- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

---------------------

FORM 10-Q
---------------------

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED DECEMBER 25, 1999
COMMISSION FILE NUMBER: 0-22511

---------------------

RF MICRO DEVICES, INC.
(Exact name of registrant as specified in its charter)

NORTH CAROLINA 56-1733461
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)

7625 THORNDIKE ROAD
GREENSBORO, NORTH CAROLINA 27409-9421
(Address of principal executive offices, including zip code)

(336) 664-1233
(Registrant's telephone number, including area code)

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

As of February 1, 2000, there were 79,809,699 shares of the registrant's
common stock outstanding.

- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
2

RF MICRO DEVICES, INC.

INDEX

PAGE
----

Part I. FINANCIAL INFORMATION
Item 1. Financial Statements.............................. 3
Condensed Consolidated Statements of Income -- Three
months ended December 31, 1999 and 1998............... 3
Condensed Consolidated Statements of Income -- Nine
months ended December 31, 1999 and 1998............... 4
Condensed Consolidated Balance Sheets -- December 31,
1999 and March 31, 1999............................... 5
Condensed Consolidated Statements of Cash Flows -- Nine
months ended December 31, 1999 and 1998............... 6
Notes to Condensed Consolidated Financial Statements... 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.................... 10
Part II. OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds......... 16
Item 6. Exhibits and Reports on Form 8-K.................. 16

2
3

PART I

FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

RF MICRO DEVICES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)

THREE MONTHS ENDED
----------------------------
DECEMBER 31, DECEMBER 31,
1999 1998
------------ ------------

Revenues:
Product sales............................................. $72,856 $40,993
Engineering revenue....................................... 305 524
------- -------
Total revenues.................................... 73,161 41,517
Operating costs and expenses:
Cost of goods sold........................................ 37,530 26,959
Research and development.................................. 9,061 3,774
Marketing and selling..................................... 5,394 2,682
General and administrative................................ 2,665 1,133
------- -------
Total operating costs and expenses................ 54,650 34,548
------- -------
Income from operations...................................... 18,511 6,969
Other income (expense), net................................. 835 (226)
------- -------
Income before income taxes.................................. 19,346 6,743
------- -------
Income tax expense.......................................... 6,771 1,146
------- -------
Net income.................................................. $12,575 $ 5,597
======= =======
Earnings per share:
Basic..................................................... $ .16 $ .08
Diluted................................................... $ .15 $ .08
Shares used in per share calculation:
Basic..................................................... 79,412 68,848
Diluted................................................... 86,075 72,788

See accompanying Notes to Condensed Consolidated Financial Statements.

3
4

RF MICRO DEVICES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)

NINE MONTHS ENDED
------------------------------
DECEMBER 31, DECEMBER 31,
1999 1998
------------- -------------

Revenues:
Product sales............................................. $203,596 $95,660
Engineering revenue....................................... 535 713
-------- -------
Total revenues.................................... 204,131 96,373
Operating costs and expenses:
Cost of goods sold........................................ 110,004 64,252
Research and development.................................. 22,469 9,774
Marketing and selling..................................... 13,667 7,378
General and administrative................................ 6,580 3,124
-------- -------
Total operating costs and expenses................ 152,720 84,528
-------- -------
Income from operations...................................... 51,411 11,845
Other income (expense), net................................. 3,147 (253)
-------- -------
Income before income taxes.................................. 54,558 11,592
-------- -------
Income tax expense.......................................... 19,095 1,967
-------- -------
Net income.................................................. $ 35,463 $ 9,625
======== =======
Earnings per share:
Basic..................................................... $ .45 $ .15
Diluted................................................... $ .42 $ .14
Shares used in per share calculation :
Basic..................................................... 79,190 66,208
Diluted................................................... 85,389 70,508

See accompanying Notes to Condensed Consolidated Financial Statements.

4
5

RF MICRO DEVICES, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)

DECEMBER 31, MARCH 31,
1999 1999
------------ ---------
(UNAUDITED) (AUDITED)

ASSETS
Current assets:
Cash and cash equivalents.............................. $ 30,351 $147,545
Short-term investments................................. 44,925 --
Accounts receivable, net............................... 46,797 23,697
Inventories............................................ 39,991 27,335
Current deferred tax asset............................. 900 898
Other current assets................................... 337 243
-------- --------
Total current assets.............................. 163,301 199,718
Property and equipment, net................................. 140,694 67,431
Technology licenses, net.................................... 14,430 3,078
Restricted cash............................................. 6,783 3,860
Non-current deferred tax asset.............................. 1,088 1,088
Other assets................................................ 4,022 583
-------- --------
Total assets...................................... $330,318 $275,758
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities............... $ 31,615 $ 24,700
Income taxes payable................................... 6,081 2,854
Current obligations under capital leases............... 4,389 4,246
-------- --------
Total current liabilities......................... 42,085 31,800
Obligations under capital leases, less current maturities... 9,363 12,587
Non-current deferred tax liability.......................... 465 465
-------- --------
Total liabilities................................. 51,913 44,852
Shareholders' equity:
Preferred stock, no par value; 5,000,000 shares
authorized; no shares issued and outstanding........... -- --
Common stock, no par value; 150,000,000 shares authorized;
79,508,651 shares and 78,753,952 issued and outstanding
at December 31, 1999 and March 31, 1999,
respectively........................................... 242,751 224,746
Deferred compensation....................................... (6,135) (165)
Retained earnings........................................... 41,789 6,325
-------- --------
Total shareholders' equity........................ 278,405 230,906
-------- --------
Total liabilities and shareholders' equity........ $330,318 $275,758
======== ========

See accompanying Notes to Condensed Consolidated Financial Statements.

5
6

RF MICRO DEVICES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)

NINE MONTHS ENDED
---------------------------
DECEMBER 31, DECEMBER 31,
1999 1998
------------ ------------

Cash flows from operating activities:
Net income.................................................. $ 35,463 $ 9,625
Adjustments to reconcile net income to net cash provided by
operating activities:
(Loss) on sale of equipment............................... -- (78)
Depreciation and amortization............................. 10,252 2,923
Amortization of deferred compensation..................... 173 --
Change in operating assets and liabilities:
(Increase) decrease in:
Accounts receivable.................................... (23,100) (7,326)
Inventories............................................ (12,656) (6,069)
Current deferred tax asset............................. (1) --
Other assets........................................... (145) (932)
Accounts payable....................................... 5,881 4,063
Accrued liabilities.................................... 1,034 3,006
Deferred revenue....................................... -- 247
Income taxes payable................................... 3,227 1,974
--------- --------
Net cash provided by operating activities......... 20,128 7,433
Cash flows from investing activities:
Purchase of capital equipment/leasehold improvements... (83,326) (12,443)
Proceeds from sale of equipment........................ -- 31
Capitalization of fabrication facility construction
costs................................................. -- (1,227)
Purchase of short-term investments..................... (48,314) --
Purchase of technology license......................... (1,500) --
--------- --------
Net cash used in investing activities............. (133,140) (13,639)
Cash flows from financing activities:
Proceeds from exercise of options...................... 1,822 75
Proceeds from exercise of warrant...................... -- 10,000
Increase in restricted cash............................ (2,923) (3,860)
Repayment of capital lease obligations................. (3,081) (2,781)
--------- --------
Net cash provided by (used in) financing
activities...................................... (4,182) 3,434
--------- --------
Net (decrease) in cash and cash equivalents....... (117,194) (2,772)
Cash and cash equivalents at the beginning of the period.... 147,545 16,360
--------- --------
Cash and cash equivalents at the end of the period.......... $ 30,351 $ 13,588
========= ========

See accompanying Notes to Condensed Consolidated Financial Statements.

6
7

RF MICRO DEVICES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

1. BASIS OF PRESENTATION

The accompanying consolidated financial statements have been prepared in
conformity with generally accepted accounting principles. However, certain
information or footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed, or omitted, pursuant to the rules and regulations of the Securities
and Exchange Commission. In the opinion of management, the statements include
all adjustments (which are of a normal and recurring nature) necessary for the
fair presentation of the results of the interim periods presented. These
financial statements should be read in conjunction with the Company's audited
financial statements for the year ended March 31, 1999.

The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiary, RF Micro Devices UK Ltd. All significant
intercompany accounts and transactions have been eliminated in consolidation

The Company uses a 52- or 53-week fiscal year ending on the Saturday
closest to March 31 of each year. The Company's other fiscal quarters end on the
Saturday closest to June 30, September 30, and December 31 of each year. For
purposes of this report (including the Unaudited Consolidated Condensed
Financial Statements included herein), each fiscal year is described as having
ended on March 31, and each of the first three quarters of each fiscal year is
described as having ended on June 30, September 30 and December 31.

On March 31, 1999, the Company effected a two-for-one stock split upon
which the Company's shareholders of record on March 17, 1999 were issued a
certificate representing one additional share of the Company's common stock for
each share of the Company's common stock held on such record date. On August 18,
1999, the Company effected a two-for-one split of its common stock upon which
the Company's shareholders of record on August 2, 1999 were issued a certificate
representing one additional share of the Company's common stock for each share
of the Company's common stock held on such record date. All earnings per share
and share count information has been restated to reflect the impact of these
stock splits.

2. RESEARCH AND DEVELOPMENT COSTS

The Company charges all research and development costs to expense as
incurred.

3. INCOME TAXES

The provision for income taxes has been recorded based on the current
estimate of the Company's annual effective tax rate. This rate differs from the
federal statutory rate primarily because of the reduction of the valuation
allowances on deferred tax assets.

4. INVENTORIES

The components of inventories are as follows (in thousands):

DECEMBER 31, MARCH 31,
1999 1999
------------ ---------

Raw materials............................................... $ 8,171 $ 6,628
Work in process............................................. 32,809 18,118
Finished goods.............................................. 9,272 6,975
-------- -------
50,252 31,721
Inventory allowances........................................ (10,261) (4,386)
-------- -------
Total inventory................................... $ 39,991 $27,335
======== =======

7
8
RF MICRO DEVICES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)

5. EARNINGS PER SHARE

The weighted average shares used in the calculation of diluted earnings per
share represent the weighted average shares outstanding plus the dilutive effect
of outstanding stock options, warrants, and other potential common shares
outstanding. The following table sets forth the computation of basic and diluted
earnings per share (in thousands, except per share data):

THREE MONTHS ENDED NINE MONTHS ENDED
--------------------------- ---------------------------
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1999 1998 1999 1998
------------ ------------ ------------ ------------

Numerator for basic and diluted earnings per
share:
Net income.................................... $12,575 $ 5,597 $35,463 $ 9,625
Denominator:
Denominator for basic earnings per
share -- weighted average shares............ 79,412 68,848 79,190 66,208
Effect of dilutive securities:
Stock options and warrants.................... 6,663 3,940 6,199 4,300
Denominator for diluted earnings per share --
adjusted weighted average shares and assumed
conversions................................. 86,075 72,788 85,389 70,508
------- ------- ------- -------
Basic earnings per share...................... $ .16 $ .08 $ .45 $ .15
======= ======= ======= =======
Diluted earnings per share.................... $ .15 $ .08 $ .42 $ .14
======= ======= ======= =======

6. DEFERRED COMPENSATION

During the third quarter, the Company issued shares of restricted stock
resulting in deferred compensation of approximately $6.0 million. This amount is
being charged to compensation expense over the period in which the restrictions
lapse which is generally five years.

7. LEASES

On August 13, 1999, as modified effective December 31, 1999, the Company
entered into a synthetic lease. A synthetic lease is an asset-based financing
structured to be treated as an operating lease for accounting purposes, but as a
capital lease for tax purposes. At the end of the third quarter of fiscal year
2000, the synthetic lease transaction was largely secured by cash collateral.
The modification effective December 31, 1999 resulted in the release of the cash
collateral and the synthetic lease is now secured by substantially all of the
personal property assets of the Company. The lease has a term expiring November
3, 2004. At the end of the term, the lease can be extended upon the agreement of
the parties or the Company may buy out the lease. The interest rates or yield
rates embedded in the lease (and used to calculate lease payments) are either:

- the Eurodollar Rate plus margins varying from 150 basis points to 300
basis points per annum (based on certain quarterly financial covenant
testing and depending on whether the underlying source of funding is in
the form of a promissory note or an equity certificate), or

- at our election and under certain other circumstances where funding
based on the Eurodollar Rate is not available, the ABR Rate plus margins
varying from zero basis points to 75 basis points per annum (based on
certain quarterly financial covenant testing and depending on whether
the underlying source of funding is in the form of a promissory note or
an equity certificate). The Eurodollar Rate is a rate of interest
determined under the lease documents by reference to one or more sources
for the London interbank offered rate or LIBOR. The ABR Rate is a rate
of interest determined under the

8
9
RF MICRO DEVICES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)

lease documents equal to the greater of (a) the prime lending rate of
the primary lender or its successor (as determined under the lease
documents) or (b) the federal funds effective rate (as determined under
the lease documents) plus 0.5%

This lease is expected to provide up to $100 million in financing for a new
wafer fabrication facility currently under construction. The $100 million of
financing is expected to fund approximately $57 million for the building and $43
million of equipment.

9
10

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

INTRODUCTION

We design, develop, manufacture and market proprietary radio frequency
integrated circuits, or RFICs, for wireless communications applications such as
cellular and personal communication services, cordless telephony, wireless local
area networks, wireless local loop, industrial radios, wireless security and
remote meter reading. We offer a broad array of products -- including
amplifiers, mixers, modulators/demodulators and single chip transmitters,
receivers and transceivers -- that represent a substantial majority of the RFICs
required in wireless subscriber equipment. We design and offer products using
three distinct process technologies: gallium arsenide heterojunction bipolar
transistor, or GaAs HBT; silicon bipolar transistor; and, to a lesser extent,
gallium arsenide metal semiconductor field effect transistor, or GaAs MESFET. We
have also recently begun to design products using the silicon germanium process
technology.

We began manufacturing our own GaAs HBT products at our new wafer
fabrication facility in September 1998, and we are now concentrating our efforts
on increasing our manufacturing capacity to satisfy customer demand for GaAs HBT
products, which is currently greater than we can meet. In September 1999, we
began construction on a second wafer fabrication facility. Before September
1998, TRW Inc., which is our largest shareholder, manufactured all of our GaAs
HBT products. TRW has granted us a perpetual non-royalty bearing license to use
its GaAs HBT process to design and manufacture products for commercial wireless
applications. In November 1999, we expanded our license with TRW to cover
certain wired applications. Our GaAs HBT power amplifiers and small signal
devices have been designed into advanced subscriber equipment made by leading
original equipment manufacturers, or OEMs, such as Nokia Mobile Phones Ltd., LG
Information and Communications, Ltd., Hyundai Electronics Industries Co. Ltd.,
Samsung Electronics Co., Ltd., and Motorola, Inc. Through a delivery strategy
called Optimum Technology Matching(R), we also offer silicon, silicon germanium,
and GaAs MESFET components to complement our GaAs HBT products. Optimum
Technology Matching(R) allows us to offer RFIC solutions, on a
component-by-component basis, that best fulfill OEMs' performance, cost and
time-to-market requirements.

RESULTS OF OPERATIONS

The following table sets forth our consolidated statement of operations
data expressed as a percentage of total revenues for the periods indicated:

Revenues...................................... 100.0% 100.0% 100.0% 100.0%
Operating costs and expenses:
Cost of goods sold.......................... 51.3 64.9 53.9 66.7
Research and development.................... 12.4 9.1 11.0 10.1
Marketing and selling....................... 7.4 6.5 6.7 7.7
General and administrative.................. 3.6 2.7 3.2 3.2
----- ----- ----- -----
Total operating costs and
expenses.......................... 74.7 74.8 83.2 87.7
Income from operations........................ 25.3 16.8 25.2 12.3
Other income (expense), net................... 1.1 (.5) 1.5 (.3)
----- ----- ----- -----
Income before income taxes.................... 26.4 16.3 26.7 12.0
Income tax expense............................ (9.3) (2.8) (9.4) (2.0)
----- ----- ----- -----
Net income.................................... 17.2% 13.5% 17.4% 10.0%
===== ===== ===== =====

REVENUES

Revenues increased 76.2% to $73.2 million for the three months ended
December 31, 1999 from $41.5 million for the three months ended December 31,
1998. The increase in revenues during the three months ended December 31, 1999
reflected strong growth in both the GaAs HBT product line (a 73.7% increase over

10
11

the third quarter of fiscal 1999) and the silicon product line (a 123.5%
increase over the third quarter of fiscal 1999). One sales representative firm,
Jittek, accounted for 16.7% of our revenue during the third quarter of fiscal
2000. For the nine-month period ended December 31, 1999, revenues increased
111.8% to $204.1 million from $96.4 million in the same period in fiscal 1999.
This increase was primarily attributable to increased shipments as the result of
our capacity expansion efforts for three-volt HBT power amplifiers and small
signal devices to be used in a variety of applications.

International shipments accounted for $41.6 million, or 56.8% of revenues,
for the three months ended December 31, 1999, compared to $27.0 million, or
65.0%, for the three months ended December 31, 1998. Sales to South Korean
customers totaled $12.3 million, or 16.9% of revenues for the third quarter of
fiscal 2000, compared to $12.2 million, or 29.4% of revenues, for the quarter
ended December 31, 1998, and $15.1 million, or 22% of revenues for the three
months ended September 30, 1999. Although we experienced a small year-to-year
increase in sales to South Korean customers in our third quarter, our shipments
in this market decreased from the previous quarter and this market remains
unstable.

GROSS PROFIT

Our gross profit margin was 48.7% for the three months ended December 31,
1999 compared to 35.1% for the three months ended December 31, 1998. For the
nine-months ended December 31, 1999, our gross profit margin increased to 46.1%
compared to 33.3% for the nine months ended December 31, 1998. The increase in
our gross profit margin during both periods is primarily attributable to an
increase in the percentage of revenues derived from lower cost output from our
GaAs HBT wafer fabrication facility and lower costs on purchased wafers under
supply agreements providing for annual price reductions.

We have historically experienced significant fluctuations in gross profit
margins. In certain cases, we believe that our gross profit margins have been
significantly affected by low manufacturing, assembly and test yields, and there
can be no assurance that future operating results will not be similarly
affected. We currently expect our gross profit margins to continue to improve as
an increasing percentage of our GaAs HBT products are fabricated at our wafer
fabrication facility, where production costs per wafer are anticipated to be
lower; however, there can be no assurance that this will be the case. Further,
we sell products in intensely competitive markets, and we believe that downward
pressure on average selling prices will continue to occur in the future.

RESEARCH AND DEVELOPMENT

Research and development expenses for the three months ended December 31,
1999 increased 140.1% to $9.1 million, compared to $3.8 million for the three
months ended December 31, 1998. For the nine months ended December 31, 1999,
research and development expenses increased 129.8% to $22.5 million, compared to
$9.8 million for the nine months ended December 31, 1998. These increases were
primarily attributable to increased salaries and benefits, recruiting expenses
related to increased headcount, increased software expenses related to software
used in the development and design of standard and custom products, and spending
increases for development wafers and mask sets. Research and development
expenses as a percentage of total revenues increased to 12.4% for the three
months ended December 31, 1999 from 9.1% for the three months ended December 31,
1998. For the nine-month period ended December 31, 1999, research and
development expenses as a percent of revenue increased to 11.0% from 10.1% for
the nine months ended December 31, 1998. We plan to continue to make substantial
investments in research and development and expect that such expenses will
continue to increase in absolute dollar amounts in future periods.

MARKETING AND SELLING

Marketing and selling expenses for the three months ended December 31, 1999
were $5.4 million, compared to $2.7 million for the three months ended December
31, 1998, an increase of 100.0%. For the nine months ended December 31, 1999,
marketing and selling expenses increased 85.2% to $13.7 million, compared to
$7.4 million for the nine months ended December 31, 1998. These increases were
primarily attributable to increased salaries and benefits related to increased
headcount and to increases in commission expense. Marketing and selling expenses
as a percentage of revenue for the three months ended December 31, 1999

11
12

increased to 7.4% from 6.5% for the three months ended December 31, 1998. For
the nine-month period ended December 31, 1999, marketing and sales expenses as a
percentage of revenue declined to 6.7% from 7.7% for the nine months ended
December 31, 1998. We plan to continue to make substantial investments in
marketing and selling and expect that such expenses will continue to increase in
absolute dollar amounts in future periods.

GENERAL AND ADMINISTRATIVE

General and administrative expenses for the three months ended December 31,
1999 were $2.7 million compared to $1.1 million for the three months ended
December 31, 1998, an increase of 135.2%. For the nine months ended December 31,
1999, general and administrative expenses increased 110.6% to $6.6 million,
compared to $3.1 million for the nine months ended December 31, 1998. These
increases were attributable primarily to increased salaries and benefits related
to headcount increases, increased outside legal and accounting expenses, and
consulting costs associated with our SAP implementation. General and
administrative expenses as a percentage of revenues increase to 3.6% from 2.7%
for the three months ended December 31, 1999 as compared to the three months
ended December 31, 1998. For the nine-month period ended December 31, 1999,
general and administrative expenses as a percent of revenue remained at 3.2% as
compared to the nine months ended December 31, 1998.

OTHER INCOME (EXPENSE), NET

Other income (expense), net, for the three months ended December 31, 1999
reflected net income of $835,000 compared to net expense of $226,000 for the
three months ended December 31, 1998. For the nine months ended December 31,
1999 other income (expense), net, reflected net income of $3.1 million compared
to net expense of $253,000 for the nine months ended December 31, 1998. The
increase in other income during these periods is attributable to increased
interest income resulting from the investment of the proceeds of our secondary
stock offering completed in January 1999.

INCOME TAX EXPENSE

Our effective tax rate was 35% for the three-month period ended December
31, 1999. Our effective rate is less than the combined federal and state
statutory rate of approximately 40% due to the reduction of the valuation
allowance on the deferred tax assets. Income tax expense for the three months
ended December 31, 1999 was approximately $6.8 million as compared to $1.1
million for the corresponding period ended December 31, 1998 when the effective
rate was 17.0%. Income tax expense for the nine months ended December 31, 1999
was approximately $19.1 million with an effective rate of 35% as compared to
$2.0 million for the corresponding period ended December 31, 1998, when the
effective rate was 17.0%.

LIQUIDITY AND CAPITAL RESOURCES

We have funded our operations to date through sales of equity and debt
securities, bank borrowings, capital equipment leases and revenues from product
sales. We completed our initial public offering in September 1997, and raised
approximately $37.6 million, net of offering expenses. In January 1999, we
completed a secondary public offering and raised approximately $133.4 million,
net of offering expenses. As of December 31, 1999, we had working capital of
approximately $121.2 million, including $30.4 million in cash and cash
equivalents. Operating activities generated $20.1 million in cash for the
nine-month period ended December 31, 1999. This was primarily attributable to
net income of $35.5 million, an increase in accounts payable of $5.9 million,
and an increase in taxes payable of $3.2 million partially offset by increases
in accounts receivable of $23.1 million, and inventories of $12.7 million,. Cash
provided by operating activities for the nine months ended December 31, 1998 was
$7.4 million. The cash provided by operating activities during this period was
primarily attributable to an increase in accounts payable and accrued
liabilities of $7.1 million, increases in taxes payable of $2.0 million, and net
income of $9.6 million. These increases were partially offset by increases in
accounts receivable of $7.3 million and inventories of $6.1 million.

12
13

The $133.1 million of cash used by investing activities for the nine months
ended December 31, 1999 was substantially related to the purchase of $40.0
million of capital equipment, primarily for use in our wafer fabrication
facility, $28.6 million for the construction and outfitting of our new facility
housing molecular beam epitaxy (MBE) wafer fabrication equipment, $13.0 million
capitalized for the construction of our new corporate headquarters, $48.3
million for the purchase of short-term investments, $1.7 million capitalized as
the result of our SAP implementation and $1.5 million to access silicon
germanium fabrication technology from IBM. The $13.6 million of cash used by
investing activities for the nine months ended December 31, 1998 was primarily
related to expenditures associated with the construction of our first GaAs HBT
wafer fabrication facility and general corporate capital equipment requirements.

The $4.2 million of cash used by financing activities for the nine-month
period ended December 31, 1999 related primarily to the repayment of capital
lease obligations and increases in restricted cash associated with the financing
of our new wafer fabrication facility. The $3.4 million of cash provided by
financing activities for the nine-month period ended December 31, 1998 related
primarily to the receipt of $10.0 million of proceeds from the exercise by TRW
of a warrant covering 4,000,000 shares of common stock, partially offset by $2.8
million in repayment of capital lease obligations and an increase in cash
restricted as part of the lease terms for our wafer fabrication facility.

At December 31, 1999, we had total long-term capital commitments of $24.2
million, with $12.5 million relating to expansion of our first wafer fabrication
facility and $11.7 million for general corporate requirements. The $12.5 million
in long-term capital commitments relating to the wafer fabrication facility
represents continued investment in the second phase expansion, as well as a
portion of an expected additional $48.3 million investment to increase further
wafer fabrication capacity that consisted of moving our MBE wafer starting
equipment out of the facility to a new leased location, reconfiguring the space
currently occupied by this equipment with additional wafer production equipment
and hiring additional production personnel. We completed the move of our MBE
equipment in October 1999 and are now producing MBE wafers from our new
facility. We believe this additional investment in wafer fabrication capacity,
which is expected to be completed by mid-2000, will bring our total wafer
production capacity to approximately 50,000 wafers per year. We expect to fund
this investment through a combination of existing cash on hand and capital
leases.

During the quarter ended September 30, 1999, we began construction of a
second wafer fabrication facility. The full capacity output of the first phase
of this facility is anticipated to be the equivalent of approximately 60,000
four-inch wafers and is projected to be completed and begin commencement of
production wafers in late 2000. Construction for the first phase is currently on
schedule. An anticipated second phase of construction, which is expected to be
completed near the end of 2001, would increase the facility's total output to
the equivalent of 210,000 four-inch wafers per year. The projected cost for this
facility is approximately $110 million for the first phase and $140 million for
the second phase. The funding for the first phase will come primarily from a
synthetic lease arrangement that we entered into on August 13, 1999, as modified
effective December 31, 1999. A synthetic lease is an asset-based financing
structured to be treated as an operating lease for accounting purposes, and a
capital lease for tax purposes. At the end of the third quarter of fiscal year
2000, the synthetic lease transaction was largely secured by cash collateral.
The modification effective December 31, 1999 resulted in the release of the cash
collateral and the synthetic lease is now secured by substantially all of the
personal property assets of the company. The lease has a term expiring November
3, 2004. At the end of the term, the lease can be extended upon the agreement of
the parties or we may buy out the lease. The interest rates or yield rates
embedded in the lease (and used to calculate lease payments) are either

13
14

a rate of interest determined under the lease documents by reference to
one or more sources for the London interbank offered rate or LIBOR. The
ABR Rate is a rate of interest determined under the lease documents
equal to the greater of (a) the prime lending rate of the primary lender
or its successor (as determined under the lease documents) or (b) the
federal funds effective rate (as determined under the lease documents)
plus 0.5%.

Additionally, state and local governments have awarded us a series of
incentives in the form of property tax abatements in connection with our
investment in wafer fabrication and other facilities that approximate $5.5
million payable over a one- to four-year period. We expect to use these
incentives to offset infrastructure and other capital costs associated with our
expansion activities.

During the quarter ended December 31, 1999, we began construction of an
integrated RFIC test facility. The purpose of this facility is to ensure that we
have adequate capacity to test all the products we sell. This facility will be
completed in phases as the need for capacity arises due to increases in
production of our products. The projected cost for the initial phase of this
project is expected to be approximately $7.5 million in upfit costs of a leased
facility and $13.0 million in equipment. The upfit of the leased facility is
currently expected to be complete by the end of the second quarter of fiscal
year 2001. The equipment will be added over time as the need for test capacity
develops and the expenditure of the $13.0 million is currently expected to be
completed by middle of fiscal year 2002. If we add more capacity to this
facility we will purchase additional test equipment, but we currently have no
definitive plans to do so. We expect to fund this investment through a
combination of cash on hand and under capital leases.

We currently have eight capital lease facilities with four equipment
financing companies under which we have financed the cost of capital equipment
and leasehold improvements associated with our first wafer fabrication facility.
We have financed an aggregate of $23.4 million of leased property under these
facilities. Lease terms range from 36 months to 60 months with effective
interest factors ranging from 8.6% to 11.1%. At December 31, 1999, the minimum
future lease payments under these leases (excluding interest) were $13.8
million.

In November 1999, we expanded our license arrangements with TRW in order to
use this GaAs HBT technology to manufacture products for commercial coaxial and
other non-fiber wire applications. In consideration for this expanded license,
we granted TRW two warrants for the purchase of shares of our common stock. The
first warrant is for 250,000 shares of common stock and is exercisable after
December 31, 2000 and expires on June 30, 2001. The second warrant is for
500,000 shares of common stock and is exercisable after December 31, 2000 and
expires on December 31, 2001, but will become null and void if we fail to
achieve of certain annualized sales milestones. The value of these warrants has
been estimated to be $10.0 million, which represents the cost of our right to
use TRW's technology for these new applications. Accordingly, a related
intangible asset has been recorded on our balance sheet. Amortization of this
intangible asset will commence when we begin shipping products in production
volumes that were developed under this expanded license.

We believe that the aggregate net proceeds from the follow-on public
offering, along with cash generated from operations and new financing
arrangements as described above, will be sufficient to meet our capital
requirements for at least the next 12 months. Nonetheless, we may elect to sell
additional equity securities or to obtain additional credit facilities. 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 to new and existing facilities, technological advances and our
relationships with suppliers and customers. In addition, we may require
increased working capital to accommodate planned growth. In the event that the
funds generated by the follow-on offering, together with existing resources and
cash from operations, are not sufficient to meet our future requirements, we may
seek additional debt or equity financing. There can be no assurance that any
additional equity financing will not be dilutive to the holders of our common
stock. Further, there can be no assurance that additional equity or debt
financing, if required, will be available on acceptable terms or at all.

14
15

YEAR 2000 ISSUES

Prior to January 1, 2000, we evaluated all of our internal software and
current products against Year 2000 concerns. We also completed a project to
upgrade all internal software and to conduct testing on both our information
technology systems and our other equipment and machinery to further ensure that
all aspects of our business would be Year 2000 compliant. These procedures have
not had any material effect on our customers and have not required any material
expenditure or other material diversion of resources.

Prior to January 1, 2000, we also contacted substantially all parties with
which we have material relationships, including TRW and Nokia and our other
material customers and suppliers, to try to determine their Year 2000
preparedness and to analyze the risk to us if they had significant business
interruptions because of Year 2000 noncompliance. Based on this survey, we
concluded that these parties were either substantially Year 2000 compliant or
that any noncompliance would not have a material effect on our operations. To
date, Year 2000 impacts on third parties have not materially affected our
business, financial condition or operations, although we intend to continue to
monitor third-party preparedness throughout the Year 2000 transition period.

As of the date of this filing, February 8, 2000, we have not experienced
any interruptions in our business or operations as a result of Year 2000 issues.
However, disruptions associated with Year 2000 issues may not be readily
apparent and could arise later in the calendar year. We will continue to monitor
these issues closely.

Our total cost related to the Year 2000 issue is approximately $150,000,
which has been included in our information technology expense budget. As of
December 31, 1999, this project was essentially complete, except as noted above.
To date, there have been no material deferments of other information technology
projects resulting from the work taking place on our Year 2000 program.

RISKS AND UNCERTAINTIES

The preceding Management's Discussion and Analysis of Financial Condition
and Results of Operations contains forward-looking statements within the meaning
of Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934 that relate to our future plans, objectives, estimates and
goals. Words such as "expects," "anticipates," "intends," "plans," "believes,"
and "estimates," and variations of such words and similar expressions identify
such forward-looking statements. Our business is subject to numerous risks and
uncertainties, including probable variability in our quarterly operating
results, manufacturing capacity constraints, risks associated with our operation
of our current wafer fabrication facility and the construction of an additional
facility, dependence on a limited number of customers, variability in production
yields, our ability to manage rapid growth, dependence on third parties and
risks associated with doing business in Asia and other areas of the world. These
and other risks and uncertainties, which are described in more detail in our
Annual Report on Form 10-K filed with the Securities and Exchange Commission,
could cause actual results and developments to be materially different from
those expressed or implied by any of these forward-looking statements.

15
16

PART II

OTHER INFORMATION

ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS

On November 15, 1999, we issued two warrants to TRW Inc. in consideration
for the grant by TRW to us of a nonexclusive license to utilize TRW's GaAs HBT
technology to manufacture products for commercial coaxial and other non-fiber
wired communication applications. These warrants have an aggregate value of
$10.0 million, which represents the cost of our right to use TRW's technology
for these new applications.

The first warrant entitles TRW to purchase up to 250,000 shares of our
common stock. It is exercisable at any time after December 31, 2000 and expires
on June 30, 2001. The second warrant entitles TRW to purchase up to 500,000
shares of our common stock. It becomes exercisable at any time after December
31, 2000 and expires December 31, 2001, except that this warrant will not become
exercisable, and will be forfeited, unless we reach a defined annualized sales
target of products through use of our expanded license rights. The exercise
price of both warrants is equal to 75% of the average closing prices of our
common stock during the ten trading days immediately preceding December 31,
2000.

We issued these warrants in reliance on the exemption from registration
provided in Section 4(2) of the Securities Act of 1933, as amended, based on the
sophistication of the purchaser and the nature of this arm's-length negotiated
transaction.

ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits

Exhibit 4.1 -- Warrant No. 99-1, dated November 15, 1999, for the purchase
of up to 250,000 shares of common stock.
Exhibit 4.2 -- Warrant No. 99-2, dated November 15, 1999, for the purchase
of up to 500,000 shares of common stock.*
Exhibit 10.1 -- Lease Agreement, dated November 5, 1999, between Highwoods
Realty Limited Partnership and RF Micro Devices, Inc.
Exhibit 10.2 -- License Agreement, dated November 15, 1999, between TRW Inc.
and RF Micro Devices, Inc.
Exhibit 10.3 -- Cooperation Agreement, dated November 15, 1999, between TRW
Inc. and RF Micro Devices, Inc.
Exhibit 10.4 -- 1997 Key Employees Stock Option Plan of RF Micro Devices,
Inc., as amended.
Exhibit 10.5 -- 1999 Stock Incentive Plan of RF Micro Devices, Inc., as
amended.
Exhibit 10.6 -- Stock Option Agreement, dated October 27, 1998, between RF
Micro Devices, Inc. and Walter H. Wilkinson, Jr., as
amended.
Exhibit 10.7 -- Stock Option Agreement, dated October 27, 1998, between RF
Micro Devices, Inc. and Albert E. Paladino, as amended.
Exhibit 10.8 -- Stock Option Agreement dated October 27, 1998, between RF
Micro Devices, Inc. and Erik H. van der Kaay, as amended.

16
17

Exhibit 10.9 -- Amended, Restated and Replacement Participation Agreement,
dated as of December 31, 1999, among RF Micro Devices, Inc.,
as the Construction Agent and as the Lessee; First Security
Bank, National Association, not individually, except as
expressly stated therein, but solely as the Owner Trustee
under the RFMD Real Estate Trust 1999-1; the Various Banks
and Other Lending Institutions Which Are Parties Thereto
from Time to Time, as the Holders; the Various Banks and
Other Lending Institutions Which Are Parties Thereto from
Time to Time, as the Lenders; and First Union National Bank,
as the Agent for the Lenders and respecting the Security
Documents, as the Agent for the Lenders and the Holders, to
the extent of their interests.
Exhibit 10.10 -- Amended, Restated and Replacement Lease Agreement, dated as
of December 31, 1999, between First Security Bank, National
Association, not individually, but solely as the Owner
Trustee under the RFMD Real Estate Trust 1999-1, as Lessor,
and RF Micro Devices, Inc., as Lessee.
Exhibit 10.11 -- Amended, Restated and Replacement Credit Agreement, dated as
of December 31, 1999, among First Security Bank, National
Association, not individually, except as expressly stated
therein, but solely as the Owner Trustee under the RFMD Real
Estate Trust 1999-1, as the Borrower; the Several Lenders
from Time to Time Parties thereto; and First Union National
Bank, as the Agent.
Exhibit 27.1 -- Financial Data Schedule

- - ---------------

* We have requested that a portion of this exhibit be given confidential
treatment.

(b) Reports on Form 8-K

We did not file any reports on Form 8-K during the three months ended
December 31, 1999.

17
18

SIGNATURES

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

RF Micro Devices, Inc.

/s/ DAVID A. NORBURY
--------------------------------------
David A. Norbury
President and Chief Executive Officer
(Principal Executive Officer)

Dated: February 8, 2000
/s/ WILLIAM A. PRIDDY, JR.
--------------------------------------
William A. Priddy, Jr.
Vice President, Finance and
Administration
and Chief Financial Officer
(Principal Financial and Accounting
Officer)

Dated: February 8, 2000