<PAGE>
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED APRIL 1, 2000
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 1, 2000, there were 38,383,665 shares of the registrant's common
stock outstanding.
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<PAGE>
TRIQUINT SEMICONDUCTOR, INC.
INDEX
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements........................................ 3
Condensed Consolidated Statements of Operations--Three
months ended March 31, 2000 and 1999...................... 3
Condensed Consolidated Balance Sheets--March 31, 2000 and
December 31, 1999......................................... 4
Condensed Consolidated Statements of Cash Flows--Three
months ended March 31, 2000 and 1999...................... 5
Notes to Condensed Consolidated Financial Statements........ 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 10
Item 3. Qualitative and Quantitative Disclosures about Market and
Interest Rate Risk........................................ 25
PART II. OTHER INFORMATION
Item 1. Legal Proceedings........................................... 26
Item 2. Changes in Securities....................................... 26
Item 6. Exhibits and Reports on Form 8-K............................ 26
SIGNATURES.......................................................................... 27
</TABLE>
2
<PAGE>
PART I--FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
TRIQUINT SEMICONDUCTOR, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
---------------------
MARCH 31, MARCH 31,
2000 1999
--------- ---------
<S> <C> <C>
Total revenues.............................................. $59,254 $33,695
Operating costs and expenses:
Cost of goods sold........................................ 31,170 20,951
Research, development and engineering..................... 7,054 4,594
Selling, general and administrative....................... 7,501 5,183
------- -------
Total operating costs and expenses...................... 45,725 30,728
------- -------
Income from operations.................................. 13,529 2,967
------- -------
Other income (expense):
Interest income........................................... 5,444 791
Interest expense.......................................... (1,756) (313)
Other, net................................................ 93 47
------- -------
Total other income, net................................. 3,781 525
------- -------
Income before income taxes.............................. 17,310 3,492
Income tax expense.......................................... 6,492 279
------- -------
Net income.............................................. $10,818 $ 3,213
======= =======
Per share data:
Basic..................................................... $ 0.28 $ 0.11
======= =======
Weighted average common shares............................ 38,060 28,678
======= =======
Diluted................................................... $ 0.25 $ 0.11
======= =======
Weighted average common and common equivalent shares...... 43,723 30,298
======= =======
</TABLE>
See notes to Consolidated Condensed Financial Statements.
3
<PAGE>
TRIQUINT SEMICONDUCTOR, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
2000 1999(1)
---------- -------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $225,273 $ 76,873
Investments............................................... 307,464 116,465
Accounts receivable, net.................................. 31,147 26,909
Inventories, net.......................................... 25,757 24,676
Prepaid expenses and other assets......................... 7,091 6,016
-------- --------
Total current assets.................................... 596,732 250,939
-------- --------
Property, plant and equipment, net.......................... 45,684 38,657
Restricted investments...................................... 40,163 40,163
Other noncurrent assets, net................................ 20,677 10,182
-------- --------
Total assets............................................ $703,256 $339,941
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current installments of capital lease and installment note
obligations............................................. $ 3,859 $ 4,320
Accounts payable and accrued expenses..................... 28,594 28,922
-------- --------
Total current liabilities............................... 32,453 33,242
Long-term debt, less current installments................... 349,092 4,783
-------- --------
Total liabilities....................................... 381,545 38,025
-------- --------
Stockholders' equity:
Common stock.............................................. 311,910 302,937
Retained earnings (accumulated deficit)................... 9,801 (1,021)
-------- --------
Total stockholders' equity.............................. 321,711 301,916
-------- --------
Total liabilities and stockholders' equity.............. $703,256 $339,941
======== ========
</TABLE>
- ------------------------
(1) The information in this column was derived from the Company's audited
financial statements as of December 31, 1999.
See notes to Consolidated Condensed Financial Statements.
4
<PAGE>
TRIQUINT SEMICONDUCTOR, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-----------------------
MARCH 31, MARCH 31,
2000 1999
---------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net income................................................ $ 10,818 $ 3,213
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization........................... 2,030 1,837
Gain on disposal of assets.............................. (17) --
Change in assets and liabilities:
Accounts receivable................................... (4,238) (2,943)
Inventories........................................... (1,081) (1,423)
Prepaid expense and other assets...................... (1,074) 182
Accounts payable and accrued expenses................. (328) 3,341
--------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES............... 6,110 4,207
Cash flows from investing activities:
Purchase of investments................................... (947,277) (64,892)
Sale/Maturity of investments.............................. 756,279 61,761
Capital expenditures...................................... (8,852) (1,620)
Proceeds from sale of assets.............................. 17 --
--------- --------
NET CASH USED IN INVESTING ACTIVITIES................... (199,833) (4,751)
Cash flows from financing activities:
Principal payments under capital lease obligations........ (1,152) (1,159)
Proceeds from debt........................................ 345,000 --
Debt issuance costs....................................... (10,701) --
Income tax benefit of stock option exercises.............. 6,492 --
Issuance of common stock, net............................. 2,484 50
--------- --------
NET CASH PROVIDED BY (USED IN) IN FINANCING
ACTIVITIES............................................ 342,123 (1,109)
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS.... 148,400 (1,653)
CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE PERIOD.... 76,873 14,602
--------- --------
CASH AND CASH EQUIVALENTS AT THE END OF THE PERIOD.......... $ 225,273 $ 12,949
========= ========
</TABLE>
See notes to Consolidated Condensed Financial Statements.
5
<PAGE>
TRIQUINT SEMICONDUCTOR, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER 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, 1999, as
included in the Company's 1999 Annual Report on Form 10-K.
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. STOCK ACTIVITY AND NET INCOME PER SHARE
On December 2, 1999, the Board of Directors approved a two-for-one stock
split of the outstanding common shares effected in the form of a stock dividend
paid on February 22, 2000 to stockholders of record as of February 1, 2000. On
June 10, 1999, the Board of Directors approved a three-for-two stock split of
the outstanding common shares effected in the form of a stock dividend paid on
July 2, 1999 to stockholders of record as of June 22, 1999. Common share and per
share data for all periods presented in the accompanying financial statements
have been adjusted to give effect to these stock splits effected in the form of
stock dividends.
At a special meeting of stockholders on January 31, 2000, the Company's
stockholders approved an increase in the number of authorized shares of common
stock to 200,000,000 shares. The increase was effected on February 1, 2000.
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:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, 2000
-------------------------------
PER SHARE
INCOME SHARES AMOUNT
-------- -------- ---------
<S> <C> <C> <C>
Basic earnings per share:
Income available to shareholders................ $10,818 38,060 $0.28
=====
Effect of dilutive securities:
Stock options................................... -- 5,663
------- ------
Diluted earnings per share:
Income available to shareholders................ $10,818 43,723 $0.25
======= ====== =====
</TABLE>
6
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TRIQUINT SEMICONDUCTOR, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
2. STOCK ACTIVITY AND NET INCOME PER SHARE (CONTINUED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, 1999
-------------------------------
PER SHARE
INCOME SHARES AMOUNT
-------- -------- ---------
<S> <C> <C> <C>
Basic earnings per share:
Income available to shareholders................. $3,213 28,678 $0.11
=====
Effect of dilutive securities:
Stock options.................................... -- 1,620
------ ------
Diluted earnings per share:
Income available to shareholders................. $3,213 30,298 $0.11
====== ====== =====
</TABLE>
The dilutive effect of common equivalent shares outstanding totaling
approximately 13 and 566 shares for the three months ended March 31, 2000 and
1999, respectively, were not included in the net income per share calculations,
because to do so would have been antidilutive.
3. RESEARCH AND DEVELOPMENT COSTS
The Company charges research and development costs associated with the
development of new products to expense when incurred. Engineering and design
costs related to revenues on nonrecurring engineering services billed to
customers are classified as cost of goods sold.
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.
Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date. Valuation allowances are established
when necessary to reduce deferred tax assets to the amounts expected to be
realized.
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. INVESTMENTS
As of March 31, 2000, the Company classified its restricted and unrestricted
investments into available-for-sale and held-to-maturity in accordance with
Statement of Financial Accounting Standards ("SFAS") No. 115, "Accounting for
Certain Investments in Debt and Equity Securities." As of December 31, 1999, the
Company classified both restricted and unrestricted investments as
available-for-sale in accordance with SFAS No. 115, "Accounting for Certain
Investments in Debt and Equity Securities." Both
7
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TRIQUINT SEMICONDUCTOR, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
5. INVESTMENTS (CONTINUED)
categories are comprised of short and medium-term corporate notes, commercial
paper and market auction preferred stock. The carrying value of both types of
securities approximates fair value at March 31, 2000 and December 31, 1999.
6. INVENTORIES
Inventories, net of reserves of $4,883 and $5,156 as of March 31, 2000 and
December 31, 1999, respectively, stated at the lower of cost or market, consist
of:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
2000 1999
--------- ------------
<S> <C> <C>
Raw Material.......................................... $ 3,404 $ 4,425
Work in Progress...................................... 18,211 16,078
Finished Goods........................................ 4,142 4,173
------- -------
Total Inventories, net.............................. $25,757 $24,676
======= =======
</TABLE>
7. DEBT
In February and March 2000, the Company completed the sale of $345 million
aggregate principal amount of 4% convertible subordinated notes due 2007,
raising approximately $334.3 million net of fees and expenses. The sale was
comprised of a $300 million aggregate principal initial sale and a $45 million
aggregate principal sale pursuant to an over-allotment option granted to the
initial purchasers. The notes are unsecured obligations, convertible into
TriQuint Common Stock at an initial conversion price of $135.60 per share and
subordinated to all of our present and future senior indebtedness.
8. STOCKHOLDERS' EQUITY
Components of stockholders' equity:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
2000 1999
--------- ------------
<S> <C> <C>
Preferred stock, $.001 par value, 5,000 shares
authorized.......................................... -- --
Common stock, $.001 par value, 200,000 shares
authorized, 38,383 and 37,844 outstanding,
respectively........................................ 38 38
Additional paid-in capital............................ 311,872 302,899
</TABLE>
8
<PAGE>
TRIQUINT SEMICONDUCTOR, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
9. SUPPLEMENTAL CASH FLOW INFORMATION
<TABLE>
<CAPTION>
THREE MONTHS ENDED
---------------------
MARCH 31, MARCH 31,
2000 1999
--------- ---------
<S> <C> <C>
Cash Transactions:
Cash paid for interest................................. $322 $295
Cash paid for income taxes............................. 1 94
</TABLE>
10. COMPREHENSIVE INCOME
The Company has adopted Statement of Financial Accounting Standards ("SFAS")
No. 130, "Reporting Comprehensive Income." There is no difference between net
income and comprehensive income.
11. 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.
12. NEW ACCOUNTING 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, as amended by SFAS No. 137, 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, 2000. The Company is evaluating any
possible effect SFAS No. 133 may have on its consolidated financial statements.
In March 2000, the FASB issued Interpretation No. 44, "Accounting for
Certain Transactions involving Stock Compensation--an interpretation of APB
Opinion No. 25" ("FIN 44"). FIN 44 applies prospectively to new awards,
exchanges of awards in a business combination, modifications to outstanding
awards and changes in grantee status that occur on or after July 1, 2000, except
for the provisions related to repricings and the definition of an employee,
which apply to awards issued after December 15, 1998. The provisions related to
modifications to fixed stock option awards to add a reload feature are effective
for awards modified after January 12, 2000. We do not expect that this statement
will have a significant impact on our financial condition or results of
operations.
13. LITIGATION
See Part II, Item 1, of this Quarterly Report on Form 10-Q for a description
of legal proceedings.
9
<PAGE>
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
INTRODUCTION
YOU SHOULD READ THE FOLLOWING DISCUSSION AND ANALYSIS IN CONJUNCTION WITH
OUR FINANCIAL STATEMENTS AND THE RELATED NOTES THERETO INCLUDED IN THIS REPORT
ON FORM 10-Q. THE DISCUSSION IN THIS REPORT CONTAINS FORWARD-LOOKING STATEMENTS
THAT INVOLVE RISKS AND UNCERTAINTIES. THESE FORWARD-LOOKING STATEMENTS INCLUDE,
AMONG OTHERS, THOSE STATEMENTS INCLUDING THE WORDS "EXPECTS," "ANTICIPATES,"
"INTENDS," "BELIEVES" AND SIMILAR LANGUAGE. OUR ACTUAL RESULTS COULD DIFFER
MATERIALLY FROM THOSE DISCUSSED BELOW. FACTORS THAT COULD CAUSE OR CONTRIBUTE TO
THESE DIFFERENCES INCLUDE, BUT ARE NOT LIMITED, TO THE RISKS DISCUSSED IN THE
SECTION TITLED "FACTORS AFFECTING FUTURE OPERATING RESULTS" BELOW.
We are a leading supplier of high performance gallium arsenide integrated
circuits for the wireless communications, telecommunications, data
communications and millimeter wave markets. Our products incorporate our
proprietary analog and mixed-signal designs and our advanced gallium arsenide
manufacturing processes to address a broad range of applications and customers.
We sell our products worldwide to end-user customers, including Alcatel,
Ericsson, Hughes, Lucent, Motorola, Nokia, Nortel, Northrop Grumman, QUALCOMM,
and Raytheon.
RESULTS OF OPERATIONS
The following table sets forth the results of our operations expressed as a
percentage of total revenues. Our historical operating results are not
necessarily indicative of the results for any future period.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
---------------------
MARCH 31, MARCH 31,
2000 1999
--------- ---------
<S> <C> <C>
Total revenues........................................... 100.0% 100.0%
Operating costs and expenses:
Cost of goods sold..................................... 52.6 62.2
Research, development and engineering.................. 11.9 13.6
Selling, general and administrative.................... 12.7 15.4
----- -----
Total operating costs and expenses................... 77.2 91.2
----- -----
Income from operations................................... 22.8 8.8
Other income, net........................................ 6.4 1.6
----- -----
Income before income taxes............................. 29.2 10.4
Income tax expense....................................... 11.0 0.8
----- -----
Net income............................................... 18.2% 9.6%
===== =====
</TABLE>
TOTAL REVENUES
We derive revenues from the sale of standard and customer-specific products
and services. Our revenues also include nonrecurring engineering revenues
relating to the development of customer-specific products. Total revenues for
the three months ended March 31, 2000 increased 75.9% to $59.3 million from
$33.7 million for the three months ended March 31, 1999. The increase in total
revenues during the three months ended March 31, 2000 reflected increased demand
for our products across all product lines and markets. Domestic and
international revenues for the three months ended March 31, 2000 were $27.7 and
$31.6 million, respectively, as compared to $24.8 and $8.9 million,
respectively, for the three months ended March 31, 1999.
10
<PAGE>
COST OF GOODS SOLD
Cost of goods sold includes all direct material, labor and overhead expenses
and certain production costs related to nonrecurring engineering revenues. In
general, gross profit generated from the sale of customer-specific products and
from nonrecurring engineering 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 markets incorporating our
customer-specific products and standard products, as well as the number of
nonrecurring engineering contracts.
Cost of goods sold increased to $31.2 million for the three months ended
March 31, 2000 from $21.0 million for the three months ended March 31, 1999.
Cost of goods sold as a percentage of total revenues for the three months ended
March 31, 2000 decreased to 52.6% from 62.2% for the three months ended
March 31, 1999. The increase in absolute dollar value of cost of goods sold was
primarily attributable to the related increase in sales volume. The decrease in
cost of goods sold as a percentage of revenues is attributable to continuing
improvements in production yields and increased economies of scale associated
with increased sales volumes.
We have 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 we will be able to
maintain acceptable production yields in the future and, to the extent that we
do not achieve acceptable production yields, our operating results would be
materially adversely affected. The operation of our own leased wafer fabrication
facilities 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 our
operating results.
RESEARCH, DEVELOPMENT AND ENGINEERING
Research, development and engineering expenses include the costs incurred in
the design of new products, as well as ongoing product development and research
and development expenses. Our research, development and engineering expenses for
the three months ended March 31, 2000 increased to $7.1 million from
$4.6 million for the three months ended March 31, 1999. Research, development
and engineering expenses as a percentage of total revenues for the three months
ended March 31, 2000 decreased to 11.9% from 13.6% for the three months ended
March 31, 1999. The increase in research, development and engineering expenses
on an absolute dollar basis is primarily due to the addition of new employees
and the costs associated with the development of new products. The decrease in
research, development and engineering expenses as a percentage of total revenues
was due to revenues increasing at a faster rate than research, development and
engineering spending. We are committed to substantial investments in research,
development, and engineering and expect these expenses will continue to increase
in absolute dollar amount in the future.
SELLING, GENERAL AND ADMINISTRATIVE
Selling, general and administrative expenses for the three months ended
March 31, 2000 increased to $7.5 million from $5.2 million for the three months
ended March 31, 1999. Selling, general and administrative expenses as a
percentage of total revenues for the three months ended March 31, 2000 was 12.7%
compared to 15.4% for the three months ended March 31, 1999. The increase in
selling, general and administrative expenses on an absolute dollar basis was
primarily attributable to increased costs associated with the on-going
development of infrastructure and business support and increased selling costs
associated with the increased sales volume.
OTHER INCOME, NET
Other income, net for the three months ended March 31, 2000, increased to
$3,781,000 from $525,000 for the three months ended March 31, 1999. This
increase resulted primarily from increased interest income on higher cash
balances due to the proceeds of the Company's July 1999 public offering and
11
<PAGE>
February 2000 convertible debt offering, offset by increased interest expense
related to an increase in long-term debt.
INCOME TAX EXPENSE
Income tax expense for the three months ended March 31, 2000 increased to
$6,492,000 and from $279,000 for the three months ended March 31, 1999. The
increase in income tax expense is attributable to our increased profitability,
as reflected by the increase in income before 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.
RECENT ACCOUNTING 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, as amended by SFAS No. 137, is
effective for fiscal years beginning after June 15, 2000. The Company is
evaluating any possible effect SFAS No. 133 may have on its consolidated
financial statements.
In March 2000, the FASB issued Interpretation No. 44, "Accounting for
Certain Transactions involving Stock Compensation--an interpretation of APB
Opinion No. 25" ("FIN 44"). FIN 44 applies prospectively to new awards,
exchanges of awards in a business combination, modifications to outstanding
awards and changes in grantee status that occur on or after July 1, 2000, except
for the provisions related to repricings and the definition of an employee,
which apply to awards issued after December 15, 1998. The provisions related to
modifications to fixed stock option awards to add a reload feature are effective
for awards modified after January 12, 2000. We do not expect that this statement
will have a significant impact on our financial condition or results of
operations.
FACTORS AFFECTING FUTURE OPERATING RESULTS
OUR OPERATING RESULTS MAY FLUCTUATE SUBSTANTIALLY, WHICH MAY CAUSE OUR STOCK
PRICE TO FALL.
Our 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, but
not limited to, the following:
- cancellation or delay of customer orders or shipments;
- our success in achieving design wins in which our products are designed
into those of our customers;
- market acceptance of our products and those of our customers;
- variability of the life cycles of our customers' products;
- variations in manufacturing yields;
- timing of announcements and introduction of new products by us and our
competitors;
- changes in the mix of products we sell;
- declining average sales prices for our products;
- changes in manufacturing capacity and variations in the utilization of
that capacity;
- variations in operating expenses;
- the long sales cycles associated with our customer-specific products;
12
<PAGE>
- the timing and level of product and process development costs;
- the cyclicality of the semiconductor industry;
- the timing and level of nonrecurring engineering revenues and expenses
relating to customer-specific products; and
- significant changes in our and our customers' inventory levels.
We expect that our operating results will continue to fluctuate in the
future as a result of these and other factors. Any unfavorable changes in these
or other factors could cause our results of operations to suffer as they have in
the past, based upon some of these factors. If our operating results are not
within the market's expectations, then our stock price may fall. For example, in
June 1994, Nortel, formerly Northern Telecom, requested that we delay shipment
of some of our products. Nortel was then our largest customer and the delay,
together with lower than expected orders, materially reduced our revenues and
results of operations in the second quarter and for the remainder of 1994. Due
to potential fluctuations, we believe that period to period comparisons of our
results of operations are not necessarily meaningful and should not be relied
upon as indicators of our future performance.
WE RELY ON A LIMITED NUMBER OF CUSTOMERS FOR A SUBSTANTIAL PART OF OUR REVENUES.
Sales to a limited number of customers have accounted for a significant
portion of our revenues in each fiscal period. In recent periods, sales to some
of our major customers as a percentage of total revenues have fluctuated. In
1999, Nokia and Nortel accounted for approximately 21.0% and 17.3%,
respectively, of our total revenues. We expect that sales to a limited number of
customers will continue to account for a substantial portion of our total
revenues in future periods. We do not have long-term agreements with any of our
customers. Customers generally purchase our products pursuant to cancelable
short-term purchase orders. Our results of operations have been negatively
affected in the past by the failure of anticipated orders to materialize and by
delays in or cancellations of orders. If we were to lose a major customer or if
orders by or shipments to a major customer were to otherwise decrease or be
delayed, our results of operations would be harmed.
WE FACE RISKS FROM FAILURES IN OUR MANUFACTURING PROCESSES.
The fabrication of integrated circuits, particularly those made of gallium
arsenide, is a highly complex and precise process. Our integrated circuits are
manufactured from four-inch round wafers made of gallium arsenide. During
manufacturing, each wafer is processed to contain numerous die, the individual
integrated circuits. We may reject or be unable to sell a substantial percentage
of wafers or the die on a given wafer because of:
- minute impurities;
- difficulties in the fabrication process;
- defects in the masks used to print circuits on a wafer;
- electrical performance;
- wafer breakage; or
- other factors.
We refer to the proportion of final good integrated circuits that have been
processed, assembled and tested relative to the gross number of integrated
circuits that could be constructed from the raw materials as our manufacturing
yield. Compared to the manufacture of silicon integrated circuits, gallium
arsenide technology is less mature and more difficult to design and manufacture
within specifications in large volume. In addition, the more brittle nature of
gallium arsenide wafers can result in lower manufacturing yields than with
silicon wafers. We have in the past experienced lower than expected
manufacturing yields, which have
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delayed product shipments and negatively impacted our results of operations. We
may experience difficulty maintaining acceptable manufacturing yields in the
future.
In addition, the maintenance of our two fabrication facilities is subject to
risks, including:
- the demands of managing and coordinating workflow between two
geographically separate production facilities;
- disruption of production in one of our facilities as a result of a
slowdown or shutdown in our other facility; and
- higher operating costs from managing two geographically separate
manufacturing facilities.
IF WE FAIL TO SELL A HIGH VOLUME OF PRODUCTS, OUR OPERATING RESULTS WILL BE
HARMED.
Because the majority of our manufacturing costs are relatively fixed, our
manufacturing volumes are critical to our operating results. If we fail to
achieve acceptable manufacturing volumes or experience product shipment delays,
our results of operations could be harmed. During periods of decreased demand,
our high fixed manufacturing costs could have a negative effect on our results
of operations. We base our expense levels in part on our expectations of future
orders and these expense levels are predominantly fixed in the short-term. If we
receive fewer customer orders than expected, we may not be able to reduce our
manufacturing costs in the short-term and our operating results would be harmed.
IF WE DO NOT SELL OUR CUSTOMER-SPECIFIC PRODUCTS IN LARGE VOLUMES, OUR OPERATING
RESULTS MAY BE HARMED.
We manufacture a substantial portion of our products to address the needs of
individual customers. Frequent product introductions by systems manufacturers
make our future success dependent on our ability to select development projects
which will result in sufficient volumes to enable us to achieve manufacturing
efficiencies. Because customer-specific products are developed for unique
applications, we expect that some of our current and future customer-specific
products may never be produced in volume and may impair our ability to cover our
fixed manufacturing costs. In addition, if we experience delays in completing
designs or if we fail to obtain development contracts from customers whose
products are successful, our revenues could be harmed.
OUR OPERATING RESULTS COULD BE HARMED IF WE LOSE ACCESS TO SOLE OR LIMITED
SOURCES OF MATERIALS OR SERVICES.
We currently obtain some components and services for our products from
limited or single sources, such as ceramic packages from Kyocera. We purchase
these components and services on a purchase order basis, do not carry
significant inventories of these components and do not have any long-term supply
contracts with these vendors. Our requirements are relatively small compared to
silicon semiconductor manufacturers. Because we often do not account for a
significant part of our vendors' business, we may not have access to sufficient
capacity from these vendors in periods of high demand. If we were to change any
of our sole or limited source vendors, we would be required to requalify each
new vendor. Requalification could prevent or delay product shipments that could
negatively affect our results of operations. In addition, our reliance on these
vendors may negatively affect our production if the components vary in
reliability or quality. If we are unable to obtain timely deliveries of
sufficient components of acceptable quality or if the prices of components for
which we do not have alternative sources increase, our results of operations
could be harmed.
IF OUR PRODUCTS FAIL TO PERFORM OR MEET CUSTOMER REQUIREMENTS, WE COULD INCUR
SIGNIFICANT ADDITIONAL COSTS.
The fabrication of gallium arsenide integrated circuits is a highly complex
and precise process. Our customers specify quality, performance and reliability
standards that we must meet. If our products do not
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meet these standards, we may be required to rework or replace the products.
Gallium arsenide integrated circuits may contain undetected defects or failures
that only become evident after we commence volume shipments. We have experienced
product quality, performance or reliability problems from time to time. Defects
or failures may occur in the future. If failures or defects occur, we could:
- lose revenue;
- incur increased costs such as warranty expense and costs associated with
customer support;
- experience delays, cancellations or rescheduling of orders for our
products; or
- experience increased product returns or discounts.
OUR OPERATING RESULTS MAY SUFFER IF WE DO NOT EXPAND OUR MANUFACTURING CAPACITY
IN A TIMELY MANNER.
We plan to increase our capacity by converting our existing Hillsboro,
Oregon facility to accommodate equipment that uses six-inch (150 millimeter)
wafer production. We do not have any experience processing six-inch wafers in
our fabrication facilities. Our inexperience may result in lower volume of
production or higher cost of goods sold. We may be required to redesign our
processes and procedures substantially to accommodate the larger wafers. As a
result, implementing additional capacity for six-inch wafers may take longer
than planned, which could harm our results of operations. If we fail to
successfully transition to six-inch wafers in a timely manner or our
manufacturing yields decline, our relationships with our customers may be
harmed.
Our facilities have a level of capacity beyond which we cannot cost
effectively produce our products. Although we are not currently approaching
those constraints, we may be unable to further expand our business if we fail to
plan and build sufficient capacity. The process of building, testing and
qualifying a gallium arsenide integrated circuit fabrication facility is time
consuming. We must begin to design and implement additional manufacturing
facilities well in advance of our needs.
WE MAY FACE FINES OR OUR FACILITIES COULD BE CLOSED IF WE FAIL TO COMPLY WITH
ENVIRONMENTAL REGULATIONS.
Federal, state and local regulations impose various environmental controls
on the storage, handling, discharge and disposal of chemicals and gases used in
our manufacturing process. For our manufacturing facility located in Hillsboro,
Oregon, we provide our own manufacturing waste treatment and contract for
disposal of some materials. We are required by the State of Oregon Department of
Environmental Quality to report usage of environmentally hazardous materials.
At our Texas facility, we utilize Texas Instruments' industrial wastewater
treatment facilities and services for the pre-treatment and discharge of
wastewater generated by us, pursuant to the Asset Purchase Agreement dated
January 8, 1998. Our wastewater streams are commingled with those of Texas
Instruments and are covered by Texas Instruments' wastewater permit.
The failure to comply with present or future regulations could result in
fines being imposed on us and we could be required to suspend production or
cease our operations. These regulations could require us to acquire significant
equipment or to incur substantial other expenses to comply with environmental
regulations. We rely to a great extent on Texas Instruments' hazardous waste
disposal system at our Texas facility. Any failure by us, or by Texas
Instruments with respect to our Texas facility, to control the use of, or to
adequately restrict the discharge of, hazardous substances could subject us to
future liabilities and harm our results of operations.
WE DEPEND ON THE CONTINUED GROWTH OF COMMUNICATIONS MARKETS.
We derive a substantial portion of our product revenues from sales of
products for communication applications. These markets are characterized by the
following:
- intense competition;
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- rapid technological change; and
- short product life cycles, especially in the wireless market.
In addition, although the communications markets have grown rapidly in the
last few years, these markets may not continue to grow or a significant slowdown
in these markets may occur.
Products for communications applications are often based on industry
standards, which are continually evolving. Our future success will depend, in
part, upon our ability to successfully develop and introduce new products based
on emerging industry standards, which could render our existing products
unmarketable or obsolete. If communications markets evolve to new standards, we
may be unable to successfully design and manufacture new products that address
the needs of our customers or that will meet with substantial market acceptance.
OUR BUSINESS WILL BE IMPACTED IF SYSTEMS MANUFACTURERS DO NOT USE GALLIUM
ARSENIDE COMPONENTS.
Silicon semiconductor technologies are the dominant process technologies for
integrated circuits and the performance of silicon integrated circuits continues
to improve. Our prospective customers may be systems designers and manufacturers
who are evaluating such silicon technologies and in particular, silicon
germanium, versus gallium arsenide integrated circuits for use in their next
generation high performance systems. Customers may be reluctant to adopt our
products because of:
- their unfamiliarity with designing systems with gallium arsenide products;
- their concerns related to manufacturing costs and yields;
- their unfamiliarity with design and manufacturing processes; and
- uncertainties about the relative cost effectiveness of our products
compared to high performance silicon components.
Systems manufacturers may not use gallium arsenide components because the
production of gallium arsenide integrated circuits has been and continues to be
more costly than the production of silicon devices. As a result, we must offer
devices that provide superior performance to that of silicon-based devices.
In addition, customers may be reluctant to rely on a smaller company like us
for critical components. We cannot be certain that additional systems
manufacturers will design our products into their systems, that the companies
that have utilized our products will continue to do so in the future or that
gallium arsenide technology will continue to achieve widespread market
acceptance. If our gallium arsenide products fail to achieve market acceptance,
our results of operations would suffer.
WE INCREASED OUR INDEBTEDNESS SUBSTANTIALLY.
In February and March 2000, we sold $345.0 million of convertible
subordinated notes in a private placement to qualified institutional buyers. As
a result of the sale of notes, we incurred $345.0 million of additional
indebtedness increasing our ratio of debt to equity (expressed as a percentage)
from approximately 3.0% to approximately 109.7% as of March 31, 2000. Our other
indebtedness is principally comprised of operating, synthetic and capital
leases. We may incur substantial additional indebtedness in the future. The
level of our indebtedness, among other things, could:
- make it difficult for us to make payments on the notes and leases;
- make it difficult for us to obtain any necessary future financing for
working capital, capital expenditures, debt service requirements or other
purposes;
- require us to dedicate a substantial portion of our expected cash flow
from operations to service our indebtedness, which would reduce the amount
of our expected cash flow available for other purposes, including working
capital and capital expenditures;
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- limit our flexibility in planning for, or reacting to changes in, our
business; and
- make us more vulnerable in the event of a downturn in our business.
There can be no assurance that we will be able to meet our debt service
obligations, including our obligation under the notes.
WE MAY NOT BE ABLE TO PAY OUR DEBT AND OTHER OBLIGATIONS.
If our cash flow is inadequate to meet our obligations, we could face
substantial liquidity problems. If we are unable to generate sufficient cash
flow or otherwise obtain funds necessary to make required payments on the notes,
or our other obligations, we would be in default under the terms thereof.
Default under the indenture would permit the holders of the notes to accelerate
the maturity of the notes and could cause defaults under future indebtedness we
may incur. Any such default could have a material adverse effect on our
business, prospects, financial condition and operating results. In addition, we
can not assure you that we would be able to repay amounts due in respect of the
notes if payment of the notes were to be accelerated following the occurrence of
an event of default as defined in the indenture.
CUSTOMERS MAY DELAY OR CANCEL ORDERS DUE TO REGULATORY DELAYS.
The increasing demand for communications products has exerted pressure on
regulatory bodies worldwide to adopt new standards for these 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 our customers. These delays have in the past had
and may in the future have a negative effect on our sales and our results of
operations.
OUR REVENUES ARE AT RISK IF WE DO NOT INTRODUCE NEW PRODUCTS AND/OR DECREASE
COSTS.
Historically, the average selling prices of our products have decreased over
the products' lives, and we expect them to continue to do so. To offset these
decreases, we rely primarily on achieving yield improvements and other cost
reductions for existing products and on introducing new products that can often
be sold at higher average selling prices. We believe our future success depends,
in part, on our timely development and introduction of new products that compete
effectively on the basis of price and performance and adequately address
customer requirements. The success of new product and process introductions
depends on several factors, including:
- proper selection of products and processes;
- successful and timely completion of product and process development and
commercialization;
- market acceptance of our or our customers' new products;
- achievement of acceptable manufacturing yields; and
- our ability to offer new products at competitive prices.
Our product and process development efforts may not be successful and our
new products or processes may not achieve market acceptance. To the extent that
our cost reductions and new product introductions do not occur in a timely
manner, our results of operations could suffer.
WE MUST IMPROVE OUR PRODUCTS AND PROCESSES TO REMAIN COMPETITIVE.
If technologies or standards supported by our or our customers' products
become obsolete or fail to gain widespread commercial acceptance, our results of
operations may be materially impacted. Because of continual improvements in
semiconductor technology, including those in high performance silicon where
substantially more resources are invested than in gallium arsenide, we believe
that our future success will depend, in part, on our ability to continue to
improve our product and process technologies. We must also
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develop new technologies in a timely manner. In addition, we must adapt our
products and processes to technological changes and to support emerging and
established industry standards. We may not be able to improve our existing
products and process technologies, develop new technologies in a timely manner
or effectively support industry standards. If we fail to do so, our customers
may select another gallium arsenide product or move to an alternative
technology.
OUR RESULTS OF OPERATIONS MAY SUFFER IF WE DO NOT COMPETE SUCCESSFULLY.
The semiconductor industry is intensely competitive and is characterized by
rapid technological change, rapid product obsolescence and price erosion.
Currently, we compete primarily with manufacturers of high performance silicon
integrated circuits such as Applied Micro Circuits, Motorola and Philips and
with manufacturers of gallium arsenide integrated circuits such as Anadigics,
Conexant, Raytheon, RF MicroDevices and Vitesse. We also face competition from
the internal semiconductor operations of some of our current and potential
customers. We expect increased competition from existing competitors and from a
number of companies that may enter the gallium arsenide integrated circuits
market, as well as future competition from companies that may offer new or
emerging technologies such as silicon germanium. Most of our current and
potential competitors have significantly greater financial, technical,
manufacturing and marketing resources than we do. Manufacturers of high
performance silicon integrated circuits have achieved greater market acceptance
of their existing products and technologies in some applications.
We compete with both gallium arsenide and silicon suppliers in the wireless,
data communications and telecommunications markets. In the microwave and
millimeter wave markets, our competition is primarily from a limited number of
gallium arsenide suppliers, which are in the process of expanding their product
offerings to address commercial applications other than aerospace.
Our prospective customers are typically systems designers and manufacturers
that are considering the use of gallium arsenide integrated circuits for their
high performance systems. Competition is primarily based on performance elements
such as speed, complexity and power dissipation, as well as price, product
quality and ability to deliver products in a timely fashion. Due to the
proprietary nature of our products, competition occurs almost exclusively at the
system design stage. As a result, a design win by us or our competitors
typically limits further competition with respect to manufacturing a given
design.
OUR OPERATING RESULTS MAY SUFFER DUE TO DECLINING DEMAND FOR SEMICONDUCTORS.
From time to time, the semiconductor industry has experienced significant
downturns and wide fluctuations in product supply and demand. This cyclicality
has led to significant imbalances in demand and production capacity. It has also
accelerated the decrease of average selling prices per unit. We may experience
periodic fluctuations in our future financial results because of these or other
industry-wide conditions.
IF WE FAIL TO INTEGRATE ANY FUTURE ACQUISITIONS, OUR BUSINESS WILL BE HARMED.
We face risks from any future acquisitions, including the following:
- we may fail to combine and coordinate the operations and personnel of
newly acquired companies with our existing business;
- our ongoing business may be disrupted or receive insufficient management
attention;
- we may not cost effectively and rapidly incorporate the technology we
acquire;
- we may not be able to recognize the cost savings or other financial
benefits we anticipated;
- we may not be able to retain the existing customers of newly acquired
operations;
- our corporate culture may clash with that of the acquired businesses; and
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- we may incur unknown liabilities associated with acquired businesses.
We may not successfully address these risks or any other problems that arise
in connection with future acquisitions.
We will continue to evaluate strategic opportunities available to us and we
may pursue product, technology or business acquisitions. On January 13, 1998, we
acquired our Millimeter Wave Communications operation, which included
substantially all of the assets of the monolithic microwave integrated circuit
operation of Texas Instruments' former Defense Systems & Electronics Group. In
addition, in connection with any future acquisitions, we may issue equity
securities that could dilute the percentage ownership of our existing
stockholders, we may incur additional debt and we may be required to amortize
expenses related to goodwill and other intangible assets that may negatively
affect our results of operations.
WE MUST MANAGE OUR GROWTH.
Our total number of employees grew to 802 in 1999 from 679 in 1998. The
resulting growth has placed, and is expected to continue to place, significant
demands on our personnel, management and other resources. We must continue to
improve our operational, financial and management information systems to keep
pace with the growth of our business.
IF WE DO NOT HIRE AND RETAIN KEY EMPLOYEES, OUR BUSINESS WILL SUFFER.
Our future success depends in large part on the continued service of our key
technical, marketing and management personnel. We also depend on our ability to
continue to identify, attract and retain qualified technical employees,
particularly highly skilled design, process and test engineers involved in the
manufacture and development of our products and processes. We must also recruit
and train employees to manufacture our products without a substantial reduction
in manufacturing yields. There are many other semiconductor companies located in
the communities near our facilities and it may become increasingly difficult for
us to attract and retain those employees. The competition for these employees is
intense, and the loss of key employees could negatively affect us.
OUR BUSINESS MAY BE HARMED IF WE FAIL TO PROTECT OUR PROPRIETARY TECHNOLOGY.
We rely on a combination of patents, trademarks, copyrights, trade secret
laws, confidentiality procedures and licensing arrangements to protect our
intellectual property rights. We currently have patents granted and pending in
the United States and in foreign countries and intend to seek further
international and United States patents on our technology. We cannot be certain
that patents will be issued from any of our pending applications or that patents
will be issued in all countries where our products can be sold or that any
claims allowed from pending applications or will be of sufficient scope or
strength to provide meaningful protection or any commercial advantage. Our
competitors may also be able to design around our patents. The laws of some
countries in which our products are or may be developed, manufactured or sold,
including various countries in Asia, may not protect our products or
intellectual property rights to the same extent as do the laws of the United
States, increasing the possibility of piracy of our technology and products.
Although we intend to vigorously defend our intellectual property rights, we may
not be able to prevent misappropriation of our technology. Our competitors may
also independently develop technologies that are substantially equivalent or
superior to our technology.
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OUR ABILITY TO PRODUCE OUR SEMICONDUCTORS MAY SUFFER IF SOMEONE CLAIMS WE
INFRINGE ON THEIR INTELLECTUAL PROPERTY.
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, we may seek licenses under such patents or other intellectual
property rights. However, we cannot be certain that licenses will be offered or
that we would find the terms of licenses that are offered acceptable or
commercially reasonable. Our failure to obtain a license from a third party for
technology used by us could cause us to incur substantial liabilities and to
suspend the manufacture of products. Furthermore, we may initiate claims or
litigation against third parties for infringement of our proprietary rights or
to establish the validity of our proprietary rights. Litigation by or against us
could result in significant expense and divert the efforts of our technical
personnel and management, whether or not the litigation results in a favorable
determination. In the event of an adverse result in any litigation, we could be
required to:
- pay substantial damages;
- indemnify our customers;
- stop manufacturing, use and sale of the infringing products;
- expend significant resources to develop non-infringing technology;
- discontinue the use of certain processes; or
- obtain licenses to the technology.
We may be unsuccessful in developing non-infringing products or negotiating
licenses upon reasonable terms, or at all. These problems might not be resolved
in time to avoid harming our results of operations. If any third party makes a
successful claim against our customers or us and a license is not made available
to us on commercially reasonable terms, our business could be harmed.
On February 26, 1999, a lawsuit was filed against 88 firms, of which 21 are
still in litigation, including TriQuint, in the United States District Court for
the District of Arizona. The suit alleges that the defendants, including us,
infringe upon certain patents held by The Lemelson Medical, Education and
Research Foundation, Limited Partnership. Although we believe the suit is
without merit and intend to vigorously defend ourselves against the charges, we
cannot be certain that we will be successful. Moreover, this litigation may
require us to spend a substantial amount of time and money and could distract
management from our day to day operations.
OUR BUSINESS MAY SUFFER DUE TO RISKS ASSOCIATED WITH INTERNATIONAL SALES.
Our sales outside of the United States were 53.2% of total revenues in the
three months ended March 31, 2000, 38.4% of total revenues in 1999 and 24.0% of
total revenues in 1998. We face inherent risks from these sales, including:
- imposition of government controls;
- currency exchange fluctuations;
- longer payment cycles and difficulties related to the collection of
receivables from international customers;
- reduced protection for intellectual property rights in some countries;
- the impact of recessionary environments in economies outside the United
States;
- unfavorable tax consequences;
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- political instability; and
- tariffs and other trade barriers.
In addition, due to the technological advantages provided by gallium
arsenide integrated circuits in many military applications, all of our sales
outside of North America must be licensed by the Office of Export Administration
of the U.S. Department of Commerce. If we fail to obtain these licenses or
experience delays in obtaining these licenses in the future, our results of
operations could be harmed. Also, because substantially all of our foreign sales
are denominated in U.S. dollars, increases in the value of the dollar would
increase the price in local currencies of our products and make our products
less price competitive.
WE MAY BE SUBJECT TO A SECURITIES CLASS ACTION SUIT IF OUR STOCK PRICE FALLS.
Following periods of volatility in the market price of a company's stock,
some stockholders may file a securities class action litigation. For example, in
1994, a stockholder class action lawsuit was filed against us, our underwriters,
and some of our officers, directors and investors, which alleged that we, our
underwriters, and certain of our officers, directors and investors intentionally
misled the investing public regarding our financial prospects. We settled the
action and recorded a special charge of $1.4 million associated with the
settlement of this lawsuit and related legal expenses, net of accruals in 1998.
Any future securities class action litigation could be expensive and divert our
management's attention and harm our business, regardless of its merits.
OUR STOCK WILL LIKELY BE SUBJECT TO SUBSTANTIAL PRICE AND VOLUME FLUCTUATIONS
DUE TO A NUMBER OF FACTORS, MANY OF WHICH WILL BE BEYOND OUR CONTROL THAT MAY
PREVENT OUR STOCKHOLDERS FROM RESELLING OUR COMMON STOCK AT A PROFIT.
The securities markets have experienced significant price and volume
fluctuations and the market prices of the securities of semiconductor companies
have been especially volatile. The market price of our common stock may
experience significant fluctuations in the future. For example, our common stock
price has fluctuated from a high of $129.00 to a low of $5.165 during the 52
weeks ended February 11, 2000. This market volatility, as well as general
economic, market or political conditions, could reduce the market price of our
common stock in spite of our operating performance. In addition, our operating
results could be below the expectations of public market analysts and investors,
and in response, the market price of our common stock could decrease
significantly.
WE FACE RISKS FROM THE YEAR 2000 ISSUE.
Many information technology hardware and software systems, as well as other
non-information technology 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" issue. Prior to December 31, 1999, we
initiated and completed a comprehensive Year 2000 audit program, which consisted
of a six step plan to inventory and correct any systems that were not Year 2000
compliant. Because of the existence of numerous systems and related components
within our organization and the interdependency of these systems, it is possible
that some of our systems, or systems at our suppliers, may still fail to operate
in the year 2000. To date, we have not, nor to our knowledge, have our
suppliers, manufacturers and third party vendors, experienced any material Year
2000-related problems. However, we cannot determine if we will be subject to
Year 2000 compliance problems in the future or if Year 2000 problems have arisen
that we have failed to detect to date. Our inability to maintain Year 2000
compliance or the failure of one or more of our systems or our suppliers'
systems may have a material impact on our future operating results.
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OUR CERTIFICATE OF INCORPORATION AND BYLAWS INCLUDE ANTI-TAKEOVER PROVISIONS,
WHICH MAY DETER OR PREVENT A TAKEOVER ATTEMPT.
Some provisions of our certificate of incorporation and bylaws and
provisions of Delaware law may deter or prevent a takeover attempt, including a
takeover that might result in a premium over the market price for our common
stock. These provisions include:
CUMULATIVE VOTING. Our stockholders are entitled to cumulate their votes
for directors. This may limit the ability of the stockholders to remove a
director other than for cause.
STOCKHOLDER PROPOSALS AND NOMINATIONS. Our stockholders must give advance
notice, generally 120 days prior to the relevant meeting, to nominate a
candidate for director or present a proposal to our stockholders at a meeting.
These notice requirements could inhibit a takeover by delaying stockholder
action.
STOCKHOLDER RIGHTS PLAN. We may trigger our stockholder rights plan in the
event our board of directors does not agree to an acquisition proposal. The
rights plan may make it more difficult and costly to acquire our company.
PREFERRED STOCK. Our certificate of incorporation authorizes our board of
directors to issue up to 5 million shares of preferred stock and to determine
what rights, preferences and privileges such shares have. No action by our
stockholders is necessary before our board of directors can issue the preferred
stock. Our board of directors could use the preferred stock to make it more
difficult and costly to acquire our company.
DELAWARE ANTI-TAKEOVER STATUTE. The Delaware anti-takeover law restricts
business combinations with some stockholders once the stockholder acquires 15%
or more of our common stock. The Delaware statute makes it harder for our
company to be acquired without the consent of our board of directors and
management.
LIQUIDITY AND CAPITAL RESOURCES
In February and March 2000, we completed a private placement of
$345.0 million (net proceeds of $334.3 million) of 4% convertible subordinated
notes due 2007. The notes are unsecured obligations, are initially convertible
into TriQuint Common Stock at a conversion price of $135.60 per share and
subordinated to all of our present and future senior indebtedness. We also
completed public offerings of our common stock in July 1999 and September 1995,
raising approximately $146.6 million and $48.1 million, respectively, net of
offering expenses. In December 1993 and January 1994, we completed our initial
public offering raising approximately $16.7 million, net of offering expenses.
In addition, we have funded our operations to date through other private sales
of equity, borrowings, equipment leases, and cash flow from operations. As of
March 31, 2000, we had working capital of approximately $564.3 million,
including $532.7 million in cash, cash equivalents, and unrestricted
investments.
We have 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 (a) a total liability to tangible net worth ratio of not
more than 1.50 to 1.00, (b) a current ratio of not less than 1.75 to 1.00,
(c) minimum tangible net worth greater than $240.3 million and (d) cash and
investments, including restricted investments, greater than $45.0 million. As of
March 31, 2000 we were in compliance with the restrictive covenants contained in
this line of credit.
In May 1996, we entered into a five year synthetic lease through a
participation agreement with Wolverine Leasing Corp., Matisse Holding Company
and United States National Bank of Oregon ("USNB"). The lease provides for the
construction and occupancy of our headquarters and wafer fabrication facility in
Hillsboro under an operating lease from Wolverine and provides us with an option
to purchase the property or renew our lease for an additional five years. Under
the terms of the agreement,
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USNB and Matisse made loans to Wolverine, which in turn advanced the funds to us
for the construction of the Hillsboro facility and other associated costs and
expenses. The loan from USNB is collateralized by investment securities we have
pledged. These investment securities are classified on our balance sheet as
restricted investments. In addition, restrictive covenants in the participation
agreement require us to maintain (a) a total liability to tangible net worth
ratio of not more than 1.50 to 1.00, (b) minimum tangible net worth greater than
$50.0 million and (c) more than $45.0 million of cash and liquid investment
securities, including restricted securities. As of March 31, 2000, we were in
compliance with the covenants described above.
In November 1997, we entered into a $1.5 million lease agreement for land
adjacent to our Hillsboro facility. Under the terms of that agreement, USNB
provided loans to Matisse to purchase the land, and Matisse in turn leased it to
us under a renewable one-year lease agreement. The loan from USNB is partially
collateralized by a guarantee from us. As of March 31, 2000 we were in
compliance with the terms of the agreement.
In January 1998, we acquired our Millimeter Wave Communications operation
for approximately $19.5 million in cash and 2,533,839 shares of our common stock
then valued at approximately $19.5 million. The cash portion of the purchase
price was financed through an operating lease.
The following table presents a summary of the Company's cash flows (IN
THOUSANDS):
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
--------------------
2000 1999
--------- --------
<S> <C> <C>
Net cash and cash equivalents provided by operating
activities................................................ $ 6,110 $ 4,207
Net cash and cash equivalents used in investing
activities................................................ (199,833) (4,751)
Net cash and cash equivalents provided (used) by financing
activities................................................ 342,123 (1,109)
--------- -------
Net increase (decrease) in cash and cash equivalents........ $ 148,400 $(1,653)
========= =======
</TABLE>
The $6.1 million of cash provided by operating activities for the three
months ended March 31, 2000 related primarily to net income of $10.8 million, as
well as depreciation and amortization of $2.0 million. This was offset by
increases in accounts receivable of $4.2 million, inventories of $1.1 million
and prepaid expense and other assets of $1.1 million and a decrease in accounts
payable and accrued expenses of approximately $328,000. The $4.2 million of cash
provided by operating activities for the three months ended March 31, 1999
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 $199.8 million of cash used in investing activities for the three months
ended March 31, 2000 related to the purchase of $947.3 million of investments
and capital expenditures of $8.9 million, offset in part by the sale/maturity of
$756.3 million of investments. The $4.8 million of cash used in investing
activities for the three months ended March 31, 1999 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 $342.1 million of cash provided by financing activities for the three
months ended March 31, 2000 related primarily to the net proceeds from debt of
$334.3 million, from the issuance of common stock of $2.5 million and a tax
benefit for disqualifying dispositions of $6.5M. This was offset in part by
payment of principal on capital leases of $1.2 million. The $1.1 million of cash
used by financing activities for the three months ended March 31, 1999 related
primarily to the payment of principal on capital leases of $1.2 million.
Cash used for capital expenditures for the three months ended March 31, 2000
was approximately $8.9 million. We anticipate that our capital equipment needs,
including manufacturing and test equipment
23
<PAGE>
and computer hardware and software, will require additional expenditures of
approximately $62.4 million during the next 12 months.
We believe that our current cash and cash equivalent balances, together with
cash anticipated to be generated from operations and anticipated financing
arrangements, will satisfy our projected working capital and capital expenditure
requirements, at a minimum, through the next 12 months. However, we may be
required to finance any additional requirements through additional equity, debt
financings, or credit facilities. We may not be able to obtain additional
financings or credit facilities, or if these funds are available, they may not
be available on satisfactory terms.
24
<PAGE>
ITEM 3: QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET AND INTEREST RATE
RISK
We are exposed to minimal market risks. We manage the sensitivity of our
results of operations to these risks by maintaining a conservative investment
portfolio. Our investments, both restricted and unrestricted, are classified as
available-for-sale and held-to-maturity securities and are comprised solely of
highly rated, short and medium-term investments, such as corporate notes,
commercial paper and market auction preferred stock. We do not hold or issue
derivative, derivative commodity instruments or other financial instruments for
trading purposes. We are exposed to currency exchange fluctuations, as we sell
our products internationally. We manage the sensitivity of our international
sales by denominating all transactions in U.S. dollars.
We are exposed to interest rate risk, as we use additional financing
periodically to fund capital expenditures. The interest rate that we may be able
to obtain on financings will depend on market conditions at that time and may
differ from the rates we have secured in the past. Sensitivity of results of
operations to market and interest rate risks is managed by maintaining a
conservative investment portfolio.
25
<PAGE>
PART II--OTHER INFORMATION
ITEM 1: LEGAL PROCEEDINGS.
On February 26, 1999, a lawsuit was filed against 88 firms, of which 21 are
still in litigation, including TriQuint, in the United States District Court for
the District of Arizona. The suit alleges that the defendants, including us,
infringe upon certain patents held by The Lemelson Medical, Education and
Research Foundation, Limited Partnership. Although we believe the suit is
without merit and intend to vigorously defend ourselves against the charges, we
cannot be certain that we will be successful. Moreover, this litigation may
require us to spend a substantial amount of time and money and could distract
management from our day to day operations.
ITEM 2: CHANGES IN SECURITIES.
On February 24, 2000 and March 3, 2000, we sold $345,000,000 of 4%
convertible subordinated notes due 2007. The notes are initially convertible
into 2,544,237 shares of our common stock at a per share price of $135.60. The
notes were sold by the initial purchasers to qualified institutional buyers in a
private placement pursuant to Section 4(2) of the Securities Act of 1933, as
amended (the "Act") and may be resold to qualified institutional buyers on the
PORTAL market. We filed a registration statement on Form S-3 for the resale of
the notes and the common stock into which the notes are convertible with the SEC
on May 2, 2000.
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit 27.1 Financial Data Schedule
(b) Reports on Form 8-K
We filed a Report on Form 8-K (File No. 000-22660) with the Securities
and Exchange Commission on February 14, 2000 to announce its intention to
offer $275 million of subordinated convertible notes to qualified
institutional investors in a private placement. We also announced a
two-for-one forward split of our outstanding common stock, payable to
holders of record on February 1, 2000.
We filed a Report on Form 8-K (File No. 000-22660) with the Securities
and Exchange Commission on February 18, 2000 to announce that on
February 17, 2000, we had sold $300 million of subordinated convertible
notes to qualified institutional investors in a private placement.
26
<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.
<TABLE>
<S> <C>
TRIQUINT SEMICONDUCTOR, INC.
/s/ STEVEN J. SHARP
------------------------------------------------
STEVEN J. SHARP
CHAIRMAN OF THE BOARD, PRESIDENT AND CHIEF
EXECUTIVE OFFICER (PRINCIPAL EXECUTIVE OFFICER)
Dated: May 9, 2000
</TABLE>
<TABLE>
<S> <C>
/s/ EDSON H. WHITEHURST, JR.
------------------------------------------------
EDSON H. WHITEHURST, JR.
VICE PRESIDENT, FINANCE AND ADMINISTRATION,
CHIEF FINANCIAL OFFICER AND SECRETARY
Dated: May 9, 2000 (PRINCIPAL FINANCIAL AND ACCOUNTING OFFICER)
</TABLE>
27
<PAGE>
TRIQUINT SEMICONDUCTOR, INC.
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL
NO. DESCRIPTION PAGE NO.
------- ----------- ----------
<S> <C> <C>
27.1 Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AS OF MARCH 31, 2000 AND THE CONSOLIDATED STATEMENT
OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 2000 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-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 225,273
<SECURITIES> 307,464
<RECEIVABLES> 30,283
<ALLOWANCES> (1,043)
<INVENTORY> 25,757
<CURRENT-ASSETS> 596,732
<PP&E> 92,401
<DEPRECIATION> (46,717)
<TOTAL-ASSETS> 703,256
<CURRENT-LIABILITIES> 32,453
<BONDS> 349,092
0
0
<COMMON> 311,910
<OTHER-SE> 9,801
<TOTAL-LIABILITY-AND-EQUITY> 703,256
<SALES> 59,254
<TOTAL-REVENUES> 59,254
<CGS> 31,170
<TOTAL-COSTS> 45,725
<OTHER-EXPENSES> (93)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,756
<INCOME-PRETAX> 17,310
<INCOME-TAX> 6,492
<INCOME-CONTINUING> 10,818
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 10,818
<EPS-BASIC> 0.28
<EPS-DILUTED> 0.25
</TABLE>
