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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 December 26, 1998
Commission File Number: 0-22511
RF MICRO DEVICES, INC.
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(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
North Carolina 56-1733461
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(State or other jurisdiction (I.R.S. Employer
of Identification No.)
incorporation or organization)
</TABLE>
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
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As of January 28, 1999, there were 19,596,067 shares of the registrant's common
stock outstanding.
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RF MICRO DEVICES, INC.
INDEX
PART I. FINANCIAL INFORMATION
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ITEM 1. FINANCIAL STATEMENTS
CONDENSED STATEMENTS OF INCOME--THREE MONTHS
ENDED DECEMBER 31, 1998 AND 1997
CONDENSED STATEMENTS OF INCOME--NINE MONTHS
ENDED DECEMBER 31, 1998 AND 1997
CONDENSED BALANCE SHEETS--DECEMBER 31, 1998
AND MARCH 31, 1998
CONDENSED STATEMENTS OF CASH FLOWS--NINE MONTHS
ENDED DECEMBER 31, 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
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ITEM 5. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
SIGNATURES
1
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PART I - FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
RF MICRO DEVICES, INC.
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
DECEMBER 31, DECEMBER 31,
1998 1997
------------ ------------
<S> <C> <C>
Revenues:
Product sales $40,993 $12,845
Engineering revenue 524 478
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Total revenues 41,517 13,323
Operating costs and expenses:
Cost of goods sold 26,959 7,746
Research and development 3,774 2,404
Marketing and selling 2,682 1,525
General and administrative 1,133 660
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Total operating costs and expenses 34,548 12,335
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Income from operations 6,969 988
Other income (expense), net (226) 157
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Income before income taxes 6,743 1,145
Income tax expense (1,146) (20)
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Net income $ 5,597 $ 1,125
======= =======
Net earnings per share:
Basic $ .33 $ .07
Diluted $ .31 $ .07
Shares used in per share calculation:
Basic 17,212 15,839
Diluted 18,197 17,171
</TABLE>
See notes to Condensed Financial Statements.
2
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RF MICRO DEVICES, INC.
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
DECEMBER 31, DECEMBER 31,
1998 1997
------------ ------------
<S> <C> <C>
Revenues:
Product sales $95,660 $31,525
Engineering revenue 713 1,191
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Total revenues 96,373 32,716
Operating costs and expenses:
Cost of goods sold 64,252 17,737
Research and development 9,774 6,573
Marketing and selling 7,378 4,328
General and administrative 3,124 1,717
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Total operating costs and expenses 84,528 30,355
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Income from operations 11,845 2,361
Other income (expense), net (253) 819
------- -------
Income before income taxes 11,592 3,180
Income tax expense (1,967) (64)
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Net income $ 9,625 $ 3,116
======= =======
Net earnings per share:
Basic $ .58 $ .25
Diluted $ .55 $ .19
Shares used in per share calculation:
Basic 16,552 12,683
Diluted 17,627 16,313
</TABLE>
See notes to Condensed Financial Statements.
3
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RF MICRO DEVICES, INC.
CONDENSED BALANCE SHEETS
(In thousands)
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1998 1998
(UNAUDITED) (AUDITED)
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<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 13,588 $16,360
Accounts receivable, net 14,318 6,993
Inventories 30,938 24,869
Other current assets 216 81
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Total current assets 59,060 48,303
Property and equipment, net 54,510 26,391
Construction in progress 5,181 14,917
Technology license 3,131 3,202
Other assets 5,247 551
-------- -------
Total assets $127,129 $93,364
======== =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 18,096 $11,027
Income taxes payable 1,974 --
Current obligations under capital leases 4,698 3,050
Deferred revenue 247 --
-------- -------
Total current liabilities 25,015 14,077
Obligations under capital leases, less current
maturities 15,613 12,524
-------- -------
Total liabilities 40,628 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; 17,234,705 and 16,124,961 issued and
outstanding at December 31, 1998 and March 31,
1998, respectively 90,292 80,224
Deferred compensation (180) (225)
Accumulated deficit (3,611) (13,236)
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Total shareholders' equity 86,501 66,763
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Total liabilities and shareholders' equity $127,129 $93,364
======== =======
</TABLE>
See notes to Condensed Financial Statements.
4
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RF MICRO DEVICES, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
DECEMBER 31, DECEMBER 31,
1998 1997
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<S> <C> <C>
Cash flows from operating activities:
Net income $ 9,625 $ 3,116
Adjustments to reconcile net income to net cash
provided (used) by operating activities:
Gain on sale of equipment (78) --
Depreciation and amortization 2,923 601
Change in operating assets and liabilities:
(Increase) decrease in:
Accounts receivable (7,326) (5,129)
Inventories (6,069) (14,877)
Other assets (932) (1,481)
Accounts payable 4,063 2,165
Accrued liabilities 3,006 223
Deferred revenue 247 --
Income taxes payable 1,974 (44)
-------- --------
Net cash provided (used) by operating activities 7,433 (15,426)
Cash flows from investing activities:
Purchase of capital equipment/leasehold improvements (12,443) (16,048)
Proceeds from sale of equipment 31
Capitalization of Fab/construction costs (1,227) --
-------- --------
Net cash used by investing activities (13,639) (16,048)
Cash flows from financing activities:
Repayment of capital lease obligations (2,781) (1,003)
Net proceeds of long-term debt -- 782
Issuance of common stock 75 38,535
Net proceeds from short term debt -- (350)
Exercise of warrant 10,000 --
Proceeds from exercise of options 17
Repayment of long-term debt (1,077)
(Decrease) increase in cash restricted for capital
additions (3,860) 12,358
-------- --------
Net cash provided from financing activities 3,434 49,262
-------- --------
Net increase(decrease) in cash and cash equivalents (2,772) 17,788
Cash and cash equivalents at the beginning of the
period 16,360 2,330
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Cash and cash equivalents at the end of the period $ 13,588 $ 20,118
======== ========
</TABLE>
See notes to Condensed Financial Statements.
5
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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, 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.
In April 1998, the AICPA issued Statement of Position 98-5, "Reporting on
the Costs of Start-Up Activities" ("SOP 98-5"), which is effective for
financial statements for fiscal years beginning after December 15, 1998.
SOP 98-5 broadly defines start-up activities and requires that start-up
costs capitalized prior to adoption of SOP 98-5 be written off as a
cumulative effect of an accounting change and that any future start-up
costs be expensed as incurred. The Company is required to adopt SOP 98-5 on
or before April 1, 1999 and expects that the adoption of SOP 98-5 will not
have a material impact on the Company's results.
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):
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1998 1998
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<S> <C> <C>
Raw materials $ 6,434 $ 6,356
Work in process 17,833 7,190
Finished goods 9,698 14,036
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33,965 27,582
Inventory allowances (3,027) (2,713)
------- -------
Total inventory $30,938 $24,869
======= =======
</TABLE>
5. NET INCOME PER 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 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 nine months ended December 31, 1998, the Company entered into
capital lease agreements of approximately $7.5 million.
7. SHAREHOLDERS' EQUITY
In September 1998, TRW Inc. exercised a warrant covering 1,000,000 shares
of common stock, resulting in proceeds to the Company of $10,000,000.
In January 1999, the Company completed a follow-on public offering of
2,587,500 shares of its common stock. Of these shares, the Company sold
2,300,000 shares (including 300,000 shares in connection with the exercise
of the underwriters' over-allotment option), and a selling shareholder sold
287,500 shares (including 37,500 shares in connection with the exercise of
the underwriters' over-allotment option), at a price of $61.4375 per share.
The Company received net aggregate proceeds of approximately $133.8 million
after deducting underwriting discounts and commissions and estimated
offering costs. The net proceeds from the follow-on public offering have
not been included in the accompanying balance sheet at December 31, 1998.
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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 phones, wireless local area
networks, wireless local loop, handsets, industrial radios, wireless
security and remote meter readers. 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, modulators/demodulators
and single chip transmitters, receivers, and transceivers -- 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
December 31, 1998, 89.8% of the Company's revenues was derived from the
sale of GaAs HBT products. The Company currently expects to 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 NINE MONTHS ENDED
12/31/98 12/31/97 12/31/98 12/31/97
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<S> <C> <C> <C> <C>
Revenues 100.0% 100.0% 100.0% 100.0%
Operating costs and expenses:
Cost of goods sold 64.9 58.1 66.7 54.2
Research and development 9.1 18.0 10.1 20.1
Marketing and selling 6.5 11.5 7.7 13.2
General and administrative 2.7 5.0 3.2 5.3
----- ----- ----- -----
Total operating costs and
expenses 83.2 92.6 87.7 92.8
Income from operations 16.8 7.4 12.3 7.2
Other income (expense), net (.5) 1.2 (.3) 2.5
----- ----- ----- -----
Income before income taxes 16.3 8.6 12.0 9.7
Income tax expense (2.8) (0.2) (2.0) (0.2)
----- ----- ----- -----
Net income 13.5% 8.4% 10.0% 9.5%
===== ===== ===== =====
</TABLE>
8
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REVENUES
Revenues increased 211.6% from $13.3 million for the three months ended December
31, 1997 to $41.5 million for the three months ended December 31, 1998. The
increase in revenues during the three months ended December 31, 1998 reflected
strong growth in both the GaAs HBT product line (a 228% increase over the third
quarter of fiscal 1998) and the silicon product line (a 221% increase over the
third quarter of fiscal 1998). In addition, commercial shipments from the
Company's wafer fabrication facility commenced in September, 1998 and
contributed $11.5 million (or 28%) of total revenues for the quarter. For the
nine-month period ended December 31, 1998, revenues increased 194.5% from $32.7
million in the same period in fiscal 1998 to $96.4 million. This increase was
primarily attributable to increased shipments of the Company's GaAs three-volt
HBT power amplifiers used in a variety of applications, and to increased sales
to South Korean customers. One sales representative firm, Jittek, accounted for
about 12.8% of the Company's revenue during the first nine months of fiscal
1999.
International shipments accounted for $27.0 million, or 65% of revenues, for the
three months ended December 31, 1998, compared to $8.2 million, or 62%, for the
three months ended December 31, 1997. Sales to South Korean customers totaled
$12.2 million, or 29% of revenues, compared to $4.2 million, or 31% of revenues,
for the quarter ended December 31, 1997. Although the Company experienced an
increase in sales to South Korean customers in its third fiscal quarter, this
market remains unstable and there is no assurance that this trend will continue
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
The gross profit margin was 35.1% for the three months ended December 31, 1998
compared to 41.9% for the three months ended December 31, 1997. The decrease in
the gross profit margin was primarily attributable to significantly higher sales
volume and resultant reduced average selling prices based on volume pricing
agreements. For the nine months ended December 31, 1998, the gross profit margin
was 33.3% compared to 45.8% for the nine months ended December 31, 1997. The
decrease was primarily attributable to lower average selling prices based on
volume pricing agreements.
The Company historically has experienced significant fluctuations in gross
profit margins. In certain cases, the Company believes that its gross profit
margins have 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. The Company currently expects its gross profit margins to
improve as an increasing percentage of its GaAs HBT products are fabricated at
the Company's own wafer fabrication facility, where production costs per wafer
are anticipated to be lower; however there can be no assurance that this will be
the case. Further, the Company sells products in intensely competitive markets,
and the Company believes that downward pressure on average selling prices will
continue to occur in the future.
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RESEARCH AND DEVELOPMENT
Research and development expenses for the three months ended December 31, 1998
increased 57% to $3.8 million, compared to $2.4 million for the three months
ended December 31, 1997. For the nine months ended December 31, 1998, research
and development expenses increased 48.7% to $9.8 million, versus $6.6 million
for the nine months ended December 31, 1997. These increases were primarily
attributable to increased salaries and benefits and recruiting expenses related
to increased headcount and additional spending on mask sets and outside services
for both standard and custom-designed products.
Research and development expenses as a percentage of total revenues decreased to
9.1% for the three months ended December 31, 1998 from 18.0% for the three
months ended December 31, 1997. As a percentage of revenues for the nine months
ended December 31, 1998, research and development expenses were 10.1% versus
20.1% for the nine months ended December 31, 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 December 31, 1998 were
$2.7 million, compared to $1.5 million for the three months ended December 31,
1997, an increase of 75.9%. For the nine months ended December 31, 1998,
marketing and selling expenses were $7.4 million, compared to $4.3 million for
the nine months ended December 31, 1997, an increase of 70.4%. These increases
were primarily attributable to increased salaries and benefits related to
increased headcount and to increased expenses associated with advertising and
commissions. Marketing and selling expenses as a percentage of revenue for the
three months ended December 31, 1998 decreased to 6.5% from 11.4% for the three
months ended December 31, 1997. For the nine months ended December 31, 1998,
marketing and selling expenses were 7.7% of revenues, a decrease from 13.2% for
the nine-month period ended December 31, 1997. The Company plans to continue to
make substantial investments in marketing and selling and expects that such
expenses will continue to increase in absolute dollar amounts in future periods.
GENERAL AND ADMINISTRATIVE
General and administrative expenses for the three months ended December 31, 1998
were $1.1 million compared to $659,000 for the three months ended December 31,
1997, an increase of 71.9%. For the nine months ended December 31, 1998, general
and administrative expenses rose 81.9%, to $3.1 million, up from $1.7 million
for the nine-month period ended December 31, 1997. These increases were
attributable primarily to increased salaries and benefits related to headcount
increases, and to costs associated with being a public company. General and
administrative expenses as a percentage of revenues decreased to 2.7% for the
three months ended December 31, 1998 from 5.0% for the three months ended
December 31, 1997. As a percentage of revenues, general and administrative
expenses also decreased to 3.2% for the nine-month period ended December 31,
1998 from 5.2% for the nine-month period ended December 31, 1997.
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OTHER INCOME (EXPENSE), NET
Other income (expense), net, for the three months ended December 31, 1998
reflected a net expense total of ($226,000) compared to net income of $157,000
for the three months ended December 31, 1997. For the nine months ended December
31, 1998, other income (expense), net, reflected net expenses of ($253,000)
against net income of $819,000 for the nine months ended December 31, 1997. The
decrease in other income during these periods is attributable to increased
interest expense incurred on capital lease obligations related to the Company's
wafer fabrication facility and a decrease in cash and cash equivalent balances
from the prior period.
INCOME TAX EXPENSE
The effective tax rate was 17% for the three-month and the nine-month periods
ended December 31, 1998, 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 nine months ended
December 31, 1998 was approximately $1.15 million and $1.97 million,
respectively, as compared to $20,000 and $64,000, respectively, for the
corresponding periods ended December 31, 1997.
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 December 31,
1998, the Company had working capital of approximately $34.1 million, including
$13.6 million in cash and cash equivalents. Operating activities generated $7.4
million in cash for the nine-month period ended December 31, 1998. This was
primarily attributable to net income of $9.6 million, an increase in accounts
payable of $4.1 million, and an increase in taxes payable of $2.0 million,
partially offset by increases in accounts receivable of $7.3 million and in
inventories of $6.1 million. Cash used by operating activities for the nine
months ended December 31, 1997 was $15.4 million. The cash used by operating
activities during this period was primarily attributable to an increase in
inventories and accounts receivable, partially offset by net income of $3.1
million and an increase in accounts payables of $2.2 million.
The $13.6 million of cash used by investing activities for the nine months ended
December 31, 1998 was related to the purchase of $12.4 million of capital
equipment, primarily for use in the Company's wafer fabrication facility, as
well as $1.2 million for the capitalization of wafer fabrication construction
costs. The $16.0 million of cash used by investing activities for the nine
months ended December 31, 1997 was primarily related 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 $3.4 million of cash provided by financing activities for the nine-month
period ended December 31, 1998 related primarily to the receipt of $10.0 million
proceeds from the exercise of a warrant covering 1,000,000 shares of common
stock by TRW Inc., partially offset by $2.8 million in repayments of capital
lease obligations and the establishment of a
11
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$3.9 million restricted cash escrow account in favor of the lessor of the wafer
fabrication facility that secures the Company's payment obligations under the
lease related to the facility. The deposited amounts in the escrow account will
be released to the Company over time based on an agreed amortization schedule,
subject to acceleration in the event the Company meets specified financial
coverage ratios. The $49.3 million of cash provided by financing activities for
the nine months ended December 31, 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 $12.4 million set aside for the
purchase of wafer fabrication-related expenditures.
The Company maintains a secured credit facility with Silicon Valley Bank that
includes a $5.0 million working capital line of credit and a $10.0 million term
loan line of credit. Borrowings under the working capital revolving credit line
may be made and repaid at any time until July 13, 1999 and bear interest at the
prime rate (as announced by the lender), payable monthly. Borrowings under the
term loan can be made until July 13, 1999 in $2.5 million increments, and are
repayable in 60 monthly installments at the prime rate, with repayments to be
completed by December 31, 2003. At December 31, 1998, there were no outstanding
amounts under either of these facilities. The Company is required to maintain
specified amounts of net worth and meet certain ratios with regard to liquidity
and debt to equity under this facility.
The Company currently has eight capital lease facilities with four equipment
financing companies under which the Company has financed the cost of capital
equipment and leasehold improvements associated with its wafer fabrication
facility. The Company has financed an aggregate of $23.4 million of leased
property under these facilities. Lease terms range from 36 months to 60 months
with effective interest factors ranging from 8.6% to 11.1%. At December 31,
1998, the minimum future lease payments under these leases (excluding interest)
were $20.1 million.
The Company is currently engaged in construction activities related to the
second phase of its wafer fabrication facility. This phase is budgeted at
approximately $40 million and includes a clean room expansion and installation
of additional production equipment. The Company currently has capital
commitments totaling $3.6 million for construction and equipment associated with
the completion of the second phase of the wafer fabrication facility.
On January 27, 1999, the Company completed an underwritten follow-on public
offering. Of the 2,587,500 shares of common stock offered, the Company sold
2,300,000 shares and a selling shareholder sold 287,500 shares at a price of
$61.4375 per share. The Company received net aggregate proceeds from the
follow-on offering of approximately $133.8 million after deducting underwriting
discounts and commissions and estimated offering costs. The Company expects to
use approximately $40 million of the net proceeds of the offering to complete
the second phase of its wafer fabrication facility. The remainder will be used
for general corporate purposes, including working capital. A portion of the net
proceeds may also be used to acquire or invest in complementary businesses.
Although the Company from time to time evaluates potential acquisitions of such
businesses and anticipates continuing
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to make such evaluations, the Company has no present understandings,
commitments, or agreements with respect to any acquisition of another business.
Pending such uses, the proceeds will be invested in short-term interest bearing
securities and debt instruments in compliance with the Company's investment
policy.
The Company believes that the aggregate net proceeds from the follow-on public
offering, along with cash generated from operations, will be sufficient to meet
the Company's capital requirements for at least the next 12 months. Nonetheless,
the Company may elect to sell additional equity securities or to obtain
additional credit facilities. The Company's future capital requirements may
differ materially from those currently anticipated and will depend on many
factors, including, but not limited to, market acceptance of the Company's
products, volume pricing concessions, capital improvements to new and existing
facilities, technological advances and the Company's relationships with
suppliers and customers. In addition, the Company may require increased working
capital to accommodate planned growth. In the event that the funds generated by
the follow-on offering, together with existing resources and cash from
operations, are not sufficient to meet the Company's future requirements, the
Company may seek additional debt or equity financing. There can be no assurance
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.
YEAR 2000 ISSUES
The Company has evaluated all of its internal software and current products
against Year 2000 concerns, and believes that its products and business will not
be substantially affected by the advent of the year 2000 and that it has no
significant exposure to liabilities related to the Year 2000 issue for the
products it has sold. The Company has also completed 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. These procedures have not had any
material effect on the Company's customers and have not required any material
expenditures or other material diversion of resources.
The Company has contacted substantially all parties with which it has material
relationships, including TRW Inc. and Nokia Mobile Phones Ltd. and its other
material customers and suppliers, to try to determine their Year 2000
preparedness and to analyze the risk to the Company if they have significant
business interruptions because of Year 2000 noncompliance. Based on this survey,
the Company believes that these parties either are substantially Year 2000
compliant or that any noncompliance will not have a material effect on the
Company's operations. The Company intends to continue analyzing third-party
preparedness and the need for any related contingency planning as its enters
into new third party relationships.
Although the Company believes its planning efforts are adequate to address its
Year 2000 concerns, there can be no assurance that it will not experience
negative consequences and material costs caused by undetected errors or defects
in the technology used in its internal systems, or that the systems of other
parties on which the Company relies will be made
13
<PAGE> 15
compliant on a timely basis and will not have any material adverse effect on the
Company. At this time, the Company is unable to estimate the most reasonably
likely worst-case effects of the arrival of the year 2000 and does not have a
contingency plan for any unanticipated negative effects. The Company plans to
analyze reasonably likely worst-case scenarios and the need for contingency
planning once the upgrade and testing of internal systems and the review of
third-party preparedness described above have been completed, and expects to
complete this analysis by June 30, 1999.
The Company anticipates that total costs related to the Year 2000 issue will be
about $150,000, which has been included in its information technology expense
budget. Of this amount, the Company has already spent $120,000. To date, there
have been no material deferments of other information technology projects
resulting from the work taking place on the Company's Year 2000 program.
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. Words such as "expects," "anticipates," "intends," "plans,"
"believes," and "estimates," and variations of such words and similar
expressions identify such forward-looking statements. 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, variability in production yields, risks associated with the Company's
operation of a wafer fabrication facility, dependence on TRW Inc. as a supplier
of GaAs HBT wafers and risks associated with doing business in Asia or other
areas of the world. These and other risks and uncertainties, which are described
in more detail in the Company's Annual Report on Form 10-K and the Company's
Prospectus dated January 21, 1999 included in its Registration Statement on Form
S-3 (Registration No. 333-69501) 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 included herein.
PART II - OTHER INFORMATION
ITEM 5. OTHER INFORMATION
On January 27, 1999, the Company completed an underwritten follow-on public
offering. Of the 2,587,500 shares of common stock offered, the Company sold
2,300,000 shares and a selling shareholder sold 287,500 shares at a price of
$61.4375 per share. The Company received net aggregate proceeds from the
follow-on offering of approximately $133.8 million after deducting underwriting
discounts and commissions and estimated offering costs.
14
<PAGE> 16
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 Form 8-K during the three months ended
December 31, 1998.
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: February 8, 1999
/s/ David A. Norbury
--------------------------------------
DAVID A. NORBURY
President and Chief Executive Officer
(Principal Executive Officer)
Dated: February 8, 1999
/s/ William A. Priddy, Jr.
--------------------------------------
WILLIAM A. PRIDDY, JR.
Vice President, Finance and
Administration and Chief Financial
Officer
(Principal Financial and Accounting
Officer)
15
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THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
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