<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 March 28, 1998
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 28, 1998, there were 9,383,463 shares of the registrant's common
stock outstanding.
<PAGE>
TRIQUINT SEMICONDUCTOR, INC.
INDEX
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION PAGE NO.
- -------------------------------------------------------------------------------------------------------
<C> <S> <C>
Item 1. Financial Statements
Consolidated Statements of Operations -- Three months
ended March 31, 1998 and 1997 3
Consolidated Balance Sheets -- March 31, 1998
and December 31, 1997 4
Consolidated Statements of Cash Flows -- Three months
ended March 31, 1998 and 1997 5
Notes to consolidated 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 23
SIGNATURES 24
</TABLE>
2
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PART I - FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
TRIQUINT SEMICONDUCTOR, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
---------------------------------------------
MARCH 31, MARCH 31,
1998 1997
--------------------- ---------------------
<S> <C> <C>
Total revenues $ 23,681 $ 16,800
Operating costs and expenses:
Cost of goods sold 18,341 9,130
Research, development and engineering 4,424 2,543
Selling, general and administrative 3,460 3,426
Special charges 8,820 -
Settlement of lawsuit 1,400 -
--------------------- ---------------------
Total operating costs and expenses 36,445 15,099
--------------------- ---------------------
Income (loss) from operations (12,764) 1,701
--------------------- ---------------------
Other income (expense):
Interest income 857 824
Interest expense (379) (320)
Other, net (4) 36
--------------------- ---------------------
Total other income, net 474 540
--------------------- ---------------------
Income (loss) before income taxes (12,290) 2,241
Income tax expense - 474
--------------------- ---------------------
Net income (loss) $ (12,290) $ 1,767
--------------------- ---------------------
--------------------- ---------------------
Per share data:
Basic $ (1.33) $ 0.21
--------------------- ---------------------
--------------------- ---------------------
Weighted average common shares 9,245 8,234
--------------------- ---------------------
--------------------- ---------------------
Diluted $ (1.33) $ 0.20
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--------------------- ---------------------
Weighted average common and
common equivalent shares 9,245 9,020
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--------------------- ---------------------
</TABLE>
See notes to Consolidated Financial Statements.
3
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TRIQUINT SEMICONDUCTOR, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
ASSETS 1998 1997
--------------------- --------------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 14,601 $ 18,734
Investments 9,244 5,729
Accounts receivable, net 23,638 15,986
Inventories, net 16,465 12,288
Prepaid expenses and other assets 903 1,273
--------------------- ---------------------
Total current assets 64,851 54,010
--------------------- ---------------------
Property, plant and equipment, net 30,447 27,235
Restricted investments 40,163 40,162
Other non-current assets 2,458 11
--------------------- ---------------------
Total assets $ 137,919 $ 121,418
--------------------- ---------------------
--------------------- ---------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current installments of capital lease
and installment note obligations $ 5,082 $ 5,045
Accounts payable and accrued expenses 21,580 13,785
Other current liabilities 327 -
--------------------- ---------------------
Total current liabilities 26,989 18,830
Capital lease obligations and installment note
obligations, less current installments 13,260 12,550
--------------------- ---------------------
Total liabilities 40,249 31,380
--------------------- ---------------------
Shareholders' equity:
Common stock 131,980 112,060
Accumulated deficit (34,310) (22,022)
--------------------- ---------------------
Total shareholders' equity 97,670 90,038
--------------------- ---------------------
Total liabilities and shareholders' equity $ 137,919 $ 121,418
--------------------- ---------------------
--------------------- ---------------------
</TABLE>
(1) The information in this column was derived from the Company's audited
financial statements as of December 31, 1997.
See notes to Consolidated Financial Statements.
4
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TRIQUINT SEMICONDUCTOR, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
----------------------------------------------
March 31, March 31,
1998 1997
------------------- -------------------
<C> <C>
Cash flows from operating activities:
Net income (loss) $ (12,290) $ 1,767
Adjustments to reconcile net income to
net cash provided (used) by operating activities:
Depreciation and amortization 1,375 1,103
Special charges 8,820
Loss on disposal of assets 4 -
Change in assets and liabilities (net of assets acquired
and liabilities assumed)
(Increase) decrease in:
Accounts receivable (1,679) (2,510)
Inventories 446 (1,425)
Prepaid expense and other assets 671 (153)
Increase (decrease) in:
Accounts payable and accrued expenses 4,053 1,163
Other current liabilities 327 (21)
------------------- -------------------
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES 1,727 (76)
Cash flows from investing activities:
Purchase of investments (65,168) (25,678)
Sale/Maturity of investments 61,653 16,216
Capital expenditures (1,297) (185)
------------------- -------------------
NET CASH PROVIDED (USED) BY INVESTING ACTIVITIES (4,812) (9,647)
Cash flows from financing activities:
Principal payments under capital lease obligations (1,468) (900)
Issuance of common stock, net 420 752
------------------- -------------------
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES (1,048) (148)
NET DECREASE IN CASH AND CASH EQUIVALENTS (4,133) (9,871)
CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE PERIOD 18,734 13,411
------------------- -------------------
CASH AND CASH EQUIVALENTS AT THE END OF THE PERIOD $ 14,601 $ 3,540
------------------- -------------------
------------------- -------------------
</TABLE>
See notes to Consolidated Financial Statements.
5
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TRIQUINT SEMICONDUCTOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands except share amounts)
(Unaudited)
1. BASIS OF PRESENTATION
The accompanying consolidated 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 consolidated
financial statements should be read in conjunction with the Company's
audited financial statements for the year ended December 31, 1997, as
included in the Company's 1997 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 SHARE
Earnings per share is presented as basic and diluted net income per
share. Basic net income per share is net income available to common
shareholders divided by the weighted-average number of common shares
outstanding. Diluted net income per share is similar to basic except
that the denominator includes potential common shares that, had they
been issued, would have had a dilutive effect.
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:
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
---------- ------------
<S> <C> <C>
Raw Material $ 4,483 $ 2,776
Work in Progress 9,127 7,708
Finished Goods 2,855 1,804
---------- ---------
Total Inventories $16,465 $12,288
---------- ---------
</TABLE>
6. SHAREHOLDERS' EQUITY
Shares authorized and outstanding are as follows:
<TABLE>
<CAPTION>
SHARES OUTSTANDING
-----------------------------------
March 31, December 31,
1998 1997
------------ ------------------
<S> <C> <C>
Preferred stock, no par value,
5,000,000 shares authorized - -
Common Stock, $.001 par value,
25,000,000 shares authorized, 9,383,463 outstanding 8 8
Additional paid-in capital 131,972 112,052
</TABLE>
7. SUPPLEMENTAL CASH FLOW INFORMATION
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-----------------------------------
March 31, March 31,
1998 1997
------------- ------------------
<S> <C> <C>
Cash Transactions:
Cash paid for interest $ 410 $ 315
Cash paid for income taxes 0 31
Non-Cash Transactions:
Purchase of assets through capital leases 2,215 4,870
</TABLE>
8. ACQUISITION
Pursuant to an Asset Purchase Agreement with RTIS, TriQuint acquired the
MMIC Business for approximately $19.5 million in cash and 844,613 shares
of TriQuint Common Stock (the Shares) valued at approximately $19.5
million for a total purchase consideration of approximately $39 million.
The Shares are redeemable at TriQuint's option at any time within 360
days of January 13, 1998 at a price of approximately $23 per share. The
cash portion of the purchase price was financed through a synthetic
leasing arrangement through General Electric Capital Corporation
involving certain assets pursuant to the Agreement.
9. LITIGATION
See Part II, Item 1, of this Quarterly Report on Form 10-Q for a
description of legal proceedings.
7
<PAGE>
10. COMPREHENSIVE INCOME
On January 1, 1998, the Company adopted the provisions of SFAS No. 130,
"Reporting Comprehensive Income", which established requirements for
disclosure of comprehensive income. The objective of SFAS No. 130 is to
report all changes in equity that result from transactions and economic
events other than transactions with owners. Comprehensive income is the
total of net income and all other non-owner changes in equity. There was
no effect of the adoption of SFAS No. 130.
8
<PAGE>
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
INTRODUCTION
IN ADDITION TO THE OTHER INFORMATION IN THIS REPORT ON FORM 10-Q
(REPORT) AND IN THE DOCUMENTS INCORPORATED BY REFERENCE HEREIN, CERTAIN
STATEMENTS IN THE FOLLOWING MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (MD&A) 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."
INTRODUCTION
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 communications 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 its end user customers include Alcatel, Cellnet Data Systems, Ericsson,
Hughes, IBM, Lucent Technologies, Motorola, Nokia, Northern Telecom, and
Raytheon TI Systems.
On January 13, 1998, the Company acquired substantially all of the
assets of the Monolithic Microwave Integrated Circuit (MMIC) operations of
the former Texas Instruments' Defense Systems & Electronics Group from
Raytheon TI Systems, Inc. (RTIS), a Delaware corporation and a wholly owned
subsidiary of Raytheon Company (Raytheon). The MMIC operations include the
GaAs foundry and MMIC business of the R/F Microwave Business Unit that RTIS
acquired on July 11, 1997 from Texas Instruments Incorporated (TI) which MMIC
business includes without limitation, TI's GaAs Operations Group, TI's
Microwave GaAs Products Business Unit, the MMIC component of TI's Microwave
GaAs Products Business Unit, the MMIC component of TI's Microwave Integrated
Circuits Center of Excellence and the MMIC research and development component
of TI's Systems Component Research Laboratory (collectively, the MMIC
Business).
The MMIC Business designs, develops, produces and sells advanced GaAs
MMIC products which are used in defense and commercial applications. In the
area of defense applications, the MMIC Business supplies military contractors
with MMIC products and services for applications such as high power
amplifiers, low noise amplifiers, switches and attenuators for active array
radar, missiles, electronic warfare systems and space communications systems.
In commercial applications, the MMIC Business provides products and services
for wireless and space-based communications.
Pursuant to an Asset Purchase Agreement with RTIS, TriQuint acquired the
MMIC Business for approximately $19.5 million in cash and 844,613 shares of
TriQuint Common Stock (the Shares) valued at approximately $19.5 million for
a total purchase consideration of approximately $39 million. The Shares are
redeemable at TriQuint's option at any time within 360 days of January 13,
1998 at a price of approximately $23 per share. The cash portion of the
purchase price was financed through a synthetic leasing arrangement through
General Electric Capital Corporation involving certain assets pursuant to the
Agreement.
9
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth the consolidated statement of operations
data of the Company expressed as a percentage of total revenues for the
periods indicated.
<TABLE>
<CAPTION>
Three Months Ended
--------------------------------------------
March 31, March 31,
1998 1997
--------------------- ------------------
<S> <C> <C>
Total revenues 100.0% 100.0%
Operating costs and expenses:
Cost of goods sold 77.4 54.3
Research, development and engineering 18.7 15.2
Selling, general and administrative 14.6 20.4
Special charges 37.3 0.0
Settlement of lawsuit 5.9 0.0
--------------------- ------------------
Total operating costs and expenses 153.9 89.9
--------------------- ------------------
Income (loss) from operations (53.9) 10.1
Other income, net 2.0 3.2
--------------------- ------------------
Income (loss) before income taxes (51.9) 13.3
Income tax expense 0.0 2.8
--------------------- ------------------
Net income (loss) (51.9)% 10.52%
--------------------- ------------------
--------------------- ------------------
</TABLE>
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 the development of
customer-specific products. The Company organizes its product and service
revenues into three product areas: Wireless Communications,
Telecommunications & Computing, and Millimeter Wave Products.
Total revenues for the three months ended March 31, 1998 increased 41.0%
to $23.7 million, over the comparable three months ended March 31, 1997. The
increase in revenues during the three months ended March 31, 1998 primarily
reflects the inclusion of revenues from the newly acquired MMIC business
since the date of acquisition. Domestic and international revenues for the
three months ended March 31, 1998 were $18.4 million and $5.3 million,
respectively, as compared to $10.8 million and $6.0 million, respectively,
for the three months ended March 31, 1997.
10
<PAGE>
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,
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 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.
Cost of goods sold was $18.3 million for the three months ended March
31, 1998, an increase of $9.2 million from the three months ended March 31,
1997. As a percentage of total revenues, cost of goods sold for the three
months ended March 31, 1998 increased to 77.4% from 54.3% for the three
months ended March 31, 1997. The increase in cost of goods sold was
attributable to the inclusion of cost of goods sold related to the newly
acquired MMIC business and to certain nonrecurring costs related to the
Company's relocation of its wafer fabrication and manufacturing facilities to
its new Hillsboro facility. These factors included lower than expected yields
on the initial products manufactured in the new facility, lower than expected
yields on products built in the old fabrication facility immediately prior to
shipment, and equipment downtime on certain equipment following transfer to
the new facility.
The Company has at various times in the past experienced lower than
expected production yields which have delayed shipments of a given product
and adversely affected gross margins. 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. The Company's
operation of its own leased 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 (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 expenses. The
Company's RD&E expenses for the three months ended March 31, 1998 increased
to $4.4 million from $2.5 million for the three months ended March 31, 1997.
RD&E expenses as a percentage of total revenues for the three months ended
March 31, 1998 increased to 18.7% from 15.2% for the three months ended March
31, 1997. The increase in RD&E expenses in both absolute dollar amount and as
a percentage of total revenues primarily reflects the inclusion of RD&E
expenses related to the newly acquired MMIC business, an increase in product
development activities and increased NRE expenses. The Company is committed
to substantial investments in research, development, and engineering and
expects such expenses will continue to increase in absolute dollar amount in
the future.
11
<PAGE>
SELLING, GENERAL AND ADMINISTRATIVE
Selling, general and administrative (SG&A) expenses for the three months
ended March 31, 1998 increased slightly to $3.5 million from $3.4 million for
the three months ended March 31, 1997. SG&A expenses increased as a result of
the inclusion of SG&A expenses related to the newly acquired MMIC business as
well as some nonrecurring expenses associated with the acquisition. These
expenses for the three months ended March 31, 1998 appear relatively flat in
comparison to those of the three months ended March 31, 1997. This is due to
an increased level of expenses associated with the Company's move of its
administrative offices to its new Hillsboro location during the three months
ended March 31, 1997.
SPECIAL CHARGES
For the three months ended March 31, 1998, special charges of $8.8
million were recorded. These are one time charges associated with the
Company's acquisition of the MMIC business from Raytheon TI Systems, Inc. and
involve the write-off of the fair value of in-process research and
development.
SETTLEMENT OF LAWSUIT
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 alleged 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. Following the filing
of the complaint, the plaintiffs 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 had
established a January 1999 trial date for this action.
During the three months ended March 31, 1998, the Company reached an
agreement in principle to settle this action and recorded a one time charge
of $1.4 million associated with the settlement of this lawsuit and related
legal expenses, net of accruals. The agreement is pending court approval.
OTHER INCOME (EXPENSE), NET
Other income (expense), net for the three months ended March 31, 1998
decreased to other income, net of $474,000 as compared to other income, net
of $540,000 for the three months ended March 31, 1997. This decrease resulted
primarily from non-recurring other income generated by the sale of excess
furniture and office equipment as part of the Company's move of its
administrative offices to its new Hillsboro location during the three months
ended March 31, 1997.
12
<PAGE>
INCOME TAX EXPENSE
No income tax expense was recorded for the three months ended March 31,
1998, which was a decrease from $474,000 for the three months ended March 31,
1997. This decrease in income tax expense was attributable to the Company's
operating loss for the three months ended March 31, 1998.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1997, the FASB issued SFAS No. 131, "Disclosure about Segments
of an Enterprise and Related Information". SFAS 131 requires public companies
to report certain information about their operating segments in a complete
set of financial statements to shareholders. It also requires reporting of
certain enterprise-wide information about the Company's products and
services, its activities in different geographic areas, and its reliance on
major customers. The basis for determining the Company's operating segments
is the manner in which management operates the business. SFAS No. 131 is
effective for fiscal years beginning after December 15, 1997. The Company
does not expect implementation to have a significant impact on the financial
statements.
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.
TRANSITION OF MANUFACTURING OPERATIONS TO A NEW FACILITY - In the fourth
quarter of 1997, the Company completed the move of its wafer fabrication and
manufacturing facilities to its new Hillsboro facility. The Company's
administrative, engineering, sales and marketing offices and test operations
moved into this new facility during the first quarter of 1997. The Company's
lease and operation of its own wafer
13
<PAGE>
fabrication and manufacturing facilities entails a high level of fixed costs.
Such fixed costs consist primarily of occupancy costs for the Hillsboro
facility, 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. 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.
INTEGRATION OF 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. For example, on January 13, 1998, the Company
acquired substantially all of the assets of the MMIC operations of the former
Texas Instruments' Defense Systems & Electronics Group from RTIS. Acquisition
transactions are accompanied by a number of risks, including, among other
things, the difficulty of assimilating the operations and personnel of the
acquired companies, the potential disruption of the Company's ongoing
business, the inability of management to maximize the financial and strategic
position of the Company through the successful incorporation of acquired
technology and rights into the Company's products, expenses associated with
the transactions, expenses associated with acquired in-process research and
development, additional operating expenses, the maintenance of uniform
standards, controls, procedures and policies, the impairment of relationships
with employees and customers as a result of any integration of new management
personnel, and the potential unknown liabilities associated with acquired
businesses. There can be no assurance that the Company will be successful in
overcoming these risks or any other problems encountered in connection with
its acquisition of the MMIC Business or any other future acquisitions. In
addition, 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.
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
14
<PAGE>
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.
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. 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 three months ended March 31, 1998,
Ericsson accounted for approximately 10.0% of total revenues. In 1997,
Northern Telecom accounted for approximately 12.0% 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 or if
orders by or shipments to a major customer were to otherwise decrease or be
delayed, the Company's business, financial condition and results of
operations would be materially adversely affected.
DEPENDENCE ON CUSTOMER SPECIFIC PRODUCTS - A substantial portion of the
Company's products are designed to address the needs of individual customers.
Frequent product introductions by systems manufacturers make the Company's
future success dependent on its ability to select customer specific
development projects which will result in sufficient production volume to
enable the Company to achieve manufacturing efficiencies. Because customer
specific products are developed for unique applications, the Company expects
that some of its current and future customer specific products may never be
produced in volume. In addition, in the event of delays in completing designs
or the Company's failure to obtain development contracts from customers whose
systems achieve and sustain commercial market success, the Company's
business, financial condition and results of operations could be materially
adversely affected.
DEPENDENCE ON NEW PRODUCTS AND PROCESSES - The Company's future success
depends on its ability to develop and introduce in a timely manner new
products and processes which compete effectively on the basis of price and
performance and which adequately address customer requirements. The success
of new product and process introductions is dependent on several factors,
including proper selection of such products and processes, the ability to
adapt to technological changes and to support emerging and established
industry standards, successful and timely completion of product and process
development and commercialization, market acceptance of the Company's or its
customers' new products, achievement of
15
<PAGE>
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. 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.
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 AMCC, 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
16
<PAGE>
successfully in the future. The failure of the Company to successfully
compete in its markets would have a material adverse effect on the Company's
business, financial condition and results of operations.
ADOPTION OF GAAS COMPONENTS BY SYSTEMS MANUFACTURERS - Silicon
semiconductor technologies are the dominant process technologies for
integrated circuits and these technologies continue to improve in
performance. TriQuint's prospective customers are frequently systems
designers and manufacturers who are utilizing such silicon technologies in
their existing systems and who are evaluating GaAs integrated circuits for
use in their next generation high performance systems. Customers may be
reluctant to adopt TriQuint's products because of perceived risks relating to
GaAs technology generally. Such perceived risks include the unfamiliarity of
designing systems with GaAs products as compared with silicon products,
concerns related to manufacturing costs and yields, novel design and
unfamiliar manufacturing processes and uncertainties about the relative cost
effectiveness of the Company's products compared to high performance silicon
integrated circuits. In addition, customers may be reluctant to rely on a
smaller company such as TriQuint for critical components. There can be no
assurance that additional systems manufacturers will design the Company's
products into their respective systems, that the companies that have utilized
the Company's products will continue to do so in the future or that GaAs
technology will achieve widespread market acceptance. Should the Company's
GaAs products fail to achieve market acceptance or be utilized in
manufacturers' systems, the Company's business, financial condition and
results of operations would be materially adversely affected.
GAAS COMPONENTS MORE COSTLY TO PRODUCE - The production of GaAs
integrated circuits has been and continues to be more costly than the
production of silicon devices. This cost differential relates primarily to
higher costs of the raw wafer material, lower production yields associated
with the relatively immature GaAs technology and higher unit costs associated
with lower production volumes. Although the Company has reduced unit
production costs by increasing wafer fabrication yields, by achieving higher
volumes and by obtaining lower raw wafer costs, there can be no assurance
that the Company will be able to continue to 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
17
<PAGE>
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.
CYCLICALITY OF THE SEMICONDUCTOR INDUSTRY - The semiconductor industry
has historically been characterized by wide fluctuations in product supply
and demand. From time to time, the industry has also experienced significant
downturns, often in connection with, or in anticipation of, major additions
of wafer fabrication capacity, maturing product cycles or declines in general
economic conditions. These downturns have been characterized by diminished
product demand, production overcapacity and subsequent accelerated price
erosion, and in some cases have lasted for extended periods of time. The
Company's business has in the past been and could in the future be materially
adversely affected by industry wide fluctuations. The Company's continued
success will depend in large part on the continued growth of the
semiconductor industry in general and its customers' markets in particular.
No assurance can be given that the Company's business, financial condition
and results of operations will not be materially adversely 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
18
<PAGE>
and often protracted and expensive litigation. Although there is currently no
pending intellectual property litigation against the Company, the Company or
its suppliers may from time to time be notified of claims that the Company
may be infringing patents or other intellectual property rights owned by
third parties. If it is necessary or desirable, the Company may seek licenses
under such patents or other intellectual property rights. However, there can
be no assurance that licenses will be offered or that the terms of any
offered licenses will be acceptable to the Company. The failure to obtain a
license from a third party for technology used by the Company could cause the
Company to incur substantial liabilities and to suspend the manufacture of
products. Furthermore, the Company may initiate claims or litigation against
third parties for infringement of the Company's proprietary rights or to
establish the validity of the Company's proprietary rights. Litigation by or
against the Company could result in significant expense to the Company and
divert the efforts of the Company's technical and management personnel,
whether or not such litigation results in a favorable determination for the
Company. In the event of an adverse result in any such litigation, the
Company could be required to pay substantial damages, indemnify its
customers, cease the manufacture, use and sale of infringing products, expend
significant resources to develop non-infringing technology, discontinue the
use of certain processes or obtain licenses to the infringing technology.
There can be no assurance that the Company would be successful in such
development or that such licenses would be available on reasonable terms, or
at all, and any such development or license could require expenditures of
substantial time and other resources by the Company. In the event that any
third party makes a successful claim against the Company or its customers and
a license is not made available to the Company on commercially reasonable
terms, the Company's business, financial condition and results of operations
would be materially adversely affected.
ENVIRONMENTAL REGULATIONS - The Company is subject to a variety of
federal, state and local laws, rules and regulations related to the discharge
or disposal of toxic, volatile or other hazardous chemicals used in its
manufacturing process. The failure to comply with present or future
regulations could result in fines being imposed on the Company, suspension of
production or a cessation of operations. Such regulations could require the
Company to acquire significant equipment or to incur substantial other
expenses to comply with environmental regulations. Any failure by the
Company, or by TI with respect to the Company's MMIC Facility, 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.
RISKS ASSOCIATED WITH INTERNATIONAL SALES - Sales outside of the United
States were $14.8 million, $18.1 million, $24.3 million and $5.3 million in
1995, 1996, 1997, and the three months ended March 31, 1998, 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
19
<PAGE>
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 ten independent subcontractors, six of which
are located outside of the United States. Any prolonged work stoppages or
other failure of these contractors to supply finished products would have a
material adverse effect on the Company's business, financial condition and
results of operations.
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.
YEAR 2000 RISKS - The Company has conducted a review of its information
technology systems to identify all software that could be affected by the
"Year 2000" issue and has developed plans to address this issue. While the
Company does not believe its computer systems or applications currently in
use will be adversely affected by the upcoming change in the century, the
Company has not made an assessment as to whether any of its customers,
suppliers or service providers will be so affected. Failure of the Company's
software or that of its customers, suppliers or service providers could have
a material adverse impact on the Company's business, financial condition and
results of operations.
20
<PAGE>
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 other sales of equity,
bank borrowing, equipment leases, and cash flow from operations. As of March
31, 1998, the Company had working capital of approximately $37.9 million,
including $23.8 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 greater than $57.4 million
and (iv) cash and investments, including restricted investments, greater than
$45.0 million. As of March 31, 1998 the Company was in compliance with the
restrictive 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.
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 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 ration 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, 1998, 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.
In November 1997, the Company entered into a $1.5 million lease for
additional land adjacent to its Hillsboro facility. Pursuant to the terms of
that agreement, USNB provided loans to Wolverine to purchase the land, who in
turn leased it to the Company under a renewable one year lease agreement. The
loan from USNB is partially collateralized by a guarantee from the Company.
As of March 31, 1998 the Company was in compliance with the terms of the
agreement. However, there can be no assurance that the Company will continue
to be in compliance with these terms as of any subsequent date.
In January 1998, the Company acquired the MMIC operations of the former
Texas Instruments' Defense Systems & Electronics Group from RTIS. Pursuant to
an Asset Purchase Agreement with RTIS, TriQuint acquired the MMIC Business
for approximately $19.5 million in cash and 844,613 shares of TriQuint Common
Stock (the Shares) valued at approximately $19.5 million for total purchase
consideration of approximately $39 million. The Shares are redeemable at
TriQuint's option at any time within 360 days of January 13, 1998 at a price
of approximately $23 per share. The cash portion of the purchase price was
financed through a synthetic leasing arrangement through General Electric
Capital Corporation involving certain assets pursuant to the Asset Purchase
Agreement.
21
<PAGE>
The following table presents a summary of the Company's cash flows
(IN THOUSANDS):
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
----------------------------
1998 1997
---- ----
<S> <C> <C>
Net cash and cash equivalents provided
(used) by operating activities $ 1,727 $ (76)
Net cash and cash equivalents provided
(used) by investing activities (4,812) (9,647)
Net cash and cash equivalents provided
(used) by financing activities (1,048) (148)
------- -------
Net decrease in cash and cash equivalents $(4,133) $(9,871)
------- -------
------- -------
</TABLE>
The cash provided by operating activities for the three months ended
March 31, 1998, $1.7 million, related primarily to an increase in accounts
receivable of $1.7 million and an increase in accounts payable and accrued
expenses of $4.1 million, which were offset by the special charges associated
with the acquisition of the MMIC business. 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, partially offset by net income
of $1.8 million and increases in accounts payable and accrued expenses.
The cash used by investing activities for the three months ended March
31, 1998, $4.8 million, related to the purchase of $6.7 million of
investments and capital expenditures of $1.3 million, but was offset in part
by the sale/maturity of $3.2 million of investments. The cash used by
investing activities for the three months ended March 31, 1997, $9.6 million,
related to the net purchase of investments of $9.5 million and the purchase
of approximately $185,000 of capital equipment.
The cash used by financing activities for the three months ended March
31, 1998, $1.0 million, related primarily to the payment of principal on
capital leases and was offset in part by the issuance of common stock upon
option exercises. The cash used by financing activities for the three months
ended March 31, 1997, $148,000, also 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, 1998 were
approximately $1.3 million. During the quarter ended March 31, 1998, the
Company established approximately $2.2 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 1998.
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 1999.
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.
22
<PAGE>
PART II - OTHER INFORMATION
ITEM 1: LEGAL PROCEEDINGS.
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 alleged 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. Following the filing
of the complaint, the plaintiffs 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 had
established a January 1999 trial date for this action.
During the three months ended March 31, 1998, the Company reached an
agreement in principle to settle this action and recorded a one time charge
of $1.4 million associated with the settlement of this lawsuit and related
legal expenses, net of accruals. The agreement is pending court approval.
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit 27.1 Financial Data Schedule
(b) Reports on Form 8-K
The Company filed a Registration Statement on Form 8-K
(File No. 000-22660) with the Securities and Exchange
Commission on January 27, 1998, amended as of March 27,
1998, to report the acquisition of certain assets pursuant
to that certain Asset Purchase Agreement, dated as of
January 8, 1998, by and between Raytheon TI Systems, Inc.
and the Company.
23
<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 12, 1998 /s/ Steven J. Sharp
-------------------------------
STEVEN J. SHARP
President, Chief Executive Officer and
Chairman (Principal Executive Officer)
Dated: May 12, 1998 /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)
24
<PAGE>
TRIQUINT SEMICONDUCTOR, INC.
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
SEQUENTIAL
EXHIBIT NO. DESCRIPTION PAGE NO.
- ----------- ----------- ----------
<C> <S> <C>
27.1 Financial Data Schedule
</TABLE>
25
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AS OF MARCH 31, 1998 AND THE CONSOLIDATED STATEMENT
OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 1998 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-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 14,601
<SECURITIES> 9,244
<RECEIVABLES> 23,834
<ALLOWANCES> (196)
<INVENTORY> 16,465
<CURRENT-ASSETS> 64,851
<PP&E> 67,539
<DEPRECIATION> (37,092)
<TOTAL-ASSETS> 137,919
<CURRENT-LIABILITIES> 26,989
<BONDS> 13,260
0
0
<COMMON> 131,980
<OTHER-SE> (34,310)
<TOTAL-LIABILITY-AND-EQUITY> 137,919
<SALES> 23,681
<TOTAL-REVENUES> 23,681
<CGS> 18,341
<TOTAL-COSTS> 36,445
<OTHER-EXPENSES> 4
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<INTEREST-EXPENSE> 379
<INCOME-PRETAX> (12,290)
<INCOME-TAX> 0
<INCOME-CONTINUING> (12,290)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (12,290)
<EPS-PRIMARY> (1.33)
<EPS-DILUTED> (1.33)
</TABLE>
