ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
This Annual Report on Form 10-K includes "forward-looking statements" within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements include, but are not limited to, statements about our plans, objectives, representations and contentions, including those related to our proposed merger with TriQuint, and are not historical facts and typically are identified by use of terms such as "may," "will," "should," "could," "expect," "plan," "anticipate," "believe," "estimate," "predict," "potential," "continue" and similar words, although some forward-looking statements are expressed differently. You should be aware that the forward-looking statements included herein represent management's current judgment and expectations, but our actual results, events and performance could differ materially from those expressed or implied by forward-looking statements. We do not intend to update any of these forward-looking statements or publicly announce the results of any revisions to these forward-looking statements, other than as is required under the federal securities laws. Our business is subject to numerous risks and uncertainties, including those relating to variability in our operating results, the inability of certain of our customers or suppliers to access their traditional sources of credit, our industry’s rapidly changing technology, our dependence on a few large customers for a substantial portion of our revenue, our ability to implement innovative technologies, our ability to bring new products to market and achieve design wins, the efficient and successful operation of our wafer fabrication facilities, assembly facilities and test and tape and reel facilities, our ability to adjust production capacity in a timely fashion in response to changes in demand for our products, variability in manufacturing yields, industry overcapacity and current macroeconomic conditions, inaccurate product forecasts and corresponding inventory and manufacturing costs, dependence on third parties and our ability to manage platform providers and customer relationships, our dependence on international sales and operations, our ability to attract and retain skilled personnel and develop leaders, the possibility that future acquisitions may dilute our shareholders’ ownership and cause us to incur debt and assume contingent liabilities, fluctuations in the price of our common stock, additional claims of infringement on our intellectual property portfolio, lawsuits and claims relating to our products, security breaches and other similar disruptions compromising our information and exposing us to liability, the impact of stringent environmental regulations, and the receipt of required regulatory approvals related to the proposed merger with TriQuint and the completion of the proposed transaction. These and other risks and uncertainties, which are described in more detail under Item 1A, “Risk Factors” in this Annual Report on Form 10-K and in other reports and statements that we file with the SEC, could cause actual results and developments to be materially different from those expressed or implied by any of these forward-looking statements.
The following discussion should be read in conjunction with, and is qualified in its entirety by reference to, our audited consolidated financial statements, including the notes thereto.
OVERVIEW
Company
We are a global leader in the design and manufacture of high-performance radio frequency (RF) solutions. Our products enable worldwide mobility, provide enhanced connectivity, and support advanced functionality in the mobile device, 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.
Proposed Merger
On February 22, 2014, we entered into the Merger Agreement with TriQuint providing for the combination of RFMD and TriQuint in a merger of equals under a new holding company currently named Rocky Holding, Inc. We believe the combination will create a new leader in radio frequency solutions, with new growth opportunities and a broad portfolio of enabling technologies.
Upon completion of the mergers, RFMD shareholders will receive 0.2500 of a share of common stock of the new holding company for each share of RFMD common stock, and TriQuint stockholders will receive 0.4187 of a share of common stock of the new holding company for each share of TriQuint common stock. We anticipate that RFMD shareholders and TriQuint stockholders will each hold approximately 50% of the shares of common stock of the new holding company issued and outstanding immediately after completion of the mergers. Rocky Holding, Inc. intends to apply to list its
common stock on the NASDAQ Global Select Market, subject to official notice of issuance. Prior to completion of the mergers, we anticipate that Rocky Holding, Inc. will change its name, adopt a NASDAQ symbol for its common stock, and register a new trade name and logo that reflect the key attributes of the combined company.
Consummation of the merger with TriQuint is subject to, among other things, the separate approvals of both RFMD shareholders and TriQuint stockholders and regulatory approvals. We currently anticipate the merger will be completed during the second half of calendar year 2014.
Business Segments
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 global supplier of cellular RF solutions which perform various functions in the cellular front end section. The cellular front end section is located between the transceiver and the antenna. These RF solutions include power amplifier (PA) modules, transmit modules, PA duplexer modules, antenna control solutions, antenna switch modules, switch filter modules, switch duplexer modules, and RF power management solutions. CPG supplies its broad portfolio of cellular RF solutions into a variety of mobile devices, including smartphones, handsets, notebook computers and tablets.
|
|
|
•
|
Multi-Market Products Group (MPG) is a leading global supplier of a broad array of RF solutions, such as PAs, low noise amplifiers, variable gain amplifiers, high power gallium nitride transistors, attenuators, modulators, switches, VCOs, phase locked loop modules, multi-chip modules, front end modules, and a range of military and space components (amplifiers, mixers, VCOs and power dividers). Major communications applications include mobile wireless infrastructure, point-to-point and microwave radios, small cells, WiFi (routers, access points, mobile devices and customer premises equipment), and CATV 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. During fiscal 2013, our foundry services were realigned from our Compound Semiconductor Group to our MPG.
|
|
|
•
|
Compound Semiconductor Group (CSG) is a business group that was established to leverage our compound semiconductor technologies and related expertise in RF and non-RF end markets and applications.
|
As of
March 29, 2014
, 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 evaluates the performance of each operating segment primarily based on operating income and operating income as a percentage of revenue.
Fiscal
2014
Management Summary
|
|
•
|
Our revenue increased
19.1%
in fiscal
2014
to
$1,148.2 million
as compared to
$964.1 million
in fiscal
2013
, primarily due to increased demand for our cellular RF solutions for smartphones and our WiFi products.
|
|
|
•
|
Our gross margin for fiscal
2014
increased to
35.3%
as compared to
31.7%
for fiscal
2013
. This increase was primarily due to manufacturing and sourcing-related cost reductions and increased demand, which were partially offset by average selling price erosion.
|
|
|
•
|
Our operating income was
$27.3 million
in fiscal
2014
as compared to an operating loss of
$15.7 million
in fiscal
2013
. This increase was primarily due to higher revenue and improved gross margin, which was partially offset by increased personnel expenses, impairment of IPRD, increased consulting expenses, restructuring expenses associated with achieving both manufacturing efficiencies and operating expense reductions, expenses related to the proposed merger with TriQuint, and expenses related to the phase out of manufacturing and sale of our U.K-based GaAs facility.
|
|
|
•
|
Our net income per diluted share was
$0.04
for fiscal
2014
compared to net loss per diluted share of
$0.19
for fiscal
2013
.
|
|
|
•
|
We generated positive cash flow from operations of
$130.8 million
for fiscal
2014
as compared to
$71.3 million
for fiscal
2013
. This year-over-year increase was primarily attributable to improved profitability resulting from higher revenue.
|
|
|
•
|
Capital expenditures totaled
$66.8 million
in fiscal
2014
as compared to
$54.6 million
in fiscal
2013
, primarily due to the addition of manufacturing capacity.
|
|
|
•
|
During fiscal
2014
, we repurchased approximately
2.5 million
shares of common stock for approximately
$12.8 million
, including transaction costs.
|
|
|
•
|
On February 22, 2014, we entered into the Merger Agreement with TriQuint and have recorded merger-related expenses and integration costs totaling $5.1 million through March 29, 2014.
|
|
|
•
|
During fiscal 2014, we recorded $11.1 million of restructuring expenses, primarily related to (1) efforts initiated to achieve manufacturing efficiencies, (2) efforts initiated to reduce operating expenses, and (3) expenses associated with the sale of our GaAs semiconductor manufacturing facility in the U.K. (see Note 12 of the Notes to the Consolidated Financial Statements).
|
|
|
•
|
In the fourth quarter of fiscal 2014, we discontinued engineering efforts on an in-process research and development project and recorded an intangible impairment charge of $11.3 million (see Note 12 of the Notes to the Consolidated Financial Statements).
|
RESULTS OF OPERATIONS
Consolidated
The following table presents a summary of our results of operations for fiscal years
2014
,
2013
and
2012
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2014
|
|
2013
|
|
2012
|
(In thousands, except percentages)
|
Dollars
|
|
% of
Revenue
|
|
Dollars
|
|
% of
Revenue
|
|
Dollars
|
|
% of
Revenue
|
Revenue
|
$
|
1,148,231
|
|
|
100.0
|
%
|
|
$
|
964,147
|
|
|
100.0
|
%
|
|
$
|
871,352
|
|
|
100.0
|
%
|
Cost of goods sold
|
743,304
|
|
|
64.7
|
|
|
658,332
|
|
|
68.3
|
|
|
582,586
|
|
|
66.9
|
|
Gross profit
|
404,927
|
|
|
35.3
|
|
|
305,815
|
|
|
31.7
|
|
|
288,766
|
|
|
33.1
|
|
Research and development
|
197,269
|
|
|
17.2
|
|
|
178,793
|
|
|
18.5
|
|
|
151,697
|
|
|
17.4
|
|
Marketing and selling
|
74,672
|
|
|
6.5
|
|
|
68,674
|
|
|
7.1
|
|
|
63,217
|
|
|
7.3
|
|
General and administrative
|
76,732
|
|
|
6.7
|
|
|
64,242
|
|
|
6.7
|
|
|
50,107
|
|
|
5.7
|
|
Other operating expense (income)
|
28,913
|
|
|
2.5
|
|
|
9,786
|
|
|
1.0
|
|
|
(898
|
)
|
|
(0.1
|
)
|
Operating income (loss)
|
$
|
27,341
|
|
|
2.4
|
%
|
|
$
|
(15,680
|
)
|
|
(1.6
|
)%
|
|
24,643
|
|
|
2.8
|
%
|
Revenue
Our overall revenue increased
$184.1 million
, or
19.1%
, in fiscal 2014 as compared to fiscal 2013. Fiscal 2014 reflects increased demand for our cellular RF solutions for smartphones and our WiFi products.
Our overall revenue increased
$92.8 million
, or
10.6%
, in fiscal 2013 as compared to fiscal 2012. Fiscal 2013 reflected increased demand for both our 3G/4G cellular RF solutions and our mobile WiFi products. These increases were slightly offset by lower demand for our 2G products that are used in low-end phones and lower demand for our wireless infrastructure products.
Our largest customer, Samsung Electronics, Co., Ltd. (Samsung), accounted for approximately
25%
and
22%
of our total revenue in fiscal 2014 and fiscal 2013, respectively. In addition, we sold our products to another end customer through multiple contract manufacturers, which in the aggregate accounted for approximately 20% of total revenue in fiscal 2014. In fiscal 2012, Samsung and Nokia Corporation (Nokia) accounted for approximately 22% and 14% of our total revenue,
respectively. The majority of the revenue from these customers was from the sale of our CPG products. No other customer accounted for more than 10% of our total revenue. Our customer diversification strategy has successfully reduced our percentage of sales to any one customer and diversified our customer base across both CPG and MPG.
International shipments amounted to
$805.4 million
in fiscal
2014
(approximately
70%
of revenue) compared to
$667.7 million
in fiscal
2013
(approximately
69%
of revenue) and
$624.7 million
in fiscal
2012
(approximately
72%
of revenue). Shipments to Asia totaled
$756.1 million
in fiscal
2014
(approximately
66%
of revenue) compared to
$603.6 million
in fiscal
2013
(approximately
63%
of revenue) and $568.5 million in fiscal
2012
(approximately
65%
of revenue).
Gross Margin
Our overall gross margin for fiscal
2014
increased to
35.3%
as compared to
31.7%
in fiscal
2013
. This increase was primarily due to manufacturing and sourcing-related cost reductions and increased demand, which were partially offset by average selling price erosion.
Our overall gross margin for fiscal
2013
decreased to
31.7%
as compared to
33.1%
in fiscal
2012
. This decrease was primarily due to certain costs associated with the transfer of our MBE operations to IQE, costs related to the acquisition of Amalfi (including intangible amortization and inventory step-up), and price erosion on the average selling prices of our products. These decreases were partially offset by higher factory utilization resulting from increased demand and a favorable change in product mix toward higher margin products.
Operating Expenses
Research and Development
In fiscal
2014
, research and development expenses increased
$18.5 million
, or
10.3%
, compared to fiscal
2013
, primarily due to increased personnel expenses associated with both new product development for 3G/4G mobile devices and our investment in CMOS PAs.
In fiscal
2013
, research and development expenses increased
$27.1 million
, or
17.9%
, compared to fiscal
2012
, primarily due to expenses resulting from new product development for 3G/4G mobile devices as well as increased investments targeting customer diversification, and increases in headcount and related personnel expenses (including Amalfi headcount and related personnel expenses).
Marketing and Selling
In fiscal
2014
, marketing and selling expenses increased
$6.0 million
, or
8.7%
, compared to fiscal
2013
, primarily due to increased salaries and commission expenses in support of our customer diversification efforts and in support of our new products for 3G/4G mobile devices.
In fiscal
2013
, marketing and selling expenses increased
$5.5 million
, or
8.6%
, compared to fiscal
2012
, 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
In fiscal
2014
, general and administrative expenses increased
$12.5 million
, or
19.4%
, compared to fiscal
2013
primarily due to increased consulting expenses.
In fiscal
2013
, general and administrative expenses increased
$14.1 million
, or
28.2%
, compared to fiscal
2012
primarily due to legal expenses resulting from intellectual property rights (IPR) litigation ($6.0 million for fiscal
2013
), increased personnel expenses, and increased share-based compensation expenses.
Other Operating Expense (Income)
In fiscal
2014
, other operating expenses increased
$19.1 million
compared to fiscal
2013
, primarily due to an impairment of IPRD, restructuring expenses associated with achieving both manufacturing efficiencies and operating cost reductions, merger-related expenses and integration costs associated with the proposed merger with TriQuint, and expenses related to the phase out of manufacturing and sale of our U.K.-based GaAs facility (see Notes 7 and 12
of the Notes to the Consolidated Financial Statements in Part II, Item 8 for further explanations of these expenses). These increases were partially offset by the loss realized on the transfer of our MBE wafer growth operations to IQE as well as acquisition-related expenses associated with the acquisition of Amalfi during fiscal 2013.
In fiscal
2013
, other operating expenses increased
$10.7 million
compared to fiscal
2012
. During fiscal 2013, other operating expenses increased $5.0 million due to the loss realized on the transfer of our MBE wafer growth operations to IQE (see Note 6 of the Notes to the Consolidated Financial Statements in Part II, Item 8 of this report).
In addition, during fiscal 2013, we recorded restructuring expenses of $1.3 million and acquisition-related expenses of $1.5 million associated with the acquisition of Amalfi.
Operating Income
Our overall operating income was
$27.3 million
for fiscal
2014
as compared to an operating loss of
$15.7 million
for fiscal
2013
. This increase in operating income was primarily due to higher revenue and improved gross margin, which were partially offset by increased personnel expenses, an impairment of IPRD, increased consulting expenses, restructuring expenses associated with achieving both manufacturing efficiencies and operating expense reductions, merger-related expenses and integration costs associated with the proposed merger with TriQuint, and expenses related to the phase out of manufacturing and sale of our U.K.-based GaAs facility. During fiscal 2013, other operating expenses included a $5.0 million loss realized on the transfer of our MBE wafer growth operations to IQE, Inc. as well as expenses related to the purchase of Amalfi.
Our overall operating loss was
$15.7 million
for fiscal
2013
as compared to an operating income of
$24.6 million
for fiscal
2012
. This decrease was primarily due to increases in headcount and related personnel expenses and other expenses associated with new product development for 3G/4G mobile devices, lower gross margin, increases in legal expenses resulting from IPR litigation, a loss of approximately $5.0 million related to the IQE transaction, increases in share-based compensation expenses and expenses related to the purchase of Amalfi.
Segment Product Revenue, Operating Income and Operating Income as a Percentage of Revenue
Cellular Products Group
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year
|
|
2014
|
|
2013
|
|
2012
|
(In thousands, except percentages)
|
|
|
|
|
|
Revenue
|
$
|
935,313
|
|
|
$
|
761,425
|
|
|
$
|
664,242
|
|
Operating income
|
$
|
109,862
|
|
|
$
|
52,574
|
|
|
$
|
61,776
|
|
Operating income as a % of revenue
|
11.7
|
%
|
|
6.9
|
%
|
|
9.3
|
%
|
CPG revenue increased
$173.9 million
, or
22.8%
, in fiscal 2014 as compared to fiscal 2013, primarily due to increased demand for our cellular RF solutions for smartphones.
CPG operating income increased
$57.3 million
, or
109.0%
, in fiscal
2014
as compared to fiscal
2013
, primarily due to higher revenue and improved gross margin (resulting from manufacturing and sourcing-related cost reductions, partially offset by average selling price erosion) which was partially offset by increased personnel expenses associated with new product development for 3G/4G mobile devices and our investment in CMOS PAs.
CPG revenue increased
$97.2 million
, or
14.6%
, in fiscal 2013 as compared to fiscal 2012, primarily due to increased demand for our 3G/4G cellular RF solutions which was slightly offset by lower demand for our 2G products used in low-end phones.
CPG operating income decreased
$9.2 million
, or
14.9%
, in fiscal
2013
as compared to fiscal
2012
, primarily due to increased operating expenses related to new product development for 3G/4G mobile devices as well as investments targeting customer diversification, and increases in headcount and related personnel expenses (including Amalfi headcount and related personnel expenses). Although erosion in the average selling prices of our established products contributed to the decrease in operating income, it was significantly offset by higher factory utilization resulting from increased demand and a favorable change in product mix toward higher margin products.
Multi-Market Products Group
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year
|
|
2014
|
|
2013
|
|
2012
|
(In thousands, except percentages)
|
|
|
|
|
|
Revenue
|
$
|
212,897
|
|
|
$
|
202,722
|
|
|
$
|
207,110
|
|
Operating income
|
$
|
32,315
|
|
|
$
|
11,181
|
|
|
$
|
10,930
|
|
Operating income as a % of revenue
|
15.2
|
%
|
|
5.5
|
%
|
|
5.3
|
%
|
MPG revenue increased
$10.2 million
, or
5.0%
, in fiscal
2014
as compared to fiscal
2013
, primarily due to increased demand for our WiFi products.
MPG operating income increased
$21.1 million
, or
189.0%
, in fiscal
2014
as compared to fiscal
2013
, primarily due to improved gross margin resulting from manufacturing and sourcing-related cost reductions and increased revenue, which was partially offset by average selling price erosion.
MPG revenue decreased
$4.4 million
, or
2.1%
, in fiscal
2013
as compared to fiscal
2012
, primarily due to the lower demand for our wireless infrastructure products. This decrease was partially offset by increased demand for our mobile WiFi products.
MPG operating income increased
$0.3 million
, or
2.3%
, in fiscal
2013
as compared to fiscal
2012
, primarily due to decreases in personnel related expenses and other expenses related to the elimination of investments in our lower performing products. The improvement in MPG expenses was partially offset by decreased gross margins resulting from an unfavorable change in product mix toward lower margin products.
See Note 17 of the Notes to the Consolidated Financial Statements in Part II, Item 8 of this report for a reconciliation of segment operating income (loss) to the consolidated operating income (loss) for fiscal years
2014
,
2013
and
2012
.
OTHER (EXPENSE) INCOME AND INCOME TAXES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year
|
(In thousands)
|
2014
|
|
2013
|
|
2012
|
Interest expense
|
$
|
(5,983
|
)
|
|
$
|
(6,532
|
)
|
|
$
|
(10,997
|
)
|
Interest income
|
179
|
|
|
249
|
|
|
468
|
|
Loss on retirement of convertible subordinated notes
|
—
|
|
|
(2,756
|
)
|
|
(908
|
)
|
Other income (expense)
|
2,336
|
|
|
(1,180
|
)
|
|
2,422
|
|
Income tax expense
|
(11,231
|
)
|
|
(27,100
|
)
|
|
(14,771
|
)
|
Interest expense
Interest expense has decreased as a result of lower debt balances. During the first quarter of fiscal 2013, our 0.75% Convertible Subordinated Notes due 2012 (the "2012 Notes") became due and we paid the remaining principal balance of
$26.5 million
. During fiscal 2013, we purchased and retired
$47.4 million
original principal amount of our 1.00% Convertible Subordinated Notes due 2014 (the "2014 Notes"). During fiscal 2012, we purchased and retired $35.8 million aggregate principal amount of our 2012 Notes.
Loss on the retirement of convertible subordinated notes
During fiscal 2014, we did not purchase and retire any of our 2014 Notes. The remaining principal balance of our 2014 Notes was retired in the first quarter of fiscal 2015. During fiscal 2013, we purchased and retired
$47.4 million
original principal amount of our 2014 Notes for an average price of
$98.34
, which resulted in a loss of
$2.8 million
as a result of applying ASC 470-20. During fiscal 2012, we purchased and retired $35.8 million aggregate principal amount of our 2012 Notes for an average price of
$103.27
, which resulted in a loss of approximately $0.9 million as a result of applying ASC 470-20.
Other income (expense)
In fiscal 2014, we incurred a foreign currency gain of $0.2 million as compared to a loss of $1.2 million in fiscal 2013 and a gain of $0.9 million in fiscal 2012. The foreign currency gain for fiscal 2014 was driven by the changes in the local currency denominated balance sheet accounts, and the depreciation of the U.S dollar against the British Pound and Euro. The foreign currency loss for fiscal 2013 was driven by the changes in the local currency denominated balance sheet accounts, the appreciation of the U.S dollar against the British Pound and Euro, and the depreciation of the U.S. dollar against the Renminbi. Additionally, during fiscal 2014, we recognized a $2.1 million gain on an equity investment (see Note 1 of the Notes to the Consolidated Financial Statements in Part II, Item 8 of this report for further information on our equity investment). Investment gains and losses were insignificant in fiscal 2013. During fiscal 2012, we recognized a $1.6 million gain on an equity investment.
Income taxes
Income tax expense for fiscal 2014 was $11.2 million, which is primarily comprised of tax expense related to international operations. For fiscal 2014, this resulted in an annual effective tax rate of 47.05%.
In comparison, income tax expense for fiscal 2013 was $27.1 million, which was primarily comprised of tax expense related to international operations, a $1.3 million reduction in U.K. deferred tax assets due to a decrease in the U.K. tax rate, and a $12.0 million increase in the valuation allowance against U.K. deferred tax assets in connection with the phase out of manufacturing operations at the Newton Aycliffe, U.K. facility. For fiscal 2013, this resulted in an annual effective tax rate of (104.64%).
For fiscal 2012, income tax expense was $14.8 million, which was comprised primarily of tax expense related to international operations and a $1.6 million reduction in U.K. deferred tax assets due to a decrease in the U.K. tax rate, offset by a $1.1 million tax benefit from the reversal of uncertain tax position accruals related to success-based fees incurred in connection with prior business combinations. For fiscal 2012, this resulted in an annual effective tax rate of 94.52%.
A valuation allowance has been established against net deferred tax assets in the taxing jurisdictions where, based upon the positive and negative evidence available, it is more likely than not that the related net deferred tax assets will not be realized. Realization is dependent upon generating future income in the taxing jurisdictions in which the operating loss carryovers, credit carryovers, depreciable tax basis, and other tax deferred assets exist. The realizability of these deferred tax assets are reevaluated on a quarterly basis. As of the end of fiscal years 2012, 2013 and 2014, the valuation allowance against domestic and foreign deferred tax assets was $112.7 million, $164.2 million, and $143.3 million, respectively.
As of the beginning of fiscal 2012, there was a $92.3 million valuation allowance against $90.5 million of U.S. net deferred tax assets and $1.8 million of Shanghai, China net deferred tax assets. The $20.4 million increase in the valuation allowance during fiscal 2012 was comprised of a $22.2 million increase related to changes in domestic net deferred tax assets during fiscal 2012 offset by a $1.8 million decrease from the release of the Shanghai, China valuation allowance upon completing the liquidation of that legal entity. The remaining valuation allowance as of the end of fiscal 2012 was related to the U.S. net deferred tax assets.
The valuation allowance against net deferred tax assets increased in fiscal 2013 by $51.5 million. The increase was comprised of $12.0 million established during the fiscal year related to the U.K. net deferred tax assets, $10.8 million related to the Amalfi acquisition, and a $28.7 million increase related to other changes in domestic deferred tax assets during the fiscal year. The U.K. valuation allowance was recorded as a result of the decision, announced in March 2013, to phase out manufacturing at the U.K. facility. Consequently, we determined that this represented significant negative evidence, and that it was no longer “more likely than not” that any U.K. deferred tax assets remaining at the end of fiscal 2014 would ultimately be realized.
The valuation allowance against net deferred tax assets decreased in fiscal 2014 by $20.9 million. The decrease was comprised of the reversal of the $12.0 million U.K. valuation allowance established during fiscal 2013 and $15.1 million related to deferred tax assets used against deferred intercompany profits, offset by increases related to a $3.4 million adjustment in the net operating losses acquired in the Amalfi acquisition and $2.8 million for changes in net deferred tax assets for domestic and other foreign subsidiaries during the fiscal year. The U.K. valuation allowance was reversed in connection with the sale of the U.K. manufacturing facility in fiscal 2014 and the write-off of the remaining U.K. deferred tax assets.
As of March 29, 2014, we had federal loss carryovers of approximately $118.9 million that expire in fiscal years 2020 to 2032 if unused and state losses of approximately $109.6 million that expire in fiscal years 2015 to 2032 if unused. Federal research credits of $64.4 million, federal foreign tax credits of $6.2 million, and state credits of $22.5 million may expire in fiscal years 2015 to 2033, 2018 to 2023, and 2015 to 2028, respectively. Federal alternative minimum tax credits of $1.5 million carry forward indefinitely. Included in the amounts above are certain net operating losses (NOLs) and other tax attribute assets acquired in conjunction with the Filtronic, Sirenza, Silicon Wave, Inc., and Amalfi acquisitions. The utilization of these acquired domestic tax assets is subject to certain annual limitations as required under Internal Revenue Code Section 382 and similar state income tax provisions.
Our gross unrecognized tax benefits totaled $31.7 million as of March 31, 2012, $37.9 million as of March 30, 2013, and $39.4 million as of March 29, 2014. Of these amounts, $24.4 million (net of federal benefit of state taxes), $29.7 million (net of federal benefit of state taxes), and $30.9 million (net of federal benefit of state taxes) as of March 31, 2012, March 30, 2013, and March 29, 2014, respectively, represent the amounts of unrecognized tax benefits that, if recognized, would impact the effective tax rate in each of the fiscal years. It is the Company’s policy to recognize interest and penalties related to uncertain tax positions as a component of income tax expense. As of March 29, 2014 accrued interest and penalties related to unrecognized tax benefits totaled $2.3 million, of which $0.9 million was recognized in fiscal 2014. Included in the balance of gross unrecognized tax benefits at March 29, 2014, is up to $0.5 million related to tax positions for which it is reasonably possible that the total amounts could significantly change in the next 12 months. This amount represents a potential decrease in gross unrecognized tax benefits related to reductions for tax positions in prior years.
SHARE-BASED COMPENSATION
Under FASB ASC 718,
“Compensation – Stock Compensation”
(ASC 718), share-based compensation cost is measured at the grant date, based on the estimated fair value of the award using an option pricing model (Black-Scholes), and is recognized as expense over the employee's requisite service period.
As of
March 29, 2014
, total remaining unearned compensation cost related to nonvested restricted stock units and options was
$22.8 million
, which will be amortized over the weighted-average remaining service period of approximately
1.2 years
.
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. Beginning in fiscal 1998, we have raised approximately $1,053.3 million, net of offering expenses, from public and Rule 144A securities offerings. As of
March 29, 2014
, we had working capital of approximately
$317.4 million
, including
$171.9 million
in cash and cash equivalents, compared to working capital at
March 30, 2013
, of
$330.5 million
, including
$101.7 million
in cash and cash equivalents.
Our total cash, cash equivalents and short-term investments were
$244.0 million
as of
March 29, 2014
. This balance includes approximately
$49.6 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.
Share Repurchase
On January 25, 2011, we announced that our board of directors authorized the repurchase of up to $200 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 the Company to repurchase shares through solicited or unsolicited transactions in the open market or in privately negotiated transactions. On January 31, 2013, our board of directors authorized an extension of our 2011 share repurchase program to repurchase up to $200 million of our outstanding common stock through January 31, 2015.
During fiscal
2014
, we repurchased
2.5 million
shares at an average price of
$5.03
on the open market. During fiscal
2013
, we repurchased approximately
1.9 million
shares at an average price of
$3.75
on the open market and during fiscal
2012
, we repurchased approximately
4.9 million
shares at an average price of
$6.18
on the open market. Between January 25, 2011 and
March 29, 2014
, we repurchased approximately
$62.6 million
of our common stock under this program, leaving us with an additional authorization of up to approximately
$137.4 million
under the program.
Cash Flows from Operating Activities
Operating activities in fiscal
2014
provided cash of
$130.8 million
, compared to
$71.3 million
in fiscal
2013
. This year-over-year increase was primarily attributable to improved profitability resulting from higher revenue. Net cash provided by operations for fiscal 2014 also includes outflows related to merger-related expenses and integration costs incurred in connection with the proposed merger with TriQuint.
Cash Flows from Investing Activities
Net cash used in investing activities in fiscal
2014
was
$57.0 million
compared to
$14.5 million
in fiscal
2013
. This change was primarily due to a decrease in net proceeds from maturities of available-for-sale securities as well as increased purchases of property and equipment for fiscal 2014 as compared to fiscal 2013. These increases in cash used in investing activities were partially offset by the purchase of Amalfi for approximately $47.7 million during fiscal 2013.
In the first quarter of fiscal 2015, we commenced construction on a new manufacturing facility in China to significantly expand our internal assembly and test capabilities. Costs related to this new facility are expected to account for approximately 25% of our total fiscal 2015 capital expenditures, which are currently expected to be in line with fiscal 2014 and which we expect to fund with cash flows from operations. The actual amount of capital expenditures will be dependent on our sourcing strategy for manufacturing capacity and the rate and pace of new technology development.
Cash Flows from Financing Activities
Net cash used in financing activities in fiscal 2014 was
$4.2 million
compared to
$89.7 million
in fiscal 2013. Net cash used in financing activities was higher during fiscal 2013 as we paid the
$26.5 million
remaining principal balance of the 2012 Notes, repurchased and retired
$47.4 million
original principal amount of our 2014 Notes, and paid the
$6.3 million
remaining balance of our bank loan. During fiscal 2014, we did not purchase and retire any of our 2014 Notes. The $87.5 million remaining principal balance of our 2014 Notes was retired in the first quarter of fiscal 2015 with cash on hand.
Our future capital requirements may differ materially from those currently anticipated and will depend on many factors, including, but not limited to, market acceptance of our products, volume pricing concessions, capital improvements, demand for our products, technological advances and our relationships with suppliers and customers. Based on current and projected levels of cash flow from operations, coupled with our existing cash and cash equivalents, and our revolving credit facility, we believe that we have sufficient liquidity to meet both our short-term and long-term cash requirements. However, if there is a significant decrease in 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. 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.
Proposed Merger
It is currently the expectation that our proposed merger with TriQuint will result in approximately $150 million in cost synergies by the end of the second year following the closing.
In the second half of fiscal 2014, we have recorded approximately $5.1 million of merger-related expenses and integration costs in “Other operating expense (income)” on the Consolidated Statements of Operations. We currently expect to incur an additional $15.0 million to $30.0 million for merger-related expenses and integration costs in connection with the consummation of this transaction.
The merger is subject to approval by the shareholders of each of the two companies and the receipt of certain regulatory approvals and other customary closing conditions. If the Merger Agreement is terminated in certain circumstances, RFMD or TriQuint would be required to pay the other a termination fee of
$66.7 million
. If the Merger Agreement is terminated due to the failure of the shareholders of RFMD or the stockholders of TriQuint to approve the merger, RFMD or TriQuint, as the case may be, will be required to pay the other a fee of
$17.1 million
.
IMPACT OF INFLATION
We do not believe that the effects of inflation had a significant impact on our revenue or income from continuing operations during fiscal years
2014
,
2013
and
2012
. Our financial results in fiscal 2015 could be adversely affected by wage and commodity price inflation (including precious metals).
OFF-BALANCE SHEET ARRANGEMENTS
As of
March 29, 2014
, we had no off-balance sheet arrangements as defined in Item 303(a)(4)(ii) of SEC Regulation S-K.
CONTRACTUAL OBLIGATIONS
The following table summarizes our significant contractual obligations and commitments (in thousands) as of
March 29, 2014
, and the effect such obligations are expected to have on our liquidity and cash flows in future periods.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due By Period
|
|
Total
|
|
Less than
|
|
|
|
|
|
More than
|
|
Payments
|
|
1 year
|
|
1-3 years
|
|
3-5 years
|
|
5 years
|
Capital commitments
|
$
|
9,760
|
|
|
$
|
9,221
|
|
|
$
|
539
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Capital leases
|
91
|
|
|
73
|
|
|
18
|
|
|
—
|
|
|
—
|
|
Operating leases
|
48,843
|
|
|
8,899
|
|
|
14,687
|
|
|
9,410
|
|
|
15,847
|
|
Convertible debt (including interest) *
|
87,941
|
|
|
87,941
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Purchase obligations
|
103,710
|
|
|
100,632
|
|
|
3,078
|
|
|
—
|
|
|
—
|
|
Wafer supply agreement
|
7,166
|
|
|
7,166
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Total
|
$
|
257,511
|
|
|
$
|
213,932
|
|
|
$
|
18,322
|
|
|
$
|
9,410
|
|
|
$
|
15,847
|
|
|
|
|
|
|
|
|
|
|
|
* The 2014 Notes had a remaining principal balance of $87.5 million as of March 29, 2014. The 2014 Notes were subsequently retired on April 15, 2014.
|
Capital Commitments
On
March 29, 2014
, we had capital commitments of approximately
$9.8 million
, primarily for increasing manufacturing capacity, as well as for equipment replacements, equipment for process improvements and general corporate requirements.
Capital Leases
We lease certain equipment and computer hardware and software under non-cancelable lease agreements that are accounted for as capital leases. Interest rates on capital leases ranged from
6.0%
to
6.4%
as of
March 29, 2014
. Equipment under capital lease arrangements is included in property and equipment and has a net cost of approximately
$0.3 million
as of both
March 29, 2014
and
March 30, 2013
.
Operating Leases
We lease the majority of our corporate, wafer fabrication and other facilities from several third-party real estate developers. The remaining terms of these operating leases range from approximately
one year
to
14 years
. Several have renewal options of up to two ten-year periods and several also include standard inflation escalation terms. Several also include rent escalation, rent holidays and leasehold improvement incentives, which are recognized to expense on a straight-line basis. The amortization period of leasehold improvements made either at the inception of the lease or during the lease term is amortized over the lesser of the remaining life of the lease term (including renewals that are reasonably assured) or the useful life of the asset. We also lease various machinery and equipment and office equipment under non-cancelable operating leases. The remaining terms of these operating leases range from less than one year to approximately three years. As of
March 29, 2014
, the total future minimum lease payments were approximately
$48.7 million
related to facility operating leases and approximately
$0.2 million
related to equipment operating leases.
Convertible Debt
In April 2007, we issued
$200 million
aggregate principal amount of the 2012 Notes and
$175 million
aggregate principal amount of the 2014 Notes (together with the 2012 Notes, the “Notes”). The Notes were issued in a private placement to Merrill Lynch, Pierce, Fenner & Smith Incorporated for resale to qualified institutional buyers. Offering expenses in connection with the issuance of the Notes, including discounts and commissions, were approximately
$8.8 million
, which are being amortized as interest expense over the terms of the Notes based on the effective interest method.
The 2012 Notes became due on
April 15, 2012
(the remaining balance of
$26.5 million
was paid with cash on hand) and the 2014 Notes matured on
April 15, 2014
. Interest on the 2014 Notes was payable in cash semiannually in arrears on April 15 and October 15 of each year. The 2014 Notes were subordinated unsecured obligations of the Company and ranked junior in right of payment to all of the Company’s existing and future senior debt. The 2014 Notes effectively were subordinated to the indebtedness and other liabilities of the Company’s subsidiaries. The 2014 Notes became due on April 15, 2014, and the remaining principal balance of $87.5 million plus interest of $0.4 million was paid with cash on hand.
During fiscal 2013, we purchased and retired
$47.4 million
original principal amount of our 2014 Notes for an average price of
$98.34
, which resulted in a loss of
$2.8 million
as a result of applying ASC 470-20. During fiscal 2012, we purchased and retired $35.8 million aggregate principal amount of our 2012 Notes for an average price of
$103.27
, which resulted in a loss of approximately $0.9 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 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.
As of
March 29, 2014
, the 2014 Notes had a fair value on the Private Offerings, Resale and Trading through Automated Linkages ("PORTAL") Market of
$88.7 million
, compared to a carrying value of
$87.3 million
. As of
March 30, 2013
, the 2014 Notes had a fair value on the PORTAL Market of
$86.7 million
, compared to a carrying value of
$82.0 million
.
The indentures governing our 2014 Notes contain certain non-financial covenants, and as of
March 29, 2014
, we were in compliance with these covenants.
Credit Agreement
On March 19, 2013, we entered into a four-year senior credit facility with Bank of America, N.A., as Administrative Agent and a lender, and a syndicate of other lenders (the “Credit Agreement”). The Credit Agreement includes a
$125.0 million
revolving credit facility, which includes a
$5.0 million
sublimit for the issuance of standby letters of credit and a
$5.0 million
sublimit for swingline loans. We may request, at any time and from time to time, that the revolving credit facility be increased by an amount not to exceed
$50.0 million
. The revolving credit facility is available to finance working capital, capital expenditures and other lawful corporate purposes. Our obligations under the Credit Agreement are jointly and severally guaranteed by certain subsidiaries. On August 15, 2013, the Credit Agreement was amended to revise the definition of "Eurodollar Base Rate" and a provision regarding restricted payments. We currently have
no
outstanding amounts under the Credit Agreement.
The Credit Agreement contains various conditions, covenants and representations with which we must be in compliance in order to borrow funds and to avoid an event of default, including financial covenants that we must maintain a consolidated leverage ratio not to exceed
2.50
to
1.0
as of the end of any fiscal quarter and a consolidated liquidity ratio not to be less than
1.05
to
1.0
as of the end of any fiscal quarter. We must also maintain Consolidated EBITDA (as defined in the Credit Agreement) of not less than
$75.0 million
as of the end of any four-fiscal-quarter period of the Company. We are in compliance with these covenants as of
March 29, 2014
. See Note 9 of the Notes to the Consolidated Financial Statements in Part II, Item 8 of this report for further details.
Other Debt
During fiscal 2008, we entered into a loan denominated in Renminbi with a bank in Beijing, China. In April 2012, this loan balance equaled U.S.
$6.3 million
and was repaid at maturity with cash on hand.
During fiscal 2007, we entered into a $25.0 million asset-based financing equipment term loan. During fiscal 2012, the equipment term loan became due and the remaining balance of $3.9 million was paid with cash on hand.
Purchase Obligations
Our purchase obligations, totaling approximately
$103.7 million
, are primarily for the purchase of raw materials and manufacturing services that are not recorded as liabilities on our balance sheet because we have not yet received the related goods or services as of
March 29, 2014
.
Wafer Supply Agreement
During the first quarter of fiscal 2013, we entered into an asset transfer agreement with IQE under which we transferred our MBE wafer growth operations (located in Greensboro, North Carolina) to IQE. The transaction with IQE was intended to lower our manufacturing costs, strengthen our supply chain and provide us with access to newly developed wafer starting process technologies. The assets transferred to IQE included our leasehold interest in the real property, building and improvements used for the facility and machinery and equipment located in the facility. Approximately 70 employees at our MBE facility became employees of IQE as part of the transaction. In conjunction with the asset transfer agreement, we entered into a wafer supply agreement with IQE under which IQE will supply us with competitively priced wafer starting materials through March 31, 2016. As of
March 29, 2014
, our minimum purchase commitment related to the wafer supply agreement is approximately
$7.2 million
(see Note 6 of the Notes to the Consolidated Financial Statements in Part II, Item 8 of this report for further details).
Other Contractual Obligations
As of
March 29, 2014
, in addition to the amounts shown in the Contractual Obligations table above, we have $41.7 million of unrecognized income tax benefits and accrued interest, of which $11.1 million have been recorded as liabilities. We are uncertain as to if, or when, such amounts may be settled.
As discussed in Note 10 of the Notes to the Consolidated Financial Statements in Part II, Item 8 of this report, we have an unfunded pension plan in Germany with a benefit obligation of approximately
$5.5 million
as of
March 29, 2014
. Pension benefit payments are not included in the schedule above as they are not available for all periods presented. Pension benefit payments were less than $0.1 million in fiscal 2014 and are expected to be less than $0.1 million in fiscal 2015.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The preparation of consolidated financial statements requires management to use judgment and estimates. The level of uncertainty in estimates and assumptions increases with the length of time until the underlying transactions are completed. Actual results could differ from those estimates. The accounting policies that are most critical in the preparation of our consolidated financial statements are those that are both important to the presentation of our financial condition and results of operations and require significant judgment and estimates on the part of management. Our critical accounting policies are reviewed periodically with the Audit Committee of the Board of Directors. We also have other policies that we consider key accounting policies, such as policies for revenue recognition (see Note 1 of the Notes to the Consolidated Financial Statements in Part II, Item 8 of this report); however, these policies typically do not require us to make estimates or judgments that are difficult or subjective.
Inventory Reserves.
The valuation of inventory requires us to estimate obsolete or excess inventory. The determination of obsolete or excess inventory requires us to estimate the future demand for our products within specific time horizons, generally 12 to 24 months. The estimates of future demand that we use in the valuation of inventory reserves are the same as those used in our revenue forecasts and are also consistent with the estimates used in our manufacturing plans to enable consistency between inventory valuations and build decisions. Product-specific facts and circumstances reviewed in the inventory valuation process include a review of the customer base, market conditions, and customer acceptance of our products and technologies, as well as an assessment of the selling price in relation to the product cost.
Historically, inventory reserves have fluctuated as new technologies have been introduced and customers’ demand has shifted. Inventory reserves had a 1% or lower impact on margins in fiscal years
2014
,
2013
and
2012
.
Goodwill and Intangible Assets.
Goodwill is recorded when the purchase price paid for a business exceeds the estimated fair value of the net identified tangible and intangible assets acquired. Intangibles are recorded when such assets are acquired by purchase or license. The value of our intangibles, including goodwill, could be
impacted by future adverse changes such as: (i) any future declines in our operating results; (ii) a decline in the value of technology company stocks, including the value of our common stock; (iii) a prolonged or more significant slowdown in the worldwide economy or the semiconductor industry; or (iv) any failure to meet the performance projections included in our forecasts of future operating results.
Goodwill
We have determined that our reporting units as of fiscal
2014
are CPG, MPG and CSG for purposes of allocating and testing goodwill. In evaluating our reporting units we first consider our operating segments and related components in accordance with FASB guidance. Goodwill is allocated to our reporting units that are expected to benefit from the synergies of the business combinations generating the underlying goodwill. As of
March 29, 2014
, our goodwill balance of
$103.9 million
is allocated to our CPG and MPG reporting units.
We account for goodwill in accordance with FASB's authoritative guidance, which requires that goodwill and certain intangibles are not amortized, but are subject to an annual impairment test. We complete our goodwill impairment test on an annual basis on the first day of the fourth quarter in each fiscal year, or more frequently, if changes in facts and circumstances indicate that an impairment in the value of goodwill recorded on our balance sheet may exist. In fiscal 2013, we adopted
FASB Accounting Standards Update (ASU) 2011-08
"Intangibles - Goodwill and Other (Topic 350): Testing Goodwill for Impairment"
(ASU 2011-08), which provides entities with an option to perform a qualitative assessment (commonly referred to as "step zero") to determine whether further quantitative analysis for impairment of goodwill is necessary. In performing step zero for our goodwill impairment test, we are required to make assumptions and judgments including but not limited to the following: the evaluation of macroeconomic conditions as related to our business, industry and market trends, and the overall future financial performance of our reporting units and future opportunities in the markets in which they operate. We also consider recent fair value calculations of our reporting units as well as cost factors such as changes in raw materials, labor or other costs. If impairment indicators are present after performing step zero, we would perform a quantitative impairment analysis to estimate the fair value of goodwill. In doing so, we would estimate future revenue, consider market factors and estimate our future profitability and cash flows. Based on these key assumptions, judgments and estimates, we determine whether we need to record an impairment charge to reduce the value of the goodwill carried on our balance sheet to its estimated fair value. Assumptions, judgments and estimates about future values are complex and often subjective and can be affected by a variety of factors, including external factors such as industry and economic trends, and internal factors such as changes in our business strategy or our internal forecasts. Although we believe the assumptions, judgments and estimates we have made have been reasonable and appropriate, different assumptions, judgments and estimates could materially affect our results of operations.
We performed a step zero analysis for our goodwill impairment test in the fourth quarter of fiscal
2014
. As a result of our analysis, no further quantitative impairment test was deemed necessary for fiscal
2014
. There was no impairment of goodwill as a result of our annual impairment tests completed during the fourth quarters of fiscal years
2013
and
2012
.
Intangible Assets
Intangible assets are recorded when such assets are acquired by purchase or license.
Finite-lived intangible assets consist primarily of technology licenses, customer relationships, a wafer supply agreement and developed technology resulting from business combinations and are subject to amortization. Indefinite-lived intangible assets consist of IPRD.
Technology licenses are recorded at cost and are amortized on
a straight-line basis over the lesser of the estimated useful life of the technology or the term of the license agreement, ranging from approximately
six
to
15 years
.
The fair value of customer
relationships acquired prior to fiscal 2013 was based on the benefit derived from the incremental revenue and related cash flows as a direct result of the customer relationship. These forecasted cash flows are discounted to present value using an appropriate discount rate. The fair value of customer relationships acquired during fiscal 2013 was determined based on an income approach using the “with and without method," in which the value of the asset is determined by the difference in discounted cash flows of the profitability of the Company "with" the asset and the profitability of the Company "without" the asset. Customer
relationships are amortized on a straight-line basis over the estimated useful life, ranging from
three
to
ten
years.
The fair value of developed technology acquired prior to fiscal 2013 was determined
by discounting forecasted cash flows directly related to the existing product technology, net of returns on contributory assets. The f
air value of developed technology acquired during fiscal 2013
was
determined based on an income approach using the "excess earnings method," which estimated the value of the intangible assets by discounting the future projected earnings of the asset to present value as of the valuation date. De
veloped technology is amortized on a straight-line basis over the estimated useful life of
six
years.
The fair value of the wafer supply agreement was determined using the incremental income method, which is a discounted cash flow method within the income approach. Under this method, the fair value was estimated by discounting to present value the additional savings from expense reductions in operations at a discount rate to reflect the risk inherent in the wafer supply agreement as well as any tax benefits. The wafer supply agreement is amortized on a units of use activity method and has a useful life of approximately
four
years.
IPRD is recorded at fair value as of the date of acquisition as an indefinite-lived intangible asset until the completion or abandonment of the associated research and development efforts or impairment. The fair value of the acquired IPRD was determined based on an income approach using the "excess earnings method," which
estimated the value of the intangible assets by discounting the future projected earnings of the asset to present value as of the valuation date. Upon completion of development, acquired IPRD assets are transferred to finite-lived intangible assets and amortized over their useful lives. See Note 8 of the Notes to the Consolidated Financial Statements in Part II, Item 8 for additional information regarding an impairment of assets recorded in the fourth quarter of fiscal 2014.
We regularly review identified intangible assets to determine if facts and circumstances indicate that the useful life is shorter than we originally estimated or that the carrying amount of the assets may not be recoverable. If such facts and circumstances exist, we assess the recoverability of identified intangible assets by comparing the projected undiscounted net cash flows associated with the related asset or group of assets over their remaining lives against their respective carrying amounts. Impairments, if any, are based on the excess of the carrying amount over the fair value of those assets and occur in the period in which the impairment determination was made.
Impairment of Long-lived Assets.
We review the carrying values of all long-lived assets whenever events or changes in circumstances indicate that such carrying values may not be recoverable. Factors that we consider in deciding when to perform an impairment review include significant under-performance of a business, significant negative industry or economic trends, and significant changes or planned changes in our use of assets.
In making impairment determinations for long-lived assets, we utilize certain assumptions, including but not limited to: (i) estimations and quoted market prices of the fair market value of the assets; and (ii) estimations of future cash flows expected to be generated by these assets, which are based on additional assumptions such as asset utilization, length of service that the asset will be used in our operations and estimated salvage values.
Income Taxes.
In determining income for financial statement purposes, we must make certain estimates and judgments in the calculation of tax expense, the resultant tax liabilities, and in the recoverability of deferred tax assets that arise from temporary differences between the tax and financial statement recognition of revenue and expense.
As part of our financial process, we assess on a tax jurisdictional basis the likelihood that our deferred tax assets can be recovered. If recovery is not likely (a likelihood of less than 50 percent), the provision for taxes must be increased by recording a reserve in the form of a valuation allowance for the deferred tax assets that are estimated not to ultimately be recoverable. In this process, certain relevant criteria are evaluated including: the amount of income or loss in prior years, the existence of deferred tax liabilities that can be used to absorb deferred tax assets, the taxable income in prior carryback years that can be used to absorb net operating losses and credit carrybacks, future expected taxable income, and prudent and feasible tax planning strategies. Changes in taxable income, market conditions, U.S. or international tax laws, and other factors may change our judgment regarding realizability. These changes, if any, may require material adjustments to the net deferred tax assets and an accompanying reduction or increase in income tax expense which will result in a corresponding increase or decrease in net income in the period when such determinations are made. See Note 13 of the Notes to the Consolidated Financial Statements in Part II, Item 8 of this report for additional information regarding changes in the valuation allowance and net deferred tax assets.
As part of our financial process, we also assess the likelihood that our tax reporting positions will ultimately be sustained. To the extent it is determined it is more likely than not that a tax reporting position will ultimately not be recognized and sustained, a provision for unrecognized tax benefit is provided by either reducing the applicable deferred tax asset or accruing an income tax liability. Our judgment regarding the sustainability of our tax reporting positions may change in the future due to changes in U.S. or international tax laws and other factors. These changes, if any, may require material adjustments to the related deferred tax assets or accrued income tax liabilities and an accompanying reduction or increase in income tax expense which will result in a corresponding increase or decrease in net income in the period when such determinations are made. See Note 13 of the Notes to the Consolidated Financial Statements in Part II, Item 8 of this report for additional information regarding our uncertain tax positions and the amount of unrecognized tax benefits.
RECENT ACCOUNTING PRONOUNCMENTS
In July 2013, the FASB issued ASU 2013-11,
“Income Taxes (Topic 740): Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists” ("
ASU 2013-11"). ASU 2013-11 requires an unrecognized tax benefit, or a portion of an unrecognized tax benefit, to be presented in the financial statements as a reduction of a deferred tax asset or a tax credit carryforward, excluding certain exceptions. This ASU will be effective for us beginning with the first quarter of fiscal 2015 and we do not believe that the adoption of this standard will significantly impact our consolidated financial statements.
In February 2013, the FASB issued ASU 2013-02,
"Reporting of Amounts Reclassified out of Accumulated Other Comprehensive Income."
ASU 2013-02 requires reporting the effect of significant reclassifications out of accumulated other comprehensive income on the respective line items in net income if the amount being reclassified is required to be reclassified in its entirety to net income. For other amounts that are not required to be reclassified in their entirety to net income in the same reporting period, an entity is required to cross-reference other disclosures that provide additional detail about these amounts. The amendments do not change the current requirements for reporting net income or other comprehensive income in the financial statements. We adopted this guidance in the first quarter of fiscal 2014. The adoption of this guidance affected the presentation of comprehensive income, but did not impact our financial position, results of operations or cash flows.
|
|
|
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
|
|
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
Page
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
RF Micro Devices, Inc. and Subsidiaries
Consolidated Balance Sheets
(In thousands)
|
|
|
|
|
|
|
|
|
|
March 29, 2014
|
|
March 30, 2013
|
ASSETS
|
|
|
|
Current assets:
|
|
|
|
Cash and cash equivalents
|
$
|
171,898
|
|
|
$
|
101,662
|
|
Short-term investments
(Notes 1 & 3)
|
72,067
|
|
|
77,987
|
|
Accounts receivable, less allowance of $313 and $434 as of March 29, 2014 and March 30, 2013, respectively
|
137,417
|
|
|
143,647
|
|
Inventories
(Notes 1 & 4)
|
125,703
|
|
|
161,193
|
|
Prepaid expenses
|
12,721
|
|
|
13,034
|
|
Other receivables
(Note 1)
|
13,181
|
|
|
16,233
|
|
Other current assets
(Note 13)
|
4,431
|
|
|
2,481
|
|
Total current assets
|
537,418
|
|
|
516,237
|
|
Property and equipment:
|
|
|
|
Land
|
3,706
|
|
|
3,706
|
|
Building
|
94,929
|
|
|
95,655
|
|
Machinery and equipment
|
547,991
|
|
|
517,413
|
|
Leasehold improvements
|
45,464
|
|
|
45,788
|
|
Furniture and fixtures
|
10,753
|
|
|
10,814
|
|
Computer equipment and software
|
35,782
|
|
|
33,147
|
|
|
738,625
|
|
|
706,523
|
|
Less accumulated depreciation
|
(552,901
|
)
|
|
(538,494
|
)
|
|
185,724
|
|
|
168,029
|
|
Construction in progress
|
10,272
|
|
|
23,497
|
|
Total property and equipment, net
|
195,996
|
|
|
191,526
|
|
Goodwill
(Notes 1, 5, 6 & 8)
|
103,901
|
|
|
104,846
|
|
Intangible assets, net
(Notes 1 & 8)
|
54,990
|
|
|
93,197
|
|
Long-term investments
(Notes 1 & 3)
|
3,841
|
|
|
4,281
|
|
Other non-current assets
(Notes 1 & 13)
|
24,166
|
|
|
21,912
|
|
Total assets
|
$
|
920,312
|
|
|
$
|
931,999
|
|
LIABILITIES AND SHAREHOLDERS' EQUITY
|
|
|
|
Current liabilities:
|
|
|
|
Accounts payable
|
$
|
79,783
|
|
|
$
|
123,468
|
|
Accrued liabilities
|
51,824
|
|
|
55,760
|
|
Current portion of long-term debt, net of unamortized discount
(Note 9)
|
87,263
|
|
|
—
|
|
Other current liabilities
(Notes 11 & 13)
|
1,103
|
|
|
6,486
|
|
Total current liabilities
|
219,973
|
|
|
185,714
|
|
Long-term debt, net of unamortized discount
(Note 9)
|
—
|
|
|
82,035
|
|
Other long-term liabilities
(Notes 10, 11, 12 & 13)
|
23,988
|
|
|
25,236
|
|
Total liabilities
|
243,961
|
|
|
292,985
|
|
Commitments and contingent liabilities
(Note 11)
|
|
|
|
|
|
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; 284,858 and 280,160 shares issued and outstanding at March 29, 2014 and March 30, 2013, respectively
|
1,284,402
|
|
|
1,259,420
|
|
Accumulated other comprehensive loss, net of tax
|
(785
|
)
|
|
(498
|
)
|
Accumulated deficit
|
(607,266
|
)
|
|
(619,908
|
)
|
Total shareholders’ equity
|
676,351
|
|
|
639,014
|
|
Total liabilities and shareholders’ equity
|
$
|
920,312
|
|
|
$
|
931,999
|
|
See accompanying notes.
RF Micro Devices, Inc. and Subsidiaries
Consolidated Statements of Operations
(In thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year
|
|
2014
|
|
2013
|
|
2012
|
|
|
|
|
|
|
Revenue
|
$
|
1,148,231
|
|
|
$
|
964,147
|
|
|
$
|
871,352
|
|
Cost of goods sold
|
743,304
|
|
|
658,332
|
|
|
582,586
|
|
Gross profit
|
404,927
|
|
|
305,815
|
|
|
288,766
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
Research and development
|
197,269
|
|
|
178,793
|
|
|
151,697
|
|
Marketing and selling
|
74,672
|
|
|
68,674
|
|
|
63,217
|
|
General and administrative
|
76,732
|
|
|
64,242
|
|
|
50,107
|
|
Other operating expense
(income)
(Notes 5, 6, 8 & 12)
|
28,913
|
|
|
9,786
|
|
|
(898
|
)
|
Total operating expenses
|
377,586
|
|
|
321,495
|
|
|
264,123
|
|
Income (loss) from operations
|
27,341
|
|
|
(15,680
|
)
|
|
24,643
|
|
|
|
|
|
|
|
Interest expense
|
(5,983
|
)
|
|
(6,532
|
)
|
|
(10,997
|
)
|
Interest income
|
179
|
|
|
249
|
|
|
468
|
|
Loss on retirement of convertible subordinated notes
(Note 9)
|
—
|
|
|
(2,756
|
)
|
|
(908
|
)
|
Other income (expense)
|
2,336
|
|
|
(1,180
|
)
|
|
2,422
|
|
Income (loss) before income taxes
|
$
|
23,873
|
|
|
$
|
(25,899
|
)
|
|
$
|
15,628
|
|
|
|
|
|
|
|
Income tax expense
(Note 13)
|
(11,231
|
)
|
|
(27,100
|
)
|
|
(14,771
|
)
|
Net income (loss)
|
$
|
12,642
|
|
|
$
|
(52,999
|
)
|
|
$
|
857
|
|
|
|
|
|
|
|
Net income (loss) per share
(Note 14):
|
|
|
|
|
|
Basic
|
$
|
0.04
|
|
|
$
|
(0.19
|
)
|
|
$
|
0.00
|
|
Diluted
|
$
|
0.04
|
|
|
$
|
(0.19
|
)
|
|
$
|
0.00
|
|
|
|
|
|
|
|
Shares used in per share calculation
(Note 14)
:
|
|
|
|
|
|
Basic
|
281,996
|
|
|
278,602
|
|
|
276,289
|
|
Diluted
|
288,074
|
|
|
278,602
|
|
|
282,576
|
|
|
|
|
|
|
|
See accompanying notes.
RF Micro Devices, Inc. and Subsidiaries
Consolidated Statements of Comprehensive Income (Loss)
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year
|
|
2014
|
|
2013
|
|
2012
|
Net income (loss)
|
$
|
12,642
|
|
|
$
|
(52,999
|
)
|
|
$
|
857
|
|
Other comprehensive loss:
|
|
|
|
|
|
Unrealized gain (loss) on marketable securities, net of tax
|
3
|
|
|
33
|
|
|
(68
|
)
|
Change in pension liability
|
(348
|
)
|
|
(124
|
)
|
|
(511
|
)
|
Foreign currency translation adjustment, including intra-entity foreign currency transactions that are of a long-term-investment nature
|
55
|
|
|
(250
|
)
|
|
33
|
|
Reclassification adjustments, net of tax:
|
|
|
|
|
|
Recognized loss on marketable securities
|
—
|
|
|
4
|
|
|
—
|
|
Amortization of pension actuarial loss (gain)
|
3
|
|
|
—
|
|
|
(8
|
)
|
Other comprehensive loss
|
(287
|
)
|
|
(337
|
)
|
|
(554
|
)
|
Total comprehensive income (loss)
|
$
|
12,355
|
|
|
$
|
(53,336
|
)
|
|
$
|
303
|
|
See accompanying notes.
RF Micro Devices, Inc. and Subsidiaries
Consolidated Statements of Shareholders’ Equity
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
Common Stock
|
|
Comprehensive
|
|
Accumulated
|
|
|
|
Shares
|
|
Amount
|
|
(Loss) Income
|
|
Deficit
|
|
Total
|
Balance, April 2, 2011
|
275,376
|
|
|
$
|
1,243,728
|
|
|
$
|
393
|
|
|
$
|
(567,766
|
)
|
|
$
|
676,355
|
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
Net income
|
—
|
|
|
—
|
|
|
—
|
|
|
857
|
|
|
857
|
|
Other comprehensive loss
|
—
|
|
|
—
|
|
|
(554
|
)
|
|
—
|
|
|
(554
|
)
|
Repurchase of convertible subordinated notes, net of tax
|
—
|
|
|
(1,777
|
)
|
|
—
|
|
|
—
|
|
|
(1,777
|
)
|
Exercise of stock options and vesting of restricted stock units, net of shares withheld for employee taxes
|
5,699
|
|
|
(2,232
|
)
|
|
—
|
|
|
—
|
|
|
(2,232
|
)
|
Issuance of common stock in connection with employee stock purchase plan
|
820
|
|
|
3,855
|
|
|
—
|
|
|
—
|
|
|
3,855
|
|
Repurchase of common stock, including transaction costs
|
(4,903
|
)
|
|
(30,373
|
)
|
|
—
|
|
|
—
|
|
|
(30,373
|
)
|
Share-based compensation expense
|
—
|
|
|
26,200
|
|
|
—
|
|
|
—
|
|
|
26,200
|
|
Balance, March 31, 2012
|
276,992
|
|
|
1,239,401
|
|
|
(161
|
)
|
|
(566,909
|
)
|
|
672,331
|
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
Net loss
|
—
|
|
|
—
|
|
|
—
|
|
|
(52,999
|
)
|
|
(52,999
|
)
|
Other comprehensive loss
|
—
|
|
|
—
|
|
|
(337
|
)
|
|
—
|
|
|
(337
|
)
|
Repurchase of convertible subordinated notes, net of tax
|
—
|
|
|
(1,251
|
)
|
|
—
|
|
|
—
|
|
|
(1,251
|
)
|
Exercise of stock options and vesting of restricted stock units, net of shares withheld for employee taxes
|
4,028
|
|
|
(5,736
|
)
|
|
—
|
|
|
—
|
|
|
(5,736
|
)
|
Issuance of common stock in connection with employee stock purchase plan
|
999
|
|
|
3,348
|
|
|
—
|
|
|
—
|
|
|
3,348
|
|
Repurchase of common stock, including transaction costs
|
(1,859
|
)
|
|
(6,999
|
)
|
|
—
|
|
|
—
|
|
|
(6,999
|
)
|
Share-based compensation expense
|
—
|
|
|
30,657
|
|
|
—
|
|
|
—
|
|
|
30,657
|
|
Balance, March 30, 2013
|
280,160
|
|
|
1,259,420
|
|
|
(498
|
)
|
|
(619,908
|
)
|
|
639,014
|
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
Net income
|
—
|
|
|
—
|
|
|
—
|
|
|
12,642
|
|
|
12,642
|
|
Other comprehensive loss
|
—
|
|
|
—
|
|
|
(287
|
)
|
|
—
|
|
|
(287
|
)
|
Exercise of stock options and vesting of restricted stock units, net of shares withheld for employee taxes
|
6,246
|
|
|
3,326
|
|
|
—
|
|
|
—
|
|
|
3,326
|
|
Issuance of common stock in connection with employee stock purchase plan
|
987
|
|
|
4,617
|
|
|
—
|
|
|
—
|
|
|
4,617
|
|
Repurchase of common stock, including transaction costs
|
(2,535
|
)
|
|
(12,780
|
)
|
|
—
|
|
|
—
|
|
|
(12,780
|
)
|
Share-based compensation expense
|
—
|
|
|
29,819
|
|
|
—
|
|
|
—
|
|
|
29,819
|
|
Balance, March 29, 2014
|
284,858
|
|
|
$
|
1,284,402
|
|
|
$
|
(785
|
)
|
|
$
|
(607,266
|
)
|
|
$
|
676,351
|
|
See accompanying notes.
RF Micro Devices, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year
|
|
2014
|
|
2013
|
|
2012
|
Cash flows from operating activities:
|
|
|
|
|
|
Net income (loss)
|
$
|
12,642
|
|
|
$
|
(52,999
|
)
|
|
$
|
857
|
|
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
|
|
|
|
|
|
Depreciation
|
45,698
|
|
|
49,357
|
|
|
57,949
|
|
Intangible amortization
|
28,638
|
|
|
23,107
|
|
|
18,390
|
|
Non-cash interest expense and amortization of debt issuance costs
|
5,101
|
|
|
5,793
|
|
|
9,378
|
|
Investment discount amortization, net
|
(40
|
)
|
|
(101
|
)
|
|
(219
|
)
|
Excess tax benefit from exercises of stock options
|
(50
|
)
|
|
—
|
|
|
—
|
|
Deferred income taxes
|
441
|
|
|
16,796
|
|
|
4,283
|
|
Foreign currency adjustments
|
(507
|
)
|
|
10
|
|
|
(507
|
)
|
Loss on retirement of convertible subordinated notes
|
—
|
|
|
2,756
|
|
|
908
|
|
(Income) loss from equity investment
(Note 1)
|
(2,146
|
)
|
|
44
|
|
|
(1,631
|
)
|
Loss on impairment of intangible assets
(Note 12)
|
11,300
|
|
|
—
|
|
|
—
|
|
Loss (gain) on assets and other, net
|
3,184
|
|
|
4,342
|
|
|
(1,256
|
)
|
Share-based compensation expense
|
29,901
|
|
|
30,819
|
|
|
26,174
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
Accounts receivable, net
|
6,160
|
|
|
(38,400
|
)
|
|
19,847
|
|
Inventories
|
35,266
|
|
|
(19,071
|
)
|
|
19,466
|
|
Prepaid expense and other current and non-current assets
|
(1,543
|
)
|
|
(537
|
)
|
|
(11,321
|
)
|
Accounts payable
|
(43,393
|
)
|
|
46,821
|
|
|
(21,375
|
)
|
Accrued liabilities
|
4,825
|
|
|
(815
|
)
|
|
1,399
|
|
Income tax payable/recoverable
|
(4,653
|
)
|
|
960
|
|
|
6,178
|
|
Other liabilities
|
25
|
|
|
2,370
|
|
|
(4,307
|
)
|
Net cash provided by operating activities
|
130,849
|
|
|
71,252
|
|
|
124,213
|
|
Investing activities:
|
|
|
|
|
|
Purchase of securities available-for-sale
|
(125,037
|
)
|
|
(89,959
|
)
|
|
(205,849
|
)
|
Proceeds from maturities of securities available-for-sale
|
130,999
|
|
|
176,975
|
|
|
201,001
|
|
Proceeds from the sale of equity investment
|
2,586
|
|
|
—
|
|
|
—
|
|
Purchase of business, net of cash acquired
|
—
|
|
|
(47,697
|
)
|
|
—
|
|
Purchase of intangibles
|
(1,327
|
)
|
|
—
|
|
|
—
|
|
Purchase of property and equipment
|
(66,753
|
)
|
|
(54,636
|
)
|
|
(46,051
|
)
|
Proceeds from sale of property and equipment
|
2,499
|
|
|
840
|
|
|
984
|
|
Net cash used in investing activities
|
(57,033
|
)
|
|
(14,477
|
)
|
|
(49,915
|
)
|
Financing activities:
|
|
|
|
|
|
Payment of debt
|
—
|
|
|
(79,432
|
)
|
|
(41,853
|
)
|
Excess tax benefit from exercises of stock options
|
50
|
|
|
—
|
|
|
—
|
|
Debt issuance cost
|
(122
|
)
|
|
(1,240
|
)
|
|
—
|
|
Proceeds from the issuance of common stock
|
17,480
|
|
|
3,988
|
|
|
11,285
|
|
Repurchase of common stock, including transaction costs
|
(12,780
|
)
|
|
(6,999
|
)
|
|
(30,373
|
)
|
Tax withholding paid on behalf of employees for restricted stock units
|
(9,113
|
)
|
|
(5,959
|
)
|
|
(9,658
|
)
|
Restricted cash associated with financing activities
|
305
|
|
|
34
|
|
|
267
|
|
Repayment of capital lease obligations
|
(65
|
)
|
|
(62
|
)
|
|
(57
|
)
|
Net cash used in financing activities
|
(4,245
|
)
|
|
(89,670
|
)
|
|
(70,389
|
)
|
Effect of exchange rate changes on cash
|
665
|
|
|
(967
|
)
|
|
(145
|
)
|
Net increase (decrease) in cash and cash equivalents
|
70,236
|
|
|
(33,862
|
)
|
|
3,764
|
|
Cash and cash equivalents at the beginning of the period
|
101,662
|
|
|
135,524
|
|
|
131,760
|
|
Cash and cash equivalents at the end of the period
|
$
|
171,898
|
|
|
$
|
101,662
|
|
|
$
|
135,524
|
|
Supplemental disclosure of cash flow information:
|
|
|
|
|
|
Cash paid during the year for interest
|
$
|
1,205
|
|
|
$
|
1,409
|
|
|
$
|
2,315
|
|
Cash paid during the year for income taxes
|
$
|
15,350
|
|
|
$
|
8,941
|
|
|
$
|
14,554
|
|
See accompanying notes.
RF Micro Devices, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
March 29, 2014
|
|
1.
|
THE COMPANY AND ITS SIGNIFICANT ACCOUNTING POLICIES
|
RF Micro Devices, Inc. (the "Company") was incorporated under the laws of the State of North Carolina in 1991. The Company is a global leader in the design and manufacture of high-performance radio frequency (RF) solutions. The Company’s products enable worldwide mobility, provide enhanced connectivity, and support advanced functionality in the mobile device, wireless infrastructure, wireless local area network (WLAN or WiFi), cable television (CATV)/broadband, Smart Energy/advanced metering infrastructure (AMI), and aerospace and defense markets. The Company is recognized for its diverse portfolio of semiconductor technologies and RF systems expertise and is a preferred supplier to the world's leading mobile device, customer premises and communications equipment providers. The Company’s design and manufacturing expertise encompasses all major applicable semiconductor process technologies, which are sourced through both internal and external suppliers. The Company’s broad design and manufacturing resources enable the Company to deliver products optimized for customers’ performance, cost and time-to-market requirements.
Principles of Consolidation
The 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.
The results of operations, assets and liabilities associated with the acquisition of Amalfi Semiconductor, Inc. (“Amalfi”) completed during fiscal 2013 have been included in the Consolidated Statements of Operations from the acquisition date (
November 9, 2012
) and are reflected in the Consolidated Balance Sheet as of March 30, 2013 (see Note 5).
During the fourth quarter of fiscal 2014, the Company sold a portion of an equity method investment for
$2.6 million
which resulted in a gain of
$1.5 million
. As of
March 29, 2014
and
March 30, 2013
, the carrying value of the equity investment is
$1.7 million
and
$2.1 million
, respectively. The investment is recorded in “Long-term investments” in the Consolidated Balance Sheets. The Company purchased raw materials from its equity investee totaling approximately
$6.6 million
,
$7.0 million
and
$9.2 million
, for fiscal years 2014, 2013 and 2012, respectively.
Accounting Periods
The Company uses a 52- or 53-week fiscal year ending on the Saturday closest to March 31 of each year. The most recent three fiscal years ended on
March 29, 2014
,
March 30, 2013
, and
March 31, 2012
. Fiscal years 2014, 2013 and 2012 were 52-week years.
Fair Value of Financial Instruments
The carrying values of cash and cash equivalents, accounts receivable, accounts payable and other accrued liabilities approximate fair values as of
March 29, 2014
and
March 30, 2013
(see Note 3 and Note 9).
Use of Estimates
The preparation of the Consolidated Financial Statements in conformity with accounting principles generally accepted in the U.S. requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. The actual results that we experience may differ materially from our estimates. The Company makes estimates for the returns reserve, rebates, allowance for doubtful accounts, inventory valuation including reserves, warranty reserves, income tax valuation, current and deferred income taxes, uncertain tax positions, non-marketable equity investments, other-than-temporary impairments of investments, goodwill, long-lived assets and other financial statement amounts on a regular basis and makes adjustments based on historical experiences and expected future conditions. Accounting estimates require difficult and subjective judgments and actual results may differ from the Company’s estimates.
RF Micro Devices, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
Cash and Cash Equivalents
Cash and cash equivalents consist of demand deposit accounts, money market funds, and other temporary, highly- liquid investments with original maturities of three months or less when purchased.
Investments
Investments are accounted for in accordance with FASB ASC 320, “
Investments – Debt and Equity Securities.
”
Available-for-Sale Investments
Investments available-for-sale at
March 29, 2014
, and
March 30, 2013
, consisted of U.S. government/agency securities and auction rate securities. Available-for-sale investments with an original maturity date greater than approximately
three months
and less than
one year
are classified as current investments. Available-for-sale investments with an original maturity date exceeding
one year
are classified as long-term.
Available-for-sale securities are carried at fair value as determined by quoted market prices, with the unrealized gains and losses, net of tax, reported in "Other comprehensive (loss) income." The cost of securities sold is based on the specific identification method and any realized gain or loss is included in “Other income (expense).” The amortized cost of available-for-sale securities is adjusted for amortization of premium and accretion of discounts, which are included as a portion of interest.
The Company assesses individual investments for impairment quarterly. Investments are impaired when the fair value is less than the amortized cost. If an investment is impaired, the Company evaluates whether the impairment is other-than-temporary. A debt investment impairment is considered other-than-temporary if (i) the Company intends to sell the security, (ii) it is more likely than not that the Company will be required to sell the security before recovery of the entire amortized cost basis, or (iii) the Company does not expect to recover the entire amortized cost basis of the security (a credit loss). Other-than-temporary declines in the Company's debt securities are recognized as a loss in the statement of operations if due to credit loss; all other losses on debt securities are recorded in "Other comprehensive (loss) income." The previous amortized cost basis less the other-than-temporary impairment becomes the new cost basis and is not adjusted for subsequent recoveries in fair value.
Inventories
Inventories are stated at the lower of cost or market determined using the average cost method. The Company’s business is subject to the risk of technological and design changes. The Company evaluates inventory levels quarterly against sales forecasts on a product family basis to evaluate its overall inventory risk. Reserves are adjusted to reflect inventory values in excess of forecasted sales which include management's analysis and assessment of overall inventory risk. In the event the Company sells inventory that had been covered by a specific inventory reserve, the sale is recorded at the actual selling price and the related cost of goods sold is recorded at the full inventory cost, net of the reserve. Abnormal production levels are charged to the income statement in the period incurred rather than as a portion of inventory cost.
Product Warranty
The Company generally sells products with a limited warranty on product quality. The Company accrues for known warranty issues if a loss is probable and can be reasonably estimated, and accrues for estimated incurred but unidentified issues based on historical activity. The accrual and the related expense for known product warranty issues were not significant during the periods presented. Due to product testing and the short time typically between product shipment and the detection and correction of product failures and the historical rate of losses, the accrual and related expense for estimated incurred but unidentified issues were not significant during the periods presented.
Property and Equipment
Property and equipment are stated at cost, less accumulated depreciation. Depreciation of property and equipment is computed using the straight-line method over the estimated useful lives of the assets, ranging from
one year
to
20
RF Micro Devices, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
years
. The Company’s assets acquired under capital leases and leasehold improvements are amortized over the lesser of the asset life or lease term (which is reasonably assured) and included in depreciation.
The Company performs a review if facts and circumstances indicate that the carrying amount of assets may not be recoverable or that the useful life is shorter than had originally been estimated. The Company assesses the recoverability of the assets held for use by comparing the projected undiscounted net cash flows associated with the related asset or group of assets over their remaining estimated useful lives against their respective carrying amounts. Impairment, if any, is based on the excess of the carrying amount over the fair value of those assets. If the Company determines that the useful lives are shorter than the Company had originally estimated, the net book value of the assets is depreciated over the newly determined remaining useful lives. The Company identifies property and equipment as “held for sale” based on the current expectation that, more likely than not, an asset or asset group will be sold or otherwise disposed. The held for sale assets cease depreciation once the assets are classified to the held for sale category at their fair market value less costs to sell.
The Company capitalizes the portion of the interest expense related to certain assets that are not ready for their intended use and this amount is depreciated over the estimated useful lives of the qualified assets. The Company additionally records capital-related government grants earned as a reduction to property and equipment and depreciates such grants over the estimated useful lives of the associated assets.
Other Receivables
The Company records miscellaneous non-product receivables that are collectible within 12 months in “Other receivables,” such as value-added tax receivables (
$10.1 million
as of
March 29, 2014
and
$13.9 million
as of
March 30, 2013
, which are reported on a net basis), interest receivables and other miscellaneous items.
Goodwill and Intangible Assets
The value of the Company’s goodwill and purchased intangible assets could be impacted by future adverse changes such as: (i) future declines in RFMD’s operating results, (ii) a decline in the value of technology company stocks, including the value of RFMD’s common stock, (iii) a prolonged or more significant slowdown in the worldwide economy or the semiconductor industry, or (iv) failure to meet the performance projections included in RFMD’s forecasts of future operating results.
Goodwill
The Company has determined that its reporting units at the fiscal 2014 annual measurement date were CPG, MPG and CSG for purposes of allocating and testing goodwill. In evaluating its reporting units, the Company first considers its operating segments and related components in accordance with FASB guidance. Goodwill is allocated to the reporting units that are expected to benefit from the synergies of the business combinations generating the underlying goodwill. As of
March 29, 2014
,
$93.6 million
of the Company’s goodwill balance is allocated to the MPG reporting unit and
$10.3 million
is allocated to the CPG reporting unit.
Goodwill is recorded when the purchase price paid for a business exceeds the estimated fair value of the net identified tangible and intangible assets acquired. The Company evaluates its goodwill for potential impairment on an annual basis on the first day of the fourth quarter in each fiscal year, or more frequently if events or circumstances indicate that an impairment in the value of goodwill recorded on the Company's balance sheet may exist. In fiscal 2013, the Company adopted FASB ASU 2011-08
"Intangibles - Goodwill and Other (Topic 350): Testing Goodwill for Impairment,"
which provides entities with an option to perform a qualitative assessment (commonly referred to as "step zero") to determine whether further quantitative analysis for impairment of goodwill is necessary. In performing step zero for the goodwill impairment test, the Company is required to make assumptions and judgments including but not limited to the following: the evaluation of macroeconomic conditions as related to the Company's business, industry and market trends, and the overall future financial performance of the Company's reporting units and future opportunities in the markets in which the reporting units operate. The Company also considers recent fair value calculations of its reporting units as well as cost factors such as changes in raw materials, labor or other costs. If impairment indicators are present after performing step zero, the Company would perform a quantitative impairment analysis to estimate the fair value of goodwill. In doing so, the Company
RF Micro Devices, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
would estimate future revenue, consider market factors and estimate the Company's future profitability and cash flows. Based on these key assumptions, judgments and estimates, the Company determines whether it needs to record an impairment charge to reduce the value of the goodwill carried on its balance sheet to the estimated fair value. Assumptions, judgments and estimates about future values are complex and often subjective and can be affected by a variety of factors, including external factors such as industry and economic trends, and internal factors such as changes in the Company's business strategy or internal forecasts. Although the Company believes the assumptions, judgments and estimates it has made have been reasonable and appropriate, different assumptions, judgments and estimates could materially affect its results of operations.
The Company performed a step zero analysis for its goodwill impairment test as of the annual measurement date. As a result of this analysis, no further quantitative impairment test was deemed necessary for fiscal 2014. There was no impairment of goodwill as a result of the Company's annual impairment tests completed during the fourth quarters of fiscal years 2013 and 2012.
Intangible Assets
Intangible assets are recorded when such assets are acquired by purchase or license. Finite-lived intangible assets consist primarily of technology licenses, customer relationships, a wafer supply agreement and developed technology resulting from business combinations and are subject to amortization. Indefinite-lived intangible assets consist of in-process research and development (IPRD).
Technology licenses are recorded at cost and amortized on a straight-line basis over the lesser of the estimated useful life of the technology or the term of the license agreement, ranging from approximately
six
to
15 years
.
The fair value of customer relationships acquired prior to fiscal 2013 was based on the benefit derived from the incremental revenue and related cash flows as a direct result of the customer relationship. These forecasted cash flows are discounted to present value using an appropriate discount rate. The fair value of customer relationships acquired during fiscal 2013 was determined based on an income approach using the “with and without method," in which the value of the asset is determined by the difference in discounted cash flows of the profitability of the Company "with" the asset and the profitability of the Company "without" the asset. Customer relationships are amortized on a straight-line basis over the estimated useful life, ranging from
three
to
ten
years.
The fair value of developed technology acquired prior to fiscal 2013 was determined by discounting forecasted cash flows directly related to the existing product technology, net of returns on contributory assets. The fair value of developed technology acquired during fiscal 2013 was determined based on an income approach using the "excess earnings method," which estimated the value of the intangible assets by discounting the future projected earnings of the asset to present value as of the valuation date. Developed technology is amortized on a straight-line basis over the estimated useful life of
six
years.
The fair value of the wafer supply agreement was determined using the incremental income method, which is a discounted cash flow method within the income approach. Under this method, the fair value was estimated by discounting to present value the additional savings from expense reductions in operations at a discount rate to reflect the risk inherent in the wafer supply agreement as well as any tax benefits. The wafer supply agreement is amortized on a units of use activity method and has a useful life of approximately
four
years.
IPRD is recorded at fair value as of the date of acquisition as an indefinite-lived intangible asset until the completion or abandonment of the associated research and development efforts or impairment. The fair value of the acquired IPRD was determined based on an income approach using the "excess earnings method," which estimated the value of the intangible assets by discounting the future projected earnings of the asset to present value as of the valuation date. Upon completion of development, acquired IPRD assets are transferred to finite-lived intangible assets and amortized over their useful lives. See Note 8 for additional information regarding an impairment of IPRD assets recorded in the fourth quarter of fiscal 2014.
The Company regularly reviews identified intangible assets to determine if facts and circumstances indicate that the useful life is shorter than the Company originally estimated or that the carrying amount of the assets may not be recoverable. If such facts and circumstances exist, the Company assesses the recoverability of identified intangible
RF Micro Devices, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
assets by comparing the projected undiscounted net cash flows associated with the related asset or group of assets over their remaining lives against their respective carrying amounts. Impairments, if any, are based on the excess of the carrying amount over the fair value of those assets and occur in the period in which the impairment determination was made.
Revenue Recognition
The Company's net revenue is generated principally from sales of semiconductor products. The Company recognizes revenue from product sales when the fundamental criteria are met, such as the time at which the title and risk and rewards of product ownership are transferred to the customer, price and terms are fixed or determinable, no significant vendor obligation exists and collection of the resulting receivable is reasonably assured. Sales of products are generally made through either the Company's sales force, manufacturers' representatives or through a distribution network. Revenue from the majority of the Company’s products is recognized upon shipment of the product to the customer from a Company-owned or third-party location. Some revenue is recognized upon receipt of the shipment by the customer. The Company has limited rebate programs offering price protection to certain distributors. These rebates represent less than
2%
of net revenue and can be reasonably estimated based on specific criteria included in the rebate agreements and other known factors at the time. Reductions in revenue are recorded during the period in which the revenue related to those rebate agreements is recognized.
The Company also recognizes a portion of its net revenue through other agreements such as non-recurring engineering fees and cost-plus contracts for research and development work, royalty income, intellectual property (IP) revenue, and service revenue. These agreements are collectively less than
1%
of consolidated revenue on an annual basis. Revenue from non-recurring engineering fees is recognized when the service is completed or upon certain milestones, as provided for in the agreements. Revenue from cost plus contracts is recognized on the percentage of completion method based on the costs incurred to date and the total contract amount, plus the contractual fee. Royalty income is recognized based on a percentage of sales of the relevant product reported by licensees during the period. The Company additionally licenses or sells its rights to use portions of its IP portfolio, which includes certain patent rights useful in the manufacture and sales of certain products. IP revenue recognition is dependent on the terms of each agreement. The Company will recognize IP revenue (i) upon delivery of the IP and (ii) if the Company has no substantive future obligation to perform under the arrangement. The Company will defer recognition of IP revenue where future performance obligations are required to earn the revenue or the revenue is not guaranteed. Revenue from services is recognized during the period that the service is performed.
Accounts receivable are recorded for all revenue items listed above. The Company evaluates the collectability of accounts receivable based on a combination of factors. In cases where the Company is aware of circumstances that may impair a specific customer’s ability to meet its financial obligations subsequent to the original sale, the Company will record an allowance against amounts due, and thereby reduce the receivable to the amount the Company reasonably believes will be collected. For all other customers, the Company recognizes allowances for doubtful accounts based on the length of time the receivables are past due, industry and geographic concentrations, the current business environment and the Company’s historical experience.
The Company's terms and conditions do not give its customers a right of return associated with the original sale of its products. However, the Company will authorize sales returns under certain circumstances, which include perceived quality problems, courtesy returns and like-kind exchanges. The Company evaluates its estimate of returns by analyzing all types of returns and the timing of such returns in relation to the original sale. Reserves are adjusted to reflect changes in the estimated returns versus the original sale of product.
Shipping and Handling Cost
The Company recognizes amounts billed to a customer in a sale transaction related to shipping and handling as revenue. The costs incurred by the Company for shipping and handling are classified as cost of goods sold in the Consolidated Statements of Operations.
Research and Development
The Company charges all research and development costs to expense as incurred.
RF Micro Devices, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
Advertising Costs
The Company expenses advertising costs as incurred. The Company recognized advertising expense of
$0.1 million
,
$0.4 million
, and
$0.3 million
for fiscal years
2014
,
2013
and
2012
, respectively.
Income Taxes
The Company accounts for income taxes under the liability method which requires recognition of deferred tax assets and liabilities for the temporary differences between the financial reporting and tax basis of assets and liabilities and for tax carryforwards. Deferred tax assets and liabilities are measured using the enacted statutory tax rates in effect for the years in which the differences are expected to reverse. A valuation allowance is provided against deferred tax assets to the extent the Company determines it is more likely than not (a likelihood of more than
50 percent
) that some portion or all of its deferred tax assets will not be realized.
A minimum recognition threshold is required to be met before the Company recognizes the benefit of an income tax position in its financial statements. The Company’s policy is to recognize accrued interest and penalties, if incurred, on any unrecognized tax benefits as a component of income tax expense.
It is the Company’s policy to invest the earnings of foreign subsidiaries indefinitely outside the U.S. Accordingly, the Company does not provide an allowance for U.S. income taxes on unremitted foreign earnings.
Share-Based Compensation
Under FASB ASC 718,
“Compensation – Stock Compensation”
(ASC 718), share-based compensation cost is measured at the grant date, based on the estimated fair value of the award using an option pricing model (Black-Scholes), and is recognized as expense over the employee's requisite service period.
As of March 29, 2014, total remaining unearned compensation cost related to nonvested restricted stock units and options was
$22.8 million
, which will be amortized over the weighted-average remaining service period of approximately
1.2 years
.
Foreign Currency Translation
The financial statements of foreign subsidiaries have been translated into U.S. dollars in accordance with FASB ASC 830, “
Foreign Currency Matters.
” The functional currency for most of the Company’s international operations is the U.S. dollar. The functional currency for the remainder of the Company’s foreign subsidiaries is the local currency. Assets and liabilities denominated in foreign currencies are translated using the exchange rates on the balance sheet dates. Revenues and expenses are translated using the average exchange rates throughout the year. Translation adjustments are shown separately as a component of “Accumulated other comprehensive (loss) income” within “Shareholders’ equity” in the Consolidated Balance Sheets. Foreign currency transaction gains or losses (transactions denominated in a currency other than the functional currency) are reported in “Other income (expense)” in the Consolidated Statements of Operations.
Recent Accounting Pronouncements
In July 2013, the FASB issued ASU 2013-11,
“Income Taxes (Topic 740): Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists” ("
ASU 2013-11")
("
ASU 2013-11"). ASU 2013-11 requires an unrecognized tax benefit, or a portion of an unrecognized tax benefit, to be presented in the financial statements as a reduction of a deferred tax asset or a tax credit carryforward, excluding certain exceptions. This ASU will be effective for the Company beginning with the first quarter of fiscal 2015 and the Company does not believe that the adoption of this standard will significantly impact its consolidated financial statements.
RF Micro Devices, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
In February 2013, the FASB issued ASU 2013-02,
"Reporting of Amounts Reclassified out of Accumulated Other Comprehensive Income."
ASU 2013-02 requires reporting the effect of significant reclassifications out of accumulated other comprehensive income on the respective line items in net income if the amount being reclassified is required to be reclassified in its entirety to net income. For other amounts that are not required to be reclassified in their entirety to net income in the same reporting period, an entity is required to cross-reference other disclosures that provide additional detail about these amounts. The amendments do not change the current requirements for reporting net income or other comprehensive income in the financial statements. The Company adopted this guidance in the first quarter of fiscal 2014. The adoption of this guidance affected the presentation of comprehensive income, but did not impact the Company's financial position, results of operations or cash flows.
2. CONCENTRATIONS OF CREDIT RISK
The Company’s principal financial instrument subject to potential concentration of credit risk is accounts receivable, which is unsecured. The Company provides an allowance for doubtful accounts equal to estimated losses expected to be incurred in the collection of accounts receivable. The Company has adopted credit policies and standards intended to accommodate industry growth and inherent risk and it believes that credit risks are moderated by the financial stability of its major customers, conservative payment terms and the Company’s strict credit policies.
Revenue from significant customers, those representing 10% or more of total revenue for the respective periods, is summarized as follows:
|
|
|
|
|
|
Fiscal Year
|
|
2014
|
2013
|
2012
|
Samsung Electronics, Co., Ltd. (Samsung)
|
25%
|
22%
|
22%
|
Nokia Corporation (Nokia)
|
N/A
|
N/A
|
14%
|
In addition, the Company sold its products to another end customer through multiple contract manufacturers, which in the aggregate accounted for approximately
20%
of total revenue in fiscal 2014. The majority of the revenue from these customers was from the sale of the Company’s CPG products.
Samsung accounted for approximately
25%
and
29%
of the Company's total accounts receivable balance as of
March 29, 2014
and
March 30, 2013
, respectively. Samsung and Nokia collectively accounted for approximately
28%
of the Company’s total accounts receivable balance as of
March 31, 2012
.
RF Micro Devices, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
3. INVESTMENTS AND FAIR VALUE OF FINANCIAL INSTRUMENTS
Investments
The following is a summary of available-for-sale securities as of
March 29, 2014
and
March 30, 2013
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-Sale Securities
|
|
Cost
|
|
Gross
Unrealized
Gains
|
|
Gross
Unrealized
Losses
|
|
Estimated Fair
Value
|
March 29, 2014
|
|
|
|
|
|
|
|
U.S. government/agency securities
|
$
|
133,064
|
|
|
$
|
1
|
|
|
$
|
—
|
|
|
$
|
133,065
|
|
Auction rate securities
|
2,150
|
|
|
—
|
|
|
—
|
|
|
2,150
|
|
Money market funds
|
48,800
|
|
|
—
|
|
|
—
|
|
|
48,800
|
|
|
$
|
184,014
|
|
|
$
|
1
|
|
|
$
|
—
|
|
|
$
|
184,015
|
|
March 30, 2013
|
|
|
|
|
|
|
|
U.S. government/agency securities
|
$
|
77,988
|
|
|
$
|
3
|
|
|
$
|
(4
|
)
|
|
$
|
77,987
|
|
Auction rate securities
|
2,150
|
|
|
—
|
|
|
—
|
|
|
2,150
|
|
Money market funds
|
26,328
|
|
|
—
|
|
|
—
|
|
|
26,328
|
|
|
$
|
106,466
|
|
|
$
|
3
|
|
|
$
|
(4
|
)
|
|
$
|
106,465
|
|
The estimated fair value of available-for-sale securities was based on the prevailing market values on
March 29, 2014
and
March 30, 2013
. We determine the cost of an investment sold based on the specific identification method.
The gross realized gains and losses recognized on available-for-sale securities for both fiscal years
2014
and
2013
, were insignificant.
There were
no
available-for-sale investments in a continuous unrealized loss position for fewer than 12 months as of
March 29, 2014
. The available-for-sale investments that were in a continuous unrealized loss position for fewer than 12 months as of
March 30, 2013
consisted of U.S. government/agency securities with gross unrealized losses of less than
$0.1 million
and an aggregate fair value of
$14.0 million
. There were no available-for-sale investments in a continuous unrealized loss position for 12 months or greater as of
March 29, 2014
or as of
March 30, 2013
.
The amortized cost of investments in debt securities with contractual maturities is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 29, 2014
|
|
March 30, 2013
|
|
Cost
|
|
Estimated
Fair Value
|
|
Cost
|
|
Estimated
Fair Value
|
Due in less than one year
|
$
|
181,864
|
|
|
$
|
181,865
|
|
|
$
|
104,316
|
|
|
$
|
104,315
|
|
Due after ten years
|
2,150
|
|
|
2,150
|
|
|
2,150
|
|
|
2,150
|
|
Total investments in debt securities
|
$
|
184,014
|
|
|
$
|
184,015
|
|
|
$
|
106,466
|
|
|
$
|
106,465
|
|
Fair Value of Financial Instruments
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 in cash and cash equivalents, short-term investments and long-term investments on the Company’s Consolidated Balance Sheets and are recorded at fair value and the related unrealized gains and losses are included in "Accumulated other comprehensive loss," a component of Shareholders’ equity, net of tax.
RF Micro Devices, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
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
March 29, 2014
and
March 30, 2013
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
Quoted Prices In
Active Markets For
Identical Assets
(Level 1)
|
|
Significant Other
Observable Inputs
(Level 2)
|
March 29, 2014
|
|
|
|
|
|
U.S. government/agency securities
|
$
|
133,065
|
|
|
$
|
133,065
|
|
|
$
|
—
|
|
Auction rate securities
|
2,150
|
|
|
—
|
|
|
2,150
|
|
Money market funds
|
48,800
|
|
|
48,800
|
|
|
—
|
|
|
$
|
184,015
|
|
|
$
|
181,865
|
|
|
$
|
2,150
|
|
March 30, 2013
|
|
|
|
|
|
U.S. government/agency securities
|
$
|
77,987
|
|
|
$
|
77,987
|
|
|
$
|
—
|
|
Auction rate securities
|
2,150
|
|
|
—
|
|
|
2,150
|
|
Money market funds
|
26,328
|
|
|
26,328
|
|
|
—
|
|
|
$
|
106,465
|
|
|
$
|
104,315
|
|
|
$
|
2,150
|
|
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. As of
March 29, 2014
and
March 30, 2013
, the Company did not have any Level 3 securities.
Nonrecurring Fair Value Measurements
The Company's non-financial assets, such as 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 (see Note 8 for an IPRD impairment recorded in the fourth quarter of fiscal 2014). During the first quarter of fiscal 2014, the Company recorded a
$1.7 million
impairment of certain property and equipment as a result of the phase out of manufacturing and the then-pending sale of its U.K. manufacturing facility. As of June 29, 2013, the fair value of these impaired assets was estimated to be
$0.8 million
using a significant Level 3 unobservable input (market valuation approach). The market valuation approach uses prices and other relevant information generated primarily by recent market transactions involving similar or comparable assets, as well as the Company's experience. During the second quarter of fiscal 2014, the Company sold its U.K. manufacturing facility, which resulted in a loss on these impaired assets of
$0.6 million
.
The Company did not have any material non-financial assets or liabilities measured at fair value during fiscal
2013
, other than assets and liabilities assumed in the business acquisition of Amalfi (see Note 5).
Other Fair Value Disclosures
The carrying values of cash and cash equivalents, accounts receivable, accounts payable and other accrued liabilities approximate fair values because of the relatively short-term maturities of these instruments.
The fair value of the Company’s 2014 Notes is measured using a Level 1 input obtained from the PORTAL Market and is disclosed in Note 9 to the Consolidated Financial Statements.
RF Micro Devices, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
4.
INVENTORIES
The components of inventories, net of reserves, are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
Fiscal Year
|
|
2014
|
|
2013
|
Raw materials
|
$
|
32,927
|
|
|
$
|
45,656
|
|
Work in process
|
51,544
|
|
|
64,108
|
|
Finished goods
|
41,232
|
|
|
51,429
|
|
Total inventories
|
$
|
125,703
|
|
|
$
|
161,193
|
|
5. BUSINESS ACQUISITION
On
November 9, 2012
, the Company completed its acquisition of Amalfi Semiconductor, Inc. ("Amalfi") pursuant to the Agreement and Plan of Merger by and among RFMD, Chameleon Acquisition Corporation, a wholly-owned subsidiary of the Company ("Merger Sub"), Amalfi, and Shareholder Representative Services LLC, solely in its capacity as the escrow representative. On the terms and subject to the conditions set forth in the Agreement and Plan of Merger, the Company acquired
100%
of the outstanding equity securities of Amalfi through the merger of Merger Sub with and into Amalfi (the "Merger"). As a result of the Merger, Amalfi, as the surviving corporation, became a wholly-owned subsidiary of the Company. Amalfi is a fabless semiconductor company specializing in cost effective, high performance RF and mixed-signal ICs for the rapidly growing entry-level smartphone market.
The Company is leveraging Amalfi's RF CMOS and mixed-signal IC technology to develop a growing portfolio of high-performance RF solutions. The product portfolio is targeted primarily at the entry-level smartphone market, and the Company has successfully shipped products using the technology to a number of customers, including handset manufacturers based in China as well as leading multinational smartphone manufacturers.
The Company acquired Amalfi for a total purchase price of approximately
$48.4 million
, net of cash received of
$37.6 million
(adjusted for working capital adjustments and holdback reserves). The final purchase price was allocated to Amalfi's assets and liabilities based upon fair values as determined by the Company, as follows (in thousands):
|
|
|
|
|
Cash and cash equivalents
|
$
|
37,575
|
|
Accounts receivable
|
4,809
|
|
Inventories
|
10,660
|
|
Prepaid expenses and other assets
|
933
|
|
Property and equipment
|
1,164
|
|
Intangible assets
(Note 8)
|
31,900
|
|
Goodwill
|
10,254
|
|
Total assets
|
97,295
|
|
Accounts payable and accrued liabilities
|
(11,293
|
)
|
Total purchase price
|
$
|
86,002
|
|
The measurement period (up to one year from the acquisition date pursuant to Accounting Standards Codification (ASC) Topic 805
"Business Combinations"
(ASC 805)) was concluded during the third quarter of fiscal 2014. The
$10.3 million
allocated to goodwill represents the excess of the purchase price over the fair value of assets acquired and liabilities assumed, which is assigned to the Company's CPG operating segment.
Amalfi's results of operations, which include revenue of
$16.5 million
and an operating loss of
$9.5 million
, are included in the Company’s Consolidated Statements of Operations for the period of November 9, 2012 through March 30, 2013.
RF Micro Devices, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
During fiscal 2013, the Company recorded Amalfi acquisition-related costs of approximately
$1.5 million
as well as approximately
$1.3 million
of restructuring costs (for employee termination benefits and lease termination costs) in “Other operating expense (income)” on the Consolidated Statements of Operations. In fiscal 2014, the Company recorded immaterial restructuring expenses related to the completion of the restructuring efforts associated with the Amalfi acquisition.
The following unaudited pro forma consolidated financial information for fiscal years 2013 and 2012, assumes that the Amalfi acquisition, which closed on
November 9, 2012
, was completed as of April 3, 2011 (in thousands, except per share data):
|
|
|
|
|
|
|
|
|
|
Fiscal Year
|
|
2013
|
|
2012
|
Revenue
|
$
|
995,441
|
|
|
$
|
891,262
|
|
Net loss
|
(62,114
|
)
|
|
(20,607
|
)
|
Basic net loss per common share
|
(0.22
|
)
|
|
(0.07
|
)
|
Diluted net loss per common share
|
(0.22
|
)
|
|
(0.07
|
)
|
Pro forma net loss includes adjustments for amortization expense of acquired intangible assets, acquisition-related costs, a step-up in the value of acquired inventory and property and equipment, and interest expense (income).
These pro forma results have been prepared for comparative purposes only and do not purport to be indicative of the operating results that would have been achieved had the acquisition actually taken place as of April 3, 2011. In addition, these results are not intended to be a projection of future results and do not reflect synergies that might be achieved from the combined operations.
6. ASSET TRANSFER TRANSACTION
During fiscal 2013, the Company entered into an asset transfer agreement with IQE, Inc. ("IQE") under which it transferred its MBE operations (located in Greensboro, N.C.) to IQE.
The transaction with IQE was intended to lower the Company’s manufacturing costs, strengthen its supply chain and provide it with access to newly developed wafer starting process technologies. The assets transferred to IQE had a total book value of
approximately
$24.4 million
and included the Company’s leasehold interest in the real property, building and improvements used for the facility and machinery and equipment located in the facility, all of which were written off during the first quarter of fiscal 2013. In addition, the Company wrote-off approximately
$1.0 million
of MPG-related goodwill as a result of this transaction. The asset transfer agreement contains standard representations, warranties, covenants and indemnities of the parties for transactions of this type.
In conjunction with the asset transfer agreement, the Company and IQE entered into a wafer supply agreement under which IQE will supply the Company with wafer starting materials. This wafer supply agreement, which is recorded as an intangible asset on the Company’s Consolidated Balance Sheets, provides the Company with competitive wafer pricing through
March 31, 2016
(see Note 1). As of March 29, 2014, the Company's minimum purchase commitment related to the wafer supply agreement is approximately
$7.2 million
.
Approximately
70
employees at the Company’s MBE facility became employees of IQE as part of the transaction described above. In addition, the lease related to the MBE facility for the real property and related improvements was assumed by IQE. The difference in the value of consideration received and consideration transferred was recorded in “Other operating expense (income)” and reduced the Company’s pre-tax income in the first quarter of fiscal year 2013 by approximately
$5.0 million
. The Company does not expect to incur any additional material costs related to the disposal of the MBE assets, the assumption of the lease by IQE or the transfer of RFMD employees to IQE.
7. MERGER AGREEMENT
On February 22, 2014, RFMD and TriQuint entered into an Agreement and Plan of Merger and Reorganization providing for the business combination of RFMD and TriQuint. Acquisition costs (of
$3.2 million
) and integration
RF Micro Devices, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
costs (of
$1.9 million
) associated with the proposed merger are being expensed as incurred and are presented in the Condensed Consolidated Statement of Operations as "Other operating expense (income)." Certain fees are contingent on the transaction closing.
8. GOODWILL AND INTANGIBLE ASSETS
The changes in the carrying amount of goodwill for fiscal years 2013 and
2014
, are as follows (in thousands):
|
|
|
|
|
Balance as of March 31, 2012
|
$
|
95,628
|
|
Amalfi acquisition
(Note 5)
|
10,191
|
|
Written off due to transfer of MBE operations
(Note 6)
|
(973
|
)
|
Balance as of March 30, 2013
|
$
|
104,846
|
|
Written off due to sale of the U.K. facility
|
(1,008
|
)
|
Amalfi acquisition adjustments
(Note 5)
|
63
|
|
Balance as of March 29, 2014*
|
$
|
103,901
|
|
*As of
March 29, 2014
, the Company’s goodwill balance of
$103.9 million
was comprised of gross goodwill of
$725.5 million
less accumulated impairment losses of
$619.6 million
, a write-off of
$1.0 million
due to the transfer of the MBE operations, and a write-off of
$1.0 million
due to the sale of the U.K. facility.
During the second quarter of fiscal 2014, the Company sold its gallium arsenide (GaAs) semiconductor manufacturing facility located in the U.K. to Compound Photonics. As a result of this transaction, the Company wrote-off approximately
$1.0 million
of MPG-related goodwill.
Goodwill is allocated to the reporting units that are expected to benefit from the synergies of the business combinations generating the underlying goodwill. As of
March 29, 2014
,
$93.6 million
and
$10.3 million
of the Company’s goodwill balance was allocated to its MPG reporting unit and CPG reporting unit, respectively. The Company conducts its annual goodwill impairment test on the first day of the fourth quarter in each fiscal year at its reporting unit level (CPG, MPG and CSG) and based on the Company’s fiscal 2014 and fiscal 2013 annual impairment reviews of goodwill, no impairment was indicated, as the estimated fair value of MPG and CPG exceeded its carrying value.
As of
March 29, 2014
, approximately
$1.7 million
of net goodwill related to the 2008 acquisition of Sirenza Microdevices, Inc. ("Sirenza") is expected to be deductible for income tax purposes in future periods.
The following summarizes certain information regarding gross carrying amounts and amortization of intangibles (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 29, 2014
|
|
March 30, 2013
|
|
Gross
Carrying
Amount
|
|
Accumulated
Amortization
|
|
Gross
Carrying
Amount
|
|
Accumulated
Amortization
|
Intangible Assets:
|
|
|
|
|
|
|
|
Technology licenses
|
$
|
12,006
|
|
|
$
|
10,418
|
|
|
$
|
10,346
|
|
|
$
|
10,118
|
|
Customer relationships
|
47,103
|
|
|
26,391
|
|
|
47,103
|
|
|
21,644
|
|
Developed technology
|
102,163
|
|
|
78,540
|
|
|
102,163
|
|
|
61,907
|
|
Wafer supply agreement
|
20,443
|
|
|
11,376
|
|
|
20,443
|
|
|
4,489
|
|
In-process research and development
|
—
|
|
|
—
|
|
|
11,300
|
|
|
—
|
|
Total
|
$
|
181,715
|
|
|
$
|
126,725
|
|
|
$
|
191,355
|
|
|
$
|
98,158
|
|
RF Micro Devices, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
In fiscal 2013, as a result of the acquisition of Amalfi, intangibles increased by
$31.9 million
. The following table sets forth the components of these intangible assets (in thousands):
|
|
|
|
|
|
Fair Value
|
Developed technology
|
$
|
19,200
|
|
Customer relationships
|
1,400
|
|
In-process research and development
|
11,300
|
|
Total
|
$
|
31,900
|
|
In the fourth quarter of fiscal 2014, the Company initiated a restructuring effort to reduce operating expenses (see Note 12 for further information on the restructuring). As part of this restructuring, the Company discontinued engineering efforts on the in-process research and development project and an impairment charge of
$11.3 million
was recorded in "Other operating expense (income)." This CPG-related IPRD was acquired as part of the Amalfi acquisition.
During the first quarter of fiscal 2013, the Company entered into a wafer supply agreement under which IQE is supplying the Company with wafer starting materials. This wafer supply agreement provides the Company with competitive wafer pricing through
March 31, 2016
(see Note 6).
Intangible asset amortization expense was
$28.6 million
,
$23.1 million
and
$18.4 million
in fiscal years
2014
,
2013
and
2012
, respectively. The following table provides the Company's estimated future amortization expense based on current amortization periods for the periods indicated (in thousands):
|
|
|
|
|
Fiscal Year
|
Estimated
Amortization
Expense
|
2015
|
$
|
22,533
|
|
2016
|
11,964
|
|
2017
|
8,367
|
|
2018
|
7,664
|
|
2019
|
4,904
|
|
9. DEBT
Debt at March 29, 2014 and March 30, 2013 is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
March 29, 2014
|
|
March 30, 2013
|
Convertible subordinated notes due 2014, net of discount
|
$
|
87,263
|
|
|
$
|
82,035
|
|
Total debt
|
87,263
|
|
|
82,035
|
|
Less current portion
|
87,263
|
|
|
—
|
|
Total long-term debt
|
$
|
—
|
|
|
$
|
82,035
|
|
Convertible Debt
In April 2007, the Company issued
$200 million
aggregate principal amount of
0.75%
convertible subordinated notes due 2012 (the “2012 Notes”) and
$175 million
aggregate principal amount of
1.00%
convertible subordinated notes due 2014 (the “2014 Notes” and, together with the 2012 Notes, the “Notes”). The Notes were issued in a private placement to Merrill Lynch, Pierce, Fenner & Smith Incorporated for resale to qualified institutional buyers. Offering expenses in connection with the issuance of the Notes, including discounts and commissions, were approximately
$8.8 million
, which are being amortized as interest expense over the terms of the Notes based on the effective interest method.
The 2012 Notes became due on
April 15, 2012
and the remaining balance of
$26.5 million
was paid with cash on hand. Holders had the right to convert the 2014 Notes based on the applicable conversion rate of
124.2969
shares of the Company’s common stock per
$1,000
principal amount of the notes (which is equal to an initial conversion price
RF Micro Devices, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
of approximately
$8.05
per share), subject to adjustment, only under certain specified circumstances. The 2014 Notes became due on April 15, 2014, and the remaining principal balance of
$87.5 million
plus interest of
$0.4 million
was paid with cash on hand. Accordingly, the 2014 Notes are recorded in "Current portion of long term debt" on the Consolidated Balance Sheet as of
March 29, 2014
. Interest on the 2014 Notes was payable in cash semiannually in arrears on April 15 and October 15 of each year. The 2014 Notes were subordinated unsecured obligations of the Company and ranked junior in right of payment to all of the Company’s existing and future senior debt. The 2014 Notes effectively were subordinated to the indebtedness and other liabilities of the Company’s subsidiaries.
During fiscal 2013, the Company purchased and retired
$47.4 million
original principal amount of its 2014 Notes for an average price of
$98.34
, which resulted in a loss of
$2.8 million
. During fiscal 2012, the Company purchased and retired
$35.8 million
aggregate principal amount of its 2012 Notes for an average price of
$103.27
, which resulted in a loss of approximately
$0.9 million
. In accordance with FASB 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 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.
As of
March 29, 2014
, the 2014 Notes had a fair value on the PORTAL Market of
$88.7 million
, compared to a carrying value of
$87.3 million
. As of
March 30, 2013
, the 2014 Notes had a fair value on the PORTAL Market of
$86.7 million
, compared to a carrying value of
$82.0 million
.
The following tables provide additional information about the Notes, which are subject to ASC 470-20 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2012 Notes
|
|
2014 Notes
|
|
2014
|
|
2013
|
|
2014
|
|
2013
|
Carrying amount of the equity component (common stock)
|
$
|
19,954
|
|
*
|
$
|
19,954
|
|
*
|
$
|
33,241
|
|
|
$
|
33,241
|
|
Principal amount of the convertible subordinated notes
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
87,503
|
|
|
$
|
87,503
|
|
Unamortized discount of the liability
component
|
—
|
|
|
—
|
|
|
(240
|
)
|
|
(5,468
|
)
|
Net carrying amount of liability component
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
87,263
|
|
|
$
|
82,035
|
|
|
|
|
|
|
|
|
|
* The 2012 Notes became due and were repaid on April 15, 2012. The carrying amount of the equity component, which is recorded in common stock on the Company's Consolidated Balance Sheets is a permanent component of equity per ASC 470-20.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2012 Notes
|
|
2014 Notes
|
|
|
2013
|
|
2012
|
|
2014
|
|
2013
|
|
2012
|
Effective interest rate on liability component
|
|
7.3
|
%
|
|
7.3
|
%
|
|
7.2
|
%
|
|
7.2
|
%
|
|
7.2
|
%
|
Cash interest expense recognized
|
|
$
|
11
|
|
|
$
|
285
|
|
|
$
|
873
|
|
|
$
|
1,023
|
|
|
$
|
1,342
|
|
Non-cash interest expense recognized (discount amortization)
|
|
$
|
69
|
|
|
$
|
2,372
|
|
|
$
|
5,228
|
|
|
$
|
5,688
|
|
|
$
|
6,958
|
|
As of
March 29, 2014
, the unamortized discount will be fully amortized for the 2014 Notes. As of
March 29, 2014
, the if-converted value of the 2014 Notes did not exceed the principal amount of the 2014 Notes.
RF Micro Devices, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
Credit Agreement
In March 2013, the Company and certain material domestic subsidiaries of the Company (the “Guarantors”) entered into a four-year senior credit facility with Bank of America, N.A., as Administrative Agent and a lender, and a syndicate of other lenders (the “Credit Agreement”). The Credit Agreement includes a
$125.0 million
revolving credit facility, which includes a
$5.0 million
sublimit for the issuance of standby letters of credit and a
$5.0 million
sublimit for swingline loans. The Company may request, at any time and from time to time, that the revolving credit facility be increased by an amount not to exceed
$50.0 million
. The revolving credit facility is available to finance working capital, capital expenditures and other lawful corporate purposes. The Company’s obligations under the Credit Agreement are jointly and severally guaranteed by the Guarantors. On August 15, 2013, the Credit Agreement was amended to revise the definition of "Eurodollar Base Rate" and a provision regarding restricted payments. The Company currently has
no
outstanding amounts under the Credit Agreement.
In connection with the closing of the Credit Agreement, the Company also entered into a security and pledge agreement (the “Security and Pledge Agreement”) which the Company and the Guarantors granted a security interest in substantially all of the Company's personal property and pledged all of the equity of the Company's domestic subsidiaries and
65%
of the equity of their foreign subsidiaries. The Company also entered into a deed of trust granting a mortgage in favor of the Administrative Agent on its wafer facility in Greensboro, N.C.
At the Company’s option, loans under the Credit Agreement shall bear interest at (i) the Applicable Rate (as defined below) plus the Eurodollar Rate (as defined in the Credit Agreement as amended) or (ii) the Applicable Rate plus a rate equal to the higher of (a) the federal funds rate plus
0.50%
, (b) the prime rate of the Administrative Agent, or (c) the Eurodollar Rate plus
1.0%
(the “Base Rate”). All swingline loans will bear interest at a rate equal to the Applicable Rate plus the Base Rate. The Eurodollar Rate is equal to the rate per annum calculated from the British Bankers Association LIBOR rate, as published by Reuters, for dollar deposits for interest periods of one, two, three or six months, as selected by the Company and as quoted by the Administrative Agent. The Applicable Rate for Eurodollar Rate loans ranges from
2.25%
per annum to
2.75%
per annum. The Applicable Rate for Base Rate loans ranges from
1.25%
per annum to
1.75%
per annum. Interest for Eurodollar Rate loans shall be payable at the end of each applicable interest period or at three-month intervals, if such interest period is six months or longer. Interest for Base Rate loans shall be payable quarterly in arrears. The Company paid an undrawn commitment fee, an arrangement fee and an upfront fee pursuant to the terms of the Credit Agreement. The Company will also pay a quarterly fee for any letters of credit issued under the agreement. The initial fees associated with the Credit Agreement were capitalized and are being amortized to interest expense using the straight-line method over the remaining term to maturity.
The Credit Agreement contains various conditions, covenants and representations with which the Company must be in compliance in order to borrow funds and to avoid an event of default, including financial covenants that the Company must maintain a consolidated leverage ratio not to exceed
2.50
to
1.0
as of the end of any fiscal quarter of the Company and a consolidated liquidity ratio not to be less than
1.05
to
1.0
as of the end of any fiscal quarter of the Company. The Company must also maintain Consolidated EBITDA (as defined in the Credit Agreement) of not less than
$75.0 million
as of the end of any four-fiscal-quarter period of the Company. The Company is in compliance with these financial covenants as of
March 29, 2014
. The Credit Agreement also contains non-financial covenants including restrictions on liens, indebtedness, investments, acquisitions, dispositions, fundamental changes, changes to the nature of the business, restricted payments (such as cash dividends), capital expenditures, prepayments of other indebtedness, sale and leaseback transactions, and other customary restrictions.
The Credit Agreement also contains customary events of default, and the occurrence of an event of default will increase the applicable rate of interest by
2.0%
and could result in the termination of commitments under the revolving credit facility, the declaration that all outstanding loans are due and payable in whole or in part and the requirement of cash collateral deposits in respect of outstanding letters of credit. Outstanding amounts are due in full on the maturity date of
March 19, 2017
(with amounts borrowed under the swingline option due in full no later than ten business days after such loan is made).
RF Micro Devices, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
Other Debt
During fiscal 2008, the Company entered into a loan denominated in Renminbi with a bank in Beijing, China. In April 2012, this loan balance that equaled U.S.
$6.3 million
was repaid at maturity with cash on hand.
During fiscal 2007, the Company entered into a
$25.0 million
asset-based financing equipment term loan. In fiscal 2012, the equipment term loan became due and the remaining balance of
$3.9 million
was paid with cash on hand.
10. RETIREMENT BENEFIT PLANS
U.S. Defined Contribution Plan
Each U.S. employee is eligible to participate in the Company’s fully qualified 401(k) plan immediately upon hire. An employee may invest pretax earnings in the 401(k) plan up to the maximum legal limits (as defined by Federal regulations).
Employer contributions to the plan are made at the discretion of the Company’s Board of Directors. An employee is fully vested in the employer contribution portion of the plan after completion of
two
continuous years of service. The Company contributed
$4.7 million
,
$4.3 million
and
$4.0 million
to the plan during fiscal years
2014
,
2013
and
2012
, respectively.
Germany Defined Benefit Pension Plan
The Company maintains a qualified defined benefit pension plan for its subsidiary located in Germany. The plan is unfunded with a benefit obligation of approximately
$5.5 million
and
$4.4 million
as of
March 29, 2014
and
March 30, 2013
, respectively, which is included in “Accrued liabilities” and “Other long-term liabilities” in the Consolidated Balance Sheets. The assumptions used in calculating the benefit obligation for the plan are dependent on the local economic conditions and were measured as of
March 29, 2014
and
March 30, 2013
. The net periodic benefit costs were approximately
$0.3 million
for fiscal years
2014
,
2013
and
2012
.
European Defined Contribution Plans
Employees of the Company’s Denmark, France and United Kingdom (U.K.) subsidiaries are eligible to participate in a stakeholder pension plan immediately upon hire or after
three months
of service. Employees of our Finland subsidiary are eligible to participate in a government mandated plan immediately upon hire. Employees may invest their earnings in their respective plans and receive a tax benefit based upon the plan. The Company contributed
$0.7 million
to these plans during fiscal
2014
and
$1.0 million
during fiscal years
2013
and
2012
.
Asian Defined Contribution Plans
Employees of the Company’s subsidiaries located in Taiwan, Korea and Japan are eligible to participate in a national pension plan immediately upon hire. Employees may invest their earnings in their respective national pension plans and receive a tax benefit based upon the national pension plan. Employer contributions to the plans are at the discretion of their local government regulators. The Company contributed
$0.1 million
to these defined contribution plans for each of the last three fiscal years.
11. COMMITMENTS AND CONTINGENT LIABILITIES
The Company leases certain equipment and computer hardware and software under non-cancelable lease agreements that are accounted for as capital leases. Interest rates on capital leases ranged from
6.0%
to
6.4%
as of
March 29, 2014
. Equipment under capital lease arrangements is included in property and equipment and has a cost of approximately
$0.3 million
as of
March 29, 2014
and
March 30, 2013
.
The Company leases the majority of its corporate, wafer fabrication and other facilities from several third-party real estate developers. The remaining terms of these operating leases range from less than
one
year to
14 years
. Several have renewal options of up to
two
ten
-year periods and several also include standard inflation escalation terms. Several also include rent escalation, rent holidays, and leasehold improvement incentives which are recognized to
RF Micro Devices, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
expense on a straight-line basis. The amortization period of leasehold improvements made either at the inception of the lease or during the lease term is amortized over the lesser of the remaining life of the lease term (including renewals that are reasonably assured) or the useful life of the asset. The Company also leases various machinery and equipment and office equipment under non-cancelable operating leases. The remaining terms of these operating leases range from less than
one
year to approximately
three
years. As of
March 29, 2014
, the total future minimum lease payments were approximately
$48.7 million
related to facility operating leases and approximately
$0.2 million
related to equipment operating leases.
Minimum future lease payments under non-cancelable capital and operating leases as of
March 29, 2014
, are as follows (in thousands):
|
|
|
|
|
|
|
|
|
Fiscal Year
|
Capital
|
|
Operating
|
2015
|
$
|
73
|
|
|
$
|
8,899
|
|
2016
|
18
|
|
|
7,761
|
|
2017
|
—
|
|
|
6,926
|
|
2018
|
—
|
|
|
5,292
|
|
2019
|
—
|
|
|
4,118
|
|
Thereafter
|
—
|
|
|
15,847
|
|
Total minimum payment
|
91
|
|
|
$
|
48,843
|
|
Less amounts representing interest
|
4
|
|
|
|
Present value of minimum lease payments
|
87
|
|
|
|
Less current portion
|
69
|
|
|
|
Obligations under capital leases, less current portion
|
$
|
18
|
|
|
|
Rent expense under operating leases, including facilities and equipment, was approximately
$10.7 million
,
$10.1 million
, and
$7.4 million
for fiscal years
2014
,
2013
and
2012
, respectively. See Note 12 for information related to the lower rent expense in fiscal 2012.
Legal Matters
The Company accrues a liability for legal contingencies when it believes that it is both probable that a liability has been incurred and that it can reasonably estimate the amount of the loss. The Company reviews these accruals and adjusts them to reflect ongoing negotiations, settlements, rulings, advice of legal counsel and other relevant information. To the extent new information is obtained and the Company's views on the probable outcomes of claims, suits, assessments, investigations or legal proceedings change, changes in the Company's accrued liabilities would be recorded in the period in which such determination is made. For the matter referenced below, no liability has been established in the financial statements regarding current litigation as the potential liability, if any, is not probable or the amount cannot be reasonably estimated.
Since February 14, 2012, the Company has been a party in legal proceedings with Peregrine Semiconductor Corporation (“Peregrine”) in which Peregrine has asserted infringement of certain of its patents. The proceedings commenced with a complaint filed by Peregrine in the United States International Trade Commission (“ITC”), which Peregrine ultimately decided to dismiss. After various procedural matters following the dismissal of the ITC proceeding, the Company is currently a party to a lawsuit initiated by Peregrine in the United States District Court for the Southern District of California alleging infringement of certain Peregrine patents. In December 2013, the Company filed a counterclaim against Peregrine alleging infringement by Peregrine of a Company patent and seeking declaratory relief regarding non-infringement and unenforceability of Peregrine’s patents. In March 2014, Peregrine's infringement claims for two of its four asserted patents were dismissed with prejudice. The Company intends to continue to vigorously defend its position that it has not infringed any valid claim of any of the Peregrine patents in the above-referenced legal proceeding.
RF Micro Devices, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
12. RESTRUCTURING
During fiscal 2014, the Company recorded
$11.1 million
of restructuring expenses, related to (1) efforts initiated to achieve manufacturing efficiencies, (2) efforts initiated to reduce operating expenses, (3) expenses associated with the sale of its GaAs semiconductor manufacturing facility in the U.K., and (4) expenses associated with the 2009 economic restructuring efforts.
During fiscal 2014, the Company initiated restructuring efforts to achieve manufacturing efficiencies. The Company recorded restructuring charges in “Other operating (income) expense” of approximately
$4.1 million
, primarily related to employee termination benefits.
In the fourth quarter of fiscal 2014, the Company initiated another restructuring to reduce operating expenses that resulted in restructuring expenses of approximately
$2.5 million
, primarily related to employee termination benefits recorded in “Other operating (income) expense.” At the end of fiscal 2014, restructuring obligations primarily relating to employee termination benefits totaled
$1.1 million
and were included in “Accrued liabilities” in the Consolidated Balance Sheets. As part of this restructuring, the Company discontinued engineering efforts related to an IPRD project and impaired the intangible asset in the amount of
$11.3 million
, which is also recorded in “Other operating expense (income)” (see Note 8).
In March 2013, the Company announced that it would phase out manufacturing in its Newton Aycliffe, U.K.-based GaAs facility and transition the remaining product demand from that facility to its GaAs manufacturing facility in Greensboro, N.C. During the second quarter of fiscal 2014, the Company sold its U.K.-based GaAs facility to Compound Photonics. The Company recorded restructuring charges in “Other operating expense (income)” of approximately
$4.4 million
and
$0.8 million
in fiscal years
2014
and
2013
, respectively, primarily related to impaired property, plant and equipment and employee termination benefits. At the end of fiscal 2013, restructuring obligations (relating primarily to employee termination benefits) totaled
$0.8 million
and were included in “Accrued liabilities” in the Consolidated Balance Sheets. As of March 29, 2014, the restructuring associated with the phase out of manufacturing and sale of the Newton Aycliffe, U.K.-based GaAs facility is complete.
In fiscal 2009, the Company initiated a restructuring to reduce manufacturing capacity and costs and operating expenses due primarily to lower demand for its products resulting from the global economic slowdown. The restructuring decreased the Company’s workforce and resulted in the impairment of certain property and equipment, among other charges. The Company recorded restructuring charges in “Other operating expense (income)” of approximately
$0.1 million
,
$0.2 million
and
$(1.4) million
in fiscal years
2014
,
2013
and
2012
, respectively, related to employee termination benefits, impaired assets (including property, plant and equipment), and lease and other contract termination costs. The current and long-term restructuring obligations (relating primarily to lease obligations) totaling
$3.9 million
and
$4.6 million
as of
March 29, 2014
and
March 30, 2013
, respectively, are included in “Accrued liabilities” and “Other long-term liabilities” in the Consolidated Balance Sheets. During fiscal 2012, the restructuring obligation and related rent expense was reduced by
$1.7 million
as a result of the Company utilizing one of the facilities previously exited due to a change in manufacturing operations. The remaining activity related to these obligations during fiscal 2012 was primarily due to payments associated with our exited leased facilities. As of
March 29, 2014
, the restructuring associated with the adverse macroeconomic business environment is substantially complete. The Company expects to record approximately
$0.9 million
of additional restructuring charges primarily associated with ongoing expenses related to exited leased facilities.
13. INCOME TAXES
Income (loss) before income taxes consists of the following components (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year
|
|
2014
|
|
2013
|
|
2012
|
United States
|
$
|
(7,120
|
)
|
|
$
|
(72,895
|
)
|
|
$
|
(45,031
|
)
|
Foreign
|
30,993
|
|
|
46,996
|
|
|
60,659
|
|
Total
|
$
|
23,873
|
|
|
$
|
(25,899
|
)
|
|
$
|
15,628
|
|
RF Micro Devices, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
The components of the income tax provision are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year
|
|
2014
|
|
2013
|
|
2012
|
Current (expense) benefit:
|
|
|
|
|
|
Federal
|
$
|
(875
|
)
|
|
$
|
(515
|
)
|
|
$
|
1,106
|
|
State
|
24
|
|
|
73
|
|
|
73
|
|
Foreign
|
(9,939
|
)
|
|
(9,862
|
)
|
|
(11,667
|
)
|
|
(10,790
|
)
|
|
(10,304
|
)
|
|
(10,488
|
)
|
Deferred (expense) benefit:
|
|
|
|
|
|
Federal
|
$
|
488
|
|
|
$
|
(214
|
)
|
|
$
|
(580
|
)
|
State
|
59
|
|
|
(13
|
)
|
|
(35
|
)
|
Foreign
|
(988
|
)
|
|
(16,569
|
)
|
|
(3,668
|
)
|
|
(441
|
)
|
|
(16,796
|
)
|
|
(4,283
|
)
|
Total
|
$
|
(11,231
|
)
|
|
$
|
(27,100
|
)
|
|
$
|
(14,771
|
)
|
A reconciliation of the (provision for) or benefit from income taxes to income tax (expense) or benefit computed by applying the statutory federal income tax rate to pre-tax (loss) income for fiscal years
2014
,
2013
and
2012
is as follows (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year
|
|
2014
|
|
2013
|
|
2012
|
|
Amount
|
Percentage
|
|
Amount
|
Percentage
|
|
Amount
|
Percentage
|
Income tax (expense) benefit at statutory federal rate
|
$
|
(8,355
|
)
|
35.00
|
%
|
|
$
|
9,065
|
|
35.00
|
%
|
|
$
|
(5,470
|
)
|
35.00
|
%
|
Decrease (increase) resulting from:
|
|
|
|
|
|
|
|
|
State benefit (provision), net of federal (provision) benefit
|
75
|
|
(0.31
|
)
|
|
(827
|
)
|
(3.19
|
)
|
|
849
|
|
(5.43
|
)
|
Research and development credits
|
3,177
|
|
(13.31
|
)
|
|
6,257
|
|
24.16
|
|
|
3,422
|
|
(21.90
|
)
|
Foreign tax credits
|
574
|
|
(2.41
|
)
|
|
2,434
|
|
9.39
|
|
|
1,998
|
|
(12.78
|
)
|
Effect of changes in income tax rate applied to net deferred tax assets
|
(65
|
)
|
0.27
|
|
|
(1,250
|
)
|
(4.83
|
)
|
|
(1,568
|
)
|
10.04
|
|
Foreign tax rate difference
|
636
|
|
(2.66
|
)
|
|
3,218
|
|
12.43
|
|
|
7,486
|
|
(47.90
|
)
|
Change in valuation allowance
|
5,890
|
|
(24.67
|
)
|
|
(40,675
|
)
|
(157.05
|
)
|
|
(20,408
|
)
|
130.58
|
|
Repurchase of convertible subordinated notes
|
—
|
|
—
|
|
|
438
|
|
1.69
|
|
|
622
|
|
(3.98
|
)
|
Adjustments to net deferred tax assets
|
2,939
|
|
(12.31
|
)
|
|
(872
|
)
|
(3.37
|
)
|
|
597
|
|
(3.82
|
)
|
Share-based compensation
|
(635
|
)
|
2.66
|
|
|
(2,108
|
)
|
(8.14
|
)
|
|
(66
|
)
|
0.42
|
|
Tax reserve adjustments
|
(1,482
|
)
|
6.21
|
|
|
(515
|
)
|
(1.99
|
)
|
|
2,084
|
|
(13.33
|
)
|
Deemed dividend
|
(1,122
|
)
|
4.70
|
|
|
(1,749
|
)
|
(6.75
|
)
|
|
(3,971
|
)
|
25.41
|
|
Write-off U.K. gross deferred tax assets
|
(12,699
|
)
|
53.19
|
|
|
—
|
|
—
|
|
|
—
|
|
—
|
|
Other income tax benefit (expense)
|
(164
|
)
|
0.69
|
|
|
(516
|
)
|
(1.99
|
)
|
|
(346
|
)
|
2.21
|
|
|
$
|
(11,231
|
)
|
47.05
|
%
|
|
$
|
(27,100
|
)
|
(104.64
|
)%
|
|
$
|
(14,771
|
)
|
94.52
|
%
|
|
|
|
|
|
|
|
|
|
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the basis used for income tax purposes. The deferred income tax assets and liabilities are measured in each taxing jurisdiction using the enacted tax rates and laws that will be in effect when the differences are expected to reverse.
RF Micro Devices, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
Significant components of the Company’s net deferred income taxes are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
Fiscal Year
|
|
2014
|
|
2013
|
Deferred income tax assets:
|
|
|
|
Inventory reserve
|
$
|
9,813
|
|
|
$
|
8,107
|
|
Basis in stock and other investments
|
2,748
|
|
|
5,547
|
|
Equity compensation
|
17,860
|
|
|
18,574
|
|
Accumulated depreciation/basis difference
|
29,260
|
|
|
42,541
|
|
Net operating loss carry-forwards
|
37,676
|
|
|
57,632
|
|
Research and other credits
|
71,406
|
|
|
66,796
|
|
Other deferred assets
|
9,189
|
|
|
10,643
|
|
Total deferred income tax assets
|
177,952
|
|
|
209,840
|
|
Valuation allowance
|
(143,264
|
)
|
|
(164,244
|
)
|
Total deferred income tax assets, net of valuation allowance
|
$
|
34,688
|
|
|
$
|
45,596
|
|
|
|
|
|
Deferred income tax liabilities:
|
|
|
|
Amortization and purchase accounting basis difference
|
$
|
(10,862
|
)
|
|
$
|
(18,183
|
)
|
Convertible debt discount
|
(83
|
)
|
|
(1,918
|
)
|
Deferred gain
|
(4,994
|
)
|
|
(6,320
|
)
|
Other deferred liabilities
|
(501
|
)
|
|
(744
|
)
|
Total deferred income tax liabilities
|
(16,440
|
)
|
|
(27,165
|
)
|
Net deferred income tax assets
|
$
|
18,248
|
|
|
$
|
18,431
|
|
|
|
|
|
Amounts included in consolidated balance sheets:
|
|
|
|
Current assets
|
$
|
4,419
|
|
|
$
|
2,760
|
|
Current liabilities
|
(200
|
)
|
|
(329
|
)
|
Non-current assets
|
14,913
|
|
|
17,221
|
|
Non-current liabilities
|
(884
|
)
|
|
(1,221
|
)
|
|
|
|
|
Net deferred income tax assets
|
$
|
18,248
|
|
|
$
|
18,431
|
|
At
March 29, 2014
, the Company has recorded a
$143.3 million
valuation allowance against the U.S. net deferred tax assets and small net deferred assets at several foreign subsidiaries. These valuation allowances were established based upon management's opinion that it is more likely than not that the benefit of these deferred tax assets may not be realized. Realization is dependent upon generating future income in the taxing jurisdictions in which the operating loss carryovers, credit carryovers, depreciable tax basis and other tax deferred assets exist. It is management's intent to evaluate the realizability of these deferred tax assets on a quarterly basis.
As of the beginning of fiscal 2012, there was a
$92.3 million
valuation allowance against
$90.5 million
of U.S. net deferred tax assets and
$1.8 million
of Shanghai, China net deferred tax assets. The
$20.4 million
increase in the valuation allowance during fiscal 2012 was comprised of a
$22.2 million
increase related to changes in domestic deferred tax assets during fiscal 2012, offset by a
$1.8 million
decrease related to the release of the Shanghai, China valuation allowance upon completing the liquidation of that legal entity.
The valuation allowance against net deferred tax assets increased in fiscal 2013 by
$51.5 million
from the
$112.7 million
balance as of the end of fiscal 2012. The change was comprised of
$12.0 million
established during the fiscal year related to the U.K.,
$10.8 million
related to the Amalfi acquisition, and a
$28.7 million
increase related to changes in domestic deferred tax assets during the fiscal year. The U.K. valuation allowance was recorded as a result of the decision, announced in March 2013, to phase out manufacturing at the Newton Aycliffe U.K. facility. Consequently, the Company determined that this represented significant negative evidence, and that it was no longer
RF Micro Devices, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
“more likely than not” that any U.K. deferred tax assets remaining at the end of fiscal 2014 would ultimately be realized.
The valuation allowance against net deferred tax assets decreased in fiscal 2014 by
$20.9 million
. The decrease was comprised of the reversal of the
$12.0 million
U.K. valuation allowance established during fiscal 2013 and
$15.1 million
related to deferred tax assets used against deferred intercompany profits, offset by increases related to a
$3.4 million
adjustment in the net operating losses acquired in the Amalfi acquisition and
$2.8 million
for other changes in net deferred tax assets for domestic and for other foreign subsidiaries during the fiscal year. The U.K. valuation allowance was reversed in connection with the sale of the U.K. manufacturing facility in fiscal 2014 and the write-off of the remaining U.K. deferred tax assets.
As of the end of fiscal 2014, a valuation allowance of
$143.3 million
remained against the net deferred tax assets in the U.S. as the significant negative evidence of current and cumulative pre-tax losses for the most recent three-year period in that jurisdiction was not overcome by available positive evidence.
As of
March 29, 2014
, the Company had federal loss carryovers of approximately
$118.9 million
that expire in fiscal years 2020 to 2032 if unused and state losses of approximately
$109.6 million
that expire in fiscal years 2015 to 2032 if unused. Federal research credits of
$64.4 million
, federal foreign tax credits of
$6.2 million
, and state credits of
$22.5 million
may expire in fiscal years 2015 to 2033, 2018 to 2023, and 2015 to 2028, respectively. Federal alternative minimum tax credits of
$1.5 million
will carry forward indefinitely. Included in the amounts above are certain net operating losses (NOLs) and other tax attribute assets acquired in conjunction with the Filtronic, Sirenza, Silicon Wave, Inc., and Amalfi acquisitions. The utilization of acquired domestic assets is subject to certain annual limitations as required under Internal Revenue Code Section 382 and similar state income tax provisions.
The Company has continued to expand its operations and increase its investments in numerous international jurisdictions. These activities expose the Company to taxation in multiple foreign jurisdictions. It is management's opinion that current and future undistributed foreign earnings will be permanently reinvested. Accordingly, no provision for U.S. federal and state income taxes has been made thereon. It is not practical to estimate the additional tax that would be incurred, if any, if the permanently reinvested earnings were repatriated. At March 29, 2014, the Company has not provided U.S. taxes on approximately
$226.3 million
of undistributed earnings of foreign subsidiaries that have been reinvested outside the U.S. indefinitely.
A subsidiary in a foreign jurisdiction was granted an exemption from income taxes for a two-year period (calendar 2010 and 2011) followed by a three-year period (calendar 2012 through 2014) at one-half the normal tax rate. There was
no
income tax expense impact in fiscal 2014 as the foreign subsidiary was in the process of being liquidated and no income tax benefit was accrued for the losses incurred during the year. Income tax expense was increased in fiscal
2013
by less than
$0.1 million
(less than
$0.001
per basic or diluted share) and decreased in fiscal
2012
by less than
$0.1 million
(less than
$0.001
per basic or diluted share) as a result of this agreement. This agreement will expire in fiscal 2015.
The Company’s gross unrecognized tax benefits totaled
$39.4 million
as of
March 29, 2014
,
$37.9 million
as of
March 30, 2013
, and
$31.7 million
as of
March 31, 2012
. Of these amounts,
$30.9 million
(net of federal benefit of state taxes),
$29.7 million
(net of federal benefit of state taxes), and
$24.4 million
(net of federal benefit of state taxes) as of March 29, 2014, March 30, 2013, March 31, 2012, respectively, represent the amounts of unrecognized tax benefits that, if recognized, would impact the effective tax rate in each of the fiscal years.
RF Micro Devices, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
A reconciliation of the fiscal
2012
through fiscal
2014
beginning and ending amount of gross unrecognized tax benefits is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year
|
|
2014
|
|
2013
|
|
2012
|
Beginning balance
|
$
|
37,917
|
|
|
$
|
31,727
|
|
|
$
|
32,941
|
|
Additions based on positions related to current year
|
2,181
|
|
|
2,209
|
|
|
1,067
|
|
Additions for tax positions in prior years
|
229
|
|
|
4,780
|
|
|
450
|
|
Reductions for tax positions in prior years
|
(904
|
)
|
|
(482
|
)
|
|
(2,699
|
)
|
Expiration of Statute of Limitations
|
—
|
|
|
(317
|
)
|
|
(32
|
)
|
Settlements
|
—
|
|
|
—
|
|
|
—
|
|
Ending Balance
|
$
|
39,423
|
|
|
$
|
37,917
|
|
|
$
|
31,727
|
|
Of the fiscal 2013 additions to tax positions in prior years,
$4.4 million
was assumed by the Company in the Amalfi acquisition and relates to positions taken on tax returns for pre-acquisition periods.
It is the Company’s policy to recognize interest and penalties related to uncertain tax positions as a component of income tax expense. During fiscal years
2014
,
2013
and
2012
, the Company recognized
$0.9 million
,
$0.7 million
, and
$0.6 million
, respectively, of interest and penalties related to uncertain tax positions. Accrued interest and penalties related to unrecognized tax benefits totaled
$2.3 million
,
$1.3 million
, and
$0.6 million
as of
March 29, 2014
,
March 30, 2013
and
March 31, 2012
, respectively.
Within the next
12 months
, the Company believes it is reasonably possible that up to
$0.5 million
of gross unrecognized tax benefits may be reduced as a result of reductions for temporary tax positions taken in prior years.
Returns for fiscal years 2005 through 2009 have been examined by the U.S. federal taxing authorities and returns for fiscal 2011 and subsequent tax years remain open for examination. North Carolina returns for fiscal years 2006 through 2008 have been examined by the tax authorities and returns for fiscal 2011 and subsequent tax years remain open for examination. Returns for calendar years 2005 through 2007 have been examined by the German taxing authorities and returns for subsequent fiscal tax years remain open for examination. Other material jurisdictions that are subject to examination by tax authorities are California (fiscal 2010 through present), the U.K. (fiscal 2012 through present), and China (calendar year 2004 through present). Tax attributes (including net operating loss and credit carryovers) arising in earlier fiscal years remain open to adjustment.
RF Micro Devices, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
14. NET INCOME (LOSS) PER SHARE
The following table sets forth the computation of basic and diluted net income (loss) per share (in thousands, except per share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For Fiscal Year
|
|
2014
|
|
2013
|
|
2012
|
Numerator:
|
|
|
|
|
|
Numerator for basic and diluted net income (loss) per share — net income (loss) available to common shareholders
|
$
|
12,642
|
|
|
$
|
(52,999
|
)
|
|
$
|
857
|
|
Denominator:
|
|
|
|
|
|
Denominator for basic net income (loss) per share — weighted average shares
|
281,996
|
|
|
278,602
|
|
|
276,289
|
|
Effect of dilutive securities:
|
|
|
|
|
|
Share-based awards
|
6,078
|
|
|
—
|
|
|
6,287
|
|
Denominator for diluted net income (loss) per share — adjusted weighted average shares and assumed conversions
|
288,074
|
|
|
278,602
|
|
|
282,576
|
|
Basic net income (loss) per share
|
$
|
0.04
|
|
|
$
|
(0.19
|
)
|
|
$
|
0.00
|
|
Diluted net income (loss) per share
|
$
|
0.04
|
|
|
$
|
(0.19
|
)
|
|
$
|
0.00
|
|
In the computation of diluted net income per share for fiscal years 2014 and
2012
,
7.2 million
shares and
6.3 million
shares, respectively, were excluded because the exercise price of the options was greater than the average market price of the underlying common stock and the effect of their inclusion would have been anti-dilutive. In the computation of diluted net loss per share for fiscal 2013, all outstanding share-based awards were excluded because the effect of their inclusion would have been anti-dilutive.
The computation of diluted net income (loss) per share does not assume the conversion of the Company’s
$200 million
initial aggregate principal amount of the 2012 Notes or the Company’s
$175 million
initial aggregate principal amount of 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 2012 Notes became due on
April 15, 2012
, and the remaining principal balance of
$26.5 million
was paid with cash on hand (see Note 9). The 2014 Notes became due on April 15, 2014, and the remaining principal balance of
$87.5 million
was paid with cash on hand (see Note 9).
15. SHARE-BASED COMPENSATION
Summary of Stock Option Plans
Directors’ Option Plan
In April 1997, the Company and its shareholders adopted the Non-employee Directors’ Stock Option Plan. Under the terms of this plan, directors who are not employees of the Company are entitled to receive options to acquire shares of common stock. An aggregate of
1.6 million
shares of common stock have been reserved for issuance under this plan, subject to adjustment for certain events affecting the Company’s capitalization.
No
further awards can be granted under this plan.
1999 Stock Incentive Plan
The 1999 Stock Incentive Plan (the "1999 Stock Plan"), which the Company’s shareholders approved at the 1999 annual meeting of shareholders, provides for the issuance of a maximum of
16.0 million
shares of common stock pursuant to awards granted thereunder. The maximum number of shares of common stock that may be issued under the plan pursuant to grant of restricted awards shall not exceed
2.0 million
shares. The number of shares reserved for issuance under the 1999 Stock Plan and the terms of awards may be adjusted upon certain events affecting the Company’s capitalization.
No
further awards can be granted under this plan.
RF Micro Devices, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
Sirenza Microdevices, Inc. Amended and Restated 1998 Stock Plan
In connection with the merger of a wholly owned subsidiary of the Company with and into Sirenza and the subsequent merger of Sirenza with and into the Company, the Company assumed the Sirenza Amended and Restated 1998 Stock Plan. This plan provides for the grant of awards to acquire common stock to employees, non-employee directors and consultants. This plan permits the grant of incentive and nonqualified options, restricted awards and performance share awards.
No
further awards can be granted under this plan.
2003 Stock Incentive Plan
The Company's shareholders approved the 2003 Stock Incentive Plan (the "2003 Plan") on July 22, 2003, and, effective upon that approval, new stock option and other share-based awards for employees were granted only under the 2003 Plan. The Company was also permitted to grant other types of equity incentive awards, under the 2003 Plan, such as stock appreciation rights, restricted stock awards, performance shares and performance units. On May 2, 2012, the Company granted performance-based restricted stock units that were awarded on May 15, 2013, after it was determined that certain performance objectives had been met. The aggregate number of shares subject to performance-based restricted stock units awarded for fiscal
2013
under the 2003 Plan was
2.0 million
shares. On May 4, 2011, the Company granted performance-based restricted stock units that were awarded on May 2, 2012, after it was determined that certain performance objectives had been met. The aggregate number of shares subject to performance-based restricted stock units awarded for fiscal
2012
under the 2003 Plan was
1.4 million
shares. In the past, the Company had various employee stock and incentive plans identified above under which stock options and other share-based awards were granted. Stock options and other share-based awards that were granted under prior plans and were outstanding on July 22, 2003 continued in accordance with the terms of the respective plans.
The maximum number of shares issuable under the 2003 Plan could not exceed the sum of (a)
30.3 million
shares, plus (b) any shares of common stock (i) remaining available for issuance as of the effective date of the 2003 Plan under the Company's prior plans and (ii) subject to an award granted under a prior plan, which awards were forfeited, canceled, terminated, expired or lapsed for any reason.
No
further awards can be granted under this plan.
2012 Stock Incentive Plan
The Company currently grants stock options and restricted stock units to employees and directors under the 2012 Stock Incentive Plan (the "2012 Plan"). The Company's shareholders approved the 2012 Plan on August 16, 2012, and, effective upon that approval, new stock option and other share-based awards for employees and directors may be granted only under the 2012 Plan. The Company is also permitted to grant other types of equity incentive awards, under the 2012 Plan, such as stock appreciation rights, restricted stock awards, performance shares and performance units. The aggregate number of shares subject to performance-based restricted stock units awarded for fiscal
2014
under the 2012 Plan was
1.2 million
shares. In the past, the Company had various employee stock and incentive plans identified above under which stock options and other share-based awards were granted. Stock options and other share-based awards that were granted under prior plans and were outstanding on August 16, 2012 continued in accordance with the terms of the respective plans.
The maximum number of shares issuable under the 2012 Plan may not exceed the sum of (a)
17.0 million
shares, plus (b) any shares of common stock (i) remaining available for issuance as of the effective date of the 2012 Plan under the Company's prior plans and (ii) subject to an award granted under a prior plan, which awards are forfeited, canceled, terminated, expire or lapse for any reason. As of
March 29, 2014
,
20.3 million
shares were available for issuance under the 2012 Plan.
2006 Directors’ Stock Option Plan
At the Company’s 2006 annual meeting of shareholders, shareholders of the Company adopted the 2006 Directors’ Stock Option Plan, which replaced the Non-Employee Directors’ Stock Option Plan and reserved an additional
1.0 million
shares of common stock for issuance to non-employee directors. Under the terms of this plan, directors who are not employees of the Company are entitled to receive options to acquire shares of common stock. An aggregate of
1.4 million
shares of common stock has been reserved for issuance under this plan, including shares remaining available for issuance under the prior Non-employee Directors’ Stock Option Plan.
No
further awards can be granted under this plan.
Employee Stock Purchase Plan
In April 1997, the Company adopted its Employee Stock Purchase Plan ("ESPP"), which is intended to qualify as an “employee stock purchase plan” under Section 423 of the Internal Revenue Code. All regular full-time employees
RF Micro Devices, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
of the Company (including officers) and all other employees who meet the eligibility requirements of the plan may participate in the ESPP. The ESPP provides eligible employees an opportunity to acquire the Company’s common stock at
85%
of the lower of the closing price per share of the Company’s common stock on the first or last day of each
six
-month purchase period. At
March 29, 2014
,
3.8 million
shares were available for future issuance under this plan, subject to anti-dilution adjustments in the event of certain changes in the capital structure of the Company. The Company makes no cash contributions to the ESPP, but bears the expenses of its administration. The Company issued
1.0 million
shares under the ESPP in fiscal
2014
.
For fiscal years
2014
,
2013
and
2012
, the primary share-based awards and their general terms and conditions are as follows:
Stock options are granted to employees with an exercise price equal to the market price of the Company’s stock at the date of grant, generally vest over a
four
-year period from the grant date, and generally expire
10 years
from the grant date. Restricted stock units granted by the Company in fiscal years
2014
,
2013
and
2012
are either service-based, performance and service-based, or based on shareholder return. Service-based restricted stock units generally vest over a
four
-year period from the grant date. Performance and service-based restricted stock units are earned based on Company performance of stated metrics generally during the fiscal year and, if earned, ves
t one-half
when earned and the balance over
two
years. Restricted stock units based on shareholder return are earned based upon total shareholder return of the Company in comparison to the total shareholder return of a benchmark index and vest over
one
-year,
two
-year and
three
-year performance periods. Under the 2012 Plan for fiscal years 2014 and 2013 and the 2006 Directors’ Stock Option Plan for fiscal 2012, stock options granted to non-employee directors (other than initial options, as described below) had an exercise price equal to the market price of the Company’s stock at the date of grant, vested immediately upon grant and expire
10 years
from the grant date. Each non-employee director who is first elected or appointed to the Board of Directors will receive an initial option at an exercise price equal to the market price of the Company’s stock at the date of grant, which vests over a
two
-year period from the grant date and expires
10 years
from the grant date. At the director’s option, he may instead elect to receive all or part of the initial grant in restricted stock units. Thereafter, each non-employee director is eligible to receive an annual option or, if he so chooses, an annual grant of restricted stock units.
The options and restricted stock units granted to certain officers of the Company generally will, in the event of the officer's termination other than for cause, continue to vest pursuant to the same vesting schedule as if the officer had remained an employee of the Company (unless the administrator of the plan determines otherwise) and as a result, these awards are expensed at grant date. In fiscal
2014
, share-based compensation of
$11.0 million
was recognized upon the grant of
2.2 million
options and restricted share units to certain officers of the Company.
Share-Based Compensation
Under ASC 718, share-based compensation cost is measured at the grant date, based on the estimated fair value of the award using an option pricing model, and is recognized as expense over the employee's requisite service period. ASC 718 covers a wide range of share-based compensation arrangements including stock options, restricted share plans, performance-based awards, share appreciation rights and employee stock purchase plans.
Total pre-tax share-based compensation expense recognized in the Consolidated Statements of Operations was
$29.9 million
for fiscal
2014
, net of expense capitalized into inventory. For fiscal years
2013
and
2012
, the total pre-tax share-based compensation expense recognized was
$30.8 million
and
$26.2 million
, respectively.
A summary of activity of the Company’s director and employee stock option plans follows:
RF Micro Devices, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
(in thousands)
|
|
Weighted-
Average
Exercise
Price
|
|
Weighted-Average Remaining Contractual Term (in years)
|
|
Aggregate
Intrinsic
Value
(in thousands)
|
Outstanding as of March 30, 2013
|
10,634
|
|
$
|
5.92
|
|
|
|
|
|
Granted
|
358
|
|
$
|
5.03
|
|
|
|
|
|
Exercised
|
(2,267)
|
|
$
|
5.48
|
|
|
|
|
|
Canceled
|
(1,701)
|
|
$
|
6.94
|
|
|
|
|
|
Forfeited
|
(11)
|
|
$
|
5.92
|
|
|
|
|
|
Outstanding as of March 29, 2014
|
7,013
|
|
$
|
5.77
|
|
|
3.11
|
|
$
|
13,558
|
|
Vested and expected to vest as of
March 29, 2014
|
7,003
|
|
$
|
5.77
|
|
|
3.10
|
|
$
|
13,527
|
|
Options exercisable as of March 29, 2014
|
6,476
|
|
$
|
5.83
|
|
|
2.68
|
|
$
|
12,102
|
|
The aggregate intrinsic value in the table above represents the total pre-tax intrinsic value, based upon the Company’s closing stock price of
$7.70
as of
March 29, 2014
, that would have been received by the option holders had all option holders with in-the-money options exercised their options as of that date.
The fair value of each option award is estimated on the date of grant using a Black-Scholes option-pricing model based on the assumptions noted in the following tables:
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year
|
|
2014
|
2013
|
2012
|
Expected volatility
|
43.2
|
%
|
51.6
|
%
|
57.2
|
%
|
Expected dividend yield
|
0.0
|
%
|
0.0
|
%
|
0.0
|
%
|
Expected term (in years)
|
5.5
|
|
5.5
|
|
5.4
|
|
Risk-free interest rate
|
1.4
|
%
|
0.8
|
%
|
1.4
|
%
|
Weighted-average grant-date fair value of options granted during the period
|
$
|
2.08
|
|
$
|
1.80
|
|
$
|
3.19
|
|
The total intrinsic value of options exercised during fiscal
2014
, was
$3.1 million
. For fiscal years
2013
and
2012
, the total intrinsic value of options exercised was
$0.5 million
and
$2.6 million
, respectively.
Cash received from the exercise of stock options and from participation in the employee stock purchase plan (excluding accrued employee refunds) was
$17.1 million
for fiscal
2014
and is reflected in cash flows from financing activities in the Consolidated Statements of Cash Flows. The Company settles employee stock options with newly issued shares of the Company's common stock.
The Company used the implied volatility of market-traded options on the Company’s common stock for the expected volatility assumption input to the Black-Scholes option-pricing model, consistent with the guidance in ASC 718. The selection of implied volatility data to estimate expected volatility was based upon the availability of actively-traded options on the Company’s common stock and the Company’s assessment that implied volatility is more representative of future common stock price trends than historical volatility.
The dividend yield assumption is based on the Company’s history and expectation of future dividend payouts and may be subject to change in the future. The Company has never paid a dividend.
The expected life of employee stock options represents the weighted-average period that the stock options are expected to remain outstanding. The Company’s method of calculating the expected term of an option is based on the assumption that all outstanding options will be exercised at the midpoint of the current date and full contractual term, combined with the average life of all options that have been exercised or canceled. The Company believes
RF Micro Devices, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
that this method provides a better estimate of the future expected life based on analysis of historical exercise behavioral data.
The risk-free interest rate assumption is based upon observed interest rates appropriate for the terms of the Company’s employee stock options.
ASC 718 requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. Based upon historical pre-vesting forfeiture experience, the Company assumed an annualized forfeiture rate of
1.5%
for both stock options and restricted stock units.
The following activity has occurred with respect to restricted stock unit awards:
|
|
|
|
|
|
|
|
|
Shares
(in thousands)
|
|
Weighted-Average
Grant-Date
Fair Value
|
Balance at March 30, 2013
|
10,547
|
|
|
$
|
4.63
|
|
Granted
|
5,328
|
|
|
4.59
|
|
Vested
|
(5,713)
|
|
|
4.76
|
|
Forfeited
|
(972)
|
|
|
4.53
|
|
Balance at March 29, 2014
|
9,190
|
|
|
$
|
4.53
|
|
As of
March 29, 2014
, total remaining unearned compensation cost related to nonvested restricted stock units was
$22.0 million
, which will be amortized over the weighted-average remaining service period of approximately
1.2 years
.
The total fair value of restricted stock units that vested during fiscal
2014
was
$30.0 million
, based upon the fair market value of the Company’s common stock on the vesting date. For fiscal years
2013
and
2012
, the total fair value of restricted stock units that vested was
$21.0 million
and
$35.8 million
, respectively.
16. SHAREHOLDERS’ EQUITY
Share Repurchase
On January 25, 2011, the Company announced that its board of directors authorized the repurchase of up to
$200 million
of its 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 the Company to repurchase shares through solicited or unsolicited transactions in the open market or in privately negotiated transactions. On January 31, 2013, the Company's board of directors authorized an extension of its 2011 share repurchase program to repurchase up to
$200 million
of its outstanding common stock through January 31, 2015. Because of the Company's incorporation in North Carolina, which does not recognize treasury shares, the repurchased shares are canceled at the time of repurchase. Shares repurchased are deemed authorized but unissued shares of common stock.
During fiscal
2014
, the Company repurchased
2.5 million
shares at an average price of
$5.03
on the open market. During fiscal 2013, the Company repurchased approximately
1.9 million
shares at an average price of
$3.75
on the open market and during fiscal 2012, the Company repurchased approximately
4.9 million
shares at an average price of
$6.18
on the open market. Since January 2011, the Company repurchased a total of approximately
11.0 million
shares of our common stock under this program at an average price of
$5.70
on the open market for a total of
$62.6 million
. As of March 29, 2014, approximately
$137.4 million
remains available for repurchase.
Common Stock Reserved For Future Issuance
At
March 29, 2014
, the Company had reserved a total of approximately
48.7 million
of its authorized
500.0 million
shares of common stock for future issuance as follows (in thousands):
RF Micro Devices, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
|
|
|
Outstanding stock options under formal directors’ and employees’ stock option plans
|
7,013
|
Possible future issuance under Company stock option plans
|
20,266
|
Employee stock purchase plan
|
3,812
|
Restricted share-based units granted
|
9,190
|
Possible future issuance pursuant to convertible subordinated notes*
|
8,444
|
Total shares reserved
|
48,725
|
*The 2014 Notes became due on April 15, 2014, and the remaining principal balance of
$87.5 million
was paid with cash on hand, therefore, the conversion feature will not be triggered.
17. OPERATING SEGMENT AND GEOGRAPHIC INFORMATION
RFMD’s operating segments as of
March 29, 2014
are its Cellular Products Group (CPG), Multi-Market Products Group (MPG) and Compound Semiconductor Group (CSG).
CPG is a leading global supplier of cellular radio frequency (RF) solutions which perform various functions in the cellular front end section. The cellular front end section is located between the transceiver and the antenna. These RF solutions include power amplifier (PA) modules, transmit modules, PA duplexer modules, antenna control solutions, antenna switch modules, switch filter modules, switch duplexer modules, and RF power management solutions. CPG supplies its broad portfolio of cellular RF solutions into a variety of mobile devices, including smartphones, handsets, notebook computers and tablets.
MPG is a leading global supplier of a broad array of RF solutions, such as PAs, low noise amplifiers, variable gain amplifiers, high power gallium nitride transistors, attenuators, modulators, switches, voltage-controlled oscillators (VCOs), phase locked loop modules, multi-chip modules, front end modules, and a range of military and space components (amplifiers, mixers, VCOs and power dividers). Major communications applications include mobile wireless infrastructure, point-to-point and microwave radios, small cells, WiFi (routers, access points, mobile devices and customer premises equipment) and cable television (CATV) infrastructure. Industrial applications include Smart Energy/Advanced Metering Infrastructure (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.
During the second quarter of fiscal 2013, the Company's foundry services were realigned from its CSG to its MPG. CSG is a business group established to leverage RFMD’s compound semiconductor technologies and related expertise in RF and non-RF end markets and applications.
As of
March 29, 2014
, 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 and is therefore included in the “Other operating segment” line in the following tables. 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 non-GAAP operating income (loss) and non-GAAP operating income (loss) as a percentage of revenue.
The “All other” category includes operating expenses such as share-based compensation, amortization of purchased intangible assets, acquisition-related costs, loss on asset transfer transaction, intellectual property rights (IPR) litigation costs, the inventory revaluation resulting from the transfer of the Company's molecular beam epitaxy (“MBE”) operations, net restructuring costs, certain consulting costs, expenses related to a potential strategic transaction that was terminated 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 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.
RF Micro Devices, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
The following tables present details of the Company’s reportable segments and a reconciliation of the “All other” category (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year
|
|
2014
|
|
2013
|
|
2012
|
Revenue:
|
|
|
|
|
|
CPG
|
$
|
935,313
|
|
|
$
|
761,425
|
|
|
$
|
664,242
|
|
MPG
|
212,897
|
|
|
202,722
|
|
|
207,110
|
|
Other operating segment
|
21
|
|
|
—
|
|
|
—
|
|
Total revenue
|
$
|
1,148,231
|
|
|
$
|
964,147
|
|
|
$
|
871,352
|
|
Income (loss) from operations:
|
|
|
|
|
|
CPG
|
$
|
109,862
|
|
|
$
|
52,574
|
|
|
$
|
61,776
|
|
MPG
|
32,315
|
|
|
11,181
|
|
|
10,930
|
|
Other operating segment
|
(3,363
|
)
|
|
(2,766
|
)
|
|
(3,511
|
)
|
All other
|
(111,473
|
)
|
|
(76,669
|
)
|
|
(44,552
|
)
|
Income (loss) from operations
|
$
|
27,341
|
|
|
$
|
(15,680
|
)
|
|
$
|
24,643
|
|
Interest expense
|
$
|
(5,983
|
)
|
|
$
|
(6,532
|
)
|
|
$
|
(10,997
|
)
|
Interest income
|
179
|
|
|
249
|
|
|
468
|
|
Loss on retirement of convertible subordinated notes
|
—
|
|
|
(2,756
|
)
|
|
(908
|
)
|
Other income (expense)
|
2,336
|
|
|
(1,180
|
)
|
|
2,422
|
|
Income (loss) before income taxes
|
$
|
23,873
|
|
|
$
|
(25,899
|
)
|
|
$
|
15,628
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year
|
|
2014
|
|
2013
|
|
2012
|
Reconciliation of “All other” category:
|
|
|
|
|
|
Share-based compensation expense
|
$
|
(29,901
|
)
|
|
$
|
(30,819
|
)
|
|
$
|
(26,174
|
)
|
Amortization of intangible assets
|
(28,638
|
)
|
|
(23,107
|
)
|
|
(18,390
|
)
|
Acquired inventory step-up and revaluation
|
—
|
|
|
(3,140
|
)
|
|
—
|
|
Impairment of intangible asset
|
(11,300
|
)
|
|
—
|
|
|
—
|
|
Acquisition and integration related costs
|
(8,105
|
)
|
|
(2,765
|
)
|
|
—
|
|
Restructuring and disposal costs associated with the phase out of manufacturing and sale of the U.K. facility
|
(8,118
|
)
|
|
(1,365
|
)
|
|
—
|
|
Loss on asset transfer transaction
|
—
|
|
|
(5,042
|
)
|
|
—
|
|
IPR litigation costs
|
(7,578
|
)
|
|
(5,955
|
)
|
|
—
|
|
Inventory revaluation resulting from transfer of MBE operations
|
—
|
|
|
(2,518
|
)
|
|
—
|
|
Certain consulting expense
|
(11,295
|
)
|
|
—
|
|
|
—
|
|
Other expenses (including restructuring, (gain) loss on property and equipment, and start-up costs)
|
(6,538
|
)
|
|
(1,958
|
)
|
|
12
|
|
Loss from operations for “All other”
|
$
|
(111,473
|
)
|
|
$
|
(76,669
|
)
|
|
$
|
(44,552
|
)
|
The consolidated financial statements include revenue to customers by geographic region that are summarized as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year
|
|
2014
|
|
2013
|
|
2012
|
Revenue:
|
|
|
|
|
|
United States
|
$
|
342,805
|
|
|
$
|
296,442
|
|
|
$
|
246,661
|
|
International
|
805,426
|
|
|
667,705
|
|
|
624,691
|
|
RF Micro Devices, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
|
|
|
|
|
|
Fiscal Year
|
|
2014
|
2013
|
2012
|
Revenue:
|
|
|
|
United States
|
30%
|
31%
|
28%
|
Asia
|
66
|
63
|
65
|
Europe
|
4
|
6
|
5
|
Central and South America
|
—
|
—
|
1
|
Other
|
—
|
—
|
1
|
The consolidated financial statements include the following long-lived asset amounts related to operations of the Company by geographic region (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year
|
|
2014
|
|
2013
|
|
2012
|
Long-lived tangible assets:
|
|
|
|
|
|
United States
|
$
|
120,885
|
|
|
$
|
114,635
|
|
|
$
|
130,665
|
|
International
|
75,111
|
|
|
76,891
|
|
|
67,256
|
|
Sales, for geographic disclosure purposes, are based on the “sold to” address of the customer. The “sold to” address is not always an accurate representation of the location of final consumption of the Company’s components. Of the Company’s total revenue for fiscal
2014
, approximately
41%
(
$468.0 million
) was from customers in China and
17%
(
$190.6 million
) from customers in Taiwan. Long-lived tangible assets primarily include property and equipment and at
March 29, 2014
, approximately
$69.7 million
(or
36%
) of the Company’s total property and equipment was located in China.
RF Micro Devices, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
18. QUARTERLY FINANCIAL SUMMARY (UNAUDITED):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2014 Quarter
|
|
|
|
|
|
|
|
|
(in thousands, except
|
|
|
|
|
|
|
|
|
per share data)
|
First
|
|
Second
|
|
Third
|
|
Fourth
|
|
Revenue
|
$
|
292,996
|
|
|
$
|
310,716
|
|
|
$
|
288,520
|
|
|
$
|
255,999
|
|
|
Gross profit
|
93,469
|
|
|
104,656
|
|
|
107,523
|
|
|
99,279
|
|
|
Net income (loss)
|
1,561
|
|
(5)
|
5,892
|
|
(5)
|
6,235
|
|
(5),(6)
|
(1,046
|
)
|
(5),(7)
|
Net income (loss) per share:
|
|
|
|
|
|
|
|
|
Basic
|
$
|
0.01
|
|
|
$
|
0.02
|
|
|
$
|
0.02
|
|
|
$
|
(0.00
|
)
|
|
Diluted
|
$
|
0.01
|
|
|
$
|
0.02
|
|
|
$
|
0.02
|
|
|
$
|
(0.00
|
)
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2013 Quarter
|
|
|
|
|
|
|
|
|
(in thousands, except
|
|
|
|
|
|
|
|
|
per share data)
|
First
|
|
Second
|
|
Third
|
|
Fourth
|
|
Revenue
|
$
|
202,660
|
|
|
$
|
209,671
|
|
|
$
|
271,213
|
|
(2)
|
$
|
280,603
|
|
(3)
|
Gross profit
|
64,254
|
|
|
66,535
|
|
|
86,810
|
|
|
88,216
|
|
|
Net loss
|
(19,139
|
)
|
(1)
|
(16,456
|
)
|
|
(1,443
|
)
|
(2)
|
(15,961
|
)
|
(3),(4)
|
Net loss per share:
|
|
|
|
|
|
|
|
|
Basic
|
$
|
(0.07
|
)
|
|
$
|
(0.06
|
)
|
|
$
|
(0.01
|
)
|
|
$
|
(0.06
|
)
|
|
Diluted
|
$
|
(0.07
|
)
|
|
$
|
(0.06
|
)
|
|
$
|
(0.01
|
)
|
|
$
|
(0.06
|
)
|
|
1. In the first quarter of fiscal 2013, the Company realized a loss of
$5.0 million
related to the transfer of its MBE growth operations to IQE (see Note 6).
2. Amalfi's results of operations (revenue of
$5.4 million
and an operating loss of
$5.9 million
) are included in the Company's Statement of Operations in the third quarter of fiscal 2013 (see Note 5).
3. Amalfi's results of operations (revenue of
$11.1 million
and an operating loss of
$3.6 million
) are included in the Company's Statement of Operations in the fourth quarter of fiscal 2013 (see Note 5).
4. Income tax expense for the fourth quarter of fiscal 2013 includes the effects of an increase of a valuation reserve against the U.K. net deferred tax asset as a result of the decision to phase out manufacturing at the U.K. facility (see Note 13).
5. The Company recorded restructuring expenses of
$2.9 million
,
$2.3 million
,
$3.0 million
, and
$2.9 million
, in the first, second, third and fourth quarters of fiscal 2014, respectively (Note 12).
6. In the third quarter of fiscal 2014, the Company recorded acquisition related expenses of
$2.9 million
(Note 7).
7. In the fourth quarter of fiscal 2014, the Company impaired intangible assets of
$11.3 million
(Note 8) and recorded acquisition and integration related expenses of
$2.2 million
(Note 7).
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. Each quarter of fiscal 2014 and fiscal 2013 contained a comparable number of weeks (13 weeks).
REPORT OF MANAGEMENT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
RF Micro Devices and Subsidiaries
Management of the Company is responsible for the preparation, integrity, accuracy and fair presentation of the Consolidated Financial Statements appearing in our Annual Report on Form 10-K for the fiscal year ended
March 29, 2014
. The financial statements were prepared in conformity with generally accepted accounting principles in the United States (GAAP) and include amounts based on judgments and estimates by management.
Management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rule 13a-15(f) under the Exchange Act. The Company’s internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the Consolidated Financial Statements in accordance with GAAP. Our internal control over financial reporting is supported by internal audits, appropriate reviews by management, policies and guidelines, careful selection and training of qualified personnel, and codes of ethics adopted by our Company's Board of Directors that are applicable to all directors, officers and employees of our Company.
Because of its inherent limitations, no matter how well designed, internal control over financial reporting may not prevent or detect all misstatements. Internal controls can only provide reasonable assurance with respect to financial statement preparation and presentation. Further, the evaluation of the effectiveness of internal control over financial reporting was made as of a specific date, and continued effectiveness in future periods is subject to the risks that the controls may become inadequate because of changes in conditions or that the degree of compliance with the policies and procedures may decline.
Management assessed the effectiveness of the Company’s internal control over financial reporting, with the participation of the Company's Chief Executive Officer and Chief Financial Officer, as of
March 29, 2014
. In conducting this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in
Internal Control--Integrated Framework
(1992 framework)
.
Based on our assessment, management believes that the Company maintained effective internal control over financial reporting as of
March 29, 2014
.
The Company’s auditors, Ernst & Young LLP, an independent registered public accounting firm, are appointed by the Audit Committee of the Company’s Board of Directors. Ernst & Young LLP has audited and reported on the Consolidated Financial Statements of RF Micro Devices, Inc. and subsidiaries and has issued an attestation report on the Company’s internal control over financial reporting. The reports of the independent registered public accounting firm are contained in this Annual Report on Form 10-K for the fiscal year ended
March 29, 2014
.
Report of Independent Registered Public Accounting Firm on Internal Control Over Financial Reporting
The Board of Directors and Shareholders of RF Micro Devices, Inc. and Subsidiaries
We have audited RF Micro Devices, Inc. and Subsidiaries’ internal control over financial reporting as of
March 29, 2014
, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (1992 framework) (the COSO criteria). RF Micro Devices, Inc. and Subsidiaries’ management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Report of Management on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, RF Micro Devices, Inc. and Subsidiaries maintained, in all material respects, effective internal control over financial reporting as of
March 29, 2014
, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of RF Micro Devices, Inc. and Subsidiaries as of
March 29, 2014
and March 30, 2013, and the related consolidated statements of operations, comprehensive income (loss), shareholders’ equity, and cash flows for each of the three years in the period ended
March 29, 2014
of RF Micro Devices, Inc. and Subsidiaries and our report dated
May 21, 2014
expressed an unqualified opinion thereon.
/s/ Ernst & Young LLP
Charlotte, North Carolina
May 21, 2014
Report of Independent Registered Public Accounting Firm
The Board of Directors and Shareholders of RF Micro Devices, Inc. and Subsidiaries
We have audited the accompanying consolidated balance sheets of RF Micro Devices, Inc. and Subsidiaries as of
March 29, 2014
and March 30, 2013, and the related consolidated statements of operations, comprehensive income (loss), shareholders' equity, and cash flows for each of the three years in the period ended
March 29, 2014
. Our audits also included the financial statement schedule listed in the Index at Item 15(a)(2). These financial statements and schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of RF Micro Devices, Inc. and Subsidiaries at
March 29, 2014
and March 30, 2013, and the consolidated results of their operations and their cash flows for each of the three years in the period ended
March 29, 2014
, in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), RF Micro Devices, Inc. and Subsidiaries’ internal control over financial reporting as of
March 29, 2014
, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (1992 framework) and our report dated
May 21, 2014
expressed an unqualified opinion thereon.
/s/ Ernst & Young LLP
Charlotte, North Carolina
May 21, 2014