<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934.
For the fiscal year ended August 31, 1999
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 or 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
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
COMMON STOCK .001 PAR VALUE
(Title of Class)
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 ___
---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (Section 229.405 of this chapter) is not contained herein, and
will not be contained, to the best of Registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [X]
The aggregate market value of the voting stock held by nonaffiliates of the
Registrant as of November 15, 1999, was $38,940,874. Shares of common stock
held by each officer and director and by each person who owns 5% or more of the
outstanding common stock of the Company have been excluded because such persons
may be deemed to be affiliates.
The number of shares outstanding of the Registrant's Common Stock was 5,892,811
as of November 15, 1999.
DOCUMENTS INCORPORATED BY REFERENCE
Registrant's Definitive Proxy Statement to be filed with the Commission pursuant
to Regulation 14A in connection with the 1999 Annual Meeting is incorporated
herein by reference into Part III of this Report.
<PAGE>
RF MONOLITHICS, INC.
FORM 10-K
YEAR ENDED AUGUST 31, 1999
Table of Contents
<TABLE>
<CAPTION>
Item
Number Page
- ------ ----
<S> <C>
PART I.
1. Business................................................................ 2
2. Facilities.............................................................. 10
3. Legal Proceedings....................................................... 11
4. Submission of Matters to a Vote of Security Holders..................... 11
PART II.
5. Market for Registrant's Common Stock and Related Stockholder Matters.... 11
6. Selected Financial Data................................................. 12
7. Management's Discussion and Analysis of Financial Condition
And Results of Operations............................................... 13
8. Financial Statements and Supplementary Data............................. 21
9. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure.. 21
PART III.
10. Directors and Executive Officers of the Registrant...................... 21
11. Executive Compensation.................................................. 21
12. Security Ownership of Certain Beneficial Owners and Management.......... 21
13. Certain Relationships and Related Transactions.......................... 22
PART IV.
14. Exhibits, Financial Statement Schedules and Reports on Form 8-K......... 22
</TABLE>
<PAGE>
PART I.
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, as well as in the sections entitled
"Legal Proceedings," "Selected Financial Data" and "Management's Discussion and
Analysis" in this report.
ITEM 1. BUSINESS
RF Monolithics, Inc. ("RFM" or the "Company") designs, develops,
manufactures and markets a broad range of radio frequency ("RF") component and
module products in four areas: low-power components, low-power Virtual Wire(R)
short-range radio systems, frequency control modules and filters. The Company's
products are based on surface acoustic wave ("SAW") technology and are
manufactured as discrete devices to perform specific functions and as integrated
modules to meet system performance requirements. The Company believes that its
SAW-based products, coupled with its RF design and manufacturing expertise,
offer electronics manufacturers certain fundamental advantages over alternative
technologies. As electronic applications ranging from automotive remote keyless
entry ("RKE") to digital cellular phones to computers migrate to higher
operating frequencies with tighter tolerances and more stringent performance
specifications, demand for RF modules and SAW discrete components is expected to
increase.
The Company focuses its product development in the frequency range of 200
megahertz ("MHz") to 2,400 MHz and above. The Company markets its line of more
than 500 resonators, filters, clocks, oscillators, transmitters and receivers to
original equipment manufacturers ("OEMs") world-wide, including Code-Alarm,
Inc., Delco Electronics, Linear Corporation, Nokia Telecommunications, Nortel
(Northern Telecom, Inc.), Siemens AG, and Silicon Graphics, Inc. The Company is
also strengthening its global sales and distribution network.
Background
The Company believes that a significant market opportunity for more
widespread adoption of SAW technology is emerging. As electronic applications
increase in data speed and frequency, there will be an increasing demand for
improved performance and functionality, greater precision, reduced size, lower
power consumption and greater reliability. The Company believes that these
dynamics are creating frequency control opportunities that are not effectively
addressed by traditional RF approaches.
SAW-technology-based discrete components, modules and RF systems combine a
complex mix of software-controlled design rules, wafer fabrication, hybrid
assembly and packaging processes to meet stringent customer and governmental
compliance requirements. The earliest SAW applications were developed for high-
level military systems for electronic warfare and volume consumer products such
as TVs and VCRs. The unique features of SAW technology provide flexible
solutions to systems designers defining tomorrow's emerging applications across
multiple market segments.
Markets and Applications
The Company focuses on specific market opportunities where the Company
believes that its SAW technology solutions coupled with its RF design expertise
address current and emerging market and application requirements. The Company
offers products in four areas: low-power components, low-power
2
<PAGE>
Virtual Wire(R) short-range radio systems, frequency control modules and
filters. These products are incorporated into application designs in the five
primary markets: automotive, computer, consumer, industrial and
telecommunications.
Automotive
The automotive industry utilizes SAW-based components in transmitter and
receiver designs for remote keyless entry (RKE) applications. Emerging
applications utilizing transmitter and receiver functions include the run flat
tire, tire pressure monitoring and immobilized theft-deterrent systems.
Automotive electronic applications continue to grow with the unending drive
toward smaller size, reduced cost and improved system performance as evidenced
by some of the emerging multiplexing design schemes. These market requirements
are met by the Company's low-power components and low-power Virtual Wire(R)
short-range radio system modules. This market is subject to severe price
competition.
Computer
The operating speed of computer network products is increasing in order to
provide more widespread, faster access to and manipulation of multimedia
information and the more rapid design and analysis of electronics, structural
and industrial systems. Frequency control modules, primarily clocks, are applied
in computer systems to provide a precise, stable frequency control source. The
design and deployment of wireless local area computer and data link networks is
generating increased demand in SAW filters.
Consumer
Consumer market applications encompass a wide range of electronic designs.
Those utilizing SAW-based devices include the cable television industry,
wireless headphones and loudspeakers, wireless door chimes, electronic games and
home automation applications. These consumer electronic applications may
incorporate low-power components, low-power Virtual Wire(R) short-range radio
system modules and filters.
Industrial
The industrial market includes applications such as security systems, RF ID
tags, meter reading and bar code reading devices, medical systems and custom
data link equipment. Low-power components, low-power Virtual Wire(R) short-range
radio system modules and filters may all be designed into industrial
applications.
Telecommunications
The Company believes that a number of dynamics within the
telecommunications market are opening new applications for SAW technology. The
deployment of digital cellular telephone systems, such as European Global System
for Mobile Communications (GSM) and Code Division Multiple Access (CDMA), has
been initiated worldwide. The digital modulation requires SAW filters that
minimize distortion and conform to international cellular telephony standards.
The Company believes that markets for such products are expanding rapidly. In
addition, high-speed Synchronous Optical Networks ("SONET") performance is
enhanced with the incorporation of SAW-stabilized oscillators.
3
<PAGE>
Products
The Company's products are organized into four primary product families:
low-power components, low-power Virtual Wire(R) short-range radio system
modules, frequency control modules and filters.
Low-Power Components:
Resonators. The Company's resonators are used in low-power wireless
transmitter and receiver applications, including automotive remote keyless entry
systems and related products. The Company manufactures SAW resonators in volume,
and they are supplied in both three-lead metal packages ("TO-39") and leadless
surface mount ("SMT") packages. The market for low-power resonators is intensely
competitive and has been characterized by price erosion, rapid technological
change and product obsolescence. As a result, the Company has experienced
increasing price competition for these products.
Coupled-Resonator Filters. The Company's coupled-resonator filters are
resonator structures which are optimized for digital communications IF
Intermediate Frequency filter designs used in air-to-ground telephone systems,
915 MHz cordless telephones and hybrid receiver applications. Coupled-resonator
filters are well suited for certain frequency stabilization applications, such
as the frequency control clock modules, and as input filters for the hybrid
receiver modules and output filters for the hybrid transmitter modules
manufactured by the Company. In fiscal 1999, the Company introduced a new line
of coupled resonators in surface mount packages.
Low-Power Virtual Wire(R) Short-Range Radio System Modules:
The Company's family of hybrid transmitter (HX), receiver (RX) and
transceiver (TR) modules are the primary products included in low-power Virtual
Wire(R) short-range radio operations. During fiscal 1999, the Company introduced
the Transceiver module based on its patented Amplifier Sequenced Hybrid ("ASH")
technology. The module offers two-way data communication in a single small
module with performance identical to the separate HX and RX (hybrid receiver)
modules at lower total cost.
These products feature small size, very low-power consumption and excellent
RF performance, and provide the system designer flexibility and fast time to
market for emerging applications. The breadth of frequency ranges covers both
North American and international frequency bands for low-power data
transmission. The receiver's ASH architecture provides exceptional performance
with extremely low harmonic radiation, allowing customers' ease of international
standards certification.
The Virtual Wire(R) short-range radio system modules product offerings also
include complete transceiver design and development kits that allow the system
designer, who has minimal RF experience, the ability to apply wireless, two-way
data transfer to emerging applications. The application market for Virtual
Wire(R) short-range radio module devices includes remote barcode data entry,
remote meter reading and wireless thermostats. The Company believes that markets
for wireless products are continue to expand.
Frequency Control Modules:
The Company's frequency control module products consist of clocks and both
fixed-frequency and voltage-controlled SAW-based oscillators. These products
provide added value to the SAW components manufactured by the Company. Each
module incorporates one or more SAW discrete devices with standard and custom
integrated circuits and related passive components. The Company manufactures
clocks and fixed-frequency oscillators applying resonators and coupled-resonator
filters to eliminate tuning coils for
4
<PAGE>
signal filtering and stabilization and SAW delay lines to allow frequency
variability in voltage-controlled oscillators.
High-frequency clocks. The Company's high-frequency clock modules are used
in high-speed computing and high-resolution graphics applications in the
computer market segment. The Company's SAW-based clocks allow the customer to
realize improved performance by providing a highly stable frequency source which
results in very low timing variations from one cycle to the next (commonly
referred to as "jitter") and good symmetry across each cycle. SMT packages
complement the Company's leaded metal packaged product.
Oscillators. The Company produces commercial and military fixed-frequency
and voltage-controlled SAW oscillators. These products are supplied in leaded
metal packages and used in applications such as microwave radios, identification
friend or foe (IFF) transponders for commercial and military avionics, optical
network communication systems and precision instrumentation.
Filters:
The Company designs and manufactures four types of SAW filters: low-loss
transversal, precision transversal, proximity-coupled and coupled-resonator.
(See above discussion of coupled-resonator filter in Low-Power Components). The
Company has devoted a considerable amount of its resources to increase the
number of filter products.
Low-loss transversal filters and precision transversal filters are used in
both digital cellular systems GSM and personal communications system (PCS)
standards and in SONET repeaters. The low-loss filters are designed to minimize
signal distortion in the frequency band that the filter is designed to pass. The
precision filters provide excellent amplitude and group delay flatness for
fractional bandwidths of 2% or more.
The proximity-coupled filters are narrow-band SAW filters used in cellular
applications deploying the IS-54 Time Division Multiple Access (TDMA) standard
and in cellular digital packetized data (CDPD) applications as intermediate
frequency (IF) filters. Proximity filters are also used extensively in digital
pagers and a number of analog cellular phone systems.
Manufacturing:
The manufacturing of the Company's products is a highly complex and precise
process that is sensitive to a wide variety of factors, including the level of
contaminants in the manufacturing environment, impurities in the materials used
and the performance of manufacturing personnel and production equipment. Until
the devices are enclosed or sealed within their final package, they are subject
to contamination. Because of this, almost all operations prior to enclosure
welding or sealing are performed in controlled environments such as clean-room
environments. The Company has experienced product shipment delays and
lower-than-expected production yields. The Company has experienced and may in
the future experience a delay in transferring products from engineering to
volume manufacturing status. The manufacturing process could result in shipment
delays or loss of production yields that will materially and adversely increase
the cost of manufacturing. The Company's manufacturing operations are housed-in
two buildings located side by side in Dallas, Texas. Many of the Company's
competitors have manufacturing facilities in low labor rate countries. The
Company intends to move some of its manufacturing capabilities offshore, but it
is uncertain as to when or if this can be achieved. The Company has limited
ability to outsource its manufacturing operations. As a result of the Company's
substantial reliance on a single manufacturing location, damage
5
<PAGE>
occurring to such facility, whether by act of nature or otherwise, may have a
material adverse affect on the Company's manufacturing operations.
The Company's customers demand an increasing level of quality. Despite the
fact that the Company has achieved QS 9000 and ISO 9001 certification in 1999,
the Company could fail to achieve these needed improvements in its quality
levels to its operations. To the extent improvements are not achieved, the
Company's operating results could be materially and adversely affected. The
Company has 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 the bulk of its capital
expenditures to increase capacity and improve its manufacturing processes. The
Company may not be able to continue to increase its manufacturing capacity and
improve its manufacturing processes in a timely manner to take advantage of
increased market demand.
Over the past several years, the Company completed an expansion of its
factories, adding facilities and new automated processing equipment. As demands
on the manufacturing facilities increase, there is an ongoing need to increase
the capacity and operational efficiency of this facility. The Company may not be
able to achieve these improvements in a timely manner. To the extent the Company
does not achieve acceptable yields or experiences product shipment delays as a
result of problems associated with the expansion of the factories, the Company's
operating results could be materially and adversely affected.
The Company divides its manufacturing operations into two key areas: wafer
fabrication and assembly.
Wafer Fabrication
Fabrication of deposited and patterned wafers takes place in a clean-room
environment. Thin aluminum films are precisely deposited onto three-inch and
four inch-diameter quartz substrates that are subsequently etched with very
small (micron and submicron) patterned structures. Each patterned device is
called a die, and there may be from 40 to 3,000 die on a single three-inch or
four-inch wafer.
Assembly
In assembly, there are three production areas that correspond to the three
distinct types of packages being manufactured: (1) TO-39 components; (2) module
devices; and (3) SMT components.
TO-39 component manufacturing involves the assembly of single-die devices
into leaded metal packaging. This method of assembly includes the Company's
older low-power component products.
Module manufacturing consist of multiple devices, one or more of which is a
SAW. The Company's products assembled in module manufacturing include
transceivers, frequency control devices and filters.
The Company's SMT products contain SAW die and, in some cases, other
electronic components as well. The Company's manufacturing process is based on
arrays, which allows for automated processing of up to 400 devices at a time.
Since this represents a unique manufacturing process, some of the equipment has
been custom-designed for the Company and represents several unique applications
of existing manufacturing technology. The SMT facility is responsible for
assembly of low-power components and low-power Virtual Wire(R) short-range radio
system module products.
6
<PAGE>
Source of Components
While the Company uses standard components whenever possible, certain of
the components used in the Company's SAW devices and modules are made to the
Company's specifications. This is particularly true for specialized
semiconductor manufacturers from whom the Company purchases several RF
integrated circuits. These companies include Maxim Integrated Products, Nortel
Networks Inc., Cal Eastern Labs Inc. and Kyocera America Inc. The Company has
experienced delays and quality control problems with certain of its single-
source suppliers in the past. Although the Company is attempting to obtain
second-source suppliers, the Company believes it will continue to be dependent
upon single-source suppliers for the foreseeable future. Delays in delivery,
quality problems or the inability of the Company to obtain the components
required to manufacture the Company's products on a cost-effective basis could
have a material adverse effect on the Company's business and results of
operations.
Sales and Marketing
The Company distributes its products in the United States through
manufacturers' representatives managed by the Company's restructured area sales
management team (internal sales force.) Additionally, the Company has authorized
two North American distributors to stock and sell all Company products.
International sales are handled through manufacturers' representatives,
manufacturers' representatives acting as distributors and direct sales
management. Despite these sales efforts, the Company may not be able to increase
or maintain demand for the its products.
The Company's international sales are currently denominated in U.S.
currency. An increase in the value of the U.S. dollar relative to foreign
currencies could make the Company's products more expensive and, therefore,
potentially less competitive in those markets. Additional risks inherent in the
Company's international business activities generally include unexpected changes
in regulatory requirements, tariffs and other trade barriers, costs and risks of
localizing international operations, potentially adverse tax consequences,
repatriation of earnings and the burdens of complying with a wide variety of
foreign laws. Such factors could have a material adverse effect on the Company's
future results of operations.
In 1999 and 1998, no single customer accounted for more than 10% of sales
and the top 10 customers accounted for approximately 45% and 40% of total sales,
respectively. Sales to distributors accounted for 21.3% of the sales in fiscal
1999, and 6.7% in fiscal 1998. Sales to major customers have fluctuated in the
past and may continue to fluctuate in the future.
RFM enters into select, custom product development programs. These
development programs can last from 6 months to 18 months. The scope of these
programs includes initial engineering of the RF function under development
through assisting in the interface of the RF and digital hardware. The Company
is engaged in an increasing number of these programs. The Company cannot predict
when or if a particular customer's program will be designed and reach volume
production status. In addition, many of the Company's products are subject to
regulations. Customers may require their products to be certified with various
regulatory agencies. The Company offers its customers various types of
assistance in obtaining certification. The Company's customers may not obtain
required certifications in a timely manner or at all. Delays in obtaining
certification could result in significant losses of potential Company sales.
Competition
The markets for the Company's products are intensely competitive and are
characterized by price erosion, rapid technological change and product
obsolescence. In each of the markets for the Company's
7
<PAGE>
product, the Company competes with very large vertically integrated,
international companies, including Matsushita Electrical Industrial Co., Ltd.,
Sanyo Electric Co., Siemens, AG, Toyo Communication Equipment Co., Ltd. and
Murata Manufacturing Co., that have substantially greater financial, technical,
sales, marketing, distribution and other resources, and broader product lines
than the Company. The Company's competitors with greater financial resources or
broader product lines may be able to engage in sustained price reductions in the
Company's primary markets to gain market share. The Company also expects
increased competition from existing competitors as well as competition from a
number of companies that currently use SAW expertise largely for internal
requirements. In addition, the Company experiences increased competition from
companies that offer alternative solutions such as phase locked loop technology,
which combines a semiconductor with a traditional crystal. The Company believes
competitors may duplicate the Company's products, which would cause additional
pressure to selling prices and which could adversely affect market share.
The Company believes that its ability to compete in its target markets
depends on factors both within and outside the Company's control, including
timing and success of new product introductions by the Company and its
competitors, the availability of manufacturing capability, the Company's ability
to support decreases in selling price through reduction in cost of sales, the
pace at which the Company's customers incorporate the Company's products into
their end user products and general economic conditions.
Research and Development
The Company's research and development efforts are primarily aimed at
deriving new, proprietary, innovative SAW device structures and SAW-based hybrid
modules that uniquely address market needs. These developments also include
process improvements in wafer fabrication involving better line width and metal
thickness control as well as improvements in device packaging.
RFM employs approximately 50 individuals in engineering and product
development, including design engineers and scientists. They are responsible for
new products from inception to the commencement of volume manufacturing. The
Company believes that the efforts of this group help to ensure that RFM's
products provide an optimum system solution for the customer and are
manufacturable at a competitive cost.
From time to time, the Company has entered into agreements with customers
to develop specific SAW devices for inclusion in the customer's end product.
Pursuant to such agreements, the nonrecurring engineering ("NRE") cost
associated with such development work, which is treated by the Company as cost
of technology development sales, is generally reimbursed by the customer. Total
technology development (or NRE) sales during fiscal years 1999 and 1998 were
$233,000 and $338,000, respectively. Costs related to these sales were included
in the Company's cost of sales during these years. The Company considers the
development of new products essential to increasing and maintaining sales.
Proprietary Rights
The Company relies on a combination of patents, copyrights and
nondisclosure agreements in order to establish and protect its proprietary
rights. The Company's policy is to file patent applications to protect
technology, inventions and improvements that are important to its business.
Patents may not be issued from any of the Company's pending applications. In
addition, claims that are allowed from existing or pending patents may not be
sufficiently broad to protect the Company's technology. While the Company
intends to protect its intellectual property rights vigorously, patents held by
the Company may be challenged, invalidated or circumvented, or the rights
granted thereunder will provide competitive advantages to the Company.
8
<PAGE>
The Company also seeks to protect its trade secrets and proprietary
technology, in part, through confidentiality agreements with employees,
consultants and other parties. These agreements could be breached and the
Company may not have adequate remedies for any breach. Further, the Company's
trade secrets could otherwise become known to or independently developed by
others. In addition, the laws of some foreign countries do not protect the
Company's proprietary rights to the same extent as the laws of the United
States.
The electronics industry is characterized by uncertainty and conflicting
intellectual property claims. The Company has in the past and may in the future
become aware of the intellectual property rights of others that it may be
infringing. The Company may be notified that it is infringing on other patents
and/or other intellectual property rights of third parties. In the event of such
alleged infringement, a license to the technology in question may not be
available on commercially reasonable terms, if at all. In addition, litigation
could occur and the outcome of such litigation might be adverse to the Company.
The failure to obtain necessary licenses or other rights, the occurrence of
litigation arising out of such claims or an adverse outcome from such litigation
could have a material adverse effect on the Company's business. In any event,
patent litigation is expensive, and the Company's results of operations could be
materially adversely affected by such litigation, regardless of its outcome.
Regulations
The Company is subject to a variety of federal, state and local laws, rules
and regulations related to the use, storage, emission, treatment, disposal,
transportation and exposure of others to certain toxic, volatile and other
hazardous chemicals used in the Company's manufacturing process. The failure to
comply with present or future regulations could result in fines being imposed on
the Company, suspension of production or a cessation of operations. Such
regulations could also require the Company to acquire costly equipment, to make
changes to its manufacturing process, or to incur substantial other expenses to
comply with environmental regulations. Any past or future failure by the Company
to control the use of, or to restrict adequately the discharge of, hazardous
substances could subject the Company to future liabilities and could have a
material adverse effect on the Company's business, operating results and
financial condition.
Employees
As of August 31, 1999, the Company had a total of 632 employees. Of such
employees, approximately 162 were temporary employees. With the exception of an
employee located in each of the sales locations in Europe, Georgia, Minnesota
and California, all of the employees of the Company are based at the Company's
headquarters in the metropolitan area of Dallas, Texas. The Company's future
success depends to a significant degree upon the continued service of its key
technical and senior management personnel and its continuing ability to attract
and retain highly qualified technical and managerial personnel. Competition for
such personnel is intense. The Company may not be able to retain or continue to
attract key managerial and technical employees. Failure to retain or continue to
attract key managerial and technical employees could have a material adverse
effect on the Company's business results and operations. None of the Company's
employees are represented by a labor union. The Company has not experienced any
work stoppages and considers its relations with its employees to be good.
Potential Fluctuations in Results of Operations; Order Trends and Backlog
The Company's quarterly and annual results have been and will continue to
be affected by a wide variety of factors that have had in the past and in the
future could have a material adverse effect on the
9
<PAGE>
Company's business and results of operations during any particular period,
including the level of orders that are received and can be shipped in a quarter,
the rescheduling or cancellation of orders by its customers, competitive
pressures on selling prices, changes in product or customer mix, availability
and cost of raw materials, the ability of the Company to manufacture a
sufficient volume of products in a cost-effective manner, fluctuations in
manufacturing yield, availability of wafer fabrication and assembly
manufacturing capacity, loss of any strategic relationship, the ability to
introduce new products and technologies on a timely and cost-effective basis,
new product introductions by the Company's competitors, market acceptance of
products of both the Company and its customers, supply constraints for other
components incorporated into its customers' products, foreign currency
fluctuations, delays in customer orders or payments or interruptions in
operations due to Year 2000 issues and the level of expenditures for research
and development, sales, and general and administrative functions.
Historically, the electronics industry has experienced sudden and
unexpected economic downturns. The Company's results of operations are subject
to such downturns. In addition, the Company's operating expenses are largely
fixed and difficult to change quickly should sales not meet the Company's
expectations, thus magnifying the adverse effect of any such revenue shortfall.
The Company believes that period-to-period comparisons of its financial results
should not be relied upon as an indication of future performance.
The Company has improved its manufacturing operations to the point that
many products can be manufactured with lead times of seven weeks or less. The
Company typically receives and fulfills a significant portion of its orders
within the quarter. In addition, the Company's manufacturing facilities may not
be able to react to late demand in time to ship the product in the same quarter
that the order is received. As a result, the Company may not learn of revenue
shortfalls until late in a fiscal quarter. Additionally, the Company's operating
expenses are based in part on future revenues and are relatively fixed in the
short term. Any revenue shortfall below its expectations could have an immediate
and significant adverse effect on results of operations.
The Company's backlog at August 31, 1999, was approximately $7.1 million as
compared to $9.8 million as of August 31, 1998. The Company includes in its
backlog all purchase orders scheduled for delivery within the subsequent 12
months. The Company's backlog, although useful for scheduling production, does
not represent actual sales and should not be used as a measure of future sales.
All orders in backlog are subject to cancellation prior to 30 days before
shipment without penalty at the option of the customer and to changes in
delivery schedules. The Company's backlog is subject to fluctuations. Backlog as
of any particular date may not be a reliable measure of sales for any future
period.
ITEM 2. FACILITIES
The Company's principal administrative, sales, marketing, research and
development, and manufacturing facilities are located in the metropolitan area
of Dallas, Texas, in two adjacent buildings totaling approximately 93,000 square
feet. One building, totaling approximately 63,000 square feet, is leased through
July 2003. The second building, totaling approximately 30,000 square feet, is
also leased through July 2003, with the Company having an option to cancel the
lease after July 31, 2001. The Company believes that its existing facilities are
adequate for its current requirements. Should additional space be needed, there
can be no assurance that it will be commercially available on reasonable terms
when it is needed.
10
<PAGE>
ITEM 3. LEGAL PROCEEDINGS
In April 1999, the Company became involved in a lawsuit filed in the US
District Court in Connecticut (Civil action no. 399cv00311) seeking to collect
outstanding receivables that were incurred by Akom Technologies, Inc. (Akom) in
connection with Raytheon Company's (Raytheon) Goldmine Project. Also named in
the action were Raytheon, Raycom, Inc. (Raycom), and fifteen other companies who
supplied materials and services for the Goldmine Project. No party is seeking
to collect monetary amounts from the Company, rather the parties are seeking
declaration from the courts that they do not owe monetary amounts to the
Company. The Company has filed a counter claim against Akom and cross claims
against Raytheon and Raycom and asserts damages to the extent of unpaid invoices
and custom inventory parts and materials approximating $1.7 million. Akom,
Raytheon and Raycom have denied liability. Raytheon and Raycom have filed
motions to dismiss the Company's counterclaims. A ruling on these motions to
dismiss is not expected for several months. Requests for documents and
interrogatories have been served to the relevant parties and the Company expects
to receive responses before the end of the calendar year. No depositions have
been scheduled or taken. See further discussion in footnote 12 of the financial
statements found in the appendix.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the quarter
ended August 31, 1999.
PART II.
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock has been quoted on the National Association of
Securities Dealers Automated Quotation System ("NASDAQ") National Market System
under the symbol "RFMI" since the Company's initial public offering on July 28,
1994. The following table sets forth the high and low sales prices of the
Company stock for the periods indicated as furnished by NASDAQ. These prices
reflect prices between dealers, without retail markups, markdowns or
commissions, and may not necessarily represent actual transactions.
1998:
First Quarter 14 1/2 10
Second Quarter 15 1/2 12
Third Quarter 14 4/9 11 3/8
Fourth Quarter 10 1/2 7 7/8
1999:
First Quarter 12 1/2 7 5/6
Second Quarter 11 1/2 8 5/8
Third Quarter 11 5/16 6 1/16
Fourth Quarter 10 3/8 7 1/8
The Company has not paid dividends on its Common Stock and presently
intends to continue this policy in order to retain earnings for use in its
business. The Company had approximately 200 stockholders of record as of
November 15, 1999 (which number does not include the number of stockholders
whose shares are held of record by a brokerage house or clearing agency, but
does include such brokerage house or clearing agency as one record holder). The
last sales price for RFMI's Common Stock, as reported by NASDAQ on November 15,
1999, was $7.00.
11
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
Year Ended August 31,
----------------------
- --------------------------------------------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
- --------------------------------------------------------------------------------------------------------------------------------
(In thousands,except gross profit margin & earnings per share amounts)
<S> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------------------
Statement of Income Data:
- --------------------------------------------------------------------------------------------------------------------------------
Sales $51,297 $55,172 $47,692 $35,718 $32,141
- --------------------------------------------------------------------------------------------------------------------------------
Cost of sales 35,950 33,549 28,136 22,336 20,253
- --------------------------------------------------------------------------------------------------------------------------------
Gross profit 15,347 21,623 19,556 13,382 11,888
- --------------------------------------------------------------------------------------------------------------------------------
Gross profit margin % 29.9 % 39.2 % 41.0 % 37.5 % 37.0 %
- --------------------------------------------------------------------------------------------------------------------------------
Research and development 5,697 5,081 4,169 3,366 3,148
- --------------------------------------------------------------------------------------------------------------------------------
Sales and marketing 5,415 5,646 5,842 4,391 4,300
- --------------------------------------------------------------------------------------------------------------------------------
General and administrative 3,092 2,889 3,391 2,747 2,266
- --------------------------------------------------------------------------------------------------------------------------------
Litigation 641
- --------------------------------------------------------------------------------------------------------------------------------
Total operating expenses 14,204 14,257 13,402 10,504 9,714
- --------------------------------------------------------------------------------------------------------------------------------
Income from operations 1,143 7,366 6,154 2,878 2,174
- --------------------------------------------------------------------------------------------------------------------------------
Other income (expense), net (145) 14 (142) (107) 197
- --------------------------------------------------------------------------------------------------------------------------------
Income before income taxes 998 7,380 6,012 2,771 2,371
- --------------------------------------------------------------------------------------------------------------------------------
Income tax expense 269 2,620 2,205 882 851
- --------------------------------------------------------------------------------------------------------------------------------
Net income $ 729 $ 4,760 $ 3,807 $ 1,889 $ 1,520
- --------------------------------------------------==========-------=======---------=======------------========-----------=======
- -------------------------------------------------
Earnings per share:
- --------------------------------------------------------------------------------------------------------------------------------
Basic $ 0.13 $ 0.86 $ 0.70 $ 0.37 $ 0.31
- --------------------------------------------------==========-------=======--------========-------============-----------========
Diluted $ 0.12 $ 0.80 $ 0.66 $ 0.35 $ 0.29
- --------------------------------------------------==========-------=======--------========-------============-----------========
Weighted average common shares outstanding:
- --------------------------------------------------------------------------------------------------------------------------------
Basic 5,783 5,551 5,379 5,084 4,985
- --------------------------------------------------==========-------=======--------========-------============-----------========
Diluted 5,932 5,978 5,790 5,429 5,325
- --------------------------------------------------==========-------=======--------========-------============-----------========
Balance Sheet Data (at August 31):
- --------------------------------------------------------------------------------------------------------------------------------
Cash, cash equivalents and short-term investments $ 5,188 $ 5,613 $ 5,969 $ 6,060 $ 5,086
- --------------------------------------------------------------------------------------------------------------------------------
Working capital 17,386 17,286 14,674 12,879 9,616
- --------------------------------------------------------------------------------------------------------------------------------
Total assets 48,508 44,790 37,360 30,571 30,545
- --------------------------------------------------------------------------------------------------------------------------------
Long-term debt 68 815 1,911 2,413 2,854
- --------------------------------------------------------------------------------------------------------------------------------
Shareholders' equity 35,499 34,166 27,995 23,128 20,292
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
12
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
General
RFM designs, develops, manufactures and markets a broad range of RF
components and modules for the low-power component, Virtual Wire(R) short-range
radio system, frequency control module and filter product areas. The Company's
products are based on SAW technology, and the Company's strategy is to leverage
its RF design skills and its packaging technology to provide SAW-based solutions
to the current and emerging needs of the electronics industry. The Company's
products include more than 500 resonators, filters, high-frequency clocks,
oscillators, and transceiver, transmitter and receiver modules. The Company's
average selling prices within these product lines generally range from $.40 to
$10 for low-power products (components and radio systems), $3 to $10 for
transmitter and receiver modules, $10 to $300 for frequency control modules and
$2 to $25 for filter products.
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, as well as in
the sections entitled "Business," "Legal Proceedings" and "Selected Financial
Data" in this report.
Results of Operations
The following discussion relates to the financial statements of the Company
for the fiscal year ended August 31, 1999 (current year or fiscal 1999), in
comparison to the fiscal year ended August 31, 1998 (prior year or fiscal 1998),
as well as the fiscal year ended August 31, 1997 (fiscal 1997). In addition,
there is discussion of the financial statements for the three months ended
August 31, 1999 (fourth quarter), in comparison to the three months ended August
31, 1998 (comparable quarter of the prior year).
The following table sets forth, for the years ended August 31 (i) the percentage
relationship of certain items from the Company's statements of income to total
sales and (ii) the percentage change in these items from year to year:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
Percentage of Sales Year-to-Year Change
- ----------------------------------------------------------------------------------------------------------------------
1998 to 1997 to
- ----------------------------------------------------------------------------------------------------------------------
1999 1998 1997 1999 1998
---- ---- ---- ---- ----
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Sales 100 % 100 % 100 % (7) % 16 %
- ----------------------------------------------------------------------------------------------------------------------
Cost of sales 70 61 59 7 19
- ----------------------------------------------------------------------------------------------------------------------
Gross profit 30 39 41 (29) 11
- ----------------------------------------------------------------------------------------------------------------------
Research and development 11 9 9 12 22
- ----------------------------------------------------------------------------------------------------------------------
Sales and marketing 11 10 12 (4) (3)
- ----------------------------------------------------------------------------------------------------------------------
General and administrative 6 5 7 7 (15)
- ----------------------------------------------------------------------------------------------------------------------
Litigation - 1 - (100) -
- ----------------------------------------------------------------------------------------------------------------------
Total operating expenses 28 25 28 - 6
- ----------------------------------------------------------------------------------------------------------------------
Income from operations 2 14 13 (85) 20
- ----------------------------------------------------------------------------------------------------------------------
Other income (expense), net - - - (1,136) (1.1)
- ----------------------------------------------------------------------------------------------------------------------
Income before income taxes 2 14 13 (87) 23
- ----------------------------------------------------------------------------------------------------------------------
Income tax expense 1 5 5 (90) 19
- ----------------------------------------------------------------------------------------------------------------------
Net income 1 % 9 % 8 % (85) % 25 %
- --------------------------------===========--------=========--------========--------------===========----------=======
</TABLE>
13
<PAGE>
Sales
The following table sets forth the components of the Company's sales
and percentage relationship of the components to total sales for the periods
indicated:
<TABLE>
<CAPTION>
Year Ended August 31,
- --------------------------------------------------------------------------------------------------------------------------------
1999 1998 1997
- --------------------------------------------------------------------------------------------------------------------------------
% % %
- --------------------------------------------------------------------------------------------------------------------------------
Amount of Total Amount of Total Amount of Total
-------- -------- ------ -------- ------ --------
- --------------------------------------------------------------------------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------------------
Product sales:
- --------------------------------------------------------------------------------------------------------------------------------
Low-power components $35,317 69 % $39,961 72 % $36,118 76 %
- --------------------------------------------------------------------------------------------------------------------------------
Short-range radio devices 7,456 15 3,384 6 2,415 5
- --------------------------------------------------------------------------------------------------------------------------------
Frequency control modules 3,622 7 4,164 8 3,429 7
- --------------------------------------------------------------------------------------------------------------------------------
Filters 4,669 9 7,325 13 5,412 11
- --------------------------------------------------------------------------------------------------------------------------------
Total product sales 51,064 100 54,834 99 47,374 99
- --------------------------------------------------------------------------------------------------------------------------------
Technology development sales 233 - 338 1 318 1
- --------------------------------------------------------------------------------------------------------------------------------
Total sales $51,297 100 % $55,172 100 % $47,692 100 %
- ----------------------------------------==========-----========--------============-----=========-------==========-----=========
</TABLE>
Product sales decreased 7% in fiscal 1999 as compared to fiscal 1998, due
to reduced prices amidst competitive pressures in the Company's largest product
line, low-power components. Product sales increased 16% in fiscal 1998 as
compared to fiscal 1997, due to an increased number of units sold in each of the
Company's product lines.
Low-power component sales decreased 12% in fiscal 1999 due to declining
prices from competitive markets. This decline was partially offset by a 3%
increase in units shipped. Sales increased 11% in fiscal 1998 due to an increase
in number of units sold, particularly to automotive customers. The Company
believes that the markets for its low-power component products is approximately
$100 million and is growing in terms of unit volume. These markets have
attracted a number of large international competitors, particularly for the
automotive segment. The increased competition has resulted in lower average
selling prices in many cases. The Company believes that the impact of lower
average selling prices may continue to be significant enough in future periods
to offset the impact of selling an increased number of units. Thus sales for
low-power components may not increase, or even remain at the same level in
future periods.
For fiscal 1999 and fiscal 1998, the Company devoted a considerable amount
of its capital, technical, sales and marketing resources to the Virtual
Wirea(R) short-range radio products. Sales for these products have increased
120% in fiscal year 1999 and 40% in fiscal 1998, due to an increase in the
number of units sold for these products. The latest product offering in this
product family is the Transceiver Module, a fully integrated short range device
radio module, which the Company believes offers robust operation, small size,
low-power consumption and low costs for short range wireless data applications.
The Company believes this product will match applications being identified by
the Home RF Working Group, sponsored by Intel and HP, and Bluetooth Consortium,
sponsored by Ericsson and Nokia. The Company believes this product group
provides an opportunity to exploit its proprietary technology and pursue its
strategy of focusing on value added products. The timing of when any sales
resulting from such new applications reach the production phase is dependent
upon the timing of both the customers' product development cycles and their
product introduction cycles. It is difficult to predict when, or if, these new
products will have a significant impact on the Company's sales.
14
<PAGE>
Filter sales decreased 36% in fiscal 1999, while they increased 35% in
fiscal 1998, primarily due to an increase in the number of units sold for these
products. The lower sales in fiscal 1999 result from a loss of sales to a major
customer that ceased operation in fiscal 1998. The increase in fiscal 1998 over
fiscal 1997 was due to increases in sales to that same customer. The Company
continues to invest resources in this area and expects to continue increasing
our filter offering, as well as enhancing design capability for CDMA and W-CDMA
products. In addition, the Company is also capitalizing on its strengths in
product packaging and believes these initiatives will eventually result in an
increase in our share of the filter market. There is a long development and
introduction cycle for filter products, so there can be no assurance as to when
or if this strategy to focus on filter products will have a significant impact
on the Company's sales.
Frequency control module sales decreased 13% in fiscal 1999 and sales
increased 21% in fiscal 1998. Changes in sales for these products were related
to specific customer programs that either increased or decreased. These products
accounted for 7% of total sales in fiscal 1999 and 8% in 1998.
The Company's top five customers accounted for approximately 32%, 27%, and
27% of the Company's total sales in fiscal 1999, 1998 and 1997, respectively.
Over the last three fiscal years, a significant portion of the sales were due to
distribution related customers. No single customer accounted for more than 10%
of total sales in 1999.
International sales (primarily in Europe and Asia) were approximately 57%,
56% and 50% of the Company's total sales during fiscal years 1999, 1998 and
1997, respectively. The Company considers all product sales with a delivery
destination outside North America to be international sales. These sales are
denominated primarily in U.S. currency. Sales to customers in Asian markets were
approximately 14% of total sales during the last three years. The Company
intends to continue its focus on international sales in the future and
anticipates that international sales will continue to represent a significant
portion of its business. However, international sales are subject to
fluctuations as a result of local economic conditions and competition.
Therefore, the Company cannot predict whether it will continue to derive a
significant portion of its business from international sales.
While the Company has achieved sales increases in prior periods, there can
be no assurance that this can be achieved in future periods. The Company's
success is highly dependent on achieving technological advances 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 solutions such as phased
locked loop technology. Competition from alternative technologies or from
competitors duplicating the Company's technologies may adversely affect selling
prices and market share.
Please see the section marked First Quarter of Fiscal 2000 Preliminary
Results for comments concerning trends expected for that time period.
Gross Profit Margin
Gross profit margin decreased to 29.9% in fiscal 1999, compared to 39.2% in
fiscal 1998, and 41.0% in fiscal 1997. The decline of gross margins is the
result of three significant trends that occurred to some extent in fiscal 1998,
but to a greater extent in fiscal 1999. First, the sales prices for the low-
power components and low-power Virtual Wire(R) short-range radio system module
products are declining due to competitive pressures in the market place. This
decline occurred at a faster rate than the reduction of manufacturing costs for
the low-power components. Gross margins for low-power Virtual Wire(R) short-
range radio system modules increased but only slightly from the prior year. The
Company expects this trend in reduced sales prices to continue in both of these
product lines. The decrease in selling prices causes the need to produce more
units to reach the same sales dollars. The Company has added equipment and other
manufacturing overhead costs to increase the capacity in each of its facilities.
If additional sales dollars are
15
<PAGE>
not obtained in future periods, increased per-unit manufacturing costs could
occur. It is not certain if the Company can reduce per unit manufacturing costs
in future periods to the same extent as the decrease in selling prices. If
sufficient cost reductions are not made, gross margins would be adversely
impacted in a material way.
Second, the increase of orders received in a quarter for shipments due
within that same quarter (turns orders), has resulted in increased manufacturing
costs late in each quarter. These costs relate to overtime, costs to expedite
materials, and costs resulting from decreased production yields caused by the
increased volume production. Additionally, the Company has offered selected
customers price or payment terms concessions as inducements for placing turns
orders. These two activities combine to reduce gross profit for the additional
sales. The Company is attempting to reduce the impact of turns orders by greatly
diminishing the practice of offering inducements for turns business. The Company
understands the result of this decision will be a decrease in turns business and
therefore overall sales levels over the next couple of quarters. It is believed
that the long-term benefits of this decision will allow for more predictable
manufacturing costs and result in improved gross margins. The Company may not be
able to increase or maintain its sales levels without a significant portion of
turns business.
Third, the Company has experienced a significant change in the mix of its
product sales. In 1999, low-power component sales and frequency control product
sales decreased by $4.6 million and $0.5 million, respectively, while low-power
Virtual Wire short-range radio module product sales increased by $4.1 million.
This shift in product sales mix from a historically higher margin product to a
currently lower margin product has produced an overall reduction in gross
profit. The Company expects the change in mix to continue but also believes that
the negative impact on gross margins will be reduced significantly as the second
generation of the transceiver and related low-power Virtual Wire short-range
radio products represent the majority of total production later in fiscal 2000.
The second generation products are designed to be more cost effective than first
generation products. Because of the uncertainty of volume and the new product
introduction process, the Company may not be able to manufacture these future
generation products at a cost low enough to produce an improved gross profit
margin result.
The decrease in 1998 Gross Profit Margin was primarily due to a decrease in
Gross Margin for the Company's low-power component and Virtual Wire(R) short-
range radio system modules products, mainly caused by competitive pricing
issues. However, the lowering of per-unit manufacturing costs that has occurred
in recent years may not continue. If average selling prices were to decrease
faster than per unit manufacturing costs decrease, then the Company's gross
profit margins would be adversely impacted.
The manufacturing of the Company's four lines of products is an extremely
complex and precise process. The process is sensitive to a wide variety of
factors, which may adversely affect yield and productivity for any given
quarter. Please see the section marked First Quarter of Fiscal 2000 Preliminary
Results for further comments related to gross margins.
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 the bulk
of its capital expenditures to increase capacity and improve its manufacturing
processes. The Company may not be able 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.
16
<PAGE>
Research and Development
Research and development expenses increased approximately 12% in fiscal
1999 and 22% in fiscal 1998. The increase in both fiscal 1999 and 1998 was due
to the increased cost of process engineering, document control services, and
enhancing design capability for its product development efforts. Included in
these costs were approximately $300,000 in the second quarter related to the
introduction of a new packaging process and approximately $550,000 in the fourth
quarter related to the new transceiver product. Since sales decreased while
research and development expenses increased, such expenses increase from a level
of 9% of total sales for the prior fiscal year, to 11% of sales for the current
fiscal year. The Company believes that the continued development of its
technology and new products is essential to its success and is committed to
continuing its investment in research and development, which is expected to
increase in absolute dollars in future periods.
Sales and Marketing
Sales and marketing expenses decreased approximately 4% in fiscal 1999 and
3% in fiscal 1998. These decreases were due primarily to decreases in sales
incentives and marketing costs. Since sales and marketing expenses decreased
slightly less than sales, such expenses increased to 11% of total sales in
fiscal 1999 from 10 % of total sales in fiscal 1998. The Company expects to
incur higher sales and marketing expenses in absolute dollars in future periods
as it expands its sales and marketing efforts. Sales commission expense will
increase in future periods, as the Company expands its presence by having its
external sales representatives cover accounts that have formerly been handled as
"house" accounts. This may increase such expense by approximately 1% of sales
initially, but the Company believes this will ultimately result in greater sales
from these accounts, although this increase is not assured.
General and Administrative
General and administrative expenses increased approximately 7% in fiscal
1999 and decreased 15% in fiscal 1998. The increase in 1999 was primarily
attributable to costs to support the Company's needs and an increase in
incentive costs related to restricted stock. The increase in 1998 was due
decreased incentive and legal costs. The Company currently expects general and
administrative expenses will increase in absolute dollars in future periods.
Since sales decreased and general and administrative expenses increased, such
expenses increased to 7% of sales in fiscal 1999 from 5% in fiscal 1998.
Litigation Expense
Litigation expense, which amounted to $641,000 in fiscal 1998, 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 fiscal year. The Company does not expect to incur expenses
with regard to this matter in future periods.
Litigation and Contingencies
As noted in ITEM 3. Legal Proceedings, there is litigation involved in
collecting certain customer receivables and related inventories in the amount of
$1.7 million. The Company is currently incurring legal expenses related to this
matter and has classified these expenses as general and administrative expense.
The Company expects that these expenses will increase as the process gets closer
to trial. Further disclosure can also be found in footnote 12 of the financial
statements found in the appendix.
Other Income (Expense)
During the current year, the Company maintained indebtedness at a higher
average balance compared to prior years, resulting in an increase in interest
expense for fiscal 1999, compared to fiscal 1998. Additionally, declining
results of invested cash and currency conversion resulted in decreases in
interest income and gains on currency exchange transactions. All of these
factors contributed to a decrease in other income (expense).
17
<PAGE>
Income Tax Expense
The Company's income tax expense was $269,000 in fiscal 1999, compared to
$2.6 million in fiscal 1998, and $2.2 million in fiscal 1997. The Company's
effective tax rate was approximately 27%, 36%, and 37% in fiscal 1999, 1998 and
1997, respectively. The reduction in tax rate in 1999 compared to 1998 was
primarily due to the Company taking additional benefit from the Foreign Sales
Corporation.
Earnings per Share
The net income decreased 85% to $729,000 in the current year as compared to
$4.8 million in the prior year. The Company's diluted earnings per share was
$.12 per share for fiscal 1999, compared to $.80 per share for fiscal 1998 and
$.66 per share for fiscal 1997.
Fourth Quarter of Fiscal 1999
Unaudited quarterly financial data is presented in Note 12 of the
accompanying financial statements.
Sales for the fourth quarter decreased 15% to $12.3 million, compared to
$14.5 million in the comparable quarter of the prior year. The sales decrease
was primarily due to a decrease in sales of low power components caused by both
a decrease in units shipped of approximately 12% and a reduction of sales price
of approximately 18% when compared to the comparable quarter of the prior year.
Gross profit margins were 12.3% in the fourth quarter, compared to 35.7%
for the comparable quarter of the prior year. This was primarily due to
significant additional cost in ramping production late in the quarter and in
bringing newly developed products to production status for the Company's new
transceiver product line. As a result, start-up costs, lower than desired yields
and some loss of productivity occurred.
Operating loss for the fourth quarter was $2.7 million, or (22%) of total
sales as compared to income of $2.3 million or 16% of sales in the comparable
quarter of the prior year. This decline in operating income as a percentage of
total sales was due to the low margins for the quarter and additional spending
in the Research and Development expenses to support the introduction of new
products. Such expenses increased 84.3% when compared to the comparable quarter
of the prior year. Costs related to the factory start-up and product
introduction for the new transceiver and receiver modules were $1.7 million.
Diluted earnings per share was ($.28) in the fourth quarter, compared to $.26
for the comparable quarter of the prior year.
First Quarter of Fiscal 2000 Preliminary Results
The Company has announced that sales for the first quarter of fiscal 2000
are expected to be approximately $9.3 to $9.7 million compared to $12.9 million
reported in first quarter of the prior year due to a decline in quarterly turns
business and that the Company has decided against offering special sales
promotions programs to make up the revenue shortfall because of the potential
impact such promotions have on long-term gross margins.
The Company also announced that it expects to report a $3.5 to $4 million loss
for the quarter as the result of significantly lower gross margins and special
charges being taken in the quarter. The lower margins are due to higher
production costs for its older product lines as well as factory start-up and
product introduction costs for its new products. In addition, the Company will
take special charges this quarter aggregating approximately $1.2 million, which
include costs related to the transition to new products and severance costs. The
Company does not expect to overcome this loss this year and anticipates
reporting a loss for fiscal year 2000.
18
<PAGE>
During the quarter, factory efficiencies and productivity for the
quarter were significantly below historical trends resulting in higher than
normal costs. The primary cause for this increase was a decrease in units
produced due to yield and productivity issues. The Company will produce
approximately 2 million units less than our plan called for, resulting in a
relatively high labor and overhead cost being absorbed by fewer units. The
Company further announced that dealing with these yield and productivity issues
would be its immediate focus in future periods. There is no assurance as how
quickly these problems can be over come.
Liquidity and Capital Resources
Principal sources of liquidity at August 31, 1999, consisted of $5.2
million of cash, cash equivalents and short-term investments, and $8.9 million
of unused credit facilities. The unutilized portion of the credit facilities
includes $2.9 million under a line of credit agreement and $6.0 million under an
equipment-collateralized operating lease facility. The equipment-collateralized
operating lease facility is to be advanced in stages prior to December 31, 2000.
The credit facilities contain financial covenants and restrictions
relating to various matters, including a minimum net worth requirement, a
minimum ratio of earnings before interest and taxes to interest expense and
current maturity of the term loan, a minimum quick ratio and a maximum ratio of
total liabilities to tangible net worth. As of August 31, 1999, the Company was
in compliance with such covenants and restrictions. The Company announced
preliminary results for the first quarter of fiscal 2000, which make a violation
of the covenants possible. The Company is in negotiations with its bank to deal
with this possibility and believes a favorable result is likely. If negotiations
are not successful, near term liquidity will be limited, but the Company
believes normal operations would continue
Net cash from operations decreased to $1.9 million due to a $4.2
million reduction of cash provided from net income and noncash items included in
net income, used in working capital, such as inventory, offset by a $1.4 million
reduction in cash used for working capital.
Cash used in investing activities in the current year was $3.9
million. Fiscal year 1999 and 1998 capital acquisitions included significant
purchases of property and equipment to enhance the Company's manufacturing
facilities, offset by the sale of short-term investments. The Company expects
to acquire approximately $2 million to $4 million of capital equipment by the
end of fiscal 2000, consisting primarily of equipment needed for its
manufacturing facilities. Some of this equipment may be acquired under an
equipment-collateralized operating lease facility.
Net cash from financing activities was $2.5 million in 1999 and $2.0
million in 1998. Funds raised from borrowings, exercises of stock options and
purchases of stock through the Employee Stock Purchase Plan were used to repay
other debt and acquire property and equipment.
The Company believes that cash generated from operations, if any,
banking facilities, and the $5.2 million balance in cash and short-term
investments will be sufficient to meet the Company's operating cash requirements
through fiscal 2000. To the extent that these sources of funds are insufficient
to also meet the Company's capital expenditure requirements, the Company will be
required to raise additional funds. Additional financing for capital
expenditures may not be available or, if available, may not be available on
acceptable terms, which could have a material adverse impact on the Company's
results of operations.
19
<PAGE>
Year 2000 Readiness Disclosure
The Year 2000 issue involves potential inability of information or
other data dependent systems to properly distinguish year references as of the
turn of the century. The Company believes the Year 2000 issue represents a
material risk to the Company.
The Company itself is heavily dependent upon the proper functioning of
its own computer systems, including (1) computers and related software for its
financial and manufacturing information systems, (2) computers, programmable
logic controllers and other data dependent equipment in its manufacturing
processes, and (3) computers, scientific equipment and related software for its
engineering, research and development activities. Any failure or malfunctioning
on the part of these or other systems could cause disruptions of operations,
including a temporary inability to process financial transactions, manufacture
products or engage in ordinary business activities in ways that are not
currently known, discernible, quantifiable or otherwise anticipated by the
Company.
The Company has formed a team to evaluate and deal with the impact of
the Year 2000 issue. It has executed a plan (the "Plan") for the Company to
become Year 2000 compliant in a timely manner. The Plan covers both systems
such as networked computers and software that are commonly called information
technology ("IT") systems and those such as embedded technology in manufacturing
equipment ("non-IT") systems. The Plan also covers Year 2000 readiness of
customers and vendors.
The Company's Plan consists of five phases. The first phase is Year
2000 awareness and project planning. The second is the inventory of systems and
prioritization of potential problems. The third phase is initial contingency
planning and testing of prioritized material items for assessment of Year 2000
compliance. The fourth phase is the remediation of any noted problems. The
fifth phase is the refinement of contingency plans.
For IT systems, the Company's core business information systems were
replaced on September 1, 1998 by Glovia(TM) and Oracle(R) software, which are
represented by providers and tested by RFM to be Year 2000 compliant. Other
material IT systems were remediated as of June 30, 1999. For non-IT systems,
remediation was also completed as of June 30, 1999.
The Company's suppliers (particularly sole-source and long lead-time
suppliers) and key customers may be adversely affected by their respective
failures to address the Year 2000 issue. If the Company's suppliers are unable
to provide goods or services, the Company's operations could be materially
adversely effected. Key customers who encounter Year 2000 difficulties could
fail to order or take delivery of the Company's products, or could fail to make
or delay payments to the Company. Such failure or delay could have a material
adverse effect on the Company's business and results of operations. While some
of these risks are outside the control of the Company, the Company's Plan
includes communications with suppliers and customers to ascertain the state of
their Year 2000 compliance program. The questionnaire phase of this activity
has been completed, and phone and on-site interviews of critical suppliers has
also been completed. Remediation through second source identification of
suppliers and business forecasting for customers is complete. Preparation and
refinement of contingency plans related to suppliers and customers will continue
through the rest of calendar 1999.
As of June 30, 1999, phases one through four of the Company's Year
2000 Project were completed as planned; Phase I-Awareness Project Planning,
Phase II-Inventory and Prioritization, Phase III-Initial Contingency Planning
and Testing and Phase IV-Remediation.
20
<PAGE>
The Company currently has completed initial contingency plans to deal
with some of the most likely worst case scenarios. The Company is actively
refining its Phase V-Contingency Plans during the rest of calendar 1999.
The total cost of the purchase and implementation of Year 2000
Remediation solutions is approximately $2 million, which has already been
incurred. Time spent by implementation team members is included in the Company's
normal operating budget. The Year 2000 implementation program has not caused
material delays in non-Year 2000 related IT projects.
The Company has determined that its products are not affected by
calendar dating. Therefore, there is no known or anticipated Year 2000 impact
on its product offering.
The Company believes its Year 2000 Plan will reduce the probability of
significant interruptions of normal operations resulting from Year 2000 issues.
However, the Company may not have properly identified and assessed all Year 2000
issues. In addition, its key suppliers or customers could experience Year 2000
problems. If any of these potential situations occur, the Company's contingency
plans may not be adequate to protect the Company from the adverse effects of
such problems. The worst case scenario resulting from Year 2000 issues would be
a material adverse impact on the Company's results of operations, caused by an
interruption in normal business operations, or an adverse impact on the
Company's relationships with customers, suppliers or others.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this item is included in Appendix A
attached hereto and incorporated by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this item is incorporated by reference to
Registrant's Definitive Proxy Statement to be filed with the Commission pursuant
to Regulation 14A in connection with the 1999 Annual Meeting (the "Proxy
Statement") under the heading "Nominees."
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is incorporated by reference to
the Proxy Statement under the heading "Executive Compensation."
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is incorporated by reference to
the Proxy Statement under the heading "Security Ownership of Certain Beneficial
Owners and Management."
21
<PAGE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is incorporated by reference to
the Proxy Statement under the heading "Certain Transactions."
PART IV.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) 1. Financial Statements. Financial statements are attached as Appendix A
to this report. The index to the financial statements is found on page
F-1 of Appendix A.
(a) 2. Financial Statement Schedules. All schedules are omitted since the
required information is not present or is not present in amounts
sufficient to require a submission of the schedules, or because the
information required is included in the financial statements and notes
thereto.
(a) 3. Exhibits. See Exhibit Index in part (c), below.
(b) The Company did not file any reports on Form 8-K during the quarter
ended August 31, 1999
(c) Exhibit Number Description
3.1 Restated Certificate of Incorporation of
Registrant. (2)
3.2 Bylaws of Registrant. (2)
4.1 Reference is made to Exhibits 3.1 and 3.2.
4.2 Specimen Stock Certificate. (2)
10.1 Form of Indemnity Agreement entered into by
the Registrant and each of its officers and
directors. (1)
10.2 1982 Incentive Stock Option Plan, as amended
and related grant forms. (1)
10.3 1982 Supplemental Stock Option Plan, as
amended and related grant forms. (1)
10.4 1986 Incentive Stock Option Plan, as amended
and related grant forms. (1)
10.5 1986 Supplemental Stock Option Plan, as
amended and related grant forms. (1)
10.6 Form of Employee Stock Purchase Plan. (1)
10.7 Form of Employee Stock Purchase Plan Offering.
(1)
10.8 Non-Employee Director's Stock Option Plan.
(2)
10.9 Form of Non-Employee Director's Stock
Option. (1)
10.10 Lease Agreement between the Registrant and
Jeff Yassai. (2)
10.11 Lease Agreement between the Registrant and JFC
Growth Fund, Ltd. (2)
10.12 Transfer Agreement between the Registrant and
Peter V. Wright, dated October 31, 1990. (1)
10.13 Agreement regarding payment due under the
October 31, 1990, Transfer Agreement between
the Registrant and Peter V. Wright, dated
March 30, 1994. (1)
22
<PAGE>
10.14 Letter Agreement by and between the Registrant
and Comerica Bank -Texas, dated January 1,
1994. (1)
10.15 Promissory Note between the Registrant and
Comerica Bank - Texas, dated December 1,
1994. (3)
10.16 Promissory Note between the Registrant and
Comerica Bank - Texas, dated March 1, 1996.
(4)
10.17 Master Lease Agreement between Registrant
and Banc One Leasing Corporation, dated
November 3, 1996. (5)
10.18 Form of Restrictive Stock Bonus Agreement
to be entered November 30, 1996. (6)
10.19 Loan Letter Agreement and Promissory Note
between the Registrant and Bank One, Texas,
N.A. dated March 8, 1997. (7)
10.20 Promissory Note between the Company and Gary
A. Andersen dated March 28, 1997. (7)
10.21 Change of Control Agreement between the
Company and Mr. Andersen and Mr. Densmore
dated December 18, 1996. (7)
10.22 Separation and Consulting Agreement between
the Company and Mr. Andersen. (8)
10.23 Form of Change of Control Agreement for
certain officers. (9)
10.24 Separation and Consulting Agreement between
the Company and Mr. Conlin. (10)
10.25 Form of Restricted Stock Bonus Agreement. (11)
10.26 1999 Equity Incentive Plan. (11)
10.27 Form of Notice of Grant of Stock Options and
Grant Agreement. (11)
11.1 Computation of net income per share. (12)
23.1 Consent of Deloitte & Touche llp, Independent
Auditors. (12)
24.1 Power of Attorney. See page 25.
(1) Previously filed as an exhibit to the Registration Statement on
Form S-1, as amended (Registration No. 33-78040) and incorporated
herein by reference.
(2) Previously filed as an exhibit to the Annual Report on Form 10-K
for the year ended August 31, 1994, and incorporated herein by
reference.
(3) Previously filed as an exhibit to the Quarterly Report on Form 10-
Q for the quarter ended November 30, 1994, and incorporated herein
by reference.
(4) Previously filed as an exhibit to the Quarterly Report on Form 10-
Q for the quarter ended February 28, 1995, and incorporated herein
by reference.
(5) Previously filed as an exhibit to the Annual Report on Form 10-K
for the year ended August 31, 1995, and incorporated herein by
reference.
(6) Previously filed as an exhibit to the Quarterly Report on Form 10-
Q for the quarter ended November 30, 1995, and incorporated herein
by reference .
(7) Previously filed as an exhibit to the Quarterly Report on Form 10-
Q for the quarter ended February 29, 1996, and incorporated herein
by reference.
(8) Previously filed as an exhibit to the Annual Report on Form 10-K
for the year ended August 31, 1996, and incorporated herein by
reference.
(9) Previously filed as an exhibit to the Annual Report on Form 10-K
for the year ended August 31, 1997, and incorporated herein by
reference.
23
<PAGE>
(10) Previously filed as an exhibit to the Quarterly Report on Form 10-
Q for the quarter ended May 31, 1998, and incorporated herein by
reference.
(11) Previously filed as an exhibit to the Quarterly Report on Form 10-
Q for the quarter ended May 31, 1999, and incorporated herein by
reference.
(12) Filed as an exhibit to this Annual Report on Form 10-K.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 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
Securities Act of 1933 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.
24
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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 on the 29th day of
November, 1999.
RF MONOLITHICS, INC.
By: /s/ DAVID KIRK
-------------------------------------
David Kirk
President and Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears on the following page constitutes and appoints Cooley Godward LLP and
David Kirk, respectively, his attorneys-in-fact for him in any and all
capacities, to sign any amendments to this Report on Form 10-K, and to file the
same, with exhibits thereto and other documents in connection therewith, with
the Securities and Exchange Commission, hereby ratifying and confirming all that
the said attorney-in-fact, or his substitute or substitutes, may do or cause to
be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Report has been signed below by the following persons on behalf of the
Registrant and in the capacities indicated on the 29th day of November, 1999.
/s/ DAVID KIRK /s/ DEAN C. CAMPBELL
- -------------------------- --------------------------
David Kirk Dean C. Campbell
CEO, President & Director Director
/s/ JAMES P. FARLEY /s/ MATTHEW J. DESCH
- -------------------------- --------------------------
James P. Farley Matthew J. Desch
VP Finance and Controller Director
/s/ MICHAEL R. BERNIQUE /s/ FRANCIS J. HUGHES, JR.
- -------------------------- --------------------------
Michael R. Bernique Francis J. Hughes, Jr.
Chairman Director
/s/ CORNELIUS C. BOND, JR.
- --------------------------
Cornelius C. Bond, Jr.
Director
25
<PAGE>
RF Monolithics, Inc.
Consolidated Financial Statements as of
August 31, 1999 and 1998, and for
Each of the Three Years in the
Period Ended August 31, 1999, and
Independent Auditors' Report
<PAGE>
RF MONOLITHICS, INC.
INDEX TO FINANCIAL STATEMENTS -
ITEM 8 OF FORM 10-K
- --------------------------------------------------------------------------------
Page
INDEPENDENT AUDITORS' REPORT F-2
CONSOLIDATED FINANCIAL STATEMENTS AND NOTES:
Consolidated Balance Sheets as of August 31, 1999 and 1998 F-3
Consolidated Statements of Income for the Years Ended
August 31, 1999, 1998 and 1997 F-4
Consolidated Statements of Stockholders' Equity and Comprehensive
Income for the Years Ended August 31, 1999, 1998 and 1997 F-5
Consolidated Statements of Cash Flows for the Years Ended
August 31, 1999, 1998 and 1997 F-6
Notes to Consolidated Financial Statements F-7
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of RF Monolithics, Inc.:
We have audited the accompanying consolidated balance sheets of RF Monolithics,
Inc. and subsidiary (collectively referred to as the Company) as of August 31,
1999 and 1998, and the related consolidated statements of income, stockholders'
equity and comprehensive income, and cash flows for each of the three years in
the period ended August 31, 1999. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements present fairly, in all
material respects, the financial position of RF Monolithics, Inc. and subsidiary
as of August 31, 1999 and 1998, and the results of their operations and their
cash flows for each of the three years in the period ended August 31, 1999, in
conformity with generally accepted accounting principles.
/DELOITTE & TOUCHE LLP
Dallas, Texas
October 21, 1999
F-2
<PAGE>
RF MONOLITHICS, INC.
CONSOLIDATED BALANCE SHEETS
AUGUST 31, 1999 AND 1998
(In Thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ASSETS 1999 1998
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents (Note 1) $ 672 $ 199
Short-term investments (Note 1) 4,516 5,414
Trade receivables, less allowance of $475 and $550 in 1999 and 1998
respectively (Note 6) 10,840 11,357
Inventories (Notes 2 and 6) 11,593 8,514
Prepaid expenses and other 1,208 976
Income taxes receivable 851 -
Deferred income tax benefits (Note 10) 647 635
------- -------
Total current assets 30,327 27,095
PROPERTY AND EQUIPMENT - Net (Notes 3 and 6) 17,645 17,129
OTHER ASSETS - Net (Note 4) 536 566
------- -------
TOTAL $48,508 $44,790
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Line of credit and current portion of notes payable (Note 6) $ 5,100 $ 2,000
Capital lease obligations - current portion (Note 7) 352 699
Accounts payable - trade 4,305 3,400
Accounts payable - construction and equipment 844 866
Accrued expenses and other liabilities (Note 5) 2,340 2,405
Income taxes payable - 439
------- -------
Total current liabilities 12,941 9,809
LONG-TERM DEBT - Less current portion:
Notes payable (Note 6) 5 505
Capital lease obligations (Note 7) 63 310
------- -------
Total long-term debt 68 815
COMMITMENTS AND CONTINGENCIES (Notes 7 and 12)
STOCKHOLDERS' EQUITY (Note 8):
Common stock: $.001 par value, 20,000 shares authorized; 5,875 and 5,696
shares
issued in 1999 and 1998, respectively 6 6
Additional paid-in capital 28,043 26,862
Treasury stock, 36 common shares (227) -
Retained earnings 8,082 7,353
Unearned compensation (405) (75)
Unrealized gain on short-term investments (Note 1) - 20
------- -------
Total stockholders' equity 35,499 34,166
------- -------
TOTAL $48,508 $44,790
======= =======
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE>
RF MONOLITHICS, INC.
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED AUGUST 31, 1999, 1998 AND 1997
(In Thousands, Except Per-Share Amounts)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
SALES (Note 9) $51,297 $55,172 $47,692
COST OF SALES 35,950 33,549 28,136
------- ------- -------
GROSS PROFIT 15,347 21,623 19,556
OPERATING EXPENSES:
Research and development 5,697 5,081 4,169
Sales and marketing 5,415 5,646 5,842
General and administrative 3,092 2,889 3,391
Litigation (Note 12) - 641 -
------- ------- -------
Total 14,204 14,257 13,402
------- ------- -------
INCOME FROM OPERATIONS 1,143 7,366 6,154
OTHER INCOME (EXPENSE):
Interest income 268 306 288
Interest expense (420) (325) (351)
Other 7 33 (79)
------- ------- -------
Total (145) 14 (142)
------- ------- -------
INCOME BEFORE INCOME TAXES 998 7,380 6,012
INCOME TAX EXPENSE (Note 10) - Current and deferred 269 2,620 2,205
------- ------- -------
NET INCOME $ 729 $ 4,760 $ 3,807
======= ======= =======
EARNINGS PER SHARE :
Basic $0.13 $0.86 $0.70
======= ======= =======
Diluted $0.12 $0.80 $0.66
======= ======= =======
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING:
Basic 5,783 5,551 5,379
======= ======= =======
Diluted 5,932 5,978 5,790
======= ======= =======
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
RF MONOLITHICS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME
YEARS ENDED AUGUST 31, 1999, 1998 AND 1997
(In Thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Retained
Common Stock Additional Earnings
--------------- Paid-In Treasury (Accumulated
Shares Amount Capital Stock Deficit)
<S> <C> <C> <C> <C> <C>
BALANCE, SEPTEMBER 1, 1996 5,314 $5 $24,547 $ - $(1,214)
Common stock options exercised, including tax benefit (Note 10) 132 1 596 - -
Amortization of unearned compensation (Note 8) - - - - -
Issuance of common stock under the Purchase Plan (Note 8) 68 - 392 - -
Comprehensive income:
Change in unrealized gain on investments (Note 1) - - - - 3,807
Net income - - - - -
Total comprehensive income
----- ---- ------- -------- -------
BALANCE, AUGUST 31, 1997 5,514 6 25,535 - 2,593
Common stock options exercised, including tax benefit (Note 10) 66 - 506 - -
Forfeiture of common stock grants (1) - (7) - -
Amortization of unearned compensation (Note 8) - - - - -
Issuance of common stock under the Purchase Plan (Note 8) 117 - 828 - -
Comprehensive income:
Change in unrealized gain on investments (Note 1) - - - - 4,760
Net income - - - - -
Total comprehensive income
----- ---- ------- -------- -------
BALANCE, AUGUST 31, 1998 5,696 6 26,862 - 7,353
Common stock options exercised, including tax benefit (Note 10) 48 - 275 - -
Forfeiture of common stock grants (4) - (26) - -
Amortization of unearned compensation (Note 8) - - - - -
Issuance of common stock under the Purchase Plan (Note 8) 135 - 932 - -
Treasury stock transactions - - - (227) -
Comprehensive income:
Change in unrealized gain on investments (Note 1) - - - - 729
Net income - - - - -
Total comprehensive income
----- ---- ------- -------- -------
BALANCE, AUGUST 31, 1999 5,875 $6 $28,043 $(227) $ 8,082
===== ==== ======= ======== =======
<CAPTION>
Unrealized
Unearned Gain on Comprehensive
Compensation Investments Total Income
BALANCE, SEPTEMBER 1, 1996 $(210) $ - $23,128
Common stock options exercised, including tax benefit (Note 10) - - 597
Amortization of unearned compensation (Note 8) 68 - 68
Issuance of common stock under the Purchase Plan (Note 8) - - 392
Comprehensive income:
Change in unrealized gain on investments (Note 1) - - 3,807 $3,807
Net income - 3 3 3
------
Total comprehensive income $3,810
------- ------ ------- ======
BALANCE, AUGUST 31, 1997 (142) 3 27,995
Common stock options exercised, including tax benefit (Note 10) - - 506
Forfeiture of common stock grants 7 - -
Amortization of unearned compensation (Note 8) 60 - 60
Issuance of common stock under the Purchase Plan (Note 8) - - 828
Comprehensive income:
Change in unrealized gain on investments (Note 1) - - 4,760 $4,760
Net income - 17 17 17
------
Total comprehensive income $4,777
------- ------- ------- ======
BALANCE, AUGUST 31, 1998 (75) 20 34,166
Common stock options exercised, including tax benefit (Note 10) - - 275
Forfeiture of common stock grants 26 - -
Amortization of unearned compensation (Note 8) 91 - 91
Issuance of common stock under the Purchase Plan (Note 8) (447) - 485
Treasury stock transactions - - (227)
Comprehensive income:
Change in unrealized gain on investments (Note 1) - - 729 729
Net income - (20) (20) (20)
------
Total comprehensive income $ 709
------- ------- ------- ======
BALANCE, AUGUST 31, 1999 $(405) $ - $35,499
====== ======= =======
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
RF MONOLITHICS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED AUGUST 31, 1999, 1998 AND 1997
(In Thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income $ 729 $ 4,760 $ 3,807
Noncash items included in net income:
Deferred income taxes (12) 1,002 652
Depreciation and amortization 4,328 3,750 2,947
Provision for doubtful accounts 82 103 157
(Gain) loss on sale of assets - - (9)
Amortization of unearned compensation 90 60 68
Cash from (used in) operating working capital:
Trade receivables 435 (1,943) (2,971)
Inventories (3,079) (3,580) (999)
Prepaid expenses and other (232) (15) (425)
Accounts payable - trade 905 1,265 1,102
Accrued expenses and other liabilities (64) (560) 993
Income tax receivable (851)
Income taxes payable (439) (146) 531
------- ------- -------
Net cash from operating activities 1,892 4,696 5,853
------- ------- -------
INVESTING ACTIVITIES:
Purchase of short-term investments (5,980) (5,785) (5,481)
Proceeds from sale of short-term investments 6,858 5,875 5,028
Acquisition of property and equipment (4,712) (7,079) (5,550)
Proceeds from sale of assets - - 34
Increase (decrease) in other assets (49) 13 9
------- ------- -------
Net cash used in investing activities (3,883) (6,976) (5,960)
------- ------- -------
FINANCING ACTIVITIES:
Borrowings on notes payable 3,100 1,500 -
Repayments of notes payable (500) (500) (1,500)
Repayments of capital lease obligations (647) (599) (391)
Borrowings (repayments) of accounts payable - construction and equipment (22) 262 462
Common stock issued for options exercised 275 506 598
Common stock issued under the Purchase Plan 485 828 391
Common stock acquired under the Repurchase Program (227) - -
------- ------- -------
Net cash from (used in) financing activities 2,464 1,997 (440)
------- ------- -------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 473 (283) (547)
CASH AND CASH EQUIVALENTS:
Beginning of year 199 482 1,029
------- ------- -------
End of year $ 672 $ 199 $ 482
======= ======= =======
SUPPLEMENTAL INFORMATION:
Interest paid $ 443 $ 295 $ 352
======= ======= =======
Income taxes paid $ 1,524 $ 1,605 $ 761
======= ======= =======
Noncash investing and financing activities - property and
equipment acquisitions by capital leases $ 53 $ 37 $ 725
======= ======= =======
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE>
RF MONOLITHICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED AUGUST 31, 1999, 1998 AND 1997
- --------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business - RF Monolithics, Inc. designs, develops, manufactures and markets
a broad range of radio frequency (RF) component and module products in four
areas: low-power components, low-power Virtual Wire radio systems,
frequency control modules and filters. The Company's products, which are
based on surface acoustic wave (SAW) technology, address the growing
requirements in the electronics markets for miniaturization, reduced power
consumption, increased precision, and greater reliability and durability.
These products are incorporated into application designs in five primary
markets: automotive, computer, consumer, industrial and telecommunications,
and are sold primarily in North America, Europe and Asia.
Consolidated Financial Statements include the accounts of RF Monolithics,
Inc. and, in 1999 and 1998, its wholly owned subsidiary, RFM Export, Inc.
(referred to collectively as the Company). Significant intercompany
balances and transactions are eliminated in consolidation.
Financial Statement Preparation requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities as
of the date of the financial statements and revenues and expenses for the
period. Actual results could differ significantly from those estimates.
Revenues are recognized when products are shipped. The Company permits the
return of damaged or defective products and accepts limited amounts of
product returns in other instances. Accordingly, the Company provides
allowances for the estimated amounts of these returns at the time of
revenue recognition.
Cash Equivalents represent liquid investments with maturities at the date
of acquisition of three months or less.
Short-Term Investments at August 31, 1999, represent primarily government
obligations with original maturities at the date of acquisition of three or
more months, which are classified as held-to-maturity and are stated at
cost. Accrued income at August 31, 1999, is $76,000, which is included in
prepaid expenses and other. Short-term investments at August 31, 1998,
represent primarily government and corporate obligations with original
maturities at the date of acquisition of three or more months, which are
classified as available-for-sale and are stated at fair value. At August
31, 1998, the original investment costs were $5,383,671, resulting in
unrealized gains of $31,000 ($20,000 net of tax). Because of the nature of
the investments, the Company believes that there is very little credit risk
in them.
Inventories are stated at the lower of cost (first-in, first-out method) or
market.
Property and Equipment are stated at cost less accumulated depreciation and
amortization. Depreciation and amortization are provided using the
straight-line method over the following estimated useful lives: machinery
and equipment, three to seven years or the related capital lease term if
shorter; leasehold improvements, three to eight years not exceeding the
lease term; and office furniture, five years.
F-7
<PAGE>
Other Assets include legal costs of obtaining patents. These costs are
amortized over the estimated useful lives of the respective patents, which
are based on the related technology.
Financial Instruments consist of cash, short-term investments, receivables,
payables and debt, the carrying value of which are a reasonable estimate of
their fair values due to their short maturities or variable interest rates.
Research and Development Costs are expensed as incurred. These costs do not
include nonrecurring engineering costs related to contract technology
development sales, which are included in cost of sales.
Deferred Income Taxes are provided under the asset and liability method for
temporary differences in recognition of income and expense for tax and
financial reporting purposes.
Earnings per Share (EPS) is based on Statement of Financial Accounting
Standards (SFAS) No. 128, "Earnings per Share," which was adopted by the
Company on February 28, 1998. Accordingly, Basic EPS is calculated using
income available to common stockholders divided by the weighted average
number of common shares outstanding during each year. Diluted EPS is
similar to Basic EPS except that it is based on the weighted average number
of common and potentially dilutive shares, from dilutive stock options,
outstanding during each year.
Stock-Based Compensation arising from stock option grants is accounted for
by the intrinsic value method under Accounting Principles Board (APB)
Opinion No. 25. SFAS No. 123, ``Accounting for Stock-Based Compensation,''
was effective for the Company beginning September 1, 1998. This statement
requires expanded disclosures of stock-based compensation arrangements with
employees and encourages (but does not require) compensation cost to be
measured based on the fair value of the equity instrument awarded. As
permitted by SFAS No. 123, the Company will continue to apply APB Opinion
No. 25 to its stock-based compensation awards to employees and will
disclose the required pro forma effect on net income and earnings per share
(Note 8).
New Accounting Standards - In June 1997, the Financial Accounting Standards
Board (FASB) issued SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information," which establishes standards for the
way that public business enterprises report information about operating
segments in annual financial statements and requires that those enterprises
report selected information about operating segments in interim financial
reports issued to shareholders. SFAS No. 131 is effective for all fiscal
years beginning after December 31, 1997. The adoption of this standard by
the Company in fiscal year 1999 did not require additional disclosure,
since the Company does not have business segments as defined by SFAS No.
131.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which establishes standards for
measuring, classifying and reporting all derivative financial instruments
in the financial statements. SFAS No. 133 is effective for all fiscal
quarters of fiscal years beginning after June 15, 2000. The Company will
adopt SFAS No. 133 beginning the first quarter of fiscal year 2001. The
Company does not expect the adoption of these standards to have a material
impact on the Company's financial position or results of operations.
F-8
<PAGE>
In April 1998, the Accounting Standards Executive Committee issued
Statement of Position (SOP) No. 98-5, "Reporting on the Costs of Start-Up
Activities," which requires start-up activities to be expensed as incurred.
SOP No. 98-5 is effective for financial statements for fiscal years
beginning after December 15, 1998. The adoption of this standard in fiscal
year 1999 did not have a material impact on the Company's financial
position or results of operations.
2. INVENTORIES
Inventories consist of the following (in thousands):
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Raw materials and supplies $ 5,713 $4,677
Work in process 3,099 2,139
Finished goods 2,781 1,698
------- ------
Total $11,593 $8,514
======= ======
<CAPTION>
3. PROPERTY AND EQUIPMENT
Property and equipment consist of the following (in thousands):
1999 1998
<S> <C> <C>
Machinery and equipment $23,116 $20,595
Equipment under capital leases (Note 6) 2,684 2,553
Construction in progress 2,679 3,941
Leasehold improvements 5,766 4,817
Computer software 2,344 567
Office furniture 404 404
------- -------
Total 36,993 32,877
Less accumulated depreciation and amortization (including $1,500 and
$1,067 in 1999 and 1998, respectively, for capital leases) 19,348 15,748
------- -------
Property and equipment - net $17,645 $17,129
======= =======
</TABLE>
Construction in progress includes equipment and other assets not yet placed
in service primarily related to increasing the capacity of the
manufacturing facilities.
F-9
<PAGE>
4. OTHER ASSETS
Other assets consist of the following (in thousands):
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Patents, less accumulated amortization of $369 and $290 in 1999 and 1998,
respectively $ 277 $ 351
Patent deposits 205 156
Other 54 59
----- -----
Total $ 536 $ 566
===== =====
<CAPTION>
5. ACCRUED EXPENSES AND OTHER LIABILITIES
Accrued expenses and other liabilities consist of the following (in
thousands):
1999 1998
<S> <C> <C>
Accrued payroll and compensation $1,160 $ 911
Other accrued expenses 1,180 1,494
------ ------
Total $2,340 $2,405
====== ======
<CAPTION>
6. NOTES PAYABLE
Notes payable at August 31, 1999 and 1998, consist of the following (in
thousands):
1999 1998
<S> <C> <C>
Note payable under $7,500 revolving line-of-credit facility that
expires December 31, 2000, bearing interest at the bank's prime floating
rate or LIBOR (8.5% at August 31, 1999), subject to certain covenants
generally related to working capital, stockholders' equity and earnings
and collateralized by all accounts receivable, inventory and equipment
purchased on or subsequent to March 1, 1996 (net book value of $6,985
at August 31, 1999), excluding leased equipment $4,600 $1,500
Note payable under $2,500 equipment term loan facility payable in equal
monthly installments, maturing five years from the date of each
advance, bearing interest at the bank's prime floating rate or LIBOR
(8.5% to 8.9% at August 31, 1999), subject to certain covenants
generally related to working capital, shareholders' equity and earnings
and collateralized by certain equipment (net book value of $2,184 at
August 31, 1999) 505 1,005
------ ------
Total 5,105 2,505
Less current portion 5,100 2,000
------ ------
Long-term portion $ 5 $ 505
====== ======
</TABLE>
Long-term debt matures as follows: $5,100 in 2000 and $5 in 2001.
F-10
<PAGE>
At August 31, 1999, the available unused balance under the revolving line-
of-credit facility is $2.9 million.
7. LEASES AND OTHER COMMITMENTS
The Company has entered into noncancelable capital and operating lease
agreements for its manufacturing facility and certain equipment. Rent
expense under the operating leases in 1999, 1998 and 1997 was $1,828,000,
$922,724 and $748,000, respectively. Minimum future rental commitments
under the capital and operating leases at August 31, 1999, are as follows
(in thousands):
<TABLE>
<CAPTION>
Capital
Lease Operating
Obligations Leases
<S> <C> <C>
Fiscal year ending August 31:
2000 $365 $2,129
2001 63 1,847
2002 - 1,419
2003 - 931
2004 - -
---- ------
Total minimum payments 428 $6,326
======
Less amounts representing interest 13
----
Total present value of net minimum lease payments at August 31, 1999 415
Less current portion 352
----
Long-term portion $ 63
====
</TABLE>
The Company had a $1,500,000 equipment lease facility with a bank that was
fully utilized at August 31, 1996. Borrowings under this facility, which
are presented as capital lease obligations, are due in monthly installments
over a five-year period from the date of each advance.
Lease obligations, which are presented as operating lease obligations in
the above table, are under a $4,000,000 equipment lease facility, of which
the Company had utilized $1,973,000 at August 31, 1999. Payments are due in
monthly installments over a four-year period from the date of each advance.
In September 1999, the Company renegotiated its $4,000,000 equipment lease
facility, which extended its line of credit to $6,000,000. The Company
utilized $2,486,000 of this renegotiated facility subsequent to fiscal
year-end. Payments are due over a four-year period from the date of each
advance.
8. CAPITAL STOCK
Preferred stock of 5,000,000 shares with $.001 par value is authorized;
none was issued at August 31, 1999 and 1998. Rights, preferences and other
terms of the preferred stock will be determined by the Board of Directors
at the time of issuance.
F-11
<PAGE>
The following table reconciles the numerators and denominators used in the
computation of both basic and diluted earnings per share:
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
Basic EPS computation:
Numerator:
Net income $ 729 $4,760 $3,807
Denominator:
Weighted average shares outstanding (000's) 5,783 5,551 5,379
------ ------ ------
Basic EPS $ .13 $ 0.86 $ 0.70
Diluted EPS computation:
Numerator:
Net income $ 729 $4,760 $3,807
Denominator (000's):
Weighted average shares outstanding 5,783 5,551 5,379
Stock option conversion 149 427 411
------ ------ ------
5,932 5,978 5,790
Diluted EPS $ 0.12 $ 0.80 $ 0.66
</TABLE>
Stock Options - In 1999, the Company adopted the 1999 Incentive Stock
Option Plan (the 1999 Plan). The Company has reserved 200,000 shares of
common stock for this plan. Under the terms of the 1999 Plan, incentive
options to purchase common stock and stock bonuses and rights to purchase
restricted stock may be granted to non-officer employees at the discretion
of the board of directors and subject to certain restrictions. Generally,
one forty-eighth of the shares optioned become exercisable each month
beginning at the date of grant. The options expire ten years after the date
of grant. At August 31, 1999, there are 115,055 options outstanding and
83,459 options available for grant under this plan. A summary of the
activity for the 1999 Plan follows:
<TABLE>
<CAPTION>
Exercise
Shares Price
<S> <C> <C>
Options outstanding September 1, 1998 - $ -
Granted - 1999 135,500 6.063-8.875
Exercised - 1999 (1,486) -
Expired - 1999 (18,959) 6.063-8.875
------- ------------
Options outstanding at August 31, 1999 115,055 6.063-8.875
=======
Exercisable at August 31, 1999 8,941 6.063-8.875
=======
</TABLE>
In October 1997, the Company amended and restated the terms of the 1982
Stock Option Plan and adopted the 1997 Equity Incentive Plan (1997 Plan).
The Company has reserved 1,175,000 shares of common stock for this plan.
Under terms of the 1997 Plan, nonqualified and incentive options to
purchase common stock, and stock bonuses and rights to purchase restricted
stock may be granted to key employees, directors or consultants at the
discretion of the board of directors and subject to certain
F-12
<PAGE>
restrictions. Generally, one forty-eighth of the shares optioned become
exercisable each month beginning at the date of grant. The options expire
ten years after the date of grant. At August 31, 1999, there are 853,058
options outstanding and 103,042 options available for grant under this
plan. A summary of the activity for the 1997 Plan follows:
<TABLE>
<CAPTION>
Exercise
Shares Price
<S> <C> <C>
Options outstanding September 1, 1996 312,499 $ 4.50-$6.00
Granted:
1997 215,500 8.125-22.50
1998 409,000 8.688-12.563
1999 249,000 6.063-9.25
Exercised:
1997 (31,276) 4.50-10.125
1998 (45,734) 6.25-11.125
1999 (28,054) 6.25-8.25
Expired:
1997 (12,292) 6.25-8.25
1998 (93,795) 6.25-22.25
1999 (121,790) 6.25-12.563
-------- -------------
Options outstanding at August 31, 1999 853,058 4.50-22.50
========
Exercisable at August 31, 1999 386,277 4.50-22.50
========
</TABLE>
Under terms of the 1986 Stock Option Plan (1986 Plan), nonqualified options
to purchase common stock may be granted to key employees and consultants at
the discretion of the board of directors, subject to certain restrictions.
Generally, one forty-eighth of the shares optioned become exercisable each
month beginning at the date of grant. The options expire ten years after
the date of grant. At August 31, 1999, there are 214,036 options
outstanding and 17,123 options available for grant under this plan. A
summary of the activity for the 1986 Plan is as follows:
<TABLE>
<CAPTION>
Exercise
Shares Price
<S> <C> <C>
Options outstanding at September 1, 1996 346,088 $ 0.60-$9.00
Granted:
1997 - -
1998 - -
1999 10,000 6.063
Exercised:
1997 (93,718) 0.60-7.25
1998 (20,613) 0.60-7.25
1999 (18,425) 0.60-6.25
Expired:
1997 (3,810) 0.60-4.50
1998 (331) 0.60-4.50
1999 (5,155) 0.60-4.50
------- ------------
Options outstanding at August 31, 1999 214,036 0.60-7.625
=======
Exercisable at August 31, 1999 210,058 $0.60-$7.625
=======
</TABLE>
F-13
<PAGE>
Under the terms of the Non-Employee Director Stock Option Plan (Director
Plan), options to purchase common stock may be granted every January 1 to
each director who is not an officer of the Company. One-fourth of the
shares optioned become exercisable on the first anniversary of the date of
grant and one forty-eighth of the shares optioned become exercisable each
month thereafter, with all options fully exercisable four years after the
date of grant. The options expire ten years after the date of grant. At
August 31, 1999, there are 131,768 options outstanding and 36,000 options
available for grants. A summary of the activity for the Director Plan is as
follows:
<TABLE>
<CAPTION>
Exercise
Shares Price
<S> <C> <C>
Options outstanding at September 1, 1996 64,500 $ 6.00-$10.875
Granted:
1997 13,500 10.875
1998 38,500 11.375-27.0625
1999 22,500 11.375-27.0625
Exercised:
1997 (7,232) 6.50
1998 - -
1999 - -
------- ---------------
Options outstanding at August 31, 1999 131,768 6.00-27.0625
=======
Exercisable at August 31, 1999 81,383 $ 6.00-$27.0625
=======
</TABLE>
Options under the above plans are granted at prices equal to or greater
than the estimated fair value of the common stock at grant dates as
determined by the board of directors.
Employee Stock Purchase Plan - In 1994, the Company adopted an employee
stock purchase plan (Purchase Plan). In connection with the adoption of the
Purchase Plan, the Company initially reserved 175,000 shares of its common
stock. During January 1998, the Company increased the number of shares
available under the plan to 350,000 shares of common stock. Under terms of
the Purchase Plan, rights to purchase common stock may be granted to
eligible employees at the discretion of the board of directors, subject to
certain restrictions. The Purchase Plan enables eligible employees of the
Company to purchase shares of common stock at not less than 85% of the fair
market value of the common stock at the determination date through payroll
withholding. A summary of the activity for the employee stock purchase plan
is as follows:
<TABLE>
<CAPTION>
Purchase
Shares Proceeds
<S> <C> <C>
Purchases as of September 1, 1996 24,310 $ 138,896
Fiscal 1997 68,154 392,021
Fiscal 1998 117,117 827,666
Fiscal 1999 60,178 485,524
------- ----------
Total 269,759 $1,844,107
======= ==========
</TABLE>
F-14
<PAGE>
Common Shares reserved at August 31, 1999, for possible future conversion
or issuance are as follows:
<TABLE>
<S> <C>
Options granted:
1999 Plan 115,055
1997 Plan 853,058
1986 Plan 214,036
Director Plan 131,768
---------
Total shares contingently issuable 1,313,917
Options and purchase rights available for grants:
1999 Plan 83,459
1997 Plan 103,042
1986 Plan 17,123
Director Plan 36,000
Purchase Plan 80,241
---------
Total 319,865
---------
Total common shares reserved 1,633,782
=========
</TABLE>
Stock-Based Compensation - The Company applies APB Opinion No. 25 and
related Interpretations in accounting for its stock option plans. No
compensation cost (generally measured as the excess, if any, of the quoted
market price of the common stock at the date of the grant over the amount
an employee must pay to acquire the common stock) has been recognized for
the Company's stock option plans. SFAS No. 123 prescribes a method to
record compensation cost for stock-based employee compensation plans at
fair value, but allowed disclosure as an alternative. Pro forma disclosures
as if the Company had adopted the cost recognition requirements under SFAS
No. 123 are presented below. The pro forma compensation cost may not be
representative of that expected in future years.
<TABLE>
<CAPTION>
Years Ended
--------------------------------------------------
1999 1998 1997
<S> <C> <C> <C>
Net (loss) income (in thousands):
As reported $ 729 $ 4,760 $ 3,807
Pro forma (344) 4,126 3,455
Earnings per share - diluted:
As reported $ 0.12 $ 0.80 $ 0.66
Pro forma (0.05) 0.69 0.60
Stock options issued 490,700 475,500 229,000
Weighted average exercise price $ 5.58 $ 12.86 $ 9.40
Average compensation value of options
granted per option $ 3.95 $ 3.82 $ 4.75
</TABLE>
Compensation cost (for current-year grants) was calculated in accordance
with the binomial model, using the following assumptions: (i) expected
volatility computed using the monthly average of the Company's common stock
market price as listed on the New York Stock Exchange for the period
F-15
<PAGE>
July 28, 1994, date of the Company's initial public offering, through
August 1998, which market price volatility averaged 60%; (ii) expected
dividend yield of 0%; (iii) expected option term of six years; and (iv)
risk-free rate of return as of the date of grant, which ranged from 5.5% to
6.5%, based on extrapolated yield of five- and seven-year U.S. Treasury
securities.
Common Stock Grants - In January 1995, the Company granted 51,700 shares of
its common stock to key employees of the Company. Based on a share price of
$7.00 per share at the measurement date, the Company recorded unearned
compensation of $361,900. One-fourth of the shares granted became
exercisable on November 27, 1996, November 27, 1997, November 27, 1998, and
November 27, 1999, respectively. During 1996, 1998 and 1999, certain
employees who were granted 17,000, 1,000 and 500 shares, respectively,
terminated their employment with the Company. All shares granted to these
employees were reacquired and retired. Compensation expense related to
remaining common stock grants was approximately $56,000, $60,000 and
$68,000 in 1999, 1998 and 1997, respectively.
In April 1999, the Company granted 73,700 shares of its common stock to key
employees of the Company. Based on a share price of $6.06 per share at the
measurement date, the Company recorded unearned compensation of $446,800.
One-fourth of the shares granted become exercisable on May 1, 2000, May 1,
2001, May 1, 2002, and May 1, 2003. During 1999, certain employees who were
granted 3,600 shares terminated their employment with the Company. All
shares granted to these employees were reacquired and retired. Compensation
expense related to remaining common stock grants was approximately $34,000
in 1999.
Stockholder Rights Plan - In December 1994, the Company adopted a
stockholder rights plan. In connection with the adoption of such plan, the
Company reserved 250,000 shares of its Series A Junior Participating
Preferred Stock, $.001 par value, and declared a dividend of one preferred
share purchase right (a Right) for each outstanding share of common stock,
par value $.001 per share (the Common Shares), of the Company. The dividend
of 4,965,847 Rights was issued to the stockholders of record on January 16,
1995. Each Right entitles the registered holder to purchase from the
Company one one-hundredth of a share of Series A Junior Participating
Preferred Stock, par value $.001 per share (the Preferred Shares), at a
price of $74.40 per one one-hundredth of a Preferred Share, subject to
adjustment. The Rights become exercisable on the earlier of the tenth day
after the public announcement of acquisition by a person or group of
persons, not including an exempt person as defined by the stockholder
rights plan, of 15% or more of the Company's common shares outstanding on
the tenth business day after the date of first public announcement of the
intention of a person or group of persons to commence a tender or exchange
offer to acquire 15% or more of the Company's common shares outstanding.
When issued, the Preferred Shares have dividend and voting rights that are
defined in the Rights plan. The Rights may be redeemed by the Company at a
redemption price of $.01 per Right in accordance with the Rights plan, and
the Rights expire on December 20, 2004.
F-16
<PAGE>
9. EXPORT SALES
Export sales to foreign markets are as follows (in thousands):
<TABLE>
<CAPTION>
1999 1998 1997
------------------------------------ ----------------------------------- -------------------------------
As a As a As a
Percentage Percentage Percentage
of Total of Total of Total
Sales Revenue Sales Revenue Sales Revenue
<S> <C> <C> <C> <C> <C> <C>
Export sales:
France $ 6,001 11.7% $ 6,560 11.9% $ 3,347 7.0%
Germany 6,120 11.9 5,113 9.3 3,339 7.0
Other European 7,639 14.9 7,857 14.2 8,503 17.8
Asia 7,150 13.9 8,165 14.8 6,695 14.0
Other 2,082 4.1 3,752 6.8 2,133 4.5
------- ---- ------- ---- ------- ----
Total export sales $28,992 56.5% $31,447 57.0% $24,017 50.3%
======= ==== ======= ==== ======= ====
</TABLE>
There are no assets separately identified with foreign sales, and the
profitability of such sales is similar to that of domestic sales.
10. INCOME TAXES
The tax effects of significant items comprising the Company's net deferred
income tax benefits as of August 31, 1999 and 1998, are as follows (in
thousands):
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Accruals and valuation allowances not currently deductible $ 146 $ 342
Inventory costs capitalized for tax purposes 216 177
Tax credit carryforwards 285 116
----- -----
Total current deferred income tax benefit $ 647 $ 635
===== =====
</TABLE>
Management believes that no valuation allowance against the deferred tax
benefits is necessary at August 31, 1999 or 1998.
The resulting income tax expense (benefit) is shown below (in thousands):
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
Current - federal $ 232 $1,470 $1,359
Current - state 49 148 194
Deferred (12) 1,002 652
----- ------ ------
$ 269 $2,620 $2,205
===== ====== ======
</TABLE>
F-17
<PAGE>
A reconciliation between income taxes computed at the federal statutory
rate and income tax expense is shown below (in thousands):
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
Income taxes computed at federal statutory rate $ 339 $2,510 $2,044
State income tax expense - net of federal
income tax benefit 11 117 128
Research and development tax credit - - -
Expiration of investment and research and development
tax credits - - -
Expenses not deductible for tax purposes 17 20 20
Effect on tax of foreign sales corporation (98) (101)
Other - 74 13
----- ------ ------
Total income tax expense $ 269 $2,620 $2,205
===== ====== ======
</TABLE>
As of August 31, 1999, the Company has income tax carryforwards related to
alternative minimum federal income tax benefits of $285,000 available to
reduce future federal income tax liabilities.
11. EMPLOYEE BENEFIT PLAN
The Company has a profit sharing plan under Section 401(k) of the Internal
Revenue Code, which covers substantially all employees. The Company may
match employee contributions at a rate determined by the board of
directors. Matching contributions of $140,000 and $81,000 were made in 1999
and 1998, respectively. No matching contributions were made in 1997.
12. LITIGATION AND CONTINGENCIES
On June 7, 1996, the Company was served with a complaint filed by
TimeKeeping Systems, Inc. (TimeKeeping). The complaint purports to state a
single cause of action for breach of contract and alleged that the Company
failed to timely fulfill certain purchase orders TimeKeeping issued in
1995. The Company reached a settlement with TimeKeeping at the end of the
second quarter of 1998 and paid settlement costs totaling $425,000 in April
1998.
Included in the accounts receivable balance is a past-due receivable
totaling $889,000 from a customer. The Company is seeking to recover the
entire $889,000 of this past due account plus an additional $819,000 for
custom finished goods manufactured and raw material purchased for this
customer. The Company believes that reserves are not necessary with regard
to this matter. As a result, no additional allowance for uncollectible
amounts has been established.
F-18
<PAGE>
13. QUARTERLY INFORMATION (UNAUDITED)
Selected unaudited quarterly financial data is as follows (in thousands,
except per-share amounts):
<TABLE>
<CAPTION>
Fiscal 1999 Quarter Ended Fiscal 1998 Quarter Ended
--------------------------------------------- ------------------------------------------
Nov. 30 Feb. 28 May 31 Aug. 31 Nov. 30 Feb. 28 May 31 Aug. 31
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Sales $12,880 $13,102 $12,967 $12,348 $12,882 $13,214 $14,595 $14,481
Cost of sales 8,338 8,516 8,263 10,833 7,634 7,889 8,708 9,318
------- ------- ------- ------- ------- ------- ------- -------
Gross profit 4,542 4,586 4,704 1,515 5,248 5,325 5,887 5,163
Operating expenses:
Research and development 1,144 1,509 1,155 1,889 1,467 1,313 1,276 1,025
Sales and marketing 1,296 1,322 1,378 1,419 1,394 1,476 1,557 1,219
General and administrative 655 735 785 917 667 819 774 629
Litigation - - - - 61 580
------- ------- ------- ------- ------- ------- ------- -------
Total 3,095 3,566 3,318 4,225 3,589 4,188 3,607 2,873
------- ------- ------- ------- ------- ------- ------- -------
Income (loss) from operations 1,447 1,020 1,386 (2,710) 1,659 1,137 2,280 2,290
Other income (expense), net (17) (20) (49) (59) 7 15 (43) 35
------- ------- ------- ------- ------- ------- ------- -------
Income (loss) before
income taxes 1,430 1,000 1,337 (2,769) 1,666 1,152 2,237 2,325
Income tax expense (benefit) 507 355 475 (1,068) 633 412 778 797
------- ------- ------- ------- ------- ------- ------- -------
Net income (loss) $ 923 $ 645 $ 862 $(1,701) $ 1,033 $ 740 $ 1,459 $ 1,528
======= ======= ======= ======= ======= ======= ======= =======
Earnings per share:
Basic $0.16 $0.11 $0.15 $(0.29) $0.19 $0.13 $0.26 $0.27
======= ======= ======= ======= ======= ======= ======= =======
Diluted $0.16 $0.11 $0.15 $(0.28) $0.17 $0.12 $0.24 $0.26
======= ======= ======= ======= ======= ======= ======= =======
Weighted average common
shares outstanding:
Basic 5,708 5,744 5,818 5,864 5,520 5,586 5,628 5,687
======= ======= ======= ======= ======= ======= ======= =======
Diluted 5,890 5,927 5,894 6,010 5,992 5,949 5,979 5,849
======= ======= ======= ======= ======= ======= ======= =======
</TABLE>
14. SUBSEQUENT EVENT (UNAUDITED)
On November 22, 1999, the Company announced an estimated loss for the first
quarter of fiscal year 2000. As a result of this loss, there may be
violations of one or more debt covenants. The Company intends to negotiate
for a waiver or modification of any such covenant violations.
******
F-19
<PAGE>
EXHIBIT 11.1
RF Monolithics, Inc.
Computation of Net Income per Share
Years Ended August 31, 1999, 1998 and 1997
(In thousands, except per-share data)
<TABLE>
<CAPTION>
1999 1998 1997
----- ----- -----
<S> <C> <C> <C>
Average common shares outstanding............................................ 5,714 5,614 5,403
Net effect of dilutive stock options - based on the treasury stock
method..................................................................... 218 364 387
------ ------ ------
Total common and common equivalent shares.......................... 5,932 5,978 5,790
====== ====== ======
Net income................................................................... $ 729 $4,760 $3,807
====== ====== ======
Net income per share......................................................... $ 0.12 $ 0.80 $ 0.66
====== ====== ======
</TABLE>
<PAGE>
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement no. 33-
83492 of RF Monolithics, Inc. on Form S-8 of our report dated October 21, 1999,
appearing in this Annual Report on Form 10-K of RF Monolithics, Inc. for the
year ended August 31, 1999.
DELOITTE & TOUCHE LLP
Dallas, Texas
November 29, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> AUG-31-1999
<PERIOD-START> SEP-01-1998
<PERIOD-END> AUG-31-1999
<CASH> 672
<SECURITIES> 4,516
<RECEIVABLES> 10,840
<ALLOWANCES> 475
<INVENTORY> 11,593
<CURRENT-ASSETS> 30,327
<PP&E> 36,993
<DEPRECIATION> 19,348
<TOTAL-ASSETS> 48,508
<CURRENT-LIABILITIES> 12,941
<BONDS> 68
0
0
<COMMON> 28,049
<OTHER-SE> 7,677
<TOTAL-LIABILITY-AND-EQUITY> 48,508
<SALES> 51,297
<TOTAL-REVENUES> 51,297
<CGS> 35,950
<TOTAL-COSTS> 35,950
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 82
<INTEREST-EXPENSE> 420
<INCOME-PRETAX> 998
<INCOME-TAX> 269
<INCOME-CONTINUING> 729
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 729
<EPS-BASIC> .13
<EPS-DILUTED> .12
</TABLE>
