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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED)
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
COMMISSION FILE NUMBER: 0-16617
ALTERA CORPORATION
(Exact Name of Registrant as Specified in its Charter)
CALIFORNIA
(State or Other Jurisdiction of
Incorporation or Organization)
77-0016691
(I.R.S. Employer
Identification No.)
2610 ORCHARD PARKWAY, SAN JOSE, CALIFORNIA 95134
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code: (408) 894-7000
Securities registered pursuant to Section 12(b) of the Act:
NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K (sec. 229.405 of this chapter) is not contained herein,
and will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [ ]
The aggregate market value of the registrant's Common Stock held by
non-affiliates of the registrant was approximately $3,281,013,660 as of February
28, 1997, based upon the closing sale price on the Nasdaq National Market for
that date.
There were 88,133,415 shares of the registrant's Common Stock issued and
outstanding as of February 28, 1997.
DOCUMENTS INCORPORATED BY REFERENCE
Items 5, 6, 7, and 8 of Part II incorporate information by reference from
the Annual Report to Shareholders for the fiscal year ended December 31, 1996.
Items 11, 12, and 13 of Part III incorporate information by reference from
the Proxy Statement for the Annual Meeting of Shareholders to be held May 7,
1997.
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PART I
ITEM 1. BUSINESS.
GENERAL
Founded in 1983, Altera is a world-wide leader in high-performance,
high-density programmable logic devices and associated computer aided
engineering (CAE) logic development tools. Programmable logic devices are
semiconductor chips that offer on-site programmability to customers using the
Company's proprietary software. The software runs on personal computers and
engineering workstations and interfaces with a large number of industry-standard
electronic design automation environments. User benefits include ease of use,
lower risk, and fast time-to-market. The Company offers the broadest line of
CMOS programmable logic devices that address high-speed, high-density, and lower
power applications. The Company's semiconductor devices range in density from an
estimated 150 to 100,000 useable gates. Altera products serve a broad range of
markets, including telecommunications, data communications, computers, and
industrial applications.
BACKGROUND
The CMOS programmable logic market has developed as a result of two primary
factors: (i) the need for more logic functions on each integrated circuit in
order to achieve the performance and cost objectives of electronic systems
manufacturers; and (ii) shortened product life cycles for end products which put
an increased premium on time to market for the system manufacturer.
The desire of manufacturers for further differentiation and improvement of
their products has generated demand for higher density logic circuits. Higher
density (and thus more "integrated") circuits, which have more logic functions
on each chip, allow the electronic equipment manufacturer to make improvements
to the end product that reduce physical size, cost, and power consumption,
improve performance, and add features for further differentiation. However, the
need for increased integration and greater product differentiation makes it
difficult for electronic system manufacturers to use standard, mass-produced
logic circuits.
In the 1980's, ASICs gained popularity as a solution to the integration
problems noted above. ASICs include a variety of custom and semi-custom
alternatives, such as gate arrays, cell libraries, and silicon compilers. Using
computer aided engineering software tools, ASIC designers are able to combine
sections of standard logic and memory, and generate unique tooling which can
then be used to fabricate a unique custom chip in the manufacturing process.
Although ASICs achieve the goal of higher density and more integration by
combining a variety of low-density parts into a single chip, they do so by
introducing several compromises, resulting from the customized manufacturing
process, that are undesirable to many users of standard low-density chips. These
compromises can include longer lead time to the marketplace, non-recurring
engineering (NRE) fees, dedicated custom product inventory, lack of control over
sources of supply, and inflexibility of design iteration.
Over the past decade, CMOS programmable logic has had a significant impact
on electronic design. PLDs help the Company's customers to meet their
performance and cost objectives while avoiding the significant development
costs, long development lead times, and dedicated custom product inventories
associated with ASICs. Using the Company's PLDs, engineers can complete numerous
iterations of a product design and test and verify the design until it meets
their expectations, while still delivering new products to market relatively
quickly. Since 1984, when the Company introduced the first CMOS PLD, the market
for such devices has grown to over $1.9 billion dollars in 1996.
CMOS programmable logic devices are currently offered to the market by
semiconductor vendors in various architectures, using EPROM
(erasable-programmable-read-only-memory), EEPROM (electrically-
erasable-programmable-read-only-memory), SRAM (static random access memory),
FLASH (non-volatile) memory, and anti-fuse configuration storage elements.
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BUSINESS STRATEGY
The Company's strategy is to be a leading supplier of CMOS programmable
logic devices and related software development tools by developing and offering
products which provide its customers with effective solutions for quickly
bringing their own products to market. Key elements of the Company's strategy
include:
Standard Components. The Company's PLDs are manufactured as standard
products (i.e., shipped "blank" for programming by the user). The chips use
CMOS technology for low power and use an erasable configuration element:
EPROM, EEPROM, SRAM, or FLASH. This combination allows designers using the
Company's PLDs to shorten the long design cycle associated with ASIC custom
chips by permitting multiple design iterations without the need to have
prototype custom designs fabricated in silicon, redesigned, and
refabricated. The end user benefits because Altera's programmable chips are
configured at the desktop, rather than in the foundry, by means of Altera's
proprietary development software, dramatically shortening the time to
market. Since Altera's integrated circuits are standard products and have a
wide range of uses, inventory risks are minimized for customers,
distributors, and the Company. Altera also benefits from economies of scale
in the manufacturing process by minimizing logistics, inventory, and
overhead costs.
Proprietary Product Architecture. The Company holds patents on
various aspects of its chip architectures which combine speed and density
with the benefits of user programmability. The Altera CPLD architectures
make certain performance paths in the integrated circuits easier to predict
and simplify the task of designing with programmable logic devices.
Software Development Tools. Altera has dedicated a significant
portion of its research and development staff to the development of its
proprietary software. This software permits designers to use their desktop
personal computers or workstations to develop and program Altera chips to
function as custom logic devices quickly and under the designers' own
control. The Company's strategy has been to offer its development software
systems at relatively modest prices in order to achieve an installed base
of design sites that may generate future chip orders.
Broad Product Line. The Company applies its basic technology to a
broad general purpose product line spanning a range of densities, pin
counts, and speeds. Products currently in production range in density from
an estimated 150 to 100,000 usable gates.
Customer Designs. The Company actively seeks to induce designers to
incorporate its PLDs into products early in their design cycle. Such
"design wins" can lead to use of the Company's PLDs in prototyping and,
ultimately, in volume production of a customer's product, potentially for
the life cycle of that product. In addition, system designers who have
become familiar with the Company's PLDs may be more inclined to use them in
future designs, potentially resulting in additional sales for the Company.
The Company's marketing efforts include advertising, seminars, and
demonstrations for potential customers. The Company also provides
applications engineers to assist customers and potential customers in
adapting existing or proposed designs, including those using competitors'
PLDs or gate arrays, to use the Company's PLDs. The Company has observed
that the length of customers' design cycles -- even as they may be reduced
through use of the Company's products -- often results in a lag between the
Company's marketing efforts, particularly when introducing a new PLD
product family, and the commencement of significant product sales resulting
from those efforts.
Diversified Markets. The Company has sold its semiconductor
components to a broad base of customers worldwide in a range of market
segments, including communications, computer, and industrial applications.
International sales constituted 47% of the Company's sales in 1996.
Technology and Production Relationships. Altera has obtained its CMOS
silicon chips through supply arrangements with leading semiconductor
manufacturers. The Company has avoided the full capital commitment and
overhead burden of establishing its own wafer fabrication facility and has
the flexibility to utilize new process technologies as they become
available.
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TECHNOLOGY
Altera's chips incorporate several types of internal architectures which,
combined with advanced CMOS semiconductor technology, provide speed and logic
density for the customer. The Company holds a number of patents on various parts
of its chip architectures. Altera's chips are configured by the Company's
proprietary development software that translates a system logic designer's logic
schematics and hardware descriptions into logic functions on an Altera chip.
Altera Logic Chips
Architectures. Altera believes its architectures offer relatively high
performance across a broad range of user applications. At the same time they
provide simplicity to the system logic designer, making the task of designing
and using Altera's chips relatively easy.
The architectures used in the Company's Classic, MAX 5000, MAX 7000,
FLASHlogic, and MAX 9000 families are known as array-based architectures. These
architectures are very regular, comprised of elements called "macrocells," and
are optimized for combinatorial logic. The Company's FLEX 8000 and FLEX 10K
architectures are optimized for register intensive logic applications. These
architectures consist of fine grained logic elements grouped into higher level
logic array blocks which are then connected together with a proprietary
programmable interconnect structure. The FLASHlogic family uses non-volatile
FLASH memory cells that can be configured as on-board memory or logic.
Process Technology. Through technology relationships, Altera has gained
access to CMOS process technologies from various semiconductor manufacturers.
The Company's Classic and MAX 5000 product families are manufactured using
processes with 0.8 and 0.65 micron effective channel lengths. MAX 7000, MAX
9000, FLEX, and FLASHlogic products are being produced using processes with
effective channel lengths of 0.5 and 0.35 microns and are expected to continue
the migration to more advanced CMOS processes when available. The Company
procures wafers from various semiconductor manufacturers including Sharp, TSMC,
Cypress, and Intel.
EPROM configuration elements, found on certain of the Company's older
Classic and MAX 5000 products, require ultraviolet light for erasure,
necessitating relatively expensive quartz-windowed packages. Devices in
quartz-windowed packages are primarily used by customers for prototyping and
low-volume production. Altera has mitigated this package cost to users by also
making its parts available in plastic one-time programmable packages to permit
reduced costs for volume production. Altera also offers chips incorporating
EEPROM (MAX 7000, MAX 7000S, and MAX 9000) and SRAM (FLEX 8000 and FLEX 10K)
configuration elements. The EEPROM (E(2)) element permits electrical erasure so
that erasure can occur even when packaged in plastic packages, providing further
flexibility and cost advantage for customers. The SRAM element provides low
stand-by power consumption and in-circuit reprogrammability. FLASH memory
elements also offer these features.
The Company routinely evaluates existing and emerging types of programmable
elements. If Altera perceives that such programming methods provide benefits
that complement those of its current products, it will consider incorporating
them into its products.
Development System Software
The Company's development system software and hardware is used to implement
logic designs in its chips. The MAX+PLUS II software runs under the Microsoft
Windows operating environment on personal computers and in the Motif environment
on UNIX workstations. By utilizing these popular graphical user interfaces, the
Company has designed the software for portability to widely used personal
computers and engineering workstations.
The Company provides interfaces to many industry standard third party CAE
tools via the industry standard EDIF net list format and hardware description
languages (Verilog and VHDL, for example). These connections allow the Altera
software to be used in conjunction with software packages including those
offered
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by Cadence Design Systems, Inc., Data I/O Corporation, Exemplar Logic, Inc.,
Intergraph Corporation, Mentor Graphics Corporation, OrCAD Systems Corporation,
Synopsys, Inc., and Viewlogic Systems, Inc.
An Altera chip design for a particular end product application is achieved
in four steps: design entry, implementation, verification, and programming. The
Company's development software provides complete facilities for each step so
that customers can take advantage of a uniform and relatively easy to learn
design environment. Extensive online help is available in the software to
provide relevant information quickly.
Design entry is accomplished using either the proprietary integrated
editors or third party tools. Three basic entry formats are accepted: schematic,
where the logic is represented pictorially; hardware description language, where
textual logic equations define the circuit; and waveform design entry, where a
designer specifies only the input and output waveforms of a circuit. A
combination of the three methods may be used hierarchically in a design.
Implementation of the design is performed by Altera's proprietary logic
synthesis, partitioning, and fitting software. This software takes a design and
uses sophisticated mathematical routines to optimize and compact the user's
logic, partition the logic among several chips (if necessary), and then fit each
partitioned section into one of these chips. Typically this process requires
minimal intervention from the user.
Design verification lets a user confirm the correctness of a design by
using several proprietary tools in addition to third party simulators. The
Company's static timing analyzer allows analysis of the timing of critical logic
paths; integrated functional simulation allows rapid functional logic debugging;
and timing simulation allows the validation of full circuit operation.
Simulation results may be viewed using the Company's waveform editor.
The final step, programming, may be performed using the Company's
programming hardware and integrated software, or third party programmers such as
those from Data I/O Corporation. During this step, the optimized logic design is
programmed into a PLD (or serial EPROM in the case of the FLEX SRAM-based logic
chips), which is then ready for use on a circuit board in an electronic system
product.
PRODUCTS
Altera sells a range of CMOS programmable logic integrated circuits and
associated development software and hardware. The integrated circuits include
products aimed at general logic replacement as an alternative to ASICs and
products targeted at specific functions. The Company's development software
allows the user to take advantage of the features of Altera integrated circuits.
The Company's strategy has been to provide support for users of its newest
integrated circuits from the date of product introduction by developing its
software tools in tandem with the related components. Altera currently markets
seven general purpose families of CMOS programmable logic in over 500
package/chip combinations.
The Company must continue to make significant investments in research and
development in order to continue to develop new products, enhance existing
products, and achieve market acceptance for such products, particularly in light
of the industry pattern of price erosion for mature products. Over the past 12
months, the Company has added further enhanced members of its existing MAX 7000,
FLEX 8000, MAX 9000, and FLEX 10K families. The commercial success of these
products will depend upon the achievement of targeted yield, product cost, and
performance levels and the development of manufacturing, marketing, and support
capabilities. Even if such goals are accomplished, there can be no assurance
that these products will achieve significant market acceptance. See "Research
and Development."
Integrated Circuits
Classic. This is the initial family of integrated circuits introduced to
the market by Altera. It originally consisted of four general-purpose PLDs
targeted to replace multiple small scale integrated circuits. The product family
was expanded with the acquisition of Intel's PLD division and now includes ten
different circuits. This architecture provides densities ranging from an
estimated 150 to 900 usable logic gates in packages ranging from 20 to 68 pins.
Wafers for this family of products were initially provided by Intel and were
subsequently migrated to more advanced CMOS process technologies to provide
faster speed and
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reduced cost. All of these products use wafers with EPROM configuration elements
manufactured by Cypress, Sharp and Intel. The products generally incorporate the
first generation architecture and are currently marketed and sold to customers
as the "Classic" family of products.
MAX 5000. This family of PLDs uses a second generation architecture known
as Multiple Array MatriX (MAX) to provide greater densities than products in the
Classic family. The MAX architecture provides multiple array logic. Signals in
the higher-density devices are routed between multiple arrays by the
Programmable Interconnect Array that delivers a high percentage of routability.
This multiple array architecture enables MAX 5000 PLDs to offer the speed of
smaller arrays with the integration density of larger arrays -- MAX 5000 offers
up to an estimated 3,750 usable gates. Wafers for MAX 5000 products use EPROM
configuration elements and are manufactured by Cypress Semiconductor currently
on 0.65 micron CMOS process technologies. These products are available in
packages ranging from 24 to 100 pins. Cypress has a license to manufacture and
sell certain MAX 5000 products.
MAX 7000. This third family of PLDs incorporates an enhanced MAX
architecture. The MAX 7000 family provides higher integration densities with
faster performance and higher pin count than the MAX 5000 family. Current MAX
7000 products offer a range of densities from an estimated 600 to 5000 usable
gates, in packages ranging from 44 to 208 pins. This family incorporates EEPROM
configuration elements on all of its chips. The Company is currently obtaining
wafers for this product from Sharp and TSMC.
FLEX 8000. The FLEX 8000 family, which uses 0.65 micron CMOS technology
from Sharp, is based on SRAM configuration elements which provide in-system
reconfigurability, and low standby power. The Company also acquires FLEX 8000
wafers from TSMC's facility, using a 0.5 micron CMOS process technology. The
FLEX 8000 architecture provides relatively high register count compared to the
Classic and MAX architectures, with an estimated 16,000 usable gates and 1,500
registers in up to a 304 pin package.
MAX 9000. This further enhanced MAX family is one of the Company's newest
architectures. MAX 9000 is a feature-rich, high-density macrocell architecture
with up to 560 macrocells (an estimated 12,000 usable gates). The EEPROM-based
devices are PCI-compliant and offer non-volatile, 5.0 volt, in-system
programmability (ISP). ISP functionality allows these devices to be programmed
after being soldered onto the circuit board for manufacturing ease. Devices are
offered in packages ranging from 84 to 304 pins and have in-system clock speeds
of up to 100 MHz.
FLEX 10K. The FLEX 10K architecture features an embedded array which can
more efficiently implement a variety of memory and specialized logic functions.
This family includes the Company's largest devices (currently a device with an
estimated 100,000 usable gates). Various combinations of memory configurations
and complex logic functions can be implemented in FLEX 10K devices.
FLASHlogic. Acquired through the Company's purchase of Intel's PLD product
line, this high-speed, medium density family combines volatile SRAM elements and
non-volatile FLASH memory elements to create one of the most feature rich
families in the PLD industry. Features include on-board RAM, ISP, and in-circuit
reconfigurability. Devices are offered in usable gate counts from an estimated
800 to 3,200, with up to 208 pin packages, and in-system clock speeds of up to
100 MHz.
The Company offers a variety of plastic and quartz-windowed ceramic
packages for its chips, including dual-inline, surface mount, ball-grid, and
pin-grid array configurations. Altera provides components to meet the operating
temperature ranges of commercial and industrial users. The Company also offers a
conversion option to its customers on a number of its chips that converts the
programmable chip to a non-programmable gate array format. This option is called
a Mask Programmable Logic Device (MPLD). By hard coding the programming into the
chip with a mask (as with a gate array), Altera is able to provide the customer
a lower cost end solution after prototyping with programmable chips.
Development System Software and Hardware
A cornerstone of Altera's strategy is the market penetration of its
low-cost proprietary software design tools. These tools improve the productivity
of Altera's customers, and the Company, in turn, develops a base of customers
who use Altera's software to design their products. Each development software
package can be used
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repeatedly for different designs on an ongoing basis. A number of these designs
may become incorporated into long-term customer products, which may generate
expanded logic chip sales. As of the end of 1996, Altera had licensed over
29,000 of its development system software packages, although at any given time
only a portion of these are active.
The Company attempts to work closely with its installed base of customers,
tracking the progress of logic chip designs, providing applications design
support, and for those customers who have purchased maintenance agreements,
upgrading the customers' software. Management believes that close contact with
its development software customers is a key element in customer satisfaction and
can also provide insight into new product development areas.
Altera's PC-based development software runs under Microsoft Windows. The
compiler software has also been ported and is available for engineering
workstations, including Sun, IBM, and Hewlett-Packard workstation platforms. The
software is typically delivered to the customer on CD-ROM along with
documentation manuals. The hardware consists of a programming board which plugs
into an expansion slot of the user's personal computer, and a programming unit
which uses hardware that accepts various chip package types. High-volume
production programming equipment is available from Data I/O Corporation and
other companies.
Altera's development software products aid the chip user's design
efficiency by allowing the user to continue with proven, familiar methods rather
than learn new ones. Accordingly, the most widely-used design methodologies are
supported, including Boolean algebra for low-density PLD users, and schematic
capture and hardware description languages for TTL and ASIC users.
The output from any of these design methodologies is translated into a
consistent format for implementation into an Altera chip, and the design is
fitted by Altera's proprietary software into the particular chip chosen. This
approach frees the system design engineer from the unfamiliar task of chip
design and allows the engineer to focus on logic implementation.
MANUFACTURING
The Company does not directly manufacture its silicon wafers. Altera's
chips are produced using other semiconductor manufacturers' high-volume wafer
fabrication processes, thus enabling the Company to take advantage of economies
of scale and process advances. The Company believes that these manufacturers can
produce wafers at lower cost due to their advanced production facilities and
manufacturing economies of scale.
Altera presently has its primary wafer supply arrangements with four
semiconductor vendors: Sharp, TSMC, Cypress, and Intel. See "Patents and
Licenses" for a summary of the license agreements related to the wafer supply
arrangements with Cypress and Intel. The Company continues to negotiate
additional foundry contracts and intends to establish other sources of wafer
supply for its products as such arrangements become useful or necessary.
Although there are a number of new state of the art wafer fabrication facilities
currently under construction around the world, semiconductor foundry capacity
can become limited, and the Company cannot guarantee that manufacturing capacity
constraints will not pose significant problems in the future.
The Company owns a 17% equity interest in Cypress Semiconductor (Texas)
Inc. (CSTI), a subsidiary of Cypress Semiconductor Corporation. Pursuant to the
agreements governing this ownership, Altera can obtain wafer supply from CSTI
approximately in proportion to its percentage ownership in CSTI. This investment
provides Altera with the option to design and market certain sole-sourced
products produced at CSTI. The Company uses this facility for the manufacture of
all of its Classic and MAX 5000 products. Cypress Semiconductor, which has
manufacturing and marketing rights to certain MAX 5000 products, also
manufactures its own products in the CSTI facility.
In 1995, the Company entered into several agreements with TSMC, whereby it
agreed to make certain deposits to TSMC for future wafer capacity allocations
extending into 2001. The Company made cash deposits amounting to $2.4 million in
1995 and issued promissory notes for $120.5 million representing partial
prepayments for wafers to be supplied under these agreements. During the second
quarter of 1996, the Company and TSMC renegotiated these agreements, resulting
in the cancellation of all notes payable and a
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refund of certain prepayments, except for a $57.1 million prepayment made in
January 1996 for wafer capacity from 1997 through 2000.
Under the terms of the agreement related to the $57.1 million prepayment,
TSMC agrees to provide the Company with wafers manufactured with TSMC processes
and according to the Company's specifications, and the Company agrees to
purchase and TSMC agrees to supply, a specific capacity of wafers per year
through 2000. Subsequent billings for actual wafers from TSMC will reduce the
prepaid balance. The prepayments are generally nonrefundable if the Company does
not purchase the full prepaid capacity unless the Company identifies a third
party purchaser, acceptable to TSMC, for the capacity.
To further secure capacity, in June 1996, Altera, TSMC, and several other
partners formed WaferTech, a joint-venture company, to build and operate a wafer
manufacturing plant in Camas, Washington. In return for a $140.4 million cash
investment, Altera received an 18% equity ownership in the joint-venture company
and certain rights to procure output from the fab at market price. The
investment is to be made in three installments of which the first two were made
in June and November of 1996 in equal amounts of $42.1 million. The remaining
installment amounts to $56.2 million and is due in November 1997. In addition,
the Company has an obligation to guarantee a pro-rata share of debt incurred by
WaferTech up to a maximum of $45.0 million.
The Company depends upon its foundries to produce wafers at acceptable
yields and to deliver them to the Company in a timely manner. The manufacture of
advanced CMOS semiconductor wafers is a highly complex process, and the Company
has from time to time experienced difficulties in obtaining acceptable yields
and timely deliveries from its suppliers. Good production yields are
particularly important to the Company's business, including its ability to meet
customers' demand for products and to maintain profit margins. The manufacture
of semiconductor products is sensitive to a wide variety of factors, including
the level of contaminants in the manufacturing environment, impurities in the
materials used, and the performance of personnel and equipment. As is common in
the semiconductor industry, the Company has from time to time experienced in the
past and expects that it will experience in the future production yield
problems. Accordingly, no assurance can be given that the Company will not
experience significant production yield problems with one or more of its product
lines. Production throughput times also vary considerably among the Company's
wafer suppliers. The Company has experienced delays from time to time in
processing some of its products. Any prolonged inability to obtain adequate
yields or deliveries could adversely affect the Company's operating results. The
Company expects that, as is customary in the semiconductor business, in order to
maintain or enhance competitive position, it will in the future continue to
convert its fabrication process arrangements to larger wafer sizes, to more
advanced process technologies, or to new suppliers. Such conversions entail
inherent technological risks that can adversely affect yields and delivery
times. In addition, if for any reason the Company were required to seek
alternative sources of supply, shipments could be delayed significantly while
such sources are qualified for volume production, and any significant delay
would have a material adverse effect on the Company's operating results.
After wafer manufacturing is completed, each wafer is tested using a
variety of test and handling equipment. Resulting good die are separated into
individual chips that are then encapsulated in ceramic or plastic packages by
subcontractors in Malaysia, Korea, the Philippines, Hong Kong, Taiwan, and the
United States.
Following assembly, the packaged units receive final testing. Altera has
developed sophisticated proprietary test software and hardware that provides
relatively high speed, back-end testing. After final testing, each unit goes
through marking and final inspection prior to shipment to customers.
Much of the manufacturing, assembly, testing, and packaging of Altera's
development system hardware products is done by outside contractors.
Although the Company's wafer fabrication, assembly, and other
subcontractors have not recently experienced any serious work stoppages, the
social and political situations in countries where certain subcontractors are
located are volatile, and any prolonged work stoppages or other inability of the
Company to manufacture and assemble its products would have a serious adverse
effect on the Company's operating
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results. Furthermore, economic risks, such as changes in tax laws, tariff or
freight rates, or interruptions in air transportation, could have a material
adverse effect on the Company's operating results.
MARKETING, SALES, AND CUSTOMERS
The Company markets its products in the United States and Canada through a
network of direct sales personnel, independent sales representatives, and
electronics distributors to a broad range of customers. The Company's direct
sales personnel and independent sales representatives focus on major target
accounts. Distributors generally focus selling activities on the broad base of
small and medium-size customers and often provide stocking, kitting, and
programming services, even to larger accounts.
In the United States, Altera's major distributors currently include
Arrow/Schweber Electronics Inc. and Wyle Electronics Marketing Group, a division
of Wyle Electronics, Inc. which provide nationwide coverage. From time-to-time
the Company expects that it may add or delete distributors from its selling
organization as it deems appropriate to the level of business.
To support its distribution network and focus on the target accounts and
the direct OEM channel of business, the Company has manufacturer's
representative firms throughout the United States and Canada. The Company also
has domestic sales offices in San Jose and in major metropolitan areas
throughout the country.
The Company's international business is supported by a network of technical
distributors throughout Europe and the Far East. The Company has representation
in every major European country, in Israel, Japan, Australia, South America, and
the Pacific Rim. International sales management offices are located in the
metropolitan areas of Brussels, Hong Kong, London, Munich, Ottawa, Paris, Seoul,
Stockholm, Tokyo, and Turin.
Customer service and support are important aspects of the CMOS programmable
logic integrated circuit business. Altera provides several levels of user
support, including applications assistance, design services, and customer
training. The Company's applications engineering staff publishes data sheets and
application notes, conducts technical seminars, and provides design assistance
via modem links to the customer's design station. Customer service is supported
with inventory maintained both at the factory and at distributors' locations to
provide short-term delivery of chips.
During each of the last three years, export sales constituted nearly half
of the Company's total sales revenue. Through 1996, almost all export sales were
denominated in U.S. dollars. The Company's export sales are subject to those
risks common to all export activities, including governmental regulation,
possible imposition of tariffs or other trade barriers, and currency
fluctuations. Certain export sales must be licensed by the Office of Export
Administration of the U.S. Department of Commerce. From time to time, the
Company has experienced delays in obtaining the necessary licenses, but to date
such delays have not had a material adverse effect on the Company's business.
There can be no assurance that such delays will not occur in the future,
however, or that if such delays do occur, that they will not have a material
adverse effect on the Company's business or operating results.
In the year ended December 31, 1996, worldwide sales through distributors
accounted for approximately 85% of sales. In 1996, the two largest distributors
accounted for 29% and 15% of sales. In 1995, the two largest distributors
accounted for 21% and 15% of sales, whereas in 1994, they each accounted for 15%
and 14% of sales, respectively. No direct OEM customer accounted for more than
10% of the Company's sales in 1996, 1995, or 1994. Export sales constituted 47%,
47%, and 48% of sales in 1996, 1995, and 1994, respectively.
BACKLOG
The Company's backlog of released orders at December 31, 1996 was
approximately $102.6 million as compared to approximately $189.6 million at
December 31, 1995. The Company includes in its backlog OEM customer-released
orders that are requested for delivery within the next six months, and
distributor orders requested for delivery within the next three months. The
Company produces standard products which may be shipped from inventory within a
short time after receipt of an order. The Company's business has been
8
<PAGE> 10
characterized by a high percentage of short-term orders with short-term shipment
schedules (turns orders). At times, due to high demand and supply constraints in
certain products, lead times can lengthen, causing an increase in backlog.
However, orders constituting the Company's current backlog are cancelable
without significant penalty at the option of the purchaser, thereby decreasing
backlog during periods of lower demand. In addition, distributor shipments are
subject to price adjustments. Accordingly, backlog as of any particular date
should not be used as a measure of sales for any future period.
PATENTS AND LICENSES
The Company owns more than 100 United States patents and has additional
pending United States patent applications on its semiconductor products. The
Company also has technology licensing agreements with AMD, Cypress, Intel, and
Texas Instruments giving the Company royalty-free rights to design, manufacture,
and package products using certain patents they control. Other companies have
filed applications for, or have been issued, other patents and may develop, or
obtain proprietary rights relating to products or processes competitive with
those of the Company. From time to time the Company may find it desirable to
obtain additional licenses from the holders of patents relating to products or
processes competitive with those of the Company. Although its patents and patent
applications may have value in discouraging competitive entry into the Company's
market segment and the Company believes that its current licenses will assist it
in developing additional products, there can be no assurance that any additional
patents will be granted to the Company, that the Company's patents will provide
meaningful protection from competition, or that any additional products will be
developed based on any of the licenses that the Company currently holds. In
addition, there can be no assurance that such additional licenses could be
obtained on terms or conditions acceptable to the Company or that such licenses,
if obtained, would lead to the development of additional products. The Company
believes that its future success will depend primarily upon the technical
competence and creative skills of its personnel, rather than on its patents,
licenses, or other proprietary rights.
An agreement with Cypress Semiconductor covers certain of the Company's MAX
5000 family of products. An initial agreement, entered into in June 1987, was
terminated on November 23, 1993, though product licenses continue after
termination. In April 1990, the Company entered into an additional agreement
with Cypress Semiconductor regarding a 17% equity investment in CSTI and a
related supply agreement. This supply agreement was amended effective November
23, 1993, and currently is in effect. See "Manufacturing."
The Company entered into an intellectual property cross-licensing agreement
with Intel as part of the Company's purchase of Intel's PLD division in October
1994. The agreement continues for the lives of the licensed patents, and is
perpetual with respect to other licensed intellectual property.
In March 1987, the Company and Monolithic Memories, Inc. (MMI) entered into
an agreement cross-licensing all of each others' patents covering programmable
and reprogrammable logic devices and processes for making such devices having a
first filing date prior to April 1, 1989, as part of the settlement of a patent
suit against the Company. This agreement covered only patents, and no products
or non-patented technology was licensed to either company as a result of this
agreement. In March, 1988, AMD succeeded to MMI's rights and responsibilities
under the license agreement, and agreed to be bound by the terms of the
agreement, in connection with its acquisition of MMI. In March 1994, AMD
informed the Company that it believes the scope of the patent license described
above is more limited than the Company has interpreted such license. In August,
1994, AMD sued the Company on patents for which the Company believes it is
licensed. In a June 1996 trial, the Company prevailed in its defense that it is
licensed under some or all of the patents asserted by AMD in the suit. It is not
yet possible to determine what effect, if any, this dispute might have on the
operations of the Company (see Item 3. Legal Proceedings).
The Company, in the normal course of business, from time to time receives
and makes inquiries with respect to possible patent infringements. As a result
of inquiries received from companies, it may be necessary or desirable for the
Company to obtain additional licenses relating to one or more of its current or
future products. There can be no assurance that such additional licenses could
be obtained, and, if obtainable, could be obtained on conditions which would not
have a material and adverse effect on the Company's operating results. If the
inquiring companies were to allege infringement of their patents, as is the case
in the Company's
9
<PAGE> 11
current litigation with two of its competitors, there can be no assurance that
any necessary licenses could be obtained, and, if obtainable, would be on terms
or conditions that would not have a material adverse effect on the Company. In
addition, if litigation ensued, there can be no assurance that these companies
would not succeed in obtaining significant monetary damages or an injunction
against the manufacture and sale of one or more of the Company's products
families. It may be necessary or desirable for the Company to incur litigation
expenses to enforce its intellectual property rights. There is no assurance that
any such litigation would be successful, or that the Company's patents would be
upheld if challenged.
RESEARCH AND DEVELOPMENT
The Company's research and development activities have focused primarily on
general purpose programmable logic chips and on the associated development
software and hardware. The Company has developed these related products in
parallel to provide software support to customers simultaneously with circuit
introduction. Altera believes that advanced software tools are a critical factor
in the advancement of programmable semiconductor technology. Since 1991, the
Company's research and development activities have been primarily directed
toward the design of the MAX 7000 integrated circuits and subsequently the FLEX
8000, MAX 9000, and FLEX 10K circuits, as well as the development of new
software and hardware for these circuits, cost reductions and advancements in
other existing products, and development of alternative architectures and
technologies. In the last two years, the Company has introduced the MAX 9000,
FLEX 10K and MAX 7000S families of products, two major new software releases,
and several new package technologies. Additionally, the Company has redesigned a
number of its products to accommodate their manufacture on new wafer fabrication
processes, including a new eight-inch wafer process using triple-layer metal
technology.
The Company's research and development expenditures in 1996, 1995, and 1994
were $49.5 million, $33.8 million, and $22.2 million (excluding an R&D In
Process charge in 1994 of $23.7 million associated with the Intel PLD product
line acquisition), respectively. The Company has not capitalized research and
development or software costs to date. The Company intends to continue to spend
substantial amounts on research and development in order to continue to develop
new products and achieve market acceptance for such products, particularly in
light of the industry pattern of price erosion for mature products and
increasing competition within the programmable logic market. Even if such goals
are accomplished, there can be no assurance that these products will achieve
significant market acceptance. If the Company were unable to successfully
define, develop, and introduce competitive new products, and enhance its
existing products, its future operating results would be adversely affected.
COMPETITION
The semiconductor industry overall is intensely competitive and is
characterized by rapid technological change, rapid rates of product
obsolescence, and price erosion resulting from both product obsolescence and
price competition. The Company competes directly with a number of fast-growing
domestic companies that devote a significant portion of their resources to new
product development and existing product enhancement. The semiconductor industry
also includes many large domestic and foreign companies that have substantially
greater financial, technical, and marketing resources than the Company. The
Company currently experiences direct competition from Lucent, Philips and other
large companies, and others offer products that are indirectly competitive with
the Company's products or have announced their intention to enter the market.
The principal factors of competition in the CMOS programmable logic
marketplace include the capability of software development tools, the
integration capacity and flexibility of the individual circuits, product
performance and features, quality and reliability, pricing, technical service
and support, and the ability to respond rapidly to technical innovation. The
Company believes it competes favorably with respect to these factors, although
it may be at a disadvantage in comparison to larger companies with broader
product lines, greater technical service and support capabilities, and internal
wafer fabrication capabilities. The Company believes, however, that its
proprietary device architecture and its installed base of development systems
with proprietary software may provide some competitive advantage.
10
<PAGE> 12
The Company's competition for its general-purpose programmable logic chips
has come from many sources. The Company's licensee, Cypress Semiconductor,
competes on their particular licensed products. Cypress Semiconductor can
compete directly with pin-compatible parts even after a customer has chosen to
design its product using the Company's chips. In anticipation of this, the
Company structured its license so that the licensee has rights to a limited
portion of the Company's overall product line. In addition, the Company's
agreement with Cypress Semiconductor and CSTI allows the Company to manufacture
certain products without granting second source rights.
The Company also experiences significant competition from a number of other
companies which are in the market with products competitive with those of the
Company. These companies include major domestic and international semiconductor
companies, traditional programmable logic and application-specific circuit
manufacturers, and emerging companies. Among these are companies such as Actel
Corporation, AMD (Vantis), Atmel Corporation, Lattice Semiconductor Corporation,
Lucent, and Xilinx. The Company's primary competition is from suppliers of
products marketed as programmable logic devices (PLDs) and field programmable
gate arrays ("FPGAs"), though as the average pin count and functional density
for the Company's products continue to increase, the Company expects to compete
to an increasing extent with ASIC suppliers, such as LSI Logic.
A number of very large, well-financed companies compete with the Company in
its core business. These companies, including Lucent, Motorola, Philips, and
others, have proprietary wafer manufacturing ability, preferred vendor status
with many of the Company's customers, extensive marketing power and name
recognition, much greater financial resources than those of the Company, and
other significant advantages over the Company. The Company expects that as the
dollar volume of the programmable logic market grows, the attractiveness of this
market to larger, more powerful competitors will continue to increase.
Substantial direct or indirect competition could have a significant adverse
effect on the Company's future sales and operating results.
EMPLOYEES
As of December 31, 1996, the Company had 918 employees. The success of the
Company is dependent in large part upon the continued service of its key
management, technical, sales, and support employees and on its ability to
continue to attract and retain additional qualified employees. The competition
for such employees is intense and their loss as employees could have an adverse
effect on the Company. The Company believes employee relations are good.
ITEM 2. PROPERTIES.
The Company's headquarters are in facilities in San Jose, California
totaling approximately 220,000 square feet. Design, limited manufacturing,
research, marketing, and administrative activities are performed in these
facilities. The Company occupies these properties under non-cancelable leases
which expire in 1997. In June 1995, the Company purchased approximately 25 acres
of land near the Company's present headquarters for the development of a
multiple building corporate headquarters. During 1996, $27.0 million was spent
by the Company on construction of 500,000 square feet of office and light
manufacturing space on this land. Construction is expected to be completed in
1997. The Company also leases on a short-term basis office facilities for its
domestic and international sales management offices.
ITEM 3. LEGAL PROCEEDINGS.
In June 1993, Xilinx, Inc. ("Xilinx") brought suit against the Company
seeking monetary damages and injunctive relief based on the Company's alleged
infringement of certain patents held by Xilinx. In June 1993, the Company
brought suit against Xilinx, seeking monetary damages and injunctive relief
based on Xilinx's alleged infringement of certain patents held by the Company.
In April 1995, the Company filed a separate lawsuit against Xilinx in Delaware,
Xilinx's state of incorporation, seeking monetary damages and injunctive relief
based on Xilinx's alleged infringement of one of the Company's patents. In May
1995, Xilinx
11
<PAGE> 13
counterclaimed against the Company in Delaware, asserting defenses and seeking
monetary damages and injunctive relief based on the Company's alleged
infringement of certain patents held by Xilinx. A motion by Xilinx to transfer
the Delaware case to California has been granted. The California litigation has
been the subject of court-ordered mediation, which to date has not resulted in
resolution of the litigation. Due to the nature of the litigation with Xilinx
and because the lawsuits are still in the pre-trial stage, the Company's
management cannot estimate the total expense, the possible loss, if any, or the
range of loss that may ultimately be incurred in connection with the
allegations. Management cannot ensure that Xilinx will not succeed in obtaining
significant monetary damages or an injunction against the manufacture and sale
of the Company's MAX 5000, MAX 7000, FLEX 8000, or MAX 9000 families of
products, or succeed in invalidating any of the Company's patents. Although no
assurances can be given as to the results of these cases, based on the present
status, management does not believe that any of such results will have a
material adverse effect on the Company's financial condition or results of
operations.
In August 1994, Advanced Micro Devices ("AMD") brought suit against the
Company seeking monetary damages and injunctive relief based on the Company's
alleged infringement of certain patents held by AMD. In September 1994, Altera
answered the complaint asserting that it is licensed to use the patents which
AMD claims are infringed and filed a counterclaim against AMD alleging
infringement of certain patents held by the Company. In a June, 1996 trial
bifurcated from the infringement claims, the Company prevailed in its defense
that it is licensed under some or all of the patents asserted by AMD in the
suit. A second phase of the bifurcated licensing trial will determine the
specific AMD patents that are covered by the license. Due to the nature of the
litigation with AMD, and because the infringement portion of the lawsuit is
still in the pre-trial stage, the Company's management cannot estimate the total
expense, the possible loss, if any, or the range of loss that may ultimately be
incurred in connection with the allegations. Management cannot ensure that AMD
will not succeed in obtaining significant monetary damages or an injunction
against the manufacture and sale of the Classic, MAX 5000, MAX 7000, FLEX 8000,
MAX 9000, FLEX 10K, and FLASHlogic product families, or succeed in invalidating
any of the Company's patents. Although no assurances can be given as to the
results of this case, based on its present status, management does not believe
that any of such results will have a material adverse effect on the Company's
financial condition or results of operations.
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<PAGE> 14
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The textual portion of the section entitled "About Your Investment" and the
section entitled "Corporate Directory" in the Company's 1996 Annual Report to
Shareholders for the year ended December 31, 1996 ("1996 Annual Report") are
incorporated herein by reference.
The Company believes factors such as quarter-to-quarter variances in
financial results, announcements of new products, new orders, and order rate
variations by the Company or its competitors could cause the market price of its
Common Stock to fluctuate substantially. In addition, the stock prices for many
high technology companies experience large fluctuations, which are often
unrelated to the operating performance of the specific companies. Broad market
fluctuations, as well as general economic conditions such as a recessionary
period or high interest rates, may adversely affect the market price of the
Company's Common Stock.
ITEM 6. SELECTED FINANCIAL DATA.
The section entitled "Selected Consolidated Financial Data/Five-Year
Summary" in the Company's 1996 Annual Report is incorporated herein by
reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
The textual portion of the section entitled "Management's Discussion and
Analysis of Financial Conditions and Results of Operations" in the Company's
1996 Annual Report is incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The consolidated financial statements, together with the report thereon of
Price Waterhouse LLP dated January 22, 1997 and the section entitled "Selected
Consolidated Financial Data/Quarterly Data (Unaudited)" in the Company's 1996
Annual Report are incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
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<PAGE> 15
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The executive officers and directors of the Company and their ages are as
follows:
<TABLE>
<CAPTION>
NAME AGE POSITION WITH THE COMPANY
- ---------------------------- --- ------------------------------------------------
<S> <C> <C>
Rodney Smith 56 Chairman of the Board of Directors; President;
and Chief Executive Officer
C. Wendell Bergere 51 Vice President, General Counsel, and Secretary
Denis Berlan 47 Executive Vice President, Chief Operating
Officer
Erik Cleage 36 Vice President, Marketing
John R. Fitzhenry 47 Vice President, Human Resources
Clive McCarthy 50 Senior Vice President, Development Engineering
Paul Newhagen(1)(3) 47 Director; Vice President, Administration
Thomas J. Nicoletti 50 Vice President, Investor Relations and Business
Development
Nathan Sarkisian 38 Vice President, Finance; Chief Financial Officer
Peter Smyth 59 Vice President, Sales
Michael A. Ellison(1)(2)(3) 51 Director
Robert W. Reed(1)(3) 50 Director
William E. Terry(1)(2) 63 Director
Deborah Triant 47 Director
</TABLE>
- ---------------
(1) Member of Nominating Committee
(2) Member of Compensation Committee.
(3) Member of Audit Committee.
All directors hold office until the next annual meeting of shareholders or
until their successors have been elected and qualified. There are no family
relationships between any of the directors or executive officers of the Company.
Rodney Smith joined the Company in November 1983 as Chairman of the Board
of Directors, President, and Chief Executive Officer. Prior to that time, he
held various management positions with Fairchild Semiconductor Corporation
("Fairchild"), a semiconductor manufacturer.
C. Wendell Bergere joined the Company in August 1995 as Vice President,
General Counsel, and Secretary. Prior to joining the Company, from 1993 to 1995,
Mr. Bergere was Special Counsel at the law firm of Sheppard, Mullin, Richter &
Hampton. From 1982 to 1993, he was Vice President, General Counsel, and
Secretary of The Perkin-Elmer Corporation, a producer of analytical and life
science systems.
Denis M. Berlan joined the Company in December 1989 as Vice President,
Product Engineering, and was named Vice President, Operations and Product
Engineering in October 1994. In January 1996, he was named Vice President,
Operations. In January 1997, he was named Executive Vice President and Chief
Operating Officer. He was previously employed by Advanced Micro Devices, Inc.
("AMD"), a semiconductor manufacturer, and by Lattice Semiconductor Corporation,
a semiconductor manufacturer, in engineering management capacities.
Erik Cleage joined the Company as International Marketing Manager in
February 1986. He became Director, Japan and Asia Pacific Sales in April 1989,
and was appointed Vice President, Marketing in August 1990. Previously, he was
employed by AMD and Fairchild in various positions.
John R. Fitzhenry joined the Company in May 1995 as Vice President of Human
Resources. From 1983 to May 1995, he was employed by Apple Computer, Inc., a
manufacturer of personal computers, in various human resource management
positions.
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<PAGE> 16
Clive McCarthy joined the Company in February 1984 as Director of
Applications. He was appointed Vice President of Software in March 1987. In
March 1990 he was appointed Vice President of Development Engineering. Prior to
joining the Company, Mr. McCarthy had been employed by Fairchild, Northern
Telecom, and Texas Instruments in various technical and marketing management
positions.
Paul Newhagen, a co-founder of the Company, has served as a director of the
Company since July 1987 and as Vice President of Administration since December
1994. Mr. Newhagen served as Vice President of the Company from November 1992 to
February 1993, Secretary from July 1987 to January 1993, Vice President of
Finance and Administration from June 1983 to November 1992, and Chief Financial
Officer from June 1983 to February 1993. From June 1993 to November 1994, Mr.
Newhagen served as a consultant to the Company.
Thomas J. Nicoletti joined the Company in October 1992 as Vice President of
Finance and was appointed Chief Financial Officer in February 1993. In August
1995 he became Vice President, Investor Relations and Business Development.
Previously, he was Chief Financial Officer for Procase, Inc., a software
company, and for Lam Research Corporation, a semiconductor equipment
manufacturer. Prior to that, Mr. Nicoletti was employed by Fairchild and AMD in
various accounting and financial positions.
Nathan Sarkisian joined the Company in June 1992 as Corporate Controller.
He was appointed Vice President, Finance and Chief Financial Officer in August
1995. Prior to joining the Company, Mr. Sarkisian held various accounting and
financial positions at Fairchild, and at Schlumberger, an oil field services
company.
Peter Smyth joined the Company in May 1990 as Vice President of Sales.
Prior to joining the Company, Mr. Smyth served as Vice President of Sales at
Precision Monolithics, Inc., a semiconductor manufacturer, and Vice President of
North American Sales at Mostek, a semiconductor manufacturer. Mr. Smyth was also
previously associated with Texas Instruments in a variety of sales and marketing
capacities.
Michael A. Ellison has served as a director of the Company since April
1984. Since October 1994, Mr. Ellison has been the Chief Executive Officer of
Steller, Inc., a distributor of electronic parts. Until December 1992, he was a
General Partner at Cable & Howse Ventures, a venture capital investment firm,
and following that a private venture capital investor. Mr. Ellison also served
as a director of Wall Data Incorporated from September 1986 to January 1996.
Robert W. Reed has served as a director of the Company since October 1994.
In 1996, Mr. Reed retired from his position as Senior Vice President of Intel
Corporation, a semiconductor manufacturer. From 1983 to 1991 Mr. Reed was
Intel's Chief Financial Officer.
William E. Terry has served as a director of the Company since August 1994.
Mr. Terry is a former director and Executive Vice President of the
Hewlett-Packard Company, a diversified electronics manufacturing company. At
Hewlett-Packard, he held a number of senior management positions, including
general manager of Hewlett-Packard's Data Products and Instrument Groups, and
subsequently had overall responsibility for the Measurement Systems Sector. He
retired from Hewlett-Packard in November 1993. Mr. Terry also serves as a
director of Key Tronic Corporation.
Deborah Triant has served as a director of the Company since May 1996. Dr.
Triant is the President and Chief Executive Officer of CheckPoint Software
Technologies, Inc. ("CheckPoint"), an Internet security software company, and a
director of CheckPoint's Israeli parent company, CheckPoint Software
Technologies, Ltd. Prior to joining CheckPoint, Dr. Triant held various
marketing and technical executive positions with Adobe Systems Inc., a computer
software company, Sun Microsystems Inc., a computer networking company, and
Xerox Corp., a diversified electronics manufacturer.
The section entitled "Section 16(a) Beneficial Ownership Reporting
Compliance" in the Company's Proxy Statement dated March 20, 1997 filed with the
Securities and Exchange Commission (the "Proxy Statement") is incorporated
herein by reference.
ITEM 11. EXECUTIVE COMPENSATION.
The section entitled "Executive Compensation" and the section entitled
"Changes to Benefit Plans" in the Company's Proxy Statement are incorporated
herein by reference.
15
<PAGE> 17
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The section entitled "Security Ownership of Certain Beneficial Owners and
Management" in the Company's Proxy Statement is incorporated herein by
reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The section entitled "Director Compensation" and the section entitled
"Certain Business Relationships" in the Company's Proxy Statement are
incorporated herein by reference.
16
<PAGE> 18
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) 1. Financial Statements.
The following documents from the Annual Report to Shareholders are filed
as part of this report:
Consolidated Statements of Operations for each of the three years in the
period ended December 31, 1996
Consolidated Balance Sheets at December 31, 1996 and December 31, 1995
Consolidated Statements of Cash Flows for each of the three years in the
period ended December 31, 1996
Consolidated Statements of Shareholders' Equity for each of the three
years in the period ended December 31, 1996
Notes to Consolidated Financial Statements
Report of Independent Accountants
2. Financial Statement Schedules.
All schedules have been omitted as they are either not required, not
applicable, or the required information is included in the financial
statements or notes thereto.
3. Exhibits.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT
--------- ---------------------------------------------------------------------------
<C> <S>
2.1* Asset Purchase Agreement dated as of July 12, 1994 by and between the
Company and Intel Corporation(8).
2.2* Amendment No. 1 to Asset Purchase Agreement dated as of October 1, 1994 by
and between the Company and Intel Corporation(8).
2.3 Investor Agreement dated as of July 12, 1994 by and between the Company and
Intel Corporation(8).
3.1 Restated Articles of Incorporation of the Company dated December 18, 1996.
3.3 Amended and Restated Bylaws of the Company, as amended through May 8, 1996.
4.1 Specimen copy of certificate for shares of Common Stock of the
Registrant.(7)
4.2 Indenture Agreement dated as of June 15, 1995 by and between Registrant and
the First National Bank of Boston, as Trustee.(11)
4.3 Form of Convertible Subordinated Note due 2002.(11)
10.1* License Agreement dated as of July 12, 1994 with Intel Corporation.(9)
10.2* Supply Agreement dated as of July 12, 1994 with Intel Corporation.(9)
10.3(a)+ 1987 Stock Option Plan, and forms of Incentive and Non statutory Stock
Option Agreements, as amended March 22, 1995 and as restated effective May
10, 1995.(12)
10.4(b)+ 1987 Employee Stock Purchase Plan, and form of Subscription Agreement, as
amended May 10, 1995.(12)
10.6* Technology License and Manufacturing Agreement with Cypress Semiconductor
Corporation, dated June 19, 1987.(1)
10.6(a)* Termination Agreement dated November 23, 1993, regarding Technology License
and Manufacturing Agreement with Cypress Semiconductor Corporation.(7)
10.11 Form of Sales Representative Agreement.(1)
</TABLE>
17
<PAGE> 19
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT
--------- ---------------------------------------------------------------------------
<C> <S>
10.22* Advanced Micro Devices, formerly MMI, Settlement Agreement and associated
Series E Preferred Stock Purchase Agreement and Patent License Agreement,
all dated March 31, 1987.(1)
10.23 Amended and Restated Lease Agreement with Orchard Investment Company Number
611, dated November 10, 1989, for lease of Buildings B and C at 2610
Orchard Parkway, San Jose, California.(3)
10.24 First Amendment, effective February 5, 1990, to Lease Agreement with
Orchard Investment Company Number 611.(3)
10.25 Product Distribution Agreement with Wyle Electronics Marketing Group,
effective May 16, 1984, as amended.(1)
10.26 Form of Indemnification Agreement entered into with each of the Company's
officers and directors.(10)
10.30 Technology License and Manufacturing Agreement with Texas Instruments
Incorporated, dated July 1, 1988.(2)
10.30(a)* Amendment No. 2 to Technology License and Manufacturing Agreement with
Texas Instruments Incorporated, dated effective October 1, 1990.(5)
10.31 Product Distribution Agreement with LEX Electronics, Inc., formerly
Schweber Electronics Corporation effective December 22, 1988, as
amended.(2)
10.31(a) Consent to Assignment of Product Distribution Agreement, effective
September 23, 1991.(6)
10.33(b)+ 1988 Director Stock Option Plan and form of Outside Director Nonstatutory
Stock Option Agreement, as amended January 18, 1995 and as restated
effective May 10, 1995.(10)
10.34* Foundry and PROM II.5 Process Technology License Agreement with Cypress
Semiconductor Corporation and Cypress Semiconductor (Texas) Inc., dated
April 24, 1990.(4)
10.34(a)* Amendment Number 1 dated November 23, 1993, regarding Foundry and PROM II.5
Process Technology License Agreement with Cypress Semiconductor Corporation
and Cypress Semiconductor (Texas) Inc.(7)
10.35 Master Distribution Agreement with Japan Macnics Corporation dated June 26,
1986, as amended effective March 18, 1987.(6)
10.37 LSI Products Supply Agreement with Sharp Corporation, dated October 1,
1993.(7)
10.38+ Altera Corporation Nonqualified Deferred Compensation Plan and Trust
Agreement dated February 1, 1994, and form of Deferred Compensation
Agreement.(7)
10.39 Wafer Supply Agreement dated June 26, 1995 between Registrant and Taiwan
Semiconductor Manufacturing Co., Ltd.(11)
10.40 Option Agreement dated June 26, 1995 between Registrant and Taiwan
Semiconductor Manufacturing Co., Ltd.(11)
10.41 Memorandum of Intent dated October 1, 1995 between Registrant and Taiwan
Semiconductor Manufacturing Co., Ltd.(13)
10.42 Amendment No. 1 dated as of October 1, 1995 to Wafer Supply Agreement dated
as of June 26, 1995 by and between Registrant and Taiwan Semiconductor
Manufacturing Co., Ltd. And to Option Agreement 1 dated as of June 26, 1995
between Registrant and Taiwan Semiconductor Manufacturing Co., Ltd. (13)
10.43 Option Agreement 2 dated as of October 1, 1995 by and between Registrant
and Taiwan Semiconductor Manufacturing Co., Ltd. (13)
</TABLE>
18
<PAGE> 20
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT
--------- ---------------------------------------------------------------------------
<C> <S>
10.44 Option Agreement 3 dated as of October 1, 1995 by and between Registrant
and Taiwan Semiconductor Manufacturing Co., Ltd.(13)
10.45(a)+ 1996 Stock Option Plan.
10.45(b) Form of Stock Option Agreement under 1996 Stock Option Plan.(13)
10.46 Owner/Contractor Agreement for Construction between Registrant and Rudolph
and Sletten, Inc. dated January 10, 1996.(13)
10.47 Amended and Restated Limited Liability Company Agreement of Wafertech, LLC,
a Delaware limited liability company, dated as of August 9, 1996.(14)
10.48 Purchase Agreement by and between Taiwan Semiconductor Manufacturing Co.,
Ltd., as Seller, and Analog Devices, Inc., the Registrant, and Integrated
Silicon Solutions, Inc., as Buyers (dated as of June 25, 1996).(14)
10.49 Rescission (dated as of June 25, 1996) of Option Agreement 1 dated as of
June 26, 1995 by and between the Registrant and Taiwan Semiconductor
Manufacturing Co., Ltd.(14)
11.1 Computation of Earnings per Share.
13.1 Annual Report to Shareholders for the fiscal year ended December 31, 1996
(to be deemed filed only to the extent required by the instructions to
Exhibits for Reports on Form 10-K).
21.1 Subsidiaries of the Registrant.
23.1 Consent of Price Waterhouse LLP (see page 21).
24.1 Power of Attorney (included on page 22).
27.1 Financial Data Schedule.
</TABLE>
- ---------------
(1) Incorporated by reference to identically numbered exhibits filed in
response to item 16(a), "Exhibits," of the registrant's Registration
Statement on Form S-1, as amended, (File No. 33-17717) which became
effective March 29, 1988.
(2) Incorporated by reference to identically numbered exhibits filed in
response to Item 14(a), "Exhibits," of the registrant's Report on Form 10-K
for the fiscal year ended December 31, 1988.
(3) Incorporated by reference to identically numbered exhibits filed in
response to Item 14(a), "Exhibits," of the registrant's Report on Form 10-K
for the fiscal year ended December 31, 1989.
(4) Incorporated by reference to identically numbered exhibits filed in
response to Item 6(a), "Exhibits," of the registrant's Report on Form 10-Q
for the quarter ended March 31, 1990, as amended by a Form 8 filed on July
13, 1990.
(5) Incorporated by reference to identically numbered exhibits filed in
response to Item 14(a), "Exhibits," of the registrant's Report on Form 10-K
for the fiscal year ended December 31, 1990.
(6) Incorporated by reference to identically numbered exhibits filed in
response to Item 14(a), "Exhibits," of the registrant's Report on Form 10-K
for the fiscal year ended December 31, 1992.
(7) Incorporated by reference to identically numbered exhibits field in
response to Item 14(a), "Exhibits," of the registrant's Report on Form 10-K
for the fiscal year ended December 31, 1993.
(8) Incorporated by reference to identically numbered exhibits field in
response to Item 7, "Exhibits," of the registrant's Report on Form 8-K
dated October 15, 1994 and 8-KA dated December 15, 1994
(9) Incorporated by reference to identically numbered exhibits filed in
response to Item 6(a), "Exhibits," of the registrant's Report on Form 10-Q
for the quarter ended September 30, 1994
19
<PAGE> 21
(10) Incorporated by reference to identically numbered exhibits filed in
response to Item 14(a), "Exhibits," of the registrant's Report on Form 10-K
for the fiscal year ended December 31, 1994.
(11) Incorporated by reference to identically numbered exhibits filed in
response to Item 6(a), "Exhibits," of the registrant's Report on Form 10-Q
for the quarter ended June 30, 1995.
(12) Incorporated by reference to identically numbered exhibits filed in
response to Item 8, "Exhibits," of the registrant's Registration Statement
on Form S-8, as amended (File No. 33-61085) which became effective July 17,
1995.
(13) Incorporated by reference to identically numbered exhibits filed in
response to Item 14(a), "Exhibits," of the registrant's Report on Form 10-K
for the fiscal year ended December 31, 1995.
(14) Incorporated by reference to identically numbered exhibits filed in
response to Item 6(a), "Exhibits," of the registrant's Report on Form 10-Q
for the quarter ended August 14, 1996.
* Confidential treatment has previously been granted for portions of this
exhibit pursuant to an order of the Commission.
+ Management contract or compensatory plan or arrangement required to be
filed as an exhibit to this Report on Form 10-K pursuant to Item 14(c)
thereof.
(b) Reports on Form 8-K.
None
20
<PAGE> 22
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (No. 33-22877, No. 33-37159, No. 33-57350, No. 33-61085,
and No. 333-06859) of Altera Corporation of our report dated January 22, 1997
appearing on page 32 of the Annual Report to Shareholders which is incorporated
in this Annual Report on Form 10-K.
/s/ PRICE WATERHOUSE LLP
PRICE WATERHOUSE LLP
San Jose, California
March 21, 1997
21
<PAGE> 23
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this Report on Form 10-K to
be signed on its behalf, by the undersigned thereto duly authorized.
ALTERA CORPORATION
Registrant
By: /s/ NATHAN SARKISIAN
--------------------------------------
Nathan Sarkisian,
Vice President - Finance
Chief Financial Officer
March 21, 1997
POWER OF ATTORNEY
Know all persons by these present, that each person whose signature appears
below constitutes and appoints Nathan Sarkisian, his attorney-in-fact, with the
power of substitution, for him in any and all capacities, to sign any amendments
to this Report on Form 10-K, and to file the same, with exhibits thereto and
other documents in connection therewith, with the Securities and Exchange
Commission, hereby ratifying and confirming all that said attorney-in-fact, or
his substitute or substitutes, may do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report on Form 10-K has been signed below by the following persons on behalf of
the registrant and in the capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE CAPACITY IN WHICH SIGNED DATE
---------------------------------------- ---------------------------------- ---------------
<S> <C> <C>
/s/ RODNEY SMITH President, Chief Executive Officer
---------------------------------------- (Principal Executive Officer), and
Rodney Smith Chairman of the Board of Directors March 12, 1997
/s/ NATHAN SARKISIAN Vice President -- Finance and
---------------------------------------- Chief Financial Officer (Principal
Nathan Sarkisian Financial and Accounting Officer) March 12, 1997
/s/ MICHAEL A. ELLISON
----------------------------------------
Michael A. Ellison Director March 12, 1997
/s/ PAUL NEWHAGEN
----------------------------------------
Paul Newhagen Director March 12, 1997
/s/ ROBERT W. REED
----------------------------------------
Robert W. Reed Director March 12, 1997
/s/ WILLIAM E. TERRY
----------------------------------------
William E. Terry Director March 12, 1997
/s/ DEBORAH TRIANT
----------------------------------------
Deborah Triant Director March 12, 1997
</TABLE>
22
<PAGE> 1
EXHIBIT 3.1
RESTATED ARTICLES OF INCORPORATION
OF
ALTERA CORPORATION
I.
The name of this corporation is Altera Corporation.
II.
The purpose of this corporation is to engage in any lawful act or
activity for which a corporation may be organized under the General Corporation
Law of California other than the banking business, the trust company business
or the practice of a profession permitted to be incorporated by the California
Corporations Code.
III.
This corporation is authorized to issue one class of shares designated
Common Stock. The total number of shares of Common Stock this corporation
shall have the authority to issue is 160,000,000, without par value. Upon the
amendment of this Article III as set forth herein, each share of this
corporation's Common Stock shall be divided into two shares of this
corporation's Common Stock.
IV.
Section 1. Limitation of Directors' Liability. The liability of the
directors of this corporation for monetary damages shall be eliminated to the
fullest extent permissible under California law.
Section 2. Indemnification of Corporate Agents. This corporation is
authorized to provide indemnification of agents (as defined in Section 317 of
the California General Corporation Law) through bylaw provisions, agreements
with agents, vote of shareholders or disinterested directors, or otherwise, in
excess of the indemnification otherwise permitted by such Section 317, subject
only to the applicable limits set forth in Section 204 of the California
General Corporation Law with respect to actions for breach of duty to the
corporation and its shareholders.
Section 3. Repeal or Modification. Any repeal or modification of the
foregoing provisions of this Article IV shall not adversely affect any right of
indemnification or limitation of liability of an agent of this corporation
relating to acts or omissions occurring prior to such repeal or modification.
V.
There shall be no right, with respect to shares of stock of this
corporation, to cumulate votes in the election of directors.
<PAGE> 1
Exhibit 10.45(a)
ALTERA CORPORATION
1996 STOCK OPTION PLAN
(Restated effective January 15, 1997)
1. Purposes of the Plan. The purposes of this Stock Option Plan
are:
- to attract and retain the best available personnel
for positions of substantial responsibility,
- to provide additional incentive to Employees and
Consultants, and
- to promote the success of the Company's business.
Options granted under the Plan may be Incentive Stock Options or
Nonstatutory Stock Options, as determined by the Administrator at the time of
grant.
2. Definitions. As used herein, the following definitions shall
apply:
(a) "Administrator" means the Board or any Committees as
shall be administering the Plan, in accordance with Section 4 of the Plan.
(b) "Applicable Laws" means the legal requirements
relating to the administration of stock option plans under U. S. state corporate
laws, U.S. federal and state securities laws, the Code and the applicable laws
of any foreign country or jurisdiction where Options are, or will be, granted
under the Plan.
(c) "Board" means the Board of Directors of the Company.
(d) "Code" means the Internal Revenue Code of 1986, as
amended.
(e) "Committee" means a Committee appointed by the Board
in accordance with Section 4 of the Plan.
(f) "Common Stock" means the Common Stock of the Company.
(g) "Company" means Altera Corporation, a California
corporation.
(h) "Consultant" means any person, including an advisor,
engaged by the Company or a Parent or Subsidiary to render services and who is
compensated for such services. The term "Consultant" shall not include Directors
who are paid only a director's fee by the Company or who are not compensated by
the Company for their services as Directors.
(i) "Continuous Status as an Employee or Consultant" means
that the employment or consulting relationship with the Company, any Parent, or
Subsidiary, is not interrupted or terminated. Continuous Status as an Employee
or Consultant shall not be considered interrupted in the case of (i) any leave
of absence approved by the Company or
1
<PAGE> 2
(ii) transfers between locations of the Company or between the Company, its
Parent, any Subsidiary, or any successor. A leave of absence approved by the
Company shall include sick leave, military leave, or any other personal leave
approved by an authorized representative of the Company. For purposes of
Incentive Stock Options, no such leave may exceed ninety days, unless
reemployment upon expiration of such leave is guaranteed by statute or contract.
If reemployment upon expiration of a leave of absence approved by the Company is
not so guaranteed, on the 181st day of such leave any Incentive Stock Option
held by the Optionee shall cease to be treated as an Incentive Stock Option and
shall be treated for tax purposes as a Nonstatutory Stock Option.
(j) "Director" means a member of the Board.
(k) "Disability" means total and permanent disability as
defined in Section 22(e)(3) of the Code.
(l) "Employee" means any person, including Officers and
Directors, employed by the Company or any Parent or Subsidiary of the Company.
Neither service as a Director nor payment of a director's fee by the Company
shall be sufficient to constitute "employment" by the Company.
(m) "Exchange Act" means the Securities Exchange Act of
1934, as amended.
(n) "Fair Market Value" means, as of any date, the value
of Common Stock determined as follows:
(i) If the Common Stock is listed on any
established stock exchange or a national market system, including without
limitation the Nasdaq National Market or The Nasdaq SmallCap Market of The
Nasdaq Stock Market, its Fair Market Value shall be the closing sales price for
such stock (or the closing bid, if no sales were reported) as quoted on such
exchange or system for the last market trading day prior to the time of
determination, as reported in The Wall Street Journal or such other source as
the Administrator deems reliable;
(ii) If the Common Stock is regularly quoted by a
recognized securities dealer but selling prices are not reported, the Fair
Market Value of a Share of Common Stock shall be the mean between the high bid
and low asked prices for the Common Stock on the last market trading day prior
to the day of determination, as reported in The Wall Street Journal or such
other source as the Administrator deems reliable;
(iii) In the absence of an established market for
the Common Stock, the Fair Market Value shall be determined in good faith by the
Administrator.
(o) "Incentive Stock Option" means an Option intended to
qualify as an incentive stock option within the meaning of Section 422 of the
Code and the regulations promulgated thereunder.
(p) "Misconduct" means the commission of any act that is
inimical, contrary, or harmful to the interests of the Company (or any Parent or
Subsidiary), including but not limited to
2
<PAGE> 3
(1) conduct related to employment for which either criminal or civil penalties
may be sought, (2) willful violation of the Company's written policies, (3)
engaging in any activity that is in competition with the Company (or any Parent
or Subsidiary), or (4) unauthorized disclosure of confidential information or
trade secrets of the Company (or any Parent or Subsidiary). The foregoing
definition shall not be deemed to be inclusive of all acts or omissions that the
Company (or any Parent or Subsidiary) may consider as Misconduct for purposes of
the Plan.
(q) "Nonstatutory Stock Option" means an Option not
intended to qualify as an Incentive Stock Option.
(r) "Notice of Grant" means a written notice evidencing
certain terms and conditions of an individual Option grant. The Notice of Grant
is part of the Option Agreement.
(s) "Officer" means a person who is an officer of the
Company within the meaning of Section 16 of the Exchange Act and the rules and
regulations promulgated thereunder.
(t) "Option" means a stock option granted pursuant to the
Plan.
(u) "Option Agreement" means a written agreement between the
Company and an Optionee evidencing the terms and conditions of an individual
Option grant. The Option Agreement is subject to the terms and conditions of the
Plan.
(v) "Optioned Stock" means the Common Stock subject to an
Option.
(w) "Optionee" means an Employee or Consultant who holds
an outstanding Option.
(x) "Parent" means a "parent corporation", whether now or
hereafter existing, as defined in Section 424(e) of the Code.
(y) "Plan" means this 1996 Stock Option Plan.
(z) "Retirement" means:
(i) a termination of Optionee's Continuous
Status as an Employee or Consultant, other than for Misconduct, after attaining
age fifty (50) with at least ten (10) years of service as an Employee or
Consultant of the Company rendered after attaining age forty (40); or
(ii) a termination of Optionee's Continuous
Status as an Employee or Consultant as a result of Disability, regardless of
Optionee's age, if Optionee has completed at least ten (10) years of service as
an Employee or Consultant of the Company and if Optionee qualifies for Social
Security disability benefits at the time of such termination.
(aa) "Rule 16b-3" means Rule 16b-3 of the Exchange Act or
any successor to Rule 16b-3, as in effect when discretion is being exercised
with respect to the Plan.
3
<PAGE> 4
(bb) "Section 16" means Section 16 of the Securities
Exchange Act of 1934, as amended.
(cc) "Share" means a share of the Common Stock, as
adjusted in accordance with Section 12 of the Plan.
(dd) "Subsidiary" means a "subsidiary corporation",
whether now or hereafter existing, as defined in Section 424(f) of the Code.
3. Stock Subject to the Plan. Subject to the provisions of
Section 12 of the Plan, the maximum aggregate number of Shares which may be
optioned and sold under the Plan is 5,300,000 Shares. The Shares may be
authorized, but unissued, or reacquired Common Stock.
If an Option expires or becomes unexercisable without having been exercised in
full, the unpurchased Shares which were subject thereto shall become available
for future grant or sale under the Plan (unless the Plan has terminated);
provided, however, that Shares that have actually been issued under the Plan
shall not be returned to the Plan and shall not become available for future
distribution under the Plan.
4. Administration of the Plan.
(a) Procedure.
(i) Multiple Administrative Bodies. If
permitted by Rule 16b-3, the Plan may be administered by different bodies with
respect to Directors, Officers who are not Directors, and Employees who are
neither Directors nor Officers.
(ii) Administration With Respect to Directors and
Officers Subject to Section 16. With respect to Option grants made to Employees
who are also Officers or Directors subject to Section 16 of the Exchange Act,
the Plan shall be administered by (A) the Board, if the Board may administer the
Plan in a manner complying with the rules under Rule 16b-3 relating to the
disinterested administration of employee benefit plans under which Section 16
exempt discretionary grants and awards of equity securities are to be made, or
(B) a committee or committees designated by the Board to administer the Plan,
which committee shall be constituted to comply with the rules under Rule 16b-3
relating to the disinterested administration of employee benefit plans under
which Section 16 exempt discretionary grants and awards of equity securities are
to be made. Once appointed, such Committee shall continue to serve in its
designated capacity until otherwise directed by the Board. From time to time the
Board may increase the size of the Committee and appoint additional members,
remove members (with or without cause) and substitute new members, fill
vacancies (however caused), and remove all members of the Committee and
thereafter directly administer the Plan, all to the extent permitted by the
rules under Rule 16b-3 relating to the disinterested administration of employee
benefit plans under which Section 16 exempt discretionary grants and awards of
equity securities are to be made.
(iii) Administration With Respect to Other
Persons. With respect to Option grants made to Employees or Consultants who are
neither Directors nor Officers of the Company, the Plan shall be administered by
(A) the Board or (B) a committee or committees
4
<PAGE> 5
designated by the Board, which committee shall be constituted to satisfy
Applicable Laws. Once appointed, such Committee shall serve in its designated
capacity until otherwise directed by the Board. The Board may increase the size
of the Committee and appoint additional members, remove members (with or without
cause) and substitute new members, fill vacancies (however caused), and remove
all members of the Committee and thereafter directly administer the Plan, all to
the extent permitted by Applicable Laws.
(b) Powers of the Administrator. Subject to the provisions of
the Plan, and in the case of a Committee, subject to the specific duties
delegated by the Board to such Committee, the Administrator shall have the
authority, in its discretion:
(i) to grant options to Employees and
Consultants hereunder;
(ii) to determine the Fair Market Value of the
Common Stock, in accordance with Section 2(n) of the Plan;
(iii) to determine the Consultants and Employees
eligible to be granted Options hereunder;
(iv) to determine whether and to what extent
Options are granted hereunder;
(v) to determine the number of shares of Common
Stock to be covered by each Option granted hereunder;
(vi) to approve forms of agreement for use under
the Plan;
(vii) to determine the terms and conditions, not
inconsistent with the terms of the Plan, of any award granted hereunder. Such
terms and conditions include, but are not limited to, the exercise price, the
time or times when Options may be exercised (which may be based on performance
criteria), any vesting acceleration, and any restriction or limitation regarding
any Option or the shares of Common Stock relating thereto, based in each case on
such factors as the Administrator, in its sole discretion, shall determine;
(viii) to construe and interpret the terms of the
Plan and awards granted pursuant to the Plan;
(ix) to prescribe, amend, and rescind rules and
regulations relating to the Plan, including rules and regulations relating to
sub-plans established for the purpose of qualifying for preferred tax treatment
under foreign tax laws;
(x) to modify or amend each Option (subject to
Section 14(c) of the Plan), including the discretionary authority to extend the
post-termination exercisability period of Options longer than is otherwise
provided for in the Plan;
(xi) to authorize any person to execute on behalf
of the Company any instrument required to effect the grant of an Option
previously granted by the Administrator; and
5
<PAGE> 6
(xii) to make all other determinations deemed
necessary or advisable for administering the Plan.
(c) Effect of Administrator's Decision. The
Administrator's decisions, determinations and interpretations shall be final and
binding on all Optionees and any other holders of Options.
5. Eligibility. Nonstatutory Stock Options may be granted to
those Employees and Consultants selected by the Administrator. Incentive Stock
Options may be granted only to those Employees selected by the Administrator. If
otherwise eligible, an Employee or Consultant who has been granted an Option may
be granted additional Options.
6. Limitations.
(a) Each Option shall be designated in the written option
agreement as either an Incentive Stock Option or a Nonstatutory Stock Option.
However, notwithstanding such designation, to the extent that the aggregate Fair
Market Value of the Shares with respect to which Incentive Stock Options are
exercisable for the first time by the Optionee during any calendar year (under
all plans of the Company and any Parent or Subsidiary) exceeds $100,000, such
Options shall be treated as Nonstatutory Stock Options. For purposes of this
Section 6(a), Incentive Stock Options shall be taken into account in the order
in which they were granted.
(b) Neither the Plan nor any Option shall confer upon an
Optionee any right with respect to continuing the Optionee's employment or
consulting relationship with the Company, nor shall they interfere in any way
with the Optionee's right or the Company's right to terminate such employment or
consulting relationship at any time, with or without cause.
(c) The following limitations shall apply to grants of
Options to Employees:
(i) No Employee shall be granted, in any fiscal
year of the Company, Options to purchase more than 500,000 Shares.
(ii) In connection with his or her initial
employment, an Employee may be granted Options to purchase up to an additional
500,000 Shares which shall not count against the limit set forth in subsection
(i) above.
(iii) The foregoing limitations shall be adjusted
proportionately in connection with any change in the Company's capitalization as
described in Section 12.
7. Term of Plan. Subject to Section 18 of the Plan, the Plan shall
become effective upon its approval by the shareholders of the Company as
described in Section 18 of the Plan. It shall continue in effect for a term of
ten (10) years unless terminated earlier under Section 14 of the Plan.
6
<PAGE> 7
8. Term of Option. The term of each Option shall be stated in the
Notice of Grant; provided, however, that in the case of an Incentive Stock
Option, the term shall be ten (10) years from the date of grant or such shorter
term as may be provided in the Notice of Grant.
9. Option Exercise Price and Consideration.
(a) Exercise Price. The per share exercise price for the
Shares to be issued pursuant to exercise of an Option shall be no less than 100%
of the Fair Market Value per Share on the date of grant.
(b) Waiting Period and Exercise Dates. At the time an Option
is granted, the Administrator shall fix the period within which the Option may
be exercised and shall determine any conditions which must be satisfied before
the Option may be exercised. In so doing, the Administrator may specify that an
Option may not be exercised until the completion of a service period.
(c) Form of Consideration. The Administrator shall
determine the acceptable form of consideration for exercising an Option,
including the method of payment. In the case of an Incentive Stock Option, the
Administrator shall determine the acceptable form of consideration at the time
of grant. Such consideration may consist entirely of:
(i) cash;
(ii) check;
(iii) promissory note;
(iv) other Shares which (A) in the case of Shares
acquired upon exercise of an option, have been owned by the Optionee for more
than six months on the date of surrender, and (B) have a Fair Market Value on
the date of surrender equal to the aggregate exercise price of the Shares as to
which said Option shall be exercised;
(v) delivery of a properly executed exercise
notice together with such other documentation as the Administrator and the
broker, if applicable, shall require to effect an exercise of the Option and
delivery to the Company of the sale or loan proceeds required to pay the
exercise price;
(vi) a reduction in the amount of any Company
liability to the Optionee, including any liability attributable to the
Optionee's participation in any Company-sponsored deferred compensation program
or arrangement;
(vii) any combination of the foregoing methods of
payment; or
(viii) such other consideration and method of
payment for the issuance of Shares to the extent permitted by Applicable Laws.
10. Exercise of Option.
7
<PAGE> 8
(a) Procedure for Exercise; Rights as a Shareholder. Any
Option granted hereunder shall be exercisable according to the terms of the Plan
and at such times and under such conditions as determined by the Administrator
and set forth in the Option Agreement.
An Option may not be exercised for a fraction of a
Share.
An Option shall be deemed exercised when the Company
receives: (i) written notice of exercise (in accordance with the Option
Agreement) from the person entitled to exercise the Option, and (ii) full
payment for the Shares with respect to which the Option is exercised. Full
payment may consist of any consideration and method of payment authorized by the
Administrator and permitted by the Option Agreement and the Plan. Shares issued
upon exercise of an Option shall be issued in the name of the Optionee or, if
requested by the Optionee, in the name of the Optionee and his or her spouse.
Until the stock certificate evidencing such Shares is issued (as evidenced by
the appropriate entry on the books of the Company or of a duly authorized
transfer agent of the Company), no right to vote or receive dividends or any
other rights as a shareholder shall exist with respect to the Optioned Stock,
notwithstanding the exercise of the Option. The Company shall issue (or cause to
be issued) such stock certificate promptly after the Option is exercised. No
adjustment will be made for a dividend or other right for which the record date
is prior to the date the stock certificate is issued, except as provided in
Section 12 of the Plan.
Exercising an Option in any manner shall decrease the
number of Shares thereafter available, both for purposes of the Plan and for
sale under the Option, by the number of Shares as to which the Option is
exercised.
(b) Termination of Employment or Consulting Relationship.
(i) In General. Upon termination of an
Optionee's Continuous Status as an Employee or Consultant, other than upon the
Optionee's death, Disability, or Retirement, the Optionee may exercise his or
her Option within such period of time as is specified in the Notice of Grant to
the extent that he or she is entitled to exercise it on the date of termination
(but in no event later than the expiration of the term of such Option as set
forth in the Notice of Grant). In the absence of a specified time in the Notice
of Grant, the Option shall remain exercisable for thirty (30) days following the
Optionee's termination. In the case of an Incentive Stock Option, such period of
time for exercise shall not exceed three (3) months from the date of
termination. If, on the date of termination, the Optionee is not entitled to
exercise his or her entire Option, the Shares covered by the unexercisable
portion of the Option shall revert to the Plan. If, after termination, the
Optionee does not exercise his or her Option within the time specified by the
Administrator, the Option shall terminate, and the Shares covered by such Option
shall revert to the Plan.
Notwithstanding the above, in the event of an
Optionee's change in status from Consultant to Employee or Employee to
Consultant, the Optionee's Continuous Status as an Employee or Consultant shall
not automatically terminate solely as a result of such change in status. In the
event of an Optionee's change in status from Employee to Consultant, each
Incentive Stock Option held by the Optionee shall cease to be treated as an
Incentive Stock
8
<PAGE> 9
Option and shall be treated for tax purposes as a Nonstatutory Stock Option
three months and one day following such change of status.
(ii) Retirement of Optionee. In the event of
termination of an Optionee's Continuous Status as an Employee or Consultant as a
result of his or her Retirement, such Optionee's Option shall, in the sole
discretion of the Administrator, and so long as no act of Misconduct is
committed by Optionee, continue to vest, continue to become exercisable, and may
be exercised during such period of time as is determined by the Administrator
and as provided in the Option Agreement (but in no event may the Option be
exercised after the expiration date of the term of such Option as set forth in
the Option Agreement). If, at the end of such period of time, the Optionee is
not entitled to exercise his or her entire Option, the Shares covered by the
unexercisable portion of the Option shall revert to the Plan. If the Optionee
does not exercise his or her Option within the time specified by the
Administrator, the Option shall terminate, and the Shares covered by such Option
shall revert to the Plan. If Optionee commits an act of Misconduct, the Option
shall immediately terminate, and the Shares covered by such Option shall revert
to the Plan.
(iii) Disability of Optionee. Upon termination of
an Optionee's Continuous Status as an Employee or Consultant as a result of the
Optionee's Disability, the Optionee may exercise his or her Option at any time
within three (3) months (or such other period of time not exceeding twelve (12)
months as is determined by the Administrator, with such determination in the
case of an Incentive Stock Option being made at the time of grant of the Option)
from the date of termination, but only to the extent that the Optionee is
entitled to exercise it on the date of termination (and in no event later than
the expiration of the term of the Option as set forth in the Notice of Grant).
If, on the date of termination, the Optionee is not entitled to exercise his or
her entire Option, the Shares covered by the unexercisable portion of the Option
shall revert to the Plan. If, after termination, the Optionee does not exercise
his or her Option within the time specified herein, the Option shall terminate,
and the Shares covered by such Option shall revert to the Plan.
(iv) Death of Optionee. Upon the death of an
Optionee:
(A) during the term of the Option who is
at the time of his or her death an Employee or Consultant of the Company and who
shall have been in Continuous Status as an Employee or Consultant since the date
of grant of the Option, the Option may be exercised by the Optionee's estate or
by a person who acquired the right to exercise the Option by bequest or
inheritance at any time within six (6) months (or, in the case of Retirement,
such longer period of time, not to exceed 12 months, as determined by the
Administrator) following the date of death, but in no event later than the date
of expiration of the term of such Option as set forth in the Option Agreement,
and only to the extent of the right to exercise the Option that would have
accrued had the Optionee continued living and remained in Continuous Status as
an Employee or Consultant six (6) months after the date of death, subject to the
limitation set forth in Section 6(a); or
(B) within thirty (30) days (or such
other period of time not exceeding three (3) months as is determined by the
Administrator, with such determination in the case of an Incentive Stock Option
being made at the time of grant of the Option) after his or her
9
<PAGE> 10
termination of Continuous Status as an Employee or Consultant, the Option may be
exercised by the Optionee's estate or by a person who acquired the right to
exercise the Option by bequest or inheritance, at any time within six (6) months
(or, in the case of Retirement, such longer period of time, not to exceed 12
months, as determined by the Administrator) following the date of death, but in
no event later than the date of expiration of the term of such Option as set
forth in the Option Agreement, and only to the extent of the right to exercise
the Option that had accrued at the date of termination.
(c) Buyout Provisions. The Administrator may at any time offer
to buy out for a payment in cash or Shares, an Option previously granted based
on such terms and conditions as the Administrator shall establish and
communicate to the Optionee at the time that such offer is made.
(d) Rule 16b-3. Options granted to individuals subject to
Section 16 of the Exchange Act ("Insiders") must comply with the applicable
provisions of Rule 16b-3 and shall contain such additional conditions or
restrictions as may, in the Administrator's sole discretion, be necessary and
desirable to qualify thereunder for the maximum exemption from Section 16 of the
Exchange Act with respect to Plan transactions.
11. Non-Transferability of Options. An Option may not be sold,
pledged, assigned, hypothecated, transferred, or disposed of in any manner
other than by will or by the laws of descent or distribution and may be
exercised, during the lifetime of the Optionee, only by the Optionee.
12. Adjustments Upon Changes in Capitalization, Dissolution,
Merger, or Asset Sale.
(a) Changes in Capitalization. Subject to any required action
by the shareholders of the Company, the number of shares of Common Stock covered
by each outstanding Option, and the number of shares of Common Stock which have
been authorized for issuance under the Plan but as to which no Options have yet
been granted or which have been returned to the Plan upon cancellation or
expiration of an Option, as well as the price per share of Common Stock covered
by each such outstanding Option, shall be proportionately adjusted for any
increase or decrease in the number of issued shares of Common Stock resulting
from a stock split, reverse stock split, stock dividend, combination, or
reclassification of the Common Stock, or any other increase or decrease in the
number of issued shares of Common Stock effected without receipt of
consideration by the Company; provided, however, that conversion of any
convertible securities of the Company shall not be deemed to have been "effected
without receipt of consideration." Such adjustment shall be made by the Board,
whose determination in that respect shall be final, binding, and conclusive.
Except as expressly provided herein, no issuance by the Company of shares of
stock of any class, or securities convertible into shares of stock of any class,
shall affect, and no adjustment by reason thereof shall be made with respect to,
the number or price of shares of Common Stock subject to an Option.
(b) Dissolution or Liquidation. In the event of the proposed
dissolution or liquidation of the Company, the Administrator shall notify each
Optionee as soon as practicable prior to the effective date of such proposed
transaction. The Administrator in its discretion may provide for an Optionee to
have the right to exercise his or her Option prior to
10
<PAGE> 11
such transaction as to all of the Optioned Stock covered thereby, including
Shares as to which the Option would not otherwise be exercisable. In addition,
the Administrator may provide that any Company repurchase option applicable to
any Shares purchased upon exercise of an Option shall lapse as to all such
Shares, provided the proposed dissolution or liquidation takes place at the time
and in the manner contemplated. To the extent it has not been previously
exercised, an Option will terminate immediately prior to the consummation of
such proposed action.
(c) Merger or Asset Sale. In the event of a merger of the
Company with or into another corporation, or the sale of substantially all of
the assets of the Company, each outstanding Option shall be assumed or an
equivalent option substituted by the successor corporation or a Parent or
Subsidiary of the successor corporation. In the event that the successor
corporation refuses to assume or substitute for the Option, the Optionee shall
have the right to exercise the Option as to all of the Optioned Stock, including
Shares as to which it would not otherwise be exercisable. If an Option is
exercisable in lieu of assumption or substitution in the event of a merger or
sale of assets, the Administrator shall notify the Optionee that the Option
shall be fully exercisable for a period of fifteen (15) days from the date of
such notice, and the Option shall terminate upon the expiration of such period.
For the purposes of this paragraph, the Option shall be considered assumed if,
following the merger or sale of assets, the option or right confers the right to
purchase or receive, for each Share of Optioned Stock subject to the Option
immediately prior to the merger or sale of assets, the consideration (whether
stock, cash, or other securities or property) received in the merger or sale of
assets by holders of Common Stock for each Share held on the effective date of
the transaction (and if holders were offered a choice of consideration, the type
of consideration chosen by the holders of a majority of the outstanding Shares);
provided, however, that if such consideration received in the merger or sale of
assets was not solely common stock of the successor corporation or its Parent,
the Administrator may, with the consent of the successor corporation, provide
for the consideration to be received upon the exercise of the Option, for each
Share of Optioned Stock subject to the Option, to be solely common stock of the
successor corporation or its Parent equal in fair market value to the per share
consideration received by holders of Common Stock in the merger or sale of
assets.
13. Date of Grant. The date of grant of an Option shall be, for all
purposes, the date on which the Administrator makes the determination granting
such Option, or such other later date as is determined by the Administrator.
Notice of the determination shall be provided to each Optionee within a
reasonable time after the date of such grant.
14. Amendment and Termination of the Plan.
(a) Amendment and Termination. The Board may at any time
amend, alter, suspend, or terminate the Plan.
(b) Shareholder Approval. The Company shall obtain shareholder
approval of any Plan amendment to the extent necessary and desirable to comply
with Rule 16b-3 or with Section 422 of the Code (or any successor rule or
statute or other applicable law, rule, or regulation, including the requirements
of any exchange or quotation system on which the Common Stock is listed or
quoted). Such shareholder approval, if required, shall be obtained in such a
manner and to such a degree as is required by the applicable law, rule, or
regulation.
11
<PAGE> 12
(c) Effect of Amendment or Termination. No amendment,
alteration, suspension, or termination of the Plan shall impair the rights of
any Optionee, unless mutually agreed otherwise between the Optionee and the
Administrator, which agreement must be in writing and signed by the Optionee and
the Company.
15. Conditions Upon Issuance of Shares.
(a) Legal Compliance. Shares shall not be issued pursuant to
the exercise of an Option unless the exercise of such Option and the issuance
and delivery of such Shares shall comply with all relevant provisions of law,
including, without limitation, the Securities Act of 1933, as amended, the
Exchange Act, the rules and regulations promulgated thereunder, Applicable Laws,
and the requirements of any stock exchange or quotation system upon which the
Shares may then be listed or quoted, and shall be further subject to the
approval of counsel for the Company with respect to such compliance.
(b) Investment Representations. As a condition to the exercise
of an Option, the Company may require the person exercising such Option to
represent and warrant at the time of any such exercise that the Shares are being
purchased only for investment and without any present intention to sell or
distribute such Shares if, in the opinion of counsel for the Company, such a
representation is required.
16. Liability of Company.
(a) Inability to Obtain Authority. The inability of the
Company to obtain authority from any regulatory body having jurisdiction, which
authority is deemed by the Company's counsel to be necessary to the lawful
issuance and sale of any Shares hereunder, shall relieve the Company of any
liability in respect of the failure to issue or sell such Shares as to which
such requisite authority shall not have been obtained.
(b) Grants Exceeding Allotted Shares. If the Optioned Stock
covered by an Option exceeds, as of the date of grant, the number of Shares
which may be issued under the Plan without additional shareholder approval, such
Option shall be void with respect to such excess Optioned Stock, unless
shareholder approval of an amendment sufficiently increasing the number of
Shares subject to the Plan is timely obtained in accordance with Section 14(b)
of the Plan.
17. Reservation of Shares. The Company, during the term of this Plan,
will at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.
18. Shareholder Approval. Continuance of the Plan shall be subject to
approval by the shareholders of the Company within twelve (12) months before or
after the date the Plan is adopted. Such shareholder approval shall be obtained
in the manner and to the degree required under Applicable Laws and the rules of
any stock exchange upon which the Common Stock is listed.
12
<PAGE> 1
EXHIBIT 11.1
ALTERA CORPORATION
------------------------
COMPUTATION OF EARNINGS PER SHARE(1)
<TABLE>
<CAPTION>
(IN THOUSANDS EXCEPT PER SHARE
AMOUNTS)
--------------------------------
YEARS ENDED DECEMBER 31,
--------------------------------
1996 1995 1994
-------- ------- -------
<S> <C> <C> <C>
PRIMARY:
Weighted average shares outstanding........................ 87,405 86,626 83,252
Net effect of dilutive stock options....................... 4,419 4,528 3,240
-------- ------- -------
Total...................................................... 91,824 91,154 86,492
======== ======= =======
Net income................................................. $109,135 $86,871 $14,608
======== ======= =======
Net income per share....................................... $ 1.19 $ 0.95 $ 0.17
======== ======= =======
FULLY DILUTED:
Weighted average shares outstanding........................ 87,405 86,626 83,252
Net effect of dilutive stock options....................... 5,042 4,684 3,240
Assumed conversion of convertible subordinated notes....... 8,990 4,778 --
-------- ------- -------
Total...................................................... 101,437 96,088 86,492
======== ======= =======
Net income................................................. $109,135 $86,871 $14,608
Add:
Convertible subordinated notes interest, net of income
taxes.................................................... 7,440 4,397 --
-------- ------- -------
Adjusted net income........................................ $116,575 $91,268 $14,608
======== ======= =======
Net income per share....................................... $ 1.15 $ 0.95 $ 0.17
======== ======= =======
</TABLE>
- ---------------
(1) This exhibit should be read in conjunction with Notes 2, 9 and 10 of Notes
to Consolidated Financial Statements.
23
<PAGE> 1
EXHIBIT 13.1
ABOUT YOUR INVESTMENT
STOCK OWNERSHIP PROFILE. The Company estimates that at December 31, 1996
there were more than 20,000 holders of Altera stock.
STOCK PRICE. Altera's initial public offering took place on March
31, 1988. The Company's price-to-earnings ratio at each year-end
for the last five years was as follows:
1992 1993 1994 1995 1996
------------------------------------------
23.0 32.4 26.0* 26.0 30.5
* Excludes R&D in-process write-off associated with the acquisition of
Intel's programmable logic business.
TRADING VOLUME. The average trading volume in the Company's stock increased
30% in 1996 over 1995, as measured by Nasdaq. Trading volume in 1996
averaged 4.4 million shares per day, compared to 3.4 million per day in
1995, and 3.0 million in 1994, retroactively adjusted for 2-for-1
splits of the Company's common stock in the second quarter of 1995 and the
fourth quarter of 1996.
<PAGE> 2
CORPORATE DIRECTORY
BOARD OF DIRECTORS
Rodney Smith
Chairman, Chief Executive Officer & President
Altera Corporation
Michael A. Ellison
Chief Executive Officer
Steller, Inc.
Paul Newhagen
Vice President, Administration
Altera Corporation
Robert W. Reed
Former Senior Vice President
Intel Corporation
William E. Terry
Former Director & Executive Vice President
Hewlett-Packard Company
Deborah Triant, Ph.D.
President and Chief Executive Officer
CheckPoint Software Technologies, Inc.
CORPORATE OFFICERS
Rodney Smith
President & Chief Executive Officer
C. Wendell Bergere
Vice President, General Counsel & Secretary
Denis Berlan
Vice President, Operations/Product Engineering
Erik Cleage
Vice President, Marketing
John R. Fitzhenry
Vice President, Human Resources
Clive McCarthy
Vice President, Development Engineering
Paul Newhagen
Vice President, Administration
Thomas J. Nicoletti
Vice President, Investor Relations and Business
Development
Nathan Sarkisian
Vice President, Finance & Chief Financial Officer
Peter Smyth
Vice President, Sales
CORPORATE HEADQUARTERS
2610 Orchard Parkway
San Jose, California 95134-2020
(408) 544-7000
CORPORATE COUNSEL
Wilson, Sonsini, Goodrich & Rosati
Palo Alto, California
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP
San Jose, California
FORM 10-K
A copy of the Company's Form 10-K, filed with the
Securities and Exchange Commission (without exhibits),
is available from:
Shareholder Relations
Altera Corporation
2610 Orchard Parkway
San Jose, California 95134-2020
(408) 544-7707
STOCK LISTING
Altera's common stock has been traded on the over-the-
counter market since the Company's initial public
offering (IPO) on March 31, 1988, and is quoted on The
Nasdaq Stock Market under the symbol "ALTR." The
Company has never paid cash dividends on its common
stock and has no present plans to do so.
<PAGE> 3
For the past two years, the quarterly high and low closing
sales prices for the common stock were:
<TABLE>
<CAPTION>
1996 1995
------------------- ------------------
Quarter High Low High Low
- ----------------------------------------------------
<S> <C> <C> <C> <C>
First 38 1/2 22 9/16 14 27/32 10 1/8
Second 31 3/16 18 13/16 22 1/2 13 31/32
Third 27 5/8 14 34 7/8 21 13/16
Fourth 38 7/8 24 7/8 32 19/32 23 1/16
</TABLE>
REGISTRAR/TRANSFER AGENT
Investor Relations
Boston EquiServe L.P.
P.O. Box 8040
Boston, MA 02266-8040
(617) 575-3100
Altera, MAX, FLEX, and MAX+PLUS are registered trademarks, and
MAX+PLUS II, FLEX 10K, FLEX 8000, MAX 9000, MAX 7000, MAX 7000S,
MAX 5000, Classic, FLASHlogic, and individual device designations
are trademarks of Altera Corporation. Altera Corporation
acknowledges the trademarks of other organizations for their respective
products or services mentioned in this document.
<PAGE> 4
SELECTED CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
FIVE-YEAR SUMMARY
Year Ended December 31
(In thousands, ------------------------------------------------------------------------
except per share amounts) 1996 1995 1994 1993 1992
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS
DATA:
Sales $497,306 $401,598 $198,796 $140,279 $101,470
Cost of sales 191,958 158,808 77,672 58,470 43,994
-------- -------- -------- -------- --------
Gross profit 305,348 242,790 121,124 81,809 57,476
Research and development 49,513 33,849 45,994 16,847 15,826
Selling, general, and
administrative 87,742 74,658 45,771 35,202 25,147
-------- -------- -------- -------- --------
Income from operations $168,093 $134,283 $ 29,359 $ 29,760 $ 16,503
======== ======== ======== ======== ========
Income before income taxes $169,137 $137,891 $ 31,496 $ 31,392 $ 18,024
======== ======== ======== ======== ========
Net income $109,135 $ 86,871 $ 14,608 $ 21,195 $ 11,539
======== ======== ======== ======== ========
Primary net income per share $ 1.19 $ 0.95 $ 0.17 $ 0.25 $ 0.14
Fully diluted net income per $ 1.15 $ 0.95 $ 0.17 $ 0.25 $ 0.14
share
Shares used in computing
net income per share:
Primary 91,824 91,154 86,492 83,984 82,572
Fully diluted 101,437 96,088 86,492 83,984 82,572
</TABLE>
<TABLE>
<CAPTION>
December 31
----------------------------------------------------------------------
(In thousands,
except per share amounts) 1996 1995 1994 1993 1992
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital $295,020 $346,242 $121,479 $ 94,895 $ 66,508
Total assets 778,212 715,554 213,882 155,757 114,693
Long-term debt 230,000 288,600 -- -- --
Shareholders' equity 370,245 255,189 158,019 121,699 95,606
Book value per share 4.23 2.93 1.84 1.49 1.19
</TABLE>
QUARTERLY DATA (UNAUDITED)
<TABLE>
<CAPTION>
Year Ended December 31, 1996
--------------------------------------------------------
(In thousands, First Second Third Fourth
except per share amounts) Quarter Quarter Quarter Quarter
1996 DATA: -------- -------- -------- --------
<S> <C> <C> <C> <C>
Sales $137,098 $116,295 $116,728 $127,185
Gross profit 84,044 71,446 71,634 78,224
Net income 31,440 24,265 24,118 29,312
Primary net income per share 0.34 0.27 0.26 0.32
Fully diluted net income per share 0.33 0.26 0.26 0.31
</TABLE>
<TABLE>
<CAPTION>
1995 DATA:
<S> <C> <C> <C> <C>
Sales $75,038 $92,165 $109,079 $125,316
Gross profit 44,987 54,676 66,262 76,865
Net income 15,097 19,632 23,729 28,413
Net income per share 0.17 0.21 0.26 0.31
</TABLE>
11
<PAGE> 5
MANAGEMENT'S DISCUSSION & ANALYSIS OF FINANCIAL
CONDITIONS & RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
SALES. 1996 sales were $497.3 million, a 24% increase from 1995 sales of
$401.6 million, and a 150% increase from 1994 sales of $198.8 million. The
increase in sales from 1995 reflects increased unit volumes of the
Company's MAX 7000 component family, and to a lesser extent the MAX 9000
product family. Sales of the mature Classic, MAX 5000 and FLASHlogic
product lines were down from 1995, although unit volumes increased. The
increase in sales from 1994 to 1995 was driven by increased unit volumes of
the Company's MAX 7000 component family, and to a lesser extent by the FLEX
8000, Classic and FLASHlogic product lines. Percentage sales growth in 1996
and 1995 was generally consistent across all geographic regions.
Sales of development systems and software used by customers to design and
program Altera components were approximately 6% of sales in 1996, compared
to 6% and 9% of sales in 1995 and 1994, respectively. Licensed
installations grew approximately 26% during the year and now cumulatively
total approximately 29,000.
Sales of the MAX 7000 family increased 46% from 1995 and comprised
approximately 49% of total Company sales for the year. The MAX 7000 family
offers users some of the fastest mid-density parts available in the
marketplace today. All members of the family are electrically erasable.
Average selling prices for the family did not change significantly
throughout the year.
Sales of the FLEX 8000 family accounts for 16% of Company sales. This
family includes some of the largest programmable logic devices offered by
any vendor. All members of the family may be reprogrammed without being
removed from the end-user's system (in-circuit reconfigurability). During
1996, average selling prices for the family declined approximately 20%.
In the second quarter of 1995, the Company began shipping the MAX 9000
product family. This family has a feature-rich, high-density architecture.
All members of the family can be programmed after being soldered onto the
circuit board for manufacturing ease. Also in 1995, the Company introduced
the FLEX 10K family. This family offers logic capacities that were once
associated exclusively with gate arrays, combined with the time-to-market
advantages of programmable logic devices. Various combinations of memory
configurations and complex logic functions can be implemented in FLEX 10K
devices. Unit sales of these products continued to increase throughout
1996. The 1996 revenue growth rate of the FLEX 10K was the highest for
any product family every introduced by the
12
<PAGE> 6
MANAGEMENT'S DISCUSSION & ANALYSIS OF FINANCIAL
CONDITIONS & RESULTS OF OPERATIONS
Company. For the year ended December 31, 1996, combined sales of the MAX
9000 and the FLEX 10K families amounted to 6% of total sales.
Altera's major markets are in communications, computing, and industrial
applications. Altera's 1996 international sales were 47% of total sales,
compared to 47% in 1995 and 48% in 1994.
Major items in the statements of operations, expressed as a percentage of
sales, were as follows:
<TABLE>
<CAPTION>
Year Ended December 31
--------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Cost of sales 39% 40% 39%
Gross margin 61% 60% 61%
Research and development 10% 8% 23%
Selling, general, and administrative 17% 19% 23%
Operating income 34% 33% 15%
Interest expense 3% 2% -%
Interest and other income, net 3% 3% 1%
Provision for income taxes 12% 13% 9%
Net income 22% 22% 7%
--- --- ---
</TABLE>
GROSS MARGIN. As a percentage of sales, gross margin increased from 60.5%
in 1995 to 61.4% in 1996; in 1995, gross margin declined slightly from
60.9% in 1994 to 60.5%. The margin percentage increased in 1996 compared to
1995, due to lower manufacturing costs resulting from improved yields,
process advancements, and lower wafer costs, despite reductions in selling
prices. The decline in 1995 compared to 1994 was mainly due to lower prices
to end customers and higher costs for purchased silicon wafers driven by
the appreciation of the yen versus the dollar. The increased silicon costs
in 1995 were partially offset by a reduction in other manufacturing costs
as a result of scale efficiencies on higher production volumes and
improvements in production yields.
RESEARCH & DEVELOPMENT. In the last two years, the Company has introduced
the MAX 9000, FLEX 10K and MAX 7000S families of products, two major new
software releases, and several new package technologies. Additionally, the
Company has redesigned a number of its products to accommodate their
manufacture using new wafer fabrication processes, including a new
eight-inch wafer process using triple-layer metal technology.
13
<PAGE> 7
MANAGEMENT'S DISCUSSION & ANALYSIS OF FINANCIAL
CONDITIONS & RESULTS OF OPERATIONS
The increase in research and development expenditures as a percentage of
sales from 8% in 1995 to 10% in 1996 is primarily associated with the
transition of several of the Company's newer products to more advanced
process geometries, as well as prototype and pre-production expenditures
related to the MAX 7000S, MAX 9000 and FLEX 10K product families.
The research and development expenditures for 1994 included a $23.7 million
non-recurring charge related to "research and development in-process" in
conjunction with the purchase of the Intel programmable logic business.
Excluding this charge, research and development expenditures increased by
52% from 1994 to 1995. The increase was driven by larger expenditures for
the design of new products, including more design engineering labor,
prototype wafers, and masks. Also contributing to the increase in 1995 were
the higher labor expenses for the development of software to support new
products and design environments, and pre-production costs related to the
introductions of the MAX 9000 and FLEX 10K families.
SELLING, GENERAL & ADMINISTRATIVE. Selling, general, and administrative
expenses for 1996 increased 18% from 1995 but slightly decreased as a
percentage of sales. From 1994 to 1995, selling, general, and
administrative expenses increased 63%, but decreased as a percentage of
sales from 23% to 19%.
Selling, general, and administrative expenses include commission and
incentive expenses, advertising and promotional expenditures, legal, and
salary expenses related to field sales, marketing, and administrative
personnel. The increases over the last three years are mainly driven by
higher marketing and field sales headcount, new offices both domestically
and internationally, increases in advertising and promotional expenditures,
and higher commissions due to increased sales. As a percentage of sales,
selling, general, and administrative expenses were lower in 1995 than 1994
due to the growth in sales outpacing the increase in expenses in 1995.
Altera has approximately twenty field sales offices and markets its
products through distributors, representatives, and its own direct sales
force. Approximately 85% of the Company's worldwide sales are made through
distributors. The Company will continue to increase sales resources in
markets and regions where it anticipates such actions will increase sales
or improve customer service.
OPERATING INCOME. Operating income in 1996 was $168.1 million, compared to
$134.3 million in 1995. The 25% increase in operating income from 1995 to
1996 is commensurate with the increase in sales. The 1994 operating income
of $29.4 million includes a $23.7 million charge for research and
development in-process. Excluding this charge, operating income for 1994
was $53.1 million or 27% of
14
<PAGE> 8
MANAGEMENT'S DISCUSSION & ANALYSIS OF FINANCIAL
CONDITIONS & RESULTS OF OPERATIONS
sales compared to 33% of sales in 1995. On this basis, the operating income
as a percentage of sales increased from 1994 to 1995, as strong sales
growth outpaced increases in operating expenses.
INTEREST EXPENSE. Interest expense increased from $7.4 million in 1995 to
$12.3 million in 1996. The expense relates to the convertible notes issued
in June 1995 and includes interest expense and amortization of $7.4
million of debt issuance costs, partially offset in 1996 by capitalized
interest of approximately $1.7 million related to the construction of the
new headquarters.
INTEREST AND OTHER INCOME, NET. Interest and other income increased from
$11.0 million in 1995 to $13.3 million in 1996 as a result of increased
cash balances available for investment throughout the year. In 1995,
increased cash balances, as a result of the issuance of the convertible
notes in 1995, combined with higher interest rates, increased interest
income to $11.0 million, compared to $2.9 million in 1994.
TAXES. Altera's tax rate was 35% in 1996, compared to 37% in 1995 and 54%
in 1994. The decrease of the rate in 1996 is primarily due to an increased
amount of earned interest income from tax exempt investments and research
and development credits. The higher rate in 1994 resulted from the tax
treatment of the research and development in-process charge. Excluding the
effect of the research and development in-process charge, the effective
rate was 37% in 1994, which is consistent with the 1995 rate.
FUTURE RESULTS. Future operating results will depend on the Company's
ability to develop, manufacture, and sell complicated semiconductor
components and complex software that offer customers greater value than
solutions offered by competing vendors. The Company's efforts in this
regard may not be successful. Also, a number of factors outside of the
Company's control, including general economic conditions and cycles in
world markets, exchange rate fluctuations, or a lack of growth in the
Company's end markets could adversely impact future results. The Company is
highly dependent upon subcontractors to manufacture silicon wafers and
perform assembly and testing services. Disruptions or adverse supply
conditions arising from market conditions, political strife, labor
disruptions, natural or man-made disasters, normal process fluctuations,
variances in manufacturing yields, and other factors could have adverse
consequences on the Company's future results. Additionally, litigation
relating to competitive patents and intellectual property, competitive
breakthroughs, and aggressive competitive pricing could also adversely
affect future operating results.
15
<PAGE> 9
MANAGEMENT'S DISCUSSION & ANALYSIS OF FINANCIAL
CONDITIONS & RESULTS OF OPERATIONS
For instance, in 1994, the Company found it necessary to significantly
reduce the prices for its FLEX 8000 family of products in order to
stimulate customer interest and design activity. At various times in 1996,
the Company reduced the book prices on the MAX 7000, FLEX 8000, MAX 9000
and FLEX 10K product families in order to attract customers and expand
market share. The Company expects price competition and other competitive
pressures to continue. Because of the foregoing and other factors that
might affect the Company's operating results, past financial performance
should not be considered an indicator of future performance, and investors
should not use historical trends to anticipate future results. In addition,
the cyclical nature of the semiconductor industry and other factors have
resulted in a highly volatile price of the Company's common stock.
LIQUIDITY AND CAPITAL RESOURCES
OPERATING ACTIVITIES. During 1996, the Company generated $98.2 million in
net cash from operating activities which was primarily attributable to net
income of $109.1 million adjusted by non-cash items including depreciation
and amortization of $20.9 million and an increase in accrued liabilities
of $17.0 million. Offsetting these were increases in deferred taxes of
$8.1 million, accounts receivable of $14.0 million, and inventories of
$20.4 million and a decrease in accounts payable of $8.2 million. These
increases in the use of cash were primarily the result of an increase in
sales volume from 1995 to 1996.
INVESTING ACTIVITIES. Net cash used in investing activities for 1996 was
$55.7 million. The Company's principal investing activities have been
investments in a joint-venture called WaferTech, LLC (WaferTech) of $84.2
million, the construction of a multiple-building corporate headquarters of
$27.0 million and routine capital expenditures of $18.2 million. These
investing activities were partially funded by the sale of $75.7 million of
short-term investments.
Capital expenditures for 1996 amounted to $45.2 million, of which $27.0
million related to the construction of a multiple-building corporate
headquarters. During 1996, the Company started the construction of 500,000
square feet of office and light manufacturing space on a new site which was
purchased in 1995. The construction is expected to be completed in 1997.
The remaining capital expenditures in 1996 consisted of additional test and
automated handling capacity to accommodate increased sales and more
rigorous test requirements of the Company's newer products. Altera's
16
<PAGE> 10
MANAGEMENT'S DISCUSSION & ANALYSIS OF FINANCIAL
CONDITIONS & RESULTS OF OPERATIONS
capital expenditures in the past three years, excluding the land purchase
in 1995 and the headquarters construction in 1996, have been primarily for
semiconductor design and test equipment, as well as data processing
software and equipment.
In June 1996, Altera, Taiwan Semiconductor Manufacturing Corporation
(TSMC), and several other partners formed WaferTech, a joint-venture
company, to build and operate a wafer manufacturing plant in Camas,
Washington. In return for a $140.4 million cash investment, Altera will
receive 18% equity ownership in the joint-venture company and certain
rights to procure output from the fab at market price. The investment is to
be made in three installments of which the first two were made in 1996. The
remaining installment amounts to $56.2 million and is due in November 1997.
In addition, the Company has an obligation to guarantee a pro rata share of
debt incurred by WaferTech, up to a maximum of $45 million.
FINANCING ACTIVITIES. In 1996, the Company used $51.2 million of cash for
financing activities, consisting primarily of payments on the notes payable
to secure wafer capacity of $57.1 million and the repurchase of 300,000
shares of common stock of $4.3 million. Cash used by financing activities
in 1996 was partially offset with the proceeds from common stock issued
under the Company's Stock Option and Employee Stock Purchase Plans. In
1995, the Company also generated funds from the issuance of $230.0 million
of convertible subordinated notes. The convertible subordinated notes are
due in June of 2002 and bear an interest rate of 5.75%, payable
semiannually. The notes are convertible at the option of the holder into
shares of the Company's common stock at a price of $25.59 per share.
Discounts, commissions, and expenses, which are amortized over the
seven-year life of the notes, reduced the proceeds to $224.8 million. The
notes are callable by the Company no sooner than June of 1998.
At December 31, 1996, Altera had $280.9 million of cash, cash equivalents,
and short-term investments available to finance future growth, $56.2
million of short-term obligations and $230.0 million of long-term debt.
Management believes that operational capital expenditures in 1997 will
increase from 1996 commensurate with sales growth. In addition, the
Company expects $50 to $55 million of costs in 1997 related to the
construction of its corporate headquarters. Altera believes the
available sources of funds and the cash expected to be generated from
operations will be adequate to finance current operations, the remaining
obligation to WaferTech, and capital expenditures through at least 1997.
17
<PAGE> 11
MANAGEMENT'S DISCUSSION & ANALYSIS OF FINANCIAL
CONDITIONS & RESULTS OF OPERATIONS
EMPLOYEES
Over the course of 1996, the number of regular employees increased 4% to
918 at year end. Sales per employee were $553,000 in 1996 compared to
$519,000 in 1995, and $335,000 in 1994.
IMPACT OF CURRENCY & INFLATION
The Company purchases the majority of its materials and services in U.S.
dollars, and its foreign sales are also billed in U.S. dollars. However,
certain contracts for silicon wafer purchases are denominated in Japanese
yen, and the volume of such contracts increased significantly in 1994, 1995
and 1996. The appreciation of the U.S. dollar with respect to the yen had a
positive impact on the Company's margin during 1996. The increase of
yen-denominated purchases in 1995 and the declining value of the dollar
with respect to the yen had an adverse impact on the Company's margins
during the first six months of 1995. The Company was able to mitigate much
of that impact with improved yields and efficiencies. In addition, in the
third quarter of 1995, the Company purchased yen forward contracts in an
amount approximately equal to its expected yen requirements for that
quarter. As of December 31, 1995 and throughout 1996, the Company had no
open foreign exchange contracts for the purchase or sale of foreign
currencies. If market conditions change, however, Altera may choose to bill
foreign customers in local currencies. In addition, the impact of other
foreign currency exchange rate fluctuations may be material in the future,
as a result of increased foreign currency fluctuations or increased
material purchases in yen. The effects of inflation upon Altera's financial
results have not been significant to date.
18
<PAGE> 12
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS December 31
------------------------
(In thousands) 1996 1995
- -----------------------------------------------------------------------------------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 70,788 $ 79,409
Short-term investments 210,062 285,810
-------- --------
Total cash, cash equivalents, and
short-term investments 280,850 365,219
Accounts receivable, less allowance for doubtful
accounts of $2,399 and $1,005 68,486 54,518
Inventories 75,798 55,421
Deferred income taxes 45,402 37,339
Other current assets 2,451 5,510
-------- --------
Total current assets 472,987 518,007
Property and equipment, net 89,804 54,846
Investments 206,671 131,331
Other assets 8,750 11,370
-------- --------
$778,212 $715,554
======== ========
</TABLE>
LIABILITIES & SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------
<S> <C> <C>
Current liabilities:
Accounts payable $ 13,279 $ 17,049
Accrued liabilities 89,209 72,209
Notes payable and short-term obligations 56,160 61,920
Accrued compensation 14,136 16,347
Income taxes payable 5,183 4,240
-------- --------
Total current liabilities 177,967 171,765
Notes payable -- 58,600
Convertible notes 230,000 230,000
-------- --------
Total liabilities 407,967 460,365
-------- --------
Commitments and contingencies (Notes 5, 6, 7, 8)
Shareholders' equity:
Common stock; no par value; 160,000 shares
authorized; 87,604 and 87,117 shares
issued and outstanding 90,644 83,445
Retained earnings 279,601 171,744
-------- --------
Total shareholders' equity 370,245 255,189
-------- --------
$778,212 $715,554
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 13
CONSOLIDATED STATEMENTS OF OPERATIONS &
SHAREHOLDERS' EQUITY OPERATIONS
<TABLE>
<CAPTION>
OPERATIONS YEAR ENDED DECEMBER 31
-------------------------------------------
(In thousands, except per share amounts) 1996 1995 1994
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Sales $497,306 $401,598 $198,796
Cost of sales 191,958 158,808 77,672
-------- -------- --------
Gross profit 305,348 242,790 121,124
Research and development 49,513 33,849 22,249
Research and development in process -- -- 23,745
Selling, general, and administrative 87,742 74,658 45,771
-------- -------- --------
Income from operations 168,093 134,283 29,359
Interest expense (12,284) (7,401) --
Interest and other income, net 13,328 11,009 2,137
-------- -------- --------
Income before income taxes 169,137 137,891 31,496
Provision for income taxes 60,002 51,020 16,888
-------- -------- --------
Net income $ 109,135 $ 86,871 $ 14,608
========= ========= ========
Primary net income per share $ 1.19 $ 0.95 $ 0.17
Fully diluted net income per share $ 1.15 $ 0.95 $ 0.17
- -------
Shares used in computing net income per share:
Primary 91,824 91,154 86,492
Fully diluted 101,437 96,088 86,492
</TABLE>
SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Retained
(In thousands) Stock Earnings
- -------------------------------------------------------------------
<S> <C> <C>
Balance, December 31, 1993 $ 51,434 $ 70,265
Tax benefit resulting from stock
option transactions 2,265
Issuance of 4,319 shares 19,447
Net income 14,608
--------- ---------
Balance, December 31, 1994 73,146 84,873
Tax benefit resulting from stock
option transactions 5,269
Issuance of 1,165 shares 5,030
Net income 86,871
--------- ---------
Balance, December 31, 1995 83,445 171,744
Tax benefit resulting from stock
option transactions 4,492
Issuance of 787 shares 5,760
Repurchase of 300 shares (3,053) (1,278)
Net income 109,135
--------- ---------
Balance, December 31, 1996 $ 90,644 $ 279,601
========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 14
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31
(In thousands) 1996 1995 1994
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 109,135 $ 86,871 $ 14,608
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 14,604 9,269 7,001
Amortization 6,280 2,897 2,527
Research and development in process -- -- 23,745
Deferred taxes (8,063) (24,974) (4,568)
Changes in assets and liabilities:
Accounts receivable, net (13,968) (22,856) (9,804)
Inventories (20,377) (16,944) (12,235)
Other assets 3,059 (4,341) (825)
Accounts payable (8,160) 5,736 6,001
Accrued liabilities 17,000 37,553 10,799
Accrued compensation (2,211) 7,716 3,041
Income taxes payable 943 2,894 (2,107)
--------- --------- --------
Cash provided by operating activities 98,242 83,821 38,183
--------- --------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (45,172) (45,820) (10,509)
Acquisition of Intel programmable logic business -- -- (22,911)
Other long-term investments (86,240) (500) (600)
Net change in short-term investments 75,748 (234,855) 13,850
--------- --------- --------
Cash used for investing activities (55,664) (281,175) (20,170)
--------- --------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Convertible notes -- 224,825 --
Payment of notes payable (57,120) -- --
Tax benefit from employee stock dispositions 4,492 5,269 2,265
Net proceeds from issuance of common stock 5,760 5,030 4,529
Repurchase of common stock (4,331) -- --
--------- --------- --------
Cash provided by (used for) financing activities (51,199) 235,124 6,794
--------- --------- --------
Net increase (decrease) in cash and cash equivalents (8,621) 37,770 24,807
Cash and cash equivalents at beginning of year 79,409 41,639 16,832
--------- --------- --------
Cash and cash equivalents at end of year $ 70,788 $ 79,409 $ 41,639
========= ========= ========
Cash paid during the year for:
Income taxes $ 62,347 $ 64,122 $ 21,106
Interest 13,225 6,392 --
Supplemental disclosure of non-cash
activities:
Cancellation of notes payable related to
wafer capacity 63,400 -- --
Remaining obligation related to
WaferTech 56,160 -- --
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 15
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: COMPANY & BUSINESS
Altera Corporation (Altera or the Company) designs, develops,
manufactures, and markets CMOS programmable logic integrated circuits
and associated engineering development software and hardware. The
Company's major markets are communications, computing, and industrial
applications.
The Company's export sales were $231.7, $187.4, and $95.5 million for
1996, 1995, and 1994, respectively. Sales to Europe were $103.8, $84.2,
and $42.6 million and sales to Japan were $94.8, $78.9, and $37.6
million in 1996, 1995, and 1994, respectively. In 1996, the two largest
distributors accounted for 29% and 15% of sales. In 1995, the two
largest distributors accounted for 21% and 15% of sales, whereas in
1994, they each accounted for 15% and 14% of sales, respectively.
NOTE 2: SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION. Altera has a fiscal year that ends on the Friday
nearest December 31st. For presentation purposes, the consolidated
financial statements and notes refer to the calendar month end. The
consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries after elimination of all significant
intercompany balances and transactions. The preparation of financial
statements in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that affect the
reported amounts; actual results could differ from those estimates.
CASH EQUIVALENTS & SHORT-TERM INVESTMENTS. Cash equivalents consist of
highly liquid investments with original maturities of three months or
less. Short-term investments are held as securities available for sale
and are carried at their market value as of the balance sheet date
which approximated cost. The amortized cost of debt securities are
adjusted for amortization of premiums and accretion of discounts to
maturity. Such amortization is included in investment income. Realized
gains or losses are determined on the specific identification method
and are reflected in income. Net unrealized gains or losses are
recorded directly in shareholders' equity except that those unrealized
losses that are deemed to be other than temporary are reflected in
income.
INVENTORIES. Inventories are recorded at the lower of standard cost,
which approximates actual cost on a first-in-first-out basis, or
market. The inventories at December 31, 1996 and 1995, were comprised
of the following components:
<TABLE>
<CAPTION>
December 31
----------------------
(In thousands) 1996 1995
- ---------------------------------------------------------------
<S> <C> <C>
Purchased parts and raw materials $ 1,773 $ 2,067
Work in process 56,870 38,617
Finished goods 17,155 14,737
======= =======
Total inventories $75,798 $55,421
======= =======
</TABLE>
12
<PAGE> 16
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DEPRECIATION & AMORTIZATION. Depreciation and amortization are computed
using the straight-line method. Estimated useful lives of two to five
years are used for equipment and office furniture. Amortization of
leasehold improvements is computed using the shorter of the remaining
facility lease term or the estimated useful life of the improvements.
As of December 31, 1996, the costs of the building include $1.7 million
of capitalized interest incurred during the construction and
development period. Property and equipment at December 31, 1996 and
1995, was comprised of the following components:
<TABLE>
<CAPTION>
December 31
--------------------------
(In thousands) 1996 1995
- ---------------------------------------------------------------------------
<S> <C> <C>
Land $ 19,925 $ 19,925
Building 32,955 1,605
Equipment 75,453 64,703
Office furniture and equipment 9,508 4,908
Leasehold improvements 3,493 3,512
--------- --------
Property and equipment, at cost 141,334 94,653
Accumulated depreciation and amortization (51,530) (39,807)
========= ========
Property and equipment, net $ 89,804 $ 54,846
========= ========
</TABLE>
INTANGIBLES. The Company evaluates the recoverability of its intangible
assets in accordance with Statement of Financial Accounting Standard
No. 121 (FAS 121), "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to be Disposed of." FAS 121 requires
recognition of impairment of long-lived assets in the event the net
book value of such assets exceeds the future undiscounted cash flows
attributable to such assets.
REVENUE RECOGNITION. The Company recognizes revenue from product sales
upon shipment. Product sales to distributors are made under agreements
allowing a limited right-of-return and price adjustments under certain
circumstances. Estimated returns and allowances are recorded at the
time of shipment. Accrued liabilities include provisions for returns
and allowances of $68.3 million and $54.5 million at December 31, 1996
and 1995, respectively.
FOREIGN EXCHANGE CONTRACTS. The Company purchases the majority of its
materials and services in U.S. dollars and its foreign sales are also
billed in U.S. dollars. However, certain contracts for silicon wafer
purchases are denominated in Japanese yen. At times, the Company enters
into foreign exchange option or forward contracts to hedge against
currency fluctuations which affect these transactions. As of December
31, 1996, the Company had no open foreign exchange contracts for the
purchase or sale of foreign currencies, but may choose to enter into
such contracts in the future should conditions appear favorable. No
assurance can be given that any of these arrangements will protect the
Company from the effects on its operation of currency fluctuations.
23
<PAGE> 17
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
INCOME PER SHARE. Primary income per share is computed using the
weighted average number of common and dilutive common equivalent shares
outstanding during the year. Dilutive common equivalent shares consist
of the assumed net shares issuable upon the exercise of dilutive stock
options using the treasury stock method. The convertible subordinated
notes issued in June 1995 are not common stock equivalents and,
therefore, have been excluded from the computation of primary earnings
per share.
Fully diluted net income per share assumes the conversion of the
convertible subordinated notes into shares of common stock, the
elimination of the related interest requirements, net of income taxes,
and the dilutive effect of the stock options.
STOCK SPLITS. All share data have been retroactively restated to
reflect a 2-for-1 split of the Company's outstanding common stock which
was reflected in the stock price as of January 7, 1997 and was
effective as to the shareholders of record on December 18, 1996. The
share data had also been adjusted in 1995 to reflect a 2-for-1 stock
split which was reflected in the stock price as of June 1, 1995 and was
effective as to the shareholders of record on May 10, 1995.
STOCK-BASED COMPENSATION PLANS. The Company accounts for stock-based
compensation using the intrinsic value method prescribed in Accounting
Principles Board Opinion (APB) No. 25, "Accounting for Stock Issued to
Employees," and related Interpretations. Under APB No. 25, compensation
cost is measured as the excess, if any, of the quoted market price of
the Company's stock at the date of grant over the exercise price of the
option granted. Compensation cost for stock options, if any, is
recognized ratably over the vesting period. The Company's policy is to
grant options with an exercise price equal to the quoted market price
of the Company's stock on the grant date. Accordingly, no compensation
has been recognized for its stock option plans. The Company provides
additional pro forma disclosures as required under Statement of
Financial Accounting Standards (FAS) 123, "Accounting for Stock-Based
Compensation". See Note 9.
FAIR VALUE OF FINANCIAL INSTRUMENTS. For certain of the Company's
financial instruments, including cash and cash equivalents, short-term
investments, accounts receivable, notes payable and accounts payable,
the carrying amounts approximate fair value due to their short
maturities. The estimated fair value for the convertible notes (with a
carrying amount of $230 million at December 31, 1996) is approximately
$354 million. The fair value for the convertible notes is primarily
based on quoted market prices.
CONCENTRATIONS OF CREDIT RISK. Financial instruments that potentially
subject the Company to concentrations of credit risk consist
principally of cash and cash equivalents, short-term investments and
accounts receivable. The Company places its short-term investments in a
variety of financial instruments and, by policy, limits the amount of
credit exposure through diversification and highly rated securities.
The Company sells its products to distributors and original equipment
manufacturers throughout the world. The Company performs ongoing credit
evaluations of its customers' financial condition and, generally,
requires collateral, such as letters of credit, whenever deemed
necessary.
24
<PAGE> 18
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DEPENDENCE ON WAFER SUPPLIERS. The Company does not directly
manufacture finished silicon wafers. The Company's strategy has been to
maintain relationships with semiconductor manufacturers for the
production of its wafers. The Company has been successful in
maintaining such relationships (Notes 5 and 6). However, there can be
no assurance that the Company will be able to satisfy its future wafer
needs from current or alternative manufacturing sources. This could
result in possible loss of sales or reduced margins.
NOTE 3: MARKETABLE SECURITIES
At December 31, 1996 and 1995, the carrying value of the Company's
portfolio of marketable securities approximated fair value. The
portfolio consists of the following:
<TABLE>
<CAPTION>
December 31
-----------------------
(In thousands) 1996 1995
-------------------------------------------------------------------------------
<S> <C> <C>
Money market funds $ 19,951 $ 48,800
Municipal bonds 218,295 104,600
U.S. Government and agency obligations 13,112 175,000
Corporate bonds 9,190 11,400
Other debt securities 8,432 20,100
======== =========
$268,980 $ 359,900
======== =========
</TABLE>
At December 31, 1996 and 1995, the net unrealized holding gains and
losses on securities were immaterial. The marketable securities at
December 31, 1996, and 1995 by contractual maturity are shown below.
<TABLE>
<CAPTION>
December 31
-------------------------
(In thousands) 1996 1995
--------------------------------------------------------------------
<S> <C> <C>
Due in one year or less $ 96,056 $164,000
Due after one year through two years 172,924 195,900
======== ========
$268,980 $359,900
======== ========
</TABLE>
NOTE 4: ACQUISITION
On October 1, 1994, Altera purchased Intel Corporation's Programmable
Logic Device (PLD) product line, including certain directly associated
capital equipment, a credit toward the purchase of inventory, and
certain intellectual property. The PLD product line was purchased for a
price of $37.8 million, consisting of $22.9 million in cash and
2,805,400 shares of the Company's common stock (valued at $14.9
million). The transaction was accounted for as a purchase. The excess
of the purchase price over the fair market value of the net tangible
assets acquired was allocated to research and development in process
($23.7 million), and to acquired technology ($7.0 million) that is
being amortized over four years on a straight-line basis. At December
31, 1996 and 1995, the accumulated amortization related to the acquired
technology amounted to $3.9 million and $2.2 million, respectively.
25
<PAGE> 19
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Had the acquisition of the PLD product line occurred as of the
beginning of 1994, unaudited sales, net income, and net income per
share presented on a pro forma basis for the year ended December 31,
1994, would have been $224.5 million, $29.7 million, and $0.34,
respectively.
NOTE 5: INVESTMENTS AND OBLIGATIONS
At December 31, 1996, Altera's long-term investments primarily relate
to an investment in WaferTech, LLC (WaferTech) of $140.4 million,
deposits with Taiwan Semiconductor Manufacturing Corporation (TSMC) for
future wafer allocations of $57.1 million (Note 6) and the Company's
investment in Cypress Semiconductor (Texas) Inc. (CSTI), a subsidiary
of Cypress Semiconductor Corporation of $9.1 million.
In June 1996, Altera, TSMC, and several other partners formed
WaferTech, a joint-venture company, to build and operate a wafer
manufacturing plant in Camas, Washington. In return for a $140.4
million cash investment, Altera received an 18% equity ownership in the
joint-venture company and certain rights to procure output from the fab
at market price. The investment is to be made in three installments of
which the first two were made in June and November of 1996 in equal
amounts of $42.1 million. The remaining installment amounts to $56.2
million and is due in November 1997. In addition, the Company has an
obligation to guarantee a pro rata share of debt incurred by WaferTech,
up to a maximum of $45.0 million. The Company accounts for this
investment under the equity method based on the Company's ability to
exercise significant influence on the operating and financial policies
of WaferTech. The Company's share of WaferTech's net income for 1996
was immaterial. Altera owns a 17% equity interest in CSTI and has
the right to purchase a percentage of the wafers produced by CSTI
approximately equal to the Company's percentage ownership of CSTI.
The Company accounts for this investment under the cost method.
NOTE 6: NOTES PAYABLE
In 1995, the Company entered into several agreements with TSMC, whereby
it agreed to make certain deposits to TSMC for future wafer capacity
allocations extending into 2001. The Company made cash deposits
amounting to $2.4 million in 1995 and issued promissory notes for
$120.5 million representing partial prepayments for wafers to be
supplied under these agreements. During the second quarter of 1996, the
Company and TSMC renegotiated these agreements, resulting in the
cancellation of all notes payable and a refund of certain prepayments,
except for a $57.1 million prepayment made in January 1996 for wafer
capacity from 1997 through 2000.
Under the terms of the agreement related to the $57.1 million
prepayment, TSMC agrees to provide the Company with wafers manufactured
with TSMC processes and according to the Company's specifications, and
the Company agrees to purchase and TSMC agrees to supply, a specific
capacity of wafers per year through 2000. Subsequent billings for
actual wafers used from TSMC will reduce the prepaid balance. The
prepayments are generally
26
<PAGE> 20
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
nonrefundable if the Company does not purchase the full prepaid
capacity unless the Company identifies a third-party purchaser,
acceptable to TSMC, for the capacity.
NOTE 7: COMMITMENTS
The Company leases its headquarters facilities under non-cancelable
lease agreements. The major facility lease expires in July 1997. The
lease requires the Company to pay property taxes, insurance,
maintenance, and repair costs. Future minimum lease payments under all
non-cancelable operating leases as of December 31, 1996, are $1.3
million in 1997, and none thereafter. Rental expense under all
operating leases amounted to $4.0 million, $3.2 million, and $2.6
million in 1996, 1995, and 1994, respectively.
The Company has a standby letter of credit facility in the amount of
1.5 billion yen (approximately $13 million) which has been fully
utilized. The terms of this facility require immediate funding of any
draws against any letters of credit issued under the facility. The
facility requires the Company to comply with certain covenants
regarding net worth and financial ratios.
NOTE 8: CONVERTIBLE NOTES
In June 1995, the Company issued $230 million of convertible
subordinated notes due in June of 2002 and bearing an interest rate of
5.75%, payable semiannually. The notes are convertible into shares of
the Company's common stock at a price of $25.59 per share. Discounts,
commissions, and expenses, which are being amortized over the
seven-year life of the notes, reduced the net proceeds to $224.8
million. Accumulated amortization at December 31, 1996 and 1995
amounted to approximately $1.2 million and $0.4 million respectively.
The notes are callable by the Company no sooner than June of 1998.
NOTE 9: STOCK-BASED COMPENSATION PLANS
At December 31, 1996, the Company had four stock-based compensation
plans, which are described below. The Company applies APB Opinion 25
and related Interpretations in accounting for its plans. Accordingly,
no compensation cost has been recognized for its three fixed stock
option plans and its stock purchase plan.
STOCK OPTION PLANS. There are 16.2 million shares of common stock
reserved for issuance under the 1987 Stock Option Plan, 4.0 million
shares of common stock are reserved for issuance under the 1996 Stock
Option Plan and 940,000 shares of common stock are reserved for
issuance under the Company's 1988 Director Stock Option Plan. The
Director Stock Option Plan provides for the periodic issuance of stock
options to members of the Company's Board of Directors who are not also
employees of the Company. Under all Stock Option Plans, the exercise
price of each option equals the market price of the Company's common
stock on the date of grant and an option's maximum term is 10 years.
Options generally vest over five years at annual increments as
determined by the Board of Directors.
<PAGE> 21
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
The number of shares for which options were exercisable was
approximately 2,960,000, 2,050,000, and 1,864,000 at December 31, 1996,
1995, and 1994, respectively. A summary of the Company's stock option
activity and related weighted average exercise prices within each
category for each of the years ended December 31, 1996, 1995 and 1994
relating to the Company's stock option plans are as follows:
<TABLE>
<CAPTION>
1996 1995 1994
--------------------- --------------------- ---------------------
(Share amounts in thousands) Shares Price Shares Price Shares Price
------ ------ ------ ------ ------ -------
<S> <C> <C> <C> <C> <C> <C>
Options outstanding at January 1, 10,059 $ 3.02 9,128 $ 2.57 8,412 $ 2.24
Stock options:
Granted 3,433 26.25 2,346 22.60 2,561 7.40
Exercised (620) 28.54 (839) 2.91 (1,208) 2.27
Forfeited (372) 13.40 (576) 6.54 (637) 4.45
====== ====== ====== ====== ===== ======
Options outstanding at December 31, 12,500 $ 5.07 10,059 $ 3.02 9,128 $ 2.57
====== ====== ====== ====== ===== ======
</TABLE>
The fair value of each option grant, as defined by FAS 123, is
estimated on the date of grant using the Black-Scholes option-pricing
model. The Black-Scholes model, as well as other currently accepted
option valuation models, was developed to estimate the fair value of
freely tradable, fully transferable options without vesting
restrictions, which significantly differ from the Company's stock
option awards. These models also require highly subjective assumptions,
including future stock price volatility and expected time until
exercise, which greatly affect the calculated fair value grant date. To
compute the estimated grant date fair value of the Company's stock
option grants in 1996 and 1995, respectively, the Black-Scholes model
was used with the following weighted-average assumptions: expected
volatility of 36.4% and 34.6%, risk-free interest rates of 5.9% and
6.6%, expected lives from vesting date of 0.41 and 0.45 years, and
dividend yields of 0%.
The following table summarizes information about fixed stock options
outstanding at December 31, 1996:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------------------------------------------- -------------------------------
Number Weighted-Average Weighted- Number
Range of Outstanding Remaining Average Exercisable Weighted-Average
Exercise Prices at 12/31/96 Contractual Life Exercise Price at 12/31/96 Exercise Price
--------------- ------------ ---------------- -------------- ----------- ----------------
(in thousands) (in thousands)
<S> <C> <C> <C> <C> <C>
$1.81-$6.12 4,740 5.45 years $ 3.35 2,406 $ 2.75
$6.13-$9.25 2,015 7.45 $ 7.17 253 $ 7.27
$9.26-20.88 1,745 9.07 $17.37 100 $12.91
$20.89-$31.38 2,798 8.85 $24.30 192 $25.79
$31.39-$38.69 1,202 9.87 $34.92 9 $33.55
</TABLE>
EMPLOYEE STOCK PURCHASE PLAN Under the 1987 Employee Stock Purchase
Plan, the Company is authorized to issue up to 2.8 million shares of
common stock to its full-time employees, nearly all of whom are
eligible to
28
<PAGE> 22
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
participate. Under the terms of the Plan, employees can choose each
year to have up to 10 percent of their annual base earnings withheld to
purchase the Company's common stock. The purchase price of the stock is
85 percent of the lower of the closing price at the beginning or at the
end of each six-month offering period. Approximately 75 to 80 percent
of eligible employees have participated in the Plan in the last two
years.
Sales under the Employee Stock Purchase Plan in 1996, 1995 and 1994
were 167,626, 326,646, and 306,356 shares of common stock at an average
price of $21.49, $7.91 and $5.82 per share, respectively. At December
31, 1996, there were 351,332 shares available for future purchases
under the Employee Stock Purchase Plan.
Compensation cost (included in pro forma net income and net income per
share amounts) is recognized for the fair value of the employees'
purchase rights, which was estimated using the Black-Scholes model with
the following assumptions for 1996 and 1995, respectively: an expected
life of six months for both years; expected volatility of 38.4% and
30.7%; risk-free interest rates of 5.1% and 6.0%; and dividend yields
of 0%. The weighted-average fair value of those purchase rights granted
in 1996 and 1995, as defined by FAS 123, was $5.55, and $4.35,
respectively.
The Company received a $4.5 million, $5.3 million, and $2.3 million tax
benefit in 1996, 1995, and 1994, respectively, on the exercise of
non-qualified stock options and on the disposition of stock acquired
with an incentive stock option or through the Employee Stock Purchase
Plan.
PRO FORMA NET INCOME AND NET INCOME PER SHARE. Had the Company recorded
compensation costs based on the estimated grant date fair value, as
defined by FAS 123, for awards granted under its Stock Option Plans
and Stock Purchase Plan, the Company's net income and income per share
would have been reduced to the pro forma amounts below for the years
ended December 31, 1996 and 1995:
<TABLE>
<CAPTION>
1996 1995
------- -------
<S> <C> <C>
Pro forma net income (in thousands) $99,885 $83,815
Pro forma net income per share:
Primary $ 1.10 $ 0.92
Fully diluted $ 1.07 $ 0.92
</TABLE>
The pro forma amounts reflect compensation expense related to 1996 and
1995 stock option grants only. In future years, the annual compensation
expense will increase relative to the fair value of stock options
granted in those future years.
NOTE 10: COMMON STOCK REPURCHASE
On July 15, 1996, the Board of Directors authorized the repurchase of
up to 4 million shares of the Company's common stock. During July 1996,
the Company repurchased 300,000 shares of common stock for a total
price of $4.3 million. The repurchased shares were retired upon
acquisition.
<PAGE> 23
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 11: LITIGATION
In June 1993, Xilinx, Inc. (Xilinx) brought suit against the Company
seeking monetary damages and injunctive relief based on the Company's
alleged infringement of certain patents held by Xilinx. In June 1993,
the Company brought suit against Xilinx, seeking monetary damages and
injunctive relief based on Xilinx's alleged infringement of certain
patents held by the Company. In April 1995, the Company filed a
separate lawsuit against Xilinx in Delaware, Xilinx's state of
incorporation, seeking monetary damages and injunctive relief based on
Xilinx's alleged infringement of one of the Company's patents. In May
1995, Xilinx counterclaimed against the Company in Delaware, asserting
defenses and seeking monetary damages and injunctive relief based on
the Company's alleged infringement of certain patents held by Xilinx.
The Delaware case was transferred to California in March 1996 on
Xilinx's motion. The parties participated in court-ordered mediation in
1996 which to date has failed to result in settlement. Due to the
nature of the litigation with Xilinx and because the lawsuits are
still in the pre-trial stage, the Company's management
cannot estimate the total expense, the possible loss, if any, or the
range of loss that may ultimately be incurred in connection with the
allegations. Management cannot ensure that Xilinx will not succeed in
obtaining significant monetary damages or an injunction against the
manufacture and sale of the Company's MAX 5000, MAX 7000, FLEX 8000, or
MAX 9000 families of products, or succeed in invalidating any of the
Company's patents. Although no assurances can be given as to the
results of these cases, based on the present status, management does
not believe that any of such results will have a material adverse
effect on the Company's financial condition or results of operations.
In August 1994, Advanced Micro Devices (AMD) brought suit against the
Company seeking monetary damages and injunctive relief based on the
Company's alleged infringement of certain patents held by AMD. In
September 1994, Altera answered the complaint asserting that it is
licensed to use the patents which AMD claims are infringed and filed a
counterclaim against AMD alleging infringement of certain patents held
by the Company. The case was bifurcated to provide that a separate
trial on the issue of the scope of the existing cross-license agreement
between the parties will precede the trial on the infringement claims.
In June 1996, a trial held to resolve Altera's claim that it is
licensed to some or all of the AMD patents at issue in the case
resulted in a jury verdict in Altera's favor. Due to the nature of the
litigation with AMD and because the lawsuits have not been concluded,
the Company's management cannot estimate the total expense, the
possible loss, if any, or the range of loss that may ultimately be
incurred in connection with the allegations. Management cannot ensure
that AMD will not succeed in obtaining significant monetary damages or
an injunction against the manufacture and sale of the Company's
Classic, MAX 5000, MAX 7000, FLEX 8000, MAX 9000, FLEX 10K, and
FLASHlogic product families, or succeed in invalidating any of the
Company's patents. Although no assurances can be given as to the
results of these cases, based on the present status, management does
not believe that any of such results will have a material adverse
effect on the Company's financial condition or results of operations.
30
<PAGE> 24
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 12: INCOME TAXES
The components of the provision for income taxes were as follows:
<TABLE>
<CAPTION>
Year Ended December 31
------------------------------------------
(In thousands) 1996 1995 1994
- ------------------------------------------------------------------------------------
<S> <C> <C> <C>
Current tax expense:
United States $ 57,680 $ 64,931 $ 17,687
State 9,799 10,663 3,568
Foreign 586 400 200
-------- -------- --------
Total current tax expense 68,065 75,994 21,455
Deferred taxes (8,063) (24,974) (4,567)
======== ======== ========
Total provision for income taxes $ 60,002 $ 51,020 $ 16,888
======== ======== ========
</TABLE>
The 1994 tax provision includes taxes related to the acquisition of
Intel's programmable logic business.
Deferred tax assets (liabilities) were as follows:
<TABLE>
<CAPTION>
December 31
-------------------------
(In thousands) 1996 1995
- -----------------------------------------------------------------------
<S> <C> <C>
Assets:
Accrued expenses and reserves $ 38,404 $ 30,846
Acquisition costs 7,282 7,291
State taxes 3,675 3,325
Other 1,590 809
-------- --------
Gross deferred tax assets 50,951 42,271
Deferred tax liabilities (909) (186)
Deferred tax asset valuation allowance (4,640) (4,746)
======== ========
Net deferred tax assets $ 45,402 $ 37,339
======== ========
</TABLE>
The valuation allowances of $4.6 and $4.7 million at December 31, 1996
and 1995, respectively, are attributable to deferred tax assets from
the acquisition of Intel's programmable logic business. Sufficient
uncertainty exists regarding the realizability of these assets and,
accordingly, valuation allowances are required.
The provision for taxes reconciles to U.S. statutory taxes as follows:
<TABLE>
<CAPTION>
Year Ended December 31
------------------------------------------
(In thousands) 1996 1995 1994
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C>
Tax provision at U.S. statutory rates $ 59,198 $ 48,262 $ 11,024
State taxes, net of federal benefit 6,172 6,315 2,319
Foreign sales corporation (1,146) (2,033) (995)
Valuation allowance (106) (487) 5,233
Other, net (4,116) (1,037) (693)
======== ======== ========
Total provision for income taxes $ 60,002 $ 51,020 $ 16,888
======== ======== ========
</TABLE>
<PAGE> 25
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE SHAREHOLDERS AND BOARD OF DIRECTORS OF ALTERA CORPORATION:
In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of operations, shareholders' equity,
and cash flows present fairly, in all material respects, the financial
position of Altera Corporation and its subsidiaries at December 31,
1996 and 1995, and the results of their operations and their cash flows
for each of the three years in the period ended December 31, 1996, in
conformity with generally accepted accounting principles. 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 of
these statements in accordance with generally accepted auditing
standards which 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, assessing the accounting principles used and significant
estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable
basis for the opinion expressed above.
/s/ Price Waterhouse LLP
------------------------
San Jose, California
January 22, 1997
<PAGE> 1
EXHIBIT 21.1
SUBSIDIARIES OF THE REGISTRANT
<TABLE>
<CAPTION>
JURISDICTION YEAR
NAME OF INCORPORATION ORGANIZED
--------------------------------------- ---------------- ---------
<S> <C> <C>
Altera GmbH Germany 1989
Altera Foreign Sales Corporation Barbados 1989
Nihon Altera KK Japan 1990
Altera France SARL France 1990
Altera Italia SARL Italy 1991
Altera (UK) Limited United Kingdom 1992
Altera Corporation (m) Sdn. Bhd. Malaysia 1995
Altera B.V.B.A. Belgium 1996
Altera AB Sweden 1996
Altera International, Inc. Cayman Islands 1997
</TABLE>
24
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (No. 33-22877, No. 33-37159, No. 33-57350, No. 33-61085,
and No. 333-06859) of Altera Corporation of our report dated January 22, 1997
appearing on page 32 of the Annual Report to Shareholders which is incorporated
in this Annual Report on Form 10-K.
/s/ PRICE WATERHOUSE LLP
PRICE WATERHOUSE LLP
San Jose, California
March 21, 1997
21
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 70,788
<SECURITIES> 210,062
<RECEIVABLES> 68,486
<ALLOWANCES> 2,399
<INVENTORY> 75,798
<CURRENT-ASSETS> 472,987
<PP&E> 141,334
<DEPRECIATION> 51,530
<TOTAL-ASSETS> 778,212
<CURRENT-LIABILITIES> 177,967
<BONDS> 230,000
0
0
<COMMON> 90,644
<OTHER-SE> 279,601
<TOTAL-LIABILITY-AND-EQUITY> 778,212
<SALES> 497,306
<TOTAL-REVENUES> 497,306
<CGS> 191,958
<TOTAL-COSTS> 191,958
<OTHER-EXPENSES> 137,255
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 12,284
<INCOME-PRETAX> 169,137
<INCOME-TAX> 60,002
<INCOME-CONTINUING> 109,135
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 109,135
<EPS-PRIMARY> 1.19
<EPS-DILUTED> 1.15
</TABLE>
