Silicon Laboratories

To Our Shareholders

For the past 20 years, Silicon Labs has pioneered mixed-
signal and RF technologies that enable a more connected 
world, delivering design simplicity to our customers while 
improving lives and transforming industries. During 2015, we 
made significant progress in laying the foundation for our 
continued success as a leading supplier of silicon, software 
and solutions for the Internet of Things (IoT) and Infrastructure 
markets. We are executing on our strategy as we target large, 
diversified growth markets and develop a well-positioned 
product portfolio.

$105 million. Strong cash generation has enabled the company 
to repurchase more than $70 million of its stock during the 
year and to acquire two accretive companies, Bluegiga and 
Telegesis. The company ended the year with $250 million in 
cash, cash equivalents and investments. 

Our operating expenses reflect significant investment in R&D, 
primarily related to products, software and solutions to address 
the IoT market. Headcount increased by approximately eight 
percent from 2014 due to organic hiring and 2015 acquisitions. 

We ended 2015 with record revenue of $645 million, increasing 
four percent annually, and outperforming the semiconductor 
industry, which was flat to slightly down. We expanded our 
customer count by more than 20 percent to nearly 30,000, and 
added two new IoT customers to our top-10-customers list. 

Our IoT portfolio is our fastest-ramping product category, with 
2015 revenues increasing 26 percent annually. The adoption of 
smart, connected devices across our target markets is gaining 
momentum, with particularly strong performance in connected 
home, smart metering, and wearable applications. 

From 2011 through 2015, our IoT and Infrastructure products 
have delivered compound annual growth rates of 20 percent and 
more than 10 percent, respectively. This robust performance 
is the result of organic investment and a targeted acquisition 
strategy that has enabled our world-class portfolio to address 
the needs of these diversified markets. Revenues from our 
IoT and Infrastructure products represented a combined 60 
percent of 2015 sales, up from 42 percent in 2011.

Conservative financial management has guided Silicon Labs’ 
success for 20 years. Cash flow from operations has been 
positive nearly every quarter since the company went public in 
2000. In 2015, the company delivered operating cash flows of 

Success in the IoT market requires a combination of energy-
efficient microcontrollers (MCUs), wireless connectivity, and 
a comprehensive set of tools and solutions that simplifies 
development. We offer all of these ingredients. 

Our mixed-signal and RF integration capabilities are hallmarks 
of Silicon Labs, enabling us to design leading-edge system-on-
chip (SoC) solutions. As competition increases in the IoT, we 
believe our strength in integration will continue to be an important 
competitive advantage as we deliver robust, high-performance 
and cost-effective SoCs designed to support multiple wireless 
protocols. Our scalable platforms and product portfolios allow us 
to deliver differentiated solutions for a wide range of customers 

Non-GAAP Financials*

In thousands, except per share data

REVENUE  

  % Y/Y 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 PER SHARE 

Q1 2015

Q2 2015

Q3 2015

Q4 2015

FY2015

 $163,705 

12.4%

 $98,146 

60.0%

 $37,734 

23.1%

 $32,914 

20.1%

 $70,648 

43.2%

 $27,498 

16.8%

 $23,379 

14.3%

 $0.54 

$164,856 

6.4%

 $99,371 

60.3%

 $37,389 

22.7%

 $32,714 

19.8%

 $70,103 

42.5%

 $29,268 

17.8%

$24,461 

14.8%

 $0.56 

 $156,194 

-1.2%

 $94,074 

60.2%

 $36,610 

23.4%

 $31,393 

20.1%

 $68,003 

43.5%

 $26,071 

16.7%

 $21,827 

14.0%

 $160,071 

-1.2%

 $94,380 

59.0%

 $36,395 

22.7%

 $31,410 

19.7%

$67,805 

42.4%

 $26,575 

16.6%

 $26,548 

16.6%

 $0.51 

 $0.63 

 $644,826 

3.9%

 $385,971 

59.9%

 $148,128 

23.0%

 $128,431 

19.9%

 $276,559 

42.9%

 $109,412 

17.0%

 $96,215 

14.9%

 $2.24 

*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 2015 Form 10-K, which is included in this Annual Report.

  
  
  
  
  
  
  
and applications, which we serve through our strong channel, 
supporting more than two-thirds of our revenue. 

Explosive growth in data-intensive communications, including 
cloud computing-based services, is fueling the need for faster, 
higher-performance data center and networking equipment, 
which relies on our high-precision timing products. Silicon 
Labs offers a comprehensive portfolio of timing products 
including low-jitter clocks, buffers, and oscillators that deliver 
industry-leading performance and frequency fl exibility. To help 
our customers get to market faster, we provide easy-to-use 
tools that simplify timing design, minimize jitter, and enable 
developers to order samples with short, two-week lead times. 

The growing importance of green energy around the world 
is driving demand for our isolation products. Our portfolio is 
ideal for applications such as motor drives, microinverters, 
power supplies, and battery management systems for hybrid 
and electric vehicles. 

Revenue from our Broadcast products declined in the year as 
weakness in consumer markets was partially offset by robust 
growth in automotive. Our automotive products continue to 
deliver record levels of design win activity and revenue based 
on performance, scalability, and integration. We are supplying 
tuners to a number of top-tier European, Asian and US car 
radio manufacturers, including OEMs and the aftermarket. We 
exited 2015 with about 10 percent market share and anticipate 
continued share gains in all regions to fuel revenue growth for 
these products. 

We appreciate your investment in Silicon Labs. This year, as 
we mark Silicon Labs’ 20th anniversary, we have never been 
more excited about the many innovations and opportunities 
that lie ahead.

Nav Sooch
Chairman

Tyson Tuttle
Tyson Tuttle
Chief Executive Offi cer

Revenue

$492M

   ACCESS

   BROADCAST     

   INFRASTRUCTURE     

   INTERNET OF THINGS

$563M

$580M

$621M

$645M

FY11

FY12

FY13

FY14

FY15

We believe the Internet of 
Things is about more than 
just “things.” 

It’s about connections. 

A more connected world 
is sustainable.

From smart metering to alternative energy 
sources like solar and wind power, our silicon 
and software solutions help customers fully 
realize the benefi ts of green technology with 
the highest levels of reliability, accuracy and 
energy effi ciency.

Green Energy
Our isolation solutions are key enablers of energy-friendly 
technologies, such as solar inverters, motor controls, power supplies 
and battery management systems for hybrid-electric vehicles.

Smart Home
Our wireless and sensor technologies are fueling the rapid rise of 
connected devices in the home to help users monitor and minimize 
their energy use.

Metering
Our ZigBee® mesh networking SoCs connect millions of smart meters 
to the grid, helping to better manage scarce energy resources.

A more connected world 
is healthy.

Our IoT solutions are transforming healthcare 
and personal fi tness. Wireless connectivity 
and sensor technologies offer tremendous 
advantages in health maintenance, remote 
monitoring and diagnosis, and data 
management effi ciency.

Health Monitoring 
Our MCU, sensor and wireless connectivity products are enabling a 
growing number of personal health monitoring devices.

Pulse Oximeter
Our MCU and sensor technologies simplify the measurement 
of blood oxygen levels in devices such as pulse oximeters.

Fitness Tracker
Wearable manufacturers choose our 32-bit MCUs, Bluetooth® 
Smart modules and sensor solutions to create feature-rich, 
energy-effi cient connected devices. 

A more connected world 
is transformative.

The world is becoming smarter and 
more effi cient, powered by real-time, 
secure connections linking data to 
people, processes and knowledge bases. 
Our solutions enable intelligence and 
connectivity across many industries.

Communications
The explosion of Internet traffi c, streaming data and cloud computing 
drives the need for faster data center and networking equipment, 
which relies on our high-precision timing solutions.

Retail
The retail industry leverages our wireless technology to transform 
pricing and inventory management with electronic shelf labels.

Agriculture
Wireless sensor technology enables farmers to maximize 
agricultural production to feed the world’s growing population.

A more connected world 
is interactive.

News, music and videos broadcast over 
the airwaves or cabled into our homes keep 
us connected to the world with up-to-date 
information and entertainment.

Automotive Infotainment 
Our latest family of automotive radio receivers sets leading 
performance benchmarks for AM/FM and digital radio reception.

Home Entertainment
More than half of televisions sold worldwide use Silicon Labs’ 
industry-leading digital TV tuners.

Remote Control Devices
Our MCU and wireless products bring industry leading power 
effi ciency, performance and cost savings to a number of remote 
control products.

A more connected world 
is here.

Our innovative products, software and tools 
empower our customers to work smarter 
and make the world a more connected and 
energy-friendly place. 

From MCUs, wireless SoCs and sensors for the IoT, to advanced timing and isolation 
products for Internet infrastructure and industrial automation, Silicon Labs’ solutions 
provide customers with signifi cant advantages in performance, energy effi ciency, 
connectivity and design simplicity.

At Silicon Labs, we are relentless in our commitment to excellence. Through the continual 
development of breakthrough solutions, engineering excellence, design simplicity 
and global perspective, we provide our customers with the ability to develop leading-
edge solutions for a connected world. We are passionate about enabling breakthrough 
innovation and accelerating our customers’ time-to-market.

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

(Mark One)

FORM 10-K

� ANNUAL REPORT PURSUANT TO SECTION  13 OR 15(d)  OF THE

SECURITIES EXCHANGE ACT OF  1934

� ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended January 2, 2016

or

� TRANSITION REPORT PURSUANT  TO  SECTION 13  OR  15(d)  OF  THE

� TRANSITION REPORT PURSUANT TO SECTION 13  OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF  1934
For the  transition period from 

 to 

Commission file number: 000-29823

SILICON LABORATORIES INC.

(Exact name of registrant as specified in its charter)

Delaware
(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

Title of  each class

Name  of exchange on which registered

Common Stock,  $0.0001 par  value

The NASDAQ Stock Market LLC

Common Stock, $0.0001 par value

The NASDAQ Stock  Market LLC

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

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

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

Act.  � Yes �  No

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

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

Act.  �  Yes � 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. � Yes � 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). � Yes � 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. �

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 �

Accelerated filer �

Non-accelerated filer �

Smaller reporting company �

Large accelerated filer �

Accelerated filer �

Non-accelerated filer �

Smaller  reporting company �

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

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

�  Yes � 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  (July 2,  2015) was  $2,239,112,519 (assuming, for this purpose, that only directors and officers are deemed
affiliates).

� Yes � No

affiliates).

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 (July 2, 2015) was $2,239,112,519 (assuming, for  this  purpose, that only directors and  officers are  deemed

There were 41,554,116 shares of the  registrant’s common stock issued and outstanding as of January 26, 2016.

There were 41,554,116 shares of the registrant’s common stock issued and outstanding as  of  January 26,  2016.

DOCUMENTS INCORPORATED BY REFERENCE

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Proxy  Statement  for the registrant’s 2015 Annual Meeting of Stockholders are incorporated by reference

Portions of the Proxy Statement for the registrant’s 2015  Annual  Meeting of Stockholders are  incorporated  by reference

into Part III of this  Form 10-K.

into Part III of this Form 10-K.

SECURITIES AND  EXCHANGE COMMISSION

(Mark One)

UNITED  STATES

Washington, D.C. 20549

FORM 10-K

For the fiscal year ended January 2, 2016

or

SECURITIES EXCHANGE ACT OF 1934

For the transition period from 

  to 

Commission file number: 000-29823

SILICON  LABORATORIES INC.

(Exact name of registrant as specified in its charter)

Delaware

(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)

(Registrant’s telephone number, including area code)

(512) 416-8500

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

Act.  � Yes � No

Act.  � Yes � 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.  � Yes � 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). � Yes � 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. �

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.

 
Table of Contents

Table of Contents

Part I

Part II

Part III

Part IV

Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 1.
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
13
27
27
27
28

29
31

32
47
48

48
48
49

50
50

50

50
50

51

Cautionary Statement

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.

1

1

Part I

Part II

Part III

Part IV

Item 1.

Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Item 1A. Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Item 1B. Unresolved Staff Comments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Item 2.

Item 3.

Item 4.

Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Mine Safety Disclosures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Item 5.

Market for Registrant’s Common Equity, Related Stockholder Matters

Item 6.

Item 7.

Item 8.

Item 9.

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 . . . . . . . . . . . . . . . . . . .

Changes in and Disagreements  with Accountants on Accounting  and

Financial Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Item 9A. Controls and Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Item 9B. Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Item 10. Directors, Executive Officers and Corporate Governance . . . . . . . . . . . .

Item 11.

Item 12.

Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Security Ownership of Certain  Beneficial  Owners and Management and

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

Item 13.

Certain Relationships and Related Transactions, and  Director

Independence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Item 14.

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

Item 15.

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

Page

Number

2

13

27

27

27

28

29

31

32

47

48

48

48

49

50

50

50

50

50

51

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.

 
Part I

Part I

Item 1. Business

General

Silicon Laboratories Inc. is a provider of silicon, software and  solutions for the Internet  of  Things
(IoT), Internet infrastructure, industrial  control, consumer and  automotive markets. We solve some  of
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 strong software and mixed-signal design expertise, Silicon Laboratories empowers
developers with the tools and technologies they need to advance quickly  and easily from  initial idea to
final product.

Mixed-signal integrated circuits (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 industrial, communications,  consumer 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

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, 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 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 mixed-signal IC solution providers lack sufficient analog  expertise to develop compelling
mixed-signal products. As a result, manufacturers of  electronic devices value  providers  that  can supply

2

2

Item 1. Business

General

Silicon Laboratories Inc. is a provider of silicon, software and  solutions for the Internet of Things

(IoT), Internet infrastructure, industrial control, consumer and  automotive markets. We solve some of

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 strong software and mixed-signal design expertise, Silicon Laboratories empowers

developers with the tools and technologies they need to advance quickly and easily from initial idea to

final product.

Mixed-signal integrated circuits (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 industrial, communications,  consumer 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

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, 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 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 mixed-signal IC solution providers lack sufficient analog  expertise to develop compelling

mixed-signal products. As a result, manufacturers of  electronic devices value 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.

them with mixed-signal solutions with greater functionality, smaller size and lower power requirements

at a reduced cost and shorter time-to-market.

Products

Products

We provide analog-intensive, mixed-signal solutions for  use in  a variety  of electronic products in a

broad range of applications for the IoT market including  connected home, smart lighting, security,
wearables and smart energy applications. We are a supplier of wireless  connectivity solutions for the
IoT based on Bluetooth�, ZigBee�, Thread,  Wi-Fi� and sub-GHz technologies.

We  provide a wide range of timing and  isolation  products for infrastructure applications including

high-performance clocks and oscillators  for networking  equipment, data centers and  wireless  base
stations, as well as digital isolators and current  sensors for industrial power supplies,  motor control,
solar inverters and hybrid-electric vehicles. We also  provide broadcast products, such  as TV tuners  and
demodulators and automotive radio tuners, and access products including  subscriber line interface
circuits for voice over IP (VoIP), embedded modems,  and  Power over  Ethernet  (PoE)  power  source
equipment and powered device ICs.

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:

We provide analog-intensive, mixed-signal solutions for use in  a variety of electronic products in a

broad range of applications for the IoT market including connected home, smart lighting, security,

wearables and smart energy applications.  We  are a supplier of wireless connectivity solutions for the

IoT based on Bluetooth�, ZigBee�, Thread, Wi-Fi� and sub-GHz technologies.

We provide a wide range of timing and isolation  products for infrastructure applications including

high-performance clocks and oscillators for networking equipment, data centers and wireless base

stations, as well as digital isolators and current sensors for industrial power supplies,  motor control,

solar inverters and hybrid-electric vehicles. We also  provide broadcast products, such as TV tuners and

demodulators and automotive radio tuners, and access products including subscriber line interface

circuits for voice over IP (VoIP), embedded modems,  and Power over Ethernet (PoE) power source

equipment and powered device ICs.

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:

• Require less printed circuit board (PCB) space;

• Require less printed circuit board (PCB) space;

• Reduce the use of external components  lowering the  system cost and simplifying design;

• Reduce the use of external components  lowering the  system cost and simplifying design;

• Offer superior performance improving  our  customers’ end products;

• Offer superior performance improving our  customers’ end products;

• Provide increased reliability and manufacturability, improving customer yields;  and/or

• Provide increased reliability and manufacturability, improving customer yields; and/or

• Reduce system power requirements enabling smaller form  factors  and/or longer battery life.

• Reduce system power requirements enabling smaller form factors and/or longer battery life.

We  group our products into the following categories:

We group our products into the following categories:

• Internet of Things products, which include  our microcontroller (MCU), wireless, sensor and

• Internet of Things products, which include our microcontroller (MCU), wireless, sensor and

analog products;

• Broadcast products, which include our broadcast consumer and automotive  products;

• Broadcast products, which include our broadcast consumer and automotive products;

• Infrastructure products, which include our timing products (clocks  and oscillators), and isolation

• Infrastructure products, which include our timing products (clocks  and oscillators), and isolation

devices; and

analog products;

devices; and

• Access products, which include our VoIP products, embedded modems and our PoE devices.

• Access products, which include our VoIP  products, embedded modems and our PoE devices.

We  previously grouped IoT products and Infrastructure products under  the Broad-based products

We previously grouped IoT products and Infrastructure products under the Broad-based products

heading.

heading.

3

3

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

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

that we have introduced to customers:

Product Areas and Description

Internet of Things Products

Microcontrollers and Wireless Products

We  offer a family of products ideal for  embedded systems  that
include energy friendly 8-bit mixed-signal microcontrollers,  32-bit
wireless MCUs and ultra low-power  32-bit MCUs based on
scalable ARM� Cortex-M0+/M3/M4 cores, as well as  wireless
connectivity devices such as our EZRadio� family of fully
integrated, low power transceivers. Our wireless modules  provide
flexible, highly integrated products that meet demanding
requirements and can be used in a number of  applications. Our
wireless connectivity solutions for the IoT  are based  on
Bluetooth, ZigBee, Thread, Wi-Fi and sub-GHz technologies.
Our EFM32�, EFM8�, 8051, wireless  MCUs  and wireless SoCs
are supported by Simplicity Studio�,  a one-click access to design
tools, documentation, software and support resources.  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  (connected home,
smart lighting, security, wearables and smart energy
applications), automotive, communications,  consumer, industrial,
medical and power management markets.

Sensors

Our sensor products include optical sensors (proximity,  ambient
light  gestures and heart rate), as well as  relative  humidity (RH) /
temperature sensors. These devices leverage  our mixed-signal
capability to provide high accuracy, process technology  to
improve performance and lower power consumption than
competing parts.

Broadcast Products

Broadcast Consumer

Applications

• Home automation
• Security systems
• Smart lighting
• Smart metering
• Wearables
• Consumer electronics
• Industrial automation and

control

• Medical instrumentation
• Automotive sensors and

controls

• Electronic test and

measurement equipment

• White goods
• Remote controls

• Consumer health & fitness

(wearables)

• Smart home sensing
• Industrial controls
• Toys and consumer electronics
• Monitors and lavatory controls
• Consumer medical

that we have introduced to customers:

Product Areas and Description

Internet of Things Products

Microcontrollers and Wireless Products

Applications

We offer a family of products ideal for embedded systems  that

• Home automation

include energy friendly 8-bit mixed-signal microcontrollers,  32-bit

• Security systems

wireless MCUs and ultra low-power  32-bit MCUs based on

scalable ARM� Cortex-M0+/M3/M4 cores, as well as wireless

connectivity devices such as our EZRadio� family of fully

• Smart lighting

• Smart metering

• Wearables

integrated, low power transceivers. Our wireless modules provide

• Consumer electronics

flexible, highly integrated products that meet demanding

• Industrial automation and

requirements and can be used in a number of applications. Our

control

wireless connectivity solutions for the IoT are based on

Bluetooth, ZigBee, Thread, Wi-Fi and sub-GHz technologies.

• Medical instrumentation

• Automotive sensors and

Our EFM32�, EFM8�, 8051, wireless MCUs and wireless SoCs

controls

are supported by Simplicity Studio�, a one-click access to design

• Electronic test and

tools, documentation, software and support resources. These

measurement equipment

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 (connected home,

smart lighting, security, wearables and smart energy

applications), automotive, communications, consumer, industrial,

medical and power management markets.

• White goods

• Remote controls

Sensors

Our sensor products include optical sensors (proximity,  ambient

• Consumer health & fitness

light gestures and heart rate), as well as  relative humidity (RH) /

(wearables)

temperature sensors. These devices leverage our mixed-signal

capability to provide high accuracy, process technology  to

improve performance and lower power consumption than

• Smart home sensing

• Industrial controls

• Toys and consumer electronics

• Monitors and lavatory controls

• Consumer medical

competing parts.

Broadcast Products

Broadcast Consumer

Our worldwide hybrid TV tuners with analog TV demodulator in

• Integrated digital televisions

a single CMOS IC leverage our proven digital low-IF architecture

(iDTV)

and exceed the performance of traditional discrete TV tuners,

• Free-to-Air (FtA) or pay-TV

enabling TV makers to deliver improved picture  quality and

set-top boxes

better reception for both analog and digital broadcasts. Our small,

• PVR/DVD/Blu-Ray/HDD

low power and high performance single and dual digital video

demodulators support DVB-T/T2, DVB-S/S2/S2X, DVB-C/C2,

and/or ISDB-T in a single chip and are ideal for equipment

video recorders

• PC-TV applications

• AM/FM clock radios

receiving digital terrestrial, satellite and/or cable services. Our AM • Portable audio devices

and FM receivers deliver a complete radio solution from antenna

• MP3/digital media players

• Home theater systems

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.

Our worldwide 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 single and dual digital video
demodulators support DVB-T/T2, DVB-S/S2/S2X, DVB-C/C2,
and/or ISDB-T in a single chip and are ideal for equipment
receiving  digital terrestrial, satellite and/or cable services. Our AM • Portable audio devices
and FM receivers deliver a complete radio solution 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.

video recorders
• PC-TV applications
• AM/FM clock radios

• MP3/digital media players
• Home theater systems

• Free-to-Air (FtA) or pay-TV

• Integrated digital televisions

• PVR/DVD/Blu-Ray/HDD

set-top boxes

(iDTV)

4

4

Product Areas and Description

Broadcast Automotive

Our high-performance solutions for car sound systems include
high fidelity radio ICs that improve the end  user experience,
reduce system cost and take advantage  of  the latest  digital
features. 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.

Infrastructure Products

Timing  Devices

Applications

• Automotive infotainment

systems/radios

• Navigation/GPS devices

Robust demand for bandwidth is driving the  deployment of
next-generation Internet infrastructure equipment to deliver
higher  speed, higher capacity 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, mass customizable timing solutions that
accelerate development time, minimize  cost and  improve system
reliability. Our high-performance ‘‘clock-tree-on-a-chip’’ products
offer highly integrated single-chip IC  solutions for clock synthesis
and jitter attenuation, offering superior jitter performance and
frequency flexibility for high data rate applications.

• Networking equipment
• Telecommunications
• Optical networking
• Wireless base stations
• Small cells and mobile

backhaul

• Broadcast video
• Servers and storage
• Test and measurement

equipment

• Image processing
• High-speed data acquisition

Isolation Products

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

• Switch mode power supplies
• Industrial networking
• Hybrid / Electric automotive

drive trains
• Solar inverters
• Motor control
• Isolated analog data

acquisition

Access Products

ProSLIC� 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 market for Voice over IP telephony applications deployed
over cable, DSL, optical and wireless fixed terminal  networks.

• Voice functionality for cable,

DSL and  optical digital
modems and terminal adapters

• VoIP residential gateways
• Wireless local loop remote

access systems

• PBXs

Product Areas and Description

Broadcast Automotive

Applications

Our high-performance solutions for car sound systems include

• Automotive infotainment

high fidelity radio ICs that improve the end  user experience,

systems/radios

reduce system cost and take advantage  of  the latest digital

• Navigation/GPS devices

features. 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.

Infrastructure Products

Timing Devices

Robust demand for bandwidth is driving the  deployment of

• Networking equipment

next-generation Internet infrastructure equipment to deliver

higher speed, higher capacity and more flexible networks. This

• Telecommunications

• Optical networking

transition puts unique requirements on the clocks and oscillators

• Wireless base stations

used to provide timing and synchronization for the  equipment

• Small cells and mobile

responsible for switching, transporting, processing and storing

backhaul

network traffic. To meet this need, we provide low jitter,

frequency flexible, mass customizable timing solutions that

• Broadcast video

• Servers and storage

accelerate development time, minimize  cost and  improve system

• Test and measurement

reliability. Our high-performance ‘‘clock-tree-on-a-chip’’ products

equipment

offer highly integrated single-chip IC solutions for clock synthesis

• Image processing

and jitter attenuation, offering superior jitter performance and

• High-speed data acquisition

frequency flexibility for high data rate applications.

Isolation Products

Our isolation techniques enable customers to meet  safety

• Switch mode power supplies

standards for isolation and solve difficult electronic noise issues.

• Industrial networking

Products include multi-channel isolators, isolated drivers, isolated

• Hybrid / Electric automotive

power converters and mixed-signal devices that simplify design,

drive trains

improve reliability, minimize noise emissions, and reduce system

• Solar inverters

• Motor control

• Isolated analog data

acquisition

cost.

Access Products

ProSLIC� Subscriber Line Interface Circuits for VoIP

Our ProSLIC provides the analog subscriber line interface on

• Voice functionality for cable,

the source end of the telephone which generates dial tone, busy

DSL and  optical digital

tone, caller ID and ring signal. Our offerings are well  suited for

modems and terminal adapters

the market for Voice over IP telephony applications deployed

over cable, DSL, optical and wireless fixed terminal networks.

• VoIP residential gateways

• Wireless local loop remote

access systems

• PBXs

5

5

 
Product Areas and Description

ISOmodem� 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.

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.

Applications

• Point of sale (POS) terminals
• Fax machines and multi-

function printers
• Security systems
• Industrial monitoring
• Remote medical monitoring

• Enterprise networking routers

and switches

• Wireless access points (WAP)
• VoIP phones
• POS terminals
• Security cameras

Product Areas and Description

ISOmodem� Embedded Modems

Applications

The ISOmodem embedded modems  leverage  innovative silicon

• Point of sale (POS) terminals

direct access arrangement (DAA) technology and  a digital signal

• Fax machines and multi-

processor to deliver a globally compliant, compact analog

modem for embedded applications.

function printers

• Security systems

• Industrial monitoring

• Remote medical monitoring

Power over Ethernet

Our Power over Ethernet power source equipment and powered

• Enterprise networking routers

device ICs offer highly differentiated  solutions with a reduced

and switches

total bill of materials (BOM) and improved performance and

• Wireless access points (WAP)

reliability. Our solutions offer a higher level of integration  not

available with competing solutions.

• VoIP phones

• POS terminals

• Security cameras

Revenues during fiscal 2015, 2014 and 2013 were  generated  predominately by sales of our mixed-

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

Revenues during fiscal 2015, 2014 and 2013 were generated  predominately by sales of our mixed-

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

Fiscal Year

2015

2014

2013

Internet of Things . . . . . . . . . . . . . . . . . . . . . . . .
Broadcast . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Infrastructure . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Access . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$262,329
161,787
121,974
98,736

$209,005
204,256
108,123
99,320

$181,254
199,837
100,523
98,473

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

$644,826

$620,704

$580,087

Fiscal Year

2015

2014

2013

Internet of Things . . . . . . . . . . . . . . . . . . . . . . . .

$262,329

$209,005

$181,254

Broadcast . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Infrastructure . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Access . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

161,787

121,974

98,736

204,256

108,123

99,320

199,837

100,523

98,473

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

$644,826

$620,704

$580,087

Customers, Sales and Marketing

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 2015, respectively. No other distributor accounted for 10% or  more of revenues for  fiscal
2015.

During fiscal 2015, our ten largest end  customers accounted for  29%  of  our revenues.  We had no

customer that represented more than  10% of our revenues during this period. Our major  customers
include Chamberlain, Cisco, Harman Becker, Huawei, LG Electronics, Samsung, Technicolor,  Technisat,
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 85% in fiscal  2015. For  further  information regarding our  revenues
and long-lived assets by geographic area, see  Note 18,  Segment Information, to the  Consolidated
Financial Statements.

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 2015, respectively. No other distributor accounted for 10% or  more of revenues for fiscal

2015.

During fiscal 2015, our ten largest end  customers accounted for 29% of our revenues. We had no

customer that represented more than  10% of our revenues during this period. Our major  customers

include Chamberlain, Cisco, Harman Becker, Huawei, LG Electronics, Samsung, Technicolor, Technisat,

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 85% in fiscal 2015. For  further information regarding our  revenues

and long-lived assets by geographic area, see Note 18,  Segment Information, to the Consolidated

Financial Statements.

6

6

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  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 products, 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 products 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

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.

7

7

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 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 products, 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 products 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.

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 $188.1 million,  $173.0 million and  $157.8 million in fiscal

Research and development expenses were $188.1 million, $173.0 million and $157.8 million in fiscal

2015, 2014 and 2013, 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.

2015, 2014 and 2013, 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:

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

• Analog and RF design expertise in CMOS;

• Digital signal processing, firmware and  system  design expertise;

• Microcontroller and system on a chip design expertise;

• Software expertise;

• Module integration and design expertise;  and

• Our broad understanding of systems technology and  trends.

• Analog and RF design expertise in CMOS;

• Digital signal processing, firmware and system design expertise;

• Microcontroller and system on a chip design expertise;

• Software expertise;

• Module integration and design expertise;  and

• 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.

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

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.

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

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

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

8

8

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.

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

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.

Module Integration and Design Expertise

Module Integration and Design Expertise

The market for wireless modules has  grown as  customers search for  solutions  that  provide turnkey

wireless connectivity to their products. The  development of modules is difficult  due  to  stringent
requirements, including high levels of integration and  programmability, performance, reliability, security
and  power efficiency. In addition, designs must  meet numerous wireless  standards deployed  in various
environments and serving diverse requirements.

Our combined expertise in IC design and software  allows  us to engineer the development  of  our

modules to create a robust, high-performance connection in challenging wireless environments. We
have  developed wireless modules based  on numerous wireless  standards, including Bluetooth,  ZigBee,
Thread, Wi-Fi and sub-GHz.  We believe our  demonstrated proficiency in the  design of modules
provides our customers with significant advantages.

Understanding of Systems Technology and Trends

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

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

9

9

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.

The market for wireless modules has grown as customers search for solutions that provide turnkey

wireless connectivity to their products. The development of modules is difficult due to stringent

requirements, including high levels of integration and  programmability, performance, reliability, security

and power efficiency. In addition, designs must meet numerous wireless  standards deployed in various

environments and serving diverse requirements.

Our combined expertise in IC design and  software allows us to engineer the development of our

modules to create a robust, high-performance connection in challenging wireless environments. We

have developed wireless modules based  on numerous wireless standards, including Bluetooth, ZigBee,

Thread, Wi-Fi and sub-GHz.  We believe our  demonstrated proficiency in the design of modules

provides our customers with significant advantages.

 
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:

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

• Isolation, which is critical for existing  and emerging  industrial applications  and telecom

• Isolation, which is critical for existing  and  emerging industrial applications  and telecom

networks;

expertise includes:

networks;

• Frequency synthesis, which is core technology for wireless and clocking applications;

• Frequency synthesis, which is core technology for wireless and clocking applications;

• Integration, which enables the elimination of discrete components  in a system; and

• Integration, which enables the elimination of discrete components  in a system; and

• Signal processing and precision analog, which  forms the heart of consumer,  industrial, medical

• Signal processing and precision analog, which forms the heart of consumer, industrial, medical

and  automotive electronics applications.

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 2015,  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 2016.

Backlog

Backlog

As of January 2, 2016, our backlog was approximately $136.9  million, compared  to  approximately

$122.4 million as of January 3, 2015. 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.

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 2015, 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 2016.

As of January 2, 2016, our backlog was approximately $136.9 million, compared to approximately

$122.4 million as of January 3, 2015. 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.

10

10

Competition

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:

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:

• Product size;
• Level of integration;
• Product capabilities;
• Reliability;
• Price;
• Performance;

• Power requirement;
• Customer support;
• Reputation;
• Ability to rapidly introduce new products to market;
• Intellectual property; and
• 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,  IDT, Intel, Marvell Technology  Group, Maxim Integrated Products, MaxLinear, Microchip,
Microsemi, Nordic Semiconductor, NXP Semiconductors, Qualcomm, 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 2, 2016, we had approximately  1,208 issued or pending United States
patents. 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

• Product size;

• Level of integration;

• Product capabilities;

• Reliability;

• Price;

• Performance;

• Power requirement;

• Customer support;

• Reputation;

• Intellectual property; and

• Software.

• Ability to rapidly introduce new products to market;

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, IDT, Intel, Marvell Technology Group, Maxim Integrated Products, MaxLinear, Microchip,

Microsemi, Nordic Semiconductor, NXP Semiconductors, Qualcomm, 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 2, 2016, we had approximately 1,208 issued or pending United States

patents. 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

11

11

 
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 2, 2016, we employed 1,199 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

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.

12

12

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 2, 2016, we employed 1,199 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.

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.

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

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:

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

• The  timing and volume of orders received from our customers;

• The timing and volume of orders received  from our customers;

• The  timeliness of our new product introductions and the rate at which  our new products may

• The timeliness of our new product introductions and the rate at which our new products may

cannibalize our older products;

cannibalize our older products;

• 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’’;

• 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’’;

• The  time lag and realization rate between ‘‘design wins’’ and production orders;

• The time lag and realization rate between ‘‘design wins’’ and production orders;

• The demand for, and life cycles of, the products  incorporating our mixed-signal solutions;

• The demand for, and life cycles of, the products incorporating our mixed-signal solutions;

• The rate of adoption of mixed-signal products in the  markets we target;

• The rate of adoption of mixed-signal products in the markets we target;

• Deferrals or reductions of customer  orders  in anticipation of new products or product
enhancements from us or our competitors  or other  providers of mixed-signal ICs;

• Deferrals or reductions of customer orders in anticipation  of new products or product

enhancements from us or our competitors  or other providers of mixed-signal ICs;

• Changes in product mix;

• The average selling prices for our products could drop suddenly due  to  competitive offerings or

• The average selling prices for our products could drop suddenly due to competitive offerings or

competitive predatory pricing;

• The average selling prices for our products generally decline over time;

• The average selling prices for our products generally decline over time;

• Changes in market standards;

• Impairment charges related to inventory, equipment or other long-lived  assets;

• Impairment charges related to inventory, equipment or  other long-lived assets;

• The software used in our products, including software provided by third parties,  may not meet

• The software used in our products, including software provided by third parties, may not meet

the needs of our customers;

• Significant legal costs to defend our intellectual property rights or respond to claims against us;

• Significant legal costs to defend our intellectual property  rights or respond to claims against us;

and

• 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

• 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

• Changes in product mix;

competitive predatory pricing;

• Changes in market standards;

the needs of our customers;

and

13

13

 
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.

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

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 products 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:

Our future success will depend on our ability to develop or acquire new products 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:

• Requirements of customers;

• Accurate prediction of market and technical requirements;

• Timely completion and introduction of new designs;

incorporated;

• Availability of foundry, assembly and  test capacity;

• Achievement of high manufacturing yields;

• Requirements of customers;

• Accurate prediction of market and technical requirements;

• Timely completion and introduction of new designs;

• Timely qualification and certification of our  products for  use in our customers’ products;

• Timely qualification and certification of our  products for use in our customers’ products;

• Commercial acceptance and volume production of  the products into which our ICs will be

• Commercial acceptance and volume production of the products into which our ICs will be

incorporated;

• Availability of foundry, assembly and  test capacity;

• Achievement of high manufacturing yields;

• Quality, price, performance, power use and  size of  our products;

• Quality, price, performance, power use and  size of  our products;

• Availability, quality, price and performance of competing products and technologies;

• Availability, quality, price and performance of competing products and technologies;

• Our  customer service, application support capabilities and responsiveness;

• Our customer service, application support capabilities and responsiveness;

• Successful development of our relationships with existing  and  potential customers;

• Successful development of our relationships with existing and  potential customers;

• Technology, industry standards or end-user preferences; and

• Technology, industry standards or end-user preferences; and

• Cooperation of third-party software providers  and our semiconductor vendors to support our

• Cooperation of third-party software providers and our semiconductor vendors to support our

chips within a system.

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  products. If our products 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 products serve as components and solutions 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  2015 was $188.1 million,  or 29.2% of

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 products. If our products 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 products serve as components and solutions 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 2015 was $188.1 million,  or 29.2% of

14

14

revenues. A number of 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.

revenues. A number of 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

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  2015, our ten largest
customers accounted for 29% 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 products at all, purchase  fewer products than they did in the  past or alter  their
purchasing patterns, particularly because:

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 2015, our ten largest

customers accounted for 29% 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 products at all, purchase fewer  products than they did in the past or alter their

purchasing patterns, particularly because:

• We do not have material long-term purchase contracts with our customers;

• We do not have material long-term purchase contracts with our customers;

• 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;

• 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;

• Some of our customers may have efforts underway to actively diversify  their vendor base which

• Some of our customers may have efforts underway to actively diversify their vendor base which

could reduce purchases of our products; and

could reduce purchases of our products; and

• 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.

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.

• 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.

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

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

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

15

15

 
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:

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:

• Cease selling or manufacturing products that use  the challenged  intellectual  property;

• Cease selling or manufacturing products that use  the challenged intellectual property;

• 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;

• 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;

• Redesign those products that use  infringing intellectual property; or

• Redesign those products that use infringing intellectual property; or

• Pursue legal remedies with third parties to enforce our indemnification  rights, which may not

• Pursue legal remedies with third parties to enforce our indemnification rights, which may not

adequately protect our interests.

adequately protect our interests.

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

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:

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:

• Problems integrating the acquired operations, technologies or products with our existing business

• Problems integrating the acquired operations, technologies or products with our existing business

and products;

• Diversion of management’s time and attention from our core business;

• Need for financial resources above our planned investment levels;

• Difficulties in retaining business relationships with  suppliers and customers of the  acquired

• Difficulties in retaining business relationships with  suppliers and customers of the acquired

company;

• Risks associated with entering markets in which we lack prior experience;

• Risks associated with the transfer of  licenses of  intellectual property;

• Increased operating costs due to acquired overhead;

• Tax  issues associated with acquisitions;

• Diversion of management’s time and attention from our core business;

• Need for financial resources above our planned investment levels;

and products;

company;

• Risks associated with entering markets in which we lack prior experience;

• Risks associated with the transfer of licenses of intellectual property;

• Increased operating costs due to acquired overhead;

• Tax issues associated with acquisitions;

• Acquisition-related disputes, including  disputes  over earn-outs and escrows;

• Acquisition-related disputes, including  disputes  over earn-outs and escrows;

• Potential loss of key employees of the  acquired company; and

• Potential impairment of related goodwill  and  intangible assets.

In contrast to the ICs that we have historically developed, our acquisition of Bluegiga and Telegesis

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.

• Potential loss of key employees of the  acquired company; and

• Potential impairment of related goodwill  and  intangible assets.

In contrast to the ICs that we have historically developed, our acquisition of Bluegiga and Telegesis

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.

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.

16

16

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

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

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 2015,  67%
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 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.

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 2015,  67%

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  liability, an  increase in our costs
and/or a reduction in our revenues

Our products are complex and may contain errors which could lead to  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 products are increasingly being  designed in more  complex processes,  include
higher  levels of software and hardware  integration in  modules and  system-level solutions and/or  include

Our products are complex and may contain errors,  particularly when first introduced or as new

versions are released. Our products are increasingly being  designed in more  complex processes,  include

higher levels of software and hardware integration in modules and  system-level solutions and/or include

17

17

 
elements provided by third parties which further increase the risk of errors.  Many of  our products focus
on wireless connectivity and the IoT market and  such connectivity may make these products particularly
susceptible to cyber-attacks. We rely  primarily on  our in-house testing personnel  to  design test
operations and procedures to detect  any errors  or  vulnerabilities prior  to  delivery of our products  to
our customers.

Should problems occur in the operation or performance of our products,  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 result in refunds or other  liability or  require product replacement or
recall. Any of the foregoing could impose substantial costs and  harm  our business.

Product liability, data breach or cyber  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 products 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

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

subcontractors, including:

• Failure by us, our customers or their end customers to qualify a selected supplier;

• Failure by us, our customers or their end customers to qualify a selected supplier;

• Potential insolvency of the third-party subcontractors;

• Reduced control over delivery schedules and quality;

• Limited warranties on wafers or products  supplied to us;

• Potential insolvency of the third-party subcontractors;

• Reduced control over delivery schedules and quality;

• Limited warranties on wafers or products supplied to us;

• Potential increases in prices or payments in  advance  for  capacity;

• Potential increases in prices or payments in advance for capacity;

• Increased need for international-based  supply, logistics and financial management;

• Increased need for international-based supply, logistics and financial management;

• Their inability to supply or support new or changing packaging technologies; and

• Their inability to supply or support new or changing packaging technologies; and

• Low  test yields.

• Low test yields.

18

18

elements provided by third parties which further increase the risk of errors.  Many of our products focus

on wireless connectivity and the IoT market and such connectivity may make these products particularly

susceptible to cyber-attacks. We rely primarily on  our in-house testing personnel to design test

operations and procedures to detect any errors or vulnerabilities prior to delivery of our products to

our customers.

Should problems occur in the operation  or performance of our products, 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 result in refunds  or other liability or require product replacement or

recall. Any of the foregoing could impose substantial costs and  harm  our business.

Product liability, data breach or cyber 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 products 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.

subcontractors, including:

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 2015  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, filed an insolvency proceeding in Germany.  To mitigate any potential
impact on our customers, we purchased a number of additional wafers from TSG and we expedited  our
previously-planned transition of the manufacturing of certain  high-voltage products to another of our
foundry partners. TSG ceased production at the end of February 2015.

Should unexpected demand exceed our inventory reserves and our  transition plans  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

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
product  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

19

19

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 2015  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, filed an insolvency proceeding in Germany. To mitigate any potential

impact on our customers, we purchased a number of additional wafers from TSG and we expedited  our

previously-planned transition of the manufacturing of certain high-voltage products to another of our

foundry partners. TSG ceased production at the end of February 2015.

Should unexpected demand exceed our inventory reserves and our  transition plans 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.

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

product 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 85% during fiscal 2015. 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:

Singapore for non-U.S. operations. The percentage of our revenues derived from outside of the United

States was 85% during fiscal 2015. 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:

• Complexity and costs of managing international  operations and  related tax obligations, including

• Complexity and costs of managing international operations and  related tax obligations, including

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

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

• Protectionist laws and business practices that  favor local competition  in some countries;

• Protectionist laws and business practices that favor local competition in some countries;

• Difficulties related to the protection of  our intellectual  property rights in some  countries;

• Difficulties related to the protection of our intellectual property rights in some countries;

• 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;

• 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;

• Longer sales cycles;

• Longer sales cycles;

• Greater difficulty in accounts receivable collection and longer  collection  periods;

• Greater difficulty in accounts receivable  collection and longer collection  periods;

• High levels of distributor inventory subject to price protection and rights of return  to  us;

• High levels of distributor inventory subject to price protection and rights of return to us;

• Political and economic instability;

• Greater difficulty in hiring and retaining qualified technical sales and applications engineers and

• Greater difficulty in hiring and retaining qualified technical sales and applications engineers and

administrative personnel; and

• The  need to have business and operations systems that can  meet  the needs of our international

• The need to have business and operations systems that can  meet the needs of our international

business and operating structure.

To date, substantially 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

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 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

20

20

• Political and economic instability;

administrative personnel; and

business and operating structure.

To date, substantially 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.

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 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.

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 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:

• A decline in demand for any of our more significant products;

• Failure of our products to achieve continued market acceptance;

• Competitive products;

• New technological  standards or changes to existing standards that  we are  unable to address  with

• New technological standards or changes to existing standards that we are  unable to address with

our products;

• A failure to release new products or enhanced versions of  our existing products  on a  timely

• A failure to release new products or  enhanced versions of  our existing products on a timely

basis; and

• The  failure of our  new products to achieve market acceptance.

• The failure of our  new products to achieve market acceptance.

We are subject to credit risks related to our accounts receivable

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 products. 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

21

21

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:

• A decline in demand for any of our more significant products;

• Failure of our products to achieve continued market acceptance;

• Competitive products;

our products;

basis; and

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 products. 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.

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 dispositions could harm our financial condition

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

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

adversely affect our business and operating results, including:

adversely affect our business and operating results, including:

• Diversion of management’s time and attention from our core business;

• Diversion of management’s time and attention from our core business;

• Difficulties separating the divested business;

• Difficulties separating the divested business;

• Risks to relations with customers  who previously  purchased products  from our disposed product

• Risks to relations with customers who previously purchased products from our disposed product

line;

line;

• Reduced leverage with suppliers due to reduced aggregate volume;

• Reduced leverage with suppliers due to reduced aggregate volume;

• Risks related to employee relations;

• Risks related to employee relations;

• Risks associated with the transfer and licensing of intellectual  property;

• Risks associated with the transfer and licensing of intellectual  property;

• Security  risks and other liabilities related to the transition services  provided in  connection with

• Security risks and other liabilities related to the transition services  provided in  connection with

the disposition;

• Tax  issues associated with dispositions; and

the disposition;

• Tax issues associated with dispositions; and

• Disposition-related disputes, including disputes over  earn-outs and escrows.

• Disposition-related disputes, including disputes over earn-outs and escrows.

Our stock price may be volatile

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:

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:

• Actual or anticipated fluctuations in our operating results;

• Actual or anticipated fluctuations in our operating results;

• Changes in financial estimates by  securities  analysts or our failure to perform  in line  with such

• Changes in financial estimates by securities analysts or our failure to perform  in line  with such

estimates;

• Changes in market valuations of other technology companies, particularly semiconductor

• Changes in market valuations of other technology companies, particularly semiconductor

companies;

• Announcements by us or our competitors of significant technical innovations,  acquisitions,

• Announcements by us or our competitors of significant technical innovations,  acquisitions,

strategic partnerships, joint ventures or capital commitments;

strategic partnerships, joint ventures or capital commitments;

• Introduction of technologies or product  enhancements that reduce the need for  our products;

• Introduction of technologies or product enhancements that reduce the need for our products;

estimates;

companies;

• The loss of, or decrease in sales to, one or more  key  customers;

• A large sale of stock by a significant  shareholder;

• Dilution from the  issuance of our stock in connection with acquisitions;

• The addition or removal of our stock to or from  a stock index fund;

• Departures of key personnel; and

• The required expensing of stock awards.

• The loss of, or decrease in sales to, one or more  key customers;

• A large sale of stock by a significant shareholder;

• Dilution from the issuance of our stock in connection with acquisitions;

• The addition or removal of our stock to or from  a stock index fund;

• Departures of key personnel; and

• 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.

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.

22

22

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 have utilized 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 and have encountered  lower yields  and reduced  manufacturing capacity.

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

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.

23

23

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 have utilized 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 and have encountered lower yields  and reduced manufacturing capacity.

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

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

our revenues.

products.

 
Our debt could adversely affect our operations and  financial condition

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 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 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

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:

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.

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:

• The  division of our Board of Directors into three classes to  be  elected on a  staggered  basis, one

• The division of our Board of Directors into three classes to be elected on a  staggered basis, one

class each year;

class  each year;

24

24

• The  ability of our Board of Directors to issue  shares  of our  preferred stock in  one or more

• 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;

• A prohibition on stockholder action by written consent;

series without further authorization of our stockholders;

• A prohibition on stockholder action  by written consent;

• Elimination of the right of stockholders  to  call a special  meeting of stockholders;

• Elimination of the right of stockholders to call  a special meeting of stockholders;

• 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

• 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

• A requirement that a supermajority vote be obtained to amend or repeal certain provisions of

• A requirement that a supermajority vote be obtained to amend or repeal certain provisions of

our certificate of incorporation.

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 products. 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

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

fluctuations

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

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 products. None of

our third-party foundry, assembly or test subcontractors have provided assurances that adequate

capacity will be available to us.

and gross margins

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

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

25

25

 
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 products 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,  IDT, Intel, Marvell Technology Group,
Maxim Integrated Products, MaxLinear, Microchip, Microsemi, Nordic  Semiconductor,  NXP
Semiconductors, Qualcomm, 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 products 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.

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,
theft, 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 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,
distributors and customers, 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 reputation, business operations and financial results.

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

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.

share

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

The markets for semiconductors in general, and for mixed-signal products 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, IDT, Intel, Marvell Technology Group,

Maxim Integrated Products, MaxLinear, Microchip, Microsemi, Nordic  Semiconductor, NXP

Semiconductors, Qualcomm, 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 products 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.

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,

theft, 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 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,

distributors and customers, 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 reputation, business operations and financial results.

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

26

26

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  products fail to achieve market acceptance, our

growth prospects, operating results and competitive position  could be adversely affected.

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

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 products fail to achieve market acceptance, our
growth prospects, operating results and  competitive position  could be adversely affected.

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

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 130,000 square feet were
leased to other tenants. In addition to  these properties, we  lease smaller facilities in various  locations in
the United States, Brazil, Canada, China, Finland,  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.

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 130,000 square feet were

leased to other tenants. In addition to these properties, we lease smaller facilities in various locations in

the United States, Brazil, Canada, China,  Finland, 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

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

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

27

27

 
in the  District of Delaware, alleging infringement of three United States Patents (the ‘‘Cresta Patents’’).
The Delaware District Court action has been stayed.

in the District of Delaware, alleging infringement of three United States Patents (the ‘‘Cresta Patents’’).

The Delaware District Court action has been stayed.

On January 28, 2014, Cresta Technology  also filed a complaint with the United States International

Trade Commission (‘‘ITC’’) alleging infringement of the same  patents. During the course of the
proceedings, Cresta Technology withdrew its allegations as  to one of the three Cresta Patents.  On
September 29, 2015, the ITC issued its Final Determination,  finding that all the  patent  claims  asserted
against our products were either invalid or  not infringed and that Cresta  Technology failed  to  establish
the ITC’s domestic industry requirement. The ITC  found no  violation by us and terminated  the
investigation. On November 30, 2015, Cresta Technology filed an appeal of the ITC decision to the
Federal Circuit, which is now pending.

In a parallel process, we challenged the validity of the claims  of  the Cresta Patents  asserted  in the

ITC investigation through a series of Inter-Parties  Review  (IPR)  proceedings  at the Patent Trial and
Appeal Board (PTAB) of the United  States Patent  and  Trademark Office (USPTO). On October 21,
2015, the USPTO issued final written decisions on  a first set  of  reviewed claims finding all of  the
reviewed claims invalid. On December 18,  2015, Cresta  Technology filed  notices of  appeal to the
United States Court of Appeals for the  Federal Circuit as  to  this  first USPTO determination. The
USPTO has instituted a second set of IPR  proceedings against a second set of the remaining claims.

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 July 1, 2014,
the Administrative Law Judge accepted a consent order whereby Cresta Technology will not sell for
importation, import or sell in the United States television tuners that infringe our United States Patent
Nos. 6,137,372 and 6,233,441. Accordingly, this ITC investigation has  been terminated  in its entirety.

On July 16, 2014, we filed a lawsuit against Cresta Technology  in the  United States District Court

in the Northern District of California  alleging infringement of United States Patent Nos. 6,308,055,
6,304,146, 6,137,372, 6,233,441, 6,965,761 and 7,353,011. We are seeking a permanent  injunction
stopping the sale of all allegedly infringing Cresta  Technology products  and  an award of damages and
attorney fees. This lawsuit is currently scheduled for trial in  March 2016.

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.

We  intend to continue to vigorously  defend  against Cresta  Technology’s allegations. At this time,

we cannot predict the outcome of these  matters  or the resulting financial impact to us,  if any.

On January 28, 2014, Cresta Technology also filed a complaint with the United States International

Trade Commission (‘‘ITC’’) alleging infringement of the same patents. During the course of the

proceedings, Cresta Technology withdrew its allegations as  to one of the three Cresta Patents. On

September 29, 2015, the ITC issued its Final Determination,  finding that all the patent claims  asserted

against our products were either invalid or not infringed and that Cresta  Technology failed  to  establish

the ITC’s domestic industry requirement. The ITC  found no violation by us and terminated the

investigation. On November 30, 2015, Cresta Technology filed an appeal of the ITC decision to the

Federal Circuit, which is now pending.

In a parallel process, we challenged the validity of the claims  of  the Cresta Patents asserted  in the

ITC investigation through a series of Inter-Parties  Review (IPR) proceedings  at the Patent Trial and

Appeal Board (PTAB) of the United States Patent  and Trademark Office (USPTO). On October 21,

2015, the USPTO issued final written decisions on a first set  of  reviewed claims finding all of the

reviewed claims invalid. On December 18, 2015, Cresta  Technology filed notices of appeal to the

United States Court of Appeals for the Federal Circuit as to this  first USPTO determination. The

USPTO has instituted a second set of IPR  proceedings against a second set of the remaining claims.

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 July 1, 2014,

the Administrative Law Judge accepted a consent order whereby Cresta Technology will not sell for

importation, import or sell in the United States television tuners that infringe our United States Patent

Nos. 6,137,372 and 6,233,441. Accordingly, this ITC investigation has  been terminated in its entirety.

On July 16, 2014, we filed a lawsuit against Cresta Technology  in the United States District Court

in the Northern District of California alleging infringement of United States Patent Nos. 6,308,055,

6,304,146, 6,137,372, 6,233,441, 6,965,761 and 7,353,011. We are seeking a  permanent injunction

stopping the sale of all allegedly infringing Cresta  Technology products  and an award of damages and

attorney fees. This lawsuit is currently scheduled for trial in  March 2016.

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.

We intend to continue to vigorously  defend against Cresta  Technology’s allegations. At this time,

we cannot predict the outcome of these matters or the resulting financial impact to us, if any.

Other

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.

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 4. Mine Safety Disclosures

Not applicable.

28

28

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

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

Part II

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 26,  2016, there were 90 holders  of  record of
our  common stock.

Fiscal Year 2014

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

Fiscal Year 2015

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

High

Low

$54.00
53.78
50.05
48.50

$52.83
58.54
53.84
54.72

$41.19
42.41
39.28
36.29

$42.61
49.85
39.33
42.06

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 26,  2016, there were 90 holders  of record of

our common stock.

Fiscal Year 2014

High

Low

First Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$54.00

$41.19

Second Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Third Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Fourth Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

53.78

50.05

48.50

42.41

39.28

36.29

Fiscal Year 2015

First Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$52.83

$42.61

Second Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Third Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Fourth Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

58.54

53.84

54.72

49.85

39.33

42.06

Dividend Policy

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.

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.

29

29

 
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.

Stock Performance Graph

Semiconductor Index.

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

250

200

150

100

50

D
O
L
L
A
R
S

0
01/01/11

12/31/11

12/29/12

12/28/13

01/03/15

01/02/16

01/01/11

12/31/11

12/29/12

12/28/13

01/03/15

01/02/16

D

O

L

L

A

R

S

250

200

150

100

50

0

Silicon Laboratories Inc.

NASDAQ Composite

PHLX Semiconductor Index
29JAN201613293893

Silicon Laboratories Inc.

NASDAQ Composite

PHLX Semiconductor Index

29JAN201613293893

Company / Index

01/01/11

12/31/11

12/29/12

12/28/13

01/03/15

01/02/16

Company / Index

01/01/11

12/31/11

12/29/12

12/28/13

01/03/15

01/02/16

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

$100.00
$100.00
$100.00

$94.35
$99.17
$89.70

$ 90.16
$114.20
$ 94.37

$ 92.03
$162.41
$135.11

$103.24
$186.93
$178.12

$105.48
$200.31
$175.32

Silicon Laboratories Inc.

. . . . . . . . . . . . . .

NASDAQ Composite . . . . . . . . . . . . . . . .

PHLX Semiconductor Index . . . . . . . . . . .

$100.00

$100.00

$100.00

$94.35

$99.17

$89.70

$ 90.16

$114.20

$ 94.37

$ 92.03

$162.41

$135.11

$103.24

$186.93

$178.12

$105.48

$200.31

$175.32

(1) The graph assumes that $100 was invested in our  common stock and in each index at  the market
close on January 1, 2011, and that all dividends  were reinvested. No cash dividends have been
declared on our common stock.

(1) The graph assumes that $100 was  invested in our common stock and in each index at the market

close on January 1, 2011, and that all dividends  were reinvested. No cash dividends have been

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

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

stockholder returns.

Issuer Purchases of Equity Securities

declared on our common stock.

stockholder returns.

Issuer Purchases of Equity Securities

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

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

January 2, 2016 (in thousands, except  per  share amounts):

January 2, 2016 (in thousands, except  per  share amounts):

Period

October  4, 2015 - October 31, 2015 . . . . .

November 1, 2015 - November 28, 2015 . .

November 29, 2015 - January 2, 2016 . . .

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

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

$—

$—

$—

$—

—

—

—

—

$121,370

$121,370

$100,000

—

—

—

—

30

Period

October 4, 2015 - October 31, 2015 . . . . .

November 1, 2015 - November 28, 2015 . .

November 29, 2015 - January 2, 2016 . . .

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

Total Number

Average  Price

of Shares

Purchased

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

$—

$—

$—

$—

—

—

—

—

$121,370

$121,370

$100,000

—

—

—

—

30

The program that was originally announced in October  2014 to repurchase  up to $100 million of

our common stock expired as scheduled in  December 2015. In August 2015,  the Board of  Directors
authorized a program to repurchase up to $100 million of our common stock through  December 2016.
The program allows 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

The program that was originally announced in October 2014 to repurchase up to $100 million of

our common stock expired as scheduled  in December 2015. In August 2015, the Board of Directors

authorized a program to repurchase up to $100 million of our common stock through  December 2016.

The program allows 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.

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

2015

2014

2013

2012

2011

(in thousands, except per share data)

Fiscal Year

2015

2014

2013

2012

2011

(in  thousands,  except per share data)

Consolidated Statements of Income Data

Consolidated Statements of Income Data

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

$ 644,826
32,234
$
29,586
$

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

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

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

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

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

$ 644,826

$ 620,704

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

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

32,234

29,586

51,421

38,021

$580,087

$ 64,310

$ 49,819

$563,294

$ 85,675

$ 63,548

$491,625

$ 50,074

$ 35,472

Earnings per share:

Earnings per share:

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

$
$

0.70
0.69

$
$

0.88
0.87

$
$

1.17
1.14

$
$

1.51
1.47

$
$

0.82
0.79

Basic . . . . . . . . . . . . . . . . . . . . . . . . . . .

Diluted . . . . . . . . . . . . . . . . . . . . . . . . .

0.70

0.69

0.88

0.87

$

$

1.17

1.14

$

$

1.51

1.47

$

$

0.82

0.79

Consolidated Balance Sheet Data

Consolidated Balance Sheet Data

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

$ 250,112
280,819
1,011,463
108,028
761,114

$ 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

Cash, cash equivalents and investments (1) .

$ 250,112

$ 342,614

$286,025

$293,360

$324,967

Working capital . . . . . . . . . . . . . . . . . . . . .

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

Long-term obligations . . . . . . . . . . . . . . . .

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

280,819

1,011,463

108,028

761,114

365,223

1,042,561

121,191

758,056

350,170

991,150

143,441

738,562

361,304

871,966

115,615

649,973

370,211

705,991

24,214

598,939

$

$

$

$

$

$

$

$

(1) Reflects repurchases of $71 million, $72  million, $26 million,  $62 million and  $110 million of our

(1) Reflects repurchases of $71 million, $72  million, $26 million,  $62 million and $110 million of our

common stock in fiscal 2015, 2014, 2013, 2012 and 2011, respectively.

common stock in fiscal 2015, 2014, 2013, 2012 and 2011, respectively.

31

31

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

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 2015 was  a 52-week year and
ended on January 2, 2016. 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 was a 52-week year and  ended on
December 28, 2013.

Overview

We  are a provider of silicon, software  and  solutions for the Internet  of  Things  (IoT), Internet
infrastructure, industrial control, consumer and automotive markets.  We solve some of the electronics
industry’s toughest problems, providing customers  with significant advantages in performance, energy
savings, connectivity and design simplicity. Mixed-signal  integrated circuits (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 industrial,  communications, consumer  and automotive. Our
major customers include Chamberlain,  Cisco, Harman Becker, Huawei, LG  Electronics, Samsung,
Technicolor, Technisat, 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:

• Internet of Things products, which include  our microcontroller (MCU), wireless, sensor and

• Internet of Things products, which include our microcontroller (MCU), wireless, sensor and

analog products;

• Broadcast products, which include our broadcast consumer and automotive  products;

• Broadcast products, which include our broadcast consumer and automotive products;

• Infrastructure products, which include our timing products (clocks  and oscillators), and isolation

• Infrastructure products, which include our timing products (clocks  and oscillators), and isolation

devices; and

• Access products, which include our Voice over IP (VoIP) products, embedded modems  and our

• Access products, which include our Voice over  IP (VoIP) products, embedded modems and our

Power over Ethernet (PoE) devices.

We  previously grouped IoT products and Infrastructure products under  the Broad-based products

We previously grouped IoT products and Infrastructure products under the Broad-based products

heading.

heading.

Through acquisitions and internal development  efforts,  we have continued to diversify our  product
portfolio and introduce new products  and  solutions with  added functionality and further integration. In
fiscal 2015, we acquired Bluegiga Technologies Oy and Telegesis (UK)  Limited. Bluegiga is  a provider
of Bluetooth Smart, Bluetooth Classic and Wi-Fi modules and software  stacks for a multitude of
applications in the IoT, industrial automation,  consumer electronics, automotive, retail, residential, and
health and fitness markets. Telegesis  is a supplier of wireless mesh  networking modules based on our

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

portfolio and introduce new products and solutions with added functionality and further integration. In

fiscal 2015, we acquired Bluegiga Technologies Oy and Telegesis (UK)  Limited. Bluegiga is a provider

of Bluetooth Smart, Bluetooth Classic and Wi-Fi modules  and software  stacks for a multitude of

applications in the IoT, industrial automation, consumer electronics, automotive, retail, residential, and

health and fitness markets. Telegesis is a supplier of wireless mesh  networking modules based  on our

32

32

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 2015 was  a 52-week year and

ended on January 2, 2016. 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 was a  52-week year and ended on

December 28, 2013.

Overview

We are a provider of silicon, software and solutions for the Internet of Things (IoT), Internet

infrastructure, industrial control, consumer and automotive markets. We solve some of the electronics

industry’s toughest problems, providing customers  with significant advantages in performance, energy

savings, connectivity and design simplicity. Mixed-signal integrated circuits (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 industrial,  communications, consumer  and automotive. Our

major customers include Chamberlain,  Cisco, Harman Becker, Huawei,  LG Electronics, Samsung,

Technicolor, Technisat, 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:

analog products;

devices; and

Power over Ethernet (PoE) devices.

ZigBee and Thread technology, targeting applications in the smart energy,  home automation  and
industrial automation markets. See Note 9, Acquisitions, for  additional information.

ZigBee and Thread technology, targeting applications in the smart energy, home automation and

industrial automation markets. See Note 9,  Acquisitions, for additional information.

In fiscal 2015, we introduced two new EFM32 Gecko MCU families that  provide advancements in

security and energy management technologies; the TouchXpress� family of fixed-function controllers,
which  speeds development of capacitive sensing applications;  a  new EFM8 MCU family  that  delivers
high analog performance and peripheral integration in the 8-bit market; comprehensive reference
designs that reduce time to market and  simplify the  development of ZigBee-based home  automation,
connected lighting and smart gateway  products;  a new family of multi-channel  digital  isolators featuring
a high-voltage isolation barrier designed to withstand 10  kV surge hits;  a new  family of subscriber line
interface circuits (SLICs) offering low  power consumption,  small footprint, and high  levels of
integration  and programmability for the  VoIP  gateway market; a comprehensive  reference design
solution that streamlines the development of voice-enabled ZigBee remote  controls; a  sixth-generation
version of the iWRAP� Bluetooth software stack for the Bluetooth  3.0  wireless audio accessory
market; an isolated current sense amplifier delivering high  bandwidth and low signal  delay;  a fully
integrated, pre-certified Blue Gecko  wireless module  providing a plug-and-play solution  for Bluetooth
Smart connectivity; a low-jitter, small-footprint and low-power network synchronizer  clock; a new
release of the Simplicity Studio development platform featuring an enhanced  real-time Energy Profiler
tool; the release of the Thread protocol  stack providing IP-based  mesh networking technology for the
Connected Home market; a highly integrated clock  IC for wireless  infrastructure applications  including
base stations; a dual-mode Bluetooth module solution that  supports  both Bluetooth Smart  and
Bluetooth Classic wireless technologies; energy-friendly USB-enabled MCUs for power-sensitive  IoT
applications; a complete Wireless M-Bus  platform solution for wirelessly connected smart  meters  in the
European market; high-speed, multi-channel digital isolators targeting industrial  applications; a digital
audio bridge chip and evaluation kit  designed to simplify the development of accessories  for iOS
devices; a portfolio of receivers/audio processors  and multi-standard  digital  radio ICs for  the global car
radio market; a family of high-performance digital set-top  box tuner ICs designed to reduce system cost
and power consumption; the Blue Gecko product  portfolio  featuring  Bluetooth Smart modules and
wireless SoC devices for a wide range of wireless  IoT designs; the next  generation of Simplicity Studio
enabling concurrent MCU and RF design; next-generation 8-bit  MCUs  designed for ultra-low-power,
small-footprint IoT applications; 32-bit sub-GHz wireless MCUs designed to simplify a wide range  of
IoT connectivity applications; and high-precision  temperature sensors offering exceptional  power
efficiency. 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 2015, we had no customer that represented more than 10%  of our  revenues. During

fiscal 2014 and 2013, we had one customer, Samsung,  whose purchases across  a variety  of  product areas
represented 12% and 15% 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 2015, 20% and  12%  of  our revenues during  fiscal  2014, and 21% and 11%  of  our
revenues during fiscal 2013, respectively. There were no  other  distributors or contract manufacturers
that accounted for more than 10% of our revenues in  fiscal  2015, 2014 or 2013.

In fiscal 2015, we introduced two new EFM32 Gecko MCU families that provide advancements in

security and energy management technologies; the TouchXpress� family of fixed-function controllers,

which speeds development of capacitive sensing applications;  a  new EFM8 MCU family that delivers

high analog performance and peripheral integration in the 8-bit market; comprehensive reference

designs that reduce time to market and simplify the development of ZigBee-based home automation,

connected lighting and smart gateway  products; a new family of multi-channel  digital isolators featuring

a high-voltage isolation barrier designed to withstand 10 kV surge hits; a new  family of subscriber line

interface circuits (SLICs) offering low power consumption, small footprint, and high levels of

integration and programmability for the VoIP gateway market; a comprehensive  reference design

solution that streamlines the development of voice-enabled ZigBee remote controls; a sixth-generation

version of the iWRAP� Bluetooth software stack for the Bluetooth 3.0  wireless audio accessory

market; an isolated current sense amplifier delivering high bandwidth and low signal delay; a fully

integrated, pre-certified Blue Gecko  wireless module  providing a plug-and-play solution for Bluetooth

Smart connectivity; a low-jitter, small-footprint and low-power network synchronizer clock; a new

release of the Simplicity Studio development platform featuring an enhanced  real-time Energy Profiler

tool; the release of the Thread protocol  stack providing IP-based  mesh networking technology for the

Connected Home market; a highly integrated clock  IC for wireless infrastructure applications including

base stations; a dual-mode Bluetooth module solution that supports both Bluetooth Smart and

Bluetooth Classic wireless technologies; energy-friendly USB-enabled MCUs for power-sensitive  IoT

applications; a complete Wireless M-Bus platform solution for wirelessly connected smart meters in the

European market; high-speed, multi-channel digital isolators targeting industrial applications; a digital

audio bridge chip and evaluation kit designed to simplify the development of accessories for iOS

devices; a portfolio of receivers/audio processors and multi-standard  digital  radio ICs for the global car

radio market; a family of high-performance digital set-top  box tuner ICs designed to reduce system cost

and power consumption; the Blue Gecko product portfolio  featuring Bluetooth Smart modules and

wireless SoC devices for a wide range of wireless IoT designs; the next  generation of Simplicity Studio

enabling concurrent MCU and RF design; next-generation 8-bit  MCUs  designed for ultra-low-power,

small-footprint IoT applications; 32-bit sub-GHz wireless MCUs designed to simplify a wide range of

IoT connectivity applications; and high-precision temperature sensors offering exceptional  power

efficiency. 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 2015, we had no customer that represented more than 10%  of our revenues. During

fiscal 2014 and 2013, we had one customer, Samsung,  whose purchases across a variety of  product areas

represented 12% and 15% 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 2015, 20% and 12% of our revenues during  fiscal 2014, and 21% and 11% of our

revenues during fiscal 2013, respectively. There were no other distributors or contract manufacturers

that accounted for more than 10% of our revenues in fiscal  2015, 2014 or 2013.

The percentage of our revenues derived from outside of the United  States was 85% in fiscal 2015,

86% in fiscal 2014 and 88% in fiscal  2013. Substantially all of  our revenues  to  date have been

The percentage of our revenues derived from outside of the United  States was 85% in fiscal 2015,

86% in fiscal 2014 and 88% in fiscal  2013. Substantially all of  our revenues to date have been

33

33

 
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, radios and wearables, 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

Results of Operations

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

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

Revenues. Revenues are generated predominately  by sales of our products. 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.

34

34

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, radios and wearables, 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.

Revenues. Revenues are generated predominately  by sales of our products. 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.

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 Income.

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,

Interest Expense.

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

including our credit facilities.

investment balances.

including our credit facilities.

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

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

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

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.

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

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

revenues for the periods indicated:

revenues for the periods indicated:

Fiscal Year

2015

2014

2013

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

100.0% 100.0% 100.0%
39.0
40.9

39.2

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

59.1

61.0

60.8

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 . . . . . . . . . . . . . . . . . . . . . . . . . .

29.2
24.9

54.1

5.0

0.1
(0.4)
0.0

4.7
0.1

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

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

100.0% 100.0% 100.0%

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 . . . . . . . . . . . . . . . . . . . . . . . . . .

Fiscal Year

2015

2014

2013

40.9

59.1

29.2

24.9

54.1

5.0

39.0

61.0

27.9

24.8

52.7

8.3

0.1

(0.4)

0.2

(0.6)

0.0

4.7

0.1

0.0

7.9

1.8

39.2

60.8

27.2

22.5

49.7

11.1

0.2

(0.6)

0.0

10.7

2.1

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

4.6% 6.1% 8.6%

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

4.6% 6.1% 8.6%

35

35

 
• Increased revenues of $53.3 million for our Internet of Things products, due primarily to market

share gains for our products, increases in the market and the addition of revenues from

• Decreased revenues of $42.5 million  for Broadcast  products, due primarily to decreases in our

market share and the market for our consumer products and the sale of patents for $7.1 million

in the fiscal 2014. The decrease in Broadcast revenues was offset by increased revenues for our

automotive products due to increases in market share.

acquisitions.

share gains.

Comparison of Fiscal 2015 to Fiscal 2014

Comparison of Fiscal 2015 to Fiscal 2014

Revenues

(in millions)

Fiscal Year

2015

2014

Change % Change

Fiscal  Year

2015

2014

Change % Change

Revenues

(in  millions)

Internet of Things . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Broadcast . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Infrastructure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Access . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$262.3
161.8
122.0
98.7

$209.0
204.3
108.1
99.3

$ 53.3
(42.5)
13.9
(0.6)

25.5%
(20.8)%
12.8%
(0.6)%

Internet of Things . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$262.3

$209.0

$ 53.3

Broadcast . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Infrastructure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Access . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

161.8

122.0

98.7

204.3

108.1

99.3

(42.5)

13.9

(0.6)

25.5%

(20.8)%

12.8%

(0.6)%

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

$644.8

$620.7

$ 24.1

3.9%

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

$644.8

$620.7

$ 24.1

3.9%

The change in revenues in fiscal 2015 was due primarily to:

The change in revenues in fiscal 2015 was due primarily to:

• Increased revenues of $53.3 million for our Internet of Things  products, due primarily to market

share gains for our products, increases in the market and the addition of revenues from
acquisitions.

• Decreased revenues of $42.5 million  for Broadcast  products, due primarily to decreases  in our

market share and the market for our consumer products and the sale of patents for $7.1 million
in the fiscal 2014. The decrease in Broadcast revenues was offset  by increased  revenues for our
automotive products due to increases  in market share.

• Increased revenues of $13.9 million for our Infrastructure products, due primarily to market

• Increased revenues of $13.9 million for our Infrastructure products, due primarily to market

share gains.

• Decreased revenues of $0.6 million for our Access products.

• Decreased revenues of $0.6 million for our Access products.

Unit volumes of our products increased  by 3.4% and  average selling prices increased by 1.7%
compared to fiscal 2014. 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.

Unit volumes of our products increased  by 3.4% and  average selling prices increased by 1.7%

compared to fiscal 2014. 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

2015

2014

Change

Gross Margin

(in  millions)

Fiscal Year

2015

2014

Change

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

$380.8

$378.6

$ 2.2

59.1% 61.0% (1.9)%

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

$380.8

$378.6

$ 2.2

Percent of revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

59.1% 61.0% (1.9)%

The increased dollar amount of gross margin in fiscal 2015 was due  to  increases in gross margin of

$18.8 million for our Internet of Things  products, $8.1  million for  our Infrastructure products  and
$0.6 million for our Access products, offset  by a  decrease in gross margin of $25.3 million for our
Broadcast products. Gross margin in  fiscal 2015 included  $2.6  million in acquisition-related charges for
the fair value write-up associated with  inventory acquired from Bluegiga and Telegesis. Gross margin in
fiscal 2014 included $7.1 million from the sale of patents, 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 products; 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.

The increased dollar amount of gross margin in  fiscal 2015 was due  to  increases in gross margin of

$18.8 million for our Internet of Things products, $8.1 million for  our Infrastructure products and

$0.6 million for our Access products, offset by a decrease in gross margin of $25.3 million for our

Broadcast products. Gross margin in  fiscal 2015  included $2.6 million in acquisition-related charges for

the fair value write-up associated with  inventory acquired from Bluegiga and Telegesis. Gross margin  in

fiscal 2014 included $7.1 million from the  sale of  patents, 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 products; 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.

36

36

Research and Development

(in millions)

Fiscal Year

2015

2014

Change

%
Change

Fiscal Year

2015

2014

Change

Change

%

Research and Development

(in  millions)

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

$188.1

$173.0

$15.1

8.7%

29.2% 27.9%

Research and development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$188.1

$173.0

$15.1

8.7%

Percent of revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

29.2% 27.9%

The increase in research and development expense in fiscal 2015  was  principally due to increases
of (a)  $9.7 million for personnel-related  expenses, including  costs associated with increased headcount,
and (b) $6.7 million for the amortization of intangible assets. We expect that research and  development
expense will increase in absolute dollars  in the first quarter  of  2016.

Recent development projects include two new  EFM32 Gecko MCU families that provide
advancements in security and energy  management technologies; the TouchXpress family of  fixed-
function controllers, which speeds development of capacitive  sensing applications; a  new EFM8  MCU
family that delivers high analog performance and  peripheral integration  in the 8-bit market;
comprehensive reference designs that  reduce time to market  and simplify the development of  ZigBee-
based home automation, connected lighting and smart gateway products; a  new family of multi-channel
digital isolators featuring a high-voltage  isolation  barrier  designed to withstand 10 kV surge hits;  a new
family of SLICs offering low power consumption, small  footprint, and high levels of integration and
programmability for the VoIP gateway market; a comprehensive reference  design solution that
streamlines the development of voice-enabled  ZigBee remote controls; a sixth-generation  version of the
iWRAP  Bluetooth software stack for the Bluetooth 3.0 wireless audio accessory market; an  isolated
current sense amplifier delivering high bandwidth  and low  signal delay; a fully integrated, pre-certified
Blue Gecko wireless module providing  a  plug-and-play solution for Bluetooth  Smart connectivity; a
low-jitter, small-footprint and low-power network synchronizer clock;  a  new release  of the Simplicity
Studio development platform featuring an  enhanced real-time Energy Profiler tool; the  release of the
Thread protocol stack providing IP-based mesh networking  technology for the Connected Home
market; a highly integrated clock IC  for wireless infrastructure applications including base stations; a
dual-mode Bluetooth module solution  that supports both  Bluetooth Smart and Bluetooth  Classic
wireless technologies; energy-friendly  USB-enabled  MCUs for power-sensitive IoT  applications; a
complete Wireless M-Bus platform solution for wirelessly connected smart meters in the European
market; high-speed, multi-channel digital isolators targeting industrial applications; a  digital  audio
bridge chip and evaluation kit designed  to simplify the development  of  accessories for iOS devices; a
portfolio of receivers/audio processors and multi-standard digital radio  ICs for the global  car radio
market; a family of high-performance digital set-top  box tuner ICs  designed to reduce  system cost  and
power consumption; the Blue Gecko  product  portfolio featuring Bluetooth Smart  modules and wireless
SoC devices for a wide range of wireless IoT designs; the next generation of  Simplicity  Studio enabling
concurrent MCU and RF design; next-generation 8-bit MCUs designed for ultra-low-power,  small-
footprint IoT applications; 32-bit sub-GHz  wireless MCUs designed to simplify a wide range  of IoT
connectivity applications; and high-precision temperature sensors offering  exceptional power efficiency.

Selling, General and Administrative

(in millions)

Fiscal Year

2015

2014

Change

%
Change

(in  millions)

Fiscal Year

2015

2014

Change

Change

%

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

$160.5

$154.1

$6.4

4.1%

24.9% 24.8%

Selling, general and administrative . . . . . . . . . . . . . . . . . . . . . . . . .

$160.5

$154.1

$6.4

4.1%

Percent of revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

24.9% 24.8%

The increase in selling, general and administrative  expense in  fiscal  2015 was principally due to

increases of (a) $10.8 million for personnel-related expenses, including costs associated with  increased
headcount, (b) $1.9 million for the amortization of intangible  assets, (c) $1.6 million for acquisition-

The increase in selling, general and administrative  expense in  fiscal 2015 was principally due to

increases of (a) $10.8 million for personnel-related expenses, including costs associated with increased

headcount, (b) $1.9 million for the amortization of intangible assets, (c) $1.6 million for acquisition-

37

37

The increase in research and development expense in fiscal 2015  was  principally due to increases

of (a) $9.7 million for personnel-related expenses, including costs associated with increased headcount,

and (b) $6.7 million for the amortization of intangible assets. We expect that research and development

expense will increase in absolute dollars  in the first quarter  of  2016.

Recent development projects include two new EFM32 Gecko MCU families that provide

advancements in security and energy  management technologies; the TouchXpress family of  fixed-

function controllers, which speeds development of capacitive  sensing applications; a new EFM8 MCU

family that delivers high analog performance and peripheral integration in the 8-bit market;

comprehensive reference designs that  reduce time to market and simplify the development of ZigBee-

based home automation, connected lighting and smart gateway products; a new family of multi-channel

digital isolators featuring a high-voltage  isolation barrier  designed to withstand 10 kV surge hits;  a new

family of SLICs offering low power consumption, small  footprint, and high levels of integration and

programmability for the VoIP gateway market; a comprehensive reference design solution that

streamlines the development of voice-enabled ZigBee remote controls; a sixth-generation version of the

iWRAP Bluetooth software stack for the Bluetooth 3.0 wireless audio accessory market; an  isolated

current sense amplifier delivering high bandwidth and low  signal delay; a fully integrated, pre-certified

Blue Gecko wireless module providing a plug-and-play solution for Bluetooth Smart connectivity; a

low-jitter, small-footprint and low-power network synchronizer clock; a new release of the Simplicity

Studio development platform featuring an enhanced real-time Energy Profiler tool; the release of the

Thread protocol stack providing IP-based mesh networking technology for the Connected Home

market; a highly integrated clock IC  for wireless infrastructure applications including base stations; a

dual-mode Bluetooth module solution that supports both Bluetooth Smart and Bluetooth Classic

wireless technologies; energy-friendly USB-enabled MCUs for power-sensitive IoT applications; a

complete Wireless M-Bus platform solution for wirelessly connected smart meters in the European

market; high-speed, multi-channel digital isolators targeting industrial applications; a  digital audio

bridge chip and evaluation kit designed to simplify the development of accessories for iOS devices; a

portfolio of receivers/audio processors and multi-standard digital radio ICs for the global car radio

market; a family of high-performance digital set-top box tuner ICs designed to reduce system cost  and

power consumption; the Blue Gecko product portfolio featuring Bluetooth Smart modules and wireless

SoC devices for a wide range of wireless IoT designs; the next generation of Simplicity  Studio enabling

concurrent MCU and RF design; next-generation 8-bit MCUs designed for ultra-low-power, small-

footprint IoT applications; 32-bit sub-GHz  wireless MCUs designed to simplify a wide range of IoT

connectivity applications; and high-precision temperature sensors offering  exceptional power efficiency.

Selling, General and Administrative

 
related costs, and (d) $1.0 million for product marketing  costs. The increase  in selling, general  and
administrative expense was offset in part  by decreases of (a) $6.3  million  for legal fees, primarily
related to litigation, and (b) $5.2 million for adjustments to  the  fair value of acquisition-related
contingent consideration. We expect that selling,  general and administrative expense  will increase in
absolute dollars in the first quarter of 2016.

Interest  Income

related costs, and (d) $1.0 million for product  marketing costs. The increase in selling, general and

administrative expense was offset in part by decreases of (a) $6.3  million  for legal fees, primarily

related to litigation, and (b) $5.2 million for adjustments to  the  fair value of acquisition-related

contingent consideration. We expect that selling,  general and administrative expense  will increase in

absolute dollars in the first quarter of 2016.

Interest income in fiscal 2015 was $0.7  million compared to  $1.0 million in fiscal  2014.

Interest income in fiscal 2015 was $0.7  million compared to $1.0 million in fiscal 2014.

Interest  Expense

Interest expense in fiscal 2015 was $2.8  million compared $3.2 million  in fiscal 2014.

Interest expense in fiscal 2015 was $2.8 million compared $3.2 million in fiscal 2014.

Other Income (Expense), Net

Other income (expense), net in fiscal 2015 was $0.1 million compared to  $(0.2) million in fiscal

Other income (expense), net in fiscal 2015 was $0.1 million compared to  $(0.2) million in fiscal

2014.

Provision for Income Taxes

(in millions)

Fiscal Year

2015

2014

Change

Fiscal Year

2015

2014

Change

Interest Income

Interest Expense

Other Income (Expense), Net

Provision for Income Taxes

2014.

(in  millions)

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

$0.7

$11.0

$(10.3)

2.2% 22.5%

Provision for income taxes

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$0.7

$11.0

$(10.3)

Effective tax rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

2.2% 22.5%

The effective tax rate for fiscal 2015  decreased  from fiscal 2014,  primarily due to the completion of

The effective tax rate for fiscal 2015 decreased from fiscal 2014,  primarily due to the completion of

payments related to a prior year intercompany licensing arrangement resulting in an increase to the
foreign tax rate benefit as well as the  recognition of a net benefit resulting from a  change in the tax
accounting treatment of stock-based  compensation in  a cost-sharing arrangement following  a recent
U.S. Tax Court case (Altera). See Note  17, Income Taxes, for  additional information.

The decrease in the effective tax rate from  the completion of  payments related  to  a prior year
intercompany licensing arrangement  and  the recognition  of  a  net benefit  from  the Altera  case, was
partially offset by an increase in the prior year  valuation  allowance related to lower expectations  of
profitability in jurisdictions where tax attributes exist. Additionally, the Company expects  a lower
realization of the recently re-enacted  U.S. federal research and development tax credit  as compared to
the realization of the U.S. federal research and development  tax credit in  the prior year.

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 and other permanent items  including nondeductible compensation expenses
and research and development tax credits.

payments related to a prior year intercompany  licensing arrangement resulting in an increase to the

foreign tax rate benefit as well as the recognition of a net benefit resulting from a change in the tax

accounting treatment of stock-based  compensation  in a cost-sharing arrangement following a recent

U.S. Tax Court case (Altera). See Note  17, Income Taxes, for additional information.

The decrease in the effective tax rate  from the completion of  payments related to a prior year

intercompany licensing arrangement and the recognition of  a  net benefit from the Altera case, was

partially offset by an increase in the prior year valuation allowance related to lower expectations of

profitability in jurisdictions where tax attributes exist. Additionally, the Company expects  a lower

realization of the recently re-enacted U.S. federal  research and development tax credit  as compared to

the realization of the U.S. federal research and development  tax credit in the prior year.

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 and other permanent items including nondeductible compensation expenses

and research and development tax credits.

38

38

Revenues

(in  millions)

Internet of Things . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$209.0

$181.3

$27.7

15.3%

Broadcast . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Infrastructure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Access . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

204.3

108.1

99.3

199.8

100.5

98.5

4.5

7.6

0.8

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

$620.7

$580.1

$40.6

Fiscal Year

2014

2013

Change

Change

%

2.2%

7.6%

0.9%

7.0%

• Increased revenues of $27.7 million for our Internet of Things products, due primarily to market

share gains for our MCU, wireless and sensor products, including products acquired from

Energy Micro in July 2013. Internet of Things revenue growth was offset in part  by  a decline in

revenue for our touch controller products due to our exit from this market.

• Increased revenues of $4.5 million for Broadcast,  due primarily to an  increase in market share

for our automotive products and the sale of patents of $7.1 million. The increase in Broadcast

revenues was offset by decreased revenues for our  consumer products due to declines in market

share.

gains.

compared to fiscal 2013.

Gross Margin

(in  millions)

Comparison of Fiscal 2014 to Fiscal 2013

Comparison of Fiscal 2014 to Fiscal 2013

Revenues

(in millions)

Fiscal Year

2014

2013

Change

Internet of Things . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Broadcast . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Infrastructure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Access . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$209.0
204.3
108.1
99.3

$181.3
199.8
100.5
98.5

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

$620.7

$580.1

$27.7
4.5
7.6
0.8

$40.6

%
Change

15.3%
2.2%
7.6%
0.9%

7.0%

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

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

• Increased revenues of $27.7 million for our Internet of Things  products, due primarily to market

share gains for our MCU, wireless and sensor products, including products acquired from
Energy Micro in July 2013. Internet of  Things revenue growth  was offset in part  by  a decline in
revenue for our touch controller products due to our exit from  this market.

• Increased revenues of $4.5 million for Broadcast,  due primarily to an  increase in market share
for our automotive products and the sale  of  patents of $7.1 million. The increase in Broadcast
revenues was offset by decreased revenues for  our  consumer products due  to  declines in market
share.

• Increased revenues of $7.6 million for our Infrastructure  products, due primarily to market share

• Increased revenues of $7.6 million for our Infrastructure products, due primarily to market share

gains.

Unit volumes of our products increased  by 5.2% and  average selling prices increased by 0.7%

Unit volumes of our products increased  by 5.2% and  average selling prices increased by 0.7%

compared to fiscal 2013.

Gross  Margin

(in millions)

Fiscal Year

2014

2013

Change

Fiscal Year

2014

2013

Change

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

$378.6

$352.9

$25.7

61.0% 60.8% 0.2%

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

$378.6

$352.9

$25.7

Percent of revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

61.0% 60.8% 0.2%

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

$18.0 million for our Internet of Things  products, $7.4  million for  our Infrastructure 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.

Research and Development

(in millions)

Fiscal Year

2014

2013

Change

%
Change

(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%

Research and development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$173.0

$157.8

$15.2

9.6%

Percent of revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

27.9% 27.2%

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

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.

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.

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

$18.0 million for our Internet of Things products, $7.4 million for  our Infrastructure 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.

Research and Development

39

39

 
Selling, General and Administrative

(in millions)

Fiscal Year

2014

2013

Change

%
Change

(in  millions)

Fiscal Year

2014

2013

Change

Change

%

Selling, General and Administrative

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

$154.1

$130.8

$23.3

17.9%

24.8% 22.5%

Selling, general and administrative . . . . . . . . . . . . . . . . . . . . . . . . .

$154.1

$130.8

$23.3

17.9%

Percent of revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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.

Interest Income

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.

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

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.

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

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

Fiscal Year

2014

2013

Change

Interest Income

Interest Expense

Other Income (Expense), Net

Provision for Income Taxes

2013.

(in  millions)

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

$12.2

$11.0
22.5% 19.7%

$(1.2)

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

$11.0

$12.2

$(1.2)

Effective tax rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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.

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.

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.

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.

Business  Outlook

Business Outlook

We  expect revenues in the first quarter of fiscal 2016 to be in  the range of $157 to $162 million.
Furthermore, we expect our diluted earnings  (loss)  per  share  to  be  in the range  of  $(0.08) to $(0.02).

We expect revenues in the first quarter of  fiscal 2016 to be in the range of $157 to $162 million.

Furthermore, we expect our diluted earnings (loss) per share  to  be  in the range of $(0.08) to $(0.02).

40

40

Liquidity and Capital Resources

Liquidity and Capital Resources

Our principal sources of liquidity as of January  2, 2016 consisted of $243.0  million in cash,  cash
equivalents and short-term investments, of which approximately $164.5 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, commercial paper,
certificates of deposit, variable-rate demand notes,  U.S. government  agency, international  government
bonds and corporate 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 2,  2016, 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

Operating Activities

Net cash provided by operating activities  was  $105.4 million during fiscal 2015,  compared to net
cash provided of $137.4 million during fiscal 2014.  Operating  cash flows  during fiscal  2015 reflect our
net income of $29.6 million, adjustments of $80.2  million for depreciation,  amortization, stock-based
compensation and deferred income taxes, and a net cash outflow of $4.4  million due to changes in our
operating assets and liabilities.

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.

Accounts receivable increased to $73.6 million  at  January 2, 2016  from $70.4  million at January 3,

2015. The increase in accounts receivable resulted primarily from normal  variations in the  timing of
collections and billings. Our average days sales  outstanding (DSO)  was  41 days at January 2,  2016 and
39 days at January 3, 2015.

Inventory increased to $53.9 million at January 2, 2016 from  $52.6 million at  January 3, 2015.  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 2, 2016 and January 3, 2015.

Investing Activities

Investing Activities

Net cash used in investing activities was $49.3 million during fiscal 2015, compared to net  cash

used of $26.3 million during fiscal 2014.  The increase in cash  outflows was principally due to
$96.1 million in net payments for the acquisition of businesses,  including  $76.1 million for  the purchase
of Bluegiga and Telegesis and $20.0 million for consideration  previously  withheld in connection  with
our purchase of Energy Micro, offset by an increase of $74.0  million  from net proceeds from the sales
and  maturities of marketable securities. See Note  9, Acquisitions, for additional  information.

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

41

41

Our principal sources of liquidity as of January  2, 2016 consisted of $243.0  million in cash,  cash

equivalents and short-term investments, of which approximately $164.5 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, commercial paper,

certificates of deposit, variable-rate demand notes, U.S. government  agency, international government

bonds and corporate 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 2, 2016, 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.

Net cash provided by operating activities was $105.4 million during fiscal 2015, compared to net

cash provided of $137.4 million during fiscal 2014. Operating cash flows  during fiscal 2015 reflect our

net income of $29.6 million, adjustments  of  $80.2 million for depreciation, amortization, stock-based

compensation and deferred income taxes, and a  net cash outflow of $4.4  million due to changes in our

operating assets and liabilities.

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.

Accounts receivable increased to $73.6 million at January 2, 2016  from $70.4  million at January 3,

2015. The increase in accounts receivable resulted primarily from normal  variations in the timing of

collections and billings. Our average days sales outstanding (DSO) was 41 days at January 2, 2016 and

39 days at January 3, 2015.

Inventory increased to $53.9 million  at January 2, 2016 from  $52.6 million at January 3, 2015. 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 2, 2016 and January 3, 2015.

Net cash used in investing activities was $49.3 million during fiscal 2015, compared to net cash

used of $26.3 million during fiscal 2014. The increase in cash outflows was principally due to

$96.1 million in net payments for the acquisition of  businesses,  including $76.1 million for the purchase

of Bluegiga and Telegesis and $20.0 million for consideration  previously  withheld in connection with

our purchase of Energy Micro, offset by an increase of $74.0  million  from net proceeds from the sales

and maturities of marketable securities. See Note 9, Acquisitions, for additional information.

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.

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.

We anticipate capital expenditures of approximately  $14 to $16 million for  fiscal 2016. Additionally,

We anticipate capital expenditures of approximately $14 to $16 million for fiscal 2016. 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.

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

Financing Activities

Net cash used in financing activities was $83.8 million  during  fiscal  2015, compared to net cash

used of $65.2 million during fiscal 2014.  The increase in cash  outflows was principally due to an
increase  of $87.2 million in payments  on debt and  a  decrease of $10.2 million from proceeds from the
issuance of common stock, net of cash  paid  for withheld taxes,  offset by net proceeds of $81.2  million
from the issuance of long-term debt.  In July 2015, we  amended  our Credit  Agreement. In August  2015,
the Board of Directors authorized a program to repurchase up  to  $100 million of our common stock
through  December 2016.

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.

Debt

Debt

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

Agreement’’), which consisted of a $100 million  Term  Loan Facility and a  $130 million Revolving Credit
Facility (collectively, the ‘‘Credit Facilities’’). On July 24, 2015, we amended  the Credit  Agreement (the
‘‘Amended Credit Agreement’’) in order to, among other things, increase  the borrowing capacity  under
the Revolving Credit Facility to $300 million,  eliminate the  Term Loan Facility and extend the  maturity
date to five years from the closing date. On July 24, 2015, we borrowed $82.5  million  under the
Amended Credit Agreement and paid off  the remaining balance of our Term Loan Facility.

The Amended Credit Agreement includes a $25  million letter of  credit sublimit and a $10  million
swingline loan sublimit. We also have an option to increase the size of the borrowing capacity by up to
an aggregate of $200 million in additional commitments, subject to certain conditions.

The Revolving Credit Facility, other than swingline loans,  will bear  interest at the Eurodollar rate

plus an  applicable margin or, at our  option,  a  base  rate (defined  as the  highest of the Wells  Fargo
prime rate, the Federal Funds rate plus  0.50% and the Eurodollar Base Rate plus 1.00%) plus an
applicable margin.  Swingline loans accrue  interest at the base rate plus the  applicable margin for  base
rate loans. The applicable margins for the  Eurodollar rate loans range  from 1.25% to 2.00% and  for
base rate loans range from 0.25% to  1.00%,  depending in  each case, on the leverage ratio as  defined  in
the Agreement.

The Amended Credit Agreement contains  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
3.00 to 1 and a minimum fixed charge coverage  ratio (EBITDA/interest payments, income taxes and
capital expenditures) of no less than 1.25  to  1. As of January 2, 2016, we were in compliance with all
covenants of the Amended Credit Agreement. Our obligations  under  the Amended Credit  Agreement
are secured by a security interest in substantially all of our assets.

We have entered into an interest rate swap agreement as a hedge against the  Eurodollar portion
of the variable interest payments under the Credit Facilities and effectively converted the  Eurodollar

Net cash used in financing activities was $83.8 million during fiscal  2015, compared to net cash

used of $65.2 million during fiscal 2014. The increase in cash outflows was principally due to an

increase  of $87.2 million in payments  on debt and a decrease of $10.2 million from proceeds from the

issuance of common stock, net of cash  paid for withheld taxes,  offset by net proceeds of $81.2 million

from the issuance of long-term debt. In July 2015, we amended our Credit Agreement. In August 2015,

the Board of Directors authorized a program to repurchase up  to  $100 million of our common stock

through December 2016.

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.

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

Agreement’’), which consisted of a $100 million Term  Loan Facility and a  $130 million Revolving Credit

Facility (collectively, the ‘‘Credit Facilities’’). On July 24, 2015, we amended the Credit Agreement (the

‘‘Amended Credit Agreement’’) in order to, among other things, increase  the  borrowing capacity  under

the Revolving Credit Facility to $300 million, eliminate the  Term Loan Facility and extend the maturity

date to five years from the closing date. On July  24, 2015, we borrowed $82.5 million under the

Amended Credit Agreement and paid  off the remaining balance of our Term Loan Facility.

The Amended Credit Agreement includes a $25 million letter of credit sublimit and a $10 million

swingline loan sublimit. We also have an option to increase the size of the borrowing capacity by up to

an aggregate of $200 million in additional commitments, subject to certain conditions.

The Revolving Credit Facility, other than swingline loans, will bear interest at the Eurodollar rate

plus an applicable margin or, at our  option, a base rate (defined  as the highest of the Wells  Fargo

prime rate, the Federal Funds rate plus 0.50% and the Eurodollar Base Rate plus 1.00%) plus an

applicable margin. Swingline loans accrue interest at the base rate plus the  applicable margin for base

rate loans. The applicable margins for the  Eurodollar  rate loans range  from 1.25% to 2.00% and for

base rate loans range from 0.25% to 1.00%, depending in  each case, on the leverage ratio as defined in

the Agreement.

The Amended Credit Agreement contains 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

3.00 to 1 and a minimum fixed charge coverage ratio (EBITDA/interest payments, income taxes and

capital expenditures) of no less than 1.25 to 1.  As of January 2, 2016, we were in compliance with all

covenants of the Amended Credit Agreement. Our obligations  under the Amended Credit Agreement

are secured by a security interest in substantially all of our assets.

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

of the variable interest payments under the Credit Facilities and effectively converted the  Eurodollar

42

42

portion of the interest on the Credit Facilities to a fixed interest  rate  through July  2017. 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

portion of the interest on the Credit Facilities  to  a fixed interest rate  through July  2017. 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 2,  2016 (in thousands):

The following table summarizes our contractual obligations as of January 2, 2016 (in thousands):

Total

2016

2017

2018

2019

2020

Thereafter

Payments due by period

Total

2016

2017

2018

2019

2020

Thereafter

Payments due by period

Long-term debt obligations (1) . . . . . . . . . . $77,500 $ — $ — $ — $ — $77,500
1,803
Interest on long-term debt obligations  (2) . .
1,514
Operating lease obligations (3) . . . . . . . . . .
—
Purchase obligations (4) . . . . . . . . . . . . . . .
—
Other long-term obligations (5) . . . . . . . . . .

2,453
4,394
—
— 2,942

12,573
21,415
32,735
10,707

3,013
2,917
—
4,117

3,074
1,812
—
3,648

2,230
5,438
32,735

$ —
—
5,340
—
—

Long-term debt obligations (1) . . . . . . . . . . $77,500 $ — $ — $ — $ — $77,500

$ —

Interest on long-term debt obligations (2) . .

Operating lease obligations (3) . . . . . . . . . .

Purchase obligations (4) . . . . . . . . . . . . . . .

Other long-term obligations (5) . . . . . . . . . .

12,573

21,415

32,735

10,707

2,230

5,438

32,735

2,453

4,394

—

3,013

2,917

—

3,074

1,812

—

— 2,942

4,117

3,648

1,803

1,514

—

—

5,340

—

—

—

(1) Long-term debt obligations represent the principal portion of  our Credit Facilities and include

(1) Long-term debt obligations represent the principal portion of our Credit Facilities and include

amounts classified  as current portion of  long-term debt.

amounts classified as current portion of  long-term debt.

(2) Interest on our long-term debt obligations is based on the Eurodollar Base Rate  plus an applicable

(2) Interest on our long-term debt obligations is based on the Eurodollar Base Rate plus an applicable

margin. We have entered into an interest rate swap agreement as a hedge against  the Eurodollar
portion of such variable interest payments and effectively converted the Eurodollar portion of the
interest on the Credit Facilities to a fixed interest  rate through July 2017. As of January 2,  2016,
the combined interest rate on the Credit Facilities and the interest rate swap was 2.264%. The
impact of the interest rate swap was factored into the calculation of the future  interest payments
on our long-term debt obligations through July 2017.

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

(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 $3.6 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

Off-Balance Sheet Arrangements

As of January 2, 2016, we had no significant off-balance sheet  arrangements.

As of January 2, 2016, we had no significant off-balance sheet  arrangements.

43

43

margin. We have entered into an interest rate swap agreement as a hedge against the Eurodollar

portion of such variable interest payments and effectively  converted the Eurodollar portion of the

interest on the Credit Facilities to a fixed interest rate through July 2017. As of January 2,  2016,

the combined interest rate on the Credit Facilities and the interest rate swap was 2.264%. The

impact of the interest rate swap was factored into the calculation of the future  interest payments

on our long-term debt obligations through July 2017.

(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 $3.6 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.

 
Critical Accounting Policies and Estimates

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

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

44

44

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

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

45

45

 
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

Recent Accounting Pronouncements

In November 2015, the Financial Accounting  Standards  Board (FASB) issued FASB Accounting

Standards Update (ASU) No. 2015-17, Income Taxes (Topic 740): Balance Sheet  Classification  of
Deferred Taxes. The amendments in this  update require  that deferred tax liabilities and assets  be
classified as noncurrent in a classified  statement of financial  position. This ASU is  effective for
financial statements issued for annual  periods beginning after December  15, 2016, and interim periods
within those annual periods. Earlier application is permitted as  of  the beginning of an interim  or
annual reporting period. We early adopted this  ASU on a  prospective basis  in the fourth quarter of
fiscal 2015. Prior periods were not retrospectively adjusted.

In September 2015, the FASB issued FASB ASU  No.  2015-16, Business Combinations (Topic 805):
Simplifying the Accounting for Measurement-Period Adjustments. The amendments in this update require
that an acquirer recognize adjustments to provisional amounts that  are  identified during the
measurement period with a corresponding adjustment to goodwill in the  reporting period  in which the
adjustment amounts are determined.  The  effect on  earnings of changes in depreciation, amortization or
other income effects, if any, as a result of the  change to the provisional amounts  will  be  recorded in
the same period’s  financial statements,  calculated as if the accounting had  been completed at the
acquisition date. This ASU is effective  for fiscal years beginning after December 15, 2015, including
interim periods within those fiscal years. The amendments in this update should be applied
prospectively to adjustments to provisional amounts  that occur after the effective date of this update
with earlier application permitted for  financial statements that have not been issued. We early  adopted
this  ASU in the fourth quarter of fiscal 2015.  The adoption did not have  a material impact on  our
financial statements.

In July 2015, the FASB issued FASB ASU No. 2015-11, Inventory (Topic 330): Simplifying the

Measurement of Inventory. The amendments in this update  require  inventory to be measured at the
lower of cost and net realizable value. Net realizable  value is the estimated selling prices  in the
ordinary course of business, less reasonably  predictable costs  of  completion, disposal, and
transportation. This ASU is effective for fiscal years beginning after December 15,  2016, including
interim periods within those fiscal years. The amendments in this update should be applied
prospectively with earlier application permitted.  We do not expect that the adoption of this ASU will
have a material impact on our financial  statements.

In April 2015, the FASB issued FASB ASU No.  2015-03, Interest—Imputation of Interest

(Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs. The amendments  in this update
require that debt issuance costs related  to a recognized debt liability be presented in the  balance  sheet
as a direct deduction from the carrying  amount  of that debt liability. ASU 2015-03 is  to  be  applied
retrospectively and represents a change  in  accounting principle. In  August 2015,  the FASB issued  FASB
ASU No. 2015-15,  Interest—Imputation  of Interest  (Subtopic 835-30): Presentation and Subsequent

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.

In November 2015, the Financial Accounting Standards Board (FASB) issued FASB Accounting

Standards Update (ASU) No. 2015-17, Income Taxes (Topic 740): Balance  Sheet Classification of

Deferred Taxes. The amendments in this update require that deferred tax liabilities and assets be

classified as noncurrent in a classified statement of financial position. This ASU is  effective for

financial statements issued for annual  periods beginning after December 15, 2016, and interim periods

within those annual periods. Earlier application is permitted as of the beginning of an interim or

annual reporting period. We early adopted this ASU on a  prospective basis  in the fourth quarter of

fiscal 2015. Prior periods were not retrospectively adjusted.

In September 2015, the FASB issued FASB ASU No. 2015-16, Business Combinations (Topic 805):

Simplifying the Accounting for Measurement-Period Adjustments. The amendments in this update require

that an acquirer recognize adjustments to provisional amounts that are identified during the

measurement period with a corresponding adjustment to goodwill in the reporting period in which the

adjustment amounts are determined.  The effect on earnings of changes in depreciation, amortization or

other income effects, if any, as a result of the  change to the provisional amounts will be recorded in

the same period’s financial statements, calculated as if the accounting had been completed at the

acquisition date. This ASU is effective for fiscal years beginning after December 15, 2015, including

interim periods within those fiscal years. The amendments in this update should be applied

prospectively to adjustments to provisional amounts  that occur after the effective date of this update

with earlier application permitted for  financial statements that have not been issued. We early  adopted

this ASU in the fourth quarter of fiscal 2015.  The adoption did not have  a material impact on our

financial statements.

In July 2015, the FASB issued FASB ASU No. 2015-11, Inventory (Topic 330): Simplifying the

Measurement of Inventory. The amendments in this update  require  inventory to be measured at the

lower of cost and net realizable value. Net realizable  value is the estimated selling prices in the

ordinary course of business, less reasonably  predictable costs of completion, disposal, and

transportation. This ASU is effective for fiscal years beginning after December 15, 2016, including

interim periods within those fiscal years. The amendments in this update should be applied

prospectively with earlier application permitted.  We do not expect that the adoption of this ASU will

have a material impact on our financial statements.

In April 2015, the FASB issued FASB ASU No.  2015-03, Interest—Imputation of Interest

(Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs. The amendments in this update

require  that debt issuance costs related to a recognized debt liability be presented in the  balance sheet

as a direct deduction from the carrying amount  of that debt liability. ASU 2015-03 is to be applied

retrospectively and represents a change in accounting principle. In  August 2015,  the FASB issued FASB

ASU No. 2015-15, Interest—Imputation of Interest (Subtopic 835-30): Presentation and Subsequent

46

46

Measurement of Debt Issuance Costs Associated with Line-of-Credit  Arrangements. ASU 2015-15 clarified
the presentation and subsequent measurement of debt issuance costs related to line-of-credit
arrangements. Such costs may be presented in the balance sheet as  an asset and subsequently
amortized ratably over the term of the  line-of-credit arrangement,  regardless of whether there are any
outstanding borrowings on the line-of-credit arrangement. ASU  2015-03 and ASU  2015-15 are effective
for fiscal years beginning after December 15, 2015, including interim periods  within those fiscal years.
Earlier adoption is permitted for financial  statements  that have not been  previously issued.  We do  not
expect that the adoption of ASU 2015-03 and ASU  2015-15  will have a material impact 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.  In  August  2015, the FASB  issued FASB  ASU No. 2015-14,
Revenue from Contracts with Customers  (Topic 606): Deferral of the Effective Date, which deferred the
effective date of ASU 2014-09 by one year. ASU  2014-09 is now effective for annual reporting  periods
beginning after December 15, 2017, including interim periods  within that reporting  period, using one of
two retrospective application methods. Early application is permitted only  as of annual reporting
periods beginning after December 15,  2016, including interim  reporting periods within that reporting
period. We are currently evaluating the  effect that the adoption of ASU 2014-09 and ASU 2015-14 will
have on our financial statements.

Measurement of Debt Issuance Costs Associated with Line-of-Credit  Arrangements. ASU 2015-15 clarified

the presentation and subsequent measurement of debt issuance costs related to line-of-credit

arrangements. Such costs may be presented in the balance sheet as  an asset and subsequently

amortized ratably over the term of the line-of-credit arrangement, regardless of whether there are any

outstanding borrowings on the line-of-credit arrangement. ASU 2015-03 and ASU 2015-15 are effective

for  fiscal years beginning after December 15, 2015, including interim periods within those fiscal years.

Earlier adoption is permitted for financial statements that have not been  previously issued. We do not

expect that the adoption of ASU 2015-03 and ASU  2015-15 will have a material impact 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. In  August 2015, the FASB issued FASB ASU No. 2015-14,

Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date, which deferred the

effective date of ASU 2014-09 by one year. ASU 2014-09 is now effective for annual reporting periods

beginning after December 15, 2017, including interim periods  within that reporting period, using one of

two retrospective application methods. Early application is permitted only as of annual reporting

periods beginning after December 15, 2016, including interim  reporting periods within that reporting

period. We are currently evaluating the  effect that the adoption of ASU 2014-09 and ASU 2015-14 will

have on our financial statements.

Item 7A. Quantitative and Qualitative  Disclosures about Market  Risk

Item 7A. Quantitative and Qualitative Disclosures about Market  Risk

Interest Income

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 2,
2016 and January 3, 2015 yielded less than 100 basis points. A decline in yield to zero  basis points on
our  investment portfolio holdings as  of January 2, 2016  and January  3, 2015  would decrease our annual
interest income by approximately $0.9  million  and $1.0  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.

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 2,

2016 and January 3, 2015 yielded less than 100 basis points. A decline in yield to zero  basis points on

our investment portfolio holdings as of January 2, 2016  and January  3, 2015  would decrease our annual

interest income by approximately $0.9  million  and $1.0 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

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 Credit Facilities  consist of a  variable-rate  of
interest and an applicable margin. We  have entered into an interest  rate  swap agreement with an
original notional value of $100 million  that, effectively,  converted  the variable-rate interest payments to
fixed-rate interest payments through  July 2017.

We are exposed to interest rate fluctuations in the normal course of our business, including

through our Credit Facilities. The interest payments on the Credit Facilities consist of a  variable-rate of

interest and an applicable margin. We have entered into an interest rate  swap agreement with an

original notional value of $100 million that, effectively,  converted the variable-rate interest payments to

fixed-rate interest payments through July 2017.

47

47

 
Foreign currency exchange rate risk

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. Our  foreign subsidiaries are
considered to be extensions of the U.S. parent. 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 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 2, 2016, 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.

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. Our  foreign subsidiaries are

considered to be extensions of the U.S. parent. 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 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 2, 2016, 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

Item 8. Financial Statements and Supplementary Data

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

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 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

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 2, 2016 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 2, 2016 that  materially affected, or is  reasonably  likely to
materially affect, our internal controls over financial reporting.

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 2, 2016 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 2, 2016 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

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

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

48

48

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 2, 2016. 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 2,  2016, 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.

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 2, 2016. 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 2,  2016, 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.

Item 9B. Other Information

None.

49

49

 
Part III

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.

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

Item 10. Directors, Executive Officers and Corporate Governance

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

The 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.’’

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

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.

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

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

Matters

Matters

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

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

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

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.

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

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.

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.

50

50

Item 15. Exhibits and Financial Statement Schedules

(a) 1. Financial Statements

Part IV

Index

Item 15. Exhibits and Financial Statement Schedules

(a) 1. Financial Statements

Part IV

Index

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

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

Consolidated Balance Sheets at January  2, 2016 and January 3, 2015 . . . . . . . . . . . . . . . . . . . . .

Page

F-1

F-2

F-3

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

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

Consolidated Balance Sheets at January 2, 2016  and January 3, 2015 . . . . . . . . . . . . . . . . . . . . .

Consolidated Statements of Income for  the fiscal years ended  January 2,  2016,  January 3, 2015

and December 28, 2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

F-4

Consolidated Statements of Income for  the fiscal years ended January 2, 2016, January 3, 2015

and December 28, 2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

F-4

Consolidated Statements of Comprehensive Income for  the fiscal years ended January  2, 2016,

January 3, 2015 and December 28, 2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

F-5

Consolidated Statements of Comprehensive Income for the fiscal years ended January  2, 2016,

January 3, 2015 and December 28, 2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

F-5

Consolidated Statements of Changes  in  Stockholders’ Equity for the fiscal years ended January 2,
2016, January 3, 2015 and December  28, 2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Consolidated Statements of Cash Flows  for the fiscal  years ended January 2, 2016,  January 3,

2015 and December 28, 2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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

F-6

F-7

F-8

2.

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.

Consolidated Statements of Changes in Stockholders’ Equity for the fiscal years ended January 2,

2016, January 3, 2015 and December 28, 2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

F-6

Consolidated Statements of Cash Flows  for  the fiscal years ended January 2, 2016, January 3,

2015 and December 28, 2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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

2.

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

this Form 10-K.

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,

Page

F-1

F-2

F-3

F-7

F-8

51

51

 
(b) Exhibits

Exhibit
Number

(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).

2.3* Agreement dated November 20, 2015, by  and  between  the shareholders of  Telegesis (UK)

Limited and Silicon Laboratories UK Limited (filed as  Exhibit 2.1 to the Form  8-K filed
on November 23, 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* Third Amended and Restated Bylaws of  Silicon Laboratories Inc.  (filed as Exhibit 3.2 to

the Registrant’s Current Report on Form 8-K  filed on July 29, 2015).

4.1*

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).

2.1*

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).

2.2*

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).

2.3* Agreement dated November 20, 2015, by  and  between the shareholders of  Telegesis (UK)

Limited and Silicon Laboratories UK Limited (filed as  Exhibit 2.1 to the Form 8-K filed

on November 23, 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* Third Amended and Restated Bylaws of Silicon Laboratories  Inc. (filed as Exhibit 3.2 to

the Registrant’s Current Report on Form 8-K filed on July 29, 2015).

4.1*

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*

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).

10.4*

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

10.5*

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

April 16, 2014).

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).

52

52

Exhibit
Number

Exhibit

Number

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

Form of Performance Stock Units Grant  Notice  and Global PSU Award Agreement  under
Registrant’s 2009 Stock Incentive Plan, as amended and restated.

10.10* First Amendment to Credit  Agreement, dated July 24, 2015,  by and among Silicon

10.10* First Amendment to Credit  Agreement, dated July 24, 2015, by and among Silicon

Laboratories Inc., the subsidiaries of the borrower  identified therein, Wells  Fargo Bank,
National Association, Citibank, N.A., Regions Bank,  Bank of America, N.A. and  the
lenders party thereto (filed as Exhibit 10.1 to the Registrant’s Current Report on Form 8-K
filed on July 29, 2015).

10.11*+ Transition Agreement between  Kurt Hoff and Silicon Laboratories Inc. dated August 24,

2015 (filed as Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on
October 30, 2015).

10.12*+ Silicon Laboratories Inc. 2016 Bonus Plan (filed  as  Exhibit 10.1 to the  Registrant’s Current

10.12*+ Silicon Laboratories Inc. 2016 Bonus Plan (filed  as  Exhibit 10.1 to the Registrant’s Current

Report on Form 8-K filed on January 28,  2016).

21

Subsidiaries of the Registrant.

23.1

Consent of Independent Registered  Public  Accounting Firm.

24

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.

31.1

Certification of the Principal  Executive Officer, as required by Section 302 of the Sarbanes-

31.2

Certification of the Principal  Financial Officer, as required  by Section 302 of the Sarbanes-

Oxley Act of 2002.

Oxley Act of 2002.

32.1

Certification as required by Section 906 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

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

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

Form of Performance Stock Units Grant Notice and Global PSU Award  Agreement under

Registrant’s 2009 Stock Incentive Plan, as amended and restated.

Laboratories Inc., the subsidiaries of the borrower identified therein, Wells  Fargo Bank,

National Association, Citibank, N.A., Regions Bank,  Bank of  America, N.A. and  the

lenders party thereto (filed as Exhibit 10.1 to the Registrant’s Current Report on Form 8-K

10.11*+ Transition Agreement between  Kurt Hoff and Silicon Laboratories Inc. dated August 24,

2015 (filed as Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on

filed on July 29, 2015).

October 30, 2015).

Report on Form 8-K filed on January 28,  2016).

21

Subsidiaries of the Registrant.

23.1

Consent of Independent Registered Public Accounting Firm.

24

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

53

53

 
SILICON LABORATORIES INC.
VALUATION AND QUALIFYING ACCOUNTS

SILICON LABORATORIES INC.

VALUATION AND QUALIFYING ACCOUNTS

SCHEDULE II

SCHEDULE II

Valuation Allowance for
Deferred Tax Assets

Balance at
Beginning of
Period

Additions
Charged to
Expenses

Deductions

Balance at
End of  Period

(in thousands)

Valuation Allowance  for

Deferred Tax  Assets

Balance at

Beginning of

Period

Additions

Charged to

Expenses

Deductions

Balance  at

End of Period

(in thousands)

Year ended January 2, 2016 . . . . . . . . . . . . . . . . . . .
Year ended January 3, 2015 . . . . . . . . . . . . . . . . . . .
Year ended December 28, 2013 . . . . . . . . . . . . . . . .

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

$6,895
$ —
$2,335

$ (86)
$(320)
$(674)

$10,264
$ 3,455
$ 3,775

Year ended January 2, 2016 . . . . . . . . . . . . . . . . . . .

Year ended January 3, 2015 . . . . . . . . . . . . . . . . . . .

Year ended December 28, 2013 . . . . . . . . . . . . . . . .

$3,455

$3,775

$2,114

$6,895

$ —

$2,335

$ (86)

$(320)

$(674)

$10,264

$ 3,455

$ 3,775

54

54

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 5,  2016.

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 5, 2016.

SIGNATURES

SIGNATURES

SILICON LABORATORIES INC.

SILICON LABORATORIES INC.

By:

/s/ G. TYSON TUTTLE

G. Tyson Tuttle
Chief Executive Officer

By:

/s/ G. TYSON TUTTLE

G. Tyson Tuttle

Chief Executive Officer

POWER OF ATTORNEY

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:

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

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 5, 2016

Chairman of the Board

February 5, 2016

Chief Executive Officer and Director
(Principal Executive Officer)

February 5, 2016

Chief Executive Officer and Director

(Principal Executive Officer)

February 5, 2016

President and Director

February 5, 2016

President and Director

February 5, 2016

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

February 5, 2016

Senior Vice President and Chief

Financial Officer (Principal Financial

Officer and Principal Accounting

Officer)

February 5, 2016

/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

55

55

 
Name

Title

Date

Name

Title

Date

/s/ ALF-EGIL BOGEN

Alf-Egil Bogen

/s/ ROBERT TED ENLOE, III

Robert Ted Enloe, III

/s/ JACK R. LAZAR

Jack R. Lazar

/s/ NINA RICHARDSON

Nina Richardson

/s/ SUMIT SADANA

Sumit Sadana

/s/ WILLIAM P. WOOD

William P. Wood

Director

Director

Director

Director

Director

Director

February 5, 2016

February 5, 2016

February 5, 2016

February 5, 2016

February 5, 2016

February 5, 2016

/s/ ALF-EGIL BOGEN

Alf-Egil Bogen

/s/ ROBERT TED ENLOE, III

Robert Ted Enloe, III

/s/ JACK R. LAZAR

Jack R. Lazar

/s/ NINA RICHARDSON

Nina Richardson

/s/ SUMIT SADANA

Sumit Sadana

/s/ WILLIAM P. WOOD

William P. Wood

Director

Director

Director

Director

Director

Director

February 5, 2016

February 5, 2016

February 5, 2016

February 5, 2016

February 5, 2016

February 5, 2016

56

56

Report of Independent Registered Public  Accounting Firm

Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders of Silicon Laboratories Inc.

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 2, 2016, 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 2, 2016, 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 2, 2016 and January 3, 2015,  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 2, 2016 of Silicon Laboratories Inc. and our report dated February 5,  2016 expressed an
unqualified opinion thereon.

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

January 2, 2016, 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 2, 2016, 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 2, 2016 and January 3, 2015, 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 2, 2016 of Silicon Laboratories Inc. and our report dated February 5,  2016 expressed an

unqualified opinion thereon.

Austin,  Texas
February 5, 2016

Austin, Texas

February 5, 2016

/s/ ERNST & YOUNG LLP

/s/ ERNST & YOUNG LLP

F-1

F-1

 
Report of Independent Registered Public  Accounting Firm

Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders of Silicon Laboratories Inc.

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 2, 2016 and January 3, 2015,  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 2, 2016. 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  2, 2016 and January 3, 2015,
and the consolidated results of its operations and its cash  flows for  each  of  the three fiscal years in the
period ended January 2, 2016, 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 have audited the accompanying consolidated balance sheets of Silicon Laboratories Inc. as of

January 2, 2016 and January 3, 2015,  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 2, 2016. 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 2, 2016 and January 3, 2015,

and the consolidated results of its operations and its cash  flows for each of  the three fiscal years in the

period ended January 2, 2016, 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.

As discussed in Note 2 to the consolidated  financial statements,  the Company  changed its method

As discussed in Note 2 to the consolidated  financial statements,  the Company  changed its method

for classifying deferred tax assets and liabilities effective January 2,  2016.

for classifying deferred tax assets and liabilities effective January 2,  2016.

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 2, 2016, 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 5, 2016 expressed an unqualified opinion  thereon.

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 2, 2016, 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 5, 2016 expressed an unqualified opinion thereon.

Austin,  Texas
February 5, 2016

Austin, Texas

February 5, 2016

/s/ ERNST & YOUNG LLP

/s/ ERNST & YOUNG LLP

F-2

F-2

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

Silicon Laboratories Inc.

Consolidated Balance Sheets

(In thousands, except per share data)

January 2,
2016

January  3,
2015

January  2,

January 3,

2016

2015

Current assets:

Assets

Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Short-term investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts receivable, net of allowances for doubtful accounts of $671 at

January 2, 2016 and $786 at January 3, 2015 . . . . . . . . . . . . . . . . . . . . .
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 114,085
128,901

$ 141,706
193,489

73,601
53,895
—
52,658

423,140
7,126
131,132
272,722
121,354
55,989

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

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

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

$1,011,463

$1,042,561

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

$1,011,463

$1,042,561

Current liabilities:

Liabilities and Stockholders’ Equity

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

42,127
10,000
52,131
35,448
2,615

142,321
67,500
40,528

250,349

$

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

163,314
77,500
43,691

284,505

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

—

—

Common stock—$0.0001 par value; 250,000 shares  authorized; 41,727  and
42,225 shares issued and outstanding at  January 2,  2016 and January 3,
2015, respectively . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated other comprehensive loss . . . . . . . . . . . . . . . . . . . . . . . . . . .

4
13,868
747,749
(507)

4
29,501
728,633
(82)

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

761,114

758,056

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

761,114

758,056

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

$1,011,463

$1,042,561

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

$1,011,463

$1,042,561

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

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

F-3

F-3

Current assets:

Assets

Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 114,085

$ 141,706

Short-term investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

128,901

193,489

Accounts receivable, net of allowances for doubtful accounts of $671 at

January 2, 2016 and $786 at January 3, 2015 . . . . . . . . . . . . . . . . . . . . .

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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Current liabilities:

Liabilities and Stockholders’ Equity

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

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

Common stock—$0.0001 par value; 250,000 shares  authorized; 41,727  and

42,225 shares issued and outstanding at January 2, 2016 and January 3,

2015, respectively . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

—

4

—

4

Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Accumulated other comprehensive loss . . . . . . . . . . . . . . . . . . . . . . . . . . .

13,868

747,749

(507)

29,501

728,633

(82)

73,601

53,895

—

52,658

423,140

7,126

131,132

272,722

121,354

55,989

42,127

10,000

52,131

35,448

2,615

142,321

67,500

40,528

250,349

70,367

52,631

21,173

49,171

528,537

7,419

132,820

228,781

115,021

29,983

38,922

10,000

73,646

38,662

2,084

163,314

77,500

43,691

284,505

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

Silicon Laboratories Inc.

Consolidated Statements of Income

(In thousands, except per share data)

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

$644,826
264,056

$620,704
242,153

$580,087
227,183

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

$644,826

$620,704

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

264,056

242,153

$580,087

227,183

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

380,770

378,551

352,904

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

380,770

378,551

352,904

Year Ended

January 2,
2016

January 3,
2015

December  28,
2013

Year Ended

January 2,

January 3,

December 28,

2016

2015

2013

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

188,050
160,486

172,985
154,145

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

348,536

327,130

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

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

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

32,234

51,421

730
(2,828)
127

30,263
677

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

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

$ 29,586

$ 38,021

$ 49,819

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

$ 29,586

$ 38,021

$ 49,819

Earnings per share:

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

$
$

0.70
0.69

$
$

0.88
0.87

$
$

1.17
1.14

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

42,309
42,945

42,970
43,793

42,715
43,537

Operating expenses:

Research and development . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Selling, general and administrative . . . . . . . . . . . . . . . . . . . . . . .

188,050

160,486

172,985

154,145

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

348,536

327,130

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

32,234

51,421

Other income (expense):

Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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

Income before income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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

(2,828)

730

127

30,263

677

1,007

(3,154)

(234)

49,040

11,019

157,799

130,795

288,594

64,310

(3,293)

853

157

62,027

12,208

Earnings per share:

Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$

$

0.70

0.69

$

$

0.88

0.87

$

$

1.17

1.14

Weighted-average common shares outstanding:

Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

42,309

42,945

42,970

43,793

42,715

43,537

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

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

F-4

F-4

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

Silicon Laboratories Inc.

Consolidated Statements of Comprehensive Income

(In thousands)

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

$29,586

$38,021

$49,819

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

$29,586

$38,021

$49,819

Year Ended

January 2,
2016

January 3,
2015

December 28,
2013

Other comprehensive income (loss),  before  tax:
Net changes to available-for-sale securities:

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

Net changes to cash flow hedges:

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

Other comprehensive income (loss),  before  tax . . . . . . . . . . . . . . .

Provision (benefit) for income taxes . . . . . . . . . . . . . . . . . . . . . . . .

Other comprehensive income (loss) . . . . . . . . . . . . . . . . . . . . . . . .

(425)
10

(728)
489

(654)

(229)

(425)

1,107
—

(535)
(232)

(799)
618

926

324

602

611
560

404

142

262

Other comprehensive income (loss), before tax:

Net changes to available-for-sale securities:

Unrealized gains (losses) arising during the period . . . . . . . . . .

Reclassification for (gains) losses 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 (loss), before tax . . . . . . . . . . . . . . .

Provision (benefit) for income taxes . . . . . . . . . . . . . . . . . . . . . . . .

Other comprehensive income (loss) . . . . . . . . . . . . . . . . . . . . . . . .

Year Ended

January  2,

January 3,

December  28,

2016

2015

2013

(425)

10

(728)

489

(654)

(229)

(425)

(799)

618

926

324

602

611

560

404

142

262

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

$29,161

$38,623

$50,081

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

$29,161

$38,623

$50,081

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

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

F-5

F-5

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

Consolidated Statements of Changes in Stockholders’ Equity

Silicon Laboratories Inc.

(In thousands)

Common Stock

Number
of Shares

Par
Value

Additional
Paid-In
Capital

Retained
Earnings

Accumulated
Other
Comprehensive
Loss

Total
Stockholders’
Equity

Common  Stock

Number

of Shares

Par

Value

Additional

Paid-In

Capital

Retained

Earnings

Accumulated

Other

Loss

Comprehensive

Stockholders’

Balance as of December 29, 2012 . .

41,879

$ 4

$ 10,122

$640,793

$(946)

$649,973

Balance as of December 29, 2012 . .

41,879

$ 4

$ 10,122

$640,793

$(946)

$649,973

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

(loss) . . . . . . . . . . . . . . . . . . .

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

—

—

—

—

—

—

1,057

—

15,301

—

—

(772)
(661) — (26,022)
30,753

—

—

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

504

Balance as of December 28, 2013 . .

42,779

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

(loss) . . . . . . . . . . . . . . . . . . .

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 . . . . .

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

(loss) . . . . . . . . . . . . . . . . . . .

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 . . . . .

—

4

—

—

19,248

48,630

—

—

—

—

—

—

1,124

—

13,320

—

—
120
(1,678) — (71,676)
39,107
—

—

4

—

—

—

—

1,152

—

3,128

—

—
(613)
(1,650) — (60,978)
42,830
—

—

49,819

—

—

—
—
—

—

690,612

38,021

—

—

—
—
—

29,586

—

—

—
(10,470)
—

Balance as of January 3, 2015 . . . .

42,225

29,501

728,633

—

262

—

—
—
—

—

(684)

—

602

—

—
—
—

(82)

—

(425)

—

—
—
—

49,819

262

15,301

(772)
(26,022)
30,753

19,248

738,562

38,021

602

13,320

120
(71,676)
39,107

758,056

29,586

(425)

3,128

(613)
(71,448)
42,830

Balance as of January 2, 2016 . . . .

41,727

$ 4

$ 13,868

$747,749

$(507)

$761,114

Balance as of January 2, 2016 . . . .

41,727

$ 4

$ 13,868

$747,749

$(507)

$761,114

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

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

F-6

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

Other comprehensive income

(loss) . . . . . . . . . . . . . . . . . . .

Stock issuances under employee

plans, net of shares withheld

Income tax benefit (shortfall)

from stock-based awards . . . . .

for taxes . . . . . . . . . . . . . . . . .

1,057

15,301

Repurchases of common stock . .

(661) — (26,022)

49,819

—

—

—

262

Total

Equity

49,819

262

15,301

(772)

(26,022)

30,753

19,248

738,562

38,021

13,320

120

(71,676)

39,107

758,056

29,586

(425)

3,128

(613)

(71,448)

42,830

690,612

38,021

(684)

602

602

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

(772)

30,753

19,248

48,630

—

—

13,320

120

39,107

29,501

—

—

3,128

(613)

42,830

—

—

—

—

—

—

—

—

—

—

—

—

—

—

728,633

29,586

(82)

—

(425)

Stock-based compensation . . . . .

Stock issued in business

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

504

Balance as of December 28, 2013 . .

42,779

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

Other comprehensive income

(loss) . . . . . . . . . . . . . . . . . . .

Stock issuances under employee

plans, net of shares withheld

for taxes . . . . . . . . . . . . . . . . .

1,124

Income tax benefit (shortfall)

from stock-based awards . . . . .

Stock-based compensation . . . . .

Balance as of January 3, 2015 . . . .

42,225

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

Other comprehensive income

(loss) . . . . . . . . . . . . . . . . . . .

Stock issuances under employee

plans, net of shares withheld

for taxes . . . . . . . . . . . . . . . . .

1,152

Income tax benefit (shortfall)

from stock-based awards . . . . .

Repurchases of common stock . .

(1,678) — (71,676)

Repurchases of common stock . .

(1,650) — (60,978)

(10,470)

Stock-based compensation . . . . .

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

4

—

—

—

—

—

4

—

—

—

—

—

F-6

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

Silicon Laboratories Inc.

Consolidated Statements of Cash Flows

(In thousands)

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

Depreciation of property  and  equipment . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization of  other  intangible assets and other 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

Year Ended

January 2,
2016

January 3,
2015

December 28,
2013

Year Ended

January  2,

January 3,

December  28,

2016

2015

2013

$ 29,586

$ 38,021

$ 49,819

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

$ 29,586

$ 38,021

$ 49,819

Operating Activities

12,517
29,131
42,791
469
(2,497)
(2,136)

1,702
2,093
(870)
6,662
1,682
(5,298)
776
(11,161)

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 . . . . . . . . . . . . . . . . . . . . . . . . . .

105,447

137,443

120,150

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

105,447

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 . . . . . . . . . . . . . . . . . . . . . .

(107,366)
171,831
(11,268)
(6,399)
(96,112)

(166,094)
156,520
(11,225)
(5,514)
—

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

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

(49,314)

(26,313)

(105,911)

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

(49,314)

(26,313)

(105,911)

Financing  Activities
Proceeds  from issuance  of common stock,  net of cash paid for withheld taxes . .
Excess  income tax benefit from stock-based  awards . . . . . . . . . . . . . . . . . . .
Repurchases of common stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Payment of acquisition-related contingent  consideration . . . . . . . . . . . . . . . .
Proceeds  from issuance  of long-term debt,  net
. . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Payments  on debt

Net cash used in financing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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

3,129
2,497
(71,448)
(4,464)
81,238
(94,706)

(83,754)

(27,621)
141,706

13,320
632
(71,676)
—
—
(7,500)

(65,224)

45,906
95,800

15,301
290
(26,022)
—
—
(13,434)

(23,865)

(9,626)
105,426

Cash  and cash equivalents at end of period . . . . . . . . . . . . . . . . . . . . . . . .

$ 114,085

$ 141,706

$ 95,800

Cash and cash equivalents at end of period . . . . . . . . . . . . . . . . . . . . . . . .

$ 114,085

$ 141,706

$ 95,800

Supplemental Disclosure of Cash Flow  Information:
Interest  paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Income  taxes paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Supplemental Disclosure of Non-Cash  Activity:
Stock  issued in business combination . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$

$

$

2,470

$

2,950

2,157

$ 11,587

$

$

2,925

3,838

— $

—

$ 19,248

Stock issued in business combination . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

— $

—

$ 19,248

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

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

F-7

F-7

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

Depreciation of property and equipment . . . . . . . . . . . . . . . . . . . . . . . . .

Amortization of other intangible assets and other 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

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

12,517

29,131

42,791

469

(2,497)

(2,136)

1,702

2,093

(870)

6,662

1,682

(5,298)

776

(11,161)

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)

Investing Activities

Purchases of available-for-sale investments . . . . . . . . . . . . . . . . . . . . . . . . .

(107,366)

(166,094)

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 . . . . . . . . . . . . . . . . . . . . . .

171,831

(11,268)

(6,399)

(96,112)

156,520

(11,225)

(5,514)

—

(213,883)

210,824

(10,472)

(5,939)

(86,441)

Financing Activities

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

Excess income tax benefit from stock-based awards . . . . . . . . . . . . . . . . . . .

Repurchases of common stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Payment of acquisition-related contingent consideration . . . . . . . . . . . . . . . .

Proceeds from issuance of long-term debt,  net

. . . . . . . . . . . . . . . . . . . . . .

Payments on debt

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Net cash used in financing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Increase (decrease) in cash and cash equivalents . . . . . . . . . . . . . . . . . . . . .

Cash and cash equivalents at beginning of period . . . . . . . . . . . . . . . . . . . .

3,129

2,497

(71,448)

(4,464)

81,238

(94,706)

(83,754)

(27,621)

141,706

13,320

632

(71,676)

—

—

(7,500)

(65,224)

45,906

95,800

Supplemental Disclosure of Cash Flow Information:

Interest paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

2,470

$

2,950

Income taxes paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

2,157

$ 11,587

Supplemental Disclosure of Non-Cash  Activity:

$

$

$

15,301

290

(26,022)

—

—

(13,434)

(23,865)

(9,626)

105,426

$

$

2,925

3,838

 
Silicon Laboratories Inc.
Notes to Consolidated Financial Statements
January 2, 2016

Silicon Laboratories Inc.

Notes to Consolidated Financial Statements

January 2, 2016

1. Description of Business

1. Description of Business

Silicon Laboratories Inc. (the ‘‘Company’’), a Delaware corporation, is a provider of silicon,
software and solutions for the Internet of Things (IoT), Internet infrastructure, industrial  control,
consumer and automotive markets. Within the semiconductor industry, the Company is known as a
‘‘fabless’’ company meaning that the  integrated  circuits (ICs) incorporated in  its products 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  2015  had 52 weeks and  ended on January 2, 2016. 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 had 52-weeks and ended on  December 28, 2013. 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.

Silicon Laboratories Inc. (the ‘‘Company’’), a Delaware  corporation, is a provider of silicon,

software and solutions for the Internet of Things (IoT), Internet  infrastructure, industrial  control,

consumer and automotive markets. Within the semiconductor industry, the Company is known as a

‘‘fabless’’ company meaning that the integrated circuits (ICs) incorporated in its products 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  2015 had 52 weeks and  ended on January 2, 2016. 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 had 52-weeks and ended on December 28, 2013. 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

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.

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

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

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.

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

F-8

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

year presentation.

Fair Value of Financial Instruments

Silicon Laboratories Inc.
Notes to Consolidated Financial Statements
January 2, 2016 (Continued)

Silicon Laboratories Inc.

Notes to Consolidated Financial Statements

January 2, 2016 (Continued)

2. Significant Accounting Policies (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.

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

Cash and cash equivalents consist of  cash deposits, money market  funds and  investments in debt

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.

securities with original maturities of ninety days  or less when purchased.

Investments

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.

In addition, the Company has made equity  investments in non-publicly traded companies that it

accounts for under the cost method. The Company periodically  reviews these investments for
other-than-temporary declines in fair  value based on  the specific identification  method and writes  down
investments to their fair values when  it determines that an other-than-temporary decline has  occurred.

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.

In addition, the Company has made equity investments in non-publicly traded companies that it

accounts for under the cost method. The Company periodically  reviews these investments for

other-than-temporary declines in fair value based on the specific identification method and writes down

investments to their fair values when it determines that an other-than-temporary decline has occurred.

Derivative Financial Instruments

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

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

F-9

F-9

 
Silicon Laboratories Inc.
Notes to Consolidated Financial Statements
January 2, 2016 (Continued)

Silicon Laboratories Inc.

Notes to Consolidated Financial Statements

January 2, 2016 (Continued)

2. Significant Accounting Policies (Continued)

2. Significant Accounting Policies (Continued)

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.

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.

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.

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

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

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

F-10

F-10

Silicon Laboratories Inc.
Notes to Consolidated Financial Statements
January 2, 2016 (Continued)

Silicon Laboratories Inc.

Notes to Consolidated Financial Statements

January 2, 2016 (Continued)

2. Significant Accounting Policies (Continued)

2. Significant Accounting Policies (Continued)

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.

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.

Long-Lived Assets

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 one 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

Revenue Recognition

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

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

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

F-11

F-11

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 one 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.

Revenues are generated predominately  by sales of the  Company’s products. The Company

recognizes revenue when all of the following criteria are met: 1) there is persuasive evidence that an

arrangement exists, 2) delivery of goods has occurred, 3) the  sales price is fixed or determinable, and

4) collectibility is reasonably assured. Generally, revenue from product sales to direct customers and

contract manufacturers is recognized  upon shipment.

A portion of the Company’s sales are made to distributors under agreements  allowing certain

rights of return and price protection related to the final selling price to the end customers. Accordingly,

the Company defers revenue and cost of revenue on such sales until the distributors sell the product to

the end customers. The net balance of deferred  revenue less deferred cost of revenue associated with

inventory shipped to a distributor but not yet  sold  to  an end customer is recorded in the deferred

income on shipments to distributors liability on  the Consolidated Balance Sheet. Such net deferred

income balance reflects the Company’s estimate of the impact of rights of  return and price protection.

A small portion of the Company’s revenues is derived from the sale of patents. The above revenue

recognition criteria for patent sales are generally met  upon the execution of the patent sale agreement.

 
Silicon Laboratories Inc.
Notes to Consolidated Financial Statements
January 2, 2016 (Continued)

Silicon Laboratories Inc.

Notes to Consolidated Financial Statements

January 2, 2016 (Continued)

2. Significant Accounting Policies (Continued)

Shipping and Handling

Shipping and handling costs are classified as a  component  of  cost of revenues in  the Consolidated

Shipping and handling costs are classified as a  component  of  cost of revenues in the Consolidated

Statements of Income.

Stock-Based Compensation

2. Significant Accounting Policies (Continued)

Shipping and Handling

Statements of Income.

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.

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

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

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 costs are expensed as incurred. Advertising expenses were $1.8 million, $1.7 million

Advertising costs are expensed as incurred. Advertising expenses were $1.8 million, $1.7 million

and $2.0 million in fiscal 2015, 2014 and  2013, respectively.

and $2.0 million in fiscal 2015, 2014 and  2013, 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 November 2015, the Financial Accounting  Standards Board (FASB) issued FASB Accounting

Standards Update (ASU) No. 2015-17, Income Taxes (Topic 740): Balance Sheet  Classification  of

In November 2015, the Financial Accounting Standards Board (FASB) issued FASB Accounting

Standards Update (ASU) No. 2015-17, Income Taxes (Topic 740): Balance  Sheet Classification of

F-12

F-12

Advertising

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

Silicon Laboratories Inc.
Notes to Consolidated Financial Statements
January 2, 2016 (Continued)

Silicon Laboratories Inc.

Notes to Consolidated Financial Statements

January 2, 2016 (Continued)

2. Significant Accounting Policies (Continued)

2. Significant Accounting Policies (Continued)

Deferred Taxes. The amendments in this  update require  that deferred tax liabilities and assets  be
classified as noncurrent in a classified  statement of financial  position. This ASU is  effective for
financial statements issued for annual  periods beginning after December  15, 2016, and interim periods
within those annual periods. Earlier application is permitted as  of  the beginning of an interim  or
annual reporting period. The Company  early adopted  this  ASU  on  a  prospective basis in the  fourth
quarter of fiscal 2015. Prior periods were not retrospectively adjusted.

In September 2015, the FASB issued FASB ASU  No.  2015-16, Business Combinations (Topic 805):
Simplifying the Accounting for Measurement-Period Adjustments. The amendments in this update require
that an acquirer recognize adjustments to provisional amounts that  are  identified during the
measurement period with a corresponding adjustment to goodwill in the  reporting period  in which the
adjustment amounts are determined.  The  effect on  earnings of changes in depreciation, amortization or
other income effects, if any, as a result of the  change to the provisional amounts  will  be  recorded in
the same period’s  financial statements,  calculated as if the accounting had  been completed at the
acquisition date. This ASU is effective  for fiscal years beginning after December 15, 2015, including
interim periods within those fiscal years. The amendments in this update should be applied
prospectively to adjustments to provisional amounts  that occur after the effective date of this update
with earlier application permitted for  financial statements that have not been issued. The Company
early adopted this ASU in the fourth  quarter of fiscal  2015. The adoption did  not  have a material
impact on its financial statements.

In July 2015, the FASB issued FASB ASU No. 2015-11, Inventory (Topic 330): Simplifying the

Measurement of Inventory. The amendments in this update  require  inventory to be measured at the
lower of cost and net realizable value. Net realizable  value is the estimated selling prices  in the
ordinary course of business, less reasonably  predictable costs  of  completion, disposal, and
transportation. This ASU is effective for fiscal years beginning after December 15,  2016, including
interim periods within those fiscal years. The amendments in this update should be applied
prospectively with earlier application permitted.  The Company  does not expect that the adoption of this
ASU will have a material impact on its  financial statements.

In April 2015, the FASB issued FASB ASU No.  2015-03, Interest—Imputation of Interest

(Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs. The amendments  in this update
require that debt issuance costs related  to a recognized debt liability be presented in the  balance  sheet
as a direct deduction from the carrying  amount  of that debt liability. ASU 2015-03 is  to  be  applied
retrospectively and represents a change  in  accounting principle. In  August 2015,  the FASB issued  FASB
ASU No. 2015-15,  Interest—Imputation  of Interest  (Subtopic 835-30): Presentation and Subsequent
Measurement of Debt Issuance Costs Associated with Line-of-Credit  Arrangements. ASU 2015-15 clarified
the presentation and subsequent measurement of debt issuance costs related to line-of-credit
arrangements. Such costs may be presented in the balance sheet as  an asset and subsequently
amortized ratably over the term of the  line-of-credit arrangement,  regardless of whether there are any
outstanding borrowings on the line-of-credit arrangement. ASU  2015-03 and ASU  2015-15 are effective
for fiscal years beginning after December 15, 2015, including interim periods  within those fiscal years.
Earlier adoption is permitted for financial  statements  that have not been  previously issued.  The
Company does not expect that the adoption of ASU 2015-03 and ASU 2015-15 will have  a material
impact on its financial statements.

Deferred Taxes. The amendments in this update require that deferred tax liabilities and assets be

classified as noncurrent in a classified statement of financial position. This ASU is  effective for

financial statements issued for annual  periods beginning after December 15, 2016, and interim periods

within those annual periods. Earlier application is permitted as of the beginning of an interim or

annual reporting period. The Company early adopted this  ASU on  a  prospective basis in the fourth

quarter of fiscal 2015. Prior periods were not retrospectively adjusted.

In September 2015, the FASB issued FASB ASU No. 2015-16, Business Combinations (Topic 805):

Simplifying the Accounting for Measurement-Period Adjustments. The amendments in this update require

that an acquirer recognize adjustments to provisional amounts that are identified during the

measurement period with a corresponding adjustment to goodwill in the reporting period in which the

adjustment amounts are determined.  The effect on earnings of changes in depreciation, amortization or

other income effects, if any, as a result of the  change to the provisional amounts will be recorded in

the same period’s financial statements, calculated as if the accounting had been completed at the

acquisition date. This ASU is effective for fiscal years beginning after December 15, 2015, including

interim periods within those fiscal years. The amendments in this update should be applied

prospectively to adjustments to provisional amounts  that occur after the effective date of this update

with earlier application permitted for  financial statements that have not been issued. The Company

early adopted this ASU in the fourth quarter of fiscal  2015. The adoption did not have a material

impact on its financial statements.

In July 2015, the FASB issued FASB ASU No. 2015-11, Inventory (Topic 330): Simplifying the

Measurement of Inventory. The amendments in this update  require  inventory to be measured at the

lower of cost and net realizable value. Net realizable  value is the estimated selling prices in the

ordinary course of business, less reasonably  predictable costs of completion, disposal, and

transportation. This ASU is effective for fiscal years beginning after December 15, 2016, including

interim periods within those fiscal years. The amendments in this update should be applied

prospectively with earlier application permitted.  The Company does not expect that the adoption of this

ASU will have a material impact on its financial statements.

In April 2015, the FASB issued FASB ASU No.  2015-03, Interest—Imputation of Interest

(Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs. The amendments in this update

require  that debt issuance costs related to a recognized debt liability be presented in the  balance sheet

as a direct deduction from the carrying amount  of that debt liability. ASU 2015-03 is to be applied

retrospectively and represents a change in accounting principle. In  August 2015,  the FASB issued FASB

ASU No. 2015-15, Interest—Imputation of Interest (Subtopic 835-30): Presentation and Subsequent

Measurement of Debt Issuance Costs Associated with Line-of-Credit  Arrangements. ASU 2015-15 clarified

the presentation and subsequent measurement of debt issuance costs related to line-of-credit

arrangements. Such costs may be presented in the balance sheet as  an asset and subsequently

amortized ratably over the term of the line-of-credit arrangement, regardless of whether there are any

outstanding borrowings on the line-of-credit arrangement. ASU 2015-03 and ASU 2015-15 are effective

for  fiscal years beginning after December 15, 2015, including interim periods within those fiscal years.

Earlier adoption is permitted for financial statements that have not been  previously issued. The

Company does not expect that the adoption of ASU 2015-03 and ASU 2015-15 will have a material

impact on its financial statements.

F-13

F-13

 
In May 2014, the FASB issued FASB ASU No.  2014-09, Revenue from Contracts with Customers

(Topic 606), which supersedes the revenue recognition  requirements in ASC 605, Revenue Recognition.

The core principle of ASU 2014-09 is that  an entity should recognize revenue  to  depict the transfer of

promised goods or services to customers  in an amount that reflects the consideration to which the

entity expects to be entitled in exchange for those goods or services. The  guidance provides a  five-step

process to achieve that core principle. ASU 2014-09 requires disclosures enabling users of financial

statements to understand the nature, amount, timing and uncertainty  of revenue  and cash flows arising

from contracts with customers. Additionally, qualitative and quantitative disclosures are required about

contracts with customers, significant  judgments  and changes in judgments, and assets recognized from

the costs to obtain or fulfill a contract. In  August 2015, the FASB issued FASB ASU No. 2015-14,

Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date, which deferred the

effective date of ASU 2014-09 by one year. ASU 2014-09 is now effective for annual reporting periods

beginning after December 15, 2017, including interim periods  within that reporting period, using one of

two retrospective application methods. Early application is permitted only as of annual reporting

periods beginning after December 15, 2016, including interim  reporting periods within that reporting

period. The Company is currently evaluating the effect that the adoption of  ASU 2014-09 and

ASU 2015-14 will have on its financial  statements.

3. Earnings Per Share

thousands, except per share data):

Silicon Laboratories Inc.
Notes to Consolidated Financial Statements
January 2, 2016 (Continued)

Silicon Laboratories Inc.

Notes to Consolidated Financial Statements

January 2, 2016 (Continued)

2. Significant Accounting Policies (Continued)

2. Significant Accounting Policies (Continued)

In May 2014, the FASB issued FASB ASU No. 2014-09, Revenue from Contracts with Customers

(Topic 606), which supersedes the revenue recognition  requirements  in ASC 605, Revenue Recognition.
The core principle of ASU 2014-09 is that  an entity should recognize revenue  to  depict the transfer of
promised goods or services to customers  in an amount that reflects the consideration to which the
entity expects to be entitled in exchange for those  goods or services.  The  guidance provides a  five-step
process to achieve that core principle. ASU 2014-09 requires disclosures enabling users  of financial
statements to understand the nature,  amount, timing and uncertainty  of revenue  and cash flows arising
from contracts with customers. Additionally, qualitative  and quantitative  disclosures are required about
contracts with customers, significant  judgments  and changes in judgments, and  assets recognized from
the costs to obtain or fulfill a contract.  In  August  2015, the FASB  issued FASB  ASU No. 2015-14,
Revenue from Contracts with Customers  (Topic 606): Deferral of the Effective Date, which deferred the
effective date of ASU 2014-09 by one year. ASU  2014-09 is now effective for annual reporting  periods
beginning after December 15, 2017, including interim periods  within that reporting  period, using one of
two retrospective application methods. Early application is permitted only  as of annual reporting
periods beginning after December 15,  2016, including interim  reporting periods within that reporting
period. The Company is currently evaluating  the effect that the adoption  of  ASU 2014-09 and
ASU 2015-14 will have on its financial  statements.

3. Earnings Per Share

The following table sets forth the computation of basic  and diluted  earnings  per  share (in

The following table sets forth the computation of basic  and diluted  earnings  per share (in

thousands, except per share data):

Year Ended

January 2,
2016

January 3,
2015

December 28,
2013

Year Ended

January  2,

January 3,

December  28,

2016

2015

2013

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

$29,586

$38,021

$49,819

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

$29,586

$38,021

$49,819

Shares used in computing basic earnings  per  share . . . . . . . . . . . . .

42,309

42,970

42,715

Shares used in computing basic earnings  per  share . . . . . . . . . . . . .

42,309

42,970

42,715

Effect of dilutive securities:

Stock options and other stock-based awards . . . . . . . . . . . . . . . .

636

823

822

Stock options and  other stock-based awards . . . . . . . . . . . . . . . .

636

823

822

Shares used in computing diluted earnings per share . . . . . . . . . . .

42,945

43,793

43,537

Shares used in computing diluted earnings per share . . . . . . . . . . .

42,945

43,793

43,537

Earnings per share:

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

$
$

0.70
0.69

$
$

0.88
0.87

$ 1.17
$ 1.14

Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$

$

0.70

0.69

$

$

0.88

0.87

$

$

1.17

1.14

For fiscal years ended January 2, 2016, January 3, 2015 and December 28, 2013,  approximately
0.1 million, 0.1 million and 0.4 million  shares,  respectively, were not included in the  diluted earnings
per  share calculation since the shares were anti-dilutive.

For fiscal years ended January 2, 2016, January 3, 2015 and December 28, 2013, approximately

0.1 million, 0.1 million and 0.4 million shares, respectively, were not included in the diluted earnings

per share calculation since the shares were anti-dilutive.

Effect of dilutive securities:

Earnings per share:

F-14

F-14

Silicon Laboratories Inc.
Notes to Consolidated Financial Statements
January 2, 2016 (Continued)

Silicon Laboratories Inc.

Notes to Consolidated Financial Statements

January 2, 2016 (Continued)

4. Cash, Cash Equivalents and Investments

4. Cash, Cash Equivalents and Investments

The Company’s cash equivalents and short-term investments as  of January  2, 2016 consisted of
municipal bonds, money market funds,  commercial paper, certificates of deposit,  variable-rate  demand
notes, U.S. government agency, international  government  bonds and corporate 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 2,
2016, the Company held $8.0 million par  value auction-rate  securities, all of which have experienced
failed auctions. The underlying assets of  the securities consisted  of  student loans and  municipal  bonds,
of which $6.0 million were guaranteed by  the U.S.  government  and  the  remaining  $2.0 million were
privately insured. As of January 2, 2016, $6.0 million  of the auction-rate securities had credit  ratings of
AA and $2.0 million had a credit rating  of A. These securities  have contractual maturity dates ranging
from 2033 to 2046 at January 2, 2016.  The  Company is  receiving  the underlying  cash flows on all of its
auction-rate securities. The principal amounts  associated with  failed  auctions are not expected  to  be
accessible until a successful auction occurs, the issuer redeems the securities,  a buyer  is found outside
of the auction process or the underlying  securities mature. The Company  is unable  to  predict if  these
funds  will become  available before their  maturity dates.

The Company does not expect to need  access to the  capital  represented by any  of its  auction-rate

securities prior to their maturities. The  Company does not intend to sell,  and believes it  is not more
likely than not that it will be required  to  sell, its auction-rate securities  before  their  anticipated
recovery in market value or final settlement at  the underlying par value. The Company believes that
the credit ratings and credit support of  the security  issuers indicate that they have the  ability  to  settle
the securities at par value. As such, the Company has  determined that no other-than-temporary
impairment losses existed as of January  2, 2016.

The Company’s cash equivalents and short-term investments as  of January 2, 2016 consisted of

municipal bonds, money market funds, commercial paper, certificates of deposit,  variable-rate demand

notes, U.S. government agency, international  government  bonds and corporate 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 2,

2016, the Company held $8.0 million par  value auction-rate securities, all of which have experienced

failed auctions. The underlying assets of the securities consisted  of  student loans and municipal bonds,

of which $6.0 million were guaranteed by the U.S.  government  and the remaining $2.0 million were

privately insured. As of January 2, 2016, $6.0 million of the auction-rate securities had credit ratings of

AA and $2.0 million had a credit rating of A. These securities have contractual maturity dates ranging

from 2033 to 2046 at January 2, 2016.  The Company is  receiving  the underlying cash flows on all of its

auction-rate securities. The principal amounts  associated with failed auctions are not expected to be

accessible until a successful auction occurs, the issuer redeems the securities, a buyer is found outside

of the auction process or the underlying securities mature. The Company  is unable to predict if these

funds will become available before their maturity dates.

The Company does not expect to need  access to the  capital  represented by any of its auction-rate

securities prior to their maturities. The Company does not intend to sell, and believes it is not more

likely than not that it will be required  to  sell, its auction-rate securities before  their anticipated

recovery in market value or final settlement at the underlying par value. The Company believes that

the credit ratings and credit support of the security issuers indicate that they have the ability to settle

the securities at par value. As such, the Company has  determined that no other-than-temporary

impairment losses existed as of January 2, 2016.

F-15

F-15

 
Silicon Laboratories Inc.
Notes to Consolidated Financial Statements
January 2, 2016 (Continued)

Silicon Laboratories Inc.

Notes to Consolidated Financial Statements

January 2, 2016 (Continued)

4. Cash, Cash Equivalents and Investments (Continued)

4. Cash, Cash Equivalents and Investments (Continued)

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

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

January 2, 2016

Gross
Unrealized
Losses

Gross
Unrealized
Gains

Cost

Cash and Cash Equivalents:

Cash on hand . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Available-for-sale securities:

Money market funds . . . . . . . . . . . . . . . . . . . . . . . .
Commercial Paper . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . .
Certificates of deposit
U.S. government agency . . . . . . . . . . . . . . . . . . . . . .
Municipal bond . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Total available-for-sale securities . . . . . . . . . . . . . . . . .

$ 59,071

$ —

37,721
11,272
2,845
1,599
1,576

55,013

—
—
—
—
—

—

Total cash and cash equivalents . . . . . . . . . . . . . . . . . . . .

$114,084

$ —

Short-term Investments:

Available-for-sale securities:

Municipal bonds . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial Paper . . . . . . . . . . . . . . . . . . . . . . . . . .
Variable-rate demand notes . . . . . . . . . . . . . . . . . . .
Certificates of deposit
. . . . . . . . . . . . . . . . . . . . . . .
U.S. government agency . . . . . . . . . . . . . . . . . . . . . .
International government bonds . . . . . . . . . . . . . . . .
Corporate bonds . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 93,506
11,176
8,995
8,000
3,997
2,227
999

Total short-term investments . . . . . . . . . . . . . . . . . . . . . .

$128,900

$ (32)
—
—
—
—
(7)
(3)

$ (42)

Long-term Investments:

Available-for-sale securities:

Auction rate securities . . . . . . . . . . . . . . . . . . . . . . .

Total long-term investments . . . . . . . . . . . . . . . . . . . . . . .

$

$

8,000

8,000

$(874)

$(874)

$—
—
—
—
—
—
1

1

$ 1

$42
—
—
—
1
—
—

$43

$—

$—

Fair Value

$ 59,071

37,721
11,272
2,845
1,599
1,577

55,014

$114,085

$ 93,516
11,176
8,995
8,000
3,998
2,220
996

$128,901

$

$

7,126

7,126

January  2, 2016

Unrealized

Unrealized

Gross

Losses

Gross

Gains

Cost

Fair Value

Cash and Cash Equivalents:

Available-for-sale securities:

Cash on hand . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 59,071

$ —

$—

$ 59,071

Money market funds . . . . . . . . . . . . . . . . . . . . . . . .

Commercial Paper . . . . . . . . . . . . . . . . . . . . . . . . . .

Certificates of deposit

. . . . . . . . . . . . . . . . . . . . . . .

U.S. government agency . . . . . . . . . . . . . . . . . . . . . .

Municipal bond . . . . . . . . . . . . . . . . . . . . . . . . . . . .

37,721

11,272

2,845

1,599

1,576

Total available-for-sale securities . . . . . . . . . . . . . . . . .

55,013

Total cash and cash equivalents . . . . . . . . . . . . . . . . . . . .

$114,084

$ —

$ 1

$114,085

Short-term Investments:

Available-for-sale securities:

Municipal bonds . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 93,506

$ (32)

$42

—

—

—

—

—

—

—

—

—

—

(7)

(3)

—

—

—

—

—

1

1

—

—

—

1

—

—

37,721

11,272

2,845

1,599

1,577

55,014

$ 93,516

11,176

8,995

8,000

3,998

2,220

996

Commercial Paper . . . . . . . . . . . . . . . . . . . . . . . . . .

11,176

Variable-rate demand notes . . . . . . . . . . . . . . . . . . .

Certificates of deposit

. . . . . . . . . . . . . . . . . . . . . . .

U.S. government agency . . . . . . . . . . . . . . . . . . . . . .

International government bonds . . . . . . . . . . . . . . . .

Corporate bonds . . . . . . . . . . . . . . . . . . . . . . . . . . .

8,995

8,000

3,997

2,227

999

Total short-term investments . . . . . . . . . . . . . . . . . . . . . .

$128,900

$ (42)

$43

$128,901

Long-term Investments:

Available-for-sale securities:

Auction rate securities . . . . . . . . . . . . . . . . . . . . . . .

Total long-term investments . . . . . . . . . . . . . . . . . . . . . . .

$

$

8,000

8,000

$(874)

$(874)

$—

$—

$

$

7,126

7,126

F-16

F-16

Silicon Laboratories Inc.
Notes to Consolidated Financial Statements
January 2, 2016 (Continued)

Silicon Laboratories Inc.

Notes to Consolidated Financial Statements

January 2, 2016 (Continued)

4. Cash, Cash Equivalents and Investments (Continued)

4. Cash, Cash Equivalents and Investments (Continued)

January 3, 2015

Gross
Unrealized
Losses

Gross
Unrealized
Gains

Cost

Fair Value

January  3, 2015

Unrealized

Unrealized

Gross

Losses

Gross

Gains

Cost

Fair Value

$ 52,144

$ —

$ —

$ 52,144

Cash on hand . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 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
—
—
—

1

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

Cash and Cash Equivalents:

Available-for-sale securities:

Money market funds . . . . . . . . . . . . . . . . . . . . . . . .

71,415

Certificates of deposit

. . . . . . . . . . . . . . . . . . . . . . .

Commercial paper . . . . . . . . . . . . . . . . . . . . . . . . . .

Municipal bonds . . . . . . . . . . . . . . . . . . . . . . . . . . .

U.S. government agency . . . . . . . . . . . . . . . . . . . . . .

Corporate bonds . . . . . . . . . . . . . . . . . . . . . . . . . . .

U.S. government bonds . . . . . . . . . . . . . . . . . . . . . .

7,739

5,348

1,756

1,202

1,101

1,000

Total available-for-sale securities . . . . . . . . . . . . . . . . .

89,561

—

—

—

—

—

—

—

—

Total cash and cash equivalents . . . . . . . . . . . . . . . . . . . .

$141,705

$ —

$

$141,706

Short-term Investments:

Available-for-sale securities:

Municipal bonds . . . . . . . . . . . . . . . . . . . . . . . . . . .

$129,005

$172

$129,152

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

. . . . . . . . . . . . . . . . . . . . . . .

33,043

12,915

8,995

5,380

2,526

650

601

250

$ (25)

(35)

—

—

(3)

(10)

—

—

—

Total short-term investments . . . . . . . . . . . . . . . . . . . . . .

$193,365

$ (73)

$197

$193,489

—

—

—

1

—

—

—

1

1

25

—

—

—

—

—

—

—

71,415

7,739

5,348

1,757

1,202

1,101

1,000

89,562

33,033

12,915

8,995

5,377

2,516

650

601

250

Long-term Investments:

Available-for-sale securities:

Long-term Investments:

Available-for-sale securities:

Auction rate securities . . . . . . . . . . . . . . . . . . . . . . .

Total long-term investments . . . . . . . . . . . . . . . . . . . . . . .

$

$

8,000

8,000

$(581)

$(581)

$ —

$ —

$

$

7,419

7,419

Auction rate securities . . . . . . . . . . . . . . . . . . . . . . .

Total long-term investments . . . . . . . . . . . . . . . . . . . . . . .

$

$

8,000

8,000

$(581)

$(581)

$ —

$ —

$

$

7,419

7,419

F-17

F-17

 
Silicon Laboratories Inc.
Notes to Consolidated Financial Statements
January 2, 2016 (Continued)

Silicon Laboratories Inc.

Notes to Consolidated Financial Statements

January 2, 2016 (Continued)

4. Cash, Cash Equivalents and Investments (Continued)

4. Cash, Cash Equivalents and Investments (Continued)

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 2, 2016

Municipal bonds . . . . . . . . . . . . . . . . .
Auction rate securities . . . . . . . . . . . . .
International government bonds . . . . . .
Corporate bonds . . . . . . . . . . . . . . . . .

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

$29,271
—
2,220
996

$32,487

Gross
Unrealized
Losses

$(30)
—
(7)
(3)

$(40)

Fair
Value

$1,198
7,126
—
—

$8,324

Gross
Unrealized
Losses

$

(2)
(874)
—
—

Fair
Value

$30,469
7,126
2,220
996

$(876)

$40,811

Gross
Unrealized
Losses

$ (32)
(874)
(7)
(3)

$(916)

Less Than 12 Months

12 Months or Greater

Total

Fair
Value

$23,735
20,327
—
5,080
2,516

$51,658

Gross
Unrealized
Losses

Fair
Value

Gross
Unrealized
Losses

Fair
Value

Gross
Unrealized
Losses

$(25)
(35)
—
(3)
(10)

$(73)

$ — $ — $23,735
20,327
—
7,419
(581)
5,080
—
2,516
—

—
7,419
—
—

$7,419

$(581)

$59,077

$ (25)
(35)
(581)
(3)
(10)

$(654)

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 2, 2016

Municipal bonds . . . . . . . . . . . . . . . . .

$29,271

$(30)

Auction rate securities . . . . . . . . . . . . .

International government bonds . . . . . .

Corporate bonds . . . . . . . . . . . . . . . . .

—

2,220

996

—

(7)

(3)

Less Than 12 Months

12 Months or Greater

Total

Fair

Value

Gross

Unrealized

Losses

Fair

Value

$1,198

7,126

—

—

Gross

Unrealized

Losses

$

(2)

(874)

—

—

Fair

Value

$30,469

7,126

2,220

996

Gross

Unrealized

Losses

$ (32)

(874)

(7)

(3)

$32,487

$(40)

$8,324

$(876)

$40,811

$(916)

Less Than 12 Months

12 Months or Greater

Total

Fair

Value

$23,735

20,327

—

5,080

2,516

Gross

Unrealized

Losses

Fair

Value

Gross

Unrealized

Losses

Fair

Value

Gross

Unrealized

Losses

$(25)

(35)

—

(3)

(10)

$ — $ — $23,735

$ (25)

7,419

(581)

—

—

—

—

—

—

20,327

7,419

5,080

2,516

(35)

(581)

(3)

(10)

$51,658

$(73)

$7,419

$(581)

$59,077

$(654)

As  of January 3, 2015

Municipal bonds . . . . . . . . . . . . . . . . .

Corporate bonds . . . . . . . . . . . . . . . . .

Auction rate securities . . . . . . . . . . . . .

Asset-backed securities . . . . . . . . . . . . .

International government bond . . . . . . .

The gross unrealized losses as of January 2, 2016 and January 3,  2015 were  due  primarily to the
illiquidity of the Company’s auction-rate securities and, to a lesser extent, to changes in market interest
rates.

The gross unrealized losses as of January 2, 2016 and January 3,  2015 were due primarily to the

illiquidity of the Company’s auction-rate securities and, to a lesser extent, to changes in market interest

rates.

The following summarizes the contractual underlying maturities of the Company’s available-for-sale

The following summarizes the contractual underlying maturities of the Company’s available-for-sale

investments at January 2, 2016 (in thousands):

investments at January 2, 2016 (in thousands):

Due in one year or less . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Due after one year through ten years . . . . . . . . . . . . . . . . . . .
Due after ten years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$150,455
26,113
15,345

$150,477
26,093
14,471

$191,913

$191,041

Cost

Fair
Value

Due in one year or less . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$150,455

$150,477

Due after one year through ten years . . . . . . . . . . . . . . . . . . .

Due after ten years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

26,113

15,345

26,093

14,471

Cost

Fair

Value

$191,913

$191,041

F-18

F-18

Silicon Laboratories Inc.
Notes to Consolidated Financial Statements
January 2, 2016 (Continued)

Silicon Laboratories Inc.

Notes to Consolidated Financial Statements

January 2, 2016 (Continued)

5. Derivative Financial Instruments

5. 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 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.

Interest Rate Swaps

Interest Rate Swaps

The Company is exposed to interest rate fluctuations  in the normal course of its business,
including through its Credit Facilities. The interest payments on the facility are calculated using  a
variable-rate of interest. The Company has entered into an  interest rate swap agreement with  an
original notional value of $100 million  (equal to the full amount  borrowed under the  Credit  Facilities)
and, effectively, converted the Eurodollar portion of the variable-rate  interest payments to fixed-rate
interest payments through July 2017.

The Company estimates the fair values of interest  rate  swaps based  on quoted prices and market

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

The Company measures the effectiveness  of its  cash flow hedge by comparing the  change in fair
value of the hedged variable interest payments  with the change  in fair value of the  interest  rate swap.
The Company recognizes ineffective  portions  of  the hedge, as well  as amounts not included in the
assessment of effectiveness, in the Consolidated Statement of Income. As  of January 2, 2016, no
portion of the gains or losses from the  Company’s hedging instrument was excluded from the
assessment of effectiveness. Hedge ineffectiveness was not  material for  any  of  the periods presented.

The Company’s derivative financial instrument in cash flow hedging relationships consisted  of  the

The Company’s derivative financial instrument in cash flow hedging relationships consisted of  the

following (in thousands):

following (in thousands):

Balance Sheet Location

Fair Value

January 2,
2016

January 3,
2015

Interest rate swap . . . . . . . . . . . . . . Other assets, net

$92

$331

Interest rate swap . . . . . . . . . . . . . . Other assets, net

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

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

thousands):

thousands):

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 2, January 3, December 28,

January 2, January 3, December 28,

Interest rate  swaps . . . . . . . .

$(728)

$(799)

2016

2015

2016

2015

Interest expense

$(489)

$(618)

2013

$(560)

2013

$611

F-19

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 2, January 3, December 28,

January  2, January 3, December 28,

2016

2015

2016

2015

2013

$(560)

Interest rate swaps . . . . . . . .

$(728)

$(799)

Interest expense

$(489)

$(618)

2013

$611

F-19

The Company is exposed to interest rate fluctuations  in the normal course of its business,

including through its Credit Facilities. The interest payments on the facility are calculated using a

variable-rate of interest. The Company has entered into an interest rate swap agreement with an

original notional value of $100 million (equal to the full amount borrowed under the Credit Facilities)

and, effectively, converted the Eurodollar portion of the variable-rate  interest payments to fixed-rate

interest payments through July 2017.

The Company estimates the fair values of interest rate  swaps based on quoted prices and market

observable data of similar instruments. If the  Credit Facilities or the interest rate swap agreement is

terminated prior to maturity, the fair value of the interest rate swap recorded in accumulated other

comprehensive loss may be recognized in the  Consolidated Statement of Income based on an

assessment of the agreements at the time of termination. The Company did not discontinue any  cash

flow hedges in any of the periods presented.

The Company measures the effectiveness  of its cash flow hedge by comparing the change in fair

value of the hedged variable interest payments  with the change  in fair value of the  interest rate swap.

The Company recognizes ineffective portions of the hedge, as well as amounts not included in the

assessment of effectiveness, in the Consolidated Statement of Income. As of January 2, 2016, no

portion of the gains or losses from the Company’s hedging instrument was excluded from the

assessment of effectiveness. Hedge ineffectiveness was not  material for any of the periods presented.

Balance Sheet  Location

Fair  Value

January  2,

January 3,

2016

$92

2015

$331

 
Silicon Laboratories Inc.
Notes to Consolidated Financial Statements
January 2, 2016 (Continued)

Silicon Laboratories Inc.

Notes to Consolidated Financial Statements

January 2, 2016 (Continued)

5. Derivative Financial Instruments (Continued)

5. Derivative Financial Instruments (Continued)

The Company expects to reclassify $0.1 million of its interest rate swap  losses included  in

accumulated other comprehensive loss  as of January 2, 2016 into earnings in the next 12 months, which
would be offset by lower interest payments.

Foreign Currency Forward Contracts

The Company uses foreign currency forward contracts to manage exposure to foreign exchange

risk. As of January 2, 2016 and January 3, 2015, the Company  held one foreign  currency  forward
contract denominated in Norwegian Krone with a  notional  value of $5.1 million and $7.7 million,
respectively. The fair value of the contracts was not material  as of January  2, 2016 or  January 3, 2015.
The contract held as of January 2, 2016  has a maturity  date of March 30, 2016  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

The before-tax effect of derivative instruments not designated  as hedging instruments was as

follows (in thousands):

Gain  Recognized in Income

Year Ended

January 2,
2016

January 3,
2015

Location

Gain  Recognized in Income

Location

Foreign currency forward contracts . . . . . . . . . . .

$935

$1,075

Other income (expense),  net

Foreign currency forward contracts . . . . . . . . . . .

$1,075

Other income (expense), net

The Company expects to reclassify $0.1 million of its interest rate swap  losses included in

accumulated other comprehensive loss as of January 2, 2016 into earnings in the next 12 months, which

would be offset by lower interest payments.

Foreign Currency Forward Contracts

The Company uses foreign currency forward contracts to manage exposure to foreign exchange

risk. As of January 2, 2016 and January 3, 2015, the Company  held one foreign currency forward

contract denominated in Norwegian Krone with a notional  value of $5.1 million and $7.7 million,

respectively. The fair value of the contracts was not material  as of January  2, 2016 or January 3, 2015.

The contract held as of January 2, 2016 has a maturity date of March 30, 2016  and it was not

designated as a hedging instrument. The Company  held  no foreign currency forward contracts prior to

fiscal 2014.

follows (in thousands):

Year  Ended

January 2,

January 3,

2015

2016

$935

F-20

F-20

Silicon Laboratories Inc.
Notes to Consolidated Financial Statements
January 2, 2016 (Continued)

Silicon Laboratories Inc.

Notes to Consolidated Financial Statements

January 2, 2016 (Continued)

6. Fair Value of Financial Instruments

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.

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.

Description

Assets:
Cash Equivalents:

Money market funds . . . . . . . . . . . . . . . .
Commercial paper
. . . . . . . . . . . . . . . . .
Certificates of deposit . . . . . . . . . . . . . . .
U.S. government agency . . . . . . . . . . . . .
Municipal bonds . . . . . . . . . . . . . . . . . . .

Total cash equivalents . . . . . . . . . . . . . . . . .

Short-term Investments:

Municipal bonds . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . .
Commercial paper
Variable-rate demand notes . . . . . . . . . . .
Certificates of deposit . . . . . . . . . . . . . . .
U.S. government agency . . . . . . . . . . . . .
International government bonds . . . . . . . .
Corporate bonds . . . . . . . . . . . . . . . . . . .

Total short-term investments . . . . . . . . . . . .

Long-term Investments:

Auction rate securities . . . . . . . . . . . . . . .

Total long-term investments . . . . . . . . . . . .

Other assets, net:

Derivative instruments . . . . . . . . . . . . . . .

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

Fair Value Measurements
at January 2, 2016 Using

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

Significant Other
Observable
Inputs
(Level 2)

Significant
Unobservable
Inputs
(Level 3)

Total

$37,721
—
—
—
—

$37,721

$ —
—
—
—
—
—
—

$ —

$ —

$ —

$ —

$ —

$

—
11,272
2,845
1,599
1,577

$ — $ 37,721
11,272
2,845
1,599
1,577

—
—
—
—

$ 17,293

$ — $ 55,014

Total cash equivalents . . . . . . . . . . . . . . . . .

$37,721

$ 17,293

$ — $ 55,014

$ 93,516
11,176
8,995
8,000
3,998
2,220
996

$128,901

$

$

$

$

—

—

92

92

$ — $ 93,516
11,176
8,995
8,000
3,998
2,220
996

—
—
—
—
—
—

$ — $128,901

$ 7,126

$ 7,126

$

$

7,126

7,126

$ — $

$ — $

92

92

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

$37,721

$146,286

$ 7,126

$191,133

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

$37,721

$146,286

$ 7,126

$191,133

Liabilities:
Accrued expenses:

Contingent consideration . . . . . . . . . . . . .

$ —

Other non-current liabilities:

Contingent consideration . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ —

$ —

$

$

$

—

—

—

$ 4,749

$ 9,324

$14,073

$

$

4,749

9,324

$ 14,073

F-21

F-21

Description

Assets:

Cash Equivalents:

Money market funds . . . . . . . . . . . . . . . .

Commercial paper

. . . . . . . . . . . . . . . . .

Certificates of deposit . . . . . . . . . . . . . . .

U.S. government agency . . . . . . . . . . . . .

Municipal bonds . . . . . . . . . . . . . . . . . . .

Short-term Investments:

Municipal bonds . . . . . . . . . . . . . . . . . . .

Commercial paper

. . . . . . . . . . . . . . . . .

Variable-rate demand notes . . . . . . . . . . .

Certificates of deposit . . . . . . . . . . . . . . .

U.S. government agency . . . . . . . . . . . . .

International government bonds . . . . . . . .

Corporate bonds . . . . . . . . . . . . . . . . . . .

—

—

—

—

—

—

—

—

—

—

Long-term Investments:

Auction rate securities . . . . . . . . . . . . . . .

Total long-term investments . . . . . . . . . . . .

Other assets, net:

Derivative instruments . . . . . . . . . . . . . . .

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

$ —

$ —

$ —

$ —

Liabilities:

Accrued expenses:

Other non-current liabilities:

Contingent consideration . . . . . . . . . . . . .

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

$ —

$ —

Fair Value Measurements

at January 2,  2016 Using

Quoted Prices in

Active Markets for

Identical  Assets

(Level 1)

Significant  Other

Observable

Inputs

(Level 2)

Significant

Unobservable

Inputs

(Level 3)

Total

$37,721

$

$ — $ 37,721

$ —

$ — $ 93,516

—

11,272

2,845

1,599

1,577

$ 93,516

11,176

8,995

8,000

3,998

2,220

996

$

$

$

$

$

$

$

—

—

92

92

—

—

—

—

—

—

—

—

—

—

—

—

—

11,272

2,845

1,599

1,577

11,176

8,995

8,000

3,998

2,220

996

$ 7,126

$ 7,126

$

$

7,126

7,126

$ — $

$ — $

92

92

$

$

$ 9,324

$14,073

9,324

$ 14,073

Total short-term investments . . . . . . . . . . . .

$ —

$128,901

$ — $128,901

Contingent consideration . . . . . . . . . . . . .

$ —

$ 4,749

4,749

 
Silicon Laboratories Inc.
Notes to Consolidated Financial Statements
January 2, 2016 (Continued)

Silicon Laboratories Inc.

Notes to Consolidated Financial Statements

January 2, 2016 (Continued)

6. Fair Value of Financial Instruments  (Continued)

6. Fair Value of Financial Instruments (Continued)

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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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)

Total

$71,415
—
—
—
—
—
1,000

$72,415

$ —
—
—
—
—
—
650
—
—

$

650

$ —

$ —

$ —

$ —

$

—
7,739
5,348
1,757
1,202
1,101
—

$ — $ 71,415
7,739
5,348
1,757
1,202
1,101
1,000

—
—
—
—
—
—

$ 17,147

$ — $ 89,562

Total cash equivalents . . . . . . . . . . . . . . . . .

$ 17,147

$ — $ 89,562

$129,152
33,033
12,915
8,995
5,377
2,516
—
601
250

$192,839

$

$

$

$

—

—

331

331

$ — $129,152
33,033
12,915
8,995
5,377
2,516
650
601
250

—
—
—
—
—
—
—
—

$ — $193,489

$ 7,419

$ 7,419

$

$

7,419

7,419

$ — $

$ — $

331

331

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

$73,065

$210,317

$ 7,419

$290,801

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

$73,065

$210,317

$ 7,419

$290,801

Liabilities:
Accrued expenses:

Contingent consideration . . . . . . . . . . . . .

$ —

Other non-current liabilities:

Contingent consideration . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ —

$ —

$

$

$

—

—

—

$ 4,288

$

4,288

$14,150

$18,438

$ 14,150

$ 18,438

Contingent consideration . . . . . . . . . . . . .

$ —

$ 4,288

$

4,288

Other non-current liabilities:

Contingent consideration . . . . . . . . . . . . .

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

$ —

$ —

$14,150

$18,438

$ 14,150

$ 18,438

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

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

F-22

F-22

Description

Assets:

Cash Equivalents:

Money market funds . . . . . . . . . . . . . . . .

Certificates of deposit . . . . . . . . . . . . . . .

Commercial paper

. . . . . . . . . . . . . . . . .

Municipal bonds . . . . . . . . . . . . . . . . . . .

U.S. government agency . . . . . . . . . . . . .

Corporate bonds . . . . . . . . . . . . . . . . . . .

U.S. government bonds . . . . . . . . . . . . . .

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 . . . . . . . . . . . . . . .

Long-term Investments:

Auction rate securities . . . . . . . . . . . . . . .

Total long-term investments . . . . . . . . . . . .

Other assets, net:

Derivative instruments . . . . . . . . . . . . . . .

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

Liabilities:

Accrued expenses:

1,000

$72,415

—

—

—

—

—

—

—

—

—

—

—

—

650

$ —

$ —

$ —

$ —

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)

Total

$71,415

$

$ — $ 71,415

$ —

$129,152

$ — $129,152

—

—

—

—

—

—

—

—

—

—

—

—

—

—

7,739

5,348

1,757

1,202

1,101

1,000

33,033

12,915

8,995

5,377

2,516

650

601

250

$ 7,419

$ 7,419

$

$

7,419

7,419

$ — $

$ — $

331

331

—

7,739

5,348

1,757

1,202

1,101

—

33,033

12,915

8,995

5,377

2,516

—

601

250

$

$

$

$

$

$

$

—

—

331

331

—

—

—

Total short-term investments . . . . . . . . . . . .

$

650

$192,839

$ — $193,489

Silicon Laboratories Inc.
Notes to Consolidated Financial Statements
January 2, 2016 (Continued)

Silicon Laboratories Inc.

Notes to Consolidated Financial Statements

January 2, 2016 (Continued)

6. Fair Value of Financial Instruments  (Continued)

6. Fair Value of Financial Instruments (Continued)

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
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.

The following summarizes quantitative information about Level  3 fair value measurements.

Auction rate securities

Fair Value at
January 2, 2016
(000s)

Valuation Technique

Unobservable Input

$7,126

Discounted cash flow Estimated  yield

Weighted
Average

1.06%

Expected holding period

10 years

Estimated discount rate

3.69%

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.

F-23

F-23

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

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.

Auction rate securities

Fair Value at

January 2, 2016

(000s)

$7,126

Valuation Technique

Unobservable Input

Discounted cash flow Estimated yield

Weighted

Average

1.06%

Expected holding period

10 years

Estimated discount rate

3.69%

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.

 
Silicon Laboratories Inc.
Notes to Consolidated Financial Statements
January 2, 2016 (Continued)

Silicon Laboratories Inc.

Notes to Consolidated Financial Statements

January 2, 2016 (Continued)

6. Fair Value of Financial Instruments  (Continued)

6. Fair Value of Financial Instruments (Continued)

Contingent consideration

Fair Value at
January 2, 2016
(000s)

Valuation Technique

Unobservable Input

Range

Valuation Technique

Unobservable Input

Range

Contingent consideration

Fair Value at

January 2, 2016

(000s)

$14,073

Monte Carlo simulation Expected  revenue  growth  rate

29.8%  - 55.8%

$14,073

Monte Carlo simulation Expected revenue growth rate

29.8% - 55.8%

Expected revenue volatility

20.0%

Expected term

0.0 years - 3.0 years

Estimated discount rate

0.34% -  0.98%

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  2015 and a Monte Carlo simulation model for  fiscal 2016 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.

Expected revenue volatility

20.0%

Expected term

0.0 years - 3.0 years

Estimated discount rate

0.34% - 0.98%

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 2015 and a  Monte Carlo simulation model for fiscal 2016 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

The following summarizes the activity in  Level  3 financial instruments for the years ended

January 2, 2016 and January 3, 2015  (in thousands):

January 2, 2016 and January 3, 2015  (in thousands):

Assets

Auction  Rate Securities

Year Ended

January 2,
2016

January  3,
2015

Assets

Auction Rate Securities

Year Ended

January  2,

January 3,

2016

2015

Beginning balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Settlements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gain (loss) included in other comprehensive  income  (loss) . . . . . . . . . . . . . . . . .

$7,419
—
(293)

$10,632
(4,425)
1,212

Beginning balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$7,419

$10,632

Settlements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Gain (loss) included in other comprehensive income (loss) . . . . . . . . . . . . . . . . .

—

(293)

(4,425)

1,212

Ending balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$7,126

$ 7,419

Ending balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$7,126

$ 7,419

F-24

F-24

Silicon Laboratories Inc.
Notes to Consolidated Financial Statements
January 2, 2016 (Continued)

Silicon Laboratories Inc.

Notes to Consolidated Financial Statements

January 2, 2016 (Continued)

6. Fair Value of Financial Instruments  (Continued)

Liabilities

Contingent Consideration (1)

Year Ended

January 2,
2016

January  3,
2015

Contingent  Consideration (1)

Year Ended

January  2,

January 3,

2016

2015

6. Fair Value of Financial Instruments (Continued)

Liabilities

Beginning balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Settlements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loss recognized in earnings (2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$18,438
(4,464)
99

$12,919
—
5,519

Beginning balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$18,438

$12,919

Settlements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(4,464)

Loss recognized in earnings (2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

99

—

5,519

Ending balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$14,073

$18,438

Ending balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$14,073

$18,438

Net loss for the period included in earnings attributable  to  contingent

Net loss for the period included in earnings attributable  to  contingent

consideration held at the end of the  period: . . . . . . . . . . . . . . . . . . . . . . . . . .

$

(99)

$ (5,519)

consideration held at the end of the period: . . . . . . . . . . . . . . . . . . . . . . . . . .

$

(99)

$ (5,519)

(1) In  connection with the acquisition  of  Energy Micro,  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.

(1) In connection with the acquisition of Energy Micro, 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

(2) Changes to the estimated fair value of contingent consideration were primarily due to revisions to

the Company’s expectations of earn-out achievement.

the Company’s expectations of earn-out achievement.

Fair values of other financial instruments

Fair values of other financial instruments

The Company’s debt under the Credit Facilities  bears  interest at  the Eurodollar rate plus an

applicable margin. The Credit Facilities are recorded at cost, but are 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 2, 2016 and January 3, 2015,  the fair value  of the Company’s debt under the Credit Facilities
was approximately $77.5 million and $87.4 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):

The following tables show the details of selected Consolidated  Balance Sheet items  (in thousands):

Inventories

Work in progress . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Finished goods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$36,774
17,121

$40,640
11,991

$53,895

$52,631

January 2,
2016

January 3,
2015

F-25

F-25

The Company’s debt under the Credit Facilities  bears interest at the Eurodollar rate plus an

applicable margin. The Credit Facilities are recorded at cost, but are 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 2, 2016 and January 3, 2015,  the fair value of the Company’s debt under the Credit Facilities

was approximately $77.5 million and $87.4 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

Inventories

Work in progress . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Finished goods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

January  2,

January 3,

2016

2015

$36,774

17,121

$40,640

11,991

$53,895

$52,631

 
Silicon Laboratories Inc.
Notes to Consolidated Financial Statements
January 2, 2016 (Continued)

Silicon Laboratories Inc.

Notes to Consolidated Financial Statements

January 2, 2016 (Continued)

7. Balance Sheet Details (Continued)

Prepaid Expenses and Other Current Assets

7. Balance Sheet Details (Continued)

Prepaid Expenses and Other Current Assets

Distributor advances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$36,743
15,915

$32,932
16,239

Distributor advances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

January 2,
2016

January 3,
2015

Property and Equipment

$52,658

$49,171

January 2,
2016

January 3,
2015

Property and Equipment

Buildings and improvements . . . . . . . . . . . . . . . . . . . . . . . . .
Equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Computers and purchased software . . . . . . . . . . . . . . . . . . . .
Leasehold interest in ground leases . . . . . . . . . . . . . . . . . . . .
Furniture and fixtures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Leasehold improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 94,607
55,072
29,663
23,840
4,777
9,204

$ 94,453
51,654
27,282
23,840
4,008
8,901

Accumulated depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . .

Accrued Expenses

217,163
(86,031)

210,138
(77,318)

$131,132

$132,820

January 2,
2016

January 3,
2015

Accrued compensation and benefits . . . . . . . . . . . . . . . . . . . .
Acquisition-related holdback . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$27,304
—
24,827

$28,443
20,010
25,193

Accrued compensation and benefits . . . . . . . . . . . . . . . . . . . .

$27,304

$28,443

Acquisition-related holdback . . . . . . . . . . . . . . . . . . . . . . . . .

—

Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

24,827

20,010

25,193

Other Non-current Liabilities

$52,131

$73,646

January 2,
2016

January 3,
2015

Deferred tax liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$13,741
26,787

$ 5,261
38,430

$40,528

$43,691

Deferred tax liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

F-26

F-26

Buildings and improvements . . . . . . . . . . . . . . . . . . . . . . . . .

$ 94,607

$ 94,453

Equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Computers and purchased software . . . . . . . . . . . . . . . . . . . .

Leasehold interest in ground leases . . . . . . . . . . . . . . . . . . . .

Furniture and fixtures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Leasehold improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . .

55,072

29,663

23,840

4,777

9,204

51,654

27,282

23,840

4,008

8,901

Accumulated depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . .

Accrued Expenses

Other Non-current Liabilities

January  2,

January 3,

2016

2015

$36,743

15,915

$32,932

16,239

$52,658

$49,171

January  2,

January 3,

2016

2015

217,163

(86,031)

210,138

(77,318)

$131,132

$132,820

January  2,

January 3,

2016

2015

$52,131

$73,646

January  2,

January 3,

2016

2015

$13,741

26,787

$ 5,261

38,430

$40,528

$43,691

Silicon Laboratories Inc.
Notes to Consolidated Financial Statements
January 2, 2016 (Continued)

Silicon Laboratories Inc.

Notes to Consolidated Financial Statements

January 2, 2016 (Continued)

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, notes  receivable and
derivatives. The Company places its cash equivalents and investments  primarily in  municipal  bonds,
money market funds, commercial paper, certificates of deposit, variable-rate demand  notes, U.S.
government agency, international government bonds and corporate 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:

January 2,
2016

January 3,
2015

January  2,

January 3,

2016

2015

Edom Technology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Arrow Electronics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Avnet . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

17%
17%
14%

25%
11%
11%

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.

The Company holds a note receivable  from a privately held company in which  the Company has

an equity investment. The note principal is $1.5 million and  matures  in January  2017.

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

F-27

F-27

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, notes receivable and

derivatives. The Company places its cash equivalents and investments  primarily in municipal  bonds,

money market funds, commercial paper, certificates of deposit, variable-rate demand notes, U.S.

government agency, international government bonds and corporate 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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

17%

17%

14%

25%

11%

11%

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.

The Company holds a note receivable  from a privately held company in which the Company has

an equity investment. The note principal is $1.5 million and  matures  in January 2017.

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

 
Silicon Laboratories Inc.
Notes to Consolidated Financial Statements
January 2, 2016 (Continued)

Silicon Laboratories Inc.

Notes to Consolidated Financial Statements

January 2, 2016 (Continued)

8. Risks and Uncertainties (Continued)

8. Risks and Uncertainties (Continued)

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
accounted for greater than 10% of revenue during fiscal 2015, 2014  or 2013.  The  Company’s end
customers and distributors that accounted for  greater  than 10% of revenue  consisted of the  following:

End Customers
Samsung* . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Distributors
Edom  Technology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Avnet

Year Ended

January 2,
2016

January 3,
2015

December 28,
2013

Year Ended

January  2,

January 3,

December  28,

2016

2015

2013

**

12%

15%

Samsung* . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

**

12%

15%

20%
12%

20%
12%

21%
11%

Edom Technology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Avnet

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

20%

12%

20%

12%

21%

11%

*

Samsung’s purchases were across  a  variety of product areas.

*

Samsung’s purchases were across a  variety of product areas.

** Less than 10% of revenue

9. Acquisitions

Telegesis

On November 20, 2015, the Company acquired Telegesis  (UK)  Limited, a  limited liability company
incorporated in England and Wales. Telegesis is a  supplier  of wireless mesh  networking modules based
on the Company’s ZigBee and Thread technology, targeting applications in the  smart  energy, home
automation and industrial automation markets. The Company acquired Telegesis for cash  consideration
of $19.9 million. Approximately $2.9 million of the consideration was held  in escrow as security for
breaches of warranties and certain other expressly  enumerated matters.

The Company believes that this strategic acquisition accelerates its roadmap for ZigBee and
Thread modules. This factor contributed to a purchase price  that was in excess of the  fair value of the

On November 20, 2015, the Company acquired Telegesis  (UK)  Limited, a limited liability company

incorporated in England and Wales. Telegesis  is a supplier of wireless mesh networking modules based

on the Company’s ZigBee and Thread technology, targeting applications in the smart energy, home

automation and industrial automation markets. The Company acquired Telegesis  for cash consideration

of $19.9 million. Approximately $2.9 million of the consideration was held in escrow as security for

breaches of warranties and certain other expressly enumerated matters.

The Company believes that this strategic acquisition accelerates its roadmap for ZigBee and

Thread modules. This factor contributed to a purchase price  that was in excess of the fair value of the

F-28

F-28

balances and are due upon demand. The agreements governing these advances can be cancelled by the

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

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

accounted for greater than 10% of revenue during fiscal 2015, 2014  or 2013. The Company’s end

customers and distributors that accounted for greater than 10% of revenue consisted of the  following:

Company at any time.

Suppliers

operations.

Customers

End Customers

Distributors

** Less than 10% of revenue

9. Acquisitions

Telegesis

Silicon Laboratories Inc.
Notes to Consolidated Financial Statements
January 2, 2016 (Continued)

Silicon Laboratories Inc.

Notes to Consolidated Financial Statements

January 2, 2016 (Continued)

9. Acquisitions (Continued)

9. Acquisitions (Continued)

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):

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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$

10
4,980
2,000
400

Not amortized
7
3
3

Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . .
Other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other non-current assets . . . . . . . . . . . . . . . . . . . . . . .
Current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-current deferred tax liabilities . . . . . . . . . . . . . . . .

7,390
717
4,545
9,344
131
(689)
(1,508)

Total purchase price . . . . . . . . . . . . . . . . . . . . . . . . . . .

$19,930

Total purchase price . . . . . . . . . . . . . . . . . . . . . . . . . . .

$19,930

The allocation of the purchase price is preliminary and subject  to  change, primarily for the
valuation of certain assets and accruals and the finalization of income tax matters. Accordingly,
adjustments may be made to the values of  the assets acquired  and  liabilities  assumed as  additional
information is obtained about the facts  and circumstances that  existed at the valuation date.

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 $0.5  million  of
acquisition-related costs in selling, general  and  administrative  expenses during fiscal 2015.

Bluegiga

Bluegiga

On January 30, 2015, the Company acquired Bluegiga Technologies Oy, a private company based

in Finland. Bluegiga is a provider of Bluetooth Smart, Bluetooth Classic  and Wi-Fi 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 $58.0 million. Approximately $9.4 million of
the initial consideration was held in escrow as security for breaches of representations and  warranties
and certain other expressly enumerated matters.

The Company believes that this strategic acquisition will  accelerate  its entry into the wireless
module market. This factor contributed  to a purchase price that  was  in excess of the fair value  of  the

F-29

F-29

Weighted-Average

Amortization Period

Amount

(Years)

Intangible assets:

In-process research and development . . . . . . . . . . . . .

$

10

Not amortized

Developed technology . . . . . . . . . . . . . . . . . . . . . . .

Customer relationships . . . . . . . . . . . . . . . . . . . . . . .

Trademarks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

7

3

3

Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . .

Other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . .

Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Other non-current assets . . . . . . . . . . . . . . . . . . . . . . .

Current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Non-current deferred tax liabilities . . . . . . . . . . . . . . . .

4,980

2,000

400

7,390

717

4,545

9,344

131

(689)

(1,508)

The allocation of the purchase price is preliminary  and  subject to change, primarily for the

valuation of certain assets and accruals and the finalization of income tax matters. Accordingly,

adjustments may be made to the values of the assets acquired  and liabilities  assumed as additional

information is obtained about the facts and circumstances  that  existed at the valuation date.

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 $0.5 million of

acquisition-related costs in selling, general and administrative  expenses during fiscal 2015.

On January 30, 2015, the Company acquired Bluegiga Technologies Oy, a private company based

in Finland. Bluegiga is a provider of Bluetooth Smart, Bluetooth Classic  and Wi-Fi 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  $58.0 million. Approximately $9.4 million of

the initial consideration was held in escrow as security for breaches of representations and warranties

and certain other expressly enumerated matters.

The Company believes that this strategic acquisition will accelerate its entry into the wireless

module market. This factor contributed to a purchase price that  was  in excess of the fair value of the

 
Silicon Laboratories Inc.
Notes to Consolidated Financial Statements
January 2, 2016 (Continued)

Silicon Laboratories Inc.

Notes to Consolidated Financial Statements

January 2, 2016 (Continued)

9. Acquisitions (Continued)

9. Acquisitions (Continued)

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):

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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 5,710
12,190
6,670
880

Not amortized
8
4
3

Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . .
Other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other non-current assets . . . . . . . . . . . . . . . . . . . . . . .
Current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-current deferred tax liabilities . . . . . . . . . . . . . . . .
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other non-current liabilities . . . . . . . . . . . . . . . . . . . . .

25,450
1,132
6,156
34,597
208
(3,289)
(3,780)
(2,232)
(220)

Total purchase price . . . . . . . . . . . . . . . . . . . . . . . . . . .

$58,022

Total purchase price . . . . . . . . . . . . . . . . . . . . . . . . . . .

$58,022

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 Bluegiga consisted  primarily of  Bluetooth Smart
Ready and Bluetooth Smart modules and software stacks. The fair value of these technologies  was
determined using the income approach.  The discount rate applicable to the cash flows was 16.1%. The
significant risks associated with the projects include the  Company’s potential inability to produce
working models and the final products gaining  customer acceptance.

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 $1.2  million  of
acquisition-related costs in selling, general  and  administrative  expenses during fiscal 2015.

Energy Micro

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

F-30

F-30

Weighted-Average

Amortization Period

Amount

(Years)

Intangible assets:

In-process research and development . . . . . . . . . . . . .

$ 5,710

Not amortized

Developed technology . . . . . . . . . . . . . . . . . . . . . . .

Customer relationships . . . . . . . . . . . . . . . . . . . . . . .

Trademarks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

8

4

3

Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . .

Other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . .

Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Other non-current assets . . . . . . . . . . . . . . . . . . . . . . .

Current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Non-current deferred tax liabilities . . . . . . . . . . . . . . . .

Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Other non-current liabilities . . . . . . . . . . . . . . . . . . . . .

12,190

6,670

880

25,450

1,132

6,156

34,597

208

(3,289)

(3,780)

(2,232)

(220)

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 Bluegiga consisted primarily of  Bluetooth Smart

Ready and Bluetooth Smart modules and software stacks. The fair value of these technologies was

determined using the income approach.  The discount rate applicable to the cash flows was 16.1%. The

significant risks associated with the projects  include  the Company’s potential inability to produce

working models and the final products gaining customer acceptance.

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 $1.2 million of

acquisition-related costs in selling, general and administrative  expenses during fiscal 2015.

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

Silicon Laboratories Inc.
Notes to Consolidated Financial Statements
January 2, 2016 (Continued)

Silicon Laboratories Inc.

Notes to Consolidated Financial Statements

January 2, 2016 (Continued)

9. Acquisitions (Continued)

9. Acquisitions (Continued)

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, on  an annual  basis
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’’). The Holdback 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.

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)

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, on  an annual basis

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’’). The Holdback 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.

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

Amount

(Years)

Intangible assets:

In-process research and development . . . . . . . . . . . .

$ 18,600

Not amortized

Core and developed technology . . . . . . . . . . . . . . . .

Customer relationships . . . . . . . . . . . . . . . . . . . . . .

Trademarks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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 . . . . . . . . . . . . . . . . . . . .

29,100

6,400

1,300

55,400

919

6,486

98,515

3,117

(8,000)

(6,288)

(8,434)

(1,133)

Total purchase price . . . . . . . . . . . . . . . . . . . . . . . . . .

$140,582

Total purchase price . . . . . . . . . . . . . . . . . . . . . . . . . .

$140,582

F-31

F-31

 
Silicon Laboratories Inc.
Notes to Consolidated Financial Statements
January 2, 2016 (Continued)

Silicon Laboratories Inc.

Notes to Consolidated Financial Statements

January 2, 2016 (Continued)

9. Acquisitions (Continued)

9. Acquisitions (Continued)

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.

During fiscal 2015, the Company made  the following payments  in connection with the Energy

Micro acquisition: (a) approximately  $20.0 million was paid for  the release of  the Holdback; and
(b) approximately $6.3 million was paid for  the first annual period of the Earn-out. Approximately
$1.8 million of the Earn-out payment represented the Departure Percentage portion  and was  recorded
as compensation expense during fiscal  2014. The  remaining  approximately $4.5 million  of the Earn-out
payment represented additional consideration.

10. Goodwill and Other Intangible Assets

Goodwill

The following summarizes the activity in  goodwill  for the  years  ended January 2,  2016 and

The following summarizes the activity in  goodwill for the  years  ended January 2, 2016 and

January 3, 2015 (in thousands):

Beginning balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Additions due to business combinations . . . . . . . . . . . . . . . . .

$228,781
43,941

$228,781
—

Ending balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$272,722

$228,781

Beginning balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$228,781

$228,781

Additions due to business combinations . . . . . . . . . . . . . . . . .

43,941

—

Ending balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$272,722

$228,781

Year Ended

January 2,
2016

January 3,
2015

Year Ended

January  2,

January 3,

2016

2015

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.

During fiscal 2015, the Company made  the following payments in connection with the Energy

Micro acquisition: (a) approximately $20.0 million was paid for  the release of the Holdback; and

(b) approximately $6.3 million was paid for  the first annual period of the Earn-out. Approximately

$1.8 million of the Earn-out payment represented the Departure Percentage portion and was  recorded

as compensation expense during fiscal 2014. The  remaining  approximately $4.5 million  of the Earn-out

payment represented additional consideration.

10. Goodwill and Other Intangible Assets

Goodwill

January 3, 2015 (in thousands):

F-32

F-32

Silicon Laboratories Inc.
Notes to Consolidated Financial Statements
January 2, 2016 (Continued)

Silicon Laboratories Inc.

Notes to Consolidated Financial Statements

January 2, 2016 (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

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 . . . . . . . . . . . . . . . .

Not subject to amortization:
In-process research and

Weighted-Average
Amortization
Period
(Years)

January 2, 2016

January 3, 2015

Gross
Amount

Accumulated
Amortization

Gross
Amount

Accumulated
Amortization

9
7
6
7

9

$170,541
23,170
3,022
3,490

$(70,135)
(7,259)
(1,763)
(952)

$148,891
14,500
3,000
2,210

$(47,894)
(4,003)
(1,250)
(433)

200,223

(80,109)

168,601

(53,580)

development

. . . . . . . . . . . . . Not amortized

1,240

—

—

—

development

. . . . . . . . . . . . . Not amortized

1,240

—

—

—

Total intangible assets . . . . . . . . . . . .

$201,463

$(80,109)

$168,601

$(53,580)

Total intangible assets . . . . . . . . . . . .

$201,463

$(80,109)

$168,601

$(53,580)

Gross intangible assets increased $32.9  million in fiscal  2015  due to the acquisition of Bluegiga and

Gross intangible assets increased $32.9 million in fiscal  2015  due to the acquisition of Bluegiga and

Telegesis.

Amortization expense related to intangible assets for fiscal 2015, 2014 and 2013 was $26.5 million,

$17.9 million and $14.6 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

2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$26,677
23,012
20,995
15,530
13,298

11. Debt

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 ‘‘Credit Agreement’’), which consisted  of a
$100 million Term Loan Facility and a  $130  million Revolving Credit  Facility (collectively, the ‘‘Credit
Facilities’’). On July 24, 2015, the Company and the Guarantors  amended the  Credit Agreement (the
‘‘Amended Credit Agreement’’) in order to, among other things, increase the  borrowing capacity  under
the Revolving Credit Facility to $300 million,  eliminate the  Term Loan Facility and extend the  maturity

On July 31, 2012, the Company and certain of  its domestic subsidiaries (the ‘‘Guarantors’’) entered

into a $230 million five-year Credit Agreement (the ‘‘Credit Agreement’’), which consisted of a

$100 million Term Loan Facility and a $130 million Revolving  Credit  Facility (collectively, the ‘‘Credit

Facilities’’). On July 24, 2015, the Company and the  Guarantors amended the  Credit Agreement (the

‘‘Amended Credit Agreement’’) in order to, among other things, increase  the borrowing capacity under

the Revolving Credit Facility to $300 million, eliminate the  Term Loan Facility and extend the  maturity

F-33

F-33

10. Goodwill and Other Intangible Assets (Continued)

Other Intangible Assets

(in thousands):

Weighted-Average

Amortization

January 2, 2016

January  3, 2015

Period

(Years)

Gross

Amount

Accumulated

Amortization

Gross

Amount

Accumulated

Amortization

9

7

6

7

9

$170,541

$(70,135)

$148,891

$(47,894)

23,170

3,022

3,490

(7,259)

(1,763)

(952)

14,500

3,000

2,210

(4,003)

(1,250)

(433)

200,223

(80,109)

168,601

(53,580)

Intangible assets:

Subject to amortization:

Core and developed technology .

Customer relationships . . . . . . . .

Patents . . . . . . . . . . . . . . . . . . .

Trademarks . . . . . . . . . . . . . . . .

Not subject to amortization:

In-process research and

Amortization expense related to intangible  assets for fiscal 2015, 2014 and  2013 was $26.5 million,

$17.9 million and $14.6 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

Telegesis.

thousands):

Fiscal Year

2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$26,677

2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

23,012

20,995

15,530

13,298

 
Silicon Laboratories Inc.
Notes to Consolidated Financial Statements
January 2, 2016 (Continued)

Silicon Laboratories Inc.

Notes to Consolidated Financial Statements

January 2, 2016 (Continued)

11. Debt (Continued)

11. Debt (Continued)

date  to five years from the closing date.  On July  24, 2015, the Company borrowed $82.5  million under
the Amended Credit Agreement and paid off the remaining balance of  its Term Loan Facility.

The Amended Credit Agreement includes a $25 million letter of  credit sublimit and a $10  million
swingline loan sublimit. The Company  also  has an  option to increase the size  of the borrowing capacity
by up to an aggregate of $200 million  in additional commitments, subject to certain conditions.

The Revolving Credit Facility, other than swingline loans, will bear  interest at the Eurodollar rate
plus an applicable margin or, at the option  of  the Company, a base rate  (defined as  the highest of  the
Wells Fargo prime rate, the Federal Funds rate plus  0.50% and the Eurodollar Base Rate  plus 1.00%)
plus an applicable margin. Swingline loans accrue interest at the base rate plus the  applicable margin
for base rate loans. The applicable margins for the Eurodollar rate  loans  range from 1.25% to 2.00%
and for base rate loans range from 0.25%  to  1.00%, depending in each case,  on the  leverage ratio as
defined in the Agreement.

The Amended Credit Agreement contains  various conditions, covenants and  representations with
which  the Company must be in compliance in order to borrow funds  and to avoid an event of  default,
including financial covenants that the  Company must  maintain  a leverage ratio (funded debt/EBITDA)
of no more than 3.00 to 1 and a minimum fixed charge  coverage  ratio (EBITDA/interest  payments,
income taxes and capital expenditures) of  no less than 1.25 to 1.  As of January  2, 2016, the  Company
was in compliance with all covenants of  the Amended Credit Agreement.  The  Company’s obligations
under the Amended Credit Agreement  are guaranteed by  the Guarantors and  are secured  by  a security
interest in substantially all assets of the Company and the Guarantors.

The Company assumed $2.2 million of debt in connection with  its  acquisition of Bluegiga.  On

September 25, 2015, the Company paid off the  remaining  balance of the acquired debt.

date to five years from the closing date. On July  24, 2015, the Company borrowed $82.5 million under

the Amended Credit Agreement and paid off the remaining balance of its Term Loan Facility.

The Amended Credit Agreement includes a $25 million letter of credit sublimit and a $10 million

swingline loan sublimit. The Company also  has an option to increase the size of the borrowing capacity

by up to an aggregate of $200 million in additional commitments, subject to certain conditions.

The Revolving Credit Facility, other than swingline loans, will bear interest at the Eurodollar rate

plus an applicable margin or, at the option  of  the Company, a base rate  (defined as the highest of the

Wells Fargo prime rate, the Federal Funds rate plus  0.50% and the Eurodollar Base Rate plus 1.00%)

plus an applicable margin. Swingline loans accrue interest at the base rate plus the  applicable margin

for base rate loans. The applicable margins for the Eurodollar rate loans range from 1.25% to 2.00%

and for base rate loans range from 0.25% to 1.00%, depending in each case, on the  leverage ratio as

defined in the Agreement.

The Amended Credit Agreement contains various conditions, covenants and representations with

which the Company must be in compliance in order to borrow funds and to avoid an event of default,

including financial covenants that the Company must maintain a leverage ratio (funded debt/EBITDA)

of no more than 3.00 to 1 and a minimum fixed charge coverage  ratio (EBITDA/interest payments,

income taxes and capital expenditures) of  no less than 1.25 to 1. As of January  2, 2016, the Company

was in compliance with all covenants of the Amended Credit Agreement. The  Company’s obligations

under the Amended Credit Agreement  are guaranteed by  the Guarantors and  are secured by a security

interest in substantially all assets of the Company and the Guarantors.

The Company assumed $2.2 million of debt in connection with  its acquisition of Bluegiga. On

September 25, 2015, the Company paid off the remaining balance of the acquired debt.

Interest Rate Swap Agreement

Interest Rate Swap Agreement

In connection with the $100 million borrowed under the Credit Facilities, the  Company entered
into an interest rate swap agreement  as  a hedge against the Eurodollar  portion  of such variable interest
payments. Under the terms of the swap agreement, the  Company effectively converted the Eurodollar
portion of the interest on the Credit Facilities  to  a fixed interest  rate  of 0.764% through July 2017. As
of January 2, 2016, the combined interest  rate of the Credit Facilities (which includes an  applicable
margin) and the interest rate swap was 2.264%.  See  Note 5, Derivative Financial Instruments,  for
additional information.

In connection with the $100 million borrowed under the Credit Facilities, the Company entered

into an interest rate swap agreement as a hedge against the Eurodollar  portion of such variable interest

payments. Under the terms of the swap agreement, the Company effectively converted the Eurodollar

portion of the interest on the Credit Facilities  to  a fixed interest rate  of 0.764% through July 2017. As

of January 2, 2016, the combined interest  rate of the Credit Facilities  (which includes an applicable

margin) and the interest rate  swap was 2.264%.  See Note 5, Derivative Financial Instruments,  for

additional information.

F-34

F-34

Silicon Laboratories Inc.
Notes to Consolidated Financial Statements
January 2, 2016 (Continued)

Silicon Laboratories Inc.

Notes to Consolidated Financial Statements

January 2, 2016 (Continued)

12. Stockholders’ Equity

Common Stock

The Company issued 1.2 million shares of common  stock  during fiscal 2015.

The Company issued 1.2 million shares of common stock during fiscal 2015.

Share Repurchase Programs

The Board of Directors authorized the following share repurchase programs (in thousands):

The Board of Directors authorized the following share repurchase programs (in thousands):

Program Authorization Date

Program
Termination
Date

August 2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . December 2016
October 2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . December 2015
January 2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
January 2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
April 2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

January 2015
January 2014
January 2013

Program
Amount

$100,000
$100,000
$100,000
$ 50,000
$100,000

Program Authorization Date

August 2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . December 2016

October 2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . December 2015

January 2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

January 2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

April 2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

January 2015

January 2014

January 2013

Program

Amount

$100,000

$100,000

$100,000

$ 50,000

$100,000

Program

Termination

Date

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, 1.7  million shares and  0.7 million shares  of its
common stock for $71.4 million, $71.7  million and $26.0 million during  fiscal 2015, 2014  and 2013,
respectively. These shares were retired  upon repurchase.

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, 1.7  million shares and 0.7 million shares  of its

common stock for $71.4 million, $71.7  million and $26.0 million during  fiscal 2015, 2014 and 2013,

respectively. These shares were retired upon repurchase.

12. Stockholders’ Equity

Common Stock

Share Repurchase Programs

F-35

F-35

 
Silicon Laboratories Inc.
Notes to Consolidated Financial Statements
January 2, 2016 (Continued)

Silicon Laboratories Inc.

Notes to Consolidated Financial Statements

January 2, 2016 (Continued)

12. Stockholders’ Equity (Continued)

Accumulated Other Comprehensive Loss

The components of accumulated other comprehensive loss,  net of taxes,  were as  follows  (in

The components of accumulated other comprehensive loss, net of taxes, were as  follows (in

thousands):

Balance at December 29, 2012 . . . . . . . . . . . . . . . . . . . . . . .

$(428)

$ (518)

$(946)

Balance at December 29, 2012 . . . . . . . . . . . . . . . . . . . . . . .

$(428)

$ (518)

$(946)

Unrealized Gain
(Loss) on Cash
Flow Hedge

Net Unrealized
Losses on
Available-
For-Sale Securities

Total

Unrealized  Gain

(Loss) on Cash

Flow  Hedge

Net Unrealized

Losses on

Available-

For-Sale Securities

Total

12. Stockholders’ Equity (Continued)

Accumulated Other Comprehensive Loss

thousands):

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 . . . . . . . . . . . . . . . . . . . . . . . . . .

Balance at January 3, 2015 . . . . . . . . . . . . . . . . . . . . . . . . . .

Other comprehensive income (loss) before  reclassifications . .
Amount reclassified from accumulated  other  comprehensive

loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Net change for the period . . . . . . . . . . . . . . . . . . . . . . . . . .

397

364

761

333

(520)

402

(118)

215

(473)

318

(155)

(348)

(151)

(499)

49

213

262

(1,017)

(684)

Balance at December 28, 2013 . . . . . . . . . . . . . . . . . . . . . . .

(1,017)

(684)

720

—

720

(297)

(276)

6

(270)

200

402

602

(82)

(749)

324

(425)

Other comprehensive income (loss) before  reclassifications . .

Amount reclassified from accumulated other comprehensive

loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Net change for the period . . . . . . . . . . . . . . . . . . . . . . . . . .

Other comprehensive income (loss) before reclassifications . .

Amount reclassified from accumulated other comprehensive

loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Net change for the period . . . . . . . . . . . . . . . . . . . . . . . . . .

Balance at January 3, 2015 . . . . . . . . . . . . . . . . . . . . . . . . . .

Other comprehensive income (loss) before reclassifications . .

Amount reclassified from accumulated other comprehensive

loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Net change for the period . . . . . . . . . . . . . . . . . . . . . . . . . .

397

364

761

333

(520)

402

(118)

215

(473)

318

(155)

(348)

(151)

(499)

720

—

720

(297)

(276)

6

(270)

49

213

262

200

402

602

(82)

(749)

324

(425)

Balance at January 2, 2016 . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 60

$ (567)

$(507)

Balance at January 2, 2016 . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 60

$ (567)

$(507)

Reclassifications From Accumulated Other Comprehensive Loss

Reclassifications From Accumulated Other Comprehensive Loss

Reclassification (in thousands)

Losses on cash flow hedges to:

Year ended

January 2,
2016

January 3,
2015

December 28,
2013

Reclassification (in  thousands)

Losses on cash flow hedges to:

Year ended

January 2,

January  3,

December 28,

2016

2015

2013

Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$(489)

$(618)

$(560)

Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$(489)

$(618)

$(560)

Gains (losses) on available-for-sales securities  to:

Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Income tax benefit

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(10)

(499)

175

—

(618)

216

232

(328)

115

Gains (losses) on available-for-sales securities to:

Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Income tax benefit

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(10)

(499)

175

—

(618)

216

232

(328)

115

Total reclassifications . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$(324)

$(402)

$(213)

Total reclassifications . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$(324)

$(402)

$(213)

F-36

F-36

Silicon Laboratories Inc.
Notes to Consolidated Financial Statements
January 2, 2016 (Continued)

Silicon Laboratories Inc.

Notes to Consolidated Financial Statements

January 2, 2016 (Continued)

12. Stockholders’ Equity (Continued)

12. Stockholders’ Equity (Continued)

Income Tax Allocated to the Components of  Other  Comprehensive Income (Loss)

Income Tax Allocated to the Components of  Other  Comprehensive Income (Loss)

The income tax effects of the components of other comprehensive  income  (loss)  were as follows

The income tax effects of the components of other comprehensive income (loss) were as follows

(in thousands):

(in thousands):

Income tax (expense) benefit on:

Net changes to available-for-sale securities:

Year ended

January 2,
2016

January 3,
2015

December 28,
2013

Income  tax (expense) benefit on:

Net changes to available-for-sale securities:

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

$149
(4)

$(387)
—

$ 187
81

Unrealized gains (losses) arising during the period . . . . . . . . . . .

Reclassification for gains (losses) 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 . . . . . . . . . . . .

255
(171)

$229

279
(216)

(214)
(196)

$(324)

$(142)

Net changes to cash flow hedges:

Unrealized gains (losses) arising during the period . . . . . . . . . . .

Reclassification for losses included in net  income . . . . . . . . . . . .

Year ended

January 2,

January  3,

December 28,

2016

2015

2013

$149

(4)

255

(171)

$229

279

(216)

(214)

(196)

$(324)

$(142)

13. Stock-Based Compensation

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’’). In fiscal 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.

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.

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’’). In fiscal 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.

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.

F-37

F-37

 
Silicon Laboratories Inc.
Notes to Consolidated Financial Statements
January 2, 2016 (Continued)

Silicon Laboratories Inc.

Notes to Consolidated Financial Statements

January 2, 2016 (Continued)

13. Stock-Based Compensation (Continued)

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

Stock Grants and Modifications

The Company granted to its employees 0.9 million, 0.8 million and 1.1 million shares of full value

awards and no stock options from the  2009 Plan during fiscal 2015, 2014  and 2013, respectively.

The Company recorded $2.3 million  in selling, general  and administrative expense during fiscal

2015 in connection with the modifications of certain  equity awards pursuant to two employee
terminations. There were no other significant  modifications made to any stock grants  during fiscal 2015,
2014 or 2013.

Included in the full value awards granted under  the 2009 Plan in  fiscal  2015, 2014  and 2013 were  a

total of 89 thousand, 76 thousand and 132 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

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 2015, 2014 and
2013, the Company issued 210 thousand, 204  thousand and 190 thousand shares, respectively,  under the

F-38

F-38

13. Stock-Based Compensation (Continued)

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.

The Company granted to its employees 0.9 million, 0.8 million and 1.1 million shares of full value

awards and no stock options from the 2009 Plan during fiscal 2015, 2014 and 2013, respectively.

The Company recorded $2.3 million in selling, general and administrative expense during fiscal

2015 in connection with the modifications of certain equity awards pursuant to two employee

terminations. There were no other significant modifications made to any stock grants during fiscal 2015,

2014 or 2013.

Included in the full value awards granted under the 2009 Plan in  fiscal 2015, 2014 and 2013 were  a

total of 89 thousand, 76 thousand and 132 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.

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 2015, 2014 and

2013, the Company issued 210 thousand, 204  thousand and 190 thousand shares, respectively, under the

Silicon Laboratories Inc.
Notes to Consolidated Financial Statements
January 2, 2016 (Continued)

Silicon Laboratories Inc.

Notes to Consolidated Financial Statements

January 2, 2016 (Continued)

13. Stock-Based Compensation (Continued)

13. Stock-Based Compensation (Continued)

2009 Purchase Plan to its employees.  The  weighted-average fair value for purchase rights granted  in
fiscal 2015 under the 2009 Purchase Plan was $12.70 per share.

2009 Purchase Plan to its employees. The  weighted-average fair value for purchase rights granted in

fiscal 2015 under the 2009 Purchase Plan was $12.70 per share.

Accounting for Stock-Based Compensation

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 (such as RSUs and RSAs)  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.

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.

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 (such as RSUs and RSAs) 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.

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.

F-39

F-39

 
Silicon Laboratories Inc.
Notes to Consolidated Financial Statements
January 2, 2016 (Continued)

Silicon Laboratories Inc.

Notes to Consolidated Financial Statements

January 2, 2016 (Continued)

13. Stock-Based Compensation (Continued)

13. Stock-Based Compensation (Continued)

The fair values estimated from the Black-Scholes option-pricing model were calculated using  the

The fair values estimated from the Black-Scholes option-pricing model were calculated using the

following assumptions:

following assumptions:

2009 Employee Stock Purchase Plan

Year Ended

January 2,
2016

January 3,
2015

December 28,
2013

Expected volatility . . . . . . . . . . . . . . . . . . . . . . .
Risk-free interest rate % . . . . . . . . . . . . . . . . . .
Expected term (in months) . . . . . . . . . . . . . . . . .
Dividend yield . . . . . . . . . . . . . . . . . . . . . . . . . .

31%
0.2%
8
—

28%
0.2%
15
—

27%
0.1%
7
—

The fair values estimated from Monte Carlo simulation were  calculated  using the  following

The fair values estimated from Monte Carlo simulation were calculated  using the following

assumptions:

2009 Stock Incentive Plan

Year Ended

January 2,
2016

January 3,
2015

December 28,
2013

Expected volatility . . . . . . . . . . . . . . . . . . . . . . .
Risk-free interest rate % . . . . . . . . . . . . . . . . . .
Expected term (in years) . . . . . . . . . . . . . . . . . .
Dividend yield . . . . . . . . . . . . . . . . . . . . . . . . . .

31%
1.0%
2.9
—

33%
0.7%
2.8
—

32%
0.5%
2.9
—

A summary of stock-based compensation activity with respect to fiscal 2015 follows:

A summary of stock-based compensation activity with respect to fiscal 2015 follows:

Stock Options

Outstanding at January 3, 2015 . . . . . . . . . . . . . . . . . . .
Exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cancelled or expired . . . . . . . . . . . . . . . . . . . . . . . . . . .

Outstanding at January 2, 2016 . . . . . . . . . . . . . . . . . . .

Vested at January 2, 2016 and expected to vest . . . . . . . .

Exercisable at January 2, 2016 . . . . . . . . . . . . . . . . . . . .

Shares
(000s)

529
(306)
(11)

212

212

212

Weighted-
Average
Exercise
Price

Weighted-Average
Remaining
Contractual
Term
(In Years)

Aggregate
Intrinsic
Value
(000s)

$31.50
$29.14
$36.91

$34.64

$34.64

$34.64

1.19

1.19

1.19

$3,119

$3,119

$3,119

Year Ended

January 2,

January  3,

December 28,

2009 Employee Stock  Purchase Plan

Expected volatility . . . . . . . . . . . . . . . . . . . . . . .

Risk-free interest rate % . . . . . . . . . . . . . . . . . .

Expected term (in months) . . . . . . . . . . . . . . . . .

Dividend yield . . . . . . . . . . . . . . . . . . . . . . . . . .

2016

31%

0.2%

8

—

2015

28%

0.2%

15

—

assumptions:

2009 Stock  Incentive Plan

Expected volatility . . . . . . . . . . . . . . . . . . . . . . .

Risk-free interest rate % . . . . . . . . . . . . . . . . . .

Expected term (in years) . . . . . . . . . . . . . . . . . .

Dividend yield . . . . . . . . . . . . . . . . . . . . . . . . . .

31%

1.0%

2.9

—

33%

0.7%

2.8

—

Year Ended

January 2,

January  3,

December 28,

2016

2015

2013

27%

0.1%

7

—

2013

32%

0.5%

2.9

—

Weighted-

Average

Exercise

Price

Weighted-Average

Remaining

Contractual

Term

(In Years)

Aggregate

Intrinsic

Value

(000s)

Stock Options

Outstanding at January 3, 2015 . . . . . . . . . . . . . . . . . . .

Exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Cancelled or expired . . . . . . . . . . . . . . . . . . . . . . . . . . .

Outstanding at January 2, 2016 . . . . . . . . . . . . . . . . . . .

Vested at January 2, 2016 and expected to vest . . . . . . . .

Exercisable at January 2, 2016 . . . . . . . . . . . . . . . . . . . .

Shares

(000s)

529

(306)

(11)

212

212

212

$31.50

$29.14

$36.91

$34.64

$34.64

$34.64

1.19

1.19

1.19

$3,119

$3,119

$3,119

F-40

F-40

Silicon Laboratories Inc.
Notes to Consolidated Financial Statements
January 2, 2016 (Continued)

Silicon Laboratories Inc.

Notes to Consolidated Financial Statements

January 2, 2016 (Continued)

13. Stock-Based Compensation (Continued)

13. Stock-Based Compensation (Continued)

RSAs and RSUs

Outstanding at January 3, 2015 . . . . . . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vested or issued . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cancelled or forfeited . . . . . . . . . . . . . . . . . . . . . . . . . .

Shares
(000s)

1,781
806
(905)
(128)

Outstanding at January 2, 2016 . . . . . . . . . . . . . . . . . . .

1,554

Outstanding at January 2, 2016 and expected  to  vest . . . .

1,450

MSUs

Outstanding at January 3, 2015 . . . . . . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Earned or issued . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cancelled or forfeited . . . . . . . . . . . . . . . . . . . . . . . . . .

Outstanding at January 2, 2016 . . . . . . . . . . . . . . . . . . .

Outstanding at January 2, 2016 and expected to vest . . . .

Shares
(000s)

298
89
(7)
(130)

250

231

Weighted- Weighted-Average
Average
Purchase
Price

Remaining
Vesting Term
(In Years)

Aggregate
Intrinsic
Value
(000s)

$—
$—
$—
$—

$—

$—

0.91

0.91

Weighted- Weighted-Average
Average
Purchase
Price

Remaining
Vesting Term
(In Years)

$75,417

$70,365

Aggregate
Intrinsic
Value
(000s)

$—
$—
$—
$—

$—

$—

1.09

1.09

$12,122

$11,215

RSAs and  RSUs

Outstanding at January 3, 2015 . . . . . . . . . . . . . . . . . . .

Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Vested or issued . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Cancelled or forfeited . . . . . . . . . . . . . . . . . . . . . . . . . .

Shares

(000s)

1,781

806

(905)

(128)

Weighted- Weighted-Average

Average

Purchase

Price

Remaining

Vesting  Term

(In Years)

Aggregate

Intrinsic

Value

(000s)

Outstanding at January 2, 2016 . . . . . . . . . . . . . . . . . . .

1,554

Outstanding at January 2, 2016 and expected to vest . . . .

1,450

0.91

0.91

Weighted- Weighted-Average

Shares

(000s)

Average

Purchase

Price

Remaining

Vesting  Term

(In Years)

$75,417

$70,365

Aggregate

Intrinsic

Value

(000s)

MSUs

Outstanding at January 3, 2015 . . . . . . . . . . . . . . . . . . .

298

Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Earned or issued . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

89

(7)

Cancelled or forfeited . . . . . . . . . . . . . . . . . . . . . . . . . .

(130)

Outstanding at January 2, 2016 . . . . . . . . . . . . . . . . . . .

Outstanding at January 2, 2016 and expected to vest . . . .

250

231

1.09

1.09

$12,122

$11,215

$—

$—

$—

$—

$—

$—

$—

$—

$—

$—

$—

$—

The following summarizes the Company’s weighted average fair value at the date of grant:

The following summarizes the Company’s weighted average fair value at the date of grant:

Year Ended

January 2,
2016

January 3,
2015

December 28,
2013

Per grant of RSAs and RSUs . . . . . . . . . . . . . . .
Per grant of MSUs . . . . . . . . . . . . . . . . . . . . . .

$49.14
$48.36

$47.93
$60.08

$43.01
$31.94

Per grant of RSAs and RSUs . . . . . . . . . . . . . . .

Per grant of MSUs . . . . . . . . . . . . . . . . . . . . . .

$49.14

$48.36

$47.93

$60.08

The following summarizes the Company’s stock-based payment and stock option values  (in

The following summarizes the Company’s stock-based payment and stock option values (in

thousands):

thousands):

Intrinsic value of stock options exercised . . . . . . .
Intrinsic value of RSAs and RSUs that vested . . .
Grant date fair value of RSAs and RSUs  that

January 2,
2016

$ 6,612
$45,298

Year Ended
January 3,
2015

December 28,
2013

$ 5,674
$32,138

$ 4,198
$23,649

vested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$41,072

$29,668

$24,026

The Company received cash of $3.1 million for the  issuance  of common stock, net of shares
withheld for taxes, during fiscal 2015. 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.

F-41

F-41

Year Ended

January 2,

January  3,

December 28,

2016

2015

2013

$43.01

$31.94

Year Ended

January 2,

January  3,

December 28,

2016

2015

2013

Intrinsic value of stock options exercised . . . . . . .

Intrinsic value of RSAs and RSUs that vested . . .

$ 6,612

$45,298

$ 5,674

$32,138

$ 4,198

$23,649

Grant date fair value of RSAs and RSUs  that

vested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$41,072

$29,668

$24,026

The Company received cash of $3.1 million for the issuance  of common stock, net of shares

withheld for taxes, during fiscal 2015. 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.

 
Silicon Laboratories Inc.
Notes to Consolidated Financial Statements
January 2, 2016 (Continued)

Silicon Laboratories Inc.

Notes to Consolidated Financial Statements

January 2, 2016 (Continued)

13. Stock-Based Compensation (Continued)

13. Stock-Based Compensation (Continued)

The following table presents details of  stock-based  compensation  costs recognized in the

The following table presents details of stock-based compensation costs recognized in the

Consolidated Statements of Income (in thousands):

Consolidated Statements of Income (in thousands):

Cost of revenues . . . . . . . . . . . . . . . . . . . . . . . .
Research and development . . . . . . . . . . . . . . . . .
Selling, general and administrative . . . . . . . . . . .

Income tax benefit . . . . . . . . . . . . . . . . . . . . . . .

Year Ended

January 2,
2016

January 3,
2015

December 28,
2013

$

960
19,451
22,380

42,791
9,264

$

775
18,521
19,771

39,067
4,024

$

952
14,530
15,318

30,800
2,633

$33,527

$35,043

$28,167

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

$

960

$

775

$

952

Research and development . . . . . . . . . . . . . . . . .

Selling, general and administrative . . . . . . . . . . .

Income tax benefit . . . . . . . . . . . . . . . . . . . . . . .

Year Ended

January 2,

January  3,

December 28,

2016

2015

2013

19,451

22,380

42,791

9,264

18,521

19,771

39,067

4,024

14,530

15,318

30,800

2,633

$33,527

$35,043

$28,167

The increase in stock-based compensation costs  in  fiscal  2014 was principally due to increased

headcount. The Company had approximately $47.5  million of total unrecognized compensation costs
related to granted stock awards as of  January  2, 2016  that are  expected to be recognized over a
weighted-average period of approximately 2.0 years. There  were no significant stock-based
compensation costs capitalized into assets  in any  of the  periods presented.

The increase in stock-based compensation  costs in  fiscal 2014 was principally due to increased

headcount. The Company had approximately $47.5 million of total unrecognized compensation costs

related to granted stock awards as of  January 2, 2016  that are expected to be recognized over a

weighted-average period of approximately 2.0 years. There were no significant stock-based

compensation costs capitalized into assets  in any of the periods presented.

As of January 2, 2016, the Company  had reserved shares of common stock for future issuance as

As of January 2, 2016, the Company had reserved shares of common stock for future issuance as

follows (in thousands):

follows (in thousands):

2000 Stock Incentive Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2009 Stock Incentive Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2009 Employee Stock Purchase Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

212
2,991
671

Total shares reserved . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

3,874

2000 Stock Incentive Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

212

2009 Stock Incentive Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

2,991

2009 Employee Stock Purchase Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

671

Total shares reserved . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

3,874

14. Employee Benefit Plan

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 $3.3 million, $3.2 million and  $3.0 million to the 401(k)  Plan
during fiscal 2015, 2014 and 2013, respectively.

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 $3.3 million, $3.2 million and  $3.0 million to the 401(k) Plan

during fiscal 2015, 2014 and 2013, respectively.

15. Commitments and Contingencies

Operating Leases

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.

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.

F-42

F-42

Silicon Laboratories Inc.
Notes to Consolidated Financial Statements
January 2, 2016 (Continued)

Silicon Laboratories Inc.

Notes to Consolidated Financial Statements

January 2, 2016 (Continued)

15. Commitments and Contingencies  (Continued)

15. Commitments and Contingencies (Continued)

Rent expense under operating leases  was $4.6 million, $4.2 million and $4.2  million for fiscal 2015,

2014 and 2013, respectively. The minimum annual future rentals under the  terms of these leases  as of
January 2, 2016 are as follows (in thousands):

Rent expense under operating leases  was $4.6 million, $4.2 million and $4.2 million for fiscal 2015,

2014 and 2013, respectively. The minimum annual future rentals under the terms of these leases  as of

January 2, 2016 are as follows (in thousands):

Fiscal Year

Fiscal Year

2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 5,438
4,394
2,917
1,812
1,514
5,340

Total minimum lease payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$21,415

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 three United States Patents (the ‘‘Cresta Patents’’).
The Delaware District Court action has been stayed.

On January 28, 2014, Cresta Technology  also filed a complaint with the United States International

Trade Commission (‘‘ITC’’) alleging infringement of the same  patents. During the course of the
proceedings, Cresta Technology withdrew its allegations as  to one of the three Cresta Patents.  On
September 29, 2015, the ITC issued its Final Determination,  finding that all the  patent  claims  asserted
against the Company’s products were either invalid or  not  infringed and that Cresta Technology failed
to establish the ITC’s domestic industry requirement. The ITC  found no  violation by the Company and
terminated the investigation. On November 30,  2015, Cresta Technology filed an appeal of the ITC
decision to the Federal Circuit, which  is now pending.

In a parallel process, the Company challenged  the validity of the  claims of the Cresta Patents
asserted in the ITC investigation through a series of  Inter-Parties Review  (IPR)  proceedings at the
Patent Trial and Appeal Board (PTAB)  of the United  States Patent and Trademark Office (USPTO).
On October 21, 2015, the USPTO issued  final  written  decisions on a first set of reviewed  claims  finding
all of the reviewed claims invalid. On  December 18, 2015,  Cresta Technology filed notices of appeal to
the United States Court of Appeals for  the  Federal Circuit as to this  first USPTO determination. The
USPTO has instituted a second set of IPR  proceedings against a second set of the remaining claims.

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
July 1, 2014, the Administrative Law  Judge  accepted a consent order whereby  Cresta Technology will
not sell for importation, import or sell  in  the United States television tuners  that  infringe  the

2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 5,438

2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

4,394

2,917

1,812

1,514

5,340

Total minimum lease payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$21,415

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 three United States Patents (the ‘‘Cresta Patents’’).

The Delaware District Court action has been stayed.

On January 28, 2014, Cresta Technology also filed a complaint with the United States International

Trade Commission (‘‘ITC’’) alleging infringement of the same patents. During the course of the

proceedings, Cresta Technology withdrew its allegations as  to one of the three Cresta Patents. On

September 29, 2015, the ITC issued its Final Determination,  finding that all the patent claims  asserted

against the Company’s products were either invalid or  not  infringed and that Cresta Technology failed

to establish the ITC’s domestic industry requirement. The ITC  found no violation by the Company and

terminated the investigation. On November 30, 2015, Cresta Technology filed an appeal of the ITC

decision to the Federal Circuit, which is now pending.

In a parallel process, the Company challenged the validity of the claims of the Cresta Patents

asserted in the ITC investigation through a series of  Inter-Parties Review  (IPR) proceedings at the

Patent Trial and Appeal Board (PTAB) of the United States Patent and Trademark Office (USPTO).

On October 21, 2015, the USPTO issued final  written  decisions on a first set of reviewed  claims finding

all of the reviewed claims invalid. On December 18, 2015, Cresta Technology filed notices of appeal to

the United States Court of Appeals for the Federal Circuit as to this first USPTO determination. The

USPTO has instituted a second set of IPR  proceedings against a second set of the remaining claims.

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

July 1, 2014, the Administrative Law Judge  accepted a consent order whereby Cresta Technology will

not sell for importation, import or sell in  the United States television tuners that infringe the

F-43

F-43

 
Silicon Laboratories Inc.
Notes to Consolidated Financial Statements
January 2, 2016 (Continued)

Silicon Laboratories Inc.

Notes to Consolidated Financial Statements

January 2, 2016 (Continued)

15. Commitments and Contingencies  (Continued)

15. Commitments and Contingencies (Continued)

Company’s United States Patent Nos. 6,137,372 and 6,233,441. Accordingly, this ITC investigation has
been terminated in its entirety.

On July 16, 2014, the Company filed a lawsuit against Cresta  Technology  in the  United States
District  Court in the Northern District  of California alleging infringement  of United States  Patent
Nos. 6,308,055, 6,304,146, 6,137,372, 6,233,441, 6,965,761 and 7,353,011.  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. This lawsuit is currently scheduled for  trial  in March 2016.

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.

The Company intends to continue to  vigorously defend  against Cresta Technology’s allegations. 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

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 30% of the Energy Micro equity and, accordingly, received  approximately
$35 million at closing. In fiscal 2015,  Mr. Førre received approximately $6.1 million of the  $20.0 million
paid for the holdback related to potential indemnification claims and approximately $1.9 million of the
$6.3 million paid for the fiscal 2014 earn-out. Mr. Førre may receive up to approximately  $8.1 million
of the remaining potential $26.7 million earn-out for fiscal 2015  through 2018.

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, received
approximately $0.9 million at closing.  In fiscal 2015,  Mr. Bogen received  approximately $0.4 million of
the $20.0 million paid for the holdback  related to potential  indemnification  claims and  approximately
$0.1 million of the $6.3 million paid  for the fiscal 2014  earn-out. Mr. Bogen may receive up to
approximately $0.5 million of the remaining potential $26.7 million earn-out for  fiscal 2015 through
2018. Mr. Bogen had invested approximately $0.8 million in Energy Micro prior to the  acquisition.

Company’s United States Patent Nos. 6,137,372 and 6,233,441. Accordingly, this ITC investigation has

been terminated in its entirety.

On July 16, 2014, the Company filed a lawsuit against Cresta Technology  in the  United States

District Court in the Northern District of California alleging infringement of United States Patent

Nos. 6,308,055, 6,304,146, 6,137,372, 6,233,441, 6,965,761 and 7,353,011.  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. This lawsuit is currently scheduled for trial  in March 2016.

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.

The Company intends to continue to  vigorously defend  against Cresta Technology’s allegations. At

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

it, if any.

Other

statements.

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

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 30% of the Energy Micro equity and, accordingly, received  approximately

$35 million at closing. In fiscal 2015, Mr. Førre received approximately $6.1 million of the $20.0 million

paid for the holdback related to potential indemnification claims and approximately $1.9 million of the

$6.3 million paid for the fiscal 2014 earn-out. Mr. Førre may receive up to approximately $8.1 million

of the remaining potential $26.7 million earn-out for fiscal 2015  through 2018.

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, received

approximately $0.9 million at closing. In fiscal 2015, Mr. Bogen received approximately $0.4 million of

the $20.0 million paid for the holdback related to potential  indemnification claims and approximately

$0.1 million of the $6.3 million paid  for the fiscal 2014  earn-out. Mr. Bogen may receive up to

approximately $0.5 million of the remaining potential $26.7 million earn-out for  fiscal 2015 through

2018. Mr. Bogen had invested approximately $0.8 million in Energy Micro prior to the acquisition.

F-44

F-44

Silicon Laboratories Inc.
Notes to Consolidated Financial Statements
January 2, 2016 (Continued)

Silicon Laboratories Inc.

Notes to Consolidated Financial Statements

January 2, 2016 (Continued)

17. Income Taxes

17. Income Taxes

Significant components of the provision for income taxes are  as follows (in thousands):

Significant components of the provision for income taxes are as follows (in thousands):

Year Ended

January 2,
2016

January 3,
2015

December 28,
2013

Current:

Domestic . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . .
International

Total Current . . . . . . . . . . . . . . . . . . . . . . . . .

$

951
3,015

3,966

$ 7,083
882

7,965

$ 4,796
4,093

8,889

Deferred:

Domestic . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . .
International

Total Deferred . . . . . . . . . . . . . . . . . . . . . . . .

(5,825)
2,536

(3,289)

2,352
702

3,054

5,591
(2,272)

3,319

$

677

$11,019

$12,208

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:

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:

Year Ended

January 2,
2016

January 3,
2015

December 28,
2013

Federal statutory rate . . . . . . . . . . . . . . . . . . . . .
Foreign tax rate benefit . . . . . . . . . . . . . . . . . . .
Research and development tax credits . . . . . . . . .
Release of prior year unrecognized tax benefits . .
Excess officer compensation . . . . . . . . . . . . . . . .
Change in cost-sharing treatment of stock-based

compensation . . . . . . . . . . . . . . . . . . . . . . . . .
Change in prior period valuation allowance . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

35.0%
(30.7)
(5.6)
(1.9)
3.2

(7.1)
8.8
0.5

35.0%
(3.5)
(8.6)
(2.6)
2.3

—
(1.4)
1.3

35.0%
(8.2)
(12.8)
—
1.9

—
3.1
0.7

2.2%

22.5%

19.7%

Domestic . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$

951

$ 7,083

$ 4,796

Current:

Deferred:

International

. . . . . . . . . . . . . . . . . . . . . . . . .

Total Current . . . . . . . . . . . . . . . . . . . . . . . . .

Domestic . . . . . . . . . . . . . . . . . . . . . . . . . . . .

International

. . . . . . . . . . . . . . . . . . . . . . . . .

Total Deferred . . . . . . . . . . . . . . . . . . . . . . . .

Year Ended

January 2,

January  3,

December 28,

2016

2015

2013

3,015

3,966

(5,825)

2,536

(3,289)

882

7,965

2,352

702

3,054

4,093

8,889

5,591

(2,272)

3,319

$

677

$11,019

$12,208

Year Ended

January 2,

January  3,

December 28,

2016

2015

2013

Federal statutory rate . . . . . . . . . . . . . . . . . . . . .

Foreign tax rate benefit . . . . . . . . . . . . . . . . . . .

35.0%

(30.7)

Research and development tax credits . . . . . . . . .

Release of prior year unrecognized tax benefits . .

Excess officer compensation . . . . . . . . . . . . . . . .

Change in cost-sharing treatment of stock-based

compensation . . . . . . . . . . . . . . . . . . . . . . . . .

Change in prior period valuation allowance . . . . .

Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(5.6)

(1.9)

3.2

(7.1)

8.8

0.5

35.0%

(3.5)

(8.6)

(2.6)

2.3

—

(1.4)

1.3

35.0%

(8.2)

(12.8)

—

1.9

—

3.1

0.7

2.2%

22.5%

19.7%

The effective tax rate for fiscal 2015 decreased from fiscal 2014,  primarily due to the completion of

payments related to a prior year intercompany  licensing arrangement resulting in an increase to the
foreign tax rate benefit as well as the  recognition of a net benefit resulting from a  change in the tax
accounting treatment of stock-based  compensation  in a cost-sharing arrangement following  a recent
U.S. Tax Court case.

The effective tax rate for fiscal 2015 decreased from fiscal 2014, primarily due to the completion of

payments related to a prior year intercompany licensing arrangement resulting in an increase to the

foreign tax rate benefit as well as the  recognition of a net benefit resulting from a change in the tax

accounting treatment of stock-based compensation in a cost-sharing arrangement following  a recent

U.S. Tax Court case.

F-45

F-45

 
Silicon Laboratories Inc.
Notes to Consolidated Financial Statements
January 2, 2016 (Continued)

Silicon Laboratories Inc.

Notes to Consolidated Financial Statements

January 2, 2016 (Continued)

17. Income Taxes (Continued)

17. Income Taxes (Continued)

On July 27, 2015, the U.S. Tax Court  (the ‘‘Court’’) issued an opinion in Altera Corp.  v.
Commissioner related to the treatment of stock-based compensation expense in an intercompany
cost-sharing arrangement. A final decision was entered by the Court  on December 1, 2015. In its
opinion, the Court accepted Altera’s position of excluding stock-based compensation from its
intercompany cost-sharing arrangement. The U.S. Internal Revenue Service has the right to appeal the
Court decision, and although the U.S.  Department  of the Treasury has not withdrawn the  requirement
from its regulations to include stock-based  compensation  in intercompany cost-sharing arrangements,
the Company has evaluated the Court case  and has concluded that the Court’s  opinion  is  more  likely
than not to be sustained upon final appeal of the decision. The  Company has analyzed  the impact of
the Court case and has recorded a tax benefit of  $29.6 million in its consolidated  statement  of income
for fiscal 2015. Of the total $29.6 million tax benefit, $25.9 million represents the  benefit of a future
intercompany transaction that will result from the reversal of the  inclusion of stock-based compensation
in the Company’s cost-sharing arrangement  as a result of stock-based awards that have already vested.
The remainder of the $29.6 million benefit, or $3.7 million,  represents  the additional benefit reflected
in the ending deferred tax asset for stock-based compensation as a result  of  the Altera  decision.
Because this change to cost-sharing is expected  to  increase the Company’s  cumulative  foreign  earnings
at the time of final resolution of the case, in fiscal 2015, the Company  accrued a deferred tax liability
of $27.5 million as a result of management’s intent to repatriate the foreign earnings generated when
the inclusion of stock-based compensation in  its  cost-sharing arrangement is reversed.

The decrease in the effective tax rate during fiscal 2015 from the completion of payments related

to a prior year intercompany licensing  arrangement  and the recognition of a net  benefit from the
Altera case was partially offset by an  increase in the prior  year valuation allowance related  to  lower
expectations of profitability in jurisdictions where  tax  attributes exist. Additionally,  the Company
expects a lower realization of the recently re-enacted U.S. federal  research  and development  tax credit
as compared to the realization of the U.S. federal research  and  development  tax credit in  fiscal  2014.

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.

On July 27, 2015, the U.S. Tax Court (the ‘‘Court’’) issued an opinion in Altera Corp. v.

Commissioner related to the treatment of stock-based compensation expense in an intercompany

cost-sharing arrangement. A final decision was entered by  the Court on  December 1, 2015. In its

opinion, the Court accepted Altera’s position of excluding stock-based compensation from its

intercompany cost-sharing arrangement. The U.S. Internal Revenue Service has the right to appeal the

Court decision, and although the U.S. Department of the Treasury has not withdrawn the requirement

from its regulations to include stock-based compensation in intercompany cost-sharing arrangements,

the Company has evaluated the Court case and has concluded that the Court’s  opinion  is  more  likely

than not to be sustained upon final appeal of the decision. The Company  has analyzed the impact of

the Court case and has recorded a tax benefit of $29.6 million in its consolidated statement of income

for fiscal 2015. Of the total $29.6 million tax benefit, $25.9 million represents the benefit of a future

intercompany transaction that will result from the reversal of the  inclusion of stock-based compensation

in the Company’s cost-sharing arrangement as  a result of  stock-based awards that have already vested.

The remainder of the $29.6 million benefit, or $3.7 million, represents  the additional benefit reflected

in the ending deferred tax asset for stock-based compensation as a result  of the Altera decision.

Because this change to cost-sharing is expected to increase the Company’s  cumulative  foreign  earnings

at the time of final resolution of the case, in fiscal  2015, the Company accrued a deferred tax liability

of $27.5 million as a result of management’s intent to repatriate the foreign earnings generated when

the inclusion of stock-based compensation in its cost-sharing arrangement is reversed.

The decrease in the effective tax rate during fiscal 2015  from the completion of payments related

to a prior year intercompany licensing  arrangement and the recognition of a net benefit from the

Altera case was partially offset by an increase in the prior year valuation allowance related to lower

expectations of profitability in jurisdictions where tax attributes exist. Additionally,  the Company

expects a lower realization of the recently re-enacted U.S. federal  research and development  tax credit

as compared to the realization of the U.S. federal research and  development  tax credit in fiscal  2014.

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.

Income before income taxes included the following components (in  thousands):

Income before income taxes included the following components (in  thousands):

Year Ended

January 2,
2016

January 3,
2015

December 28,
2013

Domestic . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 2,249
28,014

$38,174
10,866

$30,263

$49,040

$41,849
20,178

$62,027

Domestic . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 2,249

28,014

$38,174

10,866

Year Ended

January 2,

January  3,

December 28,

2016

2015

2013

$30,263

$49,040

$41,849

20,178

$62,027

F-46

F-46

Silicon Laboratories Inc.
Notes to Consolidated Financial Statements
January 2, 2016 (Continued)

Silicon Laboratories Inc.

Notes to Consolidated Financial Statements

January 2, 2016 (Continued)

17. Income Taxes (Continued)

17. Income Taxes (Continued)

Foreign income before taxes increased from  fiscal 2014 to fiscal 2015  primarily  due  to  the

completion of payments related to a prior year  intercompany licensing arrangement. The impact of  this
change was partially offset by lower profitability  for fiscal  2015 as compared to fiscal 2014,
predominately resulting from higher amortization  of acquired intangibles.

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.

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 2015  related
to certain state research and development  tax  credit carryforwards generated  in fiscal 2015 as well as
recording a new valuation allowance of $3.2 million related to a carryforward of the recently enacted
U.S. federal research and development  tax credit  generated in  fiscal 2015. The Company  also recorded
a new valuation allowance of $0.6 million in fiscal 2015  related to the  state tax impact of the change in
tax accounting treatment of stock-based  compensation  in a cost-sharing arrangement. In addition, the
Company recorded additional valuation  allowances  of $2.0 million for previously acquired federal
research and development credit carryforwards, $0.4  million  for prior  year  state research and
development credit carryforwards and $0.2  million  for prior  year state net  operating loss carryforwards.
The Company does not expect to recognize sufficient  income in the jurisdictions in which the
carryforwards were created and therefore, the Company has concluded that it is more  likely than not
that a portion of these carryforwards will expire or go unutilized.  In addition, in  fiscal  2015, the
Company recorded a reduction of $0.1 million  to  the prior  year 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 2015. 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.

Foreign income before taxes increased from fiscal 2014 to fiscal 2015  primarily due to the

completion of payments related to a prior year  intercompany licensing arrangement. The impact of  this

change was partially offset by lower profitability  for fiscal 2015 as compared to fiscal 2014,

predominately resulting from higher amortization  of acquired intangibles.

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.

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 2015 related

to certain state research and development tax  credit carryforwards generated in fiscal 2015 as well as

recording a new valuation allowance of $3.2 million related to a carryforward of the recently enacted

U.S. federal research and development tax credit generated in  fiscal 2015. The Company also recorded

a new valuation allowance of  $0.6 million in fiscal 2015  related to the state tax impact of the change in

tax accounting treatment of stock-based  compensation in a cost-sharing arrangement. In addition, the

Company recorded additional valuation allowances of $2.0 million for previously acquired federal

research and development credit carryforwards, $0.4  million for prior year state research and

development credit carryforwards and $0.2 million for prior year state net operating loss carryforwards.

The Company does not expect to recognize sufficient income in the jurisdictions in which the

carryforwards were created and therefore, the Company has concluded that it is more likely than not

that a portion of these carryforwards will expire or go unutilized.  In addition, in fiscal 2015, the

Company recorded a reduction of $0.1 million to the prior year 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 2015. 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.

F-47

F-47

 
Silicon Laboratories Inc.
Notes to Consolidated Financial Statements
January 2, 2016 (Continued)

Silicon Laboratories Inc.

Notes to Consolidated Financial Statements

January 2, 2016 (Continued)

17. Income Taxes (Continued)

Significant components of the Company’s deferred taxes as of January 2, 2016 and January  3, 2015

Significant components of the Company’s deferred taxes as of January 2, 2016 and January 3, 2015

are as follows (in thousands):

17. Income Taxes (Continued)

are as follows (in thousands):

January 2,
2016

January 3,
2015

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 . . . . . . . . . . .
Expected future cost-sharing adjustment . . . . . . . . . . . . . . .
Accrued liabilities and other . . . . . . . . . . . . . . . . . . . . . . . .

$ 25,869
13,335
8,757
8,741
7,413
25,896
8,619

$31,518
9,740
6,353
7,371
8,117
—
6,481

Less: Valuation allowance . . . . . . . . . . . . . . . . . . . . . . . . . .

Deferred tax liabilities:

Acquired intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . .
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . .
Unremitted foreign earnings for expected future cost-sharing
adjustment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid expenses and other . . . . . . . . . . . . . . . . . . . . . . . .

98,630
(10,264)

69,580
(3,455)

88,366

66,125

33,020
2,349

27,495
1,991

64,855

33,630
3,388

—
1,517

38,535

January  2,

January 3,

2016

2015

Deferred tax assets:

Net operating loss carryforwards . . . . . . . . . . . . . . . . . . . . .

$ 25,869

$31,518

Research and development tax credit carryforwards . . . . . . .

13,335

Stock-based compensation . . . . . . . . . . . . . . . . . . . . . . . . .

Capitalized research and development . . . . . . . . . . . . . . . . .

Deferred income on shipments to distributors . . . . . . . . . . .

Expected future cost-sharing adjustment . . . . . . . . . . . . . . .

Accrued liabilities and other . . . . . . . . . . . . . . . . . . . . . . . .

8,757

8,741

7,413

25,896

8,619

9,740

6,353

7,371

8,117

—

6,481

Less: Valuation allowance . . . . . . . . . . . . . . . . . . . . . . . . . .

Deferred tax liabilities:

Acquired intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . .

Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . .

Unremitted foreign earnings for expected  future cost-sharing

adjustment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Prepaid expenses and other . . . . . . . . . . . . . . . . . . . . . . . .

98,630

(10,264)

69,580

(3,455)

88,366

66,125

33,020

2,349

27,495

1,991

64,855

33,630

3,388

—

1,517

38,535

Net deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 23,511

$27,590

Net deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 23,511

$27,590

As of January 2, 2016, the Company  had federal net  operating  loss and research and development
tax credit carryforwards of approximately  $53.8 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.
Additionally, as of January 2, 2016, the  Company had $5.1 million of federal  research  and development
tax credit carryforward. This carryforward will expire in 2036.

As of January 2, 2016, the Company  had foreign net operating loss carryforwards  of  approximately

$15.8 million as a result of the Energy  Micro acquisition. These loss carryforwards do  not  expire and
recognition is not subject to an annual limit. Additionally,  as of January 2, 2016, the  Company had
foreign net operating loss carryforwards  of approximately $0.2  million  as a result of the Bluegiga
acquisition. These loss carryforwards  will expire in fiscal year 2025.

The Company also had state loss and research and development tax credit carryforwards of

approximately $54.0 million and $12.5  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

As of January 2, 2016, the Company had federal net operating loss and research and development

tax credit carryforwards of approximately $53.8 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.

Additionally, as of January 2, 2016, the Company had $5.1 million of federal research and development

tax credit carryforward. This carryforward will expire in 2036.

As of January 2, 2016, the Company had foreign net operating loss carryforwards of approximately

$15.8 million as a result of the Energy Micro acquisition. These loss carryforwards do not expire and

recognition is not subject to an annual limit.  Additionally,  as of January 2, 2016, the Company had

foreign net operating loss carryforwards  of  approximately $0.2 million  as a result of the Bluegiga

acquisition. These loss carryforwards will expire  in fiscal year 2025.

The Company also had state loss and research and  development tax credit carryforwards of

approximately $54.0 million and $12.5 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

F-48

F-48

Silicon Laboratories Inc.
Notes to Consolidated Financial Statements
January 2, 2016 (Continued)

Silicon Laboratories Inc.

Notes to Consolidated Financial Statements

January 2, 2016 (Continued)

17. Income Taxes (Continued)

17. Income Taxes (Continued)

expire in fiscal years 2016 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 2015, undistributed earnings of  the Company’s  foreign  subsidiaries  of

approximately $312.4 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.  Other than the previously  described future earnings  of  its
Singapore subsidiary as a result of the  reversal of the inclusion of stock-based compensation in  its
cost-sharing arrangement, the Company intends to continue to permanently  reinvest  the actual earnings
of each of its foreign subsidiaries.

The Company’s operations in Singapore are subject to reduced tax rates  through June 30, 2019, as

long as certain conditions are met. The income tax benefit from the reduced Singapore tax  rate
reflected in earnings was approximately  $14.4 million (representing $0.34 per diluted share) in fiscal
2015, approximately $2.0 million (representing $0.05 per diluted share) in  fiscal  2014, and
approximately $2.2 million (representing $0.05 per diluted share) in fiscal 2013.  The significant increase
in the impact of the reduced Singapore tax rate from fiscal  2014 to fiscal  2015 is due to the recognition
of additional profit in Singapore for tax accounting purposes as a result of the Altera case as  well as
the completion of payments related to a  prior year intercompany  licensing agreement.

The following table reflects changes in the unrecognized tax benefits (in thousands):

The following table reflects changes in the unrecognized tax benefits (in thousands):

Beginning balance . . . . . . . . . . . . . . . . . . . . . . .
Additions based on tax positions related to

Year Ended

January 2,
2016

January 3,
2015

December 28,
2013

$3,929

$ 4,998

$4,364

current year . . . . . . . . . . . . . . . . . . . . . . . . . .

432

465

Additions based on tax positions related to prior

years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Reductions for tax positions related to  prior years

—
(751)

58
(1,592)

316

318
—

Ending balance . . . . . . . . . . . . . . . . . . . . . . . . .

$3,610

$ 3,929

$4,998

As of January 2, 2016, January 3, 2015  and December 28,  2013, the Company  had gross

unrecognized tax benefits of $3.6 million, $3.9 million, and $5.0  million, respectively, of which
$3.2 million, $4.0 million, and $4.8 million, respectively,  would affect the effective tax rate  if  recognized.
During  fiscal 2015, the Company had gross increases  of  $0.4 million to its current year unrecognized
tax benefits, as well as gross decreases  of $0.6  million related to an uncertain tax position that was
closed by statute. In addition, there was  a reduction of $0.2 million due to foreign currency
remeasurement adjustments related to  prior  year unrecognized  tax  benefits which were  recognized in
other income (expense), net. 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

F-49

F-49

expire in fiscal years 2016 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 2015, undistributed earnings of  the Company’s  foreign  subsidiaries  of

approximately $312.4 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. Other than the previously  described future earnings of  its

Singapore subsidiary as a result of the  reversal of the inclusion of stock-based compensation in  its

cost-sharing arrangement, the Company intends to continue to permanently  reinvest the actual earnings

of each of its foreign subsidiaries.

The Company’s operations in Singapore are subject to reduced tax rates through June 30, 2019, as

long as certain conditions are met. The income tax benefit from the reduced Singapore tax rate

reflected in earnings was approximately $14.4 million (representing $0.34 per diluted share) in fiscal

2015, approximately $2.0 million (representing $0.05 per diluted share) in fiscal 2014, and

approximately $2.2 million (representing $0.05 per diluted share) in fiscal 2013. The significant increase

in the impact of the reduced Singapore tax rate from fiscal 2014 to fiscal 2015 is due to the recognition

of additional profit in Singapore for tax accounting purposes as a result of the Altera case as well as

the completion of payments related to a  prior year intercompany  licensing agreement.

Year Ended

January 2,

January  3,

December 28,

2016

2015

2013

Beginning balance . . . . . . . . . . . . . . . . . . . . . . .

$3,929

$ 4,998

$4,364

Additions based on tax positions related to

current year . . . . . . . . . . . . . . . . . . . . . . . . . .

432

Additions based on tax positions related to prior

years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Reductions for tax positions related to prior years

—

(751)

465

58

(1,592)

316

318

—

Ending balance . . . . . . . . . . . . . . . . . . . . . . . . .

$3,610

$ 3,929

$4,998

As of January 2, 2016, January 3, 2015  and December 28,  2013, the Company had gross

unrecognized tax benefits of $3.6 million, $3.9 million, and $5.0  million, respectively, of which

$3.2 million, $4.0 million, and $4.8 million, respectively, would affect the effective tax rate  if recognized.

During fiscal 2015, the Company had gross increases  of  $0.4 million to its current year unrecognized

tax benefits, as well as gross decreases of $0.6 million related to an uncertain tax position that was

closed by statute. In addition, there was a reduction of $0.2 million due to foreign currency

remeasurement adjustments related to prior year unrecognized  tax benefits which were  recognized in

other income (expense), net. 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

 
Silicon Laboratories Inc.
Notes to Consolidated Financial Statements
January 2, 2016 (Continued)

Silicon Laboratories Inc.

Notes to Consolidated Financial Statements

January 2, 2016 (Continued)

17. Income Taxes (Continued)

17. Income Taxes (Continued)

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 to its current and prior year
unrecognized tax benefits.

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 fiscal 2015, 2014 and 2013.  The  Company had an accrual of  less  than $0.1  million
for the payment of interest related to unrecognized tax positions at the end  of  fiscal 2015, 2014  and
2013.

The Company believes it is reasonably possible that the gross unrecognized tax benefits  will
decrease by approximately $1.1 million in the  next 12 months  due to the lapse of the  statute of
limitations applicable to tax deductions  and tax credits claimed on prior  year  tax returns.

The tax years 2011 through 2015 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 products, 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.

The Company groups its products into four 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 2,
2016

January 3,
2015

December 28,
2013

Internet of Things . . . . . . . . . . . . . . . . . . . . . . .
Broadcast . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Infrastructure . . . . . . . . . . . . . . . . . . . . . . . . . .
Access . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$262,329
161,787
121,974
98,736

$209,005
204,256
108,123
99,320

$181,254
199,837
100,523
98,473

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

$644,826

$620,704

$580,087

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 to its current and prior year

unrecognized tax benefits.

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 fiscal 2015, 2014 and 2013.  The  Company had an accrual of  less than $0.1 million

for the payment of interest related to unrecognized tax positions at the end of  fiscal 2015, 2014 and

2013.

The Company believes it is reasonably possible that the gross unrecognized tax benefits will

decrease by approximately $1.1 million in the  next 12 months  due to the lapse of the  statute of

limitations applicable to tax deductions  and tax credits claimed on prior  year  tax returns.

The tax years 2011 through 2015 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 products, 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.

The Company groups its products into four 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 2,

January 3,

December 28,

2016

2015

2013

Internet of Things . . . . . . . . . . . . . . . . . . . . . . .

$262,329

$209,005

$181,254

Broadcast . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Infrastructure . . . . . . . . . . . . . . . . . . . . . . . . . .

Access . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

161,787

121,974

98,736

204,256

108,123

99,320

199,837

100,523

98,473

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

$644,826

$620,704

$580,087

The Company previously grouped IoT  products and Infrastructure  products under the Broad-based

The Company previously grouped IoT  products and Infrastructure  products under the Broad-based

products heading.

products heading.

F-50

F-50

Silicon Laboratories Inc.
Notes to Consolidated Financial Statements
January 2, 2016 (Continued)

Silicon Laboratories Inc.

Notes to Consolidated Financial Statements

January 2, 2016 (Continued)

18. Segment Information (Continued)

18. Segment Information (Continued)

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):

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 2,
2016

January 3,
2015

December 28,
2013

United States . . . . . . . . . . . . . . . . . . . . . . . . . .
China . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Rest of world . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 96,959
281,306
266,561

$ 89,935
271,818
258,951

$ 68,566
253,261
258,260

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

$644,826

$620,704

$580,087

Year Ended

January 2,

January 3,

December 28,

2016

2015

2013

United States . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 96,959

$ 89,935

$ 68,566

China . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Rest of world . . . . . . . . . . . . . . . . . . . . . . . . . .

281,306

266,561

271,818

258,951

253,261

258,260

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

$644,826

$620,704

$580,087

The following summarizes the Company’s property and equipment, net by geographic  area (in

The following summarizes the Company’s property and equipment, net by geographic area (in

thousands):

thousands):

United States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Rest of world . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$126,404
4,728

$127,928
4,892

Total

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$131,132

$132,820

January 2,
2016

January 3,
2015

United States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$126,404

$127,928

Rest of world . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

4,728

4,892

Total

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$131,132

$132,820

January  2,

January 3,

2016

2015

F-51

F-51

 
Supplementary Financial Information  (Unaudited)

Supplementary Financial Information (Unaudited)

Quarterly financial information for fiscal 2015 and 2014  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):

Quarterly financial information for fiscal 2015 and 2014  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 2015

Fourth
Quarter

Third
Quarter

Second
Quarter

First
Quarter

Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross margin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$160,071
93,538
4,796
5,658

$

$156,194
93,435
11,223
9,975

$

$164,856
97,428
9,003
7,575

$

$163,705
96,369
7,212
6,378

$

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

$160,071

$156,194

$164,856

$163,705

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

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

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

93,538

4,796

5,658

93,435

11,223

9,975

97,428

9,003

7,575

96,369

7,212

6,378

Earnings per share:

Earnings per share:

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

$
$

0.14
0.13

$
$

0.24
0.23

$
$

0.18
0.17

$
$

0.15
0.15

Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

0.14

0.13

0.24

0.23

0.18

0.17

0.15

0.15

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

$

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

$161,951

$158,144

$154,918

$145,691

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

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

96,672

11,006

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

$ 10,024

96,111

9,604

5,608

98,663

20,802

$ 14,279

87,105

10,009

8,110

Earnings per share:

Earnings per share:

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

$
$

0.24
0.23

$
$

0.13
0.13

$
$

0.33
0.32

$
$

0.19
0.18

Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$

$

0.24

0.23

0.13

0.13

$

$

0.33

0.32

0.19

0.18

Fiscal 2015

Fourth

Quarter

Third

Quarter

Second

Quarter

First

Quarter

$

$

$

$

$

$

Fiscal 2014

Fourth

Quarter

Third

Quarter

Second

Quarter

First

Quarter

$

$

$

$

$

$

$

$

$

$

$

$

Supplementary Financial Information
to the Annual Report

Supplementary Financial Information

to the Annual Report

Appendix I. Reconciliation of GAAP
to Non-GAAP Financial Measures

Appendix  I. Reconciliation of  GAAP

to Non-GAAP  Financial  Measures

 
Appendix I: Supplemental Financial  Information (Unaudited)

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.

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)

Unaudited Reconciliation of GAAP to Non-GAAP Financial Measures

(In thousands, except per share data)

Non-GAAP Income
Statement Items

GAAP

Percent of Compensation

Measure Revenue

Expense*

GAAP

Stock

Intangible
Asset
Amortization*

Acquisition
Related
Items*

Termination
Costs*

Non-GAAP
Income Tax Non-GAAP Percent of
Revenue
Adjustments* Measure

Non-GAAP Income

Statement  Items

GAAP

Percent of Compensation

Asset

Measure Revenue

Expense*

Amortization*

Related

Items*

Termination

Income Tax Non-GAAP Percent of

Costs*

Adjustments* Measure

Revenue

GAAP

Stock

Intangible

Acquisition

Non-GAAP

Year Ended
January 2,  2016

Year  Ended

January  2, 2016

Revenues . . . . . . . . $644,826

Gross margin . . . . .

380,770

59.1%

$

960

$ 1,559

$2,658

$

24

$

Research and

development

. . . .

188,050

29.2%

19,451

19,677

—

794

Selling, general and

administrative . . .

160,486

24.9%

Operating expenses

.

348,536

54.1%

Operating income . .

32,234

Net income . . . . . .

29,586

5.0%

4.6%

22,380

41,831

42,791

42,791

Diluted shares

4,781

24,458

26,017

26,017

4,004

4,004

6,662

6,662

890

1,684

1,708

1,708

—

—

—

—

—

$385,971

59.9%

Gross margin . . . . .

380,770

59.1%

$

960

$ 1,559

$2,658

$

24

$

$385,971

59.9%

148,128

23.0%

development

. . . .

188,050

29.2%

19,451

19,677

—

794

148,128

23.0%

128,431

276,559

109,412

19.9%

42.9%

17.0%

14.9%

Selling, general and

administrative . . .

160,486

24.9%

Operating expenses

.

348,536

54.1%

Operating income . .

32,234

Net income . . . . . .

29,586

5.0%

4.6%

22,380

41,831

42,791

42,791

4,781

24,458

26,017

26,017

4,004

4,004

6,662

6,662

890

1,684

1,708

1,708

128,431

276,559

109,412

19.9%

42.9%

17.0%

14.9%

(10,549)

96,215

(10,549)

96,215

outstanding . . . . .

42,945

—

—

—

—

—

42,945

outstanding . . . . .

42,945

—

—

—

—

—

42,945

Diluted earnings per

share . . . . . . . . . $

0.69

*

Represent pre-tax amounts

$

2.24

$

2.24

Revenues . . . . . . . . $644,826

Research and

Diluted  shares

Diluted  earnings  per

share . . . . . . . . . $

0.69

*

Represent pre-tax amounts

—

—

—

—

—

Unaudited Reconciliation of GAAP to Non-GAAP Financial Measures
(In thousands, except per share data)
(Continued)

Three Months Ended
January 2, 2016

Non-GAAP  Income
Statement  Items

GAAP

Percent  of Compensation

Measure Revenue

Expense*

GAAP

Stock

Intangible
Asset
Amortization*

Acquisition
Related
Items*

Termination
Costs*

Non-GAAP
Income Tax Non-GAAP Percent of
Revenue
Adjustments* Measure

Non-GAAP Income

Statement Items

GAAP

Percent of Compensation

Asset

Measure Revenue

Expense*

Amortization*

Related

Items*

Termination

Income Tax Non-GAAP Percent of

Costs*

Adjustments* Measure

Revenue

GAAP

Stock

Intangible

Acquisition

Non-GAAP

Revenues . . . . . . $160,071

Gross margin . . . .

93,538

58.4%

$

251

$ 390

$ 201

$ —

$ —

$94,380

59.0%

Gross margin . . . .

93,538

58.4%

$

251

$ 390

$ 201

$ —

$ —

$94,380

59.0%

Research and

development . . .

47,245

29.5%

5,073

5,441

—

Selling, general and
administrative . .

41,497

25.9%

Operating  expenses

88,742

55.4%

Operating  income .

Net  income . . . . .

4,796

5,658

3.0%

3.5%

6,669

11,742

11,993

11,993

1,286

6,727

7,117

7,117

1,752

1,752

1,953

1,953

Diluted shares

outstanding . . .

42,374

Diluted earnings

per share . . . . . $

0.13

*

Represent  pre-tax  amounts

—

—

—

Three Months Ended
October 3, 2015

336

380

716

716

716

—

—

—

—

—

(889)

36,395

22.7%

31,410

67,805

26,575

26,548

19.7%

42.4%

16.6%

16.6%

—

42,374

$

0.63

Non-GAAP Income
Statement Items

GAAP

Percent  of Compensation

Measure Revenue

Expense*

GAAP

Stock

Intangible
Asset
Amortization*

Acquisition
Related
Items*

Termination
Costs*

Non-GAAP
Income Tax Non-GAAP Percent of
Revenue
Adjustments* Measure

Non-GAAP Income

Statement Items

GAAP

Percent of Compensation

Asset

Measure Revenue

Expense*

Amortization*

Related

Items*

Termination

Income Tax Non-GAAP Percent of

Costs*

Adjustments* Measure

Revenue

GAAP

Stock

Intangible

Acquisition

Non-GAAP

Revenues . . . . . . $156,194

Revenues . . . . . . $156,194

Gross margin . . . .

93,435

59.8%

$ 249

$ 390

$ —

$ —

$ —

$94,074

60.2%

Gross margin . . . .

93,435

59.8%

$ 249

$ 390

$ —

$ —

$ —

$94,074

60.2%

Research and

development . . .

46,483

29.8%

4,623

Selling, general and
administrative . .

35,729

22.8%

Operating expenses

82,212

52.6%

7.2%

6.4%

Operating income .

11,223

Net income . . . . .

9,975

Diluted shares

outstanding . . .

42,795

Diluted earnings

per share . . . . . $

0.23

*

Represent  pre-tax  amounts

4,350

8,973

9,222

9,222

—

5,250

1,219

6,469

6,859

6,859

—

(1,351)

(1,351)

(1,351)

(1,351)

—

—

—

118

118

118

118

—

—

—

—

—

(2,996)

36,610

23.4%

31,393

68,003

26,071

21,827

20.1%

43.5%

16.7%

14.0%

—

42,795

$

0.51

Research and

development . . .

46,483

29.8%

4,623

Selling, general and

administrative . .

35,729

22.8%

Operating expenses

82,212

52.6%

7.2%

6.4%

Operating income .

11,223

Net income . . . . .

9,975

Diluted shares

outstanding . . .

42,795

Diluted earnings

per share . . . . . $

0.23

*

Represent pre-tax amounts

4,350

8,973

9,222

9,222

—

Unaudited Reconciliation of GAAP to Non-GAAP Financial Measures

(In thousands, except per share data)

(Continued)

Three Months Ended

January 2, 2016

Selling, general and

administrative . .

41,497

25.9%

Operating expenses

88,742

55.4%

Operating income .

Net income . . . . .

4,796

5,658

3.0%

3.5%

6,669

11,742

11,993

11,993

1,286

6,727

7,117

7,117

1,752

1,752

1,953

1,953

Revenues . . . . . . $160,071

Research and

Diluted shares

outstanding . . .

42,374

Diluted earnings

per share . . . . . $

0.13

*

Represent pre-tax amounts

development . . .

47,245

29.5%

5,073

5,441

—

36,395

22.7%

—

—

—

—

42,374

336

380

716

716

716

—

—

118

118

118

118

—

—

—

—

—

(889)

19.7%

42.4%

16.6%

16.6%

31,410

67,805

26,575

26,548

$

0.63

—

—

—

—

(2,996)

36,610

23.4%

20.1%

43.5%

16.7%

14.0%

31,393

68,003

26,071

21,827

$

0.51

Three Months Ended

October 3, 2015

5,250

1,219

6,469

6,859

6,859

—

(1,351)

(1,351)

(1,351)

(1,351)

—

—

—

42,795

 
Unaudited Reconciliation of GAAP to Non-GAAP Financial Measures
(In thousands, except per share data)
(Continued)

Three Months Ended
July 4, 2015

Non-GAAP  Income
Statement  Items

GAAP

Percent  of Compensation

Measure Revenue

Expense*

GAAP

Stock

Intangible
Asset
Amortization*

Acquisition
Related
Items*

Termination
Costs*

Non-GAAP
Income Tax Non-GAAP Percent of
Revenue
Adjustments* Measure

Non-GAAP Income

Statement Items

GAAP

Percent of Compensation

Asset

Measure Revenue

Expense*

Amortization*

Related

Items*

Termination

Income Tax Non-GAAP Percent of

Costs*

Adjustments* Measure

Revenue

GAAP

Stock

Intangible

Acquisition

Non-GAAP

Revenues . . . . . . $164,856

Gross margin . . . .

97,428

59.1%

$

229

$ 390

$1,324

$ —

$ —

$99,371

60.3%

Gross margin . . . .

97,428

59.1%

$

229

$ 390

$1,324

$ —

$ —

$99,371

60.3%

Research and

development . . .

47,465

28.8%

4,960

5,116

Selling, general and
administrative . .

40,960

24.8%

Operating  expenses

88,425

53.6%

Operating  income .

Net  income . . . . .

9,003

7,575

5.5%

4.6%

5,868

10,828

11,057

11,057

1,219

6,335

6,725

6,725

—

767

767

2,091

2,091

Diluted shares

outstanding . . .

43,461

Diluted earnings

per share . . . . . $

0.17

*

Represent  pre-tax  amounts

—

—

—

Three Months Ended
April 4, 2015

—

392

392

392

392

—

—

—

—

—

(3,379)

37,389

22.7%

32,714

70,103

29,268

24,461

19.8%

42.5%

17.8%

14.8%

—

43,461

$

0.56

Non-GAAP Income
Statement Items

GAAP

Percent  of Compensation

Measure Revenue

Expense*

GAAP

Stock

Intangible
Asset
Amortization*

Acquisition
Related
Items*

Termination
Costs*

Non-GAAP
Income Tax Non-GAAP Percent of
Revenue
Adjustments* Measure

Non-GAAP Income

Statement Items

GAAP

Percent of Compensation

Asset

Measure Revenue

Expense*

Amortization*

Related

Items*

Termination

Income Tax Non-GAAP Percent of

Costs*

Adjustments* Measure

Revenue

GAAP

Stock

Intangible

Acquisition

Non-GAAP

Revenues . . . . . . $163,705

Gross margin . . . .

96,369

58.9%

$

230

$ 390

$1,133

$ 24

$ —

$98,146

60.0%

Gross margin . . . .

96,369

58.9%

$

230

$ 390

$1,133

$ 24

$ —

$98,146

60.0%

Research and

development . . .

46,857

28.6%

4,795

3,870

—

Selling, general and
administrative . .

42,300

25.9%

Operating expenses

89,157

54.5%

Operating income .

Net income . . . . .

7,212

6,378

4.4%

3.9%

5,494

10,289

10,519

10,519

1,056

4,926

5,316

5,316

2,836

2,836

3,969

3,969

Diluted shares

outstanding . . .

43,149

Diluted earnings

per share . . . . . $

0.15

*

Represent  pre-tax  amounts

—

—

—

458

—

458

482

482

—

—

—

—

—

(3,285)

37,734

23.1%

32,914

70,648

27,498

23,379

20.1%

43.2%

16.8%

14.3%

—

43,149

$

0.54

Unaudited Reconciliation of GAAP to Non-GAAP Financial Measures

(In thousands, except per share data)

(Continued)

Three Months Ended

July 4, 2015

Revenues . . . . . . $164,856

Research and

Selling, general and

administrative . .

40,960

24.8%

Operating expenses

88,425

53.6%

Operating income .

Net income . . . . .

9,003

7,575

5.5%

4.6%

5,868

10,828

11,057

11,057

1,219

6,335

6,725

6,725

—

767

767

2,091

2,091

development . . .

47,465

28.8%

4,960

5,116

37,389

22.7%

—

—

—

—

43,461

Three Months Ended

April 4, 2015

development . . .

46,857

28.6%

4,795

3,870

—

37,734

23.1%

Selling, general and

administrative . .

42,300

25.9%

Operating expenses

89,157

54.5%

Operating income .

Net income . . . . .

7,212

6,378

4.4%

3.9%

5,494

10,289

10,519

10,519

1,056

4,926

5,316

5,316

2,836

2,836

3,969

3,969

—

—

—

—

43,149

—

392

392

392

392

—

458

—

458

482

482

—

—

—

—

—

(3,379)

—

—

—

—

(3,285)

19.8%

42.5%

17.8%

14.8%

32,714

70,103

29,268

24,461

$

0.56

20.1%

43.2%

16.8%

14.3%

32,914

70,648

27,498

23,379

$

0.54

Diluted shares

outstanding . . .

43,461

Diluted earnings

per share . . . . . $

0.17

*

Represent pre-tax amounts

Revenues . . . . . . $163,705

Research and

Diluted shares

outstanding . . .

43,149

Diluted earnings

per share . . . . . $

0.15

*

Represent pre-tax amounts

Silicon Labs makes silicon, software and 
solutions for a more connected world.

Founded in 1996 and headquartered in Austin, Texas, Silicon Labs has more than 1,500 
patents issued or pending. The company’s common stock is traded on the NASDAQ® 
exchange under the ticker symbol “SLAB.”

Board of Directors

Executive Offi cers

Corporate Information

Tyson Tuttle
Chief Executive Offi cer

William G. Bock
President

John Hollister
Senior Vice President and 
Chief Financial Offi cer 

Brandon Tolany
Senior Vice President of 
Worldwide Sales

Sandeep Kumar, PhD
Senior Vice President 
of Worldwide Operations

Nav S. Sooch
Chief Executive Offi cer, 
Ketra

Tyson Tuttle
Chief Executive Offi cer, 
Silicon Labs 

William G. Bock
President,
Silicon Labs

Alf-Egil Bogen 
Chief Executive Offi cer,
Novelda AS 

Robert Ted Enloe, III 
Managing General Partner, 
Balquita Partners, Ltd. 

Jack Lazar
Chief Financial Offi cer,
GoPro

Nina Richardson
Managing Director,
Three Rivers Energy

Sumit Sadana
Executive Vice President,
Chief Strategy Offi cer and 
General Manager of 
Enterprise Solutions, 
Sandisk

Bill Wood
General Partner,
Silverton Partners

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, USA 78701

Independent Registered Public 
Accounting Firm
Ernst & Young LLP
401 Congress Avenue, 
Suite 1800
Austin, Texas, USA 78701

Transfer Agent and Registrar
American Stock Transfer & 
Trust Company
59 Maiden Lane
Plaza Level 
New York, New York, USA 10038
+1 800-937-5449

Stock Data 
As of January 26, 2016, there 
were 41,554,116 shares issued 
and outstanding, and 90 holders 
of record. The table below shows 
the high and low per-share sales 
prices of our common stock for 
the periods indicated, as reported 
by NASDAQ

High

Low

$52.83

$42.61

$58.54

$49.85

$53.84

$39.33

$54.72

$42.06

Q1

Q2

Q3

Q4

Annual Meeting
The Silicon Laboratories Inc. 
annual meeting will be held on 
Thursday, April 21, 2016 at 9:30 
am Central Time at the Lady Bird 
Johnson Wildfl ower Center, 
4801 La Crosse Avenue, 
Austin, Texas, USA 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 Street
Austin, Texas, USA 78701
+1 512-416-8500
investor.relations@silabs.com

Designed by Make It So Design, Austin, Texas

www.silabs.com  |  Energy-friendly solutions for a smarter, more connected world.