<PAGE> 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 27, 1998
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. Employee
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)
(336) 664-1233
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
----- -----
As of July 31, 1998, there were 16,167,518 shares of the registrant's common
stock outstanding.
<PAGE> 2
RF MICRO DEVICES, INC.
INDEX
PART I. FINANCIAL INFORMATION
- --------------------------------------------------------------------------------
Item 1. Financial Statements
Condensed Statements of Income--Three months
ended June 30, 1998 and 1997
Condensed Balance Sheets--June 30, 1998
and March 31, 1998
Condensed Statements of Cash Flows--Three months
ended June 30, 1998 and 1997
Notes to Condensed Financial Statements
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
PART II. OTHER INFORMATION
- --------------------------------------------------------------------------------
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
<PAGE> 3
PART I - FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
RF MICRO DEVICES, INC.
CONDENSED STATEMENTS OF INCOME
(In thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
JUNE 30, JUNE 30,
1998 1997
------- --------
<S> <C> <C>
Revenues:
Product Sales $23,249 $10,172
Engineering revenue 192 63
------- -------
Total revenues 23,441 10,235
Operating costs and expenses:
Cost of goods sold 15,603 5,165
Research and development 2,777 2,069
Marketing and selling 2,176 1,483
General and administrative 868 492
------- -------
Total operating costs and expenses 21,424 9,209
------- -------
Income from operations 2,017 1,026
Other income, net 156 175
------- -------
Income before income taxes 2,173 1,201
Income tax expense 500 26
------- -------
Net income $ 1,673 $ 1,175
======= =======
Net earnings per share:
Basic $ .10 $ .18
Diluted $ .10 $ .08
Shares used in per share calculation:
Basic 16,065 6,396
Diluted 17,066 14,535
</TABLE>
See notes to Condensed Financial Statements.
<PAGE> 4
RF MICRO DEVICES, INC.
CONDENSED BALANCE SHEETS
(In thousands)
<TABLE>
<CAPTION>
JUNE 30, MARCH 31,
1998 1998
(Unaudited) (Audited)
------------ ----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 9,452 $16,360
Accounts receivable, net 12,819 6,993
Inventories 24,339 24,869
Other current assets 228 81
-------- -------
Total current assets 46,838 48,303
Property and equipment, net 32,515 26,391
Construction in progress 19,661 14,917
Technology license 3,202 3,202
Other assets 1,246 551
-------- -------
Total assets $103,462 $93,364
======== =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 13,758 $11,027
Income taxes payable 497 --
Current obligations under capital leases 4,266 3,050
-------- -------
Total current liabilities 18,521 14,077
Obligations under capital leases, less current maturities 16,477 12,524
-------- -------
Total liabilities 34,998 26,601
Shareholders' equity:
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; 80,237 80,224
16,141,641 and 16,123,961 issued and outstanding at June 30,
1998 and March 31, 1998, respectively
Deferred compensation (210) (225)
Accumulated deficit (11,563) (13,236)
-------- -------
Total shareholders' equity 68,464 66,763
-------- -------
Total liabilities and shareholders' equity $103,462 $93,364
======== =======
</TABLE>
See notes to Condensed Financial Statements.
<PAGE> 5
RF MICRO DEVICES, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
JUNE 30, JUNE 30,
1998 1997
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 1,673 $ 1,175
Adjustments to reconcile net income to net cash used by
operating activities:
Depreciation and amortization 241 199
Change in operating assets and liabilities:
(Increase) decrease in:
Accounts receivable (5,826) (1,274)
Inventories 530 (4,068)
Other assets (147) (561)
Accounts payable (2,124) (1,184)
Accrued liabilities 4,852 252
Income taxes payable 500 (42)
-------- -------
Net cash used by operating activities (301) (5,503)
Cash flows from investing activities:
Purchase of property and equipment (5,836) (1,423)
-------- -------
Net cash used by investing activities (5,836) (1,423)
Cash flows from financing activities:
Repayment of capital lease obligation (771) (57)
Net proceeds of long-term debt -- 782
Issuance of common stock -- 38,564
Decrease in cash restricted for financing activities -- 2,164
-------- -------
Net cash provided from financing activities (771) 41,453
-------- -------
Net increase (decrease) in cash and cash equivalents (6,908) 34,527
Cash and cash equivalents at the beginning of the period 16,360 2,330
-------- -------
Cash and cash equivalents at the end of the period $ 9,452 $36,857
======== =======
</TABLE>
See notes to Condensed Financial Statements.
<PAGE> 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, 1998.
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.
<PAGE> 7
4. INVENTORIES
The components of inventories are as follows (in thousands):
<TABLE>
<CAPTION>
June 30, March 31,
1998 1998
---------- ---------
(Unaudited) (Audited)
<S> <C> <C>
Raw materials $ 6,311 $ 6,356
Work in process 7,424 7,190
Finished goods 11,936 14,036
-------- -------
25,671 27,582
Inventory allowances (1,332) (2,713)
Total inventory $ 24,339 $24,869
======== =======
</TABLE>
5. NET INCOME PER COMMON SHARE
In 1997, the Financial Accounting Standards Board ("FASB") issued
Statement No. 128, "Earnings per Share" ("SFAS 128"). SFAS 128
replaced the calculation of primary and fully diluted earnings per
share with basic and diluted earnings per share. Unlike primary
earnings per share, basic earnings per share excludes any dilutive
effects of options, warrants, and convertible securities, and only
reflects actual common shares outstanding. Diluted earnings per
share is similar to the previously reported fully diluted earnings
per share. All earnings per share amounts for all periods have been
presented, and where appropriate, restated to conform to SFAS 128
requirements.
6. PROPERTY AND EQUIPMENT
During the three months ended June 30, 1998 the Company entered into
capital lease agreements of approximately $5.9 million.
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
INTRODUCTION
RF Micro Devices, Inc. (the "Company") designs, develops, manufactures 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,
modulators/demodulators and single chip transceivers that represent a
substantial majority of the RFICs
<PAGE> 8
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, 1998, 87% 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:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
JUNE 30, JUNE 30,
1998 1997
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<S> <C> <C>
Revenues 100.0% 100.0%
Operating costs and expenses:
Cost of goods sold 66.6 50.5
Research and development 11.8 20.2
Marketing and selling 9.3 14.5
General and administrative 3.7 4.8
-------- -------
Total operating costs and expenses 91.4 90.0
Income from operations 8.6 10.0
Other, net 0.7 1.7
-------- -------
Income before income taxes 9.3 11.7
Income tax expense (2.1) (0.2)
-------- -------
Net income 7.2% 11.5%
======== =======
</TABLE>
REVENUES
Revenues increased 129% from $10.2 million for the three months ended June 30,
1997 to $23.4 million for the three months ended June 30, 1998. The increase in
revenues during the three months ended June 30, 1998 primarily reflected strong
demand for both GaAs HBT and silicon products, with GaAs HBT products growing by
144% over the first fiscal quarter of 1998, and silicon growing by 101%. In
addition, there were more wafers available as a result of the recently completed
expansion efforts of the Company's GaAs HBT wafer supplier. There were no
significant shipments from the Company's new GaAs HBT wafer fab during the
quarter.
International shipments accounted for 62% of revenues for the three months ended
June 30, 1998, compared to 45% for the three months ended June 30, 1997. The
recent financial crisis in the Asian markets has had an adverse impact on the
Company's revenues. Sales to South Korean customers accounted for approximately
$5.4 million or 23% of total revenues during the three months ended June
<PAGE> 9
30, 1998, and the Company expects that this segment of its business will
continue to decline as a percentage of the Company's revenues during fiscal year
1999. This degradation in the South Korean business is attributable to order
delays, potential order cancellations and the tightening of credit. Although the
Company currently expects that any decrease in South Korean sales will be offset
by increased revenues from other customers, no assurance can be given that this
will occur or that the economic instability in Asia will not have a material
adverse effect on the Company's business, financial condition or results of
operations.
GROSS PROFIT
Gross profit margin decreased to 33.4% for the three months ended June 30, 1998
from 49.5% for the three months ended June 30, 1997. This decrease was primarily
attributable to accelerated volume pricing associated with the increase in sales
volume that was seen during the quarter. Additionally, theses products were
built using relatively high cost 3-inch wafers.
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 manufacturing, assembly and test yields. In
particular, during fiscal 1996 and the third quarter of fiscal 1998, the Company
experienced poor manufacturing, assembly and test yields, and there can be no
assurance that future operating results will not be similarly affected. Further,
the Company sell 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, 1998 were
$2.8 million compared to $2.1 million for the three months ended June 30, 1997.
The increase was primarily attributable to product development activities
including salaries and benefits and costs associated with the quick turn-around
of newly-designed products. Research and development expenses as a percentage of
total revenues decreased to 11.8% for the three months ended June 30, 1998 from
20.2% for the three months ended June 30, 1997. 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, 1998 was $2.2
million compared to $1.5 million for the three months ended June 30, 1997. The
increase was primarily attributable to increased salaries and benefits related
to increased headcount, increased advertising expense and increased travel and
entertainment expense. Marketing and selling expenses as a percentage of revenue
for the three months ended June 30, 1998 decreased to 9.3% from 14.5% for the
three months ended June 30, 1997.
GENERAL AND ADMINISTRATIVE
General and administrative expenses for the three months ended June 30, 1998
were $868,000 compared to $492,000 for the three months ended June 30, 1997. The
increase was attributable primarily to increased salaries and benefits related
to headcount increases, additional recruiting expense and
<PAGE> 10
increased legal expense. General and administrative expenses as a percentage of
revenue decreased from 4.8% for the three months ended June 30, 1997 to 3.7% for
the three months ended June 30, 1998.
OTHER INCOME, NET
Other income, net, for the three months ended June 30, 1998 decreased to
$156,000 as compared to $175,000 for the three months ended June 30, 1997. This
decrease resulted primarily from interest income being earned on lower monthly
cash balances.
INCOME TAX EXPENSE
The effective tax rate for the three months ended June 30, 1998 was 23.0%, 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, 1998 was approximately $500,000. For the three
months ended June 30, 1997, income tax expense totaled $26,000.
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, 1998, the
Company had working capital of approximately $28.3 million, including $9.5
million in cash and cash equivalents.
Cash used by operating activities for the three months ended June 30, 1998 was
$0.3 million. The cash used by operating activities was primarily attributable
to increases in accounts receivable and accrued liabilities and a decrease in
accounts payable and inventories, partially offset by net income of $1.7
million. The cash used by operating activities for the three months ended June
30, 1997 was attributable primarily to an increase in inventories and accounts
receivable and a decrease in accounts payable, partially offset by net income of
$1.2 million.
The $5.8 million of cash used by investing activities for the three months ended
June 30, 1998 related primarily to capital expenditures (exclusive of assets
acquired under capital leases), as did the $1.4 million of cash used by
investing activities for the three months ended June 30, 1997.
The $770,000 of cash used by financing activities for the three months ended
June 30, 1998 related to payments for capital lease obligations. 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 used of restricted cash for wafer fabrication
facility expenditures. The Company currently maintains major credit lines at its
commercial banks and, in addition, has issued a warrant to TRW Inc. for the
purchase of up to 1,000,000 shares of the Company's common stock at an exercise
price of $10.00 per share. This warrant became exercisable on June 15, 1998 and
by its terms will expire if not exercised before September 14, 1998.
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 and other corporate requirements. There can be no assurance
that any additional equity financing will not be dilutive to 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.
<PAGE> 11
YEAR 2000 ISSUES
The Company has evaluated all internal software and all current products against
anticipated Year 2000 concerns, and believes that it products and business will
not be substantially affected by the advent of the year 2000, and that it has no
significant exposure to contingencies related to the Year 2000 issue for the
products it has sold. The company has initiated a project to upgrade all
internal software and to conduct testing on both its information technology
systems and its other equipment and machinery to further ensure that all aspects
of its business will be Year 2000 compliant. The Company believes that these
procedures, which are expected to be completed by December 31, 1998, will have
no material effect on the Company's customers and will not require any material
expenditures or other material diversion of resources.
The Company is currently contacting third parties with which it has material
relationships, including its material customers and suppliers, to attempt to
determine their preparedness with respect to Year 2000 issues and to analyze the
risk to the Company in the event any such third parties experience significant
business interruptions as a result of Year 2000 noncompliance. The Company
expects to complete this review and analysis and to determine the need for
contingency planning in this regard by December 31, 1998.
Although the Company believes its planning efforts are adequate to address its
Year 2000 concerns, there can be no assurances that the Company will not
experience unanticipated negative consequences and/or material costs caused by
undetected errors or defects in the technology used in its internal systems, or
that the systems of third parties on which the Company relies will be made
compliant on a timely basis and will not have any material adverse effect on the
Company. The Company is currently unable to estimate the most reasonably likely
worst-case effects of the arrival of the year 2000 and does not currently have a
contingency plan in place for any such unanticipated negative effects. The
Company intends to analyze reasonably likely worst-case scenarios and the need
for such contingency planning once the upgrade and testing of internal systems
and review of third-party preparedness described above have been completed.
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, risks associated with the Company's operation of a wafer
fabrication facility, dependence on TRW Inc., as a supplier of GaAs HBT wafers
and economic turmoil in Asia or other areas of the world. These and other risks
and uncertainties are described in the Company's Annual Report on Form 10-K
filed with the Securities and Exchange Commission, could cause actual results
and developments to be materially different from those expressed or implied by
any of the forward-looking statements.
<PAGE> 12
PART II - OTHER INFORMATION
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit 27.1 Financial Data Schedule (for SEC use only)
(b) Reports on Form 8-K
The Company did not file any reports on Form 8-K during the three months
ended June 30, 1998.
<PAGE> 13
SIGNATURES
Pursuant to the requirements of the Securities and 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 11, 1998 /s/ David A. Norbury
--------------------------------------
DAVID A. NORBURY
President and Chief Executive Officer
(Principal Executive Officer)
Dated: August 11, 1998 /s/ William A. Priddy, Jr.
--------------------------------------
WILLIAM A. PRIDDY, JR.
Vice President, Finance and Administration
and Chief Financial Officer
(Principal Financial and Accounting Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED BALANCE SHEET AS OF JUNE 30, 1998 AND THE CONDENSED STATEMENT OF
OPERATIONS FOR THE THREE MONTHS ENDED JUNE 30, 1998 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-START> APR-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 9,452
<SECURITIES> 0
<RECEIVABLES> 12,819
<ALLOWANCES> 0
<INVENTORY> 24,339
<CURRENT-ASSETS> 46,838
<PP&E> 33,761
<DEPRECIATION> 2,207
<TOTAL-ASSETS> 130,462
<CURRENT-LIABILITIES> 18,521
<BONDS> 0
0
0
<COMMON> 80,027
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 103,462
<SALES> 23,441
<TOTAL-REVENUES> 23,441
<CGS> 15,603
<TOTAL-COSTS> 15,603
<OTHER-EXPENSES> 5,821
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 156
<INCOME-PRETAX> 2,173
<INCOME-TAX> 500
<INCOME-CONTINUING> 1,673
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,673
<EPS-PRIMARY> .10
<EPS-DILUTED> .10
</TABLE>
