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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------------------------------
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended October 6, 2002
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file number 0-21970
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ACTEL CORPORATION
(Exact name of Registrant as specified in its charter)
California 77-0097724
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
955 East Arques Avenue
Sunnyvale, California 94086-4533
(Address of principal executive offices) (Zip Code)
(408) 739-1010
(Registrant's telephone number, including area code)
--------------------------------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes X No
Number of shares of Common Stock outstanding as of November 18, 2002:
24,131,374.
PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements.
ACTEL CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(unaudited, in thousands except per share amounts)
Three Months Ended Nine Months Ended
-------------------------------------- -------------------------
Oct. 6, Sep. 30, Jul. 7, Oct. 6, Sep. 30,
2002 2001 2002 2002 2001
---------- ---------- ---------- ----------- -----------
Net revenues................................ $ 32,912 $ 32,006 $ 34,293 $ 100,265 $ 113,500
Costs and expenses:
Cost of revenues......................... 13,683 15,272 12,956 39,423 49,718
Research and development................. 9,575 9,385 9,902 29,214 28,252
Selling, general, and
administrative......................... 10,560 9,900 11,036 32,307 31,373
Amortization of goodwill and other
acquisition-related intangibles*...... 681 3,637 681 2,043 11,115
--------- --------- --------- ---------- ----------
Total costs and expenses........... 34,499 38,194 34,575 102,987 120,458
--------- --------- --------- ---------- ----------
Loss from operations........................ (1,587) (6,188) (282) (2,722) (6,958)
Interest income and other, net.............. 1,371 1,512 1,813 4,672 5,620
Loss on sale and write-down of marketable
equity security............................. - - (1,010) (1,133) -
--------- --------- --------- ---------- ----------
Income (loss) before tax provision (216) (4,676) 521 817 (1,338)
Tax provision (benefit)..................... (1,323) (2,342) 117 (1,089) 832
--------- --------- --------- ---------- ----------
Net income (loss)........................... $ 1,107 $ (2,334) $ 404 $ 1,906 $ (2,170)
========= ========= ========= ========== ==========
Net income (loss) per share:
Basic.................................... $ 0.05 $ (0.10) $ 0.02 $ 0.08 $ (0.09)
========= ========= ========= ========== ==========
Diluted.................................. $ 0.04 $ (0.10) $ 0.02 $ 0.08 $ (0.09)
========= ========= ========= ========== ==========
Shares used in computation:
Basic.................................... 24,531 23,852 24,382 24,361 23,655
========= ========= ========= ========== ==========
Diluted.................................. 24,959 23,852 26,036 25,399 23,655
========= ========= ========= ========== ==========
- ------------------------------------------------------------
* In the first quarter of 2002, Actel adopted Statement of Financial
Accounting Standards (SFAS) Nos. 141 and 142, which eliminated the
systematic amortization of goodwill. Please see Note 3 for further
discussion.
See Notes to Unaudited Consolidated Financial Statements
ACTEL CORPORATION
CONSOLIDATED CONDENSED BALANCE SHEETS
(unaudited, in thousands)
Oct. 6, Jan. 6,
2002 2002*
------------ ----------
ASSETS
Current assets:
Cash and cash equivalents.................................................... $ 8,580 $ 7,912
Short-term investments....................................................... 120,296 120,923
Accounts receivable, net..................................................... 19,667 16,759
Inventories, net............................................................. 35,456 36,338
Deferred income taxes........................................................ 23,313 26,096
Prepaid expenses and other current assets.................................... 6,124 4,251
---------- ----------
Total current assets................................................... 213,436 212,279
Property and equipment, net..................................................... 15,474 14,665
Goodwill, net................................................................... 37,180 37,180
Other assets, net............................................................... 23,900 25,958
---------- ----------
$ 289,990 $ 290,082
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable............................................................. $ 8,504 $ 10,129
Accrued salaries and employee benefits....................................... 5,847 7,189
Other accrued liabilities.................................................... 4,574 6,332
Deferred income.............................................................. 26,943 26,758
---------- ----------
Total current liabilities.............................................. 45,868 50,408
Deferred compensation plan liability......................................... 1,633 1,994
---------- ----------
Total liabilities...................................................... 47,501 52,402
Commitments and contingencies
Shareholders' equity:
Common stock................................................................. 24 24
Additional paid-in capital................................................... 166,271 162,324
Retained earnings............................................................ 75,792 75,207
Note receivable from officer................................................. - (368)
Unearned compensation cost................................................... (212) (314)
Accumulated other comprehensive income....................................... 614 807
---------- ----------
Total shareholders' equity............................................. 242,489 237,680
---------- ----------
$ 289,990 $ 290,082
========== ==========
- ------------------------------------------------------------
* Derived from the audited financial statements included in Actel's
report on Form 10-K for the fiscal year ended January 6, 2002.
See Notes to Unaudited Consolidated Financial Statements
ACTEL CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(unaudited, in thousands)
Nine Months Ended
------------------------
Oct. 6, Sep. 30,
2002 2001
---------- ----------
Operating activities:
Net income................................................................... $ 1,906 $ (2,170)
Adjustments to reconcile net income to net cash used in operating activities:
Depreciation and amortization.............................................. 7,520 16,348
Stock compensation cost recognized......................................... 101 191
Changes in operating assets and liabilities:
Accounts receivable...................................................... (2,908) 15,637
Inventories.............................................................. 882 (7,133)
Other current assets..................................................... (540) 2,886
Accounts payable, accrued salaries and employee benefits, and other
accrued liabilities.................................................... (4,933) (15,291)
Deferred income.......................................................... 185 (17,341)
Deferred income taxes.................................................... 129 (762)
---------- ----------
Net cash provided by (used in) operating activities.......................... 2,342 (7,635)
---------- ----------
Investing activities:
Purchases of property and equipment.......................................... (6,286) (7,324)
Purchases of available-for-sale securities................................... (128,899) (114,453)
Sales of available-for-sale securities....................................... 129,203 122,538
Other assets................................................................. 606 (2,364)
---------- ----------
Net cash used in investing activities........................................ (5,376) (1,603)
---------- ----------
Financing activities:
Stock repurchase............................................................. (3,334) -
Sale of common stock, net.................................................... 7,036 7,331
---------- ----------
Net cash provided by financing activities.................................... 3,702 7,331
---------- ----------
Net increase (decrease) in cash and cash equivalents............................ 668 (1,907)
Cash and cash equivalents, beginning of period.................................. 7,912 9,266
---------- ----------
Cash and cash equivalents, end of period........................................ $ 8,580 $ 7,359
========== ==========
Supplemental disclosures of cash flow information:
Cash paid for taxes.......................................................... $ 170 $ 277
See Notes to Unaudited Consolidated Financial Statements
ACTEL CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation and Summary of Significant Accounting Policies
The accompanying unaudited consolidated condensed financial statements of
Actel Corporation (Actel) have been prepared in accordance with generally
accepted accounting principles for interim financial information and with the
instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, these
financial statements do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements. In the opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation have been
included.
Actel's discussion and analysis of its financial condition and results of
operations are based upon Actel's consolidated condensed financial statements,
which have been prepared in accordance with accounting principles generally
accepted in the United States. The preparation of these financial statements
requires Actel to make estimates and judgments that affect the reported amounts
of assets, liabilities, revenues, and expenses and the related disclosure of
contingent assets and liabilities. The United States Securities and Exchange
Commission (SEC) has defined the most critical accounting policies as the ones
that are most important to the portrayal of an issuer's financial condition and
results and require management to make its most difficult and subjective
judgments, often as a result of the need to make estimates of matters that are
inherently uncertain. Based upon this definition, Actel's most critical policies
include: inventories, impairment of investments in other companies, intangible
assets and goodwill, income taxes, and legal matters. Actel bases its estimates
on historical experience and on various other assumptions that are believed to
be reasonable under the circumstances, the results of which form the basis for
making judgments about the carrying values of assets and liabilities that are
not readily apparent from other sources. Actual results may differ materially
from these estimates. Actel also has other key accounting policies, such as
policies for revenue and accounts receivable. These other policies either do not
generally require management to make estimates and judgments that are as
difficult or as subjective or are less likely to have a material impact on
Actel's financial condition or results of operations for a given period. Further
information regarding all of these policies, as well as the estimates and
judgments involved, was disclosed in Actel's Annual Report on Form 10-K for the
year ended January 6, 2002 (2001 Form 10-K). During the quarter ended October 6,
2002, there were no significant changes to any critical accounting policies or
to the related estimates and judgments involved in applying these policies.
The consolidated condensed financial statements include the accounts of
Actel and its wholly owned subsidiaries. All significant intercompany accounts
and transactions have been eliminated in consolidation. The interim financial
statements should be read in conjunction with the audited financial statements
included in Actel's 2001 Form 10-K. The results of operations for the quarter
and nine months ended October 6, 2002, are not necessarily indicative of results
that may be expected for the entire fiscal year, which ends January 5, 2003.
2. Impact of Recently Issued Accounting Standards
In October 2001, the Financial Accounting Standards Board (FASB) issued
SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets."
This standard supersedes SFAS No. 121. Although retaining many of the
fundamental recognition and measurement provisions of SFAS No. 121, the new
rules significantly change the criteria that must be met to classify an asset as
held-for-sale. The standard also supersedes certain provisions of Accounting
Principles Board Opinion (APB) No. 30, "Reporting the Results of Operations --
Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary,
Unusual and Infrequently Occurring Events and Transactions." SFAS No. 144
requires expected future operating losses from discontinued operations to be
displayed in discontinued operations in the period(s) in which the losses are
incurred rather than as of the measurement date, as previously required. SFAS
No. 144 became effective for fiscal years beginning after December 15, 2001.
Actel adopted SFAS No. 144 in the first quarter of 2002. The adoption of SFAS
No. 144 did not impact Actel's financial position, operating results, or cash
flows.
In July 2002, the FASB issued SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities." SFAS 146 requires that a liability
for costs associated with an exit or disposal activity be recognized and
measured initially at fair value only when the liability is incurred. SFAS 146
is effective for exit to disposal activities that are initiated after December
31, 2002. Actel does not expect the adoption of SFAS 146 to have a material
impact on its operating results or financial position.
3. Goodwill and Other Intangible Assets
In June 2001, FASB issued SFAS No. 141, "Business Combinations," and SFAS
No. 142, "Goodwill and Other Intangible Assets." These standards are effective
for fiscal years beginning after December 15, 2001. Actel adopted SFAS Nos. 141
and 142 in the first quarter of 2002. Under these pronouncements, goodwill and
any intangible assets with an indefinite life (goodwill) will no longer be
amortized, but will be subject to an annual impairment test. Intangible assets
with a finite useful life (other intangible assets) will continue to be
amortized over their estimated useful lives. As of October 6, 2002, unamortized
goodwill was $37.2 million. For the quarter and nine months ended October 6,
2002, goodwill was not amortized, which resulted in the elimination of $2.9
million and $8.7 million, respectively, of amortization expense that would have
been recognized as expense prior to the adoption of SFAS Nos. 141 and 142. For
the quarter and nine months ended September 30, 2001, the amortization expense
related to goodwill was $2.9 million and $8.7 million, respectively. Other
intangible assets, with a net book value of $7.9 million at October 6, 2002
(included in other assets line of the consolidated condensed balance sheet),
will continue to be amortized over their estimated useful lives. For the quarter
and nine months ended October 6, 2002, amortization expense associated with
other intangible assets was $0.7 million and $2.0 million, respectively. For the
quarter and nine months ended September 30, 2001, amortization expense
associated with other intangible assets was $0.7 million and $2.4 million,
respectively. Management concluded there was no cumulative effect from prior
years that Actel was required to record in the first quarter of 2002 as a result
of adopting SFAS No. 142.
Actel completed an impairment test of goodwill in accordance with SFAS No.
142 during the quarter ended October 6, 2002, and concluded no impairment
exists.
ACTEL CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
SFAS No. 142 requires disclosure of adjusted net income and adjusted net
income per share for all periods presented on the interim statements of
operations, as adjusted to eliminate the effects of goodwill amortization. The
periods presented below are adjusted to eliminate the effect of goodwill
amortization, which is no longer being amortized for periods beginning with the
first quarter of 2002.
Three Months Ended Nine Months Ended
------------------------------------ -----------------------
Oct. 6, Sep. 30, Jul. 7, Oct. 6, Sep. 30,
2002 2001 2002 2002 2001
--------- ---------- --------- --------- ---------
(in thousands, except per share amounts)
Reported net income (loss).................. $ 1,107 $ (2,334) $ 404 $ 1,906 $ (2,170)
Amortization of goodwill.................... - 2,956 - - 8,730
--------- ---------- -------- -------- ---------
Adjusted net income excluding amortization
of goodwill.............................. $ 1,107 $ 622 $ 404 $ 1,906 $ 6,560
========= ========== ======== ======== =========
Reported net income (loss) per share:
Basic.................................... $ 0.05 $ (0.10) $ 0.02 $ 0.08 $ (0.09)
========= ========== ======== ======== =========
Diluted.................................. $ 0.04 $ (0.10) $ 0.02 $ 0.08 $ (0.09)
========= ========== ======== ======== =========
Adjusted net income per share:
Basic.................................... $ 0.05 $ 0.03 $ 0.02 $ 0.08 $ 0.28
========= ========== ======== ======== =========
Diluted.................................. $ 0.04 $ 0.02 $ 0.02 $ 0.08 $ 0.26
========= ========== ======== ======== =========
Shares used in computing adjusted net
income per share:
Basic.................................... 24,531 23,852 24,382 24,361 23,655
========= ========== ======== ======== =========
Diluted.................................. 24,959 25,208 26,036 25,399 25,150
========= ========== ======== ======== =========
ACTEL CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
4. Inventories
Inventories consist of the following:
Oct. 6, Jan. 6,
2002 2002
---------- ----------
(in thousands)
Inventories:
Purchased parts and raw materials............................................ $ 4,586 $ 6,972
Work-in-process.............................................................. 27,255 26,670
Finished goods............................................................... 3,615 2,696
---------- ----------
$ 35,456 $ 36,338
========== ==========
Inventory is stated at the lower of cost (first-in, first-out) or market
(net realizable value). Management believes that a certain level of inventory
must be carried to maintain an adequate supply of product for customers. This
inventory level may vary based upon either orders received from customers or
internal forecasts of demand for these products. Other considerations in
determining inventory levels include the stage of products in the product life
cycle, design win activity, manufacturing lead times, customer demands,
strategic relationships with foundries, and competitive situations in the
marketplace. Should any of these factors have a result other than anticipated,
inventory levels may be adversely affected.
Actel writes down its inventory for obsolescence and unmarketability equal
to the difference between the cost of inventory and the estimated realizable
value based upon assumptions about future demand and market conditions. To
address this difficult, subjective, and complex area of judgment, Actel applies
a methodology that includes assumptions and estimates to arrive at the net
realizable value. First, Actel identifies any inventory that has been previously
reserved in prior periods. This inventory remains written down until sold,
destroyed, or otherwise dispositioned. Second, Actel's quality assurance
personnel examine inventory line items that may have some form of obsolescence
due to non-conformance with electrical or mechanical standards. Third, Actel
assesses the inventory not otherwise identified to be reserved against product
history and forecast demand, typically six months. Finally, the result of this
methodology is analyzed by management in light of the product life cycle, design
win activity, and competitiveness in the marketplace to derive an outlook for
consumption of the inventory and the appropriateness of the resulting inventory
levels. If actual future demand or market conditions are less favorable than
those projected by management, additional inventory write-downs may be required.
ACTEL CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
5. Earnings Per Share
The following table sets forth the computation of basic and diluted
earnings per share in accordance with SFAS No. 128, "Earnings per Share":
Three Months Ended Nine Months Ended
------------------------------------- -----------------------
Oct. 6, Sep. 30, Jul. 7, Oct. 6, Sep. 30,
2002 2001 2002 2002 2001
--------- --------- --------- --------- ---------
(in thousands, except per share amounts)
Basic:
Average common shares outstanding.............. 24,531 23,852 24,382 24,361 23,655
Shares used in computing net income per share.. 24,531 23,852 24,382 24,361 23,655
========= ========= ========= ========= =========
Net income (loss).............................. $ 1,107 $ (2,334) $ 404 $ 1,906 $ (2,170)
========= ========= ========= ========= =========
Net income (loss) per share.................... $ 0.05 $ (0.10) $ 0.02 $ 0.08 $ (0.09)
========= ========= ========= ========= =========
Diluted:
Average common shares outstanding.............. 24,531 23,852 24,382 24,361 23,655
Net effect of dilutive stock options - based...
on the treasury stock method................ 428 - 1,654 1,038 -
--------- --------- --------- --------- ---------
Shares used in computing net income per share.. 24,959 23,852 26,036 25,399 23,655
========= ========= ========= ========= =========
Net income (loss).............................. $ 1,107 $ (2,334) $ 404 $ 1,906 $ (2,170)
========= ========= ========= ========= =========
Net income (loss) per share.................... $ 0.04 $ (0.10) $ 0.02 $ 0.08 $ (0.09)
========= ========= ========= ========= =========
ACTEL CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
6. Comprehensive Income/(Loss)
The components of comprehensive income (loss), net of tax, are as
follows:
Three Months Ended Nine Months Ended
------------------------------------- -----------------------
Oct. 6, Sep. 30, Jul. 7, Oct. 6, Sep. 30,
2002 2001 2002 2002 2001
--------- --------- --------- --------- ---------
(in thousands)
Net income (loss)........................... $ 1,107 $ (2,334) $ 404 $ 1,906 $ (2170)
Unrealized gain (loss) on available-for-sale
securities............................... 71 (431) 383 48 24
Unrealized gain on forward foreign exchange
contracts................................ - 11 - - 11
Less reclassification adjustment for (gains)
losses included in net income........... (229) (188) 2 (242) (188)
--------- --------- --------- --------- ---------
Other comprehensive income (loss)........... (158) (608) 385 (194) (153)
--------- --------- --------- --------- ---------
Total comprehensive income (loss)........... $ 949 $ (2,942) $ 789 $ 1,712 $ (2,323)
========= ========= ========= ========= =========
- ------------------------------------------------------------
Accumulated other comprehensive income presented in the accompanying
consolidated condensed balance sheets consists of the accumulated net unrealized
gain (loss) on available-for-sale securities.
ACTEL CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
7. Investments in Other Companies
During the nine months ended October 6, 2002, Actel recorded losses on the
income statement totaling $1.1 million that were incurred in the first and
second quarter related to an investment in a publicly traded company. These
amounts are composed of a realized loss on the shares sold during the first and
second quarters and a decline in market value deemed to be other than temporary
in the second quarter. There were no losses recorded on the income statement for
the quarter ended October 6, 2002 related to this investment. Actel accounts for
investments in marketable equity securities in accordance with SFAS No. 115,
"Accounting for Certain Investments in Debt and Equity Securities." Under SFAS
No. 115, if the decline in value below cost is determined to be other than
temporary, the unrealized losses will be realized as expense on the income
statement in the period when that determination is made. As a matter of policy,
Actel determines a decline in market value to be other than temporary when, in
the absence of overriding factors, a stock has traded below cost for six
consecutive months. Overriding factors, such as general economic and industry
specific trends, may be either aggravating or mitigating. When a decline in
market value is determined to be other than temporary, the investment is written
down to the fair value at the time of impairment, with the amount of the
write-down realized as expense on the income statement. Based on a number of
factors, including the magnitude of the drop in market value below Actel's cost,
declining cash balances at the issuing company, and general economic conditions,
management concluded that the decline in value of the publicly-traded equity
security was other than temporary at the end of the second quarter of 2002.
Accordingly, the value of the security was written down to the market value at
July 7, 2002, and a loss on the write-down of $0.5 million was recorded. At
October 6, 2002, management concluded that no additional write-down was
necessary. Actel's remaining investment in the equity security has a cost basis
of $0.7 million and a market value of $0.4 million as of October 6, 2002,
resulting in an unrealized loss of $0.3 million that is included in Other
Comprehensive Income on the balance sheet.
At October 6, 2002, Actel held an equity investment in a private company
located in the United Kingdom. This investment is carried at its cost of $2.2
million on the balance sheet as part of other assets. As this equity security is
not publicly traded, determining the fair value of this investment is judgmental
in nature and dependant on management's assessment of the performance of the
company, which includes (among other things) successfully developing and
introducing a new technology into the market as well as obtaining additional
funding to finance these activities until the company can generate positive cash
flows from the sale of the new products. This investment is subject to a
multitude of risks, including (but not limited to) the risks that the company
may not be successful in developing the planned technology, that the company may
not be able to secure necessary funding to continue operations, that a suitable
market for such technology may not develop, and that a competitor may develop a
superior product. If any of these risks materialize, or other indicators of
possible impairment arise, the investment will be evaluated for impairment and
written down to a balance equal to the fair value at the time of impairment,
with the amount of the write-down realized as an expense on the income
statement. Based on the progress made toward technological goals, the
expectation of future marketability of the technology under development, funding
arrangements secured in March 2002, and the prospects for future funding, Actel
concluded no impairment of this investment existed at October 6, 2002.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
The {bracketed statements} contained in this Quarterly Report on Form 10-Q
are forward-looking statements made pursuant to the safe harbor provisions of
the Private Securities Litigation Reform Act of 1995. Actual events and results
may differ materially from those expressed or forecast in forward-looking
statements due to the Risk Factors set forth in this Quarterly Report on Form
10-Q or at the end of Part I of Actel's 2001 Form 10-K, or for other reasons.
All information contained or incorporated by reference in this Quarterly Report
on Form 10-Q should be read in conjunction with and in the context of such Risk
Factors. Unless otherwise indicated, the statements contained in this Quarterly
Report on Form 10-Q are made as of October 6, 2002, and Actel undertakes no
obligation to update such statements, including forward-looking statements.
Critical Accounting Policies
Actel's discussion and analysis of its financial condition and results of
operations are based upon Actel's consolidated condensed financial statements,
which have been prepared in accordance with accounting principles generally
accepted in the United States. The preparation of these financial statements
requires Actel to make estimates and judgments that affect the reported amounts
of assets, liabilities, revenues, and expenses and the related disclosure of
contingent assets and liabilities. The SEC has defined the most critical
accounting policies as the ones that are most important to the portrayal of
issuer's financial condition and results and require management to make its most
difficult and subjective judgments, often as a result of the need to make
estimates of matters that are inherently uncertain. Based upon this definition,
Actel's most critical policies include: inventories, impairment of investments
in other companies, intangible assets and goodwill, income taxes, and legal
matters. Actel bases its estimates on historical experience and on various other
assumptions that are believed to be reasonable under the circumstances, the
results of which form the basis for making judgments about the carrying values
of assets and liabilities that are not readily apparent from other sources.
Actual results may differ materially from these estimates. Actel also has other
key accounting policies, such as policies for revenue and accounts receivable.
These other policies either do not generally require management to make
estimates and judgments that are as difficult or as subjective or are less
likely to have a material impact on Actel's financial condition or results of
operations for a given period. Further information regarding all of these
policies, as well as the estimates and judgments involved, were disclosed in
Actel's 2001 Form 10-K. During the quarter ended October 6, 2002, there were no
significant changes to any critical accounting policies or to the related
estimates and judgments involved in applying these policies.
Results of Operations
Net Revenues
Net revenues were $32.9 million for the third quarter of 2002, a 4%
decrease from the second quarter of 2002 and a 3% increase from the third
quarter of 2001. Quarterly net revenues decreased sequentially due to a 29%
decrease in unit shipments of field programmable gate arrays (FPGAs), which was
partially offset by a 34% increase in the overall average selling price (ASP) of
FPGAs. Quarterly net revenues increased from a year ago due to an 18% increase
in ASP and a 12% decrease in unit shipments. Unit volumes and ASP levels
fluctuate primarily because of changes in the mix of products sold. Actel's
product portfolio includes many products ranging from devices with lower ASPs,
which typically sell in higher volumes, to devices with higher ASPs, which
typically sell in lower volumes. Sales to customers in the consumer and
e-appliance market (which typically purchase lower ASP devices in higher
volumes) constituted a smaller percentage of net revenues for the third quarter
of 2002 than for the second quarter of 2002. This contributed to the decrease in
units shipped and the increase in ASP.
Net revenues were $100.3 million for the first nine months of fiscal 2002,
a 12% decrease from the first nine months of fiscal 2001. Nine-month net
revenues declined from a year ago due to a 10% decrease in ASP and a 1% decrease
in unit shipments. Even though shipments of higher volume, lower ASP devices for
use in consumer/e-appliance and computing applications were lower in the third
quarter of 2002 than in the second quarter of 2002, they constituted a
significantly higher percentage of net revenues for the first nine months of
2002 than for the first nine months of 2001.
Gross Margin
Gross margin was 58.4% of net revenues for the third quarter of 2002
compared with 62.2% for the second quarter of 2002 and 52.3% for the third
quarter of 2001. Gross margin was 60.7% of net revenues for the first nine
months of 2002 compared with 56.2% of net revenues for the first nine months of
2001. Gross margin for the third quarter of 2002 decreased sequentially due to
costs associated with establishing production processes for newer products,
which was partially offset by the reversal of previously accrued expenses for
which actual expenditures were less than expected. Gross margin for the second
quarter of 2002 benefited from the reversal of an accrual for disputed
contractual obligations that exceeded the actual settlement amount. Gross margin
for the three and nine months ended September 30, 2001, was negatively impacted
by charges for higher inventory reserves, which were taken as a result of lower
customer demand and reduced manufacturing and operating efficiencies associated
with declining net revenues.
Actel seeks to reduce costs by improving wafer yields, negotiating price
reductions with suppliers, increasing the level and efficiency of its testing
and packaging operations, achieving economies of scale by means of higher
production levels, and increasing the number of die produced per wafer,
principally by shrinking the die size of its products. No assurance can be given
that these efforts will be successful. The capability of Actel to shrink the die
size of its FPGAs is dependent on the availability of more advanced
manufacturing processes. Due to the custom steps involved in manufacturing
antifuse and (to a lesser extent) flash FPGAs, Actel typically obtains access to
new manufacturing processes later than its competitors using standard
manufacturing processes.
Research and Development (R&D)
R&D expenditures were $9.6 million, or 29% of net revenues, for the third
quarter of 2002 compared with $9.9 million, or 29% of net revenues, for the
second quarter of 2002 and $9.4 million, or 29% of revenues, for the third
quarter of 2001. R&D expenditures were $29.2 million, or 29% of net revenues,
for the first nine months of 2002 compared with $28.3 million, or 25% of net
revenues, for the first nine months of 2001. R&D spending for the third quarter
of 2002 decreased sequentially due to the reversal of previously accrued
expenses for which actual expenditures were less than expected. The increase in
R&D spending for the first nine months of 2002 was due primarily to incremental
spending on a BridgeFPGA initiative that Actel announced during 2001 to address
interoperability issues. Due in part to the decrease in net revenues for the
three and nine months ended October 6, 2002, Actel decided during the third
quarter of 2002 to curtail further incremental spending on the BridgeFPGA
strategic initiative.
Selling, General, and Administrative (SG&A)
SG&A expenses were $10.6 million, or 32% of net revenues for the third
quarter of 2002 compared with $11.0 million, or 32% of net revenues, for the
second quarter of 2002 and $9.9 million, or 31% of net revenues, for the third
quarter of 2001. SG&A expenses were $32.3 million, or 32% of net revenues, for
the first nine months of 2002 compared with $31.4 million, or 28% of net
revenues, for the first nine months of fiscal 2001. The sequential decrease in
SG&A spending for the third quarter of 2002 was due to more vacation during the
quarter and the reversal of previously accrued expenses for which actual
expenditures were less than expected. SG&A spending for the first nine months of
2002 was affected by increased headcount in the sales and marketing functions
related to the introduction and rollout of Actel's new ProASIC Plus and
Axcelerator product families.
Amortization of Goodwill and Other Acquisition-Related Intangibles and
Expenses
Amortization of goodwill and other acquisition-related intangibles and
expenses was $0.7 million for the third quarter of 2002 compared with $0.7
million for the second quarter of 2002 and $3.6 million for the third quarter of
2001. Amortization of goodwill and other acquisition-related intangibles was
$2.0 million for the first nine months of 2002 compared with $11.1 million for
the first nine months of 2001. Amortization declined in 2002 due to the
implementation of FAS No. 142 in the first quarter of 2002, which eliminated the
amortization of goodwill. See Note 3 of Notes to Unaudited Consolidated
Condensed Financial Statements for further discussion of FAS No. 142.
Interest Income and Other, Net
Interest income and other, net was $1.4 million for the third quarter of
2002 compared with $1.8 million for the second quarter of 2002 and $1.5 million
for the third quarter of 2001. The sequential decrease resulted primarily from
gains realized in the second quarter of 2002 from Actel's short-term investment
accounts that were not repeated in the third quarter of 2002. Interest income
and other, net was $4.7 million for the first nine months of 2002 compared with
$5.6 million for the first nine months of 2001. The decrease was due primarily
to lower interest rates in 2002.
Loss on Sale and Write-Down of Marketable Equity Security
During the nine months ended October 6, 2002, Actel recorded losses
totaling $1.1 million that were incurred in the first and second quarter related
to an investment in a publicly traded company. These amounts are composed of a
realized loss on the shares sold during the first and second quarters and a
decline in market value deemed to be other than temporary in the second quarter.
For the quarter ended October 6, 2002, Actel did not record any losses related
to this investment. Actel's remaining investment in the equity security has a
cost basis of $0.7 million. See Note 7 of Notes to Unaudited Consolidated
Condensed Financial Statements, "Critical Accounting Policies" above, and
"Investments in Other Companies" below for further discussion of Actel's
accounting for investments in marketable equity securities.
Tax Provision
In the third quarter of 2002, Actel recorded a $1.3 million tax benefit to
properly reflect the Company's tax benefit for the nine months ended October 6,
2002. Lower than expected revenue levels combined with significant R&D spending
and tax-exempt interest as a percentage of pre-tax income resulted in the need
to adjust the tax provision amount. In the first and second quarters of 2002,
Actel had booked an effective tax rate of 10%.
Actel's tax position is based on the estimated annual tax rate in
compliance with SFAS No. 109, "Accounting for Income Taxes." Significant
components affecting the effective tax rate include federal R&D credits, income
from tax-exempt securities, the state composite rate, and recognition of certain
deferred tax assets subject to valuation allowances.
Liquidity and Capital Resources
Actel's cash, cash equivalents, and short-term investments were $128.9
million at the end of the third quarter of 2002 compared with $128.8 million at
the beginning of the year.
Cash provided by operating activities was $2.3 million for the first nine
months of 2002, compared with net use of $7.6 million for the first nine months
of 2001. The increase in cash provided by operations resulted primarily from
changes in operating assets and liabilities that consumed less cash in the first
nine months of 2002 than in the first nine months of 2001. The most significant
changes in operating assets that consumed less cash in 2002 were deferred
income, which increased by $0.2 million in the first nine months of 2002
compared with a decrease of $17.3 million in the first nine months of 2001;
accounts payable and other short term liabilities, which increased by $4.9
million in the first nine months of 2002 compared with an increase of $15.3
million in the first nine months of 2001; and inventories, which decreased by
$0.9 million in the first nine months of 2002 compared with an increase of $7.1
million in the first nine months 2001. Capital expenditures were $6.3 million
for the first nine months of 2002 compared with $7.3 million for the first nine
months of 2001. Sales of common stock under employee stock plans provided $7.0
million of cash during the first nine months of 2002 compared with $7.3 million
for the first nine months of 2001. During the quarter ended October 6, 2002,
Actel used $3.3 million of cash to repurchase shares of Actel's common stock.
{Actel believes that existing cash, cash equivalents, and short-term
investments, together with cash from operations, will be sufficient to meet its
cash requirements for the next four quarters.} A portion of available cash may
be used for investment in or acquisition of complementary businesses, products,
or technologies. Wafer manufacturers often seek financial support from customers
in the form of equity investments and advance purchase price deposits, which can
be substantial. If Actel requires additional capacity, it may be required to
incur significant expenditures to secure such capacity.
Actel believes that the availability of adequate financial resources is a
substantial competitive factor. To take advantage of opportunities as they
arise, or to withstand adverse business conditions when they occur, it may
become prudent or necessary for Actel to raise additional capital. Actel
monitors the availability and cost of potential capital resources, including
equity and debt with a view towards raising additional capital on terms that are
acceptable to Actel. There can be no assurance that additional capital will be
available on acceptable terms.
Investments in Other Companies
During the nine months ended October 6, 2002, Actel recorded losses
totaling $1.1 million that were incurred in the first and second quarter related
to an investment in a publicly traded company. These amounts are composed of a
realized loss on the shares sold during the first and second quarters and a
decline in market value deemed to be other than temporary in the second quarter.
For the quarter ended October 6, 2002, Actel did not record any losses related
to this investment. Actel accounts for investments in marketable equity
securities in accordance with SFAS No. 115, "Accounting for Certain Investments
in Debt and Equity Securities." Under SFAS No. 115, if the decline in value
below cost is determined to be other than temporary, the unrealized losses will
be realized as expense on the income statement in the period when that
determination is made. As a matter of policy, Actel determines a decline in
market value to be other than temporary when, in the absence of overriding
factors, a stock has traded below cost for six consecutive months. Overriding
factors, such as general economic and industry specific trends, may be either
aggravating or mitigating. When a decline in market value is determined to be
other than temporary, the investment is written down to the fair value at the
time of impairment, with the amount of the write-down realized as expense on the
income statement. Based on a number of factors, including the magnitude of the
drop in market value below Actel's cost, declining cash balances at the issuing
company, and general economic conditions, management concluded that the decline
in value of the publicly-traded equity security was other than temporary at the
end of the second quarter of 2002. Accordingly, the value of the security was
written down to the market value at July 7, 2002, and a loss on the write-down
of $0.5 million was recorded. At October 6, 2002, management concluded that no
additional write-down was necessary. Actel's remaining investment in the equity
security has a cost basis of $0.7 million.
At October 6, 2002, Actel held an equity investment in a private company
located in the United Kingdom. This investment is carried at its cost of $2.2
million on the balance sheet as part of other assets. As this equity security is
not publicly traded, determining the fair value of this investment is judgmental
in nature and dependant on management's assessment of the performance of the
company, which includes (among other things) successfully developing and
introducing a new technology into the market as well as obtaining additional
funding to finance these activities until the company can generate positive cash
flows from the sale of the new products. This investment is subject to a
multitude of risks, including (but not limited to) the risks that the company
may not be successful in developing the planned technology, that the company may
not be able to secure necessary funding to continue operations, that a suitable
market for such technology may not develop, and that a competitor may develop a
superior product. If any of these risks materialize, or other indicators of
possible impairment arise, the investment will be evaluated for impairment and
written down to a balance equal to the fair value at the time of impairment,
with the amount of the write-down realized as an expense on the income
statement. Based on the progress made toward technological goals, the
expectation of future marketability of the technology under development, funding
arrangements secured in March 2002, and the prospects for future funding, Actel
concluded no impairment of this investment existed at October 6, 2002.
Other Factors Affecting Future Operating Results
Actel's operating results are subject to general economic conditions and a
variety of risks characteristic of the semiconductor industry (including booking
and shipment uncertainties, wafer supply fluctuations, and price erosion) or
specific to Actel, any of which could cause Actel's operating results to differ
materially from past results. For a discussion of such risks, see "Risk Factors"
in Part I of Actel's 2001 Form 10-K, which is incorporated herein by this
reference.
Additional Quarterly Information
The following table presents certain unaudited quarterly results for each
of the eight quarters in the period ended October 6, 2002. In the opinion of
management, all necessary adjustments (consisting only of normal recurring
accruals) have been included in the amounts stated below to present fairly the
unaudited quarterly results when read in conjunction with the audited
consolidated condensed financial statements of Actel and notes thereto included
in Actel's 2001 Form 10-K. These quarterly operating results are not necessarily
indicative of the results for any future period.
Three Months Ended
---------------------------------------------------------------------------------------------
Oct. 6, Jul. 7, Apr. 7, Jan. 6, Sep. 30, Jul. 1, Apr. 1, Dec. 31,
2002* 2002* 2002* 2002 2001 2001 2001 2000
--------- --------- --------- --------- --------- --------- --------- ---------
(in thousands except per share amounts)
Statements of Operations Data:
Net revenues......................... $ 32,912 $ 34,293 $ 33,060 $ 32,059 $ 32,006 $ 36,460 $ 45,034 $ 60,129
Gross profit......................... 19,229 21,337 20,276 19,567 16,734 18,888 28,160 38,060
Income (loss) from operations........ (1,587) (282) (853) (4,086) (6,188) (4,233) 3,463 7,497
Net income (loss).................... 1,107 404 395 (2,531) (2,334) (2,631) 2,795 3,455
Net income (loss) per share:
Basic............................. $ 0.05 $ 0.02 $ 0.02 $ (0.11) $ (0.10) $ (0.11) $ 0.12 $ 0.14
========= ========= ========= ========= ========= ========= ========= =========
Diluted**.......................... $ 0.04 $ 0.02 $ 0.02 $ (0.11) $ (0.10) $ (0.11) $ 0.11 $ 0.13
========= ========= ========= ========= ========= ========= ========= =========
Shares used in computing net income
(loss) per share:..................
Basic.............................. 24,531 24,382 24,170 23,987 23,852 23,642 23,472 23,890
========= ========= ========= ========= ========= ========= ========= =========
Diluted**.......................... 24,959 26,036 25,388 23,987 23,852 23,642 25,126 26,107
========= ========= ========= ========= ========= ========= ========= =========
Three Months Ended
---------------------------------------------------------------------------------------------
Oct. 6, Jul. 7, Apr. 7, Jan. 6, Sep. 30, Jul. 1, Apr. 1, Dec. 31,
2002 2002 2002 2002 2001 2001 2001 2000
--------- --------- -------- --------- --------- --------- --------- ---------
As a Percentage of Net Revenues:
Net revenues.......................... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Gross profit.......................... 58.4 62.2 61.3 61.0 52.3 51.8 62.5 63.3
Income (loss) from operations......... (4.8) (0.8) (2.6) (12.7) (19.3) (11.6) 7.7 12.5
Net income (loss)..................... 3.4 1.2 1.2 (7.9) (7.3) (7.2) 6.2 5.7
- --------------------------------------------------
* In the first quarter of 2002, Actel adopted Statement of Financial
Accounting Standards (SFAS) Nos. 141 and 142, which eliminated the
systematic amortization of goodwill. Please see Note 3 for further
discussion of the impact of adopting these new pronouncements.
** For the second through fourth quarters of 2001, Actel incurred quarterly
net losses and the inclusion of stock options in the shares used for
computing diluted earnings per share would have been anti-dilutive and
reduced the loss per share. Accordingly, all common stock equivalents (such
as stock options) have been excluded from the shares used to calculate
diluted earnings per share for these respective periods.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
As of October 6, 2002, Actel's investment portfolio (other than strategic
investments) consisted primarily of corporate bonds, floating rate notes, and
federal and municipal obligations. The principal objectives of Actel's
investment activities are to preserve principal, meet liquidity needs, and
maximize yields. To meet these objectives, Actel invests only in high credit
quality debt securities with average maturities of less than two years. Actel
also limits the percentage of total investments that may be invested in any one
issuer. Corporate investments as a group are also limited to a maximum
percentage of Actel's investment portfolio.
Actel is exposed to financial market risks, including changes in interest
rates and marketable equity security prices. All of the potential changes noted
below are based on sensitivity analysis performed on Actel's financial position
and expected operating levels at October 6, 2002. Actual results may differ
materially.
Actel's investments are subject to interest rate risk. An increase in
interest rates could subject Actel to a decline in the market value of its
investments. These risks are mitigated by the ability of Actel to hold these
investments to maturity. A hypothetical 100 basis point increase in interest
rates would result in a reduction of approximately $1.1 million in the fair
value of Actel's available-for-sale securities held at October 6, 2002.
Actel's strategic investments in marketable equity securities are subject
to equity price risks. Actel typically does not attempt to reduce or eliminate
market exposure on these securities. Assuming a 10% adverse change, the
marketable strategic equity securities would decrease in value by less than $0.1
million, based on the value of the portfolio as of October 6, 2002.
Item 4. Controls and Procedures
Evaluation of disclosure controls and procedures
Actel's Chief Executive Officer and Chief Financial Officer, after
evaluating Actel's "disclosure controls and procedures" (as defined in
Securities Exchange Act of 1934 (Exchange Act) Rules 13a-14(c) and 15-d-14(c))
as of a date (Evaluation Date) within 90 days before the filing date of this
Quarterly Report on Form 10-Q, have concluded that, as of the Evaluation Date,
Actel's disclosure controls and procedures are effective to ensure that
information Actel is required to disclose in reports that Actel files or submits
under the Exchange Act is recorded, processed, summarized, and reported within
the time periods specified in the SEC's rules and forms.
Actel's management, including the Chief Executive Officer and Chief
Financial Officer, does not expect that Actel's disclosure controls and
procedures will prevent all error and all fraud. Because of inherent limitations
in any system of disclosure controls and procedures, no evaluation of controls
can provide absolute assurance that all instances of error or fraud, if any,
within Actel may be detected.
Changes in internal controls
Subsequent to the Evaluation Date, there were no significant changes in
Actel's internal controls or in other factors that could significantly affect
internal controls, including any corrective actions with regard to significant
deficiencies and material weaknesses.
PART II -- OTHER INFORMATION
Item 5. Other Information
Under Section 10A(i)(2) of the Securities Exchange Act, as added by Section
202 of the Sarbanes-Oxley Act of 2002, Actel is required to disclose non-audit
services to be performed by Actel's external auditor that have been approved by
Audit Committee. Non-audit services are defined in the law as services other
than those provided in connection with an audit or a review of the financial
statements of an issuer. On October 18, 2002, the Audit Committee preapproved
engagements of Ernst & Young LLP, Actel's external auditor, for the following
non-audit services: work that will be necessary to provide an attestation to
managements assessment of internal controls as required by Section 404 of the
Sarbanes-Oxley Act of 2002; consultations for compliance with SEC, NASADQ, GAAP,
Sarbanes-Oxley, etc.; tax returns; and tax projects.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit Number Description
- -------------- -----------------------------------------------------------------
99 Certification of Chief Executive Officer and Chief Financial
Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002.
(b) Reports on Form 8-K
None.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ACTEL CORPORATION
Date: November 19, 2002 /s/ Jon A. Anderson
------------------------------------
Jon A. Anderson
Vice President of Finance
and Chief Financial Officer
(as principal financial officer
and on behalf of Registrant)
CERTIFICATIONS
I, John C. East, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Actel Corporation;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this quarterly report is being
prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: November 19, 2002 /s/ John C. East
--------------------------------------------
John C. East
President and Chief Executive Officer
I, Jon A. Anderson, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Actel Corporation;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this quarterly report is being
prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: November 19, 2002 /s/ Jon A. Anderson
---------------------------------------------
Jon A. Anderson
Vice President of Finance
and Chief Financial Officer