SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark one)
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2002
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ________________ to ________________
Commission file number 000-31029-40
MICROTUNE, INC.
(Exact name of registrant as specified in its charter)
Delaware 75-2883117
(State or other jurisdiction of (I.R.S. Employer
Incorporation or organization) Identification Number)
2201 10th Street
Plano, Texas 75074
(Address of principal executive office and zip code)
(972) 673-1600
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to filing requirements
for the past 90 days.
YES [x] NO [ ]
As of July 31, 2002, 53,587,104 shares of the Registrant's common stock were
outstanding.
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Microtune, Inc.
FORM 10-Q
June 30, 2002
INDEX
Page
----
Part I. Financial Information
Item 1. Financial Statements ........................................... 3
Consolidated Balance Sheets at June 30, 2002 and
December 31, 2001 (unaudited) ...................................... 3
Consolidated Statements of Operations for the
Three and Six Months Ended June 30, 2002 and 2001 (unaudited) ...... 4
Consolidated Statements of Cash Flows for the Six Months Ended
June 30, 2002 and 2001 (unaudited) ................................. 5
Notes to Consolidated Financial Statements (unaudited) ............... 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations ............................................ 14
Item 3. Qualitative and Quantitative Disclosure About Market Risk ...... 19
Part II. Other Information
Item 1. Legal Proceedings .............................................. 19
Item 2. Changes In Securities and Use of Proceeds ...................... 20
Item 3. Defaults Upon Senior Securities ............................... 20
Item 4. Submission of Matters to a Vote of Security Holders ............ 20
Item 5. Other Information .............................................. 21
Item 6. Exhibits and Reports on Form 8-K ............................... 21
Signatures ............................................................... 22
Exhibit .................................................................. 23
Forward Looking Statements
This document includes certain forward-looking statements within the meaning of
the Private Securities Litigation Reform Act of 1995. These statements are based
on management's current expectations and are subject to uncertainty and changes
in circumstances. Actual results may differ materially from these expectations
due to changes in global political, economic, business, competitive and market
factors.
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PART I. Financial Information
Item 1. Financial Statements
Microtune, Inc.
Consolidated Balance Sheets
(in thousands, except per share data)
(unaudited)
Assets June 30, 2002 December 31, 2001
------------- -----------------
Current assets:
Cash and cash equivalents ................................................... $ 148,684 $ 173,149
Accounts receivable, net of allowance for doubtful accounts of
$601 at June 30, 2002 and $592 at December 31, 2001 ........................ 16,432 14,580
Inventories ................................................................. 15,014 9,401
Deferred income taxes ....................................................... 319 389
Other current assets ........................................................ 2,898 3,206
---------- -----------
Total current assets .................................................. 183,347 200,725
Property and equipment, net .................................................... 19,284 19,269
Intangible assets, net of accumulated amortization of $9,217 at
June 30, 2002 and $4,016 at December 31, 2001 ................................. 59,011 64,136
Goodwill, net of accumulated amortization of $11,210 at June 30,
2002 and December 31, 2001 .................................................... 51,040 51,040
Deferred income taxes .......................................................... 1,805 1,419
Other assets and deferred charges .............................................. 981 1,113
---------- -----------
Total assets .......................................................... $ 315,468 $ 337,702
========== ===========
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable ............................................................ $ 8,080 $ 7,856
Accrued expenses ............................................................ 11,422 15,099
Accrued Compensation ........................................................ 2,584 2,355
---------- -----------
Total current liabilities ............................................. 22,086 25,310
Deferred income taxes ....................................................... 595 320
Other noncurrent liabilities ................................................ 2,364 2,286
Commitments .................................................................
Stockholders' equity:
Preferred stock, $0.001 par value per share
Authorized shares - 25,000 at June 30, 2002 and December 31, 2001 ........ - -
Common stock, $0.001 par value per share
Authorized shares - 150,000 at June 30, 2002 and December 31, 2001;
issued and outstanding shares - 53,567 at June 30,
2002 and 52,737 at December 31, 2001 .................................... 53 53
Additional paid-in capital .................................................. 449,408 450,081
Unearned stock compensation ................................................. (20,226) (28,317)
Loans receivable from stockholders .......................................... (425) (35)
Accumulated other comprehensive loss ........................................ (988) (988)
Accumulated deficit ......................................................... (137,399) (111,008)
---------- -----------
Total stockholders' equity ............................................ 290,423 309,786
---------- -----------
Total liabilities and stockholders' equity ......................... $ 315,468 $ 337,702
========== ===========
See accompanying notes.
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Microtune, Inc.
Consolidated Statements of Operations
(in thousands, except per share data)
(unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
------------------------- -------------------------
2002 2001 2002 2001
-------- -------- --------- --------
Net revenues .............................................. $ 23,179 $ 14,455 $ 41,422 $ 32,114
Cost of revenues .......................................... 14,801 10,101 26,251 24,189
-------- -------- --------- --------
Gross margin .............................................. 8,378 4,354 15,171 7,925
Operating expenses:
Research and development:
Stock option compensation ........................... 2,577 339 5,154 679
Other ............................................... 10,862 3,579 19,639 7,533
-------- -------- --------- --------
13,439 3,918 24,793 8,212
Acquired in-process research and development ........... - - - -
Selling, general and administration:
Stock option compensation ........................... 702 420 1,460 1,034
Other ............................................... 4,970 4,249 10,314 8,118
-------- -------- --------- --------
5,672 4,669 11,774 9,152
Restructuring Costs .................................... - - 54 -
Amortization of intangible assets and goodwill ......... 2,703 1,804 5,387 3,606
-------- -------- --------- --------
Total operating expenses ........................... 21,814 10,391 42,008 20,970
-------- -------- --------- --------
Loss from operations ...................................... (13,436) (6,037) (26,837) (13,045)
Other income (expense):
Interest income (expense), net ....................... 789 814 1,610 1,872
Foreign currency translation and transaction gains
(losses), net .................................... (348) (1,221) (696) (1,166)
Other ................................................ 47 18 (71) 62
-------- -------- --------- --------
Loss before income taxes .................................. (12,948) (6,426) (25,994) (12,277)
Income tax expense (benefit) .............................. 327 (185) 398 (492)
-------- -------- --------- --------
Net loss .................................................. $(13,275) $(6,241) $(26,392) $(11,785)
======== ======== ========= =========
Basic and diluted loss per common share ................... $ (0.25) $ (0.16) $ (0.50) $ (0.30)
======== ======== ========= =========
Weighted-average shares used in computing basic and
diluted loss per common share ............................ 52,953 39,327 52,671 39,084
======== ======== ========= =========
See accompanying notes.
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Microtune, Inc.
Consolidated Statements of Cash Flows
(in thousands)
(unaudited)
Six Months Ended June 30,
-------------------------
2002 2001
--------- --------
Operating activities:
Net loss .................................................................... $ (26,392) $(11,785)
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation ............................................................. 3,119 3,116
Amortization of intangible assets ........................................ 5,385 786
Amortization of goodwill ................................................. - 2,820
Foreign currency translation and transaction gains (losses), net ......... 696 1,166
Amortization of deferred stock option compensation ....................... 6,614 1,713
Deferred income taxes .................................................... (258) (2,844)
Changes in operating assets and liabilities:
Accounts receivable ................................................... (1,852) 2,898
Inventories ........................................................... (5,614) 3,186
Other assets .......................................................... 563 (462)
Accounts payable ...................................................... 224 (1,575)
Other operating accrued expenses ...................................... (3,295) 608
Accrued compensation .................................................. 229 (115)
--------- --------
Net cash used in operating activities .............................. (20,581) (488)
Investing activities:
Purchases of property and equipment ......................................... (3,205) (6,423)
Sale of property and equipment .............................................. 71 92
Loans receivable ............................................................ (122) (1,000)
Purchase of intangible assets ............................................... (260) (34)
--------- --------
Net cash used in investing activities .............................. (3,516) (7,365)
Financing activities:
Proceeds from issuance of common stock upon exercise of stock options and
from shares purchased under Employee Stock Purchase Plan ................. 1,282 1,669
Loans receivable from stockholders .......................................... (390) 753
Other, net .................................................................. (564) -
--------- --------
Net cash provided by financing activities .......................... 328 2,422
Effect of foreign currency exchange rate changes on cash ....................... (696) (1,152)
--------- --------
Net change in cash and cash equivalents ........................................ (24,465) (6,583)
Cash and cash equivalents at beginning of period ............................... 173,149 77,650
--------- --------
Cash and cash equivalents at end of period ..................................... $ 148,684 $ 71,067
========= ========
See accompanying notes.
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Microtune, Inc.
Notes to Consolidated Financial Statements
June 30, 2002
(unaudited)
1. Basis of Presentation
General
The accompanying unaudited financial statements as of and for the three and six
months ended June 30, 2002 and 2001 have been prepared by Microtune, Inc. (the
Company), pursuant to the rules and regulations of the Securities and Exchange
Commission. Certain information and footnote disclosures normally included in
financial statements prepared in accordance with accounting principles generally
accepted in the United States have been condensed or omitted pursuant to such
rules and regulations. These unaudited consolidated financial statements should
be read in conjunction with the audited financial statements and the notes
thereto included in the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 2002.
In the opinion of management, all adjustments which are of a normal and
recurring nature and are necessary for a fair presentation of the financial
position, results of operations, and cash flows as of and for the three and six
months ended June 30, 2002 have been made. Results of operations for the three
and six months ended June 30, 2002, are not necessarily indicative of results of
operations to be expected for the entire year or any other period.
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Adoption of New Accounting Pronouncements
In June 2001, the Financial Accounting Standards Board (FASB) issued SFAS No.
141, Business Combinations, effective as of June 20, 2001 and SFAS No. 142,
Goodwill and Other Intangible Assets, effective for fiscal years beginning after
December 15, 2001. Under the new rules, the pooling-of-interests method of
accounting for business combinations has been eliminated. Also, the criteria for
recognizing acquired intangible assets apart from goodwill has been changed, and
acquired goodwill and intangible assets deemed to have indefinite lives are no
longer amortized, but are subject to annual impairment tests in accordance with
SFAS No. 141 and SFAS No. 142. Other intangible assets will continue to be
amortized over their useful lives.
The Company has applied the new rules on accounting for goodwill and acquired
intangible assets beginning December 31, 2001. Intangible assets that do not
meet the criteria for recognition apart from goodwill must be reclassified. As a
result, intangible assets relating to an acquired workforce of $701,600, net of
the related accumulated amortization at December 31, 2001 of $175,400 were
reclassified to goodwill as of December 31, 2001. See Note 7 for further detail
of intangible assets.
With the application of the nonamortization provisions of SFAS No. 142, the
Company ceased amortization of goodwill as of January 1, 2002. The following
table presents the quarterly results of the Company on a comparable basis
assuming the nonamortizaton provisions of SFAS No. 142 were effective January 1,
2001 (in thousands, except per share data):
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Three Months Ended Six Months Ended
June 30, June 30,
-------------------------- ---------------------------
2002 2001 2002 2001
--------- --------- --------- ----------
Net Loss:
Reported net loss .............................. $(13,275) $ (6,241) $(26,392) $(11,785)
Goodwill and workforce amortization ............ - 1,432 - 2,864
--------- --------- --------- ---------
Adjusted net loss .............................. $(13,275) $ (4,809) $(26,392) $ (8,921)
========= ========= ========= =========
Basic and diluted loss per common share:
Reported net loss .............................. $ (0.25) $ (0.16) $ (0.50) $ (0.30)
Goodwill and workforce amortization ............ - .04 - 0.07
--------- --------- --------- ---------
Adjusted net loss .............................. $ (0.25) $ (0.12) $ (0.50) $ (0.23)
========= ========= ========= =========
As of January 1, 2002, the Company completed the initial goodwill impairment
test required by SFAS No. 142 and determined that no impairment existed at that
date. The assessment of goodwill impairment in the future may be impacted if
projected future operating cash flows of the Company are not achieved, resulting
in decreases in the related estimated fair market values.
In October 2001, the FASB issued SFAS No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets, effective for fiscal years beginning after
December 15, 2001. This statement establishes new rules for determining
impairment of certain other long-lived assets, including intangible assets
subject to amortization, property and equipment and long-term prepaid assets.
The adoption of this standard did not have an effect on the operating results or
the financial position of the Company.
2. Business Acquisitions
On November 28, 2001, the Company acquired all of the outstanding capital stock
of Transilica Inc. (Transilica), a privately-held company based in California.
Transilica was engaged in research and development of silicon and system-on-chip
products for short-range wireless applications. The consideration in the
acquisition consisted of 7,206,187 shares of the Company's common stock. In
addition, the Company assumed Transilica stock options which represent 831,967
options for the Company's common stock. The merger agreement also provided that
approximately 15% of the total shares of the Company's common stock issued to
Transilica shareholders at the time of acquisition be placed in escrow for the
purpose of securing the indemnification obligations of Transilica under the
merger agreement. The escrow shares are to be released periodically, subject to
any escrow claims, at the end of each of the three years following the closing.
The results of operations of Transilica are included in the results of
operations of the Company from the date of acquisition. The components of the
aggregate cost of the acquisition were as follows (in thousands, except share
data):
Fair market value of 7,206,187 shares of common stock
(including 1,206,307 shares placed in escrow) .................................. $130,072
Fair market value of 831,967 Transilica stock options assumed .................. 13,937
Transaction costs .............................................................. 2,130
--------
Total acquisition cost ......................................................... $146,139
========
The fair market value of the Company's common stock was based on the closing
stock price on the date of acquisition. The fair value of the Transilica stock
options assumed was based on the Black-Scholes option valuation model.
The cost of the acquisition has been allocated to the assets and liabilities
acquired, acquired in-process research and development and deferred stock
compensation, with the remainder recorded as excess cost over net assets
acquired, based on estimates of fair values as follows (in thousands):
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Working capital ..................................................................... $ 386
Noncurrent assets and liabilities, net .............................................. 2,368
Developed technology ................................................................ 36,200
Patents ............................................................................. 19,300
Employment and non-compete agreements ............................................... 5,010
Goodwill ............................................................................ 28,546
Acquired in-process research and development costs charged to expense ............... 32,400
Unearned stock compensation ......................................................... 21,929
--------
Total acquisition cost .............................................................. $146,139
========
Unearned stock compensation recorded in connection with the acquisition
represents the intrinsic value of Transilica's unvested stock options and
restricted common stock shares for which future service is required subsequent
to the date of the acquisition in order for employees to vest in the stock
options and restricted common stock shares. The amount allocated to unearned
stock compensation has been deducted from the estimated fair value of the
unvested stock options and restricted common stock shares for purposes of the
allocation of purchase price to assets acquired. The unearned stock compensation
will be amortized to expense over the remaining vesting period of the unvested
stock options and restricted common stock shares of one to four years. The
Company is in the process of evaluating the other assets and liabilities
acquired in the Transilica acquisition. The final allocation of the purchase
price, which is expected to be complete in the fourth quarter of 2002, will be
based on the complete evaluation of the acquired assets and liabilities.
On October 16, 2001, the Company acquired a research and design center, located
in the Netherlands, which was subsequently renamed the Microtune Holland Design
Center (MHDC). MHDC specializes in the design of digital signal processing VLSI
chips and associated software, currently targeted at the digital television
equipment market. MHDC's products provide decoding and decompression of video
and audio that are embedded within the radio-frequency transmitted signals. The
consideration in the acquisition consisted of $3,000,000 of cash and 210,000
shares of the Company's common stock. The results of operations of MHDC are
included in the results of operations of the Company from the date of
acquisition. The components of the aggregate cost of the acquisition were as
follows (in thousands, except share data):
Cash paid to shareholders .......................................................... $3,000
Fair market value of 210,000 shares of common stock ................................ 2,144
Transaction costs .................................................................. 319
------
Total acquisition cost ............................................................. $5,463
======
The fair market value of the Company's common stock was based on the closing
price as of October 1, 2001, when the terms of the acquisition were agreed to by
the parties to the transaction.
The cost of the acquisition has been allocated to the assets and liabilities
acquired and to acquired in-process research and development, with the remainder
recorded as excess cost over net assets acquired, based on estimates of fair
values as follows (in thousands):
Working capital (deficit) .......................................................... $ (335)
Noncurrent assets and liabilities, net ............................................. (1,003)
Developed technology ............................................................... 567
Goodwill ........................................................................... 4,726
Acquired in-process research and development costs charged to expense .............. 1,706
Deferred income taxes .............................................................. (198)
-------
Total acquisition cost ............................................................. $ 5,463
=======
The acquisitions of Transilica and MHDC have allowed the Company to expand its
core RF silicon and systems technologies. These acquisitions provide the Company
with complementary wireless silicon solutions that,
-8-
when integrated into consumer or commercial end products, enable users to
remotely access data or voice through wireless personal or local areas networks.
The Company's management is primarily responsible for estimating the fair values
of intangible assets and acquired in-process research and development. The
estimates of the fair values of intangible assets and acquired in-process
research and development were determined based on information furnished by
management of the companies acquired.
The value of the acquired developed technology, patents, and other intangibles
was determined by discounting the estimated projected net cash flows to be
generated from the related assets. Projected net cash flows were based on
estimates of future revenues and costs related to such assets. The rate used to
discount the net cash flows to present value ranged from 17% to 25%.
Amounts allocated to acquired in-process research and development were expensed
at the date of acquisition because the purchased research and development had no
alternative future uses, and had not reached technological feasibility based on
the status of design and development activities that required further refinement
and testing. The estimates used in valuing the research and development were
based upon assumptions regarding future events and circumstances management
believes to be reasonable, but that are inherently uncertain and unpredictable.
The relative stage of completion and projected operating cash flows of the
underlying in-process projects acquired were the most significant and uncertain
assumptions utilized in the valuation analysis of the acquired in-process
research and development. Such uncertainties could give rise to unforeseen
budget overruns and revenue shortfalls in the event that the Company is unable
to successfully complete and commercialize the projects.
The value of the acquired in-process research and development was determined by
discounting the estimated projected net cash flows related to the applicable
products of each acquisition for the amount of years as shown in the table
below, including costs to complete the development of the technology and the
future revenues to be earned upon release of the products. The rates utilized to
discount the net cash flows to present value as shown in the table below were
based on the weighted average cost of capital adjusted for the risks associated
with the estimated growth, profitability, developmental and market risks of the
acquired development projects for each acquisition. Projected net cash flows
from such products of each acquisition are based on estimates of revenues and
operating profit (loss) related to such products. Management expects that the
purchased research and development projects generally will be successfully
developed into commercially viable products and expects to essentially meet its
original cash flows and return expectations for these projects. However, there
can be no assurance that commercial viability or timely release of these
products will be achieved.
Estimated Cost / Time to Complete
Projects Year Cash
----------------------------------- Inflows Began or
Entity Acquired Acquisition In Process Discount At June 30, are Projected to
Date Projects Rate At Acquisition 2002 Begin
-------------------- ------------- ---------------- ------------- ----------------- ----------------- ------------------
Transilica Inc. Nov. 2001 Short-range 35% $3.2 million / $3.0 million / 2003
wireless Oct. 2002 Dec. 2002
applications
SPaSE, B.V. Oct. 2001 Demodulator 28% $2.7 million / $2.5 million / 2003
design June 2003 June 2003
-9-
3. Earnings Per Share
Basic earnings (loss) per common share is computed by dividing net income (loss)
by the weighted average number of common shares outstanding during each period.
Diluted earnings (loss) per common share is computed by dividing net income
(loss) by the weighted average number of common shares outstanding during each
period and common equivalent shares consisting of preferred stock, stock
options, warrants, restricted stock subject to repurchase rights and employee
stock purchase plan options.
The following table sets forth anti-dilutive securities that have been excluded
from diluted earnings per share (in thousands):
June 30,
---------------------------------------
2002 2001
------------------- -------------------
Stock options ......................................... 7,866 7,382
Restricted common stock ............................... 432 153
Employee stock purchase plan .......................... 53 12
-------------- --------------
Total anti-dilutive securities excluded ............... 8,351 7,547
============== ==============
4. Inventories
Inventories consists of the following (in thousands):
June 30, December 31,
2002 2001
------------------- ------------------
Finished goods ..................................... $ 1,074 $ 1,654
Work-in-process .................................... 5,209 1,550
Raw materials ...................................... 8,731 6,197
------- -------
$15,014 $ 9,401
======= =======
Inventories are stated at the lower of standard cost, which approximates actual
cost determined on a first-in, first-out basis, or estimated realizable value.
-10-
5. Intangible Assets
Excluding goodwill and intangible assets reclassified into goodwill as of
December 31, 2001, amortization expense on intangible assets was $5.4 million
and $0.7 million for the six months ended June 30, 2002 and 2001, respectively,
and $2.7 million and $0.4 million for the three months ended June 30, 2002 and
2001, respectively. Effective January 1, 2002 acquired goodwill and intangible
assets with indefinite lives are no longer amortized, but are subject to annual
impairment tests in accordance with SFAS No. 142, Goodwill and Other Intangible
Assets. Application of the non-amortization provisions of SFAS No. 142 decreased
amortization of intangible assets and goodwill by $2.8 million in the six months
ended June 30, 2002. However, amortization of recorded intangible assets
increased by $4.6 million in the six months ended June 30, 2002 as the result of
the acquisitions of Transilica and SPaSE.
The following table sets forth the estimated amortization expense of intangible
assets for the fiscal years ending December 31 (in thousands):
2002 ................ $10,773
2003 ................ 10,746
2004 ................ 10,663
2005 ................ 9,087
2006 ................ 7,928
Intangible assets consist of the following (in thousands):
June 30, 2002 December 31, 2001 Weighted Average
------------------------ ---------------------------- ------------------------------
Gross Gross Remaining
Carrying Accum. Carrying Accum. Useful Useful Life at
Amount Amort. Amount Amort. Life June 30, 2002
------------- --------------------------- ----------- ------------------------------
Developed technology ............... $ 36,767 $ 3,145 $36,767 $ 463 6.9 years 6.4 years
Patents ............................ 22,142 3,083 21,891 1,424 6.7 years 5.9 years
Employment agreements .............. 5,010 731 5,010 104 4.0 years 3.4 years
Other .............................. 4,309 2,258 4,309 1,850 5.0 years 2.5 years
-------- ------- ------- ------ --------- ---------
$ 68,228 $ 9,217 $67,977 $3,841 6.5 years 5.8 years
======== ======= ======= ====== ========= =========
6. Accrued Expenses
Accrued expenses consists of the following (in thousands):
June 30, December 31,
2002 2001
-------- ------------
Deferred revenue ....................... $ - $ 1,494
Accrued warranty obligation ............ 365 743
Accrued income taxes ................... 5,109 5,289
Deferred income taxes .................. 276 492
Other .................................. 5,672 7,081
-------- --------
$ 11,422 $ 15,099
======== ========
7. Income Taxes
Prior to our combination with Microtune KG, the Company had not recognized any
provision for income taxes. For U.S. federal income tax purposes, at December
31, 2001, the Company had a net operating loss carryforward of approximately
$72.6 million and an unused research and development credit carryforward of
approximately $1.4 million, which begins to expire in 2011. Due to the
uncertainty of our ability to utilize these deferred tax assets, they have been
fully reserved.
-11-
The provision for the three and six months ended June 30, 2002 and the benefit
for the three and six months ended June 30, 2001 consists of foreign income
taxes and U.S. state taxes. Effective January 1, 2001, the German government
reduced tax rates of retained earnings, previously 40%, and earnings distributed
as a dividend, previously 30%, to a flat rate of 25%.
8. Commitments and Contingencies
From time to time, we may be involved in litigation relating to claims arising
out of our ordinary course of business. We are not currently a party to any
material litigation, except as described below.
On January 24, 2001, the Company filed a lawsuit alleging patent infringement in
the United States Court for the Eastern District of Texas, Sherman Division,
against Broadcom Corporation. The lawsuit alleges that Broadcom Corporation's
BCM3415 microchip infringes on the Company's U.S. patent no. 5,737,035. The
Company's complaint is seeking monetary damages resulting from the alleged
infringement as well as injunctive relief precluding Broadcom Corporation from
taking any further action which infringes the Company's 5,737,035 patent. On May
7, 2002 Broadcom Corporation filed a Motion for Leave to Supplement its
counterclaim asking the court's permission to add a counterclaim asserting
infringement by Microtune of Broadcom's U.S. patent no. 6,377,315. On June 19,
2002, Broadcom's counterclaim was denied. We are unable at this time to
determine whether the outcome of the litigation will have a material impact on
our results of operations or financial condition in any future period.
On July 19, 2002, Broadcom Corporation filed a lawsuit alleging patent
infringement in the United States Court for the Eastern District of Texas,
Sherman Division, against the Company. The lawsuit alleges that various
Microtune products infringe Broadcom's U.S. patent no. 6,377,315. The complaint
is seeking monetary damages resulting from the alleged infringement as well as
injunctive relief precluding Microtune from taking any further action which
infringes the U.S. patent no. 6,377,315. No scheduling order has been entered in
the case. We are unable at this time to determine whether the outcome of the
litigation will have a material impact on our results of operations or financial
condition in any future period.
Starting on July 11, 2001, multiple purported securities fraud class action
complaints were filed in the United States District Court for the Southern
District of New York. The Company is aware of at least three such complaints:
Berger v. Goldman, Sachs & Co., Inc. et al.; Atlas v. Microtune et al.; and
Ellis Investments Ltd. v. Goldman Sachs & Co., Inc. et al. The complaints are
brought purportedly on behalf of all persons who purchased the Company's common
stock from August 4, 2000 through December 6, 2000. The Atlas complaint names as
defendants Microtune, Douglas J. Bartek, the Company's Chairman and Chief
Executive Officer, Everett Rogers, the Company's former Chief Financial Officer
and Vice President of Finance and Administration and current Vice President of
Investor Relations, and several investment banking firms that served as
underwriters of our initial public offering. Microtune, Mr. Bartek and Mr.
Rogers were served with notice on the Atlas complaint on August 22, 2001,
however, they have not been served regarding the other referenced complaints.
The Berger and Ellis Investment Ltd. complaints assert claims against the
underwriters only. The complaints were consolidated and amended on May 29, 2002.
Among other things, the complaints allege liability under Sections 11 and 15 of
the Securities Act of 1933 and Section 10(b) and 20(a) of the Securities
Exchange Act of 1934, on the grounds that the registration statement for our
initial public offering did not disclose that (1) the underwriters had agreed to
allow certain of their customers to purchase shares in the offering in exchange
for excess commissions paid to the underwriters and (2) the underwriters had
arranged for certain of their customers to purchase additional shares in the
aftermarket at pre-determined prices. We are
-12-
aware that similar allegations have been made in lawsuits challenging over 180
other initial public offerings conducted in 1998, 1999, and 2000. No specific
amount of damages is claimed in the three complaints involving our initial
public offering. These cases are subject to the Private Securities Litigation
Reform Act of 1995. These cases and all of the other lawsuits filed in the
Southern District of New York making similar allegations have been coordinated
before the Honorable Shira A. Scheindlin. We believe that the allegations
against Microtune, Inc., Mr. Bartek and Mr. Rogers are without merit. We intend
to contest them vigorously, including by filing a motion to dismiss these cases.
We are unable at this time to determine whether the outcome of the litigation
will have a material impact on our results of operations or financial condition
in any future period. Furthermore, there can be no assurances regarding the
outcome of the litigation or any related claim for indemnification or
contribution between or among any of the underwriters and us.
9. Stock Plans
In 2001 and 2000, the Company recorded approximately $17.8 million and $16.5
million, respectively, of deferred stock option compensation as a result of
granting stock options with deemed exercise prices below the estimated fair
value per share of the Company's common stock at the date of grant prior to the
initial public offering of its common stock or as a result of the Transilica
acquisition. Deferred stock option compensation is being amortized and charged
to operations over the vesting period of the applicable options. As of June 30,
2002 and December 31, 2001, unamortized deferred stock compensation was $20.2
million and $28.3 million, respectively. The weighted-average remaining vesting
period of outstanding compensatory stock options was 1.7 years at December 31,
2001 based upon the annual stock option compensation amortization over the total
deferred stock option compensation. Actual vesting periods range from 2002 to
2006.
10. Restructuring Costs
In the fourth quarter of 2001 the Company recorded a $3.0 million charge related
to restructuring actions, primarily related to the consolidation of the
Company's manufacturing operations in the Philippines from two factories into a
single factory. Of the $3.0 million charge, $0.8 million related to severance
for 477 employees that had been paid out by year end, $1.3 million related to
write-offs of equipment to be disposed of, $0.4 million related to write-offs of
VAT receivables which will not be collectable and the remaining $0.5 million
related to the write-down of other assets and accrual of costs related to the
restructuring. The equipment which was written-off will no longer be used at the
Philippines factory and is expected to be completely disposed of by the end of
2002. At June 30, 2002 and December 31, 2001, accrued restructuring costs
totaled $0.6 million and $0.8 million, respectively. Such costs are expected to
be incurred by the end of 2002.
11. Geographic Information and Significant Customers
The Company's headquarters and main design center are located in Plano, Texas.
The Company has other sales offices and design centers in the United States. The
Company also has significant design centers in Germany and the Netherlands and a
manufacturing facility in the Philippines. Revenues by geographical area are
summarized below (in thousands):
Three Months Ended June 30, Six Months Ended June 30,
--------------------------- -----------------------------
2002 2001 2002 2001
----------- ----------- ------------ ------------
North America............... $ 4,767 $ 6,145 $ 9,812 $ 16,148
Europe...................... 4,920 3,778 9,567 7,456
Asia Pacific................ 13,492 4,425 22,043 8,321
Other....................... - 107 - 189
-------- -------- -------- ---------
$ 23,179 $ 14,455 $ 41,422 $ 32,114
======== ======== ======== =========
Sales to DaimlerChrysler and Askey accounted for approximately 19% and 12%,
respectively, of consolidated net revenues for the six months ended June 30,
2002. Sales to DaimlerChrysler accounted for approximately 24% of consolidated
net revenues for the six months ended June 30, 2001.
-13-
Sales to DaimlerChrysler, Ambit Microsystems and Askey accounted for
approximately 18%, 11% and 10%, respectively, of consolidated net revenues for
the three months ended June 30, 2002. Sales to DaimlerChrysler, Motorola/General
Instruments, Askey and Panasonic accounted for approximately 29%, 13%, 11% and
11%, respectively, of consolidated net revenues for the three months ended June
30, 2001.
Property and equipment are summarized below by location (in thousands):
June, 30 December 31,
2002 2001
--------- ------------
North America.................................................. $ 8,960 $ 7,131
Europe......................................................... 1,802 3,069
Philippines.................................................... 7,829 8,210
Asia Pacific................................................... 693 859
-------- --------
$ 19,284 $ 19,269
======== ========
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Certain statements contained in this Quarterly Report on Form 10-Q,
including, without limitation, statements in the discussion and analysis below
contain forward looking statements within the meaning of Section 27A of the
Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934,
that involve risks and uncertainties, such as statements for the plans,
objectives, expectations and intentions of Microtune. Such forward looking
statements often contain the words "plan", "could", "would", "may", "believe",
"anticipates", "estimates", "expects", and words of similar import, and may
constitute forward looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995. Readers are referred to the
disclosures under the caption "Factors Affecting Future Operating Results and
Stock Price" in our 2001 Form 10K Report and in our Form 10Q for the period
ended March 31, 2002 which is incorporated by this reference to such reports,
which describes factors that could cause actual events to differ materially from
those contained in the forward looking statements.
-14-
Financial Information
Since inception we have incurred significant losses, and as of June 30,
2002, we had an accumulated deficit of approximately $137.4 million. With the
acquisition of Transilica, our activities have expanded into the wireless
connectivity market with Bluetooth technology and 802.11 technology. We have not
previously designed, manufactured, or marketed in this area. Our limited
combined operating history combined with business risks, including those risks
set forth under the caption "Factors Affecting Future Operating Results and
Stock Price" on pages 32 - 48 of our 2001 Annual Report and in our Form 10-Q for
the period ended March 31, 2002, make the prediction of future results of
operations difficult, and as a result there can be no assurance that we will
achieve or sustain revenue growth or profitability.
The time lag between product availability and volume shipment can be significant
due to a sales process that includes customer qualification of our products, and
can take as long as two years during which we continue to evolve our technology.
We have invested heavily in research and development of our RF integrated
circuits and systems technology. We expect to increase our investment in these
areas in absolute dollars to further develop our RF products. This investment
will include the continued recruitment of RF and analog integrated circuit
designers and systems engineers, acquisition of test, development and production
equipment and expansion of facilities for research and manufacturing. As a
result, we may continue to incur substantial losses from operations for the
foreseeable future.
We use IBM, TSMC and X-FAB to manufacture our wafers and Amkor and Carsem to
assemble our integrated circuits. We perform final testing, packaging and
shipping of our integrated circuits at our facility in Plano, Texas, and
overseas at Amkor, Carsem and United Test & Assembly Center. With respect to our
tuner modules, we perform most of our assembly and calibration functions in our
factory in Manila, Philippines. Test functions of our tuner modules are
performed in our factory in Manila, Philippines, at our facility in Huntsville,
Alabama and at AMB Electric in Landshut, Germany.
Results of Operations
The following table sets forth, for the periods presented, certain data
from our consolidated statements of operations expressed as a percentage of net
revenues:
-15-
Three Months Ended June 30, Six Months Ended June 30,
--------------------------------- ------------------------------
2002 2001 2002 2001
---------- ---------- ---------- ----------
Net revenues ........................... 100 % 100 % 100 % 100 %
Cost of revenues ....................... 64 70 63 75
---------- ---------- ---------- ----------
Gross margin ........................... 36 30 37 25
Operating expenses:
Research and development:
Stock option compensation ........ 11 2 12 2
Other ............................ 47 25 47 24
---------- ---------- ---------- ----------
58 27 59 26
Selling, general and administration:
Stock option compensation ........ 3 3 4 3
Other ............................ 21 29 26 26
---------- ---------- ---------- ----------
24 32 30 29
Amortization of intangible assets
and goodwill ....................... 12 13 13 11
---------- ---------- ---------- ----------
Total operating expenses ......... 94 72 102 66
---------- ---------- ---------- ----------
Loss from operations ................... (58) (42) (65) (41)
Other income (expense) ................. 2 (2) 2 2
---------- ---------- ---------- ----------
Loss before income taxes ............... (56) (44) (63) (39)
Income tax expense (benefit) ........... 1 (1) 1 (2)
---------- ---------- ---------- ----------
Net loss ............................... (57)% (43)% (64)% (37)%
========== ========== ========== ==========
Comparison of the Three and Six Months Ended June 30, 2002 and 2001
Net Revenues
Our net revenues increased $9.3 million, or 29%, to $41.4 million in the six
months ended June 30, 2002, from $32.1 million in the six months ended June 30,
2001. Our net revenues increased $8.7 million, or 60%, to $23.2 million in the
three months ended June 30, 2002, from $14.5 million in the three months ended
June 30, 2001. This increase is primarily due to growth experienced in the
broadband communications sector, as well as sales from the initial production in
the Bluetooth(TM) wireless connectivity products during the first half of 2002.
Sales to DaimlerChrysler and Askey accounted for approximately 19% and 12%,
respectively, of consolidated net revenues for the six months ended June 30,
2002. Sales to DaimlerChrysler accounted for approximately 24% of consolidated
net revenues for the six months ended June 30, 2001. Sales to DaimlerChrysler,
Ambit Microsystems and Askey accounted for approximately 18%, 11% and 10%,
respectively, of consolidated net revenues for the three months ended June 30,
2002. Sales to DaimlerChrysler, Motorola/General Instruments, Askey and
Panasonic accounted for approximately 29%, 13%, 11% and 11%, respectively, of
consolidated net revenues for the three months ended June 30, 2001. Sales to our
twenty largest customers, including sales to their respective manufacturing
subcontractors, accounted for approximately 94% and 95% of our revenues for the
six months ended June 30, 2002 and 2001, respectively. We could experience
pricing pressures at any point in the future for our products.
Cost of Revenues
Cost of revenues includes the cost of purchases for subcontracted
materials, integrated circuit assembly, factory labor and overhead and warranty
costs. In addition, we perform final testing of our products and incur cost for
the depreciation of our test and handling equipment, labor, quality assurance
and logistics. Our subcontracted materials experience cyclical trends in pricing
due to fluctuations in demand. Our costs of revenues in the six months ended
June 30, 2002 were $26.3 million, or 63% of net revenues, compared to $24.2
million, or 75% of net revenues, in the six months ended June 30, 2001. Our
costs of revenues in the three months ended June 30, 2002 were $14.8 million, or
64% of net revenues, compared to $10.1 million, or 70% of net revenues, in the
three months ended June 30, 2001. Our gross margins in the three and six months
ended
-16-
June 30, 2002 increased compared to the same periods for 2001 as a result of the
consolidation of our factory in Manila in the fourth quarter 2001 and strength
in silicon sales. In the near future, we believe gross margins may continue to
improve due to increased efficiencies in our factories and increasing levels of
our silicon in our product mix partially offset by increased selling price
pressures. However, we do not expect gross margins to consistently increase each
quarter. As we add new products to our manufacturing lines, we will incur higher
cost of revenues, which may be offset over time as we negotiate volume discounts
with our suppliers and become more efficient in manufacturing each new product.
Research and Development
Research and development expenses consist of personnel-related expenses,
lab supplies, training, prototype subcontract materials, and prototype assembly.
We expense all of our research and development costs in the period incurred.
Research and development efforts are currently focused primarily on development
of the next generation of RF products. Research and development expenses
including noncash stock compensation for the six months ended June 30, 2002 were
$24.8 million, or 59% of net revenues, compared to $8.2 million, or 26% of net
revenues, in the six months ended June 30, 2001. Research and development
expenses including noncash stock compensation for the three months ended June
30, 2002 were $13.4 million, or 58% of net revenues, compared to $3.9 million,
or 27% of net revenues, in the three months ended June 30, 2001. The increase in
research and development expenses primarily reflects the acquisitions of SPaSE
in October 2001 and Transilica in November 2001, as well as continued recruiting
of engineers and increased prototype activity in the silicon design process. We
expect that research and development expenses will increase in absolute dollars
in future periods, and may fluctuate significantly as a percentage of total
revenues from period to period. Stock option compensation related to research
and development was $5.2 million in the six months ended June 30, 2002 and $0.7
million in the six months ended June 30, 2001 and $2.6 million in the three
months ended June 30, 2002 and $0.3 million in the three months ended June 30,
2001, but does not affect our total stockholders' equity or cash flows. The
increase in stock option compensation is due to the Transilica acquisition.
See Note 2 to the financial statements for a discussion on the status of
the Company's acquired in-process research and development projects.
Selling, General and Administration
Selling, general and administration expenses include our personnel-related
expenses for administration, finance, human resources, marketing and sales, and
information technology departments, and include expenditures related to legal,
public relations and financial advisors. In addition, these expenses include
promotional and marketing costs, sales commissions, shipping costs to customers
and reserves for bad debts. Selling, general and administration expenses
including noncash stock compensation for the six months ended June 30, 2002 were
$11.8 million, or 30% of net revenues, compared to $9.2 million, or 29% of net
revenues, in the six months ended June 30, 2001. Selling, general and
administration expenses including noncash stock compensation for the three
months ended June 30, 2002 were $5.7 million, or 24% of net revenues, compared
to $4.7 million, or 32% of net revenues, in the three months ended June 30,
2001. The increase relates to significant increases in legal expenses due to the
lawsuit we filed alleging patent infringement in the United Sates Court for the
Eastern District of Texas, Sherman Division, against Broadcom Corporation and
the additional ongoing expenses resulting from the acquisitions of SPaSE in
October 2001 and Transilica in November 2001. Stock option compensation related
to selling, general and administration was $1.5 million and $1.0 million in the
six months ended June 30, 2002 and 2001, respectively, and $0.7 million and $0.4
million in the three months ended June 30, 2002 and 2001, respectively, but does
not affect our total stockholders' equity or cash flows.
-17-
Amortization of Intangible Assets and Goodwill
Amortization of intangible assets for the six months ended June 30, 2002
was $5.4 million compared to amortization of intangible assets and goodwill of
$3.6 million for the six months ended June 30, 2001. Amortization of intangible
assets for the three months ended June 30, 2002 was $2.7 million compared to
amortization of intangible assets and goodwill of $1.8 million for the three
months ended June 30, 2001. Amortization of intangible assets and goodwill
results principally from our combinations with Microtune KG, SPaSE and
Transilica. All combinations were accounted for using the purchase method of
accounting. Effective January 1, 2002 acquired goodwill and intangible assets
with indefinite lives are no longer amortized, but are subject to annual
impairment tests in accordance with SFAS No. 142, Goodwill and Other Intangible
Assets. Application of the non-amortization provisions of SFAS No. 142 decreased
amortization of intangible assets and goodwill by $2.8 million in the six months
ended June 30, 2002. However, amortization of recorded intangible assets
increased by $4.6 million in the six months ended June 30, 2002 as the result of
the acquisitions of Transilica and SPaSE.
Other Income and Expense
Other income consists of interest income from investment of cash and cash
equivalents, foreign currency gains and losses and other non-operating income
and expenses.
Interest income for the six months ended June 30, 2002 was $1.7 million
compared to $1.9 million for the six months ended June 30, 2001. Interest income
for the three months ended June 30, 2002 and 2001 was $0.8 million. The decrease
in interest income is mainly due to the significant decrease of approximately
2.5% in interest rates for the six months ended June 30, 2002 as compared to the
six months ended June 30, 2001.
Our functional currency is the U.S. Dollar. The impact from the
remeasurement of financial statements of the Subsidiaries not denominated in
U.S. Dollars is recognized currently in our results of operations as a component
of foreign currency gains and losses. The decrease in the foreign currency loss
is mainly due to the weakening of the U.S. Dollar against the Euro during the
latter half of the second quarter of 2002.
Income Taxes
Prior to our combination with Microtune KG, we had not recognized any
provision for income taxes. For U.S. federal income tax purposes, at December
31, 2001, the Company had a net operating loss carryforward of approximately
$72.6 million and an unused research and development credit carryforward of
approximately $1.4 million, which begins to expire in 2011. Due to the
uncertainty of our ability to utilize these deferred tax assets, they have been
fully reserved.
The provision for the three and six months ended June 30, 2002 and the
benefit for the three and six months ended June 30, 2001 consists of foreign
income taxes and U.S. state taxes. Effective January 1, 2001, the German
government reduced corporate tax rates of retained earnings, previously 40%, and
earnings distributed as a dividend, previously 30%, to a flat rate of 25%.
Liquidity and Capital Resources
As of June 30, 2002, we had net working capital of $161.3 million,
including $148.7 million of cash and cash equivalents compared to net working
capital of $175.4 million, including $173.1 million of cash and cash equivalents
at December 31, 2001. Highly liquid investments with original maturities of
three months or less are considered to be cash equivalents. Cash and cash
equivalents consist of bank deposits, money market funds and asset-backed
commercial paper. Our investments in asset-backed commercial paper are comprised
of high-quality securities in accordance with the Company's investment policy.
Operating activities used $20.6 million in cash during the six months ended
June 30, 2002 compared to $0.5 million used in operating activities for the six
months ended June 30, 2001. The increase in cash used is due to increased
expenses primarily from acquisitions. In addition, accounts receivable increased
due to the growth in our sales volume, inventories have increased to meet
expected customer demand in third quarter
-18-
2002, and accrued expenses have decreased mainly due to reduction of deferred
revenue and the timing of various vendor payments.
Investing activities used $3.5 million in cash during the six months ended
June 30, 2002 compared to $7.4 million used in investing activities for the six
months ended June 30, 2001. Investments in property and equipment were $3.2
million and $6.4 million in the six months ended June 30, 2002 and 2001,
respectively. We expect capital expenditures to range from $1.0 million to $4.0
million per quarter through 2002.
Financing activities generated $0.3 million in cash during the six months
ended June 30, 2002 compared to $2.4 million provided by financing activities
for the six months ended June 30, 2001. We received cash of approximately $1.3
million and $1.7 million from the sale of common stock upon the exercise of
employee stock options and from shares purchased under our Employee Stock
Purchase Plan during the six months ended June 30, 2002 and 2001, respectively.
During the first quarter of 2002, we also incurred $0.5 million for the
remainder of costs from our December 18, 2001 follow-on public offering when we
issued 5 million shares of common stock resulting in net proceeds of
approximately $109 million.
Microtune KG has a credit agreement with a bank that provides for
borrowings of up to $1.0 million. The agreement is cancelable upon notification
by the bank. Borrowings under this agreement bear interest at a rate determined
from time to time by the bank. The rate was 7.25% at June 30, 2002. At June 30,
2002, no borrowings were outstanding under this credit agreement.
We believe that our current cash balance will provide adequate liquidity to
fund our operations and meet our other cash requirements through at least 2003.
However, we may find it necessary or we may choose to seek additional financing
if our investment plans change, or if industry or market conditions are
favorable for a particular type of financing. If we raise additional funds
through the issuance of equity or convertible debt securities, the percentage
ownership of our stockholders will be reduced.
Item 3. Qualitative and Quantitative Disclosures About Market Risk
Information concerning market risk is contained in our 2001 Form 10-K
Report and in our Form 10-Q for the period ended March 31, 2002 and is
incorporated by reference to these reports.
Part II Other Information
Item 1. Legal Proceedings
From time to time, we may be involved in litigation relating to claims
arising out of our ordinary course of business. We are not currently a party to
any material litigation, except as described below.
On January 24, 2001, we filed a lawsuit alleging patent infringement in the
United States Court for the Eastern District of Texas, Sherman Division, against
Broadcom Corporation. The lawsuit alleges that Broadcom Corporation's BCM3415
microchip infringes on our U.S. patent no. 5,737,035. In our complaint, we are
seeking monetary damages resulting from the alleged infringement as well as
injunctive relief precluding Broadcom Corporation from taking any further action
which infringes our 5,737,035 patent. On May 7, 2002 Broadcom Corporation filed
a Motion for Leave to Supplement its counterclaim asking the court's permission
to add a counterclaim asserting infringement by Microtune of Broadcom's U.S.
patent no. 6,377,315. On June 19, 2002 Broadcom's counterclaim was denied. We
are unable at this time to determine whether the outcome of the litigation will
have a material impact on our results of operations or financial condition in
any future period.
On July 19, 2002, Broadcom Corporation filed a lawsuit alleging patent
infringement in the United States Court for the Eastern District of Texas,
Sherman Division, against the Company. The lawsuit alleges that various
Microtune products infringe Broadcom's U.S. patent no. 6,377,315. The complaint
is seeking monetary
-19-
damages resulting from the alleged infringement as well as injunctive relief
precluding Microtune from taking any further action which infringes the U.S.
patent no. 6,377,315. No scheduling order has been entered in the case. We are
unable at this time to determine whether the outcome of the litigation will have
a material impact on our results of operations or financial condition in any
future period.
Starting on July 11, 2001, multiple purported securities fraud class action
complaints were filed in the United States District Court for the Southern
District of New York. We are aware of at least three such complaints: Berger v.
Goldman, Sachs & Co., Inc. et al.; Atlas v. Microtune et al.; and Ellis
Investments Ltd. v. Goldman Sachs & Co., Inc. et al. The complaints are brought
purportedly on behalf of all persons who purchased our common stock from August
4, 2000 through December 6, 2000. The Atlas complaint names as defendants
Microtune, Douglas J. Bartek, our Chairman and Chief Executive Officer, Everett
Rogers, our former Chief Financial Officer and Vice President of Finance and
Administration and current Vice President of Investor Relations, and several
investment banking firms that served as underwriters of our initial public
offering. Microtune, Mr. Bartek and Mr. Rogers were served with notice on the
Atlas complaint on August 22, 2001, however, they have not been served regarding
the other referenced complaints. The Berger and Ellis Investment Ltd. complaints
assert claims against the underwriters only. The complaints were consolidated
and amended on May 29, 2002. Among other things, the complaints allege liability
under Sections 11 and 15 of the Securities Act of 1933 and Section 10(b) and
20(a) of the Securities Exchange Act of 1934, on the grounds that the
registration statement for our initial public offering did not disclose that (1)
the underwriters had agreed to allow certain of their customers to purchase
shares in the offering in exchange for excess commissions paid to the
underwriters and (2) the underwriters had arranged for certain of their
customers to purchase additional shares in the aftermarket at pre-determined
prices. We are aware that similar allegations have been made in lawsuits
challenging over 180 other initial public offerings conducted in 1998, 1999, and
2000. No specific amount of damages is claimed in the three complaints involving
our initial public offering. These cases are subject to the Private Securities
Litigation Reform Act of 1995. These cases and all of the other lawsuits filed
in the Southern District of New York making similar allegations have been
coordinated before the Honorable Shira A. Scheindlin. We believe that the
allegations against Microtune, Inc., Mr. Bartek and Mr. Rogers are without
merit. We intend to contest them vigorously, including by filing a motion to
dismiss these cases. We are unable at this time to determine whether the outcome
of the litigation will have a material impact on our results of operations or
financial condition in any future period. Furthermore, there can be no
assurances regarding the outcome of the litigation or any related claim for
indemnification or contribution between or among any of the underwriters and us.
Item 2. Changes In Securities and Use of Proceeds
Not applicable.
Item 3. Defaults Upon Senior Securities
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
At our Annual Meeting of the Stockholders held on April 17, 2002 in Plano,
Texas, our stockholders voted on the following matters.
1. To approve an amendment to the 2000 Director Option Plan that will affect
the following changes:
(i) increase the number of shares of our common stock subject to initial
option grants under the Plan from 10,000 shares to 15,000 shares; and
-20-
(ii) increase the number of shares of our common stock subject to
subsequent option grants under the Plan on and after the date of this
Annual Meeting of Stockholders from 5,000 to 7,500.
The amendment passed.
Against or
For Withheld
--------- ----------
Amendment to 2000 Director Option Plan 40,257,854 5,312,140
2. To ratify the appointment of Ernst & Young LLP as the Company's independent
auditors for the year ended December 31, 2002. The appointment of Ernst &
Young LLP was ratified.
Against or
For Withheld
--------- ----------
Ratification of Ernst & Young LLP as 43,675,925 1,894,069
independent auditors
Item 5. Other Information
On July 19, 2002 the Board of Directors authorized a stock repurchase
program to acquire outstanding common stock on the open market or negotiated
transactions. Under the program, up to 10% of the outstanding shares of
Microtune common stock could be reacquired.
On August 8, 2002, Microtune began closing the design center located in
Singapore. The closing is expected to be completed within 30 days and will
result in the termination of employment for approximately 20 individuals. The
closing is not expected to affect any current research and development projects.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
12. Computation of Ratio of Earnings to Fixed Charges
(b) Reports on Form 8-K
There were no Form 8-Ks filed during the quarter ended June 30, 2002.
-21-
Signatures
In accordance with the requirements of the Securities Exchange Act of 1934
as amended, the Registrant has caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
Date: August 14, 2002
/s/ Nancy A. Richardson
--------------------------------------------
Nancy A. Richardson
Chief Financial Officer
(Principal Financial and Accounting Officer)
-22-