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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
-------------------------
/X/ Annual report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the fiscal year ended December 31, 1996 or
/ / Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period
from to
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COMMISSION FILE NUMBER: 0-22660
TRIQUINT SEMICONDUCTOR, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 95-3654013
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
2300 N.E. BROOKWOOD PARKWAY
HILLSBORO, OREGON 97124
(Address of principal executive office)
Registrant's Telephone number, including area code: (503) 615-9000
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
Common Stock, $.001 par value
(Title of Class)
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
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Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. X
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The aggregate market value of the voting stock held by non-affiliates of
the registrant, based upon the closing sale price of the Common Stock on
February 28, 1997 as reported on the Nasdaq Stock Market's National Market, was
approximately $240,761,804. Shares of Common Stock held by each executive
officer and director and by each person who owns 5% or more of the outstanding
Common Stock have been excluded in that such persons may be deemed affiliates.
This determination of affiliate status is not necessarily a conclusive
determination for other purposes.
As of February 28, 1997, registrant had outstanding 8,240,170 shares of
Common Stock.
The Index to Exhibits appears on page 16 of this document.
DOCUMENTS INCORPORATED BY REFERENCE
The Registrant has incorporated into Part III of Form 10-K by reference
portions of its Proxy Statement, dated April 15, 1997. Portions of the
Registrant's Annual Report to Stockholders for the fiscal year ended December
31, 1996 are incorporated by reference in Parts II and IV of Form 10-K.
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TRIQUINT SEMICONDUCTOR, INC.
1996 ANNUAL REPORT ON FORM 10-K
TABLE OF CONTENTS
PART I
. PAGE
ITEM 1. BUSINESS. . . . . . . . . . . . . . . . . . . . . . . . . 3
ITEM 2. PROPERTIES. . . . . . . . . . . . . . . . . . . . . . . . 13
ITEM 3. LEGALPROCEEDINGS. . . . . . . . . . . . . . . . . . . . . 14
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF
SECURITY HOLDERS. . . . . . . . . . . . . . . . . . . . . 14
PART II
ITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS . . . . . . . . . . . . . . . 15
ITEM 6. SELECTED FINANCIAL DATA . . . . . . . . . . . . . . . . . 15
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS . . . . . . 15
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA . . . . . . . 15
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE. . . . . . . . . . 15
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. . . . 16
ITEM 11. EXECUTIVE COMPENSATION. . . . . . . . . . . . . . . . . . 16
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT . . . . . . . . . . . . . . . . . . 16
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. . . . . . 16
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES,
AND REPORTS ON FORM 8K. . . . . . . . . . . . . . . . . . 17
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PART I
ITEM 1. BUSINESS
The following contains forwarding-looking statements based on current
expectations and entail various risks and uncertainties that could cause actual
results to differ materially from those anticipated in these forward-looking
statements as a result of certain factors discussed herein. These
forward-looking statements include, but are not limited to, those regarding the
Company's markets, customers, products and competition. Certain risks that
the Company faces include, but are not limited to, the risk of lower than
expected production yields, the risks associated with the Company's move of
its fabrication facility to a new location, the risks associated with
operating its own wafer fabrication facility, the risks stemming from failure
to receive orders to produce a high volume of products that are
custom-designed and the risks associated with the reliance on a limited
number of suppliers, some of which are outside the United States.
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, Cirrus Logic, Digital Equipment, DSC Communications,
Ericsson, Hughes, IBM, Lucent Technologies, Motorola, Northern Telecom, Philips,
Rockwell, Siemens, Storage Technology, and Stratacom.
INDUSTRY BACKGROUND
Market demands for higher levels of performance in electronic systems have
produced an increasing number of varied, complex applications. The increased
capabilities of these new systems, in turn, are spawning new markets and a
further proliferation of new, sophisticated applications. Many of these new
applications have emerged in the wireless communications, telecommunications and
computer industries.
The wireless communications industry is experiencing rapid growth with the
advent of new applications such as digital cellular telephones, personal
communication systems ("PCS"), pagers, handheld navigation products based on the
global positioning satellite ("GPS") standard, satellite communications such as
Direct Broadcast Satellite ("DBS"), wireless local area networks ("WLANs"),
wireless data transmission systems such as Cellular Digital Packet Data ("CDPD")
modems and wireless cable television. In addition, many of these new
applications require battery powered portability. The proliferation of some of
these new applications has led to increased communication traffic resulting in
congestion of the historically assigned frequency bands. As a consequence,
wireless communications are moving to higher, less congested frequency bands.
For example, in recognition of the potential for such applications, United
States government regulatory agencies have auctioned licenses for a new spectrum
of radio frequencies above 1.8 GHz, or approximately twice the frequency of
existing cellular networks. These licenses will be used as the United States
PCS is deployed. The Company believes the increasing demand for wireless
communications at higher frequencies, will lead to entirely new high volume
applications.
The telecommunications industry is encountering increasing demand for
higher transmission rates and increased capacity to accommodate the growth of
traditional voice traffic and higher levels of data traffic arising from
widely - used applications such as facsimile communications, computer
networking and online and Internet services. Today's advanced
telecommunications systems employ high speed switching networks and fiber
optic cable operating in accordance with high frequency standards such as
synchronous optical network ("SONET"), Synchronous Digital Hierarchy ("SDH"),
integrated services digital network ("ISDN") and the emerging asynchronous
transfer mode ("ATM") standard. For example, high performance SONET
telecommunications systems can operate at frequencies of 2.48 gigabits per
second or higher. The advent of video communications and multimedia
(combinations of voice, video and data) are placing further demands on these
systems for even higher data transmission rates.
In the computer industry, data processing speeds have increased rapidly,
bringing enormous computing power to individual users. The demand to share data
and peripheral equipment among these users has led to the widespread use of
networking systems operating at increasing speeds. Today's advanced data
communication links use systems such as Fibre Channel and Gigabit Ethernet to
transmit data at rates up to 1.25 Gbit/sec. These performance increases have
been, in great part, made possible by succeeding generations of higher speed
microprocessors. The newest generation of these products, such as the Pentium,
PowerPC and Alpha microprocessors, operate at speeds ranging from 60 MHz to
several hundred megahertz. These microprocessors can process data many times
faster than the data can be controlled, manipulated and communicated within the
system or networked between systems, creating bottlenecks which limit overall
system performance.
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To address the market demands for higher performance, electronic system
manufacturers have relied heavily on advances in semiconductor technology. In
recent years, the predominant semiconductor technologies used in advanced
electronic systems have been silicon-based complementary metal oxide
semiconductor ("CMOS"), bipolar complementary metal oxide semiconductor
("BiCMOS") and emitter coupled logic ("ECL") process technologies. However, the
newest generation of high performance electronic systems requires further
advances in semiconductor performance. One way to improve performance is to
combine analog and digital circuitry on the same device. This combination,
known as mixed signal technology, can provide higher levels of integration
(smaller size and increased functionality), reduced power consumption and higher
operating frequencies. Notwithstanding the benefits of mixed signal technology,
the performance requirements of certain critical system functions generally
cannot be achieved using silicon-based components. As a result, system
manufacturers are seeking semiconductor products which can overcome the
performance limitations of silicon devices in a variety of applications.
GaAs semiconductor technology has emerged as an effective alternative or
complement to silicon solutions in many high performance applications. GaAs has
inherent physical properties which allow its electrons to move up to five times
faster than those of silicon. This higher electron mobility permits the
manufacture of GaAs integrated circuits which operate at much higher speeds than
silicon devices, or operate at the same speeds with lower power consumption. In
many new applications, GaAs integrated circuits enable high performance systems
to process data more quickly, increasing system operating rates. In addition,
the use of GaAs integrated circuits can reduce system power requirements, which
is particularly important in battery powered portable applications. The high
performance characteristics of GaAs, combined with the system requirements of
the communications and computing industries, have led to the first use of GaAs
components in high volumes to complement silicon devices in a wide range of
commercial systems.
The Company believes that the continuation and acceleration of these trends
will result in increasing demand for GaAs integrated circuits, thereby creating
substantial opportunities for market-focused manufacturers who can provide a
broad range of cost effective GaAs integrated circuits in high volume.
MARKETS AND CUSTOMERS
TriQuint has focused on commercial applications in the wireless
communications, telecommunications and computing market areas which can benefit
significantly from the performance of GaAs and the Company's analog and mixed
signal design expertise.
WIRELESS COMMUNICATIONS
GaAs design and manufacturing technologies are being applied to commercial
communications in satellites, satellite receivers for TV broadcast, wireless
transceivers for data networks, handheld navigation systems based on the GPS
system, wireless LANs, cellular telephones and PCSs.
Frequency bands are allocated to the various wireless communications
applications by government regulatory bodies throughout the world. The
allocation is based, among other factors, upon the availability of unallocated
frequency bands and the ability of equipment to operate effectively in these
bands. As the lower frequency bands become fully allocated and congested, and
the volume and rate of communications increases, the trend is toward the
allocation and use of higher frequency bands. Major examples are the
introduction of Japan's PHS and the U.S. government's auction of PCS licenses.
Both systems operate at approximately twice the frequency of conventional
cellular systems. The speed of GaAs technology makes it well-suited for
applications at these higher frequencies.
In addition to its superior ability to operate at higher frequencies, GaAs
provides other important performance advantages over silicon in key wireless
communications system functions. Some of the most important advantages are
improved signal reception, better signal processing in congested bands and
greater power efficiency for longer battery life in portable applications.
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TELECOMMUNICATIONS
GaAs technologies are well suited for the growing markets and applications
which require the transmission or manipulation of large amounts of information
at high speeds with high data integrity. These applications, which typically
require customer specific solutions and include digital, analog and mixed signal
functions, are found primarily in the telecommunications industry, but also span
other industries such as instrumentation and aerospace. For many of these
applications, the Company's products provide better price/performance value than
silicon. The intrinsic electrical properties of GaAs result in higher speed,
lower noise and less power consumption compared to silicon.
The Company believes that the increasing use of fiber optic cable in
telecommunications and data communications systems has created a significant
growth opportunity for the Company's GaAs products. Because data transmission
rates in fiber optic cable can be many times greater than those of copper line,
a single fiber line can cost-effectively replace multiple copper lines. In order
to take advantage of the potential cost advantages of fiber optic
communications, information must be transmitted at higher rates generally
achievable only through the use of GaAs products such as those manufactured by
TriQuint.
The telecommunication industry has established a series of standards, most
notably SONET and ISDN, which define transmission rates, protocols, signal
quality and reliability. GaAs based products address the performance
requirements of these standards, as well as emerging standards such as ATM. For
the higher speed communication links (2.48 Gbit/sec and above), GaAs components
currently offer a preferred solution. At lower transmission rates, such as 622
Mbit/sec, GaAs integrated circuits use less power than silicon devices.
COMPUTING
Both the performance of microprocessors and the density of storage devices
have increased substantially in recent years, creating significant bottlenecks
in other portions of computing systems. TriQuint's computing products are
specifically designed to alleviate these bottlenecks and to help designers
optimize performance in personal computers, workstations, servers and advanced
graphics terminals by increasing the speed and precision of microprocessor
control functions and by permitting more rapid data transmission between
computers or between computers and peripherals. TriQuint's products for the
computing market provide solutions for two critical system areas: system timing
and data communications.
SYSTEM TIMING. Clock signals are the heartbeat of every computer system.
They determine exactly when events will occur in the system and how fast a
system will operate. Delays, timing differences (referred to as "skew") and lack
of synchronization in clock signals can affect system operation and/or reduce
system speed. Clock generation, control and distribution have therefore become
key elements of high speed, robust system designs. Advanced microprocessors such
as the Pentium, PowerPC and Alpha processors have special high speed clocking
requirements. The inherently higher speed of GaAs technology, combined with the
Company's mixed signal circuit designs, results in integrated circuits which
facilitate precise clock signal generation, control and distribution.
DATA COMMUNICATIONS. Data communications equipment is typically used to
interconnect mainframe computers, clients and servers, workstations, disk
storage arrays and other peripheral devices. Other applications, which require
transmission of large amounts of data at high speed include multimedia
computing, supercomputing, multiprocessor systems, interactive computer aided
design/computer aided manufacturing ("CAD/CAM"), medical imaging and high speed,
high resolution printing. As new applications requiring higher volume data
transfer have proliferated, and as microprocessor speeds have increased, a
critical bottleneck has developed in these communications links. The
computation speed of today's microprocessors is 10 to 100 times faster than
currently available communications equipment based on communications standards
such as Ethernet and Small Computer System Interface ("SCSI"). A solution to
this problem is the use of high speed serial data transmission by means of
coaxial or fiber optic cable in combination with the Company's mixed signal
transmitting and receiving devices. For example, leading computer manufacturers
have acknowledged the need for high speed serial data communications links by
supporting the Fibre Channel standard which can operate up to 1.25 Gbit/sec.
TriQuint's products, using the Company's mixed signal technology, enable high
speed data transmission with high data integrity.
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CUSTOMERS
The Company has a broad customer base of leading systems manufacturers and
has shipped products or provided manufacturing services directly to
approximately 150 end user customers and distributors. Cirrus Logic accounted
for approximately 17% and 24% of the Company's total revenues in 1996 and 1995
respectively. In addition, GIGA A/S, a European distributor, accounted for
approximately 12% and 11% of the Company's total revenues in 1996 and 1995
respectively. Northern Telecom accounted for approximately 12% and 14% of the
Company's total revenues in 1996 and 1995, respectively. No other customer of
the Company accounted for greater than 10% of total revenues during such
periods. If the Company were to lose any major customer, such as Cirrus Logic,
GIGA A/S, or Northern Telecom or if sales were to otherwise decrease, the
Company's operating results would be adversely affected.
The markets in which the Company's 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 may be materially
adversely affected.
PRODUCTS
The Company's broad range of standard and customer-specific integrated
circuits, combined with its manufacturing and design services, allow customers
to select the specific integrated circuit solution which best fulfills their
technical and time-to-market requirements.
STANDARD PRODUCTS
TriQuint offers families of standard products for each of its target
markets.
WIRELESS COMMUNICATIONS. The Company's standard products for this varied
market are used as building blocks for multi-purpose applications in radio
frequency ("RF") and microwave systems. These systems include personal
communications networks, cellular telephones, satellite communications and
navigation systems and wireless computer networks. TriQuint's wireless
communications standard products leverage the advantages of the Company's
proprietary GaAs technology by addressing the needs of system designers for low
noise, power efficient amplification, low loss switching and efficient and
accurate frequency conversion.
TELECOMMUNICATIONS. While most of the Company's telecommunications
products are customer-specific, the Company also offers standard
telecommunications products, such as SONET and SDH multiplexers and
demultiplexers to provide low bit-error-rate performance in standard
transmission applications and SONET/SDH compatible transceivers that support
clock and data recovery and ATM framing, as well as high performance crosspoint
switches.
COMPUTING. For computing systems, TriQuint offers families of standard
products which are designed to be fully compatible with the silicon devices used
elsewhere in the system. The Company's products are targeted at two critical
applications where the advantages of GaAs technology can provide superior
solutions for system designers. These critical applications are system timing
and data communications.
CUSTOMER-SPECIFIC PRODUCTS AND SERVICES
TriQuint offers its customers a variety of product options and services for
the development of customer-specific products. Services offered by the
Company include design, wafer fabrication, test engineering, package
engineering, assembly and test. Customer-specific products and services
generally provide revenue at two stages: first when the design is developed and
engineered, and second when TriQuint manufactures the device. The Company
focuses the development of its customer specific products on its target markets
in applications involving volume production requirements. As is typical in the
semiconductor industry, customer specific products are developed for specific
applications. As a result, the Company expects to generate production revenues
only from those customer specific products that are subsequently produced in
high volume.
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Customer-specific designs are generally implemented by one of three
methods. Under the first method, the customer supplies the Company with detailed
performance specifications and TriQuint performs the complete design,
development and subsequent manufacturing of the integrated circuits. Under the
second method, TriQuint supplies a "library" of pre-designed components, called
cells. TriQuint also provides the customer the training and CAD tools necessary
to create a complete product design from these cells. Upon completion of the
design by the customer, TriQuint manufactures the product. Under the third
method, TriQuint supplies circuit design and process rules to its wireless
communication customers and the customer's internal engineering staff designs
the product which TriQuint then manufactures.
The Company's cell library of digital and analog circuit components
provides it with a competitive advantage in designing and developing integrated
circuits for standard or customer specific products. The digital cell library
currently includes a variety of functions such as gates, registers, adders and
multiplexers with multiple speed/power options for performance optimization.
Gate speeds as fast as 80 picoseconds and flip flop toggle rates to 2.5 GHz are
available. Emitter coupled logic ("ECL"), transistor-transistor logic ("TTL")
and CMOS interface cells can be supported on the same chip design. The analog
cells in the Company's library include oscillators, amplifiers, mixers, switches
and modulators. Each analog cell is essentially a complete integrated circuit
function including all necessary passive (resistors, capacitors and inductors)
and active (transistors and diodes) components. The analog cells are designed
for both broadband and narrowband operation up to 2.5 GHz enabling the designer
to select cells best suited for the specific application. These analog cells can
be used in conjunction with digital cells to create mixed signal integrated
circuit designs.
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 high volume. In addition, in the event of significant
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 results of operations could be materially adversely
affected.
DESIGN AND PROCESS TECHNOLOGY
In order to develop and introduce new products rapidly and cost-effectively
which address the needs of its target markets, the Company has made substantial
investments in building its capabilities in digital, analog and mixed signal
circuit design. The Company has developed an extensive library of digital and
analog cells and associated software tools and databases which it uses to
facilitate the design of its integrated circuits. The Company has also
developed and documented process and design rules which allow customers to
design proprietary circuits themselves. Mixed signal products, which generally
involve varied and complex functions operating at high frequencies, generally
present design and testing challenges. The Company believes that its extensive
cell library, optimized mixed signal process technology and design and test
engineering expertise in high performance mixed signal integrated circuits
address these challenges and provide a significant competitive advantage.
TriQuint's manufacturing strategy is primarily to use a single high volume
core process technology which enables it to provide cost-effective solutions for
its customers. The Company's advanced wafer manufacturing process emphasizes
stability, uniformity and repeatability. Unlike its GaAs competitors who have
typically concentrated on either digital or analog products, TriQuint has
intentionally pursued a process technology that is cost-effective for digital,
analog and mixed signal applications. As a result of the ability to primarily
utilize a single core process in the manufacture of its products, the Company is
able to enjoy the cost advantages associated with standard high volume
semiconductor manufacturing practices. The process, which employs all implanted
structures, 4 micron metal pitch and 0.5 to 0.7 micron geometries, involves 10
to 13 mask steps, has a cutoff frequency of up to 21 GHz and is scaleable. This
scalability facilitates further cost reduction and performance improvement. The
Company believes that its process technology and manufacturing approach allows
it to achieve higher yields and shorter cycle times than are typical for GaAs
processes and which are comparable to high performance silicon processes.
The Company applies the technological advances within the silicon and
related support industries to its design and manufacturing processes. TriQuint
utilizes popular CAD and process control tools and test equipment. The Company
uses standard silicon industry packages primarily, and subcontracts its product
assembly operations.
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MANUFACTURING
The Company's existing wafer manufacturing facility is located in
Beaverton, Oregon in a facility owned by Maxim Integrated Products, Inc.
("Maxim") and located on the Tektronix, Inc. ("Tektronix") campus (the "Maxim
facility"). The Company's lease in the Maxim facility expires in January 1998.
In anticipation of the expiration of this lease, the Company began construction
of a new headquarters and manufacturing facility in 1996 in Hillsboro, Oregon
and anticipates that it will commence wafer production in the new facility
during the second half of 1997. The Company intends to operate both
manufacturing facilities until the Hillsboro facility is operating at normal
capacity or until the lease on the Maxim facility expires. There can be no
assurance that the Company will be able to successfully transition its
operations to the Hillsboro facility prior to the expiration of the Company's
lease on the Maxim facility or that the Company will not experience cutbacks in
manufacturing output as a result. Given the long lead times associated with
bringing a new facility to full operation, it is likely that the Company will
incur substantial cash expenses before achieving volume production in the
Hillsboro facility. The transfer of the Company's wafer fabrication operations
to the Hillsboro facility will involve a number of significant risks and
uncertainties, including, but not limited to, delays in construction, cost
overruns, equipment delays or shortages and manufacturing transition, startup or
process problems. The Company utilizes the Maxim facility's wafer fabrication
facility equipment at approximately 75% of capacity based on a three shift, five
day per week operation. Should there be substantial delays in opening the
Hillsboro facility, the Company may not have adequate capacity to respond to all
orders during the transition period. In addition, if the Hillsboro facility
does not become fully operational prior to the expiration of the lease on the
Maxim facility, there can be no assurance that the Company would not have to
reduce production. The transition of manufacturing operations to the Hillsboro
facility could place significant strain on the Company's management and
engineering resources and result in diversion of management attention from the
day to day operation of the Company's business. There can be no assurance that
the Company will be able to hire additional management, engineering and other
personnel, as needed, to manage effectively, the transition to the Hillsboro
facility and to implement production at such facility in a timely manner and
within budget.
The Maxim facility consists of 30,000 square feet and includes a 15,000
square foot clean room, with class 10 performance (no more than ten particles
larger than 0.5 microns in size per cubic foot of air). The Company, pursuant
to its lease and other agreements relies on Maxim and Tektronix to provide
utilities and other services and for treatment and disposal of waste products,
respectively, at the existing facility. The Hillsboro facility will consist of
38,000 square feet, of which 16,000 will be operated as a class 10 performance
clean room. The Hillsboro facility will operate as the Company's only wafer
fabrication plant and the Company believes it will provide adequate room for
expansion for the foreseeable future. At the Hillsboro facility, the Company
will be responsible for providing its own utilities and services and will be
responsible for its own manufacturing waste treatment and disposal. Should the
Company be unable to effect a timely transition to providing its own utilities,
services and waste treatment and disposal, the Company's wafer fabrication would
be adversely affected.
The fabrication of semiconductor products is highly complex and sensitive
to dust and other contaminants, requiring production in a highly controlled,
clean environment. Minute impurities, difficulties in the fabrication process
or defects in the masks used to print circuits on the wafers can cause a
substantial percentage of the 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. The more brittle nature of GaAs wafers can lead to higher processing
losses than experienced with silicon wafers. To maximize wafer yield and
quality, the Company tests its products in various stages in the fabrication
process, maintains continuous reliability monitoring and conducts numerous
quality control inspections throughout the entire production flow using
analytical manufacturing controls. Although the Company has refined and
improved its core processes to double manufacturing yields since 1990, there can
be no assurance that the transition to the Hillsboro facility will not be
accompanied by a reduction in wafer fabrication yields. A sustained failure to
maintain acceptable yields during the transition process or achieve acceptable
yields at the Hillsboro facility would have a material adverse effect on the
Company's operating results.
The Company's operation of its own manufacturing facilities entails a high
level of fixed costs. Such fixed costs consist primarily of occupancy costs for
the Hillsboro and Maxim facilities, investment in manufacturing equipment,
repair, maintenance and depreciation costs related to equipment and fixed labor
costs related to manufacturing and process engineering. The Company's
manufacturing yields vary significantly among its products, depending upon a
given product's complexity and the Company's experience in manufacturing such
product. The Company has in the past and may in the future experience
substantial delays in product shipments due to lower than expected production
yields. The Company's transition of manufacturing operations to the Hillsboro
facility will result
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in a significant increase in fixed and operating expenses. If revenue levels do
not increase sufficiently to offset these additional expense levels, the
Company's results of operations will be adversely impacted in future periods.
Because the Company intends to capitalize the costs associated with bringing the
Hillsboro facility to commercial production, the Company will recognize
substantial depreciation expenses thereafter. In addition, during periods of
low demand, high fixed wafer fabrication costs could have a material adverse
effect on the Company's operating results.
Employees of the Company have performed studies of the reliability of the
Company's processes and have published more than 25 technical papers in such
field. In October 1994, the Company received the ISO 9001 Quality System
Certification with respect to its operations. The Company has successfully
fabricated devices for "High Reliability" applications in commercial and
military spacecraft since 1988. Through accelerated test techniques, the
Company has demonstrated expected device failure rates of less than 100FITs (100
failures in 1 billion device-hours of operation) in the first twenty years of
operation at maximum junction temperatures of 150 degrees Celsius. The
reliability of the Company's processes may be inadvertently reduced by future
engineering changes and the reliability of any given integrated circuit may be
strongly influenced by design details, and there can be no assurance that
circuits designed and manufactured in the future will achieve this level of
reliability. Finally, the Hillsboro plant, as well as products manufactured at
the new facility, must be qualified to meet acceptable levels of performance
before products can be delivered to customers. In the event the plant or one or
more of the Company's products fails to qualify, the Company's results of
operations could be materially adversely affected.
Wafer fabrication equipment used by the Company is generally the same as
that used in a submicron silicon metal oxide semiconductor ("MOS") fabrication
facility. While many of the process steps are also similar to those commonly
used in silicon wafer manufacturing, TriQuint's GaAs manufacturing process has
important differences. The GaAs process requires fewer steps and may be
conducted at lower temperatures than those typically required in high
performance silicon processes. Furthermore, GaAs wafers require more rigorous
handling procedures than do silicon wafers.
The raw materials and equipment used in the production of the Company's
integrated circuits are available from several suppliers. The Company currently
has four fully qualified wafer vendors, three of which are located in the United
States. Three vendors supply the Company's mask sets, and the Company has an
agreement with one of the three to procure a substantial portion of such mask
sets.
The Company assembles a portion of its products in-house but also uses
outside assembly contractors. The Company performs in-house assembly at its
Maxim facility for small lots of critical parts, engineering lots and assembly
development for new packages. The Company anticipates that it will perform
similar functions at the Hillsboro facility. Outside assembly for volume
production is contracted to five vendors, two of which are located in the United
States. The Company purchases high performance, multilayer ceramic packages
from two vendors, neither of which is located in the United States. TriQuint
believes it was the first supplier of GaAs integrated circuits to introduce
plastic packages in volume production. The Company currently purchases plastic
packaging services from three suppliers, one of which is located in the United
States. A reduction or interruption in the performance of assembly services by
subcontractors or a significant increase in the price changed for such services
could adversely affect the Company's operating results.
SALES AND DISTRIBUTION
The Company sells its products through independent manufacturer's
representatives and distributors and through a direct sales staff. As of
December 31, 1996, TriQuint had 22 independent manufacturer's representative
firms and two distributors in North America. TriQuint's six person direct sales
management staff provides sales direction and support to the manufacturer's
representatives and distributors. Domestic sales management offices are located
in the metropolitan areas of Boston; Dallas; Los Angeles; Portland, Oregon;
Philadelphia and San Jose. International business is supported by a network of
14 technical distributors in Europe, the Pacific Rim and Israel. In 1996, the
Company sold its minority interest in its primary European distributor, GIGA
A/S, a joint venture with a subsidiary of IC Holdings/AC (NKT), a European
conglomerate. GIGA A/S continues as a European distributor for the Company.
Sales outside of the United States were $19.1 million, $14.8 million and $12.7
million in 1996, 1995 and 1994, respectively. All international sales of the
Company's products are denominated in U.S. dollars in order to reduce the
exchange rate risks. Sales outside of the United States involve a number of
inherent risks, including reduced protection for intellectual property rights in
some countries, the impact of recessionary environments in economies outside of
the United States and generally longer receivables collection periods, as well
as tariffs and other trade barriers. In addition, due to the technological
advantage
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<PAGE>
provided by GaAs in military applications, all export sales must be licensed by
the Office of Export Administration of the U.S. Department of Commerce.
Although the Company has experienced no difficulty in obtaining these licenses,
failure to obtain these licenses in the future could have a material adverse
effect on the Company's results of operations.
The Company includes in its backlog all purchase orders and contracts for
products requested by the customer for delivery within twelve months. The
Company's business is characterized by long-term purchase contracts
predominantly relating to customer-specific products, which are typically
cancelable without significant penalty, at the option of the purchaser.
Cancellations of such purchase contracts or rescheduling of delivery dates have
occurred in the past and may occur in the future. The Company also produces
standard products which frequently can be shipped from inventory within a short
time after receipt of an order and therefore such orders may not be reflected in
backlog. Accordingly, backlog as of any particular date may not necessarily be
representative of actual sales for any future period.
RESEARCH AND DEVELOPMENT
The Company's research and development efforts are focused on the design of
new integrated circuits, improvement of existing device performance, development
of new processes, cost reductions in the manufacturing process and improvements
in device packaging. New product developments for the wireless communications
market include standard and customer-specific devices for satellite
communications, navigation based on the GPS standard, PCS, wireless local area
networks and wireless PBXs. New telecommunications product development efforts
include higher performance switching and data conversion standard products as
well as customer-specific products. New data communications chipsets are also
being developed to support emerging communications standards.
The Company's research, development and engineering expenses in 1996, 1995
and 1994 were approximately $10.9 million, $9.2 million and $9.9 million,
respectively, and include non-recurring engineering (NRE) expenses funded by
customers. As of December 31, 1996, there were approximately 121 employees
engaged in activities related to process and product research and development.
The Company expects that it will continue to spend substantial funds on research
and development.
The Company is continually in the process of designing new and improved
products to maintain its competitive position. While the Company has patented a
number of aspects of its process technology, the market for the Company's
products is characterized by rapid changes in both GaAs and competing silicon
process technologies. Because of continual improvements in these technologies,
the Company believes that its future success will depend on its ability to
continue to improve its products and processes and develop new technologies in
order to remain competitive. Additionally, the Company's future success will
depend on its ability to develop and introduce new products for its target
markets in a timely manner. The success of new product introductions is
dependent upon several factors, including timely completion and introduction of
new product designs, achievement of acceptable fabrication yields and market
acceptance. The development of new products by the Company and their design
into customers' systems can take as long as three years, depending upon the
complexity of the device and the application. Accordingly, new product
development requires a long-term forecast of market trends and customer needs.
Furthermore, the successful introduction of the Company's ongoing products may
be adversely affected by the competing products or technologies serving markets
addressed by the Company's products. In addition, new product introductions
frequently depend on the Company's development and implementation of new process
technologies. If the Company is unable to design, develop, manufacture and
market new products successfully, its future operating results will be adversely
affected. No assurance can be given that the Company's product and process
development efforts will be successful or that its new products will be
available on a timely basis or 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 obtaining 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
introductions do not occur in a timely manner or the Company's or its customers'
products do not achieve market acceptance, the Company's operating results could
be adversely affected.
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COMPETITION
The market for high performance semiconductors is highly competitive and
subject to rapid technological change. Due to the increasing requirements for
high speed components, the Company expects intensified competition from existing
silicon device suppliers and the entry of new competition producing either
silicon or GaAs components or components incorporating new technologies such as
silicon germanium. The Company currently competes against silicon products
offered principally by large semiconductor manufacturers such as Cypress,
Motorola and Philips. In addition, the Company also currently competes against
other GaAs semiconductor manufacturers, such as Anadigics and Vitesse. It is
expected that additional future competition will primarily come from large
semiconductor companies that have developed GaAs integrated circuit capabilities
such as Fujitsu America, Inc., Motorola and NEC. Such companies have
substantially greater technical, financial and marketing resources and name
recognition than the Company. Increased competition could adversely affect the
Company's revenue and profitability.
GaAs integrated circuits have been used mostly in the wireless
communications market on a production basis for products or subsystems operating
below 1 GHz, such as spread spectrum and cellular telephone applications. As
the lower frequency bands become more crowded, more applications will utilize
frequencies above 1 GHz. At such higher frequencies, GaAs integrated circuit
solutions generally provide superior performance as compared to silicon
alternatives. TriQuint competes with both GaAs and silicon suppliers in the
telecommunications market. In the computing market, TriQuint supplies standard
products to a variety of electronic data processing and data communication
systems manufacturers. In the computing market, the Company's competition comes
from established silicon semiconductor companies and GaAs suppliers, and is
generally based on performance elements such as speed, power dissipation, price,
product quality and service.
The Company's prospective customers are typically systems designers and
manufacturers who are considering the use of GaAs semiconductors in their next
high performance systems. Competition is primarily based on performance
elements such as speed, complexity and power dissipation, as well as price,
product quality and ability to deliver products in a timely fashion. The Company
believes that it currently competes favorably with respect to these factors.
Due to the proprietary nature of the Company's products, competition occurs
almost exclusively at the system design stage. As a result, a design win by the
Company or its competitors typically limits further competition with respect to
manufacturing a given design. Some potential customers may be reluctant to adopt
the Company's products because of perceived risks relating to GaAs technology
generally, including perceived risks related to manufacturing costs, novel
design and unfamiliar manufacturing processes. In addition, potential customers
may have questions about the relative performance advantages of the Company's
products compared to more familiar silicon semiconductors, or concerns about
risks associated with reliance on a smaller, less well-capitalized company for a
critical component. While GaAs integrated circuits have inherent speed
advantages over silicon devices, the speed of products based upon silicon
processes is continually improving. The Company's products are generally sole
sourced to its customers, and the Company's operating results could be adversely
affected if its customers were to develop other sources for the Company's
products.
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
production costs by obtaining approximately 30% lower raw wafer costs over the
last three fiscal years, by more than doubling wafer fabrication yields since
1990 and by achieving higher volumes, there can be no assurance that the Company
will be able to continue to decrease production costs. In addition, the Company
believes 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
such that the perceived price/performance of its products is competitive with
silicon devices. 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 differentials.
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PATENTS AND LICENSES
The Company aggressively seeks the issuance of patents to protect
inventions and technology which are important to its business. The Company has
been awarded numerous patents for circuit design and wafer processing; with
various expiration dates, none earlier than April 2005. These include both U.S.
and foreign patents. In addition, the Company has both U.S. and foreign
registered trademarks. The Company has also routinely protected its numerous
original mask sets under the copyright laws. There can be no assurance that the
Company's pending patent or trademark applications will be allowed or that the
issued or pending patents will not be challenged or circumvented by competitors.
Notwithstanding the Company's active pursuit of patent protection, the
Company believes that its future success will depend primarily upon the
technical expertise, creative skills and management abilities of its officers
and key employees rather than on patent ownership. The Company also relies
substantially on trade secrets and proprietary technology to protect its
technology and manufacturing know-how, and works actively to foster continuing
technological innovation to maintain and protect its competitive position.
There can be no assurance that the Company's competitors will not independently
develop or patent substantially equivalent or superior technologies.
Although there are no pending lawsuits against the Company regarding
infringement of any existing patents or other intellectual property rights or
any unresolved notices that the Company is infringing intellectual property
rights of others, there can be no assurance that such infringement claims will
not be asserted by third parties in the future with respect to the Company's
products or that the Company's products will not infringe patent, trademark,
mask work right, copyright or other proprietary rights of third parties.
Additionally, in the event of such infringement, there can be no assurance that
TriQuint will be able to obtain licenses on reasonable terms. The Company's
involvement in any patent dispute or other intellectual property dispute or
action to protect trade secrets and know-how could have a material adverse
effect on the Company's business. Adverse determinations in any litigation
could subject the Company to significant liabilities to third parties, require
the Company to seek licenses from third parties and prevent the Company from
manufacturing and selling its products. Any of these situations could have a
material adverse effect on the Company's business.
ENVIRONMENTAL MATTERS
Federal, state and local regulations impose various environmental controls
on the storage, handling, discharge and disposal of chemicals and gases used in
TriQuint's manufacturing process. Pursuant to the Environmental Services
Agreement dated May 27, 1994, between Tektronix and the Company, the Company
utilizes Tektronix's waste-treatment and waste-storage facilities and services
for the treatment, storage, disposal and discharge of wastes generated by the
Company. Since the Company's manufacturing facilities are located in the same
building as certain integrated circuit manufacturing operations of Maxim, the
Company's waste streams are commingled with those of Maxim and are treated prior
to final discharge or other disposal. When the Company completes the relocation
of its manufacturing facilities to the new Hillsboro, Oregon location, it will
provide for its own manufacturing waste treatment and disposal. In addition,
the Company is required by the State of Oregon Department of Environmental
Quality to report usage of environmentally hazardous materials separately from
Maxim, and has retained the services of an environmental consultant to advise it
in complying with all applicable environmental regulations.
The Company believes that its activities conform to present environmental
regulations. Increasing public attention has, however, been focused on the
environmental impact of semiconductor operations. While the Company has not
experienced any materially adverse effects on its operations from environmental
regulations, there can be no assurance that changes in such regulations will not
impose the need for additional capital equipment or other requirements. Any
failure by the Company or Tektronix to adequately restrict the discharge of
hazardous substances could subject the Company to future liabilities or could
cause its manufacturing operations to be suspended.
EMPLOYEES
As of December 31, 1996, the Company employed 361 persons, including 176 in
manufacturing, 11 in quality and reliability, 121 in process and product
engineering and development, 24 in marketing and sales and 29 in finance and
administration. None of the Company's employees is represented by a collective
bargaining agreement, nor has the Company experienced any work stoppage. The
Company considers its relations with employees to be good.
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<PAGE>
ITEM 2. PROPERTIES
The Company moved its executive, administrative, test and technical offices
to a 124,000 square foot facility in Hillsboro, Oregon in the first quarter of
1997. Prior to that time, such functions were conducted at the Company's former
headquarters in Beaverton, Oregon. In the first quarter of 1996, the Company
began construction of the Hillsboro, Oregon facility which, when completed, will
house the Company's executive, administrative and technical offices and
manufacturing operations. The 38,000 square foot Hillsboro wafer fabrication
facility is scheduled to begin operations in the second half of 1997 and will
include a 16,000 square foot clean room. The relocation of the Company's
operations to the Hillsboro facility entails a number of risks such as the
interruption of production flow, loss of shipment revenue, inability to
replicate critical manufacturing processes, and possible adverse impacts of
delays or reduced production yields at the new facility on the Company's
financial performance. See "Business -- Manufacturing."
In May 1996, the Company entered into a 5 year synthetic lease through a
Participation Agreement (the "Agreement") with Wolverine Leasing Corp.
("Wolverine"), Matisse Holding Company ("Matisse") and United States National
Bank ("USNB"). The lease provides for the construction and occupancy of the
Hillsboro facility under an operating lease from Wolverine and provides the
Company with an option to purchase the property. At the expiration of its five
year lease, the Company may exercise the option to purchase the property or
renew its lease for an additional five years. Pursuant to the terms of the
Agreement, the USNB and Matisse made loans to Wolverine who in turn provided the
funds to the Company for the construction of the Hillsboro facility and other
costs and expenses associated therewith. The loan from USNB is collateralized
by investment securities pledged by the Company. Such investment securities are
classified on the Company's balance sheet as restricted securities. In
addition, the Company has made certain restrictive covenants in connection with
the Participation Agreement that 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 December 31, 1996, the Company was in compliance with the
covenants described above, and the Company anticipates that it will be in
compliance with the covenants as of March 31, 1997. However, there can be no
assurance that the Company will continue to be in compliance with its covenants
under the Participation Agreement in the future.
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<PAGE>
ITEM 3. LEGAL PROCEEDINGS
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. The complaint seeks
unspecified damages, costs, attorney's fees and other relief on behalf of all
purchasers of the Company's common stock during the period December 13, 1993
through June 9, 1994. Since the filing of the complaint, the plaintiffs have
dismissed without prejudice a director defendant, the principal shareholder
defendant 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 is scheduled to end on
April 11, 1997. A trial date has not been set. There is no assurance, however,
that the lawsuit will be resolved in a timely or satisfactory manner or that
the lawsuit will be resolved without significant costs to the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On December 19, 1996, the Company held a Special Meeting of Shareholders
for which it solicited votes by proxy. The following is a brief description of
the matters voted on at the meeting and a statement of the number of votes cast
for and against and the number of abstentions.
The reincorporation of TriQuint as a Delaware corporation was approved.
VOTES
For: 4,077,818
Against: 2,051,610
Abstain: 27,342
At a Special Meeting of Shareholders scheduled for November 19, 1996, a
quorum was not present. The Chairman of the Meeting, Joseph I. Martin, made a
motion to adjourn the meeting until December 19, 1996, and such motion was
passed by a majority of the votes present. Notice of the date of the adjourned
meeting, December 19, 1996, was provided and the Special Meeting of Shareholders
held November 19, 1996 was then recessed. At the Special Meeting of
Shareholders held December 19, 1996, TriQuint's shareholders approved a proposal
to change TriQuint's state of incorporation to Delaware from California (the
"Reincorporation") through a merger of TriQuint Semiconductor, Inc., a
California corporation ("TriQuint California") with the Company's wholly owned
subsidiary, TriQuint Semiconductor, Inc., a Delaware corporation ("TriQuint
Delaware").
In connection with the Reincorporation, the shareholders of the Company
approved the following changes to the bylaws and certificate of incorporation
of the Company: (a) shareholder action by writen consent was eliminated, (b) the
remaining directors can appoint a director to replace a director removed by the
shareholders, (c) special meetings of the shareholders may only be called by the
Board of Directors, and (d) shareholders intending to nominate candidates for
election as directors or to propose items of business for consideration at
shareholder meetings must meet certain advance notice requirements.
On February 12, 1997, TriQuint completed the Reincorporation. As of the
effective time of the merger, TriQuint California ceased to exist. The
Reincorporation effects only a change in the legal domicile of TriQuint. It
will not result in any change of the name, business, management, employees,
fiscal year, assets or liabilities, trading symbol (TQNT) or location of any of
the facilities of the Company.
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<PAGE>
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
Certain of the information required by this item is included under the
caption COMMON STOCK PRICES AND MARKET FOR COMPANY'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS contained in the Company's 1996 Annual Report to
Stockholders and is incorporated herein by reference.
ITEM 6. SELECTED FINANCIAL DATA
The information required by this item is included under the caption
SELECTED FINANCIAL DATA contained in the Company's 1996 Annual Report to
Stockholders and is incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The information required by this item is included under the caption
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS contained in the Company's 1996 Annual Report to Stockholders and is
incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY FINANCIAL DATA
The information required by this item is included under the caption
SUPPLEMENTARY UNAUDITED FINANCIAL DATA contained in the Company's 1996 Annual
Report to Stockholders and as listed in Item 14 of Part IV of this report and is
incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable.
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<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this item is included under the captions
ELECTION OF DIRECTORS, EXECUTIVE OFFICERS and SECTION 16(a) BENEFICIAL OWNERSHIP
REPORTING COMPLIANCE contained in the Company's Proxy Statement for its 1997
Annual Meeting of Stockholders, to be held May 29, 1997, to be filed by the
Company with the Securities and Exchange Commission within 120 days of the end
of the Company's fiscal year pursuant to General Instructions G(3) of Form 10-K
and is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
Information required by this item is included under the caption EXECUTIVE
COMPENSATION contained in the Company's Proxy Statement for its 1997 Annual
Meeting of Stockholders and is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information required by this item is included under the caption SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT contained in the Company's
Proxy Statement for its 1997 Annual Meeting of Stockholders and is incorporated
herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information required by this item is included under the caption CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS contained in the Company's Proxy
Statement for its 1997 Annual Meeting of Stockholders and is incorporated herein
by reference.
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<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)(1) FINANCIAL STATEMENTS
The Financial Statements, together with the report thereon of
KPMG Peat Marwick LLP are included in the Company's 1996 Annual Report to
Stockholders and are incorporated herein by reference.
TriQuint Semiconductor, Inc.:
Statements of Operations for the years ended
December 31, 1996, 1995 and 1994
Balance Sheets as of December 31, 1996 and 1995
Statements of Shareholders' Equity
December 31, 1996, 1995 and 1994
Statements of Cash Flows for the years ended
December 31, 1996, 1995 and 1994
Notes to Financial Statements
Report of Independent Public Accountants
(a) (2) FINANCIAL STATEMENT SCHEDULE
The following schedule and report of independent public
accountants are filed herewith:
Page No.
--------
Schedule II Valuation and Qualifying Accounts F1
Report of Independent Public Accountants on Financial
Statement Schedules F2
Schedules not listed above have been omitted because the
information required to be set forth therein is not applicable or is included in
the Financial Statements or notes thereto.
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<PAGE>
(a) (3) EXHIBITS
Exhibit No.
-----------
3.1 (7) Certificate Incorporation of Registrant
3.2 (7) Bylaws of Registrant
10.1 (1) Form of Indemnification Agreement with directors and
officers.
10.2 (2) 1987 Stock Incentive Program, as amended, and forms of
agreements thereunder.
10.3 (5) 1992 Employee Stock Purchase Plan, as amended, and forms of
agreement thereunder.
10.4 (1) Letter Agreement dated November 22, 1991 between the
Registrant and Steven J. Sharp.
10.5 (1) Employment, Confidentiality, Contingent Severance and
Inventions Agreement dated May 14, 1991 between Registrant
and Spencer J. Brown, as amended by Amendment No. 1 thereto
dated April 30, 1992.
10.6 (1) Letter Agreement dated March 1, 1992 between Registrant and
Edward C.V. Winn, as amended to date.
10.7 (1) Registration Rights Agreement dated May 17, 1991 between the
Registrant and certain of its shareholders and
warrantholders, as amended September 5, 1991, September 3,
1992, July 1, 1993 and September 24, 1993.
10.8 (1) Supply Agreement dated October 11, 1990 by and between
DuPont Photomasks, Inc. and Registrant.
10.9 (1) Amended and Restated Exclusive Distributor Agreement dated
September 20, 1991, as amended between Registrant and Giga
A/S.
10.10 (1) Lease dated July 2, 1987 by and between San Thomas
Investment Company and Registrant, as amended to date.
10.11 (1) Lease dated February 12, 1988 between Floating Point
Systems, Inc. and Registrant, as amended to date.
10.12 (3) Lease dated May 27, 1994 between Tektronix, Inc. and
Registrant (assumed by Maxim Integrated Products, Inc.), as
amended to date.
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<PAGE>
Exhibit No.
-----------
10.13.1 (1) Asset Purchase Agreement dated August 31, 1993 by and
between American Telephone and Telegraph Company ("AT&T")
and Registrant
10.13.2 (1*) Joint Development and Technology Transfer Agreement dated
August 31, 1993 between AT&T and Registrant.
10.13.3 (1*) Foundry Agreement dated August 31, 1993 between AT&T and
Registrant.
10.13.4 (1*) Patent License Agreement dated August 31, 1993 between AT&T
and Registrant.
10.13.5 (1) Letter Agreement dated August 31, 1993 between AT&T and
Registrant.
10.13.6 (1) Warrant to Purchase Shares of Series D Convertible Preferred
Stock of Registrant dated August 31, 1993 issued to AT&T.
10.14 (1*) Agreement dated May 6, 1993 between Comlinear Corporation
and the Registrant.
10.15 (1*) Agreement of Purchase and Sale for Semiconductor Products
between Northern Telecom Canada Limited and Registrant dated
July 8, 1993.
10.16 (4) Participation Agreement dated May 17, 1996 among the
Registrant, Wolverine Leasing Corp., Matisse Holding Company
and United States National Bank of Oregon
10.17 (4) Lease dated May 17, 1996 between the Registrant and
Wolverine Leasing Corp.
10.18 (6) 1996 Stock Incentive Program and forms of agreement
thereunder.
10.19 (7) Form of Indemnification Agreement executed by Registrant and
its officers and directors pursuant to Delaware
reincorporation.
11.1 Statement regarding computation of per share earnings.
13.1 Annual report to Stockholders.
23.1 Consent of KPMG Peat Marwick LLP
27.1 Financial Data Schedule
(*) Confidential treatment has been granted with respect to certain portions of
this exhibit. Omitted portions have been filed separately with the
Securities and Exchange Commission.
(1) Incorporated by reference to the Registration Statement on Form S-1 (File
No. 33-70594) as declared effective by the Securities and Exchange
Commission December 13, 1993.
(2) Incorporated by reference to the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1994 as filed with the Securities and
Exchange Commission on March 29, 1995.
(3) Incorporated by reference to the Company's quarterly report on Form 10-Q
for the quarter ended June 30, 1994 as filed
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<PAGE>
with the Securities and Exchange Commission on August 13, 1994.
(4) Incorporated by reference to the exhibits filed with the Registrant's
Report on Form 8-K filed with the Securities and Exchange Commission on
June 14, 1996.
(5) Incorporated by reference to the Registrant's Registration Statement on
Form S-8 (File No. 333-08891) as declared effective by the Securities and
Exchange Commission on August 14, 1996.
(6) Incorporated by reference to the Registrant's Registration Statement on
Form S-8 (File No. 333-08893) as declared effective by the Securities and
Exchange Commission on August 14, 1996.
(7) Incorporated by reference to the Registrant's Registration Statement on
Form 8-B (file No. 000-22660) as declared effective by the Securities and
Exchange Commission on February 18, 1997.
(b) REPORTS ON FORM 8-K
No reports on Form 8-K were filed by the Registrant during the quarter
ended December 31, 1996.
(c) EXHIBITS
See Item 14(a)(3) above.
(d) FINANCIAL STATEMENT SCHEDULES
See Item 14(a)(2) above.
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<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the Registrant has duly caused this Report to
be signed on its behalf by the undersigned, thereunto duly authorized.
TRIQUINT SEMICONDUCTOR, INC.
By: /S/ STEVEN J. SHARP
------------------------------------------
Steven J. Sharp
President, Chief Executive Officer and
Chairman of the Board of Directors
Date: March 31, 1997
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Steven J. Sharp and Edward C.V. Winn, and
each of them, his true and lawful attorneys-in-fact and agents, each with full
power of substitution and resubstitution, to sign any and all amendments
(including post-effective amendments) to this Annual Report on Form 10-K and to
file the same, with all exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
connection therewith, as fully to all intents and purposes as he or she might or
could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or their substitute or substitutes, or any of
them, shall do or cause to be done by virtue hereof.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED, THIS REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF
THE REGISTRANT AND IN THE CAPACITIES AND ON THE DATES INDICATED:
SIGNATURE TITLE DATE
- -------------------- ---------------------------------- --------------
/s/ STEVEN J. SHARP President, Chief Executive Officer March 31, 1997
- ------------------- and Chairman (Principal Executive
Steven J. Sharp Officer)
/s/ EDWARD C.V. WINN Executive Vice President, Finance March 31, 1997
- -------------------- and Administration, Chief Financial
Edward C.V. Winn Officer and Secretary (Principal
Financial and Accounting Officer)
/s/ PAUL A. GARY Director March 31, 1997
- ----------------
Paul A. Gary
/s/ CHARLES SCOTT GIBSON Director March 31, 1997
- ------------------------
Charles Scott Gibson
/s/ E. FLOYD KVAMME Director March 31, 1997
- -------------------
E. Floyd Kvamme
/s/ DR. WALDEN C. RHINES Director March 31, 1997
- ------------------------
Dr. Walden C. Rhines
/s/ EDWARD F. TUCK Director March 31, 1997
- ------------------
Edward F. Tuck
-21-
<PAGE>
TRIQUINT SEMICONDUCTOR, INC.
Schedule II - Valuation and Qualifying Accounts
Years ended December 31, 1994, 1995, 1996
(in thousands)
<TABLE>
<CAPTION>
Additions
Balance at charged to Balance at
beginning costs and end of
of period expenses Deductions period
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Year ended December 31, 1994:
Allowance for doubtful accounts $ 34 139 21 152
Inventory valuation reserve 1,159 2,006 901 2,264
Year ended December 31, 1995:
Allowance for doubtful accounts 152 147 97 202
Inventory valuation reserve 2,264 1,121 1,076 2,309
Year ended December 31, 1996:
Allowance for doubtful accounts 202 119 102 219
Inventory valuation reserve 2,309 3,668 3,594 2,383
</TABLE>
-F1-
<PAGE>
INDEPENDENT AUDITORS' REPORT
ON FINANCIAL STATEMENT SCHEDULES
The Board of Directors
TriQuint Semiconductor, Inc.:
Under date of February 7, 1997, we reported on the balance sheets of TriQuint
Semiconductor, Inc. as of December 31, 1996 and 1995, and the related statements
of operations, shareholders' equity, and cash flows for each of the years in the
three-year period ended December 31, 1996, as contained in the 1996 annual
report to shareholders. These financial statements and our report thereon are
incorporated by reference in the annual report on Form 10-K for the year 1996.
In connection with our audit of the aforementioned financial statements, we also
audited the related financial statement schedule as listed in Item 14(a)(2) of
this Form 10-K. This financial statement schedule is the responsibility of the
Company's management. Our responsibility is to express an opinion on this
financial statement schedule based on our audits. In our opinion, such financial
statement schedule, when considered in relation to the basic financial
statements taken as a whole, present fairly in all material respects the
information set forth therein.
KPMG Peat Marwick LLP
Portland, Oregon
February 7, 1997
-F2-
<PAGE>
EXHIBITS
Sequential
EXHIBIT NO. PAGE NO.
- ----------- ----------
3.1 (7) Certificate Incorporation of Registrant -----
3.2 (7) Bylaws of Registrant -----
10.1 (1) Form of Indemnification Agreement with directors
and officers. -----
10.2 (2) 1987 Stock Incentive Program, as amended, and
forms of agreements thereunder. -----
10.3 (5) 1992 Employee Stock Purchase Plan, as amended,
and forms of agreement thereunder. -----
10.4 (1) Letter Agreement dated November 22, 1991 between
the Registrant and Steven J. Sharp. -----
10.5 (1) Employment, Confidentiality, Contingent
Severance and Inventions Agreement dated
May 14, 1991 between Registrant and
Spencer J. Brown, as amended by Amendment No. 1
thereto dated April 30, 1992. -----
10.6 (1) Letter Agreement dated March 1, 1992 between
Registrant and Edward C.V. Winn, as amended
to date. -----
10.7 (1) Registration Rights Agreement dated May 17, 1991
between the Registrant and certain of its
shareholders and warrantholders, as amended
September 5, 1991, September 3, 1992,
July 1, 1993 and September 24, 1993. -----
10.8 (1) Supply Agreement dated October 11, 1990 by and
between DuPont Photomasks, Inc. and Registrant. -----
10.9 (1) Amended and Restated Exclusive Distributor
Agreement dated September 20, 1991, as amended
between Registrant and Giga A/S. -----
10.10 (1) Lease dated July 2, 1987 by and between San
Thomas Investment Company and Registrant,
as amended to date. -----
10.11 (1) Lease dated February 12, 1988 between Floating
Point Systems, Inc. and Registrant, as amended
to date. -----
10.12 (3) Lease dated May 27, 1994 between Tektronix, Inc.
and Registrant (assumed by Maxim Integrated
Products, Inc.), as amended to date. -----
<PAGE>
Sequential
Exhibit No. Page No.
- ----------- ----------
10.13.1 (1) Asset Purchase Agreement dated August 31, 1993
by and between American Telephone and Telegraph
Company ("AT&T") and Registrant. -----
10.13.2 (1*) Joint Development and Technology Transfer
Agreement dated August 31, 1993 between AT&T
and Registrant. -----
10.13.3 (1*) Foundry Agreement dated August 31, 1993 between
AT&T and Registrant. -----
10.13.4 (1*) Patent License Agreement dated August 31, 1993
between AT&T and Registrant. -----
10.13.5 (1) Letter Agreement dated August 31, 1993 between
AT&T and Registrant. -----
10.13.6 (1) Warrant to Purchase Shares of Series D
Convertible Preferred Stock of Registrant dated
August 31, 1993 issued to AT&T. -----
10.14 (1*) Agreement dated May 6, 1993 between Comlinear
Corporation and the Registrant. -----
10.15 (1*) Agreement of Purchase and Sale for Semiconductor
Products between Northern Telecom Canada Limited
and Registrant dated July 8, 1993. -----
10.16 (4) Participation Agreement dated May 17, 1996 among
the Registrant, Wolverine Leasing Corp., Matisse
Holding Company and United States National Bank
of Oregon. -----
10.17 (4) Lease dated May 17, 1996 between the Registrant
and Wolverine Leasing Corp. -----
10.18 (6) 1996 Stock Incentive Program and forms of
agreement thereunder. -----
10.19 (7) Form of Indemnification Agreement executed by
Registrant and its officers and directors
pursuant to Delaware reincorporation. -----
11.1 Statement regarding computation of per
share earnings. 27
13.1 Annual report to Stockholders. 28
23.1 Consent of KPMG Peat Marwick LLP 63
27.1 Financial Data Schedule -----
<PAGE>
(*) Confidential treatment has been granted with respect to certain portions of
this exhibit. Omitted portions have been filed separately with the
Securities and Exchange Commission.
(1) Incorporated by reference to the Registration Statement on Form S-1 (File
No. 33-70594) as declared effective by the Securities and Exchange
Commission December 13, 1993.
(2) Incorporated by reference to the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1994, as filed with the Securities and
Exchange Commission on March 29, 1995.
(3) Incorporated by reference to the Company's Quarterly Report on Form 10-Q
for the quarter ended June 30, 1994 as filed with the Securities and
Exchange Commission on August 13, 1994.
(4) Incorporated by reference to the exhibits filed with the Registrant's
Report on Form 8-K filed with the Securities and Exchange Commission on
June 14, 1996.
(5) Incorporated by reference to the Registrant's Registration Statement on
Form S-8 (File No. 333-08891) as declared effective by the Securities and
Exchange Commission on August 14, 1996.
(6) Incorporated by reference to the Registrant's Registration Statement on
Form S-8 (File No. 333-08893) as declared effective by the Securities and
Exchange Commission on August 14, 1996.
(7) Incorporated by reference to the Registrant's Registration Statement on
Form 8-B (file No. 000-22660) as declared effective by the Securities and
Exchange Commission on February 18, 1997.
<PAGE>
EXHIBIT 11.1
TRIQUINT SEMICONDUCTOR, INC.
Calculation of Net Income per Common and Common Equivalent Share
Years ended December 31, 1996, 1995, 1994
(in thousands, except share and per share data)
Year Ended December 31,
----------------------------------------
1996 1995 1994
--------- ---------- ---------
Net income $ 6,287 $ 3,062 $ (9,732)
--------- ---------- ---------
--------- ---------- ---------
Weighted average number of
common and common equivalent
shares outstanding:
Primary 8,762,717 7,236,681 5,346,399
Fully diluted 8,894,405 7,239,842
Net income (loss) per common
and common equivalent share:
Primary $ .72 $ .42 $ (1.82)
---------- ---------- ---------
---------- ---------- ---------
Fully diluted $ .71 $ .42 $ (1.82)
---------- ---------- ---------
---------- ---------- ---------
-27-
<PAGE>
TRIQUINT SEMICONDUCTOR, INC. FINANCIAL HIGHLIGHTS
IN THOUSANDS, EXCEPT PER SHARE AMOUNTS
YEAR ENDED DECEMBER 31,
1996 1995
Total revenues $59,526 $45,943
Income from operations 3,435 2,215
Income before income taxes 6,518 3,145
Net income 6,287 3,062
Net income per share 0.71 0.42
Cash and investments 63,183 62,972
Shareholders' equity 80,246 72,644
- -------------------------------------------------------------------------
COMMON STOCK PRICES
Quarter High Low
Q4 1996 $ 30 3/4 $ 16 7/8
Q3 1996 26 3/4 15 5/8
Q2 1996 25 3/8 15 1/4
Q1 1996 16 1/4 9
Q4 1995 26 1/4 10 5/8
Q3 1995 28 3/8 16
Q2 1995 17 1/2 10 11/16
Q1 1995 13 1/2 6 1/8
TOTAL REVENUES BY QUARTER NET INCOME PER SHARE BY QUARTER
- Description of graphic: Graphic - Description of graphic: Graphic
representation of total revenues representation of net income
(in millions) by quarter. Data per share by quarter. Data used to
used to produce the graphic is as produce the graphic is as follows:
follows:
Q4 1996 16.2 Q4 1996 0.19
Q3 1996 15.1 Q3 1996 0.21
Q2 1996 15.0 Q2 1996 0.21
Q1 1996 13.1 Q1 1996 0.11
Q4 1995 12.6 Q4 1995 0.05
Q3 1995 12.7 Q3 1995 0.20
Q2 1995 11.1 Q2 1995 0.15
Q1 1995 9.4 Q1 1995 0.04
<PAGE>
TO OUR SHAREHOLDERS:
Fiscal 1996 was a pivotal year for TriQuint. Not only did we continue to grow
at a rate of 30%, but more importantly, we made significant investments in the
Company which will help us take advantage of the exciting opportunities in the
worldwide communications market.
FINANCIAL PERFORMANCE Revenues for 1996 were $59.5 million, a 30% increase
over 1995. Earnings reflected a net profit of $6.3 million ($.71 per share on
8.9 million shares), a 105% increase over 1995's $3.1 million ($.42 per share
on 7.2 million shares).
REVENUE GROWTH The growth in revenue was balanced between our three product
areas, with Wireless at approximately 49% of total revenues, Telecom at 34% and
Computing at 17%. All three grew substantially and continue to provide market
diversity and a broad customer base.
ORDERS AND BACKLOG Not only did we increase our revenue to record levels, we
also continued to increase the rate that we are booking new business. Our
book-to-bill ratio for the year was 1.1, resulting in record backlog at year-end
1996. This backlog and the continuing new order volume put us in an excellent
position for continued growth in 1997.
BALANCE SHEET STRENGTH Our financial and operating performance in 1996
resulted in a very strong balance sheet with over $63 million in cash and
investments. In second quarter 1996 we were successful in putting in place a
$45 million operating lease with a major financial institution. This leasing
arrangement allowed us to construct our new office and manufacturing facility
while avoiding depreciation and increasing the Company's interest income.
DESIGN WINS AND PRODUCT INTRODUCTIONS Design wins are the life blood of our
business and we were very successful in achieving a record number of design wins
in 1996. We also introduced a number of new products. There were 112 major
design wins, 79 in the Wireless sector, 26 in Telecom and 7 in Computing.
The large number of Wireless design wins reflects the continued expansion of
that segment of the communications industry and included: receivers and
transmitters to be used in handsets and base stations for the cellular, PCS and
other mobile telephone markets; wireless local loop, local area and wide area
networks; pagers; cable TV tuners and converters; and several other wireless
communications applications. The Telecom design wins included: fiber optic
transmission and switching systems; video switching systems; medical graphics
systems; and ATM applications. The Computing design wins included: high
performance computer clocking devices; and networking applications, including
Fiber Channel and Gigabit Ethernet.
During the year we also introduced a significant number of new products to the
market. These products included: new cellular and PCS receivers and power
amplifiers; a second generation Personal Handyphone transceiver; a receiver for
a wireless local area network; a new multiplexer/demultiplexer for SONET
transmission; an A to D converter; and a multitude of foundry products designed
by our customers.
OPERATIONAL IMPROVEMENTS The growth experienced in 1995 created several
challenges for our operating organizations in 1996. The significant increase in
wafer output in 1995 resulted in reduced manufacturing yields at the end of that
year. I am
<PAGE>
happy to report that we made major progress during 1996 in solving the late 1995
yield issues, and as a result, by fourth quarter 1996 we were at record levels
in wafer output. To support the continued increase in demand, we grew total
employment by 77 to a level of 361. We also began construction of a new office
and manufacturing complex in Hillsboro, Oregon. This complex will be completed
in first quarter 1997 and will be fully operational by the end of 1997. We
believe our new manufacturing facility will be the premier gallium arsenide
manufacturing facility and will provide production capacity to meet our
requirements until the year 2000.
To support increasing production requirements, significant investments were made
in new equipment for our new facility. However, plant and equipment were not
the only areas in which major investments for our future success were made. We
converted all of our internal management information systems to a new, fully
integrated SAP management information system. This new capability should
provide the management systems to support our growth for at least the next ten
years. We also successfully implemented a major new Total Quality Management
initiative. This initiative, called Continuous Process Improvement (CPI),
involves practically every manager and employee in the Company and includes the
formation of teams to improve the internal operating and management processes of
the Company. To date we have successfully completed three cycles of this
process and have identified operating improvements that total multiple millions
of dollars. The CPI initiative is only beginning. It will be one of the major
vehicles by which we will continue to grow the Company in a well managed way. In
addition, we successfully completed our third ISO 9000 audit, again meeting the
demanding requirements of this international quality standard.
NEW RELATIONSHIPS During the year we announced several new relationships with
major names in the communications business. Early in 1996 we announced a
relationship with Philips, one of the largest consumer electronic companies in
the world. Through this relationship, we will provide the gallium arsenide
support for Philips' thrust into the worldwide mobile telephone business. Also,
in fourth quarter 1996 we announced a relationship with Qualcomm, a leader in
the CDMA mobile telephone business. These relationships as well as others, on
which we are currently working, will cement our increasing presence in the
expanding communications market.
MANAGEMENT ADDITIONS During 1996, we added Ron Ruebusch, Vice President and
General Manager of our Wireless Communications Division and David Pye, Vice
President of Manufacturing to our Management Team. With combined experience of
more than 40 years in the semiconductor industry, these individuals are already
making a major impact on the Company, and we look forward to their continuing
contribution.
OUR MOST VALUABLE ASSET I can't say enough about the hard work, dedication
and loyalty of TriQuint's employees. Growing the Company 30% while at the same
time making investments in the Company's manufacturing capacity, systems and
management processes is not an easy task. It is only through the skill and
effort of all our employees that we were able to both grow and prepare ourselves
for the future. I would like to take this opportunity to thank our team for
their many accomplishments in 1996.
LOOKING FORWARD While 1996 was a very exciting year, it only established the
foundation for our future growth. Our communications markets are continuing to
expand, especially with the pending rollout of the new PCS mobile telephone
systems. To take advantage of these exciting opportunities, we have established
excellent relationships with the major players in these markets and have
achieved a record number of design wins and new product introductions. We have
also been very successful in putting in place the required improvements to our
manufacturing capabilities, management
<PAGE>
information systems, continuous process improvement and management leadership.
These investments are already beginning to generate returns, and we are eagerly
looking forward to the many opportunities and challenges in 1997 and beyond.
Sincerely,
Steven J. Sharp
Chairman, President and Chief Executive Officer
<PAGE>
TRIQUINT SEMICONDUCTOR, INC. SELECTED FINANCIAL DATA
IN THOUSANDS, EXCEPT PER SHARE AMOUNTS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, (1)
1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total revenues $59,526 $45,943 $30,261 $32,606 $29,308
Operating costs and expenses:
Cost of goods sold 34,258 25,509 19,790 14,660 13,712
Research, development and engineering 10,858 9,210 9,945 8,941 6,956
Selling, general and administrative 10,975 9,009 10,013 7,533 7,431
Restructuring of operations - - 443 - -
-------------------------------------------------------------------------
Total operating costs and expenses 56,091 43,728 40,191 31,134 28,099
-------------------------------------------------------------------------
Income (loss) from operations 3,435 2,215 (9,930) 1,472 1,209
Other income (expense), net 3,083 930 198 (414) (466)
-------------------------------------------------------------------------
Income (loss) before income taxes
and extraordinary item 6,518 3,145 (9,732) 1,058 743
Income tax expense and extraordinary item(2) 231 83 - 271 25
-------------------------------------------------------------------------
Net income (loss) $6,287 $3,062 ($9,732) $787 $718
-------------------------------------------------------------------------
-------------------------------------------------------------------------
INCOME (LOSS) PER SHARE:
Income (loss) before extraordinary item $0.71 $0.42 ($1.82) $0.19 $0.10
Extraordinary item - - - - 0.09
-------------------------------------------------------------------------
Net income (loss) $0.71 $0.42 ($1.82) $0.19 $0.19
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Weighted average common and common
equivalent shares outstanding 8,894 7,237 5,346 4,236 3,860
BALANCE SHEET DATA:
Working capital $37,591 $65,513 $16,409 $19,541 $4,947
Total assets 107,596 94,024 34,227 35,166 17,491
Long-term obligations, less current installments 9,891 7,392 4,062 1,712 3,887
Shareholders' equity 80,246 72,644 20,785 26,219 8,967
-------------------------------------------------------------------------
</TABLE>
(1) Except for 1996, the Company's fiscal year ended on the Saturday nearest
December 31.
For convenience, the Company has indicated in this Annual Report that its fiscal
years ended on December 31.
(2) The effect of the utilization of operating loss carryforwards
resulted in a tax benefit of $327,000 in 1992 and was reported
as an extraordinary item.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Certain statements in the following Management's Discussion and Analysis
of Financial Condition and Results of Operations ("M D & A") and elsewhere in
this Annual Report to Stockholders and in the Company's Annual Report on Form
10-K for 1996 into which this M D & A is incorporated contain
forward-looking statements based on current expectations, and entail various
risks and uncertainties that could cause actual results to differ materially
from those anticipated in these forward-looking statements, as a result of
certain factors discussed herein. These forward-looking statements, include,
but are not limited to, the statement regarding the Company's anticipated
increase in revenues; the statement regarding the Company's expected level of
future investment in research, development and engineering; the statements
regarding the anticipated use of its cash resources and the statements
regarding the Company's future cash requirements and the length of time that
the Company's resources will be sufficient to meet its capital requirements.
Certain risks that the Company faces include, but are not limited to, the
risk of lower than expected production yields, the risks associated with the
Company's move of its fabrication facility to the Dawson Creek location, the
risks associated with operating its own wafer fabrication facility and the
risks set forth below under "Variability of Operating Results and Cyclicality
of Semiconductor Industry."
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 its end user customers include Alcatel, Cirrus Logic,
Digital Equipment, DSC Communications, Ericsson, Hughes, IBM, Lucent
Technologies, Motorola, Northern Telecom, Philips, Rockwell, Siemens, Storage
Technology, and Stratacom.
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.
YEAR ENDED DECEMBER 31, 1996 1995 1994
------ ------ ------
Total revenues 100.0% 100.0% 100.0%
Operating costs and expenses:
Cost of goods sold 57.6 55.5 65.4
Research, development and engineering 18.2 20.1 32.9
Selling, general and administrative 18.4 19.6 33.1
Restructuring of operations - - 1.4
------ ------ ------
Total operating costs and expenses 94.2 95.2 132.8
------ ------ ------
Income (loss) from operations 5.8 4.8 (32.8)
Other income, net 5.2 2.1 0.7
------ ------ ------
Income (loss) before income taxes 11.0 6.9 (32.2)
Income tax expense 0.4 0.2 -
------ ------ ------
Net income (loss) 10.6% 6.7% (32.2)%
------ ------ ------
------ ------ ------
In 1996, the Company changed its year end to December 31. For 1995 and 1994,
the Company's fiscal year ended on the Saturday nearest to December 31. For
convenience, the Company has indicated here that its fiscal years end on
December 31. The fiscal years ended December 31, 1996, December 31, 1995 and
December 31, 1994 are hereinafter referred to as Fiscal 1996, Fiscal 1995 and
Fiscal 1994, respectively.
1
<PAGE>
COMPARISON OF 1996 AND 1995
TOTAL REVENUES
The Company derives revenues from the sale of standard and
customer-specific products and services. The Company's revenues also include
non-recurring engineering (NRE) revenues relating to the development of
customer-specific products. The Company organizes its product and service
revenues into three product areas: Wireless Communications, Telecommunications,
and Computing. Total revenues for Fiscal 1996 increased 29.6% to $59.5 million
from $45.9 million for Fiscal 1995. The increase in total revenues was due to
significantly increased demand for products in all three product areas.
Wireless communications, telecommunications, and computing revenues accounted
for 49%, 34%, and 17% of total revenues, respectively, for Fiscal 1996.
Domestic and international revenues for Fiscal 1996 were $41.4 million and $18.1
million, respectively, as compared to $31.1 million and $14.8 million,
respectively, for Fiscal 1995. The Company currently anticipates an overall
increase in the volume of product revenues from existing and new customers in
the wireless, telecommunication and computing markets.
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 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, as well as the number of NRE contracts which result
in volume requirements for customer-specific products. Cost of goods sold was
$34.3 million in Fiscal 1996 and increased from $25.5 million in Fiscal 1995.
Cost of goods sold for Fiscal 1996 increased slightly as a percentage of total
revenues to 57.6% from 55.5% for Fiscal 1995. The increase in cost of goods
sold as a percentage of total revenues was primarily attributable to lower than
expected production yields and an increase in certain manufacturing costs
related to employee hiring and training and consulting services. This increase
was partially offset by higher unit shipments, resulting in increased economies
of scale.
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. This was experienced during 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.
The Company's move of its fabrication facility during 1997 to its new Dawson
Creek location in Hillsboro, Oregon could affect its ability to maintain
acceptable production yields during transition. 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 (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 Fiscal 1996 increased 17.9% to $10.9 million from
$9.2 million for Fiscal 1995. RD&E expenses as a percentage of total revenues
decreased to 18.2% for 1996 from 20.1% for 1995. The increase in RD&E expenses
in absolute dollar level was primarily due to increased product development
activities in response to increased demand from customers. The number of major
design wins for Fiscal 1996 increased 45% from Fiscal 1995. Design wins are
defined as designs which are anticipated to produce at least $100,000 per year
in revenue, if and when they enter production. The decrease in RD&E expenses as
a percentage of total revenues was the result of the increased sales volume in
1996. The Company is committed to substantial investments in RD&E and expects
such expenses will increase in absolute dollar amount in the future.
2
<PAGE>
SELLING, GENERAL AND ADMINISTRATIVE
Selling, general and administrative (SG&A) expenses for Fiscal 1996
increased 21.8% to $11.0 million from $9.0 for the year ended December 31, 1995.
SG&A decreased as a percentage of total revenues to 18.4% for 1996 from 19.6%
for 1995. The increase in the level of SG&A expenses was primarily due to
increased sales commissions in connection with the increase in the level of
total revenues as well as increased personnel costs. The decrease in SG&A
expenses as a percentage of total revenues for 1996 resulted from the revenue
growth that outpaced the growth of SG&A expenses.
OTHER INCOME, NET
Other income, net for Fiscal 1996 increased to $3.1 million as compared to
$930,000 for Fiscal 1995. This improvement resulted from interest income earned
on larger cash and cash equivalents and investment balances resulting primarily
from the net proceeds of the Company's follow-on stock offering in September,
1995 and from a $680,000 gain on the sale of the Company's minority interest in
its primary distributor in Europe.
INCOME TAX EXPENSE
The effective tax rate for Fiscal 1996 was 3.5%, which is less than the
federal and state statutory rate of approximately 40% due to the use of net
operating loss carryforwards. The effective tax rate for fiscal 1995 was 2.6%.
At December 31, 1996, the Company had federal and state net operating loss
carryforwards for tax reporting purposes of approximately $26.6 million and
$10.1 million, respectively. The Company's ability to use its net operating
loss carryforwards against taxable income is subject to additional restrictions
and limitations under Section 382 of the Internal Revenue Code of 1986, as
amended, in the event of a change of ownership of the Company as defined
therein. See Note 7 of Notes to Financial Statements.
COMPARISON OF 1995 AND 1994
TOTAL REVENUES
Total revenues for Fiscal 1995 increased 51.8% to $45.9 million from $30.3
million for Fiscal 1994. Sales of standard products continued to grow,
accounting for approximately 53.3% of 1995 revenues as compared to 32.0% for
1994. The increase in revenues was primarily due to a significant increase in
wireless product sales for the Japanese personal handy phone market segment and
an increase in telecommunication and computing products sales. Sales outside the
United States increased to $14.8 million for 1995 from $12.7 million for 1994,
primarily due to increased sales to a significant customer in Canada.
COST OF GOODS SOLD
Cost of goods sold was $25.5 million in Fiscal 1995 and represented an
increase from $19.8 million in Fiscal 1994. Cost of goods sold for Fiscal 1995
decreased as a percentage of total revenues to 55.5% from 65.4% for Fiscal
1994. The decrease in cost of goods sold as a percentage of total revenues was
attributable to higher unit shipments, which resulted in better absorption of
the fixed costs and resultant economies of scale. This decrease was partially
offset by lower than expected fab yields in the fourth quarter and a shift in
the mix of revenues to a higher volume of standard products, which typically
have a lower gross margin than customer-specific products. The 1994 cost of
goods sold also included an inventory write-off of $1.5 million and an
equipment write-off of $330,000. Without these charges, 1994 cost of goods sold
as a percentage of total revenues would have been 59.4%.
3
<PAGE>
RESEARCH, DEVELOPMENT AND ENGINEERING
The Company's RD&E expenses for Fiscal 1995 decreased 7.4% to $9.2 million
from $9.9 million for Fiscal 1994. RD&E expenses as a percentage of total
revenues decreased to 20.1% for 1995 from 32.9% for 1994, which included certain
one time write-offs. The decrease in RD&E expenses in absolute dollar level was
primarily due to certain cost savings from the relocation of the Company's Santa
Clara, California operation to its Beaverton, Oregon facility, as well as lower
NRE expenses. The decrease in RD&E expenses as a percentage of total revenues
was primarily due to higher sales volume in 1995.
SELLING, GENERAL AND ADMINISTRATIVE
SG&A expenses for Fiscal 1995 decreased 10.0% to $9.0 million from $10.0
million for Fiscal 1994. SG&A decreased as a percentage of total revenues to
19.6% for 1995 from 33.1% for 1994. In the third quarter of 1994, the Company
recorded certain expenses resulting in an aggregate charge of $2.1 million to
SG&A expenses for the costs associated with the Company's securities class
action lawsuit and the relocation of the Company's Santa Clara, California
operation to Beaverton, Oregon. In addition, SG&A expenses for 1994 included an
increase in the provision for doubtful accounts resulting in an aggregate charge
of approximately $140,000. Without these charges, the SG&A expenses for 1994
would have been $7.8 million, approximately 25.8% of revenues. The decrease in
SG&A expenses as a percentage of total revenues for 1995 resulted from the
revenue growth that outpaced the growth of SG&A expenses. In February 1995, the
Company completed the relocation of its Santa Clara, California operations to
Beaverton, Oregon.
OTHER INCOME, NET
Other income, net for Fiscal 1995 increased to $930,000 as compared to
$198,000 for Fiscal 1994. This improvement resulted from higher interest income
earned on cash and cash equivalents and investment balances due to added
interest income from 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 Fiscal 1995 was 2.6%, which is less than the
federal and state statutory rate of approximately 40% due to the use of net
operating loss carryforwards. The Company did not record any income taxes in
1994 as a result of the Company's loss position.
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 Fiscal 1996, Cirrus Logic, Giga A/S, and Northern
Telecom accounted for 16.5%, 12.3%, and 11.9%, 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's
customers' expectations. The Company does not have long-term purchase
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
4
<PAGE>
the past and may be materially adversely affected in the future 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 other sales of equity,
bank borrowing, capital equipment leases, and cash flow from operations. As
of December 31, 1996, the Company had working capital of approximately $37.6
million, including $32.7 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 $50.0 million
and (iv) cash and investments, including restricted investments, greater than
$45.0 million. As of December 31, 1996 the Company was in compliance with
the restrictive covenants contained in this line of credit.
The Company's current wafer fabrication facility lease expires in January
1998. During 1996, the Company arranged for the construction and financing of a
new wafer fabrication and office complex at Dawson Creek, in Hillsboro, Oregon
and will consolidate all operations into this facility during 1997. The
Company's administrative, engineering and sales and marketing offices moved into
this new facility during the first quarter of 1997. The Company obtained
financing in the form of a five year operating lease. The Company entered into
several agreements, each dated May 17, 1996, in connection with the operating
lease. Pursuant to that certain Participation Agreement among the Company, the
lessor and its parent and a bank, the lessor is leasing certain real property
owned by the lessor to the Company under an operating lease with an option by
the Company to purchase such property. In addition, the lessor made advances to
the Company to cover the costs of certain improvements to such real property and
to pay certain related financing costs, transaction costs, and other costs and
expenses. The bank loans are collateralized by pledged investments from the
Company, classified as restricted investments on the Company's balance sheet
($30.5 million as of December 31, 1996). Restrictive covenants included in the
Participation Agreement between the Company and the Bank 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 investments, including restricted investments, greater than
$45.0 million. As of December 31, 1996 the Company was in compliance with the
covenants contained in the Participation Agreement.
The following table presents a summary of the Company's cash flows
(IN THOUSANDS):
YEAR ENDED DECEMBER 31, 1996 1995 1994
Net cash and cash equivalents provided
by operating activities $ 5,374 $ 2,748 $ 287
Net cash and cash equivalents used by
investing activities (25,687) (24,173) (5,096)
Net cash and cash equivalents provided
(used) by financing activities (1,831) 47,033 2,094
-----------------------------
Net increase (decrease) in cash and
cash equivalents $(22,144) $25,608 $(2,715)
-----------------------------
Net cash provided by operating activities in 1996 and 1995 of $5.4 million
and $2.7 million, respectively, related primarily to profitable operations. Net
cash provided by operating activities in 1994 was $0.3 million.
5
<PAGE>
Cash used by investing activities in 1996 related to the purchase of restricted
investments to collateralize the operating lease on the Dawson Creek facility
and the net purchase of non-restricted investments. Cash used by investing
activities in 1995 and 1994 relates primarily to net purchase of investment
securities of $22.9 million in 1995 and $5.0 million in 1994 and capital
expenditures. The Company will continue to monitor interest rates to enhance
return on its cash and short term investments while maintaining a high degree of
liquidity.
Cash used by financing activities of $1.8 million in 1996 is primarily the
result of net principal payments under capital lease obligations and installment
notes. Cash provided by financing activities in 1995 relates to the net
proceeds of the follow on public offering of the Company's Common Stock,
partially offset by $1.7 million in equipment financing payments. Cash provided
by financing activities in 1994 relates to the net proceeds from the exercise of
the overallotment option to purchase 225,000 shares of Common Stock by the
Company's underwriters in connection with the Company's initial public offering
and cash received from AT&T in exchange for the Company's Common Stock pursuant
to the Company's agreements with AT&T. These proceeds were partially offset by
$1.3 million in equipment financing payments in 1994.
For Fiscal 1996, the Company established approximately $6.5 million in new
equipment financing. Since 1991, the Company has financed approximately $20.4
million of machinery and equipment through equipment financing obligations. The
Company expects to make continued investments in its capital equipment,
including manufacturing and test equipment and computer hardware and software,
in order to enhance its technology and competitive position. In addition, the
Company's move to the new Dawson Creek facility will require expenditures for
capital equipment above normal operating levels. The Company expects to make
total capital expenditures of approximately $15.0 million over the next
twelve months.
The Company believes that its current cash and cash equivalent balances,
together with cash anticipated to be generated from operations, additional
equipment leases and the operating lease for the Dawson Creek facility, will
satisfy the Company's projected working capital and capital expenditure
requirements through the end of 1998. 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.
6
<PAGE>
TRIQUINT SEMICONDUCTOR, INC.
Statements of Operations
For the years ended December 31, 1996, 1995 and 1994
(In thousands, except per
share and share amounts)
<TABLE>
<CAPTION>
Year ended December 31
----------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Total Revenues $ 59,526 $ 45,943 $ 30,261
Operating costs and expenses:
Cost of goods sold 34,258 25,509 19,790
Research, development and engineering 10,858 9,210 9,945
Selling, general and administrative 10,975 9,009 10,013
Restructuring of operations - - 443
--------- --------- ---------
Total operating costs and expenses 56,091 43,728 40,191
--------- --------- ---------
Income (loss) from operations 3,435 2,215 (9,930)
--------- --------- ---------
Other income (expense):
Interest income 3,460 1,551 585
Interest expense (1,015) (529) (337)
Other, net 638 (92) (50)
--------- --------- ---------
3,083 930 198
--------- --------- ---------
Income (loss) before income taxes 6,518 3,145 (9,732)
Income tax expense (note 7) 231 83 -
--------- --------- ---------
Net income (loss) $ 6,287 $ 3,062 $ (9,732)
--------- --------- ---------
--------- --------- ---------
Income (loss) per share data:
Net income (loss):
Primary $ .72 $ .42 $ (1.82)
--------- --------- ---------
--------- --------- ---------
Fully diluted $ .71 $ .42 $ (1.82)
--------- --------- ---------
--------- --------- ---------
Weighted average common and common equivalent shares
outstanding:
Primary 8,762,717 7,236,681 5,346,399
Fully diluted 8,894,405 7,239,842 5,346,399
</TABLE>
See accompanying notes to financial statements
-3-
<PAGE>
TRIQUINT SEMICONDUCTOR, INC.
Balance Sheets
December 31, 1996 and 1995
(In thousands, except share amounts)
<TABLE>
<CAPTION>
December 31,
------------------------
Assets 1996 1995
------ ---- ----
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 12,907 35,051
Restricted cash 504 -
Investments 19,264 27,921
Receivables:
Trade accounts receivable, net 11,480 6,974
Other 522 414
--------- ---------
12,002 7,388
--------- ---------
Inventories, net:
Raw material 3,283 2,198
Work in process 5,136 5,908
Finished goods 1,431 603
--------- ---------
9,850 8,709
--------- ---------
Prepaid expenses and other assets 523 432
--------- ---------
Total current assets 55,050 79,501
--------- ---------
Property, plant and equipment, net (notes 2 and 3) 21,987 14,460
Other non-current assets 51 63
Restricted investments (note 3) 30,508 -
--------- ---------
Total assets $107,596 94,024
--------- ---------
--------- ---------
</TABLE>
See accompanying notes to financial statements.
-2-
<PAGE>
<TABLE>
<CAPTION>
Liabilities and Shareholders' Equity December 31,
------------------------------------ ------------------------
1996 1995
---- ----
<S> <C> <C>
Current liabilities:
Current installments of capital lease and installment note
obligations (note 3) $ 3,373 2,329
Accounts payable 9,633 6,996
Accrued expenses (note 5) 4,378 4,447
Deferred revenue 75 216
--------- ---------
Total current liabilities 17,459 13,988
Capital lease and installment note obligations, less current
installments (note 3) 9,891 7,392
--------- ---------
Total liabilities 27,350 21,380
--------- ---------
Commitments and contingency (note 8)
Shareholders' equity (note 6):
Preferred stock, no par value. Authorized 5,000,000 shares at
December 31, 1996 and 1995; issued and outstanding -0- at
December 31, 1996 and 1995 - -
Common stock, no par value. Authorized 25,000,000 shares at
December 31, 1996 and 1995; issued and outstanding
8,190,125 and 7,929,881 shares at December 31, 1996 and
1995, respectively 109,128 107,813
Accumulated deficit (28,882) (35,169)
--------- ---------
Total shareholders' equity 80,246 72,644
--------- ---------
Total liabilities and shareholders' equity $107,596 94,024
--------- ---------
--------- ---------
</TABLE>
<PAGE>
TRIQUINT SEMICONDUCTOR, INC.
Statements of Shareholders' Equity
For the years ended December 31, 1996, 1995 and 1994
(In thousands, except share amounts)
<TABLE>
<CAPTION>
Preferred Stock Common Stock Total
--------------------- ----------------------- Accumulated shareholders'
Shares Amount Shares Amount deficit equity
------ ------ ------ ------ ------- ------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1993 - $ - 5,017,000 $ 54,718 $(28,499) $ 26,219
Issuance of common stock, net - - 527,162 4,102 - 4,102
Issuance of common stock under
option plans - - 102,593 196 - 196
Net loss for year - - - - (9,732) (9,732)
----- ----- --------- ------- ------ ------
Balance, December 31, 1994 - - 5,646,755 59,016 (38,231) 20,785
Issuance of common stock, net - - 2,000,000 48,068 - 48,068
Issuance of common stock under
option plans - - 283,126 688 - 688
Tax benefit of stock option
exercises - - - 41 - 41
Net income for year - - - - 3,062 3,062
----- ----- --------- ------- ------ ------
Balance, December 31, 1995 - - 7,929,881 107,813 (35,169) 72,644
Issuance of common stock under
option plans and warrant
exercises - - 237,465 897 - 897
Issuance of common stock under
stock purchase plan - - 22,779 264 - 264
Tax benefit of stock option exercises - - - 154 - 154
Net income for year - - - - 6,287 6,287
----- ----- --------- ------- ------ ------
Balance, December 31, 1996 - $ - 8,190,125 $ 109,128 $(28,882) $ 80,246
----- ----- --------- ------- ------ ------
----- ----- --------- ------- ------ ------
</TABLE>
See accompanying notes to financial statements.
-4-
<PAGE>
TRIQUINT SEMICONDUCTOR, INC.
Statements of Cash Flows
For the years ended December 31, 1996, 1995 and 1994
(In thousands)
<TABLE>
<CAPTION>
Year Ended December 31
----------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 6,287 3,062 (9,732)
Adjustments to reconcile net income (loss) to net cash
provided (used) by operating activities:
Depreciation and amortization 3,068 3,042 3,252
Loss (gain) on sale of assets (728) (19) 81
Restructuring charges - - 443
Change in assets and liabilities:
(Increase) decrease in:
Receivables (4,614) (2,070) 1,935
Inventories (1,141) (3,107) 1,466
Prepaid expenses and other assets (79) (31) (124)
Increase (decrease) in:
Accounts payable 2,637 2,280 316
Accrued expenses 85 (550) 2,983
Deferred revenue (141) 141 (333)
------- ------- --------
Net cash provided by operating
activities 5,374 2,748 287
------- ------- --------
Cash flows from investing activities:
Purchase of investments (97,266) (49,790) (15,002)
Sale of investments 75,415 26,871 10,000
Increase in restricted cash (504) - -
Capital expenditures (4,060) (1,273) (94)
Proceeds from sale of assets 728 19 -
------- ------- ---------
Net cash used by investing activities (25,687) (24,173) (5,096)
------- ------- ---------
Cash flows from financing activities:
Principal payments under capital lease obligations
and installment notes (2,992) (1,723) (1,308)
Payments on debt, net - - (353)
Issuance of common stock, net 1,161 48,756 3,755
------- ------- ---------
Net cash provided (used) by financing
activities (1,831) 47,033 2,094
------- ------- ---------
Net increase (decrease) in cash and cash
equivalents (22,144) 25,608 (2,715)
Cash and cash equivalents at beginning of year 35,051 9,443 12,158
------- ------- ---------
Cash and cash equivalents at end of year $12,907 35,051 9,443
------- ------- ---------
------- ------- ---------
</TABLE>
(Continued)
-5-
<PAGE>
TRIQUINT SEMICONDUCTOR, INC.
Statements of Cash Flows, Continued
(In thousands)
<TABLE>
<CAPTION>
Year Ended December 31
---------------------------
1996 1995 1994
------- ------ ------
<S> <C> <C> <C>
Supplemental disclosures of cash flow information:
Cash paid for:
Interest $ 1,015 529 336
------ ------ -----
------ ------ -----
Income taxes $ 20 112 2
------ ------ -----
------ ------ -----
Supplemental schedule of non-cash investing and financing
activities:
Assets acquired through issuance of stock (net
of issuance costs) $ - - 124
Purchase of assets through capital lease and
installment notes 6,535 7,831 3,310
Conversion of accounts payable to capital leases - - 759
Issuance of common stock for royalties $ - - 419
------ ------ -----
------ ------ -----
</TABLE>
See accompanying notes to financial statements.
- 6 -
<PAGE>
TRIQUINT SEMICONDUCTOR, INC.
Notes to Financial Statements
December 31, 1996 and 1995
(In thousands, except share information)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) DESCRIPTION OF THE COMPANY
TriQuint Semiconductor, Inc. (the Company) is engaged in the design,
development, manufacture and sale of a broad range of high performance
analog and mixed signal integrated circuits for the wireless
communications, telecommunications and computing markets. The Company
currently utilizes its proprietary gallium arsenide technology to
manufacture standard and customer-specific integrated circuits.
During 1996, the Company changed its fiscal year end to be on a
calendar basis. For fiscal 1995 and prior the Company's fiscal year
ended on the last Saturday nearest December 31. For convenience, the
Company has indicated in these financial statements that, for fiscal
1995 and 1994, its fiscal years ended on December 31.
(b) MANAGEMENT ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that effect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from those estimates.
(c) REVENUE RECOGNITION
Standard product revenue is recognized upon shipment of product. The
Company recognizes revenue on customer-specific products or services
based on certain design, manufacturing and other milestones.
(d) CASH EQUIVALENTS
The Company considers all highly liquid debt instruments purchased
with a maturity of three months or less to be cash equivalents.
(Continued)
- 7 -
<PAGE>
TRIQUINT SEMICONDUCTOR, INC.
Notes to Financial Statements
(In thousands, except share information)
(e) INVESTMENTS
The Company has adopted Statement of Financial Accounting Standards
No. 115, "Accounting for Certain Investments in Debt and Equity
Securities" (SFAS No. 115). SFAS No. 115 requires the classification
of debt and marketable equity securities in one of three categories:
trading, available-for-sale, or held-to-maturity. Trading and
available-for-sale securities are recorded at fair value.
Held-to-maturity securities are recorded at amortized cost, adjusted
for the amortization or accretion of premiums or discounts.
Unrealized holding gains and losses on trading securities are included
in earnings. Unrealized holding gains and losses, net of the related
tax effect, on available-for-sale securities are reported as a
separate component of stockholders' equity until realized.
The Company's investment securities are comprised of medium term
corporate notes, foreign debt securities, commercial paper and auction
rate preferred stock and have been classified as available-for-sale
securities at December 31, 1996 and 1995. Carrying value is
substantially the same as market value at December 31, 1996 and 1995.
(f) ACCOUNTS RECEIVABLE
Accounts receivable are shown net of allowance for doubtful accounts
of $219 and $202 at December 31, 1996 and 1995, respectively.
(g) INVENTORIES
Inventories are stated at the lower of standard cost (approximates
actual cost on a first-in, first-out basis) or market (net realizable
value). Inventories are shown net of a valuation reserve of $2,383
and $2,309 at December 31, 1996 and 1995, respectively.
(h) PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are recorded at cost. Machinery and
equipment under capital leases are stated at the lower of the present
value of the minimum lease payments at the beginning of the lease term
or the fair value of the leased assets at the inception of the lease.
Depreciation is provided using the straight-line method over estimated
useful lives ranging from five to seven years. Leasehold improvements
are amortized over the shorter of the estimated life of the asset or
the term of the related lease, generally three to five years.
Depreciation begins on assets in process at the time the related
assets are placed in service. Maintenance and repairs are expensed as
incurred.
(Continued)
- 8 -
<PAGE>
TRIQUINT SEMICONDUCTOR, INC.
Notes to Financial Statements
(In thousands, except share information)
(i) 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.
(j) CONCENTRATIONS OF CREDIT RISK
The Company sells its products to original equipment manufacturers and
distributors involved in a variety of industries including wireless
communications, telecommunications, computers and peripherals. The
Company performs continuing credit evaluations of its customers and
generally does not require collateral; however, in certain
circumstances, the Company may require letters of credit from its
customers.
(k) NET INCOME PER COMMON AND COMMON EQUIVALENT SHARE
Net income per share is computed using the weighted average number of
common and dilutive common equivalent shares assumed to be outstanding
during the period (using the treasury stock method for dilutive common
equivalent shares). Common equivalent shares consist of options and
warrants to purchase common stock.
(l) INCOME TAXES
The Company accounts for income taxes under the asset and liability
method. Under the asset and liability method, deferred tax assets and
liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying
amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted
tax rates expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered or settled.
The effect on deferred tax assets and liabilities of a change in tax
rates is recognized in income in the period that includes the
enactment date. Valuation allowances are established when necessary
to reduce deferred tax assets to the amounts expected to be realized.
(Continued)
- 9 -
<PAGE>
TRIQUINT SEMICONDUCTOR, INC.
Notes to Financial Statements
(In thousands, except share information)
(m) FINANCIAL INSTRUMENTS
The carrying amount of cash equivalents, investments, trade
receivables, accounts payable and short term borrowing approximate
fair value because of the short-term nature of these instruments. The
fair value of long-term obligations under capital lease were estimated
by discounting the future cash flows using market interest rates and
does not differ significantly from that reflected in the financial
statements.
Fair value estimates are made at a specific point in time, based on
relevant market information about the financial instrument. These
estimates are subjective in nature and involve uncertainties and
matters of significant judgment and therefore cannot be determined
with precision. Changes in assumptions could significantly affect the
estimates.
(n) RECLASSIFICATIONS
Certain reclassifications have been made to the 1994 and 1995
statements to conform with the 1996 presentation.
(2) PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following:
December 31
-----------------
1996 1995
------- ------
Machinery and equipment $37,348 31,787
Leasehold improvements 1,052 1,039
Furniture and fixtures 664 523
Computer equipment 6,477 5,287
Assets in process 9,325 5,635
------- ------
54,866 44,271
Less accumulated depreciation and
amortization 32,879 29,811
------- ------
$21,987 14,460
------- ------
------- ------
(Continued)
- 10 -
<PAGE>
TRIQUINT SEMICONDUCTOR, INC.
Notes to Financial Statements
(In thousands, except share information)
(3) LEASE AND INSTALLMENT NOTE OBLIGATIONS
At December 31, 1996 and 1995, the Company had outstanding $5,390 and
$1,864 of installment notes with interest rates ranging from 8.7% to
9.9%. The notes are payable in monthly installments of principal and
interest through 2001 and are secured by equipment with a net book
value of $4,957 and $1,764 at December 31, 1996 and 1995.
Additionally, the Company leases certain equipment under capital
leases. The future minimum lease payments under installment notes and
non-cancelable leases as of December 31, 1996 are as follows:
Installment
notes and
capital Operating
leases leases
------ ------
Year ending:
1997 $ 4,549 586
1998 4,112 20
1999 3,506 14
2000 2,456 -
2001 1,417 -
------- -----
Total 16,040 $ 620
-----
-----
Less amounts representing interest 2,776
-------
Present value of minimum payments 13,264
Less current installments 3,373
---------
$ 9,891
---------
---------
(Continued)
- 11 -
<PAGE>
TRIQUINT SEMICONDUCTOR, INC.
Notes to Financial Statements
(In thousands, except share information)
Balances applicable to capitalized leases, which are included in machinery
and equipment, are summarized as follows:
DECEMBER 31
-----------------------
1996 1995
-------- -------
Machinery and equipment $ 12,092 12,030
Less accumulated amortization 4,134 4,964
-------- -------
$ 7,958 7,066
-------- -------
-------- -------
Rent expense under operating leases was $1,065, $1,098 and $1,553
during the years ended 1996, 1995 and 1994, respectively.
In May of 1996, the Company entered into an agreement to lease an
office building (building) and fabrication facility (facility) under
construction in Hillsboro, Oregon which will be its future
headquarters. The lessors of the buildings have committed to fund up
to a maximum of $45 million (subject to reductions based on certain
conditions in the lease) for the construction of the buildings, with
the portion of the committed amount actually used to be determined by
the Company. Rent obligations will commence upon the building and
facility becoming operational, will be equal to the lessor's debt
service costs and will expire at the end of the initial lease term of
five years. At the end of the lease term, the Company may renew the
lease for an additional five years or may purchase the property. If
the Company elects not to renew the lease or purchase the property,
the Company must sell the property to a third party, guaranteeing up
to a maximum of 85% of the original cost.
As part of the above lease, the Company restricted $30.5 million of
its securities as collateral for specified obligations of the lessor
under the lease. These securities will be restricted as to withdrawal
and will be managed by the Company subject to certain limitations
under its investment policy. In addition, the Company must maintain a
minimum consolidated tangible net worth of $50 million a total
liabilities to net worth ratio equal to or less than .75 to 1 and
maintain cash and liquid investments, including restricted
investments, greater than $45.0 million.
(Continued)
- 12 -
<PAGE>
TRIQUINT SEMICONDUCTOR, INC.
Notes to Financial Statements
(In thousands, except share information)
(4) DEBT
The Company has a line of credit agreement for general corporate
purposes. The agreement is unsecured, and provides for aggregate
borrowings of $10,000. Interest is payable monthly. Interest rate is
at prime plus a spread (determined quarterly, based on the Company's
ratio of debt to tangible net worth) ranging from -0-% to 1% (8.25% at
December 31, 1996); principal due on demand. No amount was
outstanding on the line at December 31, 1996. The line of credit is
subject to loan covenants for which the Company is in compliance at
December 31, 1996.
(5) ACCRUED EXPENSES
Accrued expenses consist of the following:
DECEMBER 31
------------------------
1996 1995
-------- -------
Accrued payroll $ 1,927 1,317
Litigation costs (note 8) 842 977
Other 1,609 2,153
-------- ------
$ 4,378 4,447
-------- ------
-------- ------
(6) SHAREHOLDERS' EQUITY
(a) STOCK OPTION PLAN
The 1987 Stock Incentive Plan (the 1987 Plan) provides for the
granting to employees (including officers and employee directors) of
incentive stock options within the meaning of Section 422A of the
Internal Revenue Code of 1986, and for the granting of non-statutory
stock options to employees (including officers and employee
directors), directors and consultants. Subject to the discretion of
the Board of Directors, options granted under the 1987 Plan generally
vest and become exercisable at the rate of 28% at the end of the first
year, and thereafter at a rate of 2% per month and have a ten-year
term.
(Continued)
- 13 -
<PAGE>
TRIQUINT SEMICONDUCTOR, INC.
Notes to Financial Statements
(In thousands, except share information)
The exercise price of all incentive stock options granted under the 1987
Plan must be at least equal to the fair market value of the shares on the
date of grant. With respect to any participant who owns stock possessing
more than 10% of the voting rights of the Company's outstanding capital
stock, the exercise price of any incentive stock option granted must
equal at least 110% of the fair market value on the grant date. The
exercise price of all non-statutory stock options granted under the
1987 Plan must be at least 50% of the fair market value of the common
stock on the date of grant. The terms of all options granted under the
1987 Plan may not exceed ten years.
During fiscal 1996, the Company's shareholders approved the 1996 Stock
Incentive Program (the 1996 Plan) with the same provisions and
guidelines as the aforementioned 1987 Plan. The Company reserved
400,000 shares of common stock for grants option under the 1996 Plan.
At December 31, 1996, there were 372,254 additional shares available
for grant under the 1987 and 1996 Plans. The per share
weighted-average fair value of stock options granted during 1996 and
1995 was $11 and $9 on the date of grant using the Black Scholes
option-pricing model with the following weighted-average assumptions:
1996-expected dividend yield 0%, risk-free interest rate of 6.3%,
expected life of 5 years, and an expected volatility over the expected
life of 75%; 1995-expected dividend yield 0%, risk-free interest rate
of 6.1%, expected life of 5 years and expected volatility over the
expected life of 82.4%.
The Company applies APB Opinion No. 25 in accounting for its Plan and,
accordingly, no compensation cost has been recognized for its stock
options in the financial statements. Had the Company determined
compensation cost based on the fair value at the date of grant for its
stock options under SFAS No. 123, the Company's net income would have
been reduced to the pro forma amounts indicated below:
1996 1995
-------- -------
Net income As reported $ 6,287 3,062
Pro forma 5,481 2,836
Net income per share As reported .71 .42
Pro forma .62 .39
Pro forma net income reflects only options granted in 1996 and 1995.
Therefore, the full impact of calculating compensation cost for stock
options under SFAS No. 123 is not reflected in the pro forma net
income amounts presented above because compensation cost is reflected
over the options' vesting period of 4 years and compensation cost for
options granted prior to January 1, 1995 is not considered.
(Continued)
- 14 -
<PAGE>
TRIQUINT SEMICONDUCTOR, INC.
Notes to Financial Statements
(In thousands, except share information)
Activity under the 1987 and 1996 Plans is as follows:
NUMBER WEIGHTED-
OF AVERAGE EXERCISE
SHARES PRICE
-------- ----------------
Options outstanding at December 31, 1994. 1,336,899 $ 4.15
Options:
Granted 128,322 13.35
Exercised (283,126) 2.42
Canceled (43,379) 6.61
--------- ---------
Options outstanding at December 31, 1995 1,138,716 5.53
Options:
Granted 271,759 18.00
Exercised (236,198) 3.86
Canceled (86,750) 11.09
--------- ---------
Options outstanding at December 31, 1996 1,087,527 $ 8.58
At December 31, 1996, the range of exercise prices and weighted-average
remaining contractual life of outstanding options was $1.40 - $29.88 and
7.3 years, respectively.
At December 31, 1996 and 1995, 579,230 and 577,258 options were vested and
exercisable, respectively, and the weighted-average exercise price of those
options was $5.00 and $3.60, respectively, and 372,254 shares remained
available for future grant.
(Continued)
- 15 -
<PAGE>
TRIQUINT SEMICONDUCTOR, INC.
Notes to Financial Statements
(In thousands, except share information)
(b) WARRANTS
On August 31, 1993, the Company issued a warrant to American Telephone
and Telegraph Company (AT&T), a related party, to purchase the
Company's common stock. The warrant issued provides for the purchase
of up to 125,000 shares of common stock at $24.00 per share and is
exercisable through August 2000. On December 19, 1994, the company
issued an additional warrant to AT&T which provides for the purchase
of up to 75,000 shares of common stock at $24.00 per share and is
exercisable through December 2001.
On April 30, 1992, the Company issued a warrant to a leasing company
to purchase 5,143 shares of the Company's common stock at an exercise
price of $17.50 per share. During the current year, the leasing
company exercised its warrants pursuant to a net exercise clause in
the warrant agreement. The leasing company received 1,267 shares of
common stock.
(7) INCOME TAXES
The provision for income taxes consists of:
YEAR ENDED
DECEMBER 31
-------------------------
1996 1995 1994
------ ------ -----
Current:
Federal $ 145 67 -
State 86 16 -
------ ----- ----
Total current 231 83 -
------ ----- ----
------ ----- ----
Deferred:
Federal - - -
------ ----- ----
State - - -
------ ----- ----
Total deferred - - -
------ ----- ----
Total $ 231 83 -
------ ----- ----
------ ----- ----
(Continued)
- 16 -
<PAGE>
TRIQUINT SEMICONDUCTOR, INC.
Notes to Financial Statements
(In thousands, except share information)
The provision for income taxes differs from the amount computed by applying
the federal statutory income tax rate to net income before taxes as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31
----------------------------
1996 1995 1994
------ ------ ------
<S> <C> <C> <C>
Tax (benefit) computed at federal statutory rate 34.0% 34.0% (34.0)%
State income tax (benefit), net of federal effect 4.4 4.6 (4.8)
Increase (decrease) in valuation allowance (16.3) (6.4) 39.8
Differences between financial and tax reporting for
stock option exercises (19.2) (39.9) -
Other .6 10.3 (1.0)
------ ------ -----
Effective tax rate 3.5% 2.6% -%
------ ------ -----
------ ------ -----
The deferred income tax provision (benefit) results from changes in deferred
tax assets and liabilities as follows:
YEAR ENDED
DECEMBER 31
----------------------------
1996 1995 1994
------ ------ ------
<S> <C> <C> <C>
Reserves not currently deductible $ (45) (53) (523)
Tax depreciation and amortization 384 217 93
Accrued liabilities 85 409 (943)
Net operating loss carryforward 801 (284) (2,070)
Valuation allowance (1,060) (200) 3,506
Other (165) (89) (63)
------ ------ ------
Total $ - - -
------ ------ ------
------ ------ ------
</TABLE>
(Continued)
- 17 -
<PAGE>
TRIQUINT SEMICONDUCTOR, INC.
Notes to Financial Statements
(In thousands, except share information)
The tax effects of significant items comprising the Company's deferred tax
asset and liability are as follows:
DECEMBER 31
--------------------
1996 1995
-------- -------
Deferred tax liabilities:
Depreciation $ 977 593
-------- -------
Total deferred tax liability 977 593
-------- -------
Deferred tax assets:
Accounts receivable 84 78
Inventory 1,002 963
Accrued liabilities 626 711
Net operating loss carryforwards 9,484 10,285
Other 433 268
-------- -------
Total deferred tax asset before valuation allowance 11,629 12,305
-------- -------
Valuation allowance (10,652) (11,712)
-------- -------
Total deferred tax asset 977 593
-------- -------
Net deferred tax liability (asset) $ - -
-------- -------
-------- -------
The valuation allowance for deferred tax assets as of January 1, 1994
was $8,406. The net change in total valuation allowance for the years
ended December 31, 1996, 1995 and 1994 was a decrease of $1,060, a
decrease of $200, and an increase of $3,506, respectively.
Approximately $2,653 of the valuation allowance for deferred tax
assets will be credited directly to shareholders' equity in the event
tax benefits of net operating losses that resulted from stock options
exercises are subsequently recognized.
At December 31, 1996, the Company had approximately $26,595 of net
operating loss carryforwards to offset against future income for
federal income tax purposes which expire from 2003 through 2010,
$3,812 for California state income tax purposes which expire in years
1997 through 1999, and $6,330 expiring in years 1997 through 2010 in
other states.
(Continued)
- 18 -
<PAGE>
TRIQUINT SEMICONDUCTOR, INC.
Notes to Financial Statements
(In thousands, except share information)
The Company's ability to use its net operating loss carryforwards to offset
future taxable income is subject to annual restrictions contained in the
United States Internal Revenue code of 1986, as amended (the Code). These
restrictions act to limit the Company's future use of its net operating
losses following certain substantial stock ownership changes enumerated in
the Code and referred to hereinafter as an "ownership change".
Consummation of the Company's initial public offering created an
ownership change that has resulted in approximately $16,100 of the
pre-1994 net operating loss carryforwards being limited to
approximately $1,750 per year. In addition, approximately $9,042 are
further limited to approximately $967 per year due to changes in the
Company's ownership structure during 1991.
(8) CONTINGENT LIABILITIES
In July 1994, a shareholder class action lawsuit was filed against the
Company with the United States District Court for the Northern
District of California seeking unspecified damages. 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. The Company
believes this litigation is without merit and intends to defend such
action vigorously. The Company recorded a charge to earnings for its
third quarter ended September 30, 1994 of approximately $1,500 for
expected costs associated with the suit. In 1996, the Company
succeeded in obtaining a change in venue from California to Oregon.
The pretrial discovery of the lawsuit is scheduled to end on April 11, 1997.
A trial date has not been set.
(9) RESTRUCTURING OF OPERATIONS
On September 30, 1994, the Company announced plans to shut-down and
relocate its computing and networking group from Santa Clara,
California to Beaverton, Oregon. All manufacturing operations have
been relocated to Beaverton, Oregon. In conjunction with this plan,
the Company recorded restructuring liabilities, aggregating $443 in
the third quarter, for the expenses associated with the shut down of
the Santa Clara operations; including employment termination costs of
$187, lease termination costs of $169 and all other exit costs
totaling $87. The shut down occurred on February 17, 1995 and 18
employees engaged in manufacturing, engineering and administrative
functions were terminated. During the fourth quarter of 1994, the
Company made cash payments of $87 for restructuring related items
resulting in a restructuring accrual at December 31, 1994 of $356.
From December 31, 1994 through December 31, 1995, the Company made
cash payments for all remaining restructuring costs.
(Continued)
- 19 -
<PAGE>
TRIQUINT SEMICONDUCTOR, INC.
Notes to Financial Statements
(In thousands, except share information)
(10) BENEFIT PLANS
The Company sponsors the 1992 Employee Stock Purchase Plan (the
Purchase Plan) and a voluntary contribution profit sharing and savings
plan under Section 401(k) of the Internal Revenue Code which is
available to substantially all employees. The Company has reserved
200,000 shares of common stock for issuance under the Purchase Plan of
which 22,779 shares has been issued at December 31, 1996.
(11) SIGNIFICANT CUSTOMERS AND SEGMENT INFORMATION
Sales outside of the United States were approximately $18,100, $14,800
and $12,700 in 1996, 1995 and 1994, respectively. Revenues for
significant customers, those representing approximately 10% or more of
total revenues for each period, are summarized as follows:
YEAR ENDED
DECEMBER 31
------------------------
1996 1995 1994
---- ---- ----
Customer A 12% 14% 19%
Customer B 17 24 -
Customer C 13 11 12
Related receivables from such customers were 26% and 44% of trade
accounts receivable at December 31, 1996 and 1995, respectively.
The Company operates in one industry segment and is engaged in the
design, development, manufacture and sale of gallium arsenide
integrated circuits and related services.
(12) SALE OF INVESTMENT
On September 1, 1996, the Company sold its 20% interest in its
exclusive European distributor, for $680,000. The Company recognized
a gain in the accompanying statement of operations in the amount of
the sales price as the carrying value of this investment was zero.
- 20 -
<PAGE>
INDEPENDENT AUDITOR'S REPORT
The Board of Directors and Shareholders
TriQuint Semiconductor, Inc.:
We have audited the accompanying balance sheets of TriQuint Semiconductor, Inc.
as of December 31, 1996 and 1995, and the related statements of operations,
shareholders' equity, and cash flows for each of the years in the three-year
period ended December 31, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of TriQuint Semiconductor, Inc. as
of December 31, 1996 and 1995, and the results of its operations, and its cash
flows for each of the years in the three-year period ended December 31, 1996 in
conformity with generally accepted accounting principles.
KPMG PEAT MARWICK LLP
Portland, Oregon
February 7, 1997
<PAGE>
TRIQUINT SEMICONDUCTOR, INC. SUPPLEMENTARY
UNAUDITED FINANCIAL DATA
IN THOUSANDS, EXCEPT PER SHARE AMOUNTS
<TABLE>
<CAPTION>
1996 1995
Q4 Q3 Q2 Q1 Q4 Q3 Q2 Q1
STATEMENT OF OPERATIONS DATA:
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Total revenues $16,211 $15,104 $15,095 $13,116 $12,621 $12,745 $11,137 $9,440
Operating costs and expenses:
Cost of goods sold 9,139 8,829 8,363 7,928 8,403 6,516 5,781 4,809
Research, development and engineering 2,841 2,868 2,660 2,489 2,362 2,299 2,131 2,418
Selling, general and administrative 3,047 2,722 2,809 2,396 2,151 2,579 2,226 2,053
Restructuring of operations - - - - - - - -
-----------------------------------------------------------------------------
Total operating costs and expenses 15,027 14,419 13,832 12,813 12,916 11,394 10,138 9,280
Income from operations 1,184 685 1,263 303 (295) 1,351 999 160
Other income, net 482 1,225 720 655 716 102 37 75
------------------------------------------------------------------------------
Income before income taxes 1,666 1,910 1,983 958 421 1,453 1,036 235
Income tax expense 6 58 119 48 - 44 31 8
------------------------------------------------------------------------------
Net income $1,660 $1,852 $1,864 $910 $421 $1,409 $1,005 $227
------------------------------------------------------------------------------
------------------------------------------------------------------------------
INCOME PER SHARE:
Net income per common and
common equivalent share $0.19 $0.21 $0.21 $0.11 $0.05 $0.20 $0.15 $0.04
Weighted average common and common
equivalent shares outstanding 8,934 8,798 8,769 8,590 8,742 7,134 6,610 6,372
------------------------------------------------------------------------------
</TABLE>
MARKET FOR COMPANY'S COMMON
EQUITY AND RELATED
STOCKHOLDER MATTERS
The Company made its initial public offering on December 13, 1993 at
a price of $11.00 per share. The Company's Common Stock is quoted on
the Nasdaq Stock Market's National Market under the symbol TQNT.
As of February 28, 1997, there were 247 holders of record of the Company's
Common Stock.
The company has never declared or paid cash dividends on its
Common Stock and does not anticipate paying cash dividends in the
foreseeable future. The Company's line of credit with a financial
institution contains a restrictive covenant which limits the Company's
ability to pay cash dividends or make stock repurchases to 25% of
cumulative net income for the preceding fiscal year. Any future
determination to pay cash dividends will also be at the discretion of the
Board of Directors and will be dependent upon the Company's financial
condition, results of operations, capital requirements, general business
conditions and such other factors as the Board of Directors deems
relevant.
<PAGE>
GENERAL INFORMATION
BOARD OF DIRECTORS EXECUTIVE OFFICERS
STEVEN J. SHARP STEVEN J. SHARP
Chairman of the Board, President Chairman of the Board, President
and Chief Executive Officer, and Chief Executive Officer
TriQuint Semiconductor, Inc.
EDWARD C. V. WINN
PAUL A. GARY Executive Vice President Finance and
Retired Executive of AT&T Administration, Chief Financial Officer and
Secretary
CHARLES SCOTT GIBSON JOSEPH I. MARTIN
Consultant Vice President, Corporate Development
E. FLOYD KVAMME BRUCE R. FOURNIER
General Partner Vice President, Sales
Kleiner Perkins Caufield & Byers
Venture Capital Firm DONALD H. MOHN
Vice President and General Manager
Telecom and Computing
EDWARD F. TUCK
General Partner
Kinship Venture Management, LLP J. DAVID PYE
Vice President, Manufacturing Operations
WALDEN C. RHINES
President and Chief Executive RONALD R. RUEBUSCH
Officer Vice President and General Manager,
Mentor Graphics, Inc. Wireless Communications
E. K. RANJIT
Vice President, Finance, Treasurer and
Assistant Secretary
ANNUAL MEETING
The Company's Annual Meeting of Stockholders will be held on Thursday, May 29,
1997 at 2:00 p.m. (PDT) at the Company's principal executive offices, located at
2300 NE Brookwood Parkway, Hillsboro, Oregon, 97124.
FORM 10-K
A copy of the Company's Form 10-K as filed with the Securities and Exchange
Commission, is available free of charge by calling the Investor Relations number
below.
CORPORATE HEADQUARTERS
2300 NE Brookwood Parkway
Hillsboro, Oregon 97124
Phone: (503) 615-9000
Fax: (503) 615-8900
<PAGE>
INVESTOR RELATIONS
E. K. Ranjit
(503) 615-9414
Heidi Flannery
Fi.Comm
(503) 844-8888
TRANSFER AGENT
ChaseMellon
Shareholder Services
San Francisco, California
INDEPENDENT PUBLIC ACCOUNTANTS
KPMG Peat Marwick LLP
Portland, Oregon
LEGAL COUNSEL
Wilson Sonsini Goodrich & Rosati
Palo Alto, California
<PAGE>
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
TriQuint Semiconductor, Inc.:
We consent to the incorporation by reference in the Registration Statement Nos.
33-75464 and 33-02166 on Form S-8 of TriQuint Semiconductor, Inc. of our reports
dated February 7, 1997 relating to the balance sheets of TriQuint Semiconductor,
Inc. as of December 31, 1996 and 1995, and the related statements of operations,
shareholders'equity, and cash flows and related schedule for each of the years
in the three-year period ended December 31, 1996, which reports appear in the
December 31, 1996 annual report on Form 10-K of TriQuint Semiconductor, Inc.
KPMG Peat Marwick LLP
Portland, Oregon
March 31, 1997
-63-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1996 AND THE BALANCE
SHEET AS OF DECEMBER 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 13,411
<SECURITIES> 19,264
<RECEIVABLES> 11,698
<ALLOWANCES> (218)
<INVENTORY> 9,850
<CURRENT-ASSETS> 55,050
<PP&E> 54,866
<DEPRECIATION> (32,879)
<TOTAL-ASSETS> 107,596
<CURRENT-LIABILITIES> 17,459
<BONDS> 9,891
0
0
<COMMON> 109,128
<OTHER-SE> (28,882)
<TOTAL-LIABILITY-AND-EQUITY> 107,596
<SALES> 59,526
<TOTAL-REVENUES> 59,526
<CGS> 34,258
<TOTAL-COSTS> 56,091
<OTHER-EXPENSES> 638
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,015
<INCOME-PRETAX> 6,518
<INCOME-TAX> 231
<INCOME-CONTINUING> 6,287
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,287
<EPS-PRIMARY> 0.72
<EPS-DILUTED> 0.71
</TABLE>
