| ** **

** **

**UNITED STATES**                                                                                  |
|----------------------------------------------------------------------------------------------------------------------------|
| **SECURITIES AND EXCHANGE COMMISSION**                                                                                     |
| **Washington, D.C. 20549**                                                                                                 |
|                                                                                                                       |   |
| **FORM 10-Q**                                                                                                              |
| (Mark One)                                                                                                                 |   |
| **[X]   QUARTERLY REPORT  PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**               |
| For the quarterly period ended January 2, 2010                                                                             |
|                                                                                                                       |
| or                                                                                                                         |
|                                                                                                                       |   |
| **[  ]  TRANSITION REPORT  PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934  ** |
| ** **                                                                                                                 | ** ** |
| For the transition period from_______ to_________                                                                          |
|                                                                                                                       |   |
| **Commission File Number 0-22511**                                                                                         |
|                                                                                                                       |   |
| **RF Micro  Devices, Inc.**  (Exact name of registrant as specified in its charter)                                        |
|                                                                                                                       |   |
| **North Carolina**  (State or other jurisdiction of  incorporation or organization)                                        | **56-1733461**  (I.R.S. Employer     Identification No.) |
|                                                                                                                       |   |
| **7628 Thorndike Road****Greensboro, North Carolina**(Address of principal executive  offices)                             | **27409-9421**(Zip Code) |
|                                                                                                                       |   |
| **(336) 664-1233**  (Registrant's telephone number, including area code)                                                   |

 

Indicate by check 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.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 February 5, 2010, there were 268,411,812 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 January 2, 2010

    and March 28, 2009                                    |  

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

    January 2, 2010 and December  27, 2008 |  

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

    January 2, 2010 and December  27, 2008  | 5          |
|              |                                                                                                                                                      |       |
|              |     Condensed Consolidated  Statements of Cash Flows for the nine months ended

    January 2, 2010 and December  27, 2008  |  

6  |
|              |                                                                                                                                                      |       |
|              |     Notes to Condensed  Consolidated Financial Statements                                                                                  | 7          |
|              |                                                                                                                                                      |       |
| **Item 2.**       | **Management's Discussion and  Analysis of Financial Condition and Results of Operations.**                                                               | 24         |
|              |                                                                                                                                                      |       |
| **Item 3.**       | **Quantitative and Qualitative  Disclosures About Market Risk.**                                                                                          | 33         |
| ** **        | ** **                                                                                                                                                |       |
| **Item 4.**       | **Controls and Procedures.**                                                                                                                              | 33         |
|              |                                                                                                                                                      |       |
| ** **        | ** **                                                                                                                                                | ** ** |
| **PART II -**     | **OTHER INFORMATION**                                                                                                                                     | ** ** |
| ** **        | ** **                                                                                                                                                | ** ** |
| **Item 6.**       | **Exhibits.**                                                                                                                                             | 33         |
| ** **        | ** **                                                                                                                                                | ** ** |
| **SIGNATURES**    | ** **                                                                                                                                                | 34         |
| ** **        | ** **                                                                                                                                                |       |
| **EXHIBIT INDEX** | ** **                                                                                                                                                | 35         |

**                                                                                                                              **

** **

| 2 |
|---|

 

----

 

#### ITEM 1. 

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

(Unaudited) 
|                                                                                                                                                                                                                                                                                                                |   | ** January 2, 2010** | ** ** | ** ** | **March 28,  2009** |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|---------------------------|------------|------------|--------------------------|
| **ASSETS**                                                                                                                                                                                                                                                                                                          |   |                      |       |       |                     |
| Current assets:                                                                                                                                                                                                                                                                                                     |   |                      |       |       |                     |
| Cash  and cash equivalents                                                                                                                                                                                                                                                                                          | $      | 121,501              |       | $          | 172,989             |
| Restricted  cash and trading security investments*(Note 11)*                                                                                                                                                                                                                                                        |   | 17,998               |       |       | 62                  |
| Short-term  investments *(Note 11)*                                                                                                                                                                                                                                                                                 |   | 62,966               |       |       | 93,527              |
| Accounts  receivable, less allowance of $688 and $886 as of               January 2, 2010 and March 28, 2009, respectively                                                                                                                              |   | 97,561               |       |       | 90,231              |
|        Inventories *(Note  3)*                                                                                                                                                                                                                                                        |   | 121,503              |       |       | 113,611             |
|        Prepaid expenses                                                                                                                                                                                                                                                               |   | 5,184                |       |       | 10,885              |
|        Other receivables                                                                                                                                                                                                                                                              |   | 24,775               |       |       | 9,040               |
|        Other current assets  (amount recorded at fair value is $2,331)              *(Note 6 and Note 11)*                                                                                                                          |   | 43,770               |       |       | 27,089              |
| Total current assets                                                                                                                                                                                                                                                                                                |   | 495,258              |       |       | 517,434             |
|                                                                                                                                                                                                                                                                                                                |   |                      |       |       |                     |
| Property and equipment, net  of accumulated depreciation of $476,993 at        January 2, 2010 and $435,179 at March 28, 2009                                                                                                                                                                   |   | 262,179              |       |       | 315,127             |
| Goodwill                                                                                                                                                                                                                                                                                                            |   | 95,628               |       |       | 95,628              |
| Intangible assets, net                                                                                                                                                                                                                                                                                              |   | 106,719              |       |       | 121,191             |
| Long-term investments *(Note  11)*                                                                                                                                                                                                                                                                                  |   | 2,175                |       |       | 20,183              |
| Other non-current assets *(Note  6)*                                                                                                                                                                                                                                                                                |   | 18,539               |       |       | 19,079              |
| Total assets                                                                                                                                                                                                                                                                                                        | $      | 980,498              |       | $          | 1,088,642           |
|                                                                                                                                                                                                                                                                                                                |   |                      |       |       |                     |
| **LIABILITIES AND SHAREHOLDERS’  EQUITY**                                                                                                                                                                                                                                                                      |   |                      |       |       |                     |
| Current liabilities:                                                                                                                                                                                                                                                                                                |   |                      |       |       |                     |
| Accounts  payable                                                                                                                                                                                                                                                                                                   | $      | 69,897               |       | $          | 46,745              |
| Accrued  liabilities                                                                                                                                                                                                                                                                                                |   | 44,481               |       |       | 51,259              |
| Current  portion of long term debt, net of unamortized discount*(Note 5)*                                                                                                                                                                                                                                           |   | 14,975               |       |       | 4,839               |
| No  net cost credit line *(Note 11)*                                                                                                                                                                                                                                                                                |   | 13,200               |       |       | -                   |
| Other  current liabilities                                                                                                                                                                                                                                                                                          |   | 748                  |       |       | 923                 |
| Total current liabilities                                                                                                                                                                                                                                                                                           |   | 143,301              |       |       | 103,766             |
|                                                                                                                                                                                                                                                                                                                |   |                      |       |       |                     |
| Long-term debt, net of  unamortized discount *(Note 5)*                                                                                                                                                                                                                                                             |   | 286,816              |       |       | 491,607             |
| No net cost credit line *(Note  11)*                                                                                                                                                                                                                                                                                |   | -                    |       |       | 13,500              |
| Other long-term liabilities *(Note  6)*                                                                                                                                                                                                                                                                             |   | 53,575               |       |       | 47,807              |
| Total liabilities                                                                                                                                                                                                                                                                                                   |   | 483,692              |       |       | 656,680             |
|                                                                                                                                                                                                                                                                                                                |   |                      |       |       |                     |
| Shareholders’ equity:                                                                                                                                                                                                                                                                                          |   |                      |       |       |                     |
| Preferred  stock, no par value; 5,000 shares authorized; no shares issued and               outstanding                                                                                                                                                 |   | -                    |       |       | -                   |
| Common  stock, no par value; 500,000 shares authorized; 268,391 and 264,035               shares issued and outstanding at January 2, 2010 and March 28,  2009,                respectively |   | 959,461              |       |       | 958,742             |
| Additional  paid-in capital                                                                                                                                                                                                                                                                                         |   | 256,082              |       |       | 236,394             |
| Accumulated  other comprehensive income, net of tax                                                                                                                                                                                                                                                                 |   | 315                  |       |       | 169                 |
| Accumulated  deficit                                                                                                                                                                                                                                                                                                |   | (719,052)                 |       |       | (763,343)                |
| Total  shareholders’ equity                                                                                                                                                                                                                                                                                    |   | 496,806              |       |       | 431,962             |
|                                                                                                                                                                                                                                                                                                                |   |                      |       |       |                     |
| Total  liabilities and shareholders’ equity                                                                                                                                                                                                                                                                    | $      | 980,498              |       | $          | 1,088,642           |
|                                                                                                                                                                                                                                                                                                                |   |                      |       |       |                     |

See accompanying Notes toCondensed Consolidated Financial Statements. 

| 3 |
|---|

----

 

 

 

 

 

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

(Unaudited)
|                                                                                         | **Three Months Ended** |
|----------------------------------------------------------------------------------------------|------------------------|
|                                                                                         |                   | **January 2,  2010** | ** ** | ** ** | **December 27,  2008 (1)** |
|                                                                                         |                   |   |   |   |   |
| Revenue                                                                                      | $                      | 250,271  |   | $ | 202,025  |
|                                                                                         |                   |   |   |   |   |
| Operating costs and  expenses:                                                               |                   |   |   |   |   |
| Cost  of goods sold                                                                          |                   | 159,081  |   |   | 163,613  |
| Research  and development                                                                    |                   | 32,997  |   |   | 38,617  |
| Marketing  and selling                                                                       |                   | 13,821  |   |   | 15,511  |
| General  and administrative                                                                  |                   | 9,496  |   |   | 10,613  |
| Other  operating expense*(Note 9 and Note 12)*                                               |                   | 1,288  |   |   | 727,697  |
| Total operating costs and  expenses                                                |                   | 216,683  |   |   | 956,051  |
| Income (loss) from  operations                                                               |                   | 33,588  |   |   | (754,026) |
|                                                                                         |                   |   |   |   |   |
| Interest expense                                                                             |                   | (5,863) |   |   | (6,528) |
| Interest income                                                                              |                   | 317  |   |   | 943  |
| (Loss) gain on retirement  of convertible       subordinated notes *(Note 5)* |                   | (408) |   |   | 8,135  |
| Other income (expense)                                                                       |                   | 126  |   |   | (5,294) |
|                                                                                         |                   |   |   |   |   |
| Income (loss) before income  taxes                                                           |                   | 27,760  |   |   | (756,770) |
|                                                                                         |                   |   |   |   |   |
| Income tax expense *(Note  6)*                                                               |                   | (2,832) |   |   | (31,704) |
| Net income (loss)                                                                            | $                      | 24,928  |   | $ | (788,474) |
|                                                                                         |                   |   |   |   |   |
| Net income (loss) per share  *(Note 2):*                                                     |                   |   |   |   |   |
| Basic                                                                                        | $                      | 0.09  |   | $ | (3.00) |
| Diluted                                                                                      | $                      | 0.09  |   | $ | (3.00) |
|                                                                                         |                   |   |   |   |   |
| Shares used in per share  calculation:                                                       |                   |   |   |   |   |
| Basic                                                                                        |                   | 268,287  |   |   | 263,227  |
| Diluted                                                                                      |                   | 285,907  |   |   | 263,227  |

 

(1) Certain amounts have been adjusted as a result ofthe retrospective adoption of Financial Accounting Standards Board StaffPosition No. APB 14-1, “*Accounting for Convertible Debt Instruments That MayBe Settled in Cash upon Conversion (Including Partial Settlement)*” (“FSPAPB 14-1”), 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)
|                                                             | **Nine Months Ended** |
|------------------------------------------------------------------|-----------------------|
|                                                             |                  | **January 2,  2010** | ** ** | ** ** | **December 27,  2008 (1)** |
|                                                             |                  |   |   |   |   |
| Revenue                                                          | $                     | 717,568  |   | $ | 714,186  |
|                                                             |                  |   |   |   |   |
| Operating costs and  expenses:                                   |                  |   |   |   |   |
| Cost  of goods sold                                              |                  | 460,827  |   |   | 526,676  |
| Research  and development                                        |                  | 103,477  |   |   | 135,034  |
| Marketing  and selling                                           |                  | 42,131  |   |   | 51,186  |
| General  and administrative                                      |                  | 37,429  |   |   | 39,453  |
| Other  operating expense*(Note 9 and Note 12)*                   |                  | 3,937  |   |   | 774,611  |
| Total operating costs and  expenses                    |                  | 647,801  |   |   | 1,526,960  |
| Income (loss) from  operations                                   |                  | 69,767  |   |   | (812,774) |
|                                                             |                  |   |   |   |   |
| Interest expense                                                 |                  | (18,537) |   |   | (19,542) |
| Interest income                                                  |                  | 1,063  |   |   | 4,329  |
| Gain on retirement of  convertible subordinated notes *(Note 5)* |                  | 1,540  |   |   | 8,135  |
| Other expense                                                    |                  | (139) |   |   | (3,783) |
|                                                             |                  |   |   |   |   |
| Income (loss) before income  taxes                               |                  | 53,694  |   |   | (823,635) |
|                                                             |                  |   |   |   |   |
| Income tax expense *(Note  6)*                                   |                  | (9,403) |   |   | (5,591) |
| Net income (loss)                                                | $                     | 44,291  |   | $ | (829,226) |
|                                                             |                  |   |   |   |   |
| Net income (loss) per share  *(Note 2):*                         |                  |   |   |   |   |
| Basic                                                            | $                     | 0.17  |   | $ | (3.16) |
| Diluted                                                          | $                     | 0.16  |   | $ | (3.16) |
|                                                             |                  |   |   |   |   |
| Shares used in per share  calculation:                           |                  |   |   |   |   |
| Basic                                                            |                  | 266,995  |   |   | 262,186  |
| Diluted                                                          |                  | 293,787  |   |   | 262,186  |

 

(1) Certain amounts have been adjusted as a result ofthe retrospective adoption of FSP APB 14-1 (now codified as FASB ASC 470-20). See Note 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)
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         | **Nine Months Ended** |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|-----------------------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         | **January 2, 2010**   | ** ** | **December 27, 2008 (1)** |
| **Cash flows from operating  activities:**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   | ** **            |   |   |   |   |
| Net income (loss)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            | $                     | 44,291  |   | $ | (829,226) |
| Adjustments to reconcile net  income (loss) to net cash                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |                  |   |   |   |   |
|    provided by operating  activities:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |                  |   |   |   |   |
|       Depreciation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |                  | 55,484  |   |   | 64,971  |
|       Amortization                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |                  | 27,361  |   |   | 35,709  |
|       Excess tax benefit  from exercises of stock options                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |                  | -    |   |   | (275) |
|       Deferred income taxes                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |                  | (530) |   |   | (2,114) |
|       Foreign currency  adjustments                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |                  | 165  |   |   | 3,376  |
|       Acquired in-process  research and development cost                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |                  | -    |   |   | 1,400  |
|       Goodwill impairment                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |                  | -    |   |   | 608,966  |
|       Intangible impairment                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |                  | -    |   |   | 64,203  |
|       Asset impairments  (including restructuring impairments)                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |                  | 3,093  |   |   | 71,423  |
|       Gain on retirement of  convertible subordinated notes                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |                  | (1,540) |   |   | (8,135) |
|       (Gain) loss on  disposal of assets, net                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |                  | (1,336) |   |   | 292  |
|       Share-based  compensation  expense                                                                                 |                  | 20,584  |   |   | 18,410  |
|       Changes in operating  assets and liabilities:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |                  |   |   |   |   |
|          Accounts  receivable, net                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |                  | (7,271) |   |   | 41,086  |
|          Inventories                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |                  | (7,624) |   |   | 39,070  |
|          Prepaid expense and  other current and non-current assets                                                                                                                                                                                                                                                                                                                                                                                                                                                   |                  | (13,675) |   |   | (1,953) |
|          Accounts payable  and accrued liabilities                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |                  | 15,222  |   |   | (40,423) |
|          Income tax  payable/recoverable                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |                  | (4,273) |   |   | 6,833  |
|          Other liabilities                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |                  | (1,863) |   |   | 8,884  |
| Net cash provided by  operating activities                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |                  | 128,088  |   |   | 82,497  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |                  |   |   |   |   |
| **Investing activities:**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    | ** **            |   |   |   |   |
|         Purchase of property  and equipment                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |                  | (5,873) |   |   | (42,175) |
| Restricted  cash associated with investing activities                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |                  | -    |   |   | (375) |
| Purchase  of Universal Microwave Corporation (UMC), net of cash acquired                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |                  | -    |   |   | (23,493) |
|         Proceeds from  working capital refund from Filtronic PLC                                                                                                                                                                                                                                                                                                                                                                                                                                                          |                  | -    |   |   | 3,619  |
|         Final retainer  received from sale of substantially all *Bluetooth*® assets                                                                                                                                                                                                                                                                                                                                                                                                                                   |                  | -    |   |   | 5,850  |
|         Proceeds from sale  of property and equipment                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |                  | 2,615  |   |   | 1,316  |
|         Proceeds from  maturities of securities available-for-sale                                                                                                                                                                                                                                                                                                                                                                                                                                                        |                  | 319,762  |   |   | 122,936  |
|         Purchase of  securities available-for-sale                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |                  | (289,003) |   |   | (110,516) |
| Net cash provided by (used  in) investing activities                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |                  | 27,501  |   |   | (42,838) |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |                  |   |   |   |   |
| **Financing activities:**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    | ** **            |   |   |   |   |
|         Payment of debt                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |                  | (207,842) |   |   | (25,562) |
|         Excess tax benefit  from exercises of stock options                                                                                                                                                                                                                                                                                                                                                                                                                                                               |                  | -    |   |   | 275  |
|         Proceeds from no net  cost loan                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |                  | 350  |   |   | -    |
|         Proceeds from  exercise of stock options, warrants and employee stock purchases                                                                                                                                                                                                                                                                                                                                                                                                                                   |                  | 719  |   |   | 2,744  |
|         Restricted cash  associated with financing activities                                                                                                                                                                                                                                                                                                                                                                                                                                                             |                  | (439) |   |   | 345  |
|         Repayment of capital  lease obligations                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |                  | (127) |   |   | (459) |
| Net cash used in financing  activities                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |                  | (207,339) |   |   | (22,657) |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |                  |   |   |   |   |
| Net (decrease) increase in  cash and cash equivalents                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |                  | (51,750) |   |   | 17,002  |
| Effect of exchange rate  changes on cash                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |                  | 262  |   |   | (1,350) |
| Cash and cash equivalents at  the beginning of the period                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |                  | 172,989  |   |   | 129,750  |
| Cash and cash equivalents at  the end of the period                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          | $                     | 121,501  |   | $ | 145,402  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |                  |   |   |   |   |
| Non-cash investing  activities:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |                  |   |   |   |   |
| Transfer of auction rate  securities from available-for-sale to trading securities                                                                                                                                                                                                                                                                                                                                                                                                                                                                           | $                     | -    |   | $ | 17,143  |

 

(1) Certain amounts have beenadjusted as a result of the retrospective adoption of FSP APB 14-1 (nowcodified as FASB ASC 470-20).  See Note 5 to the Condensed ConsolidatedFinancial Statements for further discussion.

Seeaccompanying 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 condensedconsolidated financial statements of RF Micro Devices, Inc. and Subsidiaries(together, the “Company”) have been prepared in conformity with accountingprinciples generally accepted in the United States.  The preparation of thesefinancial statements requires management to make estimates and assumptions,which could differ materially from actual results.  In addition, certaininformation or footnote disclosures normally included in financial statementsprepared in accordance with accounting principles generally accepted in the United States have been condensed, or omitted, pursuant to the rules and regulations of theSecurities and Exchange Commission (“SEC”).  In the opinion of management, thefinancial statements include all adjustments (which are of a normal andrecurring nature) necessary for the fair presentation of the results of the interimperiods presented.  These condensed consolidated financial statements should beread 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 Consolidated Statementof Cash Flows for the nine months ended December 27, 2008 have beenreclassified to conform to the presentation of the Condensed Consolidated Statementof Cash Flows for the nine months ended January 2, 2010.  

The Company uses a 52- or 53-week fiscal year ending on the Saturday closest 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 nine months ended January 2, 2010, included 40 weekscompared to 39 weeks for the nine months ended December 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 February 11, 2010, 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 participantwould receive a new option for one share of the Company’s common stock inexchange for an eligible option for two shares of common stock.  As a result ofthe option exchange program, approximately 1.8 million eligible options werecanceled (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’sresignation or termination other than for cause, continue to vest pursuant tothe same vesting schedule and remain outstanding as if the officer had remainedan employee and will be exercisable for the remaining option term (unless theadministrator of the 2003 Plan determines otherwise). 

| 7 |
|---|

 

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***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** | ** ** |    | **Nine Months Ended**        |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|------------------------|------------|---------|------------------------------|
|                                                                                                                                                                                  |   | January 2,  2010       |       |    |  December 27,  2008 (1) |   |   | January 2,  2010 |   |   |  December 27,  2008 (1) |
| Numerator for basic and  diluted net income (loss)                                                                                                                                    |   |                   |       |    |                         |   |   |   |   |   |   |
|        per share:                                                                                                                                       |   |                   |       |    |                         |   |   |   |   |   |   |
|    Net income (loss)  available to common shareholders                                                                                                  | $      | 24,928            |       | $       | (788,474)                    |   | $ | 44,291  |   | $ | (829,226) |
|    Plus: Income impact of  assumed conversions for                                                                                                                          |   |                   |       |    |                         |   |   |   |   |   |   |
|              interest on  1.50% convertible notes             |   | 298               |       |    | -             |   |   | 1,498  |   |   | -    |
| Net income (loss) plus  assumed conversion of                                                                                                                                         |   |                   |       |    |                         |   |   |   |   |   |   |
|         notes – Numerator for  diluted net income (loss)                                                                                      |   |                   |       |    |                         |   |   |   |   |   |   |
|         per share                                                                                                                                  | $      | 25,226            |       |  $ | (788,474)                    |   |  $ | 45,789  |   | $ | (829,226) |
|                                                                                                                                                                                  |   |                   |       |    |                         |   |   |   |   |   |   |
| Denominator:                                                                                                                                                                          |   |                   |       |    |                         |   |   |   |   |   |   |
|    Denominator for basic net  income (loss) per                                                                                                                             |   |                   |       |    |                         |   |   |   |   |   |   |
|        share – weighted  average shares                                                                                                            |   | 268,287           |       |    | 263,227                 |   |   | 266,995  |   |   | 262,186  |
|    Effect of dilutive  securities:                                                                                                                                          |   |                   |       |    |                         |   |   |   |   |   |   |
|       Employee stock options                                                                                                                                 |   | 4,963             |       |    | -             |   |   | 4,365  |   |   | -    |
|       Assumed conversion  1.50% convertible notes                                                                                                            |   | 12,657            |       |    | -             |   |   | 22,427  |   |   | -    |
| Denominator for diluted net income  (loss) per                                                                                                                                        |   |                   |       |    |                         |   |   |   |   |   |   |
|        share – adjusted  weighted average shares                                                                                                   |   |                   |       |    |                         |   |   |   |   |   |   |
|        and assumed  conversions                                                                                                                         |   | 285,907           |       |    | 263,227                 |   |   | 293,787  |   |   | 262,186  |
|                                                                                                                                                                                  |   |                   |       |    |                         |   |   |   |   |   |   |
| Basic net income (loss) per  share                                                                                                                                                    | $      | 0.09              |       | $       | (3.00)                       |   | $ | 0.17  |   | $ | (3.16) |
|                                                                                                                                                                                  |   |                   |       |    |                         |   |   |   |   |   |   |
| Diluted net income (loss)  per share                                                                                                                                                  | $      | 0.09              |       | $       | (3.00)                       |   | $ | 0.16  |   | $ | (3.16) |
|                                                                                                                                                                                  |   |                   |       |    |                         |   |   |   |   |   |   |

(1) Certain amounts have beenadjusted as a result of the retrospective adoption of FSP APB 14-1 (nowcodified as FASB ASC 470-20).  See Note 5 to the Condensed ConsolidatedFinancial Statements for further discussion.

In the computation of diluted net income per share for the three and ninemonths ended January 2, 2010, outstanding stock options to purchase approximately17.1 million shares and 18.2 million shares, respectively, were excludedbecause the exercise price of the options was greater than the average marketprice of the underlying common stock and the effect of their inclusion wouldhave been anti-dilutive.  In the computation of diluted net loss per share for thethree and nine months ended December 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 (the “2010 Notes”) for both the three and nine monthsended January 2, 2010.  The 1.50% convertible subordinated notes areconvertible at a price of $7.63 per share and are convertible at the option ofthe holder at any time on or prior to the close of business on the maturitydate.  After the purchase and retirement by the Company of $197.0 millionoriginal principal amount of the 2010 Notes during the third quarter of fiscal2010, as well as the purchase and retirement of $23.0 million originalprincipal amount of the 2010 Notes during fiscal 2009 (see Note 5 to theCondensed Consolidated Financial Statements), the remaining 2010 Notes areconvertible into a total of approximately 1.3 million shares as compared to30.1 million shares prior to the purchases. 

 

The computation of dilutednet loss per share did not assume the conversion of the 2010 Notes for thethree and nine months ended December 27, 2008, because the inclusion would havebeen anti-dilutive.  

| 8 |
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**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):

** **
|               |   | **January 2, 2010** | ** ** | ** ** | **March 28, 2009** |
|--------------------|--------|---------------------|------------|------------|--------------------|
| Raw  materials     | $      | 44,261         |       | $          | 55,753        |
| Work  in process   |   | 47,201         |       |       | 44,125        |
| Finished  goods    |   | 57,377         |       |       | 53,277        |
|               |   | 148,839        |       |       | 153,155       |
| Inventory  reserve |   | (27,336)            |       |       | (39,544)           |
| Total  inventories | $      | 121,503        |       | $          | 113,611       |

** **

** **

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

 

Accumulated other comprehensive income (loss) for 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 nine months ended January 2, 2010 and December 27, 2008.  

**5.        DEBT**

 

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

 
|                                                                         | **January 2, 2010** |          | **March 28, 2009** |
|------------------------------------------------------------------------------|---------------------|---------------|--------------------|
| Convertible subordinated  notes due 2010, net of discount                    | $                   | 9,938    |               | $ | 206,143  |
| Convertible subordinated  notes due 2012, net of discount                    |                | 170,992  |               |   | 164,726  |
| Convertible subordinated  notes due 2014, net of discount                    |                | 103,944  |               |   | 105,098  |
| Bank loan                                                                    |                | 6,734    |               |   | 6,729  |
| No net cost credit line                                                      |                | 13,200   |               |   | 13,500  |
| Equipment term loan, net of  discount                                        |                | 10,183   |               |   | 13,750  |
|           Subtotal              |                | 314,991  |               |   | 509,946  |
| Less current portion                                                         |                | 28,175   |               |   | 4,839  |
|                                                                         |                |          |               |   |   |
|           Total long-term  debt | $                   | 286,816  |               | $ | 505,107  |
|                                                                         |                |          |               |   |   |

 

 

| 9 |
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**RF MICRO DEVICES, INC. ANDSUBSIDIARIES**

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

(Unaudited)

** **

 

**5.        DEBT (continued)**

 

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

 

Holders may convert eitherseries of Notes based on the applicable conversion rate, which is currently 124.2969shares of the Company’s common stock per $1,000 principal amount of the Notes(which is equal to an initial conversion price of approximately $8.05 pershare), subject to adjustment, only under the following circumstances: (1) duringany calendar quarter after June 30, 2007, if, as of the last day of theimmediately preceding calendar quarter, the closing price of the Company’scommon stock for at least 20 trading days in the 30 consecutive trading dayperiod ending on the last trading day of such preceding calendar quarter ismore than 120% of the applicable conversion rate per share; (2) if during anyfive business day period after any five consecutive trading day period in whichthe trading price per $1,000 principal amount of Notes for each day of thatperiod is less than 98% of the product of the closing price of the Company’scommon stock for each day in the period and the applicable conversion rate per$1,000 principal amount of Notes; (3) if certain specified distributionsto all holders of the Company’s common stock occur; (4) if a fundamentalchange occurs; or (5) at any time during the 30-day period immediatelypreceding the final maturity date of the applicable Notes.  Upon conversion, inlieu of shares of the Company’s common stock, for each $1,000 principal amountof Notes, a holder will receive an amount in cash equal to the lesser of (i)$1,000 or (ii) the conversion value, as determined under the applicable indenturesgoverning the  Notes.  If the conversion value exceeds $1,000, the Company alsowill deliver, at its election, cash or common stock or a combination of cashand common stock equivalent to the amount of the conversion value in excess of $1,000. The maximum number of shares issuable upon conversion of these Notes as of January2, 2010, is approximately 32.1 million shares (subsequent to the purchase bythe Company of an aggregate of $42.4 million principal amount of the Notes),which may be adjusted as a result of stock splits, stock dividends andantidilution provisions.

 

In the first quarter offiscal 2010, the Company purchased and retired $7.8 million original principalamount of 2014 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 purchased and retired $2.2 million original principal amount of 2012 Notesat an average 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 |
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**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 nine months ended January 2, 2010(in thousands):

 
|                                                                     | **Three Months Ended January 2, 2010**  |                                      | **Nine Months Ended January 2, 2010** |
|--------------------------------------------------------------------------|----------------------------------------------|-------------------------------------------|--------------------------------------------|
|                                                                     | **As Computed prior to FSP   APB 14-1** | **As Reported under FSP   APB 14-1** | **Effect of   change**                     |   | **As Computed   prior to FSP   APB 14-1** | **As Reported   under FSP   APB 14-1** | **Effect of   change** |
| Interest expense                                                         |  $                                      | (1,950)                                   |  $                                    | (5,863) |  $ | (3,913) |   |  $ | (6,733) |  $ | (18,537) |  $ | (11,804) |
| (Loss) gain on retirement of  convertible   subordinated notes | (408)                                        | (408)                                     | -                           |   | 2,917  | 1,540  | (1,377) |
| Income tax expense                                                       | (2,832)                                      | (2,832)                                   | -                           |   | (9,078) | (9,403) | (325) |
| Net income                                                               | 28,841                                  | 24,928                               | (3,913)                                    |   | 57,797  | 44,291  | (13,506) |
|                                                                     |                                         |                                      |                                       |   |   |   |   |
| Net income per share:                                                    |                                         |                                      |                                       |   |   |   |   |
|    Basic                                                       |  $                                      | 0.11                                 |  $                                    | 0.09  |  $ | (0.02) |   |  $ | 0.22  |  $ | 0.17  |  $ | (0.05) |
|    Diluted                                                     |  $                                      | 0.10                                 |  $                                    | 0.09  |  $ | (0.01) |   |  $ | 0.20  |  $ | 0.16  |  $ | (0.04) |

 

 

The retrospective 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 nine months ended December 27, 2008 (in thousands):

 
|                                                              | **Three Months Ended   December 27, 2008** |            | **Nine Months Ended   December 27, 2008** |
|-------------------------------------------------------------------|--------------------------------------------|-----------------|-------------------------------------------|
|                                                              | **Previously   Reported**                  | **As Adjusted** | **Effect of   change**                    |   | **Previously   Reported** | **As Adjusted** | **Effect of   change** |
| Interest expense                                                  |  $                                    | (2,501)         |  $                                   | (6,528) |  $ | (4,027) |   |  $ | (7,765) |  $ | (19,542) |  $ | (11,777) |
| Gain on retirement of  convertible   subordinated notes | 10,667                                | 8,135      | (2,532)                                   |   | 10,667  | 8,135  | (2,532) |
| Income tax expense                                                | (63,132)                                   | (31,704)        | 31,428                               |   | (39,919) | (5,591) | 34,328  |
| Net loss                                                          | (813,343)                                  | (788,474)       | 24,869                               |   | (849,245) | (829,226) | 20,019  |
|                                                              |                                       |            |                                      |   |   |   |   |
| Net loss per share:                                               |                                       |            |                                      |   |   |   |   |
|    Basic                                                |  $                                    | (3.09)          |  $                                   | (3.00) |  $ | 0.09  |   |  $ | (3.24) |  $ | (3.16) |  $ | 0.08  |
|    Diluted                                              |  $                                    | (3.09)          |  $                                   | (3.00) |  $ | 0.09  |   |  $ | (3.24) |  $ | (3.16) |  $ | 0.08  |

 

 

 

The retrospective 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 ninemonths ended December 27, 2008 (in thousands):

 
|                                                                                                     | **Previously  Reported** |         | **As Adjusted** | ** ** | **Effect of    Change** |
|----------------------------------------------------------------------------------------------------------|--------------------------|--------------|-----------------|------------|-------------------------|
| Cash flow from operating  activities:                                                                    | ** **               | ** **   |            | ** ** | ** **              | ** ** | ** ** | ** ** |
|     Net loss                                                                              | $                        | (849,245)    |            | $          | (829,226)               |   | $ | 20,019  |
|     Amortization                                                                          |                     | 23,932  |            |       | 35,709             |   |   | 11,777  |
|     Gain on retirement of  convertible        subordinated notes |                     | (10,667)     |            |       | (8,135)                 |   |   | 2,532  |
|     Deferred income taxes                                                                 |                     | 32,214  |            |       | (2,114)                 |   |   | (34,328) |

 

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

 
|                                                                                             | **2012 Notes**         |          | **2014 Notes**        |
|--------------------------------------------------------------------------------------------------|------------------------|---------------|-----------------------|
|                                                                                             | **January 2,    2010** |          | **March 28,    2009** | ** ** | **January 2,    2010** |   | **March 28,    2009** |
| Carrying amount of the  equity component        (additional paid-in capital) | $                      | 31,310   |                  | $ | 31,414  |   | $ | 34,492  |   | $ | 34,928  |
| Principal amount of the  convertible        subordinated notes          |                   | 197,748  |                  |   | 200,000  |   |   | 134,901  |   |   | 142,691  |
| Unamortized discount of the  liability        component                      |                   | (26,756)      |                  |   | (35,274) |   |   | (30,957) |   |   | (37,593) |
| Net carrying amount of  liability component                                                      |                   | 170,992  |                  |   | 164,726  |   |   | 103,944  |   |   |                  105,098 |

 

 
|                                            | **2012 Notes**         |        | **2014 Notes**           |
|-------------------------------------------------|------------------------|-------------|--------------------------|
|                                            | **January 2,    2010** |        | **December 27,    2008** | ** ** | **January 2,    2010** |   | **December 27,    2008** |
| Effective interest rate on  liability component |                   | 7.3 %  |                     |   | 7.3 % |   |   | 7.2 % |   |   | 7.2 % |
|                                            |                   |        |                     |   |   |   |   |   |   |   |   |
| **For the three months  ended:**                |                   |        |                     |   |   |   |   |   |   |   |   |
| Cash interest expense  recognized               | $                      | 371    |                     |  $ | 375  |   |  $ | 337  |   |  $ | 435  |
| Non-cash interest expense  recognized           |                   | 2,707  |                     |   | 2,543  |   |   | 1,528  |   |   | 1,837  |
|                                            |                   |        |                     |   |   |   |   |   |   |   |   |
| **For the nine months  ended:**                 |                   |        |                     |   |   |   |   |   |   |   |   |
| Cash interest expense  recognized               |                   | 1,136  |                     |   | 1,117  |   |   | 1,041  |   |   | 1,300  |
| Non-cash interest expense  recognized           |                   | 8,146  |                     |   | 7,438  |   |   | 4,629  |   |   | 5,383  |

 

As of January 2, 2010, theremaining period over which the unamortized discount will be amortized for the 2012Notes and 2014 Notes is 2.3 years and 4.3 years, respectively.  As of January 2,2010, the if-converted value of the Notes did not exceed the principal 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 $182.9 million as of January 2, 2010 (excluding $2.2 million of theoriginal principal amount of the 2012 Notes that were purchased and retired)and $124.0 million as of December 27, 2008. ** **The 2014 Notes had a fairvalue on the PORTAL Market of $118.2 million as of January 2, 2010 (excluding $40.1million of the original principal 

 

| 12 |
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----

 

 

 

 

**RF MICRO DEVICES, INC. ANDSUBSIDIARIES**

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

(Unaudited)

 

 

**5.        DEBT (continued)**

 

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

** **

In July 2003, the Companycompleted the private placement of $230.0 million aggregate principal amount ofits 2010 Notes.  In the third quarter of fiscal 2010, the Company purchased andretired, at 100% of the original principal amount, $197.0 million of the 2010Notes, which resulted in a loss of $0.4 million due to the write off of theunamortized discount and debt issuance cost.   In the third quarter of fiscal2009, the Company purchased and retired $23.0 million of the original principalamount of the 2010 Notes at an average price of $82.83, which resulted in again of approximately $3.8 million.  The 2010 Notes had a fair value on thePORTAL Market of $9.9 million as of January 2, 2010 (excluding $220.0 millionof the original principal amount of the 2010 Notes that were purchased andretired) and $169.9 million as of December 27, 2008 (excluding $23.0 million ofthe original principal amount of the 2010 Notes that were purchased and retiredduring the nine months ended December 27, 2008).  

 

**6.          INCOMETAXES**

 

*Income Tax Expense*

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

 

Income tax expense for thethree months ended January 2, 2010, was $2.8 million, which is comprisedprimarily of a tax expense related to domestic and international operations, atax benefit related to changes in the domestic and foreign deferred tax assetvaluation allowances, a tax expense related to the settlement of the NorthCarolina audit of fiscal 2006 through 2008, and a tax benefit from thecarryback of fiscal 2009 federal losses with the suspension of the 90%Alternative Minimum Tax limitation on the use of Net Operating Losses under theWorker, Homeownership, and Business Assistance Act of 2009 (“WHBAA 2009”). Income tax expense for the three months ended December 27, 2008 was $31.7million, which is comprised primarily of a tax benefit related to domesticoperations, a tax expense related to international operations and a tax expenserelated to an increase in the domestic and foreign deferred tax asset valuationallowances.  Income tax expense for the nine months ended January 2, 2010 was $9.4million, which is comprised primarily of a tax expense related to domestic andinternational operations, a tax benefit related to changes in the domestic andforeign deferred tax asset valuation allowances, a tax expense related tofinalizing the Advance Pricing Agreement and related adjustments with China taxauthorities for calendar years 2006, 2007 and 2008, a tax expense related tothe settlement of the North Carolina audit of fiscal 2006 through 2008, and atax benefit from the carryback of fiscal 2009 federal losses from thesuspension of the 90% Alternative Minimum Tax limitation on the use of NetOperating Losses under the WHBAA 2009.  Income tax expense for the nine monthsended December 27, 2008 was $5.6 million, which is comprised primarily of a taxbenefit related to domestic operations, a tax expense related to internationaloperations and a tax expense related to an increase in the domestic and foreigndeferred tax asset valuation allowances.

 

The Company’s effective taxrate for the three month periods ended January 2, 2010 and December 27, 2008was 10.2% and (4.2%), respectively.  The Company's effective tax rate for the thirdquarter of fiscal 2010 differed from the statutory rate primarily due to taxrate differences in foreign jurisdictions, domestic tax credits generated,adjustments to the valuation allowance limiting the recognition of the benefitof domestic and foreign deferred tax assets, settlement of the North Carolinaaudit of fiscal 2006 through 2008, and the carryback of fiscal 2009 federallosses under the WHBAA 2009.  The Company's effective tax rate for the thirdquarter of fiscal 2009 differed from the income tax benefit calculated on thebasis of the statutory rate primarily due to the impairment of non-deductiblegoodwill, tax rate differences in foreign jurisdictions, domestic tax creditsgenerated, and adjustments to the valuation allowance limiting the recognitionof the benefit of domestic and foreign deferred tax assets.  

                                                    

The Company’s effective taxrate for the nine month periods ended January 2, 2010 and December 27, 2008 was17.5% and (0.7%), respectively.  The Company's effective tax rate through the thirdquarter of fiscal 2010 differed from the statutory rate primarily due to taxrate differences in foreign jurisdictions, domestic tax credits generated,adjustments to the valuation  

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

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

(Unaudited)

 

 

**6.          INCOMETAXES (continued)**

 

allowance limiting therecognition of the benefit of domestic and foreign deferred tax assets,settlement of the China Advance Pricing Agreement adjustments for calendaryears 2006, 2007 and 2008, and the carryback of fiscal 2009 federal lossesunder the WHBAA 2009.  The Company's effective tax rate through the thirdquarter of fiscal 2009 differed from the statutory rate due to the impairmentof non-deductible goodwill, the write-off of acquired in-process research anddevelopment costs in connection with the UMC acquisition, tax rate differencesin foreign jurisdictions, domestic tax credits generated, and adjustments tothe valuation allowance limiting the recognition of the benefit of domestic andforeign deferred tax assets. 

 

*Deferred Taxes*

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

                                                                                       

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 as full realization ofthe domestic federal and state deferred tax assets was not supported byreversals of existing taxable temporary differences or taxable income in priorcarry back years to the extent allowed by the applicable taxing jurisdictions. As of the end of fiscal 2007, the Company was no longer in a cumulativedomestic pre-tax loss position for the most recent three-year period.  Thevaluation allowance was based on a determination by the Company’s managementthat unsettled circumstances existed with respect to a slowdown in demand froma high per-unit dollar content major customer and the significant impact thatwas expected to have on near-term financial results.  These unsettledcircumstances represented negative evidence that in management’s opinionrequired a continuation of the domestic deferred tax asset valuation allowanceas 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. (“Sirenza”).  The $31.6 million reversal was based on the determination bymanagement that as of the end of the first quarter of fiscal 2008, the negativeevidence that existed as of the end of fiscal 2007 was no longer applicable. Based on actual activity during the period, by the end of the first quarter offiscal 2008 the Company was able to better determine the impact of theslow-down in customer demand from the high per-unit dollar content majorcustomer and positive evidence arose of actual increases in sales to othercustomers and the commencement of volume production of the POLARIS® 3 RFsolution.  The amount reversed consisted of $20.7 million recognized as anincome tax benefit, $4.8 million reversed against equity related to the taxbenefit of employee stock options, and $6.1 million reversed against goodwillrelated to the tax benefit of net operating losses, credits and deductionsacquired 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 its ability to realize itsdeferred tax assets in future periods and increased the valuation allowance forthe deferred tax assets in the United Kingdom (“U.K.”), China, and the United States (“U.S.”) from $37.0 million as of the end of the prior quarter to$126.5 million.  This increase in the valuation allowance during the thirdquarter of fiscal 2009 was due to impairment charges incurred during the thirdquarter of fiscal 2009 that resulted in the Company moving into a cumulativepre-tax loss for the most recent three-year period, inclusive of the loss forthe period ended December 27, 2008.  Management determined that the negativeevidence represented by the cumulative pre-tax loss that arose during the thirdquarter of fiscal 2009 required an increase in the valuation allowance to the 

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

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

(Unaudited)

 

 

**6.          INCOMETAXES (continued)**

 

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

 

As of the end of fiscal 2009,the valuation allowance against deferred tax assets had increased by $99.6million to $138.4 million, as compared to $38.8 million as of the end of fiscal2008.  This increase was comprised of: a $0.2 million increase related to statetax credits and net operating loss carryovers acquired in the Sirenzatransaction which were not realizable as of 

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

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

 

*Uncertain Tax Positions*

The Company’s grossunrecognized tax benefits increased from $29.5 million as of the end of fiscal2009 to $32.7 million as of the end of the third quarter of fiscal 2010, with $3.2million of the increase related to tax positions taken with respect to thecurrent fiscal year and $0.8 million related to tax positions taken withrespect to the prior fiscal year returns filed during the current fiscal year. In addition, there was a decrease in gross unrecognized tax benefits of $0.2million (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 2007 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 2007 through present), California (fiscal 2006through present), the U.K. (fiscal 2004 through present), Germany (calendaryear 2006 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 obligation of approximately $3.0million and $2.6 million at January 2, 2010 and March 28, 2009, respectively. 

 

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

 

** **

** **

** **

| 15 |
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**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 user accessto all authoritative U.S. GAAP by providing all the authoritative literaturerelated to a particular topic in one place.  All existing accounting standarddocuments are superseded and all other accounting literature not included inthe Codification is considered non-authoritative.  The Codification waseffective for the Company for the period ended October 3, 2009, and did nothave an impact on the Company’s financial condition or results of operations. We have incorporated the Codification into this Quarterly Report on Form 10-Q.   

 

**9.          RESTRUCTURING**

** **

*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 $0.3 million and $2.6million for the three and nine months ended January 2, 2010, respectively, and$53.3 million for the three and nine months ended December 27, 2008, related toone-time employee termination benefits, impaired assets (including property andequipment) 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 $0.6 million of property and equipmentthat is classified as held for sale as of January 2, 2010.  During the threeand nine months ended January 2, 2010, the Company recognized a gain of $0.1million and $0.3 million, respectively, on the sale of assets classified asheld for sale.

 

Thefollowing table summarizes the restructuring activities associated with theadverse macroeconomic business environment restructuring plan during the nine monthsended January 2, 2010 (in thousands):
|                                                                                 | **One-Time   Employee Termination   Benefits** | ** **          | **Asset   Impairments** | ** ** | **Lease and   Other Contract   Terminations** | ** ** | **Total** |
|--------------------------------------------------------------------------------------|-----------------------------------------------------|---------------------|-------------------------|------------|-----------------------------------------------|------------|-----------|
| Accrued restructuring  balance as        of March 28, 2009  | $                                                   | 1,907          |                    | $          | -                              |       | $         | 10,906  |   | $ | 12,813  |
| Costs incurred and charged  to        expense               |                                                | 1,536          |                    |       | 847                                      |       |      | 382  |   |   | 2,765  |
| Adjustments to expense*                                                              |                                                | -    |                    |       | (147)                                         |       |      | -    |   |   | (147) |
| Cash payments                                                                        |                                                | (3,389)             |                    |       | -                              |       |      | (1,275) |   |   | (4,664) |
| Non-cash settlement                                                                  |                                                | -    |                    |       | (700)                                         |       |      | -    |   |   | (700) |
| Accrued restructuring  balance as        of January 2, 2010 | $                                                   | 54             |                    | $          | -                              |       | $         | 10,013  |   | $ | 10,067  |
|                                                                                 |                                                |                |                    |       |                                          |       |      |   |   |   |   |
| *Adjustments related to  finalizing the sale of certain assets.                      |                                                |                |                    |       |                                          |       |

 

Thecurrent and long-term restructuring obligations totaling $10.1 million are includedin “accrued liabilities” and “other long-term liabilities” in the condensedconsolidated balance sheet.

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

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

(Unaudited)

 

**9.          RESTRUCTURING(continued)**

 

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

** **
|                                                                                                       | **Fiscal 2009** | ** **   | **Three Months Ended   January 2,   2010** | ** ** | **Nine Months   Ended   January 2,   2010** | ** ** | **Future** | ** **  | **Total** |
|------------------------------------------------------------------------------------------------------------|-----------------|--------------|-------------------------------------------------|------------|---------------------------------------------|------------|------------|-------------|-----------|
| One-time employee              termination benefit costs | $               | 4,390   |                                            | $          | 244                                    |       | $          | 1,536  |      | $ | 165  |   | $ | 6,091  |
| Asset impairments                                                                                          |            | 51,432  |                                            |       | (55)                                        |       |       | 700    |      |   | -    |   |   | 52,132  |
| Lease and other contract        termination costs                                 |            | 11,292  |                                            |       | 146                                    |       |       | 382    |      |   | 4,252  |   |   | 15,926  |
| Total restructuring charges                                                                                | $               | 67,114  |                                            | $          | 335                                    |       | $          | 2,618  |      | $ | 4,417  |   | $ | 74,149  |
|                                                                                                       |            |         |                                            |       |                                        |       |       |        |      |   |   |   |   |   |

** **

Asof January 2, 2010, the restructuring related to the adverse macroeconomicbusiness environment is substantially completed except for ongoing costsassociated with our leased facilities and one-time employee termination benefitcosts.

* *

*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 $0.2million and $1.0 million for the three and nine months ended January 2, 2010, and$4.7 million and $48.4 million for the three and nine months ended December 27,2008, respectively, related to one-time employee termination benefits, impairedassets (including property and equipment) and lease and other contracttermination costs.  The fair value of the impaired assets was estimated basedon quoted market prices of similar assets.  The restructuring charges wererecorded in “other operating expense.”  In addition, as a result of thisrestructuring, the Company had $0.2 million of property and equipmentclassified as held for sale as of January 2, 2010.  During the three and ninemonths ended January 2, 2010, the Company recognized a loss of less than $0.1million and $0.8 million, respectively, on the sale of assets classified asheld for sale.

** **

Thefollowing table summarizes restructuring activities associated with the fiscal2009 restructuring to reduce or eliminate the Company’s investment in wirelesssystems during the nine months ended January 2, 2010 (in thousands): 
|                                                                                 | **One-Time   Employee   Termination   Benefits** | ** **          | **Asset   Impairments** | ** ** | **Lease and   Other Contract   Terminations** | ** ** | **Total** |
|--------------------------------------------------------------------------------------|--------------------------------------------------|---------------------|-------------------------|------------|-----------------------------------------------|------------|-----------|
| Accrued restructuring  balance as       of March 28, 2009        | $                                                | 61             |                    | $          | -                              |       | $         | 3,160  |   | $ | 3,221  |
| Costs incurred and charged  to       expense                          |                                             | 5              |                    |       | 1,276                                    |       |      | 412  |   |   | 1,693  |
| Adjustments to expense*                                                              |                                             | (33)                |                    |       | -                              |       |      | (640) |   |   | (673) |
| Cash payments                                                                        |                                             | (33)                |                    |       | -                              |       |      | (1,176) |   |   | (1,209) |
| Non-cash settlement                                                                  |                                             | -    |                    |       | (1,276)                                       |       |      | -    |   |   | (1,276) |
| Accrued restructuring  balance as        of January 2, 2010 | $                                                | -    |                    | $          | -                              |       | $         | 1,756  |   | $ | 1,756  |
|                                                                       |                                             |                |                    |       |                                          |       |      |   |   |   |   |
| *Adjustments related to  finalizing certain contracts.                               |                                             |                |                    |       |                                          |       |      |   |

 

| 17 |
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** **

**RF MICRO DEVICES, INC. ANDSUBSIDIARIES**

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

(Unaudited)

 

 

**9.          RESTRUCTURING(continued)**

Thecurrent and long-term restructuring obligations totaling $1.8 million areincluded in “accrued liabilities” and “other long-term liabilities” in thecondensed consolidated balance sheet.

 

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 January 2, 2010** | ** ** | **Nine Months Ended   January 2, 2010** | ** ** | **Future** | ** **  | **Total** |
|----------------------------------------------------------------------------|-------------------|--------------|--------------------------------------------------|------------|----------------------------------------------|------------|------------|-------------|-----------|
| One-time employee        termination benefit costs     | $                 | 9,023   |                                             | $          | -                             |       | $          | (28)        |      | $ | -    |   | $ | 8,995  |
| Asset impairments                                                          |              | 24,573  |                                             |       | 23                                      |       |       | 1,276  |      |   | -    |   |   | 25,849  |
| Lease and other contract        termination costs |              | 13,473  |                                             |       | 226                                     |       |       | (228)       |      |   | 1,344  |   |   | 14,589  |
| Total restructuring charges                                                | $                 | 47,069  |                                             | $          | 249                                     |       | $          | 1,020  |      | $ | 1,344  |   | $ | 49,433  |
|                                                                       |              |         |                                             |       |                                         |       |       |        |      |   |   |   |   |   |

** **

Asof January 2, 2010, the restructuring related to the adverse macroeconomicbusiness environment is substantially completed except for ongoing costsassociated with our leased facilities.

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

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

(Unaudited)

 

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

*** ***

***Investments***

As of January 2, 2010 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**            | ** ** | ** ** | **Per January 2,   2010  Balance Sheet** |
|----------------------------------------------------------|--------|-------------------------------------------|------------|------------|--------------------------|------------|------------|---------------------|------------|------------|------------------------------------------|
| Cash and cash equivalents                                | $      | 34,353                               |       | $          | -         |       | $          | 87,148         |       | $          | 121,501                             |
| Restricted cash and trading    security investments |   | -                          |       |       | 17,539              |       |       | 459            |       |       | 17,998                              |
| Short-term investments                                   |   | 62,966                               |       |       | -         |       |       | -    |       |       | 62,966                              |
| Long-term investments                                    |   | 2,175                                |       |       | -         |       |       | -    |       |       | 2,175                               |
|    Total                                       | $      | 99,494                               |       | $          | 17,539              |       | $          | 87,607         |       | $          | 204,640                             |
|                                                     |   |                                      |       |       |                     |       |       |                |       |       |                                     |

 
| **Balance Sheet Caption** |   | **Available-  for-sale   investments** | ** ** | ** ** | **Trading   securities** | ** ** | ** ** | **Cash**            | ** ** | ** ** | **Per March 28,   2009   Balance Sheet** |
|---------------------------|--------|----------------------------------------|------------|------------|--------------------------|------------|------------|---------------------|------------|------------|------------------------------------------|
| Cash and cash equivalents | $      | 102,757                           |       | $          | -         |       | $          | 70,232         |       | $          | 172,989                             |
| Short-term investments    |   | 93,527                            |       |       | -         |       |       | -    |       |       | 93,527                              |
| Long-term investments     |   | 2,200                             |       |       | 17,983              |       |       | -    |       |       | 20,183                              |
|   Total              | $      | 198,484                           |       | $          | 17,983              |       | $          | 70,232         |       | $          | 286,699                             |
|                      |   |                                   |       |       |                     |       |       |                |       |       |                                     |

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

 
|                              | **Available-for-Sale Securities** |
|-----------------------------------|-----------------------------------|
|                              |                              | **Cost** | ** ** | ** ** | **Gross   Unrealized   Gains** | ** ** | ** ** | **Gross Unrealized   Losses** | ** ** | ** ** | **Estimated Fair Value** |
| **January 2, 2010**               |                              |   |   |   |   |   |   |   |   |   |   |
| U.S. government/agency securities | $                                 | 62,953  |   | $ | 18  |   | $ | (5) |   | $ | 62,966  |
| Auction rate securities           |                              | 2,175  |   |   | -    |   |   | -    |   |   | 2,175  |
| Money market funds                |                              | 34,353  |   |   | -    |   |   | -    |   |   | 34,353  |
|                              | $                                 | 99,481  |   | $ | 18  |   | $ | (5) |   | $ | 99,494  |
| **March 28, 2009**                |                              |   |   |   |   |   |   |   |   |   |   |
| U.S. government/agency securities | $                                 | 158,339  |   | $ | 104  |   | $ | (45) |   | $ | 158,398  |
| Auction rate securities           |                              | 2,200  |   |   | -    |   |   | -    |   |   | 2,200  |
| Money market funds                |                              | 37,886  |   |   | -    |   |   | -    |   |   | 37,886  |
|                              | $                                 | 198,425  |   | $ | 104  |   | $ | (45) |   | $ | 198,484  |
|                              |                              |   |   |   |   |   |   |   |   |   |   |

The estimated fair value ofavailable-for-sale securities was based on the prevailing market values on January2, 2010, and March 28, 2009.  We determine the cost of an investment sold basedon the specific identification method.

 

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

 

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

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

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

(Unaudited)

 

 

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

 

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

 
|                                         | **January 2, 2010** |                | **March 28, 2009** |
|----------------------------------------------|---------------------|---------------------|--------------------|
|                                         |                | **Cost**            | ** **         | ** ** | **Estimated   Fair Value** | ** ** | ** ** | **Cost** | ** ** | ** ** | **Estimated  Fair Value** |
| Due in less than one year                    | $                   | 97,306         |               | $ | 97,319  |   | $ | 196,225  |   | $ | 196,284  |
| Due after one year through  five years       |                | -    |               |   | -    |   |   | -    |   |   | -    |
| Due after ten years                          |                | 2,175          |               |   | 2,175  |   |   | 2,200  |   |   | 2,200  |
|   Total investments in debt  securities | $                   | 99,481         |               | $ | 99,494  |   | $ | 198,425  |   | $ | 198,484  |
|                                         |                |                |               |   |   |   |   |   |   |   |   |

No available-for-saleinvestments were in a continuous unrealized loss position as of January 2,2010.  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 January 2, 2010 and March 28,2009.

 

***Fair Value of FinancialInstruments***

On a quarterly basis, theCompany measures the fair value of its marketable securities and tradingsecurities, which are comprised of U.S. government/agency securities, corporatedebt securities, auction rate securities (“ARS”), and commercial paper. 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 thosevaluation techniques are observable or unobservable.  Observable inputs reflectmarket data obtained from independent sources, while unobservable inputsreflect the Company’s market assumptions.  These two types of inputs havecreated the following 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. 

 

* *

* *

* *

* *

* *

* *

* *

* *

* *

* *

* *

* *

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**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 January 2, 2010 (in thousands):
| ** **                        |   | **Total**     | ** ** | ** ** | **Quoted Prices In Active Markets For Identical   Assets  (Level 1)** | ** ** | ** ** | **Significant Other   Observable Inputs (Level 2)** | ** ** | ** ** | **Significant   Unobservable   Inputs (Level 3)** |
|-----------------------------------|--------|---------------|------------|------------|---------------------------------------------------------------------------------|------------|------------|----------------------------------------------------------|------------|------------|---------------------------------------------------|
| U.S. government/agency securities | $      | 62,966   |       | $          | 62,966                                                                     |       | $          | -                                         |       | $          | -                                            |
| Auction rate securities           |   | 19,714   |       |       | -                                                                |       |       | 2,175                                               |       |       | 17,539                                       |
| Put option                        |   | 2,311    |       |       | -                                                                |       |       | -                                         |       |       | 2,311                                        |
| Money market funds                |   | 34,354   |       |       | 34,354                                                                     |       |       | -                                         |       |       | -                                            |
|                              | $      | 119,345  |       | $          | 97,320                                                                     |       | $          | 2,175                                               |       | $          | 19,850                                       |
|                              |   |          |       |       |                                                                            |       |       |                                                     |       |       |                                              |

 

During the threemonths ended January 2, 2010, 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 October  3, 2009                                                    | $      | 17,769                   |       | $          | 2,331          |
|   Unrealized gain (loss)  included in       other (expense) income |   | 20                       |       |       | (20)                |
|   Settlement of ARS                                                               |   | (250)                         |       |       | -    |
| Level 3 balance at January  2, 2010                                                    | $      | 17,539                   |       | $          | 2,311          |
|                                                                                   |   |                          |       |       |                |

 

During the ninemonths ended January 2, 2010, 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 |   | 206                      |       |       | (206)               |
|   Settlement of ARS                                                               |   | (650)                         |       |       | -    |
| Level 3 balance at January  2, 2010                                                    | $      | 17,539                   |       | $          | 2,311          |
|                                                                                        |        |                               |            |            |                     |  |

 

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.  

 

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

 

Inthe third quarter of fiscal 2009, the Company accepted the offer and enteredinto a settlement agreement on the terms set forth above with the securitiesfirm that holds all of its level 3 ARS.  The settlement feature entered intounder this settlement agreement is a separate freestanding instrument accountedfor separately from the ARS, and is a registered, nontransferable securityaccounted for as a put option and recorded at fair value.  The Company electedfair value accounting 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 January 2, 2010, 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 condensedconsolidated balance sheet as of January 2, 2010, as these ARS securities arepledged as collateral for the “no net cost” credit line.

 

Given the liquidity issues,the fair values of the student loan ARS could not be estimated based onobservable market prices.  The Company estimated the level 3 ARS fair valueswith the assistance of a third party investment advisor using a discounted cashflow model as of January 2, 2010.  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 ninemonths ended January 2, 2010, the Company recorded an impairment of $0.1million and $0.7 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 instrumentsthat are not recorded at fair value (such as the Company’s convertiblesubordinated notes), the Company discloses the fair value in its Notes to theCondensed Consolidated Financial Statements.* *As of January 2, 2010, thecarrying values of the Company’s convertible subordinated notes approximatedfair value (see Note 5 to the Condensed Consolidated Financial Statements).

 

 

 

 

 

 

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**RF MICRO DEVICES, INC. ANDSUBSIDIARIES**

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

(Unaudited)

 

 

**12.        GOODWILL ANDINTANGIBLES**

 

During the third quarter offiscal 2009, the Company recorded an estimated goodwill impairment charge inthe amount of $609.0 million in “other operating expense” in the condensedconsolidated statements of operations for the three and nine months endedDecember 27, 2008.  In addition, the Company recorded impairments of $31.9million related to developed technology and $32.2 million related to customerrelationships.  These impairment charges were also recorded in “other operatingexpense” in the condensed consolidated statements of operations for the threeand nine months ended December 27, 2008.

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

####  

#### SAFE HARBOR FOR FORWARD-LOOKINGSTATEMENTS

 

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

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

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

•        The inability of certain of ourcustomers to access their traditional sources of credit which could lead themto reduce their level of   purchases or seek credit or other accommodations fromus;

•        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;

•        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;

•        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 thedevelopment and qualification of new compound semiconductor processtechnologies;

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

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

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

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

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

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

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•        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. 

**THIRDQUARTER FISCAL 2010 FINANCIAL HIGHLIGHTS:**

 

• Quarterly revenue increased by 23.9% ascompared to the corresponding quarter of fiscal 2009.  Sales of ourcellular products increased year-over-year driven primarily by customerdiversification and increased demand for our new products.    

 

• Gross margin for the quarter was 36.4% as comparedto 19.0% in the corresponding quarter of fiscal 2009.  The improvement ingross margin reflected our reduced cost structure resulting from our fiscal2009 restructuring activities, as well as increased demand, improved factoryutilization, higher sales of new products with lower costs, and improvedpricing on externally-sourced raw materials.  The gross margin for thethird quarter of fiscal 2009 was negatively impacted by a $25.9 millionincrease in inventory reserves as well as lower factory utilization ratesresulting from the lower demand for our products attributable primarily to theoverall global economic slowdown.  

 

• Operating income was $33.6 million forthe third quarter of fiscal 2010 as compared to an operating loss of $754.0 millionfor the corresponding quarter of fiscal 2009.  Our operating income increasedas a result of an increase in revenue and an increase in gross profit. Additionally, our fiscal 2010 operating expenses were lower as a result of thefiscal 2009 strategic and economic restructurings.  

 

• Cash flow from operations was $44.5 millionfor the third quarter of fiscal 2010.

 

• Inventory totaled $121.5 million at January2, 2010, reflecting 5.2 turns as compared to $151.3 million and 4.3 turns at December27, 2008. 

 

• In the third quarter of fiscal 2010, we purchasedand retired, at 100% of the original principal amount, $197.0 million of the2010 Notes, which resulted in a loss of $0.4 million due to the write off ofthe unamortized discount and debt issuance cost.

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The following table presentsa summary of our results of operations for the three and nine months ended January2, 2010 and December 27, 2008:

 
|                                     | Three Months Ended |          |           |        |                |
|------------------------------------------|--------------------|---------------|----------------|-------------|---------------------|
|                                     | January 2,   2010  |          | % of   Revenue |        | December 27,   2008 |   | % of   Revenue |   | Increase   (Decrease) | Percentage   Change |   |
| (In thousands, except  percentages)      |               |          |           |        |                |   |   |   |   |   |   |
|                                     |               |          |           |        |                |   |   |   |   |   |   |
| Revenue                                  |  $            | 250,271  |           | 100.0  | %                   |  $ | 202,025  |   | 100.0  | % |  $ | 48,246  | 23.9  | % |
|    Cost of goods sold          | 159,081       |          | 63.6      |        | 163,613        |   | 81.0  |   | (4,532) | (2.8) |   |
|    Research and development    | 32,997        |          | 13.2      |        | 38,617         |   | 19.1  |   | (5,620) | (14.6) |   |
|    Marketing and selling       | 13,821        |          | 5.5       |        | 15,511         |   | 7.7  |   | (1,690) | (10.9) |   |
|    General and  administrative | 9,496         |          | 3.8       |        | 10,613         |   | 5.2  |   | (1,117) | (10.5) |   |
|    Other operating expense     | 1,288         |          | 0.5       |        | 727,697        |   | 360.2  |   | (726,409) | (99.8) |   |
| Operating income (loss)                  |  $            | 33,588   |           | 13.4   | %                   |  $ | (754,026) |   | (373.2) | % | 787,614  | 104.5  |   |
|                                     |               |          |           |        |                |   |   |   |   |   |   |
|                                     | Nine Months Ended  |          |           |        |                |
|                                     | January 2,   2010  |          | % of   Revenue |        | December 27,   2008 |   | % of   Revenue |   | Increase   (Decrease) | Percentage   Change |   |
| (In thousands, except  percentages)      |               |          |           |        |                |   |   |   |   |   |   |
| Revenue                                  |  $            | 717,568  |           | 100.0  | %                   |  $ | 714,186  |   | 100.0  | % |  $ | 3,382  | 0.5  | % |
|    Cost of goods sold          | 460,827       |          | 64.2      |        | 526,676        |   | 73.7  |   | (65,849) | (12.5) |   |
|    Research and development    | 103,477       |          | 14.4      |        | 135,034        |   | 18.9  |   | (31,557) | (23.4) |   |
|    Marketing and selling       | 42,131        |          | 5.9       |        | 51,186         |   | 7.2  |   | (9,055) | (17.7) |   |
|    General and  administrative | 37,429        |          | 5.2       |        | 39,453         |   | 5.5  |   | (2,024) | (5.1) |   |
|    Other operating expense     | 3,937         |          | 0.6       |        | 774,611        |   | 108.5  |   | (770,674) | (99.5) |   |
| Operating income (loss)                  |  $            | 69,767   |           | 9.7    | %                   |  $ | (812,774) |   | (113.8) | % | 882,541  | 108.6  |   |
|                                     |               |          |           |        |                |   |   |   |   |   |   |

**REVENUE**

Quarterly revenue increased by 23.9% as comparedto the corresponding quarter of fiscal 2009.  Sales of our cellularproducts increased year-over-year driven primarily by customer diversificationand increased demand for our new products.  

Our revenue increased during the nine monthsended January 2, 2010, as compared to the corresponding period of fiscal2009.  Sales of our cellular products increased year-over-year drivenprimarily by customer diversification and increased demand for our new products. These were offset in part by year-over-year declines in demand for our CATVline amplifiers.  

 

International shipments(based on the "bill to" address of the customer) were $212.6 millionand accounted for 84.9% of revenue for the three months ended January 2, 2010,compared to $165.4 million and 81.9% of revenue for the three months endedDecember 27, 2008.  For the nine months ended January 2, 2010, internationalshipments were $609.6 million, or 85.0% of revenue, compared to $575.2 million,or 80.5% of revenue, for the nine months ended December 27, 2008.

** **

**OPERATING INCOME (LOSS)**

Operatingincome was approximately $33.6 million and $69.8 million for the three and ninemonths ended January 2, 2010, respectively, compared to operating losses of $754.0million and $812.8 million for the three and nine months ended December 27,2008, respectively.  Our operating income increased primarily due to anincrease in revenue and an increase in gross profit.  Additionally, our fiscal 2010operating expenses were lower due to the fiscal 2009 strategic and economicrestructurings (see Note 9 to the Condensed Consolidated Financial Statementsfor further discussion of our restructurings).  

***Cost of Goods Sold***Ourcost of goods sold for the three and nine months ended January 2, 2010,decreased $4.5 million and $65.8 million, respectively, as compared to thecorresponding periods of fiscal 2009, primarily due to the cost savingsinitiatives resulting from the fiscal 2009 restructuring activities, improvedfactory utilization, and improved pricing on externally-sourced raw materials. Our cost of goods sold for the third quarter of fiscal 2009 was negativelyimpacted by a $25.9 million increase in inventory reserves as well as lowerfactory utilization rates resulting from the lower demand for our productsattributable primarily to the overall global economic slowdown. 

*** ***

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***Research and Development***

The decrease in research and development expenses forthe three and nine months ended January 2, 2010, 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 nine months ended January 2, 2010, was primarily due to the decreasein headcount and related personnel expense due to the recent restructurings. In addition, marketing and selling expense decreased as a result of lowerintangible amortization expense for the three and nine months ended January 2,2010, 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 decrease in general and administrative expensesfor the three months ended January 2, 2010, was primarily due to a decrease inshare-based compensation.

 

The decrease in general and administrative expense forthe nine months ended January 2, 2010, was primarily due to the decrease inheadcount and related personnel expense and other administrative costsassociated with the recent restructurings.    

***Other Operating Expense***In the third quarter of fiscal2009, we recorded an impairment charge of $673.1 million to goodwill and otherintangibles as a result of the lower current and forecasted demand for ourproducts attributable primarily to the overall global economic slowdown.  Werecorded a goodwill impairment charge in the amount of $609.0 million,intangible impairments of $31.9 million related to developed technology and$32.2 million related to customer relationships, which are recorded in “otheroperating expense” in the condensed consolidated statements of operations forthe three and nine months ended December 27, 2008.

* *

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 assemblyoperations with our primary test and assembly facility in Beijing, China.  The restructuring resulted in the impairment of certain property and equipment, among othercharges.  We have recorded restructuring charges of approximately $0.3 millionand $2.6 million for the three and nine months ended January 2, 2010, and $53.3million of expenses for the three and nine months ended December 27, 2008,respectively, related to one-time employee termination expenses, impairedassets (including property and equipment) and lease and other contracttermination costs.

 

Fromthe third quarter of 2009 through the third quarter of fiscal 2010, we incurreda total of $69.7 million in restructuring charges related to this plan.  As of January2, 2010, we expect to record approximately $4.4 million of additionalrestructuring charges associated with ongoing expenses related to exited leasedfacilities, asset impairments, and one-time employee termination expenses, fora total expected cost of $74.1 million.  As of January 2, 2010, therestructuring related to the adverse macroeconomic business environment issubstantially completed (see Note 9 to the Condensed Consolidated FinancialStatements).

 

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 $0.2 millionand $1.0 million for the three and nine months ended January 2, 2010, and $4.7million and $48.4 million of expenses for the three and nine months endedDecember 27, 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 thirdquarter of 2010, we incurred a total of $48.1 million in restructuring chargesrelated to this plan.  As of January 2, 2010, we expect to record approximately$1.3 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 $49.4 million.  As of January 2, 2010,the restructuring to reduce or eliminate our investments in wireless systems issubstantially completed (see Note 9 to the Condensed Consolidated FinancialStatements). 

 

** **

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

*** ***

*** ***
|                                                                            |   | Three Months Ended |   |    | Nine Months Ended   |
|---------------------------------------------------------------------------------|--------|--------------------|--------|---------|---------------------|
| (In thousands)                                                                  |   | January 2,   2010  |   |    | December 27,   2008 |   |   | January 2,   2010 |   |   | December 27,   2008 |
| Interest expense (1)                                                            | $      | (5,863)            |   |  $ | (6,528)             |   |  $ | (18,537) |   |  $ | (19,542) |
| Interest income                                                                 |   | 317           |   |    | 943            |   |   | 1,063  |   |   | 4,329  |
| (Loss) gain on retirement  of convertible      subordinated notes (1) |   | (408)              |   |    | 8,135          |   |   | 1,540  |   |   | 8,135  |
| Other income (expense)                                                          |   | 126           |   |    | (5,294)             |   |   | (139) |   |   | (3,783) |
| Income tax expense (1)                                                          |   | (2,832)            |   |    | (31,704)            |   |   | (9,403) |   |   | (5,591) |

*** ***

(1) Interest expense, incometax expense and gain on retirement of convertible subordinated notes for thethree and nine months ended December 27, 2008, have been adjusted as a resultof the retrospective adoption of FSP APB 14-1 (now codified as FASB ASC470-20).  See Note 5 to the Condensed Consolidated Financial Statements forfurther discussion.

*** ***

***Interest Expense***Interest expense decreased forthe three and nine months ended January 2, 2010, as compared to the three and ninemonths ended December 27, 2008, primarily due to the purchase and retirement of$197.0 million original principal amount of the 2010 Notes. 

 

Our interest expense includedcash interest of $1.5 million and $5.2 million for the three and nine monthsended January 2, 2010, respectively.  Our interest expense included cashinterest of $2.0 million and $6.1 million for the three and nine months endedDecember 27, 2008, respectively.***Interest Income***Interest income decreased due to our more conservative investmentstrategy coupled with lower prevailing interest rates.

*** ***

***Loss (gain) on the Retirementof Convertible Subordinated Notes***

In the third quarter offiscal 2010, we purchased and retired, at 100% of the original principal amount,$197.0 million of the 2010 Notes, which resulted in a loss of $0.4 million dueto the write off of the unamortized discount and debt issuance cost.

 

In the first quarter offiscal 2010 we purchased and retired an aggregate of $10.0 million originalprincipal amount of the Notes, which resulted in a gain of approximately $1.9million.

*** ***

***Other Income (Expense)***

Theincrease in other income (expense) for the three and nine months ended January 2,2010, is primarily related to the foreign currency exchange rate impact on our Sterling,Euro and Renminbi denominated accounts as the balances change and the exchangerates fluctuate in relation to the U.S. dollar.  

*** ***

***Income Taxes***

Our provision for incometaxes for the reporting periods ended January 2, 2010, and December 27, 2008, hasbeen calculated by applying an estimate of the annual effective tax rate forthe full fiscal year to “ordinary” income or loss (pre-tax income or lossexcluding unusual or infrequently occurring discrete items) for the reportingperiod.  

 

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Income tax expense for thethree months ended January 2, 2010, was $2.8 million, which is comprisedprimarily of a tax expense related to domestic and international operations, atax benefit related to changes in the domestic and foreign deferred tax assetvaluation allowances, a tax expense related to the settlement of the NorthCarolina audit of fiscal 2006 through 2008, and a tax benefit from thecarryback of fiscal 2009 federal losses with the suspension of the 90%Alternative Minimum Tax limitation on the use of Net Operating Losses under theWorker, Homeownership, and Business Assistance Act of 2009 (“WHBAA 2009”). Income tax expense for the three months ended December 27, 2008, was $31.7million, which is comprised primarily of a tax benefit related to domesticoperations, a tax expense related to international operations and a tax expenserelated to an increase in the domestic and foreign deferred tax asset valuationallowances.  Income tax expense for the nine months ended January 2, 2010, was $9.4million, which is comprised primarily of a tax expense related to domestic andinternational operations, a tax benefit related to changes in the domestic andforeign deferred tax asset valuation allowances, a tax expense related tofinalizing the Advance Pricing Agreement and related adjustments with China taxauthorities for calendar years 2006, 2007 and 2008, a tax expense related tothe settlement of the North Carolina audit of fiscal 2006 through 2008, and atax benefit from the carryback of fiscal 2009 federal losses from thesuspension of the 90% Alternative Minimum Tax limitation on the use of NetOperating Losses under the WHBAA 2009.  Income tax expense for the nine monthsended December 27, 2008, was $5.6 million, which is comprised primarily of a taxbenefit related to domestic operations, a tax expense related to internationaloperations and a tax expense related to an increase in the domestic and foreigndeferred tax asset valuation allowances.

 

As of the end of thereporting period ended January 2, 2010, we evaluated the realizability of ourdeferred tax assets and provided a $139.6 million valuation allowance against ourdomestic and foreign deferred tax assets after management determined that it is“more likely than not” that those deferred tax assets will not be realized.  Thisis an increase of $1.2 million from the $138.4 million valuation allowance asof the end of fiscal 2009.  

 

At March 31, 2007, we hadrecorded a $51.4 million valuation allowance as full realization of the domesticfederal and state deferred tax assets was not supported by reversals ofexisting taxable temporary differences or taxable income in prior carry backyears to the extent allowed by the applicable taxing jurisdictions.  As of theend of fiscal 2007, we were no longer in a cumulative domestic pre-tax lossposition for the most recent three-year period.  The valuation allowance wasbased on a determination by our management that unsettled circumstances existedwith respect to a slowdown in demand from a high per-unit dollar content majorcustomer and the significant impact that was expected to have on near-termfinancial results.  These unsettled circumstances represented negative evidencethat in management’s opinion required a continuation of the domestic deferredtax asset valuation allowance as of the end of fiscal 2007.

 

During the first quarter offiscal 2008, the $51.4 million valuation allowance against the domestic federaland state deferred tax assets that existed as of the end of fiscal 2007 wasreduced by $43.6 million.  Of this amount, $12.9 million was reversed 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. (“Sirenza”).  The $31.6 million reversal was based on the determination bymanagement that as of the end of the first quarter of fiscal 2008, the negativeevidence that existed as of the end of fiscal 2007 was no longer applicable. Based on actual activity during the period, by the end of the first quarter offiscal 2008 we were able to better determine the impact of the slow-down incustomer demand from the high per-unit dollar content major customer andpositive evidence 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, we evaluated our ability to realize our deferred taxassets in future periods and increased the valuation allowance for the deferredtax assets in the United Kingdom (“U.K.”), China, and the United States (“U.S.”) from $37.0 million as of the end of the prior quarter to $126.5 million. This increase in the valuation allowance during the third quarter of fiscal2009 was due to impairment charges incurred during the third quarter of fiscal2009 that caused us to move into a cumulative pre-tax loss for the most recentthree-year period, inclusive of the loss for the period ended December 27,2008.  Management determined that the negative evidence represented by thecumulative pre-tax loss that arose during the third quarter of fiscal 2009required an increase in the valuation allowance to the extent that realizationof these deferred 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. 

 

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As of the end of fiscal 2009,the valuation allowance against deferred tax assets had increased by $99.6million to $138.4 million, as compared to $38.8 million as of the end of fiscal2008.  This increase was comprised of: a $0.2 million increase related to statetax credits and net operating loss carryovers acquired in the Sirenzatransaction which were not realizable as of the acquisition date and whichincrease was recorded in goodwill; increases of $90.8 million related to U.S.deferred tax assets, $1.8 million related to China deferred tax assets, and$14.1 million related to U.K. deferred tax assets for which there was a changein judgment about the realizability of the deferred tax assets during fiscal2009 and which increases were recorded as an income tax expense during thefiscal year; a $0.3 million increase related to the tax benefit of employeestock compensation which was recorded in equity during the fiscal year; and a$7.6 million decrease related to the impact from the change in the exchangerate for the British pound on the valuation allowance for U.K. deferred taxassets existing as of the beginning of the fiscal year, which amount was offsetby a  corresponding decrease in the U.S. dollar-denominated amount of therelated U.K. deferred tax assets.  

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.

** **

**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 this Quarterly Reporton 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 January 2, 2010, we had working capital of approximately$352.0 million, including $121.5 million in cash and cash equivalents, comparedto working capital at December 27, 2008, of approximately $405.7 million,including $145.4 million in cash and cash equivalents.  

 

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 ninemonths ended January 2, 2010, generated cash of $128.1 million, compared to$82.5 million for the nine months ended December 27, 2008.  This year-over-yearincrease was primarily attributable to improved profitability resulting fromour restructuring efforts during fiscal 2009 and an improvement in our cashconversion cycle.  We also had lower cash payments related to the fiscal 2009 restructurings,which totaled approximately $5.9 million during the first nine months of fiscal2010 as compared to $14.5 million in the first nine months of fiscal 2009.  

***Cash Flows from Investing Activities***

Net cash provided by investing activities for the ninemonths ended January 2, 2010, was $27.5 million compared to net cash used ininvesting activities of $42.8 million for the nine months ended December 27,2008.  This increase was in part due to the proceeds from the maturities ofinvestments in available-for-sale securities.  In addition, during the first ninemonths of fiscal 2010, capital expenditures totaled approximately $5.9 million,which represents a decrease in capital spending of 86% as compared to $42.2 millionof capital expenditures for the first nine months of fiscal 2009.  Also duringthe first quarter of fiscal 2009, we completed the acquisition of UMC for $23.5million, net of cash acquired.

 

***Cash Flows fromFinancing Activities***

Net cash used in financingactivities was $207.3 million for the nine months ended January 2, 2010,compared to net cash used in financing activities of $22.7 million for the ninemonths ended December 27, 2008.  This increase in cash used in financingactivities was primarily due to the cash purchase of $197.0 million originalprincipal amount of the 2010 Notes in the third quarter of fiscal 2010, as wellas the cash purchases during the first quarter of fiscal 2010 of (i) anaggregate of $2.2 million original principal amount of the 2012 Notes for $1.8million, and (ii) an aggregate of $7.8 million original principal amount of the 2014 Notes for $4.8 million.

** **

** **

** **

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**COMMITMENTS AND CONTINGENCIES**

** **

*Equipment Term Loan*  During the first quarter of fiscal 2007, we enteredinto a $25.0 million equipment term loan at an interest rate of 7.87%.  We usedthe proceeds primarily for wafer fabrication and assembly expansions.  As of January2, 2010, the outstanding balance of this loan totaled approximately $10.2million.

 

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 January 2, 2010, 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.  

 

In the first quarter offiscal 2010, we purchased and retired $2.2 million original principal amount ofthe 2012 Notes at an average price of $78.56, which resulted in a gain ofapproximately $0.3 million.  As of January 2, 2010, the 2012 Notes had a fairvalue of $182.9 million (excluding $2.2 million of the original principalamount of the 2012 Notes that were purchased and retired) and $124.0 million atDecember 27, 2008.

 

In the first quarter offiscal 2010, we purchased and retired $7.8 million original principal amount ofthe 2014 Notes at an average price of $61.55, which resulted in a gain ofapproximately $1.6 million.  Additionally, during fiscal 2009, we purchased andretired $32.3 million original principal amount of the 2014 Notes at an averageprice of $41.47, which resulted in a gain of approximately $10.6 million.  The 2014Notes had a fair value of $118.2 million as of January 2, 2010 (excluding $40.1million of the original principal amount of the 2014 Notes that were purchasedand retired) and $52.3 million as of December 27, 2008 (excluding $10.2 millionof the original principal amount of the 2014 Notes that were purchased andretired during the nine months ended December 27, 2008).

 

During fiscal 2004, wecompleted the private placement of $230.0 million aggregate principal amount of1.50% convertible subordinated notes due July 1, 2010 (first quarter of fiscal2011).  The net proceeds of the offering were approximately $224.7 millionafter payment of the underwriting discount and expenses of the offeringtotaling $5.3 million.  The net proceeds from the 1.50% offering were offset bythe purchase of $200.0 million of the $300.0 million aggregate principal amountof our 3.75% convertible subordinated notes due 2005.  On August 15, 2004, weredeemed the remainder of the outstanding principal amount of the 3.75%convertible subordinated notes for $100.0 million plus accrued interest withcash flow from operations and cash on hand.  In the third quarter of fiscal2010, we purchased and retired, at 100% of the original principal amount,$197.0 million of the 2010 Notes, which resulted in a loss of $0.4 million dueto the write off of the unamortized discount and debt issuance cost.  Additionally,in fiscal 2009, we purchased and retired $23.0 million of the originalprincipal amount of the 2010 Notes at an average price of $82.83, whichresulted in a gain of approximately $3.8 million.  The remaining 2010 Notes areconvertible into a total of approximately 1.3 million shares as compared to30.1 million shares prior to the purchases. 

As of January 2, 2010, the2010 Notes had a fair value of $9.9 million (excluding $220.0 million of theoriginal principal amount of the 2010 Notes that were purchased and retired). As of December 27, 2008, the 2010 Notes had a fair value of $169.9 million(excluding $23.0 million of the original principal amount of the 2010 Notesthat were purchased and retired during the nine months ended December 27, 2008). 

 

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 purchases orexchanges, if any, will depend on prevailing market conditions, our liquidityrequirements, contractual restrictions and other factors and the amountsinvolved may be material.

 

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*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 $17.5 million as of January 2, 2010. 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 financing cannotbe established, then the securities firm must purchase the pledged ARS at par. 

 

Duringfiscal 2009, we executed on the Credit Line Agreement and drew up to the 75%stated limit, or $13.2 million as of January 2, 2010, as determined by thesecurities firm.  The credit line will become payable when the securities firmreceives the proceeds from purchases of our ARS.  As of January 2, 2010, thecredit line is recorded in short-term debt on our consolidated balance sheet. 

 

*Contractual Obligations  *The followingtable summarizes our convertible debt obligations, including interest, as of January2, 2010, and the effect such obligations are expected to have on our liquidityand cash flows in future periods.  Other than as set forth below, there havebeen no material changes outside the ordinary course of business to ourcontractual obligations and commitments as set forth in our Annual Report onForm 10-K for the fiscal year ended March 28, 2009.

 
|                                                                                  |          |          |         | **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* | $             | 9,967    |         | $                                         | 10,042  | $ | 10,042  | $ | -    | $ | -    | $ | -    |
| Convertible  subordinated notes          due 2012  |          | 197,748  |         |                                      | 201,456  |   | 1,483  |   | 199,973  |   | -    |   | -    |
| Convertible  subordinated notes           due 2014 |          | 134,901  |         |                                      | 140,972  |   | 1,349  |   | 2,698  |   | 136,925  |   | -    |
| Total convertible debt                                                                | $             | 342,616  |         | $                                         | 352,470  | $ | 12,874  | $ | 202,671  | $ | 136,925  | $ | -    |
|                                                                                  |          |          |         |                                      |   |   |   |   |   |   |   |   |   |

 

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

 

*Capital Commitments*At January 2,2010, we had short-term capital commitments of approximately $1.1 million, primarilyfor equipment replacements, equipment for process improvements and generalcorporate requirements.  

*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, we believethat we have sufficient liquidity to meet both our short-term and long-termcash requirements.  The 1.50% convertible subordinated notes are due on July 1,2010 (first quarter of fiscal 2011) and we currently expect to retire them withcash on hand from operating activities.  However, if current economicconditions or other factors materially reduce demand for our products, or inthe event that growth is faster than we had anticipated, operating cash flowsmay be insufficient to meet our needs.  If existing resources and cash fromoperations are not sufficient to meet our future requirements or if we perceiveconditions to be favorable, we may seek additional debt or equity financing,additional credit facilities, enter into sale-leaseback transactions or obtainasset-based financing.  We cannot be sure that any additional equity or debtfinancing will not be dilutive to holders of our common stock.  Further, wecannot be sure that additional equity or debt financing, if required, will beavailable on favorable terms, if at all, particularly given the currentmacroeconomic conditions.

** **

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

** **

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*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 nine 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 Chief Executive Officer and Chief FinancialOfficer, 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.

 

**PART II - OTHERINFORMATION**

** **

**ITEM 6.  EXHIBITS**

**  **
| 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                   |

 

 

 

 

 

 

 

 

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 ** **

**SIGNATURES**

** **

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

 
|  
RF Micro Devices, Inc.

Date:  February 11, 2010

 
/s/ William A. Priddy, Jr.

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

 
Vice President of  Administration and Secretary  (Principal Financial Officer)

     

 

Date:  February 11, 2010

 
/s/ Barry D. Church

 Barry D. Church
 
Vice President and Corporate  Controller

 
(Principal Accounting  Officer)

 

 

34

 

 

 

 

 

 

**EXHIBIT INDEX**

** **

** **

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  

 

 

 

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

35

 

 

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