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RF MICRO DEVICES INC - 10-K - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.(Edgar Glimpses Via Acquire Media NewsEdge) 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 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 channel partners 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 and the impact of stringent environmental regulations. 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. 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 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 are increasingly required in third generation (3G) and fourth generation (4G) devices, and they include power amplifier (PA) modules, transmit modules, antenna control solutions, antenna switch modules, switch filter modules and switch duplexer modules. CPG supplies its broad portfolio of cellular RF solutions into a variety of mobile devices, including smartphones, handsets, netbooks, notebooks and tablets. 29-------------------------------------------------------------------------------- Table of Contents • 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 (GaN) transistors, attenuators, mixers, modulators, switches, voltage-controlled oscillators (VCOs), phase locked loop modules, circulators, isolators, 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 (second generation (2G), 3G and 4G), point-to-point microwave radios, WiFi (infrastructure and mobile devices), and cable television wireline infrastructure. Industrial applications include Smart Energy/AMI, private mobile radio, and test and measurement equipment. Aerospace and defense applications include military communications, radar and electronic warfare, as well as space communications. 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 30, 2013, 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 2013 Management Summary • Our revenue increased 10.6% in fiscal 2013 to $964.1 million as compared to $871.4 million in fiscal 2012, primarily due to increased demand for our 3G/4G cellular RF solutions, as well as increased demand for our mobile WiFi products. In addition, revenue generated as a result of the acquisition of Amalfi Semiconductor, Inc. ("Amalfi") totaled approximately 1.7% of our total revenue in fiscal 2013. These increases were slightly offset by lower demand for our 2G products used in low-end phones and lower demand for our wireless infrastructure products. • Our gross margin for fiscal 2013 decreased to 31.7% as compared to 33.1% for fiscal 2012. This decrease was primarily due to certain costs associated with the transfer of our molecular beam epitaxy (MBE) operations to IQE, Inc. ("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 established 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. • Our operating loss was $15.7 million in fiscal 2013 as compared to an operating income of $24.6 million in 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 intellectual property rights (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 acquisition of Amalfi. • Our net loss per diluted share was $0.19 for fiscal 2013 compared to net income per diluted share of less than one cent for fiscal 2012. • We generated positive cash flow from operations of $71.3 million for fiscal 2013 as compared to $124.2 million for fiscal 2012. This decrease in cash flow from operations was primarily due to decreased profitability as a result of increased operating expenses related to the investment in new product development as well as increased investments targeting customer diversification. • Capital expenditures totaled $54.6 million in fiscal 2013 as compared to $46.1 million in fiscal 2012, primarily due to the addition of assembly and test capacity. • During fiscal 2013, we purchased and retired a total of $47.4 million aggregate principal amount of our 2014 Notes. 30-------------------------------------------------------------------------------- Table of Contents • During fiscal 2013, we repurchased approximately 1.9 million shares of common stock for approximately $7.0 million, including transaction costs. • In June 2012, we entered into an asset transfer agreement with IQE to transfer our MBE wafer growth operations to IQE. The assets transferred to IQE had a total book value of approximately $24.4 million. • In November 2012, we completed our acquisition of Amalfi for a total purchase price of approximately $48.4 million (net of cash received). • In January 2013, our Board of Directors authorized an extension of our share repurchase program to repurchase up to $200 million of our outstanding common stock through January 31, 2015 (see Note 15 of the Notes to the Consolidated Financial Statements in Part II, Item 8 of this report). • In March 2013, we entered into a four-year $125.0 million senior 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 currently have no outstanding amounts under the credit facility. • In March 2013, we announced that we will phase out manufacturing in our Newton Aycliffe, U.K. facility. RESULTS OF OPERATIONS Consolidated The following table presents a summary of our results of operations for fiscal years 2013, 2012 and 2011: 2013 2012 2011 (In thousands, except % of % of % of percentages) Dollars Revenue Dollars Revenue Dollars Revenue Revenue $ 964,147 100.0 % $ 871,352 100.0 % $ 1,051,756 100.0 % Cost of goods sold 658,332 68.3 582,586 66.9 662,085 63.0 Gross margin 305,815 31.7 288,766 33.1 389,671 37.0 Research and development 178,793 18.5 151,697 17.4 141,097 13.4 Marketing and selling 68,674 7.1 63,217 7.3 59,470 5.7 General and administrative 64,242 6.7 50,107 5.7 48,003 4.5 Other operating expense (income) 9,786 1.0 (898 ) (0.1 ) 1,582 0.1 Operating (loss) income $ (15,680 ) (1.6 )% $ 24,643 2.8 % 139,519 13.3 % Revenue Our overall revenue increased $92.8 million, or 10.6%, in fiscal 2013 as compared to fiscal 2012. Fiscal 2013 reflects increased demand for both our 3G/4G cellular RF solutions and our mobile WiFi products. In addition, revenue generated as a result of the acquisition of Amalfi totaled approximately 1.7% of our total revenue in fiscal 2013. 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 overall revenue decreased $180.4 million, or 17.2%, in fiscal 2012 as compared to fiscal 2011, primarily due to the anticipated end-of-life of transceiver products, lower demand for 2G products as the market transitioned to 3G products, and lower demand for our wireless infrastructure products and our WiFi front end module products. Sales of our 3G/4G cellular components partially offset the decline in transceiver and 2G product revenue in fiscal 2012. Our largest customer, Samsung Electronics, Co., Ltd. (Samsung), accounted for approximately 22% of our net revenue in fiscal 2013. In fiscal 2012, Samsung and Nokia Corporation (Nokia), accounted for 22% and 14%, respectively, of our net revenue and in fiscal 2011, Nokia accounted for approximately 39% of our net revenue. 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 net 31-------------------------------------------------------------------------------- Table of Contents 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 $667.7 million in fiscal 2013 (approximately 69% of revenue) compared to $624.7 million in fiscal 2012 (approximately 72% of revenue) and $895.0 million in fiscal 2011 (approximately 85% of revenue). Shipments to Asia totaled $603.6 million in fiscal 2013 (approximately 63% of revenue) compared to $568.5 million in fiscal 2012 (approximately 65% of revenue) and $807.2 million in fiscal 2011 (approximately 77% of revenue). Gross Margin 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 established 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. Our overall gross margin for fiscal 2012 decreased to 33.1% as compared to 37.0% in fiscal 2011. In fiscal 2012, we experienced decreased overall demand, which led to lower factory utilization rates and increased inventory reserves. Our factory utilization rates were also negatively impacted as some of our newer switch-based products have higher silicon content, which we do not manufacture internally. In addition, our gross margin was affected by overcapacity in the compound semiconductor market, which led to erosion in average selling prices. These decreases were partially offset by a favorable product mix toward higher margin 3G/4G products. Operating Expenses Research and Development 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). In fiscal 2012, research and development expenses increased $10.6 million, or 7.5%, compared to fiscal 2011, primarily due to an increase in headcount and related personnel expenses and other expenses resulting from new product development for 3G/4G mobile devices, including antenna control solutions. Marketing and Selling 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. In fiscal 2012, marketing and selling expenses increased $3.7 million, or 6.3%, compared to fiscal 2011, primarily due to the same factors attributable for the increase from fiscal 2012 to fiscal 2013. General and Administrative 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 IPR litigation ($6.0 million for fiscal 2013), increased personnel expenses, and increased share-based compensation expenses. In fiscal 2012, general and administrative expenses increased $2.1 million, or 4.4%, compared to fiscal 2011 primarily due to consulting expenses for tax-related initiatives. Other Operating (Income) Expense 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). 32-------------------------------------------------------------------------------- Table of Contents In addition, we recorded restructuring expenses of $1.3 million and acquisition-related expenses of $1.5 million associated with the acquisition of Amalfi. In fiscal 2012, other operating expenses decreased $2.5 million, or 156.8%, compared to fiscal 2011. During fiscal 2012, the restructuring obligation was reduced by $1.7 million as a result of the utilization of one of the facilities we previously exited due to a change in manufacturing operations, while during fiscal 2011, we recorded restructuring charges of approximately $0.6 million related to impaired assets and lease and other contract termination costs. Operating Income 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. Our overall operating income was $24.6 million for fiscal 2012, compared to operating income of $139.5 million for fiscal 2011. Operating income decreased primarily due to lower revenue. Segment Product Revenue, Operating Income (Loss) and Operating Income (Loss) as a Percentage of Revenue Cellular Products Group Fiscal Year 2013 2012 2011 (In thousands, except percentages) Revenue $ 761,425 $ 664,242 $ 819,230 Operating income $ 52,574 $ 61,776 $ 156,352 Operating income as a % of revenue 6.9 % 9.3 % 19.1 % CPG revenue increased $97.2 million, or 14.6%, primarily due to increased demand for our 3G/4G cellular RF solutions. In addition, CPG revenue generated as a result of the acquisition of Amalfi totaled approximately 2.2% of CPG's total revenue in fiscal 2013. These increases to revenue were 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. CPG revenue decreased $155.0 million, or 18.9%, and operating income decreased $94.6 million, or 60.5%, in fiscal 2012 as compared to fiscal 2011, primarily due to the anticipated end-of-life of transceiver products and lower demand for 2G products as the market transitioned to 3G products. These decreases were partially offset by increased sales of our 3G/4G cellular components. 33-------------------------------------------------------------------------------- Table of Contents Multi-Market Products Group Fiscal Year 2013 2012 2011 (In thousands, except percentages) Revenue $ 202,722 $ 207,110 $ 232,526 Operating income $ 11,181 $ 10,930 $ 33,046 Operating income as a % of revenue 5.5 % 5.3 % 14.2 % MPG revenue decreased $4.4 million, or 2.1%, in fiscal 2013 as compared to fiscal 2012, primarily due to the lower demand that we experienced 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. MPG revenue decreased $25.4 million, or 10.9%, and operating income decreased $22.1 million, or 66.9%, in fiscal 2012 as compared to fiscal 2011, primarily due to lower demand for our wireless infrastructure products and our WiFi front end module products. See Note 16 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 2013, 2012 and 2011. OTHER (EXPENSE) INCOME AND INCOME TAXES Fiscal Year (In thousands) 2013 2012 2011 Interest expense $ (6,532 ) $ (10,997 ) $ (17,140 ) Interest income 249 468 787 Loss on retirement of convertible subordinated notes (2,756 ) (908 ) (2,412 ) Other (expense) income (1,180 ) 2,422 2,751 Income tax (expense) benefit (27,100 ) (14,771 ) 1,053 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 2014 Notes. During fiscal years 2012 and 2011, we purchased and retired $35.8 million and $135.5 million aggregate principal amount of our 2012 Notes, respectively. In addition, the remaining $10.0 million aggregate principal amount of our 1.50% convertible subordinated notes due 2010 (the "2010 Notes") matured and was repaid during fiscal 2011. Loss on the retirement of convertible subordinated notes 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. During fiscal 2011, we purchased and retired $135.5 million aggregate principal amount of our 2012 Notes for an average price of $99.32, which resulted in a loss of approximately $2.4 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. 34-------------------------------------------------------------------------------- Table of Contents Other (expense) income In fiscal 2013, we incurred a foreign currency loss of $1.2 million as compared to a gain of $0.9 million in fiscal 2012 and a gain of $2.1 million in fiscal 2011. 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 2012, we recognized a $1.6 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). Income taxes Income tax expense for fiscal 2013 was $27.1 million, which is 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. For fiscal 2013, this resulted in an annual effective tax rate of (104.64%). In comparison, the income tax expense for fiscal 2012 was $14.8 million, which was comprised primarily of tax expense related to international operations and a reduction in U.K. deferred tax assets due to a decrease in the U.K. tax rate, offset by a 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 94.5%. For fiscal 2011 the income tax benefit was $1.1 million, which was comprised primarily of tax expense related to international operations, offset by tax benefits related to the release of the $22.8 million valuation allowance against U.K. deferred tax assets and the expiration of the statute of limitations on uncertain tax positions assumed in prior business combinations. For fiscal 2011, this resulted in an annual effective tax rate of (0.9%). 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 2011, 2012 and 2013, the valuation allowance against domestic and foreign deferred tax assets was $92.3 million, $112.7 million, and $164.2 million, respectively. The $132.1 million valuation allowance as of the beginning of fiscal 2011 arose mainly from uncertainty related to the realizability of U.S. deferred tax assets due to operating losses and impairment charges incurred in the third quarter of fiscal 2009 that resulted in the U.S. moving into a cumulative pre-tax loss for the most recent three-year period, U.K. deferred tax assets acquired in connection with the acquisition of Filtronic Compound Semiconductors, Limited ("Filtronic") in fiscal 2008, and Shanghai, China deferred tax assets acquired in connection with the acquisition of Sirenza Microdevices, Inc. ("Sirenza") in fiscal 2008. During fiscal 2011 there was a $39.8 million decrease in the valuation allowance comprised of a $22.8 million release of the U.K. valuation allowance related to the U.K. net deferred tax assets as of the end of fiscal 2011 and $17.0 million for other decreases related to changes in domestic and foreign net deferred tax assets. The U.K. valuation allowance was released based on the positive evidence of income being generated in the U.K. in each of the last several quarters, the scheduled completion of the implementation of production technology to allow the U.K. facility to produce PAs in addition to switches during fiscal 2012, and future projections of continued profitability, which overcame any remaining negative evidence. 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 and eventually shutdown manufacturing at the U.K. facility over the next nine to twelve months. Consequently, we determined that this represented significant negative evidence, and that it was "more likely than not" that any U.K. deferred tax assets remaining at the end of fiscal 2014 would ultimately not be realized. 35-------------------------------------------------------------------------------- Table of Contents As of March 30, 2013, we had federal loss carryovers of approximately $140.1 million that expire in years 2019-2032 if unused, state losses of approximately $136.4 million that expire in years 2013-2032 if unused, and U.K. loss carryovers of approximately $5.4 million that carry forward indefinitely. Federal research credits of $61.0 million, federal foreign tax credits of $5.6 million, and state credits of $32.2 million may expire in years 2013-2032, 2017-2022, and 2013-2027, 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 $32.9 million as of April 2, 2011, $31.7 million as of March 31, 2012, and $37.9 million as of March 30, 2013. Of these amounts, $24.4 million (net of federal benefit of state taxes), $24.4 million (net of federal benefit of state taxes), and $29.7 million (net of federal benefit of state taxes) as of April 2, 2011, March 31, 2012, and March 30, 2013, respectively, represent the amounts of unrecognized tax benefits that, if recognized, would impact the effective tax rate in each of the fiscal years. 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. Included in the balance of gross unrecognized tax benefits at March 30, 2013, is $0.5 million to $1.0 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 30, 2013, total remaining unearned compensation cost related to nonvested restricted stock units and options was $28.8 million, which will be amortized over the weighted-average remaining service period of approximately 1.3 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 30, 2013, we had working capital of approximately $330.5 million, including $101.7 million in cash and cash equivalents, compared to working capital at March 31, 2012, of $421.2 million, including $135.5 million in cash and cash equivalents. This decrease in working capital is primarily attributable to the purchase of Amalfi for $48.4 million (net of cash received) as well as the purchase and retirement of approximately $47.4 million principal amount of our 2014 Notes during fiscal 2013. Our total cash, cash equivalents and short-term investments were $179.6 million as of March 30, 2013. This balance includes approximately $75.3 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 2013, we repurchased 1.9 million shares at an average price of $3.75 on the open market. During fiscal 2012, we repurchased approximately 4.9 million shares at an average price of $6.18 on the open market and during fiscal 2011, we repurchased approximately 1.7 million shares at an average price of $7.44 on the open market. We repurchased a total of approximately 8.5 million shares of our common stock under this program at an average price of $5.90 on the 36-------------------------------------------------------------------------------- Table of Contents open market for a total of $49.9 million. As of March 30, 2013, $150.1 million remains available for repurchase as a result of the January 31, 2013 extension of the program. Cash Flows from Operating Activities Operating activities in fiscal 2013 provided cash of $71.3 million, compared to $124.2 million in fiscal 2012. This year-over-year decrease was primarily attributable to decreased profitability resulting from increased operating expenses related to the continued investment in new product development as well as increased investments targeting customer diversification. Cash Flows from Investing Activities Net cash used in investing activities in fiscal 2013 was $14.5 million compared to $49.9 million in fiscal 2012. This change was primarily due to an increase in the net proceeds from maturities of available-for-sale securities as compared to fiscal 2012. This increase to cash provided by investing activities was partially reduced by the use of cash of approximately $47.7 million for the purchase of Amalfi as well as increased capital expenditures. Capital expenditures in fiscal 2014 are currently expected to increase approximately 10% to 15% as compared to fiscal 2013, 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 2013 was $89.7 million compared to $70.4 million in fiscal 2012. The increase in net cash used in financing activities was primarily due to a higher payment of debt during fiscal 2013 as compared to fiscal 2012. The 2012 Notes became due and the remaining principal balance of $26.5 million was paid with cash on hand in fiscal 2013. Also in fiscal 2013, we repurchased and retired $47.4 million original principal amount of our 2014 Notes and the $6.3 million remaining balance of our bank loan became due and was paid with cash on hand. In comparison, during fiscal 2012, we purchased and retired $35.8 million original principal amount of our 2012 Notes. These uses of cash were partially offset by lower repurchases of common stock during fiscal 2013 as compared to fiscal 2012. 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. 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 2013, 2012 and 2011. Our financial results in fiscal 2014 could be adversely affected by wage and commodity price inflation (including precious metals). OFF-BALANCE SHEET ARRANGEMENTSAs of March 30, 2013, we had no off-balance sheet arrangements as defined in Item 303(a)(4)(ii) of SEC Regulation S-K. 37-------------------------------------------------------------------------------- Table of Contents CONTRACTUAL OBLIGATIONSThe following table summarizes our significant contractual obligations and commitments (in thousands) as of March 30, 2013, 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 $ 15,490 $ 15,490 $ - $ - $ - Capital leases 164 73 91 - - Operating leases 34,541 10,263 14,194 6,631 3,453 Convertible debt (including interest) * 88,816 875 87,941 - - Purchase obligations 122,015 118,923 3,049 43 - Wafer supply agreement 30,212 25,841 4,371 - - Total $ 291,238 $ 171,465 $ 109,646 $ 6,674 $ 3,453 * The 2014 Notes have a remaining principal balance of $87.5 million as of March 30, 2013. Capital Commitments On March 30, 2013, we had short-term capital commitments of approximately $15.5 million, primarily for increasing test 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 30, 2013. 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 30, 2013 and March 31, 2012. 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 ten 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 30, 2013, the total future minimum lease payments were approximately $32.5 million related to facility operating leases and approximately $2.0 million related to equipment operating leases. Convertible Debt In April 2007, we issued $200 million aggregate principal amount of 0.75% Convertible Subordinated Notes due on April 15, 2012 (the "2012 Notes") and $175 million aggregate principal amount of 1.00% Convertible Subordinated Notes due on April 15, 2014 (the "2014 Notes," and together with the 2012 Notes, the "Notes") in a private placement to Merrill Lynch, Pierce, Fenner & Smith Incorporated for resale to qualified institutional buyers. The net proceeds of the offering were approximately $366.2 million after payment of the underwriting discount and expenses of the offering totaling approximately $8.8 million. Interest on the Notes is payable in cash semiannually in arrears on April 15 and October 15 of each year, beginning October 15, 2007. The Notes are subordinated unsecured obligations and rank junior in right of payment to all of our existing and future senior debt. The Notes effectively will be subordinated to the indebtedness and other liabilities of our subsidiaries. 38-------------------------------------------------------------------------------- Table of Contents 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. During fiscal 2011, we purchased and retired $135.5 million aggregate principal amount of our 2012 Notes for an average price of $99.32, which resulted in a loss of approximately $2.4 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 30, 2013, the 2014 Notes had a fair value on the Private Offerings, Resale and Trading through Automated Linkages ("PORTAL") Market of $86.7 million, compared to a carrying value of $82.0 million. As of March 31, 2012, the 2014 Notes had a fair value on the PORTAL Market of $134.9 million, compared to a carrying value of $118.9 million. The indentures governing our 2014 Notes contain certain non-financial covenants, and as of March 30, 2013, we were in compliance with these covenants. During fiscal 2004, we completed the private placement of $230.0 million aggregate principal amount of 1.50% convertible subordinated notes due 2010. In fiscal 2011, the remaining $10.0 million aggregate principal amount of the 2010 Notes matured and was repaid. 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. 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 30, 2013. See Note 8 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 $122.0 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 30, 2013. 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 39-------------------------------------------------------------------------------- Table of Contents 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 30, 2013, our minimum purchase commitment related to the wafer supply agreement is approximately $30.2 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 30, 2013, in addition to the amounts shown in the Contractual Obligations table above, we have $39.2 million of unrecognized income tax benefits and accrued interest, of which $9.6 million have been recorded as liabilities. We are uncertain as to if, or when, such amounts may be settled. As discussed in Note 9 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 $4.4 million as of March 30, 2013. 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 2013 and are expected to be less than $0.1 million in fiscal 2014. 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 6 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 2013, 2012 and 2011. 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 2013 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 40-------------------------------------------------------------------------------- Table of Contents benefit from the synergies of the business combinations generating the underlying goodwill. As of March 30, 2013, our goodwill balance of $104.8 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 2013. As a result of our analysis, no further quantitative impairment test was deemed necessary for fiscal 2013. There was no impairment of goodwill as a result of our annual impairment tests completed during the fourth quarters of fiscal years 2012 and 2011. 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 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 fifteen 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 41-------------------------------------------------------------------------------- Table of Contents 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. 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 12 of the Notes to the Consolidated Financial Statements in Part II, Item 8 of this report for additional information regarding changes during fiscal years 2011 and 2012 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 12 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. 42-------------------------------------------------------------------------------- Table of Contents RECENT ACCOUNTING PRONOUNCMENTS In February 2013, the FASB issued ASU 2013-02, "Reporting of Amounts Reclassified out of Accumulated Other Comprehensive Income" (ASU 2013-02). 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 guidance will be effective for our first quarter of fiscal 2014. The adoption of this guidance will affect the presentation of comprehensive income but will not impact our financial position, results of operations or cash flows. In July 2012, the FASB issued ASU 2012-02 "Intangibles - Goodwill and Other (Topic 350): Testing Indefinite-Lived Intangible Assets for Impairment" (ASU 2012-02). ASU 2012-02 simplifies how entities test indefinite-lived intangible assets for impairment, which improves consistency in impairment testing requirements among long-lived asset categories. ASU 2012-02 permits an assessment of qualitative factors to determine whether it is more likely than not that the fair value of an indefinite-lived intangible asset is less than its carrying value. For assets in which this assessment concludes it is more likely than not that the fair value is more than its carrying value, ASU 2012-02 eliminates the requirement to perform quantitative impairment testing as outlined in the previously issued standards. The guidance will be effective for our first quarter of fiscal 2014. The adoption of this guidance will not have an impact on our financial position, results of operations or financial statement disclosures. In June 2011, the FASB issued ASU 2011-05 "Presentation of Comprehensive Income" (ASU 2011-05). ASU 2011-05 allows an entity to present the components of net income and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements and eliminates the current option to report other comprehensive income and its components in the statement of changes in equity. While ASU 2011-05 changes the presentation of comprehensive income, there are no changes to the components that are recognized in net income or other comprehensive income under current accounting guidance. We adopted this guidance in the first quarter of fiscal 2013 and present a separate consolidated statement of comprehensive (loss)/income immediately following the consolidated statements of operations. Because this standard only affects the display of comprehensive income and does not affect what is included in comprehensive income, this standard did not have an impact on our financial position or results of operations. In September 2011, the FASB issued ASU 2011-08, "Intangibles-Goodwill and Other (Topic 350), Testing Goodwill for Impairment" (ASU 2011-08). ASU 2011-08 permits an entity to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the two-step goodwill impairment test described in Topic 350. The qualitative assessment is optional, allowing companies to go directly to the quantitative assessment. We adopted this guidance in the first quarter of fiscal 2013. The adoption of this guidance did not have an impact on our financial position, results of operations or financial statement disclosures as the value of goodwill is not affected by the adoption of this standard. |