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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 March 30, 1996
Commission File Number 0-22660
TRIQUINT SEMICONDUCTOR, INC.
(Registrant)
Incorporated in the State of California
I.R.S. Employer Identification Number 95-3654013
3625A SW Murray Blvd., Beaverton, OR 97005
Telephone: (503) 644-3535
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
----- -----
As of March 31, 1996, there were 7,975,831 shares of the registrant's common
stock outstanding.
TRIQUINT SEMICONDUCTOR, INC.
INDEX
PART I. FINANCIAL INFORMATION PAGE NO.
- - --------------------------------------------------------------------------------
Item 1. Financial Statements
Condensed Statements of Operations -- Three months
ended March 31, 1996 and 1995 3
Condensed Balance Sheets -- March 31, 1996
and December 31, 1995 4
Condensed Statements of Cash Flows -- Three months
ended March 31, 1996 and 1995 5
Notes to condensed financial statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
PART II. OTHER INFORMATION
- - --------------------------------------------------------------------------------
Item 1. Legal Proceedings 13
Item 6. Exhibits and Reports on Form 8-K 13
SIGNATURES 14
2
PART I - FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
TRIQUINT SEMICONDUCTOR, INC.
CONDENSED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)
THREE MONTHS ENDED
------------------------------
MARCH 31, MARCH 31,
1996 1995
------------- -------------
Total revenues $ 13,116 $ 9,440
Operating costs and expenses:
Cost of goods sold 7,928 4,809
Research, development and engineering 2,489 2,418
Selling, general and administrative 2,396 2,053
------------- -------------
Total operating costs and expenses 12,813 9,280
------------- -------------
Income from operations 303 160
------------- -------------
Other income (expense):
Interest income 850 205
Interest expense (191) (123)
Other, net (4) (7)
------------- -------------
Total other income, net 655 75
------------- -------------
Income before income taxes 958 235
Income tax expense 48 8
------------- -------------
Net income $ 910 $ 227
------------- -------------
------------- -------------
Net income (loss) per common and common
equivalent share $ 0.11 $ 0.04
------------- -------------
------------- -------------
Weighted average common and common
equivalent shares outstanding 8,590 6,372
------------- -------------
------------- -------------
See notes to Condensed Financial Statements.
3
TRIQUINT SEMICONDUCTOR, INC.
CONDENSED BALANCE SHEETS
(In thousands)
(Unaudited)
MARCH 31, DECEMBER 31,
ASSETS 1996 1995 (1)
----------------- -----------------
Current assets:
Cash and cash equivalents $ 24,388 $ 35,051
Investments 38,615 27,921
Accounts receivable, net 7,734 7,388
Inventories, net 8,632 8,709
Prepaid expenses and other assets 637 432
----------------- -----------------
Total current assets 80,006 79,501
----------------- -----------------
Property, plant and equipment, net 18,032 14,460
Other non-current assets 62 63
----------------- -----------------
Total assets $ 98,100 $ 94,024
----------------- -----------------
----------------- -----------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current installments of capital lease obligations $ 2,465 $ 2,329
Accounts payable and accrued expenses 14,830 11,443
Other current liabilities 75 216
----------------- -----------------
Total current liabilities 17,370 13,988
Capital lease obligations, less current installments 7,000 7,392
----------------- -----------------
Total liabilities 24,370 21,380
----------------- -----------------
Shareholders' equity:
Common stock 107,989 107,813
Accumulated deficit (34,259) (35,169)
----------------- -----------------
Total shareholders' equity 73,730 72,644
----------------- -----------------
Total liabilities and shareholders' equity $ 98,100 $ 94,024
----------------- -----------------
----------------- -----------------
(1) The information in this column was derived from the Company's audited
financial statements as of December 31, 1995.
See notes to Condensed Financial Statements.
4
TRIQUINT SEMICONDUCTOR, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)
Three Months Ended
---------------------------------
March 31, March 31,
1996 1995
------------ -------------
Cash flows from operating activities:
Net income $910 $227
Adjustments to reconcile net income to
net cash provided (used) by operating activities:
Depreciation and amortization 752 727
Change in assets and liabilities
(Increase) decrease in:
Accounts receivable (346) (1,135)
Inventories 77 (1,114)
Prepaid expense and other assets (204) 91
Increase (decrease) in:
Accounts payable and accrued expenses 489 (571)
Other current liabilities (141) -
------------ -------------
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES 1,537 (1,775)
Cash flows from investing activities:
Purchase of investments (22,222) (2,021)
Sale/Maturity of investments 11,528 3,002
Capital expenditures (1,005) (482)
------------ -------------
NET CASH PROVIDED (USED) BY INVESTING ACTIVITIES (11,699) 499
Cash flows from financing activities:
Principal payments under capital lease obligations (677) (436)
Issuance of common stock, net 176 123
------------ -------------
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES (501) (313)
NET (DECREASE) IN CASH AND CASH EQUIVALENTS (10,663) (1,589)
CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE PERIOD 35,051 9,443
------------ -------------
CASH AND CASH EQUIVALENTS AT THE END OF THE PERIOD $24,388 $7,854
------------ -------------
------------ -------------
See notes to Condensed Financial Statements.
5
TRIQUINT SEMICONDUCTOR, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(In thousands except share amounts)
(Unaudited)
1. BASIS OF PRESENTATION
The accompanying financial statements have been prepared in conformity
with generally accepted accounting principles. However, certain
information or footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed, or omitted, pursuant to the rules and
regulations of the Securities and Exchange Commission. In the opinion
of management, the statements include all adjustments necessary (which
are of a normal and recurring nature) for the fair presentation of the
results of the interim periods presented. These financial statements
should be read in conjunction with the Company's audited consolidated
financial statements for the year ended December 31, 1995, as included
in the Company's 1995 Annual Report to Shareholders.
The Company's fiscal year ends on the Saturday nearest December 31. For
convenience, the Company has indicated in this quarterly report on Form
10-Q that its fiscal year ended on December 31. In addition, 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.
2. NET INCOME PER COMMON AND COMMON EQUIVALENT SHARE
Net income per common and common equivalent share is computed using the
weighted average number of common and dilutive common equivalent shares
assumed to be outstanding during the period. Common equivalent shares
consist of options and warrants to purchase common stock.
3. RESEARCH AND DEVELOPMENT COSTS
The Company charges all research and development costs associated with
the development of new products to expense when incurred. Engineering
and design costs related to revenues on non-recurring engineering
services billed to customers are classified as research, development and
engineering expense. Additionally, certain related contract engineering
costs are also included in research, development and engineering
expense.
4. INCOME TAXES
The provision for income taxes has been recorded based on the current
estimate of the Company's annual effective tax rate. For periods of
income, this rate differs from the federal statutory rate primarily
because of the utilization of net operating loss carryforwards.
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5. INVENTORIES
Inventories, net of reserves, stated at the lower of cost or market consist
of:
March 31, December 31,
1996 1995
------------ ------------
Raw Material $2,307 $2,198
Work in Progress 5,629 5,908
Finished Goods 696 603
------------ ------------
Total Inventories $8,632 $8,709
------------ ------------
6. SHAREHOLDERS' EQUITY
Shares authorized and outstanding are as follows:
Shares Outstanding
------------------
March 31, December 31,
1996 1995
------------ ------------
Preferred stock, no par value,
5,000,000 shares authorized - -
Common Stock, no par value,
25,000,000 shares authorized 7,975,831 7,929,881
7. SUPPLEMENTAL CASH FLOW INFORMATION
Three Months Ended
------------------
March 31, March 31,
1996 1995
------------ ------------
Cash Transactions:
Cash paid for interest $191 $124
Cash paid for income taxes 3 -
Non-Cash Transactions:
Purchase of assets through capital leases 3,319 -
8. LITIGATION
See Part II, Item 1, of this Quarterly Report on Form 10-Q for a
description of legal proceedings.
7
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
INTRODUCTION
TriQuint Semiconductor, Inc. ("TriQuint" or the "Company") designs,
develops, manufactures and markets a broad range of high performance analog and
mixed signal integrated circuits for the wireless communications,
telecommunications and computing markets. The Company utilizes its proprietary
gallium arsenide ("GaAs") technology to enable its products to overcome the
performance barriers of silicon devices in a variety of applications. The
Company sells its products on a worldwide basis and the Company's end user
customers include Alcatel, AT&T, Cirrus Logic, Digital Equipment, DSC
Communications, Ericsson, Giga A/S, Hughes, IBM, Intel, Motorola, Northern
Telecom, Philips, Rockwell, Siemens, Storage Technology, Stratacom, TRW, and
Western Digital.
RESULTS OF OPERATIONS
The following table sets forth the statement of operations data of the
Company expressed as a percentage of total revenues for the periods indicated.
Three Months Ended
------------------------
March 31, March 31,
1996 1995
Total revenues 100.0% 100.0%
Operating costs and expenses:
Cost of goods sold 60.4 50.9
Research, development and engineering 19.0 25.6
Selling, general and administrative 18.3 21.7
--------- ---------
Total operating costs and expenses 97.7 98.3
--------- ---------
Income from operations 2.3 1.7
Other income, net 5.0 0.8
--------- ---------
Income before income taxes 7.3 2.5
Income tax expense 0.4 0.1
--------- ---------
Net income 6.9% 2.4%
--------- ---------
--------- ---------
TOTAL REVENUES
The Company derives revenues from the sale of standard and
customer-specific products and services. The Company's revenues also include
non-recurring engineering (NRE) revenues relating to customer-specific products.
Although revenues from standard products are separately identifiable by
reference to the Company's standard product catalogue, it is not practical to
differentiate between customer-specific product revenue and NRE revenue because
(i) the Company's contracts generally state a total contract price without
differentiating between engineering and production activity, (ii) it is
difficult to determine when engineering activity has transitioned to production
activity and (iii) it is difficult to determine whether certain manufacturing
services should be classified as engineering activity or customer-specific
products.
8
Total revenues for the three months ended March 31, 1996 increased 38.9%
to $13.1 million, over the comparable three month period ended March 31, 1995.
The increase in revenues during the three months ended March 31, 1996 reflected
an overall increase in the volume of product sales to existing and new
customers, in the wireless communications, telecommunications and computing
markets. In addition, the Company believes standard products will represent an
increasing proportion of total revenues in the future.
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, the
Company believes that 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 markets served by customer-specific and standard
products, as well as the number of NRE projects which result in volume
requirements for customer-specific products.
Cost of goods sold as a percentage of the total revenues for the three
months ended March 31, 1996 increased to 60.4% from 50.9% for the comparable
three month period ended March 31, 1995. The increase in cost of goods sold as a
percentage of total revenues was attributable to lower than expected production
yields and a higher volume of standard products, which typically have a lower
gross margin than customer-specific products.
The Company has in the past experienced lower than expected production
yields which have delayed shipments of a given product and adversely affected
gross margins. This was experienced in the fourth quarter of 1995 and to a
lesser extent in the first quarter of 1996. 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. In addition, the
Company's operation of its own 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 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 research, development and engineering expenses for the three months
ended March 31, 1996 increased 2.9% to $2.5 million from the comparable three
month period ended March 31, 1995. Research, development and engineering
expenses as a percentage of total revenues for the three months ended March 31,
1996 decreased to 19.0% from 25.6% for the comparable three month period ended
March 31, 1995 due to the higher sales volume. The increases in research,
development and engineering expenses in absolute dollar level were primarily due
to higher NRE expenses and other product development activities. 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.
9
SELLING, GENERAL AND ADMINISTRATIVE
Selling, general and administrative expenses for the three months ended
March 31, 1996 increased 16.7% to approximately $2.4 million from the comparable
three month period ended March 31, 1995. Selling, general and administrative
expenses as a percentage of revenue for the three months ended March 31, 1996
decreased to 18.3% from 21.7% for the comparable three month period ended March
31, 1995. The increase in absolute dollar level of selling, general, and
administrative expenses was primarily due to increased sales commissions and
product advertising in connection with the increase in total revenue. The
decrease in selling, general and administrative expenses as a percentage of
total revenues resulted from the revenue growth that outpaced the growth of
selling, general and administrative expenses.
OTHER INCOME (EXPENSE), NET
Other income (expense), net for the three months ended March 31, 1996
increased to an approximate net income of $655,000 as compared to a net income
of $75,000 for the comparable three month period ended March 31, 1995. This
improvement resulted from higher interest income earned on higher cash and cash
equivalents and investment balances due to the proceeds of the Company's follow
on public offering completed in September 1995, partially offset by interest
expense due to additional capital lease obligations during the period.
INCOME TAX EXPENSE
The effective tax rate for the three months ended March 31, 1996 was
5.0%, which is less than the federal and state statutory rate of approximately
40% due to the use of net operating loss carryforwards. Income tax expense for
the three months ended March 31, 1996 increased to approximately $48,000 from
$8,000 for the comparable three month period ended March 31, 1995.
VARIABILITY OF OPERATING RESULTS AND CYCLICALITY OF SEMICONDUCTOR INDUSTRY
The Company's quarterly and annual results may vary significantly in the
future due to a number of factors including timing, cancellation or delay of
customer orders; market acceptance of the Company's and its customers' products;
variations in manufacturing yields; timing of announcement and introduction of
new products by the Company and its competitors; changes in revenues and product
mix; competitive factors; changes in manufacturing capacity and variations in
the utilization of this 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; cyclicality of the semiconductor industry; the
timing and level of NRE revenues and expenses relating to customer-specific
products; and changes in inventory levels. Any unfavorable changes in these or
other factors could have a material adverse effect on the Company's operating
results.
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 the Company's major customers as a percentage of total
revenues have fluctuated. For the three months ended March 31, 1996, Cirrus
Logic, Northern Telecom, and Giga A/S (the Company's European distributor)
accounted for 19.9%, 11.3%, and 10.7%, respectively, of total revenues. The
Company's revenues to a certain extent depend upon its customer's success
introducing and marketing new products. Certain of these products are consumer
products and there is no guarantee purchases by consumers will meet TriQuint
customers' expectations. The Company does not have long-term purchase
agreements with any of its customers.
10
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.
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, declines in general economic conditions. These downturns have
been characterized by diminished product demand, production overcapacity and
subsequent accelerated erosion of average selling prices, 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 such
industry-wide fluctuations.
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 sales of equity, bank borrowing,
capital equipment leases and cash flow from operations. As of March 31, 1996,
the Company had working capital of approximately $62.6 million, including $63.0
million in cash, cash equivalents, and investments. The Company has a $6.0
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 0.80
to 1.00, (ii) a current ratio of not less than 1.75 to 1.00 and (iii) minimum
tangible net worth of at least $17 million. In addition the line of credit
limits the Company's ability to pay cash dividends or make stock repurchases to
25% of cumulative net income for the preceding fiscal year. As of March 31,
1996 the Company was in compliance with the covenants contained in this line of
credit.
The following table presents a summary of the Company's cash flows (IN
THOUSANDS):
Three Months Ended March 31,
----------------------------
1996 1995
Net cash and cash equivalents provided
(used) by operating activities $ 1,537 $(1,775)
Net cash and cash equivalents provided
(used) by investing activities (11,699) 499
Net cash and cash equivalents provided
(used) by financing activities (501) (313)
-------- -------
Net increase (decrease) in cash and cash equivalents $(10,663) $(1,589)
--------- --------
--------- --------
The cash provided by operating activities for the three month period
ended March 31, 1996, $1.5 million, related to cash generated from the operating
activities.
The cash used by investing activities for the three month period ended
March 31, 1996, $11.7 million, related to the net purchase of investments and
the purchase of approximately $1.0 million of capital equipment.
11
The cash used by financing activities for the three month period ended
March 31, 1996, $0.5 million, related primarily to the principal payments made
on capital leases partially offset by the issuance of common stock upon option
exercises.
Capital expenditures for the three months ended March 31, 1996 were
approximately $1.0 million. During the quarter ended March 31, 1996, the
Company established approximately $3.3 million in new capital leases. Since
1991, the Company has financed approximately $17.2 million of machinery and
equipment through capital lease obligations. The Company believes these capital
expenditures were relatively low compared to other companies in the
semiconductor industry because of the relatively high capital investments made
prior to 1991. The Company anticipates that its capital equipment needs,
including manufacturing and test equipment and computer hardware and software,
will require additional expenditures of approximately $9.0 million over the next
twelve months. The Company's current fabrication facility lease expires in
January 1998. During the first quarter of 1996, the Company continued planning
the construction of a new fabrication and office facility with the intent of
consolidating all operations into one facility before the current fabrication
lease expires. The Company anticipates capital investment of approximately
$40.0 million in 1996 for this project. Based on the Company's recent follow on
public offering and anticipated financing arrangements, the Company expects it
will be able to arrange sufficient funds for construction of the new facility.
The Company believes that its current cash and cash equivalent balances,
together with cash anticipated to be generated from operations and anticipated
financing arrangements, will satisfy the Company's projected working capital and
capital expenditure requirements through the end of 1997. 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.
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PART II - OTHER INFORMATION
ITEM 1: LEGAL PROCEEDINGS.
On June 9, 1994 the Company issued a press release indicating softness
in the Company's telecom revenues which would adversely affect the Company's
financial results. The cause for the reduction in revenues was due somewhat to
a general softness in orders in the telecommunications market; however, it was
primarily the result of a decision by the Company's largest customer to delay
shipment of certain products. As a result of this announcement, the Company's
stock price dropped 48% on June 10, 1994. On July 12, 1994, a shareholder class
action lawsuit was filed against the Company in the United States District Court
for the Northern District of California. The suit alleges that the Company, its
underwriters, and certain of its officers, directors and investors,
intentionally misled the investing public regarding the financial prospects of
the Company. Since the Company and its management have striven to keep
investors current on the Company's progress at all times, the Company strongly
denies any claims of wrongdoing and will defend this lawsuit vigorously.
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
(a) Reports on Form 8-K.
The Company did not file any reports on Form 8-K during the
three months ended March 31, 1996.
13
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 6, 1996 /s/ Steven J. Sharp
---------------------------------------------
STEVEN J. SHARP
President, Chief Executive Officer and
Chairman (Principal Executive Officer)
Dated: May 6, 1996 /s/ Joseph I. Martin
---------------------------------------------
JOSEPH I. MARTIN
Vice President, Finance and
Administration, Chief Financial Officer
and Secretary (Principal Financial and
Accounting Officer)
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