CALIFORNIA STATE UNIVERSITY, FULLERTON

MD&A RF Micro Devices & TriQuint Semiconductor

DUNG LE

ACCT 301 A

INTRODUCTION:

RF Micro Devices also known as RFMD is an American company and a global leader in

designing and manufacturing high-performance radio frequency systems and solutions for

applications that drive wireless and broadband communications RF Micro. On February 22,

2014, RF Micro partnered with TriQuint under the Merger Agreement with a new holding

company named Rocky Holding, Inc. TriQuint (TQNT) Semiconductor is a semiconductor

company that supplies, designs and manufactures high performance modules and components for

wireless communications applications. TriQuint primarily works with the semiconductor gallium

arsenide, or GaAs, and is the number-three worldwide leader in GaAs devices and the world’s

largest commercial GaAs foundry. They provide customers with high-performance, low-cost RF

solutions in the mobile devices, networks, and defense & aerospace end markets.

COMPARISON:

In both companies’ MD&As they all disclose the main analysis of data assisting readers in

understanding our results of operations and financial condition through the view of management.

Those include company overview, results of operation, liquidity and capital resource, off balance

sheet arrangement, contractual obligations, share based compensation and quantitative and

qualitative disclosure about market risk with similar rules and measures. However each of them

has different order of items. For example, RF Micro has a whole fiscal 2014 management

summary on the top of the analysis which compares the changes in revenue, gross margin,

operating income, net income per share, cash flow, capital expenditure, common stock, other

expenses and impairment, and they explain those items more detailed in the part of result of

operation. However for TriQuint they analyze capital expenditure, repurchases, inventory,

account receivable, long term liability and common stock in liquidity and capital resources part

with short comparison and explanation.

There are several differences in the method of each company using to report. RF Micro takes

operation results from 2012 to 2014 when TriQuint use the amount from 2011 to 2013. They

both disclose their revenue from their own segment operation. However TriQuint compares two

years at the time such as 2013- 2012 and 2012 – 2011, when RF Micro display three years in a

row. MD&A of RF Micro seems more precise than TriQuint’s; each part of RF Micro’s is

explained very detailed such as how much change compared to last year and the year before, and

what cause those changes. Another difference is RF Micro reporting cash flow from operating,

investing and financing activities in Liquidity and Capital Resources when TriQuint does not.

TriQuint’s MD&A mentions interest expense very quick along with outstanding and lacks

feedback on it, when RF Micro makes whole explanation for interest expense for how it

decreased. RF Micro provides their information of goodwill and intangible asset but not

liabilities, when TriQuint does not have any number on intangible asset but exposes the decrease

in their long term liabilities.

Net income is missing on RF Micro’s MD&A but available on TriQuint’s analysis. While RF

Micro discloses most of aspects of operation results, TriQuint seems to focus more on revenue

despite their analysis is missing total revenue. The next difference is RF Micro’s MD&A

mentioning the impact of inflation, and TriQuint’s having source of liquidity and Precious Metals

Reclaim. Other than that on Item 7A about the market risk, for RF Micro there is financial risk

management including interest rate, available for sale securities, credit agreement, currency

exchange rates and commodity prices. For TriQuint they only have two risks which are cash

equivalent and foreign currency risk. Both companies carry net loss in prior years, and RF

Micro’s total obligation expenses are higher than TriQuint’s

REASONS:

Most of companies tend to disclose what are improved on their operation results to attract

investors, and either hide their concerns or impress a cursory glance at their concerns. For

instance, both companies try to focus on revenue and other improved aspects to cover for their

losses. Even though both companies are merged together, it seems obviously that RF Micro has

higher level of detail than TriQuint, and there are several reasons for it. Firstly perhaps the RF

Micro is more complex than TriQuint, so it requires more explanation. It could also be because

management at the company is very conservative, so they think the more explanation they give

the better they are protected from shareholder lawsuits. Other reason might be some concerns of

TriQuint’s operating results being unjustified, because they are afraid it would be less effective

in building marketplace understanding of and confidence in a company’s future prospects;

although it is actually more effective. Other reason is that they are worried that they might lose

maintaining competitive advantage in market. As mentioned RF Micro did not expose the total

net income/loss, and TriQuint does not provide exact amount on net loss since they use

percentage instead of dollar amount. Concerns about disclosing those information is for fear of

offending investors, or lacking gross profit amount like TriQuint might be due to fear of

compromising ongoing discussions with government agencies. A company with declining

revenues or slightly change in revenue such as TriQuint may be willing to make itself look like

being in a contracting industry but generally will not want to reveal that it is losing market share,

or explain the underlying causes with fear of loss of investors. As I mentioned above RF Micro

starts reporting 2014 information even though they have not pass the end of year yet, results in

operating income instead of loss like in prior year. The reason is that they want to make investors

feel secure that they have gain other than loss up to date.

Lacking intangible assets information on TriQuint MD&A might tell the fair value of their

goodwill and intangible assets is lower than their carrying value. Another reason is that many

companies prepare MD&A by copying the previous year’s and using it as a main template that

results in less modifications, little new information in MD&A, substantial boilerplate disclosures,

generic language, and immaterial detail without specific content. Due to the significant change in

operation after merging with TriQuint, RF Micro might modify MD&A to a larger degree and

higher level of detail.

CONCLUSION:

For investor the most valuable information in both companies’ MD&As is the proposed merger

which is expected to have a significant impact on the financial position or results of operations.

Merging can help accessing funds or valuable assets for new development, increase market share,

reduce costs and overheads through shared marketing budgets and increase revenue. Revenue,

gross margin, operating expenses, operating income help investors consider and compare past

and present results, and what they expect for the future. For instance, costs and revenues have

changed since last period, so investors will consider what drove those changes, and if they

should expect more. Liquidity and Capital Resources are also important; they tell how strong

company financial position is. Investors definitely cannot miss the market risk since it lets them

know the company is worth investing in or not. Cash flow from all the activities is the sign to

predict and evaluate stock price from investment. Growth in net income and revenue growth will

make a big impact on earnings per share to shareholders. Share based compensation is intended

to align employees' interests with those of the existing shareholders. Therefore, investors will be

cautioned that stock-based compensation is offered to employees as an incentive to continue

their contribution to the operating results of the company in future. Unless all the policies are

still the same with other companies, critical accounting estimates is important to understanding

2014 2013 2012

(In thousands, except

percentages) Dollars % of

Revenue Dollars % of

Revenue Dollars % of

Revenue

Revenue $ 1,148,231

100.0 % $ 964,147

100.0 % $ 871,352

100.0 %

Cost of goods sold 743,304

64.7

658,332

68.3

582,586

66.9

Gross profit 404,927

35.3

305,815

31.7

288,766

33.1

Research and

development 197,269

17.2

178,793

18.5

151,697

17.4

Marketing and

selling 74,672

6.5

68,674

7.1

63,217

7.3

General and

administrative 76,732

6.7

64,242

6.7

50,107

5.7

Other operating

expense (income) 28,913

2.5

9,786

1.0

(898 ) (0.1 )

Operating income

(loss) $ 27,341

2.4 % $ (15,680 ) (1.6 )% 24,643

2.8 %

the assumptions and judgments incorporated in their reported financial results and forecasts. Off

balance sheet arrangements provide investors with management's insight into the impact of the

potential material risks that arise from material off-balance sheet arrangements. Disclosure of

contractual obligations provides a context for investors to assess the role of off-balance sheet

arrangements relating to liquidity and capital resources. Finally business segments, goodwill and

intangible assets, inventory reserve, precious metals reclaim, and impact of inflation are the least

valuable to investors. The remains are average important for investors to consider.