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EX-31.2 - EXHIBIT 31.2 - RF MICRO DEVICES INCexhibit312.htm
EX-32.1 - EXHIBIT 32.1 - RF MICRO DEVICES INCexhibit321.htm
EX-31.1 - EXHIBIT 31.1 - RF MICRO DEVICES INCexhibit311.htm
EX-32.2 - EXHIBIT 32.2 - RF MICRO DEVICES INCexhibit322.htm

 

 


UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 10-Q

(Mark One)

 

[X]   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended January 2, 2010

 

or

 

 

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

 

 

For the transition period from_______ to_________

 

 

Commission File Number 0-22511

 

 

RF Micro Devices, Inc.
(Exact name of registrant as specified in its charter)

 

 

North Carolina
(State or other jurisdiction of
incorporation or organization)

56-1733461
(I.R.S. Employer
   Identification No.)

 

 

7628 Thorndike Road
Greensboro, North Carolina
(Address of principal executive offices)


27409-9421
(Zip Code)

 

 

(336) 664-1233
(Registrant's telephone number, including area code)

 

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


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

Large accelerated filer [X]                                                                                                  Accelerated filer [  ]

Non-accelerated filer [  ] (Do not check if a smaller reporting company)                 Smaller reporting company [  ]                                  



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

Yes [  ] No [X]

 


As of February 5, 2010, there were 268,411,812 shares of the registrant’s common stock outstanding. 

 


 


 

 

 

 

 

RF MICRO DEVICES, INC. AND SUBSIDIARIES

INDEX

 

 

PART I-

FINANCIAL INFORMATION

 

 

 

 

Item 1.

Condensed Consolidated Financial Statements.

Page

 

 

 

 

 

 

 

    Condensed Consolidated Balance Sheets as of January 2, 2010

    and March 28, 2009

 

3

 

 

 

 

    Condensed Consolidated Statements of Operations for the three months ended

    January 2, 2010 and December 27, 2008

 

4

 

 

 

 

    Condensed Consolidated Statements of Operations for the nine months ended

    January 2, 2010 and December 27, 2008


5

 

 

 

 

    Condensed Consolidated Statements of Cash Flows for the nine months ended

    January 2, 2010 and December 27, 2008

 

6

 

 

 

 

    Notes to Condensed Consolidated Financial Statements

7

 

 

 

Item 2.

Management's Discussion and Analysis of Financial Condition and Results of Operations.

24

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk.

33

 

 

 

Item 4.

Controls and Procedures.

33

 

 

 

 

 

 

PART II -

OTHER INFORMATION

 

 

 

 

Item 6.

Exhibits.

33

 

 

 

SIGNATURES

 

34

 

 

 

EXHIBIT INDEX

 

35

                                                                                                                              

 

2


 


 


PART I – FINANCIAL INFORMATION

ITEM 1.

RF MICRO DEVICES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)

(Unaudited)
 

 

 

 January 2, 2010

 

 

March 28,  2009

ASSETS

 

 

 

 

 

Current assets:

 

 

 

 

 

Cash and cash equivalents

$

121,501 

 

$

172,989 

Restricted cash and trading security investments (Note 11)

 

17,998 

 

 

62 

Short-term investments (Note 11)

 

62,966 

 

 

93,527 

Accounts receivable, less allowance of $688 and $886 as of
             January 2, 2010 and March 28, 2009, respectively

 

97,561 

 

 

90,231 

       Inventories (Note 3)

 

121,503 

 

 

113,611 

       Prepaid expenses

 

5,184 

 

 

10,885 

       Other receivables

 

24,775 

 

 

9,040 

       Other current assets (amount recorded at fair value is $2,331)
           (Note 6 and Note 11)

 

43,770 

 

 

27,089 

Total current assets

 

495,258 

 

 

517,434 

 

 

 

 

 

 

Property and equipment, net of accumulated depreciation of $476,993 at
     January 2, 2010 and $435,179 at March 28, 2009

 

262,179 

 

 

315,127 

Goodwill

 

95,628 

 

 

95,628 

Intangible assets, net

 

106,719 

 

 

121,191 

Long-term investments (Note 11)

 

2,175 

 

 

20,183 

Other non-current assets (Note 6)

 

18,539 

 

 

19,079 

Total assets

$

980,498 

 

$

1,088,642 

 

 

 

 

 

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

 

 

 

 

Current liabilities:

 

 

 

 

 

Accounts payable

$

69,897 

 

$

46,745 

Accrued liabilities

 

44,481 

 

 

51,259 

Current portion of long term debt, net of unamortized discount (Note 5)

 

14,975 

 

 

4,839 

No net cost credit line (Note 11)

 

13,200 

 

 

Other current liabilities

 

748 

 

 

923 

Total current liabilities

 

143,301 

 

 

103,766 

 

 

 

 

 

 

Long-term debt, net of unamortized discount (Note 5)

 

286,816 

 

 

491,607 

No net cost credit line (Note 11)

 

 

 

13,500 

Other long-term liabilities (Note 6)

 

53,575 

 

 

47,807 

Total liabilities

 

483,692 

 

 

656,680 

 

 

 

 

 

 

Shareholders’ equity:

 

 

 

 

 

Preferred stock, no par value; 5,000 shares authorized; no shares issued and
             outstanding

 

 

 

Common stock, no par value; 500,000 shares authorized; 268,391 and 264,035
             shares issued and outstanding at January 2, 2010 and March 28, 2009,
             respectively

 

959,461 

 

 

958,742 

Additional paid-in capital

 

256,082 

 

 

236,394 

Accumulated other comprehensive income, net of tax

 

315 

 

 

169 

Accumulated deficit

 

(719,052)

 

 

(763,343)

Total shareholders’ equity

 

496,806 

 

 

431,962 

 

 

 

 

 

 

Total liabilities and shareholders’ equity

$

980,498 

 

$

1,088,642 

 

 

 

 

 

 

See accompanying Notes to Condensed Consolidated Financial Statements.
 

3


 


 

 

 

 

RF MICRO DEVICES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
 (In thousands, except per share data)

(Unaudited)

 

Three Months Ended

 

 

January 2,  2010

 

 

December 27,  2008 (1)

 

 

 

 

 

 

Revenue

$

250,271 

 

$

202,025 

 

 

 

 

 

 

Operating costs and expenses:

 

 

 

 

 

Cost of goods sold

 

159,081 

 

 

163,613 

Research and development

 

32,997 

 

 

38,617 

Marketing and selling

 

13,821 

 

 

15,511 

General and administrative

 

9,496 

 

 

10,613 

Other operating expense (Note 9 and Note 12)

 

1,288 

 

 

727,697 

Total operating costs and expenses  

 

216,683 

 

 

956,051 

Income (loss) from operations

 

33,588 

 

 

(754,026)

 

 

 

 

 

 

Interest expense

 

(5,863)

 

 

(6,528)

Interest income

 

317 

 

 

943 

(Loss) gain on retirement of convertible
    subordinated notes (Note 5)

 

(408)

 

 

8,135 

Other income (expense)

 

126 

 

 

(5,294)

 

 

 

 

 

 

Income (loss) before income taxes

 

27,760 

 

 

(756,770)

 

 

 

 

 

 

Income tax expense (Note 6)

 

(2,832)

 

 

(31,704)

Net income (loss)

$

24,928 

 

$

(788,474)

 

 

 

 

 

 

Net income (loss) per share (Note 2):

 

 

 

 

 

Basic

$

0.09 

 

$

(3.00)

Diluted

$

0.09 

 

$

(3.00)

 

 

 

 

 

 

Shares used in per share calculation:

 

 

 

 

 

Basic

 

268,287 

 

 

263,227 

Diluted

 

285,907 

 

 

263,227 

 

(1) Certain amounts have been adjusted as a result of the retrospective adoption of Financial Accounting Standards Board Staff Position No. APB 14-1, “Accounting for Convertible Debt Instruments That May Be Settled in Cash upon Conversion (Including Partial Settlement)” (“FSP APB 14-1”), now codified as Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Subtopic 470-20, “Debt with Conversion and Other Options” (“FASB ASC 470-20”).  See Note 5 to the Condensed Consolidated Financial Statements for further discussion.

 

 

See accompanying Notes to Condensed Consolidated Financial Statements.

 

4


 


 


 

 

 

 

RF MICRO DEVICES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
 (In thousands, except per share data)

(Unaudited)

 

Nine Months Ended

 

 

January 2,  2010

 

 

December 27,  2008 (1)

 

 

 

 

 

 

Revenue

$

717,568 

 

$

714,186 

 

 

 

 

 

 

Operating costs and expenses:

 

 

 

 

 

Cost of goods sold

 

460,827 

 

 

526,676 

Research and development

 

103,477 

 

 

135,034 

Marketing and selling

 

42,131 

 

 

51,186 

General and administrative

 

37,429 

 

 

39,453 

Other operating expense (Note 9 and Note 12)

 

3,937 

 

 

774,611 

Total operating costs and expenses  

 

647,801 

 

 

1,526,960 

Income (loss) from operations

 

69,767 

 

 

(812,774)

 

 

 

 

 

 

Interest expense

 

(18,537)

 

 

(19,542)

Interest income

 

1,063 

 

 

4,329 

Gain on retirement of convertible subordinated notes (Note 5)

 

1,540 

 

 

8,135 

Other expense

 

(139)

 

 

(3,783)

 

 

 

 

 

 

Income (loss) before income taxes

 

53,694 

 

 

(823,635)

 

 

 

 

 

 

Income tax expense (Note 6)

 

(9,403)

 

 

(5,591)

Net income (loss)

$

44,291 

 

$

(829,226)

 

 

 

 

 

 

Net income (loss) per share (Note 2):

 

 

 

 

 

Basic

$

0.17 

 

$

(3.16)

Diluted

$

0.16 

 

$

(3.16)

 

 

 

 

 

 

Shares used in per share calculation:

 

 

 

 

 

Basic

 

266,995 

 

 

262,186 

Diluted

 

293,787 

 

 

262,186 

 

(1) Certain amounts have been adjusted as a result of the retrospective adoption of FSP APB 14-1 (now codified as FASB ASC 470-20).  See Note 5 to the Condensed Consolidated Financial Statements for further discussion.

 

 

 

See accompanying Notes to Condensed Consolidated Financial Statements.

 

 

 

 

 

 

 

 

 

 

 

5


 


 

 RF MICRO DEVICES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)
(Unaudited)

 

Nine Months Ended

 

January 2, 2010

 

December 27, 2008 (1)

Cash flows from operating activities:

 

 

 

 

 

Net income (loss)

$

44,291 

 

$

(829,226)

Adjustments to reconcile net income (loss) to net cash

 

 

 

 

 

   provided by operating activities:

 

 

 

 

 

      Depreciation

 

55,484 

 

 

64,971 

      Amortization

 

27,361 

 

 

35,709 

      Excess tax benefit from exercises of stock options

 

-   

 

 

(275)

      Deferred income taxes

 

(530)

 

 

(2,114)

      Foreign currency adjustments

 

165 

 

 

3,376 

      Acquired in-process research and development cost

 

-   

 

 

1,400 

      Goodwill impairment

 

-   

 

 

608,966 

      Intangible impairment

 

-   

 

 

64,203 

      Asset impairments (including restructuring impairments)

 

3,093 

 

 

71,423 

      Gain on retirement of convertible subordinated notes

 

(1,540)

 

 

(8,135)

      (Gain) loss on disposal of assets, net

 

(1,336)

 

 

292 

      Share-based compensation expense                                                                                

 

20,584 

 

 

18,410 

      Changes in operating assets and liabilities:

 

 

 

 

 

         Accounts receivable, net

 

(7,271)

 

 

41,086 

         Inventories

 

(7,624)

 

 

39,070 

         Prepaid expense and other current and non-current assets

 

(13,675)

 

 

(1,953)

         Accounts payable and accrued liabilities

 

15,222 

 

 

(40,423)

         Income tax payable/recoverable

 

(4,273)

 

 

6,833 

         Other liabilities

 

(1,863)

 

 

8,884 

Net cash provided by operating activities

 

128,088 

 

 

82,497 

 

 

 

 

 

 

Investing activities:

 

 

 

 

 

        Purchase of property and equipment

 

(5,873)

 

 

(42,175)

Restricted cash associated with investing activities

 

-   

 

 

(375)

Purchase of Universal Microwave Corporation (UMC), net of cash acquired

 

-   

 

 

(23,493)

        Proceeds from working capital refund from Filtronic PLC

 

-   

 

 

3,619 

        Final retainer received from sale of substantially all Bluetooth® assets

 

-   

 

 

5,850 

        Proceeds from sale of property and equipment

 

2,615 

 

 

1,316 

        Proceeds from maturities of securities available-for-sale

 

319,762 

 

 

122,936 

        Purchase of securities available-for-sale

 

(289,003)

 

 

(110,516)

Net cash provided by (used in) investing activities

 

27,501 

 

 

(42,838)

 

 

 

 

 

 

Financing activities:

 

 

 

 

 

        Payment of debt

 

(207,842)

 

 

(25,562)

        Excess tax benefit from exercises of stock options

 

-   

 

 

275 

        Proceeds from no net cost loan

 

350 

 

 

-   

        Proceeds from exercise of stock options, warrants and employee stock purchases

 

719 

 

 

2,744 

        Restricted cash associated with financing activities

 

(439)

 

 

345 

        Repayment of capital lease obligations

 

(127)

 

 

(459)

Net cash used in financing activities

 

(207,339)

 

 

(22,657)

 

 

 

 

 

 

Net (decrease) increase in cash and cash equivalents

 

(51,750)

 

 

17,002 

Effect of exchange rate changes on cash

 

262 

 

 

(1,350)

Cash and cash equivalents at the beginning of the period

 

172,989 

 

 

129,750 

Cash and cash equivalents at the end of the period

$

121,501 

 

$

145,402 

 

 

 

 

 

 

Non-cash investing activities:

 

 

 

 

 

Transfer of auction rate securities from available-for-sale to trading securities

$

-   

 

$

17,143 

 

(1) Certain amounts have been adjusted as a result of the retrospective adoption of FSP APB 14-1 (now codified as FASB ASC 470-20).  See Note 5 to the Condensed Consolidated Financial Statements for further discussion.

See accompanying Notes to Condensed Consolidated Financial Statements.

6

 


 


 

 

 

RF MICRO DEVICES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

1.          BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES


The accompanying condensed consolidated financial statements of RF Micro Devices, Inc. and Subsidiaries (together, the “Company”) have been prepared in conformity with accounting principles generally accepted in the United States.  The preparation of these financial statements requires management to make estimates and assumptions, which could differ materially from actual results.  In addition, certain information or footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed, or omitted, pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”).  In the opinion of management, the financial statements include all adjustments (which are of a normal and recurring nature) necessary for the fair presentation of the results of the interim periods presented.  These condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended March 28, 2009, as adjusted by the information contained in the Company’s Current Report on Form 8-K, filed with the SEC on July 31, 2009, to reflect the retrospective application of FSP APB 14-1 (now codified as FASB ASC 470-20).


The condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries.  All significant intercompany accounts and transactions have been eliminated in consolidation.  Certain amounts in the Condensed Consolidated Statement of Cash Flows for the nine months ended December 27, 2008 have been reclassified to conform to the presentation of the Condensed Consolidated Statement of Cash Flows for the nine months ended January 2, 2010. 


The Company uses a 52- or 53-week fiscal year ending on the Saturday closest to March 31 of each year.  The first fiscal quarter of each year ends on the Saturday closest to June 30, the second fiscal quarter of each year ends on the Saturday closest to September 30 and the third fiscal quarter of each year ends on the Saturday closest to December 31.  Fiscal 2010 is a 53-week fiscal year and, as a result, the nine months ended January 2, 2010, included 40 weeks compared to 39 weeks for the nine months ended December 27, 2008.

 

The Company adopted FSP APB 14-1 (now codified as FASB ASC 470-20) on March 29, 2009, which requires an allocation of convertible debt proceeds between the liability component and the embedded conversion option (i.e., the equity component).  Certain prior period amounts in the accompanying Condensed Consolidated Balance Sheets, Condensed Consolidated Statements of Operations, and Condensed Consolidated Statements of Cash Flows have been revised to reflect the impact of the Company’s retrospective application of FSP APB 14-1 (now codified as FASB ASC 470-20).  See Note 5 to the Condensed Consolidated Financial Statements. 

 

The Company has performed an evaluation of subsequent events through February 11, 2010, which is the date the financial statements were issued.  The Company did not identify any subsequent events requiring recognition or disclosure in these financial statements.

 

Share-based Compensation

During the second quarter of fiscal 2010 at the Company’s annual meeting, the Company’s shareholders approved a stock option exchange program for eligible Company employees, excluding the Company’s five most highly compensated officers, members of its Board of Directors, consultants, and former and retired employees.  Under the option exchange program, eligible employees were given the opportunity to exchange certain of their outstanding stock options (the “eligible options”) previously granted to them at exercise prices of $5.00 and greater, for new options to be granted under the Company’s 2003 Stock Incentive Plan, as amended (the “2003 Plan”) after expiration of the option exchange program.  The ratio of exchanged eligible options to new options was two-to-one, meaning that a participant would receive a new option for one share of the Company’s common stock in exchange for an eligible option for two shares of common stock.  As a result of the option exchange program, approximately 1.8 million eligible options were canceled (with exercise prices over $5.00) on August 7, 2009 and approximately 0.9 million new options were granted under the 2003 Plan on August 7, 2009 with an exercise price of $4.86 (the closing price of the Company's common stock as reported on the NASDAQ Global Select Market on the trading date immediately preceding the date the new options were granted).  The new options generally will vest and become exercisable over a two-year period, with 25% of each new option generally becoming exercisable after each six-month period of continued service following the grant date.  However, the new options granted to certain executive officers of the Company generally will, in the event of the officer’s resignation or termination other than for cause, continue to vest pursuant to the same vesting schedule and remain outstanding as if the officer had remained an employee and will be exercisable for the remaining option term (unless the administrator of the 2003 Plan determines otherwise).

7


 


 


RF MICRO DEVICES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)

 

2.          NET INCOME (LOSS) PER SHARE

 

The following table sets forth a reconciliation of the numerators and denominators in the computation of basic and diluted net income (loss) per share (in thousands, except per share data):

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

January 2,
2010

 

 

 December 27,
2008 (1)

 

 

January 2,
2010

 

 

 December 27,
2008 (1)

Numerator for basic and diluted net income (loss)

 

 

 

 

 

 

 

 

 

 

 

       per share:

 

 

 

 

 

 

 

 

 

 

 

   Net income (loss) available to common shareholders    

$

24,928 

 

$

(788,474)

 

$

44,291 

 

$

(829,226)

   Plus: Income impact of assumed conversions for

 

 

 

 

 

 

 

 

 

 

 

             interest on 1.50% convertible notes            

 

298 

 

 

-   

 

 

1,498 

 

 

-   

Net income (loss) plus assumed conversion of

 

 

 

 

 

 

 

 

 

 

 

        notes – Numerator for diluted net income (loss)

 

 

 

 

 

 

 

 

 

 

 

        per share

$

25,226 

 

 $

(788,474)

 

 $

45,789 

 

$

(829,226)

 

 

 

 

 

 

 

 

 

 

 

 

Denominator:

 

 

 

 

 

 

 

 

 

 

 

   Denominator for basic net income (loss) per

 

 

 

 

 

 

 

 

 

 

 

       share – weighted average shares

 

268,287 

 

 

263,227 

 

 

266,995 

 

 

262,186 

   Effect of dilutive securities:

 

 

 

 

 

 

 

 

 

 

 

      Employee stock options

 

4,963 

 

 

-   

 

 

4,365 

 

 

-   

      Assumed conversion 1.50% convertible notes

 

12,657 

 

 

-   

 

 

22,427 

 

 

-   

Denominator for diluted net income (loss) per

 

 

 

 

 

 

 

 

 

 

 

       share – adjusted weighted average shares

 

 

 

 

 

 

 

 

 

 

 

       and assumed conversions

 

285,907 

 

 

263,227 

 

 

293,787 

 

 

262,186 

 

 

 

 

 

 

 

 

 

 

 

 

Basic net income (loss) per share

$

0.09 

 

$

(3.00)

 

$

0.17 

 

$

(3.16)

 

 

 

 

 

 

 

 

 

 

 

 

Diluted net income (loss) per share

$

0.09 

 

$

(3.00)

 

$

0.16 

 

$

(3.16)

 

 

 

 

 

 

 

 

 

 

 

 

(1) Certain amounts have been adjusted as a result of the retrospective adoption of FSP APB 14-1 (now codified as FASB ASC 470-20).  See Note 5 to the Condensed Consolidated Financial Statements for further discussion.


In the computation of diluted net income per share for the three and nine months ended January 2, 2010, outstanding stock options to purchase approximately 17.1 million shares and 18.2 million shares, respectively, were excluded because the exercise price of the options was greater than the average market price of the underlying common stock and the effect of their inclusion would have been anti-dilutive.  In the computation of diluted net loss per share for the three and nine months ended December 27, 2008, all outstanding stock options were excluded because the effect of their inclusion would have been anti-dilutive. 

 

The computation of diluted net income per share assumed the conversion of the Company’s 1.50% convertible subordinated notes due 2010 (the “2010 Notes”) for both the three and nine months ended January 2, 2010.  The 1.50% convertible subordinated notes are convertible at a price of $7.63 per share and are convertible at the option of the holder at any time on or prior to the close of business on the maturity date.  After the purchase and retirement by the Company of $197.0 million original principal amount of the 2010 Notes during the third quarter of fiscal 2010, as well as the purchase and retirement of $23.0 million original principal amount of the 2010 Notes during fiscal 2009 (see Note 5 to the Condensed Consolidated Financial Statements), the remaining 2010 Notes are convertible into a total of approximately 1.3 million shares as compared to 30.1 million shares prior to the purchases. 

 

The computation of diluted net loss per share did not assume the conversion of the 2010 Notes for the three and nine months ended December 27, 2008, because the inclusion would have been anti-dilutive. 

8

 


 


 

 

 

 

RF MICRO DEVICES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)

 

 

2.          NET INCOME (LOSS) PER SHARE (continued)

 

The computation of diluted net income (loss) per share does not assume the conversion of the Company’s 0.75% or 1.00% convertible subordinated notes due 2012 and 2014, respectively.  Upon conversion of each $1,000 principal amount of these two series of notes, a holder will receive in lieu of common stock, an amount in cash equal to the lesser of (1) $1,000 or (2) the conversion value.  If the conversion value exceeds $1,000 on the conversion date, the Company, at its election, will settle the value in excess of $1,000 in cash or common stock.  The Company will use the treasury stock method to account for the conversion value in excess of the $1,000 principal amount as the conversion becomes applicable.  Pursuant to the applicable indentures governing the two series of notes, the conversion value generally is determined by multiplying (i) the applicable conversion rate, which is currently 124.2969, by (ii) the average market price of the Company’s common stock for the ten consecutive trading days preceding the date of determination.  The two series of notes generally would become dilutive to earnings if the average market price of the Company’s common stock exceeds approximately $8.05 per share.

 

3.        INVENTORIES

 

Inventories are stated at the lower of cost or market determined using the average cost method.  The components of inventories are as follows (in thousands):

 

 

 

January 2, 2010

 

 

March 28, 2009

Raw materials

$

44,261 

 

$

55,753 

Work in process

 

47,201 

 

 

44,125 

Finished goods

 

57,377 

 

 

53,277 

 

 

148,839 

 

 

153,155 

Inventory reserve

 

(27,336)

 

 

(39,544)

Total inventories

$

121,503 

 

$

113,611 

 

 

4.        OTHER COMPREHENSIVE INCOME (LOSS)

 

Accumulated other comprehensive income (loss) for the Company consists of accumulated unrealized gains (losses) on marketable securities and foreign currency translation adjustments.  This amount is included as a separate component of shareholders’ equity.  Comprehensive income (loss) is not materially different than net income (loss) for both the three and nine months ended January 2, 2010 and December 27, 2008. 

5.        DEBT

 

Debt balances at January 2, 2010 and March 28, 2009 are as follows (in thousands):

 

 

January 2, 2010

 

March 28, 2009

Convertible subordinated notes due 2010, net of discount

$

9,938 

 

$

206,143 

Convertible subordinated notes due 2012, net of discount

 

170,992 

 

 

164,726 

Convertible subordinated notes due 2014, net of discount

 

103,944 

 

 

105,098 

Bank loan

 

6,734 

 

 

6,729 

No net cost credit line

 

13,200 

 

 

13,500 

Equipment term loan, net of discount

 

10,183 

 

 

13,750 

          Subtotal

 

314,991 

 

 

509,946 

Less current portion

 

28,175 

 

 

4,839 

 

 

 

 

 

 

          Total long-term debt

$

286,816 

 

$

505,107 

 

 

 

 

 

 

 

 

9


 


 


 

 

 

 

RF MICRO DEVICES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)

 

 

5.        DEBT (continued)

 

In April 2007, the Company issued $200 million aggregate principal amount of 0.75% Convertible Subordinated Notes due 2012 (the “2012 Notes”) and $175 million aggregate principal amount of 1.00% Convertible Subordinated Notes due 2014 (the “2014 Notes” and, together with the 2012 Notes, the “Notes”).  The two series of Notes were issued in a private placement to Merrill Lynch, Pierce, Fenner & Smith Incorporated for resale to qualified institutional buyers.  Interest on both series of the Notes is payable in cash semiannually in arrears on April 15 and October 15 of each year.  The 2012 Notes mature on April 15, 2012, and the 2014 Notes mature on April 15, 2014.  Both series of the Notes are subordinated unsecured obligations of the Company and rank junior in right of payment to all of the Company’s existing and future senior debt.  The Notes effectively are subordinated to the indebtedness and other liabilities of the Company’s subsidiaries. 

 

Holders may convert either series of Notes based on the applicable conversion rate, which is currently 124.2969 shares of the Company’s common stock per $1,000 principal amount of the Notes (which is equal to an initial conversion price of approximately $8.05 per share), subject to adjustment, only under the following circumstances: (1) during any calendar quarter after June 30, 2007, if, as of the last day of the immediately preceding calendar quarter, the closing price of the Company’s common stock for at least 20 trading days in the 30 consecutive trading day period ending on the last trading day of such preceding calendar quarter is more than 120% of the applicable conversion rate per share; (2) if during any five business day period after any five consecutive trading day period in which the trading price per $1,000 principal amount of Notes for each day of that period is less than 98% of the product of the closing price of the Company’s common stock for each day in the period and the applicable conversion rate per $1,000 principal amount of Notes; (3) if certain specified distributions to all holders of the Company’s common stock occur; (4) if a fundamental change occurs; or (5) at any time during the 30-day period immediately preceding the final maturity date of the applicable Notes.  Upon conversion, in lieu of shares of the Company’s common stock, for each $1,000 principal amount of Notes, a holder will receive an amount in cash equal to the lesser of (i) $1,000 or (ii) the conversion value, as determined under the applicable indentures governing the  Notes.  If the conversion value exceeds $1,000, the Company also will deliver, at its election, cash or common stock or a combination of cash and common stock equivalent to the amount of the conversion value in excess of $1,000.  The maximum number of shares issuable upon conversion of these Notes as of January 2, 2010, is approximately 32.1 million shares (subsequent to the purchase by the Company of an aggregate of $42.4 million principal amount of the Notes), which may be adjusted as a result of stock splits, stock dividends and antidilution provisions.

 

In the first quarter of fiscal 2010, the Company purchased and retired $7.8 million original principal amount of 2014 Notes at an average price of $61.55, which resulted in a gain of approximately $1.6 million.  In the first quarter of fiscal 2010, the Company also purchased and retired $2.2 million original principal amount of 2012 Notes at an average price of $78.56, which resulted in a gain of approximately $0.3 million.

 

On March 29, 2009, the Company adopted FSP APB 14-1 (now codified as FASB ASC 470-20).  FASB ASC 470-20 requires the issuer of convertible debt instruments with cash settlement features to separately account for the liability and equity components of the instrument and requires retrospective application to all periods presented.  FASB ASC 470-20 applies to the Notes.  As of the date of the issuance of the Notes (April 2007), the Company estimated the fair value of the 2012 Notes to be $144.3 million using a 7.50% non-convertible borrowing rate.  The fair value of the 2014 Notes was calculated to be $113.6 million using a 7.52% non-convertible borrowing rate.  As of the issuance date, the difference between the fair value and the principal amount of the Notes was retrospectively recorded as a debt discount and as an increase to additional paid-in capital, net of tax.  The discount of the liability component is being amortized over the term of the Notes using the effective interest method. 

 

 

 

 

 

 

 

 

 

 

10


 


 


 

 

 

 

RF MICRO DEVICES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)

 

 

5.        DEBT (continued)

 

The adoption of FSP APB 14-1 (now codified as FASB ASC 470-20) had the following effect on the Company’s Condensed Consolidated Statements of Operations for the three and nine months ended January 2, 2010 (in thousands):

 

 

Three Months Ended
 January 2, 2010

 

Nine Months Ended
 January 2, 2010

 

As Computed
 prior to FSP
APB 14-1

As Reported
 under FSP
APB 14-1

Effect of
change

 

As Computed
prior to FSP
APB 14-1

As Reported
under FSP
APB 14-1

Effect of
change

Interest expense

 $

(1,950)

 $

(5,863)

 $

(3,913)

 

 $

(6,733)

 $

(18,537)

 $

(11,804)

(Loss) gain on retirement of convertible
   subordinated notes

(408)

(408)

-   

 

2,917 

1,540 

(1,377)

Income tax expense

(2,832)

(2,832)

-   

 

(9,078)

(9,403)

(325)

Net income

28,841 

24,928 

(3,913)

 

57,797 

44,291 

(13,506)

 

 

 

 

 

 

 

 

Net income per share:

 

 

 

 

 

 

 

   Basic

 $

0.11 

 $

0.09 

 $

(0.02)

 

 $

0.22 

 $

0.17 

 $

(0.05)

   Diluted

 $

0.10 

 $

0.09 

 $

(0.01)

 

 $

0.20 

 $

0.16 

 $

(0.04)

 

 

The retrospective application of FSP APB 14-1 (now codified as FASB ASC 470-20) had the following effect on the Company’s Condensed Consolidated Statements of Operations for the three and nine months ended December 27, 2008 (in thousands):

 

 

Three Months Ended
December 27, 2008

 

Nine Months Ended
December 27, 2008

 

Previously
Reported

As Adjusted

Effect of
change

 

Previously
Reported

As Adjusted

Effect of
change

Interest expense

 $

(2,501)

 $

(6,528)

 $

(4,027)

 

 $

(7,765)

 $

(19,542)

 $

(11,777)

Gain on retirement of convertible
   subordinated notes

10,667 

8,135 

(2,532)

 

10,667 

8,135 

(2,532)

Income tax expense

(63,132)

(31,704)

31,428 

 

(39,919)

(5,591)

34,328 

Net loss

(813,343)

(788,474)

24,869 

 

(849,245)

(829,226)

20,019 

 

 

 

 

 

 

 

 

Net loss per share:

 

 

 

 

 

 

 

   Basic

 $

(3.09)

 $

(3.00)

 $

0.09 

 

 $

(3.24)

 $

(3.16)

 $

0.08 

   Diluted

 $

(3.09)

 $

(3.00)

 $

0.09 

 

 $

(3.24)

 $

(3.16)

 $

0.08 

 

 

 

The retrospective application of FSP APB 14-1 (now codified as FASB ASC 470-20) had the following effect on the Company’s Consolidated Balance Sheet as of March 28, 2009 (in thousands):

 

 

Previously
Reported

 

As Adjusted

 

Effect of
Change

Other current assets

$

21,737 

 

$

27,089 

 

$

5,352 

Long-term debt, net of discount

 

559,529 

 

 

491,607 

 

 

(67,922)

Other long-term liabilities

 

42,455 

 

 

47,807 

 

 

5,352 

Additional paid-in capital

 

170,052 

 

 

236,394 

 

 

66,342 

Accumulated deficit

 

(764,923)

 

 

(763,343)

 

 

1,580 

  

11

 

 


 


 

 

 

 

RF MICRO DEVICES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)

 

 

5.        DEBT (continued)

 

The retrospective application of FSP APB 14-1 (now codified as FASB ASC 470-20) had the following effect on the Company’s Condensed Consolidated Statements of Cash Flows for the nine months ended December 27, 2008 (in thousands):

 

 

Previously
Reported

 

As Adjusted

 

Effect of
Change

Cash flow from operating activities:

 

 

 

 

 

 

 

 

    Net loss

$

(849,245)

 

$

(829,226)

 

$

20,019 

    Amortization

 

23,932 

 

 

35,709 

 

 

11,777 

    Gain on retirement of convertible
      subordinated notes

 

(10,667)

 

 

(8,135)

 

 

2,532 

    Deferred income taxes

 

32,214 

 

 

(2,114)

 

 

(34,328)

 

The following tables provide additional information about the Company’s Notes, which as noted above are subject to FSP ABP 14-1 (now codified as FASB ASC 470-20) (in thousands):

 

 

2012 Notes

 

2014 Notes

 

January 2,
2010

 

March 28,
2009

 

January 2,
2010

 

March 28,
2009

Carrying amount of the equity component
     (additional paid-in capital)

$

31,310 

 

$

31,414 

 

$

34,492 

 

$

34,928 

Principal amount of the convertible
      subordinated notes

 

197,748 

 

 

200,000 

 

 

134,901 

 

 

142,691 

Unamortized discount of the liability
     component

 

(26,756)

 

 

(35,274)

 

 

(30,957)

 

 

(37,593)

Net carrying amount of liability component

 

170,992 

 

 

164,726 

 

 

103,944 

 

 

                 105,098

 

 

 

2012 Notes

 

2014 Notes

 

January 2,
2010

 

December 27,
2008

 

January 2,
2010

 

December 27,
2008

Effective interest rate on liability component

 

7.3 %

 

 

7.3 %

 

 

7.2 %

 

 

7.2 %

 

 

 

 

 

 

 

 

 

 

 

 

For the three months ended:

 

 

 

 

 

 

 

 

 

 

 

Cash interest expense recognized

$

371 

 

 $

375 

 

 $

337 

 

 $

435 

Non-cash interest expense recognized

 

2,707 

 

 

2,543 

 

 

1,528 

 

 

1,837 

 

 

 

 

 

 

 

 

 

 

 

 

For the nine months ended:

 

 

 

 

 

 

 

 

 

 

 

Cash interest expense recognized

 

1,136 

 

 

1,117 

 

 

1,041 

 

 

1,300 

Non-cash interest expense recognized

 

8,146 

 

 

7,438 

 

 

4,629 

 

 

5,383 

 

As of January 2, 2010, the remaining period over which the unamortized discount will be amortized for the 2012 Notes and 2014 Notes is 2.3 years and 4.3 years, respectively.  As of January 2, 2010, the if-converted value of the Notes did not exceed the principal amount for both the 2012 Notes and the 2014 Notes.
 

The 2012 Notes had a fair value on the Private Offerings, Resale and Trading through Automated Linkages (“PORTAL”) Market of $182.9 million as of January 2, 2010 (excluding $2.2 million of the original principal amount of the 2012 Notes that were purchased and retired) and $124.0 million as of December 27, 2008.  The 2014 Notes had a fair value on the PORTAL Market of $118.2 million as of January 2, 2010 (excluding $40.1 million of the original principal

 

12

 


 


 

 

 

RF MICRO DEVICES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)

 

 

5.        DEBT (continued)

 

amount of the 2014 Notes that were purchased and retired) and $52.3 million as of December 27, 2008 (excluding $10.2 million of the original principal amount of the 2014 Notes that were purchased and retired during the nine months ended December 27, 2008).

 

In July 2003, the Company completed the private placement of $230.0 million aggregate principal amount of its 2010 Notes.  In the third quarter of fiscal 2010, the Company purchased and retired, at 100% of the original principal amount, $197.0 million of the 2010 Notes, which resulted in a loss of $0.4 million due to the write off of the unamortized discount and debt issuance cost.   In the third quarter of fiscal 2009, the Company purchased and retired $23.0 million of the original principal amount of the 2010 Notes at an average price of $82.83, which resulted in a gain of approximately $3.8 million.  The 2010 Notes had a fair value on the PORTAL Market of $9.9 million as of January 2, 2010 (excluding $220.0 million of the original principal amount of the 2010 Notes that were purchased and retired) and $169.9 million as of December 27, 2008 (excluding $23.0 million of the original principal amount of the 2010 Notes that were purchased and retired during the nine months ended December 27, 2008). 

 

6.          INCOME TAXES

 

Income Tax Expense

The Company’s provision for income taxes for the reporting periods ended January 2, 2010 and December 27, 2008, have been calculated by applying an estimate of the annual effective tax rate for the full fiscal year to “ordinary” income or loss (pre-tax income or loss excluding unusual or infrequently occurring discrete items) for the reporting period. 

 

Income tax expense for the three months ended January 2, 2010, was $2.8 million, which is comprised primarily of a tax expense related to domestic and international operations, a tax benefit related to changes in the domestic and foreign deferred tax asset valuation allowances, a tax expense related to the settlement of the North Carolina audit of fiscal 2006 through 2008, and a tax benefit from the carryback of fiscal 2009 federal losses with the suspension of the 90% Alternative Minimum Tax limitation on the use of Net Operating Losses under the Worker, Homeownership, and Business Assistance Act of 2009 (“WHBAA 2009”).  Income tax expense for the three months ended December 27, 2008 was $31.7 million, which is comprised primarily of a tax benefit related to domestic operations, a tax expense related to international operations and a tax expense related to an increase in the domestic and foreign deferred tax asset valuation allowances.  Income tax expense for the nine months ended January 2, 2010 was $9.4 million, which is comprised primarily of a tax expense related to domestic and international operations, a tax benefit related to changes in the domestic and foreign deferred tax asset valuation allowances, a tax expense related to finalizing the Advance Pricing Agreement and related adjustments with China tax authorities for calendar years 2006, 2007 and 2008, a tax expense related to the settlement of the North Carolina audit of fiscal 2006 through 2008, and a tax benefit from the carryback of fiscal 2009 federal losses from the suspension of the 90% Alternative Minimum Tax limitation on the use of Net Operating Losses under the WHBAA 2009.  Income tax expense for the nine months ended December 27, 2008 was $5.6 million, which is comprised primarily of a tax benefit related to domestic operations, a tax expense related to international operations and a tax expense related to an increase in the domestic and foreign deferred tax asset valuation allowances.

 

The Company’s effective tax rate for the three month periods ended January 2, 2010 and December 27, 2008 was 10.2% and (4.2%), respectively.  The Company's effective tax rate for the third quarter of fiscal 2010 differed from the statutory rate primarily due to tax rate differences in foreign jurisdictions, domestic tax credits generated, adjustments to the valuation allowance limiting the recognition of the benefit of domestic and foreign deferred tax assets, settlement of the North Carolina audit of fiscal 2006 through 2008, and the carryback of fiscal 2009 federal losses under the WHBAA 2009.  The Company's effective tax rate for the third quarter of fiscal 2009 differed from the income tax benefit calculated on the basis of the statutory rate primarily due to the impairment of non-deductible goodwill, tax rate differences in foreign jurisdictions, domestic tax credits generated, and adjustments to the valuation allowance limiting the recognition of the benefit of domestic and foreign deferred tax assets. 

                                                   

The Company’s effective tax rate for the nine month periods ended January 2, 2010 and December 27, 2008 was 17.5% and (0.7%), respectively.  The Company's effective tax rate through the third quarter of fiscal 2010 differed from the statutory rate primarily due to tax rate differences in foreign jurisdictions, domestic tax credits generated, adjustments to the valuation
 

13


 


 


 

 

 

 

RF MICRO DEVICES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)

 

 

6.          INCOME TAXES (continued)

 

allowance limiting the recognition of the benefit of domestic and foreign deferred tax assets, settlement of the China Advance Pricing Agreement adjustments for calendar years 2006, 2007 and 2008, and the carryback of fiscal 2009 federal losses under the WHBAA 2009.  The Company's effective tax rate through the third quarter of fiscal 2009 differed from the statutory rate due to the impairment of non-deductible goodwill, the write-off of acquired in-process research and development costs in connection with the UMC acquisition, tax rate differences in foreign jurisdictions, domestic tax credits generated, and adjustments to the valuation allowance limiting the recognition of the benefit of domestic and foreign deferred tax assets.

 

Deferred Taxes

A valuation allowance of $139.6 million against deferred tax assets has been established as of the end of the third quarter of fiscal 2010 as it is management’s opinion that it is more likely than not that a portion of the deferred tax assets will not be realized.  This is an increase of $1.2 million from the $138.4 million valuation allowance as of the end of fiscal 2009.

                                                                                      

The Company intends to maintain a valuation allowance until sufficient positive evidence exists to support its full or partial reversal.  The amount of the deferred tax assets actually realized could vary depending upon the amount of taxable income the Company is able to generate in the various taxing jurisdictions in which the Company has operations.

 

At March 31, 2007, the Company had recorded a $51.4 million valuation allowance as full realization of the domestic federal and state deferred tax assets was not supported by reversals of existing taxable temporary differences or taxable income in prior carry back years to the extent allowed by the applicable taxing jurisdictions.  As of the end of fiscal 2007, the Company was no longer in a cumulative domestic pre-tax loss position for the most recent three-year period.  The valuation allowance was based on a determination by the Company’s management that unsettled circumstances existed with respect to a slowdown in demand from a high per-unit dollar content major customer and the significant impact that was expected to have on near-term financial results.  These unsettled circumstances represented negative evidence that in management’s opinion required a continuation of the domestic deferred tax asset valuation allowance as of the end of fiscal 2007.

 

During the first quarter of fiscal 2008, the $51.4 million valuation allowance against the domestic federal and state deferred tax assets that existed as of the end of fiscal 2007 was reduced by $43.6 million.  Of this amount, $12.9 million was reversed in connection with changes in accounting for uncertain income tax positions.  The balance of $30.7 million consisted of a reversal of $31.6 million of the valuation allowance based on the evaluation by management of the ability in future years to realize the related domestic deferred tax assets and an increase of $0.9 million recorded in connection with state credit deferred tax assets acquired in connection with the acquisition of Sirenza Microdevices, Inc. (“Sirenza”).  The $31.6 million reversal was based on the determination by management that as of the end of the first quarter of fiscal 2008, the negative evidence that existed as of the end of fiscal 2007 was no longer applicable.  Based on actual activity during the period, by the end of the first quarter of fiscal 2008 the Company was able to better determine the impact of the slow-down in customer demand from the high per-unit dollar content major customer and positive evidence arose of actual increases in sales to other customers and the commencement of volume production of the POLARIS® 3 RF solution.  The amount reversed consisted of $20.7 million recognized as an income tax benefit, $4.8 million reversed against equity related to the tax benefit of employee stock options, and $6.1 million reversed against goodwill related to the tax benefit of net operating losses, credits and deductions acquired from other companies. 

 

The majority of the subsequent increase in the valuation allowance to $38.8 million as of the end of fiscal 2008 consisted of the $3.4 million amount recorded in connection with the Sirenza acquisition during the third quarter of fiscal 2008 and the $27.0 million amount recorded in connection with the acquisition of Filtronic Compound Semiconductors Limited (“Filtronic”) during the fourth quarter of fiscal 2008.

 

As of the end of the third quarter of fiscal 2009, the Company evaluated its ability to realize its deferred tax assets in future periods and increased the valuation allowance for the deferred tax assets in the United Kingdom (“U.K.”), China, and the United States (“U.S.”) from $37.0 million as of the end of the prior quarter to $126.5 million.  This increase in the valuation allowance during the third quarter of fiscal 2009 was due to impairment charges incurred during the third quarter of fiscal 2009 that resulted in the Company moving into a cumulative pre-tax loss for the most recent three-year period, inclusive of the loss for the period ended December 27, 2008.  Management determined that the negative evidence represented by the cumulative pre-tax loss that arose during the third quarter of fiscal 2009 required an increase in the valuation allowance to the
 

14


 


 


 

 

 

 

RF MICRO DEVICES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)

 

 

6.          INCOME TAXES (continued)

 

extent that realization of these deferred tax assets was not supported by reversals of existing taxable temporary differences or taxable income in prior carry back years, to the extent allowed by the applicable taxing jurisdictions.

 

As of the end of fiscal 2009, the valuation allowance against deferred tax assets had increased by $99.6 million to $138.4 million, as compared to $38.8 million as of the end of fiscal 2008.  This increase was comprised of: a $0.2 million increase related to state tax credits and net operating loss carryovers acquired in the Sirenza transaction which were not realizable as of

the acquisition date and which increase was recorded in goodwill; increases of $90.8 million related to U.S. deferred tax assets, $1.8 million related to China deferred tax assets, and $14.1 million related to U.K. deferred tax assets for which there was a change in judgment about the realizability of the deferred tax assets during fiscal 2009 and which increases were recorded as an income tax expense during the fiscal year; a $0.3 million increase related to the tax benefit of employee stock compensation which was recorded in equity during the fiscal year; and a $7.6 million decrease related to the impact from the change in the exchange rate for the British pound on the valuation allowance for U.K. deferred tax assets existing as of the beginning of the fiscal year, which amount was offset by a  corresponding decrease in the U.S. dollar-denominated amount of the related U.K. deferred tax assets. 


The Company has outstanding net operating loss carryforwards (“NOLs”) for domestic federal tax purposes and state loss carryovers that will begin to expire in 2011 and 2010, respectively, if unused.  Included in these amounts are certain NOLs and other tax attribute assets acquired in conjunction with the Company’s acquisitions of Resonext, Silicon Wave, Inc., and Sirenza.  The utilization of acquired assets may be subject to certain annual limitations as required under Internal Revenue Code Section 382 and similar state tax provisions.  In addition, the Company has U.K. loss carryovers that carryforward indefinitely.  The U.K. loss carryovers were acquired in connection with the acquisition of Filtronic and potentially are subject to limitation under U.K. anti-avoidance provisions if there is a “major change” in the nature or conduct of the Filtronic trade or business within three years of the ownership change.

 

Uncertain Tax Positions

The Company’s gross unrecognized tax benefits increased from $29.5 million as of the end of fiscal 2009 to $32.7 million as of the end of the third quarter of fiscal 2010, with $3.2 million of the increase related to tax positions taken with respect to the current fiscal year and $0.8 million related to tax positions taken with respect to the prior fiscal year returns filed during the current fiscal year.  In addition, there was a decrease in gross unrecognized tax benefits of $0.2 million (plus $0.1 million of accrued interest) during the second quarter from expiration of statutes of limitations in locations where tax contingencies were recorded in prior years and $0.6 million (plus $0.3 million of accrued interest) during the first quarter of fiscal 2010 for China tax uncertainties that were settled in connection with the finalization of the Advance Pricing Agreement and related adjustments for calendar years 2006, 2007 and 2008.

 

Fiscal 2007 and subsequent tax years remain open for examination by the U.S. federal taxing authorities.  Other material jurisdictions that are subject to examination by tax authorities are North Carolina (fiscal 2007 through present), California (fiscal 2006 through present), the U.K. (fiscal 2004 through present), Germany (calendar year 2006 through present), and China (calendar year 2000 through present).

 

7.          RETIREMENT BENEFIT PLAN

The Company maintains a qualified defined benefit pension plan for its subsidiary located in Germany.  The plan is unfunded with an obligation of approximately $3.0 million and $2.6 million at January 2, 2010 and March 28, 2009, respectively.

 

The service and interest cost components of the net periodic benefit cost totaled approximately $0.1 million and $0.2 million for the three and nine months ended January 2, 2010.  The service and interest cost components of the net periodic benefit cost were approximately $0.1 million and $0.2 million for the three and nine months ended December 27, 2008, respectively.  

 

 

 

 

15


 


 


 

 

 

 

RF MICRO DEVICES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)

 

 

8.          NEW ACCOUNTING PRONOUNCEMENTS


In June 2009, the FASB approved the “FASB Accounting Standards Codification” (“Codification”) as the single source of authoritative nongovernmental U.S. GAAP.  The Codification, which was launched on July 1, 2009, does not change current U.S. GAAP, but is intended to simplify user access to all authoritative U.S. GAAP by providing all the authoritative literature related to a particular topic in one place.  All existing accounting standard documents are superseded and all other accounting literature not included in the Codification is considered non-authoritative.  The Codification was effective for the Company for the period ended October 3, 2009, and did not have an impact on the Company’s financial condition or results of operations.  We have incorporated the Codification into this Quarterly Report on Form 10-Q.    

 

9.          RESTRUCTURING

 

Restructuring resulting from adverse macroeconomic business environment

 

During the third quarter of fiscal 2009, the Company initiated a restructuring to reduce manufacturing capacity and costs and operating expenses due primarily to lower demand for its products resulting from the global economic slowdown.  The restructuring decreased the Company’s workforce and resulted in the impairment of certain property and equipment, among other charges.

 

In the fourth quarter of fiscal 2009, the Company initiated additional reductions due to the adverse macroeconomic business environment.  The Company decided to outsource certain non-core manufacturing operations and consolidate the Shanghai test and assembly operations with its primary test and assembly facility in Beijing, China. 

 

The Company recorded restructuring charges of approximately $0.3 million and $2.6 million for the three and nine months ended January 2, 2010, respectively, and $53.3 million for the three and nine months ended December 27, 2008, related to one-time employee termination benefits, impaired assets (including property and equipment) and lease and other contract termination costs.  The restructuring charges were recorded in “other operating expense.”  In addition, as a result of this restructuring, the Company has $0.6 million of property and equipment that is classified as held for sale as of January 2, 2010.  During the three and nine months ended January 2, 2010, the Company recognized a gain of $0.1 million and $0.3 million, respectively, on the sale of assets classified as held for sale.

 

The following table summarizes the restructuring activities associated with the adverse macroeconomic business environment restructuring plan during the nine months ended January 2, 2010 (in thousands):



 

One-Time
Employee
 Termination
Benefits

 

Asset
Impairments

 

Lease and
Other Contract
Terminations

 

Total

Accrued restructuring balance as
      of March 28, 2009

$

1,907 

 

$

-   

 

$

10,906 

 

$

12,813 

Costs incurred and charged to
      expense

 

1,536 

 

 

847 

 

 

382 

 

 

2,765 

Adjustments to expense*

 

-   

 

 

(147)

 

 

-   

 

 

(147)

Cash payments

 

(3,389)

 

 

-   

 

 

(1,275)

 

 

(4,664)

Non-cash settlement

 

-   

 

 

(700)

 

 

-   

 

 

(700)

Accrued restructuring balance as
      of January 2, 2010

$

54 

 

$

-   

 

$

10,013 

 

$

10,067 

 

 

 

 

 

 

 

 

 

 

 

 

*Adjustments related to finalizing the sale of certain assets.

 

 

 

 

 

 

 

The current and long-term restructuring obligations totaling $10.1 million are included in “accrued liabilities” and “other long-term liabilities” in the condensed consolidated balance sheet.

16


 


 


 

 

 

 

RF MICRO DEVICES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)

 

9.          RESTRUCTURING (continued)

 

The Company has incurred and expects to incur the following restructuring charges associated with the adverse macroeconomic business environment restructuring (in thousands):

 

 

Fiscal 2009

 

Three Months
 Ended
January 2,
2010

 

Nine Months
Ended
January 2,
2010

 

Future

 

Total

One-time employee      
     termination benefit costs

$

4,390 

 

$

244 

 

$

1,536 

 

$

165 

 

$

6,091 

Asset impairments

 

51,432 

 

 

(55)

 

 

700 

 

 

-   

 

 

52,132 

Lease and other contract
      termination costs

 

11,292 

 

 

146 

 

 

382 

 

 

4,252 

 

 

15,926 

Total restructuring charges

$

67,114 

 

$

335 

 

$

2,618 

 

$

4,417 

 

$

74,149 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As of January 2, 2010, the restructuring related to the adverse macroeconomic business environment is substantially completed except for ongoing costs associated with our leased facilities and one-time employee termination benefit costs.

 

Fiscal 2009 restructuring to reduce or eliminate investments in wireless systems

 

In the first quarter of fiscal 2009, the Company initiated a restructuring to reduce or eliminate its investment in wireless systems, including cellular transceivers and GPS solutions, in order to focus on RF component opportunities.  Additionally, the Company consolidated its production test facilities in an effort to reduce cycle time, better serve its customer base and improve its overall profitability.

 

As part of this restructuring, the Company reduced its global workforce by approximately 10 percent.  The Company recorded restructuring charges of approximately $0.2 million and $1.0 million for the three and nine months ended January 2, 2010, and $4.7 million and $48.4 million for the three and nine months ended December 27, 2008, respectively, related to one-time employee termination benefits, impaired assets (including property and equipment) and lease and other contract termination costs.  The fair value of the impaired assets was estimated based on quoted market prices of similar assets.  The restructuring charges were recorded in “other operating expense.”  In addition, as a result of this restructuring, the Company had $0.2 million of property and equipment classified as held for sale as of January 2, 2010.  During the three and nine months ended January 2, 2010, the Company recognized a loss of less than $0.1 million and $0.8 million, respectively, on the sale of assets classified as held for sale.

 

The following table summarizes restructuring activities associated with the fiscal 2009 restructuring to reduce or eliminate the Company’s investment in wireless systems during the nine months ended January 2, 2010 (in thousands):

 

 

One-Time
Employee
Termination
Benefits

 

Asset
Impairments

 

Lease and
Other Contract
Terminations

 

Total

Accrued restructuring balance as
     of March 28, 2009

$

61 

 

$

-   

 

$

3,160 

 

$

3,221 

Costs incurred and charged to
    expense

 

 

 

1,276 

 

 

412 

 

 

1,693 

Adjustments to expense*

 

(33)

 

 

-   

 

 

(640)

 

 

(673)

Cash payments

 

(33)

 

 

-   

 

 

(1,176)

 

 

(1,209)

Non-cash settlement

 

-   

 

 

(1,276)

 

 

-   

 

 

(1,276)

Accrued restructuring balance as
      of January 2, 2010

$

-   

 

$

-   

 

$

1,756 

 

$

1,756 

   

 

 

 

 

 

 

 

 

 

 

 

*Adjustments related to finalizing certain contracts.

 

 

 

 

 

 

 

 

 

17


 


 


 

 

 

RF MICRO DEVICES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)

 

 

9.          RESTRUCTURING (continued)

The current and long-term restructuring obligations totaling $1.8 million are included in “accrued liabilities” and “other long-term liabilities” in the condensed consolidated balance sheet.

 

The Company has incurred and expects to incur the following restructuring charges or adjustments to expense associated with the fiscal 2009 restructuring to reduce or eliminate the Company’s investment in wireless systems (in thousands):

 

 

Fiscal
2009

 

Three Months
 Ended
 January 2, 2010

 

Nine Months
 Ended
January 2, 2010

 

Future

 

Total

One-time employee
     termination benefit costs

$

9,023 

 

$

-   

 

$

(28)

 

$

-   

 

$

8,995 

Asset impairments

 

24,573 

 

 

23 

 

 

1,276 

 

 

-   

 

 

25,849 

Lease and other contract
      termination costs

 

13,473 

 

 

226 

 

 

(228)

 

 

1,344 

 

 

14,589 

Total restructuring charges

$

47,069 

 

$

249 

 

$

1,020 

 

$

1,344 

 

$

49,433 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As of January 2, 2010, the restructuring related to the adverse macroeconomic business environment is substantially completed except for ongoing costs associated with our leased facilities.

10.        BUSINESS ACQUISITIONS

 

Universal Microwave Corporation

On April 26, 2008, the Company acquired Universal Microwave Corporation (“UMC”) for approximately $24.1 million in cash including transaction costs of $0.9 million.  UMC designs and manufactures high performance RF oscillators and synthesizers primarily for point-to-point radios, CATV head-end equipment and military communications radio markets.  The acquisition of UMC furthers the Company’s diversification strategy. 

The total purchase price of $24.1 million was allocated to assets acquired of $16.7 million (including identifiable intangible assets of $10.4 million) and liabilities assumed of $5.3 million (based on their fair values as determined by the Company as of April 26, 2008), and resulted in goodwill of $12.8 million. 

UMC’s results of operations are included in the Company’s income statement as of April 26, 2008.  The results of UMC are not significant to the overall results of the Company. 

The in-process research and development with no alternative future use that we acquired from UMC ($1.4 million) was charged to “other operating expense” at the acquisition date.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

18


 


 


 

 

 

 

RF MICRO DEVICES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)

 

11.        INVESTMENTS AND FAIR VALUE OF FINANCIAL INSTRUMENTS

 

Investments

As of January 2, 2010 and March 28, 2009, available-for-sale securities and trading securities were included in the following captions in the Company’s Consolidated Balance Sheets (in thousands):

Balance Sheet Caption

 

Available-
for-sale
 investments

 

 

Trading
securities

 

 

Cash

 

 

Per January 2,
2010
Balance Sheet

Cash and cash equivalents

$

34,353 

 

$

-   

 

$

87,148 

 

$

121,501 

Restricted cash and trading
  security investments

 

-   

 

 

17,539 

 

 

459 

 

 

17,998 

Short-term investments

 

62,966 

 

 

-   

 

 

-   

 

 

62,966 

Long-term investments

 

2,175 

 

 

-   

 

 

-   

 

 

2,175 

   Total

$

99,494 

 

$

17,539 

 

$

87,607 

 

$

204,640 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance Sheet Caption

 

Available-
for-sale
investments

 

 

Trading
securities

 

 

Cash

 

 

Per March 28,
2009
Balance Sheet

Cash and cash equivalents

$

102,757 

 

$

-   

 

$

70,232 

 

$

172,989 

Short-term investments

 

93,527 

 

 

-   

 

 

-   

 

 

93,527 

Long-term investments

 

2,200 

 

 

17,983 

 

 

-   

 

 

20,183 

  Total

$

198,484 

 

$

17,983 

 

$

70,232 

 

$

286,699 

 

 

 

 

 

 

 

 

 

 

 

 

The following is a summary of available-for-sale securities as of January 2, 2010, and March 28, 2009 (in thousands):

 

 

Available-for-Sale Securities

 

 

Cost

 

 

Gross
Unrealized
Gains

 

 

Gross
 Unrealized
Losses

 

 

Estimated
 Fair Value

January 2, 2010

 

 

 

 

 

 

 

 

 

 

 

U.S. government/agency securities

$

62,953 

 

$

18 

 

$

(5)

 

$

62,966 

Auction rate securities

 

2,175 

 

 

-   

 

 

-   

 

 

2,175 

Money market funds

 

34,353 

 

 

-   

 

 

-   

 

 

34,353 

 

$

99,481 

 

$

18 

 

$

(5)

 

$

99,494 

March 28, 2009

 

 

 

 

 

 

 

 

 

 

 

U.S. government/agency securities

$

158,339 

 

$

104 

 

$

(45)

 

$

158,398 

Auction rate securities

 

2,200 

 

 

-   

 

 

-   

 

 

2,200 

Money market funds

 

37,886 

 

 

-   

 

 

-   

 

 

37,886 

 

$

198,425 

 

$

104 

 

$

(45)

 

$

198,484 

 

 

 

 

 

 

 

 

 

 

 

 

The estimated fair value of available-for-sale securities was based on the prevailing market values on January 2, 2010, and March 28, 2009.  We determine the cost of an investment sold based on the specific identification method.

 

Less than $0.1 million gross realized gains on available-for-sale securities were included in earnings in the three and nine months ended January 2, 2010. 

 

For the three months ended December 27, 2008, less than $0.1 million of gross realized losses were included in earnings, and for the nine months ended December 27, 2008, $0.8 million of gross realized losses and $0.3 million of gross realized gains were included in earnings.

19


 


 


 

 

 

 

RF MICRO DEVICES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)

 

 

11.         INVESTMENTS AND FAIR VALUE OF FINANCIAL INSTRUMENTS (continued)

 

The amortized cost of available-for-sale investments in debt securities with contractual maturities is as follows (in thousands):

 

 

January 2, 2010

 

March 28, 2009

 

 

Cost

 

 

Estimated
Fair Value

 

 

Cost

 

 

Estimated
Fair Value

Due in less than one year

$

97,306 

 

$

97,319 

 

$

196,225 

 

$

196,284 

Due after one year through five years

 

-   

 

 

-   

 

 

-   

 

 

-   

Due after ten years

 

2,175 

 

 

2,175 

 

 

2,200 

 

 

2,200 

  Total investments in debt securities

$

99,481 

 

$

99,494 

 

$

198,425 

 

$

198,484 

 

 

 

 

 

 

 

 

 

 

 

 

No available-for-sale investments were in a continuous unrealized loss position as of January 2, 2010.  The available-for-sale investments in fiscal 2009 that were in a continuous unrealized loss position for less than 12 months consisted of U.S. government/agency securities and amounted to less than $0.1 million as of March 28, 2009.  No available-for-sale investments were in a continuous unrealized loss position for 12 months or greater as of January 2, 2010 and March 28, 2009.

 

Fair Value of Financial Instruments

On a quarterly basis, the Company measures the fair value of its marketable securities and trading securities, which are comprised of U.S. government/agency securities, corporate debt securities, auction rate securities (“ARS”), and commercial paper.  Marketable securities are reported in cash and cash equivalents, short-term investments and long-term investments on the Company’s consolidated balance sheet and are recorded at fair value and the related unrealized gains and losses are included in accumulated other comprehensive income (loss), a component of shareholders’ equity, net of tax.  Trading securities are included in restricted trading security investments with the related unrealized gains and losses recorded in earnings. 

 

The FASB Codification specifies a hierarchy of valuation techniques based on whether the inputs to those valuation techniques are observable or unobservable.  Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect the Company’s market assumptions.  These two types of inputs have created the following fair-value hierarchy:
 

•         Level 1 — Quoted prices for identical instruments in active markets; 

•         Level 2 — Quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are
  not active, and model-derived valuations in which all significant inputs and significant value drivers are observable in active
  markets; and 

•         Level 3 — Valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are
  unobservable. 

 

This hierarchy requires the Company to minimize the use of unobservable inputs and to use observable market data, if available, when determining fair value.

 

 

 

 

 

 

 

 

 

 

 

 

 

20


 


 


 

 

 

 

RF MICRO DEVICES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)

 

 

11.         INVESTMENTS AND FAIR VALUE OF FINANCIAL INSTRUMENTS (continued)

 

Financial Instruments Measured at Fair Value on a Recurring Basis

The fair value of the financial assets measured at fair value on a recurring basis was determined using the following levels of inputs as of January 2, 2010 (in thousands):

 

 

Total

 

 

Quoted Prices
 In Active Markets
 For Identical
Assets (Level 1)

 

 

Significant Other
Observable Inputs
 (Level 2)

 

 

Significant
Unobservable
Inputs (Level 3)

U.S. government/agency securities

$

62,966 

 

$

62,966 

 

$

-   

 

$

Auction rate securities

 

19,714 

 

 

-   

 

 

2,175 

 

 

17,539 

Put option

 

2,311 

 

 

-   

 

 

-   

 

 

2,311 

Money market funds

 

34,354 

 

 

34,354 

 

 

-   

 

 

 

$

119,345 

 

$

97,320 

 

$

2,175 

 

$

19,850 

 

 

 

 

 

 

 

 

 

 

 

 

 

During the three months ended January 2, 2010, the changes in the fair value of the assets measured on a recurring basis using significant unobservable inputs (Level 3) were comprised of the following (in thousands):

 

 

 

Auction Rate
Securities

 

 

Put Option

Level 3 balance at October 3, 2009

$

17,769 

 

$

2,331 

  Unrealized gain (loss) included in
    other (expense) income

 

20 

 

 

(20)

  Settlement of ARS

 

(250)

 

 

-   

Level 3 balance at January 2, 2010

$

17,539 

 

$

2,311 

 

 

 

 

 

 

 

During the nine months ended January 2, 2010, the changes in the fair value of the assets measured on a recurring basis using significant unobservable inputs (Level 3) were comprised of the following (in thousands):

 

 

 

Auction Rate
Securities

 

 

Put
Option

Level 3 balance at March 28, 2009

$

17,983 

 

$

2,517 

  Unrealized gain (loss) included in
    other (expense) income

 

206 

 

 

(206)

  Settlement of ARS

 

(650)

 

 

-   

Level 3 balance at January 2, 2010

$

17,539 

 

$

2,311