<PAGE>
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED JUNE 28, 1997
COMMISSION FILE NUMBER 0-22660
------------------------
TRIQUINT SEMICONDUCTOR, INC.
(REGISTRANT)
INCORPORATED IN THE STATE OF DELAWARE
I.R.S. EMPLOYER IDENTIFICATION NUMBER 95-3654013
2300 N.E. BROOKWOOD PARKWAY, HILLSBORO, OR 97124
TELEPHONE: (503) 615-9000
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INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS
REQUIRED TO BE FILED BY SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF
1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE
REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH
FILING REQUIREMENTS FOR THE PAST 90 DAYS.
YES _X_ NO ____
AS OF JUNE 30, 1997, THERE WERE 8,387,958 SHARES OF THE REGISTRANT'S COMMON
STOCK OUTSTANDING.
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<PAGE>
TRIQUINT SEMICONDUCTOR, INC.
INDEX
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION PAGE NO.
- --------- --------------------------------------------------------------------- ---------------
<S> <C> <C>
Item 1. Financial Statements
Condensed Statements of Operations--Three and six months ended June
30, 1997 and 1996.................................................... 3
Condensed Balance Sheets--June 30, 1997 and December 31, 1996........ 4
Condensed Statements of Cash Flows--Six months ended June 30, 1997
and 1996............................................................. 5
Notes to Condensed Financial Statements.............................. 6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations................................................ 8
PART II. OTHER INFORMATION
- ---------
21
Item 1. Legal Proceedings....................................................
21
Item 6. Exhibits and Reports on Form 8-K.....................................
22
SIGNATURES......................................................................
</TABLE>
2
<PAGE>
PART I--FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
TRIQUINT SEMICONDUCTOR, INC.
CONDENSED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
-------------------- --------------------
JUNE 30, JUNE 30, JUNE 30, JUNE 30,
1997 1996 1997 1996
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Total revenues........................................................ $ 18,544 $ 15,095 $ 35,344 $ 28,211
Operating costs and expenses:
Cost of goods sold.................................................. 9,559 8,363 18,689 16,291
Research, development and engineering............................... 3,257 2,660 5,800 5,149
Selling, general and administrative................................. 3,332 2,809 6,758 5,205
--------- --------- --------- ---------
Total operating costs and expenses................................ 16,148 13,832 31,247 26,645
--------- --------- --------- ---------
Income from operations............................................ 2,396 1,263 4,097 1,566
--------- --------- --------- ---------
Other income (expense):
Interest income..................................................... 863 977 1,687 1,827
Interest expense.................................................... (387) (255) (707) (446)
Other, net.......................................................... 32 (2) 68 (6)
--------- --------- --------- ---------
Total other income, net........................................... 508 720 1,048 1,375
--------- --------- --------- ---------
Income before income taxes........................................ 2,904 1,983 5,145 2,941
Income tax expense.................................................... 638 119 1,112 167
--------- --------- --------- ---------
Net income........................................................ $ 2,266 $ 1,864 $ 4,033 $ 2,774
--------- --------- --------- ---------
--------- --------- --------- ---------
Net income per common and common equivalent share..................... $ 0.25 $ 0.21 $ 0.44 $ 0.32
--------- --------- --------- ---------
--------- --------- --------- ---------
Weighted average common and common equivalent shares outstanding...... 9,185 8,769 9,157 8,696
</TABLE>
See notes to Condensed Financial Statements.
3
<PAGE>
TRIQUINT SEMICONDUCTOR, INC.
CONDENSED BALANCE SHEETS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1997 1996(1)
---------- ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................................................ $ 10,858 $ 13,411
Investments.......................................................................... 13,003 19,264
Accounts receivable, net............................................................. 15,700 12,002
Inventories, net..................................................................... 13,791 9,850
Prepaid expenses and other assets.................................................... 315 523
---------- ------------
Total current assets............................................................... 53,667 55,050
---------- ------------
Property, plant and equipment, net..................................................... 25,760 21,987
Restricted investments................................................................. 40,163 30,508
Other non-current assets............................................................... 28 51
---------- ------------
Total assets....................................................................... $ 119,618 $ 107,596
---------- ------------
---------- ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current installments of capital lease and installment note obligations............... $ 4,238 $ 3,373
Accounts payable and accrued expenses................................................ 16,876 14,011
Other current liabilities............................................................ 41 75
---------- ------------
Total current liabilities.......................................................... 21,155 17,459
Capital lease and installment note obligations, less current installments.............. 12,873 9,891
---------- ------------
Total liabilities.................................................................. 34,028 27,350
---------- ------------
Stockholders' equity:
Common stock......................................................................... 110,437 109,128
Accumulated deficit.................................................................. (24,847) (28,882)
---------- ------------
Total stockholders' equity......................................................... 85,590 80,246
---------- ------------
Total liabilities and stockholders' equity............................................. $ 119,618 $ 107,596
---------- ------------
---------- ------------
</TABLE>
- ------------------------
(1) The information in this column was derived from the Company's audited
financial statements as of December 31, 1996.
See notes to Condensed Financial Statements.
4
<PAGE>
TRIQUINT SEMICONDUCTOR, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
----------------------
JUNE 30, JUNE 30,
1997 1996
---------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net income.............................................................................. $ 4,033 $ 2,774
Adjustments to reconcile net income to net cash provided (used) by operating activities:
Depreciation and amortization......................................................... 2,077 1,518
(Gain) loss on sale of assets......................................................... 36 (48)
Change in assets and liabilities
(Increase) decrease in:
Accounts receivable, net.......................................................... (3,698) (2,442)
Inventories, net.................................................................. (3,941) (763)
Prepaid expenses and other assets................................................. 231 (350)
Increase (decrease) in:
Accounts payable and accrued expenses............................................. 2,865 984
Other current liabilities......................................................... (34) (137)
---------- ----------
Net cash provided by operating activities............................................. 1,569 1,536
Cash flows from investing activities:
Purchase of investments................................................................. (23,715) (33,893)
Purchase of restricted investments...................................................... (9,655) (11,661)
Sale/Maturity of investments............................................................ 30,479 30,358
Capital expenditures.................................................................... (760) (647)
Proceeds from sale of assets............................................................ 220 48
---------- ----------
Net cash used by investing activities................................................. (3,431) (15,795)
---------- ----------
Cash flows from financing activities:
Principal payments under capital lease and installment note obligations................. (2,000) (1,342)
Issuance of common stock, net........................................................... 1,309 499
---------- ----------
Net cash used by financing activities................................................. (691) (843)
Net decrease in cash and cash equivalents............................................. (2,553) (15,102)
Cash and cash equivalents at the beginning of the period.................................. 13,411 35,051
---------- ----------
Cash and cash equivalents at the end of the period........................................ $ 10,858 $ 19,949
---------- ----------
---------- ----------
</TABLE>
See notes to Condensed Financial Statements.
5
<PAGE>
TRIQUINT SEMICONDUCTOR, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(IN THOUSANDS EXCEPT SHARE AMOUNTS)
(UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying financial statements have been prepared in conformity with
generally accepted accounting principles. However, certain information or
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed, or
omitted, pursuant to the rules and regulations of the Securities and Exchange
Commission. In the opinion of management, the statements include all adjustments
necessary (which are of a normal and recurring nature) for the fair presentation
of the results of the interim periods presented. These financial statements
should be read in conjunction with the Company's audited financial statements
for the year ended December 31, 1996, as included in the Company's 1996 Annual
Report to Stockholders.
The Company's quarters end on the Saturday nearest the end of the calendar
quarter. For convenience, the Company has indicated that its second quarter
ended on June 30. The Company's fiscal year ends on December 31.
2. NET INCOME PER COMMON AND COMMON EQUIVALENT SHARE
Net income per common and common equivalent share is computed using the
weighted average number of common and dilutive common equivalent shares assumed
to be outstanding during the period. Common equivalent shares consist of options
and warrants to purchase common stock.
3. RESEARCH AND DEVELOPMENT COSTS
The Company charges all research and development costs associated with the
development of new products to expense when incurred. Engineering and design
costs related to revenues on non-recurring engineering services billed to
customers are classified as research, development and engineering expense.
Additionally, certain related contract engineering costs are also included in
research, development and engineering expense.
4. INCOME TAXES
The provision for income taxes has been recorded based on the current
estimate of the Company's annual effective tax rate. For periods of income, this
rate differs from the federal statutory rate primarily because of the
utilization of net operating loss carryforwards.
5. INVENTORIES
Inventories, net of reserves, stated at the lower of cost or market consist
of:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1997 1996
--------- -------------
<S> <C> <C>
Raw material......................................................... $ 4,682 $ 3,283
Work in progress..................................................... 6,253 5,136
Finished goods....................................................... 2,856 1,431
--------- ------
Total inventories, net........................................... $ 13,791 $ 9,850
--------- ------
--------- ------
</TABLE>
6
<PAGE>
6. STOCKHOLDERS' EQUITY
Shares authorized and outstanding are as follows:
<TABLE>
<CAPTION>
SHARES OUTSTANDING
------------------------
JUNE 30, DECEMBER 31,
1997 1996
---------- ------------
<S> <C> <C>
Preferred stock, $.001 par value per share, 5,000,000 shares
authorized....................................................... -- --
Common stock, $.001 par value per share, 25,000,000 shares
authorized....................................................... 8,387,958 8,190,125
</TABLE>
7. SUPPLEMENTAL CASH FLOW INFORMATION
<TABLE>
<CAPTION>
SIX MONTHS ENDING
------------------------
JUNE 30, JUNE 30,
1997 1996
----------- -----------
<S> <C> <C>
Cash Transactions:
Cash paid for interest.................................................. $ 701 $ 446
Cash paid for income taxes.............................................. 48 7
Non-cash Transactions:
Purchase of assets through capital leases and installment notes......... $ 5,847 $ 3,717
</TABLE>
8. NEW ACCOUNTING PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards ("SFAS") No. 128, "Earnings per Share." This
Statement establishes a different method of computing net income per share than
is currently required under the provisions of Accounting Principles Board
Opinion No. 15. Under SFAS No. 128, the Company will be required to present both
basic net income per share and diluted net income per share. Basic net income
per share is expected to be comparable or slightly higher than the currently
presented net income per share as the effect of dilutive stock options will not
be considered in computing basic net income per share. Diluted net income per
share is expected to be comparable or slightly lower than the currently
presented net income per share.
The Company plans to adopt SFAS No. 128 in the fourth quarter of 1997 and at
that time all historical net income per share data presented will be restated to
conform to the provisions of this Statement.
9. LITIGATION
See Part II, Item 1, of this Quarterly Report on Form 10-Q for a description
of legal proceedings.
7
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
IN ADDITION TO THE OTHER INFORMATION IN THIS REPORT ON FORM 10-Q (THIS
"REPORT") AND IN THE DOCUMENTS INCORPORATED BY REFERENCE HEREIN, CERTAIN
STATEMENTS IN MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS ARE FORWARD LOOKING STATEMENTS. WHEN USED IN THIS REPORT,
THE WORD "EXPECTS," "ANTICIPATES," "ESTIMATES," AND SIMILAR EXPRESSIONS ARE
INTENDED TO IDENTIFY FORWARD LOOKING STATEMENTS. SUCH STATEMENTS ARE SUBJECT TO
RISKS AND UNCERTAINTIES THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY
FROM THOSE PROJECTED. SUCH RISKS AND UNCERTAINTIES ARE SET FORTH BELOW UNDER
"FACTORS AFFECTING FUTURE OPERATING RESULTS." THESE RISKS AND UNCERTAINTIES
INCLUDE, BUT ARE NOT LIMITED TO, THOSE RISKS DISCUSSED BELOW, AND IN PARTICULAR,
THE STATEMENT REGARDING THE COMPANY'S ANTICIPATED VARIABILITY OF OPERATING
RESULTS; THE RISKS ASSOCIATED WITH THE COMPANY'S MOVE OF ITS LEASED WAFER
FABRICATION FACILITY TO THE HILLSBORO, OREGON LOCATION; THE RISKS ASSOCIATED
WITH THE COMPANY'S OPERATING ITS OWN LEASED WAFER FABRICATION FACILITY; AND THE
RISK OF LOWER THAN EXPECTED PRODUCTION YIELDS.
TriQuint Semiconductor, Inc. ("TriQuint" or the "Company") designs,
develops, manufactures and markets a broad range of high performance analog and
mixed signal integrated circuits ("ICs") for the wireless communications,
telecommunications, datacom and computing markets. The Company utilizes its
proprietary gallium arsenide ("GaAs") technology to enable its products to
overcome the performance barriers of silicon devices in a variety of
applications. The Company sells its products on a worldwide basis. Its end
customers include, in the wireless communications market, Alcatel, Cellnet,
Ericsson, Lucent, Motorola, Philips, Qualcomm and Rockwell; in the
telecommunications market, Cisco, Lucent, Northern Telecom, Siemens and Stratus;
and in the datacom and computing markets, Digital Equipment, Hitachi, IBM,
Storage Technology and Texas Instruments.
RESULTS OF OPERATIONS
The following table sets forth the statement of operations data of the
Company expressed as a percentage of total revenues for the periods indicated.
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
-------------------- --------------------
1997 1996 1997 1996
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Total revenues.................................................................. 100.0% 100.0% 100.0% 100.0%
Operating costs and expenses:
Cost of goods sold............................................................ 51.5 55.4 52.9 57.7
Research, development and engineering......................................... 17.6 17.6 16.4 18.3
Selling, general and administrative........................................... 18.0 18.6 19.1 18.5
Total operating costs and expenses.......................................... 87.1 91.6 88.4 94.4
--------- --------- --------- ---------
Income from operations.......................................................... 12.9 8.4 11.6 5.6
Other income, net............................................................... 2.7 4.8 3.0 4.9
--------- --------- --------- ---------
Income before income taxes.................................................... 15.6 13.1 14.6 10.4
Income tax expense.............................................................. 3.4 0.8 3.2 0.6
--------- --------- --------- ---------
Net income...................................................................... 12.2% 12.3% 11.4% 9.8%
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
TOTAL REVENUES. The Company derives revenues from the sale of standard and
customer specific products and services. The Company's revenues also include
nonrecurring engineering ("NRE") revenues relating to the development of
customer specific products. The Company derives its product and service revenues
from three product areas: wireless communications, telecommunications and
datacom and computing.
Total revenues for the three and six months ended June 30, 1997 increased
22.8% and 25.3%, respectively, to $18.5 million and $35.3 million from $15.1
million and $28.2 million, respectively, for the
8
<PAGE>
comparable three and six months ended June 30, 1996. The increases in total
revenues in the three and six months ended June 30, 1997 reflected an overall
increase in the volume of product sales to existing and new customers in the
wireless communications, telecommunications, and datacom and computing markets.
Domestic revenues for the three and six months ended June 30, 1997 increased to
$12.1 and $22.8 million, respectively, from to $10.8 and $19.8 million,
respectively, for the three and six months ended June 30, 1996. International
revenues increased to $6.4 and $12.5 for the three and six months ended June 30,
1997, respectively, from $4.3 and $8.4 million, respectively, for the three and
six months ended June 30, 1996.
COST OF GOODS SOLD. Cost of goods sold ("CGS") includes all direct
material, labor and overhead expenses and certain production costs related to
NRE revenues. In general, gross profit generated from the sale of customer
specific products and from NRE projects is typically higher than gross profit
generated from the sale of standard products. The factors affecting product mix
include the relative demand in the various market segments incorporating the
Company's customer specific products and standard products, as well as the
number of NRE contracts which result in volume requirements for customer
specific products.
CGS increased to $9.6 million for the three months ended June 30, 1997 from
$8.4 million for the three months ended June 30, 1996. However, CGS as a
percentage of total revenues for the three months ended June 30, 1997 decreased
to 51.5% from 55.4% for the three months ended June 30, 1996. For the six months
ended June 30, 1997, CGS rose to $18.7 million from $16.3 in the comparable
period a year earlier. Similarly, for the six months ended June 30, 1997, CGS
decreased as a percentage of total revenues to 52.9% from 57.7% for the
comparable period a year earlier. The decrease in CGS as a percentage of total
revenues from the three and six months ended June 30, 1996, was primarily
attributable to improvements in production yields, which were partially offset
by certain costs associated with the Company's startup of its new leased wafer
fabrication facility in Hillsboro.
RESEARCH, DEVELOPMENT AND ENGINEERING. Research, development and
engineering ("RD&E") expenses include the costs incurred in the design of
products associated with NRE revenues, as well as ongoing product development
and research and development activities. The Company's RD&E expenses for the
three months ended June 30, 1997 increased 22.4% to $3.3 million from $2.7
million for the three months ended June 30, 1996, but remained flat at 17.6% as
a percentage of total revenues due to the increase in the absolute level of
revenues in the more current period. For the six months ended June 30, 1997, the
Company's RD&E expenses increased 12.6% to $5.8 million from $5.1 million for
the six months ended June 30, 1996. The growth in the absolute dollar amount of
RD&E in the six months ended June 30, 1997 compared to the year earlier period
resulted from increased head count and expenses associated with increased
product development activity. RD&E expenses as a percentage of total revenues
decreased from 18.3% for the first six months of 1996 to 16.4% for the first six
months of 1997. The decrease in RD&E expenses as a percentage of total revenues
was the result of increased sales volume that outpaced the growth of RD&E
expenses. The Company is committed to substantial investments in RD&E, and these
expenses are expected to increase in absolute dollar amount in the future.
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative
("SG&A") expenses for the three months ended June 30, 1997 increased 18.6% to
$3.3 million from $2.8 million for the comparable period a year earlier. For the
three months ended June 30, 1997, SG&A expenses as a percentage of total
revenues decreased to 18.0% from 18.6% in the comparable period a year earlier.
For the six months ended June 30, 1997, SG&A increased 29.8% to $6.8 million
from $5.2 million for the six months ended June 30, 1996. SG&A as a percentage
of total revenues increased to 19.1% for the six months ended June 30, 1997 from
18.5% for comparable period a year earlier. The increased level of SG&A was
primarily due to increased sales commissions resulting from the increase in
total revenue and to costs associated with the Company's move to its new leased
Hillsboro facility.
OTHER INCOME, NET. For the three and six months ended June 30, 1997, other
income, net decreased to $508,000 and $1.0 million, respectively, from $720,000
and $1.4 million for the three and six months
9
<PAGE>
ended June 30, 1996, respectively. This decrease resulted from an increase in
interest expense due to higher levels of capital lease and installment note
obligations.
INCOME TAX EXPENSE. The effective tax rates for the three and six months
ended June 30, 1997 were 22.0% and 21.6%, respectively, which are less than the
federal and state statutory rate of approximately 40% due to the use of net
operating loss carryforwards. Income tax expense for the three and six months
ended June 30, 1997 increased to $638,000 and $1.1 million, respectively, from
$119,000 and $167,000 for the three and six months ended June 30, 1996,
respectively. The effective tax rate for the six months ended June 30, 1996 was
5.7%. This increase in income tax expense was attributable to higher profits but
was offset in part by the use of net operating loss carryforwards.
NEW ACCOUNTING PRONOUNCEMENTS. In February 1997, the Financial Accounting
Standards Board issued Statement of Financial Accounting Standards ("SFAS") No.
128, "Earnings per Share." This Statement establishes a different method of
computing net income per share than is currently required under the provisions
of Accounting Principles Board Opinion No. 15. Under SFAS No. 128, the Company
will be required to present both basic net income per share and diluted net
income per share. Basic net income per share is expected to be comparable or
slightly higher than the currently presented net income per share as the effect
of dilutive stock options will not be considered in computing basic net income
per share. Diluted net income per share is expected to be comparable or slightly
lower than the currently presented net income per share.
The Company plans to adopt SFAS No. 128 in the fourth quarter of 1997 and at
that time all historical net income per share data presented will be restated to
conform to the provisions of this Statement.
LIQUIDITY AND CAPITAL RESOURCES
In January 1994, the Company completed its initial public offering raising
approximately $16.7 million, net of offering expenses. The Company completed a
public offering in September 1995 raising approximately $48.1 million, net of
offering expenses. In addition, the Company has funded its operations to date
through sales of equity securities, bank borrowings, operating leases, capital
equipment leases and cash flow from operations. As of June 30, 1997, the Company
had working capital of approximately $32.5 million, including $23.9 million in
cash, cash equivalents, and investments. The Company has a $10.0 million
unsecured revolving line of credit with a financial institution. As of June 30,
1997, there were no borrowings under this facility. Restrictive covenants
included in the line of credit require the Company to maintain (i) a total
liability to tangible net worth ratio of not more than 0.75 to 1.00, (ii) a
current ratio of not less than 1.75 to 1.00, (iii) minimum tangible net worth of
greater than $54 million and (iv) cash and investments, including restricted
investments, greater than $45.0 million. As of June 30, 1997, the Company was in
compliance with the covenants contained in this line of credit. However, there
can be no assurance that the Company will continue to be in compliance with
these covenants as of any subsequent date.
The construction of a new wafer fabrication and office complex leased by the
Company in Hillsboro was recently completed. In the first quarter of 1997, the
Company moved its executive, administrative, sales, marketing, test and
technical offices to the new leased facility in Hillsboro. Prior to that time,
such functions were conducted at the Company's former headquarters in Beaverton,
Oregon. The 38,000 square foot Hillsboro wafer fabrication facility is scheduled
to begin operations in the second half of 1997 and will include a 16,000 square
foot clean room.
In May 1996, the Company entered into a five year synthetic lease through a
Participation Agreement (the "Agreement") with Wolverine Leasing Corp.
("Wolverine"), Matisse Holding Company ("Matisse") and United States National
Bank of Oregon ("USNB"). The lease provides for the construction and occupancy
of the Company's new headquarters and wafer fabrication facility in Hillsboro
under an operating lease from Wolverine and provides the Company with an option
to purchase the property. At the expiration of its five year lease, the Company
may exercise the option to purchase the property or renew its lease for an
additional five years. Pursuant to the terms of the Agreement, USNB and Matisse
made loans
10
<PAGE>
to Wolverine who in turn advanced the funds to the Company for the construction
of the Hillsboro facility and other costs and expenses associated therewith. The
loan from USNB is collateralized by investment securities pledged by the
Company. Such investment securities are classified on the Company's balance
sheet as restricted securities. In addition, restrictive covenants in the
Agreement require the Company to maintain (i) a total liability to tangible net
worth ratio of not more than 0.75 to 1.00, (ii) minimum tangible net worth
greater than $50.0 million and (iii) cash and liquid investment securities,
including restricted securities, greater than $45.0 million. As of June 30,
1997, the Company was in compliance with the covenants described above. However,
there can be no assurance that the Company will continue to be in compliance
with these covenants as of any subsequent date.
The following table presents a summary of the Company's cash flows (in
thousands):
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30,
---------------------
1997 1996
--------- ----------
<S> <C> <C>
Net cash and cash equivalents provided (used) by operating
activities.................................................. $ 1,569 $ 1,536
Net cash and cash equivalents provided (used) by investing
activities.................................................. (3,431) (15,795)
Net cash and cash equivalents provided (used) by financing
activities.................................................. (691) (843)
--------- ----------
Net increase (decrease) in cash and cash equivalents.......... $ (2,553) $ (15,102)
--------- ----------
--------- ----------
</TABLE>
For the six months ended June 30, 1997, cash provided by operating
activities was $1.6 million and related to an increase in cash generated by net
income of $4.0 million and growth of $2.9 million in accounts payable and
accrued expenses and depreciation and amortization of $2.1 million but was
offset in part by growth of $3.7 million and $3.9 million in accounts receivable
and inventory, respectively. One factor in inventory growth was the Company's
impending move to its new leased Hillsboro wafer fabrication facility and
concerns about possible reductions in output during the transition and a second
factor is increased sales levels. For the six months ended June 30, 1996, cash
provided by operating activities was $1.5 million and consisted of net income of
$2.8 million, an increase in accounts payable and accrued expenses and a decline
in inventories, but was partially offset by increases in accounts receivable,
prepaid expense and other assets and other current liabilities.
For the six months ended June 30, 1997, cash used by investing activities
was $3.4 million. Cash used by investing activities grew as a result of the
purchase of $23.7 million of investments, the purchase of $9.7 million of
restricted investments and capital expenditures of $760,000. The use of cash for
investing activities for the six months ended June 30, 1997 was offset in part
by the sale and/or maturity of $30 million of investments. In the comparable
period year earlier, cash used by investing activities was $15.8 million, and
was the result of the net purchase of investments and the purchase of $647,000
of capital equipment.
For the six months ended June 30, 1997 and June 30, 1996, cash used by
financing activities was $691,000 and $843,000, respectively, and related
primarily to the principal payments made on capital leases and installment notes
but was partially offset by the issuance of common stock upon option exercises.
Capital expenditures were approximately $760,000 for the six months ended
June 30, 1997. In this period, the Company also established $5,847,000 in new
capital leases. The Company anticipates that its capital equipment needs,
including manufacturing and test equipment and computer hardware and software,
will require additional expenditures of $3.0 million during the remainder of
1997.
11
<PAGE>
The Company believes that its current cash and cash equivalent balances,
together with cash anticipated to be generated from operations and anticipated
financing arrangements, will satisfy the Company's projected working capital and
capital expenditure requirements through the end of 1997. However, the Company
may be required to finance any additional requirements through additional equity
or debt financings or credit facilities. There can be no assurance that such
additional financings or credit facilities will be available, or if available,
that they will be on satisfactory terms.
FACTORS AFFECTING FUTURE RESULTS
VARIABILITY OF OPERATING RESULTS. The Company's quarterly and annual
results of operations have varied in the past and may vary significantly in the
future due to a number of factors, including cancellation or delay of customer
orders or shipments; market acceptance of the Company's or its customers'
products; the Company's success in achieving design wins; variations in
manufacturing yields; timing of announcement and introduction of new products by
the Company and its competitors; changes in revenue and product mix; competitive
factors; changes in manufacturing capacity and variations in the utilization of
such capacity; variations in average selling prices; variations in operating
expenses; the long sales cycles associated with the Company's customer specific
products; the timing and level of product and process development costs; the
cyclicality of the semiconductor industry; the timing and level of nonrecurring
engineering ("NRE") revenues and expenses relating to customer specific
products; changes in inventory levels; and general economic conditions. Any
unfavorable changes in these or other factors could have a material adverse
effect on the Company's results of operations. For example, in June 1994,
Northern Telecom, the Company's largest customer, requested that the Company
delay shipment of certain of its telecommunications devices to Northern Telecom.
This decision, together with a general softness of orders in the
telecommunications market, materially adversely affected the Company's revenues
and results of operations in the second quarter of 1994 and for the balance of
that year. The Company expects that its operating results will continue to
fluctuate in the future as a result of these and other factors. In this regard,
the Company recently indicated that it expects its rate of sequential revenue
growth to decrease for the balance of 1997. The Company's expense levels are
based, in part, on its expectations as to future revenue and, as a result, net
income would be disproportionately and adversely affected by a reduction in
revenue. Due to potential quarterly fluctuations in operating results, the
Company believes that quarter-to-quarter comparisons of its results of
operations are not necessarily meaningful and should not be relied upon as
indicators of future performance. Furthermore, it is likely that in some future
quarter the Company's net sales or operating results will be below the
expectations of public market securities analysts or investors. In such event,
the market price of the Company's Common Stock would likely be materially
adversely affected.
EXPIRATION OF FACILITY LEASE; TRANSITION OF MANUFACTURING OPERATIONS TO A
NEW FACILITY. The Company's current lease on the wafer fabrication facility
owned by Maxim expires in January 1998. The construction of the new wafer
fabrication and office complex leased by the Company in Hillsboro, Oregon was
recently completed. The Company intends to consolidate all operations into this
facility during 1997. The Company's administrative, engineering, sales and
marketing offices and test operations moved into this new facility during the
first quarter of 1997 and the Company anticipates that it will commence wafer
production in the new facility during the second half of 1997. The Company will
operate both manufacturing facilities until the Hillsboro facility is operating
at normal capacity or until the lease on the Maxim facility expires. Given the
long lead times associated with bringing a new facility to full operation, it is
likely that the Company will incur substantial expenses before achieving volume
production in the Hillsboro facility. The transfer of the Company's wafer
fabrication operation to the Hillsboro facility will involve a number of
significant risks and uncertainties, including, but not limited to,
manufacturing transition, startup or process problems, construction, process
qualification or equipment delays, cost overruns or shortages of equipment or
materials, any of which may also adversely affect yields. Should there be delays
in commencing production at the Hillsboro facility, the Company may not have
adequate capacity to respond to all orders during the transition period. In
addition, if the Hillsboro facility does not
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become fully operational prior to the expiration of the lease on the Maxim
facility, there can be no assurance that the Company would not have to reduce
its overall level of production. There can be no assurance that the Company will
be able to successfully transition its manufacturing operations to the Hillsboro
facility prior to the expiration of the Company's lease of the Maxim facility or
that the Company will not experience difficulties in replicating critical
manufacturing processes or a reduction in manufacturing output as a result.
Moreover, believing that the Company's transition to the Hillsboro facility
could cause manufacturing delays, some customers may have purchased quantities
of the Company's products in recent fiscal quarters in excess of such customers'
respective immediate needs and may continue to do so. As a result, the Company's
operating results in subsequent quarters may be materially adversely affected.
The transition of manufacturing operations to the Hillsboro facility could place
significant strain on the Company's management and engineering resources and
result in diversion of management attention from the day-to-day operation of the
Company's business.
The Company's lease and operation of its own manufacturing facilities
entails a high level of fixed costs. Such fixed costs consist primarily of
occupancy costs for the Hillsboro and Maxim facilities, investment in
manufacturing equipment, repair, maintenance and depreciation costs related to
equipment and fixed labor costs related to manufacturing and process
engineering. The Company's manufacturing yields vary significantly among its
products, depending on a given product's complexity and the Company's experience
in manufacturing such product. The Company has experienced in the past and may
experience in the future substantial delays in product shipments due to lower
than expected production yields. The Company's transition of manufacturing
operations to the higher capacity Hillsboro facility will result in a
significant increase in fixed and operating expenses. If revenue levels do not
increase sufficiently to offset these additional expense levels, the Company's
results of operations will be materially adversely affected in future periods.
Because the Company has capitalized and intends to continue to capitalize
certain costs associated with bringing the Hillsboro facility to commercial
production, the Company will recognize amortization expenses thereafter. In
addition, during periods of low demand, high fixed wafer fabrication costs could
have a material adverse effect on the Company's business, financial condition
and results of operations.
MANUFACTURING RISKS. The fabrication of integrated circuits, particularly
GaAs devices such as those sold by the Company, is a highly complex and precise
process. Minute impurities, difficulties in the fabrication process, defects in
the masks used to print circuits on a wafer, wafer breakage or other factors can
cause a substantial percentage of wafers to be rejected or numerous die on each
wafer to be nonfunctional. As compared to silicon technology, the less mature
stage of GaAs technology leads to somewhat greater difficulty in circuit design
and in controlling parametric variations, thereby yielding fewer good die per
wafer. In addition, the more brittle nature of GaAs wafers can result in higher
processing losses than those experienced with silicon wafers. The Company has in
the past experienced lower than expected production yields, which have delayed
product shipments and materially adversely affected the Company's results of
operations. This was experienced in the fourth quarter of 1995 and during 1996.
There can be no assurance that the Company will be able to maintain acceptable
production yields in the future. Because the majority of the Company's costs of
manufacturing are relatively fixed, the number of shippable die per wafer for a
given product is critical to the Company's results of operations. To the extent
the Company does not achieve acceptable manufacturing yields or experiences
product shipment delays, its results of operations could be materially adversely
affected. In addition, the Company leases and operates its own wafer fabrication
facility, which entails a high level of fixed costs and which requires an
adequate volume of production and sales to be profitable. During periods of
decreased demand, high fixed wafer fabrication costs could have a material
adverse effect on the Company's results of operations. Finally, by the end of
1997, the Company will be manufacturing all of its products at the Hillsboro
wafer fabrication facility, and any inability to fully utilize such facility as
a result of manufacturing transition, start up or process problems,
construction, process qualification or equipment delays, cost overruns or
shortages associated with the transition to the Hillsboro facility, or as a
result of
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fire, natural disaster or otherwise, would have a material adverse effect on the
Company's business, financial condition and results of operations.
PRODUCT QUALITY, PERFORMANCE AND RELIABILITY. The fabrication of GaAs
integrated circuits is a highly complex and precise process. The Company expects
that its customers will continue to establish demanding specifications for
quality, performance and reliability that must be met by the Company's products.
GaAs integrated circuits as complex as those offered by the Company often
encounter development delays and may contain undetected defects or failures when
first introduced or after commencement of commercial shipments. As has occurred
with most other semiconductor manufacturers, the Company has from time to time
experienced product quality, performance or reliability problems, although no
such problems have had a material adverse effect on the Company's operating
results. There can be no assurance, however, that defects or failures will not
occur in the future relating to the Company's product quality, performance and
reliability that may have a material adverse effect on the Company's results of
operations. Furthermore, the Company's transition to the Hillsboro facility
could exacerbate these risks. If such failures or defects occur, the Company
could experience lost revenue, increased costs (including warranty expense and
costs associated with customer support), delays in or cancellations or
rescheduling of orders or shipments and product returns or discounts, any of
which would have a material adverse effect on the Company's business, financial
condition and results of operations.
RELIANCE ON SIGNIFICANT CUSTOMERS; CUSTOMER CONCENTRATION. A significant
portion of the Company's revenues in each fiscal period has historically been
concentrated among a limited number of customers. In recent periods, sales to
certain of the Company's major customers as a percentage of total revenues have
fluctuated. In the six months ended June 30, 1997, Northern Telecom accounted
for approximately 11.0% of total revenues. In 1996, Cirrus Logic, Giga A/S and
Northern Telecom accounted for approximately 16.5%, 12.3%, and 11.9%,
respectively, of total revenues. In 1995, Cirrus Logic, Northern Telecom and
Giga A/S accounted for approximately 23.7%, 13.5% and 10.9%, respectively, of
total revenues. The Company expects that sales to a limited number of customers
will continue to account for a substantial portion of its total revenues in
future periods. The Company does not have long-term agreements with any of its
customers. Customers generally purchase the Company's products pursuant to
cancelable short-term purchase orders. The Company's business, financial
condition and results of operations have been materially adversely affected in
the past by the failure of anticipated orders to materialize and by deferrals or
cancellations of orders. If the Company were to lose a major customer, in
particular Northern Telecom, or if orders by or shipments to a major customer
were to otherwise decrease or be delayed, the Company's business, financial
condition and results of operations would be materially adversely affected.
DEPENDENCE ON CUSTOMER SPECIFIC PRODUCTS. A substantial portion of the
Company's products are designed to address the needs of individual customers.
Frequent product introductions by systems manufacturers make the Company's
future success dependent on its ability to select customer specific development
projects which will result in sufficient production volume to enable the Company
to achieve manufacturing efficiencies. Because customer specific products are
developed for unique applications, the Company expects that some of its current
and future customer specific products may never be produced in volume. In
addition, in the event of delays in completing designs or the Company's failure
to obtain development contracts from customers whose systems achieve and sustain
commercial market success, the Company's business, financial condition and
results of operations could be materially adversely affected.
DEPENDENCE ON NEW PRODUCTS AND PROCESSES. The Company's future success
depends on its ability to develop and introduce in a timely manner new products
and processes which compete effectively on the basis of price and performance
and which adequately address customer requirements. The success of new product
and process introductions is dependent on several factors, including proper
selection of such products and processes, the ability to adapt to technological
changes and to support emerging and established industry standards, successful
and timely completion of product and process development and commercialization,
market acceptance of the Company's or its customers' new products, achievement
of
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acceptable wafer fabrication yields and the Company's ability to offer new
products at competitive prices. No assurance can be given that the Company's
product and process development efforts will be successful or that its new
products or processes will achieve market acceptance. In addition, as is
characteristic of the semiconductor industry, the average selling prices of the
Company's products have historically decreased over the products' lives and are
expected to continue to do so. To offset such decreases, the Company relies
primarily on achieving yield improvements and corresponding cost reductions in
the manufacture of existing products and on introducing new products which
incorporate advanced features and which therefore can be sold at higher average
selling prices. To the extent that such cost reductions and new product or
process introductions do not occur in a timely manner or the Company's or its
customers' products do not achieve market acceptance, the Company's business,
financial condition and results of operations could be materially adversely
affected.
PRODUCT AND PROCESS DEVELOPMENT AND TECHNOLOGICAL CHANGE. The market for
the Company's products is characterized by frequent new product introductions,
evolving industry standards and rapid changes in product and process
technologies. Because of continual improvements in these technologies, including
those in high performance silicon where substantially more resources are
invested than in GaAs technologies, the Company believes that its future success
will depend, in part, on its ability to continue to improve its product and
process technologies and to develop in a timely manner new technologies in order
to remain competitive. The Company is currently in the process of enhancing its
existing fabrication process technologies and developing new fabrication process
technologies, and there can be no assurance that the Company will be successful
in these efforts. In addition, the Company must adapt its products and processes
to technological changes and to support emerging and established industry
standards. There can be no assurance that the Company will be able to improve
its existing products and process technologies, develop in a timely manner new
technologies or effectively support industry standards. The failure of the
Company to improve its products and process technologies, develop new
technologies and support industry standards would have a material adverse effect
on the Company's business, financial condition and results of operations.
EVOLVING INDUSTRY STANDARDS. The markets in which the Company and its
customers compete are characterized by rapidly changing technology, evolving
industry standards and continuous improvements in products and services. If
technologies or standards supported by the Company's or its customers' products
become obsolete or fail to gain widespread commercial acceptance, the Company's
business, financial condition and results of operations may be materially
adversely affected. In addition, the increasing demand for wireless
communications has exerted pressure on regulatory bodies worldwide to adopt new
standards for such products, generally following extensive investigation of and
deliberation over competing technologies. The delays inherent in the regulatory
approval process may in the future cause the cancellation, postponement or
rescheduling of the installation of communications systems by the Company's
customers. These delays have in the past had and may in the future have a
material adverse effect on the sale of products by the Company and on its
business, financial condition and results of operations.
PENDING LITIGATION. On June 9, 1994 the Company issued a press release
indicating that softness in the Company's telecom revenues would adversely
affect the Company's financial results. The cause for the reduction in revenues
was a general softness in orders in the telecommunications market, including
orders from Northern Telecom, the Company's largest customer. As a result of
this announcement, the Company's stock price decreased by 48% on June 10, 1994.
On July 12, 1994, a stockholder class action lawsuit was filed against the
Company, its underwriters, and certain of its officers, directors and investors
in the United States District Court for the Northern District of California. The
suit alleges that the Company, its underwriters, and certain of its officers,
directors and investors intentionally misled the investing public regarding the
financial prospects of the Company. Certain provisions of the Company's
Certificate of Incorporation and indemnification agreements between the Company
and its officers and directors require the Company to advance to such officers
and directors ongoing legal expenses of
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defending the suit and may require the Company to indemnify them against
judgments rendered on certain claims. Since the filing of the complaint, the
plaintiffs have dismissed without prejudice a director defendant, the principal
stockholder defendant, the underwriter defendants and certain analyst
defendants. On June 21, 1996, the Court granted the Company's motion to transfer
the litigation to the District of Oregon. On May 22, 1997, the presiding judge
ordered the parties to participate in nonbinding mediation which is scheduled to
begin in September 1997. The pretrial discovery phase of the lawsuit ended July
1, 1997. The Company expects to continue to incur significant legal expenses on
its behalf and on behalf of such officers and directors in connection with this
litigation. In addition, defending this litigation has resulted and will likely
continue to result in the diversion of management's attention from the
day-to-day operations of the Company's business. Although the Company does not
believe that it or any of its officers or directors has engaged in any
wrongdoing, there can be no assurance that this stockholder litigation will be
resolved in the Company's favor. An adverse result, settlement or prolonged
litigation could have a material adverse effect on the Company's business,
financial condition or results of operations.
COMPETITION. The semiconductor industry is intensely competitive and is
characterized by rapid technological change, rapid product obsolescence and
price erosion. Currently, the Company competes primarily with manufacturers of
high performance silicon semiconductors such as Cypress, Motorola and Philips
and with manufacturers of GaAs semiconductors such as Vitesse and Anadigics. The
Company expects increased competition both from existing competitors and from a
number of companies which may enter the GaAs integrated circuit market, as well
as future competition from companies which may offer new or emerging
technologies such as silicon germanium. Most of the Company's current and
potential competitors have significantly greater financial, technical,
manufacturing and marketing resources than the Company. Additionally,
manufacturers of high performance silicon semiconductors have achieved greater
market acceptance of their existing products and technologies in certain
applications. There can be no assurance that the Company will face increased
competition or that the Company will be able to compete successfully in the
future. The failure of the Company to successfully compete in its markets would
have a material adverse effect on the Company's business, financial condition
and results of operations.
ADOPTION OF GAAS COMPONENTS BY SYSTEMS MANUFACTURERS. Silicon semiconductor
technologies are the dominant process technologies for integrated circuits and
these technologies continue to improve in performance. TriQuint's prospective
customers are frequently systems designers and manufacturers who are utilizing
such silicon technologies in their existing systems and who are evaluating GaAs
integrated circuits for use in their next generation high performance systems.
Customers may be reluctant to adopt TriQuint's products because of perceived
risks relating to GaAs technology generally. Such perceived risks include the
unfamiliarity of designing systems with GaAs products as compared with silicon
products, concerns related to manufacturing costs and yields, novel design and
unfamiliar manufacturing processes and uncertainties about the relative cost
effectiveness of the Company's products compared to high performance silicon
integrated circuits. In addition, customers may be reluctant to rely on a
smaller company such as TriQuint for critical components. There can be no
assurance that additional systems manufacturers will design the Company's
products into their respective systems, that the companies that have utilized
the Company's products will continue to do so in the future or that GaAs
technology will achieve widespread market acceptance. Should the Company's GaAs
products fail to achieve market acceptance or be utilized in manufacturers'
systems, the Company's business, financial condition and results of operations
would be materially adversely affected.
GAAS COMPONENTS MORE COSTLY TO PRODUCE. The production of GaAs integrated
circuits has been and continues to be more costly than the production of silicon
devices. This cost differential relates primarily to higher costs of the raw
wafer material, lower production yields associated with the relatively immature
GaAs technology and higher unit costs associated with lower production volumes.
Although the Company has reduced unit production costs by increasing wafer
fabrication yields, by achieving higher volumes and by obtaining lower raw wafer
costs, there can be no assurance that the Company will be able to continue to
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decrease production costs. In addition, the Company believes that its costs of
producing GaAs integrated circuits will continue to exceed the costs associated
with the production of silicon devices. As a result, the Company must offer
devices which provide superior performance to that of silicon based devices such
that the perceived price/performance of its products is competitive. There can
be no assurance that the Company can continue to identify markets which require
performance superior to that offered by silicon solutions, or that the Company
will continue to offer products which provide sufficiently superior performance
to offset the cost differential.
MANAGEMENT OF GROWTH. The growth in the Company's business has placed, and
is expected to continue to place, a significant strain on the Company's
personnel, management and other resources. The Company's ability to manage any
future growth effectively will require it to attract, train, motivate, manage
and retain new employees successfully, to integrate new employees into its
overall operations and in particular its manufacturing operations, and to
continue to improve its operational, financial and management information
systems.
DEPENDENCE ON KEY PERSONNEL. The Company's future success depends in large
part on the continued service of its key technical, marketing and management
personnel and on its ability to continue to identify, attract and retain
qualified technical and management personnel, particularly highly skilled
design, process and test engineers involved in the manufacture of existing
products and the development of new products and processes. Furthermore, there
may be only a limited number of persons in the Company's geographic area with
the requisite skills to serve in these positions. Several companies have
recently announced intentions to build wafer fabrication plants in the Company's
geographic area in the near future, and it may become increasingly difficult for
the Company to attract and retain such personnel. The competition for such
personnel is intense, and the loss of key employees could have a material
adverse effect on the Company.
SOLE SOURCES OF MATERIALS AND SERVICES. The Company currently procures
certain components and services for its products from single sources including
ceramic packages from Kyocera and packaging services for certain products from
Alphatec. The Company purchases these components and services on a purchase
order basis, does not carry significant inventories of these components and does
not have any long-term supply contracts with its sole source vendors. If the
Company were to change any of its sole source vendors, the Company would be
required to requalify the components with each new vendor. Requalification could
prevent or delay product shipments which could materially adversely affect the
Company's results of operations. In addition, the Company's reliance on sole
source vendors involves several risks, including reduced control over the price,
timely delivery, reliability and quality of the components. Any inability of the
Company to obtain timely deliveries of components of acceptable quality in
required quantities or any increases in the prices of components for which the
Company does not have alternative sources could materially adversely affect the
Company's business, financial condition and results of operations. Although the
Company has not to date experienced any significant difficulty in obtaining
these components, no assurance can be given that shortages will not occur in the
future.
CYCLICALITY OF THE SEMICONDUCTOR INDUSTRY. The semiconductor industry has
historically been characterized by wide fluctuations in product supply and
demand. From time to time, the industry has also experienced significant
downturns, often in connection with, or in anticipation of, major additions of
wafer fabrication capacity, maturing product cycles or declines in general
economic conditions. These downturns have been characterized by diminished
product demand, production overcapacity and subsequent accelerated price
erosion, and in some cases have lasted for extended periods of time. The
Company's business has in the past been and could in the future be materially
adversely affected by industry wide fluctuations. The Company's continued
success will depend in large part on the continued growth of the semiconductor
industry in general and its customers' markets in particular. No assurance can
be given that the Company's business, financial condition and results of
operations will not be materially adversely
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affected in the future by cyclical conditions in the semiconductor industry or
in any of the markets served by the Company's products.
PROPRIETARY TECHNOLOGY. The Company's ability to compete is affected by its
ability to protect its proprietary information. The Company relies on a
combination of patents, trademarks, copyrights, trade secret laws,
confidentiality procedures and licensing arrangements to protect its
intellectual property rights. The Company currently has patents granted and
pending in the United States and in foreign countries and intends to seek
further international and United States patents on its technology. There can be
no assurance that patents will issue from any of the Company's pending
applications or applications in preparation or that patents will be issued in
all countries where the Company's products can be sold or that any claims
allowed from pending applications or applications in preparation will be of
sufficient scope or strength to provide meaningful protection or any commercial
advantage to the Company. Also, competitors of the Company may be able to design
around the Company's patents. The laws of certain foreign countries in which the
Company's products are or may be developed, manufactured or sold, including
various countries in Asia, may not protect the Company's products or
intellectual property rights to the same extent as do the laws of the United
States, increasing the possibility of piracy of the Company's technology and
products. Although the Company intends to vigorously defend its intellectual
property rights, there can be no assurance that the steps taken by the Company
to protect its proprietary information will be adequate to prevent
misappropriation of its technology or that the Company's competitors will not
independently develop technologies that are substantially equivalent or superior
to the Company's technology.
RISK OF THIRD PARTY CLAIMS OF INFRINGEMENT. The semiconductor industry is
characterized by vigorous protection and pursuit of intellectual property rights
or positions, which have resulted in significant and often protracted and
expensive litigation. Although there is currently no pending intellectual
property litigation against the Company, the Company or its suppliers may from
time to time be notified of claims that the Company may be infringing patents or
other intellectual property rights owned by third parties. If it is necessary or
desirable, the Company may seek licenses under such patents or other
intellectual property rights. However, there can be no assurance that licenses
will be offered or that the terms of any offered licenses will be acceptable to
the Company. The failure to obtain a license from a third party for technology
used by the Company could cause the Company to incur substantial liabilities and
to suspend the manufacture of products. Furthermore, the Company may initiate
claims or litigation against third parties for infringement of the Company's
proprietary rights or to establish the validity of the Company's proprietary
rights. Litigation by or against the Company could result in significant expense
to the Company and divert the efforts of the Company's technical and management
personnel, whether or not such litigation results in a favorable determination
for the Company. In the event of an adverse result in any such litigation, the
Company could be required to pay substantial damages, indemnify its customers,
cease the manufacture, use and sale of infringing products, expend significant
resources to develop non-infringing technology, discontinue the use of certain
processes or obtain licenses to the infringing technology. There can be no
assurance that the Company would be successful in such development or that such
licenses would be available on reasonable terms, or at all, and any such
development or license could require expenditures of substantial time and other
resources by the Company. In the event that any third party makes a successful
claim against the Company or its customers and a license is not made available
to the Company on commercially reasonable terms, the Company's business,
financial condition and results of operations would be materially adversely
affected.
ENVIRONMENTAL REGULATIONS. The Company is subject to a variety of federal,
state and local laws, rules and regulations related to the discharge or disposal
of toxic, volatile or other hazardous chemicals used in its manufacturing
process. The failure to comply with present or future regulations could result
in fines being imposed on the Company, suspension of production or a cessation
of operations. Such regulations could require the Company to acquire significant
equipment or to incur substantial other expenses to comply with environmental
regulations. In addition, the Company relies to a great extent upon
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the hazardous waste disposal system of Tektronix at the Maxim wafer fabrication
facility. Since the Company's Maxim manufacturing facilities are located in the
same building as certain integrated circuit manufacturing operations of Maxim,
the Company's waste streams are co-mingled with those of Maxim, which could
result in increased liability on the part of the Company, and are treated prior
to final discharge or other disposal. Any failure by the Company or Tektronix to
control the use of, or to adequately restrict the discharge of, hazardous
substances could subject the Company to future liabilities or could cause its
manufacturing operations to be suspended, resulting in a material adverse effect
on the Company's business, financial condition and results of operations. In
addition, the Company will be responsible for hazardous waste disposal and
compliance with other regulatory requirements at the Hillsboro wafer fabrication
facility. Because of its reliance on Tektronix for these matters in connection
with its operation of the Maxim facility, the Company's experience in this area
is not as extensive as if the Company had been responsible for these matters at
the Maxim facility. Any failure by the Company to comply with applicable
environmental and other regulations in connection with its operation of the
Hillsboro facility could result in a reduction or suspension of operations or
significant fines or other liabilities, any of which could have a material
adverse effect on the Company's results of operations.
RISKS ASSOCIATED WITH INTERNATIONAL SALES. Sales outside of the United
States were $12.7 million, $14.8 million, $18.1 million and $12.5 million in
1994, 1995 and 1996 and the six months ended June 30, 1997, respectively. These
sales involve a number of inherent risks, including imposition of government
controls, currency exchange fluctuations, potential insolvency of international
distributors and representatives, reduced protection for intellectual property
rights in some countries, the impact of recessionary environments in economies
outside the United States, political instability and generally longer
receivables collection periods, as well as tariffs and other trade barriers. In
addition, due to the technological advantage provided by GaAs in many military
applications, all of the Company's sales outside of North America must be
licensed by the Office of Export Administration of the U.S. Department of
Commerce. Although the Company has not experienced significant difficulty in
obtaining these licenses, failure to obtain such licenses or delays in obtaining
such licenses in the future could have a material adverse effect on the
Company's results of operations. Furthermore, because substantially all of the
Company's foreign sales are denominated in U.S. dollars, increases in the value
of the dollar would increase the price in local currencies of the Company's
products in foreign markets and make the Company's products less price
competitive. There can be no assurance that these factors will not have a
material adverse effect on the Company's future international sales and,
consequently, on the Company's business, financial condition and results of
operations.
DEPENDENCE ON ASSEMBLY CONTRACTORS. The Company's finished GaAs wafers are
assembled and packaged by five independent subcontractors, three of which are
located outside of the United States. Although the Company has not yet
experienced significant problems or interruptions in supply from its assembly
contractors, any prolonged work stoppages or other failure of these contractors
to supply finished products would have a material adverse effect on the
Company's business, financial condition and results of operations.
FUTURE ACQUISITIONS. Company management frequently evaluates the strategic
opportunities available to it and may in the near-term or long-term future
pursue acquisitions of complementary products, technologies or businesses.
Future acquisitions by the Company may result in the diversion of management's
attention from the day-to-day operations of the Company's business and may
include numerous other risks, including difficulties in the integration of the
operations, products and personnel of the acquired companies. Future
acquisitions by the Company have the potential to result in dilutive issuances
of equity securities, the incurrence of additional debt, and amortization
expenses related to goodwill and other intangible assets that may materially
adversely affect the Company's results of operations.
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ANTI-TAKEOVER EFFECT OF DELAWARE LAW AND CERTAIN CHARTER AND BYLAWS
PROVISIONS ON PRICE OF COMMON STOCK. Certain provisions of the Company's
Certificate of Incorporation and Bylaws such as cumulative voting for directors,
the inability of stockholders to act by written consent, the inability of
stockholders to call special meetings without the consent of the Board of
Directors and advance notice requirements for stockholder meeting proposals or
director nominations may have the effect of making it more difficult for a third
party to acquire, or discouraging a third party from attempting to acquire,
control of the Company. Such provisions could limit the price certain investors
may be willing to pay in the future for shares of the Company's Common Stock.
Certain provisions of Delaware law applicable to the Company could also delay or
make more difficult a merger, tender offer or proxy contest involving the
Company, including Section 203 of the Delaware General Corporation Law, which
prohibits a Delaware corporation from engaging in any business combination with
any interested stockholder for a period of three years unless certain conditions
are met. These provisions could also limit the price that investors might be
willing to pay in the future for shares of the Company's Common Stock.
ISSUANCE OF PREFERRED STOCK. The Board of Directors has the authority to
issue up to 5,000,000 shares of undesignated Preferred Stock and to determine
the powers, preferences and rights and the qualifications, limitations or
restrictions granted to or imposed upon any wholly unissued shares of
undesignated Preferred Stock and to fix the number of shares constituting any
series and the designation of such series, without any further vote or action by
the Company's stockholders. The Preferred Stock could be issued with voting,
liquidation, dividend and other rights superior to those of the holders of
Common Stock. The issuance of Preferred Stock under certain circumstances could
have the effect of delaying, deferring or preventing a change in control of the
Company.
VOLATILITY OF STOCK PRICE. The market price of the shares of Common Stock
has been and is likely to continue to be highly volatile and significantly
affected by factors such as fluctuations in the Company's operating results,
announcements of technological innovations or new products by the Company or its
competitors, changes in analysts' expectations, governmental regulatory action,
developments with respect to patents or proprietary rights, general market
conditions and other factors. In addition, the stock market has from time to
time experienced significant price and volume fluctuations that are unrelated to
the operating performance of particular companies.
20
<PAGE>
PART II--OTHER INFORMATION
ITEM 1: LEGAL PROCEEDINGS.
On June 9, 1994 the Company issued a press release indicating softness in
the Company's telecom revenues which would adversely affect the Company's
financial results. The cause for the reduction in revenues was a general
softness in orders in the telecommunications market, including orders from
Northern Telecom, the Company's largest customer. As a result of this
announcement, the Company's stock price dropped 48% on June 10, 1994. On July
12, 1994, a stockholder class action lawsuit was filed against the Company, its
underwriters, and certain of its officers, directors and investors in the United
States District Court for the Northern District of California. The suit alleges
that the Company, its underwriters, and certain of its officers, directors and
investors intentionally misled the investing public regarding the financial
prospects of the Company. The complaint seeks unspecified damages, costs,
attorneys' fees and other relief on behalf of all purchasers of the Company's
common stock during the period from December 13, 1993 through June 9, 1994.
Since the filing of the complaint, the plaintiffs have dismissed without
prejudice a director defendant, the principal stockholder defendant, the
underwriter defendants and certain analyst defendants. On June 21, 1996, the
court granted the Company's motion to transfer the litigation to the District of
Oregon. On May 22, 1997, the presiding judge ordered the parties to participate
in nonbinding mediation which is scheduled to occur in September 1997. The
pretrial discovery phase of the lawsuit ended on July 1, 1997. A trial date has
not been set. There is no assurance, however, that the lawsuit will be resolved
in a timely or satisfactory manner or that the lawsuit will be resolved without
significant costs to the Company.
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit 11.1 Statement regarding computation of per share earnings
Exhibit 27.1 Financial Data Schedule
(b) Reports on Form 8-K
The Company did not file any reports on Form 8-K during the three months
ended June 30, 1997.
21
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
TRIQUINT SEMICONDUCTOR, INC.
Dated: July 31, 1997 /s/ STEVEN J. SHARP
-----------------------------------------
Steven J. Sharp
PRESIDENT, CHIEF EXECUTIVE OFFICER AND
CHAIRMAN (PRINCIPAL EXECUTIVE OFFICER)
Dated: July 31, 1997 /s/ EDWARD C.V. WINN
-----------------------------------------
Edward C.V. Winn
EXECUTIVE VICE PRESIDENT, FINANCE AND
ADMINISTRATION, CHIEF FINANCIAL OFFICER
AND SECRETARY (PRINCIPAL FINANCIAL AND
ACCOUNTING OFFICER)
22
<PAGE>
TRIQUINT SEMICONDUCTOR, INC.
EXHIBIT 11.1
CALCULATION OF NET INCOME PER COMMON
AND COMMON EQUIVALENT SHARE
(IN THOUSANDS, EXCEPT PER SHARE INFORMATION)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
------------------------ ------------------------
JUNE 30, JUNE 30, JUNE 30, JUNE 30,
1997 1996 1997 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net income........................................................... $ 2,266 $ 1,864 $ 4,033 $ 2,774
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Primary weighted average number of common and common equivalent
shares outstanding................................................. 9,129 8,769 9,097 8,696
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Net income per common and common equivalent share.................... $ 0.25 $ 0.21 $ 0.44 $ 0.32
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Fully diluted weighted average number of common and common equivalent
shares outstanding................................................. 9,185 8,788 9,157 8,783
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Net income per common and common equivalent share.................... $ 0.25 $ 0.21 $ 0.44 $ 0.32
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
23
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED BALANCE SHEET AS OF JUNE 30, 1997 AND THE CONDENSED STATEMENT OF
OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 10,858
<SECURITIES> 13,003
<RECEIVABLES> 15,896
<ALLOWANCES> (196)
<INVENTORY> 13,791
<CURRENT-ASSETS> 53,667
<PP&E> 60,144
<DEPRECIATION> (34,384)
<TOTAL-ASSETS> 119,618
<CURRENT-LIABILITIES> 21,155
<BONDS> 12,873
0
0
<COMMON> 110,437
<OTHER-SE> (24,847)
<TOTAL-LIABILITY-AND-EQUITY> 119,618
<SALES> 35,344
<TOTAL-REVENUES> 35,344
<CGS> 18,689
<TOTAL-COSTS> 31,247
<OTHER-EXPENSES> (68)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 707
<INCOME-PRETAX> 5,145
<INCOME-TAX> 1,112
<INCOME-CONTINUING> 4,033
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,033
<EPS-PRIMARY> 0.44
<EPS-DILUTED> 0.44
</TABLE>
