SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
Amendment No. 1
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) of
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2001
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 August 7, 2001, there were 164,881,073 shares of the registrant's common
stock outstanding.
EXPLANATORY NOTE
We are amending our Quarterly Report on Form 10-Q for the quarter ended
June 30, 2001 to revise Item 1., "Condensed Consolidated Financial Statements,"
and Item 2., "Management's Discussion and Analysis of Financial Condition and
Results of Operations, to reflect the recognition of an income tax benefit of
approximately $5.1 million. Management made the determination to recognize the
tax benefit as a result of further review of the Company's deferred tax assets
and liabilities relative to income tax carry-backs and carry-forwards and
consultation with the Company's independent auditors.
RF MICRO DEVICES, INC. AND SUBSIDIARIES
INDEX
PART I - FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Condensed Consolidated Statements of Operations for the three months
ended June 30, 2001 and 2000
Condensed Consolidated Balance Sheets as of June 30, 2001
and March 31, 2001
Condensed Consolidated Statements of Cash Flows for the three months
ended June 30, 2001 and 2000
Notes to Condensed Consolidated Financial Statements
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
RF MICRO DEVICES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
(Restated)
THREE MONTHS ENDED
JUNE 30, JUNE 30,
2001 2000
--------------- ----------
Revenue:
Product sales $ 69,527 $97,522
Engineering revenue 525 684
--------------- ----------
Total revenue 70,052 98,206
Operating costs and expenses:
Cost of goods sold 65,901 47,642
Research and development 16,015 14,174
Marketing and selling 6,565 7,344
General and administrative 3,260 3,719
Other operating expenses (Note 7) 4,912 -
Impairment of long-lived assets (Note 6) 6,801 -
--------------- ----------
Total operating costs and expenses 103,454 72,879
--------------- ----------
(Loss) income from operations (33,402) 25,327
Other income (expense):
Interest income 3,942 1,125
Interest expense (4,011) (264)
Other, net (23) 9
--------------- ----------
(Loss) income before income taxes (33,494) 26,197
--------------- ----------
Income tax (benefit) expense (Note 8) (5,108) 9,955
--------------- ----------
Net (loss) income ($ 28,386) $16,242
=============== ==========
Net (loss) income per share (Note 2):
Basic ($ 0.17) $ 0.10
Diluted ($ 0.17) $ 0.09
Weighted average shares outstanding used in per share calculation:
Basic 164,493 160,678
Diluted 164,493 174,468
<FN>
See accompanying Notes to Condensed Consolidated Financial Statements.
</FN>
RF MICRO DEVICES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
(Restated)
JUNE 30, MARCH 31,
2001 2001
(Unaudited)
---------------------- ----------------------
ASSETS
Current assets:
Cash and cash equivalents $ 204,599 $ 266,076
Short-term investments 136,723 75,162
Accounts receivable, net 26,401 38,610
Recoverable income tax 26,657 28,477
Inventories (Note 3) 61,377 71,015
Current deferred tax asset 1,944 9,028
Other current assets 4,815 3,946
---------------------- ----------------------
Total current assets 462,516 492,314
Property and equipment, net of accumulated depreciation of $58,406 at
June 30, 2001 and $49,757 at March 31, 2001 205,232 208,571
Non-current deferred tax asset 19,351 -
Related party technology licenses, net of amortization of $1,541 at
June 30, 2001 and $1,300 at March 31, 2001 11,702 11,943
Other non-current assets 11,140 8,103
---------------------- ----------------------
Total assets $709,941 $720,931
====================== ======================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $14,471 $ 14,613
Accrued liabilities 16,003 9,410
Current obligations under capital leases 4,839 4,976
---------------------- ----------------------
Total current liabilities 35,313 28,999
Long-term debt, net 293,081 292,700
Non-current deferred tax liability 21,295 19,471
Obligations under capital leases, less current maturities 2,191 3,263
Other long-term liability (Note 5) 6,108 -
---------------------- ----------------------
Total liabilities 357,988 344,433
Shareholders' equity:
Preferred stock, no par value; 5,000 shares authorized; no shares
issued and outstanding - -
Common stock, no par value; 500,000 shares authorized; 164,809 and
163,710 shares issued and outstanding at June 30, 2001 and March 31,
2001, respectively 250,704 246,930
Additional paid-in capital 55,805 53,196
Deferred compensation (14,261) (14,798)
Accumulated other comprehensive loss, net of tax (Note 4) (3,302) (223)
Retained earnings 63,007 91,393
---------------------- ----------------------
Total shareholders' equity 351,953 376,498
---------------------- ----------------------
Total liabilities and shareholders' equity $ 709,941 $ 720,931
====================== ======================
<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)
(Restated)
THREE MONTHS ENDED
JUNE 30, JUNE 30,
2001 2000
---------------- --------------
Cash flows from operating activities:
Net (loss) income ($28,386) $ 16,242
Adjustments to reconcile net (loss) income to net cash provided by
operating activities:
Depreciation 8,704 5,658
Amortization 1,273 591
Loss on disposal of equipment 228 -
Impairment on long-lived assets 6,801 -
Tax benefit from exercise of employee stock options 2,609 -
Changes in operating assets and liabilities:
Accounts receivable 12,209 4,984
Inventories 9,638 (12,474)
Recoverable income taxes 1,820 -
Current deferred tax asset 8,908 (1,343)
Non-current deferred tax asset (19,351) -
Other assets (1,990) (1,184)
Accounts payable and liabilities 6,451 17,023
Non-current deferred tax liability 1,492 349
Other long-term liabilities 580 -
---------------- --------------
Net cash provided by operating activities 10,986 29,846
Cash flows from investing activities:
Purchase of capital equipment/leasehold improvements (12,394) (25,380)
Proceeds from maturities of securities held-to-maturity 9,700 8,905
Purchase of securities held-to-maturity - (5,460)
Proceeds from maturities of securities available for sale 8,200 -
Purchase of securities available for sale (80,404) (16,169)
Purchase of technology license (130) -
---------------- --------------
Net cash used in investing activities (75,028) (38,104)
Cash flows from financing activities:
Proceeds from exercise of options 3,774 1,598
Repayment of capital lease obligations (1,209) (1,108)
---------------- --------------
Net cash provided by financing activities 2,565 490
---------------- --------------
Net decrease in cash and cash equivalents (61,477) (7,768)
Cash and cash equivalents at the beginning of the period 266,076 28,956
---------------- --------------
Cash and cash equivalents at the end of the period $ 204,599 $ 21,188
================ ==============
Noncash investing and financing activities:
Available-for-sale investment equity change, net of tax $ 624 $ 1,546
Fair value of cash flow hedge, net of tax ($ 3,703) -
<FN>
See accompanying Notes to Condensed Consolidated Financial Statements.
</FN>
RF MICRO DEVICES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Restated)
1. BASIS OF PRESENTATION
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 financial
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 fiscal 2001 amounts have been
reclassified to conform to fiscal 2002 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, 2001.
The condensed 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 first fiscal quarter of each year ends on the
Saturday closest to June 30; however, in this report the Company's fiscal year
is described as ending on March 31 and the first quarter of each fiscal year is
described as ending on June 30.
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.
Unless otherwise indicated, all share count, earnings per share and other per
share information has been restated to reflect this stock split.
RF MICRO DEVICES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
(Restated)
2. NET (LOSS) INCOME PER SHARE
The following table sets forth a reconciliation of the numerators and
denominators in the computation of basic and diluted (loss) income per share (in
thousands, except per share data):
Three Months Ended
------------------------------------
June 30, 2001 June 30, 2000
----------------- ---------------
Numerator for basic and diluted
(loss) income per share:
Net (loss) income ($ 28,386) $16,242
================= ===============
Denominator for basic (loss) income per
share - weighted average shares 164,493 160,678
Effect of dilutive securities:
Stock options and warrants - 13,790
----------------- ---------------
Denominator for diluted (loss)
income per share - adjusted weighted
average shares and assumed conversions 164,493 174,468
Basic (loss) income per share ($ 0.17) $ 0.10
================= ===============
Diluted (loss) income per share ($ 0.17) $ 0.09
================= ===============
In the computation of diluted loss per share for the three months ended June 30,
2001, all outstanding stock options and warrants were excluded because the
effect of their inclusion would have been anti-dilutive. The computation of
diluted net loss per share similarly did not assume the conversion of the
Company's 3.75% convertible subordinated notes due 2005 because the inclusion
would be anti-dilutive.
In the computation of diluted income per share for the three months ended June
30, 2000, outstanding stock options to purchase 0.3 million shares were excluded
because the exercise price of the options was greater than the average market
price of the common stock and the effect of their inclusion would have been
anti-dilutive.
RF MICRO DEVICES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
(Restated)
3. INVENTORIES
Inventories are stated at the lower of cost or market determined using the
average cost method. The components of inventories are as follows (in
thousands):
June 30, 2001 March 31, 2001
--------------- ----------------
Raw materials $ 30,109 $ 25,641
Work in process 27,415 26,686
Finished goods 36,413 38,571
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93,937 90,898
Inventory reserve (32,560) (19,883)
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Total inventory $ 61,377 $ 71,015
============== ================
During the quarter ended June 30, 2001, inventory reserves increased due to
changes with respect to sales forecasts of microwave monolithic integrated
circuit (MMIC) products and raw materials. An inventory reserve adjustment of
$15.3 million was recorded as an addition to cost of goods sold based on
management's best estimate of inventory risk to ensure the inventory balances at
June 30, 2001 are recorded at net realizable values. The net loss for the
quarter prior to this change in estimate would have been $15.5 million including
an income tax benefit of $2.7 million at an effective rate of 15%. The net loss
per basic and diluted share for the quarter would have been ($0.09).
4. OTHER COMPREHENSIVE (LOSS) INCOME
Accumulated other comprehensive (loss) income for the Company consists of
accumulated unrealized gains on marketable securities and for the quarter ended
June 30, 2001, the fair value of a cash flow hedge related to the Company's
synthetic lease (Note 5). The amount is a separate component of shareholders'
equity.
The components of comprehensive (loss) income, net of tax, are as follows (in
thousands):
Three Months Ended
--------------------------------------
June 30, June 30,
2001 2000
-------------------- --------------
Net (loss) income ($ 28,386) $ 16,242
Accumulated other comprehensive (loss)
income:
Unrealized gains on marketable
securities 624 1,546
Fair value of cash flow
hedge (3,703) -
-------------------- --------------
Comprehensive (loss) income ($ 31,465) $ 17,788
==================== ==============
RF MICRO DEVICES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
(Restated)
5. DERIVATIVE FINANCIAL INSTRUMENTS
On April 1, 2001, the Company adopted Statement of Financial Accounting
Standards No. 133 ("SFAS 133"), "Accounting for Derivative Instruments and
Hedging Activities." The standard establishes a comprehensive and consistent
standard for the recognition and measurement of derivatives and hedging
activities. Adoption of SFAS 133 did not have a significant impact on the
Company's reported consolidated financial position, results from operations or
cash flows.
Objectives and Strategies
Interest Rate Management - The Company uses an interest rate swap agreement to
effectively convert the $95.0 million notional amount of a variable rate
synthetic lease to a fixed rate basis, thus reducing the impact of interest rate
changes on future income commencing April 2001 through November 2004.
Financial Reporting Policy
During fiscal 2001, the Company entered into this interest rate swap agreement
to modify the interest characteristics of its outstanding synthetic lease from a
variable to a fixed rate basis. This interest rate swap is a cash flow hedge and
is recorded on the balance sheet at its fair value of $5.5 million, which is
included in other long-term liabilities and other comprehensive (loss) income,
with no impact on earnings.
The terms of the interest-rate swap and $95.0 million of the hedged item
(synthetic lease) exactly match, enabling the Company to use the hypothetical
method of accounting for derivatives as defined by SFAS 133. This hedge is
perfectly effective in offsetting changes in expected cash flows due to
fluctuations in the variable interest rate over the term of the lease. This
agreement involves the receipt of the variable rate amounts in exchange for a
fixed rate interest payment over the life of the agreement without exchange of
the underlying notional amounts. The differential in cash to be paid or received
is accrued and is recognized as an adjustment to interest expense or income for
the reporting period.
6. IMPAIRMENT OF LONG-LIVED ASSETS
In accordance with the Statement of Financial Accounting Standards No. 121
("SFAS 121"), "Accounting for the Impairment of Long-lived Assets and for
Long-Lived Assets to Be Disposed Of," the Company reviews long-lived assets for
impairment based on changes in circumstances that indicate their carrying
amounts may not be recoverable due to the extent and manner the assets are now
used by the Company. During the quarter ended June 30, 2001, the Company
recognized an impairment charge totaling $6.8 million related to assets to be
held and used, as well as to assets to be disposed of, which is presented on the
condensed consolidated statements of operations as "Impairment of long-lived
assets."
RF MICRO DEVICES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
(Restated)
6. IMPAIRMENT OF LONG-LIVED ASSETS (continued)
Assets to be held and used
During the first quarter of fiscal 2002, management made a decision to outsource
all module production packaging and transition the Company's packaging line to a
dedicated research and development ("R&D") facility, which resulted in a $4.0
million asset impairment charge. As a result of the transition to an all R&D
facility, the Company identified certain excess capacity and determined that the
estimated future cash flows for an R&D line did not support the carrying value
of the assets related to the full capacity initially invested by the Company.
Although there is not a readily available market for these assets, the fair
market value was estimated based on the historical selling prices for used
equipment of a similar type and the carrying values were adjusted accordingly.
Assets to be disposed of
During the three months ended June 30, 2001, management identified a customer
demand shift from MMICs, to more complex, highly integrated multi-chip module
power amplifiers, which created an impairment of the carrying value of the
Company's MMIC test handlers for a total charge of $2.8 million. Assets to be
disposed of are measured at the lower of carrying amount or fair value less cost
to sell. Disposal of the impaired assets is expected to occur in the second half
of fiscal 2002.
7. OTHER OPERATING EXPENSES
Other operating expenses consist of start-up costs associated with preparing the
Company's second wafer fabrication facility and the proposed facility in
Beijing, China for normal production 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."
8. INCOME TAXES
Deferred income tax assets and liabilities are determined based upon differences
between financial reporting and tax bases of assets and liabilities and are
measured using the enacted tax rates and laws that will be in effect when the
differences are expected to reverse.
The total income tax benefit for the quarter ended June 30, 2001 was $5.1
million, which included current federal benefits, current state benefits, and
deferred benefits of $4.0 million, $0.3 million, and $0.8 million, respectively.
The Company's effective tax rate was 15% for the quarter ended June 30, 2001.
This rate differs from the statutory rate of 35% primarily due to the change in
the valuation allowance for deferred tax assets.
RF MICRO DEVICES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
(Restated)
8. INCOME TAXES (continued)
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes.
Significant components of the Company's net deferred income taxes are as
follows (in thousands):
June 30, March 31,
2001 2001
--------------- --------------
Deferred tax liabilities:
Accumulated depreciation $ $20,835 $ 19,343
Other 460 128
--------------- --------------
Total deferred tax liabilities 21,295 19,471
Deferred tax assets:
Asset impairment 2,535 -
Allowance for bad debts 394 355
Federal carryover benefits 9,203 -
State carryover benefits 1,856 -
Derivative 1,824 -
Warranty reserve 292 239
Inventory 12,135 6,596
Accrued vacation 1,002 990
Sale/leaseback 511 526
Other 433 322
--------------- --------------
Total deferred tax assets 30,185 9,028
Deferred tax asset valuation allowance 8,890 -
--------------- --------------
Net deferred tax assets 21,295 9,028
--------------- --------------
Net deferred asset (liability) $ - $ (10,443)
=============== ==============
For the quarter ended June 30, 2001, the Company recorded a $8.9 million
valuation allowance on its deferred income tax assets. The realization of such
benefits is dependent on the Company's ability to generate future taxable
earnings and will be recorded if and when such future taxable earnings occur.
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 and start-up of a second wafer fabrication facility, 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 most recent 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 unaudited consolidated statement of
operations data expressed as a percentage of total revenue for the periods
indicated:
Three Months Ended
June 30, June 30,
2001 2000
-------------- -------------
Revenue 100.0% 100.0%
Operating costs and expenses
Cost of goods sold 94.1 48.5
Research and development 22.9 14.4
Marketing and selling 9.4 7.5
General and administrative 4.6 3.8
Other operating expenses 7.0 -
Impairment of long-lived assets 9.7 -
-------------- -------------
Total operating costs and expenses 147.7 74.2
(Loss) income from operations (47.7) 25.8
Interest income 5.7 1.2
Interest expense (5.8) (.3)
-------------- -------------
(Loss) income before income taxes (47.8) 26.7
Income tax benefit (expense) 7.3 (10.1)
-------------- -------------
Net (loss) income (40.5)% 16.6%
============== =============
REVENUE
Revenue for the first quarter of fiscal 2002 decreased 28.7% to $70.1 million,
compared to $98.2 million for the same quarter in fiscal 2001. This decrease in
year-over-year revenue was due primarily to two factors: an overly optimistic
forecast for the growth of the handset market that led to excess inventories
among manufacturers and reduced component demand and continued downward pressure
on average selling prices of our products. Revenue increased sequentially 27.3%
from $55.0 million from the quarter ended March 31, 2001, primarily as a result
of the ramp of our module products for next-generation global system for mobile
communications (GSM) handsets and increased order activity from leading original
equipment manufacturers (OEMs).
International shipments were $45.5 million and accounted for 65.0% of revenue in
the first quarter of fiscal 2002, compared to $51.7 million, or 52.7% of
revenue, in the first quarter of fiscal 2001. Sales to customers located in
South Korea totaled $10.4 million, or 14.9% of revenue, for the first quarter of
fiscal 2002, compared to $11.5 million, or 11.7% of revenue, for the first
quarter of fiscal 2001. Shipments to this market declined from the prior year
due to an unstable handset market resulting primarily from the loss of service
provider subsidies on handsets in South Korea.
GROSS PROFIT
Gross profit for the three months ended June 30, 2001 decreased to $4.2 million,
or 5.9% of revenue, compared to $50.6 million, or 51.5% of revenue, in the first
quarter of the prior year. The year-over-year decrease in gross profit was
primarily attributable to the following factors: increase in inventory reserves
of $15.3 million due to reduced sales forecasts associated with MMIC sales
levels and raw materials, continued declines in average selling prices on mature
products, initial higher cost of goods sold associated with our module products,
and greater than normal yield losses associated with the steep ramp of the
module business.
We have historically experienced significant fluctuations in gross profit
margins, which has caused fluctuations in our quarterly operating results.
Currently, we expect continued downward pressure on margins due to the factors
described above, as well as costs associated with our new wafer fabrication
facility as these expenses transition from start-up costs into cost of goods
sold late in the second quarter of fiscal 2002. 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 the first quarter of fiscal 2002 were $16.0
million, or 22.9% of revenue, compared to $14.2 million, or 14.4% of revenue,
for the three months ended June 30, 2000. The increase in dollar amounts is
primarily attributable to increased headcount and related personnel expenses
including salaries, benefits, equipment and occupancy, as well as increased
development wafers and mask sets, depreciation expense related to capital
purchases 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 first quarter of fiscal 2002 were $6.6
million, compared to $7.3 million for the first quarter of fiscal 2001. The
first quarter decrease in fiscal 2002 from fiscal 2001 was primarily
attributable to reduced sales commissions associated with the decline in revenue
and the shift of more of our sales and marketing efforts in-house. Marketing and
selling expenses as a percentage of revenue were 9.4% and 7.5% for the three
months ended June 30, 2001 and 2000, respectively. 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 June 30, 2001 were
$3.3 million, or 4.6% of revenue, compared to $3.7 million, or 3.8% of revenue,
for the quarter ended June 30, 2000. The year-over-year decrease in absolute
dollars was primarily due to higher consulting expenses in fiscal 2001 related
to the proposed Beijing, China facility and higher legal and accounting expenses
in fiscal 2001 related to the convertible subordinated debt offering.
OTHER OPERATING EXPENSE
Other operating expenses of $4.9 million pertaining to start-up costs associated
with our second wafer fabrication facility and our test and tape and reel
facility in Beijing, China were recorded in the first quarter of fiscal 2002.
These costs will be included in cost of goods sold once the facilities are
qualified for production and economic value can be obtained.
IMPAIRMENT OF LONG-LIVED ASSETS
Impairment of long-lived assets of $6.8 million was recorded in the first
quarter of fiscal 2002 related to two business factors. First, as a result of an
ongoing customer demand shift from MMICs to more complex, highly integrated
multi-chip module power amplifiers, we recorded a $2.8 million asset impairment
charge for MMIC test handlers. Also, as a result of a decision to outsource all
production packaging and transition our packaging line to an all R&D facility,
we recorded a $4.0 million asset impairment charge.
INTEREST INCOME
For the quarter ended June 30, 2001, interest income was $3.9 million, compared
to $1.1 million for the same quarter for the prior year. Interest income
increased during fiscal 2002 due to a higher cash balance as a result of the
August 2000 convertible subordinated debt offering.
INTEREST EXPENSE
Interest expense was $4.0 million for the three months ended June 30, 2001,
compared to $0.3 million for the first quarter of the prior year. The increase
in interest expense was attributable to the convertible subordinated debt and
the interest rate swap that modifies the interest characteristics of our
synthetic lease from a variable to a fixed rate basis.
INCOME TAX
The total income tax benefit for the quarter ended June 30, 2001 was $5.1
million, which included current federal benefits, current state benefits, and
deferred benefits of $4.0 million, $0.3 million, and $0.8 million, respectively.
The Company's effective tax rate was 15% for the quarter ended June 30, 2001,
compared to 38.0% for the same quarter of fiscal 2001. This rate differed from
the statutory rate of 35% primarily due to the change in the valuation allowance
for deferred tax assets.
LIQUIDITY AND CAPITAL RESOURCES
We have funded our operations to date through sales of equity and debt
securities, bank borrowings, capital equipment leases and revenue from product
sales. Through public and Rule 144A offerings, we have raised approximately
$462.0 million, net of offering expenses. As of June 30, 2001, working capital
was $427.2 million, including $204.6 million in cash and cash equivalents,
compared to working capital at March 31, 2001 of $463.3 million. Operating
activities for the first quarter of fiscal 2002 generated $11.0 million in cash
compared to $29.8 million in the first quarter of fiscal 2001. This
year-over-year decrease was primarily attributable to a decrease in net income
of $44.6 million. This was partially offset by an increase of $7.2 million in
cash provided by lower accounts receivable due to lower sales volume and a
shorter collection period and increased change in inventories in fiscal 2002 of
$9.6 million which includes a $15.3 million inventory reserve compared to cash
used of $12.5 million in fiscal 2001 primarily due to a planned inventory build
intended to facilitate the forecasted delivery schedules.
Cash used in investing activities for the three months ended June 30, 2001 was
$75.0 million, compared to $38.1 million in the prior year. Higher net purchases
of securities of $49.8 million, offset by fewer capital expenditures of $13.0
million, accounted for the increase in cash used.
Cash provided by financing activities for the three months ended June 30, 2001
was $2.6 million, compared to cash provided of $0.5 million for the three months
ended June 30, 2000. The net proceeds from the exercise of options of $3.8
million generated the increase over the prior year.
At June 30, 2001, we had long-term capital commitments of approximately $25.3
million, consisting of approximately $12.4 million for the expansion of our
molecular beam epitaxy (MBE) facility, approximately $10.6 million for equipment
for the second wafer fabrication facility, and approximately $0.3 million for
our first wafer fabrication facility, and the remainder for general corporate
requirements. Pursuant to a strategic alliance we entered into with Agere
Systems Inc. in May 2001, we intend to invest approximately $58.0 million over
the next two years to upgrade manufacturing clean room space and purchase
semiconductor manufacturing equipment to be deployed within Agere's Orlando,
Florida manufacturing facility. This alliance is designed to provide us a
guaranteed source of supply and favorable pricing of silicon wafers. We also
plan to start construction on a test and tape and reel facility in Beijing,
China, and we expect to spend approximately $20.0 million to have this facility
operational by the fall of 2002. We expect to fund these commitments through a
combination of cash on hand, capital leases and other forms of financing.
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 the latter portion of calendar 2001.
Accordingly, we now plan to ramp production in our second wafer fabrication
facility consistent with increased demand for these products.
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 2002. However, if existing resources and cash
from operations are not sufficient to meet our future requirements, or if we
perceive favorable opportunities, 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
None
(b) Reports on Form 8-K
During the quarter ended June 30, 2001, 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: November 1, 2001
/s/ William A. Priddy, Jr.
--------------------------
WILLIAM A. PRIDDY, JR.
Vice President, Finance and Administration
and Chief Financial Officer
Dated: November 1, 2001
/s/ Barry D. Church
--------------------------
BARRY D. CHURCH
Corporate Controller
(Principal Accounting Officer)