Attached files
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| EX-31.2 - CFO SECTION 302 CERTIFICATION - RAMTRON INTERNATIONAL CORP | f10qa9302010ex31-2.htm |
| EX-31.1 - CEO SECTION 302 CERTIFICATION - RAMTRON INTERNATIONAL CORP | f10qa9302010ex31-1.htm |
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q/A
(Amendment No. 1)
(Mark One)
ý QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2010
OR
o 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)
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Delaware
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84-0962308
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(State or other jurisdiction of incorporation or organization)
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(I.R.S. Employer Identification No.)
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1850 Ramtron Drive, Colorado Springs, CO
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80921
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(Address of principal executive offices)
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(Zip Code)
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(Registrant's telephone number, including area code: (719) 481-7000
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definition of "large accelerated filer," "accelerated filer," and "smaller reporting company" in Rule 12b2 of the Exchange Act.
Large accelerated filer o Accelerated filer o
Non-accelerated filer o (Do not check if a smaller reporting company) Smaller reporting company ý
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No ý
Indicate the number of shares of the issuer's outstanding common stock, as of the latest practicable date:
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27,433,060 shares
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As of November 3, 2010
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Common Stock, $0.01 par value
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1
EXPLANATORY NOTE
We are filing this Amendment No. 1 on Form 10-Q/A (the "Amendment") to Ramtron International Corporation's (the "Company") Quarterly Report on Form 10-Q for the quarter ended September 30, 2010, as filed with the Securities and Exchange Commission on November 5, 2010 (the "Original Filing"), solely to correct a typographical error contained the table under the section titled, "LIQUIDITY AND CAPITAL RESOURCES - Cash Flow Summary" in Part II - Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. The amount contained in the table on the line "Net (decrease) increase in cash and cash equivalents" for the quarter ended September 30, 2010 was incorrectly represented as a Net (decrease) in cash and cash equivalents. The correct representation is a Net increase in cash and cash equivalents. The corrected table is located on page 10 of this Amendment.
Except as described above, no other changes have been made to the Original Filing, and this Amendment does not otherwise amend, update or change the financial statement or disclosures of the Original Filing.
PART II
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with our consolidated financial statements and notes thereto and other financial data included elsewhere herein. Certain statements under this caption constitute "forward-looking statements" within the meaning of Section 21E of the Securities Exchange Act of 1934, and, as such, are based on current expectations and are subject to certain risks and uncertainties. You should not place undue reliance on these forward-looking statements for many reasons including those risks discussed under Part II- Item 1A "Risk Factors," and elsewhere in our Quarterly Report on Form 10-Q, and in our Annual Report on Form 10-K for the year ended December 31, 2009. Forward-looking statements may be identified by the use of forward-looking words or phrases such as "will," "may," "believe," "expect," "intend," "anticipate," "could," "should," "plan," "estimate," and "potential," or other similar words.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Significant Estimates. The preparation of our consolidated financial statements and related disclosures in conformity with generally accepted accounting principles in the United States requires us to make estimates and judgments that affect the amounts reported in our financial statements and accompanying notes. By their nature, these estimates and judgments are subject to an inherent degree of uncertainty. On an ongoing basis, we re-evaluate our judgments and estimates including those related to bad debts and sales returns and allowances, inventories, long-lived assets, intangible assets, income taxes, accrued expenses, stock compensation accruals, and other contingencies. We base our estimates and judgments on our historical experience, market trends, financial forecasts and projections and on other assumptions that we believe are reasonable under the circumstances, and apply them on a consistent basis. Any factual errors or errors in these estimates and judgments may have a material impact on our financial condition and operating results.
Recognition of Revenue. Revenue from product sales to direct customers and distributors is recognized upon shipment as we generally do not have any post-shipment obligations or allow for any acceptance provisions. In the event a situation occurs to create a post-shipment obligation, we would defer revenue recognition until the specific obligation was satisfied. We defer recognition of sales to distributors when we are unable to make a reasonable estimate of product returns due to insufficient historical product return information. The revenue recorded is dependent upon estimates of expected customer returns and sales discounts based upon both historical data and management estimates.
Revenue from licensing programs is recognized over the period we are required to provide services under the terms of the agreement. Revenue from research and development activities that are funded by customers is recognized as the services are performed. Revenue from royalties is recognized upon the notification to us of shipment of product from our technology license partners to direct customers.
2
Inventory Valuation/Scrap. We write-down our inventory, with a resulting increase in our scrap expense, 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.
Allowance for Doubtful Accounts and Returns. We seek to maintain a stringent credit approval process although our management must make significant judgments in assessing our customers' ability to pay at the time of shipment. Despite this assessment, from time to time, customers are unable to meet their payment obligations. If we are aware of a customer's inability to meet its financial obligations to us, we record an allowance to reduce the receivable to the amount we believe we will be able to collect from the customer. For all other customers, we record an allowance based upon the amount of time the receivables are past due and collection attempts. If actual accounts receivable collections differ from these estimates, an adjustment to the allowance may be necessary with a resulting effect on operating expense. We continue to monitor customers' credit worthiness, and use judgment in establishing the estimated amounts of customer receivables which will ultimately not be collected.
An allowance for sales returns and allowance is established based on historical and current trends in product returns and customer rebates. Our distributors have a right to return products under certain conditions. We recognize revenue on shipments to distributors at the time of shipment, along with a reserve for estimated returns based on historical data and future estimates. Also, certain distributors are granted rebates if specific end customers purchase our products. At September 30, 2010 and December 30, 2009, the Company's reserve for sales returns and allowances was $1.6 million and $800,000, respectively. The increase in allowance from December 31, 2009 is primarily due to a new rebate program in our Asia Pacific region.
Deferred Income Taxes. As part of the process of preparing our consolidated financial statements in conformity with accounting principles generally accepted in the United States of America, we are required to estimate our income taxes on a consolidated basis. We record deferred tax assets and liabilities for the estimated future tax effects of temporary differences between the tax basis of assets and liabilities and amounts recorded in the consolidated financial statements, and for operating loss and tax credit carryforwards. Realization of the recorded deferred tax assets depends upon the generation of sufficient taxable income in future years to obtain benefit from the reversal of net deductible temporary differences and from tax credit and operating loss carryforwards. A valuation allowance is provided to the extent that management deems it more likely than not that the net deferred tax assets will not be realized. The amount of deferred tax assets considered realizable is subject to adjustment up or down in future periods if estimates of future taxable income are changed. Future adjustments could materially affect our financial results as reported in conformity with accounting principles generally accepted in the United States of America and, among other effects, could cause us not to achieve our projected results.
In assessing the potential to realize our deferred tax assets, we consider whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. We consider the scheduled reversal of deferred tax assets and liabilities, projected future taxable income, and tax planning strategies in making this assessment. Based upon the level of historical taxable income and projections for future taxable income over the periods in which the deferred tax assets are deductible, management believes it is more likely than not that we will realize the benefits of these deductible differences. The amount of the deferred tax assets considered realizable, however, could be reduced if estimates of future taxable income during the carryforward period are reduced.
Long-lived Assets. We review the carrying values of long-lived assets 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, 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. The estimated future cash flows are based upon, among other things, assumptions about expected future operating performance and may differ from actual cash flows. There can be no assurance that future long-lived asset impairments will not occur.
3
Share-based Payment Assumptions. We estimate volatility, forfeitures, and expected term of our options granted based upon historical data. All of these variables have an effect on the estimated fair value of our share-based awards.
RESULTS OF OPERATIONS
Overview
We are a fabless semiconductor company that designs, develops and markets specialized semiconductor memory, microcontrollers, and integrated semiconductor solutions, used in many markets for a wide range of applications. We pioneered the integration of ferroelectric materials into semiconductor products, which enabled the development of a new class of nonvolatile memory, called ferroelectric random access memory (F-RAM). F-RAM products merge the advantages of multiple memory technologies into a single device that retains information without a power source, can be read from and written to at very fast speeds, written to many times, consumes low amounts of power, and can simplify the design of electronic systems. In many cases, we are the sole provider of F-RAM enabled semiconductor products, which facilitates close customer relationships, long application lifecycles and the potential for higher-margin sales.
We also integrate wireless communication capabilities as well as analog and mixed-signal functions such as microprocessor supervision, tamper detection, timekeeping, and power failure detection into our devices. This has enabled new classes of products that address the growing market need for more functional, efficient and cost effective semiconductor products.
Product Highlights for the Quarter Ended September 30, 2010
We announced the availability of commercial samples of our F-RAM enabled MaxArias™ wireless memory devices. The MaxArias wireless memory products combine the low power, high speed, and high endurance features of nonvolatile F-RAM memory technology with industry standard wireless access to enable innovative mobile data collection capabilities and are ideal for a wide range of applications such as high-value asset tracking, manufacturing and maintenance history collection, and smart utility metering, among others.
Financial Highlights for the Three Months Ended September 30, 2010
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•
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Total revenue in for the three months ended September 30, 2010 was $19.9 million, which was an increase of 71% from $11.6 million in the three months ended September 30, 2009.
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Net income was $342,000, or $0.01 per share, for the three months ended September 30, 2010, compared with net income of $131,000, or $0.01 per share, for the three months ended September 30, 2009.
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Product gross margin for the three months ended September 30, 2010 was 52%, which was 1% lower than a gross margin of 53% for the three months ended September 30, 2009.
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Product revenue was $19.7 million for the three months ended September 30, 2010, which was 74% higher than product revenue of $11.3 million for the three months ended September 30, 2009.
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Integrated product revenue grew to $3.4 million, or 17% of F-RAM product revenue, during the third quarter of 2010, compared with $2.6 million, or 23% of F-RAM revenue, for the third quarter of 2009.
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4
Financial Highlights for the Nine Months Ended September 30, 2010
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Total revenue for the nine months ended September 30, 2010 was $54.1 million, which was an increase of 63% from $33.1 million in the nine months ended September 30, 2009.
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Net income was $1.1 million or $0.04 per share, for the nine months ended September 30, 2010, compared with net loss of $(6.6) million, or $(0.24) per share, for the nine months ended September 30, 2009. The results for 2009 included $6.2 million of impairment charges and restructuring expenses.
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Product gross margin for the nine months ended September 30, 2010 was 51%, which was 2% higher than a gross margin of 49% for the nine months ended September 30, 2009.
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Product revenue was $53.5 million for the nine months ended September 30, 2010, which was 67% higher than product revenue of $31.9 million for the nine months ended September 30, 2009.
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Integrated product revenue grew to $10.4 million, or 19% of F-RAM product revenue in the nine months ended September 30, 2010, compared with $8.5 million, or 26% of F-RAM revenue in the nine months ended September 30, 2009.
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Business Outlook for Remainder of 2010
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With our strong third-quarter results and our present visibility for the remainder of the year, we continue to expect our annual revenue to be within the range of our guidance of $69 million and $73 million.
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We expect 2010 GAAP net income to be between 2% to 3.5% of total revenue.
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We are entering the final stages of our IBM foundry transition and are working to improve product wafer yields, bring up additional manufacturing capacity at Texas Instruments and introduce new products to drive our future growth over the next two quarters.
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We continue to transition from our remaining Fujitsu inventory to products built by Texas Instruments and to products from our anticipated supply from IBM. Due to higher than anticipated demand for our products during 2010, we are experiencing shortages on certain Fujitsu supplied devices as we work to bring up capacity at our alternative foundry sources. If IBM’s supply of products is delayed or we are not able to obtain sufficient products from Texas Instruments, we may not be able to fill certain customer orders.
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PERIOD COMPARISONS FOR THE
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2010 AND 2009
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Revenue
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(in thousands, except average selling price)
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Three Months Ended September 30, 2010
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Three Months Ended September 30, 2009
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Nine Months Ended September 30, 2010
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Nine Months Ended September 30, 2009
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Product sales
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$19,678
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$11,297
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$53,469
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$31,910
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% change compared to prior period
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74%
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67%
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Units shipped
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16,962
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14,167
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55,996
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38,546
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% change compared to prior period
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20%
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45%
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Average selling price
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$1.16
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$0.80
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$0.95
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$0.83
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% change compared to prior period
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45%
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14%
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Other revenue
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$204
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$299
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$605
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$1,208
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% change compared to prior period
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(32%)
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(50%)
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Total revenue
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$19,882
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$11,596
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54,074
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$33,118
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% change compared to prior period
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71%
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63%
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5
Three Months:
Product revenue increased $8.4 million, or 74%, for the three months ended September 30, 2010 compared to the prior year period. This increase was due to a 2.8 million increase in unit shipments coupled with a 45% increase in the average selling price (ASP), which was driven by the improved world-wide economy and an overall increase in demand for our products across all product lines. Our increase in ASP was due primarily to a decrease in lower priced and lower margin custom product sales to select customers. The increase was also driven by increased sales of higher ASP high-density memory products.
Other revenue, consisting of license and development fees and royalty income, was $204,000, which was a decrease of $95,000 from 2009. This decrease was due primarily to reductions in royalties and customer-sponsored research and development. The amount of other revenue for the quarter ended September 30, 2010 is indicative of expected future royalty amounts.
Nine Months:
Product revenue increased $21.6 million, or 67%, for the nine months September 30, 2010 compared to the same period last year. This increase was due to a 17.4 million increase in unit shipments coupled with a 14% increase in our ASP, which was driven by the improved world-wide economy and an overall increase in demand for our products across all product lines.
Other revenue, consisting of license and development fees and royalty income, was $605,000, which was a decrease of $603,000 from 2009. This decrease was due to settlement of past due royalties from one customer during the prior year period, coupled with royalty agreements expiring on certain products in the prior year period. We expect our other revenue to continue at the 2010 reduced level.
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Cost of Product Sales
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(in thousands)
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Three Months Ended September 30, 2010
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Three Months Ended September 30, 2009
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Nine Months Ended September 30, 2010
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Nine Months Ended September 30, 2009
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Cost of product sales
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$9,370
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$5,297
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$26,186
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$16,346
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Gross margin percentage
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52%
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53%
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51%
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49%
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Three Months:
Cost of product sales was $9.4 million, which was an increase of $4.1 million from the same period in 2009. This increase was due to an $8.4 million increase in product sales. Gross product margin decreased to 52%, compared with 53% for the same period last year. The decrease in product gross margin was due primarily to the strengthening of the Japanese Yen compared to the prior quarter, which increased the cost of manufacturing material we purchased in Yen. The decrease was also due in part to an obsolescence write-off in the current quarter. The decrease in product gross margin was offset by reduced sales of lower margin custom product sales to select customers.
Nine Months:
Cost of product sales was $26.2 million, which was an increase of $9.8 million from 2009. This increase was due to a $21.6 million increase in product sales. Product gross margin increased by 2% to 51%, compared with 49% for the same period last year. The product gross margin increase was primarily due to favorable fixed overhead variances compared to the prior nine-month period based upon increased production volumes.
6
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Research and Development Expense
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(in thousands)
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Three Months Ended September 30, 2010
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Three Months Ended September 30, 2009
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Nine Months Ended September 30, 2010
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Nine Months Ended September 30, 2009
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Research and development expense (including customer-sponsored research and development)
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$4,895
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$3,034
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$12,705
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$8,067
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Percent of total revenue
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25%
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26%
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24%
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24%
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Three Months:
Research and development expense was $4.9 million, which was an increase of $1.9 million from the same period in 2009. This increase was due primarily to increased engineering processing support expenses of $900,000 in connection with our IBM foundry project. Salary related expenses also increased by approximately $500,000 due to increased headcount and the use of outside contractors for new product development efforts, combined with a reinstatement of salaries that were reduced as a result of the March 2009 restructuring. Management and employee variable compensation accruals were made during the quarter ended September 30, 2010. We did not accrue variable compensation during 2009. We also incurred $300,000 in additional photomask and engineering expenses related to new product development during the quarter ended September 30, 2010.
Nine Months:
Research and development expense for the nine months ended September 30, 2010 was $12.7 million, which was an increase of $4.6 million over the nine months ended September 30, 2009. This increase was due to a $2 million increase in process support expenses in connection with our IBM foundry project. Salary related expenses, including outside services, and processing fees associated with new product design efforts increased $2.3 million. These expenses were offset by approximately $700,000 of reduced expenses related to our Montreal design center, which we closed as part of our restructuring effort during the first quarter of 2009.
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Sales and Marketing Expense
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(in thousands)
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Three Months Ended September 30, 2010
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Three Months Ended September 30, 2009
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Nine Months Ended September 30, 2010
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Nine Months Ended September 30, 2009
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Sales and marketing expense
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$2,478
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$1,733
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$6,770
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$5,433
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Percent of total revenue
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12%
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15%
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13%
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16%
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Three Months
Sales and marketing expense was $2.5 million, which was an increase of $745,000 from the same period in 2009. This increase was due primarily to a $615,000 increase in internal and external commissions and salary related expenses in connection with increased sales, compared to the same period last year.
Nine Months
Sales and marketing expense was $6.8 million for the nine months ended September 30, 2010, which was a $1.3 million increase compared to nine months ended September 30, 2009. This increase was due to approximately $850,000 of additional expenses relating to salaries, internal commissions and management and employee variable compensation accrual and $350,000 for outside sales rep commissions.
7
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General and Administrative Expense
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(in thousands)
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Three Months Ended September 30, 2010
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Three Months Ended September 30, 2009
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Nine Months Ended September 30, 2010
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Nine Months Ended September 30, 2009
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General and administrative expense
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$1,941
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$1,213
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$5,614
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$4,182
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Percent of total revenue
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10%
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10%
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10%
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13%
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Three Months
General and administrative expense was $1.9 million, which was an increase of $728,000 from the same period in 2009. This increase was due primarily to a $415,000 increase in management and employee variable compensation accruals as well as the reinstatement of salaries that were reduced as a result of the March 2009 restructuring. Also contributing to this increase was increased outside services of $225,000, compared to the quarter ended September 30, 2009.
Nine Months
General and administrative expense for the nine months ended September 30, 2010 was $5.6 million, which was an increase of $1.4 million from the nine months ended September 30, 2009. This increase was primarily due to the reinstatement of salaries that were reduced as a result of the March 2009 restructuring and the management and employee variable compensation accruals in 2010. We did not accrue variable compensation for the nine months ended September 30, 2009.
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Restructuring and Impairment
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(in thousands)
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Three Months Ended September 30, 2010
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Three Months Ended September 30, 2009
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Nine Months Ended September 30, 2010
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Nine Months Ended September 30, 2009
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Restructuring expense
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--
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$40
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--
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$827
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Impairment charge
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--
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--
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--
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$5,372
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Three Months
Restructuring expense primarily relates to termination benefits paid to employees as part of the 14% reduction in the Company's workforce associated primarily with the closing of our Montreal design center during the quarter ended March 31, 2009. During the three months ended September 30, 2009, we recorded $40,000 of expenses primarily relating to employee relocation costs. We do not expect further expenses relating to the restructuring.
Nine Months
During the first quarter of 2009, we tested for impairment our purchased intellectual property associated with our Montreal design center, certain long-lived assets located at the design center, and the carrying amount of goodwill. As a result of our test, we booked an impairment charge of $5.4 million. We do not expect further impairment charges during 2010.
The $827,000 restructuring expenses relates to the contract termination costs and employee termination benefits associated with the closing of our Montreal design center during the nine months ended September 30, 2009. We do not expect further restructuring charges during 2010.
8
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Other Non-Operating Income (Expenses)
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(in thousands)
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Three Months Ended September 30, 2010
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Three Months Ended September 30, 2009
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Nine Months Ended September 30, 2010
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Nine Months Ended September 30, 2009
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Interest expense
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$(250)
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$(92)
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$(578)
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$(257)
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Other income (expense)
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$(385)
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$51
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$(406)
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$237
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Income tax benefit (provision)
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$(221)
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$(107)
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$(701)
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$547
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Three Months
Interest expense was $250,000 for the three months ended September 30, 2010, which was an increase of $158,000 from the quarter ended September 30, 2009. This increase was due to new capital leases and the bank term loan effective June 28, 2010.
Other expense was $385,000 for the three months ended September 30, 2010, compared with other income of $51,000 for the same period in 2009. The increase in expense was due primarily to $397,000 in write-down of obsolete photomasks and fixed asset disposals. The majority of this expense was for wafer photomasks for custom products we no longer produce. We do not expect further expense of this type.
For the three months ended September 30, 2010, the Company recorded a $221,000 income tax provision. The provision was a non-cash transaction and our effective tax rate was approximately 39%. During the three month ended September 30, 2010, we recorded a $107,000 non-cash tax provision based upon pre-tax income of $238,000.
Nine Months
Interest expense was $578,000 during the nine months ended September 30, 2010, which was a $321,000 increase from the nine months ended September 30, 2009. This increase was due to capital leases we initiated during the last six months of 2009 and the first quarter of 2010. Contributing to this increase was our 6.5%, 4-year $6 million term loan that was funded on June 30, 2010.
Other expense was $406,000 for the nine months ended September 30, 2010 compared to $237,000 other income for the nine months ended September 30, 2009. The $643,000 difference was due to interest income and a gain on disposition of fixed assets of $200,000 in 2009 compared to interest income of $25,000 in the first nine months of 2010 and a loss on the write-down of wafer photomasks of $397,000. The decrease in interest income was a result of lower interest rates coupled with lower average balances in our money market fund.
Income tax provision for the nine months ended September 30, 2010 was $701,000. The effective tax rate was 39%. During the nine months ended September 30, 2009, the Company recorded a $547,000 non-cash tax benefit due to our operating loss for this period.
9
LIQUIDITY AND CAPITAL RESOURCES
Our cash flows from operating, investing and financing activities, as reflected in the consolidated statements of cash flows for the quarters ended September 30, 2010 and 2009, are summarized as follows:
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(in thousands)
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2010
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2009
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Cash provided by (used in):
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Operating activities
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$ | 5,738 | $ | 2,593 | ||||
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Investing activities
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(4,621 | ) | (7,227 | ) | ||||
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Financing activities
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4,615 | (451 | ) | |||||
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Effect of exchange rate changes on cash
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(30 | ) | (79 | ) | ||||
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Net (decrease) increase in cash and cash equivalents
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$ | 5,702 | $ | (5,164 | ) | |||
Cash Flow from Operating Activities
The net amount of cash provided by operating activities during the nine months ended September 30, 2010 was $5.7 million, and was primarily due to earnings from operations after the add-back of non-cash expenses. This increase in cash was offset by a net increase of $200,000 in our net working capital resulting in cash used in our operations.
The net amount of cash provided by operating activities during 2009 was $2.6 million. $1.3 million of this cash provided by operating activities pertains to cash provided by operations coupled with a net decrease in our working capital, which resulted in an additional $1.3 million in cash provided by operations.
Cash Flows from Investing Activities
The net amount of cash used in investing activities during the nine months ended September 30, 2010 and 2009 was $4.6 million and $7.2 million, respectively, which was primarily related to capital purchases associated with our IBM foundry initiative and capitalized wafer photomask charges relating to new products.
Cash Flow from Financing Activities
The net amount of cash generated by financing activities during the nine months ended September 30, 2010 was $4.6 million. The primary source of cash for financing activities was a $6 million term loan we obtained during the second quarter of 2010 offset by $1.7 million in principal payments.
We also financed $1.4 million of capital expenditures with a capital lease during the nine months ended September 30, 2010, which we reported as supplemental information on the cash flow statement.
For the nine months ended September 30, 2009, we used $451,000 to repay principal on our debt.
Liquidity
We had $13.2 million in cash and cash equivalents at September 30, 2010. Our future liquidity depends on revenue growth, steady gross margins and control of operating expenses. In addition to operating cash flow from product sales, we currently have approximately $3.4 million available to us under the $6 million secured line of credit facility. This secured line of credit facility expires on August 18, 2011. As of September 30, 2010, we had no amount outstanding on the secured line of credit facility. As of September 30, 2010, $5.6 million was outstanding under our $6 million term loan. The maturity date on our term loan is June 28, 2014. We have certain covenants under this credit facility that include minimum fixed charge coverage ratio and quick ratio. We were in compliance with these covenants at September 30, 2010 and expect to be in compliance for the remainder of the year.
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If during 2011, IBM’s supply of products is delayed or we are not able to obtain replacement products in a timely manner, we will be unable to fill certain customer orders, which may have a material adverse effect on our revenue and results of operations. This could also cause the Company to be in default of its covenants and related term loan.
We believe we have sufficient resources from cash on hand, funds from operations and availability under our secured line of credit facility to fund current operations through at least mid-year 2011. If the IBM foundry project is significantly delayed beyond 2010, the Company may be required to seek additional debt or equity capital to fund operations for 2011 and beyond.
We have contracted with IBM to provide us with facility design and fit up, tool installation and tool qualification services in support of IBM's manufacture of our F-RAM products. We will provide certain tools, peripheral equipment, technology and specifications for IBM's manufacture of our products. We will also provide our F-RAM technology and engineering expertise to IBM to assist in the integration and process development of our F-RAM products. Expenditures relating to capital and engineering support expenses for our IBM foundry project incurred from inception to date were approximately $20 million, and we estimate an additional $3.5 million of capital expenditures and $1.8 million of expenses for the remainder of the year. If we do not generate enough cash from our operations or have sufficient available borrowings under our secured line of credit facility, or if actual expenditures for capital and engineering support for our IBM foundry project are higher than estimated, the IBM foundry project could be delayed and could be at risk of being cancelled.
If net cash flow is not sufficient to meet our cash requirements, we may use our line of credit facility mentioned above or any other credit facility we may obtain. We would be required to obtain approval from Silicon Valley Bank for any additional debt financing, other than specific debt such as approved lease lines of credit, per the terms of our existing loan agreement. Any issuance of common or preferred stock or convertible securities to obtain additional funding would result in dilution of our existing stockholders' interests.
Debt Instruments
On August 18, 2009, we executed an Amended and Restated Loan and Security Agreement ("Amended Loan Agreement") with Silicon Valley Bank ("SVB"). The Amended Loan Agreement provides for a $6 million working capital line of credit with a $1.75 million sublimit for EXIM advances, $1.5 million sublimit for foreign accounts receivable, and a sublimit of $3 million for letters of credit and foreign exchange exposure and cash management services. On January 28, 2010, SVB approved an increase of $1.9 million over the sublimit for our eligible foreign accounts receivable from $1.5 million to $3.4 million based upon our obtaining foreign accounts receivable credit insurance. We obtained this insurance with an effective date of November 1, 2009. The Amended Loan Agreement replaces the Company's Amended and Restated Loan and Security Agreement dated September 15, 2005. The Amended Loan Agreement provides for interest at a floating rate equal to the SVB prime lending rate plus 1.75% to 2.25% per annum depending upon cash balances and loan availability maintained at SVB. The term is two years expiring on August 18, 2011, with a commitment fee of $40,000 paid at signing and $40,000 on the first anniversary. There is also a .375% unused line fee, payable monthly in arrears. Security for the Amended Loan Agreement includes all of our assets except for real estate and leased equipment. The related borrowing base is comprised of the Company's trade receivables. We plan to draw upon our loan facility for working capital purposes as required. The net availability under our secured line of credit facility as of September 30, 2010 was $3.4 million. An insufficient amount of funds available under our secured line of credit facility and term loan could cause us to delay or cancel the IBM foundry project. As of September 30, 2010, we had no amount outstanding on the secured line of credit facility.
On June 28, 2010, the Company and SVB executed a Second Amendment ("Amendment") to the Company's Amended and Restated Loan and Security Agreement dated August 18, 2009, as amended. The Amendment provides for a 4-year $6 million term loan with a fixed interest rate of 6.5% per annum. The maturity date for the term is June 28, 2014. Principal payments are fixed at $125,000 per month.
We are using equipment leases to finance part of the required equipment to support our IBM foundry project. We have obtained $4.3 million of lease financing secured by specific equipment with terms averaging 30 months.
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On December 15, 2005, we, through our subsidiary, Ramtron LLC, for which we serve as sole member and sole manager, closed a mortgage loan facility with American National Insurance Company. Ramtron LLC entered into a promissory note evidencing the loan with the principal amount of $4.2 million, with a maturity date of January 1, 2016, bearing interest at 6.17%. As of September 30, 2010, approximately $3.6 million was outstanding on the mortgage loan facility. Ramtron LLC also entered into an agreement for the benefit of American National Insurance Company granting it a mortgage over real estate as collateral for the mortgage loan facility.
ITEM 6. EXHIBITS
(a) Exhibits:
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31.1
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Rule 13a-14(a)/15d-14(a) Certification of Principal Executive Officer
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31.2
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Rule 13a-14(a)/15d-14(a) Certification of Principal Financial Officer
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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)
/s/ Eric A. Balzer
Eric A. Balzer
Chief Financial Officer
(Principal Accounting Officer and
Duly Authorized Officer of the Registrant)
Date: November 10, 2010
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