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
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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 - -
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Total operating costs and expenses 56,091 43,728 40,191 31,134 28,099
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Income (loss) from operations 3,435 2,215 (9,930) 1,472 1,209
Other income (expense), net 3,083 930 198 (414) (466)
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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
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Net income (loss) $6,287 $3,062 ($9,732) $787 $718
-------------------------------------------------------------------------
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INCOME (LOSS) PER SHARE:
Income (loss) before extraordinary item $0.71 $0.42 ($1.82) $0.19 $0.10
Extraordinary item - - - - 0.09
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Net income (loss) $0.71 $0.42 ($1.82) $0.19 $0.19
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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
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(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