Engineering for a mixed-signal world.

These are the connections that connect
us all­—the Internet of Things is here »S I L I C O N L A B S 2 0 12 A N N UA L R E P O R TSilicon Laboratories Inc. is a global leader in
the innovation of mixed-signal integrated circuit(IC) technology bridging the analog world welive in and the digital world of computing »The company applies its renowned design expertise to develop proprietary analog-intensive, mixed-signal
ICs that offer significant advantages in performance, size, cost and power consumption over traditional
solutions. The company’s product portfolio targets a broad range of markets including consumer,
communications, computing, industrial and automotive. The company, founded in 1996, has over 1,300
patents issued or pending. Based in Austin, Texas, Silicon Labs’ common stock is traded on the NASDAQ®
exchange under the ticker symbol “SLAB.”FINANCIAL HIGHLIGHTS
In 2012, Silicon Labs outperformed the industry, achieving record revenue and growing by nearly 15 percent.
The company gross margin showed improvement through the year, making progress towards the non-GAAP
target of 62 percent. Continued R&D investment in a vibrant new product pipeline was offset somewhat byexpense controls in selling, general and administrative expenses, enabling earnings expansion.
Silicon Labs was founded on principles of conservative financial management, and has shown impressive
operating performance through semiconductor industry cycles. As a result, the company's cash flow fromoperations has been positive for nearly every quarter since it went public in 2000. Strong cash generation enabled
the company to fund the acquisition of a compelling new business in ZigBee® as well as repurchase approximately$62 million in shares. The company ended the year with nearly $300 million in cash, cash equivalents and investments.

NON-GA AP FINANCIALS* IN THOUSANDS, EXCEPT PER SHARE DATAREVENUE IN millions$563

REVENUE

1Q12

2Q12

3Q12

4Q12

$125,702$135,670$149,461$152,461   % GROWTH(0.8%)

7.9%

10.2%

2.0%

GROSS MARGIN$75,456$83,119$91,220$93,894

60.0%

61.3%

61.0%

61.6%
$60,236   % OF REVENUEOPERATING EXPENSES$52,652$55,700$58,455   % OF REVENUE

41.9%

41.1%

39.1%

39.5%

OPERATING INCOME$22,804$27,419$32,765$33,658   % OF REVENUE

18.1%

20.2%

21.9%

22.1%

$18,708$22,302$26,132$25,938

14.9%
$0.43

16.4%
$0.51

17.5%
$0.61

17.0%
$0.61

NET INCOME   % OF REVENUE
EPS

$493

$492

FY10

FY11

$441
$416

FY08

FY09

FY12

*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 2012 Form 10-K, which is included in thisAnnual Report.

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WE ARE LEVERAGING A
PROVEN TRACK RECORDOF INNOVATION.

WITH FOCUS AND
A WILL TO WIN,THE FUTURELOOKS BRIGHT.

letter to shareholders
At Silicon Labs, we measure ourselves the same way
investors do, we track our growth, we monitor ouroperating efficiency, and we reward profitability. But
there are also a number of less tangible metrics thatmake Silicon Labs a unique and high quality company.
We love what we do and take pride in solving
difficult technical challenges for our customers. We
track market share as the ultimate measure of ourability to do this successfully. We hire the best talent,people that are natural innovators, hard workers,
strong problem solvers and good collaborators. We
have a rigorous hiring process and watch retention
trends to be sure we’re keeping and cultivating
this valuable resource. And we believe in a vibrant,
fast paced work environment. Our industry moves
quickly and so do we as we strive to win in themarketplace.
I took the helm at Silicon Labs in 2012 after working
in various engineering, marketing and management
roles at the company over 15 years. We had met ourobjective to become more diversified, increasing
our product breadth, our sales channel and ourcustomer engagements and were ready to take thenext step to realize the benefits of that diversification.
With a renewed sense of urgency, we are focusedon securing the company’s growth trajectory andputting in place the framework for accelerated
growth in the future.
The industry continues to be impacted by the stresson the global economy. But we have reasons tobe optimistic. Our core capability in mixed-signal
technology is increasingly important in electronicsystems. New products being designed and built
need to be greener, drawing less power. They needto support the demand for high performance, highbandwidth networks. And, they need to be able
to capture more data about their environment andcommunicate that data across reliable networks.
These are all mixed-signal opportunities, where ourunique capability to deliver integrated, low powerand high performance intelligent devices becomesa building block of the Internet of Things.
To some the Internet of Things is still conceptual,
but not for Silicon Labs. Our products are being
designed into the latest thermostats, security

systems, wireless sensor nodes and meters being
deployed in these networks. We believe the Internetof Things is likely to emerge as the largest consumerof semiconductors, surpassing cell phones, andwe’re investing to be the winner in this segment.
Our success in 2012 was due in part to growth in
this area. Brand new business supporting Internetof Things applications is nearing 10 percent of
our revenue.
Our new product developments reflect ourcommitment to this trend. We introduced a new
family of 32-bit MCUs in 2012, adding more than 60
new products to the portfolio. We also expanded oursensor portfolio, introducing an all silicon humidity
sensor, and we expanded our power portfolio witha family of digital isolators capable of completely
displacing the legacy opto-couplers found in virtually
every power supply.
We are leveraging our proven track record ofinnovation. Our products tend to be first of a kind,replacing non-silicon solutions. Our Broadcast
products are great examples, we’ve been able towin dominant market share in both audio and video
tuners as a result of innovative solutions.
So with a broad portfolio at the center of someof the industry’s biggest trends, what is next
for Silicon Labs? We’ve embarked on a numberof strategic initiatives to expand our content in ourtarget markets through new product development,
through more sophisticated software, firmware
and tools and through turnkey solutions leveraging
existing products in our portfolio. We believe theseinvestments will help us accelerate our growth as we
make our ICs easier for customers to design in, as
we increase our total content in each design and as
we enable our customers to get to market faster.
With this focus and a will to win, the future
looks bright.

Tyson Tuttle
President and CEO,
Silicon Labs

S I L I C O N L A B S 2 0 12 A N N UA L R E P O R T / 3

It’s not just about connecting, it’s about
improving—our way of life, the way we
do business, and the impact we have on
our environment »It’s called the Internet of things and it’s going
to change…everything.

» The same technology that wirelessly transmits his heart rate
to a wristwatch can notify her doctor at the first signs of a
cardiac event, this is how we can create a healthier world.

There are many more devices than people connected to theinternet, but it is the ability to interact with us that makes thesedevices valuable and what is driving estimates of 15 billion
connected devices by the middle of the decade. Silicon Labs’
mixed-signal technology is one of the key enablers, allowing
the analog world we live in to interact with the digital worldof computing.

15B

CONNECTEDDEVICES IN 2015

40B

CONNECTEDDEVICES BY 2020

= 1B DEVICES

THERE ARE ALREADY MORE
CONNECTED DEVICES THAN THEREARE PEOPLE ON THE PLANET» The same technology that allows your home thermostat todynamically adjust temperature to your preferences can enablesmart energy usage, creating a more energy efficient world.

» The same technology that enables you to remotely monitor your security
system can monitor factories, packages and livestock, enabling more
effective use of resources, creating stronger businesses.

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Millions of devices are being connectedto the Internet every day. Here's how
we fit in »What links our diverse productlines together is our mixedsignal technology. By leveraging
innovative design techniques,
we consistently integrate morefunctions in a smaller footprint
at lower power, without
performance compromise.

We’re often asked how Silicon Labs has been able to growduring times of demand weakness for the industry. We are a
product cycle company. Our success is tied to our ability tolaunch differentiated products to market and rapidly gain share.
Our Broad-based products represented nearly 50 percent ofrevenue exiting 2012, growing 30 percent year over year. We’ve
been able to steadily gain share against large incumbents
because of our ability to integrate important peripherals intoa single chip. Our timing products, one of our fastest growthareas, form the heartbeat of an electronic system. Timing
devices are used in equipment being deployed to support theenormous increase in data traffic worldwide.

Our MCU products make up the largest piece of our broadbased product category. We’ve established a beachhead in
8-bit MCUs, taking share from established competitors byoffering mixed-signal MCUs that eliminate stand-alone analog
components. With only a few percent share in a multi-billion
dollar market, we have a long runway for growth.
In 2012, Silicon Labs introduced another leg to our MCU
growth story, the industry’s lowest power ARM ® Cortex™ -M3
processor-based microcontroller family. Targeted at some of
the most interesting applications in smart metering, home
automation, wireless security, asset tracking, and personal
medical devices, our 32-bit MCUs expand our available market.
The new products also improve our competitive position andleverage all of the innovative mixed-signal development behind
our success in the 8-bit market.
Power management systems and the need to make themmore efficient is another tough mixed-signal challenge.

Silicon Labs introduced new digital isolation products in2012 that are the industry's first drop-in replacement for
optocouplers. Optocouplers are non-silicon solutions that havecreated reliability problems in electronic systems for decades.
As power management systems are redesigned to meet green
energy standards, Silicon Labs’ power technology will be a
key component.
Sensors are an important element in the expansion of
networks to the Internet of Things. Sensors are being added
to all types of devices. In 2012, Silicon Labs introduced ahumidity and temperature “sensor-on-a-chip” solution ideal
for climate control, refrigeration, food processing, and medical
instrumentation applications. Traditional approaches to humidity
sensing use many components and complex modules thatare costly to add to a system. Silicon Labs’ single-chip sensor
makes it possible for humidity sensing to be deployed in many
more applications, increasing the available market.

S I L I C O N L A B S 2 0 12 A N N UA L R E P O R T / 7

Thinking beyond the IC to enable
the next generation of a morecapable world »We see the world a little differently, whereothers see limitation, we see potential.
There is no shortage of opportunity in the semiconductor
market when you have mixed-signal know-how. We recognizethat when we can also accelerate our customers’ time tomarket by simplifying their supply chain, reducing their billof materials and providing tools and development resources,
we have a complete offering that makes Silicon Labs a very
compelling and strategic supplier. Our Broadcast products
are a good example. A high growth area for us, Broadcast
increased by 10 percent in 2012. Patented, highly integrated ICs
have displaced legacy solutions, enabling us to gain more than
30 percent share of our target markets by vastly improving
the value proposition for customers.
As we enable technologies that can create more value for theuser, we also are establishing a more complete system-level
understanding to make the technology not only smart, but easy
to use, and wherever possible, invisible to the end user. That’s
when a new technology becomes pervasive.

With a who’s who of electronic makers on our customer list,
we feel confident that if we execute well, keep the innovationengine vibrant and stay on the pulse of the industry’s trends,
we can be at the forefront of the next wave in technology
adoption, connecting the devices we live with, with the world
we live in.

BY SIMPLYIFING OUR
CUSTOMERS’ SUPPLY CHAIN WE
HELP ACCELERATE THE TIME TO
MARKET AND LOWER THEIR BILL
OF MATERIALS.

THIS IS WHAT MAKES
US A COMPELLINGAND STRATEGICPARTNER.

MIXED-SIGNAL EXPERTISE ALLOWS US TO SIMPLIFYOUR CUSTOMERS' SUPPLY CHAINS

2–4

UNPROGRAMMED
STOCK

WEEKS

FINAL
PROGRAMMING

THE TRADITIONAL SUPPLY CHAIN ISCOMPLEX AND INEFFICIENT

10–16
QUARTZ BLANKFABRICATIONBLANKPROCESSINGASSEMBLYHERMETIC SEAL
AND TESTWEEKSUNITED STATESSECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K(Mark One)

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 29, 2012or

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period fromtoCommission file number: 000-29823

SILICON LABORATORIES INC.
(Exact name of registrant as specified in its charter)

Delaware(State or other jurisdiction ofincorporation or organization)

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

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

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 className of exchange on which registered

Common Stock, $0.0001 par value

The NASDAQ Stock Market LLC

Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities
Act.  Yes  No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of theAct.  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 tofile 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 thischapter) 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 asmaller 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 

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 tothe price at which the common equity was last sold as of the last business day of the registrant’s most recently completed
second fiscal quarter (June 29, 2012) was $1,509,894,751 (assuming, for this purpose, that only directors and officers are deemedaffiliates).
There were 41,971,094 shares of the registrant’s common stock issued and outstanding as of January 22, 2013.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement for the registrant’s 2012 Annual Meeting of Stockholders are incorporated by reference
into Part III of this Form 10-K.

(This page has been left blank intentionally.)Table of Contents
Page
NumberPart I
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.

Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unresolved Staff Comments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Mine Safety Disclosures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Item 5.

Market for Registrant’s Common Equity, Related Stockholder Mattersand Issuer Purchases of Equity Securities . . . . . . . . . . . . . . . . . . . . .
Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Management’s Discussion and Analysis of Financial Condition and
Results of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Quantitative and Qualitative Disclosures about Market Risk . . . . . . . . .
Financial Statements and Supplementary Data . . . . . . . . . . . . . . . . . . .
Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Controls and Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

2
12
26
26
26
26

Part II

Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.

27
29
30
42
43
43
43
43

Part III
Item 10.
Item 11.
Item 12.

Item 14.

Directors, Executive Officers and Corporate Governance . . . . . . . . . . . .
Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Security Ownership of Certain Beneficial Owners and Management andRelated Stockholder Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Certain Relationships and Related Transactions, and Director
Independence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Principal Accounting Fees and Services . . . . . . . . . . . . . . . . . . . . . . . . .

47
47

Item 15.

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

48

Item 13.

44
47
47

Part IV

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 21Eof 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’’ orsimilar 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 fromthose indicated by such forward-looking statements. Factors that could cause or contribute to suchdifferences 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 resultof new information, future events or otherwise.

1

Part I
Item 1.

Business

General
Silicon Laboratories Inc. designs and develops proprietary, analog-intensive, mixed-signal
integrated circuits (ICs) for a broad range of applications. Mixed-signal ICs are electronic componentsthat 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 avariety of markets, including communications, consumer, industrial and automotive.
Our world-class, mixed-signal ICs leverage standard complementary metal oxide semiconductor(CMOS), a low cost, widely available process technology. This enables smaller, more cost effective
solutions. Our expertise in analog-intensive, mixed-signal IC design in CMOS allows us to develop new
and innovative products that are highly integrated, simplifying our customers’ designs and improving
their time-to-market.
Industry Background
The pervasiveness of connectivity and the explosion in mobile computing is driving semiconductor
consumption. Intelligence is being added to electronic systems to enable remote monitoring, power
efficiency and an improved user experience. This in turn is increasing the demand for bandwidth,
requiring more infrastructure to support higher performance networks. The nearly ubiquitous
availability of Internet access, 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 are requiring more and more interaction between the analog world we live in and thedigital 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 digitalcomponents. 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 newfeatures 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, mixedsignal IC design expertise is difficult to find, these manufacturers increasingly are turning to third
parties, like us, to provide advanced mixed-signal solutions. Mixed-signal design requires specificexpertise 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 practicalanalog design experience under the guidance of a senior engineer, and engineers with the required
level of skill and expertise are in short supply.
Many IC providers lack sufficient analog expertise to develop compelling mixed-signal ICs. As aresult, manufacturers of electronic devices value IC providers that can supply them with mixed-signal
solutions with greater functionality, smaller size and lower power requirements at a reduced cost andshorter time-to-market.

2

Products
We provide analog-intensive, mixed-signal solutions for use in a variety of electronic products in a
broad range of applications including portable devices, AM/FM radios and other consumer electronics,
networking equipment, test and measurement equipment, industrial monitoring and control, andcustomer premises equipment. Our products integrate complex mixed-signal functions that are
frequently performed by numerous discrete components in competing products into a single chip or
chipset. By doing so, we are able to create products that, when compared to many competing products:• Require less board space;• Reduce the use of external components lowering the system cost and simplifying design;• Offer superior performance improving our customers’ end products;• Provide increased reliability and manufacturability, improving customer yields; and/or• Reduce system power requirements enabling smaller form factors and/or longer battery life.
We group our products into the following categories:• Broad-based products, which include our microcontrollers, timing products (clocks andoscillators), power and isolation devices, and touch controllers;• Broadcast products, which include our broadcast audio and video products;• Access products, which include our Voice over IP (VoIP) products, embedded modems and ourPower over Ethernet (PoE) devices; and• Mature products, which include certain devices that are at the end of their respective life cycles
and therefore receive minimal or no continued research and development investment.
The following table summarizes the diverse product areas and applications for the various ICs that
we have introduced to customers:
Product Areas and Description

Applications

Broad-based Products
Microcontrollers
We offer a family of products ideal for embedded systems that
include, 8-bit mixed-signal microcontrollers, 32-bit wireless
MCUs acquired in 2012, ultra low power 32-bit MCUs
introduced in 2012 as well as peripheral devices such as our
EZRadio family of fully integrated, low power transceivers.
These products generally integrate intelligent data capture, highperformance processing, and communication interfaces in asingle system on a chip. This family of products addresses avariety of end-markets, including the automotive,
communications, consumer, industrial, medical and power
management markets.

3• Industrial automation andcontrol• Home automation• Automotive sensors andcontrols• Medical instrumentation• Electronic test andmeasurement equipment• Consumer electronics• Computer peripherals• White goods• Smart metering• Remote controls

Product Areas and Description

Applications

Timing Devices
Leveraging our patented DSPLL and MultiSynth technologies
to offer frequency agile, extremely low jitter clock and oscillator
products, our devices replace traditional solutions implemented
using expensive, bulky modules, numerous crystal sources,
complicated discrete circuitry requiring numerous components,or hybrid IC/discrete solutions that offer limited functionality.

Digital Isolators and Related Products
Our digital isolators and related products leverage patented
isolation techniques to enable, for example, multiple channels of
isolation on a single device, simplifying design and reducing
system cost. These products are still in the early stages ofcustomer adoption.

Sensors
Our sensor products include touch controllers, proximity sensors,ambient light sensors and RH/humidity sensors. These devices
leverage our mixed-signal capability to provide high accuracy,
quicker response time and lower power consumption thancompeting parts. These products are in the early stages ofcustomer adoption.

• Networking equipment• Telecommunications• Wireless base stations• Test and measurement
equipment• HDTV video• High-speed data acquisition• SONET/SDH line cards• Storage area networks• Switch mode power supplies• Isolated analog dataacquisition• Industrial networking• Motor control• Isolated DC-DC supplies• Electronic ballasts for lighting• Smart home applications• Industrial controls• Toys and consumer electronics• Monitors and lavatory controls

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

4• Stand-alone AM/FM radios• Portable audio devices• MP3/digital media players• Navigation/GPS devices• Satellite radios• Home stereos• Automotive infotainment
systems

Product Areas and Description

Applications

Video Tuners and Demodulators
Our complete, globally-compliant hybrid TV tuners with analog
TV demodulator in a single CMOS IC leverage our provendigital low-IF architecture and exceed the performance oftraditional 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 highperformance digital video demodulators support DVB-T/T2,
DVB-S/S2, and/or DVB-C in a single chip and are ideal forequipment receiving digital terrestrial, satellite and/or cable
services.

• Integrated digital televisions(iDTV)• Free-to-Air (FtA) or pay-TV
set-top box receivers• PC-TV applications• DVD/HDD personal video
recordersAccess 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 ProSLIC product family hasofferings for short-haul applications suitable for the customer
premises as well as long-haul applications suitable for the
traditional telephone company central office.

ISOmodem Embedded Modems
The ISOmodem embedded modems leverage innovative silicondirect access arrangement (DAA) technology and a digital signal
processor to deliver a globally compliant, very small analog
modem for embedded applications.

Power over Ethernet
Our Power over Ethernet (PoE) power source equipment andpowered device ICs offer highly differentiated solutions with areduced total bill of materials (BOM) and improved
performance and reliability. Our solutions also offer an
integration level that enables functionality not available withcompeting solutions.

• Voice over broadband modems
and terminal adapters• VoIP residential gateways• Wireless local loop remote
access systems• PBXs• Wired long loop and central
office systems• Set-top and digital cable boxes• Fax machines and multifunction printers• Industrial monitoring• Postage meters• Security systems• Remote medical monitoring• Point of sale (POS) terminals• Networking routers andswitches• Wireless access points (WAP)• VoIP phones• Radio frequency identification(RFID) tag readers• POS terminals• Security cameras

During fiscal 2012, 2011 and 2010, sales of our mixed-signal products accounted for substantiallyall of our revenue.

5

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 purchaseorder basis, rather than pursuant to long-term agreements.
We consider our customer to be the end customer purchasing either directly from a distributor, acontract 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 othercomponents 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 22% and 11% of our revenues
during fiscal 2012, respectively. No other distributor accounted for 10% or more of revenues for fiscal
2012.
During fiscal 2012, our ten largest end customers accounted for 43% of our revenues. We had one
customer, Samsung, whose purchases across a variety of product areas represented 19% of ourrevenues during this period. Our major customers include Cisco, Huawei, LG Electronics, Pace,
Panasonic, Sagem, Samsung, Technicolor, Varian Medical Systems and ZTE.
We maintain numerous sales offices in North America, Europe and Asia. Revenue is attributed toa geographic area based on the shipped-to location. The percentage of our revenues derived fromoutside of the United States was 88% in fiscal 2012. For further information regarding our revenues
and long-lived assets by geographic area, see Note 18, Segment Information, to the Consolidated
Financial Statements.
Our direct sales force is comprised of a number of sales professionals who possess varied levels of
responsibility and experience, including directors, country managers, regional sales managers, district
sales managers, strategic account managers, field sales engineers and sales representatives. We alsoutilize independent sales representatives and distributors to generate sales of our products. We haverelationships with many independent sales representatives and distributors worldwide whom we haveselected based on their understanding of the mixed-signal IC marketplace and their ability to provide
effective field sales applications support for our products.
Our marketing efforts are targeted at both identified industry leaders and emerging market
participants. Direct marketing activities are supplemented by a focused marketing communications
effort that seeks to raise awareness of our company and products. Our public relations efforts arefocused 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 acooperative 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 maintaina presence at strategic trade shows and industry events. These activities, in combination with direct
sales activities, help drive demand for our products.
Due to the complex and innovative nature of our ICs, we employ experienced applications engineers
who work closely with customers to support the design-win process, and can significantly accelerate thecustomer’s time to market. A design-win occurs when a customer has designed our ICs into its productarchitecture and ordered product from us. A considerable amount of effort to assist the customer inincorporating 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 timerequired 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 of6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 tosignificantly alter their designs due to this extensive design-win process. We believe this process, coupledwith our intellectual property protection, promotes relatively longer product life cycles for our ICs and highbarriers to entry for competitive products, even if such competing products are offered at lower prices. Ourclose collaboration with our customers provides us with knowledge of derivative product ideas or completely
new product line offerings that may not otherwise arise in other new product discussions.
Research and Development
Through our research and development efforts, we leverage experienced analog and mixed-signal
engineering talent and expertise to create new ICs that integrate functions typically performed
inefficiently by multiple discrete components. This integration generally results in lower costs, smaller
die sizes, lower power demands and enhanced price/performance characteristics. We attempt to reuse
successful techniques for integration in new applications where similar benefits can be realized. We
believe that we have attracted many of the best engineers in our industry. We believe that reliable andprecise 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 requiringexperience 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 mixedsignal problems that are difficult for competitors to duplicate. We highly value our engineering talentand strive to maintain a very high bar when bringing new recruits to the company.
Research and development expenses were $138.0 million, $136.0 million and $123.8 million in fiscal
2012, 2011 and 2010, 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 performancerequirements helps us to assess the technical feasibility of a particular IC. We target areas where wecan 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 anddevelop an understanding of our customers’ needs, allowing us to formulate derivative products andrefined features.
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; and• Our broad understanding of systems technology and trends.
To fully capitalize on these advantages, we have assembled a world-class development team withexceptional analog and mixed-signal design expertise led by accomplished senior engineers.
Analog and RF Design Expertise in CMOS
We believe that our most significant core competency is world-class analog and RF design
capability. Additionally, we strive to design substantially all of our ICs in standard CMOS processes.
While it is 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

7

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 themost difficult analog and RF circuits using standard CMOS technologies.
Digital Signal Processing, Firmware and System Design Expertise
We consider the partitioning of a circuit to be a proprietary and creative design technique. Deepsystems 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 workin 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 thenleverage our firmware know-how to change the ‘personality’ of our devices, optimizing features andfunctions needed by various markets we serve. For example, our broadcast audio products use a provendigital low-IF receiver and transmitter architecture to deliver superior RF performance andinterference rejection compared to traditional, analog-only approaches. Digital signal processing isutilized 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 evenhigh performance HD-capable automotive radios.
Microcontroller and System on a Chip Design Expertise
We have the talent and circuit integration methodologies required to combine precision analog,
high-speed digital, flash memory and in-system programmability into a single, monolithic CMOS
integrated circuit. Our microcontroller products are designed to capture an external analog signal,
convert it to a digital signal, compute digital functions on the stream of data and then communicate theresults 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 electricalnoise, harmonics and other electronic distortions requires a fundamental knowledge of device physics
and accumulated design expertise.
Understanding of Systems Technology and Trends
Our focused expertise in mixed-signal ICs is the result of the breadth of engineering talent wehave assembled with experience working in analog-intensive CMOS design for a wide variety of
applications. This expertise, which we consider a competitive advantage, is the foundation of our indepth understanding of the technology and trends that impact electronic systems and markets. Our
expertise includes:• Isolation, which is critical for existing and emerging telecom networks;• Frequency synthesis, which is core technology for wireless and clocking applications;8• 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
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 andcapitalize on market trends.
Manufacturing
As a fabless semiconductor company, we conduct IC design and development in our facilities andelectronically transfer our proprietary IC designs to third-party semiconductor fabricators who processsilicon 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, thusincreasing the likelihood that manufacturing capacity will be available throughout our products’ life
cycles. We currently partner principally with Taiwan Semiconductor Manufacturing Co. (TSMC) or its
affiliates to manufacture our semiconductor wafers. We believe that our fabless manufacturing modelsignificantly 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 2012, most of our units shipped
were tested by offshore third-party test subcontractors. We expect that our utilization of offshore thirdparty test subcontractors will remain substantial during fiscal 2013.
Backlog
As of December 29, 2012, our backlog was approximately $105.8 million, compared toapproximately $83.3 million as of December 31, 2011. We include in backlog accepted product purchaseorders 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, varyconsiderably based on rapidly changing business circumstances. Shipments to distributors are notrecognized as revenue until the products are sold by the distributors. Additionally, our arrangementswith distributors typically provide for price protection and stock rotation activities. Accordingly, we donot believe that our backlog at any time is necessarily representative of actual sales for any succeeding
period.

9

Competition
The markets for semiconductors generally, and for analog and mixed-signal ICs in particular, areintensely 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; and• Intellectual property.

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, wetarget a relatively large number of competitors. We compete with Analog Devices, Atmel, Conexant,
Cypress, Epson, Freescale, IDT, Lantiq, Maxim Integrated Products, MaxLinear, Microchip, Microsemi,
NXP Semiconductors, Renesas, Sony Semiconductor, STMicroelectronics, Texas Instruments, VectronInternational 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 theirneed for our products and would become a source of competition. We could also face competition frommodule makers or other systems suppliers that may include mixed-signal components in their productsthat could eliminate the need for our ICs.
Many of our competitors and potential competitors have longer operating histories, greater namerecognition, 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 andrapidly 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 December 29, 2012, we had approximately 1,280 issued or pending United States
patents in the IC field. We also frequently file for patent protection in a variety of international
jurisdictions with respect to the proprietary technology covered by our U.S. patents and patentapplications. There can be no assurance that patents will ever be issued with respect to theseapplications. 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 to10

file new patent applications with respect to our recent developments, existing patents are granted forprescribed time periods and will expire at various times in the future.
We claim copyright protection for proprietary documentation for our products. We have filed forregistration, 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 andproduct family names as trademarks in the United States and selected foreign jurisdictions. All othertrademarks, 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 throughagreements 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 ourefforts 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 UnitedStates.
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 atimely manner will be an important factor in maintaining our competitive position.
Many participants in the semiconductor and electronics industries have a significant number ofpatents and have frequently demonstrated a readiness to commence litigation based on allegations ofpatent 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 ourresources, 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 December 29, 2012, we employed 997 people. Our success depends on the continued serviceof 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 isintense. We have never had a work stoppage and none of our U.S. employees are represented by alabor organization. We consider our employee relations to be good.
Environmental Regulation
Federal, state and local regulations impose various environmental controls on the storage, use,discharge and disposal of certain chemicals and gases used in the semiconductor industry. Our
compliance with these laws and regulations has not had a material impact on our financial position or
results of operations.
Available Information
Our website address is www.silabs.com. Our annual report on Form 10-K, quarterly reports on
Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant
to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 are available through the investor
relations page of our website free of charge as soon as reasonably practicable after we electronically filesuch material with, or furnish it to, the Securities and Exchange Commission (SEC). Our website andthe information contained therein or connected thereto are not intended to be incorporated into thisAnnual Report on Form 10-K.

11

Item 1A.

Risk Factors

Risks Related to our BusinessWe 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 tosustain 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 ourstock price to fluctuate. In some future period our revenues or operating results may be below the
expectations of public market analysts or investors. If this occurs, our stock price may drop, perhaps
significantly.
A number of factors, in addition to those cited in other risk factors applicable to our business, may
contribute to fluctuations in our revenues and operating results, including:• 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
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 time lag and realization rate between ‘‘design wins’’ and production orders;• The demand for, and life cycles of, the products incorporating our ICs;
• The rate of adoption of mixed-signal ICs in the markets we target;• Deferrals or reductions of customer orders in anticipation of new products or productenhancements from us or our competitors or other providers of ICs;
• Changes in product mix;
• The average selling prices for our products could drop suddenly due to competitive offerings orcompetitive predatory pricing;• 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;• The software used in our products, including software provided by third parties, may not meetthe needs of our customers;• 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 indemand and seasonality that result in corresponding fluctuations in the demand for our products thatare 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

12historical growth in sales of a product should not be viewed as indicative of continued future growth. In
addition, demand can quickly decline for a product when a new IC product is introduced and receives
market acceptance. Due to the various factors mentioned above, the results of any prior quarterly or
annual periods should not be relied upon as an indication of our future operating performance.
If we are unable to develop or acquire new and enhanced products that achieve market acceptance in a timely
manner, our operating results and competitive position could be harmed
Our future success will depend on our ability to develop or acquire new ICs and productenhancements that achieve market acceptance in a timely and cost-effective manner. The developmentof mixed-signal ICs is highly complex, and we have at times experienced delays in completing thedevelopment and introduction of new products and product enhancements. Successful productdevelopment 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;• Timely qualification and certification of our ICs for use in our customers’ products;• Commercial acceptance and volume production of the products into which our ICs will beincorporated;• Availability of foundry, assembly and test capacity;• Achievement of high manufacturing yields;• Quality, price, performance, power use and size of our products;• Availability, quality, price and performance of competing products and technologies;• Our customer service, application support capabilities and responsiveness;• Successful development of our relationships with existing and potential customers;• Technology, industry standards or end-user preferences; and• Cooperation of third-party software providers and our semiconductor vendors to support ourchips 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 ofmany ICs. If our ICs fail to achieve market acceptance, or if we fail to develop new products on atimely basis that achieve market acceptance, our growth prospects, operating results and competitive
position could be adversely affected.
Our research and development efforts are focused on a limited number of new technologies and products, andany delay in the development, or abandonment, of these technologies or products by industry participants, ortheir failure to achieve market acceptance, could compromise our competitive position
Our ICs are used as components in electronic devices in various markets. As a result, we havedevoted 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 2012 was $138.0 million, or 24.5% of revenues. A
number of large companies are actively involved in the development of these new technologies andstandards. Should any of these companies delay or abandon their efforts to develop commerciallyavailable products based on new technologies and standards, our research and development efforts with13

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 onthese 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 andstandards 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 asignificant 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 2012, our ten largest
customers accounted for 43% of our revenues. Some of the markets for our products are dominated bya small number of potential customers. Therefore, our operating results in the foreseeable future willcontinue to depend on our ability to sell to these dominant customers, as well as the ability of thesecustomers to sell products that incorporate our IC products. In the future, these customers may decide
not to purchase our ICs at all, purchase fewer ICs than they did in the past or alter their purchasing
patterns, particularly because:• 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;• Some of our customers may have efforts underway to actively diversify their vendor base which
could reduce purchases of our ICs; 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.
While we have been a significant supplier of ICs used in many of our customers’ products, ourcustomers 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 theprices 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 andlengthy litigation which could seriously harm our businessIn recent years, there has been significant litigation in the United States involving patents andother 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 inlitigation to protect our intellectual property rights in the past and may become involved in such
litigation again in the future. 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

14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 andexpensive to resolve and would divert our management’s time and attention. Most intellectual property
litigation also could force us to take specific actions, including:• 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;
• Redesign those products that use infringing intellectual property; or• Pursue legal remedies with third parties to enforce our indemnification rights, which may notadequately protect our interests.
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 theprotection of our intellectual property rights is and will continue to be important to the success of ourbusiness. We rely on a combination of patent, copyright, trademark and trade secret laws andrestrictions 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 anduse our proprietary technology. Monitoring unauthorized use of our technology is difficult, and wecannot be certain that the steps we have taken will prevent unauthorized use of our technology,
particularly in foreign countries where the laws may not protect our proprietary rights as fully as in the
United States. We cannot be certain that patents will be issued as a result of our pending applications
nor can we be certain that any issued patents would protect or benefit us or give us adequate
protection from competing products. For example, issued patents may be circumvented or challenged
and declared invalid or unenforceable. We also cannot be certain that others will not develop effective
competing technologies on their own.
Failure to manage our distribution channel relationships could impede our future growth
The future growth of our business will depend in large part on our ability to manage ourrelationships with current and future distributors and sales representatives, develop additional channels
for the distribution and sale of our products and manage these relationships. As we execute ourindirect 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 directlyfrom us rather than through the distributor. The inability to successfully execute or manage a multichannel 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 bythese 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

15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 areexacerbated when our customers purchase indirectly through contract manufacturers or holdcomponent inventory levels greater than their consumption rate because this causes us to have lessvisibility regarding the accumulated levels of inventory for such customers. A resulting write-off ofunusable or excess inventories would adversely affect our operating results.
Our products are complex and may contain errors which could lead to product liability, an increase in ourcosts and/or a reduction in our revenues
Our products are complex and may contain errors, particularly when first introduced or as new
versions are released. Our new products are increasingly being designed in more complex processes
which further increases the risk of errors. We rely primarily on our in-house testing personnel to design
test operations and procedures to detect any errors prior to delivery of our products to our customers.
Because our products are manufactured by third parties, should problems occur in the operation or
performance of our ICs, we may experience delays in meeting key introduction dates or scheduleddelivery dates to our customers. These errors also could cause us to incur significant re-engineeringcosts, divert the attention of our engineering personnel from our product development efforts andcause significant customer relations and business reputation problems. Any defects could require
product replacement or recall or we could be obligated to accept product returns. Any of the foregoing
could impose substantial costs and harm our business.
Product liability claims may be asserted with respect to our products. Our products are typicallysold at prices that are significantly lower than the cost of the end-products into which they areincorporated. 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 withrespect to medical and automotive applications because of the risk of serious harm to users of theseproducts. There can be no assurance that any insurance we maintain will sufficiently protect us fromany such claims.
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 andadversely affect our business and operating results, including:• Problems integrating the acquired operations, technologies or products with our existing businessand 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 acquiredcompany;• 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;16• 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.
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.
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 ICor 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 thecustomer 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 ofsales. 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 growthand cause our business to suffer.
We have substantial international activities, which subjects us to additional business risks including logisticaland 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 UnitedStates was 88% during fiscal 2012. 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
our headquarters for non-U.S. operations in Singapore;• 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;• Multiple, conflicting and changing tax and other laws and regulations that may impact both ourinternational and domestic tax and other liabilities and result in increased complexity and costs;• Longer sales cycles;• 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;• Political and economic instability;• Greater difficulty in hiring and retaining qualified technical sales and applications engineers andadministrative personnel; and17• The need to have business and operations systems that can meet the needs of our international
business and operating structure.
To date, all of our sales to international customers and purchases of components frominternational suppliers have been denominated in U.S. dollars. As a result, an increase in the value ofthe U.S. dollar relative to foreign currencies could make our products more expensive for ourinternational customers to purchase, thus rendering our products less competitive. Similarly, a decreasein the value of the U.S. dollar could reduce our buying power with respect to international suppliers.
We rely on third parties to manufacture, assemble and test our products and the failure to successfully manage
our relationships with our manufacturers and subcontractors would negatively impact our ability to sell our
products
We do not have our own wafer fab manufacturing facilities. Therefore, we rely on third-party
vendors to manufacture the ICs we design. We also currently rely on Asian third-party assembly
subcontractors to assemble and package the silicon chips provided by the wafers for use in final
products. Additionally, we rely on these offshore subcontractors for a substantial portion of the testing
requirements of our products prior to shipping. We expect utilization of third-party subcontractors tocontinue 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 thisincremental demand. We may be unable to obtain adequate foundry, assembly or test capacity from ourthird-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 andsubcontractors, including:• 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 increases in prices or payments in advance for capacity;• Increased need for international-based supply, logistics and financial management;• Their inability to supply or support new or changing packaging technologies; and• Low test yields.
We typically do not have long-term supply contracts with our third-party vendors which obligate
the vendor to perform services and supply products to us for a specific period, in specific quantities,
and at specific prices. Our third-party foundry, assembly and test subcontractors typically do notguarantee that adequate capacity will be available to us within the time required to meet demand forour products. In the event that these vendors fail to meet our demand for whatever reason, we expectthat it would take up to 12 months to transition performance of these services to new providers. Such atransition may also require qualification of the new providers by our customers or their end customers.

18

Since our inception, most of the silicon wafers for the products that we have shipped were
manufactured either by TSMC or its affiliates. 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 thenumber 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.
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 developmentof the licensed technology. Although a third-party licensor is typically obligated to indemnify us if thelicensed technology infringes on another party’s intellectual property rights, such indemnification istypically 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 toperform properly would adversely affect sales of our products incorporating such technology.
Our inability to manage growth could materially and adversely affect our business
Our past growth has placed, and any future growth of our operations will continue to place, asignificant strain on our management personnel, systems and resources. We anticipate that we will needto 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 compliancewith regulatory guidelines, including Sarbanes-Oxley Act requirements. To the extent our businessgrows, 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 ourworkforce. All of these endeavors will require substantial management effort, and we anticipate that wewill require additional management personnel and internal processes to manage these efforts and toplan for the succession from time to time of certain persons who have been key management andtechnical personnel. If we are unable to effectively manage our expanding global operations, including
our international headquarters in Singapore, our business could be materially and adversely affected.
We are subject to risks relating to product concentration
We derive a substantial portion of our revenues from a limited number of products, and we expect
these products to continue to account for a large percentage of our revenues in the near term.
Continued market acceptance of these products, is therefore, critical to our future success. In addition,
substantially all of our products that we have sold include technology related to one or more of ourissued 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 affectedby:• 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
our products;

19• 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.
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. The current economic situation could increase the likelihood ofsuch defaults and bankruptcies. 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 oursmaller customers or distributors, were to become insolvent or otherwise not satisfy their obligations tous, we could be materially harmed.
We depend on our key personnel to manage our business effectively in a rapidly changing market, and if weare unable to retain our current personnel and hire additional personnel, our ability to develop andsuccessfully 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 thetransition of key roles when they occur. There is currently a shortage of qualified personnel withsignificant experience in the design, development, manufacturing, marketing and sales of analog andmixed-signal ICs. In particular, there is a shortage of engineers who are familiar with the intricacies ofthe 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 sufficientnumbers 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 andinternationally, including engineers, sales, applications and marketing personnel, could delay thedevelopment and introduction of, and negatively impact our ability to sell, our products.
Any dispositions could harm our financial condition
Any disposition of a product line would entail a number of risks that could materially andadversely affect our business and operating results, including:• Diversion of management’s time and attention from our core business;• Difficulties separating the divested business;• Risks to relations with customers who previously purchased products from our disposed productline;• Reduced leverage with suppliers due to reduced aggregate volume;• Risks related to employee relations;• Risks associated with the transfer and licensing of intellectual property;• Security risks and other liabilities related to the transition services provided in connection withthe disposition;• Tax issues associated with dispositions; and• Disposition-related disputes, including disputes over earn-outs and escrows.

20

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:• Actual or anticipated fluctuations in our operating results;• 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
companies;• Announcements by us or our competitors of significant technical innovations, acquisitions,strategic partnerships, joint ventures or capital commitments;• Introduction of technologies or product enhancements that reduce the need for our products;• 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 theperformance of particular companies. These market fluctuations may cause our stock price to fall
regardless of our performance.
Most of our current manufacturers, assemblers, test service providers, distributors and customers areconcentrated 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 TSMC’s 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 ofearthquakes 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 oursemiconductor 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 arelocated would likely reduce our sales to such customers. North Korea’s geopolitical maneuverings havecreated unrest. Such unrest could create economic uncertainty or instability, could escalate to war orotherwise adversely affect South Korea and our South Korean customers and reduce our sales to suchcustomers, 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 toshift our manufacturing, assembling or testing from the affected subcontractor to another third-party
vendor.

21

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 atimely 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 contaminatedmaterials 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 siliconwafers of satisfactory quality in a timely manner, we will be unable to meet our customers’ demand forour products in a timely manner, which would adversely affect our operating results and damage ourcustomer relationships.
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 andother 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, thedemand for these devices that incorporate our products may diminish or we may otherwise bematerially adversely affected. Any reduction in the demand for these devices would significantly reduce
our revenues.
In certain products, some of our customers offer their own competitive products. These customers
may find it advantageous to support their own offerings in the marketplace in lieu of promoting our
products.
Our debt could adversely affect our operations and financial condition
We believe we have the ability to service our debt under our credit facilities, but our ability tomake the required payments thereunder when due depends upon our future performance, which will be
subject to general economic conditions, industry cycles and other factors affecting our operations,
including risk factors described under this Item 1A, many of which are beyond our control. Our credit
facilities also contain covenants, including financial covenants. If we breach any of the covenants under
our credit facilities and do not obtain appropriate waivers, then, subject to any applicable cure periods,
our outstanding indebtedness thereunder could be declared immediately due and payable.
We could seek to raise additional debt or equity capital in the future, but additional capital may not be
available on terms acceptable to us, or at all
We believe that our existing cash, cash equivalents, investments and credit under our credit
facilities will be sufficient to meet our working capital needs, capital expenditures, investment
requirements and commitments for at least the next 12 months. However, our ability to borrow further
under the credit facilities is dependent upon our ability to satisfy various conditions, covenants andrepresentations. It is possible that we may need to raise additional funds to finance our activities or tofacilitate 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 beable 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.

22

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, thesecompetitors may have greater credibility with our existing and potential customers. They also may beable 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 andpotential competitors have already established supplier or joint development relationships with thedecision 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 themto replace our products with their products. Our competitors may also offer bundled solutions offeringa 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 othercompetitive pressures may prevent us from competing successfully against current or futurecompetitors, and may materially harm our business. Competition could decrease our prices, reduce oursales, 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, oneclass each year;• 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;• 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 a supermajority vote be obtained to amend or repeal certain provisions of
our certificate of incorporation.
We also are subject to the anti-takeover laws of Delaware which may discourage, delay or prevent
someone from acquiring or merging with us, which may adversely affect the market price of ourcommon 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 productlife 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

23

reduced economic activity, concerns about credit and inflation, increased energy costs, decreased
consumer confidence, reduced corporate profits, decreased spending and similar adverse businessconditions, 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, highinventory levels and accelerated erosion of average selling prices. In the recent past, we believe thesemiconductor 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 andoperating results.
Upturns have been characterized by increased product demand and production capacity constraints
created by increased competition for access to third-party foundry, assembly and test capacity. We are
dependent on the availability of such capacity to manufacture, assemble and test our ICs. None of ourthird-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 theerosion of our average selling prices. We have reduced the average unit price of our products inanticipation of or in response to competitive pricing pressures, new product introductions by us or ourcompetitors 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 andcontinually reduce our costs. Our failure to do so could cause our revenues and gross margin
percentage to decline.
Competition within the numerous markets we target may reduce sales of our products and reduce our market
share
The markets for semiconductors in general, and for mixed-signal ICs in particular, are intenselycompetitive. We expect that the market for our products will continually evolve and will be subject torapid technological change. In addition, as we target and supply products to numerous markets andapplications, we face competition from a relatively large number of competitors. We compete with
Analog Devices, Atmel, Conexant, Cypress, Epson, Freescale, IDT, Lantiq, Maxim Integrated Products,
MaxLinear, Microchip, Microsemi, NXP Semiconductors, Renesas, Sony Semiconductor,
STMicroelectronics, Texas Instruments, Vectron International and others. We expect to facecompetition in the future from our current competitors, other manufacturers and designers ofsemiconductors, and start-up semiconductor design companies. As the markets for communications
products grow, we also may face competition from traditional communications device companies. These
companies may enter the mixed-signal semiconductor market by introducing their own ICs or byentering 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.

24

Our products must conform to industry standards and technology in order to be accepted by end users in ourmarkets
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 oncompanies that provide other components of the devices to support prevailing industry standards. Manyof these companies are significantly larger and more influential in affecting industry standards than weare. 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 notsupport the same industry standards that we do, or if competing standards emerge, market acceptanceof our products could be adversely affected which would harm our business.
Products for certain applications are based on industry standards that are continually evolving. Ourability to compete in the future will depend on our ability to identify and ensure compliance with theseevolving 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 ensurecompliance 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 productenhancements that achieve market acceptance. If our ICs fail to achieve market acceptance, our growthprospects, operating results and competitive position could be adversely affected.
We may be subject to information technology failures that could damage our reputation, business operations
and financial condition
We rely on information technology for the effective operation of our business. Our systems are
subject to damage or interruption from a number of potential sources, including natural disasters,
accidents, power disruptions, telecommunications failures, acts of terrorism or war, computer viruses,
physical or electronic break-ins, cyber attacks, sabotage, vandalism, or similar events or disruptions. Our
security measures may not detect or prevent such security breaches. Any such compromise of our
information security could result in the unauthorized publication of our confidential business or
proprietary information, result in the unauthorized release of customer, supplier or employee data,
result in a violation of privacy or other laws, expose us to a risk of litigation or damage our reputation.
In addition, our inability to use or access these information systems at critical points in time could
unfavorably impact the timely and efficient operation of our business, which could negatively affect ourbusiness and operating results.
Third parties with which we conduct business, such as foundries, assembly and test contractors, anddistributors, have access to certain portions of our sensitive data. In the event that these third parties
do not properly safeguard our data that they hold, security breaches could result and negatively impact
our business, operations and financial results.
Customer demands and new regulations related to conflict-free minerals may adversely affect us
The Dodd-Frank Wall Street Reform and Consumer Protection Act imposes new disclosure
requirements regarding the use of ‘‘conflict’’ minerals mined from the Democratic Republic of Congoand adjoining countries in products, whether or not these products are manufactured by third parties.
When these new requirements are implemented, they could affect the pricing, sourcing and availabilityof 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 todetermining the source of any conflict minerals used in our products. Our supply chain is complex andwe may be unable to verify the origins for all metals used in our products. We may also encounterchallenges with our customers and stockholders if we are unable to certify that our products areconflict free.

25

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 wepurchased in 2012, that are located on land which we have leased through 2099. The buildings containapproximately 441,000 square feet of floor space, of which approximately 139,000 square feet wereleased to other tenants. In addition to these properties, we lease smaller facilities in various locations in
the United States, China, France, Germany, Hungary, India, Ireland, Italy, Japan, South Korea,
Singapore, Taiwan and the United Kingdom for engineering, sales and marketing, administrative andmanufacturing support activities. We believe that these facilities are suitable and adequate to meet ourcurrent operating needs.
Item 3.

Legal Proceedings

Patent Litigation
On May 13, 2012, MaxLinear, Inc., a Delaware corporation, filed a lawsuit against us in the UnitedStates District Court in the Southern District of California, San Diego Division, seeking a declaratory
judgment that MaxLinear products do not infringe 19 Silicon Laboratories’ patents and that suchpatents are invalid. We responded and filed claims accusing MaxLinear of infringing 6 Silicon
Laboratories’ patents, including 5 of our named 19 patents and an additional patent. On December 12,
2012, the Court granted a request by us to add additional allegations of patent infringement to thecase, such that we are presently accusing MaxLinear of infringing 9 patents in this litigation. We haveasked the Court for a permanent injunction stopping the sale of all allegedly infringing MaxLinear
products.
On July 30, 2012, we further filed a complaint for declaratory judgment against MaxLinear inUnited States District Court for the Western District of Texas, Austin Division. We are seeking anorder that MaxLinear’s United States Patent Nos. 7,362,178, 7,778,613 and 8,198,940 are invalid, andthat our products do not infringe such patents.
On July 17, 2012, we additionally filed a lawsuit against MaxLinear in the United States District
Court in the Southern District of California, San Diego Division, alleging infringement of an additional
Silicon Laboratories’ patent, U.S. Patent 7,035,607 related to RF design. On August 6, 2012, MaxLinear
counterclaimed alleging infringement of the three patents in the Texas litigation by a variety of our RF
and mixed signal products.
At this time, we cannot predict the outcome of these matters or the resulting financial impact tous, if any.
Other
We are involved in various other legal proceedings that have arisen in the normal course ofbusiness. 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.

26

Part II
Item 5.

Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchasesof 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 theperiods indicated, as reported by NASDAQ. As of January 22, 2013, there were 111 holders of recordof our common stock.
High

Low

Fiscal Year 2011
First Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Second Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Third Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fourth Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$50.27
46.28
42.88
45.10

$41.48
37.56
30.36
31.92

Fiscal Year 2012
First Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Second Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Third Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fourth Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$48.50
43.42
40.35
42.98

$41.07
32.00
34.55
35.00

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

27

Stock Performance Graph
The graph depicted below shows a comparison of cumulative total stockholder returns for aninvestment in Silicon Laboratories Inc. common stock, the NASDAQ Composite Index, the NASDAQElectronic Components Index and the PHLX Semiconductor Index.
150

D 100
O
L
L
A
R
S 50

0
12/29/07

01/03/09

01/02/10

01/01/11

12/31/11

Silicon Laboratories Inc.

NASDAQ Composite

NASDAQ Electronic Components

PHLX Semiconductor Index

12/29/12

25JAN201318380122

Company / Index

12/29/07

01/03/09

01/02/10

01/01/11

12/31/11

12/29/12

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

$100.00$100.00$100.00$100.00$67.85$59.10$51.09$55.67$128.43$ 85.37$ 83.22$ 90.11$122.17$100.36$ 94.75$101.14$115.26$ 99.20$ 85.28$ 99.73$110.14$111.43$ 84.18$118.70(1) The graph assumes that $100 was invested in our common stock and in each index at the market
close on December 29, 2007, and that all dividends were reinvested. No cash dividends have been
declared on our common stock.
(2) Stockholder returns over the indicated period should not be considered indicative of future
stockholder returns.
(3) With respect to the industry index, we have changed from the NASDAQ Electronics Components
Index to the PHLX Semiconductor Index because we believe it is more representative of ourindustry.

28

Issuer Purchases of Equity Securities
The following table summarizes repurchases of our common stock during the three months ended
December 29, 2012 (in thousands, except per share amounts):

Total Number of
Shares Purchased

Average Price
Paid per
Share

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

September 30, 2012 - October 27, 2012245

$36.14245$38,016

October 28, 2012 - November 24, 2012

—

$

—

—

$38,016

November 25, 2012 - December 29,
2012 . . . . . . . . . . . . . . . . . . . . . . . .

—

$

—

—

$38,016

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

245$36.14245

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

In April 2012, our Board of Directors authorized a program to repurchase up to $100 million of
our common stock through January 2013. The program allows for repurchases to be made in the open
market or in private transactions, including structured or accelerated transactions, subject to applicablelegal requirements and market conditions.
Item 6.

Selected Financial Data

Please read this selected consolidated financial data in conjunction with ‘‘Management’s Discussion
and Analysis of Financial Condition and Results of Operations,’’ our Consolidated Financial Statements
and the notes to those statements included in this Form 10-K.
Fiscal Year
2011
2010
2009
(in thousands, except per share data)

2012

2008

Consolidated Statements of Income Data
Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating income . . . . . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . .

$563,294$ 85,675$ 63,548$491,625$ 50,074$ 35,472$493,341$ 86,671$ 73,242$441,020$415,630$ 66,511$ 43,656(3)$ 73,092(2) $ 32,935(3)

$
$

$
$

$
$

$
$

Earnings per share:
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . .

1.51
1.47

0.82
0.79

1.63
1.57

1.62
1.57

$
$

0.68
0.67

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

$293,360
361,304
871,966
115,615
649,973$324,967
370,211705,991
24,214
598,939$383,362
414,073
727,658
22,372625,430$434,899
435,359
742,838
24,403
629,796$325,360
289,716
624,245
48,789502,460(1) Reflects repurchases of $62 million, $110 million, $140 million, $20 million and $280 million of ourcommon stock in fiscal 2012, 2011, 2010, 2009 and 2008, respectively.
(2) Includes a benefit related to the resolution of prior year uncertain tax benefits.
(3) Includes a charge for in-process research and development costs in connection with our acquisitionof Integration Associates.

29

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 beread 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 andassumptions associated with these statements. Our fiscal year-end financial reporting periods are a 52or 53-week year ending on the Saturday closest to December 31st. Fiscal 2012, 2011 and 2010 were52-week years and ended on December 29, 2012, December 31, 2011 and January 1, 2011, respectively.
Overview
We design and develop proprietary, analog-intensive, mixed-signal integrated circuits (ICs) for abroad range of applications. Mixed-signal ICs are electronic components that convert real-world analog
signals, such as sound and radio waves, into digital signals that electronic products can process.
Therefore, mixed-signal ICs are critical components in products addressing a variety of markets,
including communications, consumer, industrial and automotive. Our major customers include Cisco,
Huawei, LG Electronics, Pace, Panasonic, Sagem, Samsung, Technicolor, Varian Medical Systems and
ZTE.
As a fabless semiconductor company, we rely on third-party semiconductor fabricators in Asia, andto 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 shipthese 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:• Broad-based products, which include our microcontrollers, timing products (clocks andoscillators), power and isolation devices, and touch controllers;• Broadcast products, which include our broadcast audio and video products;• Access products, which include our Voice over IP (VoIP) products, embedded modems and ourPower over Ethernet (PoE) devices; and• Mature products, which include certain devices that are at the end of their respective life cycles
and therefore receive minimal or no continued research and development investment.
Through acquisitions and internal development efforts, we have continued to diversify our productportfolio and introduce next generation ICs with added functionality and further integration. On July 3,
2012, we acquired Ember Corporation, a privately held company. Ember’s products integrate
high-performance, low-power 2.4 GHz wireless ICs with reliable and scalable software into a flexible
and robust networking platform. We believe that this strategic acquisition provides us with thetechnology and software expertise required to enable the low-power mesh sensor networks being
deployed today in a wide range of residential, commercial and industrial applications. See Note 9,
Acquisitions, for additional information.
In fiscal 2012, we introduced the Precision32 32-bit mixed-signal microcontroller family, based ona patented architecture that provides customers with flexibility, performance and low power. We also
introduced a digital relative humidity (RH) and temperature ‘‘sensor-on-a-chip’’ solution, low-jitter
clock buffers with high integration of clock tree functions, a crystal-less USB-to-I2S audio bridge

30

designed to support a wide range of codecs and digital-to-analog converters (DACs), a family of digitalisolators that are drop-in replacements for optocouplers, high-performance 8-bit microcontrollers
featuring an integrated temperature sensor with best-in-class accuracy, two next-generation EZRadiowireless ICs designed to simplify the addition of high-performance wireless connectivity to cost-sensitiveembedded applications, advanced AM/FM receivers tuned for the high-end consumer and professional
audio equipment market, a family of TV tuners offering both best-in-class RF performance and support
for all worldwide TV standards, a multimedia demodulator that merges all digital video broadcast(DVB) standards into a single-chip solution, isolated analog-to-digital (ADC) converters designed
specifically for the demands of mains line monitoring, a single-port PoE controller that brings‘‘plug-and-play’’ simplicity to embedded power sourcing equipment (PSE) designs, high performance,
low power sub-GHz transceivers designed to maximize range and battery life for wireless systems, ultrasmall and low power customizable clock generators ideal for space-limited, cost-sensitive embedded andconsumer electronics and the expansion of our clocking solutions to address the stringent specificationsof the PCI Express (PCIe) Generation 1/2/3 standards. 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 expanding our total available market opportunity.
During fiscal 2012 and 2011, we had one customer, Samsung, whose purchases across a variety of
product areas represented 19% and 13% of our revenues, respectively. We had no customers that
accounted for more than 10% of our revenues during fiscal 2010. In addition to direct sales tocustomers, some of our end customers purchase products indirectly from us through distributors andcontract manufacturers. An end customer purchasing through a contract manufacturer typically instructs
such contract manufacturer to obtain our products and incorporate such products with othercomponents 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 22% and
11% of our revenues during fiscal 2012, respectively. Edom, Avnet and Macnica, represented 24%, 12%
and 10% of our revenues during fiscal 2011, respectively. Edom and Avnet represented 28% and 14%
of our revenues during fiscal 2010, respectively. There were no other distributors or contract
manufacturers that accounted for more than 10% of our revenues in fiscal 2012, 2011 or 2010.
The percentage of our revenues derived from outside of the United States was 88% in fiscal 2012,
86% in fiscal 2011 and 86% in fiscal 2010. All of our revenues to date have been denominated in U.S.
dollars. We believe that a majority of our revenues will continue to be derived from customers outsideof 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 thatincorporate 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 thecorresponding sales. Consequently, if sales in any quarter do not occur when expected, expenses andinventory 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 initialresearch 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 growthprospects, could be adversely affected.
Because many of our ICs are designed for use in consumer products such as televisions, set-top
boxes, radios and mobile handsets, 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 productareas make it difficult for us to accurately estimate the impact of seasonal factors on our business.

31

Results of Operations
The following describes the line items set forth in our Consolidated Statements of Income:Revenues. Revenues are generated almost exclusively by sales of our ICs. We recognize revenue
on sales when all of the following criteria are met: 1) there is persuasive evidence that an arrangement
exists, 2) delivery of goods has occurred, 3) the sales price is fixed or determinable, and 4) collectibility
is reasonably assured. Generally, we recognize revenue from product sales to direct customers andcontract manufacturers upon shipment. Certain of our sales are made to distributors under agreementsallowing 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 theend customer. 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 arelationship 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 tocompetition. In addition, as a product matures, we expect that the average selling price for suchproduct 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 personnelrelated 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 compliancewith 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 allocatedportion 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 andInterest Expense. Interest expense consists of interest on our short and long-term obligations,
including our Credit Facilities.
Other Income (Expense), Net. Other income (expense), net consists primarily of foreign currency
remeasurement adjustments as well as other non-operating income and expenses.
Provision for Income Taxes. Provision for income taxes includes both domestic and foreign
income taxes at the applicable statutory rates adjusted for non-deductible expenses, research anddevelopment tax credits and other permanent differences.

32

The following table sets forth our Consolidated Statements of Income data as a percentage ofrevenues for the periods indicated:
2012

Fiscal Year
2011
2010

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

100.0% 100.0% 100.0%
40.0
39.3
34.3

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

60.0

60.7

65.7

Operating expenses:
Research and development . . . . . . . . . . . . . . . . . . . . . . . .
Selling, general and administrative . . . . . . . . . . . . . . . . . .

24.5
20.3

27.7
22.8

25.1
23.0

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

44.8

50.5

48.1

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

15.2

10.2

17.6

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

0.2
(0.2)
0.1

0.3
0.0
0.1

0.4
0.0
(0.3)

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

15.3
4.0

10.6
3.4

17.7
2.9

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

11.3%

7.2% 14.8%

Comparison of Fiscal 2012 to Fiscal 2011
Revenues
Fiscal Year
2012
2011

(in millions)

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

$563.3$491.6

Change%Change

$71.7

14.6%

The growth in revenues in fiscal 2012 was due primarily to market share gains and the addition of
product revenues from the acquisition of Ember in July 2012. Unit volumes of our products increased
compared to fiscal 2011 by 18.0%. Average selling prices decreased compared to the same period by
3.0%. 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 productderivatives will offset some of these decreases.
Gross Margin
Fiscal Year
2012
2011

(in millions)

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

Change$338.0 $298.4 $39.6
60.0% 60.7%

The increase in the dollar amount of gross margin in fiscal 2012 was primarily due to ourincreased sales, offset in part by an increase in acquisition-related charges. The decrease in grossmargin as a percent of revenue was primarily due to changes in product mix.

33%
Change13.3%

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 areable to: 1) introduce higher margin new products and gain market share with our ICs; 2) achieve lower
production costs from our wafer suppliers and third-party assembly and test subcontractors; 3) achieve
lower production costs per unit as a result of improved yields throughout the manufacturing process; or4) reduce logistics costs.
Research and Development
Fiscal Year
2012
2011

(in millions)

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

Change$138.0 $136.0$2.0
24.5% 27.7%%
Change1.5%

The increase in research and development expense in fiscal 2012 was principally due to an increaseof $2.8 million for personnel-related expenses, including personnel costs associated with the acquisitionof Ember. The decrease in research and development expense as a percent of revenues in fiscal 2012 isdue to our increased revenues. We expect that research and development expense will increase
modestly in absolute dollars in the first quarter of 2013.
Recent development projects include a digital RH and temperature ‘‘sensor-on-a-chip’’ solution,
low-jitter clock buffers with high integration of clock tree functions, a crystal-less USB-to-I2S audio
bridge designed to support a wide range of codecs and DACs, a family of digital isolators that are
drop-in replacements for optocouplers, high-performance 8-bit microcontrollers featuring an integrated
temperature sensor with best-in-class accuracy, two next-generation EZRadio wireless ICs designed tosimplify the addition of high-performance wireless connectivity to cost-sensitive embedded applications,advanced AM/FM receivers tuned for the high-end consumer and professional audio equipment
market, a family of TV tuners offering both best-in-class RF performance and support for all
worldwide TV standards, a multimedia demodulator that merges all DVB standards into a single-chipsolution, isolated ADC converters designed specifically for the demands of mains line monitoring, asingle-port PoE controller that brings ‘‘plug-and-play’’ simplicity to embedded PSE designs, thePrecision32 32-bit mixed-signal microcontroller family, high performance, low power sub-GHz
transceivers designed to maximize range and battery life for wireless systems, ultra-small and low power
customizable clock generators ideal for space-limited, cost-sensitive embedded and consumer
electronics, and the expansion of our clocking solutions to address the stringent specifications of the
PCIe Generation 1/2/3 standards.
Selling, General and Administrative
Fiscal Year
2012
2011

(in millions)

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

Change$114.4 $112.4$2.0
20.3% 22.8%%
Change1.8%

The increase in selling, general and administrative expense in fiscal 2012 was principally due toincreases of (a) $6.5 million for personnel-related expenses, including severance related to a separationagreement between us and our former CEO, (b) $1.5 million for legal fees, primarily related tolitigation and acquisition-related costs, and (c) $0.8 million for product marketing costs. The increase in
fiscal 2012 was offset in part by a net gain of $8.5 million from the purchase of our headquarters infiscal 2012. The decrease in selling, general and administrative expense as a percent of revenues infiscal 2012 is due to our increased revenues. We expect that selling, general and administrative expense
will remain relatively stable in absolute dollars in the first quarter of 2013.

34

Interest Income
Interest income in fiscal 2012 was $1.3 million compared to $1.9 million in fiscal 2011.
Interest Expense
Interest expense in fiscal 2012 was $1.1 million compared to $37 thousand in fiscal 2011. The
increase in fiscal 2012 is principally due to interest on our Term Loan Facility under our Credit
Agreement.
Other Income (Expense), Net
Other income (expense), net in fiscal 2012 was $0.5 million compared to $0.4 million in fiscal 2011.
Provision for Income Taxes(in millions)Fiscal Year
2012
2011

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

$22.8 $16.9$5.9
26.4% 32.2%

Change

The effective tax rate for fiscal 2012 decreased from the prior period, primarily due to the releaseof prior year unrecognized tax benefits that were determined to be effectively settled during the current
period, along with one-time nondeductible costs associated with the acquisition of Spectra Linear infiscal 2011. The impact of these items was partially offset by the non-renewal of the federal researchand development tax credit in the current period.
The American Taxpayer Relief Act of 2012 (the ‘‘Act’’) was enacted on January 2, 2013. The Act
retroactively reinstates the federal research and development credit from January 1, 2012, throughDecember 31, 2013. The effect of the change in the tax law related to fiscal 2012 is estimated to be
between $3.5 million and $4.0 million, which will be recognized as a benefit to income tax expense in
the first quarter of fiscal 2013, the quarter in which the law was enacted.
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 includingchanges to the liability for unrecognized tax benefits.
Comparison of Fiscal 2011 to Fiscal 2010
Revenues
Fiscal Year
2011
2010

(in millions)

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

$491.6$493.3

Change%Change$(1.7)(0.3)%

Unit volumes of our products decreased compared to fiscal 2010 by 1.0%. Average selling prices
increased during the same period by 1.2%.

35

Gross Margin
Fiscal Year
2011
2010

(in millions)

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

Change$298.4 $324.2 $(25.8)
60.7% 65.7%%
Change(8.0)%The decrease in gross margin in fiscal 2011 was primarily due to changes in product mix andcharges related to the acquisition of Spectra Linear.
Research and Development
Fiscal Year
2011
2010

(in millions)

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

Change$136.0 $123.8 $12.2
27.7% 25.1%%
Change9.8%

The increase in research and development expense in fiscal 2011 was primarily due to (a) an
increase of $8.6 million for personnel-related expenses, including $1.6 million for one-time personnel
costs associated with the acquisition of Spectra Linear, (b) an increase of $2.3 million for amortizationof intangible assets, and (c) $1.0 million for the impairment of intangible assets.
Selling, General and Administrative
Fiscal Year
2011
2010

(in millions)

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

Change$112.4 $113.8 $(1.4)
22.8% 23.0%%
Change(1.2)%The decrease in selling, general and administrative expense in fiscal 2011 was principally due toa) a decrease of $2.0 million for legal fees, and (b) a decline of $1.9 million in the fair value ofacquisition-related contingent consideration. The decrease was offset in part by an increase of$2.2 million for personnel-related expenses, including $3.0 million for one-time personnel costs
associated with the acquisition of Spectra Linear.
Interest Income
Interest income in fiscal 2011 was $1.9 million compared to $2.3 million in fiscal 2010.
Interest Expense
Interest expense in fiscal 2011 was $37 thousand compared to $77 thousand in fiscal 2010.
Other Income (Expense), Net
Other income (expense), net in fiscal 2011 was $0.4 million compared to $(1.3) million in fiscal
2010. The change was primarily due to foreign currency remeasurement adjustments.

36

Provision for Income Taxes(in millions)Fiscal Year
2011
2010

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

$16.9 $14.4$2.5
32.2% 16.4%

Change

The effective tax rate for fiscal 2011 increased from the prior period, primarily due to the tax
charge related to the intercompany license of certain technology obtained in the acquisition of Spectra
Linear and other one-time nondeductible costs associated with the acquisition of Spectra Linear, adecrease in the foreign tax rate benefit, and a release of prior year unrecognized tax benefits in fiscal
2010 with none in fiscal 2011. These changes were partially offset by an increase in the research anddevelopment tax credit.
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 includingchanges to the liability for unrecognized tax benefits.
Business Outlook
We expect revenues in the first quarter of fiscal 2013 to be down sequentially four to eight percent.
Furthermore, we expect our diluted earnings per share to be in the range of $0.34 to $0.40.
Liquidity and Capital Resources
Our principal sources of liquidity as of December 29, 2012 consisted of $282.0 million in cash, cash
equivalents and short-term investments, of which approximately $119.4 million was held by our U.S.
entities. The remaining balance was held by our foreign subsidiaries. Our cash equivalents andshort-term investments consisted of corporate bonds, money market funds, municipal bonds, U.S.
Treasury bills, variable-rate demand notes, U.S. government bonds, asset-backed securities andinternational government bonds.
Our long-term investments consisted of auction-rate securities. Early in fiscal 2008, auctions formany of our auction-rate securities failed because sell orders exceeded buy orders. As of December 29,
2012, we held $12.5 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 withfailed 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 areunable to predict if these funds will become available before their maturity dates. We do not expect toneed access to the capital represented by any of our auction-rate securities prior to their maturities.
Net cash provided by operating activities was $97.1 million during fiscal 2012, compared to net
cash provided of $88.7 million during fiscal 2011. Operating cash flows during fiscal 2012 reflect our net
income of $63.5 million, adjustments of $56.5 million for depreciation, gains on the purchase ofproperty and equipment, amortization, stock-based compensation and deferred income taxes, and a net
cash outflow of $22.9 million due to changes in our operating assets and liabilities.

37Accounts receivable increased to $78.0 million at December 29, 2012 from $55.4 million at
December 31, 2011. The increase in accounts receivable resulted primarily from an increase in
shipments during the last quarter of fiscal 2012 compared to the last quarter of fiscal 2011. Our
average days sales outstanding (DSO) was 46 days at December 29, 2012 and 39 days at December 31,
2011.
Inventory increased to $49.6 million at December 29, 2012 from $34.8 million at December 31,
2011. 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 76 days at December 29, 2012 and 63 days at December 31, 2011.
Net cash used in investing activities was $139.3 million during fiscal 2012, compared to net cashused of $25.2 million during fiscal 2011. The increase in cash outflows was principally due to increases
of $93.4 million for purchases of property and equipment and $44.6 million in net payments for theacquisition of businesses, offset by an increase of $28.3 million from net proceeds from sales andmaturities of marketable securities. On July 3, 2012, we acquired Ember, a privately held company, forapproximately $79.0 million, including contingent consideration with an estimated fair value of $4.0
million at the date of acquisition. On September 28, 2012, we purchased our corporate headquarters
facilities. See Note 9, Acquisitions, for additional information.
We anticipate capital expenditures of approximately $14 to $18 million for fiscal 2013. Additionally,as part of our growth strategy, we expect to evaluate opportunities to invest in or acquire otherbusinesses, intellectual property or technologies that would complement or expand our current
offerings, expand the breadth of our markets or enhance our technical capabilities.
Net cash provided by financing activities was $52.7 million during fiscal 2012, compared to net cashused of $107.2 million during fiscal 2011. The increase in cash inflows was principally due from net
proceeds of $98.3 million from the issuance of long-term debt and outflows declining $48.0 million for
repurchases of our common stock. In April 2012, our Board of Directors authorized a program torepurchase up to $100 million of our common stock through January 2013.
Debt
On July 31, 2012, we entered into a $230 million five-year Credit Agreement (the ‘‘Agreement’’).
The Agreement consists of a $100 million Term Loan Facility and a $130 million Revolving Credit
Facility.
The Term Loan Facility provides for quarterly principal amortization (equal to 5% of the principal
in each of the first two years and 10% of the principal in each of the next three years) with theremaining balance payable upon the maturity date. The Revolving Credit Facility includes a $25 million
letter of credit sublimit and a $10 million swingline loan sublimit. We have an option to increase thesize of the Revolving Credit Facility by up to an aggregate of $50 million in additional commitments,
subject to certain conditions. On September 27, 2012, we borrowed $100 million under the Term Loan
Facility. To date, we have not borrowed under the Revolving Credit Facility.
The Term Loan Facility and Revolving Credit Facility, other than swingline loans, will bear interest
at LIBOR plus an applicable margin or, at our option, a base rate (defined as the highest of the Bankof America prime rate, the Federal Funds rate plus 0.50% and a daily rate equal to one-month LIBOR
plus 1.00%) plus an applicable margin. Swingline loans accrue interest at a per annum rate based on
the base rate plus the applicable margin for base rate loans. The applicable margins for the LIBOR
rate loans range from 1.50% to 2.50% and for base rate loans range from 0.50% to 1.50%, dependingin each case, on the leverage ratio as defined in the Agreement. We also pay a commitment fee on theunused amount of the Revolving Credit Facility.

38

In connection with the closing of the Credit Agreement, we entered into a security and pledge
agreement. Under the security and pledge agreement, we pledged equity securities of certain of our
subsidiaries, subject to exceptions and limitations. The Credit Facilities contain various conditions,covenants and representations with which we must be in compliance in order to borrow funds and to
avoid an event of default, including financial covenants that we must maintain a leverage ratio (funded
debt/EBITDA) of no more than 2.5 to 1 and a minimum fixed charge coverage ratio (EBITDA/debt
payments, income taxes and capital expenditures) of no less than 1.50 to 1. As of December 29, 2012,
the Company was in compliance with all covenants of the Credit Facilities. See Note 11, Debt, to theConsolidated 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 intoacquisitions 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 December 29, 2012 (inthousands):
Total

2013

Payments due by period
2014
2015
2016

2017

Long-term debt obligations (1) . . . . . . . . $100,000 $ 5,000 $7,500 $10,000 $10,000 $67,500
Interest on long-term debt obligations (2)11,771
2,837 2,708
2,530
2,507
1,189
Operating lease obligations (3) . . . . . . . .
13,4783,523 2,521
1,868
1,866
1,665
Purchase obligations (4) . . . . . . . . . . . . .
36,001 35,992
9———
Other long-term obligations (5) . . . . . . .
2,255— 1,991———

Thereafter

$

—
—
2,035
—
264

(1) Long-term debt obligations represent the principal due under our Term Loan Facility and include
amounts classified as current portion of long-term debt.
(2) Interest on our long-term debt obligations is based on LIBOR plus an applicable margin. We haveentered into an interest rate swap agreement as a hedge against the LIBOR portion of suchvariable interest payments and effectively converted the LIBOR portion of the interest on the
Term Loan Facility to a fixed interest rate through the maturity date. As of December 29, 2012,
the combined interest rate on the Term Loan Facility was 2.514%. The impact of the interest rate
swap was factored into the calculation of the future interest payments on our long-term debt
obligations.
(3) Operating lease obligations include amounts for leased facilities.
(4) Purchase obligations include contractual arrangements in the form of purchase orders with
suppliers where there is a fixed non-cancelable payment schedule or minimum payments due witha reduced delivery schedule.
(5) 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 $4.4 million for
unrecognized tax benefits is not included in the table above. See Note 17, Income Taxes, to theConsolidated Financial Statements for additional information.

39

Off-Balance Sheet Arrangements
As of December 29, 2012, we had no significant off-balance sheet arrangements.
Critical Accounting Policies and Estimates
The preparation of financial statements and accompanying notes in conformity with U.S. generally
accepted accounting principles requires that we make estimates and assumptions that affect theamounts 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 ofrevenues and cost of revenues on sales to distributors; however, these policies do not meet thedefinition 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 standard cost exceeds the estimatedmarket 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-monthforecasted demand. The result of this methodology is compared against the product life cycle andcompetitive 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 islower 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 dateof grant. The fair value of our market-based performance award grants is estimated at the date of grantusing 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, weare 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 auctionrate 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 ofthe securities and a discount to reflect our inability to liquidate the securities. For available-for-saleauction-rate securities, if the calculated value is below the carrying amount of the securities, we thendetermine 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 wewould be required to sell the investment before its anticipated recovery in market value and theprobability that the scheduled cash payments will continue to be made. When we conclude that another-than-temporary impairment has occurred, we assess whether we intend to sell the security or if it40

is more likely than not that we will be required to sell the security before recovery. If either of thesetwo conditions is met, we recognize a charge in earnings equal to the entire difference between the
security’s amortized cost basis and its fair value. If we do not intend to sell a security and it is not
more likely than not that we will be required to sell the security before recovery, the unrealized loss isseparated into an amount representing the credit loss, which is recognized in earnings, and the amountrelated 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 typicallyallocated to identifiable intangible assets, such as acquired technology and customer relationships. Fairvalue 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 andused, including fixed assets and purchased intangible assets, for impairment whenever changes incircumstances 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 begenerated 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 determinedby 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 ininterim 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 theuse of several valuation methodologies, although it states quoted market prices are the best evidence offair value. If the fair value is less than the net book value, the second step of the analysis compares theimplied 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 thedeferred 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 anddifferences 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 steprequires us to determine if the weight of available evidence indicates that the tax position has met thethreshold for recognition; therefore, we must evaluate whether it is more likely than not that theposition 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 betaken, 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

41

estimations of such amounts to determine the probability of various possible outcomes. We re-evaluate
the uncertain tax positions each quarter based on factors including, but not limited to, changes in facts
or circumstances, changes in tax law, expirations of statutes of limitation, effectively settled issues under
audit, and new audit activity. Such a change in recognition or measurement would result in therecognition 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, noassurance can be given that the final outcome of these matters will not be different than what isreflected in the historical income tax provisions and accruals. If additional taxes are assessed as a resultof 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 ofincome tax. We believe adequate provisions for income taxes have been made for all periods.
Recent Accounting Pronouncements
In July 2012, the Financial Accounting Standards Board (FASB) issued FASB AccountingStandards Update (ASU) No. 2012-02, Intangibles—Goodwill and Other (Topic 350)—Testing IndefiniteLived Intangible Assets for Impairment. ASU 2012-02 permits an entity to first assess qualitative factors
to determine whether it is more likely than not that an indefinite-lived intangible asset is impaired as abasis for determining whether it is necessary to perform the quantitative impairment test in accordancewith Subtopic 350-30. If an entity concludes that it is not more likely than not that the indefinite-lived
intangible asset is impaired, then no further action is required. If an entity concludes otherwise, then it
is required to determine the fair value of the indefinite-lived intangible asset and perform thequantitative impairment test. ASU 2012-02 is effective for annual and interim impairment tests
performed for fiscal years beginning after September 15, 2012, with early adoption permitted. The
adoption of this ASU is not expected to have a material impact on our financial statements.
In December 2011, the FASB issued FASB ASU No. 2011-11, Balance Sheet (Topic 210)—
Disclosures about Offsetting Assets and Liabilities. ASU 2011-11 requires an entity to disclose
information about offsetting and related arrangements to enable users of its financial statements tounderstand the effect of those arrangements on its financial position. Entities are required to disclose
both gross and net information about these instruments. ASU 2011-11 is effective for annual reporting
periods beginning on or after January 1, 2013, and interim periods within those annual periods. The
adoption of this ASU is not expected to have a material impact on our financial statements.
Item 7A.

Quantitative and Qualitative Disclosures about Market Risk

Interest Income
Our investment portfolio includes cash, cash equivalents, short-term investments and long-term
investments. Our main investment objectives are the preservation of investment capital and the
maximization of after-tax returns on our investment portfolio. Our interest income is sensitive tochanges in the general level of U.S. interest rates. Our investment portfolio holdings as ofDecember 29, 2012 and December 31, 2011 yielded less than 100 basis points. A decline in yield tozero basis points on our investment portfolio holdings as of December 29, 2012 and December 31, 2011
would decrease our annual interest income by approximately $1.2 million and $1.9 million, respectively.
We believe that our investment policy, which defines the duration, concentration, and minimum credit
quality of the allowable investments, meets our investment objectives.
Interest Expense
We are exposed to interest rate fluctuations in the normal course of our business, including
through our Credit Facilities. The interest payments on the facility are calculated using a variable-rate42

of interest. We have entered into an interest rate swap agreement with a notional value of $100 million(equal to the full amount borrowed under the Term Loan Facility) and, effectively, converted thevariable-rate interest payments on the Term Loan Facility to fixed-rate interest payments through July
2017.
Investments in Auction-rate Securities
Beginning in fiscal 2008, auctions for many of our auction-rate securities failed because sell orders
exceeded buy orders. As of December 29, 2012, we held $12.5 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, abuyer is found outside of the auction process or the underlying securities mature. We are unable topredict if these funds will become available before their maturity dates. Additionally, if we determinethat an other-than-temporary decline in the fair value of any of our available-for-sale auction-rate
securities has occurred, we may be required to adjust the carrying value of the investments through an
impairment charge.
Item 8.

Financial Statements and Supplementary Data

The Financial Statements and supplementary data required by this item are included in Part IV,
Item 15 of this Form 10-K and are presented beginning on page F-1.
Item 9.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

None.
Item 9A.

Controls and Procedures

We have performed an evaluation under the supervision and with the participation of ourmanagement, including our Chief Executive Officer (CEO) and Chief Financial Officer (CFO), of theeffectiveness 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 asof December 29, 2012 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 andreported within the time periods specified in the SEC’s rules and forms. Such disclosure controls andprocedures include controls and procedures designed to ensure that information required to bedisclosed is accumulated and communicated to our management, including our CEO and CFO, toallow timely decisions regarding required disclosures. There was no change in our internal controls
during the fiscal quarter ended December 29, 2012 that materially affected, or is reasonably likely tomaterially affect, our internal controls over financial reporting.
Management’s Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control overfinancial reporting. Our internal control system was designed to provide reasonable assurance to ourmanagement and Board of Directors regarding the preparation and fair presentation of publishedfinancial statements.
Our management assessed the effectiveness of our internal control over financial reporting as ofDecember 29, 2012. In making this assessment, it used the criteria set forth by the Committee ofSponsoring Organizations of the Treadway Commission (COSO) in Internal Control—Integrated
Framework. Based on our assessment we concluded that, as of December 29, 2012, 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.

43

Part III
Certain information required by Part III is omitted from this report because we intend to file adefinitive 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 isincorporated herein by reference.
Item 10.

Directors, Executive Officers and Corporate GovernanceSet forth below is information regarding the executive officers and directors of Silicon Laboratories
as of January 22, 2013.
Name

Age

Navdeep S. Sooch . . . . . . . . . .
G. Tyson Tuttle . . . . . . . . . . . .
Paul V. Walsh, Jr. . . . . . . . . . .
David P. Bresemann . . . . . . . .
Kurt W. Hoff . . . . . . . . . . . . .
Jonathan D. Ivester . . . . . . . . .
David R. Welland . . . . . . . . . .
William G. Bock . . . . . . . . . . .
Harvey B. Cash . . . . . . . . . . . .
R. Ted Enloe III . . . . . . . . . . .
Kristen M. Onken . . . . . . . . . .
Laurence G. Walker . . . . . . . .
William P. Wood . . . . . . . . . . .

50
45
48
47
55
57
57
62
74
74
63
64
57

Position

Chairman of the Board
Chief Executive Officer, President and Director
Chief Financial Officer and Senior Vice President
Chief Product Officer and Senior Vice President
Senior Vice President of Worldwide Sales
Senior Vice President of Worldwide Operations
Vice President and Director
Director
Director
Director
Director
Director
Director

Navdeep S. Sooch co-founded Silicon Laboratories in August 1996 and has served as Chairman of
the Board since our inception. Mr. Sooch served as our Chief Executive Officer from our inception
through the end of fiscal 2003 and served as interim Chief Executive Officer from April 2005 to
September 2005. From March 1985 until founding Silicon Laboratories, Mr. Sooch held various
positions at Crystal Semiconductor/Cirrus Logic, a designer and manufacturer of integrated circuits,
including Vice President of Engineering, as well as Product Planning Manager of Strategic Marketingand Design Engineer. From May 1982 to March 1985, Mr. Sooch was a Design Engineer with AT&T
Bell Labs. Since October 2011, Mr. Sooch has served as the CEO of Ketra, Inc., a private company inthe field of solid state lighting. Mr. Sooch holds a B.S. in Electrical Engineering from the University ofMichigan, Dearborn and an M.S. in Electrical Engineering from Stanford University. Mr. Sooch’s priorexperience as our Chief Executive Officer as well as a semiconductor designer provides him withextensive insight into our industry and our operations and qualifies him to serve as Chairman of our
Board of Directors.
G. Tyson Tuttle has served as a director and as President and Chief Executive Officer of Silicon
Laboratories since April 2012. Mr. Tuttle previously served Silicon Laboratories as Chief Operating
Officer and Senior Vice President from May 2011 until April 2012, Chief Technical Officer fromJanuary 2010 to May 2011, and Vice President and General Manager of Broadcast products including
the audio and video product families from May 2005 to December 2009. Mr. Tuttle joined Silicon
Laboratories in 1997 as a senior design engineer. From 1999 to 2005, Mr. Tuttle served in a variety of
product management, marketing and business leadership positions. Previously, Mr. Tuttle held senior
design engineering positions at Crystal Semiconductor/Cirrus Logic and Broadcom Corporation where
he focused on high-speed mixed-signal circuit design for hard disk drive read channel and Ethernet
applications. Mr. Tuttle holds an M.S. in Electrical Engineering from UCLA and a B.S. in ElectricalEngineering from Johns Hopkins University. Mr. Tuttle’s experience and understanding of our businessgained through his role as our President and Chief Executive Officer as well as his years of experience44

as a semiconductor designer provide him with extensive insight into our operations and qualifies him toserve as a member of our Board of Directors.
Paul V. Walsh, Jr. has served as Chief Financial Officer of Silicon Laboratories since July 2011.
Mr. Walsh served as Vice President of Finance and Chief Accounting Officer from November 2006 to
July 2011. Mr. Walsh previously served as Corporate Controller from March 2005. From January 2009
through September 2010, Mr. Walsh served on the Board of Directors of Rio Holdings, Inc. (previouslyGrande Communications, Inc.), a provider of cable, Internet and phone services, where he also served
as the Chairman of the Audit Committee and as a member of the Finance Committee. Prior to joining
Silicon Laboratories, Mr. Walsh was Site Controller from February 2003 to January 2004 with
PerkinElmer, a supplier to the health sciences and photonics markets. From 1992 to 2003, Mr. Walshheld various operational, finance and management roles at Analog Devices and Teradyne, in the Boston
area. Mr. Walsh received his B.S. in Mechanical Engineering from the University of Maine, and an
M.B.A from Boston University.
David P. Bresemann has served as Chief Product Officer of Silicon Laboratories since November
2012. Mr. Bresemann was promoted to Senior Vice President in April 2012. Mr. Bresemann served asVice President and General Manager of Broadcast products from 2010 to 2012. From 2002 to 2009,
Mr. Bresemann served as Vice President and General Manager of Wireline products. Mr. Bresemannjoined Silicon Laboratories in 1998 as the Director of Marketing and helped craft the company’smarketing strategy for its first Wireline products. Prior to joining Silicon Laboratories, Mr. Bresemannserved as the Director of Marketing for Consumer and Professional Audio Products at Crystal
Semiconductor/Cirrus Logic from 1992 to 1998. From 1988 to 1992, Mr. Bresemann held various sales
positions for Analog Devices. Mr. Bresemann holds a B.S. in electrical engineering from the Universityof Arizona.
Kurt W. Hoff has served as Vice President of Worldwide Sales for Silicon Laboratories since July
2007. From 2005 until July 2007, he managed the company’s European sales and operations. Prior tojoining Silicon Laboratories in 2005, Mr. Hoff served as president, Chief Executive Officer and directorof Cognio. Mr. Hoff also managed the operations and sales of C-Port Corporation, a network processor
company acquired by Motorola in May 2000. Additionally, Mr. Hoff spent 10 years in various sales
positions at AMD. Mr. Hoff holds a B.S. in Physics from the University of Illinois and an M.B.A. fromthe University of Chicago.
Jonathan D. Ivester has served as Senior Vice President of Worldwide Operations since June 2008.
He served as Vice President of Worldwide Operations since May 2005. He joined Silicon Laboratories
in September 1997 as Vice President. Previously, Mr. Ivester was with Applied Materials, a supplier of
equipment and services to the semiconductor industry, and served as Director of Manufacturing andDirector of U.S. Procurement in addition to various engineering and manufacturing management
positions. Mr. Ivester also was a scientist at Bechtel Corporation, an engineering and construction
company, and at Abcor, Inc., an ultrafiltration company and subsidiary of Koch Industries. Mr. Ivester
holds a B.S. in Chemistry from the Massachusetts Institute of Technology and an M.B.A. from Stanford
University.
David R. Welland co-founded Silicon Laboratories in August 1996, has served as a Vice President
and director since our inception and was appointed Fellow in March 2004. From November 1991 until
founding Silicon Laboratories, Mr. Welland held various positions at Crystal Semiconductor/Cirrus
Logic, a designer and manufacturer of integrated circuits, including Senior Design Engineer.
Mr. Welland holds a B.S. in Electrical Engineering from the Massachusetts Institute of Technology.
Mr. Welland’s years of experience as a semiconductor designer provide him with extensive insight into
our operations and qualifies him to serve as a member of our Board of Directors.
William G. Bock has served as a director of Silicon Laboratories since he rejoined the Board of
Directors in July of 2011. He served Silicon Laboratories as Chief Financial Officer from November

45

2006 to July 2011, and Senior Vice President of Finance and Administration through December 2011.
He joined Silicon Laboratories as a director in March 2000, and served as Chairman of the audit
committee until November 2006 when he stepped down from the Board of Directors to assume the
CFO role. From 2001 to 2006, Mr. Bock participated in the venture capital industry, principally as apartner with CenterPoint Ventures. Before his venture career, Mr. Bock held senior management
positions with three venture-backed companies: DAZEL Corporation, Tivoli Systems, and Convex
Computer Corporation. Mr. Bock began his career with Texas Instruments. Mr. Bock served on the
Board of Directors of Convio, Inc., from January 2008 until its sale to Blackbaud Inc. in April 2012.
Mr. Bock currently serves on the Board of Directors of Entropic Communications and is a member of
their Audit Committee. Mr. Bock holds a B.S. in Computer Science from Iowa State University and an
M.S. in Industrial Administration from Carnegie Mellon University. Mr. Bock’s extensive financial andexecutive experience and his in-depth knowledge of Silicon Laboratories qualify him to serve as amember of our Board of Directors.
Harvey B. Cash has served as a director of Silicon Laboratories since June 1997. Mr. Cash hasserved as general partner of InterWest Partners, a venture capital firm, since 1986. Mr. Cash currently
serves on the Board of Directors of the following public companies: Ciena Corporation, a designer andmanufacturer of dense wavelength division multiplexing systems for fiber optic networks; Argo GroupInternational Holdings, Ltd., a specialty insurance company; and First Acceptance Corp, a provider of
low-cost auto insurance. Mr. Cash holds a B.S. in Electrical Engineering from Texas A&M University
and an M.B.A. from Western Michigan University. Mr. Cash’s independence and experience as adirector of various public companies, as well as his prior operational experience as an executive,
qualifies him to serve as a member of our Board of Directors.
R. Ted Enloe III has served as a director of Silicon Laboratories since April 2003. Mr. Enloe iscurrently the Managing General Partner of Balquita Partners, Ltd., a family investment firm. Mr. Enloe
formerly served as Vice Chairman and member of the office of chief executive of Compaq Computer
Corporation. He also served as President of Lomas Financial Corporation and Liberté Investors formore than 15 years. Mr. Enloe co-founded a number of other publicly held firms, including Capstead
Mortgage Corp., Tyler Cabot Mortgage Securities Corp., and Seaman’s Corp. Mr. Enloe currently
serves on the Board of Directors of Leggett & Platt, Inc. and Live Nation, Inc. Mr. Enloe holds a B.S.
in Engineering from Louisiana Polytechnic University and a J.D. from Southern Methodist University.
Mr. Enloe’s combination of independence, qualification as an audit committee financial expert and his
experience, including past experience as an executive officer and current and past experience as adirector of various public companies, qualifies him to serve as a member of our Board of Directors.
Kristen M. Onken has served as a director of Silicon Laboratories since September 2007.
Ms. Onken was elected to the Board of Directors of Seagate Technology plc in November 2011, where
she also serves as the Chair of the Audit Committee. Ms. Onken retired from Logitech in May 2006, a
maker of electronics peripherals, where she served as Senior Vice President, Finance, and Chief
Financial Officer from February 1999 to May 2006. From September 1996 to February 1999,
Ms. Onken served as Vice President of Finance at Fujitsu PC Corporation, the U.S. subsidiary of theJapanese electronics manufacturer. From 1991 to September 1996, Ms. Onken was employed by Sun
Microsystems initially as Controller of the Southwest Area, and later as Director of Finance, Sun
Professional Services. Ms. Onken holds a B.S. from Southern Illinois University, and an M.B.A. in
Finance from the University of Chicago. Ms. Onken’s independence and prior experience as the Chief
Financial Officer of Logitech and her finance roles with other technology companies qualifies her toserve as a member of our Board of Directors.
Laurence G. Walker has served as a director of Silicon Laboratories since June 2003. Previously,
Mr. Walker co-founded and served as Chief Executive Officer of C-Port Corporation, a pioneer in the
network processor industry, which was acquired by Motorola in 2000. Following the acquisition,
Mr. Walker served as Vice President of Strategy for Motorola’s Network and Computing Systems

46

Group and then as Vice President and General Manager of the Network and Computing Systems
Group until 2002. From August 1996 to May 1997, Mr. Walker served as Chief Executive Officer of
CertCo, a digital certification supplier. Mr. Walker served as Vice President and General Manager,
Network Products Business Unit, of Digital Equipment Corporation, a computer hardware company,
from January 1994 to July 1996. From 1998 to 2007, he served on the Board of Directors of McData
Corporation, a provider of storage networking solutions. From 1981 to 1994, he held a variety of othermanagement positions at Digital Equipment Corporation. Mr. Walker holds a B.S. in ElectricalEngineering from Princeton University and an M.S. and Ph.D. in Electrical Engineering from the
Massachusetts Institute of Technology. Mr. Walker’s combination of independence and his experience,
including past experience as an executive officer, qualifies him to serve as a member of our Board of
Directors.
William P. Wood has served as a director of Silicon Laboratories since March 1997 and as Lead
Director since December 2005. Since 1996, Mr. Wood has also served as general partner of various
funds associated with Silverton Partners, a venture capital firm. From 1984 to 2003, Mr. Wood was ageneral partner, and for certain funds created since 1996, a special limited partner, of various funds
associated with Austin Ventures, a venture capital firm. Mr. Wood holds a B.A. in History from Brown
University and an M.B.A. from Harvard University. Mr. Wood’s combination of independence and his
experience, including past experience as an investor in numerous semiconductor and technology
companies, qualifies him to serve as a member of our Board of Directors.
The remaining information required by this Item is incorporated by reference to the Proxy
Statement under the sections captioned ‘‘Proposal One: Election of Directors,’’ ‘‘Executive
Compensation,’’ ‘‘Section 16(a) Beneficial Ownership Reporting Compliance’’ and ‘‘Code of Ethics.’’
Item 11.

Executive Compensation

The information under the caption ‘‘Executive Compensation’’ and ‘‘Proposal One: Election of
Directors’’ appearing in the Proxy Statement, is incorporated herein by reference.
Item 12.

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters

The information under the caption ‘‘Ownership of Securities’’ and ‘‘Equity Compensation Plan
Information’’ appearing in the Proxy Statement is incorporated herein by reference.
Item 13.

Certain Relationships and Related Transactions, and Director Independence

The information under the caption ‘‘Certain Relationships and Related Transactions, and Director
Independence’’ appearing in the Proxy Statement is incorporated herein by reference.
Item 14.

Principal Accounting Fees and Services

The information under the caption ‘‘Proposal Two: Ratification of Appointment of Independent
Registered Public Accounting Firm’’ appearing in the Proxy Statement is incorporated herein byreference.

47

Part IV
Item 15.
(a) 1.

Exhibits and Financial Statement Schedules
Financial Statements
Index
Page

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

F-1

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

F-2

Consolidated Balance Sheets at December 29, 2012 and December 31, 2011 . . . . . . . . . . . . . . . .

F-3

Consolidated Statements of Income for the fiscal years ended December 29, 2012, December 31,
2011 and January 1, 2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

F-4

Consolidated Statements of Comprehensive Income for the fiscal years ended December 29,
2012, December 31, 2011 and January 1, 2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

F-5

Consolidated Statements of Changes in Stockholders’ Equity for the fiscal years ended
December 29, 2012, December 31, 2011 and January 1, 2011 . . . . . . . . . . . . . . . . . . . . . . . . .

F-6

Consolidated Statements of Cash Flows for the fiscal years ended December 29, 2012,
December 31, 2011 and January 1, 2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

F-7

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

F-8

2.

Schedules

All schedules have been omitted since the information required by the schedule is notapplicable, 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 theConsolidated Financial Statements are filed as part of, or hereby incorporated by reference into,
this Form 10-K.

48

(b) Exhibits
Exhibit
Number2.1*

Agreement and Plan of Merger, dated May 16, 2012, by and among Silicon
Laboratories Inc., El Dorado Merger Sub, Inc., Ember Corporation and Todd Hixon, as
Stakeholder Representative (filed as Exhibit 2.1 to the Form 8-K filed May 21, 2012).

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*

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

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*+ Silicon Laboratories Inc. 2000 Stock Incentive Plan (filed as Exhibit 99.1 to theRegistrant’s Registration Statement on Form S-8 (Securities and Exchange Commission
File No. 333-60794) filed on May 11, 2001).
10.3*+ Form of Stock Option Agreement and Notice of Grant of Stock Option under Registrant’s
2000 Stock Incentive Plan (filed as Exhibit 10.3 to the Registrant’s Annual Report on
Form 10-K for the year ended January 1, 2005).
10.4*+ Form of Addendum to Stock Option Agreement under Registrant’s 2000 Stock Incentive
Plan (filed as Exhibit 10.4 to the Registrant’s Annual Report on Form 10-K for the year
ended January 1, 2005).
10.5*+ Form of Stock Issuance Agreement under Registrant’s 2000 Stock Incentive Plan (filed as
Exhibit 10.5 to the Registrant’s Annual Report on Form 10-K for the year ended
January 1, 2005).
10.6*+ Form of Addendum to Stock Issuance Agreement under Registrant’s 2000 Stock Incentive
Plan (filed as Exhibit 10.6 to the Registrant’s Annual Report on Form 10-K for the year
ended January 1, 2005).
10.7*+ Employment Agreement dated August 30, 2005 between Silicon Laboratories Inc. and
Dr. Necip Sayiner (filed as Exhibit 10.1 to the Form 8-K filed September 12, 2005).
10.8*

Lease, Deed of Trust and Security Agreement dated March 30, 2006 among Silicon
Laboratories Inc., BAL Investment & Advisory, Inc. and Gary S. Farmer (filed as
Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on April 5, 2006).

10.9*

Participation Agreement dated March 30, 2006 among Silicon Laboratories Inc., BAL
Investment & Advisory, Inc., Wells Fargo Bank Northwest, National Association andvarious other financial institutions named therein (filed as Exhibit 10.2 to the Registrant’s
Current Report on Form 8-K filed on April 5, 2006).

10.10*

Sale and Purchase Agreement dated February 8, 2007 by and between NXP B.V., NXP
Semiconductors France SAS, Silicon Laboratories Inc. and Silicon Laboratories
International Pte. Ltd. (filed as Exhibit 10.1 to the Registrant’s Current Report on
Form 8-K filed on February 9, 2007).

49

Exhibit
Number

10.11*

Intellectual Property License Agreement dated as of March 23, 2007, by and among Silicon
Laboratories Inc., Silicon Laboratories International Pte. Ltd., NXP B.V. and NXP
Semiconductors France SAS (filed as Exhibit 10.1 to the Registrant’s Current Report on
Form 8-K filed on March 29, 2007).

10.12*

Lease, Deed of Trust and Security Agreement dated March 14, 2008 among Silicon
Laboratories Inc., BA Leasing BSC, LLC and Gary S. Farmer (filed as Exhibit 10.1 to theRegistrant’s Current Report on Form 8-K filed on March 19, 2008).

10.13*

Participation Agreement dated March 14, 2008 among Silicon Laboratories Inc., BA
Leasing BSC, LLC, Wells Fargo Bank Northwest, National Association and various otherfinancial institutions named therein (filed as Exhibit 10.2 to the Registrant’s Current
Report on Form 8-K filed on March 19, 2008).

10.14*+ Silicon Laboratories Inc. 2009 Stock Incentive Plan (filed as Exhibit 10.1 to theRegistrant’s Current Report on Form 8-K filed on April 27, 2009).
10.15*+ Silicon Laboratories Inc. 2009 Employee Stock Purchase Plan (filed as Exhibit 10.2 to theRegistrant’s Current Report on Form 8-K filed on April 27, 2009).
10.16*+ Form of Restricted Stock Units Grant Notice and Restricted Stock Units Award
Agreement under Registrant’s 2009 Stock Incentive Plan (filed as Exhibit 10.3 to theRegistrant’s Current Report on Form 8-K filed on April 27, 2009).
10.17*+ Form of Stock Option Grant Notice and Stock Option Award Agreement under
Registrant’s 2009 Stock Incentive Plan (filed as Exhibit 10.4 to the Registrant’s Current
Report on Form 8-K filed on April 27, 2009).
10.18*

Credit Agreement, dated July 31, 2012, by and among Silicon Laboratories Inc., thesubsidiaries 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).

10.19*

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

21
23.1
24

Subsidiaries of the Registrant.
Consent of Independent Registered Public Accounting Firm.
Power of Attorney (included on signature page to this Form 10-K).

31.1

Certification of the Principal Executive Officer, as required by Section 302 of the SarbanesOxley Act of 2002.

31.2

Certification of the Principal Financial Officer, as required by Section 302 of the SarbanesOxley Act of 2002.

32.1

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

101.INSXBRL Instance Document

101.SCHXBRL Taxonomy Extension Schema Document

101.CALXBRL Taxonomy Extension Calculation Linkbase Document

50

Exhibit
Number

101.LABXBRL Taxonomy Extension Label Linkbase Document

101.PREXBRL Taxonomy Extension Presentation Linkbase Document

101.DEFXBRL Taxonomy Extension Definition Linkbase Document*

Incorporated herein by reference to the indicated filing.

+

Management contract or compensatory plan or arrangement

51

SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, theregistrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized, in Austin, Texas, on February 1, 2013.
SILICON LABORATORIES INC.

By:/s/ G. TYSON TUTTLE
G. Tyson Tuttle
President and Chief Executive Officer

POWER OF ATTORNEYKNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints G. Tyson Tuttle and Paul V. Walsh, Jr., and each of them, acting
individually, as his or her attorney-in-fact, each with full power of substitution and resubstitution, forhim or her and in his or her name, place and stead, in any and all capacities, to sign any and allamendments to this annual report on Form 10-K and other documents in connection herewith andtherewith, 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 andperform each and every act and thing requisite and necessary to be done in connection herewith andtherewith and about the premises, as fully to all intents and purposes as he or she might or could do inperson, 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/s/ NAVDEEP S. SOOCH
Navdeep S. Sooch/s/ G. TYSON TUTTLE
G. Tyson Tuttle/s/ PAUL V. WALSH, JR.
Paul V. Walsh, Jr.

/s/ DAVID R. WELLANDDavid R. Welland

Title

Date

Chairman of the Board

February 1, 2013

President, Chief Executive Officer andDirector (Principal Executive Officer)

February 1, 2013

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

February 1, 2013

Vice President and Director

February 1, 2013

52

Name

/s/ WILLIAM G. BOCK
William G. Bock/s/ HARVEY B. CASH
Harvey B. Cash/s/ ROBERT TED ENLOE, III
Robert Ted Enloe, III/s/ KRISTEN M. ONKEN
Kristen M. Onken/s/ LAURENCE G. WALKER
Laurence G. Walker/s/ WILLIAM P. WOOD
William P. Wood

Title

Date

Director

February 1, 2013

Director

February 1, 2013

Director

February 1, 2013

Director

February 1, 2013

Director

February 1, 2013

Director

February 1, 2013

53

(This page has been left blank intentionally.)Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders of Silicon Laboratories Inc.
We have audited Silicon Laboratories Inc.’s (the Company) internal control over financial
reporting as of December 29, 2012, based on criteria established in Internal Control—Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (theCOSO 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 overfinancial reporting included in the accompanying Management’s Report on Internal Control overFinancial Reporting. Our responsibility is to express an opinion on the Company’s internal control overfinancial 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 obtainreasonable assurance about whether effective internal control over financial reporting was maintainedin all material respects. Our audit included obtaining an understanding of internal control overfinancial reporting, assessing the risk that a material weakness exists, testing and evaluating the designand operating effectiveness of internal control based on the assessed risk, and performing such otherprocedures as we considered necessary in the circumstances. We believe that our audit provides areasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed to provide reasonableassurance regarding the reliability of financial reporting and the preparation of financial statements forexternal 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 themaintenance of records that, in reasonable detail, accurately and fairly reflect the transactions anddispositions of the assets of the company; (2) provide reasonable assurance that transactions arerecorded 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 onlyin 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 degreeof 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 December 29, 2012, 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 ofDecember 29, 2012 and December 31, 2011, and the related consolidated statements of income andcomprehensive income, changes in stockholders’ equity and cash flows for each of the three fiscal years
in the period ended December 29, 2012 of Silicon Laboratories Inc. and our report dated February 1,
2013 expressed an unqualified opinion thereon.
/s/ ERNST & YOUNG LLPAustin, Texas
February 1, 2013

F-1

Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders of Silicon Laboratories Inc.
We have audited the accompanying consolidated balance sheets of Silicon Laboratories Inc. (theCompany) as of December 29, 2012 and December 31, 2011, and the related consolidated statements ofincome and comprehensive income, changes in stockholders’ equity and cash flows for each of the threefiscal years in the period ended December 29, 2012. These financial statements are the responsibility of
the Company’s management. Our responsibility is to express an opinion on these financial statements
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 obtainreasonable 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 thefinancial 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 December 29, 2012 and December 31,
2011, and the consolidated results of its operations and its cash flows for each of the three fiscal years
in the period ended December 29, 2012, in conformity with U.S. generally accepted accounting
principles.
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 asof December 29, 2012, based on criteria established in Internal Control—Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated
February 1, 2013 expressed an unqualified opinion thereon.
/s/ ERNST & YOUNG LLPAustin, Texas
February 1, 2013

F-2

Silicon Laboratories Inc.
Consolidated Balance Sheets(In thousands, except per share data)
December 29,
2012

December 31,
2011$105,426
176,565$ 94,964
212,526

78,02349,57916,652
41,43755,351
34,778
11,56343,867

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

467,682
11,369135,271130,265
90,75036,629453,049
17,47725,141
115,489
60,00534,830Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$871,966$705,991

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

$ 29,622
5,000
40,41030,2591,087$ 26,354—
30,857
24,962665

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

106,378
95,00020,61582,838—24,214

Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commitments and contingencies
Stockholders’ equity:
Preferred stock—$0.0001 par value; 10,000 shares authorized; no sharesissued and outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Common stock—$0.0001 par value; 250,000 shares authorized; 41,879 and
42,068 shares issued and outstanding at December 29, 2012 andDecember 31, 2011, respectively . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated other comprehensive loss . . . . . . . . . . . . . . . . . . . . . . . . . .

221,993

107,052——

4
10,122640,793(946)

414,749586,653(2,467)

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

649,973

598,939

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

$871,966$705,991

AssetsCurrent assets:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Short-term investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts receivable, net of allowances for doubtful accounts of $670 at
December 29, 2012 and $725 at December 31, 2011 . . . . . . . . . . . . . . .
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid expenses and other current assets . . . . . . . . . . . . . . . . . . . . . . . .

Liabilities and Stockholders’ Equity

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

F-3

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

December 29,
2012

Year Ended
December 31,
2011

January 1,
2011

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

$563,294
225,277$491,625
193,179$493,341
169,097

Gross margin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating expenses:
Research and development . . . . . . . . . . . . . . . . . . . . . . . . . .
Selling, general and administrative . . . . . . . . . . . . . . . . . . . . .

338,017

298,446

324,244

137,952
114,390

135,953
112,419

123,821113,752

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

252,342

248,372

237,573

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

85,67550,074

86,671

1,338(1,149)
484

1,859
(37)
444

2,318
(77)
(1,253)

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

86,34822,80052,34016,86887,65914,417

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

$ 63,548$ 35,472$ 73,242

Earnings per share:
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$
$

$
$

$
$

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

1.51
1.47
42,136
43,1060.82
0.79
43,421
44,832

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

F-4

1.63
1.57
44,84546,742

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

December 29,
2012

Year Ended
December 31,
2011

January 1,
2011

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

$63,548$35,472$73,242

Other comprehensive income, before tax:
Net changes to available-for-sale securities:
Unrealized gains arising during the period . . . . . . . . . . . . . .

1,000

4

409

Net changes to cash flow hedges:
Unrealized losses arising during the period . . . . . . . . . . . . .
Reclassification for losses included in net income . . . . . . . . .

(956)
2,295

(424)
2,237

(2,640)3,320

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

2,339

1,817

1,089

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

818

636

381

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

1,521

1,181

708

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

$65,069$36,653$73,950

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

F-5

Silicon Laboratories Inc.
Consolidated Statements of Changes in Stockholders’ Equity(In thousands)
Common Stock
Additional
NumberPar
Paid-Inof Shares Value
CapitalRetained
Earnings

Accumulated
Other
Total
Comprehensive Stockholders’Loss
EquityBalance as of January 2, 2010 . . . . . . . . 45,772 $ 5 $ 128,262 $505,885
Net income . . . . . . . . . . . . . . . . . . .
———73,242Other comprehensive income . . . . . .
————Stock issuances under employee plans,
net of shares withheld for taxes . . .
1,453—
18,055—
Income tax benefit from employee
stock-based awards . . . . . . . . . . . .
—
—
3,277
—
Repurchases of common stock . . . . . (3,292)(1) (140,331)—
Stock-based compensation . . . . . . . . .
——40,684—$(4,356)—708$ 629,796
73,242708—

18,055

—
—
—

3,277
(140,332)
40,684

Balance as of January 1, 2011 . . . . . . . . 43,933
Net income . . . . . . . . . . . . . . . . . . .
—Other comprehensive income . . . . . .
—Stock issuances under employee plans,
net of shares withheld for taxes . . .
1,290
Income tax benefit from employee
stock-based awards . . . . . . . . . . . .
—Repurchases of common stock . . . . . (3,155)
Stock-based compensation . . . . . . . . .
—

4
—
—

49,947——579,127
35,472—(3,648)—1,181

625,430
35,472
1,181

—

7,660

—

—

7,660

—
—
—

2,707
(82,117)36,552—(27,946)
—

—
—
—

2,707
(110,063)
36,552

4——

14,749——586,653
63,548—(2,467)—
1,521

598,939
63,548
1,521

Balance as of December 31, 2011 . . . . . 42,068
Net income . . . . . . . . . . . . . . . . . . .
—Other comprehensive income . . . . . .
—Stock issuances under employee plans,
net of shares withheld for taxes . . .
1,560
Income tax benefit from employee
stock-based awards . . . . . . . . . . . .
—Repurchases of common stock . . . . . (1,749)
Stock-based compensation . . . . . . . . .
——15,148——15,148

—
—
—

1,675
(52,611)
31,161—(9,408)
—

—
—
—

1,675
(62,019)
31,161

Balance as of December 29, 2012 . . . . .

$ 4 $ 10,122 $640,793$ (946)$ 649,973

41,879The accompanying notes are an integral part of these Consolidated Financial Statements.

F-6

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

December 29,
2012

Year Ended
December 31,
2011

January 1,
2011$ 63,548$ 35,472$ 73,242

13,621(8,457)
14,154708
31,176
1,827(1,294)
4,725

13,570—11,0301,322
36,1152,814(2,404)(445)

11,797—
7,494—
40,324
3,295(2,412)(552)(20,743)(13,056)
10,6297,217(3,812)
4,623(7,816)(8,562)
5,334(5,948)(2,176)(1,320)(1,915)
5,855

11,342(7,811)(5,300)(777)(2,590)(2,343)(7,774)

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

97,05088,742

117,935

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

(192,450)
235,517(102,043)(8,508)(71,852)(178,676)
193,474(8,690)(4,018)(27,262)(357,777)
352,779(13,850)(8,372)(28,021)

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

(139,336)(25,172)(55,241)

Financing Activities
Proceeds from issuance of common stock, net of shares withheld fortaxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Excess income tax benefit from employee stock-based awards . . . . . .
Repurchases of common stock . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from issuance of long-term debt, net . . . . . . . . . . . . . . . .
Payments on debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

15,1481,294(62,019)
98,325
—

7,660
2,404
(110,063)—(7,174)18,0552,412(140,331)——

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

52,748(107,173)(119,864)

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

10,462
94,964(43,603)
138,567(57,170)
195,737

Cash and cash equivalents at end of period . . . . . . . . . . . . . . . . . .

$ 105,426$ 94,964$ 138,567

Supplemental Disclosure of Cash Flow Information:
Interest paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$

677

$

35

$

Income taxes paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 23,564$

8,241

Operating Activities
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adjustments to reconcile net income to cash provided by operating
activities:
Depreciation of property and equipment . . . . . . . . . . . . . . . . . . .
Net gain on the purchase of property and equipment . . . . . . . . . .
Amortization of other intangible assets and other assets . . . . . . . .
Impairment of long-lived assets . . . . . . . . . . . . . . . . . . . . . . . . .
Stock-based compensation expense . . . . . . . . . . . . . . . . . . . . . . .
Income tax benefit from employee stock-based awards . . . . . . . . .
Excess income tax benefit from employee 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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 20,780

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

F-7

90

Silicon Laboratories Inc.
Notes to Consolidated Financial Statements
December 29, 2012

1. Description of Business
Silicon Laboratories Inc. (the ‘‘Company’’), a Delaware corporation, develops and markets mixedsignal analog intensive integrated circuits (ICs) for a broad range of applications for global markets.
Within the semiconductor industry, the Company is known as a ‘‘fabless’’ company meaning that theICs 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 2012, 2011 and 2010 were 52-week years and ended on
December 29, 2012, December 31, 2011 and January 1, 2011, respectively. The accompanying
Consolidated Financial Statements include the accounts of the Company and its wholly owned
subsidiaries. All significant intercompany balances and transactions have been eliminated inconsolidation.
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 otherincome (expense), net in the Consolidated Statements of Income.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally acceptedin 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.
Fair Value of Financial Instruments
The fair values of the Company’s financial instruments are recorded using a hierarchal disclosure
framework based upon the level of subjectivity of the inputs used in measuring assets and liabilities.
The three levels are described below:
Level 1—Inputs are unadjusted, quoted prices in active markets for identical assets or liabilities at
the measurement date.
Level 2—Inputs are inputs other than quoted prices included within Level 1 that are observablefor 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.

F-8

Silicon Laboratories Inc.
Notes to Consolidated Financial Statements
December 29, 2012 (Continued)

2. Significant Accounting Policies (Continued)
Cash and Cash Equivalents
Cash and cash equivalents consist of cash deposits, money market funds and investments in debt
securities with original maturities of ninety days or less when purchased.
Investments
The Company’s investments typically have original maturities greater than ninety days as of thedate of purchase and are classified as either available-for-sale or trading securities. Investments inavailable-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 andlosses 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 ofpurchase) are classified as short-term.
The Company reviews its available-for-sale investments as of the end of each reporting period forother-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 theseverity 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, theCompany 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 costbasis 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 allother factors, which is recorded in accumulated other comprehensive loss.
Derivative Financial Instruments
The Company uses derivative financial instruments to manage certain exposures to the variabilityof interest rates. The Company’s objective is to offset increases and decreases in expenses resulting
from changes in interest rates with gains and losses on the derivative contracts, thereby reducing
volatility of earnings. The Company does not use derivative contracts for speculative purposes. The
effective portion of the gain or loss on interest rate swaps is recorded in accumulated othercomprehensive loss as a separate component of stockholders’ equity and is subsequently recognized inearnings when the hedged exposure affects earnings. Cash flows from derivatives are classified
according to the nature of the cash receipt or payment in the Consolidated Statement of Cash Flows.
Inventories
Inventories are stated at the lower of cost, determined using the first-in, first-out method, ormarket. The Company writes down the carrying value of inventory to net realizable value for estimatedF-9

Silicon Laboratories Inc.
Notes to Consolidated Financial Statements
December 29, 2012 (Continued)

2. Significant Accounting Policies (Continued)
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 iscomputed using the straight-line method over the useful lives of the assets ranging from three to five
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 inAustin, 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 overtheir estimated useful lives of 40 years and 86 years, respectively.
Long-Lived Assets
Purchased intangible assets are stated at cost, net of accumulated amortization, and are amortizedusing the straight-line method over their estimated useful lives, ranging from two to twelve years. Fairvalues 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 eventsor changes in circumstances indicate that their net book value may not be recoverable. When suchfactors 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 theirrespective carrying amounts. Impairment, if any, is based on the excess of the carrying amount over thefair 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 isgreater than the fair value, the Company must proceed to step two of the analysis. Step two of theanalysis 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 ininterim periods if events occur that would indicate that the carrying value of goodwill may be impaired.
Revenue Recognition
Revenues are generated almost exclusively by sales of the Company’s ICs. The Company
recognizes revenue when all of the following criteria are met: 1) there is persuasive evidence that an

F-10

Silicon Laboratories Inc.
Notes to Consolidated Financial Statements
December 29, 2012 (Continued)

2. Significant Accounting Policies (Continued)
arrangement exists, 2) delivery of goods has occurred, 3) the sales price is fixed or determinable, and4) collectibility is reasonably assured. Generally, revenue from product sales to direct customers andcontract 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 tothe end customers. The net balance of deferred revenue less deferred cost of revenue associated withinventory shipped to a distributor but not yet sold to an end customer is recorded in the deferredincome on shipments to distributors liability on the Consolidated Balance Sheet. Such net deferredincome balance reflects the Company’s estimate of the impact of rights of return and price protection.
Shipping and Handling
Shipping and handling costs are classified as a component of cost of revenues in the Consolidated
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 andrecognizes the expense in its Consolidated Statement of Income.
Research and Development
Research and development costs are expensed as incurred. Research and development expenseconsists 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 tosupport 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 areamortized over their estimated useful lives.
Advertising
Advertising costs are expensed as incurred. Advertising expenses were $1.7 million, $1.6 million
and $1.4 million in fiscal 2012, 2011 and 2010, 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 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

F-11

Silicon Laboratories Inc.
Notes to Consolidated Financial Statements
December 29, 2012 (Continued)

2. Significant Accounting Policies (Continued)
likely than not that the deferred tax assets will not be realized, taking into consideration the level ofhistorical taxable income and projections for future taxable income over the periods in which thetemporary differences are deductible.
Uncertain tax positions must meet a more-likely-than-not threshold to be recognized in thefinancial 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 further discussion in
Note 15, Income Taxes.
Recent Accounting Pronouncements
In July 2012, the Financial Accounting Standards Board (FASB) issued FASB AccountingStandards Update (ASU) No. 2012-02, Intangibles—Goodwill and Other (Topic 350)—Testing IndefiniteLived Intangible Assets for Impairment. ASU 2012-02 permits an entity to first assess qualitative factors
to determine whether it is more likely than not that an indefinite-lived intangible asset is impaired as abasis for determining whether it is necessary to perform the quantitative impairment test in accordancewith Subtopic 350-30. If an entity concludes that it is not more likely than not that the indefinite-lived
intangible asset is impaired, then no further action is required. If an entity concludes otherwise, then it
is required to determine the fair value of the indefinite-lived intangible asset and perform thequantitative impairment test. ASU 2012-02 is effective for annual and interim impairment tests
performed for fiscal years beginning after September 15, 2012, with early adoption permitted. The
adoption of this ASU is not expected to have a material impact on the Company’s financial statements.
In December 2011, the FASB issued FASB ASU No. 2011-11, Balance Sheet (Topic 210)—
Disclosures about Offsetting Assets and Liabilities. ASU 2011-11 requires an entity to disclose
information about offsetting and related arrangements to enable users of its financial statements tounderstand the effect of those arrangements on its financial position. Entities are required to disclose
both gross and net information about these instruments. ASU 2011-11 is effective for annual reporting
periods beginning on or after January 1, 2013, and interim periods within those annual periods. The
adoption of this ASU is not expected to have a material impact on the Company’s financial statements.

F-12

Silicon Laboratories Inc.
Notes to Consolidated Financial Statements
December 29, 2012 (Continued)

3. Earnings Per Share
The following table sets forth the computation of basic and diluted earnings per share (inthousands, except per share data):
December 29,
2012

Year Ended
December 31,
2011

January 1,
2011

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

$63,548$35,472$73,242

Shares used in computing basic earnings per share . . . . . . . . . . .

42,13643,42144,845

Effect of dilutive securities:
Stock options and other stock-based awards . . . . . . . . . . . . . .

970

1,411

1,897

Shares used in computing diluted earnings per share . . . . . . . . . .

43,10644,832

46,742

Earnings per share:
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 1.51$ 1.47

$
$

0.82
0.79

$
$

1.63
1.57

For fiscal years ended December 29, 2012, December 31, 2011 and January 1, 2011, approximately
0.5 million, 0.4 million and 0.6 million shares, respectively, were not included in the diluted earnings
per share calculation since the shares were anti-dilutive.
4. Cash, Cash Equivalents and Investments
The Company’s cash equivalents and short-term investments as of December 29, 2012 consisted ofcorporate bonds, money market funds, municipal bonds, U.S. Treasury bills, variable-rate demand notes,
U.S. government bonds, asset-backed securities and international government bonds. The Company’s
long-term investments consisted of auction-rate securities. Early in fiscal 2008, auctions for many of theCompany’s auction-rate securities failed because sell orders exceeded buy orders. As of December 29,
2012, the Company held $12.5 million par value auction-rate securities, all of which have experienced
failed auctions. The underlying assets of the securities consisted of student loans and municipal bonds,of which $10.5 million were guaranteed by the U.S. government and the remaining $2.0 million wereprivately insured. As of December 29, 2012, $4.5 million of the auction-rate securities had credit ratingsof AAA, $6.0 million 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 and with current yields of 0.23%
to 1.71% per year at December 29, 2012. 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 beaccessible until a successful auction occurs, the issuer redeems the securities, a buyer is found outsideof the auction process or the underlying securities mature. The Company is unable to predict if thesefunds 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 thatthe credit ratings and credit support of the security issuers indicate that they have the ability to settle

F-13

Silicon Laboratories Inc.
Notes to Consolidated Financial Statements
December 29, 2012 (Continued)

4. Cash, Cash Equivalents and Investments (Continued)
the securities at par value. As such, the Company has determined that no other-than-temporary
impairment losses existed as of December 29, 2012.
The Company’s cash, cash equivalents and investments consisted of the following (in thousands):

Cost

Cash and Cash Equivalents:
Cash on hand . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Available-for-sale securities:
U.S. Treasury bills . . . . . . . . . . . . . . . . . . . . . . . . . .
Money market funds . . . . . . . . . . . . . . . . . . . . . . . .
Municipal bonds . . . . . . . . . . . . . . . . . . . . . . . . . . .

Fair Value

$

—

$ —

$ 56,690

25,04922,685
1,000

—
—
—

1
1
—

25,05022,686
1,000

Total available-for-sale securities . . . . . . . . . . . . . . . . .

48,734—

2

48,736

Total cash and cash equivalents . . . . . . . . . . . . . . . . . . . .

$105,424

$

—

$

2

$105,426

Short-term Investments:
Available-for-sale securities:
Corporate bonds . . . . . . . . . . . . . . . . . . . . . . . . . . .
Municipal bonds . . . . . . . . . . . . . . . . . . . . . . . . . . .
Variable-rate demand notes . . . . . . . . . . . . . . . . . . .
Asset-backed securities . . . . . . . . . . . . . . . . . . . . . . .
U.S. government bonds . . . . . . . . . . . . . . . . . . . . . .
International government bonds . . . . . . . . . . . . . . . .

$ 59,089
45,646
41,785
15,058
12,638
1,991

$

(5)
(7)
—
—
—
—

$267
50
—
11
25
17

$ 59,351
45,68941,785
15,06912,663
2,008

Total short-term investments . . . . . . . . . . . . . . . . . . . . . .

$176,207

$

(12)

$370

$176,565

Long-term Investments:
Available-for-sale securities:
Auction rate securities . . . . . . . . . . . . . . . . . . . . . . .

$ 12,525$(1,156)$ —$ 11,369

Total long-term investments . . . . . . . . . . . . . . . . . . . . . . .

$ 12,525$(1,156)$ —$ 11,369

F-14$ 56,690

December 29, 2012
Gross
Gross
Unrealized
Unrealized
LossesGains

Silicon Laboratories Inc.
Notes to Consolidated Financial Statements
December 29, 2012 (Continued)

4. Cash, Cash Equivalents and Investments (Continued)

Cost

Cash and Cash Equivalents:
Cash on hand . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Available-for-sale securities:
Money market funds . . . . . . . . . . . . . . . . . . . . . . . .

$ 44,113

December 31, 2011
Gross
Gross
Unrealized
Unrealized
LossesGains

Fair Value$

50,851—$ —$ 44,113——

50,851

Total cash and cash equivalents . . . . . . . . . . . . . . . . . . . .

$ 94,964

$

—

$ —

$ 94,964

Short-term Investments:
Available-for-sale securities:
Corporate bonds . . . . . . . . . . . . . . . . . . . . . . . . . . .
Municipal bonds . . . . . . . . . . . . . . . . . . . . . . . . . . .
Variable-rate demand notes . . . . . . . . . . . . . . . . . . .
U.S. government agency . . . . . . . . . . . . . . . . . . . . . .
U.S. Treasury bills . . . . . . . . . . . . . . . . . . . . . . . . . .
Asset-backed securities . . . . . . . . . . . . . . . . . . . . . . .
U.S. government bonds . . . . . . . . . . . . . . . . . . . . . .
Certificates of deposit . . . . . . . . . . . . . . . . . . . . . . .
International government bonds . . . . . . . . . . . . . . . .

$ 75,189
56,91541,28019,820
8,600
5,743
2,507
1,570
950

$ (363)
(12)
—
(12)
—
(5)
—
—
—

$234
81
—
28
—
1
—
—
—

$ 75,060
56,984
41,28019,836
8,600
5,739
2,507
1,570
950

Total short-term investments . . . . . . . . . . . . . . . . . . . . . .

$212,574$ (392)$344$212,526

Long-term Investments:
Available-for-sale securities:
Auction rate securities . . . . . . . . . . . . . . . . . . . . . . .

$ 19,225$(1,748)$ —$ 17,477

Total long-term investments . . . . . . . . . . . . . . . . . . . . . . .

$ 19,225$(1,748)$ —$ 17,477

The available-for-sale investments that were in a continuous unrealized loss position, aggregated bylength of time that individual securities have been in a continuous loss position, were as follows (inthousands):

As of December 29, 2012

Less Than 12 Months
Gross
Fair
Unrealized
Value
Losses12 Months or Greater
Gross
Fair
Unrealized
Value
LossesMunicipal bonds . . . . . . . . . . . . . . . . .
Auction rate securities . . . . . . . . . . . .
Corporate bonds . . . . . . . . . . . . . . . .

$17,152
—
9,543

$ (7)
—
(5)

$

—
11,369—$—(1,156)—$17,152
11,3699,543$$26,695$(12)$11,369$(1,156)$38,064$(1,168)

F-15

Total
Fair
Value

Gross
Unrealized
Losses(7)(1,156)(5)

Silicon Laboratories Inc.
Notes to Consolidated Financial Statements
December 29, 2012 (Continued)

4. Cash, Cash Equivalents and Investments (Continued)

As of December 31, 2011

Less Than 12 Months
Gross
Fair
Unrealized
Value
Losses12 Months or Greater
Gross
Fair
Unrealized
Value
LossesCorporate bonds . . . . . . . . . . . . . . . .
Auction rate securities . . . . . . . . . . . .
Municipal bonds . . . . . . . . . . . . . . . . .
U.S. government agency . . . . . . . . . . .
Asset-backed securities . . . . . . . . . . . .

$25,438—
10,4375,772
4,539$(363)
—
(12)
(12)
(5)

$

—
17,477———$$46,186$(392)$17,477

Total
Fair
Value

Gross
Unrealized
Losses—(1,748)———$25,438
17,477
10,4375,772
4,539$ (363)(1,748)
(12)
(12)
(5)

$(1,748)$63,663$(2,140)

The gross unrealized losses as of December 29, 2012 and December 31, 2011 were due primarily tothe 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-saleinvestments at December 29, 2012 (in thousands):

Due in one year or less . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Due after one year through ten years . . . . . . . . . . . . . . . . . . .
Due after ten years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Cost

Fair
Value

$ 93,389
95,117
48,960$ 93,450
95,41647,804$237,466$236,670

5. Derivative Financial Instruments
The Company is exposed to interest rate fluctuations in the normal course of its business,
including through its Credit Facilities. The interest payments on the facility are calculated using avariable-rate of interest. The Company has entered into an interest rate swap agreement with anotional value of $100 million (equal to the full amount borrowed under the Term Loan Facility) and,effectively, converted the LIBOR portion of the variable-rate interest payments to fixed-rate interest
payments through July 2017 (the maturity date of the Term Loan Facility). The Company’s interest rate
swap agreement is designated and qualifies as a cash flow hedge.
The Company’s previous swap agreement with a notional value of $50.1 million was terminated on
September 28, 2012 in connection with the Company’s purchase of its corporate headquarters facilities.
See Note 9, Acquisitions, for additional information.
The Company estimates the fair values of derivatives based on quoted prices and market
observable data of similar instruments. If the Term Loan Facility or the interest rate swap agreement isterminated prior to maturity, the fair value of the interest rate swap recorded in accumulated othercomprehensive loss may be recognized in the Consolidated Statement of Income based on anassessment of the agreements at the time of termination. The termination of the Company’s swap
agreement with a notional value of $50.1 million resulted in its remaining fair value of $0.9 million that

F-16

Silicon Laboratories Inc.
Notes to Consolidated Financial Statements
December 29, 2012 (Continued)

5. Derivative Financial Instruments (Continued)
was previously recorded in accumulated other comprehensive loss to be reclassified into earnings during
fiscal 2012.
The Company measures the effectiveness of its cash flow hedge by comparing the change in fairvalue of the hedged item 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 ofeffectiveness, in the Consolidated Statement of Income. As of December 29, 2012, no portion of thegains or losses from the Company’s hedging instrument was excluded from the assessment ofeffectiveness. There was no hedge ineffectiveness for any of the periods presented.
The Company’s derivative financial instruments consisted of the following (in thousands):

Balance Sheet Location

Interest rate swaps . . . . . . .

Other non-current liabilities

Fair Value
December 29, December 31,
2012
2011

$658

$1,998The before-tax effect of derivative instruments in cash flow hedging relationships was as follows (inthousands):
Loss Recognized in
OCI on Derivatives(Effective Portion)
during the Year Ended
December 29, December 31, January 1,
2012
2011
2011

Interest rate swaps$(956)$(424)

Locationof Loss
Reclassified
into Income$(2,640) Rent expense
Interest expense

Loss Reclassified
from Accumulated
OCI into Income(Effective Portion)
during the Year Ended
December 29, December 31, January 1,
2012
2011
2011

$(2,197)(98)$(2,237)—$(3,321)—

The Company expects to reclassify $0.5 million of its interest rate swap losses included inaccumulated other comprehensive loss as of December 29, 2012 into earnings in the next 12 months,
which is offset by lower interest payments.

F-17

Silicon Laboratories Inc.
Notes to Consolidated Financial Statements
December 29, 2012 (Continued)

6. Fair Value of Financial Instruments
The following summarizes the valuation of the Company’s financial instruments (in thousands).
The tables do not include either cash on hand or assets and liabilities that are measured at historicalcost or any basis other than fair value.

Description

Fair Value Measurements
at December 29, 2012 Using
Quoted Prices inSignificant Other
Significant
Active Markets for
Observable
Unobservable
Identical Assets
Inputs
Inputs(Level 1)(Level 2)(Level 3)

Total

Assets:Cash Equivalents:
U.S. Treasury bills . . . . . . . . . . . . . . . . .
Money market funds . . . . . . . . . . . . . . .
Municipal bonds . . . . . . . . . . . . . . . . . .

$25,050
22,686
—

$

—
—
1,000

$

—
—
—

$ 25,050
22,686
1,000

Total cash equivalents . . . . . . . . . . . . . . . . .

$47,736

$

1,000

$

—

$ 48,736

$

—
—
—
—
12,663—$ 59,351
45,68941,785
15,069
—
2,008

$

—
—
—
—
—
—

$ 59,351
45,68941,785
15,06912,663
2,008

Total short-term investments . . . . . . . . . . . . .

$12,663$163,902$—$176,565

Long-term Investments:
Auction rate securities . . . . . . . . . . . . . .

$

—

$

—

$11,369$ 11,369

Total long-term investments . . . . . . . . . . . . .

$

—

$

—

$11,369$ 11,369

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

$60,399$164,902$11,369$236,670

Liabilities:
Derivative instruments . . . . . . . . . . . . . .
Contingent consideration . . . . . . . . . . . .

$

—
—

$

658
—

$

—
2,750

$

658
2,750

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

$

—

$

658

$ 2,750$

3,408

Short-term Investments:
Corporate bonds . . . . . . . . . . . . . . . . . .
Municipal bonds . . . . . . . . . . . . . . . . . .
Variable-rate demand notes . . . . . . . . . .
Asset-backed securities . . . . . . . . . . . . .
U.S. government bonds . . . . . . . . . . . . .
International government bonds . . . . . . .

F-18

Silicon Laboratories Inc.
Notes to Consolidated Financial Statements
December 29, 2012 (Continued)

6. Fair Value of Financial Instruments (Continued)

Description

Fair Value Measurements
at December 31, 2011 Using
Quoted Prices inSignificant Other
Significant
Active Markets for
Observable
Unobservable
Identical Assets
Inputs
Inputs(Level 1)(Level 2)(Level 3)

Total

Assets:Cash Equivalents:
Money market funds . . . . . . . . . . . . . .

$50,851

$

—

$

—

$ 50,851

Total cash equivalents . . . . . . . . . . . . . . . . .

$50,851

$

—

$

—

$ 50,851

$

—
—
—
—
8,600
—
2,507
—
—

$ 75,060
56,984
41,28019,836
—
5,739
—
1,570
950

$

—
—
—
—
—
—
—
—
—

$ 75,060
56,984
41,28019,836
8,600
5,739
2,507
1,570
950

Total short-term investments . . . . . . . . . . . .

$11,107$201,419$—$212,526

Long-term Investments:
Auction rate securities . . . . . . . . . . . . .

$

—

$

—

$17,477$ 17,477

Total long-term investments . . . . . . . . . . . .

$

—

$

—

$17,477$ 17,477

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

$61,958$201,419$17,477$280,854

Liabilities:
Derivative instruments . . . . . . . . . . . . .
Contingent consideration . . . . . . . . . . .

$

—
—

$

1,998
—

$

—
876

$

1,998
876

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

$

—

$

1,998

$

876

$

2,874

Short-term Investments:
Corporate bonds . . . . . . . . . . . . . . . . .
Municipal bonds . . . . . . . . . . . . . . . . .
Variable-rate demand notes . . . . . . . . .
U.S. government agency . . . . . . . . . . . .
U.S. Treasury bills . . . . . . . . . . . . . . . .
Asset-backed securities . . . . . . . . . . . . .
U.S. government bonds . . . . . . . . . . . .
Certificates of deposit . . . . . . . . . . . . .
International government bonds . . . . . .

The Company’s cash equivalents and short-term investments that are classified as Level 1 arevalued using quoted prices and other relevant information generated by market transactions involving
identical assets. Cash equivalents and short-term investments classified as Level 2 are valued using
non-binding market consensus prices that are corroborated with observable market data; quoted market
prices for similar instruments in active markets; or pricing models, such as a discounted cash flow
model, with all significant inputs derived from or corroborated with observable market data.
Investments classified as Level 3 are valued using a discounted cash flow model. The assumptions usedin 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.

F-19

Silicon Laboratories Inc.
Notes to Consolidated Financial Statements
December 29, 2012 (Continued)

6. Fair Value of Financial Instruments (Continued)
The Company’s derivative instruments are valued using a discounted cash flow model. The
assumptions used in preparing the discounted cash flow model include quoted interest swap rates andmarket observable data of similar instruments. The Company’s contingent consideration is valued using
a probability weighted discounted cash flow model. The assumptions used in preparing the discounted
cash flow model include estimates for outcomes if milestone goals are achieved, the probability ofachieving each outcome and discount rates.
The following summarizes quantitative information about Level 3 fair value measurements.
Auction rate securities
Fair Value at
December 29, 2012
(000s)

Valuation Technique$11,369

Discounted cash flow

Unobservable Input

Weighted
Average

Estimated yield

1.24%

Expected holding period

10 years

Estimated discount rate

2.78%

The Company has followed an established internal control procedure used in valuing auction ratesecurities. The procedure involves several layers of the Company’s finance management in the analysis
of valuation techniques and evaluation of unobservable inputs commonly used by market participants toprice 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 ofthe securities.
Significant changes in any of the unobservable inputs used in the fair value measurement ofauction 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 adirectionally similar change in the assumptions used for estimated yield and discount rate.

F-20

Silicon Laboratories Inc.
Notes to Consolidated Financial Statements
December 29, 2012 (Continued)

6. Fair Value of Financial Instruments (Continued)
Contingent consideration
Fair Value at
December 29, 2012
(000s)$2,750WeightedAverage

Valuation Technique

Unobservable Input

Range

Probability weighted
discounted cash flow

Estimated outcomes if
milestone goals areachieved$2.8 million$1.2 million $4.2 million

Estimated probability ofachieving each outcome

33%

25% - 50%

Estimated discount rate

5.10%

n/a

The Company has followed an established internal control procedure used in valuing contingent
consideration. The valuation of contingent consideration is based on a weighted-average discounted
cash flows model. The model relies primarily on estimates of outcomes if milestones are achieved, theprobability of achieving each outcome and discount rates. The fair value of this valuation is estimatedon a quarterly basis through a collaborative effort by the Company’s sales, marketing and financedepartments.
Significant changes in any of the unobservable inputs used in the fair value measurement ofcontingent consideration in isolation could result in a significantly lower or higher fair value. A change
in projected outcomes if milestone goals are achieved would be accompanied by a directionally similarchange in fair value. A change in discount rate would be accompanied by a directionally oppositechange in fair value.
The following summarizes the activity in Level 3 financial instruments for the years ended
December 29, 2012 and December 31, 2011 (in thousands):
AssetsYear Ended
December 29, December 31,
2012
2011

Auction Rate Securities

Beginning balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Settlements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gains included in other comprehensive income . . . . . . . .

$17,477(6,700)592$17,500(500)
477

Ending balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$11,369$17,477

F-21

Silicon Laboratories Inc.
Notes to Consolidated Financial Statements
December 29, 2012 (Continued)

6. Fair Value of Financial Instruments (Continued)
Liabilities
Year Ended
December 29, December 31,
2012
2011

Contingent Consideration (1)Beginning balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Issues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gain recognized in earnings (2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$

876
4,004
(2,130)$ 1,780
1,025(1,929)Balance at December 29, 2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 2,750$

Net gain for the year included in earnings attributable to contingent
consideration still held at the end of the period: . . . . . . . . . . . . . . . . . . .

$ 1,254$ 1,929876(1) In connection with the acquisition of Ember, Spectra Linear and ChipSensors, the Company
recorded contingent consideration based upon the achievement of certain milestone goals. Changes
to the fair value of contingent consideration due to changes in assumptions used in preparing thediscounted cash flow model are recorded in selling, general and administrative expenses in theConsolidated Statement of Income.
(2) The Company reduced the estimated fair value of contingent consideration because certain
milestone goals were either not achieved or were expected to be achieved at a lower outcome.
Fair values of other financial instruments
The fair value of the Company’s Term Loan Facility approximates its carrying values due to thevariable interest rate feature of this instrument. The Company’s other financial instruments, including
cash, accounts receivable and accounts payable, are recorded at amounts that approximate their fairvalues due to their short maturities.
7. Balance Sheet Details
The following tables show the details of selected Consolidated Balance Sheet items (in thousands):
Inventories

Work in progress . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Finished goods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

F-22

December 29,
2012

December 31,
2011$42,103
7,476$28,023
6,755$49,579$34,778

Silicon Laboratories Inc.
Notes to Consolidated Financial Statements
December 29, 2012 (Continued)

7. Balance Sheet Details (Continued)
Prepaid Expenses and Other Current Assets
December 29,
2012

December 31,
2011$21,260
20,177$23,221
20,646$41,437$43,867

December 29,
2012

December 31,
2011

Buildings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Computers and purchased software . . . . . . . . . . . . . . . . .
Leasehold interest in ground leases . . . . . . . . . . . . . . . . .
Furniture and fixtures . . . . . . . . . . . . . . . . . . . . . . . . . . .
Leasehold improvements . . . . . . . . . . . . . . . . . . . . . . . . .

$ 90,900
48,21927,294
23,840
3,129
7,587

$

Accumulated depreciation . . . . . . . . . . . . . . . . . . . . . . . .

200,969(65,698)

97,493(72,352)$135,271$ 25,141

December 29,
2012

December 31,
2011$22,298
18,112$17,948
12,909$40,410$30,857

December 29,
2012

December 31,
2011$11,794
4,364
1,954
2,503

$
—
10,943
6,047
7,224$20,615$24,214

Distributor advances . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Property and Equipment—
43,93428,371—
3,356
21,832

Accrued Expenses

Accrued compensation and benefits . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Other Non-current Liabilities

Acquired unfavorable leases . . . . . . . . . . . . . . . . . . . . . .
Unrecognized tax benefits . . . . . . . . . . . . . . . . . . . . . . . .
Software license accruals . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

F-23

Silicon Laboratories Inc.
Notes to Consolidated Financial Statements
December 29, 2012 (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 and derivatives. The
Company places its cash equivalents and investments primarily in corporate bonds, municipal bonds,
variable-rate demand notes, U.S. Treasury bills, money market funds, asset-backed securities, U.S.
government bonds, auction-rate securities and international government bonds. Concentrations of credit
risk with respect to accounts receivable are primarily due to customers with large outstanding balances.
The Company’s customers that accounted for greater than 10% of accounts receivable consisted of thefollowing:

Edom Technology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Avnet . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

December 29,
2012

December 31,
2011

23%
12%

29%
13%

The Company performs periodic credit evaluations of its customers’ financial condition andgenerally 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.
Distributor Advances
On sales to distributors, the Company’s payment terms often require the distributor to settle
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 theCompany because distributors often negotiate price reductions after purchasing the product from theCompany 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 associateddiscount 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 basedon 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 theseadvances are set forth in binding legal agreements and are unsecured, bear no interest on unsettled
balances and are due upon demand. The agreements governing these advances can be cancelled by theCompany at any time.
Suppliers
A significant portion of the Company’s products are fabricated by Taiwan Semiconductor
Manufacturing Co. (TSMC) or its affiliates. The inability of TSMC to deliver wafers to the Company
on a timely basis could impact the production of the Company’s products for a substantial period oftime, which could have a material adverse effect on the Company’s business, financial condition andresults of operations.

F-24

Silicon Laboratories Inc.
Notes to Consolidated Financial Statements
December 29, 2012 (Continued)

8. Risks and Uncertainties (Continued)
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, theCompany refers to the end customer as its customer. None of the Company’s contract manufacturers
accounted for greater than 10% of revenue during fiscal 2012, 2011 or 2010. The Company’s end
customers and distributors that accounted for greater than 10% of revenue consisted of the following:
December 29,
2012

Year Ended
December 31,
2011

January 1,
2011

End Customers
Samsung* . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

19%

13%

**

Distributors
Edom Technology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Avnet . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Macnica . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

22%
11%
**

24%
12%
10%

28%
14%
**

*
**

Samsung’s purchases were across a variety of product areas.
Less than 10% of revenue

9. Acquisitions
Ember
On July 3, 2012, the Company acquired Ember Corporation, a privately held company. Ember’s
products integrate high-performance, low-power 2.4 GHz wireless ICs with reliable and scalable
software into a flexible and robust networking platform.
The Company acquired Ember for approximately $79.0 million, including contingent consideration
with an estimated fair value of $4.0 million at the date of acquisition. The contingent consideration ispayable on a dollar for dollar basis to the extent that revenue of the acquired products exceeds $27.0
million over a one-year period from the beginning of the third fiscal quarter of 2012 through the end of
the second fiscal quarter of 2013.
The Company recorded the purchase of Ember using the acquisition method of accounting andaccordingly, recognized the assets acquired and liabilities assumed at their fair values as of the date of
the acquisition. The results of Ember’s operations are included in the Company’s consolidated resultsof operations beginning on the date of the acquisition. Pro forma information related to this acquisition
has not been presented because it would not be materially different from amounts reported.
Acquisition-related costs were not significant.
The Company believes that this strategic acquisition provides it with the technology and softwareexpertise required to enable the low-power mesh sensor networks being deployed today in a wide rangeof residential, commercial and industrial applications. These factors contributed to a purchase pricethat was in excess of the fair value of the net assets acquired and, as a result, the Company recorded

F-25

Silicon Laboratories Inc.
Notes to Consolidated Financial Statements
December 29, 2012 (Continued)

9. Acquisitions (Continued)
goodwill. The goodwill is not deductible for tax purposes. The purchase price was allocated as follows(in thousands):

AmountWeighted-Average
Amortization Period(Years)Intangible assets:
In-process research and development . . . . . . . . . . . . .
Developed technology . . . . . . . . . . . . . . . . . . . . . . .
Customer relationships . . . . . . . . . . . . . . . . . . . . . . .
Trademarks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$14,810
17,8005,620
910

Not amortized11
912

Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . .
Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-current deferred tax assets, net . . . . . . . . . . . . . . .
Other non-current assets . . . . . . . . . . . . . . . . . . . . . . .
Current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

39,140
3,115
1,928
4,749
324
14,777
16,4491,776(3,287)

Total purchase price . . . . . . . . . . . . . . . . . . . . . . . . . . .

$78,971

In-process research and development (IPR&D) represents acquired technology that had notachieved technological feasibility as of the acquisition date and had no alternative future use. The
IPR&D recorded in connection with the acquisition of Ember consisted of a low-power RF transceiver.
The fair value of this technology was determined using the income approach. The discount rateapplicable to the cash flows was 12.5%. The remaining research and development efforts include
additional design, integration and testing. The estimated cost to complete the IPR&D as of theacquisition date was approximately $11.2 million. Such costs have been consistent with the Company’s
assumptions at the time of the acquisition. The significant risks associated with the successful
completion of this project include the Company’s potential inability to finish the product designs,
produce working models and gain customer acceptance. The Company does not expect the products
derived from this technology to begin to contribute to revenues prior to fiscal 2013.
Corporate Headquarters Buildings
The Company leased facilities at 400 W. Cesar Chavez (‘‘400 WCC’’) and 200 W. Cesar Chavez(‘‘200 WCC’’) in Austin, Texas for its corporate headquarters. During the terms of the leases, theCompany had options to purchase the buildings for approximately $44.3 million for 400 WCC and$50.1 million for 200 WCC. On September 28, 2012, the Company exercised such options andpurchased the facilities.
The buildings are located on land which is leased through 2099 from a third party. The rents forthese ground leases were prepaid for the term of the leases by the previous lessee. The first floor ofeach building was leased to the same third party for the term of the ground leases. The base rents for

F-26

Silicon Laboratories Inc.
Notes to Consolidated Financial Statements
December 29, 2012 (Continued)

9. Acquisitions (Continued)
the first floor leases were prepaid to the previous owner of the buildings. Portions of the remaining
floors were also leased to other tenants.
The Company determined that the purchase of the facilities represented a business combination.
Under the acquisition method of accounting, the assets acquired and liabilities assumed were recordedat their fair values as of the date of the acquisition. The purchase price was allocated as follows (inthousands):
AmountBuildings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Leasehold interest in ground leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Acquired unfavorable leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Lease-related charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net gain on purchase . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 90,900
23,840(11,925)(8)(8,457)

Total purchase price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 94,350

The buildings and leasehold interest in ground leases will be depreciated on a straight-line basis
over their estimated useful lives of 40 years and 86 years, respectively. Acquired unfavorable leases
represent the difference between contractual minimum rental payments due under previously-existing
leases in each building and the market rates of those same leases. This amount was recorded in othernon-current liabilities in the Consolidated Balance Sheet and will be amortized to rental income overthe estimated terms of the leases.
The purchase of the facilities resulted in a net gain of approximately $8.5 million, which wasrecorded in selling, general and administrative expenses in the Consolidated Statement of Income. The
gain resulted primarily because the assets acquired and liabilities assumed were recorded at their fairvalues as of the date of the acquisition, which was substantially higher than the purchase prices of the
facilities. The purchase prices were fixed at the beginning of the two leases in March 2006 and March
2008. While market prices for such facilities increased over the terms of the leases, the purchase prices
remained the same.
Spectra Linear
On January 25, 2011, the Company acquired Spectra Linear, Inc., a late-stage private company
offering integrated timing solutions. The Company acquired Spectra Linear for approximately $28.6
million, including contingent consideration with an estimated fair value of $1.0 million at the date ofacquisition. In addition, the Company assumed approximately $8.0 million of Spectra Linear net
liabilities in connection with the acquisition.
The Company paid an additional approximately $4.5 million of consideration to certain Spectra
Linear employees in connection with an agreement between the employees and Spectra Linear. Thisagreement provided that upon the sale of Spectra Linear, a portion of the proceeds would be paid tosuch employees as bonuses. The agreement was accounted for as a transaction separate from thebusiness combination based on its economic substance and was recorded as post-combinationcompensation expense in the Company’s financial statements during fiscal 2011.

F-27

Silicon Laboratories Inc.
Notes to Consolidated Financial Statements
December 29, 2012 (Continued)

9. Acquisitions (Continued)
The Company recorded the purchase of Spectra Linear using the acquisition method of accounting
and accordingly, recognized the assets acquired and liabilities assumed at their fair values as of the dateof the acquisition. The results of Spectra Linear’s operations are included in the Company’s
consolidated results of operations beginning with the date of the acquisition. Pro forma information
related to this acquisition has not been presented because it would not be materially different fromamounts reported. Acquisition-related costs were not significant.
The Company believes that the acquisition adds a broad family of timing ICs that will enable it toaccelerate penetration in high-volume applications, 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):

AmountWeighted-Average
Amortization Period(Years)Intangible assets:
Core and developed technology . . . . . . . . . . . . . . . . .
Customer relationships . . . . . . . . . . . . . . . . . . . . . . .

$16,560
1,400

10
10

Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred tax assets—non-current . . . . . . . . . . . . . . . . .
Other non-current assets . . . . . . . . . . . . . . . . . . . . . . .
Notes payable—current portion . . . . . . . . . . . . . . . . . .
Current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-current liabilities . . . . . . . . . . . . . . . . . . . . . . . . .

17,960
1,759
1,199
1,658
4,097
12,316597(4,641)(3,112)(3,254)

Total purchase price . . . . . . . . . . . . . . . . . . . . . . . . . . .

$28,579

One of the Company’s directors, Harvey B. Cash, is a General Partner with InterWest Partners andInterWest Partners was one of the principal stockholders of Spectra Linear. Mr. Cash abstained fromthe decision-making process with respect to the acquisition.
Silicon Clocks
In April 2010, the Company acquired Silicon Clocks, Inc., a privately held company that designed
and developed microelectromechanical system (MEMS) technology to enable the manufacture of silicon
resonators and sensors directly on standard complementary metal oxide semiconductor (CMOS) wafers.
The Company acquired Silicon Clocks for approximately $21.0 million in cash.
The Company believes that the acquisition will enable the Company to accelerate its entry into thelow end timing market 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, theF-28

Silicon Laboratories Inc.
Notes to Consolidated Financial Statements
December 29, 2012 (Continued)

9. Acquisitions (Continued)
Company recorded goodwill. The goodwill is not deductible for tax purposes. The purchase price wasallocated as follows (in thousands):

AmountWeighted-Average
Amortization Period(Years)Intangible assets:
In-process research and development . . . . . . . . . . . . .
Developed technology . . . . . . . . . . . . . . . . . . . . . . .
Customer relationships . . . . . . . . . . . . . . . . . . . . . . .

$ 9,470
230
30

Not amortized
3
2

Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . .
Other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred tax assets—non-current . . . . . . . . . . . . . . . . .
Other non-current assets . . . . . . . . . . . . . . . . . . . . . . .
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred tax liabilities—non-current . . . . . . . . . . . . . . .

9,730
514
473
11,521322
3,209(1,338)(3,406)

Total purchase price . . . . . . . . . . . . . . . . . . . . . . . . . . .

$21,025

The in-process research and development recorded in connection with the acquisition of Silicon
Clocks was developed using MEMS technology. The fair value was determined using the income
approach. The discount rate applicable to the cash flows was 19.0%. This rate reflects the weightedaverage cost of capital and the risks inherent in the development process.
ChipSensors
In October 2010, the Company acquired ChipSensors Ltd, a privately held company for
approximately $11.7 million. ChipSensors created innovative single-chip CMOS sensors designed todetect temperature, humidity and gases. The Company recorded the purchase of Silicon Clocks using
the acquisition method of accounting and accordingly, recognized the assets acquired and liabilities
assumed at their fair values as of the date of the acquisition. The purchase price was allocated asfollows: intangible assets—$9.1 million; goodwill—$3.1 million; and net tangible assets—$(0.5) million.

F-29

Silicon Laboratories Inc.
Notes to Consolidated Financial Statements
December 29, 2012 (Continued)

10. Goodwill and Other Intangible Assets
Goodwill
The following summarizes the activity in goodwill for the years ended December 29, 2012 andDecember 31, 2011 (in thousands):
Year Ended
December 29, December 31,
2012
2011

Beginning balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Additions due to business combinations . . . . . . . . . . . . . .
Adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$115,489
14,776—$112,296
4,097
(904)

Ending balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$130,265$115,489

Other Intangible Assets
The gross carrying amount and accumulated amortization of other intangible assets are as follows(in thousands):
December 29, 2012
Gross
Accumulated
AmountAmortization

December 31, 2011
Gross
Accumulated
AmountAmortization

10
9
6
12

$ 95,420
8,100
3,000
910

$(30,145)(1,057)(250)(38)$79,500
2,510——$(30,432)
(523)
—
—

10

107,430(31,490)82,010(30,955)

Not
amortized

14,810

—

8,950

—

$122,240$(31,490)$90,960$(30,955)

Weighted-Average
Amortization
Period (Years)

Intangible assets:
Subject to amortization:
Core and developed technology . .
Customer relationships . . . . . . . . .
Patents . . . . . . . . . . . . . . . . . . . .
Trademarks . . . . . . . . . . . . . . . . .
Not subject to amortization:
In-process research anddevelopment . . . . . . . . . . . . . .
Total intangible assets . . . . . . . . . . . . .

Gross intangible assets increased $42.1 million in fiscal 2012 primarily due to the acquisition ofEmber. This increase was offset by the removal of $9.3 million of fully amortized assets and$1.6 million of impaired assets (which had a remaining unamortized balance of $0.7 million, resulting in
a $0.7 million charge to selling, general and administrative expense in the Consolidated Statement of
Income). The impaired assets were written down to zero.

F-30

Silicon Laboratories Inc.
Notes to Consolidated Financial Statements
December 29, 2012 (Continued)

10. Goodwill and Other Intangible Assets (Continued)
Amortization expense related to intangible assets for fiscal 2012, 2011 and 2010 was $10.7 million,$9.9 million and $7.5 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 Year2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$11,213
10,372
9,981
9,331
8,364

11. Debt
On July 31, 2012, the Company and certain of its domestic subsidiaries (the ‘‘Guarantors’’) enteredinto a $230 million five-year Credit Agreement (the ‘‘Agreement’’). The Agreement consists of a$100 million Term Loan Facility and a $130 million Revolving Credit Facility (collectively, the ‘‘Credit
Facilities’’).
The Term Loan Facility provides for quarterly principal amortization (equal to 5% of the principal
in each of the first two years and 10% of the principal in each of the next three years) with theremaining balance payable upon the maturity date. The Revolving Credit Facility includes a $25 million
letter of credit sublimit and a $10 million swingline loan sublimit. The Company has an option toincrease the size of the Revolving Credit Facility by up to an aggregate of $50 million in additional
commitments, subject to certain conditions. On September 27, 2012, the Company borrowed$100 million under the Term Loan Facility. To date, the Company has not borrowed under the
Revolving Credit Facility.
The Term Loan Facility and Revolving Credit Facility, other than swingline loans, will bear interest
at LIBOR plus an applicable margin or, at the option of the Company, a base rate (defined as thehighest of the Bank of America prime rate, the Federal Funds rate plus 0.50% and a daily rate equal
to one-month LIBOR plus 1.00%) plus an applicable margin. Swingline loans accrue interest at a perannum rate based on the base rate plus the applicable margin for base rate loans. The applicablemargins for the LIBOR rate loans range from 1.50% to 2.50% and for base rate loans range from
0.50% to 1.50%, depending in each case, on the leverage ratio as defined in the Agreement. The
Company also pays a commitment fee on the unused amount of the Revolving Credit Facility.
In connection with the closing of the Credit Agreement, the Company entered into a security andpledge agreement. Under the security and pledge agreement, the Company pledged equity securities ofcertain of its subsidiaries, subject to exceptions and limitations. The Credit Facilities contain various
conditions, covenants and representations with which the Company must be in compliance in order toborrow funds and to avoid an event of default, including financial covenants that the Company must
maintain a leverage ratio (funded debt/EBITDA) of no more than 2.5 to 1 and a minimum fixed charge
coverage ratio (EBITDA/debt payments, income taxes and capital expenditures) of no less than 1.50 to
1. As of December 29, 2012, the Company was in compliance with all covenants of the Credit Facilities.

F-31

Silicon Laboratories Inc.
Notes to Consolidated Financial Statements
December 29, 2012 (Continued)

11. Debt (Continued)
The contractual fiscal year maturities of the Term Loan Facility are as follows (in thousands):
Fiscal Year2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 5,000
7,500
10,00010,00067,500Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$100,000Interest Rate Swap Agreement
In connection with the $100 million borrowed under the Term Loan Facility, the Company enteredinto an interest rate swap agreement as a hedge against the LIBOR portion of such variable interest
payments. Under the terms of the swap agreement, the Company effectively converted the LIBOR
portion of the interest on the Term Loan Facility to a fixed interest rate of 0.764% through thematurity date. As of December 29, 2012, the combined interest rate on the Term Loan Facility (which
includes an applicable margin) was 2.514%. See Note 5, Derivative Financial Instruments, for additional
information.
12. Stockholders’ Equity
Common Stock
The Company issued 1.6 million shares of common stock during fiscal 2012, net of 0.3 million
shares withheld to satisfy employee tax obligations for the vesting of certain stock grants made under
the Company’s stock incentive plans.
Share Repurchase Programs
In January 2013, the Board of Directors authorized a share repurchase program to repurchase up
to $50 million of the Company’s common stock through January 2014. In April 2012, the Board of
Directors authorized a share repurchase program to repurchase up to $100 million of the Company’scommon stock through January 2013. In October 2011, the Board of Directors adopted a share
repurchase program to repurchase up to $50 million of the Company’s common stock through April
2012. The Company’s repurchase program announced in July 2010, authorized the repurchase of up to$150 million of the Company’s common stock through 2011, and was completed in August 2011. The
Company’s repurchase program announced in October 2009 authorized the repurchase of up to$150 million of the Company’s common stock through 2010, and was terminated upon the adoption of
the July 2010 program. 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, 3.2 million sharesand 3.3 million shares of its common stock for $62.0 million, $110.1 million and $140.3 million during
fiscal 2012, 2011 and 2010, respectively.

F-32

Silicon Laboratories Inc.
Notes to Consolidated Financial Statements
December 29, 2012 (Continued)

12. Stockholders’ Equity (Continued)
Accumulated Other Comprehensive Loss
The components of accumulated other comprehensive loss, net of taxes, were as follows (inthousands):
Unrealized
Losses on Cash
Flow Hedges

Net Unrealized
Losseson AvailableFor-Sale Securities

Total

Balance at January 2, 2010 . . . . . . . . . . . . . . . . . . . . . . . . .
Period change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$(2,919)442$(1,437)266$(4,356)
708

Balance at January 1, 2011 . . . . . . . . . . . . . . . . . . . . . . . . .
Period change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(2,477)
1,178(1,171)
3(3,648)1,181

Balance at December 31, 2011 . . . . . . . . . . . . . . . . . . . . . .
Period change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(1,299)871(1,168)650(2,467)
1,521

Balance at December 29, 2012 . . . . . . . . . . . . . . . . . . . . . .

$ (428)$ (518)$ (946)

Income Tax Allocated to the Components of Other Comprehensive Income
The income tax effects of the components of other comprehensive income were as follows (inthousands):
December 29,
2012

Income tax (expense) benefit on:

Net changes to available-for-sale securities:
Unrealized gains arising during the period . . . . . . . . . . . . . . .

$(350)Net changes to cash flow hedges:
Unrealized losses arising during the period . . . . . . . . . . . . . . .
Reclassification for losses included in net income . . . . . . . . . .
Other comprehensive income . . . . . . . . . . . . . . . . . . . . . . . . . . .

Year ended
December 31,
2011$

January 1,
2011

(1)

$ (143)

335
(803)

148
(783)

924
(1,162)$(818)$(636)$ (381)

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’’). The 2009 Plan iscurrently effective, and has a term of 10 years from the shareholders’ approval date. The 2009 Purchase
Plan became effective upon the termination of the previous Employee Stock Purchase Plan, on
April 30, 2010.
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

F-33

Silicon Laboratories Inc.
Notes to Consolidated Financial Statements
December 29, 2012 (Continued)

13. Stock-Based Compensation (Continued)(RSAs), performance-based awards and other awards (collectively, all such grants are referred to as‘‘awards’’). 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 forwhich the participant is required to pay at least the fair market value of the underlying shares on thedate of grant) deduct 1.55 shares from the 2009 Plan shares available for issuance for each share
granted. Awards granted under the 2009 Plan generally contain vesting provisions ranging from three tofour 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, sharessubject to such awards will again be available for grant.
2000 Stock Incentive Plan
In fiscal 2000, the Company’s Board of Directors and stockholders approved the 2000 Plan. The
2000 Plan contains programs for (i) the discretionary granting of stock options to employees,
non-employee board members and consultants for the purchase of shares of the Company’s common
stock, (ii) the discretionary issuance of common stock directly (as granted under direct issuance sharesin RSAs and RSUs), (iii) the granting of special below-market stock options to executive officers andother 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 uponcertain defined events, the Company can repurchase unvested shares at the price paid per share. The
term of each stock option is no more than ten years from the date of grant.
Stock Grants and Modifications
The Company granted to its employees 0.8 million shares of full value awards and no stock options
from the 2009 Plan during fiscal 2012, 2011 and 2010.
The Company recorded $1.9 million in selling, general and administrative expense during fiscal
2012 in connection with modifications to certain stock awards. The Company accelerated the vesting ofcertain RSUs and Market Stock Units (MSUs) and extended the exercise period of stock options
pursuant to a separation agreement between the Company and its former Chief Executive Officer(CEO). This arrangement is discussed further in Note 16, Separation Agreement. There were no othersignificant modifications made to any stock grants during fiscal 2012, 2011 or 2010.
Included in the full value awards granted under the 2009 Plan in fiscal 2012 and fiscal 2011 were atotal of 110 thousand and 55 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.

F-34

Silicon Laboratories Inc.
Notes to Consolidated Financial Statements
December 29, 2012 (Continued)

13. Stock-Based Compensation (Continued)
2009 Employee Stock Purchase Plan
The rights to purchase common stock granted under the 2009 Purchase Plan are intended to betreated as either (i) purchase rights granted under an ‘‘employee stock purchase plan,’’ as that term isdefined 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 ofSection 423(b) of the Internal Revenue Code (the ‘‘Non-423(b) Plan’’). The Company will retain thediscretion 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 anoffering 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 2012, 2011 and2010, the Company issued 181 thousand, 169 thousand and 75 thousand shares, respectively, under the2009 Purchase Plan to its employees. The weighted-average fair value for purchase rights granted underthe 2009 Purchase Plan for fiscal 2012 was $11.02 per share.
Employee Stock Purchase Plan
The Purchase Plan was adopted by the Company’s Board of Directors in fiscal 2000. Eligible
employees could purchase a limited number of shares of the Company’s common stock at 85% of themarket value during a series of offering periods. Each offering period is divided into semi-annual
purchase intervals and has a maximum term of 24 months. During fiscal 2012, 2011 and 2010, theCompany issued zero, zero and 79 thousand shares, respectively, under the Purchase Plan to its
employees. There were no purchase rights granted under the Purchase Plan for fiscal 2012.
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 BlackScholes option-pricing model. The fair values of stock awards and RSUs equal their intrinsic value on
the date of grant. The fair values of market-based performance awards generally are estimated using aMonte 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 pricevolatility is based upon a combination of both historical volatility and implied volatility derived fromtraded 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 anddoes 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 andthe Index, and the correlation of the stock price of the Company with the Index.

F-35

Silicon Laboratories Inc.
Notes to Consolidated Financial Statements
December 29, 2012 (Continued)

13. Stock-Based Compensation (Continued)
The Company must estimate potential forfeitures of stock grants and adjust compensation costrecorded accordingly. The estimate of forfeitures will be adjusted over the requisite service period tothe 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 astraight-line basis over the vesting period of the grants. The fair values of RSAs are fully expensed in
the period of grant, when shares are immediately issued with no vesting restrictions. The fair values of
MSUs are amortized as compensation expense on a straight-line basis over the performance and service
periods of the grants. Compensation expense recognized is shown in the operating activities section of
the Consolidated Statements of Cash Flows.
The fair values estimated from the Black-Scholes option-pricing model were calculated using thefollowing assumptions:2009 Employee Stock Purchase Plan:
Expected volatility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Risk-free interest rate % . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expected term (in months) . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dividend yield . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

December 29,
2012

Year Ended
December 31,
2011

January 1,
2011

38%
0.2%
15
—

27%
0.2%
11
—

32%
0.4%
15
—

A summary of stock-based compensation activity with respect to fiscal 2012 follows:

Stock Options

Shares(000s)

WeightedAverage
Exercise
Price

Outstanding at December 31, 2011 . . . . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cancelled or expired . . . . . . . . . . . . . . . . . . . . . . . . . . .

2,485
—
(726)
(63)

$34.44$ —$29.96$47.78

Outstanding at December 29, 2012 . . . . . . . . . . . . . . . . .

1,696$35.862.6$12,206

Vested at December 29, 2012 and expected to vest . . . . .

1,696$35.862.6$12,206

Exercisable at December 29, 2012 . . . . . . . . . . . . . . . . .

1,696$35.862.6$12,206

F-36

Weighted-Average
Remaining
Contractual Term
(In Years)

Aggregate
Intrinsic
Value(000s)

Silicon Laboratories Inc.
Notes to Consolidated Financial Statements
December 29, 2012 (Continued)

13. Stock-Based Compensation (Continued)

RSAs, RSUs and MSUs

Shares(000s)

WeightedAverage
Purchase
Price

Weighted-Average
Remaining
Vesting Term
(In Years)

Aggregate
Intrinsic
Value(000s)

Outstanding at December 31, 2011 . . . . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Issued . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cancelled or expired . . . . . . . . . . . . . . . . . . . . . . . . . . .

1,989
778
(934)
(125)

$—
$—
$—
$—

Outstanding at December 29, 2012 . . . . . . . . . . . . . . . . .

1,708

$—

2.1

$70,640

Outstanding at December 29, 2012 and expected to vest .

1,708

$—

2.1

$70,640

The following summarizes the Company’s weighted average fair value at the date of grant:

Per grant of RSAs, RSUs and MSUs . . . . . . . .

December 29,
2012

Year Ended
December 31,
2011

January 1,
2011$43.82$44.73$44.88The following summarizes the Company’s stock-based payment and stock option values (inthousands):

Intrinsic value of stock options exercised . . . . .
Intrinsic value of RSAs and RSUs that vested .
Grant date fair value of RSAs and RSUs thatvested . . . . . . . . . . . . . . . . . . . . . . . . . . . .

December 29,
2012

Year Ended
December 31,
2011

January 1,
2011$ 9,064$40,105$ 8,622$38,769$14,087$32,109$31,215$29,488$25,398

The Company had approximately $41.4 million of total unrecognized compensation costs related tostock options and stock awards at December 29, 2012 that are expected to be recognized over aweighted-average period of 2.1 years. There were no significant stock-based compensation costs
capitalized into assets in any of the periods presented.
The Company received cash of $15.1 million for the issuance of common stock, net of shares
withheld for taxes, during fiscal 2012. 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, andpurchases through employee stock purchase plans. The Company does not currently expect torepurchase shares from any source to satisfy such obligation.

F-37

Silicon Laboratories Inc.
Notes to Consolidated Financial Statements
December 29, 2012 (Continued)

13. Stock-Based Compensation (Continued)
The following table presents details of stock-based compensation costs recognized in theConsolidated Statements of Income (in thousands):
December 29,
2012

Year Ended
December 31,
2011

January 1,
2011

Cost of revenues . . . . . . . . . . . . . . . . . . . . . .
Research and development . . . . . . . . . . . . . . .
Selling, general and administrative . . . . . . . . .

$ 1,206
12,602
17,368$ 1,319
14,872
19,924$ 1,435
17,017
21,872

Income tax benefit . . . . . . . . . . . . . . . . . . . . .

31,176
4,911

36,115
3,957

40,324
5,462$26,265$32,158$34,862

As of December 29, 2012, the Company had reserved shares of common stock for future issuanceas follows (in thousands):
2000 Stock Incentive Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2009 Stock Incentive Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2009 Employee Stock Purchase Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1,696
5,773
826

Total shares reserved . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

8,295

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 makediscretionary matching contributions as well as discretionary profit-sharing contributions to the 401(k)Plan. The Company contributed $2.9 million, $2.7 million and $2.6 million to the 401(k) Plan during
fiscal 2012, 2011 and 2010, respectively.
15. Commitments and Contingencies
Operating Leases
The Company leases certain facilities under operating lease agreements that expire at various dates
through 2022. Some of these arrangements contain renewal options and require the Company to pay
taxes, insurance and maintenance costs.

F-38

Silicon Laboratories Inc.
Notes to Consolidated Financial Statements
December 29, 2012 (Continued)

15. Commitments and Contingencies (Continued)
Rent expense under operating leases was $4.4 million, $4.5 million and $5.0 million for fiscal 2012,2011 and 2010, respectively. The minimum annual future rentals under the terms of these leases as ofDecember 29, 2012 are as follows (in thousands):
Fiscal Year2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 3,523
2,521
1,868
1,866
1,665
2,035

Total minimum lease payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$13,478

The Company previously leased facilities for its headquarters in Austin, Texas. In fiscal 2012, theCompany purchased the facilities under options available in the leases. See Note 9, Acquisitions, foradditional information.
Litigation
Patent Litigation
On May 13, 2012, MaxLinear, Inc., a Delaware corporation, filed a lawsuit against the Company in
the United States District Court in the Southern District of California, San Diego Division, seeking adeclaratory judgment that MaxLinear products do not infringe 19 Silicon Laboratories’ patents and thatsuch patents are invalid. The Company responded and filed claims accusing MaxLinear of infringing
6 Silicon Laboratories’ patents, including 5 of the named 19 Company patents and an additional patent.
On December 12, 2012, the Court granted a request by the Company to add additional allegations ofpatent infringement to the case, such that the Company is presently accusing MaxLinear of infringing
9 patents in this litigation. The Company has asked the Court for a permanent injunction stopping thesale of all allegedly infringing MaxLinear products.
On July 30, 2012, the Company further filed a complaint for declaratory judgment against
MaxLinear in United States District Court for the Western District of Texas, Austin Division. The
Company is seeking an order that MaxLinear’s United States Patent Nos. 7,362,178, 7,778,613 and8,198,940 are invalid, and that the Company’s products do not infringe such patents.
On July 17, 2012, the Company additionally filed a lawsuit against MaxLinear in the United States
District Court in the Southern District of California, San Diego Division, alleging infringement of anadditional Company patent, U.S. Patent 7,035,607 related to RF design. On August 6, 2012, MaxLinear
counterclaimed alleging infringement of the three patents in the Texas litigation by a variety of theCompany’s RF and mixed signal products.
At this time, the Company cannot predict the outcome of these matters or the resulting financial
impact to it, if any.

F-39

Silicon Laboratories Inc.
Notes to Consolidated Financial Statements
December 29, 2012 (Continued)

15. Commitments and Contingencies (Continued)
Other
The Company is involved in various other legal proceedings that have arisen in the normal courseof business. While the ultimate results of these matters cannot be predicted with certainty, theCompany does not expect them to have a material adverse effect on its consolidated financial
statements.
16. Separation Agreement
On March 1, 2012, the Company entered into a separation agreement with its former CEO, Necip
Sayiner. Pursuant to the agreement, Mr. Sayiner agreed to continue to serve as CEO through April 18,
2012 and as a non-executive advisor through July 19, 2012. Upon his separation from the Company andexecution of a release of claims, Mr. Sayiner received a severance package consisting of (a) accelerated
vesting of certain RSUs and MSUs and the extension of the exercise period of certain stock options,(b) cash payments and (c) other benefits. The separation agreement resulted in a total expense of
approximately $3.2 million, which was recognized over the service period in selling, general andadministrative expenses.
17. Income Taxes
Significant components of the provision for income taxes are as follows (in thousands):
December 29,
2012

Year Ended
December 31,
2011

January 1,
2011

Current:
Domestic . . . . . . . . . . . . . . . . . . . . . . . . . .
International . . . . . . . . . . . . . . . . . . . . . . . .

$21,084(3,009)$14,468
2,845$10,824
4,145

Total Current . . . . . . . . . . . . . . . . . . . . . . .

18,075

17,313

14,969Deferred:
Domestic . . . . . . . . . . . . . . . . . . . . . . . . . .
International . . . . . . . . . . . . . . . . . . . . . . . .

5,444
(719)

(70)
(375)

(192)
(360)

Total Deferred . . . . . . . . . . . . . . . . . . . . . .

4,725

(445)

(552)

$22,800$16,868$14,417F-40

Silicon Laboratories Inc.
Notes to Consolidated Financial Statements
December 29, 2012 (Continued)

17. Income Taxes (Continued)
The Company’s provision for income taxes differs from the expected tax expense amountcomputed by applying the statutory federal income tax rate to income before income taxes as a resultof the following:Federal statutory rate . . . . . . . . . . . . . . . . . . .
Foreign tax rate benefit . . . . . . . . . . . . . . . . .
Research and development tax credits . . . . . . .
Release of prior year unrecognized tax benefits
Intercompany technology license . . . . . . . . . . .
Excess officer compensation . . . . . . . . . . . . . .
Nondeductible acquisition costs . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

December 29,
2012

Year Ended
December 31,
2011

January 1,
2011

35.0%
(11.8)
(0.5)
(8.4)
11.8
1.0
—
(0.7)

35.0%
(11.0)
(8.5)
—
10.4
3.2
2.9
0.2

35.0%
(15.6)
(6.1)
(3.6)
4.4
2.0
—
0.3

26.4%

32.2%

16.4%

The effective tax rate for fiscal 2012 decreased from the prior period, primarily due to the releaseof prior year unrecognized tax benefits that were determined to be effectively settled during the current
period, along with one-time nondeductible costs associated with the acquisition of Spectra Linear infiscal 2011. The impact of these items was partially offset by the non-renewal of the federal researchand development tax credit in the current period.
The American Taxpayer Relief Act of 2012 (the ‘‘Act’’) was enacted on January 2, 2013. The Act
retroactively reinstates the federal research and development credit from January 1, 2012, throughDecember 31, 2013. The effect of the change in the tax law related to fiscal 2012 is estimated to be
between $3.5 million and $4.0 million, which will be recognized as a benefit to income tax expense in
the first quarter of fiscal 2013, the quarter in which the law was enacted.
The effective tax rate for fiscal 2011 increased from the prior period, primarily due to the tax
charge related to the intercompany license of certain technology obtained in the acquisition of Spectra
Linear and other one-time nondeductible costs associated with the acquisition of Spectra Linear, adecrease in the foreign tax rate benefit, and a release of prior year unrecognized tax benefits in fiscal
2010 with none in fiscal 2011. These changes were partially offset by an increase in the research anddevelopment tax credit in fiscal 2011.
Income before income taxes included approximately $5.9 million, $4.1 million and $40.1 million
related to foreign operations in fiscal 2012, 2011 and 2010, respectively. Foreign income before income
taxes increased from fiscal 2011 to fiscal 2012 predominantly due to increases in product sales, offset inpart by an increase in the intercompany technology license payments made by a foreign subsidiary.
Foreign income before income taxes decreased from fiscal 2010 to fiscal 2011 predominantly due tochanges in product mix, an increase in research and development expense and an increase in theintercompany technology license payments made by a foreign subsidiary.
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

F-41

Silicon Laboratories Inc.
Notes to Consolidated Financial Statements
December 29, 2012 (Continued)

17. Income Taxes (Continued)
established against a deferred tax asset when it is more likely than not that the deferred tax asset will
not be realized. The Company has provided a valuation allowance of $2.1 million in fiscal 2012 related
to certain state loss and research and development tax credit carryforwards acquired in fiscal 2012. The
Company has determined that it is more likely than not that the carryforwards will expire or go
unutilized because the Company no longer expects to have a significant apportionment of income tothe jurisdiction in which the attributes were created. No valuation allowance has been provided against
other deferred tax assets for fiscal 2012 or 2011. Management believes that the Company’s results offuture operations will generate sufficient taxable income such that it is more likely than not that theremaining deferred tax assets will be realized.
Significant components of the Company’s deferred taxes as of December 29, 2012 andDecember 31, 2011 are as follows (in thousands):
December 29,
2012

December 31,
2011

Deferred tax assets:
Net operating loss carryforwards . . . . . . . . . . . . . . . . .
Research and development tax credit carryforwards . . . .
Stock-based compensation . . . . . . . . . . . . . . . . . . . . . .
Depreciation and amortization . . . . . . . . . . . . . . . . . . .
Capitalized research and development . . . . . . . . . . . . .
Deferred income on shipments to distributors . . . . . . . .
Accrued liabilities and other . . . . . . . . . . . . . . . . . . . .

$35,847
8,447
8,133
—
9,708
3,933
7,503

$21,479
5,556
9,963
33,334
1,428
3,895
7,305

Less: Valuation allowance . . . . . . . . . . . . . . . . . . . . . .

73,571(2,114)82,960—71,45782,96028,653
—
1,076
1,447

18,562
33,023—913

31,17652,498$40,281$30,462

Deferred tax liabilities:
Acquired intangibles . . . . . . . . . . . . . . . . . . . . . . . . . .
Long term obligations for tax purposes . . . . . . . . . . . . .
Depreciation and amortization . . . . . . . . . . . . . . . . . . .
Prepaid expenses and other . . . . . . . . . . . . . . . . . . . . .

Net deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . .

During fiscal 2012, the Company recorded net deferred tax assets of approximately $15.5 million,
net of the valuation allowance of $2.1 million discussed above, related to the acquisition of Ember due
to differences between book and tax bases of acquired assets and assumed liabilities.
As of December 29, 2012, the Company had federal net operating loss and research anddevelopment credit carryforwards of approximately $90.8 million and $2.0 million, respectively, as aresult of the Cygnal Integrated Products, Silicon Clocks, Spectra Linear and Ember acquisitions. These
carryforwards expire in fiscal years 2019 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.

F-42

Silicon Laboratories Inc.
Notes to Consolidated Financial Statements
December 29, 2012 (Continued)

17. Income Taxes (Continued)
The Company also had state loss and research and development credit carryforwards ofapproximately $78.9 million and $9.9 million, respectively. A portion of these loss and credit
carryforwards was generated by the Company and a portion was acquired through the Integration
Associates, Silicon Clocks, Spectra Linear and Ember acquisitions. Certain of these carryforwards
expire in fiscal years 2013 through 2032 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 areused.
At the end of fiscal 2012, undistributed earnings of the Company’s foreign subsidiaries ofapproximately $279.8 million are considered permanently reinvested. Accordingly, no provision for U.S.
federal and state income taxes has been made. Determination of the amount of the unrecognizeddeferred tax liability on these unremitted earnings is not practicable.
The Company’s operations in Singapore are subject to reduced tax rates through 2019, as long as
certain conditions are met. The income tax benefit (expense) from the reduced Singapore tax rate
reflected in earnings was approximately $(13.3) million (representing $(0.31) per diluted share) in fiscal
2012, approximately $2.5 million (representing $0.06 per diluted share) in fiscal 2011 and approximately$6.1 million (representing $0.13 per diluted share) in fiscal 2010. The impact of the reduced Singapore
tax rate in fiscal 2012 reflects the recognition of prior year unrecognized tax benefits.
The following table reflects changes in the unrecognized tax benefits (in thousands):
December 29,
2012

Year Ended
December 31,
2011

January 1,
2011

Beginning balance . . . . . . . . . . . . . . . . . . . . .
Additions based on tax positions related tocurrent year . . . . . . . . . . . . . . . . . . . . . . . .
Reductions for tax positions related to prioryears . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$10,943$10,789$12,160

1,818

757

1,742

(8,397)(603)(3,113)Ending balance . . . . . . . . . . . . . . . . . . . . . . .

$ 4,364$10,943$10,789

As of December 29, 2012, December 31, 2011 and January 1, 2011, the Company had grossunrecognized tax benefits of $4.4 million, $10.9 million and $10.8 million, respectively, of which $4.1
million, $9.9 million and $9.7 million, respectively, would affect the effective tax rate if recognized.
During fiscal 2012, the Company had gross increases of $1.8 million to its current year unrecognizedtax benefits, as well as a gross decrease of $8.4 million to its prior year unrecognized tax benefits
related to an uncertain tax position that was determined to be effectively settled. A portion of theseamounts represents foreign currency remeasurement adjustments and was recognized in other income(expense), net. The Company recognizes interest and penalties related to unrecognized tax benefits inthe provision for income taxes. The Company did not recognize any interest in the provision forincome taxes in fiscal 2012, 2011 and 2010. In addition, the Company had decreases of interest, net oftax, of $0.1 million in fiscal 2010. The Company has not made an accrual for the payment of interest
related to unrecognized tax positions at the end of fiscal 2012, 2011 and 2010.

F-43

Silicon Laboratories Inc.
Notes to Consolidated Financial Statements
December 29, 2012 (Continued)

17. Income Taxes (Continued)
The Company believes it is reasonably possible that the gross unrecognized tax benefits will
decrease by approximately $1.3 million in the next 12 months due to the lapse of the statute oflimitations applicable to a tax deduction claimed on a prior year foreign tax return.
The tax years 2006 through 2012 remain open to examination by the major taxing jurisdictions towhich the Company is subject. The Company’s 2010 federal income tax return is under examination by
the U.S. Internal Revenue Service. Although the outcome of tax audits is always uncertain, theCompany believes that the results of the examination will not materially affect its financial position or
results of operations. The Company is not currently under audit in any other major taxing jurisdiction.
18. Segment Information
The Company has one operating segment, mixed-signal analog intensive ICs, consisting of
numerous product areas. The Company’s chief operating decision maker is considered to be its Chief
Executive Officer. The chief operating decision maker allocates resources and assesses performance ofthe business and other activities at the operating segment level.
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):
December 29,
2012

Year Ended
December 31,
2011

January 1,
2011

United States . . . . . . . . . . . . . . . . . . . . . . . . .
China . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Taiwan . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
South Korea . . . . . . . . . . . . . . . . . . . . . . . . .
Japan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Rest of world . . . . . . . . . . . . . . . . . . . . . . . . .

$ 64,856
219,400
64,15057,91031,315
125,663$ 67,432
152,533
59,20870,25250,27091,930$ 69,753
137,70376,991
65,40934,031
109,454

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

$563,294$491,625$493,341

The following summarizes the Company’s property and equipment, net by geographic area (inthousands):
December 29,
2012

December 31,
2011

United States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Singapore . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Rest of world . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$127,716
6,097
1,458

$17,293
6,220
1,628

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

$135,271$25,141

F-44

Supplementary Financial Information (Unaudited)
Quarterly financial information for fiscal 2012 and 2011 is as follows. All quarterly periods
reported here had 13 weeks (in thousands, except per share amounts):
FourthQuarter

Fiscal 2012
Third
SecondQuarter
QuarterFirst
Quarter

Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross margin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$152,461
93,62625,302$ 18,695$149,461
86,493
27,230$ 10,024$135,670
82,802
16,379$ 20,509$125,702
75,096
16,764$ 14,320

Earnings per share:
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$
$

$
$

$
$

$
$

0.45
0.44

0.24
0.24

0.48
0.47

0.34
0.33

FourthQuarter

Fiscal 2011
Third
SecondQuarter
QuarterFirst
Quarter

Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross margin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$126,692
77,17915,223$ 12,805$119,100
72,897
13,928$ 11,255$126,197
76,212
15,984$ 13,372$119,636
72,1584,939$ (1,960)

Earnings (loss) per share:
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$
$

$
$

$
$

$
$

0.31
0.29

0.26
0.26

0.30
0.29

(0.04)(0.04)

(This page has been left blank intentionally.)Supplementary Financial Information
to the Annual Report

Appendix I. Reconciliation of GAAP
to Non-GAAP Financial Measures

Appendix I: Supplemental Financial Information (Unaudited)
The non-GAAP financial measurements provided below do not replace the presentation of Silicon
Laboratories’ GAAP financial results. These measurements merely provide supplemental information toassist investors in analyzing Silicon Laboratories’ financial position and results of operations; however, thesemeasures 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)

Non-GAAP Income
Statement Items

GAAP
MeasureRevenues . . . . . . . . . . . . . . . . . . . $152,461
Gross margin . . . . . . . . . . . . . . . .
93,626
Operating expenses . . . . . . . . . . .
68,324
Operating income . . . . . . . . . . . .
25,302
Net income . . . . . . . . . . . . . . . . .
18,695

Non-GAAP Income
Statement Items

GAAP
MeasureRevenues . . . . . . . . . . $149,461
Gross margin . . . . . . .
86,493Operating expenses . . .
59,263Operating income . . . .
27,230Net income . . . . . . . .
10,024*Three Months Ended
December 29, 2012
GAAP
Stock
Termination Acquisition
Non-GAAP
Percent of Compensation Costs andRelated
Non-GAAP Percent of
Revenue
ExpenseImpairments
Items
MeasureRevenue

61.4%
44.8%
16.6%
12.3%

$ 268
7,112
7,380
6,667

$

—
2,229
2,229
1,829

$

— $93,894(1,253) 60,236(1,253) 33,658(1,253) 25,938

61.6%
39.5%
22.1%
17.0%

Three Months Ended
September 29, 2012
GAAP
Stock
Acquisition Headquarters
Non-GAAP
Percent of Compensation Termination
RelatedPurchase
Non-GAAP Percent of
Revenue
Expense *
Costs
Items
Items
MeasureRevenue

57.9%
39.7%
18.2%
6.7%

$ 261
7,135
7,396
6,595

$

—
1,428
1,428
1,136

$ 4,466
358
4,824
13,651$—(8,113)(8,113)(5,274)$91,22058,45532,765
26,132

61.0%
39.1%
21.9%
17.5%

Excludes stock compensation recognized in connection with terminations costs for our former CEO.

Unaudited Reconciliation of GAAP to Non-GAAP Financial Measures(In thousands, except per share data)(Continued)

Non-GAAP Income
Statement Items

GAAP
MeasureRevenues . . . . . $135,670
Gross margin . .
82,802
Operatingexpenses . . . .
66,423Operatingincome . . . . .
16,379Net income . . .
20,509*Three Months Ended
June 30, 2012
Acquisition Release of
Non-GAAP
Termination
RelatedUnrecognized Non-GAAP Percent of
Costs
Items
Tax Benefits
MeasureRevenue

GAAP
Percent of
Revenue

Stock
Compensation
Expense *

61.0%

$ 317

$

—

$ —

48.9%

6,294

3,946

12.1%
15.1%

6,611
5,846

3,946
2,729

$

—

$83,119

61.3%

483

—

55,700

41.1%

483
483

—
(7,265)27,41922,302

20.2%
16.4%

Excludes stock compensation recognized in connection with terminations costs for our former
CEO.

Non-GAAP Income
Statement Items

GAAP
MeasureRevenues . . . . . . . . . . . . . . . $125,702
Gross margin . . . . . . . . . . . .
75,096
Operating expenses . . . . . . . .
58,332
Operating income . . . . . . . . .
16,764
Net income . . . . . . . . . . . . .
14,320Three Months Ended
March 31, 2012
GAAP
Stock
Acquisition
Non-GAAP
Percent of Compensation Termination
Related
Non-GAAP Percent of
Revenue
Expense *Costs **
Items
MeasureRevenue

59.7%
46.4%
13.3%
11.4%

$ 360
7,497
7,857
6,470

$

—
(868)
(868)
(1,133)

$ —
(949)
(949)
(949)

$75,456
52,65222,80418,708

60.0%
41.9%
18.1%
14.9%

*

Excludes stock compensation recognized in connection with terminations costs.

**

Termination costs include the reversal of previously recognized stock compensation for modified
stock awards.

Unaudited Reconciliation of GAAP to Non-GAAP Financial Measures(In thousands, except per share data)(Continued)

Non-GAAP Diluted
Earnings Per ShareGAAP
MeasureNet income . . . . . . . . . . . . . . . . . . . . . . .
Diluted shares outstanding . . . . . . . . . . . .
Diluted earnings per share . . . . . . . . . . . .

$18,695
42,641$ 0.44

Non-GAAP Diluted
Earnings Per Share$6,595—$1,829—$(1,253)—

Non-GAAP
Measure$25,938
42,641$ 0.61Three Months Ended
September 29, 2012
Acquisition Headquarters
Termination
RelatedPurchase
Non-GAAP
Costs
Items
Items
Measure$1,136—$13,651—$(5,274)—$26,132
42,520$ 0.61

Excludes stock compensation recognized in connection with terminations costs for our former
CEO.

Non-GAAP Diluted
Earnings Per ShareThree Months Ended
June 30, 2012
Stock
Acquisition Release of
GAAP Compensation Termination
RelatedUnrecognized Non-GAAP
MeasureExpense *
Costs
Items
Tax Benefits
MeasureNet income . . . . . . . . . . . . . . . . . . . . $20,509
Diluted shares outstanding . . . . . . . . . 43,423
Diluted earnings per share . . . . . . . . . $ 0.47*

$6,667—

Stock
Compensation
Expense *GAAPMeasureNet income . . . . . . . . . . . . . . . . . . $10,024
Diluted shares outstanding . . . . . . . 42,520
Diluted earnings per share . . . . . . . . $ 0.24*

Three Months Ended
December 29, 2012
Stock
Termination
Acquisition
Compensation
Costs and
Related
ExpenseImpairments
Items$5,846—$2,729—$483—$(7,265)—$22,30243,423$ 0.51

Excludes stock compensation recognized in connection with terminations costs for our former
CEO.

Non-GAAP Diluted
Earnings Per ShareGAAP
MeasureNet income . . . . . . . . . . . . . . . . . . . . . . . .
Diluted shares outstanding . . . . . . . . . . . . .
Diluted earnings per share . . . . . . . . . . . . .

$14,320
43,850$ 0.33Three Months Ended
March 31, 2012
Stock
Acquisition
Compensation
Termination
Related
Expense *Costs **
Items

$6,470—$(1,133)—$(949)—

Non-GAAP
Measure$18,708
43,850$ 0.43*

Excludes stock compensation recognized in connection with terminations costs.

**

Termination costs include the reversal of previously recognized stock compensation for modified
stock awards.

(This page has been left blank intentionally.)2012 Directors
Nav S. Sooch
Chairman,
Silicon Labs
Tyson Tuttle
President and Chief Executive Officer,
Silicon Labs
David R. Welland
Vice President and Fellow,
Silicon LabsWilliam G. Bock
Harvey B. Cash
InterWest Partners,
General Partner
Robert Ted Enloe, III
Balquita Partners, Ltd.,Managing General Partner
Kristen M. Onken
Laurence G. Walker, PhD
Bill Wood
Silverton Partners,
General Partner

Current
Executive Officers
Tyson Tuttle
President andChief Executive Officer
Paul Walsh
Senior Vice President andChief Financial Officer
Dave Bresemann
Senior Vice President andChief Product Officer
Kurt Hoff
Senior Vice President ofWorldwide Sales
Jonathan Ivester
Senior Vice Presidentof Worldwide Operations
Corporate Information
Stock listing: Common stock
traded on NASDAQ ®
SymbolSLAB
Options
The Company’s options are traded on the
Chicago Board Option Exchange and theAmerican Stock Exchange.

Legal Counsel
DLA Piper US LLP
401 Congress Avenue, Suite 2500
Austin, Texas 78701
Independent Registered Public
Accounting Firm
Ernst & Young LLP
401 Congress Avenue, Suite 1800
Austin, Texas 78701
Transfer Agentand Registrar
American Stock Transfer & Trust Company
59 Maiden Lane
Plaza Level
New York, New York 10038
800 -937-5449
Stock Data
As of January 22, 2013, there were 111 holdersof record of the Company’s Common Stock.
The following table shows the record highand low per share prices of the Company’s
Common Stock as reported by the NASDAQ for
the periods.
HigH

Low

Q1

$48.50$41.07Q2$43.42$32.00Q3$40.35$34.55Q4$42.98$35.00

Annual Meeting
The Silicon Laboratories Inc. annual meeting
will be held on Tuesday, April 16, 2013 at 9:30
am Central Time at the Lady Bird Johnson
Wildflower Center, 4801 La Crosse Avenue,
Austin, Texas, 78739.
Investor Relations
For more information about Silicon Labs, please
visit our website at www.silabs.com,
or contact:
Investor Relations
Silicon Labs Inc.
400 West Cesar Chavez
Austin, Texas 78701
512- 464-9254
investor.relations@silabs.com
Design by Frank+Victor Design, Austin, T X.
www.frankandvictor.com

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