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 July 4, 1999
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 offices) (Zip Code)
(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 August 16, 1999:
21,795,765.
<PAGE>
PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements.
ACTEL CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(unaudited, in thousands except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
--------------------------------------- ---------------------------
Jul. 4, Jun. 28, Apr. 4, Jul. 4, Jun. 28,
1999 1998 1999 1999 1998
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Net revenues................................ $ 41,619 $ 37,160 $ 40,838 $ 82,457 $ 75,625
Costs and expenses:
Cost of revenues......................... 16,238 14,815 15,994 32,232 30,600
Research and development................. 8,064 7,527 8,447 16,511 14,777
Selling, general, and administrative..... 13,243 10,392 10,931 24,174 20,973
Restructure and other charges............ 1,963 -- -- 1,963 --
------------ ------------ ------------ ------------ ------------
Total costs and expenses........... 39,508 32,734 35,372 74,880 66,350
------------ ------------ ------------ ------------ ------------
Income from operations...................... 2,111 4,426 5,466 7,577 9,275
Interest income and other, net.............. 721 599 741 1,462 1,143
------------ ------------ ------------ ------------ ------------
Income before tax provision................. 2,832 5,025 6,207 9,039 10,418
Tax provision............................... 906 1,606 1,986 2,892 3,386
------------ ------------ ------------ ------------ ------------
Net income.................................. $ 1,926 $ 3,419 $ 4,221 $ 6,147 $ 7,032
============ ============ ============ ============ ============
Net income per share:
Basic.................................... $ 0.09 $ 0.16 $ 0.20 $ 0.29 $ 0.33
============ ============ ============ ============ ============
Diluted.................................. $ 0.09 $ 0.16 $ 0.19 $ 0.27 $ 0.32
============ ============ ============ ============ ============
Shares used in computing net income per share:
Basic.................................... 21,511 21,288 21,347 21,480 21,225
============ ============ ============ ============ ============
Diluted.................................. 22,454 21,968 22,673 22,620 21,908
============ ============ ============ ============ ============
</TABLE>
<PAGE>
ACTEL CORPORATION
CONSOLIDATED CONDENSED BALANCE SHEETS
(in thousands)
Jul. 4, Jan. 3,
1999 1999
------------ ------------
(unaudited) *
ASSETS
Current assets:
Cash and cash equivalents..................... $ 10,750 $ 13,947
Short-term investments........................ 60,891 56,449
Accounts receivable, net...................... 21,461 20,820
Inventories, net.............................. 24,271 25,669
Deferred income taxes......................... 17,054 18,169
Other current assets.......................... 2,916 3,458
------------ ------------
Total current assets.................... 137,343 138,512
Property and equipment, net...................... 13,787 14,592
Investment in Chartered Semiconductor............ 10,680 10,680
Other assets..................................... 24,411 15,924
------------ ------------
$ 186,221 $ 179,708
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable.............................. $ 12,035 $ 11,525
Accrued salaries and employee benefits........ 4,386 4,960
Other accrued liabilities..................... 1,000 4,198
Deferred income............................... 32,356 31,971
------------ ------------
Total current liabilities............... 49,777 52,654
Shareholders' equity:
Common stock.................................. 22 21
Additional paid-in capital.................... 95,556 92,092
Accumulated earnings.......................... 40,910 34,763
Accumulated other comprehensive income (loss). (44) 178
------------ ------------
Total shareholders' equity.............. 136,444 127,054
------------ ------------
$ 186,221 $ 179,708
============ ============
- ----------------------------------------
* The balance sheet at January 3, 1999, has been derived from the
audited financial statements at that date. See Notes to Consolidated
Condensed Financial Statements.
<PAGE>
ACTEL CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(unaudited, in thousands)
Six Months Ended
--------------------
Jul. 4, Jun. 28,
1999 1998
-------- --------
Operating activities:
Net income .......................................... $ 6,147 $ 7,032
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization ..................... 4,763 4,733
Non-cash portion of restructure and other charges
and other ....................................... 3,057 --
Changes in operating assets and liabilities:
Accounts receivable ............................. (641) 6,306
Inventories ..................................... 1,398 (4,156)
Other current assets ............................ (154) (1,010)
Accounts payable, accrued salaries and employee
benefits, and other accrued liabilities ......... (4,479) 2,331
Deferred income ................................. 385 (20)
Deferred income taxes ........................... 1,115 245
-------- --------
Net cash provided by operating activities ........... 11,591 15,461
-------- --------
Investing activities:
Purchases of property and equipment ................. (3,357) (3,913)
Purchases of short-term investments ................. (85,117) (77,940)
Sales of short-term investments ..................... 80,453 62,192
Other assets ........................................ (2,232) (368)
Note receivable from GateField ...................... (8,000) --
-------- --------
Net cash used in investing activities ............... (18,253) (20,029)
-------- --------
Financing activities:
Sale of common stock ................................ 3,465 2,758
-------- --------
Net cash provided by financing activities ........... 3,465 2,758
-------- --------
Net decrease in cash and cash equivalents .............. (3,197) (1,810)
Cash and cash equivalents, beginning of period ......... 13,947 7,763
-------- --------
Cash and cash equivalents, end of period ............... $ 10,750 $ 5,953
======== ========
Supplemental disclosures of cash flows information and
non-cash investing and financing activities:
Cash paid for taxes ................................. $ 7,533 $ 373
<PAGE>
ACTEL CORPORATION
Notes to Consolidated Condensed 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.
The interim financial statements should be read in conjunction with the
audited financial statements included in the Company's Annual Report on Form
10-K for the year ended January 3, 1999.
The results of operations for the three months and six months ended
July 4, 1999, are not necessarily indicative of results that may be expected for
the entire year ending January 2, 2000.
2. Recent Accounting Pronouncements
As of January 4, 1999, the Company adopted Statement of Position 98-1,
"Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use" ("SOP 98-1"). SOP 98-1 provides guidelines for accounting for
costs of computer software developed for internal use. SOP 98-1 is effective for
financial statements for fiscal years beginning after December 15, 1998. The
adoption of SOP 98-1 has not materially impacted the Company's results of
operations or financial position.
In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS 133"), which is required to be
adopted in years beginning after June 15, 2000. The Company is currently
evaluating the impact that the adoption of SFAS 133 will have on future results
of operations or financial position.
3. Restructure and Other Charges
During the second quarter of fiscal 1999, the Company completed a
restructuring plan that resulted in a reduction in force along with the
elimination of certain projects and non-critical activities. The total pretax
restructure and other charges for these activities amounted to $1,963,000. These
measures were taken to bring overall spending in line with current revenue
projections for the balance of the year and to sharpen the Company's focus on
new product development.
<TABLE>
<CAPTION>
Restruc- Balance at
Cash/ turing July 4,
Description Non-Cash Charge Activity 1999
- ------------------------------------------ -------- --------- --------- ---------
(in thousands)
<S> <C> <C> <C>
Employee severance and outplacement ...... Cash $ 586 $ 586 --
Write-off of prepaid license ............. Non-cash 734 734 --
Abandoned capital assets ................. Non-cash 643 643 --
--------- --------- ---------
$ 1,963 $ 1,963 --
========= ========= =========
</TABLE>
Employee severance and outplacement expenses were comprised primarily
of severance packages for 31 employees who were terminated across all functions
as part of a reduction in force. The severance was computed based upon severance
compensation, benefits, and related employer payroll taxes.
Write-off of prepaid license was associated with the cancellation of a
certain product and project. The product was eliminated from the Company's
future revenue stream and therefore the license has no future economic benefit
to the Company.
Abandoned capital assets consisted of the write-off of capitalized
costs associated with a new building project that was abandoned and fixed assets
no longer utilized by the Company that were scrapped.
4. Equity Accounting
At July 4, 1999, the Company owned 16,500 shares of GateField common
stock and 300,000 shares of Series C Convertible Preferred Stock that is
convertible into 200,000 shares of GateField Common Stock. Assuming conversion
of all outstanding GateField convertible preferred stock, the aggregate total of
GateField common stock owned by Actel would be 216,500 shares, or 4.9% of the
total common shares of GateField.
In light of Actel's 4.9% equity interest in GateField, along with an $8
million convertible note receivable and licensing and marketing agreements,
Actel began accounting for its equity investments in GateField under the equity
method during the second quarter of 1999. Actel's proportionate share of
GateField's second quarter 1999 net loss was not material.
5. Inventories
Inventories consist of the following:
Jul. 4, Jan. 3,
1999 1999
------------ ------------
(in thousands)
Inventories:
Purchased parts and raw materials............. $ 1,985 $ 1,285
Work-in-process............................... 11,680 12,052
Finished goods................................ 10,606 12,332
------------ ------------
$ 24,271 $ 25,669
============ ============
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.
<PAGE>
6. Earnings Per Share
The following table sets forth the computation of basic and diluted
earnings per share in accordance with Statement of Financial Accounting
Standards No. 128, "Earnings per Share" ("SFAS 128"):
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
---------------------------------------- --------------------------
Jul. 4, Jun. 28, Apr. 4, Jul. 4, Jun. 28,
1999 1998 1999 1999 1998
------------ ------------ ------------ ------------ ------------
(in thousands, except per share amounts)
Basic:
<S> <C> <C> <C> <C> <C>
Average common shares outstanding........... 21,511 21,288 21,347 21,480 21,225
Shares used in computing net income per share 21,511 21,288 21,347 21,480 21,225
============ ============ ============ ============ ============
Net income.................................. $ 1,926 $ 3,419 $ 4,221 $ 6,147 $ 7,032
============ ============ ============ ============ ============
Net income per share........................ $ 0.09 $ 0.16 $ 0.20 $ 0.29 $ 0.33
============ ============ ============ ============ ============
Diluted:
Average common shares outstanding........... 21,511 21,288 21,347 21,480 21,225
Net effect of dilutive stock options - based
on the treasury stock method............. 943 680 1,326 1,140 683
------------ ------------ ------------ ------------ ------------
Shares used in computing net income per share 22,454 21,968 22,673 22,620 21,908
============ ============ ============ ============ ============
Net income.................................. $ 1,926 $ 3,419 $ 4,221 $ 6,147 $ 7,032
============ ============ ============ ============ ============
Net income per share........................ $ 0.09 $ 0.16 $ 0.19 $ 0.27 $ 0.32
============ ============ ============ ============ ============
</TABLE>
7. Comprehensive Income
The components of comprehensive income, net of tax, are as follows:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
---------------------------------------- --------------------------
Jul. 4, Jun. 28, Apr. 4, Jul. 4, Jun. 28,
1999 1998 1999 1999 1998
------------ ------------ ------------ ------------ ------------
(in thousands)
<S> <C> <C> <C> <C> <C>
Net Income ................................. $ 1,926 $ 3,419 $ 4,221 $ 6,147 $ 7,032
Change in net unrealized gain on
available-for-sale securities ........... (86) 33 (65) (151) 37
------------ ------------ ------------ ------------ ------------
Total Comprehensive Income ................. $ 1,840 $ 3,452 $ 4,156 $ 5,996 $ 7,069
============ ============ ============ ============ ============
</TABLE>
Accumulated other comprehensive income (loss) presented in the accompanying
consolidated condensed balance sheets consists of the accumulated net unrealized
gain (loss) on available-for-sale securities.
8. Contingencies
Periodically, the Company is made aware that technology used by the
Company may infringe intellectual property rights held by others. During the
second quarter of fiscal 1999, the Company continued to hold discussions with
several third parties regarding potential patent infringement issues. The
Company has made adequate provision for the estimated settlement costs of claims
for alleged infringement prior to the balance sheet date. While management
believes that reasonable resolution will occur, there can be no assurance that
these claims will be resolved or that the resolution of these claims will not
have a materially adverse effect on future results of operations or require
changes in the Company's products or processes. In addition, management's
evaluation of the likely impact of these pending disputes could change in the
future based upon new information learned by management. Subject to the
foregoing, management does not believe any pending disputes, including those
described above, would be likely to have a materially adverse effect on the
Company's financial condition, results of operations, or liquidity.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Forward-Looking Statements
All forward-looking statements contained in this Quarterly Report on
Form 10-Q, including all forward-looking statements contained in any document
incorporated herein by reference, are made pursuant to the safe harbor
provisions of the Public Securities Litigation Reform Act of 1995. Words such as
"anticipates," "believes," "estimates," "expects," intends," "plans," "seeks,"
and variations of such words and similar expressions are intended to identify
the forward-looking statements. The forward-looking statements include
projections relating to trends in markets, revenues, average selling prices,
gross margin, wafer yields, research and development expenditures, selling,
general, and administrative expenditures, and the Year 2000 compliance issue.
All forward-looking statements are based on current expectations and projections
about the semiconductor industry and programmable logic market, and assumptions
made by the Company's management that reflect its best judgment based on other
factors currently known by management, but they are not guarantees of future
performance. Accordingly, actual events and results may differ materially from
those expressed or forecast in the forward-looking statements due to the risk
factors identified herein or for other reasons. The Company undertakes no
obligation to update any forward-looking statement contained or incorporated by
reference in this Quarterly Report on Form 10-Q.
Results of Operations
Net Revenues
Net revenues for the second quarter of fiscal 1999 were a record $41.6
million, which represents an increase of 2% compared with the Company's net
revenues for the first quarter of 1999 and an increase of 12% compared with the
Company's net revenues for the second quarter of 1998. Net revenues for the
first six months of fiscal 1999 were $82.5 million, which represents an increase
of 9% compared with the Company's net revenues for the first six months of
fiscal year 1998.
The increase in sequential quarterly net revenues resulted from a 4%
increase in the overall average selling price ("ASP") of field programmable gate
arrays ("FPGAs"), which was partially offset by a decline of 3% in unit
shipments. ASPs increased on all except the most mature families. The increase
in net revenues during the first six months of 1999 resulted from a 19% increase
in unit shipments, which was partially offset by a decrease of 14% in the ASP.
The year-to-year increase in quarterly net revenues resulted from an
increase of 16% in unit shipments, which was partially offset by a decline of 7%
in the ASP. The decline in the ASP was caused by a higher percentage of
shipments of MX product, which have lower ASPs, coupled with normal average
selling price erosion.
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 second quarter of 1999 was a record 61.0% of net
revenues, compared with 60.8% of net revenues for the first quarter of 1999 and
60.1% for the second quarter of 1998. Gross margin for the first six months of
fiscal 1999 was 60.9% of net revenues, compared with 59.5% of net revenues for
the first six months of fiscal year 1998.
The improved gross margin resulted from a number of factors, including
continued reductions in wafer costs at all foundries; improved sort yields,
especially on newer products; and better utilization of manufacturing capacity.
The Company seeks to improve gross margin 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. There can be no assurance 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.
Restructure and Other Charges
During the second quarter of fiscal 1999, the Company completed a
restructuring plan that resulted in a reduction in force along with the
elimination of certain projects and non-critical activities. The total pretax
restructure and other charges for these activities amounted to $1,963,000, which
included employee severance and outplacement expenses and the write-offs of a
prepaid license and abandoned capital assets. These measures were taken to bring
overall spending in line with current revenue projections for the balance of the
year and to sharpen the Company's focus on new product development.
Employee severance and outplacement expenses were comprised primarily
of severance packages for 31 employees who were terminated across all functions
as part of a reduction in force. The severance was computed based upon severance
compensation, benefits, and related employer payroll taxes.
The write-off of a prepaid license was associated with the cancellation
of a certain product and project. The product was eliminated from the Company's
future revenue stream and therefore the license has no future economic benefit
to the Company.
The write-offs for abandoned capital assets included the capitalized
costs associated with a new building project that was abandoned and fixed assets
no longer utilized by the Company that were scrapped.
Research and Development
Research and development expenditures for the second quarter of 1999
were $8.1 million, or 19% of net revenues, compared with $8.4 million, or 21% of
net revenues, for the first quarter of 1999 and $7.5 million, or 20% of
revenues, for the second quarter of 1998. The decreased spending in the second
quarter of 1999 compared with the first quarter of 1999 was primarily a result
of the cost reduction efforts undertaken by the Company during the second
quarter. The increase in spending in the second quarter of 1999 compared with.
the second quarter of 1998 was due to the Company's efforts to accelerate new
product development.
Research and development expenditures for the first six months of
fiscal 1999 were $16.5 million, or 20% of net revenues, compared with $14.8
million, or 20% of net revenues, for the first six months of fiscal 1998. This
represents an increase of 12% in research and development expenditures, which
was driven by the need to accelerate the introduction of new products during
fiscal 1999.
Selling, General, and Administrative
Selling, general, and administrative expenses for the second quarter of
1999 were $13.2 million, or 32% of net revenues, compared with $10.9 million, or
27% of net revenues, for the first quarter of 1999 and $10.4 million, or 28% of
net revenues, for the second quarter of 1998. Selling, general, and
administrative expenses for the first six months of fiscal 1999 were $24.2
million, or 29% of net revenues, compared with $21.0 million, or 28% of net
revenues, for the first six months of fiscal 1998.
The increase in selling, general, and administrative expenses during
the second quarter of 1999 was primarily the result of increased sales expenses
and legal costs. Selling expenses increased due to sales conferences, bonuses,
and distributor termination issues. Legal expenses increased due to the accrual
of a reserve for the estimated costs of settlement of claims for alleged patent
infringement prior to the balance sheet date. The Company believes that its
selling, general, and administrative expenses in the third quarter of 1999 will
return to a level more in line with its historical run rates.
Interest Income and Other
Interest and other income for the second quarter of 1999 was $721,000,
compared with $741,000 for the first quarter of 1999 and $599,000 for the second
quarter of 1998. Interest and other income for the first six months of 1999 was
$1.5 million, compared with $1.1 million for the first six months of 1998. The
increase in interest and other income for first six months of 1999 and the
second quarter of 1999 compared with the same periods a year ago was driven
primarily by increased cash, cash equivalents, and short term investments
available for investing by the Company.
Tax Provision
The Company's effective tax rate for the three months and six months
ended July 4, 1999, was 32.0%, compared with 33.0% for the three months and
32.5% for the six months ended June 28, 1998. The effective tax 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), the benefits of research and development credits, tax exempt income,
and recognition of certain deferred tax assets subject to valuation allowances
as of January 3, 1998.
Liquidity and Capital Resources
At the end of the second quarter of 1999, the Company's cash, cash
equivalents, and short-term investments were $71.6 million, compared with $70.4
million at the beginning of fiscal 1999. The amount of cash, cash equivalents,
and short-term investments increased principally because of cash provided by
operations. During the second quarter the Company loaned $8.0 million to
GateField Corporation, with whom the Company has a strategic alliance in the
development and marketing of the Flash ProASIC(TM) family, in exchange for a
promissory note that is convertible into preferred stock of GateField at anytime
during its five year term.
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 the foreseeable future. A portion of available
cash may be used for investment in or acquisition of complementary businesses,
products, or technologies.
The Company has a line of credit with a bank that provides for
borrowings not to exceed $5,000,000. The agreement contains covenants that
require the Company to maintain certain financial ratios and levels of net
worth. As of July 4, 1999, the Company was in compliance with the covenants for
the line of credit. Borrowings against the line of credit bear interest at the
bank's prime rate. There were no borrowings against the line of credit at July
4, 1999. The line of credit, which expires in May 2000, may be terminated by
either party upon not less than thirty days' prior written notice.
The Company currently 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. If the Company
requires additional capacity, it may be required to incur significant
expenditures to secure such capacity.
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, and may consider raising additional capital on
terms that are acceptable to the Company. There can be no assurance that
additional capital will become available on acceptable terms.
Additional Quarterly Information
The following table presents certain unaudited quarterly results for
each of the eight quarters in the period ended July 4, 1999. 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 on Form 10-K for the year ended January 3, 1999.
These quarterly operating results are not necessarily indicative of the results
for any future period.
<PAGE>
<TABLE>
<CAPTION>
Three Months Ended
-----------------------------------------------------------------------------
Jul. 4, Apr. 4, Jan. 3, Oct. 4, Jun 28, Mar. 29, Dec. 28, Sept. 28,
1999 1999 1999 1998 1998 1998 1997 1997
------- ------- ------- ------- ------- ------- ------- -------
(unaudited, in thousands except per share amounts)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations Data:
Net revenues ................................. $41,619 $40,838 $40,174 $38,628 $37,160 $38,465 $37,012 $38,220
Cost of revenues ............................. 16,238 15,994 15,797 15,245 14,815 15,785 15,287 15,788
Gross profit ................................. 25,381 24,844 24,377 23,383 22,345 22,680 21,725 22,432
Research and development ..................... 8,064 8,447 8,483 7,960 7,527 7,250 6,816 6,641
Selling, general, and administrative ......... 13,243 10,931 10,359 10,411 10,392 10,581 10,313 10,355
Restructure and other charges ................ 1,963 -- -- -- -- -- -- --
Income from operations ....................... 2,111 5,466 5,535 5,012 4,426 4,849 4,596 5,436
Net income ................................... $ 1,926 $ 4,221 $ 4,118 $ 3,837 $ 3,419 $ 3,613 $ 3,382 $ 3,921
Net income per share:
Basic ..................................... $ 0.09 $ 0.20 $ 0.20 $ 0.18 $ 0.16 $ 0.17 $ 0.16 $ 0.19
Diluted ................................... $ 0.09 $ 0.19 $ 0.19 $ 0.18 $ 0.16 $ 0.17 $ 0.16 $ 0.18
Shares used in computing net income per share:
Basic ..................................... 21,511 21,347 21,091 21,449 21,288 21,163 21,032 20,956
Diluted ................................... 22,454 22,673 22,201 21,724 21,968 21,864 21,623 22,172
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended
-----------------------------------------------------------------------------
Jul. 4, Apr. 4, Jan. 3, Oct. 4, Jun 28, Mar. 29, Dec. 28, Sept. 28,
1999 1999 1999 1998 1998 1998 1997 1997
------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
As a Percentage of Net Revenues:
Net revenues ................................. 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of revenues ............................. 39.0 39.2 39.3 39.5 39.9 41.0 41.3 41.3
Gross margin ................................. 61.0 60.8 60.7 60.5 60.1 59.0 58.7 58.7
Research and development ..................... 19.4 20.7 21.1 20.6 20.3 18.9 18.4 17.4
Selling, general, and administrative ......... 31.8 26.7 25.8 27.0 28.0 27.5 27.9 27.1
Restructure and other charges ................ 4.7 -- -- -- -- -- -- --
Income from operations ....................... 5.1 13.4 13.8 13.0 11.9 12.6 12.4 14.2
Net income ................................... 4.6 10.3 10.3 9.9 9.2 9.4 9.1 10.3
</TABLE>
<PAGE>
Year 2000 Risks
The Year 2000 issue is the result of computer programs being written
using two digits rather than four to define the applicable year. Any of the
Company's computer programs or hardware that have date-sensitive software or
embedded chips may recognize a date using "00" as the year 1900 rather than the
year 2000. The failure of internal systems to correctly recognize and process
date information beyond the year 1999 could result in miscalculations,
classification errors or system failures that could have a material impact on
the operations of the Company.
The Company's plan to resolve the Year 2000 issue involves the
following four phases: inventory, assessment, remediation, and
testing/implementation. The Company has completed its inventory and assessment
of information technology ("IT") and non-information technology ("Non-IT")
systems that could be significantly affected by the Year 2000.
Based on assessments performed, the Company determined that it would be
required to upgrade, modify, and/or replace portions of its internal software
and certain internal hardware so that those systems would properly utilize dates
beyond December 31, 1999. The Company presently believes that, with
modifications or replacements of identified software and hardware, the impact of
the Year 2000 issue can be minimized. However, if the remaining modifications
and replacements are not made on a timely basis, no assurance can be given that
the Company's internal networks, desktops, and test equipment will be
operational, or that third party vendors will be able to meet the Company's
production needs.
The Company has completed a review of its product lines (FPGA devices
and programming software and hardware) for purposes of determining Year 2000
compliance. Actel software beginning with the R3-1998 release and all subsequent
releases meets year 2000 compliance standards as defined by the British
Standards Institute DISC PD-2000-1. Year 2000 compliant software has been
provided to all customers with Actel maintenance contracts in December 1998.
Programming hardware beginning with the Activator 2 families, released in 1994
do not contain any components that might be affected by date or time conditions.
FPGAs manufactured by the Company derive their functionality from customer
designs and do not inherently contain any embedded functionality that could be
affected by date or time conditions. Accordingly, the Company does not believe
that the Year 2000 presents a material exposure as it relates to the Company's
products."
With respect to its IT exposure, to date the Company has completed the
upgrade of its mission critical IT systems, including the ERP systems (systems
for order entry, general ledger, billing, production tracking, inventory and
shipping) by upgrading to Year 2000 compliant versions. The Company plans to
have the few remaining less critical IT systems fully tested and implemented by
September 30, 1999.
The remediation of Non-IT systems is significantly more difficult than
remediation of IT systems due to the dependency on manufacturers for information
on the Year 2000 compliance status of the various components and products. The
Company has completed remediation of it's mission critical Non-IT systems that
are used in the manufacturing and shipping process and as some less critical
Non-IT systems remaining to complete. Overall, the Company is 75% complete with
the remediation phase of its Non-IT systems. The Company expects to complete its
remediation and implementation of the remaining Non-IT systems by September 30,
1999.
The Company has queried all of its significant suppliers and
subcontractors ("suppliers") and major distributors. To date, the Company is not
aware of any supplier or distributor with a Year 2000 issue that would
materially impact the Company's results of operations, liquidity, or capital
resources. However, the Company has no means of ensuring that its suppliers will
be Year 2000 ready. The inability of suppliers to complete their Year 2000
compliance process in a timely fashion could materially and adversely impact the
Company by impeding the production process and the ability of the Company to
fulfill customer orders. The failure of distributors due to Year 2000 problems
could temporarily reduce or delay the placement of orders for the Company's
products or temporarily inhibit the resale of those products to end customers.
The Company will utilize both internal and external resources to
reprogram or replace, test, and implement the software and embedded systems for
Year 2000 modifications. To date, the Company has incurred approximately $0.9
million of expenses on efforts directed solely at Year 2000 compliance. The
total cost of the Year 2000 project is not expected to exceed $1.5 million and
is being funded through operating cash flows.
Management of the Company believes it has an effective program in place
to resolve internal Year 2000 issues in a timely manner. Management of the
Company believes that its most reasonably likely worst-case Year 2000 scenario
would involve problems with the systems of external parties rather than with the
Company's internal systems or its products. Failure in the systems of external
parties could cause temporary interruption of supplier deliveries, orders from
customers or the transportation of shipments to customers.
Included in our efforts to minimize the effect of any Year 2000 related
problems, the Company has developed a contingency plan designed to deal with
Year 2000 issues that could have a material and adverse effect on its business
processes despite remediation efforts and third party assurances. The plan
identifies mission critical functions that must be restored expeditiously during
an operational disruption and identifies actions that must be taken to be
prepared in the event a year 2000 operational disruption occurs. The plan
includes primarily manual workarounds and attention to inventory levels.
Other Factors Affecting Future Operating Results
In addition to the risk factors discussed below, 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,
see "Risk Factors" in Part I of the Company's Annual Report on Form 10-K for
1998, which is incorporated herein by this reference.
Export Controls
On October 17, 1998, President Clinton signed Public Law 105-261, The
Strom Thurmond National Defense Authorization Act for 1999. The Act requires
that, among other things, communications satellites and related items (including
components) be controlled on the U.S. Munitions List. The effect of the Act was
to transfer jurisdiction over commercial communications satellites from the
Department of Commerce to the Department of State and to expand the scope of
export licensing applicable to commercial satellites. The need to obtain
additional export licenses may cause a delay in the shipment of some of the
Company's FPGAs. The Company does not believe that this will have a long-term
effect on the Company's business, although significant delays might cause some
customers to seek an alternative solution.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Reference is made to Part II, Item 7, Management's Discussion and
Analysis of Financial Condition and Results of Operations in the Company's
Annual Report on Form 10-K for the year ended January 3, 1999 and to the
subheading "Market Risk" under the heading "Management's Discussion and Analysis
of Financial Condition and Results of Operations" on page 14 of the Company's
1998 Annual Report to Stockholders.
PART II -- OTHER INFORMATION
Item 1. Legal Proceedings
There are no 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.
Periodically, the Company is made aware that technology used by the
Company may infringe intellectual property rights held by others. During the
second quarter of fiscal 1999, the Company continued to hold discussions with
several third parties regarding potential patent infringement issues. The
Company has made adequate provision for the estimated settlement costs of claims
for alleged infringement prior to the balance sheet date. While management
believes that reasonable resolution will occur, there can be no assurance that
these claims will be resolved or that the resolution of these claims will not
have a materially adverse effect on future results of operations or require
changes in the Company's products or processes. In addition, management's
evaluation of the likely impact of these pending disputes could change in the
future based upon new information learned by management. Subject to the
foregoing, management does not believe any pending disputes, including those
described above, would be likely to have a materially adverse effect on the
Company's financial condition, results of operations, or liquidity.
Item 4. Submission of Matters to a Vote of Security Holders.
The Annual Meeting of Shareholders of the Company was held on May 28,
1999, at the principal executive offices of the Company. At the Annual Meeting,
the Company's shareholders (i) elected directors to serve until the next Annual
Meeting of Shareholders and until their successors are elected and (ii) ratified
the appointment of Ernst & Young LLP as the Company's independent auditors for
the fiscal year ending January 2, 2000.
The vote for nominated directors was as follows:
Broker
Nominee For Withheld Nonvotes
- ------------------------------ ------------ ------------ ------------
John C. East ................. 20,228,890 312,919 0
Jos C. Henkens ............... 20,228,973 312,836 0
Jacob S. Jacobsson ........... 20,235,636 306,173 0
Frederic N. Schwettmann ...... 20,228,420 313,389 0
Robert G. Spencer ............ 20,229,353 312,456 0
The vote on ratifying the appointment of Ernst & Young LLP was as
follows:
Broker
For Against Abstain Nonvotes
------------- ------------- ------------- -------------
20,512,916 12,093 16,800 0
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 Report on Form 10-Q:
Exhibit Number Description
-------------- ---------------------------------------
10.1 Convertible Promissory Note dated May
25, 1999, in the aggregate principle
amount of $8.0 million issued to Actel
Corporation (filed as Exhibit 4.1 to
GateField Corporation's Current Report
on Form 8-K (File No. 0-13244) on May
28, 1999, and incorporated herein by
this reference).
10.2 Security Agreement dated May 25, 1999,
between GateField Corporation and Actel
Corporation (filed as Exhibit 10.1 to
GateField Corporation's Current Report
on Form 8-K (File No. 0-13244) on May
28, 1999, and incorporated
herein by this reference).
10.3 Amendment No. 1 to the Series C
Preferred Stock Purchase Agreement
dated May 25, 1999, between GateField
Corporation and Actel Corporation
(filed as Exhibit 10.2 to GateField
Corporation's Current Report on Form
8-K (File No. 0-13244) on May 28, 1999,
and incorporated herein by this
reference).
10.4 Amendment No. 1 to the Registration
Rights Agreement dated May 25, 1999,
between GateField Corporation and Actel
Corporation (filed as Exhibit 10.3 to
GateField Corporation's Current Report
on Form 8-K (File No. 0-13244) on May
28, 1999, and incorporated herein by
this reference).
(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: August 16, 1999 /s/ Henry L. Perret
----------------------------------------
Henry L. Perret
Vice President of Finance
and Chief Financial Officer
(as principal financial officer
and on behalf of Registrant)
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000907687
<NAME> Actel Corporation
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-02-2000
<PERIOD-START> APR-05-1999
<PERIOD-END> JUL-04-1999
<CASH> 10750
<SECURITIES> 60891
<RECEIVABLES> 23864
<ALLOWANCES> 2403
<INVENTORY> 24271
<CURRENT-ASSETS> 137343
<PP&E> 49540
<DEPRECIATION> 35753
<TOTAL-ASSETS> 186221
<CURRENT-LIABILITIES> 49777
<BONDS> 0
0
0
<COMMON> 22
<OTHER-SE> 136422
<TOTAL-LIABILITY-AND-EQUITY> 186221
<SALES> 41619
<TOTAL-REVENUES> 41619
<CGS> 16238
<TOTAL-COSTS> 16238
<OTHER-EXPENSES> 23270
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 721
<INCOME-PRETAX> 2832
<INCOME-TAX> 906
<INCOME-CONTINUING> 1926
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1926
<EPS-BASIC> 0.09
<EPS-DILUTED> 0.09
</TABLE>
