SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) of
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 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 January 31, 2001, there were 163,104,852 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. For
comparative purposes, certain amounts have been reclassified to conform to
fiscal 2001 presentation. These reclassifications had no effect on net income or
shareholders' equity as previously stated. 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 third fiscal quarter of each year ends on the
Saturday closest to December 31; however, in this report the Company's fiscal
year is described as ending on March 31 and the third quarter of each fiscal
year is described as ending on December 31.
The following condensed consolidated financial statements are included:
Condensed Consolidated Statements of Income for the three months
ended December 31, 2000 and 1999
Condensed Consolidated Statements of Income for the nine months
ended December 31, 2000 and 1999
Condensed Consolidated Balance Sheets as of December 31, 2000
and March 31, 2000
Condensed Consolidated Statements of Cash Flows for the nine
months ended December 31, 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
DECEMBER 31, 2000 DECEMBER 31, 1999
------------------ -----------------
Revenues:
Product sales $79,799 $72,856
Engineering revenue 119 305
--------------- --------------
Total revenues 79,918 73,161
Operating costs and expenses:
Cost of goods sold 42,377 37,530
Research and development 16,011 9,061
Marketing and selling 6,544 5,394
General and administrative 3,241 2,665
Other operating expenses 1,252 -
--------------- --------------
Total operating costs and expenses 69,425 54,650
--------------- --------------
Income from operations 10,493 18,511
Other income (expense):
Interest income 5,159 1,191
Interest expense (3,443) (358)
Other, net 46 2
--------------- --------------
Income before income taxes 12,255 19,346
--------------- --------------
Income tax expense 4,412 6,771
--------------- --------------
Net income $ 7,843 $12,575
=============== ==============
Earnings per share:
Basic $ 0.05 $ 0.08
Diluted $ 0.05 $ 0.07
Shares used in per share calculation:
Basic 162,153 158,824
Diluted 172,627 172,150
<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)
NINE MONTHS ENDED
DECEMBER 31, 2000 DECEMBER 31, 1999
----------------- -----------------
Revenues:
Product sales $279,234 $203,596
Engineering revenue 1,111 535
------------ --------------
Total revenues 280,345 204,131
Operating costs and expenses:
Cost of goods sold 140,365 110,004
Research and development 44,933 22,469
Marketing and selling 21,456 13,667
General and administrative 10,307 6,580
Other operating expenses 1,252 -
------------ --------------
Total operating costs and expenses 218,313 152,720
------------ --------------
Income from operations 62,032 51,411
Other income (expense):
Interest income 9,811 4,232
Interest expense (5,711) (1,086)
Other, net 29 1
------------ --------------
Income before income taxes 66,161 54,558
------------ --------------
Income tax expense 24,342 19,095
------------ --------------
Net income $ 41,819 $ 35,463
============ ==============
Earnings per share:
Basic $ 0.26 $ 0.22
Diluted $ 0.24 $ 0.21
Shares used in per share calculation:
Basic 161,346 158,380
Diluted 173,567 170,778
<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)
DECEMBER 31, MARCH 31,
2000 2000
(Unaudited)
---------------------- ----------------------
ASSETS
Current assets:
Cash and cash equivalents $ 276,634 $ 28,956
Short-term investments 67,721 33,755
Accounts receivable, net 51,824 61,163
Inventories 61,037 38,389
Current deferred tax asset 7,115 5,771
Prepaid assets 1,446 472
Interest receivable 2,139 501
Other current assets 98 842
---------------------- ----------------------
Total current assets 468,014 169,849
Property and equipment, net of accumulated depreciation of $41,950 at
December 31, 2000 and $21,702 at March 31, 2000 212,350 159,843
Related party technology licenses, net of amortization of $1,060 at
December 31, 2000 and $338 at March 31, 2000 12,183 12,905
Long-term investments 7,880 -
Other assets 2,513 2,015
---------------------- ----------------------
Total assets $702,940 $344,612
====================== ======================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 18,655 $ 15,319
Accrued liabilities 15,043 7,726
Income taxes payable 8,168 -
Current obligations under capital leases 4,812 4,495
---------------------- ----------------------
Total current liabilities 46,678 27,540
Long-term debt, net 292,324 -
Obligations under capital leases, less current maturities 4,540 8,203
Non-current deferred tax liability 6,795 5,716
---------------------- ----------------------
Total liabilities 350,337 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; 162,373,951
and 160,208,632 shares issued and outstanding at December 31, 2000
and March 31, 2000, respectively 234,542 229,275
Additional paid-in capital 33,965 26,019
Deferred compensation (15,330) (8,560)
Accumulated other comprehensive income, net of tax 1,188 -
Retained earnings 98,238 56,419
----------------------
----------------------
Total shareholders' equity 352,603 303,153
---------------------- ----------------------
Total liabilities and shareholders' equity $702,940 $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)
NINE MONTHS ENDED
DECEMBER 31, DECEMBER 31,
2000 1999
----------------------- -------------------------
Cash flows from operating activities:
Net income $ 41,819 $ 35,463
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation 20,740 10,064
Amortization 906 47
Amortization of related party technology license 722 141
Amortization of deferred compensation 1,176 173
Changes in operating assets and liabilities:
Accounts receivable 9,339 (23,100)
Inventories (22,648) (12,656)
Current deferred tax asset (1,343) (1)
Prepaid expenses (974) (266)
Interest receivable (1,638) (1,049)
Other assets (252) 121
Accounts payable 3,336 5,881
Accrued liabilities 7,317 1,034
Income taxes payable 9,314 3,227
----------------------- -------------------------
Net cash provided by operating activities 67,814 19,079
Cash flows from investing activities:
Purchase of capital equipment/leasehold improvements (73,247) (83,326)
Proceeds from maturities of securities held-to-maturity 33,805 -
Purchase of securities held-to-maturity (32,502) (47,265)
Proceeds from maturities of securities available for sale 6,300 -
Purchase of securities available for sale (42,767) -
Purchase of other investments (5,000) -
Purchase of technology license - (1,500)
----------------------- -------------------------
Net cash used in investing activities (113,411) (132,091)
Cash flows from financing activities:
Proceeds from convertible debt offering, net 291,354 -
Proceeds from exercise of options 5,267 1,822
Increase in restricted cash - (2,923)
Repayment of capital lease obligations (3,346) (3,081)
----------------------- -------------------------
Net cash provided by/(used in) financing activities 293,275 (4,182)
----------------------- -------------------------
Net increase/(decrease) in cash and cash equivalents 247,678 (117,194)
Cash and cash equivalents at the beginning of the period 28,956 147,545
----------------------- -------------------------
Cash and cash equivalents at the end of the period $ 276,634 $ 30,351
======================= =========================
Noncash investing and financing activities:
Issuance of restricted stock as deferred compensation $ 7,946 $ -
Available-for-sale investment equity change, net of tax $ 1,188 $ -
<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 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 Nine Months Ended
------------------------------------- ------------------------------------
Dec. 31, 2000 Dec. 31, 1999 Dec. 31, 2000 Dec. 31, 1999
----------------- ---------------- --------------- ----------------
Numerator for basic and diluted
earnings per share:
Net income $ 7,843 $12,575 $41,819 $35,463
================= ================ =============== ================
Denominator for basic earnings per share
- - weighted average shares 162,153 158,824 161,346 158,380
Effect of dilutive securities:
Stock options and warrants 10,474 13,326 12,221 12,398
----------------- ---------------- --------------- ----------------
Denominator for diluted earnings per
share - adjusted weighted average shares
and assumed conversions 172,627 172,150 173,567 170,778
Basic earnings per share $ 0.05 $ 0.08 $ 0.26 $ 0.22
================= ================ =============== ================
Diluted earnings per share $ 0.05 $ 0.07 $ 0.24 $ 0.21
================= ================ =============== ================
RF MICRO DEVICES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(In thousands except per share data)
(Unaudited)
2. EARNINGS PER SHARE (Continued)
Options to purchase approximately 1,619 and 791 shares of common stock were
outstanding for the third quarters of fiscal 2001 and 2000, respectively, and
options to purchase approximately 1,049 and 499 shares of common stock were
outstanding for the nine-month periods ended December 31, 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 stock and, therefore, the effect would have been
anti-dilutive.
On August 11, 2000, the Company sold $300,000 of convertible subordinated notes
due 2005, which are convertible into approximately 6,700 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. DEFERRED COMPENSATION
On October 19, 2000, the Company issued approximately 558 shares of restricted
stock under the stock incentive plan resulting in deferred compensation of
$7,946. This amount will be amortized to compensation expense over the five-year
period in which the restrictions lapse.
4. INVESTMENTS
Investments available-for-sale at December 31, 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 December 31, 2000 consisted of U.S. Agency
Medium Term Notes and 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.
RF MICRO DEVICES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(In thousands except per share data)
(Unaudited)
4. INVESTMENTS (Continued)
The following is a summary of available-for-sale and held-to-maturity securities
at December 31, 2000 and March 31, 2000:
Available-for-Sale Securities
----------------------------------------------------------------------------------
Gross
Gross Unrealized Unrealized Estimated Fair
Cost Gains Losses Value
-------------- ------------------ --------------- --------------------
Dec. 31, 2000
U.S. Agency Medium Term Notes $35,432 $ - $ (4) $ 35,428
Equity Securities 960 1,920 - 2,880
-------------- ------------------ --------------- --------------------
$36,392 $ 1,920 $ (4) $ 38,308
============== ================== =============== ====================
The Company had no available-for-sale securities at March 31, 2000.
Held-to-Maturity Securities
----------------------------------------------------------------------------------
Gross Unrealized Gross
Gains Unrealized Estimated Fair
Cost Losses Value
-------------- ------------------ --------------- --------------------
Dec. 31, 2000
U.S. Agency Medium Term Notes $32,293 $ 27 $ - $ 32,320
============== ================== =============== ====================
March 31, 2000
U.S. Agency Medium Term Notes
$33,755 $ 3 $ (22) $ 33,736
============== ================== =============== ====================
During the quarters and nine-month periods ended December 31, 2000 and 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 ($869) for the quarter and $1,188 for
the nine-month period ended December 31, 2000. The estimated fair value of
held-to-maturity and available-for-sale securities was based on the prevailing
market values on December 31, 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. This investment 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."
RF MICRO DEVICES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(In thousands except per share data)
(Unaudited)
5. INVENTORIES
Inventories are stated at the lower of cost or market determined using the
average cost method. The components of inventories are as follows:
December 31, 2000 March 31, 2000
------------------ ---------------
Raw materials $ 22,610 $ 7,851
Work in process 18,759 26,560
Finished goods 36,381 15,092
------------------ ----------------
77,750 49,503
Inventory allowances (16,713) (11,114)
------------------ -----------------
Total inventory $ 61,037 $ 38,389
=================== ==================
6. 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.
7. 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 Nine Months Ended
----------------------------------------- -----------------------------------------
Dec. 31, Dec. 31, Dec. 31, Dec. 31,
2000 1999 2000 1999
------------------- ------------------ -------------------- -----------------
Net income $ 7,843 $ 12,575 $ 41,819 $35,463
Accumulated other comprehensive income:
Unrealized gains (losses)
on marketable securities (869) - 1,188 -
------------------- ------------------ -------------------- -----------------
Comprehensive income $ 6,974 $ 12,575 $ 43,007 $35,463
=================== ================== ==================== =================
8. OTHER OPERATING EXPENSES
Other operating expenses consist of start-up costs associated with preparing our
second wafer fabrication facility for normal productive capacity. These costs
have been expensed as incurred in accordance with the American Institute of
Certified Public Accountants' Statement of Position 98-5, "Reporting on the
Costs of Start-up Activities."
9. SUBSEQUENT EVENT
On January 3, 2001, TRW Inc., a beneficial owner of approximately 14.4% of the
Company's common stock, exercised a warrant for the purchase of 500 shares of
common stock at an exercise price of $20.00 per share. The warrant was granted
in November 1999 in connection with the expansion of license arrangements for
use of TRW's GaAs HBT technology to manufacture products for commercial coaxial
and other non-fiber wire applications. TRW continues to hold a second warrant
for the purchase of up to 1,000 shares of common stock at $20.00 per share. This
warrant may be forfeited if the Company does not reach a defined annualized
sales target of products through the use of the expanded license rights.
10. ADOPTION OF ACCOUNTING STANDARD
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement No. 133 "Accounting for Derivative Instruments and Hedging Activities"
("SFAS 133"), which, as amended, is effective for fiscal years beginning after
June 15, 2000. SFAS 133 establishes a comprehensive and consistent standard for
the recognition and measurement of derivatives and hedging activities. The
Company will adopt SFAS 133 for fiscal 2002, which may result in additional
disclosures. The application of the new rules is not expected to have
significant impact on the Company's financial position, results from operations
or cash flows.
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, the rate of growth and
development of wireless markets, risks associated with our operation of wafer
fabrication facilities, our ability to manage rapid growth and to attract and
retain skilled personnel, variability in production yields, raw material
availability, 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 and the Company's Prospectus dated December 19, 2000 included in
its Registration Statement on Form S-3 (Registration No. 333-49432) 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 Nine Months Ended
Dec. 31, Dec. 31, Dec. 31, Dec. 31,
2000 1999 2000 1999
-------------- ------------- ------------ -------------
Revenues 100.0% 100.0% 100.0% 100.0%
Operating costs and expenses
Cost of goods sold 53.0 51.3 50.1 53.9
Research and development 20.0 12.4 16.0 11.0
Marketing and selling 8.2 7.4 7.7 6.7
General and administrative 4.1 3.6 3.7 3.2
Other operating expenses 1.6 -- 0.4 --
-------------- ------------- ------------ -------------
Total operating costs and expenses 86.9 74.7 77.9 74.8
Income from operations 13.1 25.3 22.1 25.2
Interest income 6.5 1.6 3.5 2.1
Interest expense (4.3) (0.5) (2.0) (0.5)
-------------- ------------- ------------ -------------
Income before income taxes 15.3 26.4 23.6 26.8
Income tax expense (5.5) (9.3) (8.7) (9.4)
-------------- ------------- ------------ -------------
-------------- ------------- ------------ -------------
Net income 9.8% 17.1% 14.9% 17.4%
============== ============= ============ =============
REVENUES
Revenues for the third quarter of fiscal 2001 increased 9.2% to $79.9 million,
compared to $73.2 million for the same quarter in fiscal 2000. For the nine
months ended December 31, 2000, revenues were $280.3 million, a 37.3% increase
over revenues of $204.1 million for the nine months ended December 31, 1999.
These increases in year-over-year revenues were due primarily to strong growth
in our GaAs HBT product line (a 14.9% quarterly increase and a 45.2%
year-to-date increase over the prior year) as demand from the handset industry
increased.
Third quarter international shipments were $50.4 million and accounted for 63.1%
of revenues in fiscal 2001, compared to $41.6 million, or 56.8% of revenues, in
fiscal 2000. For the nine months ended December 31, 2000, international
shipments were $175.3 million, or 62.5% of revenues, up from $106.1 million, or
52.0% of revenues, for the prior year. Sales to customers located in South Korea
totaled $10.2 million, or 12.8% of revenues, for the third quarter of fiscal
2001, compared to $12.4 million, or 16.9% of revenues, for the third quarter of
fiscal 2000. Year-to-date shipments to South Korea totaled $25.3 million, or
9.0% of revenues, in fiscal 2001 and $41.9 million, or 20.5% of revenues, in
fiscal 2000. Shipments to this market declined from the prior year due to an
unstable market. One international sales representative firm, Jittek, accounted
for 12.3% of sales for the third quarter and 8.9% of sales for the first nine
months of fiscal 2001. Comparable figures for fiscal 2000 were 16.7% of sales
for the quarter and 20.4% of sales for the nine-month period.
During the second quarter of fiscal 2001, we experienced lower-than-expected
order activity, which negatively impacted revenues and earnings in the third
quarter. We attributed this decreased order activity to three factors: an overly
optimistic forecast for the growth of the handset market that 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, a GSM power
amplifier module. Lower order activity has continued during the third quarter,
and we anticipate this will negatively impact revenues and earnings in the
fourth quarter. We believe the handset industry is undergoing a transition from
integrated circuit power amplifiers (in mature handsets) to more complex, highly
integrated multi-chip module power amplifiers. While we have received production
orders for our new GSM power amplifier module, we currently expect revenues for
the fourth quarter to be down sequentially approximately 10%. Although we can
give no assurances, we currently expect revenue growth to resume in fiscal 2002;
however, we may experience further fluctuations in demand in the future.
GROSS PROFIT
Gross profit for the three months ended December 31, 2000 increased to $37.5
million, or 47.0% of revenues, compared to $35.6 million, or 48.7% of revenues,
in the comparable period of the prior year. For the nine months ended December
31, 2000, gross profit increased to $140.0 million, or 49.9% of revenues, from
$94.1 million, or 46.1% of revenues, for the nine months ended December 31,
1999. These absolute dollar 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.
Currently, we expect downward pressure on margins due to the following factors:
continued declines in average selling prices on mature products, start-up costs
related to new products, increased cost of module production and start-up costs
related to our new wafer fabrication facility. We believe cost reduction
initiatives, increases in capacity utilization and changes in product mix will
offset these factors; however, the exact extent of the offset is currently not
determinable.
RESEARCH AND DEVELOPMENT
Research and development expenses in fiscal 2001 were $16.0 million, or 20.0% of
revenues, for the third quarter and $44.9 million, or 16.0% of revenues, for the
nine-month period. Comparable fiscal 2000 figures were $9.1 million, or 12.4% of
revenues, for the third quarter and $22.5 million, or 11.0% of revenues, for the
nine-month period. These increases, in absolute dollar terms, were primarily
attributable to increased headcount and related personnel expenses including
salaries, benefits, equipment and occupancy, as well as increased development
wafers and mask sets and prototyping expenses. We plan to continue to make
substantial investments in research and development and, as such, we expect that
these expenses will continue to increase.
MARKETING AND SELLING
Marketing and selling expenses for the third quarter of fiscal 2001 were $6.5
million, compared to $5.4 million for the third quarter of fiscal 2000. For the
nine-month periods, marketing and selling expenses were $21.5 million and $13.7
million in fiscal 2001 and fiscal 2000, respectively. The third-quarter increase
in fiscal 2001 from fiscal 2000 was primarily attributable to costs associated
with a higher headcount as we are conducting a greater portion of sales and
marketing efforts in-house. Additionally, the nine-month increase year-over-year
was due to higher commissions as a result of the sales growth, and higher
advertising/promotional expenses 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 8.2% and 7.4%
for the three months ended December 31, 2000 and 1999, respectively, and 7.7%
and 6.7%, respectively, for the nine months then ended. We plan to continue to
make investments in marketing and selling and expect that such expenses will
continue to increase in future periods.
GENERAL AND ADMINISTRATIVE
General and administrative expenses for the quarter ended December 31, 2000 were
$3.2 million, or 4.1% of revenues, compared to $2.7 million, or 3.6% of
revenues, for the quarter ended December 31, 1999. For the nine-month period
ended December 31, 2000, general and administrative expenses were $10.3 million,
or 3.7% of revenues, compared to $6.6 million, or 3.2% of revenues, for the
comparable period ended December 31, 1999. The quarter-over-quarter absolute
dollar increase was primarily attributable to increased salaries and benefits
related to a higher headcount, increased travel expense and increased
professional fees related to various tax-related studies. In addition, the
year-over-year increase was due in part to increased investor relations expenses
due to higher circulation of our annual report and proxy materials, and
increased legal and accounting expenses, including work on the convertible debt
offering.
OTHER OPERATING EXPENSE
Other operating expenses of $1.3 million pertaining to the start-up costs of our
second wafer fabrication facility were recorded in the third quarter of fiscal
2001. These costs will be included in cost of goods sold once the facility is
qualified for production and economic value can be obtained.
INTEREST INCOME
For the quarter ended December 31, 2000, interest income was $5.2 million,
compared to $1.2 million in the same quarter for the prior year. Interest income
for the nine-month periods ended December 31, 2000 and 1999 was $9.8 million and
$4.2 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 was $3.4 million for the quarter and $5.7 million for the nine
months ended December 31, 2000 compared to $0.4 million for the quarter and $1.1
million for the nine months ended December 31, 1999. These increases in interest
expense are attributable to the convertible subordinated notes.
INCOME TAX
The effective tax rate for the nine months ended December 31, 2000 was nearly
37.0%, compared to 35.0% for the nine months ended December 31, 1999. The lower
effective tax rate for last fiscal year 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. Based upon initial R&D tax credits study
findings, we expect the annualized tax rate for fiscal 2001 to be approximately
33.0%.
LIQUIDITY AND CAPITAL RESOURCES
We have funded our operations to date through sales of equity and debt
securities, bank borrowings, capital equipment leases and revenues from product
sales. Through public offerings, we have raised approximately $462.0 million,
net of offering expenses. As of December 31, 2000, working capital was $421.3
million, including $276.6 million in cash and cash equivalents, compared to
working capital at March 31, 2000 of $142.3 million. Operating activities for
the first nine months of fiscal 2001 generated $67.8 million in cash compared to
$19.1 million in the first nine months of fiscal 2000. This year-over-year
increase was primarily attributable to an increase in net income of $6.4 million
and an increase of $32.4 million in cash provided by accounts receivable (as
opposed to cash used in fiscal 2000) due to lower sales volume and a shorter
collection period. Partially offsetting the overall increase in cash provided
from operating activities was an increase in cash used for inventories of $10.0
million. In addition to building inventory to facilitate meeting delivery
schedules, inventory increased as a result of lower sales volume and higher
manufacturing overhead costs.
Cash used in investing activities for the nine months ended December 31, 2000
was $113.4 million, compared to $132.1 million in the prior year. Lower net
purchases of securities of $12.1 million and fewer capital expenditures of $10.1
million accounted for the decrease. Purchases of capital equipment/leasehold
improvements in fiscal 2001 were $73.2 million, primarily for use in the testing
and wafer fabrication facilities.
Cash provided by financing activities for the nine months ended December 31,
2000 was $293.3 million, compared to cash used of $4.2 million for the nine
months ended December 31, 1999. The net proceeds from the convertible debt
offering of $291.4 million generated the increase over the prior year.
At December 31, 2000, we had long-term capital commitments of approximately
$48.4 million, consisting of approximately $1.6 million for the expansion of our
first wafer fabrication facility, approximately $14.9 million for equipment for
the second wafer fabrication facility, approximately $16.5 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 December 31, 2000,
open commitments against this lease were $6.3 million and availability under
this lease was approximately $2.3 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
ramp production in our second wafer fabrication facility consistent with
increased demand for these products.
On January 3, 2001, TRW Inc., a beneficial owner of approximately 14.4% of the
Company's common stock, exercised a warrant for the purchase of 500,000 shares
of common stock at an exercise price of $20.00 per share. The warrant was
granted in November 1999 in connection with the expansion of license
arrangements for use of TRW's GaAs HBT technology to manufacture products for
commercial coaxial and other non-fiber wire applications. TRW continues to hold
a second warrant for the purchase of up to 1,000,000 shares of common stock at
$20.00 per share. This warrant may be forfeited if we do not reach a defined
annualized sales target of products through the use of the expanded license
rights.
During the second quarter of fiscal 2001, we completed the private placement of
$300.0 million 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 $50.0 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
currently expected to be completed by the end of fiscal 2001 and to generate
approximately $13.0 million in cash.
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 and demand for 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 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
4.1 Form of Global Note for 3.75% Convertible Subordinated Notes
due August 15, 2005 (incorporated by reference to Exhibit 4.1
to the Company's Registration Statement on Form S-3
(Registration No. 333-49432)).
4.2 Indenture, dated August 1, 2000 (incorporated by reference
to Exhibit 4.2 to the Company's Registration Statement on
Form S-3 (Registration No. 333-49432)).
4.3 Registration Rights Agreement, dated August 1, 2000
(incorporated by reference to Exhibit 4.3 to the
Company's Registration Statement on Form S-3 (Registration
No. 333-49432)).
(b) Reports on Form 8-K
During the quarter ended December 31, 2000, the Company filed no reports on Form
8-K.
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: February 7, 2001
/s/ David A. Norbury
-----------------------
DAVID A. NORBURY
President and Chief Executive Officer
Dated: February 7, 2001
/s/ William A. Priddy, Jr.
--------------------------
WILLIAM A. PRIDDY, JR.
Vice President, Finance and Administration
and Chief Financial Officer
(Principal Financial Officer)