UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------------
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1996
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission file number 0-21970
---------------------------
ACTEL CORPORATION
(Exact name of Registrant as specified in its charter)
California 77-0097724
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
955 East Arques Avenue
Sunnyvale, California 94086-4533
(Address of principal executive (Zip Code)
offices)
(408) 739-1010
(Registrant's telephone number, including area code)
---------------------------
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
Number of shares of Common Stock outstanding as of May 9, 1996:
17,757,698.
<PAGE>
PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements.
ACTEL CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS
(unaudited, in thousands except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-------------------------
1996 1995
----------- -----------
<S> <C> <C>
Net revenues......................................................................... $ 35,043 $ 19,518
Costs and expenses:
Cost of revenues.................................................................. 15,769 9,624
Research and development.......................................................... 6,011 4,443
Selling, general, and administrative.............................................. 8,308 5,367
In-process research and development............................................... -- 16,600
----------- -----------
Total costs and expenses.................................................... 30,088 36,034
----------- -----------
Income (loss) from operations........................................................ 4,955 (16,516)
Interest expense..................................................................... (3) (16)
Interest income and other, net....................................................... 292 264
----------- -----------
Income (loss) before tax provision (benefit)......................................... 5,244 (16,268)
Tax provision (benefit).............................................................. 1,967 (6,640)
Net income (loss).................................................................... $ 3,277 $ (9,628)
=========== ===========
Net income (loss) per share.......................................................... $ 0.16 $ (0.56)
=========== ===========
Shares used in computing net income (loss) per share................................. 21,068 17,200
=========== ===========
</TABLE>
<PAGE>
ACTEL CORPORATION
CONSOLIDATED BALANCE SHEET
(unaudited, in thousands)
<TABLE>
<CAPTION>
Mar. 31, Dec. 31,
1996 1995
------------ ------------
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents....................................................... $ 23,934 $ 17,691
Short-term investments.......................................................... -- 2,296
Accounts receivable, net........................................................ 15,791 17,805
Inventories..................................................................... 25,091 27,726
Other current assets............................................................ 12,782 12,401
------------ ------------
Total current assets...................................................... 77,598 77,919
Property and equipment, net........................................................ 16,304 15,674
Investment in foundry.............................................................. 10,680 7,069
Other assets....................................................................... 6,255 6,457
------------ ------------
$ 110,837 $ 107,119
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable................................................................ $ 9,073 $ 11,995
Accrued salaries and employee benefits.......................................... 2,160 3,108
Other accrued liabilities....................................................... 4,859 3,735
Deferred income................................................................. 21,377 19,148
Current portion of capital lease obligations.................................... 49 66
------------ ------------
Total current liabilities................................................. 37,518 38,052
Commitments
Redeemable convertible preferred stock............................................. 18,147 18,147
Shareholders' equity:
Common Stock.................................................................... 18 18
Additional paid-in capital...................................................... 60,617 59,638
Accumulated deficit............................................................. (5,463) (8,736)
------------ ------------
Total shareholders' equity................................................ 55,172 50,920
------------ ------------
$ 110,837 $ 107,119
============ ============
</TABLE>
<PAGE>
ACTEL CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(unaudited, in thousands)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
---------------------------
1996 1995
------------ ------------
<S> <C> <C>
Operating activities:
Net income (loss)............................................................... $ 3,277 $ (9,628)
Adjustments to reconcile net income (loss) to net cash provided by operating
activities:
Depreciation and amortization................................................. 1,415 807
Inprocess research and development........................................... -- 16,600
Changes in operating assets and liabilities:
Accounts receivable......................................................... 2,014 (1,752)
Inventories................................................................. 2,635 181
Other current assets........................................................ (381) (84)
Accounts payable and accrued liabilities.................................... (2,746) (420)
Deferred income............................................................. 2,229 2,610
------------ ------------
Net cash provided by operating activities....................................... 8,443 8,314
------------ ------------
Investing activities:
Purchase of TI FPGA business.................................................... -- (10,000)
Purchases of property and equipment............................................. (1,826) (1,222)
Sales and maturities of shortterm investments.................................. 2,292 5,758
Investment in foundry........................................................... (3,611) (3,033)
Other assets.................................................................... (17) (6,641)
------------ ------------
Net cash used in investing activities........................................... (3,162) (15,138)
------------ ------------
Financing activities:
Sale of common stock, net of repurchases........................................ 979 796
Proceeds from line of credit.................................................... -- 4,500
Payments on line of credit...................................................... -- (250)
Principal payments under notes payable and capital lease obligations............ (17) (208)
------------ ------------
Net cash provided by financing activities....................................... 962 4,838
------------ ------------
Net increase (decrease) in cash and cash equivalents............................... 6,243 (1,986)
Cash and cash equivalents, beginning of period..................................... 17,691 7,314
------------ ------------
Cash and cash equivalents, end of period........................................... $ 23,934 $ 5,328
============ ============
Supplemental disclosures of cash flows information and noncash investing and
financing activities:
Cash paid for interest.......................................................... $ 2 $ 16
Cash paid for taxes............................................................. 1,349 292
Preferred stock issued as partial consideration for the TI FPGA business, net of
estimated future issuance costs................................................. -- 18,147
</TABLE>
<PAGE>
ACTEL CORPORATION
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(UNAUDITED)
1. Basis of Presentation and Summary of Significant Accounting Policies
The accompanying unaudited consolidated financial statements of Actel
Corporation (the "Company") have been prepared in accordance with generally
accepted accounting principles for interim financial information and with the
instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, these
financial statements do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements. In the opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation have been
included.
The consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiaries. All significant intercompany accounts
and transactions have been eliminated in consolidation. Certain
reclassifications have been made to prior year amounts in order to conform to
the current presentation.
The financial statements should be read in conjunction with the audited
financial statements included in the Company's Annual Report to Shareholders for
the year ended December 31, 1995.
The Company uses a thirteen week quarter for quarterly financial
reporting. For ease of presentation, the accompanying quarterly financial
statements have been shown as ending on the last day of the calendar quarter.
The results of operations for the three months ended March 31, 1996,
are not necessarily indicative of results that may be expected for the entire
year ending December 29, 1996.
2. Inventories
Inventories consist of the following:
<TABLE>
<CAPTION>
Mar. 31, Dec. 31,
1996 1995
----------- -----------
<S> <C> <C>
Inventories:
Purchased parts and raw materials............................... $ 1,377 $ 1,357
Work-in-process................................................. 16,925 18,326
Finished goods.................................................. 6,789 8,043
----------- -----------
$ 25,091 $ 27,726
=========== ===========
</TABLE>
Inventories are stated at the lower of cost (first-in, first-out) or
market (net realizable value). Given the volatility of the market for the
Company's products, the Company makes inventory provisions for potentially
excess and obsolete inventory based on backlog and forecast demand. However,
such backlog demand is subject to revisions, cancellations, and rescheduling.
Actual demand will inevitably differ from such backlog and forecast demand, and
such differences may be material to the financial statements. Excess inventory
increases handling costs and the risk of obsolescence, is a non-productive use
of capital resources, and delays realization of the price and performance
benefits associated with more advanced manufacturing processes.
3. Provision for Taxes
The Company's effective tax rate for the three months ended March 31,
1996, was 37.5%. This rate is based on the estimated annual tax rate complying
with Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes." This rate differs from the federal statutory rate due primarily to state
income taxes (net of federal benefit) and recognition of certain deferred tax
assets subject to valuation allowances as of December 31, 1995.
4. Earnings Per Share
Earnings per common and common equivalent share as presented on the
face of the statements of income represent primary earnings per share. Dual
presentation of primary and fully diluted earnings per share has not been made
because the differences are insignificant.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Results of Operations
Net Revenues
The Company's net revenues for the first quarter of fiscal 1996 were
$35.0 million, which represents an increase of 8% compared with the Company's
net revenues for the fourth quarter of 1995 and an increase of 80% compared with
the Company's net revenues for the first quarter of 1995. The year-to-year
growth in quarterly net revenues resulted principally from the Company's
acquisition during the first quarter of 1995 of the antifuse field programmable
gate array ("FPGA") business of Texas Instruments Incorporated ("TI"), and
therefore is not indicative of the results for any future period. The Company's
acquisition of TI's antifuse FPGA business had a negative effect on net revenues
for the first quarter of 1995, due principally to TI's aggressive second-source
pricing before the acquisition, and a positive effect on net revenues for the
first quarter of 1996.
The Company derives its revenues primarily from the sale of FPGAs and
development systems. In addition, before its acquisition of TI's antifuse FPGA
business, the Company received royalties from TI. Net revenues from the sale of
FPGAs accounted for 97% of net revenues in the first quarter of 1996, compared
with 97% of net revenues in the fourth quarter of 1995 and 89% of net revenues
in the first quarter of 1995.
Net revenues from the sale of FPGAs in the first quarter of 1996
increased 8% compared with the fourth quarter of 1995 and 97% compared with the
first quarter of 1995. The sequential growth in quarterly net revenues from the
sale of FPGAs was due primarily to a 3% increase in units sales and a 5%
increase in the overall average selling price of FPGAs. The overall average
selling price increase was due principally to increased sale of higher-density
FPGAs, which have higher average selling prices. The year-to-year growth in
quarterly net revenues from the sale of FPGAs was due primarily to an 88%
increase in units sales and a 4% increase in the overall average selling price
of FPGAs. The increase in unit sales resulted predominantly from the Company's
acquisition of TI's FPGA business.
As is typical in the semiconductor industry, the average selling prices
of the Company's products generally decline over the lives of such products. To
increase revenues, the Company seeks to increase unit sales of existing
products, principally by reducing prices, and to introduce and sell new
products. No assurance can be given that these efforts will be successful.
Gross Margin
Gross margin for the first quarter of 1996 was 55% of net revenues,
compared with 53% of net revenues for the fourth quarter of 1995 and 51% of net
revenues for the first quarter of 1995.
The sequential improvement in quarterly gross margin resulted
principally from improved manufacturing yields and appreciation in the value of
the United States dollar versus the Japanese yen, in which a significant
percentage of the Company's wafer purchases are denominated. The Company's gross
margin in the first quarter of 1996 also benefited from increased sales of
higher-density FPGAs, which tend to have higher margins.
The year-to-year improvement in quarterly gross margin resulted
principally from the Company's acquisition of TI's FPGA business, which has
positively influenced the Company's net revenues and overall average selling
price. As discussed above, the Company's gross margin in the first quarter of
1996 also benefited from improved manufacturing yields and favorable currency
exchange fluctuations.
As is typical in the semiconductor industry, margins on the Company's
products generally decline as the average selling prices of such products
decline. The Company seeks to offset margin erosion by selling a higher
percentage of new products, which tend to have higher margins than more mature
products, and by reducing costs. The Company seeks to reduce costs by improving
wafer yields, negotiating price reductions with suppliers, increasing the level
and efficiency of its testing and packaging operations, achieving economies of
scale by means of higher production levels, and increasing the number of die
produced per wafer by shrinking the die size of its products. No assurance can
be given that these efforts will be successful. The ability of the Company to
shrink the die size of its FPGAs is dependent on the availability of more
advanced manufacturing processes. Because of the custom steps involved in
manufacturing antifuse-based FPGAs, the Company typically obtains access to new
manufacturing processes later than its competitors using standard manufacturing
processes.
Research and Development
Research and development expenditures for the first quarter of 1996
were $6.0 million, or 17% of net revenues, compared with $5.8 million, or 18% of
net revenues, for the fourth quarter of 1995 and $4.4 million, or 23% of net
revenues, for the first quarter of 1995. The Company's research and development
activities are divided almost equally among circuit design, software
development, and process technology.
The Company believes that continued substantial investment in research
and development is critical to maintaining a strong technological position in
the industry and, therefore, expects to continue increasing its research and
development expenditures. Because the Company's products are manufactured using
a customized process, the Company's research and development expenditures will
probably always be higher as a percentage of net revenues than that of its major
competitors.
Selling, General, and Administrative
Selling, general, and administrative expenses for the first quarter of
1996 were $8.3 million, or 24% of net revenues, compared with $7.8 million, or
24% of net revenues, for the fourth quarter of 1995 and $5.4 million, or 28% of
net revenues, for the first quarter of 1995. Direct selling expenses have
increased at approximately the same rate as net revenues, while indirect
expenses have declined as a percentage of net revenues due to economies of
scale.
Tax Provision
The Company's effective tax rate for the three months ended March 31,
1996, was 37.5%. This rate is based on the estimated annual tax rate complying
with Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes." This rate differs from the federal statutory rate due primarily to state
income taxes (net of federal benefit) and recognition of certain deferred tax
assets subject to valuation allowances as of December 31, 1995.
For the three months ended March 31, 1995, the Company recorded a
credit for income taxes related to the realization of deferred tax assets
previously subject to valuation allowances.
Liquidity and Capital Resources
At the end of the first quarter of 1996, the Company's cash, cash
equivalents, and short-term investments were $23.9 million, compared with $20.0
million at the beginning of 1996. The amount of cash, cash equivalents, and
short term investments increased principally because of cash provided by
operations, including net income and reductions of approximately 10% in net
accounts receivable and inventories.
The Company made a final payment of approximately $3 million to
Chartered Semiconductor Manufacturing Pte Ltd in January 1996. The Company
presently has no material financial obligations to its current wafer suppliers.
However, wafer manufacturers are increasingly demanding financial support from
customers in the form of equity investments and advance purchase price deposits,
which in some cases are substantial. Should the Company require additional
capacity, it may be required to incur significant expenditures to secure such
capacity.
On October 24, 1995, the Company announced the filing of a registration
statement with the Securities and Exchange Commission relating to a proposed
public offering of 4,700,000 shares of Common Stock. Of the total, the Company
was to offer 2,068,422 shares of Common Stock and TI was to offer all of its
2,631,578 shares of Common Stock (assuming the conversion of TI's Series A
Preferred Stock into Common Stock). On November 29, 1995, the Company announced
the postponement of the proposed public offering due to unfavorable market
conditions.
The Company believes that the availability of adequate financial
resources is a substantial competitive factor. To take advantage of
opportunities as they arise, or to withstand adverse business conditions should
they occur, it may become prudent or necessary for the Company to raise
additional capital. The Company intends to continue monitoring the availability
and cost of potential capital resources, including equity, debt, and off-balance
sheet financing arrangements, with a view toward raising additional capital on
terms that are acceptable to the Company. No assurance can be given that
additional capital will become available on acceptable terms.
Notwithstanding the foregoing, the Company believes that existing cash,
cash equivalents, and short term investments, together with cash from
operations, will be sufficient to meet its cash requirements for 1996. A portion
of available cash may be used for investment in or acquisition of complementary
businesses, products, or technologies.
Additional Quarterly Information
The following table presents certain unaudited quarterly results for
each of the eight quarters in the period ended March 31, 1996. In the opinion of
management, all necessary adjustments (consisting only of normal recurring
accruals) have been included in the amounts stated below to present fairly the
unaudited quarterly results when read in conjunction with the audited
consolidated financial statements of the Company and notes thereto included in
the Company's Annual Report to Shareholders for the year ended December 31,
1995. These quarterly operating results are not necessarily indicative of the
results for any future period.
[GRAPHIC OMITTED]
Factors Affecting Future Operating Results
The Company's operating results are subject to general economic
conditions and a variety of risks characteristic of the semiconductor industry
(including booking and shipment uncertainties, wafer supply fluctuations, and
price erosion) or specific to the Company, any of which could cause the
Company's operating results to differ materially from past results. For a
discussion of such risks, please see "Risk Factors" in Part I of the Company's
Annual Report on Form 10-K for 1995, which is incorporated herein by this
reference.
PART II -- OTHER INFORMATION
Item 1. Legal Proceedings.
On January 20, 1994, the Company filed a lawsuit against QuickLogic
Corporation ("QuickLogic") for infringement of four of the Company's patents in
the United States District Court for the Northern District of California (the
"Court"). On November 15, 1994, the Company filed a motion for summary judgment
that QuickLogic infringes one of the Company's patents in the lawsuit. A hearing
on this motion was held on March 21, 1996, and is under submission. On November
15, 1994, and January 10, 1995, the United States Patent and Trademark Office
issued Reexamination Certificates regarding two of the Company's other patents
in the lawsuit. The Reexamination Certificates confirmed the patentability of
all claims of both patents. On March 15, 1995, the Company filed an amended
complaint adding a fifth patent to the lawsuit and a theft of trade secrets
claim. On March 8, 1996, the Company filed a supplemental complaint adding a
sixth patent to the lawsuit. The Company seeks damages and a permanent
injunction preventing QuickLogic from further infringement of such patents.
QuickLogic has denied infringement and filed counterclaims seeking
declaratory judgment of non-infringement and invalidity of all the Company
patents in suit. On May 25, 1995, QuickLogic filed an amended counterclaim
alleging that the Company infringes two patents assigned to QuickLogic.
QuickLogic seeks damages and a permanent injunction preventing the Company from
further infringement of such patents. On June 14, 1995, the Company denied
infringement and filed counterclaims seeking declaratory judgment of
non-infringement and invalidity and alleging, among other things,
misappropriation of the Company's trade secrets. On January 18, 1996, the
Company filed a motion for summary judgment that QuickLogic's patents are
invalid because the accused products were on sale more than one year before the
filing date of the patents. On February 1, 1996, QuickLogic filed a motion for
summary judgment that the Company infringes the two QuickLogic patents in the
lawsuit. A hearing has yet to be set for these two summary judgment motions.
The parties are currently engaged in motion and discovery proceedings.
Trial is currently scheduled for September 1997. After considering the facts
currently known, management does not believe that the ultimate outcome of the
litigation will have a materially adverse effect on the Company's business,
financial condition, or operating results, although no assurance can be given to
that effect.
As is typical in the semiconductor industry, the Company has been and
expects to be notified from time to time of claims that it may be infringing
patents owned by others. No assurance can be given that such claims against the
Company will not result in litigation. All litigation, whether or not determined
in favor of the Company, can result in significant expense to the Company and
can divert the efforts of the Company's technical and management personnel from
productive tasks.
Although the Company has obtained patents covering elements of its
circuit architecture and certain techniques for manufacturing its antifuse, no
assurance can be given that the Company's patents will be determined to be valid
or that the claims of QuickLogic or any assertions of infringement by other
parties (or claims for indemnity from customers resulting from any infringement
claims) will not succeed. In the event of an adverse ruling in the QuickLogic
case or any other litigation involving intellectual property, the Company could
suffer significant (and possibly treble) monetary damages. The Company may also
be required to discontinue the use of certain processes; cease the manufacture,
use, and sale of infringing products; expend significant resources to develop
non-infringing technology; or obtain licenses under patents that it is
infringing. Any of these outcomes could have a materially adverse effect on the
Company's business, financial condition, and/or results of operations.
There are no other pending legal proceedings of a material nature to
which the Company is a party or of which any of its property is the subject.
There are no such legal proceedings known by the Company to be contemplated by
any governmental authority.
Item 6. Exhibits and Reports on Form 8-K.
(a)......Exhibits
The following exhibits are filed as part of, or incorporated by
reference into, this Quarterly Report on Form 10-Q:
11. Statement re computation of per share earnings
(b)......Reports on Form 8-K
None
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ACTEL CORPORATION
Date: May 13, 1996 /s/ David M. Sugishita
---------------------------------------
David M. Sugishita
Senior Vice President of Finance
and Chief Financial Officer
(as principal financial officer
and on behalf of Registrant)
Exhibit 11
ACTEL CORPORATION
STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
(unaudited, in thousands except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-------------------------
1996 1995
----------- -----------
<S> <C> <C>
Primary:
Average common shares outstanding..................................................... 17,667 17,200
Convertible preferred stock........................................................... 2,632 --
Net effect of dilutive stock options and warrants - based on the treasury stock method
using average market price......................................................... 769 --
----------- -----------
Shares used in computing net income (loss) per share.................................. 21,068 17,200
=========== ===========
Net income (loss)..................................................................... $ 3,277 $ (9,628)
=========== ===========
Net income (loss) per share........................................................... $ 0.16 $ (0.56)
=========== ===========
Fully diluted:
Average common shares outstanding..................................................... 17,667 17,200
Convertible preferred stock........................................................... 2,632 --
Net effect of dilutive stock options and warrants - based on the treasury stock method 931 --
----------- -----------
Shares used in computing net income (loss) per share.................................. 21,230 17,200
=========== ===========
Net income (loss)..................................................................... $ 3,277 $ (9,628)
=========== ===========
Net income (loss) per share........................................................... $ 0.15 $ (0.56)
=========== ===========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 23,934
<SECURITIES> 0
<RECEIVABLES> 17,225
<ALLOWANCES> (1,434)
<INVENTORY> 25,091
<CURRENT-ASSETS> 77,598
<PP&E> 31,343
<DEPRECIATION> (15,039)
<TOTAL-ASSETS> 110,837
<CURRENT-LIABILITIES> 37,518
<BONDS> 0
<COMMON> 18,147
0
60,635
<OTHER-SE> (5,463)
<TOTAL-LIABILITY-AND-EQUITY> 110,837
<SALES> 35,043
<TOTAL-REVENUES> 35,043
<CGS> 15,769
<TOTAL-COSTS> 15,769
<OTHER-EXPENSES> 14,319
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 289
<INCOME-PRETAX> 5,244
<INCOME-TAX> 1,967
<INCOME-CONTINUING> 3,277
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,277
<EPS-PRIMARY> .16
<EPS-DILUTED> .15
</TABLE>
