| ** **

** **

**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 October 3, 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 mark whether the registrant has submitted electronically andposted on its corporate Web site, if any, every Interactive Data File requiredto be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 ofthis chapter) during the preceding 12 months (or for such shorter period thatthe registrant was 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.  Seethe definitions of "large accelerated filer,” “accelerated filer" and“smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):Large accelerated filer [X]                                                                                                  Acceleratedfiler [  ] Non-accelerated filer [  ] (Do not check if a smaller reportingcompany)                 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 October 30, 2009, there were 268,163,157 shares of the registrant’scommon stock outstanding.  

 

----

 

 

 

 

 

 

# RF MICRO DEVICES, INC. AND SUBSIDIARIES

# INDEX

 

** **
| **PART I-**        | **FINANCIAL INFORMATION**                                                                                                                                  | ** ** |
|--------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|
| ** **         | ** **                                                                                                                                                 | ** ** |
| **Item 1.**        | **Condensed Consolidated Financial  Statements.**                                                                                                          | **Page**   |
|               |                                                                                                                                                       |       |
|               |                                                                                                                                                       |       |
|               |     Condensed Consolidated  Balance Sheets as of October 3, 2009

    and March 28, 2009                                     |  

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

    October 3, 2009 and September  27, 2008 |  

4  |
|               |                                                                                                                                                       |       |
|               |     Condensed Consolidated  Statements of Operations for the six months ended

    October 3, 2009 and September  27, 2008   | 5          |
|               |                                                                                                                                                       |       |
|               |     Condensed Consolidated  Statements of Cash Flows for the six months ended

    October 3, 2009 and September  27, 2008   |  

6  |
|               |                                                                                                                                                       |       |
|               |     Notes to Condensed  Consolidated Financial Statements                                                                                   | 7          |
|               |                                                                                                                                                       |       |
| **Item 2.**        | **Management's Discussion and  Analysis of Financial Condition and Results of Operations.**                                                                | 23         |
|               |                                                                                                                                                       |       |
| **Item 3.**        | **Quantitative and Qualitative  Disclosures About Market Risk.**                                                                                           | 31         |
| ** **         | ** **                                                                                                                                                 |       |
| **Item 4.**        | **Controls and Procedures.**                                                                                                                               | 31         |
|               |                                                                                                                                                       |       |
| ** **         | ** **                                                                                                                                                 | ** ** |
| **PART II -**      | **OTHER INFORMATION**                                                                                                                                      | ** ** |
| ** **         | ** **                                                                                                                                                 | ** ** |
| **Item 4.**        | **Submission of Matters to  a Vote of Security Holders.**                                                                                                  | 32         |
| ** **         | ** **                                                                                                                                                 |       |
| **Item 6.**        | **Exhibits.**                                                                                                                                              | 33         |
| ** **         | ** **                                                                                                                                                 | ** ** |
| **SIGNATURES.**    | ** **                                                                                                                                                 | 34         |
| ** **         | ** **                                                                                                                                                 |       |
| **EXHIBIT INDEX.** | ** **                                                                                                                                                 | 35         |

**                                                                                                                              **

** **

| 2 |
|---|

 

----

 

# PART I –FINANCIAL INFORMATION

#### ITEM 1. 

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

(Unaudited)

 
|                                                                                                                                                                                                                                                                                                                                                                           |   | ** October 3, 2009** | ** ** | ** ** | **March 28, 2009** |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|---------------------------|------------|------------|--------------------|
| **ASSETS**                                                                                                                                                                                                                                                                                                                                                                     |   |                      |       |       |               |
| Current assets:                                                                                                                                                                                                                                                                                                                                                                |   |                      |       |       |               |
| Cash  and cash equivalents                                                                                                                                                                                                                                                                                                                                                     | $      | 116,667              |       | $          | 172,989       |
| Restricted  cash and trading security investments*(Note 11)*                                                                                                                                                                                                                                                                                                                   |   | 19,049               |       |       | 62            |
| Short-term  investments *(Note 11)*                                                                                                                                                                                                                                                                                                                                            |   | 223,344              |       |       | 93,527        |
| Accounts  receivable, less allowance of $692 and $886 as of               October 3, 2009 and March 28, 2009, respectively                                                                                                                                                                                         |   | 100,854              |       |       | 90,231        |
|        Inventories *(Note  3)*                                                                                                                                                                                                                                                                                                                   |   | 117,880              |       |       | 113,611       |
|        Prepaid expenses                                                                                                                                                                                                                                                                                                                          |   | 10,559               |       |       | 10,885        |
|        Other receivables                                                                                                                                                                                                                                                                                                                         |   | 20,089               |       |       | 9,040         |
|        Other current assets  (amount recorded at fair value is $2.3 million)              *(Note 11)*                                                                                                                                                                                          |   | 40,444               |       |       | 27,089        |
| Total current assets                                                                                                                                                                                                                                                                                                                                                           |   | 648,886              |       |       | 517,434       |
|                                                                                                                                                                                                                                                                                                                                                                           |   |                      |       |       |               |
| Property and equipment, net  of accumulated depreciation of $462,602 at        October 3, 2009 and $435,179 at March 28, 2009                                                                                                                                                                                                                              |   | 277,747              |       |       | 315,127       |
| Goodwill                                                                                                                                                                                                                                                                                                                                                                       |   | 95,628               |       |       | 95,628        |
| Intangible assets, net                                                                                                                                                                                                                                                                                                                                                         |   | 111,469              |       |       | 121,191       |
| Long-term investments *(Note  11)*                                                                                                                                                                                                                                                                                                                                             |   | 2,175                |       |       | 20,183        |
| Other non-current assets *(Note  6)*                                                                                                                                                                                                                                                                                                                                           |   | 18,108               |       |       | 19,079        |
| Total assets                                                                                                                                                                                                                                                                                                                                                                   | $      | 1,154,013            |       | $          | 1,088,642     |
|                                                                                                                                                                                                                                                                                                                                                                           |   |                      |       |       |               |
| **LIABILITIES AND  SHAREHOLDERS’ EQUITY**                                                                                                                                                                                                                                                                                                                                 |   |                      |       |       |               |
| Current liabilities:                                                                                                                                                                                                                                                                                                                                                           |   |                      |       |       |               |
| Accounts  payable                                                                                                                                                                                                                                                                                                                                                              |   | 73,495               |       |       | 46,745        |
| Accrued  liabilities                                                                                                                                                                                                                                                                                                                                                           |   | 50,306               |       |       | 51,259        |
| Current  portion of long term debt, net of unamortized discount of              $515 at October 3, 2009                                                                                                                                                                                                                 |   | 211,448              |       |       | 4,839         |
| No  net cost credit line *(Note 11)*                                                                                                                                                                                                                                                                                                                                           |   | 13,450               |       |       | -             |
| Other  current liabilities                                                                                                                                                                                                                                                                                                                                                     |   | 919                  |       |       | 923           |
| Total current liabilities                                                                                                                                                                                                                                                                                                                                                      |   | 349,618              |       |       | 103,766       |
|                                                                                                                                                                                                                                                                                                                                                                           |   |                      |       |       |               |
| Long-term  debt, net of unamortized discount of $61,948 at October 3, 2009        and $73,779 at March 28, 2009 *(Note 5)*                                                                                                                                                                                         |   | 283,857              |       |       | 491,607       |
| No  net cost credit line *(Note 11)*                                                                                                                                                                                                                                                                                                                                           |   | -                    |       |       | 13,500        |
| Other  long-term liabilities *(Note 6)*                                                                                                                                                                                                                                                                                                                                        |   | 53,747               |       |       | 47,807        |
| Total liabilities                                                                                                                                                                                                                                                                                                                                                              |   | 687,222              |       |       | 656,680       |
|                                                                                                                                                                                                                                                                                                                                                                           |   |                      |       |       |               |
| Shareholders’ equity:                                                                                                                                                                                                                                                                                                                                                     |   |                      |       |       |               |
| Preferred  stock, no par value; 5,000 shares authorized; no shares issued             and  outstanding                                                                                                                                                           |   | -                    |       |       | -             |
| Common  stock, no par value; 500,000 shares authorized; 268,144 and               264,035  shares issued and outstanding at October 3, 2009 and March 28,             2009,  respectively            |   | 959,446              |       |       | 958,742       |
| Additional  paid-in capital                                                                                                                                                                                                                                                                                                                                                    |   | 250,863              |       |       | 236,394       |
| Accumulated  other comprehensive income, net of tax                                                                                                                                                                                                                                                                                                                            |   | 462                  |       |       | 169           |
| Accumulated  deficit                                                                                                                                                                                                                                                                                                                                                           |   | (743,980)                 |       |       | (763,343)          |
| Total  shareholders’ equity                                                                                                                                                                                                                                                                                                                                               |   | 466,791              |       |       | 431,962       |
|                                                                                                                                                                                                                                                                                                                                                                           |   |                      |       |       |               |
| Total  liabilities and shareholders’ equity                                                                                                                                                                                                                                                                                                                               | $      | 1,154,013            |       | $          | 1,088,642     |
|                                                                                                                                                                                                                                                                                                                                                                           |   |                      |       |       |               |

 See accompanying Notes to Condensed ConsolidatedFinancial Statements.

** **

| 3 |
|---|

 

----

 

 

 

 

 

** **

** **

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

(Unaudited)

 
|                                            | **Three Months Ended** |
|-------------------------------------------------|------------------------|
|                                            |                   | **October 3, 2009** | ** ** | ** ** | **September 27, 2008 (1)** |
|                                            |                   |   |   |   |   |
| Revenue                                         | $                      | 254,757  |   | $ | 271,669  |
|                                            |                   |   |   |   |   |
| Operating costs and  expenses:                  |                   |   |   |   |   |
| Cost  of goods sold                             |                   | 163,208  |   |   | 194,901  |
| Research  and development                       |                   | 34,846  |   |   | 45,063  |
| Marketing  and selling                          |                   | 14,741  |   |   | 17,153  |
| General  and administrative                     |                   | 16,721  |   |   | 15,781  |
| Other  operating expense*(Note 9)*              |                   | 1,114  |   |   | 17,816  |
| Total operating costs and  expenses   |                   | 230,630  |   |   | 290,714  |
| Income (loss) from  operations                  |                   | 24,127  |   |   | (19,045) |
|                                            |                   |   |   |   |   |
| Interest expense                                |                   | (6,260) |   |   | (6,588) |
| Interest income                                 |                   | 302  |   |   | 1,447  |
| Other (expense) income                          |                   | (89) |   |   | 941  |
|                                            |                   |   |   |   |   |
| Income (loss) before income  taxes              |                   | 18,080  |   |   | (23,245) |
|                                            |                   |   |   |   |   |
| Income tax (expense)  benefit *(Note 6)*        |                   | (3,501) |   |   | 9,018  |
| Net income (loss)                               | $                      | 14,579  |   | $ | (14,227) |
|                                            |                   |   |   |   |   |
| Net income (loss) per share  *(Note 2):*        |                   |   |   |   |   |
| Basic                                           | $                      | 0.05  |   | $ | (0.05) |
| Diluted                                         | $                      | 0.05  |   | $ | (0.05) |
|                                            |                   |   |   |   |   |
| Shares used in per share  calculation:          |                   |   |   |   |   |
| Basic                                           |                   | 267,073  |   |   | 262,091  |
| Diluted                                         |                   | 298,668  |   |   | 262,091  |
|                                            |                   |   |   |   |   |

 

(1) Certain amounts have been adjusted as a result ofthe retrospective adoption of Financial Accounting Standards Board Staff PositionNo. APB 14-1, “*Accounting for Convertible Debt Instruments That May BeSettled in Cash upon Conversion (Including Partial Settlement)*” (“FSP APB14-1”), now codified as Financial Accounting Standards Board (“FASB”)Accounting Standards Codification (“ASC”) Subtopic 470-20, “*Debt withConversion and Other Options*” (“FASB ASC 470-20”).  See Note 5 to theCondensed Consolidated Financial Statements for further discussion.

 

See accompanying Notes toCondensed Consolidated Financial Statements.

 

| 4 |
|---|

 

----

 

 

 

 

 

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

(Unaudited)

 
|                                                             | **Six Months Ended** |
|------------------------------------------------------------------|----------------------|
|                                                             |                 | **October 3, 2009** | ** ** | ** ** | **September 27, 2008 (1)** |
|                                                             |                 |   |   |   |   |
| Revenue                                                          | $                    | 467,297  |   | $ | 512,161  |
|                                                             |                 |   |   |   |   |
| Operating costs and  expenses:                                   |                 |   |   |   |   |
| Cost  of goods sold                                              |                 | 301,746  |   |   | 363,063  |
| Research  and development                                        |                 | 70,479  |   |   | 96,417  |
| Marketing  and selling                                           |                 | 28,310  |   |   | 35,675  |
| General  and administrative                                      |                 | 27,933  |   |   | 28,839  |
| Other  operating expense*(Note 9)*                               |                 | 2,650  |   |   | 46,915  |
| Total operating costs and  expenses                    |                 | 431,118  |   |   | 570,909  |
| Income (loss) from  operations                                   |                 | 36,179  |   |   | (58,748) |
|                                                             |                 |   |   |   |   |
| Interest expense                                                 |                 | (12,674) |   |   | (13,014) |
| Interest income                                                  |                 | 746  |   |   | 3,386  |
| Gain on retirement of  convertible subordinated notes *(Note 5)* |                 | 1,949  |   |   | -    |
| Other (expense) income                                           |                 | (266) |   |   | 1,511  |
|                                                             |                 |   |   |   |   |
| Income (loss) before income  taxes                               |                 | 25,934  |   |   | (66,865) |
|                                                             |                 |   |   |   |   |
| Income tax (expense)  benefit *(Note 6)*                         |                 | (6,571) |   |   | 26,113  |
| Net income (loss)                                                | $                    | 19,363  |   | $ | (40,752) |
|                                                             |                 |   |   |   |   |
| Net income (loss) per share  *(Note 2):*                         |                 |   |   |   |   |
| Basic                                                            | $                    | 0.07  |   | $ | (0.16) |
| Diluted                                                          | $                    | 0.07  |   | $ | (0.16) |
|                                                             |                 |   |   |   |   |
| Shares used in per share  calculation:                           |                 |   |   |   |   |
| Basic                                                            |                 | 266,377  |   |   | 261,675  |
| Diluted                                                          |                 | 297,573  |   |   | 261,675  |

 

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

 

 

 

See accompanying Notes toCondensed Consolidated Financial Statements.

 ** **

** **

** **

** **

** **

** **

** **

** **

** **

** **

** **

** **

| 5 |
|---|

 

----

 

**RF MICRO DEVICES, INC. AND SUBSIDIARIESCONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS**(In thousands)(Unaudited)
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        | **Six Months Ended** |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|----------------------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |                 | **October 3, 2009** | ** ** | ** ** | ** September 27, 2008 (1)** |
| **Cash flows from operating  activities:**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  | ** **           |   |   |   |   |
| Net income (loss)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           | $                    | 19,363  |   | $ | (40,752) |
| Adjustments to reconcile net  income (loss) to net cash                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |                 |   |   |   |   |
|    provided by operating  activities:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |                 |   |   |   |   |
|       Depreciation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |                 | 37,540  |   |   | 43,702  |
|       Amortization                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |                 | 9,521  |   |   | 15,066  |
|       Non-cash interest  expense and amortization of debt issuance costs                                                                                                                                                                                                                                                                                                                                                                                                                                                           |                 | 8,944  |   |   | 8,905  |
|       Investment discount  amortization, net                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |                 | (155) |   |   | (336) |
|       Excess tax benefit  from exercises of stock options                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |                 | -    |   |   | (275) |
|       Deferred income taxes                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |                 | (1,320) |   |   | (18,102) |
|       Foreign currency  adjustments                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |                 | 255  |   |   | (2,020) |
|       Acquired in-process  research and development cost                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |                 | -    |   |   | 1,400  |
|       Asset impairments  (including restructuring impairments)                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |                 | 2,209  |   |   | 24,508  |
|       Gain on retirement of  convertible subordinated notes                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |                 | (1,949) |   |   | -    |
|       (Gain) loss on  disposal of assets, net                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |                 | (987) |   |   | 498  |
|       Share-based  compensation  expense                                                                                |                 | 15,262  |   |   | 13,081  |
|       Changes in operating  assets and liabilities:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |                 |   |   |   |   |
|          Accounts  receivable, net                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |                 | (10,594) |   |   | (5,255) |
|          Inventories                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |                 | (4,027) |   |   | 24,716  |
|          Prepaid expense and  other current and non-current assets                                                                                                                                                                                                                                                                                                                                                                                                                                                  |                 | (10,355) |   |   | (20,254) |
|          Accounts payable  and accrued liabilities                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |                 | 24,891  |   |   | (3,328) |
|          Income tax  payable/recoverable                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |                 | (3,731) |   |   | (4,655) |
|          Other liabilities                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |                 | (1,292) |   |   | (178) |
| Net cash provided by  operating activities                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |                 | 83,575  |   |   | 36,721  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |                 |   |   |   |   |
| **Investing activities:**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   | ** **           |   |   |   |   |
|         Purchase of property  and equipment                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |                 | (3,285) |   |   | (36,607) |
| 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                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |                 | 2,253  |   |   | 418  |
|         Proceeds from  maturities of securities available-for-sale                                                                                                                                                                                                                                                                                                                                                                                                                                                       |                 | 93,485  |   |   | 100,490  |
|         Purchase of  securities available-for-sale                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |                 | (223,057) |   |   | (48,259) |
| Net cash (used in) provided  by investing activities                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |                 | (131,324) |   |   | 2,018  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |                 |   |   |   |   |
| **Financing activities:**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   | ** **           |   |   |   |   |
|         Payment of  convertible subordinated notes                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |                 | (6,564) |   |   | -    |
|         Payment of debt                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |                 | (2,373) |   |   | (2,198) |
|         Excess tax benefit  from exercises of stock options                                                                                                                                                                                                                                                                                                                                                                                                                                                              |                 | -    |   |   | 275  |
|         Proceeds from no net  cost loan                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |                 | (50) |   |   | -    |
|         Proceeds from  exercise of stock options, warrants and employee stock              purchases                                                                                                                                                                                                                                                                                                                                                              |                 | 704  |   |   | 2,719  |
|         Restricted cash  associated with financing activities                                                                                                                                                                                                                                                                                                                                                                                                                                                            |                 | (532) |   |   | 433  |
|         Repayment of capital  lease obligations                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |                 | (99) |   |   | (335) |
| Net cash (used in) provided  by financing activities                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |                 | (8,914) |   |   | 894  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |                 |   |   |   |   |
| Net (decrease) increase in  cash and cash equivalents                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |                 | (56,663) |   |   | 39,633  |
| Effect of exchange rate  changes on cash                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |                 | 341  |   |   | (109) |
| Cash and cash equivalents at  the beginning of the period                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |                 | 172,989  |   |   | 129,750  |
| Cash and cash equivalents at  the end of the period                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         | $                    | 116,667  |   | $ | 169,274  |

 

(1) Certain amounts have beenadjusted as a result of the retrospective adoption of APB 14-1 (now codified asFASB ASC 470-20).  See Note 5 to the Condensed Consolidated FinancialStatements for further discussion.

See accompanying Notes to Condensed Consolidated Financial Statements.

** **

| 6 |
|---|

 

----

 

 

 

 

 

**RF MICRO DEVICES, INC. ANDSUBSIDIARIES**

***NOTES TO CONDENSEDCONSOLIDATED FINANCIAL STATEMENTS***

(Unaudited)

 

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

The accompanying condensed consolidatedfinancial statements of RF Micro Devices, Inc. and Subsidiaries (together, the“Company”) have been prepared in conformity with accounting principlesgenerally accepted in the United States.  The preparation of these financialstatements requires management to make estimates and assumptions, which coulddiffer materially from actual results.  In addition, certain information orfootnote disclosures normally included in financial statements prepared inaccordance 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, as adjusted by the informationcontained in the Company’s Current Report on Form 8-K, filed with the SEC onJuly 31, 2009, to reflect the retrospective application of FSP APB 14-1 (nowcodified as FASB ASC470-20). 

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 condensed consolidatedfinancial statements for the quarter ended September 27, 2008 have beenreclassified to conform to the presentation of the condensed consolidatedfinancial statements for the quarter ended October 3, 2009.  

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.  Fiscal 2010 is a 53-week fiscal yearand as a result the second fiscal quarter ended October 3, 2009 included 14weeks compared to 13 weeks for the second fiscal quarter ended September 27,2008.

** **

The Company adopted FSP APB14-1 (now codified as FASB ASC 470-20) on March 29, 2009, which requires an allocationof convertible 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’sretrospective application of FSP APB 14-1 (now codified as FASB ASC 470-20).  SeeNote 5 to the Condensed Consolidated Financial Statements.  

** **

The Company has performed anevaluation of subsequent events through November 12, 2009, which is the datethe financial statements were issued.  The Company did not identify anysubsequent events requiring recognition or disclosure in these financialstatements.

** **

**Share-based Compensation**

During the second quarter offiscal 2010 at the Company’s annual meeting, the Company’s shareholdersapproved a stock option exchange program for eligible Company employees,excluding the Company’s five most highly compensated officers, members of itsBoard of Directors, consultants, and former and retired employees.  Under the optionexchange program, eligible employees were given the opportunity to exchangecertain of their outstanding stock options (the “eligible options”) previouslygranted to them at exercise prices of $5.00 and greater, for new options to begranted under the Company’s 2003 Stock Incentive Plan, as amended (the “2003Plan”) after expiration of the option exchange program.  The ratio of exchangedeligible options to new options was two-to-one, meaning that a participant wouldreceive a new option for one share of the Company’s common stock in exchangefor an eligible option for two shares of common stock.  As a result of the optionexchange program, approximately 1.8 million eligible options were canceled(with exercise prices over $5.00) on August 7, 2009 and approximately 0.9million new options were granted under the 2003 Plan on August 7, 2009 with anexercise price of $4.86 (the closing price of the Company's common stock asreported on the NASDAQ Global Select Market on the trading date immediatelypreceding the date the new options were granted).  The new options generallywill vest and become exercisable over a two-year period, with 25% of each newoption generally becoming exercisable after each six-month period of continuedservice following the grant date.  However, the new options granted to certainexecutive officers of the Company generally will, in the event of the officer’stermination other than for cause, continue to vest pursuant to the same vestingschedule and remain outstanding as if the officer had remained an employee andwill be exercisable for the remaining option term (unless the administrator ofthe 2003 Plan determines otherwise).  

| 7 |
|---|

 

----

 

 

 

 

 

**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** | ** ** |       | **Six Months Ended**             |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|------------------------|------------|------------|----------------------------------|
| ** **                                                                                                                                                                                             | ** ** | **October 3, 2009**    | ** ** | ** ** | ** September 27, 2008 (1)** | ** ** | ** ** | **October 3, 2009** | ** ** | ** ** | **September 27, 2008 (1)** |
| Numerator for basic and  diluted net income                                                                                                                                                            |       |                   |       |       |                             |   |   |   |   |   |   |
|         (loss) per share:                                                                                                                                           |       |                   |       |       |                             |   |   |   |   |   |   |
|    Net income (loss)  available to common        shareholders                                                                                             | $          | 14,579            |       | $          | (14,227)                         |   | $ | 19,363  |   | $ | (40,752) |
|    Plus: Income impact of  assumed                                                                                                                                                           |       |                   |       |       |                             |   |   |   |   |   |   |
|               conversions for interest on              1.50% convertible notes |       | 603               |       |       | -                 |   |   | 1,200  |   |   | -    |
| Net income (loss) plus  assumed conversion of                                                                                                                                                          |       |                   |       |       |                             |   |   |   |   |   |   |
|        notes – Numerator for  diluted net income                                                                                                                    |       |                   |       |       |                             |   |   |   |   |   |   |
|        (loss) per share                                                                                                                                                  | $          | 15,182            |       |  $    | (14,227)                         |   |  $ | 20,563  |   | $ | (40,752) |
|                                                                                                                                                                                                   |       |                   |       |       |                             |   |   |   |   |   |   |
| Denominator:                                                                                                                                                                                           |       |                   |       |       |                             |   |   |   |   |   |   |
|    Denominator for basic net  income (loss) per                                                                                                                                              |       |                   |       |       |                             |   |   |   |   |   |   |
|        share – weighted  average shares                                                                                                                             |       | 267,073           |       |       | 262,091                     |   |   | 266,377  |   |   | 261,675  |
|    Effect of dilutive  securities:                                                                                                                                                           |       |                   |       |       |                             |   |   |   |   |   |   |
|       Employee stock options                                                                                                                                                  |       | 4,465             |       |       | -                 |   |   | 4,066  |   |   | -    |
|       Assumed conversion  1.50% convertible          notes                                                                       |       | 27,130            |       |       | -                 |   |   | 27,130  |   |   | -    |
| Denominator for diluted net  income (loss) per                                                                                                                                                         |       |                   |       |       |                             |   |   |   |   |   |   |
|        share – adjusted  weighted average shares                                                                                                                    |       |                   |       |       |                             |   |   |   |   |   |   |
|        and assumed  conversions                                                                                                                                          |       | 298,668           |       |       | 262,091                     |   |   | 297,573  |   |   | 261,675  |
|                                                                                                                                                                                                   |       |                   |       |       |                             |   |   |   |   |   |   |
| Basic  and diluted net  income (loss) per share                                                                                                                                                   | $          | 0.05              |       | $          | (0.05)                           |   | $ | 0.07  |   | $ | (0.16) |
|                                                                                                                                                                                                   |       |                   |       |       |                             |   |   |   |   |   |   |

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

In the computation of diluted net income per share for the three and six monthsended October 3, 2009, outstanding stock options to purchase approximately 17.9million shares and 18.7 million shares, respectively, were excluded because theexercise price of the options was greater than the average market price of theunderlying common stock and the effect of their inclusion would have beenanti-dilutive.  In the computation of diluted net loss per share for the threeand six months ended September 27, 2008, all outstanding stock options wereexcluded because the effect of their inclusion would have been anti-dilutive.  

 

The computation of dilutednet income per share assumed the conversion of the Company’s 1.50% convertiblesubordinated notes due 2010 for both the three and six months ended October 3,2009.  The 1.50% convertible subordinated notes are convertible at a price of$7.63 per share and are convertible at the option of the holder at any time onor prior to the close of business on the maturity date.  After the repurchaseof $23.0 million original principal amount of these notes by the Company duringfiscal 2009 (see Note 5 to the Condensed Consolidated Financial Statements),the notes are convertible into a total of approximately 27.1 million shares ascompared to 30.1 million shares prior to the repurchase. 

 

The computation of dilutednet loss per share did not assume the conversion of the Company's 1.50%convertible subordinated notes due 2010 for the three and six months endedSeptember 27, 2008 because the inclusion would have been anti-dilutive.   

| 8 |
|---|

 

----

 

 

 

 

 

**RF MICRO DEVICES, INC. ANDSUBSIDIARIES**

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

(Unaudited)

 

** **

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

** **

The computation of dilutednet income (loss) per share does not assume the conversion of the Company’s0.75% or 1.00% convertible subordinated notes due 2012 and 2014, respectively. Upon conversion of each $1,000 principal amount of these two series of notes, aholder will receive in lieu of common stock, an amount in cash equal to thelesser of (1) $1,000 or (2) the conversion value.  If the conversion valueexceeds $1,000 on the conversion date, the Company, at its election, willsettle the value in excess of $1,000 in cash or common stock.  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):

** **
|               |   | **October 3, 2009** | ** ** | ** ** | **March 28, 2009** |
|--------------------|--------|---------------------|------------|------------|--------------------|
| Raw  materials     | $      | 44,121         |       | $          | 55,753        |
| Work  in process   |   | 45,783         |       |       | 44,125        |
| Finished  goods    |   | 57,487         |       |       | 53,277        |
|               |   | 147,391        |       |       | 153,155       |
| Inventory  reserve |   | (29,511)            |       |       | (39,544)           |
| Total  inventories | $      | 117,880        |       | $          | 113,611       |

** **

** **

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

 

Accumulated other comprehensive income (loss) for theCompany consists of accumulated unrealized gains (losses) on marketablesecurities and foreign currency translation adjustments.  This amount isincluded as a separate component of shareholders’ equity.  Comprehensive income(loss) is not materially different than net income (loss) for both the threeand six months ended October 3, 2009 and September 27, 2008.  

**5.        DEBT**

 

Debt balances at October 3, 2009 and March 28, 2009are as follows (in thousands):

 
|                                                                         | **October 3, 2009** |          | **March 28, 2009** |
|------------------------------------------------------------------------------|---------------------|---------------|--------------------|
| Convertible subordinated  notes due 2010, net of discount                    | $                   | 206,485  |               | $ | 206,143  |
| Convertible subordinated  notes due 2012, net of discount                    |                | 168,285  |               |   | 164,726  |
| Convertible subordinated  notes due 2014, net of discount                    |                | 102,416  |               |   | 105,098  |
| Bank loan                                                                    |                | 6,724    |               |   | 6,729  |
| No net cost credit line                                                      |                | 13,450   |               |   | 13,500  |
| Equipment term loan, net of  discount                                        |                | 11,395   |               |   | 13,750  |
|           Subtotal              |                | 508,755  |               |   | 509,946  |
| Less current portion                                                         |                | 224,898  |               |   | 4,839  |
|                                                                         |                |          |               |   |   |
|           Total long-term  debt | $                   | 283,857  |               | $ | 505,107  |
|                                                                         |                |          |               |   |   |

 

 

 

| 9 |
|---|

 

----

 

 

 

 

 

**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% Convertible SubordinatedNotes due 2012 (the “2012 Notes”) and $175 million aggregate principal amountof 1.00% Convertible Subordinated Notes due 2014 (the “2014 Notes” and,together with the 2012 Notes, the “Notes”).  The two series of Notes wereissued 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 the immediatelypreceding calendar quarter, the closing price of the Company’s common stock forat least 20 trading days in the 30 consecutive trading day period ending on thelast trading day of such preceding calendar quarter is more than 120% of theapplicable conversion rate per share; (2) if during any five business dayperiod after any five consecutive trading day period in which the trading priceper $1,000 principal amount of Notes for each day of that period is less than98% of the product of the closing price of the Company’s common stock for eachday in the period and the applicable conversion rate per $1,000 principalamount of Notes; (3) if certain specified distributions to all holders of theCompany’s common stock occur; (4) if a fundamental change occurs; or (5) atany time during the 30-day period immediately preceding the final maturity dateof the applicable Notes.  Upon conversion, in lieu of shares of the Company’scommon stock, for each $1,000 principal amount of Notes, a holder will receivean amount in cash equal to the lesser of (i) $1,000 or (ii) the conversionvalue, as determined under the applicable indentures governing the Notes.  Ifthe conversion value exceeds $1,000, the Company also will deliver, at itselection, cash or common stock or a combination of cash and common stock equivalentto the amount of the conversion value in excess of $1,000.  The maximum numberof shares issuable upon conversion of these Notes as of October 3, 2009, is approximately32.1 million shares (subsequent to the repurchase by the Company of anaggregate of $42.4 million principal amount of the Notes), which may beadjusted as a result of stock splits, stock dividends and antidilutionprovisions.

 

In the first quarter offiscal 2010, the Company repurchased $7.8 million original principal amount of2014 Notes at an average price of $61.55, which resulted in a gain ofapproximately $1.6 million.  In the first quarter of fiscal 2010, the Companyalso repurchased $2.2 million original principal amount of 2012 Notes at anaverage price of $78.56, which resulted in a gain of approximately $0.3million.

 

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

 

 

 

 

 

 

 

 

 

 

| 10 |
|----|

 

----

 

 

 

 

 

**RF MICRO DEVICES, INC. ANDSUBSIDIARIES**

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

(Unaudited)

** **

** **

**5.        DEBT (continued)**

 

The adoption of FSP APB 14-1 (now codified as FASBASC 470-20) had the following effect on the Company’s Condensed ConsolidatedStatements of Operations for the three and six months ended October 3, 2009 (inthousands):

 
|                                                                                                                                                                   | **Three Months Ended October 3, 2009**    |                                        | **Six Months Ended October 3, 2009** |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------|-------------------------------------------|---------------------------------------------|--------------------------------------|
|                                                                                                                                                                   | **As Computed   prior to   FSP APB 14-1** | **As Reported   under   FSP APB 14-1** | **Effect of   change**               |   | **As Computed   prior to   FSP APB 14-1** | **As Reported   under FSP APB 14-1** | **Effect of   change** |
| Interest expense                                                                                                                                                       |  $                                   | (2,172)                                     |  $                              | (6,260) |  $ | (4,088) |   |  $ | (4,784) |  $ | (12,674) |  $ | (7,890) |
| Gain on retirement of         convertible subordinated                 notes | -                          | -                            | -                     |   | 3,326  | 1,949  | (1,377) |
| Income tax expense                                                                                                                                                     | (3,501)                                   | (3,501)                                     | -                     |   | (6,246) | (6,571) | (325) |
| Net income                                                                                                                                                             | 18,667                               | 14,579                                 | (4,088)                              |   | 28,955  | 19,363  | (9,592) |
|                                                                                                                                                                   |                                      |                                        |                                 |   |   |   |   |
| Net income per share:                                                                                                                                                  |                                      |                                        |                                 |   |   |   |   |
|    Basic                                                                                                                                                     |  $                                   | 0.07                                   |  $                              | 0.05  |  $ | (0.02) |   |  $ | 0.11  |  $ | 0.07  |  $ | (0.04) |
|    Diluted                                                                                                                                                   |  $                                   | 0.06                                   |  $                              | 0.05  |  $ | (0.01) |   |  $ | 0.10  |  $ | 0.07  |  $ | (0.03) |

 

 

The retrospective applicationof FSP APB 14-1 (now codified as FASB ASC 470-20) had the following effecton the Company’s Condensed Consolidated Statements of Operations for the threeand six months ended September 27, 2008 (in thousands):

 
|                 | **Three Months Ended September 27, 2008** |            | **Six Months Ended September 27, 2008** |
|----------------------|-------------------------------------------|-----------------|-----------------------------------------|
|                 | **Previously   Reported**            | **As Adjusted** | **Effect of   change**                  |   | **Previously   Reported** | **As Adjusted** | **Effect of   change** |
| Interest expense     |  $                                   | (2,676)         |  $                                 | (6,588) |  $ | (3,912) |   |  $ | (5,264) |  $ | (13,014) |  $ | (7,750) |
| Income tax benefit   | 7,554                                | 9,018      | 1,464                              |   | 23,213  | 26,113  | 2,900  |
| Net loss             | (11,779)                                  | (14,227)        | (2,448)                                 |   | (35,902) | (40,752) | (4,850) |
|                 |                                      |            |                                    |   |   |   |   |
| Net loss per share:  |                                      |            |                                    |   |   |   |   |
|    Basic   |  $                                   | (0.04)          |  $                                 | (0.05) |  $ | (0.01) |   |  $ | (0.14) |  $ | (0.16) |  $ | (0.02) |
|    Diluted |  $                                   | (0.04)          |  $                                 | (0.05) |  $ | (0.01) |   |  $ | (0.14) |  $ | (0.16) |  $ | (0.02) |

 

 

The retrospective applicationof FSP APB 14-1 (now codified as FASB ASC 470-20) had the following effecton the Company’s Consolidated Balance Sheet as of March 28, 2009 (inthousands):

 
|                             | **Previously  Reported** |          | **As Adjusted** | ** ** | **Effect of   Change** |
|----------------------------------|--------------------------|---------------|-----------------|------------|------------------------|
| Other current assets             | $                        | 21,737   |            | $          | 27,089            |   | $ | 5,352  |
| Long-term debt, net of  discount |                     | 559,529  |            |       | 491,607           |   |   | (67,922) |
| Other long-term liabilities      |                     | 42,455   |            |       | 47,807            |   |   | 5,352  |
| Additional paid-in capital       |                     | 170,052  |            |       | 236,394           |   |   | 66,342  |
| Accumulated deficit              |                     | (764,923)     |            |       | (763,343)              |   |   | 1,580  |

 

  

 

 

 

 

 

| 11 |
|----|

 

----

 

 

 

 

 

 

**RF MICRO DEVICES, INC. ANDSUBSIDIARIES**

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

(Unaudited)

** **

** **

**5.        DEBT (continued)**

 

The retrospective applicationof FSP APB 14-1 (now codified as FASB ASC 470-20) had the following effecton the Company’s Condensed Consolidated Statements of Cash Flows for the sixmonths ended September 27, 2008 (in thousands):

 
|                                                                                                                                                                                                      | **Previously  Reported** |         | **As Adjusted** | ** ** | **Effect of   Change** |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------------------------|--------------|-----------------|------------|------------------------|
| Cash flow from operating  activities:                                                                                                                                                                     | ** **               | ** **   |            | ** ** | ** **             | ** ** | ** ** | ** ** |
|     Net loss                                                                                                                                                                               | $                        | (35,902)     |            | $          | (40,752)               |   | $ | (4,850) |
| Amortization                                                                                                                                                                                              |                     | 15,066  |            |       | 15,066            |   |   | -    |
| Non-cash  interest expense and                          amortization of debt issuance costs |                     | 1,155   |            |       | 8,905             |   |   | 7,750  |
| Total  amortization                                                                                                                                                                                       |                     | 16,221  |            |       | 23,971            |   |   | 7,750  |
|     Deferred income taxes                                                                                                                                                                  |                     | (15,202)     |            |       | (18,102)               |   |   | (2,900) |

 

The following tables provideadditional information about the Company’s Notes, which as noted above aresubject to FSP APB 14-1 (now codified as FASB ASC 470-20) (in thousands):

 
|                                                                                             | **2012 Notes**      |          | **2014 Notes**     |
|--------------------------------------------------------------------------------------------------|---------------------|---------------|--------------------|
|                                                                                             | **October 3, 2009** |          | **March 28, 2009** | ** ** | **October 3, 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                      |                | (29,463)      |               |   | (35,274) |   |   | (32,485) |   |   | (37,593) |
| Net carrying amount of  liability component                                                      |                | 168,285  |               |   | 164,726  |   |   | 102,416  |   |   | 105,098  |

 

 
|                                            | **2012 Notes**      |        | **2014 Notes**         |
|-------------------------------------------------|---------------------|-------------|------------------------|
|                                            | **October 3, 2009** |        | **September 27, 2008** | ** ** | **October 3, 2009** |   | **September 27, 2008** |
| Effective interest rate on  liability component |                | 7.3%        |                   |   | 7.3% |   |   | 7.2% |   |   | 7.2% |
|                                            |                |        |                   |   |   |   |   |   |   |   |   |
| **For the three months  ended:**                |                |        |                   |   |   |   |   |   |   |   |   |
| Cash interest expense  recognized               | $                   | 395    |                   |  $ | 371  |   |   $ | 360  |   | $ | 433  |
| Non-cash interest expense  recognized           |                | 2,832  |                   |   | 2,469  |   |   | 1,599  |   |   | 1,788  |
|                                            |                |        |                   |   |   |   |   |   |   |   |   |
| **For the six months ended:**                   |                |        |                   |   |   |   |   |   |   |   |   |
| Cash interest expense  recognized               |                | 766    |                   |   | 742  |   |   | 703  |   |   | 865  |
| Non-cash interest expense recognized            |                | 5,439  |                   |   | 4,895  |   |   | 3,101  |   |   | 3,545  |

 

As of October 3, 2009, theremaining period over which the unamortized discount will be amortized for the 2012Notes and 2014 Notes is 2.5 years and 4.5 years, respectively.  As of October 3,2009, the if-converted value of the Notes did not exceed the principal amountfor both the 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 $160.5 million (excluding the notes that were repurchased) and $145.9million as of October 3, 2009 and September 27, 2008, respectively. ** **The2014 Notes had a fair value on the PORTAL Market of $117.4 million (excludingthe notes that were repurchased) and $109.7 million as of October 3, 2009 and September27, 2008, respectively.** **

**  **

** **

** **

| 12 |
|----|

 

----

 

 

 

 

 

**RF MICRO DEVICES, INC. ANDSUBSIDIARIES**

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

(Unaudited)

 

 

**5.        DEBT (continued)**

 

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 $202.6 million(excluding the notes that were repurchased) and $193.2 million as of October 3,2009 and September 27, 2008, respectively.

 

**6.          INCOMETAXES**

 

*Income Tax Expense*

The Company’s provision forincome taxes for the reporting period ended October 3, 2009, has beencalculated by applying an estimate of the annual effective tax rate for thefull fiscal year to “ordinary” income or loss (pre-tax income or loss excludingunusual or infrequently occurring discrete items) for the reporting period. For the reporting period ended September 27, 2008, the Company computed itsprovision for income taxes limiting the tax benefit recognized to the amountdetermined by treating the Company’s year-to-date “ordinary” loss as theanticipated “ordinary” loss for the fiscal year.  The Company applied thisprovision as the year-to-date “ordinary” loss exceeded the anticipated“ordinary” loss for the fiscal year.

 

Income tax expense for thethree months ended October 3, 2009, was $3.5 million, which is comprisedprimarily of a tax expense related to domestic and international operations anda tax benefit related to changes in the deferred tax asset valuation allowancefor the United States (U.S.), United Kingdom (U.K.), Germany and China.  Income tax benefit for the three months ended September 27, 2008 was $9.0 million,comprised primarily of a tax benefit related to domestic operations, a taxexpense related to international operations and a tax benefit related to anincrease in state income tax credits.  Income tax expense for the six monthsended October 3, 2009 was $6.6 million, which is comprised primarily of a taxexpense related to domestic operations and international operations, a taxbenefit related to changes in the deferred tax asset valuation allowance forthe U.S., U.K., Germany, and China, and a tax expense related to finalizing theAdvance Pricing Agreement and related adjustments with China tax authoritiesfor calendar years 2006, 2007 and 2008.  Income tax benefit for the six monthsended September 27, 2008 was $26.1 million, which is comprised primarily of a taxbenefit related to domestic operations, a tax expense related to internationaloperations, and a tax benefit related to an increase in state income taxcredits.

 

The Company’s effective taxrate for the three month periods ended October 3, 2009 and September 27, 2008was 19.4% and 38.8%, respectively.  The Company's effective tax rate for thesecond quarter of fiscal 2010 differed from the statutory rate primarily due totax rate differences in foreign jurisdictions and adjustments to the valuationallowance limiting the recognition of the tax benefit of deferred tax assets inthe U.S., U.K., Germany, and China.  The Company's effective tax rate for thesecond quarter of fiscal 2009 differed from the income tax benefit calculatedon the basis of the statutory rate due to state tax credits, tax ratedifferences in foreign jurisdictions, adjustments to the valuation allowanceprimarily related to limiting the recognition of the tax benefit for domesticstate tax credits generated during the fiscal year, and other differencesbetween book and tax treatment of certain expenditures.  

 

The Company’s effective taxrate for the six month periods ended October 3, 2009 and September 27, 2008 was25.3% and 39.1%, respectively.  The Company's effective tax rate through thesecond quarter of fiscal 2010 differed from the statutory rate primarily due totax rate differences in foreign jurisdictions, settlement of the AdvancePricing Agreement adjustments for calendar years 2006, 2007 and 2008, andadjustments to the valuation allowance limiting the recognition of the taxbenefit of deferred tax assets in the U.S., U.K., Germany, and China.  TheCompany's effective tax rate through the second quarter of fiscal 2009 differedfrom the statutory rate due to the write-off of acquired in-process researchand development costs in connection with the UMC acquisition, state taxcredits, tax rate differences in foreign jurisdictions, adjustments to thevaluation allowance primarily related to limiting the recognition of the tax benefitfor domestic state tax credits generated during the fiscal year, and otherdifferences between book and tax treatment of certain expenditures. 

 

* *

* *

 

 

| 13 |
|----|

 

----

 

 

 

 

 

**RF MICRO DEVICES, INC. ANDSUBSIDIARIES**

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

(Unaudited)

 

 

**6.          INCOMETAXES (continued)**

 

 

*Deferred Taxes*

A valuation allowance of$136.1 million against deferred tax assets has been established as of the endof the second quarter of fiscal 2010 as it is management’s opinion that it ismore likely than not that a portion of the deferred tax assets will not berealized.  The decrease from the $138.4 million valuation allowance as of theend of fiscal 2009 is primarily related to changes in the amount of U.S. and 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.

 

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 lossposition for the most recent three-year period.  The valuation allowance wasbased on a determination by the Company’s management that unsettledcircumstances existed with respect to a slowdown in demand from a high per-unitdollar content major customer and the significant impact that was expected tohave on near-term financial results.  These unsettled circumstances representednegative evidence that in management’s opinion required a continuation of thedomestic deferred tax 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 inconnection with changes in accounting for uncertain income tax positions.  Thebalance of $30.7 million consisted of a reversal of $31.6 million of thevaluation allowance based on the evaluation by management of the ability infuture years to realize the related domestic deferred tax assets and anincrease of $0.9 million recorded in connection with state credit deferred taxassets acquired in connection with the acquisition of Sirenza Microdevices, Inc. 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 thatexisted as of the end of fiscal 2007 was no longer applicable.  Based on actualactivity during the period, by the end of the first quarter of fiscal 2008 theCompany was able to better determine the impact of the slow-down in customerdemand from the high per-unit dollar content major customer and positiveevidence arose of actual increases in sales to other customers and thecommencement of volume production of the POLARIS® 3 RF solution.  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 other companies. 

 

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.

 

As of the end of the thirdquarter of fiscal 2009, the Company evaluated the ability to realize itsdeferred tax assets in future periods and increased the valuation allowance forthe deferred tax assets in the U.K, China, and the U.S. from $37.0 million asof the end of the prior quarter to $126.5 million.  This increase in thevaluation allowance during the third quarter of fiscal 2009 was due to impairmentcharges incurred during the third quarter of fiscal 2009 that resulted in theCompany moving into a cumulative pre-tax loss for the most recent three-yearperiod, inclusive of the loss for the period ended December 27, 2008. Management determined that the negative evidence represented by the cumulativepre-tax loss that arose during the third quarter of fiscal 2009 required anincrease in the valuation allowance 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. 

 

 

| 14 |
|----|

 

----

 

 

 

 

 

**RF MICRO DEVICES, INC. ANDSUBSIDIARIES**

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

(Unaudited)

 

 

**6.          INCOMETAXES (continued)**

 

As of the end of fiscal 2009,the valuation allowance against deferred tax assets had increased by $99.6million from $38.8 million as of the end of fiscal 2008 to $138.4 million. This increase was comprised of: a $0.2 million increase related to state taxcredits and net operating loss carryovers acquired in the Sirenza transactionwhich were not realizable as of the acquisition date and which increase wasrecorded in goodwill; increases of $90.8 million related to U.S. deferred taxassets, $1.8 million related to China deferred tax assets, and $14.1 millionrelated to U.K. deferred tax assets for which there was a change in judgmentabout the realizability of the deferred tax assets during fiscal 2009 and whichincreases were recorded as an income tax expense during the fiscal year; a $0.3million increase related to the tax benefit of employee stock compensationwhich was recorded in equity during the fiscal year; and a $7.6 milliondecrease related to the impact from the change in the exchange rate for theBritish pound on the valuation allowance for U.K. deferred tax assets existingas of the beginning of the fiscal year, which amount was offset by a corresponding decrease in the U.S. dollar denominated amount of the relatedU.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*

The Company’s gross unrecognizedtax benefits increased from $29.5 million as of the end of fiscal 2009 to $30.5million as of the end of the second quarter of fiscal 2010, with the increaseprimarily related to tax positions taken during the current fiscal year.  Inaddition, there was a decrease in gross unrecognized tax benefits of $0.2million (plus $0.1 million of accrued interest) during the second quarter fromexpiration of statutes of limitations in locations where tax contingencies wererecorded in prior years and $0.6 million (plus $0.3 million of accruedinterest) during the first quarter of fiscal 2010 for China tax uncertaintiesthat were settled in connection with the finalization of the Advance PricingAgreement and related adjustments for calendar years 2006, 2007 and 2008.

 

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 2004 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 subsidiarylocated in Germany.  The plan is unfunded with an unfunded obligation ofapproximately $2.9 million and $2.6 million at October 3, 2009 and March 28,2009, respectively.   The service andinterest cost components of the net periodic benefit cost totaled approximately$0.1 million for both the three and six months ended October 3, 2009 and thethree and six months ended September 27, 2008.

 

 

 

 

 

 

 

| 15 |
|----|

 

----

 

 

 

 

 

**RF MICRO DEVICES, INC. ANDSUBSIDIARIES**

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

(Unaudited)

 

 

**8.          NEW ACCOUNTINGPRONOUNCEMENTS**

In June 2009, the FASB approved the “*FASB Accounting StandardsCodification*” (“Codification”) as the single source of authoritativenongovernmental U.S. GAAP.  The Codification, which was launched on July 1,2009, does not change current U.S. GAAP, but is intended to simplify useraccess to all authoritative U.S. GAAP by providing all the authoritativeliterature related to a particular topic in one place.  All existing accountingstandard documents are superseded and all other accounting literature notincluded in the Codification is considered non-authoritative.  The Codificationwas effective for the Company for the period ended October 3, 2009, and didnot have an impact on the Company’s financial condition or results ofoperations.  We have incorporated the Codification into our references in this QuarterlyReport on Form 10-Q.    

** **

**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.  

 

TheCompany recorded restructuring charges of approximately $0.5 million and $2.3million for the three and six months ended October 3, 2009, respectively,related to one-time employee termination benefits, impaired assets (includingproperty and equipment totaling $0.8 million for the six months ended October3, 2009) and lease and other contract termination costs.  The restructuringcharges were recorded in “other operating expense.”  In addition, as a resultof this restructuring, the Company has $0.8 million of property and equipmentthat is classified as held for sale as of October 3, 2009.  During the threeand six months ended October 3, 2009, the Company recognized a gain of $0.1million 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 six monthsended October 3, 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              |                                                | 1,291          |                    |       | 755                                       |       |      | 237  |   |   | 2,283  |
| Cash payments                                                                       |                                                | (2,899)             |                    |       | -                               |       |      | (812) |   |   | (3,711) |
| Non-cash settlement                                                                 |                                                | -    |                    |       | (755)                                          |       |      | -    |   |   | (755) |
| Accrued restructuring  balance as        of October 3, 2009     | $                                                   | 299            |                    | $          | -                               |       | $         | 10,331  |   | $ | 10,630  |
|                                                                      |                                                |                |                    |       |                                           |       |      |   |   |   |   |

 

Thecurrent and long-term restructuring obligations totaling $10.6 million areincluded in “accrued liabilities” and “other long-term liabilities” in thecondensed consolidated balance sheet.

** **

** **

** **

** **

** **

| 16 |
|----|

 

----

 

 

 

**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   October 3, 2009** | ** ** | **Six Months Ended   October 3, 2009** | ** ** | **Future** | ** **  | **Total** |
|------------------------------------------------------------------------------------------------------------|-----------------|--------------|-----------------------------------------------|------------|---------------------------------------------|------------|------------|-------------|-----------|
| One-time employee              termination benefit costs | $               | 4,390   |                                          | $          | 298                                    |       | $          | 1,291  |      | $ | 385  |   | $ | 6,066  |
| Asset impairments                                                                                          |            | 51,432  |                                          |       | 72                                     |       |       | 755    |      |   | 200  |   |   | 52,387  |
| Lease and other contract        termination costs                                 |            | 11,292  |                                          |       | 92                                     |       |       | 237    |      |   | 4,670  |   |   | 16,199  |
| Total restructuring charges                                                                                | $               | 67,114  |                                          | $          | 462                                    |       | $          | 2,283  |      | $ | 5,255  |   | $ | 74,652  |
|                                                                                                       |            |         |                                          |       |                                        |       |       |        |      |   |   |   |   |   |

** **

Asof October 3, 2009, the restructuring related to the adverse macroeconomicbusiness environment is substantially completed.

 

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

 

Inthe first quarter of fiscal 2009, the Company initiated a restructuring toreduce or 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 $0.6million and $0.8 million for the three and six months ended October 3, 2009, and$17.1 million and $43.7 million for the three and six months ended September27, 2008, respectively, related to one-time employee termination benefits,impaired assets (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 $0.3 million of property and equipmentclassified as held for sale as of October 3, 2009.  During the three and sixmonths ended October 3, 2009, the Company recognized a loss of $0.6 million and$0.7 million on the sale of assets classified as held for sale, respectively.

** **

Thefollowing table summarizes restructuring activities associated with the fiscal2009 restructuring to reduce or eliminate the Company’s investment in wirelesssystems during the six months ended October 3, 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                          |                                                   | 5              |                    |       | 1,251                                         |       |      | 187  |   |   | 1,443  |
| Adjustments to expense*                                                              |                                                   | (33)                |                    |       | -                                   |       |      | (640) |   |   | (673) |
| Cash payments                                                                        |                                                   | (33)                |                    |       | -                                   |       |      | (760) |   |   | (793) |
| Non-cash settlement                                                                  |                                                   | -    |                    |       | (1,251)                                            |       |      |   |   |   | (1,251) |
| Accrued restructuring  balance as        of October 3, 2009 | $                                                      | -    |                    | $          | -                                   |       | $         | 1,947  |   | $ | 1,947  |
|                                                                                 |                                                   |                |                    |       |                                               |       |      |   |   |   |   |
| *Adjustments related to  finalizing certain contracts.                               |                                                   |                |                    |       |                                               |       |      |   |

 

Thecurrent and long-term restructuring obligations totaling $1.9 million areincluded in “accrued liabilities” and “other long-term liabilities” in thecondensed consolidated balance sheet. 

| 17 |
|----|

----

 

 

 

 

 

**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 chargesor adjustments to expense associated with the fiscal 2009 restructuring toreduce or eliminate the Company’s investment in wireless systems (inthousands):

** **
|                                                                       | **Fiscal 2009** | ** **   | **Three Months Ended   October 3, 2009** | ** ** | **Six Months  Ended   October 3, 2009** | ** ** | **Future** | ** **  | **Total** |
|----------------------------------------------------------------------------|-----------------|--------------|-----------------------------------------------|------------|-----------------------------------------|------------|------------|-------------|-----------|
| One-time employee        termination benefit costs     | $               | 9,023   |                                          | $          | 5                                  |       | $          | (28)        |      | $ | -    |   | $ | 8,995  |
| Asset impairments                                                          |            | 24,573  |                                          |       | 1,175                              |       |       | 1,251  |      |   | -    |   |   | 25,824  |
| Lease and other contract        termination costs |            | 13,473  |                                          |       | (571)                                   |       |       | (453)       |      |   | 1,622  |   |   | 14,642  |
| Total restructuring charges                                                | $               | 47,069  |                                          | $          | 609                                |       | $          | 770    |      | $ | 1,622  |   | $ | 49,461  |
|                                                                       |            |         |                                          |       |                                    |       |       |        |      |   |   |   |   |   |

** **

As of October 3, 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. 

 

** **

**  **

** **

** **

** **

** **

** **

** **

** **

** **

** **

** **

** **

** **

** **

** **

| 18 |
|----|

 

----

 

 

 

 

 

**RF MICRO DEVICES, INC. ANDSUBSIDIARIES**

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

(Unaudited)

** **

 

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

*** ***

***Investments***

As of October 3, 2009 andMarch 28, 2009, available-for-sale securities and trading securities wereincluded in the following captions in the Company’s Consolidated Balance Sheets(in thousands): 
| **Balance Sheet Caption**                                |   | **Available-for-sale investments** | ** ** | ** ** | **Trading securities** | ** ** | ** ** | **Cash**            | ** ** | ** ** | **October 3, 2009  Balance Sheet** |
|----------------------------------------------------------|--------|-----------------------------------------|------------|------------|------------------------|------------|------------|---------------------|------------|------------|------------------------------------|
| Cash and cash equivalents                                | $      | 41,560                             |       | $          |                   |       | $          | 75,107         |       | $          | 116,667                       |
| Restricted cash and trading    security investments |   | -                        |       |       | 17,769            |       |       | 1,280          |       |       | 19,049                        |
| Short-term investments                                   |   | 223,344                            |       |       | -       |       |       | -    |       |       | 223,344                       |
| Long-term investments                                    |   | 2,175                              |       |       | -       |       |       | -    |       |       | 2,175                         |
|    Total                                       | $      | 267,079                            |       | $          | 17,769            |       | $          | 76,387         |       | $          | 361,235                       |
|                                                     |   |                                    |       |       |                   |       |       |                |       |       |                               |

 
| **Balance Sheet Caption** |   | **Available-for-sale investments** | ** ** | ** ** | **Trading securities** | ** ** | ** ** | **Cash**            | ** ** | ** ** | ** 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 October 3, 2009, and March 28, 2009 (inthousands):

 
|                              | **Available-for-Sale Securities** |
|-----------------------------------|-----------------------------------|
|                              |                              | **Cost** | ** ** | ** ** | **Gross   Unrealized Gains** | ** ** | ** ** | **Gross   Unrealized Losses** | ** ** | ** ** | **Estimated   Fair Value** |
| **October 3, 2009**               |                              |   |   |   |   |   |   |   |   |   |   |
| U.S. government/agency securities | $                                 | 239,215  |   | $ | 124  |   | $ | -    |   | $ | 239,339  |
| Auction rate securities           |                              | 2,175  |   |   | -    |   |   | -    |   |   | 2,175  |
| Money market funds                |                              | 25,565  |   |   | -    |   |   | -    |   |   | 25,565  |
|                              | $                                 | 266,955  |   | $ | 124  |   | $ | -    |   | $ | 267,079  |
| **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 October3, 2009, and March 28, 2009.  We determine the cost of an investment sold basedon the specific identification method.

 

No realized gains or losseson available-for-sale securities were included in earnings in the first sixmonths of fiscal 2010.  

 

For the three months endedSeptember 27, 2008, $0.7 million of gross realized losses and $0.3 million ofgross realized gains were included in earnings, and for the six months endedSeptember 27, 2008, $0.8 million of gross realized losses and $0.3 million of grossrealized gains were included in earnings.

** **

** **

** **

** **

| 19 |
|----|

 

----

 

 

 

 

 

**RF MICRO DEVICES, INC. ANDSUBSIDIARIES**

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

(Unaudited)

 

 

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

 

The amortized cost ofavailable-for-sale investments in debt securities with contractual maturitiesis as follows (in thousands):

 
|                                         | **October 3, 2009** |                | **March 28, 2009** |
|----------------------------------------------|---------------------|---------------------|--------------------|
|                                         |                | **Cost**            | ** **         | ** ** | **Estimated   Fair Value** | ** ** | ** ** | **Cost** | ** ** | ** ** | **Estimated  Fair Value** |
| Due in less than one year                    | $                   | 264,780        |               | $ | 264,904  |   | $ | 196,225  |   | $ | 196,284  |
| Due after one year through  five years       |                | -    |               |   | -    |   |   | -    |   |   | -    |
| Due after ten years                          |                | 2,175          |               |   | 2,175  |   |   | 2,200  |   |   | 2,200  |
|   Total investments in debt  securities | $                   | 266,955        |               | $ | 267,079  |   | $ | 198,425  |   | $ | 198,484  |
|                                         |                |                |               |   |   |   |   |   |   |   |   |

No available-for-saleinvestments were in a continuous unrealized loss position as of October 3,2009.  The available-for-sale investments in fiscal 2009 that were in acontinuous unrealized loss position for less than 12 months consisted of U.S.government/agency securities and amounted to less than $0.1 million as of March28, 2009.  No available-for-sale investments were in a continuous unrealizedloss position for 12 months or greater as of October 3, 2009 and March 28,2009.

 

***Fair Value of FinancialInstruments***

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

 

The FASB Codification specifiesa hierarchy of valuation techniques based on whether the inputs to those valuationtechniques are observable or unobservable.  Observable inputs reflect marketdata obtained from independent sources, while unobservable inputs reflect theCompany’s market assumptions.  These two types of inputs have created thefollowing fair-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. 

 

* *

* *

* *

* *

* *

* *

* *

* *

* *

* *

* *

* *

* *

| 20 |
|----|

 

----

 

 

 

 

**RF MICRO DEVICES, INC. ANDSUBSIDIARIES**

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

(Unaudited)

 

 

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

 

*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 October 3, 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)** |
|-----------------------------------|--------|---------------|------------|------------|-----------------------------------------------------------------------------|------------|------------|---------------------------------------------------------|------------|------------|---------------------------------------------------|
| U.S. Government/agency securities | $      | 239,339  |       | $          | 239,339                                                                |       | $          | -                                        |       | $          | -                                            |
| Auction rate securities           |   | 19,944   |       |       | -                                                            |       |       | 2,175                                              |       |       | 17,769                                       |
| Put option                        |   | 2,331    |       |       | -                                                            |       |       | -                                        |       |       | 2,331                                        |
| Money market funds                |   | 25,565   |       |       | 25,565                                                                 |       |       | -                                        |       |       | -                                            |
|                              | $      | 287,179  |       | $          | 264,904                                                                |       | $          | 2,175                                              |       | $          | 20,100                                       |
|                              |   |          |       |       |                                                                        |       |       |                                                    |       |       |                                              |

 

During the threemonths ended October 3, 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 June 27,  2009                                                                                    | $      | 17,741                      |       | $          | 2,709          |
|     Unrealized gain (loss)  included in          other (expense) income |   | 378                         |       |       | (378)               |
|     Settlement of ARS                                                                                 |   | (350)                            |       |       | -    |
| Level 3 balance at October  3, 2009                                                                                  | $      | 17,769                      |       | $          | 2,331          |
|                                                                                                                 |   |                             |       |       |                |

During the sixmonths ended October 3, 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 gain (loss)  included in          other (expense) income |   | 186                         |       |       | (186)               |
|     Settlement of ARS                                                                                 |   | (400)                            |       |       | -    |
| Level 3 balance at October  3, 2009                                                                                  | $      | 17,769                      |       | $          | 2,331          |
|                                                                                                                 |   |                             |       |       |                |

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 conditions in the globalcredit markets have prevented some investors from liquidating their holdings ofARS because the amount of securities submitted for sale has exceeded the amountof purchase orders for such securities.  If there is insufficient demand forthe securities at the time of an auction, the auction may not be completed andthe interest rates may be reset to predetermined higher rates.  When auctionsfor these securities fail, the investments may not be readily convertible tocash until a future auction of these investments is successful or they areredeemed or mature.  

  

| 21 |
|----|

 

----

 

 

 

 

 

**RF MICRO DEVICES, INC. ANDSUBSIDIARIES**

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

(Unaudited)

 

 

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

* *

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 not liquidand the interest rate on such securities has been reset to a predeterminedhigher rate.  Insufficient demand for certain ARS may continue.  Inthe second quarter of fiscal 2009, the securities firm from which the Companypurchased all of its level 3 ARS announced a settlement with the SEC andvarious state regulatory agencies under which the securities firm agreed torestore liquidity to certain clients holding ARS.  In accordance with thissettlement, the securities firm has agreed to offer the Company the right tosell its outstanding level 3 ARS to the securities firm at par value (i.e., theface amount), plus accrued but unpaid dividends or interest, at any time duringthe period of June 30, 2010, through July 2, 2012.  In addition, the securitiesfirm has agreed to provide the Company with a “no net cost” credit line of upto 75% of the market value of its outstanding level 3 ARS pending thesecurities 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 in order to mitigate volatility in earnings caused byaccounting for the put option and underlying ARS under different methods.  TheCompany determined the fair value of the settlement option using aprobability-weighted cash flow analysis with varying assumptions for the amountand timing of potential cash flows.  As of October 3, 2009, the put option hada fair value of $2.3 million, which is recorded in “other current 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 its Condensed Consolidated BalanceSheet as of October 3, 2009 as these ARS securities are pledged as collateralfor 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 October 3, 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. 

* *

*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 three and sixmonths ended October 3, 2009, the Company recorded an impairment of $0.5million and $0.6 million of certain property and equipment.  The fair value ofthese impaired assets was estimated to be $0.3 million using a significantLevel 3 unobservable input (market valuation approach).  The market valuationapproach uses prices and other relevant information generated primarily byrecent market transactions involving similar or comparable assets, as well asthe 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 the fair value in its Notes to the  Condensed Consolidated Financial Statements.* *As of October 3, 2009,  the carrying values of the Company’s convertible subordinated notes  approximated fair value (see Note 5 to the Condensed Consolidated Financial  Statements). 

|  22 |
|----------|

 

----

 

 

 

 

 

**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, estimatesand goals.  Statements expressing expectations regarding our future andprojections relating to products, sales, revenues and earnings are typical ofsuch statements and are made under the Private Securities Litigation Reform Actof 1995.  Words such as “expect,” “anticipate,” “intend,” “plan,” “believe,”and “estimate,” and variations of such words and similar expressions, identifysuch forward-looking statements.  Our business is subject to numerous risks anduncertainties, 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 thereduced investment in our wireless systems business, including cellulartransceivers 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;

•        The risks associated with the developmentand qualification of new compound semiconductor process technologies;

•        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 to     shorten 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; 

| 23 |
|----|

 

----

 

 

 

 

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

•        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;      and

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

 

These and other risks anduncertainties, which are described in more detail in our most recent AnnualReport on Form 10‐K and in other reports and statements that we file withthe Securities and Exchange Commission, could cause the actual results anddevelopments to be materially different from those expressed or implied by anyof these forward-looking statements.  Forward-looking statements speak only asof the date they were made and we undertake no obligation to update or revisesuch statements, except as required by the federal 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 semiconductor technologies.  Our products enable worldwide mobility,provide enhanced connectivity and support advanced functionality in thecellular handset, 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**

 

Therehave been no material changes to our critical accounting policies and estimatesfrom the information provided in Item 7, "Management's Discussion andAnalysis of Financial Condition and Results of Operations," included inour Annual Report on Form 10-K for the fiscal year ended March 28, 2009. 

**SECONDQUARTER FISCAL 2010 FINANCIAL HIGHLIGHTS:**

 

• Quarterly revenue decreased by 6.2% ascompared to the corresponding quarter of fiscal 2009.  Sales of our cellularproducts increased year-over-year driven primarily by customer diversificationand increased demand for our 3G front-end products.  These were offset by year-over-yeardeclines in demand for our 2G front-end products, CATV line amplifiers andwireless infrastructure products.  The second quarter of fiscal 2010 contained14 weeks as compared to 13 weeks for the second quarter of fiscal 2009.

 

• Operating income was $24.1 million forthe second quarter of fiscal 2010 as compared to an operating loss of $19.0 millionfor the corresponding quarter of fiscal 2009.  In the second quarter of fiscal2009, we recorded $17.1 million of restructuring charges related to thereduction of our investment in wireless systems, including cellulartransceivers and GPS solutions.  The strategic and economic restructurings offiscal 2009 have generated significant cost reductions and contributed to ourimprovement in operating income in the second quarter of fiscal 2010.  Thesecost reductions included both cost of sales and operating expense improvements.

 

• Gross margin for the quarter was 35.9% as comparedto 28.3% in the corresponding quarter of fiscal 2009.  The improvement in grossmargin reflected our reduced cost structure and the continued introduction ofnew higher margin products.  These were offset partially by reduced demand formulti-market products, increased demand of lower margin cellular products, includingtransceivers, and erosion in average selling prices.

 

| 24 |
|----|

 

----

 

 

 

 

 

• Cash flow from operations was $47.2 millionfor the second quarter of fiscal 2010 as compared to $39.6 million in thecorresponding quarter of fiscal 2009.  This increase is primarily attributableto improved profitability resulting from the strategic and economicrestructuring efforts.  In addition, cash payments related to these restructuringstotaled approximately $1.8 million in the second quarter of fiscal 2010compared to $8.2 million in the second quarter of fiscal 2009.  

 

• Inventory totaled $117.9 million atOctober 3, 2009, reflecting 5.1 turns as compared to $165.5 million and 4.7turns at September 27, 2008.    

The following table presents a summary of our results of operations for thethree and six months ended October 3, 2009 and September 27, 2008:

 
| ** **                               | **Three Months Ended** | ** **    | ** **       | ** **  |                     |
|------------------------------------------|------------------------|---------------|------------------|-------------|--------------------------|
| ** **                               | **October 3,   2009**  | ** **    | **% of Revenue** | ** **  | **September 27,   2008** | ** ** | **% of Revenue** | ** ** | **Increase (Decrease)** | **Percentage  Change** |   |
| (In thousands, except  percentages)      |                   |          |             |        |                     |   |   |   |   |   |   |
|                                     |                   |          |             |        |                     |   |   |   |   |   |   |
| Revenue                                  |  $                | 254,757  |             | 100.0  | %                        |  $ | 271,669  |   | 100.0  | % |  $ | (16,912) | (6.2) | % |
|    Cost of goods sold          | 163,208           |          | 64.1        |        | 194,901             |   | 71.7  |   | (31,693) | (16.3) |   |
|    Research and development    | 34,846            |          | 13.7        |        | 45,063              |   | 16.6  |   | (10,217) | (22.7) |   |
|    Marketing and selling       | 14,741            |          | 5.8         |        | 17,153              |   | 6.3  |   | (2,412) | (14.1) |   |
|    General and  administrative | 16,721            |          | 6.5         |        | 15,781              |   | 5.8  |   | 940  | 6.0  |   |
|    Other operating expense     | 1,114             |          | 0.4         |        | 17,816              |   | 6.6  |   | (16,702) | (93.7) |   |
| Operating income (loss)                  |  $                | 24,127   |             | 9.5    | %                        |  $ | (19,045) |   | (7.0) | % | 43,172  | 226.7  |   |
|                                     |                   |          |             |        |                     |   |   |   |   |   |   |
|                                     | **Six Months Ended**   | ** **    | ** **       | ** **  |                     |
|                                     | **October 3,   2009**  | ** **    | **% of Revenue** |        | **September 27,   2008** | ** ** | **% of Revenue** | ** ** | **Increase   (Decrease)** | **Percentage  Change** |   |
| (In thousands, except percentages)       | ** **             | ** **    | ** **       |        |                     |   |   |   |   |   |   |
|                                     |                   |          |             |        |                     |   |   |   |   |   |   |   |   |   |
| Revenue                                  |  $                | 467,297  |             | 100.0  | %                        |  $ | 512,161  |   | 100.0  | % |  $ | (44,864) | (8.8) | % |
|    Cost of goods sold          | 301,746           |          | 64.6        |        | 363,063             |   | 70.9  |   | (61,317) | (16.9) |   |
|    Research and development    | 70,479            |          | 15.1        |        | 96,417              |   | 18.8  |   | (25,938) | (26.9) |   |
|    Marketing and selling       | 28,310            |          | 6.1         |        | 35,675              |   | 7.0  |   | (7,365) | (20.6) |   |
|    General and  administrative | 27,933            |          | 6.0         |        | 28,839              |   | 5.6  |   | (906) | (3.1) |   |
|    Other operating expense     | 2,650             |          | 0.5         |        | 46,915              |   | 9.2  |   | (44,265) | (94.4) |   |
| Operating income (loss)                  |  $                | 36,179   |             | 7.7    | %                        |  $ | (58,748) |   | (11.5) | % | 94,927  | 161.6  |   |
|                                     |                   |          |             |        |                     |   |   |   |   |   |   |

 

**REVENUE**

Our revenue decreased during the three andsix months ended October 3, 2009, as compared to the corresponding periodsof fiscal 2009.  Sales of our cellular products increased year-over-year drivenprimarily by customer diversification and increased demand for our 3G front-endproducts.  These were offset by year-over-year declines in demand for our 2G front-endproducts, CATV line amplifiers and wireless infrastructure products.  Thesecond quarter of fiscal 2010 contained 14 weeks as compared to 13 weeks forthe second quarter of fiscal 2009.  

 

International shipments(based on the "bill to" address of the customer) were $215.5 millionand accounted for 84.6% of revenue for the three months ended October 3, 2009,compared to $220.0 million or 81.0% of revenue for the three months ended September27, 2008.  For the six months ended October 3, 2009, international shipmentswere $397.0 million, or 85.0% of revenue, compared to $409.8 million, or 80.0%of revenue, for the six months ended September 27, 2008.

** **

****

| 25 |
|----|

 

----

 

 

 

**OPERATING INCOME (LOSS) **

 

Operatingincome was approximately $24.1 million and $36.2 million for the three and six monthsended October 3, 2009, respectively, compared to an operating loss of $19.0million and an operating loss of $58.7 million for the three and six monthsended September 27, 2008, respectively.  The strategic and economicrestructurings of fiscal 2009 generated significant cost reductions and arecontributing to our improvement in operating income in fiscal 2010 (see Note 9to the Condensed Consolidated Financial Statements).  These cost reductionsincluded both cost of sales and operating expense improvements.  During the threeand six months ended September 27, 2008, we recorded $17.1 million and $43.7million, respectively, of expenses associated with the strategic restructuring. Also during fiscal 2009, we recorded acquisition-related charges (such as amortizationexpense for inventory step-up and acquired intangibles) resulting from ouracquisitions of Sirenza in the third quarter of fiscal 2008, Filtronic in thefourth quarter of fiscal 2008, and UMC in the first quarter of fiscal 2009.    

***Cost of Goods Sold ***

Ourcost of goods sold for the three and six months ended October 3, 2009 decreased$31.7 million and $61.3 million, respectively, as compared to the correspondingperiods of fiscal 2009, primarily due to the cost savings initiatives resultingfrom the fiscal 2009 restructuring activities as well as decreased revenue andimproved pricing on externally-sourced raw materials.  

*** ***

***Research and Development***

The decrease in research and development expenses forthe three and six months ended October 3, 2009 was primarily due to thedecrease in headcount and related personnel expense due to the recentrestructurings.  

*** ***

***Marketing and Selling***

The decrease in marketing and selling expenses for thethree and six months ended October 3, 2009 was primarily due to the decrease inheadcount and related personnel expense due to the recent restructurings.  Inaddition, marketing and selling expense decreased as a result of lowerintangible amortization expense for the three and six months ended October 3,2009 as compared to the corresponding periods of fiscal 2009, due to theimpairment of certain customer relationship intangibles during the thirdquarter of fiscal 2009.   

####  

***General and Administrative***

The increase in general and administrative expensesfor the three months ended October 3, 2009 was primarily due to an increase inshare-based compensation.

 

The decrease in general and administrative expense forthe six months ended October 3, 2009 was due to the decrease in headcount andrelated personnel expense and other administrative costs associated with therecent restructurings.  The decrease was partially offset by an increase inshare-based compensation.  

***Other Operating Expense***During the third quarter offiscal 2009, we initiated a restructuring to reduce manufacturing capacity andcosts and operating expenses due primarily to lower demand for our productsresulting from the global economic slowdown.  We outsourced certain non-coremanufacturing operations and consolidated our Shanghai test and assembly operationswith our primary test and assembly facility in Beijing, China.  The restructuring resulted in the impairment of certain property and equipment, among othercharges.  We recorded restructuring charges of approximately $0.5 million and$2.3 million for the three and six months ended October 3, 2009, respectively, relatedto one-time employee termination expenses, impaired assets (including propertyand equipment totaling $0.8 million for the six months ended October 3, 2009)and lease and other contract termination costs.  

 

Fromthe third quarter of 2009 through the second quarter of fiscal 2010, weincurred a total of $69.4 million in restructuring charges related to thisplan.  As of October 3, 2009, we expect to record approximately $5.3 million ofadditional restructuring charges associated with ongoing expenses related toexited leased facilities, asset impairments, and one-time employee termination expenses,for a total expected cost of $74.7 million.  As of October 3, 2009, therestructuring related to the adverse macroeconomic business environment issubstantially completed  (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 have consolidated our production test facilities in order toreduce cycle time, better serve our customer base and improve our overallprofitability.  We have recorded restructuring charges of approximately $0.6million and $0.8 million for the three and six months ended October 3, 2009,and $17.1 million and $43.7 million for the three and six months ended September27, 2008, respectively, related to one-time employee termination expenses,impaired assets (including property and equipment) and lease and other contracttermination costs.   From the first quarter of fiscal 2009 through the secondquarter of 2010, we incurred a total of $47.8 million in restructuring chargesrelated to this plan.  As of October 3, 2009, we expect to record approximately$1.6 million of additional restructuring charges associated with ongoingexpenses related to exited leased facilities and one-time employee termination expenses,for a total expected cost of approximately $49.5 million.  As of October 3,2009, the restructuring to reduce or eliminate our investments in wirelesssystems is substantially completed (see Note 9 to the Condensed ConsolidatedFinancial Statements). 

 

| 26 |
|----|

 

----

 

 

 

 

 

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 (see Note 10 to theCondensed Consolidated Financial Statements).

 

**OTHER (EXPENSE) INCOME AND INCOME TAXES**

*** ***
|                                                                 |   | **Three Months Ended** | ** ** | ** ** | **Six Months Ended**   |
|----------------------------------------------------------------------|--------|------------------------|------------|------------|------------------------|
| (In thousands)                                                       |   | **October 3, 2009**    | ** ** | ** ** | **September 27, 2008** | ** ** | ** ** | **October 3, 2009** | ** ** | ** ** | **September 27, 2008** |
| Interest expense (1)                                                 | $      | (6,260)                |       |  $    | (6,588)                |   |  $ | (12,674) |   |  $ | (13,014) |
| Interest income                                                      |   | 302               |       |       | 1,447             |   |   | 746  |   |   | 3,386  |
| Gain on retirement of  convertible      subordinated notes |   | -       |       |       | -       |   |   | 1,949  |   |   | -    |
| Other (expense) income                                               |   | (89)                   |       |       | 941               |   |   | (266) |   |   | 1,511  |
| Income tax (expense)  benefit (1)                                    |   | (3,501)                |       |       | 9,018             |   |   | (6,571) |   |   | 26,113  |

*** ***

(1) Interest expense andincome tax (expense) benefit for the three and six months ended September 27,2008, have been adjusted as a       result of the retrospective adoption of FSP APB 14-1 (now codified asFASB ASC 470-20).  See Note 5 to the Condensed       Consolidated Financial Statements for further discussion.

*** ***

***Interest Expense***Interest expense remained consistentfor the three and six months ended October 3, 2009, as compared to the threeand six months ended September 27, 2008.  

***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 original principalamount of the Notes, which resulted in a gain of approximately $1.9 million.

*** ***

***Other (Expense) Income***

Theincrease in other expense for the three and six months ended October 3, 2009 isprimarily related to the foreign currency exchange rate impact on our Renminbi,Euro and Sterling denominated accounts as the balances change and the exchangerates fluctuate in relation to the U.S. dollar.  This increase in expense waspartially offset by decreases in investment losses and other miscellaneousexpenses.

*** ***

***Income Taxes***

Our provision for incometaxes for the reporting period ended October 3, 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 thereporting period ended September 27, 2008, we computed our provision for incometaxes limiting the tax benefit recognized to the amount determined by treatingour year-to-date “ordinary” loss as the anticipated “ordinary” loss for thefiscal year.  We applied this provision as the year-to-date “ordinary” lossexceeded the anticipated “ordinary” loss for the fiscal year.

 

Income tax expense for thethree months ended October 3, 2009, was $3.5 million, which is comprisedprimarily of a tax expense related to domestic and international operations anda tax benefit related to changes in the deferred tax asset valuation allowancefor the U.S., U.K., Germany, and China.  Income tax benefit for the threemonths ended September 27, 2008 was $9.0 million, comprised primarily of a taxbenefit related to domestic operations, a tax expense related to internationaloperations, and a tax benefit related to an increase in state income taxcredits.  Income tax expense for the six months ended October 3, 2009 was $6.6million, which is comprised primarily of a tax expense related to domesticoperations and international operations, a tax benefit related to changes inthe deferred tax asset valuation allowance for the U.S., U.K., Germany, andChina, and a tax expense related to finalizing the Advance Pricing Agreementand related adjustments with China tax authorities for calendar years 2006,2007 and 2008.  Income tax benefit for the six months ended September 27, 2008was $26.1 million, which is comprised primarily of a tax benefit related todomestic operations, a tax expense related to international operations, and atax benefit related to an increase in state income tax credits.

 

| 27 |
|----|

 

----

 

 

 

 

 

As of the end of thereporting period ended October 3, 2009, we evaluated the realizability of ourdeferred tax assets and provided a valuation allowance against our deferred taxassets in the U.K., China, Germany, and the U.S. after management determinedthat it is “more likely than not” that those deferred tax assets will not berealized.  The valuation allowance for deferred tax assets decreased from$138.4 million as of the end of fiscal 2009 to $136.1 million as of the end ofthe second quarter of fiscal 2010.  This decrease in the deferred tax assetvaluation allowance was related to changes in the amount of U.S. and U.K. deferred tax assets.

 

At March 31, 2007, we hadrecorded a $51.4 million valuation allowance with respect to the domesticdeferred tax asset to the extent that realization of domestic federal and statedeferred tax assets was not supported by reversals of existing taxable temporarydifferences or taxable income in prior carry back years to the extent allowedby the applicable taxing jurisdictions.  As of the end of fiscal 2007, we wereno longer in a cumulative domestic pre-tax loss position for the most recentthree-year period.  The valuation allowance was based on a determination by ourmanagement that unsettled circumstances existed with respect to a slowdown indemand from a high per-unit dollar content major customer and the significantimpact that was expected to have on near-term financial results.  Theseunsettled circumstances represented negative evidence that in management’sopinion required a continuation of the domestic deferred tax asset valuationallowance 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 inconnection with the adoption of changes in accounting for uncertain income taxpositions.  The balance of $30.7 million 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 million recorded in connection with state credit deferredtax assets acquired in connection with the Sirenza acquisition.  The $31.6million reversal was based on the determination by management that as of theend of the first quarter of fiscal 2008, the negative evidence that existed asof the end of fiscal 2007 was no longer applicable.  Based on actual activityduring the period, by the end of the first quarter we were able to betterdetermine the impact of the slow-down in customer demand from the high per-unitdollar content major customer and positive evidence arose of actual increasesin sales to other customers and the commencement of volume production of thePOLARIS® 3 RF solution.  The amount reversed consisted of $20.7 millionrecognized as an income tax benefit, $4.8 million reversed against equityrelated to the tax benefit of employee stock options, and $6.1 million reversedagainst goodwill related to the tax benefit of net operating losses, creditsand deductions acquired from other companies.  The majority of the subsequentincrease in the valuation allowance to $38.8 million as of the end of fiscal2008 consisted of $3.4 million recorded in connection with the Sirenzaacquisition during the third quarter of fiscal 2008 and $27.0 million recordedin connection with the Filtronic acquisition during the fourth quarter offiscal 2008.

 

As of the end of the thirdquarter of fiscal 2009, we evaluated the ability to realize our deferred taxassets in future periods and increased the valuation allowance for the deferredtax assets in the U.K., China, and the U.S. from $37.0 million as of the end ofthe prior quarter to $126.5 million.  This increase in the valuation allowanceduring the third quarter of fiscal 2009 was due to impairment charges incurredduring the third quarter of fiscal 2009 that resulted in our moving into acumulative pre-tax loss for the most recent three-year period, inclusive of theloss for the period ended December 27, 2008.  Management determined that thenegative evidence represented by the cumulative pre-tax loss that arose duringthe third quarter of fiscal 2009 required an increase in the valuationallowance to the extent that realization of these deferred tax assets was not supportedby reversals of existing taxable temporary differences or taxable income inprior carry back years, to the extent allowed by the applicable taxingjurisdictions. 

 

As of the end of fiscal 2009,the valuation allowance against deferred tax assets had increased by $99.6million from $38.8 million as of the end of fiscal 2008 to $138.4 million. This increase was comprised of: a $0.2 million increase related to state taxcredits and net operating loss carryovers acquired in the Sirenza transactionwhich were not realizable as of the acquisition date and which increase wasrecorded in goodwill; increases of $90.8 million related to U.S. deferred taxassets, $1.8 million related to China deferred tax assets, and $14.1 millionrelated to U.K. deferred tax assets for which there was a change in judgmentabout the realizability of the deferred tax assets during fiscal 2009 and whichincreases were recorded as an income tax expense during the fiscal year; a $0.3million increase related to the tax benefit of employee stock compensationwhich was recorded in equity during the fiscal year; and a $7.6 milliondecrease related to the impact from the change in the exchange rate for theBritish pound on the valuation allowance for U.K. deferred tax assets existing asof the beginning of the fiscal year, which amount was offset by a correspondingdecrease in the U.S. dollar denominated amount of the related U.K. deferred taxassets.

 

We intend to maintain avaluation allowance until sufficient positive evidence exists to support itsfull or partial reversal.  The amount of the deferred tax assets actuallyrealized could vary depending upon the amount of taxable income we are able togenerate in the various taxing jurisdictions in which we have operations.

** **

** **

| 28 |
|----|

 

----

 

 

 

 

 

**NEW ACCOUNTINGPRONOUNCEMENTS**

 

In June 2009, the FASBapproved the “*FASB Accounting Standards Codification*” (“Codification”)as the single source of authoritative nongovernmental U.S. GAAP.  TheCodification, which was launched on July 1, 2009, does not change current U.S.GAAP, but is intended to simplify user access to all authoritative U.S. GAAP byproviding all the authoritative literature related to a particular topic in oneplace.  All existing accounting standard documents are superseded and all otheraccounting literature not included in the Codification is considered non-authoritative. The Codification was effective for us for the period ended October 3,2009, and did not have an impact on our financial condition or results ofoperations.  We have incorporated the Codification into our references in thisQuarterly Report on Form 10-Q.    

** **

#### 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 October 3, 2009, we had working capital ofapproximately $299.3 million, including $116.7 million in cash and cashequivalents, compared to working capital at September 27, 2008, of $472.4 million,including $169.3 million in cash and cash equivalents.  The decrease in theworking capital at October 3, 2009 as compared to September 27, 2008 is primarilydue to the reclassification of our convertible subordinated notes due on July1, 2010, totaling $206.5 million, to current debt from long-term debt.

 

The continued disruption inthe credit markets has had a significant adverse impact on a number offinancial institutions that provide capital, as well as on those customers andsuppliers that depend on borrowing such capital to fund their liquidityrequirements.  Because we rely primarily on cash on hand and cash generatedfrom operations to fund our business (as opposed to revolving credit or similarborrowing facilities), our liquidity has not been materially impacted by thecurrent credit environment and management does not expect that it will bematerially impacted during fiscal 2010.  Our management plans to continue toclosely monitor our liquidity and developments in the credit markets.  

 

***Cash Flows fromOperating Activities***Operating activities for the sixmonths ended October 3, 2009, generated cash of $83.6 million, compared to $36.7million for the six months ended September 27, 2008.  During the first sixmonths of fiscal 2010, our net income increased $60.1 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 half of fiscal2009, we recorded restructuring charges of $43.7 million compared to $3.1million in the first half of fiscal 2010.  Cash payments related to theserestructurings totaled approximately $4.5 million during the first six monthsof fiscal 2010 compared to $13.0 million in the first half of fiscal 2009.  

***Cash Flows from Investing Activities***

Net cash used in investing activities for the sixmonths ended October 3, 2009, was $131.3 million compared to net cash providedby investing activities of $2.0 million for the six months ended September 27,2008.  This increase was primarily due to the purchase of additionalinvestments in available-for-sale securities.  During the first six months offiscal 2010, capital expenditures totaled approximately $3.3 million, whichrepresents a decrease in capital spending of 91% as compared to $36.6 million ofcapital expenditures for the first six months of fiscal 2009.  

*** ***

***Cash Flows fromFinancing Activities***

Net cash used in financingactivities was $8.9 million for the six months ended October 3, 2009, comparedto net cash provided by financing activities of $0.9 million for the six monthsended September 27, 2008.  This increase in cash used in financing activitieswas primarily due to the cash repurchase of an aggregate of $10.0 million originalprincipal amount of the Notes, for $6.6 million in the first quarter of fiscal2010.

** **

**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 ofOctober 3, 2009, the outstanding balance of this loan totaled approximately $11.4million.

 

| 29 |
|----|

 

----

 

 

 

 

 

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 October 3, 2009, we were in compliance withour debt covenants.

 

*Convertible Debt* During April 2007, we completed the private placementof $200 million aggregate principal amount of 0.75% convertible subordinated notesdue 2012 and $175 million aggregate principal amount of 1.00% convertible subordinatednotes due 2014.  The net proceeds of the offering were approximately $366.2million after payment of the underwriting discount and expenses of the offeringtotaling approximately $8.8 million.  As of October 3, 2009, and September 27,2008, the 0.75% convertible notes had a fair value of $160.5 million (excludingthe notes that were repurchased) and $145.9 million, respectively.  The 1.00%convertible notes had a fair value of $117.4 million (excluding the notes thatwere repurchased) and $109.7 million as of October 3, 2009, and September 27,2008, 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 October 3, 2009, and September 27, 2008, the 1.50% convertiblesubordinated notes had a fair value of $202.6 million (excluding the notes thatwere repurchased) and $193.2 million, respectively.

 

In the first quarter offiscal 2010, we repurchased $7.8 million original principal amount ofconvertible subordinated notes due 2014 at an average price of $61.55, whichresulted in a gain of approximately $1.6 million.  In the first quarter offiscal 2010, we also repurchased $2.2 million original principal amount ofconvertible subordinated notes due 2012 at an average price of $78.56, whichresulted in a gain of approximately $0.3 million.

 

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 intoan agreement with the company that holds our level 3 ARS in which thesecurities firm will give us the right to sell our outstanding level 3 ARS tothe securities firm at par value (i.e., the face amount), plus accrued butunpaid dividends or interest, at any time during the period June 30, 2010through July 2, 2012.  We intend to sell our outstanding level 3 ARS to thesecurities firm on or about June 30, 2010.  Included in the agreement was theoption to take out a “no net cost” credit line (Credit Line Agreement), which meansthat the interest that we will pay on the credit line obligation will notexceed the interest 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 $17.8 million as of October 3, 2009. Pursuant to the terms and conditions of the Credit Line Agreement we may borrowup 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.  

 

Duringfiscal 2009, we executed on the Credit Line Agreement and drew up to the 75%stated limit, or $13.5 million as of October 3, 2009, as determined by thesecurities firm.  The credit line will become payable when the securities firmreceives the proceeds from purchases of our ARS.  As of October 3, 2009, thecredit line is recorded in short-term debt on our consolidated balance sheet. 

 

*Contractual Obligations  *Thefollowing table summarizes our convertible debt obligations, includinginterest, as of October 3, 2009, and the effect such obligations are expectedto have on our liquidity and cash flows in future periods.  Other than as setforth below, there have been no material changes outside the ordinary course ofbusiness to our contractual obligations and commitments as set forth in ourAnnual Report on Form 10-K for the fiscal year ended March 28, 2009.

 

 

 

 

 

| 30 |
|----|

 

----

 

 

 
| ** **                                                    | ** **    | ** **    | ** **   | **Payments Due By Period (in thousands)** |
|---------------------------------------------------------------|---------------|---------------|--------------|-------------------------------------------|
| ** **                                                    | ** **    | ** **    | ** **   | **Total**                                 | **Less than** | ** ** | ** ** | **More than** |
| ** **                                                    | **Par Value** | ** **    | **Payments** | **1 year**                                | **1-3 years** | **3-5 years** | **5 years** |
| Convertible subordinated  notes      due 2010* | $             | 207,000  |         | $                                         | 210,105  | $ | 210,105  | $ | -    | $ | -    | $ | -    |
| Convertible subordinated  notes      due 2012  |          | 197,748  |         |                                      | 202,197  |   | 1,483  |   | 200,714  |   | -    |   | -    |
| Convertible subordinated  notes      due 2014       |          | 134,901  |         |                                      | 141,646  |   | 1,349  |   | 2,698  |   | 137,599  |   |   |
| Total convertible debt                                        | $             | 539,649  |         | $                                         | 553,948  | $ | 212,937  | $ | 203,412  | $ | 137,599  | $ | -    |
|                                                          |          |          |         |                                      |   |   |   |   |   |   |   |   |   |

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

 

*Capital Commitments* At October 3, 2009, we had short-term capitalcommitments of approximately $1.6 million, primarily for equipmentreplacements, equipment for process improvements and general corporaterequirements.  

*Future Sources of Funding   *Ourfuture capital requirements may differ materially from those currentlyanticipated and will depend on many factors, including, but not limited to,volume pricing concessions, capital improvements, demand for our products,technological advances and our relationships with suppliers and customers. Based on current and projected levels of cash flow from operations, coupled withour April 2007 convertible note offering, our fiscal 2004 note offering and our$25.0 million equipment term loan, we believe that we have sufficient liquidityto meet both our short-term and long-term cash requirements.  The 1.50%convertible subordinated notes are due on July 1, 2010 (first quarter of fiscal2011) and we currently expect to retire them with cash on hand from operatingactivities.  However, if current economic conditions or other factorsmaterially reduce demand for our products, or in the event that growth isfaster than we had anticipated, operating cash flows may be insufficient tomeet our needs.  If existing resources and cash from operations are notsufficient to meet our future requirements or if we perceive conditions to befavorable, we may seek additional debt or equity financing, additional creditfacilities, enter into sale-leaseback transactions or obtain asset-basedfinancing.  We cannot be sure that any additional equity or debt financing willnot be dilutive to holders of our common stock.  Further, we cannot be surethat additional equity or debt financing, if required, will be available onfavorable terms, if at all, particularly given the current macroeconomicconditions.

** **

*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 six 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.

** **

**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.

 

| 31 |
|----|

----

 

 

 

 

**PART II - OTHERINFORMATION**

**ITEM 4.     SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS**

** **

At the Company’s Annual Meetingof Shareholders on July 29, 2009, shareholders elected each of the eightdirector nominees, approved the option exchange program and ratified theappointment of Ernst & Young LLP as the Company’s independent registeredpublic accounting firm for the 2010 fiscal year.  Pursuant to the optionexchange program, eligible employees were given the opportunity to exchangecertain of their outstanding stock options previously granted to them atexercise prices of $5.00 or greater for new options for a reduced number ofshares to be granted under the Company’s 2003 Stock Incentive Plan, as amended,after expiration of the option exchange program.  The option exchange programexpired on August 7, 2009 and new options were granted to validly participatingemployees on August 7, 2009.

Votes cast by ourshareholders at the meeting were as follows:1.  Election of Directors
| ** **                                                                                              | **Number of Shares**                             |
|---------------------------------------------------------------------------------------------------------|--------------------------------------------------|
| ** **                                                                                              | **Voted For**                                    | ** ** | **Withheld** |
| Walter  H. Wilkinson, Jr.              |       179,770,082       |   | 62,100,401 |
| Robert  A. Bruggeworth                                                                                  |        224,382,429 |   | 17,488,054 |
| Daniel  A. DiLeo                                                                                        |        179,739,284 |   | 62,131,199 |
| Jeffery   R. Gardner                                                                                    |        226,128,010 |   | 15,742,473 |
| John  R. Harding                                                                                        |        179,772,893 |   | 62,097,590 |
| Masood A. Jabbar                                                                                        |        230,901,113 |   | 10,969,370 |
| Casimir S. Skrzypczak                                                                                   |        225,919,010 |   | 15,951,473 |
| Erik H. van der Kaay                                                                                    |        224,575,478 |   | 17,295,005 |

 

2.  Option Exchange Program:
| **Shares Voted in Favor** | **Shares Voted Against** | **Shares Abstaining** | **Broker Non-Votes** |
|---------------------------|--------------------------|-----------------------|----------------------|
| 121,724,972               | 34,931,707               | 415,229               | 84,798,579           |

 

3.  Ratification ofappointment of Ernst & Young LLP:
| **Shares Voted in Favor** | **Shares Voted Against** | **Shares Abstaining** |
|---------------------------|--------------------------|-----------------------|
| 236,282,645               | 4,965,553                | 622,285               |

 

** **

** **

** **

** **

** **

** **

** **

** **

** **

** **

| 32 |
|----|

 

----

 

 

 

 

 

**ITEM 6.  EXHIBITS**

**  **
| 10.1       | Form of Stock Option  Agreement for Non-Senior Officer Employees pursuant to the 2003 Stock  Incentive Plan of RF Micro  Devices,  Inc., incorporated by reference to  Exhibit (a)(1)(xv) of Schedule TO-I filed by RF Micro Devices, Inc. on  July  10, 2009 *                                                            |
|------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|       |                                                                                                                                                                                                                                                                                                                            |
| 10.2       | Form of Stock Option  Agreement for Senior Officer Employees pursuant to the 2003 Stock Incentive  Plan of RF Micro  Devices,  Inc., incorporated by reference to Exhibit  (a)(1)(xxii) of Schedule TO-I filed by RF Micro Devices, Inc. on  July 10,  2009 *                                                              |
|       |                                                                                                                                                                                                                                                                                                                            |
| 10.3       | 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, incorporated by reference to Exhibit 10.8 to the  Quarterly Report  on Form 10-Q filed by RF Micro Devices, Inc. on August 6, 2009 * |
|       |                                                                                                                                                                                                                                                                                                                            |
| 10.4       | 2003 Stock Incentive Plan  of RF Micro Devices, Inc., as amended, incorporated by reference to Exhibit  99 to the  Registration Statement on Form S-8 filed by RF Micro Devices, Inc.  on August 6, 2009 (File No. 333-161126)*                                                                                                 |
|       |                                                                                                                                                                                                                                                                                                                            |
|  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 arrangement 

 

 

 

 

 

 

 

 

 

 

 

 

 

****

| 33 |
|----|

 

----

 

 

 

 

 

**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:  November 12, 2009

 
/s/ William A. Priddy, Jr.

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

 
Vice President of  Administration and Secretary  (Principal Financial Officer)

     

 

Date:  November 12, 2009

 
/s/ Barry D. Church

 Barry D. Church
 
Vice President and Corporate  Controller

 
(Principal Accounting  Officer)

 

 

34

 

 

 

 

 

 

 

**EXHIBIT INDEX**

** **

** **

10.1

Form of Stock Option  Agreement for Non-Senior Officer Employees pursuant to the 2003 Stock  Incentive Plan of RF Micro Devices, Inc., incorporated by reference to  Exhibit (a)(1)(xv) of Schedule TO-I filed by RF Micro Devices, Inc. on July  10, 2009 *

 

 

10.2

Form of Stock Option  Agreement for Senior Officer Employees pursuant to the 2003 Stock Incentive  Plan of RF Micro Devices, Inc., incorporated by reference to Exhibit  (a)(1)(xxii) of Schedule TO-I filed by RF Micro Devices, Inc. on July 10,  2009 *

 

 

10.3

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, incorporated by reference to Exhibit 10.8 to the Quarterly Report  on Form 10-Q filed by RF Micro Devices, Inc. on August 6, 2009 *

 

 

10.4

2003 Stock Incentive Plan  of RF Micro Devices, Inc., as amended, incorporated by reference to Exhibit  99 to the Registration Statement on Form S-8 filed by RF Micro Devices, Inc.  on August 6, 2009 (File No. 333-161126)*

 

 

 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 arrangement 

 

 

 

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

35

 

 

  |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|