as a director of Silicon Laboratories since April 2003. Mr. Enloe is
currently the Managing General Partner of Balquita Partners, Ltd., a family investment firm. Mr. Enloe
formerly served as Vice Chairman and member of the office of chief executive of Compaq Computer
Corporation. He also served as President of Lomas Financial Corporation and Libert´e Investors for
more than 15 years. Mr. Enloe co-founded a number of other publicly held firms, including Capstead
Mortgage Corp., Tyler Cabot Mortgage Securities Corp., and Seaman’s Corp. Mr. Enloe currently
serves on the Board of Directors of Leggett & Platt, Inc. and Live Nation, Inc. Mr. Enloe holds a B.S.
in Engineering from Louisiana Polytechnic University and a J.D. from Southern Methodist University.
Mr. Enloe’s combination of independence, qualification as an audit committee financial expert and his
experience, including past experience as an executive officer and current and past experience as a
director of various public companies, qualifies him to serve as a member of our Board of Directors.

Jack R. Lazar has served as a director of Silicon Laboratories since April 2013. Mr. Lazar is
currently the Chief Financial Officer of GoPro, a leading provider of wearable and mountable camera
products and accessories. From January 2013 to January 2014, he was an independent business and
financial consultant. Mr. Lazar was previously employed by Qualcomm and served as Senior Vice
President, Corporate Development and General Manager of Qualcomm Atheros from 2011 to 2013.
Prior to the acquisition of Atheros Communications by Qualcomm in 2011, Mr. Lazar served as Senior
Vice President of Corporate Development, Chief Financial Officer and Secretary of Atheros from 2010
to 2011. Atheros Communications was a publicly traded provider of communications semiconductor
solutions. From 2003 to 2010 Mr. Lazar held the positions including Vice President, Corporate
Development, Chief Financial Officer and Secretary. Previously, from 2002 to 2003, Mr. Lazar was an
independent business and financial consultant. From 1999 to 2002, Mr. Lazar served in a variety of
positions at NetRatings, a publicly traded Internet audience measurement and analysis company
(acquired by The Nielsen Company in 2007), most recently as Executive Vice President of Corporate

Development, Chief Financial Officer and Secretary. Prior to joining NetRatings, Mr. Lazar held a
variety of executive and management positions at Apptitude, Inc., Electronics for Imaging and Price
Waterhouse from 1987 to 1999. Mr. Lazar currently serves on the Board of Directors and as Chairman
of the audit committee of TubeMogul, a publicly traded enterprise software company for digital
branding. Mr. Lazar is a Certified Public Accountant and holds a B.S. in Commerce with an emphasis
in Accounting from Santa Clara University. Mr. Lazar’s combination of independence and his
experience, including past experience as an executive officer, qualifies him to serve as a member of our
Board of Directors.

Laurence G. Walker has served as a director of Silicon Laboratories since June 2003. Previously,
Mr. Walker co-founded and served as Chief Executive Officer of C-Port Corporation, a pioneer in the
network processor industry, which was acquired by Motorola in 2000. Following the acquisition,
Mr. Walker served as Vice President of Strategy for Motorola’s Network and Computing Systems Group
and then as Vice President and General Manager of the Network and Computing Systems Group until
2002. From August 1996 to May 1997, Mr. Walker served as Chief Executive Officer of CertCo, a digital
certification supplier. Mr. Walker served as Vice President and General Manager, Network Products
Business Unit, of Digital Equipment Corporation, a computer hardware company, from January 1994 to
July 1996. From 1998 to 2007, he served on the Board of Directors of McData Corporation, a provider of
storage networking solutions. From 1981 to 1994, he held a variety of other management positions at
Digital Equipment Corporation. Mr. Walker holds a B.S. in Electrical Engineering from Princeton
University and an M.S. and Ph.D. in Electrical Engineering from the Massachusetts Institute of
Technology. Mr. Walker’s combination of independence and his experience, including past experience as
an executive officer, qualifies him to serve as a member of our Board of Directors.

William P. Wood has served as a director of Silicon Laboratories since March 1997 and as Lead
Director since December 2005. Since 1996, Mr. Wood has also served as general partner of various funds
associated with Silverton Partners, a venture capital firm. From 1984 to 2003, Mr. Wood was a general
partner, and for certain funds created since 1996, a special limited partner, of various funds associated
with Austin Ventures, a venture capital firm. Mr. Wood holds a B.A. in History from Brown University
and an M.B.A. from Harvard University. Mr. Wood’s combination of independence and his experience,
including past experience as an investor in numerous semiconductor and technology companies, qualifies
him to serve as a member of our Board of Directors.

The remaining information required by this Item is incorporated by reference to the Proxy Statement

under the sections captioned ‘‘Proposal One: Election of Directors,’’ ‘‘Executive Compensation,’’
‘‘Section 16(a) Beneficial Ownership Reporting Compliance’’ and ‘‘Code of Ethics.’’

Item 11. Executive Compensation

The information under the caption ‘‘Executive Compensation’’ and ‘‘Proposal One: Election of

Directors’’ appearing in the Proxy Statement, is incorporated herein by reference.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder

Matters

The information under the caption ‘‘Ownership of Securities’’ and ‘‘Equity Compensation Plan

Information’’ appearing in the Proxy Statement is incorporated herein by reference.

Item 13. Certain Relationships and Related Transactions, and Director Independence

The information under the caption ‘‘Certain Relationships and Related Transactions, and Director

Independence’’ appearing in the Proxy Statement is incorporated herein by reference.

Item 14. Principal Accounting Fees and Services

The information under the caption ‘‘Proposal Two: Ratification of Appointment of Independent

Registered Public Accounting Firm’’ appearing in the Proxy Statement is incorporated herein by
reference.

Item 15. Exhibits and Financial Statement Schedules

(a) 1. Financial Statements

Part IV

Index

Report of independent registered public accounting firm . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Consolidated Balance Sheets at January 3, 2015 and December 28, 2013 . . . . . . . . . . . . . . . . . .

Page

F-1

F-2

F-3

Consolidated Statements of Income for the fiscal years ended January 3, 2015, December 28,

2013 and December 29, 2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

F-4

Consolidated Statements of Comprehensive Income for the fiscal years ended January 3, 2015,

December 28, 2013 and December 29, 2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

F-5

Consolidated Statements of Changes in Stockholders’ Equity for the fiscal years ended January 3,
2015, December 28, 2013 and December 29, 2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Consolidated Statements of Cash Flows for the fiscal years ended January 3, 2015, December 28,
2013 and December 29, 2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

F-6

F-7

F-8

Schedules

Schedule II—Valuation and Qualifying Accounts

All other schedules have been omitted since the information required by the schedule is not

applicable, or is not present in amounts sufficient to require submission of the schedule, or
because the information required is included in the Consolidated Financial Statements and notes
thereto.

3. Exhibits

The exhibits listed on the accompanying index to exhibits immediately following the

Consolidated Financial Statements are filed as part of, or hereby incorporated by reference into,
this Form 10-K.

(b) Exhibits

Exhibit
Number

2.1*

2.2*

Share Purchase Agreement, dated June 6, 2013, by and between Silicon Laboratories
International Pte. Ltd. and Energy AS and Silicon Laboratories Inc. (filed as Exhibit 2.1 to
the Form 8-K filed on June 7, 2013).

Sale and Purchase Agreement dated January 30, 2015, by and between Silicon Laboratories
International Pte. Ltd. and the holders of shares, options and capital loans in Bluegiga
Technologies Oy (filed as Exhibit 2.1 to the Form 8-K filed on February 4, 2015).

3.1* Form of Fourth Amended and Restated Certificate of Incorporation of Silicon

Laboratories Inc. (filed as Exhibit 3.1 to the Registrant’s Registration Statement on
Form S-1 (Securities and Exchange Commission File No. 333-94853) (the ‘‘IPO
Registration Statement’’)).

3.2*

4.1*

Second Amended and Restated Bylaws of Silicon Laboratories Inc. (filed as Exhibit 3.2 to
the Registrant’s Annual Report on Form 10-K for the fiscal year ended January 3, 2004).

Specimen certificate for shares of common stock (filed as Exhibit 4.1 to the IPO
Registration Statement).

10.1* Form of Indemnification Agreement between Silicon Laboratories Inc. and each of its

directors and executive officers (filed as Exhibit 10.1 to the IPO Registration Statement).

10.2* Credit Agreement, dated July 31, 2012, by and among Silicon Laboratories Inc., the

subsidiaries of the borrower identified therein, Bank of America, N.A., Wells Fargo Bank,
National Association, and Regions Bank (filed as Exhibit 10.1 to the Form 8-K filed
August 1, 2012).

10.3*

10.4*

10.5*

Security and Pledge Agreement, dated July 31, 2012, by and among Silicon
Laboratories Inc., with the other parties identified as ‘‘Obligors’’ (as defined therein) and
such other parties that may become Obligors thereunder after the date thereof, and Bank
of America, N.A (filed as Exhibit 10.2 to the Form 8-K filed August 1, 2012).

Silicon Laboratories Inc. 2009 Stock Incentive Plan, as amended and restated on April 15,
2014 (filed as Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on
April 16, 2014).

Silicon Laboratories Inc. 2009 Employee Stock Purchase Plan, as amended and restated on
April 15, 2014 (filed as Exhibit 10.2 to the Registrant’s Current Report on Form 8-K filed
on April 16, 2014).

10.6* Form of Restricted Stock Units Grant Notice and Global Restricted Stock Units Award

Agreement under Registrant’s 2009 Stock Incentive Plan, as amended and restated (filed
as Exhibit 10.3 to the Registrant’s Current Report on Form 8-K filed on April 16, 2014).

10.7* Form of Market Stock Units Grant Notice and Global Market Stock Units Award

Agreement under Registrant’s 2009 Stock Incentive Plan, as amended and restated (filed
as Exhibit 10.4 to the Registrant’s Current Report on Form 8-K filed on April 16, 2014).

10.8* Form of Stock Option Grant Notice and Global Stock Option Award Agreement under

Registrant’s 2009 Stock Incentive Plan, as amended and restated (filed as Exhibit 10.5 to
the Registrant’s Current Report on Form 8-K filed on April 16, 2014).

10.9*

Silicon Laboratories Inc. 2015 Bonus Plan (filed as Exhibit 10.1 to the Registrant’s Current
Report on Form 8-K filed on January 30, 2015).

Exhibit
Number

Subsidiaries of the Registrant.

23.1

Consent of Independent Registered Public Accounting Firm.

Power of Attorney (included on signature page to this Form 10-K).

31.1

31.2

Certification of the Principal Executive Officer, as required by Section 302 of the Sarbanes-
Oxley Act of 2002.

Certification of the Principal Financial Officer, as required by Section 302 of the Sarbanes-
Oxley Act of 2002.

32.1

Certification as required by Section 906 of the Sarbanes-Oxley Act of 2002.

101.INS

XBRL Instance Document

101.SCH XBRL Taxonomy Extension Schema Document

101.CAL

XBRL Taxonomy Extension Calculation Linkbase Document

101.LAB

XBRL Taxonomy Extension Label Linkbase Document

101.PRE

XBRL Taxonomy Extension Presentation Linkbase Document

101.DEF

XBRL Taxonomy Extension Definition Linkbase Document

Incorporated herein by reference to the indicated filing.

+ Management contract or compensatory plan or arrangement

SILICON LABORATORIES INC.
VALUATION AND QUALIFYING ACCOUNTS

SCHEDULE II

Valuation Allowance for
Deferred Tax Assets

Balance at
Beginning of
Period

Additions

Charged to
Expenses

Charged to
Goodwill

Deductions

Balance at
End of Period

Year ended January 3, 2015 . . . . . . . .
Year ended December 28, 2013 . . . . . .
Year ended December 29, 2012 . . . . . .

$3,775
$2,114
$ —

$ —
$2,335
$ —

(in thousands)
$ —
$ —
$2,114

$(320)
$(674)
$ —

$3,455
$3,775
$2,114

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the

registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized, in Austin, Texas, on February 6, 2015.

SIGNATURES

SILICON LABORATORIES INC.

By:

/s/ G. TYSON TUTTLE

G. Tyson Tuttle
Chief Executive Officer

POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears

below constitutes and appoints G. Tyson Tuttle and John C. Hollister and each of them, acting
individually, as his or her attorney-in-fact, each with full power of substitution and resubstitution, for
him or her and in his or her name, place and stead, in any and all capacities, to sign any and all
amendments to this annual report on Form 10-K and other documents in connection herewith and
therewith, and to file the same, with all exhibits thereto, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and
perform each and every act and thing requisite and necessary to be done in connection herewith and
therewith and about the premises, as fully to all intents and purposes as he or she might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or any of them, or
their or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed

below by the following persons on behalf of the registrant and in the capacities and on the dates
indicated:

Name

Title

Date

/s/ NAVDEEP S. SOOCH

Navdeep S. Sooch

/s/ G. TYSON TUTTLE

G. Tyson Tuttle

/s/ WILLIAM G. BOCK

William G. Bock

/s/ JOHN C. HOLLISTER

John C. Hollister

Chairman of the Board

February 6, 2015

Chief Executive Officer and Director
(Principal Executive Officer)

February 6, 2015

President and Director

February 6, 2015

Senior Vice President and Chief
Financial Officer (Principal Financial
Officer and Principal Accounting
Officer)

February 6, 2015

Name

Title

Date

/s/ DAVID R. WELLAND

David R. Welland

/s/ ALF-EGIL BOGEN

Alf-Egil Bogen

/s/ HARVEY B. CASH

Harvey B. Cash

/s/ ROBERT TED ENLOE, III

Robert Ted Enloe, III

/s/ JACK R. LAZAR

Jack R. Lazar

Laurence G. Walker

/s/ WILLIAM P. WOOD

William P. Wood

Vice President and Director

February 6, 2015

Director

(This page has been left blank intentionally.)

Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders of Silicon Laboratories Inc.

We have audited Silicon Laboratories Inc.’s internal control over financial reporting as of

January 3, 2015, based on criteria established in Internal Control—Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO
criteria). Silicon Laboratories Inc.’s management is responsible for maintaining effective internal
control over financial reporting, and for its assessment of the effectiveness of internal control over
financial reporting included in the accompanying Management’s Report on Internal Control over
Financial Reporting. Our responsibility is to express an opinion on the company’s internal control over
financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control over financial reporting was maintained
in all material respects. Our audit included obtaining an understanding of internal control over
financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design
and operating effectiveness of internal control based on the assessed risk, and performing such other
procedures as we considered necessary in the circumstances. We believe that our audit provides a
reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed to provide reasonable

assurance regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles. A company’s internal
control over financial reporting includes those policies and procedures that (1) pertain to the
maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of the company; (2) provide reasonable assurance that transactions are
recorded as necessary to permit preparation of financial statements in accordance with generally
accepted accounting principles, and that receipts and expenditures of the company are being made only
in accordance with authorizations of management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or
disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or

detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject
to the risk that controls may become inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.

In our opinion, Silicon Laboratories Inc. maintained, in all material respects, effective internal

control over financial reporting as of January 3, 2015, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the consolidated balance sheets of Silicon Laboratories Inc. as of
January 3, 2015 and December 28, 2013, and the related consolidated statements of income,
comprehensive income, changes in stockholders’ equity and cash flows for each of the three fiscal years
in the period ended January 3, 2015 of Silicon Laboratories Inc. and our report dated February 6, 2015
expressed an unqualified opinion thereon.

/s/ ERNST & YOUNG LLP

Austin, Texas
February 6, 2015

F-1

Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders of Silicon Laboratories Inc.

We have audited the accompanying consolidated balance sheets of Silicon Laboratories Inc. as of

January 3, 2015 and December 28, 2013, and the related consolidated statements of income,
comprehensive income, changes in stockholders’ equity and cash flows for each of the three fiscal years
in the period ended January 3, 2015. Our audits also included the financial statement schedule listed in
the Index at Item 15(a). These financial statements and schedule are the responsibility of the
Company’s management. Our responsibility is to express an opinion on these financial statements and
schedule based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects,
the consolidated financial position of Silicon Laboratories Inc. at January 3, 2015 and December 28,
2013, and the consolidated results of its operations and its cash flows for each of the three fiscal years
in the period ended January 3, 2015, in conformity with U.S. generally accepted accounting principles.
Also, in our opinion, the related financial statement schedule, when considered in relation to the basic
financial statements taken as a whole, present fairly in all material respects the information set forth
therein.

We also have audited, in accordance with the standards of the Public Company Accounting

Oversight Board (United States), Silicon Laboratories Inc.’s internal control over financial reporting as
of January 3, 2015, based on criteria established in Internal Control—Integrated Framework issued by
the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our
report dated February 6, 2015 expressed an unqualified opinion thereon.

/s/ ERNST & YOUNG LLP

Austin, Texas
February 6, 2015

F-2

Silicon Laboratories Inc.
Consolidated Balance Sheets
(In thousands, except per share data)

January 3,
2015

December 28,
2013

Current assets:

Assets

Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Short-term investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts receivable, net of allowances for doubtful accounts of $786 at

January 3, 2015 and $797 at December 28, 2013 . . . . . . . . . . . . . . . . . .
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid expenses and other current assets . . . . . . . . . . . . . . . . . . . . . . . .

Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Property and equipment, net
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other intangible assets, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other assets, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 141,706
193,489

$ 95,800
179,593

70,367
52,631
21,173
49,171

528,537
7,419
132,820
228,781
115,021
29,983

72,124
45,271
18,878
47,651

459,317
10,632
132,445
228,781
131,593
28,382

Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$1,042,561

$991,150

Liabilities and Stockholders’ Equity

Current liabilities:

Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Current portion of long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income on shipments to distributors . . . . . . . . . . . . . . . . . . . . .
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other non-current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commitments and contingencies
Stockholders’ equity:

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

38,922
10,000
73,646
38,662
2,084

163,314
77,500
43,691

284,505

$ 22,126
7,500
45,975
30,853
2,693

109,147
87,500
55,941

252,588

issued and outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

—

Common stock—$0.0001 par value; 250,000 shares authorized; 42,225 and

42,779 shares issued and outstanding at January 3, 2015 and
December 28, 2013, respectively . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Additional paid-in capital
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated other comprehensive loss . . . . . . . . . . . . . . . . . . . . . . . . . .

4
29,501
728,633
(82)

4
48,630
690,612
(684)

Total stockholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

758,056

738,562

Total liabilities and stockholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$1,042,561

$991,150

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

F-3

Silicon Laboratories Inc.
Consolidated Statements of Income
(In thousands, except per share data)

Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cost of revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Gross margin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating expenses:

Research and development . . . . . . . . . . . . . . . . . . . . . . . . .
Selling, general and administrative . . . . . . . . . . . . . . . . . . .

Operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other income (expense):

Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other income (expense), net . . . . . . . . . . . . . . . . . . . . . . . .

Income before income taxes . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision for income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . .

Year Ended

January 3,
2015

$620,704
242,153

December 28,
2013

December 29,
2012

$580,087
227,183

$563,294
225,277

378,551

352,904

338,017

172,985
154,145

327,130

51,421

1,007
(3,154)
(234)

49,040
11,019

157,799
130,795

288,594

64,310

853
(3,293)
157

62,027
12,208

137,952
114,390

252,342

85,675

1,338
(1,149)
484

86,348
22,800

Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 38,021

$ 49,819

$ 63,548

Earnings per share:

Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$
$

0.88
0.87

$
$

1.17
1.14

$
$

1.51
1.47

Weighted-average common shares outstanding:
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

42,970
43,793

42,715
43,537

42,136
43,106

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

F-4

Silicon Laboratories Inc.
Consolidated Statements of Comprehensive Income
(In thousands)

Year Ended

January 3,
2015

December 28,
2013

December 29,
2012

Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$38,021

$49,819

$63,548

Other comprehensive income, before tax:

Net changes to available-for-sale securities:

Unrealized gains (losses) arising during the period . . . . . .
Reclassification for gains included in net income . . . . . . .

1,107
—

(535)
(232)

Net changes to cash flow hedges:

Unrealized gains (losses) arising during the period . . . . . .
Reclassification for losses included in net income . . . . . . .

Other comprehensive income, before tax . . . . . . . . . . . . . . . . .

Provision for income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . .

Other comprehensive income . . . . . . . . . . . . . . . . . . . . . . . . .

(799)
618

926

324

602

611
560

404

142

262

1,000
—

(956)
2,295

2,339

818

1,521

Comprehensive income . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$38,623

$50,081

$65,069

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

F-5

Silicon Laboratories Inc.
Consolidated Statements of Changes in Stockholders’ Equity
(In thousands)

Common Stock

Number
of Shares

Par
Value

Additional
Paid-In
Capital

Retained
Earnings

Accumulated
Other
Comprehensive
Loss

Total
Stockholders’
Equity

Balance as of December 31, 2011 . .

42,068

$ 4

$ 14,749

$586,653

$(2,467)

$598,939

Net income . . . . . . . . . . . . . . . .
Other comprehensive income . . .
Stock issuances under employee
plans, net of shares withheld
for taxes . . . . . . . . . . . . . . . . .

Income tax benefit (shortfall)

from stock-based awards . . . . .
Repurchases of common stock . .
Stock-based compensation . . . . .

—
—

63,548
—

—
1,521

63,548
1,521

1,560

—

15,148

—

1,675
—
(1,749) — (52,611)
31,161
—

—

—
(9,408)
—

—

—
—
—

15,148

1,675
(62,019)
31,161

Balance as of December 29, 2012 . .

41,879

10,122

640,793

(946)

649,973

Net income . . . . . . . . . . . . . . . .
Other comprehensive income . . .
Stock issuances under employee
plans, net of shares withheld
for taxes . . . . . . . . . . . . . . . . .

Income tax benefit (shortfall)

from stock-based awards . . . . .
Repurchases of common stock . .
Stock-based compensation . . . . .
Stock issued in business

Net income . . . . . . . . . . . . . . . .
Other comprehensive income . . .
Stock issuances under employee
plans, net of shares withheld
for taxes . . . . . . . . . . . . . . . . .

Income tax benefit (shortfall)

from stock-based awards . . . . .
Repurchases of common stock . .
Stock-based compensation . . . . .

—
—

49,819
—

1,057

—

15,301

—

(772)
(661) — (26,022)
30,753

—

—
—

19,248

48,630

—
—

1,124

—

13,320

—

120
—
(1,678) — (71,676)
39,107
—

—

—
—
—

—

690,612

38,021
—

—

—
—
—

combination . . . . . . . . . . . . . .

504

Balance as of December 28, 2013 . .

42,779

—
262

—

—
—
—

—

(684)

—
602

—

—
—
—

49,819
262

15,301

(772)
(26,022)
30,753

19,248

738,562

38,021
602

13,320

120
(71,676)
39,107

Balance as of January 3, 2015 . . . .

42,225

$ 4

$ 29,501

$728,633

(82)

$758,056

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

F-6

Silicon Laboratories Inc.
Consolidated Statements of Cash Flows
(In thousands)

Year Ended

January 3,
2015

December 28,
2013

December 29,
2012

$ 38,021

$ 49,819

$ 63,548

Operating Activities
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adjustments to reconcile net income to cash provided by operating

activities:
Depreciation of property and equipment . . . . . . . . . . . . . . . . . . .
Net gain on the purchase of property and equipment
. . . . . . . . . .
. . . . . . . .
Amortization of other intangible assets and other assets
Impairment of long-lived assets . . . . . . . . . . . . . . . . . . . . . . . . .
Stock-based compensation expense . . . . . . . . . . . . . . . . . . . . . . .
Income tax benefit (shortfall) from stock-based awards . . . . . . . . .
Excess income tax benefit from stock-based awards . . . . . . . . . . . .
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Changes in operating assets and liabilities:

Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid expenses and other assets . . . . . . . . . . . . . . . . . . . . . .
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income on shipments to distributors . . . . . . . . . . . . . .
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other non-current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . .

12,561
—
17,923
—
39,067
489
(632)
3,054

1,757
(7,170)
9,332
11,475
27,671
7,809
(3,371)
(20,543)

13,491
—
15,911
—
30,800
(606)
(290)
3,319

8,972
5,588
(2,514)
(3,979)
463
(2,381)
5,189
(3,632)

Net cash provided by operating activities . . . . . . . . . . . . . . . . . . . .

137,443

120,150

Investing Activities
Purchases of available-for-sale investments . . . . . . . . . . . . . . . . . . .
Proceeds from sales and maturities of available-for-sale investments . .
Purchases of property and equipment . . . . . . . . . . . . . . . . . . . . . . .
Purchases of other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Acquisitions of businesses, net of cash acquired . . . . . . . . . . . . . . . .

Net cash used in investing activities . . . . . . . . . . . . . . . . . . . . . . . .

Financing Activities
Proceeds from issuance of common stock, net of shares withheld for

taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Excess income tax benefit from stock-based awards . . . . . . . . . . . . .
Repurchases of common stock . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from issuance of long-term debt, net . . . . . . . . . . . . . . . . .
Payments on debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Net cash provided by (used in) financing activities . . . . . . . . . . . . . .

Increase (decrease) in cash and cash equivalents . . . . . . . . . . . . . . .
Cash and cash equivalents at beginning of period . . . . . . . . . . . . . .

(166,094)
156,520
(11,225)
(5,514)
—

(26,313)

13,320
632
(71,676)
—
(7,500)

(65,224)

45,906
95,800

(213,883)
210,824
(10,472)
(5,939)
(86,441)

(105,911)

15,301
290
(26,022)
—
(13,434)

(23,865)

(9,626)
105,426

13,621
(8,457)
14,154
708
31,176
1,827
(1,294)
4,725

(20,743)
(13,056)
10,629
7,217
3,247
4,623
(7,816)
(7,059)

97,050

(192,450)
235,517
(102,043)
(8,508)
(71,852)

(139,336)

15,148
1,294
(62,019)
98,325
—

52,748

10,462
94,964

Cash and cash equivalents at end of period . . . . . . . . . . . . . . . . . . .

$ 141,706

$ 95,800

$ 105,426

Supplemental Disclosure of Cash Flow Information:
Interest paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

2,950

Income taxes paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 11,587

2,925

3,838

677

$ 23,564

Supplemental Disclosure of Non-Cash Activity:
Stock issued in business combination . . . . . . . . . . . . . . . . . . . . . . .

—

$ 19,248

—

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

F-7

Silicon Laboratories Inc.
Notes to Consolidated Financial Statements
January 3, 2015

1. Description of Business

Silicon Laboratories Inc. (the ‘‘Company’’), a Delaware corporation, develops and markets mixed-

signal analog intensive integrated circuits (ICs) for a broad range of applications for global markets.
Within the semiconductor industry, the Company is known as a ‘‘fabless’’ company meaning that the
ICs are manufactured by third-party foundry semiconductor companies.

2. Significant Accounting Policies

Basis of Presentation and Principles of Consolidation

The Company prepares financial statements on a 52- or 53-week fiscal year that ends on the
Saturday closest to December 31. Fiscal 2014 had 53 weeks with the extra week occurring in the fourth
quarter of the year and ended on January 3, 2015. Fiscal 2013 and 2012 were 52-week years and ended
on December 28, 2013 and December 29, 2012, respectively. The accompanying Consolidated Financial
Statements include the accounts of the Company and its wholly owned subsidiaries. All significant
intercompany balances and transactions have been eliminated in consolidation.

Foreign Currency Transactions

The Company’s foreign subsidiaries are considered to be extensions of the U.S. Company. The
functional currency of the foreign subsidiaries is the U.S. dollar. Accordingly, gains and losses resulting
from remeasuring transactions denominated in currencies other than U.S. dollars are included in other
income (expense), net in the Consolidated Statements of Income.

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.

Reclassifications

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

year presentation.

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.

F-8

Silicon Laboratories Inc.
Notes to Consolidated Financial Statements
January 3, 2015 (Continued)

2. Significant Accounting Policies (Continued)

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.

Cash and Cash Equivalents

Cash and cash equivalents consist of cash deposits, money market funds and investments in debt

securities with original maturities of ninety days or less when purchased.

Investments

The Company’s investments typically have original maturities greater than ninety days as of the

date of purchase and are classified as either available-for-sale or trading securities. Investments in
available-for-sale securities are reported at fair value, with unrealized gains and losses, net of tax,
recorded as a component of accumulated other comprehensive loss in the Consolidated Balance Sheet.
Investments in trading securities are reported at fair value, with both realized and unrealized gains and
losses recorded in other income (expense), net in the Consolidated Statement of Income. Investments
in which the Company has the ability and intent, if necessary, to liquidate in order to support its
current operations (including those with contractual maturities greater than one year from the date of
purchase) are classified as short-term.

The Company reviews its available-for-sale investments as of the end of each reporting period for
other-than-temporary declines in fair value based on the specific identification method. The Company
considers various factors in determining whether an impairment is other-than-temporary, including the
severity and duration of the impairment, changes in underlying credit ratings, forecasted recovery, its
intent to sell or the likelihood that it would be required to sell the investment before its anticipated
recovery in market value and the probability that the scheduled cash payments will continue to be
made. When the Company concludes that an other-than-temporary impairment has occurred, the
Company assesses whether it intends to sell the security or if it is more likely than not that it will be
required to sell the security before recovery. If either of these two conditions is met, the Company
recognizes a charge in earnings equal to the entire difference between the security’s amortized cost
basis and its fair value. If the Company does not intend to sell a security and it is not more likely than
not that it will be required to sell the security before recovery, the unrealized loss is separated into an
amount representing the credit loss, which is recognized in earnings, and the amount related to all
other factors, which is recorded in accumulated other comprehensive loss.

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.

F-9

Silicon Laboratories Inc.
Notes to Consolidated Financial Statements
January 3, 2015 (Continued)

2. Significant Accounting Policies (Continued)

The Company uses interest rate swap agreements to manage exposure to interest rate risks. The
swap agreements are designated and qualify as cash flow hedges. The effective portion of the gain or
loss on the interest rate swaps 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.

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.

Inventories

Inventories are stated at the lower of cost, determined using the first-in, first-out method, or
market. The Company writes down the carrying value of inventory to net realizable value for estimated
obsolescence or unmarketable inventory based upon assumptions about the age of inventory, future
demand and market conditions. Inventory impairment charges establish a new cost basis for inventory
and charges are not subsequently reversed to income even if circumstances later suggest that increased
carrying amounts are recoverable.

Property and Equipment

Property and equipment are stated at cost, net of accumulated depreciation. Depreciation is
computed using the straight-line method over the useful lives of the assets ranging from three to seven
years. Leasehold improvements are depreciated over the contractual lease period or their useful life,
whichever is shorter.

In fiscal 2012, the Company purchased the facilities it had previously leased for its headquarters in

Austin, Texas. The buildings are located on land which is leased through 2099 from a third party. The
rents for these ground leases were prepaid for the term of the leases by the previous lessee. The
buildings and leasehold interest in ground leases are being depreciated on a straight-line basis over
their estimated useful lives of 40 years and 86 years, respectively.

Business Combinations

The Company records business combinations using the acquisition method of accounting and
accordingly, allocates the fair value of purchase consideration to the assets acquired and liabilities
assumed based on their fair values at the acquisition date. The excess of the fair value of purchase
consideration over the fair value of the assets acquired and liabilities assumed is recorded as goodwill.
The results of operations of the businesses acquired are included in the Company’s consolidated results
of operations beginning on the date of the acquisition.

F-10

Silicon Laboratories Inc.
Notes to Consolidated Financial Statements
January 3, 2015 (Continued)

2. Significant Accounting Policies (Continued)

Long-Lived Assets

Purchased intangible assets are stated at cost, net of accumulated amortization, and are amortized
using the straight-line method over their estimated useful lives, ranging from four to twelve years. Fair
values are determined primarily using the income approach, in which the Company projects future
expected cash flows and applies an appropriate discount rate.

Long-lived assets ‘‘held and used’’ by the Company are reviewed for impairment whenever events

or changes in circumstances indicate that their net book value may not be recoverable. When such
factors and circumstances exist, the Company compares the projected undiscounted future cash flows
associated with the related asset or group of assets over their estimated useful lives, against their
respective carrying amounts. Impairment, if any, is based on the excess of the carrying amount over the
fair value of those assets and is recorded in the period in which the determination was made.

The carrying value of goodwill is reviewed at least annually by the Company for possible
impairment. The goodwill impairment test is a two-step process. The first step of the impairment
analysis compares the fair value of the reporting unit to the net book value of the reporting unit. In
determining fair value, several valuation methodologies are allowed, although quoted market prices are
the best evidence of fair value. If the results of the first step demonstrate that the net book value is
greater than the fair value, the Company must proceed to step two of the analysis. Step two of the
analysis compares the implied fair value of goodwill to its carrying amount. If the carrying amount of
goodwill exceeds its implied fair value, an impairment loss is recognized equal to that excess. The
Company tests goodwill for impairment annually as of the first day of its fourth fiscal quarter and in
interim periods if events occur that would indicate that the carrying value of goodwill may be impaired.

Revenue Recognition

Revenues are generated predominately by sales of the Company’s 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.

Shipping and Handling

Shipping and handling costs are classified as a component of cost of revenues in the Consolidated

Statements of Income.

F-11

Silicon Laboratories Inc.
Notes to Consolidated Financial Statements
January 3, 2015 (Continued)

2. Significant Accounting Policies (Continued)

Stock-Based Compensation

The Company has stock-based compensation plans, which are more fully described in Note 13,

Stock-Based Compensation. The Company accounts for those plans using a fair-value method and
recognizes the expense in its Consolidated Statement of Income.

Research and Development

Research and development costs are expensed as incurred. Research and development expense
consists primarily of personnel-related expenses, including stock-based compensation, as well as new
product masks, external consulting and services costs, equipment tooling, equipment depreciation,
amortization of intangible assets, and an allocated portion of our occupancy costs. Assets purchased to
support the Company’s ongoing research and development activities are capitalized when related to
products which have achieved technological feasibility or have an alternative future use, and are
amortized over their estimated useful lives.

Advertising

Advertising costs are expensed as incurred. Advertising expenses were $1.7 million, $2.0 million

and $1.7 million in fiscal 2014, 2013 and 2012, respectively.

Income Taxes

The Company accounts for income taxes using the asset and liability method whereby deferred tax
asset and liability account balances are determined based on differences between the financial reporting
and the tax bases of assets and liabilities and are measured using the enacted tax laws and related rates
that will be in effect when the differences are expected to reverse. These differences result in deferred
tax assets and liabilities, which are included in the Company’s Consolidated Balance Sheet. The
Company then assesses the likelihood that the deferred tax assets will be realized. A valuation
allowance is established against deferred tax assets to the extent the Company believes that it is more
likely than not that the deferred tax assets will not be realized, taking into consideration the level of
historical taxable income and projections for future taxable income over the periods in which the
temporary differences are deductible.

Uncertain tax positions must meet a more-likely-than-not threshold to be recognized in the

financial statements and the tax benefits recognized are measured based on the largest benefit that has
a greater than 50% likelihood of being realized upon final settlement. See Note 17, Income Taxes, for
additional information.

Recent Accounting Pronouncements

In June 2014, the Financial Accounting Standards Board (FASB) issued FASB Accounting

F-12

Silicon Laboratories Inc.
Notes to Consolidated Financial Statements
January 3, 2015 (Continued)

2. Significant Accounting Policies (Continued)

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.

F-13

Silicon Laboratories Inc.
Notes to Consolidated Financial Statements
January 3, 2015 (Continued)

3. Earnings Per Share

The following table sets forth the computation of basic and diluted earnings per share (in

thousands, except per share data):

Year Ended

January 3,
2015

December 28,
2013

December 29,
2012

Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$38,021

$49,819

$63,548

Shares used in computing basic earnings per share . . . . . . . . . . .

42,970

42,715

42,136

Effect of dilutive securities:

Stock options and other stock-based awards . . . . . . . . . . . . . .

823

822

Shares used in computing diluted earnings per share . . . . . . . . . .

43,793

43,537

970

43,106

Earnings per share:

Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$
$

0.88
0.87

$
$

1.17
1.14

$
$

1.51
1.47

For fiscal years ended January 3, 2015, December 28, 2013 and December 29, 2012, approximately

0.1 million, 0.4 million and 0.5 million shares, respectively, were not included in the diluted earnings
per share calculation since the shares were anti-dilutive.

4. Cash, Cash Equivalents and Investments

The Company’s cash equivalents and short-term investments as of January 3, 2015 consisted of
municipal bonds, money market funds, corporate bonds, commercial paper, variable-rate demand notes,
certificates of deposit, asset-backed securities, international government bonds, U.S. government agency
and U.S. 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 January 3, 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 January 3, 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 January 3, 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

F-14

Silicon Laboratories Inc.
Notes to Consolidated Financial Statements
January 3, 2015 (Continued)

4. Cash, Cash Equivalents and Investments (Continued)

the securities at par value. As such, the Company has determined that no other-than-temporary
impairment losses existed as of January 3, 2015.

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

January 3, 2015

Gross
Unrealized
Losses

Gross
Unrealized
Gains

Cost

Fair Value

$ 52,144

$ —

$ 52,144

Cash and Cash Equivalents:

Cash on hand . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Available-for-sale securities:

Money market funds . . . . . . . . . . . . . . . . . . . . . . . .
Certificates of deposit
. . . . . . . . . . . . . . . . . . . . . . .
Commercial paper . . . . . . . . . . . . . . . . . . . . . . . . . .
Municipal bonds . . . . . . . . . . . . . . . . . . . . . . . . . . .
U.S. government agency . . . . . . . . . . . . . . . . . . . . . .
Corporate bonds . . . . . . . . . . . . . . . . . . . . . . . . . . .
U.S. government bonds . . . . . . . . . . . . . . . . . . . . . .

Total available-for-sale securities . . . . . . . . . . . . . . . . .

71,415
7,739
5,348
1,756
1,202
1,101
1,000

89,561

—
—
—
—
—
—
—

—

Total cash and cash equivalents . . . . . . . . . . . . . . . . . . . .

$141,705

$ —

Short-term Investments:

Available-for-sale securities:

Municipal bonds . . . . . . . . . . . . . . . . . . . . . . . . . . .
Corporate bonds . . . . . . . . . . . . . . . . . . . . . . . . . . .
Variable-rate demand notes . . . . . . . . . . . . . . . . . . .
Commercial paper . . . . . . . . . . . . . . . . . . . . . . . . . .
Asset-backed securities . . . . . . . . . . . . . . . . . . . . . . .
International government bonds . . . . . . . . . . . . . . . .
U.S. government bonds . . . . . . . . . . . . . . . . . . . . . .
U.S. government agency . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . .
Certificates of deposit

$129,005
33,043
12,915
8,995
5,380
2,526
650
601
250

Total short-term investments . . . . . . . . . . . . . . . . . . . . . .

$193,365

$ (25)
(35)
—
—
(3)
(10)
—
—
—

$ (73)

$172
25
—
—
—
—
—
—
—

$197

—
—
—
1
—
—
—

71,415
7,739
5,348
1,757
1,202
1,101
1,000

89,562

$141,706

$129,152
33,033
12,915
8,995
5,377
2,516
650
601
250

$193,489

Long-term Investments:

Available-for-sale securities:

Auction rate securities . . . . . . . . . . . . . . . . . . . . . . .

Total long-term investments . . . . . . . . . . . . . . . . . . . . . . .

8,000

$(581)

$ —

7,419

F-15

Silicon Laboratories Inc.
Notes to Consolidated Financial Statements
January 3, 2015 (Continued)

4. Cash, Cash Equivalents and Investments (Continued)

December 28, 2013

Gross
Unrealized
Losses

Gross
Unrealized
Gains

Cost

Fair Value

Cash and Cash Equivalents:

Cash on hand . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Available-for-sale securities:

Total available-for-sale securities . . . . . . . . . . . . . . . . .

$ 45,544

$ —

$ 45,544

39,538
7,768
2,499
451

50,256

—
—
—
—

—

—
—
—
—

—

39,538
7,768
2,499
451

50,256

Total cash and cash equivalents . . . . . . . . . . . . . . . . . . . .

$ 95,800

$ —

$ 95,800

Short-term Investments:

Available-for-sale securities:

Municipal bonds . . . . . . . . . . . . . . . . . . . . . . . . . . .
Variable-rate demand notes . . . . . . . . . . . . . . . . . . .
Corporate bonds . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial paper . . . . . . . . . . . . . . . . . . . . . . . . . .
Asset-backed securities . . . . . . . . . . . . . . . . . . . . . . .

$119,289
38,025
17,788
3,748
515

Total short-term investments . . . . . . . . . . . . . . . . . . . . . .

$179,365

(11)
—
(4)
—
—

(15)

$182
—
60
—
1

$243

$119,460
38,025
17,844
3,748
516

$179,593

Long-term Investments:

Available-for-sale securities:

Auction rate securities . . . . . . . . . . . . . . . . . . . . . . .

$ 12,425

$(1,793)

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):

As of January 3, 2015

Municipal bonds . . . . . . . . . . . . . . . .
Corporate bonds . . . . . . . . . . . . . . . .
Auction rate securities . . . . . . . . . . . .
Asset-backed securities . . . . . . . . . . . .
International government bond . . . . . .

Less Than 12 Months

12 Months or Greater

Total

Fair
Value

$23,735
20,327
—
5,080
2,516

$51,658

Gross
Unrealized
Losses

$(25)
(35)
—
(3)
(10)

$(73)

Fair
Value

$ —
—
7,419
—
—

$7,419

Gross
Unrealized
Losses

Fair
Value

Gross
Unrealized
Losses

$ — $23,735
20,327
7,419
5,080
2,516

—
(581)
—
—

$(581)

$59,077

$ (25)
(35)
(581)
(3)
(10)

$(654)

F-16

Silicon Laboratories Inc.
Notes to Consolidated Financial Statements
January 3, 2015 (Continued)

4. Cash, Cash Equivalents and Investments (Continued)

Less Than 12 Months

12 Months or Greater

Total

As of December 28, 2013

Municipal bonds . . . . . . . . . . . . . . . . .
Auction rate securities . . . . . . . . . . . .
Corporate bonds . . . . . . . . . . . . . . . .

Fair
Value

$11,079
—
2,605

$13,684

$(11)
—
(4)

$(15)

Gross
Unrealized
Losses

Fair
Value

Gross
Unrealized
Losses

Fair
Value

Gross
Unrealized
Losses

(11)
(1,793)
(4)

$ — $ — $11,079
10,632
(1,793)
10,632
2,605
—
—

$10,632

$(1,793)

$24,316

$(1,808)

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

Due in one year or less . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Due after one year through ten years . . . . . . . . . . . . . . . . . . .
Due after ten years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$208,047
62,464
20,415

$208,166
62,470
19,834

Cost

Fair Value

$290,926

$290,470

5. Derivative Financial Instruments

The Company uses derivative financial instruments to manage certain exposures to the variability

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 Company’s previous swap agreement with a notional value of $50.1 million was terminated in

fiscal 2012 in connection with the Company’s purchase of its corporate headquarters facilities. See
Note 9, Acquisitions, for additional information.

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

F-17

Silicon Laboratories Inc.
Notes to Consolidated Financial Statements
January 3, 2015 (Continued)

5. Derivative Financial Instruments (Continued)

comprehensive loss may be recognized in the Consolidated Statement of Income based on an
assessment of the agreements at the time of termination. The termination of the Company’s swap
agreement with a notional value of $50.1 million resulted in its remaining fair value of $0.9 million that
was previously recorded in accumulated other comprehensive loss to be reclassified into earnings during
fiscal 2012. The Company did not discontinue any other cash flow hedges in 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 January 3, 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):

Interest rate swap . . . . . . . . . . . . . . . . Other assets, net

$331

$513

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

Balance Sheet Location

January 3,
2015

December 28,
2013

Fair Value

thousands):

Interest rate

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

Location
of Loss
Reclassified
into Income

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

January 3, December 28, December 29,

2015

2013

2012

January 3, December 28, December 29,

2015

2013

2012

swaps . . . . . . .

$(799)

$611

$(956) Rent expense

Interest expense

$ —
(618)

$ —
(560)

$(2,197)
(98)

The Company expects to reclassify $0.4 million of its interest rate swap losses included in

accumulated other comprehensive loss as of January 3, 2015 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. As of January 3, 2015, the Company held one foreign currency forward contract denominated in
Norwegian Krone with a notional value of $7.7 million. The fair value of the contract was not material
as of January 3, 2015. The contract has a maturity date of April 1, 2015 and it was not designated as a
hedging instrument. The Company held no foreign currency forward contracts prior to fiscal 2014.

The before-tax effect of derivative instruments not designated as hedging instruments was as

follows (in thousands):

Gain Recognized in Income

Year Ended
January 3,
2015

Location

Foreign currency forward contracts . . . . .

$1,075

Other income (expense), net

F-18

Silicon Laboratories Inc.
Notes to Consolidated Financial Statements
January 3, 2015 (Continued)

6. Fair Value of Financial Instruments

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 January 3, 2015 Using

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

Significant Other
Observable
Inputs
(Level 2)

Significant
Unobservable
Inputs
(Level 3)

Description

Assets:
Cash Equivalents:

Money market funds . . . . . . . . . . . . . . . . . .
Certificates of deposit . . . . . . . . . . . . . . . . .
Commercial paper . . . . . . . . . . . . . . . . . . . .
Municipal bonds . . . . . . . . . . . . . . . . . . . . .
U.S. government agency . . . . . . . . . . . . . . . .
Corporate bonds . . . . . . . . . . . . . . . . . . . . .
U.S. government bonds . . . . . . . . . . . . . . . .

Total cash equivalents . . . . . . . . . . . . . . . . . . .

Short-term Investments:

Municipal bonds . . . . . . . . . . . . . . . . . . . . .
Corporate bonds . . . . . . . . . . . . . . . . . . . . .
Variable-rate demand notes . . . . . . . . . . . . .
Commercial paper . . . . . . . . . . . . . . . . . . . .
Asset-backed securities . . . . . . . . . . . . . . . .
International government bonds . . . . . . . . . .
U.S. government bond . . . . . . . . . . . . . . . . .
U.S. government agency . . . . . . . . . . . . . . . .
Certificates of deposit . . . . . . . . . . . . . . . . .

Total short-term investments . . . . . . . . . . . . . .

Long-term Investments:

Auction rate securities . . . . . . . . . . . . . . . . .

Total long-term investments . . . . . . . . . . . . . . .

Other assets, net:

Derivative instruments . . . . . . . . . . . . . . . . .

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$71,415
—
—
—
—
—
1,000

$72,415

$ —
—
—
—
—
—
650
—
—

650

$ —

—
7,739
5,348
1,757
1,202
1,101
—

$ 17,147

$129,152
33,033
12,915
8,995
5,377
2,516
—
601
250

$192,839

—

331

Total

$ 71,415
7,739
5,348
1,757
1,202
1,101
1,000

$ 89,562

$129,152
33,033
12,915
8,995
5,377
2,516
650
601
250

$193,489

$ —
—
—
—
—
—
—

$ —

$ —
—
—
—
—
—
—
—
—

$ —

$ 7,419

$ —

331

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$73,065

$210,317

$ 7,419

$290,801

Liabilities:
Accrued expenses:

Contingent consideration . . . . . . . . . . . . . . .

$ —

Other non-current liabilities:

Contingent consideration . . . . . . . . . . . . . . .

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ —

—

$ 4,288

$14,150

$18,438

$ 14,150

$ 18,438

F-19

Silicon Laboratories Inc.
Notes to Consolidated Financial Statements
January 3, 2015 (Continued)

6. Fair Value of Financial Instruments (Continued)

Description

Assets:
Cash Equivalents:

Money market funds . . . . . . . . . . . . . . . .
Certificates of deposit . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . .
Commercial paper
Municipal bonds . . . . . . . . . . . . . . . . . . .

Total cash equivalents . . . . . . . . . . . . . . . . .

Short-term Investments:

Municipal bonds . . . . . . . . . . . . . . . . . . .
Variable-rate demand notes . . . . . . . . . . .
Corporate bonds . . . . . . . . . . . . . . . . . . .
Commercial paper
. . . . . . . . . . . . . . . . .
Asset-backed securities . . . . . . . . . . . . . .

Total short-term investments . . . . . . . . . . . .

Long-term Investments:

Auction rate securities . . . . . . . . . . . . . . .

Total long-term investments . . . . . . . . . . . .

Other assets, net:

Derivative instruments . . . . . . . . . . . . . . .

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Fair Value Measurements
at December 28, 2013 Using

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

Significant Other
Observable
Inputs
(Level 2)

Significant
Unobservable
Inputs
(Level 3)

Total

$39,538
—
—
—

$39,538

$ —
—
—
—
—

$ —

—
7,768
2,499
451

$ — $ 39,538
7,768
2,499
451

—
—
—

$ 10,718

$ — $ 50,256

$119,460
38,025
17,844
3,748
516

$179,593

—

513

$ — $119,460
38,025
17,844
3,748
516

—
—
—
—

$ — $179,593

$10,632

$ 10,632

$ — $

513

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$39,538

$190,824

$10,632

$240,994

Liabilities:
Other non-current liabilities:

Contingent consideration . . . . . . . . . . . . .

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ —

—

$12,919

$ 12,919

The Company’s cash equivalents and short-term investments that are classified as Level 1 are
valued using quoted prices and other relevant information generated by market transactions involving
identical assets. Cash equivalents and short-term investments classified as Level 2 are valued using
non-binding market consensus prices that are corroborated with observable market data; quoted market
prices for similar instruments in active markets; or pricing models, such as a discounted cash flow
model, with all significant inputs derived from or corroborated with observable market data.
Investments classified as Level 3 are valued using a discounted cash flow model. The assumptions used
in preparing the discounted cash flow model include estimates for interest rates, amount of cash flows,
expected holding periods of the securities and a discount to reflect the Company’s inability to liquidate
the securities. The Company’s derivative instruments are valued using discounted cash flow models. The
assumptions used in preparing the valuation models include quoted interest swap rates, foreign

F-20

Silicon Laboratories Inc.
Notes to Consolidated Financial Statements
January 3, 2015 (Continued)

6. Fair Value of Financial Instruments (Continued)

exchange rates, forward and spot prices for currencies, and market observable data of similar
instruments.

The Company’s contingent consideration is valued using a Monte Carlo simulation model or a
probability weighted discounted cash flow model. The assumptions used in preparing the Monte Carlo
simulation model include estimates for revenue growth rates, revenue volatility, contractual terms and
discount rates. The assumptions used in preparing the discounted cash flow model include estimates for
outcomes if milestone goals are achieved, the probability of achieving each outcome and discount rates.

The following summarizes quantitative information about Level 3 fair value measurements.

Auction rate securities

Fair Value at
January 3, 2015
(000s)

Valuation Technique

Unobservable Input

$7,419

Discounted cash flow

Estimated yield

Expected holding period

Estimated discount rate

Weighted
Average

1.04%

10 years

3.23%

The Company has followed an established internal control procedure used in valuing auction rate
securities. The procedure involves the analysis of valuation techniques and evaluation of unobservable
inputs commonly used by market participants to price similar instruments, and which have been
demonstrated to provide reasonable estimates of prices obtained in actual market transactions. Outputs
from the valuation process are assessed against various market sources when they are available,
including marketplace quotes, recent trades of similar illiquid securities, benchmark indices and
independent pricing services. The technique and unobservable input parameters may be recalibrated
periodically to achieve an appropriate estimation of the fair value of the securities.

Significant changes in any of the unobservable inputs used in the fair value measurement of

auction rate securities in isolation could result in a significantly lower or higher fair value measurement.
An increase in expected yield would result in a higher fair value measurement, whereas an increase in
expected holding period or estimated discount rate would result in a lower fair value measurement.
Generally, a change in the assumptions used for expected holding period is accompanied by a
directionally similar change in the assumptions used for estimated yield and discount rate.

Contingent consideration

Fair Value at
January 3, 2015
(000s)

Valuation Technique

Unobservable Input

Range

$18,438 Monte Carlo simulation Expected revenue growth rate

35.6% - 69.1%

Expected revenue volatility

20.0%

Expected term

0.0 years - 4.0 years

Estimated discount rate

0.1% - 1.7%

F-21

Silicon Laboratories Inc.
Notes to Consolidated Financial Statements
January 3, 2015 (Continued)

6. Fair Value of Financial Instruments (Continued)

The Company has followed an established internal control procedure used in valuing contingent
consideration. The valuation of contingent consideration for the Energy Micro acquisition is based on
the Company’s revenue data for fiscal 2014 and a Monte Carlo simulation model for fiscal 2015 to
2018. The fair value of this valuation is estimated on a quarterly basis through a collaborative effort by
the Company’s sales, marketing and finance departments.

Significant changes in any of the unobservable inputs used in the fair value measurement of
contingent consideration in isolation could result in a significantly lower or higher fair value. A change
in projected revenue growth rates would be accompanied by a directionally similar change in fair value.

The following summarizes the activity in Level 3 financial instruments for the years ended

January 3, 2015 and December 28, 2013 (in thousands):

Assets

Auction Rate Securities

Year Ended

January 3,
2015

December 28,
2013

Beginning balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Settlements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gain (loss) included in other comprehensive income . . . . . . . . . . . . . . . . . . . .

$10,632
(4,425)
1,212

$11,369
(100)
(637)

Ending balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 7,419

$10,632

Liabilities

Contingent Consideration (1)

Year Ended

January 3,
2015

December 28,
2013

Beginning balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Issues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(Gain) loss recognized in earnings (2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$12,919
—
5,519

$ 2,750
13,964
(3,795)

Ending balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$18,438

$12,919

Net gain (loss) for the period included in earnings attributable to contingent

consideration held at the end of the period: . . . . . . . . . . . . . . . . . . . . . . . .

$ (5,519)

$ 1,045

(1) In connection with the acquisition of Energy Micro and Ember, the Company recorded contingent
consideration based upon the expected achievement of certain milestone goals. Changes to the fair
value of contingent consideration due to changes in assumptions used in preparing the valuation
model are recorded in selling, general and administrative expenses in the Consolidated Statement
of Income.

(2) Changes to the estimated fair value of contingent consideration were primarily due to revisions to

the Company’s expectations of earn-out achievement.

F-22

Silicon Laboratories Inc.
Notes to Consolidated Financial Statements
January 3, 2015 (Continued)

6. Fair Value of Financial Instruments (Continued)

Fair values of other financial instruments

The Company’s Term Loan Facility bears interest at LIBOR plus an applicable margin. The Term

Loan Facility is recorded at cost, but is measured at fair value for disclosure purposes. Fair value is
estimated based on Level 2 inputs, using a discounted cash flow analysis of future principal payments
and projected interest based on current market rates. As of January 3, 2015 and December 28, 2013,
the fair value of the Company’s debt was approximately $87.4 million and $94.8 million, respectively.

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

7. Balance Sheet Details

The following tables show the details of selected Consolidated Balance Sheet items (in thousands):

Inventories

Work in progress . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Finished goods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Prepaid Expenses and Other Current Assets

Distributor advances . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Property and Equipment

January 3,
2015

December 28,
2013

$40,640
11,991

$52,631

$34,503
10,768

$45,271

January 3,
2015

December 28,
2013

$32,932
16,239

$49,171

$31,839
15,812

$47,651

January 3,
2015

December 28,
2013

Buildings and improvements . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Equipment
Computers and purchased software . . . . . . . . . . . . . . . . . . .
Leasehold interest in ground leases . . . . . . . . . . . . . . . . . . .
Furniture and fixtures . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Leasehold improvements . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 94,453
51,654
27,282
23,840
4,008
8,901

$ 94,221
51,071
25,556
23,840
3,496
7,784

Accumulated depreciation . . . . . . . . . . . . . . . . . . . . . . . . .

210,138
(77,318)

205,968
(73,523)

$132,820

$132,445

F-23

Silicon Laboratories Inc.
Notes to Consolidated Financial Statements
January 3, 2015 (Continued)

7. Balance Sheet Details (Continued)

Accrued Expenses

Accrued compensation and benefits . . . . . . . . . . . . . . . . . .
Acquisition-related holdback . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Other Non-current Liabilities

Contingent consideration . . . . . . . . . . . . . . . . . . . . . . . . . .
Acquisition-related holdback . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

January 3,
2015

December 28,
2013

$28,443
20,010
25,193

$73,646

$24,896
—
21,079

$45,975

January 3,
2015

December 28,
2013

$14,150
—
29,541

$43,691

$12,919
20,010
23,012

$55,941

8. Risks and Uncertainties

Financial Instruments

Financial instruments that potentially subject the Company to significant concentrations of credit

risk consist primarily of cash equivalents, investments, accounts receivable and derivatives. The
Company places its cash equivalents and investments primarily in municipal bonds, money market
funds, corporate bonds, commercial paper, variable-rate demand notes, certificates of deposit,
auction-rate securities, asset-backed securities, international government bonds, U.S. government agency
and U.S. government bonds. Concentrations of credit risk with respect to accounts receivable are
primarily due to customers with large outstanding balances. The Company’s customers that accounted
for greater than 10% of accounts receivable consisted of the following:

Edom Technology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Arrow Electronics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Avnet . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

25%
11%
11%

26%
10%
**

January 3,
2015

December 28,
2013

** Less than 10% of accounts receivable

The Company performs periodic credit evaluations of its customers’ financial condition and
generally requires no collateral from its customers. The Company provides an allowance for potential
credit losses based upon the expected collectibility of such receivables. Losses have not been significant
for any of the periods presented.

F-24

Silicon Laboratories Inc.
Notes to Consolidated Financial Statements
January 3, 2015 (Continued)

8. Risks and Uncertainties (Continued)

As a result of its use of derivative instruments, the Company is exposed to the risk that its
counterparties will fail to meet their contractual obligations. To mitigate this counterparty credit risk,
the Company has a policy to enter into contracts with only selected major financial institutions. The
Company periodically reviews and re-assesses the creditworthiness of such counterparties based on a
variety of factors.

Distributor Advances

On sales to distributors, the Company’s payment terms often require the distributor to initially pay

amounts owed to the Company for an amount in excess of their ultimate cost. The Company’s sales
price to its distributors may be higher than the amount that the distributors will ultimately owe the
Company because distributors often negotiate price reductions after purchasing the product from the
Company and such reductions are often significant. These negotiated price discounts are not granted
until the distributor sells the product to the end customer, which may occur after the distributor has
paid the original invoice amount to the Company. Payment of invoices prior to receiving an associated
discount can have an adverse impact on the working capital of the Company’s distributors. Accordingly,
the Company has entered into agreements with certain distributors whereby it advances cash to the
distributors to reduce the distributor’s working capital requirements. The advance amounts are based
on the distributor’s inventory balance, and are adjusted quarterly. Such amounts are recorded in
prepaid expenses and other current assets in the Consolidated Balance Sheet. The terms of these
advances are set forth in binding legal agreements and are unsecured, bear no interest on unsettled
balances and are due upon demand. The agreements governing these advances can be cancelled by the
Company at any time.

Suppliers

A significant portion of the Company’s products are fabricated by Taiwan Semiconductor
Manufacturing Co. (TSMC) or TSMC’s affiliates and Semiconductor Manufacturing International
Corporation (SMIC). The inability of TSMC or SMIC to deliver wafers to the Company on a timely
basis could impact the production of the Company’s products for a substantial period of time, which
could have a material adverse effect on the Company’s business, financial condition and results of
operations.

Customers

The Company sells directly to end customers, distributors and contract manufacturers. Although
the Company actually sells the products to, and is paid by, distributors and contract manufacturers, the
Company refers to the end customer as its customer. None of the Company’s contract manufacturers

F-25

Silicon Laboratories Inc.
Notes to Consolidated Financial Statements
January 3, 2015 (Continued)

8. Risks and Uncertainties (Continued)

accounted for greater than 10% of revenue during fiscal 2014, 2013 or 2012. The Company’s end
customers and distributors that accounted for greater than 10% of revenue consisted of the following:

Year Ended

January 3,
2015

December 28,
2013

December 29,
2012

End Customers
Samsung* . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

12%

15%

Distributors
Edom Technology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Avnet . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

20%
12%

21%
11%

19%

22%
11%

Samsung’s purchases were across a variety of product areas.

9. Acquisitions

Energy Micro

On July 1, 2013, the Company acquired Energy Micro AS, a late-stage private company. Energy

Micro designed and developed energy-efficient 32-bit microcontrollers based on ARM Cortex-M
architecture. Energy Micro’s energy-friendly solutions are designed to enable a broad range of power-
sensitive applications for the Internet of Things (IoT), including smart energy, home automation,
security and portable electronics markets.

The Company acquired Energy Micro for approximately $140.6 million, including: 1) Initial
consideration of $107.4 million; 2) Deferred consideration in the form of a promissory note with an
estimated fair value of $19.2 million at the date of acquisition (the promissory note was subsequently
exchanged for approximately 0.5 million shares of the Company’s restricted stock after a mandatory
two-month creditor notice.); and 3) Contingent consideration (the ‘‘Earn-Out’’) with an estimated fair
value of $14.0 million at the date of acquisition. The Earn-Out is payable up to approximately
$33.3 million based on the extent to which the annual revenue growth rate from certain Energy Micro
and Silicon Laboratories products (the ‘‘Earn-Out Products’’) exceeds 25% per year, over a five-year
period from fiscal 2014 through 2018 (the ‘‘Earn-Out Period’’). The Earn-Out is payable on an annual
basis and in no event shall exceed $6,666,666 per year, unless revenue from the Earn-Out Products
exceeds $400 million in a single fiscal year during the Earn-Out Period (in which case, the entire
Earn-Out amount less any amounts previously paid will become payable). Approximately $20.3 million
of the initial consideration was withheld by the Company as security for breaches of representations
and warranties and certain other expressly enumerated matters. The holdback obligation was recorded
in other non-current liabilities in the Consolidated Balance Sheet.

A portion of the Earn-Out (28.76%) is contingent on the continued employment of certain key

employees for the three years following the acquisition date (the ‘‘Departure Percentage’’). The
Departure Percentage was accounted for as a transaction separate from the business combination based
on its economic substance and will be recorded as post-combination compensation expense in the
Company’s financial statements during the Earn-Out period.

F-26

Silicon Laboratories Inc.
Notes to Consolidated Financial Statements
January 3, 2015 (Continued)

9. Acquisitions (Continued)

The Company believes that this strategic acquisition will accelerate its deployment of energy-
friendly solutions across the IoT industries, while further scaling the Company’s engineering team.
These factors contributed to a purchase price that was in excess of the fair value of the net assets
acquired and, as a result, the Company recorded goodwill. The goodwill is not deductible for tax
purposes. The purchase price was allocated as follows (in thousands):

Weighted-Average
Amortization Period
(Years)

Amount

Intangible assets:

In-process research and development . . . . . . . . . . . .
Core and developed technology . . . . . . . . . . . . . . . .
Customer relationships . . . . . . . . . . . . . . . . . . . . . .
Trademarks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 18,600
29,100
6,400
1,300

Not amortized
7
8
8

Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . .
Other current assets . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other non-current assets . . . . . . . . . . . . . . . . . . . . . .
Current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-current deferred tax liabilities, net . . . . . . . . . . . .
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other non-current liabilities . . . . . . . . . . . . . . . . . . . .

55,400
919
6,486
98,515
3,117
(8,000)
(6,288)
(8,434)
(1,133)

Total purchase price . . . . . . . . . . . . . . . . . . . . . . . . . .

$140,582

In-process research and development (IPR&D) represents acquired technology that had not

achieved technological feasibility as of the acquisition date and had no alternative future use. The
IPR&D recorded in connection with the acquisition of Energy Micro consisted of a multi-protocol
wireless RF solution. The fair value of this technology was determined using the income approach. The
discount rate applicable to the cash flows was 13.0%.

Pro forma information related to this acquisition has not been presented because it would not be

materially different from amounts reported. The Company recorded approximately $2.4 million of
acquisition-related costs in selling, general and administrative expenses during fiscal 2013.

Ember

On July 3, 2012, the Company acquired Ember Corporation, a privately held company. Ember’s

products integrate high-performance, low-power 2.4 GHz wireless ICs with reliable and scalable
software into a flexible and robust networking platform. The Company acquired Ember for
approximately $79.0 million, including contingent consideration with an estimated fair value of
$4.0 million at the date of acquisition.

The Company believes that this strategic acquisition provides it with the technology and software

expertise required to enable the low-power mesh sensor networks being deployed today in a wide range
of residential, commercial and industrial applications. These factors contributed to a purchase price

F-27

Silicon Laboratories Inc.
Notes to Consolidated Financial Statements
January 3, 2015 (Continued)

9. Acquisitions (Continued)

that was in excess of the fair value of the net assets acquired and, as a result, the Company recorded
goodwill. The goodwill is not deductible for tax purposes. The purchase price was allocated as follows
(in thousands):

Weighted-Average
Amortization Period
(Years)

Amount

Intangible assets:

In-process research and development . . . . . . . . . . . . .
Developed technology . . . . . . . . . . . . . . . . . . . . . . .
Customer relationships . . . . . . . . . . . . . . . . . . . . . . .
Trademarks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$14,810
17,800
5,620
910

Not amortized
11
9
12

Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . .
Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-current deferred tax assets, net . . . . . . . . . . . . . . .
Other non-current assets . . . . . . . . . . . . . . . . . . . . . . .
Current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

39,140
3,115
1,928
4,749
324
14,777
16,449
1,776
(3,287)

Total purchase price . . . . . . . . . . . . . . . . . . . . . . . . . . .

$78,971

The IPR&D recorded in connection with the acquisition of Ember consisted of a low-power
RF transceiver. The fair value of this technology was determined using the income approach. The
discount rate applicable to the cash flows was 12.5%.

Pro forma information related to this acquisition has not been presented because it would not be

materially different from amounts reported. Acquisition-related costs were not significant.

Corporate Headquarters Buildings

The Company leased facilities at 400 W. Cesar Chavez (‘‘400 WCC’’) and 200 W. Cesar Chavez

(‘‘200 WCC’’) in Austin, Texas for its corporate headquarters. During the terms of the leases, the
Company had options to purchase the buildings for approximately $44.3 million for 400 WCC and
$50.1 million for 200 WCC. In September 2012, the Company exercised such options and purchased the
facilities.

The buildings are located on land which is leased through 2099 from a third party. The rents for
these ground leases were prepaid for the term of the leases by the previous lessee. The first floor of
each building was leased to the same third party for the term of the ground leases. The base rents for
the first floor leases were prepaid to the previous owner of the buildings. Portions of the remaining
floors were also leased to other tenants.

The Company determined that the purchase of the facilities represented a business combination.

Under the acquisition method of accounting, the assets acquired and liabilities assumed were recorded

F-28

Silicon Laboratories Inc.
Notes to Consolidated Financial Statements
January 3, 2015 (Continued)

9. Acquisitions (Continued)

at their fair values as of the date of the acquisition. The purchase price was allocated as follows (in
thousands):

Buildings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Leasehold interest in ground leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Acquired unfavorable leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Lease-related charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net gain on purchase . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Amount

$ 90,900
23,840
(11,925)
(8)
(8,457)

Total purchase price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 94,350

The buildings and leasehold interest in ground leases will be depreciated on a straight-line basis

over their estimated useful lives of 40 years and 86 years, respectively. Acquired unfavorable leases
represent the difference between contractual minimum rental payments due under previously-existing
leases in each building and the market rates of those same leases. This amount was recorded in other
non-current liabilities in the Consolidated Balance Sheet and will be amortized to rental income over
the estimated terms of the leases.

The purchase of the facilities resulted in a net gain of approximately $8.5 million, which was
recorded in selling, general and administrative expenses in the Consolidated Statement of Income in
fiscal 2012. The gain resulted primarily because the assets acquired and liabilities assumed were
recorded at their fair values as of the date of the acquisition, which was substantially higher than the
purchase prices of the facilities. The purchase prices were fixed at the beginning of the two leases in
March 2006 and March 2008. While market prices for such facilities increased over the terms of the
leases, the purchase prices remained the same.

10. Goodwill and Other Intangible Assets

Goodwill

The following summarizes the activity in goodwill for the years ended January 3, 2015 and

December 28, 2013 (in thousands):

Beginning balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Additions due to business combinations . . . . . . . . . . . . . . .

$228,781
—

$130,265
98,516

Ending balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$228,781

Year Ended

January 3,
2015

December 28,
2013

F-29

Silicon Laboratories Inc.
Notes to Consolidated Financial Statements
January 3, 2015 (Continued)

10. Goodwill and Other Intangible Assets (Continued)

Other Intangible Assets

The gross carrying amount and accumulated amortization of other intangible assets are as follows

(in thousands):

Intangible assets:

Subject to amortization:

Core and developed technology . .
Customer relationships . . . . . . . .
Patents . . . . . . . . . . . . . . . . . . .
Trademarks . . . . . . . . . . . . . . . .

Weighted-Average
Amortization
Period
(Years)

January 3, 2015

December 28, 2013

Gross
Amount

Accumulated
Amortization

Gross
Amount

Accumulated
Amortization

9
9
6
10

$148,891
14,500
3,000
2,210

$(47,894)
(4,003)
(1,250)
(433)

$138,340
14,500
3,000
2,210

$(41,782)
(2,330)
(750)
(195)

168,601

(53,580)

158,050

(45,057)

Not subject to amortization:
In-process research and

development . . . . . . . . . . . . . .

Not
amortized

—

18,600

—

Total intangible assets . . . . . . . . . . . .

$168,601

$(53,580)

$176,650

$(45,057)

Gross intangible assets decreased in fiscal 2014 primarily due to the removal of $9.4 million of

fully amortized assets.

Amortization expense related to intangible assets for fiscal 2014, 2013 and 2012 was $17.9 million,

$14.6 million and $10.7 million, respectively. The estimated aggregate amortization expense for
intangible assets subject to amortization for each of the five succeeding fiscal years is as follows (in
thousands):

Fiscal Year

2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$19,331
18,682
17,715
16,690
14,251

11. Debt

On July 31, 2012, the Company and certain of its domestic subsidiaries (the ‘‘Guarantors’’) entered

into a $230 million five-year Credit Agreement (the ‘‘Agreement’’). The Agreement consists of a
$100 million Term Loan Facility and a $130 million Revolving Credit Facility (collectively, the ‘‘Credit
Facilities’’).

The Term Loan Facility provides for quarterly principal amortization (equal to 5% of the principal

F-30

Silicon Laboratories Inc.
Notes to Consolidated Financial Statements
January 3, 2015 (Continued)

11. Debt (Continued)

increase the size of the Revolving Credit Facility by up to an aggregate of $50 million in additional
commitments, subject to certain conditions. On September 27, 2012, the Company borrowed
$100 million under the Term Loan Facility. To date, the Company has not borrowed under the
Revolving Credit Facility.

The Term Loan Facility and Revolving Credit Facility, other than swingline loans, will bear interest

at LIBOR plus an applicable margin or, at the option of the Company, a base rate (defined as the
highest of the Bank of America prime rate, the Federal Funds rate plus 0.50% and a daily rate equal
to one-month LIBOR plus 1.00%) plus an applicable margin. Swingline loans accrue interest at the
base rate plus the applicable margin for base rate loans. The applicable margins for the LIBOR rate
loans range from 1.50% to 2.50% and for base rate loans range from 0.50% to 1.50%, depending in
each case, on the leverage ratio as defined in the Agreement. The Company also pays a commitment
fee on the unused amount of the Revolving Credit Facility.

In connection with the closing of the Credit Agreement, the Company entered into a security and
pledge agreement. Under the security and pledge agreement, the Company pledged equity securities of
certain of its subsidiaries, subject to exceptions and limitations. The Credit Facilities contain various
conditions, covenants and representations with which the Company must be in compliance in order to
borrow funds and to avoid an event of default, including financial covenants that the Company must
maintain a leverage ratio (funded debt/EBITDA) of no more than 2.5 to 1 and a minimum fixed charge
coverage ratio (EBITDA/debt payments, income taxes and capital expenditures) of no less than 1.50 to
1. As of January 3, 2015, the Company was in compliance with all covenants of the Credit Facilities.

As of January 3, 2015, the remaining contractual maturities of the Term Loan Facility were as

follows (in thousands):

Fiscal Year

$10,000
10,000
67,500

Total

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$87,500

Interest Rate Swap Agreement

In connection with the $100 million borrowed under the Term Loan Facility, the Company entered

into an interest rate swap agreement as a hedge against the LIBOR portion of such variable interest
payments. Under the terms of the swap agreement, the Company effectively converted the LIBOR
portion of the interest on the Term Loan Facility to a fixed interest rate of 0.764% through the
maturity date. As of January 3, 2015, the combined interest rate on the Term Loan Facility (which
includes an applicable margin) was 2.514%. See Note 5, Derivative Financial Instruments, for additional
information.

12. Stockholders’ Equity

Common Stock

The Company issued 1.1 million shares of common stock during fiscal 2014.

F-31

Silicon Laboratories Inc.
Notes to Consolidated Financial Statements
January 3, 2015 (Continued)

12. Stockholders’ Equity (Continued)

Share Repurchase Programs

The Board of Directors authorized the following share repurchase programs (in thousands):

Program Authorization Date

Program
Termination
Date

October 2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . December 2015
January 2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
January 2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
April 2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
October 2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . April 2012

January 2015
January 2014
January 2013

Program
Amount

$100,000
$100,000
$ 50,000
$100,000
$ 50,000

These programs allow for repurchases to be made in the open market or in private transactions,
including structured or accelerated transactions, subject to applicable legal requirements and market
conditions. The Company repurchased 1.7 million shares, 0.7 million shares and 1.7 million shares of its
common stock for $71.7 million, $26.0 million and $62.0 million during fiscal 2014, 2013 and 2012,
respectively. These shares were retired upon repurchase.

Accumulated Other Comprehensive Loss

The components of accumulated other comprehensive loss, net of taxes, were as follows (in

thousands):

Unrealized Gain
(Loss) on Cash
Flow Hedge

Net Unrealized
Losses on
Available-
For-Sale Securities

Balance at December 31, 2011 . . . . . . . . . . . . . . . . . . . . . .
Other comprehensive income (loss) before reclassifications .
Amount reclassified from accumulated other comprehensive
loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Net change for the period . . . . . . . . . . . . . . . . . . . . . . . . .

$(1,299)
(621)

1,492

871

Balance at December 29, 2012 . . . . . . . . . . . . . . . . . . . . . .
Other comprehensive income (loss) before reclassifications .
Amount reclassified from accumulated other comprehensive
loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Net change for the period . . . . . . . . . . . . . . . . . . . . . . . . .

Balance at December 28, 2013 . . . . . . . . . . . . . . . . . . . . . .
Other comprehensive income (loss) before reclassifications .
Amount reclassified from accumulated other comprehensive
loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Net change for the period . . . . . . . . . . . . . . . . . . . . . . . . .

(428)
397

364

761

333
(520)

402

(118)

$(1,168)
650

—

650

(518)
(348)

(151)

(499)

(1,017)
720

—

720

Total

$(2,467)
29

1,492

1,521

(946)
49

213

262

(684)
200

402

602

Balance at January 3, 2015 . . . . . . . . . . . . . . . . . . . . . . . .

215

$ (297)

(82)

F-32

Silicon Laboratories Inc.
Notes to Consolidated Financial Statements
January 3, 2015 (Continued)

12. Stockholders’ Equity (Continued)

Reclassifications From Accumulated Other Comprehensive Loss

Reclassification (in thousands)

Losses on cash flow hedges to:

Year ended

January 3,
2015

December 28,
2013

December 29,
2012

Rent expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ —
(618)

$ —
(560)

$(2,295)
—

Gains on available-for-sales securities to:

Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Income tax benefit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

—

(618)

216

232

(328)

115

—

(2,295)

803

Total reclassifications . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$(402)

$(213)

$(1,492)

Income Tax Allocated to the Components of Other Comprehensive Income

The income tax effects of the components of other comprehensive income were as follows (in

thousands):

Income tax (expense) benefit on:

Net changes to available-for-sale securities:

Year ended

January 3,
2015

December 28,
2013

December 29,
2012

Unrealized gains (losses) arising during the period . . . . . . . . .
Reclassification for gains included in net income . . . . . . . . . . .

$(387)
—

$ 187
81

Net changes to cash flow hedges:

Unrealized gains (losses) arising during the period . . . . . . . . .
Reclassification for losses included in net income . . . . . . . . . .

279
(216)

(214)
(196)

$(350)
—

335
(803)

Other comprehensive income . . . . . . . . . . . . . . . . . . . . . . . . . . .

$(324)

$(142)

$(818)

13. Stock-Based Compensation

In fiscal 2009, the stockholders of the Company approved the 2009 Stock Incentive Plan (the ‘‘2009
Plan’’) and the 2009 Employee Stock Purchase Plan (the ‘‘2009 Purchase Plan’’). On April 15, 2014, the
stockholders of the Company approved amendments to both the 2009 Plan and the 2009 Purchase Plan.
The amendments authorized additional shares of common stock for issuance, to comply with changes in
applicable law, improve the Company’s corporate governance and to implement other best practices.
The amended plans are currently effective.

F-33

Silicon Laboratories Inc.
Notes to Consolidated Financial Statements
January 3, 2015 (Continued)

13. Stock-Based Compensation (Continued)

2009 Stock Incentive Plan

Under the 2009 Plan, the following may be granted: stock options, stock appreciation rights,

performance shares, performance stock units, restricted stock units (RSUs), restricted stock awards
(RSAs), performance-based awards and other awards (collectively, all such grants are referred to as
‘‘awards’’). The amendment of the shares of common stock reserved for issuance in the 2009 Plan
created two share pools—Prior Pool and New Pool. Awards of stock options and stock appreciation
rights each deduct one share from the 2009 Plan shares available for issuance for each share granted,
and full value awards (awards other than for which the participant is required to pay at least the fair
market value of the underlying shares on the date of grant) deduct 1.55 shares from the 2009 Plan
shares available for issuance for each share granted under the Prior Pool. Awards of stock options,
stock appreciation rights, and full value awards each deduct one (1) share from the 2009 Plan shares
available for issuance for each share granted under the New Pool. Awards granted under the 2009 Plan
generally contain vesting provisions ranging from three to four years. The exercise price of stock
options offered under the 2009 Plan may not be less than 100% of the fair market value of a share of
our common stock on the date of grant. To the extent awards granted under the 2009 Plan terminate,
expire or lapse for any reason, or are settled in cash, shares subject to such awards will again be
available for grant.

2000 Stock Incentive Plan

In fiscal 2000, the Company’s Board of Directors and stockholders approved the 2000 Plan. The

2000 Plan contains programs for (i) the discretionary granting of stock options to employees,
non-employee board members and consultants for the purchase of shares of the Company’s common
stock, (ii) the discretionary issuance of common stock directly (as granted under direct issuance shares
in RSAs and RSUs), (iii) the granting of special below-market stock options to executive officers and
other highly compensated employees of the Company for which the exercise price can be paid using
payroll deductions and (iv) the automatic issuance of stock options to non-employee board members.
The discretionary issuance of common stock, RSUs and stock options generally contain vesting
provisions ranging from three to eight years. If permitted by the Company, stock options can be
exercised immediately and, similar to the direct issuance shares, are subject to repurchase rights which
generally lapse in accordance with the vesting schedule. The repurchase rights provide that upon
certain defined events, the Company can repurchase unvested shares at the price paid per share. The
term of each stock option is no more than ten years from the date of grant.

Stock Grants and Modifications

The Company granted to its employees 0.8 million, 1.1 million and 0.8 million shares of full value

awards and no stock options from the 2009 Plan during fiscal 2014, 2013 and 2012, respectively.

The Company recorded $1.9 million in selling, general and administrative expense during fiscal
2012 in connection with modifications to certain stock awards. The Company accelerated the vesting of
certain RSUs and Market Stock Units (MSUs) and extended the exercise period of stock options
pursuant to a separation agreement between the Company and its former Chief Executive Officer
(CEO). There were no other significant modifications made to any stock grants during fiscal 2014, 2013
or 2012.

F-34

Silicon Laboratories Inc.
Notes to Consolidated Financial Statements
January 3, 2015 (Continued)

13. Stock-Based Compensation (Continued)

Included in the full value awards granted under the 2009 Plan in fiscal 2014, 2013 and 2012 were a

total of 76 thousand, 132 thousand and 110 thousand market-based stock awards, respectively. The
awards, also known as MSUs, provide the rights to acquire a number of shares of common stock for no
cash consideration based upon achievement of specified levels of market conditions. The requisite
service period for these MSUs is also the vesting period, which is generally three years. The
performance criteria of the MSUs measure the difference between the total stockholders’ return of the
Company against that of the Philadelphia Semiconductor Sector Total Return Index.

2009 Employee Stock Purchase Plan

The rights to purchase common stock granted under the 2009 Purchase Plan are intended to be

treated as either (i) purchase rights granted under an ‘‘employee stock purchase plan,’’ as that term is
defined in Section 423(b) of the Internal Revenue Code (the ‘‘423(b) Plan’’), or (ii) purchase rights
granted under an employee stock purchase plan that is not subject to the terms and conditions of
Section 423(b) of the Internal Revenue Code (the ‘‘Non-423(b) Plan’’). The Company will retain the
discretion to grant purchase rights under either the 423(b) Plan or the Non-423(b) Plan. Eligible
employees may purchase a limited number of shares of the Company’s common stock at no less than
85% of the fair market value of a share of common stock at prescribed purchase intervals during an
offering period. Each offering period will be comprised of a series of one or more successive and/or
overlapping purchase intervals and has a maximum term of 24 months. During fiscal 2014, 2013 and
2012, the Company issued 204 thousand, 190 thousand and 181 thousand shares, respectively, under the
2009 Purchase Plan to its employees. The weighted-average fair value for purchase rights granted in
fiscal 2014 under the 2009 Purchase Plan was $12.17 per share.

Accounting for Stock-Based Compensation

Stock-based compensation costs are based on the fair values on the date of grant for stock options

and on the date of enrollment for the employee stock purchase plans, estimated by using the Black-
Scholes option-pricing model. The fair values of stock awards and RSUs equal their intrinsic value on
the date of grant. The fair values of MSUs generally are estimated using a Monte Carlo simulation
based on the date of grant.

The Black-Scholes valuation calculation requires the Company to estimate key assumptions such as

future stock price volatility, expected terms, risk-free rates and dividend yield. Expected stock price
volatility is based upon a combination of both historical volatility and implied volatility derived from
traded options on the Company’s stock in the marketplace. Expected term is derived from an analysis
of historical exercises and remaining contractual life of options. The risk-free rate is based on the U.S.
Treasury yield curve in effect at the time of grant. The Company has never paid cash dividends and
does not currently intend to pay cash dividends, thus it has assumed a 0% dividend yield.

The Monte Carlo simulation used to calculate the fair value of the MSUs simulates the present

value of the potential outcomes of future stock prices of the Company and the Philadelphia
Semiconductor Sector Total Return Index over the requisite service period. The projection of stock
prices are based on the risk-free rate of return, the volatilities of the stock price of the Company and
the Index, and the correlation of the stock price of the Company with the Index.

F-35

Silicon Laboratories Inc.
Notes to Consolidated Financial Statements
January 3, 2015 (Continued)

13. Stock-Based Compensation (Continued)

The Company must estimate potential forfeitures of stock grants and adjust compensation cost

recorded accordingly. The estimate of forfeitures will be adjusted over the requisite service period to
the extent that actual forfeitures differ, or are expected to differ, from such estimates. Changes in
estimated forfeitures are recognized through a cumulative catch-up adjustment in the period of change
and will also impact the amount of stock-based compensation expense to be recognized in future
periods.

The fair values of stock options and RSUs are amortized as compensation expense on a

straight-line basis over the vesting period of the grants. The fair values of RSAs are fully expensed in
the period of grant, when shares are immediately issued with no vesting restrictions. The fair values of
MSUs are amortized as compensation expense on a straight-line basis over the performance and service
periods of the grants. Compensation expense recognized is shown in the operating activities section of
the Consolidated Statements of Cash Flows.

The fair values estimated from the Black-Scholes option-pricing model were calculated using the

following assumptions:

2009 Employee Stock Purchase Plan

Year Ended

January 3,
2015

December 28,
2013

December 29,
2012

Expected volatility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Risk-free interest rate % . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expected term (in months) . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dividend yield . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

28%
0.2%
15
—

27%
0.1%
7
—

38%
0.2%
15
—

The fair values estimated from Monte Carlo simulation were calculated using the following

assumptions:

2009 Stock Incentive Plan

Year Ended

January 3,
2015

December 28,
2013

December 29,
2012

Expected volatility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Risk-free interest rate % . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expected term (in years) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dividend yield . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

33%
0.7%
2.8
—

32%
0.5%
2.9
—

32%
0.4%
2.9
—

F-36

Silicon Laboratories Inc.
Notes to Consolidated Financial Statements
January 3, 2015 (Continued)

13. Stock-Based Compensation (Continued)

A summary of stock-based compensation activity with respect to fiscal 2014 follows:

Stock Options

Outstanding at December 28, 2013 . . . . . . . . . . . . . . . . .
Exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cancelled or expired . . . . . . . . . . . . . . . . . . . . . . . . . . .

Outstanding at January 3, 2015 . . . . . . . . . . . . . . . . . . .

Vested at January 3, 2015 and expected to vest . . . . . . . .

Exercisable at January 3, 2015 . . . . . . . . . . . . . . . . . . . .

RSAs and RSUs

Outstanding at December 28, 2013 . . . . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Issued . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cancelled or expired . . . . . . . . . . . . . . . . . . . . . . . . . . .

Shares
(000s)

1,089
(444)
(116)

529

Shares
(000s)

1,835
735
(680)
(109)

Outstanding at January 3, 2015 . . . . . . . . . . . . . . . . . . .

1,781

Outstanding at January 3, 2015 and expected to vest . . . .

1,654

MSUs

Outstanding at January 3, 2015 . . . . . . . . . . . . . . . . . . .

Outstanding at January 3, 2015 and expected to vest . . . .

Shares
(000s)

246
76
—
(24)

298

274

Weighted-
Average
Exercise
Price

Weighted-Average
Remaining
Contractual
Term
(In Years)

Aggregate
Intrinsic
Value
(000s)

$35.09
$35.67
$49.19

$31.50

1.61

$8,661

Weighted- Weighted-Average
Average
Purchase
Price

Remaining
Vesting Term
(In Years)

Aggregate
Intrinsic
Value
(000s)

$—
$—
$—
$—

$—

1.02

$84,584

$78,567

Weighted- Weighted-Average
Average
Purchase
Price

Remaining
Vesting Term
(In Years)

Aggregate
Intrinsic
Value
(000s)

$—
$—
$—
$—

$—

1.18

$14,181

$13,034

The following summarizes the Company’s weighted average fair value at the date of grant:

Per grant of RSAs and RSUs . . . . . . . . . . . . .
Per grant of MSUs . . . . . . . . . . . . . . . . . . . . .

$47.93
$60.08

$43.01
$31.94

$42.25
$53.25

Year Ended

January 3,
2015

December 28,
2013

December 29,
2012

F-37

Silicon Laboratories Inc.
Notes to Consolidated Financial Statements
January 3, 2015 (Continued)

13. Stock-Based Compensation (Continued)

The following summarizes the Company’s stock-based payment and stock option values (in

thousands):

Intrinsic value of stock options exercised . . . . .
Intrinsic value of RSAs and RSUs that vested .
Grant date fair value of RSAs and RSUs that

Year Ended

January 3,
2015

December 28,
2013

December 29,
2012

$ 5,674
$32,138

$ 4,198
$23,649

$ 9,064
$40,105

vested . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$29,668

$24,026

$31,215

The Company received cash of $13.3 million for the issuance of common stock, net of shares
withheld for taxes, during fiscal 2014. The Company issues shares from the shares reserved under its
stock plans upon the exercise of stock options, issuance of RSAs, vesting of RSUs and MSUs, and
purchases through employee stock purchase plans. The Company does not currently expect to
repurchase shares from any source to satisfy such obligation.

The following table presents details of stock-based compensation costs recognized in the

Consolidated Statements of Income (in thousands):

Cost of revenues . . . . . . . . . . . . . . . . . . . . . .
Research and development . . . . . . . . . . . . . . .
Selling, general and administrative . . . . . . . . .

Income tax benefit . . . . . . . . . . . . . . . . . . . . .

Year Ended

January 3,
2015

December 28,
2013

December 29,
2012

775
18,521
19,771

39,067
4,024

952
14,530
15,318

30,800
2,633

$ 1,206
12,602
17,368

31,176
4,911

$35,043

$28,167

$26,265

The increase in stock-based compensation costs in fiscal 2014 was principally due to increased

headcount. The Company had approximately $51.2 million of total unrecognized compensation costs
related to granted stock awards as of January 3, 2015 that are expected to be recognized over a
weighted-average period of approximately 1.9 years. There were no significant stock-based
compensation costs capitalized into assets in any of the periods presented.

As of January 3, 2015, the Company had reserved shares of common stock for future issuance as

follows (in thousands):

2000 Stock Incentive Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2009 Stock Incentive Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2009 Employee Stock Purchase Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

529
3,740
882

Total shares reserved . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

5,151

F-38

Silicon Laboratories Inc.
Notes to Consolidated Financial Statements
January 3, 2015 (Continued)

14. Employee Benefit Plan

The Company maintains a defined contribution or 401(k) Plan for its qualified U.S. employees.

Participants may contribute a percentage of their compensation on a pre-tax basis, subject to a
maximum annual contribution imposed by the Internal Revenue Code. The Company may make
discretionary matching contributions as well as discretionary profit-sharing contributions to the 401(k)
Plan. The Company contributed $3.2 million, $3.0 million and $2.9 million to the 401(k) Plan during
fiscal 2014, 2013 and 2012, respectively.

15. Commitments and Contingencies

Operating Leases

The Company leases certain facilities under operating lease agreements that expire at various dates

through 2025. Some of these arrangements contain renewal options and require the Company to pay
taxes, insurance and maintenance costs.

Rent expense under operating leases was $4.2 million, $4.2 million and $4.4 million for fiscal 2014,

2013 and 2012, respectively. The minimum annual future rentals under the terms of these leases as of
January 3, 2015 are as follows (in thousands):

Fiscal Year

$ 4,463
4,137
3,398
2,517
1,490
6,398

Total minimum lease payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$22,403

Litigation

Patent Litigation

On January 21, 2014, Cresta Technology Corporation (‘‘Cresta Technology’’), a Delaware

corporation, filed a lawsuit against the Company, Samsung Electronics Co., Ltd., Samsung Electronics
America, Inc., LG Electronics Inc. and LG Electronics U.S.A., Inc. in the United States District Court
in the District of Delaware, alleging infringement of United States Patent Nos. 7,075,585, 7,265,792 and
7,251,466. The lawsuit relates to the Company’s family of television tuner products. Cresta Technology
seeks unspecified compensatory and enhanced damages, attorney fees and a permanent injunction. On
January 28, 2014, Cresta Technology also filed a complaint with the United States International Trade
Commission (‘‘ITC’’) alleging infringement of the same patents against the Company, Samsung and LG
Electronics and seeking to prevent the importation and sale of allegedly infringing products in the
United States. The ITC instituted an investigation based on Cresta Technology’s complaint on
February 27, 2014. An evidentiary hearing in this ITC Investigation concluded on December 5, 2014.
The ITC Administrative Law Judge is scheduled to issue an Initial Determination on February 27,
2015, and the Final Determination by the ITC is scheduled to issue on June 29, 2015. The Delaware

F-39

Silicon Laboratories Inc.
Notes to Consolidated Financial Statements
January 3, 2015 (Continued)

15. Commitments and Contingencies (Continued)

District Court action has been stayed pending completion of the proceedings in the ITC. The Company
intends to vigorously defend against these allegations.

On April 11, 2014, the Company filed a lawsuit against Cresta Technology in the United States
District Court in the Western District of Texas, Austin Division, alleging infringement of United States
Patent Nos. 6,308,055, 6,965,761 and 7,353,011. On July 14, 2014, the Court dismissed the lawsuit
without prejudice due to the lack of commercial activity by Cresta Technology in the Western District
of Texas. On July 16, 2014, the Company refiled its claims for the ‘055, ‘761 and ‘011 patents in a
lawsuit in the United States District Court in the Northern District of California. In addition, the
Company added additional claims alleging infringement of United States Patent Nos. 6,304,146,
6,137,372 and 6,233,441. The Company is seeking a permanent injunction stopping the sale of all
allegedly infringing Cresta Technology products and an award of damages and attorney fees.

On May 6, 2014, the Company filed a complaint with the ITC alleging infringement of United

States Patent Nos. 6,137,372 and 6,233,441 against Cresta Technology, Hauppauge Digital, Inc.,
Hauppague Computer Works, Inc., PCTV Systems, S.a.r.l., Luxembourg and PCTV Systems S.a.r.l.,
seeking to prevent the importation and sale of allegedly infringing products in the United States. On
June 6, 2014, the ITC instituted an investigation based on the Company’s complaint. On June 13, 2014,
Cresta Technology proposed a consent order whereby Cresta Technology will not sell for importation,
import or sell in the United States television tuners that infringe the patent claims asserted by the
Company. On July 1, 2014, the Administrative Law Judge accepted the proposed consent order.
Accordingly, this ITC investigation has been terminated in its entirety. Under the consent order, Cresta
Technology is prohibited from selling for importation, importing or selling in the United States
television tuners that infringe the Company’s United States Patent Nos. 6,137,372 and 6,233,441.

As is customary in the semiconductor industry, the Company provides indemnification protection
to its customers for intellectual property claims related to the Company’s products. The Company has
not accrued any material liability on its consolidated balance sheet related to such indemnification
obligations in connection with the Cresta Technology litigation.

At this time, the Company cannot predict the outcome of these matters or the resulting financial

impact to it, if any.

Other

The Company is involved in various other legal proceedings that have arisen in the normal course

of business. While the ultimate results of these matters cannot be predicted with certainty, the
Company does not expect them to have a material adverse effect on its consolidated financial
statements.

16. Related Party Transactions

On July 1, 2013, Geir Førre joined the Company as senior vice president. Mr. Førre was chief
executive officer of Energy Micro, until it was acquired by the Company. Mr. Førre was the beneficial
owner of approximately 32% of the Energy Micro equity and accordingly (a) received approximately
$35 million of the initial consideration of $107.4 million, (b) may receive an additional approximately

F-40

Silicon Laboratories Inc.
Notes to Consolidated Financial Statements
January 3, 2015 (Continued)

16. Related Party Transactions (Continued)

$6.5 million out of the $20.3 million holdback related to potential indemnification claims and (c) may
receive up to approximately $10.5 million of the $33.3 million earn-out.

On October 17, 2013, the Company appointed Alf-Egil Bogen to its board of directors. Mr. Bogen
was chief marketing officer of Energy Micro, until it was acquired by the Company. Mr. Bogen was the
beneficial owner of approximately 2% of the Energy Micro equity and accordingly (a) received
approximately $0.9 million of the initial consideration of $107.4 million, (b) may receive an additional
approximately $0.4 million out of the $20.3 million holdback related to potential indemnification claims
and (c) may receive up to approximately $0.7 million of the $33.3 million earn-out. Mr. Bogen had
invested approximately $0.8 million in Energy Micro prior to the acquisition.

17. Income Taxes

Significant components of the provision for income taxes are as follows (in thousands):

Year Ended

January 3,
2015

December 28,
2013

December 29,
2012

Current:

Domestic . . . . . . . . . . . . . . . . . . . . . . . . . .
International . . . . . . . . . . . . . . . . . . . . . . . .

$ 7,083
882

Total Current . . . . . . . . . . . . . . . . . . . . . . .

7,965

$ 4,796
4,093

8,889

$21,084
(3,009)

18,075

Deferred:

Domestic . . . . . . . . . . . . . . . . . . . . . . . . . .
International . . . . . . . . . . . . . . . . . . . . . . . .

Total Deferred . . . . . . . . . . . . . . . . . . . . . .

2,352
702

3,054

5,591
(2,272)

3,319

5,444
(719)

4,725

$11,019

$12,208

$22,800

F-41

Silicon Laboratories Inc.
Notes to Consolidated Financial Statements
January 3, 2015 (Continued)

17. Income Taxes (Continued)

The Company’s provision for income taxes differs from the expected tax expense amount

computed by applying the statutory federal income tax rate to income before income taxes as a result
of the following:

Federal statutory rate . . . . . . . . . . . . . . . . . . .
Foreign tax rate benefit
. . . . . . . . . . . . . . . . .
Research and development tax credits . . . . . . .
Release of prior year unrecognized tax benefits
Intercompany technology license . . . . . . . . . . .
Excess officer compensation . . . . . . . . . . . . . .
Change in prior period valuation allowance . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Year Ended

January 3,
2015

December 28,
2013

December 29,
2012

35.0%
(3.5)
(8.6)
(2.6)
—
2.3
(1.4)
1.3

22.5%

35.0%
(8.2)
(12.8)
—
—
1.9
3.1
0.7

19.7%

35.0%
(11.8)
(0.5)
(8.4)
11.8
1.0
—
(0.7)

26.4%

The effective tax rate for fiscal 2014 increased from fiscal 2013, primarily due to the recognition of

The effective tax rate for fiscal 2013 decreased from fiscal 2012, primarily due to the fiscal 2012

Income before income taxes included the following components (in thousands):

Domestic . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Year Ended

January 3,
2015

December 28,
2013

December 29,
2012

$38,174
10,866

$49,040

$41,849
20,178

$62,027

$80,494
5,854

$86,348

Foreign income before taxes decreased from fiscal 2013 to fiscal 2014 primarily due to an increase

in fiscal 2014 of the fair value of the Company’s acquisition-related contingent consideration liability.

F-42

Silicon Laboratories Inc.
Notes to Consolidated Financial Statements
January 3, 2015 (Continued)

17. Income Taxes (Continued)

Foreign income before income taxes increased from fiscal 2012 to fiscal 2013 primarily due to
intercompany technology license payments made by a foreign subsidiary in 2012.

Deferred tax assets and liabilities are recorded for the estimated tax impact of temporary
differences between the tax basis and book basis of assets and liabilities. A valuation allowance is
established against a deferred tax asset when it is more likely than not that the deferred tax asset will
not be realized. The Company recorded a new valuation allowance of $0.5 million in fiscal 2014 related
to certain state research and development tax credit carryforwards generated in fiscal 2014. The
Company has determined that it is more likely than not that a portion of these carryforwards will
expire or go unutilized because the Company no longer expects to recognize sufficient income in the
jurisdictions in which the attributes were created. The impact of this new valuation allowance was offset
by a reduction of $0.6 million to a valuation allowance recorded in fiscal 2013 related to certain state
loss and research and development tax credit carryforwards, resulting in a net valuation allowance
reduction of $0.1 million reflected as a benefit to income tax expense in fiscal 2014. In addition, the
Company recorded a reduction of $0.2 million to the fiscal 2013 valuation allowance related to the
expiration of certain acquired state net operating loss carryforwards which were fully valued. Since this
change was due to the expiration of the losses, the reduction to the valuation allowance was offset by a
reduction in deferred tax assets rather than a charge to income tax expense. No valuation allowance
was recorded against other deferred tax assets in fiscal 2014. Management believes that the Company’s
results of future operations will generate sufficient taxable income such that it is more likely than not
that the remaining deferred tax assets will be realized.

Significant components of the Company’s deferred taxes as of January 3, 2015 and December 28,

2013 are as follows (in thousands):

Deferred tax assets:

Net operating loss carryforwards . . . . . . . . . . . . . . . . . . .
Research and development tax credit carryforwards . . . . .
Stock-based compensation . . . . . . . . . . . . . . . . . . . . . . . .
Capitalized research and development . . . . . . . . . . . . . . .
Deferred income on shipments to distributors . . . . . . . . .
Accrued liabilities and other . . . . . . . . . . . . . . . . . . . . . .

Less: Valuation allowance . . . . . . . . . . . . . . . . . . . . . . . .

Deferred tax liabilities:

Acquired intangible assets . . . . . . . . . . . . . . . . . . . . . . . .
Depreciation and amortization . . . . . . . . . . . . . . . . . . . .
Prepaid expenses and other . . . . . . . . . . . . . . . . . . . . . . .

January 3,
2015

December 28,
2013

$31,518
9,740
6,353
7,371
8,117
6,481

69,580
(3,455)

66,125

33,630
3,388
1,517

38,535

$38,399
9,276
6,757
8,999
5,733
8,302

77,466
(3,775)

73,691

38,444
2,022
1,889

42,355

Net deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . .

$27,590

$31,336

F-43

Silicon Laboratories Inc.
Notes to Consolidated Financial Statements
January 3, 2015 (Continued)

17. Income Taxes (Continued)

As of January 3, 2015, the Company had federal net operating loss and research and development
tax credit carryforwards of approximately $64.9 million and $2.0 million, respectively, as a result of the
Cygnal Integrated Products, Silicon Clocks, Spectra Linear and Ember acquisitions. These
carryforwards expire in fiscal years 2020 through 2032. Recognition of these loss and credit
carryforwards is subject to an annual limit, which may cause them to expire before they are used.

As of January 3, 2015, the Company had foreign net operating loss carryforwards of approximately

$21.6 million as a result of the Energy Micro acquisition. These loss carryforwards do not expire and
recognition is not subject to an annual limit.

The Company also had state loss and research and development tax credit carryforwards of

approximately $57.9 million and $11.8 million, respectively. A portion of these loss and credit
carryforwards was generated by the Company and a portion was acquired through the Integration
Associates, Silicon Clocks, Spectra Linear and Ember acquisitions. Certain of these carryforwards
expire in fiscal years 2015 through 2033 and others do not expire. Recognition of some of these loss
and credit carryforwards is subject to an annual limit, which may cause them to expire before they are
used.

At the end of fiscal 2014, undistributed earnings of the Company’s foreign subsidiaries of

approximately $303.1 million are intended to be permanently reinvested outside the U.S. Accordingly,
no provision for U.S. federal and state income taxes associated with a distribution of these earnings has
been made. Determination of the amount of the unrecognized deferred tax liability on these
unremitted earnings is not practicable.

The Company’s operations in Singapore are subject to reduced tax rates through 2019, as long as

certain conditions are met. The income tax benefit (expense) from the reduced Singapore tax rate
reflected in earnings was approximately $2.0 million (representing $0.05 per diluted share) in fiscal
2014, approximately $2.2 million (representing $0.05 per diluted share) in fiscal 2013, and
approximately $(13.3) million (representing $(0.31) per diluted share) in fiscal 2012. The impact of the
reduced Singapore tax rates in fiscal 2014 and fiscal 2012 reflect the recognition of prior year
unrecognized tax benefits.

The following table reflects changes in the unrecognized tax benefits (in thousands):

Year Ended

January 3,
2015

December 28,
2013

December 29,
2012

$4,998

$4,364

$10,943

Beginning balance . . . . . . . . . . . . . . . . . . . . .
Additions based on tax positions related to

current year . . . . . . . . . . . . . . . . . . . . . . . .

Additions based on tax positions related to

prior years . . . . . . . . . . . . . . . . . . . . . . . . .

Reductions for tax positions related to prior

465

years . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(1,592)

316

318

—

1,818

—

(8,397)

Ending balance . . . . . . . . . . . . . . . . . . . . . . .

$3,929

$4,998

$ 4,364

F-44

Silicon Laboratories Inc.
Notes to Consolidated Financial Statements
January 3, 2015 (Continued)

17. Income Taxes (Continued)

As of January 3, 2015, December 28, 2013 and December 29, 2012, the Company had gross

unrecognized tax benefits of $3.9 million, $5.0 million, and $4.4 million, respectively, of which
$4.0 million, $4.8 million, and $4.1 million, respectively, would affect the effective tax rate if recognized.
During fiscal 2014, the Company had gross increases of $0.5 million to its current and prior year
unrecognized tax benefits, as well as gross decreases of $1.3 million to its prior year unrecognized tax
benefits related to an uncertain tax position that was closed by statute. In addition, there was a
reduction of $0.3 million due to foreign currency remeasurement adjustments related to prior year
unrecognized tax benefits which were recognized in other income (expense), net. During fiscal 2013, the
Company had gross increases of $0.6 million. During fiscal 2012, the Company had gross increases of
$1.8 million to its current year unrecognized tax benefits, as well as a gross decrease of $8.4 million to
its prior year unrecognized tax benefits related to an uncertain tax position that was determined to be
effectively settled. A portion of these amounts in fiscal 2012 represents foreign currency remeasurement
adjustments and was recognized in other income (expense), net.

The Company recognizes interest and penalties related to unrecognized tax benefits in the

provision for income taxes. The Company recognized less than $0.1 million of interest in the provision
for income taxes in both fiscal 2014 and fiscal 2013. The Company did not recognize interest in the
provision for income taxes in fiscal 2012. The Company has an accrual of less than $0.1 million for the
payment of interest related to unrecognized tax positions at the end of both fiscal 2014 and fiscal 2013,
with no such accrual at the end of fiscal 2012.

The Company believes it is reasonably possible that the gross unrecognized tax benefits will
decrease by approximately $0.6 million in the next 12 months due to the lapse of the statute of
limitations applicable to a tax deduction claimed on a prior year foreign tax return.

The tax years 2010 through 2014 remain open to examination by the major taxing jurisdictions to

which the Company is subject. The Company is not currently under audit in any major taxing
jurisdiction.

18. Segment Information

The Company has one operating segment, mixed-signal analog intensive ICs, consisting of

numerous product areas. The Company’s chief operating decision maker is considered to be its Chief
Executive Officer. The chief operating decision maker allocates resources and assesses performance of
the business and other activities at the operating segment level.

F-45

Silicon Laboratories Inc.
Notes to Consolidated Financial Statements
January 3, 2015 (Continued)

18. Segment Information (Continued)

The Company groups its products into three categories, based on the markets and applications in
which its ICs may be used. The following summarizes the Company’s revenue by product category (in
thousands):

Year Ended

January 3,
2015

December 28,
2013

December 29,
2012

Broad-based . . . . . . . . . . . . . . . . . . . . . . . . .
Broadcast
. . . . . . . . . . . . . . . . . . . . . . . . . . .
Access . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$317,128
204,256
99,320

$281,777
199,837
98,473

$270,098
186,067
107,129

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$620,704

$580,087

$563,294

Revenue is attributed to a geographic area based on the shipped-to location. The following

summarizes the Company’s revenue by geographic area (in thousands):

Year Ended

January 3,
2015

December 28,
2013

December 29,
2012

United States . . . . . . . . . . . . . . . . . . . . . . . . .
China . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Taiwan . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
South Korea . . . . . . . . . . . . . . . . . . . . . . . . .
Rest of world . . . . . . . . . . . . . . . . . . . . . . . . .

$ 89,935
271,818
57,191
12,824
188,936

$ 68,566
253,261
55,036
21,303
181,921

$ 64,856
219,400
64,150
57,910
156,978

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$620,704

$580,087

$563,294

The following summarizes the Company’s property and equipment, net by geographic area (in

thousands):

United States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Rest of world . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$127,928
4,892

$126,263
6,182

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$132,820

$132,445

January 3,
2015

December 28,
2013

19. Subsequent Event

Acquisition

On January 30, 2015, the Company acquired Bluegiga Technologies Oy, a private company.
Bluegiga is a provider of Bluetooth(cid:4) Smart, Bluetooth Classic and Wi-Fi(cid:4) modules and software stacks
for a multitude of applications in the Internet of Things (IoT), industrial automation, consumer
electronics, automotive, retail, residential, and health and fitness markets. The Company acquired
Bluegiga for cash consideration of approximately $61 million.

F-46

Silicon Laboratories Inc.
Notes to Consolidated Financial Statements
January 3, 2015 (Continued)

19. Subsequent Event (Continued)

The Company will record the purchase of Bluegiga using the acquisition method of accounting and

will recognize the assets acquired and liabilities assumed at their fair values as of the date of the
acquisition. The results of Bluegiga’s operations will be included in the Company’s consolidated results
of operations beginning on the date of the acquisition.

The Company is currently evaluating the fair values of the consideration transferred, assets

acquired and liabilities assumed. The Company expects to complete its initial purchase price allocation
in the first quarter of fiscal 2015.

F-47

Supplementary Financial Information (Unaudited)

Quarterly financial information for fiscal 2014 and 2013 is as follows. The fourth quarter of fiscal
2014 had 14 weeks. All other quarterly periods reported here had 13 weeks (in thousands, except per
share amounts):

Fiscal 2014

Fourth
Quarter

Third
Quarter

Second
Quarter

First
Quarter

Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross margin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$161,951
96,672
11,006
$ 10,024

$158,144
96,111
9,604
5,608

$154,918
98,663
20,802
$ 14,279

$145,691
87,105
10,009
8,110

Earnings per share:

Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$
$

0.24
0.23

$
$

0.13
0.13

$
$

0.33
0.32

$
$

0.19
0.18

Fiscal 2013

Fourth
Quarter

Third
Quarter

Second
Quarter

First
Quarter

$146,236
88,598
14,154
$ 10,642

$146,933
88,161
10,490
6,531

$141,543
88,773
19,029
$ 12,612

$145,375
87,372
20,637
$ 20,034

Earnings per share:

Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$
$

0.25
0.24

$
$

0.15
0.15

$
$

0.30
0.29

$
$

0.47
0.46

Supplementary Financial Information
to the Annual Report

Appendix I. Reconciliation of GAAP
to Non-GAAP Financial Measures

Appendix I: Supplemental Financial Information (Unaudited)

The non-GAAP financial measurements provided below do not replace the presentation of Silicon
Laboratories’ GAAP financial results. These measurements merely provide supplemental information to
assist investors in analyzing Silicon Laboratories’ financial position and results of operations; however, these
measures are not in accordance with, or an alternative to, GAAP and may be different from non-GAAP
measures used by other companies. We are providing this information because it may enable investors to
perform meaningful comparisons of operating results, and more clearly highlight the results of core ongoing
operations.

Unaudited Reconciliation of GAAP to Non-GAAP Financial Measures
(In thousands, except per share data)

Year Ended
January 3, 2015

Non-GAAP Income
Statement Items

GAAP

Percent of Compensation

Measure Revenue

Expense

GAAP

Stock

Intangible
Asset
Amortization

Acquisition
Related
Items

Revenues

. . . . . . . . . $620,704

Non-GAAP
Termination Unrecognized Non-GAAP Percent of
Revenue
Tax Benefits Measure

Release of

Costs

Gross margin . . . . . . .

378,551

61.0%

775

$ 1,559

$ —

$ 37

$ —

$380,922

61.4%

Research and

development . . . . . .

172,985

27.9%

18,521

12,948

—

Selling, general and

administrative . . . . .

154,145

24.8%

Operating expenses

. . .

327,130

52.7%

Operating income . . . .

51,421

Net income . . . . . . . .

38,021

8.3%

6.1%

Diluted shares

19,771

38,292

39,067

35,043

2,917

15,865

17,424

12,150

7,524

(264)

(179)

(142)

(74)

—

141,431

22.8%

124,197

265,628

115,294

20.0%

42.8%

18.6%

14.7%

(1,292)

91,372

outstanding . . . . . . .

43,793

—

43,793

Diluted earnings per

share . . . . . . . . . . . $

0.87

2.09

Unaudited Reconciliation of GAAP to Non-GAAP Financial Measures
(In thousands, except per share data)
(Continued)

Three Months Ended
January 3, 2015

Non-GAAP Income
Statement Items

GAAP

Percent of Compensation

Measure Revenue

Expense

GAAP

Stock

Intangible
Asset
Amortization

Acquisition
Related
Items

Revenues

. . . . . . . . . $161,951

Non-GAAP
Termination Unrecognized Non-GAAP Percent of
Revenue
Tax Benefits Measure

Release of

Costs

Gross margin . . . . . . .

96,672

59.7%

$ 200

$ 390

$ —

$ 37

$—

$97,299

60.1%

Research and

development . . . . . .

46,139

28.5%

5,240

3,589

—

Selling, general and

administrative . . . . .

39,527

24.4%

Operating expenses

. . .

85,666

52.9%

Operating income . . . .

11,006

Net income . . . . . . . .

10,024

6.8%

6.2%

5,454

10,694

10,894

9,927

729

4,318

4,708

3,335

1,047

Diluted shares

outstanding . . . . . . .

43,137

—

125

—

Diluted earnings per

share . . . . . . . . . . . $

0.23

—

37,225

23.0%

19.9%

42.9%

17.2%

15.1%

32,294

69,519

27,780

24,458

43,137

0.57

Three Months Ended
September 27, 2014

Non-GAAP Income
Statement Items

GAAP

Percent of Compensation

Measure Revenue

Expense

GAAP

Stock

Intangible
Asset
Amortization

Acquisition
Related
Items

Revenues

. . . . . . . . . $158,144

Non-GAAP
Termination Unrecognized Non-GAAP Percent of
Revenue
Tax Benefits Measure

Release of

Costs

Gross margin . . . . . . .

96,111

60.8%

$ 201

$ 390

$ —

$—

$96,702

61.1%

Research and

development . . . . . .

42,517

26.9%

4,713

3,008

—

Selling, general and

administrative . . . . .

43,990

27.8%

Operating expenses

. . .

86,507

54.7%

Operating income . . . .

Net income . . . . . . . .

9,604

5,608

6.1%

3.5%

4,700

9,413

9,614

8,456

729

3,737

4,127

2,407

6,483

Diluted shares

outstanding . . . . . . .

43,815

—

Diluted earnings per

share . . . . . . . . . . . $

0.13

—

34,796

22.0%

20.2%

42.2%

18.9%

14.5%

32,078

66,874

29,828

22,954

43,815

0.52

Unaudited Reconciliation of GAAP to Non-GAAP Financial Measures
(In thousands, except per share data)
(Continued)

Three Months Ended
June 28, 2014

Non-GAAP Income
Statement Items

GAAP

Percent of Compensation

Measure Revenue

Expense

GAAP

Stock

Intangible
Asset
Amortization

Acquisition
Related
Items

Revenues

. . . . . . . . . $154,918

Non-GAAP
Termination Unrecognized Non-GAAP Percent of
Revenue
Tax Benefits Measure

Release of

Costs

Gross margin . . . . . . .

98,663

63.7%

$ 178

$ 390

$ —

$—

$99,231

64.1%

Research and

development . . . . . .

41,844

27.0%

4,327

3,104

—

Selling, general and

administrative . . . . .

36,017

23.3%

Operating expenses

. . .

77,861

50.3%

Operating income . . . .

20,802

13.4%

Net income . . . . . . . .

14,279

9.2%

4,777

9,104

9,282

8,695

729

3,833

4,223

3,388

(822)

Diluted shares

outstanding . . . . . . .

44,218

—

Diluted earnings per

share . . . . . . . . . . . $

0.32

—

34,413

22.2%

20.3%

42.5%

21.6%

16.5%

31,333

65,746

33,485

25,540

44,218

0.58

Three Months Ended
March 29, 2014

Non-GAAP Income
Statement Items

GAAP

Percent of Compensation

Measure Revenue

Expense

GAAP

Stock

Intangible
Asset
Amortization

Acquisition
Related
Items

Revenues

. . . . . . . . . $145,691

Non-GAAP
Termination Unrecognized Non-GAAP Percent of
Revenue
Tax Benefits Measure

Release of

Costs

Gross margin . . . . . . .

87,105

59.8%

$ 195

$ 390

$ —

$87,690

60.2%

Research and

development . . . . . .

42,485

29.2%

4,241

3,247

Selling, general and

administrative . . . . .

34,611

23.7%

Operating expenses

. . .

77,096

52.9%

Operating income . . . .

10,009

Net income . . . . . . . .

8,110

6.9%

5.6%

4,841

9,082

9,277

7,966

729

3,976

4,366

3,019

Diluted shares

outstanding . . . . . . .

44,056

—

816

—

Diluted earnings per

share . . . . . . . . . . . $

0.18

—

(267)

(199)

—

(1,292)

34,997

24.0%

28,492

63,489

24,201

18,420

19.6%

43.6%

16.6%

12.6%

—

44,056

0.42

The company is a leading supplier of silicon,
software and system solutions for the Internet
of Things, Internet infrastructure, industrial
automation, consumer and automotive markets.

We solve the electronics industry’s toughest problems, providing
customers with significant advantages in performance, energy
savings, connectivity and design simplicity. Backed by our world-
class engineering teams with unsurpassed software and mixed-signal
design expertise, Silicon Labs empowers developers with the tools
and technologies they need to advance quickly and easily from initial
idea to final product.

The company, founded in 1996, has more than 1,400 patents issued
or pending. Based in Austin, Texas, Silicon Labs’ common stock is
traded on the NASDAQ® exchange under the ticker symbol “SLAB.”

2014 Directors

Corporate Information

Nav S. Sooch
Chief Executive Officer,
Ketra

Tyson Tuttle
Chief Executive Officer,
Silicon Labs

William G. Bock
President,
Silicon Labs

David R. Welland
Vice President and Fellow,
Silicon Labs

Alf-Egil Bogen
Chief Executive Officer,
Novelda AS

Harvey B. Cash
General Partner,
InterWest Partners

Robert Ted Enloe, III
Managing General Partner,
Balquita Partners, Ltd.

Jack Lazar
Chief Financial Officer,
GoPro

Laurence G. Walker, PhD

Bill Wood
General Partner,
Silverton Partners

Executive Officers

Tyson Tuttle
Chief Executive Officer

William G. Bock
President

John Hollister
Senior Vice President and
Chief Financial Officer

Kurt Hoff
Senior Vice President of
Worldwide Sales

Sandeep Kumar, PhD
Senior Vice President
of Worldwide Operations

Stock Listing
Common stock traded on
NASDAQ, symbol SLAB

Options
The Company’s options are
traded on the Chicago Board
Option Exchange and the
American Stock Exchange.

Legal Counsel
DLA Piper US LLP
401 Congress Avenue,
Suite 2500
Austin, Texas 78701

Independent Registered Public
Accounting Firm
Ernst & Young LLP
401 Congress Avenue,
Suite 1800
Austin, Texas 78701

Transfer Agent and Registrar
American Stock Transfer &
Trust Company
59 Maiden Lane
Plaza Level
New York, New York 10038
800-937-5449

Stock Data
As of January 27, 2015, there
were 42,137,503 shares issued
and outstanding, and 97 holders
of record. The following table
shows the record high and
low per share prices of the
Company’s common stock as
reported by the NASDAQ
for the periods.

High

Low

$54.00

$41.19

$53.78

$42.41

$50.05

$39.28

$48.50

$36.29

Annual Meeting
The Silicon Laboratories Inc.
annual meeting will be held on
Friday, April 24, 2015 at 9:30 am
Central Time at the Lady Bird
Johnson Wildflower Center,
4801 La Crosse Avenue,
Austin, Texas, 78739.

Investor Relations
For more information about
Silicon Labs, please visit our
website at www.silabs.com,
or contact:

Investor Relations
Silicon Labs
400 West Cesar Chavez
Austin, Texas 78701
512-416-8500
investor.relations@silabs.com

Created by Make It So Design, Austin, Texas

We are engineers. We are innovators. We are Silicon Labs.