10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

xQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended October 3, 2015

or

oTRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from          to         

Commission file number:  000-29823

SILICON LABORATORIES INC.

(Exact name of registrant as specified in its charter)

Delaware	74-2793174
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
400 West Cesar Chavez, Austin, Texas	78701
(Address of principal executive offices)	(Zip Code)

(512) 416-8500

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  x Yes  o No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  x Yes  o No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer x	Accelerated filer o
Non-accelerated filer o	Smaller reporting company o

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

As of October 20, 2015, 41,574,684 shares of common stock of Silicon Laboratories Inc. were outstanding.

Table of Contents

		Page Number
Part I. Financial Information
Item 1.	Financial Statements (Unaudited):
	Condensed Consolidated Balance Sheets at October 3, 2015 and January 3, 2015	3
	Condensed Consolidated Statements of Income for the three and nine months ended October 3, 2015 and September 27, 2014	4
	Condensed Consolidated Statements of Comprehensive Income for the three and nine months ended October 3, 2015 and September 27, 2014	5
	Condensed Consolidated Statements of Cash Flows for the nine months ended October 3, 2015 and September 27, 2014	6
	Notes to Condensed Consolidated Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	26
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	38
Item 4.	Controls and Procedures	38
Part II. Other Information
Item 1.	Legal Proceedings	38
Item 1A.	Risk Factors	39
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	53
Item 3.	Defaults Upon Senior Securities	53
Item 4.	Mine Safety Disclosures	53
Item 5.	Other Information	53
Item 6.	Exhibits	53

Cautionary Statement

Except for the historical financial information contained herein, the matters discussed in this report on Form 10-Q (as well as documents incorporated herein by reference) may be considered “forward-looking” statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Such forward-looking statements include declarations regarding the intent, belief or current expectations of Silicon Laboratories Inc. and its management and may be signified by the words “believe,” “estimate,” “expect,” “intend,” “anticipate,” “plan,” “project,” “will” or similar language. You are cautioned that any such forward-looking statements are not guarantees of future performance and involve a number of risks and uncertainties. Actual results could differ materially from those indicated by such forward-looking statements. Factors that could cause or contribute to such differences include those discussed under “Risk Factors” and elsewhere in this report. Silicon Laboratories disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

2

Part I.  Financial Information

Item 1.  Financial Statements

Silicon Laboratories Inc.

Condensed Consolidated Balance Sheets

(In thousands, except per share data)

(Unaudited)

	October 3, 2015			January 3, 2015
Assets
Current assets:
Cash and cash equivalents	$	135,640		$	141,706
Short-term investments	112,670			193,489
Accounts receivable, net of allowances for doubtful accounts of $695 at October 3, 2015 and $786 at January 3, 2015	61,030			70,367
Inventories	51,957			52,631
Deferred income taxes	19,155			21,173
Prepaid expenses and other current assets	48,903			49,171
Total current assets	429,355			528,537
Long-term investments	7,240			7,419
Property and equipment, net	130,283			132,820
Goodwill	263,925			228,781
Other intangible assets, net	121,208			115,021
Other assets, net	26,040			29,983
Total assets	$	978,051		$	1,042,561
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	30,306		$	38,922
Current portion of long-term debt	10,000			10,000
Accrued expenses	50,080			73,646
Deferred income on shipments to distributors	37,881			38,662
Income taxes	1,074			2,084
Total current liabilities	129,341			163,314
Long-term debt	70,000			77,500
Other non-current liabilities	37,234			43,691
Total liabilities	236,575			284,505
Commitments and contingencies
Stockholders’ equity:
Preferred stock — $0.0001 par value; 10,000 shares authorized; no shares issued and outstanding	—			—
Common stock — $0.0001 par value; 250,000 shares authorized; 41,570 and 42,225 shares issued and outstanding at October 3, 2015 and January 3, 2015, respectively	4			4
Additional paid-in capital	—			29,501
Retained earnings	742,091			728,633
Accumulated other comprehensive loss	(619		)	(82		)
Total stockholders’ equity	741,476			758,056
Total liabilities and stockholders’ equity	$	978,051		$	1,042,561

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

3

Silicon Laboratories Inc.

Condensed Consolidated Statements of Income

(In thousands, except per share data)

(Unaudited)

	Three Months Ended						Nine Months Ended
	October 3, 2015			September 27, 2014			October 3, 2015			September 27, 2014
Revenues	$	156,194		$	158,144		$	484,755		$	458,753
Cost of revenues	62,759			62,033			197,523			176,874
Gross margin	93,435			96,111			287,232			281,879
Operating expenses:
Research and development	46,483			42,517			140,805			126,846
Selling, general and administrative	35,729			43,990			118,989			114,618
Operating expenses	82,212			86,507			259,794			241,464
Operating income	11,223			9,604			27,438			40,415
Other income (expense):
Interest income	186			231			544			733
Interest expense	(687		)	(768		)	(2,160		)	(2,346		)
Other income (expense), net	(280		)	42			218			103
Income before income taxes	10,442			9,109			26,040			38,905
Provision for income taxes	467			3,501			2,112			10,908
Net income	$	9,975		$	5,608		$	23,928		$	27,997
Earnings per share:
Basic	$	0.24		$	0.13		$	0.56		$	0.65
Diluted	$	0.23		$	0.13		$	0.55		$	0.64
Weighted-average common shares outstanding:
Basic	42,331			43,112			42,522			43,218
Diluted	42,795			43,815			43,135			44,030

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

4

Silicon Laboratories Inc.

Condensed Consolidated Statements of Comprehensive Income

(In thousands)

(Unaudited)

	Three Months Ended					Nine Months Ended
	October 3, 2015			September 27, 2014		October 3, 2015			September 27, 2014
Net income	$	9,975		$	5,608	$	23,928		$	27,997
Other comprehensive income (loss), before tax
Net changes to available-for-sale securities
Unrealized gains (losses) arising during the period	154			417		(179		)	889
Reclassification for gains included in net income	—			—		10			—
Net changes to cash flow hedges
Unrealized gains (losses) arising during the period	(459		)	193		(1,035		)	(434		)
Reclassification for losses included in net income	165			142		376			428
Other comprehensive income (loss), before tax	(140		)	752		(828		)	883
Provision (benefit) for income taxes	(50		)	263		(291		)	309
Other comprehensive income (loss)	(90		)	489		(537		)	574
Comprehensive income	$	9,885		$	6,097	$	23,391		$	28,571

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

5

Silicon Laboratories Inc.

Condensed Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)

	Nine Months Ended
	October 3, 2015			September 27, 2014
Operating Activities
Net income	$	23,928		$	27,997
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation of property and equipment	9,293			9,512
Amortization of other intangible assets and other assets	21,686			13,090
Stock-based compensation expense	30,798			28,173
Income tax benefit from stock-based awards	1,727			413
Excess income tax benefit from stock-based awards	(2,118		)	(654		)
Deferred income taxes	1,571			3,894
Changes in operating assets and liabilities:
Accounts receivable	12,097			769
Inventories	2,259			(1,591		)
Prepaid expenses and other assets	8,409			12,627
Accounts payable	(5,686		)	5,074
Accrued expenses	(280		)	28,756
Deferred income on shipments to distributors	(2,825		)	6,215
Income taxes	(3,413		)	(4,898		)
Other non-current liabilities	(10,031		)	(21,790		)
Net cash provided by operating activities	87,415			107,587
Investing Activities
Purchases of available-for-sale investments	(55,433		)	(137,373		)
Proceeds from sales and maturities of available-for-sale investments	136,262			100,009
Purchases of property and equipment	(7,281		)	(5,500		)
Purchases of other assets	(5,291		)	(3,339		)
Acquisition of business, net of cash acquired	(76,899		)	—
Net cash used in investing activities	(8,642		)	(46,203		)
Financing Activities
Proceeds from issuance of common stock, net of cash paid for withheld taxes	(77		)	8,559
Excess income tax benefit from stock-based awards	2,118			654
Repurchases of common stock	(71,448		)	(50,942		)
Payment of acquisition-related contingent consideration	(4,464		)	—
Proceeds from issuance of long-term debt, net	81,238			—
Payments on debt	(92,206		)	(3,750		)
Net cash used in financing activities	(84,839		)	(45,479		)
Increase (decrease) in cash and cash equivalents	(6,066		)	15,905
Cash and cash equivalents at beginning of period	141,706			95,800
Cash and cash equivalents at end of period	$	135,640		$	111,705

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

6

Silicon Laboratories Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

1.  Significant Accounting Policies

Basis of Presentation and Principles of Consolidation

The Condensed Consolidated Financial Statements included herein are unaudited; however, they contain all normal recurring accruals and adjustments which, in the opinion of management, are necessary to present fairly the condensed consolidated financial position of Silicon Laboratories Inc. and its subsidiaries (collectively, the “Company”) at October 3, 2015 and January 3, 2015, the condensed consolidated results of its operations for the three and nine months ended October 3, 2015 and September 27, 2014, the Condensed Consolidated Statements of Comprehensive Income for the three and nine months ended October 3, 2015 and September 27, 2014, and the Condensed Consolidated Statements of Cash Flows for the nine months ended October 3, 2015 and September 27, 2014. All intercompany balances and transactions have been eliminated in consolidation. The condensed consolidated results of operations for the three and nine months ended October 3, 2015 are not necessarily indicative of the results to be expected for the full year.

The accompanying unaudited Condensed Consolidated Financial Statements do not include certain footnotes and financial presentations normally required under U.S. generally accepted accounting principles (GAAP). Therefore, these Condensed Consolidated Financial Statements should be read in conjunction with the audited Consolidated Financial Statements and notes thereto for the year ended January 3, 2015, included in the Company’s Form 10-K filed with the Securities and Exchange Commission (SEC) on February 6, 2015.

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

Reclassifications

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

Revenue Recognition

Revenues are generated predominately by sales of the Company’s integrated circuits (ICs). The Company recognizes revenue when all of the following criteria are met: 1) there is persuasive evidence that an arrangement exists, 2) delivery of goods has occurred, 3) the sales price is fixed or determinable, and 4) collectibility is reasonably assured. Generally, revenue from product sales to direct customers and contract manufacturers is recognized upon shipment.

A portion of the Company’s sales are made to distributors under agreements allowing certain rights of return and price protection related to the final selling price to the end customers. Accordingly, the Company defers revenue and cost of revenue on such sales until the distributors sell the product to the end customers. The net balance of deferred revenue less deferred cost of revenue associated with inventory shipped to a distributor but not yet sold to an end customer is recorded in the deferred income on shipments to distributors liability on the Consolidated Balance Sheet. Such net deferred income balance reflects the Company’s estimate of the impact of rights of return and price protection.

A small portion of the Company’s revenues is derived from the sale of patents. The above revenue recognition criteria for patent sales are generally met upon the execution of the patent sale agreement.

7

Silicon Laboratories Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

Recent Accounting Pronouncements

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

In July 2015, the FASB issued FASB ASU No. 2015-11, Inventory (Topic 330): Simplifying the Measurement of Inventory. The amendments in this update require inventory to be measured at the lower of cost and net realizable value. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. This ASU is effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. The amendments in this update should be applied prospectively with earlier application permitted. The Company is currently evaluating the effect that the adoption of this ASU will have on its financial statements.

In April 2015, the FASB issued FASB ASU No. 2015-03, Interest—Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs. The amendments in this update require that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability. ASU 2015-03 is to be applied retrospectively and represents a change in accounting principle. In August 2015, the FASB issued FASB ASU No. 2015-15, Interest—Imputation of Interest (Subtopic 835-30): Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements. ASU 2015-15 clarified the presentation and subsequent measurement of debt issuance costs related to line-of-credit arrangements. Such costs may be presented in the balance sheet as an asset and subsequently amortized ratably over the term of the line-of-credit arrangement, regardless of whether there are any outstanding borrowings on the line-of-credit arrangement. ASU 2015-03 and ASU 2015-15 are effective for fiscal years beginning after December 15, 2015, including interim periods within those fiscal years. Earlier adoption is permitted for financial statements that have not been previously issued. The Company is currently evaluating the effect that the adoption of ASU 2015-03 and ASU 2015-15 will have on its financial statements.

8

Silicon Laboratories Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

In May 2014, the FASB issued FASB ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606), which supersedes the revenue recognition requirements in ASC 605, Revenue Recognition. The core principle of ASU 2014-09 is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The guidance provides a five-step process to achieve that core principle. ASU 2014-09 requires disclosures enabling users of financial statements to understand the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. Additionally, qualitative and quantitative disclosures are required about contracts with customers, significant judgments and changes in judgments, and assets recognized from the costs to obtain or fulfill a contract. In August 2015, the FASB issued FASB ASU No. 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date, which deferred the effective date of ASU 2014-09 by one year. ASU 2014-09 is now effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period, using one of two retrospective application methods. Early application is permitted only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period. The Company is currently evaluating the effect that the adoption of ASU 2014-09 and ASU 2015-14 will have on its financial statements.

2. Earnings Per Share

The following table sets forth the computation of basic and diluted earnings per share (in thousands, except per share data):

	Three Months Ended				Nine Months Ended
	October 3, 2015		September 27, 2014		October 3, 2015		September 27, 2014
Net income	$	9,975	$	5,608	$	23,928	$	27,997
Shares used in computing basic earnings per share	42,331		43,112		42,522		43,218
Effect of dilutive securities:
Stock options and other stock-based awards	464		703		613		812
Shares used in computing diluted earnings per share	42,795		43,815		43,135		44,030
Earnings per share:
Basic	$	0.24	$	0.13	$	0.56	$	0.65
Diluted	$	0.23	$	0.13	$	0.55	$	0.64

For the three months ended October 3, 2015 and September 27, 2014 and the nine months ended October 3, 2015 and September 27, 2014, approximately 0.1 million, 0.1 million, 0.1 million and 0.1 million shares, respectively, were not included in the diluted earnings per share calculation since the shares were anti-dilutive.

9

Silicon Laboratories Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

3. Cash, Cash Equivalents and Investments

The Company’s cash equivalents and short-term investments as of October 3, 2015 consisted of municipal bonds, money market funds, variable-rate demand notes, certificates of deposit, international government bonds and corporate bonds. The Company’s long-term investments consisted of auction-rate securities. In fiscal 2008, auctions for many of the Company’s auction-rate securities failed because sell orders exceeded buy orders. As of October 3, 2015, the Company held $8.0 million par value auction-rate securities, all of which have experienced failed auctions. The underlying assets of the securities consisted of student loans and municipal bonds, of which $6.0 million were guaranteed by the U.S. government and the remaining $2.0 million were privately insured. As of October 3, 2015, $6.0 million of the auction-rate securities had credit ratings of AA and $2.0 million had a credit rating of A. These securities have contractual maturity dates ranging from 2033 to 2046 at October 3, 2015. The Company is receiving the underlying cash flows on all of its auction-rate securities. The principal amounts associated with failed auctions are not expected to be accessible until a successful auction occurs, the issuer redeems the securities, a buyer is found outside of the auction process or the underlying securities mature. The Company is unable to predict if these funds will become available before their maturity dates.

The Company does not expect to need access to the capital represented by any of its auction-rate securities prior to their maturities. The Company does not intend to sell, and believes it is not more likely than not that it will be required to sell, its auction-rate securities before their anticipated recovery in market value or final settlement at the underlying par value. The Company believes that the credit ratings and credit support of the security issuers indicate that they have the ability to settle the securities at par value. As such, the Company has determined that no other-than-temporary impairment losses existed as of October 3, 2015.

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

	October 3, 2015
	Cost		Gross Unrealized Losses			Gross Unrealized Gains		Fair Value
Cash and Cash Equivalents:
Cash on hand	$	68,421	$	—		$	—	$	68,421
Available-for-sale securities:
Money market funds	63,316		—			—		63,316
Certificates of deposit	3,903		—			—		3,903
Total available-for-sale securities	67,219		—			—		67,219
Total cash and cash equivalents	$	135,640	$	—		$	—	$	135,640
Short-term Investments:
Available-for-sale securities:
Municipal bonds	$	98,605	$	(10	)	$	146	$	98,741
Variable-rate demand notes	9,495		—			—		9,495
International government bonds	2,234		—			1		2,235
Corporate bonds	2,202		(3		)	—		2,199
Total short-term investments	$	112,536	$	(13	)	$	147	$	112,670
Long-term Investments:
Available-for-sale securities:
Auction rate securities	$	8,000	$	(760	)	$	—	$	7,240
Total long-term investments	$	8,000	$	(760	)	$	—	$	7,240

10

Silicon Laboratories Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

	January 3, 2015
	Cost		Gross Unrealized Losses			Gross Unrealized Gains		Fair Value
Cash and Cash Equivalents:
Cash on hand	$	52,144	$	—		$	—	$	52,144
Available-for-sale securities:
Money market funds	71,415		—			—		71,415
Certificates of deposit	7,739		—			—		7,739
Commercial paper	5,348		—			—		5,348
Municipal bonds	1,756		—			1		1,757
U.S. government agency	1,202		—			—		1,202
Corporate bonds	1,101		—			—		1,101
U.S. government bonds	1,000		—			—		1,000
Total available-for-sale securities	89,561		—			1		89,562
Total cash and cash equivalents	$	141,705	$	—		$	1	$	141,706
Short-term Investments:
Available-for-sale securities:
Municipal bonds	$	129,005	$	(25	)	$	172	$	129,152
Corporate bonds	33,043		(35		)	25		33,033
Variable-rate demand notes	12,915		—			—		12,915
Commercial paper	8,995		—			—		8,995
Asset-backed securities	5,380		(3		)	—		5,377
International government bonds	2,526		(10		)	—		2,516
U.S. government bonds	650		—			—		650
U.S. government agency	601		—			—		601
Certificates of deposit	250		—			—		250
Total short-term investments	$	193,365	$	(73	)	$	197	$	193,489
Long-term Investments:
Available-for-sale securities:
Auction rate securities	$	8,000	$	(581	)	$	—	$	7,419
Total long-term investments	$	8,000	$	(581	)	$	—	$	7,419

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

	Less Than 12 Months					12 Months or Greater					Total
As of October 3, 2015	Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses
Municipal bonds	$	8,274	$	(10	)	$	—	$	—		$	8,274	$	(10	)
Auction rate securities	—		—			7,240		(760		)	7,240		(760		)
International government bonds	2,199		(3		)	—		—			2,199		(3		)
	$	10,473	$	(13	)	$	7,240	$	(760	)	$	17,713	$	(773	)

11

Silicon Laboratories Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

	Less Than 12 Months					12 Months or Greater					Total
As of January 3, 2015	Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses
Municipal bonds	$	23,735	$	(25	)	$	—	$	—		$	23,735	$	(25	)
Corporate bonds	20,327		(35		)	—		—			20,327		(35		)
Auction rate securities	—		—			7,419		(581		)	7,419		(581		)
Asset-backed securities	5,080		(3		)	—		—			5,080		(3		)
International government bond	2,516		(10		)	—		—			2,516		(10		)
	$	51,658	$	(73	)	$	7,419	$	(581	)	$	59,077	$	(654	)

The gross unrealized losses as of October 3, 2015 and January 3, 2015 were due primarily to the illiquidity of the Company’s auction-rate securities and, to a lesser extent, to changes in market interest rates.

The following summarizes the contractual underlying maturities of the Company’s available-for-sale investments at October 3, 2015 (in thousands):

	Cost		Fair Value
Due in one year or less	$	139,704	$	139,779
Due after one year through ten years	33,136		33,195
Due after ten years	14,915		14,155
	$	187,755	$	187,129

4. Derivative Financial Instruments

The Company uses derivative financial instruments to manage certain exposures to the variability of interest rates and foreign currency exchange rates. The Company’s objective is to offset increases and decreases in expenses resulting from these exposures with gains and losses on the derivative contracts, thereby reducing volatility of earnings. The Company does not use derivative contracts for speculative or trading purposes. The Company recognizes derivatives, on a gross basis, in the Consolidated Balance Sheet at fair value. Cash flows from derivatives are classified according to the nature of the cash receipt or payment in the Consolidated Statement of Cash Flows.

Interest Rate Swaps

The Company is exposed to interest rate fluctuations in the normal course of its business, including through its Credit Facilities. The interest payments on the facility are calculated using a variable-rate of interest. The Company has entered into an interest rate swap agreement with an original notional value of $100 million (equal to the full amount borrowed under the Credit Facilities) and, effectively, converted the Eurodollar portion of the variable-rate interest payments to fixed-rate interest payments through July 2017.

The Company’s interest rate swap agreement is designated and qualifies as a cash flow hedge. The effective portion of the gain or loss on the interest rate swap is recorded in accumulated other comprehensive loss as a separate component of stockholders’ equity and is subsequently recognized as interest expense in the Consolidated Statement of Income when the hedged exposure affects earnings.

12

Silicon Laboratories Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

The Company estimates the fair values of interest rate swaps based on quoted prices and market observable data of similar instruments. If the Credit Facilities or the interest rate swap agreement is terminated prior to maturity, the fair value of the interest rate swap recorded in accumulated other comprehensive loss may be recognized in the Consolidated Statement of Income based on an assessment of the agreements at the time of termination. The Company did not discontinue any cash flow hedges in any of the periods presented.

The Company measures the effectiveness of its cash flow hedge by comparing the change in fair value of the hedged variable interest payments with the change in fair value of the interest rate swap. The Company recognizes ineffective portions of the hedge, as well as amounts not included in the assessment of effectiveness, in the Consolidated Statement of Income. As of October 3, 2015, no portion of the gains or losses from the Company’s hedging instrument was excluded from the assessment of effectiveness. Hedge ineffectiveness was not material for any of the periods presented.

The Company’s derivative financial instrument in cash flow hedging relationships consisted of the following (in thousands):

		Fair Value
	Balance Sheet Location	October 3, 2015		January 3, 2015
Interest rate swap	Other assets, net	$	—	$	331
	Other non-current liabilities	329		—

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

	Gain (Loss) Recognized in OCI on Derivatives (Effective Portion) during the:					Location of Loss Reclassified into Income	Loss Reclassified from Accumulated OCI into Income (Effective Portion) during the:
	Three Months Ended						Three Months Ended
	October 3, 2015			September 27, 2014			October 3, 2015			September 27, 2014
Interest rate swaps	$	(459	)	$	193	Interest expense	$	(165	)	$	(142	)

	Nine Months Ended							Nine Months Ended
	October 3, 2015			September 27, 2014				October 3, 2015			September 27, 2014
Interest rate swaps	$	(1,035	)	$	(434	)	Interest expense	$	(376	)	$	(428	)

The Company expects to reclassify $0.3 million of its interest rate swap losses included in accumulated other comprehensive loss as of October 3, 2015 into earnings in the next 12 months, which would be offset by lower interest payments.

13

Silicon Laboratories Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

Foreign Currency Forward Contracts

The Company uses foreign currency forward contracts to manage exposure to foreign exchange risk. These instruments are used to reduce the earnings impact that exchange rate fluctuations have on non-U.S. dollar balance sheet exposures. The Company recognizes gains and losses on the foreign currency forward contracts in other income (expense), net in the Consolidated Statement of Income in the same period as the remeasurement loss and gain of the related foreign currency denominated asset or liability. The Company does not apply hedge accounting to its foreign currency derivative instruments.

As of October 3, 2015, the Company held one foreign currency forward contract denominated in Norwegian Krone with a notional value of $5.3 million. The fair value of the contract was not material as of October 3, 2015. The contract has a maturity date of December 30, 2015 and it was not designated as a hedging instrument. The Company held no foreign currency forward contracts during the three and nine months ended September 27, 2014.

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

	Three Months Ended				Nine Months Ended
Gain (Loss) Recognized in Income	October 3, 2015		September 27, 2014		October 3, 2015		September 27, 2014		Location
Foreign currency forward contracts	$	379	$	—	$	825	$	—	Other income (expense), net

5. Fair Value of Financial Instruments

The fair values of the Company’s financial instruments are recorded using a hierarchal disclosure framework based upon the level of subjectivity of the inputs used in measuring assets and liabilities. The three levels are described below:

Level 1 - Inputs are unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date.

Level 2 - Inputs are inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly.

Level 3 - Inputs are unobservable for the asset or liability and are developed based on the best information available in the circumstances, which might include the Company’s own data.

14

Silicon Laboratories Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

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

	Fair Value Measurements at October 3, 2015 Using
Description	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
Assets:
Cash Equivalents:
Money market funds	$	63,316	$	—	$	—	$	63,316
Certificates of deposit	—		3,903		—		3,903
Total cash equivalents	$	63,316	$	3,903	$	—	$	67,219
Short-term Investments:
Municipal bonds	$	—	$	98,741	$	—	$	98,741
Variable-rate demand notes	—		9,495		—		9,495
International government bonds	—		2,235		—		2,235
Corporate bonds	—		2,199		—		2,199
Total short-term investments	$	—	$	112,670	$	—	$	112,670
Long-term Investments:
Auction rate securities	$	—	$	—	$	7,240	$	7,240
Total long-term investments	$	—	$	—	$	7,240	$	7,240
Total	$	63,316	$	116,573	$	7,240	$	187,129
Liabilities:
Accrued expenses:
Contingent consideration	$	—	$	—	$	4,070	$	4,070
Other non-current liabilities:
Contingent consideration	$	—	$	—	$	9,192	$	9,192
Derivative instruments	—		329		—		329
	$	—	$	329	$	9,192	$	9,521
Total	$	—	$	329	$	13,262	$	13,591

15

Silicon Laboratories Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

	Fair Value Measurements at January 3, 2015 Using
Description	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
Assets:
Cash Equivalents:
Money market funds	$	71,415	$	—	$	—	$	71,415
Certificates of deposit	—		7,739		—		7,739
Commercial paper	—		5,348		—		5,348
Municipal bonds	—		1,757		—		1,757
U.S. government agency	—		1,202		—		1,202
Corporate bonds	—		1,101		—		1,101
U.S. government bonds	1,000		—		—		1,000
Total cash equivalents	$	72,415	$	17,147	$	—	$	89,562
Short-term Investments:
Municipal bonds	$	—	$	129,152	$	—	$	129,152
Corporate bonds	—		33,033		—		33,033
Variable-rate demand notes	—		12,915		—		12,915
Commercial paper	—		8,995		—		8,995
Asset-backed securities	—		5,377		—		5,377
International government bonds	—		2,516		—		2,516
U.S. government bond	650		—		—		650
U.S. government agency	—		601		—		601
Certificates of deposit	—		250		—		250
Total short-term investments	$	650	$	192,839	$	—	$	193,489
Long-term Investments:
Auction rate securities	$	—	$	—	$	7,419	$	7,419
Total long-term investments	$	—	$	—	$	7,419	$	7,419
Other assets, net:
Derivative instruments	$	—	$	331	$	—	$	331
Total	$	—	$	331	$	—	$	331
Total	$	73,065	$	210,317	$	7,419	$	290,801
Liabilities:
Accrued expenses:
Contingent consideration	$	—	$	—	$	4,288	$	4,288
Other non-current liabilities:
Contingent consideration	$	—	$	—	$	14,150	$	14,150
Total	$	—	$	—	$	18,438	$	18,438

16

Silicon Laboratories Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

The Company’s cash equivalents and short-term investments that are classified as Level 1 are valued using quoted prices and other relevant information generated by market transactions involving identical assets. Cash equivalents and short-term investments classified as Level 2 are valued using non-binding market consensus prices that are corroborated with observable market data; quoted market prices for similar instruments in active markets; or pricing models, such as a discounted cash flow model, with all significant inputs derived from or corroborated with observable market data. Investments classified as Level 3 are valued using a discounted cash flow model. The assumptions used in preparing the discounted cash flow model include estimates for interest rates, amount of cash flows, expected holding periods of the securities and a discount to reflect the Company’s inability to liquidate the securities. The Company’s derivative instruments are valued using discounted cash flow models. The assumptions used in preparing the valuation models include quoted interest swap rates, foreign exchange rates, forward and spot prices for currencies, and market observable data of similar instruments.

The Company’s contingent consideration is valued using a Monte Carlo simulation model or a probability weighted discounted cash flow model. The assumptions used in preparing the Monte Carlo simulation model include estimates for revenue growth rates, revenue volatility, contractual terms and discount rates. The assumptions used in preparing the discounted cash flow model include estimates for outcomes if milestone goals are achieved, the probability of achieving each outcome and discount rates.

The following summarizes quantitative information about Level 3 fair value measurements.

Auction rate securities

Fair Value at October 3, 2015 (000s)		Valuation Technique	Unobservable Input	Weighted Average
$	7,240	Discounted cash flow	Estimated yield	1.04%
			Expected holding period	10 years
			Estimated discount rate	3.46%

The Company has followed an established internal control procedure used in valuing auction rate securities. The procedure involves the analysis of valuation techniques and evaluation of unobservable inputs commonly used by market participants to price similar instruments, and which have been demonstrated to provide reasonable estimates of prices obtained in actual market transactions. Outputs from the valuation process are assessed against various market sources when they are available, including marketplace quotes, recent trades of similar illiquid securities, benchmark indices and independent pricing services. The technique and unobservable input parameters may be recalibrated periodically to achieve an appropriate estimation of the fair value of the securities.

Significant changes in any of the unobservable inputs used in the fair value measurement of auction rate securities in isolation could result in a significantly lower or higher fair value measurement. An increase in expected yield would result in a higher fair value measurement, whereas an increase in expected holding period or estimated discount rate would result in a lower fair value measurement. Generally, a change in the assumptions used for expected holding period is accompanied by a directionally similar change in the assumptions used for estimated yield and discount rate.

17

Silicon Laboratories Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

Contingent consideration

Fair Value at October 3, 2015 (000s)		Valuation Technique	Unobservable Input	Range
$	13,262	Monte Carlo simulation	Expected revenue growth rate	38.6% – 47.0%
			Expected revenue volatility	20.0%
			Expected term	0.3 years – 3.3 years
			Estimated discount rate	0.34% – 1.44%

The Company has followed an established internal control procedure used in valuing contingent consideration. The valuation of contingent consideration for the Energy Micro acquisition is based on a Monte Carlo simulation model. The fair value of this valuation is estimated on a quarterly basis through a collaborative effort by the Company’s sales, marketing and finance departments.

Significant changes in any of the unobservable inputs used in the fair value measurement of contingent consideration in isolation could result in a significantly lower or higher fair value. A change in projected revenue growth rates would be accompanied by a directionally similar change in fair value.

The following summarizes the activity in Level 3 financial instruments for the three and nine months ended October 3, 2015 (in thousands):

Assets

Auction Rate Securities	Three Months Ended		Nine Months Ended
Beginning balance	$	7,179	$	7,419
Gain (loss) included in other comprehensive income (loss)	61		(179		)
Balance at October 3, 2015	$	7,240	$	7,240

Liabilities

Contingent Consideration (1)	Three Months Ended			Nine Months Ended
Beginning balance	$	15,092		$	18,438
Settlements	—			(4,464		)
Gain recognized in earnings (2)	(1,830		)	(712		)
Balance at October 3, 2015	$	13,262		$	13,262
Net gain for the period included in earnings attributable to contingent consideration held at the end of the period:	$	1,830		$	712

(1)In connection with the acquisition of Energy Micro, the Company recorded contingent consideration based upon the expected achievement of certain milestone goals. Changes to the fair value of contingent consideration due to changes in assumptions used in preparing the valuation model are recorded in selling, general and administrative expenses in the Consolidated Statement of Income.

(2)Changes to the estimated fair value of contingent consideration were primarily due to revisions to the Company’s expectations of earn-out achievement.

18

Silicon Laboratories Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

Fair values of other financial instruments

The Company’s debt under the Credit Facilities bears interest at the Eurodollar rate plus an applicable margin. The Credit Facilities are recorded at cost, but are measured at fair value for disclosure purposes. Fair value is estimated based on Level 2 inputs, using a discounted cash flow analysis of future principal payments and projected interest based on current market rates. As of October 3, 2015 and January 3, 2015, the fair value of the Company’s debt under the Credit Facilities was approximately $80.0 million and $87.4 million, respectively.

The Company’s other financial instruments, including cash, accounts receivable and accounts payable, are recorded at amounts that approximate their fair values due to their short maturities.

6. Balance Sheet Details

The following shows the details of selected Condensed Consolidated Balance Sheet items (in thousands):

Inventories

	October 3, 2015		January 3, 2015
Work in progress	$	38,107	$	40,640
Finished goods	13,850		11,991
	$	51,957	$	52,631

7. Acquisitions

Bluegiga

On January 30, 2015, the Company acquired Bluegiga Technologies Oy, a private company based in Finland. Bluegiga is a provider of Bluetooth® Smart, Bluetooth Classic and Wi-Fi® modules and software stacks for a multitude of applications in the Internet of Things (IoT), industrial automation, consumer electronics, automotive, retail, residential, and health and fitness markets.

The Company acquired Bluegiga for cash consideration of approximately $58.0 million. Approximately $9.4 million of the initial consideration was held in escrow as security for breaches of representations and warranties and certain other expressly enumerated matters. The Company recorded the purchase of Bluegiga 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 results of Bluegiga’s operations are included in the Company’s consolidated results of operations beginning on the date of the acquisition.

19

Silicon Laboratories Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

The Company believes that this strategic acquisition will accelerate its entry into the wireless module market. This factor contributed to a purchase price that was in excess of the fair value of the 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):

	Amount			Weighted-Average Amortization Period (Years)
Intangible assets:
In-process research and development	$	5,710		Not amortized
Developed technology	12,190			8
Customer relationships	6,670			4
Trademarks	880			3
	25,450
Cash and cash equivalents	1,132
Other current assets	6,156
Goodwill	35,145
Other non-current assets	208
Current liabilities	(3,289		)
Non-current deferred tax liabilities, net	(4,328		)
Long-term debt	(2,232		)
Other non-current liabilities	(220		)
Total purchase price	$	58,022

The allocation of the purchase price is preliminary and subject to change, based on the finalization of income tax matters. Accordingly, adjustments may be made to the values of the assets acquired and liabilities assumed as additional information is obtained about the facts and circumstances that existed at the valuation date.

In-process research and development (IPR&D) represents acquired technology that had not achieved technological feasibility as of the acquisition date and had no alternative future use. The IPR&D recorded in connection with the acquisition of Bluegiga consisted primarily of Bluetooth Smart Ready and Bluetooth Smart modules and software stacks. The fair value of these technologies was determined using the income approach. The discount rate applicable to the cash flows was 16.1%. The significant risks associated with the projects include the Company’s potential inability to produce working models and the final products gaining customer acceptance.

Pro forma information related to this acquisition has not been presented because it would not be materially different from amounts reported. The Company recorded approximately $1.2 million of acquisition-related costs in selling, general and administrative expenses during the nine months ended October 3, 2015.

Energy Micro

On July 1, 2013, the Company acquired Energy Micro AS for approximately $140.6 million, including: 1) Initial consideration of $107.4 million; 2) Deferred consideration with an estimated fair value of $19.2 million at the date of acquisition; and 3) Contingent consideration (the “Earn-Out”) with an estimated fair value of $14.0 million at the date of acquisition. The Earn-Out is payable on an annual basis over a five-year period from fiscal 2014 through 2018 (the “Earn-Out Period”) and in no event shall exceed $6,666,666 per year, unless revenue from the Earn-Out Products exceeds $400 million in a single fiscal year during the Earn-Out Period (in which case, the entire Earn-Out amount less any amounts previously paid will become payable). Approximately $20.3 million of the initial consideration was withheld by the Company as security for breaches of representations and warranties and certain other expressly enumerated matters (the “Holdback”).

20

Silicon Laboratories Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

A portion of the Earn-Out (28.76%) is contingent on the continued employment of certain key employees for the three years following the acquisition date (the “Departure Percentage”). The Departure Percentage was accounted for as a transaction separate from the business combination based on its economic substance and will be recorded as post-combination compensation expense in the Company’s financial statements during the Earn-Out period.

In the first quarter of 2015, the Company made the following payments in connection with the acquisition: (a) approximately $20.0 million was paid for the release of the Holdback; and (b) approximately $6.3 million was paid for the first annual period of the Earn-out. Approximately $1.8 million of the Earn-out payment represented the Departure Percentage portion and was recorded as compensation expense during fiscal 2014. The remaining approximately $4.5 million of the Earn-out payment represented additional consideration.

8. Debt

On July 31, 2012, the Company and certain of its domestic subsidiaries (the “Guarantors”) entered into a $230 million five-year Credit Agreement (the “Credit Agreement”), which consisted of a $100 million Term Loan Facility and a $130 million Revolving Credit Facility (collectively, the “Credit Facilities”). On July 24, 2015, the Company and the Guarantors amended the Credit Agreement (the “Amended Credit Agreement”) in order to, among other things, increase the borrowing capacity under the Revolving Credit Facility to $300 million, eliminate the Term Loan Facility and extend the maturity date to five years from the closing date. On July 24, 2015, the Company borrowed $82.5 million under the Amended Credit Agreement and paid off the remaining balance of its Term Loan Facility.

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

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

The Amended Credit Agreement contains various conditions, covenants and representations with which the Company must be in compliance in order to borrow funds and to avoid an event of default, including financial covenants that the Company must maintain a leverage ratio (funded debt/EBITDA) of no more than 3.00 to 1 and a minimum fixed charge coverage ratio (EBITDA/interest payments, income taxes and capital expenditures) of no less than 1.25 to 1. As of October 3, 2015, the Company was in compliance with all covenants of the Amended Credit Agreement. The Company’s obligations under the Amended Credit Agreement are guaranteed by the Guarantors and are secured by a security interest in substantially all assets of the Company and the Guarantors.

The Company assumed $2.2 million of debt in connection with its acquisition of Bluegiga. The debt instruments bear interest at rates between 1.0% and 3.0%. On September 25, 2015, the Company paid off the remaining balance of the acquired debt.

Interest Rate Swap Agreement

In connection with the $100 million borrowed under the Credit Facilities, the Company entered into an interest rate swap agreement as a hedge against the Eurodollar portion of such variable interest payments. Under the terms of the swap agreement, the Company effectively converted the Eurodollar portion of the interest on the Credit Facilities to a fixed interest rate of 0.764% through July 2017. As of October 3, 2015, the combined interest rate of the Credit Facilities (which includes an applicable margin) and the interest rate swap was 2.264%. See Note 4, Derivative Financial Instruments, for additional information.

21

Silicon Laboratories Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

9. Stockholders’ Equity

Common Stock

The Company issued 1.0 million shares of common stock during the nine months ended October 3, 2015.

Share Repurchase Programs

The Board of Directors authorized the following share repurchase programs (in thousands):

Program Authorization Date	Program Termination Date	Program Amount
August 2015	December 2016	$	100,000
October 2014	December 2015	$	100,000
January 2014	January 2015	$	100,000
January 2013	January 2014	$	50,000

These programs allow for repurchases to be made in the open market or in private transactions, including structured or accelerated transactions, subject to applicable legal requirements and market conditions. The Company repurchased 1.6 million shares of its common stock for $71.4 million during the nine months ended October 3, 2015. The Company repurchased 1.3 million shares of its common stock for $53.9 million during the nine months ended September 27, 2014. These shares were retired upon repurchase.

Accumulated Other Comprehensive Loss

The components of accumulated other comprehensive loss, net of taxes, were as follows (in thousands):

	Unrealized Gain (Loss) on Cash Flow Hedge			Net Unrealized Losses on Available-For-Sale Securities			Total
Balance at January 3, 2015	$	215		$	(297	)	$	(82	)
Other comprehensive loss before reclassifications	(672		)	(116		)	(788		)
Amount reclassified from accumulated other comprehensive loss	245			6			251
Net change for the period	(427		)	(110		)	(537		)
Balance at October 3, 2015	$	(212	)	$	(407	)	$	(619	)

22

Silicon Laboratories Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

Reclassifications From Accumulated Other Comprehensive Loss

	Three Months Ended						Nine Months Ended
Reclassification (in thousands)	October 3, 2015			September 27, 2014			October 3, 2015			September 27, 2014
Losses on cash flow hedges to:
Interest expense	$	(165	)	$	(142	)	$	(376	)	$	(428	)
Losses on available-for-sale securities to:
Interest income	—			—			(10		)	—
	(165		)	(142		)	(386		)	(428		)
Income tax benefit	58			50			135			150
Total reclassifications	$	(107	)	$	(92	)	$	(251	)	$	(278	)

10. Stock-Based Compensation

In fiscal 2009, the stockholders of the Company approved the 2009 Stock Incentive Plan (the “2009 Plan”) and the 2009 Employee Stock Purchase Plan (the “2009 Purchase Plan”). In fiscal 2014, the stockholders of the Company approved amendments to both the 2009 Plan and the 2009 Purchase Plan. The amendments authorized additional shares of common stock for issuance, to comply with changes in applicable law, improve the Company’s corporate governance and to implement other best practices. The amended plans are currently effective.

Stock-based compensation costs are based on the fair values on the date of grant for stock options and on the date of enrollment for the employee stock purchase plans, estimated by using the Black-Scholes option-pricing model. The fair values of stock awards and restricted stock units (RSUs) equal their intrinsic value on the date of grant. The fair values of market stock units (MSUs) generally are estimated using a Monte Carlo simulation based on the date of grant.

The following table presents details of stock-based compensation costs recognized in the Condensed Consolidated Statements of Income (in thousands):

	Three Months Ended				Nine Months Ended
	October 3, 2015		September 27, 2014		October 3, 2015		September 27, 2014
Cost of revenues	$	249	$	201	$	708	$	574
Research and development	4,623		4,713		14,378		13,282
Selling, general and administrative	4,350		4,700		15,712		14,317
	9,222		9,614		30,798		28,173
Income tax benefit	1,089		1,158		3,575		3,056
	$	8,133	$	8,456	$	27,223	$	25,117

The Company had approximately $55.3 million of total unrecognized compensation costs related to granted stock awards as of October 3, 2015 that are expected to be recognized over a weighted-average period of approximately 2.0 years. There were no significant stock-based compensation costs capitalized into assets in any of the periods presented.

23

Silicon Laboratories Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

11.  Commitments and Contingencies

Patent Litigation

On January 21, 2014, Cresta Technology Corporation (“Cresta Technology”), a Delaware corporation, filed a lawsuit against the Company, Samsung Electronics Co., Ltd., Samsung Electronics America, Inc., LG Electronics Inc. and LG Electronics U.S.A., Inc. in the United States District Court in the District of Delaware, alleging infringement of United States Patent Nos. 7,075,585, 7,265,792 and 7,251,466. The lawsuit relates to the Company’s family of television tuner products. Cresta Technology seeks unspecified compensatory and enhanced damages, attorney fees and a permanent injunction. On January 28, 2014, Cresta Technology also filed a complaint with the United States International Trade Commission (“ITC”) alleging infringement of the same patents against the Company, Samsung and LG Electronics and seeking to prevent the importation and sale of allegedly infringing products in the United States. The ITC instituted an investigation based on Cresta Technology’s complaint on February 27, 2014. The Delaware District Court action has been stayed pending completion of the proceedings in the ITC. The Company intends to vigorously defend against these allegations.

An evidentiary hearing in this ITC Investigation concluded on December 5, 2014. The ITC Administrative Law Judge (“ALJ”) issued an Initial Determination on February 27, 2015, finding that all the patent claims asserted against the Company’s products were either invalid or not infringed. The ALJ also found that Cresta Technology failed to establish the ITC’s domestic industry requirement. Accordingly, the ALJ found no violation by the Company.

On September 29, 2015, the ITC issued its Final Determination, finding that all the patent claims asserted against the Company’s products were either invalid or not infringed and that Cresta Technology failed to establish the ITC’s domestic industry requirement. Accordingly, the ITC found no violation by the Company and terminated the Investigation.

On May 6, 2014, the Company filed a complaint with the ITC alleging infringement of United States Patent Nos. 6,137,372 and 6,233,441 against Cresta Technology, Hauppauge Digital, Inc., Hauppague Computer Works, Inc., PCTV Systems, S.a.r.l., Luxembourg and PCTV Systems S.a.r.l., seeking to prevent the importation and sale of allegedly infringing products in the United States. On July 1, 2014, the Administrative Law Judge accepted a consent order whereby Cresta Technology will not sell for importation, import or sell in the United States television tuners that infringe the Company’s United States Patent Nos. 6,137,372 and 6,233,441. Accordingly, this ITC investigation has been terminated in its entirety.

On July 16, 2014, the Company filed a lawsuit against Cresta Technology in the United States District Court in the Northern District of California alleging infringement of United States Patent Nos. 6,308,055, 6,304,146, 6,137,372, 6,233,441, 6,965,761 and 7,353,011. The Company is seeking a permanent injunction stopping the sale of all allegedly infringing Cresta Technology products and an award of damages and attorney fees.

As is customary in the semiconductor industry, the Company provides indemnification protection to its customers for intellectual property claims related to the Company’s products. The Company has not accrued any material liability on its consolidated balance sheet related to such indemnification obligations in connection with the Cresta Technology litigation.

At this time, the Company cannot predict the outcome of these matters or the resulting financial impact to it, if any.

Other

The Company is involved in various other legal proceedings that have arisen in the normal course of business. While the ultimate results of these matters cannot be predicted with certainty, the Company does not expect them to have a material adverse effect on its consolidated financial statements.

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Silicon Laboratories Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

12. Related Party Transactions

On July 1, 2013, Geir Førre joined the Company as senior vice president. Mr. Førre was chief executive officer of Energy Micro, until it was acquired by the Company. Mr. Førre was the beneficial owner of approximately 30% of the Energy Micro equity and accordingly received approximately $35 million at closing. In the first quarter of 2015, Mr. Førre received approximately $6.1 million of the $20.0 million paid for the holdback related to potential indemnification claims and approximately $1.9 million of the $6.3 million paid for the fiscal 2014 earn-out. Mr. Førre may receive up to approximately $8.1 million of the remaining potential $26.7 million earn-out for fiscal 2015 through 2018.

On October 17, 2013, the Company appointed Alf-Egil Bogen to its board of directors. Mr. Bogen was chief marketing officer of Energy Micro, until it was acquired by the Company. Mr. Bogen was the beneficial owner of approximately 2% of the Energy Micro equity and accordingly received approximately $0.9 million at closing. In the first quarter of 2015, Mr. Bogen received approximately $0.4 million of the $20.0 million paid for the holdback related to potential indemnification claims and approximately $0.1 million of the $6.3 million paid for the fiscal 2014 earn-out. Mr. Bogen may receive up to approximately $0.5 million of the remaining potential $26.7 million earn-out for fiscal 2015 through 2018. Mr. Bogen had invested approximately $0.8 million in Energy Micro prior to the acquisition.

13. Income Taxes

Provision for income taxes includes both domestic and foreign income taxes at the applicable statutory rates adjusted for non-deductible expenses, research and development tax credits and other permanent differences. Income tax expense was $0.5 million and $3.5 million for the three months ended October 3, 2015 and September 27, 2014, resulting in effective tax rates of 4.5% and 38.4%, respectively. Income tax expense was $2.1 million and $10.9 million for the nine months ended October 3, 2015 and September 27, 2014, resulting in effective tax rates of 8.1% and 28.0%, respectively. The effective tax rate for both the three months and nine months ended October 3, 2015 decreased from the prior periods, primarily due to an increase in the foreign tax rate benefit in the current periods resulting from the completion of payments related to an intercompany licensing transaction. For the three months ended October 3, 2015 the effective tax rate was further decreased by a decrease in the current period of nondeductible costs related to the Energy Micro acquisition. For the nine months ended October 3, 2015, the decrease in the effective tax rate was partially offset by the release during the prior period of unrecognized tax benefits related to an uncertain tax position that was closed by statute.

At October 3, 2015, the Company had gross unrecognized tax benefits of $3.7 million, all of which would affect the effective tax rate if recognized. The Company recognizes interest and penalties related to unrecognized tax benefits in the provision for income taxes.

The Company believes it is reasonably possible that the gross unrecognized tax benefits will decrease by approximately $0.9 million in the next 12 months due to the lapse of the statute of limitations applicable to tax deductions and tax credits claimed on prior year tax returns.

On July 27, 2015, in Altera Corp. v. Commissioner, the U.S. Tax Court issued an opinion related to the treatment of stock-based compensation expense in an intercompany cost-sharing arrangement. A final decision has yet to be issued by the Tax Court due to other outstanding issues related to the case. At this time, the U.S. Department of the Treasury has not withdrawn the requirement to include stock-based compensation from its regulations. The Company has reviewed this case and its impact and has concluded that no adjustment to the condensed consolidated financial statements is appropriate at this time. The Company will continue to monitor ongoing developments and potential impacts to the condensed consolidated financial statements.

The tax years 2010 through 2015 remain open to examination by the major taxing jurisdictions to which the Company is subject. The Company is not currently under audit in any major taxing jurisdiction.

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Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of financial condition and results of operations should be read in conjunction with the Condensed Consolidated Financial Statements and related notes thereto included elsewhere in this report. This discussion contains forward-looking statements. Please see the “Cautionary Statement” above and “Risk Factors” below for discussions of the uncertainties, risks and assumptions associated with these statements. Our fiscal year-end financial reporting periods are a 52- or 53- week year ending on the Saturday closest to December 31st. Fiscal 2015 will have 52 weeks. Fiscal 2014 had 53 weeks with the extra week occurring in the fourth quarter of the year. Our third quarter of fiscal 2015 ended October 3, 2015. Our third quarter of fiscal 2014 ended September 27, 2014.

Overview

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

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

Our expertise in analog-intensive, high-performance, mixed-signal ICs enables us to develop highly differentiated solutions that address multiple markets. We group our products into the following categories:

·Internet of Things (IoT) products, which include our microcontroller (MCU), wireless, sensor and analog products;

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

·Infrastructure products, which include our timing products (clocks and oscillators), and isolation devices; and

·Access products, which include our Voice over IP (VoIP) products, embedded modems and our Power over Ethernet (PoE) devices.

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

Through acquisitions and internal development efforts, we have continued to diversify our product portfolio and introduce next-generation ICs with added functionality and further integration. On January 30, 2015, we acquired Bluegiga Technologies Oy. Bluegiga is a provider of Bluetooth Smart, Bluetooth Classic and Wi-Fi modules and software stacks for a multitude of applications in the IoT, industrial automation, consumer electronics, automotive, retail, residential, and health and fitness markets. See Note 7, Acquisitions, for additional information.

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In the first nine months of fiscal 2015, we introduced a sixth-generation version of the iWRAP™ Bluetooth software stack for the Bluetooth 3.0 wireless audio accessory market; an isolated current sense amplifier delivering high bandwidth and low signal delay; a fully integrated, pre-certified Blue Gecko wireless module providing a plug-and-play solution for Bluetooth Smart connectivity; a low-jitter, small-footprint and low-power network synchronizer clock; a new release of the Simplicity Studio™ development platform featuring an enhanced real-time Energy Profiler tool; the release of the Thread protocol stack providing IP-based mesh networking technology for the Connected Home market; a highly integrated clock IC for wireless infrastructure applications including base stations; a dual-mode Bluetooth module solution that supports both Bluetooth Smart and Bluetooth Classic wireless technologies; energy-friendly USB-enabled MCUs for power-sensitive IoT applications; a complete Wireless M-Bus platform solution for wirelessly connected smart meters in the European market; high-speed, multi-channel digital isolators targeting industrial applications; a digital audio bridge chip and evaluation kit designed to simplify the development of accessories for iOS devices; a portfolio of receivers/audio processors and multi-standard digital radio ICs for the global car radio market; a family of high-performance digital set-top box tuner ICs designed to reduce system cost and power consumption; the Blue Gecko product portfolio featuring Bluetooth Smart modules and wireless SoC devices for a wide range of wireless IoT designs; the next generation of Simplicity Studio enabling concurrent MCU and RF design; next-generation 8-bit MCUs designed for ultra-low-power, small-footprint IoT applications; 32-bit sub-GHz wireless MCUs designed to simplify a wide range of IoT connectivity applications; and high-precision temperature sensors offering exceptional power efficiency. We plan to continue to introduce products that increase the content we provide for existing applications, thereby enabling us to serve markets we do not currently address and expand our total available market opportunity.

During the nine months ended October 3, 2015, we had no customer that represented more than 10% of our revenues. In addition to direct sales to customers, some of our end customers purchase products indirectly from us through distributors and contract manufacturers. An end customer purchasing through a contract manufacturer typically instructs such contract manufacturer to obtain our products and incorporate such products with other components for sale by such contract manufacturer to the end customer. Although we actually sell the products to, and are paid by, the distributors and contract manufacturers, we refer to such end customer as our customer. Two of our distributors, Edom Technology and Avnet, represented more than 10% of our revenues during the nine months ended October 3, 2015. There were no other distributors or contract manufacturers that accounted for more than 10% of our revenues during the nine months ended October 3, 2015.

The percentage of our revenues derived from outside of the United States was 85% during the nine months ended October 3, 2015.  All of our revenues to date have been denominated in U.S. dollars. We believe that a majority of our revenues will continue to be derived from customers outside of the United States.

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

Because many of our ICs are designed for use in consumer products such as televisions, set-top boxes, radios and wearables, we expect that the demand for our products will be typically subject to some degree of seasonal demand. However, rapid changes in our markets and across our product areas make it difficult for us to accurately estimate the impact of seasonal factors on our business.

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Results of Operations

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

Revenues.  Revenues are generated predominately by sales of our ICs. We recognize revenue on sales when all of the following criteria are met: 1) there is persuasive evidence that an arrangement exists, 2) delivery of goods has occurred, 3) the sales price is fixed or determinable, and 4) collectibility is reasonably assured. Generally, we recognize revenue from product sales to direct customers and contract manufacturers upon shipment. Certain of our sales are made to distributors under agreements allowing certain rights of return and price protection on products unsold by distributors. Accordingly, we defer the revenue and cost of revenue on such sales until the distributors sell the product to the end customer. A small portion of our revenues is derived from the sale of patents. The above revenue recognition criteria for patent sales are generally met upon the execution of the patent sale agreement. Our products typically carry a one-year replacement warranty. Replacements have been insignificant to date.

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

Cost of Revenues.  Cost of revenues includes the cost of purchasing finished silicon wafers processed by independent foundries; costs associated with assembly, test and shipping of those products; costs of personnel and equipment associated with manufacturing support, logistics and quality assurance; costs of software royalties, other intellectual property license costs and certain acquired intangible assets; and an allocated portion of our occupancy costs.

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

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

Interest Income.  Interest income reflects interest earned on our cash, cash equivalents and investment balances.

Interest Expense.  Interest expense consists of interest on our short and long-term obligations, including our Credit Facilities.

Other Income (Expense), Net.  Other income (expense), net consists primarily of foreign currency remeasurement adjustments as well as other non-operating income and expenses.

Provision for Income Taxes.  Provision for income taxes includes both domestic and foreign income taxes at the applicable tax rates adjusted for non-deductible expenses, research and development tax credits and other permanent differences.

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

	Three Months Ended				Nine Months Ended
	October 3, 2015		September 27, 2014		October 3, 2015		September 27, 2014
Revenues	100.0	%	100.0	%	100.0	%	100.0	%
Cost of revenues	40.2		39.2		40.7		38.6
Gross margin	59.8		60.8		59.3		61.4
Operating expenses:
Research and development	29.8		26.9		29.0		27.7
Selling, general and administrative	22.8		27.8		24.6		24.9
Operating expenses	52.6		54.7		53.6		52.6
Operating income	7.2		6.1		5.7		8.8
Other income (expense):
Interest income	0.1		0.1		0.1		0.2
Interest expense	(0.4	)	(0.5	)	(0.5	)	(0.5	)
Other income (expense), net	(0.2	)	0.0		0.0		0.0
Income before income taxes	6.7		5.7		5.3		8.5
Provision for income taxes	0.3		2.2		0.4		2.4
Net income	6.4	%	3.5	%	4.9	%	6.1	%

Revenues

	Three Months Ended									Nine Months Ended
(in millions)	October 3, 2015		September 27, 2014		Change			% Change		October 3, 2015		September 27, 2014		Change			% Change
Internet of Things	$	65.3	$	52.1	$	13.2		25.3	%	$	195.2	$	151.4	$	43.8		28.9	%
Broadcast	36.5		53.0		(16.5		)	(31.2	)%	122.1		154.3		(32.2		)	(20.9	)%
Infrastructure	31.1		28.2		2.9			10.3	%	91.4		80.8		10.6			13.1	%
Access	23.3		24.8		(1.5		)	(6.1	)%	76.1		72.3		3.8			5.3	%
	$	156.2	$	158.1	$	(1.9	)	(1.2	)%	$	484.8	$	458.8	$	26.0		5.7	%

The change in revenues in the recent three month period was due primarily to:

·Increased revenues of $13.2 million for our Internet of Things products, due primarily to market share gains for our products, increases in the market and the addition of revenues from the acquisition of Bluegiga in January 2015.

·Decreased revenues of $16.5 million for Broadcast products, due primarily to decreases in our market share and the market for our consumer ICs and the sale of patents for $2.1 million in the prior three month period. The decrease in Broadcast revenues was offset by increased revenues for our automotive ICs due to increases in market share.

·Increased revenues of $2.9 million for our Infrastructure products, due primarily to market share gains.

·Decreased revenues of $1.5 million for our Access products, due primarily to a decrease in our market share for our VoIP products.

The change in revenues in the recent nine month period was due primarily to:

·Increased revenues of $43.8 million for our Internet of Things products, due primarily to market share gains for our products, increases in the market and the addition of revenues from the acquisition of Bluegiga.

·Decreased revenues of $32.2 million for Broadcast products, due primarily to decreases in our market share and the market for our consumer ICs and the sale of patents for $7.1 million in the prior nine month period.

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The decrease in Broadcast revenues was offset by increased revenues for our automotive ICs due to increases in market share.

·Increased revenues of $10.6 million for our Infrastructure products, due primarily to market share gains.

·Increased revenues of $3.8 million for our Access products, due primarily to market share gains for our PoE products.

Unit volumes of our products decreased by 7.0% and average selling prices increased by 7.6% compared to the three months ended September 27, 2014. Unit volumes of our products increased by 4.3% and average selling prices increased by 2.9% compared to the nine months ended September 27, 2014. The average selling prices of our products may fluctuate significantly from period to period. In general, as our products become more mature, we expect to experience decreases in average selling prices. We anticipate that newly announced, higher priced, next generation products and product derivatives will offset some of these decreases.

Gross Margin

	Three Months Ended									Nine Months Ended
(in millions)	October 3, 2015			September 27, 2014			Change			October 3, 2015			September 27, 2014			Change
Gross margin	$	93.4		$	96.1		$	(2.7	)	$	287.2		$	281.9		$	5.3
Percent of revenue	59.8		%	60.8		%	(1.0		)%	59.3		%	61.4		%	(2.1		)%

The decreased dollar amount of gross margin in the recent three month period was due to decreases in gross margin of $9.7 million for our Broadcast products and $0.5 million for our Access products, offset by increases in gross margin of $5.3 million for our Internet of Things products and $2.2 million for our Infrastructure products. The increased dollar amount of gross margin in the recent nine month period was due to increases in gross margin of $18.4 million for our Internet of Things products and $6.1 million for our Infrastructure products, offset by a decrease in gross margin of $19.1 million for our Broadcast products and $0.1 million for our Access products. Gross margin in the recent nine month period included $2.4 million in acquisition-related charges for the fair value write-up associated with inventory acquired from Bluegiga. Gross margin in the prior year three and nine month periods included $2.1 million and $7.1 million, respectively, from the sale of patents, which had no associated cost of revenues.

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

Research and Development

	Three Months Ended										Nine Months Ended
(in millions)	October 3, 2015			September 27, 2014			Change		% Change		October 3, 2015			September 27, 2014			Change		% Change
Research and development	$	46.5		$	42.5		$	4.0	9.3	%	$	140.8		$	126.8		$	14.0	11.0	%
Percent of revenue	29.8		%	26.9		%					29.0		%	27.7		%

The increase in research and development expense in the recent three and nine month periods was principally due to increases of (a) $2.4 million and $9.2 million, respectively, for personnel-related expenses, including costs associated with increased headcount, and (b) $2.2 million and $4.9 million, respectively, for the amortization of intangible assets. We expect that research and development expense will increase in absolute dollars in the fourth quarter of 2015.

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Recent development projects include a sixth-generation version of the iWRAP Bluetooth software stack for the Bluetooth 3.0 wireless audio accessory market; an isolated current sense amplifier delivering high bandwidth and low signal delay; a fully integrated, pre-certified Blue Gecko wireless module providing a plug-and-play solution for Bluetooth Smart connectivity; a low-jitter, small-footprint and low-power network synchronizer clock; a new release of the Simplicity Studio development platform featuring an enhanced real-time Energy Profiler tool; the release of the Thread protocol stack providing IP-based mesh networking technology for the Connected Home market; a highly integrated clock IC for wireless infrastructure applications including base stations; a dual-mode Bluetooth module solution that supports both Bluetooth Smart and Bluetooth Classic wireless technologies; energy-friendly USB-enabled MCUs for power-sensitive IoT applications; a complete Wireless M-Bus platform solution for wirelessly connected smart meters in the European market; high-speed, multi-channel digital isolators targeting industrial applications; a digital audio bridge chip and evaluation kit designed to simplify the development of accessories for iOS devices; a portfolio of receivers/audio processors and multi-standard digital radio ICs for the global car radio market; a family of high-performance digital set-top box tuner ICs designed to reduce system cost and power consumption; the Blue Gecko product portfolio featuring Bluetooth Smart modules and wireless SoC devices for a wide range of wireless IoT designs; the next generation of Simplicity Studio enabling concurrent MCU and RF design; next-generation 8-bit MCUs designed for ultra-low-power, small-footprint IoT applications; 32-bit sub-GHz wireless MCUs designed to simplify a wide range of IoT connectivity applications; high-precision temperature sensors offering exceptional power efficiency; digital TV demodulators offering expanded support for emerging and established satellite, terrestrial and cable standards; a new family of PCI Express (PCIe) Gen1/2/3 fanout buffers designed for data center applications; next-generation EZRadio® and EZRadioPRO® wireless ICs offering outstanding power efficiency, wireless range and flexibility; the sixth generation of our high-performance TV tuner ICs addressing global hybrid TV and digital TV markets; and a small PCIe-compliant clock generator targeting consumer and embedded applications.

Selling, General and Administrative

	Three Months Ended											Nine Months Ended
(in millions)	October 3, 2015			September 27, 2014			Change			% Change		October 3, 2015			September 27, 2014			Change		% Change
Selling, general and administrative	$	35.7		$	44.0		$	(8.3	)	(18.8	)%	$	119.0		$	114.6		$	4.4	3.8	%
Percent of revenue	22.8		%	27.8		%						24.6		%	24.9		%

The decrease in selling, general and administrative expense in the recent three month period was principally due to decreases of (a) $7.8 million for adjustments to the fair value of acquisition-related contingent consideration, and (b) $2.5 million for legal fees, primarily related to litigation. The decrease in selling, general and administrative expense in the recent three month period was offset in part by an increase of $1.3 million for personnel-related expenses, including costs associated with increased headcount. The increase in selling, general and administrative expense in the recent nine month period was principally due to increases of (a) $8.6 million for personnel-related expenses, (b) $1.3 million for the amortization of intangible assets, (c) $1.2 million for acquisition-related costs, and (d) $1.0 million for product marketing costs. The increase in selling, general and administrative expense in the recent nine month period was offset in part by decreases of (a) $5.7 million for adjustments to the fair value of acquisition-related contingent consideration, and (b) $4.0 million for legal fees. We expect that selling, general and administrative expense will increase in absolute dollars in the fourth quarter of 2015.

Interest Income

Interest income for the three and nine months ended October 3, 2015 was $0.2 million and $0.5 million, respectively, compared to $0.2 million and $0.7 million for the three and nine months ended September 27, 2014, respectively.

Interest Expense

Interest expense for the three and nine months ended October 3, 2015 was $0.7 million and $2.2 million, respectively, compared to $0.8 million and $2.3 million for the three and nine months ended September 27, 2014, respectively.

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Other Income (Expense), Net

Other income (expense), net for the three and nine months ended October 3, 2015 was $(0.3) million and $0.2 million, respectively, compared to $42 thousand and $0.1 million for the three and nine months ended September 27, 2014, respectively.

Provision for Income Taxes

	Three Months Ended									Nine Months Ended
(in millions)	October 3, 2015			September 27, 2014			Change			October 3, 2015			September 27, 2014			Change
Provision for income taxes	$	0.5		$	3.5		$	(3.0	)	$	2.1		$	10.9		$	(8.8	)
Effective tax rate	4.5		%	38.4		%				8.1		%	28.0		%

The effective tax rate for both the three months and nine months ended October 3, 2015 decreased from the prior periods, primarily due to an increase in the foreign tax rate benefit in the current periods resulting from the completion of payments related to an intercompany licensing transaction. For the three months ended October 3, 2015 the effective tax rate was further decreased by a decrease in the current period of nondeductible costs related to the Energy Micro acquisition. For the nine months ended October 3, 2015, the decrease in the effective tax rate was partially offset by the release during the prior period of unrecognized tax benefits related to an uncertain tax position that was closed by statute.

The effective tax rates for each of the periods presented differ from the federal statutory rate of 35% due to the amount of income earned in foreign jurisdictions where the tax rate may be lower than the federal statutory rate and other permanent items including nondeductible compensation expenses.

Business Outlook

We expect revenues in the fourth quarter of fiscal 2015 to be in the range of $156 to $161 million. Furthermore, we expect our diluted earnings per share to be in the range of $0.05 to $0.11.

Liquidity and Capital Resources

Our principal sources of liquidity as of October 3, 2015 consisted of $248.3 million in cash, cash equivalents and short-term investments, of which approximately $155.4 million was held by our U.S. entities. The remaining balance was held by our foreign subsidiaries. Our cash equivalents and short-term investments consisted of municipal bonds, money market funds, variable-rate demand notes, certificates of deposit, international government bonds and corporate bonds.

Our long-term investments consisted of auction-rate securities. In fiscal 2008, auctions for many of our auction-rate securities failed because sell orders exceeded buy orders. As of October 3, 2015, we held $8.0 million par value auction-rate securities, all of which have experienced failed auctions. These securities have contractual maturity dates ranging from 2033 to 2046. We are receiving the underlying cash flows on all of our auction-rate securities. The principal amounts associated with failed auctions are not expected to be accessible until a successful auction occurs, the issuer redeems the security, a buyer is found outside of the auction process or the underlying securities mature. We are unable to predict if these funds will become available before their maturity dates. We do not expect to need access to the capital represented by any of our auction-rate securities prior to their maturities.

Operating Activities

Net cash provided by operating activities was $87.4 million during the nine months ended October 3, 2015, compared to net cash provided of $107.6 million during the nine months ended September 27, 2014. Operating cash flows during the nine months ended October 3, 2015 reflect our net income of $23.9 million, adjustments of $63.0 million for depreciation, amortization, stock-based compensation and deferred income taxes, and a net cash inflow of $0.5 million due to changes in our operating assets and liabilities.

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Accounts receivable decreased to $61.0 million at October 3, 2015 from $70.4 million at January 3, 2015. The decrease in accounts receivable resulted primarily from normal variations in the timing of collections and billings. Our average days sales outstanding (DSO) was 35 days at October 3, 2015 and 39 days at January 3, 2015.

Inventory decreased to $52.0 million at October 3, 2015 from $52.6 million at January 3, 2015. Our inventory level is primarily impacted by our need to make purchase commitments to support forecasted demand and variations between forecasted and actual demand. Our average days of inventory (DOI) was 75 days at October 3, 2015 and 73 days at January 3, 2015.

Investing Activities

Net cash used in investing activities was $8.6 million during the nine months ended October 3, 2015, compared to net cash used of $46.2 million during the nine months ended September 27, 2014. The decrease in cash outflows was principally due to a decrease of $118.2 million from net purchases of marketable securities, offset by $76.9 million in net payments for the acquisition of businesses, including $56.9 million for the purchase of Bluegiga and $20.0 million for consideration previously withheld in connection with our purchase of Energy Micro. See Note 7, Acquisitions, for additional information regarding the Bluegiga and Energy Micro acquisitions.

We anticipate capital expenditures of approximately $10 to $12 million for fiscal 2015. Additionally, as part of our growth strategy, we expect to evaluate opportunities to invest in or acquire other businesses, intellectual property or technologies that would complement or expand our current offerings, expand the breadth of our markets or enhance our technical capabilities.

Financing Activities

Net cash used in financing activities was $84.8 million during the nine months ended October 3, 2015, compared to net cash used of $45.5 million during the nine months ended September 27, 2014. The increase in cash outflows was principally due to an increase of $88.5 million in payments on debt and an increase of $20.5 million for repurchases of our common stock, offset by net proceeds of $81.2 million from the issuance of long-term debt. In July 2015, we amended our Credit Agreement. See Note 8, Debt, for additional information. In August 2015, the Board of Directors authorized a program to repurchase up to $100 million of our common stock through December 2016.

Debt

On July 31, 2012, we entered into a $230 million five-year Credit Agreement (the “Credit Agreement”), which consisted of a $100 million Term Loan Facility and a $130 million Revolving Credit Facility. On July 24, 2015, we amended the Credit Agreement (the “Amended Credit Agreement”) in order to, among other things, increase the borrowing capacity under the Revolving Credit Facility to $300 million, eliminate the Term Loan Facility and extend the maturity date to five years from the closing date. On July 24, 2015, we borrowed $82.5 million under the Amended Credit Agreement and paid off the remaining balance of our Term Loan Facility.

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

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

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The Amended Credit Agreement contains various conditions, covenants and representations with which we must be in compliance in order to borrow funds and to avoid an event of default, including financial covenants that we must maintain a leverage ratio (funded debt/EBITDA) of no more than 3.00 to 1 and a minimum fixed charge coverage ratio (EBITDA/interest payments, income taxes and capital expenditures) of no less than 1.25 to 1. As of October 3, 2015, we were in compliance with all covenants of the Amended Credit Agreement. Our obligations under the Amended Credit Agreement are secured by a security interest in substantially all of our assets. See Note 8, Debt, to the Condensed Consolidated Financial Statements for additional information.

We have entered into an interest rate swap agreement as a hedge against the Eurodollar portion of the variable interest payments under the Credit Facilities and effectively converted the Eurodollar portion of the interest on the Credit Facilities to a fixed interest rate through July 2017. See Note 4, Derivative Financial Instruments, to the Condensed Consolidated Financial Statements for additional information.

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

Critical Accounting Policies and Estimates

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

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

Stock-based compensation — We recognize the fair-value of stock-based compensation transactions in the Consolidated Statements of Income. The fair value of our full-value stock awards (with the exception of market-based performance awards) equals the fair market value of our stock on the date of grant. The fair value of our market-based performance awards is estimated at the date of grant using a Monte-Carlo simulation. The fair value of our stock option and employee stock purchase plan grants is estimated at the date of grant using the Black-Scholes option pricing model. In addition, we are required to estimate the expected forfeiture rate of our stock grants and only recognize the expense for those shares expected to vest. If our actual experience differs significantly from the assumptions used to compute our stock-based compensation cost, or if different assumptions had been used, we may have recorded too much or too little stock-based compensation cost. See Note 10, Stock-Based Compensation, to the Condensed Consolidated Financial Statements for additional information.

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

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

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

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

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

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

Although we believe the measurement of our liabilities for uncertain tax positions is reasonable, no assurance can be given that the final outcome of these matters will not be different than what is reflected in the historical income tax provisions and accruals. If additional taxes are assessed as a result of an audit or litigation, it could have a material effect on our income tax provision and net income in the period or periods for which that determination is made. We operate within multiple taxing jurisdictions and are subject to audit in these jurisdictions. These audits can involve complex issues which may require an extended period of time to resolve and could result in additional assessments of income tax. We believe adequate provisions for income taxes have been made for all periods.

Recent Accounting Pronouncements

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

In July 2015, the FASB issued FASB ASU No. 2015-11, Inventory (Topic 330): Simplifying the Measurement of Inventory. The amendments in this update require inventory to be measured at the lower of cost and net realizable value. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. This ASU is effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. The amendments in this update should be applied prospectively with earlier application permitted. We are currently evaluating the effect that the adoption of this ASU will have on our financial statements.

In April 2015, the FASB issued FASB ASU No. 2015-03, Interest—Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs. The amendments in this update require that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability. ASU 2015-03 is to be applied retrospectively and represents a change in accounting principle. In August 2015, the FASB issued FASB ASU No. 2015-15, Interest—Imputation of Interest (Subtopic 835-30): Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements. ASU 2015-15 clarified the presentation and subsequent measurement of debt issuance costs related to line-of-credit arrangements. Such costs may be presented in the balance sheet as an asset and subsequently amortized ratably over the term of the line-of-credit arrangement, regardless of whether there are any outstanding borrowings on the line-of-credit arrangement. ASU 2015-03 and ASU 2015-15 are effective for fiscal years beginning after December 15, 2015, including interim periods within those fiscal years. Earlier adoption is permitted for financial statements that have not been previously issued. We are currently evaluating the effect that the adoption of ASU 2015-03 and ASU 2015-15 will have on our financial statements.

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In May 2014, the FASB issued FASB ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606), which supersedes the revenue recognition requirements in ASC 605, Revenue Recognition. The core principle of ASU 2014-09 is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The guidance provides a five-step process to achieve that core principle. ASU 2014-09 requires disclosures enabling users of financial statements to understand the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. Additionally, qualitative and quantitative disclosures are required about contracts with customers, significant judgments and changes in judgments, and assets recognized from the costs to obtain or fulfill a contract. In August 2015, the FASB issued FASB ASU No. 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date, which deferred the effective date of ASU 2014-09 by one year. ASU 2014-09 is now effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period, using one of two retrospective application methods. Early application is permitted only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period. We are currently evaluating the effect that the adoption of ASU 2014-09 and ASU 2015-14 will have on our financial statements.

Quantitative and Qualitative Disclosures about Market Risk

Interest Income

Our investment portfolio includes cash, cash equivalents, short-term investments and long-term investments. Our main investment objectives are the preservation of investment capital and the maximization of after-tax returns on our investment portfolio. Our interest income is sensitive to changes in the general level of U.S. interest rates. Our investment portfolio holdings as of October 3, 2015 yielded less than 100 basis points. A decline in yield to zero basis points on our investment portfolio holdings as of October 3, 2015 would decrease our annual interest income by approximately $0.7 million. 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 Credit Facilities consist of a variable-rate of interest and an applicable margin. We have entered into an interest rate swap agreement with an original notional value of $100 million that, effectively, converted the variable-rate interest payments to fixed-rate interest payments through July 2017.

Foreign currency exchange rate risk

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

Investments in Auction-rate Securities

In fiscal 2008, auctions for many of our auction-rate securities failed because sell orders exceeded buy orders. As of October 3, 2015, we held $8.0 million par value auction-rate securities, all of which have experienced failed auctions. The principal amounts associated with failed auctions are not expected to be accessible until a successful auction occurs, the issuer redeems the securities, a buyer is found outside of the auction process or the underlying securities mature. We are unable to predict if these funds will become available before their maturity dates. Additionally, if we determine that an other-than-temporary decline in the fair value of any of our available-for-sale auction-rate securities has occurred, we may be required to adjust the carrying value of the investments through an impairment charge.

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Available Information

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

Item 3.  Quantitative and Qualitative Disclosures About Market Risk

Information related to quantitative and qualitative disclosures regarding market risk is set forth in Management’s Discussion and Analysis of Financial Condition and Results of Operations under Item 2 above.  Such information is incorporated by reference herein.

Item 4.  Controls and Procedures

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

Part II.  Other Information

Item 1.  Legal Proceedings

Patent Litigation

On January 21, 2014, Cresta Technology Corporation (“Cresta Technology”), a Delaware corporation, filed a lawsuit against us, Samsung Electronics Co., Ltd., Samsung Electronics America, Inc., LG Electronics Inc. and LG Electronics U.S.A., Inc. in the United States District Court in the District of Delaware, alleging infringement of United States Patent Nos. 7,075,585, 7,265,792 and 7,251,466. The lawsuit relates to our family of television tuner products.  Cresta Technology seeks unspecified compensatory and enhanced damages, attorney fees and a permanent injunction. On January 28, 2014, Cresta Technology also filed a complaint with the United States International Trade Commission (“ITC”) alleging infringement of the same patents against us, Samsung and LG Electronics and seeking to prevent the importation and sale of allegedly infringing products in the United States. The ITC instituted an investigation based on Cresta Technology’s complaint on February 27, 2014. The Delaware District Court action has been stayed pending completion of the proceedings in the ITC. We intend to vigorously defend against these allegations.

An evidentiary hearing in this ITC Investigation concluded on December 5, 2014. The ITC Administrative Law Judge (“ALJ”) issued an Initial Determination on February 27, 2015, finding that all the patent claims asserted against our products were either invalid or not infringed. The ALJ also found that Cresta Technology failed to establish the ITC’s domestic industry requirement. Accordingly, the ALJ found no violation by us.

On September 29, 2015, the ITC issued its Final Determination, finding that all the patent claims asserted against our products were either invalid or not infringed and that Cresta Technology failed to establish the ITC’s domestic industry requirement. Accordingly, the ITC found no violation by us and terminated the Investigation.

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On May 6, 2014, we filed a complaint with the ITC alleging infringement of United States Patent Nos. 6,137,372 and 6,233,441 against Cresta Technology, Hauppauge Digital, Inc., Hauppague Computer Works, Inc., PCTV Systems, S.a.r.l., Luxembourg and PCTV Systems S.a.r.l., seeking to prevent the importation and sale of allegedly infringing products in the United States. On July 1, 2014, the Administrative Law Judge accepted a consent order whereby Cresta Technology will not sell for importation, import or sell in the United States television tuners that infringe our United States Patent Nos. 6,137,372 and 6,233,441. Accordingly, this ITC investigation has been terminated in its entirety.

On July 16, 2014, we filed a lawsuit against Cresta Technology in the United States District Court in the Northern District of California alleging infringement of United States Patent Nos. 6,308,055, 6,304,146, 6,137,372, 6,233,441, 6,965,761 and 7,353,011. We are seeking a permanent injunction stopping the sale of all allegedly infringing Cresta Technology products and an award of damages and attorney fees.

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

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

Other

We are involved in various other legal proceedings that have arisen in the normal course of business. While the ultimate results of these matters cannot be predicted with certainty, we do not expect them to have a material adverse effect on our consolidated financial statements.

Item 1A. Risk Factors

Risks Related to our Business

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

Although we have generally experienced revenue growth in our history, we may not be able to sustain this growth. We may also experience significant period-to-period fluctuations in our revenues and operating results in the future due to a number of factors, and any such variations may cause our stock price to fluctuate. In some future period our revenues or operating results may be below the expectations of public market analysts or investors. If this occurs, our stock price may drop, perhaps significantly.

A number of factors, in addition to those cited in other risk factors applicable to our business, may contribute to fluctuations in our revenues and operating results, including:

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

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·Changes in product mix;

·The average selling prices for our products could drop suddenly due to competitive offerings or competitive predatory pricing;

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

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

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

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

·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 be incorporated;

·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;

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·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 our chips within a system.

We cannot provide any assurance that products which we recently have developed or may develop in the future will achieve market acceptance. We have introduced to market or are in development of many ICs. If our ICs fail to achieve market acceptance, or if we fail to develop new products on a timely basis that achieve market acceptance, our growth prospects, operating results and competitive position could be adversely affected. The growth of the Internet of Things (IoT) market is dependent on the adoption of industry standards to permit devices to connect and communicate with each other. If the industry cannot agree on a common set of standards, then the growth of the IoT market may be slower than expected.

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

Our ICs are used as components in electronic devices in various markets. As a result, we have devoted and expect to continue to devote a large amount of resources to develop products based on new and emerging technologies and standards that will be commercially introduced in the future. Research and development expense during the nine months ended October 3, 2015 was $140.8 million, or 29.0% of revenues. A number of large companies are actively involved in the development of these new technologies and standards. Should any of these companies delay or abandon their efforts to develop commercially available products based on new technologies and standards, our research and development efforts with respect to these technologies and standards likely would have no appreciable value. In addition, if we do not correctly anticipate new technologies and standards, or if the products that we develop based on these new technologies and standards fail to achieve market acceptance, our competitors may be better able to address market demand than we would. Furthermore, if markets for these new technologies and standards develop later than we anticipate, or do not develop at all, demand for our products that are currently in development would suffer, resulting in lower sales of these products than we currently anticipate.

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

The loss of any of our key customers, or a significant reduction in sales to any one of them, would significantly reduce our revenues and adversely affect our business. During the nine months ended October 3, 2015, our ten largest customers accounted for 30% of our revenues. Some of the markets for our products are dominated by a small number of potential customers. Therefore, our operating results in the foreseeable future will continue to depend on our ability to sell to these dominant customers, as well as the ability of these customers to sell products that incorporate our IC products. In the future, these customers may decide not to purchase our ICs at all, purchase fewer ICs than they did in the past or alter their purchasing patterns, particularly because:

·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.

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

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

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

·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 not adequately protect our interests.

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

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

·Problems integrating the acquired operations, technologies or products with our existing business and products;

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

·Need for financial resources above our planned investment levels;

·Difficulties in retaining business relationships with suppliers and customers of the acquired company;

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

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

·Increased operating costs due to acquired overhead;

·Tax issues associated with acquisitions;

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

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

·Potential impairment of related goodwill and intangible assets.

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

Future acquisitions also could cause us to incur debt or contingent liabilities or cause us to issue equity securities that could negatively impact the ownership percentages of existing shareholders.

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

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

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

The future growth of our business will depend in large part on our ability to manage our relationships with current and future distributors and sales representatives, develop additional channels for the distribution and sale of our products and manage these relationships. During the nine months ended October 3, 2015, 67% of our revenue was derived from distributors. As we execute our indirect sales strategy, we must manage the potential conflicts that may arise with our direct sales efforts. For example, conflicts with a distributor may arise when a customer begins purchasing directly from us rather than through the distributor. The inability to successfully execute or manage a multi-channel sales strategy could impede our future growth. In addition, relationships with our distributors often involve the use of price protection and inventory return rights. This often requires a significant amount of sales management’s time and system resources to manage properly.

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

In order to ensure availability of our products for some of our largest customers, we start the manufacturing of our products in advance of receiving purchase orders based on forecasts provided by these customers. However, these forecasts do not represent binding purchase commitments and we do not recognize sales for these products until they are shipped to the customer. As a result, we incur inventory and manufacturing costs in advance of anticipated sales. Because demand for our products may not materialize, manufacturing based on forecasts subjects us to increased risks of high inventory carrying costs, increased obsolescence and increased operating costs. These inventory risks are exacerbated when our customers purchase indirectly through contract manufacturers or hold component inventory levels greater than their consumption rate because this causes us to have less visibility regarding the accumulated levels of inventory for such customers. A resulting write-off of unusable or excess inventories would adversely affect our operating results.

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

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

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

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

We do not have our own wafer fab manufacturing facilities. Therefore, we rely on third-party vendors to manufacture the ICs we design. We also currently rely on Asian third-party assembly subcontractors to assemble and package the silicon chips provided by the wafers for use in final products. Additionally, we rely on these offshore subcontractors for a substantial portion of the testing requirements of our products prior to shipping. We expect utilization of third-party subcontractors to continue in the future.

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

There are significant risks associated with relying on these third-party foundries and subcontractors, including:

·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.

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

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

We monitor the financial condition of our third-party foundries and subcontractor partners. In August 2014, we received notice that Telefunken Semiconductors GmbH & Co (TSG), a wafer supplier for our high-voltage products, filed an insolvency proceeding in Germany. To mitigate any potential impact on our customers, we purchased a number of additional wafers from TSG and we expedited our previously-planned transition of the manufacturing of certain high-voltage products to another of our foundry partners. TSG ceased production at the end of February 2015.

Should unexpected demand exceed our inventory reserves and our transition plans take longer than expected to qualify our replacement products, we may experience a short term decline in revenue or a longer term decline in revenue if our customers shift their demand to alternative suppliers.  Either of these conditions would adversely affect our operating results.

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

Prior to purchasing our products, our customers require that our products undergo an extensive qualification process, which involves testing of the products in the customer’s system as well as rigorous reliability testing. This qualification process may continue for six months or longer. However, qualification of a product by a customer does not ensure any sales of the product to that customer. Even after successful qualification and sales of a product to a customer, a subsequent revision to the IC or software, changes in the IC’s manufacturing process or the selection of a new supplier by us may require a new qualification process, which may result in delays and in us holding excess or obsolete inventory. After our products are qualified, it can take an additional six months or more before the customer commences volume production of components or devices that incorporate our products. Despite these uncertainties, we devote substantial resources, including design, engineering, sales, marketing and management efforts, toward qualifying our products with customers in anticipation of sales. If we are unsuccessful or delayed in qualifying any of our products with a customer, such failure or delay would preclude or delay sales of such product to the customer, which may impede our growth and cause our business to suffer.

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

We have established international subsidiaries and have opened offices in international markets to support our activities in Europe and Asia. This has included the establishment of a headquarters in Singapore for non-U.S. operations. The percentage of our revenues derived from outside of the United States was 85% during the nine months ended October 3, 2015. We may not be able to maintain or increase international market demand for our products. Our international operations are subject to a number of risks, including:

·Complexity and costs of managing international operations and related tax obligations, including our headquarters for non-U.S. operations in Singapore;

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

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

·Multiple, conflicting and changing tax and other laws and regulations that may impact both our international and domestic tax and other liabilities and result in increased complexity and costs;

·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 and administrative personnel; and

·The need to have business and operations systems that can meet the needs of our international business and operating structure.

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

Our products incorporate technology licensed from third parties

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

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

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

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We are subject to risks relating to product concentration

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

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

·Failure of our products to achieve continued market acceptance;

·Competitive products;

·New technological standards or changes to existing standards that we are unable to address with our products;

·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. Our ten largest customers or distributors represent a substantial majority of our accounts receivable. If any such customer or distributor, or a material portion of our smaller customers or distributors, were to become insolvent or otherwise not satisfy their obligations to us, we could be materially harmed.

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

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

Any dispositions could harm our financial condition

Any disposition of a product line would entail a number of risks that could materially and adversely affect our business and operating results, including:

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

·Difficulties separating the divested business;

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·Risks to relations with customers who previously purchased products from our disposed product line;

·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 with the disposition;

·Tax issues associated with dispositions; and

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

Our stock price may be volatile

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

·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 the performance of particular companies. These market fluctuations may cause our stock price to fall regardless of our performance.

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

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

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

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

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

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

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

In certain products, some of our customers offer their own competitive products. These customers may find it advantageous to support their own offerings in the marketplace in lieu of promoting our products.

Our debt could adversely affect our operations and financial condition

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

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

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

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

Some of our current and potential competitors have longer operating histories, significantly greater resources and name recognition and a larger base of customers than we have. As a result, these competitors may have greater credibility with our existing and potential customers. They also may be able to adopt more aggressive pricing policies and devote greater resources to the development, promotion and sale of their products than we can to ours. In addition, some of our current and potential competitors have already established supplier or joint development relationships with the decision makers at our current or potential customers. These competitors may be able to leverage their existing relationships to discourage their customers from purchasing products from us or persuade them to replace our products with their products. Our competitors may also offer bundled solutions offering a more complete product despite the technical merits or advantages of our products. These competitors may elect not to support our products which could complicate our sales efforts. These and other competitive pressures may prevent us from competing successfully against current or future competitors, and may materially harm our business. Competition could decrease our prices, reduce our sales, lower our gross margins and/or decrease our market share.

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

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

·The division of our Board of Directors into three classes to be elected on a staggered basis, one class 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 our common stock.

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Risks related to our industry

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

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

Downturns have been characterized by diminished product demand, production overcapacity, high inventory levels and accelerated erosion of average selling prices. In the recent past, we believe the semiconductor industry suffered a downturn due in large part to adverse conditions in the global credit and financial markets, including diminished liquidity and credit availability, declines in consumer confidence, declines in economic growth, increased unemployment rates and general uncertainty regarding the economy. Such downturns may have a material adverse effect on our business and operating results.

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

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

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

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

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

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

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

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

Our pursuit of necessary technological advances may require substantial time and expense. We may not be successful in developing or using new technologies or in developing new products or product enhancements that achieve market acceptance. If our ICs fail to achieve market acceptance, our growth prospects, operating results and competitive position could be adversely affected.

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

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

Third parties with which we conduct business, such as foundries, assembly and test contractors, and distributors, have access to certain portions of our sensitive data. In the event that these third parties do not properly safeguard our data that they hold, security breaches could result and negatively impact our business, operations and financial results.

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

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

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Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds

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.

The following table summarizes repurchases of our common stock during the three months ended October 3, 2015 (in thousands, except per share amounts):

Period	Total Number of Shares Purchased	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs
July 5, 2015 – August 1, 2015	72	$	46.94	72	$	78,985
August 2, 2015 – August 29, 2015	877	$	43.04	877	$	141,343
August 30, 2015 – October 3, 2015	469	$	42.38	469	$	121,370
Total	1,418	$	43.02	1,418

In August 2015, the Board of Directors authorized a program to repurchase up to $100 million of our common stock through December 2016. In October 2014, the Board of Directors authorized a program to repurchase up to $100 million of our common stock through December 2015. The programs allow for repurchases to be made in the open market or in private transactions, including structured or accelerated transactions, subject to applicable legal requirements and market conditions.

Item 3.  Defaults Upon Senior Securities

Not applicable

Item 4.  Mine Safety Disclosures

Not applicable

Item 5.  Other Information

Not applicable

Item 6.  Exhibits

The following exhibits are filed as part of this report:

Exhibit Number
2.1*	Share Purchase Agreement, dated June 6, 2013, by and between Silicon Laboratories International Pte. Ltd. and Energy AS and Silicon Laboratories Inc. (filed as Exhibit 2.1 to the Form 8-K filed on June 7, 2013).
2.2*	Sale and Purchase Agreement dated January 30, 2015, by and between Silicon Laboratories International Pte. Ltd. and the holders of shares, options and capital loans in Bluegiga Technologies Oy (filed as Exhibit 2.1 to the Form 8-K filed on February 4, 2015).

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3.1*	Form of Fourth Amended and Restated Certificate of Incorporation of Silicon Laboratories Inc. (filed as Exhibit 3.1 to the Registrant’s Registration Statement on Form S-1 (Securities and Exchange Commission File No. 333-94853) (the “IPO Registration Statement”)).
3.2*	Third Amended and Restated Bylaws of Silicon Laboratories Inc. (filed as Exhibit 3.2 to the Registrant’s Current Report on Form 8-K filed on July 29, 2015).
4.1*	Specimen certificate for shares of common stock (filed as Exhibit 4.1 to the IPO Registration Statement).
10.1+	Transition Agreement between Kurt Hoff and Silicon Laboratories Inc. dated August 24, 2015.
31.1	Certification of the Principal Executive Officer, as required by Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Certification of the Principal Financial Officer, as required by Section 302 of the Sarbanes-Oxley Act of 2002.
32.1	Certification as required by Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS	XBRL Instance Document
101.SCH	XBRL Taxonomy Extension Schema Document
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document
101.LAB	XBRL Taxonomy Extension Label Linkbase Document
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document

* Incorporated herein by reference to the indicated filing.

+ Management contract or compensatory plan or arrangement.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	SILICON LABORATORIES INC.
October 28, 2015	/s/ G. Tyson Tuttle
Date	G. Tyson Tuttle
	Chief Executive Officer
	(Principal Executive Officer)
October 28, 2015	/s/ John C. Hollister
Date	John C. Hollister
	Senior Vice President and
	Chief Financial Officer
	(Principal Financial and Accounting Officer)

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EX-10.1

Exhibit 10.1

TRANSITION AGREEMENT

This Transition Agreement (“Agreement”) is between Kurt Hoff (“Employee”) and Silicon Laboratories Inc. (the “Company”), and is entered into as of August 24, 2015.  The Company and the Employee are sometimes referred to herein as the “Parties”.

WHEREAS, Employee and the Company entered into that certain New-Hire Proprietary Information, Inventions, Non-Competition and Non-Solicitation Agreements dated as of January 3, 2005 (the “Confidentiality Agreement”) that, among other things, contains restrictions on Employee’s actions following the termination of his employment with the Company and requires that he maintain as confidential all of the Company’s intellectual property rights, trade secrets, confidential knowledge, data or proprietary information;

WHEREAS, Employee and the Company are parties to Notice of Grant of Restricted Stock Units and Restricted Stock Units Agreements (the “RSU Agreements”) which grant Employee the right to receive shares of the Company’s Common Stock subject to the vesting schedules and other restrictions set forth in the RSU Agreements and the Silicon Laboratories Inc. 2009 Stock Incentive Plan (the “2009 Stock Plan”);

WHEREAS, Employee and the Company are parties to Market Stock Units Grant Notice and Global Market Stock Units Award Agreements (the “MSU Agreements”) which grant Employee the right to receive shares of the Company’s Common Stock subject to the vesting schedules and other restrictions set forth in the MSU Agreements and the 2009 Stock Plan;

WHEREAS, Employee and the Company are parties to a Notice of Grant of Stock Option and Stock Option Agreement (the “Option Agreement” and together with the RSU Agreements and the MSU Agreement, the “Stock Agreements”) which grants Employee the right to purchase shares of the Company’s Common Stock subject to the vesting schedules and other restrictions on exercise as set forth in the Option Agreements and the Silicon Laboratories Inc. 2000 Stock Incentive Plan (the “2000 Stock Plan”);

WHEREAS, Employee and the Company are parties to the Indemnification Agreement dated as of July 2, 2007 (the “Indemnification Agreement”); and

WHEREAS, the Parties desire to settle fully and finally, in the manner set forth herein, any and all differences between them which have arisen, or which may arise, prior to, or at the time of, the execution of the Release (as defined herein), including, but in no way limited to, any and all claims and controversies arising out of the employment relationship between Employee and the Company, and the termination thereof.

NOW, THEREFORE, in consideration of these recitals and the promises and agreements set forth in this Agreement, the receipt and sufficiency of which are hereby acknowledged, the Parties, intending to be legally bound, hereby agree as follows:

1.Interim Period:  From the date of this Agreement until the earlier of (a) the date the Company delivers notice of termination of Employee’s employment or (b) February 15, 2016 (the earlier of (a) or (b) shall be referred to as the “Separation Date” and the period from the date of this Agreement through the Separation Date is referred to as the “Interim Period”), Employee shall continue to serve as an employee of the Company as either (at the Company’s discretion) (i) an executive officer as the Senior Vice President of World-Wide Sales or (ii) a non-executive employee with the title Consultant providing services related to the orderly transition of his former duties and responsibilities with the Company. 

It is currently contemplated that Employee’s service as Senior Vice President of World-Wide Sales will continue until November 1, 2015, but such service may be lengthened (not beyond the Separation Date) or shortened at the discretion of the Company.  During the Interim Period, Employee shall (a) report to the Company’s Chief Executive Officer or his designee, (b) continue to be paid a bi-weekly salary $13,461.54, (c) be eligible to receive a bonus approved by the Company’s Compensation Committee with respect to the Company’s third and fourth fiscal quarters of 2015 (provided Employee remains employed through the Separation Date), but shall not be eligible to receive any other bonus (for example, Employee shall not be entitled to a bonus with respect to the first fiscal quarter of 2016), (d) continue to be reimbursed for expenses in accordance with the Company’s policies, and (e) continue to be eligible to receive fringe benefits such as medical coverage.  Further, the Indemnification Agreement shall remain in full force and effect during the Interim Period and thereafter in accordance with its terms.  In the event that Employee’s employment with the Company terminates prior to the Separation Date by reason of his death, his estate and/or beneficiaries shall be entitled to receipt of the Severance Package described in Section 2 below, subject to the terms and conditions set forth therein.

2.Severance Package:  Employee’s receipt of the Severance Package is contingent upon satisfaction of the following conditions: (i) Employee must sign the Separation Agreement in exactly the form attached hereto as Exhibit A (the “Release”) on or within 21 days following his Separation Date; (ii) Employee must not revoke the Release; and (iii) the Release must become effective and enforceable on the eighth day after Employee signs the Release (such eighth day, the “Effective Date”); and (iv) Employee shall not have elected to terminate his employment with the Company prior to the Separation Date.  Employee acknowledges and agrees that the Company’s promises herein constitute adequate legal consideration for the promises and representations made by Employee in this Agreement and in the Release.  Provided that the foregoing conditions are met, Company shall provide Employee with the following payments and benefits on or after the Effective Date (“Severance Package”):

2.1Cash Severance.  On the Effective Date (or as soon as practicable thereafter, but in no event later than March 15, 2016) (the “Severance Payment Date”), the Company shall pay to Employee in a single lump sum the amount of $437,500, less applicable tax withholding.

2.2Benefits. During the continuation coverage period specified in section 4980B of the Internal Revenue Code of 1986, as amended (“Code”), and Part 6 of Title 1 of the Employee Retirement Income Security Act of 1986, as amended, Employee may elect to continue to participate in any medical, prescription drug, dental, vision, health care spending account and any other “group health plan” (as such term is used in section 4980B of the Code) for the continued benefit of Employee (and Employee’s spouse and dependents) in which such person(s) were participating immediately prior to the Separation Date or, if such arrangements are altered by the Company, which is provided to similarly situated beneficiaries under the plans with respect to which a qualifying event has not occurred (“COBRA Coverage”).  In the event that Employee elects COBRA Coverage, the Company will pay to the Company’s third party COBRA administrator on the Employee’s behalf the premiums the Employee will be required to pay to maintain such COBRA Coverage for Employee and Employee’s spouse and dependents for the twelve-month period following the Separation Date (or until Employee becomes eligible for health care benefits from a new employer, if earlier), in either case the “COBRA Coverage Period”); provided, however, that if the Company determines, in its sole discretion, that its payment of the Employee’s COBRA premiums would result in a violation of the nondiscrimination rules of Section 105(h)(2) of the Code or any statute or regulation of similar effect (including but not limited to the 2010 Patient Protection and Affordable Care Act, as amended by the 2010 Health Care and Education Reconciliation Act), then in lieu of paying the Employee’s COBRA premiums, the Company shall instead pay to Employee on the first day of each month of the COBRA Coverage Period, a fully taxable cash payment equal to the Employee’s COBRA premiums for that month, subject to applicable tax withholdings (such amount, the “Special Severance Payment”), for the remainder of the COBRA Coverage Period.  The Employee may, but is not obligated to, use such Special Severance Payment toward the cost of COBRA premiums.

2.3RSU Vesting.  Except as explicitly set forth in this Section, Employee shall not vest any further with respect to any of the RSU Agreements following the Separation Date.  Without regard to Section 3.1 of each RSU Agreement, Employee’s vesting shall be accelerated on the Effective Date such that with respect to:

·RSU Agreement 601962, the 12,125 restricted stock units originally scheduled to vest on February 15, 2016 shall be fully vested;

·RSU Agreement 602159, the 5,052 restricted stock units originally scheduled to vest on February 15, 2016 and the 5,052 restricted stock units originally scheduled to vest on February 15, 2017 shall be fully vested;

·RSU Agreement 602774, the 5,143 restricted stock units originally scheduled to vest on February 15, 2016 and the 5,143 restricted stock units originally scheduled to vest on February 15, 2017 shall be fully vested.

In each case, the underlying shares of Common Stock shall be issued to Employee no later than the 15th day of the calendar month following the calendar month in which the Effective Date occurs (except that the Company shall withhold the applicable number of shares of Common Stock issuable with respect thereto in satisfaction of all Tax-Related Items, as defined by the RSU Agreement); and

2.4MSU Vesting.  Except as explicitly set forth in this Section, Employee shall not vest any further with respect to any MSU Agreements following the Separation Date.

·With respect to MSU Agreement 300021, (a) the Performance Period is hereby amended to mean “The period beginning December 30, 2012, and ending on the Separation Date (as defined in the Transition Agreement between the Company and Participant), subject to Section 9.1 of the Award Agreement”, (b) without regard to Section 5.1 of the MSU Agreement, the Employee’s vesting shall be accelerated on the Separation Date such that 12,125 of the Target Number of Units multiplied by the Relative Return Factor shall be fully vested and the applicable underlying shares of Common Stock shall be issued to Employee (and the Company shall withhold the applicable number of shares of Common Stock issuable with respect thereto in satisfaction of all Tax-Related Items, as defined by the MSU Agreement), and (c) the Settlement Date shall be no later than the 15th day of the calendar month following calendar month in which the Effective Date occurs.

·With respect to MSU Agreement 300030, such MSU Agreement is hereby amended to provide that (a) the Performance Period is amended to mean “The period beginning December 29, 2013, and ending on the Separation Date (as defined in the Transition Agreement between the Company and Participant), subject to Section 9.1 of the Award Agreement.”, (b) the Third Measurement Period is amended to mean “The period beginning December 29, 2013, and ending on the Separation Date (as defined in the Transition Agreement between the Company and Participant), subject to Section 9.1 of the Award Agreement.”, (c) the Target Number of Units shall remain 9,563 and Maximum Number of Units shall remain 19,126, (d) without regard to Section 5.1 of the MSU Agreement, the total number of Earned Units for the Performance Period, if any (not to exceed the Maximum Number of Units), shall equal the sum of (i) the First Measurement Period Earned Units (but only if the First Measurement Period ended prior to the last day of the Performance Period) plus (ii) the Second Measurement Period Earned Units (but only if the Second Measurement Period ended prior to the last day of the Performance Period) plus (iii) the excess, if any, of the Third Measurement Period Earned Units over the sum of the First Measurement Period Units (if applicable) and the Second Measurement Period Units (if applicable), and (e) Employee’s vesting shall be accelerated on the Separation Date such that the Earned Units shall be fully vested and the applicable underlying shares of Common Stock shall be issued to Employee (and the Company shall withhold the applicable number of shares of Common Stock issuable with respect thereto in satisfaction of all Tax-Related Items, as defined by the MSU Agreement), and (f) the Settlement Date shall be no later than the 15th day of the calendar month following calendar month in which the Effective Date occurs.

·With respect to MSU Agreement 300037, such MSU Agreement is hereby amended to provide that (a) the Performance Period is amended to mean “The period beginning January 4, 2015, and ending on the Separation Date (as defined in the Transition Agreement between the Company and Participant), subject to Section 9.1 of the Award Agreement.”, (b) the Third Measurement Period is amended to mean “The period beginning January 4, 2015, and ending on the Separation Date (as defined in the Transition Agreement between the Company and Participant), subject to Section 9.1 of the Award Agreement.”, (c) the Target Number of Units shall be reduced to 6,864 and Maximum Number of Units shall be reduced to 13,728, (d) without regard to Section 5.1 of the MSU Agreement, the total number of Earned Units for the Performance Period, if any (not to exceed the Maximum Number of Units), shall equal the sum of (i) the First Measurement Period Earned Units (but only if the First Measurement Period ended prior to the last day of the Performance Period) plus (ii) the Second Measurement Period Earned Units (but only if the Second Measurement Period ended prior to the last day of the Performance Period) plus (iii) the excess, if any, of the Third Measurement Period Earned Units over the sum of the First Measurement Period Units (if applicable) and the Second Measurement Period Units (if applicable), and (e) Employee’s vesting shall be accelerated on the Separation Date such that the Earned Units shall be fully vested and the applicable underlying shares of Common Stock shall be issued to Employee (and the Company shall withhold the applicable number of shares of Common Stock issuable with respect thereto in satisfaction of all Tax-Related Items, as defined by the MSU Agreement), and (f) the Settlement Date shall be no later than the 15th day of the calendar month following calendar month in which the Effective Date occurs.

2.5Stock Option Exercisability.  With respect to the Option Agreement Grant Number 2002052 and Option Agreement Grant Number 2002038, Section 5(i) of such Option Agreement shall be amended and restated to read as follows:  “(i) Should Optionee cease to remain in Service for any reason (other than death, Permanent Disability or Misconduct) while this option is outstanding, then this option shall remain exercisable until the earlier of (i) the expiration of the 12-month period measured from the date of such cessation of Service or (ii) the Expiration Date.”

3.Acknowledgement.  Employee acknowledges and agrees that: (A) except as provided by this Agreement, no additional consideration, including salary, wages, bonuses, stock or stock options, is to be paid to him by the Company; (B) except as provided by this Agreement, he is not contractually entitled to all of the benefits in the Severance Package described herein; and (C) payments and benefits pursuant to this Agreement shall terminate immediately if Employee materially breaches any of the provisions of this Agreement or the Confidentiality Agreement.

4.Stock Agreements:  Except as expressly provided for in Section 2 of this Agreement, the terms and conditions of the Stock Agreements shall remain in full force and effect.

5.Confidentiality:  Until this Agreement is publicly filed by the Company, Employee agrees not to directly or indirectly disclose the terms, amount or fact of this Agreement to anyone other than by Employee to his immediate family, counsel, accountant or tax advisor, except as such disclosure may be required for accounting or tax reporting purposes or as otherwise may be required by law.

6.Acknowledgement of Restrictions; Non-Competition; Confidential Information:  Employee acknowledges and agrees that he has continuing obligations, including without limitation, non-competition, non-solicitation and non-disclosure obligations pursuant to the Confidentiality Agreement.  Employee acknowledges and agrees that the provisions (including without limitation, the non-competition, non-solicitation and non-disclosure provisions) of the Confidentiality Agreement are valid, binding and enforceable, and Employee reaffirms his obligation to continue to abide fully and completely with all provisions of the Confidentiality Agreement, including without limitation the non-competition, non-solicitation and non-disclosure provisions, and agrees that nothing in this Agreement shall operate to excuse or otherwise relieve Employee of such obligation.

7.Return of Company Property.  Employee confirms that Employee shall, on or before the Separation Date, return all of the Company’s property to the Company, including but not limited to, Company files, drawings, records, business plans and forecasts, financial information, specifications, computer-recorded information, tangible property, including computers, keys, access cards, identification badges, credit cards, cell phones and PDAs issued to Employee, and any proprietary or confidential information of the Company (and all reproductions thereof).

8.Nondisparagement:  Each Party agrees that it will not make (and the Company agrees to prevent any executive officer or member of the board of directors of the Company or the Company’s current and former parent, subsidiary, affiliated, and related corporations, firms, associations, partnerships, limited liability companies and entities from making) any statements, written or verbal, or cause or encourage others to make any statements, written or verbal, that defame or disparage the personal or business reputation, practices, prospects or conduct of the other including, in the case of the Company, its employees, directors, stockholders, and other related parties; provided that both Employee and the Company will respond accurately to any question, inquiry or request for information to the extent required by law.

9.Cooperation:  Employee agrees that from time to time following the Separation Date he will, at the Company’s written request, voluntarily assist the Company with respect to on-going or contemplated litigation, audits by government agencies or any other similar matters.  The Company will reimburse Employee for reasonable out-of-pocket expenses incurred with respect to any such requested matters; provided that such expenses shall not exceed $500 without the Company’s written approval.  Employee acknowledges and agrees that his activities under this Section shall be performed as an independent contractor and not as an employee of the Company.  The Company agrees to provide Employee with as much advance notice of its requests as may be reasonable under the circumstances.  If such cooperation shall take more than two hours in any calendar week, the Employee shall be compensated for such cooperation at the rate of $169 per hour (reflecting his base compensation at Separation Date).

10.Severability:  If any provision of this Agreement is held to be illegal, invalid, or unenforceable, such provision shall be fully severable and/or construed in remaining part to the full extent allowed by law, with the remaining provisions of this Agreement continuing in full force and effect.

11.Entire Agreement: This Agreement, the Stock Agreements, the Indemnification Agreement and the Confidentiality Agreement, which are each incorporated herein by reference, constitute the entire agreement between the Employee and the Company, and supersede all prior and contemporaneous negotiations and agreements, oral or written.  This Agreement cannot be changed or terminated except pursuant to a written agreement executed by the Parties.

12.Section 409A Compliance:

12.1It is expected that on the Separation Date, Employee will have a “separation from service” (as such term is defined under Treasury Regulations Section 1.409A-1(h), without regard to any alternate definitions thereunder).  It is intended that all of the benefits and payments payable under this Agreement, the Release, or otherwise to Employee satisfy, to the greatest extent possible, the exemptions from the application of Section 409A of the Code, provided under Treasury Regulations Sections 1.409A-1(b)(4), 1.409A-1(b)(5) and 1.409A-1(b)(9), and this Agreement and all other arrangements with Employee will be construed to the greatest extent possible as consistent with those provisions.  For purposes of Section 409A of the Code (including, without limitation, for purposes of Treasury Regulations Section 1.409A-2(b)(2)(iii)), Employee’s right to receive any installment payments under this Agreement (whether reimbursements or otherwise) and any other agreement or arrangement with the Company will be treated as a right to receive a series of separate payments and, accordingly, each installment payment hereunder will at all times be considered a separate and distinct payment.

12.2Notwithstanding anything herein to the contrary, no amount payable pursuant to this Agreement on account of Employee’s termination of employment with the Company which constitutes a “deferral of compensation” within the meaning of Section 409A the Code shall be paid unless and until Employee has incurred a “separation from service” within the meaning of Section 409A of the Code.  Furthermore, if Employee is a “specified employee” within the meaning of Section 409A of the Code as of the date of Employee’s separation from service, no amount that constitutes a deferral of compensation which is payable on account of Employee’s separation from service shall be paid to Employee before the date (the “Delayed Payment Date”) which is the first business day of the seventh month after the date of Employee’s separation from service or, if earlier, the date of Employee’s death following such separation from service.  All such amounts that would, but for this Section, become payable prior to the Delayed Payment Date will be accumulated and paid in a lump sum on the Delayed Payment Date.  Thereafter, any payments that remain outstanding as of the day immediately following the Delayed Payment Date shall be paid without delay over the time period originally scheduled, in accordance with the terms of this Agreement.

12.3With regard to any provision in this Agreement that provides for reimbursement of expenses or in-kind benefits, except for any expense, reimbursement or in-kind benefit provided pursuant to this Agreement that does not constitute a “deferral of compensation,” within the meaning of Section 409A of the Code, (a) the right to reimbursement or in-kind benefits shall not be subject to liquidation or exchange for another benefit, (b) the amount of expenses eligible for reimbursement, or in-kind benefits provided, during any taxable year shall not affect the expenses eligible for reimbursement, or in-kind benefits to be provided, in any other taxable year, provided that the foregoing clause (b) shall not be deemed to be violated with regard to expenses reimbursed under any arrangement covered by Section 105(b) of the Code solely because such expenses are subject to a limit related to the period the arrangement is in effect, and (c) such payments shall be made on or before the last day of Employee’s taxable year following the taxable year in which the expense occurred.

12.4The Company intends that income provided to Employee pursuant to this Agreement will not be subject to taxation under Section 409A of the Code.  However, the Company does not guarantee any particular tax effect for income provided to Employee pursuant to this Agreement.  In any event, except for the Company’s responsibility to withhold applicable income and employment taxes from compensation paid or provided to Employee, the Company shall not be responsible for the payment of any taxes, penalties, interest, costs, fees, including attorneys fees, or other liability incurred by Employee in connection with compensation paid or provided to Employee pursuant to this Agreement.

13.Governing Law; Venue:  This Agreement shall be governed by and construed in accordance with the laws of the State of Texas, except where preempted by federal law.  The Parties hereby agree that Travis County shall be the exclusive venue for any disputes under this Agreement and irrevocably submit to such jurisdiction.

[Signature page follows]

14.Statement of Understanding:  By executing this Agreement, Employee acknowledges that (a) he has been advised by the Company to consult with an attorney regarding the terms of this Agreement; (b) he has consulted with an attorney of his own choosing regarding the terms of this Agreement; (c) he has consulted with his own tax and financial advisors regarding the terms of this Agreement and is not relying on the Company with respect to any matters related to this Agreement; (d) any and all questions regarding the terms of this Agreement have been asked and answered to his complete satisfaction by his advisors; (e) he has read this Agreement and fully understands its terms and their import; (f) except as provided by this Agreement, he is not contractually entitled to the Severance Package described herein; (g) the consideration provided for herein is good and valuable; and (h) he is entering into this Agreement voluntarily, of his own free will, and without any coercion, undue influence, threat, or intimidation of any kind or type whatsoever.

EXECUTED in Austin, Texas, this 24th day of August, 2015.

EMPLOYEE

/s/ Kurt Hoff

Kurt Hoff

EXECUTED in Austin, Texas, this 24th day of August, 2015.

Silicon Laboratories Inc.
By:	/s/ Lynette L. Herr
Name: Lynette L. Herr
Title: Vice President, WW Human Resources

Exhibit A

SEPARATION AGREEMENT

This Separation Agreement (“Agreement”) is between Kurt Hoff (“Employee”) and Silicon Laboratories Inc. (the “Company”), and is entered into as of                   ,           .  The Company and the Employee are sometimes referred to herein as the “Parties”.

WHEREAS, Employee has been employed by the Company pursuant to a Transition Agreement dated as of August 24, 2015 (the “Transition Agreement”) that provides Employee with a Severance Package conditioned upon his execution of an agreement containing a general release of the Company;

WHEREAS, Employee’s date of termination of employment and Service (for purposes of the Stock Agreements, as defined in the Transition Agreement) with the Company was                   ,           ,.  which date was the date of Employee’s “separation from service” (as defined under Treasury Regulations Section 1.409A-1(h) without regard to any alternative definitions thereunder).

WHEREAS, the Parties desire to execute this Agreement to satisfy the conditions of the Transition Agreement and to resolve fully and finally, in the manner set forth herein, any and all differences between them which have arisen, or which may arise, prior to, or at the time of, the execution of this Agreement, including, but in no way limited to, any and all claims and controversies arising out of the employment relationship between Employee and the Company, and the termination thereof.

NOW, THEREFORE, in consideration of these recitals and the promises and agreements set forth in this Agreement, the receipt and sufficiency of which are hereby acknowledged, the Parties, intending to be legally bound, hereby agree as follows:

1.General Release:  Employee for himself and on behalf of his attorneys, heirs, assigns, successors, executors, and administrators IRREVOCABLY AND UNCONDITIONALLY RELEASES, ACQUITS AND FOREVER DISCHARGES the Company, the Company’s current and former parent, subsidiary, affiliated, and related corporations, firms, associations, partnerships, limited liability companies and entities, their successors and assigns, and the current and former owners, stockholders, directors, officers, employees, agents, attorneys, representatives, and insurers of the Company and said corporations, firms, associations, partnerships, limited liability companies and entities, and their successors, assigns, heirs, executors, guardians, and administrators (including the Company, “Company Released Parties”), of and from any and all claims, liabilities, obligations, agreements, damages, causes of action, costs, losses, damages, and attorneys’ fees and expenses whatsoever (collectively, “claims”), whether known or unknown or whether connected with Employee’s employment by the Company or not, including, but not limited to, any claims arising under Title VII of the Civil Rights Act of 1964, as amended, 42 U.S.C. § 2000e, et seq., the Texas Labor Code (including but not limited to the Texas Civil Rights Act, the Texas Payday Act, and the Texas Minimum Wage Law), the Age Discrimination in Employment Act, 29 U.S.C. § 621, et. seq,, the Americans With Disabilities Act, and any other municipal, local, state, or federal law, common or statutory, which may have arisen, or which may arise, prior to, or at the time of, the execution of this Agreement.  The parties acknowledge that this general release is not intended to bar: (i) any claims that, by statute, may not be waived, such as Employee’s right to file a charge with the National Labor Relations Board or Equal Employment Opportunity Commission and other similar government agencies and claims for any challenge to the validity of Employee’s release of claims under the Age Discrimination in Employment Act of 1967, as amended, as set forth in this Agreement, (ii) any rights set forth in this Agreement or the Stock Agreements (as defined in the Transition Agreement); (iii) any rights to other vested securities that were granted to Employee during the course of his employment with the Company; and (iv) any claims for breach of this Agreement.

2.Covenant Not to Sue: Employee COVENANTS NOT TO SUE, OR OTHERWISE PARTICIPATE IN ANY ACTION OR CLASS ACTION against, any Company Released Party based upon any of the claims released in this Agreement.  Employee represents that, as of the date of this Agreement, Employee has not filed any lawsuits, charges, complaints, petitions, claims or other accusatory pleadings against the Company or any of the other Company Released Parties in any court or with any governmental agency.

3.Severance Package:  On and after the Effective Date, Company shall provide Employee with the Severance Package set forth in Section 2 of the Transition Agreement (the “Severance Package”), incorporated herein by reference, pursuant to the schedule set forth in the Transition Agreement.  Employee acknowledges and agrees that the Severance Package constitutes adequate legal consideration for the promises and representations made by Employee in this Agreement.

4.Acknowledgement.  Employee acknowledges and agrees that:  (A) except as provided by this Agreement, no additional consideration, including salary, wages, bonuses, stock or stock options, is to be paid to him by the Company; (B) except as provided by the Transition Agreement and this Agreement, he is not contractually entitled to the Severance Package; and (C) payments and benefits pursuant to the Severance Package shall terminate immediately if Employee materially breaches any of the provisions of this Agreement or the Confidentiality Agreement.

5.Stock Agreements:  Except as expressly provided for in the Transition Agreement, the terms and conditions of the Stock Agreements (as defined in the Transition Agreement) shall remain in full force and effect.

6.Waiver of Reemployment:  Employee waives and releases forever any right or rights he might have to employment, reemployment, or reinstatement with any Company Released Party at any time in the future.  Employee agrees that he shall not seek or make application for employment with any of the Company Released Parties at any time in the future.

7.Confidentiality:  Employee agrees not to directly or indirectly disclose the terms, amount or fact of this Agreement to anyone other than by Employee to his immediate family, counsel, accountant or tax advisor, except as such disclosure may be required for accounting or tax reporting purposes or as otherwise may be required by law.

8.Acknowledgement of Restrictions; Non-Competition; Confidential Information:  Employee acknowledges and agrees that he has continuing obligations, including without limitation, non-competition, non-solicitation and non-disclosure obligations pursuant to the Confidentiality Agreement (as defined in the Transition Agreement).  Employee acknowledges and agrees that the provisions (including without limitation non-competition, non-solicitation and non-disclosure provisions) of the Confidentiality Agreement are valid, binding and enforceable, and Employee reaffirms his obligation to continue to abide fully and completely with all provisions of the Confidentiality Agreement, including without limitation the non-competition, non-solicitation and non-disclosure provisions, and agrees that nothing in this Agreement shall operate to excuse or otherwise relieve Employee of such obligation.

9.Return of Company Property.  Employee confirms that Employee has returned all of the Company’s property to the Company, including but not limited to, Company files, drawings, records, business plans and forecasts, financial information, specifications, computer-recorded information, tangible property, including computers, keys, access cards, identification badges, credit cards, cell phones and PDAs issued to Employee, and any proprietary or confidential information of the Company (and all reproductions thereof).

10.Nondisparagement:  Each Party agrees that it will not make (and the Company agrees to prevent any executive officer or member of the board of directors of the Company or the Company’s current and former parent, subsidiary, affiliated, and related corporations, firms, associations, partnerships, limited liability companies and entities from making) any statements, written or verbal, or cause or encourage others to make any statements, written or verbal, that defame or disparage the personal or business reputation, practices, prospects or conduct of the other including, in the case of the Company, its employees, directors, stockholders, and other related parties included in the definition of Company Released Parties; provided that both Employee and the Company will respond accurately to any question, inquiry or request for information to the extent required by law.

11.Cooperation:  Employee agrees that from time to time following the Separation Date he will, at the Company’s written request, voluntarily assist the Company with respect to on-going or contemplated litigation, audits by government agencies or any other similar matters.  The Company will reimburse Employee for reasonable out-of-pocket expenses incurred with respect to any such requested matters; provided that such expenses shall not exceed $500 without the Company’s written approval.  Employee acknowledges and agrees that his activities under this Section shall be performed as an independent contractor and not as an employee of the Company.  The Company agrees to provide Employee with as much advance notice of its requests as may be reasonable under the circumstances.

12.Severability:  If any provision of this Agreement is held to be illegal, invalid, or unenforceable, such provision shall be fully severable and/or construed in remaining part to the full extent allowed by law, with the remaining provisions of this Agreement continuing in full force and effect.

13.Entire Agreement:  This Agreement, the Stock Agreements and the Confidentiality Agreement, which are each incorporated herein by reference, constitute the entire agreement between the Employee and the Company, and supersede all prior and contemporaneous negotiations and agreements, oral or written.  This Agreement cannot be changed or terminated except pursuant to a written agreement executed by the Parties.

14.Section 409A Compliance:

(a)It is intended that all of the benefits and payments payable under this Agreement or otherwise to Employee satisfy, to the greatest extent possible, the exemptions from the application of Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”) provided under Treasury Regulations Sections 1.409A-1(b)(4), 1.409A-1(b)(5) and 1.409A-1(b)(9), and this Agreement and all other arrangements with Employee will be construed to the greatest extent possible as consistent with those provisions. 

For purposes of Section 409A of the Code (including, without limitation, for purposes of Treasury Regulations Section 1.409A-2(b)(2)(iii)), Employee’s right to receive any installment payments under this Agreement (whether reimbursements or otherwise) and any other agreement or arrangement with the Company will be treated as a right to receive a series of separate payments and, accordingly, each installment payment hereunder will at all times be considered a separate and distinct payment.

(b)Notwithstanding anything herein to the contrary, no amount payable pursuant to this Agreement on account of Employee’s termination of employment with the Company which constitutes a “deferral of compensation” within the meaning of Section 409A the Code shall be paid unless and until Employee has incurred a “separation from service” within the meaning of Section 409A of the Code.  Furthermore, if Employee is a “specified employee” within the meaning of Section 409A of the Code as of the date of Employee’s separation from service, no amount that constitutes a deferral of compensation which is payable on account of Employee’s separation from service shall be paid to Employee before the date (the “Delayed Payment Date”) which is the first business day of the seventh month after the date of Employee’s separation from service or, if earlier, the date of Employee’s death following such separation from service.  All such amounts that would, but for this Section, become payable prior to the Delayed Payment Date will be accumulated and paid in a lump sum on the Delayed Payment Date.  Thereafter, any payments that remain outstanding as of the day immediately following the Delayed Payment Date shall be paid without delay over the time period originally scheduled, in accordance with the terms of this Agreement.

(c)With regard to any provision in this Agreement that provides for reimbursement of expenses or in-kind benefits, except for any expense, reimbursement or in-kind benefit provided pursuant to this Agreement that does not constitute a “deferral of compensation,” within the meaning of Section 409A of the Code, (a) the right to reimbursement or in-kind benefits shall not be subject to liquidation or exchange for another benefit, (b) the amount of expenses eligible for reimbursement, or in-kind benefits provided, during any taxable year shall not affect the expenses eligible for reimbursement, or in-kind benefits to be provided, in any other taxable year, provided that the foregoing clause (b) shall not be deemed to be violated with regard to expenses reimbursed under any arrangement covered by Section 105(b) of the Code solely because such expenses are subject to a limit related to the period the arrangement is in effect, and (c) such payments shall be made on or before the last day of Employee’s taxable year following the taxable year in which the expense occurred.

(d)The Company intends that income provided to Employee pursuant to this Agreement will not be subject to taxation under Section 409A of the Code.  However, the Company does not guarantee any particular tax effect for income provided to Employee pursuant to this Agreement.  In any event, except for the Company’s responsibility to withhold applicable income and employment taxes from compensation paid or provided to Employee, the Company shall not be responsible for the payment of any taxes, penalties, interest, costs, fees, including attorneys fees, or other liability incurred by Employee in connection with compensation paid or provided to Employee pursuant to this Agreement.

15.Older Workers’ Benefit Protection Act.  This Agreement is intended to satisfy the requirements of the Older Workers’ Benefit Protection Act, 29 U.S.C. sec. 626(f).  Employee is advised to consult with an attorney before executing this Agreement.

15.1. Acknowledgments/Time to Consider.  Employee acknowledges and agrees that (a) Employee has read and understands the terms of this Agreement; (b) Employee has been advised in writing to consult with an attorney before executing this Agreement; (c) Employee has obtained and considered such legal counsel as Employee deems necessary; (d) Employee has been given twenty-one (21) days to consider whether or not to enter into this Agreement (although Employee may elect not to use the full 21 day period at Employee’s option); and (e) by signing this Agreement, Employee acknowledges that Employee does so freely, knowingly, and voluntarily.

15.2  Revocation/Effective Date.  This Agreement shall not become effective or enforceable until the eighth day after Employee signs this Agreement.  In other words, Employee may revoke Employee’s acceptance of this Agreement within seven days after the date Employee signs it.  Employee’s revocation must be in writing and received by Lyn Herr by email at lyn.herr@silabs.com by 5:00 p.m. Central Time on the seventh day in order to be effective.  If Employee does not revoke acceptance within the seven day period, Employee’s acceptance of this Separation Agreement shall become binding and enforceable on the eighth day (“Effective Date”).  The Severance Package will become due and payable in accordance with paragraph 3 above on and after the Effective Date, provided Employee does not revoke.  Employee agrees that he will not receive the Severance Package provided by this Agreement if he revokes this Agreement.

15.3  Preserved Rights of Employee.  This Agreement does not waive or release any rights or claims that Employee may have under the Age Discrimination in Employment Act that arise after the execution of this Agreement.  In addition, this Agreement does not prohibit Employee from challenging the validity of this Agreement’s waiver and release of claims under the Age Discrimination in Employment Act of 1967, as amended.

16.Statement of Understanding:  By executing this Agreement, Employee acknowledges that (a) he has been advised by the Company to consult with an attorney regarding the terms of this Agreement; (b) he has consulted with an attorney of his own choosing regarding the terms of this Agreement; (c) he has consulted with his own tax and financial advisors regarding the terms of this Agreement and is not relying on the Company with respect to any matters related to this Agreement; (d) any and all questions regarding the terms of this Agreement have been asked and answered to his complete satisfaction by his advisors; (e) he has read this Agreement and fully understands its terms and their import; (f) except as provided by the Transition Agreement and this Agreement, he is not contractually entitled to the Severance Package; (g) the consideration provided for herein is good and valuable; and (h) he is entering into this Agreement voluntarily, of his own free will, and without any coercion, undue influence, threat, or intimidation of any kind or type whatsoever.

EXECUTED in Austin, Texas, this        day of                       , 2015.

EMPLOYEE

Kurt Hoff

EXECUTED in Austin, Texas, this        day of                      , 2015.

SILICON LABORATORIES INC.

By:

Name: Lynette L. Herr

Title: VP WW Human Resources

EX-31.1

Exhibit 31.1

Certification to the Securities and Exchange Commission

by Registrant’s Chief Executive Officer, as required by Section 302

of the Sarbanes-Oxley Act of 2002

I, G. Tyson Tuttle, certify that:

1.I have reviewed this report on Form 10-Q of Silicon Laboratories Inc.;

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: October 28, 2015

/s/ G. Tyson Tuttle

G. Tyson Tuttle

Chief Executive Officer

(Principal Executive Officer)

EX-31.2

Exhibit 31.2

Certification to the Securities and Exchange Commission

by Registrant’s Chief Financial Officer, as required by Section 302

of the Sarbanes-Oxley Act of 2002

I, John C. Hollister, certify that:

1.I have reviewed this report on Form 10-Q of Silicon Laboratories Inc.;

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: October 28, 2015

/s/ John C. Hollister

John C. Hollister

Senior Vice President and

Chief Financial Officer

(Principal Financial Officer)

EX-32.1

Exhibit 32.1

Certification of Chief Executive Officer and Chief Financial Officer

Pursuant to 18 U.S.C. § 1350, as created by Section 906 of the Sarbanes-Oxley Act of 2002, each of the undersigned officers of Silicon Laboratories Inc. (the “Company”) hereby certify that:

(i)   the accompanying Quarterly Report on Form 10-Q of the Company for the fiscal quarter ended October 3, 2015 as filed with the Securities and Exchange Commission (the “Report”) fully complies with the requirements of Section 13(a) or Section 15(d), as applicable, of the Securities Exchange Act of 1934; and

(ii)  the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities Exchange Commission or its staff upon request.

Date: October 28, 2015

/s/ G. Tyson Tuttle

G. Tyson Tuttle

Chief Executive Officer

/s/ John C. Hollister

John C. Hollister

Senior Vice President and

Chief Financial Officer

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Fair Value of Financial Instruments (Details 4) - Assets and liabilities measured at fair value on recurring basis - Significant Unobservable Inputs (Level 3) - Auction rate securities - USD ($) $ in Thousands	3 Months Ended	9 Months Ended
	Oct. 03, 2015	Oct. 03, 2015
Fair value assets reconciliation of changes
Balance at the beginning of the period	$ 7,179	$ 7,419
Gain (loss) included in other comprehensive income (loss)	61	(179)
Balance at the end of the period	$ 7,240	$ 7,240

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Income Taxes (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Oct. 03, 2015	Sep. 27, 2014	Oct. 03, 2015	Sep. 27, 2014
Income Taxes
Income tax expense	$ 467	$ 3,501	$ 2,112	$ 10,908
Effective income tax rate (as a percent)	4.50%	38.40%	8.10%	28.00%
Gross unrecognized tax benefits	$ 3,700		$ 3,700
Amount of estimated decrease in unrecognized tax benefits	$ 900		$ 900

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Stock-Based Compensation (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Oct. 03, 2015	Sep. 27, 2014	Oct. 03, 2015	Sep. 27, 2014
Stock-based compensation costs
Share based compensation cost before tax	$ 9,222	$ 9,614	$ 30,798	$ 28,173
Income tax benefit	1,089	1,158	3,575	3,056
Share based compensation cost after tax	8,133	8,456	27,223	25,117
Total unrecognized compensation costs related to awards	55,300		$ 55,300
Weighted-average period of recognition of unrecognized compensation costs			2 years
Cost of revenues
Stock-based compensation costs
Share based compensation cost before tax	249	201	$ 708	574
Research and development
Stock-based compensation costs
Share based compensation cost before tax	4,623	4,713	14,378	13,282
Selling, general and administrative
Stock-based compensation costs
Share based compensation cost before tax	$ 4,350	$ 4,700	$ 15,712	$ 14,317

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Derivative Financial Instruments (Details) $ in Millions	Oct. 03, 2015 USD ($)
Cash flow hedges | Interest rate swaps
Notional amount
Original notional value	$ 100

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Balance Sheet Details (Tables)

9 Months Ended

Oct. 03, 2015

Balance Sheet Details

Inventories

The following shows the details of selected Condensed Consolidated Balance Sheet items (in thousands):

Inventories

	October 3, 2015		January 3, 2015
Work in progress	$	38,107	$	40,640
Finished goods	13,850		11,991
	$	51,957	$	52,631

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Acquisitions (Details) - USD ($)			3 Months Ended	9 Months Ended
	Jan. 30, 2015	Jul. 01, 2013	Apr. 04, 2015	Oct. 03, 2015	Jan. 03, 2015
Acquisition
Payment of earn-out for the first annual period				$ 4,464,000
Purchase price allocation
Goodwill				263,925,000	$ 228,781,000
Bluegiga
Acquisition
Cash consideration	$ 58,000,000
Amount of initial consideration held in escrow by the company as security for breaches of representations and warranties and certain other expressly enumerated matters	9,400,000
Purchase price allocation
Intangible assets	25,450,000
Cash and cash equivalents	1,132,000
Other current assets	6,156,000
Goodwill	35,145,000
Other non-current assets	208,000
Current liabilities	(3,289,000)
Non-current deferred tax liabilities, net	(4,328,000)
Long-term debt	(2,232,000)
Other non-current liabilities	(220,000)
Total purchase price	$ 58,022,000
Acquisition-related costs recorded in selling, general and administrative expenses				$ 1,200,000
Discount rate applicable to the cash flows (as a percent)	16.10%
Bluegiga | Developed technology
Purchase price allocation
Intangible assets	$ 12,190,000
Weighted-Average Amortization Period	8 years
Bluegiga | Customer relationships
Purchase price allocation
Intangible assets	$ 6,670,000
Weighted-Average Amortization Period	4 years
Bluegiga | Trademarks
Purchase price allocation
Intangible assets	$ 880,000
Weighted-Average Amortization Period	3 years
Bluegiga | In-process research and development
Purchase price allocation
Intangible assets	$ 5,710,000
Energy Micro
Acquisition
Cash consideration			$ 20,000,000
Purchase price of acquisition		$ 140,600,000
Initial consideration		107,400,000
Deferred consideration in the form of a promissory note, fair value		19,200,000
Earn-Out, fair value		$ 14,000,000
Earn out period		5 years
Maximum annual Earn-Out payment		$ 6,666,666
Minimum revenue in single fiscal year from Earn-Out products required to make the entire Earn-Out amount payable		400,000,000
Amount of initial consideration held in escrow by the company as security for breaches of representations and warranties and certain other expressly enumerated matters		$ 20,300,000
Percentage of Earn-Out contingent on the continued employment of certain key employees		28.76%
Period of continued employment of key employees for calculating Earn-out portion following acquisition date		3 years
Payment of earn-out for the first annual period			6,300,000
Earn-out payment representing the Departure Percentage portion and recorded as compensation expense			1,800,000
Remaining Earn-out payment representing additional consideration			$ 4,500,000

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Fair Value of Financial Instruments (Details 2) - Auction rate securities - Significant Unobservable Inputs (Level 3) - USD ($) $ in Thousands	9 Months Ended
	Oct. 03, 2015	Jul. 04, 2015	Jan. 03, 2015
Weighted Average | Discounted cash flow
Quantitative information for Level 3 Fair Value Measurements Assets
Estimated yield (as a percent)	1.04%
Expected holding period	10 years
Estimated discount rate (as a percent)	3.46%
Assets and liabilities measured at fair value on recurring basis
Quantitative information for Level 3 Fair Value Measurements Assets
Fair value balance at the end of the period	$ 7,240	$ 7,179	$ 7,419

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Related Party Transactions (Details) - USD ($) $ in Thousands		3 Months Ended	9 Months Ended
	Jul. 01, 2013	Apr. 04, 2015	Oct. 03, 2015
Related Party Transaction
Payment of the fiscal 2014 earn-out			$ 4,464
Energy Micro
Related Party Transaction
Cash consideration		$ 20,000
Payment of the fiscal 2014 earn-out		6,300
Contingent consideration		26,700
Mr. Forre | Energy Micro
Related Party Transaction
Beneficial ownership percentage	30.00%
Cash consideration	$ 35,000	6,100
Payment of the fiscal 2014 earn-out		1,900
Contingent consideration		8,100
Mr. Bogen | Energy Micro
Related Party Transaction
Beneficial ownership percentage	2.00%
Cash consideration	$ 900	400
Payment of the fiscal 2014 earn-out		100
Contingent consideration		$ 500
Investment in acquired entity by related party prior to the acquisition	$ 800

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Cash, Cash Equivalents and Investments

9 Months Ended

Oct. 03, 2015

Cash, Cash Equivalents and Investments

Cash, Cash Equivalents and Investments

3. Cash, Cash Equivalents and Investments

The Company’s cash equivalents and short-term investments as of October 3, 2015 consisted of municipal bonds, money market funds, variable-rate demand notes, certificates of deposit, international government bonds and corporate bonds. The Company’s long-term investments consisted of auction-rate securities. In fiscal 2008, auctions for many of the Company’s auction-rate securities failed because sell orders exceeded buy orders. As of October 3, 2015, the Company held $8.0 million par value auction-rate securities, all of which have experienced failed auctions. The underlying assets of the securities consisted of student loans and municipal bonds, of which $6.0 million were guaranteed by the U.S. government and the remaining $2.0 million were privately insured. As of October 3, 2015, $6.0 million of the auction-rate securities had credit ratings of AA and $2.0 million had a credit rating of A. These securities have contractual maturity dates ranging from 2033 to 2046 at October 3, 2015. The Company is receiving the underlying cash flows on all of its auction-rate securities. The principal amounts associated with failed auctions are not expected to be accessible until a successful auction occurs, the issuer redeems the securities, a buyer is found outside of the auction process or the underlying securities mature. The Company is unable to predict if these funds will become available before their maturity dates.

The Company does not expect to need access to the capital represented by any of its auction-rate securities prior to their maturities. The Company does not intend to sell, and believes it is not more likely than not that it will be required to sell, its auction-rate securities before their anticipated recovery in market value or final settlement at the underlying par value. The Company believes that the credit ratings and credit support of the security issuers indicate that they have the ability to settle the securities at par value. As such, the Company has determined that no other-than-temporary impairment losses existed as of October 3, 2015.

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

	October 3, 2015
	Cost		Gross Unrealized Losses			Gross Unrealized Gains		Fair Value
Cash and Cash Equivalents:
Cash on hand	$	68,421	$	—		$	—	$	68,421
Available-for-sale securities:
Money market funds	63,316		—			—		63,316
Certificates of deposit	3,903		—			—		3,903
Total available-for-sale securities	67,219		—			—		67,219
Total cash and cash equivalents	$	135,640	$	—		$	—	$	135,640
Short-term Investments:
Available-for-sale securities:
Municipal bonds	$	98,605	$	(10	)	$	146	$	98,741
Variable-rate demand notes	9,495		—			—		9,495
International government bonds	2,234		—			1		2,235
Corporate bonds	2,202		(3		)	—		2,199
Total short-term investments	$	112,536	$	(13	)	$	147	$	112,670
Long-term Investments:
Available-for-sale securities:
Auction rate securities	$	8,000	$	(760	)	$	—	$	7,240
Total long-term investments	$	8,000	$	(760	)	$	—	$	7,240

	January 3, 2015
	Cost		Gross Unrealized Losses			Gross Unrealized Gains		Fair Value
Cash and Cash Equivalents:
Cash on hand	$	52,144	$	—		$	—	$	52,144
Available-for-sale securities:
Money market funds	71,415		—			—		71,415
Certificates of deposit	7,739		—			—		7,739
Commercial paper	5,348		—			—		5,348
Municipal bonds	1,756		—			1		1,757
U.S. government agency	1,202		—			—		1,202
Corporate bonds	1,101		—			—		1,101
U.S. government bonds	1,000		—			—		1,000
Total available-for-sale securities	89,561		—			1		89,562
Total cash and cash equivalents	$	141,705	$	—		$	1	$	141,706
Short-term Investments:
Available-for-sale securities:
Municipal bonds	$	129,005	$	(25	)	$	172	$	129,152
Corporate bonds	33,043		(35		)	25		33,033
Variable-rate demand notes	12,915		—			—		12,915
Commercial paper	8,995		—			—		8,995
Asset-backed securities	5,380		(3		)	—		5,377
International government bonds	2,526		(10		)	—		2,516
U.S. government bonds	650		—			—		650
U.S. government agency	601		—			—		601
Certificates of deposit	250		—			—		250
Total short-term investments	$	193,365	$	(73	)	$	197	$	193,489
Long-term Investments:
Available-for-sale securities:
Auction rate securities	$	8,000	$	(581	)	$	—	$	7,419
Total long-term investments	$	8,000	$	(581	)	$	—	$	7,419

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

	Less Than 12 Months					12 Months or Greater					Total
As of October 3, 2015	Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses
Municipal bonds	$	8,274	$	(10	)	$	—	$	—		$	8,274	$	(10	)
Auction rate securities	—		—			7,240		(760		)	7,240		(760		)
International government bonds	2,199		(3		)	—		—			2,199		(3		)
	$	10,473	$	(13	)	$	7,240	$	(760	)	$	17,713	$	(773	)

	Less Than 12 Months					12 Months or Greater					Total
As of January 3, 2015	Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses
Municipal bonds	$	23,735	$	(25	)	$	—	$	—		$	23,735	$	(25	)
Corporate bonds	20,327		(35		)	—		—			20,327		(35		)
Auction rate securities	—		—			7,419		(581		)	7,419		(581		)
Asset-backed securities	5,080		(3		)	—		—			5,080		(3		)
International government bond	2,516		(10		)	—		—			2,516		(10		)
	$	51,658	$	(73	)	$	7,419	$	(581	)	$	59,077	$	(654	)

The gross unrealized losses as of October 3, 2015 and January 3, 2015 were due primarily to the illiquidity of the Company’s auction-rate securities and, to a lesser extent, to changes in market interest rates.

The following summarizes the contractual underlying maturities of the Company’s available-for-sale investments at October 3, 2015 (in thousands):

	Cost		Fair Value
Due in one year or less	$	139,704	$	139,779
Due after one year through ten years	33,136		33,195
Due after ten years	14,915		14,155
	$	187,755	$	187,129

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Debt (Details) $ in Thousands			9 Months Ended
	Jul. 24, 2015 USD ($)	Jul. 31, 2012 USD ($)	Oct. 03, 2015	Jan. 30, 2015 USD ($)
Bluegiga
Debt
Debt in connection with acquisition				$ 2,232
Debt instrument, interest rate, minimum			1.00%
Debt instrument, interest rate, maximum			3.00%
Credit Facilities
Debt
Maximum borrowing capacity		$ 100,000
Fixed interest rate percentage			0.764%
Combined interest rate percentage			2.264%
Credit Agreement
Debt
Maximum borrowing capacity		$ 230,000
Term of debt instrument		5 years
Amount borrowed under the Amended Credit Agreement	$ 82,500
Maximum leverage ratio			3.0
Minimum fixed charge coverage ratio			1.25
Revolving Credit Facility
Debt
Maximum borrowing capacity	$ 300,000	$ 130,000
Term of debt instrument	5 years
Sublimit on letters of credit		25,000
Sublimit on swingline loan		$ 10,000
Additional increase in borrowing capacity of the line of credit available at the entity's option	$ 200,000
Revolving credit facility, other than swingline loans | Federal Funds
Debt
Interest rate added to the base rate (as a percent)			0.50%
Revolving credit facility, other than swingline loans | Eurodollar base rate
Debt
Interest rate added to the base rate (as a percent)			1.00%
Revolving credit facility, other than swingline loans | Eurodollar | Low end of range
Debt
Interest rate added to the base rate (as a percent)			1.25%
Revolving credit facility, other than swingline loans | Eurodollar | High end of range
Debt
Interest rate added to the base rate (as a percent)			2.00%
Revolving credit facility, swingline and other loans | Base rate | Low end of range
Debt
Interest rate added to the base rate (as a percent)			0.25%
Revolving credit facility, swingline and other loans | Base rate | High end of range
Debt
Interest rate added to the base rate (as a percent)			1.00%

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Significant Accounting Policies (Details)	9 Months Ended	12 Months Ended
	Oct. 03, 2015	Jan. 03, 2015
Basis of Presentation and Principles of Consolidation
Length of fiscal year	364 days	371 days
Number of days in each fiscal quarter for 52-week fiscal year	91 days
Low end of range
Basis of Presentation and Principles of Consolidation
Length of fiscal year	364 days
High end of range
Basis of Presentation and Principles of Consolidation
Length of fiscal year	371 days

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Stock-Based Compensation (Tables)

9 Months Ended

Oct. 03, 2015

Stock-Based Compensation

Schedule of stock-based compensation costs recognized in the Consolidated Statements of Income

The following table presents details of stock-based compensation costs recognized in the Condensed Consolidated Statements of Income (in thousands):

	Three Months Ended				Nine Months Ended
	October 3, 2015		September 27, 2014		October 3, 2015		September 27, 2014
Cost of revenues	$	249	$	201	$	708	$	574
Research and development	4,623		4,713		14,378		13,282
Selling, general and administrative	4,350		4,700		15,712		14,317
	9,222		9,614		30,798		28,173
Income tax benefit	1,089		1,158		3,575		3,056
	$	8,133	$	8,456	$	27,223	$	25,117

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Stockholders' Equity (Details) - USD ($) $ in Thousands, shares in Millions	3 Months Ended		9 Months Ended
	Oct. 03, 2015	Sep. 27, 2014	Oct. 03, 2015	Sep. 27, 2014	Aug. 31, 2015	Oct. 31, 2014	Jan. 31, 2014	Jan. 31, 2013
Number of shares of common stock issued			1.0
Components of accumulated other comprehensive loss, net of taxes
Balance at beginning of the period			$ 758,056
Other comprehensive income (loss)	$ (90)	$ 489	(537)	$ 574
Balance at end of the period	741,476		$ 741,476
Repurchase of common stock (in shares)			1.6	1.3
Repurchase of common stock			$ 71,400	$ 53,900
Unrealized Gain on Cash Flow Hedge
Components of accumulated other comprehensive loss, net of taxes
Balance at beginning of the period			215
Other comprehensive loss before reclassifications			(672)
Amounts reclassified from accumulated other comprehensive loss			245
Other comprehensive income (loss)			(427)
Balance at end of the period	(212)		(212)
Net Unrealized Losses on Available-For-Sale Securities
Components of accumulated other comprehensive loss, net of taxes
Balance at beginning of the period			(297)
Other comprehensive loss before reclassifications			(116)
Amounts reclassified from accumulated other comprehensive loss			6
Other comprehensive income (loss)			(110)
Balance at end of the period	(407)		(407)
Accumulated Other Comprehensive Loss
Components of accumulated other comprehensive loss, net of taxes
Balance at beginning of the period			(82)
Other comprehensive loss before reclassifications			(788)
Amounts reclassified from accumulated other comprehensive loss			251
Other comprehensive income (loss)			(537)
Balance at end of the period	$ (619)		$ (619)
High end of range
Program Amount authorized to repurchase					$ 100,000	$ 100,000	$ 100,000	$ 50,000

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Earnings Per Share (Details) - USD ($) $ / shares in Units, shares in Thousands, $ in Thousands	3 Months Ended		9 Months Ended
	Oct. 03, 2015	Sep. 27, 2014	Oct. 03, 2015	Sep. 27, 2014
Earnings Per Share
Net income	$ 9,975	$ 5,608	$ 23,928	$ 27,997
Shares used in computing basic earnings per share	42,331	43,112	42,522	43,218
Effect of dilutive securities:
Stock options and other stock-based awards (in shares)	464	703	613	812
Shares used in computing diluted earnings per share	42,795	43,815	43,135	44,030
Earnings per share:
Basic (in dollars per share)	$ 0.24	$ 0.13	$ 0.56	$ 0.65
Diluted (in dollars per share)	$ 0.23	$ 0.13	$ 0.55	$ 0.64
Shares excluded from computation of diluted earning per share	100	100	100	100

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Cash, Cash Equivalents and Investments (Details) - USD ($) $ in Thousands	9 Months Ended
	Oct. 03, 2015	Jan. 03, 2015
Available-for-sale securities
Available-for-sale securities, Cost	$ 187,755
Cash, cash equivalents and investments
Auction-rate securities guaranteed by the U.S. government	6,000
Auction-rate securities privately insured	2,000
Auction-rate securities having credit rating 'AA'	6,000
Auction-rate securities having credit rating 'A'	2,000
Other-than-temporary impairment losses	0
Cash on hand, Cost	68,421	$ 52,144
Cash on hand, Fair Value	68,421	52,144
Cash and cash equivalents, Cost	135,640	141,705
Cash and cash equivalents, Gross Unrealized Gains		1
Cash and cash equivalents, Fair Value	135,640	141,706
Cash Equivalents:
Available-for-sale securities
Available-for-sale securities, Cost	67,219	89,561
Available-for-sale securities, Gross Unrealized Gains		1
Available-for-sale securities, Fair Value	67,219	89,562
Short-term Investments:
Available-for-sale securities
Available-for-sale securities, Cost	112,536	193,365
Available-for-sale securities, Gross Unrealized Losses	(13)	(73)
Available-for-sale securities, Gross Unrealized Gains	147	197
Available-for-sale securities, Fair Value	112,670	193,489
Long-term Investments:
Available-for-sale securities
Available-for-sale securities, Cost	8,000	8,000
Available-for-sale securities, Gross Unrealized Losses	(760)	(581)
Available-for-sale securities, Fair Value	7,240	7,419
Money market funds | Cash Equivalents:
Available-for-sale securities
Available-for-sale securities, Cost	63,316	71,415
Available-for-sale securities, Fair Value	63,316	71,415
Municipal bonds | Cash Equivalents:
Available-for-sale securities
Available-for-sale securities, Cost		1,756
Available-for-sale securities, Gross Unrealized Gains		1
Available-for-sale securities, Fair Value		1,757
Municipal bonds | Short-term Investments:
Available-for-sale securities
Available-for-sale securities, Cost	98,605	129,005
Available-for-sale securities, Gross Unrealized Losses	(10)	(25)
Available-for-sale securities, Gross Unrealized Gains	146	172
Available-for-sale securities, Fair Value	98,741	129,152
Variable-rate demand notes | Short-term Investments:
Available-for-sale securities
Available-for-sale securities, Cost	9,495	12,915
Available-for-sale securities, Fair Value	9,495	12,915
Corporate bonds | Cash Equivalents:
Available-for-sale securities
Available-for-sale securities, Cost		1,101
Available-for-sale securities, Fair Value		1,101
Corporate bonds | Short-term Investments:
Available-for-sale securities
Available-for-sale securities, Cost	2,202	33,043
Available-for-sale securities, Gross Unrealized Losses	(3)	(35)
Available-for-sale securities, Gross Unrealized Gains		25
Available-for-sale securities, Fair Value	2,199	33,033
International government bonds | Short-term Investments:
Available-for-sale securities
Available-for-sale securities, Cost	2,234	2,526
Available-for-sale securities, Gross Unrealized Losses		(10)
Available-for-sale securities, Gross Unrealized Gains	1
Available-for-sale securities, Fair Value	2,235	2,516
Commercial paper | Cash Equivalents:
Available-for-sale securities
Available-for-sale securities, Cost		5,348
Available-for-sale securities, Fair Value		5,348
Commercial paper | Short-term Investments:
Available-for-sale securities
Available-for-sale securities, Cost		8,995
Available-for-sale securities, Fair Value		8,995
Certificates of deposit | Cash Equivalents:
Available-for-sale securities
Available-for-sale securities, Cost	3,903	7,739
Available-for-sale securities, Fair Value	3,903	7,739
Certificates of deposit | Short-term Investments:
Available-for-sale securities
Available-for-sale securities, Cost		250
Available-for-sale securities, Fair Value		250
US government agency | Cash Equivalents:
Available-for-sale securities
Available-for-sale securities, Cost		1,202
Available-for-sale securities, Fair Value		1,202
US government agency | Short-term Investments:
Available-for-sale securities
Available-for-sale securities, Cost		601
Available-for-sale securities, Fair Value		601
U.S. government bonds | Cash Equivalents:
Available-for-sale securities
Available-for-sale securities, Cost		1,000
Available-for-sale securities, Fair Value		1,000
U.S. government bonds | Short-term Investments:
Available-for-sale securities
Available-for-sale securities, Cost		650
Available-for-sale securities, Fair Value		650
Asset-backed securities | Short-term Investments:
Available-for-sale securities
Available-for-sale securities, Cost		5,380
Available-for-sale securities, Gross Unrealized Losses		(3)
Available-for-sale securities, Fair Value		5,377
Auction rate securities | Long-term Investments:
Available-for-sale securities
Available-for-sale securities, Cost	8,000	8,000
Available-for-sale securities, Gross Unrealized Losses	(760)	(581)
Available-for-sale securities, Fair Value	$ 7,240	$ 7,419

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Earnings Per Share

9 Months Ended

Oct. 03, 2015

Earnings Per Share

Earnings Per Share

2. Earnings Per Share

The following table sets forth the computation of basic and diluted earnings per share (in thousands, except per share data):

	Three Months Ended				Nine Months Ended
	October 3, 2015		September 27, 2014		October 3, 2015		September 27, 2014
Net income	$	9,975	$	5,608	$	23,928	$	27,997
Shares used in computing basic earnings per share	42,331		43,112		42,522		43,218
Effect of dilutive securities:
Stock options and other stock-based awards	464		703		613		812
Shares used in computing diluted earnings per share	42,795		43,815		43,135		44,030
Earnings per share:
Basic	$	0.24	$	0.13	$	0.56	$	0.65
Diluted	$	0.23	$	0.13	$	0.55	$	0.64

For the three months ended October 3, 2015 and September 27, 2014 and the nine months ended October 3, 2015 and September 27, 2014, approximately 0.1 million, 0.1 million, 0.1 million and 0.1 million shares, respectively, were not included in the diluted earnings per share calculation since the shares were anti-dilutive.

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Cash, Cash Equivalents and Investments (Details 2) - USD ($) $ in Thousands	Oct. 03, 2015	Jan. 03, 2015
Continuous unrealized loss position, Fair Value
Fair value of available-for-sale securities, continuous loss position for less than twelve months	$ 10,473	$ 51,658
Fair value of available-for-sale securities, continuous loss position for twelve months or longer	7,240	7,419
Total fair value of available-for-sale securities, continuous loss position	17,713	59,077
Continuous unrealized loss position, Gross Unrealized Losses
Available-for-sale securities, continuous loss position for less than 12 months, gross unrealized losses	(13)	(73)
Available-for-sale securities, continuous loss position for 12 months or greater, gross unrealized losses	(760)	(581)
Available-for-sale securities, total gross unrealized losses	(773)	(654)
Cost
Due in one year or less, Cost	139,704
Due after one year through ten years, Cost	33,136
Due after ten years, Cost	14,915
Total Cost	187,755
Fair Value
Due in one year or less, Fair Value	139,779
Due after one year through ten years, Fair Value	33,195
Due after ten years, Fair Value	14,155
Total Fair Value	187,129
Municipal bonds
Continuous unrealized loss position, Fair Value
Fair value of available-for-sale securities, continuous loss position for less than twelve months	8,274	23,735
Total fair value of available-for-sale securities, continuous loss position	8,274	23,735
Continuous unrealized loss position, Gross Unrealized Losses
Available-for-sale securities, continuous loss position for less than 12 months, gross unrealized losses	(10)	(25)
Available-for-sale securities, total gross unrealized losses	(10)	(25)
Corporate bonds
Continuous unrealized loss position, Fair Value
Fair value of available-for-sale securities, continuous loss position for less than twelve months		20,327
Total fair value of available-for-sale securities, continuous loss position		20,327
Continuous unrealized loss position, Gross Unrealized Losses
Available-for-sale securities, continuous loss position for less than 12 months, gross unrealized losses		(35)
Available-for-sale securities, total gross unrealized losses		(35)
Auction rate securities
Continuous unrealized loss position, Fair Value
Fair value of available-for-sale securities, continuous loss position for twelve months or longer	7,240	7,419
Total fair value of available-for-sale securities, continuous loss position	7,240	7,419
Continuous unrealized loss position, Gross Unrealized Losses
Available-for-sale securities, continuous loss position for 12 months or greater, gross unrealized losses	(760)	(581)
Available-for-sale securities, total gross unrealized losses	(760)	(581)
Asset-backed securities
Continuous unrealized loss position, Fair Value
Fair value of available-for-sale securities, continuous loss position for less than twelve months		5,080
Total fair value of available-for-sale securities, continuous loss position		5,080
Continuous unrealized loss position, Gross Unrealized Losses
Available-for-sale securities, continuous loss position for less than 12 months, gross unrealized losses		(3)
Available-for-sale securities, total gross unrealized losses		(3)
International government bonds
Continuous unrealized loss position, Fair Value
Fair value of available-for-sale securities, continuous loss position for less than twelve months	2,199	2,516
Total fair value of available-for-sale securities, continuous loss position	2,199	2,516
Continuous unrealized loss position, Gross Unrealized Losses
Available-for-sale securities, continuous loss position for less than 12 months, gross unrealized losses	(3)	(10)
Available-for-sale securities, total gross unrealized losses	$ (3)	$ (10)

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Fair Value of Financial Instruments (Details 5) - USD ($) $ in Thousands	3 Months Ended	9 Months Ended
	Oct. 03, 2015	Oct. 03, 2015	Jan. 03, 2015
Credit Facilities
Fair value liabilities reconciliation of changes
Fair value of debt	$ 80,000	$ 80,000	$ 87,400
Assets and liabilities measured at fair value on recurring basis | Significant Unobservable Inputs (Level 3) | Contingent consideration
Fair value liabilities reconciliation of changes
Balance at the beginning of the period	15,092	18,438
Settlements		(4,464)
Gain recognized in earnings	(1,830)	(712)
Balance at the end of the period	13,262	13,262
Net gain for the period included in earnings attributable to contingent consideration held at the end of the period:	$ 1,830	$ 712

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Condensed Consolidated Balance Sheets - USD ($) $ in Thousands	Oct. 03, 2015	Jan. 03, 2015
Current assets:
Cash and cash equivalents	$ 135,640	$ 141,706
Short-term investments	112,670	193,489
Accounts receivable, net of allowances for doubtful accounts of $695 at October 3, 2015 and $786 at January 3, 2015	61,030	70,367
Inventories	51,957	52,631
Deferred income taxes	19,155	21,173
Prepaid expenses and other current assets	48,903	49,171
Total current assets	429,355	528,537
Long-term investments	7,240	7,419
Property and equipment, net	130,283	132,820
Goodwill	263,925	228,781
Other intangible assets, net	121,208	115,021
Other assets, net	26,040	29,983
Total assets	978,051	1,042,561
Current liabilities:
Accounts payable	30,306	38,922
Current portion of long-term debt	10,000	10,000
Accrued expenses	50,080	73,646
Deferred income on shipments to distributors	37,881	38,662
Income taxes	1,074	2,084
Total current liabilities	129,341	163,314
Long-term debt	70,000	77,500
Other non-current liabilities	37,234	43,691
Total liabilities	$ 236,575	$ 284,505
Commitments and contingencies
Stockholders' equity:
Preferred stock - $0.0001 par value; 10,000 shares authorized; no shares issued and outstanding
Common stock - $0.0001 par value; 250,000 shares authorized; 41,570 and 42,225 shares issued and outstanding at October 3, 2015 and January 3, 2015, respectively	$ 4	$ 4
Additional paid-in capital		29,501
Retained earnings	742,091	728,633
Accumulated other comprehensive loss	(619)	(82)
Total stockholders' equity	741,476	758,056
Total liabilities and stockholders' equity	$ 978,051	$ 1,042,561

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Stockholders' Equity (Details 2) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Oct. 03, 2015	Sep. 27, 2014	Oct. 03, 2015	Sep. 27, 2014
Amounts Reclassified from AOCI
Interest expense	$ (687)	$ (768)	$ (2,160)	$ (2,346)
Income before income taxes	10,442	9,109	26,040	38,905
Income tax benefit	(467)	(3,501)	(2,112)	(10,908)
Net income	9,975	5,608	23,928	27,997
Reclassifications From Accumulated Other Comprehensive Loss
Amounts Reclassified from AOCI
Income before income taxes	(165)	(142)	(386)	(428)
Income tax benefit	58	50	135	150
Net income	(107)	(92)	(251)	(278)
Unrealized Gain on Cash Flow Hedge | Reclassifications From Accumulated Other Comprehensive Loss
Amounts Reclassified from AOCI
Interest expense	$ (165)	$ (142)	(376)	$ (428)
Net Unrealized Losses on Available-For-Sale Securities | Reclassifications From Accumulated Other Comprehensive Loss
Amounts Reclassified from AOCI
Interest income			$ (10)

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Condensed Consolidated Statements of Cash Flows - USD ($) $ in Thousands	9 Months Ended
	Oct. 03, 2015	Sep. 27, 2014
Operating Activities
Net income	$ 23,928	$ 27,997
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation of property and equipment	9,293	9,512
Amortization of other intangible assets and other assets	21,686	13,090
Stock-based compensation expense	30,798	28,173
Income tax benefit from stock-based awards	1,727	413
Excess income tax benefit from stock-based awards	(2,118)	(654)
Deferred income taxes	1,571	3,894
Changes in operating assets and liabilities:
Accounts receivable	12,097	769
Inventories	2,259	(1,591)
Prepaid expenses and other assets	8,409	12,627
Accounts payable	(5,686)	5,074
Accrued expenses	(280)	28,756
Deferred income on shipments to distributors	(2,825)	6,215
Income taxes	(3,413)	(4,898)
Other non-current liabilities	(10,031)	(21,790)
Net cash provided by operating activities	87,415	107,587
Investing Activities
Purchases of available-for-sale investments	(55,433)	(137,373)
Proceeds from sales and maturities of available-for-sale investments	136,262	100,009
Purchases of property and equipment	(7,281)	(5,500)
Purchases of other assets	(5,291)	(3,339)
Acquisition of business, net of cash acquired	(76,899)
Net cash used in investing activities	(8,642)	(46,203)
Financing Activities
Proceeds from issuance of common stock, net of cash paid for withheld taxes	(77)	8,559
Excess income tax benefit from stock-based awards	2,118	654
Repurchases of common stock	(71,448)	(50,942)
Payment of acquisition-related contingent consideration	(4,464)
Proceeds from issuance of long-term debt, net	81,238
Payments on debt	(92,206)	(3,750)
Net cash used in financing activities	(84,839)	(45,479)
Increase (decrease) in cash and cash equivalents	(6,066)	15,905
Cash and cash equivalents at beginning of period	141,706	95,800
Cash and cash equivalents at end of period	$ 135,640	$ 111,705

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Derivative Financial Instruments (Details 3) $ in Thousands	3 Months Ended		9 Months Ended
	Oct. 03, 2015 USD ($) contract	Sep. 27, 2014 USD ($) contract	Oct. 03, 2015 USD ($) contract	Sep. 27, 2014 USD ($) contract
Derivative Instruments, Gain (Loss)
Reclassification of interest rate swap losses included in accumulated other comprehensive loss into earnings in the next 12 months	$ 300		$ 300
Not Designated as Hedging Instrument | Foreign currency forward contracts
Derivative Instruments, Gain (Loss)
Number of foreign currency forward contract held | contract	1	0	1	0
Original notional value	$ 5,300		$ 5,300
Not Designated as Hedging Instrument | Foreign currency forward contracts | Other income (expense), net
Derivative Instruments, Gain (Loss)
Gain (Loss) Recognized in Income	379		825
Cash flow hedges | Interest rate swaps
Derivative Instruments, Gain (Loss)
Gain (Loss) Recognized in OCI on Derivatives (Effective Portion) during period	(459)	$ 193	(1,035)	$ (434)
Original notional value	100,000		100,000
Cash flow hedges | Interest rate swaps | Interest expense
Derivative Instruments, Gain (Loss)
Loss Reclassified from Accumulated OCI into Income (Effective Portion), included in rent and interest expense during period	$ (165)	$ (142)	$ (376)	$ (428)

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Cash, Cash Equivalents and Investments (Tables)

9 Months Ended

Oct. 03, 2015

Cash, Cash Equivalents and Investments

Schedule of cash, cash equivalents, and investments

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

	October 3, 2015
	Cost		Gross Unrealized Losses			Gross Unrealized Gains		Fair Value
Cash and Cash Equivalents:
Cash on hand	$	68,421	$	—		$	—	$	68,421
Available-for-sale securities:
Money market funds	63,316		—			—		63,316
Certificates of deposit	3,903		—			—		3,903
Total available-for-sale securities	67,219		—			—		67,219
Total cash and cash equivalents	$	135,640	$	—		$	—	$	135,640
Short-term Investments:
Available-for-sale securities:
Municipal bonds	$	98,605	$	(10	)	$	146	$	98,741
Variable-rate demand notes	9,495		—			—		9,495
International government bonds	2,234		—			1		2,235
Corporate bonds	2,202		(3		)	—		2,199
Total short-term investments	$	112,536	$	(13	)	$	147	$	112,670
Long-term Investments:
Available-for-sale securities:
Auction rate securities	$	8,000	$	(760	)	$	—	$	7,240
Total long-term investments	$	8,000	$	(760	)	$	—	$	7,240

	January 3, 2015
	Cost		Gross Unrealized Losses			Gross Unrealized Gains		Fair Value
Cash and Cash Equivalents:
Cash on hand	$	52,144	$	—		$	—	$	52,144
Available-for-sale securities:
Money market funds	71,415		—			—		71,415
Certificates of deposit	7,739		—			—		7,739
Commercial paper	5,348		—			—		5,348
Municipal bonds	1,756		—			1		1,757
U.S. government agency	1,202		—			—		1,202
Corporate bonds	1,101		—			—		1,101
U.S. government bonds	1,000		—			—		1,000
Total available-for-sale securities	89,561		—			1		89,562
Total cash and cash equivalents	$	141,705	$	—		$	1	$	141,706
Short-term Investments:
Available-for-sale securities:
Municipal bonds	$	129,005	$	(25	)	$	172	$	129,152
Corporate bonds	33,043		(35		)	25		33,033
Variable-rate demand notes	12,915		—			—		12,915
Commercial paper	8,995		—			—		8,995
Asset-backed securities	5,380		(3		)	—		5,377
International government bonds	2,526		(10		)	—		2,516
U.S. government bonds	650		—			—		650
U.S. government agency	601		—			—		601
Certificates of deposit	250		—			—		250
Total short-term investments	$	193,365	$	(73	)	$	197	$	193,489
Long-term Investments:
Available-for-sale securities:
Auction rate securities	$	8,000	$	(581	)	$	—	$	7,419
Total long-term investments	$	8,000	$	(581	)	$	—	$	7,419

Schedule of available-for-sale investments in continuous unrealized loss position by length of time

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

	Less Than 12 Months					12 Months or Greater					Total
As of October 3, 2015	Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses
Municipal bonds	$	8,274	$	(10	)	$	—	$	—		$	8,274	$	(10	)
Auction rate securities	—		—			7,240		(760		)	7,240		(760		)
International government bonds	2,199		(3		)	—		—			2,199		(3		)
	$	10,473	$	(13	)	$	7,240	$	(760	)	$	17,713	$	(773	)

	Less Than 12 Months					12 Months or Greater					Total
As of January 3, 2015	Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses
Municipal bonds	$	23,735	$	(25	)	$	—	$	—		$	23,735	$	(25	)
Corporate bonds	20,327		(35		)	—		—			20,327		(35		)
Auction rate securities	—		—			7,419		(581		)	7,419		(581		)
Asset-backed securities	5,080		(3		)	—		—			5,080		(3		)
International government bond	2,516		(10		)	—		—			2,516		(10		)
	$	51,658	$	(73	)	$	7,419	$	(581	)	$	59,077	$	(654	)

Summarization of contractual underlying maturities of available-for-sale investments

The following summarizes the contractual underlying maturities of the Company’s available-for-sale investments at October 3, 2015 (in thousands):

	Cost		Fair Value
Due in one year or less	$	139,704	$	139,779
Due after one year through ten years	33,136		33,195
Due after ten years	14,915		14,155
	$	187,755	$	187,129

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Fair Value of Financial Instruments (Details) - USD ($) $ in Thousands	Oct. 03, 2015	Jan. 03, 2015
Financial assets and liabilities measured at fair value on a recurring basis
Total cash equivalents	$ 135,640	$ 141,706
Total short-term investments	112,670	193,489
Total long-term investments	7,240	7,419
Assets and liabilities measured at fair value on recurring basis
Financial assets and liabilities measured at fair value on a recurring basis
Total cash equivalents	67,219	89,562
Total short-term investments	112,670	193,489
Total long-term investments	7,240	7,419
Derivative instruments		331
Other assets, net		331
Total assets at fair value	187,129	290,801
Total liabilities at fair value	13,591	18,438
Assets and liabilities measured at fair value on recurring basis | Accrued expenses:
Financial assets and liabilities measured at fair value on a recurring basis
Contingent consideration, current	4,070	4,288
Assets and liabilities measured at fair value on recurring basis | Other non-current liabilities:
Financial assets and liabilities measured at fair value on a recurring basis
Contingent consideration, noncurrent	9,192	14,150
Derivative instruments	329
Total liabilities at fair value	9,521
Assets and liabilities measured at fair value on recurring basis | Money market funds
Financial assets and liabilities measured at fair value on a recurring basis
Total cash equivalents	63,316	71,415
Assets and liabilities measured at fair value on recurring basis | Certificates of deposit
Financial assets and liabilities measured at fair value on a recurring basis
Total cash equivalents	3,903	7,739
Total short-term investments		250
Assets and liabilities measured at fair value on recurring basis | Commercial paper
Financial assets and liabilities measured at fair value on a recurring basis
Total cash equivalents		5,348
Total short-term investments		8,995
Assets and liabilities measured at fair value on recurring basis | Municipal bonds
Financial assets and liabilities measured at fair value on a recurring basis
Total cash equivalents		1,757
Total short-term investments	98,741	129,152
Assets and liabilities measured at fair value on recurring basis | Variable-rate demand notes
Financial assets and liabilities measured at fair value on a recurring basis
Total short-term investments	9,495	12,915
Assets and liabilities measured at fair value on recurring basis | Asset-backed securities
Financial assets and liabilities measured at fair value on a recurring basis
Total short-term investments		5,377
Assets and liabilities measured at fair value on recurring basis | International government bonds
Financial assets and liabilities measured at fair value on a recurring basis
Total short-term investments	2,235	2,516
Assets and liabilities measured at fair value on recurring basis | US government agency
Financial assets and liabilities measured at fair value on a recurring basis
Total cash equivalents		1,202
Total short-term investments		601
Assets and liabilities measured at fair value on recurring basis | Corporate bonds
Financial assets and liabilities measured at fair value on a recurring basis
Total cash equivalents		1,101
Total short-term investments	2,199	33,033
Assets and liabilities measured at fair value on recurring basis | U.S. government bonds
Financial assets and liabilities measured at fair value on a recurring basis
Total cash equivalents		1,000
Total short-term investments		650
Assets and liabilities measured at fair value on recurring basis | Auction rate securities
Financial assets and liabilities measured at fair value on a recurring basis
Total long-term investments	7,240	7,419
Assets and liabilities measured at fair value on recurring basis | Quoted Prices in Active Markets for Identical Assets (Level 1)
Financial assets and liabilities measured at fair value on a recurring basis
Total cash equivalents	63,316	72,415
Total short-term investments		650
Total assets at fair value	63,316	73,065
Assets and liabilities measured at fair value on recurring basis | Quoted Prices in Active Markets for Identical Assets (Level 1) | Money market funds
Financial assets and liabilities measured at fair value on a recurring basis
Total cash equivalents	63,316	71,415
Assets and liabilities measured at fair value on recurring basis | Quoted Prices in Active Markets for Identical Assets (Level 1) | U.S. government bonds
Financial assets and liabilities measured at fair value on a recurring basis
Total cash equivalents		1,000
Total short-term investments		650
Assets and liabilities measured at fair value on recurring basis | Significant Other Observable Inputs (Level 2)
Financial assets and liabilities measured at fair value on a recurring basis
Total cash equivalents	3,903	17,147
Total short-term investments	112,670	192,839
Derivative instruments		331
Other assets, net		331
Total assets at fair value	116,573	210,317
Total liabilities at fair value	329
Assets and liabilities measured at fair value on recurring basis | Significant Other Observable Inputs (Level 2) | Other non-current liabilities:
Financial assets and liabilities measured at fair value on a recurring basis
Derivative instruments	329
Total liabilities at fair value	329
Assets and liabilities measured at fair value on recurring basis | Significant Other Observable Inputs (Level 2) | Certificates of deposit
Financial assets and liabilities measured at fair value on a recurring basis
Total cash equivalents	3,903	7,739
Total short-term investments		250
Assets and liabilities measured at fair value on recurring basis | Significant Other Observable Inputs (Level 2) | Commercial paper
Financial assets and liabilities measured at fair value on a recurring basis
Total cash equivalents		5,348
Total short-term investments		8,995
Assets and liabilities measured at fair value on recurring basis | Significant Other Observable Inputs (Level 2) | Municipal bonds
Financial assets and liabilities measured at fair value on a recurring basis
Total cash equivalents		1,757
Total short-term investments	98,741	129,152
Assets and liabilities measured at fair value on recurring basis | Significant Other Observable Inputs (Level 2) | Variable-rate demand notes
Financial assets and liabilities measured at fair value on a recurring basis
Total short-term investments	9,495	12,915
Assets and liabilities measured at fair value on recurring basis | Significant Other Observable Inputs (Level 2) | Asset-backed securities
Financial assets and liabilities measured at fair value on a recurring basis
Total short-term investments		5,377
Assets and liabilities measured at fair value on recurring basis | Significant Other Observable Inputs (Level 2) | International government bonds
Financial assets and liabilities measured at fair value on a recurring basis
Total short-term investments	2,235	2,516
Assets and liabilities measured at fair value on recurring basis | Significant Other Observable Inputs (Level 2) | US government agency
Financial assets and liabilities measured at fair value on a recurring basis
Total cash equivalents		1,202
Total short-term investments		601
Assets and liabilities measured at fair value on recurring basis | Significant Other Observable Inputs (Level 2) | Corporate bonds
Financial assets and liabilities measured at fair value on a recurring basis
Total cash equivalents		1,101
Total short-term investments	2,199	33,033
Assets and liabilities measured at fair value on recurring basis | Significant Unobservable Inputs (Level 3)
Financial assets and liabilities measured at fair value on a recurring basis
Total long-term investments	7,240	7,419
Total assets at fair value	7,240	7,419
Total liabilities at fair value	13,262	18,438
Assets and liabilities measured at fair value on recurring basis | Significant Unobservable Inputs (Level 3) | Accrued expenses:
Financial assets and liabilities measured at fair value on a recurring basis
Contingent consideration, current	4,070	4,288
Assets and liabilities measured at fair value on recurring basis | Significant Unobservable Inputs (Level 3) | Other non-current liabilities:
Financial assets and liabilities measured at fair value on a recurring basis
Contingent consideration, noncurrent	9,192	14,150
Total liabilities at fair value	9,192
Assets and liabilities measured at fair value on recurring basis | Significant Unobservable Inputs (Level 3) | Auction rate securities
Financial assets and liabilities measured at fair value on a recurring basis
Total long-term investments	$ 7,240	$ 7,419

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Fair Value of Financial Instruments (Tables)

9 Months Ended

Oct. 03, 2015

Fair Value of Financial Instruments

Financial assets and liabilities measured at fair value on a recurring basis

The following summarizes the valuation of the Company’s financial instruments (in thousands).

	Fair Value Measurements at October 3, 2015 Using
Description	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
Assets:
Cash Equivalents:
Money market funds	$	63,316	$	—	$	—	$	63,316
Certificates of deposit	—		3,903		—		3,903
Total cash equivalents	$	63,316	$	3,903	$	—	$	67,219
Short-term Investments:
Municipal bonds	$	—	$	98,741	$	—	$	98,741
Variable-rate demand notes	—		9,495		—		9,495
International government bonds	—		2,235		—		2,235
Corporate bonds	—		2,199		—		2,199
Total short-term investments	$	—	$	112,670	$	—	$	112,670
Long-term Investments:
Auction rate securities	$	—	$	—	$	7,240	$	7,240
Total long-term investments	$	—	$	—	$	7,240	$	7,240
Total	$	63,316	$	116,573	$	7,240	$	187,129
Liabilities:
Accrued expenses:
Contingent consideration	$	—	$	—	$	4,070	$	4,070
Other non-current liabilities:
Contingent consideration	$	—	$	—	$	9,192	$	9,192
Derivative instruments	—		329		—		329
	$	—	$	329	$	9,192	$	9,521
Total	$	—	$	329	$	13,262	$	13,591

	Fair Value Measurements at January 3, 2015 Using
Description	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
Assets:
Cash Equivalents:
Money market funds	$	71,415	$	—	$	—	$	71,415
Certificates of deposit	—		7,739		—		7,739
Commercial paper	—		5,348		—		5,348
Municipal bonds	—		1,757		—		1,757
U.S. government agency	—		1,202		—		1,202
Corporate bonds	—		1,101		—		1,101
U.S. government bonds	1,000		—		—		1,000
Total cash equivalents	$	72,415	$	17,147	$	—	$	89,562
Short-term Investments:
Municipal bonds	$	—	$	129,152	$	—	$	129,152
Corporate bonds	—		33,033		—		33,033
Variable-rate demand notes	—		12,915		—		12,915
Commercial paper	—		8,995		—		8,995
Asset-backed securities	—		5,377		—		5,377
International government bonds	—		2,516		—		2,516
U.S. government bond	650		—		—		650
U.S. government agency	—		601		—		601
Certificates of deposit	—		250		—		250
Total short-term investments	$	650	$	192,839	$	—	$	193,489
Long-term Investments:
Auction rate securities	$	—	$	—	$	7,419	$	7,419
Total long-term investments	$	—	$	—	$	7,419	$	7,419
Other assets, net:
Derivative instruments	$	—	$	331	$	—	$	331
Total	$	—	$	331	$	—	$	331
Total	$	73,065	$	210,317	$	7,419	$	290,801
Liabilities:
Accrued expenses:
Contingent consideration	$	—	$	—	$	4,288	$	4,288
Other non-current liabilities:
Contingent consideration	$	—	$	—	$	14,150	$	14,150
Total	$	—	$	—	$	18,438	$	18,438

Summary of quantitative information about level 3 asset fair value measurements

Auction rate securities

Fair Value at October 3, 2015 (000s)		Valuation Technique	Unobservable Input	Weighted Average
$	7,240	Discounted cash flow	Estimated yield	1.04%
			Expected holding period	10 years
			Estimated discount rate	3.46%

Summary of quantitative information about level 3 liability fair value measurements

Contingent consideration

Fair Value at October 3, 2015 (000s)		Valuation Technique	Unobservable Input	Range
$	13,262	Monte Carlo simulation	Expected revenue growth rate	38.6% – 47.0%
			Expected revenue volatility	20.0%
			Expected term	0.3 years – 3.3 years
			Estimated discount rate	0.34% – 1.44%

Summary of activity in Level 3 financial instruments

The following summarizes the activity in Level 3 financial instruments for the three and nine months ended October 3, 2015 (in thousands):

Assets

Auction Rate Securities	Three Months Ended		Nine Months Ended
Beginning balance	$	7,179	$	7,419
Gain (loss) included in other comprehensive income (loss)	61		(179		)
Balance at October 3, 2015	$	7,240	$	7,240

Liabilities

Contingent Consideration (1)	Three Months Ended			Nine Months Ended
Beginning balance	$	15,092		$	18,438
Settlements	—			(4,464		)
Gain recognized in earnings (2)	(1,830		)	(712		)
Balance at October 3, 2015	$	13,262		$	13,262
Net gain for the period included in earnings attributable to contingent consideration held at the end of the period:	$	1,830		$	712

(1) In connection with the acquisition of Energy Micro, the Company recorded contingent consideration based upon the expected achievement of certain milestone goals. Changes to the fair value of contingent consideration due to changes in assumptions used in preparing the valuation model are recorded in selling, general and administrative expenses in the Consolidated Statement of Income.

(2) Changes to the estimated fair value of contingent consideration were primarily due to revisions to the Company’s expectations of earn-out achievement.

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Significant Accounting Policies

9 Months Ended

Oct. 03, 2015

Significant Accounting Policies

Significant Accounting Policies

1.  Significant Accounting Policies

Basis of Presentation and Principles of Consolidation

The Condensed Consolidated Financial Statements included herein are unaudited; however, they contain all normal recurring accruals and adjustments which, in the opinion of management, are necessary to present fairly the condensed consolidated financial position of Silicon Laboratories Inc. and its subsidiaries (collectively, the “Company”) at October 3, 2015 and January 3, 2015, the condensed consolidated results of its operations for the three and nine months ended October 3, 2015 and September 27, 2014, the Condensed Consolidated Statements of Comprehensive Income for the three and nine months ended October 3, 2015 and September 27, 2014, and the Condensed Consolidated Statements of Cash Flows for the nine months ended October 3, 2015 and September 27, 2014. All intercompany balances and transactions have been eliminated in consolidation. The condensed consolidated results of operations for the three and nine months ended October 3, 2015 are not necessarily indicative of the results to be expected for the full year.

The accompanying unaudited Condensed Consolidated Financial Statements do not include certain footnotes and financial presentations normally required under U.S. generally accepted accounting principles (GAAP). Therefore, these Condensed Consolidated Financial Statements should be read in conjunction with the audited Consolidated Financial Statements and notes thereto for the year ended January 3, 2015, included in the Company’s Form 10-K filed with the Securities and Exchange Commission (SEC) on February 6, 2015.

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

Reclassifications

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

Revenue Recognition

Revenues are generated predominately by sales of the Company’s integrated circuits (ICs). The Company recognizes revenue when all of the following criteria are met: 1) there is persuasive evidence that an arrangement exists, 2) delivery of goods has occurred, 3) the sales price is fixed or determinable, and 4) collectibility is reasonably assured. Generally, revenue from product sales to direct customers and contract manufacturers is recognized upon shipment.

A portion of the Company’s sales are made to distributors under agreements allowing certain rights of return and price protection related to the final selling price to the end customers. Accordingly, the Company defers revenue and cost of revenue on such sales until the distributors sell the product to the end customers. The net balance of deferred revenue less deferred cost of revenue associated with inventory shipped to a distributor but not yet sold to an end customer is recorded in the deferred income on shipments to distributors liability on the Consolidated Balance Sheet. Such net deferred income balance reflects the Company’s estimate of the impact of rights of return and price protection.

A small portion of the Company’s revenues is derived from the sale of patents. The above revenue recognition criteria for patent sales are generally met upon the execution of the patent sale agreement.

Recent Accounting Pronouncements

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

In July 2015, the FASB issued FASB ASU No. 2015-11, Inventory (Topic 330): Simplifying the Measurement of Inventory. The amendments in this update require inventory to be measured at the lower of cost and net realizable value. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. This ASU is effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. The amendments in this update should be applied prospectively with earlier application permitted. The Company is currently evaluating the effect that the adoption of this ASU will have on its financial statements.

In April 2015, the FASB issued FASB ASU No. 2015-03, Interest—Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs. The amendments in this update require that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability. ASU 2015-03 is to be applied retrospectively and represents a change in accounting principle. In August 2015, the FASB issued FASB ASU No. 2015-15, Interest—Imputation of Interest (Subtopic 835-30): Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements. ASU 2015-15 clarified the presentation and subsequent measurement of debt issuance costs related to line-of-credit arrangements. Such costs may be presented in the balance sheet as an asset and subsequently amortized ratably over the term of the line-of-credit arrangement, regardless of whether there are any outstanding borrowings on the line-of-credit arrangement. ASU 2015-03 and ASU 2015-15 are effective for fiscal years beginning after December 15, 2015, including interim periods within those fiscal years. Earlier adoption is permitted for financial statements that have not been previously issued. The Company is currently evaluating the effect that the adoption of ASU 2015-03 and ASU 2015-15 will have on its financial statements.

In May 2014, the FASB issued FASB ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606), which supersedes the revenue recognition requirements in ASC 605, Revenue Recognition. The core principle of ASU 2014-09 is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The guidance provides a five-step process to achieve that core principle. ASU 2014-09 requires disclosures enabling users of financial statements to understand the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. Additionally, qualitative and quantitative disclosures are required about contracts with customers, significant judgments and changes in judgments, and assets recognized from the costs to obtain or fulfill a contract. In August 2015, the FASB issued FASB ASU No. 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date, which deferred the effective date of ASU 2014-09 by one year. ASU 2014-09 is now effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period, using one of two retrospective application methods. Early application is permitted only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period. The Company is currently evaluating the effect that the adoption of ASU 2014-09 and ASU 2015-14 will have on its financial statements.

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Condensed Consolidated Balance Sheets (Parenthetical) - USD ($) shares in Thousands, $ in Thousands	Oct. 03, 2015	Jan. 03, 2015
Condensed Consolidated Balance Sheets
Accounts receivable, allowances for doubtful accounts (in dollars)	$ 695	$ 786
Preferred stock, par value (in dollars per share)	$ 0.0001	$ 0.0001
Preferred stock, shares authorized	10,000	10,000
Preferred stock, shares issued	0	0
Preferred stock, shares outstanding	0	0
Common stock, par value (in dollars per share)	$ 0.0001	$ 0.0001
Common stock, shares authorized	250,000	250,000
Common stock, shares issued	41,570	42,225
Common stock, shares outstanding	41,570	42,225

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Commitments and Contingencies

9 Months Ended

Oct. 03, 2015

Commitments and Contingencies

Commitments and Contingencies

11.  Commitments and Contingencies

Patent Litigation

On January 21, 2014, Cresta Technology Corporation (“Cresta Technology”), a Delaware corporation, filed a lawsuit against the Company, Samsung Electronics Co., Ltd., Samsung Electronics America, Inc., LG Electronics Inc. and LG Electronics U.S.A., Inc. in the United States District Court in the District of Delaware, alleging infringement of United States Patent Nos. 7,075,585, 7,265,792 and 7,251,466. The lawsuit relates to the Company’s family of television tuner products. Cresta Technology seeks unspecified compensatory and enhanced damages, attorney fees and a permanent injunction. On January 28, 2014, Cresta Technology also filed a complaint with the United States International Trade Commission (“ITC”) alleging infringement of the same patents against the Company, Samsung and LG Electronics and seeking to prevent the importation and sale of allegedly infringing products in the United States. The ITC instituted an investigation based on Cresta Technology’s complaint on February 27, 2014. The Delaware District Court action has been stayed pending completion of the proceedings in the ITC. The Company intends to vigorously defend against these allegations.

An evidentiary hearing in this ITC Investigation concluded on December 5, 2014. The ITC Administrative Law Judge (“ALJ”) issued an Initial Determination on February 27, 2015, finding that all the patent claims asserted against the Company’s products were either invalid or not infringed. The ALJ also found that Cresta Technology failed to establish the ITC’s domestic industry requirement. Accordingly, the ALJ found no violation by the Company.

On September 29, 2015, the ITC issued its Final Determination, finding that all the patent claims asserted against the Company’s products were either invalid or not infringed and that Cresta Technology failed to establish the ITC’s domestic industry requirement. Accordingly, the ITC found no violation by the Company and terminated the Investigation.

On May 6, 2014, the Company filed a complaint with the ITC alleging infringement of United States Patent Nos. 6,137,372 and 6,233,441 against Cresta Technology, Hauppauge Digital, Inc., Hauppague Computer Works, Inc., PCTV Systems, S.a.r.l., Luxembourg and PCTV Systems S.a.r.l., seeking to prevent the importation and sale of allegedly infringing products in the United States. On July 1, 2014, the Administrative Law Judge accepted a consent order whereby Cresta Technology will not sell for importation, import or sell in the United States television tuners that infringe the Company’s United States Patent Nos. 6,137,372 and 6,233,441. Accordingly, this ITC investigation has been terminated in its entirety.

On July 16, 2014, the Company filed a lawsuit against Cresta Technology in the United States District Court in the Northern District of California alleging infringement of United States Patent Nos. 6,308,055, 6,304,146, 6,137,372, 6,233,441, 6,965,761 and 7,353,011. The Company is seeking a permanent injunction stopping the sale of all allegedly infringing Cresta Technology products and an award of damages and attorney fees.

As is customary in the semiconductor industry, the Company provides indemnification protection to its customers for intellectual property claims related to the Company’s products. The Company has not accrued any material liability on its consolidated balance sheet related to such indemnification obligations in connection with the Cresta Technology litigation.

At this time, the Company cannot predict the outcome of these matters or the resulting financial impact to it, if any.

Other

The Company is involved in various other legal proceedings that have arisen in the normal course of business. While the ultimate results of these matters cannot be predicted with certainty, the Company does not expect them to have a material adverse effect on its consolidated financial statements.

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Document and Entity Information - shares	9 Months Ended
	Oct. 03, 2015	Oct. 20, 2015
Document and Entity Information
Entity Registrant Name	SILICON LABORATORIES INC
Entity Central Index Key	0001038074
Document Type	10-Q
Document Period End Date	Oct. 03, 2015
Amendment Flag	false
Current Fiscal Year End Date	--01-02
Entity Current Reporting Status	Yes
Entity Filer Category	Large Accelerated Filer
Entity Common Stock, Shares Outstanding		41,574,684
Document Fiscal Year Focus	2015
Document Fiscal Period Focus	Q3

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Related Party Transactions

9 Months Ended

Oct. 03, 2015

Related Party Transactions

Related Party Transactions

12. Related Party Transactions

On July 1, 2013, Geir Førre joined the Company as senior vice president. Mr. Førre was chief executive officer of Energy Micro, until it was acquired by the Company. Mr. Førre was the beneficial owner of approximately 30% of the Energy Micro equity and accordingly received approximately $35 million at closing. In the first quarter of 2015, Mr. Førre received approximately $6.1 million of the $20.0 million paid for the holdback related to potential indemnification claims and approximately $1.9 million of the $6.3 million paid for the fiscal 2014 earn-out. Mr. Førre may receive up to approximately $8.1 million of the remaining potential $26.7 million earn-out for fiscal 2015 through 2018.

On October 17, 2013, the Company appointed Alf-Egil Bogen to its board of directors. Mr. Bogen was chief marketing officer of Energy Micro, until it was acquired by the Company. Mr. Bogen was the beneficial owner of approximately 2% of the Energy Micro equity and accordingly received approximately $0.9 million at closing. In the first quarter of 2015, Mr. Bogen received approximately $0.4 million of the $20.0 million paid for the holdback related to potential indemnification claims and approximately $0.1 million of the $6.3 million paid for the fiscal 2014 earn-out. Mr. Bogen may receive up to approximately $0.5 million of the remaining potential $26.7 million earn-out for fiscal 2015 through 2018. Mr. Bogen had invested approximately $0.8 million in Energy Micro prior to the acquisition.

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Condensed Consolidated Statements of Income - USD ($) shares in Thousands, $ in Thousands	3 Months Ended		9 Months Ended
	Oct. 03, 2015	Sep. 27, 2014	Oct. 03, 2015	Sep. 27, 2014
Condensed Consolidated Statements of Income
Revenues	$ 156,194	$ 158,144	$ 484,755	$ 458,753
Cost of revenues	62,759	62,033	197,523	176,874
Gross margin	93,435	96,111	287,232	281,879
Operating expenses:
Research and development	46,483	42,517	140,805	126,846
Selling, general and administrative	35,729	43,990	118,989	114,618
Operating expenses	82,212	86,507	259,794	241,464
Operating income	11,223	9,604	27,438	40,415
Other income (expense):
Interest income	186	231	544	733
Interest expense	(687)	(768)	(2,160)	(2,346)
Other income (expense), net	(280)	42	218	103
Income before income taxes	10,442	9,109	26,040	38,905
Provision for income taxes	467	3,501	2,112	10,908
Net income	$ 9,975	$ 5,608	$ 23,928	$ 27,997
Earnings per share:
Basic (in dollars per share)	$ 0.24	$ 0.13	$ 0.56	$ 0.65
Diluted (in dollars per share)	$ 0.23	$ 0.13	$ 0.55	$ 0.64
Weighted-average common shares outstanding:
Basic (in shares)	42,331	43,112	42,522	43,218
Diluted (in shares)	42,795	43,815	43,135	44,030

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Balance Sheet Details

9 Months Ended

Oct. 03, 2015

Balance Sheet Details

Balance Sheet Details

6. Balance Sheet Details

The following shows the details of selected Condensed Consolidated Balance Sheet items (in thousands):

Inventories

	October 3, 2015		January 3, 2015
Work in progress	$	38,107	$	40,640
Finished goods	13,850		11,991
	$	51,957	$	52,631

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Fair Value of Financial Instruments

9 Months Ended

Oct. 03, 2015

Fair Value of Financial Instruments

Fair Value of Financial Instruments

5. Fair Value of Financial Instruments

The fair values of the Company’s financial instruments are recorded using a hierarchal disclosure framework based upon the level of subjectivity of the inputs used in measuring assets and liabilities. The three levels are described below:

Level 1 - Inputs are unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date.

Level 2 - Inputs are inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly.

Level 3 - Inputs are unobservable for the asset or liability and are developed based on the best information available in the circumstances, which might include the Company’s own data.

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

	Fair Value Measurements at October 3, 2015 Using
Description	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
Assets:
Cash Equivalents:
Money market funds	$	63,316	$	—	$	—	$	63,316
Certificates of deposit	—		3,903		—		3,903
Total cash equivalents	$	63,316	$	3,903	$	—	$	67,219
Short-term Investments:
Municipal bonds	$	—	$	98,741	$	—	$	98,741
Variable-rate demand notes	—		9,495		—		9,495
International government bonds	—		2,235		—		2,235
Corporate bonds	—		2,199		—		2,199
Total short-term investments	$	—	$	112,670	$	—	$	112,670
Long-term Investments:
Auction rate securities	$	—	$	—	$	7,240	$	7,240
Total long-term investments	$	—	$	—	$	7,240	$	7,240
Total	$	63,316	$	116,573	$	7,240	$	187,129
Liabilities:
Accrued expenses:
Contingent consideration	$	—	$	—	$	4,070	$	4,070
Other non-current liabilities:
Contingent consideration	$	—	$	—	$	9,192	$	9,192
Derivative instruments	—		329		—		329
	$	—	$	329	$	9,192	$	9,521
Total	$	—	$	329	$	13,262	$	13,591

	Fair Value Measurements at January 3, 2015 Using
Description	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
Assets:
Cash Equivalents:
Money market funds	$	71,415	$	—	$	—	$	71,415
Certificates of deposit	—		7,739		—		7,739
Commercial paper	—		5,348		—		5,348
Municipal bonds	—		1,757		—		1,757
U.S. government agency	—		1,202		—		1,202
Corporate bonds	—		1,101		—		1,101
U.S. government bonds	1,000		—		—		1,000
Total cash equivalents	$	72,415	$	17,147	$	—	$	89,562
Short-term Investments:
Municipal bonds	$	—	$	129,152	$	—	$	129,152
Corporate bonds	—		33,033		—		33,033
Variable-rate demand notes	—		12,915		—		12,915
Commercial paper	—		8,995		—		8,995
Asset-backed securities	—		5,377		—		5,377
International government bonds	—		2,516		—		2,516
U.S. government bond	650		—		—		650
U.S. government agency	—		601		—		601
Certificates of deposit	—		250		—		250
Total short-term investments	$	650	$	192,839	$	—	$	193,489
Long-term Investments:
Auction rate securities	$	—	$	—	$	7,419	$	7,419
Total long-term investments	$	—	$	—	$	7,419	$	7,419
Other assets, net:
Derivative instruments	$	—	$	331	$	—	$	331
Total	$	—	$	331	$	—	$	331
Total	$	73,065	$	210,317	$	7,419	$	290,801
Liabilities:
Accrued expenses:
Contingent consideration	$	—	$	—	$	4,288	$	4,288
Other non-current liabilities:
Contingent consideration	$	—	$	—	$	14,150	$	14,150
Total	$	—	$	—	$	18,438	$	18,438

The Company’s cash equivalents and short-term investments that are classified as Level 1 are valued using quoted prices and other relevant information generated by market transactions involving identical assets. Cash equivalents and short-term investments classified as Level 2 are valued using non-binding market consensus prices that are corroborated with observable market data; quoted market prices for similar instruments in active markets; or pricing models, such as a discounted cash flow model, with all significant inputs derived from or corroborated with observable market data. Investments classified as Level 3 are valued using a discounted cash flow model. The assumptions used in preparing the discounted cash flow model include estimates for interest rates, amount of cash flows, expected holding periods of the securities and a discount to reflect the Company’s inability to liquidate the securities. The Company’s derivative instruments are valued using discounted cash flow models. The assumptions used in preparing the valuation models include quoted interest swap rates, foreign exchange rates, forward and spot prices for currencies, and market observable data of similar instruments.

The Company’s contingent consideration is valued using a Monte Carlo simulation model or a probability weighted discounted cash flow model. The assumptions used in preparing the Monte Carlo simulation model include estimates for revenue growth rates, revenue volatility, contractual terms and discount rates. The assumptions used in preparing the discounted cash flow model include estimates for outcomes if milestone goals are achieved, the probability of achieving each outcome and discount rates.

The following summarizes quantitative information about Level 3 fair value measurements.

Auction rate securities

Fair Value at October 3, 2015 (000s)		Valuation Technique	Unobservable Input	Weighted Average
$	7,240	Discounted cash flow	Estimated yield	1.04%
			Expected holding period	10 years
			Estimated discount rate	3.46%

The Company has followed an established internal control procedure used in valuing auction rate securities. The procedure involves the analysis of valuation techniques and evaluation of unobservable inputs commonly used by market participants to price similar instruments, and which have been demonstrated to provide reasonable estimates of prices obtained in actual market transactions. Outputs from the valuation process are assessed against various market sources when they are available, including marketplace quotes, recent trades of similar illiquid securities, benchmark indices and independent pricing services. The technique and unobservable input parameters may be recalibrated periodically to achieve an appropriate estimation of the fair value of the securities.

Significant changes in any of the unobservable inputs used in the fair value measurement of auction rate securities in isolation could result in a significantly lower or higher fair value measurement. An increase in expected yield would result in a higher fair value measurement, whereas an increase in expected holding period or estimated discount rate would result in a lower fair value measurement. Generally, a change in the assumptions used for expected holding period is accompanied by a directionally similar change in the assumptions used for estimated yield and discount rate.

Contingent consideration

Fair Value at October 3, 2015 (000s)		Valuation Technique	Unobservable Input	Range
$	13,262	Monte Carlo simulation	Expected revenue growth rate	38.6% – 47.0%
			Expected revenue volatility	20.0%
			Expected term	0.3 years – 3.3 years
			Estimated discount rate	0.34% – 1.44%

The Company has followed an established internal control procedure used in valuing contingent consideration. The valuation of contingent consideration for the Energy Micro acquisition is based on a Monte Carlo simulation model. The fair value of this valuation is estimated on a quarterly basis through a collaborative effort by the Company’s sales, marketing and finance departments.

Significant changes in any of the unobservable inputs used in the fair value measurement of contingent consideration in isolation could result in a significantly lower or higher fair value. A change in projected revenue growth rates would be accompanied by a directionally similar change in fair value.

The following summarizes the activity in Level 3 financial instruments for the three and nine months ended October 3, 2015 (in thousands):

Assets

Auction Rate Securities	Three Months Ended		Nine Months Ended
Beginning balance	$	7,179	$	7,419
Gain (loss) included in other comprehensive income (loss)	61		(179		)
Balance at October 3, 2015	$	7,240	$	7,240

Liabilities

Contingent Consideration (1)	Three Months Ended			Nine Months Ended
Beginning balance	$	15,092		$	18,438
Settlements	—			(4,464		)
Gain recognized in earnings (2)	(1,830		)	(712		)
Balance at October 3, 2015	$	13,262		$	13,262
Net gain for the period included in earnings attributable to contingent consideration held at the end of the period:	$	1,830		$	712

(1) In connection with the acquisition of Energy Micro, the Company recorded contingent consideration based upon the expected achievement of certain milestone goals. Changes to the fair value of contingent consideration due to changes in assumptions used in preparing the valuation model are recorded in selling, general and administrative expenses in the Consolidated Statement of Income.

(2) Changes to the estimated fair value of contingent consideration were primarily due to revisions to the Company’s expectations of earn-out achievement.

Fair values of other financial instruments

The Company’s debt under the Credit Facilities bears interest at the Eurodollar rate plus an applicable margin. The Credit Facilities are recorded at cost, but are measured at fair value for disclosure purposes. Fair value is estimated based on Level 2 inputs, using a discounted cash flow analysis of future principal payments and projected interest based on current market rates. As of October 3, 2015 and January 3, 2015, the fair value of the Company’s debt under the Credit Facilities was approximately $80.0 million and $87.4 million, respectively.

The Company’s other financial instruments, including cash, accounts receivable and accounts payable, are recorded at amounts that approximate their fair values due to their short maturities.

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Derivative Financial Instruments (Tables)

9 Months Ended

Oct. 03, 2015

Derivative Financial Instruments

Schedule of derivative financial instrument

The Company’s derivative financial instrument in cash flow hedging relationships consisted of the following (in thousands):

		Fair Value
	Balance Sheet Location	October 3, 2015		January 3, 2015
Interest rate swap	Other assets, net	$	—	$	331
	Other non-current liabilities	329		—

Schedule of before-tax effect of derivative instruments in cash flow hedging relationships

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

	Gain (Loss) Recognized in OCI on Derivatives (Effective Portion) during the:					Location of Loss Reclassified into Income	Loss Reclassified from Accumulated OCI into Income (Effective Portion) during the:
	Three Months Ended						Three Months Ended
	October 3, 2015			September 27, 2014			October 3, 2015			September 27, 2014
Interest rate swaps	$	(459	)	$	193	Interest expense	$	(165	)	$	(142	)

	Nine Months Ended							Nine Months Ended
	October 3, 2015			September 27, 2014				October 3, 2015			September 27, 2014
Interest rate swaps	$	(1,035	)	$	(434	)	Interest expense	$	(376	)	$	(428	)

Schedule of before-tax effect of derivative instruments not designated as hedging instruments

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

	Three Months Ended				Nine Months Ended
Gain (Loss) Recognized in Income	October 3, 2015		September 27, 2014		October 3, 2015		September 27, 2014		Location
Foreign currency forward contracts	$	379	$	—	$	825	$	—	Other income (expense), net

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Income Taxes

9 Months Ended

Oct. 03, 2015

Income Taxes

Income Taxes

13. Income Taxes

Provision for income taxes includes both domestic and foreign income taxes at the applicable statutory rates adjusted for non-deductible expenses, research and development tax credits and other permanent differences. Income tax expense was $0.5 million and $3.5 million for the three months ended October 3, 2015 and September 27, 2014, resulting in effective tax rates of 4.5% and 38.4%, respectively. Income tax expense was $2.1 million and $10.9 million for the nine months ended October 3, 2015 and September 27, 2014, resulting in effective tax rates of 8.1% and 28.0%, respectively. The effective tax rate for both the three months and nine months ended October 3, 2015 decreased from the prior periods, primarily due to an increase in the foreign tax rate benefit in the current periods resulting from the completion of payments related to an intercompany licensing transaction. For the three months ended October 3, 2015 the effective tax rate was further decreased by a decrease in the current period of nondeductible costs related to the Energy Micro acquisition. For the nine months ended October 3, 2015, the decrease in the effective tax rate was partially offset by the release during the prior period of unrecognized tax benefits related to an uncertain tax position that was closed by statute.

At October 3, 2015, the Company had gross unrecognized tax benefits of $3.7 million, all of which would affect the effective tax rate if recognized. The Company recognizes interest and penalties related to unrecognized tax benefits in the provision for income taxes.

The Company believes it is reasonably possible that the gross unrecognized tax benefits will decrease by approximately $0.9 million in the next 12 months due to the lapse of the statute of limitations applicable to tax deductions and tax credits claimed on prior year tax returns.

On July 27, 2015, in Altera Corp. v. Commissioner, the U.S. Tax Court issued an opinion related to the treatment of stock-based compensation expense in an intercompany cost-sharing arrangement. A final decision has yet to be issued by the Tax Court due to other outstanding issues related to the case. At this time, the U.S. Department of the Treasury has not withdrawn the requirement to include stock-based compensation from its regulations. The Company has reviewed this case and its impact and has concluded that no adjustment to the condensed consolidated financial statements is appropriate at this time. The Company will continue to monitor ongoing developments and potential impacts to the condensed consolidated financial statements.

The tax years 2010 through 2015 remain open to examination by the major taxing jurisdictions to which the Company is subject. The Company is not currently under audit in any major taxing jurisdiction.

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Stockholders' Equity

9 Months Ended

Oct. 03, 2015

Stockholders' Equity

Stockholders' Equity

9. Stockholders’ Equity

Common Stock

The Company issued 1.0 million shares of common stock during the nine months ended October 3, 2015.

Share Repurchase Programs

The Board of Directors authorized the following share repurchase programs (in thousands):

Program Authorization Date	Program Termination Date	Program Amount
August 2015	December 2016	$	100,000
October 2014	December 2015	$	100,000
January 2014	January 2015	$	100,000
January 2013	January 2014	$	50,000

These programs allow for repurchases to be made in the open market or in private transactions, including structured or accelerated transactions, subject to applicable legal requirements and market conditions. The Company repurchased 1.6 million shares of its common stock for $71.4 million during the nine months ended October 3, 2015. The Company repurchased 1.3 million shares of its common stock for $53.9 million during the nine months ended September 27, 2014. These shares were retired upon repurchase.

Accumulated Other Comprehensive Loss

The components of accumulated other comprehensive loss, net of taxes, were as follows (in thousands):

	Unrealized Gain (Loss) on Cash Flow Hedge			Net Unrealized Losses on Available-For-Sale Securities			Total
Balance at January 3, 2015	$	215		$	(297	)	$	(82	)
Other comprehensive loss before reclassifications	(672		)	(116		)	(788		)
Amount reclassified from accumulated other comprehensive loss	245			6			251
Net change for the period	(427		)	(110		)	(537		)
Balance at October 3, 2015	$	(212	)	$	(407	)	$	(619	)

Reclassifications From Accumulated Other Comprehensive Loss

	Three Months Ended						Nine Months Ended
Reclassification (in thousands)	October 3, 2015			September 27, 2014			October 3, 2015			September 27, 2014
Losses on cash flow hedges to:
Interest expense	$	(165	)	$	(142	)	$	(376	)	$	(428	)
Losses on available-for-sale securities to:
Interest income	—			—			(10		)	—
	(165		)	(142		)	(386		)	(428		)
Income tax benefit	58			50			135			150
Total reclassifications	$	(107	)	$	(92	)	$	(251	)	$	(278	)

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Acquisitions

9 Months Ended

Oct. 03, 2015

Acquisitions

Acquisitions

7. Acquisitions

Bluegiga

On January 30, 2015, the Company acquired Bluegiga Technologies Oy, a private company based in Finland. Bluegiga is a provider of Bluetooth® Smart, Bluetooth Classic and Wi-Fi® modules and software stacks for a multitude of applications in the Internet of Things (IoT), industrial automation, consumer electronics, automotive, retail, residential, and health and fitness markets.

The Company acquired Bluegiga for cash consideration of approximately $58.0 million. Approximately $9.4 million of the initial consideration was held in escrow as security for breaches of representations and warranties and certain other expressly enumerated matters. The Company recorded the purchase of Bluegiga 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 results of Bluegiga’s operations are included in the Company’s consolidated results of operations beginning on the date of the acquisition.

The Company believes that this strategic acquisition will accelerate its entry into the wireless module market. This factor contributed to a purchase price that was in excess of the fair value of the 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):

	Amount			Weighted-Average Amortization Period (Years)
Intangible assets:
In-process research and development	$	5,710		Not amortized
Developed technology	12,190			8
Customer relationships	6,670			4
Trademarks	880			3
	25,450
Cash and cash equivalents	1,132
Other current assets	6,156
Goodwill	35,145
Other non-current assets	208
Current liabilities	(3,289		)
Non-current deferred tax liabilities, net	(4,328		)
Long-term debt	(2,232		)
Other non-current liabilities	(220		)
Total purchase price	$	58,022

The allocation of the purchase price is preliminary and subject to change, based on the finalization of income tax matters. Accordingly, adjustments may be made to the values of the assets acquired and liabilities assumed as additional information is obtained about the facts and circumstances that existed at the valuation date.

In-process research and development (IPR&D) represents acquired technology that had not achieved technological feasibility as of the acquisition date and had no alternative future use. The IPR&D recorded in connection with the acquisition of Bluegiga consisted primarily of Bluetooth Smart Ready and Bluetooth Smart modules and software stacks. The fair value of these technologies was determined using the income approach. The discount rate applicable to the cash flows was 16.1%. The significant risks associated with the projects include the Company’s potential inability to produce working models and the final products gaining customer acceptance.

Pro forma information related to this acquisition has not been presented because it would not be materially different from amounts reported. The Company recorded approximately $1.2 million of acquisition-related costs in selling, general and administrative expenses during the nine months ended October 3, 2015.

Energy Micro

On July 1, 2013, the Company acquired Energy Micro AS for approximately $140.6 million, including: 1) Initial consideration of $107.4 million; 2) Deferred consideration with an estimated fair value of $19.2 million at the date of acquisition; and 3) Contingent consideration (the “Earn-Out”) with an estimated fair value of $14.0 million at the date of acquisition. The Earn-Out is payable on an annual basis over a five-year period from fiscal 2014 through 2018 (the “Earn-Out Period”) and in no event shall exceed $6,666,666 per year, unless revenue from the Earn-Out Products exceeds $400 million in a single fiscal year during the Earn-Out Period (in which case, the entire Earn-Out amount less any amounts previously paid will become payable). Approximately $20.3 million of the initial consideration was withheld by the Company as security for breaches of representations and warranties and certain other expressly enumerated matters (the “Holdback”).

A portion of the Earn-Out (28.76%) is contingent on the continued employment of certain key employees for the three years following the acquisition date (the “Departure Percentage”). The Departure Percentage was accounted for as a transaction separate from the business combination based on its economic substance and will be recorded as post-combination compensation expense in the Company’s financial statements during the Earn-Out period.

In the first quarter of 2015, the Company made the following payments in connection with the acquisition: (a) approximately $20.0 million was paid for the release of the Holdback; and (b) approximately $6.3 million was paid for the first annual period of the Earn-out. Approximately $1.8 million of the Earn-out payment represented the Departure Percentage portion and was recorded as compensation expense during fiscal 2014. The remaining approximately $4.5 million of the Earn-out payment represented additional consideration.

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Debt

9 Months Ended

Oct. 03, 2015

Debt

Debt

8. Debt

On July 31, 2012, the Company and certain of its domestic subsidiaries (the “Guarantors”) entered into a $230 million five-year Credit Agreement (the “Credit Agreement”), which consisted of a $100 million Term Loan Facility and a $130 million Revolving Credit Facility (collectively, the “Credit Facilities”). On July 24, 2015, the Company and the Guarantors amended the Credit Agreement (the “Amended Credit Agreement”) in order to, among other things, increase the borrowing capacity under the Revolving Credit Facility to $300 million, eliminate the Term Loan Facility and extend the maturity date to five years from the closing date. On July 24, 2015, the Company borrowed $82.5 million under the Amended Credit Agreement and paid off the remaining balance of its Term Loan Facility.

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

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

The Amended Credit Agreement contains various conditions, covenants and representations with which the Company must be in compliance in order to borrow funds and to avoid an event of default, including financial covenants that the Company must maintain a leverage ratio (funded debt/EBITDA) of no more than 3.00 to 1 and a minimum fixed charge coverage ratio (EBITDA/interest payments, income taxes and capital expenditures) of no less than 1.25 to 1. As of October 3, 2015, the Company was in compliance with all covenants of the Amended Credit Agreement. The Company’s obligations under the Amended Credit Agreement are guaranteed by the Guarantors and are secured by a security interest in substantially all assets of the Company and the Guarantors.

The Company assumed $2.2 million of debt in connection with its acquisition of Bluegiga. The debt instruments bear interest at rates between 1.0% and 3.0%. On September 25, 2015, the Company paid off the remaining balance of the acquired debt.

Interest Rate Swap Agreement

In connection with the $100 million borrowed under the Credit Facilities, the Company entered into an interest rate swap agreement as a hedge against the Eurodollar portion of such variable interest payments. Under the terms of the swap agreement, the Company effectively converted the Eurodollar portion of the interest on the Credit Facilities to a fixed interest rate of 0.764% through July 2017. As of October 3, 2015, the combined interest rate of the Credit Facilities (which includes an applicable margin) and the interest rate swap was 2.264%. See Note 4, Derivative Financial Instruments, for additional information.

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Stock-Based Compensation

9 Months Ended

Oct. 03, 2015

Stock-Based Compensation

Stock-Based Compensation

10. Stock-Based Compensation

In fiscal 2009, the stockholders of the Company approved the 2009 Stock Incentive Plan (the “2009 Plan”) and the 2009 Employee Stock Purchase Plan (the “2009 Purchase Plan”). In fiscal 2014, the stockholders of the Company approved amendments to both the 2009 Plan and the 2009 Purchase Plan. The amendments authorized additional shares of common stock for issuance, to comply with changes in applicable law, improve the Company’s corporate governance and to implement other best practices. The amended plans are currently effective.

Stock-based compensation costs are based on the fair values on the date of grant for stock options and on the date of enrollment for the employee stock purchase plans, estimated by using the Black-Scholes option-pricing model. The fair values of stock awards and restricted stock units (RSUs) equal their intrinsic value on the date of grant. The fair values of market stock units (MSUs) generally are estimated using a Monte Carlo simulation based on the date of grant.

The following table presents details of stock-based compensation costs recognized in the Condensed Consolidated Statements of Income (in thousands):

	Three Months Ended				Nine Months Ended
	October 3, 2015		September 27, 2014		October 3, 2015		September 27, 2014
Cost of revenues	$	249	$	201	$	708	$	574
Research and development	4,623		4,713		14,378		13,282
Selling, general and administrative	4,350		4,700		15,712		14,317
	9,222		9,614		30,798		28,173
Income tax benefit	1,089		1,158		3,575		3,056
	$	8,133	$	8,456	$	27,223	$	25,117

The Company had approximately $55.3 million of total unrecognized compensation costs related to granted stock awards as of October 3, 2015 that are expected to be recognized over a weighted-average period of approximately 2.0 years. There were no significant stock-based compensation costs capitalized into assets in any of the periods presented.

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Derivative Financial Instruments (Details 2) - USD ($) $ in Thousands	9 Months Ended
	Oct. 03, 2015	Jan. 03, 2015
Derivative financial instrument
Gains or losses from the hedging instrument which was excluded from the assessment of effectiveness	$ 0
Other assets, net
Derivative financial instrument
Fair value of interest rate swap		$ 331
Other non-current liabilities:
Derivative financial instrument
Fair value of interest rate swap	$ 329

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Earnings Per Share (Tables)

9 Months Ended

Oct. 03, 2015

Earnings Per Share

Schedule of computation of basic and diluted earnings per share

The following table sets forth the computation of basic and diluted earnings per share (in thousands, except per share data):

	Three Months Ended				Nine Months Ended
	October 3, 2015		September 27, 2014		October 3, 2015		September 27, 2014
Net income	$	9,975	$	5,608	$	23,928	$	27,997
Shares used in computing basic earnings per share	42,331		43,112		42,522		43,218
Effect of dilutive securities:
Stock options and other stock-based awards	464		703		613		812
Shares used in computing diluted earnings per share	42,795		43,815		43,135		44,030
Earnings per share:
Basic	$	0.24	$	0.13	$	0.56	$	0.65
Diluted	$	0.23	$	0.13	$	0.55	$	0.64

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Acquisitions (Tables)

9 Months Ended

Oct. 03, 2015

Acquisitions

Schedule of purchase price allocation

The purchase price was allocated as follows (in thousands):

	Amount			Weighted-Average Amortization Period (Years)
Intangible assets:
In-process research and development	$	5,710		Not amortized
Developed technology	12,190			8
Customer relationships	6,670			4
Trademarks	880			3
	25,450
Cash and cash equivalents	1,132
Other current assets	6,156
Goodwill	35,145
Other non-current assets	208
Current liabilities	(3,289		)
Non-current deferred tax liabilities, net	(4,328		)
Long-term debt	(2,232		)
Other non-current liabilities	(220		)
Total purchase price	$	58,022

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Balance Sheet Details (Details) - USD ($) $ in Thousands	Oct. 03, 2015	Jan. 03, 2015
Inventories
Work in progress	$ 38,107	$ 40,640
Finished goods	13,850	11,991
Total inventories	$ 51,957	$ 52,631

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Condensed Consolidated Statements of Comprehensive Income - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Oct. 03, 2015	Sep. 27, 2014	Oct. 03, 2015	Sep. 27, 2014
Condensed Consolidated Statements of Comprehensive Income
Net income	$ 9,975	$ 5,608	$ 23,928	$ 27,997
Net changes to available-for-sale securities
Unrealized gains (losses) arising during the period	154	417	(179)	889
Reclassification for gains included in net income			10
Net changes to cash flow hedges
Unrealized gains (losses) arising during the period	(459)	193	(1,035)	(434)
Reclassification for losses included in net income	165	142	376	428
Other comprehensive income (loss), before tax	(140)	752	(828)	883
Provision (benefit) for income taxes	(50)	263	(291)	309
Other comprehensive income (loss)	(90)	489	(537)	574
Comprehensive income	$ 9,885	$ 6,097	$ 23,391	$ 28,571

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Derivative Financial Instruments

9 Months Ended

Oct. 03, 2015

Derivative Financial Instruments

Derivative Financial Instruments

4. Derivative Financial Instruments

The Company uses derivative financial instruments to manage certain exposures to the variability of interest rates and foreign currency exchange rates. The Company’s objective is to offset increases and decreases in expenses resulting from these exposures with gains and losses on the derivative contracts, thereby reducing volatility of earnings. The Company does not use derivative contracts for speculative or trading purposes. The Company recognizes derivatives, on a gross basis, in the Consolidated Balance Sheet at fair value. Cash flows from derivatives are classified according to the nature of the cash receipt or payment in the Consolidated Statement of Cash Flows.

Interest Rate Swaps

The Company is exposed to interest rate fluctuations in the normal course of its business, including through its Credit Facilities. The interest payments on the facility are calculated using a variable-rate of interest. The Company has entered into an interest rate swap agreement with an original notional value of $100 million (equal to the full amount borrowed under the Credit Facilities) and, effectively, converted the Eurodollar portion of the variable-rate interest payments to fixed-rate interest payments through July 2017.

The Company’s interest rate swap agreement is designated and qualifies as a cash flow hedge. The effective portion of the gain or loss on the interest rate swap is recorded in accumulated other comprehensive loss as a separate component of stockholders’ equity and is subsequently recognized as interest expense in the Consolidated Statement of Income when the hedged exposure affects earnings.

The Company estimates the fair values of interest rate swaps based on quoted prices and market observable data of similar instruments. If the Credit Facilities or the interest rate swap agreement is terminated prior to maturity, the fair value of the interest rate swap recorded in accumulated other comprehensive loss may be recognized in the Consolidated Statement of Income based on an assessment of the agreements at the time of termination. The Company did not discontinue any cash flow hedges in any of the periods presented.

The Company measures the effectiveness of its cash flow hedge by comparing the change in fair value of the hedged variable interest payments with the change in fair value of the interest rate swap. The Company recognizes ineffective portions of the hedge, as well as amounts not included in the assessment of effectiveness, in the Consolidated Statement of Income. As of October 3, 2015, no portion of the gains or losses from the Company’s hedging instrument was excluded from the assessment of effectiveness. Hedge ineffectiveness was not material for any of the periods presented.

The Company’s derivative financial instrument in cash flow hedging relationships consisted of the following (in thousands):

		Fair Value
	Balance Sheet Location	October 3, 2015		January 3, 2015
Interest rate swap	Other assets, net	$	—	$	331
	Other non-current liabilities	329		—

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

	Gain (Loss) Recognized in OCI on Derivatives (Effective Portion) during the:					Location of Loss Reclassified into Income	Loss Reclassified from Accumulated OCI into Income (Effective Portion) during the:
	Three Months Ended						Three Months Ended
	October 3, 2015			September 27, 2014			October 3, 2015			September 27, 2014
Interest rate swaps	$	(459	)	$	193	Interest expense	$	(165	)	$	(142	)

	Nine Months Ended							Nine Months Ended
	October 3, 2015			September 27, 2014				October 3, 2015			September 27, 2014
Interest rate swaps	$	(1,035	)	$	(434	)	Interest expense	$	(376	)	$	(428	)

The Company expects to reclassify $0.3 million of its interest rate swap losses included in accumulated other comprehensive loss as of October 3, 2015 into earnings in the next 12 months, which would be offset by lower interest payments.

Foreign Currency Forward Contracts

The Company uses foreign currency forward contracts to manage exposure to foreign exchange risk. These instruments are used to reduce the earnings impact that exchange rate fluctuations have on non-U.S. dollar balance sheet exposures. The Company recognizes gains and losses on the foreign currency forward contracts in other income (expense), net in the Consolidated Statement of Income in the same period as the remeasurement loss and gain of the related foreign currency denominated asset or liability. The Company does not apply hedge accounting to its foreign currency derivative instruments.

As of October 3, 2015, the Company held one foreign currency forward contract denominated in Norwegian Krone with a notional value of $5.3 million. The fair value of the contract was not material as of October 3, 2015. The contract has a maturity date of December 30, 2015 and it was not designated as a hedging instrument. The Company held no foreign currency forward contracts during the three and nine months ended September 27, 2014.

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

	Three Months Ended				Nine Months Ended
Gain (Loss) Recognized in Income	October 3, 2015		September 27, 2014		October 3, 2015		September 27, 2014		Location
Foreign currency forward contracts	$	379	$	—	$	825	$	—	Other income (expense), net

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Stockholders' Equity (Tables)

9 Months Ended

Oct. 03, 2015

Stockholders' Equity

Schedule of share repurchase programs

The Board of Directors authorized the following share repurchase programs (in thousands):

Program Authorization Date	Program Termination Date	Program Amount
August 2015	December 2016	$	100,000
October 2014	December 2015	$	100,000
January 2014	January 2015	$	100,000
January 2013	January 2014	$	50,000

Schedule of components of accumulated other comprehensive loss, net of taxes

The components of accumulated other comprehensive loss, net of taxes, were as follows (in thousands):

	Unrealized Gain (Loss) on Cash Flow Hedge			Net Unrealized Losses on Available-For-Sale Securities			Total
Balance at January 3, 2015	$	215		$	(297	)	$	(82	)
Other comprehensive loss before reclassifications	(672		)	(116		)	(788		)
Amount reclassified from accumulated other comprehensive loss	245			6			251
Net change for the period	(427		)	(110		)	(537		)
Balance at October 3, 2015	$	(212	)	$	(407	)	$	(619	)

Schedule of Reclassifications From Accumulated Other Comprehensive Loss

	Three Months Ended						Nine Months Ended
Reclassification (in thousands)	October 3, 2015			September 27, 2014			October 3, 2015			September 27, 2014
Losses on cash flow hedges to:
Interest expense	$	(165	)	$	(142	)	$	(376	)	$	(428	)
Losses on available-for-sale securities to:
Interest income	—			—			(10		)	—
	(165		)	(142		)	(386		)	(428		)
Income tax benefit	58			50			135			150
Total reclassifications	$	(107	)	$	(92	)	$	(251	)	$	(278	)

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Fair Value of Financial Instruments (Details 3) - Contingent consideration - Significant Unobservable Inputs (Level 3) - USD ($) $ in Thousands	9 Months Ended
	Oct. 03, 2015	Jul. 04, 2015	Jan. 03, 2015
Monte Carlo simulation
Quantitative information for Level 3 fair value measurements liabilities
Expected revenue volatility (as a percent)	20.00%
Low end of range | Monte Carlo simulation
Quantitative information for Level 3 fair value measurements liabilities
Expected revenue growth rate (as a percent)	38.60%
Expected term	3 months 18 days
Estimated discount rate (as a percent)	0.34%
High end of range | Monte Carlo simulation
Quantitative information for Level 3 fair value measurements liabilities
Expected revenue growth rate (as a percent)	47.00%
Expected term	3 years 3 months 18 days
Estimated discount rate (as a percent)	1.44%
Assets and liabilities measured at fair value on recurring basis
Quantitative information for Level 3 fair value measurements liabilities
Fair value at the end of the period	$ 13,262	$ 15,092	$ 18,438

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Significant Accounting Policies (Policies)

9 Months Ended

Oct. 03, 2015

Significant Accounting Policies

Reclassifications

Reclassifications

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

Revenue Recognition

Revenue Recognition

Revenues are generated predominately by sales of the Company’s integrated circuits (ICs). The Company recognizes revenue when all of the following criteria are met: 1) there is persuasive evidence that an arrangement exists, 2) delivery of goods has occurred, 3) the sales price is fixed or determinable, and 4) collectibility is reasonably assured. Generally, revenue from product sales to direct customers and contract manufacturers is recognized upon shipment.

A portion of the Company’s sales are made to distributors under agreements allowing certain rights of return and price protection related to the final selling price to the end customers. Accordingly, the Company defers revenue and cost of revenue on such sales until the distributors sell the product to the end customers. The net balance of deferred revenue less deferred cost of revenue associated with inventory shipped to a distributor but not yet sold to an end customer is recorded in the deferred income on shipments to distributors liability on the Consolidated Balance Sheet. Such net deferred income balance reflects the Company’s estimate of the impact of rights of return and price protection.

A small portion of the Company’s revenues is derived from the sale of patents. The above revenue recognition criteria for patent sales are generally met upon the execution of the patent sale agreement.