UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 8-K/A
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
May 24, 2004
---------------------------------
(DATE OF EARLIEST EVENT REPORTED)
RF MICRO DEVICES, INC.
----------------------
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHAPTER)
NORTH CAROLINA 0-22511 56-1733461
-------------- ------- ----------
(STATE OR OTHER JURISDICTION (COMMISSION (I.R.S. EMPLOYER
OF INCORPORATION) FILE NUMBER) IDENTIFICATION NO.)
7628 THORNDIKE ROAD
GREENSBORO, NORTH CAROLINA 27409-9421
-------------------------- ----------
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(336) 664-1233
--------------
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
The Registrant hereby amends Item 7 to its Current Report on Form 8-K
dated May 24, 2004 in order to include the financial statements and pro
forma financial information required by Item 7(a)and Item 7(b) and the
exhibit required by Item 7(c).
Item 7. Financial Statements and Exhibits.
(a) Financial Statements of Business Acquired.
Silicon Wave, Inc. audited balance sheets as of December 31,
2003 and 2002, and audited statements of operations and cash
flows for each of the two years then ended, and unaudited
balance sheet as of March 31, 2004, and unaudited statements of
operations and cash flows for the three months ended March 31,
2004 and 2003, are included on pages 5 to 11 of this report.
Silicon Wave, Inc.
Consolidated Financial Statements
Years ended December 31, 2003 and 2002
Contents
Report of Independent Registered Public Accounting Firm......................4
Audited Consolidated Financial Statements
Consolidated Balance Sheets................................................5-6
Consolidated Statements of Operations........................................7
Consolidated Statements of Stockholders' Equity........................... 8-9
Consolidated Statements of Cash Flows....................................10-11
Notes to Consolidated Financial Statements..................................12
Report of Independent Registered Public Accounting Firm
The Board of Directors
Silicon Wave, Inc.
We have audited the accompanying consolidated balance sheets of Silicon
Wave, Inc. as of December 31, 2003 and 2002, and the related consolidated
statements of operations, stockholders' equity, and cash flows for the
years then ended. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those standards
require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement.
An audit includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An audit also
includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable
basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Silicon Wave,
Inc. at December 31, 2003 and 2002, and the consolidated results of its
operations and its cash flows for the years then ended, in conformity
with U.S. generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that
Silicon Wave, Inc. will continue as a going concern. As discussed in Note
1 to the financial statements, the Company has incurred recurring
operating losses since inception, has an accumulated deficit and the
Company's current cash balances are not sufficient to fund its planned
operating activities through 2004. These matters raise substantial doubt
about the Company's ability to continue as a going concern. The financial
statements do not include any adjustments that might result from the
outcome of this uncertainty.
Ernst & Young LLP
March 26, 2004
San Diego, California
Silicon Wave, Inc.
Consolidated Balance Sheets
December 31, March 31,
--------------------------- --------------
2003 2002 2004
--------------------------- --------------
(Unaudited)
Assets
Current assets:
Cash and cash equivalents $ 5,511,277 $ 7,663,943 $ 4,005,907
Accounts receivable, net 541,941 449,803 121,296
Inventories, net 978,760 2,281,452 604,532
Prepaid expenses 527,215 991,737 445,648
Other current assets 9,661 16,278 3,653
---------- ---------- ----------
Total current assets 7,568,854 11,403,213 5,181,036
Property and equipment, net 1,857,396 3,047,559 1,611,701
Deposits and other assets 324,304 699,714 218,231
---------- ---------- ----------
Total assets $ 9,750,554 $15,150,486 $ 7,010,968
========== ========== ==========
Liabilities and stockholders' equity
Current liabilities:
Accounts payable $ 660,400 $ 1,302,636 $ 895,819
Accrued compensation and benefits 1,121,807 862,603 1,111,336
Other accrued liabilities 757,630 1,625,740 694,210
Deferred revenue - related party 1,034,401 -- 45,831
Capital lease obligations - current portion -- 128,006 --
---------- ---------- ----------
Total current liabilities 3,574,238 3,918,985 2,747,196
Commitments (Note 5)
Stockholders' equity:
Convertible preferred stock, $.001 par value;
64,000,000,000 authorized
Series A convertible preferred stock, Designated -
None at December 31, 2003 and 9,080,000 shares at
December 31, 2002; Issued and outstanding shares -
None at December 31, 2003 and 9,020,000 at
December 31, 2002; Liquidation preference -
$9,000,000 at December 31, 2002 -- 902 --
Series B convertible preferred stock, Designated -
None at December 31, 2003 and 7,235,000 shares at
December 31, 2002; Issued and outstanding shares -
None at December 31, 2003 and 7,175,000 at
December 31, 2002; Liquidation preference -
$14,350,000 at December 31, 2002 -- 718 --
Series C convertible preferred stock, Designated -
None at December 31, 2003 and 9,385,000 shares at
December 31, 2002; Issued and outstanding shares -
None at December 31, 2003 and 8,832,993 at
December 31, 2002; Liquidation preference -
$35,332,845 at December 31, 2002 -- 883 --
Series D convertible preferred stock, Designated -
None at December 31, 2003 and 5,722,000 shares at
December 31, 2002; Issued and outstanding shares -
None at December 31, 2003 and 5,044,579 at
December 31, 2002; Liquidation preference -
$56,701,068 at December 31, 2002 -- 504 --
Series E convertible preferred stock, Designated -
64,000,000 shares at December 31, 2003 and
March 31, 2004; Issued and outstanding shares -
None at December 31, 2002, 40,884,419 at
December 31, 2003 and 48,027,277 at March 31, 2004;
Liquidation preference - $14,309,547 at
December 31, 2003 and $16,809,547 at March 31, 2004 4,088 -- 4,802
Common stock, $.0001 par value, 121,000,000 shares
Authorized; Issued and outstanding shares - 35,027,258
at December 31, 2003, 5,796,385 at December 31, 2002
and 36,859,381 at March 31, 2004 3,503 580 3,686
Treasury stock - 1,316,403 shares at December 31, 2003,
none at December 31, 2002 and 1,316,403 at
March 31 ,2004 (82) -- (82)
Additional paid-in-capital 125,705,450 111,750,558 128,239,490
Notes receivable from stockholders (174,182) (406,414) (174,182)
Accumulated deficit (119,362,461) (100,116,230) (123,809,942)
----------- ----------- -----------
Total stockholders' equity 6,176,316 11,231,501 4,263,772
----------- ----------- -----------
Total liabilities and stockholders' equity $ 9,750,554 $ 15,150,486 $ 7,010,968
=========== =========== ===========
See accompanying notes.
Silicon Wave, Inc.
Consolidated Statements of Operations
Years ended Three Months
December 31, Ended March 31,
-------------------------- ----------------------------
2003 2002 2004 2003
-------------------------- ----------------------------
(Unaudited)
Revenues $ 3,191,859 $ 2,787,250 $ 228,802 $ 731,932
Revenues - related party 555,836 -- 1,287,175 --
---------- ---------- ---------- ----------
Total revenues 3,747,695 2,787,250 1,515,977 731,932
Cost of sales 3,942,278 3,209,666 1,445,939 737,255
---------- ---------- ---------- ----------
Gross (loss) profit (194,583) (422,416) 70,038 (5,323)
Operating expenses:
General and administrative 2,526,298 2,714,109 1,233,009 1,545,142
Sales and marketing 2,807,637 4,332,265 574,236 704,177
Research and development 14,018,137 14,813,212 2,650,639 3,058,048
---------- ---------- ---------- ----------
Total operating expenses 19,352 072 21,859,586 4,457,884 5,307,367
---------- ---------- ---------- ----------
Operating loss (19,546,655) (22,282,002) (4,387,846) (5,312,690)
Gain (loss) on sale of asset 3,300 7,305,400 (71,987) --
Interest income 106,975 348,185 6,597 73,311
Other income 192,864 68,022 5,755 52,609
Interest expense (2,715) (43,711) -- (2,113)
---------- ---------- ---------- ----------
Net loss $(19,246,231) $(14,604,106) $(4,447,481) $(5,188,883)
=========== =========== ========== ==========
See accompanying notes.
Silicon Wave, Inc.
Consolidated Statements of Stockholders' Equity
For the years ended December 31, 2003 and 2002
Convertible
Preferred Stock Common Stock Treasury Stock
-------------------- -------------------- -------------------
Shares Amount Shares Amount Shares Amount
-------------------- -------------------- -------------------
Balance at December 31, 2001 30,072,572 $ 3,007 7,260,478 $ 726 -- $ --
Issuance of common stock upon
exercise of stock options for cash -- -- 162,907 16 -- --
Issuance of stock options for
services -- -- -- -- -- --
Collection of notes receivable -- -- -- -- -- --
Repurchase of common stock -- -- (150,000) (15) -- --
Cancellation of common stock -- -- (1,477,000) (147) -- --
Compensation expense for
variable accounting -- -- -- -- -- --
Net loss and comprehensive loss -- -- -- -- -- --
------------------------------------------------------------------
Balance at December 31, 2002 30,072,572 $ 3,007 5,796,385 580 -- --
Issuance of Series E preferred stock
for cash, net of issuance cost
of $150,538 40,884,419 4,088 -- -- -- --
Issuance of common stock upon
exercise of stock options for cash -- -- 233,301 24 -- --
Conversion of preferred shares
for common (30,072,572) (3,007) 30,072,572 3,007 -- --
Treasury stock acquired -- -- -- -- (1,316,403) (82)
Collection of notes receivable -- -- -- -- -- --
Repurchase of common stock -- -- (1,075,000) (108) -- --
Net loss and comprehensive loss -- -- -- -- -- --
-------------------------------------------------------------------
Balance at December 31, 2003 40,884,419 $ 4,088 35,027,258 $ 3,503 (1,316,403) $ (82)
Issuance of Series E preferred stock
for cash, net of issuance cost
of $29,188 7,142,858 714 -- -- -- --
Issuance of common stock upon
exercise of stock options for cash -- -- 1,832,123 183 -- --
Net loss and comprehensive loss -- -- -- -- -- --
-------------------------------------------------------------------
Balance at March 31, 2004 48,027,277 $ 4,802 36,859,381 $ 3,686 (1,316,403) $ (82)
===================================================================
Silicon Wave, Inc.
Consolidated Statements of Stockholders' Equity (continued)
For the years ended December 31, 2003 and 2002
Notes
Additional Receivable Total
Paid-In from Accumulated Stockholders'
Capital Stockholders Deficit Equity
--------------- ---------------- ------------- ---------------
Balance at December 31, 2001 $ 112,760,315 $ (1,501,095) $ (85,512,124) $ 25,750,829
Issuance of common stock upon
exercise of stock options for cash 53,839 -- -- 53,855
Issuance of stock options for
services 24,315 -- -- 24,315
Collection of notes receivable -- 22,278 -- 22,278
Repurchase of common stock (112,485) -- -- (112,500)
Cancellation of common stock (1,072,301) 1,072,403 -- (45)
Compensation expense for
variable accounting 96,875 -- -- 96,875
Net loss and comprehensive loss -- -- (14,604,106) (14,604,106)
------------------------------------------------------------------
Balance at December 31, 2002 111,750,558 (406,414) (100,116,230) 11,231,501
Issuance of Series E preferred stock
for cash, net of issuance cost
of $150,538 14,154,921 -- -- 14,159,009
Issuance of common stock upon
exercise of stock options for cash 22,209 -- -- 22,233
Conversion of preferred shares
for common -- -- -- --
Treasury stock acquired -- -- -- (82)
Collection of notes receivable -- 9,990 -- 9,990
Repurchase of common stock (222,238) 222,242 -- (104)
Net loss and comprehensive loss -- -- (19,246,231) (19,246,231)
-------------------------------------------------------------------
Balance at December 31, 2003 $ 125,705,450 $ (174,182) $(119,362,461) $ 6,176,316
Issuance of Series E preferred stock
for cash, net of issuance cost
of $29,188 2,470,098 -- -- 2,470,812
Issuance of common stock upon
exercise of stock options for cash 63,942 -- -- 64,125
Net loss and comprehensive loss -- -- $ (4,447,481) $ (4,447,481)
-------------------------------------------------------------------
Balance at March 31, 2004 $ 128,239,490 $ (174,182) $(123,809,942) $ 4,263,772
===================================================================
See accompanying notes.
Silicon Wave, Inc.
Consolidated Statements of Cash Flows
Years ended Three Months
December 31, Ended March 31,
--------------------------- --------------------------
2003 2002 2004 2003
--------------------------- --------------------------
(Unaudited)
Operating activities
Net loss $(19,246,231) $(14,604,106) $(4,447,481) $(5,188,883)
Adjustments to reconcile net loss
to net cash used in operating
activities:
Depreciation 1,492,151 2,079,011 252,108 447,131
Amortization 341,302 376,800 66,900 133,526
(Gain) loss on sale of assets -- (7,305,400) 77,730 --
Issuance of options for services -- 24,315 -- --
Stock compensation on variable
employee options -- 96,875 -- --
Change in operating assets and
liabilities:
Accounts receivable (92,138) 98,957 420,645 (219,835)
Inventories 1,302,692 (74,710) 374,228 (647,833)
Prepaid expenses and other assets 505,247 (585,784) (861,822) 255,558
Deferred revenue 1,034,401 (592,500) -- 63,750
Accounts payable and accrued
expenses (1,251,142) (1,538,987) 161,528 321,405
------------ ------------ --------- ---------
Net cash used in operating activities (15,913,718) (22,025,529) (3,956,164) (4,835,181)
Investing activities
Cash received on sale of assets 3,300 7,900,000 -- --
Purchases of property and equipment (305,288) (589,211) (84,143) (119,150)
Maturities of investments -- 3,992,154 -- --
------------ ----------- --------- ---------
Net cash (used in) provided by
investing activities (301,988) 11,302,943 (84,143) (119,150)
Financing activities
Payments on capital lease line (128,006) (768,325) -- (82,412)
Issuance of common stock, net of
issuance costs 22,232 53,855 64,125 (225)
Repurchase of common stock for cash
and note cancellation (103) (112,545) -- --
Treasury stock acquired (82) -- -- --
Issuance of Series E preferred stock,
net of issuance cost of $150,538 at
December 31, 2003 and $29,188 at
March 31, 2004 14,159,009 -- 2,470,812 --
Collection of notes receivable 9,990 22,278 -- --
------------ ----------- --------- ---------
Net cash provided by (used in)
financing activities 14,063,040 (804,737) 2,534,937 (82,637)
Net decrease in cash and cash
equivalents (2,152,666) (11,527,323) (1,505,370) (5,036,968)
Cash and cash equivalents at
beginning of year 7,663,943 19,191,266 5,511,277 7,663,943
------------ ----------- --------- ---------
Cash and cash equivalents at
end of year $ 5,511,277 $ 7,663,943 $4,005,907 $2,626,975
============ =========== ========= =========
Supplemental schedule of noncash
investing and financing activities
Repurchase of common stock for notes
receivable $ -- $ (112,485)
============ ===========
Cash paid for interest $ 2,717 $ 43,711
============ ===========
Cash paid for income taxes $ 800 $ 800
============ ===========
See accompanying notes.
Silicon Wave, Inc.
Notes to Consolidated Financial Statements
December 31, 2003
1. Organization and Summary of Significant Accounting Policies
Organization
Silicon Wave, Inc. (the "Company") is a privately held company which was
incorporated on July 24, 1997 to design, develop, manufacture and market RF
(Radio Frequency) integrated circuits based on the Company's technology to
be used in wireless and broadband communication products.
Basis of Presentation
The consolidated financial statements include the accounts of Silicon
Wave, Inc. and its wholly owned Japanese subsidiary, Silicon Wave Japan
K.K., which was organized in August 2001.
The consolidated financial statements as of December 31, 2003 and for the
12 months then ended have been prepared under accounting principles
generally accepted in the United States assuming that the Company will
continue as a going concern. The Company recorded a net loss of $19.2
million for the 12 months ended December 31, 2003 and had an accumulated
deficit of $119.4 million at December 31, 2003. The consolidated financial
statements as of December 31, 2003 and for the 12 months then
ended do not include any adjustments to reflect the possible future
effects to the recoverability and classification of assets or the amounts
and classification of liabilities that might result from the outcome of
the uncertainty regarding the Company's ability to continue as a going
concern. In addition, the Company has estimated the timing and amounts of
cash receipts and disbursements over the next 12 months and believes that
unless it is able to raise additional financing, it may not have
adequate cash to meet its working capital needs during 2004.
The report of Ernst & Young LLP, Independent Registered Public Accounting
Firm, on the Company's financial statements for the year ended December
31, 2003 contains an explanatory paragraph regarding the insufficiency of
the Company's current cash balances to fund planned operating activities
through fiscal year 2004 and indicates substantial doubt about the
Company's ability to continue as a going concern. The Company's inability
to secure the necessary financing would have a material adverse effect on
the Company's financial condition and results of operations.
To address the Company's current working capital needs, its strategic
priorities are to: (i) identify an acquisition or merger partner with
interest in acquiring the Company or all or a significant portion of the
Company's assets; (ii) identify and implement measures to conserve the
Company's existing cash resources and implement stricter spending controls
over operating activities; and (iii) raise sufficient capital to
satisfy its working capital requirements.
Silicon Wave, Inc.
Notes to Consolidated Financial Statements (continued)
1.Organization and Summary of Significant Accounting Policies (continued)
Interim Financial Information
The financial statements as of March 31, 2004 and for the three months
ended March 31, 2003 and 2004 are unaudited. The unaudited financial
statements have been prepared on the same basis as the audited financial
statements and, in the opinion of management, include all adjustments,
consisting only of normal recurring adjustments, necessary to state fairly
the financial information therein. The results of operations for the
three months ended March 31, 2004 are not necessarily indicative of the
results that may be reported for the year ending December 31, 2004.
Use of Estimates
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to
make estimates and assumptions that affect the reported amount of assets
and liabilities and disclosures of contingent assets and liabilities at
the date of the financial statements and the reported revenues and
expenses during the period. The actual results could differ from those
estimates.
Cash and Cash Equivalents
Cash and cash equivalents consist primarily of cash, money market funds
and other highly liquid investments with maturities of three months or
less from the date of purchase. Cash equivalents are stated at cost,
which approximates fair market value. Cash and cash equivalents include
$15,000 that the Company is required to maintain in a Certificate of
Deposit account with its bank.
Fair Value of Financial Instruments
Financial instruments, including accounts receivable, accounts payable,
accrued liabilities, and capital lease obligations are carried at cost,
which management believes approximates fair value because of the short-
term maturity of these instruments.
Accounts Receivable
The Company maintains an allowance for doubtful accounts for estimated
losses resulting from the liability of its customers to make required
payments. If the financial condition of the Company's customers
deteriorates, resulting in an impairment of their ability to make
payments, additional allowances may be required.
Silicon Wave, Inc.
Notes to Consolidated Financial Statements (continued)
1.Organization and Summary of Significant Accounting Policies (continued)
Inventory
The Company records valuation reserves on its inventory for estimated
excess and obsolete inventory and lower of cost or market concerns equal
to the difference between the cost of inventory and the estimated market
value based upon assumptions about future product demand, market
conditions and product selling prices. Cost is determined by the first-
in, first-out ("FIFO") method. If future product demand, market
conditions or product selling prices are less or more favorable than those
projected by management or if continued modifications to products are
required to meet specifications or other customer requirements, changes to
inventory reserves may be required.
Property and Equipment
Equipment is stated at cost and depreciated using the straight-line
method over the estimated useful lives of the assets (generally three to
five years). Leasehold improvements are amortized using the straight-line
method over the shorter of the term of the lease or the estimated useful
life of the improvement.
Impairment of Long-Lived Assets
The Company follows Financial Accounting Standards Board ("FASB")
Statement of Financial Accounting Standards ("SFAS") No. 144, Accounting
for the Impairment or Disposal of Long-Lived Assets. The scope of SFAS
No. 144 includes long-lived assets, or groups of assets, to be held and
used as well as those which are to be disposed of by sale or by other
method, but excludes a number of long-lived assets such as goodwill and
intangible assets not being amortized under the application of SFAS No.
142, Goodwill and Other Intangible Assets. SFAS No. 144 requires
impairment losses to be recorded on long-lived assets used in operations
when indicators of impairment are present and the undiscounted cash flows
estimated to be generated by those assets are less than the assets'
carrying amount. If such assets are considered to be impaired, the
impairment to be recognized is measured by the amount by which the
carrying amount of the assets exceeds the estimated fair value of the
assets. No such losses were recorded in 2003.
Revenue Recognition
Product revenues are generally recognized upon shipment, and revenues for
development support services are recognized when performed. The Company
recognizes revenue when all four of the following criteria are met: (i)
persuasive evidence that an arrangement exists; (ii) delivery of the
products and/or services has occurred; (iii) the selling price is fixed
or determinable; and (iv) collectibility is reasonably assured. In
addition, the Company complies with Securities and Exchange Commission
("SEC") Staff Accounting Bulletin (SAB) No. 104, Revenue Recognition,
which codifies, revises and rescinds certain sections of SAB No. 101,
Revenue Recognition in Financial Statements, in order to make this
interpretive guidance consistent with current authoritative accounting and
auditing guidance and SEC rules and regulations.
Silicon Wave, Inc.
Notes to Consolidated Financial Statements (continued)
1.Organization and Summary of Significant Accounting Policies (continued)
Fiscal Year
For ease of presentation, the Company has indicated its fiscal year end as
ending on December 31; whereas, in fact the Company operates and
reports on a 52 to 53 week fiscal year ending on the Sunday closest to
December 31st. Each of fiscal years 2003 and 2002 included 52 weeks.
Concentration of Credit Risk
A relatively small number of customers account for a significant
percentage of the Company's revenues. For the years ended 2003 and 2002,
sales to three customers accounted for 59% and 75%, respectively, of
revenues.
Income Taxes
In accordance with SFAS No. 109, Accounting for Income Taxes, a deferred
tax asset or liability is determined based on the difference between the
financial statement and tax basis of assets and liabilities as measured
by the enacted tax rates, which will be in effect when these differences
reverse. The Company provides a valuation allowance against net deferred
tax assets unless, based upon the available evidence, it is more likely
than not that the deferred tax assets will be realized.
Comprehensive Income (Loss)
SFAS No. 130, Reporting Comprehensive Income, requires that all components
of comprehensive income (loss), including net income (loss),
be reported in the financial statements in the period in which they are
recognized. Comprehensive income (loss) is defined as the change in
equity during a period from transactions and other events and
circumstances from nonowner sources. Net income (loss) and other
comprehensive income (loss), including foreign currency translation
adjustments, and unrealized gains and losses on investments, shall be
reported, net of their related tax effect, to arrive at comprehensive
income (loss). The Company's comprehensive loss is the same as net loss
for all periods presented.
Stock-Based Compensation
As permitted by SFAS No. 123, Accounting for Stock-Based Compensation, the
Company has elected to follow Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees ("APB 25"), and related
Interpretations in accounting for its employee stock options. Under APB
25, when the exercise price of the Company's employee stock options is not
less than the fair market value of the underlying stock on the date of
grant, no compensation expense is recognized.
Silicon Wave, Inc.
Notes to Consolidated Financial Statements (continued)
1.Organization and Summary of Significant Accounting Policies (continued)
Pro forma information regarding net income is required by SFAS No. 123, as
amended by SFAS No. 148, Accounting for Stock-Based Compensation-
Transition and Disclosure, and has been determined as if the Company had
accounted for its employee stock options and stock purchase plan under the
fair value method of SFAS No. 123. The fair value for these options was
estimated at the date of grant using the "Black-Scholes" option pricing
model (minimal value version) with the following weighted-average
assumptions for 2003 and 2002: expected volatility of zero; risk-free
interest rate of 5.0%; dividend yield of 0%; and a weighted-average
expected life of the options of four years. For purposes of pro forma
disclosure, the estimated fair value of the options is amortized to
expense over the options' vesting period. The effect of applying SFAS 123
for purposes of providing pro forma disclosure is not likely to be
representative of the effects on reported net income (loss) for future
years. Had compensation expense for these grants been determined with the
fair value method prescribed in SFAS 123, the Company's net income (loss)
would have changed to the following pro forma amounts:
December 31, March 31,
------------------------------- -------------
2003 2002 2004
-------------- -------------- -------------
Net loss, as reported $ (19,246,231) $ (14,604,106) $ (4,447,481)
Non-cash stock-based
compensation included
in net loss -- -- --
Pro forma stock-based
compensation cost (215,689) (534,227) (65,145)
-------------- -------------- -------------
Pro forma net loss $ (19,461,920) $ (15,138,333) $ (4,512,626)
============== ============== =============
Options or stock awards issued to nonemployees are recorded at an
estimation of fair value using the minimum-value method in accordance
with SFAS No. 123 and periodically remeasured in accordance with Emerging
Issues Task Force ("EITF") No. 96-18, Accounting for Equity Instruments
That Are Issued to Other Than Employees for Acquiring or in Conjunction
with Selling Goods or Services, and recognized over the related service
period.
Recent Accounting Pronouncements
In December 2002, the FASB issued SFAS No. 148, an amendment to SFAS No.
123 providing alternative methods of transition for a voluntary change to
the fair-value-based method of accounting for stock-based employee
compensation and also providing additional disclosures about the method of
accounting for stock-based employee compensation. Amendments are
effective for financial statements for fiscal years ending after December
15, 2002. The Company has currently chosen not to adopt the voluntary
change to the fair-value-based method of accounting for stock-based
employee compensation. If the Company should choose to adopt such a
method, its implementation pursuant to SFAS No. 148 could have a material
effect on the Company's consolidated financial position and results of
operations in future periods.
Silicon Wave, Inc.
Notes to Consolidated Financial Statements (continued)
1.Organization and Summary of Significant Accounting Policies (continued)
Restructuring Charges
In July 2002, the Company vacated a leased facility. As a result, in 2002
the Company recorded a charge of $73,129 for excess lease costs. Such
charges were determined in accordance with SEC SAB 100, Restructuring and
Impairment Charge, and EITF No. 94-3, Liability Recognition For Certain
Employee Termination Benefits and Other Costs to Exit an Activity
(Including Certain Costs Incurred In a Restructuring). As of December 31,
2003, the Company had $25,464 accrued for excess lease costs.
2. Inventories
Inventories include material and third party manufacturing costs and
consist of the following:
December 31, March 31,
------------------------------- -------------
2003 2002 2004
-------------- ------------- -------------
Finished goods $ 718,332 $ 1,177,447 $ 582,212
Work-in-progress 886,659 927,638 415,316
Raw materials 5,964,444 5,761,178 5,771,393
---------- ---------- ----------
7,569,435 7,866,263 6,768,921
Inventory reserves (6,590,675) (5,584,811) (6,164,389)
---------- ---------- ----------
Total inventories $ 978,760 $ 2,281,452 $ 604,532
========== ========== ==========
At December 31, 2003, the Company had outstanding commitments to purchase
raw materials aggregating $1,100,100. The Company anticipates using this
material in the normal course of business.
3. Property and Equipment
Property and equipment consist of the following at December 31:
2003 2002
-------------- --------------
Purchased software $ 3,480,938 $ 3,447,579
Laboratory and computer equipment 7,281,686 7,029,024
Office furniture, fixtures and
equipment, automobile and leasehold
improvements 854,614 838,655
----------- -----------
$ 11,617,238 $ 11,315,258
Less: accumulated depreciation (9,759,842) (8,267,699)
----------- -----------
$ 1,857,396 $ 3,047,559
=========== ===========
Silicon Wave, Inc.
Notes to Consolidated Financial Statements (continued)
4. Commitments
Leases
The Company leases its corporate headquarters in San Diego, California
under an operating lease agreement that expires in July 2006. The Company
leases additional facilities under operating lease agreements that expire
on dates through January 2004. In 2002, the Company subleased a portion
of the facilities under these operating leases. The Company recorded rent
expense of $1,443,491 and $1,526,226 for the years ended December 31,
2003 and 2002, respectively.
Rent expense is recognized on a straight-line basis over the term of the
lease. Accordingly, rent expense incurred in excess of rent paid is
accrued and recorded under other accrued liabilities in the accompanying
balance sheets.
Annual future minimum obligations for operating leases as of December 31,
2003, are as follows:
Year ending December 31, Operating leases
- ------------------------ -------------------
2004 $ 1,842,855
2005 1,684,616
2006 888,406
-----------
Total minimum lease payments $ 4,415,877
===========
5. Defined Contribution Plan
The Company sponsors a defined contribution plan covering substantially
all employees. The plan does not provide for employer contributions, and
administrative expenses under the plan in 2003 and 2002 were not
material.
6. Sale of Assets
In October 2002, the Company sold the assets of its silicon tuner
business, including patents for tuner technology for use in tuners,
inventory, contracts, software, data and documentation, and tangible
personal property pursuant to an Asset Purchase Agreement executed
between Microtune (Texas), L.P. as buyer and the Company as seller. The
purchase price was $7,900,000 plus a royalty to be paid on sales of the
Company's tuner products by Microtune during 2003. The Company received
no royalty payments in 2003.
7. Stockholders' Equity
Convertible Preferred Stock
In May and November 2003, the Company issued an aggregate of 40,884,419
shares of Series E convertible preferred stock for proceeds of
$14,159,009 net of issuance cost of $150,538. Immediately prior to the
sale in May 2003, all of the outstanding shares of Series A, B, C and D
convertible preferred stock were converted to common shares of the
Company.
Silicon Wave, Inc.
Notes to Consolidated Financial Statements (continued)
7. Stockholders' Equity (continued)
Convertible Preferred Stock (continued)
The holders of the Series E convertible preferred stock are entitled to
receive cash dividends at a rate of 10 percent of the original issue price
per share per annum. The dividends on convertible preferred stock
are non-cumulative and payable only when and if declared by the Board of
Directors. No dividends have been declared to date.
The holders of the Series E convertible preferred stock may at any time
elect to convert any or all shares into common shares of the Company at
the then applicable conversion rate, subject to certain antidilutive
adjustments. Each share of convertible preferred stock is automatically
converted into common stock, at the then applicable conversion rate (1-
for-1 as of December 31, 2003), (i) in the event that the holders of a
majority of the outstanding Series E convertible preferred stock, voting
together as a single class and on an as converted to common stock basis
consent to such conversion or (ii) upon the closing of a firmly
underwritten public offering of shares of common stock of the Company at
a public offering price of not less than $1.05 per share and with total
gross proceeds of at least $20 million. Each holder of Series E
convertible preferred stock is entitled to one vote for each share of
common stock into which such convertible preferred share would convert.
The holders of Series E convertible preferred stock are entitled to
receive liquidation preferences in an amount equal to such shares'
original issuance price plus all declared and unpaid dividends,
prior to, and in preference to, any distribution of assets to the holders
of common stock. Any further distributions will be made to the holders of
common stock and to the holders of Series E convertible preferred stock
on an as converted basis.
Common Stock
Shares of common stock have been issued to founders, directors and
employees of the Company. In connection with certain stock purchase
agreements, the Company has the option to repurchase, at the original
issue price, the unvested shares in the event of termination of
employment or service. Shares issued under these agreements generally
vest over two to four years. At December 31, 2003, 13,649 shares were
subject to repurchase by the Company.
In 2003 and 2002, the Company issued to certain executive officers,
directors and key employees one-time put rights that had been authorized
by the Board of Directors. These rights were exercisable within a period
of thirty days from the effective date of the put right and required the
Company to repurchase at the then current fair market value per share any
and all shares for which the put right was exercised subject to the
following terms (1) if the shares being repurchased had been acquired by a
loan from the Company, such repurchase price shall be paid in the form
of cancellation of the equivalent amount of principal owed under the
related loan and any remaining amount of the purchase price shall be paid
in cash, and (2) all accrued interest owed on the cancelled portion of the
loan must be paid to the Company prior to or concurrently with such
Silicon Wave, Inc.
Notes to Consolidated Financial Statements (continued)
7. Stockholders' Equity (continued)
repurchase. In 2003 and 2002, approximately $222,242 and $1,072,403 in
loans to executive officers and key employees were cancelled pursuant to
a put right, respectively.
1997 Stock Option/Stock Purchase Rights Plan
In 1997, the Board of Directors adopted the 1997 Stock Option/Stock
Issuance Plan, as amended, (the "Plan"), under which 17,570,000 shares of
common stock are reserved for issuance to certain directors, employees
and consultants of the Company upon exercise of options or stock purchase
rights (the "Options"). Options may be designated as incentive stock
options, nonstatutory stock options or stock purchase rights. Options
under the Plan have a term up to 10 years from the date of grant. The
exercise price of incentive stock options must equal at least the fair
market value on the date of grant, and the exercise price of nonstatutory
stock options and stock purchase rights may be no less than 85% of the
fair market value on the date of grant. Options generally vest between
two and five years. At December 31, 2003 and 2002, 6,316,973 and
3,296,708 options were exercisable, respectively.
On June 27, 2003, the Company completed the offering of a voluntary stock
option exchange program to its employees and certain consultants and
advisors to the Company. Under the program, participants were able to
tender for cancellation stock options with an exercise price greater than
$0.05 per share for an equal number of replacement options to be granted
at least six months and one day from the cancellation under certain terms
and conditions as set forth in the Company's offer. The exercise price of
the replacement options would be equal to the fair market value of the
Company's common stock as determined by the Board of Directors on the
replacement option grant date. The terms and conditions of the
replacements options, including the vesting schedules, would be
substantially the same as the terms and conditions of the options
cancelled. The Company accepted options to purchase 5,257,275 shares of
Company stock for exchange pursuant to this program. On December 28, 2003
the Company issued 5,157,836 shares with an exercise price of $0.035 per
share to complete the program.
The following table summarizes stock option and stock purchase rights
activity for the years ended December 31:
Weighted-
Number of average
Shares exercise price
------------ ---------------
Outstanding at December 31, 2001 4,284,233 $ 0.92
Stock options granted 3,175,019 $ 0.75
Stock options exercised (162,907) $ 0.33
Stock options forfeited (1,001,437) $ 0.87
----------
Outstanding at December 31, 2002 6,294,908 $ 0.86
Stock options granted 12,367,462 $ 0.04
Stock options exercised (233,301) $ 0.10
Stock options forfeited (6,685,354) $ 0.79
----------
Outstanding at December 31, 2003 11,743,715 $ 0.06
==========
Silicon Wave, Inc.
Notes to Consolidated Financial Statements (continued)
7. Stockholders' Equity (continued)
1997 Stock Option/Stock Purchase Rights Plan (continued)
A summary of the Company's stock options as of December 31, 2003 is as
follows:
Options Outstanding Options Exercisable
------------------------------------- ---------------------------
Number Weighted
Outstanding Average Weighted Number Weighted
as of Remaining Average Exercisable as Average
Range of Exercise December 31, Contractual Exercise of December 31, Exercise
Prices 2003 Life Price 2003 Price
(in years)
- ----------------------------------------------------------------------------------------------
$0.0000-$0.0950 11,236,013 9.7 $0.0350 5,846,146 $0.0350
$0.0951-$0.1950 75,856 4.6 $0.1000 75,856 $0.1000
$0.1951-$0.7450 177,772 5.4 $0.2000 177,772 $0.2000
$0.7451-$1.4950 238,865 6.6 $0.7500 201,990 $0.7500
$1.4951-$2.2500 15,209 6.9 $2.2500 15,209 $2.2500
---------------------------------------------------------------------
11,743,715 9.5 $0.0553 6,316,973 $0.0686
=====================================================================
Exercise prices for the options outstanding as of December 31, 2003 ranged
from $0.04 to $2.25 per share. The weighted average remaining contractual
life of those options was 9.5 years.
The weighted-average fair value of options granted in 2003 and 2002 was
$0.01 and $0.14, respectively.
Warrants
During 2003, warrants to purchase 60,000 shares of Series A convertible
preferred stock at an exercise price of $1.00 per share; 60,000 shares of
Series B convertible preferred stock at an exercise price of $2.00 per
share; 400,000 and 151,569 shares of Series C convertible preferred
stock at an exercise price of $4.50 and $4.00 per share, respectively;
and 91,995 shares of Series D convertible preferred stock at an exercise
price of $11.24 were converted to warrants to purchase common stock. The
warrants expire, if not exercised, on the earlier to occur of five to
10 years from the date of issuance or up to three years after the
closing of the Company's initial public offering pursuant to a
registration statement filed under the Securities Act of 1933.
Silicon Wave, Inc.
Notes to Consolidated Financial Statements (continued)
7. Stockholders' Equity (continued)
Shares Reserved for Future Issuance
The following common stock is reserved for future issuance at December 31:
2003 2002
----------------------------------
Conversion of preferred stock 64,000,000 31,422,000
Stock options issued and outstanding 11,743,715 6,294,908
Authorized for future grants 2,531,599 638,707
Warrants outstanding 763,564 736,564
---------------------------------
79,038,878 39,092,179
================================
8. Income Taxes
Deferred income taxes reflect the net 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 deferred tax assets as of
December 31, 2003 and 2002 are shown below. A valuation allowance of
$49,928,000 has been recognized at December 31, 2003, as realization of
such deferred tax assets has not been determined by the Company to be
more likely than not.
December 31,
2003 2002
----------------------------
Deferred tax assets:
Net operating loss carryforwards $ 40,495,000 $ 33,684,000
Research and development credits 5,916,000 4,905,000
Other 3,517,000 2,331,000
---------------------------
Total deferred tax assets 49,928,000 40,920,000
Valuation allowance (49,928,000) (40,920,000)
---------------------------
Net deferred tax assets $ -- $ --
===========================
At December 31, 2003, the Company has federal and state tax net operating
loss carryforwards of approximately $108,062,000 and $46,496,000,
respectively. The federal and state tax loss carryforwards will begin to
expire in 2012 and 2005, respectively, unless previously utilized.
The Company also has federal and state research and development tax
credit carryforwards of approximately $3,759,000 and $3,031,000,
respectively, which will begin to expire in 2012 unless previously
utilized.
Pursuant to Internal Revenue Code Sections 382 and 383, annual use of the
Company's net operating loss and credit carryforwards may be limited as a
result of cumulative changes in ownership of greater than 50% that
occurred within a three year period.
Silicon Wave, Inc.
Notes to Consolidated Financial Statements (continued)
9. Subsequent Event
In March 2004 the Company completed the sale of 7,142,858 shares of
Series E convertible preferred stock at $0.35 per share for proceeds of
$2,500,000 net of issuance cost of $29,188 under the same terms as the
financings completed in 2003.
(b) Pro Forma Financial Information.
The following pro forma financial statements are included at pages
25 to 35 of this report.
Unaudited Pro Forma Combined Statement of Operations for the three
months ended March 31, 2004.
Unaudited Pro Forma Combined Statement of Operations for the fiscal
year ended March 31, 2004 for RF Micro Devices, Inc. and for the
fiscal year ended December 31, 2003 for Silicon Wave, Inc.
Unaudited Pro Forma Combined Balance Sheet as of March 31, 2004.
Notes to Unaudited Pro Forma Combined Financial Statements.
INTRODUCTION TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
On May 24, 2004, RF Micro Devices, Inc. (the "Company") completed
the acquisition of Silicon Wave, Inc. ("Silicon Wave"), a privately held
San Diego-based supplier of highly integrated Bluetooth(r) solutions for
wireless personal area networks. Silicon Wave's Bluetooth product
portfolio includes integrated single-chip silicon complementary metal-
oxide-semiconductor ("CMOS") radio processors (including the radio modem
and digital baseband functions), as well as stand-alone CMOS radio modem
solutions.
The following unaudited pro forma combined financial statements give
effect to the Company's acquisition of Silicon Wave as a purchase
transaction. The unaudited pro forma combined financial statements are
based on the respective historical consolidated financial statements and
the accompanying notes of the Company and Silicon Wave. The Company
reports its financial results on a 52- or 53-week fiscal year basis ending
on the Saturday closest to March 31. Silicon Wave reports its financial
results on a 52- or 53-week fiscal year basis ending on the Sunday closest
to December 31. For purposes of financial statement presentation, such
fiscal years (and, in the case of Silicon Wave, the first fiscal quarter)
are described as having ended on March 31 and December 31, as applicable).
The unaudited pro forma combined balance sheet assumes that the
acquisition took place on March 31, 2004 and combines the Company's March
31, 2004 audited consolidated balance sheet with Silicon Wave's March 31,
2004 unaudited consolidated balance sheet. The unaudited pro forma
combined statements of operations assume that the acquisition took place
as of the beginning of the periods presented. The Company's unaudited
consolidated statement of operations for the three months ended March 31,
2004 has been combined with Silicon Wave's unaudited consolidated
statement of operations for the three months ended March 31, 2004. The
Company's audited consolidated statement of operations for the fiscal year
ended March 31, 2004 has been combined with Silicon Wave's audited
consolidated statement of operations for the fiscal year ended December
31, 2003.
The unaudited pro forma combined financial statements are based on
the assumptions set forth in the notes to such statements. The unaudited
pro forma adjustments made in connection with the development of the
unaudited pro forma information have been made solely for purposes of
developing such unaudited pro forma information for illustrative purposes
necessary to comply with the disclosure requirements of the Securities and
Exchange Commission (SEC). The unaudited pro forma combined financial
statements do not purport to be indicative of the results of operations
for future periods or the combined financial position or the results that
actually would have been realized had the entities been a single entity
during these periods.
The Company does not expect any additional tax benefits as a result
of the transaction as each entity is currently in a net operating loss
position and any such benefits would be fully offset by a valuation
allowance. As a result, there is no estimated tax effect recorded in the
unaudited pro forma adjustments.
INTRODUCTION TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
(CONTINUED)
These unaudited pro forma combined financial statements should be
read in conjunction with the Company's audited consolidated financial
statements and notes thereto included in the Company's Annual Report on
Form 10-K for the year ended March 31, 2004 and the audited consolidated
financial statements and notes thereto of Silicon Wave included at pages 5
to 23 of this report.
RF MICRO DEVICES, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
(in thousands)
RF Micro Silicon Wave
as of as of Pro Forma
March 31, March 31, Pro Forma Combined
2004 2004 Adjustments Notes (1)
--------------- ------------ ------------ ------- ------------
(Audited) (Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 220,915 $ 4,006 $ (10,810) 2 $ 214,111
Short-term investments 106,930 -- -- 106,930
Accounts receivable, net 86,287 121 -- 86,408
Inventories 58,552 604 -- 59,156
Prepaid expenses 3,854 446 -- 4,300
Other current assets 6,244 4 -- 6,248
---------- ---------- ---------- ----------
Total current assets 482,782 5,181 (10,810) 477,153
Property and equipment, net 280,356 1,612 (310) 281,658
Goodwill 110,006 -- 489 2 110,495
Intangible assets, net 50,165 -- 3,339 2,3 53,504
Long-term investments 59,739 -- -- 59,739
Investment in equity method
investee 3,169 -- (3,169) 5 --
Other non-current assets 1,799 218 -- 2,017
---------- ---------- ---------- ----------
Total assets $ 988,016 $ 7,011 $ (10,461) $ 984,566
========== ========== ========== ==========
LIABILITIES AND
SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 33,465 $ 896 $ 315 2 $ 34,676
Accrued liabilities 22,206 1,851 -- 24,057
Current obligations under
capital leases 213 -- -- 213
---------- ---------- ---------- ----------
Total current liabilities 55,884 2,747 315 58,946
Long-term debt, net 324,626 -- -- 324,626
Obligations under capital leases,
less current portion 60 -- -- 60
Other long-term liabilities 4,308 -- -- 4,308
---------- ---------- ---------- ----------
Total liabilities 384,878 2,747 315 387,940
Shareholders' equity:
Preferred stock, no par value;
5,000 shares authorized; no
shares issued and outstanding -- 5 (5) --
Common stock, no par value;
500,000 shares authorized;
(RFMD 186,257 shares issued and
outstanding as of March 31, 2004) 448,942 4 (4) 448,942
Additional paid-in capital 76,957 128,239 (128,239) 76,957
Shareholder notes receivable -- (174) 174 --
Deferred compensation (14,442) -- -- (14,442)
Accumulated other comprehensive
income, net of tax 499 -- -- 499
Retained earnings 91,182 (123,810) 117,298 2,4 84,670
---------- ---------- ---------- ----------
Total shareholders' equity 603,138 4,264 (10,776) 596,626
---------- ---------- ---------- ----------
Total liabilities and
shareholders' equity $ 988,016 $ 7,011 $ (10,461) $ 984,566
========== ========== ========== ==========
RF MICRO DEVICES, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA COMBINED STATEMENTS OF OPERATIONS
(in thousands)
RF Micro Silicon Wave
Three Months Three Months
Ended Ended Pro Forma
March 31, March 31, Pro Forma Combined
2004 2004 Adjustments Notes (1)
--------------- ------------ ------------ ------- ---------
(Unaudited) (Unaudited)
Revenue $ 163,421 $ 1,516 $ (1,287) 6 $ 163,650
Operating costs and expenses:
Cost of goods sold 102,516 1,446 (709) 3,6 103,253
Research and development 34,355 2,651 44 37,050
Marketing and selling 11,601 574 -- 12,175
General and administrative 5,642 1,233 160 2 7,035
Impairment of long-lived assets 7,678 -- -- 7,678
Other operating expenses 527 -- -- 527
--------- --------- -------- ---------
Total operating costs and expenses 162,319 5,904 (505) 167,718
--------- --------- -------- ---------
Income (loss) from operations 1,102 (4,388) (782) (4,068)
Interest expense (2,080) -- -- (2,080)
Interest income 874 7 -- 881
Loss in equity method investee (1,094) -- 1,094 5 --
Other income (expense), net 431 (66) -- 365
--------- --------- -------- ---------
Income (loss) before income taxes (767) (4,447) 312 (4,902)
--------- --------- -------- ---------
Income tax (expense) benefit (92) -- -- (92)
--------- --------- -------- ---------
Net income (loss) $ (859) $ (4,447) $ 312 $ (4,994)
========= ========= ======== =========
Net income (loss) per share:
Basic $ (0.00) $ (0.03)
Diluted $ (0.00) $ (0.03)
Shares used in per share
calculation:
Basic 185,819 185,819
Diluted 185,819 185,819
RF MICRO DEVICES, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA COMBINED STATEMENTS OF OPERATIONS
(in thousands)
RF Micro Silicon Wave
Fiscal Year Fiscal Year
Ended Ended Pro Forma
March 31, December 31, Pro Forma Combined
2004 2003 Adjustments Notes (1)
--------------- ------------ ------------ ------- -----------
(Audited) (Audited)
Revenue $ 651,379 $ 3,748 $ (556) 6 $ 654,571
Operating costs and expenses:
Cost of goods sold 405,008 3,942 (300) 3,6 408,650
Research and development 128,152 14,018 175 142,345
Marketing and selling 45,226 2,808 -- 48,034
General and administrative 21,135 2,526 638 2 24,299
Impairment of long-lived assets 7,678 -- -- 7,678
Other operating expenses 2,107 -- -- 2,107
--------- -------- -------- ---------
Total operating costs and expenses 609,306 23,294 513 633,113
Income (loss) from operations 42,073 (19,546) (1,069) 21,458
Interest expense (12,865) (3) -- (12,868)
Interest income 3,463 107 -- 3,570
Loss in equity method investee (2,831) -- 2,831 5 --
- --
Other income (expense), net 353 196 -- 549
--------- -------- -------- ---------
Income (loss) before income taxes 30,193 (19,246) 1,762 12,709
Income tax (expense) benefit (485) -- -- (485)
--------- -------- -------- ---------
Net income (loss) $ 29,708 $(19,246) $ 1,762 $ 12,224
========= ======== ======== =========
Net income (loss) per share:
Basic $ 0.16 $ 0.07
Diluted $ 0.15 $ 0.06
Shares used in per share
calculation:
Basic 184,974 184,974
Diluted 213,272 190,728
RF MICRO DEVICES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
(Unaudited)
1. PERIODS COMBINED
The Company's audited consolidated balance sheet as of March 31,
2004 has been combined with Silicon Wave's unaudited consolidated balance
sheet as of March 31, 2004. The Company's financial results are reported
on a fiscal year basis ending March 31. Silicon Wave's financial results
are reported on a fiscal year basis ending December 31. The Company uses
a 52- or 53-week fiscal year ending on the Saturday closest to March 31 of
each year; however, in this report the Company's fiscal year is described
as ending on March 31. Silicon Wave operates and reports on a 52 to 53
week fiscal year ending on the Sunday closest to December 31; however, in
this report Silicon Wave's fiscal year is described as ending on December
31.
The acquisition was accounted for in accordance with APB Opinion No.
18 "The Equity Method of Accounting for Investments in Common Stock" (APB
18) as a step acquisition and in accordance with the Statement of
Financial Accounting Standards No. 141 "Business Combinations" (SFAS 141)
using the purchase method of accounting. There are no significant
differences between the accounting policies of the Company and Silicon
Wave. The total cost of the acquisition has been preliminarily allocated
to the assets acquired and liabilities assumed based upon their respective
fair values as determined by the Company with the assistance of
preliminary appraisals by an independent valuation firm. The actual
allocation of the purchase price, and the resulting effect on income
(loss), may differ from the unaudited pro forma amounts included herein
once the independent valuation firm has completed its final valuation and
the Company completes its final analysis.
The Company's unaudited consolidated statement of operations for the
three months ended March 31, 2004 has been combined with Silicon Wave's
unaudited consolidated statement of operations for the three months ended
March 31, 2004. The Company's audited consolidated statement of
operations for the fiscal year ended March 31, 2004 has been combined with
Silicon Wave's audited consolidated statement of operations for the fiscal
year ended December 31, 2003.
The periods combined for purposes of presenting the unaudited pro
forma combined statements of operations are not necessarily indicative of
the periods expected to be combined for purposes of the Company's
Quarterly Report on Form 10-Q for the period ended June 30, 2004, which is
expected to be filed with the SEC in August 2004.
RF MICRO DEVICES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
(Unaudited)
2. PURCHASE PRICE
Pursuant to the Agreement and Plan of Merger, dated as of April 21, 2004,
between the Company, Deere Merger Corp. and Silicon Wave (the
"Agreement"), the Company paid approximately $16.8 million in cash for all
outstanding shares of Silicon Wave capital stock with available cash on
hand. Immediately prior to the closing of the acquisition, the Company
sold all of the shares of Silicon Wave that the Company had purchased
during fiscal 2004 to an existing Silicon Wave investor group for $6.0
million, the Company's original cost for these shares. As a result, the
Company paid net cash consideration of $10.8 million for all Silicon Wave
shares not previously owned by the Company. In addition to the above-
mentioned payment, the Company agreed to pay earn-out consideration to the
former Silicon Wave stockholders upon achievement of certain revenue goals
for the period April 4, 2004 to April 1, 2006. If the Company's revenue
derived from Silicon Wave products for the period April 4, 2004 to April
2, 2005 exceeds $6.0 million, it will pay an aggregate cash amount equal
to one-half of the revenue derived from Silicon Wave products during this
period. If the Company's revenue derived from Silicon Wave products for
the period April 3, 2005 to April 1, 2006 exceeds $25.0 million, it will
pay an additional aggregate cash amount equal to the revenue derived from
Silicon Wave products during this period up to a maximum of $75.0 million.
The acquisition will be accounted for as a purchase in accordance with
SFAS 141 and APB 18.
Prior to the Company's acquisition of Silicon Wave, the Company
invested an aggregate of $6.0 million in Silicon Wave in two installments
during fiscal 2004 as part of a broader strategic relationship between the
companies. In connection with this strategic relationship, Silicon Wave
granted manufacturing licenses to the Company for its single-chip
UltimateBlueTM 3000 radio processor and stand-alone complementary metal-
oxide-semiconductor ("CMOS") Bluetooth radio modem solutions.
In addition, pursuant to the terms of the Company's previous
investments in Silicon Wave prior to the acquisition of Silicon Wave, the
Company was entitled to designate one person to serve on Silicon Wave's
board of directors upon achieving a greater than 20% ownership interest in
Silicon Wave. During the third quarter of 2004, the Company's second
equity investment in Silicon Wave increased the Company's ownership
interest in Silicon Wave to greater than 20%. In that regard, from
November 2003 until May 2004, William J. Pratt, a director and officer of
the Company, served as the Company's designee on the Silicon Wave board of
directors. Mr. Pratt did not receive any separate compensation from
either Silicon Wave or the Company for such service, and the purchase
price paid for Silicon Wave was based on arms-length negotiations between
the Company and Silicon Wave.
RF MICRO DEVICES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
(Unaudited)
2. PURCHASE PRICE (continued)
As a result of the Silicon Wave acquisition, the Company acquired
all of the assets and liabilities of Silicon Wave, including in-process
research and development, and approximately 70 employees have joined the
Company. Silicon Wave's Bluetooth product portfolio includes integrated
single-chip silicon CMOS radio processors (including the radio modem and
digital baseband functions), as well as stand-alone CMOS radio modem
solutions.
As a result of the acquisition, the Company has incurred direct
acquisition costs related to the business combination of $0.3 million. The
direct acquisition costs of $0.3 million were accounted for as part of the
Company's purchase price allocation. These costs consist of legal,
accounting, and appraisal fees. The direct costs of the business
combination will be included in the Company's purchase price allocation in
accordance with SFAS 141. The unaudited pro forma combined balance sheet
gives effect to such direct costs as if they had been incurred as of March
31, 2004.
The total purchase price components are as follows (in thousands):
Cash paid at closing $ 16,810
Transaction costs 315
-------
Total purchase price $ 17,125
=======
The total purchase price of $17.1 million was preliminarily
allocated to the assets acquired and liabilities assumed based on their
fair values as determined by the Company with the assistance of an
independent appraisal as of May 24, 2004, as follows (in thousands):
Current assets, including cash of $1.0
million 1,884
Property, plant and equipment 1,500
Other assets 173
Identifiable intangible assets:
Core technology 3,339
In-process research & development 6,201
-------
Total assets acquired $ 13,097
Current liabilities assumed $ (5,363)
Adjustment of equity method investment $ 4,591
Resulting goodwill $ 4,800
-------
Total purchase price $ 17,125
=======
RF MICRO DEVICES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
(Unaudited)
2. PURCHASE PRICE (continued)
Had the acquisition occurred on March 31, 2004, the resulting
goodwill would have been $0.5 million using the above purchase price and
identifiable intangible assets as shown in the unaudited pro forma
combined balance sheet. The change from the pro forma balances as of
March 31, 2004 as compared to the preliminary allocation of the purchase
price as of May 24, 2004 primarily relates to a change in Silicon Wave's
cash on hand of $3.3 million used in operations during that period.
The Company acquired various fixed assets from Silicon Wave totaling
$1.5 million and immediately wrote-off $0.3 million to expense due to
differences in Silicon Wave's capitalization policy. Annual depreciation
on the acquired assets is approximately $0.6 million.
3. INTANGIBLE AMORTIZATION
The Company recorded $9.5 million of acquired identifiable
intangible assets, of which $3.3 million represents the value of acquired
core technology and $6.2 million represents the value of in-process
research and development cost that has no alternative future use (Note 4).
The core developed technology assets acquired are being amortized over
their estimated useful lives of two and 10 years and included in research
and development. The unaudited pro forma adjustment for amortization of
core developed technology is approximately $0.2 million to $0.3 million on
an annual basis.
The unaudited pro forma combined balance sheet gives effect to such
charges as if they had been incurred as of March 31, 2004, and the
unaudited pro forma combined statements of operations presented give
effect to such charges as of the beginning of the interim period ended
March 31, 2004 and the annual period ended December 31, 2003.
4. IN-PROCESS RESEARCH AND DEVELOPMENT
As a result of the acquisition, the Company recorded a one-time
charge of $6.2 million for purchased in-process research and development
related to development projects that have not reached technological
feasibility, have no alternative future use, and for which successful
development is uncertain.
The unaudited pro forma combined balance sheet gives effect to such
charges as if they had been incurred as of March 31, 2004, but the effects
of these costs have not been reflected in the unaudited pro forma combined
statements of operations as they are nonrecurring in nature.
RF MICRO DEVICES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
(Unaudited)
5. INVESTMENT IN EQUITY METHOD INVESTEE
Prior to the Company's acquisition of Silicon Wave, the Company
invested an aggregate of $6.0 million in Silicon Wave in two installments
during fiscal 2004 as part of a broader strategic relationship between the
companies. During the first quarter of fiscal year 2004, the Company made
a $4.0 million investment which represented less than a 20% ownership
interest, and, because the Company did not have the ability to exercise
significant influence over the management of Silicon Wave, the investment
was carried at its original cost and accounted for using the cost method
of accounting for investments in accordance with APB 18.
During the third quarter of fiscal 2004, the Company made an
additional $2.0 million equity investment in Silicon Wave. The additional
investment increased the Company's ownership interest to greater than 20%.
In accordance with APB 18, the Company re-evaluated its ownership interest
and whether it had the ability to exercise significant influence over the
operation of Silicon Wave and determined that the additional investment
triggered a change in accounting for the investment from the cost method
to the equity method, which the Company adopted in the third quarter of
fiscal 2004. As required by APB 18, the investment and results of
operations for the prior periods presented were adjusted retroactively and
have been restated to reflect the application of the equity method.
Application of the equity method resulted in an equity method loss in
Silicon Wave of $2.8 million for the fiscal year ended March 31, 2004 and
$1.1 million for the three months ended March 31, 2004.
6. INTERCOMPANY REVENUE
During the twelve months ended December 31, 2003, the Company purchased
approximately $0.6 million of various products from Silicon Wave. For the
three months ended March 31, 2004, the Company purchased approximately
$1.3 million of various products from Silicon Wave. These amounts have
been eliminated in the revenue section and the corresponding costs have
been eliminated in the cost of goods sold section of the pro forma income
statements. There was no intercompany receivable or payable balance at
March 31, 2004.
(c) Exhibit.
23.1 Consent of Ernst & Young LLP, Independent Registered Public
Accounting Firm.
SIGNATURE
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.
By:/s/William A. Priddy, Jr.
---------------------------------
William A. Priddy, Jr.
Chief Financial Officer,
Corporate Vice President of
Administration and Secretary
Date: August 5, 2004
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