<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 April 3, 1999
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 April 3, 1999, there were 9,569,882 shares of the registrant's
common stock outstanding.
<PAGE>
TRIQUINT SEMICONDUCTOR, INC.
INDEX
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION PAGE NO.
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
Item 1. Financial Statements
Consolidated Condensed Statements of Operations -- Three months
ended March 31, 1999 and 1998 3
Consolidated Condensed Balance Sheets -- March 31, 1999
and December 31, 1998 4
Consolidated Condensed Statements of Cash Flows -- Three months
ended March 31, 1999 and 1998 5
Notes to Consolidated Condensed Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
Item 3. Quantitative and Qualitative Disclosures about Market Risk 20
PART II. OTHER INFORMATION
- -------------------------------------------------------------------------------------------------
<S> <C>
Item 1. Legal Proceedings 21
Item 6. Exhibits and Reports on Form 8-K 21
SIGNATURES 22
</TABLE>
2
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PART I - FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
TRIQUINT SEMICONDUCTOR, INC.
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
---------------------
MARCH 31, MARCH 31,
1999 1998
--------- ---------
<S> <C> <C>
Total revenues $ 33,695 $ 23,681
Operating costs and expenses:
Cost of goods sold 20,951 18,341
Research, development and engineering 4,594 4,424
Selling, general and administrative 5,183 3,460
Special charges - 8,820
Settlement of lawsuit - 1,400
--------- ----------
Total operating costs and expenses 30,728 36,445
--------- ----------
Income (loss) from operations 2,967 (12,764)
--------- ----------
Other income (expense):
Interest income 791 857
Interest expense (313) (379)
Other, net 47 (4)
--------- ----------
Total other income, net 525 474
--------- ----------
Income (loss) before income taxes 3,492 (12,290)
Income tax expense 279 -
--------- ----------
Net income (loss) $ 3,213 $ (12,290)
--------- ----------
--------- ----------
Per share data:
Basic $ 0.34 $ (1.33)
--------- ----------
--------- ----------
Weighted average common shares 9,559 9,245
--------- ----------
--------- ----------
Diluted $ 0.32 $ (1.33)
--------- ----------
--------- ----------
Weighted average common and
common equivalent shares 10,099 9,245
--------- ----------
--------- ----------
</TABLE>
See notes to Consolidated Condensed Financial Statements.
3
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TRIQUINT SEMICONDUCTOR, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
ASSETS 1999 1998
---------- ------------(1)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 12,949 $ 14,602
Investments 14,591 11,460
Accounts receivable, net 23,963 21,020
Inventories, net 21,129 19,706
Prepaid expenses and other assets 1,863 2,028
---------- ----------
Total current assets 74,495 68,816
---------- ----------
Property, plant and equipment, net 30,386 30,529
Restricted investments 40,163 40,163
Other non-current assets 1,707 1,798
---------- ----------
Total assets $ 146,751 $ 141,306
---------- ----------
---------- ----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current installments of capital lease
and installment note obligations $ 5,132 $ 4,934
Accounts payable and accrued expenses 22,729 19,388
---------- ----------
Total current liabilities 27,861 24,322
Capital lease obligations and installment note
obligations, less current installments 8,012 9,369
---------- ----------
Total liabilities 35,873 33,691
---------- ----------
Shareholders' equity:
Common stock 133,642 133,592
Accumulated deficit (22,764) (25,977)
---------- ----------
Total shareholders' equity 110,878 107,615
---------- ----------
Total liabilities and shareholders' equity $ 146,751 $ 141,306
---------- ----------
---------- ----------
</TABLE>
(1) The information in this column was derived from the Company's audited
financial statements as of December 31, 1998.
See notes to Consolidated Condensed Financial Statements.
4
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TRIQUINT SEMICONDUCTOR, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
--------------------------------------
March 31, March 31,
1999 1998
--------- ----------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 3,213 ($12,290)
Adjustments to reconcile net income to
net cash provided (used) by operating activities:
Depreciation and amortization 1,837 1,375
Special charges 0 8,820
Loss on disposal of assets 0 4
Change in assets and liabilities (net of assets acquired
and liabilities assumed)
(Increase) decrease in:
Accounts receivable (2,943) (1,679)
Inventories (1,423) 446
Prepaid expense and other assets 182 671
Increase (decrease) in:
Accounts payable and accrued expenses 3,341 4,053
Other current liabilities 0 327
--------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES 4,207 1,727
Cash flows from investing activities:
Purchase of investments (64,892) (65,168)
Sale/Maturity of investments 61,761 61,653
Capital expenditures (1,620) (1,297)
--------- ---------
NET CASH USED IN INVESTING ACTIVITIES (4,751) (4,812)
Cash flows from financing activities:
Principal payments under capital lease obligations (1,159) (1,468)
Issuance of common stock, net 50 420
--------- ---------
NET CASH USED IN FINANCING ACTIVITIES (1,109) (1,048)
NET DECREASE IN CASH AND CASH EQUIVALENTS (1,653) (4,133)
CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE PERIOD 14,602 18,734
--------- ---------
CASH AND CASH EQUIVALENTS AT THE END OF THE PERIOD $ 12,949 $14,601
--------- ---------
--------- ---------
</TABLE>
See notes to Consolidated Condensed Financial Statements.
5
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TRIQUINT SEMICONDUCTOR, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(In thousands)
(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, 1998, as
included in the Company's 1998 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.
The following is a reconciliation of the basic and diluted earnings per
share:
THREE MONTHS ENDED MARCH 31, 1999
<TABLE>
<CAPTION>
Per Share
Income Shares Amount
-------- ------ ---------
<S> <C> <C> <C>
Basic earnings per share:
Income available to shareholders $ 3,213 9,559 $ 0.34
---------
---------
Effect of dilutive securities:
Stock options and warrants - 540
-------- ------
Diluted earnings per share:
Income available to shareholders $ 3,213 10,099 $ 0.32
-------- ------ ---------
-------- ------ ---------
</TABLE>
THREE MONTHS ENDED MARCH 31, 1998
<TABLE>
<CAPTION>
Per Share
Income Shares Amount
-------- ------ ---------
<S> <C> <C> <C>
Basic earnings (loss) per share:
Income available to shareholders $(12,290) 9,245 $ (1.33)
---------
---------
Effect of dilutive securities:
Stock options and warrants - -
-------- ------
Diluted earnings (loss) per share:
Income available to shareholders $(12,290) 9,245 $ (1.33)
-------- ------ ---------
-------- ------ ---------
</TABLE>
The dilutive effect of common equivalent shares outstanding for the
purchase of approximately 566 and 586 shares and warrants for the three
months ended March 31, 1999 and 1998, respectively, were not included
in the net income (loss) per share calculations, because to do so would
have been antidilutive.
6
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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 Company accounts for income taxes under the asset and liability
method. Under the asset and liability method, deferred tax assets and
liabilities are recognized for the future tax consequences attributable
to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases.
The provision for income taxes has been recorded based on the current
estimate of the Company's annual effective tax rate. For periods of
income, this rate differs from the federal statutory rate primarily
because of the utilization of net operating loss carryforwards.
5. INVENTORIES
Inventories, net of reserves of $2,612 and $2,422 as of March 31,
1999 and December 31, 1998, respectively, stated at the lower of
cost or market, consist of:
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
--------- ------------
<S> <C> <C>
Raw Material $ 6,236 $ 5,066
Work in Progress 11,496 10,749
Finished Goods 3,397 3,891
------- -------
Total Inventories $21,129 $19,706
------- -------
------- -------
</TABLE>
6. SHAREHOLDERS' EQUITY
Components of shareholders' equity:
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
--------- ------------
<S> <C> <C>
Preferred stock, no par value,
5,000,000 shares authorized - -
Common Stock, $.001 par value,
25,000,000 shares authorized, 9,569,882 and 9,551,780
outstanding, respectively 10 10
Additional paid-in capital 133,632 133,582
</TABLE>
7. SUPPLEMENTAL CASH FLOW INFORMATION
<TABLE>
<CAPTION>
Three Months Ended
---------------------------
March 31, March 31,
1999 1998
--------- ---------
<S> <C> <C>
Cash Transactions:
Cash paid for interest $295 $ 410
Cash paid for income taxes 94 0
Non-Cash Transactions:
Purchase of assets through capital leases 0 2,215
</TABLE>
7
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8. COMPREHENSIVE INCOME
The Company has adopted Statement of Financial Accounting Standards
("SFAS") No. 130, Reporting Comprehensive Income. There is no
difference between net income (loss) and comprehensive income (loss)
for the three months ended March 31, 1999 and 1998.
9. SEGMENT INFORMATION
The Company has adopted SFAS No. 131, Disclosures about Segments of an
Enterprise and Related Information. The Company has concluded that it
has only one reportable segment.
10. NEW ACCOUNTING PRONOUNCEMENTS
Effective January 1, 1999, the Company adopted Statement of Position
98-5 ("SOP 98-5"), "Reporting on the Costs of Start-Up Activities". SOP
98-5 broadly defines start-up activities and requires costs of start-up
activities and organization costs to be expensed as incurred. There was
no effect from the adoption of this pronouncement.
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 133,
"Accounting for Derivative Instruments and Hedging Activities". SFAS
No. 133 establishes accounting and reporting standards requiring that
every derivative instrument be recorded in the balance sheet as either
an asset or liability measured at its fair value. SFAS No. 133 also
requires that changes in the derivative's fair value be recognized
currently in results of operations unless specific hedge accounting
criteria are met. SFAS No. 133 is effective for fiscal years beginning
after June 15, 1999. Company does not expect SFAS No. 133 to have a
significant impact on its consolidated financial statements.
11. LITIGATION
See Part II, Item 1, of this Quarterly Report on Form 10-Q for a
description of legal proceedings.
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."
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 Bosch, Ericsson, Hughes, Lucent
Technologies, Motorola, Nokia, Northern Telecom, Raytheon, Rockwell, and
Siemens.
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,
1999 1998
-------- ---------
<S> <C> <C>
Total revenues 100.0% 100.0%
Operating costs and expenses:
Cost of goods sold 62.2 77.4
Research, development and engineering 13.6 18.7
Selling, general and administrative 15.4 14.6
Special charges 0.0 37.3
Settlement of lawsuit 0.0 5.9
-------- ---------
Total operating costs and expenses 91.2 153.9
-------- ---------
Income (loss) from operations 8.8 (53.9)
Other income, net 1.6 2.0
-------- ---------
Income (loss) before income taxes 10.4 (51.9)
Income tax expense 0.8 0.0
-------- ---------
Net income (loss) 9.6% (51.9)%
-------- ---------
-------- ---------
</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.
9
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Total revenues for the three months ended March 31, 1999 increased
42.3% to $33.7 million, over the comparable three months ended March 31,
1998. The increase in revenues during the three months ended March 31, 1998
reflects strong demand for the Company's products, especially those for
wireless communications applications. Domestic and international revenues for
the three months ended March 31, 1999 were $24.8 million and $8.9 million,
respectively, as compared to $18.4 million and $5.3 million, respectively,
for the three months ended March 31, 1998.
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 $21.0 million for the three months ended
March 31, 1999, an increase of $2.6 million from the three months ended March
31, 1998. As a percentage of total revenues, cost of goods sold for the three
months ended March 31, 1999 decreased to 62.2% from 77.4% for the three
months ended March 31, 1998. The decrease in cost of goods sold as a
percentage of revenue is attributable to continuing improvements in
production yields and increased economies of scale associated with increased
sales volumes. In addition, cost of goods sold for the three months ended
March 31, 1998 included certain non-recurring costs related to the Company's
relocation of its wafer fabrication and manufacturing facilities to its new
Hillsboro facility. The factors related to these non-recurring costs 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 during its final operation, 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, 1999
increased to $4.6 million from $4.4 million for the three months ended March
31, 1998. RD&E expenses as a percentage of total revenues for the three
months ended March 31, 1999 decreased to 13.6% from 18.7% for the three
months ended March 31, 1998. The slight increase in RD&E expenses on an
absolute dollar amount basis is primarily due to the addition of new
employees. The decrease in RD&E expenses as a percentage of total revenues is
due to revenues increasing at a faster rate than RD&E spending. 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.
SELLING, GENERAL AND ADMINISTRATIVE
Selling, general and administrative ("SG&A") expenses for the three
months ended March 31, 1999 increased to $5.2 million from $3.5 million for
the three months ended March 31, 1998. SG&A expenses as a percentage of total
revenues for the three months ended March 31, 1999 increased to 15.4% from
14.6% for the three months ended March 31, 1998. The increase in SG&A
expenses in both absolute dollar amount and as a percentage of total revenues
is primarily due to increased selling costs associated with the increased
sales volume and increased costs associated
10
<PAGE>
with on-going development of the Company's information systems at both its
Dallas, Texas and Hillsboro, Oregon facilities.
SPECIAL CHARGES
For the three months ended March 31, 1998, special charges of $8.8
million were associated with the Company's acquisition of its Millimeter Wave
Communications 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.
OTHER INCOME (EXPENSE), NET
Other income (expense), net for the three months ended March 31,
1999 increased to other income, net of $525,000 from other income, net of
$474,000 for the three months ended March 31, 1998. This increase resulted
primarily from increased interest income on higher cash balances and
decreased interest expense due to reductions in long-term debt.
INCOME TAX EXPENSE
Income tax expense for the three months ended March 31, 1999 was
$279,000. No income tax expense was recorded for the three months ended March
31, 1998, due to the Company's operating loss in that period.
NEW ACCOUNTING PRONOUNCEMENTS
Effective January 1, 1999, the Company adopted Statement of Position
98-5 ("SOP 98-5"), "Reporting on the Costs of Start-Up Activities". SOP 98-5
broadly defines start-up activities and requires costs of start-up activities
and organization costs to be expensed as incurred. There was no effect from
the adoption of this pronouncement.
In June 1998, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards ("SFAS") No. 133,
"Accounting for Derivative Instruments and Hedging Activities". SFAS No. 133
establishes accounting and reporting standards requiring that every
derivative instrument be recorded in the balance sheet as either an asset or
liability measured at its fair value. SFAS No. 133 also requires that changes
in the derivative's fair value be recognized currently in results of
operations unless specific hedge accounting criteria are met. SFAS No. 133 is
effective for fiscal years beginning after June 15, 1999. Company does not
expect SFAS No. 133 to have a significant impact on its consolidated
financial statements.
11
<PAGE>
FACTORS AFFECTING FUTURE RESULTS
VARIABILITY OF OPERATING RESULTS - The Company's quarterly and
annual results of operations have varied in the past and may vary
significantly in the future due to a number of factors, including
cancellation or delay of customer orders or shipments; market acceptance of
the Company's or its customers' products; the Company's success in achieving
design wins; variations in manufacturing yields; timing of announcement and
introduction of new products by the Company and its competitors; changes in
revenue and product mix; competitive factors; changes in manufacturing
capacity and variations in the utilization of such capacity; variations in
average selling prices; variations in operating expenses; the long sales
cycles associated with the Company's customer specific products; the timing
and level of product and process development costs; the cyclicality of the
semiconductor industry; the timing and level of 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, then 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.
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 Millimeter Wave
Communications operation 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
Millimeter Wave Communications operation 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
12
<PAGE>
addition, the Company leases and operates its own wafer fabrication
facilities, 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.
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 1998, Nokia and Northern Telecom accounted
for approximately 12.0% and 11.7%, 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 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 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
13
<PAGE>
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
Anadigics, Vitesse, RF Microdevices and Raytheon. 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 not
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.
14
<PAGE>
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. There
are many other semiconductor companies located in the Company's geographic
area 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.
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
15
<PAGE>
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. 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.
On February 26, 1999, a lawsuit was filed against 88 firms, including
the Company, in the United States District Court for the District of Arizona.
The suit alleges that the defendants infringe upon certain patents held by
The Lemelson Medical, Education and Research Foundation, Limited Partnership.
Although the Company believes that the suit is without merit and intends to
vigorously defend itself against the charges, there can be no assurance that
such defense will be successful. Moreover, such litigation may require
expenditures of substantial time and money and could distract management from
the Company's day-to-day operations.
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 Texas 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 $18.1 million, $24.3 million, $26.8 million and $8.9 million in
1996, 1997, 1998, and the three months ended March 31, 1999, 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
16
<PAGE>
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 ten independent subcontractors, seven 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.
YEAR 2000 RISKS - Many information technology ("IT") hardware and
software systems, as well as other non-IT equipment utilizing
microprocessors, can accept only two digit entries in the date code field. To
operate using dates after December 31, 1999, the date code fields will need
to accept four digit entries to distinguish twenty-first century dates from
twentieth century dates. This is commonly referred to as the "Year 2000" or
"Y2K" issue. The Company has initiated a comprehensive Y2K audit program,
which consists of a six step plan to inventory and correct any non-compliant
systems. These six steps are: inventory, assessment, planning, remediation,
testing and implementation. The audit program encompasses a review of IT
systems used in the Company's internal business as well as non-IT systems
such as manufacturing systems and building systems. It also includes an audit
and evaluation of third party vendors, manufacturers and suppliers. The
Company has completed the audit program through the planning phase and is
currently in the remediation phase, for both IT and non-IT systems as well as
third-party vendors, manufacturers and suppliers. Because of the existence of
numerous systems and related components within the Company and the
interdependency of these systems, it is possible that certain systems at the
Company, or systems at entities that provide services or goods for the
Company, may fail to operate in the Year 2000. Although it is not currently
anticipated, the inability of the Company to become Y2K compliant on a timely
basis or the failure of a system at the Company or at an entity that provides
services or goods to the Company may have a material impact on future
operating results or financial condition.
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, 1999, the Company had working capital of approximately $46.6 million,
including $27.5 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 $82.2 million
and (iv) cash and investments, including restricted investments, greater than
$45.0 million. As of March 31, 1999 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
17
<PAGE>
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 March 31, 1999, 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 Matisse 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, 1999 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 Millimeter Wave Communications
operation of the former Texas Instruments' Defense Systems & Electronics
Group from Raytheon TI Systems ("RTIS"). Pursuant to an Asset Purchase
Agreement (the "Agreement") with RTIS, the Company acquired the Millimeter
Wave Communications operation for approximately $19.5 million in cash and
844,613 shares of TriQuint Common Stock valued at approximately $19.5 million
for total purchase consideration of approximately $39 million. The cash
portion of the purchase price was financed through an operating leasing
arrangement through involving certain assets pursuant to the Agreement.
The following table presents a summary of the Company's cash flows
(IN THOUSANDS):
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------
1999 1998
--------- ---------
<S> <C> <C>
Net cash and cash equivalents provided
by operating activities $ 4,207 $ 1,727
Net cash and cash equivalents
used in investing activities (4,751) (4,812)
Net cash and cash equivalents
used in financing activities (1,109) (1,048)
------- -------
Net decrease in cash and cash equivalents $(1,653) $(4,133)
------- -------
------- -------
</TABLE>
The cash provided by operating activities for the three months ended
March 31, 1999, $4.2 million, related primarily to net income of $3.2 million
and an increase in accounts payable and accrued expenses of $3.3 million,
which were offset by increases in accounts receivable and inventories of $2.9
million and $1.4 million, respectively. The cash used by operating activities
for the three months ended March 31, 1998, $1.7 million, related to an
increase in accounts payable and accrued expenses of $4.1 million and an
adjustment of $8.8 million related to the special charges associated with the
acquisition of the Millimeter Wave Communications operation as an offset to
the net loss of $12.3 million.
The cash used by investing activities for the three months ended
March 31, 1999, $4.8 million, related to the purchase of $64.9 million of
investments and capital expenditures of $1.6 million, offset in part by the
sale/maturity of $61.8 million of investments. The cash used by investing
activities for the three months ended March 31, 1998, $4.8 million, related
to the net purchase of investments of $3.5 million and capital expenditures
of approximately $1.3 million.
The cash used by financing activities for the three months ended
March 31, 1999, $1.1 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, 1998, $1.0 million, 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.
18
<PAGE>
Capital expenditures for the three months ended March 31, 1999 were
approximately $1.6 million. During the quarter ended March 31, 1999, the
Company established no 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 $13.3 million during the remainder of 1999.
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, at a minimum, through
the end of 2000. 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.
YEAR 2000 COMPLIANCE
Many IT hardware and software systems, as well as other non-IT
equipment utilizing microprocessors, can accept only two digit entries in the
date code field. To operate using dates after December 31, 1999, the date
code fields will need to accept four digit entries to distinguish
twenty-first century dates from twentieth century dates. This is commonly
referred to as the "Year 2000" or "Y2K" issue. STATE OF READINESS - The
Company has initiated a comprehensive Y2K audit program, which consists of a
six step plan to inventory and correct any non-compliant systems. These six
steps are: inventory, assessment, planning, remediation, testing and
implementation. The audit program encompasses a review of IT systems used in
the Company's internal business as well as non-IT systems such as
manufacturing systems and building systems. It also includes an audit and
evaluation of third party vendors, manufacturers and suppliers. The Company
has completed the audit program through the planning phase and is currently
in the remediation phase, for both IT and non-IT systems as well as
third-party vendors, manufacturers and suppliers. The Company's products have
no specific date functions or date dependencies and will operate according to
specifications through the Year 2000 date rollover and thereafter. COSTS -
The Company does not believe that the historical or anticipated costs of
remediation have had, or will have, a material effect on the Company's
financial condition or results of operations. For IT systems and most non-IT
systems, the costs of remediation have been or will be encompassed in the
normal anticipated expenditures for maintenance contracts and version
upgrades. Total incremental cost of remediation is estimated at $150,000.
RISKS, CONTINGENCY PLAN AND REASONABLY LIKELY WORST CASE SCENARIO - While the
Company is heavily reliant upon its computer systems, software applications
and other electronics containing date-sensitive, embedded technology as part
of its business operations, such components upon which the Company primarily
relies were developed with current state-of-the-art technology and,
accordingly, the Company reasonably anticipates that its six-step audit and
remediation program will demonstrate that many of its high-priority systems
do not present material Y2K compliance issues. For computer systems, software
applications and other electronics containing date-sensitive embedded
technology that have met the Company's desired level of Y2K readiness, the
Company will use its existing contingency plans to mitigate or eliminate
problems it may experience if an unanticipated system failure were to occur.
For components that have not met the Company's desired level of readiness
specific contingency plans will be developed to determine the actions the
Company would take if such a component failed. At the present time, the
Company has not developed a most reasonably likely worst case scenario for
failure to achieve Y2K compliance. The Company will be better able to develop
such a scenario as it moves through the testing phase of the audit program
and as it continues to monitor progress of critical third-party vendors,
manufacturers and suppliers. Because of the existence of numerous systems and
related components within the Company and the interdependency of these
systems, it is possible that certain systems at the Company, or systems at
entities that provide services or goods for the Company, may fail to operate
in the Year 2000. Although it is not currently anticipated, the inability of
the Company to become Y2K compliant on a timely basis or the failure of a
system at the Company or at an entity that provides services or goods to the
Company may have a material impact on future operating results or financial
condition.
19
<PAGE>
ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to minimal market risks. Sensitivity of
results of operations to these risks is managed by maintaining a conservative
investment portfolio, which is comprised solely of highly-rated, short-term
investments. The Company does not hold or issue derivative, derivative
commodity instruments or other financial instruments for trading purposes.
The Company is exposed to interest rate risk, as additional
financing is periodically utilized primarily to fund capital expenditures.
The interest rate that the Company may be able to obtain on financings will
depend on market conditions at that time and may differ from the rates the
Company has secured in the past.
20
<PAGE>
PART II - OTHER INFORMATION
ITEM 1: LEGAL PROCEEDINGS.
On February 26, 1999, a lawsuit was filed against 88 firms,
including the Company, in the United States District Court for the District
of Arizona. The suit alleges that the defendants infringe upon certain
patents held by The Lemelson Medical, Education and Research Foundation,
Limited Partnership. The Company believes that the suit is without merit and
intends to vigorously defend itself against the charges.
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 did not file any reports on Form 8-K during the
three months ended March 31, 1999.
21
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
TriQuint Semiconductor, Inc.
Dated: May 14, 1999 /s/ Steven J. Sharp
----------------------------------------
STEVEN J. SHARP
President, Chief Executive Officer and
Chairman (Principal Executive Officer)
Dated: May 14, 1999 /s/ Edward C.V. Winn
--------------------------------
EDWARD C.V. WINN
Executive Vice President, Finance and
Administration, Chief Financial Officer
and Secretary (Principal Financial and
Accounting Officer)
22
<PAGE>
TRIQUINT SEMICONDUCTOR, INC.
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
SEQUENTIAL
EXHIBIT NO. DESCRIPTION PAGE NO.
- ----------- ----------- ----------
<S> <C> <C>
27.1 Financial Data Schedule
</TABLE>
23
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AS OF MARCH 31, 1999 AND THE CONSOLIDATED STATEMENT
OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 1999 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-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 12,949
<SECURITIES> 14,591
<RECEIVABLES> 24,225
<ALLOWANCES> (262)
<INVENTORY> 21,129
<CURRENT-ASSETS> 74,495
<PP&E> 73,024
<DEPRECIATION> (42,638)
<TOTAL-ASSETS> 146,751
<CURRENT-LIABILITIES> 27,861
<BONDS> 8,012
0
0
<COMMON> 133,642
<OTHER-SE> (22,764)
<TOTAL-LIABILITY-AND-EQUITY> 146,751
<SALES> 33,695
<TOTAL-REVENUES> 33,695
<CGS> 20,951
<TOTAL-COSTS> 30,728
<OTHER-EXPENSES> (47)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 313
<INCOME-PRETAX> 3,492
<INCOME-TAX> 279
<INCOME-CONTINUING> 3,213
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,213
<EPS-PRIMARY> 0.34
<EPS-DILUTED> 0.32
</TABLE>
