<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-K
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
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
------------------------
TRIQUINT SEMICONDUCTOR, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 95-3654013
(State or other jurisdiction (I.R.S. Employer Identification
of incorporation or organization) Number)
2300 N.E. BROOKWOOD PARKWAY
HILLSBORO, OREGON 97124
(Address of principal executive office)
Registrant's Telephone number, including area code: (503) 615-9000
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
Common Stock, $.001 par value
(Title of Class)
------------------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes /X/ No / /
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
26, 1999 as reported on the Nasdaq Stock Market's National Market, was
approximately $147,592,744. 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 26, 1999, registrant had outstanding 9,556,574 shares of
Common Stock.
The Index to Exhibits appears on page 16 of this document.
DOCUMENTS INCORPORATED BY REFERENCE
The Registrant has incorporated into Part III of Form 10-K by reference
portions of its Proxy Statement, dated April 19, 1999. Portions of the
Registrant's Annual Report to Stockholders for the fiscal year ended December
31, 1998 are incorporated by reference in Parts II and IV of Form 10-K.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
TRIQUINT SEMICONDUCTOR, INC.
1998 ANNUAL REPORT ON FORM 10-K
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C> <C>
PART I
ITEM 1. BUSINESS................................................................................... 3
ITEM 2. PROPERTIES................................................................................. 13
ITEM 3. LEGAL PROCEEDINGS.......................................................................... 14
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 7(a). QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK................................. 15
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA................................................ 15
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE....... 15
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT......................................... 15
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............................ 16
</TABLE>
2
<PAGE>
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, the risks associated with customer inventory
corrections, the risks posed by competing technologies, the risks of late
product introductions 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 communications markets. The Company
utilizes its proprietary gallium arsenide ("GaAs") technology to enable its
products to overcome the performance barriers of silicon devices in a variety of
applications. The Company sells its products on a worldwide basis and its end
user customers include Alcatel, Cellnet Data Systems, Ericsson, Hughes, Lucent
Technologies, Motorola, Nokia, Northern Telecom, Qualcomm and Raytheon.
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, "Millimeter Wave Communications").
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,
computing and aerospace 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.
The Company believes the increasing demand for wireless communications at higher
frequencies, will lead to entirely new high volume applications.
3
<PAGE>
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 Gbits/sec or higher. The advent of video communications and
multimedia (combinations of voice, video and data) are placing further demands
on these systems for even higher data transmission rates.
In the data communications industry, data processing speeds have increased
rapidly, bringing enormous computing power to individual users. The demand to
share data and peripheral equiqment among these users has led to the widespread
use of networking systems operating at increasing speeds. Today's advanced data
communication systems, based on standards such as Fibre Channel and Gigabit
Ethernet as well as proprietary links are used to transmit data at rates up to
2.5 Gbits/sec.
The microwave and millimeter wave communications industry utilizes advanced
GaAs MMIC products for aerospace, defense and commercial applications. Aerospace
and defense applications include high power amplifiers, low noise amplifiers,
switches and attenuators for use in a variety of advanced requirements such as
active array radar, missiles, electronic warfare systems and space
communications systems. Commercial applications for products and services in
this frequency range include wireless telephone applications, optical fiber
links and switching networks, Local Multipoint Distribution System (LMDS)
systems, phased-array radar and satellite earthstation transmitters.
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 advance
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. The
process technologies utilized in GaAs semiconductor fabrication include metal
semiconductor field effect transistor ("MESFET"), pseudomorphic high electron
mobility transistor ("PHEMT"), heterojunction bipolar transistor ("HBT") and
heterostructure field effect transistor ("HFET"). In many new applications, GaAs
integrated circuits enable high performance systems to process data more
quickly, increasing system operating rates.
In addition to enabling high performance systems to process data more
quickly, 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 industry, have led to the use of GaAs
components in high volumes to complement silicon devices in a wide range of
commercial and aerospace systems.
4
<PAGE>
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 and aerospace applications in the
wireless communications, telecommunications, data communications and millimeter
wave communications 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 and PCS telephones.
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.
The superior ability of GaAs to operate at higher frequencies also makes it
well suited for use in defense applications. In addition, other key performance
advantages of GaAs over silicon in key wireless communications system functions
for both commercial and defense applications 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, aerospace and defense. 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, ISDN and ATM, which define transmission rates, protocols, signal
quality and reliability. GaAs based products address the performance
requirements of these standards, as well as higher speed communication links
(2.48 Gbits/sec and above).
5
<PAGE>
DATA COMMUNICATIONS
Data communications equipment is typically used to interconnect mainframe
computers, clients and servers, workstations, disk storage arrays and other
peripheral devices. Other applications, which require transmission of large
amounts of data at high speed include multimedia computing, supercomputing,
multiprocessor systems, interactive computer aided design/computer aided
manufacturing ("CAD/CAM"), medical imaging and high speed, high resolution
printing. As new applications requiring higher volume data transfer have
proliferated, and as microprocessor speeds have increased, a critical bottleneck
has developed in these communications links. The computation speed of today's
microprocessors is 10 to 100 times faster than currently available
communications equipment based on communications standards such as Ethernet and
Small Computer System Interface ("SCSI"). A solution to this problem is the use
of high speed serial data transmission by means of coaxial or fiber optic cable
in combination with the Company's mixed signal transmitting and receiving
devices. For example, leading computer manufacturers have acknowledged the need
for high speed serial data communications links by supporting the Fibre Channel
standard which can operate up to 1.25 Gbits/sec. TriQuint's products, using the
Company's mixed signal technology, enable high speed data transmission with high
data integrity.
MILLIMETER WAVE COMMUNICATIONS
A broad array of customers and applications are served by the Company's
Millimeter Wave Communications operation. In aerospace applications, the
Company's history of involvement in the federal government's DARPA-based MIMIC
program has led to the development of MMIC products for phased-array radar
antenna modules. This advanced antenna/system technology finds application in
military aircraft, ships and spacecraft. It is also emerging as a key technology
in next-generation commercial spacecraft and mobile earth station platforms.
Two important commercial applications served by the Company in this area are
point-to-point and point-to-multipoint digital radio markets. The point-to-point
radio market is driven by expansion of the wireless telephone market, as these
radios serve as the infrastructure to link the various remote towers to the
switching centers. The point-to-multipoint radio market is being driven by both
the LMDS auctions by the FCC for wireless distribution of phone, video and
two-way data services and the growing demand for high-speed wireless networks
not based on expensive or fixed-location fiber optic cable systems. The
Company's products are enabling radio system suppliers to greatly reduce
microwave and millimeter wave module costs by increasing the amount of circuitry
integrated on GaAs chips.
CUSTOMERS
The Company has a broad customer base of leading systems manufacturers and
shipped products or provided manufacturing services directly to approximately
265 end user customers and distributors in 1998. The Company's largest customers
include Nokia and Raytheon TI Systems, which accounted for approximately 12.0%
and 11.7%, respectively, of the Company's total revenues in 1998. In 1997,
Northern Telecom accounted for approximately 12.0% of the Company's total
revenues. 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.
6
<PAGE>
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.
DATA COMMUNICATIONS For this market, TriQuint offers families of standard
products which are targeted at high speed data communication applications.
MILLIMETER WAVE COMMUNICATIONS The Company offers a wide variety of
standard MMIC and discrete devices covering the DC to 45 Ghz frequency range.
The devices are adapted for both general purpose and application-specific signal
amplification or control purposes.
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. These
designs are generated using either the Company's in-house design engineering
group or independent third-party design organizations qualified by the Company.
Under the second method, TriQuint supplies circuit design and process rules to
its customer and the customer's internal engineering staff designs products
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-
7
<PAGE>
specific products are developed for unique applications, the Company expects
that some of its current and future customer-specific products may never be
produced in high volume. In addition, in the event of significant delays in
completing designs or the Company's failure to obtain development contracts from
customers whose systems achieve and sustain commercial market success, the
Company's results of operations could be materially adversely affected.
DESIGN AND PROCESS TECHNOLOGY
In order to develop and introduce new products rapidly and cost-effectively
which address the needs of its target markets, the Company has made substantial
investments in building its capabilities in digital, analog and mixed signal
circuit design. The Company has developed an extensive library of digital and
analog cells and associated software tools and databases which it uses to
facilitate the design of its integrated circuits. The Company has also developed
and documented process and design rules which allow customers to design
proprietary circuits themselves. Mixed signal products, which generally involve
varied and complex functions operating at high frequencies, generally present
design and testing challenges. The Company believes that its extensive cell
library, optimized mixed signal process technology and design and test
engineering expertise in high performance mixed signal integrated circuits
address these challenges and provide a significant competitive advantage.
TriQuint's manufacturing strategy is primarily to use high volume 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 in the Company's Oregon
wafer fabrication operation 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 process technology
employed in the Company's Texas wafer fabrication operation includes five
advanced performance production processes: 0.5 micron gate length MesFET for
amplifier applications; 0.25 and 0.5 micron gate length pHEMT for high power and
high frequency applications; HBT for high voltage, high linearity, and high
power density; 0.5 micron gate length HFET for high voltage, high power
amplifiers and switches; and VPIN for signal control devices such as switches,
limiters and attenuators.
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
primarily uses standard silicon industry packages and subcontracts its product
assembly operations.
MANUFACTURING
The Company's Oregon wafer manufacturing facility is located at its leased
headquarters location in Hillsboro. 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.
8
<PAGE>
The Company's Texas facility is located in Dallas, Texas. The Texas facility
comprises approximately 100,000 square feet, of which 15,000 square feet is
operated as a Class 10 performance clean room. The Texas 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 this 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 seven fully qualified wafer vendors, at least three of which
are located in the United States, and two fully qualified mask set vendors, one
of which is located in the United States.
The Company assembles its products using outside assembly contractors.
Outside assembly and tape and reel services for volume production are contracted
to ten vendors, three of which are located in the
9
<PAGE>
United States. The Company purchases high performance, multilayer ceramic
packages from two vendors, one 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, 1998, TriQuint had 21 independent manufacturer's representative
firms and two distributors in North America. TriQuint's seven 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 Los Angeles, California;
Philadelphia, Pennsylvania; Portland, Oregon; San Jose, California and Raleigh,
North Carolina. International business is supported by a network of 15
manufacturer's representatives and distributors in Europe and the Pacific Rim.
The Company has also established a foreign subsidiary, TriQuint Semiconductor
GmbH, with offices in Germany and France. The primary activity of this
subsidiary is sales and marketing. Sales outside of the United States were $26.8
million, $24.3 million and $18.1 million in 1998, 1997 and 1996, 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 include standard and
customer-specific devices for satellite communications, cellular and PCS
telephones, wireless local area networks, wireless modems, high performance
switching, transmission and data conversion products and data communications
chipsets.
The Company's research, development and engineering ("RD&E") expenses in
1998, 1997 and 1996 were approximately $19.0 million, $11.5 million and $10.9
million, respectively, and include non-recurring engineering ("NRE") expenses
funded by customers. Expenses in 1998 related to RD&E increased substantially
from the level incurred in 1997 primarily due to the inclusion of the new
Millimeter Wave Communications operation. As of December 31, 1998, there were
approximately 245 employees engaged
10
<PAGE>
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, Vitesse, RF Microdevices and
Raytheon. 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 suppliers in the
telecommunications market. In the computing market, TriQuint supplies standard
products to a variety of data communication systems manufacturers. In the
computing market, the Company's
11
<PAGE>
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. In the microwave and millimeter
wave markets, the Company's competition is primarily from a limited number of
military and aerospace based suppliers who are in the process of expanding their
products to cover commercial opportunities as well.
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 Millimeter Wave
Communications operation 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 position. There
can be no assurance that the Company's competitors will not independently
develop or patent substantially equivalent or superior technologies.
12
<PAGE>
On February 26, 1999, a lawsuit was filed against 88 firms, including the
Company, in the United States District Court for the District of Arizona. The
suit alleges that the defendants infringe upon certain patents held by The
Lemelson Medical, Education and Research Foundation, Limited Partnership. The
Company believes that the suit is without merit and intends to vigorously defend
itself against the charges.
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. For the manufacturing facilities located at
Hillsboro, Oregon, the Company 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 Texas 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 Texas 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, 1998, the Company employed a total of 679 persons,
including 316 in manufacturing, 18 in quality and reliability, 245 in process,
product and development engineering, 41 in marketing and sales and 59 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
1997, the Company completed the relocation of its wafer fabrication and all
other remaining operations to the new Hillsboro site. 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 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
13
<PAGE>
occupancy of the Company's Hillsboro facility 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, the 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 investments. In
addition, restrictive covenants in the Agreement require the Company to maintain
(i) a total liability to tangible net worth ratio of not more than 0.75 to 1.00,
(ii) minimum tangible net worth greater than $50.0 million and (iii) cash and
liquid investment securities, including restricted securities, greater than
$45.0 million. As of December 31, 1998, 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, 1999. However, there can be no
assurance that the Company will continue to be in compliance with these
covenants in the future.
In November 1997, the Company entered into a $1.5 million lease agreement
for additional land adjacent to its Hillsboro facility. Pursuant to the terms of
that agreement, USNB provided loans to Matisse to purchase the land, who in turn
leased it to the Company under a renewable one year lease agreement. The loan
from USNB is partially collateralized by a guarantee from the Company. The
agreement contains restrictive covenants substantially the same as those
contained in the Company's line of credit. As of December 31, 1998 the Company
was in compliance with the terms of the agreement. However, there can be no
assurance that the Company will continue to be in compliance with these terms as
of any subsequent date.
In January 1998, the Company acquired the Millimeter Wave Communications
operations of the former Texas Instruments' Defense Systems & Electronics Group
from RTIS. The Millimeter Wave Communications facilities are located in Dallas,
Texas. The Texas facility comprises approximately 100,000 square feet, of which
15,000 square feet is operated as a Class 10 performance clean room. The Texas
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 Texas 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 July 12, 1994, a stockholder class action lawsuit was filed against the
Company, its underwriters, and certain of its officers, directors and investors
in the United States District Court for the Northern District of California. The
suit alleged that the Company, its underwriters, and certain of its officers,
directors and investors intentionally misled the investing public regarding the
financial prospects of the Company. Following the filing of the complaint, the
plaintiffs dismissed without prejudice a director defendant, the principal
stockholder defendant, the underwriter defendants and certain analyst
defendants. On June 21, 1996, the Court granted the Company's motion to transfer
the litigation to the District of Oregon. The pretrial discovery phase of the
lawsuit ended July 1, 1997. The Court had established a January 1999 trial date
for this action. During the year ended December 31, 1998, the Company settled
this action and recorded a special charge of $1.4 million associated with the
settlement of this lawsuit and related legal expenses, net of accruals.
On February 26, 1999, a lawsuit was filed against 88 firms, including the
Company, in the United States District Court for the District of Arizona. The
suit alleges that the defendants infringe upon certain patents held by The
Lemelson Medical, Education and Research Foundation, Limited Partnership. The
Company believes that the suit is without merit and intends to vigorously defend
itself against the charges.
14
<PAGE>
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
caption COMMON STOCK PRICES AND MARKET FOR COMPANY'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS contained in the Company's 1998 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 1998 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 1998 Annual Report to Stockholders and is
incorporated herein by reference.
ITEM 7(A). QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to minimal market risks. Sensitivity of results of
operations to these risks is managed by maintaining a conservative investment
portfolio, which is comprised solely of highly-rated, short-term investments.
The Company does not hold or issue derivative, derivative commodity instruments
or other financial instruments for trading purposes.
The Company is exposed to interest rate risk, as additional financing is
periodically utilized primarily to fund capital expenditures. The interest rate
that the Company may be able to obtain on financings will depend on market
conditions at that time and may differ from the rates the Company has secured in
the past.
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY FINANCIAL DATA
The information required by this item is listed in Item 14 of Part IV of
this report and includes the caption SUPPLEMENTARY UNAUDITED FINANCIAL DATA
contained in the Company's 1998 Annual Report to Stockholders and is
incorporated herein by reference.
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 1999
Annual Meeting of Stockholders, to be held May 26, 1999, to be filed by the
15
<PAGE>
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 1999 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 1999 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 1999 Annual Meeting of Stockholders and is incorporated herein
by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM 8-K
(a)(1) CONSOLIDATED FINANCIAL STATEMENTS
The Consolidated Financial Statements, together with the report thereon of
KPMG Peat Marwick LLP are included in the Company's 1998 Annual Report to
Stockholders and are incorporated herein by reference.
TriQuint Semiconductor, Inc.:
Consolidated Statements of Operations for the years ended December 31,
1998, 1997 and 1996
Consolidated Balance Sheets as of December 31, 1998 and 1997
Consolidated Statements of Shareholders' Equity December 31, 1998, 1997
and 1996
Consolidated Statements of Cash Flows for the years ended December 31,
1998, 1997 and 1996
Notes to Consolidated Financial Statements
Independent Auditors' Report
(a)(2) CONSOLIDATED FINANCIAL STATEMENT SCHEDULE
The following schedule and independent auditors' report are filed herewith:
<TABLE>
<CAPTION>
PAGE NO.
-------------
<S> <C>
Schedule II Valuation and Qualifying Accounts....................................... F1
Independent Auditors' Report on Consolidated Financial Statement Schedule........... 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
Consolidated Financial Statements or notes thereto.
16
<PAGE>
(a)(3) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO.
- ------------
<S> <C>
3.1(7) Certificate Incorporation of Registrant
3.2(7) Bylaws of Registrant
4.1(3) Preferred Shares Rights Agreement, dated as of June 30, 1998 between TriQuint Semiconductor, Inc.
and ChaseMellon Shareholder Services, L.L.C., including the Certificate of Determination, the form
of Rights Certificate and the Summary of Rights attached thereto as Exhibits A, B and C,
respectively.
10.1 Reserved
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 Reserved
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 Reserved
10.11 Reserved
10.12 Reserved
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>
17
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO.
- ------------
<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(10) 1998 Employee Stock Purchase Plan, and forms of agreement thereunder.
13.1 Portions of Annual Report to Stockholders dated 12/31/98
23.1 Independent Auditors' Consent
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.
(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 Registrant's Report on Form 8-A (File No.
000-22660) as declared effective by the Securities and Exchange Commission
on July 24, 1998.
(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.
(9) Incorporated by reference to the Registrant's Registration Statement on
Form S-8 (File No. 333-48883) as declared effective by the Securities and
Exchange Commission on March 30, 1998, as amended by the Registrant's
Registration Statement on Form S-8 (File 333-66707) as declared effective by
the Securities and Exchange Commission on November 3, 1998.
(10) Incorporated by reference to the Registrant's Registration Statement on
Form S-8 (File No. 333-66707) as declared effective by the Securities and
Exchange Commission on November 3, 1998.
(b) REPORTS ON FORM 8-K
The Company 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.
18
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the Registrant has duly caused this Report to
be signed on its behalf by the undersigned, thereunto duly authorized.
<TABLE>
<S> <C> <C>
TRIQUINT SEMICONDUCTOR, INC.
By: /s/ STEVEN J. SHARP
-----------------------------------------
Steven J. Sharp
PRESIDENT, CHIEF EXECUTIVE OFFICER AND
Date: March 31, 1999 CHAIRMAN OF THE BOARD OF DIRECTORS
</TABLE>
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, 1999
Steven J. Sharp Officer)
Executive Vice President,
Finance and
/s/ EDWARD C.V. WINN Administration, Chief
- ------------------------------ Financial Officer and March 31, 1999
Edward C.V. Winn Secretary (Principal
Financial and Accounting
Officer)
/s/ PAUL A. GARY
- ------------------------------ Director March 31, 1999
Paul A. Gary
</TABLE>
19
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
<C> <S> <C>
/s/ CHARLES SCOTT GIBSON
- ------------------------------ Director March 31, 1999
Charles Scott Gibson
/s/ E. FLOYD KVAMME
- ------------------------------ Director March 31, 1999
E. Floyd Kvamme
/s/ WALDEN C. RHINES
- ------------------------------ Director March 31, 1999
Walden C. Rhines
/s/ EDWARD F. TUCK
- ------------------------------ Director March 31, 1999
Edward F. Tuck
</TABLE>
20
<PAGE>
EXHIBITS
<TABLE>
<CAPTION>
SEQUENTIAL
EXHIBIT NO. PAGE NO.
- ------------ ----------
<S> <C> <C>
3.1(7) Certificate Incorporation of Registrant
3.2(7) Bylaws of Registrant
4.1(3) Preferred Shares Rights Agreement, dated as of June 30, 1998 between TriQuint
Semiconductor, Inc. and ChaseMellon Shareholder Services, L.L.C., including the
Certificate of Determination, the form of Rights Certificate and the Summary of
Rights attached thereto as Exhibits A, B and C, respectively.
10.1 Reserved
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 Reserved
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) Reserved
10.11(1) Reserved
10.12(3) Reserved
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>
21
<PAGE>
<TABLE>
<CAPTION>
SEQUENTIAL
EXHIBIT NO. PAGE NO.
- ------------ ----------
<S> <C> <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(10) 1998 Employee Stock Purchase Plan, and forms of agreement thereunder.
13.1 Portions of Annual Report to Stockholders dated 12/31/98. 24
23.1 Independent Auditors' Consent 71
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.
(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 Registrant's Report on Form 8-A (File No.
000-22660) as declared effective by the Securities and Exchange Commission
on July 24, 1998.
(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.
(9) Incorporated by reference to the Registrant's Registration Statement on
Form S-8 (File No. 333-48883) as declared effective by the Securities and
Exchange Commission on March 30, 1998. As amended by the Registrant's
Registration Statement on Form S-8 (File 333-66707) as declared effective by
the Securities and Exchange Commission on November 3, 1998.
(10) Incorporated by reference to the Registrant's Registration Statement on
Form S-8 (File No. 333-66707) as declared effective by the Securities and
Exchange Commission on November 3, 1998.
22
<PAGE>
TRIQUINT SEMICONDUCTOR, INC.
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
(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, 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
Year ended December 31, 1998:
Allowance for doubtful accounts................................ 196 99 33 262
Inventory valuation reserve.................................... 1,324 7,429 6,331 2,422
</TABLE>
F1
<PAGE>
INDEPENDENT AUDITORS' REPORT
ON CONSOLIDATED FINANCIAL STATEMENT SCHEDULE
The Board of Directors
TRIQUINT SEMICONDUCTOR, INC.:
Under date of February 11, 1999, except as to note 13 which is as of
February 26, 1999, we reported on the consolidated balance sheets of TriQuint
Semiconductor, Inc. and subsidiary as of December 31, 1998 and 1997, and the
related consolidated statements of operations, shareholders' equity, and cash
flows for each of the years in the three-year period ended December 31, 1998, as
contained in the 1998 annual report to shareholders. These consolidated
financial statements and our report thereon are incorporated by reference in the
annual report on Form 10-K for the year ended December 31, 1998. In connection
with our audit of the aforementioned consolidated financial statements, we also
audited the related consolidated financial statement schedule as listed in Item
14(a)(2) of this Form 10-K. This consolidated financial statement schedule is
the responsibility of the Company's management. Our responsibility is to express
an opinion on this consolidated financial statement schedule based on our
audits. In our opinion, such consolidated financial statement schedule, when
considered in relation to the basic consolidated financial statements taken as a
whole, presents fairly in all material respects the information set forth
therein.
KPMG PEAT MARWICK LLP
Portland, Oregon
February 11, 1999, except as to note 13
which is as of February 26, 1999
F2
<PAGE>
EXHIBIT 13.1
OVERVIEW
TriQuint Semiconductor designs, develops, manufactures and markets a broad
range of high-performance analog and mixed-signal gallium arsenide (GaAs)
integrated circuits and transistors for the wireless communications,
telecommunications, data communications and millimeter wave communications
markets. TriQuint's engineers apply the company's proprietary GaAs technology
to produce high-performance, low-cost devices that give customers a
competitive edge in their product strategy. TriQuint offers a broad range of
standard and customer-specific products as well as manufacturing services.
Inherent physical properties allow electrons to move approximately
five times faster in GaAs than in silicon. This enables GaAs
integrated circuits to operate at much higher frequencies than
silicon devices--or to perform as fast while using substantially
less power. GaAs also provides lower distortion amplification, can
receive weaker signals due to its low-noise characteristics, and
can transmit strong clean signals at lower voltages.
TriQuint's wafer fabrication facilities, located in Oregon and Texas, produce
4-inch wafers using high-volume, low-cost ion-implanted metal semiconductor
field effect transistor (MESFET) processes, high power and efficiency
pseudomorphic high electron mobility transfer (PHEMT), heterojunction bipolar
transistor (HBT) and heterojunction field effect transistor (HFET) processes.
All TriQuint operations are ISO 9001 certified.
End-user customers include market-leading equipment manufacturers such as
Alcatel, Cellnet Data Systems, Ericsson, Hughes, Lucent Technologies,
Motorola, Nokia, Nortel, Qualcomm, and Raytheon.
<PAGE>
TRIQUINT SEMICONDUCTOR, INC. FINANCIAL HIGHLIGHTS
IN THOUSANDS, EXCEPT PER SHARE AMOUNTS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1998 1997
<S> <C> <C>
Total revenues $111,605 $ 71,367
Income (loss) from operations (6,345) 5,633
Income (loss) before income taxes (3,861) 7,750
Net income (loss) (3,955) 6,860
Diluted net income (loss) per share (0.42) 0.75
Cash and investments 66,225 64,625
Shareholders' equity 107,615 90,038
</TABLE>
- --------------------------------------------------------------------------------
COMMON STOCK PRICES
<TABLE>
<CAPTION>
Quarter High Low
<S> <C> <C>
Q4 1998 $ 22 5/8 11
Q3 1998 21 5/8 14 1/2
Q2 1998 25 16 5/8
Q1 1998 27 1/2 19 3/4
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
</TABLE>
TOTAL REVENUES BY QUARTER
- - Description of graphic: Graphic representation of
total revenues (in millions) by quarter. Data used to produce
the graphic is as follows:
<TABLE>
<S> <C>
Q4 1998 30.9
Q3 1998 29.1
Q2 1998 27.9
Q1 1998 23.7
Q4 1997 18.5
Q3 1997 17.6
Q2 1997 18.5
Q1 1997 16.8
</TABLE>
DILUTED NET INCOME PER SHARE BY QUARTER
- - Description of graphic: Graphic representation of
net income per share by quarter. Data used to produce
the graphic is as follows:
<TABLE>
<S> <C>
Q4 1998 0.35
Q3 1998 0.29
Q2 1998 0.21
Q1 1998 (1.33)
Q4 1997 0.17
Q3 1997 0.14
Q2 1997 0.25
Q1 1997 0.20
</TABLE>
<PAGE>
TO OUR SHAREHOLDERS: 1998 SAW OUR COMPANY'S REVENUES PASS THE $100 MILLION
MILESTONE. WE GREATLY EXPANDED OUR TECHNOLOGY CAPABILITIES AND MARKET BASE
WITH THE ACQUISITION OF THE MILLIMETER WAVE BUSINESS AND ARE EXTREMELY WELL
POSITIONED TO SUCCESSFULLY PARTICIPATE IN A BROAD ARRAY OF HIGH GROWTH
COMMUNICATIONS MARKET OPPORTUNITIES.
FINANCIAL PERFORMANCE. 1998 revenues increased by 56% over 1997 to a record
$111.6 million. For the year, we reported a net loss of $4.0 million.
Excluding the first quarter, which produced a loss due to special charges
primarily associated with the acquisition of the Millimeter Wave business,
our net profit for 1998 was $8.3 million. Our balance sheet remains very
strong.
MILLIMETER WAVE COMMUNICATIONS. Early in the year we announced the
acquisition of the Gallium Arsenide (GaAs) millimeter wave integrated circuit
operation of the former Texas Instruments Defense Systems and Electronics
Group from Raytheon for approximately $39 million. This operation is a world
leader in millimeter wave integrated circuit technology. Millimeter wave
devices operate at frequencies above 10 GHz and are a perfect complement to
our Oregon product lines. I am happy to report that the integration of the
Millimeter Wave business, which is located in Dallas, has gone extremely well
and results have exceeded our expectations. We are very pleased with the
strong performance of the Millimeter Wave team. With the addition of
Millimeter Wave, we now possess the full range of advanced GaAs processes -
MESFET, PHEMT, HBT and HFET - that provide the performance capability
required for the wide array of present and emerging high growth
communications opportunities.
CUSTOMER AND MARKET DIVERSITY. Rather than be dependent on a relatively narrow
customer and applications base, we have purposely sought to engage with all the
leading
<PAGE>
participants in each of the major communications markets where our
proprietary technologies provide a competitive advantage. In 1998, just two
customers represented over 10% of our revenues. Nokia, the leading wireless
telephone handset manufacturer was our largest customer at 12% and Raytheon
was the second largest at 11.7%. Twenty-one end-customers contributed over $1
million in revenue during the year. Our applications portfolio was also well
balanced with approximately 45% of revenues from wireless communications
applications, 18% in the telecom/ datacom arena and 37% from millimeter wave
systems. The addition of millimeter wave technologies to our product
offerings has allowed us to expand our participation in entirely new market
areas including satellite communications, point-to-point and
point-to-multipoint broadband communications, Local Multipoint Distribution
Systems (LMDS) and advanced aerospace systems.
DESIGN WINS AND NEW PRODUCTS. By focusing our marketing and sales efforts, we
were able to achieve a record 246 major design wins during the year, up from
131 in 1997. Since all our products are proprietary, sole source devices,
design wins are a critical activity and, we believe, are a good leading
indicator of future business. Wireless product introductions during the year
included a family of three volt power amplifiers for wireless handset
transmitters and further expansion of our handset receiver product line. We
also announced the inclusion of a new mixer/downconverter in the reference
design chip set for implementation of Motorola's ReFlex two-way messaging
protocol. The telecom product line was expanded with the introduction of two
high speed cross-point switches and a 2.5 Gigabit per second transceiver for
high performance networks and SONET fiber optic communications applications.
The millimeter wave product line announced a family of high efficiency and
high linearity power transistors in the DC to 12GHz frequency range, a high
power 6.5 to 11.5 GHz amplifier for digital radio, phased array radar, and
telecommunications applications and also a 28 GHz Amplifier for the Digital
Radio, LMDS and satellite communications markets.
<PAGE>
OPERATIONS. During the first quarter of the year, we transitioned to our new
state-of-the-art Oregon wafer fab facility. Since that time, we have seen a
steady improvement in output and yields from the new fab. We estimate that this
facility, combined with the Texas wafer fab, provides us with the physical
capacity to support up to $300M in annual sales. Both facilities have been
certified to the requirements of the ISO 9001 International Quality Standard.
ORGANIZATION. Until mid 1998, we maintained our foundry services operations as
part of the Wireless Communications organization. In June, we formed a separate
Foundry Services Division to focus on the unique requirements of our foundry
customers. TriQuint's design tools and technical support enable our customers to
design their own circuits for manufacture by us on our proprietary processes.
The foundry relationship enables our customers to rapidly introduce leadership
devices while protecting their intellectual property. Bruce Fournier, formerly
Vice President of Sales heads the new Foundry Services Division. Replacing Bruce
is Paul Kollar who brings more than thirty years of experience in semiconductor
marketing and sales management to his new position. Paul was most recently Vice
President of sales at Lattice Semiconductor and is a strong addition to our
management team.
We continue to see excellent results from our company-wide continuous process
improvement initiatives. Employee participation in the continuous improvement of
all our business processes has become even more firmly embedded in our culture
during the past 12 months.
THE COMING YEAR. Looking ahead, we anticipate continued revenue growth in 1999.
The wireless communications market is expected to drive much of this growth. The
market for our high performance telecom products should also be strong and we
expect to see exceptional design win opportunities in satellite communications
and LMDS applications. We will continue to concentrate on driving our design win
activities and on maintaining our broad, well-balanced product portfolio and
market base.
<PAGE>
In summary, 1998 was another very successful year for TriQuint. We significantly
strengthened our product offerings, broadened our market and customer base and
positioned our manufacturing operations to support the anticipated rapid growth
of our business. The enthusiasm and teamwork of our employees and the support of
our customers, suppliers, and shareholders has made this possible and is
sincerely appreciated. We look forward to continuing our success in this very
exciting and opportunity-filled business.
Sincerely,
Steven J. Sharp
CHAIRMAN, PRESIDENT & CHIEF EXECUTIVE OFFICER
<PAGE>
TRIQUINT SEMICONDUCTOR, INC. SELECTED FINANCIAL DATA
IN THOUSANDS, EXCEPT PER SHARE AMOUNTS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,(1)
1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total revenues $111,605 $71,367 $59,526 $45,943 $30,261
Operating costs and expenses:
Cost of goods sold 72,784 40,028 34,258 25,509 19,790
Research, development and engineering 18,984 11,518 10,858 9,210 9,945
Selling, general and administrative 15,962 14,188 10,975 9,009 10,013
Restructuring of operations - - - - 443
Special charges 10,220 - - - -
--------------------------------------------------------------------
Total operating costs and expenses 117,950 65,734 56,091 43,728 40,191
--------------------------------------------------------------------
Income (loss) from operations (6,345) 5,633 3,435 2,215 (9,930)
Other income (expense), net 2,484 2,117 3,083 930 198
--------------------------------------------------------------------
Income (loss) before income taxes (3,861) 7,750 6,518 3,145 (9,732)
Income tax expense 94 890 231 83 -
--------------------------------------------------------------------
Net income (loss) ($3,955) $6,860 $6,287 $3,062 ($9,732)
--------------------------------------------------------------------
--------------------------------------------------------------------
PER SHARE DATA:
Net income(loss):
Basic ($0.42) $0.82 $0.78 $0.48 ($1.82)
Diluted ($0.42) $0.75 $0.72 $0.42 ($1.82)
Weighted average shares:
Basic 9,400 8,373 8,045 6,358 5,346
Diluted 9,400 9,108 8,763 7,237 5,346
BALANCE SHEET DATA:
Working capital $44,494 $35,180 $37,591 $65,513 $16,409
Total assets 141,306 121,418 107,596 94,024 34,227
Long-term obligations, less current installments 9,369 12,550 9,891 7,392 4,062
Shareholders' equity 107,615 90,038 80,246 72,644 20,785
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) In 1996, 1997 and 1998, the Company's fiscal year ended on December 31. In
1994 and 1995, 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 1998 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 communications markets. The Company
utilizes its proprietary gallium arsenide (GaAs) technology to enable its
products to overcome the performance barriers of silicon devices in a variety of
applications. The Company sells its products on a worldwide basis and its end
user customers include Alcatel, Cellnet Data Systems, Ericsson, Hughes, Lucent
Technologies, Motorola, Nokia, Northern Telecom, Qualcomm and Raytheon.
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, Millimeter Wave Communications).
The Millimeter Wave Communications operation designs, develops,
produces and sells advanced GaAs MMIC products which are used in defense and
commercial applications. In the area of defense applications, the Millimeter
Wave Communications operation 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 Millimeter Wave Communications operation provides products and
services for wireless and space-based communications.
Pursuant to an Asset Purchase Agreement with RTIS, TriQuint acquired
the Millimeter Wave Communications operation for approximately $19.5 million in
cash and 844,613 shares of TriQuint Common Stock valued at approximately $19.5
million for a total purchase consideration of approximately $39 million. The
cash portion of the purchase price was financed through an operating lease
arrangement 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, 1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Total revenues 100.0 % 100.0 % 100.0 %
Operating costs and expenses:
Cost of goods sold 65.2 56.1 57.6
Research, development and engineering 17.0 16.1 18.2
Selling, general and administrative 14.3 19.9 18.4
Special charges 9.2 0.0 0.0
----------- --------- --------
Total operating costs and expenses 105.7 92.1 94.2
----------- --------- --------
Income from operations 5.8
(5.7) 7.9
Other income, net 2.2 3.0 5.2
----------- --------- --------
Income before income taxes (3.5) 10.9 11.0
Income tax expense 0.1 1.3 0.4
----------- --------- --------
Net income (3.6) % 9.6 % 10.6 %
----------- --------- --------
----------- --------- --------
</TABLE>
The fiscal years ended December 31, 1998, December 31, 1997 and December 31,
1996 are hereinafter referred to as Fiscal 1998, Fiscal 1997 and Fiscal 1996,
respectively.
COMPARISON OF 1998 AND 1997
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. Total revenues for Fiscal 1998 increased 56.4% to
$111.6 million from $71.4 million for Fiscal 1997. The increase in total
revenues primarily reflects the inclusion of revenues from the newly acquired
Millimeter Wave Communications operation since the date of acquisition and a
strong demand for wireless communication products, offset by a reduction in
demand for telecommunication products. Domestic and international revenues
for Fiscal 1998 were $84.8 million and $26.8 million, respectively, as
compared to $47.1 million and $24.3 million, respectively, for Fiscal 1997.
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 NRE production costs. The factors affecting product mix
include the relative demand in the various markets 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 $72.8 million in Fiscal 1998 and increased from $40.0
million in Fiscal 1997. Cost of goods sold for Fiscal 1998 increased as a
percentage of total revenues to 65.2% from 56.1% for Fiscal 1997. The increase
in absolute dollar value of cost of goods sold was primarily attributable to the
related increase in sales volume. The increase in cost of goods sold as a
percentage of total revenues was due to an increase in lower-margin products in
the mix of products sold and costs related to the transition to the Company's
new Hillsboro wafer fabrication facility. However, cost of goods sold, as a
percentage of total revenues, improved sequentially over each quarter of Fiscal
1998 due to continued yield improvements and increases in economies of scale
from higher production volumes.
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 1998 increased 64.8% to $19.0 million from $11.5
million for Fiscal 1997. RD&E expenses as a percentage of total revenues
increased to 17.0% for Fiscal 1998 from 16.1% for Fiscal 1997. The increase in
RD&E expenses in both absolute dollar amount and as a percentage of total
revenues reflects the inclusion of RD&E expenses related to the newly acquired
MMIC Business and increases in product development activities and NRE expenses.
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 1998
increased 12.5% to $16.0 million from $14.2 million for Fiscal 1997. SG&A
decreased as a percentage of total revenues to 14.3% for 1998 from 19.9% for
1997. The increase in absolute dollar value in SG&A expenses was primarily
attributable to the inclusion of SG&A expenses related to the newly acquired
Millimeter Wave Communications operation and increased selling expenses
associated with increased sales volume. As a percentage of total revenues, the
decrease in SG&A expenses was due to revenues increasing at a faster rate than
SG&A expenses.
SPECIAL CHARGES
During Fiscal 1998, special charges of $8.8 million were recorded.
These were special charges associated with the Company's acquisition of the MMIC
Business from Raytheon TI Systems, Inc. and involve the write-off of the fair
value of in-process research and development.
On July 12, 1994, a stockholder class action lawsuit was filed against
the Company, its underwriters, and certain of its officers, directors and
investors in the United States District Court for the Northern District of
California. The suit alleged that the Company, its underwriters, and certain of
its officers, directors and investors intentionally misled the investing public
regarding the financial prospects of the Company. Following the filing of the
complaint, the plaintiffs dismissed without prejudice a director defendant, the
principal stockholder defendant, the underwriter defendants and certain analyst
defendants. On June 21, 1996, the Court granted the Company's motion to transfer
the litigation to the District of Oregon. The pretrial discovery phase of the
lawsuit ended July 1, 1997. The Court had established a January 1999 trial date
for this action. During Fiscal 1998, the Company settled this action and
recorded a special charge of $1.4 million associated with the settlement of
this lawsuit and related legal expenses, net of accruals and insurance proceeds.
OTHER INCOME, NET
Other income, net for Fiscal 1998 increased to $2.5 million as compared
to $2.1 million for Fiscal 1997. This increase resulted primarily from lower
interest expense, gain on sale of assets and other miscellaneous receipts,
partially offset by lower interest income.
3
<PAGE>
INCOME TAX EXPENSE
Income tax expense for Fiscal 1998 decreased to $94,000 from $890,000
for Fiscal 1997. The decrease in income tax expense was attributable to the
Company's operating loss in Fiscal 1998.
At December 31, 1998, the Company had federal and Oregon state net
operating loss carryforwards for tax reporting purposes of approximately $45.7
million and $22.0 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 Consolidated Financial Statements.
COMPARISON OF 1997 AND 1996
TOTAL REVENUES
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. 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.
COST OF GOODS SOLD
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.
RESEARCH, DEVELOPMENT AND ENGINEERING
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.
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.
4
<PAGE>
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%.
NEW ACCOUNTING STANDARDS
In April 1998, the AICPA issued Statement of Position 98-5, "Reporting
on the Costs of Start-Up Activities", ("SOP 98-5"), which is effective for
financial statements for fiscal years beginning after December 15, 1998. SOP
98-5 broadly defines start-up activities and requires costs of start-up
activities and organization costs to be expensed as incurred. The Company does
not expect implementation to have a significant impact on its consolidated
financial statements.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities". SFAS No. 133 establishes accounting and
reporting standards requiring that every derivative instrument be recorded in
the balance sheet as either an asset or liability measured at its fair value.
SFAS No. 133 also requires that changes in the derivative's fair value be
recognized currently in results of operations unless specific hedge accounting
criteria are met. SFAS No. 133 is effective for fiscal years beginning after
June 15, 1999. The Company does not expect SFAS No. 133 to have a significant
impact on its consolidated financial statements.
FACTORS AFFECTING FUTURE RESULTS
VARIABILITY OF OPERATING RESULTS - The Company's quarterly and annual
results of operations have varied in the past and may vary significantly in the
future due to a number of factors, including cancellation or delay of customer
orders or shipments; market acceptance of the Company's or its customers'
products; the Company's success in achieving design wins; variations in
manufacturing yields; timing of announcement and introduction of new products by
the Company and its competitors; changes in revenue and product mix; competitive
factors; changes in manufacturing capacity and variations in the utilization of
such capacity; variations in average selling prices; variations in operating
expenses; the long sales cycles associated with the Company's customer specific
products; the timing and level of product and process development costs; the
cyclicality of the semiconductor industry; the timing and level of 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, then the Company's largest customer, requested that the
Company delay shipment of certain of its telecommunications devices to Northern
Telecom. This decision, together with a general softness of orders in the
telecommunications market, materially adversely affected the Company's revenues
and results of operations in the second quarter of 1994 and for the balance of
that year. The Company expects that its operating results will continue to
fluctuate in the future as a result of these and other factors. The Company's
expense levels are based, in part, on its expectations as to future revenue and,
as a result, net income would be disproportionately and adversely affected by a
reduction in revenue. Due to potential quarterly fluctuations in operating
results, the Company believes that quarter-to-quarter comparisons of its results
of operations are not necessarily meaningful and should not be relied upon as
indicators of future performance. Furthermore, it is likely that in some future
quarter the Company's net sales or operating results will be below the
expectations of public market securities analysts or investors. In such event,
the market price of the Company's Common Stock would likely be materially
adversely affected.
INTEGRATION OF ACQUISITIONS - Company management frequently evaluates
the strategic opportunities available to it and may in the near-term or
long-term future pursue acquisitions of complementary products, technologies or
businesses. For example, on January 13, 1998, the Company acquired substantially
all of the assets of the Millimeter Wave Communications operation of the former
Texas Instruments' Defense Systems & Electronics Group from RTIS. Acquisition
transactions are accompanied by a number of risks, including, among other
things, the difficulty of assimilating the operations and personnel of the
acquired companies, the potential disruption of the Company's ongoing business,
the inability of management to maximize the financial and strategic position of
the Company through the successful incorporation of acquired technology and
rights into the Company's products, expenses associated with the transactions,
expenses associated with acquired in-process research and development,
additional operating expenses, the maintenance of uniform standards, controls,
procedures and policies, the impairment of relationships with employees and
customers as a result of any integration of new management personnel, and the
5
<PAGE>
potential unknown liabilities associated with acquired businesses. There can be
no assurance that the Company will be successful in overcoming these risks or
any other problems encountered in connection with its acquisition of the
Millimeter Wave Communications operation or any other future acquisitions. In
addition, future acquisitions by the Company have the potential to result in
dilutive issuances of equity securities, the incurrence of additional debt, and
amortization expenses related to goodwill and other intangible assets that may
materially adversely affect the Company's results of operations.
MANUFACTURING RISKS - The fabrication of integrated circuits,
particularly GaAs devices such as those sold by the Company, is a highly complex
and precise process. Minute impurities, difficulties in the fabrication process,
defects in the masks used to print circuits on a wafer, wafer breakage or other
factors can cause a substantial percentage of wafers to be rejected or numerous
die on each wafer to be nonfunctional. As compared to silicon technology, the
less mature stage of GaAs technology leads to somewhat greater difficulty in
circuit design and in controlling parametric variations, thereby yielding fewer
good die per wafer. In addition, the more brittle nature of GaAs wafers can
result in higher processing losses than those experienced with silicon wafers.
The Company has in the past experienced lower than expected production yields,
which have delayed product shipments and materially adversely affected the
Company's results of operations. This was experienced in the fourth quarter of
1995 and during 1996. There can be no assurance that the Company will be able to
maintain acceptable production yields in the future. Because the majority of the
Company's costs of manufacturing are relatively fixed, the number of shippable
die per wafer for a given product is critical to the Company's results of
operations. To the extent the Company does not achieve acceptable manufacturing
yields or experiences product shipment delays, its results of operations could
be materially adversely affected. In addition, the Company leases and operates
its own wafer fabrication facilities, which entails a high level of fixed costs
and which requires an adequate volume of production and sales to be profitable.
During periods of decreased demand, high fixed wafer fabrication costs could
have a material adverse effect on the Company's results of operations.
PRODUCT QUALITY, PERFORMANCE AND RELIABILITY - The fabrication of GaAs
integrated circuits is a highly complex and precise process. The Company expects
that its customers will continue to establish demanding specifications for
quality, performance and reliability that must be met by the Company's products.
GaAs integrated circuits as complex as those offered by the Company often
encounter development delays and may contain undetected defects or failures when
first introduced or after commencement of commercial shipments. As has occurred
with most other semiconductor manufacturers, the Company has from time to time
experienced product quality, performance or reliability problems, although no
such problems have had a material adverse effect on the Company's operating
results. There can be no assurance, however, that defects or failures will not
occur in the future relating to the Company's product quality, performance and
reliability that may have a material adverse effect on the Company's results of
operations. If such failures or defects occur, the Company could experience lost
revenue, increased costs (including warranty expense and costs associated with
customer support), delays in or cancellations or rescheduling of orders or
shipments and product returns or discounts, any of which would have a material
adverse effect on the Company's business, financial condition and results of
operations.
RELIANCE ON SIGNIFICANT CUSTOMERS; CUSTOMER CONCENTRATION - A
significant portion of the Company's revenues in each fiscal period has
historically been concentrated among a limited number of customers. In recent
periods, sales to certain of the Company's major customers as a percentage of
total revenues have fluctuated. In Fiscal 1998, Nokia and RTIS accounted for
approximately 12.0% and 11.7%, respectively of total revenues. In Fiscal 1997,
Northern Telecom accounted for approximately 12.0% 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
6
<PAGE>
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.
PRODUCT AND PROCESS DEVELOPMENT AND TECHNOLOGICAL CHANGE - The market
for the Company's products is characterized by frequent new product
introductions, evolving industry standards and rapid changes in product and
process technologies. Because of continual improvements in these technologies,
including those in high performance silicon where substantially more resources
are invested than in GaAs technologies, the Company believes that its future
success will depend, in part, on its ability to continue to improve its product
and process technologies and to develop in a timely manner new technologies in
order to remain competitive. In addition, the Company must adapt its products
and processes to technological changes and to support emerging and established
industry standards. There can be no assurance that the Company will be able to
improve its existing products and process technologies, develop in a timely
manner new technologies or effectively support industry standards. The failure
of the Company to improve its products and process technologies, develop new
technologies and support industry standards would have a material adverse effect
on the Company's business, financial condition and results of operations.
EVOLVING INDUSTRY STANDARDS - The markets in which the Company and its
customers compete are characterized by rapidly changing technology, evolving
industry standards and continuous improvements in products and services. If
technologies or standards supported by the Company's or its customers' products
become obsolete or fail to gain widespread commercial acceptance, the Company's
business, financial condition and results of operations may be materially
adversely affected. In addition, the increasing demand for wireless
communications has exerted pressure on regulatory bodies worldwide to adopt new
standards for such products, generally following extensive investigation of and
deliberation over competing technologies. The delays inherent in the regulatory
approval process may in the future cause the cancellation, postponement or
rescheduling of the installation of communications systems by the Company's
customers. These delays have in the past had and may in the future have a
material adverse effect on the sale of products by the Company and on its
business, financial condition and results of operations.
COMPETITION - The semiconductor industry is intensely competitive and
is characterized by rapid technological change, rapid product obsolescence and
price erosion. Currently, the Company competes primarily with manufacturers of
high performance silicon semiconductors such as AMCC, Motorola and Philips and
with manufacturers of GaAs semiconductors such as Anadigics, Vitesse, RF
Microdevices and Raytheon. The Company expects increased competition both from
existing competitors and from a number of companies which may enter the GaAs
integrated circuit market, as well as future competition from companies which
may offer new or emerging technologies such as silicon germanium. Most of the
Company's current and potential competitors have significantly greater
financial, technical, manufacturing and marketing resources than the Company.
Additionally, manufacturers of high performance silicon semiconductors have
achieved greater market acceptance of their existing products and technologies
in certain applications. There can be no assurance that the Company will not
face increased competition or that the Company will be able to compete
successfully in the future. The
7
<PAGE>
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. There are many other
semiconductor companies located in the Company's geographic area and it may
become increasingly difficult for the Company to attract and retain such
personnel. The competition for such personnel is intense, and the loss of key
employees could have a material adverse effect on the Company.
SOLE SOURCES OF MATERIALS AND SERVICES - The Company currently procures
certain components and services for its products from single sources, such as
ceramic packages from Kyocera. The Company purchases these components and
services on a purchase order basis, does not carry significant inventories of
these components and does not have any long-term supply contracts with its sole
source vendors. If the Company were to change any of its sole source vendors,
the Company would be required to requalify the components with each new vendor.
Requalification could prevent or delay product shipments which could materially
adversely affect the Company's results of operations. In addition, the Company's
reliance on sole source vendors involves several risks, including reduced
control over the price, timely delivery, reliability and quality of the
components. Any inability of the Company to obtain timely deliveries of
components of acceptable quality in required
8
<PAGE>
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. If it is necessary or desirable, the Company may seek
licenses under such patents or other intellectual property rights. However,
there can be no assurance that licenses will be offered or that the terms of any
offered licenses will be acceptable to the Company. The failure to obtain a
license from a third party for technology used by the Company could cause the
Company to incur substantial liabilities and to suspend the manufacture of
products. Furthermore, the Company may initiate claims or litigation against
third parties for infringement of the Company's proprietary rights or to
establish the validity of the Company's proprietary rights. Litigation by or
against the Company could result in significant expense to the Company and
divert the efforts of the Company's technical and management personnel, whether
or not such litigation results in a favorable determination for the Company. In
the event of an adverse result in any such litigation, the Company could be
required to pay substantial damages, indemnify its customers, cease the
manufacture, use and sale of infringing products, expend significant resources
to develop non-infringing technology, discontinue the use of certain processes
or obtain licenses to the infringing technology. There can be no assurance that
the Company would be successful in such development or that such licenses would
be available on reasonable terms, or at all, and any such development or license
could require expenditures of substantial time and other resources by the
Company. In the event that any third party makes a successful claim against the
Company or its customers and a license is not made available to the Company on
commercially reasonable terms, the Company's business, financial condition and
results of operations would be materially adversely affected.
On February 26, 1999, a lawsuit was filed against 88 firms, including
the Company, in the United States District Court for the District of Arizona.
The suit alleges that the defendants infringe upon certain patents held by The
Lemelson Medical, Education and Research Foundation, Limited Partnership.
Although the Company believes that the suit is without merit and intends to
vigorously defend itself against the charges, there can be no assurance that
such defense will be successful. Moreover, such litigation may require
expenditures of substantial time and money and could distract management from
the Company's day-to-day operations.
9
<PAGE>
ENVIRONMENTAL REGULATIONS - The Company is subject to a variety of
federal, state and local laws, rules and regulations related to the discharge or
disposal of toxic, volatile or other hazardous chemicals used in its
manufacturing process. The failure to comply with present or future regulations
could result in fines being imposed on the Company, suspension of production or
a cessation of operations. Such regulations could require the Company to acquire
significant equipment or to incur substantial other expenses to comply with
environmental regulations. Any failure by the Company, or by TI with respect to
the Company's Texas facility, to control the use of, or to adequately restrict
the discharge of, hazardous substances could subject the Company to future
liabilities or could cause its manufacturing operations to be suspended,
resulting in a material adverse effect on the Company's business, financial
condition and results of operations.
RISKS ASSOCIATED WITH INTERNATIONAL SALES - Sales outside of the United
States were $26.8 million, $24.3 million, and $18.1 million, in Fiscal 1998,
Fiscal 1997, and Fiscal 1996, 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, seven of which are
located outside of the United States. Any prolonged work stoppages or other
failure of these contractors to supply finished products would have a material
adverse effect on the Company's business, financial condition and results of
operations.
YEAR 2000 RISKS - Many information technology ("IT") hardware and
software systems, as well as other non-IT equipment utilizing microprocessors,
can accept only two digit entries in the date code field. To operate using dates
after December 31, 1999, the date code fields will need to accept four digit
entries to distinguish twenty-first century dates from twentieth century dates.
This is commonly referred to as the "Year 2000" or "Y2K" issue. The Company has
initiated a comprehensive Y2K audit program, which consists of a six step plan
to inventory and correct any non-compliant systems. These six steps are:
inventory, assessment, planning, remediation, testing and implementation. The
audit program encompasses a review of IT systems used in the Company's internal
business as well as non-IT systems such as manufacturing systems and building
systems. It also includes an audit and evaluation of third party vendors,
manufacturers and suppliers. The Company has completed the audit program through
the planning phase and is currently in the remediation phase, for both IT and
non-IT systems as well as third-party vendors, manufacturers and suppliers.
Because of the existence of numerous systems and related components within the
Company and the interdependency of these systems, it is possible that certain
systems at the Company, or systems at entities that provide services or goods
for the Company, may fail to operate in the Year 2000. Although it is not
currently anticipated, the inability of the Company to become Y2K compliant on a
timely basis or the failure of a system at the Company or at an entity that
provides services or goods to the Company may have a material impact on future
operating results or financial condition.
LIQUIDITY AND CAPITAL RESOURCES
The Company completed a follow-on public offering in September 1995
raising approximately $48.1 million, net of offering expenses. In December 1993
and January 1994, the Company completed its initial public offering raising
approximately $16.7 million, net of offering expenses. In addition, the Company
has funded its operations to date through other sales of equity, bank borrowing,
equipment leases, and cash flow from operations. As of December 31, 1998, the
Company had working capital of approximately $44.5 million, including $26.1
million in cash, cash equivalents, and
10
<PAGE>
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 $79.7 million and (iv) cash and investments, including restricted
investments, greater than $45.0 million. As of December 31, 1998 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, 1998, the
Company was in compliance with the covenants described above. However, there can
be no assurance that the Company will continue to be in compliance with these
covenants as of any subsequent date.
In November 1997, the Company entered into a $1.5 million lease for
additional land adjacent to its Hillsboro facility. Pursuant to the terms of
that agreement, USNB provided loans to Matisse to purchase the land, who in turn
leased it to the Company under a renewable one year lease agreement. The loan
from USNB is partially collateralized by a guarantee from the Company. The
agreement contains restrictive covenants substantially the same as those
contained in the Company's line of credit. As of December 31, 1998 the Company
was in compliance with the terms of the agreement. However, there can be no
assurance that the Company will continue to be in compliance with these terms as
of any subsequent date.
In January 1998, the Company acquired the Millimeter Wave
Communications operation of the former Texas Instruments' Defense Systems &
Electronics Group from RTIS. Pursuant to an Asset Purchase Agreement with RTIS,
the Company acquired the Millimeter Wave Communications operation for
approximately $19.5 million in cash and 844,613 shares of TriQuint Common Stock
valued at approximately $19.5 million for a total purchase consideration of
approximately $39 million. The cash portion of the purchase price was financed
through an operating lease arrangement involving certain assets pursuant to the
Agreement.
The following table presents a summary of the Company's cash flows ( IN
THOUSANDS):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1998 1997 1996
<S> <C> <C> <C>
Net cash and cash equivalents provided by operating activities $ 10,218 $ 4,152 $ 5,374
Net cash and cash equivalents provided (used) by investing activities (10,874) 3,266 (25,687)
Net cash and cash equivalents provided (used) by financing activities (3,476) (1,591) (1,831)
------------------ --------------- --------------
Net increase (decrease) in cash and cash equivalents $ (4,132) $ 5,827 $(22,144)
------------------ --------------- --------------
</TABLE>
Net cash provided by operating activities in Fiscal 1998 and Fiscal
1997 of $10.2 million and $4.2 million, respectively, related primarily to
profitable operations before special charges. Net cash provided by operating
activities in Fiscal 1996 was $5.4 million.
Cash used by investing activities in Fiscal 1998 of $10.9 million was
primarily the result of the purchase of $68.0 million of investments and capital
expenditures of $5.6 million. This cash used by investing activities was
partially offset by the sale and/or maturity of $62.3 million of investments.
Cash provided by investing activities in Fiscal 1997 relates
11
<PAGE>
primarily to the net sale and/or maturity of investment securities of $3.9
million and capital expenditures of $1.4 million. Cash used by investing
activities in Fiscal 1996 relates primarily to the net purchase of
investments of $21.9 million and capital expenditures of $4.1 million. 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 $3.5 million, $1.6 million and
$1.8 million in Fiscal 1998, Fiscal 1997, and Fiscal 1996, respectively, is
primarily the result of net principal payments under capital lease obligations
and installment notes, partially offset by the proceeds of the issuance of
common stock upon option exercises.
For Fiscal 1998, the Company established approximately $2.2 million in
new capital lease equipment financing. The Company's balances of current
installments of capital lease and installment note obligations of $4.9 million
and capital lease and installment note obligations, less current installments,
of $9.4 million as of December 31,1998 are related to the financing 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 $15 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 and
anticipated financing arrangements, will satisfy the Company's projected working
capital and capital expenditure requirements, at a minimum, through the end of
1999. However, the Company may be required to finance any additional
requirements through additional equity, debt financings, or credit facilities.
There can be no assurance that such additional financings or credit facilities
will be available, or if available, that they will be on satisfactory terms.
YEAR 2000 COMPLIANCE
Many information technology ("IT") hardware and software systems, as
well as other non-IT equipment utilizing microprocessors, can accept only two
digit entries in the date code field. To operate using dates after December
31, 1999, the date code fields will need to accept four digit entries to
distinguish twenty-first century dates from twentieth century dates. This is
commonly referred to as the "Year 2000" or "Y2K" issue. STATE OF READINESS -
The Company has initiated a comprehensive Y2K audit program, which consists
of a six step plan to inventory and correct any non-compliant systems. These
six steps are: inventory, assessment, planning, remediation, testing and
implementation. The audit program encompasses a review of IT systems used in
the Company's internal business as well as non-IT systems such as
manufacturing systems and building systems. It also includes an audit and
evaluation of third party vendors, manufacturers and suppliers. The Company
has completed the audit program through the planning phase and is currently
in the remediation phase, for both IT and non-IT systems as well as
third-party vendors, manufacturers and suppliers. The Company's products have
no specific date functions or date dependencies and will operate according to
specifications through the Year 2000 date rollover and thereafter. COSTS -
The Company does not believe that the historical or anticipated costs of
remediation have had, or will have, a material effect on the Company's
financial condition or results of operations. For IT systems and most non-IT
systems, the costs of remediation have been or will be encompassed in the
normal anticipated expenditures for maintenance contracts and version
upgrades. Total incremental cost of remediation is estimated at $150,000.
RISKS, CONTINGENCY PLAN AND REASONABLY LIKELY WORST CASE SCENARIO - While the
Company is heavily reliant upon its computer systems, software applications
and other electronics containing date-sensitive, embedded technology as part
of its business operations, such components upon which the Company primarily
relies were developed with current state-of-the-art technology and,
accordingly, the Company reasonably anticipates that its six-step audit and
remediation program will demonstrate that many of its high-priority systems
do not present material Y2K compliance issues. For computer systems, software
applications and other electronics containing date-sensitive embedded
technology that have met the Company's desired level of Y2K readiness, the
Company will use its existing contingency plans to mitigate or eliminate
problems it may experience if an unanticipated system failure were to occur.
For components that have not met the Company's desired level of readiness
specific contingency plans will be developed to determine the actions the
Company would take if such a component failed. At the present time, the
Company has not developed a most reasonably likely worst case scenario for
failure to achieve Y2K compliance. The Company will be better able to develop
such a scenario as it moves through the testing phase of the audit program
and as it continues to monitor progress of critical third-party vendors,
manufacturers and suppliers. Because of the existence of numerous systems and
related components within the
12
<PAGE>
Company and the interdependency of these systems, it is possible that certain
systems at the Company, or systems at entities that provide services or goods
for the Company, may fail to operate in the Year 2000. Although it is not
currently anticipated, the inability of the Company to become Y2K compliant
on a timely basis or the failure of a system at the Company or at an entity
that provides services or goods to the Company may have a material impact on
future operating results or financial condition.
13
<PAGE>
TRIQUINT SEMICONDUCTOR, INC.
Consolidated Financial Statements
For Inclusion in the Annual Report for
the year ended December 31, 1998
(With Independent Auditors' Report Thereon)
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
TriQuint Semiconductor, Inc.:
We have audited the accompanying consolidated balance sheets of TriQuint
Semiconductor, Inc. and subsidiary as of December 31, 1998 and 1997, and the
related consolidated statements of operations, shareholders' equity, and cash
flows for each of the years in the three-year period ended December 31, 1998.
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 consolidated 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 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of TriQuint
Semiconductor, Inc. and subsidiary as of December 31, 1998 and 1997, and the
results of its operations, and its cash flows for each of the years in the
three-year period ended December 31, 1998 in conformity with generally
accepted accounting principles.
Portland, Oregon
February 11, 1999, except as to note 13
which is as of February 26, 1999
<PAGE>
TRIQUINT SEMICONDUCTOR, INC.
Consolidated Statements of Operations
(In thousands, except per share and share amounts)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
--------------------------------------------------------------
1998 1997 1996
------------------- ------------------- ------------------
<S> <C> <C> <C>
Total revenues $ 111,605 $ 71,367 $ 59,526
Operating costs and expenses:
Cost of goods sold 72,784 40,028 34,258
Research, development and engineering 18,984 11,518 10,858
Selling, general and administrative 15,962 14,188 10,975
Special charges 10,220 -- --
------------------- ------------------- ---------------
Total operating costs and expenses 117,950 65,734 56,091
------------------- ------------------- ---------------
Income (loss) from operations (6,345) 5,633 3,435
------------------- ------------------- ---------------
Other income (expense):
Interest income 3,375 3,497 3,460
Interest expense (1,454) (1,463) (1,015)
Other, net 563 83 638
------------------- ------------------- ---------------
2,484 2,117 3,083
------------------- ------------------- ---------------
Income (loss) before income taxes (3,861) 7,750 6,518
Income tax expense 94 890 231
------------------- ------------------- ---------------
Net income (loss) $ (3,955) $ 6,860 $ 6,287
------------------- ------------------- ---------------
------------------- ------------------- ---------------
Per share data:
Net income (loss):
Basic $ (0.42) $ 0.82 $ 0.78
------------------- ------------------- ---------------
------------------- ------------------- ---------------
Diluted $ (0.42) $ 0.75 $ 0.72
------------------- ------------------- ---------------
------------------- ------------------- ---------------
Weighted average shares:
Basic 9,399,656 8,373,310 8,044,581
Diluted 9,399,656 9,108,215 8,762,717
</TABLE>
See accompanying notes to consolidated financial statements.
2
<PAGE>
TRIQUINT SEMICONDUCTOR, INC.
Consolidated Balance Sheets
(In thousands, except share amounts)
<TABLE>
<CAPTION>
DECEMBER 31
------------------------------------------
ASSETS 1998 1997
------------------- --------------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 14,602 $ 18,734
Investments 11,460 5,729
Trade accounts receivable, net 21,020 15,986
------------------- -------------------
47,082 40,449
------------------- -------------------
Inventories, net:
Raw material 5,066 2,776
Work in process 10,749 7,708
Finished goods 3,891 1,804
------------------- -------------------
19,706 12,288
------------------- -------------------
Prepaid expenses and other assets 2,028 1,273
------------------- -------------------
Total current assets 68,816 54,010
------------------- -------------------
Property, plant and equipment, net 30,529 27,235
Other non-current assets, net 1,798 11
Restricted investments 40,163 40,162
------------------- -------------------
Total assets $ 141,306 $ 121,418
------------------- -------------------
------------------- -------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current installments of capital lease and installment 4,934 5,045
note obligations
Accounts payable 10,027 8,737
Other accrued liabilities 6,237 2,609
Accrued payroll 3,124 2,439
------------------- -------------------
Total current liabilities 24,322 18,830
Capital lease and installment note obligations, less
current installments 9,369 12,550
------------------- -------------------
Total liabilities 33,691 31,380
------------------- -------------------
Commitments and contingency
Shareholders' equity:
Preferred stock, $.001 par value. Authorized 5,000,000 shares at
December 31, 1998 and 1997; none issued and outstanding
at December 31, 1998 and 1997 -- --
Common stock, $.001 par value. Authorized 25,000,000 shares at
December 31, 1998 and 1997; issued and outstanding 9,551,780
and 8,494,232 shares at December 31, 1998 and 1997, respectively 10 8
Additional paid-in capital 133,582 112,052
Accumulated deficit (25,977) (22,022)
------------------- -------------------
Total shareholders' equity 107,615 90,038
------------------- -------------------
Total liabilities and shareholders' equity $ 141,306 $ 121,418
------------------- -------------------
------------------- -------------------
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
TRIQUINT SEMICONDUCTOR, INC.
Consolidated 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, 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 -- -- -- -- -- 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 -- -- -- -- -- 6,860 6,860
-------- ------- ----------- ------- ---------- ----------- -------------
Balance, December 31, 1997 -- -- 8,494,232 8 112,052 (22,022) 90,038
Issuance of common stock under option plans
and warrant exercises -- -- 101,839 -- 498 -- 498
Issuance of common stock under stock purchase plan -- -- 111,096 -- 1,924 -- 1,924
Issuance of common stock for acquisition of
Millimeter Wave Communications -- -- 844,613 2 19,108 -- 19,110
Net loss -- -- -- -- -- (3,955) (3,955)
-------- ------- ----------- ------- ---------- ----------- -------------
Balance, December 31, 1998 -- -- 9,551,780 $ 10 $ 133,582 $ (25,977) $ 107,615
-------- ------- ----------- ------- ---------- ----------- -------------
-------- ------- ----------- ------- ---------- ----------- -------------
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
TRIQUINT SEMICONDUCTOR, INC.
Consolidated Statements of Cash Flows
(In thousands)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
-------------------------------------------------------------
1998 1997 1996
------------------- ------------------ -------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ (3,955) $ 6,860 $ 6,287
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 5,889 4,249 3,068
Non-cash special charge 8,820 -- --
Gain on sale of assets (475) (32) (728)
Change in assets and liabilities:
Receivables 939 (3,984) (4,614)
Inventories (2,795) (2,438) (1,141)
Prepaid expenses and other assets (66) (710) (79)
Accounts payable (453) (896) 2,637
Other accrued liabilities 2,314 1,103 (56)
------------------- ------------------ -------------------
Net cash provided by operating activities 10,218 4,152 5,374
------------------- ------------------ -------------------
Cash flows from investing activities:
Purchase of investments (67,993) (42,410) (97,266)
Sale of investments 62,262 46,290 75,415
Decrease (increase) in restricted cash -- 504 (504)
Capital expenditures (5,618) (1,388) (4,060)
Proceeds from sale of assets 475 270 728
------------------- ------------------ -------------------
Net cash provided (used) by
investing activities (10,874) 3,266 (25,687)
------------------- ------------------ -------------------
Cash flows from financing activities:
Principal payments under capital lease
and installment note obligations (5,508) (4,015) (2,992)
Issuance of common stock, net 2,032 2,424 1,161
------------------- ------------------ -------------------
Net cash used by financing activities (3,476) (1,591) (1,831)
------------------- ------------------ -------------------
Net increase (decrease) in cash
and cash equivalents (4,132) 5,827 (22,144)
Cash and cash equivalents at beginning of year 18,734 12,907 35,051
------------------- ------------------ -------------------
Cash and cash equivalents at end of year $ 14,602 $ 18,734 $ 12,907
------------------- ------------------ -------------------
------------------- ------------------ -------------------
Supplemental disclosures of cash flow information:
Cash paid for:
Interest $ 1,452 $ 1,489 $ 1,015
------------------- ------------------ -------------------
------------------- ------------------ -------------------
Income taxes $ 4 $ 54 $ 20
------------------- ------------------ -------------------
------------------- ------------------ -------------------
Supplemental schedule of non-cash investing
and financing activities:
Purchase of assets through capital lease and
installment notes 2,216 8,346 6,535
Tax benefit of stock option exercises -- 508 154
Recorded in acquisition of Millimeter Wave:
Receivables 5,973 -- --
Inventories 4,623 -- --
Prepaid expenses and other assets 2,839 -- --
Equipment 987 -- --
Accounts payable 1,743 -- --
Accrued liabilities 1,999 -- --
Common stock 19,500 -- --
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
TRIQUINT SEMICONDUCTOR, INC.
Notes to Consolidated Financial Statements
December 31, 1998 and 1997
(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, data communication
and millimeter wave markets. The Company utilizes its proprietary
gallium arsenide (GaAs) technology to manufacture its products.
(b) PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the
accounts of the Company and its wholly-owned subsidiary. All
significant inter-company accounts and transactions are eliminated
in consolidation.
(c) 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.
(d) REVENUE RECOGNITION
Standard product revenue is recognized upon shipment of product.
The Company recognizes revenue on foundry and customer-specific
products based on certain design, manufacturing and other
milestones. The Company recognizes revenue on cost plus contracts
as work is performed.
(e) CASH EQUIVALENTS
The Company considers all highly liquid debt and equity
instruments purchased with an original maturity of three months or
less to be cash equivalents.
6 (Continued)
<PAGE>
TRIQUINT SEMICONDUCTOR, INC.
Notes to Consolidated Financial Statements
December 31, 1998 and 1997
(In thousands, except share information)
(f) INVESTMENTS
The Company's investments, both restricted and unrestricted, are
comprised of medium term corporate notes, commercial paper and
market auction preferred stock and have been classified as
available-for-sale securities in accordance with Statement of
Financial Accounting Standards (SFAS) No. 115, ACCOUNTING FOR
CERTAIN INVESTMENTS IN DEBT AND EQUITY SECURITIES at December 31,
1998 and 1997. The carrying value of available-for-sale securities
approximates fair value at December 31, 1998 and 1997.
(g) TRADE ACCOUNTS RECEIVABLE
Trade accounts receivable are shown net of allowance for doubtful
accounts of $262 and $196 at December 31, 1998 and 1997,
respectively.
(h) INVENTORIES
Inventories are stated at the lower of cost (approximates actual
cost on a first-in, first-out basis) or market (net realizable
value). Inventories are shown net of a valuation reserve of $2,422
and $1,324 at December 31, 1998 and 1997, respectively.
(i) 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 their
estimated useful lives, which are as follows: five years for
machinery and equipment, furniture and fixtures and computer
equipment; three to seven years for leasehold improvements; and
ten years for buildings. Leasehold improvements are amortized over
the shorter of the estimated life of the asset or the term of the
related lease. Depreciation begins on assets in process at the
time the related assets are placed in service. Maintenance and
repairs are expensed as incurred.
(j) 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.
7 (Continued)
<PAGE>
TRIQUINT SEMICONDUCTOR, INC.
Notes to Consolidated Financial Statements
December 31, 1998 and 1997
(In thousands, except share information)
(k) COMPREHENSIVE INCOME
Effective January 1, 1998, the Company adopted the provisions of
SFAS No. 130, REPORTING 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. There is no difference between net income (loss) and
comprehensive income (loss) for the years ended December 31, 1998,
1997 and 1996.
(l) NET INCOME PER SHARE
The Company has adopted 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 reconciliation of shares used to calculate basic and
diluted income per share consists of the following as of December
31:
<TABLE>
<CAPTION>
1998 1997 1996
--------------- --------------- ---------------
<S> <C> <C> <C>
Basic weighted average shares of
common stock 9,399,656 8,373,310 8,044,581
Effect of dilutive securities:
Stock options and warrants -- 734,905 718,136
--------------- --------------- ---------------
Diluted weighted average shares of
common stock 9,399,656 9,108,215 8,762,717
--------------- --------------- ---------------
--------------- --------------- ---------------
</TABLE>
Common stock equivalents related to stock options and warrants
totaling 442,831, 37,572 and 263,984 are anti-dilutive and, therefore, were
not included in the diluted net loss per share calculation for the years
ended December 31, 1998, 1997 and 1996, respectively.
8 (Continued)
<PAGE>
TRIQUINT SEMICONDUCTOR, INC.
Notes to Consolidated Financial Statements
December 31, 1998 and 1997
(In thousands, except share information)
(m) 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.
(n) 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 accompanying 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.
(o) STOCK OPTION PLANS
The Company accounts for its stock option plans 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 the
underlying stock exceeded the exercise price. The Company also
applies 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.
(p) RECLASSIFICATIONS
Certain reclassifications have been made to the 1996 and 1997
statements to conform with the 1998 presentation.
9 (Continued)
<PAGE>
TRIQUINT SEMICONDUCTOR, INC.
Notes to Consolidated Financial Statements
December 31, 1998 and 1997
(In thousands, except share information)
(2) MILLIMETER WAVE COMMUNICATIONS ACQUISITION
On January 13, 1998, the Company acquired substantially all of the assets
of the Millimeter Wave Communications operation of the former Texas
Instruments' Defense Systems and Electronics Group from Raytheon TI
Systems, Inc. (RTIS), a Delaware corporation and a wholly owned
subsidiary of Raytheon company. The Millimeter Wave Communications
business designs, develops, produces and sells advanced GaAs MMIC
products which are used in defense and commercial applications. Pursuant
to an Asset Purchase Agreement (the Agreement) with RTIS, the Company
acquired the Millimeter Wave Communications 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. The cash portion of the purchase price was
financed through an operating lease arrangement involving certain assets
pursuant to the Agreement.
The purchase accounting allocations resulted in charges for in-process
research and development of $8,820 recorded as a special charge, and
other intangibles of approximately $2,132. These other intangible assets,
classified as other non-current assets, are amortized on a straight-line
basis over 7 years, and are shown net of related accumulated amortization
of $362 and $-0- at December 31, 1998 and 1997, respectively.
The pro forma results shown below assume the acquisition described above
occurred as of the beginning of the earliest year presented, and exclude
special charges for in-process research and development totaling $8,820:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
------------------------------------------
1998 1997
------------------- -------------------
<S> <C> <C>
Revenues $ 112,407 95,170
Net income 4,417 4,383
Diluted net income per share .47 .44
</TABLE>
The pro forma results are not necessarily indicative of what actually
would have occurred had the acquisition been in effect for the periods
presented. In addition, they are not intended to be a projection of
future results that may be achieved from the combined operations.
10 (Continued)
<PAGE>
TRIQUINT SEMICONDUCTOR, INC.
Notes to Consolidated Financial Statements
December 31, 1998 and 1997
(In thousands, except share information)
(3) PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31
------------------------------------------
1998 1997
-------------------- -------------------
<S> <C> <C>
Machinery and equipment $ 47,539 40,834
Leasehold improvements 2,507 424
Building and equipment 103 --
Furniture and fixtures 1,657 1,556
Computer equipment 11,841 9,893
Assets in process 7,192 10,058
Other 619 618
------------------- -------------------
71,458 63,383
Less accumulated depreciation and amortization 40,929 36,148
------------------- -------------------
$ 30,529 27,235
------------------- -------------------
------------------- -------------------
</TABLE>
(4) CAPITAL LEASE AND INSTALLMENT NOTE OBLIGATIONS
At December 31, 1998 and 1997, the Company had outstanding $14,304 and
$7,595, respectively of capital leases and installment notes with
interest rates ranging from 7.9% to 9.9%. The notes are payable in
monthly installments of principal and interest through 2003 and are
secured by equipment with a net book value of $14,002 and $16,991 at
December 31, 1998 and 1997, respectively.
11 (Continued)
<PAGE>
TRIQUINT SEMICONDUCTOR, INC.
Notes to Consolidated Financial Statements
December 31, 1998 and 1997
(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, 1998 are as follows:
<TABLE>
<CAPTION>
INSTALLMENT
NOTES AND
CAPITAL OPERATING
LEASES LEASES
------------------- -------------------
<S> <C> <C>
Year ending:
1999 $ 5,944 10,024
2000 5,181 5,485
2001 3,091 3,195
2002 1,705 1,024
2003 389 --
------------------- -------------------
Total 16,310 $ 19,728
-------------------
-------------------
Less amounts representing interest 2,007
-------------------
Present value of minimum payments 14,303
Less current installments 4,934
-------------------
$ 9,369
-------------------
-------------------
</TABLE>
Balances applicable to capital leases and installment notes, which
are included in machinery and equipment, are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31
------------------------------------------
1998 1997
------------------- --------------------
<S> <C> <C>
Machinery and equipment $ 26,149 24,922
Less accumulated amortization 12,147 7,931
------------------- --------------------
$ 14,002 16,991
------------------- --------------------
------------------- --------------------
</TABLE>
Rent expense under operating leases was $9,779, $2,736 and $1,065
during the years ended December 31, 1998, 1997 and 1996, respectively.
12 (Continued)
<PAGE>
TRIQUINT SEMICONDUCTOR, INC.
Notes to Consolidated Financial Statements
December 31, 1998 and 1997
(In thousands, except share information)
The Company entered into a five year agreement to construct and lease an
office building and fabrication facility in Hillsboro, Oregon (Hillsboro
Facility) in 1996. Rent obligations began in February of 1997 and are
equal to the lessor's debt service costs. At the end of the lease term,
the Company may (i) renew the lease for up to five additional years, (ii)
exercise its purchase option, or (iii) cause the leased assets to be sold
to a third party whereby the Company guarantees up to a maximum of 85% of
the original cost. The future minimum lease payments stated above exclude
any payments required at the end of the lease term.
As part of the above lease, the Company restricted $40,163 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.
In 1997 and 1998, the Company entered into two-year agreements to lease
equipment in Dallas, Texas and Hillsboro, Oregon. Rent obligations are
equal to the lessor's debt service costs and will expire at the end of
the initial lease terms. At the end of the lease terms, the Company may
(i) renew the leases for up to three additional years, (ii) exercise its
purchase options, or (iii) cause the equipment to be sold to a third
party whereby the Company guarantees residual values to the lessor. The
future minimum lease payments stated above exclude any payments required
at the end of the lease term. The Company intends to renew the leases for
three additional years at the end of each initial lease term.
(5) 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, bankers' 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, 2000. No amount was outstanding on the line
of credit at December 31, 1998 or 1997. The line of credit is subject to
loan covenants for which the Company is in compliance at December 31,
1998 and 1997.
13 (Continued)
<PAGE>
TRIQUINT SEMICONDUCTOR, INC.
Notes to Consolidated Financial Statements
December 31, 1998 and 1997
(In thousands, except share information)
(6) SHAREHOLDERS' EQUITY
(a) STOCK OPTION PLANS AND EMPLOYEE STOCK PURCHASE PLANS
Under the 1987 and 1996 Stock Incentive Programs and the 1998
Nonstatutory Stock Option Plan (the Plans), the Company has
authorized the issuance of 1,897,768, 1,250,000 and 500,000 common
shares, respectively, of which a total of 302,881 shares are
available to grant. The Plans provide for the grant of incentive
stock options to officers and other employees of the Company or
any parent or subsidiary, and non-qualified stock options to
officers and other employees of the Company, directors, and
consultants of the Company. Subject to the discretion of the Board
of Directors, options granted under the Plans 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 Plans 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 Plans must be at
least 50% of the fair market value of the common stock on the date
of grant. However, it is the Company's practice to issue options
at fair market value. The terms of all options granted under the
Plans may not exceed ten years.
The fair value of each stock based compensation award is estimated
on the date of grant using the Black Scholes option-pricing model
assuming no dividend yield and the following weighted-average
assumptions for stock based compensation awards during the years
ended December 31:
<TABLE>
<CAPTION>
STOCK OPTION PLANS
-----------------------------------------------------
1998 1997 1996
--------------- --------------- ---------------
<S> <C> <C> <C>
Risk-free interest rate 5.2% 6.2% 6.3%
Expected lives in years 5 5 5
Expected volatility 62% 78% 75%
<CAPTION>
EMPLOYEE STOCK PURCHASE PLANS
-----------------------------------------------------
1998 1997 1996
--------------- --------------- ---------------
<S> <C> <C> <C>
Risk-free interest rate 4.8% 5.1% 5.3%
Expected lives in years .5 .5 .5
Expected volatility 66% 56% 57%
</TABLE>
14 (Continued)
<PAGE>
TRIQUINT SEMICONDUCTOR, INC.
Notes to Consolidated Financial Statements
December 31, 1998 and 1997
(In thousands, except share information)
The weighted average fair value of stock based compensation awards
under the various plans are as follows for the years ended
December 31:
<TABLE>
<CAPTION>
1998 1997 1996
--------------- --------------- ---------------
<S> <C> <C> <C>
Stock Options Plans $ 11 $ 16 $ 11
Employee Stock Purchase Plans $ 6 $ 15 $ 5
</TABLE>
The Company applies APB Opinion No. 25 in accounting for its Plans
and, accordingly, no compensation cost has been recognized for its
stock based compensation awards in the financial statements. Had
the Company determined compensation cost based on the fair value
at the date of grant for its stock based compensation awards 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
------------------------------------------------------
1998 1997 1996
---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Net income (loss) As reported $ (3,955) 6,860 6,287
Pro forma (8,314) 4,136 5,481
Diluted net income per share:
Basic As reported (.42) .82 .78
Pro forma (.88) .49 .68
Diluted As reported (.42) .75 .72
Pro forma (.88) .45 .62
</TABLE>
Pro forma net income (loss) reflects only stock based compensation
awards granted in 1998, 1997 and 1996. Therefore, the full impact
of calculating compensation cost for stock based compensation
awards 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, 1996 is
not considered and additional stock based compensation awards are
anticipated in future years.
15 (Continued)
<PAGE>
TRIQUINT SEMICONDUCTOR, INC.
Notes to Consolidated Financial Statements
December 31, 1998 and 1997
(In thousands, except share information)
Activity under the Company's stock option plans is as follows:
<TABLE>
<CAPTION>
WEIGHTED-
NUMBER AVERAGE
OF EXERCISE
SHARES PRICE
--------------- ---------------
<S> <C> <C>
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
Options:
Granted 1,621,167 19.13
Exercised (101,839) 4.88
Canceled (790,170) 22.53
---------------
Options outstanding at December 31, 1998 2,103,346 $ 15.80
---------------
---------------
</TABLE>
16 (Continued)
<PAGE>
TRIQUINT SEMICONDUCTOR, INC.
Notes to Consolidated Financial Statements
December 31, 1998 and 1997
(In thousands, except share information)
In September 1998, the Compensation Committee of the Board of
Directors adopted a resolution to offer employees holding stock
options for 883,212 shares the opportunity to exchange their
existing stock options for new stock options. The exchange allowed
employees to receive options for the same number of shares at
$16.125 per share, which exceeded the market price during the
employee decision period, instead of an average original exercise
price of $22.12. The new options vest over one to four years. The
offer was made because the Board of Directors believe the lower
priced options provide greater retention advantage and incentive.
Options for directors and officers were not repriced. Option
holders elected to exchange options covering 704,627 shares, which
is included as both options granted and canceled during 1998 in
the preceding table.
The following table summarizes information concerning stock
options outstanding and exercisable at December 31, 1998:
<TABLE>
<CAPTION>
NUMBER WEIGHTED- NUMBER
OUTSTANDING AVERAGE WEIGHTED- EXERCISABLE WEIGHTED-
RANGE OF AS OF REMAINING AVERAGE AS OF AVERAGE
EXERCISE DECEMBER 31, CONTRACTUAL EXERCISE DECEMBER 31, EXERCISE
PRICES 1998 LIFE PRICE 1998 PRICE
----------------------- ------------------- --------------- --------------- ----------------- ---------------
<S> <C> <C> <C> <C> <C>
$ 1.400 - 6.3750 395,766 5.04 $ 5.2101 385,999 $ 5.1837
6.500 - 15.8750 153,831 6.91 12.4425 117,667 12.1878
16.0000 - 16.1250 710,907 9.73 16.1249 10,164 16.1250
16.1875 - 21.0000 536,526 9.08 19.1873 84,759 19.2376
21.2500 - 40.0625 306,316 7.34 24.5012 102,697 25.7794
------------------- --------------- --------------- ----------------- ---------------
$ 1.4000 - 40.0625 2,103,346 8.13 $ 15.8029 701,286 $ 11.2321
------------------- --------------- --------------- ----------------- ---------------
------------------- --------------- --------------- ----------------- ---------------
</TABLE>
Under the 1992 and 1998 Employee Stock Purchase Plans (the
Purchase Plans), the Company has authorized the issuance of
600,000 common shares, of which 418,094 are available at December
31, 1998. The Purchase Plans allow eligible employees to purchase
the Company's common stock 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 value at the beginning
or end of each enrollment period.
17 (Continued)
<PAGE>
TRIQUINT SEMICONDUCTOR, INC.
Notes to Consolidated Financial Statements
December 31, 1998 and 1997
(In thousands, except share information)
(b) WARRANTS
On August 31, 1993, the Company issued a warrant to 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 purchase of up to 75,000 shares of
common stock at $24.00 per share and is exercisable through
December 2001.
(c) PREFERRED SHARES RIGHTS AGREEMENT
On June 30, 1998, the Company adopted a Preferred Shares Rights
Agreement (the "Agreement"). Pursuant to the Agreement, rights
were distributed as a dividend at the rate of one right for each
share of TriQuint common stock, par value $0.001 per share of the
Company held by stockholders of record as of the close of business
on July 24, 1998. The rights will expire on June 29, 2008, unless
redeemed or exchanged. Under the Agreement, each right initially
will entitle the registered holder to buy one unit of a share of
preferred stock for $125.00. The rights will become exercisable
only if a person or group (other than stockholders currently
owning 15% of the Company's common stock) acquires beneficial
ownership of 15% or more of Company's common stock, or commences a
tender offer or exchange offer upon consummation of which such
person or group would beneficially own 15% or more of the
Company's common stock.
(7) INCOME TAXES
The provision for income taxes consists of:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
-----------------------------------------------------------------
1998 1997 1996
------------------- ------------------- --------------------
<S> <C> <C> <C>
Current:
Federal $ -- $ 637 $ 145
State 94 200 86
Foreign -- 53 --
------------------- ------------------- --------------------
Total current 94 890 231
------------------- ------------------- --------------------
Deferred:
Federal --
State -- -- --
Foreign -- -- --
------------------- ------------------- --------------------
Total deferred -- -- --
------------------- ------------------- --------------------
Total $ 94 $ 890 $ 231
------------------- ------------------- --------------------
------------------- ------------------- --------------------
</TABLE>
18 (Continued)
<PAGE>
TRIQUINT SEMICONDUCTOR, INC.
Notes to Consolidated Financial Statements
December 31, 1998 and 1997
(In thousands, except share information)
The effective tax rate differs from the federal statutory income tax rate
as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
-----------------------------------------------------
1998 1997 1996
--------------- --------------- ---------------
<S> <C> <C> <C>
Tax computed at federal statutory rate (34.0)% 34.0% 34.0%
State income tax, net of federal effect (4.3) 4.4 4.4
Increase (decrease) in valuation allowance 55.8 (6.7) (16.3)
Differences between financial and tax reporting
for stock option exercises (13.3) (25.0) (19.2)
Other (1.8) 4.8 .6
--------------- --------------- ---------------
Effective tax rate 2.4% 11.5% 3.5%
--------------- --------------- ---------------
--------------- --------------- ---------------
</TABLE>
The deferred income tax provision (benefit) results from changes in
deferred tax assets and liabilities as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
-----------------------------------------------------
1998 1997 1996
--------------- --------------- ---------------
<S> <C> <C> <C>
Reserves not currently deductible $ (379) 382 (45)
Tax depreciation and amortization (1,813) (20,509) 384
Capital leases 7,896 20,417 --
Accrued liabilities (233) 231 85
Net operating loss carryforward (7,528) 207 801
Valuation allowance 2,207 (517) (1,060)
Other (150) (211) (165)
--------------- --------------- ---------------
Total $ -- -- --
--------------- --------------- ---------------
--------------- --------------- ---------------
</TABLE>
19 (Continued)
<PAGE>
TRIQUINT SEMICONDUCTOR, INC.
Notes to Consolidated Financial Statements
December 31, 1998 and 1997
(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
------------------------------------------
1998 1997
<S> <C> <C>
Deferred tax liabilities:
Amortization $ 686 --
Capital leases 28,313 20,417
------------------- -------------------
Total deferred tax liability 28,999 20,417
------------------- -------------------
Deferred tax assets:
Accounts receivable 81 75
Inventory 1,002 629
Accrued liabilities 628 395
Net operating loss carryforwards 16,805 9,277
Depreciation 22,031 19,532
Other 794 644
------------------- -------------------
Total deferred tax asset before
valuation allowance 41,341 30,552
Valuation allowance (12,342) (10,135)
------------------- -------------------
Total deferred tax asset 28,999 20,417
------------------- -------------------
Net deferred tax liability (asset) $ -- --
------------------- -------------------
------------------- -------------------
</TABLE>
The valuation allowance for deferred tax assets as of January 1, 1996 was
$11,712. The net change in total valuation allowance for the years ended
December 31, 1998, 1997 and 1996 was an increase (decrease) of $2,207,
$(517) and $(1,060), respectively. Approximately $5,151 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 option exercises are subsequently recognized.
At December 31, 1998, the Company had approximately $45,700 of net
operating loss carryforwards to offset against future income for federal
income tax purposes which expire from 2003 through 2018, and $22,003 for
Oregon state income tax purposes which expire in years 2006 through 2013.
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."
20 (Continued)
<PAGE>
TRIQUINT SEMICONDUCTOR, INC.
Notes to Consolidated Financial Statements
December 31, 1998 and 1997
(In thousands, except share information)
Consummation of the Company's initial public offering created an
ownership change that has resulted in approximately $12,600 of the pre -
1994 net operating loss carryforwards being limited to approximately
$1,750 per year. In addition, approximately $7,108 are further limited to
approximately $967 per year due to changes in the Company's ownership
structure during 1991.
(8) CONTINGENCIES
EMPLOYMENT AGREEMENTS
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, 1998, 1997 and 1996 the Company made no discretionary
matching contributions.
(10) CONCENTRATION OF RISK
(a) SUPPLIERS
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.
(b) CREDIT RISK
The Company generally sells its products to customers engaged in
the design and/or manufacture of high technology products either
recently introduced or not yet introduced to the marketplace.
Substantially all the Company's trade accounts receivable are due
from such sources.
21 (Continued)
<PAGE>
TRIQUINT SEMICONDUCTOR, INC.
Notes to Consolidated Financial Statements
December 31, 1998 and 1997
(In thousands, except share information)
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.
(11) SEGMENT INFORMATION
The Company has adopted SFAS No. 131, DISCLOSURES ABOUT SEGMENTS OF AN
ENTERPRISE AND RELATED Information. SFAS No. 131 establishes standards
for the reporting by public business enterprises of information about
operating segments, products and services, geographic areas and major
customers. The method for determining what information to report is based
on the way that management organizes the segments within the Company for
making operating decisions and assessing financial performance.
The Company's chief operating decision maker is considered to be the
President and Chief Executive Officer (CEO). The Company's CEO evaluates
both consolidated and disaggregated financial information in deciding how
to allocate resources and assess performance. The CEO uses certain
disaggregated financial information for the Company's three product
lines: Wireless Communications; Telecommunications and Data
Communications; and Millimeter Wave Communications.
The Company has aggregated its three product lines into a single
reportable segment as allowed under SFAS No. 131 because these product
lines have similar long-term economic characteristics, such as average
gross margin, and product lines are similar in regards to (a) nature of
products and production processes, (b) type of customers, and (c) method
used to distribute products.
Accordingly, the Company describes its reportable segment as gallium
arsenide integrated circuits for the communications market. All of the
Company's revenues result from sales in its product lines. The Company's
operating expenses are allocated to its three product lines, with the
exception of certain manufacturing variances (cost of goods sold) and, to
a lesser extent, certain general and administrative expenses for all
years presented and, for 1998, the Company's legal settlement discussed
in note 12. Unallocated Corporate operating expenses totaled $12,103,
$8,538 and $4,651 for the years ended December 31, 1998, 1997 and 1996,
respectively. In addition, all non-operating income and expenses are
recorded in Corporate. The Company does not allocate assets to its
product lines.
Revenues by product line (as defined by the Company) as a
percentage of total revenues for years ended December 31, 1998,
1997 and 1996 were as follows: Wireless Communications, 45%, 47%
and 49%, respectively; Telecommunications and Data Communications,
18%, 53% and 51%, respectively; Millimeter Wave Communications,
37%, -0-% and -0-%, respectively.
Revenues outside of the United States were approximately $26,800,
$24,300 and $18,100 in 1998, 1997 and 1996, respectively, of which
sales to Canada comprised $10,524, $ 8,527 and $6,100, respectively.
There were no other foreign countries to which sales represented 5% or
more of total revenues.
22 (Continued)
<PAGE>
TRIQUINT SEMICONDUCTOR, INC.
(In thousands, except share information)
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
-----------------------------------------------------
1998 1997 1996
--------------- --------------- ---------------
<S> <C> <C> <C>
Customer A 10% 12% 12%
Customer B -- -- 17
Customer C -- -- 13
Customer D 12 -- --
Customer E 12 -- --
</TABLE>
Related receivables from such customers were 26% and 31% of trade
accounts receivable at December 31, 1998 and 1997, respectively.
(12) LITIGATION
SETTLEMENT OF LAWSUIT
On July 12, 1994, a stockholder class action lawsuit was filed
against the Company, its underwriters, and certain of its
officers, directors and investors in the United States District
Court for the Northern District of California. The suit alleged
that the Company, its underwriters, and certain of its officers,
directors and investors intentionally misled the investing public
regarding the financial prospects of the Company. Following the
filing of the complaint, the plaintiffs dismissed without
prejudice a director defendant, the principal stockholder
defendant, the underwriter defendants and certain analyst
defendants. During 1998, the Company settled the action and
recorded a special charge of $1,400 associated with the settlement
of the lawsuit and the related legal expenses, net of accruals.
From time to time the Company is involved in various claims and
legal actions arising in the ordinary course of business. In the
opinion of management, the ultimate disposition of these matters
will not have a material effect on the Company's consolidated
financial position, results of operations or cash flows.
(13) SUBSEQUENT EVENT
On February 26, 1999, a lawsuit was filed against 88 firms,
including the Company, in the United States District Court for
the District of Arizona. The suit alleges that the defendants
infringe upon certain patents held by The Lemelson Medical,
Education and Research Foundation, Limited Partnership. The
Company believes the suit is without merit and intends to
vigorously defend itself against the charges.
23
<PAGE>
TRIQUINT SEMICONDUCTOR, INC. SUPPLEMENTARY
UNAUDITED FINANCIAL DATA
IN THOUSANDS, EXCEPT PER SHARE AMOUNTS
<TABLE>
<CAPTION>
1998 1997
Q4 Q3 Q2 Q1 Q4 Q3 Q2 Q1
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total revenues $30,938 $29,112 $27,874 $23,681 $18,454 $17,569 $18,544 $16,800
Operating costs and expenses:
Cost of goods sold 18,900 17,933 17,610 18,341 11,097 10,242 9,559 9,130
Research, development and engineering 4,917 4,568 5,075 4,424 3,050 2,668 3,257 2,543
Selling, general and administrative 4,654 4,288 3,560 3,460 3,574 3,856 3,332 3,426
Special charges - - - 10,220 - - - -
---------------------------------------------------------------------------------------
Total operating costs and expenses 28,471 26,789 26,245 36,445 17,721 16,766 16,148 15,099
Income from operations 2,467 2,323 1,629 (12,764) 733 803 2,396 1,701
Other income, net 1,002 567 441 474 558 511 508 540
---------------------------------------------------------------------------------------
Income before income taxes 3,469 2,890 2,070 (12,290) 1,291 1,314 2,904 2,241
Income tax expense(benefit) - 29 65 - (222) - 638 474
---------------------------------------------------------------------------------------
Net income $3,469 $2,861 $2,005 ($12,290) $1,513 $1,314 $2,266 $1,767
---------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------
PER SHARE DATA:
Net income:
Basic $0.37 $0.30 $0.21 ($1.33) $0.18 $0.16 $0.27 $0.22
Diluted $0.35 $0.29 $0.21 ($1.33) $0.17 $0.14 $0.25 $0.20
Weighted average shares:
Basic 9,497 9,453 9,401 9,245 8,486 8,425 8,340 8,234
Diluted 9,920 9,802 9,724 9,245 8,994 9,231 9,129 9,020
- -----------------------------------------------------------------------------------------------------------------------------------
</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 26, 1999, there were 235 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 could limit the Company's ability to pay cash dividends or make
stock repurchases. 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>
AREA SALES OFFICES
NORTH AMERICA
NORTHWEST AREA (408) 370-6125 Telephone
TriQuint Semiconductor (408) 370-6140 Fax
Heritage Village Offices
51 E. Campbell Ave., Ste. 100-G
Campbell, CA 95008
EASTERN AREA (919) 380-0805 Telephone
TriQuint Semiconductor (919) 380-7009 Fax
1135 Kildaire Farm Road, Suite 200
Cary, NC 27511
SOUTHWEST AREA (310) 648-6681 Telephone
TriQuint Semiconductor (310) 648-6687 Fax
2250 E. Imperial Hwy., Ste. 200
El Segundo, CA 90245
MAJOR ACCOUNT SALES (610) 668-6781 Telephone
TriQuint Semiconductor (610) 668-6782 Fax
1637 Oakwood Drive, Ste. S-419
Penn Valley, PA 19072
EUROPE
TriQuint Semiconductor (33) 4-9359-2424 Telephone
1345 Route De La Colle (33) 4-9359-2425 Fax
06140 Tourrettes Sur Loup
France
TriQuint Semiconductor (49) 8071-93504 Telephone
Birkenweg 6 (49) 8071-93505 Fax
Bachmehring, Eiselfing
West Germany D-83549
ASIA
TriQuint Semiconductor (503) 615-9115 Telephone
2300 NE Brookwood Parkway (503) 615-8901 Fax
Hillsboro, OR 97124
<PAGE>
GENERAL INFORMATION
BOARD OF DIRECTORS EXECUTIVE OFFICERS
STEVEN J. SHARP STEVEN J. SHARP
Chairman of the Board, President Chairman of the Board, President
and Chief Executive Officer, and Chief Executive Officer
TriQuint Semiconductor, Inc.
EDWARD C. V. WINN
PAUL A. GARY Executive Vice President Finance and
Retired Executive of AT&T Administration, Chief Financial Officer
and Secretary
CHARLES SCOTT GIBSON
Consultant THOMAS V. CORDNER
Vice President & General Manager
E. FLOYD KVAMME Millimeter Wave
General Partner
Kleiner Perkins Caufield & Byers BRUCE FOURNIER
Venture Capital Firm Vice President and General Manager
Foundry
WALDEN C. RHINES
President and Chief Executive Officer PAUL KOLLAR
Mentor Graphics Corporation Vice President, Sales
EDWARD TUCK DONALD H. MOHN
General Partner Vice President and General Manager
Kinship Venture Management, LLP Telecommunications & Computing
J. DAVID PYE
Vice President, Manufacturing
E. K. RANJIT
Vice President Finance, Treasurer and
Assistant Secretary
RONALD R. RUEBUSCH
Vice President and General Manager
Wireless Communications
<PAGE>
ANNUAL MEETING
The Company's Annual Meeting of Shareholders will be held on Wednesday, May 26,
1999 at 2:00 p.m. (PDT) at the Company's principal executive offices, located at
2300 NE Brookwood Parkway, Hillsboro, Oregon, 97124.
FORM 10K
A copy of the Company's Form 10-K as filed with the Securities and Exchange
Commission, is available free of charge by calling the Investor Relations number
below.
CORPORATE HEADQUARTERS
2300 NE Brookwood Parkway
Hillsboro, Oregon 97124
Phone: (503) 615-9000
Fax: (503) 615-8900
INVESTOR RELATIONS
E. K. Ranjit
(503) 615-9414
Heidi Flannery
(503) 844-8888
TRANSFER AGENT
ChaseMellon
Shareholder Services
Seattle, WA
INDEPENDENT PUBLIC ACCOUNTANTS
KPMG Peat Marwick LLP
Portland, Oregon
LEGAL COUNSEL
Wilson Sonsini Goodrich & Rosati
Palo Alto, California
<PAGE>
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
TriQuint Semiconductor, Inc.:
We consent to the incorporation by reference in the Registration Statements
(Nos. 33-75464, 333-08893, 333-08891, 333-31585, 333-48883, 333-02166,
333-66707 and 333-74617) on Form S-8 of TriQuint Semiconductor, Inc. of our
reports dated February 11, 1999, except as to note 13 which is as of February
26, 1999, relating to the consolidated balance sheets of TriQuint
Semiconductor, Inc. as of December 31, 1998 and 1997, and the related
consolidated statements of operations, shareholders' equity, and cash flows
and related consolidated financial statement schedule for each of the years
in the three-year period ended December 31, 1998, which reports appear in the
December 31, 1998 annual report on Form 10-K of TriQuint Semiconductor, Inc.
KPMG Peat Marwick LLP
Portland, Oregon
March 31, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1998 AND
THE BALANCE SHEET AS OF DECEMBER 31, 1998 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-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 14,602
<SECURITIES> 11,460
<RECEIVABLES> 21,282
<ALLOWANCES> (262)
<INVENTORY> 19,706
<CURRENT-ASSETS> 68,816
<PP&E> 71,458
<DEPRECIATION> (40,929)
<TOTAL-ASSETS> 141,306
<CURRENT-LIABILITIES> 24,322
<BONDS> 9,369
0
0
<COMMON> 133,592
<OTHER-SE> (25,977)
<TOTAL-LIABILITY-AND-EQUITY> 141,306
<SALES> 111,605
<TOTAL-REVENUES> 111,605
<CGS> 72,784
<TOTAL-COSTS> 117,950
<OTHER-EXPENSES> (563)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,454
<INCOME-PRETAX> (3,861)
<INCOME-TAX> 94
<INCOME-CONTINUING> (3,955)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,955)
<EPS-PRIMARY> (0.42)
<EPS-DILUTED> (0.42)
</TABLE>
