-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, CPbV93INTMtM9hKlA9ByySUHuYVvpgUPg+yccqSPu2G1O/wRwclDZZKROt8UqAkB kSYwQtViPFsvv1+4a2VEOQ== 0001047469-99-020463.txt : 19990517 0001047469-99-020463.hdr.sgml : 19990517 ACCESSION NUMBER: 0001047469-99-020463 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990331 FILED AS OF DATE: 19990514 FILER: COMPANY DATA: COMPANY CONFORMED NAME: TRIQUINT SEMICONDUCTOR INC CENTRAL INDEX KEY: 0000913885 STANDARD INDUSTRIAL CLASSIFICATION: SEMICONDUCTORS & RELATED DEVICES [3674] IRS NUMBER: 953654013 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-22660 FILM NUMBER: 99622345 BUSINESS ADDRESS: STREET 1: 2300 NE BROOKWOOD PARKWAY CITY: HILLSBORO STATE: OR ZIP: 97124 BUSINESS PHONE: 5036159000 MAIL ADDRESS: STREET 1: 2300 NE BROOKWOOD PARKWAY STREET 2: 3625A SW MURRAY BLVD CITY: HILLSBORO STATE: OR ZIP: 97124 10-Q 1 FORM 10-Q 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. TRIQUINT SEMICONDUCTOR, INC. INDEX
PART I. FINANCIAL INFORMATION PAGE NO. - ------------------------------------------------------------------------------------------------- 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 - ------------------------------------------------------------------------------------------------- Item 1. Legal Proceedings 21 Item 6. Exhibits and Reports on Form 8-K 21 SIGNATURES 22
2 PART I - FINANCIAL INFORMATION ITEM 1: FINANCIAL STATEMENTS TRIQUINT SEMICONDUCTOR, INC. CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS (In thousands, except per share amounts) (Unaudited)
THREE MONTHS ENDED --------------------- MARCH 31, MARCH 31, 1999 1998 --------- --------- 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 --------- ---------- --------- ----------
See notes to Consolidated Condensed Financial Statements. 3 TRIQUINT SEMICONDUCTOR, INC. CONSOLIDATED CONDENSED BALANCE SHEETS (In thousands) (Unaudited)
MARCH 31, DECEMBER 31, ASSETS 1999 1998 ---------- ------------(1) 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 ---------- ---------- ---------- ----------
(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 TRIQUINT SEMICONDUCTOR, INC. CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (In Thousands) (Unaudited)
Three Months Ended -------------------------------------- March 31, March 31, 1999 1998 --------- ---------------- 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 --------- --------- --------- ---------
See notes to Consolidated Condensed Financial Statements. 5 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
Per Share Income Shares Amount -------- ------ --------- 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 -------- ------ --------- -------- ------ ---------
THREE MONTHS ENDED MARCH 31, 1998
Per Share Income Shares Amount -------- ------ --------- 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) -------- ------ --------- -------- ------ ---------
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 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:
March 31, December 31, 1999 1998 --------- ------------ 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 ------- ------- ------- -------
6. SHAREHOLDERS' EQUITY Components of shareholders' equity:
March 31, December 31, 1999 1998 --------- ------------ 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
7. SUPPLEMENTAL CASH FLOW INFORMATION
Three Months Ended --------------------------- March 31, March 31, 1999 1998 --------- --------- 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
7 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 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.
Three Months Ended --------------------- March 31, March 31, 1999 1998 -------- --------- 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)% -------- --------- -------- ---------
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 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 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 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 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 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 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 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 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 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):
Three Months Ended March 31, ---------------------------- 1999 1998 --------- --------- 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) ------- ------- ------- -------
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 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 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 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 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 TRIQUINT SEMICONDUCTOR, INC. INDEX TO EXHIBITS
SEQUENTIAL EXHIBIT NO. DESCRIPTION PAGE NO. - ----------- ----------- ---------- 27.1 Financial Data Schedule
23 EX-27 2 EXHIBIT 27
5 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. 1,000 3-MOS DEC-31-1999 JAN-01-1999 MAR-31-1999 12,949 14,591 24,225 (262) 21,129 74,495 73,024 (42,638) 146,751 27,861 8,012 0 0 133,642 (22,764) 146,751 33,695 33,695 20,951 30,728 (47) 0 313 3,492 279 3,213 0 0 0 3,213 0.34 0.32
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