<PAGE>
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 September 27, 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 September 26, 1997, there were 8,476,374 shares of the registrant's common
stock outstanding.
<PAGE>
TRIQUINT SEMICONDUCTOR, INC.
INDEX
<TABLE>
<CAPTION>
<S> <C> <C>
PART I. FINANCIAL INFORMATION PAGE NO.
- ------------------------------------------------------------------------------------
Item 1. Financial Statements
Condensed Statements of Operations -- Three and nine months
ended September 30, 1997 and 1996 3
Condensed Balance Sheets -- September 30, 1997
and December 31, 1996 4
Condensed Statements of Cash Flows -- Nine months
ended September 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
- ------------------------------------------------------------------------------------
Item 1. Legal Proceedings 22
Item 6. Exhibits and Reports on Form 8-K 22
SIGNATURES 23
</TABLE>
<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 NINE MONTHS ENDED
---------------------------- ----------------------------
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1997 1996 1997 1996
------------ ------------- ------------- -------------
<S> <C> <C> <C> <C>
Total revenues $ 17,569 $ 15,104 $ 52,913 $ 43,315
Operating costs and expenses:
Cost of goods sold 10,242 8,829 28,931 25,120
Research, development and engineering 2,668 2,868 8,468 8,017
Selling, general and administrative 3,856 2,722 10,614 7,927
------------ ------------- ------------- -------------
Total operating costs and expenses 16,766 14,419 48,013 41,064
------------ ------------- ------------- -------------
Income from operations 803 685 4,900 2,251
------------ ------------- ------------- -------------
Other income (expense):
Interest income 906 838 2,593 2,665
Interest expense (395) (277) (1,102) (723)
Other, net - 664 68 658
------------ ------------- ------------- -------------
Total other income, net 511 1,225 1,559 2,600
------------ ------------- ------------- -------------
Income before income taxes 1,314 1,910 6,459 4,851
Income tax expense - 58 1,112 225
------------ ------------- ------------- -------------
Net income $ 1,314 $ 1,852 $ 5,347 $ 4,626
------------ ------------- ------------- -------------
------------ ------------- ------------- -------------
Net income per common and common
equivalent share $ 0.14 $ 0.21 $ 0.58 $ 0.52
------------ ------------- ------------- -------------
------------ ------------- ------------- -------------
Weighted average common and common
equivalent shares outstanding 9,309 8,798 9,253 8,851
------------ ------------- ------------- -------------
------------ ------------- ------------- -------------
</TABLE>
See notes to Condensed Financial Statements.
3
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TRIQUINT SEMICONDUCTOR, INC.
CONDENSED BALANCE SHEETS
(In thousands)
(Unaudited)
SEPTEMBER 30, DECEMBER 31,
ASSETS 1997 1996 (1)
------------- ------------
Current assets:
Cash and cash equivalents 14,880 $ 12,907
Restricted cash - 504
Investments 8,427 19,264
Accounts receivable, net 15,173 12,002
Inventories, net 13,323 9,850
Prepaid expenses and other assets 311 523
----------- -----------
Total current assets 52,114 55,050
----------- -----------
Property, plant and equipment, net 25,514 21,987
Restricted investments 40,163 30,508
Other non-current assets 16 51
----------- -----------
Total assets $ 117,807 $ 107,596
----------- -----------
----------- -----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current installments of capital lease
and installment note obligations $ 4,242 $ 3,373
Accounts payable and accrued expenses 13,772 14,011
Other current liabilities 14 75
----------- -----------
Total current liabilities 18,028 17,459
Capital lease obligations and installment note
obligations, less current installments 11,814 9,891
----------- -----------
Total liabilities 29,842 27,350
----------- -----------
Shareholders' equity:
Common stock 111,498 109,128
Accumulated deficit (23,533) (28,882)
----------- -----------
Total shareholders' equity 87,965 80,246
----------- -----------
Total liabilities and shareholders' equity $ 117,807 $ 107,596
----------- -----------
----------- -----------
- ----------------------
(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
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TRIQUINT SEMICONDUCTOR, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
----------------------------
September 30, September 30,
1997 1996
------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net income $5,347 $4,626
Adjustments to reconcile net income to
net cash provided (used) by operating activities:
Depreciation and amortization 3,172 2,025
Loss (gain) on sale of assets (14) (728)
Change in assets and liabilities
(Increase) decrease in:
Accounts receivable (3,171) (3,167)
Inventories (3,473) (1,324)
Prepaid expense and other assets 247 (270)
Increase (decrease) in:
Accounts payable and accrued expenses (238) 839
Other current liabilities (61) (75)
--------- ---------
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES 1,809 1,926
Cash flows from investing activities:
Purchase of investments (25,507) (49,870)
Purchase of restricted investments (9,655) (19,846)
Sale/Maturity of investments 36,344 37,966
Capital expenditures (1,037) (22)
Proceeds from sale of assets 200 728
--------- ---------
NET CASH PROVIDED (USED) BY INVESTING ACTIVITIES 345 (31,044)
Cash flows from financing activities:
Principal payments under capital lease obligations (3,055) (2,137)
Issuance of common stock, net 2,370 886
--------- ---------
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES (685) (1,251)
NET (DECREASE) IN CASH AND CASH EQUIVALENTS 1,469 (30,369)
CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE PERIOD 13,411 35,051
--------- ---------
CASH AND CASH EQUIVALENTS AT THE END OF THE PERIOD $14,880 $4,682
--------- ---------
--------- ---------
</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 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 third
quarter ended on September 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.
6
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5. INVENTORIES
Inventories, net of reserves, stated at the lower of cost or market
consist of:
September 30, December 31,
1997 1996
------------- -----------
Raw Material $4,533 $3,283
Work in Progress 6,862 5,136
Finished Goods 1,928 1,431
-------- -------
Total Inventories $13,323 $9,850
-------- -------
6. SHAREHOLDERS' EQUITY
Shares authorized and outstanding are as follows:
September 30, December 31,
1997 1996
------------- -----------
Preferred stock, no par value,
5,000,000 shares authorized - -
Common Stock, no par value,
25,000,000 shares authorized 8,476,374 8,190,125
7. SUPPLEMENTAL CASH FLOW INFORMATION
NINE MONTHS ENDED
-----------------
September 30, September 30,
1997 1996
------------- -------------
Cash Transactions:
Cash paid for interest $1,092 $722
Cash paid for income taxes 74 17
Non-Cash Transactions:
Purchase of assets through capital leases $5,847 $5,171
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 (loss) 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>
ITEM 2: 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 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 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>
Three Months Ended Nine Months Ended
--------------------------- ----------------------------
September September September September
30, 30, 30, 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 58.3 58.5 54.7 58.0
Research, development and engineering 15.2 19.0 16.0 18.5
Selling, general and administrative 21.9 18.0 20.1 18.3
------- ------- ------- -------
Total operating costs and expenses 95.4 95.5 90.7 94.8
------- ------- ------- -------
Income from operations 4.6 4.5 9.3 5.2
Other income, net 2.9 8.1 2.9 6.0
------- ------- ------- -------
Income before income taxes 7.5 12.6 12.2 11.2
Income tax expense 0.0 0.4 2.1 0.5
------- ------- ------- -------
Net income 7.5 % 12.2 % 10.1 % 10.7 %
------- ------- ------- -------
------- ------- ------- -------
</TABLE>
8
<PAGE>
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 derives its product and service revenues from three
product areas: wireless communications, telecommunications and datacom and
computing.
Total revenues for the three and nine months ended September 30, 1997
increased 16.3% and 22.2% to $17.6 million and $52.9 million, respectively, over
the comparable three and nine month periods ended September 30, 1996. The
increase in revenues during the three and nine month periods ended September 30,
1997 reflected an overall increase in the volume of product sales to existing
and new customers in the wireless communications, telecommunications and
computing markets. Domestic revenues for the three and nine months ended
September 30, 1997 increased to $12.1 and $34.9 million, respectively, from
$11.2 and $31.0 million, respectively, for the three and nine months ended
September 30, 1996. International revenues increased to $5.5 and $18.0 for the
three and nine months ended September 30, 1997, respectively, from $4.1 and
$12.4 million, respectively, for the three and nine months ended September 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 $10.2 million for the three months ended September 30,
1997 from $8.8 million for the three months ended September 30, 1996.
However, CGS as a percentage of total revenues for the three months ended
September 30, 1997 decreased to 58.3% from 58.5% for the three months ended
September 30, 1996. For the nine months ended September 30, 1997, CGS rose to
$28.9 million from $25.1 in the comparable period a year earlier. For the
nine months ended September 30, 1997, CGS decreased as a percentage of total
revenues to 54.7% from 58.0% for the comparable period a year earlier. The
decrease in CGS as a percentage of total revenues from the three and nine
months ended September 30, 1996, was primarily attributable to improvements
in production yields and increased volume, which were partially offset by
certain costs associated with the Company's startup of its new leased wafer
fabrication facility in Hillsboro and variances associated with expediting
costs and some faulty raw materials.
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 September 30, 1997
decreased 7.0% to $2.7 million from $2.9 million for the three months ended
September 30, 1996. RD&E expenses decreased as a percentage of total revenues
from 19.0% for the three months ended September 30, 1996 to 15.2% for the
three months ended September 30, 1997 primarily due to the increase
9
<PAGE>
in sales volume in the more current period. For the nine months ended
September 30, 1997, the Company's RD&E expenses increased 5.6% to $8.5
million from $8.0 milli on for the nine months ended September 30, 1996. The
growth in the absolute dollar amount of RD&E in the nine months ended
September 30, 1997 compared to the year earlier period resulted from
increased product development activities and NRE expenses. RD&E expenses as a
percentage of total revenues decreased from 18.5% for the first nine months
of 1996 to 16.0% for the first nine 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 September 30, 1997 increased 41.7% to $3.9 million from $2.7
million for the comparable period a year earlier. For the three months ended
September 30, 1997, SG&A expenses as a percentage of total revenues increased
to 21.9% from 18.0% in the comparable period a year earlier. For the nine
months ended September 30, 1997, SG&A increased 33.9% to $10.6 million from
$7.9 million for the nine months ended September 30, 1996. SG&A as a
percentage of total revenues increased to 20.1% for the nine months ended
September 30, 1997 from 18.3% for the 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, professional fees, depreciation
associated with new assets and costs associated with the Company's move to
its new leased Hillsboro facility.
OTHER INCOME (EXPENSE), NET
Other income, net for the three and nine months ended September 30, 1997
decreased to $511,000 and $1,559,000, respectively, as compared to $1,225,000
and $2,600,000 for the comparable three and nine months ended September 30,
1996. This decrease resulted from a $680,000 gain from the sale of the
Company's minority interest in its primary distributor in Europe in the three
months ended September 30, 1996 and from higher interest expense associated
with an increase in capital lease obligations.
INCOME TAX EXPENSE
The effective tax rate for the three and nine months ended September 30,
1997 was 0.0% and 17.2%, respectively, 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 September
30, 1997 decreased to $0 compared to $58,000 for the comparable three month
period ended September 30, 1996. Income tax expense for the nine months ended
September 30, 1997 increased to $1,112,000 compared to $225,000 for the
comparable nine month period ended September 30, 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
10
<PAGE>
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 September 30, 1997, the Company had working capital of approximately $34.1
million, including $23.3 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 September 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 $55.8 million
and (iv) cash and investments, including restricted investments, greater than
$45.0 million. As of September 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 beginning operations late in the second half of 1997 and includes
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 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 September 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):
11
<PAGE>
NINE MONTHS ENDED SEPTEMBER 30,
-------------------------------
1997 1996
---- ----
Net cash and cash equivalents provided
(used) by operating activities $ 1,809 $ 1,926
Net cash and cash equivalents provided
(used) by investing activities 345 (31,044)
Net cash and cash equivalents provided
(used) by financing activities (685) (1,251)
-------- --------
Net increase (decrease) in cash and cash
equivalents $ 1,469 $(30,369)
-------- ---------
-------- ---------
For the nine months ended September 30, 1997, cash provided by operating
activities was $1.8 million and related to an increase in cash generated by
net income of $5.3 million and depreciation and amortization of $3.2 million
but was offset in part by growth of $3.2 million and $3.5 million in accounts
receivable and inventory, respectively. Inventory growth was due to the
Company's impending move to its new leased Hillsboro wafer fabrication
facility and concerns about possible reductions in output during the
transition and, to a lesser extent, increased sales levels. For the nine
months ended September 30, 1996, cash provided by operating activities was
$1.9 million and consisted of net income of $4.6 million and an increase in
accounts payable and accrued expenses, but was partially offset by increases
in accounts receivable, inventory and gain on sale of assets.
For the nine months ended September 30, 1997, cash provided by investing
activities was $345,000. Cash provided by investing activities grew as a
result of the sale and/or maturity of $36.3 million of investments. Cash
provided by investing activities was offset by the purchase of $25.5 million
of investments, the purchase of $9.7 million of restricted investments and
capital expenditures of $1.0 million. In the comparable period a year
earlier, cash used by investing activities was $31.0 million, and was
primarily the result of a net purchase of investments.
For the nine months ended September 30, 1997 and September 30, 1996,
cash used by financing activities was $685,000 and $1.3 million,
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 $1.0 million for the nine months
ended September 30, 1997. In this period, the Company also established $5.8
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 $2.0 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 for the next twelve
months. 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.
12
<PAGE>
FACTORS AFFECTING FUTURE RESULTS
VARIABILITY OF OPERATING RESULTS AND CYCLICALITY OF SEMICONDUCTOR
INDUSTRY - 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. 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 by the end of 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 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
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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 fire, natural
disaster or otherwise, would have a material adverse effect on the Company's
business, financial condition and results of operations.
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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 nine months ended September 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
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commercialization, market acceptance of the Company's or its customers' new
products, achievement of 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,
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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 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. The pretrial discovery phase of the lawsuit ended July 1, 1997. The
court has not established a schedule for the trial of this action. 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.
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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 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 such as
ceramic packages from Kyocera. 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
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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 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
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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 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 $17.9 million in
1994, 1995 and 1996 and the nine months ended September 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
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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.
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.
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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. 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 nine
months ended September 30, 1997.
22
<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: November 12, 1997 /s/ Steven J. Sharp
---------------------------------------
STEVEN J. SHARP
President, Chief Executive Officer and
Chairman (Principal Executive Officer)
Dated: November 12, 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)
23
<PAGE>
TRIQUINT SEMICONDUCTOR, INC.
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
<S> <C> <C>
SEQUENTIAL
EXHIBIT NO. DESCRIPTION PAGE NO.
- ----------- ----------- --------
11.1 Statement regarding computation of per share earnings. 25
27.1 Financial Data Schedule
</TABLE>
24
<PAGE>
TRIQUINT SEMICONDUCTOR, INC.
EXHIBIT 11.1
CALCULATION OF NET INCOME PER COMMON
AND COMMON EQUIVALENT SHARES
(In thousands, except per share information)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
---------------------------- ----------------------------
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1997 1996 1997 1996
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net income (loss) $ 1,314 $ 1,852 $ 5,347 $ 4,626
----------- ----------- ---------- ----------
----------- ----------- ---------- ----------
Primary weighted average number of
common and common equivalent
shares outstanding 9,231 8,798 9,126 8,732
----------- ----------- ---------- ----------
----------- ----------- ---------- ----------
Net income (loss) per common
and common equivalent share $ 0.14 $ 0.21 $ 0.59 $ 0.53
----------- ----------- ---------- ----------
----------- ----------- ---------- ----------
Fully dilluted weighted average number of
common and common equivalent
shares outstanding 9,309 8,882 9,253 8,851
----------- ----------- ---------- ----------
----------- ----------- ---------- ----------
Net income (loss) per common
and common equivalent share $ 0.14 $ 0.21 $ 0.58 $ 0.52
----------- ----------- ---------- ----------
----------- ----------- ---------- ----------
</TABLE>
25
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED BALANCE SHEET AS OF SEPTEMBER 30, 1997 AND THE CONDENSED STATEMENT OF
OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 14,880
<SECURITIES> 8,427
<RECEIVABLES> 15,369
<ALLOWANCES> (196)
<INVENTORY> 13,323
<CURRENT-ASSETS> 52,114
<PP&E> 60,627
<DEPRECIATION> (35,113)
<TOTAL-ASSETS> 117,807
<CURRENT-LIABILITIES> 18,028
<BONDS> 11,814
0
0
<COMMON> 111,498
<OTHER-SE> (23,533)
<TOTAL-LIABILITY-AND-EQUITY> 117,807
<SALES> 52,913
<TOTAL-REVENUES> 52,913
<CGS> 28,931
<TOTAL-COSTS> 48,013
<OTHER-EXPENSES> (68)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,102
<INCOME-PRETAX> 6,459
<INCOME-TAX> 1,112
<INCOME-CONTINUING> 5,347
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,347
<EPS-PRIMARY> 0.59
<EPS-DILUTED> 0.58
</TABLE>
