Back to GetFilings.com
1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------
Form 10-K
------------------
(Mark One)
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
----------------
COMMISSION FILE NUMBER: 0-16617
ALTERA CORPORATION
(Exact Name of Registrant as Specified in its Charter)
DELAWARE
(State or Other Jurisdiction of
Incorporation or Organization)
77-0016691
(I.R.S. Employer
Identification No.)
101 INNOVATION DRIVE, SAN JOSE, CALIFORNIA 95134
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code: (408) 544-7000
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
None
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
COMMON STOCK
(Title of Class)
--------------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K (Section 229.405 of this chapter) is not contained herein,
and will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [ ]
The aggregate market value of the registrant's Common Stock held by
non-affiliates of the registrant was approximately $14,554,443,000 as of March
1, 2000, based upon the closing sale price on the Nasdaq National Market for
that date.
There were 199,520,091 shares of the registrant's Common Stock issued and
outstanding as of March 1, 2000.
DOCUMENTS INCORPORATED BY REFERENCE
Items 5 and 6 of Part II incorporate information by reference from the Annual
Report to Stockholders for the fiscal year ended December 31, 1999.
Items 11, 12 and 13 of Part III incorporate information by reference from the
Proxy Statement for the Annual Meeting of Stockholders to be held on May 10,
2000.
2
Except for the historical information presented, the matters discussed in this
Form 10-K include forward-looking statements within the meaning of Section 27A
of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of
1934. The Company's actual results could differ materially from those projected
in the forward-looking statements as a result of risk factors that include, but
are not limited to, those discussed under the caption "Future Results" under
Item 7 herein, as well as factors discussed elsewhere in this Form 10-K.
PART I
ITEM 1. BUSINESS.
GENERAL
Altera Corporation ("Altera" or the "Company") designs, manufactures and markets
programmable logic devices ("PLDs") and associated development tools.
Programmable logic devices are semiconductor integrated circuits ("chips" or
"ICs") that offer on-site programmability to customers using the Company's
proprietary software, which operates on personal computers and engineering
workstations. Founded in 1983, Altera was the first supplier of Complementary
Metal Oxide Semiconductor ("CMOS") programmable logic devices and is currently a
global leader in this market. The Company offers a broad line of CMOS
programmable logic devices that address high-speed, high-density and low-power
applications. The Company's products serve a wide range of markets, including
telecommunications, data communications, electronic data processing (EDP) and
industrial applications.
STRATEGY
According to Dataquest, the CMOS logic market consists of the following
segments: semi-custom or application specific integrated circuits ("ASICs"),
standard logic, full custom devices and other forms of logic ICs, including
chipsets. The ASIC segment is comprised of programmable logic, gate arrays and
cell-based ICs (also referred to as standard cells). In a broad sense, all of
these devices are indirectly competitive as they generally may be used in the
same types of applications in electronic products. However, differences in cost,
performance, density, flexibility, ease-of-use and time-to-market dictate the
extent to which they may be directly competitive for particular applications.
Programmable logic's primary advantage is that it allows for quicker design
cycles, meeting customers' needs for quick time-to-market. Programmable logic
allows customers to experiment and iterate their designs in a relatively short
amount of time and with minimum cost. In most instances, this is quicker and
easier than achieving a design in a deterministic fashion. This advantage is
amplified by the ability to have working silicon at the time the design is
finalized.
Another advantage of programmable logic is that, particularly for small volume
applications, it lowers the per unit cost of producing customized components.
While programmable logic inherently consumes more silicon (because of its
generality and on-chip programming overhead), in many cases, depending on the
complexity of the design and total unit requirements, this higher per unit cost
is more than offset by the high fixed costs of layout and mask-making required
to produce a custom IC. The cost advantage is further enhanced by the need to
hold less inventory and the fact that customization occurs closer to the end
application.
Due to PLD cost decreases through high-volume manufacturing and the use of
emerging process technologies, Altera has been able to introduce new product
families that, as compared to their predecessors, provide more functionality at
a much lower price for any given density. These new product families achieve the
integration, density, performance and cost advantages of other ASIC solutions.
The Company believes that its competitiveness within the ASIC segment in these
areas, along with the inherent advantages of programmable logic discussed above,
will enable it to compete for designs traditionally served by other ASICs. In
the short term, the lower prices associated with the Company's new product
offerings have slowed its sales growth. However, Altera believes that these new
product offerings will be important to sustaining long-term sales growth as they
broaden the appeal of programmable logic. See "Competition."
2
3
PRODUCTS
Altera sells a wide range of products, with a total of more than 1,000 product
options among its PLD families. The Company offers PLDs in two fundamental
technologies: its MAX products, which use floating-gate process technology, and
its FLEX and APEX products, which use SRAM-based process technology. Altera's
proprietary development tools, the MAX+PLUS II and Quartus software provides
design development and programming support for all its PLDs. Altera also offers
hardware used in programming PLDs.
Devices:
Altera offers a wide range of general-purpose PLD families. Each device family
offers unique features as well as differing density and performance
specifications for implementing particular applications. Some of Altera's major
device families include the following:
MAX 7000, MAX 7000A and MAX 7000B: The MAX 7000, MAX 7000A and MAX 7000B device
families are among the fastest and most widely used high-density programmable
logic families in the industry. Devices in these families range from 600 to
10,000 usable gates and up to 256 pins and provide several enhanced features,
including support for the JTAG boundary-scan test circuitry and in-system
programmability ("ISP"). ISP functionality allows devices to be programmed after
they are soldered onto the printed circuit board, thereby minimizing the
possibility of lead damage or electrostatic discharge exposure. The MAX 7000
device family, which includes 5.0-V MAX 7000 devices and 5.0-V ISP-based MAX
7000S devices, the 3.3-V MAX 7000A device family and the industry's fastest
programmable logic solution, the 2.5 V MAX 7000B device family, are fabricated
on advanced CMOS EEPROM processes, providing a high-density, high-speed,
I/O-intensive programmable logic solution.
MAX 9000: The MAX 9000 device family offers the efficient macrocell architecture
of MAX 7000 devices with higher densities. Devices in this family range from
6,000 to 12,000 usable gates and up to 356 pins. The EEPROM-based MAX 9000
devices are PCI-compliant and offer ISP capability.
FLEX 8000: The SRAM-based FLEX 8000 device family uses the Altera-patented
FastTrack Interconnect structure, a continuous routing structure that allows for
fast, predictable interconnect delays. Devices in this family range from 2,500
to 16,000 usable gates and up to 304 pins. FLEX 8000 devices have a 5.0-V supply
voltage and can interface with 3.3-V device through the MultiVolt(TM) I/O
feature. These SRAM-based devices provide low standby power and in-system
reconfigurability.
FLEX 6000: Altera's SRAM-based FLEX 6000 family delivers the flexibility and
time-to-market advantage of programmable logic at prices that are competitive
with gate arrays. Devices in this family range from 10,000 to 24,000 usable
gates and up to 256 pins and include devices that operate at both 5.0-V and
3.3-V supply voltages. Featuring the very efficient OptiFLEX architecture, FLEX
6000 devices provide a flexible and cost-effective alternative to gate arrays
for high-volume production. Every feature in the OptiFLEX architecture is
targeted at producing maximum performance and utilization in the smallest
possible die area.
FLEX 10K, FLEX 10KA and FLEX 10KE: Altera's SRAM-based FLEX 10K, FLEX 10KA and
FLEX 10KE device families offer a combination of logic and embedded memory on a
single chip architecture. Devices in these PLD families range from 10,000 to
250,000 usable gates and up to 672 pins. With these high densities, the FLEX
10K, FLEX 10KA and FLEX 10KE families may be used to address the increasing
levels of integration needed to accommodate today's complex system-on-a-chip
designs. The FLEX 10K family includes 0.5- and 0.42-micron devices, the FLEX
10KA family includes 0.35- and 0.3-micron devices and the FLEX 10KE family
includes 0.25- and 0.22-micron devices.
APEX 20K and APEX 20KE: Altera's SRAM-based APEX 20K and APEX 20KE device
families offer complete system-level integration on a single device. Devices in
these families are planned to range from 30,000 to over 1.5 million usable gates
and up to 1,020 pins. With high densities and performance enhancements, the APEX
20K and APEX 20KE families deliver the latest in design flexibility and
efficiency for high-performance, system-on-a-programmable-chip design. APEX 20K
devices, which operate at a 2.5-V supply voltage, and APEX 20KE devices, which
will operate at a 1.8-V supply voltage, employ the innovative MultiCore
architecture, which combines and enhances the strengths of Altera's three
previous PLD architectures. The APEX 20K and APEX 20KE devices first became
available in March and April 1999, respectively, and are supported by Altera's
Quartus development software.
3
4
Development Tools:
The Company's development system software and hardware are used to design and
implement logic designs on its PLDs. Altera's MAX+PLUS II and Quartus software
development tools run under the Microsoft Windows 95 and NT operating
environments on personal computers in addition to the UNIX environment on SUN,
HP and IBM workstations. The Company also provides interfaces to many industry
standard electronic design automation ("EDA") tools, including those offered by
Cadence Design Systems, Inc., Mentor Graphics Corporation and Synopsys, Inc. The
Company also sells hardware for programming its PLDs.
MARKETING, SALES AND CUSTOMERS
The Company markets its products in the United States and Canada through a
network of direct sales personnel, independent sales representatives and
electronics distributors. The Company also has domestic sales management offices
in major metropolitan areas throughout the United States. The Company's direct
sales personnel and independent sales representatives focus on major strategic
accounts. Distributors generally focus selling activities on the broad base of
small and medium-size customers, as well as demand fulfillment services to
Altera's major strategic accounts.
In the United States, Altera's distributors currently include Arrow Electronics
Inc. and Wyle Electronics (a division of VEBA Electronics AG, which is owned by
VEBA AG, Germany's fourth largest company). These distributors are responsible
for creating customer demand from their base of customers, providing technical
support and other value-added services and filling customers' orders. From time
to time, the Company expects that it may add or delete distributors from its
selling organization as it deems appropriate to the level of business.
The Company's international business is supported by a network of distributors
throughout Europe and Asia. The Company has representation in every major
European country, Israel, Australia, South America and various countries
throughout the Pacific Rim including Japan. International sales support offices
are located in the metropolitan areas of Helsinki, Hong Kong, Hsinchu (Taiwan),
London, Ottawa, Paris, Seoul, Stockholm, Stuttgart, Tokyo and Turin.
Customer service and support are important aspects of selling and marketing the
Company's products. Altera provides several levels of technical user support,
including applications assistance, design services and customer training. The
Company's applications engineering staff publishes data sheets and application
notes, conducts technical seminars and provides design assistance via Internet
and electronic links to the customer's design station. Customer service is
supported with inventory maintained both by Altera and at distributors'
locations to provide short-term delivery of chips.
During each of the last three years, international sales constituted nearly half
of the Company's total sales. Through 1999, all international sales were
denominated in U.S. dollars. The Company's international sales are subject to
those risks common to all international activities, including governmental
regulation, possible imposition of tariffs or other trade barriers and currency
fluctuations.
In the year ended December 31, 1999, worldwide sales through distributors
accounted for over 90% of total sales. In 1999, the three largest distributors
accounted for 34%, 19% and 13% of sales. In 1998, the three largest distributors
accounted for 30%, 21% and 11% of sales, whereas in 1997, they accounted for
32%, 18% and 11% of sales, respectively. No single end customer accounted for
more than 10% of the Company's sales in 1999, 1998 or 1997. International sales
constituted 44%, 45% and 45% of sales in 1999, 1998 and 1997, respectively.
COMPETITION
The ASIC Segment:
According to Dataquest, the CMOS logic market consists of the following
segments: ASICs, standard logic, full custom devices and other forms of logic
ICs, including chipsets. The ASIC segment is comprised of programmable logic,
gate arrays and cell-based ICs (also referred to as standard cells). In a broad
sense, all of these devices are indirectly competitive as they generally may be
used in the same types of applications in electronic products. However,
differences in cost, performance, density, flexibility, ease-of-use and
time-to-market dictate the extent to which they may be directly competitive for
particular applications. As PLDs have increased in density and performance and
decreased in cost, they have become more directly competitive with other ASICs,
especially gate arrays. With the introduction of the Company's FLEX 10K family
and new APEX 20K family, which are Altera's highest density PLDs, along with its
FLEX 6000 devices, which are designed and priced to be very competitive with
lower density gate arrays, the Company seeks to grow by directly competing with
other companies in the ASIC segment. Many of the companies in the ASIC segment
have substantially greater financial, technical and marketing resources than the
Company. There can be no assurance that the Company will be successful in
competing in the ASIC segment of the CMOS logic market.
4
5
The Programmable Logic Sub-Segment:
The principal factors of competition in the programmable logic sub-segment
include the capability of software development tools and system-level functional
programming blocks, product performance and features, quality and reliability,
pricing, technical service and support, the ability to respond rapidly to
technical innovation and customer service. The Company believes it competes
favorably with respect to these factors and that its proprietary device
architecture and its installed base of development systems with proprietary
software may provide some competitive advantage. However, as is true of the
semiconductor industry as a whole, the PLD sub-segment is intensely competitive
and is characterized by rapid technological change, rapid rates of product
obsolescence and price erosion resulting from both product obsolescence and
price competition. All of these factors may influence the Company's future
operating results.
The Company experiences significant direct competition from a number of other
companies which are in the programmable logic sub-segment. The Company's
competition in this market sub-segment is from suppliers of products that are
marketed as either field-programmable gate arrays ("FPGAs") or complex PLDs
("CPLDs").
Companies that currently compete with Altera in its core business may have
proprietary wafer manufacturing ability, preferred vendor status with many of
the Company's customers, extensive marketing power and name recognition, greater
financial resources than those of the Company and other significant advantages
over the Company. Additionally, the semiconductor industry as a whole includes
many large domestic and foreign companies that have substantially greater
financial, technical and marketing resources than the Company. The Company
expects that as the dollar volume of the programmable logic sub-segment grows,
the attractiveness of this sub-segment to larger, more powerful competitors will
continue to increase. Substantial direct or indirect competition could have a
material adverse effect on the Company's future sales and operating results.
MANUFACTURING
The Company does not directly manufacture its silicon wafers. Altera's wafers
are produced using various semiconductor foundry wafer fabrication service
providers. This enables Altera to take advantage of these suppliers' high volume
economies of scale, as well as direct and more timely access to advancing
process technology.
Altera presently has its primary wafer supply arrangements with three
semiconductor vendors: Sharp, TSMC, and WaferTech. The Company may negotiate
additional foundry contracts and establish other sources of wafer supply for its
products as such arrangements become economically useful or technically
necessary. Although there are a number of new state-of-the-art wafer fabrication
facilities currently under construction around the world, semiconductor foundry
capacity can become limited quickly and without much notice. Furthermore, since
only newer fabrication or substantially retrofitted facilities are able to
manufacture wafers that incorporate leading edge technologies, any significant
decrease in capacity of these facilities would have a material adverse effect on
the Company's ability to obtain wafer supply for its newer products.
Accordingly, there can be no assurance that any shortage in foundry
manufacturing capacity will not result in production problems for the Company in
the future.
In June 1996, the Company, TSMC and several other partners formed a joint
venture called WaferTech, LLC ("WaferTech") to build and operate a wafer
manufacturing plant in Camas, Washington. In return for a $140.4 million cash
investment, the Company received an 18% equity ownership in the joint-venture
company and certain rights and obligations to procure output from the fab at
market prices. In January 1999, Altera purchased from another joint venture
partner, Analog Devices, an additional 5% equity ownership interest in WaferTech
for approximately $37.5 million. This further investment in WaferTech provides
the Company with additional rights and obligations to future foundry output. In
October 1999, the Company made a $23.0 million cash investment in WaferTech,
which did not change the Company's ownership interests in WaferTech or its
rights and obligations to future foundry output. The Company also has an
obligation to guarantee a pro rata share of debt incurred by WaferTech up to a
maximum of $45 million. In May 1998, WaferTech secured a loan facility of up to
$350 million which was subsequently reduced to $225 million in December 1998.
This facility was increased to $350 million in 1999. To date, the Company has
not been called upon to guarantee this or any other debt incurred by WaferTech.
WaferTech began its initial wafer production shipments in October 1998. Based on
WaferTech's production projections, the Company believes that it will meet its
minimum purchase obligations from WaferTech through at least 2000. There can be
no assurance that WaferTech will remain sufficiently capitalized or on schedule
with its production projections, and WaferTech's failure to do so could have a
material adverse effect on the Company's future operating results.
The Company depends upon its foundry vendors to produce wafers at acceptable
yields and to deliver them to the Company in a timely manner. The manufacture of
advanced CMOS semiconductor wafers is a highly complex process, and the Company
has from time to time experienced difficulties in obtaining acceptable yields
and timely deliveries from its suppliers. Good production yields are
particularly important to the Company's business, including its ability to meet
customers' demand for products and to
5
6
maintain profit margins. Wafer production yields are dependent on a wide
variety of factors, including the level of contaminants in the manufacturing
environment, impurities in the materials used and the performance of personnel
and equipment. As is common in the semiconductor industry, the Company has
experienced and expects to experience production yield problems from time to
time. Difficulties in production yields can often occur when the Company is
beginning production of new products or transitioning to new processes. These
difficulties can potentially result in significantly higher costs and lower
product availability. For example, in the second quarter of 1999, difficulties
with a vendor's manufacturing process limited the availability of packaging
material (piece parts) used in certain of the Company's new and proprietary
FineLine BGA(TM) ("ball-grid array") packages causing limited production. This
in turn limited shipments of the Company's new FLEX 10KE product family.
Management expects to continue to introduce new and established products using
new process technologies and may encounter similar start-up difficulties during
the transition to such process technologies. Further, production throughput
times vary considerably among the Company's wafer suppliers, and the Company may
experience delays from time to time in processing some of its products which
also may result in higher costs and lower product availability. The Company
expects that, as is customary in the semiconductor business, in order to
maintain or enhance its competitive position, it will continue to convert its
fabrication process arrangements to larger wafer sizes and smaller circuit
geometries, to more advanced process technologies or to new suppliers. Such
conversions entail inherent technological risks that can adversely affect
yields, costs and delivery lead time. In addition, if for any reason the Company
were required to seek alternative sources of supply, shipments could be delayed
significantly while such sources are qualified for volume production, and any
significant delay could have a material adverse effect on the Company's
operating results. After wafer manufacturing is completed, each wafer is tested
using a variety of test and handling equipment. Such wafer testing is
accomplished at Sharp, TSMC, WaferTech and the Company's Pilot Line facility in
San Jose (which is used primarily for new product development). This testing is
performed on equipment owned by the Company and consigned to the vendors.
Resulting wafers are shipped to various Asian assembly suppliers, where good die
are separated into individual chips that are then encapsulated in ceramic or
plastic packages. As is the case with the Company's wafer supply business, the
Company employs a number of independent suppliers for assembly purposes. This
enables the Company to take advantage of subcontractor high volume
manufacturing, related cost savings, speed and supply flexibility. It also
provides the Company with timely access to cost-effective advanced process and
package technologies. Altera purchases almost all of its assembly services from
ASAT (Hong Kong), ASE (Malaysia) and AMKOR (Korea and the Philippines).
Following assembly, each of the packaged units receives final testing, marking
and inspection prior to shipment to customers. The Company obtains almost all of
its final test and back-end operation services from ASE, AMKOR and ASAT. Final
testing by these assembly suppliers is accomplished through the use of Altera's
proprietary test software and hardware, which is consigned to or owned by such
suppliers and/or third-party commercial testers. These suppliers also handle
shipment of the products to the Company's customers.
Additionally, almost all of the manufacturing, assembly, testing and packaging
of Altera's development system hardware products is performed by outside
contractors. Although the Company's wafer fabrication, assembly and other
subcontractors have not recently experienced any serious work stoppages, the
economic, social and political situations in countries where certain
subcontractors are located are unpredictable and can be volatile. Any prolonged
work stoppages or other inability of the Company to manufacture and assemble its
products would have a material adverse effect on the Company's operating
results. Furthermore, economic risks, such as extreme currency fluctuations,
adverse changes in tax laws, tariff or freight rates or interruptions in air
transportation, could have a material adverse effect on the Company's operating
results.
BACKLOG
The Company's backlog of released orders as of December 31, 1999 was
approximately $309.4 million as compared to approximately $142.6 million at
December 31, 1998. The Company's backlog consists of OEM customer-released
orders that are requested for delivery within the next six months and
distributor orders that are requested for delivery within the next three months.
The Company produces standard products that may be shipped from inventory within
a short time after receipt of an order. The Company's business has been
characterized by a high percentage of orders with near-term delivery schedules
(turns orders). At times, due to high demand and supply constraints in certain
products, lead times can lengthen, causing an increase in backlog. However,
orders constituting the Company's current backlog are cancelable without
significant penalty at the option of the purchaser, thereby decreasing backlog
during periods of lower demand. In addition, distributor shipments are subject
to price adjustments. As discussed in the Notes to the Consolidated Financial
Statements under Item 8 herein, the Company adopted a new revenue recognition
method in the fourth quarter of 1997 with an effective date of January 1, 1997,
which involves the deferral of revenue recognition on shipments to distributors
until the product is resold to the end customers. Distributor orders accounted
for over 90% of the Company's backlog as of December 31, 1999. Historically,
backlog has been a poor predictor of future customer demand. For all of these
reasons, backlog as of any particular date should not be used as a predictor of
sales for any future period.
6
7
RESEARCH AND DEVELOPMENT
The Company's research and development activities have focused primarily on
general-purpose programmable logic devices and on the associated development
software and hardware. The Company has developed these related products in
parallel to provide software support to customers simultaneous with circuit
introduction. As a result of the Company's research and development efforts, it
has introduced a number of new PLD families, such as the FLEX 6000, FLEX 10KE,
FLEX 10KA, MAX 3000A, MAX 7000A, MAX 7000B, APEX 20K and APEX 20KE device
families. The Company has also redesigned a number of its products to
accommodate their manufacture on new wafer fabrication processes. In 1999, the
Company also released Quartus, its fourth generation software. Additionally, the
Company typically releases new versions of its proprietary software on a
quarterly basis.
The Company's research and development expenditures in 1999, 1998 and 1997, were
$86.1 million, $59.9 million and $54.4 million, respectively. The Company has
not capitalized research and development or software costs to date. The Company
intends to continue to spend substantial amounts on research and development in
order to continue to develop new products and achieve market acceptance for such
products, particularly in light of the industry pattern of short product life
cycles and increasing competition within the CMOS logic market. Even if such
goals are accomplished, there can be no assurance that these products will
achieve significant market acceptance. If the Company were unable to
successfully define, develop and introduce competitive new products, and enhance
its existing products, its future operating results would be adversely affected.
PATENTS AND LICENSES
The Company owns numerous United States patents and has additional pending
United States patent applications on its semiconductor products. The Company
also has technology licensing agreements with Vantis, Cypress and Intel, giving
the Company royalty-free rights to design, manufacture and package products
using certain patents they control.
Although the Company's patents and patent applications may have value in
discouraging competitive entry into the Company's market segment and the Company
believes that its current licenses will assist it in developing additional
products, there can be no assurance that any valuable new patents will be
granted to the Company, that the Company's patents will provide meaningful
protection from competition or that any additional products will be developed
based on any of the licenses that the Company currently holds. The Company
believes that its future success will depend primarily upon the technical
competence and creative skills of its personnel, rather than on its patents,
licenses, or other proprietary rights.
In the future, the Company may decide to incur litigation expenses to enforce
its intellectual property rights against third parties. There is no assurance
that any such litigation would be successful or that the Company's patents would
be upheld if challenged.
The Company, in the normal course of business, from time to time receives and
makes inquiries with respect to possible patent infringements. As a result of
inquiries received from third parties, it may be necessary or desirable for the
Company to obtain additional licenses relating to one or more of its current or
future products. There can be no assurance that such additional licenses could
be obtained, and, if obtainable, could be obtained on conditions which would not
have a material adverse effect on the Company's operating results. In addition,
if patent litigation ensued, there can be no assurance that these third parties
would not succeed in obtaining significant monetary damages or an injunction
against the manufacture and sale of one or more of the Company's product
families.
EMPLOYEES
As of December 31, 1999, the Company had 1,398 regular employees. The success of
the Company is dependent in large part upon the continued service of its key
management, technical, sales and support employees and on its ability to
continue to attract and retain additional qualified employees. The competition
for such employees is intense and the loss of key employees could have an
adverse effect on the Company.
7
8
ITEM 2. PROPERTIES.
The Company's headquarters facility is located in San Jose, California on
approximately 25 acres of land, which the Company purchased in June 1995. The
campus for the headquarters facility consists of four interconnected buildings
totaling approximately 500,000 square feet. Design, limited manufacturing,
research, marketing and administrative activities are performed in these
facilities. In 1998, the Company opened its 62,000 square foot design and test
engineering facility in Penang, Malaysia, which is situated on land leased from
the Penang Development Corporation. The Company also leases on a short-term
basis office facilities for its domestic and international sales management
offices and its European Technology Center (UK). The Company believes that its
existing facilities and planned future expansions are adequate for its current
and foreseeable future needs.
ITEM 3. LEGAL PROCEEDINGS.
The Company is a party to lawsuits or may in the future become a party to
lawsuits involving various types of claims, including, but not limited to,
unfair competition and intellectual property matters. Legal proceedings tend to
be unpredictable and costly and may be affected by events outside the control of
the Company. There is no assurance that litigation will not have an adverse
effect on the Company's financial position or results of operations. The
Company's major litigation matters as of December 31, 1999 are described below.
In June 1993, Xilinx, Inc. ("Xilinx") brought suit against the Company seeking
monetary damages and injunctive relief based on the Company's alleged
infringement of certain patents held by Xilinx. In June 1993, the Company
brought suit against Xilinx, seeking monetary damages and injunctive relief
based on Xilinx's alleged infringement of certain patents held by the Company.
In April 1995, the Company filed a separate lawsuit against Xilinx in Delaware,
Xilinx's state of incorporation, seeking monetary damages and injunctive relief
based on Xilinx's alleged infringement of one of the Company's patents. In May
1995, Xilinx counter-claimed against the Company in Delaware, asserting defenses
and seeking monetary damages and injunctive relief based on the Company's
alleged infringement of certain patents held by Xilinx. Subsequently, the
Delaware case has been transferred to California. In October 1998, both parties
filed motions for summary judgment with respect to certain issues in the first
two cases regarding infringement or non-infringement and validity or invalidity
of the patents at issue in the respective cases. In October - December 1999, the
Court ruled on the motions. In the Xilinx suit, the Court ruled that one of
Xilinx's claims is invalid and another claim was withdrawn. The Court also ruled
that issues of infringement and validity on the remaining claims are subject to
trial scheduled to begin May 8, 2000. In the Company's suit, the Court granted
that one of the Company's patents is invalid, granted that one patent is not
infringed, and granted another patent is not literally infringed but denied
non-infringement under doctrine of equivalence. The trial for the Company's suit
is scheduled to begin June 19, 2000. The Court also ordered that the parties
engage in mediation, which began February 24, 2000; although no substantial
progress to resolution has been made, mediation is continuing. Due to the nature
of the litigation with Xilinx and because the lawsuits are still in the
pre-trial stage, the Company's management cannot estimate the total expense, the
possible loss, if any, or the range of loss that may ultimately be incurred in
connection with the allegations. Management cannot ensure that Xilinx will not
succeed in obtaining significant monetary damages or an injunction against the
manufacture and sale of the Company's products, including but not limited to,
MAX 5000, MAX 7000, FLEX 8000 or MAX 9000 families of products, or succeed in
invalidating other of the Company's patents. Although no assurances can be given
as to the results of these cases, the Company believes that it has meritorious
defenses to the claims asserted in the Xilinx suit and intends to defend itself
vigorously in this matter. The foregoing is a forward-looking statement subject
to the risks and uncertainties of the legal proceeding, including events
occurring during the trial outside the control of the Company and
unpredictability as to its ultimate outcome.
In August 1994, Advanced Micro Devices, Inc. ("AMD") brought suit against the
Company seeking monetary damages and injunctive relief based on the Company's
alleged infringement of certain patents held by AMD. In September 1994, the
Company answered the complaint asserting that it is licensed to use the patents
which AMD claims are infringed and filed a counterclaim against AMD alleging
infringement of certain patents held by the Company. In October 1997, upon
completion of trials bifurcated from the infringement claims, the District Court
ruled that the Company is licensed under all patents asserted by AMD in the
suit. In December 1997, AMD filed a Notice of Appeal of the District Court's
rulings. In April 1999, the Federal Circuit Court ruled in AMD's favor on its
appeal, finding that the Company is not licensed to AMD's patents, and remanded
the case back to the District Court for further proceedings. In 1999, Lattice
Corporation entered into an agreement with AMD which includes assuming both the
claims against the Company and the claims against AMD and has replaced AMD in
the suit with Vantis Corporation, a wholly owned subsidiary of Lattice. Due to
the nature of the litigation, the Company's management cannot estimate the total
expense, the possible loss, if any, or the range of loss that may ultimately be
incurred in connection with the allegations. Management cannot ensure that
Lattice will not succeed in obtaining significant monetary damages or an
injunction against the manufacture and sale of the Classic, MAX 7000, FLEX 8000,
MAX 9000 and FLEX 10K product families, or succeed in invalidating any of the
Company's patents remaining in the suit. Although no assurances can be given as
to
8
9
the results of this case, the Company intends to defend itself vigorously in the
matter. The foregoing is a forward-looking statement subject to risks and
uncertainties of the legal proceeding, including events occurring during
litigation proceedings outside the control of the Company and unpredictability
as to its ultimate outcome.
In November 1999, the Company filed suit against Clear Logic Inc. ("Clear
Logic") alleging that Clear Logic is unlawfully appropriating the Company's
registered mask work technology in violation of the federal mask work statute
and that Clear Logic has unlawfully interfered with the Company's relationships
and contracts with its customers. The lawsuit seeks compensatory and punitive
damages and an injunction to stop Clear Logic from unlawfully using the
Company's mask work technology and from interfering with the Company's
customers. Clear Logic has answered the complaint by denying that it is
infringing the Company's mask work technology and denying that it has unlawfully
interfered with the Company's relationships and contracts with its customers.
Clear Logic has also filed a counterclaim against the Company for unfair
competition under California law alleging that the Company has made false
statements to its customers regarding Clear Logic. Due to the nature of the
litigation with Clear Logic and because the lawsuit is still in the pre-trial
state, the Company's management cannot estimate the total expenses, the possible
loss, if any, or the range of loss that may ultimately be incurred in connection
with the counterclaim allegations. Although no assurances can be given as to the
results of this case, the Company intends to defend itself vigorously in the
matter. The foregoing is a forward-looking statement subject to risks and
uncertainties of the legal proceeding, including events occurring during
litigation proceedings outside the control of the Company and unpredictability
as to its ultimate outcome.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
NONE.
9
10
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The textual portion of the section entitled "About Your Investment" and the
section entitled "Corporate Directory" in the Company's 1999 Annual Report to
Stockholders for the year ended December 31, 1999 ("1999 Annual Report") are
incorporated herein by reference.
The Company believes factors such as quarter-to-quarter variances in financial
results, announcements of new products, new orders and order rate variations by
the Company or its competitors could cause the market price of its Common Stock
to fluctuate substantially. In addition, the stock prices for many high
technology companies experience large fluctuations, which are often unrelated to
the operating performance of the specific companies. Broad market fluctuations,
as well as general economic conditions such as a recessionary period or high
interest rates, may adversely affect the market price of the Company's Common
Stock.
ITEM 6. SELECTED FINANCIAL DATA.
The section entitled "Selected Consolidated Financial Data" in the Company's
1999 Annual Report is incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
RESULTS OF OPERATIONS
Altera designs, manufactures and markets high-performance, high-density,
programmable logic devices and associated computer aided engineering logic
development tools. Programmable logic devices are semiconductor chips that may
be programmed on-site, using software tools that run on personal computers or
engineering workstations. User benefits include ease of use, lower risk and fast
time-to-market. Altera's CMOS-based programmable logic devices address
high-speed, high-density and low-power applications in the telecommunications,
data communications, computer peripheral, and industrial markets. FLEX and APEX
products are the Company's SRAM-based line of embedded array programmable logic
devices, and MAX products are the Company's line of EEPROM and EPROM based
macrocell programmable logic devices.
The Company classifies its products into the following categories. New products
consist of the Company's 3.3-volt (or lower) families, are manufactured on a
0.35-micron (or finer) geometry and are made up of the FLEX 10KA/10KE, FLEX
6000/6000A, MAX 3000A, MAX 7000A/7000B and APEX 20K/20KE families. Mainstream
products include the MAX 7000S, MAX 9000 and FLEX 10K families. Mature products
consist of the Classic, MAX 7000 and FLEX 8000 families. Other products include
tools, FLASHlogic, configuration devices, MPLDs and FSPs.
SALES | Sales were $836.6 million, $654.3 million and $631.1 million in 1999,
1998 and 1997, respectively. Sales increased 27.9% in 1999 from 1998 and 3.7% in
1998 from 1997. Increases in sales, in both years, were primarily due to
increases in unit sales of New and Mainstream products, which were partially
offset by decreases in average unit selling prices as well as lower unit sales
of Mature products.
Sales of New products in 1999 were $253.7 million, 221.6% higher than 1998 sales
of $78.9 million. Sales of Mainstream products in 1999 were $300.5 million,
35.1% higher than 1998 sales of $222.5 million. Sales of Mature products
decreased to $223.9 million or 23.9% in 1999 from $294.1 million in 1998, while
sales of other products decreased to $58.5 million or 0.6% in 1999 from $58.8
million in 1998. Sales of New and Mainstream products increased 924.8% and
91.1%, respectively, from 1997 to 1998, while sales of Mature and other products
decreased 34.3% and 1.1%, respectively.
New and Mainstream products together comprised 66.2% of 1999 sales compared to
46.1% and 19.7% of sales in 1998 and 1997, respectively. In contrast to this,
the Company's Mature and other products, which combined represented 33.8% of
sales in 1999, were 53.9% and 80.3% of sales in 1998 and 1997, respectively.
The Company's New and Mainstream products have been developed and introduced to
the marketplace over the last several years. These products have similar or
improved features and comparable or higher densities than their predecessors,
but advanced process technology enables the Company to produce these products at
a lower cost than previous generations of products. Consistent with their lower
cost structure, the Company has priced these products at a significant discount
to the Company's Mature products in order to stimulate demand and broaden the
appeal of programmable logic. As a result, the
10
11
Company experienced a shift in customer demand to its newer, lower-priced
offerings from the Mature products. New and Mainstream products were 66.2% of
total sales in 1999 as compared to 46.1% and 19.7% of sales in 1998 and 1997,
respectively.
Management of the Company believes that lower prices on its newer product
families will enable its product offering to compete more favorably with gate
array and standard cell technologies, which represent significant market
opportunities. During 1999, additional unit sales more than offset the lower
selling prices and the Company believes that over time this will continue, but
there can be no assurances that this will occur. In 1999, unit sales of New and
Mainstream products increased 323.0% and 79.0%, respectively, while average unit
selling prices decreased 24.0% and 24.6%, respectively.
In October 1999, the Company sold to Cypress Semiconductor Corporation
("Cypress") the exclusive right to manufacture, market and sell its MAX 5000
programmable logic device product family (a Mature product family) and its
equity interest in Cypress Semiconductor (Texas), Inc. The Company recorded a
pre-tax gain of $10.3 million. The sale of the MAX 5000 family will not
materially affect the Company's future revenues. Excluding the MAX 5000 product
family, sales grew 29.8% in 1999 and 6.0% in 1998.
Year over Year Sales Growth by Product Category:
Years Ended December 31,
------------------------
1999 1998
---------- -----------
New 221.6% 924.8%
Mainstream 35.1% 91.1%
Mature -23.9% -34.3%
Other -0.6% -1.1%
Total 27.9% 3.7%
Customer Sectors
Accompanying the product transition was a sustained shift in customer mix
towards the Communications market driven primarily by growth in the networking
and telecommunications sectors. Communications represented 66.3% of the
Company's business in 1999 as compared to 64.0% of total sales in 1998 and 56.0%
in 1997. The Electronic Data Processing market was 15.8%, 17.4% and 23.3% of
total sales in 1999, 1998 and 1997, respectively. In 1999, the Industrial,
Consumer and other markets comprised 11.4%, 3.0% and 3.5% of total sales,
respectively. The Company believes that future revenue growth will be driven by
the product demand in the Communication market, but there can be no assurances
that this will occur.
Geographic Areas
North America sales were $469.4 million in 1999, 30.8% higher than 1998 sales of
$358.9 million. International sales included sales in Europe, Japan and Asia
Pacific and were $367.2 million in 1999, 24.3% higher than $295.4 million in
1998. During 1999, sales in Europe increased to $160.0 million or 7.1% from
$149.4 million in 1998. In Japan, sales for 1999 increased to $158.5 million or
33.9% from $118.3 million in 1998 and Asia Pacific increased to $48.7 million or
75.9% in 1999 from $27.7 million in 1998. Sales in total grew 27.9% in 1999
primarily due to strength in North American and Japanese networking and
telecommunications sectors.
In 1998, North America and Europe sales grew 2.7% and 14.2%, respectively, from
1997. During 1998, Japan experienced a 1.2% increase while Asia Pacific sales
declined 18.2% from 1997 owing to significant turmoil in several of the
economies comprising that region.
As a percent of total sales, North America sales were 56.1%, 54.9% and 55.4% in
1999, 1998 and 1997, respectively. Sales in Europe were 19.1%, 22.8% and 20.7%
in 1999, 1998 and 1997, respectively, and sales in Japan were 19.0%, 18.1% and
18.5% for 1999, 1998 and 1997, respectively. Sales in Asia Pacific were 5.8%,
4.2% and 5.4% of total sales in 1999, 1998 and 1997, respectively.
11
12
Year over Year Sales Growth by Geographic Area:
Year Ended December 31,
-----------------------
1999 1998
-------- ---------
North America 30.8% 2.7%
Europe 7.1% 14.2%
Japan 33.9% 1.2%
Asia Pacific 75.9% -18.2%
Total International 24.3% 4.9%
Total 27.9% 3.7%
Major items in the statements of operations, expressed as a percentage of sales,
were as follows:
Year Ended December 31,
-----------------------------------
1999 1998 1997
-------- -------- ---------
Cost of sales 36.0% 38.1% 37.5%
Gross margin 64.0% 61.9% 62.5%
Research and development expenses 10.3% 9.1% 8.6%
Selling, general and administrative expenses 17.1% 17.3% 17.9%
Income from operations 36.6% 35.5% 36.0%
Interest expense -- 1.0% 1.9%
Interest and other income, net 4.4% 2.9% 2.3%
Provision for income taxes 13.3% 12.1% 12.4%
Cumulative effect of change in accounting principle -- -- 2.9%
Net income 26.8% 23.6% 21.1%
GROSS MARGIN | Gross margin, as a percentage of sales, was 64.0%, 61.9% and
62.5% in 1999, 1998 and 1997, respectively. The increase in gross margin was
primarily attributable to cost reductions as a result of manufacturing process
improvements and higher margins earned on the increasing mix of the Company's
New products.
Yields on New products continued to improve for the year ended December 31,
1999. This includes improvements in the APEX 20K/20KE, FLEX 10KE and FLEX 10KA
product families. The Company also achieved cost reductions on the FLEX 10KA and
FLEX 10K families through new wafer process technologies (die shrinks). The
Company continues to spend a significant amount of financial resources to
improve production yields on both new and established products. Difficulties in
production yields can often occur when the Company is beginning production of
new products or transitioning to new processes. These difficulties can
potentially result in significantly higher costs and lower product availability.
For example, in the second quarter of 1999, difficulties in the supplier's
manufacturing process limited the availability of packaging material (piece
parts) used in certain of the Company's new and proprietary FineLine BGA
("ball-grid array") packages causing limited production. This in turn limited
shipments of the Company's new FLEX 10KE product family. Management expects to
continue to introduce new and established products using new process
technologies and may encounter similar start-up difficulties during the
transition to such process technologies. Further, production throughput times
vary considerably among the Company's wafer suppliers, and the Company may
experience delays from time to time in processing some of its products which
also may result in higher costs and lower product availability.
RESEARCH AND DEVELOPMENT EXPENSES | Research and development expenses were $86.1
million, $59.9 million and $54.4 million in 1999, 1998 and 1997, respectively,
and as a percentage of sales, were 10.3%, 9.1% and 8.6% in 1999, 1998 and 1997,
respectively. Research and development expenditures include expenditures for
labor, prototype and pre-production costs, development of process technology,
development of software to support new products and design environments, and
development of new packages.
Research and development expenses increased $26.2 million and $5.5 million in
1999 and 1998, respectively. The increase in absolute dollars for both years was
primarily a result of increased headcount, spending on masks, wafers, package
development and outside development services relating to the development of new
products including FLEX 10KE, MAX 3000A,
12
13
MAX 7000A/7000B and APEX 20K/20KE families, as well as development of the
Company's Quartus software. The increase in absolute dollars in 1999 was much
higher than in 1998 primarily due to Company's concentrated effort on
development of new products. Historically, the level of research and development
expenditures as a percentage of sales has fluctuated in part due to the timing
of the purchase of masks and wafers used in development and prototyping of new
products. The Company expects that, in the long term, research and development
expenses will increase in absolute dollars and will likely exceed eleven percent
of sales at least through 2000.
The Company expects to continue to make significant investments in the
development of FLEX 10KA/10KE, MAX 3000A, MAX 7000A/7000B, APEX 20K/20KE and
Quartus software. During the first quarter of 1999, the Company shipped its
newest family of devices, APEX 20K/20KE, and its new fourth generation software
design tool, Quartus. APEX 20K/20KE devices utilize a new architecture for
programmable logic and address higher density designs. APEX 20K/20KE devices are
exclusively supported by the Company's new software design tool, Quartus.
Management expects both APEX 20K/20KE devices and Quartus software to be
successful in the market, however, the commercial success of these products is
dependent on the acceptance of the use of APEX 20K/20KE devices in high-density
designs and the acceptance of the Quartus design software. Management can give
no assurances on the market acceptance of the Company's products.
The Company also continues to focus its efforts on the development of new
programmable logic chips, related development software and hardware, and
advanced semiconductor wafer fabrication processes. However, there can be no
assurance that the Company will accomplish its goals in the development and
subsequent introduction of new products and manufacturing processes.
Furthermore, there is no assurance that these products will achieve market
acceptance, that the new manufacturing processes will be successful, or that the
suppliers will provide the Company with the quality or quantity of wafers and
materials that the Company requires. The Company must continue to develop and
introduce new products in a timely manner to help counter the industry's
historical trend of declining prices as products mature.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES | Selling, general and
administrative expenses were $143.2 million, $113.2 million and $112.8 million
in 1999, 1998 and 1997, respectively, and as a percentage of sales, were 17.1%,
17.3% and 17.9% in 1999, 1998 and 1997, respectively. Selling, general and
administrative expenses include salary expenses related to field sales,
marketing and administrative personnel, commissions and incentive expenses,
advertising and promotional expenditures, and legal expenses. Also included in
selling, general and administrative expenses are costs related to the direct
sales force and field application engineers who work in over thirty field sales
offices worldwide and stimulate demand by assisting customers in the use and
proper selection of the Company's products. The customers then work with the
Company's distributors for order fulfillment and logistical requirements, as
over 90% of the Company's sales are made through distributors. The Company
intends to continue to increase sales resources in markets and regions where it
anticipates this will increase sales, enhance competitive position, or improve
customer service.
Selling, general and administrative expenses increased $30.0 million and $0.4
million in 1999 and 1998, respectively. The increase in absolute dollars spent
in 1999 was mainly driven by increased personnel expenses for marketing and
administration, higher advertising and commission and incentive expenses
associated with higher sales. The slight increase in 1998 was mainly due to
higher personnel expenses for marketing and administration and higher
depreciation and amortization expenses associated with capital spending
required to support the Company's information systems, partially offset by lower
legal expenses.
INCOME FROM OPERATIONS | Income from operations was $306.0 million, $231.8
million and $227.0 million in 1999, 1998 and 1997, respectively, and as a
percentage of sales, was 36.6%, 35.5% and 36.0% in 1999, 1998 and 1997,
respectively. The increase in income from operations as a percentage of sales
from 1998 to 1999 was primarily due to improvements in gross margin partially
offset by increased research and development expenses as a percentage of sales.
Income from operations decreased as a percentage of sales from 1997 to 1998
primarily due to a slight decrease in gross margin.
INTEREST AND OTHER INCOME (EXPENSE), NET | Interest and other income (expense)
were $37.1 million, $12.3 million and $2.6 million in 1999, 1998 and 1997,
respectively, and as a percentage of sales, were 4.4%, 1.9% and 0.4% in 1999,
1998 and 1997, respectively. The increase over the three-year period primarily
resulted from increased cash balances available for investment and decreased
interest expense. Interest and other income (expense) included interest expense
related to the convertible subordinated notes issued in June 1995 which was
comprised of interest expense and amortization of debt issuance costs, net of
capitalized interest related to the construction of the new headquarters.
Interest expense decreased in 1998 due to the conversion of the Company's
subordinated notes into common stock in June 1998. No interest expense was
incurred in 1999 after the conversion. In 1999, the Company also recorded a
pre-tax gain of $10.3 million from the sale of the MAX 5000 Programmable Logic
Device product family and its equity interest in Cypress Semiconductor (Texas),
Inc.
13
14
PROVISION FOR INCOME TAXES | Altera's effective tax rate was 32.5% in 1999 and
1998 and 34.0% in 1997. The reduction from 1997 to 1998 was due in part to an
increased amount of earned interest income from tax-exempt investments and a
change in the geographic mix of income.
EQUITY INVESTMENT | In June 1996, the Company, TSMC and several other partners
formed WaferTech, LLC ("WaferTech"), a joint-venture company, to build and
operate a wafer manufacturing plant in Camas, Washington. In return for a $140.4
million cash investment, the Company received an 18% equity ownership in the
joint-venture company and certain rights and obligations to procure up to 27% of
the factory's output at market prices. In January 1999, the Company purchased
from Analog Devices, Inc. an additional 5% equity ownership interest in
WaferTech for approximately $37.5 million, increasing its ownership interest to
23% and enabling the Company to procure up to 35% of the factory's output at
market prices. In October 1999, the Company made an additional $23.0 million
cash investment in WaferTech. As a result of this additional cash investment,
there were no changes to the Company's ownership interest or rights and
obligations for the procurement of the factory's output. The Company accounts
for this investment under the equity method based on the Company's ability to
exercise significant influence on the operating and financial policies of
WaferTech. The Company's equity in the net loss of WaferTech was $7.6 million
for 1999, $10.4 million for 1998 and was not material for 1997.
Production began at the WaferTech joint venture in October 1998 and volume
production was achieved in 1999. WaferTech has yet to make a profit and has
experienced lower than forecast production yields resulting in lower than
forecast output. Although the Company expects future WaferTech production
volumes and yields to increase, the ramp up of WaferTech's production has been
slower than forecasted and has not met the targeted level to achieve
profitability. There can be no assurances that WaferTech will make a profit and
that WaferTech will not continue to have an adverse impact on the Company's
operating results.
ACCOUNTING CHANGE | In October 1997, the Company changed its accounting method
for recognizing revenue on sales to distributors with an effective date of
January 1, 1997. The Company previously recognized revenue upon shipment to
distributors net of appropriate reserves for sales returns and allowances.
Following the accounting change, revenue recognition on shipments to
distributors is deferred until the products are resold to end customers. The
Company believes that deferral of revenue on distributor sales and related gross
margins until the product is shipped by the distributors results in a more
meaningful measurement of results of operations and is more consistent with
industry practice and, therefore, is a preferable method of accounting.
The cumulative effect prior to 1997 of the change in accounting method was a
charge of $18.1 million (net of $9.3 million of income taxes) or $0.09 per
diluted share in 1997.
FUTURE RESULTS | Future operating results will depend on the Company's ability
to develop, manufacture and sell complex semiconductor components and
programming software that offer customers greater value than solutions offered
by competing vendors. The Company's efforts in this regard may not be
successful. The Company is developing programmable chips for applications that
are presently served by other ASIC vendors. These vendors have well-established
market positions and a solution that has been proven technically feasible and
economically competitive over several decades. There can be no assurance that
the Company will be successful in displacing ASIC vendors in the targeted
applications and densities. Furthermore, other programmable logic vendors are
targeting these applications and may be successful in securing market share to
the exclusion of the Company. Moreover, standard cell technologies are
increasingly used by the Company's customers to achieve greater integration in
their systems; this may not only impede the Company's efforts to penetrate the
ASIC market but may also displace the Company's products in the applications
that it presently serves. The Company's future growth will depend on its ability
to continually, and on a timely basis, introduce new products, and to continue
to improve the performance of the Company's products in response to both
evolving demands of the market place and competitive product offerings.
The Company is highly dependent upon subcontractors to manufacture silicon
wafers and assemble, test and ship product to end customers. The Company is also
dependent on its wafer foundry partners to improve process technologies in a
timely manner to enhance the Company's product designs and cost structure. Their
inability to do so could have a severe negative impact on the Company. The vast
majority of the Company's products are manufactured and shipped to customers by
subcontractors located in Asia, principally Japan, Taiwan, Korea, the
Philippines, Hong Kong and Malaysia. Disruptions or adverse supply conditions
arising from market conditions, political strife, labor disruptions and other
factors could have adverse consequences on the Company's future results. Market
demand for silicon wafers has increased significantly during the course of 1999
while supply of such wafers has increased at a much slower rate, resulting in a
firmer pricing environment, less responsiveness to requests for expedited
delivery by wafer suppliers, and in some cases, unsatisfied demand. In general,
the lead time to increase market wafer supply by building additional wafer
fabrication facilities is approximately two years and in periods where demand
for wafers increases rapidly for a prolonged period, market shortages tend to
occur. Management believes that for at least the next several quarters, demand
will exceed the foundry industries ability to supply silicon wafers and that
certain companies that rely on the
14
15
foundry industry will not be successful in securing all of the wafers that they
desire, thereby constraining their revenues. The Company believes that under
such circumstances it is important to have close business relationships with
wafer suppliers in order to receive the desired quantity of product. The Company
believes that it enjoys close working relationships with its principal wafer
supplier, TSMC, and as of December 31, 1999, the Company had in its other
current assets a deposit of $16.8 million for future wafer allocations from TSMC
which will be utilized during 2000, but there can be no assurance the Company
will be successful in securing its total desired output from TSMC or that the
Company's future growth will not be impaired by the scarcity of silicon wafers.
Natural or man-made disasters, normal process fluctuations and variances in
manufacturing yields could have a severe negative impact on the Company's
operating capabilities. For example, in September 1999 a major earthquake struck
Taiwan resulting in widespread physical damage and loss of life. The earthquake
halted wafer fabrication production at the Company's primary vendor, TSMC, for
several days and then only limited production began. It was nearly two weeks
before full production resumed and additionally some portion of the inventory in
the production process was scrapped as a result of damage incurred during the
earthquake. The Company has sought to diversify its operating risk by
participating in the WaferTech joint venture to manufacture silicon wafers with
other partners in Camas, Washington. Production began at the WaferTech joint
venture in October 1998 and volume production was achieved in 1999. WaferTech
has yet to make a profit and has experienced lower than forecast production
yields resulting in lower than forecast output. Although the Company expects
future WaferTech production volumes and yields to increase, the ramp up of
WaferTech's production has been slower than forecasted and has not met the
targeted level to achieve profitability. There can be no assurances that the
worldwide supply and demand for semiconductor wafers will be such that WaferTech
will make a profit and that WaferTech will not continue to have an adverse
impact on the Company's operating results.
Also, a number of factors outside of the Company's control, including general
economic conditions and cycles in world markets, exchange rate fluctuations or a
lack of growth in the Company's end markets could adversely impact future
results. Because of the foregoing and other factors that might affect the
Company's operating results, past financial performance should not be considered
an indicator of future performance, and investors should not use historical
trends to anticipate future results. In addition, the cyclical nature of the
semiconductor industry and other factors have resulted in a highly volatile
price of the Company's common stock.
NEW ACCOUNTING PRONOUNCEMENTS | In June 1998, the Financial Accounting Standards
Board issued Statement of Financial Accounting Standards (SFAS) No. 133,
"Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133
establishes standards for accounting and reporting on derivative instruments for
periods beginning after June 15, 2000 and early adoption is permitted. SFAS No.
133 requires that all derivative instruments be recognized in the balance sheet
as either assets or liabilities and measured at fair value. Furthermore, SFAS
No. 133 requires current recognition in earnings of changes in the fair value of
derivative instruments depending on the intended use of the derivative and the
resulting designation. The Company expects that its adoption of SFAS No. 133,
which will become effective in fiscal year 2001, will not have a material effect
on the Company's financial statements.
In December 1999, the Securities and Exchange Commission (SEC) issued Staff
Accounting Bulletin (SAB) No. 101, "Revenue Recognition in Financial
Statements." SAB No. 101 provides guidance on the recognition, presentation and
disclosure of revenue in financial statements. The Company has reviewed the
bulletin and believes that its current revenue recognition policy is consistent
with the guidance of SAB No. 101.
LIQUIDITY AND CAPITAL RESOURCES
OPERATING ACTIVITIES | During 1999, the Company's operating activities generated
net cash of $402.8 million which was primarily attributable to net income of
$224.0 million adjusted by non-cash items including equity in loss of WaferTech
of $7.6 million, gain on sale of MAX 5000 product family of $10.3 million,
depreciation and amortization of $29.4 million, a decrease in inventories of
$5.4 million, a decrease in other assets of $19.2 million, an increase in
accounts payable and accrued liabilities of $33.7 million, an increase in
deferred income on sales to distributors of $66.4 million and an increase in
income taxes payable of $76.4 million. These items were partially offset by an
increase in deferred income taxes and accounts receivable of $15.1 million and
$34.0 million, respectively.
During 1998, the Company's operating activities generated net cash of $270.1
million which was primarily attributable to net income of $154.4 million
adjusted by non-cash items including equity in loss of WaferTech of $10.4
million, depreciation and amortization of $30.0 million, a decrease in
inventories and other assets of $42.5 million, and an increase in deferred
income on sales to distributors and income taxes payable of $47.3 million. These
items were partially offset by an increase in deferred income taxes of $6.6
million and a decrease in accounts payable and accrued liabilities of $7.1
million.
15
16
INVESTING ACTIVITIES | During 1999, the net cash used by the Company in its
investing activities was $314.9 million. The Company invested $29.8 million
primarily for manufacturing and data processing equipment and software, and
received proceeds of $10.7 million from the sale of the MAX 5000 product family
and its equity interest in Cypress Semiconductor (Texas), Inc. Additionally, the
Company purchased $233.3 million (net) of short-term investments and made
long-term investments, mainly in WaferTech, totaling $62.4 million.
During 1998, the net cash used by the Company in its investing activities was
$116.7 million. The Company invested $24.0 million for manufacturing and data
processing equipment and software and the construction of the Malaysian design
and manufacturing center. Additionally, the Company purchased $93.3 million
(net) of short-term investments.
FINANCING ACTIVITIES | During 1999, the net cash used by the Company in its
financing activities was $54.7 million. The Company repurchased 2.2 million
shares of its common stock for $87.1 million, partially offset by net proceeds
of $29.9 million from the issuance of 5.5 million shares of common stock to
employees through various option and employee stock purchase plans. In addition,
the Company received $2.4 million from the sale of put warrants.
During 1998, the net cash used by the Company in its financing activities was
$45.1 million. The Company repurchased 3.6 million shares of its common stock
for $60.3 million, partially offset by net proceeds of $15.2 million from the
issuance of 2.5 million shares of common stock to employees through various
option and employee stock purchase plans.
FINANCIAL CONDITION | Since its inception, the Company has used a combination of
equity and debt financing and cash generated from operations to support its
operating activities.
As of December 31, 1999, the Company had $845.7 million of cash, cash
equivalents and short-term investments available to finance future growth.
Management believes that capital expenditures will increase in 2000 primarily
due to anticipated higher expenditures in manufacturing and data processing
equipment as well as building improvements in its headquarter facility. The
Company believes the available sources of funds and cash expected to be
generated from operations will be adequate to finance current operations and
capital expenditures through at least 2000.
YEAR 2000 COMPLIANCE | Pursuant to its year 2000 ("Y2K") compliance program, the
Company undertook various initiatives intended to ensure that its computer
equipment and software will function properly with respect to dates in the year
2000 and thereafter. As used herein, the term "computer equipment and software"
includes systems that are commonly considered information technology ("IT")
systems (e.g., accounting, data processing and telephone systems) as well as
those that are not commonly considered IT systems (e.g., manufacturing
equipment, building and facility operations systems). In addition, the Company
reviewed the software products it sells, and has upgraded and will upgrade such
products to offer full Y2K compliance. As of the end of 1999, all computer
equipment and software that are material to Altera's internal business
operations and all software products that Altera sells were fully compliant with
Y2K standards, specifically DISC PD-2000-1 as published by the British Standards
Institute. The Company has not incurred and does not anticipate that it will
incur material expenditures for the remediation of any Y2K issues.
The Company has not been adversely impacted by Y2K issues faced by major
distributors, suppliers, customers, vendors and financial service organizations
with which the Company interacts. Nor have any of the Company's customers
reported any Y2K problems with respect to software products sold by the Company.
EMPLOYEES | The number of employees was 1,398, 1,151 and 1,086 in 1999, 1998 and
1997, respectively, reflecting an increase of 21.5% in 1999 over 1998 and 6.0%
in 1998 over 1997.
IMPACT OF CURRENCY AND INFLATION | The Company purchases the majority of its
materials and services in U.S. dollars, and its foreign sales are transacted in
U.S. dollars. At the end of 1999, the Company had no open forward contracts. The
Company may choose to enter into such contracts from time to time should
conditions appear favorable. Effects of inflation on Altera's financial results
have not been significant.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
As of December 31, 1999 and 1998, the Company's investment portfolio consisted
of fixed income securities of $776.5 million and $539.8 million, respectively.
These securities, like all fixed income instruments, are subject to interest
rate risk and will decline in value if market interest rates increase. If market
interest rates were to increase immediately and uniformly by 10% from levels as
of December 31, 1999 and 1998, the decline in the fair value of the portfolio
would not be material. Additionally, the Company has the ability to hold its
fixed income investments until maturity and, therefore, the Company would not
expect to recognize such an adverse impact in income or cash flows.
16
17
The Company has international subsidiary operations and is, therefore, subject
to foreign currency rate exposure. To date, the exposure to the Company related
to exchange rate volatility has not been significant. If the foreign currency
rates fluctuate by 10% from rates at December 31, 1999 and 1998, the effect on
the Company's financial position and results of operations would not be
material. However, there can be no assurance that there will not be a material
impact in the future.
17
18
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Page
Consolidated Balance Sheets at December 31, 1999 and 1998 19
Consolidated Statements of Operations for the years ended December 31, 1999,
1998 and 1997 20
Consolidated Statements of Cash Flows for the years ended December 31, 1999,
1998 and 1997 21
Consolidated Statements of Stockholders' Equity for the years ended December 31,
1999, 1998 and 1997 22
Notes to the Consolidated Financial Statements 23
Report of Independent Accountants 36
Financial Statement Schedules
All schedules have been omitted because they are not applicable, not required,
or the information required is included in the financial statements or notes
thereto.
Supplementary Financial Data 37
18
19
CONSOLIDATED BALANCE SHEETS
December 31,
--------------------------
(In thousands, except par value amount) 1999 1998
---------- ----------
ASSETS
Current assets:
Cash and cash equivalents $ 164,257 $ 131,029
Short-term investments 681,409 448,077
---------- ----------
Total cash, cash equivalents, and short-term investments 845,666 579,106
Accounts receivable, less allowance for doubtful accounts of $6,865 and
$8,007, respectively 90,101 56,138
Inventories 64,027 69,869
Deferred income taxes 84,747 69,644
Other current assets 22,344 24,776
---------- ----------
Total current assets 1,106,885 799,533
Property and equipment, net 155,217 152,320
Investments and other assets 177,497 141,478
---------- ----------
$1,439,599 $1,093,331
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 32,272 $ 14,479
Accrued liabilities 26,758 16,615
Accrued compensation 25,301 19,356
Deferred income on sales to distributors 227,760 161,160
Income taxes payable 9,435 --
---------- ----------
Total current liabilities 321,526 211,610
---------- ----------
Commitments and contingencies (See Notes 5, 7 and 12)
Stockholders' equity:
Common stock;
$.001 par value; 400,000 shares authorized; 198,630 and 195,270 shares
issued and outstanding, respectively 199 195
Capital in excess of par value 326,439 314,085
Retained earnings 791,435 567,441
---------- ----------
Total stockholders' equity 1,118,073 881,721
---------- ----------
$1,439,599 $1,093,331
========== ==========
See accompanying notes to consolidated financial statements.
19
20
CONSOLIDATED STATEMENTS OF OPERATIONS
Years Ended December 31,
----------------------------------------
(In thousands, except per share amounts) 1999 1998 1997
--------- --------- ---------
Sales $ 836,623 $ 654,342 $ 631,114
Cost of sales 301,322 249,474 236,958
--------- --------- ---------
Gross margin 535,301 404,868 394,156
Research and development expenses 86,065 59,864 54,417
Selling, general and administrative expenses 143,214 113,161 112,784
--------- --------- ---------
Income from operations 306,022 231,843 226,955
Interest expense -- (6,362) (11,701)
Interest and other income, net 37,055 18,702 14,317
--------- --------- ---------
Income before income taxes, equity investment and cumulative effect of
change in accounting principle 343,077 244,183 229,571
Provision for income taxes 111,499 79,356 78,054
--------- --------- ---------
Income before equity investment and cumulative effect of change in
accounting principle 231,578 164,827 151,517
Equity in loss of WaferTech, LLC 7,584 10,440 --
--------- --------- ---------
Income before cumulative effect of change in accounting principle 223,994 154,387 151,517
Cumulative effect of change in accounting principle -- -- 18,064
--------- --------- ---------
Net income $ 223,994 $ 154,387 $ 133,453
========= ========= =========
Per share:
Basic
Income before cumulative effect of change in accounting
principle $ 1.13 $ 0.83 $ 0.85
Cumulative effect of change in accounting principle -- -- (0.10)
--------- --------- ---------
Net income $ 1.13 $ 0.83 $ 0.75
========= ========= =========
Diluted
Income before cumulative effect of change in accounting
principle $ 1.08 $ 0.78 $ 0.77
Cumulative effect of change in accounting principle -- -- (0.09)
--------- --------- ---------
Net income $ 1.08 $ 0.78 $ 0.68
========= ========= =========
Shares used in computing per share amounts:
Basic 198,079 186,986 177,050
Diluted 207,464 203,178 205,232
See accompanying notes to consolidated financial statements.
20
21
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31,
----------------------------------------
(In thousands) 1999 1998 1997
--------- --------- ---------
Cash Flows from Operating Activities:
Net income $ 223,994 $ 154,387 $ 133,453
Adjustments to reconcile net income to net cash provided by operating
activities:
Cumulative effect of change in accounting principle -- -- 18,064
Equity in loss of WaferTech, LLC 7,584 10,440 --
Gain on sale of MAX 5000 product family (10,275) -- --
Depreciation and amortization 29,416 30,038 27,105
Deferred income taxes (15,103) (6,568) (8,368)
Changes in assets and liabilities:
Accounts receivable, net (33,963) (887) 13,235
Inventories 5,375 29,014 (23,085)
Other assets 19,232 13,446 4,548
Accounts payable and accrued liabilities 33,671 (7,113) 9,282
Deferred income on sales to distributors 66,425 32,892 32,555
Income taxes payable 76,423 14,420 14,861
--------- --------- ---------
Cash provided by operating activities 402,779 270,069 221,650
--------- --------- ---------
Cash Flows from Investing Activities:
Purchases of property and equipment (29,821) (23,950) (80,879)
Proceeds from sale of MAX 5000 product family 10,700 -- --
Net change in short-term investments (233,332) (93,269) (144,746)
Investment in WaferTech, LLC (60,500) -- --
Net change in other long-term investments (1,928) 552 (56,997)
--------- --------- ---------
Cash used for investing activities (314,881) (116,667) (282,622)
--------- --------- ---------
Cash Flows from Financing Activities:
Net proceeds from issuance of common stock 29,945 15,214 12,945
Repurchase of common stock (87,053) (60,348) --
Proceeds from sale of put warrants 2,438 -- --
--------- --------- ---------
Cash (used for) provided by financing activities (54,670) (45,134) 12,945
--------- --------- ---------
Net increase (decrease) in cash and cash equivalents 33,228 108,268 (48,027)
Cash and cash equivalents at beginning of year 131,029 22,761 70,788
--------- --------- ---------
Cash and cash equivalents at end of year $ 164,257 $ 131,029 $ 22,761
========= ========= =========
Cash paid during the year for:
Income taxes $ 45,335 $ 73,526 $ 77,853
Interest -- 6,568 13,225
Supplemental disclosure of non-cash activities:
Conversion of subordinated debt into common stock -- 226,787 --
Issuance of common stock for acquisition 2,927 -- --
See accompanying notes to consolidated financial statements.
21
22
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Common Stock
Number of and Capital Total
Common In Excess of Retained Stockholders'
(In thousands) Shares Par Value Earnings Equity
-------------- -------------- -------------- --------------
Balance, December 31, 1996 175,208 $ 90,644 $ 279,601 $ 370,245
Tax benefit resulting from employee stock transactions -- 20,044 -- 20,044
Issuance of common stock 3,162 12,945 -- 12,945
Net income -- -- 133,453 133,453
-------------- -------------- -------------- --------------
Balance, December 31, 1997 178,370 123,633 413,054 536,687
Tax benefit resulting from employee stock transactions -- 8,969 -- 8,969
Issuance of common stock 2,542 15,239 -- 15,239
Repurchase of common stock (3,620) (60,348) -- (60,348)
Conversion of subordinated debt into common stock 17,978 226,787 -- 226,787
Net income -- -- 154,387 154,387
-------------- -------------- -------------- --------------
Balance, December 31, 1998 195,270 314,280 567,441 881,721
Tax benefit resulting from employee stock transactions -- 64,101 -- 64,101
Issuance of common stock 5,467 29,945 -- 29,945
Issuance of common stock for acquisition 58 2,927 -- 2,927
Repurchase of common stock (2,165) (87,053) -- (87,053)
Proceeds from sales of put warrants -- 2,438 -- 2,438
Net income -- -- 223,994 223,994
-------------- -------------- -------------- --------------
Balance, December 31, 1999 198,630 $ 326,638 $ 791,435 $ 1,118,073
============== ============== ============== ==============
See accompanying notes to consolidated financial statements.
22
23
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Note 1: The Company
Altera Corporation (the "Company"), founded in 1983, designs, manufactures and
markets high-performance, high-density, programmable logic devices and
associated computer aided engineering logic development tools. Programmable
logic devices are semiconductor chips that may be programmed on-site, using
software tools that run on personal computers or engineering workstations.
Altera's CMOS-based programmable logic devices address high-speed, high-density
and low-power applications in the telecommunications, data communications,
computer peripheral, and industrial markets.
On June 19, 1997, the Company was reincorporated in the State of Delaware. In
connection with the reincorporation, as approved by the stockholders, the number
of authorized shares of the Company's common stock was increased to four hundred
million (400,000,000) and each share of common stock was assigned a par value of
$.001. The accompanying financial statements have been restated to give effect
to the reincorporation.
Note 2: Significant Accounting Policies
BASIS OF PRESENTATION | The Company has a fiscal year that ends on the Friday
nearest December 31st. For presentation purposes, the consolidated financial
statements and accompanying notes refer to the Company's fiscal year end as
December 31st. The consolidated financial statements include the accounts of the
Company and its wholly owned subsidiaries after elimination of all significant
intercompany balances and transactions.
USE OF ESTIMATES | The Company's management has made certain estimates and
assumptions concerning the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the fiscal
years presented to prepare its financial statements in conformity with generally
accepted accounting principles. Actual results could differ from those
estimates.
COMMON STOCK SPLIT | On April 21, 1999, the Board of Directors of the Company
approved a two-for-one stock split in the form of a 100 percent stock dividend
to holders of record of the Company's common stock on May 4, 1999. The dividend
shares were distributed to stockholders on May 19, 1999. All share and per share
data has been retroactively restated to reflect the two-for-one stock split for
all periods presented.
RECLASSIFICATIONS | Certain reclassifications have been made to the prior year
consolidated financial statements to conform to the current year's presentation.
Such reclassifications had no effect on previously reported results of
operations or retained earnings.
CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS | Cash equivalents consist of highly
liquid investments with original maturities of three months or less. Short-term
investments are held as securities available for sale and are carried at their
market value as of the balance sheet date which approximated amortized cost. The
amortized cost of securities is adjusted for amortization of premiums and
accretion of discounts to maturity. Such amortization is included in investment
income. Realized gains or losses are determined on the specific identification
method and are reflected in income. Net unrealized gains or losses are recorded
directly in stockholders' equity except those unrealized losses that are deemed
to be other than temporary are reflected in income.
INVENTORIES | Inventories are recorded at the lower of standard cost, which
approximates actual cost on a first-in-first-out basis, or market. The
inventories at December 31, 1999 and 1998 were comprised of the following:
December 31,
--------------------
(In thousands) 1999 1998
------- -------
Raw materials and work in process $40,612 $46,272
Finished goods 23,415 23,597
------- -------
Total inventories $64,027 $69,869
======= =======
23
24
PROPERTY AND EQUIPMENT | Property and equipment are carried at cost less
accumulated depreciation and amortization. Depreciation and amortization are
computed using the straight-line method. Estimated useful lives of three to five
years are used for equipment and office furniture and forty years for buildings.
Amortization of leasehold improvements is computed using the shorter of the
remaining facility lease term or the estimated useful life of the improvements.
Property and equipment at December 31, 1999 and 1998 was comprised of the
following components:
December 31,
-------------------------
(In thousands) 1999 1998
--------- ---------
Land $ 20,753 $ 20,496
Building 80,893 80,338
Equipment and software 130,016 115,332
Office furniture and fixtures 11,755 10,287
Leasehold improvements 1,623 1,183
--------- ---------
Property and equipment, at cost 245,040 227,636
Accumulated depreciation and amortization (89,823) (75,316)
--------- ---------
Property and equipment, net $ 155,217 $ 152,320
========= =========
The Company evaluates the recoverability of its property and equipment and
intangible assets in accordance with Statement of Financial Accounting Standards
(SFAS) No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed of." This standard requires recognition of
impairment of long-lived assets in the event the net book value of such assets
exceeds the future undiscounted cash flows attributable to such assets.
FAIR VALUE OF FINANCIAL INSTRUMENTS | For certain of the Company's financial
instruments, including cash and cash equivalents, short-term investments,
accounts receivable and accounts payable, the carrying amounts approximate fair
value due to their short maturities.
CONCENTRATIONS OF CREDIT RISK | Financial instruments that potentially subject
the Company to concentrations of credit risk consist principally of cash and
cash equivalents, short-term investments and accounts receivable. The Company
places its short-term investments in a variety of financial instruments and, by
policy, limits the amount of credit exposure through diversification and by
restricting its investments to highly rated securities.
The Company sells its products to distributors and original equipment
manufacturers throughout the world. The Company performs ongoing credit
evaluations of its customers' financial condition and, generally, requires
collateral, such as letters of credit, whenever deemed necessary. In 1999, the
three largest distributors, each of which accounted for more than 10% of total
sales, accounted for 34%, 19% and 13% of sales. In 1998, the three distributors
accounted for 30%, 21% and 11% of sales, whereas in 1997, they each accounted
for 32%, 18% and 11% of sales, respectively.
At December 31, 1999 and 1998, three distributors, each of which accounted for
more than 10% of the Company's accounts receivable, accounted for 49% and 58%,
respectively, of total accounts receivable in aggregate.
FOREIGN EXCHANGE CONTRACTS | The Company purchases the majority of its materials
and services in U.S. dollars and its foreign sales are billed in U.S. dollars.
As of December 31, 1999 and 1998, the Company had no open foreign exchange
contracts for the purchase or sale of foreign currencies. The Company may choose
to enter into such contracts in the future should conditions appear favorable.
REVENUE RECOGNITION | The Company recognizes revenue from product sales upon
shipment to OEMs and end-users. Reserves for sales returns and allowances are
recorded at the time of shipment. The Company's sales to distributors are made
under agreements allowing for returns or credits under certain circumstances
and, effective the first day of 1997, the Company defers recognition of revenue
on sales to distributors until products are resold by the distributor to the
end-user. See Note 15.
In December 1999, the Securities and Exchange Commission (SEC) issued Staff
Accounting Bulletin (SAB) No. 101, "Revenue Recognition in Financial
Statements." SAB No. 101 provides guidance on the recognition, presentation and
disclosure of revenue in financial statements. The Company has reviewed the
bulletin and believes that its current revenue recognition policy is consistent
with the guidance of SAB No. 101.
24
25
DEPENDENCE ON WAFER SUPPLIERS | The Company does not directly manufacture
finished silicon wafers. The Company's strategy has been to maintain
relationships with wafer foundries. The Company has been successful in
maintaining such relationships (Notes 5 and 6). However, there can be no
assurance that the Company will be able to satisfy its future wafer needs from
current or alternative manufacturing sources. This could result in possible loss
of sales or reduced margins.
STOCK-BASED COMPENSATION PLANS | The Company accounts for stock-based
compensation using the intrinsic value method prescribed in Accounting
Principles Board Opinion (APB) No. 25, "Accounting for Stock Issued to
Employees." Under APB No. 25, compensation cost is measured as the excess, if
any, of the quoted market price of the Company's stock at the date of grant over
the exercise price of the option granted. Compensation cost for stock options,
if any, is recognized ratably over the vesting period. The Company's policy is
to grant options with an exercise price equal to the quoted market price of the
Company's stock on the grant date. Accordingly, no compensation has been
recognized for its stock option plans. The Company provides additional pro forma
disclosures as required under SFAS No. 123, "Accounting for Stock-Based
Compensation." See Note 10.
COMPREHENSIVE INCOME | In June 1997, The Financial Accounting Standards Board
(FASB) issued SFAS No. 130, "Reporting Comprehensive Income." SFAS No. 130
establishes standards for reporting and display of comprehensive income and its
components and is effective for periods beginning after December 15, 1997. The
Company adopted this statement as of the first quarter of 1998. Comprehensive
income approximated net income for all periods presented.
FOREIGN CURRENCY TRANSLATION | The U.S. dollar is the functional currency for
each of the Company's foreign subsidiaries. Assets and liabilities that are not
denominated in the functional currency are remeasured into U.S. dollars and the
resulting gains or losses are included in "Interest and other income, net."
NEW ACCOUNTING PRONOUNCEMENTS | In June 1998, the FASB issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133
establishes standards for accounting and reporting on derivative instruments for
periods beginning after June 15, 2000, and early adoption is permitted. SFAS No.
133 requires that all derivative instruments be recognized in the balance sheet
as either assets or liabilities and measured at fair value. Furthermore, SFAS
No. 133 requires current recognition in earnings of changes in the fair value of
derivative instruments depending on the intended use of the derivative and the
resulting designation. The Company expects that its adoption of SFAS No. 133,
which will become effective in fiscal year 2001, will not have a material effect
on the Company's financial statements.
25
26
Note 3: Income Per Share
Basic income per share is computed by dividing net income available to common
stockholders by the weighted average number of common shares outstanding during
the period and excludes the dilutive effect of stock options. Diluted income per
share gives effect to all dilutive potential common shares outstanding during a
period. In computing diluted income per share, the tax benefit resulting from
employee stock transactions and the average stock price for the period are used
in determining the number of shares assumed to be purchased from exercise of
stock options. A reconciliation of basic and diluted income per share is
presented below:
Year Ended December 31,
---------------------------------------
(In thousands, except per share amounts) 1999 1998 1997
--------- --------- ---------
Basic:
Income before cumulative effect of change in accounting principle $ 223,994 $ 154,387 $ 151,517
Cumulative effect of change in accounting principle -- -- (18,064)
--------- --------- ---------
Net income $ 223,994 $ 154,387 $ 133,453
========= ========= =========
Weighted shares outstanding 198,079 186,986 177,050
========= ========= =========
Per share:
Income before cumulative effect of change in accounting principle $ 1.13 $ 0.83 $ 0.85
Cumulative effect of change in accounting principle -- -- (0.10)
--------- --------- ---------
Net income $ 1.13 $ 0.83 $ 0.75
========= ========= =========
Diluted:
Income before cumulative effect of change in accounting principle $ 223,994 $ 154,387 $ 151,517
Effect of 5.75% convertible subordinated notes -- 4,039 7,224
--------- --------- ---------
Income before cumulative effect of change in accounting principle
including the effect of dilutive securities 223,994 158,426 158,741
Cumulative effect of change in accounting principle -- -- (18,064)
--------- --------- ---------
Net income $ 223,994 $ 158,426 $ 140,677
========= ========= =========
Weighted shares outstanding 198,079 186,986 177,050
Effect of dilutive securities:
Stock options 9,385 8,066 10,202
5.75% convertible subordinated notes -- 8,126 17,980
--------- --------- ---------
207,464 203,178 205,232
========= ========= =========
Per share:
Income before cumulative effect of change in accounting principle $ 1.08 $ 0.78 $ 0.77
Cumulative effect of change in accounting principle -- -- (0.09)
--------- --------- ---------
Net income $ 1.08 $ 0.78 $ 0.68
========= ========= =========
26
27
Note 4: Marketable Securities
The Company's portfolio of marketable securities consists of the following:
December 31,
----------------------
(In thousands) 1999 1998
-------- --------
Money market funds $ 5,919 $ 6,833
Municipal bonds 485,926 475,469
U.S. government and agency obligations 41,011 9,170
Corporate bonds 161,319 17,291
Certificates of deposit and other debt securities 82,282 31,086
-------- --------
$776,457 $539,849
======== ========
The Company's portfolio of marketable securities by contractual maturity is as
follows:
December 31,
----------------------
(In thousands) 1999 1998
-------- --------
Due in one year or less $250,372 $163,231
Due after one year through two years 526,085 376,618
-------- --------
$776,457 $539,849
======== ========
At December 31, 1999 and 1998, the net unrealized gains and losses on securities
were immaterial.
Note 5: Joint Venture
In June 1996, the Company, TSMC and several other partners formed WaferTech, LLC
("WaferTech"), a joint-venture company, to build and operate a wafer
manufacturing plant in Camas, Washington. In return for a $140.4 million cash
investment, the Company received an 18% equity ownership in the joint-venture
company and certain rights and obligations to procure up to 27% of the factory's
output at market prices. In January 1999, the Company purchased from Analog
Devices, Inc. an additional 5% equity ownership interest in WaferTech for
approximately $37.5 million, increasing its ownership interest to 23%. This
increased investment in WaferTech provides the Company with additional rights
and obligations to procure up to 35% of the factory's future output. In October
1999, the Company made an additional $23.0 million cash investment in WaferTech.
As a result of this additional cash investment, there were no changes to the
Company's ownership interest or rights and obligations for the procurement of
the factory's output. WaferTech began wafer production in October 1998. Based on
WaferTech's production projections, the Company believes that it will meet its
minimum purchase obligations from WaferTech through at least 2000.
The Company accounts for this investment under the equity method based on the
Company's ability to exercise significant influence on the operating and
financial policies of WaferTech. The carrying value of the investment in
WaferTech exceeded the Company's share of the net assets of WaferTech due to a
portion of TSMC's equity contribution being paid through the grant of
manufacturing and technology obligations and licenses along with certain real
estate and equipment purchase options. This difference will be amortized over
the useful lives of the assets that gave rise to the difference. The Company's
equity in the loss of WaferTech was $7.6 million for 1999, $10.4 million for
1998 and was not material for 1997.
The Company has an obligation to guarantee a pro rata share of debt incurred by
WaferTech up to a maximum of $45 million. To date, the Company has not been
called upon to guarantee any debt incurred by WaferTech. In May 1998, WaferTech
secured a loan facility of up to $350 million which was subsequently reduced to
$225 million in December 1998. This loan facility was increased to $350 million
in 1999.
27
28
Summarized financial information for WaferTech as of, and for the years ended,
December 31, 1999 and 1998 is as follows:
December 31,
-----------------------------
(In thousands) 1999 1998
----------- -----------
Current assets $ 74,877 $ 25,068
Total assets 1,069,141 804,074
Current liabilities 84,315 25,410
Total liabilities 429,455 218,083
Total revenues $ 156,852 $ 6,802
Net loss (47,132) (70,885)
Note 6: Investments and Obligations
At December 31, 1999 and 1998, the Company's long-term investments were
primarily related to its investment in WaferTech of $173.7 million and $123.4
million, respectively. At December 31, 1999, the Company had in its other
current assets a deposit of $16.8 million for future wafer allocations from
Taiwan Semiconductor Manufacturing Company ("TSMC") that will be utilized during
2000.
In 1995, the Company entered into several agreements with TSMC, whereby it
agreed to make a $57.1 million deposit to TSMC for future wafer capacity
allocations extending into 2000. Under the terms of the agreement, TSMC agrees
to provide the Company with wafers manufactured using TSMC processes and
according to the Company's specifications, and the Company agrees to purchase
and TSMC agrees to supply, a specific capacity of wafers per year through 2000.
Billings for actual wafers used from TSMC reduce the prepaid balance. The
prepayments are generally nonrefundable if the Company does not purchase the
full prepaid capacity unless the Company identifies a third-party purchaser,
acceptable to TSMC, for the capacity.
Note 7: Commitments
The Company leases certain of its sales facilities under non-cancelable lease
agreements expiring at various times through 2004. The leases require the
Company to pay property taxes, insurance, maintenance and repair costs. Future
minimum lease payments under all non-cancelable operating leases are as
follows:
Years ending December 31, (In thousands)
- ---------------------------------------------------------------
2000 $ 2,911
2001 1,803
2002 1,424
2003 541
2004 182
Thereafter --
--------
$ 6,861
========
The Company has the option to extend or renew most of its leases. Rental expense
under all operating leases amounted to $2.8 million, $2.5 million and $4.4
million in 1999, 1998 and 1997, respectively.
Note 8: Convertible Subordinated Notes
In June 1995, the Company issued $230.0 million of convertible subordinated
notes due in June 2002 and bearing an interest rate of 5.75%, payable
semi-annually. The notes were convertible into shares of the Company's common
stock at a price of $12.80 per share.
28
29
On May 15, 1998, the Company called for the redemption of the notes effective
June 16, 1998. As a result, substantially all of the notes were converted into
17,977,298 shares of common stock with the remaining notes redeemed at a price
of $1,033.06 per $1,000 principal amount of the notes. Total semi-annual
interest paid on the notes during 1998 was $6.5 million. The unamortized debt
issuance costs as of the redemption date of approximately $3.1 million was
recorded as a reduction to additional paid-in-capital.
Note 9: Stockholders' Equity
COMMON STOCK REPURCHASES | On July 15, 1996, the Board of Directors authorized
the repurchase of up to 2 million shares of the Company's common stock. During
fiscal 1996, the Company repurchased a total of 600,000 shares of common stock
for an aggregate price of $4.3 million. In June 1998, the Company's Board of
Directors increased the number of shares authorized for repurchase to 6 million
shares. During fiscal 1998, the Company repurchased a total of 3,620,000 shares
of common stock for an aggregate cost of $60.3 million. In April 1999, in
connection with the stock split, the Company's Board of Directors authorized
doubling, from 6 million to 12 million, the number of shares authorized for
repurchase. During fiscal 1999, the Company repurchased a total of 2,165,000
shares of common stock for an aggregate cost of $87.1 million. Since the
inception of the repurchase program through December 31, 1999, the Company has
repurchased a total of 6,385,000 shares. All shares were retired upon
acquisition.
PUT WARRANTS | In December 1999, the Company sold put warrants to an independent
third party. These put warrants entitle the holder the right to sell 500,000
shares of Altera's common stock to Altera at a specified price on the maturity
date. The cash proceeds from the sales of the put warrants were $2.4 million and
have been included in capital in excess of par value. As of December 31, 1999,
warrants for all 500,000 shares were outstanding. These warrants will expire
between March 2000 and June 2000 and have an exercise price of $44.93 per share.
Note 10: Stock-Based Compensation Plans
At December 31, 1999, the Company had three stock-based compensation plans,
which are described below. The Company applies APB No. 25 in accounting for its
plans. Accordingly, no compensation cost has been recognized for its two fixed
stock option plans and its stock purchase plan.
STOCK OPTION PLANS | The 1996 Stock Option Plan and the 1998 Director Stock
Option Plan had 18.0 million shares and 340,000 shares reserved for issuance,
respectively. As of December 31, 1999, 2.3 million shares and 253,000 shares
were available for future grants, respectively.
Any shares reserved for issuance under the 1987 Stock Option Plan and the 1988
Director Stock Option Plan relating to ungranted stock options were cancelled
upon the adoption of the new option plans. As of December 31, 1999, previously
granted shares totaling 7.4 million shares and 776,000 shares, respectively,
remained unexercised.
The 1998 Director Stock Option Plan provides for the periodic issuance of stock
options to members of the Company's Board of Directors who are not employees of
the Company. Under all stock option plans, the exercise price of each option
equals the market price of the Company's stock on the date of grant and an
option's maximum term is 10 years. Options granted prior to October 1997
generally vest over five years at annual increments as determined by the Board
of Directors. In October 1997, the Board of Directors approved a proposal to
shorten the vesting period for new grants under the 1996 Stock Option Plan
whereby options granted subsequent to September 30, 1997 will generally vest
over four years at annual increments as determined by the Board of Directors.
29
30
A summary of the Company's stock option activity and related weighted average
exercise prices for the years ended December 31 are as follows:
1999 1998 1997
-------------------- -------------------- --------------------
(In thousands, except price per share amounts) Shares Price Shares Price Shares Price
------ -------- ------ -------- ------ --------
Options outstanding - beginning of year 25,474 $ 10.91 24,866 $ 9.59 25,000 $ 2.54
Stock options:
Granted 4,562 41.92 4,414 20.06 4,032 21.66
Exercised (5,138) 4.46 (2,110) 4.20 (2,800) 3.03
Forfeited (1,509) 14.78 (1,696) 12.79 (1,366) 8.21
------ -------- ------ -------- ------ --------
Options outstanding - end of year 23,389 $ 18.12 25,474 $ 10.91 24,866 $ 9.59
====== ======== ====== ======== ====== ========
1999 1998 1997
------------------ -------------------- -----------------
(In thousands, except price per share amounts) Shares Price Shares Price Shares Price
------ --------- ------ --------- ------ ---------
Options vested and exercisable at end of year 7,713 $ 7.60 8,944 $ 5.00 6,976 $ 4.00
Weighted-average fair value per share of options granted
during the year $ 20.23 $ 8.42 $ 9.21
Weighted-average fair value per share of purchase rights
granted during the year $ 8.07 $ 5.05 $ 5.83
Options Outstanding Options Exercisable
---------------------------------------------------------------- ------------------------------------------
Number Weighted Average Number Exercisable at
Range of Outstanding at 12/31/99 Remaining Contractual Weighted Average 12/31/99 Weighted Average
Exercise Prices (In thousands) Life (years) Exercise Price (In thousands) Exercise Price
----------------- -------------- -------------- -------------- -------------- ----------------
$ 0.21 - $ 3.55 4,059 3.44 $ 2.56 3,887 $ 2.59
$ 3.56 - $ 10.91 4,250 5.81 9.30 1,625 8.19
$ 11.00 - $ 15.31 4,539 7.41 14.42 1,108 13.53
$ 15.41 - $ 17.50 3,916 7.23 17.25 861 17.23
$ 17.53 - $ 41.75 4,677 9.12 32.05 230 23.12
$ 42.06 - $ 63.50 1,948 9.91 46.68 2 52.74
-------------- -------------- -------------- -------------- ----------------
23,389 6.95 $ 18.12 7,713 $ 7.60
============== ============== ============== ============== ================
Effective January 30, 1998, the Company offered employees, except all officers
and director-level employees, the right to reprice their stock options granted
from January 1, 1995 through January 19, 1998. The repriced options have an
exercise price of $17.13, the fair value of the Company's common stock on the
effective date, and the vesting schedule of such options was extended by three
months. In connection with this action, approximately 2.6 million options were
repriced that previously had a weighted average exercise price of $24.25.
EMPLOYEE STOCK PURCHASE PLAN | As of December 31, 1999, the 1987 Employee Stock
Purchase Plan had 6.6 million shares of common stock reserved for issuance.
Under the terms of the Employee Stock Purchase Plan, full-time employees, nearly
all of whom are eligible to participate, can choose each year to have up to 10
percent of their annual base earnings withheld to purchase the Company's common
stock with a maximum of $25,000 per year. The purchase price of the stock is 85
percent of the lower of the closing price at the beginning or at the end of each
six-month offering period. The Company does not recognize compensation cost
related to employee purchase rights under the Plan. Approximately 90 to 95
percent of eligible employees participated in the plan in 1999, and
approximately 85 to 90 percent and 75 to 80 percent of eligible employees
participated in 1998 and 1997, respectively.
Sales under the Employee Stock Purchase Plan in 1999, 1998 and 1997 were
317,239, 443,126 and 346,588 shares of common stock at an average price of
$21.62, $14.26 and $12.73 per share, respectively. There were 595,711 shares
available for future purchases under the Employee Stock Purchase Plan as of
December 31, 1999.
The Company received a $64.1 million, $9.0 million and $20.0 million tax benefit
in 1999, 1998 and 1997, respectively, on the exercise of non-qualified stock
options and on the disposition of stock acquired with an incentive stock option
or through the Employee Stock Purchase Plan.
30
31
PRO FORMA NET INCOME AND NET INCOME PER SHARE | The fair value of each option
grant, as defined by SFAS No. 123, is estimated on the date of grant using the
Black-Scholes option-pricing model. The Black-Scholes model, as well as other
currently accepted option valuation models, was developed to estimate the fair
value of freely tradable, fully transferable options without vesting
restrictions, which significantly differ from the Company's stock option awards.
These models also require highly subjective assumptions, including future stock
price volatility and expected time until exercise, which greatly affect the fair
value on the grant date.
To compute the estimated grant date fair value of the Company's stock option
grants in 1999, 1998 and 1997, respectively, the Black-Scholes method was used
with the following weighted-average assumptions: expected volatility of 53.2%,
48.0% and 40.6%, risk-free interest rates of 5.7%, 5.2% and 6.2%, expected lives
from vesting date of 0.83, 0.73 and 0.56 years, and dividend yields of 0%.
Pro forma compensation cost is also recognized for the fair value of the
employees' purchase rights, which was estimated using the Black-Scholes model
with the following assumptions for 1999, 1998 and 1997, respectively: an
expected life of six months for all years; expected volatility of 45.9%, 56.0%
and 44.7%; risk-free interest rates of 4.5%, 5.3% and 5.3%; and dividend yields
of 0%.
Had the Company recorded compensation costs based on the estimated grant date
fair value as defined by SFAS No. 123, for awards granted under its Stock Option
Plans and Stock Purchase Plan, the Company's net income and net income per share
would have been reduced to the pro forma amounts below for the years ended
December 31, 1999, 1998 and 1997:
(In thousands, except per share amounts) 1999 1998 1997
----------- ----------- -----------
Pro forma net income $ 199,850 $ 139,986 $ 116,054
Pro forma net income per share:
Basic $ 1.01 $ 0.75 $ 0.66
Diluted 0.97 0.72 0.61
Note 11: Income Taxes
U.S. and foreign components of income before income taxes were:
Years Ended December 31,
------------------------------------
(In thousands) 1999 1998 1997
-------- -------- --------
United States $280,254 $207,273 $229,436
Foreign 62,823 36,910 135
-------- -------- --------
Income before income taxes $343,077 $244,183 $229,571
======== ======== ========
Unremitted earnings of the Company's foreign subsidiaries that are considered
permanently invested outside the United States and on which no deferred taxes
have been provided, aggregate to approximately $51.3 million at December
31, 1999.
31
32
The provision for income taxes consists of:
Years Ended December 31,
-----------------------------------------
(In thousands) 1999 1998 1997
--------- --------- ---------
Current tax expense:
United States $ 113,510 $ 62,978 $ 70,399
State 15,365 15,488 14,328
Foreign 6,793 7,458 1,695
--------- --------- ---------
Total current tax expense 135,668 85,924 86,422
Deferred taxes:
United States (18,064) (1,833) (6,008)
State (4,552) (1,549) (2,360)
Foreign (1,553) (3,186) --
--------- --------- ---------
Total deferred taxes (24,169) (6,568) (8,368)
--------- --------- ---------
Total provision for income taxes $ 111,499 $ 79,356 $ 78,054
========= ========= =========
The tax benefit associated with the Company's equity in the net loss of
WaferTech (Note 5) reduced taxes currently payable by $15.6 and $5.0 million for
1999 and 1998, respectively. The benefit for 1997 was not material.
Deferred tax assets (liabilities) were as follows:
(In thousand) 1999 1998
--------- ---------
Assets:
Accrued expenses and reserves $ 80,591 $ 60,448
Acquisition costs 6,779 6,613
State taxes 1,107 4,788
Other 13,569 3,856
--------- ---------
Gross deferred tax assets 102,046 75,705
Depreciation (13,300) (2,090)
Deferred tax asset valuation allowance (3,999) (3,971)
--------- ---------
Net deferred tax assets $ 84,747 $ 69,644
========= =========
The change in deferred taxes includes $9.1 million of deferred taxes related to
the investment in WaferTech. The valuation allowances of $4.0 million at
December 31, 1999 and 1998 are attributable to deferred tax assets from the 1994
acquisition of Intel's programmable logic business. Sufficient uncertainty
exists regarding the realizability of these assets and, accordingly, valuation
allowances are required.
The items accounting for the difference between income taxes computed at the
federal statutory rate and the provision for income taxes are as follows:
Years Ended December 31,
-----------------------------------------
(In thousands) 1999 1998 1997
--------- --------- ---------
Tax provision at U.S. statutory rates $ 120,077 $ 85,464 $ 80,350
State taxes net of federal benefit 8,920 8,061 7,290
Foreign income taxed at lower rates (9,040) (6,830) --
Interest income on municipal obligations (5,950) (5,014) (4,270)
Other net (2,508) (2,325) (5,316)
--------- --------- ---------
Total provision for income taxes $ 111,499 $ 79,356 $ 78,054
========= ========= =========
32
33
Note 12: Litigation
The Company is a party to lawsuits or may in the future become a party to
lawsuits involving various types of claims, including, but not limited to,
unfair competition and intellectual property matters. Legal proceedings tend to
be unpredictable and costly and may be affected by events outside the control of
the Company. There is no assurance that litigation will not have an adverse
effect on the Company's financial position or results of operations. The
Company's major litigation matters as of December 31, 1999 are described below.
In June 1993, Xilinx, Inc. ("Xilinx") brought suit against the Company seeking
monetary damages and injunctive relief based on the Company's alleged
infringement of certain patents held by Xilinx. In June 1993, the Company
brought suit against Xilinx, seeking monetary damages and injunctive relief
based on Xilinx's alleged infringement of certain patents held by the Company.
In April 1995, the Company filed a separate lawsuit against Xilinx in Delaware,
Xilinx's state of incorporation, seeking monetary damages and injunctive relief
based on Xilinx's alleged infringement of one of the Company's patents. In May
1995, Xilinx counter-claimed against the Company in Delaware, asserting defenses
and seeking monetary damages and injunctive relief based on the Company's
alleged infringement of certain patents held by Xilinx. Subsequently, the
Delaware case has been transferred to California. In October 1998, both parties
filed motions for summary judgment with respect to certain issues in the first
two cases regarding infringement or non-infringement and validity or invalidity
of the patents at issue in the respective cases. In October - December 1999, the
Court ruled on the motions. In the Xilinx suit, the Court ruled that one of
Xilinx's claims is invalid and another claim was withdrawn. The Court also ruled
that issues of infringement and validity on the remaining claims are subject to
trial scheduled to begin May 8, 2000. In the Company's suit, the Court granted
that one of the Company's patents is invalid, granted that one patent is not
infringed, and granted another patent is not literally infringed but denied
non-infringement under doctrine of equivalence. The trial for the Company's suit
is scheduled to begin June 19, 2000. The Court also ordered that the parties
engage in mediation, which began February 24, 2000; although no substantial
progress to resolution has been made, mediation is continuing. Due to the nature
of the litigation with Xilinx and because the lawsuits are still in the
pre-trial stage, the Company's management cannot estimate the total expense, the
possible loss, if any, or the range of loss that may ultimately be incurred in
connection with the allegations. Management cannot ensure that Xilinx will not
succeed in obtaining significant monetary damages or an injunction against the
manufacture and sale of the Company's products, including but not limited to MAX
5000, MAX 7000, FLEX 8000 or MAX 9000 families of products, or succeed in
invalidating other of the Company's patents. Although no assurances can be given
as to the results of these cases, the Company believes that it has meritorious
defenses to the claims asserted in the Xilinx suit and intends to defend itself
vigorously in this matter.
In August 1994, Advanced Micro Devices, Inc. ("AMD") brought suit against the
Company seeking monetary damages and injunctive relief based on the Company's
alleged infringement of certain patents held by AMD. In September 1994, the
Company answered the complaint asserting that it is licensed to use the patents
which AMD claims are infringed and filed a counterclaim against AMD alleging
infringement of certain patents held by the Company. In October 1997, upon
completion of trials bifurcated from the infringement claims, the District Court
ruled that the Company is licensed under all patents asserted by AMD in the
suit. In December 1997, AMD filed a Notice of Appeal of the District Court's
rulings. In April 1999, the Federal Circuit Court ruled in AMD's favor on its
appeal, finding that the Company is not licensed to AMD's patents, and remanded
the case back to the District Court for further proceedings. In 1999, Lattice
Corporation entered into an agreement with AMD which includes assuming both the
claims against the Company and the claims against AMD and has replaced AMD in
the suit with Vantis Corporation, a wholly owned subsidiary of Lattice. Due to
the nature of the litigation, the Company's management cannot estimate the total
expense, the possible loss, if any, or the range of loss that may ultimately be
incurred in connection with the allegations. Management cannot ensure that
Lattice will not succeed in obtaining significant monetary damages or an
injunction against the manufacture and sale of the Classic, MAX 7000, FLEX 8000,
MAX 9000 and FLEX 10K product families, or succeed in invalidating any of the
Company's patents remaining in the suit. Although no assurances can be given as
to the results of this case, the Company intends to defend itself vigorously in
the matter.
In November 1999, the Company filed suit against Clear Logic Inc. ("Clear
Logic") alleging that Clear Logic is unlawfully appropriating the Company's
registered mask work technology in violation of the federal mask work statute
and that Clear Logic has unlawfully interfered with the Company's relationships
and contracts with its customers. The lawsuit seeks compensatory and punitive
damages and an injunction to stop Clear Logic from unlawfully using the
Company's mask work technology and from interfering with the Company's
customers. Clear Logic has answered the complaint by denying that it is
infringing the Company's mask work technology and denying that it has unlawfully
interfered with the Company's relationships and contracts with its customers.
Clear Logic has also filed a counterclaim against the Company for unfair
competition under California law alleging that the Company has made false
statements to its customers regarding Clear Logic. Due to the nature of the
litigation with Clear Logic and because the lawsuit is still in the pre-trial
stage, the Company's management cannot estimate the total expenses, the possible
loss, if any, or the range of loss that may ultimately be incurred in connection
with the counterclaim allegations. Although no assurances can be given as to the
results of this case, the Company intends to defend itself vigorously in the
matter.
33
34
Note 13: Segment and Geographic Information
The Company operates in a single industry segment comprising the design,
development, manufacture, and sale of CMOS programmable logic integrated
circuits and associated engineering development software and hardware. The
Company's sales by major geographic area (based on destination) were as
follows:
Years Ended December 31,
------------------------------------
(In thousands) 1999 1998 1997
-------- -------- --------
North America:
United States $438,807 $336,295 $300,068
Other 30,561 22,627 49,380
-------- -------- --------
Total North America 469,368 358,922 349,448
Europe 160,027 149,391 130,827
Japan 158,513 118,342 116,981
Asia Pacific 48,715 27,687 33,858
-------- -------- --------
Total $836,623 $654,342 $631,114
======== ======== ========
The majority of the Company's long-lived assets were located in the United
States. Long-lived assets included net property and equipment and long-term
investments and other assets. Long-lived assets that were outside the United
States constituted less than 10% of the Company's total. There was no single end
customer providing more than 10% of the Company's sales for years ended December
31, 1999, 1998 and 1997.
Note 14: Employee Benefits Plans
The Company has a plan to provide retirement and incidental benefits for its
eligible employees, known as the Altera Corporation Savings and Retirement Plan
("the Plan"). As allowed under Section 401(k) of the Internal Revenue Code, the
Plan provides tax deferred salary deductions for eligible employees.
Participants in the Plan may make salary deferrals of up to 20% of the eligible
annual salary, limited by the maximum dollar amount allowed by the Internal
Revenue Code. For every dollar deferred under the Plan, the Company makes a
matching contribution equal to 100% up to the first 5% of the salary deferred
with a maximum of $1,500 per participant per year. Participants become fully
vested as to the matching contribution after five years. Company contributions
to the Plan were $1.3 million in 1999 and $1.1 million in each of 1998 and 1997.
34
35
Note 15: Accounting Change - Recognition of Revenue on Sales to Distributors
In October 1997, the Company changed its accounting method for recognizing
revenue on sales to distributors with an effective date of January 1, 1997. The
Company previously recognized revenue upon shipment to distributors net of
appropriate reserves for sales returns and allowances. Following the accounting
change, revenue recognition on shipments to distributors is deferred until the
products are resold to the end customers. The Company believes that deferral of
revenue on distributor sales and related gross margins until the product is
shipped by the distributors results in a more meaningful measurement of results
of operations and is more consistent with industry practice and, therefore, is a
preferable method of accounting. The cumulative effect prior to 1997 of the
change in accounting method was a charge of $18.1 million (net of $9.3 million
of income taxes) or $0.09 per diluted share in 1997. The estimated pro forma
effect of the accounting change on prior years' results is as follows:
Year Ended
December 31,
(In thousands, except per share amounts) 1997
As reported: ------------
Sales $ 631,114
Net income 133,453
Diluted net income per share 0.68
Pro forma amounts with the change in accounting principle related to revenue
recognition applied retroactively:
Sales 631,114
Net income 151,517
Diluted net income per share 0.77
35
36
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders and Board of Directors of Altera Corporation:
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, of stockholders' equity and of cash flows
present fairly, in all material respects, the financial position of Altera
Corporation and its subsidiaries at December 31, 1999 and 1998, and the results
of their operations and their cash flows for each of the three years in the
period ended December 31, 1999, in conformity with accounting principles
generally accepted in the United States. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with auditing standards generally
accepted in the United States which require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
As discussed in Note 15 to the consolidated financial statements, in 1997 the
Company changed its method of recognizing revenue.
/s/ PricewaterhouseCoopers LLP
San Jose, California
January 18, 2000
36
37
Supplementary Financial Data
Quarterly Financial Information (UNAUDITED)
(In thousands, except per share amounts) First Quarter Second Quarter Third Quarter Fourth Quarter
-------------- -------------- -------------- --------------
1999
Sales $ 186,399 $ 197,783 $ 215,121 $ 237,320
Gross profit 117,245 125,515 138,414 154,127
Net income 46,975 51,078 55,572 70,369
Basic net income per share 0.24 0.26 0.28 0.35
Diluted net income per share 0.23 0.25 0.27 0.34
1998
Sales $ 157,216 $ 160,476 $ 164,218 $ 172,432
Gross profit 97,126 98,785 101,707 107,250
Net income 35,135 36,616 40,143 42,493
Basic net income per share 0.20 0.20 0.21 0.22
Diluted net income per share 0.18 0.19 0.20 0.21
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
37
38
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The executive officers and directors of the Company and their ages are as
follows:
Name Age Position with the Company
---- --- -------------------------
Rodney Smith ................. 59 Chairman of the Board of Directors, President and Chief Executive Officer
C. Wendell Bergere ........... 54 Vice President, General Counsel and Secretary
Denis Berlan ................. 49 Executive Vice President and Chief Operating Officer
Erik Cleage .................. 39 Senior Vice President, Marketing
John R. Fitzhenry ............ 50 Vice President, Human Resources
Michael Jacobs ............... 40 Senior Vice President, Worldwide Sales
Nathan Sarkisian ............. 41 Senior Vice President and Chief Financial Officer
Charles M. Clough(1) ......... 71 Director
Michael A. Ellison(2)(3) ..... 54 Director
Paul Newhagen(1) ............. 50 Director
Robert W. Reed(3) ............ 53 Director
Deborah D. Rieman ............ 50 Director
William E. Terry(1)(2) ....... 66 Director
- ------------------
(1) Member of Nominating Committee.
(2) Member of Compensation Committee.
(3) Member of Audit Committee.
All directors hold office until the next annual meeting of stockholders or until
their successors have been elected and qualified. There are no family
relationships between any of the directors or executive officers of the Company.
Rodney Smith joined the Company in November 1983 as Chairman of the Board of
Directors, President and Chief Executive Officer. Prior to that time, he held
various management positions with Fairchild Semiconductor Corporation
("Fairchild"), a semiconductor manufacturer.
C. Wendell Bergere joined the Company in August 1995 as Vice President, General
Counsel and Secretary. Prior to joining the Company, from 1993 to 1995, Mr.
Bergere was Special Counsel at the law firm of Sheppard, Mullin, Richter &
Hampton. From 1982 to 1993, he was Vice President, General Counsel and Secretary
of The Perkin-Elmer Corporation, a producer of analytical and life science
systems.
Denis M. Berlan joined the Company in December 1989 as Vice President, Product
Engineering and was named Vice President, Operations and Product Engineering in
October 1994. In January 1996, he was named Vice President, Operations. In
January 1997, he was named Executive Vice President and Chief Operating Officer.
He was previously employed by Advanced Micro Devices, Inc. ("AMD"), a
semiconductor manufacturer, and by Lattice Semiconductor Corporation, a
semiconductor manufacturer, in engineering management capacities.
Erik Cleage joined the Company as International Marketing Manager in February
1986. He became Director, Japan and Asia Pacific Sales in April 1989, was
appointed Vice President, Marketing in August 1990 and Senior Vice President,
Marketing in January 1999. Previously, he was employed by AMD and Fairchild in
various positions.
John R. Fitzhenry joined the Company in May 1995 as Vice President of Human
Resources. From 1983 to May 1995, he was employed by Apple Computer, Inc., a
manufacturer of personal computers, in various human resource management
positions.
38
39
Michael Jacobs joined the Company in January 2000 as Senior Vice President,
Worldwide Sales. Prior to joining the Company, he was Vice President, North
American Sales at Analog Devices and previous to that held various management
positions at National Semiconductor.
Nathan Sarkisian joined the Company in June 1992 as Corporate Controller. He was
appointed Vice President, Finance and Chief Financial Officer in August 1995 and
Senior Vice President and Chief Financial Officer in March 1998. Prior to
joining the Company, Mr. Sarkisian held various accounting and financial
positions at Fairchild, and at Schlumberger, an oil field services company.
Charles M. Clough has served as a director of the Company since August 1997. In
August 1997, Mr. Clough retired from his position as Chairman of the Board of
Directors of Wyle Electronics, a distributor of semiconductor products and
computer systems. From 1982 to 1997, Mr. Clough held various management
positions at Wyle Electronics, including President, Chief Executive Officer and
Chairman. Wyle Electronics is one of the Company's authorized distributors in
the United States. Prior to joining Wyle Electronics, he had spent 27 years with
Texas Instruments holding a number of management and executive positions
relating to semiconductor operations, including the head of Bipolar operations,
European Semiconductor group and worldwide marketing.
Michael A. Ellison has served as a director of the Company since April 1984.
Since October 1994, Mr. Ellison has been the Chief Executive Officer of Steller,
Inc., a distributor of electronic parts. Until December 1992, he was a General
Partner at Cable & Howse Ventures, a venture capital investment firm, and
following that a private venture capital investor.
Paul Newhagen, a co-founder of the Company, has served as a director of the
Company since July 1987. In March 1998, Mr. Newhagen retired from his position
as Vice President, Administration of the Company, a position he had held since
December 1984. From June 1993 to November 1994, he served as a consultant to the
Company. From 1983 to 1993, Mr. Newhagen held various management positions at
the company, including Vice President of Finance and Administration, Chief
Financial Officer and Secretary.
Robert W. Reed has served as a director of the Company since October 1994. In
1996, Mr. Reed retired from his position as Senior Vice President of Intel
Corporation, a semiconductor manufacturer. From 1983 to 1991 Mr. Reed was
Intel's Chief Financial Officer.
Deborah D. Rieman has served as a director of the Company since May 1996. Dr.
Rieman currently manages a private investment fund and consults to Internet
start-up companies. Until May 1999, Dr. Rieman was the President and Chief
Executive Officer of CheckPoint Software Technologies, Inc. ("CheckPoint"), an
Internet security software company. Prior to joining CheckPoint, Dr. Rieman held
various executive and marketing positions with Adobe Systems Inc., a computer
software company, Sun Microsystems Inc., a computer networking company, and
Xerox Corp., a diversified electronics manufacturer.
William E. Terry has served as a director of the Company since August 1994. Mr.
Terry is a former director and Executive Vice President of the Hewlett-Packard
Company, a diversified electronics manufacturing company. At Hewlett-Packard, he
held a number of senior management positions, including general manager of
Hewlett-Packard's Data Products and Instrument Groups, and subsequently had
overall responsibility for the Measurement Systems Sector. He retired from
Hewlett-Packard in November 1993. Mr. Terry also serves as a director of Key
Tronic Corporation and Phase Metrics, Inc.
The section entitled "Section 16(a) Beneficial Ownership Reporting Compliance"
in the Company's Proxy Statement for the Annual Meeting of Stockholders to be
held on May 10, 2000 (the "Proxy Statement") is incorporated herein by
reference.
ITEM 11. EXECUTIVE COMPENSATION.
The section entitled "Executive Compensation" in the Company's Proxy Statement
is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The section entitled "Security Ownership of Certain Beneficial Owners and
Management" in the Company's Proxy Statement is incorporated herein by
reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The sections entitled "Director Compensation" and "Certain Business
Relationships" in the Company's Proxy Statement are incorporated herein by
reference.
39
40
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
1. Financial Statements
The information required by this item is included in Item 8 of Part II of this
Form 10-K.
2. Financial Statement Schedules.
All schedules have been omitted as they are either not required, not applicable,
or the required information is included in the financial statements or notes
thereto.
3. Exhibits.
Exhibit
Number Exhibit
- ------ -------
3.1 Certificate of Incorporation filed with the Delaware Secretary of
State on March 25, 1997 (which became the Certificate of
Incorporation of the Registrant on June 19, 1997).(15)
3.2 By-laws of the Registrant as adopted May 5, 1997 (which became the
By-laws of the Registrant on June 19, 1997).(15)
4.1 Specimen copy of certificate for shares of Common Stock of the
Registrant.(16)
10.1(*) License Agreement dated as of July 12, 1994 with Intel
Corporation.(9)
10.2 Supply Agreement dated as of July 12, 1994 with Intel
Corporation.(9)
10.3(a)+ 1987 Stock Option Plan, and forms of Incentive and Nonstatutory
Stock Option Agreements, as amended March 22, 1995 and as restated
effective May 10, 1995.(12)
10.4(b)+ 1987 Employee Stock Purchase Plan, and form of Subscription
Agreement, as restated effective May 26, 1999.
10.22(*) Advanced Micro Devices, formerly MMI, Settlement Agreement and
associated Series E Preferred Stock Purchase Agreement and Patent
License Agreement, all dated March 31, 1987.(1)
10.26 Form of Indemnification Agreement entered into with each of the
Registrant's officers and directors.(16)
10.33(b)+ 1988 Director Stock Option Plan and form of Outside Director
Nonstatutory Stock Option Agreement restated effective May 7, 1997.
10.37 LSI Products Supply Agreement with Sharp Corporation, dated October
1, 1993.(7)
10.37(a) Letter Agreement, dated August 20, 1996, by and between Registrant
and Sharp Corporation, amending the LSI Product Supply Agreement,
dated October 1, 1993.
10.37(b) Letter Agreement, dated May 22, 1997, by and between Registrant and
Sharp Corporation, amending the LSI Product Supply Agreement, dated
October 1, 1993.
10.37(c) Letter Agreement, dated May 22, 1998, by and between Registrant and
Sharp Corporation, amending the LSI Product Supply Agreement, dated
October 1, 1993.
10.38+ Altera Corporation Nonqualified Deferred Compensation Plan and Trust
Agreement dated February 1 1994, and form of Deferred Compensation
Agreement.(7)
10.39 Wafer Supply Agreement dated June 26, 1995 between Registrant and
Taiwan Semiconductor Manufacturing Co., Ltd.(11)
10.41 Memorandum of Intent dated October 1, 1995 between Registrant and
Taiwan Semiconductor Manufacturing Co., Ltd.(13)
10.42 Amendment No. 1 dated as of October 1, 1995 to Wafer Supply
Agreement dated as of June 26, 1995 by and between Registrant and
Taiwan Semiconductor Manufacturing Co., Ltd. And to Option Agreement
1 dated as of June 26, 1995 between Registrant and Taiwan
Semiconductor Manufacturing Co., Ltd.(13)
10.42(a) Amendment of Wafer Supply Agreement dated June 1, 1997 by and
between Registrant and Taiwan Semiconductor Manufacturing Co., Ltd.
10.43 Option Agreement 2 dated as of October 1, 1995 by and between
Registrant and Taiwan Semiconductor Manufacturing Co., Ltd. (13)
40
41
10.45(a)+ 1996 Stock Option Plan, as amended October 5, 1999.(13)
10.45(b)+ Form of Stock Option Agreement under 1996 Stock Option Plan.(13)
10.47 Second Amended and Restated Limited Liability Company Agreement of
Wafertech, LLC, a Delaware limited liability company, dated as of
October 28, 1997.(16)(17)
10.47(a) Amendment to Second Amended and Restated Limited Liability Company
Agreement of WaferTech, LLC, a Delaware limited liability company,
dated as of November 30, 1998.
10.47(b) Second Amendment to Second Amended and Restated Limited Liability
Company Agreement of WaferTech, LLC, a Delaware limited liability
company, dated as of January 1999.
10.48 Purchase Agreement by and between Taiwan Semiconductor Manufacturing
Co., Ltd., as Seller, and Analog Devices, Inc., the Registrant and
Integrated Silicon Solutions, Inc., as Buyers (dated as of June 25,
1996).(14)
10.50 Agreement and Plan of Merger dated June 18, 1997.(15)
10.51(a)+ 1998 Director Stock Option Plan.(18)
10.51(b)+ Form of Stock Option Agreement under 1998 Director Stock Option
Plan.(18)
10.52 Assignment and Assumption Agreement, dated as of January 29, 1999,
by and between Registrant and Analog Devices, Inc.(18)
10.53 Product Distribution Agreement with Arrow Electronics Incorporated,
effective January 26, 1999.(19)
10.54 Product Distribution Agreement with Wyle Electronics Incorporated,
effective January 26, 1999.(19)
10.55+ Form of restricted Stock Purchase Agreement.(20)
#11.1 Computation of Earnings per Share (included on pages 24 and 25).
#13.1(**) Annual Report to Stockholders for the fiscal year ended December 31,
1999 (to be deemed filed only to the extent required by the
instructions to Exhibits for Reports on Form 10-K).
#21.1 Subsidiaries of the Registrant.
#23.1 Consent of PricewaterhouseCoopers LLP.
#24.1 Power of Attorney (included on page 42).
#27.1 Financial Data Schedule.
(1) Incorporated by reference to identically numbered exhibits filed in
response to Item 16(a), "Exhibits," of the registrant's Registration
Statement on Form S-1 (File No. 33-17717), as amended, which became
effective March 29, 1988.
(2) Incorporated by reference to identically numbered exhibits filed in
response to Item 14(a), "Exhibits," of the registrant's Report on Form
10-K for the fiscal year ended December 31, 1988.
(3) Incorporated by reference to identically numbered exhibits filed in
response to Item 14(a), "Exhibits," of the registrant's Report on Form
10-K for the fiscal year ended December 31, 1989.
(4) Incorporated by reference to identically numbered exhibits filed in
response to Item 6(a), "Exhibits," of the registrant's Report on Form 10-Q
for the quarter ended March 31, 1990, as amended by a Form 8 filed on July
13, 1990.
(5) Incorporated by reference to identically numbered exhibits filed in
response to Item 14(a), "Exhibits," of the registrant's Report on Form
10-K for the fiscal year ended December 31, 1990.
(6) Incorporated by reference to identically numbered exhibits filed in
response to Item 14(a), "Exhibits," of the registrant's Report on Form
10-K for the fiscal year ended December 31, 1992.
(7) Incorporated by reference to identically numbered exhibits filed in
response to Item 14(a), "Exhibits," of the registrant's Report on Form
10-K for the fiscal year ended December 31, 1993.
(8) Incorporated by reference to identically numbered exhibits filed in
response to Item 7, "Exhibits," of the registrant's Report on Form 8-K
dated October 15, 1994 and 8-KA dated December 15, 1994.
41
42
(9) Incorporated by reference to identically numbered exhibits filed in
response to Item 6(a), "Exhibits," of the registrant's Report on
Form 10-Q for the quarter ended September 30, 1994.
(10) Incorporated by reference to identically numbered exhibits filed in
response to Item 14(a), "Exhibits," of the registrant's Report on Form
10-K for the fiscal year ended December 31, 1994.
(11) Incorporated by reference to identically numbered exhibits filed in
response to Item 6(a), "Exhibits," of the registrant's Report on Form 10-Q
for the quarter ended June 30, 1995.
(12) Incorporated by reference to identically numbered exhibits filed in
response to Item 8, "Exhibits," of the registrant's Registration Statement
on Form S-8 (File No. 33-61085), as amended, which became effective July
17, 1995.
(13) Incorporated by reference to identically numbered exhibits filed in
response to Item 14(a), "Exhibits," of the registrant's Report on Form
10-K for the fiscal year ended December 31, 1995.
(14) Incorporated by reference to identically numbered exhibits filed in
response to Item 6(a), "Exhibits," of the registrant's Report on Form 10-Q
for the quarter ended June 30, 1996.
(15) Incorporated by reference to identically numbered exhibits filed in
response to Item 6(a), "Exhibits," of the registrant's Report on Form 10-Q
for the quarter ended June 30, 1997.
(16) Incorporated by reference to identically numbered exhibits filed in
response to Item 14(a), "Exhibits," of the registrant's Report on Form
10-K for the fiscal year ended December 31, 1997.
(17) Exhibits to this document are incorporated by reference to the exhibits to
the identically numbered document filed in response to Item 6(a),
"Exhibits," of the registrant's Report on Form 10-Q for the quarter ended
June 30, 1996.
(18) Incorporated by reference to identically numbered exhibits filed in
response to Item 14(a), "Exhibits," of the registrant's Report on Form
10-K for the fiscal year ended December 31, 1998.
(19) Incorporated by reference to identically numbered exhibits filed in
response to Item 6(a), "Exhibits," of the registrant's Report on Form 10-Q
for the quarter ended March 31, 1999.
(20) Incorporated by reference to identically numbered exhibits filed in
response to Item 8, "Exhibits." of the registrant's Registration Statement
on Form S-8 (File No. 333-31304), filed on February 29, 2000.
(*) Confidential treatment has previously been granted for portions of this
exhibit pursuant to an order of the Commission.
+ Management contract or compensatory plan or arrangement required to be
filed as an exhibit to this Report on Form 10-K pursuant to Item 14(c)
thereof.
(**) To be filed by amendment.
(b) Reports on Form 8-K.
None.
42
43
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this Report on Form 10-K to be
signed on its behalf, by the undersigned thereto duly authorized.
ALTERA CORPORATION
By: /s/ NATHAN SARKISIAN
------------------------------
Nathan Sarkisian
Senior Vice President and
Chief Financial Officer
March 24, 2000
POWER OF ATTORNEY
Know all persons by these present, that each person whose signature appears
below constitutes and appoints Nathan Sarkisian, his or her attorney-in-fact,
with the power of substitution, for him or her in any and all capacities, to
sign any amendments to this Report on Form 10-K, and to file the same, with
exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, hereby ratifying and confirming all that
said attorney-in-fact, or his or her substitute or substitutes, may do or cause
to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report on Form 10-K has been signed below by the following persons on behalf of
the registrant and in the capacities and on the dates indicated:
Signature Capacity in Which Signed Date
--------- ------------------------ ----
/s/ RODNEY SMITH President, Chief Executive Officer (Principal Executive Officer) and March 22, 2000
- ----------------------------- Chairman of the Board of Directors
Rodney Smith
/s/ NATHAN SARKISIAN Senior Vice President and Chief Financial Officer March 22, 2000
- ----------------------------- (Principal Financial and Accounting Officer)
Nathan Sarkisian
/s/ CHARLES M. CLOUGH Director March 22, 2000
- -----------------------------
Charles M. Clough
/s/ MICHAEL A. ELLISON Director March 22, 2000
- -----------------------------
Michael A. Ellison
/s/ PAUL NEWHAGEN Director March 22, 2000
- -----------------------------
Paul Newhagen
/s/ ROBERT W. REED Director March 22, 2000
- -----------------------------
Robert W. Reed
/s/ DEBORAH D. RIEMAN Director March 22, 2000
- -----------------------------
Deborah D. Rieman
/s/ WILLIAM E. TERRY Director March 22, 2000
- -----------------------------
William E. Terry
43