1
SECURITIES AND EXCHANGE COMMISSION
FORM 10-Q
WASHINGTON, D.C. 20549
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) of
THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter ended June 28, 1997
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. Employee
Incorporation or Organization) Identification No.)
(910) 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 No X
------- -------
As of August 7, 1997, there were 15,936,099 shares of the registrant's common
stock outstanding.
2
RF MICRO DEVICES, INC.
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Statements of Operations--Three months ended June 30, 1997
and 1996
Condensed Balance Sheets--June 30, 1997 and March 31, 1997
Condensed Statements of Cash Flows--Three months ended June 30, 1997
and 1996
Notes to Condensed Financial Statements
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
3
PART I - FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
RF MICRO DEVICES, INC.
CONDENSED STATEMENTS OF OPERATIONS
(In thousands, except per share and share data)
(Unaudited)
THREE MONTHS ENDED
JUNE 30, JUNE 30,
1997 1996
----------- -----------
Product sales $ 10,172 $ 3,328
Engineering revenue 63 283
----------- -----------
Total revenues 10,235 3,611
Operating costs and expenses:
Cost of goods sold 5,165 2,479
Research and development 2,069 1,294
Marketing and selling 1,483 608
General and administrative 492 256
----------- -----------
Total operating costs and expenses 9,209 4,637
----------- -----------
Income (loss) from operations 1,026 (1,026)
Other income, net 175 38
----------- -----------
Income (loss) before income taxes 1,201 (988)
Income tax expense 26 --
----------- -----------
Net income (loss) $ 1,175 $ (988)
=========== ===========
Net income (loss) per share $ .08 $ (.07)
Weighted average shares outstanding 14,534,720 13,363,000
See notes to Condensed Financial Statements.
4
RF MICRO DEVICES, INC.
CONDENSED BALANCE SHEETS
(In thousands)
JUNE 30,
1997 MARCH 31,
(Unaudited) 1997(1)
------- -------
ASSETS
Current assets:
Cash and cash equivalents $36,857 $ 2,330
Accounts receivable, net 3,675 2,401
Inventories 13,284 9,216
Other current assets 18 17
------- -------
Total current assets 53,834 13,964
Property and equipment, net 4,959 3,455
Construction in progress 4,827 2,771
Technology license 3,202 3,202
Cash restricted for capital additions 7,873 12,358
Other assets 158 515
------- -------
Total assets $74,853 $36,265
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable $ 3,924 $ 5,108
Accrued liabilities 951 699
Line of credit 350 350
Current maturities of long-term debt 127 178
Income taxes payable 7 49
Current obligations under capital leases 275 267
------- -------
Total current liabilities 5,634 6,651
Long-term debt, less current maturities 950 117
Obligations under capital leases, less current maturities 346 411
Note and accrued interest payable to shareholder -- 10,301
------- -------
Total liabilities 6,930 17,480
Redeemable convertible preferred stock -- 28,257
Shareholders' equity (deficit):
Preferred stock, no par value; 5,000,000 shares authorized; no
shares issued and outstanding -- --
Common stock, no par value; 50,000,000 shares authorized
15,806,991 and 3,286,010 issued and outstanding at June 30,
1997 and March 31, 1997, respectively 79,715 2,960
Additional paid-in capital -- 550
Deferred compensation (254) (269)
Accumulated deficit (11,538) 12,713)
------- -------
Total shareholders' equity (deficit) 67,923 (9,472)
------- -------
Total liabilities and shareholders' equity (deficit) $74,853 $36,265
======= =======
(1) The information in this column was derived from the Company's audited
financial statements as of March 31, 1997.
See notes to Condensed Financial Statements.
5
RF MICRO DEVICES, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
THREE MONTHS ENDED
JUNE 30, JUNE 30,
1997 1996
-------- -------
Cash flows from operating activities:
Net income (loss) $ 1,175 $ (989)
Adjustments to reconcile net income (loss) to net cash used by
operating activities:
Depreciation and amortization 199 84
Change in operating assets and liabilities:
(Increase) decrease in:
Accounts receivable (1,274) 602
Inventories (4,068) (1,264)
Other assets (561) (17)
Accounts payable (1,184) (74)
Accrued liabilities 252 319
Income taxes payable (42) --
-------- -------
Net cash used by operating activities (5,503) (1,339)
Cash flows from investing activities:
Purchase of property and equipment (1,423) (160)
-------- -------
Net cash used by investing activities (1,423) (160)
Cash flows from financing activities:
Repayment of capital lease obligation (57) (18)
Net proceeds (repayment) of long-term debt 782 (53)
Proceeds from issuance of preferred stock -- 4,932
Issuance of common stock 38,564 --
Decrease (increase) in cash restricted for financing activities 2,164 (4,924)
-------- -------
Net cash provided from (used in) financing activities 41,453 (63)
-------- -------
Net increase (decrease) in cash and cash equivalents 34,527 (1,562)
Cash and cash equivalents at the beginning of the period 2,330 6,638
-------- -------
Cash and cash equivalents at the end of the period $ 36,857 $ 5,076
======== =======
See notes to Condensed Financial Statements.
6
RF MICRO DEVICES, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
1. BASIS OF PRESENTATION
The accompanying financial statements have been prepared in conformity
with generally accepted accounting principles. However, certain
information or footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed, or omitted, pursuant to the rules and
regulations of the Securities and Exchange Commission. In the opinion of
management, the statements include all adjustments (which are of a
normal and recurring nature) necessary for the fair presentation of the
results of the interim periods presented. These financial statements
should be read in conjunction with the Company's audited financial
statements for the year ended March 31, 1997, as set forth in the
Company's Prospectus, dated June 3, 1997, included in the Company's
Registration Statement on Form S-1 (File No. 333-22625).
The Company uses a 52- or 53-week fiscal year ending on the Saturday
closest to March 31 of each year. The Company's other fiscal quarters
end on the Saturday closest to June 30, September 30, and December 31 of
each year. For purposes of this report (including the Unaudited
Condensed Financial Statements included herein), each fiscal year is
described as having ended on March 31, and each of the first three
quarters of each fiscal year is described as having ended on June 30,
September 30 and December 31.
2. RESEARCH AND DEVELOPMENT COSTS
The Company charges all research and development costs to expense as
incurred.
3. INCOME TAXES
The provision for income taxes has been recorded based on the current
estimate of the Company's annual effective tax rate. For periods with
taxable income, this rate differs from the federal statutory rate
primarily because of the utilization of net operating loss
carryforwards.
7
4. INVENTORIES
The components of inventories are as follows (in thousands):
June 30, March 31,
1997 1997
-------- --------
Raw materials $ 4,665 $ 2,937
Work in process 3,267 2,830
Finished goods 5,847 4,296
-------- --------
14,139 10,063
Inventory allowances (855) (847)
-------- --------
Total inventory $ 13,284 $ 9,216
======== ========
5. INCOME (LOSS) PER SHARE
In accordance with Securities and Exchange Commission Staff Accounting
Bulletins, all issuances of the Company's common and common equivalent
shares, at prices below the initial public offering price during the
twelve month period preceding the filing date of the Company's initial
public offering (cheap stock), have been included in the pro forma
calculation for the period ending June 30, 1996 (using the treasury
stock method and the initial public offering price).
6. NET INCOME (LOSS) PER SHARE
Income per share for the period ending June 30, 1997 was computed using
the weighted average number of dilutive common equivalent shares,
6,396,113, assumed to be outstanding during the period in accordance
with APB No. 15. Common equivalent shares consist of options and
warrants to purchase common stock.
8
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
INTRODUCTION
RF Micro Devices, Inc. (the "Company") designs, develops and markets proprietary
radio frequency integrated circuits ("RFICs") for wireless communications
applications such as cellular and personal communications services ("PCS"),
cordless telephony, wireless local area networks, wireless local loop,
industrial radios, wireless security and remote meter reading. The Company
derives revenues from the sale of standard and custom-designed products and
services. To date, a significant portion of the Company's revenues has been
attributable to the sale of RFICs used in cellular telephones and PCS handsets.
The Company offers a broad array of products, including amplifiers, mixers and
modulators/demodulators, that represent a substantial majority of the RFICs
required in wireless subscriber equipment. The Company designs products using
three distinct process technologies: gallium arsenide heterojunction bipolar
transistor ("GaAs HBT"), gallium arsenide metal semiconductor field effect
transistor ("GaAs MESFET") and silicon bipolar transistor. For the three months
ended June 30, 1997, 85% of the Company's revenues was derived from the sale of
GaAs HBT products. The Company may continue to rely heavily on sales of GaAs HBT
products in future periods.
RESULTS OF OPERATIONS
The following table sets forth the statement of operations data of the Company
expressed as a percentage of total revenues for the periods indicated:
Three Months Ended:
JUNE 30, JUNE 30,
1997 1996
------ ------
Revenues 100.0% 100.0%
Operating costs and expenses:
Cost of goods sold 50.5 68.7
Research and development 20.2 35.8
Marketing and selling 14.5 16.8
General and administrative 4.8 7.1
------ ------
Total operating costs and expenses 90.0 128.4
Income (loss) from operations 10.0 (28.4)
Other, net 1.7 1.0
------ ------
Income (loss) before income taxes 11.7 (27.4)
Income tax expense 0.2 0.0
------ ------
Net income (loss) 11.5% (27.4)%
====== ======
REVENUES
Revenues increased 183% from $3.3 million for the three months ended June 30,
1996 to $10.2 million for the three months ended June 30, 1997. The increase in
revenues during the three months ended June 30, 1997 primarily reflected an
overall increase in the volume of product sales to existing and new customers
primarily engaged in the manufacture of digital cellular and PCS handsets.
9
GROSS PROFIT
Gross profit margin increased to 49.5% for the three months ended June 30, 1997
from 31.3% for the three months ended June 30, 1996. The increase was primarily
attributable to an increase in production volumes during the quarter ended June
30, 1997; a reduction in average wafer costs, primarily attributable to quantity
discounts; and improvements in manufacturing, assembly, and test yields, which
reduced scrap and lowered the per unit cost of goods sold. The Company also
experienced favorable product sales mix and pricing for the quarter ended June
30, 1997.
The Company historically has experienced significant fluctuations in gross
profit margins. The Company believes that its gross profit margins have been
significantly affected by manufacturing, assembly and test yields. In
particular, in fiscal 1996, the Company experienced poor manufacturing, assembly
and test yields during the initial stage of developing a chipset for a customer.
Such yields also affected the Company's gross profit margin for the first
quarter of fiscal 1997. The Company believes the poor yields related to the
development of such chipset were attributable to the fact that such chipset was
used in one of the first CDMA phones designed for commercial production, which
caused several unexpected changes in product specifications during development
and the use of very precise specification requirements for final products.
Further, such customer was the first large OEM to order from the Company
significant volumes of RFICs, and the related increase in production volumes
initially resulted in an unacceptable amount of product scrap. There can be no
assurance that future operating results will not be affected by low
manufacturing, assembly or test yields. Further, the Company sells products in
intensely competitive markets, and the Company believes that downward pressure
on average selling prices will occur in the future.
RESEARCH AND DEVELOPMENT
Research and development expenses for the three months ended June 30, 1997 were
$2.1 million compared to $1.3 million for the three months ended June 30, 1996.
The increase was primarily attributable to increased salaries and benefits
related to increased headcount and additional spending on mask sets, wafers and
prototype assembly for both standard and custom-designed products. Research and
development expenses as a percentage of total revenues decreased to 20.2% for
the three months ended June 30, 1997 from 35.8% for the three months ended June
30, 1996. The Company plans to continue to make substantial investments in
research and development and expects that such expenses will continue to
increase in absolute dollar amounts in future periods.
MARKETING AND SELLING
Marketing and selling expenses for the three months ended June 30, 1997 was $1.5
million compared to $608,000 for the three months ended June 30, 1996. The
increase was primarily attributable to increased salaries and benefits related
to increased headcount, increased commission expense and increased promotional
expense. Marketing and selling expenses as a percentage of revenue for the three
months ended June 30, 1997 decreased to 14.5% from 16.8% for the three months
ended June 30, 1996.
GENERAL AND ADMINISTRATIVE
General and administrative expenses for the three months ended June 30, 1997
were $492,000 compared to $255,000 for the three months ended June 30, 1996. The
increase was attributable primarily to increased salaries and benefits related
to headcount increases. General and administrative expenses as a percentage of
revenue decreased from 7.1% for the three months ended June 30, 1996 to 4.8% for
the three months ended June 30, 1997.
10
OTHER INCOME, NET
Other income, net, for the three months ended June 30, 1997 increased to
$175,000 as compared to $38,000 for the three months ended June 30, 1996. This
increase resulted primarily from higher interest income earned on higher cash
balances due primarily to the investment of proceeds from the Company's initial
public offering.
INCOME TAX EXPENSE
The effective tax rate for the three months ended June 30, 1997 was 2.2%, which
is less than the combined federal and state statutory rate of approximately 40%
due to the use of net operating loss carryforwards. Income tax expense for the
three months ended June 30, 1997 was approximately $26,000. The Company did not
provide for income taxes for the period ended June 30, 1996 because of the loss
incurred in such quarter.
NEW ACCOUNTING PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 128, "Earnings Per Share", which
requires public companies to report basic and diluted earnings (loss) per share
using the calculation methodologies set forth in the statement. SFAS No. 128 is
effective for years ending after December 15, 1997; thus, this pronouncement
will be adopted by the Company for the fiscal year ending March 31, 1998. SFAS
No. 128 establishes a different method of computing net income per share than is
currently required under the provisions of Accounting Principles Board Opinion
No. 15. Under SFAS No. 128, the Company will be required to present both basic
net income per share and diluted net income per share. The Company's adoption of
SFAS 128 is not expected to have a material effect on the Company's earnings per
share.
LIQUIDITY AND CAPITAL RESOURCES
The Company has funded its operations to date through sales of equity and debt
securities, bank borrowings, capital equipment leases and sales revenues. The
Company completed its initial public offering in June 1997, and raised
approximately $38.0 million, net of offering expenses. As of June 30, 1997, the
Company had working capital of approximately $48.2 million, including $36.9
million in cash and cash equivalents.
Cash used by operating activities for the three months ended June 30, 1997 was
$5.5 million. The cash used by operating activities was primarily attributable
to an increase in inventories and accounts receivable and a decrease in accounts
payable, partially offset by net income of $1.2 million. The cash used by
operating activities for the three months ended June 30, 1996 was attributable
primarily to the $989,000 net loss and a $1.3 million increase in inventories,
partially offset by a reduction in accounts receivable and an increase in
accrued liabilities.
The $1.4 million of cash used by investing activities for the three months ended
June 30, 1997 related primarily to capital expenditures. The $160,000 of cash
used by investing activities for the three months ended June 30, 1996 also was
related to the purchase of capital equipment.
11
The $41.5 million of cash provided by financing activities for the three months
ended June 30, 1997 related primarily to the issuance of common stock in the
Company's initial public offering and the use of restricted cash for wafer
fabrication facility expenditures. The $63,000 of cash used by financing
activities for the three months ended June 30, 1996 related primarily to the
repayment of long-term debt and capital lease obligations.
Capital expenditures for the three months ended June 30, 1997 were approximately
$1.4 million. The Company anticipates that its capital equipment needs,
including manufacturing and test equipment and computer hardware and software
related primarily to the construction of the new GaAs HBT wafer facility, will
require additional expenditures of approximately $20.0 million during the
remainder of fiscal 1998.
The Company believes that its current cash and cash equivalent balances,
together with cash anticipated to be generated from sales revenues and financing
arrangements, will satisfy the Company's projected working capital and capital
expenditure requirements through the end of fiscal 1998. However, the Company
expects that it may need to raise additional equity or debt financing during
fiscal 1999 to finance a portion of the cost of the new fabrication facility.
There can be no assurance that additional financing will not be required prior
to such time. Further, there can be no assurance that additional equity or debt
financing, if required, will be available on acceptable terms or at all.
FACTORS AFFECTING FUTURE RESULTS
RISKS AND UNCERTAINTIES
The preceding Management's Discussion and Analysis of Financial Condition and
Results of Operations contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934 that relate to the Company's future plans, objectives,
estimates and goals. These statements are subject to numerous risks and
uncertainties, including probable variability in the Company's quarterly
operating results, dependence on a limited number of customers, manufacturing
capacity constraints, dependence on TRW Inc. as a supplier of GaAs HBT wafers
and risks associated with the Company's construction and operation of a wafer
fabrication facility, as well as other risks. These and other risks and
uncertainties are described in the Company's Prospectus dated June 3, 1997,
included in the Company's Registration Statement on Form S-1 (File No.
333-22625). These risks and uncertainties could cause actual results and
developments to be materially different from those expressed or implied by any
of the forward-looking statements included herein.
PART II - OTHER INFORMATION
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) On April 10, 1997, the Company held its Annual Meeting of Shareholders
of the Company.
(b) At the meeting, the following persons were elected to serve as
directors of the Company until the next annual meeting of shareholders
and until their successors have been elected and qualified:
Robert C. Fleming
Erik H. van der Kaay
David A. Norbury
Albert E. Paladino
William J. Pratt
Walter H. Wilkinson, Jr.
Terri D. Zinkiewicz
12
(c) The results of voting on each matter submitted to shareholders at the
Annual Meeting were as follows:
Votes Votes Broker
For Against Abstentions Nonvotes
--- ------- ----------- --------
(1) Election of Directors:
Robert C. Fleming 11,162,816(1) -0- -0- N/A
Erik H. van der Kaay 11,162,816(1) -0- -0- N/A
David A. Norbury 11,162,816(1) -0- -0- N/A
Albert E. Paladino 11,162,816(1) -0- -0- N/A
William J. Pratt 11,162,816(1) -0- -0- N/A
Walter H. Wilkinson, Jr. 11,162,816(1) -0- -0- N/A
Terri D. Zinkiewicz 11,162,816(1) -0- -0- N/A
(2) Approval of Amended and
Restated Articles of
Incorporation of RF Micro
Devices, Inc. 11,162,816(1) -0- -0- N/A
(3) Approval of 1997 Key
Employees Stock Option Plan
of RF Micro Devices, Inc. 11,162,816(1) -0- -0- N/A
(4) Approval of Nonemployee
Directors' Stock Option
Plan of RF Micro Devices,
Inc. 11,162,816(1) -0- -0- N/A
(5) Approval of Employee Stock
Purchase Plan of RF Micro
Devices, Inc. 11,162,816(1) -0- -0- N/A
(6) Approval of Amended and
Restated Bylaws of RF Micro
Devices, Inc. 11,162,816(1) -0- -0- N/A
(7) Approval of the issuance
and sale of shares of
common stock in an initial
public offering 7,894,806(2) -0- -0- N/A
- --------------------------------------------------------------------------------
(1) Consists of 3,268,010 shares of Common Stock (representing
99.5% o f the outstanding shares of Common Stock); 975,000
shares of Class A-1 Preferred Stock (representing 100% of the
outstanding shares of Class A-1 Preferred Stock); 1,034,091
shares of Class A-2 Preferred Stock (representing 100% of the
outstanding shares of Class A-2 Preferred Stock); 3,251,402
shares of Class B Preferred Stock (representing 98.5% of the
outstanding shares of Class B Preferred Stock); and 2,634,313
shares of Class C Preferred Stock (representing 99.6% of the
outstanding shares of Class C Preferred Stock).
(2) Consists of 975,000 shares of Class A-1 Preferred Stock
(representing 100% of the outstanding shares of Class A-1
Preferred Stock); 1,034,091 shares of Class A-2 Preferred
Stock (representing 100% of the outstanding shares of Class
A-2 Preferred Stock); 3,251,402 shares of Class B Preferred
Stock (representing 98.5% of the outstanding shares of Class B
Preferred Stock); and 2,634,313 shares of Class C Preferred
Stock (representing 99.6% of the outstanding shares of Class C
Preferred Stock). Such proposal did not require the approval
of the holders of outstanding shares of Common Stock.
13
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit 27.1 Financial Data Schedule
(b) Reports on Form 8-K
The Company did not file any reports on 8-K during the three months
ended June 30, 1997.
14
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 5, 1997 /s/ David A. Norbury
--------------------------------
DAVID A. NORBURY
President and Chief Executive Officer
(Principal Executive Officer)
Dated: August 5, 1997 /s/ William A. Priddy
--------------------------------
WILLIAM A. PRIDDY, JR.
Vice President, Finance and Administration
and Chief Financial Officer (Principal
Financial and Accounting Officer)
15
RF MICRO DEVICES, INC.
INDEX TO EXHIBITS
SEQUENTIAL
EXHIBIT NO. DESCRIPTION
- ----------- -----------
27.1 Financial Data Schedule