-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, IvgUoStAlp+jOgxM+xrLf1L3lWvyc0SHPlD/tRMjO+SW60FTryl7AkOnolrMd0Mj j8X2g0xAt3ze73xHjeTh0w== 0000912057-97-011298.txt : 19970401 0000912057-97-011298.hdr.sgml : 19970401 ACCESSION NUMBER: 0000912057-97-011298 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970331 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: TRIQUINT SEMICONDUCTOR INC CENTRAL INDEX KEY: 0000913885 STANDARD INDUSTRIAL CLASSIFICATION: SEMICONDUCTORS & RELATED DEVICES [3674] IRS NUMBER: 953654013 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-22660 FILM NUMBER: 97570213 BUSINESS ADDRESS: STREET 1: 2300 NE BROOKWOOD PARKWAY CITY: HILLSBOROR STATE: OR ZIP: 97124 BUSINESS PHONE: 5036159186 MAIL ADDRESS: STREET 1: 2300 NE BROOKWOOD PARKWAY CITY: HILLSBORO STATE: OR ZIP: 97124 10-K 1 10-K SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K ------------------------- /X/ Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the fiscal year ended December 31, 1996 or / / Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition period from to ------------------------------ --------------------------------- COMMISSION FILE NUMBER: 0-22660 TRIQUINT SEMICONDUCTOR, INC. (Exact name of registrant as specified in its charter) DELAWARE 95-3654013 (State or other jurisdiction of (I.R.S. Employer Identification Number) incorporation or organization) 2300 N.E. BROOKWOOD PARKWAY HILLSBORO, OREGON 97124 (Address of principal executive office) Registrant's Telephone number, including area code: (503) 615-9000 SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NONE SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: Common Stock, $.001 par value (Title of Class) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ------ ------- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. X --- The aggregate market value of the voting stock held by non-affiliates of the registrant, based upon the closing sale price of the Common Stock on February 28, 1997 as reported on the Nasdaq Stock Market's National Market, was approximately $240,761,804. Shares of Common Stock held by each executive officer and director and by each person who owns 5% or more of the outstanding Common Stock have been excluded in that such persons may be deemed affiliates. This determination of affiliate status is not necessarily a conclusive determination for other purposes. As of February 28, 1997, registrant had outstanding 8,240,170 shares of Common Stock. The Index to Exhibits appears on page 16 of this document. DOCUMENTS INCORPORATED BY REFERENCE The Registrant has incorporated into Part III of Form 10-K by reference portions of its Proxy Statement, dated April 15, 1997. Portions of the Registrant's Annual Report to Stockholders for the fiscal year ended December 31, 1996 are incorporated by reference in Parts II and IV of Form 10-K. TRIQUINT SEMICONDUCTOR, INC. 1996 ANNUAL REPORT ON FORM 10-K TABLE OF CONTENTS PART I . PAGE ITEM 1. BUSINESS. . . . . . . . . . . . . . . . . . . . . . . . . 3 ITEM 2. PROPERTIES. . . . . . . . . . . . . . . . . . . . . . . . 13 ITEM 3. LEGALPROCEEDINGS. . . . . . . . . . . . . . . . . . . . . 14 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. . . . . . . . . . . . . . . . . . . . . 14 PART II ITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY AND RELATED STOCKHOLDER MATTERS . . . . . . . . . . . . . . . 15 ITEM 6. SELECTED FINANCIAL DATA . . . . . . . . . . . . . . . . . 15 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS . . . . . . 15 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA . . . . . . . 15 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. . . . . . . . . . 15 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. . . . 16 ITEM 11. EXECUTIVE COMPENSATION. . . . . . . . . . . . . . . . . . 16 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT . . . . . . . . . . . . . . . . . . 16 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. . . . . . 16 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8K. . . . . . . . . . . . . . . . . . 17 -2- PART I ITEM 1. BUSINESS The following contains forwarding-looking statements based on current expectations and entail various risks and uncertainties that could cause actual results to differ materially from those anticipated in these forward-looking statements as a result of certain factors discussed herein. These forward-looking statements include, but are not limited to, those regarding the Company's markets, customers, products and competition. Certain risks that the Company faces include, but are not limited to, the risk of lower than expected production yields, the risks associated with the Company's move of its fabrication facility to a new location, the risks associated with operating its own wafer fabrication facility, the risks stemming from failure to receive orders to produce a high volume of products that are custom-designed and the risks associated with the reliance on a limited number of suppliers, some of which are outside the United States. TriQuint Semiconductor, Inc. ("TriQuint" or the "Company") designs, develops, manufactures and markets a broad range of high performance analog and mixed signal integrated circuits for the wireless communications, telecommunications and computing markets. The Company utilizes its proprietary gallium arsenide ("GaAs") technology to enable its products to overcome the performance barriers of silicon devices in a variety of applications. The Company sells its products on a worldwide basis and the Company's end user customers include Alcatel, Cirrus Logic, Digital Equipment, DSC Communications, Ericsson, Hughes, IBM, Lucent Technologies, Motorola, Northern Telecom, Philips, Rockwell, Siemens, Storage Technology, and Stratacom. INDUSTRY BACKGROUND Market demands for higher levels of performance in electronic systems have produced an increasing number of varied, complex applications. The increased capabilities of these new systems, in turn, are spawning new markets and a further proliferation of new, sophisticated applications. Many of these new applications have emerged in the wireless communications, telecommunications and computer industries. The wireless communications industry is experiencing rapid growth with the advent of new applications such as digital cellular telephones, personal communication systems ("PCS"), pagers, handheld navigation products based on the global positioning satellite ("GPS") standard, satellite communications such as Direct Broadcast Satellite ("DBS"), wireless local area networks ("WLANs"), wireless data transmission systems such as Cellular Digital Packet Data ("CDPD") modems and wireless cable television. In addition, many of these new applications require battery powered portability. The proliferation of some of these new applications has led to increased communication traffic resulting in congestion of the historically assigned frequency bands. As a consequence, wireless communications are moving to higher, less congested frequency bands. For example, in recognition of the potential for such applications, United States government regulatory agencies have auctioned licenses for a new spectrum of radio frequencies above 1.8 GHz, or approximately twice the frequency of existing cellular networks. These licenses will be used as the United States PCS is deployed. The Company believes the increasing demand for wireless communications at higher frequencies, will lead to entirely new high volume applications. The telecommunications industry is encountering increasing demand for higher transmission rates and increased capacity to accommodate the growth of traditional voice traffic and higher levels of data traffic arising from widely - used applications such as facsimile communications, computer networking and online and Internet services. Today's advanced telecommunications systems employ high speed switching networks and fiber optic cable operating in accordance with high frequency standards such as synchronous optical network ("SONET"), Synchronous Digital Hierarchy ("SDH"), integrated services digital network ("ISDN") and the emerging asynchronous transfer mode ("ATM") standard. For example, high performance SONET telecommunications systems can operate at frequencies of 2.48 gigabits per second or higher. The advent of video communications and multimedia (combinations of voice, video and data) are placing further demands on these systems for even higher data transmission rates. In the computer industry, data processing speeds have increased rapidly, bringing enormous computing power to individual users. The demand to share data and peripheral equipment among these users has led to the widespread use of networking systems operating at increasing speeds. Today's advanced data communication links use systems such as Fibre Channel and Gigabit Ethernet to transmit data at rates up to 1.25 Gbit/sec. These performance increases have been, in great part, made possible by succeeding generations of higher speed microprocessors. The newest generation of these products, such as the Pentium, PowerPC and Alpha microprocessors, operate at speeds ranging from 60 MHz to several hundred megahertz. These microprocessors can process data many times faster than the data can be controlled, manipulated and communicated within the system or networked between systems, creating bottlenecks which limit overall system performance. -3- To address the market demands for higher performance, electronic system manufacturers have relied heavily on advances in semiconductor technology. In recent years, the predominant semiconductor technologies used in advanced electronic systems have been silicon-based complementary metal oxide semiconductor ("CMOS"), bipolar complementary metal oxide semiconductor ("BiCMOS") and emitter coupled logic ("ECL") process technologies. However, the newest generation of high performance electronic systems requires further advances in semiconductor performance. One way to improve performance is to combine analog and digital circuitry on the same device. This combination, known as mixed signal technology, can provide higher levels of integration (smaller size and increased functionality), reduced power consumption and higher operating frequencies. Notwithstanding the benefits of mixed signal technology, the performance requirements of certain critical system functions generally cannot be achieved using silicon-based components. As a result, system manufacturers are seeking semiconductor products which can overcome the performance limitations of silicon devices in a variety of applications. GaAs semiconductor technology has emerged as an effective alternative or complement to silicon solutions in many high performance applications. GaAs has inherent physical properties which allow its electrons to move up to five times faster than those of silicon. This higher electron mobility permits the manufacture of GaAs integrated circuits which operate at much higher speeds than silicon devices, or operate at the same speeds with lower power consumption. In many new applications, GaAs integrated circuits enable high performance systems to process data more quickly, increasing system operating rates. In addition, the use of GaAs integrated circuits can reduce system power requirements, which is particularly important in battery powered portable applications. The high performance characteristics of GaAs, combined with the system requirements of the communications and computing industries, have led to the first use of GaAs components in high volumes to complement silicon devices in a wide range of commercial systems. The Company believes that the continuation and acceleration of these trends will result in increasing demand for GaAs integrated circuits, thereby creating substantial opportunities for market-focused manufacturers who can provide a broad range of cost effective GaAs integrated circuits in high volume. MARKETS AND CUSTOMERS TriQuint has focused on commercial applications in the wireless communications, telecommunications and computing market areas which can benefit significantly from the performance of GaAs and the Company's analog and mixed signal design expertise. WIRELESS COMMUNICATIONS GaAs design and manufacturing technologies are being applied to commercial communications in satellites, satellite receivers for TV broadcast, wireless transceivers for data networks, handheld navigation systems based on the GPS system, wireless LANs, cellular telephones and PCSs. Frequency bands are allocated to the various wireless communications applications by government regulatory bodies throughout the world. The allocation is based, among other factors, upon the availability of unallocated frequency bands and the ability of equipment to operate effectively in these bands. As the lower frequency bands become fully allocated and congested, and the volume and rate of communications increases, the trend is toward the allocation and use of higher frequency bands. Major examples are the introduction of Japan's PHS and the U.S. government's auction of PCS licenses. Both systems operate at approximately twice the frequency of conventional cellular systems. The speed of GaAs technology makes it well-suited for applications at these higher frequencies. In addition to its superior ability to operate at higher frequencies, GaAs provides other important performance advantages over silicon in key wireless communications system functions. Some of the most important advantages are improved signal reception, better signal processing in congested bands and greater power efficiency for longer battery life in portable applications. -4- TELECOMMUNICATIONS GaAs technologies are well suited for the growing markets and applications which require the transmission or manipulation of large amounts of information at high speeds with high data integrity. These applications, which typically require customer specific solutions and include digital, analog and mixed signal functions, are found primarily in the telecommunications industry, but also span other industries such as instrumentation and aerospace. For many of these applications, the Company's products provide better price/performance value than silicon. The intrinsic electrical properties of GaAs result in higher speed, lower noise and less power consumption compared to silicon. The Company believes that the increasing use of fiber optic cable in telecommunications and data communications systems has created a significant growth opportunity for the Company's GaAs products. Because data transmission rates in fiber optic cable can be many times greater than those of copper line, a single fiber line can cost-effectively replace multiple copper lines. In order to take advantage of the potential cost advantages of fiber optic communications, information must be transmitted at higher rates generally achievable only through the use of GaAs products such as those manufactured by TriQuint. The telecommunication industry has established a series of standards, most notably SONET and ISDN, which define transmission rates, protocols, signal quality and reliability. GaAs based products address the performance requirements of these standards, as well as emerging standards such as ATM. For the higher speed communication links (2.48 Gbit/sec and above), GaAs components currently offer a preferred solution. At lower transmission rates, such as 622 Mbit/sec, GaAs integrated circuits use less power than silicon devices. COMPUTING Both the performance of microprocessors and the density of storage devices have increased substantially in recent years, creating significant bottlenecks in other portions of computing systems. TriQuint's computing products are specifically designed to alleviate these bottlenecks and to help designers optimize performance in personal computers, workstations, servers and advanced graphics terminals by increasing the speed and precision of microprocessor control functions and by permitting more rapid data transmission between computers or between computers and peripherals. TriQuint's products for the computing market provide solutions for two critical system areas: system timing and data communications. SYSTEM TIMING. Clock signals are the heartbeat of every computer system. They determine exactly when events will occur in the system and how fast a system will operate. Delays, timing differences (referred to as "skew") and lack of synchronization in clock signals can affect system operation and/or reduce system speed. Clock generation, control and distribution have therefore become key elements of high speed, robust system designs. Advanced microprocessors such as the Pentium, PowerPC and Alpha processors have special high speed clocking requirements. The inherently higher speed of GaAs technology, combined with the Company's mixed signal circuit designs, results in integrated circuits which facilitate precise clock signal generation, control and distribution. DATA COMMUNICATIONS. Data communications equipment is typically used to interconnect mainframe computers, clients and servers, workstations, disk storage arrays and other peripheral devices. Other applications, which require transmission of large amounts of data at high speed include multimedia computing, supercomputing, multiprocessor systems, interactive computer aided design/computer aided manufacturing ("CAD/CAM"), medical imaging and high speed, high resolution printing. As new applications requiring higher volume data transfer have proliferated, and as microprocessor speeds have increased, a critical bottleneck has developed in these communications links. The computation speed of today's microprocessors is 10 to 100 times faster than currently available communications equipment based on communications standards such as Ethernet and Small Computer System Interface ("SCSI"). A solution to this problem is the use of high speed serial data transmission by means of coaxial or fiber optic cable in combination with the Company's mixed signal transmitting and receiving devices. For example, leading computer manufacturers have acknowledged the need for high speed serial data communications links by supporting the Fibre Channel standard which can operate up to 1.25 Gbit/sec. TriQuint's products, using the Company's mixed signal technology, enable high speed data transmission with high data integrity. -5- CUSTOMERS The Company has a broad customer base of leading systems manufacturers and has shipped products or provided manufacturing services directly to approximately 150 end user customers and distributors. Cirrus Logic accounted for approximately 17% and 24% of the Company's total revenues in 1996 and 1995 respectively. In addition, GIGA A/S, a European distributor, accounted for approximately 12% and 11% of the Company's total revenues in 1996 and 1995 respectively. Northern Telecom accounted for approximately 12% and 14% of the Company's total revenues in 1996 and 1995, respectively. No other customer of the Company accounted for greater than 10% of total revenues during such periods. If the Company were to lose any major customer, such as Cirrus Logic, GIGA A/S, or Northern Telecom or if sales were to otherwise decrease, the Company's operating results would be adversely affected. The markets in which the Company's customers compete are characterized by rapidly changing technology, evolving industry standards and continuous improvements in products and services. If technologies or standards supported by the Company's or its customers' products become obsolete or fail to gain widespread commercial acceptance, the Company's business may be materially adversely affected. PRODUCTS The Company's broad range of standard and customer-specific integrated circuits, combined with its manufacturing and design services, allow customers to select the specific integrated circuit solution which best fulfills their technical and time-to-market requirements. STANDARD PRODUCTS TriQuint offers families of standard products for each of its target markets. WIRELESS COMMUNICATIONS. The Company's standard products for this varied market are used as building blocks for multi-purpose applications in radio frequency ("RF") and microwave systems. These systems include personal communications networks, cellular telephones, satellite communications and navigation systems and wireless computer networks. TriQuint's wireless communications standard products leverage the advantages of the Company's proprietary GaAs technology by addressing the needs of system designers for low noise, power efficient amplification, low loss switching and efficient and accurate frequency conversion. TELECOMMUNICATIONS. While most of the Company's telecommunications products are customer-specific, the Company also offers standard telecommunications products, such as SONET and SDH multiplexers and demultiplexers to provide low bit-error-rate performance in standard transmission applications and SONET/SDH compatible transceivers that support clock and data recovery and ATM framing, as well as high performance crosspoint switches. COMPUTING. For computing systems, TriQuint offers families of standard products which are designed to be fully compatible with the silicon devices used elsewhere in the system. The Company's products are targeted at two critical applications where the advantages of GaAs technology can provide superior solutions for system designers. These critical applications are system timing and data communications. CUSTOMER-SPECIFIC PRODUCTS AND SERVICES TriQuint offers its customers a variety of product options and services for the development of customer-specific products. Services offered by the Company include design, wafer fabrication, test engineering, package engineering, assembly and test. Customer-specific products and services generally provide revenue at two stages: first when the design is developed and engineered, and second when TriQuint manufactures the device. The Company focuses the development of its customer specific products on its target markets in applications involving volume production requirements. As is typical in the semiconductor industry, customer specific products are developed for specific applications. As a result, the Company expects to generate production revenues only from those customer specific products that are subsequently produced in high volume. -6- Customer-specific designs are generally implemented by one of three methods. Under the first method, the customer supplies the Company with detailed performance specifications and TriQuint performs the complete design, development and subsequent manufacturing of the integrated circuits. Under the second method, TriQuint supplies a "library" of pre-designed components, called cells. TriQuint also provides the customer the training and CAD tools necessary to create a complete product design from these cells. Upon completion of the design by the customer, TriQuint manufactures the product. Under the third method, TriQuint supplies circuit design and process rules to its wireless communication customers and the customer's internal engineering staff designs the product which TriQuint then manufactures. The Company's cell library of digital and analog circuit components provides it with a competitive advantage in designing and developing integrated circuits for standard or customer specific products. The digital cell library currently includes a variety of functions such as gates, registers, adders and multiplexers with multiple speed/power options for performance optimization. Gate speeds as fast as 80 picoseconds and flip flop toggle rates to 2.5 GHz are available. Emitter coupled logic ("ECL"), transistor-transistor logic ("TTL") and CMOS interface cells can be supported on the same chip design. The analog cells in the Company's library include oscillators, amplifiers, mixers, switches and modulators. Each analog cell is essentially a complete integrated circuit function including all necessary passive (resistors, capacitors and inductors) and active (transistors and diodes) components. The analog cells are designed for both broadband and narrowband operation up to 2.5 GHz enabling the designer to select cells best suited for the specific application. These analog cells can be used in conjunction with digital cells to create mixed signal integrated circuit designs. A substantial portion of the Company's products are designed to address the needs of individual customers. Frequent product introductions by systems manufacturers make the Company's future success dependent on its ability to select customer-specific development projects which will result in sufficient production volume to enable the Company to achieve manufacturing efficiencies. Because customer-specific products are developed for unique applications, the Company expects that some of its current and future customer-specific products may never be produced in high volume. In addition, in the event of significant delays in completing designs or the Company's failure to obtain development contracts from customers whose systems achieve and sustain commercial market success, the Company's results of operations could be materially adversely affected. DESIGN AND PROCESS TECHNOLOGY In order to develop and introduce new products rapidly and cost-effectively which address the needs of its target markets, the Company has made substantial investments in building its capabilities in digital, analog and mixed signal circuit design. The Company has developed an extensive library of digital and analog cells and associated software tools and databases which it uses to facilitate the design of its integrated circuits. The Company has also developed and documented process and design rules which allow customers to design proprietary circuits themselves. Mixed signal products, which generally involve varied and complex functions operating at high frequencies, generally present design and testing challenges. The Company believes that its extensive cell library, optimized mixed signal process technology and design and test engineering expertise in high performance mixed signal integrated circuits address these challenges and provide a significant competitive advantage. TriQuint's manufacturing strategy is primarily to use a single high volume core process technology which enables it to provide cost-effective solutions for its customers. The Company's advanced wafer manufacturing process emphasizes stability, uniformity and repeatability. Unlike its GaAs competitors who have typically concentrated on either digital or analog products, TriQuint has intentionally pursued a process technology that is cost-effective for digital, analog and mixed signal applications. As a result of the ability to primarily utilize a single core process in the manufacture of its products, the Company is able to enjoy the cost advantages associated with standard high volume semiconductor manufacturing practices. The process, which employs all implanted structures, 4 micron metal pitch and 0.5 to 0.7 micron geometries, involves 10 to 13 mask steps, has a cutoff frequency of up to 21 GHz and is scaleable. This scalability facilitates further cost reduction and performance improvement. The Company believes that its process technology and manufacturing approach allows it to achieve higher yields and shorter cycle times than are typical for GaAs processes and which are comparable to high performance silicon processes. The Company applies the technological advances within the silicon and related support industries to its design and manufacturing processes. TriQuint utilizes popular CAD and process control tools and test equipment. The Company uses standard silicon industry packages primarily, and subcontracts its product assembly operations. -7- MANUFACTURING The Company's existing wafer manufacturing facility is located in Beaverton, Oregon in a facility owned by Maxim Integrated Products, Inc. ("Maxim") and located on the Tektronix, Inc. ("Tektronix") campus (the "Maxim facility"). The Company's lease in the Maxim facility expires in January 1998. In anticipation of the expiration of this lease, the Company began construction of a new headquarters and manufacturing facility in 1996 in Hillsboro, Oregon and anticipates that it will commence wafer production in the new facility during the second half of 1997. The Company intends to operate both manufacturing facilities until the Hillsboro facility is operating at normal capacity or until the lease on the Maxim facility expires. There can be no assurance that the Company will be able to successfully transition its operations to the Hillsboro facility prior to the expiration of the Company's lease on the Maxim facility or that the Company will not experience cutbacks in manufacturing output as a result. Given the long lead times associated with bringing a new facility to full operation, it is likely that the Company will incur substantial cash expenses before achieving volume production in the Hillsboro facility. The transfer of the Company's wafer fabrication operations to the Hillsboro facility will involve a number of significant risks and uncertainties, including, but not limited to, delays in construction, cost overruns, equipment delays or shortages and manufacturing transition, startup or process problems. The Company utilizes the Maxim facility's wafer fabrication facility equipment at approximately 75% of capacity based on a three shift, five day per week operation. Should there be substantial delays in opening the Hillsboro facility, the Company may not have adequate capacity to respond to all orders during the transition period. In addition, if the Hillsboro facility does not become fully operational prior to the expiration of the lease on the Maxim facility, there can be no assurance that the Company would not have to reduce production. The transition of manufacturing operations to the Hillsboro facility could place significant strain on the Company's management and engineering resources and result in diversion of management attention from the day to day operation of the Company's business. There can be no assurance that the Company will be able to hire additional management, engineering and other personnel, as needed, to manage effectively, the transition to the Hillsboro facility and to implement production at such facility in a timely manner and within budget. The Maxim facility consists of 30,000 square feet and includes a 15,000 square foot clean room, with class 10 performance (no more than ten particles larger than 0.5 microns in size per cubic foot of air). The Company, pursuant to its lease and other agreements relies on Maxim and Tektronix to provide utilities and other services and for treatment and disposal of waste products, respectively, at the existing facility. The Hillsboro facility will consist of 38,000 square feet, of which 16,000 will be operated as a class 10 performance clean room. The Hillsboro facility will operate as the Company's only wafer fabrication plant and the Company believes it will provide adequate room for expansion for the foreseeable future. At the Hillsboro facility, the Company will be responsible for providing its own utilities and services and will be responsible for its own manufacturing waste treatment and disposal. Should the Company be unable to effect a timely transition to providing its own utilities, services and waste treatment and disposal, the Company's wafer fabrication would be adversely affected. The fabrication of semiconductor products is highly complex and sensitive to dust and other contaminants, requiring production in a highly controlled, clean environment. Minute impurities, difficulties in the fabrication process or defects in the masks used to print circuits on the wafers can cause a substantial percentage of the wafers to be rejected or numerous die on each wafer to be nonfunctional. As compared to silicon technology, the less mature stage of GaAs technology leads to somewhat greater difficulty in circuit design and in controlling parametric variations, thereby yielding fewer good die per wafer. The more brittle nature of GaAs wafers can lead to higher processing losses than experienced with silicon wafers. To maximize wafer yield and quality, the Company tests its products in various stages in the fabrication process, maintains continuous reliability monitoring and conducts numerous quality control inspections throughout the entire production flow using analytical manufacturing controls. Although the Company has refined and improved its core processes to double manufacturing yields since 1990, there can be no assurance that the transition to the Hillsboro facility will not be accompanied by a reduction in wafer fabrication yields. A sustained failure to maintain acceptable yields during the transition process or achieve acceptable yields at the Hillsboro facility would have a material adverse effect on the Company's operating results. The Company's operation of its own manufacturing facilities entails a high level of fixed costs. Such fixed costs consist primarily of occupancy costs for the Hillsboro and Maxim facilities, investment in manufacturing equipment, repair, maintenance and depreciation costs related to equipment and fixed labor costs related to manufacturing and process engineering. The Company's manufacturing yields vary significantly among its products, depending upon a given product's complexity and the Company's experience in manufacturing such product. The Company has in the past and may in the future experience substantial delays in product shipments due to lower than expected production yields. The Company's transition of manufacturing operations to the Hillsboro facility will result -8- in a significant increase in fixed and operating expenses. If revenue levels do not increase sufficiently to offset these additional expense levels, the Company's results of operations will be adversely impacted in future periods. Because the Company intends to capitalize the costs associated with bringing the Hillsboro facility to commercial production, the Company will recognize substantial depreciation expenses thereafter. In addition, during periods of low demand, high fixed wafer fabrication costs could have a material adverse effect on the Company's operating results. Employees of the Company have performed studies of the reliability of the Company's processes and have published more than 25 technical papers in such field. In October 1994, the Company received the ISO 9001 Quality System Certification with respect to its operations. The Company has successfully fabricated devices for "High Reliability" applications in commercial and military spacecraft since 1988. Through accelerated test techniques, the Company has demonstrated expected device failure rates of less than 100FITs (100 failures in 1 billion device-hours of operation) in the first twenty years of operation at maximum junction temperatures of 150 degrees Celsius. The reliability of the Company's processes may be inadvertently reduced by future engineering changes and the reliability of any given integrated circuit may be strongly influenced by design details, and there can be no assurance that circuits designed and manufactured in the future will achieve this level of reliability. Finally, the Hillsboro plant, as well as products manufactured at the new facility, must be qualified to meet acceptable levels of performance before products can be delivered to customers. In the event the plant or one or more of the Company's products fails to qualify, the Company's results of operations could be materially adversely affected. Wafer fabrication equipment used by the Company is generally the same as that used in a submicron silicon metal oxide semiconductor ("MOS") fabrication facility. While many of the process steps are also similar to those commonly used in silicon wafer manufacturing, TriQuint's GaAs manufacturing process has important differences. The GaAs process requires fewer steps and may be conducted at lower temperatures than those typically required in high performance silicon processes. Furthermore, GaAs wafers require more rigorous handling procedures than do silicon wafers. The raw materials and equipment used in the production of the Company's integrated circuits are available from several suppliers. The Company currently has four fully qualified wafer vendors, three of which are located in the United States. Three vendors supply the Company's mask sets, and the Company has an agreement with one of the three to procure a substantial portion of such mask sets. The Company assembles a portion of its products in-house but also uses outside assembly contractors. The Company performs in-house assembly at its Maxim facility for small lots of critical parts, engineering lots and assembly development for new packages. The Company anticipates that it will perform similar functions at the Hillsboro facility. Outside assembly for volume production is contracted to five vendors, two of which are located in the United States. The Company purchases high performance, multilayer ceramic packages from two vendors, neither of which is located in the United States. TriQuint believes it was the first supplier of GaAs integrated circuits to introduce plastic packages in volume production. The Company currently purchases plastic packaging services from three suppliers, one of which is located in the United States. A reduction or interruption in the performance of assembly services by subcontractors or a significant increase in the price changed for such services could adversely affect the Company's operating results. SALES AND DISTRIBUTION The Company sells its products through independent manufacturer's representatives and distributors and through a direct sales staff. As of December 31, 1996, TriQuint had 22 independent manufacturer's representative firms and two distributors in North America. TriQuint's six person direct sales management staff provides sales direction and support to the manufacturer's representatives and distributors. Domestic sales management offices are located in the metropolitan areas of Boston; Dallas; Los Angeles; Portland, Oregon; Philadelphia and San Jose. International business is supported by a network of 14 technical distributors in Europe, the Pacific Rim and Israel. In 1996, the Company sold its minority interest in its primary European distributor, GIGA A/S, a joint venture with a subsidiary of IC Holdings/AC (NKT), a European conglomerate. GIGA A/S continues as a European distributor for the Company. Sales outside of the United States were $19.1 million, $14.8 million and $12.7 million in 1996, 1995 and 1994, respectively. All international sales of the Company's products are denominated in U.S. dollars in order to reduce the exchange rate risks. Sales outside of the United States involve a number of inherent risks, including reduced protection for intellectual property rights in some countries, the impact of recessionary environments in economies outside of the United States and generally longer receivables collection periods, as well as tariffs and other trade barriers. In addition, due to the technological advantage -9- provided by GaAs in military applications, all export sales must be licensed by the Office of Export Administration of the U.S. Department of Commerce. Although the Company has experienced no difficulty in obtaining these licenses, failure to obtain these licenses in the future could have a material adverse effect on the Company's results of operations. The Company includes in its backlog all purchase orders and contracts for products requested by the customer for delivery within twelve months. The Company's business is characterized by long-term purchase contracts predominantly relating to customer-specific products, which are typically cancelable without significant penalty, at the option of the purchaser. Cancellations of such purchase contracts or rescheduling of delivery dates have occurred in the past and may occur in the future. The Company also produces standard products which frequently can be shipped from inventory within a short time after receipt of an order and therefore such orders may not be reflected in backlog. Accordingly, backlog as of any particular date may not necessarily be representative of actual sales for any future period. RESEARCH AND DEVELOPMENT The Company's research and development efforts are focused on the design of new integrated circuits, improvement of existing device performance, development of new processes, cost reductions in the manufacturing process and improvements in device packaging. New product developments for the wireless communications market include standard and customer-specific devices for satellite communications, navigation based on the GPS standard, PCS, wireless local area networks and wireless PBXs. New telecommunications product development efforts include higher performance switching and data conversion standard products as well as customer-specific products. New data communications chipsets are also being developed to support emerging communications standards. The Company's research, development and engineering expenses in 1996, 1995 and 1994 were approximately $10.9 million, $9.2 million and $9.9 million, respectively, and include non-recurring engineering (NRE) expenses funded by customers. As of December 31, 1996, there were approximately 121 employees engaged in activities related to process and product research and development. The Company expects that it will continue to spend substantial funds on research and development. The Company is continually in the process of designing new and improved products to maintain its competitive position. While the Company has patented a number of aspects of its process technology, the market for the Company's products is characterized by rapid changes in both GaAs and competing silicon process technologies. Because of continual improvements in these technologies, the Company believes that its future success will depend on its ability to continue to improve its products and processes and develop new technologies in order to remain competitive. Additionally, the Company's future success will depend on its ability to develop and introduce new products for its target markets in a timely manner. The success of new product introductions is dependent upon several factors, including timely completion and introduction of new product designs, achievement of acceptable fabrication yields and market acceptance. The development of new products by the Company and their design into customers' systems can take as long as three years, depending upon the complexity of the device and the application. Accordingly, new product development requires a long-term forecast of market trends and customer needs. Furthermore, the successful introduction of the Company's ongoing products may be adversely affected by the competing products or technologies serving markets addressed by the Company's products. In addition, new product introductions frequently depend on the Company's development and implementation of new process technologies. If the Company is unable to design, develop, manufacture and market new products successfully, its future operating results will be adversely affected. No assurance can be given that the Company's product and process development efforts will be successful or that its new products will be available on a timely basis or achieve market acceptance. In addition, as is characteristic of the semiconductor industry, the average selling prices of the Company's products have historically decreased over the products' lives and are expected to continue to do so. To offset such decreases, the Company relies primarily on obtaining yield improvements and corresponding cost reductions in the manufacture of existing products and on introducing new products which incorporate advanced features and which therefore can be sold at higher average selling prices. To the extent that such cost reductions and new product introductions do not occur in a timely manner or the Company's or its customers' products do not achieve market acceptance, the Company's operating results could be adversely affected. -10- COMPETITION The market for high performance semiconductors is highly competitive and subject to rapid technological change. Due to the increasing requirements for high speed components, the Company expects intensified competition from existing silicon device suppliers and the entry of new competition producing either silicon or GaAs components or components incorporating new technologies such as silicon germanium. The Company currently competes against silicon products offered principally by large semiconductor manufacturers such as Cypress, Motorola and Philips. In addition, the Company also currently competes against other GaAs semiconductor manufacturers, such as Anadigics and Vitesse. It is expected that additional future competition will primarily come from large semiconductor companies that have developed GaAs integrated circuit capabilities such as Fujitsu America, Inc., Motorola and NEC. Such companies have substantially greater technical, financial and marketing resources and name recognition than the Company. Increased competition could adversely affect the Company's revenue and profitability. GaAs integrated circuits have been used mostly in the wireless communications market on a production basis for products or subsystems operating below 1 GHz, such as spread spectrum and cellular telephone applications. As the lower frequency bands become more crowded, more applications will utilize frequencies above 1 GHz. At such higher frequencies, GaAs integrated circuit solutions generally provide superior performance as compared to silicon alternatives. TriQuint competes with both GaAs and silicon suppliers in the telecommunications market. In the computing market, TriQuint supplies standard products to a variety of electronic data processing and data communication systems manufacturers. In the computing market, the Company's competition comes from established silicon semiconductor companies and GaAs suppliers, and is generally based on performance elements such as speed, power dissipation, price, product quality and service. The Company's prospective customers are typically systems designers and manufacturers who are considering the use of GaAs semiconductors in their next high performance systems. Competition is primarily based on performance elements such as speed, complexity and power dissipation, as well as price, product quality and ability to deliver products in a timely fashion. The Company believes that it currently competes favorably with respect to these factors. Due to the proprietary nature of the Company's products, competition occurs almost exclusively at the system design stage. As a result, a design win by the Company or its competitors typically limits further competition with respect to manufacturing a given design. Some potential customers may be reluctant to adopt the Company's products because of perceived risks relating to GaAs technology generally, including perceived risks related to manufacturing costs, novel design and unfamiliar manufacturing processes. In addition, potential customers may have questions about the relative performance advantages of the Company's products compared to more familiar silicon semiconductors, or concerns about risks associated with reliance on a smaller, less well-capitalized company for a critical component. While GaAs integrated circuits have inherent speed advantages over silicon devices, the speed of products based upon silicon processes is continually improving. The Company's products are generally sole sourced to its customers, and the Company's operating results could be adversely affected if its customers were to develop other sources for the Company's products. The production of GaAs integrated circuits has been and continues to be more costly than the production of silicon devices. This cost differential relates primarily to higher costs of the raw wafer material, lower production yields associated with the relatively immature GaAs technology and higher unit costs associated with lower production volumes. Although the Company has reduced production costs by obtaining approximately 30% lower raw wafer costs over the last three fiscal years, by more than doubling wafer fabrication yields since 1990 and by achieving higher volumes, there can be no assurance that the Company will be able to continue to decrease production costs. In addition, the Company believes its costs of producing GaAs integrated circuits will continue to exceed the costs associated with the production of silicon devices. As a result, the Company must offer devices which provide superior performance to that of silicon such that the perceived price/performance of its products is competitive with silicon devices. There can be no assurance that the Company can continue to identify markets which require performance superior to that offered by silicon solutions or that the Company will continue to offer products which provide sufficiently superior performance to offset the cost differentials. -11- PATENTS AND LICENSES The Company aggressively seeks the issuance of patents to protect inventions and technology which are important to its business. The Company has been awarded numerous patents for circuit design and wafer processing; with various expiration dates, none earlier than April 2005. These include both U.S. and foreign patents. In addition, the Company has both U.S. and foreign registered trademarks. The Company has also routinely protected its numerous original mask sets under the copyright laws. There can be no assurance that the Company's pending patent or trademark applications will be allowed or that the issued or pending patents will not be challenged or circumvented by competitors. Notwithstanding the Company's active pursuit of patent protection, the Company believes that its future success will depend primarily upon the technical expertise, creative skills and management abilities of its officers and key employees rather than on patent ownership. The Company also relies substantially on trade secrets and proprietary technology to protect its technology and manufacturing know-how, and works actively to foster continuing technological innovation to maintain and protect its competitive position. There can be no assurance that the Company's competitors will not independently develop or patent substantially equivalent or superior technologies. Although there are no pending lawsuits against the Company regarding infringement of any existing patents or other intellectual property rights or any unresolved notices that the Company is infringing intellectual property rights of others, there can be no assurance that such infringement claims will not be asserted by third parties in the future with respect to the Company's products or that the Company's products will not infringe patent, trademark, mask work right, copyright or other proprietary rights of third parties. Additionally, in the event of such infringement, there can be no assurance that TriQuint will be able to obtain licenses on reasonable terms. The Company's involvement in any patent dispute or other intellectual property dispute or action to protect trade secrets and know-how could have a material adverse effect on the Company's business. Adverse determinations in any litigation could subject the Company to significant liabilities to third parties, require the Company to seek licenses from third parties and prevent the Company from manufacturing and selling its products. Any of these situations could have a material adverse effect on the Company's business. ENVIRONMENTAL MATTERS Federal, state and local regulations impose various environmental controls on the storage, handling, discharge and disposal of chemicals and gases used in TriQuint's manufacturing process. Pursuant to the Environmental Services Agreement dated May 27, 1994, between Tektronix and the Company, the Company utilizes Tektronix's waste-treatment and waste-storage facilities and services for the treatment, storage, disposal and discharge of wastes generated by the Company. Since the Company's manufacturing facilities are located in the same building as certain integrated circuit manufacturing operations of Maxim, the Company's waste streams are commingled with those of Maxim and are treated prior to final discharge or other disposal. When the Company completes the relocation of its manufacturing facilities to the new Hillsboro, Oregon location, it will provide for its own manufacturing waste treatment and disposal. In addition, the Company is required by the State of Oregon Department of Environmental Quality to report usage of environmentally hazardous materials separately from Maxim, and has retained the services of an environmental consultant to advise it in complying with all applicable environmental regulations. The Company believes that its activities conform to present environmental regulations. Increasing public attention has, however, been focused on the environmental impact of semiconductor operations. While the Company has not experienced any materially adverse effects on its operations from environmental regulations, there can be no assurance that changes in such regulations will not impose the need for additional capital equipment or other requirements. Any failure by the Company or Tektronix to adequately restrict the discharge of hazardous substances could subject the Company to future liabilities or could cause its manufacturing operations to be suspended. EMPLOYEES As of December 31, 1996, the Company employed 361 persons, including 176 in manufacturing, 11 in quality and reliability, 121 in process and product engineering and development, 24 in marketing and sales and 29 in finance and administration. None of the Company's employees is represented by a collective bargaining agreement, nor has the Company experienced any work stoppage. The Company considers its relations with employees to be good. -12- ITEM 2. PROPERTIES The Company moved its executive, administrative, test and technical offices to a 124,000 square foot facility in Hillsboro, Oregon in the first quarter of 1997. Prior to that time, such functions were conducted at the Company's former headquarters in Beaverton, Oregon. In the first quarter of 1996, the Company began construction of the Hillsboro, Oregon facility which, when completed, will house the Company's executive, administrative and technical offices and manufacturing operations. The 38,000 square foot Hillsboro wafer fabrication facility is scheduled to begin operations in the second half of 1997 and will include a 16,000 square foot clean room. The relocation of the Company's operations to the Hillsboro facility entails a number of risks such as the interruption of production flow, loss of shipment revenue, inability to replicate critical manufacturing processes, and possible adverse impacts of delays or reduced production yields at the new facility on the Company's financial performance. See "Business -- Manufacturing." In May 1996, the Company entered into a 5 year synthetic lease through a Participation Agreement (the "Agreement") with Wolverine Leasing Corp. ("Wolverine"), Matisse Holding Company ("Matisse") and United States National Bank ("USNB"). The lease provides for the construction and occupancy of the Hillsboro facility under an operating lease from Wolverine and provides the Company with an option to purchase the property. At the expiration of its five year lease, the Company may exercise the option to purchase the property or renew its lease for an additional five years. Pursuant to the terms of the Agreement, the USNB and Matisse made loans to Wolverine who in turn provided the funds to the Company for the construction of the Hillsboro facility and other costs and expenses associated therewith. The loan from USNB is collateralized by investment securities pledged by the Company. Such investment securities are classified on the Company's balance sheet as restricted securities. In addition, the Company has made certain restrictive covenants in connection with the Participation Agreement that require the Company to maintain (i) a total liability to tangible net worth ratio of not more than 0.75 to 1.00, (ii) minimum tangible net worth greater than $50.0 million and (iii) cash and liquid investment securities, including restricted securities, greater than $45.0 million. As of December 31, 1996, the Company was in compliance with the covenants described above, and the Company anticipates that it will be in compliance with the covenants as of March 31, 1997. However, there can be no assurance that the Company will continue to be in compliance with its covenants under the Participation Agreement in the future. -13- ITEM 3. LEGAL PROCEEDINGS On July 12, 1994 a shareholder class action lawsuit was filed against the Company in the United States District Court for the Northern District of California. The suit alleges that the Company, its underwriters, and certain of its officers, directors, and investors, intentionally misled the investing public regarding the financial prospects of the Company. The complaint seeks unspecified damages, costs, attorney's fees and other relief on behalf of all purchasers of the Company's common stock during the period December 13, 1993 through June 9, 1994. Since the filing of the complaint, the plaintiffs have dismissed without prejudice a director defendant, the principal shareholder defendant and certain analyst defendants. On June 21, 1996, the court granted the Company's motion to transfer the litigation to the District of Oregon. The pretrial discovery phase of the lawsuit is scheduled to end on April 11, 1997. A trial date has not been set. There is no assurance, however, that the lawsuit will be resolved in a timely or satisfactory manner or that the lawsuit will be resolved without significant costs to the Company. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS On December 19, 1996, the Company held a Special Meeting of Shareholders for which it solicited votes by proxy. The following is a brief description of the matters voted on at the meeting and a statement of the number of votes cast for and against and the number of abstentions. The reincorporation of TriQuint as a Delaware corporation was approved. VOTES For: 4,077,818 Against: 2,051,610 Abstain: 27,342 At a Special Meeting of Shareholders scheduled for November 19, 1996, a quorum was not present. The Chairman of the Meeting, Joseph I. Martin, made a motion to adjourn the meeting until December 19, 1996, and such motion was passed by a majority of the votes present. Notice of the date of the adjourned meeting, December 19, 1996, was provided and the Special Meeting of Shareholders held November 19, 1996 was then recessed. At the Special Meeting of Shareholders held December 19, 1996, TriQuint's shareholders approved a proposal to change TriQuint's state of incorporation to Delaware from California (the "Reincorporation") through a merger of TriQuint Semiconductor, Inc., a California corporation ("TriQuint California") with the Company's wholly owned subsidiary, TriQuint Semiconductor, Inc., a Delaware corporation ("TriQuint Delaware"). In connection with the Reincorporation, the shareholders of the Company approved the following changes to the bylaws and certificate of incorporation of the Company: (a) shareholder action by writen consent was eliminated, (b) the remaining directors can appoint a director to replace a director removed by the shareholders, (c) special meetings of the shareholders may only be called by the Board of Directors, and (d) shareholders intending to nominate candidates for election as directors or to propose items of business for consideration at shareholder meetings must meet certain advance notice requirements. On February 12, 1997, TriQuint completed the Reincorporation. As of the effective time of the merger, TriQuint California ceased to exist. The Reincorporation effects only a change in the legal domicile of TriQuint. It will not result in any change of the name, business, management, employees, fiscal year, assets or liabilities, trading symbol (TQNT) or location of any of the facilities of the Company. -14- PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS Certain of the information required by this item is included under the caption COMMON STOCK PRICES AND MARKET FOR COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS contained in the Company's 1996 Annual Report to Stockholders and is incorporated herein by reference. ITEM 6. SELECTED FINANCIAL DATA The information required by this item is included under the caption SELECTED FINANCIAL DATA contained in the Company's 1996 Annual Report to Stockholders and is incorporated herein by reference. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The information required by this item is included under the caption MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS contained in the Company's 1996 Annual Report to Stockholders and is incorporated herein by reference. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY FINANCIAL DATA The information required by this item is included under the caption SUPPLEMENTARY UNAUDITED FINANCIAL DATA contained in the Company's 1996 Annual Report to Stockholders and as listed in Item 14 of Part IV of this report and is incorporated herein by reference. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Not applicable. -15- PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information required by this item is included under the captions ELECTION OF DIRECTORS, EXECUTIVE OFFICERS and SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE contained in the Company's Proxy Statement for its 1997 Annual Meeting of Stockholders, to be held May 29, 1997, to be filed by the Company with the Securities and Exchange Commission within 120 days of the end of the Company's fiscal year pursuant to General Instructions G(3) of Form 10-K and is incorporated herein by reference. ITEM 11. EXECUTIVE COMPENSATION Information required by this item is included under the caption EXECUTIVE COMPENSATION contained in the Company's Proxy Statement for its 1997 Annual Meeting of Stockholders and is incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Information required by this item is included under the caption SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT contained in the Company's Proxy Statement for its 1997 Annual Meeting of Stockholders and is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Information required by this item is included under the caption CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS contained in the Company's Proxy Statement for its 1997 Annual Meeting of Stockholders and is incorporated herein by reference. -16- PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a)(1) FINANCIAL STATEMENTS The Financial Statements, together with the report thereon of KPMG Peat Marwick LLP are included in the Company's 1996 Annual Report to Stockholders and are incorporated herein by reference. TriQuint Semiconductor, Inc.: Statements of Operations for the years ended December 31, 1996, 1995 and 1994 Balance Sheets as of December 31, 1996 and 1995 Statements of Shareholders' Equity December 31, 1996, 1995 and 1994 Statements of Cash Flows for the years ended December 31, 1996, 1995 and 1994 Notes to Financial Statements Report of Independent Public Accountants (a) (2) FINANCIAL STATEMENT SCHEDULE The following schedule and report of independent public accountants are filed herewith: Page No. -------- Schedule II Valuation and Qualifying Accounts F1 Report of Independent Public Accountants on Financial Statement Schedules F2 Schedules not listed above have been omitted because the information required to be set forth therein is not applicable or is included in the Financial Statements or notes thereto. -17- (a) (3) EXHIBITS Exhibit No. ----------- 3.1 (7) Certificate Incorporation of Registrant 3.2 (7) Bylaws of Registrant 10.1 (1) Form of Indemnification Agreement with directors and officers. 10.2 (2) 1987 Stock Incentive Program, as amended, and forms of agreements thereunder. 10.3 (5) 1992 Employee Stock Purchase Plan, as amended, and forms of agreement thereunder. 10.4 (1) Letter Agreement dated November 22, 1991 between the Registrant and Steven J. Sharp. 10.5 (1) Employment, Confidentiality, Contingent Severance and Inventions Agreement dated May 14, 1991 between Registrant and Spencer J. Brown, as amended by Amendment No. 1 thereto dated April 30, 1992. 10.6 (1) Letter Agreement dated March 1, 1992 between Registrant and Edward C.V. Winn, as amended to date. 10.7 (1) Registration Rights Agreement dated May 17, 1991 between the Registrant and certain of its shareholders and warrantholders, as amended September 5, 1991, September 3, 1992, July 1, 1993 and September 24, 1993. 10.8 (1) Supply Agreement dated October 11, 1990 by and between DuPont Photomasks, Inc. and Registrant. 10.9 (1) Amended and Restated Exclusive Distributor Agreement dated September 20, 1991, as amended between Registrant and Giga A/S. 10.10 (1) Lease dated July 2, 1987 by and between San Thomas Investment Company and Registrant, as amended to date. 10.11 (1) Lease dated February 12, 1988 between Floating Point Systems, Inc. and Registrant, as amended to date. 10.12 (3) Lease dated May 27, 1994 between Tektronix, Inc. and Registrant (assumed by Maxim Integrated Products, Inc.), as amended to date. -18- Exhibit No. ----------- 10.13.1 (1) Asset Purchase Agreement dated August 31, 1993 by and between American Telephone and Telegraph Company ("AT&T") and Registrant 10.13.2 (1*) Joint Development and Technology Transfer Agreement dated August 31, 1993 between AT&T and Registrant. 10.13.3 (1*) Foundry Agreement dated August 31, 1993 between AT&T and Registrant. 10.13.4 (1*) Patent License Agreement dated August 31, 1993 between AT&T and Registrant. 10.13.5 (1) Letter Agreement dated August 31, 1993 between AT&T and Registrant. 10.13.6 (1) Warrant to Purchase Shares of Series D Convertible Preferred Stock of Registrant dated August 31, 1993 issued to AT&T. 10.14 (1*) Agreement dated May 6, 1993 between Comlinear Corporation and the Registrant. 10.15 (1*) Agreement of Purchase and Sale for Semiconductor Products between Northern Telecom Canada Limited and Registrant dated July 8, 1993. 10.16 (4) Participation Agreement dated May 17, 1996 among the Registrant, Wolverine Leasing Corp., Matisse Holding Company and United States National Bank of Oregon 10.17 (4) Lease dated May 17, 1996 between the Registrant and Wolverine Leasing Corp. 10.18 (6) 1996 Stock Incentive Program and forms of agreement thereunder. 10.19 (7) Form of Indemnification Agreement executed by Registrant and its officers and directors pursuant to Delaware reincorporation. 11.1 Statement regarding computation of per share earnings. 13.1 Annual report to Stockholders. 23.1 Consent of KPMG Peat Marwick LLP 27.1 Financial Data Schedule (*) Confidential treatment has been granted with respect to certain portions of this exhibit. Omitted portions have been filed separately with the Securities and Exchange Commission. (1) Incorporated by reference to the Registration Statement on Form S-1 (File No. 33-70594) as declared effective by the Securities and Exchange Commission December 13, 1993. (2) Incorporated by reference to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1994 as filed with the Securities and Exchange Commission on March 29, 1995. (3) Incorporated by reference to the Company's quarterly report on Form 10-Q for the quarter ended June 30, 1994 as filed -19- with the Securities and Exchange Commission on August 13, 1994. (4) Incorporated by reference to the exhibits filed with the Registrant's Report on Form 8-K filed with the Securities and Exchange Commission on June 14, 1996. (5) Incorporated by reference to the Registrant's Registration Statement on Form S-8 (File No. 333-08891) as declared effective by the Securities and Exchange Commission on August 14, 1996. (6) Incorporated by reference to the Registrant's Registration Statement on Form S-8 (File No. 333-08893) as declared effective by the Securities and Exchange Commission on August 14, 1996. (7) Incorporated by reference to the Registrant's Registration Statement on Form 8-B (file No. 000-22660) as declared effective by the Securities and Exchange Commission on February 18, 1997. (b) REPORTS ON FORM 8-K No reports on Form 8-K were filed by the Registrant during the quarter ended December 31, 1996. (c) EXHIBITS See Item 14(a)(3) above. (d) FINANCIAL STATEMENT SCHEDULES See Item 14(a)(2) above. -20- SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized. TRIQUINT SEMICONDUCTOR, INC. By: /S/ STEVEN J. SHARP ------------------------------------------ Steven J. Sharp President, Chief Executive Officer and Chairman of the Board of Directors Date: March 31, 1997 POWER OF ATTORNEY KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Steven J. Sharp and Edward C.V. Winn, and each of them, his true and lawful attorneys-in-fact and agents, each with full power of substitution and resubstitution, to sign any and all amendments (including post-effective amendments) to this Annual Report on Form 10-K and to file the same, with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith, as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or their substitute or substitutes, or any of them, shall do or cause to be done by virtue hereof. PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED, THIS REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE REGISTRANT AND IN THE CAPACITIES AND ON THE DATES INDICATED: SIGNATURE TITLE DATE - -------------------- ---------------------------------- -------------- /s/ STEVEN J. SHARP President, Chief Executive Officer March 31, 1997 - ------------------- and Chairman (Principal Executive Steven J. Sharp Officer) /s/ EDWARD C.V. WINN Executive Vice President, Finance March 31, 1997 - -------------------- and Administration, Chief Financial Edward C.V. Winn Officer and Secretary (Principal Financial and Accounting Officer) /s/ PAUL A. GARY Director March 31, 1997 - ---------------- Paul A. Gary /s/ CHARLES SCOTT GIBSON Director March 31, 1997 - ------------------------ Charles Scott Gibson /s/ E. FLOYD KVAMME Director March 31, 1997 - ------------------- E. Floyd Kvamme /s/ DR. WALDEN C. RHINES Director March 31, 1997 - ------------------------ Dr. Walden C. Rhines /s/ EDWARD F. TUCK Director March 31, 1997 - ------------------ Edward F. Tuck -21- TRIQUINT SEMICONDUCTOR, INC. Schedule II - Valuation and Qualifying Accounts Years ended December 31, 1994, 1995, 1996 (in thousands)
Additions Balance at charged to Balance at beginning costs and end of of period expenses Deductions period ------------ ------------ ------------ ------------ Year ended December 31, 1994: Allowance for doubtful accounts $ 34 139 21 152 Inventory valuation reserve 1,159 2,006 901 2,264 Year ended December 31, 1995: Allowance for doubtful accounts 152 147 97 202 Inventory valuation reserve 2,264 1,121 1,076 2,309 Year ended December 31, 1996: Allowance for doubtful accounts 202 119 102 219 Inventory valuation reserve 2,309 3,668 3,594 2,383
-F1- INDEPENDENT AUDITORS' REPORT ON FINANCIAL STATEMENT SCHEDULES The Board of Directors TriQuint Semiconductor, Inc.: Under date of February 7, 1997, we reported on the balance sheets of TriQuint Semiconductor, Inc. as of December 31, 1996 and 1995, and the related statements of operations, shareholders' equity, and cash flows for each of the years in the three-year period ended December 31, 1996, as contained in the 1996 annual report to shareholders. These financial statements and our report thereon are incorporated by reference in the annual report on Form 10-K for the year 1996. In connection with our audit of the aforementioned financial statements, we also audited the related financial statement schedule as listed in Item 14(a)(2) of this Form 10-K. This financial statement schedule is the responsibility of the Company's management. Our responsibility is to express an opinion on this financial statement schedule based on our audits. In our opinion, such financial statement schedule, when considered in relation to the basic financial statements taken as a whole, present fairly in all material respects the information set forth therein. KPMG Peat Marwick LLP Portland, Oregon February 7, 1997 -F2- EXHIBITS Sequential EXHIBIT NO. PAGE NO. - ----------- ---------- 3.1 (7) Certificate Incorporation of Registrant ----- 3.2 (7) Bylaws of Registrant ----- 10.1 (1) Form of Indemnification Agreement with directors and officers. ----- 10.2 (2) 1987 Stock Incentive Program, as amended, and forms of agreements thereunder. ----- 10.3 (5) 1992 Employee Stock Purchase Plan, as amended, and forms of agreement thereunder. ----- 10.4 (1) Letter Agreement dated November 22, 1991 between the Registrant and Steven J. Sharp. ----- 10.5 (1) Employment, Confidentiality, Contingent Severance and Inventions Agreement dated May 14, 1991 between Registrant and Spencer J. Brown, as amended by Amendment No. 1 thereto dated April 30, 1992. ----- 10.6 (1) Letter Agreement dated March 1, 1992 between Registrant and Edward C.V. Winn, as amended to date. ----- 10.7 (1) Registration Rights Agreement dated May 17, 1991 between the Registrant and certain of its shareholders and warrantholders, as amended September 5, 1991, September 3, 1992, July 1, 1993 and September 24, 1993. ----- 10.8 (1) Supply Agreement dated October 11, 1990 by and between DuPont Photomasks, Inc. and Registrant. ----- 10.9 (1) Amended and Restated Exclusive Distributor Agreement dated September 20, 1991, as amended between Registrant and Giga A/S. ----- 10.10 (1) Lease dated July 2, 1987 by and between San Thomas Investment Company and Registrant, as amended to date. ----- 10.11 (1) Lease dated February 12, 1988 between Floating Point Systems, Inc. and Registrant, as amended to date. ----- 10.12 (3) Lease dated May 27, 1994 between Tektronix, Inc. and Registrant (assumed by Maxim Integrated Products, Inc.), as amended to date. ----- Sequential Exhibit No. Page No. - ----------- ---------- 10.13.1 (1) Asset Purchase Agreement dated August 31, 1993 by and between American Telephone and Telegraph Company ("AT&T") and Registrant. ----- 10.13.2 (1*) Joint Development and Technology Transfer Agreement dated August 31, 1993 between AT&T and Registrant. ----- 10.13.3 (1*) Foundry Agreement dated August 31, 1993 between AT&T and Registrant. ----- 10.13.4 (1*) Patent License Agreement dated August 31, 1993 between AT&T and Registrant. ----- 10.13.5 (1) Letter Agreement dated August 31, 1993 between AT&T and Registrant. ----- 10.13.6 (1) Warrant to Purchase Shares of Series D Convertible Preferred Stock of Registrant dated August 31, 1993 issued to AT&T. ----- 10.14 (1*) Agreement dated May 6, 1993 between Comlinear Corporation and the Registrant. ----- 10.15 (1*) Agreement of Purchase and Sale for Semiconductor Products between Northern Telecom Canada Limited and Registrant dated July 8, 1993. ----- 10.16 (4) Participation Agreement dated May 17, 1996 among the Registrant, Wolverine Leasing Corp., Matisse Holding Company and United States National Bank of Oregon. ----- 10.17 (4) Lease dated May 17, 1996 between the Registrant and Wolverine Leasing Corp. ----- 10.18 (6) 1996 Stock Incentive Program and forms of agreement thereunder. ----- 10.19 (7) Form of Indemnification Agreement executed by Registrant and its officers and directors pursuant to Delaware reincorporation. ----- 11.1 Statement regarding computation of per share earnings. 27 13.1 Annual report to Stockholders. 28 23.1 Consent of KPMG Peat Marwick LLP 63 27.1 Financial Data Schedule ----- (*) Confidential treatment has been granted with respect to certain portions of this exhibit. Omitted portions have been filed separately with the Securities and Exchange Commission. (1) Incorporated by reference to the Registration Statement on Form S-1 (File No. 33-70594) as declared effective by the Securities and Exchange Commission December 13, 1993. (2) Incorporated by reference to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1994, as filed with the Securities and Exchange Commission on March 29, 1995. (3) Incorporated by reference to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1994 as filed with the Securities and Exchange Commission on August 13, 1994. (4) Incorporated by reference to the exhibits filed with the Registrant's Report on Form 8-K filed with the Securities and Exchange Commission on June 14, 1996. (5) Incorporated by reference to the Registrant's Registration Statement on Form S-8 (File No. 333-08891) as declared effective by the Securities and Exchange Commission on August 14, 1996. (6) Incorporated by reference to the Registrant's Registration Statement on Form S-8 (File No. 333-08893) as declared effective by the Securities and Exchange Commission on August 14, 1996. (7) Incorporated by reference to the Registrant's Registration Statement on Form 8-B (file No. 000-22660) as declared effective by the Securities and Exchange Commission on February 18, 1997. EX-11.1 2 CALCULATION OF NET INCOME EXHIBIT 11.1 TRIQUINT SEMICONDUCTOR, INC. Calculation of Net Income per Common and Common Equivalent Share Years ended December 31, 1996, 1995, 1994 (in thousands, except share and per share data) Year Ended December 31, ---------------------------------------- 1996 1995 1994 --------- ---------- --------- Net income $ 6,287 $ 3,062 $ (9,732) --------- ---------- --------- --------- ---------- --------- Weighted average number of common and common equivalent shares outstanding: Primary 8,762,717 7,236,681 5,346,399 Fully diluted 8,894,405 7,239,842 Net income (loss) per common and common equivalent share: Primary $ .72 $ .42 $ (1.82) ---------- ---------- --------- ---------- ---------- --------- Fully diluted $ .71 $ .42 $ (1.82) ---------- ---------- --------- ---------- ---------- --------- -27- EX-13 3 ANNUAL REPORT TRIQUINT SEMICONDUCTOR, INC. FINANCIAL HIGHLIGHTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS YEAR ENDED DECEMBER 31, 1996 1995 Total revenues $59,526 $45,943 Income from operations 3,435 2,215 Income before income taxes 6,518 3,145 Net income 6,287 3,062 Net income per share 0.71 0.42 Cash and investments 63,183 62,972 Shareholders' equity 80,246 72,644 - ------------------------------------------------------------------------- COMMON STOCK PRICES Quarter High Low Q4 1996 $ 30 3/4 $ 16 7/8 Q3 1996 26 3/4 15 5/8 Q2 1996 25 3/8 15 1/4 Q1 1996 16 1/4 9 Q4 1995 26 1/4 10 5/8 Q3 1995 28 3/8 16 Q2 1995 17 1/2 10 11/16 Q1 1995 13 1/2 6 1/8 TOTAL REVENUES BY QUARTER NET INCOME PER SHARE BY QUARTER - Description of graphic: Graphic - Description of graphic: Graphic representation of total revenues representation of net income (in millions) by quarter. Data per share by quarter. Data used to used to produce the graphic is as produce the graphic is as follows: follows: Q4 1996 16.2 Q4 1996 0.19 Q3 1996 15.1 Q3 1996 0.21 Q2 1996 15.0 Q2 1996 0.21 Q1 1996 13.1 Q1 1996 0.11 Q4 1995 12.6 Q4 1995 0.05 Q3 1995 12.7 Q3 1995 0.20 Q2 1995 11.1 Q2 1995 0.15 Q1 1995 9.4 Q1 1995 0.04 TO OUR SHAREHOLDERS: Fiscal 1996 was a pivotal year for TriQuint. Not only did we continue to grow at a rate of 30%, but more importantly, we made significant investments in the Company which will help us take advantage of the exciting opportunities in the worldwide communications market. FINANCIAL PERFORMANCE Revenues for 1996 were $59.5 million, a 30% increase over 1995. Earnings reflected a net profit of $6.3 million ($.71 per share on 8.9 million shares), a 105% increase over 1995's $3.1 million ($.42 per share on 7.2 million shares). REVENUE GROWTH The growth in revenue was balanced between our three product areas, with Wireless at approximately 49% of total revenues, Telecom at 34% and Computing at 17%. All three grew substantially and continue to provide market diversity and a broad customer base. ORDERS AND BACKLOG Not only did we increase our revenue to record levels, we also continued to increase the rate that we are booking new business. Our book-to-bill ratio for the year was 1.1, resulting in record backlog at year-end 1996. This backlog and the continuing new order volume put us in an excellent position for continued growth in 1997. BALANCE SHEET STRENGTH Our financial and operating performance in 1996 resulted in a very strong balance sheet with over $63 million in cash and investments. In second quarter 1996 we were successful in putting in place a $45 million operating lease with a major financial institution. This leasing arrangement allowed us to construct our new office and manufacturing facility while avoiding depreciation and increasing the Company's interest income. DESIGN WINS AND PRODUCT INTRODUCTIONS Design wins are the life blood of our business and we were very successful in achieving a record number of design wins in 1996. We also introduced a number of new products. There were 112 major design wins, 79 in the Wireless sector, 26 in Telecom and 7 in Computing. The large number of Wireless design wins reflects the continued expansion of that segment of the communications industry and included: receivers and transmitters to be used in handsets and base stations for the cellular, PCS and other mobile telephone markets; wireless local loop, local area and wide area networks; pagers; cable TV tuners and converters; and several other wireless communications applications. The Telecom design wins included: fiber optic transmission and switching systems; video switching systems; medical graphics systems; and ATM applications. The Computing design wins included: high performance computer clocking devices; and networking applications, including Fiber Channel and Gigabit Ethernet. During the year we also introduced a significant number of new products to the market. These products included: new cellular and PCS receivers and power amplifiers; a second generation Personal Handyphone transceiver; a receiver for a wireless local area network; a new multiplexer/demultiplexer for SONET transmission; an A to D converter; and a multitude of foundry products designed by our customers. OPERATIONAL IMPROVEMENTS The growth experienced in 1995 created several challenges for our operating organizations in 1996. The significant increase in wafer output in 1995 resulted in reduced manufacturing yields at the end of that year. I am happy to report that we made major progress during 1996 in solving the late 1995 yield issues, and as a result, by fourth quarter 1996 we were at record levels in wafer output. To support the continued increase in demand, we grew total employment by 77 to a level of 361. We also began construction of a new office and manufacturing complex in Hillsboro, Oregon. This complex will be completed in first quarter 1997 and will be fully operational by the end of 1997. We believe our new manufacturing facility will be the premier gallium arsenide manufacturing facility and will provide production capacity to meet our requirements until the year 2000. To support increasing production requirements, significant investments were made in new equipment for our new facility. However, plant and equipment were not the only areas in which major investments for our future success were made. We converted all of our internal management information systems to a new, fully integrated SAP management information system. This new capability should provide the management systems to support our growth for at least the next ten years. We also successfully implemented a major new Total Quality Management initiative. This initiative, called Continuous Process Improvement (CPI), involves practically every manager and employee in the Company and includes the formation of teams to improve the internal operating and management processes of the Company. To date we have successfully completed three cycles of this process and have identified operating improvements that total multiple millions of dollars. The CPI initiative is only beginning. It will be one of the major vehicles by which we will continue to grow the Company in a well managed way. In addition, we successfully completed our third ISO 9000 audit, again meeting the demanding requirements of this international quality standard. NEW RELATIONSHIPS During the year we announced several new relationships with major names in the communications business. Early in 1996 we announced a relationship with Philips, one of the largest consumer electronic companies in the world. Through this relationship, we will provide the gallium arsenide support for Philips' thrust into the worldwide mobile telephone business. Also, in fourth quarter 1996 we announced a relationship with Qualcomm, a leader in the CDMA mobile telephone business. These relationships as well as others, on which we are currently working, will cement our increasing presence in the expanding communications market. MANAGEMENT ADDITIONS During 1996, we added Ron Ruebusch, Vice President and General Manager of our Wireless Communications Division and David Pye, Vice President of Manufacturing to our Management Team. With combined experience of more than 40 years in the semiconductor industry, these individuals are already making a major impact on the Company, and we look forward to their continuing contribution. OUR MOST VALUABLE ASSET I can't say enough about the hard work, dedication and loyalty of TriQuint's employees. Growing the Company 30% while at the same time making investments in the Company's manufacturing capacity, systems and management processes is not an easy task. It is only through the skill and effort of all our employees that we were able to both grow and prepare ourselves for the future. I would like to take this opportunity to thank our team for their many accomplishments in 1996. LOOKING FORWARD While 1996 was a very exciting year, it only established the foundation for our future growth. Our communications markets are continuing to expand, especially with the pending rollout of the new PCS mobile telephone systems. To take advantage of these exciting opportunities, we have established excellent relationships with the major players in these markets and have achieved a record number of design wins and new product introductions. We have also been very successful in putting in place the required improvements to our manufacturing capabilities, management information systems, continuous process improvement and management leadership. These investments are already beginning to generate returns, and we are eagerly looking forward to the many opportunities and challenges in 1997 and beyond. Sincerely, Steven J. Sharp Chairman, President and Chief Executive Officer TRIQUINT SEMICONDUCTOR, INC. SELECTED FINANCIAL DATA IN THOUSANDS, EXCEPT PER SHARE AMOUNTS
YEAR ENDED DECEMBER 31, (1) 1996 1995 1994 1993 1992 STATEMENT OF OPERATIONS DATA: Total revenues $59,526 $45,943 $30,261 $32,606 $29,308 Operating costs and expenses: Cost of goods sold 34,258 25,509 19,790 14,660 13,712 Research, development and engineering 10,858 9,210 9,945 8,941 6,956 Selling, general and administrative 10,975 9,009 10,013 7,533 7,431 Restructuring of operations - - 443 - - ------------------------------------------------------------------------- Total operating costs and expenses 56,091 43,728 40,191 31,134 28,099 ------------------------------------------------------------------------- Income (loss) from operations 3,435 2,215 (9,930) 1,472 1,209 Other income (expense), net 3,083 930 198 (414) (466) ------------------------------------------------------------------------- Income (loss) before income taxes and extraordinary item 6,518 3,145 (9,732) 1,058 743 Income tax expense and extraordinary item(2) 231 83 - 271 25 ------------------------------------------------------------------------- Net income (loss) $6,287 $3,062 ($9,732) $787 $718 ------------------------------------------------------------------------- ------------------------------------------------------------------------- INCOME (LOSS) PER SHARE: Income (loss) before extraordinary item $0.71 $0.42 ($1.82) $0.19 $0.10 Extraordinary item - - - - 0.09 ------------------------------------------------------------------------- Net income (loss) $0.71 $0.42 ($1.82) $0.19 $0.19 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Weighted average common and common equivalent shares outstanding 8,894 7,237 5,346 4,236 3,860 BALANCE SHEET DATA: Working capital $37,591 $65,513 $16,409 $19,541 $4,947 Total assets 107,596 94,024 34,227 35,166 17,491 Long-term obligations, less current installments 9,891 7,392 4,062 1,712 3,887 Shareholders' equity 80,246 72,644 20,785 26,219 8,967 -------------------------------------------------------------------------
(1) Except for 1996, the Company's fiscal year ended on the Saturday nearest December 31. For convenience, the Company has indicated in this Annual Report that its fiscal years ended on December 31. (2) The effect of the utilization of operating loss carryforwards resulted in a tax benefit of $327,000 in 1992 and was reported as an extraordinary item. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Certain statements in the following Management's Discussion and Analysis of Financial Condition and Results of Operations ("M D & A") and elsewhere in this Annual Report to Stockholders and in the Company's Annual Report on Form 10-K for 1996 into which this M D & A is incorporated contain forward-looking statements based on current expectations, and entail various risks and uncertainties that could cause actual results to differ materially from those anticipated in these forward-looking statements, as a result of certain factors discussed herein. These forward-looking statements, include, but are not limited to, the statement regarding the Company's anticipated increase in revenues; the statement regarding the Company's expected level of future investment in research, development and engineering; the statements regarding the anticipated use of its cash resources and the statements regarding the Company's future cash requirements and the length of time that the Company's resources will be sufficient to meet its capital requirements. Certain risks that the Company faces include, but are not limited to, the risk of lower than expected production yields, the risks associated with the Company's move of its fabrication facility to the Dawson Creek location, the risks associated with operating its own wafer fabrication facility and the risks set forth below under "Variability of Operating Results and Cyclicality of Semiconductor Industry." INTRODUCTION TriQuint Semiconductor, Inc. (TriQuint or the Company) designs, develops, manufactures and markets a broad range of high performance analog and mixed signal integrated circuits for the wireless communications, telecommunications and computing markets. The Company utilizes its proprietary gallium arsenide (GaAs) technology to enable its products to overcome the performance barriers of silicon devices in a variety of applications. The Company sells its products on a worldwide basis and its end user customers include Alcatel, Cirrus Logic, Digital Equipment, DSC Communications, Ericsson, Hughes, IBM, Lucent Technologies, Motorola, Northern Telecom, Philips, Rockwell, Siemens, Storage Technology, and Stratacom. RESULTS OF OPERATIONS The following table sets forth the statement of operations data of the Company expressed as a percentage of total revenues for the periods indicated. YEAR ENDED DECEMBER 31, 1996 1995 1994 ------ ------ ------ Total revenues 100.0% 100.0% 100.0% Operating costs and expenses: Cost of goods sold 57.6 55.5 65.4 Research, development and engineering 18.2 20.1 32.9 Selling, general and administrative 18.4 19.6 33.1 Restructuring of operations - - 1.4 ------ ------ ------ Total operating costs and expenses 94.2 95.2 132.8 ------ ------ ------ Income (loss) from operations 5.8 4.8 (32.8) Other income, net 5.2 2.1 0.7 ------ ------ ------ Income (loss) before income taxes 11.0 6.9 (32.2) Income tax expense 0.4 0.2 - ------ ------ ------ Net income (loss) 10.6% 6.7% (32.2)% ------ ------ ------ ------ ------ ------ In 1996, the Company changed its year end to December 31. For 1995 and 1994, the Company's fiscal year ended on the Saturday nearest to December 31. For convenience, the Company has indicated here that its fiscal years end on December 31. The fiscal years ended December 31, 1996, December 31, 1995 and December 31, 1994 are hereinafter referred to as Fiscal 1996, Fiscal 1995 and Fiscal 1994, respectively. 1 COMPARISON OF 1996 AND 1995 TOTAL REVENUES The Company derives revenues from the sale of standard and customer-specific products and services. The Company's revenues also include non-recurring engineering (NRE) revenues relating to the development of customer-specific products. The Company organizes its product and service revenues into three product areas: Wireless Communications, Telecommunications, and Computing. Total revenues for Fiscal 1996 increased 29.6% to $59.5 million from $45.9 million for Fiscal 1995. The increase in total revenues was due to significantly increased demand for products in all three product areas. Wireless communications, telecommunications, and computing revenues accounted for 49%, 34%, and 17% of total revenues, respectively, for Fiscal 1996. Domestic and international revenues for Fiscal 1996 were $41.4 million and $18.1 million, respectively, as compared to $31.1 million and $14.8 million, respectively, for Fiscal 1995. The Company currently anticipates an overall increase in the volume of product revenues from existing and new customers in the wireless, telecommunication and computing markets. COST OF GOODS SOLD Cost of goods sold includes all direct material, labor and overhead expenses and certain production costs related to NRE revenues. In general, the Company believes that gross profit generated from the sale of customer-specific products and from NRE revenues is typically higher than gross profit from the sale of standard products. The factors affecting product mix include the relative demand in the various market segments incorporating the Company's customer-specific products, as well as the number of NRE contracts which result in volume requirements for customer-specific products. Cost of goods sold was $34.3 million in Fiscal 1996 and increased from $25.5 million in Fiscal 1995. Cost of goods sold for Fiscal 1996 increased slightly as a percentage of total revenues to 57.6% from 55.5% for Fiscal 1995. The increase in cost of goods sold as a percentage of total revenues was primarily attributable to lower than expected production yields and an increase in certain manufacturing costs related to employee hiring and training and consulting services. This increase was partially offset by higher unit shipments, resulting in increased economies of scale. The Company has at various times in the past experienced lower than expected production yields which have delayed shipments of a given product and adversely affected gross margins. This was experienced during 1996. There can be no assurance that the Company will be able to maintain acceptable production yields in the future and, to the extent that it does not achieve acceptable production yields, its operating results would be materially adversely affected. The Company's move of its fabrication facility during 1997 to its new Dawson Creek location in Hillsboro, Oregon could affect its ability to maintain acceptable production yields during transition. In addition, the Company's operation of its own wafer fabrication facility entails a high degree of fixed costs and requires an adequate volume of production and sales to be profitable. During periods of decreased demand, high fixed wafer fabrication costs would have a material adverse effect on the Company's operating results. RESEARCH, DEVELOPMENT AND ENGINEERING Research, development and engineering (RD&E) expenses include the costs incurred in the design of products associated with NRE revenues, as well as ongoing product development and research and development expenses. The Company's RD&E expenses for Fiscal 1996 increased 17.9% to $10.9 million from $9.2 million for Fiscal 1995. RD&E expenses as a percentage of total revenues decreased to 18.2% for 1996 from 20.1% for 1995. The increase in RD&E expenses in absolute dollar level was primarily due to increased product development activities in response to increased demand from customers. The number of major design wins for Fiscal 1996 increased 45% from Fiscal 1995. Design wins are defined as designs which are anticipated to produce at least $100,000 per year in revenue, if and when they enter production. The decrease in RD&E expenses as a percentage of total revenues was the result of the increased sales volume in 1996. The Company is committed to substantial investments in RD&E and expects such expenses will increase in absolute dollar amount in the future. 2 SELLING, GENERAL AND ADMINISTRATIVE Selling, general and administrative (SG&A) expenses for Fiscal 1996 increased 21.8% to $11.0 million from $9.0 for the year ended December 31, 1995. SG&A decreased as a percentage of total revenues to 18.4% for 1996 from 19.6% for 1995. The increase in the level of SG&A expenses was primarily due to increased sales commissions in connection with the increase in the level of total revenues as well as increased personnel costs. The decrease in SG&A expenses as a percentage of total revenues for 1996 resulted from the revenue growth that outpaced the growth of SG&A expenses. OTHER INCOME, NET Other income, net for Fiscal 1996 increased to $3.1 million as compared to $930,000 for Fiscal 1995. This improvement resulted from interest income earned on larger cash and cash equivalents and investment balances resulting primarily from the net proceeds of the Company's follow-on stock offering in September, 1995 and from a $680,000 gain on the sale of the Company's minority interest in its primary distributor in Europe. INCOME TAX EXPENSE The effective tax rate for Fiscal 1996 was 3.5%, which is less than the federal and state statutory rate of approximately 40% due to the use of net operating loss carryforwards. The effective tax rate for fiscal 1995 was 2.6%. At December 31, 1996, the Company had federal and state net operating loss carryforwards for tax reporting purposes of approximately $26.6 million and $10.1 million, respectively. The Company's ability to use its net operating loss carryforwards against taxable income is subject to additional restrictions and limitations under Section 382 of the Internal Revenue Code of 1986, as amended, in the event of a change of ownership of the Company as defined therein. See Note 7 of Notes to Financial Statements. COMPARISON OF 1995 AND 1994 TOTAL REVENUES Total revenues for Fiscal 1995 increased 51.8% to $45.9 million from $30.3 million for Fiscal 1994. Sales of standard products continued to grow, accounting for approximately 53.3% of 1995 revenues as compared to 32.0% for 1994. The increase in revenues was primarily due to a significant increase in wireless product sales for the Japanese personal handy phone market segment and an increase in telecommunication and computing products sales. Sales outside the United States increased to $14.8 million for 1995 from $12.7 million for 1994, primarily due to increased sales to a significant customer in Canada. COST OF GOODS SOLD Cost of goods sold was $25.5 million in Fiscal 1995 and represented an increase from $19.8 million in Fiscal 1994. Cost of goods sold for Fiscal 1995 decreased as a percentage of total revenues to 55.5% from 65.4% for Fiscal 1994. The decrease in cost of goods sold as a percentage of total revenues was attributable to higher unit shipments, which resulted in better absorption of the fixed costs and resultant economies of scale. This decrease was partially offset by lower than expected fab yields in the fourth quarter and a shift in the mix of revenues to a higher volume of standard products, which typically have a lower gross margin than customer-specific products. The 1994 cost of goods sold also included an inventory write-off of $1.5 million and an equipment write-off of $330,000. Without these charges, 1994 cost of goods sold as a percentage of total revenues would have been 59.4%. 3 RESEARCH, DEVELOPMENT AND ENGINEERING The Company's RD&E expenses for Fiscal 1995 decreased 7.4% to $9.2 million from $9.9 million for Fiscal 1994. RD&E expenses as a percentage of total revenues decreased to 20.1% for 1995 from 32.9% for 1994, which included certain one time write-offs. The decrease in RD&E expenses in absolute dollar level was primarily due to certain cost savings from the relocation of the Company's Santa Clara, California operation to its Beaverton, Oregon facility, as well as lower NRE expenses. The decrease in RD&E expenses as a percentage of total revenues was primarily due to higher sales volume in 1995. SELLING, GENERAL AND ADMINISTRATIVE SG&A expenses for Fiscal 1995 decreased 10.0% to $9.0 million from $10.0 million for Fiscal 1994. SG&A decreased as a percentage of total revenues to 19.6% for 1995 from 33.1% for 1994. In the third quarter of 1994, the Company recorded certain expenses resulting in an aggregate charge of $2.1 million to SG&A expenses for the costs associated with the Company's securities class action lawsuit and the relocation of the Company's Santa Clara, California operation to Beaverton, Oregon. In addition, SG&A expenses for 1994 included an increase in the provision for doubtful accounts resulting in an aggregate charge of approximately $140,000. Without these charges, the SG&A expenses for 1994 would have been $7.8 million, approximately 25.8% of revenues. The decrease in SG&A expenses as a percentage of total revenues for 1995 resulted from the revenue growth that outpaced the growth of SG&A expenses. In February 1995, the Company completed the relocation of its Santa Clara, California operations to Beaverton, Oregon. OTHER INCOME, NET Other income, net for Fiscal 1995 increased to $930,000 as compared to $198,000 for Fiscal 1994. This improvement resulted from higher interest income earned on cash and cash equivalents and investment balances due to added interest income from the proceeds of the Company's follow on public offering completed in September, 1995, partially offset by interest expense due to additional capital lease obligations during the period. INCOME TAX EXPENSE The effective tax rate for Fiscal 1995 was 2.6%, which is less than the federal and state statutory rate of approximately 40% due to the use of net operating loss carryforwards. The Company did not record any income taxes in 1994 as a result of the Company's loss position. VARIABILITY OF OPERATING RESULTS AND CYCLICALITY OF SEMICONDUCTOR INDUSTRY The Company's quarterly and annual results may vary significantly in the future due to a number of factors including timing, cancellation or delay of customer orders; market acceptance of the Company's and its customers' products; variations in manufacturing yields; timing of announcement and introduction of new products by the Company and its competitors; changes in revenues and product mix; competitive factors; changes in manufacturing capacity and variations in the utilization of this capacity; variations in average selling prices; variations in operating expenses; the long sales cycles associated with the Company's customer-specific products; the timing and level of product and process development costs; cyclicality of the semiconductor industry; the timing and level of NRE revenues and expenses relating to customer-specific products; and changes in inventory levels. Any unfavorable changes in these or other factors could have a material adverse effect on the Company's operating results. A significant portion of the Company's revenues in each fiscal period has historically been concentrated among a limited number of customers. In recent periods, sales to the Company's major customers as a percentage of total revenues have fluctuated. For Fiscal 1996, Cirrus Logic, Giga A/S, and Northern Telecom accounted for 16.5%, 12.3%, and 11.9%, respectively, of total revenues. The Company's revenues to a certain extent depend upon its customer's success introducing and marketing new products. Certain of these products are consumer products and there is no guarantee purchases by consumers will meet TriQuint's customers' expectations. The Company does not have long-term purchase agreements with any of its customers. Customers generally purchase the Company's products pursuant to cancelable short-term purchase orders. The Company's business, financial condition, and results of operations have been materially adversely affected in 4 the past and may be materially adversely affected in the future by the failure of anticipated orders to materialize and by deferrals or cancellations of orders. The semiconductor industry has historically been characterized by wide fluctuations in product supply and demand. From time to time, the industry has also experienced significant downturns, often in connection with, or in anticipation of, declines in general economic conditions. These downturns have been characterized by diminished product demand, production overcapacity and subsequent accelerated erosion of average selling prices, and, in some cases, have lasted for extended periods of time. The Company's business has in the past been and could in the future be materially adversely affected by such industry-wide fluctuations. LIQUIDITY AND CAPITAL RESOURCES The Company completed a follow-on public offering in September 1995 raising approximately $48.1 million, net of offering expenses. In December 1993 and January 1994, the Company completed its initial public offering raising approximately $16.7 million, net of offering expenses. In addition, the Company has funded its operations to date through other sales of equity, bank borrowing, capital equipment leases, and cash flow from operations. As of December 31, 1996, the Company had working capital of approximately $37.6 million, including $32.7 million in cash, cash equivalents, and investments. The Company has a $10.0 million unsecured revolving line of credit with a financial institution. Restrictive covenants included in the line of credit require the Company to maintain (i) a total liability to tangible net worth ratio of not more than 0.75 to 1.00, (ii) a current ratio of not less than 1.75 to 1.00 and (iii) minimum tangible net worth greater than $50.0 million and (iv) cash and investments, including restricted investments, greater than $45.0 million. As of December 31, 1996 the Company was in compliance with the restrictive covenants contained in this line of credit. The Company's current wafer fabrication facility lease expires in January 1998. During 1996, the Company arranged for the construction and financing of a new wafer fabrication and office complex at Dawson Creek, in Hillsboro, Oregon and will consolidate all operations into this facility during 1997. The Company's administrative, engineering and sales and marketing offices moved into this new facility during the first quarter of 1997. The Company obtained financing in the form of a five year operating lease. The Company entered into several agreements, each dated May 17, 1996, in connection with the operating lease. Pursuant to that certain Participation Agreement among the Company, the lessor and its parent and a bank, the lessor is leasing certain real property owned by the lessor to the Company under an operating lease with an option by the Company to purchase such property. In addition, the lessor made advances to the Company to cover the costs of certain improvements to such real property and to pay certain related financing costs, transaction costs, and other costs and expenses. The bank loans are collateralized by pledged investments from the Company, classified as restricted investments on the Company's balance sheet ($30.5 million as of December 31, 1996). Restrictive covenants included in the Participation Agreement between the Company and the Bank require the Company to maintain (i) a total liability to tangible net worth ratio of not more than 0.75 to 1.00, (ii) minimum tangible net worth greater than $50.0 million and (iii) cash and liquid investments, including restricted investments, greater than $45.0 million. As of December 31, 1996 the Company was in compliance with the covenants contained in the Participation Agreement. The following table presents a summary of the Company's cash flows (IN THOUSANDS): YEAR ENDED DECEMBER 31, 1996 1995 1994 Net cash and cash equivalents provided by operating activities $ 5,374 $ 2,748 $ 287 Net cash and cash equivalents used by investing activities (25,687) (24,173) (5,096) Net cash and cash equivalents provided (used) by financing activities (1,831) 47,033 2,094 ----------------------------- Net increase (decrease) in cash and cash equivalents $(22,144) $25,608 $(2,715) ----------------------------- Net cash provided by operating activities in 1996 and 1995 of $5.4 million and $2.7 million, respectively, related primarily to profitable operations. Net cash provided by operating activities in 1994 was $0.3 million. 5 Cash used by investing activities in 1996 related to the purchase of restricted investments to collateralize the operating lease on the Dawson Creek facility and the net purchase of non-restricted investments. Cash used by investing activities in 1995 and 1994 relates primarily to net purchase of investment securities of $22.9 million in 1995 and $5.0 million in 1994 and capital expenditures. The Company will continue to monitor interest rates to enhance return on its cash and short term investments while maintaining a high degree of liquidity. Cash used by financing activities of $1.8 million in 1996 is primarily the result of net principal payments under capital lease obligations and installment notes. Cash provided by financing activities in 1995 relates to the net proceeds of the follow on public offering of the Company's Common Stock, partially offset by $1.7 million in equipment financing payments. Cash provided by financing activities in 1994 relates to the net proceeds from the exercise of the overallotment option to purchase 225,000 shares of Common Stock by the Company's underwriters in connection with the Company's initial public offering and cash received from AT&T in exchange for the Company's Common Stock pursuant to the Company's agreements with AT&T. These proceeds were partially offset by $1.3 million in equipment financing payments in 1994. For Fiscal 1996, the Company established approximately $6.5 million in new equipment financing. Since 1991, the Company has financed approximately $20.4 million of machinery and equipment through equipment financing obligations. The Company expects to make continued investments in its capital equipment, including manufacturing and test equipment and computer hardware and software, in order to enhance its technology and competitive position. In addition, the Company's move to the new Dawson Creek facility will require expenditures for capital equipment above normal operating levels. The Company expects to make total capital expenditures of approximately $15.0 million over the next twelve months. The Company believes that its current cash and cash equivalent balances, together with cash anticipated to be generated from operations, additional equipment leases and the operating lease for the Dawson Creek facility, will satisfy the Company's projected working capital and capital expenditure requirements through the end of 1998. However, the Company may be required to finance any additional requirements through additional equity, debt financings, or credit facilities. There can be no assurance that such additional financings or credit facilities will be available, or if available, that they will be on satisfactory terms. 6 TRIQUINT SEMICONDUCTOR, INC. Statements of Operations For the years ended December 31, 1996, 1995 and 1994 (In thousands, except per share and share amounts)
Year ended December 31 ---------------------------------- 1996 1995 1994 ---- ---- ---- Total Revenues $ 59,526 $ 45,943 $ 30,261 Operating costs and expenses: Cost of goods sold 34,258 25,509 19,790 Research, development and engineering 10,858 9,210 9,945 Selling, general and administrative 10,975 9,009 10,013 Restructuring of operations - - 443 --------- --------- --------- Total operating costs and expenses 56,091 43,728 40,191 --------- --------- --------- Income (loss) from operations 3,435 2,215 (9,930) --------- --------- --------- Other income (expense): Interest income 3,460 1,551 585 Interest expense (1,015) (529) (337) Other, net 638 (92) (50) --------- --------- --------- 3,083 930 198 --------- --------- --------- Income (loss) before income taxes 6,518 3,145 (9,732) Income tax expense (note 7) 231 83 - --------- --------- --------- Net income (loss) $ 6,287 $ 3,062 $ (9,732) --------- --------- --------- --------- --------- --------- Income (loss) per share data: Net income (loss): Primary $ .72 $ .42 $ (1.82) --------- --------- --------- --------- --------- --------- Fully diluted $ .71 $ .42 $ (1.82) --------- --------- --------- --------- --------- --------- Weighted average common and common equivalent shares outstanding: Primary 8,762,717 7,236,681 5,346,399 Fully diluted 8,894,405 7,239,842 5,346,399
See accompanying notes to financial statements -3- TRIQUINT SEMICONDUCTOR, INC. Balance Sheets December 31, 1996 and 1995 (In thousands, except share amounts)
December 31, ------------------------ Assets 1996 1995 ------ ---- ---- Current assets: Cash and cash equivalents $ 12,907 35,051 Restricted cash 504 - Investments 19,264 27,921 Receivables: Trade accounts receivable, net 11,480 6,974 Other 522 414 --------- --------- 12,002 7,388 --------- --------- Inventories, net: Raw material 3,283 2,198 Work in process 5,136 5,908 Finished goods 1,431 603 --------- --------- 9,850 8,709 --------- --------- Prepaid expenses and other assets 523 432 --------- --------- Total current assets 55,050 79,501 --------- --------- Property, plant and equipment, net (notes 2 and 3) 21,987 14,460 Other non-current assets 51 63 Restricted investments (note 3) 30,508 - --------- --------- Total assets $107,596 94,024 --------- --------- --------- ---------
See accompanying notes to financial statements. -2-
Liabilities and Shareholders' Equity December 31, ------------------------------------ ------------------------ 1996 1995 ---- ---- Current liabilities: Current installments of capital lease and installment note obligations (note 3) $ 3,373 2,329 Accounts payable 9,633 6,996 Accrued expenses (note 5) 4,378 4,447 Deferred revenue 75 216 --------- --------- Total current liabilities 17,459 13,988 Capital lease and installment note obligations, less current installments (note 3) 9,891 7,392 --------- --------- Total liabilities 27,350 21,380 --------- --------- Commitments and contingency (note 8) Shareholders' equity (note 6): Preferred stock, no par value. Authorized 5,000,000 shares at December 31, 1996 and 1995; issued and outstanding -0- at December 31, 1996 and 1995 - - Common stock, no par value. Authorized 25,000,000 shares at December 31, 1996 and 1995; issued and outstanding 8,190,125 and 7,929,881 shares at December 31, 1996 and 1995, respectively 109,128 107,813 Accumulated deficit (28,882) (35,169) --------- --------- Total shareholders' equity 80,246 72,644 --------- --------- Total liabilities and shareholders' equity $107,596 94,024 --------- --------- --------- ---------
TRIQUINT SEMICONDUCTOR, INC. Statements of Shareholders' Equity For the years ended December 31, 1996, 1995 and 1994 (In thousands, except share amounts)
Preferred Stock Common Stock Total --------------------- ----------------------- Accumulated shareholders' Shares Amount Shares Amount deficit equity ------ ------ ------ ------ ------- ------ Balance, December 31, 1993 - $ - 5,017,000 $ 54,718 $(28,499) $ 26,219 Issuance of common stock, net - - 527,162 4,102 - 4,102 Issuance of common stock under option plans - - 102,593 196 - 196 Net loss for year - - - - (9,732) (9,732) ----- ----- --------- ------- ------ ------ Balance, December 31, 1994 - - 5,646,755 59,016 (38,231) 20,785 Issuance of common stock, net - - 2,000,000 48,068 - 48,068 Issuance of common stock under option plans - - 283,126 688 - 688 Tax benefit of stock option exercises - - - 41 - 41 Net income for year - - - - 3,062 3,062 ----- ----- --------- ------- ------ ------ Balance, December 31, 1995 - - 7,929,881 107,813 (35,169) 72,644 Issuance of common stock under option plans and warrant exercises - - 237,465 897 - 897 Issuance of common stock under stock purchase plan - - 22,779 264 - 264 Tax benefit of stock option exercises - - - 154 - 154 Net income for year - - - - 6,287 6,287 ----- ----- --------- ------- ------ ------ Balance, December 31, 1996 - $ - 8,190,125 $ 109,128 $(28,882) $ 80,246 ----- ----- --------- ------- ------ ------ ----- ----- --------- ------- ------ ------
See accompanying notes to financial statements. -4- TRIQUINT SEMICONDUCTOR, INC. Statements of Cash Flows For the years ended December 31, 1996, 1995 and 1994 (In thousands)
Year Ended December 31 ---------------------------------- 1996 1995 1994 ---- ---- ---- Cash flows from operating activities: Net income (loss) $ 6,287 3,062 (9,732) Adjustments to reconcile net income (loss) to net cash provided (used) by operating activities: Depreciation and amortization 3,068 3,042 3,252 Loss (gain) on sale of assets (728) (19) 81 Restructuring charges - - 443 Change in assets and liabilities: (Increase) decrease in: Receivables (4,614) (2,070) 1,935 Inventories (1,141) (3,107) 1,466 Prepaid expenses and other assets (79) (31) (124) Increase (decrease) in: Accounts payable 2,637 2,280 316 Accrued expenses 85 (550) 2,983 Deferred revenue (141) 141 (333) ------- ------- -------- Net cash provided by operating activities 5,374 2,748 287 ------- ------- -------- Cash flows from investing activities: Purchase of investments (97,266) (49,790) (15,002) Sale of investments 75,415 26,871 10,000 Increase in restricted cash (504) - - Capital expenditures (4,060) (1,273) (94) Proceeds from sale of assets 728 19 - ------- ------- --------- Net cash used by investing activities (25,687) (24,173) (5,096) ------- ------- --------- Cash flows from financing activities: Principal payments under capital lease obligations and installment notes (2,992) (1,723) (1,308) Payments on debt, net - - (353) Issuance of common stock, net 1,161 48,756 3,755 ------- ------- --------- Net cash provided (used) by financing activities (1,831) 47,033 2,094 ------- ------- --------- Net increase (decrease) in cash and cash equivalents (22,144) 25,608 (2,715) Cash and cash equivalents at beginning of year 35,051 9,443 12,158 ------- ------- --------- Cash and cash equivalents at end of year $12,907 35,051 9,443 ------- ------- --------- ------- ------- ---------
(Continued) -5- TRIQUINT SEMICONDUCTOR, INC. Statements of Cash Flows, Continued (In thousands)
Year Ended December 31 --------------------------- 1996 1995 1994 ------- ------ ------ Supplemental disclosures of cash flow information: Cash paid for: Interest $ 1,015 529 336 ------ ------ ----- ------ ------ ----- Income taxes $ 20 112 2 ------ ------ ----- ------ ------ ----- Supplemental schedule of non-cash investing and financing activities: Assets acquired through issuance of stock (net of issuance costs) $ - - 124 Purchase of assets through capital lease and installment notes 6,535 7,831 3,310 Conversion of accounts payable to capital leases - - 759 Issuance of common stock for royalties $ - - 419 ------ ------ ----- ------ ------ -----
See accompanying notes to financial statements. - 6 - TRIQUINT SEMICONDUCTOR, INC. Notes to Financial Statements December 31, 1996 and 1995 (In thousands, except share information) (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (a) DESCRIPTION OF THE COMPANY TriQuint Semiconductor, Inc. (the Company) is engaged in the design, development, manufacture and sale of a broad range of high performance analog and mixed signal integrated circuits for the wireless communications, telecommunications and computing markets. The Company currently utilizes its proprietary gallium arsenide technology to manufacture standard and customer-specific integrated circuits. During 1996, the Company changed its fiscal year end to be on a calendar basis. For fiscal 1995 and prior the Company's fiscal year ended on the last Saturday nearest December 31. For convenience, the Company has indicated in these financial statements that, for fiscal 1995 and 1994, its fiscal years ended on December 31. (b) MANAGEMENT ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that effect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. (c) REVENUE RECOGNITION Standard product revenue is recognized upon shipment of product. The Company recognizes revenue on customer-specific products or services based on certain design, manufacturing and other milestones. (d) CASH EQUIVALENTS The Company considers all highly liquid debt instruments purchased with a maturity of three months or less to be cash equivalents. (Continued) - 7 - TRIQUINT SEMICONDUCTOR, INC. Notes to Financial Statements (In thousands, except share information) (e) INVESTMENTS The Company has adopted Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities" (SFAS No. 115). SFAS No. 115 requires the classification of debt and marketable equity securities in one of three categories: trading, available-for-sale, or held-to-maturity. Trading and available-for-sale securities are recorded at fair value. Held-to-maturity securities are recorded at amortized cost, adjusted for the amortization or accretion of premiums or discounts. Unrealized holding gains and losses on trading securities are included in earnings. Unrealized holding gains and losses, net of the related tax effect, on available-for-sale securities are reported as a separate component of stockholders' equity until realized. The Company's investment securities are comprised of medium term corporate notes, foreign debt securities, commercial paper and auction rate preferred stock and have been classified as available-for-sale securities at December 31, 1996 and 1995. Carrying value is substantially the same as market value at December 31, 1996 and 1995. (f) ACCOUNTS RECEIVABLE Accounts receivable are shown net of allowance for doubtful accounts of $219 and $202 at December 31, 1996 and 1995, respectively. (g) INVENTORIES Inventories are stated at the lower of standard cost (approximates actual cost on a first-in, first-out basis) or market (net realizable value). Inventories are shown net of a valuation reserve of $2,383 and $2,309 at December 31, 1996 and 1995, respectively. (h) PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment are recorded at cost. Machinery and equipment under capital leases are stated at the lower of the present value of the minimum lease payments at the beginning of the lease term or the fair value of the leased assets at the inception of the lease. Depreciation is provided using the straight-line method over estimated useful lives ranging from five to seven years. Leasehold improvements are amortized over the shorter of the estimated life of the asset or the term of the related lease, generally three to five years. Depreciation begins on assets in process at the time the related assets are placed in service. Maintenance and repairs are expensed as incurred. (Continued) - 8 - TRIQUINT SEMICONDUCTOR, INC. Notes to Financial Statements (In thousands, except share information) (i) RESEARCH AND DEVELOPMENT COSTS The Company charges all research and development costs associated with the development of new products to expense when incurred. Engineering and design costs related to revenues on non-recurring engineering services billed to customers are classified as research, development and engineering expense. Additionally, certain related contract engineering costs are also included in research, development and engineering expense. (j) CONCENTRATIONS OF CREDIT RISK The Company sells its products to original equipment manufacturers and distributors involved in a variety of industries including wireless communications, telecommunications, computers and peripherals. The Company performs continuing credit evaluations of its customers and generally does not require collateral; however, in certain circumstances, the Company may require letters of credit from its customers. (k) NET INCOME PER COMMON AND COMMON EQUIVALENT SHARE Net income per share is computed using the weighted average number of common and dilutive common equivalent shares assumed to be outstanding during the period (using the treasury stock method for dilutive common equivalent shares). Common equivalent shares consist of options and warrants to purchase common stock. (l) INCOME TAXES The Company accounts for income taxes under the asset and liability method. Under the asset and liability method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Valuation allowances are established when necessary to reduce deferred tax assets to the amounts expected to be realized. (Continued) - 9 - TRIQUINT SEMICONDUCTOR, INC. Notes to Financial Statements (In thousands, except share information) (m) FINANCIAL INSTRUMENTS The carrying amount of cash equivalents, investments, trade receivables, accounts payable and short term borrowing approximate fair value because of the short-term nature of these instruments. The fair value of long-term obligations under capital lease were estimated by discounting the future cash flows using market interest rates and does not differ significantly from that reflected in the financial statements. Fair value estimates are made at a specific point in time, based on relevant market information about the financial instrument. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimates. (n) RECLASSIFICATIONS Certain reclassifications have been made to the 1994 and 1995 statements to conform with the 1996 presentation. (2) PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment consist of the following: December 31 ----------------- 1996 1995 ------- ------ Machinery and equipment $37,348 31,787 Leasehold improvements 1,052 1,039 Furniture and fixtures 664 523 Computer equipment 6,477 5,287 Assets in process 9,325 5,635 ------- ------ 54,866 44,271 Less accumulated depreciation and amortization 32,879 29,811 ------- ------ $21,987 14,460 ------- ------ ------- ------ (Continued) - 10 - TRIQUINT SEMICONDUCTOR, INC. Notes to Financial Statements (In thousands, except share information) (3) LEASE AND INSTALLMENT NOTE OBLIGATIONS At December 31, 1996 and 1995, the Company had outstanding $5,390 and $1,864 of installment notes with interest rates ranging from 8.7% to 9.9%. The notes are payable in monthly installments of principal and interest through 2001 and are secured by equipment with a net book value of $4,957 and $1,764 at December 31, 1996 and 1995. Additionally, the Company leases certain equipment under capital leases. The future minimum lease payments under installment notes and non-cancelable leases as of December 31, 1996 are as follows: Installment notes and capital Operating leases leases ------ ------ Year ending: 1997 $ 4,549 586 1998 4,112 20 1999 3,506 14 2000 2,456 - 2001 1,417 - ------- ----- Total 16,040 $ 620 ----- ----- Less amounts representing interest 2,776 ------- Present value of minimum payments 13,264 Less current installments 3,373 --------- $ 9,891 --------- --------- (Continued) - 11 - TRIQUINT SEMICONDUCTOR, INC. Notes to Financial Statements (In thousands, except share information) Balances applicable to capitalized leases, which are included in machinery and equipment, are summarized as follows: DECEMBER 31 ----------------------- 1996 1995 -------- ------- Machinery and equipment $ 12,092 12,030 Less accumulated amortization 4,134 4,964 -------- ------- $ 7,958 7,066 -------- ------- -------- ------- Rent expense under operating leases was $1,065, $1,098 and $1,553 during the years ended 1996, 1995 and 1994, respectively. In May of 1996, the Company entered into an agreement to lease an office building (building) and fabrication facility (facility) under construction in Hillsboro, Oregon which will be its future headquarters. The lessors of the buildings have committed to fund up to a maximum of $45 million (subject to reductions based on certain conditions in the lease) for the construction of the buildings, with the portion of the committed amount actually used to be determined by the Company. Rent obligations will commence upon the building and facility becoming operational, will be equal to the lessor's debt service costs and will expire at the end of the initial lease term of five years. At the end of the lease term, the Company may renew the lease for an additional five years or may purchase the property. If the Company elects not to renew the lease or purchase the property, the Company must sell the property to a third party, guaranteeing up to a maximum of 85% of the original cost. As part of the above lease, the Company restricted $30.5 million of its securities as collateral for specified obligations of the lessor under the lease. These securities will be restricted as to withdrawal and will be managed by the Company subject to certain limitations under its investment policy. In addition, the Company must maintain a minimum consolidated tangible net worth of $50 million a total liabilities to net worth ratio equal to or less than .75 to 1 and maintain cash and liquid investments, including restricted investments, greater than $45.0 million. (Continued) - 12 - TRIQUINT SEMICONDUCTOR, INC. Notes to Financial Statements (In thousands, except share information) (4) DEBT The Company has a line of credit agreement for general corporate purposes. The agreement is unsecured, and provides for aggregate borrowings of $10,000. Interest is payable monthly. Interest rate is at prime plus a spread (determined quarterly, based on the Company's ratio of debt to tangible net worth) ranging from -0-% to 1% (8.25% at December 31, 1996); principal due on demand. No amount was outstanding on the line at December 31, 1996. The line of credit is subject to loan covenants for which the Company is in compliance at December 31, 1996. (5) ACCRUED EXPENSES Accrued expenses consist of the following: DECEMBER 31 ------------------------ 1996 1995 -------- ------- Accrued payroll $ 1,927 1,317 Litigation costs (note 8) 842 977 Other 1,609 2,153 -------- ------ $ 4,378 4,447 -------- ------ -------- ------ (6) SHAREHOLDERS' EQUITY (a) STOCK OPTION PLAN The 1987 Stock Incentive Plan (the 1987 Plan) provides for the granting to employees (including officers and employee directors) of incentive stock options within the meaning of Section 422A of the Internal Revenue Code of 1986, and for the granting of non-statutory stock options to employees (including officers and employee directors), directors and consultants. Subject to the discretion of the Board of Directors, options granted under the 1987 Plan generally vest and become exercisable at the rate of 28% at the end of the first year, and thereafter at a rate of 2% per month and have a ten-year term. (Continued) - 13 - TRIQUINT SEMICONDUCTOR, INC. Notes to Financial Statements (In thousands, except share information) The exercise price of all incentive stock options granted under the 1987 Plan must be at least equal to the fair market value of the shares on the date of grant. With respect to any participant who owns stock possessing more than 10% of the voting rights of the Company's outstanding capital stock, the exercise price of any incentive stock option granted must equal at least 110% of the fair market value on the grant date. The exercise price of all non-statutory stock options granted under the 1987 Plan must be at least 50% of the fair market value of the common stock on the date of grant. The terms of all options granted under the 1987 Plan may not exceed ten years. During fiscal 1996, the Company's shareholders approved the 1996 Stock Incentive Program (the 1996 Plan) with the same provisions and guidelines as the aforementioned 1987 Plan. The Company reserved 400,000 shares of common stock for grants option under the 1996 Plan. At December 31, 1996, there were 372,254 additional shares available for grant under the 1987 and 1996 Plans. The per share weighted-average fair value of stock options granted during 1996 and 1995 was $11 and $9 on the date of grant using the Black Scholes option-pricing model with the following weighted-average assumptions: 1996-expected dividend yield 0%, risk-free interest rate of 6.3%, expected life of 5 years, and an expected volatility over the expected life of 75%; 1995-expected dividend yield 0%, risk-free interest rate of 6.1%, expected life of 5 years and expected volatility over the expected life of 82.4%. The Company applies APB Opinion No. 25 in accounting for its Plan and, accordingly, no compensation cost has been recognized for its stock options in the financial statements. Had the Company determined compensation cost based on the fair value at the date of grant for its stock options under SFAS No. 123, the Company's net income would have been reduced to the pro forma amounts indicated below: 1996 1995 -------- ------- Net income As reported $ 6,287 3,062 Pro forma 5,481 2,836 Net income per share As reported .71 .42 Pro forma .62 .39 Pro forma net income reflects only options granted in 1996 and 1995. Therefore, the full impact of calculating compensation cost for stock options under SFAS No. 123 is not reflected in the pro forma net income amounts presented above because compensation cost is reflected over the options' vesting period of 4 years and compensation cost for options granted prior to January 1, 1995 is not considered. (Continued) - 14 - TRIQUINT SEMICONDUCTOR, INC. Notes to Financial Statements (In thousands, except share information) Activity under the 1987 and 1996 Plans is as follows: NUMBER WEIGHTED- OF AVERAGE EXERCISE SHARES PRICE -------- ---------------- Options outstanding at December 31, 1994. 1,336,899 $ 4.15 Options: Granted 128,322 13.35 Exercised (283,126) 2.42 Canceled (43,379) 6.61 --------- --------- Options outstanding at December 31, 1995 1,138,716 5.53 Options: Granted 271,759 18.00 Exercised (236,198) 3.86 Canceled (86,750) 11.09 --------- --------- Options outstanding at December 31, 1996 1,087,527 $ 8.58 At December 31, 1996, the range of exercise prices and weighted-average remaining contractual life of outstanding options was $1.40 - $29.88 and 7.3 years, respectively. At December 31, 1996 and 1995, 579,230 and 577,258 options were vested and exercisable, respectively, and the weighted-average exercise price of those options was $5.00 and $3.60, respectively, and 372,254 shares remained available for future grant. (Continued) - 15 - TRIQUINT SEMICONDUCTOR, INC. Notes to Financial Statements (In thousands, except share information) (b) WARRANTS On August 31, 1993, the Company issued a warrant to American Telephone and Telegraph Company (AT&T), a related party, to purchase the Company's common stock. The warrant issued provides for the purchase of up to 125,000 shares of common stock at $24.00 per share and is exercisable through August 2000. On December 19, 1994, the company issued an additional warrant to AT&T which provides for the purchase of up to 75,000 shares of common stock at $24.00 per share and is exercisable through December 2001. On April 30, 1992, the Company issued a warrant to a leasing company to purchase 5,143 shares of the Company's common stock at an exercise price of $17.50 per share. During the current year, the leasing company exercised its warrants pursuant to a net exercise clause in the warrant agreement. The leasing company received 1,267 shares of common stock. (7) INCOME TAXES The provision for income taxes consists of: YEAR ENDED DECEMBER 31 ------------------------- 1996 1995 1994 ------ ------ ----- Current: Federal $ 145 67 - State 86 16 - ------ ----- ---- Total current 231 83 - ------ ----- ---- ------ ----- ---- Deferred: Federal - - - ------ ----- ---- State - - - ------ ----- ---- Total deferred - - - ------ ----- ---- Total $ 231 83 - ------ ----- ---- ------ ----- ---- (Continued) - 16 - TRIQUINT SEMICONDUCTOR, INC. Notes to Financial Statements (In thousands, except share information) The provision for income taxes differs from the amount computed by applying the federal statutory income tax rate to net income before taxes as follows:
YEAR ENDED DECEMBER 31 ---------------------------- 1996 1995 1994 ------ ------ ------ Tax (benefit) computed at federal statutory rate 34.0% 34.0% (34.0)% State income tax (benefit), net of federal effect 4.4 4.6 (4.8) Increase (decrease) in valuation allowance (16.3) (6.4) 39.8 Differences between financial and tax reporting for stock option exercises (19.2) (39.9) - Other .6 10.3 (1.0) ------ ------ ----- Effective tax rate 3.5% 2.6% -% ------ ------ ----- ------ ------ ----- The deferred income tax provision (benefit) results from changes in deferred tax assets and liabilities as follows: YEAR ENDED DECEMBER 31 ---------------------------- 1996 1995 1994 ------ ------ ------ Reserves not currently deductible $ (45) (53) (523) Tax depreciation and amortization 384 217 93 Accrued liabilities 85 409 (943) Net operating loss carryforward 801 (284) (2,070) Valuation allowance (1,060) (200) 3,506 Other (165) (89) (63) ------ ------ ------ Total $ - - - ------ ------ ------ ------ ------ ------
(Continued) - 17 - TRIQUINT SEMICONDUCTOR, INC. Notes to Financial Statements (In thousands, except share information) The tax effects of significant items comprising the Company's deferred tax asset and liability are as follows: DECEMBER 31 -------------------- 1996 1995 -------- ------- Deferred tax liabilities: Depreciation $ 977 593 -------- ------- Total deferred tax liability 977 593 -------- ------- Deferred tax assets: Accounts receivable 84 78 Inventory 1,002 963 Accrued liabilities 626 711 Net operating loss carryforwards 9,484 10,285 Other 433 268 -------- ------- Total deferred tax asset before valuation allowance 11,629 12,305 -------- ------- Valuation allowance (10,652) (11,712) -------- ------- Total deferred tax asset 977 593 -------- ------- Net deferred tax liability (asset) $ - - -------- ------- -------- ------- The valuation allowance for deferred tax assets as of January 1, 1994 was $8,406. The net change in total valuation allowance for the years ended December 31, 1996, 1995 and 1994 was a decrease of $1,060, a decrease of $200, and an increase of $3,506, respectively. Approximately $2,653 of the valuation allowance for deferred tax assets will be credited directly to shareholders' equity in the event tax benefits of net operating losses that resulted from stock options exercises are subsequently recognized. At December 31, 1996, the Company had approximately $26,595 of net operating loss carryforwards to offset against future income for federal income tax purposes which expire from 2003 through 2010, $3,812 for California state income tax purposes which expire in years 1997 through 1999, and $6,330 expiring in years 1997 through 2010 in other states. (Continued) - 18 - TRIQUINT SEMICONDUCTOR, INC. Notes to Financial Statements (In thousands, except share information) The Company's ability to use its net operating loss carryforwards to offset future taxable income is subject to annual restrictions contained in the United States Internal Revenue code of 1986, as amended (the Code). These restrictions act to limit the Company's future use of its net operating losses following certain substantial stock ownership changes enumerated in the Code and referred to hereinafter as an "ownership change". Consummation of the Company's initial public offering created an ownership change that has resulted in approximately $16,100 of the pre-1994 net operating loss carryforwards being limited to approximately $1,750 per year. In addition, approximately $9,042 are further limited to approximately $967 per year due to changes in the Company's ownership structure during 1991. (8) CONTINGENT LIABILITIES In July 1994, a shareholder class action lawsuit was filed against the Company with the United States District Court for the Northern District of California seeking unspecified damages. The suit alleges that the Company, its underwriters, and certain of its officers, directors and investors, intentionally misled the investing public regarding the financial prospects of the Company. The Company believes this litigation is without merit and intends to defend such action vigorously. The Company recorded a charge to earnings for its third quarter ended September 30, 1994 of approximately $1,500 for expected costs associated with the suit. In 1996, the Company succeeded in obtaining a change in venue from California to Oregon. The pretrial discovery of the lawsuit is scheduled to end on April 11, 1997. A trial date has not been set. (9) RESTRUCTURING OF OPERATIONS On September 30, 1994, the Company announced plans to shut-down and relocate its computing and networking group from Santa Clara, California to Beaverton, Oregon. All manufacturing operations have been relocated to Beaverton, Oregon. In conjunction with this plan, the Company recorded restructuring liabilities, aggregating $443 in the third quarter, for the expenses associated with the shut down of the Santa Clara operations; including employment termination costs of $187, lease termination costs of $169 and all other exit costs totaling $87. The shut down occurred on February 17, 1995 and 18 employees engaged in manufacturing, engineering and administrative functions were terminated. During the fourth quarter of 1994, the Company made cash payments of $87 for restructuring related items resulting in a restructuring accrual at December 31, 1994 of $356. From December 31, 1994 through December 31, 1995, the Company made cash payments for all remaining restructuring costs. (Continued) - 19 - TRIQUINT SEMICONDUCTOR, INC. Notes to Financial Statements (In thousands, except share information) (10) BENEFIT PLANS The Company sponsors the 1992 Employee Stock Purchase Plan (the Purchase Plan) and a voluntary contribution profit sharing and savings plan under Section 401(k) of the Internal Revenue Code which is available to substantially all employees. The Company has reserved 200,000 shares of common stock for issuance under the Purchase Plan of which 22,779 shares has been issued at December 31, 1996. (11) SIGNIFICANT CUSTOMERS AND SEGMENT INFORMATION Sales outside of the United States were approximately $18,100, $14,800 and $12,700 in 1996, 1995 and 1994, respectively. Revenues for significant customers, those representing approximately 10% or more of total revenues for each period, are summarized as follows: YEAR ENDED DECEMBER 31 ------------------------ 1996 1995 1994 ---- ---- ---- Customer A 12% 14% 19% Customer B 17 24 - Customer C 13 11 12 Related receivables from such customers were 26% and 44% of trade accounts receivable at December 31, 1996 and 1995, respectively. The Company operates in one industry segment and is engaged in the design, development, manufacture and sale of gallium arsenide integrated circuits and related services. (12) SALE OF INVESTMENT On September 1, 1996, the Company sold its 20% interest in its exclusive European distributor, for $680,000. The Company recognized a gain in the accompanying statement of operations in the amount of the sales price as the carrying value of this investment was zero. - 20 - INDEPENDENT AUDITOR'S REPORT The Board of Directors and Shareholders TriQuint Semiconductor, Inc.: We have audited the accompanying balance sheets of TriQuint Semiconductor, Inc. as of December 31, 1996 and 1995, and the related statements of operations, shareholders' equity, and cash flows for each of the years in the three-year period ended December 31, 1996. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of TriQuint Semiconductor, Inc. as of December 31, 1996 and 1995, and the results of its operations, and its cash flows for each of the years in the three-year period ended December 31, 1996 in conformity with generally accepted accounting principles. KPMG PEAT MARWICK LLP Portland, Oregon February 7, 1997 TRIQUINT SEMICONDUCTOR, INC. SUPPLEMENTARY UNAUDITED FINANCIAL DATA IN THOUSANDS, EXCEPT PER SHARE AMOUNTS
1996 1995 Q4 Q3 Q2 Q1 Q4 Q3 Q2 Q1 STATEMENT OF OPERATIONS DATA: Total revenues $16,211 $15,104 $15,095 $13,116 $12,621 $12,745 $11,137 $9,440 Operating costs and expenses: Cost of goods sold 9,139 8,829 8,363 7,928 8,403 6,516 5,781 4,809 Research, development and engineering 2,841 2,868 2,660 2,489 2,362 2,299 2,131 2,418 Selling, general and administrative 3,047 2,722 2,809 2,396 2,151 2,579 2,226 2,053 Restructuring of operations - - - - - - - - ----------------------------------------------------------------------------- Total operating costs and expenses 15,027 14,419 13,832 12,813 12,916 11,394 10,138 9,280 Income from operations 1,184 685 1,263 303 (295) 1,351 999 160 Other income, net 482 1,225 720 655 716 102 37 75 ------------------------------------------------------------------------------ Income before income taxes 1,666 1,910 1,983 958 421 1,453 1,036 235 Income tax expense 6 58 119 48 - 44 31 8 ------------------------------------------------------------------------------ Net income $1,660 $1,852 $1,864 $910 $421 $1,409 $1,005 $227 ------------------------------------------------------------------------------ ------------------------------------------------------------------------------ INCOME PER SHARE: Net income per common and common equivalent share $0.19 $0.21 $0.21 $0.11 $0.05 $0.20 $0.15 $0.04 Weighted average common and common equivalent shares outstanding 8,934 8,798 8,769 8,590 8,742 7,134 6,610 6,372 ------------------------------------------------------------------------------
MARKET FOR COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The Company made its initial public offering on December 13, 1993 at a price of $11.00 per share. The Company's Common Stock is quoted on the Nasdaq Stock Market's National Market under the symbol TQNT. As of February 28, 1997, there were 247 holders of record of the Company's Common Stock. The company has never declared or paid cash dividends on its Common Stock and does not anticipate paying cash dividends in the foreseeable future. The Company's line of credit with a financial institution contains a restrictive covenant which limits the Company's ability to pay cash dividends or make stock repurchases to 25% of cumulative net income for the preceding fiscal year. Any future determination to pay cash dividends will also be at the discretion of the Board of Directors and will be dependent upon the Company's financial condition, results of operations, capital requirements, general business conditions and such other factors as the Board of Directors deems relevant. GENERAL INFORMATION BOARD OF DIRECTORS EXECUTIVE OFFICERS STEVEN J. SHARP STEVEN J. SHARP Chairman of the Board, President Chairman of the Board, President and Chief Executive Officer, and Chief Executive Officer TriQuint Semiconductor, Inc. EDWARD C. V. WINN PAUL A. GARY Executive Vice President Finance and Retired Executive of AT&T Administration, Chief Financial Officer and Secretary CHARLES SCOTT GIBSON JOSEPH I. MARTIN Consultant Vice President, Corporate Development E. FLOYD KVAMME BRUCE R. FOURNIER General Partner Vice President, Sales Kleiner Perkins Caufield & Byers Venture Capital Firm DONALD H. MOHN Vice President and General Manager Telecom and Computing EDWARD F. TUCK General Partner Kinship Venture Management, LLP J. DAVID PYE Vice President, Manufacturing Operations WALDEN C. RHINES President and Chief Executive RONALD R. RUEBUSCH Officer Vice President and General Manager, Mentor Graphics, Inc. Wireless Communications E. K. RANJIT Vice President, Finance, Treasurer and Assistant Secretary ANNUAL MEETING The Company's Annual Meeting of Stockholders will be held on Thursday, May 29, 1997 at 2:00 p.m. (PDT) at the Company's principal executive offices, located at 2300 NE Brookwood Parkway, Hillsboro, Oregon, 97124. FORM 10-K A copy of the Company's Form 10-K as filed with the Securities and Exchange Commission, is available free of charge by calling the Investor Relations number below. CORPORATE HEADQUARTERS 2300 NE Brookwood Parkway Hillsboro, Oregon 97124 Phone: (503) 615-9000 Fax: (503) 615-8900 INVESTOR RELATIONS E. K. Ranjit (503) 615-9414 Heidi Flannery Fi.Comm (503) 844-8888 TRANSFER AGENT ChaseMellon Shareholder Services San Francisco, California INDEPENDENT PUBLIC ACCOUNTANTS KPMG Peat Marwick LLP Portland, Oregon LEGAL COUNSEL Wilson Sonsini Goodrich & Rosati Palo Alto, California EX-23.1 4 INDEPENDENT AUDITOR'S CONSENT INDEPENDENT AUDITORS' CONSENT The Board of Directors TriQuint Semiconductor, Inc.: We consent to the incorporation by reference in the Registration Statement Nos. 33-75464 and 33-02166 on Form S-8 of TriQuint Semiconductor, Inc. of our reports dated February 7, 1997 relating to the balance sheets of TriQuint Semiconductor, Inc. as of December 31, 1996 and 1995, and the related statements of operations, shareholders'equity, and cash flows and related schedule for each of the years in the three-year period ended December 31, 1996, which reports appear in the December 31, 1996 annual report on Form 10-K of TriQuint Semiconductor, Inc. KPMG Peat Marwick LLP Portland, Oregon March 31, 1997 -63- EX-27 5 FDS
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1996 AND THE BALANCE SHEET AS OF DECEMBER 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 YEAR DEC-31-1996 JAN-01-1996 DEC-31-1996 13,411 19,264 11,698 (218) 9,850 55,050 54,866 (32,879) 107,596 17,459 9,891 0 0 109,128 (28,882) 107,596 59,526 59,526 34,258 56,091 638 0 1,015 6,518 231 6,287 0 0 0 6,287 0.72 0.71
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