| ** **

** **

**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 June 27, 2009                                                                   |
|                                                                                                           |
| 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 markwhether the registrant (1) has filed all reports required to be filed bySection 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding12 months (or for such shorter period that the registrant was required to filesuch reports), and (2) has been subject to such filing requirements for thepast 90 days. Yes [X] No [  ]

 

Indicate by check markwhether the registrant has submitted electronically and posted on its corporateWeb site, if any, every Interactive Data File required to be submitted andposted 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 registrantwas required to submit and post such files). Yes [  ] No [  ]

Indicate by check mark whether the registrant is a large accelerated filer, anaccelerated 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.  (Checkone):
| 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 inRule 12b-2 of the Exchange Act).  

Yes [  ] No [X]

As of July 31, 2009, there were 267,111,395 shares of the registrant’s commonstock outstanding.  

 

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RF MICRO DEVICES, INC. AND SUBSIDIARIES

INDEX

 

** **
| **PART I-**        | **FINANCIAL INFORMATION**                                                                                                                           | ** ** |
|--------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------|------------|
| ** **         | ** **                                                                                                                                          | ** ** |
| **Item 1.**        | **Condensed Consolidated Financial  Statements.**                                                                                                   | **Page**   |
|               |                                                                                                                                                |       |
|               |                                                                                                                                                |       |
|               |     Condensed Consolidated  Balance Sheets as of June 27, 2009

    and March 28, 2009                                |  

3  |
|               |                                                                                                                                                |       |
|               |     Condensed Consolidated Statements  of Operations for the three months ended

    June 27, 2009 and June  28, 2008 |  

4  |
|               |                                                                                                                                                |       |
|               |     Condensed Consolidated  Statements of Cash Flows for the three months ended

    June 27, 2009 and June  28, 2008 |  

5  |
|               |                                                                                                                                                |       |
|               |     Notes to Condensed  Consolidated Financial Statements                                                                            | 6          |
|               |                                                                                                                                                |       |
| **Item 2.**        | **Management's Discussion and  Analysis of Financial Condition and Results of Operations.**                                                         | 23         |
|               |                                                                                                                                                |       |
| **Item 3.**        | **Quantitative and Qualitative  Disclosures About Market Risk.**                                                                                    | 32         |
|               |                                                                                                                                                |       |
| **Item 4.**        | **Controls and Procedures.**                                                                                                                        | 33         |
|               |                                                                                                                                                |       |
| ** **         | ** **                                                                                                                                          | ** ** |
| **PART II -**      | **OTHER INFORMATION**                                                                                                                               | ** ** |
| ** **         | ** **                                                                                                                                          | ** ** |
| **Item 6.**        | **Exhibits.**                                                                                                                                       | 34         |
| ** **         | ** **                                                                                                                                          | ** ** |
| **SIGNATURES.**    | ** **                                                                                                                                          | 35         |
| ** **         | ** **                                                                                                                                          |       |
| **EXHIBIT INDEX.** | ** **                                                                                                                                          | 36         |

**                                                                                                                              **

** **

| 2 |
|---|

 

----

 

#### ITEM 1.      

**RF MICRO DEVICES, INC. AND SUBSIDIARIESCONDENSED CONSOLIDATED BALANCE SHEETS**(In thousands)(Unaudited)
|                                                                                                                                                                                                                       | **June 27,**

**2009** | ** **      | **March 28,**

**2009** |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------------------|-----------------|-------------------------|
| **ASSETS**                                                                                                                                                                                                                 |                   |            |                    |
| Current assets:                                                                                                                                                                                                            |                   |            |                    |
|         Cash and cash  equivalents                                                                                                                                                      |  $                | 125,205    |                    |  $ | 172,989  |
|         Restricted cash  and trading security investments*(Note 11)*                                                                                                                    | 18,634            |            | 62                 |
|         Short-term  investments *(Note 11)*                                                                                                                                             | 168,826           |            | 93,527             |
|         Accounts  receivable, less allowance of $696 and $886 as of

            June 27, 2009 and March 28, 2009,  respectively | 98,100            |            | 90,231             |
|        Inventories *(Note  3)*                                                                                                                                                               | 107,008           |            | 113,611            |
|        Prepaid expenses                                                                                                                                                                      | 10,042            |            | 10,885             |
|        Other receivables                                                                                                                                                                     | 20,894            |            | 9,040              |
|        Other current  assets (amount recorded at fair value is $2,709)             *(Note 11)*                                                  | 26,068            |            | 27,089             |
|    Total current assets                                                                                                                                                                                          | 574,777           |            | 517,434            |
|                                                                                                                                                                                                                       |                   |            |                    |
| Property and equipment, net of accumulated  depreciation of $451,705 at June 27, 2009 and $435,179 at March 28, 2009                                                                                                       | 296,418           |            | 315,127            |
| Goodwill                                                                                                                                                                                                                   | 95,628            |            | 95,628             |
| Intangible assets, net                                                                                                                                                                                                     | 116,273           |            | 121,191            |
| Long-term investments *(Note 11)*                                                                                                                                                                                          | 2,200             |            | 20,183             |
| Other non-current assets  *(Note 6)*                                                                                                                                                                                       | 18,095            |            | 19,079             |
|    Total assets                                                                                                                                                                                                  | $                      | 1,103,391  |                    |  $ | 1,088,642  |
|                                                                                                                                                                                                                       |                   |            |                    |
| **LIABILITIES AND  SHAREHOLDERS’ EQUITY**                                                                                                                                                                             | ** **             | ** **      | ** **              |
| Current liabilities:                                                                                                                                                                                                       |                   |            |                    |
|         Accounts payable                                                                                                                                                                | $                      | 61,715     |                    | $ | 46,745  |
|         Accrued  liabilities                                                                                                                                                            | 50,490            |            | 51,259             |
|         Current portion  of long term debt, net of unamortized discount of               $688 at June 27, 2009                   | 211,205           |            | 4,839              |
|         No net cost  credit line *(Note 11)*                                                                                                                                            | 13,600            |            | -                  |
|         Other current  liabilities                                                                                                                                                      | 1,240             |            | 923                |
|    Total current  liabilities                                                                                                                                                                                    | 338,250           |            | 103,766            |
|                                                                                                                                                                                                                       |                   |            |                    |
| Long-term debt, net of unamortized discount of $66,424  at June 27, 2009 and $73,779 at March 28, 2009 *(Note 5)*                                                                                                          | 280,688           |            | 491,607            |
| No net cost credit line *(Note  11)*                                                                                                                                                                                       | -                 |            | 13,500             |
| Other long-term  liabilities *(Note 6)*                                                                                                                                                                                    | 43,798            |            | 47,807             |
|    Total liabilities                                                                                                                                                                                             | 662,736           |            | 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; 265,830 and 264,035 shares issued and outstanding at June 27,  2009 and March 28, 2009, respectively                                                               | 958,861           |            | 958,742            |
| Additional paid-in capital                                                                                                                                                                                                 | 239,922           |            | 236,394            |
| Accumulated other comprehensive income, net of tax                                                                                                                                                                         | 431               |            | 169                |
| Retained deficit                                                                                                                                                                                                           | (758,559)              |            | (763,343)               |
|    Total shareholders’  equity                                                                                                                                                                              | 440,655           |            | 431,962            |
|                                                                                                                                                                                                                       |                   |            |                    |
|    Total liabilities and  shareholders’ equity                                                                                                                                                              | $                      | 1,103,391  |                    | $ | 1,088,642  |
|                                                                                                                                                                                                                            |                        |                 |                         |  |  |  |  |  |  |

See accompanyingNotes to Condensed Consolidated Financial Statements.

| 3 |
|---|

----

**R****F MICRO DEVICES, INC. AND SUBSIDIARIESCONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS** (In thousands, except per sharedata)(Unaudited)

##  

|                                                                                                                                                               | **Three Months Ended** |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------------------|
| ** **                                                                                                                                                         | **June 27, 2009**      | ** ** | **June 28, 2008 (1)** |
|                                                                                                                                                               |                   |   |   |
| Revenue                                                                                                                                                            |  $                | 212,540  |   |  $ | 240,492  |
|                                                                                                                                                               |                   |   |   |
| Operating costs and  expenses:                                                                                                                                     |                   |   |   |
|         Cost of goods  sold                                                                                                     | 138,539           |   | 168,163  |
|         Research and  development                                                                                               | 35,633            |   | 51,354  |
|         Marketing and  selling                                                                                                  | 13,568            |   | 18,522  |
|         General and  administrative                                                                                             | 11,212            |   | 13,058  |
|         Other operating  expense*(Note 9)*                                                                                      | 1,537             |   | 29,098  |
| Total operating costs  and expenses                                                                                                                      | 200,489           |   | 280,195  |
| Income (loss) from  operations                                                                                                                                     | 12,051            |   | (39,703) |
|                                                                                                                                                               |                   |   |   |
|         Interest  expense                                                                                                       | (6,414)                |   | (6,425) |
|         Interest income                                                                                                         | 444               |   | 1,939  |
|         Gain on  retirement of convertible           subordinated notes *(Note 5)* | 1,949             |   | -  |
|         Other (expense)  income                                                                                                 | (176)                  |   | 569  |
|                                                                                                                                                               |                   |   |   |
| Income (loss) before  income taxes                                                                                                                                 | 7,854             |   | (43,620) |
|                                                                                                                                                               |                   |   |   |
| Income tax (expense)  benefit *(Note 6)*                                                                                                                           | (3,070)                |   | 17,095  |
| Net income (loss)                                                                                                                                                  |  $                | 4,784  |   |  $ | (26,525) |
|                                                                                                                                                               |                   |   |   |
| Net income (loss) per  share *(Note 2):*                                                                                                                           |                   |   |   |
|         Basic                                                                                                                   | $                      | 0.02  |   | $ | (0.10) |
|         Diluted                                                                                                                 | $                      | 0.02  |   | $ | (0.10) |
|                                                                                                                                                               |                   |   |   |
| Shares used in per  share calculation:                                                                                                                             |                   |   |   |
|         Basic                                                                                                                   | 265,635           |   | 261,249  |
|         Diluted                                                                                                                 | 269,302           |   | 261,249  |
|                                                                                                                                                               |                   |   |   |
|                                                                                                                                                               |                   |   |   |
|                                                                                                                                                               |                   |   |   |
|                                                                                                                                                                    |                        |  |  |  |  |  |  |  |  |  |  |

 

(1) Certain amounts have been adjusted as a result ofthe retrospective adoption of Financial Accounting Standards Board StaffPosition No. APB 14-1, “*Accounting for Convertible Debt Instruments That MayBe Settled in Cash upon Conversion (Including Partial Settlement)*” (“FSPAPB 14-1”).  See Note 5 to the Condensed Consolidated Financial Statements forfurther discussion.

 

See accompanying Notes toCondensed Consolidated Financial Statements.

 

 

| 4 |
|---|

 

----

 

 

 

 

 

**RF MICRO DEVICES, INC. AND SUBSIDIARIESCONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS**

(In thousands)(Unaudited)
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 | **Three Months Ended** |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------------------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 | **June 27, 2009**      | ** ** | **June 28, 2008 (1)** |
| **    Cash flows from  operating activities:**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |                   |   |   |
|     Net income (loss)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 | $                      | 4,784  |   | $ | (26,525) |
|     Adjustments to reconcile  net income (loss) to net cash          provided by (used by) operating activities:                                                                                                                                                                                                                                                                                                                                                                                                                        |                   |   |   |
|           Depreciation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  | 19,183            |   | 21,944  |
|           Amortization                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  | 4,720             |   | 7,771  |
|           Non-cash interest  expense and amortization of debt issuance costs                                                                                                                                                                                                                                                                                                                                                                                                                                                            | 4,311             |   | 4,415  |
|           Investment  discount amortization, net                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        | (51)                   |   | (119) |
|           Excess tax benefit  from exercises of stock options                                                                                                                                                                                                                                                                                                                                                                                                                                                                           | -                 |   | (129) |
|           Deferred income  taxes                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        | (2,108)                |   | (8,910) |
|           Foreign currency  adjustments                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 | 34                |   | (1,111) |
|           Acquired  in-process research and development cost                                                                                                                                                                                                                                                                                                                                                                                                                                                                            | -                 |   | 1,400  |
|           Asset impairments  (including restructuring impairments)                                                                                                                                                                                                                                                                                                                                                                                                                                                                      | 962               |   | 12,580  |
|           Gain on retirement  of convertible subordinated notes                                                                                                                                                                                                                                                                                                                                                                                                                                                                         | (1,949)                |   | - |
|           (Gain) loss on  disposal of assets, net                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       | (695)                  |   | 454  |
|           Share-based  compensation  expense                                                                                 | 4,137             |   | 4,481  |
|           Changes in  operating assets and liabilities:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |                   |   |   |
|              Accounts  receivable, net                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   | (7,778)                |   | 319  |
|              Inventories                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      | 6,815             |   | 9,994  |
|              Prepaid expense  and other current and non-current assets                                                                                                                                                                                                                                                                                                                                                                                                                                                        | (10,151)               |   | (8,800) |
|              Accounts  payable and accrued liabilities                                                                                                                                                                                                                                                                                                                                                                                                                                                                   | 13,414            |   | (10,889) |
|              Income tax  payable/recoverable                                                                                                                                                                                                                                                                                                                                                                                                                                                                             | 1,153             |   | (9,508) |
|              Other  liabilities                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               | (390)                  |   | (228) |
|     Net cash provided by (used  by) operating activities                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              | 36,391            |   | (2,861) |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |                   |   |   |
| **    Investing activities:**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |                   |   |   |
|             Purchase of  property and equipment                                                                                                                                                                                                                                                                                                                                                                                                                                                                               | (1,888)                |   | (18,473) |
|             Restricted cash associated with investing  activities                                                                                                                                                                                                                                                                                                                                                                                                                                                             | (720)                  |   | -  |
|             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                                                                                                                                                                                                                                                                                                                                                                                                                                                                     | 996               |   | 60  |
|             Proceeds from  maturities of securities available-for-sale                                                                                                                                                                                                                                                                                                                                                                                                                                                        | 30,458            |   | 28,268  |
|             Purchase of  securities available-for-sale                                                                                                                                                                                                                                                                                                                                                                                                                                                                        | (105,687)              |   | (6,120) |
|     Net cash used in  investing activities                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            | (76,841)               |   | (10,289) |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |                   |   |   |
| **    Financing activities:**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |                   |   |   |
|             Payment of  convertible subordinated notes                                                                                                                                                                                                                                                                                                                                                                                                                                                                        | (6,564)                |   | -  |
|             Payment of debt                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   | (1,159)                |   | (1,088) |
|             Excess tax benefit  from exercises of stock options                                                                                                                                                                                                                                                                                                                                                                                                                                                               | -                 |   | 129  |
|             Proceeds from no net  cost loan                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   | 100               |   | -  |
|             Proceeds from  exercise of stock options, warrants and employee                 stock purchases                                                                                                                                                                                                                                                                                                                                             | 119               |   | 453  |
|             Restricted cash  associated with financing activities                                                                                                                                                                                                                                                                                                                                                                                                                                                             | (121)                  |   |  434  |
|             Repayment of capital  lease obligations                                                                                                                                                                                                                                                                                                                                                                                                                                                                           | (66)                   |   | (199) |
|     Net cash used by financing  activities                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            | (7,691)                |   | (271) |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |                   |   |   |
|     Net decrease in cash and  cash equivalents                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        | (48,141)               |   | (13,421) |
|     Effect of exchange rate  changes on cash                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          | 357               |   | 252  |
|     Cash and cash equivalents at  the beginning of the period                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         | 172,989           |   | 129,750  |
|     Cash and cash equivalents at  the end of the period                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               | $                      | 125,205  |   | $ | 116,581  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |                   |   |   |

(1) Certain amounts have been adjusted as a result ofthe retrospective adoption of FSP APB 14-1.  See Note 5 to the CondensedConsolidated Financial Statements for further discussion.

 

Seeaccompanying Notes to Condensed Consolidated Financial Statements. 

| 5 |
|---|

 

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**RF MICRO DEVICES, INC. ANDSUBSIDIARIES**

***NOTES TO CONDENSEDCONSOLIDATED FINANCIAL STATEMENTS***

(Unaudited)

 

 

**1.          BASIS OFPRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES**

The accompanying condensedconsolidated financial statements of RF Micro Devices, Inc. and Subsidiaries(together, the “Company”) have been prepared in conformity with accountingprinciples generally accepted in the United States.  The preparation of thesefinancial statements requires management to make estimates and assumptions,which could differ materially from actual results.  In addition, certaininformation or footnote disclosures normally included in financial statementsprepared in accordance with accounting principles generally accepted in the United States have been condensed, or omitted, pursuant to the rules and regulations of theSecurities and Exchange Commission (“SEC”).  In the opinion of management, thefinancial statements include all adjustments (which are of a normal andrecurring nature) necessary for the fair presentation of the results of theinterim periods presented.  These condensed consolidated financial statementsshould be read in conjunction with the Company’s audited consolidated financialstatements and notes thereto included in the Company’s Annual Report on Form10-K for the fiscal year ended March 28, 2009, and as adjusted by theinformation contained in the Company’s Current Report on Form 8-K, filed withthe SEC on July 31, 2009, to reflect the retrospective application of FSP APB14-1. 

The condensed consolidatedfinancial statements include the accounts of the Company and its wholly-ownedsubsidiaries.  All significant intercompany accounts and transactions have beeneliminated in consolidation.  Certain amounts in the first quarter of fiscal2009 condensed consolidated financial statements have been reclassified toconform to the first quarter of fiscal 2010 presentation.  

The Company uses a 52- or 53-week fiscal year ending on the Saturday closest toMarch 31 of each year.  The first fiscal quarter of each year ends on theSaturday closest to June 30, the second fiscal quarter of each year ends on theSaturday closest to September 30 and the third fiscal quarter of each year endson the Saturday closest to December 31.

** **

The Company adopted FinancialAccounting Standards Board (“FASB”) Staff Position(“FSP”) No. APB 14-1, “*Accounting for Convertible Debt Instruments ThatMay Be Settled in Cash upon Conversion (Including Partial Cash Settlemen*t)”(“FSP APB 14-1”) on March 29, 2009, which requires an allocation ofconvertible debt proceeds between the liability component and the embeddedconversion option (i.e., the equity component).  Certain prior period amountsin the accompanying Condensed Consolidated Balance Sheets, CondensedConsolidated Statements of Operations, and Condensed Consolidated Statements ofCash Flows have been revised to reflect the impact of the Company’s retrospectiveapplication of FSP APB 14-1 (see Note 5 to the Condensed Consolidated FinancialStatements).  

** **

The Company has performed anevaluation of subsequent events through August 6, 2009, which is the datethe financial statements were issued. The Company did not identify anysubsequent events requiring recognition or disclosure in these financialstatements.

** **

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

| 6 |
|---|

 

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**RF MICRO DEVICES, INC. ANDSUBSIDIARIES**

***NOTES TO CONDENSEDCONSOLIDATED FINANCIAL STATEMENTS (continued)***

(Unaudited)

 

 

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

 

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

** **
|                                                                                                                                                                                                                                         | **THREE MONTHS ENDED** |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------------------|
|                                                                                                                                                                                                                                         | **JUNE 27, 2009**      | ** ** | **JUNE 28, 2008 (1)** |
|                                                                                                                                                                                                                                         |                   |   |   |
| Numerator for basic and  diluted net income (loss) per share:                                                                                                                                                                                |                   |   |   |
|        Net income (loss)  available to common shareholders                                                                                                                                                     |  $                | 4,784 |   |  $ | (26,525) |
|        Plus:   Income impact  of assumed conversions for interest on                    1.50% convertible notes | -                      |   | - |
| Net income (loss) plus  assumed conversion of notes – Numerator for diluted         net income (loss) per share                                                                                           |  $                | 4,784 |   |  $ | (26,525) |
|                                                                                                                                                                                                                                         |                   |   |   |
| Denominator:                                                                                                                                                                                                                                 |                   |   |   |
|        Denominator for basic  net income (loss) per share – weighted           average shares                                                                     | 265,635                |   | 261,249  |
|        Effect of dilutive  securities:                                                                                                                                                                         |                   |   |   |
|           Employee stock  options                                                                                                                                                               | 3,667                  |   | -  |
|           Assumed conversion  of 1.50% convertible notes                                                                                                                                        | -                      |   | -  |
| Denominator for diluted net  income (loss) per share – adjusted          weighted average shares and assumed conversions                                                                                  | 269,302                |   | 261,249  |
|                                                                                                                                                                                                                                         |                   |   |   |
| Basic net income (loss) per  share                                                                                                                                                                                                           |  $                | 0.02 |   |  $ | (0.10) |
|                                                                                                                                                                                                                                         |                   |   |   |
| Diluted net income (loss) per  share                                                                                                                                                                                                         |  $                | 0.02 |   |  $ | (0.10) |

(1)Certain amounts have been adjusted as a result of the retrospective adoption ofFSP APB 14-1.  See Note 5 to the Condensed       Consolidated Financial Statements for further discussion.

** **

In the computation of dilutednet income per share for the three months ended June 27, 2009, outstandingstock options to purchase approximately 19.6 million shares were excludedbecause the exercise price of the options was greater than the average marketprice of the underlying common stock and the effect of their inclusion wouldhave been anti-dilutive.  In the computation of diluted net loss per share for thethree months ended June 28, 2008, all outstanding stock options were excludedbecause the effect of their inclusion would have been anti-dilutive.

The computation of dilutednet income per share did not assume the conversion of the Company's 1.50%convertible subordinated notes due 2010 for the three months ended June 27, 2009,because the inclusion would have been anti-dilutive.  The computation ofdiluted net loss per share for the three months ended June 28, 2008 did notassume the conversion of the Company’s 1.50% convertible subordinated notes due2010 because the inclusion would have been anti-dilutive.  The 1.50%convertible subordinated notes are convertible at a price of $7.63 per shareand are convertible at the option of the holder at any time on or prior to theclose of business on the maturity date.  After the repurchase of $23.0 millionpar value by the Company during fiscal 2009 (see Note 5 to the CondensedConsolidated Financial Statements), the notes are convertible into a total ofapproximately 27.1 million shares as compared to 30.1 million shares prior tothe repurchase. 

The computation of diluted net income (loss) per share does not assume theconversion of the Company’s 0.75% or 1.00% convertible subordinated notes due2012 and 2014, respectively.  Upon conversion of each $1,000 principal amountof the two series of notes, a holder will receive in lieu of common stock, anamount in cash equal to the lesser of (1) $1,000 or (2) 

** **

** **

** **

** **

** **

| 7 |
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**RF MICRO DEVICES, INC. ANDSUBSIDIARIES**

***NOTES TO CONDENSEDCONSOLIDATED FINANCIAL STATEMENTS (continued)***

(Unaudited)

** **

** **

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

 

the conversion value.  If theconversion value exceeds $1,000 on the conversion date, the Company, at itselection, will settle the value in excess of $1,000 in cash or common stock. In accordance with Emerging Issues Task Force No. 90-19, *“Convertible Bondswith Issuer Option to Settle for Cash upon Conversion,”*the Company willuse the treasury stock method to account for the conversion value in excess ofthe $1,000 principal amount as the conversion becomes applicable.  Pursuant tothe applicable indentures governing the two series of notes, the conversionvalue generally is determined by multiplying (i) the applicable conversionrate, which is currently 124.2969, by (ii) the average market price of theCompany’s common stock for the ten consecutive trading days preceding the dateof determination.  The two series of notes generally would become dilutive toearnings if the average market price of the Company’s common stock exceedsapproximately $8.05 per share.

** **

**3.        INVENTORIES**

 

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

 
|  

                                                                                                                                                                                                | **June 27, 2009** | ** **    | **March 28, 2009** |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|-------------------|---------------|--------------------|
|                 Raw materials                                                                                                     |  $           | 42,509   |               |  $ | 55,753  |
|                 Work in process                                                                                                   | 47,119       |          | 44,125        |
|                 Finished goods                                                                                                    | 48,989       |          | 53,277        |
|                                                                                                                                                                                                         | 138,617      |          | 153,155       |
|                 Inventory reserve                                                                                                 | (31,609)          |          | (39,544)           |
|                                 Total inventories |  $           | 107,008  |               |  $ | 113,611  |

 

**4.        OTHER COMPREHENSIVE INCOME (LOSS)**

 

Accumulated other comprehensive income for the Companyconsists of accumulated unrealized (losses) gains on marketable securities,foreign currency translation adjustments and amortization of unrealizedactuarial pension valuation gain.  This amount is included as a separatecomponent of shareholders’ equity.  Comprehensive income (loss) is notmaterially different than net income (loss) for both the three months endedJune 27, 2009 and June 28, 2008.

**5.        DEBT**

 

Debt balances at June 27, 2009 and March 28, 2009 areas follows (in thousands):

 
|                                                                               |   | **June 27, 2009** |          | **March 28, 2009** |
|------------------------------------------------------------------------------------|--------|-------------------|---------------|--------------------|
|      Convertible subordinated notes due  2010, net of discount |   |  $           | 206,312  |               |  $ | 206,143  |
|      Convertible subordinated notes due  2012, net of discount |   | 165,453      |          | 164,726       |
|      Convertible subordinated notes due  2014, net of discount |   | 100,817      |          | 105,098       |
|      Bank loan                                                 |   | 6,726        |          | 6,729         |
|      No net cost credit line                                   |   | 13,600       |          | 13,500        |
|      Equipment term loan, net of  discount                     |   | 12,585       |          | 13,750        |
|           Subtotal                    |   | 505,493      |          | 509,946       |
|      Less current portion                                      |   | 224,805      |          | 4,839         |
|                                                                               |   |              |          |               |
|           Total long-term debt        |   |  $           | 280,688  |               |  $ | 505,107  |
|                                                                               |   |              |          |               |

** **

** **

** **

** **

| 8 |
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**RF MICRO DEVICES, INC. ANDSUBSIDIARIES**

***NOTES TO CONDENSEDCONSOLIDATED FINANCIAL STATEMENTS (continued)***

(Unaudited)

** **

** **

**5.        DEBT (continued)**

** **

In April 2007, the Companyissued $200 million aggregate principal amount of 0.75% ConvertibleSubordinated Notes due 2012 (the “2012 Notes”) and $175 million aggregateprincipal amount of 1.00% Convertible Subordinated Notes due 2014 (the “2014Notes” and, together with the 2012 Notes, the “Notes”).  The two series of Noteswere issued in a private placement to Merrill Lynch, Pierce, Fenner & SmithIncorporated for resale to qualified institutional buyers.  Interest on bothseries of the Notes is payable in cash semiannually in arrears on April 15 andOctober 15 of each year.  The 2012 Notes mature on April 15, 2012, and the 2014Notes mature on April 15, 2014.  Both series of the Notes are subordinatedunsecured obligations of the Company and rank junior in right of payment to allof the Company’s existing and future senior debt.  The Notes effectively aresubordinated to the indebtedness and other liabilities of the Company’ssubsidiaries.  

 

Holders may convert eitherseries of Notes based on the applicable conversion rate, which is currently 124.2969shares 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 pershare), subject to adjustment, only under the following circumstances: (1) duringany calendar quarter after June 30, 2007, if, as of the last day of theimmediately preceding calendar quarter, the closing price of the Company’scommon stock for at least 20 trading days in the 30 consecutive trading dayperiod ending on the last trading day of such preceding calendar quarter ismore than 120% of the applicable conversion rate per share; (2) if during anyfive business day period after any five consecutive trading day period in whichthe trading price per $1,000 principal amount of Notes for each day of thatperiod is less than 98% of the product of the closing price of the Company’scommon stock for each day in the period and the applicable conversion rate per$1,000 principal amount of Notes; (3) if certain specified distributionsto all holders of the Company’s common stock occur; (4) if a fundamentalchange occurs; or (5) at any time during the 30-day period immediatelypreceding the final maturity date of the applicable Notes.  Upon conversion, inlieu of shares of the Company’s common stock, for each $1,000 principal amountof 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 indenturesgoverning the Notes.  If the conversion value exceeds $1,000, the Company alsowill deliver, at its election, cash or common stock or a combination of cashand 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 asof June 27, 2009, is approximately 32.1 million shares (subsequent to therepurchase by the Company of an aggregate of $42.4 million principal amount ofthe Notes), which may be adjusted as a result of stock splits, stock dividendsand antidilution provisions.

 

In the first quarter offiscal 2010, the Company repurchased $7.8 million par value of 2014 Notes at anaverage price of $61.55, which resulted in a gain of approximately $1.6million.  In the first quarter of fiscal 2010, the Company also repurchased $2.2million par value of 2012 Notes at an average price of $78.56, which resultedin a gain of approximately $0.3 million.

 

On March 29, 2009, the Company adopted FSP APB 14-1.  FSP APB 14-1requires the issuer of convertible debt instruments with cash settlementfeatures to separately account for the liability and equity components of theinstrument and requires retrospective application to all periods presented. FSP APB 14-1 applies to the Notes.  As of the date of the issuance of the Notes(April 2007), the Company estimated thefair value of the 2012 Notes to be $144.3 million using a 7.50% non-convertibleborrowing rate.  The fair value of the 2014 Notes was calculated to be $113.6million 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 wasretrospectively recorded as a debt discount and as an increase to additionalpaid-in capital, net of tax.  The discount of theliability component is being amortized over the term of the Notes using theeffective interest method.  

 

 

 

 

 

 

 

 

 

 

** **

| 9 |
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***NOTES TO CONDENSEDCONSOLIDATED FINANCIAL STATEMENTS (continued)***

(Unaudited)

** **

** **

**5.        DEBT (continued)**

 

The retrospective applicationof FSP APB 14-1 had the following effect on the Company’s Condensed ConsolidatedStatements of Operations for the three months ended June 28, 2008 (inthousands):

 
|                 | **Previously Reported** | **As Adjusted** | **Effect of Change** |
|----------------------|-------------------------|-----------------|----------------------|
| Interest expense     |  $                 | (2,587)         |  $              | (6,425) |  $ | (3,838) |
| Income tax benefit   |                    | 15,659     |                 | 17,095  |   | 1,436  |
| Net loss             |                    | (24,123)        |                 | (26,525) |   | (2,402) |
|                 |                    |            |                 |
| Net loss per share:  |                    |            |                 |
|    Basic   |  $                 | (0.09)          |  $              | (0.10) |  $ | (0.01) |
|    Diluted |  $                 | (0.09)          |  $              | (0.10) |  $ | (0.01) |

 

The adoption of FSP APB 14-1had the following effect on the Company’s Condensed Consolidated Statements ofOperations for the three months ended June 27, 2009 (in thousands):

 
|                                                      | **As Computed Prior to FSP APB 14-1** | **As Reported under FSP APB 14-1** | **Effect of Change** |
|-----------------------------------------------------------|--------------------------------------------|-----------------------------------------|----------------------|
| Interest expense                                          |  $                                    | (2,612)                                 |  $              | (6,414) |  $ | (3,802) |
| Gain on retirement of convertible subordinated notes |                                       | 3,326                              |                 | 1,949  |   | (1,377) |
| Income tax expense                                        |                                       | (2,745)                                 |                 | (3,070) |   | (325) |
| Net income                                                |                                       | 10,288                             |                 | 4,784  |   | (5,504) |
|                                                      |                                       |                                    |                 |
| Net income per share:                                     |                                       |                                    |                 |
|    Basic                                        |  $                                    | 0.04                               |  $              | 0.02  |  $ | (0.02) |
|    Diluted                                      |  $                                    | 0.04                               |  $              | 0.02  |  $ | (0.02) |

 

The retrospective applicationof FSP APB 14-1 had the following effect on the Company’s Consolidated BalanceSheet 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  |
| Retained deficit                 |                    | (764,923)       |                 | (763,343) |   | 1,580  |

 

The retrospective applicationof FSP APB 14-1 had the following effect on the Company’s Condensed ConsolidatedStatements of Cash Flows for the three months ended June 28, 2008 (inthousands):

 
|                                                                    | **Previously Reported** | **As Adjusted** | **Effect of Change** |
|-------------------------------------------------------------------------|-------------------------|-----------------|----------------------|
| Cash flow from operating  activities:                                   |                    |            |                 |   |   |   |
|     Net loss                                             | $                       | (24,123)        | $                    | (26,525) | $ | (2,402) |
| Amortization                                                            |                    | 7,771      |                 | 7,771  |   | -  |
| Non-cash interest expense and amortization of debt  issuance costs |                    | 577        |                 | 4,415  |   | 3,838  |
| Total  amortization                                                     |                    | 8,348      |                 | 12,186  |   | 3,838  |
|     Deferred income taxes                                |                    | (7,474)         |                 | (8,910) |   | (1,436) |

 

| 10 |
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**RF MICRO DEVICES, INC. ANDSUBSIDIARIES**

***NOTES TO CONDENSEDCONSOLIDATED FINANCIAL STATEMENTS (continued)***

(Unaudited)

** **

** **

**5.        DEBT (continued)**

 

 

The following tables provideadditional information about the Company’s Notes, which as noted above are subjectto FSP ABP 14-1 (in thousands):
|                                                                                     | **2012 Notes**    | ** **         | **2014 Notes**     |
|------------------------------------------------------------------------------------------|-------------------|--------------------|--------------------|
|                                                                                     | **June 27, 2009** | ** **         | **March 28, 2009** | ** ** | **June 27, 2009** | ** ** | **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                                         | 32,295       |               | 35,274        |   | 34,084  |   | 37,593  |
| Net carrying amount of  liability component                                              | 165,453      |               | 164,726       |   | 100,817  |   | 105,098  |
|                                                                                          |                   |                    |                    |  |  |  |  |  |  |  |  |

 

 
|                                            | **2012 Notes**    | ** **      | **2014 Notes**    |
|-------------------------------------------------|-------------------|-----------------|-------------------|
|                                            | **June 27, 2009** | ** **      | **June 28, 2008** | ** ** | **June 27, 2009** | ** ** | **June 28, 2008** |
| Effective interest rate on  liability component | 7.3 %        |            | 7.3 %        |   | 7.2 % |   | 7.2 % |
| Cash interest expense  recognized               |  $           | 370   |              |  $ | 371   |   |  $ | 344   |   |  $ | 433   |
| Non-cash interest expense  recognized           | 2,608        |            | 2,426        |   | 1,502  |   | 1,757  |
|                                                 |                   |                 |                   |  |  |  |  |  |  |  |  |

 

The remaining period overwhich the unamortized discount will be amortized for the 2012 Notes and 2014Notes is 2.8 and 4.8 years, respectively.  As of June 27, 2009, theif-converted value of the Notes did not exceed its principal amount for boththe 2012 Notes and the 2014 Notes. 

 

The 2012 Notes had a fairvalue on the Private Offerings, Resale and Trading Through Automated Linkages (“PORTAL”)Market of $163.3 million (excluding the notes that were repurchased) and $151.0million as of June 27, 2009 and June 28, 2008, respectively. ** **The 2014 Noteshad a fair value on the PORTAL Market of $97.4 million (excluding the notesthat were repurchased) and $118.0 million as of June 27, 2009 and June 28, 2008,respectively.** **

** **

In July 2003, the Companycompleted the private placement of $230.0 million aggregate principal amount of1.50% convertible subordinated notes due 2010.  The Company’s 1.50% convertiblesubordinated notes had a fair value on the PORTAL Market of $205.8 million(excluding the notes that were repurchased) and $210.7 million as of June 27,2009 and June 28, 2008, respectively.

 

**6.          INCOME TAXES**

 

*Income Tax Expense*

In accordance with APBOpinion No. 28, *“Interim Financial Reporting”*(“APB 28”), the Company’sprovision for income taxes for the reporting period ended June 27, 2009, hasbeen calculated by applying an estimate of the annual effective tax rate forthe full fiscal year to “ordinary” income or loss (pre-tax income or lossexcluding unusual or infrequently occurring discrete items) for the reportingperiod.  For the reporting period ended June 28, 2008, in accordance withparagraph 13 of FASB interpretation No. 18, *“Accounting for Income Taxes inInterim Periods”* (“FIN 18”), the Company computed its provision for incometaxes limiting the tax benefit recognized to the amount determined by treatingthe Company’s year-to-date “ordinary” loss as the anticipated “ordinary” lossfor the fiscal year.  The Company applied this provision as the year-to-date“ordinary” loss exceeded the anticipated “ordinary” loss for the fiscal year.

 

Income tax expensefor the three months ended June 27, 2009,was $3.1 million, which is comprised primarily of atax expense related to domestic and international operations, a tax expenserelated to deferred tax asset valuation allowance increases in the UnitedStates (U.S.), United Kingdom (U.K.), and China, and a tax expense related tofinalizing the Advance  

** **

| 11 |
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**RF MICRO DEVICES, INC. ANDSUBSIDIARIES**

***NOTES TO CONDENSEDCONSOLIDATED FINANCIAL STATEMENTS (continued)***

(Unaudited)

**6.          INCOME TAXES(continued)**

Pricing Agreement and related adjustments with China tax authorities forcalendar years 2006, 2007 and 2008.  Income tax benefit for the three monthsended June 28, 2008 was $17.1 million, comprised primarily of a tax benefitrelated to domestic operations, a tax expense related to internationaloperations and a tax benefit related to an increase in state income tax credits.****

 

The Company’seffective tax rate for the three month periods ended June 27, 2009 and June28, 2008 was 39.1% and 39.2%, respectively.  TheCompany's effective tax rate for the first quarter of fiscal 2010 differed fromthe statutory rate primarily due to tax rate differences in foreign jurisdictions,settlement of the Advance Pricing Agreement adjustments for calendar years2006, 2007 and 2008, and adjustments to the valuation allowance limiting therecognition of the tax benefit of deferred tax assets in the U.S., U.K. andChina.  The Company's effective tax rate for the first quarter of fiscal 2009differed from the income tax benefit calculated on the basis of the statutory rate due to the write-off of acquired in-processresearch and development costs in connection with the UMC acquisition, state tax credits, tax rate differences inforeign jurisdictions, adjustments to the valuation allowance primarilyrelated to limiting the recognition of the tax benefit for domestic state taxcredits generated during the fiscal year, and otherdifferences between book and tax treatment of certain expenditures.  

* *

*Deferred Taxes*

In accordance with FASBStatement of Financial Accounting Standards (“SFAS”) No. 109, *"Accountingfor Income Taxes"* (“SFAS 109”), a valuation allowance of $140.9million against deferred tax assets has been established as of the end of thefirst quarter of fiscal 2010 because it is management’s opinion that it is morelikely than not that a portion of the deferred tax assets will not berealized.  The increase from the $138.4 million valuation allowance as of theend of fiscal 2009 is primarily related to changes in the amount of U.S., U.K.and China deferred tax assets that, in the judgment of management, do not meetthe “more likely than not” realization threshold.

 

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

 

At March 31, 2007, theCompany had recorded a $51.4 million valuation allowance with respect to thedomestic deferred tax asset to the extent that realization of domestic federaland state deferred tax assets was not supported by reversals of existingtaxable temporary differences or taxable income in prior carry back years tothe extent allowed by the applicable taxing jurisdictions.  As of the end offiscal 2007, the Company was no longer in a cumulative domestic pre-tax loss positionfor the most recent three-year period.  The valuation allowance was based on adetermination by the Company’s management that unsettled circumstances existedwith respect to a slowdown in demand from a high per-unit dollar content majorcustomer and the significant impact that was expected to have on near-termfinancial results.  These unsettled circumstances represented negative evidencethat in management’s opinion required a continuation of the domestic deferredtax asset valuation allowance as of the end of fiscal 2007.

 

During the first quarter offiscal 2008, the $51.4 million valuation allowance against the domestic federaland state deferred tax assets that existed as of the end of fiscal 2007 wasreduced by $43.6 million.  Of this amount, $12.9 million was reversed in connection with the adoption ofFASB Interpretation No. (“FIN”) 48, *“Accounting forUncertainty in Income Taxes - an Interpretation of FASB statement No. 109.*” The balance of $30.7 million consisted of a reversal of $31.6 million of the valuation allowance based on the evaluationby management of the ability in future years to realize the related domesticdeferred tax assets and anincrease of $0.9 million recorded in connection with state credit deferred taxassets acquired in connection with the Sirenza acquisition.  The $31.6 million reversal was based on thedetermination by management that as of the end of the first quarter of fiscal2008, the negative evidence that existed as of the end of fiscal 2007 was nolonger applicable.  Based on actual activity during the period, by the end ofthe first quarter the Company was able to better determine the impact of theslow-down in customer demand from the high per-unit dollar content majorcustomer and positive evidence arose of actual increases in sales to othercustomers and the commencement of volume production of the POLARIS® 3 RF solution.  The amount reversed consisted of $20.7 million recognized as anincome tax benefit, $4.8 million reversed against equity related to the taxbenefit of employee stock options, and $6.1 million reversed against goodwillrelated to the tax benefit of net operating losses, credits anddeductions acquired from other companies.  

** **

** **

| 12 |
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**RF MICRO DEVICES, INC. ANDSUBSIDIARIES**

***NOTES TO CONDENSEDCONSOLIDATED FINANCIAL STATEMENTS (continued)***

(Unaudited)

**6.          INCOME TAXES(continued)**

 

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

 

In accordancewith SFAS 109, as of the end of the third quarter of fiscal 2009, the Companyevaluated the ability to realize its deferred tax assets in future periods andincreased the valuation allowance for the deferred tax assets in the U.K,China, and the U.S. from $37.0 million as of the end of the prior quarter to $126.5million.  This increase in the valuation allowance during the third quarter offiscal 2009 was due to impairment chargesincurred during the third quarter of fiscal 2009 that resulted in the Companymoving into a cumulative pre-tax loss for the most recent three-year period,inclusive of the loss for the period ended December 27, 2008.  Managementdetermined that the negative evidence represented by the cumulative pre-taxloss that arose during the third quarter of fiscal 2009 required an increase inthe valuation allowance under SFAS 109 to the extent that realization of thesedeferred tax assets was not supported by reversals of existing taxabletemporary differences or taxable income in prior carry back years, to theextent allowed by the applicable taxing jurisdictions. 

 

As of the end offiscal 2009, the valuation allowance against deferred tax assets had increasedby $99.6 million from $38.8 million as of the end of fiscal 2008 to $138.4 million.  Thisincrease was comprised of: a $0.2 million increase related to state tax creditsand net operating loss carryovers acquired in the Sirenza transaction whichwere not realizable as of the acquisition date and which increase was recordedin 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 toU.K. deferred tax assets for which there was a change in judgment about therealizability of the deferred tax assets during fiscal 2009 and which increaseswere recorded as an income tax expense during the fiscal year; a $0.3 millionincrease related to the tax benefit of employee stock compensation which wasrecorded in equity during the fiscal year; and a $7.6 million decrease relatedto the impact from the change in the exchange rate for the British pound on thevaluation allowance for U.K. deferred tax assets existing as of the beginningof the fiscal year, which amount was offset by a  corresponding decrease in theU.S. dollar denominated amount of the related U.K. deferred tax assets.  

 

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

** **

*Uncertain Tax Positions*

FASB interpretation No. 48, *“Accountingfor Uncertainty in Income Taxes – an Interpretation of FASB Statement 109”*(“FIN 48”) clarifies the accounting for uncertainty in income taxes by prescribinga comprehensive model for recognizing, measuring, presenting and disclosinguncertain income tax positions taken or expected to be taken by the Company on itstax returns and was adopted effective April 1, 2007.  The Company’s grossunrecognized tax benefits increased from $29.5 million as of the end of fiscal2009 to $29.7 million as of the end of the first quarter of fiscal 2010, withthe increase related to tax positions taken on the prior year tax return filedduring the period and tax positions taken during the current fiscal year.  Inaddition, a decrease in gross unrecognized tax benefits of $0.6 million (plus$0.3 million of accrued interest) was recorded during the first quarter offiscal 2010 for China tax uncertainties that were settled in connection withthe finalization of the Advance Pricing Agreement and related adjustments forcalendar years 2006, 2007 and 2008.

 

Within the next 12 months,the Company believes it is reasonably possible that $0.9 million of grossunrecognized tax benefits may be reduced as a result of the expiration ofstatute of limitations.

** **

** **

** **

| 13 |
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**RF MICRO DEVICES, INC. ANDSUBSIDIARIES**

***NOTES TO CONDENSEDCONSOLIDATED FINANCIAL STATEMENTS (continued)***

(Unaudited)

** **

** **

**6.          INCOME TAXES(continued)**

 

Fiscal 2006 and subsequenttax years remain open for examination by the U.S. federal taxing authorities. Other material jurisdictions that are subject to examination by tax authoritiesare North Carolina (fiscal 2006 through present), California (fiscal 2005through present), the U.K. (fiscal 2002 through present), Germany (calendaryear 2005 through present), and China (calendar year 2000 through present).

* *

**7.          RETIREMENTBENEFIT PLAN**

 

TheCompany maintains a qualified defined benefit pension plan for its Germansubsidiary.  The plan is unfunded with an unfunded obligation of approximately$2.8 million and $2.6 million at June 27, 2009 and March 28, 2009, respectively.

 

The service andinterest cost components of the net periodic benefit cost were approximately$0.1 million for both the three months ended June 27, 2009 and June 28, 2008.  

** **

**8.          NEW ACCOUNTINGPRONOUNCEMENTS**

In the first quarter of fiscal 2010, the Company adopted SFAS No. 141(revised 2007), *“Business Combinations”* (“SFAS 141(R)”) as amended byFASB staff position FSP 141(R)-1, *“Accounting for Assets Acquired andLiabilities Assumed in a Business Combination That Arise from Contingencies.”* This statement changes the way assets and liabilities are recognized inpurchase accounting.  It also changes the recognition of assets acquired andliabilities assumed arising from contingencies, and requires the capitalizationof in-process research and development at fair value.  It further requires thatacquisition-related costs be recognized separately from the acquisition andexpensed as incurred; that restructuring costs generally be expensed in periodssubsequent to the acquisition date; and that changes in accounting for deferredtax asset valuation allowances and acquired income tax uncertainties after themeasurement period be recognized as a component of provision for taxes.  WhileSFAS 141(R) applies only to business combinations with an acquisition dateafter its effective date, the amendments to SFAS 109, with respect to deferredtax asset valuation allowances and liabilities for income tax uncertainties arebeing applied to all deferred tax valuation allowances and liabilities forincome tax uncertainties recognized in prior business combinations.  TheCompany’s financial statements may be impacted to the extent the Companyacquires entities in a purchase business combination in the future.  

 

In June 2009, the FASBapproved the “*FASB Accounting Standards Codification*” (“Codification”)as the single source of authoritative nongovernmental U.S. GAAP which was launchedon July 1, 2009.  The Codification does not change current U.S. GAAP, butis intended to simplify user access to all authoritative U.S. GAAP by providingall the authoritative literature related to a particular topic in one place.  Allexisting accounting standard documents will be superseded and all otheraccounting literature not included in the Codification will be considered non-authoritative. The Codification is effective for interim and annual periods ending afterSeptember 15, 2009.  The Codification is effective for the Company during itsinterim period ending October 3, 2009, and will not have an impact on theCompany’s financial condition or results of operations.  The Company iscurrently evaluating the impact to its financial reporting process of providingCodification references in its public filings.

** **

In May 2009, the FASB issuedSFAS No. 165, “*Subsequent Events.”*  This statement establishesgeneral standards of accounting for and disclosures of events that occur afterthe balance sheet date but before financial statements are issued or areavailable to be issued.  In particular, this statement sets forth (1) theperiod after the balance sheet date during which management of a reportingentity should evaluate events or transactions that may occur for potentialrecognition or disclosure in the financial statements; (2) the circumstancesunder which an entity should recognize events or transactions occurring afterthe balance sheet date in its financial statements; and (3) the disclosures thatan entity should make about events or transactions that occurred after thebalance sheet date.  This statement was effective for the Company’sfirst quarter of fiscal 2010 (see Note 1 to the Condensed ConsolidatedFinancial Statements).

 

 

 

 

 

| 14 |
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**RF MICRO DEVICES, INC. ANDSUBSIDIARIES**

***NOTES TO CONDENSEDCONSOLIDATED FINANCIAL STATEMENTS (continued)***

(Unaudited)

 

 

**8.          NEW ACCOUNTINGPRONOUNCEMENTS (continued)**

In April 2009, the FASBissued FSP FAS 115-2 and FAS 124-2, *“Recognition and Presentation ofOther-Than-Temporary Impairment”* (“FSP 115-2/124-2”).  FSP 115-2/124-2amends the requirements for the recognition and measurement ofother-than-temporary impairments for debt securities by modifying thepre-existing “intent and ability” indicator.  Under FSP 115-2/124-2, another-than-temporary impairment is triggered when there is an intent to sellthe security, it is more likely than not that the security will be required tobe sold before recovery, or the security is not expected to recover the entireamortized cost basis of the security.  Additionally, FSP 115-2/124-2 changesthe presentation of an other-than-temporary impairment in the income statementfor those impairments involving credit losses.  The credit loss component willbe recognized in earnings and the remainder of the impairment will be recordedin other comprehensive income.  FSP 115-2/124-2 was effective for the Company’sfirst quarter of fiscal 2010.  The adoption of FSP 115-2/124-2 did not have amaterial impact on the condensed consolidated financial statements. 

 

In April 2009, the FASBissued FSP FAS 107-1 and APB 28-1, *“Interim Disclosure about Fair Value ofFinancial Instruments”* (“FSP 107-1/APB 28-1”).  FSP 107-1/APB 28-1 requiresinterim disclosures regarding the fair values of financial instruments that arewithin the scope of SFAS 107, *“Disclosures about the Fair Value of FinancialInstruments.” *Additionally, FSP 107-1/APB 28-1 requires disclosure of themethods and significant assumptions used to estimate the fair value of financialinstruments on an interim basis as well as changes in the methods andsignificant assumptions from prior periods.  FSP 107-1/APB 28-1 does not changethe accounting treatment for these financial instruments and was effective forthe Company’s first quarter of fiscal 2010 (see Note 11 to the CondensedConsolidated Financial Statements).

 

In May 2008, the FASB issuedFSP APB 14-1, which clarifies the accounting for convertible debt instrumentsthat may be settled in cash upon conversion (including partial cash settlement). The Company adopted the provisions of FSP APB 14-1 on March 29, 2009.  SeeNote 5 to the Condensed Consolidated Financial Statements for furtherdiscussion of the adoption of FSP APB 14-1.

 

In April 2008, the FASBissued FSP 142-3, *“Determination of the Useful Life of Intangible Assets.”* FSP 142-3 amends the factors that should be considered in developing renewalor extension assumptions used to determine the useful life of a recognizedintangible asset under SFAS 142.  FSP 142-3 was effective for the Company inthe first quarter of fiscal 2010.  The adoption of FSP 142-3 did not have animpact on the condensed consolidated financial statements. 

 

In September 2006, the FASBissued****SFAS No. 157,*****“Fair Value Measurements”* (“SFAS 157”). SFAS 157 establishes a common definition for fair value to be applied to U.S.GAAP guidance requiring use of fair value, establishes a framework formeasuring fair value and expands disclosure about such fair value measurements.  In February 2008, the FASB issued FSP No. 157-1, “*Applicationof FASB Statement  157 to FASB Statement  13 and Other AccountingPronouncements That Address Fair Value Measurements for Purposes of LeaseClassification or Measurement under Statement 13*” (“FSP 157-1”) and FSP No.157-2,  “*Effective Date of FASB Statement157*” (“FSP 157-2”).  FSP 157-1 amends SFAS 157 to remove certainleasing transactions from its scope.  FSP 157-2 delays the effective dateof SFAS 157 for all non-financial assets and non-financial liabilities,except for items that are recognized or disclosed at fair value in thefinancial statements on a recurring basis (at least annually), to fiscal yearsbeginning after November 15, 2008 and interim periods within those fiscal years(the first quarter of fiscal 2010 for the Company).  In October 2008, the FASBissued FSP No. 157-3, “*Determining the Fair Value of a Financial Asset Whenthe Market for That Asset Is Not Active*” (“FSP 157-3”).  FSP 157-3clarifies the application of SFAS 157 in a market that is not active and providesan example to illustrate key considerations.  In April 2009, theFASB issued FSP FAS 157-4, “*Determining Fair Value When Volume and Level ofActivity for the Asset or Liability Have Significantly Decreased andIdentifying Transactions That Are Not Orderly*” (“FSP 157-4”).  FSP 157-4provides guidance on how to determine the fair value of assets and liabilitieswhen the volume and level of activity for the asset/liability has significantlydecreased.  FSP 157-4 also provides guidance on identifying circumstances thatindicate a transaction is not orderly.  In addition, FSP 157-4 requiresdisclosure in interim and annual periods of the inputs and valuation techniquesused to measure fair value and a discussion of changes in valuation techniques. FSP 157-4 was effective for the Company in the first quarter of fiscal 2010.  Theadoption of SFAS 157 and FSP 157-4 did not have a significant impact on the condensedconsolidated financial statements (see Note 11to the Condensed Consolidated Financial Statementsfor further details on the Company’s fair value measurements).  

** **

** **

| 15 |
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**RF MICRO DEVICES, INC. ANDSUBSIDIARIES**

***NOTES TO CONDENSEDCONSOLIDATED FINANCIAL STATEMENTS (continued)***

(Unaudited)

 

 

**9.          RESTRUCTURING**

** **

*Restructuringresulting from adverse macroeconomic business environment*

* *

Duringthe third quarter of fiscal 2009, the Company initiated a restructuring toreduce manufacturing capacity and costs and operating expenses due primarily tolower demand for its products resulting from the global economic slowdown.  Therestructuring decreased the Company’s workforce and resulted in the impairmentof certain property and equipment, among other charges.

 

Inthe fourth quarter of fiscal 2009, the Company initiated additional reductionsdue to the adverse macroeconomic business environment.  The Company decided tooutsource 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 also decided to decrease operating expenses includingeliminating approximately 100 jobs worldwide, or approximately 2% of theCompany’s global workforce, along with reductions in supporting expense. 

 

TheCompany recorded restructuring charges of approximately $1.8 million for thethree months ended June 27, 2009 related to one-time employee terminationbenefits, impaired assets (including property and equipment totaling $0.7million) and lease and other contract termination costs.  The fair value of theimpaired assets was estimated on a held and used basis based on the discountedcash flow method in accordance with SFAS 144.  The restructuring charges wererecorded in “other operating expense.”  In addition, as a result of thisrestructuring, the Company has $0.8 million of property and equipment that isclassified as held for sale in accordance with SFAS 144, as of June 27, 2009. These assets are being actively marketed and are expected to be sold within oneyear.  During the first quarter of fiscal 2010, the Company recognized a gainof **$**0.1 million on the sale of assets classified as held for sale. 

 

Thefollowing table summarizes the restructuring activities associated with theadverse macroeconomic business environment restructuring plan during the threemonths ended June 27, 2009 (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                                  | 993                                        |        | 684                 |       | 144                                     |       | 1,821  |
| Cash  payments                                                          | (1,683)                                         |        | -              |       | (446)                                        |       | (2,129)     |
| Non-cash  settlement                                                    | -                                     |        | (684)                    |       | -                                  |       | (684)       |
| Accrued  restructuring balance       as of June 27, 2009 |  $                                         | 1,217  |                     |  $    | -                             |       |  $     | 10,604  |   |  $ | 11,821  |
|                                                                    |                                            |        |                     |       |                                         |       |        |

Thecurrent and long-term restructuring obligations totaling $11.8 million areincluded in “accrued liabilities” and “other long-term liabilities” in thecondensed consolidated balance sheet.

  

| 16 |
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**RF MICRO DEVICES, INC. ANDSUBSIDIARIES**

***NOTES TO CONDENSEDCONSOLIDATED FINANCIAL STATEMENTS (continued)***

(Unaudited)

 

 

**9.          RESTRUCTURING(continued)**

 

TheCompany has incurred and expects to incur the following restructuring chargesassociated with the adverse macroeconomic business environment restructuring (inthousands):

** **
|                                         | **Fiscal 2009** | ** **   | **Three Months Ended   June 27, 2009** |    | **Future**  | ** ** | **Total**    |
|----------------------------------------------|-----------------|--------------|----------------------------------------|---------|-------------|------------|--------------|
| One-time employee termination benefit  costs |  $         | 4,390   |                                   |  $ | 993    |       |  $      | 444  |   |  $ | 5,827  |
| Asset  impairments                           | 51,432     |         | 684                               |    | -      |       | 52,116  |
| Lease and other contract termination  costs  | 11,292     |         | 144                               |    | 6,142  |       | 17,578  |
| Total  restructuring charges                 |  $         | 67,114  |                                   |  $ | 1,821  |       |  $      | 6,586  |   |  $ | 75,521  |

* *

*Fiscal2009 restructuring to reduce or eliminate investments in wireless systems*

 

Inthe first quarter of fiscal 2009, the Company initiated a restructuring to reduceor eliminate its investment in wireless systems, including cellulartransceivers and GPS solutions, in order to focus on RF componentopportunities.  Additionally, the Company consolidated its production testfacilities in an effort to reduce cycle time, better serve its customer baseand improve its overall profitability.

 

Aspart of this restructuring, the Company reduced its global workforce by approximately10 percent.  The Company recorded restructuring charges of approximately $0.2million and $26.6 million for the three months ended June 27, 2009 and June 28,2008, respectively, related to one-time employee termination benefits, impairedassets (including property and equipment) and lease and other contracttermination costs.  The fair value of the impaired assets was estimated basedon quoted market prices of similar assets.  The restructuring charges wererecorded in “other operating expense.”  In addition, as a result of thisrestructuring, the Company had $1.8 million of property and equipment that isclassified as held for sale in accordance with SFAS 144, as of June 27, 2009. These assets are being actively marketed and are expected to be sold within oneyear.  During the first quarter of fiscal 2010, the Company recognized a loss of $0.1 million on the sale of assets classified as held for sale. 

** **

Thefollowing table summarizes restructuring activities associated with the fiscal2009 restructuring to reduce or eliminate the Company’s investment in wirelesssystems during the three months ended June 27, 2009 (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             | -                                               |       | 77                       |       | 118                                     |       | 195  |
| Adjustments  to expense*                                                | (33)                                            |       | -                        |       | -                                       |       | (33)      |
| Cash  payments                                                          | (28)                                            |       | -                        |       | (506)                                        |       | (534)     |
| Non-cash  settlement                                                    | -                                               |       | (77)                     |       | -                                       |       | (77)      |
| Accrued  restructuring balance       as of June 27, 2009 |  $                                         | -          |                     |  $    | -                                            |       |  $   | 2,772  |   |  $ | 2,772  |
|                                                                    |                                            |       |                     |       |                                         |       |      |
| *Adjustments  related to finalizing certain contracts.                  |

** **

Thecurrent and long-term restructuring obligations totaling $2.8 million areincluded in “accrued liabilities” and “other long-term liabilities” in the condensedconsolidated balance sheet.

** **

| 17 |
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**RF MICRO DEVICES, INC. ANDSUBSIDIARIES**

***NOTES TO CONDENSEDCONSOLIDATED FINANCIAL STATEMENTS (continued)***

(Unaudited)

 

**9.          RESTRUCTURING (continued)**

 

TheCompany has incurred and expects to incur the following restructuring chargesassociated with the fiscal 2009 restructuring to reduce or eliminate theCompany’s investment in wireless systems (in thousands):

** **
|                                              | **Fiscal 2009** | ** ** | **Three Months Ended   June 27, 2009** |    | **Future** | ** ** | **Total** |
|---------------------------------------------------|-----------------|------------|----------------------------------------|---------|------------|------------|-----------|
| One-time employee termination benefit  costs      |  $         | 9,023      |                                   |  $ | (33)       |       |  $   | - |   |  $ | 8,990 |
| Asset  impairments                                | 24,573          |       | 77                                |    | -          |       | 24,650    |
| Lease and other contract  termination  costs | 13,473          |       | 118                               |    | 2,557      |       | 16,148    |
| Total  restructuring charges                      |  $         | 47,069     |                                   |  $ | 162   |       |  $   | 2,557 |   |  $ | 49,788 |

** **

As of June 27, 2009, therestructuring to reduce or eliminate the Company’s investment in wirelesssystems is substantially completed.  

**10.        BUSINESSACQUISITIONS**

 

***Universal MicrowaveCorporation***

On April 26, 2008, theCompany acquired Universal Microwave Corporation (“UMC”) for approximately$24.1 million in cash including transaction costs of $0.9 million.  UMC designsand manufactures high performance RF oscillators and synthesizers primarily forpoint-to-point radios, CATV head-end equipment and military communicationsradio markets.  The acquisition of UMC furthers the Company’s diversificationstrategy.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) andliabilities assumed of $5.3 million (based on their fair values as determinedby the Company as of April 26, 2008), and resulted in goodwill of $12.8million.

** **

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

 

The in-process research and development with noalternative future use that we acquired from UMC ($1.4 million) was charged to“other operating expense” at the acquisition date in accordance with SFAS 141, “*BusinessCombinations*.”  

 

**11.        INVESTMENTS ANDFAIR VALUE OF FINANCIAL INSTRUMENTS**

*** ***

***Investments***

As of June 27, 2009 and March28, 2009, available-for-sale securities and trading securities were included inthe following captions in the Company’s Consolidated Balance Sheets (in thousands):

** **
| **Balance Sheet Caption**                                                    |   | **Available-for-sale investments** | ** **    | **Trading   securities** | ** ** | **Cash**     | ** ** | **Per   June 27, 2009   Balance Sheet** |
|------------------------------------------------------------------------------|--------|-----------------------------------------|---------------|--------------------------|------------|--------------|------------|---------------------------------------------------|
| Cash and cash equivalents                                                    |   |  $                                 | 58,712   |                     |  $    | -       |       |  $                                           | 66,493  |   |  $ | 125,205  |
| Restricted cash and trading  security        investments |   | -                                       |          | 17,741              |       | -            |       | 17,741                                            |
| Short-term investments                                                       |   | 168,826                            |          | -                   |       | -       |       | 168,826                                      |
| Long-term investments                                                        |   | 2,200                              |          | -                   |       | -       |       | 2,200                                        |
|   Total                                                                 |   |  $                                 | 229,738  |                     |  $    | 17,741  |       |  $                                           | 66,493  |   |  $ | 313,972  |
|                                                                         |   |                                    |          |                     |       |         |       |                                              |

 

 

| 18 |
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**RF MICRO DEVICES, INC. ANDSUBSIDIARIES**

***NOTES TO CONDENSEDCONSOLIDATED FINANCIAL STATEMENTS (continued)***

(Unaudited)

** **

 

**11.         INVESTMENTSAND FAIR VALUE OF FINANCIAL INSTRUMENTS (continued)**

 
| **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 ofavailable-for-sale securities as of June 27, 2009, and March 28, 2009 (inthousands):

 
|                              | **Available-for-Sale Securities** |
|-----------------------------------|-----------------------------------|
|                              |                              | ** **

**Cost** |   | **Gross Unrealized  Gains** |   | **Gross  Unrealized  Losses** |   | **Estimated Fair Value** |
| **June 27,  2009**           |                              |   |   |   |   |   |   |   |
| U.S government/agency securities  |                              |  $ | 173,746 |   |  $ | 80 |   |  $ | (2) |   |  $ | 173,824 |
| Auction rate securities           |                              | 2,200 |   | - |   | - |   | 2,200 |
| Money market funds                |                              | 53,714 |   | - |   | - |   | 53,714 |
|                              |                              |  $ | 229,660 |   |  $ | 80 |   |  $ | (2) |   |  $ | 229,738 |
| **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 ofavailable-for-sale securities was based on the prevailing market values on June27, 2009, and March 28, 2009.

 

There were no realized gainsor losses on available-for-sale securities included in the first quarter offiscal 2010 earnings.  

There was $0.1 million ofgross realized losses on available-for-sale securities included in the firstquarter of fiscal 2009 earnings.  

 

The amortized cost ofinvestments in debt securities with contractual maturities is as follows (inthousands):

 
|                                         |   | **June 27, 2009** |    | **March 28, 2009**       |
|----------------------------------------------|--------|-------------------|---------|--------------------------|
|                                         |   | **Cost**          |    | **Estimated Fair Value** |   |  

**Cost** |   | **Estimated Fair Value** |
| Due in less than one year                    |   |  $           | 227,460 |                     |  $ | 227,538 |   |  $ | 196,225 |   |  $ | 196,284 |
| Due after one year through  five years       |   | -            |    | -                   |   | -  |   | -  |
| Due after ten years                          |   | 2,200             |    | 2,200                    |   | 2,200 |   | 2,200 |
|   Total investments in debt  securities |   |  $           | 229,660 |                     |  $ | 229,738 |   |  $ | 198,425 |   |  $ | 198,484 |

** **

** **

  

| 19 |
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**RF MICRO DEVICES, INC. ANDSUBSIDIARIES**

***NOTES TO CONDENSEDCONSOLIDATED FINANCIAL STATEMENTS (continued)***

(Unaudited)

 

 

**11.         INVESTMENTSAND FAIR VALUE OF FINANCIAL INSTRUMENTS (continued)**

 

The available-for-saleinvestments that were in a continuous unrealized loss position for less than 12months consisted of U.S. government/agency securities.  The unrealized lossesamounted to $0.0 million and less than $0.1 million as of June 27, 2009 andMarch 28, 2009, respectively.  There were no available-for-sale investments ina continuous unrealized loss position for 12 months or greater as of June 27,2009 and March 28, 2009.

*** ***

***Fair Value of FinancialInstruments***

On a quarterly basis, theCompany measures the fair value of its marketable securities and tradingsecurities, which are comprised of government-sponsored enterprise securities,corporate debt securities, auction rate securities (“ARS”), and commercialpaper.  Marketable securities are reported in cash and cash equivalents,short-term investments and long-term investments on the Company’s consolidatedbalance sheet and are recorded at fair value and the related unrealized gainsand losses are included in accumulated other comprehensive (loss) income, acomponent of shareholders’ equity, net of tax.  Trading securities are includedin restricted trading security investments with the related unrealized gainsand losses recorded in earnings.  SFAS 157 specifies a hierarchy of valuationtechniques based on whether the inputs to those valuation techniques areobservable or unobservable.  Observable inputs reflect market data obtainedfrom independent sources, while unobservable inputs reflect the Company’smarket assumptions.  These two types of inputs have created the followingfair-value hierarchy:  

•        Level 1 — Quoted prices foridentical instruments in active markets;  

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

•        Level 3 — Valuations derived fromvaluation techniques in which one or more significant inputs or significantvalue drivers are unobservable.  

 

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

 

*Financial InstrumentsMeasured at Fair Value on a Recurring Basis*

The fair value of thefinancial assets measured at fair value on a recurring basis was determinedusing the following levels of inputs as of June 27, 2009 (in thousands):

** **
|                                   | ** **

**Total** | ** ** | **Quoted Prices In Active   Markets For   Identical Assets**

**(Level 1)** | ** ** | **Significant Other   Observable Inputs  (Level 2)** | ** ** | **Significant   Unobservable Inputs**

** (Level 3)** |
|-----------------------------------|-----------------------|------------|-----------------------------------------------------------------------------|------------|------------------------------------------------------|------------|-----------------------------------------------------------------|
|                              |                  |       |                                                                        |       |                                                 |       |                                                            |
| Government-sponsored  enterprises |  $               | 173,824    |                                                                        |  $    | 173,824                                              |       |  $                                                         | -  |   |  $ | -  |
| Auction rate securities           | 19,941                |       | -                                                                           |       | 2,200                                                |       | 17,741                                                          |
| Put option                        | 2,709                 |       | -                                                                           |       | -                                               |       | 2,709                                                           |
| Money market funds                | 53,714                |       | 53,714                                                                      |       | -                                               |       | -                                                          |
|                              |  $               | 250,188    |                                                                        |  $    | 227,538                                              |       |  $                                                         | 2,200 |   |  $ | 20,450 |

** **

** **

** **

** **

** **

** **

** **

** **

** **

** **

| 20 |
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**RF MICRO DEVICES, INC. ANDSUBSIDIARIES**

***NOTES TO CONDENSEDCONSOLIDATED FINANCIAL STATEMENTS (continued)***

(Unaudited)

 

 

**11.        INVESTMENTS ANDFAIR VALUE OF FINANCIAL INSTRUMENTS (continued)**

 

During the threemonths ended June 27, 2009, the changes in the fair value of the assets measuredon a recurring basis using significant unobservable inputs (Level 3) werecomprised of the following (in thousands):

 
|                                                              | **Auction Rate Securities** | **Put Option** |
|-------------------------------------------------------------------|----------------------------------|----------------|
| Level 3 balance at March 28,  2009                                |  $                          | 17,983    |  $ | 2,517 |
|   Unrealized (loss) gain  included in other (expense) income | (192)                            | 192            |
|   Settlement of ARS                                          | (50)                             | -              |
| Level 3 balance at June 27,  2009                                 |  $                          | 17,741         |  $ | 2,709 |
|                                                              |                             |           |

ARS are debt instruments withinterest rates that reset through periodic short-term auctions.  The Company’slevel 3 ARS consisted of AAA rated securities issued primarily by student loancorporations which are municipalities of various U.S. state governments.  The studentloans backing these securities fall under the Federal Family Education Loan Program(“FFELP”), which is supported and guaranteed by the United States Department ofEducation.  The Company’s ARS have contractual maturities of 19 to 36 years.

The recent conditions in theglobal credit markets have prevented some investors from liquidating theirholdings of ARS because the amount of securities submitted for sale hasexceeded the amount of purchase orders for such securities.  If there isinsufficient demand for the securities at the time of an auction, the auctionmay not be completed and the interest rates may be reset to predeterminedhigher rates.  When auctions for these securities fail, the investments may notbe readily convertible to cash until a future auction of these investments issuccessful or they are redeemed or mature.  

 

In the fourth quarter offiscal 2008, the Company was informed that there was insufficient demand atauctions for its ARS.  As a result, the level 3 securities are currently notliquid and the interest rate on such securities has been reset to apredetermined higher rate.  Insufficient demand for certain ARS maycontinue.  In the second quarter of fiscal 2009, the securities firm from whichthe Company purchased all of its level 3 ARS announced a settlement with theSEC and various state regulatory agencies under which the securities firmagreed to restore liquidity to certain clients holding ARS.  In accordance withthis settlement, the securities firm has agreed to offer the Company the rightto sell its outstanding level 3 ARS to the securities firm at par value (i.e.,the face amount), plus accrued but unpaid dividends or interest, at any timeduring the period of June 30, 2010, through July 2, 2012.  In addition, thesecurities firm has agreed to provide the Company with a “no net cost” creditline of up to 75% of the market value of its outstanding level 3 ARS pendingthe securities firm’s purchase of the Company’s ARS.  

 

Inthe third quarter of fiscal 2009, the Company accepted the offer and enteredinto a settlement agreement on the terms set forth above with the securitiesfirm that holds all of its level 3 ARS.  The settlement feature entered intounder this settlement agreement is a separate freestanding instrument accountedfor separately from the ARS, and is a registered, nontransferable securityaccounted for as a put option and recorded at fair value.  The Company electedfair value accounting under SFAS 159 in order to mitigate volatility inearnings caused by accounting for the put option and underlying ARS underdifferent methods.  The Company determined the fair value of the settlementoption using a probability-weighted cash flow analysis with varying assumptionsfor the amount and timing of potential cash flows.  As of June 27, 2009, theput option had a fair value of $2.7 million, which is recorded in “othercurrent assets.”  

  

With acceptance of thesettlement agreement, the level 3 ARS previously reported as available-for-salewere transferred to trading securities.  The Company has classified these level3 ARS as “restricted  trading security investments” on the condensedconsolidated balance sheet as of June 27, 2009 as these ARS securities arepledged as collateral for the “no net cost” credit line.

 

Given the liquidity issues,the fair values of the student loan ARS could not be estimated based onobservable market prices.  The Company estimated the level 3 ARS fair valueswith the assistance of a third party investment advisor using a discounted cashflow model as of June 27, 2009.  The assumptions used in preparing the discountedcash flow model included the expected timing of successful auctions orrefinancings in the future, the composition and quality of the underlyingcollateral and the creditworthiness of the issuer, and the probability of fullrepayment considering the guarantees by FFELP of the underlying student loans. 

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**RF MICRO DEVICES, INC. ANDSUBSIDIARIES**

***NOTES TO CONDENSEDCONSOLIDATED FINANCIAL STATEMENTS (continued)***

(Unaudited)

 

 

**11.        INVESTMENTS ANDFAIR VALUE OF FINANCIAL INSTRUMENTS (continued)**

* *

*Financial InstrumentsMeasured at Fair Value on a Nonrecurring Basis*

The Company’s non-financialassets, such as goodwill, intangible assets, and property and equipment aremeasured at fair value when there is an indicator of impairment and recorded atfair value only when an impairment charge is recognized.  For the first quarterof fiscal 2010, the Company impaired an immaterial amount of certain propertyand equipment.  The fair value of these impaired assets was estimated in accordancewith SFAS 144 using a significant Level 3 unobservable input (market valuationapproach).  The market valuation approach uses prices and other relevantinformation generated primarily by recent market transactions involving similaror comparable assets, as well as the Company’s historical experience.

*Financial Instruments Not Recorded at Fair Value*

For financial instruments  that are not recorded at fair value (such as the Company’s convertible  subordinated notes), the Company discloses fair value in accordance with FSP  SFAS 107-1 and APB 28-1, “*Interim Disclosures about Fair Value of  Financial Instruments.” *As of June 27, 2009, the carrying values of the  Company’s convertible subordinated notes approximated fair value (see Note 5  to the Condensed Consolidated Financial Statements).

 

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**ITEM 2. MANAGEMENT’SDISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS**

####  

#### SAFE HARBOR FOR FORWARD-LOOKINGSTATEMENTS

 

This Quarterly Report onForm 10-Q contains forward-looking statements within the meaning of Section 27Aof the Securities Act of 1933, as amended, and Section 21E of the SecuritiesExchange Act of 1934, as amended, that relate to our plans, objectives,estimates and goals.  Statements expressing expectations regarding our futureand projections relating to products, sales, revenues and earnings are typicalof such statements and are made under the Private Securities Litigation ReformAct of 1995.  Words such as “expect,” “anticipate,” “intend,” “plan,”“believe,” and “estimate,” and variations of such words and similarexpressions, identify such forward-looking statements.  Our business is subjectto numerous risks and uncertainties, including the following:

•        The rate of growth and developmentof the markets we serve;

•        The risk that variability inconsumer, enterprise, infrastructure and government spending resulting fromnegative global macroeconomic conditions could materially impact the demand forour products;

•        The inability of certain of ourcustomers to access their traditional sources of credit to finance the purchaseof products from us, which could lead them to reduce their level of purchasesor seek credit or other accommodations from us;

•        The risk that certain of oursuppliers may be unable to access their traditional sources of credit tofinance their operations, which could lead them to reduce their level ofsupport for us;  

•        Our ability to integrate acquiredcompanies, including the risk that we may not realize expected synergies fromour business combinations;

•        The risks associated with the reductionor elimination of our investments in our wireless systems business, includingcellular transceivers and GPS solutions;

•        The risks associated with theoperation of our molecular beam epitaxy (MBE) facility, our wafer fabricationfacilities, our assembly facility and our test and tape and reel facilities;

•        Our ability to execute on ourplans to consolidate or relocate manufacturing operations;

•        The risk that the actual amount ofour non-cash impairment charges may vary from estimates;

•        Our ability to attract and retainskilled personnel and develop leaders for key business units and functions;

•        Dependence on third parties,including wafer foundries, passive component manufacturers, assembly andpackaging suppliers and test and tape and reel suppliers;

•        Our reliance on inclusion in thirdparty reference designs for a portion of our revenue;

•        Our ability to manage channelpartner and customer relationships;

•        Variability in operating results;

•        Variability in production yields,raw material costs and availability;

•        Dependence on a limited number ofcustomers for a substantial portion of our revenues;

•        Dependence on gallium arsenide(GaAs) for the majority of our products;

•        Our ability to reduce costs andimprove margins in response to declining average selling prices;

•        Our ability to adjust productioncapacity in a timely fashion in response to changes in demand for our products;

•        Our ability to bring new productsto market in response to market shifts and to use technological innovation toshorten time-to-market for our products; 

•        Currency fluctuations, tariffs,trade barriers, tax and export license requirements and health and securityissues associated with our foreign operations; 

•        Our ability to maintain ourexisting material goodwill and long-lived assets, including finite-livedacquired intangible assets; 

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•        Our ability to obtain and enforcepatents, trademarks and copyrights, maintain trade secret protection andoperate our business without infringing on the proprietary rights of otherparties;

•        Our ability to comply with changesin environmental laws;

•        Our reliance on the methods,estimates and judgments that we use in applying our critical accountingpolicies and estimates;

•        Negative conditions in the globalcredit markets, which could impair the liquidity of a portion of our investmentportfolio; and

•        Uncertainties related to theeffectiveness of our internal control over financial reporting.

These and other risks and uncertainties, which are described in more detail inour most recent Annual Report on Form 10‐K and in other reports andstatements that we file with the Securities and Exchange Commission, couldcause the actual results and developments to be materially different from thoseexpressed or implied by any of these forward-looking statements.  Forward-lookingstatements speak only as of the date they were made and we undertake noobligation to update or revise such statements, except as required by thefederal securities laws.

 

**OVERVIEW**

The following Management's Discussion and Analysis (“MD&A”) is intended tohelp the reader understand the results of operations and financial condition ofRF Micro Devices, Inc.  MD&A is provided as a supplement to, and should beread in conjunction with, our financial statements and accompanying notes.

 

We are a global leader in thedesign and manufacture of high-performance radio frequency (RF) components andcompound semiconductors.  Our products enable worldwide mobility, provideenhanced connectivity and support advanced functionality in the cellularhandset, wireless infrastructure, wireless local area network (WLAN), cabletelevision (CATV)/broadband and aerospace and defense markets.  We are recognizedfor our diverse portfolio of semiconductor technologies and RF systemsexpertise and we are a preferred supplier to the world's leading mobile device,customer premises and communications equipment providers.  

 

**CriticalAccounting Policies and Estimates**

There have been no material changes to our critical accounting policies andestimates from the information provided in Item 7, "Management'sDiscussion and Analysis of Financial Condition and Results of Operations,"included in our Annual Report on Form 10-K for the fiscal year ended March 28,2009. 

**FIRSTQUARTER FISCAL 2010 FINANCIAL AND OPERATIONAL HIGHLIGHTS:**

 

• Quarterly revenue decreased by 11.6% ascompared to the corresponding quarter of fiscal 2009, primarily due to lowerdemand for our 2G products and our CATV line amplifiers.  These decreases werepartially offset by increased demand for our front-end modules for smart phonesas well as our transceiver products.

 

• Operating income was $12.1 million forthe first quarter of fiscal 2010 as compared to an operating loss of $39.7million for the corresponding quarter of fiscal 2009.  In the first quarter offiscal 2009, we recorded $26.6 million of restructuring charges related to thereduction of our investment in wireless systems, including cellulartransceivers and GPS solutions.  The strategic and economic restructurings of fiscal2009 have generated significant cost reductions and are contributing to ourimprovement in operating income in the first quarter of fiscal 2010.  Thesecost reductions included both cost of sales and operating expense improvements.

• Gross margin for the quarter was 34.8% as comparedto 30.1% in the corresponding quarter of fiscal 2009.  Gross margin improved primarilyas a result of the cost savings initiatives resulting from the fiscal 2009restructuring activities.  In addition, and to a lesser extent our gross marginfor the first quarter of fiscal 2010 benefited from the sale of inventory whichhad previously been reserved for (due to the global economic slowdown in fiscal2009), as well as an increase in our intellectual property revenue.  Partiallyoffsetting these increases in gross margin were an unfavorable product mixtoward lower margin products and erosion in average selling prices.

 

 

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• Cash flow from operations was $36.4million for the three months ended June 27, 2009 as compared to cash used byoperating activities of $2.9 million for the three months ended June 28, 2008. This increase is primarily attributable to improved profitability as a resultof the strategic and economic restructuring efforts as well as decreasedrestructuring cash charges.  Improvements in certain working capital items alsocontributed to the positive cash flow as we continue to focus on inventory,accounts receivable and accounts payable.

 

• Capital expenditures totaled $1.9million for the three months ended June 27, 2009 as compared to $18.5 millionin the corresponding period of fiscal 2009. 

 

• Inventory totaled $107.0 million at June27, 2009, reflecting turns of 5.2 as compared to $180.2 million and turns of3.7 at June 28, 2008.  

 

• During the first quarter of fiscal 2010,we repurchased an aggregate of $10.0 million par value of (i) our $200 millionaggregate principal amount of 0.75% Convertible Subordinated Notes due 2012(the “2012 Notes”), and (ii) our $175 million aggregate principal amount of1.00% Convertible Subordinated Notes due 2014 (the “2014 Notes” and, togetherwith the 2012 Notes, the “Notes”), which resulted in a gain of approximately$1.9 million.

• The adoption of FSP APB 14-1 resulted ina $5.5 million decrease to our net income for the three months ended June 27,2009 (see Note 5 to the Condensed Consolidated Financial Statements).   

 

The following table presentsa summary of our results of operations for the three months ended June 27, 2009and June 28, 2008:
|                                     |               |          |           |        |               |    |           |   |        |                 |   |               |         |
|------------------------------------------|--------------------|---------------|----------------|-------------|--------------------|---------|----------------|--------|-------------|----------------------|--------|--------------------|--------------|
|                                     | Three Months Ended |          |           |        |               |    |           |
| (In thousands, except percentages)       | June 27, 2009 |          | % of   Revenue |        | June 28, 2008 |    | % of   Revenue |   |        | Increase

(Decrease) |   | Percentage

Change |         |
|                                     |               |          |           |        |               |    |           |   |        |                 |   |               |         |
| Revenue                                  |  $            | 212,540  |           | 100.0  | %                  |  $ | 240,492   |   | 100.0  | %                    |   |  $            | (27,952)     |   | (11.6) | % |
|    Cost of goods sold          | 138,539       |          | 65.2      |        | 168,163       |    | 69.9      |   |        | (29,624)             |   | (17.6)             |         |
|    Research and development    | 35,633        |          | 16.8      |        | 51,354        |    | 21.4      |   |        | (15,721)             |   | (30.6)             |         |
|    Marketing and selling       | 13,568        |          | 6.4       |        | 18,522        |    | 7.7       |   |        | (4,954)              |   | (26.7)             |         |
|    General and  administrative | 11,212        |          | 5.3       |        | 13,058        |    | 5.4       |   |        | (1,846)              |   | (14.1)             |         |
|    Other operating expense     | 1,537         |          | 0.6       |        | 29,098        |    | 12.1      |   |        | (27,561)             |   | (94.7)             |         |
| Operating income (loss)                  |  $            | 12,051   |           | 5.7    | %                  |  $ | (39,703)       |   | (16.5)      | %                    |   |               | 51,754  |   | 130.4  |   |
|                                     |               |          |           |        |               |    |           |   |        |                 |   |               |         |

**REVENUE**

Our revenue decreased during the threemonths ended June 27, 2009, as compared to the corresponding period of fiscal2009, primarily due to lower demand for our 2G products and our CATV lineamplifiers.  These decreases were partially offset by increased demand for ourfront-end modules for smart phones as well as our transceiver products.  Internationalshipments (based on the "bill to" address of the customer) were $181.5million and accounted for 85.4% of revenue for the three months ended June 27,2009, compared to $189.9 million, or 78.9% of revenue, for the three monthsended June 28, 2008.  

 

**OPERATING INCOME (LOSS)**

Operatingincome was approximately $12.1 million for the three months ended June 27, 2009compared to an operating loss of $39.7 million for the three months ended June28, 2008.  The strategic and economic restructurings of fiscal 2009 havegenerated significant cost reductions and are contributing to our improvementin operating income in the first quarter of fiscal 2010 (see Note 9 to theCondensed Consolidated Financial Statements).  These cost reductions includedboth cost of sales and operating expense improvements.  During the first quarterof fiscal 2009 we recorded $26.6 million of expenses associated with the strategicrestructuring.  

 

 

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***Cost of Goods Sold ***

 

Ourcost of goods sold for the three months ended June 27, 2009 decreased $29.6million as compared to the corresponding period of fiscal 2009, primarily dueto the cost savings initiatives resulting from the fiscal 2009 restructuringactivities as well as decreased revenue and improved pricing onexternally-sourced raw materials.  In addition to the above cost savings, but to a lesser extent gross marginswere positively impacted for the three months ended June 27, 2009 as comparedto the corresponding period of fiscal 2009 as a result of the sale of inventorywhich had previously been reserved for (due to the global economic slowdown infiscal 2009), as well as an increase in our intellectual property revenue. Partially offsetting these increases in gross margin were an unfavorableproduct mix toward lower margin products and erosion in average selling prices.

*** ***

***Research and Development***

The decrease in research and development expenses forthe three months ended June 27, 2009 was primarily due to the decrease inheadcount and related personnel expense due to the recent restructurings.  

*** ***

***Marketing and Selling***

The decrease in marketing and selling expenses for thethree months ended June 27, 2009 was primarily due to the decrease in headcountand related personnel expense due to the recent restructurings.  In addition, marketingand selling expense decreased as a result of lower intangible amortizationexpense for the three months ended June 27, 2009 as compared to thecorresponding period of fiscal 2009, due to the impairment of certain customerrelationship intangibles during the third quarter of fiscal 2009.

####  

***General and Administrative***

The decrease in general and administrative expensesfor the three months ended June 27, 2009 was due to the decrease in headcountand related personnel expense and other administrative costs associated withthe recent restructurings.  

***Other Operating Expense***During the third quarter of fiscal2009, we initiated a restructuring to reduce manufacturing capacity and costsand operating expenses due primarily to lower demand for our products resultingfrom the global economic slowdown.  We outsourced certain non-coremanufacturing operations and consolidated the Shanghai test and assemblyoperations with our primary test and assembly facility in Beijing, China.  We decreased operating expenses including the elimination of approximately 100 jobsworldwide, or approximately 2% of the Company’s global workforce, along withreductions in supporting expenses.  The restructuring resulted in theimpairment of certain property and equipment, among other charges.  The Companyrecorded restructuring charges of approximately $1.8 million for the threemonths ended June 27, 2009 related to one-time employee termination benefits,impaired assets (including property and equipment totaling $0.7 million) andlease and other contract termination costs.

 

Fromthe third quarter of 2009 through the first quarter of 2010, we incurred atotal of $68.9 million in restructuring charges related to this plan.  As ofJune 27, 2009, the Company expects to record approximately $6.6 million ofadditional restructuring charges associated with ongoing expenses related toexited leased facilities and one-time employee termination benefits, for atotal expected cost of $75.5 million (see Note 9 to the Condensed ConsolidatedFinancial Statements).  

 

In the first quarter offiscal 2009, we began execution of a strategic restructuring to reduceinvestments in wireless systems, including cellular transceivers and GPSsolutions, in order to focus on our core RF component opportunities. Additionally, we are consolidating our production test facilities in order toreduce cycle time, better serve our customer base and improve our overallprofitability.  We have recorded restructuring charges of $0.2 million and $26.6million as of June 27, 2009 and June 28, 2008, respectively.  From the firstquarter of fiscal 2009 through the first quarter of 2010, we incurred a totalof $47.2 million in restructuring charges related to this plan.  As of June 27,2009, the Company expects to record approximately $2.6 million of additionalrestructuring charges associated with ongoing expenses related to exited leasedfacilities and one-time employee termination benefits, for a total expectedcost of approximately $49.8 million.  As of June 27, 2009, the restructuring toreduce or eliminate the Company’s investments in wireless systems issubstantially completed (see Note 9 to the Condensed Consolidated FinancialStatements). 

 

In the first quarter offiscal 2009 we recorded $1.4 million in expenses related to the in-processresearch and development with no alternative future use that we acquired fromUMC to “other operating expense” at the acquisition date in accordance withSFAS 141, *“Business Combinations*” (see Note 10 to the CondensedConsolidated Financial Statements).

 

** **

** **

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**OTHER (EXPENSE) INCOME AND INCOME TAXES**
|                                                            | Three Months Ended |
|-----------------------------------------------------------------|--------------------|
| (in thousands)                                                  | June 27, 2009      |   | June 28, 2008 (1) |
|                                                            |               |   |   |
| Interest expense                                                |  $            | (6,414) |   |  $ | (6,425) |
| Interest income                                                 |               | 444  |   |   | 1,939  |
| Gain on the  retirement of convertible  subordinated notes |               | 1,949  |   |   | -  |
| Other (expense) income                                          |               | (176) |   |   | 569  |
| Income tax (expense) benefit                                    |               | (3,070) |   |   | 17,095  |

** **

(1) Certain amounts have been adjusted as a result ofthe retrospective adoption of FSP APB 14-1.  See Note 5 to the CondensedConsolidated Financial Statements for further discussion.

 

***Interest Expense***Interest expense remained consistentfor the three months ended June 27, 2009, as compared to the three months endedJune 28, 2008.  

 

Interest expense for thethree months ended June 28, 2008, has been adjusted as a result of theretrospective adoption of FSP APB 14-1.  See Note 5 to the CondensedConsolidated Financial Statements for further discussion.

***Interest Income***Interest income decreased due toour more conservative investment strategy coupled with lower prevailinginterest rates.

***Gain on the retirementof convertible subordinated notes***

In the first quarter offiscal 2010 we repurchased an aggregate of $10.0 million par value of the Notes,which resulted in a gain of approximately $1.9 million.

*** ***

***Other (Expense) Income***

Theincrease in other expense is primarily related to the foreign currency exchangerate impact on our Renminbi, Euro and Sterling denominated accounts as thebalances change and the exchange rates fluctuate in relation to the U.S.dollar. 

*** ***

***Income Taxes***

In accordance with APBOpinion No. 28, *“Interim Financial Reporting,”* our provision for incometaxes for the reporting period ended June 27, 2009, has been calculated byapplying an estimate of the annual effective tax rate for the full fiscal yearto “ordinary” income or loss (pre-tax income or loss excluding unusual orinfrequently occurring discrete items) for the reporting period.  For the reportingperiod ended June 28, 2008, in accordance with paragraph 13 of FASBinterpretation No. 18, *“Accounting for Income Taxes in Interim Periods”*(“FIN 18”), we computed our provision for income taxes limiting the tax benefitrecognized to the amount determined by treating our year-to-date “ordinary”loss as the anticipated “ordinary” loss for the fiscal year.  We applied thisprovision as the year-to-date “ordinary” loss exceeded the anticipated“ordinary” loss for the fiscal year.

 

Income tax expensefor the three months ended June 27, 2009,was $3.1 million, which is comprised primarily of a taxexpense related to domestic and international operations, a tax expense relatedto deferred tax asset valuation allowance increases in the U.S., U.K., andChina, and a tax expense related to finalizing the implementation methodologyon an Advance Pricing Agreement and related adjustments with China taxauthorities for calendar years 2006, 2007 and 2008.  Income tax benefit for thethree months ended June 28, 2008 was $17.1million, comprised primarily of a tax benefit related to domestic operations, atax expense related to international operations, and a tax benefit related to anincrease in state income tax credits.  

 

In accordancewith FASB Statement 109, *“Accounting for Income Taxes,”* as of the end ofthe reporting period ended June 27, 2009,the Company evaluated the realizability of itsdeferred tax assets and increased the valuation allowance for the deferred taxassets in the U.K., China, and the U.S. from the $138.4 million valuationallowance as of the end of fiscal 2009 to $140.9 million as of the end of the firstquarter of fiscal 2010.  This increase in thedeferred tax asset valuation allowance was made after management determinedthat it is “more likely than not” that those deferred tax assets will not berealized.  

 

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At March, 31, 2007, theCompany had recorded a $51.4 million valuation allowance with respect to thedomestic deferred tax asset to the extent that realization of domestic federaland state deferred tax assets was not supported by reversals of existingtaxable temporary differences or taxable income in prior carry back years tothe extent allowed by the applicable taxing jurisdictions.  As of the end offiscal 2007, the Company was no longer in a cumulative domestic pre-tax loss positionfor the most recent three-year period.  The valuation allowance was based on adetermination by the Company’s management that unsettled circumstances existedwith respect to a slowdown in demand from a high per-unit dollar content majorcustomer and the significant impact that was expected to have on near-termfinancial results.  These unsettled circumstances represented negative evidencethat in management’s opinion required a continuation of the domestic deferredtax asset valuation allowance as of the end of fiscal 2007.

 

During the first quarter offiscal 2008, the $51.4 million valuation allowance against the domestic federaland state deferred tax assets that existed as of the end of fiscal 2007 wasreduced by $43.6 million.  Of this amount, $12.9 million was reversed in connection with the adoption ofFinancial Accounting Standards Board (FASB)Interpretation No. (“FIN”) 48, *“Accounting for Uncertainty in IncomeTaxes-an Interpretation of FASB statement No. 109.”*  The balance of $30.7million consisted of a reversal of $31.6million of the valuation allowance based on the evaluation by management of theability in future years to realize the related domestic deferred tax assets andan increase of $0.9 millionrecorded in connection with state credit deferred tax assets acquired inconnection with the Sirenza acquisition. The $31.6 million reversal was based on the determination by management that asof the end of the first quarter of fiscal 2008, the negative evidence that existedas of the end of fiscal 2007 was no longer applicable.  Based on actualactivity during the period, by the end of the first quarter the Company wasable to better determine the impact of the slow-down in customer demand fromthe high per-unit dollar content major customer and positive evidence arose ofactual increases in sales to other customers and the commencement of volumeproduction of the POLARIS® 3 RFsolution.  The amountreversed consisted of $20.7 million recognized as an income tax benefit, $4.8million reversed against equity related to the tax benefit of employee stockoptions, and $6.1 million reversed against goodwill related to the tax benefitof net operating losses, credits and deductions acquired from othercompanies.  The majority of thesubsequent increase in the valuation allowance to $38.8 million as of the endof fiscal 2008 consisted of the $3.4 million amount recorded in connection withthe Sirenza acquisition during the third quarter of fiscal 2008 and $27.0million amount recorded in connection with the Filtronic acquisition during thefourth quarter of fiscal 2008.

 

In accordancewith SFAS 109, as of the end of the third quarter of fiscal 2009, the Companyevaluated the ability to realize its deferred tax assets in future periods andincreased the valuation allowance for the deferred tax assets in the U.K.,China, and the U.S. from $37.0 million as of the end of the prior quarter to $126.5million.  This increase in the valuation allowance during the third quarter offiscal 2009 was due to impairment chargesincurred during the third quarter of fiscal 2009 that resulted in the Companymoving into a cumulative pre-tax loss for the most recent three-year period,inclusive of the loss for the period ended December 27, 2008.  Managementdetermined that the negative evidence represented by the cumulative pre-taxloss that arose during the third quarter of fiscal 2009 required an increase inthe valuation allowance under SFAS 109 to the extent that realization of thesedeferred tax assets was not supported by reversals of existing taxabletemporary differences or taxable income in prior carry back years, to theextent allowed by the applicable taxing jurisdictions. 

 

As of the end offiscal 2009, the valuation allowance against deferred tax assets had increasedby $99.6 million from $38.8 million as of the end of fiscal 2008 to $138.4 million.  Thisincrease was comprised of: a $0.2 million increase related to state tax creditsand net operating loss carryovers acquired in the Sirenza transaction whichwere not realizable as of the acquisition date and which increase was recordedin 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 toU.K. deferred tax assets for which there was a change in judgment about therealizability of the deferred tax assets during fiscal 2009 and which increaseswere recorded as an income tax expense during the fiscal year; a $0.3 millionincrease related to the tax benefit of employee stock compensation which wasrecorded in equity during the fiscal year; and a $7.6 million decrease relatedto the impact from the change in the exchange rate for the British pound on thevaluation allowance for U.K. deferred tax assets existing as of the beginningof the fiscal year, which amount was offset by a  corresponding decrease in theU.S. dollar denominated amount of the related U.K. deferred tax assets.

 

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

 

 

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**NEW ACCOUNTINGPRONOUNCEMENTS**In the first quarter of fiscal 2010, we adopted SFAS No. 141 (revised2007), *“Business Combinations”* (“SFAS 141(R)”), as amended by FASB staffposition FSP 141(R)-1, *“Accounting for Assets Acquired and LiabilitiesAssumed in a Business Combination That Arise from Contingencies.”*  Thisstatement changes the way assets and liabilities are recognized in purchaseaccounting.  It also changes the recognition of assets acquired and liabilitiesassumed arising from contingencies, and requires the capitalization ofin-process research and development at fair value.  It further requires thatacquisition-related costs be recognized separately from the acquisition andexpensed as incurred; that restructuring costs generally be expensed in periodssubsequent to the acquisition date; and that changes in accounting for deferredtax asset valuation allowances and acquired income tax uncertainties after themeasurement period be recognized as a component of provision for taxes.  WhileSFAS 141(R) applies only to business combinations with an acquisition dateafter its effective date, the amendments to SFAS 109, with respect to deferredtax asset valuation allowances and liabilities for income tax uncertainties arebeing applied to all deferred tax valuation allowances and liabilities forincome tax uncertainties recognized in prior business combinations.  Ourfinancial statements may be impacted to the extent we acquire entities in apurchase business combination in the future.  

 

In June 2009, the FASBapproved the “*FASB Accounting Standards Codification*” (the “Codification”)as the single source of authoritative nongovernmental U.S. GAAP which waslaunched on July 1, 2009.  The Codification does not change current U.S.GAAP, but is intended to simplify user access to all authoritative U.S. GAAP byproviding all the authoritative literature related to a particular topic in oneplace.  All existing accounting standard documents will be superseded and allother accounting literature not included in the Codification will be considerednonauthoritative.  The Codification is effective for interim and annual periodsending after September 15, 2009.  The Codification is effective for usduring our interim period ending October 3, 2009, and will not have animpact on our financial condition or results of operations.  We are currentlyevaluating the impact to our financial reporting process of providingCodification references in our public filings.

** **

In May 2009, the FASB issued SFASNo. 165, “*Subsequent Events.”*  This statement establishesgeneral standards of accounting for and disclosures of events that occur afterthe balance sheet date but before financial statements are issued or areavailable to be issued.  In particular, this statement sets forth (1) theperiod after the balance sheet date during which management of a reportingentity should evaluate events or transactions that may occur for potentialrecognition or disclosure in the financial statements; (2) the circumstancesunder which an entity should recognize events or transactions occurring afterthe balance sheet date in its financial statements; and (3) the disclosuresthat an entity should make about events or transactions that occurred after thebalance sheet date.  This statement was effective for our firstquarter of fiscal 2010 (see Note 1 to the Condensed Consolidated FinancialStatements).

 

In April 2009, the FASBissued FSP FAS 115-2 and FAS 124-2, *“Recognition and Presentation ofOther-Than-Temporary Impairment”* (“FSP 115-2/124-2”).  FSP 115-2/124-2amends the requirements for the recognition and measurement ofother-than-temporary impairments for debt securities by modifying thepre-existing “intent and ability” indicator.  Under FSP 115-2/124-2, another-than-temporary impairment is triggered when there is an intent to sellthe security, it is more likely than not that the security will be required tobe sold before recovery, or the security is not expected to recover the entireamortized cost basis of the security.  Additionally, FSP 115-2/124-2 changesthe presentation of an other-than-temporary impairment in the income statementfor those impairments involving credit losses.  The credit loss component willbe recognized in earnings and the remainder of the impairment will be recordedin other comprehensive income.  FSP 115-2/124-2 was effective for our firstquarter of fiscal 2010.  The adoption of FSP 115-2/124-2 did not have amaterial impact on our condensed consolidated financial statements.   

 

In April 2009, the FASBissued FSP FAS 107-1 and APB 28-1, *“Interim Disclosure about Fair Value ofFinancial Instruments”* (“FSP 107-1/APB 28-1”).  FSP 107-1/APB 28-1 requiresinterim disclosures regarding the fair values of financial instruments that arewithin the scope of SFAS 107, *“Disclosures about the Fair Value of FinancialInstruments.” *Additionally, FSP 107-1/APB 28-1 requires disclosure of themethods and significant assumptions used to estimate the fair value offinancial instruments on an interim basis as well as changes of the methods andsignificant assumptions from prior periods.  FSP 107-1/APB 28-1 does not changethe accounting treatment for these financial instruments and was effective for ourfirst quarter of fiscal 2010 (see Note 11 to the Condensed ConsolidatedFinancial Statements).   

 

In May 2008, the FASB issuedFSP APB 14-1, which clarifies the accounting for convertible debt instrumentsthat may be settled in cash upon conversion (including partial cashsettlement).  We adopted the provisions of FSP APB 14-1 on March 29, 2009. The adoption of FSP APB 14-1 resulted in a $5.5 million decrease to our netincome for the three months ended June 27, 2009 (see Note 5 to the CondensedConsolidated Financial Statements).  

 

In April 2008, the FASB issuedFSP 142-3, *“Determination of the Useful Life of Intangible Assets.”*  FSP142-3 amends the factors that should be considered in developing renewal orextension assumptions used to determine the useful life of a recognizedintangible asset under SFAS 142.  FSP 142-3 was effective for us in the firstquarter of fiscal 2010.  The adoption of FSP 142-3 did not have an impact onour condensed consolidated financial statements. 

 

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In September 2006, the FASBissued****SFAS No. 157,*****“Fair Value Measurements”* (“SFAS157”).  SFAS 157 establishes a common definition for fair value to be appliedto U.S. GAAP guidance requiring use of fair value, establishes a framework formeasuring fair value and expands disclosure about such fair value measurements.  In February 2008, the FASB issued FSP No. 157-1, “*Applicationof FASB Statement  157 to FASB Statement  13 and Other AccountingPronouncements That Address Fair Value Measurements for Purposes of LeaseClassification or Measurement under Statement 13*” (“FSP 157-1”) and FSP No.157-2,  “*Effective Date of FASB Statement157*” (“FSP 157-2”).  FSP 157-1 amends SFAS 157 to remove certainleasing transactions from its scope.  FSP 157-2 delays the effective dateof SFAS 157 for all non-financial assets and non-financial liabilities,except for items that are recognized or disclosed at fair value in thefinancial statements on a recurring basis (at least annually), to fiscal yearsbeginning after November 15, 2008 and interim periods within those fiscal years(our first quarter of fiscal 2010).  In October 2008, the FASB issued FSP No.157-3, “*Determining the Fair Value of a Financial Asset When the Market forThat Asset Is Not Active*” (“FSP 157-3”).  FSP 157-3 clarifies theapplication of SFAS 157 in a market that is not active and provides an exampleto illustrate key considerations.  In April 2009, the FASB issuedFSP FAS 157-4, “*Determining Fair Value When Volume and Level of Activity forthe Asset or Liability Have Significantly Decreased and IdentifyingTransactions That Are Not Orderly*” (“FSP 157-4”).  FSP 157-4 providesguidance on how to determine the fair value of assets and liabilities when thevolume and level of activity for the asset/liability has significantlydecreased.  FSP 157-4 also provides guidance on identifying circumstances thatindicate a transaction is not orderly.  In addition, FSP 157-4 requiresdisclosure in interim and annual periods of the inputs and valuation techniquesused to measure fair value and a discussion of changes in valuationtechniques.  FSP 157-4 was effective for the Company in the first quarter offiscal 2010.  The adoption of SFAS 157 and FSP 157-4 did not have a significantimpact on our condensed consolidated financial statements (see Note 11 to the Condensed ConsolidatedFinancial Statements for further details on our fairvalue measurements).  

#### LIQUIDITY AND CAPITAL RESOURCES  

We have funded our operationsto date through sales of equity and debt securities, bank borrowings, capitalequipment leases and revenue from product sales.  Through public and Rule 144Asecurities offerings, we have raised approximately $1,053.3 million, net ofoffering expenses.  As of June 27, 2009, we had working capital ofapproximately $236.5 million, including $125.2 million in cash and cashequivalents, compared to working capital at June 28, 2008, of $460.4 million,including $116.6 million in cash and cash equivalents.  

 

The recent and unprecedenteddisruption in the credit markets has had a significant adverse impact on anumber of financial institutions that provide capital, as well as on ourcustomers and suppliers that depend on borrowing such capital to fund theirliquidity requirements.  Because we rely primarily on cash on hand and cashgenerated from operations to fund our business (as opposed to revolving creditor similar borrowing facilities), our liquidity has not been materiallyimpacted by the current credit environment and management does not expect thatit will be materially impacted during fiscal 2010.  Our management plans to continueto closely monitor our liquidity and developments in the credit markets.  

 

***Cash Flows fromOperating Activities***Operating activities for the threemonths ended June 27, 2009, generated cash of $36.4 million, compared to cashused of $2.9 million for the three months ended June 28, 2008.  During thefirst quarter of fiscal 2010, our net income increased $31.3 million year-over-year. This year-over-year increase was primarily attributable to improvements inprofitability driven by the strategic and economic restructuring efforts duringfiscal 2009 and decreased restructuring charges.  In the first quarter offiscal 2009, we recorded restructuring charges of $26.6 million compared to $2.0million in the first quarter of fiscal 2010.  Improvements in certain workingcapital items also contributed to the positive operating cash flow.  Managementcontinues to focus on inventory and accounts payable management and maintainingconsistent accounts receivable collections during the global economic slowdown.

***Cash Flows from Investing Activities***

Net cash used in investing activities for the threemonths ended June 27, 2009, was $76.8 million compared to net cash used ininvesting activities of $10.3 million for the three months ended June 28, 2008. This increase was primarily due to the purchase of additional investments inavailable-for-sale securities.  In addition, we purchased approximately $1.9million of property and equipment for the three months ended June 27, 2009 ascompared to $18.5 million for the three months ended June 28, 2008. 

*** ***

***Cash Flows fromFinancing Activities***

Net cash used in financingactivities was $7.7 million for the three months ended June 27, 2009, comparedto net cash used in financing activities of $0.3 million for the three monthsended June 28, 2008.  This increase is primarily due to the repurchase of anaggregate of $10.0 million par value of the Notes, which resulted in a gain ofapproximately $1.9 million.

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**COMMITMENTS AND CONTINGENCIES**

** **

*Equipment Term Loan*  During the first quarter of fiscal 2007, we enteredinto a $25.0 million equipment term loan at an interest rate of 7.87%.  We usedthe proceeds primarily for wafer fabrication and assembly expansions.  As of June27, 2009, the outstanding balance of this loan totaled approximately $12.6 million.

 

In connection with ourequipment term loan, we must maintain, on a quarterly basis, a ratio of seniorfunded debt to EBITDA of not greater than 3.5 to 1.0, and unencumbered cash orcash-equivalent holdings of not less than $50.0 million.  Senior funded debt isdefined as current- and long-term debt plus capital leases, and EBITDA isdefined as (i) operating income under GAAP, plus (ii) depreciation andamortization expense, plus (iii) all non-cash expenses and losses, minus allnon-cash income and gains.  As of June 27, 2009, we were in compliance with ourdebt covenants. 

*Convertible Debt* During April 2007, we completed the private placement of $200 millionaggregate principal amount of 0.75% convertible subordinated notes due 2012 and$175 million aggregate principal amount of 1.00% convertible subordinated notesdue 2014.  The net proceeds of the offering were approximately $366.2 millionafter payment of the underwriting discount and expenses of the offeringtotaling approximately $8.8 million.  As of June 27, 2009 and June 28, 2008,the 0.75% convertible notes had a fair value of $163.3 million (excluding thenotes that were repurchased) and $151.0 million, respectively.  The 1.00%convertible notes had a fair value of $97.4 million (excluding the notes thatwere repurchased) and $118.0 million at June 27, 2009 and June 28, 2008,respectively.

 

During fiscal 2004, we completed the private placementof $230.0 million aggregate principal amount of 1.50% convertible subordinatednotes due July 1, 2010 (first quarter of fiscal 2011).  The net proceeds of theoffering were approximately $224.7 million after payment of the underwritingdiscount and expenses of the offering totaling $5.3 million.  The net proceedsfrom the 1.50% offering were offset by the repurchase of $200.0 million of the$300.0 million aggregate principal amount of our 3.75% convertible subordinatednotes due 2005.  On August 15, 2004, we redeemed the remainder of theoutstanding principal amount of the 3.75% convertible subordinated notes for$100.0 million plus accrued interest with cash flow from operations and cash onhand.  As of June 27, 2009, and June 28, 2008, the 1.50% convertiblesubordinated notes had a fair value of $205.8 million (excluding the notes thatwere repurchased) and $210.7 million, respectively.

 

Due to the first quarter offiscal 2011 ending on July 3, 2010, the convertible subordinated notes due onJuly 1, 2010 totaling $206.3 million have been reclassified to current debtfrom long-term debt, which reflects a change from how such notes were classifiedin our quarterly earnings release dated July 23, 2009.

 

In the first quarter offiscal 2010, we repurchased $7.8 million par value convertible subordinatednotes due 2014 at an average price of $61.55, which resulted in a gain ofapproximately $1.6 million.  In the first quarter of fiscal 2010, we alsorepurchased $2.2 million par value convertible subordinated notes due 2012 atan average price of $78.56, which resulted in a gain of approximately $0.3million.

 

We may from time to time seekto retire or purchase additional amounts of our outstanding convertible notesthrough cash purchases or exchanges for equity securities, in open marketpurchases, privately negotiated transactions or otherwise.  Such repurchases orexchanges, if any, will depend on prevailing market conditions, our liquidityrequirements, contractual restrictions and other factors and the amountsinvolved may be material.

 

*No Net Cost Credit Line*****  In November 2008, we entered into anagreement with the company that holds our level 3 ARS in which the securitiesfirm will give us the right to sell our outstanding level 3 ARS to thesecurities firm at par value (i.e., the face amount), plus accrued but unpaiddividends or interest, at any time during the period June 30, 2010 through July2, 2012.  We intend to sell our outstanding level 3 ARS to the securities firmon or about June 30, 2010.  Included in the agreement was the option to takeout a “no net cost” credit line (Credit Line Agreement), which means that theinterest that we will pay on the credit line obligation will not exceed theinterest that we receive on our level 3 ARS, which are pledged as firstpriority collateral for this loan.  The ARS securities pledged as collateralfor the loan had a market value of $17.7 million as of June 27, 2009.  Pursuantto the terms and conditions of the Credit Line Agreement we may borrow up to 75%of the market value of our outstanding level 3 ARS.  In addition, thesecurities firm may demand full or partial payment or terminate and cancel theCredit Line Agreement, at its sole option and without cause, at any time. However, if the securities firm exercises this right, the securities firm mustprovide as soon as reasonably possible, alternative financing on substantiallythe same terms and conditions as those under the Credit Line Agreement and theCredit Line Agreement will remain in full force and effect until such time assuch alternative financing has been established.  If alternative financingcannot be established, then the securities firm must purchase the pledged ARSat par.  

 

 

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Duringfiscal 2009, we executed on the Credit Line Agreement and drew up to the 75%stated limit, or $13.6 million as of June 27, 2009, as determined by the securitiesfirm.  The credit line will become payable when the securities firm receivesthe proceeds from purchases of our ARS.  As of June 27, 2009, the credit lineis recorded in short-term debt on our consolidated balance sheet. 

 

*Contractual Obligations*The followingtable summarizes our convertible debt obligations, including interest, as of June27, 2009, and the effect such obligations are expected to have on our liquidityand cash flows in future periods.  Other than as set forth below, there have beenno material changes outside the ordinary course of business to our contractualobligations and commitments as set forth in our Annual Report on Form 10-K forthe fiscal year ended March 28, 2009.

 
|                                                                 |   | Payments Due By Period (in thousands) |
|----------------------------------------------------------------------|--------|---------------------------------------|
|                                                                 |   | Total                                 | Less than   1 year | 1-3 years | 3-5 years | More than   5 years |
| Convertible subordinated notes due 2010 (par value $207.0  million)* |   | $                                     | 211,658  | $ | 3,105  | $ | 208,553  | $ | -  | $ | -  |
| Convertible subordinated notes due 2012 (par value $197.7  million)  |   |                                  | 202,197  |   | 1,483  |   | 200,714  |   | -  |   | -  |
| Convertible subordinated notes due 2014 (par value  $134.9 million)  |   |                                  | 141,646  |   | 1,349  |   | 2,698  |   | 137,599  |   | -  |
| Total convertible debt                                               |   | $                                     | 555,501  |  $ | 5,937  | $ | 411,965  | $ | 137,599  | $ | -  |
|                                                                 |   |                                  |   |   |   |   |

* The 1.50% convertible subordinated notes are due onJuly 1, 2010 (first quarter of fiscal 2011).  

 

*Capital Commitments* At June 27, 2009, we had short-term capitalcommitments of approximately $1.1 million, primarily for equipmentreplacements, equipment for process improvements and general corporate requirements. 

*Future Sources of Funding *Our futurecapital requirements may differ materially from those currently anticipated andwill depend on many factors, including, but not limited to, volume pricingconcessions, capital improvements, demand for our products, technologicaladvances and our relationships with suppliers and customers.  Based on currentand projected levels of cash flow from operations, coupled with our April 2007convertible note offering, our fiscal 2004 note offering and our $25.0 millionequipment term loan, we believe that we have sufficient liquidity to meet bothour short-term and long-term cash requirements.  The 1.50% convertiblesubordinated notes are due on July 1, 2010 (first quarter of fiscal 2011).  However,if current economic conditions or other factors materially reduce demand forour products, or in the event that growth is faster than we had anticipated,operating cash flows may be insufficient to meet our needs.  If existingresources and cash from operations are not sufficient to meet our futurerequirements or if we perceive conditions to be favorable, we may seekadditional debt or equity financing, additional credit facilities, enter intosale-leaseback transactions or obtain asset-based financing.  We cannot be surethat any additional equity or debt financing will not be dilutive to holders ofour common stock.  Further, we cannot be sure that additional equity or debtfinancing, if required, will be available on favorable terms, if at all,particularly given the current macroeconomic conditions.

** **

*Legal   *We areinvolved in various legal proceedings and claims that have arisen in theordinary course of our business that have not been fully adjudicated.  Theseactions, when finally concluded and determined, will not, in the opinion ofmanagement, have a material adverse effect upon our consolidated financialposition or results of operations.

** **

*Taxes***  **We are subject to income and other taxes in the United States and in numerous foreign jurisdictions.  Our domestic and foreign taxliabilities are subject to the allocation of revenues and expenses in differentjurisdictions.  Additionally, the amount of taxes paid is subject to ourinterpretation of applicable tax laws in the jurisdictions in which we operate. We are subject to audits by tax authorities.  While we endeavor to comply withall applicable tax laws, there can be no assurance that a governing taxauthority will not have a different interpretation of the law than we do orthat we will comply in all respects with applicable tax laws, which couldresult in additional taxes.  There can be no assurance that the outcomes fromthese audits will not have an adverse effect on our results of operations inthe period during which the review is conducted. 

** **

**ITEM 3. QUANTITATIVE ANDQUALITATIVE DISCLOSURES ABOUT MARKET RISK**

 

There have been no materialchanges to our market risk exposures during the first three months of fiscal2010.  For a discussion of our exposure to market risk, refer to Item 7A,Quantitative and Qualitative Disclosures About Market Risk, contained in ourAnnual Report on Form 10-K for the fiscal year ended March 28, 2009.

 

** **

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**ITEM 4. CONTROLS ANDPROCEDURES**

 

As of the end of the period covered by this report,the Company’s management, with the participation of the Company's ChiefExecutive Officer and the Chief Financial Officer, evaluated the effectivenessof the Company’s disclosure controls and procedures in accordance with Rule13a-15(e) under the Securities Exchange Act of 1934, as amended (the ExchangeAct).  Based upon their evaluation, the Chief Executive Officer and the ChiefFinancial Officer concluded that the Company’s disclosure controls andprocedures were effective for the purpose of ensuring that the informationrequired to be disclosed in the reports that the Company files or submits underthe Exchange Act with the Securities and Exchange Commission (the SEC) (i) isrecorded, processed, summarized and reported within the time periods specifiedin the SEC’s rules and forms, and (ii) is accumulated and communicated to theCompany’s management, including its principal executive and principal financialofficers, as appropriate to allow timely decisions regarding requireddisclosure.

 

In addition, there were no changes in the Company’sinternal control over financial reporting that occurred during the periodcovered by this report that have materially affected, or are reasonably likelyto materially affect, the Company’s internal control over financial reporting.

 

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** PART II - OTHER INFORMATION**

** **

**ITEM 6.  EXHIBITS.**
|   |                                                                                                                                                                                                                          |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 10.1   | RF Micro Devices, Inc. 2006  Directors Stock Option Plan, as amended and restated effective May 7, 2009 *                                                                                                                     |
|   |                                                                                                                                                                                                                          |
| 10.2   | Equity Award Election Form,  pursuant to the RF Micro Devices, Inc. 2006 Directors Stock Option Plan, as  amended and restated effective May 7, 2009 *                                                                        |
|   |                                                                                                                                                                                                                          |
| 10.3   | Form of Stock Option  Agreement — Annual/Supplemental Option, for Nonemployee Directors pursuant to  the RF Micro Devices, Inc. 2006 Directors Stock Option Plan, as amended and  restated effective May 7, 2009 *       |
|   |                                                                                                                                                                                                                          |
| 10.4   | Form of Restricted Stock  Unit Agreement — Initial RSU, for Nonemployee Directors pursuant to the 2003  Stock Incentive Plan of RF Micro Devices, Inc., as amended *                                                     |
|   |                                                                                                                                                                                                                          |
| 10.5   | Form of Restricted Stock  Unit Agreement — Annual/Supplemental RSU, for Nonemployee Directors pursuant  to the 2003 Stock Incentive Plan of RF Micro Devices, Inc., as amended *                                         |
|   |                                                                                                                                                                                                                          |
| 10.6   | RF Micro Devices, Inc.  Director Compensation Plan, effective May 7, 2009 *                                                                                                                                                   |
|   |                                                                                                                                                                                                                          |
| 10.7   | 2003 Stock Incentive Plan  of RF Micro Devices, Inc., as amended effective June 8, 2009 *                                                                                                                                     |
|   |                                                                                                                                                                                                                          |
| 10.8   | 2009 Declaration of  Amendment, effective July 30, 2009, to the Nonemployee Directors’ Stock  Option Plan of RF Micro Devices, Inc., as amended and restated through June  13, 2003 *                                    |
|   |                                                                                                                                                                                                                          |
| 31.1   | Certification of Periodic Report by Robert A. Bruggeworth, as Chief Executive  Officer,

pursuant to Rule 13a-14(a)  or 15d-14(a) of the Exchange Act, as adopted pursuant to Section

302 of the Sarbanes-Oxley  Act of 2002 |
|   |                                                                                                                                                                                                                          |
| 31.2   | Certification of Periodic  Report by William A. Priddy, Jr., as Chief Financial Officer, pursuant

to Rule 13a-14(a) or  15d-14(a) of the Exchange Act, as adopted pursuant to Section 302 of the

Sarbanes-Oxley Act of 2002 |
|   |                                                                                                                                                                                                                          |
| 32.1   | Certification of Periodic  Report by Robert A. Bruggeworth, as Chief Executive Officer,

pursuant to 18 U.S.C.  Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley

Act of 2002                 |
|   |                                                                                                                                                                                                                          |
| 32.2   | Certification  of Periodic Report by William A. Priddy, Jr., as Chief Financial Officer,  pursuant

to  18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the  Sarbanes-Oxley Act of

2002                   |

 

*  Executivecompensation plan or agreement

****

| 34 |
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**SIGNATURES**

** **

                 Pursuant to therequirements of the Securities Exchange Act of 1934, the registrant has dulycaused this report to be signed on its behalf by the undersigned thereunto dulyauthorized.

 
|  
RF Micro Devices, Inc.

Date:  August 6, 2009

 
/s/ William A. Priddy, Jr.

 William A. Priddy, Jr.
 
Chief Financial Officer, Corporate

 
Vice President of  Administration and Secretary  (Principal Financial Officer)

     

 

Date:  August 6, 2009

 
/s/ Barry D. Church

 Barry D. Church
 
Vice President and Corporate  Controller

 
(Principal Accounting  Officer)

 

 

35

 

 

 

 

 

 

 

**EXHIBIT INDEX**

 

 

10.1

RF Micro Devices, Inc. 2006  Directors Stock Option Plan, as amended and restated effective May 7, 2009 * 

 

 

10.2

Equity Award Election Form,  pursuant to the RF Micro Devices, Inc. 2006 Directors Stock Option Plan, as  amended and restated effective May 7, 2009 * 

 

 

10.3

Form of Stock Option  Agreement — Annual/Supplemental Option, for Nonemployee Directors pursuant to  the RF Micro Devices, Inc. 2006 Directors Stock Option Plan, as amended and  restated effective May 7, 2009 * 

 

 

10.4

Form of Restricted Stock  Unit Agreement — Initial RSU, for Nonemployee Directors pursuant to the 2003  Stock Incentive Plan of RF Micro Devices, Inc., as amended * 

 

 

10.5

Form of Restricted Stock  Unit Agreement — Annual/Supplemental RSU, for Nonemployee Directors pursuant  to the 2003 Stock Incentive Plan of RF Micro Devices, Inc., as amended * 

 

 

10.6

RF Micro Devices, Inc.  Director Compensation Plan, effective May 7, 2009 * 

 

 

10.7

2003 Stock Incentive Plan  of RF Micro Devices, Inc., as amended effective June 8, 2009 *

 

 

10.8

2009 Declaration of  Amendment, effective July 30, 2009, to the Nonemployee Directors’ Stock  Option Plan of RF Micro Devices, Inc., as amended and restated through June  13, 2003 *
      
31.1

Certification of Periodic Report by Robert A. Bruggeworth, as Chief Executive  Officer,

pursuant to Rule 13a-14(a)  or 15d-14(a) of the Exchange Act, as adopted pursuant to Section

302 of the Sarbanes-Oxley  Act of 2002

 

 

31.2

Certification of Periodic  Report by William A. Priddy, Jr., as Chief Financial Officer, pursuant

to Rule 13a-14(a) or  15d-14(a) of the Exchange Act, as adopted pursuant to Section 302 of the

Sarbanes-Oxley Act of 2002

 

 

32.1

Certification of Periodic  Report by Robert A. Bruggeworth, as Chief Executive Officer,

pursuant to 18 U.S.C.  Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley

Act of 2002   

 

 

32.2

Certification  of Periodic Report by William A. Priddy, Jr., as Chief Financial Officer,  pursuant

to  18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the  Sarbanes-Oxley Act of

2002  

 

*  Executivecompensation plan or agreement

 

OurSEC file number for documents filed with the SEC pursuant to the SecuritiesExchange Act of 1934, as amended, is 000-22511.

36

 

 

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