1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) of
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 27, 1997
Commission File Number : 0-22511
RF MICRO DEVICES, INC.
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(Exact name of registrant as specified in its charter)
North Carolina 56-1733461
- ------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
7625 Thorndike Road, Greensboro, North Carolina 27409-9421
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(Address of principal executive offices, including zip code)
(910) 664-1233
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
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As of October 17, 1997, there were 15,820,291 shares of the registrant's common
stock outstanding.
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RF MICRO DEVICES, INC.
INDEX
PART I. FINANCIAL INFORMATION
- --------------------------------------------------------------------------------
ITEM 1. FINANCIAL STATEMENTS
CONDENSED STATEMENTS OF OPERATIONS--THREE MONTHS
ENDED SEPTEMBER 30, 1997 AND 1996
CONDENSED STATEMENTS OF OPERATIONS - SIX MONTHS
ENDED SEPTEMBER 30, 1997 AND 1996
CONDENSED BALANCE SHEETS--SEPTEMBER 30, 1997
AND MARCH 31, 1997
CONDENSED STATEMENTS OF CASH FLOWS--SIX MONTHS
ENDED SEPTEMBER 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 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
SIGNATURES
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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
SEPTEMBER 30, SEPTEMBER 30,
1997 1996
------------- -------------
Product sales $ 8,415 $ 6,011
Engineering revenue 743 --
----------- -----------
Total revenues 9,158 6,011
Operating costs and expenses:
Cost of goods sold 4,826 3,027
Research and development 2,099 1,421
Marketing and selling 1,321 791
General and administrative 565 209
----------- -----------
Total operating costs and expenses 8,811 5,448
----------- -----------
Income from operations 347 563
Other income, net 487 41
----------- -----------
Income before income taxes 834 604
Income tax expense 18 --
----------- -----------
Net income $ 816 $ 604
=========== ===========
Net income per share $ .05 $ .05
Weighted average shares outstanding 17,350,000 13,363,000
See notes to Condensed Financial Statements.
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RF MICRO DEVICES, INC.
CONDENSED STATEMENTS OF OPERATIONS
(In thousands, except per share and share data)
(Unaudited)
SIX MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1997 1996
-------------- -------------
Product sales $ 18,617 $ 9,556
Engineering revenue 776 66
----------- ------------
Total revenues 19,393 9,622
Operating costs and expenses:
Cost of goods sold 9,991 5,506
Research and development 4,168 2,715
Marketing and selling 2,804 1,399
General and administrative 1,057 464
----------- ------------
Total operating costs and expenses 18,020 10,084
----------- ------------
Income (loss) from operations 1,373 (462)
Other income, net 662 78
----------- ------------
Income (loss) before income taxes 2,035 (384)
Income tax expense 45 --
----------- ------------
Net income (loss) $ 1,990 $ (384)
=========== ============
Net income (loss) per share $ .12 $ (.03)
Weighted average shares outstanding 15,941,761 13,363,000
See notes to Condensed Financial Statements.
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RF MICRO DEVICES, INC.
CONDENSED BALANCE SHEETS
(In thousands)
SEPTEMBER 30, MARCH 31,
1997 1997
(Unaudited) (Audited)
------------- ---------
ASSETS
Current assets:
Cash and cash equivalents $ 27,117 $ 2,330
Accounts receivable, net 5,637 2,401
Inventories 19,376 9,216
Other current assets 70 17
-------- --------
Total current assets 52,200 13,964
Property and equipment, net 8,561 3,455
Construction in progress 11,765 2,771
Technology license 3,202 3,202
Cash restricted for capital additions 130 12,358
Other assets 243 515
-------- --------
Total assets $ 76,101 $ 36,265
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable $ 6,359 $ 5,108
Accrued liabilities 835 699
Line of credit -- 350
Current maturities of long-term debt -- 178
Income taxes payable 7 49
Current obligations under capital leases 283 267
-------- --------
Total current liabilities 7,484 6,651
Long-term debt, less current maturities -- 117
Obligations under capital leases, less current maturities 283 411
Note and accrued interest payable to shareholder -- 10,301
-------- --------
Total liabilities 7,767 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;
15,820,291 and 3,286,010 issued and outstanding at
September 30, 1997 and March 31, 1997, respectively 79,303 3,510
Deferred compensation (246) (269)
Accumulated deficit (10,723) (12,713)
-------- --------
Total shareholders' equity (deficit) 68,334 (9,472)
-------- --------
Total liabilities and shareholders' equity (deficit) $ 76,101 $ 36,265
======== ========
See notes to Condensed Financial Statements.
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RF MICRO DEVICES, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
SIX MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1997 1996
------------- -------------
Cash flows from operating activities:
Net income (loss) $ 1,990 $ (384)
Adjustments to reconcile net income (loss) to
net cash used by operating activities:
Depreciation and amortization 391 180
Change in operating assets and liabilities:
(Increase) decrease in:
Accounts receivable (3,236) (27)
Inventories (10,160) (2,256)
Other assets (698) (14)
Accounts payable 1,251 338
Accrued liabilities 136 116
Income taxes payable (42) --
-------- --------
Net cash used by operating activities (10,368) (2,047)
Cash flows from investing activities:
Purchase of property and equipment (14,447) (352)
-------- --------
Net cash used by investing activities (14,447) (352)
Cash flows from financing activities:
Repayment of capital lease obligations (133) (15)
Net proceeds of long-term debt (645) 10,227
Proceeds from issuance of preferred stock -- 4,932
Issuance of common stock 38,152 --
(Increase)/decease in cash restricted for financing activities 12,228 (4,866)
-------- --------
Net cash provided from financing activities 49,602 10,278
-------- --------
Net increase in cash and cash equivalents 24,787 7,879
Cash and cash equivalents at the beginning of the period 2,330 6,638
======== ========
Cash and cash equivalents at the end of the period $ 27,117 $ 14,517
======== ========
See notes to Condensed Financial Statements.
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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.
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4. INVENTORIES
The components of inventories are as follows (in thousands):
SEPTEMBER 30, MARCH 31,
1997 1997
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Raw materials $ 6,114 $ 2,937
Work in process 6,443 2,830
Finished goods 8,104 4,296
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20,661 10,063
Inventory allowances (1,285) (847)
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Total inventory $ 19,376 $ 9,216
======== ========
5. NET 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, have been included in the pro forma calculation for
the period ended September 30, 1996 (using the treasury stock method
and the initial public offering price). Income per share for the period
ended September 30, 1997 was computed using the weighted average number
of dilutive common equivalent shares 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.
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 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
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bipolar transistor ("GaAs HBT"), gallium arsenide metal semiconductor field
effect transistor ("GaAs MESFET") and silicon bipolar transistor. For the three
months ended September 30, 1997, 75% 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 SIX MONTHS ENDED
9/30/97 9/30/96 9/30/97 9/30/96
------- ------- ------- -------
Revenues 100.0% 100.0% 100.0% 100.0%
Operating costs and expenses:
Cost of goods sold 52.7 50.4 51.5 57.2
Research and development 22.9 23.6 21.5 28.2
Marketing and selling 14.4 13.2 14.5 14.5
General and administrative 6.2 3.5 5.5 4.8
----- ----- ----- -----
Total operating costs and expenses 96.2 90.7 93.0 104.7
Income (loss) from operations 3.8 9.3 7.1 (4.8)
Other income, net 5.3 0.7 3.4 0.8
----- ----- ----- -----
Income (loss) before income taxes 9.1 10.0 10.5 (4.0)
Income tax expense 0.2 0.0 0.2 0.0
----- ----- ----- -----
Net income (loss) 8.9% 10.0% 10.3% (4.0)%
===== ===== ===== =====
REVENUES
Revenues increased 52.4% from $6.0 million for the three months ended September
30, 1996 to $9.1 million for the three months ended September 30, 1997. The
increase in revenues during the three months ended September 30, 1997 primarily
reflected an overall increase in shipments of the Company's GaAs HBT power
amplifiers for cellular and PCS applications. For the six month period ended
September 30, 1997, revenues increased 101.5% from $9.6 million in the same
period in 1996 to $19.4 million in 1997. This increase was primarily
attributable to increased shipments of the Company's small signal devices used
in CDMA handsets and GaAs HBT power amplifiers for cellular and PCS handsets
utilizing a variety of air interface standards.
GROSS PROFIT
Gross profit margin decreased to 47.3% for the three months ended September 30,
1997 from 49.6% for the three months ended September 30, 1996. The decrease was
primarily attributable to a slightly less favorable product mix. For the six
months ended September 30, 1997, the gross profit margin increased
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to 48.5% from 42.8% for the six months ended September 30, 1996. The increase
was primarily attributable to increased production volumes, favorable pricing
and improved manufacturing yields.
The Company historically has experienced significant fluctuations in gross
profit margins. The Company believes that its gross profit margins have, in the
past, been significantly affected by low manufacturing, assembly and test
yields, and there can be no assurance that future operating results will not be
similarly affected. 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 September 30, 1997
increased 47.7%, to $2.1 million compared to $1.4 million for the three months
ended September 30, 1996. For the six months ended September 30, 1997, research
and development expenses increased 53.5%, to $4.2 million versus $2.7 million
for the six months ended September 30, 1996. These increases were 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 22.9% for the three months ended
September 30, 1997 from 23.6% for the three months ended September 30, 1996. As
a percentage of revenues for the six months ended September 30, 1997, research
and development expenses were 21.5% versus 28.2% for the six months ended
September 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 September 30, 1997
were $1.3 million compared to $791,000 for the three months ended September 30,
1996, an increase of 67%. For the six months ended September 30, 1997, marketing
and selling expenses equaled $2.8 million, compared to $1.4 million for the six
months ended September 30, 1996, an increase of 100%. These increases were
primarily attributable to increased salaries and benefits related to increased
headcount and to increased recruiting and travel expense. Marketing and selling
expenses as a percentage of revenue for the three months ended September 30,
1997 increased to 14.4% from 13.2% for the three months ended September 30,
1996. For the six months ended September 30, 1997, marketing and selling
expenses were 14.5% of revenues, the same percentage as in the six month period
ended September 30, 1996.
GENERAL AND ADMINISTRATIVE
General and administrative expenses for the three months ended September 30,
1997 were $565,000 compared to $209,000 for the three months ended September 30,
1996, an increase of 170%. For the six months ended September 30, 1997, general
and administrative expenses rose 127.8%, to $1.0 million, up from $464,000 for
the six month period ended September 30, 1996. These increases were attributable
primarily to increased salaries and benefits related to headcount increases.
General and administrative expenses as a percentage of revenues increased to
6.2% for the three months ended September 30, 1997 from 3.5% for the three
months ended September 30, 1996. As a percentage of revenues, general and
administrative expenses increased to 5.5% for the six month period ended
September 30, 1997 from 4.8% for the six month period ended September 30, 1996.
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OTHER INCOME, NET
Other income, net, for the three months ended September 30, 1997 increased to
$487,000 compared to $41,000 for the three months ended September 30, 1996. For
the six months ended September 30, 1997, other income, net, increased to
$662,000 from the $78,000 for the six months ended September 30, 1996. These
increases resulted 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 and the six months ended September
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 and six months ended September 30, 1997
was approximately $18,000 and $45,000, respectively. The Company did not provide
for income taxes for the corresponding periods ended September 30, 1996 because
of the losses incurred in the first quarter of FY97.
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 revenues from product
sales. The Company completed its initial public offering in June 1997, and
raised approximately $37.8 million, net of offering expenses. As of September
30, 1997, the Company had working capital of approximately $44.7 million,
including $27.1 million in cash and cash equivalents.
Cash used by operating activities for the six months ended September 30, 1997
was $10.4 million. The cash used by operating activities was primarily
attributable to an increase in inventories and accounts receivable, partially
offset by net income of $2.0 million and an increase in accounts payables of
$1.4 million. The $2.0 million in cash used by operating activities for the six
months ended September 30, 1996 was attributable primarily to the $384,000 net
loss and a $2.3 million increase in inventories, partially offset by increases
in accounts payable and accrued liabilities.
The $14.4 million of cash used by investing activities for the six months ended
September 30, 1997 was related primarily to expenditures associated with the
construction of the Company's GaAs HBT wafer fabrication facility, and for wafer
fabrication and general corporate capital equipment requirements. The $352,000
of cash used by investing activities for the six months ended September 30, 1996
was used for the purchase of capital equipment.
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The $49.6 million of cash provided by financing activities for the six months
ended September 30, 1997 related primarily to the issuance of common stock in
the Company's initial public offering, totaling $37.8 million, as well as a
reduction in restricted cash of $12.2 million set aside for the purchase of
wafer fabrication-related expenditures. The $10.3 million of cash provided by
financing activities for the six months ended September 30, 1996 related
primarily to the net proceeds from long-term debt and proceeds from the issuance
of preferred stock offset by an increase in restricted cash.
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
at such time, or that any additional equity financing will not be dilutive to
the holders of the Company's common stock. 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 on-going construction and proposed
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 2: CHANGES IN SECURITIES AND USE OF PROCEEDS
Effective Date of the Company's
Registration Statement: June 3, 1997
Commission File Number: 333-22625
Date the Offering Commenced: June 3, 1997
Names of Managing Underwriters: NationsBanc Montgomery
Securities, Inc
Hambrecht & Quist
Oppenheimer & Co., Inc.
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Class of Securities Registered: Common Stock
Amount Registered by Company: 3,455,550 shares
Amount Registered by Selling Shareholders: 37,000 shares
Amount Sold by Company: 3,000,000 shares (6/6/97)
455,550 shares (6/12/97)
Amount Sold by Selling Shareholders 37,000 shares
Aggregate Price of Offering Amount
Registered and Sold by Selling Shareholders: $444,000
Aggregate Price of Offering Amount
Registered and Sold by Company: $41,466,600
Underwriter's Discounts and
Commissions Paid by Company (1) $2,902,662
Finder's Fees $0
Expenses Paid to or for Underwriters $0
Other Expenses Paid by Company (1)(2) $808,000
Total Expenses Paid by Company (1)(2) $3,710,662
Net Offering Proceeds to Company: $37,755,938
Use of Offering Proceeds:
CAPTION>
Payments to Directors,
Officers, 10% Shareholders, Payments
Types of Use and Affiliates of Issuer (3) To Others (3)
Construction of Plant, Building, and Facilities $0 $0
Purchase/Installation of Machinery and Equipment $0 $2,513,000
Purchase of Real Estate $0 $0
Acquisition of Other Businesses $0 $0
Repayment of Indebtedness $0 $645,000
Officers/Directors Compensation $258,000 $0
Product Development $0 $2,775,000
Sales, Marketing, and Administration $0 $2,629,000
Working Capital $1,833,500 $611,200
Temporary Investments - Treasury Bills $0 $26,491,238
TOTAL $2,091,500 $35,664,438
(1) Does not include any direct or indirect payments to directors,
officers, general partners of the issuer or their associates; to
persons owning ten (10) percent or more of any class of equity
securities of the issuer; or to affiliates of the issuer.
(2) This amount represents a reasonable estimate.
(3) All amounts shown are a reasonable estimate.
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ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit 27.1 Financial Data Schedule
(b) Report on Form 8-K
The Company did not file any reports on 8-K during the three months
ended September 30, 1997.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
RF Micro Devices, Inc.
Dated: November 7, 1997 /s/ David A. Norbury
--------------------------------------------
DAVID A. NORBURY
President and Chief Executive Officer
(Principal Executive Officer)
Dated: November 7, 1997 /s/ William A. Priddy, Jr.
--------------------------------------------
WILLIAM A. PRIDDY, JR.
Vice President, Finance and Administration
and Chief Financial Officer
(Principal Financial and Accounting Officer)
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RF MICRO DEVICES, INC.
INDEX TO EXHIBITS
SEQUENTIAL
EXHIBIT NO. DESCRIPTION
- ----------- -----------
27.1 Financial Data Schedule