ITEM 1. BUSINESS
The following contains forwarding-looking statements based on current expectations and entails various risks and uncertainties that could cause actual results to differ materially from those anticipated in these forward-looking statements as a result of certain factors discussed herein. These forward-looking statements include, but are not limited to, those regarding the Company's markets, customers, products and competition. Certain risks that the Company faces include, but are not limited to, the risk of lower than expected production yields, the risks associated with operating its own wafer fabrication facilities, the risks stemming from failure to receive orders to produce a high volume of products that are custom-designed, the risks associated with integrating recent acquisitions and the risks associated with reliance on a limited number of suppliers, some of which are outside the United States.
Triquint Semiconductor, Inc. ("TriQuint" or the "Company") designs, develops, manufactures and markets a broad range of high performance analog and mixed signal integrated circuits for the wireless communications, telecommunications and computing markets. The Company utilizes its proprietary gallium arsenide ("GaAs") technology to enable its products to overcome the performance barriers of silicon devices in a variety of applications. The Company sells its products on a worldwide basis and the Company's end user customers include Alcatel, Cellnet Data Systems, Cisco Systems, Ericsson, IBM, Lucent Technologies, Motorola, Northern Telecom, Siliconix and Storage Technology.
INDUSTRY BACKGROUND
Market demands for higher levels of performance in electronic systems have produced an increasing number of varied, complex applications. The increased capabilities of these new systems, in turn, are spawning new markets and a further proliferation of new, sophisticated applications. Many of these new applications have emerged in the wireless communications, telecommunications and computer industries.
The wireless communications industry is experiencing rapid growth with the advent of new applications such as digital cellular telephones, personal communication systems ("PCS"), pagers, handheld navigation products based on the global positioning satellite ("GPS") standard, satellite communications such as Direct Broadcast Satellite ("DBS"), wireless local area networks ("WLANs"), wireless data transmission systems such as Cellular Digital Packet Data ("CDPD") modems and wireless cable television. In addition, many of these new applications require battery powered portability. The proliferation of some of these new applications has led to increased communication traffic resulting in congestion of the historically assigned frequency bands. As a consequence, wireless communications are moving to higher, less congested frequency bands. For example, in recognition of the potential for such applications, United States government regulatory agencies have auctioned licenses for a new spectrum of radio frequencies above 1.8 GHz, or approximately twice the frequency of existing cellular networks. These licenses will be used as the United States PCS is deployed. The Company believes the increasing demand for wireless communications at higher frequencies, will lead to entirely new high volume applications.
The telecommunications industry is encountering increasing demand for higher transmission rates and increased capacity to accommodate the growth of traditional voice traffic and higher levels of data traffic arising from widely-used applications such as facsimile communications, computer networking and online and Internet services. Today's advanced telecommunications systems employ high speed switching networks and fiber optic cable operating in accordance with high frequency standards such as synchronous optical network ("SONET"), Synchronous Digital Hierarchy ("SDH"), integrated services digital network ("ISDN") and the asynchronous transfer mode ("ATM") standard. For example, high performance SONET telecommunications systems can operate at frequencies of 2.48 gigabits per second or higher. The advent of video communications and multimedia (combinations of voice, video and data) are placing further demands on these systems for even higher data transmission rates.
In the computer industry, data processing speeds have increased rapidly, bringing enormous computing power to individual users. The demand to share data and peripheral equipment among these users has led to the widespread use of networking systems operating at increasing speeds. Today's advanced data communication links use systems such as Fibre Channel and Gigabit Ethernet to transmit data at rates up to 1.25 Gbit/sec. To address the market demands for higher performance, electronic system manufacturers have relied heavily on advances in semiconductor technology. In recent years, the predominant semiconductor technologies used in advanced electronic systems have been silicon-based complementary metal oxide semiconductor ("CMOS"), bipolar complementary metal oxide semiconductor ("BiCMOS") and emitter coupled logic ("ECL") process technologies. However, the newest generation of high performance electronic systems requires further advances in semiconductor performance. One way to improve performance is to combine analog and digital circuitry on the same device. This combination, known as mixed signal technology, can provide higher levels of integration (smaller size and increased functionality), reduced power consumption and higher operating frequencies. Notwithstanding the benefits of mixed signal technology, the performance requirements of certain critical system functions generally cannot be achieved using silicon-based components. As a result, system manufacturers are seeking semiconductor products which can overcome the performance limitations of silicon devices in a variety of applications.
GaAs semiconductor technology has emerged as an effective alternative or complement to silicon solutions in many high performance applications. GaAs has inherent physical properties which allow its electrons to move up to five times faster than those of silicon. This higher electron mobility permits the manufacture of GaAs integrated circuits which operate at much higher speeds than silicon devices, or operate at the same speeds with lower power consumption. In many new applications, GaAs integrated circuits enable high performance systems to process data more quickly, increasing system operating rates. In addition, the use of GaAs integrated circuits can reduce system power requirements, which is particularly important in battery powered portable applications. The high performance characteristics of GaAs, combined with the system requirements of the communications and computing industries, have led to the first use of GaAs components in high volumes to complement silicon devices in a wide range of commercial systems.
The Company believes that the continuation and acceleration of these trends will result in increasing demand for GaAs integrated circuits, thereby creating substantial opportunities for market-focused manufacturers who can provide a broad range of cost effective GaAs integrated circuits in high volume.
MARKETS AND CUSTOMERS
TriQuint has focused on commercial applications in the wireless communications, telecommunications and computing market areas which can benefit significantly from the performance of GaAs and the Company's analog and mixed signal design expertise.
WIRELESS COMMUNICATIONS
GaAs design and manufacturing technologies are being applied to commercial communications in satellites, satellite receivers for TV broadcast, wireless transceivers for data networks, handheld navigation systems based on the GPS system, wireless LANs, cellular telephones and PCSs.
Frequency bands are allocated to the various wireless communications applications by government regulatory bodies throughout the world. The allocation is based, among other factors, upon the availability of unallocated frequency bands and the ability of equipment to operate effectively in these bands. As the lower frequency bands become fully allocated and congested, and the volume and rate of communications increases, the trend is toward the allocation and use of higher frequency bands. A major example is the U.S. government's auction of PCS licenses. PCS systems operate at approximately twice the frequency of conventional cellular systems. The speed of GaAs technology makes it well-suited for applications at these higher frequencies.
In addition to its superior ability to operate at higher frequencies, GaAs provides other important performance advantages over silicon in key wireless communications system functions. Some of the most important advantages are improved signal reception, better signal processing in congested bands and greater power efficiency for longer battery life in portable applications.
TELECOMMUNICATIONS
GaAs technologies are well suited for the growing markets and applications which require the transmission or manipulation of large amounts of information at high speeds with high data integrity. These applications, which typically require customer specific solutions and include digital, analog and mixed signal functions, are found primarily in the telecommunications industry, but also span other industries such as instrumentation and aerospace. For many of these applications, the Company's products provide better price/performance value than silicon. The intrinsic electrical properties of GaAs result in higher speed, lower noise and less power consumption compared to silicon.
The Company believes that the increasing use of fiber optic cable in telecommunications and data communications systems has created a significant growth opportunity for the Company's GaAs products. Because data transmission rates in fiber optic cable can be many times greater than those of copper line, a single fiber line can cost-effectively replace multiple copper lines. In order to take advantage of the potential cost advantages of fiber optic communications, information must be transmitted at higher rates generally achievable only through the use of GaAs products such as those manufactured by TriQuint.
The telecommunication industry has established a series of standards, most notably SONET and ISDN, which define transmission rates, protocols, signal quality and reliability. GaAs based products address the performance requirements of these standards, as well as emerging standards such as ATM. For the higher speed communication links (2.48 Gbit/sec and above), GaAs components currently offer a preferred solution. At lower transmission rates, such as 622 Mbit/sec, GaAs integrated circuits use less power than silicon devices.
COMPUTING
Both the performance of microprocessors and the density of storage devices have increased substantially in recent years, creating significant bottlenecks in other portions of computing systems. TriQuint's computing products are specifically designed to alleviate these bottlenecks and to help designers optimize performance in personal computers, workstations, servers and advanced graphics terminals by increasing the speed and precision of microprocessor control functions and by permitting more rapid data transmission between computers or between computers and peripherals. TriQuint's products for the computing market provide solutions for two critical system areas: system timing and data communications.
SYSTEM TIMING. Clock signals are the heartbeat of every computer system. They determine exactly when events will occur in the system and how fast a system will operate. Delays, timing differences (referred to as "skew") and lack of synchronization in clock signals can affect system operation and/or reduce system speed. Clock generation, control and distribution have therefore become key elements of high speed, robust system designs. The inherently higher speed of GaAs technology, combined with the Company's mixed signal circuit designs, results in integrated circuits which facilitate precise clock signal generation, control and distribution.
DATA COMMUNICATIONS. Data communications equipment is typically used to interconnect mainframe computers, clients and servers, workstations, disk storage arrays and other peripheral devices. Other applications, which require transmission of large amounts of data at high speed include multimedia computing, supercomputing, multiprocessor systems, interactive computer aided design/computer aided manufacturing ("CAD/CAM"), medical imaging and high speed, high resolution printing. As new applications requiring higher volume data transfer have proliferated, and as microprocessor speeds have increased, a critical bottleneck has developed in these communications links. The computation speed of
today's microprocessors is 10 to 100 times faster than currently available communications equipment based on communications standards such as Ethernet and Small Computer System Interface ("SCSI"). A solution to this problem is the use of high speed serial data transmission by means of coaxial or fiber optic cable in combination with the Company's mixed signal transmitting and receiving devices. For example, leading computer manufacturers have acknowledged the need for high speed serial data communications links by supporting the Fibre Channel standard which can operate up to 1.25 Gbit/sec. TriQuint's products, using the Company's mixed signal technology, enable high speed data transmission with high data integrity.
CUSTOMERS
The Company has a broad customer base of leading systems manufacturers and has shipped products or provided manufacturing services directly to approximately 180 end user customers and distributors. Northern Telecom accounted for approximately 12% of the Company's total revenues in 1997. In 1996, Cirrus Logic, Northern Telecom, and GIGA A/S, a European distributor, accounted for approximately 17%, 12%, and 12% of the Company's total revenues, respectively. No other customer of the Company accounted for greater than 10% of total revenues during these periods. If the Company were to lose any major customer or if sales were to otherwise decrease, the Company's operating results would be adversely affected.
The markets in which the Company's customers compete are characterized by rapidly changing technology, evolving industry standards and continuous improvements in products and services. If technologies or standards supported by the Company's or its customers' products become obsolete or fail to gain widespread commercial acceptance, the Company's business may be materially adversely affected.
PRODUCTS
The Company's broad range of standard and customer-specific integrated circuits, combined with its manufacturing and design services, allow customers to select the specific integrated circuit solution which best fulfills their technical and time-to-market requirements.
STANDARD PRODUCTS
TriQuint offers families of standard products for each of its target markets.
WIRELESS COMMUNICATIONS. The Company's standard products for this varied market are used as building blocks for multi-purpose applications in radio frequency ("RF") and microwave systems. These systems include personal communications networks, cellular telephones, satellite communications and navigation systems and wireless computer networks. TriQuint's wireless communications standard products leverage the advantages of the Company's proprietary GaAs technology by addressing the needs of system designers for low noise, power efficient amplification, low loss switching and efficient and accurate frequency conversion.
TELECOMMUNICATIONS. While most of the Company's telecommunications products are customer-specific, the Company also offers standard telecommunications products, such as SONET and SDH multiplexers and demultiplexers to provide low bit-error-rate performance in standard transmission applications and SONET/SDH compatible transceivers that support clock and data recovery and ATM framing, as well as high performance crosspoint switches.
COMPUTING. For computing systems, TriQuint offers families of standard products which are designed to be fully compatible with the silicon devices used elsewhere in the system. The Company's products are targeted at two critical applications where the advantages of GaAs technology can provide superior solutions for system designers. These critical applications are system timing and data communications.
CUSTOMER-SPECIFIC PRODUCTS AND SERVICES
TriQuint offers its customers a variety of product options and services for the development of customer-specific products. Services offered by the Company include design, wafer fabrication, test engineering, package engineering, assembly and test. Customer-specific products and services generally provide revenue at two stages: first when the design is developed and engineered, and second when TriQuint manufactures the device. The Company focuses the development of its customer specific products on its target markets in applications involving volume production requirements. As is typical in the semiconductor industry, customer specific products are developed for specific applications. As a result, the Company expects to generate production revenues only from those customer specific products that are subsequently produced in high volume.
Customer-specific designs are generally implemented by one of two methods. Under the first method, the customer supplies the Company with detailed performance specifications and TriQuint performs the complete design, development and subsequent manufacturing of the integrated circuits. Under the second method, TriQuint supplies circuit design and process rules to its wireless communication customers and the customer's internal engineering staff designs the product which TriQuint then manufactures.
A substantial portion of the Company's products are designed to address the needs of individual customers. Frequent product introductions by systems manufacturers make the Company's future success dependent on its ability to select customer-specific development projects which will result in sufficient production volume to enable the Company to achieve manufacturing efficiencies. Because customer-specific products are developed for unique applications, the Company expects that some of its current and future customer-specific products may never be produced in high volume. In addition, in the event of significant delays in completing designs or the Company's failure to obtain development contracts from customers whose systems achieve and sustain commercial market success, the Company's results of operations could be materially adversely affected.
MMIC BUSINESS
On January 13, 1998, the Company acquired substantially all of the assets of the Monolithic Microwave Integrated Circuit (MMIC) operations of the former Texas Instruments' Defense Systems & Electronics Group from Raytheon TI Systems, Inc. (RTIS), a Delaware corporation and a wholly owned subsidiary of Raytheon Company (Raytheon). The MMIC operations include the GaAs foundry and MMIC business of the R/F Microwave Business Unit that RTIS acquired on July 11, 1997 from Texas Instruments Incorporated (TI) which MMIC business includes without limitation, TI's GaAs Operations Group, TI's Microwave GaAs Products Business Unit, the MMIC component of TI's Microwave GaAs Products Business Unit, the MMIC component of TI's Microwave Integrated Circuits Center of Excellence and the MMIC research and development component of TI's Systems Component Research Laboratory (collectively, the MMIC Business).
The MMIC Business designs, develops, produces and sells advanced GaAs MMIC products which are used in defense and commercial applications. In the area of defense applications, the MMIC Business supplies military contractors with MMIC products and services for applications such as high power amplifiers, low noise amplifiers, switches and attenuators for active array radar, missiles, electronic warfare systems and space communications systems. In commercial applications, the MMIC Business provides products and services for wireless and space-based communications.
Acquisition transactions are accompanied by a number of risks, including, among other things, the difficulty of assimilating the operations and personnel of the acquired companies, the potential disruption of the Company's ongoing business, the inability of management to maximize the financial and strategic position of the Company through the successful incorporation of acquired technology and rights into the Company's products, expenses associated with the transactions, expenses associated with acquired in-process research and development, additional operating expenses, the maintenance of uniform standards,
controls, procedures and policies, the impairment of relationships with employees and customers as a result of any integration of new management personnel, and the potential unknown liabilities associated with acquired businesses. There can be no assurance that the Company will be successful in overcoming these risks or any other problems encountered in connection with its acquisition of the MMIC Business.
DESIGN AND PROCESS TECHNOLOGY
In order to develop and introduce new products rapidly and cost-effectively which address the needs of its target markets, the Company has made substantial investments in building its capabilities in digital, analog and mixed signal circuit design. The Company has developed an extensive library of digital and analog cells and associated software tools and databases which it uses to facilitate the design of its integrated circuits. The Company has also developed and documented process and design rules which allow customers to design proprietary circuits themselves. Mixed signal products, which generally involve varied and complex functions operating at high frequencies, generally present design and testing challenges. The Company believes that its extensive cell library, optimized mixed signal process technology and design and test engineering expertise in high performance mixed signal integrated circuits address these challenges and provide a significant competitive advantage.
TriQuint's manufacturing strategy is primarily to use high volume core process technologies which enables it to provide cost-effective solutions for its customers. The Company's advanced wafer manufacturing process emphasizes stability, uniformity and repeatability. Unlike its GaAs competitors who have typically concentrated on either digital or analog products, TriQuint has intentionally pursued process technologies that are cost-effective for digital, analog and mixed signal applications. As a result of the ability to primarily utilize core processes in the manufacture of its products, the Company is able to enjoy the cost advantages associated with standard high volume semiconductor manufacturing practices. The core process technology, which employs all implanted structures, 4 micron metal pitch and 0.5 to 0.7 micron geometries, involves 10 to 16 mask steps, has a cutoff frequency of up to 21 GHz and is scalable. This scalability facilitates further cost reduction and performance improvement. The Company believes that its process technology and manufacturing approach allows it to achieve higher yields and shorter cycle times than are typical for GaAs processes and which are comparable to high performance silicon processes.
The Company applies the technological advances within the silicon and related support industries to its design and manufacturing processes. TriQuint utilizes popular CAD and process control tools and test equipment. The Company uses standard silicon industry packages primarily, and subcontracts its product assembly operations.
MANUFACTURING
The Company's wafer manufacturing facility is located at its leased headquarters location in Hillsboro, Oregon. The Company moved its executive, administrative, test and technical offices to a new 124,000 square foot leased facility in Hillsboro, Oregon in the first quarter of 1997. Prior to that time, such functions were conducted at the Company's former headquarters in Beaverton, Oregon. During the fourth quarter of 1997, the Company relocated its wafer fabrication and all other remaining operations to the new Hillsboro site. The Company's lease of its former wafer fabrication and manufacturing facility, a facility located in Beaverton, Oregon and owned by Maxim Integrated Products, Inc., expired in January, 1998. The Hillsboro wafer fabrication facility consists of 38,000 square feet, of which 17,000 is operated as a class 10 performance clean room.
The Company's MMIC facility (the MMIC Facility) is comprised of two buildings shared with RTIS located in Dallas, Texas. Manufacturing and office facilities are housed in the North Building and a research and development laboratory is housed in the Research East Building. Pursuant to the terms of the Company's acquisition agreement for the MMIC Business, the Company has agreed to a partitioning and relocation plan to better segregate the Company's MMIC operations from RTIS's operations. After
implementation of the partitioning plan, the MMIC Facility will comprise approximately 100,000 square feet in the North Building. The Company anticipates that the partitioning plan will be implemented by December 31, 1998.
The MMIC Facility is subleased from RTIS, which leases the premises from Texas Instruments, through July 10, 2002. The Company has the right to renew its sublease of the MMIC Facility for up to three additional five year periods in the event that RTIS exercises its rights to renew its lease from Texas Instruments. There can be no assurance, however, that RTIS will extend its lease beyond July 10, 2002.
The fabrication of semiconductor products is highly complex and sensitive to dust and other contaminants, requiring production in a highly controlled, clean environment. Minute impurities, difficulties in the fabrication process or defects in the masks used to print circuits on the wafers can cause a substantial percentage of the wafers to be rejected or numerous die on each wafer to be nonfunctional. As compared to silicon technology, the less mature stage of GaAs technology leads to somewhat greater difficulty in circuit design and in controlling parametric variations, thereby yielding fewer good die per wafer. The more brittle nature of GaAs wafers can lead to higher processing losses than experienced with silicon wafers. To maximize wafer yield and quality, the Company tests its products in various stages in the fabrication process, maintains continuous reliability monitoring and conducts numerous quality control inspections throughout the entire production flow using analytical manufacturing controls. A sustained failure to maintain acceptable yields would have a material adverse effect on the Company's operating results.
The Company's operation of its own manufacturing facilities entails a high level of fixed costs. Such fixed costs consist primarily of facility occupancy costs, investment in manufacturing equipment, repair, maintenance and depreciation costs related to equipment and fixed labor costs related to manufacturing and process engineering. The Company's manufacturing yields vary significantly among its products, depending upon a given product's complexity and the Company's experience in manufacturing such product. The Company has in the past and may in the future experience substantial delays in product shipments due to lower than expected production yields. In addition, during periods of low demand, high fixed wafer fabrication costs could have a material adverse effect on the Company's operating results.
Employees of the Company have performed studies of the reliability of the Company's processes and have published more than 25 technical papers in such field. In October 1994, the Company received the ISO 9001 Quality System Certification with respect to its operations. The Company has successfully fabricated devices for "High Reliability" applications in commercial and military spacecraft since 1988. Through accelerated test techniques, the Company has demonstrated expected device failure rates of less than 100FITs (100 failures in 1 billion device-hours of operation) in the first twenty years of operation at maximum junction temperatures of 150 degrees Celsius. The reliability of the Company's processes may be inadvertently reduced by future engineering changes and the reliability of any given integrated circuit may be strongly influenced by design details, and there can be no assurance that circuits designed and manufactured in the future will achieve this level of reliability.
Wafer fabrication equipment used by the Company is generally the same as that used in a submicron silicon metal oxide semiconductor ("MOS") fabrication facility. While many of the process steps are also similar to those commonly used in silicon wafer manufacturing, TriQuint's GaAs manufacturing process has important differences. The GaAs process requires fewer steps and may be conducted at lower temperatures than those typically required in high performance silicon processes. Furthermore, GaAs wafers require more rigorous handling procedures than do silicon wafers.
The raw materials and equipment used in the production of the Company's integrated circuits are available from several suppliers. The Company currently has approximately six fully qualified wafer and mask set vendors, at least two of which are located in the United States.
The Company assembles a portion of its products in-house but also uses outside assembly contractors. The Company performs in-house assembly for small lots of critical parts, engineering lots and assembly development for new packages. Outside assembly and tape and reel services for volume production are contracted to ten vendors, four of which are located in the United States. The Company purchases high performance, multilayer ceramic packages from two vendors, neither of which is located in the United States. TriQuint believes it was the first supplier of GaAs integrated circuits to introduce plastic packages in volume production. The Company currently purchases plastic packaging services from six suppliers, one of which is located in the United States. A reduction or interruption in the performance of assembly services by subcontractors or a significant increase in the price changed for such services could adversely affect the Company's operating results.
SALES AND DISTRIBUTION
The Company sells its products through independent manufacturer's representatives and distributors and through a direct sales staff. As of December 31, 1997, TriQuint had 24 independent manufacturer's representative firms and two distributors in North America. TriQuint's six person direct sales management staff provides sales direction and support to the manufacturer's representatives and distributors. Domestic sales management offices are located in the metropolitan areas of Boston; Dallas; Los Angeles; Portland, Oregon; Philadelphia and San Jose. International business is supported by a network of 14 technical distributors in Europe, the Pacific Rim and Israel. The Company also established its first foreign subsidiary, TriQuint Semiconductor GmbH, in Munich, Germany during 1997. The primary activity of this subsidiary is sales and marketing and currently employs one sales manager. As part of the acquisition of the MMIC Business in January 1998, the Company also established sales offices in the United Kingdom and France. Sales outside of the United States were $24.3 million, $18.1 million and $14.8 million in 1997, 1996 and 1995, respectively. All international sales of the Company's products are denominated in U.S. dollars in order to reduce the exchange rate risks. Sales outside of the United States involve a number of inherent risks, including reduced protection for intellectual property rights in some countries, the impact of recessionary environments in economies outside of the United States and generally longer receivables collection periods, as well as tariffs and other trade barriers. In addition, due to the technological advantage provided by GaAs in military applications, all export sales must be licensed by the Office of Export Administration of the U.S. Department of Commerce. Although the Company has experienced no difficulty in obtaining these licenses, failure to obtain these licenses in the future could have a material adverse effect on the Company's results of operations.
The Company includes in its backlog all purchase orders and contracts for products requested by the customer for delivery within twelve months. The Company's business is characterized by long-term purchase contracts predominantly relating to customer-specific products, which are typically cancelable without significant penalty, at the option of the purchaser. Cancellations of such purchase contracts or rescheduling of delivery dates have occurred in the past and may occur in the future. The Company also produces standard products which frequently can be shipped from inventory within a short time after receipt of an order and therefore such orders may not be reflected in backlog. Accordingly, backlog as of any particular date may not necessarily be representative of actual sales for any future period.
RESEARCH AND DEVELOPMENT
The Company's research and development efforts are focused on the design of new integrated circuits, improvement of existing device performance, development of new processes, cost reductions in the manufacturing process and improvements in device packaging. New product developments for the wireless communications market include standard and customer-specific devices for satellite communications, analog and digital cellular telephones, PCS, wireless local area networks and wireless modems. New telecommunications product development efforts include higher performance switching, transmission and data conversion standard products as well as customer-specific products. New data communications chipsets are also being developed to support emerging communications standards.
The Company's research, development and engineering expenses in 1997, 1996 and 1995 were approximately $11.5 million, $10.9 million and $9.2 million, respectively, and include non-recurring engineering (NRE) expenses funded by customers. As of December 31, 1997, there were approximately 116 employees engaged in activities related to process and product research and development. The Company expects that it will continue to spend substantial funds on research and development.
The Company is continually in the process of designing new and improved products to maintain its competitive position. While the Company has patented a number of aspects of its process technology, the market for the Company's products is characterized by rapid changes in both GaAs and competing silicon process technologies. Because of continual improvements in these technologies, the Company believes that its future success will depend on its ability to continue to improve its products and processes and develop new technologies in order to remain competitive. Additionally, the Company's future success will depend on its ability to develop and introduce new products for its target markets in a timely manner. The success of new product introductions is dependent upon several factors, including timely completion and introduction of new product designs, achievement of acceptable fabrication yields and market acceptance. The development of new products by the Company and their design into customers' systems can take as long as three years, depending upon the complexity of the device and the application. Accordingly, new product development requires a long-term forecast of market trends and customer needs. Furthermore, the successful introduction of the Company's ongoing products may be adversely affected by the competing products or technologies serving markets addressed by the Company's products. In addition, new product introductions frequently depend on the Company's development and implementation of new process technologies. If the Company is unable to design, develop, manufacture and market new products successfully, its future operating results will be adversely affected. No assurance can be given that the Company's product and process development efforts will be successful or that its new products will be available on a timely basis or achieve market acceptance. In addition, as is characteristic of the semiconductor industry, the average selling prices of the Company's products have historically decreased over the products' lives and are expected to continue to do so. To offset such decreases, the Company relies primarily on obtaining yield improvements and corresponding cost reductions in the manufacture of existing products and on introducing new products which incorporate advanced features and which therefore can be sold at higher average selling prices. To the extent that such cost reductions and new product introductions do not occur in a timely manner or the Company's or its customers' products do not achieve market acceptance, the Company's operating results could be adversely affected.
COMPETITION
The market for high performance semiconductors is highly competitive and subject to rapid technological change. Due to the increasing requirements for high speed components, the Company expects intensified competition from existing silicon device suppliers and the entry of new competition producing either silicon or GaAs components or components incorporating new technologies such as silicon germanium. The Company currently competes against silicon products offered principally by large semiconductor manufacturers such as AMCC, Motorola and Philips. In addition, the Company also currently competes against other GaAs semiconductor manufacturers, such as Anadigics and Vitesse. It is expected that additional future competition will primarily come from large semiconductor companies that have developed GaAs integrated circuit capabilities such as Fujitsu, Motorola and NEC. Such companies have substantially greater technical, financial and marketing resources and name recognition than the Company. Increased competition could adversely affect the Company's revenue and profitability.
GaAs integrated circuits have been used mostly in the wireless communications market on a production basis for products or subsystems operating below 1 GHz, such as spread spectrum and cellular telephone applications. As the lower frequency bands become more crowded, more applications will utilize frequencies above 1 GHz. At such higher frequencies, GaAs integrated circuit solutions generally provide superior performance as compared to silicon alternatives. TriQuint competes with both GaAs and silicon
suppliers in the telecommunications market. In the computing market, TriQuint supplies standard products to a variety of electronic data processing and data communication systems manufacturers. In the computing market, the Company's competition comes from established silicon semiconductor companies and GaAs suppliers, and is generally based on performance elements such as speed, power dissipation, price, product quality and service.
The Company's prospective customers are typically systems designers and manufacturers who are considering the use of GaAs semiconductors in their next high performance systems. Competition is primarily based on performance elements such as speed, complexity and power dissipation, as well as price, product quality and ability to deliver products in a timely fashion. The Company believes that it currently competes favorably with respect to these factors. Due to the proprietary nature of the Company's products, competition occurs almost exclusively at the system design stage. As a result, a design win by the Company or its competitors typically limits further competition with respect to manufacturing a given design. Some potential customers may be reluctant to adopt the Company's products because of perceived risks relating to GaAs technology generally, including perceived risks related to manufacturing costs, novel design and unfamiliar manufacturing processes. In addition, potential customers may have questions about the relative performance advantages of the Company's products compared to more familiar silicon semiconductors, or concerns about risks associated with reliance on a smaller, less well-capitalized company for a critical component. While GaAs integrated circuits have inherent speed advantages over silicon devices, the speed of products based upon silicon processes is continually improving. The Company's products are generally sole sourced to its customers, and the Company's operating results could be adversely affected if its customers were to develop other sources for the Company's products.
The production of GaAs integrated circuits has been and continues to be more costly than the production of silicon devices. This cost differential relates primarily to higher costs of the raw wafer material, lower production yields associated with the relatively immature GaAs technology and higher unit costs associated with lower production volumes. Although the Company has reduced production costs through decreasing raw wafer costs, increasing fabrication yields and achieving higher volumes, there can be no assurance that the Company will be able to continue to decrease production costs. In addition, the Company believes its costs of producing GaAs integrated circuits will continue to exceed the costs associated with the production of silicon devices. As a result, the Company must offer devices which provide superior performance to that of silicon such that the perceived price/performance of its products is competitive with silicon devices. There can be no assurance that the Company can continue to identify markets which require performance superior to that offered by silicon solutions or that the Company will continue to offer products which provide sufficiently superior performance to offset the cost differentials.
PATENTS AND LICENSES
The Company aggressively seeks the issuance of patents to protect inventions and technology which are important to its business. The Company has been awarded numerous patents for circuit design and wafer processing; with various expiration dates, none earlier than April 2005. These include both U.S. and foreign patents. As part of the acquisition of the MMIC Business in January 1998, the Company acquired certain patents and also received licenses and sublicenses for certain additional patents. In addition, the Company has both U.S. and foreign registered trademarks. The Company has also routinely protected its numerous original mask sets under the copyright laws. There can be no assurance that the Company's pending patent or trademark applications will be allowed or that the issued or pending patents will not be challenged or circumvented by competitors.
Notwithstanding the Company's active pursuit of patent protection, the Company believes that its future success will depend primarily upon the technical expertise, creative skills and management abilities of its officers and key employees rather than on patent ownership. The Company also relies substantially on trade secrets and proprietary technology to protect its technology and manufacturing know-how, and works actively to foster continuing technological innovation to maintain and protect its competitive
position. There can be no assurance that the Company's competitors will not independently develop or patent substantially equivalent or superior technologies.
Although there are no pending lawsuits against the Company regarding infringement of any existing patents or other intellectual property rights or any unresolved notices that the Company is infringing intellectual property rights of others, there can be no assurance that such infringement claims will not be asserted by third parties in the future with respect to the Company's products or that the Company's products will not infringe patent, trademark, mask work right, copyright or other proprietary rights of third parties. Additionally, in the event of such infringement, there can be no assurance that TriQuint will be able to obtain licenses on reasonable terms. The Company's involvement in any patent dispute or other intellectual property dispute or action to protect trade secrets and know-how could have a material adverse effect on the Company's business. Adverse determinations in any litigation could subject the Company to significant liabilities to third parties, require the Company to seek licenses from third parties and prevent the Company from manufacturing and selling its products. Any of these situations could have a material adverse effect on the Company's business.
ENVIRONMENTAL MATTERS
Federal, state and local regulations impose various environmental controls on the storage, handling, discharge and disposal of chemicals and gases used in TriQuint's manufacturing process. Since the Company's relocation of its manufacturing facilities to the new Hillsboro, Oregon location, it is providing for its own manufacturing waste treatment and disposal. The Company is required by the State of Oregon Department of Environmental Quality to report usage of environmentally hazardous materials and has retained the appropriate personnel to help ensure compliance with all applicable environmental regulations.
At the recently acquired MMIC Facility, the Company utilizes TI's waste treatment and waste storage facilities and services for the treatment, storage, disposal and discharge of wastes generated by the Company, pursuant to the Asset Purchase Agreement dated January 8, 1998. The Company's waste streams are commingled with those of TI and are covered by the TI waste water permit.
The Company believes that its activities conform to present environmental regulations. Increasing public attention has, however, been focused on the environmental impact of semiconductor operations. While the Company has not experienced any materially adverse effects on its operations from environmental regulations, there can be no assurance that changes in such regulations will not impose the need for additional capital equipment or other requirements. Any failure by the Company, or by TI with respect to the MMIC Facility, to adequately restrict the discharge of hazardous substances could subject the Company to future liabilities or could cause its manufacturing operations to be suspended.
EMPLOYEES
As of December 31, 1997, the Company employed 371 persons, including 188 in manufacturing, 12 in quality and reliability, 116 in process and product engineering and development, 18 in marketing and sales and 37 in finance and administration. Upon the Company's acquisition of the MMIC Business, the number of employees increased by approximately 278 persons, including 88 in manufacturing, 157 in process and product engineering and development, 2 in marketing and sales and 31 in finance and administration. None of the Company's employees are represented by a collective bargaining agreement, nor has the Company experienced any work stoppage. The Company considers its relations with employees to be good.
ITEM 2.
ITEM 2. PROPERTIES
The Company moved its executive, administrative, test and technical offices to a new 124,000 square foot leased facility in Hillsboro, Oregon in the first quarter of 1997. Prior to that time, such functions were conducted at the Company's former headquarters in Beaverton, Oregon. During the fourth quarter of
1997, the Company completed the relocation of its wafer fabrication and all other remaining operations to the new Hillsboro site. The Company's lease of its former wafer fabrication and manufacturing facility, a facility located in Beaverton, Oregon and owned by Maxim Integrated Products, Inc., expired in January, 1998. The Company's lease of its former corporate headquarters in Beaverton, Oregon expired in March 1997. The leased Hillsboro wafer fabrication facility consists of 38,000 square feet, of which 17,000 is operated as a class 10 performance clean room.
In May 1996, the Company entered into a 5 year synthetic lease through a Participation Agreement (the "Agreement") with Wolverine Leasing Corp. ("Wolverine"), Matisse Holding Company ("Matisse") and United States National Bank of Oregon ("USNB"). The lease provides for the construction and occupancy of the Hillsboro facility under an operating lease from Wolverine and provides the Company with an option to purchase the property. At the expiration of its five year lease, the Company may exercise the option to purchase the property or renew its lease for an additional five years. Pursuant to the terms of the Agreement, the USNB and Matisse made loans to Wolverine who in turn provided the funds to the Company for the construction of the Hillsboro facility and other costs and expenses associated therewith. The loan from USNB is collateralized by investment securities pledged by the Company. Such investment securities are classified on the Company's balance sheet as restricted securities. In addition, the Company has made certain restrictive covenants in connection with the Participation Agreement that require the Company to maintain (i) a total liability to tangible net worth ratio of not more than 0.75 to 1.00, (ii) minimum tangible net worth greater than $50.0 million and (iii) cash and liquid investment securities, including restricted securities, greater than $45.0 million. As of December 31, 1997, the Company was in compliance with the covenants described above, and the Company anticipates that it will be in compliance with the covenants as of March 31, 1998. However, there can be no assurance that the Company will continue to be in compliance with its covenants under the Participation Agreement in the future.
In November 1997, the Company entered into a $1.5 million lease for additional land adjacent to its Hillsboro facility. Pursuant to the terms of that agreement, USNB provided loans to Wolverine to purchase the land, who in turn leased it to the Company under a renewable one year lease agreement. The loan from USNB is partially collateralized by a guarantee from the Company. As of December 31, 1997 the Company was in compliance with the terms of the agreement. However, there can be no assurance that the Company will continue to be in compliance with these terms as of any subsequent date.
In January 1998, the Company acquired the MMIC operations of the former Texas Instruments' Defense Systems & Electronics Group from RTIS. The MMIC Facility is comprised of two buildings shared with RTIS located in Dallas, Texas. Manufacturing and office facilities are housed in the North Building and a research and development laboratory is housed in the Research East Building. Pursuant to the terms of the Company's acquisition agreement for the MMIC Business, the Company has agreed to a partitioning and relocation plan to better segregate the Company's MMIC operations from RTIS's operations. After implementation of the partitioning plan, the MMIC Facility will comprise approximately 100,000 square feet in the North Building. The Company anticipates that the partitioning plan will be implemented by December 31, 1998.
The MMIC Facility is subleased from RTIS, which leases the premises from Texas Instruments, through July 10, 2002. The Company has the right to renew its sublease of the MMIC Facility for up to three additional five year periods in the event that RTIS exercises its rights to renew its lease from Texas Instruments. There can be no assurance, however, that RTIS will extend its lease beyond July 10, 2002.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS
On June 9, 1994 the Company issued a press release indicating that softness in the Company's telecom revenues would adversely affect the Company's financial results. The cause for the reduction in revenues was a general softness in orders in the telecommunications market, including orders from Northern Telecom, the Company's largest customer. As a result of this announcement, the Company's stock price
decreased by 48% on June 10, 1994. On July 12, 1994, a stockholder class action lawsuit was filed against the Company, its underwriters, and certain of its officers, directors and investors in the United States District Court for the Northern District of California. The suit alleges that the Company, its underwriters, and certain of its officers, directors and investors intentionally misled the investing public regarding the financial prospects of the Company. Certain provisions of the Company's Certificate of Incorporation and indemnification agreements between the Company and its officers and directors require the Company to advance to such officers and directors ongoing legal expenses of defending the suit and may require the Company to indemnify them against judgments rendered on certain claims. Since the filing of the complaint, the plaintiffs have dismissed without prejudice a director defendant, the principal stockholder defendant, the underwriter defendants and certain analyst defendants. On June 21, 1996, the Court granted the Company's motion to transfer the litigation to the District of Oregon. The pretrial discovery phase of the lawsuit ended July 1, 1997. The court has established a January 1999 trial date for this action. The Company expects to continue to incur significant legal expenses on its behalf and on behalf of such officers and directors in connection with this litigation. In addition, defending this litigation has resulted and will likely continue to result in the diversion of management's attention from the day-to-day operations of the Company's business. Although the Company does not believe that it or any of its officers or directors has engaged in any wrongdoing, there can be no assurance that this stockholder litigation will be resolved in the Company's favor. An adverse result, settlement or prolonged litigation could have a material adverse effect on the Company's business, financial condition or results of operations.
ITEM 4.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5.
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Certain of the information required by this item is included under the captions COMMON STOCK PRICES and MARKET FOR COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS contained in the Company's 1997 Annual Report to Stockholders and is incorporated herein by reference.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA
The information required by this item is included under the caption SELECTED FINANCIAL DATA contained in the Company's 1997 Annual Report to Stockholders and is incorporated herein by reference.
ITEM 7.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The information required by this item is included under the caption MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS contained in the Company's 1997 Annual Report to Stockholders and is incorporated herein by reference.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY FINANCIAL DATA
The information required by this item is included under the caption SUPPLEMENTARY UNAUDITED FINANCIAL DATA contained in the Company's 1997 Annual Report to Stockholders and as listed in Item 14 of Part IV of this report and is incorporated herein by reference.
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this item is included under the captions ELECTION OF DIRECTORS, EXECUTIVE OFFICERS and SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE contained in the Company's Proxy Statement for its 1998 Annual Meeting of Stockholders, to be held May 29, 1998, to be filed by the Company with the Securities and Exchange Commission within 120 days of the end of the Company's fiscal year pursuant to General Instructions G(3) of Form 10-K and is incorporated herein by reference.
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION
Information required by this item is included under the caption EXECUTIVE COMPENSATION contained in the Company's Proxy Statement for its 1998 Annual Meeting of Stockholders and is incorporated herein by reference.
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information required by this item is included under the caption SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT contained in the Company's Proxy Statement for its 1998 Annual Meeting of Stockholders and is incorporated herein by reference.
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information required by this item is included under the caption CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS contained in the Company's Proxy Statement for its 1998 Annual Meeting of Stockholders and is incorporated herein by reference.
PART IV
ITEM 14.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)(1) FINANCIAL STATEMENTS
The Financial Statements, together with the report thereon of KPMG Peat Marwick LLP are included in the Company's 1997 Annual Report to Stockholders and are incorporated herein by reference.
TriQuint Semiconductor, Inc.:
Statements of Operations for the years ended December 31, 1997, 1996 and
Balance Sheets as of December 31, 1997 and 1996
Statements of Shareholders' Equity December 31, 1997, 1996 and 1995
Statements of Cash Flows for the years ended December 31, 1997, 1996 and
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:
Schedules not listed above have been omitted because the information required to be set forth therein is not applicable or is included in the Financial Statements or notes thereto.
(a)(3) EXHIBITS
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(*) Confidential treatment has been granted with respect to certain portions of this exhibit. Omitted portions have been filed separately with the Securities and Exchange Commission.
(+) Confidential treatment has been requested with respect to certain portions of this exhibit. Omitted portions have been filed separately with the Securities and Exchange Commission.
(1) Incorporated by reference to the Registration Statement on Form S-1 (File No. 33-70594) as declared effective by the Securities and Exchange Commission December 13, 1993.
(2) Incorporated by reference to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1994 as filed with the Securities and Exchange Commission on March 29, 1995.
(3) Incorporated by reference to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1994 as filed with the Securities and Exchange Commission on August 13, 1994.
(4) Incorporated by reference to the exhibits filed with the Registrant's Report on Form 8-K filed with the Securities and Exchange Commission on June 14, 1996.
(5) Incorporated by reference to the Registrant's Registration Statement on Form S-8 (File No. 333-08891) as declared effective by the Securities and Exchange Commission on August 14, 1996.
(6) Incorporated by reference to the Registrant's Registration Statement on Form S-8 (File No. 333-08893) as declared effective by the Securities and Exchange Commission on August 14, 1996.
(7) Incorporated by reference to the Registrant's Registration Statement on Form 8-B (File No. 000-22660) as declared effective by the Securities and Exchange Commission on February 18, 1997.
(8) Incorporated by reference to the Registrant's Registration Statement on Form 8-K (File No. 000-22660) filed with the Securities and Exchange Commission on January 27, 1998 and as amended on March 27, 1998.
(9) Incorporated by reference to the Registrant's Registration Statement on Form S-8 (File No. 333-48883) as filed with the Securities and Exchange Commission on March 30, 1998.
(b) REPORTS ON FORM 8-K
No reports on Form 8-K were filed by the Registrant during the quarter ended December 31, 1997. Registrant filed a Registration Statement on Form 8-K (File No. 000-22660) with the Securities and Exchange Commission on January 27, 1998, amended as of March 27, 1998, to report the acquisition of certain assets pursuant to that certain Asset Purchase Agreement, dated as of January 8, 1998, by and between Raytheon TI Systems, Inc. and the Company.
(c) EXHIBITS
See Item 14(a)(3) above.
(d) FINANCIAL STATEMENT SCHEDULES
See Item 14(a)(2) above.
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.
Date: March 31, 1998
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Steven J. Sharp and Edward C.V. Winn, and each of them, his true and lawful attorneys-in-fact and agents, each with full power of substitution and resubstitution, to sign any and all amendments (including post-effective amendments) to this Annual Report on Form 10-K and to file the same, with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith, as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or their substitute or substitutes, or any of them, shall do or cause to be done by virtue hereof.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED, THIS REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE REGISTRANT AND IN THE CAPACITIES AND ON THE DATES INDICATED:
EXHIBITS
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(*) Confidential treatment has been granted with respect to certain portions of this exhibit. Omitted portions have been filed separately with the Securities and Exchange Commission.
(+) Confidential treatment has been requested with respect to certain portons of this exhibit. Omitted portions have been filed separately with the Securities and Exchange Commission.
(1) Incorporated by reference to the Registration Statement on Form S-1 (File No. 33-70594) as declared effective by the Securities and Exchange Commission December 13, 1993.
(2) Incorporated by reference to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1994 as filed with the Securities and Exchange Commission on March 29, 1995.
(3) Incorporated by reference to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1994 as filed with the Securities and Exchange Commission on August 13, 1994.
(4) Incorporated by reference to the exhibits filed with the Registrant's Report on Form 8-K filed with the Securities and Exchange Commission on June 14, 1996.
(5) Incorporated by reference to the Registrant's Registration Statement on Form S-8 (File No. 333-08891) as declared effective by the Securities and Exchange Commission on August 14, 1996.
(6) Incorporated by reference to the Registrant's Registration Statement on Form S-8 (File No. 333-08893) as declared effective by the Securities and Exchange Commission on August 14, 1996.
(7) Incorporated by reference to the Registrant's Registration Statement on Form 8-B (file No. 000-22660) as declared effective by the Securities and Exchange Commission on February 18, 1997.
(8) Incorporated by reference to the Registrant's Registration Statement on Form 8-K (File No. 000-22660) filed with the Securities and Exchange Commission on January 27, 1998 and as amended on March 27, 1998.
(9) Incorporated by reference to the Registrant's Registration Statement on Form S-8 (File No. 333-48883) filed with by the Securities and Exchange Commission on March 30, 1998.
TRIQUINT SEMICONDUCTOR, INC.
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 31, 1995, 1996, 1997 (IN THOUSANDS)
INDEPENDENT AUDITORS' REPORT ON FINANCIAL STATEMENT SCHEDULES
The Board of Directors TriQuint Semiconductor, Inc.:
Under date of February 6, 1998, we reported on the balance sheets of TriQuint Semiconductor, Inc. as of December 31, 1997 and 1996, and the related statements of operations, shareholders' equity, and cash flows for each of the years in the three-year period ended December 31, 1997, as contained in the 1997 annual report to shareholders. These financial statements and our report thereon are incorporated by reference in the annual report on Form 10-K for the year 1997. In connection with our audit of the aforementioned financial statements, we also audited the related financial statement schedule as listed in Item 14(a)(2) of this Form 10-K. This financial statement schedule is the responsibility of the Company's management. Our responsibility is to express an opinion on this financial statement schedule based on our audits. In our opinion, such financial statement schedule, when considered in relation to the basic financial statements taken as a whole, present fairly in all material respects the information set forth therein.
KPMG PEAT MARWICK LLP
Portland, Oregon February 6, 1998