i10k.htm


 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 

FORM 10-K

(Mark One)
 
/x/
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the fiscal year ended April 3, 2011
 
OR
 
/ /
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from                             to                             .
 
Commission File No. 0-12695

INTEGRATED DEVICE TECHNOLOGY, INC.
(Exact Name of Registrant as Specified in Its Charter)

DELAWARE
(State or Other Jurisdiction of Incorporation or Organization)
94-2669985
(I.R.S. Employer Identification No.)
6024 SILVER CREEK VALLEY ROAD, SAN JOSE, CALIFORNIA
(Address of Principal Executive Offices)
95138
(Zip Code)

 
Registrant's Telephone Number, Including Area Code: (408) 284-8200

 
Securities registered pursuant to Section 12(b) of the Act:

 
Title of each class
Name of each exchange on which registered
Common stock, $.001 par value
The NASDAQ Stock Market LLC
 
Securities registered pursuant to Section 12(g) of the Act:  None

 
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.   Yes x No o
 
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act.    Yes o No x
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 o
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes x No ¨
 
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.¨
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definition of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
 
x  Large accelerated filer                            ¨  Accelerated filer                            ¨  Non-accelerated filer               ¨ Smaller reporting company

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) Yes o No x
 
The aggregate market value of the voting and non-voting common equity held by non-affiliates was approximately $671 million, computed by reference to the last sales price of $5.70 as reported by The NASDAQ Stock Market LLC, as of the last business day of the registrant’s most recently completed second fiscal quarter, September 26, 2010. Shares of common stock held by each executive officer and director and by each person who owns 5% or more of the outstanding common stock have been excluded in that such persons may be deemed affiliates.  This determination of affiliate status is not necessarily a conclusive determination for other purposes.
 
The number of outstanding shares of the registrant's Common Stock, $.001 par value, as of April 29, 2011 was approximately 148,173,243.
 
DOCUMENTS INCORPORATED BY REFERENCE
 
Items 10, 11, 12, 13, and 14 of Part III incorporate information by reference from the registrant’s Proxy Statement for the 2011 Annual Meeting of Stockholders.



INTEGRATED DEVICE TECHNOLOGY, INC.

ANNUAL REPORT ON FORM 10-K
 
TABLE OF CONTENTS
       
Item 1
    3  
Item 1A.
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Item 1B.
    19  
Item 2.
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Item 3.
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Item 4.
    19  
           
         
Item 5.
    20  
Item 6.
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Item 7.
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Item 7A.
    35  
Item 8.
    37  
Item 9.
    76  
Item 9A.
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Item 9B.
    77  
           
         
Item 10.
    77  
Item 11.
    79  
Item 12.
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Item 13.
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Item 14.
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Item 15.
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      83  



PART I

Special Note Regarding Forward-Looking Statements

We have made statements in this Annual Report on Form 10-K in Part I, Item 1-“Business”, Item 1A-“Risk Factors”, Item 3-“Legal Proceedings”, Part II, Item 7-“Management’s Discussion and Analysis of Financial Condition and Results of Operations” and in other sections of this Annual Report that are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).  These statements relate to future events and the future results of Integrated Device Technology, Inc. and are based on current expectations, estimates, forecasts and projections about the industry in which we operate and the beliefs and assumptions of our management.  In addition, in this Annual Report on Form 10-K, the words “expects,” “anticipates,” ”targets,” “goals,” “projects,” “intends,” “plans, “believes,” “seeks, “estimates, “will,” “would,” “could,” “might”, and variations of such words and similar expressions, as they relate to us, our business and our management, are intended to identify such forward-looking statements.  Forward-looking statements should not be read as a guarantee of future performance or results, and will not necessarily be accurate indications of the times at, or by, which such performance or results will be achieved.  Forward-looking statements are based on information available at the time those statements are made and/or management’s good faith belief as of that time with respect to future events, and are subject to risks and uncertainties that could cause actual performance or results to differ materially from those expressed in or suggested by the forward-looking statements.  Factors that might cause or contribute to such differences include, but are not limited to, those discussed in this Annual Report under the section entitled “Risk Factors” under Part I, Item 1A and elsewhere in this Annual Report, and in other reports we file with the Securities and Exchange Commission (SEC), including our most recent quarterly reports on Form 10-Q.

Forward-looking statements speak only as of the date the statements are made.  You should not put undue reliance on any forward-looking statements.  We assume no obligation to update forward-looking statements to reflect actual results, changes in assumptions or changes in other factors affecting forward-looking information, except to the extent required by applicable securities laws.  If we do update one or more forward-looking statements, no inference should be drawn that we will make additional updates with respect to those or other forward-looking statements.

ITEM 1. BUSINESS

We design, develop, manufacture and market a broad range of low-power, high-performance mixed signal semiconductor solutions for the advanced communications, computing and consumer industries. Currently, we offer communications solutions for customers within the enterprise, data center and wireless markets. Our computing products are designed specifically for desktop, notebook, sub-notebook, storage and server applications, optimized gaming consoles, set-top boxes, digital TV and smart phones for consumer-based clients. Ultimately, we envision equipping every digital system with an interface based on our silicon.

Our top talent and technology paired with an innovative product-development philosophy focused on digital media allow us to streamline a customer’s overall experience with digital media. Through system-level analog and digital innovation, we consistently deliver extraordinary value to our customers’ applications.

On a worldwide basis, we primarily market our products to original equipment manufacturers (OEMs) through a variety of channels, including direct sales, distributors, electronic manufacturing suppliers (EMS’s) and independent sales representatives.

We seek to differentiate our products from our competitors’ products through the following capabilities:
 
·  
Focus on market leadership in timing, serial switching and memory interfaces and substantiate the foundation by adding new technologies, including analog, power management and systems expertise;

·  
Investments in applications expertise, system-level knowledge and whole product solution elements that solve difficult technology challenges for our customers and enable them to reduce their overall bill-of-materials (BOM), increase system performance and lower power consumption while accelerating their time-to-market;

·  
Application of our diverse skill, expertise and technology to help our customers achieve maximum benefit from evolving technology standards relevant in the market;

·  
Dependability and reliability of an experienced, high-volume vendor with a long-term view;


·  
Combination of our digital design silicon heritage and the latest in analog, mixed-signal capabilities to provide highly integrated Application Specific Standard Products (ASSPs); and

·  
Customizable model and design services to offer user-configured, application-optimized, quick turn benefits to our customers.
 
IDT was incorporated in California in 1980 and reincorporated in Delaware in 1987. The terms “the Company,” “IDT,” “our,” “us” and “we” refer to Integrated Device Technology, Inc. and its consolidated subsidiaries, where applicable.

 
Available Information

We electronically file our annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K pursuant to Section 13(a) or 15(d) of the Exchange Act with the SEC. The public may read or copy any materials we file with the SEC at the SEC’s Public Reference Room at 100 F Street, NE, Washington, DC 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains an Internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC. The address of that site is http://www.sec.gov.   You may obtain a free copy of our annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K and amendments to those reports filed with or furnished to the SEC on our website on the World Wide Web at http://www.IDT.com, by contacting the Investor Relations Department at our corporate offices by calling (408) 284-8200 or by sending an e-mail message to ir@IDT.com.

Products and Markets

We offer a broad portfolio of essential semiconductor solutions, including integrated circuits (ICs) that allow digital media to be synchronized, processed and delivered in current and next-generation communications, computing and consumer applications. Among these, we develop solutions that connect digital systems such as processors and memories to the analog world with sight, sound and touch. To accomplish this, our solutions require analog and digital as well as systems expertise. We have successfully expanded our product portfolios in four target applications – wireless infrastructure, servers, displays and mobile devices.

Fiscal year 2011 was a critical year for us, as we successfully transitioned into an analog and digital company and enhanced our market leadership capabilities in the timing, serial switching and memory interface markets. We continued to emphasize our growth strategy: defending and growing our core businesses while expanding our content in customers’ systems with new analog-intensive mixed signal solutions to achieve higher growth rates.

We measure our business based on two reportable segments: the Communications segment and the Computing and Consumer segment. In fiscal 2011, the Communications segment and the Computing and Consumer segment accounted for approximately 47% and 53%, respectively, of our total revenues of $625.7 million. In fiscal 2010, the Communications segment and the Computing and Consumer segment accounted for approximately 46% and 54%, respectively, of our total revenues of $535.9 million. In fiscal 2009, these segments accounted for approximately 44% and 56%, respectively, of our total revenues of $663.2 million.  For further information, see “Note 17 - Segments” in Part II, Item 8 of this Form10-K

By leveraging our products and markets, we deliver high value to our customers’ applications through system-level analog and digital innovations.
 
Communications Segment

The Communications segment includes clock and timing solutions, Serial RapidIO® switching solutions, Crystal Oscillator replacements, radio frequency (RF), signal path products, flow-control management devices, first in and first out (FIFOs), integrated communications processors, high-speed static random access memory (SRAM), digital logic and telecommunications products.

Communication Clocks: Created for networking, communications (SONET/SDH), advanced computing (servers and workstations) and enterprise storage (SAN and NAS) applications, our communication clocks include high-performance and high-reliability frequency generation and clock distribution products enabling clock-tree development, clock synthesizers


optimized for Freescale PowerQUICC™ processors, FemtoClock™ ultra-low jitter clock sources, Stratum-compliant jitter attenuation and frequency translation PLLs, surface acoustic wave (SAW) PLL communications modules, voltage-controlled SAW oscillator modules and complementary metal oxide semiconductor (CMOS) crystal oscillator replacements. We are the leading provider of timing solutions, offering a complete portfolio of products for clock generation, distribution, recovery and jitter attenuation to serve numerous computing, consumer and communications applications.

Digital Logic Products: We provide fast CMOS TTL-compatible, low-voltage CMOS and advanced low-voltage CMOS, including a broad range of high-performance, 3.3-volt CMOS logic products. These products are developed for network switches and routers, wireless base stations, storage networks, servers and other applications.

FIFO Memories: We develop products and technologies to help designers solve inter-chip communications problems such as rate matching, data buffering, bus matching and data-priority managing. We provide a large product portfolio with more than 350 synchronous, asynchronous and bi-directional FIFO offerings that address complex issues associated with high-performance networking applications, such as terabit routers, multi-service switching platforms, host bus adaptors and wireless base stations.

Serial RapidIO Solutions: Our family of Serial RapidIO products provides cost-effective, off-the-shelf solutions targeting wireless base station infrastructure applications; specifically baseband processing solutions that utilize digital signal processing (DSP) clusters as well as radio card interface solutions utilizing the Common Public Radio Interface (CPRI™) industry standard. Our RapidIO switch family addresses the needs of switching data between multiple endpoints. These switches are ideal for central switch cards as well as baseband processing cards. The Serial Buffer family of devices provides all the necessary buffering and storage of data at full 10Gb line rates as well as parallel interfaces to enable the use of legacy components over a non-Serial RapidIO interface. The Functional InterConnect (FIC) devices offer low-cost connectivity between Serial RapidIO, CPRI, Time Division Multiplexing (TDM) and parallel interfaces. A “Baseband-on-a-Card” uTCA board with software and Application Programming Interfaces (APIs) enable our customers to significantly improve their time-to-market. These Serial RapidIO solutions are also ideal for other DSP cluster applications, including video imaging, IPTV, medical and military applications.

SRAM Products: With more than two decades of SRAM experience, we produce a broad line of high-speed, industry-standard SRAMs that are used in communications and other markets. We offer a wide range of products from 16-Kbit to 18-Mbit densities in synchronous and asynchronous architectures. We invented Zero Bus Turnaround® (ZBT®) technology, which has become the communications SRAM standard, and co-developed the quad data rate™ architecture (QDR).

RF Products: We provide an industry-first RF product, including the F1200 low-noise digital IF VGA, ideal for commercial radio systems with very high SNR requirements. Its extremely low distortion makes the device very flexible, while the 200 ohm differential input and output impedances allow it to integrate seamlessly into the signal path.

Telecommunications Products: We offer a broad telecommunications semiconductor portfolio, including products for access and transport, TDM switching and voice processing. The IDT SuperJET™ family of J1/E1/T1 transceivers includes the industry’s first monolithic octal density device, designed to address next-generation universal line-card designs in communications applications. In addition, we provide products for multiplexing and a wide selection of time slot interchange switches and programmable voice CODEC devices for high-volume applications.

Computing and Consumer Segment

The Computing and Consumer Segment includes clock generation and distribution products, high-performance server memory interfaces, PCI Express switching solutions, signal integrity products, multi-port products, touch controllers, PC audio, power management solutions and video products.

Audio: Our high-definition (HD) Audio codecs ensure that PCs and notebooks have the best audio fidelity in the market. Our growing portfolio supports from 2 to 10 channels of audio along with advanced technologies, such as integrated digital microphone interface, modem interface, ADAT® optical interface and more. The power optimization, high performance and quality of our HD Audio codecs bring higher fidelity to media center and entertainment PCs. In addition, our graphical user interface (GUI) enables end users to visually experience the IDT brand while simplifying their control of the computer audio subsystem.



Consumer and PC Clocks: Optimized for digital consumer applications, such as video game consoles, set-top boxes (cable, satellite and internet protocol [IP]/digital subscriber line [DSL]), digital TV and DVD recorders, our consumer clocks consist of custom and off-the-shelf solutions. Products include programmable timing devices that address in-system programming and test, clock redundancy and I/O translation. By directly enhancing design flexibility, portability and reliability, these products also reduce inventory and test costs. Our other consumer clocks include zero-delay buffers, clock synthesizers, voltage-controlled crystal oscillators and spread-spectrum clock generators. Our PC clocks offer a unique combination of features and high performance, enabling leading-edge technologies, such as PCI Express (Generation 1 and 2), as well as fully buffered, dual in-line memory modules. In addition, we provide customized clock solutions, offering optimized feature sets to meet the needs of specific motherboards. We offer the industry’s largest portfolio of PC clock products for all generations of motherboards that are manufactured by Intel, Inc., Via Technologies, Inc., Silicon Integrated Systems (SiS) Corporation. and Advanced Micro Devices, Inc.

We are the leading provider of silicon timing solutions, offering a complete portfolio of products for clock generation, distribution, recovery and jitter attenuation to serve numerous computing, consumer and communications applications.

Integrated Communications Processors: Our Interprise™ family of integrated communications processors consists of a range of processors and development tools. In addition, we partner with industry-leading software and hardware vendors to deliver system platforms to communications customers. The devices are based on the MIPS™ instruction set architecture and serve communications market segments, such as Ethernet switches, enterprise gateways and wireless local area networks (LANs), as well as edge and access market areas, including fiber-to-the-home and wireless application protocols (WAPs). Our Interprise processors provide a combination of flexibility, performance and appropriate integration levels that enable customers to get to market quickly with cost-effective, flexible systems.

Memory Interface Products: The broad range of our products for dual in-line memory modules (DIMMs) is a direct result of our significant experience in timing, high-speed serial interface and logic technologies. Our advanced memory buffer devices (AMBs) are a class of products that provide a high-speed, serial, communications interface between the memory controller and modules on the channel of FB-DIMMs for server and workstation applications. We offer register and PLL chipsets to meet the latest memory speed needs of server and workstation devices, including Single Data Rate (SDR), Double Data Rate (DDR), DDR2, and DDR3 memory technology.

Multi-Port Memory Products: We offer a comprehensive portfolio of high-performance multi-port memory products. Our portfolio consists of more than 150 types of asynchronous and synchronous dual-ports, tri-ports, four-ports and bank-switchable dual-ports. These devices are well-suited for wireless infrastructures, networking, storage, wireless handsets, high-speed image processing and multi-core computing, such as supercomputers.
 
Power Management Solutions: We offer the first in an anticipated series of companion power management and timing solutions. The initial solution features a new multiphase power converter paired with new system clock-power console designed to work together to improve system performance and power consumption in consumer and computing applications, such as desktops, notebooks, gaming systems, servers and workstations. With this patented pairing, the new solution from us not only reduces power consumption and lowers bill of materials, but also simplifies board layout and speeds time-to-market.
 
The Power Metering Solutions represent our entry into the smart grid industry with its first family of metering ICs for smart power meters. The Power Metering solutions feature the widest dynamic range in the industry as well as high accuracy, helping improve the performance of smart meters.

The Intelligent System Power Solutions device represents the industry’s first embedded mixed-signal platform solution and incorporates a microcontroller, power management, audio and other key functions into a single component. The new P95020 is a single-chip solution that provides intelligent system power management to help improve battery life in today’s portable electronic devices.
 
Signal Integrity Products: Computing and storage applications face increasing signal integrity challenges as data rates continuously rise. The high speed I/O used in today’s systems make cost-effective and reliable PCB design complicated. Our signal integrity products condition signals and help alleviate constraints in computing, storage and communications applications.



Switching Solutions: Our family of PCI Express switching solutions is aimed at high-performance server, storage, embedded and communications applications. Moreover, we offer customers a complete integrated hardware/software development kit that includes evaluation boards, software drivers and a graphical user interface that enables complete system configuration and optimization. Our PCIe Gen1 and Gen2 devices are optimized for I/O expansion system interconnects and inter-domain communications.
 
Touch Controllers: Increasingly, touch technology is being used in consumer electronics and durable goods to create sleek, streamlined products. The latest mobile phone and media player designs feature capacitive touch, differentiating them from standard offerings with mechanical buttons. In consumer durables, such as washing machines and refrigerators, touch interfaces are implemented not only for visual appeal, but also for enhanced reliability in kitchen and laundry environments where heat, moisture and dust present challenges for traditional input techniques. We offer compelling touch solutions based on a strategy of integration, reliability and power efficiency.
 
Video: We offer advanced mixed-signal video interfaces based on the DisplayPort® standard. Our PanelPort™ timing controller and receiver devices are based on the DisplayPort standard, which is replacing legacy parallel interfaces external to PCs and internal to digital televisions. Additionally, we provide high performance mixed-signal interface products that complement our consumer timing products. Products include low voltage differential signaling (LVDS) display interface chips, high definition media interface (HDMI) receiver chips and triple-ADC (analog-to-digital converter) video samplers. We also offer Hollywood Quality Video™ HQV™ video processing through our Reon™ and Vida™ families of video processors.

Acquisition

On April 16, 2010, we acquired certain assets of IKOR, a former subsidiary of iWatt Corporation.  IKOR designed and manufactured power voltage regulator module (VRM) solutions for high-performance computing. The total purchase price was $7.7 million. IKOR’s patented coupled inductor technology complements our growing power management initiative and uniquely positions us to serve the high-performance power management demands of the enterprise computing segmentFor further information, please see “Note 3 - Business Combinations” in Part II, Item 8 of this Annual Report on Form 10-K.
Sales Channels

We sell our semiconductor products through three channels: direct sales to OEMs and EMSs, consignment sales to OEMs and EMSs, and sales through distributors.  Direct sales are managed mainly through our internal sales force and independent sales representatives.  Revenue is recognized on direct sales based on the relevant shipping terms.  During fiscal 2011, direct sales accounted for approximately 26% of our total worldwide revenues.

Consignment sales relate to areas where we have established hubs at or near key customers to allow them quick access to our products.  We retain ownership of the product at consignment locations until the product is pulled by the customer.  Consignment sales are managed by our internal sales team and accounted for approximately 6% of our total worldwide revenues in fiscal 2011.

The majority of our worldwide sales are through distributors.  Our distributors within the U.S. and Europe have rights to price protection, ship from stock pricing credits and stock rotation.  Due to the uncertainty of the amount of the credits related to these programs, revenue is not recognized until the product has been sold by the distributor to an end customer.  Within the Asia Pacific (“APAC”) region and Japan, distributors have limited stock rotation and little or no price protection rights.   Revenue is recognized upon shipment to these distributors as we are able to reasonably estimate the amount of pricing adjustments and stock rotation returns.  Revenue recognized on a sell through basis through distribution represented approximately 17% of our total worldwide revenues in fiscal 2011, while revenue through distribution recognized upon shipment represented 51% of our total worldwide revenues in the same period.

One family of distributors, Maxtek and its affiliates, represented approximately 19%, 21% and 21% of our total revenues in fiscal 2011, 2010 and 2009, respectively.  Another distributor, Avnet, represented approximately 13%, 11% and 10% of our total revenues in fiscal 2011, 2010 and 2009, respectively.  No single direct or consignment customer represented 10% or more of our total revenues in fiscal 2011, 2010 or 2009.


During fiscal 2011, sales within the Americas, Europe, APAC, and Japan represented approximately 15%, 10%, 64% and 11%, respectively, of our total revenues.   Additional details regarding revenues are included in the Consolidated Financial Statements and Notes to the Consolidated Financial Statements. Please see “Note 17 - Segments” in Part II, Item 8 of this Annual Report.

Customers

We market our products on a worldwide basis, primarily to OEMs, who in turn, incorporate our products into the customers’ products marketed under their brands. We work closely with our OEM customers to design and integrate current and next generation products to meet the requirements of end users.  Many of our end customer OEMs have outsourced their manufacturing to a concentrated group of global EMSs and original design manufacturers (ODMs), who then buy product directly from us or through our distributors on behalf of the OEM. These EMSs and ODMs have achieved greater autonomy in design win, product qualification and product purchasing decisions, especially for commodity products.  No direct OEM customer accounted for 10% or more of our total revenues in fiscal 2011, 2010 or 2009. However, when sales through all channels are considered, we estimate that end-customer sales to Cisco Systems, Inc. and/or its wholly-owned subsidiaries represented approximately 12% our revenues in fiscal 2009. No customer accounted for 10% or more of our total revenues in fiscal 2011 or 2010.

Government Contracts

The Company may from time-to-time derive revenue from contracts and subcontracts with agencies of, or prime or secondary contractors to, the U.S. government, including U.S. military agencies.  Consequently, we are subject to certain business risks that are particular to companies that contract with U.S. government agencies.  These risks include the ability of the U.S. government or related contractors to unilaterally:

·  
Terminate contracts at its convenience;
·  
Terminate, modify or reduce the value of existing contracts, if budgetary constraints or needs change;
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Cancel multi-year contracts and related orders, if funds become unavailable;
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Adjust contract costs and fees on the basis of audits performed by U.S. government agencies;
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Control and potentially prohibit the export of our products;
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Require that the company continue to supply products despite the expiration of a contract under certain circumstances;
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Require that the company fill certain types of rated orders for the U.S. government prior to filling any orders for other customers; and
·  
Suspend us from receiving new contracts pending resolution of any alleged violations of procurement laws or regulations.
 
In addition, because we may enter into defense industry contracts with respect to products that are sold both within and outside of the United States, we are subject to the following additional risks in connection with government contracts:

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The need to bid on programs prior to completing the necessary design, which may result in unforeseen technological difficulties, delays and/or cost overruns;
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The difficulty in forecasting long-term costs and schedules and the potential obsolescence of products related to long-term fixed price contracts; and
·  
The need to transfer and obtain security clearances and export licenses, as appropriate.

The revenue from, and activity with, contracts and subcontracts with agencies of, or prime contractors to, the U.S. government, has declined subsequent to the disposition of our military business to Spectrum Control, Inc. in fiscal 2010.  For further information, please see “Note 4 - Divestitures” in Part II, Item 8 of this Annual Report on Form 10-K.

Manufacturing

In fiscal 2011, we manufactured wafers at our Oregon wafer fabrication facility which produces 200mm (8-inch) wafers ranging from 0.6-micron to 0.12-micron process technologies. For wafers which require more advanced manufacturing processes, we use third-party foundries that are primarily located in the APAC region.  In connection with our plan to transition the manufacture of products to Taiwan Semiconductor Manufacturing Limited


("TSMC"), we made a decision to exit wafer production operations at our Oregon fabrication facility.  We expect to complete the transition to TSMC in the fourth quarter of fiscal 2012. In fiscal 2011, we assembled or packaged products at several different subcontractors in the APAC region.  Utilizing several different subcontractors located in different countries enables us to negotiate lower prices and limits the risk associated with production concentration in one country or company.  The criteria used to select assembly subcontractors include, but are not limited to cost, quality, delivery, and subcontractor financial stability.

At the beginning of fiscal 2011, we discontinued our test operations in our Singapore facility and consolidated with our test operations in to our facility in Malaysia. As a result, in fiscal 2011, we performed the vast majority of test operations at the company-owned test facility located in Malaysia.  A relatively small amount of test operations were also performed at third party subcontractors in the APAC region.

Backlog

We offer custom designed products, as well as industry-standard products and ASSPs. Sales are made primarily pursuant to standard purchase orders, which are frequently revised by customers as their requirements change. We have also entered into master purchase agreements, which do not require minimum purchase quantities, with many of our OEM and EMS customers. We schedule product deliveries upon receipt of purchase orders under the related customer agreements. Generally, these purchase orders and customer agreements, especially those for standard products, also allow customers to change the quantities, reschedule delivery dates and cancel purchase orders without significant penalties. In general, orders, especially for industry standard products, are often made with very short lead times and may be canceled, rescheduled, re-priced or otherwise revised prior to shipment. In addition, certain distributor orders are subject to price adjustments both before and after shipment.  For all these reasons, we do not believe that our order backlog is a reliable indicator of future revenues.

Seasonal Trends

Certain of our products are sold in the computing and consumer end markets which generally have followed annual seasonal trends. Historically, sales of products for these end markets have been higher in the second half of the fiscal year than in the first half of the fiscal year as consumer purchases of PCs and gaming systems increase significantly in the second half of the calendar year due to back-to-school and holiday demand.

Research and Development

Our research and development efforts emphasize the development and design of proprietary, differentiated, high-performance, low-power analog and mixed-signal semiconductor products. We believe that a sustained level of investment in research and development is necessary to maintain our competitive position. We operate research and development centers in Irvine, San Jose and Sunnyvale, California; Fort Collins, Colorado; Tempe and Tucson, Arizona; Atlanta, Georgia; Austin, Texas; Basking Ridge, New Jersey; Andover, Marlborough and Watertown, Massachusetts; Ann Arbor, Michigan; Montreal, Ottawa and Toronto, Canada and Shanghai, China. Research and development expenses, as a percentage of revenues, were approximately 28%, 29% and 24% in fiscal 2011, 2010 and 2009, respectively.

Our product development activities are focused on the design of integrated circuits that provide differentiated features and enhanced performance primarily for communications, computing and consumer applications.

Competition

The semiconductor industry is characterized by rapid technological advances, cyclical market patterns, erosion of product sale prices and evolving industry standards. Many of our competitors have substantially greater technical, marketing, manufacturing or financial resources than we do. In addition, several foreign competitors receive financial assistance from their governments, which could give them a competitive advantage. We compete in different product areas to varying degrees on the basis of technical innovation and product performance, as well as product quality, availability and price.

Our competitive strategy is to use our applications expertise to develop a deep understanding of customers’ systems and to use our unique combination of analog and digital technologies to develop complete product portfolios that solve our customers’


whole problem.  We differentiate our products through innovative configurations, proprietary features, high performance, and breadth of offerings. Our ability to compete successfully and to expand our business will depend on a number of factors, including but not limited to:

§  
Performance, feature, quality and price of our products;
§  
Timing and success of new product introductions by us, our customers and our competitors;
§  
Quality of technical service and support and brand awareness;
§  
Cost effectiveness of our design, development, manufacturing and marketing efforts; and
§  
Global economic condition.

We compete with product offerings from numerous companies, including LSI, Conexant Systems, Cypress Semiconductor, Exar, Freescale Semiconductor, Infineon Technologies, Integrated Silicon Solutions, Intel, Maxim Integrated Products, NEC, Parade Technologies, Pericom Semiconductor, Philips Electronics, PLX Technology, Realtek Semiconductor, Samsung Electronics, STMicroelectronics, Texas Instruments, Toshiba, Analog Devices, Inphi, Silicon Laboratories, Montage, Diablo and Zarlink Semiconductor.

Intellectual Property and Licensing

We rely primarily on our patents, trade secrets, contractual provisions, licenses, copyrights, trademarks, and other proprietary rights mechanisms to protect our intellectual property.  We believe that our intellectual property is a key corporate asset, and we continue to invest in intellectual property protection. We also intend to continue our efforts to increase the breadth of our patent portfolio. There can be no assurance that any patents issued to us will not be challenged, invalidated or circumvented, that the rights granted thereunder will provide competitive advantages to us or that our efforts to protect our intellectual property rights will be successful.

In recent years, there has been a growing trend of companies resorting to litigation to protect their semiconductor technology from unauthorized use by others. We are, and have been involved in patent litigation, which has adversely impacted our operating results. Although we have obtained patent licenses from certain semiconductor manufacturers, we do not have licenses from a number of semiconductor manufacturers with broad patent portfolios.  While we are not knowingly infringing on any of their patents, these semiconductor manufacturers may resort to litigation or other means in an effort to find infringements and force us to obtain licenses to their patents.  Our success will depend in part on our ability to obtain necessary intellectual property rights and protect our intellectual property rights.  While we have filed patent applications, we cannot be certain that these applications will issue into patents or that we will be able to obtain the patent coverage and other intellectual property rights necessary to protect our technology.  Further, we cannot be certain that once granted, the intellectual property rights covered by such patents will not be challenged by other parties.

Environmental Regulation

We are committed to protecting the environment and the health and safety of our employees, customers and the public.  We endeavor to adhere to the most stringent standards across all of our facilities, to encourage pollution prevention and to strive towards continual improvement.  As an integral part of our total quality management system, we strive to exceed compliance with regulatory standards in order to achieve a standard of excellence in environmental, health and safety management practices.

Our manufacturing facilities are subject to numerous environmental laws and regulations, particularly with respect to the storage, handling, use, discharge and disposal of certain chemicals, gases and other substances used or produced in the semiconductor manufacturing process.  Compliance with these laws and regulations has not had a material impact on our capital expenditures, earnings, financial condition or competitive position.  Although we believe that we are fully compliant with all applicable environmental laws and regulations there can be no assurance that current or future environmental laws and regulations will not impose costly requirements upon us.  Any failure by us to comply with applicable environmental laws and regulations could result in fines, suspension of production, alteration of fabrication processes and legal liability.

Employees

As of April 3, 2011, we had approximately 2,053 employees worldwide, with approximately 1,063 employees located in the United States.  Our future success depends in part on our ability to attract and retain qualified personnel, particularly engineers, who are often in great demand. We have implemented policies enabling our employees to share in our success, including stock


option, restricted stock unit, stock purchase and incentive bonus plans. We have never had a work stoppage related to labor issues.  None of our employees are currently represented by a collective bargaining agreement, and we consider our relationship with our employees to be good.

ITEM 1A.  RISK FACTORS

Investing in our common stock involves a high degree of risk. You should carefully consider the risks and uncertainties described below and all information contained in this report before you decide to purchase our common stock. If any of the possible adverse events described below actually occurs, we may be unable to conduct our business as currently planned and our financial condition and operating results could be harmed. In addition, the trading price of our common stock could decline due to the occurrence of any of these risks, and you may lose all or part of your investment. The risks described below are not the only risks facing us.  Additional risks not currently known to us or that we currently believe are immaterial may also impair our business operations, results, and financial condition.

Our operating results can fluctuate dramatically.  Our operating results have fluctuated in the past and are likely to vary in the future.  For example, we recorded net income of $72.6 million in fiscal 2011 and $40.0 million in fiscal 2010 and a net loss of $1,045.2 million in fiscal 2009. Fluctuations in operating results can result from a wide variety of factors, including:

·  
Global economic conditions, including those related to the credit markets, may adversely affect our business and results of operations;
·  
Changes in the demand for and mix of products sold and in the markets we and our customers serve;
·  
The cyclicality of the semiconductor industry;
·  
The availability of industry-wide wafer processing capacity;
·  
The availability of industry-wide and package specific assembly subcontract capacity and related raw materials;
·  
Competitive pricing pressures;
·  
The success and timing of new product and process technology announcements and introductions from us or our competitors;
·  
Potential loss of market share among a concentrated group of customers;
·  
Difficulty in attracting and retaining key personnel;
·  
Difficulty in predicting customer product requirements;
·  
Production difficulties and interruptions caused by our complex manufacturing and logistics operations;
·  
Difficulty in managing fixed costs of our manufacturing capability in the face of changes in demand;
·  
Reduced control over our manufacturing and product delivery as a result of our increasing reliance on subcontractors, foundry and other manufacturing services;
·  
Unrealized potential of acquired businesses and resulting assets impairment;
·  
Availability and costs of raw materials from a limited number of suppliers;
·  
Political and economic conditions in various geographic areas;
·  
Reduced customer demand as a result of the impact from natural and/or man-made disasters which may adversely impact our customer’s manufacturing capability or reduce our customer’s ability to acquire critical materials or components to manufacture their end products;
·  
Costs associated with other events, such as intellectual property disputes or other litigation; and
·  
Legislative, tax, accounting, or regulatory changes or changes in their interpretation.

Global economic conditions, including those related to the credit markets, may adversely affect our business and results of operations.

Adverse changes in global financial markets and rapidly deteriorating business conditions in the world’s developed economies in late 2008 and the first half of calendar year 2009 resulted in a significant global economic recession.  Concerns about the impact of high energy costs, geopolitical issues, the availability and cost of credit, the U.S. mortgage market, a declining real estate market in the U.S. and added concerns fueled by federal government interventions in the U.S. financial and credit markets contributed to instability in both U.S. and international capital and credit markets, reduced corporate profits and capital spending, weakened demand and diminished expectations for the U.S. and global economy.  These conditions, and the resulting low business and consumer confidence and high unemployment have contributed to substantial volatility in global capital markets and uncertain demand for our products throughout fiscal 2010 and fiscal 2011.  It is difficult for our customers, our vendors and us to accurately forecast and plan future business activities in this economic environment.


The economic slowdown resulted in reduced customer spending for semiconductors and weakened demand for our products which had a negative impact on our revenue, gross profit, results of operations and cash flows during fiscal 2010.  Although business conditions improved during the second half of fiscal 2010 and throughout fiscal 2011, global credit markets continue to be volatile and continued improvement in global economic activity is uncertain. Although the rate of economic growth in the United States as measured by gross domestic product (GDP) was positive throughout fiscal 2011, order rates from our customers declined in both the quarters ending September 26, 2010 and  January 2, 2011, indicating lower demand for our products.  Should the rate of global economic growth falter, customer demand for our products may continue to decline which is likely to have a negative impact on our revenue, gross profit, results of operations and cash flows.  Reduced customer spending and weakened demand may drive the semiconductor industry to reduce product pricing, which would also have a negative impact on our revenue, gross profit and results of operations and cash flows.  In addition, the semiconductor industry has traditionally been highly cyclical and has often experienced significant downturns in connection with, or in anticipation of, deterioration in general economic conditions and we cannot accurately predict how severe and prolonged any downturn might be.

The cyclicality of the semiconductor industry exacerbates the volatility of our operating results.

The semiconductor industry is highly cyclical. The semiconductor industry has experienced significant downturns, often in connection with product cycles of both semiconductor companies and their customers, but also related to declines in general economic conditions.  These downturns have been characterized by volatile customer demand, high inventory levels and accelerated erosion of average selling prices.  Any future economic downturns could significantly impact our business from one period to the next relative to demand and product pricing.  In addition, the semiconductor industry has experienced periods of increased demand, during which we may experience internal and external manufacturing constraints.  We may experience substantial changes in future operating results due to the cyclical nature of the semiconductor industry.

Demand for our products depends primarily on demand in the communications, enterprise computing, personal computer (PC), and consumer markets which can be significantly impacted by concerns over macroeconomic issues.

Our product portfolio consists predominantly of semiconductor solutions for the communications, computing, and consumer markets.  Our strategy and resources are directed at the development, production and marketing of products for these markets.   The markets for our products will depend on continued and growing demand for communications equipment, servers, PCs and consumer electronics.  These end-user markets may experience changes in demand that could adversely affect our business and could be greater in periods of economic uncertainty and contraction.  To the extent demand or markets for our products or markets for our products do not grow, our business could be adversely affected.

We build most of our products based on estimated demand forecasts.

Demand for our products can change rapidly and without advance notice. Demand can also be affected by changes in our customers’ levels of inventory and differences in the timing and pattern of orders from their end customers.  A large percentage of our revenue in the APAC region is recognized upon shipment to our distributors.  Consequently, we have less visibility over both inventory levels at our distributors and end customer demand for our products.  Further, the distributors have assumed more risk associated with changes in end demand for our products.  Accordingly, significant changes in end demand in the semiconductor business in general, or for our products in particular, may be difficult for us to detect or otherwise measure, which could cause us to incorrectly forecast end-market demand for our products.  If we are not able to accurately forecast end demand for our products, we may be left with large amounts of unsold products, may not be able to fill all actual orders, and may not be able to efficiently utilize our existing manufacturing capacity or make optimal investment and other business decisions. As a result, we may end up with excess and obsolete inventory or we may be unable to meet customer short-term demands, either of which could have an adverse impact on our operating results.
 
On August 6, 2009, we announced a plan to transition the manufacture of products currently produced at our Oregon fabrication facility to TSMC.  In connection with the plan, our management approved a plan to exit wafer production operations at our Oregon fabrication facility.   As a result, in the third quarter of fiscal 2011, we began to build inventory in anticipation of the transition.  Inventory levels are expected to increase through the second quarter of fiscal 2012, and possibly through the third quarter of fiscal 2012, to support the wafer fabrication transition and customer qualification of new foundry manufactured products.  However, if customer demand does not develop as we anticipate, it may become necessary for us to write-off or scrap a portion of the transition inventory which could adversely affect our gross margins and operating results.


If we are unable to execute our business strategy, our revenues and profitability may be adversely affected.

Our future financial performance and success are largely dependent on our ability to execute our business strategy successfully. Our present business strategy to be a leading provider of essential mixed signal semiconductor solutions includes, without limitation, plans to: (1) our ability to continue to aggressively manage, maintain and refine our product portfolio including focus on the development and growth of new applications; (2) our ability to continue to maintain existing customers, aggressively pursue and win new customers; (3) our ability to successfully develop, manufacture and market new products in a timely manner; (4) our ability to develop new products in a more efficient manner ; (5) our ability to sufficiently differentiate and enhance of our products; (5) our ability to successfully deploy R&D investment in the areas of displays, silicon timing, power management, signal integrity and radio frequency; (6) our ability to rationalize our manufacturing operations including the transition to wholly outsourced wafer fabrication operations. 

We cannot assure you that we will successfully implement our business strategy or that implementing our strategy will sustain or improve our results of operations. In particular, we cannot assure you that we will be able to build our position in markets with high growth potential, increase our volume or revenue, rationalize our manufacturing operations or reduce our costs and expenses.

Our business strategy is based on our assumptions about the future demand for our current products and the new products and applications that we are developing and on our ability to produce our products profitably. Each of these factors is subject to one or more of the risk factors set forth in this annual report.  Several risks that could affect our ability to implement our business strategy are beyond our control. In addition, circumstances beyond our control and changes in our business or industry may require us to change our business strategy.

Our results are dependent on the success of new products.   

The markets we serve are characterized by competition, rapid technological change, evolving standards, short product life cycles and continuous erosion of average selling prices.  Consequently, our future success will be highly dependent upon our ability to continually develop new products using the latest and most cost-effective technologies, introduce our products in commercial quantities to the marketplace ahead of the competition and have our products selected for inclusion in leading system manufacturers’ products. In addition, the development of new products will continue to require significant R&D expenditures. If we are unable to successfully develop, produce and market new products in a timely manner, have our products available in commercial quantities ahead of competitive products or have our products selected for inclusion in products of systems manufacturers and sell them at gross margins comparable to or better than our current products, our future results of operations could be adversely impacted. In addition, our future revenue growth is also partially dependent on our ability to penetrate new markets in which we have limited experience and where competitors are already entrenched. Even if we are able to develop, produce and successfully market new products in a timely manner, such new products may not achieve market acceptance.

We are dependent on a concentrated group of customers for a significant part of our revenues.    

A large portion of our revenues depends on sales to a limited number of customers.  If these relationships were to diminish, or if these customers were to develop their own solutions or adopt a competitor’s solution instead of buying our products, our results could be adversely affected.

Many of our end-customer OEMs have outsourced their manufacturing to a concentrated group of global EMSs and original design manufacturers (“ODMs”) who then buy products directly from us or from our distributors on behalf of the OEM.  These EMSs and ODMs have achieved greater autonomy in the design win, product qualification and product purchasing decisions, especially for commodity products. Competition for the business of these EMSs and ODMs is intense and there is no assurance we can remain competitive and retain our existing market share with these customers. If these companies were to allocate a higher share of commodity or second-source business to our competitors instead of buying our products, our results would be adversely affected. Furthermore, as EMSs and ODMs have represented a growing percentage of our overall business, our concentration of credit and other business risks with these customers has increased. Competition among global EMSs and ODMs is intense as they operate on extremely thin margins.  If any one or more of these global EMSs or ODMs were to file for bankruptcy or otherwise experience significantly adverse financial conditions, our business would be adversely impacted as well.



In addition, we utilize a relatively small number of global and regional distributors around the world, who buy product directly from us on behalf of their customers. For example, one family of distributors, Maxtek and its affiliates, represented approximately 19% of our total revenues for fiscal 2011 and represented approximately 19% of our gross accounts receivable as of April 3, 2011.  If our business relationships with any of these distributors were to diminish or any of these distributors were to file for bankruptcy or otherwise experience significantly adverse financial conditions, our business could be adversely impacted. Because we continue to be dependent upon continued revenue from a small group of OEM end customers and global and regional distributors, any material delay, cancellation or reduction of orders from or loss of these or  other major customers could cause our sales to decline significantly, and we may not be able to reduce the corresponding expenses at the same rate.

We are reliant upon subcontractors and third-party foundries.

Beginning in fiscal 2008, we stopped performing assembly services in-house and are totally dependent on subcontractors for assembly operations.  We are also dependent on third-party outside foundries for the manufacture of an increasing portion of our silicon wafers.  Our increased reliance on subcontractors and third-party foundries for our current products increases certain risks because we will have less control over manufacturing quality and delivery schedules, maintenance of sufficient capacity to meet our orders and generally, maintaining the manufacturing processes we require.  As a result of our decision to transfer our internal wafer fabrication production to outside foundries, our use of subcontractors and third-party foundries will continue to increase.  Due to production lead times and potential capacity constraints, any failure on our part to adequately forecast the mix of product demand and resulting foundry and subcontractor requirements could adversely affect our operating results.  In addition, we cannot be certain that these foundries and subcontractors will continue to manufacture, assemble, package and test products for us on acceptable economic and quality terms, or at all, and it may be difficult for us to find alternatives in a timely and cost-effective manner if they do not do so.

We are dependent on a limited number of suppliers.  

Our manufacturing operations depend upon obtaining adequate raw materials on a timely basis. The number of suppliers of certain raw materials, such as silicon wafers, ultra-pure metals and certain chemicals and gases needed for our products, is very limited. In addition, certain packages for our products require long lead times and are available from only a few suppliers. From time to time, suppliers have extended lead times or limited supply to us due to capacity constraints.  Our results of operations would be materially and adversely affected if we were unable to obtain adequate supplies of raw materials in a timely manner or if there were significant increases in the costs of raw materials, or if foundry or assembly subcontractor capacity was not available, or was only available at uncompetitive prices.

Our operations and business could be significantly harmed by natural disasters.

A majority of the third-party foundries and subcontractors we currently use are primarily located in China, Malaysia, Philippines, Singapore, South Korea, Taiwan and Thailand.  In addition, we own a test facility in Malaysia.  The risk of an earthquake and tsunami in these Pacific Rim locations is significant, as highlighted by the severe earthquake and tsunami that struck the northeast coast of Japan in March 2011. However, we have not experienced the significant impact on our operations from this disaster. The occurrence of an earthquake, drought, floods, fires or other natural disaster near any of these locations could cause a significant reduction of end customer demand, a disruption of the global supply chain, an increase in the cost of products that we purchase and otherwise interfere with our ability to conduct our business. In addition, public health issues, acts of terrorism or other catastrophic events could significantly delay the production or shipment of our products. Although we maintain insurance for some of the damage that may be caused by natural disasters, our insurance coverage may not be sufficient to cover all of our potential losses and would not cover us for lost business. As a result, a natural disaster in one or more of these regions could have a material adverse effect on our financial condition and results of operations.

We have made and may continue to make acquisitions and divestitures which could divert management’s attention, cause ownership dilution to our stockholders, be difficult to integrate and/or adversely affect our financial results.

Acquisitions and divestitures are commonplace in the semiconductor industry and we have acquired and divested, and may continue to acquire or divest businesses and technologies. Integrating newly acquired businesses or technologies could put a strain on our resources, could be costly and time consuming, and might not be successful. Acquisitions or divestitures could divert our management’s attention and other resources from other business concerns. In addition, we might lose key employees while integrating new organizations. Acquisitions and divestitures could also result in customer dissatisfaction, performance problems with an acquired company or technology, dilutive or potentially dilutive issuances of equity securities, the incurrence of debt, the assumption or incurrence of contingent liabilities, or other unanticipated events or circumstances, any of which


could harm our business. Consequently, we might not be successful in acquiring or integrating any new businesses, products or technologies, and might not achieve anticipated revenues and cost benefits. In addition, we might be unsuccessful in finding or completing divestiture opportunities on acceptable terms in a timely manner.

Intellectual property claims against and /or on behalf of the Company could adversely affect our business and operations.  

The semiconductor industry is characterized by vigorous protection and pursuit of intellectual property rights, which has resulted in significant and often protracted and expensive litigation. We have been involved with patent litigation and asserted intellectual property claims in the past, both as a plaintiff and a defendant, some of which have adversely affected our operating results. Although we have obtained patent licenses from certain semiconductor manufacturers, we do not have licenses from a number of semiconductor manufacturers that have broad patent portfolios. Claims alleging infringement of intellectual property rights have been asserted against us in the past and could be asserted against us in the future. These claims could result in our having to discontinue the use of certain processes; license certain technologies; cease the manufacture, use and sale of infringing products; incur significant litigation costs and damages; and develop non-infringing technology. We might not be able to obtain such licenses on acceptable terms or develop non-infringing technology. Further, the failure to renew or renegotiate existing licenses on favorable terms, or the inability to obtain a key license, could materially and adversely affect our business. Future litigation, either as a plaintiff or a defendant, could adversely affect our operating results, as a result of increased expenses, the cost of settled claims, and/or payment of damages.

Our product manufacturing operations are complex and subject to interruption.

From time to time, we have experienced production difficulties, including lower manufacturing yields or products that do not meet our or our customers' specifications, which has resulted in delivery delays, quality problems and lost revenue opportunities. While delivery delays have been infrequent and generally short in duration, we could experience manufacturing problems, capacity constraints and/or product delivery delays in the future as a result of, among other things, the complexity of our manufacturing processes, changes to our process technologies (including transfers to other facilities and die size reduction efforts), and difficulties in ramping production and installing new equipment at our facilities.   In addition, any significant quality problems could damage our reputation with our customers and could take focus away from the development of new and enhanced products.  These could have a significant negative impact on our financial results.

We are dependent upon electric power and water provided by public utilities where we operate our manufacturing facilities. We maintain limited backup generating capability, but the amount of electric power that we can generate on our own is insufficient to fully operate these facilities, and prolonged power interruptions and restrictions on our access to water could have a significant adverse impact on our business.

Our financial results may be adversely impacted by higher than expected tax rates or exposure to additional tax liabilities.  Tax audits may have a material affect on our profitability.

As a global company, our effective tax rate is highly dependent upon the geographic composition of worldwide earnings and tax regulations governing each region in which we operate. We are subject to income taxes in the United States and various foreign jurisdictions, and significant judgment is required to determine worldwide tax liabilities. Our effective tax rate could be adversely affected by changes in the mix of earnings between countries with differing statutory tax rates, in the valuation of deferred tax assets, in tax laws or by material audit assessments, which could affect our profitability. In particular, the carrying value of deferred tax assets, which are predominantly in the United States (U.S.), is dependent upon our ability to generate future taxable income in the United States. In addition, the amount of income taxes we pay is subject to ongoing audits in various jurisdictions, and a material assessment by a governing tax authority such as the United States Internal Revenue Service could have a material affect on our profitability.

The costs associated with the legal proceedings in which we are involved can be substantial, specific costs are unpredictable and not completely within our control, and unexpected increases in litigation costs could adversely affect our operating results.

We are currently involved in legal proceedings, as described below in Part I, Item 3 "Legal Proceedings."  The costs associated with legal proceedings are typically high, relatively unpredictable and are not completely within our control.  While we do our best to forecast and control such costs, the costs may be materially more than expected, which could adversely affect our operating results. Moreover, we may become involved in unexpected litigation with additional companies at any time, which


would increase our aggregate litigation costs and could adversely affect our operating results.  We are not able to predict the outcome of any of our legal actions and an adverse decision in any of our legal actions could significantly harm our business and financial performance.

We are dependent on key personnel.

Our performance is substantially dependent on the performance of our executive officers and key employees. The loss of the services of any of our executive officers, technical personnel or other key employees could adversely affect our business. In addition, our future success depends on our ability to successfully compete with other technology firms in attracting and retaining specialized technical and management personnel. If we are unable to identify, hire and retain highly qualified technical and managerial personnel, our business could be harmed.

Our results of operations could vary as a result of the methods, estimates and judgments we use in applying our accounting policies.

The methods, estimates and judgments we use in applying our accounting policies have a significant impact on our results of operations (please see Note 1 “Summary of Significant Accounting Policies in Part II, Item 8 of this Annual Report on Form 10-K).  Such methods, estimates and judgments are, by their nature, subject to substantial risks, uncertainties and assumptions, and factors may arise over time that leads us to change our methods, estimates and judgments.  Changes in those methods, estimates and judgments could significantly affect our results of operations.  In particular, the calculation of stock-based compensation expense under the authoritative guidance requires us to use valuation methodologies that were not developed for use in valuing employee stock options and make a number of assumptions, estimates and conclusions regarding matters such as expected forfeitures, expected volatility of our share price and the exercise behavior of our employees.  Changes in these variables could impact our stock-based compensation expense and have a significant impact on our gross margins, research and development and selling, general and administrative expenses.

Our reported financial results may be adversely affected by new accounting pronouncements or changes in existing accounting standards and practices.

We prepare our financial statements in conformity with accounting principles generally accepted in the United States.  These accounting principles are subject to interpretation by the Financial Accounting Standards Board (FASB), SEC and various organizations formed to interpret and create appropriate accounting standards and practices. New accounting pronouncements and varying interpretations of accounting standards and practices have occurred and may occur in the future. New accounting pronouncements or a change in the interpretation of existing accounting standards or practices may have a significant effect on our reported financial results and may even affect our reporting of transactions completed before the change is announced or effective.

Tax benefits we receive may be terminated or reduced in the future, which would increase our costs.

As a result of our international manufacturing operations, a significant portion of our worldwide profits are in jurisdictions outside the United States, including Bermuda and Malaysia which offer significant reductions in tax rates.  These lower tax rates allow us to record a relatively low tax expense on a worldwide basis.  Under current Bermuda law, we are not subject to tax on our income and capital gains.  If U.S. corporate income tax laws were to change regarding deferral of manufacturing profits or other matters impacting our operating structure, this would have a significant impact to our financial results.  President Obama’s Administration budget proposals have U.S. tax legislative proposals that, if enacted, may adversely impact our effective tax rate and overall tax paying position in the U.S.

In addition, we were granted a tax holiday in Malaysia during fiscal 2009.  The tax holiday was contingent upon us continuing to meet specified investment criteria in fixed assets, and to operate as an APAC regional headquarters center.  In the fourth quarter of fiscal 2011, we agreed with the Malaysia Industrial Development Board (MIDA) to cancel this tax holiday and entered into a new tax holiday which is a full tax exemption on statutory income for a period of 10 years commencing April 4, 2011.  We are required to meet several requirements as to financial targets, investment, headcount and activities in Malaysia to retain this status.  Our inability to renew this tax holiday when it expires or meet certain conditions of the agreement with MIDA may adversely impact our effective tax rate.

 
International operations add increased volatility to our operating results.   

A substantial percentage of our total revenues are derived from international sales, as summarized below:

 
(percentage of total revenues)
 
Fiscal
2011
   
Fiscal
 2010
   
Fiscal
 2009
 
Asia Pacific
    64 %     65 %     63 %
Americas
    15 %     17 %     20 %
Japan
    11 %     10 %     9 %
Europe
    10 %     8 %     8 %
Total
    100 %     100 %     100 %

In addition, our test facility in Malaysia, our design centers in Canada and China, and our foreign sales offices incur payroll, facility and other expenses in local currencies. Accordingly, movements in foreign currency exchange rates can impact our revenues and costs of goods sold, as well as both pricing and demand for our products.

Our non-U.S. offshore sites, manufacturing subcontractors and export sales are also subject to risks associated with foreign operations, including:

·  
Political instability and acts of war or terrorism, which could disrupt our manufacturing and logistical activities;
·  
Regulations regarding use of local employees and suppliers;
·  
Currency controls and fluctuations, devaluation of foreign currencies, hard currency shortages and exchange rate fluctuations;
·  
Changes in local economic conditions;
·  
Governmental regulation of taxation of our earnings and those of our personnel; and
·  
Changes in tax laws, import and export controls, tariffs and freight rates.

Contract pricing for raw materials and equipment used in the fabrication and assembly processes, as well as for foundry and subcontract assembly services, may also be impacted by currency controls, exchange rate fluctuations and currency devaluations.  We sometimes hedge currency risk for currencies that are highly liquid and freely quoted, but may not enter into hedge contracts for currencies with limited trading volume. In addition, as much of our revenues are generated outside the United States, a significant portion of our cash and investment portfolio accumulates in the foreign countries in which we operate.  At April 3, 2011, we had cash, cash equivalents and investments of approximately $176.4 million invested overseas in accounts belonging to our foreign subsidiaries.  While these amounts are primarily invested in U.S. dollars, a portion is held in foreign currencies, and all offshore balances are exposed to local political, banking, currency control and other risks.  In addition, these amounts may be subject to tax and other transfer restrictions.

If the credit market conditions deteriorate, it could have a material adverse impact on our investment portfolio.

Although we manage our investment portfolio by purchasing only highly rated securities and diversifying our investments across various sectors, investment types, and underlying issuers, recent volatility in the short-term financial markets has been unprecedented.   We have no securities in asset backed commercial paper and hold no auction rated or mortgage backed securities.  However it is uncertain as to the full extent of the current credit and liquidity crisis and with possible further deterioration, particularly within one or several of the large financial institutions, the value of our investments could be negatively impacted.
 
We rely upon certain critical information systems for the operation of our business.
 
We maintain and rely upon certain critical information systems for the effective operation of our business. These information systems include telecommunications, the Internet, our corporate intranet, various computer hardware and software applications, network communications, and e-mail. These information systems are subject to attacks, failures, and access denials from a number of potential sources including viruses, destructive or inadequate code, power failures, and physical damage to computers, communication lines and networking equipment. To the extent that these information systems are under our


 
control, we have implemented security procedures, such as virus protection software and emergency recovery processes, to address the outlined risks.   While we believe that our information systems are appropriately controlled and that we have processes in place to adequately manage these risks, security procedures for information systems cannot be guaranteed to be failsafe and our inability to use or access these information systems at critical points in time could unfavorably impact the timely and efficient operation of our business.

We are exposed to potential impairment charges on certain assets.

We had over $1 billion of goodwill and over $204 million of intangible assets on our balance sheet at the beginning of fiscal 2009.  As a result of our impairment analysis in fiscal 2009, we recorded a goodwill impairment charge of $946.3 million and an acquisition-related intangible asset impairment charge of $79.4 million primarily related to the ICS acquisition in fiscal 2006. In determining fair value, we consider various factors including our market capitalization, forecasted revenue and costs, risk-adjusted discount rates, future economic and market conditions, determination of appropriate market comparables and expected periods over which our assets will be utilized and other variables.

If our assumptions regarding forecasted cash flow, revenue and margin growth rates of certain long-lived asset groups and reporting units are not achieved, it is reasonably possible that an impairment review may be triggered for the remaining balance of goodwill and long-lived assets prior to the next annual review in the fourth quarter of fiscal 2012, which could result in material charges that could impact our operating results and financial position. In addition, from time to time, we have made investments in other companies, both public and private.  If the companies that we invest in are unable to execute their plans and succeed in their respective markets, we may not benefit from such investments, and we could potentially lose invested resources.  In addition, we evaluate our investment portfolio on a regular basis to determine if impairments have occurred.  Impairment charges could have a material impact on our results of operations in any period.

We are subject to a variety of environmental and other regulations related to hazardous materials used in our manufacturing processes.  

Any failure by us to adequately control the use or discharge of hazardous materials under present or future regulations could subject us to substantial costs or liabilities or cause our manufacturing operations to be suspended.

We have limited experience with government contracting, which entails differentiated business risks.

We may from time-to-time derive revenue from contracts and subcontracts with agencies of, or prime or secondary contractors to, the U.S. government, including U.S. military agencies.  Consequently, we are subject to certain business risks that are particular to companies that contract with U.S. government agencies.  These risks include the ability of the U.S. government or related contractors to unilaterally:

·  
Terminate contracts at its convenience;
·  
Terminate, modify or reduce the value of existing contracts, if budgetary constraints or needs change;
·  
Cancel multi-year contracts and related orders, if funds become unavailable;
·  
Adjust contract costs and fees on the basis of audits performed by U.S. government agencies;
·  
Control and potentially prohibit the export of our products;
·  
Require that the company continue to supply products despite the expiration of a contract under certain circumstances;
·  
Require that the company fill certain types of rated orders for the U.S. government prior to filling any orders for other customers; and
·  
Suspend us from receiving new contracts pending resolution of any alleged violations of procurement laws or regulations.
 
 

In addition, because we may enter into defense industry contracts with respect to products that are sold both within and outside of the United States, we are subject to the following additional risks in connection with government contracts:

·  
The need to bid on programs prior to completing the necessary design, which may result in unforeseen technological difficulties, delays and/or cost overruns;
·  
The difficulty in forecasting long-term costs and schedules and the potential obsolescence of products related to long-term fixed price contracts; and
·  
The need to transfer and obtain security clearances and export licenses, as appropriate.

The revenue from, and activity with, contracts and subcontracts with agencies of, or prime contractors to, the U.S. government, has declined subsequent to the disposition of our military business to Spectrum Control, Inc.

Our common stock has experienced substantial price volatility.  

Volatility in the price of our common stock may occur in the future, particularly as a result of the current economic downturn and quarter-to-quarter variations in our actual or anticipated financial results, or the financial results of other semiconductor companies or our customers. Stock price volatility may also result from product announcements by us or our competitors, or from changes in perceptions about the various types of products we manufacture and sell.  In addition, our stock price may fluctuate due to price and volume fluctuations in the stock market, especially in the technology sector, and as a result of other considerations or events described in this section.

We depend on the ability of our personnel, raw materials, equipment and products to move reasonably unimpeded around the world.

Any political, military, world health or other issue which hinders the worldwide movement of our personnel, raw materials, equipment or products or restricts the import or export of materials could lead to significant business disruptions. Furthermore, any strike, economic failure, or other material disruption on the part of major airlines or other transportation companies could also adversely affect our ability to conduct business. If such disruptions result in cancellations of customer orders or contribute to a general decrease in economic activity or corporate spending on information technology, or directly impact our marketing, manufacturing, financial and logistics functions, our results of operations and financial condition could be materially and adversely affected.

ITEM 1B. UNRESOLVED STAFF COMMENTS

None.

ITEM 2. PROPERTIES

We own and operate a wafer fabrication facility in Hillsboro, Oregon (approximately 245,000 square feet) and own and operate a test facility in Malaysia (approximately 145,000 square feet). Our Malaysia facility is subject to ground leases. For more information on our production facilities, please refer to Item 1, "Manufacturing," in this Annual Report on Form 10-K.

Our corporate headquarters and various administrative, engineering and support functions are located in San Jose, California.  We own and occupy approximately 263,000 square feet of space at our San Jose headquarters.  We also lease various facilities throughout the world for research and development and sales and marketing functions, including design centers in the United States, Canada and China.

We believe that the facilities that we currently own or lease are suitable and adequate for our needs for the immediate future.

ITEM 3. LEGAL PROCEEDINGS

For a discussion of legal proceedings, please see “Note 14 – Commitments and contingencies” in Part II, Item 8 of this Annual Report on Form 10-K.

ITEM 4. (REMOVED and RESERVED)



PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Price Range of Common Stock

Our Common Stock is traded on the NASDAQ Global Select Market under the symbol IDTI. The following table shows the high and low closing sales prices for our Common Stock as reported by the NASDAQ Global Select Market for the fiscal periods indicated:

   
High
   
Low
 
Fiscal 2011
           
First Quarter
  $ 7.08     $ 5.19  
Second Quarter
    6.22       4.87  
Third Quarter
    7.23       5.65  
Fourth Quarter
    8.39       6.28  
                 
Fiscal 2010
               
First Quarter
  $ 6.62     $ 4.54  
Second Quarter
    7.29       5.80  
Third Quarter
    6.81       5.66  
Fourth Quarter
    6.78       5.36  

Stockholders
As of April 29, 2011, there were approximately 733 record holders of our Common Stock. A substantial majority of our shares are held by brokers and other institutions on behalf of individual stockholders.

Dividends

We have never paid cash dividends on our Common Stock. We currently plan to retain any future earnings for use in our business and do not currently anticipate paying cash dividends in the foreseeable future.
 
Equity Incentive Programs

We primarily issue awards under our equity based plans in order to provide additional incentive and retention to directors and employees who are considered to be essential to the long-rang success of the Company.  Please see “Note 7 – Stock-Based Employee Compensation” in Part II, Item 8 of this Annual Report on Form 10-K.

Issuer Purchases of Equity Securities

The following table sets forth information with respect to repurchases of our common stock during the fourth quarter of fiscal 2011:

Period
 
Total Number of Shares Purchased
   
Average Price Paid Per Share
   
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs
   
Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs
 
January 3, 2011 – January 30, 2011
    832,743     $ 6.64       832,743     $ 152,479,484  
January 31, 2011 – February 27, 2011
    392,432     $ 6.80       392,432     $ 149,809,713  
February 28, 2011 – April 3, 2011
    342,115     $ 7.27       342,115     $ 147,322,018  
Total
    1,567,290     $ 6.82       1,567,290          



On January 18, 2007, our Board of Directors initiated a $200 million share repurchase program. In fiscal 2009 and 2008, our Board of Directors approved expansions of the share repurchase program by a total of $300 million to a total of $500 million. From fiscal 2007 to fiscal 2010, we repurchased approximately 42.9 million shares of our common stock at an average price of $10.40 per share for a total purchase price of $446.5 million. In fiscal 2011, we repurchased approximately 5.3 million shares at an average price of $5.65 per share of our common stock for a total purchase price of $29.9 million under this program. On July 21, 2010, our Board of Directors approved a new share repurchase plan to repurchase up to $225 million of our common stock.  In fiscal 2011, we repurchased approximately 12.8 million shares of our common stock at an average price of $6.06 per share for a total purchase price of $77.7 million under this new program.  The old share repurchase program was canceled upon the approval of the new share repurchase program.  As of April 3, 2011, approximately $147.3 million was available for future purchase under this new share repurchase program.  Share repurchases were recorded as treasury stock and resulted in a reduction of stockholders’ equity.  

Stock Performance Graph
 
Set forth below is a line graph comparing the percentage change in the cumulative total stockholder return on our common stock against the cumulative total return of the S&P 500 Index and the S&P Electronics (Semiconductors) Index for a period of five fiscal years.  Our fiscal year ends on a different day each year because our year ends at midnight on the Sunday nearest to March 31 of each calendar year.  However, for convenience, the amounts shown below are based on a March 31 fiscal year end.  “Total return,” for the purpose of this graph, assumes reinvestment of all dividends.
 
The performance of our stock price shown in the following graph is not necessarily indicative of future stock price performance.
         



Cumulative Total Return
 
   
2006
   
2007
   
2008
   
2009
   
2010
   
2011
 
Integrated Device Technology, Inc.
  $ 100.00     $ 103.77     $ 60.09     $ 30.62     $ 41.25     $ 49.63  
S&P 500
  $ 100.00     $ 111.83     $ 106.15     $ 65.72     $ 98.43     $ 113.83  
S&P Semiconductor index
  $ 100.00     $ 92.33     $ 87.69     $ 62.11     $ 97.20     $ 107.93  


ITEM 6. SELECTED FINANCIAL DATA

The data set forth below are qualified in their entirety by reference to, and should be read in conjunction with, "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the Consolidated Financial Statements and related notes thereto included in this Annual Report on Form 10-K.

Statements of Operations Data

   
Fiscal Year Ended
 
 
(in thousands, except per share data)
 
April 3,
2011
   
March 28,
2010
   
March 29,
2009
   
March 30,
2008
   
April 1,
2007
 
Revenues
 
$
625,705
   
$
535,906
   
$
663,245
   
$
781,467
   
$
803,596
 
Gross profit
   
335,311
     
224,907
     
274,449
     
339,332
     
340,648
 
Research and development expenses
   
177,546
     
157,486
     
161,192
     
165,599
     
166,433
 
Selling, general and administrative
   
108,192
     
107,037
     
125,810
     
161,708
     
191,211
 
Goodwill and intangible assets impairment
   
--
     
--
     
1,025,685
     
--
     
--
 
Gain on divestitures (1)
   
--
     
78,306
     
--
     
--
     
--
 
Operating income (loss)
   
49,573
     
(39,616
)
   
(1,043,835
)
   
12,025
     
(17,496
)
Net Income (loss)
 
$
72,627
   
$
40,019
   
$
(1,045,167
)
 
$
34,179
   
$
(7,578
)
Basic net income (loss) per share
   
0.47
     
0.24
     
(6.22
)
   
0.18
     
(0.04
)
Diluted net income (loss) per share
   
0.47
     
0.24
     
(6.22
)
   
0.18
     
(0.04
)
Shares used in computing net income (loss) per share:
                                       
Basic
   
154,511
     
165,408
     
168,114
     
187,213
     
198,106
 
Diluted
   
155,918
     
165,961
     
168,114
     
189,260
     
198,106
 
Net cash provided by operating activities
   
74,391
     
52,062
     
143,775
     
186,730
     
216,476
 

Balance Sheets and Other Data

 (in thousands)
 
April 3,
2011
   
March 28,
2010
   
March 29,
2009
   
March 30,
2008
   
April 1,
2007
 
Cash, cash equivalents and investments (2)
  $ 299,192     $ 343,189     $ 296,073     $ 239,191     $ 359,933  
Total assets
    727,460       750,945       678,367       1,783,253       2,041,732  
Other long-term obligations
    15,808       21,833       14,314       18,364       16,001  
Stockholders' equity
  $ 598,782     $ 599,740     $ 557,068     $ 1,620,822     $ 1,839,090  
Number of employees
    2,053       2,004       2,112       2,353       2,400  
 
(1) Gain on divestitures were related to the divestitures of NWD assets in the second quarter of fiscal 2010, MNC business and SLE business in the third quarter of fiscal 2010.
(2) Cash, cash equivalents and investments exclude equity investments not classified as available for sale.


ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
The following discussion and analysis should be read in conjunction with “Item 6. Selected Financial Data” and “Item 8. Financial Statements and Supplementary Data”, included elsewhere in this Annual Report on Form 10-K.
 
The information in this Annual Report contains forward looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Exchange Act. Any statements contained herein that are not statements of historical facts may be deemed to be forward-looking. Forward-looking statements are based upon current expectations that involve a number of risks and uncertainties. These risks and uncertainties include, but are not limited to: operating results; new product introductions and sales; competitive conditions; capital expenditures and resources; manufacturing capacity utilization; customer demand and inventory levels; intellectual property issues; and the risk factors set forth in the section “Risk Factors” in Part I, Item 1A, of this Annual Report on Form 10-K. As a result of these risks and uncertainties, actual results and timing of events could differ significantly from those anticipated in the forward-looking statements. We undertake no obligation to publicly release any revisions to the forward-looking statements for future events or new information after the date of this Annual Report on Form 10-K.
 
Critical Accounting Policies

Our consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the U.S.  The preparation of such statements requires us to make estimates and assumptions that affect the reported amounts of revenues and expenses during the reporting period and the reported amounts of assets and liabilities as of the date of the financial statements.  Our estimates and assumptions are based on historical experience and other factors that we consider to be appropriate in the circumstances.  However, actual future results may vary from our estimates and assumptions.

We believe that the following accounting policies are "critical," as defined by the SEC, in that they are both highly important to the portrayal of our financial condition and results, and they require difficult management judgments, estimates and assumptions about matters that are inherently uncertain.

Our fiscal year is the 52 or 53 week period ending on the Sunday nearest to March 31. Fiscal 2011 included 53 weeks and ended on April 3, 2011. Fiscal 2010 and 2009 each included 52 weeks and ended on March 28, 2010 and March 29, 2009, respectively.

Revenue Recognition.  Our revenue results from semiconductors sold through three channels: direct sales to original equipment manufacturers (OEMs) and electronic manufacturing service providers (EMSs), consignment sales to OEMs and EMSs, and sales through distributors. We recognize revenue when persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the price is fixed or determinable and our ability to collect is reasonably assured.  For direct sales, we recognize revenue in accordance with the applicable shipping terms. Revenue related to the sale of consignment inventory is not recognized until the product is pulled from inventory stock by the customer.

For distributors in the Americas and Europe regions, who have stock rotation, price protection and ship from stock pricing adjustment rights, we defer revenue and related cost of revenues on sales to these distributors until the product is sold through by the distributor to an end-customer.  Subsequent to shipment to the distributor, we may reduce product pricing through price protection based on market conditions, competitive considerations and other factors.  Price protection is granted to distributors on the inventory that they have on hand at the date the price protection is offered.  We also grant certain credits to our distributors on specifically identified portions of the distributors’ business to allow them to earn a competitive gross margin on the sale of our products to their end-customers.  As a result of our inability to estimate these credits, we have determined that the sales price to these distributors is not fixed or determinable until the final sale to the end-customer.

In the APAC region and Japan, we have distributors for which revenue is recognized upon shipment, with reserves recorded for the estimated return and pricing adjustment exposures.  The determination of the amount of reserves to be recorded for stock rotation rights requires that we make estimates as to the amount of product which will be returned by customers within their limited contractual rights.  We utilize historical return rates to estimate the exposure in accordance with authoritative guidance for Revenue Recognition When Right of Return Exists. In addition, from time to time, we offer pricing adjustments to


distributors for product purchased in a given quarter that remains in their inventory.  These amounts are estimated by management based on discussions with customers, assessment of market trends, as well as historical experience.  

Based on the terms in the agreements with our distributors and the application of this policy, we recognize revenue once the distributor sells our products to an end-customer for American and European distributors and recognize revenue upon shipment to Japanese and other Asian distributors.  

Income Taxes.  We account for income taxes under an asset and liability approach that requires the expected future tax consequences of temporary differences between book and tax bases of assets and liabilities be recognized as deferred tax assets and liabilities. Generally accepted accounting principles require us to evaluate the ability to realize the value of our net deferred tax assets on an ongoing basis. A valuation allowance is recorded to reduce the net deferred tax assets to an amount that will more likely than not be realized. Accordingly, we consider various tax planning strategies, forecasts of future taxable income and our most recent operating results in assessing the need for a valuation allowance. In consideration of the ability to realize the value of net deferred tax assets, recent results must be given substantially more weight than any projections of future profitability. Since the fourth quarter of fiscal 2003, we have determined that, under applicable accounting principles, it is more likely than not that we will not realize the value of our net deferred tax assets. Our assumptions regarding the ultimate realization of these assets remained unchanged in fiscal 2011 and accordingly, we continue to maintain a valuation allowance to reduce our deferred tax assets to an amount that is more likely than not to be realized.

On April 2, 2007, we adopted FASB authoritative guidance which clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements. This interpretation prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. As a result of the implementation of this guidance, we recognize the tax liability for uncertain income tax positions on the income tax return based on the two-step process prescribed in the interpretation. The first step is to determine whether it is more likely than not that each income tax position would be sustained upon audit. The second step is to estimate and measure the tax benefit as the amount that has a greater than 50% likelihood of being realized upon ultimate settlement with the tax authority. Estimating these amounts requires us to determine the probability of various possible outcomes. We evaluate these uncertain tax positions on a quarterly basis. This evaluation is based on the consideration of several factors including changes in facts or circumstances, changes in applicable tax law, settlement of issues under audit, and new exposures. If we later determine that the exposure is lower or that the liability is not sufficient to cover our revised expectations, we adjust the liability and effect a related change in our tax provision during the period in which we make such determination.

Inventories.  Inventories are recorded at the lower of standard cost (which approximates actual cost on a first-in, first-out basis) or market value.  We record provisions for obsolete and excess inventory based on our forecasts of demand over specific future time horizons. We also record provisions to value our inventory at the lower of cost or market value, which rely on forecasts of average selling prices (ASPs) in future periods.  Actual market conditions, demand and pricing levels in the volatile semiconductor markets that we serve may vary from our forecasts, potentially impacting our inventory reserves and resulting in material impacts to our gross margin.

Valuation of Long-Lived Assets and Goodwill.  We own and operate our own manufacturing facilities (see Part I of this Form 10-K), and have also acquired certain businesses and product portfolios in recent years. As a result, we have property, plant and equipment, goodwill and other intangible assets. We evaluate these items for impairment on an annual basis, or sooner, if events or changes in circumstances indicate that carrying values may not be recoverable. Triggering events for impairment reviews may include adverse industry or economic trends, significant restructuring actions, significantly lowered projections of profitability, or a sustained decline in our market capitalization. Evaluations of possible impairment and if applicable, adjustments to carrying values, require us to estimate among other factors, future cash flows, useful lives and fair values of our reporting units and assets. Actual results may vary from our expectations.

We review goodwill for impairment annually and whenever events or changes in circumstances indicate the carrying value of goodwill may not be recoverable. Determining the fair value of a reporting unit is judgmental in nature and involves the use of significant estimates and assumptions. These estimates and assumptions include revenue growth rates and operating margins used to calculate projected future cash flows, risk-adjusted discount rates, future economic and market conditions and determination of appropriate market comparables. We utilize a discounted cash flow analysis to estimate the fair value of our reporting units. Actual future results may differ from those estimates. In addition, we make certain judgments and assumptions in allocating shared assets and liabilities to determine the carrying values for each of our reporting units. As a result of our interim impairment analysis in the third quarter of fiscal 2009 and annual impairment analysis in the fourth quarter of fiscal


2009, we recorded goodwill impairment charges totaling $946.3 million in fiscal 2009.  During fiscal 2009, we recorded impairment charges related to long-lived assets of $79.4 million.  We completed our annual review of goodwill during the quarter ended April 3, 2011 and March 28, 2010 and concluded there was no impairment.

Stock-based Compensation.  In accordance with FASB guidance on share-based payments, we measure and recognize compensation expense for all stock-based payments awards, including employee stock options, restricted stock units and rights to purchase shares under employee stock purchase plans, based on their estimated fair value and recognize the costs in the financial statements over the employees’ requisite service period.

The fair value of employee restricted stock units is equal to the market value of our common stock on the date the award is granted.  We estimate the fair value of employee stock options and the right to purchase shares under the employee stock purchase plan using the Black-Scholes valuation model.  Option-pricing models require the input of highly subjective assumptions, including the expected term of options and the expected price volatility of the stock underlying such options.  In addition, we are required to estimate the number of stock-based awards that will be forfeited due to employee turnover.  We attribute the value of stock-based compensation to expense using an accelerated method.  Finally, we capitalize into inventory a portion of the periodic stock-based compensation expense that relates to employees working in manufacturing activities.

We update the expected term of stock option grants annually based on our analysis of the stock option exercise behavior over a period of time.  The interest rate is based on the average U.S. Treasury interest rate over the expected term during the applicable quarter.  We believe that the implied volatility of our common stock is an important consideration of overall market conditions and a good indicator of the expected volatility of our common stock.  However, due to the limited volume of options freely traded over the counter, we believe that implied volatility, by itself, is not representative of the expected volatility of our common stock.  Therefore, upon the adoption of the FASB’s authoritative guidance for stock-based payments at the beginning of fiscal 2007, we revised the volatility factor used to estimate the fair value of our stock-based awards which now reflects a blend of historical volatility of our common stock and implied volatility of call options and dealer quotes on call options, generally having a term of less than twelve months.  We have not paid, nor do we have current plans to pay dividends on our common stock in the foreseeable future.

Overview

We believe our application specific product strategy which is targeted at larger, fast growing portions of the communications, computing and consumer electronics end markets, together with our investments in organic growth initiatives, will strengthen our business model and position us to serve larger, faster growing available markets in the coming years.

The following table and discussion provide an overview of our operating results for fiscal 2011, 2010 and 2009:
 
    Fiscal Year End
 
(in thousands, except for percentage)
 
April 3, 2011
   
% Change
   
March 28, 2010
   
% Change
   
March 29, 2009
 
Revenues
  $ 625,705       17 %   $ 535,906       (19) %   $ 663,245  
Gross profit
  $ 335,311       49 %   $ 224,907       (18) %   $ 274,449  
As a % of revenues
    54     12 %     42 %     1 %     41
Operating income (loss)   $ 49,573             $ (39,616           $ (1,043,835
As a % of revenues     8             (7)             (157)
 Net income (loss)   $ 72,627             $ 40,019             $ (1,045,167
As a % of revenues     12             8             (158)
 
Our revenues increased 17% in fiscal 2011 compared to fiscal 2010, despite our divestiture of the network search engine business (NWD) at the beginning of the second fiscal quarter of fiscal 2010, the transition away from Advanced Memory


Buffer (AMB) products in Intel-based server platforms to lower priced memory interface devices and roll-off our PC clock products,.  The increase was primarily due to our new product revenue and increased demand for our core business products, such as communication clocks, serial switching devices and DDR3 memory interface products.  Our gross profit as a percentage of net revenues is dependent on our sales mix, as well as manufacturing efficiencies and execution relative to the level of factory utilization. Gross profit as a percentage of net revenues was 54% in fiscal 2011, an increase of 12%, compared to fiscal 2010, primarily driven by a favorable shift in the mix of products sold, a higher utilization of our fabrication facility and manufacturing cost reduction initiatives.

Our operating income increased from a loss of $39.6 million in fiscal 2010 to an income of $49.6 million in fiscal 2011.  Net income increased $32.6 million or 81% in fiscal 2011 compared to fiscal 2010.  We generated $74.4 million in cash from operations in fiscal 2011, an increase of 43% compared to fiscal 2010.  We ended fiscal 2011 with cash and cash equivalents and short-term investments of $299.2 million and have no outstanding debt.  We repurchased a total of 18.1 million shares of our common stock for a total of $107.6 million during fiscal 2011. These shares were repurchased in the open market under our stock repurchase programs both initiated in January 2007 (terminated in July 2010) and $225 million stock repurchase program initiated in July 2010 (see Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities” in Part II, Item 5 of this Form 10-K or see “Note 8–Stockholders’ Equity” in Part II, Item 8 of this Form 10-K). The stock repurchase activity is one element of our overall program to offset dilution from employee stock options and increase return on invested capital, which we believe improves shareholder value over time.

Results of Operations

 
In the first quarter of fiscal 2010, as part of a refinement of our business strategy, we transferred multi-port products from the Communications segment into the Computing and Consumer segment. This change in segment reporting had no impact on our consolidated balance sheets, statements of operations, statements of cash flows or statements of stockholders’ equity for any years presented. The segment information for the year ended March 29, 2009 has been adjusted retrospectively to conform to the current fiscal year presentation.  The Chief Executive Officer has been identified as the Chief Operating Decision Maker.
 
Our reportable segments include the following:

§  
Communications segment: includes clock and timing solutions, Serial RapidIO® switching solutions, flow-control management devices, FIFOs, integrated communications processors, high-speed SRAM, military application (divested in the third quarter of fiscal 2010), digital logic, telecommunications and network search engines (divested in the second quarter of fiscal 2010).
§  
Computing and Consumer segment: includes timing products, PCI Express switching and bridging solutions, high-performance server memory interfaces, multi-port products, touch controller, signal integrity products, PC audio and video products.
 
 
Revenues
   
Fiscal Year Ended
 
(in thousands)
 
April 3,
2011
   
March 28,
2010
   
March 29,
2009
 
Communications
  $ 291,426     $ 245,438     $ 294,698  
Computing and Consumer
    334,279       290,468       368,547  
Total revenues
  $ 625,705     $ 535,906     $ 663,245  

Communications Segment

Revenues in our Communications segment increased $46.0 million, or 19% in fiscal 2011 compared to fiscal 2010 due to an improved macroeconomic environment and increased demand for our products.  Revenues from our flow control management products more than doubled as a result of the significant growth in demand for our Rapid I/O switching solutions products, along with increased demand for our timing and telecom products in the communications markets.  Revenues from SRAM, FIFO, and digital logic products increased 20% due to the strength in the communication integrated circuit market.  Revenues from our all-silicon oscillator products contributed to the revenues increase in fiscal 2011 as a result of our acquisition of Mobius in January 2010. Partially offsetting these increases was a decrease in sales of our networking search engine products and military products as a result of our divestiture of the networking (NWD) assets and military (MNC) business in the second quarter and third quarter of fiscal 2010, respectively.
 

Revenues in our Communications segment decreased $49.3 million, or 17% in fiscal 2010 compared to fiscal 2009 due to the overall weakness in our communications end markets, which were negatively impacted by the economic downturn.  In addition, the divestiture of our NWD assets and MNC business, and lower revenues from SRAM, FIFO, and digital logic products contributed to the decrease in fiscal 2010. The decrease was partially offset by the increased sales of our flow control management products as a result of our acquisition of Tundra Semiconductor Corporation  (Tundra) in June 2009.

Computing and Consumer Segment

Revenues in our Computing Consumer segment increased $43.8 million, or 15% in fiscal 2011 compared to fiscal 2010 as a result of the improved global macroeconomic environment, design wins and ramp up of new products.  Revenues from our analog and power products increased 8% primarily attributable to revenues from power voltage regulator module (VRM) solutions as a result of the IKOR acquisition and new consumer product design wins.  Revenues from our DDR3 products more than doubled as a result of strong demand from the computer server end market.  In addition, revenues from our video products increased as a result of a ramp up of new products.  Partially offsetting these increases was a decline in our Advanced Memory Buffer (AMB) products and lower revenue from sales of our personal computing products due to weak demand and selling price erosion.

Revenues in our Computing and Consumer segment decreased $78.1 million, or 21% in fiscal 2010 compared to fiscal 2009 as a result of the global economic slowdown and increased competition in the consumer market, which resulted in broad demand weakness from our personal computing and consumer products end markets. The decrease was partially offset by the growth in video products revenues as a result of the Silicon Optix acquisition and a ramp up of product shipments.

Revenues by Region

Revenues in APAC, Americas, Japan and Europe accounted for 64%, 15%, 11% and 10%, respectively, of consolidated revenues in fiscal 2011 compared to 65%, 17%, 10% and 8%, respectively, of our consolidated revenues in fiscal 2010.  The Asia Pacific region continues to be our strongest region, as many of our largest customers utilize manufacturers in that region.

Deferred Income on Shipments to Distributions

Included in the Balance Sheet caption “Deferred income on shipments to distributors” are amounts related to shipments to certain distributors for which revenue is not recognized until our product has been sold by the distributor to an end customer. The components as of April 3, 2011 and March 28, 2010 are as follows:

   
Fiscal Year Ended
 
(in thousands)
 
April 3, 2011
   
March 28, 2010
 
Gross deferred revenue
  $ 15,463     $ 22,008  
Gross deferred costs
    (2,610 )     (3,247 )
Deferred income on shipments to distributors
  $ 12,853     $ 18,761  

The gross deferred revenue represents the gross value of shipments to distributors at the list price billed to the distributor less any price protection credits provided to them in connection with reductions in list price while the products remain in their inventory.  Based on our history, the amount ultimately recognized as revenue is generally less than the gross deferred revenue as a result of ship from stock pricing credits, which are issued in connection with the sell through of the product to an end customer.  As the amount of price adjustments subsequent to shipment is dependent on the overall market conditions, the levels of these adjustments can fluctuate significantly from period to period. Historically, the price adjustments have represented an average of approximately 25% of the list price billed to the customer.  As these credits are issued, there is no impact to working capital as this reduces both accounts receivable and deferred revenue.  The gross deferred costs represent the standard costs (which approximate actual costs) of products we sell to the distributors.  The deferred income on shipments to distributors decreased $5.9 million or 31% in fiscal 2011 compared to fiscal 2010.  The decrease was primarily attributable to distributor inventory reduction efforts.



Gross Profit

   
Fiscal Year Ended
 
(in thousands)
 
April 3,
2011
   
March 28,
2010
   
March 29,
 2009
 
Gross Profit
  $ 335,311     $ 224,907     $ 274,449  
Gross Profit Percentage
    54 %     42 %     41 %

Gross profit increased $110.4 million, or 49% in fiscal 2011 compared to fiscal 2010 and gross profit percentage increased 12% in fiscal 2011 compared to fiscal 2010.  Our gross profit percentage was positively impacted by a favorable shift in the mix of products sold, a higher utilization of our fabrication facility and manufacturing cost reduction initiatives. The utilization of our manufacturing capacity in Oregon increased from approximately 79% of equipped capacity in 2010 to 100% of equipped capacity in fiscal 2011.  In addition, gross profit percentage in fiscal 2011 was positively impacted by cost savings from the closure of our test facility in Singapore and consolidation of our test operations in Malaysia.  Our gross profit percentage in fiscal 2010 was negatively impacted by $8.4 million related to the sale of acquired inventory valued at fair market value, less an estimated selling cost, associated with our acquisition of Tundra and $5.7 million of restructuring costs, while we had no such charges in fiscal 2011.

Gross profit for fiscal 2010 was $224.9 million, a decrease of $49.5 million compared to $274.4 million in fiscal 2009 and gross profit percentage in fiscal 2010 was 42% compared to 41% in fiscal 2009.  Our gross profit percentage was positively impacted by a higher utilization of our fabrication facility and a favorable shift in the mix of products sold. The utilization of our manufacturing capacity in Oregon increased from approximately 67% of equipped capacity in fiscal 2009 to 79% of equipped capacity in fiscal 2010.  Our gross profit percentage in 2010 was negatively impacted in the amount of $8.4 million related to the sale of inventory acquired and valued at fair value, less estimated selling costs, associated with our acquisition of Tundra and $5.7 million of restructuring costs in fiscal 2010. Offsetting these, our gross profit percentage benefited from a $41.3 million decrease in intangible asset amortization, as we wrote down the carrying value of certain intangible assets in fiscal 2009. In addition, a portion of the intangible assets are being amortized on an accelerated method, resulting in decreased amortization over time.

Operating Expenses

The following table presents our operating expenses for fiscal years 2011, 2010 and 2009, respectively:

   
April 3, 2011
   
March 28, 2010
   
March 29, 2009
 
 
(in thousands)
 
Dollar Amount
   
% of Net
Revenues
   
Dollar Amount
   
% of Net
Revenues
   
Dollar Amount
   
% of Net
Revenues
 
Research and development
  $ 177,546       28 %   $ 157,486       29 %   $ 161,192       24 %
Selling, General and administrative
  $ 108,192       17 %   $ 107,037       20 %   $ 125,810       19 %
In-process research and development
  $ --       -- %   $ --       -- %   $ 5,597       1 %
 
Research and Development (“R&D”)

R&D expense increased $20.1 million, or 13%, to $177.5 million in fiscal 2011 compared to fiscal 2010.  The increase was primarily attributable to an additional one week of operations in fiscal 2011, $8.0 million increase in incentive compensation expense as a result of the commencement of our new annual incentive compensation program in the first quarter of fiscal 2011, $1.6 million increase in temporary labor expense, $0.9 million increase in 401K matching, and $1.1 million increase in medical insurance cost.  In addition, equipment expenses, product development and R&D material expense increased $3.0 million, $1.1 million and $1.0 million, respectively, as we increased development efforts to bring new products to market.  Partially offsetting these increases was a $1.5 million decrease in severance expense and $1.5 million decrease in outside professional service expense.



R&D expenses decreased $3.7 million, or 2%, to $157.5 million in fiscal 2010 compared to fiscal 2009.  The decrease was primarily attributable to lower stock-based compensation expense of $8.7 million, as a result of lower valuation of new grants compared to fiscal 2009, due to lower stock prices.  These decreases were partially offset by higher equipment expense of $2.9 million and increased expense for outside services of $2.6 million.
 
Selling, general and administrative (“SG&A”)
 
SG&A expenses increased $1.2 million, or 1%, to $108.2 million in fiscal 2011 compared to fiscal 2010.  The increase in SG&A was primarily due to an additional one week of operations in fiscal 2011, $3.5 million increase in incentive compensation expense as a result of the commencement of our new annual incentive compensation program in the first quarter of fiscal 2011, and $1.5 million increase in stock based compensation expense. Sales representative commissions increased $1.1 million attributable to higher revenues in fiscal 2011.  Partially offsetting these increases was a $3.1 million decrease in legal expense primarily attributable to lower acquisition and litigation activities in fiscal 2011and a $5.6 million decrease in severance expense.
 
SG&A expenses decreased $18.8 million, or 15%, to $107.0 million in fiscal 2010 compared to fiscal 2009.  The decrease was primarily attributable to a $23.0 million reduction in amortization of intangible asset, a decrease of $8.3 million in sales representative commissions due to lower revenues and a $6.1 million decrease in stock-based compensation expense.  The decrease was partially offset by an increase of $8.0 million in labor-related expenses as a result of the Tundra acquisition and restructuring actions, net of payroll expense savings from our divestitures and higher spending for legal and consulting services of $4.9 million and an increase in equipment and facilities expense of $1.2 million.

Acquired In-Process Research and Development (“IPR&D”)

In fiscal 2009, in connection with our acquisition of Silicon Optix’s video processing technology and related assets, we recorded a $5.6 million expense for IPR&D.  For this transaction, the allocation of the purchase price to IPR&D was determined by identifying technologies that had not attained technological feasibility and that did not have future alternative uses.  Technological feasibility is established when an enterprise has completed all planning, designing, coding and testing activities that are necessary to establish that a product can be produced to meet its design specifications, including functions, features and technical performance requirements.  The value of IPR&D was determined by considering the importance of each project to our overall development plan, estimating costs to develop the purchased IPR&D into commercially viable products, estimating the resulting net cash flows from the projects when completed and discounting the net cash flows to their present value based on the percentage of completion of the IPR&D projects.  We utilized a discounted cash flow (“DCF”) model to value the IPR&D, using a discount factor of 32% to determine the net present value of the IPR&D.  As of April 3, 2011, the project was 100% complete and we have incurred total costs of approximately $9.2 million related to this project since the acquisition.

Goodwill and Intangible Assets Impairment
 
We performed our annual impairment review of goodwill during the fourth quarter of fiscal 2011 and fiscal 2010 and concluded that there was no impairment.
 
Due to the extraordinary market and economic conditions that occurred in the third quarter of fiscal 2009, we experienced a decline in our stock price, resulting in our market capitalization falling below our net book value. In addition, due to the increased competitive pressure within certain of our markets, as well as the deteriorating macro-economic environment, which caused a decline in our revenue, operating income, and cash flow forecasts, we concluded that indicators existed requiring us to perform an interim goodwill impairment analysis at November 30, 2008. As a result of this analysis, we recognized a goodwill impairment charge of $326.4 million in the third quarter of fiscal 2009.
 
In the fourth quarter of fiscal 2009, we completed our annual impairment review of goodwill and concluded that due to increased deterioration in the macro-economic environment and significant downturn in semiconductor industry, our projected revenue for fiscal 2010 declined significantly from the amount we projected in the third quarter of fiscal 2009.  Based on the results of our analysis, the carrying value of Communications (COM), Enterprise and Computing (ECD), and Computing and


 
Multimedia (CMD) business units exceeded their fair values.  Accordingly, we wrote down the carrying amount of goodwill to its implied fair values and recognized an impairment charge of $619.9 million in the fourth quarter of fiscal 2009.
 
In the third quarter of fiscal 2009, we performed an impairment analysis for our long-lived assets, including our intangible assets subject to amortization. The analysis indicated that some of the identified intangible assets were not recoverable as the sum of their estimated future undiscounted cash flows were below the asset’s carrying value and accordingly, we estimated the fair value of these identified assets using a DCF analysis to measure the impairment loss. As a result of this analysis, we wrote off the difference between the identified intangible assets’ estimated fair values and the carrying values and recognized an impairment charge of $12.7 million in the third quarter of fiscal 2009.
 
In the fourth quarter of 2009, in conjunction with our completion of goodwill impairment analysis, and also due to the revised lower revenue forecast for fiscal 2010, which we concluded there were additional impairment indicators, we performed an impairment analysis for our long-lived assets.  As result of this impairment analysis, we recorded an impairment charge of approximately $66.7 million in the fourth quarter of fiscal 2009.
 
Other-Than-Temporary Impairment Loss on Investment

We account for our equity investments in privately held companies under the cost method.  These investments are subject to periodic impairment review and measured and recorded at fair value when they are deemed to be other-than-temporarily impaired. In determining whether a decline in value of our investments has occurred and is other than temporary, an assessment is made by considering available evidence, including the general market conditions, the investee’s financial condition, near-term prospects, market comparables and subsequent rounds of financing. The valuation also takes into account the investee’s capital structure, liquidation preferences for its capital and other economic variables. The valuation methodology for determining the decline in value of non-marketable equity securities is based on inputs that require management judgment. Based on our assessment at the end of fiscal 2011 and 2010, respectively, we concluded that the $8.5 million and $2.0 million fair value of the investments were recoverable and therefore, no impairment was recorded.

In fiscal 2009, we determined an impairment indicator existed related to equity investment in Best Elite International Limited. As a result, we performed a fair value analysis for this investment. Based on the results, we recognized an other-than-temporary impairment charge of $3.0 million related to this investment in fiscal 2009 to write it down to its estimated fair value of $2.0 million.

Restructuring

As part of an effort to streamline operations with changing market conditions and to create a more efficient organization, we reduced our workforce and consolidated our facilities.  The resulting restructuring expenses were comprised primarily of: (i) severance and termination benefit costs related to the reduction of our workforce; and (ii) lease termination costs and costs associated with permanently vacating certain facilities.

In the third quarter of fiscal 2011, we initiated a restructuring action intended to further adjust our skills mix to new strategic and product opportunities. The restructuring action included a reduction in headcount in our multiple divisions. As a result, we recorded restructuring expenses of approximately $1.7 million for severance payments, payments under federal, state and province notice statutes and retention and other benefits associated with this restructuring action in the third quarter of fiscal 2011. We completed this restructuring action in the fourth quarter of fiscal 2011.

In connection with the discontinuing test operations at our Singapore facility in the fourth quarter of fiscal 2010, we exited the leased facility in Singapore in the first quarter of fiscal 2011. As a result, we recorded lease impairment charges of approximately $0.5 million in fiscal 2011, which represented the future rental payments under the agreements, reduced by an estimate of sublease incomes, and discounted to present value using an interest rate applicable to us. These charges were recorded as cost of goods sold.  Since the initial restructuring, we have made lease payments of $0.3 million. As of April 3, 2011, the remaining accrued lease liabilities were $0.2 million.  We expect to pay off the facility lease charges through the third quarter of fiscal 2013.

In connection with the divestitures of MNC business and SLE business in the third quarter of fiscal 2010, we exited certain leased facilities. As a result, we recorded lease impairment charges of approximately $0.9 million, which represented the future rental payments under the lease agreements, reduced by an estimate of sublease incomes, and discounted to present value using


an interest rate applicable to us. These charges were recorded as SG&A.  Since the initial restructuring, we have made lease payments of $0.7 million related to the vacated facilities.  As of April 3, 2011, the remaining accrued lease liabilities were $0.2 million. We expect to pay off the facility lease charges through the first quarter of fiscal 2013.

In addition, in connection with our plan to transition the manufacture of products to TSMC, our management approved a plan to exit wafer production operations at our Oregon fabrication facility.  As a result, we accrued restructuring expenses of approximately $4.8 million for severance payments and other benefits associated with this restructuring action in fiscal 2010. We expect to complete this restructuring action in the third quarter of fiscal 2012.

During the second quarter of fiscal 2006, we completed the consolidation of our Northern California workforce into our San Jose headquarters and exited a leased facility in Salinas, California. We recorded lease impairment charges of approximately $2.1 million, of which $0.6 million was recorded as cost of revenues, $0.9 million was recorded as R&D expense and $0.6 million was recorded as SG&A expense. Since the initial restructuring, we have made lease payments of $1.4 million related to the vacated facility in Salinas.  As of April 3, 2011, the remaining accrued lease liabilities were $0.7 million.  We expect to pay off this facility charge through the third quarter of fiscal 2014.
 
Divestitures

On December 4, 2009, we completed the sale of certain assets and transferred certain liabilities related to the Silicon Logic Engineering (SLE) business to Open Silicon Inc. (“OSI”) for $1 in cash. In the third quarter of fiscal 2010, we recorded a loss of $0.2 million related to the divestiture. In connection with the divestiture, we entered into a design service agreement with OSI whereby they agreed to provide and the Company agreed to purchase design services from OSI through the end of calendar year 2010. The total commitment under this design service agreement is $0.8 million. We paid approximately $0.6 million and $0.4 million for services from OSI in fiscal 2011 and 2010. We also signed a sublease agreement with OSI for office facilities in Eau Claire, Wisconsin, which will expire in June 2012.

On November 30, 2009, we completed the sale of certain assets and transferred certain liabilities related to our MNC business to Spectrum Control, Inc ("Spectrum Control") for approximately $12.8 million. MNC business was part of the Communication reportable segment. As a result, in the third quarter of fiscal 2010, we recorded a loss of $4.3 million related to the divestiture. All employees in our MNC business were transferred to Spectrum Control as a result of the transaction. In addition, we also signed a sublease agreement with Spectrum Control for the facility in Worcester, Massachusetts.  The sublease expired in May, 2010.

On July 17, 2009, we completed the sale of certain assets related to the NWD Division to NetLogic Microsystems, Inc ("Netlogic") for $98.2 million in cash, pursuant to an Asset Purchase Agreement by and between the Company and NetLogic dated April 30, 2009 (the "Agreement"). The NWD Assets were part of the Communications reportable segment. In connection with the divestiture, we entered into a supply agreement with NetLogic whereby they agreed to buy and we agreed to sell Netlogic certain network search engine products for a limited time following the closing of the sale.  According to the terms set forth in the agreement, we committed to sell certain products either at our standard costs or below our normal gross margins, which are lower than their estimated fair values.  As a result, we recorded a liability of $3.0 million related to the estimated fair value of this agreement, of which $1.3 million and $0.8 million was recognized in fiscal 2011 and 2010. We expect to complete the sale under this agreement in fiscal 2012.  In fiscal 2010, we recorded a gain of $82.7 million related to the divestiture.

Interest Income and Other, Net 

The components of interest income and other, net are summarized as follows:

   
Fiscal Year Ended
 
(in thousands)
 
April 3, 2011
   
March 28, 2010
   
March 29, 2009
 
Interest income
  $ 1,051     $ 1,741     $ 5,456  
Other income (expense), net
    2,646       2,136       (4,208 )
Interest income and other, net
  $ 3,697     $ 3,877     $ 1,248  

Interest income decreased $0.7 million in fiscal 2011 compared to fiscal 2010, primarily attributable to lower average interest rates and lower cash and investment balances during fiscal 2011compared to fiscal 2010.  Other income (expense), net


increased $0.5 million, primarily attributable to a decrease in foreign currency loss and an increase in gain from sale and retirement of our fixed assets in fiscal 2011 compared to fiscal 2010.

Interest income decreased $3.7 million in fiscal 2010 compared to fiscal 2009, primarily attributable to lower interest rates.  Other income (expense), net increased from a net expense of $4.1 million in fiscal 2009 to income of $2.2 million in fiscal 2010.  The change is primarily attributable to gains recognized in the value of the deferred compensation plan assets.

Income Tax Expense (Benefit)

We recorded an income tax benefit of $19.4 million in fiscal 2011, compared to an income tax provision of $2.5 million in fiscal 2010.  The income tax benefit in fiscal 2011 was primarily attributable to a one-time tax benefit of $20.1 million associated with the effective settlement of the IRS audit for the fiscal years from 2001 to 2008.  In the fourth quarter of fiscal 2011, we entered into a Closing Agreement with the IRS on the “buy-in payment” for the tax structure and Extraterritorial Income Exclusion for the exported products outside the U.S.  The total tax adjustments increased taxable income and reduced our net operating loss carryforward by $59.5 million. We recorded an income tax provision of $2.5 million in fiscal 2010, which primarily reflected income tax provision for the sale of the NWD assets and MNC business, the true-up of the federal income tax returns for fiscal 2009, current U.S. and state taxes and foreign income taxes.  This was offset by income tax benefits for the true-up of the state fiscal 2009 income tax returns and the U.S. refundable research and development credit.

As of April 3, 2011, we continued to maintain a valuation allowance against our net U.S. and foreign deferred tax assets, as we could not conclude that it is more likely than not that we will be able to realize our U.S. and foreign deferred tax assets in the foreseeable future. We will continue to evaluate the release of the valuation allowance on a quarterly basis.

As of April 3, 2011, we were subject to the IRS examination in the U.S. federal tax jurisdiction for the fiscal years 2005, 2009 and 2010.  To date, we have not been notified by the IRS that a field audit will be conducted.  The statute of limitations to assess tax for 2009 expires in December 2012.  The general practice of the IRS is to notify taxpayers of an field audit months before the statute of limitations expire.  If we are audited by the IRS, based on currently available information, we believe that the ultimate outcome will not have a material adverse effect on our financial position, cash flows or results of operations.

Liquidity and Capital Resources

Our cash and cash equivalents and short-term investments were $299.2 million at April 3, 2011, a decrease of $44.0 million compared to March 28, 2010.  The decrease was primarily attributable to the payment of $107.6 million to repurchase our common stock, net cash payment of $6.2 million relating to acquisition of IKOR and $5.5 million cash payment for non-marketable equity securities, partially offset by $74.4 million cash from operations in fiscal 2011. We had no outstanding debt at April 3, 2011 and March 28, 2010.

Cash equivalents are highly liquid investments with original maturities of three months or less at the time of purchase. We maintain the cash and cash equivalents with reputable major financial institutions. Deposits with these banks may exceed the Federal Deposit Insurance Corporation (FDIC) insurance limits or similar limits in foreign jurisdictions. These deposits typically may be redeemed upon demand and, therefore, bear minimal risk. In addition, a significant portion of cash equivalents is concentrated in money market funds which are invested primarily in U.S. government treasuries. While we monitor daily the cash balances in our operating accounts and adjust the balances as appropriate, these balances could be impacted if one or more of the financial institutions with which we deposit fails or is subject to other adverse conditions in the financial markets. As of April 3, 2011, we had not experienced any loss or lack of access to our invested cash or cash equivalents in our operating accounts.  However, we can provide no assurances that access to our invested cash and cash equivalents will not be impacted by adverse conditions in the financial markets. See Item 1A-“Risk Factors: Global Market and Economic Conditions, including those related to the credit markets, may adversely affect our business and results of operations.”

In addition, as much of our revenues are generated outside the U.S., a significant portion of our cash and investment portfolio accumulates in the foreign countries in which we operate. At April 3, 2011, we had cash, cash equivalents and investments of approximately $176.4 million invested overseas in accounts belonging to various IDT foreign operating entities. While these amounts are primarily invested in U.S. dollars, a portion is held in foreign currencies, and all offshore balances are exposed to local political, banking, currency control and other risks. In addition, these amounts may be subject to tax and other transfer restrictions.


All of our short-term investments which are classified as available-for-sale investments are subject to a periodic impairment review. Investments are considered to be impaired when a decline in fair value is judged to be other-than-temporary. This determination requires significant judgment. For publicly traded investments, impairment is determined based upon the specific facts and circumstances present at the time, including a review of the closing price over the length of time, general market conditions and our intent and ability to hold the investment for a period of time sufficient to allow for recovery. Although we believe the portfolio continues to be comprised of sound investments due to high credit ratings and government guarantees of the underlying investments, a further decline in the capital and financial markets would adversely impact the market values of its investments and their liquidity. We continually monitor the credit risk in our portfolio and future developments in the credit markets and make appropriate changes to our investment policy as deemed necessary. We did not record any other-than-temporary impairment charges related to our short-term investments in fiscal 2011 and fiscal 2010.

Net cash provided by operating activities increased $22.3 million, or 43%, to $74.4 million in fiscal 2011 compared to $52.1 million in fiscal 2010.  A summary of the significant non-cash items included in net income are as follows:

          ● 
We recorded a $78.3 million gain in connection with our divestitures in fiscal 2010, but had no such gain in fiscal 2011.
  ●   
Amortization of intangible assets was $19.9 million in fiscal 2011 compared to $21.1 million in fiscal 2010. The decrease was due to a large portion of intangible assets related to the Integrated Circuits System, Inc. (“ICS”) acquisition being fully amortized.
   
  
Depreciation expense was $18.0 million in fiscal 2011 compared to $22.1 million in fiscal 2010.  The decrease is primarily attributable to a large portion of our manufacturing equipment being fully depreciated and our continuous efforts to control capital asset purchases.
   
 
We recorded a $1.6 million impairment charge in fiscal 2010, which was related to a note receivable from one of our subcontractors in connection with the sale of equipments in fiscal 2007.  We did not record such charges in fiscal 2011

Net cash used by working capital related items was $51.3 million in fiscal 2011, compared to  net cash provided by working capital related items of $28.4 million in fiscal 2010. A summary of significant working capital items that used relatively more cash in fiscal 2011 included:
 
   
 
An increase in inventory of $15.3 million in fiscal 2011 compared to a decrease of $26.2 million in fiscal 2010.  The increase in fiscal 2011 was due to increased inventory in work in process to support increased higher shipment levels combined with our build-ahead of inventory in anticipation of our wafer fabrication transition to the third party foundry.  The decrease in fiscal 2010 was primarily attributable to our efforts to align our inventory levels to meet current demand.
   
  
A decrease in income tax payable/receivable of $19.5 million in fiscal 2011 compared to an increase of $1.3 million in fiscal 2010.  The decrease in fiscal 2011 was due to our effective tax settlement with the IRS in the fourth quarter of fiscal 2011.  The increase in fiscal 2010 was due to the sale of the NWD assets and MNC business.
   
  
A decrease in other accrued liabilities and long term liabilities of $8.8 million in fiscal 2011 compared to an increase of $3.7 million in fiscal 2010.  The decrease in fiscal 2011 was primarily attributable to payments made related to our restructuring actions and supplier obligations in fiscal 2011. The increase in fiscal 2010 was primarily attributable to an increase in accruals related to our restructuring actions, deferred gain related to the agreement signed in connection with divestiture of our NWD assets and an increase in the fair value of our executive deferred compensation plan due to stock market performance improvement in fiscal 2010.
   
  
An increase in accounts payable of $1.0 million in fiscal 2011 compared to an increase in accounts payable of $8.2 million in fiscal 2010.  The increase in both periods was primarily attributable to the timing of payments and increase in the volume of foundry and subcontractor activity.
   
  
A decrease in deferred income on shipments to distributors of $5.9 million in fiscal 2011 compared to a decrease of $0.1 million in fiscal 2010. The decreases in both periods were attributable to distributor inventory reduction efforts.  
          
A decrease in prepayments and other assets of $1.8 million in fiscal 2011 compared to a decrease of 2.7 million in fiscal 2010.  The decrease in fiscal 2011 was primarily attributable to the normal recurring prepaid amortization, VAT refund and decrease in interest receivable due to timing of payment, partially offset by additional software maintenance and license agreements signed and paid in fiscal 2011. The decrease in fiscal 2010 is primarily attributable to a reduction in the receivable from one of our foundries, VAT refund and normal recurring prepaid amortization, partially offset by additional software maintenance agreements signed and paid.


The factors listed above were partially offset by other working capital items that provided relatively more cash during fiscal 2011:

   
An increase in accrued compensation of $7.4 million in fiscal 2011 compared to an increase of $0.2 million in fiscal 2010. The increase in fiscal 2011was primarily attributable to an accrual related to the incentive compensation expense as we implemented our new annual incentive plan in the beginning of the first quarter of fiscal 2011 and an increase in other employee bonus accrual as a result of our acquisitions.  The increase in fiscal 2010 was due to an increase in other employee bonus accrual as a result of our acquisitions and increase in wage and payroll tax accrual.

   
 
An increase in accounts receivable of $12.0 million in fiscal 2011 compared to an increase of $13.8 million in fiscal 2010.  The increase in accounts receivable was primarily attributable to the timing of shipments in the fourth quarter of both periods.

Net cash provided by operating activities in fiscal 2010 was $52.1 million, a decrease of $91.7 million or 64%, compared to $143.8 million in fiscal 2009.  The decrease was primarily attributable to non-cash items including a $78.3 million gain in connection with our divestitures, a decrease in the amortization of intangible assets and reduction of stock-based compensation expense, partially offset by absence of goodwill and intangible assets impairment charges, acquired IPR&D and other-than-temporary impairment loss in fiscal 2010 and an increase in net cash provided by working capital related items in fiscal 2010 compared to fiscal 2009.

Net cash used by investing activities was $0.4 million in fiscal 2011, compared to net cash used by investing activities of $52.7 million in fiscal 2010.  In fiscal 2011, we used $452.5 million to purchase short-term investments and non-marketable securities, paid approximately $6.2 million for the IKOR acquisition, $1.2 million held in escrow related to our acquisition and $12.5 million to purchase capital equipment and other, net.   Partially offsetting these amounts was $472.0 million cash proceeds from sale and maturity of short-term investments.  In fiscal 2010, net cash proceeds from the divestiture activities were $109.4 million.  Cash used to purchase short-term investments and non-marketable securities was $326.5 million, partially offset by cash proceeds from sale and maturity of short-term investments of $262.3 million.  In addition, we paid approximately $85.0 million, net of cash acquired, in conjunction with the acquisitions in fiscal 2010.

Net cash provided by investing activities was $52.7 million in fiscal 2010, compared to net cash used by investing activities of $88.7 million in fiscal 2009.  In fiscal 2009, cash used to purchase short-term investments was $239.6 million, partially offset by cash proceeds from the sale and maturity of short-term investments of $187.6 million.  Cash used to purchase of capital equipment totaled approximately $16.6 million in fiscal 2009.  In addition, we used $20.1 million to purchase Silicon Optix assets in the third quarter of fiscal 2009.

Net cash used in financing activities was $90.8 million in fiscal 2011, compared to $15.2 million in fiscal 2010, primarily due to the absence of repurchases of common stock during the first half year of fiscal 2010.  In fiscal 2011, we repurchased approximately $107.6 million of IDT common stock, partially offset by proceeds of approximately $15.3 million from the exercise of employee stock options and the issuance of stock under our employee stock purchase plan and $1.5 million excess tax benefit from share based payment arrangement.  In fiscal 2010, we received approximately $7.3 million from the exercise of employee stock options and the issuance of stock under our employee stock purchase plan, partially offset by the repurchase of $24.4 million of IDT common stock.

Net cash used in financing activities was $15.2 million in fiscal 2010, compared to $48.6 million in fiscal 2009.  In fiscal 2009, we repurchased approximately $62.3 million of IDT common stock, partially offset by proceeds of approximately $13.5 million from the exercise of employee stock options and the issuance of stock under our employee stock purchase plan.

We anticipate capital expenditures of approximately $20 million to $25 million during fiscal 2012 to be financed through cash generated from operations and existing cash and investments.



The following table summarizes our contractual arrangements at April 3, 2011 and the expected timing and effects of these commitments on our liquidity and cash flow in future periods:

   
Payments Due by Period
 
         
Less Than
    2-3     4-5        
(in thousands)
 
Total
   
1 Year
   
Years
   
Years
   
Thereafter
 
Operating leases
  $ 9,167     $ 3,675     $ 4,086     $ 1,406     $ --  
Other supplier obligations (1)
    8,135       4,524       2,278       1,333       --  

(1) Other supplier obligations represent payments due under various software design tool and technology license agreements.
 
As of April 3, 2011, our unrecognized tax benefits were $24.5 million, of which $0.7 million are classified as long-term liabilities and $23.8 million which are netted against deferred tax assets. In addition, we have $15.0 million of amounts payable related to obligations under our deferred compensation plan, which are classified as long-term liabilities.At this time, we are unable to make a reasonably reliable estimate of the timing of payments, if any, in individual years due to uncertainties in the timing or outcomes of either actual or anticipated tax audits and the timing of employee departures.  As a result, these amounts are not included in the table above.
 
Purchase orders or contracts for the purchase of raw materials and other goods and services are not included in the table above. We are not able to determine the aggregate amount of such purchase orders that represent binding contractual obligations, as purchase orders often represent authorizations to purchase rather than binding agreements.  Our purchase orders are based on our current manufacturing needs and are fulfilled by our vendors within short time horizons. We also enter into contracts for outsourced services, which generally contain clauses allowing for cancellation prior to services being performed without significant penalty.  In addition, the table above excludes leases in which amounts have been accrued for impairment charges.

We believe that existing cash and investment balances, together with cash flows from operations, will be sufficient to meet our working capital and capital expenditure needs through at least fiscal 2012. We may choose to investigate other financing alternatives; however, we cannot be certain that additional financing will be available on satisfactory terms.

The expected timing of payments and the amounts of the obligations discussed above are estimated based on information available as of April 3, 2011.
 
Off-Balance Sheet Arrangements
 
As of April 3, 2011, we did not have any off-balance sheet arrangements, as defined under SEC Regulation S-K Item 303(a)(4)(ii), other than the items discussed in Note 14 – Commitment and Contingencies” in Part II, Item 8 of this Annual Report on Form 10-K.

Recent Accounting Pronouncements
 
For further information, please see “Note 1—Summary of Significant Accounting Policies” in Part II, Item 8 of this Annual Report on Form 10-K.
 
Related Party Transactions
 
For further information, please see “Note 19—Related Party Transactions” in Part II, Item 8 of this Annual Report on Form 10-K.
 
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Our interest rate risk relates primarily to our short-term investments of $176.4 million and $222.7 million as of April 3, 2011 and March 28, 2010, respectively.  By policy, we limit our exposure to long-term investments and mitigate the credit risk through diversification and adherence to a policy requiring the purchase of highly rated securities. As of April 3, 2011 and March 28, 2010, the Company’s cash, cash equivalents and investment portfolio was concentrated in securities with same day liquidity and at the end of fiscal 2011, a substantial majority of securities in our investment portfolio had maturities of less than


two years. Although a hypothetical 10% change in interest rates could have a material effect on the value of our investment portfolio at a given time, we normally hold these investments until maturity, which results in no realized impact on results of operations or cash flows.  We do not currently use derivative financial instruments in our investment portfolio.

At April 3, 2011 and March 28, 2010, we had no outstanding debt.

We are exposed to foreign currency exchange rate risk as a result of international sales, assets and liabilities of foreign subsidiaries, local operating expenses of our foreign entities and capital purchases denominated in foreign currencies.  We may use derivative financial instruments to help manage our foreign currency exchange exposures.  We do not enter into derivatives for speculative or trading purposes. We performed a sensitivity analysis as of April 3, 2011 and March 28, 2011and determined that, without hedging the exposure, a 10% change in the value of the U.S. dollar would result in an approximate 0.4% and 0.4% impact on gross profit margin percentage, as we operate manufacturing facility in Malaysia, and an approximate 0.9% and 0.8% impact to operating expenses (as a percentage of revenue) as we operate sales offices in Japan and throughout Europe and design centers in the U.S., China, and Canada.  At April 3, 2011 and March 28, 2010, we had no outstanding foreign exchange contracts.

We did not have any currency exposure related to any outstanding capital purchases as of April 3, 2011 and March 28, 2010.


ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Index to Consolidated Financial Statements

       
Consolidated Financial Statements:
     
    38  
    39  
    40  
    41  
    42  
    43  
         
Financial Statement Schedule:
       
    84  




 
Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholders of
Integrated Device Technology, Inc.:

In our opinion, the consolidated financial statements listed in the accompanying index appearing under item 15(a)(1), present fairly, in all material respects, the financial position of Integrated Device Technology, Inc. and its subsidiaries at April 3, 2011 and March 28, 2010, and the results of their operations and their cash flows for each of the three years in the period ended April 3, 2011 in conformity with accounting principles generally accepted in the United States of America.  In addition, in our opinion, the financial statement schedule listed in index under item 15(a)(2)  presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements.  Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of April 3, 2011, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).  The Company's management is responsible for these financial statements and financial statement schedules, for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in Management's Report on Internal Control over Financial Reporting appearing under Item 9A.  Our responsibility is to express opinions on these financial statements, on the financial statement schedules, and on the Company's internal control over financial reporting based on our integrated audits.  We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).  Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects.  Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation.  Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk.  Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.  A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.  Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ PricewaterhouseCoopers LLP

San Jose, CA
May 27, 2011



INTEGRATED DEVICE TECHNOLOGY, INC.
CONSOLIDATED BALANCE SHEETS
 
 

(in thousands, except per share amounts)
April 3, 2011
 
March 28, 2010
 
Assets
           
Current assets:
           
Cash and cash equivalents
  $ 104,680     $ 120,526  
Short-term investments
    194,512       222,663  
Accounts receivable, net of allowances of $4,568 and $6,656
    81,798       68,957  
Inventories
    67,041       50,676  
Income tax receivable
    1,653       1,086  
Prepayments and other current assets
    22,276       24,000  
Total current assets
    471,960       487,908  
                 
Property, plant and equipment, net
    67,754       67,988  
Goodwill
    104,020       103,074  
Acquisition-related intangible assets, net
    51,021       65,242  
Deferred tax assets
    2,034       1,587  
Other assets
    30,671       25,146  
Total assets
  $ 727,460     $ 750,945  
                 
Liabilities and stockholders' equity
               
Current liabilities:
               
Accounts payable
  $ 36,470     $ 34,717  
Accrued compensation and related expenses
    28,212       20,738  
Deferred income on shipments to distributors
    12,853       18,761  
Deferred tax liabilities
    2,224       1,619  
Other accrued liabilities
    30,886       30,866  
Total current liabilities
    110,645       106,701  
                 
Deferred tax liabilities
    1,513       1,573  
Long-term income tax payable
    712       21,098  
Other long-term obligations
    15,808       21,833  
Total liabilities
    128,678       151,205  
                 
Commitments and contingencies (Note 14)
               
Stockholders' equity:
               
Preferred stock: $.001 par value: 10,000 shares authorized; no shares issued
    --       --  
Common stock: $.001 par value: 350,000 shares authorized; 148,352 and 162,878 shares outstanding at April 3, 2011 and March 28, 2010, respectively
    148       163  
Additional paid-in capital
    2,343,726       2,310,450  
Treasury stock at cost: 80,037 shares and 61,917 shares at April 3, 2011 and March 28, 2010, respectively
    (909,824 )     (802,217 )
Accumulated deficit
    (837,075 )     (909,702
Accumulated other comprehensive income
    1,807       1,046  
Total stockholders' equity
    598,782       599,740  
Total liabilities and stockholders' equity
  $ 727,460     $ 750,945  
                 

The accompanying notes are an integral part of these consolidated financial statements.


 
INTEGRATED DEVICE TECHNOLOGY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
 
 
 
 
Fiscal Year Ended
 
 
(In thousands, except per share data)
April 3,
2011
 
March 28,
2010
 
March 29,
2009
 
Revenues
  $ 625,705     $ 535,906     $ 663,245  
Cost of revenues
    290,394       310,999       388,796  
Gross profit
    335,311       224,907       274,449  
                         
Operating expenses:
                       
Research and development
    177,546       157,486       161,192  
Selling, general and administrative
    108,192       107,037       125,810  
Acquired in-process research and development
    --       --       5,597  
Goodwill and acquisition-related intangible asset impairment
    --       --       1,025,685  
Total operating expenses
    285,738       264,523       1,318,284  
                         
Operating income (loss)
    49,573       (39,616 )     (1,043,835 )
Gain on divestitures
    --       78,306       --  
Other-than-temporary impairment loss on investments
    --       --       (3,000 )
Interest income and other, net
    3,697       3,877       1,248  
Income (loss) before income taxes
    53,270       42,567       (1,045,587 )
Income tax expense (benefit)
    (19,357 )     2,548       (420 )
Net income (loss)
  $ 72,627     $ 40,019     $ (1,045,167 )
                         
Basic net income (loss) per share
  $ 0.47     $ 0.24     $ (6.22 )
Diluted net income (loss) per share
  $ 0.47     $ 0.24     $ (6.22 )
Weighted average shares:
                       
Basic
    154,511       165,408       168,114  
Diluted
    155,918       165,961       168,114  


The accompanying notes are an integral part of these consolidated financial statements.



INTEGRATED DEVICE TECHNOLOGY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS

 
Fiscal Year Ended
 
 
(in thousands)
April 3,
2011
 
March 28,
2010
 
March 29,
2009
 
Cash flows provided by operating activities:
                 
Net income (loss)
  $ 72,627     $ 40,019     $ (1,045,167 )
Adjustments:
                       
Depreciation
    17,986       22,118       26,337  
Amortization of intangible assets
    19,932       21,073       79,388  
Goodwill and acquisition-related intangible asset impairment
    --       --       1,025,685  
Assets impairment
    --       1,602       --  
Gain from divestitures
    --       (78,306 )     --  
Stock-based compensation expense, net of amounts capitalized in inventory
    16,529       16,674       32,402  
Acquired in-process research and development
    --       --       5,597  
Other-than temporary impairment loss on investments
    --       --       3,000  
Deferred tax provision (benefit)
    120       58       (1,301 )
Tax benefit from share based payment arrangements
    (1,487 )     432       --  
Changes in assets and liabilities (net of amounts acquired):
                       
Accounts receivable, net
    (12,005 )     (13,826 )     28,196  
Inventories
    (15,280 )     26,244       10,171  
Prepayments and other assets
    1,808       2,686       11,718  
Accounts payable
    978       8,231       (17,894 )
Accrued compensation and related expenses
    7,381       211       (7,964 )
Deferred income on shipments to distributors
    (5,908 )     (123 )     (7,774 )
Income taxes payable and receivable
    (19,476 )     1,296       4,814  
Other accrued liabilities and long-term liabilities
    (8,814 )     3,673       (3,433 )
Net cash provided by operating activities
    74,391       52,062       143,775  
                         
Cash flows used for investing activities
                       
Acquisitions, net of cash acquired
    (6,247 )     (85,000 )     (20,097 )
Cash in escrow related to acquisitions
    (1,160 )     --       --  
Proceeds from divestitures
    --       109,434       --  
Purchases of property, plant and equipment, net
    (12,510 )     (12,927 )     (16,591 )
Purchases of short-term investments
    (447,032 )     (325,510 )     (239,609 )
Purchases of non-marketable securities
    (5,500 )     (1,000 )     --  
Proceeds from sales of short-term investments
    42,613       53,635       25,166  
Proceeds from maturities of short-term investments
    429,413       208,639       162,397  
Net cash used for investing activities
    (423 )     (52,729 )     (88,734 )
                         
Cash flows used for financing activities
                       
Proceeds from issuance of common stock
    15,296       7,336       13,513  
Repurchase of common stock
    (107,607 )     (24,370 )     (62,338 )
Excess tax benefit from share based payment arrangements
    1,487       1,824       192  
Net cash used for financing activities
    (90,824 )     (15,210 )     (48,633 )
                         
Effect of exchange rates on cash and cash equivalents 
    1,010       367       (2,358 )
Net increase (decrease) in cash and cash equivalents
    (15,846 )     (15,510 )     4,050  
Cash and cash equivalents at beginning of period
    120,526       136,036       131,986  
Cash and cash equivalents at end of period
  $ 104,680     $ 120,526     $ 136,036  
                         
Supplemental disclosure of cash flow information
                       
Cash paid for:
                       
Interest
  $ 6     $ 7     $ 9  
Income taxes, net of refunds
  $ (127 )   $ 1,219     $ (4,072 )
Noncash investing activities:
                       
Common stock options assumed in connection with the Tundra acquisition
  $ --     $ 721     $ --  

The accompanying notes are an integral part of these consolidated financial statements.


INTEGRATED DEVICE TECHNOLOGY, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY


   
Common Stock and Additional Paid-In Capital
   
Treasury
Stock
   
Retained
Earnings (Accumulated Deficit)
   
Accumulated
Other
Comprehensive
Income (Loss)
   
Total
Stockholders'
Equity
 
(in thousands)
 
Shares
   
Dollars
                         
Balance, March 30, 2008
    171,282     $ 2,237,805     $ (715,509 )   $ 95,446     $ 3,080     $ 1,620,822  
Comprehensive loss:
                                               
Net loss
    --       --       --       (1,045,167 )     --       (1,045,167 )
Translation adjustment
    --       --       --       --       (2,082 )     (2,082 )
Net unrealized loss on investments
    --       --       --       --       (128 )     (128 )
Total comprehensive loss
                                            (1,047,377 )
Issuance of common stock
    2,373       13,513       --       --       --       13,513  
Repurchase of common stock
    (8,357 )     --       (62,338 )     --       --       (62,338 )
Excess tax benefit from stock option
    --       192       --       --       --       192  
Stock-based compensation expense
    --       32,256       --       --       --       32,256  
Balance, March 29, 2009
    165,298       2,283,766       (777,847 )     (949,721 )     870       557,068  
Comprehensive income:
                                               
Net income
    --       --       --       40,019       --       40,019  
Translation adjustment
    --       --       --       --       287       287  
Net unrealized loss on investments
    --       --       --       --       (111 )     (111 )
Total comprehensive income
                                            40,195  
Issuance of common stock
    1,745       7,336       --       --       --       7,336  
Common stock options assumed
    --       721       --       --       --       721  
Repurchase of common stock
    (4,165 )     --       (24,370 )     --       --       (24,370 )
Excess tax benefit from stock option
    --       2,256       --       --       --       2,256  
Stock-based compensation expense
    --       16,534       --       --       --       16,534  
Balance, March 28, 2010
    162,878       2,310,613       (802,217 )     (909,702 )     1,046       599,740  
Comprehensive income:
                                               
Net income
    --       --       --       72,627       --       72,627  
Translation adjustment
    --       --       --       --       978       978  
Net unrealized loss on investments
    --       --       --       --       (217 )     (217 )
Total comprehensive income
                                            73,388  
Issuance of common stock
    3,594       15,296       --       --       --       15,296  
Repurchase of common stock
    (18,120 )     --       (107,607 )     --       --       (107,607 )
Excess tax benefit from stock option
    --       1,487       --       --       --       1,487  
Stock-based compensation expense
    --       16,478       --       --       --       16,478  
Balance, April 3, 2011
    148,352     $ 2,343,874     $ (909,824 )   $ (837,075 )   $ 1,807     $ 598,782  


The accompanying notes are an integral part of these consolidated financial statements.


INTEGRATED DEVICE TECHNOLOGY, INC.
Notes to Consolidated Financial Statements

Note 1
Summary of Significant Accounting Policies

Nature of Business.    Integrated Device Technology, Inc. (IDT or the Company) designs, develops, manufactures and markets a broad range of integrated circuits for the advanced communications, computing and consumer industries.

Basis of Presentation.    The Company's fiscal year is the 52 or 53 week period ending on the Sunday nearest to March 31. Fiscal 2011 included 53 weeks and ended on April 3, 2011. Fiscal 2010 and 2009 each included 52 weeks and ended on March 28, 2010 and March 29, 2009, respectively.

Reclassifications.    Certain fiscal 2010 amounts in the accompanying consolidated financial statements have been reclassified to conform to the fiscal 2011 presentation. These reclassifications had no effect on the previously reported consolidated statements of operations or stockholders’ equity.

Principles of Consolidation.   The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All inter-company accounts and transactions have been eliminated.

Use of Estimates.   The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.

Cash and Cash Equivalents.  Cash equivalents are highly liquid investments with remaining maturities of three months or less at the time of purchase.

Investments

Available-for-Sale Investments.  Investments designated as available-for-sale include marketable debt and equity securities.  Available-for-sale investments are classified as short-term, as these investments generally consist of highly marketable securities that are intended to be available to meet near-term cash requirements.  Marketable securities classified as available-for-sale are reported at market value, with net unrealized gains or losses recorded in accumulated other comprehensive income (loss), a separate component of stockholders' equity, until realized.  Realized gains and losses on investments are computed based upon specific identification, are included in interest income and other, net and have not been significant for all periods presented.

Non-Marketable Equity Securities.  Non-marketable equity securities are accounted for at historical cost or, if the Company has significant influence over the investee, using the equity method of accounting.

Other-Than-Temporary Impairment.  All of the Company’s available-for-sale investments and non-marketable equity securities are subject to a periodic impairment review.  Investments are considered to be impaired when a decline in fair value is judged to be other-than-temporary.  This determination requires significant judgment.  For publicly traded investments, impairment is determined based upon the specific facts and circumstances present at the time, including a review of the closing price over the previous six months, general market conditions and the Company’s intent and ability to hold the investment for a period of time sufficient to allow for recovery.  For non-marketable equity securities, the impairment analysis requires the identification of events or circumstances that would likely have a significant adverse effect on the fair value of the investment, including revenue and earnings trends, overall business prospects and general market conditions in the investees’ industry or geographic area.  Investments identified as having an indicator of impairment are subject to further analysis to determine if the investment is other-than-temporarily impaired, in which case the investment is written down to its impaired value.

Inventories.   Inventories are recorded at the lower of standard cost (which approximates actual cost on a first-in, first-out basis) or market value.  Inventory held at consignment locations is included in finished goods inventory as the Company retains full title and rights to the product.  Inventory valuation includes provisions for excess and obsolete inventory based on management’s forecasts of demand over specific future time horizons and reserves to value our inventory at the lower of cost or market which rely on forecasts of average selling prices (ASPs) in future periods.



Property, Plant and Equipment.    Property, plant and equipment are stated at cost. Property, plant and equipment acquired in conjunction with mergers or acquisitions are stated at estimated fair value at the time of acquisition.  For financial reporting purposes, depreciation is computed using the straight-line method over estimated useful lives of the assets.  Estimated useful lives for major asset categories are as follows: machinery and equipment, 3 to 5 years; and buildings and improvements, 10 to 30 years. Leasehold improvements are amortized over the shorter of the estimated useful lives of the assets or the remaining term of the lease.

Long-Lived Assets and Goodwill.   The carrying values of long-lived assets, including purchased intangibles are evaluated whenever events or circumstances indicate that the carrying values may not be recoverable. If estimated undiscounted cash flows are not sufficient to recover the carrying values, the affected assets are considered impaired and are written down to their estimated fair value, which is generally determined on the basis of discounted cash flows or outside appraisals.

The Company tests for impairment of goodwill and other indefinite-lived assets on an annual basis, or more frequently if indicators of impairment are present.  These tests are performed at the reporting unit level using a two-step, fair-value based approach. The first step, used to determine if impairment possibly exists, is to compare the carrying amount of a reporting unit, including goodwill, to its fair value. If the carrying amount of the reporting unit exceeds the fair value, the second step is to measure the amount of impairment loss by comparing the implied fair value of reporting unit goodwill with the carrying amount of that goodwill.

Income Taxes.  The Company accounts for income taxes under an asset and liability approach that requires the expected future tax consequences of temporary differences between book and tax bases of assets and liabilities be recognized as deferred tax assets and liabilities. Generally accepted accounting principles require the Company to evaluate its ability to realize the value of its net deferred tax assets on an ongoing basis. A valuation allowance is recorded to reduce the net deferred tax assets to an amount that will more likely than not be realized. Accordingly, the Company considers various tax planning strategies, forecasts of future taxable income and its most recent operating results in assessing the need for a valuation allowance. In the consideration of the ability to realize the value of net deferred tax assets, recent results must be given substantially more weight than any projections of future profitability. Since the fourth quarter of fiscal 2003, the Company determined that, under applicable accounting principles, it could not conclude that it was more likely than not that the Company would realize the value of its net deferred tax assets. The Company’s assumptions regarding the ultimate realization of these assets remained unchanged in fiscal 2011 and accordingly, the Company continues to record a valuation allowance to reduce its deferred tax assets to the amount that is more likely than not to be realized.

At the beginning of Fiscal 2008, the Company adopted the Financial Accounting Standards Board’s (“FASB”) authoritative guidance which clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements. This interpretation prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. As a result of the implementation of this guidance, the Company recognizes the tax liability for uncertain income tax positions on the income tax return based on the two-step process prescribed in the interpretation. The first step is to determine whether it is more likely than not that each income tax position would be sustained upon audit. The second step is to estimate and measure the tax benefit as the amount that has a greater than 50% likelihood of being realized upon ultimate settlement with the tax authority. Estimating these amounts requires the Company to determine the probability of various possible outcomes. The Company evaluates these uncertain tax positions on a quarterly basis. This evaluation is based on the consideration of several factors including changes in facts or circumstances, changes in applicable tax law, settlement of issues under audit, and new exposures. If the Company later determines that the exposure is lower or that the liability is not sufficient to cover its revised expectations, the Company adjusts the liability and effect a related change in its tax provision during the period in which the Company makes such determination.

Revenue Recognition. The Company’s revenue results from semiconductor products sold through three channels: direct sales to original equipment manufacturers (“OEMs”) and electronic manufacturing service providers (“EMSs”), consignment sales to OEMs and EMSs, and sales through distributors.   The Company recognizes revenue when persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the price is fixed or determinable, and its ability to collect is reasonably assured.

For distributors in Americas and Europe regions, who have stock rotation, price protection and ship from stock pricing adjustment rights, the Company defers revenue and related cost of revenues on sales to these distributors until the product is sold through by the distributor to an end-customer.  Subsequent to shipment to the distributor, the Company may reduce


product pricing through price protection based on market conditions, competitive considerations and other factors.  Price protection is granted to distributors on the inventory that they have on hand at the date the price protection is offered.  The Company also grants certain credits to its distributors on specifically identified portions of the distributors’ business to allow them to earn a competitive gross margin on the sale of the Company’s products to their end customers.  As a result of its inability to estimate these credits, the Company has determined that the sales price to these distributors is not fixed or determinable until the final sale to the end-customer.

In the Asia Pacific (“APAC”) region and Japan, the Company has distributors for which revenue is recognized upon shipment, with reserves recorded for the estimated return and pricing adjustment exposures.   The determination of the amount of reserves to be recorded for stock rotation rights requires the Company to make estimates as to the amount of product which will be returned by customers within their limited contractual rights.  The Company utilizes historical return rates to estimate the exposure in accordance with authoritative guidance for Revenue Recognition When Right of Return Exists. In addition, on occasion, the Company can offer pricing adjustments to distributors for product purchased in a given quarter that remains in their inventory.  These amounts are estimated by management based on discussions with customers, assessment of market trends, as well as historical practice.

Based on the terms in the agreements with its distributors and the application of this policy, the Company recognizes revenue once the distributor sells its products to an end-customer for American and European distributors and recognizes revenue upon shipment to Japanese and other Asian distributors.  

Shipping and Handling Costs.  The Company includes shipping and handling costs billed to customers in revenues.  The Company’s shipping and handling costs are included in cost of revenues.

Stock-based Compensation. The fair value of employee restricted stock units is equal to the market value of the Company’s common stock on the date the award is granted.  The Company estimates the fair value of employee stock options and the right to purchase shares under the employee stock purchase plan using the Black-Scholes valuation model, consistent with the FASB’s authoritative guidance for share-based payments.  Option-pricing models require the input of highly subjective assumptions, including the expected term of options and the expected price volatility of the stock underlying such options.  In addition, the Company is required to estimate the number of stock-based awards that will be forfeited due to employee turnover.  The Company attributes the value of stock-based compensation to expense on an accelerated method.  Finally, the Company capitalizes into inventory a portion of the periodic stock-based compensation expense that relates to employees working in manufacturing activities.

The Company updates the expected term of stock option grants annually based on its analysis of the stock option exercise behavior over a period of time.  The interest rate used in the Black-Scholes valuation model to value the stock option is based on the average U.S. Treasury interest rate over the expected term during the applicable quarter.  The Company believes that the implied volatility of its common stock is an important consideration of overall market conditions and a good indicator of the expected volatility of its common stock.  However, due to the limited volume of options freely traded over the counter, the Company believes that implied volatility, by itself, is not representative of the expected volatility of its common stock.  Therefore, upon the adoption of FASB authoritative guidance for stock-based payment at the beginning of fiscal 2007, the Company revised the volatility factor used to estimate the fair value of its stock-based awards which now reflects a blend of historical volatility of its common stock and implied volatility of call options and dealer quotes on call options, generally having a term of less than twelve months.  The Company has not paid, nor does it have current plans to pay dividends on its common stock in the foreseeable future.

Translation of Foreign Currencies.    For subsidiaries in which the functional currency is the local currency, gains and losses resulting from translation of foreign currency financial statements into U.S. dollars are recorded as a component of accumulated other comprehensive income. For subsidiaries where the functional currency is the U.S. dollar, gains and losses resulting from the process of remeasuring foreign currency financial statements into U.S. dollars are included in interest income and other, net and have not been significant for all periods presented. 
 
Certain Risk and Concentrations.    The Company's most significant potential exposure to credit concentration risk includes debt-security investments, foreign exchange contracts and trade accounts receivable.  The Company’s investment policy addresses sector and industry concentrations, credit ratings and maturity dates.  The Company invests its excess cash primarily in high rated money market and short-term debt instruments, diversifies its investments and, by policy, invests only in highly rated securities to minimize credit risk.



The Company sells integrated circuits to OEMs, distributors and EMSs primarily in the U.S., Europe and Asia Pacific. The Company monitors the financial condition of its major customers, including performing credit evaluations of those accounts which management considers to be high risk, and generally does not require collateral from its customers.   When deemed necessary, the Company may limit the credit extended to certain customers.   The Company’s relationship with the customer, and the customer’s past and current payment experience, are also factored into the evaluation in instances in which limited financial information is available. The Company maintains an allowance for doubtful accounts for probable credit losses, including reserves based upon a percentage of total receivables.  When the Company becomes aware that a specific customer may default on its financial obligation, a specific amount, which takes into account the level of risk and the customer’s outstanding accounts receivable balance, is reserved.  These reserved amounts are classified within selling, general and administrative expenses.  Write-offs of accounts receivable balances were not significant in each of the three fiscal years presented.

One family of distributors, Maxtek and its affiliates, represented approximately 19%, 21% and 21% of the Company’s revenues in fiscal 2011, 2010 and 2009, respectively, and 19% and 23% of its gross accounts receivable balance as of April 3, 2011 and March 28, 2010, respectively.  Another distributor, Avnet represented approximately 13%, 11% and 10% of the Company’s revenues in fiscal 2011, fiscal 2010 and 2009, respectively. 

For foreign exchange contracts, the Company manages its potential credit exposure primarily by restricting transactions to only high-credit quality counterparties.

The semiconductor industry is characterized by rapid technological change, competitive pricing pressures, and cyclical market patterns. The Company's results of operations are affected by a wide variety of factors, including general economic conditions, both at home and abroad; economic conditions specific to the semiconductor industry; demand for the Company's products; the timely introduction of new products; implementation of new manufacturing technologies; manufacturing capacity; the availability and cost of materials and supplies; competition; the ability to safeguard patents and intellectual property in a rapidly evolving market; and reliance on assembly and manufacturing foundries, independent distributors and sales representatives. As a result, the Company may experience substantial period-to-period fluctuations in future operating results due to the factors mentioned above or other factors.

Product Warranty.    The Company maintains a reserve for obligations it incurs under its product warranty program. The standard warranty period offered is one year, though in certain instances the warranty period may be extended to as long as two years.  Management estimates the fair value of its warranty liability based on actual past warranty claims experience, its policies regarding customer warranty returns and other estimates about the timing and disposition of product returned under the program.

Recent Accounting Pronouncements.

In January 2010, the Financial Accounting Standards Board (the “FASB”) issued updated guidance related to fair value measurements and disclosures, which requires a reporting entity to disclose separately the amounts of significant transfers in and out of Level 1 and Level 2 fair value measurements and to describe the reasons for the transfers. In addition, in the reconciliation for fair value measurements using significant unobservable inputs, or Level 3, a reporting entity should disclose separately information about purchases, sales, issuances and settlements. The updated guidance also requires that an entity should provide fair value measurement disclosures for each class of assets and liabilities and disclosures about the valuation techniques and inputs used to measure fair value for both recurring and non-recurring fair value measurements for Level 2 and Level 3 fair value measurements. The updated guidance is effective for interim or annual financial reporting periods beginning after December 15, 2009, except for the disclosures about purchases, sales, issuances and settlements in the roll forward activity in Level 3 fair value measurements, which are effective for fiscal years beginning after December 15, 2010 and for interim periods within those fiscal years. The adoption of this guidance did not have a significant impact on the Company’s consolidated financial statements or related footnotes.

In September 2009, the FASB issued new accounting guidance related to the revenue recognition of multiple element arrangements. The new guidance states that if vendor specific objective evidence or third party evidence for deliverables in an arrangement cannot be determined, companies will be required to develop an estimate of the selling price to separate deliverables and allocate arrangement consideration using the relative selling price method. The accounting guidance was adopted by the Company in the first quarter of fiscal 2011.  However, as the Company does not generally enter into multiple element arrangements, the adoption of this guidance did not have a significant impact on the Company’s consolidated financial statements or related footnotes.