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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
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/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED
DECEMBER 31, 1999 OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD
FROM ---------- TO ----------
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COMMISSION FILE NUMBER: 0-22660
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TRIQUINT SEMICONDUCTOR, INC.
(Exact name of registrant as specified in its charter)
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DELAWARE 95-3654013
(State or other jurisdiction (I.R.S. Employer Identification Number)
of incorporation or organization)
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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)
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Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes /X/ No / /
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. /X/
The aggregate market value of the voting stock held by non-affiliates of the
registrant, based upon the closing sale price of the Common Stock on
February 11, 2000 as reported on the Nasdaq Stock Market's National Market, was
approximately $4,867,612,470. 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 December 31, 1999, registrant had outstanding 18,921,720 shares of
Common Stock.
The Index to Exhibits appears on page 42 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 for its 2000 Annual Meeting of Stockholders.
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TRIQUINT SEMICONDUCTOR, INC.
1999 ANNUAL REPORT ON FORM 10-K
TABLE OF CONTENTS
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PART I
ITEM 1. BUSINESS.................................................... 3
ITEM 2. PROPERTIES.................................................. 17
ITEM 3. LEGAL PROCEEDINGS........................................... 18
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS......... 18
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS....................................... 19
ITEM 6. SELECTED FINANCIAL DATA..................................... 20
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS................................. 21
ITEM 7(a). QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK...................................................... 40
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.... 40
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE.................................. 40
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.......... 40
ITEM 11. EXECUTIVE COMPENSATION...................................... 40
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT................................................ 41
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.............. 41
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM
8K........................................................ 41
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PART I
FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K, including the sections entitled
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business" contains forward-looking statements about TriQuint
Semiconductor, Inc. These statements relate to future events or our future
financial performance and involve known and unknown risks, uncertainties and
other factors that may cause our or our industry's actual results, levels of
activity, performance or achievements to be materially different from any future
results, levels of activity, performance or achievements expressed or implied by
these forward-looking statements. These risks and other factors include, among
other things, those listed under "Risk Factors" and elsewhere in this Annual
Report on Form 10-K. In some cases, you can identify forward-looking statements
by terminology such as "may," "will," "should," "expects," "plans,"
"anticipates," "believes," "estimates," "predicts," "potential," "continue,"
"our future success depends," "seek to continue" or the negative of these terms
or other comparable terminology. These statements are only predictions. Actual
events or results may differ materially. In evaluating these statements, you
should specifically consider various factors, including the risks outlined under
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Factors Affecting Future Operating Results." These factors may cause
our actual results to differ materially from any forward-looking statement.
Although we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results, levels of
activity, performance or achievements. Moreover, neither we nor any other person
assumes responsibility for the accuracy and completeness of these statements. We
are under no duty to update any of the forward-looking statements after the date
of this Annual Report on Form 10-K to conform these statements to actual
results.
ITEM 1. BUSINESS
OVERVIEW
TriQuint designs, develops, manufactures and markets a broad range of high
performance analog and mixed signal integrated circuits for communications
markets. Our integrated circuits are incorporated into a variety of
communications products, including cellular phones and pagers, fiber optic
telecommunications equipment, satellite communications systems, high performance
data networking products and aerospace applications. We use our proprietary
gallium arsenide technology to enable our products to overcome the performance
barriers of silicon devices in a variety of applications. Gallium arsenide has
inherent physical properties that allow its electrons to move up to five times
faster than those of silicon. This higher electron mobility permits the
manufacture of gallium arsenide integrated circuits that operate at much higher
speeds than silicon devices, or operate at the same speeds with reduced power
consumption. We sell our products worldwide to end user customers, including
Ericsson, Hughes, Lucent, Motorola, Nokia, Nortel, QUALCOMM and Raytheon.
We own and operate advanced wafer fabrication facilities and utilize
proprietary processes designed to enable us to cost effectively produce analog
and mixed signal integrated circuits in high volumes. We believe that control of
wafer fabrication assures a reliable source of supply and provides greater
opportunities to enhance quality and reliability and achieve manufacturing
efficiency. In addition, this control can facilitate new process and product
development and enables us to be more responsive to customer requirements. Our
wafer fabrication capabilities have allowed us to establish a strategic foundry
business serving leading communications companies. Our foundry business
leverages our extensive library of proprietary analog and mixed signal cells and
our advanced integrated circuit manufacturing processes.
We are incorporated under the laws of the state of Delaware. Our principal
executive offices are located at 2300 N.E. Brookwood Parkway, Hillsboro, Oregon
97124, and our telephone number is (503) 615-9000.
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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"), handheld navigation products based on the global
positioning satellite ("GPS") standard, satellite communications, wireless local
area networks ("WLANs"), wireless internet and cable television/cable modem. 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. We believe the increasing demand for wireless
communications at higher frequencies, will lead to entirely new high volume
applications.
The telecommunications industry is encountering increasing demand for higher
transmission rates and increased capacity to accommodate the growth of
traditional voice traffic and higher levels of data traffic arising from
widely-used applications such as facsimile communications, computer networking
and online and Internet services. Today's advanced telecommunications systems
employ high speed switching networks and fiber optic cable operating in
accordance with high frequency standards such as synchronous optical network
("SONET"), Synchronous Digital Hierarchy ("SDH"), integrated services digital
network ("ISDN") and the asynchronous transfer mode ("ATM") standard. For
example, high performance SONET telecommunications systems can operate at
frequencies of 10 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 equipment 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
gallium arsenide monolithic microwave integrated circuit 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 advanced
electronic systems have been silicon-based complementary metal oxide
semiconductor ("CMOS"), bipolar complementary metal oxide semiconductor
("BiCMOS") and emitter coupled logic ("ECL") process technologies. However, the
newest generation of high performance electronic systems requires further
advances in semiconductor performance. One way to improve performance is to
combine analog and digital circuitry on the same device. This combination, known
as mixed signal technology, can provide higher levels of integration (smaller
size and increased functionality), reduced power consumption and higher
operating frequencies. Notwithstanding the benefits of mixed signal technology,
the performance requirements of certain critical system functions generally
cannot be
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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.
Gallium arsenide semiconductor technology has emerged as an effective
alternative or complement to silicon solutions in many high performance
applications. Gallium arsenide 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 gallium arsenide 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 gallium arsenide semiconductor fabrication include metal
semiconductor field effect transistor ("MESFET"), psuedomorphic high electron
mobility transistor ("pHEMT"), heterojunction bipolar transistor ("HBT") and
heterostructure field effect transistor ("HFET"). In many new applications,
gallium arsenide 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 gallium arsenide integrated circuits can reduce system power
requirements, which is particularly important in battery powered portable
applications. The high performance characteristics of gallium arsenide, combined
with the system requirements of the communications industry, have led to the use
of gallium arsenide components in high volumes to complement silicon devices in
a wide range of commercial and aerospace systems.
We believe that the continuation and acceleration of these trends will
result in increasing demand for gallium arsenide integrated circuits, thereby
creating substantial opportunities for market-focused manufacturers who can
provide a broad range of cost effective gallium arsenide integrated circuits in
high volume.
WIRELESS COMMUNICATIONS
Gallium arsenide design and manufacturing technologies are being applied to
commercial communications in satellites, satellite receivers for TV broadcast,
wireless transceivers for internet access, 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. The speed of gallium arsenide
technology makes it well-suited for applications at these higher frequencies.
The superior ability of gallium arsenide to operate at higher frequencies
also makes it well suited for use in defense applications. In addition, other
key performance advantages of gallium arsenide 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
Gallium arsenide 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, gallium arsenide products provide better
price/performance value than silicon. The intrinsic electrical properties of
gallium arsenide result in higher speed, lower noise and less power consumption
compared to silicon.
We believe that the increasing use of fiber optic cable in
telecommunications and data communications systems has created a significant
growth opportunity for our gallium arsenide products. Because data
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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 gallium arsenide products.
The telecommunication industry has established a series of standards, most
notably SONET, ISDN and ATM, which define transmission rates, protocols, signal
quality and reliability. Gallium arsenide based products address the performance
requirements of these standards, as well as higher speed communication links
(2.48 Gbits/sec and above).
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 our 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.
MILLIMETER WAVE COMMUNICATIONS
A broad array of customers and applications are served by monolithic
microwave integrated circuits, including the development of monolithic microwave
integrated circuits 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 gallium arsenide monolithic
microwave integrated circuits 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.
TRIQUINT STRATEGY
We are a leading supplier of high performance gallium arsenide integrated
circuits for the wireless communications, telecommunications, data
communications and aerospace markets. Our products incorporate our proprietary
analog and mixed signal designs and our advanced gallium arsenide manufacturing
processes to address a broad range of applications and customers. Key elements
of our strategy include:
FOCUSING ON ANALOG AND MIXED SIGNAL DESIGN EXCELLENCE. We have made
substantial investments in our analog and mixed signal circuit design
capabilities. Our design staff has specialized expertise to address the needs of
each of our target markets. The foundation of our design resources is an
extensive library of digital and analog cells and associated software tools and
databases necessary to develop new products rapidly and cost effectively. We
believe that our analog and mixed signal design capabilities provide us with a
competitive advantage in designing and developing integrated circuits for
standard or customer specific products in our target markets.
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CONTINUING TO SERVE CUSTOMERS ACROSS A BROAD ARRAY OF APPLICATIONS IN
COMMUNICATIONS MARKETS. We offer a broad range of standard and customer
specific integrated circuits, as well as manufacturing and design services,
which address numerous end-user applications in a variety of communications
markets. The breadth of our offerings resulted in the direct delivery of
products and services to more than 500 customers during 1999. In addition, we
had over 20 customers that each contributed $1.0 million or more to our revenues
in 1999. We believe that our broad customer base and wide range of applications
provide us with significant insights into future customer requirements, which
facilitates the timely development of new products and services for our target
markets. This enables us to participate in emerging communications markets.
TARGETING HIGH GROWTH MARKETS WITH HIGH PERFORMANCE SOLUTIONS. We use our
advanced proprietary gallium arsenide technology to produce high performance
integrated circuits that are intended to overcome the performance limitations of
silicon devices in the wireless communications, telecommunications, data
communications and aerospace markets. We design and manufacture innovative
analog and mixed signal products that provide high performance solutions for
targeted applications within these growing markets. These applications require
integrated circuits that have one or more attributes of gallium arsenide
technology, such as low noise and high linearity for superior signal quality,
high speed for operation at higher frequencies and low power consumption for
battery powered portability.
OFFERING FOUNDRY SERVICES. We believe that our foundry capabilities are a
key element in forming long-term partnerships with our customers and enable us
to capitalize further on the growth in communications markets. We also believe
many semiconductor companies are embracing a manufacturing outsourcing model and
that, as a result, foundries will play an important role in the overall growth
of the semiconductor industry. We believe our ability to offer both leading edge
analog and mixed signal devices, as well as state-of-the-art gallium arsenide
processes, is a key competitive advantage. We seek to continue to expand our
foundry capabilities, including our integrated circuit manufacturing,
post-fabrication and product engineering services, in order to meet the rigorous
demands of our customers. For example, we have entered into agreements with a
number of design firms to offer design services to our customers. These
agreements enable us to enhance the value of our services without significantly
increasing overhead. We currently provide foundry services for, among others,
Ericsson, Lucent, Motorola and QUALCOMM.
CAPITALIZING ON PARTNERSHIPS WITH INDUSTRY LEADERS IN OUR TARGET
MARKETS. We seek to continue to establish and maintain close working
relationships with industry leaders in each of our target market segments. We
also intend to establish strategic relationships with companies that provide
access to new technologies, products and markets. We have relationships with
leading manufacturers in our target markets such as Ericsson, Hughes, Lucent,
Nokia, Nortel, Philips and QUALCOMM.
TARGET MARKETS
We focus on commercial and aerospace applications in the wireless
communications, telecommunications, data communications and millimeter wave
communication markets, which can benefit significantly from the performance of
gallium arsenide and our analog and mixed signal design expertise.
WIRELESS COMMUNICATIONS. Gallium arsenide design and manufacturing
technologies are being used in commercial communications applications such as
satellites, satellite receivers, wireless transceivers for data networks,
wireless local area networks, cellular telephones and pagers.
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. The speed of gallium arsenide
technology makes it well suited for applications at these higher frequencies.
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The ability of gallium arsenide to operate at higher frequencies also makes
it well suited for use in aerospace applications. In addition, other key
performance advantages of gallium arsenide over silicon in key wireless
communications system functions for both commercial and aerospace applications
are improved signal reception and transmission, better signal processing in
congested bands and greater power efficiency for longer battery life in portable
applications.
TELECOMMUNICATIONS. Gallium arsenide technologies are well suited for the
growing markets and applications that require the transmission or manipulation
of large amounts of information at high speeds with high data integrity. These
applications typically require customer specific solutions. These applications
include digital, analog and mixed signal functions and are found primarily in
the telecommunications industry, but also include other industries such as
instrumentation and aerospace. For many of these applications, we believe our
products enable these systems to achieve superior performance.
We believe that the increasing use of fiber optic cable in
telecommunications and data communications systems has created a significant
growth opportunity for our gallium arsenide products. Because data transmission
rates in fiber optic cable can be many times greater than those of copper lines,
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 by using gallium arsenide products such as those manufactured by us.
The telecommunications industry has established a series of standards that
define transmission rates, protocols, signal quality and reliability. These
standards include synchronous optical network, integrated services digital
network and asynchronous transfer mode. Gallium arsenide integrated circuits
address the performance requirements of these standards, as well as higher speed
communication standards (10 gigabits per second and above).
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 that require
transmission of large amounts of data at high speed include multimedia
computing, supercomputing, multiprocessor systems, interactive computer aided
design/computer aided manufacturing, medical imaging and high speed, high
resolution printing. As new applications requiring higher volume data transfer
have proliferated, the use of gallium arsenide technology has also increased.
Using our mixed signal technology, our products enable high speed data
transmission with high data integrity.
MILLIMETER WAVE COMMUNICATIONS. On January 13, 1998, we acquired from
Raytheon our Millimeter Wave Communications operation, which included
substantially all of the assets of the monolithic microwave integrated circuit
operations of Texas Instruments' former Defense Systems & Electronics Group. The
Millimeter Wave Communications operation designs, develops, manufactures and
markets advanced gallium arsenide integrated circuits that are used in
commercial applications such as wireless and satellite communications as well as
in aerospace systems.
We provide products that are used in applications for the digital radio
market. 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 local multipoint distribution systems for wireless
distribution of phone, video and two-way data services and the growing demand
for other high speed wireless networks.
PRODUCTS
Our broad range of standard and customer-specific integrated circuits,
combined with our 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 our target
markets.
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WIRELESS COMMUNICATIONS. Our 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 our proprietary gallium arsenide 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 our telecommunications products are
customer-specific, we also offer 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. We offer a wide variety of standard
Millimeter Wave Communications 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 our customers a variety of product options and services for
the development of customer-specific products (our "Foundry Services"). Services
offered by us 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. We focus the
development of our customer specific-products on our 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, we expect 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 us with detailed performance
specifications and TriQuint performs the complete design, development and
subsequent manufacturing of the integrated circuits. These designs are generated
using either our in-house design engineering group or independent third-party
design organizations qualified by us. Under the second method, TriQuint supplies
circuit design and process rules to our customer and the customer's internal
engineering staff designs products which TriQuint then manufactures.
Our Foundry Services support markets such as cellular and PCS handset and
infrastructure, including GSM, TDMA and CDMA; wireless data networks, including
ISM bands at 900Mhz, 2.4 Ghz and 5.8 Ghz; and telecomm and cable television
infrastructures with these types of products and services.
A substantial portion of our products is designed to address the needs of
individual customers. Frequent product introductions by systems manufacturers
make our future success dependent on our ability to select customer-specific
development projects which will result in sufficient production volume to enable
us to achieve manufacturing efficiencies. Because customer-specific products are
developed for unique applications, we expect that some of our 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 our failure to obtain
development contracts from customers whose systems achieve and sustain
commercial market success, our results of operations could be materially
adversely affected.
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DESIGN AND PROCESS TECHNOLOGY
In order to develop and introduce new products rapidly and cost-effectively
which address the needs of our target markets, we have made substantial
investments in building our capabilities in digital, analog and mixed signal
circuit design. We have developed an extensive library of digital and analog
cells and associated software tools and databases which it uses to facilitate
the design of our integrated circuits. We have 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. We believe that our 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.
Our manufacturing strategy is primarily to use high volume process
technologies which enables us to provide cost-effective, stable, uniform and
repeatable solutions for our customers. We provide advanced wafer manufacturing
processes. Unlike our gallium arsenide competitors who have typically
concentrated on either digital or analog products, we have 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 our products, we are able to enjoy the cost
advantages associated with standard high volume semiconductor manufacturing
practices. The core process technology in our Oregon wafer fabrication operation
employs all implanted structures, 4 micron metal pitch and 0.5 to 0.7 micron
geometries, involves 10 to 18 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 our Texas wafer
fabrication operation includes six 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.
We apply the technological advances within the silicon and related support
industries to our design and manufacturing processes. TriQuint utilizes popular
computer-aided design and process control tools and test equipment. We primarily
use standard silicon industry packages and subcontract our product assembly
operations.
CUSTOMERS
We have a broad customer base of leading systems manufacturers. We shipped
products or provided manufacturing services to more than 500 end user customers
and distributors in 1999. Our largest customers include Nokia, which accounted
for approximately 12.0%, and Raytheon, which accounted for approximately 11.7%,
of our total revenues in 1998. In 1999, Nokia accounted for approximately 21.0%
of our total revenues and Nortel accounted for approximately 17.3% of our total
revenues. No other single customer accounted for greater than 10% of total
revenues during these periods.
The following is a list of our customers that contributed $1.0 million or
more to our revenues in 1999:
<TABLE>
<S> <C>
Alcatel Motorola
Bosch Nokia
CellNet Data Systems Nortel
Ericsson Northrop Grumman
Giga Panasonic
Hittite Philips
Hughes QUALCOMM
Kyocera Raytheon
Lockheed Martin Rockwell
Lucent Siemens
Mini-Circuits
</TABLE>
10
<PAGE>
MANUFACTURING
Our Oregon wafer manufacturing facility is located in Hillsboro. We moved
our executive, administrative, test and technical offices to this 124,000 square
foot facility in the first quarter of 1997. The adjoining Hillsboro wafer
fabrication facility consists of an additional 38,000 square feet, of which
17,000 square feet are operated as a class 10 performance clean room.
We have begun to expand our Oregon wafer manufacturing facility. This
expansion will involve an approximately 35% increase in the clean room area
within our existing manufacturing complex and will cost approximately
$6.5 million, excluding equipment costs. We intend to use the additional clean
room floor space for expansion of our production of four-inch wafers and future
conversion to six-inch wafer manufacturing. We expect this facility expansion to
be complete in the second quarter of 2000.
Our Texas facility is located in Dallas. The Texas facility comprises
approximately 100,000 square feet, of which 15,000 square feet are operated as a
class 10 performance clean room. We sublease the Texas facility from Raytheon
through July 10, 2002. Raytheon leases the premises from Texas Instruments. We
have the right to renew our sublease of this facility for up to three additional
five-year periods if Raytheon exercises its rights to renew its lease from Texas
Instruments.
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 gallium arsenide 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 gallium arsenide wafers can lead
to higher processing losses than experienced with silicon wafers. To maximize
wafer yield and quality, we test our 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 our operating results.
Our operation of our 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. Our manufacturing yields vary significantly among our
products, depending upon a given product's complexity and our experience in
manufacturing such product. We have 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 our operating results.
Our employees have performed studies of the reliability of our processes and
have published more than 30 technical papers in the field. In October 1994, we
received the ISO 9001 Quality System Certification with respect to our
operations. We have successfully fabricated devices for "High Reliability"
applications in commercial and military spacecraft since 1988. Through
accelerated test techniques, we have 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 our 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 us is generally the same as that used in
a submicron silicon metal oxide semiconductor gallium arsenide fabrication
facility. While many of the process steps are also similar to those commonly
used in silicon wafer manufacturing, TriQuint's gallium arsenide manufacturing
process
11
<PAGE>
has important differences. The gallium arsenide process requires fewer steps and
may be conducted at lower temperatures than those typically required in high
performance silicon processes. Furthermore, gallium arsenide wafers require more
rigorous handling procedures than do silicon wafers.
The raw materials and equipment used in the production of our integrated
circuits are available from several suppliers. We currently have approximately
seven fully qualified wafer vendors, at least two of which are located in the
United States, and three fully qualified mask set vendors, all of which are
located in the United States.
We assemble our products using outside assembly contractors. Outside
assembly and tape and reel services for volume production are contracted to
eleven vendors, five of which are located in the United States. We purchase high
performance, multilayer ceramic packages from two vendors not located in the
United States. TriQuint believes it was the first supplier of gallium arsenide
integrated circuits to introduce plastic packages in volume production. We
currently purchase plastic packaging services from seven 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 our operating results.
SALES AND DISTRIBUTION
We sell our products through independent manufacturer's representatives and
distributors and through a direct sales staff. As of December 31, 1999, we had
22 independent manufacturer's representative firms and two distributors in North
America. Our 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
17 manufacturer's representatives and distributors in Europe and the Pacific
Rim. We have also established foreign sales and marketing offices in Germany and
France. Sales outside of the United States were $62.8 million, $26.8 million and
$24.3 million in 1999, 1998 and 1997, respectively. All international sales of
our 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 gallium arsenide in military applications, all export
sales must be licensed by the Office of Export Administration of the U.S.
Department of Commerce. Although we have experienced no difficulty in obtaining
these licenses, failure to obtain these licenses in the future could have a
material adverse effect on our results of operations.
We include in our backlog all purchase orders and contracts for products
requested by the customer for delivery within twelve months. Our 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. We also produce 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
Our 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
12
<PAGE>
networks, wireless modems, high performance switching, transmission and data
conversion products and data communications chipsets.
Our research, development and engineering expenses in 1999, 1998 and 1997
were approximately $22.0 million, $19.0 million and $11.5 million, respectively.
Expenses in 1998 related to research, development and engineering expenses
increased substantially from the level incurred in 1997 primarily due to the
inclusion of the new Millimeter Wave Communications operation. As of December
31, 1999, approximately 282 of our employees were engaged in activities related
to process and product research and development. We expect that we will continue
to spend substantial funds on research and development.
We are continually in the process of designing new and improved products to
maintain our competitive position. While we have patented a number of aspects of
our process technology, the market for our products is characterized by rapid
changes in both gallium arsenide and competing silicon process technologies.
Because of continual improvements in these technologies, we believe that our
future success will depend on our ability to continue to improve our products
and processes and develop new technologies in order to remain competitive.
Additionally, our future success will depend on our ability to develop and
introduce new products for our 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 us
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 our ongoing products
may be adversely affected by the competing products or technologies serving
markets addressed by our products. In addition, new product introductions
frequently depend on our development and implementation of new process
technologies. If we are unable to design, develop, manufacture and market new
products successfully, our future operating results will be adversely affected.
No assurance can be given that our product and process development efforts will
be successful or that our 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 our products have
historically decreased over the products' lives and are expected to continue to
do so. To offset such decreases, we rely 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 our or our customers' products do not achieve market acceptance, our
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, we expect intensified competition from existing silicon
device suppliers and the entry of new competition producing either silicon or
gallium arsenide components or components incorporating new technologies such as
silicon germanium. We currently compete against silicon products offered
principally by large semiconductor manufacturers such as AMCC, Motorola and
Philips. In addition, we also currently compete against other gallium arsenide
semiconductor manufacturers, such as Anadigics, Vitesse, RF MicroDevices,
Conexant and Raytheon. It is expected that additional future competition will
primarily come from large semiconductor companies that have developed gallium
arsenide integrated circuit capabilities such as Fujitsu, Motorola and NEC have.
Such companies have substantially greater technical, financial and marketing
resources and name recognition than we do. Increased competition could adversely
affect our revenue and profitability.
Gallium arsenide 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
13
<PAGE>
cellular telephone applications. As the lower frequency bands become more
crowded, more applications will utilize frequencies above 1 GHz. At such higher
frequencies, gallium arsenide integrated circuit solutions generally provide
superior performance as compared to silicon alternatives. TriQuint competes with
both gallium arsenide 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, our competition
comes from established silicon semiconductor companies and gallium arsenide
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, our 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.
Our prospective customers are typically systems designers and manufacturers
who are considering the use of gallium arsenide 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. We believe that it
currently competes favorably with respect to these factors. Due to the
proprietary nature of our products, competition occurs almost exclusively at the
system design stage. As a result, a design win by us or our competitors
typically limits further competition with respect to manufacturing a given
design. Some potential customers may be reluctant to adopt our products because
of perceived risks relating to gallium arsenide 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 our 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 gallium arsenide integrated circuits have inherent speed advantages over
silicon devices, the speed of products based upon silicon processes is
continually improving. Our products are generally sole sourced to our customers,
and our operating results could be adversely affected if our customers were to
develop other sources for our products.
The production of gallium arsenide 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 gallium arsenide
technology and higher unit costs associated with lower production volumes.
Although we have reduced production costs through decreasing raw wafer costs,
increasing fabrication yields and achieving higher volumes, there can be no
assurance that we will be able to continue to decrease production costs. In
addition, we believe our costs of producing gallium arsenide integrated circuits
will continue to exceed the costs associated with the production of silicon
devices. As a result, we must offer devices which provide superior performance
to that of silicon such that the perceived price/performance of our products is
competitive with silicon devices. There can be no assurance that we can continue
to identify markets which require performance superior to that offered by
silicon solutions or that we will continue to offer products which provide
sufficiently superior performance to offset the cost differentials.
PATENTS AND LICENSES
We aggressively seek the issuance of patents to protect inventions and
technology which are important to our business. We have 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, we acquired certain patents and also received licenses and
sublicenses for certain additional patents. In addition, we have both U.S. and
foreign registered trademarks. We also routinely protect our numerous original
mask sets under the copyright laws. There can be no assurance that our pending
patent or trademark applications will be allowed or that the issued or pending
patents will not be challenged or circumvented by competitors.
14
<PAGE>
Notwithstanding our active pursuit of patent protection, we believe that our
future success will depend primarily upon the technical expertise, creative
skills and management abilities of our officers and key employees rather than on
patent ownership. We also rely substantially on trade secrets and proprietary
technology to protect our technology and manufacturing know-how, and works
actively to foster continuing technological innovation to maintain and protect
our competitive position. There can be no assurance that our competitors will
not independently develop or patent substantially equivalent or superior
technologies.
On February 26, 1999, a lawsuit was filed against 88 firms, including
TriQuint, 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. We
believe that the suit is without merit and intend to vigorously defend our
company against the charges.
Our 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 our business. Adverse determinations in any litigation could subject
us to significant liabilities to third parties, require us to seek licenses from
third parties and prevent us from manufacturing and selling our products. Any of
these situations could have a material adverse effect on our 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
our manufacturing process. For our manufacturing facility located in Hillsboro,
Oregon, we provide our own manufacturing waste treatment and contract for
disposal of some materials. We are required by the State of Oregon Department of
Environmental Quality to report usage of environmentally hazardous materials.
At the Texas facility, we utilize Texas Instrument's industrial waste water
treatment facilities and services for the pre-treatment and discharge of waste
water generated by us, pursuant to the Asset Purchase Agreement dated
January 8, 1998. Our waste water streams are commingled with those of Texas
Instruments and are covered by the Texas Instruments waste water permit.
We believe that our activities conform to present environmental regulations.
Increasing public attention has, however, been focused on the environmental
impact of semiconductor operations. While we have not experienced any materially
adverse effects on our 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 us, or by
Texas Instruments with respect to the Texas facility, to adequately restrict the
discharge of hazardous substances could subject us to future liabilities or
could cause our manufacturing operations to be suspended.
EMPLOYEES
As of December 31, 1999, we employed a total of 802 persons, including 402
in manufacturing, 20 in quality and reliability, 282 in process, product and
development engineering, 34 in marketing and sales and 64 in finance and
administration. None of our employees are represented by a collective bargaining
agreement, nor have we experienced any work stoppage. We consider our relations
with employees to be good.
15
<PAGE>
EXECUTIVE OFFICERS
The names and positions of our current executive officers are as follows:
<TABLE>
<CAPTION>
POSITION
HELD
NAME CURRENT POSITION(S) WITH COMPANY SINCE
- ---- -------------------------------- -----
<S> <C> <C>
Steven J. Sharp................ Chairman of the Board of Directors, President and Chief 1992
Executive Officer
Edson H. Whitehurst, Jr........ Vice President, Finance and Administration and Chief 1999
Financial Officer
Thomas Cordner................. Vice President and General Manager, Millimeter Wave 1998
Communications
Bruce R. Fournier.............. Vice President and General Manager, Foundry Services 1998
Paul Kollar.................... Vice President, Sales 1998
David N. McQuiddy, Jr.......... Vice President, Research and Development 2000
Donald H. Mohn................. Vice President and General Manager, Telecommunications and 1995
Computing
J. David Pye................... Vice President, Operations 1996
Ronald R. Ruebusch............. Vice President and General Manager, Wireless Communications 1996
Stephanie J. Welty............. Vice President, Finance 1999
</TABLE>
Mr. Sharp joined TriQuint in September 1991 as President, Chief Executive
Officer and Director. In May 1992, he became Chairman of the Board of Directors.
For the prior eight years, he had served in various roles associated with
venture capital financed semiconductor companies. From April 1988 to June 1989,
Mr. Sharp was the founder and served as Chief Executive Officer of Power
Integrations, Inc., a semiconductor manufacturing company. Previously,
Mr. Sharp was employed for 14 years by Signetics Corporation, a semiconductor
manufacturer, and for nine years by Texas Instruments, a semiconductor
manufacturer. Mr. Sharp also serves as a director of Power Integrations. He
received a B.S. degree in Mechanical Engineering from Southern Methodist
University, an M.S. degree in Engineering Science from California Institute of
Technology and an M.B.A. from Stanford University.
Mr. Whitehurst has been our Vice President, Finance and Administration and
Chief Financial Officer since November 1999. Mr. Whitehurst had been Chief
Financial Officer of Programart Corporation from October 1996 to October 1999
and of Cadre Technologies from 1984 to October 1996. Previously, he held senior
financial and operations positions with Tektronix Inc., Signetics Corporation
(now Philips Semiconductor) and Corning Glass Works.
Mr. Cordner joined TriQuint as a result of the January 1998 acquisition of
the Millimeter Wave Communications business from Raytheon as Vice President and
General Manager of Millimeter Wave Communications. Mr. Cordner was an employee
of Texas Instruments for 32 years before joining TriQuint. He held various
management positions at Texas Instruments engineering and manufacturing. He
managed the GaAs Operations Group at Texas Instruments since the technology was
transferred from research to production in 1982. Mr. Cordner graduated from the
University of Texas at Arlington in 1969 with a B.S. degree in Mathematics.
Mr. Fournier has held the position of Vice President and General Manager,
Foundry Services since the group was formed in June 1998. From September 1994 to
June 1998 he held the position of Vice President, Sales. Mr. Fournier joined
TriQuint in June 1987 as the Eastern Area Sales Manager. In July 1991,
Mr. Fournier was promoted to National Sales Manager, Wireless Products and in
January 1994 was promoted to Director of World Wide Sales. Prior to joining
TriQuint, Mr. Fournier held various Marketing and Sales positions with Fairchild
Semiconductor and Honeywell. Mr. Fournier received an AS degree in Electrical
Engineering from the University of Maine in 1977, a B.S. degree in Business
Administration from the University of Maine in 1979 and an M.B.A. from the
University of Southern Maine in 1982.
16
<PAGE>
Mr. Kollar joined TriQuint in June 1998 as Vice President, Sales. From
November 1985 until March 1998, Mr. Kollar was Vice President, Sales for Lattice
Semiconductor, Inc. where he was responsible for worldwide sales. From
March 1969 to November 1985, Mr. Kollar was employed by Signetics Corp in a
variety of Sales and Marketing roles. Mr. Kollar received a B.S. degree in
Engineering from Harvey Mudd College and an M.S.E.E. degree from the University
of Southern California.
Dr. McQuiddy joined TriQuint in January 2000 as Vice President, Research and
Development. Most recently, Dr. McQuiddy worked with Raytheon where he was a
Senior Principal Fellow working in the field of RF/Microwave/Millimeter Wave.
Dr. McQuiddy joined Texas Instruments in 1968 and remained there until Raytheon
purchased its Defense Business Unit in July 1997. At Texas Instruments,
Dr. McQuiddy was responsible for directing internal research and development
investments in electro-optics, microwave/ millimeter-wave, and micro-electronics
technologies. He is an IEEE Fellow and presently serves on the IEEE USA R&D
Policy Committee. Mr. McQuiddy holds a B.S. from Vanderbilt University and an
M.S. and P.hD. in electrical engineering from the University of Alabama.
Mr. Mohn joined TriQuint in April 1995 as Vice President and General
Manager, Telecommunications and Computing. From July 1993 until June 1995,
Mr. Mohn was Vice President, Marketing for IC Works, Inc. where he was
responsible for product strategy development, tactical marketing, marketing
communications and public relations. From 1989 until July 1993, Mr. Mohn held
various positions at AT&T Microelectronics, with his last position there being
Director/General Manager of the Application Specific Standard Products Group.
Mr. Mohn received a B.S. degree in electrical engineering from the University of
Minnesota and an M.B.A. from the University of Dallas, Texas.
Mr. Pye joined TriQuint in May 1996 as Vice President, Operations. Prior to
joining TriQuint, Mr. Pye was Vice President and General Manager at VLSI
Technology from 1983 to 1996, where he served in various capacities. From 1973
to 1983, Mr. Pye worked at Texas Instruments, Inc., involved in process
engineering and process development. Mr. Pye holds a B.A. degree from Napier
College of Science and Technology in Edinburgh, Scotland.
Mr. Ruebusch joined TriQuint in May 1996 as Vice President and General
Manager, Wireless Communications. From 1993 to 1996, Mr. Ruebusch was Vice
President, Semiconductor Product Development at Celeritek, Inc. From 1991 to
1993, Mr. Ruebusch held management positions at Pacific Monolithics. Prior to
that, Mr. Ruebusch spent thirteen years in various management positions at
Advanced Micro Devices and Signetics Corp. Mr. Ruebusch holds B.S.E.E., M.S.E.E.
and M.B.A. degrees from the University of Santa Clara.
Ms. Welty has been our Vice President, Finance since September 1999.
Ms. Welty joined TriQuint in 1994 as Accounting Manager, and since 1996 has
served as Director of Information Systems. Previously she has held accounting
and controller positions at other high technology firms. Ms. Welty is a graduate
of the University of Washington and is a Certified Public Accountant.
ITEM 2. PROPERTIES
Our executive, administrative, test and technical offices are located in a
124,000 square foot leased facility in Hillsboro, Oregon. The Hillsboro wafer
fabrication facility consists of 38,000 square feet, of which 17,000 is operated
as a class 10 performance clean room.
We have begun a project to expand our Oregon wafer manufacturing facility.
This expansion will involve an approximately 35% increase in the clean room area
within the existing manufacturing complex and will cost approximately
$6.5 million, excluding equipment costs. The additional clean room floor space
will be used for expansion of production of four inch wafers and future
conversion to six inch (150 millimeter) wafer manufacturing. This facility
expansion is expected to be complete in the second quarter of 2000.
17
<PAGE>
In May 1996, we 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 our Hillsboro facility under an operating lease from Wolverine and provides
us with an option to purchase the property or renew our 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 us 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 us. These
investment securities are classified on our balance sheet as restricted
investments. In addition, restrictive covenants in the Agreement require us to
maintain (i) a total liability to tangible net worth ratio of not more than 1.50
to 1.00, (ii) minimum tangible net worth greater than $50.0 million and (iii)
more than $45.0 million cash and liquid investment securities, including
restricted securities. As of December 31, 1999, we were in compliance with the
covenants described above. We anticipate that we will be in compliance with the
covenants as of March 31, 2000. However, there can be no assurance that we will
continue to be in compliance with these covenants in the future.
In November 1997, we entered into a $1.5 million lease agreement for
additional land adjacent to our Hillsboro facility. Pursuant to the terms of
that agreement, USNB provided loans to Matisse to purchase the land, who in turn
leased it to us under a renewable one year lease agreement. The loan from USNB
is partially collateralized by a guarantee from us. The agreement contains
restrictive covenants substantially the same as those contained in our line of
credit. As of December 31, 1999 we were in compliance with the terms of the
agreement. However, there can be no assurance that we will continue to be in
compliance with these terms as of any subsequent date.
In January 1998, we acquired the Millimeter Wave Communications operations
of the former Texas Instruments' Defense Systems & Electronics Group from
Raytheon. 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 Raytheon, which leases the premises from Texas
Instruments, through July 10, 2002. We have the right to renew our sublease of
the Texas facility for up to three additional five year periods in the event
that Raytheon exercises its rights to renew its lease from Texas Instruments.
There can be no assurance, however, that Raytheon will extend its lease beyond
July 10, 2002.
In December 1999, we announced the acquisition of an approximately 17 acres
adjacent to our current location in Hillsboro, Oregon. The additional acreage
was acquired at a cost of approximately $4 million.
ITEM 3. LEGAL PROCEEDINGS
On February 26, 1999, a lawsuit was filed against 88 firms, including the
Company, in the United States District Court for the District of Arizona. The
suit alleges that the defendants infringe upon certain patents held by The
Lemelson Medical, Education and Research Foundation, Limited Partnership. We
believe that the suit is without merit and intend to vigorously defend TriQuint
against the charges.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On January 31, 2000, at a special meeting of stockholders of TriQuint, our
stockholders took the following action:
Approval of increase in number of authorized shares of common stock to
200,000,000.
For: 11,543,338
Abstain: 4,339,903
Against: 13,105
18
<PAGE>
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
PRICE RANGE OF COMMON STOCK
Our common stock has been traded on the Nasdaq National Market under the
symbol TQNT since December 13, 1993. The following table sets forth for the
periods indicated the high and low sale prices for our common stock, as reported
by the Nasdaq National Market, without giving effect to the two-for-one stock
split in the form of a stock dividend that will be paid on February 22, 2000.
<TABLE>
<CAPTION>
HIGH LOW
-------- --------
<S> <C> <C>
Fiscal year ended December 31, 1998:
First Quarter........................................... $ 18.33 $ 13.17
Second Quarter.......................................... 16.67 11.08
Third Quarter........................................... 14.42 9.67
Fourth Quarter.......................................... 15.08 7.33
Fiscal year ended December 31, 1999:
First Quarter........................................... $ 17.83 $ 10.33
Second Quarter.......................................... 40.83 12.42
Third Quarter........................................... 72.31 36.46
Fourth Quarter.......................................... 113.75 54.31
</TABLE>
On February 11, 2000, the last reported sale price of our common stock on
the Nasdaq National Market was $257.25. As of December 31, 1999, there were
18,921,720 shares of our common stock outstanding. As of February 1, 2000, there
were approximately 225 holders of record.
DIVIDEND POLICY
We have never declared or paid cash dividends on our capital stock and do
not anticipate paying cash dividends in the foreseeable future. We are
prohibited from paying cash dividends without the consent of our lenders.
19
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data set forth below should be read
together with "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and our financial statements and the related notes
included elsewhere in this Annual Report on Form 10-K. The selected consolidated
financial data set forth below as of December 31, 1999 and 1998 and for the
years ended December 31, 1999, 1998 and 1997 have been derived from our audited
financial statements included in this Annual Report on Form 10-K. The selected
consolidated financial data as of December 31, 1997, 1996, and 1995 and for the
years ended December 31, 1996 and 1995 are derived from our audited financial
statements that are not included or incorporated in this Annual Report on
Form 10-K. Our historical results are not necessarily indicative of results to
be expected for any future period.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Total revenues................................... $163,663 $111,605 $ 71,367 $ 59,526 $ 45,943
Operating costs and expenses:
Cost of goods sold............................. 95,069 72,784 40,028 34,258 25,509
Research, development and engineering.......... 21,976 18,984 11,518 10,858 9,210
Selling, general and administrative............ 23,524 15,962 14,188 10,975 9,009
Special charges................................ -- 10,220 -- -- --
-------- -------- -------- -------- --------
Total operating costs and expenses........... 140,569 117,950 65,734 56,091 43,728
-------- -------- -------- -------- --------
Income (loss) from operations................ 23,094 (6,345) 5,633 3,435 2,215
Other income, net................................ 6,278 2,484 2,117 3,083 930
-------- -------- -------- -------- --------
Income (loss) before income taxes............ 29,372 (3,861) 7,750 6,518 3,145
Income tax expense............................... 4,416 94 890 231 83
-------- -------- -------- -------- --------
Net income (loss)............................ $ 24,956 $ (3,955) $ 6,860 $ 6,287 $ 3,062
======== ======== ======== ======== ========
Per share data:
Net income (loss):
Basic........................................ $ 1.53 $ (0.28) $ 0.55 $ 0.52 $ 0.32
Diluted...................................... $ 1.34 $ (0.28) $ 0.50 $ 0.48 $ 0.28
Weighted average shares:
Basic........................................ 16,296 14,099 12,560 12,067 9,537
Diluted...................................... 18,584 14,099 13,662 13,144 10,856
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents........................ $ 76,873 $ 14,602 $ 18,734 $ 12,907 $ 35,051
Working capital.................................. 217,697 44,494 35,180 37,591 65,513
Total assets..................................... 339,941 141,306 121,418 107,596 94,024
Capital lease and installment note obligations,
less current installments...................... 4,783 9,369 12,550 9,891 7,392
Total stockholders' equity....................... 301,916 107,615 90,038 80,246 72,644
</TABLE>
20
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
YOU SHOULD READ THE FOLLOWING DISCUSSION AND ANALYSIS IN CONJUNCTION WITH
OUR FINANCIAL STATEMENTS AND THE RELATED NOTES INCLUDED ELSEWHERE IN THIS ANNUAL
REPORT ON FORM 10-K AND THE SELECTED CONSOLIDATED FINANCIAL DATA ABOVE. THE
DISCUSSION IN THIS ANNUAL REPORT ON FORM 10-K CONTAINS FORWARD-LOOKING
STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES. THESE FORWARD-LOOKING
STATEMENTS INCLUDE, AMONG OTHERS, THOSE STATEMENTS INCLUDING THE WORDS
"EXPECTS," "ANTICIPATES," "INTENDS," "BELIEVES" AND SIMILAR LANGUAGE. OUR ACTUAL
RESULTS COULD DIFFER MATERIALLY FROM THOSE DISCUSSED BELOW. FACTORS THAT COULD
CAUSE OR CONTRIBUTE TO THESE DIFFERENCES INCLUDE, BUT ARE NOT LIMITED TO, THE
RISKS DISCUSSED IN THE SECTION TITLED "--FACTORS AFFECTING FUTURE OPERATING
RESULTS" IN THIS ANNUAL REPORT ON FORM 10-K.
OVERVIEW
We are a leading supplier of high performance gallium arsenide integrated
circuits for the wireless communications, telecommunications, data
communications and aerospace markets. Our products incorporate our proprietary
analog and mixed signal designs and our advanced gallium arsenide manufacturing
processes to address a broad range of applications and customers. We sell our
products worldwide to end user customers, including Ericsson, Hughes, Lucent,
Motorola, Nokia, Nortel, QUALCOMM and Raytheon.
We recognize revenues on standard products when we ship them. With respect
to foundry and customer-specific products, we recognize revenues based on the
achievement of various design, manufacturing and other milestones. We recognize
revenues on cost plus contracts as we perform the work. We estimate and
establish allowances and reserves for product returns, warranty obligations,
excess and obsolete inventories, accounts receivable for which collection is
doubtful and price adjustments.
We sell our products through independent manufacturer representatives and
distributors, as well as our direct sales staff. As of December 31, 1999, we had
22 independent manufacturer representative firms and two distributors in North
America. Our seven person direct sales management staff provides sales direction
and support to manufacturer representatives and distributors. We have domestic
sales management offices in Los Angeles, California; Philadelphia, Pennsylvania;
Portland, Oregon; San Jose, California and Raleigh, North Carolina. Our
international business is supported by a network of 17 manufacturer
representatives and distributors in Europe and the Pacific Rim. We also have
sales and marketing offices in Germany and France.
We include in our backlog all purchase orders and contracts for products
requested by the customer for delivery within 12 months. Our 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. Our customers have canceled these
purchase contracts or rescheduled delivery dates in the past, and we expect that
these events may also occur in the future. In addition, we produce standard
semiconductors that frequently can be shipped from inventory within a short time
after receipt of an order. These orders may not be reflected in backlog, and
backlog as of any particular date may not necessarily be representative of
actual sales for any future period.
On January 13, 1998, we acquired our Millimeter Wave Communications
operation, which includes substantially all of the assets of the monolithic
microwave integrated circuit operations of Texas Instruments' former Defense
Systems & Electronics Group. We acquired our Millimeter Wave Communications
operation for approximately $19.5 million in cash and 1,266,919 shares of our
common stock then valued at approximately $19.5 million. We financed the cash
portion of the purchase price through an operating lease.
We accounted for the acquisition as a purchase and charged in-process
research and development of $8.8 million to our statement of operations and
recorded other intangibles of approximately $2.1 million
21
<PAGE>
on our balance sheet. We amortize these other intangible assets on a
straight-line basis over seven years. We recognized amortization expense of
approximately $295,000 in 1999 and $362,000 in 1998 related to these
intangibles. The following table presents the purchase price allocations
associated with the acquisition of the Millimeter Wave Communications operation
(in thousands):
<TABLE>
<S> <C>
Tangible assets............................................. $28,048
Workforce in place and purchased technology................. 2,132
In-process research and development......................... 8,820
-------
$39,000
=======
</TABLE>
We allocated the purchase price based on the fair value of the net tangible
and intangible assets acquired. In performing this allocation, we considered,
among other factors, the research and development projects in process at the
date of acquisition. The Millimeter Wave Communications operation's in-process
research and development program consisted of the development of its advanced
pseudomorphic high electron mobility transistor and heterojunction bipolar
transistor processes for millimeter wave applications. At the date of the
acquisition, the Millimeter Wave Communications operation's research and
development was not complete, and we expected total continuing research and
development commitments to complete the projects to be approximately
$11.0 million. The projects are still in process, and we had spent approximately
$4.2 million on these projects as of December 31, 1999. We anticipated these
projects to be successfully completed within three to four years of the
acquisition date. No significant changes in the foregoing schedule were
anticipated as of December 31, 1999. We determined the value assigned to
purchased in-process research and development by estimating the costs to develop
the Millimeter Wave Communications operation's purchased in-process research and
development into commercially viable products, estimating the resulting net cash
flows from the projects and discounting the net cash flows to their present
value. In estimating the value of qualifying in-process research and
development, we applied a stage of completion factor to exclude cash flows
related to development efforts that had not yet begun. We used a discount rate
of 75% for valuing the in-process research and development that was intended to
be commensurate with rates of return demanded by venture capital investors for
investments in start-up companies with similar risks to those of the in-process
products. Additionally, we believe the projects will require maintenance
expenditures if and when they reach a state of technological and commercial
feasibility.
In various quarters, our fiscal quarters ended on different days near the
end of each calendar quarter. For convenience, we have indicated in this Annual
Report on Form 10-K that fiscal quarter ends coincide with the end of each
calendar quarter.
22
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth the results of our operations expressed as a
percentage of total revenues. Our historical operating results are not
necessarily indicative of the results for any future period.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Total revenues............................................ 100.0% 100.0% 100.0%
Operating costs and expenses:
Cost of goods sold...................................... 58.1 65.2 56.1
Research, development and engineering................... 13.4 17.0 16.1
Selling, general and administrative..................... 14.4 14.3 19.9
Special charges......................................... -- 9.2 --
----- ----- -----
Total operating costs and expenses.................... 85.9 105.7 92.1
----- ----- -----
Income (loss) from operations......................... 14.1 (5.7) 7.9
Other income, net......................................... 3.8 2.2 3.0
----- ----- -----
Income (loss) before income taxes....................... 17.9 (3.5) 10.9
Income tax expense........................................ 2.7 0.1 1.3
----- ----- -----
Net income (loss)....................................... 15.2% (3.6)% 9.6%
===== ===== =====
</TABLE>
YEARS ENDED DECEMBER 31, 1999 AND 1998
TOTAL REVENUES
We derive revenues from the sale of standard and customer-specific products
and services. Our revenues also include non-recurring engineering revenues
relating to the development of customer-specific products. Total revenues
increased 46.6% to $163.7 million in 1999 from $111.6 million in 1998. The
increase in total revenues primarily reflected increased demand for our products
across all product lines and markets. Revenues increased 118%, 32%, 18% and 35%,
respectively, for our wireless communications products, telecommunications
products, millimeter wave products, and foundry services products from the
previous year. Domestic and international revenues were $100.9 million and $62.8
million, respectively, in 1999 as compared to $84.8 million and $26.8 million,
respectively, in 1998. We currently anticipate an overall increase in the volume
of product revenues from existing and new customers.
OPERATING COSTS AND EXPENSES
COST OF GOODS SOLD
Cost of goods sold includes all direct material, labor and overhead expenses
and certain production costs related to non-recurring engineering revenues. In
general, gross profit generated from the sale of customer-specific products and
from non-recurring engineering revenues is typically higher than gross profit
generated from the sale of standard products. The factors affecting product mix
include the relative demand in our various markets incorporating our
customer-specific products and standard products, as well as the number of
non-recurring contracts.
Cost of goods sold increased 30.6% to $95.1 million in 1999 from $72.8
million in 1998. Cost of goods sold decreased as a percentage of total revenues
to 58.1% in 1999 from 65.2% in 1998. The increase in absolute dollar value of
cost of goods sold was primarily attributable to the related increase in sales
volume. The decrease in cost of goods sold as a percentage of total revenues is
attributable to continuing improvements in production yields and increased
economies of scale associated with increased sales
23
<PAGE>
volumes. In addition, cost of goods sold for 1998 included nonrecurring costs
related to the relocation of our manufacturing facility to Hillsboro.
We have 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 we will be able to
maintain acceptable production yields in the future and, to the extent that we
do not achieve acceptable production yields, our operating results would be
materially adversely affected. The operation of our leased wafer fabrication
facilities 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 our
operating results.
RESEARCH, DEVELOPMENT AND ENGINEERING
Research, development and engineering expenses include the costs incurred in
the design of products associated with nonrecurring engineering revenues, as
well as ongoing product development and research and development expenses. Our
research, development and engineering expenses increased 15.8% in 1999 to $22.0
million from $19.0 million in 1998. Research, development and engineering
expenses as a percentage of total revenues decreased to 13.4% in 1999 from 17.0%
in 1998. The increase in research, development and engineering expenses on an
absolute dollar basis is primarily due to the addition of new employees and the
costs associated with the development of new products. The decrease in research,
development and engineering expenses as a percentage of total revenues was due
to revenues increasing at a faster rate than research, development and
engineering spending. We are committed to substantial investments in research,
development and engineering and expect these expenses will continue to increase
in absolute dollar amount in the future.
SELLING, GENERAL AND ADMINISTRATIVE
Selling, general and administrative expenses increased 47.4% to $23.5
million in 1999 from $16.0 million in 1998. Selling, general and administrative
expenses as a percentage of total revenues remained level at 14.4% in 1999
compared to 14.3% in 1998. The increase in selling, general and administrative
expenses on an absolute dollar basis was primarily attributable to increased
costs associated with the on-going development of infrastructure and business
support and increased selling costs associated with the increased sales volume.
SPECIAL CHARGES
In 1998, we recorded a write-off of in-process research and development of
$8.8 million associated with our acquisition of our Millimeter Wave
Communications business. In addition, during 1998, we settled a stockholder
class action filed in 1994 and recorded a 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 increased to $6.3 million in 1999 as compared to $2.5
million in 1998. This increase resulted primarily from increased interest income
on higher cash balances and decreased interest expense due to reductions in
long-term debt.
INCOME TAX EXPENSE
Income tax expense increased to $4.4 million in 1999 from $94,000 in 1998.
This increase in income tax expense was attributable to our increased
profitability, as reflected by the increase in income before income taxes.
24
<PAGE>
At December 31, 1999, we had federal and Oregon state net operating loss
carryforwards for tax reporting purposes of approximately $51.8 million and
$21.3 million, respectively. Our ability to use our 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 TriQuint as defined therein. See Note 7
of Notes to Consolidated Financial Statements.
YEARS ENDED DECEMBER 31, 1998 AND 1997
TOTAL REVENUES
Total revenues increased 56.4% to $111.6 million in 1998 from $71.4 million
in 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 were $84.8 million and $26.8 million in 1998, as compared
to $47.1 million and $24.3 million in 1997.
OPERATING COSTS AND EXPENSES
COST OF GOODS SOLD. Cost of goods sold increased 81.8% to $72.8 million in
1998 from $40.0 million in 1997. Cost of goods sold increased as a percentage of
total revenues to 65.2% in 1998 from 56.1% in 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 our Hillsboro wafer
fabrication facility. However, cost of goods sold, as a percentage of total
revenues, improved sequentially over each quarter of 1998 due to continued yield
improvements and increases in economies of scale from higher production volumes.
RESEARCH, DEVELOPMENT AND ENGINEERING. Our research, development and
engineering expenses increased 64.8% to $19.0 million in 1998 from
$11.5 million in 1997. Research, development and engineering expenses as a
percentage of total revenues increased to 17.0% in 1998 from 16.1% in 1997. The
increase in research, development and engineering expenses reflected the
inclusion of research, development and engineering expenses related to the newly
acquired Millimeter Wave Communications operation and increased product
development activities and nonrecurring engineering expenses.
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative
expenses increased 12.5% to $16.0 million in 1998 from $14.2 million in 1997.
Selling, general and administrative expenses decreased as a percentage of total
revenues to 14.3% in 1998 from 19.9% in 1997. The increase in absolute dollar
level of selling, general and administrative expenses was primarily attributable
to the inclusion of selling, general and administrative 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 selling, general and administrative expenses was due
to revenues increasing at a faster rate than these expenses.
SPECIAL CHARGES. During 1998, we recorded a one time write-off of
in-process research and development of $8.8 million. This charge was associated
with our acquisition of the Millimeter Wave Communications operation.
During 1998, we settled a stockholder class action filed in 1994 and
recorded a charge of $1.4 million associated with the settlement of this lawsuit
and related legal expenses, net of accruals and insurance proceeds.
25
<PAGE>
OTHER INCOME, NET
Other income, net for 1998 increased to $2.5 million as compared to
$2.1 million for 1997. This increase resulted primarily from lower interest
expense, gain on sale of assets and other miscellaneous receipts, partially
offset by lower interest income.
INCOME TAX EXPENSE
Income tax expense for 1998 decreased to $94,000 from $890,000 for 1997. The
decrease in income tax expense was attributable to our operating loss in 1998.
At December 31, 1998, we had federal and Oregon state net operating loss
carryforwards for tax reporting purposes of approximately $45.7 million and
$22.0 million.
QUARTERLY RESULTS OF OPERATIONS
The following table presents our operating results for each of the eight
quarters in the period ended December 31, 1999 as well as those results
expressed as a percentage of total revenues. The information for each of these
quarters is unaudited and has been prepared on the same basis as the audited
financial statements appearing elsewhere in this Annual Report on Form 10-K. In
the opinion of management, all necessary adjustments, consisting only of normal
recurring adjustments, have been included to present fairly the unaudited
quarterly results when read together with our audited financial statements and
the related notes. These operating results are not necessarily indicative of the
results of any future period.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-----------------------------------------------------------------------------------------
DEC. 31, SEPT. 30, JUNE 30, MARCH 31, DEC. 31, SEPT. 30, JUNE 30, MARCH 31,
1999 1999 1999 1999 1998 1998 1998 1998
-------- --------- -------- --------- -------- --------- -------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS
DATA:
Total revenues........................ $ 49,374 $ 42,483 $38,109 $ 33,695 $ 30,938 $ 29,112 $27,874 $ 23,681
Operating costs and expense:
Cost of goods sold.................. 26,931 24,384 22,803 20,951 18,900 17,933 17,610 18,341
Research, development and
engineering....................... 6,494 5,475 5,413 4,594 4,917 4,568 5,075 4,424
Selling, general and
administrative.................... 6,590 5,985 5,766 5,183 4,654 4,288 3,560 3,460
Special charges..................... -- -- -- -- -- -- -- 10,220
-------- -------- -------- -------- -------- -------- -------- --------
Total operating costs and
expenses........................ 40,015 35,844 33,982 30,728 28,471 26,789 26,245 36,445
Income (loss) from operations..... 9,359 6,639 4,127 2,967 2,467 2,323 1,629 (12,764)
Other income, net..................... 2,924 2,256 575 525 1,002 567 441 474
-------- -------- -------- -------- -------- -------- -------- --------
Income (loss) before income
taxes........................... 12,283 8,895 4,702 3,492 3,469 2,890 2,070 (12,290)
Income tax expense.................... 2,072 1,690 375 279 -- 29 65 --
-------- -------- -------- -------- -------- -------- -------- --------
Net income (loss)................. $ 10,211 $ 7,205 $ 4,327 $ 3,213 $ 3,469 $ 2,861 $ 2,005 $(12,290)
======== ======== ======== ======== ======== ======== ======== ========
AS A PERCENTAGE OF TOTAL REVENUES:
Total revenues........................ 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Operating costs and expenses:
Cost of goods sold.................. 54.5 57.4 59.8 62.2 61.1 61.6 63.2 77.4
Research, development and
engineering....................... 13.2 12.9 14.2 13.6 15.9 15.7 18.2 18.7
Selling, general and
administrative.................... 13.3 14.1 15.1 15.4 15.0 14.7 12.8 14.6
Special charges..................... -- -- -- -- -- -- -- 43.2
-------- -------- -------- -------- -------- -------- -------- --------
Total operating costs and
expenses........................ 81.0 84.4 89.1 91.2 92.0 92.0 94.2 153.9
Income (loss) from operations..... 19.0 15.6 10.9 8.8 8.0 8.0 5.8 (53.9)
Other income, net..................... 5.9 5.4 1.5 1.6 3.2 1.9 1.6 2.0
-------- -------- -------- -------- -------- -------- -------- --------
Income (loss) before income
taxes........................... 24.9 21.0 12.4 10.4 11.2 9.9 7.4 (51.9)
Income tax expense.................... 4.2 4.0 1.0 0.8 -- 0.1 0.2 --
-------- -------- -------- -------- -------- -------- -------- --------
Net income (loss)................. 20.7% 17.0% 11.4% 9.6% 11.2% 9.8% 7.2% (51.9)%
======== ======== ======== ======== ======== ======== ======== ========
</TABLE>
Our revenues increased in each of the eight quarters ended December 31,
1999. The lower gross margin of 22.6% in the three months ended March 31, 1998
was attributable to certain nonrecurring costs related to the relocation of our
wafer fabrication and manufacturing facilities to our new Hillsboro facility.
26
<PAGE>
In connection with the relocation, we realized lower than expected yields on
initial products manufactured in the new facility, lower than expected yields on
products built in the old fabrication facility during final operation and
equipment downtime on some equipment following transfer to the new facility.
Thereafter, improvements in production yields and increased economies of scale
associated with increased sales volume resulted in increasing gross margins. Our
research, development and engineering expense fluctuated from quarter to quarter
primarily as a result of the level of expenditures for design activities.
Selling, general and administrative expenses increased over the eight quarters
as sales volume increased and as we expanded our administrative and support
functions. The growth in other income, net in the quarters ended in
September 30, 1999 and December 31, 1999 reflects the investment of the proceeds
of our July 1999 offering of common stock.
We expect that our quarterly operating results will continue to fluctuate in
the future as a result of risk factors such as cancellation or delay of customer
orders or shipments, our success in achieving design wins in which our products
are designed into those of our customers, market acceptance of our products and
those of our customers, and the variability of the life cycles of our customers'
products. Any unfavorable changes in these or other factors could cause our
results of operations to suffer as some of these factors have had in the past.
Due to potential fluctuations, we believe that period to period comparisons of
our results of operations are not necessarily meaningful and should not be
relied upon as indicators of our future performance.
LIQUIDITY AND CAPITAL RESOURCES
We completed public offerings of our common stock in July 1999 and
September 1995, raising approximately $146.6 million and $48.1 million,
respectively, net of offering expenses. In December 1993 and January 1994, we
completed our initial public offering, raising approximately $16.7 million, net
of offering expenses. In addition, we have funded our operations to date through
other sales of equity, bank borrowing, equipment leases and cash flow from
operations. As of December 31, 1999, we had working capital of approximately
$217.7 million, including $193.3 million in cash, cash equivalents and
unrestricted investments.
We have available a $10.0 million unsecured revolving line of credit with a
financial institution. Restrictive covenants included in the line of credit
require us to maintain (a) a total liability to tangible net worth ratio of not
more than 1.50 to 1.00, (b) a current ratio of not less than 1.75 to 1.00,
(c) minimum tangible net worth greater than $220.8 million and (d) more than
$45.0 million of cash and investments, including restricted investments. As of
December 31, 1999 we were in compliance with the restrictive covenants contained
in and had no borrowings outstanding under the line of credit.
In May 1996, we entered into a five year synthetic lease through a
participation agreement with Wolverine Leasing Corp., Matisse Holding Company
and United States National Bank of Oregon ("USNB"). The lease provides for the
construction and occupancy of our headquarters and wafer fabrication facility in
Hillsboro under an operating lease from Wolverine and provides us with an option
to purchase the property or renew our lease for an additional five years. Under
the terms of the agreement, USNB and Matisse made loans to Wolverine, which in
turn advanced the funds to us for the construction of the Hillsboro facility and
other associated costs and expenses. The loan from USNB is collateralized by
investment securities we have pledged. These investment securities are
classified on our balance sheet as restricted investments. In addition,
restrictive covenants in the participation agreement require us to maintain
(a) a total liability to tangible net worth ratio of not more than 1.50 to 1.00,
(b) minimum tangible net worth greater than $50.0 million and (c) more than
$45.0 million of cash and liquid investment securities, including restricted
securities. As of December 31, 1999, we were in compliance with the covenants
described above.
In November 1997, we entered into a $1.5 million lease agreement for land
adjacent to our Hillsboro facility. Under the terms of that agreement, USNB
provided loans to Matisse to purchase the land, and
27
<PAGE>
Matisse in turn leased it to us under a renewable one year lease agreement. The
loan from USNB is partially collateralized by a guarantee from us. As of
December 31, 1999 we were in compliance with the terms of the agreement.
In January 1998, we acquired our Millimeter Wave Communications operation
for approximately $19.5 million in cash and 1,266,919 shares of our common stock
then valued at approximately $19.5 million. The cash portion of the purchase
price was financed through an operating lease.
The following table presents a summary of our cash flows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1999 1998 1997
--------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Net cash and cash equivalents provided by operating
activities................................................ $ 34,589 $ 10,218 $ 4,152
Net cash and cash equivalents provided (used) by investing
activities................................................ (121,457) (10,874) 3,266
Net cash and cash equivalents provided (used) by financing
activities................................................ 149,139 (3,476) (1,591)
--------- -------- -------
Net increase (decrease) in cash and cash equivalents........ $ 62,271 $ (4,132) $ 5,827
========= ======== =======
</TABLE>
The $34.6 million of cash provided by operating activities in 1999 related
primarily to net income of $25.0 million, as well as to increases in
depreciation and amortization of $7.4 million, deferred income taxes of $4.1
million and accounts payable and accrued expenses of $9.5 million. These were
offset by increases in accounts receivable of $5.9 million, inventories of $5.0
million and prepaid expenses and other assets of $470,000. The $10.2 million of
cash provided by operating activities in 1998 related primarily to a combined
increase in accounts payable and accrued expenses of $1.9 million, depreciation
and amortization of $5.9 million and a decrease in accounts receivable of
$939,000. This was offset by increases in inventories of $2.8 million, gain on
disposal of assets of $475,000 and a net loss of $4.0 million. Cash provided by
operating activities also included $8.8 million related to the special charges
associated with the acquisition of the Millimeter Wave Communications operations
business as an offset to the net changes in assets and liabilities. The $4.2
million of cash provided by operating activities in 1997 related primarily to
net income of $6.9 million, as well as to increases in depreciation and
amortization of $4.2 million and accounts payable and other accrued liabilities
of $207,000. These were offset by increases in accounts receivable, inventories,
and prepaid expenses and other assets of $4.0 million, $2.4 million and
$710,000, respectively.
The $121.5 million used in investing activities in 1999 related primarily to
the purchase of $317.3 million of investments and capital expenditures of
$15.3 million, offset in part by the sale and/or maturity of $212.3 million of
investments. The $10.9 million used in investing activities in 1998 related to
the purchase of $68.0 million of investments and capital expenditures of
$5.6 million, offset in part by the sale and/or maturity of $62.3 million of
investments. The $3.3 million provided by investing activities in 1997 related
to the sale of $46.3 million of investments and a decrease in restricted
investments of $504,000. These were offset in part by the purchase of
$42.4 million of investments and capital expenditures of $1.4 million. We will
continue to monitor interest rates to enhance return on our cash and short-term
investments while maintaining a high degree of liquidity.
The $149.1 million of cash provided by financing activities in 1999 related
primarily to the issuance of common stock of $154.3 million and was offset in
part by payment of principal on capital leases of $5.2 million. Cash used by
financing activities of $3.5 million and $1.6 million in 1998 and 1997,
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.
Cash used for capital expenditures in 1999 was approximately $16.5 million.
We anticipate that our capital equipment needs, including manufacturing and test
equipment, facilities expansion and computer
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hardware and software, will require additional expenditures of approximately
$60.9 million over the next twelve months. Our existing capital lease and
installment note obligations, which totalled $9.1 million as of December 31,
1999, relate to the financing of machinery and equipment. We did not establish
any new capital leases during 1999.
On February 14, 2000, we announced that we would offer approximately $275
million of convertible subordinated Notes due in 2007 to qualified institutional
buyers in a private placement. We believe that our current cash and cash
equivalent balances, together with cash anticipated to be generated from
operations and anticipated financing arrangements including the proceeds of the
offering if any, will satisfy our projected working capital and capital
expenditure requirements, at a minimum, for the next twelve months. However, we
may be required to finance any additional requirements through additional
equity, or debt financings or credit facilities. We may not be able to obtain
additional financing or credit facilities, or if these funds are available, they
may not be available on satisfactory terms.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for
Derivative Instruments and Hedging Activities." SFAS No. 133 establishes
accounting and reporting standards requiring that every derivative instrument be
recorded in the balance sheet as either an asset or liability measured at its
fair value. SFAS No. 133 also requires that changes in the derivative's fair
value be recognized currently in results of operations unless specific hedge
accounting criteria are met. SFAS No. 133 is effective for fiscal years
beginning after June 15, 1999. In June 1999, the FASB issued SFAS No. 137,
"Accounting for Derivative Instruments and Hedging Activities--Deferral of the
Effective Date of FASB Statement No. 133." SFAS No. 137 delayed the effective
date of SFAS No. 133 to fiscal years beginning after June 15, 2000. We do not
expect SFAS No. 133 to have a significant impact on our consolidated financial
statements.
FACTORS AFFECTING FUTURE OPERATING RESULTS
OUR OPERATING RESULTS MAY FLUCTUATE SUBSTANTIALLY, WHICH MAY CAUSE OUR STOCK
PRICE TO FALL.
Our 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, but
not limited to, the following:
- cancellation or delay of customer orders or shipments;
- our success in achieving design wins in which our products are designed
into those of our customers;
- market acceptance of our products and those of our customers;
- variability of the life cycles of our customers' products;
- variations in manufacturing yields;
- timing of announcements and introduction of new products by us and our
competitors;
- changes in the mix of products we sell;
- declining average sales prices for our products;
- changes in manufacturing capacity and variations in the utilization of
that capacity;
- variations in operating expenses;
- the long sales cycles associated with our customer specific products;
- the timing and level of product and process development costs;
- the cyclicality of the semiconductor industry;
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- the timing and level of nonrecurring engineering revenues and expenses
relating to customer specific products; and
- significant changes in our and our customers' inventory levels.
We expect that our operating results will continue to fluctuate in the
future as a result of these and other factors. Any unfavorable changes in these
or other factors could cause our results of operations to suffer as they have in
the past, based upon some of these factors. If our operating results are not
within the market's expectations, then our stock price may fall. For example, in
June 1994, Nortel, formerly Northern Telecom, requested that we delay shipment
of some of our products. Nortel was then our largest customer and the delay,
together with lower than expected orders, materially reduced our revenues and
results of operations in the second quarter and for the remainder of 1994. Due
to potential fluctuations, we believe that period to period comparisons of our
results of operations are not necessarily meaningful and should not be relied
upon as indicators of our future performance.
WE RELY ON A LIMITED NUMBER OF CUSTOMERS FOR A SUBSTANTIAL PART OF OUR REVENUES.
Sales to a limited number of customers have accounted for a significant
portion of our revenues in each fiscal period. In recent periods, sales to some
of our major customers as a percentage of total revenues have fluctuated. In
1997, Nortel accounted for approximately 12.0% of total revenues. In 1998, Nokia
accounted for approximately 12.0% and Raytheon accounted for approximately 11.7%
of total revenues. In 1999, Nokia and Nortel accounted for approximately 21.0%
and 17.3%, respectively, of our total revenues. We expect that sales to a
limited number of customers will continue to account for a substantial portion
of our total revenues in future periods. We do not have long-term agreements
with any of our customers. Customers generally purchase our products pursuant to
cancelable short-term purchase orders. Our results of operations have been
negatively affected in the past by the failure of anticipated orders to
materialize and by delays in or cancellations of orders. If we were to lose a
major customer or if orders by or shipments to a major customer were to
otherwise decrease or be delayed, our results of operations would be harmed.
WE FACE RISKS FROM FAILURES IN OUR MANUFACTURING PROCESSES.
The fabrication of integrated circuits, particularly those made of gallium
arsenide, is a highly complex and precise process. Our integrated circuits are
manufactured from four inch round wafers made of gallium arsenide. During
manufacturing, each wafer is processed to contain numerous die, the individual
integrated circuits. We may reject or be unable to sell a substantial percentage
of wafers or the die on a given wafer because of:
- minute impurities;
- difficulties in the fabrication process;
- defects in the masks used to print circuits on a wafer;
- electrical performance;
- wafer breakage; or
- other factors.
We refer to the proportion of final good integrated circuits that have been
processed, assembled and tested relative to the gross number of integrated
circuits that could be constructed from the raw materials as our manufacturing
yield. Compared to the manufacture of silicon integrated circuits, gallium
arsenide technology is less mature and more difficult to design and manufacture
within specifications in large volume. In addition, the more brittle nature of
gallium arsenide wafers can result in lower manufacturing yields than with
silicon wafers. We have in the past experienced lower than expected
manufacturing yields,
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which have delayed product shipments and negatively impacted our results of
operations. We may experience difficulty maintaining acceptable manufacturing
yields in the future.
In addition, the maintenance of our two fabrication facilities is subject to
risks, including:
- the demands of managing and coordinating workflow between two
geographically separate production facilities;
- disruption of production in one of our facilities as a result of a
slowdown or shutdown in our other facility; and
- higher operating costs from managing two geographically separate
manufacturing facilities.
IF WE FAIL TO SELL A HIGH VOLUME OF PRODUCTS, OUR OPERATING RESULTS WILL BE
HARMED.
Because the majority of our manufacturing costs are relatively fixed, our
manufacturing volumes are critical to our operating results. If we fail to
achieve acceptable manufacturing volumes or experience product shipment delays,
our results of operations could be harmed. During periods of decreased demand,
our high fixed manufacturing costs could have a negative effect on our results
of operations. We base our expense levels in part on our expectations of future
orders and these expense levels are predominantly fixed in the short-term. If we
receive fewer customer orders than expected, we may not be able to reduce our
manufacturing costs in the short-term and our operating results would be harmed.
IF WE DO NOT SELL OUR CUSTOMER-SPECIFIC PRODUCTS IN LARGE VOLUMES, OUR OPERATING
RESULTS MAY BE HARMED.
We manufacture a substantial portion of our products to address the needs of
individual customers. Frequent product introductions by systems manufacturers
make our future success dependent on our ability to select development projects
which will result in sufficient volumes to enable us to achieve manufacturing
efficiencies. Because customer specific products are developed for unique
applications, we expect that some of our current and future customer specific
products may never be produced in volume and may impair our ability to cover our
fixed manufacturing costs. In addition, if we experience delays in completing
designs or if we fail to obtain development contracts from customers whose
products are successful, our revenues could be harmed.
OUR OPERATING RESULTS COULD BE HARMED IF WE LOSE ACCESS TO SOLE OR LIMITED
SOURCES OF MATERIALS OR SERVICES.
We currently obtain some components and services for our products from
limited or single sources, such as ceramic packages from Kyocera. We purchase
these components and services on a purchase order basis, do not carry
significant inventories of these components and do not have any long-term supply
contracts with these vendors. Our requirements are relatively small compared to
silicon semiconductor manufacturers. Because we often do not account for a
significant part of our vendors' business, we may not have access to sufficient
capacity from these vendors in periods of high demand. If we were to change any
of our sole or limited source vendors, we would be required to requalify each
new vendor. Requalification could prevent or delay product shipments that could
negatively affect our results of operations. In addition, our reliance on these
vendors may negatively affect our production if the components vary in
reliability or quality. If we are unable to obtain timely deliveries of
sufficient components of acceptable quality or if the prices of components for
which we do not have alternative sources increase, our results of operations
could be harmed.
IF OUR PRODUCTS FAIL TO PERFORM OR MEET CUSTOMER REQUIREMENTS, WE COULD INCUR
SIGNIFICANT ADDITIONAL COSTS.
The fabrication of gallium arsenide integrated circuits is a highly complex
and precise process. Our customers specify quality, performance and reliability
standards that we must meet. If our products do not meet these standards, we may
be required to rework or replace the products. Gallium arsenide integrated
circuits may contain undetected defects or failures that only become evident
after we commence volume
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shipments. We have experienced product quality, performance or reliability
problems from time to time. Defects or failures may occur in the future. If
failures or defects occur, we could:
- lose revenue;
- incur increased costs such as warranty expense and costs associated with
customer support;
- experience delays, cancellations or rescheduling of orders for our
products; or
- experience increased product returns or discounts.
OUR OPERATING RESULTS MAY SUFFER IF WE DO NOT EXPAND OUR MANUFACTURING CAPACITY
IN A TIMELY MANNER.
We plan to increase our capacity by converting our existing Hillsboro,
Oregon facility to accommodate equipment that uses six-inch (150 millimeter)
wafer production. We do not have any experience processing six-inch wafers in
our fabrication facilities. Our inexperience may result in lower volume of
production or higher cost of goods sold. We may be required to redesign our
processes and procedures substantially to accommodate the larger wafers. As a
result, implementing additional capacity for six-inch wafers may take longer
than planned, which could harm our results of operations. If we fail to
successfully transition to six-inch wafers in a timely manner or our
manufacturing yields decline, our relationships with our customers may be
harmed.
Our facilities have a level of capacity beyond which we cannot cost
effectively produce our products. Although we are not currently approaching
those constraints, we may be unable to further expand our business if we fail to
plan and build sufficient capacity. The process of building, testing and
qualifying a gallium arsenide integrated circuit fabrication facility is time
consuming. We must begin to design and implement additional manufacturing
facilities well in advance of our needs.
WE MAY FACE FINES OR OUR FACILITIES COULD BE CLOSED IF WE FAIL TO COMPLY WITH
ENVIRONMENTAL REGULATIONS.
Federal, state and local regulations impose various environmental controls
on the storage, handling, discharge and disposal of chemicals and gases used in
our manufacturing process. For our manufacturing facility located in Hillsboro,
Oregon, we provide our own manufacturing waste treatment and contract for
disposal of some materials. We are required by the State of Oregon Department of
Environmental Quality to report usage of environmentally hazardous materials.
At our Texas facility, we utilize Texas Instruments' industrial waste water
treatment facilities and services for the pre-treatment and discharge of waste
water generated by us, pursuant to the Asset Purchase Agreement dated
January 8, 1998. Our waste water streams are commingled with those of Texas
Instruments and are covered by Texas Instruments' waste water permit.
The failure to comply with present or future regulations could result in
fines being imposed on us and we could be required to suspend production or
cease our operations. These regulations could require us to acquire significant
equipment or to incur substantial other expenses to comply with environmental
regulations. We rely to a great extent on Texas Instruments' hazardous waste
disposal system at our Texas facility. Any failure by us, or by Texas
Instruments with respect to our Texas facility, to control the use of, or to
adequately restrict the discharge of, hazardous substances could subject us to
future liabilities and harm our results of operations.
WE DEPEND ON THE CONTINUED GROWTH OF COMMUNICATIONS MARKETS.
We derive a substantial portion of our product revenues from sales of
products for communication applications. These markets are characterized by the
following:
- intense competition;
- rapid technological change; and
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- short product life cycles, especially in the cellular telephone market.
In addition, although the communications markets have grown rapidly in the
last few years, these markets may not continue to grow or a significant slowdown
in these markets may occur.
Products for communications applications are often based on industry
standards, which are continually evolving. Our future success will depend, in
part, upon our ability to successfully develop and introduce new products based
on emerging industry standards, which could render our existing products
unmarketable or obsolete. If communications markets evolve to new standards, we
may be unable to successfully design and manufacture new products that address
the needs of our customers or that will meet with substantial market acceptance.
OUR BUSINESS WILL BE IMPACTED IF SYSTEMS MANUFACTURERS DO NOT USE GALLIUM
ARSENIDE COMPONENTS.
Silicon semiconductor technologies are the dominant process technologies for
integrated circuits and the performance of silicon integrated circuits continues
to improve. Our prospective customers may be systems designers and manufacturers
who are evaluating such silicon technologies and in particular, silicon
germanium, versus gallium arsenide integrated circuits for use in their next
generation high performance systems. Customers may be reluctant to adopt our
products because of:
- their unfamiliarity with designing systems with gallium arsenide products;
- their concerns related to manufacturing costs and yields;
- their unfamiliarity with design and manufacturing processes; and
- uncertainties about the relative cost effectiveness of our products
compared to high performance silicon components.
Systems manufacturers may not use gallium arsenide components because the
production of gallium arsenide integrated circuits has been and continues to be
more costly than the production of silicon devices. As a result, we must offer
devices that provide superior performance to that of silicon-based devices.
In addition, customers may be reluctant to rely on a smaller company like us
for critical components. We cannot be certain that additional systems
manufacturers will design our products into their systems, that the companies
that have utilized our products will continue to do so in the future or that
gallium arsenide technology will continue to achieve widespread market
acceptance. If our gallium arsenide products fail to achieve market acceptance,
our results of operations would suffer.
CUSTOMERS MAY DELAY OR CANCEL ORDERS DUE TO REGULATORY DELAYS.
The increasing demand for communications products has exerted pressure on
regulatory bodies worldwide to adopt new standards for these 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 our customers. These delays have in the past had
and may in the future have a negative effect on our sales and our results of
operations.
OUR REVENUES ARE AT RISK IF WE DO NOT INTRODUCE NEW PRODUCTS AND/OR DECREASE
COSTS.
Historically, the average selling prices of our products have decreased over
the products' lives, and we expect them to continue to do so. To offset these
decreases, we rely primarily on achieving yield improvements and other cost
reductions for existing products and on introducing new products that can often
be sold at higher average selling prices. We believe our future success depends,
in part, on our timely development and introduction of new products that compete
effectively on the basis of price and
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performance and adequately address customer requirements. The success of new
product and process introductions depends on several factors, including:
- proper selection of products and processes;
- successful and timely completion of product and process development and
commercialization;
- market acceptance of our or our customers' new products;
- achievement of acceptable manufacturing yields; and
- our ability to offer new products at competitive prices.
Our product and process development efforts may not be successful and our
new products or processes may not achieve market acceptance. To the extent that
our cost reductions and new product introductions do not occur in a timely
manner, our results of operations could suffer.
WE MUST IMPROVE OUR PRODUCTS AND PROCESSES TO REMAIN COMPETITIVE.
If technologies or standards supported by our or our customers' products
become obsolete or fail to gain widespread commercial acceptance, our results of
operations may be materially impacted. Because of continual improvements in
semiconductor technology, including those in high performance silicon where
substantially more resources are invested than in gallium arsenide, we believe
that our future success will depend, in part, on our ability to continue to
improve our product and process technologies. We must also develop new
technologies in a timely manner. In addition, we must adapt our products and
processes to technological changes and to support emerging and established
industry standards. We may not be able to improve our existing products and
process technologies, develop new technologies in a timely manner or effectively
support industry standards. If we fail to do so, our customers may select
another gallium arsenide product or move to an alternative technology.
OUR RESULTS OF OPERATIONS MAY SUFFER IF WE DO NOT COMPETE SUCCESSFULLY.
The semiconductor industry is intensely competitive and is characterized by
rapid technological change, rapid product obsolescence and price erosion.
Currently, we compete primarily with manufacturers of high performance silicon
integrated circuits such as Applied Micro Circuits, Motorola and Philips and
with manufacturers of gallium arsenide integrated circuits such as Anadigics,
Conexant, Raytheon, RF MicroDevices and Vitesse. We also face competition from
the internal semiconductor operations of some of our current and potential
customers. We expect increased competition from existing competitors and from a
number of companies that may enter the gallium arsenide integrated circuits
market, as well as future competition from companies that may offer new or
emerging technologies such as silicon germanium. Most of our current and
potential competitors have significantly greater financial, technical,
manufacturing and marketing resources than we do. Manufacturers of high
performance silicon integrated circuits have achieved greater market acceptance
of their existing products and technologies in some applications.
We compete with both gallium arsenide and silicon suppliers in the wireless,
data communications and telecommunications markets. In the microwave and
millimeter wave markets, our competition is primarily from a limited number of
gallium arsenide suppliers, which are in the process of expanding their product
offerings to address commercial applications other than aerospace.
Our prospective customers are typically systems designers and manufacturers
that are considering the use of gallium arsenide integrated circuits for their
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. Due to the
proprietary nature of our products, competition occurs almost exclusively at the
system design stage. As a result, a design win by us or our competitors
typically limits further competition with respect to manufacturing a given
design.
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OUR OPERATING RESULTS MAY SUFFER DUE TO DECLINING DEMAND FOR SEMICONDUCTORS.
From time to time, the semiconductor industry has experienced significant
downturns and wide fluctuations in product supply and demand. This cyclicality
has led to significant imbalances in demand and production capacity. It has also
accelerated the decrease of average selling prices per unit. We may experience
periodic fluctuations in our future financial results because of these or other
industry-wide conditions.
IF WE FAIL TO INTEGRATE ANY FUTURE ACQUISITIONS, OUR BUSINESS WILL BE HARMED.
We face risks from any future acquisitions, including the following:
- we may fail to combine and coordinate the operations and personnel of
newly acquired companies with our existing business;
- our ongoing business may be disrupted or receive insufficient management
attention;
- we may not cost effectively and rapidly incorporate the technology we
acquire;
- we may not be able to recognize the cost savings or other financial
benefits we anticipated;
- we may not be able to retain the existing customers of newly acquired
operations;
- our corporate culture may clash with that of the acquired businesses; and
- we may incur unknown liabilities associated with acquired businesses.
We may not successfully address these risks or any other problems that arise
in connection with future acquisitions.
We will continue to evaluate strategic opportunities available to us and we
may pursue product, technology or business acquisitions. On January 13, 1998, we
acquired our Millimeter Wave Communications operation, which included
substantially all of the assets of the monolithic microwave integrated circuit
operation of Texas Instruments' former Defense Systems & Electronics Group. In
addition, in connection with any future acquisitions, we may issue equity
securities that could dilute the percentage ownership of our existing
stockholders, we may incur additional debt and we may be required to amortize
expenses related to goodwill and other intangible assets that may negatively
affect our results of operations.
WE MUST MANAGE OUR GROWTH.
Our total number of employees grew to 802 in 1999 from 679 in 1998 and 371
in 1997. The resulting growth has placed, and is expected to continue to place,
significant demands on our personnel, management and other resources. We must
continue to improve our operational, financial and management information
systems to keep pace with the growth of our business.
IF WE DO NOT HIRE AND RETAIN KEY EMPLOYEES, OUR BUSINESS WILL SUFFER.
Our future success depends in large part on the continued service of our key
technical, marketing and management personnel. We also depend on our ability to
continue to identify, attract and retain qualified technical employees,
particularly highly skilled design, process and test engineers involved in the
manufacture and development of our products and processes. We must also recruit
and train employees to manufacture our products without a substantial reduction
in manufacturing yields. There are many other semiconductor companies located in
the communities near our facilities and it may become increasingly difficult for
us to attract and retain those employees. The competition for these employees is
intense, and the loss of key employees could negatively affect us.
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OUR BUSINESS MAY BE HARMED IF WE FAIL TO PROTECT OUR PROPRIETARY TECHNOLOGY.
We rely on a combination of patents, trademarks, copyrights, trade secret
laws, confidentiality procedures and licensing arrangements to protect our
intellectual property rights. We currently have patents granted and pending in
the United States and in foreign countries and intend to seek further
international and United States patents on our technology. We cannot be certain
that patents will be issued from any of our pending applications or that patents
will be issued in all countries where our products can be sold or that any
claims allowed from pending applications or will be of sufficient scope or
strength to provide meaningful protection or any commercial advantage. Our
competitors may also be able to design around our patents. The laws of some
countries in which our products are or may be developed, manufactured or sold,
including various countries in Asia, may not protect our products or
intellectual property rights to the same extent as do the laws of the United
States, increasing the possibility of piracy of our technology and products.
Although we intend to vigorously defend our intellectual property rights, we may
not be able to prevent misappropriation of our technology. Our competitors may
also independently develop technologies that are substantially equivalent or
superior to our technology.
OUR ABILITY TO PRODUCE OUR SEMICONDUCTORS MAY SUFFER IF SOMEONE CLAIMS WE
INFRINGE ON THEIR INTELLECTUAL PROPERTY.
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, we may seek licenses under such patents or other intellectual
property rights. However, we cannot be certain that licenses will be offered or
that we would find the terms of licenses that are offered acceptable or
commercially reasonable. Our failure to obtain a license from a third party for
technology used by us could cause us to incur substantial liabilities and to
suspend the manufacture of products. Furthermore, we may initiate claims or
litigation against third parties for infringement of our proprietary rights or
to establish the validity of our proprietary rights. Litigation by or against us
could result in significant expense and divert the efforts of our technical
personnel and management, whether or not the litigation results in a favorable
determination. In the event of an adverse result in any litigation, we could be
required to:
- pay substantial damages;
- indemnify our customers;
- stop manufacturing, use and sale of the infringing products;
- expend significant resources to develop non-infringing technology;
- discontinue the use of certain processes; or
- obtain licenses to the technology.
We may be unsuccessful in developing non-infringing products or negotiating
licenses upon reasonable terms, or at all. These problems might not be resolved
in time to avoid harming our results of operations. If any third party makes a
successful claim against our customers or us and a license is not made available
to us on commercially reasonable terms, our business could be harmed.
On February 26, 1999, a lawsuit was filed against 88 firms, including
TriQuint, in the United States District Court for the District of Arizona. The
suit alleges that the defendants, including us, infringe upon certain patents
held by The Lemelson Medical, Education and Research Foundation, Limited
Partnership. Although we believe the suit is without merit and intend to
vigorously defend ourselves against the charges, we cannot be certain that we
will be successful. Moreover, this litigation may require us to spend a
substantial amount of time and money and could distract management from our day
to day operations.
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OUR BUSINESS MAY SUFFER DUE TO RISKS ASSOCIATED WITH INTERNATIONAL SALES.
Our sales outside of the United States were 38.4% of total revenues in 1999,
24.0% of total revenues in 1998 and 34.0% total revenues in 1997. We face
inherent risks from these sales, including:
- imposition of government controls;
- currency exchange fluctuations;
- longer payment cycles and difficulties related to the collection of
receivables from international customers;
- reduced protection for intellectual property rights in some countries;
- the impact of recessionary environments in economies outside the United
States;
- unfavorable tax consequences;
- political instability; and
- tariffs and other trade barriers.
In addition, due to the technological advantages provided by gallium
arsenide integrated circuits in many military applications, all of our sales
outside of North America must be licensed by the Office of Export Administration
of the U.S. Department of Commerce. If we fail to obtain these licenses or
experience delays in obtaining these licenses in the future, our results of
operations could be harmed. Also, because substantially all of our foreign sales
are denominated in U.S. dollars, increases in the value of the dollar would
increase the price in local currencies of our products and make our products
less price competitive.
WE MAY BE SUBJECT TO A SECURITIES CLASS ACTION SUIT IF OUR STOCK PRICE FALLS.
Following periods of volatility in the market price of a company's stock,
some stockholders may file a securities class action litigation. For example, in
1994, a stockholder class action lawsuit was filed against us, our underwriters,
and some of our officers, directors and investors, which alleged that we, our
underwriters, and certain of our officers, directors and investors intentionally
misled the investing public regarding our financial prospects. We settled the
action and recorded a special charge of $1.4 million associated with the
settlement of this lawsuit and related legal expenses, net of accruals in 1998.
Any future securities class action litigation could be expensive and divert our
management's attention and harm our business, regardless of its merits.
OUR STOCK WILL LIKELY BE SUBJECT TO SUBSTANTIAL PRICE AND VOLUME FLUCTUATIONS
DUE TO A NUMBER OF FACTORS, MANY OF WHICH WILL BE BEYOND OUR CONTROL, THAT MAY
PREVENT OUR STOCKHOLDERS FROM RESELLING OUR COMMON STOCK AT A PROFIT.
The securities markets have experienced significant price and volume
fluctuations and the market prices of the securities of semiconductor companies
have been especially volatile. The market price of our common stock may
experience significant fluctuations in the future. For example, our common stock
price has fluctuated from a high of $258.00 to a low of $10.33 during the 52
weeks ended February 11, 2000. This market volatility, as well as general
economic, market or political conditions, could reduce the market price of our
common stock in spite of our operating performance. In addition, our operating
results could be below the expectations of public market analysts and investors,
and in response, the market price of our common stock could decrease
significantly.
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WE FACE RISKS FROM THE YEAR 2000 ISSUE.
Many information technology hardware and software systems, as well as other
non-information technology 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" issue. Prior to December 31, 1999, we
initiated and completed a comprehensive Year 2000 audit program, which consisted
of a six step plan to inventory and correct any systems that were not Year 2000
compliant. Because of the existence of numerous systems and related components
within our organization and the interdependency of these systems, it is possible
that some of our systems, or systems at our suppliers, may still fail to operate
in the year 2000. To date, we have not, nor to our knowledge, have our
suppliers, manufacturers and third party vendors, experienced any material Year
2000-related problems. However, we cannot determine if we will be subject to
Year 2000 compliance problems in the future, particularly with respect to
February 29, 2000, or if Year 2000 problems have arisen that we have failed to
detect to date. Our inability to maintain Year 2000 compliance or the failure of
one or more of our systems or our suppliers' systems may have a material impact
on our future operating results.
OUR CERTIFICATE OF INCORPORATION AND BYLAWS INCLUDE ANTITAKEOVER PROVISIONS
WHICH MAY DETER OR PREVENT A TAKEOVER ATTEMPT.
Some provisions of our certificate of incorporation and bylaws and
provisions of Delaware law may deter or prevent a takeover attempt, including a
takeover that might result in a premium over the market price for our common
stock. These provisions include:
CUMULATIVE VOTING. Our stockholders are entitled to cumulate their votes
for directors. This may limit the ability of the stockholders to remove a
director other than for cause.
STOCKHOLDER PROPOSALS AND NOMINATIONS. Our stockholders must give advance
notice, generally 120 days prior to the relevant meeting, to nominate a
candidate for director or present a proposal to our stockholders at a meeting.
These notice requirements could inhibit a takeover by delaying stockholder
action.
STOCKHOLDER RIGHTS PLAN. We may trigger our stockholder rights plan in the
event our board of directors does not agree to an acquisition proposal. The
rights plan may make it more difficult and costly to acquire our company.
PREFERRED STOCK. Our certificate of incorporation authorizes our board of
directors to issue up to 5 million shares of preferred stock and to determine
what rights, preferences and privileges such shares have. No action by our
stockholders is necessary before our board of directors can issue the preferred
stock. Our board of directors could use the preferred stock to make it more
difficult and costly to acquire our company.
DELAWARE ANTI-TAKEOVER STATUTE. The Delaware anti-takeover law restricts
business combinations with some stockholders once the stockholder acquires 15%
or more of our common stock. The Delaware statute makes it harder for our
company to be acquired without the consent of our board of directors and
management.
WE WILL BE INCREASING OUR INDEBTEDNESS SUBSTANTIALLY.
On February 14, 2000, we announced that we intend to offer to sell
approximately $275.0 million of subordinated convertible notes in a private
placement to qualified institutional buyers. As a result of the sale of the
notes, we will incur $275.0 million of additional indebtedness (assuming that
the initial purchasers' over-allotment option is not exercised), increasing our
ratio of debt to equity (expressed as a percentage) from approximately 3.0% to
approximately 94.1% as of December 31, 1999, on a pro forma
38
<PAGE>
basis (excluding our synthetic leases) giving effect to the sale of the notes.
Our other indebtedness is principally comprised of operating, synthetic and
capital leases. We may incur substantial additional indebtedness in the future.
The level of our indebtedness, among other things, could:
- make it difficult for us to make payments on the notes,
- make it difficult for us to obtain any necessary future financing for
working capital, capital expenditures, debt service requirements or other
purposes;
- require us to dedicate a substantial portion of our expected cash flow
from operations to service our indebtedness, which would reduce the amount
of our expected cash flow available for other purposes, including working
capital and capital expenditures;
- limit our flexibility in planning for, or reacting to changes in, our
business; and
- make us more vulnerable in the event of a downturn in our business.
There can be no assurance that we will be able to meet our debt service
obligations, including our obligation under the notes.
WE MAY NOT BE ABLE TO PAY OUR DEBT AND OTHER OBLIGATIONS.
If our cash flow is inadequate to meet our obligations, we could face
substantial liquidity problems. If we are unable to generate sufficient cash
flow or otherwise obtain funds necessary to make required payments on the $275
million of subordinated convertible notes, or our other obligations, we would be
in default under the terms thereof. A default under the indenture would permit
the holders of the notes to accelerate the maturity of the notes and could cause
defaults under future indebtedness we may incur. Any such default could have a
material adverse effect on our business, prospects, financial condition and
operating results. In addition, we can not assure you that we would be able to
repay amounts due in respect of the notes if payment of the notes were to be
accelerated following the occurrence of an event of default as defined in the
indenture.
YEAR 2000 READINESS
Many information technology hardware and software systems, as well as other
non-information technology 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 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" issue.
STATE OF READINESS. In October 1999, we completed a comprehensive Year 2000
audit program, which consisted of a six step plan to inventory and correct any
non-compliant systems. These six steps were: inventory, assessment, planning,
remediation, testing and implementation. Our audit program encompassed a review
of information technology systems used in our internal business as well as
non-information technology systems such as manufacturing systems and building
systems. It also included an audit and evaluation of third party vendors,
manufacturers and suppliers. Our products have no specific date functions or
date dependencies and operate according to specifications through the Year 2000
date rollover and thereafter.
COSTS. We do not believe that the historical or anticipated costs of
remediation had, or will have, a material effect on our financial condition or
results of operations. For information technology systems and most
non-information technology systems, the costs of remediation were encompassed in
the normal anticipated expenditures for maintenance contracts and version
upgrades. We had no significant total incremental costs of remediation.
39
<PAGE>
RISKS. To date, we have not experienced any disruptions in our business due
to Year 2000 compliance problems. Because of our numerous systems and related
components and the interdependency of these systems, it is possible that certain
of our systems, or systems at entities that provide us services or goods may
still fail to operate in the Year 2000.
ITEM 7(a). QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET AND INTEREST RATE RISK
We are exposed to minimal market risks. We manage the sensitivity of our
results of operations to these risks by maintaining a conservative investment
portfolio, which is comprised solely of highly-rated, short-term investments. We
do not hold or issue derivative, derivative commodity instruments or other
financial instruments for trading purposes. We are exposed to currency exchange
fluctuations, as we sell our products internationally. We manage the sensitivity
of our international sales by denominating all transactions in U.S. dollars.
We are exposed to interest rate risk, as we use additional financing
periodically to fund capital expenditures. The interest rate that we may be able
to obtain on financings will depend on market conditions at that time and may
differ from the rates we have secured in the past. Sensitivity of results of
operations to market and interest rate risks is managed by maintaining a
conservative investment portfolio.
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY FINANCIAL DATA
The Consolidated Financial Statements and Related Notes of Triquint as of
December 31, 1999 and 1998 and for the three year period ended December 31, 1999
and the independent accountants report are set forth on pages F-1 to F-22 of
this Annual Report on Form 10-K.
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 will be 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 2000
Annual Meeting of Stockholders, to be filed by the Company with the Securities
and Exchange Commission within 120 days of the end of the Company's fiscal year
pursuant to General Instructions G(3) of Form 10-K and is incorporated herein by
reference. Certain information required by this item concerning executive
officers is set forth in Part I of this Annual Report in "Business--Executive
Officers."
ITEM 11. EXECUTIVE COMPENSATION
Information required by this item will be included under the caption
EXECUTIVE COMPENSATION contained in the Company's Proxy Statement for its 2000
Annual Meeting of Stockholders and is incorporated herein by reference.
40
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information required by this item will be included under the caption
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT contained in the
Company's Proxy Statement for its 2000 Annual Meeting of Stockholders and is
incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information required by this item will be included under the caption CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS contained in the Company's Proxy
Statement for its 2000 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 LLP are set forth on pages F-1 - F-22 attached hereto and are incorporated
herein by reference.
TriQuint Semiconductor, Inc.:
Independent Auditors' Report
Consolidated Balance Sheets as of December 31, 1999 and 1998
Consolidated Statements of Operations for the years ended December 31,
1999, 1998 and 1997
Consolidated Statements of Stockholders' Equity for the years ended
December 31, 1999, 1998 and 1997
Consolidated Statements of Cash Flows for the years ended December 31,
1999, 1998 and 1997
Notes to Consolidated Financial Statements
(a)(2) CONSOLIDATED FINANCIAL STATEMENT SCHEDULE
The following schedule is filed herewith:
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C>
Schedule II Valuation and Qualifying Accounts............... S-1
</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.
41
<PAGE>
(a)(3) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO.
- ---------------------
<S> <C>
3.1(7) Certificate Incorporation of Registrant
3.1.1 Certificate of Amendment to Certificate of Incorporation
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>
42
<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.
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. 333-81273) as declared effective by the Securities and
Exchange Commission on June 22, 1999.
(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 February 14, 2000.
(c) EXHIBITS
See Item 14(a)(3) above.
(d) FINANCIAL STATEMENT SCHEDULES
See Item 14(a)(2) above.
43
<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: February 15, 2000 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 Edson H. Whitehurst, Jr., 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>
/s/ STEVEN J. SHARP President, Chief Executive Officer
------------------------------------------ and Chairman (Principal Executive February 15, 2000
Steven J. Sharp Officer)
Vice President, Finance and
/s/ EDSON H. WHITEHURST, JR. Administration, Chief Financial
------------------------------------------ Officer and Secretary (Principal February 15, 2000
Edson H. Whitehurst, Jr. Financial and Accounting Officer)
/s/ PAUL A. GARY
------------------------------------------ Director February 15, 2000
Paul A. Gary
/s/ CHARLES SCOTT GIBSON
------------------------------------------ Director February 15, 2000
Charles Scott Gibson
------------------------------------------ Director
Nicolas Kauser
/s/ WALDEN C. RHINES
------------------------------------------ Director February 15, 2000
Walden C. Rhines
/s/ EDWARD F. TUCK
------------------------------------------ Director February 15, 2000
Edward F. Tuck
</TABLE>
44
<PAGE>
TRIQUINT SEMICONDUCTOR, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULE
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
Independent Auditors' Report................................ F-2
Consolidated Balance Sheets as of December 31, 1999 and
1998...................................................... F-3
Consolidated Statements of Operations for the years ended
December 31, 1999, 1998 and 1997.......................... F-4
Consolidated Statements of Stockholders' Equity for the
years ended December 31, 1999, 1998 and 1997.............. F-5
Consolidated Statements of Cash Flows for the years ended
December 31, 1999,
1998 and 1997............................................. F-6
Notes to Consolidated Financial Statements.................. F-7
Financial Statement Schedule--Schedule II--Valuation and
Qualifying Accounts....................................... S-1
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
TriQuint Semiconductor, Inc.:
We have audited the consolidated financial statements of TriQuint
Semiconductor, Inc. and subsidiaries as listed in the accompanying index. In
connection with our audits of the consolidated financial statements, we have
also audited the financial statement schedule as listed in the accompanying
index. These consolidated financial statements and financial statement schedule
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements and financial
statement schedule 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 subsidiaries as of December 31, 1999 and 1998, and the
results of its operations, and its cash flows for each of the years in the
three-year period ended December 31, 1999 in conformity with generally accepted
accounting principles. Also, in our opinion, the related 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.
/s/ KPMG LLP
Portland, Oregon
February 4, 2000, except for Note 13
which is as of February 11, 2000
F-2
<PAGE>
TRIQUINT SEMICONDUCTOR, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE INFORMATION)
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1999 1998
-------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 76,873 $ 14,602
Investments............................................... 116,465 11,460
Trade accounts receivable, net............................ 26,909 21,020
-------- --------
220,247 47,082
-------- --------
Inventories:
Raw material............................................ 4,425 5,066
Work in process......................................... 16,078 10,749
Finished goods.......................................... 4,173 3,891
-------- --------
24,676 19,706
-------- --------
Deferred income taxes..................................... 3,500 --
Prepaid expenses and other assets......................... 2,516 2,028
-------- --------
Total current assets.................................. 250,939 68,816
-------- --------
Property, plant and equipment, net.......................... 38,657 30,529
Deferred income taxes....................................... 7,450 --
Other non-current assets, net............................... 2,732 1,798
Restricted investments...................................... 40,163 40,163
-------- --------
Total assets.......................................... $339,941 $141,306
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current installments of capital lease and installment note
obligations............................................. 4,320 4,934
Accounts payable.......................................... 14,633 10,027
Other accrued liabilities................................. 9,382 6,237
Accrued payroll........................................... 4,907 3,124
-------- --------
Total current liabilities............................. 33,242 24,322
Capital lease and installment note obligations, less current
installments.............................................. 4,783 9,369
-------- --------
Total liabilities..................................... 38,025 33,691
-------- --------
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.001 par value. Authorized 5,000,000
shares at December 31, 1999 and 1998; none issued and
outstanding at December 31, 1999 and 1998............... -- --
Common stock, $.001 par value. Authorized 200,000,000 and
25,000,000 shares at December 31, 1999 and 1998,
respectively; issued and outstanding 18,921,720 and
14,327,670 shares at December 31, 1999 and 1998,
respectively............................................ 19 14
Additional paid-in capital................................ 302,918 133,578
Accumulated deficit....................................... (1,021) (25,977)
-------- --------
Total stockholders' equity............................ 301,916 107,615
-------- --------
Total liabilities and stockholders' equity............ $339,941 $141,306
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
TRIQUINT SEMICONDUCTOR, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE INFORMATION)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
Total revenues........................................... $ 163,663 $ 111,605 $ 71,367
Operating costs and expenses:
Cost of goods sold..................................... 95,069 72,784 40,028
Research, development and engineering.................. 21,976 18,984 11,518
Selling, general and administrative.................... 23,524 15,962 14,188
Special charges........................................ -- 10,220 --
---------- ---------- ----------
Total operating costs and expenses............... 140,569 117,950 65,734
---------- ---------- ----------
Income (loss) from operations.................... 23,094 (6,345) 5,633
---------- ---------- ----------
Other income (expense):
Interest income........................................ 7,279 3,375 3,497
Interest expense....................................... (1,062) (1,454) (1,463)
Other, net............................................. 61 563 83
---------- ---------- ----------
6,278 2,484 2,117
---------- ---------- ----------
Income (loss) before income taxes................ 29,372 (3,861) 7,750
Income tax expense....................................... 4,416 94 890
---------- ---------- ----------
Net income (loss)................................ $ 24,956 $ (3,955) $ 6,860
========== ========== ==========
Per share data:
Net income (loss):
Basic................................................ $ 1.53 $ (0.28) $ 0.55
========== ========== ==========
Diluted.............................................. $ 1.34 $ (0.28) $ 0.50
========== ========== ==========
Weighted average shares:
Basic................................................ 16,296,068 14,099,484 12,559,965
Diluted.............................................. 18,583,523 14,099,484 13,662,323
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
TRIQUINT SEMICONDUCTOR, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE INFORMATION)
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK ADDITIONAL TOTAL
--------------------- --------------------- PAID-IN ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT EQUITY
--------- --------- ---------- -------- ---------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1996....... -- $ -- 12,285,188 $12 $109,116 $(28,882) $ 80,246
Issuance of common stock under
option plans and warrant
exercises...................... -- -- 384,114 1 1,427 -- 1,428
Issuance of common stock under
stock purchase plan............ -- -- 72,046 -- 996 -- 996
Tax benefit of stock option
exercises...................... -- -- -- -- 508 -- 508
Net income....................... -- -- -- -- -- 6,860 6,860
--------- --------- ---------- --- -------- -------- --------
Balance, December 31, 1997....... -- -- 12,741,348 13 112,047 (22,022) 90,038
Issuance of common stock under
option plans and warrant
exercises...................... -- -- 152,759 -- 498 -- 498
Issuance of common stock under
stock purchase plan............ -- -- 166,644 -- 1,924 -- 1,924
Issuance of common stock for
acquisition of Millimeter Wave
Communications operations...... -- -- 1,266,919 1 19,109 -- 19,110
Net loss......................... -- -- -- -- -- (3,955) (3,955)
--------- --------- ---------- --- -------- -------- --------
Balance, December 31, 1998....... -- -- 14,327,670 14 133,578 (25,977) 107,615
Issuance of common stock under
option plans and warrant
exercises...................... -- -- 577,461 1 4,927 -- 4,928
Issuance of common stock under
stock purchase plan............ -- -- 263,427 -- 2,824 -- 2,824
Issuance of common stock, net.... -- -- 3,753,162 4 146,583 -- 146,587
Tax benefit of stock option
exercises...................... -- -- -- -- 15,006 -- 15,006
Net income....................... -- -- -- -- -- 24,956 24,956
--------- --------- ---------- --- -------- -------- --------
Balance, December 31, 1999....... -- $ -- 18,921,720 $19 $302,918 $ (1,021) $301,916
========= ========= ========== === ======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
TRIQUINT SEMICONDUCTOR, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------
1999 1998 1997
--------- -------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)......................................... $ 24,956 $ (3,955) $ 6,860
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization........................... 7,424 5,889 4,249
Non-cash special charge................................. -- 8,820 --
Gain on sale of assets.................................. (53) (475) (32)
Change in assets and liabilities:
Receivables........................................... (5,889) 939 (3,984)
Inventories........................................... (4,970) (2,795) (2,438)
Deferred income taxes................................. 4,056 -- --
Prepaid expenses and other assets..................... (470) (66) (710)
Accounts payable...................................... 4,606 (453) (896)
Other accrued liabilities............................. 4,929 2,314 1,103
--------- -------- --------
Net cash provided by operating activities........... 34,589 10,218 4,152
--------- -------- --------
Cash flows from investing activities:
Purchase of investments................................... (317,341) (67,993) (42,410)
Sale of investments....................................... 212,336 62,262 46,290
Decrease in restricted cash............................... -- -- 504
Capital expenditures...................................... (15,289) (5,618) (1,388)
Purchase of preferred stock in investee company........... (1,248) -- --
Proceeds from sale of assets.............................. 85 475 270
--------- -------- --------
Net cash provided (used) by investing activities.... (121,457) (10,874) 3,266
--------- -------- --------
Cash flows from financing activities:
Principal payments under capital lease and installment
note obligations........................................ (5,200) (5,508) (4,015)
Issuance of common stock, net............................. 154,339 2,032 2,424
--------- -------- --------
Net cash provided (used) by financing activities.... 149,139 (3,476) (1,591)
--------- -------- --------
Net increase (decrease) in cash and cash
equivalents....................................... 62,271 (4,132) 5,827
Cash and cash equivalents at beginning of year.............. 14,602 18,734 12,907
--------- -------- --------
Cash and cash equivalents at end of year.................... $ 76,873 $ 14,602 $ 18,734
========= ======== ========
Supplemental disclosures of cash flow information:
Cash paid for:
Interest................................................ $ 1,062 $ 1,452 $ 1,489
========= ======== ========
Income taxes............................................ $ 400 $ 4 $ 54
========= ======== ========
Supplemental schedule of non-cash investing and financing
activities:
Purchase of assets through capital lease and installment
notes................................................... -- 2,216 8,346
Tax benefit of stock option exercises..................... 15,006 -- 508
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.
F-6
<PAGE>
TRIQUINT SEMICONDUCTOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999, 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 a leading supplier of high
performance gallium arsenide integrated circuits for the wireless
communications, telecommunications, data communications and aerospace markets.
The Company's products incorporate its proprietary analog and mixed signal
design and its advanced gallium arsenide manufacturing processes to address a
broad range of applications and customers.
(b) PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
the Company and its wholly owned subsidiaries. All significant intercompany
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.
(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. The available-for-sale
securities are carried at market value.
(g) TRADE ACCOUNTS RECEIVABLE
Trade accounts receivable are shown net of an allowance for doubtful
accounts of $843 and $262 at December 31, 1999 and 1998, respectively.
F-7
<PAGE>
TRIQUINT SEMICONDUCTOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999, 1998 AND 1997
(IN THOUSANDS, EXCEPT SHARE INFORMATION)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(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). The cost of certain
inventories has been reduced by $5,156 and $2,422 at December 31, 1999 and 1998,
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 the estimated
useful lives of the assets, 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 at the time assets are placed in service.
Maintenance and repairs are expensed as incurred.
(j) RESEARCH AND DEVELOPMENT COSTS
The Company charges 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 cost of goods sold.
(k) COMPREHENSIVE INCOME
The Company has 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).
(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 (loss) per share. Basic
net income (loss) per share is net income available to common shareholders
divided by the weighted-average number of common shares outstanding. Diluted net
income (loss) per share is similar to basic except that the denominator includes
potential common
F-8
<PAGE>
TRIQUINT SEMICONDUCTOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999, 1998 AND 1997
(IN THOUSANDS, EXCEPT SHARE INFORMATION)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
shares that, had they been issued, would have had a dilutive effect. The
reconciliation of shares used to calculate basic and diluted income (loss) per
share consists of the following:
<TABLE>
<CAPTION>
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
Basic weighted average shares of common
stock.................................. 16,296,068 14,099,484 12,559,965
Effect of dilutive securities:
Stock options and warrants............. 2,287,455 -- 1,102,358
---------- ---------- ----------
Diluted weighted average shares of common
stock.................................. 18,583,523 14,099,484 13,662,323
========== ========== ==========
</TABLE>
Common stock equivalents related to stock options and warrants totaling
91,297, 664,247 and 56,358 are anti-dilutive and, therefore, were not included
in the diluted net income (loss) per share calculation for the years ended
December 31, 1999, 1998 and 1997, respectively.
(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
F-9
<PAGE>
TRIQUINT SEMICONDUCTOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999, 1998 AND 1997
(IN THOUSANDS, EXCEPT SHARE INFORMATION)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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.
(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, manufactures and
markets 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 1,266,919 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 following table presents the purchase price allocations associated with
this acquisition:
<TABLE>
<S> <C>
Tangible assets............................................. $28,048
Workforce in place and purchased technology................. 2,132
In-process research and development......................... 8,820
-------
$39,000
=======
</TABLE>
Workforce in place and purchased technology, classified as other non-current
assets, are amortized on a straight-line basis over seven years, and are shown
net of related accumulated amortization of $657, $362 and $-0- at December 31,
1999, 1998 and 1997, respectively.
The Company allocated the purchase price based on the fair value of the net
tangible and intangible assets acquired. In performing this allocation, the
Company considered, among other factors, the research and development projects
in process at the date of acquisition. Millimeter Wave Communication's in-
process research and development program consisted of the development of its
advanced pHEMT and HBT processes for millimeter wave applications (the
projects). At the date of the acquisition, Millimeter Wave Communications'
research and development was not complete and total continuing research and
development commitments to complete the projects were expected to be
approximately $11.0 million. The projects are still in process and we had spent
approximately $4.2 million as of December 31, 1999. The projects were
anticipated to be successfully completed within three to four years of the
acquisition date. No significant changes in the foregoing schedule were
anticipated as of December 31, 1999. The value assigned to purchased in-process
research and development was determined by estimating the costs to develop
Millimeter Wave Communications' purchased in-process research and development
into commercially viable products, estimating the resulting net cash flows from
the projects and discounting the net cash flows to their present value. In
estimating the value of qualifying in-process research and development, a
F-10
<PAGE>
TRIQUINT SEMICONDUCTOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999, 1998 AND 1997
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE INFORMATION)
(2) MILLIMETER WAVE COMMUNICATIONS ACQUISITION (CONTINUED)
stage of completion factor was applied to exclude cash flows related to
development efforts not yet underway. A discount rate of 75% was used for
valuing the in-process research and development and is intended to be
commensurate with rates of return demanded by venture capital investors for
investments in start-up companies with similar risks to those of the in-process
products. Additionally, the projects will require maintenance expenditures if
and when they reach a state of technological and commercial feasibility.
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............................ 0.31 0.29
</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.
(3) PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1999 1998
-------- --------
<S> <C> <C>
Machinery and equipment................................... $48,150 $47,539
Land...................................................... 4,023 --
Leasehold improvements.................................... 4,471 2,507
Building and equipment.................................... -- 103
Furniture and fixtures.................................... 1,558 1,657
Computer equipment........................................ 12,739 11,841
Assets in process......................................... 11,988 7,192
Other..................................................... 619 619
------- -------
83,548 71,458
Less accumulated depreciation and amortization............ 44,891 40,929
------- -------
$38,657 $30,529
======= =======
</TABLE>
In 1999, the Company purchased additional property adjacent to the Hillsboro
facility. This property was acquired for $4,023 in cash. The property is
approximately 17 acres and will provide for future expansion.
F-11
<PAGE>
TRIQUINT SEMICONDUCTOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999, 1998 AND 1997
(IN THOUSANDS, EXCEPT SHARE INFORMATION)
(4) CAPITAL LEASE AND INSTALLMENT NOTE OBLIGATIONS
At December 31, 1999 and 1998, the Company had outstanding $9,103 and
$14,303, 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 $8,899 and $14,002 at December 31, 1999 and 1998, respectively.
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, 1999 are as follows:
<TABLE>
<CAPTION>
INSTALLMENT
NOTES AND
CAPITAL OPERATING
LEASES LEASES
----------- ---------
<S> <C> <C>
Year ending:
2000.................................................. $ 4,892 $13,593
2001.................................................. 3,091 5,825
2002.................................................. 1,705 2,047
2003.................................................. 389 1,024
------- -------
Total......................................... 10,077 $22,489
=======
Less amounts representing interest...................... 974
-------
Present value of minimum payments............. 9,103
Less current installments............................... 4,320
-------
$ 4,783
=======
</TABLE>
Amounts applicable to capital leases and installment notes, which are
included in machinery and equipment, are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1999 1998
-------- --------
<S> <C> <C>
Machinery and equipment................................... $22,666 $26,149
Less accumulated amortization............................. 13,767 12,147
------- -------
$ 8,899 $14,002
======= =======
</TABLE>
Rent expense under operating leases was $12,884, $9,779 and $2,736 during
the years ended December 31, 1999, 1998 and 1997, respectively.
The Company entered into a five year agreement to construct and lease an
office building and fabrication facility in Hillsboro, Oregon (the 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
F-12
<PAGE>
TRIQUINT SEMICONDUCTOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999, 1998 AND 1997
(IN THOUSANDS, EXCEPT SHARE INFORMATION)
(4) CAPITAL LEASE AND INSTALLMENT NOTE OBLIGATIONS (CONTINUED)
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 are restricted as to withdrawal and are 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
$50.0 million, total liabilities to net worth ratio equal to or less than 1.50
to 1.00 and maintain cash and liquid investments, including restricted
investments, greater than $45.0 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.
The Company has entered into 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
at the end of each 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, 1999
or 1998. The line of credit is subject to loan covenants for which the Company
was in compliance at December 31, 1999 and 1998.
(6) STOCKHOLDERS' EQUITY
(a) STOCK SPLIT
On December 2, 1999, the Board of Directors approved a two-for-one stock
split of the outstanding common shares effected in the form of a stock dividend
to be paid on February 22, 2000 to stockholders of record as of February 1,
2000. On June 10, 1999, the Board of Directors approved a three-for-two stock
split of the outstanding common shares effected in the form of a stock dividend
on July 2, 1999 to stockholders of record as of June 22, 1999.
Common share and per share data for all periods presented in the
accompanying financial statements have been adjusted to give effect to the
June 22, 1999 stock split.
F-13
<PAGE>
TRIQUINT SEMICONDUCTOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999, 1998 AND 1997
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE INFORMATION)
(6) STOCKHOLDERS' EQUITY (CONTINUED)
(b) 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
2,846,652, 2,587,500 and 750,000 common shares, respectively, of which a total
of 345,951 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 equal 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.
Under the 1992 and 1998 Employee Stock Purchase Plans (the "Purchase
Plans"), the Company has authorized the issuance of 943,545 common shares, of
which 407,076 were available for issuance at December 31, 1999. 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 $21.25 per year. The stock purchase price is equal to 85% of the
lower of the fair value at the beginning or end of each enrollment period.
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
------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Risk-free interest rate................................... 5.55% 5.20% 6.20%
Expected lives in years................................... 5 5 5
Expected volatility....................................... 76% 62% 78%
</TABLE>
<TABLE>
<CAPTION>
EMPLOYEE STOCK
PURCHASE PLANS
------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Risk-free interest rate................................... 5.08% 4.80% 5.10%
Expected lives in years................................... .5 .5 .5
Expected volatility....................................... 79% 66% 56%
</TABLE>
F-14
<PAGE>
TRIQUINT SEMICONDUCTOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999, 1998 AND 1997
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE INFORMATION)
(6) STOCKHOLDERS' EQUITY (CONTINUED)
The weighted average fair value of stock based compensation awards granted
under the various plans are as follows for the years ended December 31:
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Stock Options Plans........................................ $43 $7 $11
Employee Stock Purchase Plans.............................. 47 4 10
</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 (loss)
would have been adjusted to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Net income (loss)
As reported........................................... $24,956 $(3,955) $6,860
Pro forma............................................. 8,346 (8,314) 4,449
Net income (loss) per share:
Basic
As reported........................................... 1.53 (0.28) 0.55
Pro forma............................................. 0.51 (0.59) 0.35
Diluted
As reported........................................... 1.34 (0.28) 0.50
Pro forma............................................. 0.45 (0.59) 0.33
</TABLE>
F-15
<PAGE>
TRIQUINT SEMICONDUCTOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999, 1998 AND 1997
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE INFORMATION)
(6) STOCKHOLDERS' EQUITY (CONTINUED)
Activity under the Company's stock option plans is as follows:
<TABLE>
<CAPTION>
WEIGHTED-
AVERAGE
NUMBER OF EXERCISE
SHARES PRICE
---------- ---------
<S> <C> <C>
Options outstanding at December 31, 1996.................... 1,631,290 $ 5.72
Options:
Granted................................................... 1,022,282 15.89
Exercised................................................. (384,114) 3.74
Canceled.................................................. (208,176) 17.11
----------
Options outstanding at December 31, 1997.................... 2,061,282 9.96
Options:
Granted................................................... 2,431,751 12.75
Exercised................................................. (152,759) 3.25
Canceled.................................................. (1,185,255) 15.02
----------
Options outstanding at December 31, 1998.................... 3,155,019 10.54
Options:
Granted................................................... 873,142 64.28
Exercised................................................. (577,461) 8.54
Canceled.................................................. (73,181) 10.50
----------
Options outstanding at December 31, 1999.................... 3,377,519 24.73
==========
</TABLE>
In September 1998, the Compensation Committee of the Board of Directors
adopted a resolution to offer employees holding stock options for 1,324,818
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 $10.75 per share, which exceeded the market price during the
employee decision period, in place of an original average exercise price of
$14.74. The new options vest over one to four years. Options for directors and
officers were not repriced. Option holders elected to exchange options covering
1,056,940 shares, which are included as both options granted and canceled during
1998 in the preceding table.
F-16
<PAGE>
TRIQUINT SEMICONDUCTOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999, 1998 AND 1997
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE INFORMATION)
(6) STOCKHOLDERS' EQUITY (CONTINUED)
The following table summarizes information concerning stock options
outstanding and exercisable at December 31, 1999:
<TABLE>
<CAPTION>
NUMBER WEIGHTED- NUMBER
OUTSTANDING AVERAGE WEIGHTED- EXERCISABLE WEIGHTED-
AS OF REMAINING AVERAGE AS OF AVERAGE
RANGE OF DECEMBER 31, CONTRACTUAL EXERCISE DECEMBER 31, EXERCISE
EXERCISE PRICES 1999 LIFE PRICE 1999 PRICE
- ---------------- ------------ ----------- --------- ------------ ---------
<S> <C> <C> <C> <C> <C>
$0.92 - 4.24.. 372,601 4.34 $ 3.78 372,601 $ 3.76
4.32 - 8.40 83,377 6.21 7.72 75,142 7.66
8.74 - 10.74 984,730 8.63 10.70 254,854 10.64
10.78 - 12.42 423,125 8.44 12.18 81,151 12.22
12.44 - 14.32 348,052 7.51 13.60 105,855 13.64
14.36 - 23.50 429,090 7.39 17.72 178,729 15.86
24.00 - 77.00 267,392 8.97 50.42 28,943 29.44
84.50 - 84.50 447,017 9.92 84.50 -- --
85.12 - 109.24 18,090 9.92 93.72 -- --
111.24 - 111.24 4,345 10.00 111.24 -- --
--------- ---------
$ 0.92 - 111.24 3,377,519 8.01 $ 24.72 1,097,275 $ 9.86
========= =========
</TABLE>
(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
$83.33. 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.
F-17
<PAGE>
TRIQUINT SEMICONDUCTOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999, 1998 AND 1997
(IN THOUSANDS, EXCEPT SHARE INFORMATION)
(7) INCOME TAXES
The provision for income taxes consists of:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------
1999 1998 1997
-------- --------- --------
<S> <C> <C> <C>
Current:
Federal............................................. $ -- $ -- $637
State............................................... 300 94 200
Foreign............................................. -- -- 53
------ --------- ----
Total current..................................... 300 94 890
------ --------- ----
Deferred:
Federal............................................. 3,636 -- --
State............................................... 480 -- --
Foreign............................................. -- -- --
------ --------- ----
Total deferred.................................... 4,116 -- --
------ --------- ----
Total............................................. $4,416 $ 94 $890
====== ========= ====
</TABLE>
The effective tax rate differs from the federal statutory income tax rate as
follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Tax expense (benefit) computed at federal statutory
rate............................................... 34.0% (34.0)% 34.0%
State income tax, net of federal effect.............. 4.4 (4.3) 4.4
Increase (decrease) in valuation allowance........... (41.9) 55.8 (6.7)
Difference between financial and tax reporting for
stock option exercises............................. 17.5 (13.3) (25.0)
Other................................................ 1.1 (1.8) 4.8
----- ----- -----
Effective tax rate................................... 15.1% 2.4% 11.5%
===== ===== =====
</TABLE>
F-18
<PAGE>
TRIQUINT SEMICONDUCTOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999, 1998 AND 1997
(IN THOUSANDS, EXCEPT SHARE INFORMATION)
(7) INCOME TAXES (CONTINUED)
The tax effects of significant items comprising the Company's deferred tax
asset and liability are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1999 1998
-------- --------
<S> <C> <C>
Deferred tax liabilities:
Amortization........................................... $ -- $ 686
Capital leases......................................... 31,122 28,313
Other.................................................. 170 --
------- --------
Total deferred tax liability......................... 31,292 28,999
------- --------
Deferred tax assets:
Amortization........................................... 256 --
Accounts receivable.................................... 221 81
Inventories............................................ 2,119 1,002
Accrued liabilities.................................... 509 628
Net operating loss carryforwards....................... 19,004 16,805
Depreciation........................................... 18,710 22,031
Other.................................................. 1,423 794
------- --------
Total deferred tax asset before valuation
allowance.......................................... 42,242 41,341
Valuation allowance...................................... -- (12,342)
------- --------
Total deferred tax asset............................. 42,242 28,999
------- --------
Net deferred tax asset............................... $10,950 $ --
======= ========
</TABLE>
The valuation allowance for deferred tax assets as of January 1, 1997 was
$10,135. The net change in total valuation allowance for the years ended
December 31, 1999, 1998 and 1997 was an increase (decrease) of $(12,342), $2,207
and $(517), respectively. Approximately $5,151 of the valuation allowance for
deferred tax assets is credited directly to stockholders' equity in 1999 since
it is more likely than not that the tax benefits of net operating losses that
resulted from stock option exercises will be recognized.
At December 31, 1999, the Company had approximately $51,819 of net operating
loss carryforwards to offset against future income for federal income tax
purposes which expire from 2004 through 2019, and $21,290 for Oregon state
income tax purposes which expire in years 2007 through 2014.
The Company's ability to use its net operating loss carryforwards to offset
future taxable income is subject to annual restrictions contained in the United
States Internal Revenue Code of 1986, as amended (the Code). These restrictions
act to limit the Company's future use of its net operating losses following
certain substantial stock ownership changes enumerated in the Code and referred
to hereinafter as an "ownership change."
Consummation of the Company's initial public offering created an ownership
change that has resulted in approximately $12,600 of the pre-1994 net operating
loss carryforwards being limited to approximately
F-19
<PAGE>
TRIQUINT SEMICONDUCTOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999, 1998 AND 1997
(IN THOUSANDS, EXCEPT SHARE INFORMATION)
(7) INCOME TAXES (CONTINUED)
$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
(a) COMMITMENTS
In 1999, the Company entered into an agreement for the expansion of its
facility in Hillsboro Oregon. This obligation is for approximately $6,500 and
the expected completion date is May 2000. This expansion will increase the
facility's clean room space by one-third its current size.
(b) 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 year ended December 31, 1999, the
Company made matching contributions of 50% of employees' contribution up to a
maximum of $1 per employee. No contributions were made in 1997 or 1998.
(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.
F-20
<PAGE>
TRIQUINT SEMICONDUCTOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999, 1998 AND 1997
(IN THOUSANDS, EXCEPT SHARE INFORMATION)
(10) CONCENTRATION OF RISK (CONTINUED)
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 receives certain disaggregated
financial information for the Company's four product lines: Wireless
Communications; Telecommunications and Data Communications; Foundry; and
Millimeter Wave Communications.
The Company has aggregated its four product lines into a single reportable
segment as allowed under SFAS No. 131 because these product lines have similar
long-term economic characteristics, including average gross margin. In addition,
the 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.
Revenues by product line (as defined by the Company) as a percentage of
total revenues for years ended December 31, 1999, 1998 and 1997 were as follows:
Wireless Communications, 33%, 45% and 47%, respectively; Telecommunications and
Data Communications, 16%, 18% and 53%, respectively; Foundry 21%, -0-% and -0-%,
respectively; Millimeter Wave Communications, 30%, 37% and -0-%, respectively.
Revenues outside of the United States were approximately $62,800, $26,800
and $24,300 in 1999, 1998 and 1997, respectively, of which sales to Canada
comprised $26,871, $10,524 and $8,527, respectively. There were no other foreign
countries to which sales represented 5% or more of total revenues.
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,
------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Customer A................................................. 17% 10% 12%
Customer B................................................. 21 12 --
Customer C................................................. -- 12 --
</TABLE>
Related receivables from such customers were 30% and 26% of trade accounts
receivable at December 31, 1999 and 1998, respectively.
F-21
<PAGE>
TRIQUINT SEMICONDUCTOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999, 1998 AND 1997
(IN THOUSANDS, EXCEPT SHARE INFORMATION)
(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.
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.
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 EVENTS
On December 2, 1999, the Company's Board of Directors announced a
two-for-one forward stock split in the form of a stock dividend. The two-for-one
split is payable on February 22, 2000 to stockholders of record on February 1,
2000.
On February 11, 2000, the Company's Board of Directors authorized the
issuance of $275,000 of Convertible Subordinated Notes.
At a special meeting of stockholders on January 31, 2000, the Company's
stockholders approved an increase in the number of authorized shares of common
stock to 200,000,000 shares. The increase was effected on February 1, 2000.
F-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, 1997:
Allowance for doubtful accounts................... 219 -- 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
Year ended December 31, 1999:
Allowance for doubtful accounts................... 262 861 280 843
Inventory valuation reserve....................... 2,422 4,071 1,337 5,156
</TABLE>
S-1
<PAGE>
EXHIBITS
<TABLE>
<CAPTION>
SEQUENTIAL
EXHIBIT NO. PAGE NO.
- --------------------- ----------
<S> <C> <C>
3.1(7) Certificate Incorporation of Registrant
3.1.1 Certificate of Amendment to Certificate of Incorporation
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>
<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.
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. 333-81273) as declared effective by the Securities and
Exchange Commission on June 22, 1999.
(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.
<PAGE>
EXHIBIT 3.1.1
CERTIFICATE OF AMENDMENT
OF
TRIQUINT SEMICONDUCTOR, INC.
TriQuint Semiconductor, Inc., a corporation organized and existing under the
laws of the State of Delaware (the "Corporation"), hereby certifies as follows:
A. The name of the Corporation is TriQuint Semiconductor, Inc. The
Corporation was originally incorporated under the same name, and the original
Certificate of Incorporation of the Corporation was filed with the Secretary of
State of the State of Delaware on September 26, 1996.
B. This Certificate of Amendment has been duly adopted in accordance with
the provisions of the General Corporation Law of the State of Delaware by the
Board of Directors and the stockholders of the Corporation.
C. Article FOURTH of the Corporation's Certificate of Incorporation is
amended and restated to read as follows:
FOURTH: The Corporation is authorized to issue two classes of stock to be
designated respectively Common Stock and Preferred Stock. The total
number of shares of all classes of stock which the Corporation has
authority to issue is Two Hundred Five Million (205,000,000), consisting
of Two Hundred Million (200,000,000) shares of Common Stock, $0.001 par
value (the "Common Stock"), and Five Million (5,000,000) shares of
Preferred Stock, $0.001 par value (the "Preferred Stock").
The Preferred Stock may be issued from time to time in one or more
series. The Board of Directors is hereby authorized subject to
limitations prescribed by law, to fix by resolution or resolutions the
designations, powers, preferences and rights, and the qualifications,
limitations or restrictions thereof, of each such series of Preferred
Stock, including without limitation authority to fix by resolution or
resolutions, the dividend rights, dividend rate, conversion rights,
voting rights, rights and terms of redemption (including sinking fund
provisions), redemption price or prices, and liquidation preferences of
any wholly unissued series of Preferred Stock, and the number of shares
constituting any such series and the designation thereof, or any of the
foregoing.
The Board of Directors is further authorized to increase (but not above
the total number of authorized shares of the class) or decrease (but not
below the number of shares of any such series then outstanding) the
number of shares of any series, the number of which was fixed by it,
subsequent to the issue of shares of such series then outstanding,
subject to the powers, preferences and rights, and the qualifications,
limitations and restrictions thereof stated in the resolution of the
Board of Directors originally fixing the number of shares of such
series. If the number of shares of any series is so decreased, then the
shares constituting such decrease shall resume the status which they had
prior to the adoption of the resolution originally fixing the number of
shares of such series.
D. The foregoing amendment of the Corporation's Certificate of Incorporation
shall become effective at the close of business on February 1, 2000.
<PAGE>
IN WITNESS WHEREOF, the Corporation has caused this Certificate of Amendment
to be signed by Steven J. Sharp, its President and Chief Executive Officer,
effective as of February 1, 2000.
<TABLE>
<S> <C> <C>
TRIQUINT SEMICONDUCTOR, INC.
By: /s/ STEVEN J. SHARP
-----------------------------------------
Steven J. Sharp
PRESIDENT AND CHIEF EXECUTIVE OFFICER
</TABLE>
<PAGE>
EXHIBIT 23.1
The Board of Directors
TriQuint Semiconductor, Inc.:
We consent to incorporation by reference in the registration statements
(Nos. 333-75464, 333-02166, 333-08891, 333-08893, 333-31585, 333-48883,
333-66707, 333-74617, 333-81273) on Form S-8 of TriQuint Semiconductor, Inc. of
our report dated February 4, 2000, except for Note 13 which is as of
February 11, 2000, relating to the consolidated balance sheets of TriQuint
Semiconductor, Inc. and subsidiaries as of December 31, 1999, and 1998, and the
related consolidated statements of operations, stockholders' equity, and cash
flows for each of the years in the three-year period ended December 31, 1999,
and the related financial statement schedule, which report appears in the
December 31, 1999 Annual Report on Form 10-K of TriQuint Semiconductor, Inc.
/S/ KPMG LLP
Portland, Oregon
February 14, 2000
<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, 1999 AND
THE BALANCE SHEET AS OF DECEMBER 31, 1999.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 76,873
<SECURITIES> 116,465
<RECEIVABLES> 26,909
<ALLOWANCES> 843
<INVENTORY> 24,676
<CURRENT-ASSETS> 250,939
<PP&E> 38,657
<DEPRECIATION> 44,891
<TOTAL-ASSETS> 339,941
<CURRENT-LIABILITIES> 33,242
<BONDS> 4,783
0
0
<COMMON> 302,937
<OTHER-SE> (1,021)
<TOTAL-LIABILITY-AND-EQUITY> 339,941
<SALES> 163,663
<TOTAL-REVENUES> 163,663
<CGS> 95,069
<TOTAL-COSTS> 140,569
<OTHER-EXPENSES> 61
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (1,062)
<INCOME-PRETAX> 29,372
<INCOME-TAX> 4,416
<INCOME-CONTINUING> 24,956
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 24,956
<EPS-BASIC> 1.53
<EPS-DILUTED> 1.34
</TABLE>
