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 JUNE 29, 2002
COMMISSION FILE NUMBER: 0-22511
-----------------
RF MICRO DEVICES, INC.
------------------------------------------------------
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
NORTH CAROLINA 56-1733461
- ------------------------------- -------------------
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
7628 THORNDIKE ROAD
GREENSBORO, NORTH CAROLINA 27409-9421
-----------------------------------------------------------
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES, INCLUDING ZIP CODE)
(336) 664-1233
----------------------------------------------------
(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, 2002, there were 168,603,557 shares of the registrant's common
stock outstanding.
RF MICRO DEVICES, INC. AND SUBSIDIARIES
INDEX
PART I - FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS PAGE
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE MONTHS
ENDED JUNE 30, 2002 AND 2001........................................
CONDENSED CONSOLIDATED BALANCE SHEETS AS OF JUNE 30, 2002
AND MARCH 31, 2002..................................................
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE THREE MONTHS
ENDED JUNE 30, 2002 AND 2001........................................
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)
THREE MONTHS ENDED
JUNE 30, 2002 JUNE 30, 2001
---------------------- ----------------------
Revenue:
Product sales $ 103,704 $ 69,527
Engineering revenue 238 525
---------------------- ----------------------
Total revenue 103,942 70,052
Operating costs and expenses:
Cost of goods sold 62,504 65,901
Research and development 23,051 16,015
Marketing and selling 8,414 6,565
General and administrative 4,200 3,260
Other operating expenses (NOTE 6) 742 4,912
Impairment of long-lived assets (NOTE 7) - 6,801
---------------------- ----------------------
Total operating costs and expenses 98,911 103,454
---------------------- ----------------------
Income (loss) from operations 5,031 (33,402)
Other income (expense):
Interest income 1,868 3,942
Interest expense (4,496) (4,011)
Other, net (17) (23)
---------------------- ----------------------
Income (loss) before income taxes 2,386 (33,494)
---------------------- ----------------------
Income tax expense (benefit) (NOTE 8) 37 (5,108)
---------------------- ----------------------
Net income (loss) $ 2,349 ($ 28,386)
====================== ======================
Net income (loss) per share (NOTE 2):
Basic $ 0.01 ($ 0.17)
Diluted $ 0.01 ($ 0.17)
Weighted average shares outstanding used in per share calculation:
Basic 167,938 164,493
Diluted 174,529 164,493
See accompanying Notes to Condensed Consolidated Financial Statements.
RF MICRO DEVICES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
JUNE 30,
2002 MARCH 31,
(UNAUDITED) 2002
------------ -----------
ASSETS
Current assets:
Cash and cash equivalents $ 172,839 $ 157,648
Short-term investments 177,979 186,526
Accounts receivable, net 53,031 56,373
Recoverable income tax 6,329 10,786
Inventories (NOTE 3) 48,119 38,734
Other current assets 6,097 5,903
---------- ----------
Total current assets 464,394 455,970
Property and equipment, net of accumulated depreciation of $93,720 at
June 30, 2002 and $84,209 at March 31, 2002 226,205 221,679
Intangible assets, net of amortization of $3,363 at
June 30, 2002 and $2,906 at March 31, 2002 (NOTE 4) 11,297 11,754
Goodwill (NOTE 4) 34,525 34,525
Other non-current assets 3,912 5,072
---------- ----------
Total assets $ 740,333 $ 729,000
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 18,871 $ 16,909
Accrued liabilities 20,437 14,690
Current obligations under capital leases 2,338 3,319
---------- ----------
Total current liabilities 41,646 34,918
Long-term debt, net 294,646 294,248
Obligations under capital leases, less current maturities 20 169
Other long-term liability 11,093 9,980
---------- ----------
Total liabilities 347,405 339,315
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; 168,340 and
167,768 shares issued and outstanding at June 30, 2002 and March
31, 2002, respectively 280,838 279,924
Additional paid-in capital 64,665 64,665
Deferred compensation (18,634) (19,652)
Accumulated other comprehensive loss, net of tax (Note 5) (7,099) (6,061)
Retained earnings 73,158 70,809
---------- ----------
Total shareholders' equity 392,928 389,685
---------- ----------
Total liabilities and shareholders' equity $ 740,333 $ 729,000
========== ==========
See accompanying Notes to Condensed Consolidated Financial Statements.
RF MICRO DEVICES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
THREE MONTHS ENDED
JUNE 30, JUNE 30,
2002 2001
---------- -------------
Cash flows from operating activities:
Net income (loss) $ 2,349 ($ 28,386)
Adjustments to reconcile net income (loss) to net cash provided by
operating activities:
Depreciation 9,606 8,704
Amortization 2,546 1,273
Loss on disposal of equipment 924 228
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 3,342 12,209
Inventories (9,385) 9,638
Recoverable income taxes 4,457 1,820
Current deferred tax asset -- 8,908
Non-current deferred tax asset -- (19,351)
Other assets (153) (1,990)
Accounts payable and liabilities 7,709 6,451
Non-current deferred tax liability -- 1,492
Other long-term liabilities 7 580
---------- ----------
Net cash provided by operating activities 21,402 10,986
Cash flows from investing activities:
Purchase of capital equipment/leasehold improvements (15,056) (12,394)
Proceeds from maturities of securities held-to-maturity -- 9,700
Proceeds from maturities of securities available for sale 84,878 8,200
Purchase of securities available for sale (75,817) (80,404)
Purchase of technology license -- (130)
---------- ----------
Net cash used in investing activities (5,995) (75,028)
Cash flows from financing activities:
Proceeds from exercise of options 914 3,774
Repayment of capital lease obligations (1,130) (1,209)
---------- ----------
Net cash (used in) provided by financing activities (216) 2,565
---------- ----------
Net increase (decrease) in cash and cash equivalents 15,191 (61,477)
Cash and cash equivalents at the beginning of the period 157,648 266,076
---------- ----------
Cash and cash equivalents at the end of the period $ 172,839 $ 204,599
========== ==========
Noncash investing and financing activities:
Change in fair value of cash flow hedge, net of tax ($ 1,106) ($ 3,703)
Available-for-sale investment equity change, net of tax $ 70 $ 624
See accompanying Notes to Condensed Consolidated Financial Statements.
RF MICRO DEVICES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. BASIS OF PRESENTATION
The accompanying condensed consolidated financial statements have been prepared
in conformity with accounting principles generally accepted in the United
States. 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 accounting
principles generally accepted in the United States 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 2002 amounts have been reclassified to conform to
fiscal 2003 presentation. These reclassifications had no effect on net income
(loss) 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 consolidated financial
statements and notes thereto included in the Company's Form 10-K for the year
ended March 31, 2002.
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.
RF MICRO DEVICES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
2. NET INCOME (LOSS) PER SHARE
The following table sets forth a reconciliation of the numerators and
denominators in the computation of basic and diluted net income (loss) per share
(in thousands, except per share data):
THREE MONTHS ENDED
JUNE 30, 2002 JUNE 30, 2001
----------------- ----------------
Numerator for basic and diluted net income (loss) per share:
Net income (loss) $ 2,349 ($ 28,386)
================= ================
Denominator for basic net income (loss)
per share - weighted average shares 167,938 164,493
Effect of dilutive securities:
Stock options and warrants 6,591 -
----------------- ----------------
Denominator for diluted net income (loss)
per share - adjusted weighted average
shares and assumed conversions 174,529 164,493
Basic net income (loss) per share $ 0.01 ($ 0.17)
================= ================
Diluted net income (loss) per share $ 0.01 ($ 0.17)
================= ================
In the computation of diluted net income per share for the three months ended
June 30, 2002, outstanding stock options to purchase 8.9 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. In the computation of diluted net 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 income (loss) per share for the
first quarters ended June 30, 2002 and 2001 similarly did not assume the
conversion of the Company's 3.75% convertible subordinated notes due 2005
because the inclusion would have been anti-dilutive.
RF MICRO DEVICES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
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, 2002 MARCH 31, 2002
------------------------ ---------------------
Raw materials $ 16,722 $ 16,263
Work in process 34,275 26,136
Finished goods 21,841 21,528
------------------------ ---------------------
72,838 63,927
Inventory reserve (24,719) (25,193)
------------------------ ---------------------
Total inventory $ 48,119 $ 38,734
======================== =====================
4. INTANGIBLES AND GOODWILL
In July 2001, the Financial Accounting Standard Board (FASB) issued Statement of
Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets"
(SFAS 142). SFAS 142 supersedes APB Opinion No. 17, "Intangible Assets" and is
intended to result in the provision of more meaningful information about
intangible assets. In addition, SFAS 142 eliminates amortization of goodwill and
instead requires that it be tested for impairment at least annually. The Company
adopted SFAS 142 in fiscal 2002 with respect to the intangibles and goodwill
acquired in the RF Nitro Communications, Inc. merger and in the acquisition of
the global positioning system (GPS) development operation of International
Business Machines Corp. (IBM), in accordance with the new standard. The Company
adopted SFAS 142 in the first quarter of fiscal 2003 with the respect to
existing intangible technology licenses. The adoption of the SFAS 142 in fiscal
2003 did not have a significant impact on the Company's consolidated financial
position, results of operations or cash flows.
5. OTHER COMPREHENSIVE INCOME (LOSS)
Accumulated other comprehensive income (loss) for the Company consists of
accumulated unrealized gains on marketable securities, foreign currency
translations adjustments and the change in fair value of a cash flow hedge
related to the Company's synthetic lease. This amount is included as a separate
component of shareholders' equity.
The components of comprehensive income (loss), net of tax, are as follows for
the periods presented (in thousands):
THREE MONTHS ENDED
--------------------------------------------
JUNE 30, JUNE 30,
2002 2001
-------------------- --------------------
Net income (loss) $ 2,349 ($ 28,386)
Fair value of cash flow hedge (1,106) (3,703)
Unrealized gains on
marketable securities 70 624
Foreign currency (2) -
-------------------- --------------------
Comprehensive income (loss) $ 1,311 ($ 31,465)
==================== ====================
RF MICRO DEVICES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
6. OTHER OPERATING EXPENSE
Other operating expenses for the first quarter of fiscal 2003 includes costs
associated with our test, tape and reel facility in Beijing, China. 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." The operating costs of the Beijing facility will
be included in cost of goods sold once the facility is qualified for production
and economic value can be obtained. We expect to qualify this facility in the
fall of 2002. The prior year quarterly results included start-up costs
associated with our second wafer fabrication facility, which qualified for
production in the third quarter of fiscal 2002. Accordingly, associated expenses
transitioned from other operating expenses to cost of goods sold during that
quarter.
7. IMPAIRMENT OF LONG-LIVED ASSETS
On April 1, 2002, the Company adopted Statement of Financial Accounting
Standards No. 144, "Accounting for the Impairment or Disposal of Long-Lived
Assets" (SFAS 144). SFAS 144 supersedes the Statement of Financial Accounting
Standards No. 121, "Accounting for the Impairment of Long-lived Assets and for
Long-Lived Assets to Be disposed Of" (SFAS 121) and establishes a single
accounting model for long-lived assets to be disposed of by sale, and also
resolves implementation issues related to SFAS 121. Adoption of SFAS 144 did not
have a significant impact on the Company's consolidated financial position,
results of operations or cash flows. 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 consolidated statements of operations as "Impairment of long-lived
assets."
During the quarter ended June 30, 2001, management identified a customer demand
shift from microwave monolithic integrated circuits (MMICs) to more complex,
highly integrated multi-chip module power amplifiers, which created an
impairment of the $3.1 million carrying value for certain of the Company's MMIC
gravity-fed test handling equipment. The impairment charge for the applicable
equipment totaled $2.8 million, with a $0.3 million residual value remaining.
During the first quarter of fiscal 2003, the Company determined that the plan of
sale criteria in SFAS 144 had not been met for these assets. As a result, the
assets were measured at the lower of the carrying amount (less accumulated
depreciation and impairment loss) or fair value of $0.1 million and the assets
were reclassified from "Assets to be disposed of by Sale" to "Assets to be Held
and Used". The Company's management additionally made a decision during the
quarter ended June 30, 2001 to outsource 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 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. The impaired assets are module
assembly packaging equipment for surface mount devices, die attach, wire-bond
and molding processes. The fair market value of these assets was estimated based
on the historical selling prices for used equipment of a similar type and the
carrying values were adjusted accordingly. The asset impairment charge for the
transition to an R&D facility was classified as "Assets to be Held and Used".
RF MICRO DEVICES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
8. INCOME TAXES
Income tax expense for the first fiscal quarter of 2003 was $0.04 million,
representing foreign income taxes on international operations. The Company's
effective tax rate was 1.6% for the three months ended June 30, 2002 compared to
a 15.3% effective tax benefit for the same period ended June 30, 2001. The
fiscal 2003 first quarter overall tax rate differed from the statutory rate due
to adjustments to the valuation allowance primarily related to utilization of
net operating losses carried forward, rate differences on foreign transactions,
and other differences between book and tax treatment of certain expenditures.
The Company's fiscal 2002 overall tax rate differed from the statutory rate due
to the non-recognition of the US tax benefits on the domestic net operating
losses, differences between book and tax treatment of certain expenditures, and
rate differences on foreign transactions.
At June 30, 2002, the Company had outstanding net operating loss carryforwards
("NOLs") for federal domestic tax purposes of approximately $27.8 million, which
will expire in 2022, and state losses of $76.1 million, which will expire in
years 2009-2022. In accordance with the Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes," a valuation allowance of $17.8
million related to domestic operating losses and unused tax credits has been
established since it is more likely than not that some portion of the deferred
tax assets will not be realized.
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 "expect,"
"anticipate," "intend," "plan," "believe," and "estimate," 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
variability in quarterly operating results, the rate of growth and development
of wireless markets, risks associated with the operation of our molecular beam
epitaxy, test, tape and reel facilities and 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, dependence on
our gallium arsenide (GaAs) heterojunction bipolar transistor (HBT) products and
dependence on third parties. These and other risks and uncertainties, which are
described in more detail in our 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,
2002 2001
-------------- --------------
Revenue 100.0% 100.0%
Operating costs and expenses
Cost of goods sold 60.1 94.1
Research and development 22.2 22.9
Marketing and selling 8.1 9.4
General and administrative 4.1 4.6
Other operating expenses 0.7 7.0
Impairment of long-lived assets 0.0 9.7
-------------- --------------
Total operating costs and expenses 95.2 147.7
Income (loss) from operations 4.8 (47.7)
Interest income 1.8 5.7
Interest expense (4.4) (5.8)
-------------- --------------
Income (loss) before income taxes 2.2 (47.8)
Income tax benefit - 7.3
-------------- --------------
Net income (loss) 2.2% (40.5)%
============== ==============
REVENUE
Revenue for the first quarter of fiscal 2003 increased 48.4% to $103.9 million,
compared to $70.1 million for the same quarter in fiscal 2002. The increase in
year over year revenue was due primarily to strong growth in the power amplifier
module sales as demand from the handset industries increased. We continue to
focus on product revenue diversification. Wireless local area network (WLAN)
revenue increased to $5.9 million in the first quarter of fiscal 2003 compared
to $0.3 million in the first quarter of fiscal 2002. Our revenue growth was
broad-based; sales increased to the Company's largest customer and to several
prominent existing customers in the handset industry, one of which grew to
represent greater than 10% of the June 2002 quarterly revenue.
International shipments were $74.9 million and accounted for 72.0% of revenue in
the first quarter of fiscal 2003, compared to $45.5 million, or 65.0% of
revenue, in the first quarter of fiscal 2002. Sales to customers located in Asia
totaled $45.7 million, or 43.9% of revenue, for the first quarter of fiscal
2003, compared to $36.9 million, or 52.6% of revenue, for the first quarter of
fiscal 2002. The establishment of our sales and customer support centers in
Taipei, Taiwan and Seoul, South Korea has contributed to our sales dollar
increase in the Asian markets.
GROSS PROFIT
Gross profit for the three months ended June 30, 2002 increased to $41.4
million, or 39.9% of revenue, compared to $4.2 million, or 5.9% of revenue, in
the first quarter of the prior year. The year over year increase in gross profit
was primarily attributable to increased capacity utilization, and the absence of
a significant $15.3 million adjustment to inventory reserves recorded in the
first quarter of fiscal 2002 due to reduced sales forecasts associated with
microwave monolithic integrated circuits (MMIC) sales levels during the prior
year.
RESEARCH AND DEVELOPMENT
Research and development expenses in the first quarter of fiscal 2003 were $23.1
million, or 22.2% of revenue, compared to $16.0 million, or 22.9% of revenue,
for the three months ended June 30, 2001. The increase in dollar amounts is
primarily attributable to increased headcount and related personnel expenses
including salaries, benefits, and equipment. Spending on development wafers,
mask sets and prototyping also increased as a result of continued module
development and associated work on cost reductions and yield improvement
techniques. During the third quarter of fiscal 2002, we acquired RF Nitro
Communications, Inc., a privately-held company with advanced materials and
products in broadband wireless and wireline (fiber-optic) markets, and the
global positioning system (GPS) development operation of International Business
Machines Corp. (IBM), which provided us with advanced GPS technology and access
to IBM's chipscale packaging technology. These acquisitions contributed to the
increased headcount and related personnel expenses.
MARKETING AND SELLING
Marketing and selling expenses for the first quarter of fiscal 2003 were $8.4
million, compared to $6.6 million for the first quarter of fiscal 2002. The
absolute dollar increase in the first quarter of fiscal 2003 compared to the
first quarter of fiscal 2002 was primarily attributable to increased headcount,
related personnel expenses including salaries, benefits, and equipment, and
increased sales commissions associated with the increase in revenue. Marketing
and selling expenses as a percentage of revenue were 8.1% and 9.4% for the three
months ended June 30, 2002 and 2001, 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, 2002 were
$4.2 million, or 4.1% of revenue, compared to $3.3 million, or 4.6% of revenue,
for the quarter ended June 30, 2001. The year over year increase in absolute
dollars was primarily due to increased headcount and related personnel expenses
including salaries, benefits, and equipment.
OTHER OPERATING EXPENSE
Other operating expenses for the first quarter of fiscal 2003 were $0.7 million
compared to $4.9 million in the prior year. The decrease in fiscal 2003 from
fiscal 2002 was primarily attributable to start-up costs associated with our
second wafer fabrication facility, which were included in the first quarter of
fiscal 2002 however excluded in the first quarter of fiscal 2003. The second
wafer fabrication facility qualified for production in the third quarter of
fiscal 2002. Accordingly, associated expenses transitioned from other operating
expenses to cost of goods sold during that quarter. Fiscal 2003 included
start-up costs associated with our test, tape and reel facility in Beijing,
China. 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." The operating costs of the
Beijing facility will be included in cost of goods sold once the facility is
qualified for production and economic value can be obtained. We currently expect
to qualify this facility in the fall of 2002.
INTEREST INCOME
For the quarter ended June 30, 2002, interest income was $1.9 million, compared
to $3.9 million for the same quarter for the prior year. Interest income
decreased due to lower prevailing interest rates, driven by the Federal Reserve
cuts to the federal funds rate.
INTEREST EXPENSE
Interest expense was $4.5 million for the three months ended June 30, 2002,
compared to $4.0 million for the first quarter of the prior year. The increase
in interest expense was primarily due to the interest rate swap that modifies
the interest characteristics of our synthetic lease from a variable to a fixed
rate basis since variable interest rates declined to 1.9% in fiscal 2003
compared to 4.8% in fiscal 2002.
INCOME TAX
Total income tax expense for the first fiscal quarter of 2003 was $0.04 million,
representing foreign income taxes on international operations. Our effective tax
rate was 1.6% for the three months ended June 30, 2002, compared to a 15.3%
effective tax benefit for the same period ended June 30, 2001. The fiscal 2003
first quarter overall rate differed from the statutory rate due to adjustments
to the valuation allowance primarily related to utilization of net operating
losses carried forward, rate differences on foreign transactions, and other
differences between book and tax treatment of certain expenditures. Our fiscal
2002 overall tax rate differed from the statutory rate due to the
non-recognition of the US tax benefits on the domestic net operating losses,
differences between book and tax treatment of certain expenditures, and rate
differences on foreign transactions.
At June 30, 2002, the Company had outstanding net operating loss carryforwards
("NOLs") for federal domestic tax purposes of approximately $27.8 million, which
will expire in 2022, and state losses of $76.1 million, which will expire in
years 2009-2022. In accordance with the Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes," a valuation allowance of $17.8
million related to domestic operating losses and unused tax credits has been
established since it is more likely than not that some portion of the deferred
tax assets will not be realized.
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, 2002, our working
capital was $422.7 million, including $172.8 million in cash and cash
equivalents, compared to working capital at March 31, 2002 of $421.1 million.
Operating activities for the first quarter of fiscal 2003 generated $21.4
million in cash, compared to $11.0 million in the first quarter of fiscal 2002.
This year over year increase was primarily attributable to an increase in net
income of $30.7 million. This was partially offset by cash used of $9.4 million
in fiscal 2003 primarily due to a planned inventory build-up of certain products
to facilitate meeting the forecasted demand and delivery schedules. In
comparison, cash provided in the first quarter of fiscal 2002 was $9.6 million,
which included a $15.3 million inventory reserve adjustment. The cash provided
by accounts receivable in the first quarter of fiscal 2003 was $3.3 million
compared to cash provided in fiscal 2002 of $12.2 million due to higher sales
volume in fiscal 2003. Adjustments to reconcile net income (loss) for non-cash
operating items decreased cash provided from operating activities by $6.5
million year over year due primarily to decreases in impairment of long-lived
assets and tax benefits from exercise of employee stock options.
Net cash used in investing activities for the three months ended June 30, 2002
was $6.0 million, compared to $75.0 million in the prior year. Higher proceeds
from maturities of securities available-for-sale of $84.9 million compared to
$8.2 million in fiscal 2002 was the primary change in cash used.
Net cash used by financing activities for the three months ended June 30, 2002
was $0.2 million, compared to cash provided of $2.6 million for the three months
ended June 30, 2001. This decrease is attributable to a reduction in net
proceeds from the exercise of options from $3.8 million in fiscal 2002 to $0.9
million in fiscal 2003.
At June 30, 2002, we had long-term capital commitments of approximately $16.8
million, consisting of approximately $6.4 million for construction and equipment
for our facility in Beijing, China, $4.2 million for equipment for the second
wafer fabrication facility, $2.0 million for our molecular beam epitaxy (MBE)
facility, $1.5 million for equipment in our test, tape and reel facility in
Greensboro, NC, $1.2 million for our research and design centers, and the
remainder for general corporate requirements. We entered into a strategic
alliance with Agere Systems Inc. (Agere) in May 2001, pursuant to which we
agreed to invest approximately $58.0 million over 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 was designed to provide us a guaranteed source of supply and
favorable pricing of silicon wafers. On January 23, 2002, Agere announced that
it was seeking a buyer for its Orlando wafer fabrication operation. We are
engaged in discussions with Agere regarding the terms of our alliance and the
effect of this potential sale. We cannot predict the outcome of these
discussions or what form the alliance will take in the future, but our
management currently does not believe that these developments will have a
material adverse effect on our business, financial condition or results of
operations. We broke ground November 8, 2001 on a test, tape and reel facility
in Beijing, China, and expect to spend approximately $10.8 million, of which we
have already spent $3.2 million, to have this facility operational by the fall
of 2002. We expect to fund our commitments through a combination of cash on
hand, capital leases and other forms of financing.
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 in the second
quarter of fiscal 2001 and normal operating results during fiscal 2003. 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 filed a
$500.0 million shelf registration statement providing for the offering from time
to time of debt securities, common stock, preferred stock, depositary shares,
warrants and subscription rights with the Securities and Exchange Commissions on
April 4, 2002. We do not, however, currently have any plans to issue any
securities under this registration statement. We cannot be sure that any
additional financing will not be dilutive to holders of our common stock.
Further, 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
EXHIBIT NO. DESCRIPTION OF EXHIBIT
---------- ----------------------
99.1 Certification of Periodic Report by David A.
Norbury, as Chief Executive Officer, pursuant to
18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
99.2 Certification of Periodic Report by William A.
Priddy, Jr., as Chief Financial Officer, pursuant
to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
(b) Reports on Form 8-K
During the quarter ended June 30, 2002, 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: August 13, 2002
/S/ WILLIAM A. PRIDDY, JR.
--------------------------
WILLIAM A. PRIDDY, JR.
Vice President, Finance and Administration
and Chief Financial Officer
Dated: August 13, 2002
/S/ BARRY D. CHURCH
--------------------------
BARRY D. CHURCH
Corporate Controller
(Principal Accounting Officer)