<PAGE>
UNITED STATES
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 May 31, 1998
Commission File No. 0-24414
RF MONOLITHICS, INC.
(Exact name of registrant as specified in its charter)
-------------------------
DELAWARE 75-1638027
(State or other jurisdiction of (I.R.S. Employer
incorporation of organization) Identification)
4441 SIGMA ROAD, DALLAS, TEXAS 75244
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (972) 233-2903
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.
[X] YES [ ] NO
AS OF JUNE 30, 1998, 5,693,250 SHARES OF THE REGISTRANT'S COMMON STOCK, $.001
PAR VALUE, WERE OUTSTANDING.
<PAGE>
RF MONOLITHICS, INC.
FORM 10-Q
QUARTER ENDED MAY 31, 1998
TABLE OF CONTENTS
ITEM
NUMBER PAGE
------ ----
PART I. CONDENSED FINANCIAL INFORMATION
1. Condensed Financial Statements:
Condensed Balance Sheets
May 31, 1998 (Unaudited), and August 31, 1997 1
Condensed Statements of Income - Unaudited
Three Months Ended May 31, 1998 and 1997,
and Nine Months Ended May 31, 1998 and 1997 2
Condensed Statements of Cash Flows - Unaudited
Nine Months Ended May 31, 1998 and 1997 3
Notes to Condensed Financial Statements 4
2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 5
PART II. OTHER INFORMATION
1. Legal Proceedings 11
2. Changes in Securities 11
3. Defaults Upon Senior Securities 11
4. Submission of Matters to a Vote of Security Holders 11
5. Other Information 11
6. Exhibits and Reports on Form 8-K 11
SIGNATURES
<PAGE>
PART I. CONDENSED FINANCIAL INFORMATION
ITEM 1. CONDENSED FINANCIAL STATEMENTS
RF MONOLITHICS, INC.
CONDENSED BALANCE SHEETS
(In Thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MAY 31, AUGUST 31,
ASSETS 1998 1997
(UNAUDITED)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 1,558 $ 482
Short-term investments 5,677 5,487
Trade receivables - net 10,357 9,517
Inventories 7,151 4,934
Prepaid expenses and other 1,025 961
Deferred income tax benefits 742 747
------- -------
Total current assets 26,510 22,128
PROPERTY AND EQUIPMENT - Net 16,683 13,694
DEFERRED INCOME TAX BENEFITS 266 890
OTHER ASSETS - Net 556 648
------- -------
TOTAL $44,015 $37,360
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt and line of credit $ 2,685 $ 1,165
Accounts payable - trade 3,339 2,135
Accounts payable - construction and equipment 1,328 604
Accrued expenses and other liabilities 3,054 2,965
Income taxes payable 491 585
------- -------
Total current liabilities 10,897 7,454
LONG-TERM DEBT 1,100 1,911
STOCKHOLDERS' EQUITY:
Common stock: 5,632 and 5,514 shares issued and outstanding 6 6
Additional paid-in capital 26,267 25,535
Retained earnings 5,822 2,593
Unearned compensation (90) (142)
Unrealized gain on short-term investments 13 3
------- -------
Total stockholders' equity 32,018 27,995
------- -------
TOTAL $44,015 $37,360
======= =======
</TABLE>
See notes to condensed financial statements.
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<PAGE>
RF MONOLITHICS, INC.
CONDENSED STATEMENTS OF INCOME - UNAUDITED
(In Thousands, Except Per-Share Amounts)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
MAY 31, MAY 31,
------------------------------- ----------------------------------
1998 1997 1998 1997
<S> <C> <C> <C> <C>
SALES $14,595 $12,841 $40,691 $33,613
COST OF SALES 8,708 7,527 24,231 20,039
------- ------- ------- -------
GROSS PROFIT 5,887 5,314 16,460 13,574
OPERATING EXPENSES:
Research and development 1,276 1,060 4,056 2,943
Sales and marketing 1,557 1,497 4,427 4,285
General and administrative 774 987 2,260 2,465
Litigation - - 641 -
------- ------- ------- -------
Total operating expenses 3,607 3,544 11,384 9,693
------- ------- ------- -------
INCOME FROM OPERATIONS 2,280 1,770 5,076 3,881
OTHER INCOME (EXPENSE):
Interest income 74 83 225 230
Interest expense (107) (86) (245) (264)
Other expense (10) (6) (1) (15)
------- ------- ------- -------
Total (43) (9) (21) (49)
------- ------- ------- -------
INCOME BEFORE INCOME TAXES 2,237 1,761 5,055 3,832
INCOME TAX EXPENSE 778 612 1,823 1,399
------- ------- ------- -------
NET INCOME $ 1,459 $ 1,149 $ 3,232 $ 2,433
======= ======= ======= =======
EARNINGS PER SHARE:
Basic $ 0.26 $ 0.21 $ 0.58 $ 0.45
======= ======= ======= =======
Diluted $ 0.24 $ 0.20 $ 0.54 $ 0.43
======= ======= ======= =======
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING:
Basic 5,628 5,438 5,578 5,383
======= ======= ======= =======
Diluted 5,989 5,774 6,006 5,688
======= ======= ======= =======
See notes to condensed financial statements.
</TABLE>
-2-
<PAGE>
RF MONOLITHICS, INC.
CONDENSED STATEMENTS OF CASH FLOWS - UNAUDITED
(In Thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NINE MONTHS ENDED
MAY 31,
--------------------
1998 1997
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 3,232 $ 2,433
Noncash items included in net income:
Deferred taxes 629 847
Depreciation and amortization 2,749 2,104
Provision for doubtful accounts 83 135
Other 49 50
Cash from (used in) operating working capital:
Trade receivables (923) (2,463)
Inventories (2,217) (423)
Prepaid expenses and other (64) (186)
Accounts payable - trade 1,204 1,503
Accrued expenses and other liabilities 89 827
Income taxes payable (94) 6
------- -------
Net cash from operations 4,737 4,833
INVESTING ACTIVITIES:
Purchases of short-term investments (4,069) (3,893)
Sales of short-term investments 3,889 3,780
Acquisition of property and equipment (5,650) (3,396)
Proceeds from sale of assets - 24
Decrease in other assets 41 15
------- -------
Net cash used in investing activities (5,789) (3,470)
FINANCING ACTIVITIES:
Borrowings on notes payable 1,500 -
Repayments of notes payable and line of credit (375) (1,175)
Repayments of capital leases (453) (248)
Borrowings of accounts payable - construction and equipment 724 131
Common stock issued for options exercised 232 420
Common stock issued under the Purchase Plan 500 167
------- -------
Net cash from (used in) financing activities 2,128 (705)
------- -------
INCREASE IN CASH AND CASH EQUIVALENTS 1,076 658
CASH AND CASH EQUIVALENTS:
Beginning of period 482 1,029
------- -------
End of period $ 1,558 $ 1,687
======= =======
SUPPLEMENTAL INFORMATION:
Interest paid $ 229 $ 253
======= =======
Income taxes paid $ 1,168 $ 256
======= =======
Property and equipment acquisitions by debt $ 37 $ 723
======= =======
See notes to condensed financial statements.
</TABLE>
-3-
<PAGE>
RF MONOLITHICS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. INTERIM FINANCIAL STATEMENTS
The accompanying condensed financial statements include all adjustments,
consisting only of normal recurring adjustments and accruals, that in the
opinion of the management of RF Monolithics, Inc. (the "Company" or "RFM") are
necessary for a fair presentation of the Company's financial position as of May
31, 1998, the results of operations for the three and nine months ended May 31,
1998 and 1997, and cash flows for the nine months ended May 31, 1998 and 1997.
These unaudited interim condensed financial statements should be read in
conjunction with the audited financial statements of the Company and the notes
thereto included in the Company's Annual Report on Form 10-K for the year ended
August 31, 1997, filed with the Securities and Exchange Commission.
Operating results for the nine months ended May 31, 1998, are not necessarily
indicative of the results to be achieved for the full fiscal year ending August
31, 1998.
2. INVENTORIES
Inventories consist of the following (in thousands):
<TABLE>
<CAPTION>
MAY 31, AUGUST 31,
1998 1997
<S> <C> <C>
Raw materials and supplies $4,142 $2,569
Work in process 1,791 1,239
Finished goods 1,218 1,126
------ ------
Total $7,151 $4,934
====== ======
</TABLE>
3. PROPERTY AND EQUIPMENT
Property and equipment includes construction in progress of $4,772,000 at May
31, 1998, and $3,021,000 at August 31, 1997, which is composed of property and
equipment not yet placed in service primarily related to increasing the capacity
of the Company's manufacturing facilities.
4. EARNINGS PER SHARE
Statement of Financial Accounting Standards No. 128, EARNINGS PER SHARE, is
effective for the Company for the quarter ended February 28, 1998. It requires
a reconciliation of both the numerator and denominator of the earnings per share
calculations and restatement of previous periods. There are no adjustments to
net earnings to arrive at income for either per share calculation.
-4-
<PAGE>
Reconciliation of share amounts is as follows (in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
MAY 31, MAY 31,
--------------------------- ----------------------------
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Shares outstanding for basic
earnings per share 5,628 5,438 5,578 5,383
Effect of dilutive stock options 361 336 428 305
----- ----- ----- -----
Shares outstanding for dilutive
earnings per share 5,989 5,774 6,006 5,688
===== ===== ===== =====
</TABLE>
5. LITIGATION EXPENSE
Litigation expense, which amounted to $0 in the current quarter and $641,000 in
the current year-to-date period, consists of expenses related to the resolution
of the legal matter with TimeKeeping Systems, Inc. Expenses include legal
expenses, settlement costs and related travel.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion may be understood more fully by reference to the
financial statements, notes to the financial statements, and management's
discussion and analysis of financial condition and results of operations
contained in the Company's Annual Report on Form 10-K for the year ended August
31, 1997, filed with the Securities and Exchange Commission.
GENERAL
RFM offers products in four product areas: Low-power components, low-
power Virtual Wire(R) radio systems, frequency control modules and filters. The
Company sells to original equipment manufacturers in automotive, computer,
consumer, industrial and telecommunications market segments world wide.
Except for the historical information contained herein, the following
discussion contains forward-looking statements that involve risks and
uncertainties. The Company's actual results could differ materially from those
discussed here. Factors that could cause or contribute to such differences
include, but are not limited to, those discussed in this section and those
discussed in the Company's Form 10-K for the year ended August 31, 1997.
YEAR 2000 ISSUE
The Company is continuing its evaluation of the Year 2000 issues to
determine whether such issues are expected to be material to the Company's
business, financial condition and results of operations. It has determined that
its products are not effected by calendar dating, so there is no known Year 2000
impact on its product offering. The Company has formed a team to evaluate its
situation and address any changes needed within its systems to ensure it can be
fully compliant with Year 2000 requirements. Most of the Company's business
information systems are in the process of being replaced by Glovia(TM) and
Oracle(R) software, which are represented by the providers to be Year 2000
compliant. The remainder of the systems and equipment are being inventoried and
evaluated as to compliance. The cost of necessary replacements and upgrades
will be addressed in the Company's normal budgeting processes. The total cost
of the business
-5-
<PAGE>
system being implemented is expected to be approximately $2.0 million, most of
which has already been incurred. The Company does not currently anticipate that
it will incur significant future expenditures to address Year 2000 compliance
issues. There can be no assurance, however, that such future expenditures will
not exceed the Company's expectations.
Year 2000 issues may create risk for the Company from unforeseen problems in
its own computer systems and from that of the systems of other companies upon
which the Company's operations may rely. The Company continues to survey its
customers and suppliers to determine the impact the Year 2000 issue may have on
them. Based on such survey, the Company will prepare contingency plans to lessen
the impact of potential problems resulting from customer or supplier Year 2000
issues. The current target for completion of the Company's Year 2000 program is
the end of the second quarter of its 1999 fiscal year (February 28, 1999).
RESULTS OF OPERATIONS
The following discussion relates to the financial statements of the Company
for the three and nine months ended May 31, 1998 (current quarter and current
year-to-date period), of the fiscal year ending August 31, 1998, in comparison
to the three and nine months ended May 31, 1997 (comparable quarter of the prior
year and comparable year-to-date period). In addition, certain comparisons with
the three months ended February 28, 1998 (previous quarter), are provided where
management believes it is useful to the understanding of trends.
The selected financial data for the periods presented may not be indicative
of the Company's future financial condition or results of operations.
The following table sets forth, for the three and nine months ended May 31,
1998 and 1997, (i) the percentage relationship of certain items from the
Company's statements of income to sales and (ii) the percentage change in these
items between the current periods and the comparable periods of the prior year:
<TABLE>
<CAPTION>
Percentage of Total Sales Percentage Change From
--------------------------------------------------------- ----------------------------------------
Three Months Nine Months Three Months Nine Months
Ended May 31, Ended May 31, Ended May 31, Ended May 31,
--------------------------- --------------------------
1998 1997 1998 1997 1997 to 1998 1997 to 1998
------------ ----------- ----------- ----------- ------------------- -----------------
<S> <C> <C> <C> <C> <C> <C>
Sales 100 % 100 % 100 % 100 % 14 % 21 %
Cost of sales 60 59 60 60 16 21
---- ---- ---- ---- --- ---
Gross profit 40 41 40 40 11 21
---- ---- ---- ---- --- ---
Research and development 9 8 10 9 20 38
Sales and marketing 11 12 11 13 4 3
General and administrative 5 7 5 7 (22) (8)
Litigation - - 2 - - -
---- ---- ---- ---- --- ---
Total operating expenses 25 27 28 29 2 17
---- ---- ---- ---- --- ---
Income from operations 15 14 12 11 29 31
Other income (expense), net - - - - 378 (57)
---- ---- ---- ---- --- ---
Income before income taxes 15 14 12 11 27 32
Income tax expense 5 5 4 4 27 30
---- ---- ---- ---- --- ---
Net income 10 % 9 % 8 % 7 % 27 % 33 %
==== ==== ==== ==== === ===
</TABLE>
-6-
<PAGE>
SALES
The following table sets forth the components of the Company's sales and the
percentage relationship of the components to sales by product area for the
periods ended as indicated (in thousands, except percentage data):
<TABLE>
<CAPTION>
Amounts % of Total
------------------------------------------------------------------ ----------------------------------
Three Months Nine Months Three Months Nine Months
Ended May 31, Ended May 31, Ended May 31, Ended May 31,
-------------------------------- ------------------------------- ----------------- ---------------
1998 1997 1998 1997 1998 1997 1998 1997
-------------------------------- ------------------------------- ----------------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Low-power components $10,702 $ 9,159 $29,164 $25,628 73 % 71 % 72 % 76 %
Low-power Virtual Wire(R)
radio systems 791 461 2,169 1,697 6 4 5 5
Frequency control modules 1,238 1,175 2,951 2,598 8 9 7 8
Filters 1,766 2,020 6,113 3,471 12 16 15 10
Technology development sales 98 26 294 219 1 0 1 1
------- ------- ------- ------- --- --- --- ---
Sales $14,595 $12,841 $40,691 $33,613 100 % 100 % 100 % 100 %
======= ======= ======= ======= === === === ===
</TABLE>
Sales increased 14% in the current quarter in comparison to the comparable
quarter of the prior year and increased 10% from the previous quarter. Current
year-to-date period sales increased 21% over the comparable year-to-date period.
The increase in the current quarter and current year-to-date over the respective
comparable periods was primarily attributable to an increased number of units
shipped of low-power components and low-power Virtual Wire(R) radio systems.
Low-power component sales in the current quarter increased 17% over the
comparable quarter of the prior year and 16% compared to the previous quarter.
Current year-to-date sales for these products increased 14% over the comparable
year-to-date period. This was primarily due to increasing number of units sold
for the Company's surface mount resonator products, particularly for customers
in the automotive markets.
The low-power component product line experienced a decline in the average per
unit selling price of approximately 17% in the current quarter in comparison
with the comparable quarter of the prior year. This is greater than the
decrease of approximately 10% that was experienced in both fiscal 1996 and 1997
and reflects an increasingly competitive market for these products. The Company
believes that the decline in average selling prices may be significant enough in
future periods to offset the sale of an increased number of units, potentially
resulting in lower total sales. There can be no assurance that sales for low-
power components will continue to increase, or remain at the same level they
have been in previous periods.
Year-to-date sales increased more rapidly for the Company's various value
added products than for the low-power component products. As a result, the
value added products accounted for 28% of the total sales for the current year-
to-date period compared to 24% for the comparable year-to-date period. Low-power
Virtual Wire(R) radio systems sales increased 72% over the comparable quarter of
the prior year and 28% over the comparable year-to-date period. Sales of
frequency control module products increased 5% from the comparable quarter of
the prior year and 14% from the comparable year-to-date period. Sales increases
for low-power Virtual Wire(R) radio system and frequency control module products
resulted from continued increase in demand for newer products.
Filter sales decreased 13% from the comparable quarter of the prior year and
21% from the previous quarter. The decline was primarily due to a significant
reduction in shipments to a single wireless LAN customer. This is a North
American customer that has been impacted by reduced demand from Asian customers.
Year-to-date filter sales are 76% higher than the comparable year-to-date
period, due to the impact of sales to this wireless LAN customer during our
first two fiscal quarters. There can be no assurance that significant sales will
resume to this customer in future periods.
-7-
<PAGE>
The Company is devoting considerable resources into developing the filter
market and will continue to do so. Sales to a large segment of this market, the
telecommunications base station market, increased significantly during the
current quarter both in comparison to the comparable quarter of the prior year
and the previous quarter. There can be no assurance, however, that sales to
this market, if any, will continue.
International sales (primarily in Europe and Asia) were approximately 58% and
49% of the Company's sales during the current quarter and the comparable quarter
of the prior year, respectively. International sales were approximately 56% and
50% of sales during the current year-to-date period and the comparable year-to-
date period, respectively. Sales to customers in Asia was slightly less than
13% of total sales in the current quarter, compared to 12% in the comparable
quarter of the prior year and 10% in the previous quarter. The Company has not
experienced a reduction in sales or new orders from customers in Asia in the
current quarter. There can be no assurance that economic conditions in Asia
will not result in future reductions in sales either directly to customers in
Asia or to customers in North American or Europe who may have end customers in
Asia.
The Company considers all product sales with a billing address and a delivery
destination in North America to be domestic sales. All other sales are
considered international. These sales are denominated primarily in U.S.
currency. The Company currently anticipates that international sales will
continue to represent a significant portion of its business. However, there can
be no assurance that these sales will continue as there are inherent risks in
the Company's international business activities which include unexpected changes
in regulatory requirements, tariffs and other trade barriers, additional cost of
marketing and delivering products into foreign countries, the impact of
fluctuations in foreign exchange rates and longer accounts receivable cycles.
The Company's top five customers accounted for approximately 28% of the
Company's sales in the current quarter, 31% in the comparable quarter of the
prior year and 34% in the previous quarter. The decrease in the relative
portion of the revenues to the Company's top five customers from the comparable
quarter of the prior year to the current quarter was primarily a result of
reduced sales to the wireless LAN customer discussed previously.
While the Company has achieved sales increases in prior periods, there can be
no assurance that such sales increases can be achieved in future periods. The
Company's success is highly dependent on achieving technological advantages in
its product design and manufacturing capabilities, as well as its ability to
sell its products in a competitive marketplace that can be influenced by outside
factors such as economic and regulatory conditions. The Company experiences
increased competition from companies that offer alternative technology solutions
or aggressive product pricing. There can be no assurance that competition from
alternative technologies or from competitors duplicating the Company's
technologies will not adversely affect selling prices and market share.
GROSS PROFIT
The current quarter gross margin and year-to-date gross margin were 40.3% and
40.5% respectively. This represents a decrease from the 41.4% gross margin for
the comparable quarter of the prior year, but nearly the same as the 40.4% gross
margin for the comparable year-to-date period and the 40.3% gross margin for the
previous quarter. The reduction in gross margin from the prior year was
primarily due to the reduction in margins for the filter product line resulting
from initial yield losses incurred as certain production was moved to automated
processes. Gross margins for the largest product line, low-power components,
actually increased compared to both comparable period of the prior year and the
previous quarter. The increased gross margin resulted from the effect of
reductions in per unit manufacturing costs which were only partially offset by
the decline in average selling prices noted above.
-8-
<PAGE>
The reduction in per unit manufacturing costs, noted previously, resulted
from continued improvements in yield and labor productivity, purchasing cost
reductions and an increase in the number of units produced, allowing for fixed
overhead expenses to be spread over a larger number of units. There can be no
assurance that lower average selling prices resulting from competitive pressures
will continue to be offset by reductions in per unit manufacturing cost. If
average selling prices decline more than per unit manufacturing costs, the
Company's gross profit margin would be adversely affected.
The Company has in the past experienced sudden increases in demand which have
put pressure on its manufacturing facilities to increase capacity to meet this
demand. In addition, new products sometimes require different manufacturing
processes than the Company currently possesses. The Company has devoted
substantial capital expenditures to increasing capacity and improving its
manufacturing processes. There can be no assurance that the Company can
continue to increase its manufacturing capacity and improve its manufacturing
processes in a timely manner so as to take advantage of increased market demand.
Failure to do this would result in a loss of potential sales in the periods
impacted.
RESEARCH AND DEVELOPMENT
Research and development expenses in the current quarter increased
approximately $216,000, or 20%, over the comparable quarter of the prior year.
Current year-to-date research and development expenses increased 38% in
comparison to the comparable year-to-date period. These costs increased due to
the Company's increase in staffing for these activities and in other product
development costs and reflects the Company's plan to increase product
development for value added products. The Company expects that research and
development expenses will increase in absolute dollars in future periods. Since
research and development expenses increased faster than sales, such expenses
increased to 9% of sales in the current quarter, compared to 8% of sales in the
comparable quarter of the prior year.
SALES AND MARKETING
Current quarter sales and marketing expenses increased approximately $60,000,
or 4%, from the comparable quarter of the prior year and approximately $142,000,
or 3%, from the comparable year-to-date period. Since sales increased faster
than sales and marketing expenses, such expenses decreased to 11% of sales in
the current quarter, compared to 12% of sales in the comparable quarter of the
prior year. The Company expects to incur higher sales and marketing expenses in
absolute dollars in future periods as it continues to increase its contacts with
customers.
GENERAL AND ADMINISTRATIVE
General and administrative expenses for the current quarter decreased
approximately $213,000, or 22%, from the comparable quarter of the prior year.
This decline resulted from a reduction in professional expenses. Current year-
to-date general and administrative expenses decreased slightly in comparison
with the comparable year-to-date period, causing these expenses to decline from
7% of sales to 5% of sales. The Company expects general and administrative
expenses will increase in absolute dollars in future periods.
LITIGATION
Litigation expense, which amounted to $641,000 in the current year-to-date
period, consists of expenses related to the resolution of the legal matter with
TimeKeeping Systems, Inc. Expenses include legal expenses, settlement costs and
related travel. Legal expenses related to the TimeKeeping Systems, Inc. matter
were substantially lower in the prior year. The Company does not currently
expect to incur significant expenses with regard to this matter in future
periods.
-9-
<PAGE>
INCOME FROM OPERATIONS
Income from operations was approximately $2,280,000, or 15% of sales in the
current quarter, compared to approximately $1,770,000 or 14% of sales in the
comparable quarter of the prior year. The increase in income from operations as
a percent of sales is due to a reduction in operating expenses as a percent of
sales. On a year-to-date basis, current year income from operations was 12% of
sales, compared to 11% of sales for the comparable year-to-date period.
INCOME TAX EXPENSE
The Company's income tax expense in the current quarter increased compared to
the comparable periods of the prior year, reflecting an increase in taxable
income. During the second quarter, the Company implemented a foreign sales
corporation, RFM Export, Inc., to obtain tax savings relating to its exports,
which represent approximately half of the Company's sales. The Company expects
the effective tax rate would be approximately 35% to 36% in the next several
quarters.
NET INCOME
Net income increased 27% to approximately $1,459,000 ($.24 per diluted common
share) in the current quarter, compared to approximately $1,149,000 ($.20 per
diluted common share) for the comparable quarter of the prior year. On a
year-to-date basis, net income increased 33% over the comparable year-to-date
period.
LIQUIDITY AND CAPITAL RESOURCES
The principal sources of liquidity at May 31, 1998, consisted of $7.2 million
of cash and short-term investments and $6.2 million of unused credit facilities.
These credit facilities include $3.5 million unused under a line of credit
agreement with a commercial bank which expires December 31, 1999, and $2.7
million in an equipment-collateralized term lease facility with a commercial
bank, available until December 31, 1998. The credit facilities contain
restrictions and financial covenants relating to various financial ratios,
including net worth, interest coverage and levels of debt compared to tangible
net worth. As of May 31, 1998, the Company was in compliance with such
restrictions and covenants.
Net cash provided by operating activities was approximately $4.7 million and
$4.8 million for the year-to-date periods of fiscal 1998 and 1997, respectively.
The decrease in cash generated from operations was primarily due to an increase
in cash used in operating working capital, partially mitigated by an increase in
cash from net income and non-cash items included in net income for the
comparable periods. The increase in working capital primarily resulted from an
increase in raw material inventory, purchased in anticipation of future demand.
Cash used in investing activities was approximately $5.8 million and $3.5
million for the year-to-date periods of fiscal 1998 and 1997, respectively, both
primarily as a result of capital expenditures. The Company expects to acquire a
total of approximately $7 million to $9 million of capital equipment by the end
of the fiscal year, consisting primarily of equipment needed for its
manufacturing facilities. Some of this equipment may be acquired under the
equipment-collateralized operating lease facility.
Net cash generated from financing activities was $2.1 million for the current
year-to-date period, primarily related to cash from borrowings on notes payable,
issuance's of common stock related to the Company's stock option and employee
stock purchase plans and borrowings on accounts payable-construction and
equipment offset by payments on borrowings of notes payable and capital leases.
Net cash
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<PAGE>
used in financing activities was $700,000 for the prior year-to-date period,
primarily related to payments on the line of credit and capital leases.
The Company believes that cash generated from operations, if any, banking
facilities and the $7.2 million balance in cash and short-term investments will
be sufficient to meet the Company's operating cash requirements through the rest
of the fiscal year. To the extent that these sources of funds are insufficient
to meet the Company's capital requirements, the Company may be required to raise
additional funds. No assurance can be given that additional financing will be
available or, if available, that it will be available on acceptable terms.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Not applicable.
ITEM 2. CHANGES IN SECURITIES
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY
None.
ITEM 5. OTHER INFORMATION
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits. The Company hereby incorporates by reference all exhibits filed
in connection with Form 10-K for the year ended August 31, 1997 and the
Forms 10-Q for the quarters ended November 30, 1997 and February 28, 1998.
(b) The Company did not file any reports on Form 8-K during the quarter ended
May 31, 1998.
(c) Exhibit Number Description
-------------- -----------
10.24 Separation and Consulting Agreement between the
Company and Mr. Conlin, dated June 10, 1998
Insofar as indemnification for liabilities arising under the Securities Act of
1933, as amended (the "Act"), may be permitted to directors, officers and
controlling persons of the registrant pursuant to the foregoing provisions, or
otherwise, the registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
-11-
<PAGE>
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 MONOLITHICS, INC.
Dated: July 15, 1998 By: /s/ Sam L. Densmore
-------------------
Sam L. Densmore
CEO, President and Director
/s/ James P. Farley
-----------------------
James P. Farley
VP and Controller
<PAGE>
EXHIBIT 10.24
June 10, 1998
Mr. Christopher G. Conlin
6817 Patrick Lane
Plano, Texas 75024
Dear Chris:
This letter sets forth the substance of the separation and consulting
agreement (the "Agreement") which RF Monolithics, Inc. (the "Company") is
offering to you to aid in your employment transition.
1. SEPARATION. Your last day of employment with the Company was May
31, 1998 (the "Separation Date"). The Company has accepted your resignation from
the position of Vice President, Sales and Marketing.
2. ACCRUED SALARY AND PAID TIME OFF. You acknowledge that the
Company has paid you all accrued salary, and all accrued and unused vacation
earned through the Separation Date, subject to standard payroll deductions and
withholding. You are entitled to these payments regardless of whether you sign
this Agreement.
3. TERMINATION PAYMENT. You will receive a one time payment of
$100,000.00 ("Termination Payment"). You hereby acknowledge and agree that the
Termination Payment shall be full and complete satisfaction of any and all
payments or other obligations the Company may owe you.
4. CONSULTANCY. The Company agrees to retain you, and you agree to
make yourself available and perform, as a consultant, beginning on the
Separation Date.
<PAGE>
a. CONSULTING PERIOD. The Company will continue to retain you as a
consultant until you obtain other regular and ongoing employment, or until March
31, 1999 whichever occurs earlier. "Regular and ongoing employment", as used in
this subparagraph, refers to any arrangement in which you are an employee and
not an independent contractor, without regard to the number of hours worked by
you in any given period. You agree to notify the Company in writing at least
ten (10) days before engaging in any such regular and ongoing employment, and
you agree that your acceptance of such employment shall be subject to the
restrictions set forth in Paragraph 4, below. Acceptance of consulting
engagements as an independent contractor, as defined by the Internal Revenue
Service, shall not constitute "permanent and ongoing employment" for the
purposes of this subparagraph 3(a). The Company may terminate the Consulting
Period at any time for material cause, including, but not limited to, any breach
by you of any provision of this Agreement.
b. CONSULTING DUTIES. You agree that, while you are retained by the
Company as a consultant, you will remain available to provide consulting in any
area of your expertise upon request by a duly authorized officer of the Company.
You agree to exercise the highest degree of professionalism and creative talents
in performing consulting services for the Company. You further agree to openly
support the Company and its management.
c. CONSULTING FEES. During the Consulting Period, the Company agrees
to pay you $1,000.00 per month. Such Fees to be paid monthly on the 15th of each
month beginning June 15, 1998. The Company will no longer deduct or withhold any
amount from your Consulting Fees for taxes, social security, or other payroll
deductions, but will instead issue you a 1099 form with respect to your
Consulting Fees. You acknowledge that you will be entirely responsible for the
payment of all employment taxes and any other taxes due and owing as a result of
your Consulting Fees, and you hereby indemnify the Company and hold it harmless
from any liability for any taxes, penalties, and interest which may be assessed
by any taxing authority.
5. OTHER WORK ACTIVITIES. During the Consulting Period, you retain the
right to engage in other consulting relationships in addition to your work for
the Company. The Company agrees to make reasonable arrangements to enable you to
perform your work for the Company at such times and in such a manner so that it
does not interfere with other activities in which you may engage.
<PAGE>
a. AGREEMENT NOT TO COMPETE. In order to protect the trade secrets
and confidential and proprietary information of the Company, you agree that,
during the Consulting Period and for an additional one year after the last day
of the Consulting Period, that you will not perform work for any business
entity, or engage in any work activity which is in competition, or is preparing
to compete, with the Company ("Competitive Activity"). "Competitive Activity"
shall include any consulting engagement or employment with Thomson Microsonics
SA, Sawtek, Inc., Anderson Laboratories, Inc., Vectron Technologies
Incorporated, Siemens, and their parent or subsidiary companies, Remec, AVX
Corporation, RF Micro Devices or Anadigics, or any company competing or
preparing to compete with the Company in developing, manufacturing, or marketing
components and modules based on Surface Acoustic Wave (SAW) technology. You
agree that, if you are in doubt as to whether a particular work activity may
comprise Competitive Activity, you will obtain the written consent of the
Company's Board of Directors, which will not be unreasonably withheld, before
undertaking such work activity. For purposes of this paragraph, the holding of
less than five percent (5%) of the outstanding voting securities of any firm or
business organization in competition with the Company shall not constitute
activities or services precluded by this paragraph.
b. AGREEMENT NOT TO SOLICIT. You agree that, during the Consulting
Period and for two years after the last day of the Consulting Period, you will
not, directly or indirectly, induce or attempt to induce any employee of the
Company to accept employment or affiliation involving competitive work with
another firm or corporation of which you are an employee, owner, partner, or
consultant.
c. PAYMENT FOR AGREEMENT NOT TO COMPETE OR SOLICIT. During the
Consulting Period, the Company agrees to pay you $3,000.00 per month. Such Fees
to be paid monthly on the 15th of each month beginning June 15, 1998. The
Company will not deduct or withhold any amount from your Consulting Fees for
taxes, social security, or other payroll deductions, but will instead issue you
a 1099 form with respect to your Payment Not to Compete or Solicit. You
acknowledge that you will be entirely responsible for the payment of all
employment taxes and any other taxes due and owing as a result of this Payment,
and you hereby indemnify the Company and hold it harmless from any liability for
any taxes, penalties, and interest which may be assessed by any taxing
authority.
<PAGE>
6. HEALTH INSURANCE. During the Consulting Period defined above at
Paragraph 3(a), you will continue in the Company's health care plan at your
present level of enrollment. However, the Company will not deduct from your
Consulting Fees any amount representing your contribution payment for health
care benefits; instead, you agree to make your contribution payment directly to
the Company each month. After your consulting relationship with the Company
terminates, and to the extent permitted by the federal COBRA law and by the
Company's current group health insurance policies, you will be eligible to
continue your health insurance benefits at your own expense. You will be
provided with a separate notice of your COBRA rights.
7. VESTING OF OPTIONS. You acknowledge as of May 31, 1998 your
options granted March 27, 1996, October 23, 1996 and January 14, 1998 shall
cease to vest as of May 31, 1998 and the Company has no obligation to grant
further options to you.
8. OTHER COMPENSATION OR BENEFITS. You acknowledge that, except as
expressly provided in this Agreement, you will not receive any additional
compensation, severance or benefits after the Separation Date. Specifically, you
acknowledge that, because you will no longer be an employee of the Company after
the Separation Date, you will not be eligible to participate in the Company's
401(k) Plan. You acknowledge that, as of the Separation Date, your participation
in the Company's Employee Stock Purchase Plan terminated, and any accumulated
payroll deductions which have not been applied to the purchase of stock will be
refunded to you as soon as reasonably practical.
9. EXPENSE REIMBURSEMENTS. You acknowledge that you have submitted
your final documented expense reimbursement statement reflecting all business
expenses you incurred through the Separation Date, if any, for which you seek
reimbursement. The Company will reimburse you for these expenses pursuant to its
regular business practice. In addition, during the Consulting Period defined
above at Paragraph 3(a), the Company will reimburse you, upon your provision of
proper documentation, for reasonable expenses actually incurred by you in the
course of consulting services performed by you at the Company's request.
10. RETURN OF COMPANY PROPERTY. By June 10, 1998, you agree to
return to the Company documents (and all copies thereof) and other Company
property which you have had in your possession at any time, including, but not
limited to, Company files, notes, drawings, records, business plans and
forecasts, financial information, specifications, computer-entry cards,
identification badges and keys; and, any materials of any kind which contain or
embody any proprietary or confidential information of the Company (and all
reproductions thereof). You will be allowed to retain your Dell laptop computer
for use during the Consulting Period. Such computer will be returned to the
Company at the end of the Consulting Period.
<PAGE>
11. PROPRIETARY INFORMATION OBLIGATIONS. You acknowledge your
continuing obligations under your Proprietary Information and Invention
Agreement, both during and after your employment, not to use or disclose any
confidential or proprietary information of the Company without prior written
authorization from a duly authorized representative of the Company. A copy of
your Proprietary Information and Inventions Agreement is attached hereto as
Exhibit A.
12. CONFIDENTIALITY. The provisions of this Agreement shall be held
in strictest confidence by you and the Company and shall not be publicized or
disclosed in any manner whatsoever; provided, however, that: (a) you may
disclose this Agreement to your immediate family; (b) the parties may disclose
this Agreement in confidence to their respective attorneys, accountants,
auditors, tax preparers, and financial advisors; (c) the Company may disclose
this Agreement as necessary to fulfill standard or legally required corporate
reporting or disclosure requirements; and (d) the parties may disclose this
Agreement insofar as such disclosure may be necessary to enforce its terms or as
otherwise required by law.
13. NONDISPARAGEMENT. Both you and the Company agree not to
disparage the other party, and the other party's officers, directors, employees,
shareholders and agents, in any manner likely to be harmful to them or their
business, business reputation or personal reputation; provided that both you and
the Company shall respond accurately and fully to any questions, inquiry or
request for information when required by legal process.
14. RELEASE. In exchange for the payments and other consideration
under this Agreement to which you would not otherwise be entitled, you agree to
execute the Employee Agreement and Release attached hereto as Exhibit B.
15. CONFIDENTIAL ARBITRATION. To ensure rapid and economical
resolution of any and all disputes which may arise in connection with the
Agreement, you and the Company agree that any and all disputes, claims, causes
of action, in law or equity, arising from or relating to the Agreement or its
enforcement, performance, breach, or interpretation, with the sole exception of
those disputes which may arise from your Proprietary Information and Inventions
Agreement, shall be resolved by final and binding confidential arbitration held
in Dallas, Texas through the American Arbitration Association, under its then-
existing Rules and Procedures. Any such arbitration shall be conducted in the
utmost secrecy. Nothing in this paragraph is intended to prevent either you or
the Company from obtaining injunctive relief in court to prevent irreparable
harm pending the conclusion of any such arbitration.
<PAGE>
16. MISCELLANEOUS. This Agreement, including Exhibits A and B
constitutes the complete, final and exclusive embodiment of the entire agreement
between you and the Company with regard to this subject matter. It is entered
into without reliance on any promise or representation, written or oral, other
than those expressly contained herein, and it supersedes any other such
promises, warranties or representations. This Agreement may not be modified or
amended except in writing signed by both you and a duly authorized officer of
the Company. This Agreement shall bind the heirs, personal representatives,
successors and assigns of both you and the Company, and inure to the benefit of
both you and the Company, their heirs, successors and assigns. If any provision
of this Agreement is determined to be invalid or unenforceable, in whole or in
part, this determination will not affect any other provision of this Agreement
and the provision in question shall be modified by the court so as to be
rendered enforceable. This accordance with the laws of the State of Texas as
applied to contracts made and to be performed entirely within Texas.
If this Agreement is acceptable to you, please sign below and the
attached Employee Agreement and Release, which is part of this Agreement, and
return the originals of both to me.
I wish you luck in your future endeavors.
Sincerely,
RF Monolithics, Inc.
By: /s/ Sam L. Densmore
-------------------------------------
Sam L. Densmore
President and Chief Executive Officer
Exhibit A - Proprietary Information and Inventions Agreement
Exhibit B - Employee Agreement and Release
AGREED:
By: /s/ Christopher G. Conlin
-------------------------------------
Mr. Christopher G. Conlin
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