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RF Micro Devices 10-Q 2012
Form 10-Q
Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

 

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

For the quarterly period ended December 31, 2011

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   56-1733461

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

7628 Thorndike Road

Greensboro, North Carolina

 

27409-9421

(Zip Code)

(Address of principal executive offices)  

(336) 664-1233

(Registrant’s telephone number, including area code)

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

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

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

 

Large accelerated filer þ    Accelerated filer ¨    Non-accelerated filer ¨    Smaller reporting company ¨
      (Do not check if a smaller reporting company)   

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

As of January 27, 2012, there were 276,232,098 shares of the registrant’s common stock outstanding.

 

 

 


Table of Contents

RF MICRO DEVICES, INC. AND SUBSIDIARIES

INDEX

 

     Page      

PART I — FINANCIAL INFORMATION

  

Item 1. Financial Statements.

  

Condensed Consolidated Balance Sheets as of December 31, 2011 and April 2, 2011

     3   

Condensed Consolidated Statements of Operations for the three months ended December 31, 2011 and January 1, 2011

     4   

Condensed Consolidated Statements of Income for the nine months ended December 31, 2011 and January 1, 2011

     5   

Condensed Consolidated Statements of Cash Flows for the nine months ended December 31, 2011 and January 1, 2011

     6   

Notes to Condensed Consolidated Financial Statements

     7   

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

     17   

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

     25   

Item 4. Controls and Procedures.

     25   

PART II — OTHER INFORMATION

  

Item 1A. Risk Factors.

     25   

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

     26   

Item 6. Exhibits.

     27   

SIGNATURES

     28   

EXHIBIT INDEX

     29   

 

2


Table of Contents

PART I — FINANCIAL INFORMATION

ITEM 1.

RF MICRO DEVICES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands)

(Unaudited)

 

     December 31, 2011      April 2, 2011   
  

 

 

 

ASSETS

    

Current assets:

    

Cash and cash equivalents

   $ 134,484      $ 131,760   

Restricted cash

     519        422   

Short-term investments (Note 7)

     160,931        159,881   

Accounts receivable, less allowance of $797 and $800 as of December 31, 2011 and April 2, 2011, respectively

     115,539        120,375   

Inventories (Note 3)

     147,887        149,813   

Prepaid expenses

     6,700        6,960   

Other receivables

     10,042        10,218   

Other current assets (Note 6)

     12,673        20,730   
  

 

 

 

Total current assets

     588,775        600,159   

Property and equipment, net of accumulated depreciation of $580,327 at December 31, 2011 and $541,318 at April 2, 2011

     202,484        209,478   

Goodwill

     95,628        95,628   

Intangible assets, net

     69,888        83,685   

Long-term investments (Note 7)

     3,246        2,694   

Other non-current assets (Note 6)

     30,310        33,749   
  

 

 

 

Total assets

   $ 990,331      $ 1,025,393   
  

 

 

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

    

Current liabilities:

    

Accounts payable

   $ 76,468      $ 89,490   

Accrued liabilities

     45,046        41,483   

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

     39,947        3,852   

Other current liabilities (Note 6)

     5,315        112   
  

 

 

 

Total current liabilities

     166,776        134,937   

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

     117,173        177,343   

Other long-term liabilities (Note 6)

     27,437        36,758   
  

 

 

 

Total liabilities

     311,386        349,038   

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; 276,229 and 275,376 shares issued and outstanding at December 31, 2011 and April 2, 2011, respectively

     935,781        966,764   

Additional paid-in capital

     296,697        276,964   

Accumulated other comprehensive income, net of tax

     385        393   

Accumulated deficit

     (553,918)        (567,766)   
  

 

 

 

Total shareholders’ equity

     678,945        676,355   
  

 

 

 

Total liabilities and shareholders’ equity

   $ 990,331       $ 1,025,393   
  

 

 

 

See accompanying Notes to Condensed Consolidated Financial Statements.

 

3


Table of Contents

RF MICRO DEVICES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

(Unaudited)

 

     Three Months Ended  
     December 31, 2011        January 1, 2011    
  

 

 

 

Revenue

   $ 225,425       $ 278,794   

Cost of goods sold

     161,864         175,705   
  

 

 

 

Gross profit

     63,561         103,089   

Operating expenses:

     

Research and development

     37,455         33,920   

Marketing and selling

     16,047         14,621   

General and administrative

     12,238         11,036   

Other operating expense

            192   
  

 

 

 

Total operating expenses

     65,745         59,769   
  

 

 

 

(Loss) income from operations

     (2,184)         43,320   

Interest expense

     (2,798)         (3,800)   

Interest income

     114         124   

Loss on retirement of convertible subordinated notes (Note 5)

     (20)           

Other income

     620         642   
  

 

 

 

(Loss) income before income taxes

     (4,268)         40,286   

Income tax expense (Note 6)

     (5,125)         (3,600)   
  

 

 

 

Net (loss) income

   $ (9,393)       $ 36,686   
  

 

 

 

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

     

Basic

   $ (0.03)       $ 0.13   

Diluted

   $ (0.03)       $ 0.13   

Shares used in per share calculation:

     

Basic

     277,192         275,009   

Diluted

     277,192          284,152   

See accompanying Notes to Condensed Consolidated Financial Statements.

 

4


Table of Contents

RF MICRO DEVICES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(In thousands, except per share data)

(Unaudited)

 

     Nine Months Ended  
     December 31, 2011        January 1, 2011    
  

 

 

 

Revenue

   $ 683,427       $ 838,430   

Cost of goods sold

     451,305         524,280   
  

 

 

 

Gross profit

     232,122         314,150   

Operating expenses:

     

Research and development

     110,999         105,626   

Marketing and selling

     46,901         44,083   

General and administrative

     38,396         36,941   

Other operating expense

     136         1,229   
  

 

 

 

Total operating expenses

     196,432         187,879   
  

 

 

 

Income from operations

     35,690         126,271   

Interest expense

     (8,395)         (13,329)   

Interest income

     364         619   

Loss on retirement of convertible subordinated notes (Note 5)

     (798)         (1,646)   

Other income

     816         2,505   
  

 

 

 

Income before income taxes

     27,677         114,420   

Income tax expense (Note 6)

     (13,829)         (13,996)   
  

 

 

 

Net income

   $ 13,848       $ 100,424   
  

 

 

 

Net income per share (Note 2):

     

Basic

   $ 0.05       $ 0.37   

Diluted

   $ 0.05       $ 0.36   

Shares used in per share calculation:

     

Basic

     276,478         272,316   

Diluted

     283,079         279,493   

See accompanying Notes to Condensed Consolidated Financial Statements.

 

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Table of Contents

RF MICRO DEVICES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

 

     Nine Months Ended  
     December 31, 2011       January 1, 2011    
  

 

 

 

Cash flows from operating activities:

    

Net income

   $ 13,848      $ 100,424   

Adjustments to reconcile net income to net cash provided by operating activities:

    

Depreciation

     43,458         47,886    

Amortization and other non-cash items

     20,765         24,440    

Excess tax benefit from exercises of stock options

     (163)        (78)   

Deferred income taxes

     2,460         1,599    

Foreign currency adjustments

     (91)        (1,054)   

Asset impairments (including restructuring impairments)

     —         27    

Loss on retirement of convertible subordinated notes

     798         1,646    

Gain on disposal of assets, net

     (1,062)        (6)   

Income from equity investment

     (552)        (574)   

Share-based compensation expense

     21,621         20,061    

Changes in operating assets and liabilities:

    

Accounts receivable, net

     4,841         (30,350)   

Inventories

     1,804         (10,908)   

Prepaid expense and other current and non-current assets

     604         8,513    

Accounts payable and accrued liabilities

     (10,020)        16,416    

Income tax payable/recoverable

     6,644         (150)   

Other liabilities

     (1,322)        (644)   
  

 

 

 

Net cash provided by operating activities

     103,633         177,248    

Investing activities:

    

Purchase of property and equipment

     (36,418)        (20,935)   

Restricted cash associated with investing activities

     (516)        —    

Proceeds from sale of property and equipment

     917         456    

Proceeds from maturities of securities available-for-sale

     155,001         207,523    

Purchase of securities available-for-sale

     (155,908)        (198,756)   
  

 

 

 

Net cash used in investing activities

     (36,924)        (11,712)   

Financing activities:

    

Payment of debt

     (34,104)        (110,775)   

Payments of no net cost loan

     —         (12,900)   

Excess tax benefit from exercises of stock options

     163         78    

Proceeds from the issuance of common stock

     10,050         13,827    

Repurchase of common stock, including transaction costs

     (30,373)        —    

Tax withholding paid on behalf of employees for restricted stock units

     (9,651)        (2,471)   

Restricted cash associated with financing activities

     338         (183)   

Repayment of capital lease obligations

     (43)        (98)   
  

 

 

 

Net cash used in financing activities

     (63,620)        (112,522)   
  

 

 

 

Net increase in cash and cash equivalents

     3,089         53,014    

Effect of exchange rate changes on cash

     (365)        594    

Cash and cash equivalents at the beginning of the period

     131,760         104,778    
  

 

 

 

Cash and cash equivalents at the end of the period

   $ 134,484      $ 158,386   
  

 

 

 

See accompanying Notes to Condensed Consolidated Financial Statements.

 

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Table of Contents

RF MICRO DEVICES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES

The accompanying Condensed Consolidated Financial Statements of RF Micro Devices, Inc. and Subsidiaries (together, the “Company” or “RFMD”) have been prepared in conformity with accounting principles generally accepted in the United States. The preparation of these financial statements requires management to make estimates and assumptions, which could differ materially from actual results. In addition, certain information or footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed, or omitted, pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). In the opinion of management, the financial statements include all adjustments (which are of a normal and recurring nature) necessary for the fair presentation of the results of the interim periods presented. These Condensed Consolidated Financial Statements should be read in conjunction with the Company’s audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended April 2, 2011.

The Condensed Consolidated Financial Statements include the accounts of the Company and its wholly-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. Certain amounts in the Condensed Consolidated Statement of Cash Flows for the nine months ended January 1, 2011, have been reclassified to conform to the presentation of the Condensed Consolidated Statement of Cash Flows for the nine months ended December 31, 2011.

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

 

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Table of Contents

RF MICRO DEVICES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)

 

2. NET (LOSS) INCOME PER SHARE

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

 

 

    Three Months Ended     Nine Months Ended  
    December 31, 2011     January 1, 2011     December 31, 2011     January 1, 2011  

Numerator:

       

Numerator for basic and diluted net (loss) income per share — net (loss) income available to common shareholders

  $ (9,393   $ 36,686     $ 13,848     $ 100,424  

Effect of dilutive securities:

       

Income impact of assumed conversions for interest on 2010 Notes

                         27  
 

 

 

 

Numerator for diluted net income per share — net (loss) income plus assumed conversion of 2010 Notes

  $ (9,393   $ 36,686     $ 13,848     $ 100,451  
 

 

 

 

Denominator:

       

Denominator for basic net (loss) income per share — weighted average shares

    277,192       275,009       276,478       272,316  

Effect of dilutive securities:

       

Employee stock options

           9,143       6,601       6,756  

Assumed conversion of 2010 Notes

                         421  
 

 

 

 

Denominator for diluted net (loss) income per share — adjusted weighted average shares and assumed conversions

    277,192       284,152       283,079       279,493  
 

 

 

 

Basic net (loss) income per share

  $ (0.03   $ 0.13     $ 0.05     $ 0.37  
 

 

 

 

Diluted net (loss) income per share

  $ (0.03   $ 0.13     $ 0.05     $ 0.36  
 

 

 

 

In the computation of diluted net loss per share for the three months ended December 31, 2011, all outstanding stock options were excluded because the effect of their inclusion would have been anti-dilutive.

In the computation of diluted net income per share for the nine months ended December 31, 2011, outstanding stock options to purchase approximately 4.7 million shares were excluded because the exercise price of the options was greater than the average market price of the underlying common stock and the effect of their inclusion would have been anti-dilutive. In the computation of diluted net income per share for the three and nine months ended January 1, 2011, outstanding stock options to purchase approximately 1.9 million shares and 11.4 million shares, respectively, were excluded because the exercise price of the options was greater than the average market price of the underlying common stock and the effect of their inclusion would have been anti-dilutive.

On July 1, 2010, the Company repaid the $10.0 million outstanding principal balance plus accrued interest on the 1.50% convertible subordinated notes (the “2010 Notes”) and the conversion option of these notes expired unexercised. The computation of weighted-average diluted shares outstanding for the nine months ended January 1, 2011 includes the effect of the shares that could have been issued upon conversion of the remaining $10.0 million balance of the 2010 Notes prior to their maturity on July 1, 2010 (a total of approximately 0.4 million shares).

 

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RF MICRO DEVICES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)

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

 

The computation of diluted net (loss) income per share does not assume the conversion of the Company’s $200 million initial aggregate principal amount of 0.75% Convertible Subordinated Notes due 2012 (the “2012 Notes”) or the Company’s $175 million initial aggregate principal amount of 1.00% Convertible Subordinated Notes due 2014 (the “2014 Notes”).

The 2012 Notes and 2014 Notes generally would become dilutive to earnings if the average market price of the Company’s common stock exceeds approximately $8.05 per share. The maximum number of shares issuable upon conversion of the 2012 Notes and 2014 Notes as of December 31, 2011 is approximately 16.3 million shares (excluding an aggregate of $205.9 million principal amount of the 2012 Notes and 2014 Notes that were previously purchased and retired by the Company), which may be adjusted as a result of stock splits, stock dividends and antidilution provisions.

Share Repurchase

During the three months ended December 31, 2011, the Company repurchased 2.3 million shares of its common stock at an average price of $6.63 on the open market. During the nine months ended December 31, 2011, the Company repurchased 4.9 million shares of its common stock at an average price of $6.18 on the open market.

3. INVENTORIES

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

 

 

     December 31, 2011        April 2, 2011  

Raw materials

   $ 42,320        $ 35,851  

Work in process

     48,729          53,219  

Finished goods

     56,838          60,743  
  

 

 

      

 

 

 

Total inventories

   $ 147,887        $ 149,813  
  

 

 

      

 

 

 

4. OTHER COMPREHENSIVE INCOME

Accumulated other comprehensive income for the Company consists of accumulated unrealized gains (losses) on marketable securities, foreign currency translation adjustments and amortization of unrealized actuarial pension valuation gain. This amount is included as a separate component of shareholders’ equity. Comprehensive income is not materially different than net (loss) income for the three and nine months ended December 31, 2011 and January 1, 2011.

5. DEBT

Debt balances at December 31, 2011 and April 2, 2011 are as follows (in thousands):

 

 

     December 31, 2011        April 2, 2011  

Convertible subordinated notes due 2012, net of discount

   $ 33,601        $ 58,317  

Convertible subordinated notes due 2014, net of discount

     117,173          111,992  

Bank loan

     6,346          7,034  

Equipment term loan, net of discount

               3,852  
  

 

 

      

 

 

 

Total debt

     157,120          181,195  

Less current portion

     39,947          3,852  
  

 

 

      

 

 

 

Total long-term debt

   $ 117,173        $ 177,343  
  

 

 

      

 

 

 

 

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RF MICRO DEVICES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)

5. DEBT (continued)

 

Convertible Debt

During the third quarter of fiscal 2012, the Company purchased and retired $6.0 million original principal amount of its 2012 Notes for an average price of $99.75, which resulted in a loss of less than $0.1 million. Also, during the first quarter of fiscal 2012, the Company purchased and retired $22.0 million original principal amount of its 2012 Notes for an average price of $105.48, which resulted in a loss of approximately $0.8 million. In accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 470-20, “Debt – Debt with Conversions and Other Options” (“ASC 470-20”), the Company records gains and losses on the early retirement of its 2012 Notes and its 2014 Notes in the period of derecognition, depending on whether the fair market value at the time of derecognition was greater than, or less than, the carrying value of the debt.

The Company’s 2012 Notes, which mature on April 15, 2012, are reflected in “current portion of long-term debt” on the Condensed Consolidated Balance Sheet.

As of December 31, 2011, the 2012 Notes had a fair value on the Private Offerings, Resale and Trading through Automated Linkages (“PORTAL”) Market of $34.0 million, compared to a carrying value of $33.6 million. As of April 2, 2011, the 2012 Notes had a fair value on the PORTAL Market of $66.1 million, compared to a carrying value of $58.3 million.

As of December 31, 2011, the 2014 Notes had a fair value on the PORTAL Market of $135.8 million, compared to a carrying value of $117.2 million. As of April 2, 2011, the 2014 Notes had a fair value on the PORTAL Market of $145.0 million, compared to a carrying value of $112.0 million.

Total non-cash interest expense related to the Company’s 2012 and 2014 Notes was $2.3 million and $6.9 million for the three and nine months ended December 31, 2011, respectively, and $3.1 million and $10.8 million for the three and nine months ended January 1, 2011, respectively.

Bank Loan

The bank loan, which is payable in April 2012, is reflected in “current portion of long-term debt” on the Condensed Consolidated Balance Sheet.

Equipment Term Loan

In the first quarter of fiscal 2012, the equipment term loan became due and the remaining balance of $3.9 million was paid with cash on hand.

6. INCOME TAXES

Income Tax Expense

The Company’s provision for income taxes for the reporting periods ended December 31, 2011 and January 1, 2011 has been calculated by applying an estimate of the annual effective tax rate for the full fiscal year to “ordinary” income or loss (pre-tax income or loss excluding unusual or infrequently occurring discrete items) for the reporting period.

The Company’s income tax expense was $5.1 million and $13.8 million for the three and nine months ended December 31, 2011, respectively, and $3.6 million and $14.0 million for the three and nine months ended January 1, 2011, respectively. The Company’s effective tax rate was (120.1)% and 50.0% for the three and nine months ended December 31, 2011 and 8.9% and 12.2% for the three and nine months ended January 1, 2011, respectively. The Company’s effective tax rate for the third quarter of fiscal 2012 differed from the statutory rate primarily due to tax rate differences in foreign jurisdictions, state income taxes, domestic tax credits generated, and adjustments to the valuation allowance limiting the recognition of the benefit of domestic deferred tax assets. For the nine month period only, the Company’s effective tax rate for the third quarter of fiscal 2012 also differed from the statutory rate due to a tax expense related to a reduction in U.K. deferred tax assets due to the decrease in U.K. tax rates and a tax benefit from the reversal of uncertain tax position accruals related to success-based fees incurred in connection with prior business combinations. The Company’s effective tax rate for the third quarter of fiscal 2011 differed from the statutory rate primarily due to tax rate differences in foreign jurisdictions, state

 

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RF MICRO DEVICES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)

6. INCOME TAXES (continued)

 

income taxes, domestic tax credits generated, adjustments to the valuation allowance limiting the recognition of the benefit of domestic and foreign deferred tax assets, and tax expense related to resolution of prior year tax issues in foreign jurisdictions. For the nine month period only, the Company’s effective tax rate for the third quarter of fiscal 2011 also differed from the statutory rate due to a tax benefit from the expiration of the statute of limitations on uncertain tax positions assumed in prior business combinations.

Deferred Taxes

The valuation allowance against net deferred tax assets has increased by $11.1 million from the $92.3 million balance as of the end of fiscal 2011. The Company intends to maintain a valuation allowance against its deferred tax assets for certain jurisdictions until sufficient positive evidence exists to support its full or partial reversal. The amount of the deferred tax assets actually realized could vary depending upon the amount of taxable income the Company is able to generate in the various taxing jurisdictions in which the Company has operations.

The Company has outstanding domestic federal and state tax net operating loss (“NOLs”) carry-forwards that will begin to expire in fiscal 2019 and fiscal 2012, respectively, if unused. The use of the NOLs which were acquired in prior year acquisitions is subject to certain annual limitations under Internal Revenue Code Section 382 and similar state tax provisions. In addition, the Company has U.K. loss carryovers that carry forward indefinitely.

Uncertain Tax Positions

The Company’s gross unrecognized tax benefits decreased from $32.9 million as of the end of fiscal 2011 to $31.8 million as of the end of the third quarter of fiscal 2012, with the change arising from a $0.7 million increase related to tax positions taken with respect to the current fiscal year and a $1.8 million decrease related to tax positions taken with respect to earlier fiscal years.

U.S. federal tax returns through fiscal 2009, North Carolina tax returns through fiscal 2008, and German tax returns through calendar year 2007 have been examined by their respective taxing authorities. Subsequent tax years in each of those jurisdictions remain open for examination. Other material jurisdictions that are subject to examination by tax authorities are California (fiscal 2008 through present), the U.K. (fiscal 2002 through present), and China (calendar year 2001 through present).

7. INVESTMENTS AND FAIR VALUE MEASUREMENTS

Available-For-Sale

The following is a summary of available-for-sale securities as of December 31, 2011 and April 2, 2011 (in thousands):

 

 

     Available-for-Sale Securities  
     Cost      Gross
Unrealized
Gains
     Gross
Unrealized
Losses
    Estimated Fair  
Value
 

December 31, 2011

          

U.S. government/agency securities

   $  160,928      $ 8      $ (5   $ 160,931    

Auction rate securities

     2,150                       2,150    

Money market funds

     23,252                       23,252    
  

 

 

 
   $ 186,330      $ 8      $ (5   $ 186,333    
  

 

 

 

April 2, 2011

          

U.S. government/agency securities

   $ 159,837      $ 44      $      $ 159,881    

Auction rate securities

     2,150                       2,150    

Money market funds

     31,748                       31,748    
  

 

 

 
   $ 193,735      $ 44      $      $ 193,779    
  

 

 

 

 

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RF MICRO DEVICES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)

7. INVESTMENTS AND FAIR VALUE MEASUREMENTS (continued)

 

The estimated fair value of available-for-sale securities was based on the prevailing market values on December 31, 2011 and April 2, 2011. We determine the cost of an investment sold based on the specific identification method.

There were no gross realized gains or losses recognized on available-for-sale securities for the three and nine months ended December 31, 2011. Gross realized gains and losses recognized on available-for-sale securities were insignificant for the three and nine months ended January 1, 2011.

No available-for-sale investments were in a continuous unrealized loss position as of December 31, 2011 and April 2, 2011.

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

 

 

Fair Value Fair Value Fair Value Fair Value
     December 31, 2011        April 2, 2011  
     Cost        Estimated
Fair  Value
       Cost        Estimated
Fair  Value
 

Due in less than one year

   $ 184,180        $ 184,183        $ 191,585        $ 191,629  

Due after ten years

     2,150          2,150          2,150          2,150  
  

 

 

      

 

 

      

 

 

      

 

 

 

Total investments in debt securities

   $ 186,330        $ 186,333        $ 193,735        $ 193,779  
  

 

 

      

 

 

      

 

 

      

 

 

 

Fair Value Measurements

On a quarterly basis, the Company measures the fair value of its marketable securities, which are comprised of U.S. government/agency securities, auction rate securities (ARS), and money market funds. Marketable securities are reported at fair value in cash and cash equivalents, short-term investments and long-term investments on the Company’s Condensed Consolidated Balance Sheet. The related unrealized gains and losses are included in accumulated other comprehensive income, a component of shareholders’ equity, net of tax.

Recurring Fair Value Measurements

The fair value of the financial assets measured at fair value on a recurring basis was determined using the following levels of inputs as of December 31, 2011 and April 2, 2011 (in thousands):

 

 

     Total      Quoted Prices In
Active Markets For
Identical Assets
(Level 1)
     Significant Other
Observable Inputs
(Level 2)
     Significant
Unobservable
Inputs (Level 3)
 

December 31, 2011

           

U.S. government/agency securities

   $ 160,931      $ 160,931      $       $   

Auction rate securities

     2,150                2,150          

Money market funds

     23,252        23,252                  
  

 

 

    

 

 

    

 

 

    

 

 

 
   $ 186,333      $ 184,183      $ 2,150      $   
  

 

 

    

 

 

    

 

 

    

 

 

 

April 2, 2011

           

U.S. government/agency securities

   $ 159,881      $ 159,881      $       $   

Auction rate securities

     2,150                2,150          

Money market funds

     31,748        31,748                  
  

 

 

    

 

 

    

 

 

    

 

 

 
   $ 193,779      $ 191,629      $ 2,150      $   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

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RF MICRO DEVICES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)

7. INVESTMENTS AND FAIR VALUE MEASUREMENTS (continued)

 

ARS are debt instruments with interest rates that reset through periodic short-term auctions. The Company’s Level 2 ARS are valued at par based on quoted prices for identical or similar instruments in markets that are not active.

Nonrecurring Fair Value Measurements

The Company’s non-financial assets, such as goodwill, intangible assets, and property and equipment, are measured at fair value when there is an indicator of impairment and recorded at fair value only when an impairment charge is recognized. The Company did not have any material non-financial assets or liabilities measured at fair value during the three and nine months ended December 31, 2011 and January 1, 2011.

Financial Instruments Not Recorded at Fair Value

The carrying values of cash and cash equivalents, accounts receivable, accounts payable and other accrued liabilities approximate fair value as of December 31, 2011 and April 2, 2011. See Note 5 to the Condensed Consolidated Financial Statements for a discussion of the fair value of the Company’s debt instruments.

8. RECENT ACCOUNTING PRONOUNCEMENTS

In June 2011, the FASB issued Accounting Standards Update (“ASU”) 2011-05 “Presentation of Comprehensive Income” (“ASU 2011-05”). ASU 2011-05 allows an entity to present the components of net income and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. The updated guidance eliminates the current option to report other comprehensive income and its components in the statement of changes in equity. While ASU 2011-05 changes the presentation of comprehensive income, there are no changes to the components that are recognized in net income or other comprehensive income under current accounting guidance. In December 2011, the FASB issued ASU 2011-12 “Comprehensive Income (Topic 220): Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05” (“ASU 2011-12”), which defers only those changes in ASU 2011-05 that relate to the presentation of reclassification adjustments. The new guidance is effective on a retrospective basis for financial statements issued for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2011. The Company will adopt this guidance in the first quarter of fiscal 2013. The adoption of ASU 2011-05 and the deferrals in ASU 2011-12 are not expected to have a material impact on the Company’s Condensed Consolidated Financial Statements.

In September 2011, the FASB issued ASU No. 2011-08, “Intangibles - Goodwill and Other (Topic 350), Testing Goodwill for Impairment” (“ASU 2011-08”). ASU 2011-08 permits an entity to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the two-step goodwill impairment test described in Topic 350. The qualitative assessment is optional, allowing companies to go directly to the quantitative assessment. The amendments in this update are effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. Early adoption is permitted. The Company will adopt this guidance in the first quarter of fiscal 2013. The Company does not expect ASU 2011-08 to have a material effect on the Company’s financial position, results of operations or financial statement disclosures as the value of goodwill will not be affected by the adoption of this standard.

9. OPERATING SEGMENT INFORMATION

RFMD’s operating segments as of December 31, 2011 are its Cellular Products Group (CPG), Multi-Market Products Group (MPG) and Compound Semiconductor Group (CSG). During the third quarter of fiscal 2012, the Company re-evaluated its reportable segments under ASC 280 and based on new facts and circumstances, determined that CPG and MPG were separate reportable operating segments under ASC 280.

 

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RF MICRO DEVICES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)

9. OPERATING SEGMENT INFORMATION (continued)

 

CPG is a leading supplier of cellular radio frequency (RF) components, such as power amplifier (PA) modules and transmit modules, which perform various functions in the cellular front end section located between the transceiver and the antenna. CPG is also a supplier of switch-based content in the cellular front end section, including antenna switch modules, antenna tuning solutions, switch filter modules and switch duplexer modules, which are increasingly required in next-generation 3G and 4G devices. CPG supplies its broad portfolio of cellular RF components into mobile devices including handsets, USB modems, netbooks, notebooks and tablets.

MPG is a global supplier of a broad array of RF components, such as power amplifiers, low noise amplifiers, variable gain amplifiers, high power GaN transistors, attenuators, mixers, modulators, switches, voltage-controlled oscillators (VCO’s), phase locked loop modules, circulators, isolators, multi-chip modules, front-end modules, and a range of military and space components (amplifiers, mixers, VCOs, power dividers and transformers). Major communications applications include mobile wireless infrastructure (2G, 3G and 4G), point-to-point and microwave radios, WiFi (infrastructure and mobile devices), and cable television wireline infrastructure. Industrial applications include Smart Energy/AMI, private mobile radio, and test and measurement equipment. Aerospace and defense applications include military communications, radar and electronic warfare, as well as space communications.

CSG is a new business group established to pursue business opportunities based on RFMD’s compound semiconductor technologies and expertise in end markets and applications outside the Company’s traditional, core RF end markets. CSG includes RFMD’s foundry services and the recently formed power conversion product line, as well as RFMD’s new technology commercialization center, which focuses on the identification, investigation and validation of compound semiconductor-based business opportunities.

As of December 31, 2011, the Company’s reportable segments are CPG and MPG. CSG does not currently meet the quantitative threshold for an individually reportable segment under ASC 280-10-50-12. CPG and MPG are separate reportable segments based on the organizational structure and information reviewed by the Company’s Chief Executive Officer, who is the Company’s chief operating decision maker (or CODM), and are managed separately based on the end markets and applications they support. The CODM allocates resources and assesses the performance of each operating segment primarily based on operating income (loss) and operating income (loss) as a percentage of revenue.

The “All other” category includes operating expenses such as stock-based compensation, amortization of purchased intangible assets, net restructuring costs, and other miscellaneous corporate overhead expenses that the Company does not allocate to its reportable segments because these expenses are not included in the segment operating performance measures evaluated by the Company’s CODM. The Company has recast certain prior period amounts within this note to conform to the way it currently internally manages and monitors segment performance. The CODM does not evaluate operating segments using discrete asset information. The Company’s operating segments do not record inter-company revenue. The Company does not allocate gains and losses from equity investments, interest and other income, or taxes to operating segments. Except as discussed above regarding the “All other” category, the Company’s accounting policies for segment reporting are the same as for RFMD as a whole.

 

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RF MICRO DEVICES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)

9. OPERATING SEGMENT INFORMATION (continued)

 

The following tables present details of the Company’s reportable segments and a reconciliation of the “All other” category (in thousands):

 

 

     Three Months Ended      Nine Months Ended  
    

December 31,

2011

    

January 1,

2011

    

December 31,

2011

    

January 1,

2011

 
  

 

 

    

 

 

 

Net revenue:

           

CPG

   $ 179,254       $ 212,879       $ 521,881       $ 661,895   

MPG

     45,798         65,747         160,393         176,300   

Other operating segment

     373         168         1,153         235   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total net revenue

   $ 225,425       $ 278,794       $ 683,427       $ 838,430   
  

 

 

    

 

 

    

 

 

    

 

 

 

(Loss) income from operations:

           

CPG

   $ 11,606       $ 40,800       $ 61,699       $ 135,836   

MPG

     (1,745)         13,995         12,241         29,362   

Other operating segment

     (1,033)         (792)         (2,616)         (2,373)   

All other

     (11,012)         (10,683)         (35,634)         (36,554)   
  

 

 

    

 

 

    

 

 

    

 

 

 

(Loss) income from operations

     (2,184)         43,320         35,690         126,271  

Interest expense

     (2,798)         (3,800)         (8,395)         (13,329)   

Interest income

     114         124         364         619   

Loss on retirement of convertible subordinated notes

     (20)         —          (798)         (1,646)   

Other income

     620         642         816         2,505   
  

 

 

    

 

 

    

 

 

    

 

 

 

(Loss) income before income taxes

   $ (4,268)       $ 40,286       $ 27,677       $ 114,420   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

 

     Three Months Ended      Nine Months Ended  
    

December 31,

2011

    

January 1,

2011

    

December 31,

2011

    

January 1,

2011

 
  

 

 

    

 

 

 

Reconciliation of “All other” category:

           

Share-based compensation expense

   $ (6,409)       $ (5,615)       $ (21,621)       $ (20,061)   

Amortization of intangible assets

     (4,598)         (4,614)         (13,798)         (13,844)   

Other (income) expenses (restructuring, (gain) loss on PP&E, start-up costs and other non-cash expenses)

     (5)         (454)         (215)         (2,649)   
  

 

 

    

 

 

    

 

 

    

 

 

 

(Loss) income from operations for “All other”

   $ (11,012)       $ (10,683)       $ (35,634)       $ (36,554)   
  

 

 

    

 

 

    

 

 

    

 

 

 

For the nine months ended December 31, 2011, one customer accounted for approximately 20% of the Company’s consolidated net revenue, while another customer accounted for approximately 14% of the Company’s consolidated net revenue. The majority of the revenue from these customers was from the sale of the Company’s CPG products. For the nine months ended January 1, 2011, one customer accounted for approximately 40% of the Company’s consolidated net revenue. The majority of the revenue from this customer was from the sale of the Company’s CPG products.

 

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RF MICRO DEVICES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)

 

10. SUBSEQUENT EVENTS

During the fourth quarter of fiscal 2012 (through February 9, 2012), the Company purchased and retired $7.8 million aggregate principal amount of its 2012 Notes, equal to approximately 23% of the outstanding balance of its 2012 Notes. The Company paid an average price of $99.75. The primary impact of this transaction to the Company’s financial statements in the fourth quarter of fiscal 2012 is expected to be a reduction of debt of approximately $7.6 million (net of discount) and a reduction in cash of approximately $7.7 million.

 

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

SAFE HARBOR FOR FORWARD-LOOKING STATEMENTS

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

 

   

changes in business and economic conditions, including downturns in the semiconductor industry and/or the overall economy;

 

   

our ability to accurately predict market requirements and evolving industry standards in a timely manner;

 

   

our ability to accurately predict customer demand and thereby avoid the possibility of obsolete inventory, which would reduce our profit margins;

 

   

our customers’ and distributors’ ability to manage the inventory they hold and forecast their demand;

 

   

our ability to achieve cost savings and improve yields and margins on our new and existing products;

 

   

our ability to respond to possible downward pressure on the average selling prices of our products caused by our customers or our competitors;

 

   

our ability to efficiently utilize our capacity, or to acquire additional capacity, in response to customer demand;

 

   

the inability of certain of our customers to access their traditional sources of credit, which could lead them to reduce their level of purchases or seek credit or other accommodations from us;

 

   

our ability to continue to improve our product designs and develop new products in response to new technologies;

 

   

our dependence on a limited number of customers for a substantial portion of our revenue;

 

   

our ability to bring new products to market in response to market shifts and to use technological innovation to shorten time-to-market for our products;

 

   

the risks associated with the operation of our molecular beam epitaxy (MBE) facility, our wafer fabrication facilities, our assembly facility and our test and tape and reel facilities;

 

   

variability in manufacturing yields, and raw material costs and availability;

 

   

our dependence on third parties, including wafer foundries, passive component manufacturers, assembly and packaging suppliers and test and tape and reel suppliers;

 

   

our ability to manage channel partner and customer relationships;

 

   

currency fluctuations, tariffs, trade barriers, tax and export license requirements and health and security issues associated with our foreign operations; and

 

   

our ability to attract and retain skilled personnel and develop leaders for key business units and functions.

 

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These and other risks and uncertainties, which are described in more detail in our most recent Annual Report on Form 10-K and in other reports and statements that we file with the Securities and Exchange Commission, could cause the actual results and developments to be materially different from those expressed or implied by any of these forward-looking statements. Forward-looking statements speak only as of the date they were made and we undertake no obligation to update or revise such statements, except as required by the federal securities laws.

OVERVIEW

The following Management’s Discussion and Analysis (“MD&A”) is intended to help the reader understand the consolidated results of operations and financial condition of RF Micro Devices, Inc. MD&A is provided as a supplement to, and should be read in conjunction with, our Condensed Consolidated Financial Statements and accompanying notes.

We are a recognized global leader in the design and manufacture of high-performance radio frequency (RF) components and compound semiconductor technologies. Our products enable worldwide mobility, provide enhanced connectivity and support advanced functionality in the cellular handset, wireless infrastructure, wireless local area network (WLAN or WiFi), cable television (CATV)/broadband, Smart Energy/advanced metering infrastructure (AMI), and aerospace and defense markets. We are recognized for our diverse portfolio of semiconductor technologies and RF systems expertise, and we are a preferred supplier to the world’s leading mobile device, customer premises and communications equipment providers.

We design, develop, manufacture and market our products to both domestic and international original equipment manufacturers and original design manufacturers in both wireless and wired communications applications, in each of our following operating segments.

 

 

Cellular Products Group (CPG) is a leading supplier of cellular radio frequency (RF) components, such as power amplifier (PA) modules and transmit modules, which perform various functions in the cellular front end section located between the transceiver and the antenna. CPG is also a supplier of switch-based content in the cellular front end section, including antenna switch modules, antenna tuning solutions, switch filter modules and switch duplexer modules, which are increasingly required in next-generation 3G and 4G devices. CPG supplies its broad portfolio of cellular RF components into mobile devices including handsets, USB modems, netbooks, notebooks and tablets.

 

 

Multi-Market Products Group (MPG) is a global supplier of a broad array of RF components, such as power amplifiers, low noise amplifiers, variable gain amplifiers, high power GaN transistors, attenuators, mixers, modulators, switches, voltage-controlled oscillators (VCO’s), phase locked loop modules, circulators, isolators, multi-chip modules, front-end modules, and a range of military and space components (amplifiers, mixers, VCOs, power dividers and transformers). Major communications applications include mobile wireless infrastructure (2G, 3G and 4G), point-to-point and microwave radios, WiFi (infrastructure and mobile devices), and cable television wireline infrastructure. Industrial applications include Smart Energy/AMI, private mobile radio, and test and measurement equipment. Aerospace and defense applications include military communications, radar and electronic warfare, as well as space communications.

 

 

Compound Semiconductor Group (CSG) is a new business group established to pursue business opportunities based on RFMD’s compound semiconductor technologies and expertise in end markets and applications outside the Company’s traditional, core RF end markets. CSG includes RFMD’s foundry services and the recently formed power conversion product line, as well as RFMD’s new technology commercialization center, which focuses on the identification, investigation and validation of compound semiconductor-based business opportunities.

As of December 31, 2011, our reportable segments are CPG and MPG. CSG does not currently meet the quantitative threshold for an individually reportable segment under ASC 280-10-50-12. These business segments are based on the organizational structure and information reviewed by our Chief Executive Officer, who is our chief operating decision maker (or CODM), and are managed separately based on the end markets and applications they support. The CODM allocates resources and assesses the performance of each operating segment primarily based on operating income (loss) and operating income (loss) as a percentage of revenue.

THIRD QUARTER FISCAL 2012 FINANCIAL HIGHLIGHTS:

 

 

Quarterly revenue decreased by 19.1% as compared to the third quarter of fiscal 2011 with CPG revenue down $33.6 million and MPG revenue down $19.9 million. The decrease in CPG revenue was primarily due to lower sales driven by the anticipated end-of-life of transceiver products. Sales of our 3G/4G cellular components (including our new products such as our PowerSmart® family of products, our ultra-high efficiency 3G/4G power amplifiers and our switch-based products) partially offset the decline in transceiver product revenue for the third quarter of fiscal 2012. The decrease in MPG revenue was primarily due to lower demand for our wireless infrastructure products, our Wi-Fi front-end module products, and our CATV hybrid-based amplifiers.

 

 

Gross margin for the quarter was 28.2% as compared to 37.0% for the third quarter of fiscal 2011. The decrease was due to lower factory utilization rates and increased inventory reserves as well as erosion in average selling prices. The decrease was partially offset by a favorable product mix toward higher margin products.

 

 

Operating loss was $2.2 million for the third quarter of fiscal 2012 as compared to operating income of $43.3 million for the third quarter of fiscal 2011.

 

 

Cash flow from operations was $46.2 million for the third quarter of fiscal 2012 as compared to $63.3 million for the third quarter of fiscal 2011.

 

 

Inventory totaled $147.9 million at December 31, 2011, reflecting turns of 4.4 as compared to $133.4 million and turns of 5.3 at January 1, 2011.

 

 

During the third quarter of fiscal 2012, we repurchased 2.3 million shares of our common stock at an average price of $6.63 on the open market.

 

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During the third quarter of fiscal 2012, we purchased and retired $6.0 million original principal amount of our 2012 Notes for an average price of $99.75, which resulted in a loss of less than $0.1 million as a result of applying ASC 470-20.

The following tables present a summary of our results of operations for the three and nine months ended December 31, 2011 and January 1, 2011.

RESULTS OF OPERATIONS

Consolidated

 

     Three Months Ended    

Increase
(Decrease)

   

Percentage
Change

 
(In thousands, except percentages)                           

December 31,

2011

    % of
Revenue
    January 1,
2011
     % of
Revenue
     
  

 

 

   

 

 

 

Revenue

   $ 225,425       100.0   $ 278,794        100.0   $ (53,369     (19.1 )% 

Cost of goods sold

     161,864       71.8       175,705        63.0       (13,841     (7.9
  

 

 

   

 

 

   

 

 

    

 

 

     

Gross profit

     63,561       28.2       103,089        37.0       (39,528     (38.3

Research and development

     37,455       16.6       33,920        12.2       3,535       10.4  

Marketing and selling

     16,047       7.1       14,621        5.2       1,426       9.8  

General and administrative

     12,238       5.5       11,036        4.0       1,202       10.9  

Other operating expense

     5       0.0       192        0.1       (187     (97.4
  

 

 

   

 

 

   

 

 

    

 

 

     

Operating (loss) income

   $ (2,184     (1.0 )%    $ 43,320        15.5     (45,504     (105.0
  

 

 

   

 

 

   

 

 

    

 

 

     
     Nine Months Ended              
(In thousands, except percentages)                           

December 31,

2011

    % of
Revenue
    January 1,
2011
     % of
Revenue
    Increase
(Decrease)
    Percentage
Change
 
  

 

 

   

 

 

 

Revenue

   $ 683,427       100.0   $ 838,430        100.0   $ (155,003     (18.5 )% 

Cost of goods sold

     451,305       66.0       524,280        62.5       (72,975     (13.9
  

 

 

   

 

 

   

 

 

    

 

 

     

Gross profit

     232,122       34.0       314,150        37.5       (82,028     (26.1

Research and development

     110,999       16.3       105,626        12.6       5,373       5.1  

Marketing and selling

     46,901       6.9       44,083        5.3       2,818       6.4  

General and administrative

     38,396       5.6       36,941        4.4       1,455       3.9  

Other operating expense

     136       0.0       1,229        0.1       (1,093     (88.9
  

 

 

   

 

 

   

 

 

    

 

 

     

Operating income

   $ 35,690       5.2   $ 126,271        15.1     (90,581     (71.7
  

 

 

   

 

 

   

 

 

    

 

 

     

Our overall revenue decreased during the three and nine months ended December 31, 2011 as compared to the three and nine months ended January 1, 2011, primarily due to lower sales driven by the anticipated end-of-life of transceiver products and lower demand for our wireless infrastructure products, our Wi-Fi front-end module products and our CATV hybrid-based amplifiers. Sales of our 3G/4G cellular components (including our new products such as our PowerSmart® family of products, our ultra-high efficiency 3G/4G power amplifiers and our switch-based products) partially offset the decline in transceiver product revenue for the three and nine months ended December 31, 2011.

Our overall gross margin for the three and nine months ended December 31, 2011 decreased as compared to the three and nine months ended January 1, 2011, due to lower factory utilization rates and increased inventory reserves as well as erosion in average selling prices. The decrease was partially offset by a favorable product mix toward higher margin products.

Our overall operating loss was $2.2 million and operating income was $35.7 million for the three and nine months ended December 31, 2011, respectively, compared to operating income of $43.3 million and $126.3 million for the three and nine months ended January 1, 2011. Our operating income decreased primarily due to lower sales.

Operating Expenses

Research and development expenses increased for the three and nine months ended December 31, 2011 compared to the three and nine months ended January 1, 2011, primarily due to an increase in headcount and related personnel expenses and other expenses resulting from new product development for 3G/4G mobile devices.

Marketing and selling expenses increased for the three and nine months ended December 31, 2011 compared to the three and nine months ended January 1, 2011, primarily due to an increase in headcount and related personnel expenses in support of our customer diversification efforts and in support of our new products for 3G/4G mobile devices.

General and administrative expenses remained relatively consistent for the three and nine months ended December 31, 2011 as compared to the three and nine months ended January 1, 2011.

 

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Segment Product Revenue, Operating Income (Loss) and Operating Income (Loss) as a Percentage of Revenue

Cellular Products Group

 

     Three Months Ended  
(In thousands, except percentages)   

December 31,

2011

   

January 1,

2011

   

Increase

(Decrease)

   

Percentage

Change

 

 

  

 

 

 

Revenue

   $ 179,254     $ 212,879     $ (33,625     (15.8 )% 

Operating income

     11,606       40,800       (29,194     (71.6

Operating income as a percentage of revenue

     6.5     19.2    
     Nine Months Ended  
(In thousands, except percentages)   

December 31,

2011

   

January 1,

2011

   

Increase

(Decrease)

   

Percentage

Change

 

 

  

 

 

 

Revenue

   $ 521,881     $ 661,895     $ (140,014     (21.2 )% 

Operating income

     61,699       135,836       (74,137     (54.6

Operating income as a percentage of revenue

     11.8     20.5    

The decrease in CPG revenue and operating income for the three and nine months ended December 31, 2011 as compared to the three and nine months ended January 1, 2011, was primarily due to lower sales driven by the anticipated end-of-life of transceiver products. These decreases were partially offset by increased sales of our 3G/4G cellular components (including our new products such as our PowerSmart® family of products, our ultra-high efficiency 3G/4G power amplifiers and our switch-based products).

Multi-Market Products Group

 

     Three Months Ended  
(In thousands, except percentages)   

December 31,

2011

   

January 1,

2011

   

Increase

(Decrease)

   

Percentage

Change

 

 

  

 

 

 

Revenue

   $ 45,798     $ 65,747     $ (19,949     (30.3 )% 

Operating (loss) income

     (1,745     13,995       (15,740     (112.5

Operating (loss) income as a percentage of revenue

     (3.8 )%      21.3    
     Nine Months Ended  
(In thousands, except percentages)   

December 31,

2011

   

January 1,

2011

   

Increase

(Decrease)

   

Percentage

Change

 

 

  

 

 

 

Revenue

   $ 160,393     $ 176,300     $ (15,907     (9.0 )% 

Operating income

     12,241       29,362       (17,121     (58.3

Operating income as a percentage of revenue

     7.6     16.7    

The decrease in MPG revenue and operating income for the three and nine months ended December 31, 2011 as compared to the three and nine months ended January 1, 2011, was primarily due to lower demand for our wireless infrastructure products, our Wi-Fi front-end module products and our CATV hybrid-based amplifiers.

See Note 9 to the Condensed Consolidated Financial Statements for a reconciliation of segment operating income (loss) to the consolidated operating income (loss) for the three and nine months ended December 31, 2011 and January 1, 2011.

 

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OTHER (EXPENSE) INCOME AND INCOME TAXES

 

     Three Months Ended     Nine Months Ended  

(In thousands)

   December 31,
2011
    January 1,
2011
    December 31,
2011
    January 1,
2011
 

Interest expense

   $ (2,798   $ (3,800   $ (8,395   $ (13,329

Interest income

     114       124       364       619  

Loss on retirement of convertible subordinated notes

     (20            (798     (1,646

Other income

     620       642       816       2,505  

Income tax expense

     (5,125     (3,600     (13,829     (13,996

Interest Expense

Interest expense decreased for the three and nine months ended December 31, 2011 as compared to the three and nine months ended January 1, 2011, primarily due to the purchase and early retirement of $163.5 million original principal amount of the 2012 Notes between the second quarter of fiscal 2011 and the third quarter of fiscal 2012.

Our interest expense included cash interest of $0.5 million and $1.5 million for the three and nine months ended December 31, 2011, respectively, compared to cash interest of $0.7 million and $2.6 million for the three and nine months ended January 1, 2011, respectively.

Loss on the Retirement of Convertible Subordinated Notes

During the third quarter of fiscal 2012, we purchased and retired $6.0 million original principal amount of our 2012 Notes for an average price of $99.75, which resulted in a loss of less than $0.1 million as a result of applying ASC 470-20. In addition, during the first quarter of fiscal 2012, we purchased and retired $22.0 million original principal amount of our 2012 Notes for an average price of $105.48, which resulted in a loss of approximately $0.8 million as a result of applying ASC 470-20. In the second quarter of fiscal 2011, we purchased and retired $100.0 million original principal amount of our 2012 Notes for $97.0 million, which resulted in a loss of approximately $1.6 million as a result of applying ASC 470-20. ASC 470-20 requires us to record gains and losses on the early retirement of our 2012 Notes and our 2014 Notes in the period of derecognition, depending on whether the fair market value at the time of derecognition was greater than, or less than, the carrying value of the debt.

Other Income

The decrease in other income for the nine months ended December 31, 2011 is primarily related to the foreign currency exchange rate impact on our Euro, Renminbi (or Yuan) and Sterling denominated accounts.

Income Taxes

Our provision for income taxes for the reporting periods ended December 31, 2011 and January 1, 2011 has been calculated by applying an estimate of the annual effective tax rate for the full fiscal year to “ordinary” income or loss (pre-tax income or loss excluding unusual or infrequently occurring discrete items) for the reporting period.

Income tax expense for the three and nine months ended December 31, 2011 was $5.1 million and $13.8 million, respectively, which is comprised primarily of tax expense related to domestic and international operations and for the nine month period only a reduction in U.K. deferred tax assets due to enactment of a decrease in U.K. tax rates, offset by a tax benefit related to changes in the domestic deferred tax asset valuation allowance, and for the nine month period only, the reversal of uncertain tax position accruals related to success-based fees incurred in connection with prior business

 

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combinations. Income tax expense for the three and nine months ended January 1, 2011 was $3.6 million and $14.0 million, respectively, which is comprised primarily of tax expense related to domestic and international operations and for the nine month period only, resolution of prior year tax issues in foreign jurisdictions, offset by tax benefits related to changes in the domestic and foreign deferred tax asset valuation allowances and the expiration of the statute of limitations on uncertain tax positions assumed in prior business combinations.

The valuation allowance against net deferred tax assets has increased by $11.1 million from the $92.3 million balance as of the end of fiscal 2011. We intend to maintain a valuation allowance against the deferred tax assets for certain jurisdictions until sufficient positive evidence exists to support its full or partial reversal. The amount of the deferred tax assets actually realized could vary depending upon the amount of taxable income we are able to generate in the various taxing jurisdictions in which we have operations.

LIQUIDITY AND CAPITAL RESOURCES

We have funded our operations to date through sales of equity and debt securities, bank borrowings, capital equipment leases and revenue from product sales. Through public and Rule 144A securities offerings, we have raised approximately $1,053.3 million, net of offering expenses. As of December 31, 2011, we had working capital of approximately $422.0 million, including $134.5 million in cash and cash equivalents, compared to working capital of approximately $480.9 million at January 1, 2011, including $158.4 million in cash and cash equivalents. As of December 31, 2011, our total cash, cash equivalents and short-term investments balance exceeded the remaining principal amount of our 2012 Notes and 2014 Notes by $126.3 million.

Our total cash, cash equivalents and short-term investments were $295.4 million as of December 31, 2011. This balance includes approximately $89.7 million held by our foreign subsidiaries. If these funds held by our foreign subsidiaries are needed for our operations in the U.S., we would be required to accrue and pay U.S. taxes to repatriate these funds. However, under our current plans, we expect to permanently reinvest these funds outside of the U.S. and do not expect to repatriate them to fund our U.S. operations.

On January 25, 2011, we announced that our Board of Directors authorized the repurchase of up to $200.0 million of our outstanding common stock, exclusive of related fees, commissions or other expenses, from time to time during a period commencing on January 28, 2011 and expiring on January 27, 2013. This share repurchase program authorizes us to repurchase shares through solicited or unsolicited transactions in the open market or in privately negotiated transactions. For the three and nine months ended December 31, 2011, we repurchased on the open market approximately 2.3 million shares and 4.9 million shares, respectively, of our common stock at an average price of $6.63 and $6.18, respectively.

Cash Flows from Operating Activities

Operating activities for the nine months ended December 31, 2011 generated cash of $103.6 million, compared to $177.2 million for the nine months ended January 1, 2011. This year-over-year decrease was primarily attributable to decreased profitability.

Cash Flows from Investing Activities

Net cash used in investing activities for the nine months ended December 31, 2011 was $36.9 million, compared to $11.7 million for the nine months ended January 1, 2011. This change was primarily due to lower investment activity and lower proceeds from maturities of available-for-sale securities, partially offset by increased capital expenditures related to the expansion of our manufacturing capacity during the first nine months of fiscal 2012 as compared to the first nine months of fiscal 2011.

Cash Flows from Financing Activities

Net cash used in financing activities was $63.6 million for the nine months ended December 31, 2011, compared to $112.5 million for the nine months ended January 1, 2011. During the nine months of fiscal 2012, we purchased and retired $28.0 million original principal amount of our 2012 Notes, while during the first nine months of fiscal 2011, we purchased and retired $100.0 million original principal amount of our 2012 Notes, repaid the $12.9 million balance of a “no net cost” loan and paid the remaining $10.0 million balance of our 2010 Notes, which matured on July 1, 2010. In addition, during the nine months ended December 31, 2011, cash used in financing activities increased due to the purchase and retirement of 4.9 million shares of common stock for $30.4 million (including transaction costs).

 

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COMMITMENTS AND CONTINGENCIES

Equipment Term Loan In the first quarter of fiscal 2012, the equipment term loan became due and the remaining balance of $3.9 million was paid with cash on hand.

Bank Loan The $6.3 million balance of our bank loan is payable in April 2012 and is expected to be paid with cash on hand. As of December 31, 2011, it is reflected in “current portion of long-term debt” on our Condensed Consolidated Balance Sheet.

Convertible Debt During the third quarter of fiscal 2012, we purchased and retired $6.0 million original principal amount of our 2012 Notes for an average price of $99.75, which resulted in a loss of less than $0.1 million as a result of applying ASC 470-20. Also, during the first quarter of fiscal 2012, we purchased and retired $22.0 million original principal amount of our 2012 Notes for an average price of $105.48, which resulted in a loss of approximately $0.8 million as a result of applying ASC 470-20. As of December 31, 2011, the 2012 Notes had a fair value on the PORTAL Market of $34.0 million, compared to a carrying value of $33.6 million. As of April 2, 2011, the 2012 Notes had a fair value on the PORTAL Market of $66.1 million, compared to a carrying value of $58.3 million.

As of December 31, 2011, our 2012 Notes, which mature on April 15, 2012, are reflected in “current portion of long-term debt” on our Condensed Consolidated Balance Sheet. We expect to retire the 2012 Notes at maturity using cash on hand.

As of December 31, 2011, the 2014 Notes had a fair value on the PORTAL Market of $135.8 million, compared to a carrying value of $117.2 million. As of April 2, 2011, the 2014 Notes had a fair value on the PORTAL Market of $145.0 million, compared to a carrying value of $112.0 million.

We may from time to time seek to retire or purchase additional amounts of our outstanding convertible notes through cash purchases or exchanges for equity securities, in open market purchases, privately negotiated transactions or otherwise. Such purchases or exchanges, if any, will depend on prevailing market conditions, our liquidity requirements, contractual restrictions and other factors and the amounts involved may be material.

Convertible Debt Obligations The following table summarizes our convertible debt obligations, including interest, as of December 31, 2011, and the effect such obligations are expected to have on our liquidity and cash flows in future periods. Other than as set forth below, there have been no material changes outside the ordinary course of business to our contractual obligations and commitments as set forth in our Annual Report on Form 10-K for the fiscal year ended April 2, 2011.

 

           Payments Due By Period (in thousands)  
    Par Value      Total
Payments
     Less than
1 year
     1-3 years      3-5 years      More than
5 years
 
 

 

 

    

 

 

 

Convertible subordinated notes due 2012

  $ 34,248      $ 34,376      $ 34,376      $       $       $   

Convertible subordinated notes due 2014

    134,901        136,274        1,349        134,925                  
 

 

 

    

 

 

 

Total convertible debt

  $ 169,149      $ 170,650      $ 35,725      $ 134,925      $       $   
 

 

 

    

 

 

 

Capital Commitments At December 31, 2011, we had short-term capital commitments of approximately $6.0 million.

Future Sources of Funding Our future capital requirements may differ materially from those currently anticipated 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 believe that we have sufficient liquidity to meet both our short-term and long-term cash requirements. However, if current economic conditions or other factors materially reduce the demand for our products, or in the event that growth is faster than we had anticipated, operating cash flows may be insufficient to meet our needs. If existing resources and cash from operations are not sufficient to meet our future requirements or if we perceive conditions to be favorable, we may seek additional debt or equity financing, additional credit facilities, enter into sale-leaseback transactions or obtain asset-based financing. We cannot be sure that any additional equity or debt financing will not be dilutive to holders of our common stock. Further, we cannot be sure that additional equity or debt financing, if required, will be available on favorable terms, if at all, particularly given the current macroeconomic conditions.

 

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Table of Contents

Legal We are involved in various legal proceedings and claims that have arisen in the ordinary course of our business that have not been fully adjudicated. These actions, when finally concluded and determined, will not, in the opinion of management, have a material adverse effect on our consolidated financial position or results of operations.

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

Critical Accounting Policies and Estimates

There have been no material changes to our critical accounting policies and estimates from the information provided in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” included in our Annual Report on Form 10-K for the fiscal year ended April  2, 2011.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

There have been no material changes to our market risk exposures during the third quarter of fiscal 2012. For a discussion of our exposure to market risk, refer to Item 7A, “Quantitative and Qualitative Disclosures About Market Risk,” contained in our Annual Report on Form 10-K for the fiscal year ended April 2, 2011.

ITEM 4. CONTROLS AND PROCEDURES.

As of the end of the period covered by this report, the Company’s management, with the participation of the Company’s Chief Executive Officer and the Chief Financial Officer, evaluated the effectiveness of the Company’s disclosure controls and procedures in accordance with Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (the Exchange Act). Based upon their evaluation, the Chief Executive Officer and the Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective for the purpose of ensuring that the information required to be disclosed in the reports that the Company files or submits under the Exchange Act with the Securities and Exchange Commission (the SEC) (i) is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and (ii) is accumulated and communicated to the Company’s management, including its Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

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

PART II — OTHER INFORMATION

ITEM 1A. RISK FACTORS.

In addition to the other information set forth in this report and in our other reports and statements that we file with the SEC, including our quarterly reports on Form 10-Q, careful consideration should be given to the factors discussed in Part I, Item 1A., “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended April 2, 2011, which could materially affect our business, financial condition or future results. The risks described in our Annual Report on Form 10-K are not the only risks that we face. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results.

 

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Table of Contents

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

(c) Issuer Purchases of Equity Securities

On January 25, 2011, we announced that our Board of Directors had authorized the repurchase of up to $200.0 million of our outstanding common stock, exclusive of related fees, commissions or other expenses, from time to time during a period commencing on January 28, 2011 and expiring on January 27, 2013. This share repurchase program authorizes us to repurchase shares through solicited or unsolicited transactions in the open market or in privately negotiated transactions.

The following table summarizes our common stock repurchases for the fiscal quarter ended December 31, 2011:

 

Period

   Total number of
shares
purchased
     Average price
paid per
share
     Total number of shares
purchased as part of
publicly announced
plans or programs
     Approximate dollar value of
shares that may yet be
purchased under the plans or

programs

October 2, 2011 to October 29, 2011

     0      $ 0.00        0      $172.0 million

October 30, 2011 to November 26, 2011

     1,422,000      $ 7.02        1,422,000      $162.0 million

November 27, 2011 to December 31, 2011

     835,770      $ 5.97        835,770      $157.0 million
  

 

 

    

 

 

    

 

 

    

Total

     2,257,770      $ 6.63        2,257,770      $157.0 million
  

 

 

    

 

 

    

 

 

    

 

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Table of Contents

ITEM 6. EXHIBITS.

 

10.1

  Change in Control Agreement, effective as of October 3, 2011, by and between RF Micro Devices, Inc. and Norman A. Hilgendorf*

10.2

  Change in Control Agreement, effective as of October 26, 2011, by and between RF Micro Devices, Inc. and Hans Schwarz*

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

101

  The following materials from our Quarterly Report on Form 10-Q for the quarter ended December 31, 2011, formatted in XBRL (eXtensible Business Reporting Language): (i) the Condensed Consolidated Balance Sheets as of December 31, 2011 and April 2, 2011; (ii) the Condensed Consolidated Statements of Income for the three and nine months ended December 31, 2011 and January 1, 2011; (iii) the Consolidated Statements of Cash Flows for the nine months ended December 31, 2011 and January 1, 2011; and (iv) the Notes to the Condensed Consolidated Financial Statements**

 

 

* Executive compensation plan or agreement.
** Pursuant to Rule 406T of Regulation S-T, the Interactive Data Files on Exhibit 101 hereto are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 of the Securities and Exchange Act of 1934, as amended, and otherwise are not subject to liability under those sections.

 

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Table of Contents

SIGNATURES

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

 

    RF Micro Devices, Inc.
Date: February 9, 2012    

/s/ William A. Priddy, Jr.

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

Vice President of Administration and Secretary

(Principal Financial Officer)

 

Date: February 9, 2012    

/s/ Barry D. Church

    Barry D. Church
    Vice President and Corporate Controller
    (Principal Accounting Officer)

 

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Table of Contents

EXHIBIT INDEX

 

10.1

  Change in Control Agreement, effective as of October 3, 2011, by and between RF Micro Devices, Inc. and Norman A. Hilgendorf*

10.2

  Change in Control Agreement, effective as of October 26, 2011, by and between RF Micro Devices, Inc. and Hans Schwarz*
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
101   The following materials from our Quarterly Report on Form 10-Q for the quarter ended December 31, 2011, formatted in XBRL (eXtensible Business Reporting Language): (i) the Condensed Consolidated Balance Sheets as of December 31, 2011 and April 2, 2011; (ii) the Condensed Consolidated Statements of Income for the three and nine months ended December 31, 2011 and January 1, 2011; (iii) the Consolidated Statements of Cash Flows for the nine months ended December 31, 2011 and January 1, 2011; and (iv) the Notes to the Condensed Consolidated Financial Statements**

 

 

* Executive compensation plan or agreement.
** Pursuant to Rule 406T of Regulation S-T, the Interactive Data Files on Exhibit 101 hereto are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 of the Securities and Exchange Act of 1934, as amended, and otherwise are not subject to liability under those sections.

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

 

28

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