SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) of
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2000
Commission File Number: 0-22511
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RF MICRO DEVICES, INC.
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(Exact name of registrant as specified in its charter)
North Carolina 56-1733461
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
7628 Thorndike Road
Greensboro, North Carolina 27409-9421
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(Address of principal executive offices, including zip code)
(336) 664-1233
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
----- -----
As of October 31, 2000, there were 162,225,454 shares of the registrant's common
stock outstanding.
RF MICRO DEVICES, INC. AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The accompanying condensed consolidated financial statements have been prepared
in conformity with generally accepted accounting principles. The preparation of
these financial statements requires management to make estimates and
assumptions, which could differ materially from actual results. In addition,
certain information or footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed, or omitted, pursuant to the rules and regulations of the
Securities and Exchange Commission. In the opinion of management, the statements
include all adjustments (which are of a normal and recurring nature) necessary
for the fair presentation of the results of the interim periods presented. The
results of operations for interim periods are not necessarily indicative of the
results that may be expected for a full year. These condensed consolidated
financial statements should be read in conjunction with the Company's audited
financial statements and notes thereto included in the Company's Form 10-K for
the year ended March 31, 2000.
The consolidated financial statements include the accounts of the Company and
its wholly owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated in consolidation.
The Company uses a 52- or 53-week fiscal year ending on the Saturday closest to
March 31 of each year. The second fiscal quarter of each year ends on the
Saturday closest to September 30; however, in this report the Company's fiscal
year is described as ending on March 31 and the second quarter of each fiscal
year is described as ending on September 30.
The following condensed consolidated financial statements are included:
Condensed Consolidated Statements of Income for the three months
ended September 30, 2000 and 1999
Condensed Consolidated Statements of Income for the six months
ended September 30, 2000 and 1999
Condensed Consolidated Balance Sheets as of September 30, 2000
and March 31, 2000
Condensed Consolidated Statements of Cash Flows for the six months
ended September 30, 2000 and 1999
Notes to Condensed Consolidated Financial Statements
RF MICRO DEVICES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
(Unaudited)
THREE MONTHS ENDED
SEPTEMBER 30, 2000 SEPTEMBER 30, 1999
------------------- -------------------
Revenues:
Product sales $101,912 $ 68,859
Engineering revenue 308 62
--------------- --------------
Total revenues 102,220 68,921
Operating costs and expenses:
Cost of goods sold 50,346 36,827
Research and development 14,748 7,371
Marketing and selling 7,569 4,641
General and administrative 3,346 2,008
--------------- --------------
Total operating costs and expenses 76,009 50,847
--------------- --------------
Income from operations 26,211 18,074
Other income (expense):
Interest income 3,527 1,477
Interest expense (2,004) (367)
Other, net (26) -
--------------- --------------
Income before income taxes 27,708 19,184
--------------- --------------
Income tax expense 9,975 6,714
--------------- --------------
Net income $ 17,733 $12,470
=============== ==============
Earnings per share:
Basic $ 0.11 $ 0.08
Diluted $ 0.10 $ 0.07
Shares used in per share calculation:
Basic 161,262 158,436
Diluted 173,661 170,802
[FN]
See accompanying Notes to Condensed Consolidated Financial Statements.
</FN>
RF MICRO DEVICES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
(Unaudited)
SIX MONTHS ENDED
SEPTEMBER 30, 2000 SEPTEMBER 30, 1999
------------------ -------------------
Revenues:
Product sales $199,434 $ 130,740
Engineering revenue 992 229
--------------- --------------
Total revenues 200,426 130,969
Operating costs and expenses:
Cost of goods sold 97,988 72,472
Research and development 28,922 13,409
Marketing and selling 14,913 8,273
General and administrative 7,065 3,915
--------------- --------------
Total operating costs and expenses 148,888 98,069
--------------- --------------
Income from operations 51,538 32,900
Other income (expense):
Interest income 4,652 3,041
Interest expense (2,267) (728)
Other, net (18) (1)
--------------- --------------
Income before income taxes 53,905 35,212
--------------- --------------
Income tax expense 19,930 12,324
--------------- --------------
Net income $ 33,975 $ 22,888
=============== ==============
Earnings per share:
Basic $ 0.21 $ 0.14
Diluted $ 0.20 $ 0.13
Shares used in per share calculation:
Basic 160,959 158,158
Diluted 174,054 170,092
[FN]
See accompanying Notes to Condensed Consolidated Financial Statements.
</FN>
RF MICRO DEVICES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts)
SEPTEMBER 30, MARCH 31,
2000 2000
(Unaudited)
---------------------- ----------------------
ASSETS
Current assets:
Cash and cash equivalents $ 269,416 $ 28,956
Short-term investments 55,002 33,755
Accounts receivable, net 74,639 61,163
Inventories 61,132 38,389
Current deferred tax asset 7,114 5,771
Prepaid assets 1,991 472
Interest receivable 2,313 501
Other current assets 107 842
---------------------- ----------------------
Total current assets 471,714 169,849
Property and equipment, net of accumulated depreciation of $33,973 at
September 30, 2000 and $21,702 at March 31, 2000 201,689 159,843
Related party technology licenses, net of amortization of $819 at
September 30, 2000 and $338 at March 31, 2000 12,424 12,905
Long-term investments 9,280 -
Other assets 2,436 2,015
---------------------- ----------------------
Total assets $697,543 $344,612
====================== ======================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 27,645 $ 15,319
Accrued liabilities 11,738 7,726
Income taxes payable 4,171 -
Current obligations under capital leases 4,698 4,495
---------------------- ----------------------
Total current liabilities 48,252 27,540
Long-term debt, net 291,951 -
Obligations under capital leases, less current maturities 5,786 8,203
Non-current deferred tax liability 7,327 5,716
---------------------- ----------------------
Total liabilities 353,316 41,459
Shareholders' equity:
Preferred stock, no par value; 5,000,000 shares authorized; no shares
issued and outstanding - -
Common stock, no par value; 500,000,000 shares authorized; 161,545,945
and 160,208,632 shares issued and outstanding at September 30, 2000
and March 31, 2000, respectively 233,669 229,275
Additional paid-in capital 26,019 26,019
Deferred compensation (7,913) (8,560)
Accumulated other comprehensive income, net of tax 2,058 -
Retained earnings 90,394 56,419
----------------------
----------------------
Total shareholders' equity 344,227 303,153
---------------------- ----------------------
Total liabilities and shareholders' equity $ 697,543 $ 344,612
====================== ======================
[FN]
See accompanying Notes to Condensed Consolidated Financial Statements.
</FN>
RF MICRO DEVICES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
SIX MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
2000 1999
----------------------- -------------------------
Cash flows from operating activities:
Net income $ 33,975 $ 22,888
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation 12,740 5,947
Amortization 256 6
Amortization of related party technology license 481 107
Amortization of deferred compensation 647 30
Changes in operating assets and liabilities:
Accounts receivable (13,476) (14,613)
Inventories (22,743) (4,197)
Current deferred tax asset (1,343) (2)
Prepaid expenses (1,519) (405)
Interest receivable (1,812) -
Other assets 535 143
Accounts payable 12,326 (3,757)
Accrued liabilities 4,012 77
Income taxes payable 4,520 (2,854)
----------------------- -------------------------
Net cash provided by operating activities 28,599 3,370
Cash flows from investing activities:
Purchase of capital equipment/leasehold improvements (54,586) (53,532)
Proceeds from maturities of securities held-to-maturity 22,905 -
Purchase of securities held-to-maturity (28,917) (48,592)
Purchase of securities available for sale (16,196) -
Purchase of other investments (5,000) -
Purchase of technology license - (1,000)
----------------------- -------------------------
Net cash used in investing activities (81,794) (103,124)
Cash flows from financing activities:
Proceeds from convertible debt offering, net 291,474 -
Proceeds from exercise of options 4,394 674
Increase in restricted cash - (3,327)
Repayment of capital lease obligations (2,213) (2,022)
----------------------- -------------------------
Net cash provided by/(used in) financing activities 293,655 (4,675)
----------------------- -------------------------
Net increase/(decrease) in cash and cash equivalents 240,460 (104,429)
Cash and cash equivalents at the beginning of the period 28,956 147,545
----------------------- -------------------------
Cash and cash equivalents at the end of the period $ 269,416 $ 43,116
======================= =========================
Noncash investing and financing activities:
Available-for-sale investment equity change, net of tax $ 2,058 -
[FN]
See accompanying Notes to Condensed Consolidated Financial Statements.
</FN>
RF MICRO DEVICES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands except share and per share data)
(Unaudited)
1. STOCK SPLIT
On August 25, 2000, the Company effected a two-for-one stock split in the form
of a 100% share dividend payable to shareholders of record on August 8, 2000.
Except where otherwise indicated, all share count, earnings per share and other
per share information has been restated to reflect this stock split.
2. EARNINGS PER SHARE
The weighted average shares used in the calculation of diluted earnings per
share represent the weighted average shares outstanding plus the dilutive effect
of outstanding stock options, warrants, and other potentially dilutive common
shares outstanding. The following table sets forth the computation of basic and
diluted earnings per share:
Three Months Ended Six Months Ended
------------------------------------- ------------------------------------
Sept. 30, 2000 Sept. 30, 1999 Sept. 30, 2000 Sept. 30, 1999
----------------- ---------------- --------------- ----------------
Numerator for basic and diluted
earnings per share:
Net income $17,733 $12,470 $33,975 $22,888
================= ================ =============== ================
Denominator for basic earnings per share
- - weighted average shares 161,262,000 158,436,000 160,959,000 158,158,000
Effect of dilutive securities:
Stock options and warrants 12,399,000 12,366,000 13,095,000 11,934,000
----------------- ---------------- --------------- ----------------
Denominator for diluted earnings per
share - adjusted weighted average shares
and assumed conversions
173,661,000 170,802,000 174,054,000 170,092,000
Basic earnings per share $ 0.11 $ 0.08 $ 0.21 $ 0.14
================= ================ =============== ================
Diluted earnings per share $ 0.10 $ 0.07 $ 0.20 $ 0.13
================= ================ =============== ================
Options to purchase approximately 1,237,000 and 217,000 shares of common stock
were outstanding for the second quarters of fiscal 2001 and 2000, respectively,
and options to purchase approximately 763,000 and 353,000 shares of common
stock were outstanding for the six-month periods ended September 30, 2000 and
1999, respectively, but were not included in the computation of diluted earnings
per share because the exercise price of the options was greater than the average
market price of the common shares and, therefore, the effect would have been
anti-dilutive.
RF MICRO DEVICES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(In thousands except share and per share data)
(Unaudited)
2. EARNINGS PER SHARE (Continued)
As of August 11, 2000, the Company also had $300,000 of convertible subordinated
notes outstanding, which are convertible into approximately 6.7 million shares
of common stock. The notes were not assumed to be converted in the computation
of diluted earnings per share because the effect would have been anti-dilutive.
3. INVESTMENTS
Investments available-for-sale at September 30, 2000 consisted of a marketable
equity security and U.S. Agency Medium Term Notes. The U.S. Agency Medium Term
Notes have original maturities of less than one year when purchased.
Available-for-sale securities are carried at fair value, with the unrealized
gains and losses, net of tax, reported as a separate component of shareholders'
equity.
Investments held-to-maturity at September 30, 2000 consisted of U.S. Agency
Medium Term Notes. The investments held-to-maturity have original maturities of
less than one year when purchased. Management determines the appropriate
classification of securities at the time of purchase and reevaluates such
designation as of each balance sheet date. Debt securities are classified as
held-to-maturity when the Company has the positive intent and ability to hold
the securities to maturity. Held-to-maturity securities are stated at amortized
cost, adjusted for amortization of premiums and accumulation of discounts to
maturity.
The amortized cost of U.S. Agency Medium Term Notes classified as
held-to-maturity or available-for-sale is adjusted for amortization of premiums
and accumulation of discounts to maturity. Such amortization is included in
interest income from investments.
The following is a summary of available-for-sale and held-to-maturity securities
at September 30, 2000 and March 31, 2000:
Available-for-Sale Securities
---------------------------------------------------------------------------------
Gross Gross
Unrealized Unrealized Estimated
Sept. 30, 2000 Cost Gains Losses Fair Value
---------------- ----------------- ------------------ ------------------
U.S. Agency Medium Term
Notes
$15,236 $ - $ (2) $ 15,234
Equity Securities 960 3,320 - 4,280
---------------- ----------------- ------------------ ------------------
$16,196 $ 3,320 $ (2) $ 19,514
================ ================= ================== ==================
The Company had no available-for-sale securities at March 31, 2000.
RF MICRO DEVICES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(In thousands except share and per share data)
(Unaudited)
3. INVESTMENTS (CONTINUED)
Held-to-Maturity Securities
----------------------------------------------------------------------------------
Gross Gross
Unrealized Unrealized Estimated
Cost Gains Losses Fair Value
---------------- ------------------ ------------------ ------------------
Sept. 30, 2000
U.S. Agency Medium Term
Notes
$39,768 $ - $ (16) $ 39,752
================ ================== ================== ==================
March 31, 2000
U.S. Agency Medium
Term Notes
$33,755 $ 3 $ (22) $ 33,736
================ ================== ================== ==================
During the quarters and six-month periods ended September 30, 2000 and September
30, 1999, no debt or marketable equity securities were sold. The net adjustment
to unrealized holding gains (losses) on available-for-sale securities included
as a separate component of shareholders' equity totaled $512 for the quarter and
$2,058 for the six-month period ended September 30, 2001. The estimated fair
value of held-to-maturity and available-for-sale securities is based on the
prevailing market values at September 30, 2000 and March 31, 2000. The Company
also has an investment of $5,000 in the equity of a privately held company, in
the management of which the Company does not have the ability to exercise
significant influence, which is carried at its original cost and accounted for
under the cost method of accounting for investments as described in Accounting
Principles Board Opinion No. 18, "The Equity Method of Accounting for
Investments in Common Stock".
4. INVENTORIES
Inventories are stated at the lower of cost or market determined using the
average cost method. The components of inventories are as follows:
September 30, March 31,
2000 2000
--------------- ---------------
Raw materials $ 20,510 $ 7,851
Work in process 20,798 26,560
Finished goods 34,435 15,092
--------------- ---------------
75,743 49,503
Inventory allowances (14,611) (11,114)
--------------- ---------------
Total inventory $ 61,132 $ 38,389
=============== ===============
RF MICRO DEVICES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(In thousands except share and per share data)
(Unaudited)
5. LONG-TERM DEBT
On August 11, 2000, the Company completed the private placement of $300,000
aggregate principal amount of 3.75% convertible subordinated notes due 2005,
which included the exercise by the initial purchasers of the notes of their
option to purchase an additional $50,000 principal amount of the notes. The
notes are convertible into the Company's common stock at a conversion price of
$45.085 per share as adjusted for the 2-for-1 common stock split described in
Note 1. The net proceeds of the offering were approximately $291,000 after
payment of the underwriting discount and expenses of the offering, which will be
amortized over the term of the notes based on the effective interest method.
6. COMPREHENSIVE INCOME
Accumulated other comprehensive income for the Company consists entirely of
accumulated unrealized gains on marketable securities and is a separate
component of shareholders' equity.
The components of comprehensive income, net of tax, are as follows:
Three Months Ended Six Months Ended
------------------------------------ -----------------------------------
Sept. 30, Sept. 30, Sept. 30, Sept. 30,
2000 1999 2000 1999
---------------- --------------- -------------- --------------
Net income $ 17,733 $ 12,470 $ 33,975 $22,888
Accumulated other comprehensive income:
Unrealized gains on
marketable securities 512 - 2,058 -
---------------- --------------- -------------- --------------
Comprehensive income $ 18,245 $ 12,470 $ 36,033 $22,888
================ =============== ============== ==============
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
SAFE HARBOR FOR FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains forward-looking statements that
relate to our plans, objectives, estimates and goals. Words such as "expects,"
"anticipates," "intends," "plans," "believes," and "estimates," and variations
of such words and similar expressions, identify such forward-looking statements.
The Company's business is subject to numerous risks and uncertainties, including
probable variability in our quarterly operating results, risk associated with
our operation of a wafer fabrication facility and construction of a second
facility, our ability to manage rapid growth, variability in production yields,
manufacturing capacity constraints, dependence on a limited number of customers
and dependence on third parties. These and other risks and uncertainties, which
are described in more detail in the Company's Annual Report on Form 10-K filed
with the Securities and Exchange Commission, could cause the actual results and
developments to be materially different from those expressed or implied by any
of these forward-looking statements.
RESULTS OF OPERATIONS
The following table sets forth our consolidated statement of operations data
expressed as a percentage of total revenues for the periods indicated:
Three Months Ended Six Months Ended
Sept. 30, Sept. 30, Sept. 30, Sept. 30,
2000 1999 2000 1999
------------ ----------- ------------ -----------
Revenues 100.0% 100.0% 100.0% 100.0%
Operating costs and expenses
Cost of goods sold 49.3 53.4 48.9 55.3
Research and development 14.4 10.7 14.5 10.2
Marketing and selling 7.4 6.7 7.4 6.4
General and administrative 3.3 2.9 3.5 3.0
------------ ----------- ------------ -----------
Total operating costs and expenses 74.4 73.7 74.3 74.9
Income from operations 25.6 26.3 25.7 25.1
Interest income 3.5 2.1 2.3 2.3
Interest expense (2.0) (0.6) (1.1) (0.5)
------------ ----------- ------------ -----------
Income before income taxes 27.1 27.8 26.9 26.9
Income tax expense (9.8) (9.7) (9.9) (9.4)
------------ ----------- ------------ -----------
Net income 17.3% 18.1% 17.0% 17.5%
============ =========== ============ ===========
REVENUES
Revenues for the quarter ended September 30, 2000 increased 48.3% to
$102.2 million, compared to $68.9 million for the quarter ended September 30,
1999. For the six months ended September 30, 2000, revenues increased 53.0% to
$200.4 million over $131.0 million for the same period ended September 30, 1999.
These increases in year-over-year revenues were due primarily to strong growth
in our GaAs HBT product line (a 55.6% quarterly increase and a 62.0%
year-to-date increase over the prior year to date) as demand from the handset
industry increased. Additionally, demand for our broadband products increased.
As a result of the heightened handset demand in fiscal 2001, both sales to our
largest customer and our overall customer base increased.
International shipments accounted for $66.0 million, or 64.5% of revenues, in
the second quarter of fiscal 2001, compared to $38.5 million, or 55.8% of
revenues, in the second quarter of fiscal 2000. For the six months ended
September 30, 2000, international shipments were $124.8 million, or 62.3% of
revenues, up from $64.5 million, or 49.2% of revenues, for the six months ended
September 30, 1999. One sales representative firm, Jittek, accounted for 8.0% of
sales for the second quarter and 7.5% of sales for the first six months of
fiscal 2001. Comparable figures for fiscal 2000 were 22.4% of sales for both the
quarter and the six-month period. Sales to customers located in South Korea
totaled $8.2 million, or 8.0% of revenues, for the second quarter of fiscal
2001, compared to $15.1 million, or 21.9% of revenues, for the second quarter of
fiscal 2000. Year-to-date shipments to South Korea totaled $15.1 million, or
7.5% of revenues, in fiscal 2001 and $29.5 million, or 22.5% of revenues, in
fiscal 2000. Shipments to this market may continue to decrease from the prior
year, as the South Korean market remains unstable.
We experienced lower than expected order activity in the second quarter of
fiscal 2001, which we anticipate will negatively impact revenues and earnings in
the third quarter of fiscal 2001. We attribute this decreased order activity to
three factors: an overly optimistic forecast for the growth of the handset
market that has led to excess inventories among manufacturers and reduced
component demand; introduction delays by manufacturers for some highly complex
next-generation handsets; and a delay in the introduction of one of our
next-generation products that we believe we will begin shipping in high volume
in the fourth quarter of fiscal 2001. As a result of these factors, we currently
expect revenues for the third fiscal quarter to be down sequentially
approximately 20%. Although we can give no assurances, we currently expect
revenue growth to resume at the end of fiscal 2001 and the beginning of fiscal
2002. We may experience further fluctuations in demand in the future.
GROSS PROFIT
Gross profit for the three months ended September 30, 2000 increased 61.7% to
$51.9 million, or 50.7% of revenues, compared to $32.1 million, or 46.6% of
revenues, in the comparable period of the prior year. For the six months ended
September 30, 2000, gross profit increased 75.0% to $102.4 million, or 51.1% of
revenues, compared to $58.5 million, or 44.7% of revenues, for the six months
ended September 30, 1999. These increases in gross profit were the result of
cost savings, which outpaced declining average selling prices. Cost savings were
attributable to an increase in the percentage of revenues derived from lower
cost output from our GaAs HBT wafer fabrication facility and the lower costs of
purchases made under supply agreements providing for annual price reductions.
We have historically experienced significant fluctuations in gross profit
margins, which has caused fluctuations in our quarterly operating results, and
we cannot be certain operating results will not be similarly affected in the
future. We expect overall average selling prices to continue to decline, but we
believe differences in product mix and introductions of new products will help
offset the price declines in more mature products. However, the downward
pressure on overall average selling prices, along with start-up costs related to
new products and our new facilities may adversely affect margins and offset
gains expected from the manufacturing cost reductions.
RESEARCH AND DEVELOPMENT
Research and development expenses for the three months ended September 30, 2000
increased nearly 100.0% to $14.7 million, or 14.4% of revenues, compared to $7.4
million, or 10.7% of revenues, for the three months ended September 30, 1999.
For the six months ended September 30, 2000, research and development expenses
were $28.9 million, or 14.5% of revenues, compared to $13.4 million, or 10.2% of
revenues, in the comparable period of the prior year. These increases were
primarily attributable to increased headcount and related expenses including
salaries, benefits and equipment, increased development wafers and mask sets and
prototyping expenses. We plan to continue to make substantial investments in
research and development, especially with respect to our recently announced R&D
group that will focus on circuit and packaging development and future
architectures and standards, and to the opening of our latest design center in
Pandrup, Denmark. As such, we expect that such expenses will continue to
increase in absolute dollar amounts.
MARKETING AND SELLING
Marketing and selling expenses for the second quarter of fiscal 2001 were $7.6
million, compared to $4.6 million for the second quarter of fiscal 2000, an
increase of 65.2%. For the six-month periods ended September 30, marketing and
selling expenses were $14.9 million and $8.3 million in fiscal 2001 and fiscal
2000, respectively. These increases in fiscal 2001 were primarily attributable
to increased salaries, benefits and occupancy related to a higher headcount as
we are conducting a greater portion of sales and marketing efforts in-house, as
well as increased commission expense as a result of higher sales. In addition,
advertising/promotional expenses for the six-month period increased over the
prior year as a result of increased quantity and higher quality in our
advertising and our having a greater presence at trade shows. Marketing and
selling expenses as a percentage of revenues were 7.4% and 6.7% for the three
months ended September 30, 2000 and 1999, respectively, and 7.4% and 6.4%,
respectively, for the six months then ended. We plan to continue to make
investments in marketing and selling and expect that such expenses will continue
to increase in absolute dollar amounts in future periods.
GENERAL AND ADMINISTRATIVE General and administrative expenses for the quarter
ended September 30, 2000 were $3.3 million, or 3.3% of revenues, compared to
$2.0 million, or 2.9% of revenues, for the quarter ended September 30, 1999, an
increase of 65.0%. For the six-month period ended September 30, 2000, general
and administrative expenses were $7.1 million, or 3.5% of revenues, compared to
$3.9 million, or 3.0% of revenues, for the comparable period ended September 30,
1999. The increase for the quarter was primarily attributable to increased
salaries and benefits related to a higher headcount and increased investor
relations expenses due to higher circulation of our annual report and proxy
materials. In addition, the increase for the year to date was due in part to
increased legal and accounting expenses, including work in March 2000 on a
convertible debt offering that was postponed. We completed this offering in
August 2000.
INTEREST INCOME For the quarter ended September 30, 2000, interest income was
$3.5 million, compared to $1.5 million in the same quarter during the prior
year. Interest income for the six-month periods ended September 30, 2000 and
1999 was $4.7 million and $3.0 million, respectively. Interest income increased
during fiscal 2001 due to a higher cash balance as a result of the August 2000
convertible debt offering.
INTEREST EXPENSE
Interest expense for the quarter ended September 30, 2000 was $2.0 million
compared to $0.4 million in the same quarter during the prior year. For the
six-month periods ended September 30, 2000 and 1999, interest expense was $2.3
million and $0.7 million, respectively. These increases in interest expense are
attributable to the convertible subordinated notes.
INCOME TAX
The effective tax rate for the six months ended September 30, 2000 was 37.0%,
compared to 35.0% for the six months ended September 30, 1999. The lower
effective tax rate for fiscal 2000 included a deferred tax valuation allowance
adjustment. The effective rate in fiscal 2001 was less than the combined federal
and state statutory rate of approximately 40.0% due primarily to the benefit of
tax credits.
LIQUIDITY AND CAPITAL RESOURCES
We have funded our operations to date through sales of equity and debt
securities, bank borrowings, capital equipment leases and revenues from product
sales. Through public offerings, we have raised approximately $462.0 million,
net of offering expenses. As of September 30, 2000, working capital was $423.5
million, including $269.4 million in cash and cash equivalents, compared to
working capital at March 31, 2000 of $142.3 million. Operating activities for
the first six months of fiscal 2001 generated $28.6 million in cash compared to
$3.4 million in the first six months of fiscal 2000. This year-over-year
increase was primarily attributable to an increase in net income of $11.1
million and increases in cash provided by accounts payable and income taxes
payable of $16.1 million and $7.4 million, respectively, as opposed to cash used
for these items in fiscal 2000. The increase in cash provided by accounts
payable was due primarily to a change in vendor payment terms and an increase in
wafer production and the increase in cash provided by income taxes payable was
the result of increases in net income and the effective tax rate. Partially
offsetting the overall increase in cash provided from operating activities was
an increase in cash used for inventories of $18.5 million. Inventories increased
as a result of planned inventory build intended to facilitate meeting delivery
schedules.
Cash used in investing activities for the six months ended September 30, 2000
was $81.8 million, compared to $103.1 million in the prior year. Proceeds from
maturities of securities held-to-maturity of $22.9 million accounted for the
decrease. Uses of cash in fiscal 2001 included the purchase of capital
equipment/leasehold improvements of $54.6 million, primarily for use in the
testing and wafer fabrication facilities, and the purchase of investment
securities of $45.1 million.
Cash provided by financing activities for the six months ended September 30,
2000 was $293.7 million, compared to cash used of $4.7 million for the six
months ended September 30, 1999. The net proceeds from the convertible debt
offering generated the increase over the prior year.
At September 30, 2000, we had long-term capital commitments of approximately
$47.6 million, consisting of approximately $17.3 million for the expansion of
our first wafer fabrication facility, approximately $3.1 million for the second
wafer fabrication construction project, approximately $19.8 million for our
molecular beam epitaxy (MBE) facility expansion, and the remainder for general
corporate requirements. We expect to fund these commitments through a
combination of cash on hand, capital leases and other forms of financing. In
addition, we have a synthetic lease arrangement to provide up to $100.0 million
in financing for our second wafer fabrication facility. As of September 30,
2000, open commitments against this lease were $14.0 million and availability
under this lease was approximately $6.0 million.
Due to lower forecasted demand levels, the expanded capacity in our first wafer
fabrication facility is expected to be sufficient to address initial demand for
next generation products through mid-calendar 2001. Accordingly, we now plan to
delay the ramp-up of production in our second wafer fabrication facility until
demand for these products increases. The first phase of construction of this
facility is on schedule for completion by the end of calendar 2000. Construction
of the second phase of this fabrication facility has been delayed until market
conditions strengthen.
During the second quarter of fiscal 2001, we completed the private placement of
$300.0 million aggregate principal amount of convertible subordinated notes due
2005, which included the exercise by the initial purchasers of the notes of
their option to purchase an additional $50.0 million principal amount of the
notes. The net proceeds from this offering were $291.0 million and are intended
for general corporate purposes, including capital expenditures and working
capital. In addition, we may use a portion of the net proceeds to acquire or
invest in complementary businesses, products or technologies if the opportunity
arises.
We executed an agreement during the second quarter of fiscal 2001 providing for
the sale-leaseback of our corporate headquarters building. This transaction is
expected to be completed during the third quarter of fiscal 2001 and to generate
approximately $13.0 million in cash. During the second fiscal quarter, we also
completed the retrofitting process and commenced operations in our RFIC testing
facility.
Our future capital requirements may differ materially from those currently
anticipated and will depend on many factors, including, but not limited to,
market acceptance of our products, volume pricing concessions, capital
improvements to new and existing facilities, technological advances and our
relationships with suppliers and customers. We believe our cash requirements
will be adequately met from the combination of the debt offering and normal
operating results during fiscal 2001. If existing resources and cash from
operations are not sufficient to meet our future requirements, we may seek
additional debt or equity financing or additional credit facilities. We cannot
be sure that any additional financing will not be dilutive to holders of our
common stock. Also, we cannot be sure that additional equity or debt financing,
if required, will be available on favorable terms.
PART II - OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
On August 11, 2000, we sold $300.0 million of 3.75% convertible subordinated
notes due 2005. The notes are convertible into approximately 6.7 million shares
of our common stock at a per share price of $45.085. The notes were sold to
initial purchasers, who in turn sold them to qualified institutional buyers, in
a private placement pursuant to Section 4(2) of the Securities Act of 1933, as
amended, and may be resold to qualified institutional buyers on the PORTAL
market. We filed a registration statement on Form S-3 relating to the resale of
the notes and the common stock into which the notes are convertible with the
Securities and Exchange Commission on November 7, 2000.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Our annual meeting of shareholders was held on July 25, 2000. At the meeting,
our shareholders elected six directors for one-year terms and until their
successors are duly elected and qualified, approved an amendment to our article
of incorporation to increase our authorized common stock from 150,000,000 shares
to 500,000,000 shares, and ratified the appointment of Ernst & Young LLP as our
independent auditors for the fiscal year ending March, 31, 2001. Votes cast by
our shareholders at the meeting were as follows (share numbers have not been
adjusted to reflect the 2-for-1 stock split effective August 25, 2000 for
shareholders of record on August 8, 2000):
Nominees for Director Shares Voted in Favor Shares Withheld
Erik H. van der Kaay 70,755,570 147,196
David A. Norbury 70,677,826 224,940
Albert E. Paladino 70,753,918 148,848
William J. Pratt 70,676,959 225,807
Walter H. Wilkinson, Jr. 70,756,804 145,962
Terri D. Zinkiewicz 70,370,113 532,653
Amendment to articles of incorporation to increase authorized common stock from
150,000,000 shares to 500,000,000 shares:
Shares Voted in Favor Shares Voted Against Shares Abstaining
64,969,225 5,810,142 123,399
Ratification of selection of Ernst & Young LLP:
Shares Voted in Favor Shares Voted Against Shares Abstaining
70,796,264 62,237 44,265
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit 27.1 Financial Data Schedule
(b) Reports on Form 8-K
During the quarter ended September 30, 2000, the Company filed the following
reports on Form 8-K:
On July 26, 2000, a Form 8-K was filed to disclose that we announced on July 25,
2000 that our board of directors had approved a two-for-one stock split of our
common stock to be effected by a 100% share dividend payable on or around August
25, 2000 to shareholders of record on August 8, 2000.
On August 7, 2000, a Form 8-K was filed to disclose that we announced on August
7, 2000 our intent to offer, subject to market and other conditions, $250.0
million of convertible subordinated notes due 2005 (plus an additional amount of
up to $50.0 million at the option of the initial purchasers).
On August 11, 2000, a Form 8-K was filed to disclose that we had completed the
private placement of $300.0 million aggregate principal amount of 3.75%
convertible subordinated notes due 2005.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
RF Micro Devices, Inc.
Dated: November 13, 2000
/S/ DAVID A. NORBURY
----------------------------
DAVID A. NORBURY
President and Chief Executive Officer
Dated: November 13, 2000
/S/ WILLIAM A. PRIDDY, JR.
----------------------------
WILLIAM A. PRIDDY, JR.
Vice President, Finance and Administration
and Chief Financial Officer
(Principal Financial Officer)