UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2013

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File No. 000-51448

Hittite Microwave Corporation

(Exact name of Registrant as specified in its charter)

Delaware		04-2854672
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification Number)

2 Elizabeth Drive

Chelmsford, Massachusetts 01824

(Address of Principal Executive Offices and Zip Code)

(978) 250-3343

(Registrant’s Telephone Number, Including Area Code)

Indicate by check mark whether the registrant (1) filed all reports required to be filed by Section 13 or 15(d) of the 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 o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a “smaller reporting company” (as defined in Rule 12b-2 of the Exchange Act).

Large accelerated filer x Accelerated filer o Non-accelerated filer o Smaller reporting company o

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

As of October 24, 2013, Hittite Microwave Corporation had 31,521,608 shares of common stock, par value $0.01 per share, outstanding.

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PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

HITTITE MICROWAVE CORPORATION

Condensed Consolidated Balance Sheets

(Unaudited)

(in thousands, except per share data)	September 30, 2013			December 31, 2012
Assets
Current assets:
Cash and cash equivalents	$	219,232		$	269,157
Marketable securities	238,097			140,069
Accounts receivable, net of allowance for doubtful accounts of $334	35,671			30,921
Inventories	77,722			65,926
Income taxes receivable	4,131			1,566
Deferred taxes	13,451			14,988
Prepaid expenses and other current assets	2,960			2,761

Total current assets	591,264			525,388

Property and equipment, net	40,083			36,294
Deferred taxes	2,066			709
Other assets	8,869			11,172

Total assets	$	642,282		$	573,563

Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	5,797		$	3,205
Accrued commissions	1,732			1,645
Accrued payroll and benefits	5,235			3,726
Accrued other expenses	5,291			7,518
Income taxes payable	206			584
Customer advances	2,373			1,909
Deferred revenue	2,801			2,790

Total current liabilities	23,435			21,377

Long-term income taxes payable	4,964			412
Deferred taxes	348			446
Other liabilities	108			124

Total liabilities	28,855			22,359

Commitments and contingencies (Note 5)

Stockholders’ equity:
Preferred stock, $.01 par value: 5,000 shares authorized; no shares issued or outstanding at September 30, 2013 and December 31, 2012	—			—
Common stock, $.01 par value: 200,000 shares authorized; 31,519 and 31,563 shares issued and outstanding at September 30, 2013 and December 31, 2012, respectively	315			316
Additional paid-in capital	201,199			189,273
Accumulated other comprehensive loss	(1,392		)	(464		)
Retained earnings	413,305			362,079

Total stockholders’ equity	613,427			551,204

Total liabilities and stockholders’ equity	$	642,282		$	573,563

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

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HITTITE MICROWAVE CORPORATION
Condensed Consolidated Statements of Operations
(Unaudited)

	Three Months Ended September 30,				Nine Months Ended September 30,
(in thousands, except per share data)	2013		2012		2013		2012

Revenue	$	68,737	$	67,170	$	205,040	$	195,880
Cost of revenue	19,808		17,762		56,538		51,119

Gross profit	48,929		49,408		148,502		144,761

Operating expenses:
Research and development	11,994		12,549		37,941		36,753
Sales and marketing	5,638		6,017		17,411		17,647
General and administrative	3,298		3,290		10,491		11,130

Total operating expenses	20,930		21,856		65,843		65,530

Income from operations	27,999		27,552		82,659		79,231
Interest income	59		39		193		103
Other income (expense), net	46		13		140		(114		)

Income before income taxes	28,104		27,604		82,992		79,220
Provision for income taxes	9,365		9,915		28,605		28,365

Net income	$	18,739	$	17,689	$	54,387	$	50,855

Earnings per share:
Basic	$	0.61	$	0.58	$	1.78	$	1.68
Diluted	$	0.60	$	0.57	$	1.75	$	1.65

Weighted average shares outstanding:
Basic	30,619		30,361		30,589		30,345
Diluted	31,122		30,924		31,066		30,859

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

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HITTITE MICROWAVE CORPORATION
Condensed Consolidated Statements of Comprehensive Income
(Unaudited)

	Three Months Ended September 30,				Nine Months Ended September 30,
(in thousands)	2013		2012		2013			2012

Net income	$	18,739	$	17,689	$	54,387		$	50,855
Foreign currency translation adjustments	130		308		(935		)	297
Unrealized gain on marketable securities, net of tax	8		2		7			2
Comprehensive income	$	18,877	$	17,999	$	53,459		$	51,154

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

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HITTITE MICROWAVE CORPORATION
Condensed Consolidated Statements of Cash Flows

(Unaudited)

	Nine Months Ended September 30,
(in thousands)	2013			2012
Cash flows from operating activities:
Net income	$	54,387		$	50,855
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation	6,383			6,011
Amortization	1,896			3,158
Deferred taxes	57			(4,942		)
Provision for excess and obsolete inventory	2,385			1,864
Stock-based compensation	10,472			10,067
Changes in operating assets and liabilities:
Accounts receivable	(4,785		)	2,359
Inventories	(14,181		)	(23,424		)
Prepaid expenses and other assets	(214		)	(848		)
Deferred revenue and customer advances	474			44
Accounts payable	2,608			596
Accrued expenses	(498		)	5,627
Income taxes receivable and payable	1,609			(3,160		)

Net cash provided by operating activities	60,593			48,207

Cash flows from investing activities:
Purchases of property and equipment	(10,569		)	(9,487		)
Purchases of marketable securities	(397,873		)	(50,119		)
Proceeds from sales and maturities of marketable securities	300,000			—

Net cash used in investing activities	(108,442		)	(59,606		)

Cash flows from financing activities:
Proceeds from exercise of stock options	312			258
Payment of withholding taxes in connection with vesting of restricted stock	(3,162		)	(321		)
Excess income tax benefit related to stock-based compensation plans	1,141			340

Net cash (used in) provided by financing activities	(1,709		)	277

Effect of exchange rate changes on cash and cash equivalents	(367		)	181

Net decrease in cash and cash equivalents	(49,925		)	(10,941		)
Cash and cash equivalents, beginning of period	269,157			353,667

Cash and cash equivalents, end of period	$	219,232		$	342,726

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

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3. Fair Value of Financial Instruments

The Company measures at fair value certain financial assets and financial liabilities. Fair value is the price that would be received for an asset, or the exit price that would be paid to transfer a liability, in the principal or most advantageous market in an orderly transaction between market participants on the measurement date. There are three levels of inputs used to measure fair value, arranged in a hierarchy that maximizes the use of observable inputs:

Level 1:	Quoted prices (unadjusted) in active markets for identical assets or liabilities.

Level 2:	Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the related assets or liabilities.

Level 3:	Unobservable inputs that are supported by little or no market activity.

Assets and liabilities measured at fair value are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. The Company’s assessment of the significance of a particular input to the fair value measurement requires judgment and considers factors specific to the asset or liability. The following table sets forth the Company’s financial assets that were measured at fair value within the fair value hierarchy:

	September 30, 2013								December 31, 2012
	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
	(in thousands)
Cash equivalents	$	172,608	$	—	$	—	$	172,608	$	233,402	$	—	$	—	$	233,402
Marketable securities	238,097		—		—		238,097		140,069		—		—		140,069
Total	$	410,705	$	—	$	—	$	410,705	$	373,471	$	—	$	—	$	373,471

Cash equivalents include money market funds as well as highly rated government securities with maturities of three months or less at the time of acquisition. The Company’s portfolio of marketable securities consists of treasury bills and treasury notes, which are classified as available-for-sale. Treasury bills and treasury notes consist of debt securities issued by the U.S. government. Gross unrealized gains and losses are immaterial for the periods presented. The effective maturity dates of these investments are less than one year.

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4. Inventories

Net inventories consist of the following:

(in thousands)	September 30, 2013		December 31, 2012

Raw materials	$	50,169	$	44,128
Work in process	12,811		8,289
Finished goods	14,742		13,509

	$	77,722	$	65,926

The Company is transitioning away from one of its foundries from which it sources a substantial portion of its GaAs wafers. The Company is working with the foundry to manage this transition with the goal of maintaining adequate supplies of the affected products over their natural life cycles, which are typically five to ten years. The Company has continued to make purchases of raw materials inventory from this foundry in order to support the products which have the longest life cycles. At September 30, 2013 and December 31, 2012, raw material inventory includes approximately $39,500,000 and $33,100,000, respectively, of advance purchases of wafers from this foundry.

5. Commitments and Contingencies

Indemnification

In connection with the sale of products in the ordinary course of business, the Company often makes representations affirming, among other things, that its products do not infringe on the intellectual property rights of others, and agrees to indemnify customers against third-party claims for such infringement. Further, the Company’s by-laws require it to indemnify its officers and directors against any action that may arise out of their services in that capacity, and the Company has also entered into indemnification agreements with respect to all of its directors. The Company has not been subject to any material liabilities under such provisions and therefore believes that its exposure for these indemnification obligations is minimal. Accordingly, the Company has no liabilities recorded for these indemnity agreements as of September 30, 2013 and December 31, 2012.

Product Warranties

The Company provides product warranties in conjunction with certain product sales. Generally, product sales are accompanied by a one-year warranty period. These warranties cover factors such as nonconformance to specifications and defects in material and workmanship. Estimated standard warranty costs are recorded in the period in which the related product sales occur. The Company’s warranty accrual and related expense were immaterial to the Company’s financial position and results of operations for the periods presented herein.

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6. Earnings per Share

The following table sets forth the computation of basic and diluted net income per share:

	Three Months Ended September 30,				Nine Months Ended September 30,
(in thousands, except per share data)	2013		2012		2013		2012
Basic earnings per share:
Net income	$	18,739	$	17,689	$	54,387	$	50,855

Weighted average common shares outstanding	30,619		30,361		30,589		30,345

Basic earnings per share	$	0.61	$	0.58	$	1.78	$	1.68

Diluted earnings per share:
Net income	$	18,739	$	17,689	$	54,387	$	50,855

Weighted average common shares outstanding	30,619		30,361		30,589		30,345
Effect of dilutive equity awards	503		563		477		514

Adjusted weighted average shares — diluted	31,122		30,924		31,066		30,859

Diluted earnings per share	$	0.60	$	0.57	$	1.75	$	1.65

The dilutive effect of outstanding equity awards, in the form of stock options, restricted stock awards and restricted stock units, is reflected in diluted earnings per share by application of the treasury stock method, which includes consideration of unamortized compensation cost and excess tax benefits on stock-based compensation. For all periods presented, an immaterial number of such securities were excluded from the calculation of diluted earnings per share, as their impact would have been anti-dilutive.

7. Stock-Based Compensation

On March 13, 2013, the Company announced that Stephen G. Daly would step down from the offices of chairman of the board, president and chief executive officer and that Rick D. Hess would be appointed as its new president and chief executive officer, each effective April 1, 2013. On April 1, 2013, the Company granted to Mr. Hess two restricted stock unit awards: (a) a time-vested restricted stock unit award, vesting in four equal annual installments, providing for the issuance to him, upon vesting in full, of 25,193 shares of the Company’s common stock, having a value on the date of grant equal to $1,500,000; and (b) a market-based restricted stock unit award providing for the issuance to him, provided that he remains employed by the Company on the fourth anniversary of the date of grant, of 25,193 shares of the Company’s common stock, having a value on the date of grant equal to $1,500,000 (the “target award”). The market conditions to which the target award is subject relate to the relative total shareholder return, or TSR, of the Company’s common stock over the four-year vesting period, in comparison to the TSRs of a group of comparable companies. The number of shares constituting the target award may be increased by up to 100% in the event that the Company’s TSR is positive and exceeds the 50th percentile in the comparison group. The number of shares to be issued upon vesting is capped such that the aggregate market value of the shares delivered will not exceed $4,500,000 as of the vesting date. The comparison group consists of the companies included in the Philadelphia Stock Exchange Semiconductor Sector (SOX) index, a capitalization-weighted index composed of companies primarily involved in the design, distribution, manufacture and sale of semiconductors.

The market-based restricted stock unit award has been classified as equity by the Company. The equity classification reflects the Company’s determination that it is not probable that the aggregate market value of the shares to be delivered upon vesting will be limited by the cap. The grant date fair market value of the market-based restricted stock unit award will be recognized as stock-based compensation over the four-year service term whether or not the market condition is ultimately satisfied.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

This information should be read in conjunction with our audited consolidated financial statements and notes thereto and Management’s Discussion and Analysis of Financial Condition and Results of Operations appearing in our Annual Report on Form 10-K for the year ended December 31, 2012.

Description of Our Revenue, Costs and Expenses

Revenue. Our revenue is derived primarily from the sale of standard and custom products. We develop standard products from our own specifications, which we sell through our direct sales organization, our network of independent sales representatives, two distributors and our website. We also develop custom products to meet the specialized requirements of individual customers, which are sold by our direct sales organization.

We sell our products to original equipment manufacturers, or OEMs, that supply advanced electronic systems to commercial and military end users, and to these OEMs’ contract manufacturers. In general, the decision to purchase our product is made by the OEM, which has designed our product into its system. In the event that we sell to an OEM’s contract manufacturer, the contract manufacturer typically does not have discretion to replace our product with one from a different supplier.

Our sales cycle varies substantially, ranging from a period of a month or less when a customer selects a standard product from our selection guide or website, to as long as two years or more for custom products. In the sales process, our sales and application engineers work closely with the OEM customer to analyze the customer’s system requirements and select an appropriate standard product or establish a technical specification for a custom product. In the case of a custom product, we also select a semiconductor process and foundry, and evaluate test wafers and finished components before manufacturing in commercial quantities can begin. Volume purchases of our products by an OEM customer, or its contract manufacturer, generally do not occur until the OEM customer has made the decision to begin production of the system incorporating our product. Our receipt of substantial revenue from sales of a product to an OEM customer depends on that customer’s commercial success in manufacturing and selling its system incorporating our product. It may take several years for a newly introduced standard product to generate substantial revenue, if ever. However, the life cycles of our standard products tend to be lengthy.

Although most of our revenue is derived from sales of our products, we also receive a small percentage of our revenue from customer-sponsored research and development activities. These activities range from pure research, in which we investigate integrated circuit, or IC, design techniques on new semiconductor technologies at the request of a government agency or commercial customer, to custom development projects in which we are paid to enhance or modify an existing product or develop a new product to meet a customer’s specifications.

Cost of revenue. Cost of revenue consists primarily of the cost of semiconductor wafers that we purchase from our third-party foundries and other materials such as packages, epoxies, connectors and production masks. Cost of revenue also includes personnel costs and overhead related to our manufacturing and engineering operations, including occupancy and equipment costs, shipping costs, charges for inventory excess and obsolescence and warranty obligations and amortization of related intangible assets.

Research and development. Research and development expense consists primarily of personnel costs of our research and development organization, third-party consulting costs, costs of development wafers, license fees for computer-aided design software, costs of development testing and evaluation, costs of developing automated test software, related occupancy and equipment costs and amortization of related intangible assets. We expense all research and development costs as incurred.

Sales and marketing. Sales and marketing expense consists primarily of personnel costs of our sales and marketing organization, sales commissions paid to independent sales representatives, costs of advertising, trade shows, corporate marketing, promotion, travel, related occupancy and equipment costs, amortization of related intangible assets and other marketing costs.

General and administrative. General and administrative expense consists primarily of personnel costs of our executive management, finance, and other administrative staff, outside professional fees including legal and accounting, related occupancy and equipment costs and other corporate expenses.

Trends and Uncertainties

We have been transitioning away from one of our principal foundries from which we historically sourced a substantial portion of our GaAs wafers. We have been working with the foundry to manage this transition with the goal of maintaining adequate supplies of the affected products over their natural life cycles, which are typically five to ten years. The impact of this transition on our business remains uncertain. We have made larger than normal purchases of raw materials inventory from this foundry, which we refer to as advance purchases, in order to support the products which have the longest life cycles. This consumes cash and could expose us to increased risk of inventory write-offs. At September 30, 2013, raw material inventory includes $39.5 million of advance purchases of wafers from this foundry. During this transition, we could experience adverse reactions from customers, which could affect our revenues, and the productivity of our new product development efforts has been, and may continue to be, adversely affected as we divert engineering resources in order to translate certain existing products to other foundries, which could affect our profitability. Further, products translated to other foundries could have inferior performance, production yields or costs. If we fail, or are unable, to purchase adequate quantities of GaAs wafers from this foundry to meet future demand of the related products, we may lose opportunities to sell these products to our customers. If any of these events were to occur to a more significant degree than they have to date, our business, revenues, profitability and financial condition could be adversely affected.

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For a description of the accounting policies which, in our opinion, involve the most significant application of judgment, or involve complex estimation, and which could, if different judgments or estimates were made, materially affect our reported results of operations, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Critical Accounting Policies and Estimates” in our Annual Report on Form 10-K for the year ended December 31, 2012.

Results of Operations

Comparison of the Three Month Periods Ended September 30, 2013 and 2012

Revenue. In the three months ended September 30, 2013, our revenue increased $1.6 million, or 2.3%, to $68.7 million, compared with $67.2 million in the corresponding period of 2012. Revenue from sales to customers outside the United States accounted for 56.6% of our total revenue in the three months ended September 30, 2013, compared with 51.3% in the corresponding period of 2012. Our revenue increase was primarily attributable to a $1.7 million increase in sales to the microwave and millimeterwave communications market and a $1.4 million increase in sales to the broadband market, which were partially offset by a $1.1 million decrease in sales to the space market.

Gross margin. In the three months ended September 30, 2013, our gross margin was 71.2% compared with 73.6% in the corresponding period of 2012. The decrease in our aggregate gross margin was primarily attributable to a net 150 basis point decrease due to pricing and a net 120 basis point decrease due to product mix, partially offset by a net 30 basis point improvement due to lower manufacturing costs. Our gross margin for the three months ended September 30, 2013 was within a normal range and consistent with our historical results.

Research and development expense. In the three months ended September 30, 2013, our research and development expense decreased $0.6 million, or 4.4%, to $12.0 million, and represented 17.5% of our revenue, compared with $12.5 million, or 18.7% of our revenue, in the corresponding period of 2012. The decrease in our research and development expense was primarily attributable to a $0.6 million decrease in professional fees, a $0.1 million decrease in equipment costs and a $0.1 million decrease in depreciation and amortization, partially offset by a $0.2 million increase in supplies and materials and other costs.

Sales and marketing expense. In the three months ended September 30, 2013, our sales and marketing expense decreased $0.4 million, or 6.3%, to $5.6 million, and represented 8.2% of our revenue, compared with $6.0 million, or 9.0% of our revenue, in the corresponding period of 2012. The decrease in our sales and marketing expense was primarily attributable to a $0.2 million decrease in amortization and a $0.2 million decrease in professional fees and other costs.

General and administrative expense. In the three months ended September 30, 2013, our general and administrative expense was flat at $3.3 million, and represented 4.8% of our revenue, compared with $3.3 million, or 4.9% of our revenue in the corresponding period of 2012.

Interest income. In the three months ended September 30, 2013, our interest income was $59,000 compared with $39,000 in the corresponding period of 2012. Interest income in both periods reflects the low effective yields that were available due to the current market conditions.

Other income (expense), net. In the three months ended September 30, 2013, our other income, net was $46,000 compared with $13,000 in the corresponding period of 2012. The change was primarily due to increased net foreign currency gains.

Provision for income taxes. Our provision for income taxes decreased $0.6 million to $9.4 million in the three months ended September 30, 2013, from $9.9 million in the corresponding period of 2012, representing an effective tax rate of 33.3% and 35.9% in 2013 and 2012, respectively. Our effective tax rate decreased 260 basis points primarily as the result of two principal factors. Our effective tax rate decreased by 710 basis points due to an increase in tax benefits from foreign tax rate differentials and foreign tax credits, partially offset by a 390 basis point increase in the effective tax rate due to an increase in deemed dividends from our foreign subsidiaries, pursuant to Subpart F of the Internal Revenue Code.

Comparison of the Nine Month Periods Ended September 30, 2013 and 2012

Revenue. In the nine months ended September 30, 2013, our revenue increased $9.2 million, or 4.7%, to $205.0 million, compared with $195.9 million in the corresponding period of 2012. Revenue from sales to customers outside the United States accounted for 56.0% of our total revenue in the nine months ended September 30, 2013, compared with 51.9% in the corresponding period of 2012. Our revenue increase was primarily attributable to a $4.4 million increase in sales to the microwave and millimeterwave communications market, $3.1 million increase in sales to the cellular market and a $2.2 million increase in sales to the test and measurement market.

Gross margin. In the nine months ended September 30, 2013, our gross margin was 72.4% compared with 73.9% in the corresponding period of 2012. The decrease in our aggregate gross margin was primarily attributable to a net 210 basis point decrease due to pricing and a net 100 basis point decrease due to product mix, partially offset by a net 160 basis point improvement due to lower manufacturing costs. Our gross margin for the nine months ended September 30, 2013 was within a normal range and consistent with our historical results.

Research and development expense. In the nine months ended September 30, 2013, our research and development expense increased $1.2 million, or 3.2%, to $37.9 million, and represented 18.5% of our revenue, compared with $36.8 million, or 18.8% of our revenue, in the corresponding period of 2012. The increase in our research and development expense was primarily attributable to a $1.1 million increase in supplies and materials and a $0.2 million increase in personnel, partially offset by a net $0.1 million decrease in equipment and other costs.

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Sales and marketing expense. In the nine months ended September 30, 2013, our sales and marketing expense decreased $0.2 million, or 1.3%, to $17.4 million, and represented 8.5% of our revenue, compared with $17.6 million, or 9.0% of our revenue, in the corresponding period of 2012. The decrease in our sales and marketing expense was primarily attributable to a $0.7 million decrease in amortization expense, partially offset by a $0.3 million increase in personnel costs and a net $0.2 million increase in commissions and other costs.

General and administrative expense. In the nine months ended September 30, 2013, our general and administrative expense decreased $0.6 million, or 5.7% to $10.5 million, and represented 5.1% of our revenue, compared with $11.1 million, or 5.7% of our revenue, in the corresponding period of 2012. The decrease in our general and administrative expense was primarily attributable to a $0.5 million charge related to a U.S. payroll tax audit recorded in the second quarter of 2012 that did not recur in 2013, and a net $0.1 million decrease in other costs.

Interest income. In the nine months ended September 30, 2013, our interest income was $193,000 compared with $103,000 in the corresponding period of 2012. Interest income in both periods reflects the low effective yields that were available due to the current market conditions.

Other income (expense), net. In the nine months ended September 30, 2013, our other income, net was $140,000 compared with other expense net of $114,000 in the corresponding period of 2012. The change was primarily due to net foreign currency gains.

Provision for income taxes. Our provision for income taxes increased $0.2 million to $28.6 million in the nine months ended September 30, 2013, from $28.4 million in the corresponding period of 2012, representing an effective tax rate of 34.5% and 35.8% in 2013 and 2012, respectively. Our effective tax rate decreased 130 basis points primarily as the result of two principal factors. Our effective tax rate decreased by 650 basis points due to an increase in tax benefits from foreign tax rate differentials and foreign tax credits, partially offset by a 480 basis point increase in the effective tax rate due to an increase in deemed dividends from our foreign subsidiaries, pursuant to Subpart F of the Internal Revenue Code.

Liquidity and Capital Resources

As of September 30, 2013, we held $219.2 million of cash and cash equivalents. Cash provided by our operations was $60.6 million in the nine months ended September 30, 2013, of which the principal components were our net income of $54.4 million and non-cash charges of $21.2 million, partially offset by a net increase in operating assets and liabilities of $15.0 million. The increase in net operating assets and liabilities includes an increase in inventory of $14.2 million primarily related to the advance purchases of wafers from a foundry we are transitioning from, a $4.8 million increase in accounts receivable, related to the timing of customer shipments and collections, a $0.2 million net increase in prepaid expenses and other assets, partially offset by a $2.1 million increase in accounts payable and accrued expenses due to the timing of disbursements, a $1.6 million decrease in net income taxes receivable, due to the timing of tax payments and receipts and a $0.5 million increase in deferred revenue and customer advances, due to billings on contracts in advance of product shipments.

We invested $10.6 million in the purchase of property and equipment in the nine months ended September 30, 2013, primarily related to production tooling equipment, test equipment and software. We purchased $397.9 million of marketable securities in the nine months ended September 30, 2013, comprised of United States government treasury notes and bills, while sales and maturities of marketable securities amounted to $300.0 million.

During the nine months ended September 30, 2013, shares issued upon vesting of restricted stock were net of 49,496 shares retained by us to cover employee tax withholdings of $3.2 million paid by us. In addition, we received $0.3 million from the exercise of stock options and $1.1 million from the excess tax benefit related to our stock-based compensation plans.

In the past, we have repurchased stock under a stock repurchase program that was intended to offset the dilutive impact of equity-based compensation granted to our employees. We may authorize stock repurchase programs from time to time on the open market or in privately negotiated transactions. We have not repurchased any shares since the first quarter of 2010. The timing, price and volume of any additional repurchases will be based on market conditions, relevant securities law and other factors, as appropriate, and repurchases may be suspended or discontinued at any time.

We believe that our cash, cash equivalents and cash generated from operations will be sufficient to meet our anticipated cash requirements for at least the next 12 months. We have an immaterial amount of cash outside the U.S. that, if repatriated, would incur additional taxes. Our future capital requirements will depend on many factors, including our rate of revenue growth, the timing and extent of spending to support product development efforts, the expansion of our sales and marketing activities, the timing and introduction of new products, the costs to ensure access to adequate manufacturing capacity and the continuing market acceptance of our products. There is no assurance that additional financing, if required or desired, will be available in amounts or on terms acceptable to us, if at all.

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Recent Accounting Pronouncements

In February 2013, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2013-02, “Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income.” ASU 2013-02 requires an entity to provide information about the amounts reclassified out of accumulated other comprehensive income by component. We adopted ASU 2013-02 effective January 1, 2013. Such adoption did not have a material effect on our financial position or results of operations.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

We are exposed to market risk in the ordinary course of business, which consists primarily of interest rate risk associated with our cash, cash equivalents and marketable securities, as well as foreign currency exchange rate risk.

Interest rate risk. The primary objectives of our investment activity are to preserve principal, provide liquidity and earn a market rate of return. To minimize market risk, we maintain our portfolio in cash and diversified short-term investments, which may consist of bank deposits, money market funds and highly rated, short-term government and commercial securities. The interest rates are variable and fluctuate with current market conditions. The risk associated with fluctuating interest rates is limited to this investment portfolio. We do not believe that a 10% change in interest rates would have a material impact on our financial position or results of operations.

Foreign currency risk. To date, our international customer sales agreements and our consolidated operating expenses have been denominated primarily in United States dollars. Accordingly, we have limited exposure to foreign currency exchange rates and do not enter into foreign currency hedging transactions. The functional currency of most of our foreign operations, other than that of our subsidiaries in Ireland, is the local currency. The functional currency of our subsidiaries in Ireland is the U.S. dollar. Sales contracts and vendor purchase agreements entered into by our subsidiaries in Ireland are generally U.S. dollar denominated. The functional currency of our other foreign subsidiaries is the local currency reflecting that those subsidiaries primarily generate and expend cash in their local currency. Accordingly, the effects of exchange rate fluctuations on the net assets of these operations are accounted for as translation gains or losses in accumulated other comprehensive income within stockholders’ equity. We do not believe that a change of 10% in any individual foreign currency exchange rate would have a material impact on our financial position or results of operations.

Item 4. Controls and Procedures

(a)

Evaluation of disclosure controls and procedures. Our management, under the supervision and with the participation of our Chief Executive Officer and the Chief Financial Officer, carried out an evaluation of the effectiveness of our disclosure controls and procedures as of the end of the period covered by this quarterly report. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective to provide a reasonable level of assurance that we record, process, summarize and report the information we must disclose in the reports that we file or submit under the Securities Exchange Act of 1934, as amended, within the time periods specified in the rules and forms of the Securities and Exchange Commission, or SEC, and

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PART II. OTHER INFORMATION

Item 1. Legal Proceedings

We are not a party to any material legal proceedings.

Item 1a. Risk Factors

The Private Securities Litigation Reform Act of 1995 contains certain safe harbor provisions regarding forward-looking statements. This Quarterly Report on Form 10-Q, and other information provided by us or statements made by our directors, officers or employees from time to time, may contain “forward-looking” statements and information, which involve risks and uncertainties. Actual future results may differ materially. Statements indicating that we “expect,” “estimate,” “believe,” “are planning” or “plan to” are forward-looking, as are other statements concerning future financial results, product offerings or other events that have not yet occurred. There are several important factors that could cause actual results or events to differ materially from those anticipated by the forward-looking statements. Such factors include those described below, which have not changed in any material respect as compared with the risk factors in our Quarterly Report on Form 10-Q for the three months ended June 30, 2013, except as set forth in the paragraph following immediately below. Although we have sought to identify the most significant risks to our business, we cannot predict whether, or to what extent, any of such risks may be realized. We also cannot assure that we have identified all possible issues which we might face. Except as required by law, we undertake no obligation to update these risk factors or any forward-looking statements that we make.

The risk factors below, compared with the risk factors included in our Quarterly Report on Form 10-Q for the quarter ended June 30, 2013, reflect the addition of one new risk factor, which is captioned, “A decline in the U.S. Government defense budget, changes in spending or budgetary priorities, prolonged U.S. Government shutdown or delays in contract awards may significantly and adversely affect our future revenues, cash flow and financial results.”

Uncertain prospects for the global economy could adversely affect our business, results of operations and financial condition.

We are unable to predict the future of the global economy, and there is no certainty that our business will grow in the long term. These uncertainties, including uncertainties related to the current sovereign debt crisis in certain countries in Europe, prolonged U.S. Government shutdown and to the mandatory reductions in defense spending that may occur under the U.S. Budget Control Act of 2011, affect businesses such as ours in a number of ways, making it difficult to accurately forecast and plan our future business activities. Uncertain economic conditions may lead consumers, businesses and governments to reduce or postpone spending, which may cause our customers to cancel, decrease or delay their existing and future orders with us. The inability of customers to obtain credit could negatively affect our revenue and our ability to collect receivables. In addition, financial difficulties experienced by our suppliers, independent sales representatives or distributors could result in product delays, increased accounts receivable defaults and inventory challenges. If uncertain economic conditions continue or deteriorate, we may recognize charges relating to restructuring costs or the impairment of assets. These uncertainties could have a material adverse impact on our business, our ability to achieve targeted results of operations and our financial condition.

Our quarterly revenue and operating results are difficult to predict accurately and may fluctuate significantly from period to period. As a result, we may fail to meet the expectations of investors, which could cause our stock price to decline.

We operate in a highly dynamic industry and our future results could be subject to significant fluctuations, particularly on a quarterly basis. Our quarterly revenue and operating results have fluctuated significantly in the past and may continue to vary from quarter to quarter due to a number of factors, many of which are not within our control. Although some of our customers, such as those who serve the military and space industries, place long-term orders with us or provide us with forecasts of their future requirements for our products, a significant percentage of our revenue in each quarter is dependent on sales that are booked and shipped during that quarter, typically attributable to a large number of orders from diverse customers and markets, which we refer to as our “turns business.” Accurately forecasting our turns business and our total revenue in any quarter is difficult. If our operating results do not meet our publicly stated guidance, if any, or the expectations of investors, our stock price may decline. Additional factors that can contribute to fluctuations in our operating results include:

· changes in demand for our products due to global economic conditions;

· changes in our product mix or customer mix;

· the increase, reduction, rescheduling or cancellation of significant customer orders;

· the timing of customer qualification of our products and commencement of volume sales of systems that include our products;

· the rate at which our present and future customers adopt our technologies in our target markets;

· the timing and success of the introduction of new products and technologies by us and our competitors, and the acceptance of our new products by our customers;

· the gain or loss of one or more key customers;

· the availability, cost and quality of materials and components that we purchase from third-party vendors and any problems or delays in the fabrication, assembly, testing or delivery of our products;

· the quality of our products and any remediation costs; and

· changes in our effective tax rate.

Due to these and other factors, quarter-to-quarter comparisons of our historical operating results should not be relied upon as accurate indicators of our future performance.

As a fabless company, we depend on third-party foundries to manufacture semiconductor wafers that are critical to our products, which makes us susceptible to supply shortages or loss of supply, price fluctuations and quality risks that could adversely affect our operating results.

We obtain all the semiconductor wafers used in our products from third-party wafer fabrication facilities, known as foundries. Our principal third-party foundries include Cree in North Carolina, Global Communications

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Semiconductors in California, IBM in Vermont, Northrop Grumman in California, Telefunken Semiconductors in Germany, TriQuint Semiconductor in Oregon and Texas, Tower/Jazz in California, TSMC in Washington and Taiwan, UMS in France and WIN Semiconductors in Taiwan. We typically rely on a single foundry for the production of the wafer used in a particular product. We generally have not had long term supply agreements with our foundries. Our agreements with our foundries fix the prices at which we purchase wafers from them, typically for a period of one year.

Our reliance on third-party foundries involves a number of risks. These include uncertainties as to availability of manufacturing capacity, reduced control over our manufacturing costs, delivery times, reliability and process quality, which can adversely affect the quality of our components produced from these wafers, the possible misappropriation of our technology and the possibility that third parties may claim that our products infringe their intellectual property as a result of activities by our foundries. In addition to wafers, we also purchase a number of other key components and services from sole source suppliers or a limited number of suppliers, which exposes us to similar risks. For example, we rely on a small number of subcontractors, primarily in Asia and the United States, to package some of our products, particularly those that utilize standard plastic encapsulated packages.

The ability of our suppliers to meet our requirements could be impaired or interrupted by constraints on their manufacturing capacity or by a variety of other factors beyond their control, such as earthquakes or other natural phenomena, labor strikes or shortages or political unrest. One supplier of wafers that are used in a significant number of our products has, in the past, experienced financial difficulties.We have recently been informed that another wafer supplier is being operated by a trustee for the benefit of its creditors. Financial or other difficulties faced by our suppliers, or significant changes in demand for the components, materials or services they use in the products they supply to us, could limit the availability of those products to us.

The number of foundries that can provide the advanced gallium arsenide, or GaAs, processes that currently account for most of our wafer purchases is limited. Growth in global demand for RF components, particularly for use in smart phones and other mobile devices, has led to higher utilization at many GaAs foundries, and at least one of our foundries has experienced capacity constraints that have affected its operations. Several of our foundries, including TriQuint Semiconductor, UMS and (to a lesser extent) Northrop Grumman, also compete with us in the business of developing and selling semiconductor ICs, which could affect their willingness to continue to supply us or others with foundry services or otherwise result in their having objectives that conflict with ours. As a result of these or other factors, one or more of our foundries or other suppliers could in the future be unable to, or elect not to, make available to us adequate manufacturing capacity to meet our requirements, extend their lead times or seek to increase the prices of materials we purchase from them as their contracts with us expire. If any of these events were to occur, our operations could be adversely affected.

We are in the process of transitioning away from one of our principal foundry suppliers, which creates uncertainties that could affect our business, revenues, profitability and financial condition.

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Our financial results are exposed to the cyclicality of the semiconductor industry and our end markets.

In addition to being subject to such broad, macroeconomic conditions, the semiconductor industry in general, and the market segments within that industry that we serve, are cyclical in nature and have experienced, and may in the future experience, significant fluctuations in supply and demand. Such fluctuations could result in product overcapacity, high inventory levels and accelerated erosion of average selling prices, affecting one or more of the markets we serve. These adverse effects could occur even during periods of growth in the broader economy. Downturns in many sectors of the electronic systems industry have in the past contributed to weak demand for semiconductor products, which has sometimes lasted for extended periods of time. We, and the semiconductor industry generally, are currently in a period of weak demand. This period of weak demand could further adversely impact our revenue and harm our business, financial condition and results of operations.

If our principal markets fail to grow or experience declines, our revenue may suffer.

Although our products are used in a variety of markets, our future growth depends to a significant extent on the success of our principal markets, which are automotive, broadband, cellular infrastructure, fiber optics, microwave and millimeterwave communications, military, space and test and measurement systems. Revenue derived from our three largest markets, military, microwave and millimeterwave communications and test and measurement, represented, in the aggregate 75.6% of our annual revenue in 2012. In 2011 and 2010, our three largest markets were military, microwave and millimeterwave communications and cellular infrastructure, which accounted for, in the aggregate, 76.8% and 81.1% of our annual revenue in 2011 and 2010, respectively. Given the current economic climate, the rate at which our principal markets will grow or decline is difficult to predict. These markets may fail to grow or may decline for many reasons, including insufficient consumer demand, lack of access to capital, changes in the United States defense budget and procurement processes and changes in regulatory environments. If demand for electronic systems in which our products are incorporated declines, fails to grow, or grows more slowly than we anticipate, our revenue could decline.

A decline in the U.S. Government defense budget, changes in spending or budgetary priorities, prolonged U.S. Government shutdown or delays in contract awards may significantly and adversely affect our future revenues, cash flow and financial results.

Our operating results could be adversely affected by spending caps or changes in the budgetary priorities of the U.S. Government or the Department of Defense (DoD), as well as delays in program starts or the award of contracts. Current U.S. Government spending levels for defense-related programs may not be sustained and future spending and program authorizations may not increase or may decrease or shift to programs in areas in which we do not participate. Such changes in spending authorizations and budgetary priorities may occur as a result of the rapid growth of the federal budget deficit, increasing political pressure and legislation, including the Budget Control Act of 2011, designed to reduce overall levels of government spending, including through sequestration, shifts in spending priorities from defense-related programs as a result of competing demands for federal funds, the number and intensity of military conflicts or other factors. Further, the failure of Congress to pass an interim or full-year budget in the immediate future, or increase the amount the U.S. Government is authorized to borrow (commonly referred to as the debt ceiling), could disrupt our business. These uncertainties could have a material adverse impact on our business, our ability to achieve targeted results of operations and our financial condition.

If we fail to develop new products that achieve market acceptance or fail to introduce new products that enable us to address additional markets, our operating results could be adversely affected.

The markets for our products are characterized by frequent new product introductions and changes in product and process technologies. The future success of our business and continued growth in our revenue will depend on our ability to develop new products for existing and new markets, introduce these products in a cost-effective and timely manner and have our products designed into the products of OEMs. The development of new high performance semiconductor ICs, modules, subsystems and instrumentation is highly complex, and from time to time we may experience delays in completing the development and introduction of new products or fail to efficiently manufacture such products in the early production phase. As the complexity and degree of integration of our products increases, maintaining or increasing our historical rate of new product introductions will become increasingly challenging. Our ability to successfully develop, manufacture, introduce and deliver new types of high performance semiconductor ICs, modules, subsystems and instrumentation will depend on various factors, including our ability to:

· attract and retain skilled engineering personnel;

· accurately understand market requirements;

· complete and introduce new products;

· achieve design wins with our customers;

· obtain adequate supplies of materials and components that meet our quality requirements; and

· achieve adequate manufacturing yields.

Furthermore, a newly introduced standard product generally has little immediate impact on our revenue. A new standard product may not generate meaningful revenue for two or more years, if ever. In the meantime, we will have incurred expenses to design and produce the product, and we may not recover these expenses if demand for the product fails to reach forecasted levels.

Our gross margin fluctuates from period to period, which affects our results of operations.

Our gross margin has fluctuated on a quarterly basis. For example, our quarterly gross margin since the first quarter of 2008 has ranged from a low of 70.1% to a high of 74.8%, including sequential, quarterly variations as high as 280 basis points. We believe that our gross margin in recent periods has been within what we consider our normal range. A number of factors can cause our gross margin to fluctuate from period to period. Our gross margin in any period is significantly affected by industry demand and the intensity of competition in the markets into which we sell our products. Our gross margin is also significantly affected by product mix, that is, the percentage of our revenue in that period that is attributable to higher or lower margin products, and by pricing, including fluctuations in the relative proportion of high volume orders, on which we offer higher discounts.

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Additional factors affecting our gross margin include changes in the cost of wafers and materials, the timing of indirect costs for pre-production masks and evaluation materials, project cost variations on customer-funded contracts, changes in overhead absorption, charges for excess or obsolescent inventory, changes in manufacturing efficiencies, and other factors, some of which are not under our control. Our margin also can be substantially affected by variations in our manufacturing yields. Our yields depend on many factors that we control, such as product design and the effectiveness of our own assembly and test operations, but they are also affected by the activities of third parties, such as the foundries and packaging and test subcontractors that supply us with critical materials and services, that are beyond our control. Our margins may also be adversely affected by the transition away from one of our principal foundry suppliers discussed above. As a result of these or other factors, our gross margin may fluctuate, or even trend down over time. A significant decrease in our gross margin would affect our profitability and likely have an adverse effect on our stock price.

We may be subject to claims that we are infringing third-party intellectual property rights, which could result in costly and lengthy litigation that could harm our business.

In recent years there has been significant litigation involving intellectual property rights in many technology-based industries, including our own. Because patent applications often are not disclosed until a patent issues, it is not always possible for us to know whether patent applications are pending that might be infringed by our products, and there could be issued patents that are pertinent to our business of which we are not aware. Our products may also be claimed to infringe intellectual property rights of others as a result of activities by our foundries or other suppliers with respect to which we have no control or knowledge. In connection with the sale of our products, we often make representations affirming, among other things, that our products do not infringe on the intellectual property rights of others, and we agree to indemnify customers against third-party claims of such infringement.

We have from time to time been the subject of litigation alleging that sales by us of our products infringe patents held by such third parties. We have also from time to time received letters asserting that we infringe patents held by third parties that have not resulted in litigation. We have incurred significant costs in investigating and defending these actions and claims, and there can be no assurance that these or any other pending or future litigation or claims relating to infringement of third-party intellectual property rights can be resolved in a manner favorable to us. Any claims relating to the alleged infringement by us of third-party proprietary rights, whether meritorious or not, could be time-consuming to defend and could harm our working relationships with our foundries and customers, damage our reputation, result in substantial and unanticipated costs associated with litigation, require us to enter into royalty or licensing agreements, which may not be available on acceptable terms or at all, or result in the payment by us of substantial damages. If any of our products were found to infringe the intellectual property rights of any third party and if a license were not available on reasonable terms, we could be required to redesign the infringing product so as not to infringe, which could be time consuming and costly, or if this is not feasible, we could be required to withdraw the infringing product from the market.

Operations at our Chelmsford, Massachusetts facilities and at our warehouse facility in Malaysia that are critical to our business are subject to disruption from a variety of causes, including those that may be beyond our control.

Our executive management, sales, marketing and administrative functions in the United States, and a substantial portion of our research and development and product design activities, are carried out at our headquarters facility in Chelmsford, Massachusetts, while final assembly of our module and subsystem-level products, and final testing for most of our products, are carried out at our separate manufacturing facility, also located nearby in Chelmsford, Massachusetts. These activities are critical to our business, and could be affected by disruptions such as electrical power outages, fire, earthquake, flooding, acts of terrorism, health advisories or risks, or other natural or man-made disasters that could damage these facilities. Additionally, a majority of our raw materials inventory is held in a warehouse facility operated by a third party in Malaysia, and is subject to risks of theft, fire, earthquake, flooding and other similar casualty risks. Although we seek to mitigate these risks by maintaining casualty and business interruption insurance, this insurance would not be adequate to protect against all the consequences of such occurrences. A major disruption affecting our Chelmsford assembly and test operations, or our Malaysia warehouse, could cause significant delays in shipments until we are able to procure and outfit another suitable facility or to qualify and contract with alternative third party suppliers, or procure replacement inventory, processes which could take many months. A significant portion of the inventory held in our Malaysia warehouse consists of advance purchase material procured from a foundry from which we likely would not be able to obtain replacement inventory. Loss of this inventory would therefore result in a substantial loss of revenue that would likely not be covered by insurance, and could have a material adverse effect on our results of operations. Even if alternative assembly and test capacity or sources of supply are available, we may not be able to obtain them on a timely basis, or favorable terms, which could result in higher costs and/or a loss of customers.

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We may be subject to information technology system failures, network disruptions and breaches in data security.

Information technology system failures, network disruptions and breaches of data security could disrupt our operations by causing delays or cancellation of customer orders, impeding the manufacture or shipment of products, preventing the processing of transactions and interfering with the accurate reporting of our financial results. They could also result in the unintentional disclosure of confidential information about our company, or our intellectual property, or with respect to our customers and employees. While we have taken, and will continue to take, steps to address these concerns by implementing network security and internal control measures, there can be no assurance that a system failure or data security breach will not have a material adverse effect on our business or our financial condition or operating results.

We may not be able to effectively manage the challenges associated with global business expansion, including the need to make improvements in our infrastructure and systems, and any failure by us to manage these challenges could harm our business and operating results.

We are expanding internationally, including our acquisition of Arctic Silicon Devices in Norway, the establishment of our international operations center in Ireland, the opening of our new design center in Egypt and establishment of a warehouse facility operated by a third party in Malaysia. Our long-term global expansion project has many goals, including optimizing how we execute our growing international business. We believe that our new corporate structure will enable us to service our international customers, better manage our global suppliers and have significant long-term benefits, including improving customer satisfaction, reducing manufacturing cost and cycle times and lowering our financial risk.

It requires significant attention and resources to manage geographically dispersed operations, and the recent expansion of our headcount and in the geographical scope of our operations have placed additional demands on our management and other resources. To accommodate any future growth, we must continue to expand and upgrade our operational and financial systems, procedures and controls, and other internal management systems. As a result of our international expansion and the increasing scale and complexity of our operations, we are now in the process of implementing an entirely new ERP system with substantially greater functionality, a project that we expect will not be completed until at least the first quarter of 2014.

These projects and other planned improvements to our facilities and our operational, financial and management information systems require substantial managerial and financial resources, and our efforts in this regard may not be successful. The implementation of new or upgraded management information systems, and their adaptation to our more complex international structure, is a complex and costly process that involves numerous risks. Any failure of these systems to function as expected that is not detected by our system of internal control over financial reporting could result in errors in our financial reporting, which could be material, or cause delays in reporting results in accordance with our regulatory requirements. In general, if we fail to adequately manage our global business expansion, or to improve our operational, financial and management information systems in a timely and effective manner, our business and results of operations could be materially adversely affected.

We design and manufacture products in our standard product line based upon our internal assessment and forecasts of market requirements, and our results of operations will be adversely affected if we fail to assess market requirements accurately.

A majority of our revenue is typically derived from sales of our standard products. We order components and materials, such as semiconductor wafers, used in the manufacture of our standard products 12-14 weeks in advance, while our customers typically place orders for those products one to eight weeks in advance, exposing us to inventory and manufacturing costs in advance of anticipated revenue. If we or our customers fail to predict market demand accurately for new and existing standard products, we may experience a delay or reduction of anticipated revenue without having sufficient time to adjust our inventory and operating expenses. Our customer’s requested lead times have recently been decreasing. As the number of products we offer increases, and our customers’

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expected lead times grow shorter, we have been required to carry larger amounts of inventory and may be exposed to increased inventory risk.

Lead times for our manufacturing materials can vary significantly and depend on factors such as specific supplier requirements, the size of the order, contract terms, current market demand and the availability of manufacturing capacity at our third-party foundries. As a result, we make financial commitments in the form of purchase commitments. Furthermore, we generally lack visibility into the finished goods inventories of our customers, which makes it more difficult for us to accurately forecast their requirements. If we overestimate our customers’ requirements, we may have excess inventory, which would increase our costs. If we underestimate our customers’ requirements, we may have inadequate inventory, which could prevent us from delivering our products to our customers on a timely basis, which could disrupt our customers’ production schedules. Any of these occurrences could negatively impact our operating results and our business.

We design custom products to meet specific requirements of our customers. The amount and timing of revenue from such products can cause fluctuations in our quarterly operating results.

The design and sales cycle for our custom products, from initial contact by our sales force to the commencement of shipments of those products in commercial quantities, is lengthy and can range from three months to as long as two years or more. In this process, our sales and application engineers work closely with the OEM customer to analyze the customer’s system requirements and establish a technical specification for the custom product. We then select a semiconductor process and foundry, evaluate test wafers and components, and establish assembly and test procedures before manufacturing in commercial quantities can begin. The length of this cycle is influenced by many factors, including the difficulty of the technical specification, the novelty and complexity of the design and the customer’s procurement processes. OEMs typically do not commit to purchase significant quantities of the custom product until they are ready to commence volume shipment of their own systems, and volume purchases of our products by an OEM customer or its contract manufacturer generally do not occur until the OEM customer has successfully introduced the system incorporating our product. Our receipt of substantial revenue from sales of a custom product depends on that customer’s commercial success in manufacturing and selling its system incorporating our product. As a result, a significant period may elapse between our investment of time and resources in a custom product and our receipt of substantial revenue from sales of that product.

The length of this process increases the risk that a customer will decide to cancel or change its product plans. Such a cancellation or change in plans by a customer could cause us to lose anticipated sales. In addition, our business, financial condition and results of operations could be adversely affected if a significant customer curtails, reduces or delays orders during our sales cycle, chooses not to release equipment that contains our products, or is not successful in the sale and marketing of its products that incorporate our custom products.

Finally, if we fail to achieve initial design wins in the customer’s qualification process, we may lose the opportunity for significant sales to that customer for a lengthy period of time because the customer may be unlikely to change its source for those products in the future due to the significant costs associated with qualifying a new supplier and potentially redesigning its product.

We rely on a small number of customers for a significant percentage of our revenue, and the loss of, or a reduction in, orders from these customers could result in a decline in revenue.

We have historically depended on a small number of customers for a large percentage of our annual revenue. Revenue derived from our 10 largest customers as a percentage of our annual revenue was 40.2% in 2012, 43.2% in 2011 and 36.5% in 2010, and was 35.4% of our revenue during the nine months ended September 30, 2013. During 2012, 2011 and 2010, Boeing accounted for 16%, 16% and 11%, respectively of our total sales. We include in these calculations revenue from products sold to these customers directly by us or through sales representatives and our distributors, as well as from products sold to contract manufacturers for use in a system manufactured by the contract manufacturer for that customer. Our major customers often use our products in multiple systems or programs, sometimes developed by different business units within the customer’s organization, each having differing product life cycles, end customers and market dynamics. While the composition of our top 10 customers varies from year to year, we expect that sales to a limited number of customers will continue to account for a significant percentage of our revenue for the foreseeable future. Additionally, we have noted

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consolidation among OEMs in some of our markets, which could result in an increased concentration in our sources of revenue. It is possible that any of our major customers could terminate its purchasing arrangements with us or significantly reduce or delay the amount of our products that it orders, purchase products from our competitors or develop its own products internally. The loss of, or a reduction in, orders from any major customer could cause a decline in revenue and adversely affect our results of operations.

Our failure to continue to keep pace with new or improved semiconductor process technologies could impair our competitive position.

Semiconductor manufacturers constantly seek to develop new and improved semiconductor process technologies. Our future success depends in part upon our ability to continue to gain access to these semiconductor process technologies in order to adapt to emerging customer requirements and competitive market conditions. Our access to advanced GaAs semiconductor process technologies for new product development may be adversely affected by the transition away from one of our principal foundry suppliers discussed above. If we fail for any reason to remain abreast of new and improved semiconductor process technologies as they emerge, we may lose market share which could adversely affect our operating results.

Our business depends on international customers, suppliers and operations, and as a result we are subject to regulatory, operational, financial and political risks which could adversely affect our financial results.

The percentage of our revenue attributable to sales to customers outside the United States, based on the customer location, was 52.9% in 2012, 54.8% in 2011 and 55.1% in 2010, and was 56.0% of our revenue during the nine months ended September 30, 2013. We expect that revenue from customers outside the United States will continue to account for the majority of our revenue. Currently, we maintain international sales offices in Europe and Asia, and we rely on a network of independent sales representatives to sell our products internationally. We also have design centers in Turkey, Canada, Norway and Egypt. In 2012, we established an international headquarters in Ireland as part of our global expansion project. We have in the past relied on, and expect to continue to rely on, suppliers, manufacturers and subcontractors located in countries other than the United States, including France, Germany, Malaysia, the Philippines, Korea and Taiwan. Accordingly, we will be subject to several risks and challenges, any of which could adversely affect our business and financial results. These risks and challenges include:

· difficulties and costs of staffing and managing international operations across different geographic areas and cultures;

· compliance with a wide variety of domestic and foreign laws and regulations, including those relating to the import or export of semiconductor products;

· legal uncertainties regarding taxes, tariffs, quotas, export controls, export licenses and other trade barriers;

· changes in the statutory tax rate in the various foreign jurisdictions that we operate in;

· changes in our effective tax rate due to the outcome of future tax audits or examinations;

· managing our global expansion project;

· seasonal reductions in business activities;

· our ability to receive timely payment and collect our accounts receivable;

· political, legal and economic instability, foreign conflicts, and the impact of regional and global infectious illnesses in the countries in which we and our customers, suppliers, manufacturers and subcontractors are located;

· legal uncertainties regarding protection for intellectual property rights in some countries; and

· fluctuations in freight rates and transportation disruptions.

Political and economic instability and changes in governmental regulations could adversely affect our ability to effectively operate our foreign sales offices and foreign design centers, as well as the ability of our foreign suppliers to supply us with required materials or services. Any interruption or delay in the supply of our required components, products, materials or services, or our inability to obtain these components, materials, products or services from alternate sources at acceptable prices and within a reasonable amount of time, could impair our ability to meet scheduled product deliveries to our customers and could cause customers to cancel orders.

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Additionally, most of our foreign sales, as well as our purchases of material from international suppliers, are denominated in U.S. dollars. An increase in the value of the U.S. dollar relative to foreign currencies could make our products more expensive for our international customers to purchase, thus rendering the prices of our products less competitive. Conversely, a reduction in the value of the U.S. dollar relative to foreign currencies could increase our supply costs.

The segment of the semiconductor industry in which we participate is intensely competitive, and our inability to compete effectively would harm our business.

The markets for our products are extremely competitive, and are characterized by rapid technological change and continuously evolving customer requirements. We compete primarily with other suppliers of high performance analog and mixed-signal semiconductor components used in RF, microwave and millimeterwave applications. These competitors include large, diversified semiconductor manufacturers with broad product lines, such as Avago and Analog Devices, with whom we compete in a number of our markets. We also compete in specific markets or product categories with a large number of semiconductor manufacturers such as IDT, Linear Technology, M/A-COM, NEC, RFMD, Skyworks, TriQuint Semiconductor and UMS. We also encounter competition from manufacturers of advanced electronic systems that also manufacture semiconductor components internally. Some of these competitors, such as NEC, are also our customers. Additionally, in certain product categories we compete with semiconductor manufacturers from which we also obtain foundry services, such as TriQuint Semiconductor and UMS. Our competitors may develop new technologies, enhancements of existing products or new products that offer price or performance features superior to ours. Many of our competitors have significantly greater financial, technical, manufacturing, sales and marketing resources than we do, and might be perceived by prospective customers to offer financial and operational stability superior to ours. This is particularly true of competitors in the markets for silicon-based products. We expect competition in our markets to intensify, as new competitors enter the RF, microwave and millimeterwave component market, existing competitors merge or form alliances, and new technologies emerge. If we are not able to compete effectively, our market share and revenue could be adversely affected, and our business and results of operations could be harmed.

We rely on the significant experience and specialized expertise of our senior management and engineering staff and must attract and retain qualified engineers and other highly skilled personnel in order to grow our business successfully.

Our performance is substantially dependent on the continued services and performance of our senior management and our highly qualified team of engineers, many of whom have numerous years of experience and specialized expertise in our business. Highly skilled analog and mixed-signal IC engineers, in particular, are in short supply. We expect to continue to hire additional engineering personnel as we expand our IC design and system-level engineering capabilities. If we are not successful in hiring and retaining highly qualified engineers, we may not be able to extend or maintain our engineering expertise, and our future product development efforts could be adversely affected.

Our future success also depends on our ability to identify, attract, hire, train, retain and motivate highly skilled managerial, financial, operations, sales, marketing and customer service personnel. If we fail to attract, integrate and retain the necessary personnel, our ability to maintain and grow our business could suffer significantly. Further, stock price volatility could impact our ability to retain key personnel.

Our business could be adversely affected if we experience product returns, product liability and defects claims.

We introduce a significant number of new products every year, and we may not be able to anticipate all of the possible performance or reliability problems that could arise with these products. If such problems occur or become significant, we could experience a reduction in our revenue and increased costs related to inventory write-offs, warranty claims and other expenses which could have an adverse effect on our financial condition.

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The materials used to manufacture our products are complex and are provided by a significant number of vendors in our supply chain. While we perform extensive testing and inspections during the manufacturing process, some defects may escape detection in our manufacturing process and subsequently pass through to our customers. These matters have arisen from time to time and may reasonably be expected to occur again in the future. The occurrence of defects such as these could result in product returns from, and reduced product shipments to, our customers. Such defects also could result in the loss of or delay in market acceptance of our products or harm our reputation.

Our purchase agreements with our customers typically contain provisions designed to limit our exposure to potential product liability claims. However, the limitation of liability provisions contained in these agreements may not be effective as a result of federal, state or local laws, or ordinances or unfavorable judicial decisions in the United States or other countries. The insurance we maintain to protect against claims associated with the use of our products may not adequately cover all claims asserted against us. In addition, even if ultimately unsuccessful, such claims could result in costly litigation, divert our management’s time and resources, and damage our customer relationships.

Our signal generator instrument products are more complex than our core IC products, and as a result, present quality, regulatory and product liability risks that differ from those we have faced in our core IC business.

Our signal generators are complex microwave test instruments and could be subject to multiple internal component failures and manufacturing and software defects which could result in product failure. Defects in the hardware or software incorporated in these products could cause us to incur significant warranty, support and repair costs, divert the attention of our engineering personnel from our product development efforts and harm our relationship with our customers. Our test and measurement instrument products operate using line voltages of 100 volts or more and certain products require AC-to-DC power transformers which we purchase from a third party and supply to our customers. The failure of these products or their power transformers could cause safety problems for the operator, including the risk of electrical shock, injury or death in the event of a short circuit or other malfunction, and a product liability claim brought against us, even if unsuccessful, would likely be time consuming and costly to defend. We may be required to comply with various domestic and international legal directives governing the manufacture of our test and measurement instrument products. Failure of our test and measurement system products to meet domestic and international safety and other regulatory requirements for electromagnetic radiation, power consumption or workmanship standards could result in a loss of revenue, loss of market share or failure to achieve market acceptance. We generally seek certification of these products by various third parties such as Underwriters Laboratories (UL) in the United States or Conformité Européenne (CE) in Europe.

We cannot ensure that we will be able to obtain, or if obtained, maintain any such certifications for our test and measurement instrument products. Our failure to obtain or maintain such certifications could adversely affect the market acceptance of the products.

We use specialized technologies and know-how to design, develop and manufacture our products. Our inability to protect our intellectual property could hurt our competitive position, harm our reputation and adversely affect our results of operations.

We seek to protect our proprietary technology under United States and foreign laws affording protection for trade secrets, and seek United States and foreign patent, copyright and trademark protection of our products and developments where appropriate. We rely primarily on trade secrets, technical know-how and other unpatented proprietary information relating to our product development and manufacturing activities. While we own a small number of patents, we have not historically emphasized patents as a source of significant competitive advantage. We believe that while the protection afforded by trade secret, patent, copyright and trademark laws may provide some advantages, the competitive position of participants in our industry is largely determined by such factors as the technical and creative skills of their personnel, the frequency of their new product developments and their ability to anticipate and rapidly respond to evolving market requirements. To the extent that a competitor effectively uses its intellectual property portfolio, including patents, to prevent us from selling products that allegedly infringe such competitor’s products, our operating results would be adversely affected.

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We seek to protect our trade secrets and proprietary information, in part, by requiring our employees to enter into agreements providing for the maintenance of confidentiality and the assignment of rights to inventions made by them while employed by us. We also enter into non-disclosure agreements with our consultants, semiconductor foundries and other suppliers to protect our confidential information delivered to them. There can be no assurance that our confidentiality agreements with employees, consultants and other parties will not be breached, that we will have adequate remedies for any breach or that our trade secrets and other proprietary information will not otherwise become known. There also can be no assurance that others will not independently develop technologies that are similar or superior to our technology or reverse engineer our products.

Additionally, the laws of countries in which we operate may afford little or no protection to our intellectual property rights. If we are unable to prevent misappropriation of our technology or to deter independent development of similar technologies, our competitive position and reputation could suffer.

We generate a portion of our revenue from sales made by third parties, including our independent sales representatives and our distributors, and the failure to manage successfully our relationships with these third parties could cause our revenue to decline and harm our business.

We rely in part upon third parties, including our independent sales representatives and our distributors, Future Electronics and Digi-Key Corporation, to promote our products, generate demand and sales leads, and obtain orders for our products. In addition, these parties provide technical sales support to our customers. The activities of these third parties are not within our direct control. Our failure to manage our relationships with these third parties effectively could impair the effectiveness of our sales, marketing and support activities. A reduction in the sales efforts, technical capabilities or financial viability of these parties, a misalignment of interest between us and them, or a termination of our relationship with a major sales representative or our distributors could have a negative effect on our sales, financial results and ability to support our customers. These parties are engaged under short-term contracts, which typically may be terminated by either party on 30 to 60 days notice. It generally takes approximately three to six months for a third party such as a sales representative to become educated about our products and capable of providing quality sales and technical support to our customers. If we were to terminate our relationship with one of our distributors or one of our larger sales representatives, or if one of them decided to discontinue its relationship with us, sales to current and prospective customers could be disrupted or delayed, and we could experience a diversion of substantial time and resources as we seek to identify, contract with and train a replacement.

We may pursue acquisitions and investments in new businesses, products or technologies that involve numerous risks, which could disrupt our business and may harm our financial results.

We have previously made, and may in the future pursue, acquisitions of and investments in new businesses, products and technologies, or we may acquire other operations that expand our current capabilities. Acquisitions and investments present a number of potential risks and challenges that could, if not met, disrupt our business operations, increase our operating costs and reduce the value to us of the acquired business, product or technology. For example, if we identify an acquisition or investment candidate, we may not be able to successfully negotiate or finance the transaction on favorable terms. Even if we are successful, we may not be able to integrate the acquired businesses, products or technologies into our existing business and products. Further, there can be no assurance that we will be successful in retaining key employees or customers of the acquired business. In some cases, the consent of a customer may be required before contracts between that customer and a company that we acquire may be assumed by us, and it may not be feasible to obtain all such consents prior to closing. As a result of the rapid pace of technological change, we may misgauge the long-term potential of the acquired business or technology, or be unable to commercialize the acquired technology in time to capitalize on available market opportunities, or may find that the acquisition is not complementary to our existing business. Potential acquisitions and investments, whether or not consummated, may divert our management’s attention and require considerable cash outlays at the expense of our existing operations. In addition, to complete future acquisitions and investments, we may issue equity securities, incur debt or assume contingent liabilities. Additionally, acquisitions could result in increased amortization expenses and, to the extent such acquisitions are not successful, write-downs of acquired assets, which would adversely affect our profitability.

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Our financial results may be adversely affected by increased tax rates and exposure to additional tax liabilities.

As a global company, our effective tax rate is highly dependent upon the geographic composition of worldwide earnings and tax regulations governing each region. We are subject to income taxes in both the United States and various foreign jurisdictions, and significant judgment is required to determine worldwide tax liabilities. Our effective tax rate as well as the actual tax ultimately payable could be adversely affected by changes in the split 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 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 could affect our profitability.

If we fail to comply with export control regulations we could be subject to substantial fines or other sanctions.

Certain of our products are subject to the Export Administration Regulations, administered by the Department of Commerce, Bureau of Industry Security, which require that we obtain an export license before we can export products or technology to specified countries. Additionally, some of our products are subject to the International Traffic in Arms Regulations, which restrict the export of information and material that may be used for military or intelligence applications by a foreign person. Our export compliance procedures and classification of our products are subject to review from time to time by the relevant government authorities. Our failure to comply with these laws, or failure to properly classify our products for purposes of these laws, could result in sanctions by the government, including substantial monetary penalties, denial of export privileges and debarment from government contracts.

If we fail to comply with government contracting regulations, we could suffer a loss of revenue or incur price adjustments or other penalties.

Some of our revenue is derived from contracts with agencies of the United States government and subcontracts with its prime contractors. As a United States government contractor or subcontractor, we are subject to federal contracting regulations, including the Federal Acquisition Regulations, which govern the allowability of costs incurred by us in the performance of United States government contracts. Certain contract pricing is based on estimated direct and indirect costs, which are subject to change. Additionally, the United States government is entitled after final payment on certain negotiated contracts to examine all of our cost records with respect to such contracts and to seek a downward adjustment to the price of the contract if it determines that we failed to furnish complete, accurate and current cost or pricing data in connection with the negotiation of the price of the contract.

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In connection with our United States government business, we are also subject to government audits and to review and approval of our policies, procedures, and internal controls for compliance with procurement regulations and applicable laws. In certain circumstances, if we do not comply with the terms of a contract or with regulations or statutes, we could be subject to downward contract price adjustments or refund obligations or could in extreme circumstances be assessed civil and criminal penalties or be debarred or suspended from obtaining future contracts for a specified period of time. Any such suspension or debarment or other sanction could have an adverse effect on our business.

Under some of our government subcontracts, we are required to maintain secure facilities and to obtain security clearances for personnel involved in performance of the contract, in compliance with applicable federal standards. If we were unable to comply with these requirements, or if personnel critical to our performance of these contracts were to lose their security clearances, we might be unable to perform these contracts or compete for other projects of this nature, which could adversely affect our revenue.

Some of our long-term contracts may be terminated for the convenience of the customer and may involve significant expenditures on our part that, if the contract is terminated early, we may be unable to recover.

Our United States government contracts and subcontracts may be funded in increments over a number of government budget periods and typically can be terminated by the government for its convenience. Some of these contracts are long-term agreements for the manufacture of complex subsystems for which we are required to expand our production facilities, hire additional personnel, incur costs to meet customer qualification requirements and make other substantial investments in advance of our receipt of significant revenue. If such a contract is terminated, in addition to the loss of anticipated revenue, we may be unable to recover all of our costs incurred or committed.

In order to comply with current and pending environmental and climate change laws and regulations, we may need to modify our activities or incur substantial costs, and if we fail to comply with environmental regulations we could be subject to substantial fines or be required to suspend production, alter manufacturing processes or cease operations.

We are subject to a variety of international, federal, state and local governmental regulations directed at preventing or mitigating climate change and other environmental harms, as well as to the storage, discharge, handling, generation, disposal and labeling of toxic or other hazardous substances used to manufacture our products. If we fail to comply with these regulations, substantial fines could be imposed on us, and we could be required to suspend production, alter manufacturing processes or cease operations, any of which could have a negative effect on our sales, income and business operations. Failure to comply with environmental regulations could subject us to civil or criminal sanctions and property damage or personal injury claims. Compliance with current or future environmental laws and regulations could restrict our ability to expand our facilities or build new facilities or require us to acquire additional expensive equipment, modify our manufacturing processes, or incur other substantial expenses which could harm our business, financial condition and results of operations. In response to environmental concerns, some customers and government agencies impose requirements for the elimination of hazardous substances, such as lead (which is widely used in soldering connections in the process of semiconductor packaging and assembly), from electronic equipment. For example, in 2003, the EU adopted its RoHS Directive. Effective July 1, 2006, the RoHS Directive prohibits, with specified exceptions, the sale in the EU market of new electrical and electronic equipment containing more than agreed levels of lead or other hazardous materials. We have a program in place to meet these customer and governmental requirements, including the RoHS Directive, where applicable to us, by making available versions of our products that do not include lead or other hazardous substances. The European Parliament has also adopted the Waste Electrical and Electronic Equipment Directive, or WEEE Directive, which makes producers of electrical and electronic equipment financially responsible for specified collection, recycling, treatment and disposal of past and future covered products. Environmental laws and regulations such as these could become more stringent over time, imposing even greater compliance costs and increasing risks and penalties associated with violations, which could seriously harm our business, financial condition and results of operations.

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New regulations related to conflict minerals may force us to incur additional expenses, may make our supply chain more complex and may result in damage to our relationships with customers.

On August 22, 2012, under the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, or the Dodd-Frank Act, the SEC adopted new requirements for companies that manufacture products that contain certain minerals and metals, known as conflict minerals. These rules require public companies to perform diligence and to report annually to the SEC whether such minerals originate from the Democratic Republic of Congo and adjoining countries. The implementation of these new requirements could adversely affect the sourcing, availability and pricing of minerals we use in the manufacture of our products. In addition, we have incurred and will incur additional costs to comply with the disclosure requirements, including costs related to determining the source of any of the relevant minerals used in our products. Since our supply chain is complex, we may not be able to ascertain the origins for these minerals used in our products through the due diligence procedures that we implement, which may harm our reputation. We may also face difficulties in satisfying customers who may require that our products be certified as conflict mineral free, which could harm our relationships with these customers and lead to a loss of revenue. These new requirements could limit the pool of suppliers that can provide conflict-free minerals, and we may be unable to obtain conflict-free minerals at competitive prices, which could increase our costs and adversely affect our manufacturing operations and our profitability.

We are required to evaluate our internal control over financial reporting under Section 404 of the Sarbanes-Oxley Act of 2002, and any adverse results from such evaluation could result in a loss of investor confidence in our financial reports and have an adverse effect on our stock price.

Pursuant to Section 404 of the Sarbanes-Oxley Act of 2002, we are required to furnish annually a report by our management, and an opinion of our independent registered public accounting firm, on the effectiveness of our internal control over financial reporting. Our management report is required to contain, among other matters, an assessment of the effectiveness of our internal control over financial reporting as of the end of our fiscal year, including a statement as to whether or not our internal control over financial reporting is effective. This assessment must include disclosure of any material weaknesses in our internal control over financial reporting identified by management.

If our management identifies one or more material weaknesses in our internal control over financial reporting, we will be unable to assert that our internal control is effective. If we are unable to assert that our internal control over financial reporting is effective, or if our independent registered public accounting firm is unable to express an opinion on the effectiveness of our internal controls, investors could lose confidence in the accuracy and completeness of our financial reports, which could have an adverse effect on our stock price.

We could be the subject of securities class action litigation due to stock price volatility or in connection with matters related to our corporate governance, which could divert management’s attention and adversely affect our financial position or results of operations.

The stock market in general, and market prices for the securities of technology companies like ours in particular, have experienced volatility that often has been unrelated to the operating performance of the underlying companies. These broad market and industry fluctuations may adversely affect the market price of our common stock, regardless of our operating performance. In recent situations where the market price of a stock has been volatile, holders of that stock have initiated securities class action litigation against the company that issued the stock. Additionally, there has recently been a significant increase in litigation commenced by stockholders of public companies unrelated to changes in the company’s stock price. Such litigation may, for example, challenge actions taken by the board of directors related to the company’s corporate governance, such as a proposal to adopt new or amended bylaws, or allege that a company’s proxy disclosures, even in connection with a routine annual meeting, are defective. If any of our stockholders were to bring a lawsuit against us, the defense and disposition of the lawsuit could be costly and divert the time and attention of our management and harm our business.

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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Repurchases of our common stock

We maintain a stock repurchase program, originally authorized in April 2008, that was intended to offset the dilutive impact of equity-based compensation granted to our employees. Shares may be repurchased from time to time on the open market or in privately negotiated transactions. We did not repurchase any shares pursuant to this publicly announced program during the three months ended September 30, 2013. The timing, price and volume of any additional repurchases will be based on market conditions, relevant securities law and other factors, as appropriate, and repurchases may be suspended or discontinued at any time.

In addition, the agreements governing restricted stock awards issued to our employees generally provide that upon vesting of such awards the recipients must pay any Federal, state, local and/or payroll taxes required by law to be withheld with respect to such income. Alternatively, recipients may elect to have such tax withholding obligation satisfied by delivering to us for cancellation shares subject to such award in order to satisfy the minimum statutory withholding amount due, in which case we will pay the required amounts to the appropriate taxing authorities on the recipient’s behalf. All such shares retained by us in satisfaction of tax withholding obligations are retired and restored to the status of authorized and unissued shares.

During the three months ended September 30, 2013, an aggregate of 1,064 shares were retained by us to cover aggregate employee tax withholdings of $69,000, as follows:

Period	Total number of shares purchased	Average price paid per share (1)		Total number of shares purchased as part of publicly announced plan	Approximate dollar value of shares that may yet be purchased under the plans or programs (in thousands)(2)
July 2013	—	$	—	—
August 2013	—	—		—
September 2013	1,064	64.77		—
Total	1,064			—	$	67,413

(1) Represents the weighted average closing price per share of the shares withheld in satisfaction of withholding tax obligations, as reported by the Nasdaq Stock Market, as of the date the withholding was effected.

(2) Value based on an aggregate of 1,031,568 shares at an assumed purchase price of $65.35 per share, which was the last sale price of our common stock on September 30, 2013, as reported by the Nasdaq Global Market. Does not reflect the value of shares that may be retained to satisfy future employee tax withholding obligations.

Item 3. Defaults Upon Senior Securities

Not applicable.

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Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

None.

Item 6. Exhibits

Exhibit No.		Description
3.1		Second Amended and Restated Certificate of Incorporation (incorporated by reference to Exhibit 3.1 to our Form 10-Q for the quarter ended March 31, 2012)

3.2		Amended and Restated By-laws (incorporated by reference to Exhibit 3.1 to our current report on Form 8-K filed on January 7, 2013.

4.1		Specimen certificate for common stock of Hittite Microwave Corporation (incorporated by reference to Exhibit 4.1 to our Registration Statement on Form S-1, File No. 333-124664)

31.1		Certification of Chief Executive Officer pursuant to Rules 13a-14(a) and 15d-14(a)

31.2		Certification of Chief Financial Officer pursuant to Rules 13a-14(a) and 15d-14(a)

32.1		Certification of Chief Executive Officer pursuant to Section 1350

32.2		Certification of Chief Financial Officer pursuant to Section 1350

101		The following materials from the Hittite Microwave Corporation Quarterly Report on Form 10-Q for the quarter ended September 30, 2013, formatted in Extensible Business Reporting Language (XBRL): (i) Condensed Consolidated Balance Sheets as of September 30, 2013 and December 31, 2012; (ii) Condensed Consolidated Statements of Operations for the Three Months and Nine Months Ended September 30, 2013 and September 30, 2012; (iii) Condensed Consolidated Statements of Comprehensive Income for the Three Months and Nine Months Ended September 30, 2013 and September 30, 2012; (iv) Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2013 and September 30, 2012; and (v) Notes to Condensed Consolidated Financial Statements

Date: November 4, 2013	HITTITE MICROWAVE CORPORATION
	(Registrant)


	By:	/s/ William W. Boecke
		William W. Boecke
		Chief Financial Officer

PART I. FINANCIAL INFORMATION

Item 1.	Financial Statements (Unaudited)

	Condensed Consolidated Balance Sheets as of September 30, 2013 and December 31, 2012

	Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2013 and September 30, 2012

	Condensed Consolidated Statements of Comprehensive Income for the Three and Nine Months Ended September 30, 2013 and September 30, 2012

	Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2013 and September 30, 2012

	Notes to Condensed Consolidated Financial Statements

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations

Item 3.	Quantitative and Qualitative Disclosures About Market Risk

Item 4.	Controls and Procedures

PART II. OTHER INFORMATION

Item 1.	Legal Proceedings

Item 1a.	Risk Factors

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds

Item 3.	Defaults Upon Senior Securities

Item 4.	Mine Safety Disclosures

Item 5.	Other Information

Item 6.	Exhibits

Signatures