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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
of
THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter ended March 29, 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 NE Brookwood Parkway, Hillsboro, OR 97124
Telephone: (503) 615-9000
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 March 29, 1997, there were 8,290,474 shares of the registrant's common
stock outstanding.
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TRIQUINT SEMICONDUCTOR, INC.
INDEX
PART I. FINANCIAL INFORMATION PAGE NO.
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Item 1. Financial Statements
Condensed Statements of Operations -- Three months
ended March 31, 1997 and 1996 3
Condensed Balance Sheets -- March 31, 1997
and December 31, 1996 4
Condensed Statements of Cash Flows -- Three months
ended March 31, 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
- -------------------------------------------------------------------------------
Item 1. Legal Proceedings 17
Item 6. Exhibits and Reports on Form 8-K 17
SIGNATURES 18
2
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PART I - FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
TRIQUINT SEMICONDUCTOR, INC.
CONDENSED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)
THREE MONTHS ENDED
-------------------------
MARCH 31, MARCH 31,
1997 1996
---------- ----------
Total revenues $ 16,800 $ 13,116
Operating costs and expenses:
Cost of goods sold 9,130 7,928
Research, development and engineering 2,543 2,489
Selling, general and administrative 3,426 2,396
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Total operating costs and expenses 15,099 12,813
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Income from operations 1,701 303
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Other income (expense):
Interest income 824 850
Interest expense (320) (191)
Other, net 36 (4)
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Total other income, net 540 655
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Income before income taxes 2,241 958
Income tax expense 474 48
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Net income $ 1,767 $ 910
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Net income per common and common
equivalent share $ 0.20 $ 0.11
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Weighted average common and common
equivalent shares outstanding 9,020 8,590
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See notes to Condensed Financial Statements.
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TRIQUINT SEMICONDUCTOR, INC.
CONDENSED BALANCE SHEETS
(In thousands)
(Unaudited)
MARCH 31, DECEMBER 31,
ASSETS 1997 1996 (1)
---------- ------------
Current assets:
Cash and cash equivalents $ 3,540 $ 12,907
Restricted cash - 504
Investments 21,163 19,264
Accounts receivable, net 14,512 12,002
Inventories, net 11,275 9,850
Prepaid expenses and other assets 706 523
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Total current assets 51,196 55,050
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Property, plant and equipment, net 25,939 21,987
Restricted investments 38,072 30,508
Other non-current assets 21 51
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Total assets $ 115,228 $ 107,596
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--------- ---------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current installments of capital lease
and installment note obligations $ 4,141 $ 3,373
Accounts payable and accrued expenses 15,174 14,011
Other current liabilities 54 75
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Total current liabilities 19,369 17,459
Capital lease obligations and installment note
obligations, less current installments 13,093 9,891
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Total liabilities 32,462 27,350
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Shareholders' equity:
Common stock 109,880 109,128
Accumulated deficit (27,114) (28,882)
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Total shareholders' equity 82,766 80,246
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Total liabilities and shareholders' equity $ 115,228 $ 107,596
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(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.
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TRIQUINT SEMICONDUCTOR, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-------------------------
MARCH 31, MARCH 31,
1997 1996
---------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 1,767 $ 910
Adjustments to reconcile net income to
net cash provided (used) by operating activities:
Depreciation and amortization 1,103 752
Change in assets and liabilities
(Increase) decrease in:
Accounts receivable (2,510) (346)
Inventories (1,425) 77
Prepaid expense and other assets (153) (204)
Increase (decrease) in:
Accounts payable and accrued expenses 1,163 489
Other current liabilities (21) (141)
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NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES (76) 1,537
Cash flows from investing activities:
Purchase of investments (18,114) (22,222)
Purchase of restricted investments (7,564) 0
Sale/Maturity of investments 16,216 11,528
Capital expenditures (185) (1,005)
--------- ---------
NET CASH PROVIDED (USED) BY INVESTING ACTIVITIES (9,647) (11,699)
Cash flows from financing activities:
Principal payments under capital lease obligations (900) (677)
Issuance of common stock, net 752 176
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NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES (148) (501)
NET (DECREASE) IN CASH AND CASH EQUIVALENTS (9,871) (10,663)
CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE PERIOD 13,411 35,051
--------- ---------
CASH AND CASH EQUIVALENTS AT THE END OF THE PERIOD $ 3,540 $ 24,388
--------- ---------
--------- ---------
</TABLE>
See notes to Condensed Financial Statements.
5
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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 consolidated
financial statements for the year ended December 31, 1996, as included
in the Company's 1996 Annual Report to Shareholders.
The Company's quarters end on the Saturday nearest the end of the
calendar quarter. For convenience, the Company has indicated that its
first quarter ended on March 31. 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.
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5. INVENTORIES
Inventories, net of reserves, stated at the lower of cost or market
consist of:
March 31, December 31,
1997 1996
--------- ------------
Raw Material $3,312 $3,283
Work in Progress 6,290 5,136
Finished Goods 1,673 1,431
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Total Inventories $11,275 $9,850
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6. SHAREHOLDERS' EQUITY
Shares authorized and outstanding are as follows:
SHARES OUTSTANDING
------------------------
March 31, December 31,
1997 1996
--------- ------------
Preferred stock, no par value,
5,000,000 shares authorized - -
Common Stock, no par value,
25,000,000 shares authorized 8,290,475 8,190,125
7. SUPPLEMENTAL CASH FLOW INFORMATION
THREE MONTHS ENDED
-----------------------
March 31, March 31,
1997 1996
--------- ---------
Cash Transactions:
Cash paid for interest $ 315 $ 191
Cash paid for income taxes 31 3
Non-Cash Transactions:
Purchase of assets through capital leases 4,870 3,319
8. LITIGATION
See Part II, Item 1, of this Quarterly Report on Form 10-Q for a
description of legal proceedings.
7
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ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
INTRODUCTION
The following Management's Discussion and Analysis of Financial
Condition contains forward-looking statements within the meaning of Section
27A of the Securities Act of 1933 and Section 21E of the Securities Exchange
Act of 1934. These statements include the paragraph below relating to
production yields, the sentence below regarding investments in research,
development and engineering, the sentence below regarding the Company's
capital equipment needs, the paragraph below regarding the start of
operations at the Company's new fabrication facility, the paragraph below
regarding the Company's cash requirements, the statements below under
"Factors Affecting Future Results" and the statements under "Part II Other
Information - Item 1. Legal Proceedings", among others. These
forward-looking statements are based on current expectations and entail
various risks and uncertainties that could cause actual results to differ
materially from those projected in the forward-looking statements. Such
risks and uncertainties are set forth below under "Factors Affecting Future
Operating Results".
TriQuint Semiconductor, Inc. ("TriQuint" or the "Company") designs,
develops, manufactures and markets a broad range of high performance analog
and mixed signal integrated circuits for the wireless communications,
telecommunications 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 and the
Company's end user customers include Alcatel, Cirrus Logic, Digital
Equipment, DSC Communications, Ericsson, Hughes, IBM, Lucent Technologies,
Motorola, Northern Telecom, Philips, Rockwell, Siemens, Storage Technology,
and Stratacom.
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.
Three Months Ended
----------------------
March 31, March 31,
1997 1996
--------- ---------
Total revenues 100.0 % 100.0 %
Operating costs and expenses:
Cost of goods sold 54.3 60.4
Research, development and engineering 15.2 19.0
Selling, general and administrative 20.4 18.3
-------- --------
Total operating costs and expenses 89.9 97.7
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Income from operations 10.1 2.3
Other income, net 3.2 5.0
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Income before income taxes 13.3 7.3
Income tax expense 2.8 0.4
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Net income 10.5 % 6.9 %
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TOTAL REVENUES
The Company derives revenues from the sale of standard and
customer-specific products and services. The Company's revenues also include
non-recurring engineering (NRE) revenues relating to customer-specific
products. The Company organizes its product and service revenues into three
product areas: Wireless Communications, Telecommunications and Computing.
Total revenues for the three months ended March 31, 1997 increased 28.1%
to $16.8 million, over the comparable three months ended March 31, 1996. The
increase in revenues during the three months ended March 31, 1997 reflected
an overall increase in the volume of product sales to existing and new
customers in the wireless communications, telecommunications and computing
markets.
COST OF GOODS SOLD
Cost of goods sold includes all direct material, labor and overhead
expenses and certain production costs related to NRE revenues. In general,
the Company believes that gross profit generated from the sale of
customer-specific products and from NRE revenues is typically higher than
gross profit generated from the sale of standard products. The factors
affecting product mix include the relative demand in the markets served by
customer-specific and standard products, as well as the number of NRE
projects which result in volume requirements for customer-specific products.
Cost of goods sold as a percentage of the total revenues for the three
months ended March 31, 1997 decreased to 54.3% from 60.4% for the comparable
three months ended March 31, 1996. The decrease in cost of goods sold as a
percentage of total revenues was primarily attributable to continued
improvement in production yields. Improvements in production yields were
somewhat offset by costs associated with the Company's startup of its new
fabrication facility in Hillsboro, Oregon.
The Company has in the past experienced lower than expected production
yields which have delayed shipments of a given product and adversely affected
gross margins. This was experienced in the fourth quarter of 1995 and to a
lesser extent in the first quarter of 1996. There can be no assurance that
the Company will be able to maintain acceptable production yields in the
future and, to the extent that it does not achieve acceptable production
yields, its operating results would be materially adversely affected. In
addition, the Company's operation of its own wafer fabrication facility
entails a high degree of fixed costs and requires an adequate volume of
production and sales to be profitable. During periods of decreased demand,
high fixed wafer fabrication costs would have a material adverse effect on
the Company's operating results.
RESEARCH, DEVELOPMENT AND ENGINEERING
Research, development and engineering expenses include the costs
incurred in the design of products associated with NRE revenues, as well as
ongoing product development and research and development expenses. The
Company's research, development and engineering expenses for the three months
ended March 31, 1997 remained at $2.5 million, the same level as those of the
three months ended March 31, 1996. Research, development and engineering
expenses as a percentage of total revenues for the three months ended March
31, 1997 decreased to 15.2% from 19.0% for the comparable three months ended
March 31, 1996. The decrease in research, development and engineering
expenses as a percentage of total revenues resulted from revenue growth that
outpaced the growth of research, development and engineering expenses. The
Company is committed to substantial
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investments in research, development, and engineering and expects such
expenses will continue to increase in absolute dollar amount in the future.
SELLING, GENERAL AND ADMINISTRATIVE
Selling, general and administrative expenses for the three months ended
March 31, 1997 increased 43.0% to approximately $3.4 million from the
comparable three month period ended March 31, 1996. Selling, general and
administrative expenses as a percentage of revenue for the three months ended
March 31, 1997 increased to 20.4% from 18.3% for the three months ended March
31, 1996. The increased level of selling, general, and administrative
expenses was primarily due to increased sales commissions resulting from the
increase in total revenue and to other costs associated with the Company's
move to its new facility in Hillsboro, Oregon.
OTHER INCOME (EXPENSE), NET
Other income (expense), net for the three months ended March 31, 1997
decreased to net income of $540,000 as compared to a net income of $655,000
for the comparable three months ended March 31, 1996. This decrease resulted
primarily from higher interest expense associated with an increase in capital
lease obligations.
INCOME TAX EXPENSE
The effective tax rate for the three months ended March 31, 1997 was
21.2%, which is 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 months ended March 31, 1997 increased to
approximately $474,000 from $48,000 for the comparable three months ended
March 31, 1996. This increase in income tax expense was attributable to
higher profits partially offset 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
The Company completed a follow-on public offering in September 1995
raising approximately $48.1 million, net of offering expenses. In December
1993 and January 1994, the Company completed its initial public offering
raising approximately $16.7 million, net of offering expenses. In addition,
the Company has funded its operations to date through sales of equity, bank
borrowing, capital equipment leases and cash flow from operations. As of
March 31, 1997, the Company had working capital of approximately $31.8
million, including $24.7 million in cash, cash equivalents, and investments.
The Company has a $10.0 million unsecured revolving line of credit with a
financial institution. 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 and (iii) minimum tangible net worth of greater than $50 million
and (iv) cash and investments, including restricted investments, greater than
$45.0 million. As of March 31, 1997 the Company was in compliance with the
covenants contained in this line of credit.
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In the first quarter of 1996, the Company began construction its
Hillsboro, Oregon facility which, when completed, will house the Company's
executive, administrative and technical offices and manufacturing operations.
The Company moved its executive, administrative, test and technical offices
to the new facility in Hillsboro, Oregon in the first quarter of 1997. 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 ("USNB"). The lease provides for the construction and
occupancy of the Company's new headquarters and wafer fabrication facility in
Hillsboro, Oregon 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 to Wolverine who in turn provided
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, the Company has made certain restrictive
covenants in connection with the Participation Agreement that 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 March 31, 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 its
covenants under the Participation Agreement in the future.
The following table presents a summary of the Company's cash flows (IN
THOUSANDS):
THREE MONTHS ENDED MARCH 31,
----------------------------
1997 1996
---- ----
Net cash and cash equivalents provided
(used) by operating activities $ (76) $ 1,537
Net cash and cash equivalents provided
(used) by investing activities (9,647) (11,699)
Net cash and cash equivalents provided
(used) by financing activities (148) (501)
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Net increase (decrease) in cash and
cash equivalents $ (9,871) $ (10,663)
-------- ---------
-------- ---------
The cash used by operating activities for the three months ended March
31, 1997, $76,000, related to an increase in accounts receivable and
inventory, both associated with the generation of revenues, which was
partially offset by net income of $1.8 million and an increase in accounts
payable and accrued expenses. The cash provided by operating activities for
the three months ended March 31, 1996, $1.5 million, related to net income of
$910,000, 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.
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The cash used by investing activities for the three months ended March
31, 1997, $9.6 million, related to the purchase of $18.1 million of
investments, the purchase of $7.6 million of restricted investments and
capital expenditures of $185,000 but was offset in part by the sale/maturity
of $16.2 million of investments. The cash used by investing activities for
the three months ended March 31, 1996, $11.7 million, related to the net
purchase of investments and the purchase of approximately $1.0 million of
capital equipment.
The cash used by financing activities for the three months ended March
31, 1997, $148,000, related primarily to the principal payments made on
capital leases partially offset by the issuance of common stock upon option
exercises. The cash used by financing activities for the three months ended
March 31, 1996, $501,000, related primarily to the payment of principal on
capital leases and was offset in part by the issuance of common stock upon
option exercises.
Capital expenditures for the three months ended March 31, 1997 were
approximately $0.2 million. During the quarter ended March 31, 1997, the
Company established approximately $4.9 million 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 approximately $10.0 million during the remainder
of 1997.
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, 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 AND CYCLICALITY OF SEMICONDUCTOR
INDUSTRY - The Company's quarterly and annual results may vary significantly
in the future due to a number of factors including timing, cancellation or
delay of customer orders; market acceptance of the Company's and its
customers' products; variations in manufacturing yields; timing of
announcement and introduction of new products by the Company and its
competitors; changes in revenues and product mix; competitive factors;
changes in manufacturing capacity and variations in the utilization of this
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; cyclicality of the semiconductor industry; the timing and
level of NRE revenues and expenses relating to customer-specific products;
and changes in inventory levels. Any unfavorable changes in these or other
factors could have a material adverse effect on the Company's operating
results.
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, declines in general economic conditions. These downturns
have been characterized by diminished product demand, production overcapacity
and subsequent accelerated erosion of average selling prices, 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
such industry-wide fluctuations.
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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 the Company's major customers as a percentage of
total revenues have fluctuated. For the three months ended March 31, 1997,
Northern Telecom, Ericsson and Alcatel accounted for 11.8%, 7.0%, and 5.6%,
respectively, of total revenues. The Company's revenues, to a certain extent,
depend upon its customer's success introducing and marketing new products.
Certain of these products are consumer products and there is no guarantee
purchases by consumers will meet TriQuint customers' expectations. The
Company does not have long-term purchase 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.
TRANSITION OF MANUFACTURING OPERATIONS TO A NEW FACILITY - The Company's
existing wafer manufacturing facility is located in Beaverton, Oregon in a
facility owned by Maxim Integrated Products, Inc. ("Maxim") and located on
the Tektronix, Inc. ("Tektronix") campus (the "Maxim facility"). The
Company's lease in the Maxim facility expires in January 1998. In
anticipation of the expiration of this lease, the Company began construction
of a new headquarters and manufacturing facility in 1996 in Hillsboro, Oregon
and anticipates that it will commence wafer production in the new facility
during the second half of 1997. The Company intends to operate both
manufacturing facilities until the Hillsboro facility is operating at normal
capacity or until the lease on the Maxim facility expires. There can be no
assurance that the Company will be able to successfully transition its
operations to the Hillsboro facility prior to the expiration of the Company's
lease on the Maxim facility or that the Company will not experience cutbacks
in manufacturing output as a result. Given the long lead times associated
with bringing a new facility to full operation, it is likely that the Company
will incur substantial cash expenses before achieving volume production in
the Hillsboro facility. The transfer of the Company's wafer fabrication
operations to the Hillsboro facility will involve a number of significant
risks and uncertainties, including, but not limited to, delays in
construction, cost overruns, equipment delays or shortages and manufacturing
transition, startup or process problems.
Should there be substantial delays in opening 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
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
production. 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. There can be no
assurance that the Company will be able to hire additional management,
engineering and other personnel, as needed, to manage effectively, the
transition to the Hillsboro facility and to implement production at such
facility in a timely manner and within budget.
MANUFACTURING RISKS - The fabrication of integrated circuits,
particularly GaAs devices such as those sold by the Company, is highly
complex and sensitive to dust and other contaminants, requiring production in
a highly controlled, clean environment. Minute impurities, difficulties in
the fabrication process or defects in the masks used to print circuits on the
wafers can cause a substantial percentage of the wafers to be rejected or
numerous die on each wafer to be nonfunctional. 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.
The more brittle nature of GaAs wafers can lead to higher processing losses
than experienced with silicon wafers. To
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maximize wafer yield and quality, the Company tests its products in various
stages in the fabrication process, maintains continuous reliability
monitoring and conducts numerous quality control inspections throughout the
entire production flow using analytical manufacturing controls. The Company's
manufacturing yields vary significantly among its products, depending upon a
given product's complexity and the Company's experience in manufacturing such
product. The Company has in the past and may in the future experience
substantial delays in product shipments due to lower than expected production
yields. Additionally, there can be no assurance that the transition to the
Hillsboro facility will not be accompanied by a reduction in wafer
fabrication yields. A sustained failure to maintain acceptable yields
during the transition process or achieve acceptable yields at the Hillsboro
facility would have a material adverse effect on the Company's operating
results.
The Company's 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 transition of manufacturing operations to the 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 adversely
impacted in future periods. Because the Company intends to capitalize the
costs associated with bringing the Hillsboro facility to commercial
production, the Company will recognize substantial depreciation expenses
thereafter. In addition, during periods of low demand, high fixed wafer
fabrication costs could have a material adverse effect on the Company's
operating results.
The Maxim facility consists of 30,000 square feet and includes a 15,000
square foot clean room, with class 10 performance (no more than ten particles
larger than 0.5 microns in size per cubic foot of air). The Company,
pursuant to its lease and other agreements relies on Maxim and Tektronix to
provide utilities and other services and for treatment and disposal of waste
products, respectively, at the existing facility. The Hillsboro facility
will consist of 38,000 square feet, of which 16,000 will be operated as a
class 10 performance clean room. The Hillsboro facility will operate as the
Company's only wafer fabrication plant and the Company believes it will
provide adequate room for expansion for the foreseeable future. At the
Hillsboro facility, the Company will be responsible for providing its own
utilities and services and will be responsible for its own manufacturing
waste treatment and disposal. Should the Company be unable to effect a timely
transition to providing its own utilities, services and waste treatment and
disposal, the Company's wafer fabrication would be adversely affected.
PRODUCT QUALITY, PERFORMANCE AND RELIABILITY - 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.
Employees of the Company have performed studies of the reliability of
the Company's processes and have published more than 25 technical papers in
such field. In October 1994, the Company received the ISO 9001 Quality
System Certification with respect to its operations. The Company has
successfully fabricated devices for "High Reliability" applications in
commercial and military spacecraft since 1988. The reliability of the
Company's processes may be inadvertently reduced by future engineering
changes and the reliability of any given integrated circuit may be strongly
influenced by design details, and there can be no assurance that circuits
designed and manufactured in the future will achieve this level of
reliability. Finally, the Hillsboro plant, as well as
14
<PAGE>
products manufactured at the new facility, must be qualified to meet
acceptable levels of performance before products can be delivered to
customers. In the event the plant or one or more of the Company's products
fails to qualify, the Company's results of operations could be materially
adversely affected.
RISKS OF INTERNATIONAL SALES - Sales outside of the United States were
36% and 31% of total revenues for the three months ended March 31, 1997 and
1996, 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
to date the Company has experienced no difficulty in obtaining these
licenses, failure to obtain 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 relatively more expensive and less price competitive than
competitors' products that are priced in local currencies. There can be no
assurance that these factors will not have an adverse effect on the Company's
future international sales and, consequently, on the Company's business,
operating results and financial condition.
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 any claims allowed from
pending applications or applications in preparation will be of sufficient
scope or strength, or be issued in all countries where the Company's products
can be sold, to provide meaningful protection or any commercial advantage to
the Company. Also, the laws of certain foreign countries in which the
Company's products are or may be developed, manufactured or sold, may not
protect the Company's products or intellectual property rights to the same
extent as do the laws of the United States. Although the Company intends to
defend its intellectual properties, 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 - Although there are no
pending lawsuits against the Company regarding infringement of any existing
patents or other intellectual property rights or any unresolved notices that
the Company is infringing intellectual property rights of others, there can
be no assurance that such infringement claims will not be asserted by third
parties in the future with respect to the Company's products or that the
Company's products will not infringe patent, trademark, mask work right,
copyright or other proprietary rights of third parties. Additionally, in the
event of such infringement, there can be no assurance that TriQuint will be
able to obtain licenses on reasonable terms. The Company's involvement in
any patent dispute or other intellectual property dispute or action to
protect trade secrets and know-how could have a material adverse effect on
the Company's business. Adverse determinations in any litigation could
subject the Company to significant liabilities to third
15
<PAGE>
parties, require the Company to seek licenses from third parties and prevent
the Company from manufacturing and selling its products. Any of these
situations could have a material adverse effect on the Company's business.
ENVIRONMENTAL MATTERS - Federal, state and local regulations impose
various environmental controls on the storage, handling, discharge and
disposal of chemicals and gases used in TriQuint's manufacturing process.
Pursuant to the Environmental Services Agreement dated May 27, 1994, between
Tektronix and the Company, the Company utilizes Tektronix's waste-treatment
and waste-storage facilities and services for the treatment, storage,
disposal and discharge of wastes generated by the Company. Since the
Company's manufacturing facilities are located in the same building as
certain integrated circuit manufacturing operations of Maxim, the Company's
waste streams are commingled with those of Maxim and are treated prior to
final discharge or other disposal. In addition, the Company is required by
the State of Oregon Department of Environmental Quality to report usage of
environmentally hazardous materials separately from Maxim, and has retained
the services of an environmental consultant to advise it in complying with
all applicable environmental regulations. When the Company completes the
relocation of its manufacturing facilities to the new Hillsboro, Oregon
location, it will provide for its own manufacturing waste treatment and
disposal.
The Company believes that its activities conform to present
environmental regulations. Increasing public attention has, however, been
focused on the environmental impact of semiconductor operations. While the
Company has not experienced any materially adverse effects on its operations
from environmental regulations, there can be no assurance that changes in
such regulations will not impose the need for additional capital equipment or
other requirements. Any failure by the Company or Tektronix to adequately
restrict the discharge of hazardous substances could subject the Company to
future liabilities or could cause its manufacturing operations to be
suspended.
16
<PAGE>
PART II - OTHER INFORMATION
ITEM 1: LEGAL PROCEEDINGS.
On July 12, 1994 a shareholder class action lawsuit was filed against
the Company 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, attorney's fees and other relief on behalf of all
purchasers of the Company's common stock during the period December 13, 1993
through June 9, 1994. Since the filing of the complaint, the plaintiffs have
dismissed without prejudice a director defendant, the principal shareholder
defendant and certain analyst defendants. On June 21, 1996, the court
granted the Company's motion to transfer the litigation to the District of
Oregon. The pretrial discovery phase of the lawsuit ended in April, 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 March 31, 1997.
17
<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: May 13, 1997 /s/ Steven J. Sharp
----------------------------------------
STEVEN J. SHARP
President, Chief Executive Officer and
Chairman (Principal Executive Officer)
Dated: May 13, 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)
18
<PAGE>
TRIQUINT SEMICONDUCTOR, INC.
INDEX TO EXHIBITS
SEQUENTIAL
EXHIBIT NO. DESCRIPTION PAGE NO.
- ----------- ----------- -------
11.1 Statement regarding computation of per share earnings. 20
27.1 Financial Data Schedule
19
<PAGE>
EXHIBIT 11.1
TRIQUINT SEMICONDUCTOR, INC.
EXHIBIT 11.1
CALCULATION OF NET INCOME PER COMMON
AND COMMON EQUIVALENT SHARE
(In thousands, except per share information)
THREE MONTHS ENDED
------------------------
MARCH 31, MARCH 31,
1997 1996
--------- ---------
Net income (loss) $ 1,767 $ 910
------- -------
------- -------
Primary weighted average number of
common and common equivalent
shares outstanding 9,020 8,590
------- -------
------- -------
Net income (loss) per common
and common equivalent share $ 0.20 $ 0.11
------- -------
------- -------
Fully dilluted weighted average number of
common and common equivalent
shares outstanding 9,020 8,590
------- -------
------- -------
Net income (loss) per common
and common equivalent share $ 0.20 $ 0.11
------- -------
------- -------
20
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED BALANCE SHEET AS OF MARCH 31, 1997 AND THE CONDENSED STATEMENT OF
OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 3,540
<SECURITIES> 21,163
<RECEIVABLES> 14,715
<ALLOWANCES> (203)
<INVENTORY> 11,275
<CURRENT-ASSETS> 51,196
<PP&E> 59,921
<DEPRECIATION> (33,982)
<TOTAL-ASSETS> 115,228
<CURRENT-LIABILITIES> 19,369
<BONDS> 13,093
0
0
<COMMON> 109,880
<OTHER-SE> (27,114)
<TOTAL-LIABILITY-AND-EQUITY> 115,228
<SALES> 16,800
<TOTAL-REVENUES> 16,800
<CGS> 9,130
<TOTAL-COSTS> 15,099
<OTHER-EXPENSES> 36
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 320
<INCOME-PRETAX> 2,241
<INCOME-TAX> 474
<INCOME-CONTINUING> 1,767
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,767
<EPS-PRIMARY> 0.20
<EPS-DILUTED> 0.20
</TABLE>
