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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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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, 1997 OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER: 0-22660
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TRIQUINT SEMICONDUCTOR, INC.
(Exact name of registrant as specified in its charter)
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DELAWARE 95-3654013
(State or other (I.R.S. Employer
jurisdiction of Identification
incorporation or Number)
organization)
2300 N.E. BROOKWOOD PARKWAY
HILLSBORO, OREGON 97124
(Address of principal executive office)
Registrant's Telephone number, including area
code: (503) 615-9000
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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)
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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 / /
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/
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, 1998 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, 1998, registrant had outstanding 9,355,978 shares of
Common Stock.
The Index to Exhibits appears on page 16 of this document.
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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, 1998. Portions of the
Registrant's Annual Report to Stockholders for the fiscal year ended December
31, 1997 are incorporated by reference in Parts II and IV of Form 10-K.
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TRIQUINT SEMICONDUCTOR, INC.
1997 ANNUAL REPORT ON FORM 10-K
TABLE OF CONTENTS
PART I
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ITEM 1. BUSINESS...................................................................................... 3
ITEM 2. PROPERTIES.................................................................................... 14
ITEM 3. LEGAL PROCEEDINGS............................................................................. 15
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS........................................... 15
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.......... 16
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 entails 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 operating its own wafer fabrication
facilities, the risks stemming from failure to receive orders to produce a high
volume of products that are custom-designed, the risks associated with
integrating recent acquisitions and the risks associated with 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, Cellnet Data Systems, Cisco Systems, Ericsson, IBM,
Lucent Technologies, Motorola, Northern Telecom, Siliconix and Storage
Technology.
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 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.
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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. 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. A major example is the U.S.
government's auction of PCS licenses. PCS 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.
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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.
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. 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
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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.
CUSTOMERS
The Company has a broad customer base of leading systems manufacturers and
has shipped products or provided manufacturing services directly to
approximately 180 end user customers and distributors. Northern Telecom
accounted for approximately 12% of the Company's total revenues in 1997. In
1996, Cirrus Logic, Northern Telecom, and GIGA A/S, a European distributor,
accounted for approximately 17%, 12%, and 12% of the Company's total revenues,
respectively. No other customer of the Company accounted for greater than 10% of
total revenues during these periods. If the Company were to lose any major
customer 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.
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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.
Customer-specific designs are generally implemented by one of two 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 circuit design and process rules to its
wireless communication customers and the customer's internal engineering staff
designs the product which TriQuint then manufactures.
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.
MMIC BUSINESS
On January 13, 1998, the Company acquired substantially all of the assets of
the Monolithic Microwave Integrated Circuit (MMIC) operations of the former
Texas Instruments' Defense Systems & Electronics Group from Raytheon TI Systems,
Inc. (RTIS), a Delaware corporation and a wholly owned subsidiary of Raytheon
Company (Raytheon). The MMIC operations include the GaAs foundry and MMIC
business of the R/F Microwave Business Unit that RTIS acquired on July 11, 1997
from Texas Instruments Incorporated (TI) which MMIC business includes without
limitation, TI's GaAs Operations Group, TI's Microwave GaAs Products Business
Unit, the MMIC component of TI's Microwave GaAs Products Business Unit, the MMIC
component of TI's Microwave Integrated Circuits Center of Excellence and the
MMIC research and development component of TI's Systems Component Research
Laboratory (collectively, the MMIC Business).
The MMIC Business designs, develops, produces and sells advanced GaAs MMIC
products which are used in defense and commercial applications. In the area of
defense applications, the MMIC Business supplies military contractors with MMIC
products and services for applications such as high power amplifiers, low noise
amplifiers, switches and attenuators for active array radar, missiles,
electronic warfare systems and space communications systems. In commercial
applications, the MMIC Business provides products and services for wireless and
space-based communications.
Acquisition transactions are accompanied by a number of risks, including,
among other things, the difficulty of assimilating the operations and personnel
of the acquired companies, the potential disruption of the Company's ongoing
business, the inability of management to maximize the financial and strategic
position of the Company through the successful incorporation of acquired
technology and rights into the Company's products, expenses associated with the
transactions, expenses associated with acquired in-process research and
development, additional operating expenses, the maintenance of uniform
standards,
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controls, procedures and policies, the impairment of relationships with
employees and customers as a result of any integration of new management
personnel, and the potential unknown liabilities associated with acquired
businesses. There can be no assurance that the Company will be successful in
overcoming these risks or any other problems encountered in connection with its
acquisition of the MMIC Business.
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 high volume core
process technologies 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 process technologies that are cost-effective for digital,
analog and mixed signal applications. As a result of the ability to primarily
utilize core processes in the manufacture of its products, the Company is able
to enjoy the cost advantages associated with standard high volume semiconductor
manufacturing practices. The core process technology, which employs all
implanted structures, 4 micron metal pitch and 0.5 to 0.7 micron geometries,
involves 10 to 16 mask steps, has a cutoff frequency of up to 21 GHz and is
scalable. 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.
MANUFACTURING
The Company's wafer manufacturing facility is located at its leased
headquarters location in Hillsboro, Oregon. The Company moved its executive,
administrative, test and technical offices to a new 124,000 square foot leased
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. During the fourth quarter of 1997, the Company relocated its wafer
fabrication and all other remaining operations to the new Hillsboro site. The
Company's lease of its former wafer fabrication and manufacturing facility, a
facility located in Beaverton, Oregon and owned by Maxim Integrated Products,
Inc., expired in January, 1998. The Hillsboro wafer fabrication facility
consists of 38,000 square feet, of which 17,000 is operated as a class 10
performance clean room.
The Company's MMIC facility (the MMIC Facility) is comprised of two
buildings shared with RTIS located in Dallas, Texas. Manufacturing and office
facilities are housed in the North Building and a research and development
laboratory is housed in the Research East Building. Pursuant to the terms of the
Company's acquisition agreement for the MMIC Business, the Company has agreed to
a partitioning and relocation plan to better segregate the Company's MMIC
operations from RTIS's operations. After
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implementation of the partitioning plan, the MMIC Facility will comprise
approximately 100,000 square feet in the North Building. The Company anticipates
that the partitioning plan will be implemented by December 31, 1998.
The MMIC Facility is subleased from RTIS, which leases the premises from
Texas Instruments, through July 10, 2002. The Company has the right to renew its
sublease of the MMIC Facility for up to three additional five year periods in
the event that RTIS exercises its rights to renew its lease from Texas
Instruments. There can be no assurance, however, that RTIS will extend its lease
beyond July 10, 2002.
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. A sustained failure to maintain acceptable
yields 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 facility occupancy
costs, 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. 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.
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 approximately six fully qualified wafer and mask set vendors, at least two
of which are located in the United States.
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The Company assembles a portion of its products in-house but also uses
outside assembly contractors. The Company performs in-house assembly for small
lots of critical parts, engineering lots and assembly development for new
packages. Outside assembly and tape and reel services for volume production are
contracted to ten vendors, four 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 six 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, 1997, TriQuint had 24 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. The Company
also established its first foreign subsidiary, TriQuint Semiconductor GmbH, in
Munich, Germany during 1997. The primary activity of this subsidiary is sales
and marketing and currently employs one sales manager. As part of the
acquisition of the MMIC Business in January 1998, the Company also established
sales offices in the United Kingdom and France. Sales outside of the United
States were $24.3 million, $18.1 million and $14.8 million in 1997, 1996 and
1995, 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 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, analog and digital cellular telephones, PCS, wireless local area
networks and wireless modems. New telecommunications product development efforts
include higher performance switching, transmission and data conversion standard
products as well as customer-specific products. New data communications chipsets
are also being developed to support emerging communications standards.
10
<PAGE>
The Company's research, development and engineering expenses in 1997, 1996
and 1995 were approximately $11.5 million, $10.9 million and $9.2 million,
respectively, and include non-recurring engineering (NRE) expenses funded by
customers. As of December 31, 1997, there were approximately 116 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.
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 AMCC, 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, 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
11
<PAGE>
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 through decreasing raw wafer costs, increasing fabrication
yields and 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.
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. As part of the acquisition of the MMIC Business in January
1998, the Company acquired certain patents and also received licenses and
sublicenses for certain additional 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
12
<PAGE>
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. Since the Company's relocation of its
manufacturing facilities to the new Hillsboro, Oregon location, it is providing
for its own manufacturing waste treatment and disposal. The Company is required
by the State of Oregon Department of Environmental Quality to report usage of
environmentally hazardous materials and has retained the appropriate personnel
to help ensure compliance with all applicable environmental regulations.
At the recently acquired MMIC Facility, the Company utilizes TI's waste
treatment and waste storage facilities and services for the treatment, storage,
disposal and discharge of wastes generated by the Company, pursuant to the Asset
Purchase Agreement dated January 8, 1998. The Company's waste streams are
commingled with those of TI and are covered by the TI waste water permit.
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 by TI with respect to the MMIC Facility, 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, 1997, the Company employed 371 persons, including 188 in
manufacturing, 12 in quality and reliability, 116 in process and product
engineering and development, 18 in marketing and sales and 37 in finance and
administration. Upon the Company's acquisition of the MMIC Business, the number
of employees increased by approximately 278 persons, including 88 in
manufacturing, 157 in process and product engineering and development, 2 in
marketing and sales and 31 in finance and administration. None of the Company's
employees are represented by a collective bargaining agreement, nor has the
Company experienced any work stoppage. The Company considers its relations with
employees to be good.
ITEM 2. PROPERTIES
The Company moved its executive, administrative, test and technical offices
to a new 124,000 square foot leased 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. During the fourth quarter of
13
<PAGE>
1997, the Company completed the relocation of its wafer fabrication and all
other remaining operations to the new Hillsboro site. The Company's lease of its
former wafer fabrication and manufacturing facility, a facility located in
Beaverton, Oregon and owned by Maxim Integrated Products, Inc., expired in
January, 1998. The Company's lease of its former corporate headquarters in
Beaverton, Oregon expired in March 1997. The leased Hillsboro wafer fabrication
facility consists of 38,000 square feet, of which 17,000 is operated as a class
10 performance clean room.
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 of Oregon ("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, 1997, 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, 1998. 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.
In November 1997, the Company entered into a $1.5 million lease for
additional land adjacent to its Hillsboro facility. Pursuant to the terms of
that agreement, USNB provided loans to Wolverine to purchase the land, who in
turn leased it to the Company under a renewable one year lease agreement. The
loan from USNB is partially collateralized by a guarantee from the Company. As
of December 31, 1997 the Company was in compliance with the terms of the
agreement. However, there can be no assurance that the Company will continue to
be in compliance with these terms as of any subsequent date.
In January 1998, the Company acquired the MMIC operations of the former
Texas Instruments' Defense Systems & Electronics Group from RTIS. The MMIC
Facility is comprised of two buildings shared with RTIS located in Dallas,
Texas. Manufacturing and office facilities are housed in the North Building and
a research and development laboratory is housed in the Research East Building.
Pursuant to the terms of the Company's acquisition agreement for the MMIC
Business, the Company has agreed to a partitioning and relocation plan to better
segregate the Company's MMIC operations from RTIS's operations. After
implementation of the partitioning plan, the MMIC Facility will comprise
approximately 100,000 square feet in the North Building. The Company anticipates
that the partitioning plan will be implemented by December 31, 1998.
The MMIC Facility is subleased from RTIS, which leases the premises from
Texas Instruments, through July 10, 2002. The Company has the right to renew its
sublease of the MMIC Facility for up to three additional five year periods in
the event that RTIS exercises its rights to renew its lease from Texas
Instruments. There can be no assurance, however, that RTIS will extend its lease
beyond July 10, 2002.
ITEM 3. LEGAL PROCEEDINGS
On June 9, 1994 the Company issued a press release indicating that softness
in the Company's telecom revenues would adversely affect the Company's financial
results. The cause for the reduction in revenues was a general softness in
orders in the telecommunications market, including orders from Northern Telecom,
the Company's largest customer. As a result of this announcement, the Company's
stock price
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decreased by 48% on June 10, 1994. On July 12, 1994, a stockholder class action
lawsuit was filed against the Company, its underwriters, and certain of its
officers, directors and investors in the United States District Court for the
Northern District of California. The suit 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.
Certain provisions of the Company's Certificate of Incorporation and
indemnification agreements between the Company and its officers and directors
require the Company to advance to such officers and directors ongoing legal
expenses of defending the suit and may require the Company to indemnify them
against judgments rendered on certain claims. Since the filing of the complaint,
the plaintiffs have dismissed without prejudice a director defendant, the
principal stockholder defendant, the underwriter defendants and certain analyst
defendants. On June 21, 1996, the Court granted the Company's motion to transfer
the litigation to the District of Oregon. The pretrial discovery phase of the
lawsuit ended July 1, 1997. The court has established a January 1999 trial date
for this action. The Company expects to continue to incur significant legal
expenses on its behalf and on behalf of such officers and directors in
connection with this litigation. In addition, defending this litigation has
resulted and will likely continue to result in the diversion of management's
attention from the day-to-day operations of the Company's business. Although the
Company does not believe that it or any of its officers or directors has engaged
in any wrongdoing, there can be no assurance that this stockholder litigation
will be resolved in the Company's favor. An adverse result, settlement or
prolonged litigation could have a material adverse effect on the Company's
business, financial condition or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
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
captions COMMON STOCK PRICES and MARKET FOR COMPANY'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS contained in the Company's 1997 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 1997 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 1997 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 1997 Annual
Report to Stockholders and as listed in Item 14 of Part IV of this report and is
incorporated herein by reference.
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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
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 1998
Annual Meeting of Stockholders, to be held May 29, 1998, 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 1998 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 1998 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 1998 Annual Meeting of Stockholders and is incorporated herein
by reference.
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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 1997 Annual Report to Stockholders and
are incorporated herein by reference.
TriQuint Semiconductor, Inc.:
Statements of Operations for the years ended December 31, 1997, 1996 and
1995
Balance Sheets as of December 31, 1997 and 1996
Statements of Shareholders' Equity December 31, 1997, 1996 and 1995
Statements of Cash Flows for the years ended December 31, 1997, 1996 and
1995
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:
<TABLE>
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PAGE NO.
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<S> <C>
Schedule II Valuation and Qualifying Accounts....................................... F1
Report of Independent Public Accountants on Financial Statement Schedules........... F2
</TABLE>
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.
(a)(3) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO.
- ------------
<C> <S> <C>
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.
</TABLE>
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<TABLE>
<CAPTION>
EXHIBIT NO.
- ------------
<C> <S> <C>
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.
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.
10.20 (8) Master Lease Agreement between Registrant and General Electric Capital Corporation, dated
June 27, 1997, and Equipment Schedules G-1, G-2, and G-3, each dated January 13, 1998.
10.21 (8+) Asset Purchase Agreement, dated as of January 8, 1998, by and between Raytheon TI Systems,
Inc. and the Company, and related exhibits.
10.22 (9) 1998 Nonstatutory Stock Option Plan, and forms of agreement thereunder.
10.23 1998 Employee Stock Purchase Plan, and forms of agreement thereunder.
13.1 Portions of Registrant's Annual Report to Stockholders for the year ended December 31, 1997.
23.1 Consent of KPMG Peat Marwick LLP
</TABLE>
18
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<TABLE>
<CAPTION>
EXHIBIT NO.
- ------------
<C> <S> <C>
27.1 Financial Data Schedule
</TABLE>
- ------------------------
(*) 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.
(+) Confidential treatment has been requested 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.
(8) Incorporated by reference to the Registrant's Registration Statement on Form
8-K (File No. 000-22660) filed with the Securities and Exchange Commission
on January 27, 1998 and as amended on March 27, 1998.
(9) Incorporated by reference to the Registrant's Registration Statement on Form
S-8 (File No. 333-48883) as filed with the Securities and Exchange
Commission on March 30, 1998.
(b) REPORTS ON FORM 8-K
No reports on Form 8-K were filed by the Registrant during the quarter ended
December 31, 1997. Registrant filed a Registration Statement on Form 8-K (File
No. 000-22660) with the Securities and Exchange Commission on January 27, 1998,
amended as of March 27, 1998, to report the acquisition of certain assets
pursuant to that certain Asset Purchase Agreement, dated as of January 8, 1998,
by and between Raytheon TI Systems, Inc. and the Company.
(c) EXHIBITS
See Item 14(a)(3) above.
(d) FINANCIAL STATEMENT SCHEDULES
See Item 14(a)(2) above.
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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.
<TABLE>
<S> <C> <C>
TRIQUINT SEMICONDUCTOR, INC.
By: /s/ STEVEN J. SHARP
-----------------------------------------
Steven J. Sharp
PRESIDENT, CHIEF EXECUTIVE OFFICER AND
CHAIRMAN OF THE BOARD OF DIRECTORS
</TABLE>
Date: March 31, 1998
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:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
<C> <S> <C>
President, Chief Executive
/s/ STEVEN J. SHARP Officer and Chairman
- ------------------------------ (Principal Executive March 31, 1998
Steven J. Sharp Officer)
Executive Vice President,
Finance and
/s/ EDWARD C.V. WINN Administration, Chief
- ------------------------------ Financial Officer and March 31, 1998
Edward C.V. Winn Secretary (Principal
Financial and Accounting
Officer)
/s/ PAUL A. GARY
- ------------------------------ Director March 31, 1998
Paul A. Gary
</TABLE>
20
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<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
<C> <S> <C>
/s/ CHARLES SCOTT GIBSON
- ------------------------------ Director March 31, 1998
Charles Scott Gibson
/s/ E. FLOYD KVAMME
- ------------------------------ Director March 31, 1998
E. Floyd Kvamme
/s/ WALDEN C. RHINES
- ------------------------------ Director March 31, 1998
Walden C. Rhines
/s/ EDWARD F. TUCK
- ------------------------------ Director March 31, 1998
Edward F. Tuck
</TABLE>
21
<PAGE>
EXHIBITS
<TABLE>
<CAPTION>
SEQUENTIAL
EXHIBIT PAGE NO.
- ------------- -----------
<C> <S> <C>
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.
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.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SEQUENTIAL
EXHIBIT PAGE NO.
- ------------- -----------
<C> <S> <C>
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.
10.20(8) Master Lease Agreement between Registrant and
General Electric Capital Corporation, dated June
27, 1997, and Equipment Schedules G-1, G-2, and
G-3, each dated January 13, 1998.
10.21(8+) Asset Purchase Agreement, dated as of January 8,
1998, by and between Raytheon TI Systems, Inc.
and the Company, and related exhibits.
10.22(9) 1998 Nonstatutory Stock Option Plan, and forms of
agreement thereunder.
10.23 1998 Employee Stock Purchase Plan, and forms of
agreement thereunder.
13.1 Portions of Registrant's Annual report to
Stockholders for the year ended December 31,
1997. 28
23.1 Consent of KPMG Peat Marwick LLP 63
27.1 Financial Data Schedule
27.2 Financial Data Schedule
27.3 Financial Data Schedule
</TABLE>
- ------------------------
(*) 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.
(+) Confidential treatment has been requested with respect to certain portons
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.
(8) Incorporated by reference to the Registrant's Registration Statement on
Form 8-K (File No. 000-22660) filed with the Securities and Exchange
Commission on January 27, 1998 and as amended on March 27, 1998.
(9) Incorporated by reference to the Registrant's Registration Statement on
Form S-8 (File No. 333-48883) filed with by the Securities and Exchange
Commission on March 30, 1998.
<PAGE>
TRIQUINT SEMICONDUCTOR, INC.
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 31, 1995, 1996, 1997
(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, 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
Year ended December 31, 1997:
Allowance for doubtful accounts................................ 219 0 23 196
Inventory valuation reserve.................................... 2,383 4,539 5,598 1,324
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
ON FINANCIAL STATEMENT SCHEDULES
The Board of Directors
TriQuint Semiconductor, Inc.:
Under date of February 6, 1998, we reported on the balance sheets of
TriQuint Semiconductor, Inc. as of December 31, 1997 and 1996, and the related
statements of operations, shareholders' equity, and cash flows for each of the
years in the three-year period ended December 31, 1997, as contained in the 1997
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
1997. 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 6, 1998
F-2
<PAGE>
TRIQUINT SEMICONDUCTOR, INC.
1998 EMPLOYEE STOCK PURCHASE PLAN
The following constitute the provisions of the 1998 Employee Stock
Purchase Plan of TriQuint Semiconductor, Inc.
1. PURPOSE. The purpose of the Plan is to provide employees of the
Company and its Designated Subsidiaries with an opportunity to purchase
Common Stock of the Company through accumulated payroll deductions. It is
the intention of the Company to have the Plan qualify as an "Employee Stock
Purchase Plan" under Section 423 of the Internal Revenue Code of 1986, as
amended. The provisions of the Plan, accordingly, shall be construed so as
to extend and limit participation in a manner consistent with the
requirements of that section of the Code.
2. DEFINITIONS.
(a) "BOARD" shall mean the Board of Directors of the Company.
(b) "CODE" shall mean the Internal Revenue Code of 1986, as
amended.
(c) "COMMON STOCK" shall mean the Common Stock of the Company.
(d) "COMPANY" shall mean TriQuint Semiconductor, Inc., a Delaware
corporation.
(e) "COMPENSATION" shall mean all base straight time gross
earnings, exclusive of payments for overtime, shift premium, incentive
compensation, incentive payments, bonuses, commissions and other compensation.
(f) "DESIGNATED SUBSIDIARIES" shall mean the Subsidiaries which
have been designated by the Board from time to time in its sole discretion as
eligible to participate in the Plan.
(g) "EMPLOYEE" shall mean any individual who is an employee of
the Company for purposes of tax withholding under the Code whose customary
employment with the Company or any Designated Subsidiary is at least twenty
(20) hours per week and more than five (5) months in any calendar year. For
purposes of the Plan, the employment relationship shall be treated as
continuing intact while the individual is on sick leave or other leave of
absence approved by the Company. Where the period of leave exceeds 90 days
and the individuals right to reemployment is not guaranteed either by statute
or by contract, the employment relationship will be deemed to have terminated
on the 91st day of such leave.
(h) "ENROLLMENT DATE" shall mean the first day of each Offering
Period.
(i) "EXERCISE DATE" shall mean the last day of each Purchase
Period.
<PAGE>
(j) "FAIR MARKET VALUE" shall mean, as of any date, the value of
Common Stock determined as follows:
(1) If the Common Stock is listed on any established stock
exchange or a national market system, including without limitation the Nasdaq
National Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market, its
Fair Market Value shall be the closing sales price for such stock (or the
closing bid, if no sales were reported) as quoted on such exchange or system
for the last market trading day on the date of such determination, as
reported in THE WALL STREET JOURNAL or such other source as the Administrator
deems reliable, or;
(2) If the Common Stock is regularly quoted by a recognized
securities dealer but selling prices are not reported, its Fair Market Value
shall be the mean of the closing bid and asked prices for the Common Stock on
the date of such determination, as reported in THE WALL STREET JOURNAL or
such other source as the Board deems reliable, or;
(3) In the absence of an established market for the Common
Stock, the Fair Market Value thereof shall be determined in good faith by the
Board.
(k) "OFFERING PERIOD" shall mean the periods of approximately
twenty-four (24) months during which an option granted pursuant to the Plan
may be exercised, commencing on the first Trading Day on or after December 1
and June 1 of each year and terminating on the last Trading Day in the
periods ending twenty-four months later. The duration and timing of Offering
Periods may be changed pursuant to Section 4 of this Plan.
(l) "PLAN" shall mean this 1998 Employee Stock Purchase Plan.
(m) "PURCHASE PRICE" shall mean an amount equal to 85% of the
Fair Market Value of a share of Common Stock on the Enrollment Date or on the
Exercise Date, whichever is lower.
(n) "PURCHASE PERIOD" shall mean the approximately six month
period commencing after one Exercise Date and ending with the next Exercise
Date, except that the first Purchase Period of any Offering Period shall
commence on the Enrollment Date and end with the next Exercise Date.
(o) "RESERVES" shall mean the number of shares of Common Stock
covered by each option under the Plan which have not yet been exercised and
the number of shares of Common Stock which have been authorized for issuance
under the Plan but not yet placed under option.
(p) "SUBSIDIARY" shall mean a corporation, domestic or foreign, of
which not less than 50% of the voting shares are held by the Company or a
Subsidiary, whether or not such corporation now exists or is hereafter
organized or acquired by the Company or a Subsidiary.
-2-
<PAGE>
(q) "TRADING DAY" shall mean a day on which national stock
exchanges and the National Association of Securities Dealers Automated
Quotation (NASDAQ) System are open for trading.
3. ELIGIBILITY.
(a) Any Employee who shall be employed by the Company on a given
Enrollment Date shall be eligible to participate in the Plan.
(b) Any provisions of the Plan to the contrary notwithstanding, no
Employee shall be granted an option under the Plan (i) to the extent,
immediately after the grant, such Employee (or any other person whose stock
would be attributed to such Employee pursuant to Section 424(d) of the Code)
would own capital stock of the Company and/or hold outstanding options to
purchase such stock possessing five percent (5%) or more of the total
combined voting power or value of all classes of the capital stock of the
Company or of any Subsidiary, or (ii) to the extent his or her rights to
purchase stock under all employee stock purchase plans of the Company and its
subsidiaries to accrue at a rate which exceeds Twenty-Five Thousand Dollars
($25,000) worth of stock (determined at the fair market value of the shares
at the time such option is granted) for each calendar year in which such
option is outstanding at any time.
4. OFFERING PERIODS. The Plan shall be implemented by consecutive,
overlapping Offering Periods with a new Offering Period commencing on the
first Trading Day on or after December 1 and June 1 each year, or on such
other date as the Board shall determine, and continuing thereafter until
terminated in accordance with Section 20 hereof The Board shall have the
power to change the duration of offering Periods (including the commencement
dates thereof) with respect to future offerings without stockholder approval
if such change is announced at least fifteen (15) days prior to the scheduled
beginning of the first Offering Period to be affected thereafter.
5. PARTICIPATION.
(a) An eligible Employee may become a participant in the Plan by
completing a subscription agreement authorizing payroll deductions in the
form of Exhibit A to this Plan and filing it with the Company's payroll
office at least five (5) business days prior to the applicable Enrollment
Date, unless a later time for filing the subscription agreement is set by the
Board for all eligible Employees with respect to a given offering Period.
(b) Payroll deductions for a participant shall commence on the
first payroll following the Enrollment Date and shall end on the last payroll
in the Offering Period to which such authorization is applicable, unless
sooner terminated by the participant as provided in Section 10 hereof.
-3-
<PAGE>
6. PAYROLL DEDUCTIONS.
(a) At the time a participant files his or her subscription
agreement, he or she shall elect to have payroll deductions made on each pay
day during the Offering Period in an amount not exceeding fifteen percent
(15%) of the Compensation which he or she receives on each pay day during the
Offering Period, and the aggregate of such payroll deductions during the
Offering Period shall not exceed fifteen percent (15%) of the participant's
Compensation during said Offering Period. Moreover, a participant's
aggregate payroll deductions under two or more Plan offering periods that are
overlapping may not exceed fifteen percent (15%) of the participant's
Compensation.
(b) All payroll deductions made for a participant shall be
credited to his or her account under the Plan and will be withheld in whole
percentages only. A participant may not make any additional payments into
such account.
(c) A participant may discontinue his or her participation in the
Plan as provided in Section 10 hereof, or may increase or decrease the rate
of his or her payroll deductions during the Offering Period by completing or
filing with the Company a new subscription agreement authorizing a change in
payroll deduction rate. The Board may, in its discretion, limit the number
of participation rate changes during any Offering Period. The change in rate
shall be effective with the first full payroll period following five (5)
business days after the Company's receipt of the new subscription agreement
unless the Company elects to process a given change in participation more
quickly. A participant's subscription agreement shall remain in effect for
successive offering Periods unless terminated as provided in Section 10
hereof.
(d) Notwithstanding the foregoing, to the extent necessary to
comply with Section 423(b)(8) of the Code and Section 3(b) hereof, a
participant's payroll deductions may be decreased to 0% at such time during
any Purchase Period which is scheduled to end during the current calendar
year (the "Current Purchase Period") that the aggregate of all payroll
deductions which were previously used to purchase stock under the Plan in a
prior offering period or Purchase Period which ended during that calendar
year plus all payroll deductions accumulated with respect to the Current
Offering Period equal $21,250. Payroll deductions shall recommence at the
rate provided in such participant's subscription agreement at the beginning
of the first Purchase Period which is scheduled to end in the following
calendar year, unless terminated by the participant as provided in Section 10
hereof.
(e) At the time the option is exercised, in whole or in part, or
at the time some or all of the Company's Common Stock issued under the Plan
is disposed of, the participant must make adequate provision for the
Company's federal, state, or other tax withholding obligations, if any, which
arise upon the exercise of the option or the disposition of the Common Stock.
At any time, the Company may, but will not be obligated to, withhold from
the participant's compensation the amount necessary for the Company to meet
applicable withholding obligations, including any withholding required to
make available to the Company any tax deductions or benefits attributable to
sale or early disposition of Common Stock by the Employee.
-4-
<PAGE>
7. GRANT OF OPTION. On the Enrollment Date of each Offering Period,
each eligible Employee participating in such Offering Period shall be granted
an option to purchase on the Exercise Date of such Offering Period (at the
applicable Purchase Price) up to a number of shares of the Company's Common
Stock determined by dividing such Employee's payroll deductions accumulated
prior to such Exercise Date and retained in the Participants account as of
the Exercise Date by the applicable Purchase Price; provided that in no event
shall an Employee be permitted to purchase during each Purchase Period more
than seven thousand five hundred (7,500) Shares (subject to any adjustment
pursuant to Section 18), and provided further that such purchase shall be
subject to the limitations set forth in Sections 3(b) and 12 hereof.
Exercise of the option shall occur as provided in Section 8 hereof, unless
the participant has withdrawn pursuant to Section 10 hereof, and the option
shall expire on the last day of the Offering Period.
8. EXERCISE OF OPTION. Unless a participant withdraws from the Plan
as provided in Section 10 hereof, his or her option for the purchase of
shares will be exercised automatically on the Exercise Date, and the maximum
number of full shares subject to option shall be purchased for such
participant at the applicable Purchase Price with the accumulated payroll
deductions in his or her account. No fractional shares will be purchased;
any payroll deductions accumulated in a participant's account which are not
sufficient to purchase a full share shall be retained in the participant's
account for the subsequent Purchase Period or Offering Period, subject to
earlier withdrawal by the participant as provided in Section 10 hereof. Any
other monies left over in a participant's account after the Exercise Date
shall be returned to the participant. During a participant's lifetime, a
participant's option to purchase shares hereunder is exercisable only by him
or her.
9. DELIVERY. As promptly as practicable after each Exercise Date on
which a purchase of shares occurs, the Company shall arrange the delivery to
each participant, as appropriate, of a certificate representing the shares
purchased upon exercise of his or her option.
10. WITHDRAWAL; TERMINATION OF EMPLOYMENT.
(a) A participant may withdraw all but not less than all the
payroll deductions credited to his or her account and not yet used to
exercise his or her option under the Plan at any time by giving written
notice to the Company in the form of Exhibit B to this Plan. All of the
participant's payroll deductions credited to his or her account will be paid
to such participant promptly after receipt of notice of withdrawal and such
participant's option for the Offering Period will be automatically
terminated, and no further payroll deductions for the purchase of shares will
be made during the Offering Period. If a participant withdraws from an
Offering Period, payroll deductions will not resume at the beginning of the
succeeding Offering Period unless the participant delivers to the Company a
new subscription agreement.
(b) Upon a participant's ceasing to be an Employee (as defined in
Section 2(g) hereof), for any reason, including by virtue of him or her
having failed to remain scheduled as an Employee of the Company for at least
twenty (20) hours per week during an Offering Period in which the Employee is
a participant, he or she will be deemed to have elected to withdraw from the
Plan and the payroll deductions credited to such participant's account during
the Offering Period but not yet
-5-
<PAGE>
used to exercise the option will be returned to such participant or, in the
case of his or her death, to the person or persons entitled thereto under
Section 14 hereof, and such participant's option will be automatically
terminated.
(c) A participant's withdrawal from an Offering Period will not
have any effect upon his or her eligibility to participate in any similar
plan which may hereafter be adopted by the Company or in succeeding Offering
Periods which commence after the termination of the offering Period from
which the participant withdraws.
11. INTEREST. No interest shall accrue on the payroll deductions of a
participant in the Plan.
12. STOCK.
(a) Subject to any adjustment upon changes in capitalization of
the Company as provided in Section 18 hereof, the maximum number of shares of
the Company's Common Stock which shall be made available for sale under the
Plan shall be 400,000 shares, plus an annual increase to be added on May 1
(beginning in 1999) of each year equal to the lesser of (i) the number of
shares of Common Stock needed to restore the maximum aggregate number of
shares of Common Stock which may be optioned and sold under the Plan to
400,000 shares or (ii) a lesser amount determined by the Board. If on a
given Exercise Date the number of shares with respect to which options are to
be exercised exceeds the number of shares then available under the Plan, the
Company shall make a pro rata allocation of the shares remaining available
for purchase in as uniform a manner as shall be practicable and as it shall
determine to be equitable.
(b) The participant will have no interest or voting right in
shares covered by his option until such option has been exercised.
(c) Shares to be delivered to a participant under the Plan will be
registered in the name of the participant or in the name of the participant
and his or her spouse.
13. ADMINISTRATION. The Plan shall be administered by the Board or a
committee of members of the Board appointed by the Board. The Board or its
committee shall have full and exclusive discretionary authority to construe,
interpret and apply the terms of the Plan, to determine eligibility and to
adjudicate all disputed claims filed under the Plan. Every finding, decision
and determination made by the Board or its committee shall, to the full
extent permitted by law, be final and binding upon all parties.
14. DESIGNATION OF BENEFICIARY.
(a) A participant may file a written designation of a beneficiary
who is to receive any shares and cash, if any, from the participant's account
under the Plan in the event of such participant's death subsequent to an
Exercise Date on which the option is exercised but prior to delivery to such
participant of such shares and cash. In addition, a participant may file a
written designation of a
-6-
<PAGE>
beneficiary who is to receive any cash from the participant's account under
the Plan in the event of such participant's death prior to exercise of the
option. If a participant is married and the designated beneficiary is not
the spouse, spousal consent shall be required for such designation to be
effective.
(b) Such designation of beneficiary may be changed by the
participant at any time by written notice. In the event of the death of a
participant and in the absence of a beneficiary validly designated under the
Plan who is living at the time of such participant's death, the Company shall
deliver such shares and/or cash to the executor or administrator of the
estate of the participant, or if no such executor or administrator has been
appointed (to the knowledge of the Company), the Company, in its discretion,
may deliver such shares and/or cash to the spouse or to any one or more
dependents or relatives of the participant, or if no spouse, dependent or
relative is known to the Company, then to such other person as the Company
may designate.
15. TRANSFERABILITY. Neither payroll deductions credited to a
participant's account nor any rights with regard to the exercise of an option
or to receive shares under the Plan may be assigned, transferred, pledged or
otherwise disposed of in any way (other than by will, the laws of descent and
distribution or as provided in Section 14 hereof) by the participant. Any
such attempt at assignment, transfer, pledge or other disposition shall be
without effect, except that the Company may treat such act as an election to
withdraw funds from an Offering Period in accordance with Section 10 hereof.
16. USE OF FUNDS. All payroll deductions received or held by the
Company under the Plan may be used by the Company for any corporate purpose,
and the Company shall not be obligated to segregate such payroll deductions.
17. REPORTS. Individual accounts will be maintained for each
participant in the Plan. Statements of account will be given to
participating Employees at least annually, which statements will set forth
the amounts of payroll deductions, the Purchase Price, the number of shares
purchased and the remaining cash balance, if any.
18. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION.
(a) CHANGES IN CAPITALIZATION. Subject to any required action by
the stockholders of the Company, the maximum number of shares each
participant may purchase each Purchase Period (pursuant to Section 7), as
well as the Reserves and the price per share of Common Stock covered by each
option under the Plan which has not yet been exercised shall be
proportionately adjusted for any increase or decrease in the number of issued
shares of Common Stock resulting from a stock split, reverse stock split,
stock dividend, combination or reclassification of the Common Stock, or any
other increase or decrease in the number of shares of Common Stock effected
without receipt of consideration by the Company; provided, however, that
conversion of any convertible securities of the Company shall not be deemed
to have been "effected without receipt of consideration". Such adjustment
shall be made by the Board, whose determination in that respect shall be
final, binding and conclusive. Except as expressly provided herein, no
issuance by the Company of shares of stock of any class, or securities
convertible into shares of stock of any class, shall affect, and no
adjustment by
-7-
<PAGE>
reason thereof shall be made with respect to, the number or price of shares
of Common Stock subject to an option.
(b) DISSOLUTION OR LIQUIDATION. In the event of the proposed
dissolution or liquidation of the Company, the Offering Periods will
terminate immediately prior to the consummation of such proposed action,
unless otherwise provided by the Board.
(c) MERGER OR ASSET SALE. In the event of a proposed sale of all
or substantially all of the assets of the Company, or the merger of the
Company with or into another corporation, each option under the Plan shall be
assumed or an equivalent option shall be substituted by such successor
corporation or a parent or subsidiary of such successor corporation, unless
the Board determines, in the exercise of its sole discretion and in lieu of
such assumption or substitution, to shorten the Purchase Periods and Offering
Periods then in progress by setting a new Exercise Date (the "New Exercise
Date") or to cancel each outstanding right to purchase and refund all sums
collected from participants during the Offering Periods then in progress. If
the Board shortens the Purchase Periods and Offering Periods then in progress
in lieu of assumption or substitution in the event of a merger or sale of
assets, the Board shall notify each participant in writing, at least ten (10)
business days prior to the New Exercise Date, that the Exercise Date for his
option has been changed to the New Exercise Date and that his option will be
exercised automatically on the New Exercise Date, unless prior to such date
he has withdrawn from the offering Period as provided in Section 10 hereof.
For purposes of this paragraph, an option granted under the Plan shall be
deemed to be assumed if, following the sale of assets or merger, the option
confers the right to purchase, for each share of option stock subject to the
option immediately prior to the sale of assets or merger, the consideration
(whether stock, cash or other securities or property) received in the sale of
assets or merger by holders of Common Stock for each share of Common Stock
held on the effective date of the transaction (and if such holders were
offered a choice of consideration, the type of consideration chosen by the
holders of a majority of the outstanding shares of Common Stock); provided,
however, that if such consideration received in the sale of assets or merger
was not solely common stock of the successor corporation or its parent (as
defined in Section 424(e) of the Code), the Board may, with the consent of
the successor corporation and the participant, provide for the consideration
to be received upon exercise of the option to be solely common stock of the
successor corporation or its parent equal in fair market value to the per
share consideration received by holders of Common Stock and the sale of
assets or merger.
The Board may, if it so determines in the exercise of its sole
discretion, also make provision for adjusting the Reserves, as well as the
price per share of Common Stock covered by each outstanding option, in the
event the Company effects one or more reorganizations, recapitalization,
rights offerings or other increases or reductions of shares of its
outstanding Common Stock, and in the event of the Company being consolidated
with or merged into any other corporation.
19. AMENDMENT OR TERMINATION.
(a) The Board of Directors of the Company may at any time and for
any reason terminate or amend the Plan. Except as provided in Section 18
hereof, no such termination can affect
-8-
<PAGE>
options previously granted, provided that an Offering Period may be
terminated by the Board of Directors on any Exercise Date if the Board
determines that the termination of the Plan is in the best interests of the
Company and its stockholders. Except as provided in Section 18 hereof, no
amendment may make any change in any option theretofore granted which
adversely affects the rights of any participant. To the extent necessary to
comply with Section 423 of the Code (or any successor rule or provision or
any other applicable law, regulation or stock exchange rule), the Company
shall obtain stockholder approval in such a manner and to such a degree as
required.
(b) Without stockholder consent and without regard to whether any
participant rights may be considered to have been "adversely affected," the
Board (or its committee) shall be entitled to change the Offering Periods,
establish the exchange ratio applicable to amounts withheld in a currency
other than U.S. dollars, permit payroll withholding in excess of the amount
designated by a participant in order to adjust for delays or mistakes in the
Company's processing of properly completed withholding elections, establish
reasonable waiting and adjustment periods and/or accounting and crediting
procedures to ensure that amounts applied toward the purchase of Common Stock
for each participant properly correspond with amounts withheld from the
participant's Compensation, and establish such other limitations or
procedures as the Board (or its committee) determines in its sole discretion
advisable which are consistent with the Plan.
20. NOTICES. All notices or other communications by a participant to
the Company under or in connection with the Plan shall be deemed to have been
duly given when received in the form specified by the Company at the
location, or by the person, designated by the Company for the receipt thereof.
21. CONDITIONS UPON ISSUANCE OF SHARES. Shares shall not be issued
with respect to an option unless the exercise of such option and the issuance
and delivery of such shares pursuant thereto shall comply with all applicable
provisions of law, domestic or foreign, including, without limitation, the
Securities Act of 1933, as amended, the Securities Exchange Act of 1934, as
amended, the rules and regulations promulgated thereunder, and the
requirements of any stock exchange upon which the shares may then be listed,
and shall be further subject to the approval of counsel for the Company with
respect to such compliance.
As a condition to the exercise of an option, the Company may require the
person exercising such option to represent and warrant at the time of any
such exercise that the shares are being purchased only for investment and
without any present intention to sell or distribute such shares if, in the
opinion of counsel for the Company, such a representation is required by any
of the aforementioned applicable provisions of law.
22. TERM OF PLAN. The Plan shall become effective upon the earlier to
occur of its adoption by the Board of Directors or its approval by the
stockholders of the Company. It shall continue in effect for a term of
ten (10) years unless sooner terminated under Section 19 hereof.
23. AUTOMATIC TRANSFER TO LOW PRICE OFFERING PERIOD. To the extent
permitted by any applicable laws, regulations, or stock exchange rules if the
Fair Market Value of the Common Stock
-9-
<PAGE>
on any Exercise Date in an Offering Period is lower than the Fair Market
Value of the Common Stock on the Enrollment Date of such Offering Period,
then all participants in such Offering Period shall be automatically
withdrawn from such Offering Period immediately after the exercise of their
option on such Exercise Date and automatically re-enrolled in the immediately
following Offering Period as of the first day thereof.
-10-
<PAGE>
EXHIBIT A
TRIQUINT SEMICONDUCTOR, INC.
1998 EMPLOYEE STOCK PURCHASE PLAN
SUBSCRIPTION AGREEMENT
_____ New Application Enrollment Date: _________________
_____ Change in Payroll Deduction Rate
_____ Change of Beneficiary(ies)
1. I hereby authorize payroll deductions from each paycheck in the amount
of _____% of my Compensation on each payday (not to exceed 15% under all
offering periods of all employee stock purchase plans of the Company)
during the Offering Period in accordance with the Employee Stock Purchase
Plan. (Please note that no fractional percentages are permitted.)
2. I understand that said payroll deductions shall be accumulated for the
purchase of shares of Common Stock at the applicable Purchase Price
determined in accordance with the Employee Stock Purchase Plan. I
understand that if I do not withdraw from an Offering Period, any
accumulated payroll deductions will be used to automatically exercise my
option.
3. I have received a copy of the complete "TriQuint Semiconductor, Inc. 1998
Employee Stock Purchase Plan." I understand that my participation in the
Employee Stock Purchase Plan is in all respects subject to the terms of
the Plan.
4. Shares purchased for me under the Employee Stock Purchase Plan should be
issued in the name(s) of (Employee or Employee and Spouse Only):__________
__________________________________________________________________________
5. I understand that if I dispose of any shares received by me pursuant to
the Plan within 2 years after the Enrollment Date (the first day of the
Offering Period during which I purchased such shares) or one year after
the Exercise Date, I will be treated for federal income tax purposes as
having received ordinary income at the time of such disposition in an
amount equal to the excess of the fair market value of the shares at the
time such shares were purchased by me over the price which I paid for
the shares. I HEREBY AGREE TO NOTIFY THE COMPANY IN WRITING WITHIN
30 DAYS AFTER THE DATE OF ANY DISPOSITION OF MY SHARES AND I WILL MAKE
ADEQUATE PROVISION FOR FEDERAL, STATE OR OTHER TAX WITHHOLDING
OBLIGATIONS, IF ANY, WHICH ARISE UPON THE DISPOSITION OF THE COMMON
STOCK. The Company may, but will not be obligated to, withhold from my
compensation the amount necessary to meet any applicable withholding
obligation including any withholding necessary to make available to the
Company any tax deductions or benefits attributable to sale or early
disposition of Common Stock by me. If I dispose of such shares at any
time after the expiration of the 2-year and 1-year holding periods, I
understand that I will be treated for federal income tax purposes as
having received income only at the time of such disposition, and that
such income will be taxed as ordinary income only to the
<PAGE>
extent of an amount equal to the lesser of (1) the excess of the fair
market value of the shares at the time of such disposition over the
purchase price which I paid for the shares, or (2) 15% of the fair market
value of the shares on the first day of the Offering Period. The
remainder of the gain, if any, recognized on such disposition will be
taxed as capital gain.
6. I hereby agree to be bound by the terms of the Employee Stock Purchase
Plan. The effectiveness of this Subscription Agreement is dependent
upon my eligibility to participate in the Employee Stock Purchase Plan.
7. In the event of my death, I hereby designate the following as my
beneficiary(ies) to receive all payments and shares due me under the
Employee Stock Purchase Plan:
NAME: (Please print) _________________________________________________________
(First) (Middle) (Last)
_______________________________ _________________________________________
Relationship
_________________________________________
(Address)
NAME: (Please print) _________________________________________________________
(First) (Middle) (Last)
_______________________________ _________________________________________
Relationship
_________________________________________
(Address)
Employee's Social
Security Number: _________________________________________
Employee's Address: _________________________________________
_________________________________________
_________________________________________
-2-
<PAGE>
I UNDERSTAND THAT THIS SUBSCRIPTION AGREEMENT SHALL REMAIN IN EFFECT
THROUGHOUT SUCCESSIVE OFFERING PERIODS UNLESS TERMINATED BY ME.
Dated:_________________________ _________________________________________
Signature of Employee
_________________________________________
Spouses Signature (If beneficiary other
than spouse)
-3-
<PAGE>
EXHIBIT B
TRIQUINT SEMICONDUCTOR, INC.
1998 EMPLOYEE STOCK PURCHASE PLAN
NOTICE OF WITHDRAWAL
The undersigned participant in the Offering Period of the TriQuint
Semiconductor, Inc. 1998 Employee Stock Purchase Plan which began on
_________________ 19___ (the "Enrollment Date") hereby notifies the Company
that or she hereby withdraws from the Offering Period. He or she hereby
directs the Company to pay to the undersigned as promptly as practicable all
the payroll deductions credited to his or her account with respect to such
Offering Period. The undersigned understands and agrees that his or her
option for such Offering Period will be automatically terminated. The
undersigned understands further that no further payroll deductions will be
made for the purchase of shares in the current Offering Period and the
undersigned shall be eligible to participate in succeeding Offering Periods
only by delivering to the Company a new Subscription Agreement.
Name and Address of Participant:
_________________________________________
_________________________________________
_________________________________________
Signature:
_________________________________________
Date:____________________________________
<PAGE>
COMMON STOCK PRICES
<TABLE>
<CAPTION>
Quarter High Low
<S> <C> <C>
Q4 1997 $ 45 3/8 $ 17 3/8
Q3 1997 45 1/2 32 1/4
Q2 1997 40 3/4 21 1/8
Q1 1997 37 7/8 20 1/2
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
</TABLE>
<PAGE>
TRIQUINT SEMICONDUCTOR, INC. SELECTED FINANCIAL DATA
IN THOUSANDS, EXCEPT PER SHARE AMOUNTS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,(1)
1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total revenues $71,367 $59,526 $45,943 $30,261 $32,606
Operating costs and expenses:
Cost of goods sold 40,028 34,258 25,509 19,790 14,660
Research, development and
engineering 11,518 10,858 9,210 9,945 8,941
Selling, general and
administrative 14,188 10,975 9,009 10,013 7,533
Restructuring of operations -- -- -- 443 --
----------------------------------------------------------------------
Total operating costs and
expenses 65,734 56,091 43,728 40,191 31,134
----------------------------------------------------------------------
Income (loss) from operations 5,633 3,435 2,215 (9,930) 1,472
Other income (expense), net 2,117 3,083 930 198 (414)
----------------------------------------------------------------------
Income (loss) before income taxes 7,750 6,518 3,145 (9,732) 1,058
Income tax expense 890 231 83 -- 271
----------------------------------------------------------------------
Net income (loss) $6,860 $6,287 $3,062 ($9,732) $787
----------------------------------------------------------------------
----------------------------------------------------------------------
PER SHARE DATA:
Net income(loss):
Basic $0.82 $0.78 $0.48 ($1.82) $0.19
Diluted $0.75 $0.72 $0.42 ($1.82) $0.19
Weighted average shares:
Basic 8,373 8,045 6,358 5,346 4,236
Diluted 9,108 8,763 7,237 5,346 4,236
BALANCE SHEET DATA:
Working capital $35,180 $37,591 $65,513 $16,409 $19,541
Total assets 121,418 107,596 94,024 34,227 35,166
Long-term obligations, less current
installments 12,550 9,891 7,392 4,062 1,712
Shareholders' equity 90,038 80,246 72,644 20,785 26,219
----------------------------------------------------------------------
</TABLE>
(1) Except for 1996 and 1997, 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.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
IN ADDITION TO THE OTHER INFORMATION IN THIS ANNUAL REPORT TO
SHAREHOLDERS AND IN THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR 1997 INTO
WHICH THIS MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (MD&A) IS INCORPORATED BY REFERENCE, CERTAIN STATEMENTS
IN THE FOLLOWING MD&A ARE FORWARD LOOKING STATEMENTS. WHEN USED IN THIS
REPORT, THE WORD "EXPECTS," "ANTICIPATES," "ESTIMATES," AND SIMILAR
EXPRESSIONS ARE INTENDED TO IDENTIFY FORWARD LOOKING STATEMENTS. SUCH
STATEMENTS ARE SUBJECT TO RISKS AND UNCERTAINTIES THAT COULD CAUSE ACTUAL
RESULTS TO DIFFER MATERIALLY FROM THOSE PROJECTED. SUCH RISKS AND
UNCERTAINTIES ARE SET FORTH BELOW UNDER "FACTORS AFFECTING FUTURE OPERATING
RESULTS."
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, Cellnet Data Systems, Cisco Systems,
Ericsson, IBM, Lucent Technologies, Motorola, Northern Telecom, Siliconix and
Storage Technology.
On January 13, 1998, the Company acquired substantially all of the
assets of the Monolithic Microwave Integrated Circuit (MMIC) operations of
the former Texas Instruments' Defense Systems & Electronics Group from
Raytheon TI Systems, Inc. (RTIS), a Delaware corporation and a wholly owned
subsidiary of Raytheon Company (Raytheon). The MMIC operations include the
GaAs foundry and MMIC business of the R/F Microwave Business Unit that RTIS
acquired on July 11, 1997 from Texas Instruments Incorporated (TI) which MMIC
business includes without limitation, TI's GaAs Operations Group, TI's
Microwave GaAs Products Business Unit, the MMIC component of TI's Microwave
GaAs Products Business Unit, the MMIC component of TI's Microwave Integrated
Circuits Center of Excellence and the MMIC research and development component
of TI's Systems Component Research Laboratory (collectively, the MMIC
Business).
The MMIC Business designs, develops, produces and sells advanced GaAs
MMIC products which are used in defense and commercial applications. In the
area of defense applications, the MMIC Business supplies military contractors
with MMIC products and services for applications such as high power
amplifiers, low noise amplifiers, switches and attenuators for active array
radar, missiles, electronic warfare systems and space communications systems.
In commercial applications, the MMIC Business provides products and services
for wireless and space-based communications.
Pursuant to an Asset Purchase Agreement with RTIS, TriQuint acquired the
MMIC Business for approximately $19.5 million in cash and 844,613 shares of
TriQuint Common Stock (the Shares) valued at approximately $19.5 million for
a total purchase consideration of approximately $39 million. The Shares are
redeemable at TriQuint's option at any time within 360 days of January 13,
1998 at a price of approximately $23 per share. The cash portion of the
purchase price was financed through an equipment leasing arrangement through
General Electric Capital Corporation involving certain assets pursuant to the
Agreement.
1
<PAGE>
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.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Total revenues 100.0 % 100.0 % 100.0 %
Operating costs and expenses:
Cost of goods sold 56.1 57.6 55.5
Research, development and engineering 16.1 18.2 20.1
Selling, general and administrative 19.9 18.4 19.6
----- ----- -----
Total operating costs and expenses 92.1 94.2 95.2
----- ----- -----
Income from operations 7.9 5.8 4.8
Other income, net 3.0 5.2 2.1
----- ----- -----
Income before income taxes 10.9 11.0 6.9
Income tax expense 1.3 0.4 0.2
----- ----- -----
Net income 9.6 % 10.6 % 6.7 %
----- ----- -----
----- ----- -----
</TABLE>
In 1996, the Company changed its year end to December 31. For 1995, 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, 1997, December 31, 1996 and
December 31, 1995 are hereinafter referred to as Fiscal 1997, Fiscal 1996 and
Fiscal 1995, respectively.
COMPARISON OF 1997 AND 1996
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 1997 increased
19.9% to $71.4 million from $59.5 million for Fiscal 1996. 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 47%, 41%, and 12% of total revenues,
respectively, for Fiscal 1997. Domestic and international revenues for Fiscal
1997 were $47.1 million and $24.3 million, respectively, as compared to $41.4
million and $18.1 million, respectively, for Fiscal 1996. The Company
currently anticipates an overall increase in the volume of product revenues
from existing and new customers.
COST OF GOODS SOLD
Cost of goods sold includes all direct material, labor and overhead
expenses and certain production costs related to NRE revenues. In general,
gross profit generated from the sale of customer-specific products and from
NRE revenues is typically higher than gross profit from the sale of standard
products. The factors affecting product mix include the relative demand in
the various market segments incorporating the Company's customer-specific
products and standard products, as well as the number of NRE contracts which
result in volume requirements for customer-specific products. Cost of goods
sold was $40.0 million in Fiscal 1997 and increased from $34.3 million in
Fiscal 1996. Cost of goods sold for Fiscal 1997 decreased slightly as a
percentage of total revenues to 56.1% from 57.6% for Fiscal 1996. The
decrease in cost of goods sold as a percentage of total revenues was
primarily attributable to improvements in production yields and increased
volume, which were partially offset by certain costs associated with the
Company's startup of its new wafer fabrication facility and variances
associated with expediting costs.
2
<PAGE>
The Company has at various times in the past experienced lower than
expected production yields which have delayed shipments of a given product
and adversely affected gross margins. There can be no assurance that the
Company will be able to maintain acceptable production yields in the future
and, to the extent that it does not achieve acceptable production yields, its
operating results would be materially adversely affected. The Company's
operation of its own leased wafer fabrication facility entails a high degree
of fixed costs and requires an adequate volume of production and sales to be
profitable. During periods of decreased demand, high fixed wafer fabrication
costs would have a material adverse effect on the Company's operating results.
RESEARCH, DEVELOPMENT AND ENGINEERING
Research, development and engineering (RD&E) expenses include the costs
incurred in the design of products associated with NRE revenues, as well as
ongoing product development and research and development expenses. The
Company's RD&E expenses for Fiscal 1997 increased 6.1% to $11.5 million from
$10.9 million for Fiscal 1996. RD&E expenses as a percentage of total
revenues decreased to 16.1% for Fiscal 1997 from 18.2% for Fiscal 1996. The
increase in RD&E expenses in absolute dollar level was primarily due to
increased product development activities and NRE expenses in response to
increased demand from customers. The number of major design wins for Fiscal
1997 increased 17% from Fiscal 1996. Major 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 Fiscal 1997. The Company is committed to substantial investments in RD&E
and expects such expenses will increase in absolute dollar amount in the
future.
SELLING, GENERAL AND ADMINISTRATIVE
Selling, general and administrative (SG&A) expenses for Fiscal 1997
increased 29.3% to $14.2 million from $11.0 million for Fiscal 1996. SG&A
increased as a percentage of total revenues to 19.9% for 1997 from 18.4% for
1996. The increase in the level of SG&A expenses was primarily due to costs
associated with the Company's move to its new facility in Hillsboro,
increased information technology support costs, increased sales commissions
in connection with the increase in the level of total revenues, and
professional fees.
OTHER INCOME, NET
Other income, net for Fiscal 1997 decreased to $2.1 million as compared
to $3.1 million for Fiscal 1996. This decrease resulted from a one-time gain
of $680,000 from the sale of the Company's minority interest in its primary
distributor in Europe in Fiscal 1996 and from higher interest expense in
Fiscal 1997 associated with an increase in capital lease obligations.
INCOME TAX EXPENSE
The effective tax rate for Fiscal 1997 was 11.5%, 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 1996 was 3.5%.
At December 31, 1997, the Company had federal and state net operating
loss carryforwards for tax reporting purposes of approximately $26.4 million
and $6.8 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.
3
<PAGE>
COMPARISON OF 1996 AND 1995
TOTAL REVENUES
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. 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.
COST OF GOODS SOLD
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.
RESEARCH, DEVELOPMENT AND ENGINEERING
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 Fiscal 1996 from 20.1% for Fiscal 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. The decrease in RD&E expenses as a percentage of total
revenues was the result of increased sales volume in 1996.
SELLING, GENERAL AND ADMINISTRATIVE
Selling, general and administrative (SG&A) expenses for Fiscal 1996
increased 21.8% to $11.0 million from $9.0 million for Fiscal 1995. SG&A
decreased as a percentage of total revenues to 18.4% for Fiscal 1996 from
19.6% for Fiscal 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 Fiscal 1996
resulted from 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%.
NEW ACCOUNTING STANDARDS
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income", which established requirements for disclosure of comprehensive
income. The objective of SFAS No. 130 is to report all changes in equity that
result from transactions and economic events other than transactions with
owners. Comprehensive income is the total of net income and all other
non-owner changes in equity. SFAS No. 130 is effective for fiscal years
beginning after
4
<PAGE>
December 15, 1997. Reclassification of earlier financial statements for
comparative purposes is required. The Company does not expect implementation
to have a significant impact on the financial statements.
Also in June 1997, the FASB issued SFAS No. 131, "Disclosure about
Segments of an Enterprise and Related Information". SFAS 131 requires public
companies to report certain information about their operating segments in a
complete set of financial statements to shareholders. It also requires
reporting of certain enterprise-wide information about the Company's products
and services, its activities in different geographic areas, and its reliance
on major customers. The basis for determining the Company's operating
segments is the manner in which management operates the business. SFAS No.
131 is effective for fiscal years beginning after December 15, 1997. The
Company does not expect implementation to have a significant impact on the
financial statements.
FACTORS AFFECTING FUTURE RESULTS
VARIABILITY OF OPERATING RESULTS AND CYCLICALITY OF SEMICONDUCTOR
INDUSTRY - The Company's quarterly and annual results of operations have
varied in the past and may vary significantly in the future due to a number
of factors, including cancellation or delay of customer orders or shipments;
market acceptance of the Company's or its customers' products; the Company's
success in achieving design wins; variations in manufacturing yields; timing
of announcement and introduction of new products by the Company and its
competitors; changes in revenue and product mix; competitive factors; changes
in manufacturing capacity and variations in the utilization of such capacity;
variations in average selling prices; variations in operating expenses; the
long sales cycles associated with the Company's customer specific products;
the timing and level of product and process development costs; the
cyclicality of the semiconductor industry; the timing and level of
nonrecurring engineering ("NRE") revenues and expenses relating to customer
specific products; changes in inventory levels; and general economic
conditions. Any unfavorable changes in these or other factors could have a
material adverse effect on the Company's results of operations. For example,
in June 1994, Northern Telecom, the Company's largest customer, requested
that the Company delay shipment of certain of its telecommunications devices
to Northern Telecom. This decision, together with a general softness of
orders in the telecommunications market, materially adversely affected the
Company's revenues and results of operations in the second quarter of 1994
and for the balance of that year. The Company expects that its operating
results will continue to fluctuate in the future as a result of these and
other factors. The Company's expense levels are based, in part, on its
expectations as to future revenue and, as a result, net income would be
disproportionately and adversely affected by a reduction in revenue. Due to
potential quarterly fluctuations in operating results, the Company believes
that quarter-to-quarter comparisons of its results of operations are not
necessarily meaningful and should not be relied upon as indicators of future
performance. Furthermore, it is likely that in some future quarter the
Company's net sales or operating results will be below the expectations of
public market securities analysts or investors. In such event, the market
price of the Company's Common Stock would likely be materially adversely
affected.
5
<PAGE>
TRANSITION OF MANUFACTURING OPERATIONS TO A NEW FACILITY - In the fourth
quarter of 1997, the Company completed the move of its wafer fabrication and
manufacturing facilities to its new Hillsboro facility. The Company's
administrative, engineering, sales and marketing offices and test operations
moved into this new facility during the first quarter of 1997. The Company's
lease and operation of its own wafer fabrication and manufacturing facilities
entails a high level of fixed costs. Such fixed costs consist primarily of
occupancy costs for the Hillsboro facility, 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 on a given product's complexity and the Company's experience in
manufacturing such product. The Company has experienced in the past and may
experience in the future substantial delays in product shipments due to lower
than expected production yields. The Company's transition of manufacturing
operations to the higher capacity Hillsboro facility will result 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 materially adversely affected in
future periods. In addition, during periods of low demand, high fixed wafer
fabrication costs could have a material adverse effect on the Company's
business, financial condition and results of operations.
INTEGRATION OF ACQUISITIONS - Company management frequently evaluates
the strategic opportunities available to it and may in the near-term or
long-term future pursue acquisitions of complementary products, technologies
or businesses. For example, on January 13, 1998, the Company acquired
substantially all of the assets of the MMIC operations of the former Texas
Instruments' Defense Systems & Electronics Group from RTIS. Acquisition
transactions are accompanied by a number of risks, including, among other
things, the difficulty of assimilating the operations and personnel of the
acquired companies, the potential disruption of the Company's ongoing
business, the inability of management to maximize the financial and strategic
position of the Company through the successful incorporation of acquired
technology and rights into the Company's products, expenses associated with
the transactions, expenses associated with acquired in-process research and
development, additional operating expenses, the maintenance of uniform
standards, controls, procedures and policies, the impairment of relationships
with employees and customers as a result of any integration of new management
personnel, and the potential unknown liabilities associated with acquired
businesses. There can be no assurance that the Company will be successful in
overcoming these risks or any other problems encountered in connection with
its acquisition of the MMIC Business or any other future acquisitions. In
addition, future acquisitions by the Company have the potential to result in
dilutive issuances of equity securities, the incurrence of additional debt,
and amortization expenses related to goodwill and other intangible assets
that may materially adversely affect the Company's results of operations.
MANUFACTURING RISKS - The fabrication of integrated circuits,
particularly GaAs devices such as those sold by the Company, is a highly
complex and precise process. Minute impurities, difficulties in the
fabrication process, defects in the masks used to print circuits on a wafer,
wafer breakage or other factors can cause a substantial percentage of wafers
to be rejected or numerous die on each wafer to be nonfunctional. As compared
to silicon technology, the less mature stage of GaAs technology leads to
somewhat greater difficulty in circuit design and in controlling parametric
variations, thereby yielding fewer good die per wafer. In addition, the more
brittle nature of GaAs wafers can result in higher processing losses than
those experienced with silicon wafers. The Company has in the past
experienced lower than expected production yields, which have delayed product
shipments and materially adversely affected the Company's results of
operations. This was experienced in the fourth quarter of 1995 and during
1996. There can be no assurance that the Company will be able to maintain
acceptable production yields in the future. Because the majority of the
Company's costs of manufacturing are relatively fixed, the number of
shippable die per wafer for a given product is critical to the Company's
results of operations. To the extent the Company does not achieve acceptable
manufacturing yields or experiences product shipment delays, its results of
operations could be materially adversely affected. In addition, the Company
leases and operates its own wafer fabrication facility, which entails a high
level of fixed costs and which requires an adequate volume of production and
sales to be profitable. During periods of decreased demand, high fixed wafer
fabrication costs could have a material adverse effect on the Company's
results of operations.
6
<PAGE>
PRODUCT QUALITY, PERFORMANCE AND RELIABILITY - The fabrication of GaAs
integrated circuits is a highly complex and precise process. The Company
expects that its customers will continue to establish demanding
specifications for quality, performance and reliability that must be met by
the Company's products. GaAs integrated circuits as complex as those offered
by the Company often encounter development delays and may contain undetected
defects or failures when first introduced or after commencement of commercial
shipments. As has occurred with most other semiconductor manufacturers, the
Company has from time to time experienced product quality, performance or
reliability problems, although no such problems have had a material adverse
effect on the Company's operating results. There can be no assurance,
however, that defects or failures will not occur in the future relating to
the Company's product quality, performance and reliability that may have a
material adverse effect on the Company's results of operations. If such
failures or defects occur, the Company could experience lost revenue,
increased costs (including warranty expense and costs associated with
customer support), delays in or cancellations or rescheduling of orders or
shipments and product returns or discounts, any of which would have a
material adverse effect on the Company's business, financial condition and
results of operations.
RELIANCE ON SIGNIFICANT CUSTOMERS; CUSTOMER CONCENTRATION - A
significant portion of the Company's revenues in each fiscal period has
historically been concentrated among a limited number of customers. In recent
periods, sales to certain of the Company's major customers as a percentage of
total revenues have fluctuated. In Fiscal 1997, Northern Telecom accounted
for approximately 12.0% of total revenues. In 1996, Cirrus Logic, Giga A/S
and Northern Telecom accounted for approximately 16.5%, 12.3%, and 11.9%,
respectively, of total revenues. In 1995, Cirrus Logic, Northern Telecom and
Giga A/S accounted for approximately 23.7%, 13.5% and 10.9%, respectively, of
total revenues. The Company expects that sales to a limited number of
customers will continue to account for a substantial portion of its total
revenues in future periods. The Company does not have long-term agreements
with any of its customers. Customers generally purchase the Company's
products pursuant to cancelable short-term purchase orders. The Company's
business, financial condition and results of operations have been materially
adversely affected in the past by the failure of anticipated orders to
materialize and by deferrals or cancellations of orders. If the Company were
to lose a major customer or if orders by or shipments to a major customer
were to otherwise decrease or be delayed, the Company's business, financial
condition and results of operations would be materially adversely affected.
DEPENDENCE ON CUSTOMER SPECIFIC PRODUCTS - A substantial portion of the
Company's products are designed to address the needs of individual customers.
Frequent product introductions by systems manufacturers make the Company's
future success dependent on its ability to select customer specific
development projects which will result in sufficient production volume to
enable the Company to achieve manufacturing efficiencies. Because customer
specific products are developed for unique applications, the Company expects
that some of its current and future customer specific products may never be
produced in volume. In addition, in the event of delays in completing designs
or the Company's failure to obtain development contracts from customers whose
systems achieve and sustain commercial market success, the Company's
business, financial condition and results of operations could be materially
adversely affected.
DEPENDENCE ON NEW PRODUCTS AND PROCESSES - The Company's future success
depends on its ability to develop and introduce in a timely manner new
products and processes which compete effectively on the basis of price and
performance and which adequately address customer requirements. The success
of new product and process introductions is dependent on several factors,
including proper selection of such products and processes, the ability to
adapt to technological changes and to support emerging and established
industry standards, successful and timely completion of product and process
development and commercialization, market acceptance of the Company's or its
customers' new products, achievement of acceptable wafer fabrication yields
and the Company's ability to offer new products at competitive prices. No
assurance can be given that the Company's product and process development
efforts will be successful or that its new products or processes will
achieve market acceptance. In addition, as is characteristic of the
semiconductor industry, the average selling prices of the Company's products
have historically decreased over the products' lives and are expected to
continue to do so. To offset such decreases, the Company relies primarily on
achieving yield improvements and corresponding cost reductions in the
manufacture of existing products and on introducing new products which
incorporate advanced features and which therefore can be sold at higher
average selling prices. To the extent that such cost reductions and new
product or process introductions do not occur in a timely manner or the
Company's or its customers' products do not achieve market acceptance, the
Company's business, financial condition and results of operations could be
materially adversely affected.
7
<PAGE>
PRODUCT AND PROCESS DEVELOPMENT AND TECHNOLOGICAL CHANGE - The market
for the Company's products is characterized by frequent new product
introductions, evolving industry standards and rapid changes in product and
process technologies. Because of continual improvements in these
technologies, including those in high performance silicon where substantially
more resources are invested than in GaAs technologies, the Company believes
that its future success will depend, in part, on its ability to continue to
improve its product and process technologies and to develop in a timely
manner new technologies in order to remain competitive. In addition, the
Company must adapt its products and processes to technological changes and to
support emerging and established industry standards. There can be no
assurance that the Company will be able to improve its existing products and
process technologies, develop in a timely manner new technologies or
effectively support industry standards. The failure of the Company to improve
its products and process technologies, develop new technologies and support
industry standards would have a material adverse effect on the Company's
business, financial condition and results of operations.
EVOLVING INDUSTRY STANDARDS - The markets in which the Company and its
customers compete are characterized by rapidly changing technology, evolving
industry standards and continuous improvements in products and services. If
technologies or standards supported by the Company's or its customers'
products become obsolete or fail to gain widespread commercial acceptance,
the Company's business, financial condition and results of operations may be
materially adversely affected. In addition, the increasing demand for
wireless communications has exerted pressure on regulatory bodies worldwide
to adopt new standards for such products, generally following extensive
investigation of and deliberation over competing technologies. The delays
inherent in the regulatory approval process may in the future cause the
cancellation, postponement or rescheduling of the installation of
communications systems by the Company's customers. These delays have in the
past had and may in the future have a material adverse effect on the sale of
products by the Company and on its business, financial condition and results
of operations.
PENDING LITIGATION - On June 9, 1994 the Company issued a press release
indicating that softness in the Company's telecom revenues would adversely
affect the Company's financial results. The cause for the reduction in
revenues was a general softness in orders in the telecommunications market,
including orders from Northern Telecom, the Company's largest customer. As a
result of this announcement, the Company's stock price decreased by 48% on
June 10, 1994. On July 12, 1994, a stockholder class action lawsuit was filed
against the Company, its underwriters, and certain of its officers, directors
and investors in the United States District Court for the Northern District
of California. The suit 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. Certain
provisions of the Company's Certificate of Incorporation and indemnification
agreements between the Company and its officers and directors require the
Company to advance to such officers and directors ongoing legal expenses of
defending the suit and may require the Company to indemnify them against
judgments rendered on certain claims. Since the filing of the complaint, the
plaintiffs have dismissed without prejudice a director defendant, the
principal stockholder defendant, the underwriter defendants and certain
analyst defendants. On June 21, 1996, the Court granted the Company's motion
to transfer the litigation to the District of Oregon. The pretrial discovery
phase of the lawsuit ended July 1, 1997. The court has established a January
1999 trial date for this action. The Company expects to continue to incur
significant legal expenses on its behalf and on behalf of such officers and
directors in connection with this litigation. In addition, defending this
litigation has resulted and will likely continue to result in the diversion
of management's attention from the day-to-day operations of the Company's
business. Although the Company does not believe that it or any of its
officers or directors has engaged in any wrongdoing, there can be no
assurance that this stockholder litigation will be resolved in the Company's
favor. An adverse result, settlement or prolonged litigation could have a
material adverse effect on the Company's business, financial condition or
results of operations.
8
<PAGE>
COMPETITION - The semiconductor industry is intensely competitive and
is characterized by rapid technological change, rapid product obsolescence
and price erosion. Currently, the Company competes primarily with
manufacturers of high performance silicon semiconductors such as AMCC,
Motorola and Philips and with manufacturers of GaAs semiconductors such as
Vitesse and Anadigics. The Company expects increased competition both from
existing competitors and from a number of companies which may enter the GaAs
integrated circuit market, as well as future competition from companies which
may offer new or emerging technologies such as silicon germanium. Most of the
Company's current and potential competitors have significantly greater
financial, technical, manufacturing and marketing resources than the Company.
Additionally, manufacturers of high performance silicon semiconductors have
achieved greater market acceptance of their existing products and
technologies in certain applications. There can be no assurance that the
Company will face increased competition or that the Company will be able to
compete successfully in the future. The failure of the Company to
successfully compete in its markets would have a material adverse effect on
the Company's business, financial condition and results of operations.
ADOPTION OF GaAs COMPONENTS BY SYSTEMS MANUFACTURERS - Silicon
semiconductor technologies are the dominant process technologies for
integrated circuits and these technologies continue to improve in
performance. TriQuint's prospective customers are frequently systems
designers and manufacturers who are utilizing such silicon technologies in
their existing systems and who are evaluating GaAs integrated circuits for
use in their next generation high performance systems. Customers may be
reluctant to adopt TriQuint's products because of perceived risks relating to
GaAs technology generally. Such perceived risks include the unfamiliarity of
designing systems with GaAs products as compared with silicon products,
concerns related to manufacturing costs and yields, novel design and
unfamiliar manufacturing processes and uncertainties about the relative cost
effectiveness of the Company's products compared to high performance silicon
integrated circuits. In addition, customers may be reluctant to rely on a
smaller company such as TriQuint for critical components. There can be no
assurance that additional systems manufacturers will design the Company's
products into their respective systems, that the companies that have utilized
the Company's products will continue to do so in the future or that GaAs
technology will achieve widespread market acceptance. Should the Company's
GaAs products fail to achieve market acceptance or be utilized in
manufacturers' systems, the Company's business, financial condition and
results of operations would be materially adversely affected.
GaAs COMPONENTS MORE COSTLY TO PRODUCE - The production of GaAs
integrated circuits has been and continues to be more costly than the
production of silicon devices. This cost differential relates primarily to
higher costs of the raw wafer material, lower production yields associated
with the relatively immature GaAs technology and higher unit costs associated
with lower production volumes. Although the Company has reduced unit
production costs by increasing wafer fabrication yields, by achieving higher
volumes and by obtaining lower raw wafer costs, there can be no assurance
that the Company will be able to continue to decrease production costs. In
addition, the Company believes that its costs of producing GaAs integrated
circuits will continue to exceed the costs associated with the production of
silicon devices. As a result, the Company must offer devices which provide
superior performance to that of silicon based devices such that the perceived
price/performance of its products is competitive. There can be no assurance
that the Company can continue to identify markets which require performance
superior to that offered by silicon solutions, or that the Company will
continue to offer products which provide sufficiently superior performance to
offset the cost differential.
MANAGEMENT OF GROWTH - The growth in the Company's business has placed,
and is expected to continue to place, a significant strain on the Company's
personnel, management and other resources. The Company's ability to manage
any future growth effectively will require it to attract, train, motivate,
manage and retain new employees successfully, to integrate new employees into
its overall operations and in particular its manufacturing operations, and to
continue to improve its operational, financial and management information
systems.
DEPENDENCE ON KEY PERSONNEL - The Company's future success depends in
large part on the continued service of its key technical, marketing and
management personnel and on its ability to continue to identify, attract and
retain qualified technical and management personnel, particularly highly
skilled design, process and test engineers involved in the manufacture of
existing products and the development of new products and processes.
Furthermore, there may be only a limited number of persons in the Company's
geographic area with the requisite skills to serve in these positions.
Several companies have recently announced intentions to build wafer
fabrication plants in the Company's geographic area in the near future, and
it may become increasingly difficult for the Company to attract and retain
such personnel. The competition for such personnel is intense, and the loss
of key employees could have a material adverse effect on the Company.
9
<PAGE>
SOLE SOURCES OF MATERIALS AND SERVICES - The Company currently procures
certain components and services for its products from single sources, such as
ceramic packages from Kyocera. The Company purchases these components and
services on a purchase order basis, does not carry significant inventories of
these components and does not have any long-term supply contracts with its
sole source vendors. If the Company were to change any of its sole source
vendors, the Company would be required to requalify the components with each
new vendor. Requalification could prevent or delay product shipments which
could materially adversely affect the Company's results of operations. In
addition, the Company's reliance on sole source vendors involves several
risks, including reduced control over the price, timely delivery, reliability
and quality of the components. Any inability of the Company to obtain timely
deliveries of components of acceptable quality in required quantities or any
increases in the prices of components for which the Company does not have
alternative sources could materially adversely affect the Company's business,
financial condition and results of operations.
CYCLICALITY OF THE SEMICONDUCTOR INDUSTRY - The semiconductor industry
has historically been characterized by wide fluctuations in product supply
and demand. From time to time, the industry has also experienced significant
downturns, often in connection with, or in anticipation of, major additions
of wafer fabrication capacity, maturing product cycles or declines in general
economic conditions. These downturns have been characterized by diminished
product demand, production overcapacity and subsequent accelerated price
erosion, and in some cases have lasted for extended periods of time. The
Company's business has in the past been and could in the future be materially
adversely affected by industry wide fluctuations. The Company's continued
success will depend in large part on the continued growth of the
semiconductor industry in general and its customers' markets in particular.
No assurance can be given that the Company's business, financial condition
and results of operations will not be materially adversely affected in the
future by cyclical conditions in the semiconductor industry or in any of the
markets served by the Company's products.
PROPRIETARY TECHNOLOGY - The Company's ability to compete is affected
by its ability to protect its proprietary information. The Company relies on
a combination of patents, trademarks, copyrights, trade secret laws,
confidentiality procedures and licensing arrangements to protect its
intellectual property rights. The Company currently has patents granted and
pending in the United States and in foreign countries and intends to seek
further international and United States patents on its technology. There can
be no assurance that patents will issue from any of the Company's pending
applications or applications in preparation or that patents will be issued in
all countries where the Company's products can be sold or that any claims
allowed from pending applications or applications in preparation will be of
sufficient scope or strength to provide meaningful protection or any
commercial advantage to the Company. Also, competitors of the Company may be
able to design around the Company's patents. The laws of certain foreign
countries in which the Company's products are or may be developed,
manufactured or sold, including various countries in Asia, may not protect
the Company's products or intellectual property rights to the same extent as
do the laws of the United States, increasing the possibility of piracy of the
Company's technology and products. Although the Company intends to vigorously
defend its intellectual property rights, there can be no assurance that the
steps taken by the Company to protect its proprietary information will be
adequate to prevent misappropriation of its technology or that the Company's
competitors will not independently develop technologies that are
substantially equivalent or superior to the Company's technology.
RISK OF THIRD PARTY CLAIMS OF INFRINGEMENT - The semiconductor industry
is characterized by vigorous protection and pursuit of intellectual property
rights or positions, which have resulted in significant and often protracted
and expensive litigation. Although there is currently no pending intellectual
property litigation against the Company, the Company or its suppliers may
from time to time be notified of claims that the Company may be infringing
patents or other intellectual property rights owned by third parties. If it
is necessary or desirable, the Company may seek licenses under such patents
or other intellectual property rights. However, there can be no assurance
that licenses will be offered or that the terms of any offered licenses will
be acceptable to the Company. The failure to obtain a license from a third
party for technology used by the Company could cause the Company to incur
substantial liabilities and to suspend the manufacture of products.
Furthermore, the Company may initiate claims or litigation against third
parties for infringement of the Company's proprietary rights or to establish
the validity of the Company's proprietary rights. Litigation by or against
the Company could result in significant expense to the Company and divert the
efforts of the Company's technical and management personnel, whether or not
such litigation results in a favorable determination for the Company. In the
event of an adverse result in any such litigation, the Company could be
required to pay substantial damages, indemnify its customers, cease the
manufacture, use and sale of infringing products, expend significant
resources to develop non-infringing technology, discontinue the use of
certain processes or obtain licenses to the infringing technology. There can
be no assurance that the Company would be successful in
10
<PAGE>
such development or that such licenses would be available on reasonable
terms, or at all, and any such development or license could require
expenditures of substantial time and other resources by the Company. In the
event that any third party makes a successful claim against the Company or
its customers and a license is not made available to the Company on
commercially reasonable terms, the Company's business, financial condition
and results of operations would be materially adversely affected.
ENVIRONMENTAL REGULATIONS - The Company is subject to a variety of
federal, state and local laws, rules and regulations related to the discharge
or disposal of toxic, volatile or other hazardous chemicals used in its
manufacturing process. The failure to comply with present or future
regulations could result in fines being imposed on the Company, suspension of
production or a cessation of operations. Such regulations could require the
Company to acquire significant equipment or to incur substantial other
expenses to comply with environmental regulations. Any failure by the
Company, or by TI with respect to the Company's MMIC Facility, to control the
use of, or to adequately restrict the discharge of, hazardous substances
could subject the Company to future liabilities or could cause its
manufacturing operations to be suspended, resulting in a material adverse
effect on the Company's business, financial condition and results of
operations.
RISKS ASSOCIATED WITH INTERNATIONAL SALES - Sales outside of the United
States were $24.3 million, $18.1 million and $14.8 million, and in Fiscal
1997, Fiscal 1996 and Fiscal 1995, respectively. These sales involve a number
of inherent risks, including imposition of government controls, currency
exchange fluctuations, potential insolvency of international distributors and
representatives, reduced protection for intellectual property rights in some
countries, the impact of recessionary environments in economies outside the
United States, political instability and generally longer receivables
collection periods, as well as tariffs and other trade barriers. In addition,
due to the technological advantage provided by GaAs in many military
applications, all of the Company's sales outside of North America must be
licensed by the Office of Export Administration of the U.S. Department of
Commerce. Although the Company has not experienced significant difficulty in
obtaining these licenses, failure to obtain such licenses or delays in
obtaining such licenses in the future could have a material adverse effect on
the Company's results of operations. Furthermore, because substantially all
of the Company's foreign sales are denominated in U.S. dollars, increases in
the value of the dollar would increase the price in local currencies of the
Company's products in foreign markets and make the Company's products less
price competitive. There can be no assurance that these factors will not have
a material adverse effect on the Company's future international sales and,
consequently, on the Company's business, financial condition and results of
operations.
DEPENDENCE ON ASSEMBLY CONTRACTORS - The Company's finished GaAs wafers
are assembled and packaged by ten independent subcontractors, six of which
are located outside of the United States. Any prolonged work stoppages or
other failure of these contractors to supply finished products would have a
material adverse effect on the Company's business, financial condition and
results of operations.
ANTI-TAKEOVER EFFECT OF DELAWARE LAW AND CERTAIN CHARTER AND BYLAWS
PROVISIONS ON PRICE OF COMMON STOCK - Certain provisions of the Company's
Certificate of Incorporation and Bylaws such as cumulative voting for
directors, the inability of stockholders to act by written consent, the
inability of stockholders to call special meetings without the consent of the
Board of Directors and advance notice requirements for stockholder meeting
proposals or director nominations may have the effect of making it more
difficult for a third party to acquire, or discouraging a third party from
attempting to acquire, control of the Company. Such provisions could limit
the price certain investors may be willing to pay in the future for shares of
the Company's Common Stock. Certain provisions of Delaware law applicable to
the Company could also delay or make more difficult a merger, tender offer or
proxy contest involving the Company, including Section 203 of the Delaware
General Corporation Law, which prohibits a Delaware corporation from engaging
in any business combination with any interested stockholder for a period of
three years unless certain conditions are met. These provisions could also
limit the price that investors might be willing to pay in the future for
shares of the Company's Common Stock.
ISSUANCE OF PREFERRED STOCK - The Board of Directors has the authority
to issue up to 5,000,000 shares of undesignated Preferred Stock and to
determine the powers, preferences and rights and the qualifications,
limitations or restrictions granted to or imposed upon any wholly unissued
shares of undesignated Preferred Stock and to fix the number of shares
constituting any series and the designation of such series, without any
further vote or action by the Company's stockholders. The Preferred Stock
could be issued with voting, liquidation, dividend and other rights superior
to those of the holders of Common Stock. The issuance of Preferred Stock
under certain circumstances could have the effect of delaying, deferring or
preventing a change in control of the Company.
11
<PAGE>
VOLATILITY OF STOCK PRICE - The market price of the shares of Common
Stock has been and is likely to continue to be highly volatile and
significantly affected by factors such as fluctuations in the Company's
operating results, announcements of technological innovations or new products
by the Company or its competitors, changes in analysts' expectations,
governmental regulatory action, developments with respect to patents or
proprietary rights, general market conditions and other factors. In addition,
the stock market has from time to time experienced significant price and
volume fluctuations that are unrelated to the operating performance of
particular companies.
YEAR 2000 RISKS - The Company has conducted a review of its information
technology systems to identify all software that could be affected by the
"Year 2000" issue and has developed plans to address this issue. While the
Company does not believe its computer systems or applications currently in
use will be adversely affected by the upcoming change in the century, the
Company has not made an assessment as to whether any of its customers,
suppliers or service providers will be so affected. Failure of the Company's
software or that of its customers, suppliers or service providers could have
a material adverse impact on the Company's business, financial condition and
results of operations.
LIQUIDITY AND CAPITAL RESOURCES
The Company completed a follow-on public offering in September 1995
raising approximately $48.1 million, net of offering expenses. In December
1993 and January 1994, the Company completed its initial public offering
raising approximately $16.7 million, net of offering expenses. In addition,
the Company has funded its operations to date through other sales of equity,
bank borrowing, equipment leases, and cash flow from operations. As of
December 31, 1997, the Company had working capital of approximately $35.2
million, including $24.5 million in cash, cash equivalents, and investments.
The Company has a $10.0 million unsecured revolving line of credit with a
financial institution. Restrictive covenants included in the line of credit
require the Company to maintain (i) a total liability to tangible net worth
ratio of not more than 0.75 to 1.00, (ii) a current ratio of not less than
1.75 to 1.00 and (iii) minimum tangible net worth greater than $57.4 million
and (iv) cash and investments, including restricted investments, greater than
$45.0 million. As of December 31, 1997 the Company was in compliance with
the restrictive covenants contained in this line of credit. However, there
can be no assurance that the Company will continue to be in compliance with
these covenants as of any subsequent date.
In May 1996, the Company entered into a five year synthetic lease
through a Participation Agreement (the "Agreement") with Wolverine Leasing
Corp. ("Wolverine"). Matisse holding Company ("Matisse") and United States
National Bank of Oregon ("USNB"). The lease provides for the construction
and occupancy of the Company's new headquarters and wafer fabrication
facility in Hillsboro under an operating lease from Wolverine and provides
the Company with an option to purchase the property or renew its lease for an
additional five years. Pursuant to the terms of the Agreement, USNB and
Matisse made loans to Wolverine who in turn advanced the funds to the Company
for the construction of the Hillsboro facility and other costs and expenses
associated therewith. The loan from USNB is collateralized by investment
securities pledged by the Company. Such investment securities are classified
on the Company's balance sheet as restricted securities. In addition,
restrictive covenants in the Agreement require the Company to maintain (i) a
total liability to tangible net worth ration 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, 1997, the Company was in compliance with
the covenants described above. However, there can be no assurance that the
Company will continue to be in compliance with these covenants as of any
subsequent date.
In November 1997, the Company entered into a $1.5 million lease for
additional land adjacent to its Hillsboro facility. Pursuant to the terms of
that agreement, USNB provided loans to Wolverine to purchase the land, who in
turn leased it to the Company under a renewable one year lease agreement.
The loan from USNB is partially collateralized by a guarantee from the
Company. As of December 31, 1997 the Company was in compliance with the
terms of the agreement. However, there can be no assurance that the Company
will continue to be in compliance with these terms as of any subsequent date.
In January 1998, the Company acquired the MMIC operations of the former
Texas Instruments' Defense Systems & Electronics Group from RTIS. Pursuant
to an Asset Purchase Agreement with RTIS, TriQuint acquired the MMIC Business
for approximately $19.5 million in cash and 844,613 shares of TriQuint Common
Stock (the Shares) valued at
12
<PAGE>
approximately $19.5 million for total purchase consideration of approximately
$39 million. The Shares are redeemable at TriQuint's option at any time
within 360 days of January 13, 1998 at a price of approximately $23 per
share. The cash portion of the purchase price was financed through an
equipment leasing arrangement through General Electric Capital Corporation
involving certain assets pursuant to the Asset Purchase Agreement.
The following table presents a summary of the Company's cash flows (IN
THOUSANDS):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997 1996 1995
<S> <C> <C> <C>
Net cash and cash equivalents provided
by operating activities $4,152 $5,374 $2,748
Net cash and cash equivalents provided
(used) by investing activities 3,266 (25,687) (24,173)
Net cash and cash equivalents provided
(used) by financing activities (1,591) (1,831) 47,033
------------------------------
Net increase (decrease) in cash and
cash equivalents $5,827 $(22,144) $25,608
------------------------------
</TABLE>
Net cash provided by operating activities in Fiscal 1997 and Fiscal 1996
of $4.2 million and $5.4 million, respectively, related primarily to
profitable operations. Net cash provided by operating activities in Fiscal
1995 was $2.7 million.
Cash provided by investing activities in Fiscal 1997 of $3.3 million was
primarily the result of the sale and/or maturity of $46.3 million of
investments. This cash provided by investing activities was partially offset
by the purchase of $42.4 million of investments and capital expenditures of
$1.4 million. Cash used by investing activities in Fiscal 1996 and Fiscal
1995 relates primarily to net purchase of investment securities of $21.9
million in Fiscal 1996 and $22.9 million in Fiscal 1995 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 $1.6 million and $1.8 million in
Fiscal 1997 and Fiscal 1996, respectively, 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.
For Fiscal 1997, the Company established approximately $8.3 million in
new equipment financing. Since 1991, the Company has financed approximately
$28.7 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. The Company expects to make total capital expenditures of
approximately $18 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 Hillsboro 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.
13
<PAGE>
TRIQUINT SEMICONDUCTOR, INC.
Balance Sheets
(In thousands, except share amounts)
<TABLE>
<CAPTION>
DECEMBER 31
--------------------------
ASSETS 1997 1996
------ ---- ----
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 18,734 $ 12,907
Restricted cash - 504
Investments 5,729 19,264
Receivables:
Trade accounts receivable, net 15,708 11,480
Other 278 522
---------- ----------
15,986 12,002
---------- ----------
Inventories, net:
Raw material 2,776 3,283
Work in process 7,708 5,136
Finished goods 1,804 1,431
---------- ----------
12,288 9,850
---------- ----------
Prepaid expenses and other assets 1,273 523
---------- ----------
Total current assets 54,010 55,050
---------- ----------
Property, plant and equipment, net
(notes 2 and 3) 27,235 21,987
Other non-current assets 11 51
Restricted investments (note 3) 40,162 30,508
---------- ----------
Total assets $ 121,418 $ 107,596
---------- ----------
---------- ----------
</TABLE>
See accompanying notes to financial statements.
- 2 -
<PAGE>
<TABLE>
<CAPTION>
DECEMBER 31
--------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY 1997 1996
------------------------------------ ---- ----
<S> <C> <C>
Current liabilities:
Current installments of capital lease
and installment note obligations (note 3) $ 5,045 $ 3,373
Accounts payable 8,737 9,633
Accrued expenses (note 5) 5,048 4,378
Deferred revenue - 75
---------- ----------
Total current liabilities 18,830 17,459
Capital lease and installment note
obligations, less current installments
(note 3) 12,550 9,891
---------- ----------
Total liabilities 31,380 27,350
---------- ----------
Commitments and contingency (notes 3
and 8)
Shareholders' equity (note 6):
Preferred stock, $.001 par value.
Authorized 5,000,000 shares at December
31, 1997 and 1996; none issued and
outstanding at December 31, 1997 and
1996 - -
Common stock, $.001 par value.
Authorized 25,000,000 shares at December
31, 1997 and 1996; issued and outstanding
8,494,232 and 8,190,125 shares at
December 31, 1997 and 1996, respectively 8 8
Additional paid-in capital 112,052 109,120
Accumulated deficit (22,022) (28,882)
---------- ----------
Total shareholders' equity 90,038 80,246
---------- ----------
Total liabilities and shareholders' equity $ 121,418 $ 107,596
---------- ----------
---------- ----------
</TABLE>
<PAGE>
TRIQUINT SEMICONDUCTOR, INC.
Statements of Operations
(In thousands, except per
share and share amounts)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
----------------------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Total revenues $ 71,367 $ 59,526 $ 45,943
Operating costs and expenses:
Cost of goods sold 40,028 34,258 25,509
Research, development and engineering 11,518 10,858 9,210
Selling, general and administrative 14,188 10,975 9,009
---------- ---------- ----------
Total operating costs and expenses 65,734 56,091 43,728
---------- ---------- ----------
Income from operations 5,633 3,435 2,215
---------- ---------- ----------
Other income (expense):
Interest income 3,497 3,460 1,551
Interest expense (1,463) (1,015) (529)
Other, net 83 638 (92)
---------- ---------- ----------
2,117 3,083 930
---------- ---------- ----------
Income before income taxes 7,750 6,518 3,145
Income tax expense (note 7) 890 231 83
---------- ---------- ----------
Net income $ 6,860 $ 6,287 $ 3,062
---------- ---------- ----------
---------- ---------- ----------
Per share data:
Net income:
Basic $ .82 $ .78 $ .48
---------- ---------- ----------
---------- ---------- ----------
Diluted $ .75 $ .72 $ .42
---------- ---------- ----------
---------- ---------- ----------
Weighted average shares:
Basic 8,373,310 8,044,581 6,357,965
Diluted 9,108,215 8,762,717 7,236,681
</TABLE>
See accompanying notes to financial statements.
- 3 -
<PAGE>
TRIQUINT SEMICONDUCTOR, INC.
Statements of Shareholders' Equity
(In thousands, except share amounts)
<TABLE>
<CAPTION>
Preferred stock Common stock Additional Total
---------------- ----------------- Paid-in Accumulated Shareholders'
Shares Amount Shares Amount Capital Deficit Equity
------ ------ --------- ------ ---------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1994 - $ - 5,646,755 $ 6 $ 59,010 $ (38,231) $ 20,785
Issuance of common stock, net - - 2,000,000 2 48,066 - 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 8 107,805 (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 8 109,120 (28,882) 80,246
Issuance of common stock under
option plans and warrant
exercises - - 256,076 - 1,428 - 1,428
Issuance of common stock under
stock purchase plan - - 48,031 - 996 - 996
Tax benefit of stock option exercises - - - - 508 - 508
Net income for year - - - - - 6,860 6,860
------ ------ --------- ---- --------- ---------- --------
Balance, December 31, 1997 - $ - 8,494,232 $ 8 $ 112,052 $ (22,022) $ 90,038
------ ------ --------- ---- --------- ---------- --------
------ ------ --------- ---- --------- ---------- --------
</TABLE>
See accompanying notes to financial statements.
- 4 -
<PAGE>
TRIQUINT SEMICONDUCTOR, INC.
Statements of Cash Flows
(In thousands)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
--------------------------------------
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 6,860 $ 6,287 $ 3,062
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 4,249 3,068 3,042
Gain on sale of assets (32) (728) (19)
Change in assets and liabilities:
Increase in:
Receivables (3,984) (4,614) (2,070)
Inventories (2,438) (1,141) (3,107)
Prepaid expenses and other assets (710) (79) (31)
Increase (decrease) in:
Accounts payable (896) 2,637 2,280
Accrued expenses 1,178 85 (550)
Deferred revenue (75) (141) 141
-------- -------- --------
Net cash provided by operating
activities 4,152 5,374 2,748
-------- -------- --------
Cash flows from investing activities:
Purchase of investments (42,410) (97,266) (49,790)
Sale of investments 46,290 75,415 26,871
Decrease (increase) in restricted cash 504 (504) -
Capital expenditures (1,388) (4,060) (1,273)
Proceeds from sale of assets 270 728 19
-------- -------- --------
Net cash provided (used) by
investing activities 3,266 (25,687) (24,173)
-------- -------- --------
Cash flows from financing activities:
Principal payments under capital lease
and installment note obligations (4,015) (2,992) (1,723)
Issuance of common stock, net 2,424 1,161 48,756
-------- -------- --------
Net cash provided (used) by financing
activities (1,591) (1,831) 47,033
-------- -------- --------
Net increase (decrease) in cash and
cash equivalents 5,827 (22,144) 25,608
Cash and cash equivalents at beginning of year 12,907 35,051 9,443
-------- -------- --------
Cash and cash equivalents at end of year $ 18,734 $ 12,907 $ 35,051
-------- -------- --------
-------- -------- --------
</TABLE>
(Continued)
- 5 -
<PAGE>
TRIQUINT SEMICONDUCTOR, INC.
Statements of Cash Flows, Continued
(In thousands)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
--------------------------------------
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Supplemental disclosures of cash flow information:
Cash paid for:
Interest $ 1,489 $ 1,015 $ 529
-------- -------- --------
-------- -------- --------
Income taxes $ 54 $ 20 $ 112
-------- -------- --------
-------- -------- --------
Supplemental schedule of non-cash investing and
financing activities:
Purchase of assets through capital lease and
installment notes $ 8,346 $ 6,535 $ 7,831
Tax benefit of stock option exercises 508 154 41
</TABLE>
See accompanying notes to financial statements.
- 6 -
<PAGE>
TRIQUINT SEMICONDUCTOR, INC.
Notes to Financial Statements
December 31, 1997 and 1996
(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 and operates in one segment.
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, its fiscal year 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 affect 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 and equity 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'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 in accordance with Statement of
Financial Accounting Standards No. 115, "Accounting for Certain
Investments in Debt and Equity Securities" at December 31, 1997 and
1996. Unrealized holding gains and losses, net of the related tax
effect, on available-for-sale securities are reported as a
component of shareholders' equity until realized. Carrying value
is substantially the same as market value at December 31, 1997 and
1996.
(f) TRADE ACCOUNTS RECEIVABLE
Trade accounts receivable are shown net of allowance for doubtful
accounts of $196 and $219 at December 31, 1997 and 1996,
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 $1,324 and $2,383 at December 31, 1997 and 1996,
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 SHARE
The Company has adopted Statement of Financial Accounting Standards
(SFAS) No. 128 (SFAS No. 128) EARNINGS PER SHARE. SFAS No. 128
requires presentation of basic and diluted net income per share.
Basic net income per share is net income available to common
shareholders divided by the weighted-average number of common
shares outstanding. Diluted net income per share is similar to
basic except that the denominator includes potential common shares
that, had they been issued, would have had a dilutive effect.
The following is a reconciliation of the basic and diluted
computations of earnings per share:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
--------------------------------------------------------------------------------------
1997 1996 1995
-------------------------- -------------------------- --------------------------
PER PER PER
SHARE SHARE SHARE
INCOME SHARES AMOUNT INCOME SHARES AMOUNT INCOME SHARES AMOUNT
------ ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Basic earnings per share:
Income available
to shareholders $6,860 8,373 $ .82 $6,287 8,045 $ .78 $3,062 6,358 $ .48
------ ------ ------
------ ------ ------
Effect of dilutive securities:
Stock options and warrants - 735 - 718 - 879
------ ------ ------ ------ ------ ------
Diluted earnings per share:
Income available
to shareholders $6,860 9,108 $ .75 $6,287 8,763 $ .72 $3,062 7,237 $ .42
------ ------ ------ ------ ------ ------ ------ ------ ------
------ ------ ------ ------ ------ ------ ------ ------ ------
</TABLE>
(Continued)
- 9 -
<PAGE>
TRIQUINT SEMICONDUCTOR, INC.
Notes to Financial Statements
(In thousands, except share information)
(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.
(m) FINANCIAL INSTRUMENTS
The carrying amount of cash equivalents, investments, trade
accounts receivable and accounts payable approximate fair value
because of the short-term nature of these instruments. The fair
value of long-term borrowings 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) STOCK OPTION PLAN
The Company accounts for its stock option plan in accordance with
the provisions of Accounting Principles Board (APB) Opinion No. 25,
ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES, and related
interpretations. As such, compensation expense would be recorded on
the date of grant only if the current market price of underlying
stock exceeded the exercise price. The Company also applies
Statement of Financial Accounting Standards (SFAS) No. 123,
ACCOUNTING FOR STOCK-BASED COMPENSATION, which allows entities to
continue to apply the provisions of APB Opinion No. 25 and provide
pro forma net income and pro forma earnings per share disclosures
for employee stock option grants as if the fair-value-based method
defined in SFAS No. 123 had been applied.
(Continued)
- 10 -
<PAGE>
TRIQUINT SEMICONDUCTOR, INC.
Notes to Financial Statements
(In thousands, except share information)
(o) RECLASSIFICATIONS
Certain reclassifications have been made to the 1995 and 1996
statements to conform with the 1997 presentation.
(2) PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31
------------------------
1997 1996
---- ----
<S> <C> <C>
Machinery and equipment $ 40,834 $ 37,348
Leasehold improvements 424 1,052
Furniture and fixtures 1,556 664
Computer equipment 9,893 6,477
Assets in process 10,058 9,325
Other 618 -
--------- ---------
63,383 54,866
Less accumulated depreciation and
amortization 36,148 32,879
--------- ---------
$ 27,235 $ 21,987
--------- ---------
--------- ---------
</TABLE>
(3) CAPITAL LEASE AND INSTALLMENT NOTE OBLIGATIONS
At December 31, 1997 and 1996, the Company had outstanding $6,781 and
$5,390, respectively of installment notes with interest rates ranging
from 7.9% 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 $6,124 and $4,957 at December 31, 1997 and 1996,
respectively.
(Continued)
- 11 -
<PAGE>
TRIQUINT SEMICONDUCTOR, INC.
Notes to Financial Statements
(In thousands, except share information)
Additionally, the Company leases certain equipment under capital and
operating leases. The future minimum lease payments under installment
notes and non-cancelable leases as of December 31, 1997 are as
follows:
<TABLE>
<CAPTION>
Installment
notes and
capital Operating
leases leases
----------- ---------
<S> <C> <C>
Year ending:
1998 $ 6,394 8,653
1999 5,724 8,202
2000 4,678 3,355
2001 2,588 1,000
2002 1,202 -
-------- ---------
Total 20,586 $ 21,210
---------
---------
Less amounts representing interest 2,991
---------
Present value of minimum payments 17,595
Less current installments 5,045
---------
$ 12,550
---------
---------
</TABLE>
Balances applicable to capital leases, which are included in machinery
and equipment, are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31
------------------------
1997 1996
--------- ---------
<S> <C> <C>
Machinery and equipment $ 16,179 $ 12,092
Less accumulated amortization 5,552 4,134
--------- ---------
$ 10,627 $ 7,958
--------- ---------
--------- ---------
</TABLE>
Rent expense under operating leases was $2,736, $1,065 and $1,098
during the years ended December 31, 1997, 1996 and 1995, respectively.
(Continued)
- 12 -
<PAGE>
TRIQUINT SEMICONDUCTOR, INC.
Notes to Financial Statements
(In thousands, except share information)
The Company has entered into an agreement to lease an office building
and fabrication facility in Hillsboro, Oregon (Hillsboro Facility).
Rent obligations began in February of 1997, are 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 $40,162 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 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 million.
In November 1997, the Company entered into a $1,500 lease agreement
for additional property adjacent to its Hillsboro Facility. Pursuant
to the terms of that agreement, the transaction is partially
collateralized by a guarantee from the Company.
(4) DEBT
The Company has a line of credit agreement for general corporate
purposes with a commercial bank. The agreement is unsecured, and
provides for aggregate borrowings of $10,000. The interest rate is
based on three pricing options (LIBOR, banker's acceptance, and prime)
plus an interest rate spread which is determined quarterly based on
the Company's ratio of total liabilities to tangible net worth.
Interest is payable periodically with maturity set at May 31, 1999.
No amount was outstanding on the line of credit at December 31, 1997
and 1996. The line of credit is subject to loan covenants for which
the Company is in compliance at December 31, 1997 and 1996. The line
of credit also 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.
(Continued)
- 13 -
<PAGE>
TRIQUINT SEMICONDUCTOR, INC.
Notes to Financial Statements
(In thousands, except share information)
(5) ACCRUED EXPENSES
Accrued expenses consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31
-----------------------
1997 1996
---- ----
<S> <C> <C>
Accrued payroll $ 2,439 $ 1,927
Accrued federal income tax 813 233
Accrued sales returns 601 555
Other 1,195 1,663
-------- --------
$ 5,048 $ 4,378
-------- --------
-------- --------
</TABLE>
(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.
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 grant under the
1996 Plan.
(Continued)
- 14 -
<PAGE>
TRIQUINT SEMICONDUCTOR, INC.
Notes to Financial Statements
(In thousands, except share information)
At December 31, 1997, there were 196,497 total shares available for
grant under the 1987 and 1996 Plans. The per share
weighted-average fair value of stock options granted during 1997,
1996 and 1995 was $16, $11 and $9, respectively, on the date of
grant using the Black Scholes option-pricing model with the
following weighted-average assumptions at the years ended December
31:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Risk-free interest rate 6.2% 6.3% 6.1%
Expected dividend yield - - -
Expected lives 5 5 5
Expected volatility 78% 75% 82%
</TABLE>
The Company applies APB Opinion No. 25 in accounting for its Plans
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:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
----------------------------------
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Net income As reported $ 6,860 6,287 3,062
Pro forma 4,136 5,481 2,836
Diluted net income per share
Basic As reported .82 .78 .48
Pro forma .49 .68 .45
Diluted As reported .75 .72 .42
Pro forma .45 .62 .39
</TABLE>
Pro forma net income reflects only options granted in 1997, 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 and additional grants are anticipated in future
years.
(Continued)
- 15 -
<PAGE>
TRIQUINT SEMICONDUCTOR, INC.
Notes to Financial Statements
(In thousands, except share information)
Activity under the 1987 and 1996 Plans is as follows:
<TABLE>
<CAPTION>
Number Weighted-
of average exercise
shares price
------ -----
<S> <C> <C>
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 (237,465) 3.86
Canceled (85,483) 11.09
--------- -------
Options outstanding at December 31, 1996 1,087,527 8.58
Options:
Granted 681,521 23.83
Exercised (256,076) 5.61
Canceled (138,784) 25.66
--------- -------
Options outstanding at December 31, 1997 1,374,188 $ 14.94
--------- -------
--------- -------
</TABLE>
(Continued)
- 16 -
<PAGE>
TRIQUINT SEMICONDUCTOR, INC.
Notes to Financial Statements
(In thousands, except share information)
The following table summarizes information concerning stock options
outstanding and exercisable at December 31, 1997:
<TABLE>
<CAPTION>
Weighted-
average Weighted- Weighted-
remaining average average
Exercise contractual exercise exercise
Price Outstanding life price Exercisable price
----- ----------- ---- ----- ----------- -----
<S> <C> <C> <C> <C> <C>
$ 1.40 - 6.25 357,594 5.44 $ 4.33 300,496 3.98
6.38 - 19.63 409,746 7.74 12.83 229,979 9.73
19.75 - 23.25 565,115 9.18 21.79 65,750 21.76
23.38 - 40.06 41,733 5.79 34.00 10,686 33.27
----------- ---- ----- ----------- -----
1.40 - 40.06 1,374,188 7.67 14.94 606,911 8.60
----------- ---- ----- ----------- -----
----------- ---- ----- ----------- -----
</TABLE>
(b) WARRANTS
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 1996, 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.
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 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.
(c) EMPLOYEE STOCK PURCHASE PLAN
In 1992, the Company adopted an employee stock purchase plan (the
Purchase Plan) whereby a total of 200,000 shares of common sock
have been reserved for issuance pursuant to the Purchase Plan of
which 70,810 shares have been issued under the Purchase Plan as of
December 31, 1997. The Purchase Plan permits eligible employees to
purchase common stock of the Company through payroll deductions,
which may not exceed 15% of an employee's base compensation, not to
exceed $25 per year, including commissions, bonuses, and overtime,
at a price equal to 85% of the lower of the fair market value of
the common stock at the beginning or end of each twenty-four month
offering period as defined in the Purchase Plan.
(Continued)
- 17 -
<PAGE>
TRIQUINT SEMICONDUCTOR, INC.
Notes to Financial Statements
(In thousands, except share information)
(7) INCOME TAXES
The provision for income taxes consists of:
<TABLE>
<CAPTION>
Years ended
December 31
------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Current:
Federal $ 637 $ 145 $ 67
State 200 86 16
Foreign 53 - -
------ ------ -----
Total current 890 231 83
------ ------ -----
Deferred:
Federal - - -
State - - -
Foreign - - -
------ ------ -----
Total deferred - - -
------ ------ -----
Total $ 890 $ 231 $ 83
------ ------ -----
------ ------ -----
</TABLE>
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>
Years ended
December 31
------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Tax computed at federal statutory rate 34.0% 34.0% 34.0%
State income tax, net of federal effect 4.4 4.4 4.6
Decrease in valuation allowance (6.7) (16.3) (6.4)
Differences between financial and tax
reporting for stock option exercises (25.0) (19.2) (39.9)
Other 4.8 .6 10.3
---- ---- ----
Effective tax rate 11.5% 3.5% 2.6%
---- ---- ----
---- ---- ----
</TABLE>
(Continued)
- 18 -
<PAGE>
TRIQUINT SEMICONDUCTOR, INC.
Notes to Financial Statements
(In thousands, except share information)
The deferred income tax provision (benefit) results from changes in
deferred tax assets and liabilities as follows:
<TABLE>
<CAPTION>
Years ended
December 31
-------------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Reserves not currently deductible $ 382 $ (45) (53)
Tax depreciation and amortization (20,509) 384 217
Capital leases 20,417 - -
Accrued liabilities 231 85 409
Net operating loss carryforward 207 801 (284)
Valuation allowance (517) (1,060) (200)
Other (211) (165) (89)
-------- ------- -----
Total $ - $ - $ -
-------- ------- -----
-------- ------- -----
</TABLE>
(Continued)
- 19 -
<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:
<TABLE>
<CAPTION>
December 31
---------------------
1997 1996
---- ----
<S> <C> <C>
Deferred tax liabilities:
Depreciation $ - $ 977
Capital leases 20,417 -
-------- --------
Total deferred tax liability 20,417 977
-------- --------
Deferred tax assets:
Accounts receivable 75 84
Inventory 629 1,002
Accrued liabilities 395 626
Net operating loss carryforwards 9,277 9,484
Depreciation 19,532 -
Other 644 433
-------- --------
Total deferred tax asset before
valuation allowance 30,552 11,629
Valuation allowance (10,135) (10,652)
-------- --------
Total deferred tax asset 20,417 977
-------- --------
Net deferred tax liability (asset) $ - $ -
-------- --------
-------- --------
</TABLE>
The valuation allowance for deferred tax assets as of January 1, 1995
was $11,912. The net change in total valuation allowance for the
years ended December 31, 1997, 1996 and 1995 was a decrease of $517,
$1,060 and $200, respectively. Approximately $4,627 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, 1997, the Company had approximately $26,419 of net
operating loss carryforwards to offset against future income for
federal income tax purposes which expire from 2003 through 2010, $817
for California state income tax purposes which expire in years 1998
through 1999, and $5,940 for Oregon state income tax purposes which
expire in years 2006 through 2010.
(Continued)
- 20 -
<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 $14,350 of the
pre-1994 net operating loss carryforwards being limited to
approximately $1,750 per year. In addition, approximately $8,075 are
further limited to approximately $967 per year due to changes in the
Company's ownership structure during 1991.
(8) CONTINGENCIES
(a) LAWSUIT
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 has accrued for the
estimated loss based on the estimated range of loss at December 31,
1997 in accordance with SFAS No. 5 ACCOUNTING FOR CONTINGENCIES.
Due to the uncertainty of the outcome the actual loss may differ
from the estimated loss.
(b) SUPPLIER
The Company currently procures certain components and services for
its products from single sources. The Company purchases these
components and services on a purchase order basis, does not carry
significant inventories of these components and does not have any
long-term supply contracts with its sole source vendors. If the
Company were to change any of its sole source vendors, the Company
would be required to requalify the components with each new vendor.
Requalification could prevent or delay product shipments which
could materially adversely affect the Company's results of
operations. In addition, the Company's reliance on sole source
vendors involves several risks, including reduced control over the
price, timely delivery, reliability and quality of the components.
Any inability of the Company to obtain timely deliveries of
components of acceptable quality in required quantities or any
increases in the prices of components for which the Company does
not have alternative sources could materially adversely affect the
Company's business, financial condition and results of operations.
(Continued)
- 21 -
<PAGE>
TRIQUINT SEMICONDUCTOR, INC.
Notes to Financial Statements
(In thousands, except share information)
(c) EMPLOYMENT AGREEMENT
The Company has employment contracts with two key officers that in
the event of their termination provide for total payments up to
approximately $365.
(9) BENEFIT PLANS
The Company sponsors a voluntary contribution profit sharing and
savings plan under Section 401(k) of the Internal Revenue Code which
is available to substantially all employees. Employees can make
voluntary contributions up to limitations prescribed by the Internal
Revenue Code. Company matching contributions are discretionary. For
the years ended December 31, 1997, 1996 and 1995 the Company made no
discretionary matching contributions.
(10) SIGNIFICANT CUSTOMERS
Sales outside of the United States were approximately $24,300, $18,100
and $14,800 in 1997, 1996 and 1995, respectively. Revenues for
significant customers, those representing approximately 10% or more of
total revenues for each period, are summarized as follows:
<TABLE>
<CAPTION>
Years ended
December 31
------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Customer A 12% 12% 14%
Customer B - 17 24
Customer C 4 13 11
</TABLE>
Related receivables from such customers were 31% and 26% of trade
accounts receivable at December 31, 1997 and 1996, respectively.
(11) SALE OF INVESTMENT
On September 1, 1996, the Company sold its 20% interest in its
exclusive European distributor, for $680. 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.
(Continued)
- 22 -
<PAGE>
TRIQUINT SEMICONDUCTOR, INC.
Notes to Financial Statements
(In thousands, except share information)
(12) SUBSEQUENT ACQUISITION
On January 13, 1998, the Company acquired substantially all of the
assets of the Monolithic Microwave Integrated Circuit (MMIC)
operations of the former Texas Instruments' Defense Systems and
Electronics Group from Raytheon TI Systems, Inc. (RTIS), a Delaware
corporation and a wholly owned subsidiary of Raytheon company. The
MMIC Business designs, develops, produces and sells advanced GaAs MMIC
products which are used in defense and commercial applications.
Pursuant to an Asset Purchase Agreement with RTIS, the Company
acquired the MMIC Business for approximately $19,500 in cash and
844,613 shares of the Company's common stock valued at approximately
$19,500 for total purchase consideration of approximately $39,000.
- 23 -
<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, 1997 and 1996, and the related statements of
operations, shareholders' equity, and cash flows for each of the years in the
three-year period ended December 31, 1997. 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, 1997 and 1996, and the results of its operations, and its
cash flows for each of the years in the three-year period ended December 31,
1997 in conformity with generally accepted accounting principles.
KPMG PEAT MARWICK LLP
Portland, Oregon
February 6, 1998
- 1 -
<PAGE>
TRIQUINT SEMICONDUCTOR, INC. SUPPLEMENTARY
UNAUDITED FINANCIAL DATA
IN THOUSANDS, EXCEPT PER SHARE AMOUNTS
<TABLE>
<CAPTION>
1997 1996
Q4 Q3 Q2 Q1 Q4 Q3 Q2 Q1
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total revenues $18,454 $17,569 $18,544 $16,800 $16,211 $15,104 $15,095 $13,116
Operating costs and expenses:
Cost of goods sold 11,097 10,242 9,559 9,130 9,139 8,829 8,363 7,928
Research, development and
engineering 3,050 2,668 3,257 2,543 2,841 2,868 2,660 2,489
Selling, general and
administrative 3,574 3,856 3,332 3,426 3,047 2,722 2,809 2,396
Restructuring of operations - - - - - - - -
------- ------- ------- ------- ------- ------- ------- -------
Total operating costs and
expense 17,721 16,766 16,148 15,099 15,027 14,419 13,832 12,813
Income from operations 733 803 2,396 1,701 1,184 685 1,263 303
Other income, net 558 511 508 540 482 1,225 720 655
------- ------- ------- ------- ------- ------- ------- -------
Income before income taxes 1,291 1,314 2,904 2,241 1,666 1,910 1,983 958
Income tax expense (benefit) (222) - 638 474 6 58 119 48
------- ------- ------- ------- ------- ------- ------- -------
Net income $ 1,513 $ 1,314 $ 2,266 $ 1,767 $ 1,660 $ 1,852 $ 1,864 $ 910
------- ------- ------- ------- ------- ------- ------- -------
------- ------- ------- ------- ------- ------- ------- -------
PER SHARE DATA:
Net income:
Basic $0.18 $0.16 $0.27 $0.22 $0.20 $0.23 $0.23 $0.11
Diluted $0.17 $0.14 $0.25 $0.20 $0.19 $0.21 $0.21 $0.11
Weighted average shares:
Basic 8,486 8,425 8,340 8,234 8,136 8,085 8,010 7,946
Diluted 8,994 9,231 9,129 9,020 8,857 8,798 8,769 8,590
- ----------------------------------------------------------------------------------------------------------
</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, 1998, there were 281 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>
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
TriQuint Semiconductor, Inc.:
We consent to the incorporation by reference in the Registration Statement
Nos. 33-75464, 333-08893, 333-08891, 333-31585, 333-48883 and 333-02166 on
Form S-8 of TriQuint Semiconductor, Inc. of our reports dated February 6,
1998 relating to the balance sheets of TriQuint Semiconductor, Inc. as of
December 31, 1997 and 1996, 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, 1997, which reports appear
in the December 31, 1997 annual report on Form 10-K of TriQuint
Semiconductor, Inc.
Portland, Oregon
March 31, 1998
-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 31,1997 AND THE BALANCE
SHEET AS OF DECEMBER 31,1997 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-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 18,734
<SECURITIES> 5,729
<RECEIVABLES> 16,182
<ALLOWANCES> (196)
<INVENTORY> 12,288
<CURRENT-ASSETS> 54,010
<PP&E> 63,383
<DEPRECIATION> (36,148)
<TOTAL-ASSETS> 121,418
<CURRENT-LIABILITIES> 18,830
<BONDS> 12,550
0
0
<COMMON> 112,060
<OTHER-SE> (22,022)
<TOTAL-LIABILITY-AND-EQUITY> 121,418
<SALES> 71,367
<TOTAL-REVENUES> 71,367
<CGS> 40,028
<TOTAL-COSTS> 65,734
<OTHER-EXPENSES> (83)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,463
<INCOME-PRETAX> 7,750
<INCOME-TAX> 890
<INCOME-CONTINUING> 6,860
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,860
<EPS-PRIMARY> 0.82
<EPS-DILUTED> 0.75
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1,000
<S> <C> <C> <C> <C>
<PERIOD-TYPE> YEAR 3-MOS 6-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1995 DEC-31-1996 DEC-31-1996 DEC-31-1996
<PERIOD-START> JAN-01-1995 JAN-01-1996 JAN-01-1996 JAN-01-1996
<PERIOD-END> DEC-31-1995 MAR-31-1996 JUN-30-1996 SEP-30-1996
<CASH> 35,051 24,388 19,949 4,682
<SECURITIES> 27,921 38,615 31,457 39,825
<RECEIVABLES> 7,590 8,005 9,974 10,760
<ALLOWANCES> (202) (271) (144) (205)
<INVENTORY> 8,709 8,632 9,472 10,033
<CURRENT-ASSETS> 79,501 80,066 71,479 65,771
<PP&E> 44,271 48,462 48,183 49,464
<DEPRECIATION> (29,811) (30,430) (30,877) (31,835)
<TOTAL-ASSETS> 94,024 98,100 100,520 103,335
<CURRENT-LIABILITIES> 13,988 17,370 15,466 15,546
<BONDS> 7,392 7,000 9,136 9,632
0 0 0 0
0 0 0 0
<COMMON> 107,813 107,989 108,312 108,699
<OTHER-SE> (35,169) (34,259) (32,394) (30,542)
<TOTAL-LIABILITY-AND-EQUITY> 94,024 98,100 100,520 103,335
<SALES> 45,943 13,116 28,211 43,315
<TOTAL-REVENUES> 45,943 13,116 28,211 43,315
<CGS> 25,509 7,928 16,291 25,120
<TOTAL-COSTS> 43,728 12,813 10,354 41,064
<OTHER-EXPENSES> 92 4 6 (658)
<LOSS-PROVISION> 0 0 0 0
<INTEREST-EXPENSE> 529 191 446 723
<INCOME-PRETAX> 3,145 958 2,941 4,851
<INCOME-TAX> 83 48 167 225
<INCOME-CONTINUING> 3,062 910 2,774 4,626
<DISCONTINUED> 0 0 0 0
<EXTRAORDINARY> 0 0 0 0
<CHANGES> 0 0 0 0
<NET-INCOME> 3,062 910 2,774 4,626
<EPS-PRIMARY> 0.48 0.11 0.34 0.57
<EPS-DILUTED> 0.42 0.11 0.32 0.53
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1,000
<S> <C> <C> <C> <C>
<PERIOD-TYPE> YEAR 3-MOS 6-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1997 DEC-31-1997 DEC-31-1997
<PERIOD-START> JAN-01-1996 JAN-01-1997 JAN-01-1997 JAN-01-1997
<PERIOD-END> DEC-31-1996 MAR-31-1997 JUN-30-1997 SEP-30-1997
<CASH> 13,411 3,540 10,858 14,880
<SECURITIES> 19,264 21,163 13,003 8,427
<RECEIVABLES> 11,698 14,715 15,896 15,369
<ALLOWANCES> (218) (203) (196) (196)
<INVENTORY> 9,850 11,275 13,791 13,323
<CURRENT-ASSETS> 55,050 51,196 53,667 52,114
<PP&E> 54,866 59,921 60,144 60,627
<DEPRECIATION> (32,879) (33,982) (34,384) (35,113)
<TOTAL-ASSETS> 107,596 115,228 119,618 117,807
<CURRENT-LIABILITIES> 17,459 19,369 21,155 18,028
<BONDS> 9,891 13,093 12,873 11,814
0 0 0 0
0 0 0 0
<COMMON> 109,128 109,880 110,437 111,498
<OTHER-SE> (28,882) (27,114) (24,847) (23,533)
<TOTAL-LIABILITY-AND-EQUITY> 107,596 115,228 119,618 117,807
<SALES> 59,526 16,800 35,344 52,913
<TOTAL-REVENUES> 59,526 16,800 35,344 52,913
<CGS> 34,258 9,130 18,689 28,931
<TOTAL-COSTS> 56,091 15,099 31,247 48,013
<OTHER-EXPENSES> 638 36 (68) (68)
<LOSS-PROVISION> 0 0 0 0
<INTEREST-EXPENSE> 1,015 320 707 1,102
<INCOME-PRETAX> 6,518 2,241 5,145 6,459
<INCOME-TAX> 231 474 1,112 1,112
<INCOME-CONTINUING> 6,287 1,767 4,033 5,347
<DISCONTINUED> 0 0 0 0
<EXTRAORDINARY> 0 0 0 0
<CHANGES> 0 0 0 0
<NET-INCOME> 6,287 1,767 4,033 5,347
<EPS-PRIMARY> 0.78 0.22 0.49 0.65
<EPS-DILUTED> 0.72 0.20 0.45 0.59
</TABLE>
