UNITED STATES
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 September 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 0-17739
RAMTRON INTERNATIONAL CORPORATION
- ------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 84-0962308
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(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
1850 Ramtron Drive, Colorado Springs, CO 80921
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(Address of principal executive offices) (Zip Code)
(Registrant's telephone number, including area code) (719) 481-7000
Indicate by check mark whether 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 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 the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common Stock, $.01 Par Value - 22,096,758 as of November 11, 2002.
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
Page-1
RAMTRON INTERNATIONAL CORPORATION
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(Amounts in thousands, except par value and share amounts)
Sep. 30, Dec. 31,
2002 2001
--------- ---------
ASSETS
Current assets:
Cash and cash equivalents $ 6,767 $ 3,259
Accounts receivable, less allowances
of $345 and $294, respectively 6,088 5,224
Inventories 7,435 7,475
Other current assets 94 244
--------- ---------
Total current assets 20,384 16,202
Property, plant and equipment, net 4,846 4,941
Intangible assets, net 14,125 14,676
Other assets 842 --
--------- ---------
Total assets $ 40,197 $ 35,819
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 5,245 $ 3,900
Accrued liabilities 1,214 1,038
Deferred revenue 3,988 7,152
--------- ---------
Total current liabilities 10,447 12,090
Deferred revenue 3,964 3,612
Long-term promissory note, net of
unamortized discount of $2,413 5,587 --
--------- ---------
Total liabilities 19,998 15,702
Redeemable preferred stock, $.01 par value,
10,000,000 shares authorized: 0 and 1,092 shares
issued and outstanding, respectively, entitled to
$1,000 per share plus accrued and unpaid
dividends in liquidation -- 1,078
--------- ---------
Stockholders' Equity:
Common stock, $.01 par value, 50,000,000 shares
authorized: 22,083,343 and 22,081,443 shares
issued and outstanding, respectively 221 221
Additional paid-in capital 234,413 231,479
Accumulated deficit (214,435) (212,661)
--------- ---------
Total stockholders' equity 20,199 19,039
--------- ---------
$ 40,197 $ 35,819
========= =========
See accompanying notes to consolidated financial statements.
Page-2
RAMTRON INTERNATIONAL CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2002 AND 2001
(Unaudited)
(Amounts in thousands, except per share amounts)
Three Months Ended Nine Months Ended
September 30, September 30,
2002 2001 2002 2001
-------- -------- -------- --------
Revenue:
Product sales $10,967 $5,037 $31,303 $10,685
License and development fees 1,996 1,333 4,812 1,333
Royalties 238 24 357 257
Customer-sponsored research and development 624 1,141 2,621 2,065
-------- --------- --------- ---------
13,825 7,535 39,093 14,340
-------- --------- --------- ---------
Costs and expenses:
Cost of product sales 7,547 4,013 21,946 8,137
Research and development 2,667 3,492 8,071 10,893
Customer-sponsored research and development 496 902 1,569 1,826
Sales, general and administrative 2,731 2,739 8,625 9,745
-------- --------- --------- ---------
13,441 11,146 40,211 30,601
-------- --------- --------- ---------
Operating income (loss) 384 (3,611) (1,118) (16,261)
Interest expense, related party (109) (280) (199) (836)
Interest expense, other (182) (24) (369) (28)
Other income, net 60 47 8 267
Minority interest in net loss of subsidiary -- -- -- 267
Loss on disposition and impairment
of marketable equity securities -- (11,945) -- (11,945)
--------- --------- --------- ---------
Net income (loss) $ 153 $(15,813) $ (1,678) $(28,536)
========= ========= ========= =========
Income (loss) per common share:
Net income (loss) $ 153 $(15,813) $ (1,678) $(28,536)
Dividends on redeemable preferred stock (12) (53) (82) (106)
Accretion of redeemable preferred stock (2) (6) (14) (17)
-------- --------- --------- ---------
Net income (loss) applicable
to common shares $ 139 $(15,872) $ (1,774) $(28,659)
======== ========= ========= =========
Net income (loss) per share - basic $0.01 $(0.72) $(0.08) $(1.37)
======== ======== ======== ========
Net income (loss) per share - diluted $0.01 $(0.72) $(0.08) $(1.37)
======== ======== ======== ========
Weighted average shares outstanding:
Basic 22,083 22,078 22,082 20,873
======== ======== ======== ========
Diluted 22,658 22,078 22,082 20,873
======== ======== ======== ========
See accompanying notes to consolidated financial statements.
Page-3
RAMTRON INTERNATIONAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2002 AND 2001
(Unaudited)
(Amounts in thousands)
2002 2001
--------- --------
Cash flows from operating activities:
Net loss $(1,678) $(28,536)
Adjustments used to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization 1,476 2,560
Amortization of debt discount 260 412
Stock-based compensation -- 202
Minority interest in subsidiary -- (267)
Loss on abandonment of intangible assets 140 --
Stock options and warrants issued for services 71 --
Loss on disposition and impairment of
marketable equity securities -- 11,945
Changes in assets and liabilities:
Accounts receivable (864) (1,898)
Inventories 40 (1,805)
Accounts payable and accrued liabilities 1,521 (2,315)
Deferred revenue (2,812) 6,749
Other 240 15
--------- ---------
Net cash used in operating activities (1,606) (12,938)
--------- ---------
Cash flows from investing activities:
Purchase of property, plant and equipment (698) (407)
Intellectual property (272) (462)
Proceeds on sale of investment -- 4,710
--------- ---------
Net cash provided by (used in) investing activities (970) 3,841
--------- ---------
Cash flows from financing activities:
Proceeds from debenture 8,000 --
Redemption of convertible preferred stock (1,174) --
Convertible debenture issuance costs (746) --
Issuance of common stock 4 10,382
--------- ---------
Net cash provided by financing activities 6,084 10,382
--------- ---------
Net increase in cash and cash equivalents 3,508 1,285
Cash and cash equivalents, beginning of period 3,259 7,256
--------- ---------
Cash and cash equivalents, end of period $ 6,767 $ 8,541
========= =========
Supplemental cash flow information:
Cash paid for interest $ 112 $ 453
========= =========
Warrants issued for debt issuance costs $ 190 $ --
========= =========
See accompanying notes to consolidated financial statements.
Page-4
RAMTRON INTERNATIONAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2002
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NOTE 1. BASIS OF PRESENTATION AND MANAGEMENT OPINION
The accompanying consolidated financial statements at September 30, 2002 and
2001 and for the three and nine months then ended have been prepared from the
books and records of Ramtron International Corporation, the ("Company"),
without audit. The statements reflect all normal recurring adjustments which,
in the opinion of the Company's management, are necessary for the fair
presentation of financial position, results of operations and cash flows for
the periods presented.
Certain information and disclosures normally included in financial statements
have been omitted under Securities and Exchange Commission regulations. It is
suggested that the accompanying financial statements be read in conjunction
with the Company's annual report on Form 10-K for the year ended December 31,
2001. The results of operations for the period ended September 30, 2002 are
not necessarily indicative of the operating results for the full year.
NOTE 2. NEW ACCOUNTING STANDARDS
In June 2001, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 142, "Goodwill and Other
Intangible Assets" (SFAS No. 142). See Note 8 for further information
regarding the adoption of SFAS No. 142.
In June 2001, the FASB issued Statement of Financial Accounting Standards
No. 143, "Accounting for Asset Retirement Obligations" (SFAS No. 143).
SFAS No. 143 requires entities to record the fair value of a liability for
an asset retirement obligation in the period in which it is incurred. When
the liability is initially recorded, the entity capitalizes a cost by
increasing the carrying amount of the related long-lived asset. Over time,
the liability is accreted to its present value each period, and the
capitalized cost is depreciated over the useful life of the related asset.
Upon settlement of the liability, an entity either settles the obligation
for the recorded amount or incurs a gain or loss upon settlement. SFAS No.
143 is effective for fiscal years beginning after June 15, 2002. The
Company will adopt SFAS No. 143 on January 1, 2003. The Company does not
believe the adoption of SFAS No. 143 will have a material impact on its
financial position or results of operations.
In August 2001, the FASB issued Statement of Financial Accounting Standards
No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets"
(SFAS No. 144). SFAS No. 144 establishes a single accounting model for long-
lived assets to be disposed of by sale and requires that those long-lived
Page-5
assets be measured at the lower of carrying amount or fair value less cost to
sell, whether reported in continuing operations or in discontinued operations.
SFAS No. 144 is effective for fiscal years beginning after December 15, 2001.
The Company adopted SFAS No. 144 on January 1, 2002. There was no material
impact on the Company's financial position or results of operations from the
adoption of SFAS No. 144.
In June 2002, the FASB issued SFAS No. 146, "Accounting for Exit or Disposal
Activities," (SFAS No. 146). SFAS No. 146 addresses the recognition,
measurement and reporting of costs that are associated with exit and disposal
activities, including restructuring activities that are currently accounted
for pursuant to the guidance set forth in EITF Issue No. 94-3, "Liability
Recognition for Certain Employee Termination Benefits and Other Costs to Exit
an Activity." SFAS No. 146 will be effective for exit or disposal activities
that are initiated after December 31, 2002, with early application encouraged.
The Company will adopt SFAS No. 146 on January 1, 2003.
NOTE 3. INVENTORIES
Inventories consist of:
Sep. 30, Dec. 31,
2002 2001
--------- --------
(in thousands)
Finished goods $3,710 $4,501
Work in process 3,725 2,974
------ ------
Total $7,435 $7,475
====== ======
NOTE 4. EARNINGS PER SHARE
The Company calculates its income (loss) per share pursuant to Statement of
Financial Accounting Standards No. 128, "Earnings Per Share" ("SFAS No. 128").
Under SFAS No. 128, basic income per share is computed by dividing reported
income (loss) available to common stockholders by weighted average shares
outstanding. Diluted income (loss) per share reflects the potential
dilution assuming the issuance of common shares for all dilutive potential
common shares outstanding during the period. In periods where the Company
recorded a net loss, all potentially dilutive securities, including warrants
and stock options, would be anti-dilutive and thus, are excluded from diluted
income per share.
Page-6
The following table sets forth the calculation of income (loss) per common
share for the three and nine months ended September 30, 2002 and 2001 (in
thousands, except per share amounts):
Three Months Ended Nine Months Ended
September 30, September 30,
2002 2001 2002 2001
-------- -------- -------- --------
Net income (loss) applicable to
common shares $ 139 $(15,872) $(1,774) $(28,659)
======== ======== ======== ========
Common shares outstanding:
Historical common shares
outstanding at beginning
of period 22,083 22,040 22,081 17,477
Weighted average common
shares issued during period -- 38 1 3,396
-------- -------- -------- --------
Weighted average common shares at
end of period - basic 22,083 22,078 22,082 20,873
Effect of other dilutive securities:
Options 421 -- -- --
Warrants 154 -- -- --
-------- -------- -------- --------
Weighted average shares outstanding at
end of period - diluted 22,658 22,078 22,082 20,873
======== ======== ======== ========
As of September 30, 2002, the Company had several equity instruments or
obligations that could create future dilution to the Company's common
shareholders and are not currently classified as outstanding common shares of
the Company. The following table details such instruments and obligations and
the common stock equivalent for each. The common stock number is based on
specific conversion or issuance assumptions pursuant to the corresponding
terms of each individual instrument or obligation. These potential stock
issuances are excluded from earnings per share calculations because their
effect was anti-dilutive:
Three and
Three Months Nine Months Nine Months
Ended Ended Ended
Sep. 30, 2002 Sep. 30, 2002 Sep. 30, 2001
------------- ------------- -------------
(in thousands)
Warrants 1,489 2,394 3,521
Options 2,024 3,729 2,839
Convertible preferred stock -- -- 212
Convertible notes -- -- 1,400
Convertible debentures 2,123 2,123 --
Page-7
NOTE 5. CONTINGENCIES
PATENT INTERFERENCE PROCEEDING. A patent interference proceeding, which was
declared in 1991 in the United States Patent and Trademark Office (the "Patent
Office") between the Company, National Semiconductor Corporation ("National")
and the Department of the Navy in regard to one of the Company's issued United
States patents, is continuing. The patent involved covers a basic
ferroelectric memory cell design invention the Company believes is of
fundamental importance to its FRAM business in the United States. An
interference is declared in the Patent Office when two or more parties each
claim to have made the same invention. The interference proceeding is
therefore conducted to determine which party is entitled to the patent rights
covering the invention. In the present interference proceeding, the Company
is the "senior" party, which means that it is in possession of the issued
United States Patent and retains all rights associated with such patent,
pending the ultimate outcome of the patent interference proceeding. The
other two parties involved in the interference are the "junior" parties, and
each has the burden of proof of convincing the Patent Office by a
preponderance of the evidence that it was the first to invent the subject
matter of the invention and thus is entitled to the corresponding patent
rights. Only the Company and National filed briefs in this matter. Oral
arguments were presented before the Patent Office on March 1, 1996.
The Patent Office decided the interference on May 6, 1997, holding that all of
the claims were patentable to National, one of the "junior" parties. The
other "junior" party, the Department of the Navy, was not granted any patent
claims pursuant to the interference proceedings. On June 20, 1997, the
Company filed a Request for Reconsideration with the Patent Office concerning
the interference decision. Pursuant to the Request for Reconsideration, the
Company requested that five separate issues be reconsidered because, from the
Company's perspective, they were either ignored or misconstrued in the
original decision. A decision on the Request for Reconsideration was issued
on November 19, 1998, again holding that all of the claims were patentable to
National. On January 9, 1999, the Company appealed the decision of the Patent
Office on one of the interference counts directly to the Court of Appeals for
the Federal Circuit. On February 2, 2000, the Court of Appeals vacated and
remanded the decision of the Patent Office for further proceedings. The
Company also filed complaints in Federal District Court in the District of
Columbia seeking a review of the decision of the Patent Office on the
remaining interference counts, which are still pending. The Company remains
in possession of the issued United States Patent and retains all rights
associated with such patent while it pursues its appeal options. The "junior"
party has received no rights associated with this patent decision and will not
receive any such rights as long as the appeal process continues. Under a
Patent Office decision on August 13, 2001, the Company was found to be the
first to invent, however, the Patent Office concluded that the enablement and
best-mode requirements for patent issuance had not been met by the Company.
In October 2001, both the Company and National filed a Request for
Reconsideration with the Patent Office. The Patent Office response is still
pending. If the Company's Request for Reconsideration is denied, the Company
intends to appeal the decision of the Patent Office.
Page-8
If the Company's patent rights that are the subject of the interference
proceeding are ultimately lost or significantly compromised and National
Semiconductor or another third party are successful in obtaining a patent
covering the Company's ferroelectric technology, the Company would be
precluded from producing, using or selling FRAM products in the United States
using the Company's existing design architecture, absent being able to obtain
a suitable license to exploit such rights. If such patent rights are
ultimately awarded to National, and if a license to such rights is not
subsequently entered into by the Company with National, National could use the
patent to prevent the manufacture, use or sale by the Company, and/or its
licensees, within the United States of any products that come within the scope
of such patent rights, which would include all FRAM products as currently
designed, and which would materially adversely affect the Company. The
Company has vigorously defended its patent rights in the interference
proceeding and will continue such efforts. The Company is uncertain as to the
ultimate outcome of the interference proceeding, as well as to the resulting
effects upon the Company's financial position or results of operations.
NOTE 6. LONG-TERM DEBT
On March 14, 2002, the Company signed an agreement to issue $8.0 million
of 5 year, 5% fixed rate, convertible debentures to Infineon Technologies AG
("Infineon"), Halifax Fund ("Halifax"), managed by The Palladin Group, L.P.
and Bramwell Capital Corporation ("Bramwell"), managed by Cavallo Capital.
Prior to issuance of the convertible debentures, Infineon owned 4,430,005
shares of Ramtron's outstanding common stock, or 20% of its outstanding
shares, and 20% of the outstanding shares of the Company's subsidiary,
Enhanced Memory Systems, Inc. ("EMS"). On March 29, 2002, the Company issued
a $3 million debenture to Infineon. The Halifax and Bramwell debentures,
totaling $5 million, were issued on April 1, 2002. The debentures are
convertible into the Company's common stock at a fixed conversion price of
$3.769, which is equal to 110% of the five-day volume weighted average price
("VWAP") of the Company's common stock prior to the transaction signing. The
debentures issued to Halifax and Bramwell are secured by a Deed of Trust on
the Company's headquarters facility in Colorado Springs, Colorado. The
Infineon debenture is secured by a security interest the Company granted to
Infineon in certain of its accounts receivable and patents.
In addition, 700,435 5-year common stock warrants were issued to the
investors with an exercise price of $4.28 per share. The warrants were valued
using the Black Scholes option pricing method with a resulting total value of
approximately $1,773,000. The following assumptions were used to value
these warrants: risk free interest rate of 4.93%, expected yield of 0%,
expected life of five years, and expected volatility of 113%. This amount is
accounted for as a discount to the outstanding debentures and will be
amortized over the remaining life of the debentures as a charge to interest
expense. The unamortized discount pertaining to the outstanding debentures
and warrants as of September 30, 2002 is approximately $1,603,000.
Page-9
As a result of the conversion terms of these debentures, a beneficial
conversion feature of $900,000 was created. This beneficial conversion
feature is recorded as an increase to additional paid-in-capital and as a debt
discount to the outstanding debentures. This discount will be amortized over
the remaining life of the debentures as a charge to interest expense. The
unamortized discount pertaining to the outstanding debentures as of
September 30, 2002 is approximately $810,000.
NOTE 7. SEGMENT INFORMATION
The Company's reportable segments are those that are based on the Company's
method of internal reporting, which generally segregates the strategic
business units based upon differences in products and distribution channels.
The Company's operations are conducted through three business segments. The
Company's FRAM business licenses, manufactures and distributes ferroelectric
nonvolatile random access memory products. EMS licenses, manufactures and
distributes high-speed DRAM products. The Company's wholly owned subsidiary,
Mushkin Inc. ("Mushkin"), distributes high-speed DRAM products in the
aftermarket through both direct and e-commerce sales channels.
The accounting policies for determining segment net income or loss are the
same used in the consolidated financial statements. There are no internal
sales between segments.
The following table presents segment information for the three months ended
September 30, 2002 and 2001.
2002 2001
---------------------------- -----------------------------
FRAM EMS Mushkin FRAM EMS Mushkin
-------- -------- -------- -------- -------- ---------
(in thousands)
Revenue:
Product sales $ 6,668 $ 248 $ 4,051 $ 1,277 $ 231 $ 3,529
License and
development fees 1,996 -- -- 1,333 -- --
Royalties 238 -- -- 24 -- --
Customer-sponsored
research and development 235 389 -- -- 1,141 --
-------- -------- -------- -------- -------- --------
9,137 637 4,051 2,634 1,372 3,529
Costs and expenses 6,763 2,671 4,007 4,315 3,172 3,659
-------- -------- -------- -------- -------- --------
Operating income (loss) 2,374 (2,034) 44 (1,681) (1,800) (130)
Other (51) (4) -- -- -- --
-------- -------- -------- -------- -------- --------
Segment income (loss) $ 2,323 $(2,038) $ 44 $(1,681) $(1,800) $ (130)
======== ======== ======== ======== ======== ========
Page-10
Segment income (loss) excludes interest income, interest expense and
miscellaneous charges (including the loss on disposition and impairment of
marketable equity securities of $11,945,000 in 2001) on a total basis of
$(176,000) and $(12,202,000) in 2002 and 2001, respectively, not allocated to
business segments.
The following table presents segment information for the nine months ended
September 30, 2002 and 2001.
2002 2001
---------------------------- -----------------------------
FRAM EMS Mushkin FRAM EMS Mushkin
-------- -------- -------- -------- -------- ---------
(in thousands)
Revenue:
Product sales $17,246 $ 820 $13,237 $ 2,807 $ 757 $ 7,121
License and
development fees 4,812 -- -- 1,333 -- --
Royalties 357 -- -- 257 -- --
Customer-sponsored
research and development 578 2,043 -- -- 2,065 --
-------- -------- -------- -------- -------- --------
22,993 2,863 13,237 4,397 2,822 7,121
Costs and expenses 18,406 8,638 13,167 12,028 10,545 8,028
-------- -------- -------- -------- -------- --------
Operating income (loss) 4,587 (5,775) 70 (7,631) (7,723) (907)
Other (116) (27) -- -- 267 --
-------- -------- -------- -------- -------- --------
Segment income (loss) $ 4,471 $(5,802) $ 70 $(7,631) $(7,456) $ (907)
======== ======== ======== ======== ======== ========
Total assets $24,363 $ 6,001 $ 9,833 $28,647 $ 6,625 $ 9,487
======== ======== ======== ======== ======== ========
Segment income (loss) excludes interest income, interest expense and
miscellaneous charges (including the loss on disposition and impairment of
marketable equity securities of $11,945,000 in 2001) on a total basis of
$(417,000) and $(12,542,000) in 2002 and 2001, respectively, not allocated to
business segments.
Page-11
NOTE 8. GOODWILL AND OTHER INTANGIBLE ASSETS
In June 2001, the FASB issued SFAS No. 142. SFAS No. 142 changes the
accounting for goodwill and intangible assets and requires that goodwill no
longer be amortized but be tested for impairment at least annually at the
reporting unit level in accordance with SFAS No. 142. Recognized intangible
assets with determinable useful lives should be amortized over their useful
life and reviewed for impairment in accordance with Statement of Financial
Accounting Standards No. 144, "Accounting for the Impairment or Disposal of
Long-Lived Assets." The provisions of SFAS No. 142 are effective for fiscal
years beginning after December 15, 2001, except for provisions related to the
non-amortization and amortization of goodwill and intangible assets acquired
after June 30, 2001, which were subject immediately to the provisions of SFAS
No. 142. The Company adopted SFAS No. 142 on January 1, 2002. SFAS No. 142
requires a transitional goodwill impairment test at each reporting unit within
six months of the date of adoption. However, the amounts used in the
transitional goodwill impairment testing are measured as of January 1, 2002.
The Company completed its analysis of the fair value of its goodwill and
determined there is no indicated impairment of its goodwill. There can be no
assurance that future goodwill impairments will not occur. In addition, the
Company has determined that the classifications of its intangible assets
previously acquired and the related useful lives established were not impacted
by the provisions of SFAS No. 142.
On January 1, 2002, in accordance with SFAS No. 142, the Company ceased
amortization of its goodwill which occurred on or before June 30, 2001. The
following information is presented as if SFAS No. 142 was adopted as of
January 1, 2001. The reconciliation of previously reported earnings and
earnings per share to the amounts adjusted for the exclusion of goodwill
amortization net of the related income tax effect is as follows:
Three Months Ended
September 30,
------------------
2002 2001
-------- --------
(in thousands, except
per share amounts)
Reported net income (loss) applicable
to common shares $ 139 $(15,872)
Add: Goodwill amortization -- 383
-------- --------
Adjusted net income (loss) applicable
to common shares $ 139 $(15,489)
======== ========
Reported income (loss) per common
share - basic and diluted $ 0.01 $ (0.72)
Add: Goodwill amortization -- 0.02
-------- --------
Adjusted income (loss) per common
share - basic and diluted $ 0.01 $ (0.70)
======== ========
Page-12
Nine Months Ended
September 30,
------------------
2002 2001
-------- --------
(in thousands, except
per share amounts)
Reported net loss applicable to common
shares $(1,774) $(28,659)
Add: Goodwill amortization -- 1,150
-------- --------
Adjusted net loss applicable to
common shares $(1,744) $(27,509)
======== =========
Reported loss per common
share - basic and diluted $ (0.08) $ (1.37)
Add: Goodwill amortization -- 0.05
-------- ---------
Adjusted loss per common
share - basic and diluted $ (0.08) $ (1.32)
======== =========
The changes in the carrying amount of goodwill for the nine months ended
September 30, 2002, by business segment are as follows:
Goodwill
Balance Acquired Balance
as of During as of
January 1, the Sep. 30,
2002 Year Other 2002
--------- -------- ----- ---------
(in thousands)
FRAM $ 585 $ -- $ -- $ 585
EMS -- -- -- --
Mushkin 7,278 -- -- 7,278
-------- ------- ------ --------
Total $7,863 $ -- $ -- $7,863
======== ======= ====== ========
Page-13
Included in other intangible assets on the Company's Consolidated Balance
Sheets are the following:
September 30, December 31,
2002 2001
------------- ------------
(in thousands)
Amortizable intangible assets:
Patents $ 7,862 $ 7,788
Product license fees 2,150 2,150
Process technology 1,983 1,983
Accumulated amortization (5,733) (5,108)
-------- --------
Total $ 6,262 $ 6,813
======== ========
Amortization expense for intangible assets for the three and nine months ended
September 30, 2002, was approximately $263,000 and $683,000, respectively.
Amortization expense for intangible assets for the three and nine months ended
September 30, 2001, was approximately $224,000 and $597,000, respectively.
Estimated amortization expense for intangible assets, is $900,000 in 2002,
$900,000 in 2003, $900,000 in 2004, $900,000 in 2005, $900,000 in 2006 and
$2.5 million thereafter.
NOTE 9: IMPAIRMENT OF MARKETABLE EQUITY SECURITIES AND LOSS ON DISPOSITION
The Company reviews any equity securities it holds on a quarterly basis to
evaluate whether an other than temporary decline in the carrying value of an
investment has occurred. During the third quarter of 2001, the Company
assessed the decline in the market value of Infineon stock to be other than
temporary and recorded a charge to earnings of $7.6 million related to 243,488
shares of Infineon stock the Company held at September 30, 2001. The
Company's determination was based on the market price trend over the six
months, ended September 30, 2001, recent financial performance of Infineon and
the semiconductor industry in general, negative trends in the global economy
and current political conditions. This charge was determined using the
initial carrying value of $45.10 per share and a combination of the quoted
stock market price of Infineon at September 30, 2001 ($12.39 per share) and
the stock price realized on sales of Infineon common stock subsequent to
September 30, 2001 ($14.67 per share). Additionally, during the quarter ended
September 30, 2001, the Company sold 200,000 shares of Infineon common stock.
The Company received proceeds of $4.7 million from the sale and recorded a
loss on sale of securities of $4.3 million. The Company sold the 243,488
shares of Infineon common stock held at September 30, 2001 during the quarter
ended December 31, 2001. After this sale, the Company no longer owns any
shares of Infineon common stock.
Page-14
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS; FACTORS AFFECTING FUTURE RESULTS
This quarterly report contains statements under this caption that constitute
"forward-looking statements" under the Private Securities Litigation Act of
1995 and that are subject to certain risks and uncertainties. The Company's
actual results may differ significantly from the results discussed in such
forward-looking statements. Factors that might cause such a difference
include but are not limited to: (i) the timely completion of the development
and qualification for manufacturing of the Company's new ESRAM and
FRAM products; (ii) broader customer acceptance of its EDRAM, ESDRAM and ESRAM
products and FRAM products; (iii) the Company's ability to manufacture its
products on a cost-effective and timely basis at its alliance foundry
partners; (iv) the Company's ability to perform under existing alliance and
joint development agreements and to develop new alliance and foundry
relationships; (v) our ability to introduce timely new technologies and
products and market acceptance of such technologies and products; (vi) the
success of our on-going cost-reduction efforts; (vii)the timing and
availability of manufacturing resources provided by our manufacturing and
alliance partners for the production of our products; (viii) the alliance
partners' willingness to continue development activities as they relate to
their license agreements with the Company; (ix)the loss of a significant
customer or delay in our customers' manufacturing programs; (x) the
availability and related cost of future financing; (xi) the retention of key
personnel; (xii) the outcome of the Company's patent interference litigation
proceedings; (xiii) factors not directly related to the Company, such as
competitive pressures on pricing, marketing conditions in general,
competition, technological progression, product obsolescence and the changing
needs of potential customers and the semiconductor industry in general; and
(xiv) global economic and political conditions related to on-going military
actions against terrorism.
Additionally, recently enacted and proposed changes in the laws and
regulations affecting public companies, including the provisions of the
Sarbanes-Oxley Act of 2002 and rules proposed by the SEC and Nasdaq,
could result in increased costs to us as we evaluate the implications of any
new rules and respond to their requirements. The new rules could make it more
difficult for us to obtain certain types of insurance, including director and
officer liability insurance, and we may be forced to accept reduced policy
limits and coverage or incur substantially higher costs to obtain the same or
similar coverage. The impact of these events could also make it more
difficult for us to attract and retain qualified persons to serve on our board
of directors, on committees of our board of directors, or as executive
officers. We are presently evaluating and monitoring developments with
respect to new and proposed rules and cannot predict or estimate the dollar
amount of the additional costs we may incur or the timing of such costs.
Page-15
Since its inception, the Company has been primarily engaged in the research
and development of ferroelectric technology and the design, development and
commercialization of FRAM products and Enhanced-DRAM products. Revenue has
been derived from the sale of the Company's FRAM and Enhanced-DRAM products
beginning in 1992. The Company has also generated revenue under license and
development agreements entered into with a limited number of established
semiconductor manufacturers and involving the development of specific
applications of the Company's technologies. Accordingly, fluctuations in the
Company's revenues have resulted primarily from the timing of significant
product orders, the timing of the signing of and delivery under license and
development agreements, and the achievement of related performance milestones.
RESULTS OF OPERATIONS
QUARTER ENDED SEPTEMBER 30, 2002 COMPARED TO THE QUARTER ENDED SEPTEMBER 30,
2001.
REVENUES. Total revenues for the quarter ended September 30, 2002 were $13.8
million, an increase of $6.3 million, or 83%, from the quarter ended
September 30, 2001.
Revenue from product sales increased $5.9 million, or 118%, for the quarter
ended September 30, 2002, as compared to the same period in 2001. FRAM product
revenues for the quarter ended September 30, 2002 increased $5.4 million to
$6.7 million, from the quarter ended September 30, 2001. Increased FRAM
product revenue is primarily attributable to increased shipments into the
Ampy/ENEL utility meter program as this program moved to full production. The
Company shipped approximately 2.7 million units into the Ampy/ENEL program
during the quarter. During the fourth quarter of 2002 the Company is
projecting a one quarter slowdown in shipments in the Ampy/ENEL program as a
result of some elasticity in ENEL's meter installation rate. Approximately
1.5 million units are expected to ship into this program during the quarter
ended December 31, 2002 and we anticipate first quarter 2003 shipments will be
approximately 2.4 million units. Third quarter shipments to Ampy/ENEL
represented approximately 76% of total FRAM product revenue.
Product revenues at the Company's Mushkin subsidiary increased $522,000
during the third quarter, or 15%, compared to the same period in 2001. This
increase is primarily attributable to progress in penetrating larger accounts
through the addition of direct sales staff.
Product revenues at the Company's EMS subsidiary were $248,000 and $231,000
for the three months ended September 30, 2002 and 2001, respectively. Low
product sales volume is the result of the Company's 4-megabit product line
nearing end-of-life. The Company is no longer manufacturing its 4-megabit
product and expects to sell its remaining inventories of these products during
2002.
Page-16
The Company recognized $2.0 million and $1.3 million in license and
development fee revenue during the quarters ended September 30, 2002 and 2001,
respectively. Such revenue is primarily related to a FRAM licensing and
technology development program with Texas Instruments, Inc.
The Company recognized royalty revenue of $238,000 in the quarter ended
September 30, 2002. In the same period of 2001, royalty revenues of $24,000
were recognized. Royalty income in 2002 and 2001 is attributable to FRAM
licensing agreements with existing licensees.
Customer-sponsored research and development revenues are primarily
attributable to EMS' product development programs with Cypress Semiconductor
Corp., Hewlett Packard Co. and Infineon Technologies AG. The Company
recognized customer-sponsored research and development revenues of $624,000
and $1.1 million during the quarters ended September 30, 2002 and 2001,
respectively. The amount of customer sponsored research and development
revenues recognized during a given quarter is dependent on the specific
programs the Company is working on, the development stage of each program, the
costs incurred during the quarter and the amount of work remaining to complete
the program.
COST OF SALES. Overall cost of product sales as a percentage of product
revenues during the third quarter of 2002 decreased from 80% to approximately
71% as compared with the same period in 2001. Cost of sales associated with
the Company's FRAM products decreased during the quarter from 84% in 2001 to
approximately 56% in 2002. FRAM cost of sales declined as the Company
improved manufacturing yields, shipped a more economical version of the
product used in the Ampy/ENEL metering program and realized cost reductions at
the Company's subcontract manufacturers. EMS cost of product sales remained
flat, at 46%, for the quarters ended September 30, 2002 and 2001. Cost of
sales as a percentage of product revenue for the Company's Mushkin subsidiary
were 87% and 80% for the quarters ended September 30, 2002 and 2001,
respectively. This increase is attributable to sustained price decreases in
the DRAM industry during the last year.
RESEARCH AND DEVELOPMENT. Combined research and development expenses for the
quarter ended September 30, 2002 decreased $1.2 million to $3.2 million, a
decrease of 28% as compared with the same period in 2001. This decline is
primarily due to decreased costs related to the development of new products at
the Company's EMS subsidiary and an increased allocation of engineering
resources to manufacturing activities in our FRAM business unit.
SALES, GENERAL AND ADMINISTRATIVE EXPENSES. Sales, general and administrative
expenses for the quarter ended September 30, 2002 remained flat at $2.7
million as compared to the same period in 2001. Third quarter 2002 reductions
in goodwill amortization expenses were offset by increases in promotional
expenses for both our FRAM and ESRAM products and sales commission expenses
arising from increased product sales. During the quarters ended September 30,
2002 and 2001, the Company recorded $0 and $383,000, respectively, of goodwill
amortization.
Page-17
INTEREST EXPENSE, RELATED PARTY. Related party interest expense decreased
$171,000 for the quarter ended September 30, 2002, as compared to the same
period in 2001, primarily due to decreases in interest expense related to the
promissory note with the National Electrical Benefit Fund, which was repaid in
November 2001. This decrease is partially offset by interest expense related
to convertible debentures issued to Infineon in March 2002.
INTEREST EXPENSE, OTHER. Other interest expense increased $158,000 to
$182,000 for the three months ended September 30, 2002, primarily due to
interest expense related to convertible debentures issued to Halifax and
Bramwell on April 1, 2002.
LOSS ON DISPOSITION OF MARKETABLE EQUITY SECURITIES. During the quarter ended
September 30, 2001, the Company sold 200,000 shares of Infineon common stock,
which were obtained through the share purchase agreement with Infineon dated
December 14, 2000. The Company recorded a loss on the sale of these
securities of $4.3 million. In addition, the Company assessed the decline in
the market value of the remaining Infineon stock held as of September 30, 2001
to be other than temporary and recorded a charge to earnings of $7.6 million.
NINE MONTHS ENDED SEPTEMBER 30, 2002 COMPARED TO THE NINE MONTHS ENDED
SEPTEMBER 30, 2001.
REVENUES. Total revenues for the nine-month period ended September 30, 2002
increased $24.8 million, or 173% from the same period in 2001.
Revenue from product sales increased $20.6 million or 193% for the nine months
ended September 30, 2002, as compared to the same period in 2001. FRAM
product revenues for the nine months ended September 30, 2002 increased $14.4
million to $17.2 million, from the nine months ended September 30, 2001.
Increased FRAM product revenue is primarily attributable to increased
shipments into the Ampy/ENEL utility meter program as this program moved to
full production. During the nine month period ended September 30, 2002
approximately 78% of FRAM product revenues were attributable to the Ampy/ENEL
program.
Product revenues at our Mushkin business unit for the nine months ended
September 30, 2002 were $13.2 million, an increase of $6.1 million, or 86% as
compared to the same period in 2001. Increases in Mushkin product revenues
are primarily attributable to progress in penetrating larger accounts through
the addition of direct sales staff.
EMS product revenues for the nine months ended September 30, 2002 remained
relatively flat at $820,000, as compared to $757,000 in the same period in
2001. Low product sales volume is the result of the Company's 4-megabit
product line nearing end-of-life. The Company is no longer manufacturing its
4-megabit product and expects to sell its remaining inventories of these
products during 2002.
Page-18
License and development fees for the nine months ended September 30, 2002 were
$4.8 million, as compared to $1.3 million for the same period in 2001. This
increase is primarily related to a FRAM licensing and technology development
program with Texas Instruments, Inc. that began in July 2001.
The Company recognized royalty revenue of $357,000 in the nine months ended
September 30, 2002. In the same period of 2001, $257,000 of royalty revenues
were recognized. Such royalty income was primarily attributable to FRAM
licensing agreements with existing licensees.
Customer-sponsored research and development revenue for the nine months ended
September 30, 2002, increased by $556,000 to $2.6 million, an increase of 27%
as compared to the same period in 2001. This increase resulted primarily
from EMS' product development programs with Cypress Semiconductor Corp.,
Hewlett Packard Co. and Infineon. The amount of customer sponsored research
and development revenues recognized during a given period is dependent on the
specific programs the Company is working on, the development stage of each
program, the costs incurred during the period and the amount of work remaining
to complete the program. For the nine-month period ended September 30, 2002
profit margins related to customer funded research and development revenues
totaled $1.1 million as compared to $239,000 during the same period in 2001.
This improvement is primarily attributable to a reduction in the estimated
costs to complete our product development contract with Hewlett Packard and
may not be representative of profit margins on customer funded research and
development revenues to be recognized in future periods.
COST OF SALES. Overall cost of product sales as a percentage of product
revenues during the nine months ended September 30, 2002 decreased from 76% to
approximately 70% as compared with the same period in 2001. Cost of sales
associated with the Company's FRAM products decreased from 81% in the nine
months ended September 30, 2001, to approximately 58% in 2002. FRAM cost of
sales declined as the Company improved manufacturing yields, shipped a more
economical version of the product used in the Ampy/ENEL metering program and
realized cost reductions at the Company's subcontract manufacturers. EMS's
cost of product sales for the nine months ended September 30, 2002 and 2001
were 45% and 50%, respectively. Cost of sales as a percentage of product
revenues at our Mushkin subsidiary increased to 88% for the nine months ended
September 30, 2002 as compared to 77% for the same period in 2001. This
increase is the result of sustained price decreases in the DRAM industry
during the last year.
RESEARCH AND DEVELOPMENT. Combined research and development expenses for the
nine months ended September 30, 2002 decreased $3.1 million to $9.6 million, a
decrease of 24% as compared with the same period in 2001. This decrease is
primarily due to decreased contract design support services, photo mask and
wafer costs for the development of new Enhanced-DRAM products, and an
increased allocation of engineering resources to manufacturing activities.
Page-19
SALES, GENERAL AND ADMINISTRATIVE EXPENSES. Sales, general and administrative
expenses for the nine months ended September 30, 2002 decreased $1.1 million
to $8.6 million, a decrease of 11% as compared to the same period in 2001.
This decrease is primarily attributable to new accounting standards that
eliminated the amortization of goodwill beginning January 1, 2002. During the
nine months ended September 30, 2002 and 2001, the Company recorded $0 and
$1.2 million, respectively, of goodwill amortization.
INTEREST EXPENSE, RELATED PARTY. Related party interest expense decreased
$637,000 to $199,000 for the nine months ended September 30, 2002, due to
decreases in interest expense related to the promissory note with the National
Electrical Benefit Fund, which was repaid in November 2001. This decrease is
partially offset by interest expense related to convertible debentures issued
to Infineon in March 2002.
INTEREST EXPENSE, OTHER. Other interest expense increased $341,000 to
$369,000 for the nine months ended September 30, 2002, primarily due to
interest expense related to convertible debentures issued to Halifax and
Bramwell on April 1, 2002.
MINORITY INTEREST IN NET LOSS OF SUBSIDIARY. Minority interest in net loss
decreased by $267,000 to zero in the nine months ended September 30, 2002 as
compared with the same period in 2001. The minority interest reflects
Infineon's share of EMS's loss for the nine months ended September 30, 2001.
LOSS ON DISPOSITION OF MARKETABLE EQUITY SECURITIES. During the quarter ended
September 30, 2001, the Company sold 200,000 shares of Infineon common stock,
which were obtained through the share purchase agreement with Infineon dated
December 14, 2000. The Company recorded a loss on the sale of these
securities of $4.3 million. In addition, the Company assessed the decline in
the market value of the remaining Infineon stock held as of September 30, 2001
to be other than temporary and recorded a charge to earnings of $7.6 million.
LIQUIDITY AND CAPITAL RESOURCES
Cash flows used in operations for the nine months ended September 30, 2002 was
$1.6 million, a decrease of $11.2 million as compared to the same period in
2001. Cash used to fund operating losses, after non-cash charges, decreased
$14.0 million for the nine-month period ending September 30, 2002 as compared
to the same period in 2001. The decrease was due primarily to improved
operating results which reduced the operating loss between periods by $15.1
million.
Accounts receivable increases of approximately $864,000 since the end of
2001 are primarily attributable to increases in outstanding trade receivables
resulting from increased product sales during the nine month period ended
September 30, 2002.
Page-20
Inventories remained relatively flat during the nine-month period ended
September 30, 2002, at approximately $7.4 million, as compared to $7.5 million
at the end of 2001. The Company continues to manage inventory purchases,
building inventories only to firm order backlog and high-confidence order
forecasts.
Accounts payable and accrued liabilities increased approximately $1.6 million
during the nine months ended September 30, 2002, from $4.9 million at the end
of 2001 to $6.5 million at September 30, 2002. The increase is primarily
related to development expenses for the Company's new ESRAM products.
Cash used in investing activities was $970,000 for the nine months ended
September 30, 2002, compared to $3.8 million generated for the same period in
2001. During the nine months ended September 30, 2001, the Company generated
approximately $4.7 million from the sale of 200,000 shares of Infineon common
stock. Capital expenditures were $698,000 in the nine months ended
September 30, 2002 compared to $407,000 in the nine-month period ended
September 30, 2001. Equipment and plant expenditures are expected to be
minimal during the remainder of 2002. During the nine months ended
September 30, 2002, $272,000 was expended for intellectual property, a
decrease of approximately $190,000 from the same period in 2001.
During the nine months ended September 30, 2002, net cash provided by
financing activities was $6.1 million, which primarily consisted of the
issuance of $8 million of 5 year, 5% fixed rate, convertible debentures to
Infineon, Halifax Fund and Bramwell Capital Corporation, offset by
approximately $1.2 million used to redeem 1,160 shares of redeemable
convertible preferred stock on its maturity date of July 31, 2002 and $746,000
for issuance costs related to the convertible debentures. In the first nine
months of 2001, net cash provided by financing activities was $10.4 million,
which was raised from the issuance of common stock, primarily from the closing
of the Infineon stock purchase agreement.
The Company is currently involved in a patent interference proceeding (see
Note 5 of Part I - "Contingencies"). If the Company is ultimately unsuccessful
in these proceedings, there would be no retroactive cash payment requirements
from the Company to the junior party as a result of such an adverse decision.
While the Company cannot accurately estimate the financial effects of such a
result, the Company believes that such a result could, depending on when a
final non-appealable judgment is ultimately rendered, materially adversely
affect the Company's FRAM product business and operating results and, thus,
have a materially adverse effect on the Company's financial condition as a
whole.
During the remainder of 2002, the Company will continue to receive cash from
product sales, a FRAM license milestone payment from an existing licensee and
ongoing Enhanced-DRAM customer-sponsored research and development programs.
Page-21
The Company expects inventories will increase by approximately $1 million
during the fourth quarter of 2002 due to a temporary slowdown in Ampy/ENEL
shipments as a result of some elasticity in ENEL's meter installation rate.
The Company had $6.8 million in cash and cash equivalents at September 30,
2002. The Company believes it has sufficient resources to fund its operations
into 2003. In view of the Company's expected future working capital
requirements in connection with the design, manufacturing and sale of its FRAM
and Enhanced-DRAM products, the Company's projected continuing research and
development expenditures, other operating expenditures and the potential
results of pending patent litigation, the Company may be required to seek
additional equity or debt financing in 2003. There is no assurance, however,
that the Company will be able to obtain such financing on terms acceptable to
the Company, or at all. Any issuance of common or preferred stock to obtain
additional funding would result in dilution of existing stockholders'
interests in Ramtron. The inability to obtain additional financing when
needed would have a material adverse effect on the business, financial
condition and operating results and could adversely affect the Company's
ability to continue its business operations.
CONTRACTUAL COMMITMENTS. For more information on the Company's contractual
obligations on operating leases and contractual commitments, see Notes 5 and
7 of the Notes to Consolidated Financial Statements included in the Company's
2001 Form 10-K. At September 30, 2002, the Company's commitments under these
obligations were as follows (in thousands):
Operating NEBF Convertible
Leases Consulting Fee(1) Debentures Total
--------- --------------- ----------- -------
2002 $252 $ 80 $ -- $ 332
2003 982 80 -- 1,062
2004 739 80 -- 819
2005 16 80 -- 96
2006 15 80 -- 95
2007 -- 80 8,000 8,080
------ ----- ------ -------
Total $2,004 $480 $8,000 $10,484
====== ===== ====== =======
- -----------
(1) These consulting fees are required to be paid to NEBF as long as NEBF owns
at least 5% of the outstanding shares of the Company.
CRITICAL ACCOUNTING POLICIES. The Company's discussion and analysis of its
financial condition and results of operations are based upon its consolidated
financial statements, which have been prepared in accordance with accounting
principles generally accepted in the United States. The preparation of these
financial statements requires the Company to make estimates and judgments that
affect the reported amounts of assets, liabilities, revenues and expenses, and
Page-22
related disclosure of contingent assets and liabilities. On an on-going
basis, the Company evaluates its estimates, including those related to bad
debts, inventories, long-lived assets, income taxes, and contingencies and
litigation. The Company bases its estimates on historical experience and on
various other assumptions that are believed to be reasonable under the
circumstances, the results of which form the basis for making judgments about
the carrying values of assets and liabilities that are not readily apparent
from other sources. Actual results may differ from these estimates under
different assumptions or conditions.
REVENUE RECOGNITION. Revenue from product sales to direct customers is
recognized upon shipment as the Company generally does not have post-
shipment obligations or allow for any acceptance provisions. The Company
defers recognition of sales to distributors that are given rights of return
and price protection by the Company until the distributors have resold the
products. The Company records the cash received on these sales prior to the
distributor reselling the product as deferred revenue.
Revenue from licensing programs is recognized over the period the Company is
required to provide services under the terms of the agreement. Revenues from
research and development activities that are funded by customers are
recognized as the services are performed, generally, as contractual milestones
are met. In situations where the Company licenses its technology and also
provides development assistance, the Company records the total proceeds to be
received as revenue over the longer licensing period.
Revenue from royalties is recognized upon the shipment of product from the
Company's technology license partners to direct customers.
SIGNIFICANT POLICIES AFFECTED BY JUDGMENTS AND ESTIMATES. The Company
believes the following critical accounting policies affect its more
significant judgments and estimates used in the preparation of its
consolidated financial statements.
The Company records license and customer sponsored research and development
revenue on arrangements entered into with customers. The revenue recorded by
the Company in each reporting period is dependent upon estimates regarding the
cost of projects and the achievement of milestones. Changes in estimates
regarding these matters could result in revisions to the amount of revenue
recognized on these arrangements.
The Company writes down its inventory for estimated obsolescence or lack of
marketability for the difference between the cost of inventory and the
estimated market value based upon assumptions about future demand and market
conditions. If actual market conditions are less favorable than those
projected by management, additional inventory write-downs may be required.
Page-23
The Company reviews the carrying values of its long-lived assets, including
goodwill and identifiable intangibles, whenever events or changes in
circumstances indicate that such carrying values may not be recoverable.
Under current standards, the assets must be carried at historical cost if the
projected cash flows from their use will recover their carrying amounts on an
undiscounted basis and without considering interest. However, if projected
cash flows are less than their carrying value, even by one dollar, the long-
lived assets must be reduced to their estimated fair value. Considerable
judgment is required to project such cash flows and, if required, estimate the
fair value of the impaired long-lived asset. Effective January 1, 2002, the
Company must adopt SFAS No. 142. SFAS No. 142 provides a more restrictive
fair value test to evaluate goodwill and long-lived asset impairment. Upon
adoption of SFAS No. 142, the carrying value of goodwill was evaluated
based upon its current fair values as if the purchase price allocation
occurred on January 1, 2002. The Company completed its analysis of the fair
value of its goodwill and determined there is no indicated impairment of its
goodwill. There can be no assurance that future goodwill impairments will not
occur.
OUTLOOK
The Company expects revenues will continue to be highly variable in the
foreseeable future until the Company's products gain wider market acceptance,
the Company reduces its dependence on certain key customers for product
revenues, there is increased stability in world-wide DRAM markets,
telecommunications and network/server market conditions improve, new products
are developed and the Company's products can be manufactured in increased
volumes and in a more cost-effective manner.
The Company is continuing its efforts to improve and increase commercial
production and sales of its FRAM and Enhanced-DRAM products, decrease the cost
of producing such products and develop and commercialize new FRAM and
Enhanced-DRAM products.
The Company is nearing completion of the development phase of its ESRAM
products which are targeted to serve the networking, telecommunications and
server markets. If the Company experiences delays in the development of its
ESRAM products, or is not successful in achieving cost effective manufacturing
of these products, or the markets which they are intended to serve continue to
be depressed, the Company's results of operations could be materially
adversely affected.
There can be no assurance that all of the Company's foundry and alliance
partners will be able to achieve commercial production of the products
currently in development. If such commercial production is not achieved or is
not achieved in a timely manner, the Company's results of operations could be
materially adversely affected.
Page-24
ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market risk represents the risk of loss that may impact the financial
position, results of operations or cash flows of the Company due to adverse
changes in financial and commodity market prices and rates. The Company is
exposed to market risk in the areas of changes in United States interest rates
and changes in foreign currency exchange rates as measured against the United
States dollar. These exposures are directly related to its normal operating
activities. The Company currently has no derivative financial instruments.
Interest payable on the Company's convertible debentures is fixed at 5% over
the term of the debentures. As such, changes in interest rates will not
affect future earnings or cash flows.
The Company manages interest rate risk by investing its excess cash in cash
equivalents bearing variable interest rates, which are tied to various market
indices. The Company does not believe that near-term changes in interest
rates will result in a material effect on future earnings, fair values or cash
flows of the Company. The net effect of a 10% change in interest rates on
outstanding cash and cash equivalents at September 30, 2002 would have less
than an $100,000 effect on the Company's earnings or cash flows.
ITEM 4 - CONTROLS AND PROCEDURES
Within 90 days of the filing of this report, the Company carried out an
evaluation, under the supervision and with the participation of the Company's
management, including the Company's Chief Executive Officer and Chief
Financial Officer, of the effectiveness of the disclosure controls and
procedures of the Company as defined in Exchange Act Rule 13(a)-14. Based
upon that evaluation, the Chief Executive Officer and Chief Financial Officer
have determined that such controls and procedures are effective. There have
been no significant changes in the Company's internal controls or other
factors that could significantly affect these controls, nor any significant
deficiencies or material weaknesses in such controls requiring corrective
actions, subsequent to the date of their evaluation.
PART II - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
While there have been no material developments during the third quarter of
2002 in any previously reported litigation, see Note 5 of Part I for a current
description of on-going litigation.
ITEMS 2-4- NONE
Page-25
ITEM 5 - OTHER INFORMATION
The Company furnished to the Securities and Exchange Commission the
certifications of its Chief Executive Officer and Chief Financial Officer
required by Section 906 of the Sarbanes-Oxley Act of 2002.
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
Exhibit 3.2 Bylaws of Registrant, as amended.
(b) Reports on Form 8-K
On July 26, 2002, the Registrant filed a report on Form 8-K. The item
reported was Item 4 - "Changes in Registrant's Certifying Accountant."
On July 31, 2002, the Registrant filed a report on Form 8-K. The item
reported was Item 5 - "Other Events."
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
RAMTRON INTERNATIONAL CORPORATION
(Registrant)
November 13, 2002 /S/ LuAnn D. Hanson
-------------------------
LuAnn D. Hanson
Chief Financial Officer
(Principal Accounting Officer)
Page-26
CERTIFICATIONS PURSUANT TO
SECTION 302 OF
THE SARBANES-OXLEY ACT OF 2002
CERTIFICATIONS FOR FORM 10-Q
I, William W. Staunton, III, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Ramtron
International Corporation.
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period
covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
we have:
(a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
(b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date
of this quarterly report (the "Evaluation Date"); and
(c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
(a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
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(b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant deficiencies
and material weaknesses.
/S/ William W. Staunton, III
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William W. Staunton, III
Chief Executive Officer
Date: November 13, 2002
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CERTIFICATIONS PURSUANT TO
SECTION 302 OF
THE SARBANES-OXLEY ACT OF 2002
CERTIFICATIONS FOR FORM 10-Q
I, LuAnn D. Hanson, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Ramtron
International Corporation.
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period
covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
we have:
(a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
(b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date
of this quarterly report (the "Evaluation Date"); and
(c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
(a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
Page-29
(b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant deficiencies
and material weaknesses.
/S/ LuAnn D. Hanson
- ----------------------------
LuAnn D. Hanson
Chief Financial Officer
Date: November 13, 2002
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