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 October 3, 1999
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file number 0-21970
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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 November 4, 1999: 21,919,592.
<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 Nine Months Ended
------------------------------------------ ---------------------------
Oct. 3, Oct. 4, Jul. 4, Oct. 3, Oct. 4,
1999 1998 1999 1999 1998
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Net revenues ................................ $ 43,162 $ 38,628 $ 41,619 $ 125,619 $ 114,253
Costs and expenses:
Cost of revenues ......................... 16,659 15,245 16,238 48,891 45,845
Research and development ................. 7,740 7,960 8,064 24,251 22,737
Selling, general,
and administrative ..................... 11,271 10,411 13,243 35,445 31,384
Restructure and other charges ............ -- -- 1,963 1,963 --
------------ ------------ ------------ ------------ ------------
Total costs and expenses ........... 35,670 33,616 39,508 110,550 99,966
------------ ------------ ------------ ------------ ------------
Income from operations ...................... 7,492 5,012 2,111 15,069 14,287
Interest income and other, net .............. 941 672 721 2,403 1,815
------------ ------------ ------------ ------------ ------------
Income before tax provision and equity in net
loss of equity method investee ........... 8,433 5,684 2,832 17,472 16,102
Tax provision ............................... 2,548 1,847 906 5,440 5,233
Equity in net loss of equity method investee. 217 -- -- 217 --
------------ ------------ ------------ ------------ ------------
Net income .................................. $ 5,668 $ 3,837 $ 1,926 $ 11,815 $ 10,869
============ ============ ============ ============ ============
Net income per share:
Basic .................................... $ 0.26 $ 0.18 $ 0.09 $ 0.55 $ 0.51
============ ============ ============ ============ ============
Diluted .................................. $ 0.25 $ 0.18 $ 0.09 $ 0.52 $ 0.50
============ ============ ============ ============ ============
Shares used in computation:
Basic .................................... 21,748 21,449 21,511 21,535 21,304
============ ============ ============ ============ ============
Diluted .................................. 23,003 21,724 22,454 22,711 21,876
============ ============ ============ ============ ============
</TABLE>
<PAGE>
ACTEL CORPORATION
CONSOLIDATED CONDENSED BALANCE SHEETS
(in thousands)
Oct. 3, Jan. 3,
1999 1999
------------ ------------
(unaudited) *
ASSETS
Current assets:
Cash and cash equivalents ..................... $ 9,874 $ 13,947
Short-term investments ........................ 74,235 56,449
Accounts receivable, net ...................... 25,354 20,820
Inventories, net .............................. 22,853 25,669
Deferred income taxes ......................... 17,822 18,169
Other current assets .......................... 2,457 3,458
------------ ------------
Total current assets .................... 152,595 138,512
Property and equipment, net ...................... 12,915 14,592
Investment in Chartered Semiconductor ............ 10,680 10,680
Other assets ..................................... 24,032 15,924
------------ ------------
$ 200,222 $ 179,708
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable .............................. $ 11,347 $ 11,525
Accrued salaries and employee benefits ........ 4,520 4,960
Other accrued liabilities ..................... 5,193 4,198
Deferred income ............................... 34,684 31,971
------------ ------------
Total current liabilities ............... 55,744 52,654
Shareholders' equity:
Common stock .................................. 21 21
Additional paid-in capital .................... 97,956 92,092
Accumulated earnings .......................... 46,579 34,763
Accumulated other comprehensive income (loss) . (78) 178
------------ ------------
Total shareholders' equity .............. 144,478 127,054
------------ ------------
$ 200,222 $ 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)
Nine Months Ended
Oct. 3, Oct. 4,
1999 1998
--------- --------
Operating activities:
Net income ......................................... $ 11,815 $ 7,032
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization .................... 7,165 4,733
Non-cash portion of restructure and other charges
and other ...................................... 3,057 --
Equity in net loss of equity method investee ..... 217 --
Changes in operating assets and liabilities:
Accounts receivable ............................ (4,534) 6,306
Inventories .................................... 2,816 (4,156)
Other current assets ........................... 305 (1,010)
Accounts payable, accrued salaries and employee
benefits, and other accrued liabilities ...... (843) 2,331
Deferred income ................................ 2,713 (20)
Deferred income taxes .......................... 347 245
-------- --------
Net cash provided by operating activities .......... 23,058 15,461
-------- --------
Investing activities:
Purchases of property and equipment ................ (4,539) (3,913)
Purchases of short-term investments ................ (131,708) (77,940)
Sales of short-term investments .................... 113,449 62,192
Other assets ....................................... (2,197) (368)
Note receivable from GateField ..................... (8,000) --
-------- --------
Net cash used in investing activities .............. (32,995) (20,029)
-------- --------
Financing activities:
Sale of common stock through employee stock option
plans ............................................ 5,864 2,758
-------- --------
Net cash provided by financing activities .......... 5,864 2,758
-------- --------
Net decrease in cash and cash equivalents ............. (4,073) (1,810)
Cash and cash equivalents, beginning of period ........ 13,947 7,763
-------- --------
Cash and cash equivalents, end of period .............. $ 9,874 $ 5,953
======== ========
Supplemental disclosures of cash flows information and
non-cash investing and financing activities:
Cash paid for taxes ................................ $ 8,193 $ 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 nine months ended
October 3, 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 Oct. 3,
Description Non-Cash Charge Activity 1999
- ------------------------------------------ -------- --------- --------- ---------
(in thousands)
<S> <C> <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
In light of Actel's common and preferred equity interest in GateField,
an $8 million convertible note receivable, and considering the terms of certain
licensing and marketing agreements, Actel began accounting for its equity
interest in GateField under the equity method during the second quarter of 1999.
At October 3, 1999, the Company owned 190,529 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 390,529 shares, or 8.0% of the
total common shares of GateField. GateField common stock is currently listed on
the National Association of Security Dealers ("NASD") Over-The-Counter Bulletin
Board and had a market price of 4 1/16 at the close of market on November 3,
1999.
5. Inventories
Inventories consist of the following:
Oct. 3, Jan. 3,
1999 1999
------------ ------------
(in thousands)
Inventories:
Purchased parts and raw materials............. $ 1,878 $ 1,285
Work-in-process............................... 12,685 12,052
Finished goods................................ 8,290 12,332
------------ ------------
$ 22,853 $ 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.
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":
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
------------------------------------------ ---------------------------
Oct. 3, Oct. 4, Jul. 4, Oct. 3, Oct. 4,
1999 1998 1999 1999 1998
------------ ------------ ------------ ------------ ------------
(in thousands, except per share amounts)
Basic:
<S> <C> <C> <C> <C> <C>
Average common shares outstanding ........... 21,748 21,449 21,511 21,535 21,304
Shares used in computing net income per share 21,748 21,449 21,511 21,535 21,304
============ ============ ============ ============ ============
Net income .................................. $ 5,668 $ 3,837 $ 1,926 $ 11,815 $ 10,869
============ ============ ============ ============ ============
Net income per share ........................ $ 0.26 $ 0.18 $ 0.09 $ 0.55 $ 0.51
============ ============ ============ ============ ============
Diluted:
Average common shares outstanding ........... 21,748 21,449 21,511 21,535 21,304
Net effect of dilutive stock options - based
on the treasury stock method ............. 1,255 275 943 1,176 572
------------ ------------ ------------ ------------ ------------
Shares used in computing net income per share 23,003 21,724 22,454 22,711 21,876
============ ============ ============ ============ ============
Net income .................................. $ 5,668 $ 3,837 $ 1,926 $ 11,815 $ 10,869
============ ============ ============ ============ ============
Net income per share ........................ $ 0.25 $ 0.18 $ 0.09 $ 0.52 $ 0.50
============ ============ ============ ============ ============
</TABLE>
7. Comprehensive Income
The components of comprehensive income, net of tax, are as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
------------------------------------------ ---------------------------
Oct. 3, Oct. 4, Jul. 4, Oct. 3, Oct. 4,
1999 1998 1999 1999 1998
------------ ------------ ------------ ------------ ------------
(in thousands)
<S> <C> <C> <C> <C> <C>
Net Income.................................. $ 5,668 $ 3,837 $ 1,926 $ 11,815 $ 10,869
Change in net unrealized gain on
available-for-sale securities............ (23) 58 (86) (175) 62
------------ ------------ ------------ ------------ ------------
Total Comprehensive Income.................. $ 5,645 $ 3,895 $ 1,840 $ 11,640 $ 10,931
============ ============ ============ ============ ============
</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
third quarter of fiscal 1999, the Company continued in negotiations 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, are 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 revenues, average selling prices, gross margin,
financial resources, consummation of an announced acquisition of AutoGate Logic,
Inc., resolution of pending patent claims, and the impact of export licensing
requirements. 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 third quarter of fiscal 1999 were a record $43.2
million, which represents an increase of 4% compared with the Company's net
revenues for the second quarter of fiscal 1999 and an increase of 12% compared
with the Company's net revenues for the third quarter of fiscal 1998. Net
revenues for the first nine months of fiscal 1999 were $125.6 million, which
represents an increase of 10% compared with the Company's net revenues for the
first nine months of fiscal 1998.
The increase in sequential quarterly net revenues resulted from a 1%
increase in the overall average selling price ("ASP") of field programmable gate
arrays ("FPGAs"), due primarily from the strength of the Company's mature
product families, and an increase of 4% in unit shipments. The increase in net
revenues during the first nine months of fiscal 1999 compared with the same time
period in the prior year resulted from a 17% increase in unit shipments, which
was partially offset by a decrease of 8% in the ASP.
The year-to-year increase in quarterly net revenues resulted from an
increase of 15% in unit shipments, which was partially offset by a decline of 2%
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 third quarter of fiscal 1999 was a record 61.4% of
net revenues, compared with 61.0% of net revenues for the second quarter of
fiscal 1999 and 60.5% for the third quarter of fiscal 1998. Gross margin for the
first nine months of fiscal 1999 was 61.1% of net revenues, compared with 59.9%
of net revenues for the first nine months of fiscal year 1998.
The improved gross margin resulted from a number of factors, including
improved sort yields, especially on newer products; and better utilization of
manufacturing capacity. These items were more than enough to offset the
unfavorable impact of the strengthening yen against the dollar during the first
nine months of fiscal 1999 compared with the prior year.
The Company seeks to improve gross margin by reducing costs. These cost
reduction activities include 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.
Research and Development
Research and development expenditures for the third quarter of fiscal
1999 were $7.7 million, or 18% of net revenues, compared with $8.1 million, or
19% of net revenues, for the second quarter of fiscal 1999 and $8.0 million, or
21% of revenues, for the third quarter of fiscal 1998. The decrease in spending
in the third quarter of fiscal 1999 was due primarily to the cost reduction
efforts initiated by the Company during the second quarter of fiscal 1999.
Research and development expenditures for the first nine months of
fiscal 1999 were $24.3 million, or 19% of net revenues, compared with $22.7
million, or 20% of net revenues, for the first nine months of fiscal 1998. While
research and development expenditures increased by 7%, they declined as a
percentage of revenues principally because of the cost reduction efforts
initiated by the Company during the second quarter of fiscal 1999.
Selling, General, and Administrative
Selling, general, and administrative expenses for the third quarter of
fiscal 1999 were $11.3 million, or 26% of net revenues, compared with $13.2
million, or 32% of net revenues, for the second quarter of fiscal 1999 and $10.4
million, or 27% of net revenues, for the third quarter of fiscal 1998. Selling,
general, and administrative expenses for the first nine months of fiscal 1999
were $35.4 million, or 28% of net revenues, compared with $31.4 million, or 27%
of net revenues, for the first nine months of fiscal 1998.
The sequential decrease in selling, general, and administrative
expenses during the third quarter of fiscal 1999 was primarily the result of
restructure and other charges that the Company incurred during the prior
quarter. Selling and legal expenses in the prior quarter were higher than
historical norms.
The increase in selling, general, and administrative expenses during
the first nine months of fiscal 1999 compared with the prior year was primarily
the result of restructure and other charges that the Company incurred during the
second quarter of fiscal 1999. Legal expenses were also elevated in fiscal 1999
compared with the prior year due to the establishment of a reserve for the
estimated costs of settlement of claims for alleged patent infringement.
Interest Income and Other
Interest and other income for the third quarter of fiscal 1999 was
$941,000, compared with $721,000 for the second quarter of fiscal 1999 and
$672,000 for the third quarter of fiscal 1998. Interest and other income for the
first nine months of fiscal 1999 was $2.4 million, compared with $1.8 million
for the first nine months of fiscal 1998. The increases in interest and other
income were driven primarily by increased cash, cash equivalents, and short term
investments available for investing by the Company. The Company also recorded a
full quarter of interest income during the third quarter of fiscal 1999 on the
note receivable due from GateField Corporation that was consummated during the
second quarter of fiscal 1999.
Tax Provision
The Company's effective tax rates for the three months and nine months
ended October 3, 1999, were 31.0% and 31.5% respectively, compared with 32.5%
for the three months and nine months ended October 4, 1998. The decrease in the
effective tax rate during the third quarter and nine months ending of fiscal
1999 was due primarily to a reduction in the company's projected state income
taxes. In addition, the Company is anticipating an increase in the benefit of
state research and development tax credits and other state income tax
incentives. The effective tax rates are 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 third quarter of fiscal 1999, the Company's cash,
cash equivalents, and short-term investments were $84.1 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 and cash received from stock transactions.
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 October 3, 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
October 3, 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.
AGL
On October 5, 1999, the Company announced that it had agreed to acquire
AutoGate Logic, Inc. ("AGL") of Fremont, California. AGL is a software service
company that offers a range of development tools, including place and route and
timing analysis software. The Company anticipates that it will consummate its
acquisition of AGL in the fourth quarter of 1999, which may result in a one-time
write-off of in-process research and development and the booking of additional
goodwill. However, there can be no assurance that the Company and AGL will enter
into definitive agreements or that the conditions to closing contained in such
agreements will be satisfied or waived.
GateField
Pursuant to the Series C Preferred Stock Purchase Agreement between the
Company and GateField dated as of August 14, 1998, and amended as of May 25,
1999, the Company has a right of first refusal to purchase its pro rata share of
certain new securities GateField may wish to sell. On September 30, 1999,
GateField sold, and two subsidiaries of Mitsui High-tec Inc. (Mitsui Create USA,
Inc. and MHT American Holdings, Inc.) purchased, a total of 307,696 shares of
GateField Common Stock for $2.0 million. The owners of GateField's Series B
Preferred Stock, Idanta Partners, Ltd. and its affiliates, exercised their
rights to participate on a pro-rata basis and purchased a total of 52,035 shares
of GateField Common Stock for $338,223.44. The Company exercised its right to
participate on a pro-rata basis and purchased 112,129 shares of GateField Common
Stock for $728,829.75. The purchase of GateField Common Stock by the Company was
effected pursuant to a Common Stock Purchase Agreement between the Company and
GateField dated as of September 30, 1999.
Additional Quarterly Information
The following table presents certain unaudited quarterly results for
each of the eight quarters in the period ended October 3, 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
Oct. 3, Jul. 4, Apr. 4, Jan. 3, Oct. 4, Jun 28, Mar.29, Dec.28,
1999 1999 1999 1999 1998 1998 1998 1997
------- ------- ------- ------- ------- ------- ------- -------
(unaudited, in thousands except per share amounts)
Statement of Operations Data:
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net revenues ................................. $43,162 $41,619 $40,838 $40,174 $38,628 $37,160 $38,465 $37,012
Cost of revenues ............................. 16,659 16,238 15,994 15,797 15,245 14,815 15,785 15,287
Gross profit ................................. 26,503 25,381 24,844 24,377 23,383 22,345 22,680 21,725
Research and development ..................... 7,740 8,064 8,447 8,483 7,960 7,527 7,250 6,816
Selling, general, and administrative ......... 11,271 13,243 10,931 10,359 10,411 10,392 10,581 10,313
Restructure and other charges ................ -- 1,963 -- -- -- -- -- --
Income from operations ....................... 7,492 2,111 5,466 5,535 5,012 4,426 4,849 4,596
Net income ................................... $ 5,668 $ 1,926 $ 4,221 $ 4,118 $ 3,837 $ 3,419 $ 3,613 $ 3,382
Net income per share:
Basic ..................................... $ 0.26 $ 0.09 $ 0.20 $ 0.20 $ 0.18 $ 0.16 $ 0.17 $ 0.16
Diluted ................................... $ 0.25 $ 0.09 $ 0.19 $ 0.19 $ 0.18 $ 0.16 $ 0.17 $ 0.16
Shares used in computing net income per share:
Basic ..................................... 21,748 21,511 21,347 21,091 21,449 21,288 21,163 21,032
Diluted ................................... 23,003 22,454 22,673 22,201 21,724 21,968 21,864 21,623
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended
Oct. 3, Jul. 4, Apr. 4, Jan. 3, Oct. 4, Jun 28, Mar.29, Dec.28,
1999 1999 1999 1999 1998 1998 1998 1997
------- ------- ------- ------- ------- ------- ------- -------
As a Percentage of Net Revenues:
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net revenues ................................. 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of revenues ............................. 38.6 39.0 39.2 39.3 39.5 39.9 41.0 41.3
Gross margin ................................. 61.4 61.0 60.8 60.7 60.5 60.1 59.0 58.7
Research and development ..................... 17.9 19.4 20.7 21.1 20.6 20.3 18.9 18.4
Selling, general, and administrative ......... 26.1 31.8 26.7 25.8 27.0 28.0 27.5 27.9
Restructure and other charges ................ -- 4.7 -- -- -- -- -- --
Income from operations ....................... 17.4 5.1 13.4 13.8 13.0 11.9 12.6 12.4
Net income ................................... 13.1 4.6 10.3 10.3 9.9 9.2 9.4 9.1
</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.
State of Readiness
The company has completed its preparations to assure that all mission
critical systems will continue to function properly in the year 2000. Measures
taken have included upgrading its mission critical Information Technology (IT)
systems, including the ERP system (modules for order entry, general ledger,
billing, production tracking, inventory, and shipping), local and wide area
networks, desktops, and non-IT systems such as test equipment and certain
hardware with embedded programs to Year 2000 compliant versions. In addition to
installing Year 2000 compliant versions, where practical, systems were tested to
simulate operations with a system date later than December 31, 1999.
The Company has completed a review of its product lines (FPGA devices
and programming software and hardware) for purposes of determining Year 2000
compliance. The Company's 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 was
provided in December 1998 to all customers with maintenance contracts.
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.
Year 2000 Related Costs
The Company has utilized 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 and does
not anticipate any further significant spending on this issue. The total cost of
the Year 2000 project has been funded through operating cash flows.
Risks
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 further believes that its most likely worst-case Year 2000 scenario
would involve problems with the systems of external parties rather than with the
Company's internal systems or 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.
The Company has queried all of its significant suppliers and
subcontractors 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 and distributors 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 to be Year 2000 compliant
could reduce or delay the placement of orders for the Company's products or the
resale of those products to end customers.
Contingency Plans
Included in its 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 undertaken in
preparation for a Year 2000 operational disruption. The plan includes primarily
manual workarounds and planned increases in 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
third quarter of fiscal 1999, the Company continued in negotiations 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, are likely to
have a materially adverse effect on the Company's financial condition, results
of operations, or liquidity.
Item 6. Exhibits and Reports on Form 8-K.
(a)......Exhibits.
None
(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: November 4, 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)
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