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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 |
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For the fiscal year ended January 2, 2005 |
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 |
Commission file number 0-21970
ACTEL CORPORATION
(Exact name of Registrant as specified in its charter)
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California
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77-0097724 |
(State or other jurisdiction of
incorporation or organization) |
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(I.R.S. Employer
Identification No.) |
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2061 Stierlin Court
Mountain View, California
(Address of principal executive offices) |
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94043-4655
(Zip Code) |
(650) 318-4200
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12 (b) of
the Act:
None
Securities registered pursuant to Section 12(g) of the
Act:
Common Stock, $.001 par value
Preferred Stock Purchase Rights
(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 þ No o
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K 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
Annual Report on Form 10-K or any amendment to this
Annual Report on
Form 10-K. þ
Indicate by check mark whether the registrant is an accelerated
filer (as defined in Rule 12b-2 of the Exchange
Act). Yes þ No o
The aggregate market value of the voting stock held by
non-affiliates of the Registrant, based upon the closing price
for shares of the Registrant’s Common Stock on
July 5, 2002, as reported by the National Market
System of the National Association of Securities Dealers
Automated Quotation System, was approximately
$371,000,000. In calculating such aggregate market value,
shares of Common Stock owned of record or beneficially by all
officers, directors, and persons known to the Registrant to own
more than five percent of any class of the Registrant’s
voting securities were excluded because such persons may be
deemed to be affiliates. The Registrant disclaims the existence
of control or any admission thereof for any purpose.
Number of shares of Common Stock outstanding as of
March 3, 2005: 25,167,938.
In this Annual Report on Form 10-K, Actel Corporation
and its consolidated subsidiaries are referred to as
“we,” “us,” “our,” or
“Actel.” You should read the information in this
Annual Report with the Risk Factors at the end of Item 1.
Unless otherwise indicated, the information in this Annual
Report is given as of March 3, 2005, and we undertake no
obligation to update any of the information, including
forward-looking statements. All forward-looking statements are
made under the safe harbor provisions of the Private Securities
Litigation Reform Act of 1995. Statements containing words such
as “anticipates,” “believes,”
“estimates,” “expects,” intends,”
“plans,” “seeks,” and variations of such
words and similar expressions are intended to identify the
forward-looking statements. The Risk Factors could cause actual
results to differ materially from those projected in the
forward-looking statements.
TABLE OF CONTENTS
PART I
Overview
We design, develop, and market field programmable gate arrays
(FPGAs) and supporting products and services. FPGAs are used by
manufacturers of automotive, communications, computer, consumer,
industrial, military and aerospace, and other electronic systems
to differentiate their products and get them to market faster.
We are the leading supplier of FPGAs based on Flash and antifuse
technologies, and believe that we are the leading supplier of
high reliability FPGAs. Our strategy is to offer innovative
solutions to markets in which our technologies have a
competitive advantage, including the value-based and
high-reliability FPGA markets. In support of our FPGAs, we offer
intellectual property (IP) products; design and development
software; programming hardware; debugging tool kits and
demonstration boards; a Web-based Resource Center; and system
design, online prototyping, and programming services.
We shipped our first FPGAs in 1988 and thousands of our
development tools are in the hands of customers, including BAE
Systems (BAE); The Boeing Company (Boeing); Cisco Systems, Inc.
(Cisco); European Aeronautic Defence and Space Company N.V.
(EADS); Hamilton Sundstrand; Honeywell International Inc.
(Honeywell); ITT Industries, Inc. (ITT); Lockheed Martin
Corporation (Lockheed Martin); Mitsubishi Corporation
(Mitsubishi); Nokia; Nortel Networks Corporation (Nortel);
Northrop Grumman Corporation (Northrop); Raytheon Company
(Raytheon); Rockwell Collins, Inc. and Rockwell Automation, Inc.
(Rockwell); Schlumberger Limited (Schlumberger); Siemens AG
(Siemens); Tellabs, Inc. (Tellabs); UTStarcom Incorporated
(UTStarcom); and Varian Medical Systems, Inc. (Varian).
We have foundry relationships with Chartered Semiconductor
Manufacturing Pte Ltd (Chartered) in Singapore; Infineon
Technologies AG (Infineon) in Germany; Matsushita Electric
Industrial Co., Ltd. (Matsushita) in Japan; United
Microelectronics Corporation (UMC) in Taiwan; and Winbond
Electronics Corp. (Winbond) in Taiwan. Wafers purchased from our
suppliers are assembled, tested, marked, and inspected by us
and/or our subcontractors before shipment to customers.
We market our products through a worldwide, multi-tiered sales
and distribution network. In 2004, sales made through
distributors accounted for 67% of our net revenues. One
distributor, Unique Technologies, Inc. (Unique), accounted for
33% of our net revenues in 2004. Unique has been our sole
distributor in North America since March 1, 2003. Including
Unique and about 15 sales representative firms, our North
American sales network has about 79 offices. Including about 21
distributors and sales representative firms, our European,
Pan-Asia, and Rest of World (ROW) sales network has about
58 offices. In 2004, sales to customers outside North America
accounted for 46% of net revenues.
On April 26, 2004, we announced the appointment of J.
Daniel McCranie to our Board of Directors. Mr. McCranie
brings more than 35 years of sales and marketing experience
in the semiconductor and communications industries to our Board
of Directors.
We were incorporated in California in 1985. Our principal
facilities and executive offices are located at 2061 Stierlin
Court, Mountain View, California 94043-4655, and our telephone
number at that address is (650) 318-4200. Our website is
located at http://www.actel.com. We provide access free
of charge through a link on our website to our Annual Reports on
Form 10-K, Quarterly Reports on Form 10-Q, and
Current Reports on Form 8-K, as well as amendments to those
reports, as soon as reasonably practicable after the reports are
electronically filed with or furnished to the Securities and
Exchange Commission (SEC). The Actel name and logo and Libero
are registered trademarks of Actel. This Annual Report also
includes unregistered trademarks of Actel as well as registered
and unregistered trademarks of other companies.
Industry Background
The three principal types of integrated circuits (ICs) used in
most digital electronic systems are microprocessor, memory, and
logic circuits. Microprocessors are used for control and
computing tasks; memory devices are used to store program
instructions and data; and logic devices are used to adapt these
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processing and storage capabilities to a specific application.
Logic circuits are found in practically every electronic system.
The logic design of competing electronic systems is often a
principal area of differentiation. Unlike the microprocessor and
memory markets, which are dominated by a relatively few standard
designs, the logic market is highly fragmented and includes,
among many other segments, low-capacity standard
transistor-transistor logic circuits (TTLs) and custom-designed
application specific ICs (ASICs). TTLs are standard logic
circuits that can be purchased “off the shelf” and
interconnected on a printed circuit board, but they tend to
limit system performance and increase system size and cost
compared with logic functions integrated at the circuit (rather
than the printed circuit board) level. ASICs are customized
circuits that offer electronic system manufacturers the benefits
of increased circuit integration: improved system performance,
reduced system size, and lower system cost.
ASICs include conventional gate arrays, standard cells, and
programmable logic devices (PLDs). Conventional gate arrays and
standard cell circuits are customized to perform desired logical
functions at the time the device is manufactured. Since they are
“hard wired” at the wafer foundry by use of masks,
conventional gate arrays and standard cell circuits are subject
to nonrecurring engineering (NRE) charges and the
time-to-market risks associated with any development cycle
involving a foundry. Typically, conventional gate arrays and
standard cell circuits are first delivered in production volumes
months after the successful production of acceptable prototypes.
In addition, hard-wired ASICs cannot be modified after they are
manufactured, which subjects them to the risk of inventory
obsolescence and constrains the system manufacturer’s
ability to change the logic design. PLDs, on the other hand, are
manufactured as standard devices and customized “in the
field” by electronic system manufacturers using
computer-aided engineering (CAE) design and programming
systems. PLDs are being used by a growing number of electronic
system manufacturers to increase product differentiation and
manufacturing flexibility and speed time to market.
PLDs include simple PLDs, complex PLDs (CPLDs), and FPGAs. CPLDs
and FPGAs have gained market share because they generally offer
greater capacity, lower total cost per usable logic gate and
lower power consumption than TTLs and simple PLDs, and faster
time to market and lower development costs than hard-wired
ASICs. As mask costs and NRE charges continue to rise, CPLDs and
particularly FPGAs are becoming cost-effective alternatives to
hard-wired ASICs at higher volumes. Even in high volumes, the
time-to-market and manufacturing-flexibility benefits of CPLDs
and FPGAs often outweigh their price premium over hard-wired
ASICs of comparable capacity for many electronic system
manufacturers.
Before a CPLD or FPGA can be programmed, there are various steps
that must be accomplished by a designer using CAE design
software. These steps include defining the function of the
circuit, verifying the design, and laying out the circuit.
Traditionally, logic functions were defined using schematic
capture software, which permits the designer to essentially
construct a circuit diagram on the computer. As CPLDs and FPGAs
have increased in capacity, the time required to create
schematic diagrams using schematic capture tools has often
become unacceptably long, so designers are increasingly turning
to hardware description languages (HDLs). HDLs permit the
designer to describe the circuit functions at an abstract level
and to verify the performance of logic functions at that level
using a simulator. The HDL description of the desired CPLD or
FPGA device can then be fed into synthesis software that
automatically converts the abstract description to a gate-level
representation equivalent to that produced by schematic capture
tools. After a gate-level representation of the logic function
has been created and verified, it must be translated or
“laid out” onto the generic logic modules of the CPLD
or FPGA. This is achieved by placing the logic gates and routing
their interconnections, a process referred to as “place and
route.” After the layout of the device has been verified by
timing simulation, the CPLD or FPGA can be programmed. Multiple
suppliers of electronic design automation (EDA) tools
provide software to accomplish the design entry, simulation, and
synthesis tasks for CPLDs and FPGAs, but the “place and
route” software is generally developed and provided only by
the CPLD or FPGA company.
Electronic system manufacturers program a CPLD or FPGA to
perform the desired logical functions by using a device
programmer to change the state of the device’s programming
elements (such as antifuses or memory cells) through the
application of an electrical signal. Programmers are typically
available from both
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the company supplying the device and third parties, and
programming services are often available from both the company
supplying the device and its distributors. Most CPLDs are
programmed with erasable programmable read only memories or
other nonvolatile “floating gate” memory technologies.
Many FPGAs are programmed with static random access memory
(SRAM) technology. Our FPGAs use Flash and antifuse
programming elements. After programming, the functionality and
performance of the programmed CPLD or FPGA in the electronic
system must be verified.
To a large extent, the characteristics of a CPLD or FPGA are
dictated by the technology used to make the device programmable.
CPLDs and FPGAs based on programming elements controlled by
floating gates or SRAMs must be configured by a separate boot
device, such as the nonvolatile programmable read only memory
(PROM) commonly used with SRAM FPGAs. Because these devices
must be booted-up, they are less reliable (in the sense of being
more prone to generate system errors), less secure, not
functional immediately on power-up, and require a separate boot
device. In addition, SRAM FPGAs and CPLDs based on look-up
tables tend to consume more power. FPGAs based on Flash and
antifuse programming elements do not need to be booted-up, which
makes them more reliable, more secure,
“live-at-power-up” single-chip solutions, and they
also tend to operate at lower power. These are all
characteristics shared by hard-wired ASICs but not by CPLDs or
SRAM FPGAs.
The technology used to make a CPLD or FPGA programmable also
dictates whether the device is reprogrammable and whether it is
volatile. CPLDs and FPGAs based on programming elements
controlled by floating gates or SRAMs are reprogrammable but
lose their circuit configuration in the absence of electrical
power. FPGAs based on antifuse programming elements are one-time
programmable and retain their circuit configuration permanently,
even in the absence of power. FPGAs based on programming
elements controlled by Flash memory are reprogrammable and
nonvolatile, retaining their circuit configuration in the
absence of power.
As mask and NRE costs for hard-wired ASICs continue to rise,
FPGAs are increasingly used as a cost-effective alternative to
ASICs for implementing complex design functions. With this
increase in adoption, FPGAs have grown in size and complexity,
making the security of the devices more important. More often
than not, the key IP that differentiates an electronic system
from competitive offerings is now implemented in programmable
logic. Consequently, the vulnerability of each system’s
unique value-added IP is often a direct function of the security
capabilities of the system’s FPGA. Since SRAM-based FPGAs
must be configured at power on, the bitstream used to configure
the SRAM FPGA can be intercepted in route at the circuit level,
electronically “captured,” and replicated.
Alternatively, this configuration data can be read from the
configuration device and manipulated or copied, or the on-board
PROM can be replicated. Flash and antifuse FPGAs do not require
a start-up bitstream, eliminating the possibility of
configuration data being intercepted.
SRAM FPGAs are also susceptible to being upset by neutrons and
alpha particles. When SRAM memories are used for data storage,
these neutron-induced errors are called “soft errors.”
When SRAM memories are used to store the configuration of an
FPGA, these neutron-induced errors are called “firm
errors.” A firm error affects the device’s
configuration, which may cause the device to malfunction. In
addition, firm errors are not transient but will persist until
detected and corrected. There is a significant and growing risk
of functional failure in SRAM-based FPGAs due to the corruption
of configuration data. Historically a concern only for military,
avionics, and space applications, firm errors have become more
of a problem for ground-based applications with each
manufacturing process generation. Radiation testing data show
that antifuse and Flash FPGAs are not subject to loss of
configuration due to neutron-induced upsets.
Strategy
Our Flash and antifuse technologies are different from, and have
certain advantages over, the SRAM and other technologies used in
competing PLDs. Our strategy is to offer innovative solutions to
markets in which our technologies have a competitive advantage,
including the value-based and high-reliability FPGA markets.
A general competitive advantage that our technologies have is
design security. Our nonvolatile, single-chip FPGAs offer
practically unbreakable design security. Decapping and stripping
of our Flash devices reveals only the structure of the Flash
cell, not the contents. Similarly, the antifuses that form the
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interconnections within our antifuse FPGAs do not leave a
signature that can be electrically probed or visually inspected.
In addition, special security fuses are hidden throughout the
fabric of our Flash and antifuse devices. These FlashLock and
FuseLock security fuses cannot be accessed or bypassed without
destroying the rest of the device, making both invasive and
noninvasive attacks ineffective.
Much of the logic market is driven by cost. We address this
value-based market, which we believe represents the fastest
growing segment of the FPGA market, with our Flash FPGAs and our
general-purpose antifuse FPGAs. In addition to low cost, our
FPGAs add the value of hard-wired ASICs to the benefits provided
by other PLDs. Like other PLDs, our FPGAs reduce design risk,
inventory investment, and time to market. Unlike other PLDs, our
FPGAs are nonvolatile, “live-at-power-up,” low-power,
single-chip solutions. In addition, logic designers can choose
to use either hard-wired ASIC or FPGA software tools and design
methodologies, and the architectures of our FPGAs enable the
utilization of predefined IP cores, which can be reused across
multiple designs or product versions. We also offer our
customers a wide selection of cost-sensitive and small
form-factor packages.
On March 29, 2004, we announced the shipment of the
one-millionth unit of our Flash-based ProASIC PLUS FPGA family,
which was introduced in 2002. With well over 1,000 design starts
worldwide, this product has the fastest customer acceptance rate
in our history, providing evidence that the nonvolatility and
reprogrammability of these single-chip devices, coupled with
their firm-error immunity, low power, and inherent security,
make them a cost-effective solution for the value-based FPGA
market. On January 24, 2005, we announced the ProASIC3 and
ProASIC3E FPGA families, which are targeted specifically at the
value-based FGPA market.
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High-Reliability Market |
Much of the logic market for military and aerospace applications
is driven by reliability, nonvolatility, security, and
resistance to radiation effects. We address this market with our
military, avionics, and space-grade FPGAs. Our antifuse and
Flash FPGAs are reliable, nonvolatile, secure, and not
susceptible to configuration corruption caused by radiation.
During 2004, we completed the introduction of our antifuse-based
RTAX-S FPGA family, with densities up to 2,000,000 gates, which
was designed specifically for space applications. The density
and performance characteristics of our RTAX-S FPGAs make them a
radiation-tolerant alternative to hard-wired ASICs in many
additional satellite applications. Much of the market for
automotive applications is driven by cost as well as
reliability, nonvolatility, and security. We address this market
with our automotive line of FPGAs. With the addition of the
Flash-based ProASIC PLUS devices to our automotive FPGA product
portfolio in 2004, we believe that we have the PLD
industry’s broadest automotive offering.
Products and Services
Our product line consists of FPGAs, including
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reprogrammable FPGAs based on Flash technology, |
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one-time programmable FPGAs based on antifuse
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high-reliability (HiRel) FPGAs. |
In 2004, FPGAs accounted for 96% of our net revenues, most of
which was derived from the sale of antifuse FPGAs. In support of
our FPGAs, we offer IP products; design and development
software; programming hardware; debugging tool kits and
demonstration boards; a Web-based Resource Center; and system
design, online prototyping, and volume programming services.
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FPGAs are used by manufacturers of automotive, communications,
computer, consumer, industrial, military and aerospace, and
other electronic systems to differentiate their products and get
them to market faster. We are the leading supplier of FPGAs
based on Flash and antifuse technologies.
To meet the diverse requirements of our customers, we offer all
of our FPGAs (except the two radiation-hardened devices) in a
variety of speed grades, package types, and/or ambient
(environmental) temperature tolerances. Commercial devices are
qualified to operate at ambient temperatures ranging from zero
degrees Celsius (0°C) to +70°C. Industrial devices are
qualified to operate at ambient temperatures ranging from
- -40°C to +85°C. Automotive devices are qualified to
operate at ambient temperatures ranging from -40°C to
+125°C with junction temperatures up to 125°C for
Flash devices and up to 150°C for antifuse devices.
Military devices are qualified to operate at ambient
temperatures ranging from -55°C to +125°C. “High
reliability” or “HiRel” devices are qualified to
automotive or military temperature specifications. We believe
that we are the leading supplier of high reliability FPGAs.
The capacity of FPGAs is measured in “gates,” which
traditionally meant four transistors. As FPGAs grew larger and
more complex, no standard technique emerged for counting FPGA
gates. The appearance of FPGAs with memory further complicated
matters because memory gates cannot be counted in the same way
as logic gates. When we use “gate” or
“gates” to describe the capacity of FPGAs, we mean
“maximum system equivalent gates” unless otherwise
indicated.
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Our Flash-based FPGAs include the ProASIC3, ProASIC3E, ProASIC
PLUS, and ProASIC families. The combination of a fine-grained,
single-chip ASIC-like architecture and nonvolatile Flash
configuration memory makes our Flash-based FPGAs economical
alternatives to ASICs for low- and medium-speed applications.
Unlike other FPGAs available on the market today, which are
either volatile or non-reprogrammable, our Flash devices are
nonvolatile and reprogrammable. |
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On January 24, 2005, we announced the ProASIC3 and
ProASIC3E families, our third generation of Flash-based
programmable logic solutions. The ProASIC3/E families were
designed to address the market demand for full-featured,
cost-effective FPGAs in consumer, automotive, and other
price-sensitive applications. Ranging in density from 30,000 to
3,000,000 gates, the new ProASIC3/E families offer integrated
secure in-system programmability (ISP) using Advanced
Encryption Standard (AES) encryption, 64-bit 66 MHz
Peripheral Component Interconnect (PCI) performance, and
the FPGA industry’s first on-chip user Flash memory. We
market the ProASIC3/E families as the world’s lowest cost
FPGAs. Samples are available through our early access program,
with production quantities scheduled for the end of 2005. |
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The ProASIC PLUS family of FPGAs, which was first shipped for
revenue in 2002, consists of seven devices: the 75,000-gate
APA075; the 150,000-gate APA150; the 300,000-gate APA300; the
450,000-gate APA450; the 600,000-gate APA600; the 750,000-gate
APA750; and the 1,000,000-gate APA1000. As our second-generation
Flash family, ProASIC PLUS devices offer added features and
improved user-configurable inputs and outputs (I/Os) and ISP
compared with the first-generation ProASIC family. Manufactured
on a 0.22-micron embedded Flash process at UMC, the ProASIC PLUS
family can be ordered in approximately 136 speed, package, and
temperature variations. |
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The ProASIC family of FPGAs, which was first shipped for revenue
in 1999, consists of four products: the 100,000-gate A500K050;
the 290,000-gate A500K130; the 370,000-gate A500K180; and the
475,000-gate A500K270. Manufactured on a 0.25-micron embedded
Flash process at Infineon, the family can be ordered in
approximately 30 speed, package, and temperature variations. |
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Our antifuse-based FPGAs include the Axcelerator, eX, SX-A, SX,
MX, and legacy families, all of which are nonvolatile, secure,
reliable, live at power-up, single-chip solutions. Our antifuse
FPGA devices span six process generations, with each offering
higher performance, lower power consumption, and improved
economies of scale. |
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The Axcelerator family of FPGAs, which was first shipped for
revenue in 2002, consists of five devices: the 125,000-gate
AX125; the 250,000-gate AX250; the 500,000-gate AX500; the
1,000,000-gate AX1000; and the 2,000,000-gate AX2000.
Manufactured on a 0.15-micron, seven-layer metal antifuse
process at UMC, the family can be ordered in approximately 204
speed, package, and temperature variations. The Axcelerator
family was targeted at high-speed communications and bridging
applications and designed to deliver high performance, logic
utilization, and design security with low power consumption. |
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The eX family of FPGAs, which was first shipped for revenue in
2001, consists of three devices: the 3,000-gate eX64; the
6,000-gate eX128; and the 12,000-gate eX256. Manufactured on a
0.25-micron antifuse process at UMC, the family can be ordered
in approximately 66 speed, package, and temperature variations.
The eX family was designed for the e-appliance market of
internet-related consumer electronics and includes a sleep mode
to conserve battery power. eX devices also provide a small form
factor, high design security, and a straightforward design
process. We market the eX family as high-performance single-chip
programmable replacements for low-capacity ASICs. |
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The SX-A family of FPGAs, which was first shipped for revenue in
1999, consists of four products: the 12,000-gate A54SX08A; the
24,000-gate A54SX16A; the 48,000-gate A54SX32A; and the
108,000-gate A54SX72A. Manufactured on a 0.22-micron antifuse
process at UMC and on a 0.25-micron antifuse process at
Matsushita, the family can be ordered in approximately 253
speed, package, and temperature variations. |
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The SX family of FPGAs, which was first shipped for revenue in
1998, consists of four products: the 12,000-gate A54SX08; the
24,000-gate A54SX16 and A54SX16P; and the 48,000-gate A54SX32.
Manufactured on a 0.35-micron antifuse process at Chartered, the
family can be ordered in approximately 200 speed, package, and
temperature variations. |
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SX was the first family to be built on our fine-grained,
“sea of modules” metal-to-metal architecture. We
market the SX-A and SX families as programmable devices with
ASIC-like speed, power consumption, and pricing in volume
production. In addition, the SX-A family offers I/ O
capabilities that provide full support for
“hot-swapping.” Hot swapping allows system boards to
be exchanged while systems are running, a capability important
to many portable, consumer, networking, telecommunication, and
fault-tolerant computing applications. |
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The MX family of FPGAs, which was first shipped for revenue in
1997, consists of six products: the 3,000-gate A40MX02; the
6,000-gate A40MX04; the 14,000-gate A42MX09; the 24,000-gate
A42MX16; the 36,000-gate A42MX24; and the 54,000-gate A42MX36.
Manufactured on 0.45-micron antifuse processes at Chartered and
Winbond, the family can be ordered in approximately 330 speed,
package, and temperature variations. We market the MX family as
a line of low-cost, single-chip, mixed-voltage programmable
ASICs for 5.0-volt applications. |
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The MX family incorporates the best features of our legacy FPGAs
and over time should replace those earlier products in new
5.0-volt commercial designs. Legacy products include the DX, XL,
ACT 3, ACT 2, and ACT 1 families. |
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The 3200DX family of FPGAs, which was first shipped for revenue
in 1995, consists of five products: the 12,000-gate A3265DX; the
20,000-gate A32100DX; the 24,000-gate A32140DX; the 36,000-gate
A32200DX; and the 52,000-gate A32300DX. Manufactured on a
0.6-micron antifuse process at Chartered, the family can be
ordered in approximately 171 speed, package, and temperature
variations. |
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The 1200XL family of FPGAs, which was first shipped for revenue
in 1995, consists of three products: the 6,000-gate A1225XL; the
9,000-gate A1240XL; and the 16,000-gate A1280XL. Manufactured on
a 0.6-micron antifuse process at Chartered, the family can be
ordered in approximately 126 speed, package, and temperature
variations. |
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The DX and XL families were designed to integrate system logic
previously implemented in multiple programmable logic circuits.
The DX family also offers fast dual-port SRAM, which is
typically used for high-speed buffering. |
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The ACT 3 family of FPGAs, which was first shipped for revenue
in 1993, consists of five products: the 3,000-gate A1415; the
6,000-gate A1425; the 9,000-gate A1440; the 11,000-gate A1460;
and the 20,000-gate A14100. Manufactured on a 0.6-micron
antifuse process at Chartered and a 0.8-micron antifuse process
at Winbond, the family can be ordered in approximately 189
speed, package, and temperature variations. The family was
designed for applications requiring high speed and a high number
of I/Os. |
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The ACT 2 family of FPGAs, which was first shipped for revenue
in 1991, consists of three products: the 6,000-gate A1225; the
9,000-gate A1240; and the 16,000-gate A1280. Manufactured on
1.0- and 0.9-micron antifuse processes at Matsushita, the family
can be ordered in approximately 73 speed, package, and
temperature variations. ACT 2 was our second-generation FPGA
family and featured a two-module architecture optimized for
combinatorial and sequential logic designs. |
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The ACT 1 family of FPGAs, which was first shipped for revenue
in 1988, consists of two products: the 2,000-gate A1010 and the
4,000-gate A1020. Manufactured on 1.0- and 0.9-micron antifuse
processes at Matsushita, the family can be ordered in
approximately 95 speed, package, and temperature variations. ACT
1 was the original family of antifuse FPGAs. |
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Our HiRel FPGAs include automotive products, which are offered
in plastic packages; military/avionics (Mil/Av) products, which
are offered in plastic or ceramic (hermetic) packages; and
radiation tolerant (Rad Tolerant) and radiation hardened (Rad
Hard) products, which are offered in hermetic packages. We
believe that we are the leading supplier of high reliability
FPGAs. Our FPGAs have been designed into numerous military and
aerospace applications, including command and data handling,
attitude reference and control, communication payload, and
scientific instrument interfaces. Our space-qualified FPGAs have
been on board more than 100 launches and accepted for
flight-unit applications on more than 300 satellites. |
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To address the rapidly growing and cost-sensitive automotive
electronics market, we introduced in 2003 an automotive line of
FPGAs covering a wide range of densities, voltages, and
features. We offer extended automotive temperature versions of
all members of our eX, SX-A, and MX antifuse families. On
February 9, 2004, we announced the availability of our
Flash-based ProASIC PLUS FPGAs, with densities up to 1,000,000
gates, in extended automotive temperature range versions. Our
ProASIC PLUS automotive devices are suitable for telematics and
other in-cab applications that require flexible,
high-reliability solutions, including navigation, speech
recognition, passenger control and comfort systems, intelligent
occupant sensors, and heads-up displays. Due to the
tamper-resistant nature of our Flash and antifuse technologies,
our automotive line is also appropriate for occupant safety
systems, electronic engine control modules, and other
under-the-hood powertrain management systems. We market our
automotive line as the FPGA industry’s broadest automotive
product portfolio that addresses the unique needs of vehicle
designers. |
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Our Mil/Av devices are offered in three packaging and screening
options: military-temperature plastic (MTP),
military-temperature hermetic (MTH), and MIL-STD 883
Class B hermetic (Class B). MTP devices are offered in
plastic packages and screened to military temperature
specifications. MTH devices are offered in hermetic packages and
screened to military temperature specifications. Class B
devices are offered in hermetic packages and screened to MIL-STD
883 Class B specifications. |
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All members of our antifuse FPGAs families (except for the AX125
and the three eX devices) are offered in MTP packaging and
screening. We have received complete Qualified Manufacturers
Listing (QML) certification for the full line of MTP
antifuse FPGAs, which can be integrated into design applications
that would otherwise require higher-cost ceramic-packaged
devices. The QML plastic certification also permits customers to
integrate commercial and military production without
compromising quality or reliability. |
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We offer 22 devices in MTH or Class B packaging and
screening: the 2,000-gate A1010B; the 4,000-gate A1020B; the
6,000-gate A1425A; the 9,000-gate A1240A; the 11,000-gate
A1460A; the 16,000-gate A1280A and A1280XL; the 20,000-gate
A14100A and A32100DX; the 24,000-gate A54SX16; the 36,000-gate
A32200DX; the 48,000-gate A54SX32 and A54SX32A; the 54,000-gate
A42MX36; the 108,000-gate A54SX72A; the 250,000-gate AX250; the
300,000-gate APA300; the 500,000-gate AX500; the 600,000-gate
APA600; the 1,000,000-gate APA1000 and AX1000; and the
2,000,000-gate AX2000. Hermetic-packaged Mil/ Av devices are
appropriate for avionics, munitions, harsh industrial
environments, and ground-based equipment when radiation
survivability is not critical. |
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On February 11, 2004, we announced the introduction of the
RTAX250S FPGA, extending our RTAX-S family to three devices. On
July 6, 2004, we announced the availability of engineering
samples for all three devices, which have features optimized for
space applications, including hardened registers that offer
practical immunity to single-event upsets and usable
error-corrected onboard random access memory (RAM). We believe
that these features, in combination with proven reliability at
extreme temperatures, live-at-power-up functionality on a single
chip, and an expanded set of I/O standards, enable the RTAX-S
family to meet the density, performance, and
radiation-resistance requirements of many satellite bus and
payload applications, including command and data handling,
attitude and orbit control, and spacecraft power and
environmental controls. We market the RTAX-S family as a
radiation-tolerant alternative to hard-wired ASICs for bus and
payload applications in low-, mid-, and geosynchronous-earth
orbit satellites. |
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On June 21, 2004, we announced the availability of our
radiation-tolerant RTSX-S family of FPGAs from UMC’s wafer
foundry. The new family provided customers with an alternate
source for |
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our 0.25-micron devices, which have been widely adopted for
radiation-intensive space-flight applications. To help assure
that the devices from UMC meet the stringent requirements of
space-flight systems, the parts have been subjected to numerous
qualification, reliability, and radiation tests. See the Risk
Factors set forth at the end of Item 1 of this Annual
Report on Form 10-K for more information. |
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Our Rad Tolerant family of FPGAs consists of ten products: the
4,000-gate RT1020; the 6,000-gate RT1425A; the 11,000-gate
RT1460A; the 16,000-gate RT1280A; the 20,000-gate RT14100A; the
48,000-gate RT54SX32S; the 108,000-gate RT54SX72S; the
250,000-gate RTAX250S; the 1,000,000-gate RTAX1000S; and the
2,000,000-gate RTAX2000S. These Rad Tolerant FPGAs are offered
with Class B or Class E (extended flow/space)
qualification and total dose radiation test reports are provided
on each segregated lot of devices. The RT54SX32S is also offered
in a chip carrier land grid package small enough to enable the
assembly of tested and programmed FPGAs into multi-chip modules
for space applications. |
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Rad Tolerant FPGAs are designed to meet the logic requirements
for all types of military, commercial, and civilian space
applications, including satellites, launch vehicles, and
deep-space probes. They provide cost-effective alternatives to
radiation-hardened devices when radiation survivability is
important but not essential. In addition, Rad Tolerant devices
have design- and pin-compatible commercial versions for
prototyping. |
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The Rad Hard family of FPGAs, which was first shipped for
revenue in 1996, consists of two products: the 4,000-gate RH1020
and the 16,000-gate RH1280. The two products were manufactured
on a radiation-hardened 0.8-micron antifuse process by BAE and
are shipped with full QML Class V screening. The Rad Hard
family was designed to meet the demands of applications
requiring guaranteed levels of radiation survivability. Rad Hard
FPGAs are appropriate for military and civilian satellites, deep
space probes, planetary missions, and other applications in
which radiation survivability is essential. |
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Supporting Products and Services |
In support of our FPGAs, we offer IP products; design and
development software; programming hardware; debugging tool kits
and demonstration boards; a Web-based Resource Center; and
system design, online prototyping, and volume programming
services.
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IP products allow system designers to leverage proven, pre-built
IP cores optimized for our devices, which streamlines their
design process, shortens time to market, and reduces design cost
and risk. Targeting the aerospace, automotive, communications,
consumer, industrial, and military markets, our IP cores
complement the nonvolatile, secure, and low-power
characteristics of our Flash and antifuse FPGAs. Our offering
includes approximately 34 bus interface, 23 communications, 12
data security, five memory control, 16 multimedia and error
correction, and 27 processor and peripheral IP cores. The IP
cores are available in evaluation, register transfer language
(RTL), or netlist formats. |
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Data security is an integral part of our leading solutions for
secure semiconductor devices. We have industry-standard data
encryption IP cores and partnerships that meet the stringent
needs of the security marketplace. Our security IP portfolio
includes Data Encryption Standard (DES), Triple DES, and AES
cores designed and targeted to work with our Flash and antifuse
FPGAs. We are partnering with experts in the area of data
security who offer their services to integrate these cores into
our devices. |
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On January 24, 2005, we announced the availability of more
than 90 IP cores to support our new ProASIC3 and ProASIC3E
device families. The ported cores leverage the advanced features
of the ProASIC3/E devices, including enhanced I/O and memory.
Delivering a broad IP library at the time of |
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product introduction allows our customers to begin designing
complete systems with the ProASIC3/ E devices. |
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We design, verify, support, and maintain DirectCore IP products,
which are optimized for use with our devices. These cores come
complete as pre-implemented, synthesizable building blocks that
have been thoroughly tested and verified in our FPGAs. A number
of them are certified for operation to a standard, such as PCI
or MIL-STD-1553. Approximately 23 DirectCore IP cores are
available from us or through our distributors or sales
representatives. We offer evaluation, single-use, and
unlimited-use licenses for our IP cores, which are delivered
with full documentation and support. On October 25, 2004,
we announced a new Web-based IP evaluation program that allows
customers to access and download free evaluation versions of
DirectCore IP products from our Web site. |
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Our CompanionCore Alliance Program is a cooperative effort
between us and independent third-party IP core developers to
produce and provide a wide selection of proven, pre-built
synthesizable semiconductor IP cores optimized for use in our
FPGAs and compatible with our suite of design and development
tools. These CompanionCore IP cores are licensed, supported, and
maintained directly by the partners. |
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On February 9, 2004, we announced that a new CompanionCore
Alliance Program partner, Intelliga Integrated Design, had
optimized its local interconnect network and controller area
network (CAN) cores to support our automotive- and
industrial-temperature grade devices. We now offer more than 30
IP cores specifically designed and optimized for in-cab and
under-the-hood automotive applications. |
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Approximately 92 CompanionCore IP cores are available from our
CompanionCore Alliance Program partners, including ten from 4i2i
Communications Ltd; six from CAST, Inc.; five from Eureka
Technology Inc.; nine from Helion Technology Ltd.; two from
Intelliga Integrated Design; 26 from Inicore, Inc. (Inicore); 25
from Memec Design; and nine from MorethanIP GmbH. A number of
licensing models are available from our CompanionCore Alliance
partners, including single-use, multiple-use, and evaluation
licenses. |
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• |
Design and Development Software |
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Our software strategy is to provide our customers with all of
the tools necessary for them to define, verify, and implement
their designs in our FPGAs by combining tools from leading EDA
vendors with our custom developed tools into a single FPGA
integrated design environment (IDE). We also work closely with
our EDA partners to ensure that new releases of our custom
developed tools are supported in their software and design
flows. Our EDA partners include Aldec, Inc.; Cadence Design
Systems, Inc. (Cadence); Celoxica Limited; Magma Design
Automation, Inc. (Magma); Mentor Graphics Corporation (Mentor
Graphics); SynaptiCAD, Inc. (SynaptiCAD); Synopsys, Inc.
(Synopsys); and Synplicity, Inc. (Synplicity). |
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Our Libero IDE is a comprehensive FPGA design and development
software suite that supports all of our Flash and antifuse FPGA
families and provides users with start-to-finish design flow
guidance and control. The Libero IDE provides complete tool
interoperability; a streamlined design flow; management of all
design, run, and log files; seamless passing of all design data
between tools from schematic/HDL entry through place-and-route;
and device programming. The entire design can be created and
managed through the Libero IDE’s user interface, which
provides a step-by-step graphical illustration of the design
flow process. |
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Running on Microsoft Windows operating systems, the Libero IDE
is available in several editions. The Libero IDE Silver edition,
which we offer for free, contains our Designer physical |
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design implementation tool suite and a project manager as well
as Actel Edition (AE) versions of the following third party
tools: Mentor Graphics’ ViewDraw AE schematic capture;
SynaptiCAD’s Waveformer Lite AE testbench generator; and
Synplicity’s Synplify AE synthesis tools. The Libero IDE
Gold edition also includes Mentor Graphics’ ModelSim AE
simulator. The Libero IDE Silver and Gold editions support our
FPGAs through 300,000 gates as well as the new A3PE600 ProASIC3E
device. The most comprehensive edition, Libero IDE Platinum,
also includes Magma’s PALACE AE physical synthesis tools
and supports all of our currently released devices. |
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On January 24, 2005, we announced that our Libero 6.1 IDE
provides complete support for our new Flash-based ProASIC3 and
ProASIC3E devices. The software is optimized for the
architectural features of the ProASIC3 and ProASIC3E devices,
including the on-chip FlashROM, which can be programmed
independently of the FPGA core. In addition, the Libero 6.1 IDE
includes Synplicity’s Synplify Pro AE, which offers many
features beyond Synplify AE to improve device performance and
design time. Synplify Pro AE requires a separate license and can
be used with any Libero IDE edition. |
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For customers who want to us their own design and verification
tools, our Designer software is available as a standalone
interactive design implementation tool suite. It is compatible
with the most popular design entry and verification packages,
including those from Cadence, Mentor Graphics, Synopsys, and
Synplicity. The Designer software includes all of the tools
required for a complete physical design implementation system,
from importing a netlist through place-and-route, timing and
physical constraints entry, timing and power analysis, and
programming file generation. In addition to a step-by-step
design flow, the tool suite also provides access to many
features that streamline or facilitate completion of the design,
including floorplanning tools. Running on Microsoft Windows, Sun
Solaris, or Red Hat Linux operating systems, the Designer
software is offered in a Platinum edition that supports all of
our devices, including the new ProASIC3/ E Flash families, and a
free Gold edition that supports all devices up to 300,000 gates
as well as the smallest member of each family. |
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Programmers execute instructions included in files obtained from
the Designer tool suite to program our FPGAs. In addition to
programmers, we offer adapter modules, which must be used with
the Silicon Sculptor II programmer; surface-mount sockets
and prototyping adapter boards, which make it easier to
prototype designs using our antifuse FPGAs; and accessories. In
addition, we support programmers offered by BP Microsystems, Inc. |
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All of our FPGAs can be programmed by the Silicon
Sculptor II programmer. The Silicon Sculptor II
programmer is a compact, single-device programmer with
stand-alone software for the personal computer (PC). Silicon
Sculptor II was designed to allow concurrent programming of
multiple units from the same PC. The Silicon Sculptor II is
manufactured for us by BP Microsystems. |
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Our family of FlashPro device programmers provides ISP support
for the ProASIC3/E, ProASIC PLUS, and ProASIC FPGA families. The
ISP feature permits devices to be programmed after they are
mounted on a printed circuit board. Running on Microsoft Windows
operating systems, all FlashPro programmers permit multiple
Flash devices to be programmed in a Joint Test Action Group
(JTAG) chain. Since any nonprogrammable devices in the JTAG
chain are automatically skipped, a single JTAG chain can be used
for all JTAG devices, which increases flexibility for
post-production and field upgrades. All FlashPro programmers
also use industry-standard test and programming language files,
so there is no delay between product release and |
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programming support. In addition, the same graphical user
interface (GUI) is used for all FlashPro series
programmers, which are manufactured for us by First Silicon
Solutions, Inc. (FS2). |
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The FlashPro3 programmer is targeted at the ProASIC3 and
ProASIC3E families, our latest generation of Flash devices. This
newest programmer offers high-speed performance through the use
of Universal Serial Bus (USB) 2.0 and is compliant for full
use of the 480 Mbps bandwidth. The FlashPro3 programmer can
connect to any PC with a USB port and can operate either with
USB 1.1 (full-speed) or USB 2.0 (both high-speed and full-speed
modes). By using USB hubs, multiple FlashPro3 programmers can be
connected to a single PC, enabling the end-user to set up a
small-scale production environment with concurrent ISP occurring
across multiple boards. |
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The FlashPro Lite programmer is used exclusively with the
ProASIC PLUS family and connects to a PC by means of the
parallel port. A replaceable programming cable connects the
FlashPro Lite to the target board, which powers the programmer.
This portable, low-cost programmer permits customers to program
ProASIC PLUS devices at almost any location using a laptop
computer. |
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The FlashPro programmer can be used with both the ProASIC PLUS
and Pro ASIC families. The choice of USB port or parallel port
is made in the FlashPro software GUI. The FlashPro programmer
has its own power supply, so the target board does not need to
be powered up to support ISP. Like FlashPro3 programmers,
multiple FlashPro programmers can be connected by USB hubs to a
single PC. |
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• |
Debugging Tool Kits and Demonstration Boards |
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Our design diagnostics and debugging tool kits and accessories
permit designers to improve productivity and reduce time to
market by removing the guesswork typically associated with the
process of system verification. We offer different tools kits
for our Flash and antifuse products. Our development kits and
demonstration boards and accessories permit users to evaluate
particular products. |
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Design Diagnostics and Debugging Tool Kits |
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Our antifuse FPGAs contain internal circuitry that provides
built-in access to every node in a design, enabling real-time
observation and analysis of a device’s internal logic
nodes. Silicon Explorer II is an integrated verification
and logic analysis tool kit for the PC that accesses the probe
circuitry. Silicon Explorer II Lite is a less expensive
version of Silicon Explorer II for customers who have a
logic analysis system. |
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The FS2 CLAM (Configurable Logic Analyzer Module) System
provides logic analyzer capabilities for our Flash-based FPGAs.
Embedded in our Flash devices, the CLAM System can
simultaneously trace and trigger on up to 256 channels from an
available 1024 predefined signals in the FPGA. The FS2 CLAM
hardware probe is offered by FS2. |
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Development Kits and Demonstration Boards |
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On November 1, 2004, we announced the availability of a
starter kit for our antifuse-based Axcelerator FPGA. Available
in both a basic evaluation and an advanced prototyping version,
the starter kit features an evaluation board with an Axcelerator
device, the Libero Gold IDE, tutorials, and support
documentation. In addition, users can submit custom Axcelerator
designs and receive free, programmed samples through our new
Online Prototyping Service. The advanced prototyping kit
includes a programming socket module adapter and a six-month
loaner program certificate for our Silicon Sculptor II
programmer. |
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During 2004, we also announced the availability of an enhanced
starter kit for our Flash-based ProASIC PLUS FPGAs. In addition,
we offer ProASIC PLUS and Axcelerator evaluation platforms; a
ProASIC PLUS ISP demonstration evaluation platform; CorePCI,
Core1553, and CorePCIX evaluation boards; and Core1553BRM, Core
429, and Platform8051 development kits. |
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On January 24, 2005, we announced a starter kit to support
our new Flash-based ProASIC3 and ProASIC3E FPGA families.
Expected to be available in the second quarter of 2005, the
starter kit includes an evaluation board with a ProASIC3E
device, the Libero Gold 6.1 IDE, a FlashPro3 programmer, USB
cable, programming cable, power supply, tutorials, and support
documentation. |
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Launched in 2002, our Web-based Resource Center is intended to
provide information on a variety of industry-wide issues related
to the continued displacement of hard-wired ASICs by FPGAs.
Targeted at FPGA and ASIC designers and system architects, the
website includes technology tutorials, frequently-asked
questions, market overviews, application notes, white papers,
extensive glossaries of industry terms, and links to other
relevant articles and third-party resources. Additional topics
will be added as appropriate. |
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The Power Resource Center provides design engineers with
information about the power characteristics of FPGAs as well as
tools to estimate and design for low-power applications. The
four basic power components that need to be examined when
evaluating the power consumption of different FPGA technologies
are static power, dynamic power, in-rush (or power-up) power,
and configuration power. While the three primary FPGA
technologies differ widely in their power consumption
characteristics, only Flash and antifuse are (like ASICs) true
live-at-power-up technologies that do not exhibit power-up
current spikes. |
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Our Packaging Resource Center contains technical package
details, discussions on the latest environmental issues, related
industry articles and links, and design implementation tools.
This portal was created as the primary source for technical
information about our FPGA packaging solutions, but also serves
as an industry reference for IC packaging issues and topics that
impact the FPGA design community. Our objective is to
consistently deliver packages that provide the necessary
mechanical and environmental protection to ensure consistent
reliability and performance. On March 22, 2004, we
announced the availability of “green” and lead-free
packaging options for all of our antifuse- and Flash-based FPGA
product families. |
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On April 19, 2004, we announced the results of a
comprehensive third-party investigation verifying that FPGAs
based on Flash and antifuse technologies are immune to
configuration upsets caused by high-energy neutrons naturally
generated in the earth’s atmosphere. The study also
determined that SRAM-based FPGAs are vulnerable to
neutron-induced configuration loss not only under high-altitude
conditions, as traditionally believed, but also in ground-based
applications, including automotive, medical, telecommunications,
data storage, and communications. A neutron-induced functional
failure in an SRAM-based FPGA can result in a complete system
failure. The tests followed the industry-prescribed test
methodology and were conducted at the Los Alamos National
Laboratory in New Mexico. The results of the independent study
are documented in a report (“Radiation Results of SER
[Soft-Error Rate] Test of Actel, Xilinx, and Altera FPGA
Instances”) that is available in our Soft/ Firm Errors
Resource Center. This website also contains technology
tutorials, white papers, a comprehensive glossary, and relevant
links. |
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• |
Embedded Design Security |
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Secure systems and ultimately the underlying silicon
technologies are becoming increasingly vital in protecting
valuable IP. Without taking the necessary precautions,
corporations may experience major security breaches, resulting
in design theft and other malicious damage. But assessing
security risks and the potential associated loss can be
difficult. The purpose of our Embedded Design Security Resource
Center is to provide semiconductor and design professionals with
a database of information about these vulnerabilities.
Organizations concerned with security can now access detailed
information and links about design security, security
countermeasures, affected systems, and solutions to defeat
unfriendly attacks. Our solution is a range of nonvolatile,
single-chip FPGAs that offer practically unbreakable design
security. |
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In addition to the system design, online protyping, and volume
programming services that we offer, our Solution Partners
Program provides customers with access to a broad range of
design resources, application expertise, and products from
strategic partners worldwide that complement our products and
services. |
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Protocol Design Services |
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With our acquisition of the Protocol Design Services Group from
GateField Corporation (GateField) in August 1998, we became the
first FPGA provider to offer system-level design expertise. The
Design Services organization operates out of a secure facility
located in Mt. Arlington, New Jersey, and is certified to handle
government, military, and proprietary designs. The organization
provides varying levels of design services to customers,
including FPGA, ASIC, and system design; software development
and implementation; and development of prototypes, first
articles, and production units. Our Protocol Design Services
team has participated in the development of a wide range of
applications, including optical networks, routers, cellular
phones, digital cameras, embedded DSP systems, automotive
electronics, navigation systems, compilers, custom processors,
and avionics systems. |
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On November 1, 2004, we announced our new Online Protoyping
Service, a Web-based sample delivery program. Intended to make
it easy for designers to evaluate and prototype with no up-front
investment, the new program allows them to request free samples
of programmed FPGAs through a Web-based interface. The program
currently supports our antifuse-based Axcelerator, SX-A, eX and
MX families. |
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We offer high-volume programming for all device and package
types in our programming center, which is located at our factory
in Mountain View, California. Our facility is ISO 9001:2000,
PURE, QML, and STACK certified (see “BUSINESS —
Manufacturing and Assembly). As part of the programming process,
we offer ink marking for customer-specific marking needs. Volume
programming charges are based on the type of device and quantity
per order. |
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On July 12, 2004, we announced the addition of five new
members to our Solution Partners Program, which is a cooperative
effort between us and third-party providers of FPGA design
services, embedded software, and hardware products. The Solution
Partners Program is intended to help accelerate the time to
market for designs based on our devices by enabling designers to
leverage FPGA design expertise and products tailored
specifically for our devices. Solution Partner products and
services are available directly from the partners, who are
responsible for pricing, warranty, and technical support.
Joining the Program were Barco-Silex, Capitol Automation, Comit
Systems, Intrinsix Corporation, and Silicon Interfaces, all of
whom develop customer-specific electronic |
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products for the wired and wireless communications and
networking markets. On February 14, 2005, we announced that
four more new partners had joined the Solution Partners Program:
Altium Limited, Data I/O Corporation, Device Engineering Inc.,
and GAO Research Inc. The Program currently has 22 members. |
Markets and Applications
FPGAs can be used in a broad range of applications across nearly
all electronic system market segments. Most customers use FPGAs
in low to medium volumes in the final production form of their
products. Some high-volume electronic system manufacturers use
FPGAs as a prototyping vehicle and convert production to
lower-cost hard-wired ASICs, while others with time-to-market
constraints use FPGAs in the initial production and then convert
to lower-cost ASICs. For electronic systems that have shortened
product life cycles, system manufacturers are finding that the
cost difference between hard-wired ASICs and FPGAs begins to
shrink and that manufacturing flexibility becomes a more
important element in the semiconductor decision process. In
addition, as new chip interface standards emerge (which also
puts a premium on flexibility), more high-volume electronic
system manufacturers are electing to retain FPGAs in volume
production.
In 2004, military and aerospace applications accounted for an
estimated 36% of our net revenues. Rigorous quality and
reliability standards and the need for design security are the
primary product characteristics of the military and aerospace
market. Our FPGAs have high quality and reliability and are
almost impossible to copy or reverse engineer, making them
appropriate for many military and aerospace applications. We
believe that we are the world’s leading supplier of
military and aerospace PLDs. Our customers in the military and
aerospace market include: BAE, Boeing, EADS, Hamilton
Sundstrand, Honeywell, ITT, Lockheed Martin, Northrop, Raytheon,
and Rockwell.
Our antifuse FPGAs are especially well suited for space
applications due to the high radiation tolerance of the antifuse
and our FPGA architecture. Thousands of our FPGAs have performed
flight-critical functions aboard manned space vehicles, earth
observation satellites, and deep-space probes, and our FPGAs
often perform mission-critical functions on important scientific
missions in space. We participate in programs administered by
the Goddard, Johnson, and Marshall Space Flight Centers of the
National Aeronautics Space Administration (NASA), including the
Space Shuttle, International Space Station, and Hubble Space
Telescope. We also participate in programs at California
Institute of Technology’s Jet Propulsion Laboratory,
including the Mars Pathfinder and the Mars Spirit and
Opportunity Rovers. Our FPGAs can also be found in spacecraft
launched by practically every civilian space agency around the
world, including the European Space Agency and the Japanese
National Space Development Agency.
During 2004, we announced that:
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Our radiation-tolerant and radiation-hardened FPGAs had returned
to Mars, playing critical roles throughout the American and
European missions. |
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Our Flash-based FPGAs were chosen by Hamilton Sundstrand, a
division of United Technologies Corporation, for the F-35 Joint
Strike Fighter project. |
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More than 400 of our radiation-tolerant and radiation-hardened
FPGAs have been utilized by the European Space Agency and its
contractors as part of the Rosetta space mission. |
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Our Axcelerator FPGAs had been selected by BAE as part of
BAE’s Archerfish naval mine disposal system. |
In 2004, industrial control and instrumentation applications
accounted for an estimated 27% of our net revenues. Industrial
control and instrumentation applications often require complex
electronic functions
15
tailored to specific needs. FPGAs offer programmability and high
density, making them attractive to this segment of the
electronic equipment market. Our customers in the industrial
market include: Mitsubishi, Schlumberger, Siemens, and Varian.
During 2004, we announced that:
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Aviom exclusively used our Flash-based ProASIC PLUS FPGA devices
throughout its portfolio of audio network products. |
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Our Flash-based FPGAs were selected by Indesign for use in its
wireless high-fidelity audio platform. |
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Our Flash-based FPGAs were chosen by the Monterey Bay Aquarium
Research Institute for use in its advanced underwater
seismograph. |
In 2004, communications applications accounted for an estimated
27% of our net revenues. Increasingly complex equipment must
frequently be designed to fit in the space occupied by previous
product generations. In addition, the communications environment
rewards short development times and early market entry. The high
density, high performance, and low power consumption of our
antifuse FPGAs make them suitable for use in high-speed
communications equipment. The high capacity, low cost, low power
consumption, and reprogrammability of our Flash FPGAs make them
appropriate for use in other communications applications. Our
customers in the communications market include: Cisco, Nokia,
Nortel, Tellabs, and UTStarcom.
On July 28, 2004, we jointly announced with Eleven
Engineering, a leading developer of wireless processor ICs, that
our low-power eX family of FPGAs is being used in Eleven
Engineering’s ETHx wireless Ethernet bridge platform. On
January 10, 2005, we announced that UTStarcom, a leading
global supplier of IP access networking solutions and
international service and support, selected our antifuse-based
SX-A FPGA as a controller on the control board of
UTStarcom’s mSwitch and 3G products.
In 2004, consumer and computer applications accounted for an
estimated 10% of our net revenues. The markets for consumer and
computer products are characterized by intense competition and
short product life cycles, placing a premium on security and
early market entry for new products.
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The high performance, low power consumption, and low cost of
antifuse FPGAs make them appropriate for use in products
enabling the portability of the internet, or
“e-appliances,” and other high-volume electronic
systems targeted for consumers. E-appliance applications include
MP3 “music-off-the-internet” players, digital cable
set-top boxes, DSL and cable modems, digital cameras, digital
film, multimedia products, and smart-card readers. Our customers
in the consumer market include: Channel, Datel Inc., IC Boss,
and Shinyoung Hitech Co., Ltd. |
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On January 7, 2004, we announced that Crest Audio, a
manufacturer of professional audio systems, had selected our
APA075 ProASIC PLUS FPGA devices for its new line of advanced
multichannel digital amplifier products. |
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FPGAs reduce the time to market for computer systems and
facilitate early completion of production models so that
development of hardware and software can occur in parallel. Our
customers in the computer market include: Allied Telesis K.K.,
Dialogic Corporation, Hewlett-Packard Company, and Sky Computer. |
16
Today’s automobiles contain miles of wiring, hundreds of
circuits, and a wide variety of other electronic content.
Increasing sophistication under the hood has required a wide
range of systems in the cab to help operators monitor
performance and control a variety of diagnostic and telematic
functions. In addition, manufacturers are striving to
differentiate their products with a variety of complex digital
systems for entertainment and networked information appliances.
As a result, in-car electronics content is increasing at a rapid
rate. We introduced a new line of FPGAs targeted specifically
for the automotive market in 2003. With the addition of ProASIC
PLUS to our automotive FPGA product portfolio in 2004, we
believe that we have the PLD industry’s broadest automotive
offering. Our automotive products enable designers to realize
the time-to market advantages of programmable logic and meet the
rapidly evolving diagnostic, telematic, and infotainment
requirements of the automotive industry. Revenues from our
automotive product line were not significant in 2004.
Sales and Distribution
We maintain a worldwide, multi-tiered selling organization that
includes a direct sales force, independent sales
representatives, and electronics distributors. Our North
American sales force consists of about 45 sales and
administrative personnel and field application engineers (FAEs)
operating from about 18 offices located in major metropolitan
areas. Direct sales personnel call on target accounts and
support direct original equipment manufacturers (OEMs). Besides
overseeing the activities of direct sales personnel, our sales
managers also oversee the activities of about 15 sales
representative firms operating from about 40 office locations.
The sales representatives concentrate on selling to major
industrial companies in North America. To service smaller,
geographically dispersed accounts in North America, we have a
distributor agreement with Unique, which has about 35 offices in
North America.
We generate a significant portion of our revenues from
international sales. Sales to European customers accounted for
27% of net revenues in 2004. Our European sales organization
consists of about 25 employees operating from five sales offices
and about 12 distributors and sales representatives having about
28 offices (including Unique, which has about nine offices in
Europe). Sales to Pan-Asia and other international customers
accounted for 19% of net revenues in 2004. Our Pan-Asia and ROW
sales organization consists of about 12 employees operating from
four sales offices and about 12 distributors and sales
representatives having about 21 offices (including Unique, which
has about nine offices in Pan-Asia and ROW). On October 29,
2004, we announced a surge in design activity in Greater China,
which we believe is a direct result of our commitment to
Flash-based FPGA technology.
Sales made through distributors accounted for 67% of our net
revenues in 2004. Our sole distributor in North American during
2004 was Unique. As is common in the semiconductor industry, we
generally grant price protection to distributors. Under this
policy, distributors are granted a credit upon a price reduction
for the difference between their original purchase price for
products in inventory and the reduced price. From time to time,
distributors are also granted credit on an individual basis for
approved price reductions on specific transactions to meet
competition. We also generally grant distributors limited rights
to return products. Because of our price protection and return
policies, we generally do not recognize revenue on products sold
to distributors until the products are resold.
Our sales cycle for the initial sale of a design system is
generally lengthy and often requires the ongoing participation
of sales, engineering, and managerial personnel. After a sales
representative or distributor evaluates a customer’s logic
design requirements and determines if there is an application
suitable for our FPGAs, the next step typically is a visit to
the qualified customer by a regional sales manager or an FAE.
The sales manager or FAE may then determine that additional
analysis is required by engineers based at our headquarters.
Backlog
Our backlog was $48.6 million at January 2, 2005,
compared with $32.3 million at January 4, 2004. We
include in our backlog all OEM orders scheduled for delivery
over the next nine months and all distributor
17
orders scheduled for delivery over the next six months. We sell
standard products that may be shipped from inventory within a
short time after receipt of an order. Our business, and to a
great extent that of the entire semiconductor industry, is
characterized by short-term order and shipment schedules rather
than volume purchase contracts. In accordance with industry
practice, our backlog generally may be cancelled or rescheduled
by the customer on short notice without significant penalty. As
a result, our backlog may not be indicative of actual sales and
therefore should not be used as a measure of future revenues.
Customer Service and Support
We believe that premiere customer service and technical support
are essential for success in the FPGA market. Our customer
service organization emphasizes dependable, prompt, and accurate
responses to questions about product delivery and order status.
Many of our customers regularly measure the most significant
areas of customer service and technical support.
Our FAEs located in Canada, France, Germany, Hong Kong, Italy,
Japan, Korea, Taiwan, the United Kingdom, and the United States
provide technical support to customers worldwide. This network
of experts is augmented by FAEs working for our sales
representatives and distributors throughout the world. Customers
in any stage of design may also obtain assistance from our
technical support hotline or online interactive automated
technical support system. In addition, we offer technical
seminars on our products, comprehensive training classes on our
software, and functional failure analysis services.
We generally warrant that our FPGAs will be free from defects in
material and workmanship for one year, and that our software
will conform to published specifications for 90 days. To
date, we have not experienced significant warranty returns.
Manufacturing and Assembly
Our strategy is to utilize third-party manufacturers for our
wafer requirements, which permits us to allocate our resources
to product design, development, and marketing. Our FPGAs in
production are manufactured by:
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Chartered in Singapore using 0.45- and 0.35-micron design rules; |
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Infineon in Germany using 0.25-micron design rules; |
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Matsushita in Japan using 1.0-, 0.9-, 0.8-, and 0.25-micron
design rules; |
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UMC in Taiwan using 0.25/0.22- and 0.15-micron design
rules; and |
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Winbond in Taiwan using 0.8- and 0.45-micron design rules. |
On June 21, 2004, we announced the availability of our
radiation-tolerant RTSX-S family of FPGAs from UMC’s wafer
foundry. The new family provided customers with an alternate
source for our 0.25-micron devices, which have been widely
adopted for radiation-intensive space-flight applications. To
help assure that the devices from UMC meet the stringent
requirements of space-flight systems, the parts have been
subjected to numerous qualification, reliability, and radiation
tests. See the Risk Factors set forth at the end of Item 1
of this Annual Report on Form 10-K for more information.
Wafers purchased from our suppliers are assembled, tested,
marked, and inspected by us and/or our subcontractors before
shipment to customers. We assemble most of our plastic
commercial products in Hong Kong, South Korea, and Singapore.
Hermetic package assembly, which is often required for military
applications, is performed at one or more subcontractor
manufacturing facilities, some of which are in the United States.
We are committed to continuous improvement in our products,
processes, and systems and to making our quality and reliability
systems conform to standards and requirements recognized
worldwide. On March 24, 2004, we announced we had been
presented with the ISO 9001:2000 certificate by the Defense
Supply Center of Columbus after an extensive audit verifying our
commitment to quality management principles, including
satisfaction and control of product development and operational
activities. We also announced that our
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antifuse-based FPGAs, including the SX-A, MX, and RTSX-S
devices, received a QML 38535 certificate, which confirms that
we have control of our processes and procedures in accordance
with the standards set forth in the MIL-PRF-38535. A
QML-approved quality system provides assurance to our customers
regarding the suitability of our products for use in military
and space applications that have stringent quality and
reliability requirements.
We are also STACK and PURE certified. STACK International
consists of major electronic equipment manufacturers serving the
worldwide high-reliability and communications markets.
Certification as a STACK International supplier confirms that
our standard qualification procedure and product monitor program
and manufacturing process meet or exceed the required
specification. PURE, which stands for PEDs (plastic encapsulated
devices) Used in Rugged Environments, is an association of
European equipment makers dedicated to quality and reliability.
Our PURE certification is for plastic quad flat pack packages.
Strategic Relationships
We enjoy ongoing strategic relationships with many of our
customers, distributors, sales representatives, foundries,
assembly houses, and other suppliers of goods and services,
including the following:
On September 27, 2004, FS2 announced the availability of
its Logic Navigator System for embedded debug, trace, and logic
analysis. The Logic Navigator System allows designers to add
event monitoring, debug triggering, trace, and test mode
selection capabilities to any logic implementation. The initial
release for Logic Navigator was optimized for our Flash-based
ProASIC Plus and antifuse-based Axcelerator FPGAs.
• Inicore
On May 17, 2004, we announced that we had joined with
Inicore, an IP and design services partner, to deliver a turnkey
design solution to the Targa Systems Division of L3
Communications for a new line of data storage products for
military and rugged applications. The silicon, software, IP, and
design services provided by us and Inicore, a member of our
Solution Partners Program, enabled L-3 Targa Systems to achieve
first-time product success.
On February 9, 2004, we jointly announced with Unique Memec
the availability of our Automotive Development Kit, which
enables engineers to use our FPGAs to create designs for
automotive applications. Developed by Memec Design and
distributed globally by Unique Memec, the kit combines our
FPGA-based development board with Memec Design’s CAN IP
core.
On August 24, 2004, we jointly announced with Mentor
Graphics that the latest version of Mentor Graphics’
Precision RTL Synthesis tool delivers significantly higher
performance on designs utilizing our Flash-based ProASIC PLUS
family of FPGAs. With the Precision RTL Synthesis tool, which is
fully integrated into our Libero IDE, designers can specify
higher frequencies and realize performance gains from ProASIC
PLUS devices within their existing design flows.
Research and Development
In 2004, we spent $45.4 million on research and
development, which represented 27% of net revenues. Our research
and development expenditures are divided among circuit design,
software development, and process technology activities, all of
which are involved in the development of new products based on
existing or emerging technologies. In the areas of circuit
design and process technology, our research and development
activities also involve continuing efforts to reduce the cost
and improve the performance of current products, including
“shrinks” of the design rules under which such
products are manufactured. Our software research
19
and development activities include enhancing the functionality,
usability, and availability of high-level CAE tools and IP cores
in a complete and automated desktop design environment.
During 2004, we completed the introduction of our leading-edge
high-reliability product family (see “BUSINESS —
Products and Services — HiRel FPGAs — Rad
Tolerant). During 2005, we introduced our leading-edge Flash
product families (see “BUSINESS — Products and
Services — Flash FPGAs — ProASIC 3/ E).
Competition
The FPGA market is highly competitive, and we expect that to
increase as the market grows. Our competitors include suppliers
of standard TTLs and custom-designed ASICs, including
conventional gate arrays and standard cells, simple PLDs, CPLDs,
and FPGAs. Of these, we compete principally with suppliers of
hard-wired ASICs, CPLDs, and FPGAs.
The primary advantages of hard-wired ASICs are high capacity,
high density, high speed, and low cost in production volumes.
These advantages are offset by long design cycles and high
designs costs, including mask set and NRE charges. We compete
with hard-wired ASIC suppliers by offering lower design costs
(including low or no NREs), shorter design cycles, and reduced
inventory risks. Some customers elect to design and prototype
with our products and then convert to hard-wired ASICs to
achieve lower costs for volume production. For this reason, we
also face competition from companies that specialize in
converting CPLDs and FPGAs, including our products, into
hard-wired ASICs.
We also compete with suppliers of CPLDs. Suppliers of these
devices include Altera Corporation (Altera), which purchased the
PLD business of Intel Corporation in 1994; Lattice Semiconductor
Corporation (Lattice), which purchased the CPLD businesses of
Vantis Corporation in 1999; and Xilinx, Inc. (Xilinx), which
purchased the CPLD business of Philips Semiconductors in 1999.
The circuit architecture of CPLDs may give them a performance
advantage in certain lower capacity applications, although we
believe that FPGAs compete favorably with CPLDs. However,
Lattice and particularly Altera are larger than us, offer
broader product lines to more extensive customer bases, and have
significantly greater financial, technical, sales, and other
resources. In addition, many newer CPLDs are reprogrammable,
which permits customers to reuse a circuit multiple times during
the design process. While our Flash FPGAs are reprogrammable,
antifuse FPGAs are one-time programmable, permanently retaining
their programmed configuration.
We compete most directly with established FPGA suppliers, such
as Xilinx, Altera, and Lattice, which purchased the FPGA
business of Agere Systems, Inc. in 2002. We announced our
intention to develop SRAM-based FPGA products in 1996 and
abandoned the development in 1999. While we believe our products
and technologies are superior to those of Xilinx (as well as
Altera and Lattice) in many applications requiring lower cost,
nonvolatility, lower power, and/or greater security, Xilinx is
significantly larger than us, offers a broader product line to a
more extensive customer base, and has substantially greater
financial, technical, sales, and other resources. In addition,
the FPGAs of Xilinx, Altera, and Lattice are reprogrammable.
While our Flash FPGAs are reprogrammable, antifuse FPGAs are
one-time programmable.
Several companies have marketed antifuse-based FPGAs, including
QuickLogic Corporation (QuickLogic). In 1995, we acquired the
antifuse FPGA business of Texas Instruments, Inc., which was the
only second-source supplier of our products. Xilinx, which is a
licensee of certain of our patents, introduced antifuse-based
FPGAs in 1995 and abandoned its antifuse FPGA business in 1996.
Cypress Semiconductor Corporation, which was a licensed second
source of QuickLogic, sold its antifuse FPGA business to
QuickLogic in 1997. We believe that we compete favorably with
QuickLogic, which is also a licensee of certain of our patents.
To date, we are the only supplier of Flash-based FPGAs. In 1998,
we entered into a strategic alliance with GateField under which
we acquired the exclusive right to market and sell standard
ProASIC products in process geometries of 0.35-micron and less.
In 1999, we introduced the Flash-based ProASIC family of FGPAs.
In 2000, we acquired GateField in a merger.
20
We believe that important competitive factors in our market are
price; performance; capacity (total number of usable gates);
density (concentration of usable gates); ease of use and
functionality of development tools; installed base of
development tools; reprogrammability; strength of sales
organization and channels; power consumption; reliability;
security; adaptability of products to specific applications and
IP; ease, speed, cost, and consistency of programming; length of
research and development cycle (including migration to finer
process geometries); number of I/Os; reliability; wafer
fabrication and assembly capacity; availability of packages,
adapters, sockets, programmers, and IP; technical service and
support; and utilization of intellectual property laws. Our
failure to compete successfully in any of these areas could have
a materially adverse effect on our business, financial
condition, or results of operations.
Patents and Licenses
As of February 18, 2005, we had 250 United States patents
and applications pending for an additional 80 United States
patents. We also had 64 foreign patents and applications pending
for 46 patents outside the United States. Our patents cover,
among other things, circuit architectures, antifuse and Flash
structures, and programming methods. We expect to continue
filing patent applications as appropriate to protect our
proprietary technologies. We believe that patents, along with
such factors as innovation, technological expertise, and
experienced personnel, will become increasingly important.
In connection with the settlement of patent litigation in 1993,
we entered into a Patent Cross License Agreement with Xilinx,
under which Xilinx was granted a license under certain of our
patents that permits Xilinx to make and sell antifuse-based
PLDs, and we were granted a license under certain Xilinx patents
to make and sell SRAM-based PLDs. Xilinx introduced
antifuse-based FPGAs in 1995 and abandoned its antifuse FPGA
business in 1996. We announced our intention to develop
SRAM-based FPGA products in 1996 and abandoned the development
in 1999.
In 1995, we entered into a License Agreement with BTR, Inc.
(BTR) pursuant to which BTR licensed its proprietary
technology to us for development and use in FPGAs and certain
multichip modules. At the end of 2004, we elected under the
License Agreement to convert to a non-exclusive license, as a
consequence of which we will cease to pay BTR advance royalties
after March 2006.
In connection with the settlement of patent litigation in 1998,
we entered into a Patent Cross License Agreement with QuickLogic
that protects the products of both companies that were first
offered for sale on or before September 4, 2000, or are
future generations of such products.
As is typical in the semiconductor industry, we have been and
expect to be notified from time to time of claims that we may be
infringing patents owned by others. When probable and reasonably
estimable, we have made provision for the estimated settlement
costs of claims for alleged infringement. As we sometimes have
in the past, we may obtain licenses under patents that we are
alleged to infringe. While we believe that reasonable resolution
will occur, there can be no assurance that these claims will be
resolved or that the resolution of these claims will not have a
materially adverse effect on our business, financial condition,
or results of operations. In addition, our evaluation of the
impact of these pending disputes could change based upon new
information we learn. Subject to the foregoing, we do not
believe that the resolution of any pending patent dispute is
likely to have a materially adverse effect on our business,
financial condition, or results of operations.
Employees
At the end of 2004, we had 557 full-time employees,
including 151 in marketing, sales, and customer support; 207 in
R&D; 158 in operations; and 41 in administration and
finance. This compares with 543 full-time employees at the
end of 2003, an increase of 3%. Net revenues were approximately
$297,000 per employee for 2004 compared with approximately
$276,000 for 2003. This represents an increase of 8%. We have no
employees represented by a labor union, have not experienced any
work stoppages, and believe that our employee relations are
satisfactory.
21
Risk Factors
Our shareholders and prospective investors should carefully
consider, along with the other information in this Annual Report
on Form 10-K, the following:
• Our
future revenues and operating results are likely to fluctuate
and may fail to meet expectations, which could cause our stock
price to decline.
Our quarterly revenues and operating results are subject to
fluctuations resulting from general economic conditions and a
variety of risks specific to us or characteristic of the
semiconductor industry, including booking and shipment
uncertainties, supply problems, and price erosion. These and
other factors make it difficult for us to accurately project
quarterly revenues and operating results, which may fail to meet
our expectations. Any failure to meet expectations could cause
our stock price to decline significantly.
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A variety of booking and shipping uncertainties may cause us
to fall short of our quarterly revenue expectations. |
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When we fall short of our quarterly revenue expectations, our
operating results are likely to be adversely affected because
most of our expenses are fixed and therefore do not vary with
revenues. |
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We derive a large percentage of our quarterly revenues from
bookings received during the quarter, making quarterly revenues
difficult to predict. |
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Our backlog (which generally may be cancelled or deferred by
customers on short notice without significant penalty) at the
beginning of a quarter typically accounts for about half of our
revenues during the quarter. This means that we generate about
half of our quarterly revenues from orders received during the
quarter and “turned” for shipment within the quarter,
and that any shortfall in “turns” orders will have an
immediate and adverse impact on quarterly revenues. In addition,
we sometimes book a disproportionately large percentage of turns
orders during the final weeks of the quarter. There are many
factors that can cause a shortfall in turns orders, including
declines in general economic conditions or the businesses of our
customers, excess inventory in the channel, or conversion of our
products to hard-wired ASICs or other competing products for
price or other reasons. Any failure or delay in receiving
expected turns orders would have an immediate and adverse impact
on quarterly revenues. |
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We derive a significant percentage of our quarterly revenues
from shipments made in the final weeks of the quarter, making
quarterly revenues difficult to predict. |
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We have often shipped a disproportionately large percentage of
our quarterly revenues in the final weeks of the quarter, which
makes it difficult to accurately project quarterly revenues. Any
failure to effect scheduled shipments by the end of a quarter
would have an immediate and adverse impact on quarterly revenues. |
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Our military and aerospace shipments tend to be large and are
subject to complex scheduling uncertainties, making quarterly
revenues difficult to predict. |
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Orders from the military and aerospace customers tend to be
large and irregular, which contributes to fluctuations in our
net revenues and gross margins. These sales are also subject to
more extensive governmental regulations, including greater
import and export restrictions. Historically, it has been
difficult to predict if and when export licenses will be
granted, if required. In addition, products for military and
aerospace applications require processing and testing that is
more lengthy and stringent than for commercial applications,
which increases the complexity of scheduling and forecasting as
well as the risk of failure. It is often impossible to determine
before the end of processing and testing whether products
intended for military or aerospace applications will fail and,
if they do fail, it is generally not possible for replacements
to be processed and tested in time for shipment during the same
quarter. Any failure to effect scheduled shipments by the end of
a quarter would have an immediate and adverse impact on
quarterly revenues. |
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We derive a majority of our quarterly revenues from products
resold by our distributors, making quarterly revenues difficult
to predict. |
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We typically generate more than half of our quarterly revenues
from sales made through distributors. Since we generally do not
recognize revenue on the sale of a product to a distributor
until the distributor resells the product, our quarterly
revenues are dependent on, and subject to fluctuations in,
shipments by our distributors. We are also highly dependent on
the timeliness and accuracy of resale reports from our
distributors. Late or inaccurate resale reports, particularly in
the last month of the quarter, contribute to our difficulty in
predicting and reporting our quarterly revenues and results of
operations. |
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An unanticipated shortage of products available for sale may
cause us to fall short of expected quarterly revenues and
operating results. |
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In a typical semiconductor manufacturing process, silicon wafers
produced by a foundry are sorted and cut into individual die,
which are then assembled into individual packages and tested.
The manufacture, assembly, and testing of semiconductor products
is highly complex and subject to a wide variety of risks,
including defects in masks, impurities in the materials used,
contaminants in the environment, and performance failures by
personnel and equipment. Semiconductor products intended for
military and aerospace applications and new products, such as
our Flash-based ProASIC 3/E and antifuse-based Axcelerator FPGA
families, are often more complex and/or more difficult to
produce, increasing the risk of manufacturing-related defects.
In addition, we may not discover defects or other errors in new
products until after we have commenced volume production. Our
failure to effect scheduled shipments by the end of a quarter
due to unexpected supply constraints would have an immediate and
adverse impact on quarterly revenues. |
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Unanticipated increases, or the failure to achieve
anticipated reductions, in the cost of our products may cause us
to fall short of expected quarterly operating results. |
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As is also common in the semiconductor industry, our independent
wafer suppliers from time to time experience lower than
anticipated yields of usable die. Wafer yields can decline
without warning and may take substantial time to analyze and
correct, particularly for a company like us that does not
operate our own manufacturing facility, but instead utilizes
independent facilities, all of which are offshore. Yield
problems are most common on new processes or at new foundries,
particularly when new technologies are involved. Our FPGAs are
also manufactured using customized processing steps, which may
increase the incidence of production yield problems as well as
the amount of time needed to achieve satisfactory, sustainable
wafer yields on new processes and new products. Lower than
expected yields of usable die could reduce our gross margin,
which would adversely affect our quarterly operating results. In
addition, in order to win designs, we generally must price new
products on the assumption that manufacturing cost reductions
will be achieved, which often do not occur as soon as expected.
The failure to achieve expected manufacturing or other cost
reductions during a quarter could reduce our gross margin, which
would adversely affect our quarterly operating results. |
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• |
Unanticipated reductions in the average selling prices of our
products may cause us to fall short of expected quarterly
revenues and operating results. |
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The semiconductor industry is characterized by intense price
competition. The average selling price of a product typically
declines significantly between introduction and maturity. We
sometimes are required by competitive pressures to reduce the
prices of our new products more quickly than cost reductions can
be achieved. We also sometimes approve price reductions on
specific sales for strategic or other reasons. Declines in the
average selling prices of our products will reduce quarterly
revenues unless offset by greater unit sales or a shift in the
mix of products sold toward higher-priced products. Declines in
the average selling prices of our products will also reduce
quarterly gross margin unless offset by reductions in
manufacturing costs or by a shift in the mix of products sold
toward higher-margin products. |
23
• In
preparing our financial statements, we make good faith estimates
and judgments that may change or turn out to be erroneous.
In preparing our financial statements in conformity with
accounting principles generally accepted in the United States,
we must 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
most difficult estimates and subjective judgments that we make
concern income taxes, intangible assets and goodwill,
inventories, investments in other companies, legal matters, and
revenues. We base our estimates on historical experience and on
various other assumptions that we believe 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. In
addition, if these estimates or their related assumptions change
in the future, our operating results for the periods in which we
revise our estimates or assumptions could be adversely and
perhaps materially affected.
• Our
gross margin may decline as we increasingly compete with
hard-wired ASICs and serve the value-based market.
The price we can charge for our products is constrained
principally by our competition. While it has always been
intense, we believe that price competition for new designs is
increasing. This may be due in part to the transition toward
high-level design methodologies. Designers can now wait until
later in the design process before selecting a PLD or hard-wired
ASIC and it is easier to convert between competing PLDs or
between PLDs and hard-wired ASICs. The increased price
competition may also be due in part to the increasing
penetration of PLDs into price-sensitive markets previously
dominated by hard-wired ASICs. We have strategically targeted
many of our products at the value-based marked, which is defined
primarily by low prices. If our strategy is successful,
low-price products will constitute increasingly greater
percentages of our net revenues, which may make it more
difficult to maintain our gross margin at our historic levels.
Any long-term decline in our gross margin would have an adverse
effect on our operating results.
• We
may not win sufficient designs, or the designs we win may not
generate sufficient revenues, for us to maintain or expand our
business.
In order for us to sell an FPGA to a customer, the customer must
incorporate our FPGA into the customer’s product in the
design phase. We devote substantial resources, which we may not
recover through product sales, to persuade potential customers
to incorporate our FPGAs into new or updated products and to
support their design efforts (including, among other things,
providing design and development software). These efforts
usually precede by many months (and often a year or more) the
generation of FPGA sales, if any. The value of any design win,
moreover, depends in large part upon the ultimate success of our
customer’s product in its market. Our failure to win
sufficient designs, or the failure of the designs we win to
generate sufficient revenues, could have a materially adverse
effect on our business, financial condition, or results of
operations.
• Our
products are complex and may contain errors, manufacturing
defects, design defects, or otherwise fail to comply with our
specifications, any of which could lead to product liability, an
increase in our costs, and/or a reduction in our revenues.
Our products are complex and may contain errors, manufacturing
defects, design defects, or otherwise fail to comply with our
specifications, particularly when first introduced or as new
versions are released. Our new products are being designed in
ever more complex processes, which add cost, complexity, and
elements of experimentation to the development, particularly in
the areas of mixed-voltage and mixed-signal design. We rely
primarily on our in-house personnel to design test operations
and procedures to detect any errors prior to delivery of
products to our customers.
During 2003, several U.S. government contractors reported a
small percentage of functional failures in our RTSX-S and SX-A
antifuse devices manufactured on a 0.25 micron antifuse process
at the original manufacturer of those FPGAs. On
February 13, 2004, The Aerospace Corporation (Aerospace)
proposed a
24
series of experiments to test various hypotheses on the root
cause of the failures and to generate reliability data that
could be used by industry participants in deciding whether or
not to launch with RTSX-S FPGAs that were already integrated. On
May 19, 2004, we released a new programming algorithm for
our 0.25-micron antifuse devices from the original manufacturer.
On June 21, 2004, we announced the availability of RTSX-S
devices from UMC. On February 16, 2005, Aerospace
summarized the results of its experiments, estimating a failure
rate ranging from 2.3% to 2.8% for RTSX-S devices from the
original manufacturer programmed with the original algorithm,
and a failure rate ranging from 1.0% to 1.9% for RTSX-S devices
from the original manufacturer programmed with the new
algorithm. Aerospace also indicated that the results from our
testing of RTSX-S devices from UMC were very promising, and that
three test programs for the UMC devices were in progress: one by
NASA, one by Aerospace, and one by us.
Based on the experiments and analysis being conducted, Aerospace
and Actel each recommended during 2004 that customers switch to
UMC devices if their schedules permitted, and we offered to
accept RTSX-S parts from the original manufacturer in exchange
for UMC parts. By the fourth quarter of 2004, most customers had
decided to switch to UMC devices, and we determined that the
demand for parts from the original manufacturer no longer
supported our inventory levels. As a result, we took
$3.2 million in charges for inventory and related
equipment. While testing of the UMC parts is continuing, the
0.25-micron process at UMC used to manufacture our RTSX-S and
SX-A devices appears to create antifuses that are less
vulnerable to the failure mechanisms identified to date. We are
in the process of offering certain customers with
high-reliability commercial applications the opportunity to
exchange SX-A parts from the original manufacturer for UMC parts.
On January 24, 2005, we released a critical software update
for our flash-based ProASIC and ProASIC PLUS families of
devices. We believe that ProASIC and ProASIC PLUS devices
programmed with the updated software should achieve a minimum
performance retention period of 20 years after programming.
Any ProASIC and ProASIC PLUS device that is not programmed (or
reprogrammed) with the updated software could have a shorter
performance retention period. This means that the performance of
the device might degrade below specification and cause a
functional failure in less than 20 years. The actual
performance retention period of any particular ProASIC or
ProASIC PLUS device programmed with an older version of the
software is design specific. For most designs, the performance
retention period is greater than 20 years. We are currently
working with customers on a case-by-case basis to assess the
particular performance retention periods of their ProASIC and
ProASIC PLUS devices when it is not practicable for them to
reprogram their devices with the updated software.
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• |
Any error or defect in our products could have a material
adverse effect on our revenues, operating results, and/or
reputation. |
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If problems occur in the operation or performance of our
products, we may experience delays in meeting key introduction
dates or scheduled delivery dates to our customers, in part
because our products are manufactured by third parties. These
problems also could cause us to incur significant re-engineering
costs, divert the attention of our engineering personnel from
our product development efforts, and cause significant customer
relations and business reputation problems. Any error or defect
could require product replacement or recall or could obligate us
to accept product returns. Any of the foregoing could have a
material adverse effect on our financial results and business in
both the short and long term. |
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• |
Any product liability claim could pose a significant risk to
our financial condition. |
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Product liability claims may be asserted with respect to our
products. Our products are typically sold at prices that are
significantly lower than the cost of the end-products into which
they are incorporated. A defect or failure in our product could
cause failure in our customer’s end-product, so we could
face claims for damages that are much higher than the revenues
and profits we receive from the products involved. In addition,
product liability risks are particularly significant with
respect to aerospace, automotive, and medical applications
because of the risk of serious harm to users of these products.
There can be no assurance that any insurance we carry would
sufficiently protect us from any such claims. |
25
• We may be unsuccessful in defining, developing,
or selling competitive new or improved products at acceptable
margins.
The market for our products is characterized by rapid
technological change, product obsolescence, and price erosion,
making the timely introduction of new or improved products
critical to our success. Our failure to design, develop, and
sell new or improved products that satisfy customer needs,
compete effectively, and generate acceptable margins may
adversely affect our business, financial condition, and results
of operations. While most of our product development programs
have achieved a level of success, some have not. For example:
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We announced our intention to develop SRAM-based FPGA products
in 1996 and abandoned the development in 1999 principally
because the product would no longer have been competitive. |
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• |
We introduced our VariCore embeddable reprogrammable gate array
(EPGA) logic core based on SRAM technology in 2001.
Revenues from VariCore EPGAs did not materialize and the
development of a more advanced VariCore EPGA was cancelled. In
this case, a market that we believed would develop did not
emerge. |
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• |
In 2001, we also launched our BridgeFPGA initiative to address
the I/O problems created within the high-speed communications
market by the proliferation of interface standards. The adoption
of these interface standards created the need for designers to
implement bridging functions to connect incompatible interface
standards. We introduced Axcelerator, a high-speed antifuse FPGA
with dedicated high-speed I/O circuits that can support multiple
interface standards, in 2002. However, the development of
subsequent BridgeFPGA products, which were expected to include
embedded high-speed interface protocol controllers, was
postponed in 2002. This was due principally to the prolonged
downturn in the high-speed communications market. The
development was cancelled in 2003 principally because the
subsequent BridgeFPGA products would no longer have been
competitive. |
Our experience generally suggests that the risk is greater when
we attempt to develop products based in whole or in part on
technologies with which we have limited experience.
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• |
Numerous factors can cause the development or introduction of
new products to fail or be delayed. |
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To develop and introduce a product, we must successfully
accomplish all of the following: |
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• |
anticipate future customer demand and the technology that will
be available to meet the demand; |
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• |
define the product and its architecture, including the
technology, silicon, programmer, IP, software, and packaging
specifications; |
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• |
obtain access to advanced manufacturing process technologies; |
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• |
design and verify the silicon; |
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develop and release evaluation software; |
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lay out the architecture and implement programming; |
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• |
tape out the product; |
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• |
generate a mask of the product and evaluate the software; |
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manufacture the product at the foundry; |
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verify the product; and |
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qualify the process, characterize the product, and release
production software. |
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Each of these steps is difficult and subject to failure or
delay. In addition, the failure or delay of any step can cause
the failure or delay of the entire development and introduction.
No assurance can be given that our development and introduction
schedules for new products or the supporting software or
hardware will be met, that new products will gain market
acceptance, or that we will respond effectively to new |
26
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technological changes or new product announcements by others.
Any failure to successfully define, develop, market,
manufacture, assemble, test, or program competitive new products
could have a materially adverse effect on our business,
financial condition, and results of operations. |
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• |
New products are subject to greater operational risks. |
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Our future success is highly dependent upon the timely
development and introduction of competitive new products at
acceptable margins. However, there are greater operational risks
associated with new products. The inability of our wafer
suppliers to produce advanced products; delays in commencing or
maintaining volume shipments of new products; the discovery of
product, process, software, or programming defects or failures;
and any related product returns could each have a materially
adverse effect on our business, financial condition, or results
of operation. |
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• |
New products are subject to greater technology risks. |
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As is common in the semiconductor industry, we have experienced
from time to time in the past, and expect to experience in the
future, difficulties and delays in achieving satisfactory,
sustainable yields on new products. The fabrication of antifuse
and Flash wafers is a complex process that requires a high
degree of technical skill, state-of-the-art equipment, and
effective cooperation between us and the foundry to produce
acceptable yields. Minute impurities, errors in any step of the
fabrication process, defects in the masks used to print circuits
on a wafer, and other factors can cause a substantial percentage
of wafers to be rejected or numerous die on each wafer to be
non-functional. Yield problems increase the cost of as well as
time it takes us to bring our new products to market, which can
create inventory shortages and dissatisfied customers. Any
prolonged inability to obtain adequate yields or deliveries of
new products could have a materially adverse effect on our
business, financial condition, or results of operations. |
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• |
New products generally have lower gross margins. |
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Our gross margin is the difference between the amount it costs
us to make our products and the revenues we receive from the
sale of our products. One of the most important variables
affecting the cost of our products is manufacturing yields. With
our customized antifuse and Flash manufacturing process
requirements, we almost invariably experience difficulties and
delays in achieving satisfactory, sustainable yields on new
products. Until satisfactory yields are achieved, gross margins
on new products are generally lower than on mature products.
Depending upon the rate at which sales of new products ramp and
the extent to which they displace mature products, the lower
gross margins typically associated with new products could have
a materially adverse effect on our operating results. |
• We face intense competition and have some
competitive disadvantages that we may not be able to
overcome.
The semiconductor industry is intensely competitive. Our
competitors include suppliers of hard-wired ASICs, CPLDs, and
FPGAs. Our direct competitors are Xilinx, a supplier of CPLDs
and SRAM-based FPGAs; Altera, a supplier of CPLDs and SRAM-based
FPGAs; Lattice, a supplier of CPLDs and SRAM-based FPGAs; and
QuickLogic, a supplier of antifuse-based FPGAs. We also face
competition from companies that specialize in converting our
products into hard-wired ASICs. In addition, we may face
competition from suppliers of logic products based on new or
emerging technologies. While we seek to monitor developments in
existing and emerging technologies, our technologies may not
remain competitive.
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• |
Most of our current and potential competitors are larger and
have more resources. |
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We are much smaller than Xilinx and Altera, and additional
competition is possible from major domestic and international
semiconductor suppliers. All such companies are larger and have
broader product lines, more extensive customer bases, and
substantially greater financial and other resources than us,
including the capability to manufacture their own wafers. We may
not be able to overcome these competitive disadvantages. |
27
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• |
Our antifuse technology is not reprogrammable, which is a
competitive disadvantage in most cases. |
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All existing FPGAs not based on antifuse technology and certain
CPLDs are reprogrammable. The one-time programmability of our
antifuse FPGAs is necessary or desirable in some applications,
but logic designers generally prefer to prototype with a
reprogrammable logic device. This is because the designer can
reuse the device if an error is made. The visibility associated
with discarding a one-time programmable device often causes
designers to select a reprogrammable device even when an
alternative one-time programmable device offers significant
advantages. This bias in favor of designing with reprogrammable
logic devices appears to increase as the size of the design
increases. Although we now offer reprogrammable Flash devices,
we may not be able to overcome this competitive disadvantage. |
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Our Flash and antifuse technologies are not manufactured on
standard processes, which is a competitive disadvantage. |
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Our antifuse-based FPGAs and (to a lesser extent) Flash-based
ProASIC FPGAs are manufactured using customized steps that are
added to otherwise standard manufacturing processes of
independent wafer suppliers. There is considerably less
operating history for the customized process steps than for the
foundries’ standard manufacturing processes. Our dependence
on customized processing steps means that, in contrast with
competitors using standard manufacturing processes, we generally
have more difficulty establishing relationships with independent
wafer manufacturers; take longer to qualify a new wafer
manufacturer; take longer to achieve satisfactory, sustainable
wafer yields on new processes; may experience a higher incidence
of production yield problems; must pay more for wafers; and will
not obtain early access to the most advanced processes. For
example, we expect that our next generation Flash product
families will be manufactured on a 90-nanometer process and have
found it challenging to identify and procure fabrication process
arrangements for our technology development activities. Any of
these factors could be a material disadvantage against
competitors using standard manufacturing processes. As a result
of these factors, our products typically have been fabricated
using processes at least one generation behind the processes
used by competing products. As a consequence, we generally have
not fully realized the benefits of our technologies. Although we
are attempting to accelerate the rate at which our products are
reduced to finer process geometries and obtain earlier access to
advanced processes, we may not be able to overcome this
competitive disadvantage. |
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Our business and operations may be disrupted by events that
are beyond our control or the control of our business
partners. |
Our performance is subject to events or conditions beyond our
control, and the performance of each of our foundries,
suppliers, subcontractors, distributors, agents, and customers
is subject to events or conditions beyond their control. These
events or conditions include labor disputes, acts of public
enemies or terrorists, war or other military conflicts,
blockades, insurrections, riots, epidemics, quarantine
restrictions, landslides, lightning, earthquakes, fires, storms,
floods, washouts, arrests, civil disturbances, restraints by or
actions of governmental bodies acting in a sovereign capacity
(including export or security restrictions on information,
material, personnel, equipment, or otherwise), breakdowns of
plant or machinery, and inability to obtain transport or
supplies. This type of disruption could impair our ability to
ship products in a timely manner, which may have a materially
adverse effect on our business, financial condition, and results
of operations.
Our corporate offices are located in California, which was
subject to power outages and shortages during 2001 and 2002.
More extensive power shortages in the state could disrupt our
operations and interrupt our research and development
activities. Our foundry partners in Japan and Taiwan and our
operations in California are located in areas that have been
seismically active in the recent past. In addition, many of the
countries outside of the United States in which our foundry
partners and assembly and other subcontractors are located have
unpredictable and potentially volatile economic, social, or
political conditions, including the risks of conflict between
Taiwan and the People’s Republic of China or between North
Korea and South Korea. In addition, an outbreak of Severe Acute
Respiratory Syndrome (SARS) occurred in Hong Kong,
Singapore, and China in 2003. The occurrence of these or similar
events or circumstances could disrupt our
28
operations and may have a materially adverse effect on our
business, financial condition, and results of operations.
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We have only limited insurance coverage. |
We do have insurance coverage for certain types of losses, and
our insurance policies may not be adequate to fully offset the
losses resulting from covered incidents.
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Our business depends on numerous independent third parties
whose interests may diverge from our interests. |
We rely heavily on, but generally have little control over, our
independent foundries, suppliers, subcontractors, and
distributors.
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• |
Our independent wafer manufacturers may be unable or
unwilling to satisfy our needs in a timely manner, which could
harm our business. |
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We do not manufacture any of the semiconductor wafers used in
the production of our FPGAs. Our wafers are currently
manufactured by Chartered in Singapore, Infineon in Germany,
Matsushita in Japan, UMC in Taiwan, and Winbond in Taiwan. Our
reliance on independent wafer manufacturers to fabricate our
wafers involves significant risks, including lack of control
over capacity allocation, delivery schedules, the resolution of
technical difficulties limiting production or reducing yields,
and the development of new processes. Although we have supply
agreements with some of our wafer manufacturers, a shortage of
raw materials or production capacity could lead any of our wafer
suppliers to allocate available capacity to other customers, or
to internal uses in the case of Infineon, which could impair our
ability to meet our product delivery obligations and may have a
materially adverse effect on our business, financial condition,
and results of operations. |
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• |
Our limited volume and customized process requirements
generally make us less attractive to independent wafer
manufacturers. |
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The semiconductor industry has from time to time experienced
shortages of manufacturing capacity. When production capacity is
tight, the relatively small amount of wafers that we purchase
from any foundry and the customized process steps that are
necessary for our technologies put us at a disadvantage to
foundry customers who purchase more wafers manufactured on
standard processes. To secure an adequate supply of wafers, we
may consider various transactions, including the use of
substantial nonrefundable deposits, contractual purchase
commitments, equity investments, or the formation of joint
ventures. Any of these transactions could have a materially
adverse effect on our business, financial condition, and results
of operations. |
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• |
Identifying and qualifying new independent wafer
manufacturers is difficult and might be unsuccessful. |
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If our current independent wafer manufacturers were unable or
unwilling to manufacture our products as required, we would have
to identify and qualify additional foundries. No additional
wafer foundries may be able or available to satisfy our
requirements on a timely basis. Even if we are able to identify
a new third party manufacturer, the costs associated with
manufacturing our products may increase. In any event, the
qualification process typically takes one year or longer, which
could cause product shipment delays, and qualification may not
be successful. |
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• |
Our independent assembly subcontractors may be unable or
unwilling to meet our requirements, which could delay product
shipments and result in the loss of customers or revenues. |
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We rely primarily on foreign subcontractors for the assembly and
packaging of our products and, to a lesser extent, for testing
of our finished products. Our reliance on independent
subcontractors involves certain risks, including lack of control
over capacity allocation and delivery schedules. We generally
rely on one or two subcontractors to provide particular services
and have from time to time experienced difficulties with the
timeliness and quality of product deliveries. We have no
long-term contracts with our |
29
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subcontractors and certain of those subcontractors sometimes
operate at or near full capacity. Any significant disruption in
supplies from, or degradation in the quality of components or
services supplied by, our subcontractors could have a materially
adverse effect on our business, financial condition, and results
of operations. |
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• |
Our independent software and hardware developers and
suppliers may be unable or unwilling to satisfy our needs in a
timely manner, which could impair the introduction of new
products or the support of existing products. |
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We are dependent on independent software and hardware developers
for the development, supply, maintenance, and support of some of
our IP cores, design and development software, programming
hardware, design diagnostics and debugging tool kits, and
demonstration boards (or certain elements of those products).
Our reliance on independent software and hardware developers
involves certain risks, including lack of control over delivery
schedules and customer support. Any failure of or significant
delay by our independent developers to complete software and/or
hardware under development in a timely manner could disrupt the
release of our software and/or the introduction of our new
FPGAs, which might be detrimental to the capability of our new
products to win designs. Any failure of or significant delay by
our independent suppliers to provide updates or customer support
could disrupt our ability to ship products or provide customer
support services, which might result in the loss of revenues or
customers. Any of these disruptions could have a materially
adverse effect on our business, financial condition, or results
of operations. |
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• |
Our future performance will depend in part on the
effectiveness of our independent distributors in marketing,
selling, and supporting our products. |
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In 2004, sales made through distributors accounted for 67% of
our net revenues. Our distributors offer products of several
different companies, so they may reduce their efforts to sell
our products or give higher priority to other products. A
reduction in sales effort, termination of relationship, failure
to pay us for products, or discontinuance of operations because
of financial difficulties or for other reasons by one or more of
our current distributors could have a materially adverse effect
on our business, financial condition, and results of operations. |
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• |
Distributor contracts generally can be terminated on short
notice. |
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Although we have contracts with our distributors, the agreements
are terminable by either party on short notice. On March 1,
2003, we consolidated our distribution channel by terminating
our agreement with Pioneer, which accounted for 26% of our net
revenues in 2002. We also consolidated our distribution channel
in 2001 by terminating our agreement with Arrow, which accounted
for 13% of our net revenues in 2001. Unique, which accounted for
33% of our net revenues in 2004, has been our sole distributor
in North America since March 1, 2003. The loss of Unique as
a distributor could have a materially adverse effect on our
business, financial condition, or results of operations. |
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• |
Fluctuations in inventory levels at our distributors can
affect our operating results. |
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Our distributors have occasionally built inventories in
anticipation of significant growth in sales and, when such
growth did not occur as rapidly as anticipated, substantially
reduced the amount of product ordered from us in subsequent
quarters. Such a slowdown in orders generally reduces our gross
margin on future sales of newer products because we are unable
to take advantage of any manufacturing cost reductions while the
distributor depletes its inventory at lower average selling
prices. |
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We are subject to all of the risks and uncertainties
associated with the conduct of international business. |
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We depend on international operations for almost all of our
products. |
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We purchase almost all of our wafers from foreign foundries and
have almost all of our commercial products assembled, packaged,
and tested by subcontractors located outside the United States.
These |
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activities are subject to the uncertainties associated with
international business operations, including trade barriers and
other restrictions, changes in trade policies, governmental
regulations, currency exchange fluctuations, reduced protection
for intellectual property, war and other military activities,
terrorism, changes in social, political, or economic conditions,
and other disruptions or delays in production or shipments, any
of which could have a materially adverse effect on our business,
financial condition, or results of operations. |
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• |
We depend on international sales for a substantial portion of
our revenues. |
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Sales to customers outside North America accounted for 45% of
net revenues in 2004, and we expect that international sales
will continue to represent a significant portion of our total
revenues. International sales are subject to the risks described
above as well as generally longer payment cycles, greater
difficulty collecting accounts receivable, and currency
restrictions. We also maintain foreign sales offices to support
our international customers, distributors, and sales
representatives, which are subject to local regulation. |
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In addition, international sales are subject to the export laws
and regulations of the United States and other countries. The
Strom Thurmond National Defense Authorization Act for 1999
required, among other things, that communications satellites and
related items (including components) be controlled on the
U.S. Munitions List. The effect of the Act was to transfer
jurisdiction over commercial communications satellites from the
Department of Commerce to the Department of State and to expand
the scope of export licensing applicable to commercial
satellites. The need to obtain additional export licenses has
caused significant delays in the shipment of some of our FPGAs.
Any future restrictions or charges imposed by the United States
or any other country on our international sales could have a
materially adverse effect on our business, financial condition,
or results of operations. |
• Our
revenues and operating results have been and may again be
adversely affected by downturns or other changes in the general
economy, in the semiconductor industry, in our major markets, or
at our major customers.
We have experienced substantial period-to-period fluctuations in
revenues and results of operations due to conditions in the
overall economy, in the general semiconductor industry, in our
major markets, or at our major customers. We may again
experience these fluctuations, which could be adverse and may be
severe.
|
|
|
| |
• |
Our revenues and operating results may be adversely affected
by future downturns in the semiconductor industry. |
|
|
| |
The semiconductor industry historically has been cyclical and
periodically subject to significant economic downturns, which
are characterized by diminished product demand, accelerated
price erosion, and overcapacity. Beginning in the fourth quarter
of 2000, we experienced (and the semiconductor industry in
general experienced) reduced bookings and backlog cancellations
due to excess inventories at communications, computer, and
consumer equipment manufacturers and a general softening in the
overall economy. During this downturn, which was severe and
prolonged, we experienced lower revenues, which had a
substantial negative effect on our results of operations. Any
future downturns in the semiconductor industry may likewise have
an adverse effect on our revenues and results of operations. |
|
|
|
| |
• |
Our revenues and operating results may be adversely affected
by future downturns in the communications market. |
|
|
| |
We estimate that sales of our products to customers in the
communications market accounted for 27% of our net revenues for
2004, 26% for 2003, and 25% for 2002, compared with 49% for 2001
and 56% for 2000. Like the semiconductor industry in general,
the communications market has been cyclical and periodically
subject to significant downturns. Beginning with the fourth
quarter of 2000, the communications market suffered its worst
downturn in recent history. As a result, we experienced reduced
revenues and results of operations. Any future downturns in the
communications market may likewise have an adverse effect on our
revenues and results of operations. |
31
|
|
|
| |
• |
Our revenues and operating results may be adversely affected
by future downturns in the military and aerospace market. |
|
|
| |
We estimate that sales of our products to customers in the
military and aerospace industries, which carry higher overall
gross margins than sales of products to other customers,
accounted for 36% of our net revenues for 2004 and 2003,
compared with 41% for 2002 and 26% for 2001. In general, we
believe that the military and aerospace industries have
accounted for a significantly greater percentage of our net
revenues since the introduction of our Rad Hard FPGAs in 1996
and our Rad Tolerant FPGAs in 1998. Any future downturn in the
military and aerospace market could have an adverse effect on
our revenues and results of operations. |
|
|
|
| |
• |
Our revenues and operating results may be adversely affected
by changes in the military and aerospace market. |
|
|
| |
In 1994, Secretary of Defense William Perry directed the
Department of Defense to avoid government-unique requirements
when making purchases and rely more on the commercial
marketplace. Under the “Perry initiative,” the
Department of Defense must strive to increase access to
commercial state-of-the-art technology and facilitate the
adoption by its suppliers of business processes characteristic
of world-class suppliers. Integration of commercial and military
development and manufacturing facilitates the development of
“dual-use” processes and products and contributes to
an expanded industrial base that is capable of meeting defense
needs at lower costs. To that end, many of the cost-driving
specifications that had been part of military procurements for
many years were cancelled in the interest of buying
best-available commercial products. We believe that this trend
toward the use of commercial off-the-shelf products has on
balance helped our business. However, if this trend continued to
the point where defense contractors customarily purchased
commercial-grade parts rather than military-grade parts, the
revenues and gross margins that we derive from sales to
customers in the military and aerospace industries would erode,
which could have a materially adverse effect on our business,
financial condition, and results of operations. On the other
hand, there are some signs that this trend toward the use of
commercial off-the-shelf products is reversing. If defense
contractors were to begin using more customized ASICs and fewer
commercial off-the-shelf products, the revenues and gross
margins that we derive from sales to customers in the military
and aerospace industries may erode, which could have a
materially adverse effect on our business, financial condition,
and results of operations. |
|
|
|
| |
• |
Our revenues and operating results may be adversely affected
by future downturns at any of our major customers. |
|
|
| |
A relatively small number of customers are responsible for a
significant portion our net revenues. We have experienced
periods in which sales to our major customers declined as a
percentage of our net revenues. For example, Lockheed Martin
accounted for 4% of our net revenues during 2004, compared with
11% during 2003 and 3% during 2002. We believe that sales to a
limited number of customers will continue to account for a
substantial portion of net revenues in future periods. The loss
of a major customer, or decreases or delays in shipments to
major customers, could have a materially adverse effect on our
business, financial condition, and results of operations. |
• Any
acquisition we make may harm our business, financial condition,
or operating results.
We have a mixed history of success in our acquisitions. For
example:
|
|
|
| |
• |
In 1999, we acquired AGL for consideration valued at
$7.2 million. We acquired AGL for technology used in the
unsuccessful development of an SRAM-based FPGA. |
| |
| |
• |
In 2000, we acquired Prosys Technology, Inc. (Prosys) for
consideration valued at $26.2 million. We acquired Prosys
for technology used in our VariCore EPGA logic core, which was
introduced in 2001 but for which no market emerged. |
| |
| |
• |
Also in 2000, we completed our acquisition of GateField for
consideration valued at $45.7 million. We acquired
GateField for its Flash technology and ProASIC FPGA family. We
introduced the second- |
32
|
|
|
| |
|
generation ProASIC PLUS product family in 2002, the
third-generation ProASIC3/E families in 2005, and are currently
the only company offering nonvolatile, reprogrammable Flash
FPGAs. |
In pursuing our business strategy, we may acquire other
products, technologies, or businesses from third parties.
Identifying and negotiating these acquisitions may divert
substantial management time away from our operations. An
acquisition could absorb substantial cash resources, require us
to incur or assume debt obligations, and/or involve the issuance
of additional equity securities. The issuance of additional
equity securities may dilute, and could represent an interest
senior to the rights of, the holders of our Common Stock. An
acquisition could involve significant write-offs (possibility
resulting in a loss for the fiscal year(s) in which taken) and
would require the amortization of any identifiable intangibles
over a number of years, which would adversely affect earnings in
those years. Any acquisition would require attention from our
management to integrate the acquired entity into our operations,
may require us to develop expertise outside our existing
business, and could result in departures of management from
either us or the acquired entity. An acquired entity could have
unknown liabilities, and our business may not achieve the
results anticipated at the time we acquire it. The occurrence of
any of these circumstances could disrupt our operations and may
have a materially adverse effect on our business, financial
condition, or results of operations.
• Changing accounting, corporate governance, public
disclosure, or tax rules or practices could have a materially
adverse effect on our business, financial condition, or results
of operations.
Pending or new accounting pronouncements, corporate governance
or public disclosure requirements, or tax regulatory rulings
could have an impact, possibly material and adverse, on our
business, financial condition, or results of operations. Any
change in accounting pronouncements, corporate governance or
public disclosure requirements, or taxation rules or practices,
as well as any change in the interpretation of existing
pronouncements, requirements, or rules or practices, could call
into question our SEC or tax filings and may even affect our
reporting of transactions completed before the change.
|
|
|
| |
• |
Proposed changes in accounting for equity compensation could
adversely affect our operating results and our ability to
attract and retain employees. |
|
|
| |
In December 2004, the Financial Accounting Standards Board
(FASB) issued Statement of Financial Accounting Standards
(SFAS) No. 123(R), “Share-Based Payment: An
Amendment of FASB Statements No. 123 and 95.”
SFAS No. 123(R) eliminates the ability to account for
share-based compensation transactions using APB Opinion
No. 25, “Accounting for Stock Issued to
Employees,” and will instead require companies to recognize
compensation expense, using a fair-value based method, for costs
related to share-based payments including stock options and
employee stock purchase plans. We will be required to implement
the standard no later than the quarter that begins July 4,
2005. The adoption of SFAS No. 123(R) could materially
impact our results of operations. |
| |
| |
In addition, we have historically used stock options as a key
component of employee compensation in order to align
employees’ interests with the interests of our
shareholders, encourage employee retention, and provide
competitive compensation packages. To the extent that
SFAS No. 123(R) or other new regulations make it more
difficult or expensive to grant options to employees, we may
incur increased compensation costs, change our equity
compensation strategy, or find it difficult to attract, retain,
and motivate employees. Any of these results could materially
and adversely affect our business and operating results. |
|
|
|
| |
• |
Compliance with the Sarbanes-Oxley Act of 2002 and related
corporate governance and public disclosure requirements has
resulted in significant additional expense and uncertainty. |
|
|
| |
Changing laws, regulations, and standards relating to corporate
governance and public disclosure, including the Sarbanes-Oxley
Act of 2002 and new SEC regulations and Nasdaq National Market
rules, have resulted in significant and uncertainty for
companies such as ours. These new or changed laws, regulations,
and standards are subject to varying interpretations, in many
cases due to their lack of specificity. As a result, their
application in practice may evolve over time as new guidance is
provided by regulatory and governing bodies, which could result
in continuing uncertainty regarding compliance |
33
|
|
| |
matters and higher costs necessitated by ongoing revisions to
disclosure and governance practices. We are committed to
maintaining high standards of corporate governance and public
disclosure, and therefore intend to invest the resources
necessary to comply with evolving laws, regulations, and
standards. This investment may result in increased general and
administrative expenses as well as a diversion of management
time and attention from revenue-generating activities to
compliance activities. If our efforts to comply with new or
changed laws, regulations, and standards differ from the
activities intended by regulatory or governing bodies, we might
be subject to sanctions or investigation by regulatory
authorities, such as the SEC or The Nasdaq National Market, or
lawsuits and our reputation may be harmed. |
| |
| |
We evaluated our internal controls systems in order to allow
management to report on, and our independent public accountants
to attest to, our internal controls, as required by
Section 404 of the Sarbanes-Oxley Act. In performing the
system and process evaluation and testing required to comply
with the management certification and auditor attestation
requirements of Section 404, we incurred significant
additional expenses and a diversion of management’s time,
which adversely affected our operating results and financial
condition. While we believe that our internal control procedures
are adequate, no assurance can be given that we will be able to
continue to comply with the requirements relating to internal
controls and all other aspects of Section 404 in a timely
fashion. If we were not able to comply with the requirements of
Section 404 in a timely or adequate manner we might be
subject to sanctions or investigation by regulatory authorities
or lawsuits. Any such action could adversely affect our
financial results and the market price of our Common Stock. In
any event, we expect that we will continue to incur significant
expenses and diversion of management’s time to comply with
the management certification and auditor attestation
requirements of Section 404. |
|
|
| • |
We may face significant business and financial risk from
claims of intellectual property infringement asserted against
us, and we may be unable to adequately enforce our intellectual
property rights. |
As is typical in the semiconductor industry, we are notified
from time to time of claims that we may be infringing patents
owned by others. As we sometimes have in the past, we may obtain
licenses under patents that we are alleged to infringe. Although
patent holders commonly offer licenses to alleged infringers, no
assurance can be given that licenses will be offered or that we
will find the terms of any offered licenses acceptable. No
assurance can be given that any claim of infringement will be
resolved or that the resolution of any claims will not have a
materially adverse effect on our business, financial condition,
or results of operations.
Our failure to obtain a license for technology allegedly used by
us could result in litigation. In addition, we have agreed to
defend our customers from and indemnify them against claims that
our products infringe the patent or other intellectual rights of
third parties. All litigation, whether or not determined in our
favor, can result in significant expense and divert the efforts
of our technical and managerial personnel. In the event of an
adverse ruling in any litigation involving intellectual
property, we could suffer significant (and possibly treble)
monetary damages, which could have a materially adverse effect
on our business, financial condition, or results of operations.
We may also be required to discontinue the use of infringing
processes; cease the manufacture, use, and sale or licensing of
infringing products; expend significant resources to develop
non-infringing technology; or obtain licenses under patents that
we are infringing. In the event of a successful claim against
us, our failure to develop or license a substitute technology on
commercially reasonable terms could also have a materially
adverse effect on our business, financial condition, and results
of operations.
We have devoted significant resources to research and
development and believe that the intellectual property derived
from such research and development is a valuable asset important
to the success of our business. We rely primarily on patent,
trademark, and copyright laws combined with nondisclosure
agreements and other contractual provisions to protect our
proprietary rights. No assurance can be given that the steps we
have taken will be adequate to protect our proprietary rights.
In addition, the laws of certain territories in which our
products are developed, manufactured, or sold, including Asia
and Europe, may not protect our products and intellectual
property rights to the same extent as the laws of the United
States. Our failure to
34
enforce our patents, trademarks, or copyrights or to protect our
trade secrets could have a materially adverse effect on our
business, financial condition, or results of operations.
|
|
| • |
We may be unable to attract or retain the personnel necessary
to successfully develop our technologies, design our products,
or operate, manage, or grow our business. |
Our success is dependent in large part on our ability to attract
and retain key managerial, engineering, marketing, sales, and
support employees. Particularly important are highly skilled
design, process, software, and test engineers involved in the
manufacture of existing products and the development of new
products and processes. The failure to recruit employees with
the necessary technical or other skills or the loss of key
employees could have a materially adverse effect on our
business, financial condition, or results of operations. We have
from time to time experienced growth in the number of our
employees and the scope of our operations, resulting in
increased responsibilities for management personnel. To manage
future growth effectively, we will need to attract, hire, train,
motivate, manage, and retain a growing number of employees.
During strong business cycles, we expect to experience
difficulty in filling our needs for qualified engineers and
other personnel. Any failure to attract and retain qualified
employees, or to manage our growth effectively, could delay
product development and introductions or otherwise have a
materially adverse effect on our business, financial condition,
or results of operations.
|
|
| • |
We have some arrangements that may not be neutral toward a
potential change of control and our Board of Directors could
adopt others. |
We have adopted an Employee Retention Plan that provides for
payment of a benefit to our employees who hold unvested stock
options in the event of a change of control. Payment is
contingent upon the employee remaining employed for six months
after the change of control (unless the employee is terminated
without cause during the six months). Each of our executive
officers has also entered into a Management Continuity
Agreement, which provides for the acceleration of stock options
unvested at the time of a change of control in the event the
executive officer’s employment is actually or
constructively terminated other than for cause following the
change of control. While these arrangements are intended to make
executive officers and other employees neutral towards a
potential change of control, they could have the effect of
biasing some or all executive officers or employees in favor of
a change of control.
Our Articles of Incorporation authorize the issuance of up to
5,000,000 shares of “blank check” Preferred Stock
with designations, rights, and preferences determined by our
Board of Directors. Accordingly, our Board is empowered, without
approval by holders of our Common Stock, to issue Preferred
Stock with dividend, liquidation, redemption, conversion,
voting, or other rights that could adversely affect the voting
power or other rights of the holders of our Common Stock.
Issuance of Preferred Stock could be used to discourage, delay,
or prevent a change in control. In addition, issuance of
Preferred Stock could adversely affect the market price of our
Common Stock.
On October 17, 2003, our Board of Directors adopted a
Shareholder Rights Plan. Under the Plan, we issued a dividend of
one right for each share of Common Stock held by shareholders of
record as of the close of business on November 10, 2003.
The provisions of the Plan can be triggered only in certain
limited circumstances following the tenth day after a person or
group announces acquisitions of, or tender offers for, 15% or
more of our Common Stock. The Shareholder Rights Plan is
designed to guard against partial tender offers and other
coercive tactics to gain control of Actel without offering a
fair and adequate price and terms to all shareholders.
Nevertheless, the Plan could make it more difficult for a third
party to acquire Actel, even if our shareholders support the
acquisition.
35
|
|
| • |
Our stock price may decline significantly, possibly for
reasons unrelated to our operating performance. |
The stock markets broadly, technology companies generally, and
our Common Stock in particular have experienced extreme price
and volume volatility in recent years. Our Common Stock may
continue to fluctuate substantially on the basis of many
factors, including:
|
|
|
| |
• |
quarterly fluctuations in our financial results or the financial
results of our competitors or other semiconductor companies; |
| |
| |
• |
changes in the expectations of analysts regarding our financial
results or the financial results of our competitors or other
semiconductor companies; |
| |
| |
• |
announcements of new products or technical innovations by us or
by our competitors; or |
| |
| |
• |
general conditions in the semiconductor industry, financial
markets, or economy. |
Our principal facilities and executive offices are located in
Mountain View, California, in two buildings that comprise
approximately 158,000 square feet. These buildings are
leased through June 2013. We have a renewal option for an
additional ten-year term.
We also lease sales offices in the vicinity of Atlanta, Boston,
Chicago, Dallas, Denver, Hong Kong, London, Los Angeles, Milan,
Minneapolis/St. Paul, Munich, New York, Orlando, Paris, Ottawa
(Ontario), Philadelphia, Raleigh, Seattle, Seoul, Taipei, Tokyo,
and Washington D.C., as well as the facilities of the Design
Services Group in Mt. Arlington, New Jersey. We believe our
facilities will be adequate for our needs in 2005.
|
|
| ITEM 3. |
LEGAL PROCEEDINGS |
There are no pending legal proceedings of a material nature to
which we are a party or of which any of our property is the
subject. We know of no legal proceeding contemplated by any
governmental authority.
|
|
| ITEM 4. |
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS |
The 2004 Annual Meeting of Shareholders of Actel was held on
October 15, 2004. At the Annual Meeting, Actel shareholders
(i) elected directors to serve until the next Annual
Meeting of Shareholders and until their successors are elected
and (ii) ratified the appointment of Ernst & Young
LLP as Actel’s independent auditors for the fiscal year
ending January 2, 2005. The vote on election of directors
was as follows:
| |
|
|
|
|
|
|
|
|
| Nominee |
|
For | |
|
Withheld | |
| |
|
| |
|
| |
|
John C. East
|
|
|
23,323,996 |
|
|
|
995,536 |
|
|
James R. Fiebiger
|
|
|
23,427,565 |
|
|
|
891,967 |
|
|
Jacob S. Jacobsson
|
|
|
23,032,622 |
|
|
|
1,286,910 |
|
|
J. Daniel McCranie
|
|
|
23,469,790 |
|
|
|
849,742 |
|
|
Henry L. Perret
|
|
|
9,734,434 |
|
|
|
14,585,098 |
|
|
Robert G. Spencer
|
|
|
22,851,099 |
|
|
|
1,468,433 |
|
The vote on ratification of the appointment of Ernst &
Young LLP was as follows:
| |
|
|
|
|
|
|
|
|
| For |
|
Against | |
|
Abstain | |
| |
|
| |
|
| |
|
22,728,444
|
|
|
1,584,503 |
|
|
|
6,585 |
|
36
Executive Officers
The following table identifies each of our executive officers as
of March 3, 2005:
| |
|
|
|
|
|
|
| Name |
|
Age | |
|
Position |
| |
|
| |
|
|
|
John C. East
|
|
|
60 |
|
|
President and Chief Executive Officer |
|
Esmat Z. Hamdy
|
|
|
55 |
|
|
Senior Vice President of Technology & Operations |
|
Jon A. Anderson
|
|
|
46 |
|
|
Vice President of Finance and Chief Financial Officer |
|
Anthony Farinaro
|
|
|
42 |
|
|
Vice President & General Manager of Design Services |
|
Paul V. Indaco
|
|
|
54 |
|
|
Vice President of Worldwide Sales |
|
Dennis G. Kish
|
|
|
41 |
|
|
Vice President of Marketing |
|
Barbara L. McArthur
|
|
|
54 |
|
|
Vice President of Human Resources |
|
Fares N. Mubarak
|
|
|
43 |
|
|
Vice President of Engineering |
|
David L. Van De Hey
|
|
|
49 |
|
|
Vice President & General Counsel and Secretary |
Mr. East has served as our President and Chief
Executive Officer since December 1988. From April 1979 until
joining us, Mr. East served in various positions with
Advanced Micro Devices, a semiconductor manufacturer, including
Senior Vice President of Logic Products from November 1986 to
November 1988. From December 1976 to March 1979, he served as
Operations Manager for Raytheon Semiconductor. From September
1968 to December 1976, Mr. East served in various
marketing, manufacturing, and engineering positions for
Fairchild Camera and Instrument Corporation, a semiconductor
manufacturer.
Dr. Hamdy is one of our founders, was our Vice
President of Technology from August 1991 to March 1996 and
Senior Vice President of Technology from March 1996 to September
1996, and has been our Senior Vice President of Technology and
Operations since September 1996. From November 1985 to July
1991, he held a number of management positions with our
technology and development group. From January 1981 to November
1985, Dr. Hamdy held various positions at Intel
Corporation, a semiconductor manufacturer, lastly as project
manager.
Mr. Anderson joined us in March 1998 as Controller
and has been our Vice President of Finance and Chief Financial
Officer since August 2001. From 1987 until joining us, he held
various financial positions at National Semiconductor, a
semiconductor company, with the most recent position of Director
of Finance, Local Area Networks Division. From 1982 to 1986, he
was an auditor with Touche Ross & Co., a public
accounting firm.
Mr. Farinaro joined us in August 1998 as Vice
President & General Manager of Design Services. From
February 1990 until joining us, he held various engineering and
management positions with GateField (formally Zycad Corporation
until 1997), a semiconductor company, with the most recent
position of Vice President of Application & Design
Services. From 1985 to 1990, Mr. Farinaro held various
engineering and management positions at Singer Kearfott, an
aerospace electronics company, and its spin-off, Plessey
Electronic Systems Corporation.
Mr. Indaco joined us in March 1999 as Vice President
of Worldwide Sales. From January 1996 until joining us, he
served as Vice President of Sales for Chip Express, a
semiconductor manufacturer. From September 1994 to January 1996,
Mr. Indaco was Vice President of Sales for Redwood
Microsystems, a semiconductor manufacturer. From February 1984
to September 1994, he held senior sales management positions
with LSI Logic, a semiconductor manufacturer. From June 1978 to
February 1984, Mr. Indaco held various field engineering
sales and marketing positions with Intel Corporation, a
semiconductor manufacturer. From June 1976 to June 1978, he held
various marketing positions with Texas Instruments, a
semiconductor manufacturer.
37
Mr. Kish joined us in December 1999 as Vice
President of Strategic Product Marketing and became our Vice
President of Marketing in July 2000. Prior to joining us, he
held senior management positions at Synopsys, an EDA company,
and Atmel, a semiconductor manufacturer. Before that,
Mr. Kish held sales and engineering positions with Texas
Instruments, a semiconductor manufacturer.
Ms. McArthur joined us in July of 2000 as Vice
President of Human Resources. From 1997 until joining us, she
was Vice President of Human Resources at Talus Solutions. Before
that, Ms. McArthur held senior human resource positions at
Applied Materials from 1993 to 1997, at 3Com Corporation from
1987 to 1993, and at Saga Corporation from 1978 to 1986.
Mr. Mubarak joined us in November 1992, was our
Director of Product and Test Engineering until October 1997, and
has been our Vice President of Engineering since October 1997.
From 1989 until joining us, he held various engineering and
engineering management positions with Samsung Semiconductor
Inc., a semiconductor manufacturer, and its spin-off, IC Works,
Inc. From 1984 to 1989, Mr. Mubarak held various
engineering, product planning, and engineering management
positions with Advanced Micro Devices, a semiconductor
manufacturer.
Mr. Van De Hey joined us in July 1993 as Corporate
Counsel, became our Secretary in May 1994, and has been our Vice
President & General Counsel since August 1995. From
November 1988 to September 1993, he was an associate with
Wilson, Sonsini, Goodrich & Rosati, Professional
Corporation, a law firm in Palo Alto, California, and our
outside legal counsel. From August 1985 until October 1988, he
was an associate with the Cleveland office of Jones Day, a law
firm.
Subject to their rights under any contract of employment or
other agreement, executive officers serve at the discretion of
the Board of Directors.
PART II
|
|
| ITEM 5. |
MARKET FOR THE REGISTRANT’S COMMON STOCK, RELATED
SHAREHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY
SECURITIES |
Our Common Stock has been traded on the Nasdaq National Market
under the symbol “ACTL” since our initial public
offering on August 2, 1993. On March 2, 2005, there
were 127 shareholders of record. Since many shareholders
have their shares held of record in the names of their brokerage
firms, we estimate the actual number of shareholders to be about
4,000. The following table sets forth, for the fiscal years and
quarters indicated, the high and low sale prices per share of
our Common Stock as reported on the Nasdaq National Market.
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2004 | |
|
2003 | |
| |
|
| |
|
| |
| |
|
High | |
|
Low | |
|
High | |
|
Low | |
| |
|
| |
|
| |
|
| |
|
| |
|
First Quarter
|
|
$ |
28.51 |
|
|
$ |
20.14 |
|
|
$ |
19.84 |
|
|
$ |
14.26 |
|
|
Second Quarter
|
|
|
23.98 |
|
|
|
16.62 |
|
|
|
23.00 |
|
|
|
16.80 |
|
|
Third Quarter
|
|
|
17.46 |
|
|
|
13.02 |
|
|
|
29.35 |
|
|
|
22.23 |
|
|
Fourth Quarter
|
|
|
18.19 |
|
|
|
13.54 |
|
|
|
28.60 |
|
|
|
22.40 |
|
On March 3, 2005, the reported last sale of our Common
Stock on the Nasdaq National Market was $17.21.
We have never declared or paid a cash dividend on our Common
Stock and do not anticipate paying any cash dividends in the
foreseeable future. Any future declaration of dividends is
within the discretion of our Board of Directors and will be
dependent on our earnings, financial condition, and capital
requirements as well as any other factors deemed relevant by our
Board of Directors.
38
|
|
| ITEM 6. |
SELECTED FINANCIAL DATA |
ACTEL CORPORATION
SELECTED CONSOLIDATED FINANCIAL DATA
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Years Ended December 31,(1) | |
| |
|
| |
| |
|
2004 | |
|
2003 | |
|
2002 | |
|
2001 | |
|
2000 | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| |
|
(In thousands, except per share data) | |
|
Consolidated Statements of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues
|
|
$ |
165,536 |
|
|
$ |
149,910 |
|
|
$ |
134,368 |
|
|
$ |
145,559 |
|
|
$ |
226,419 |
|
|
Costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Total Cost of revenues(2)
|
|
|
70,451 |
|
|
|
59,734 |
|
|
|
52,935 |
|
|
|
62,210 |
|
|
|
84,680 |
|
| |
Research and development
|
|
|
45,360 |
|
|
|
39,602 |
|
|
|
39,349 |
|
|
|
38,172 |
|
|
|
36,599 |
|
| |
Selling, general, and administrative
|
|
|
48,269 |
|
|
|
44,650 |
|
|
|
43,033 |
|
|
|
41,464 |
|
|
|
47,960 |
|
| |
Amortization of goodwill and other acquisition-related
intangibles(3)
|
|
|
2,651 |
|
|
|
2,670 |
|
|
|
2,724 |
|
|
|
14,757 |
|
|
|
8,056 |
|
| |
Purchased in-process research and development(4)
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
10,646 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
Total costs and expenses
|
|
|
166,731 |
|
|
|
146,656 |
|
|
|
138,041 |
|
|
|
156,603 |
|
|
|
187,941 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations
|
|
|
(1,195 |
) |
|
|
3,254 |
|
|
|
(3,673 |
) |
|
|
(11,044 |
) |
|
|
38,478 |
|
|
Interest income and other, net of expense
|
|
|
2,935 |
|
|
|
3,210 |
|
|
|
5,530 |
|
|
|
7,280 |
|
|
|
8,310 |
|
|
Gain (loss) on sales and write-downs of equity investments(5)(6)
|
|
|
— |
|
|
|
91 |
|
|
|
(3,707 |
) |
|
|
— |
|
|
|
28,329 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before tax (benefit) provision and equity interest
in net (loss) of equity method investee
|
|
|
1,740 |
|
|
|
6,555 |
|
|
|
(1,850 |
) |
|
|
(3,764 |
) |
|
|
75,117 |
|
|
Equity interest in net (loss) of equity method investee(7)
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(2,445 |
) |
|
Tax (benefit) provision
|
|
|
(654 |
) |
|
|
327 |
|
|
|
(1,925 |
) |
|
|
937 |
|
|
|
31,227 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$ |
2,394 |
|
|
$ |
6,228 |
|
|
$ |
75 |
|
|
$ |
(4,701 |
) |
|
$ |
41,445 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Basic
|
|
$ |
0.09 |
|
|
$ |
0.25 |
|
|
$ |
0.00 |
|
|
$ |
(0.20 |
) |
|
$ |
1.77 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Diluted
|
|
$ |
0.09 |
|
|
$ |
0.24 |
|
|
$ |
0.00 |
|
|
$ |
(0.20 |
) |
|
$ |
1.58 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares used in computing net income (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Basic
|
|
|
25,584 |
|
|
|
24,808 |
|
|
|
24,302 |
|
|
|
23,743 |
|
|
|
23,447 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Diluted
|
|
|
26,421 |
|
|
|
26,300 |
|
|
|
25,252 |
|
|
|
23,743 |
|
|
|
26,233 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
As of December 31,(1) | |
| |
|
| |
| |
|
2004 | |
|
2003 | |
|
2002 | |
|
2001 | |
|
2000 | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| |
|
(In thousands) | |
|
Consolidated Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Working capital
|
|
$ |
194,472 |
|
|
$ |
191,078 |
|
|
$ |
169,939 |
|
|
$ |
161,246 |
|
|
$ |
146,952 |
|
|
Total assets
|
|
|
315,290 |
|
|
|
316,757 |
|
|
|
293,321 |
|
|
|
290,082 |
|
|
|
312,434 |
|
|
Total shareholders’ equity
|
|
|
264,793 |
|
|
|
264,433 |
|
|
|
242,314 |
|
|
|
237,680 |
|
|
|
230,101 |
|
|
|
| (1) |
Our fiscal year ends on the first Sunday after December 30.
For ease of presentation, December 31 has been indicated as
the year end for all fiscal years. |
39
ACTEL CORPORATION
SELECTED CONSOLIDATED FINANCIAL
DATA — (Continued)
|
|
| (2) |
During the fourth quarter of 2004 we incurred incremental
charges of $3.2 million for expenses associated with the
testing of the RTSX-S space qualified FPGAs and the write down
of RTSX-S inventory from the original manufacturer. |
| |
| (3) |
Beginning in 2002, we ceased to amortize goodwill in accordance
with SFAS No. 142, “Goodwill and Other Intangible
Assets.” Instead, goodwill is subject to annual impairment
tests and written down only when identified as impaired.
Non-goodwill intangible assets with definite lives continue to
be amortized under SFAS No. 141 and 142. See
Notes 1 and 2 of Notes to Consolidated Financial Statements
for further information. |
| |
| (4) |
The 2000 expenses represent charges for in-process research and
development arising from our acquisitions of Prosys
($5.6 million) and GateField ($5.0 million). |
| |
| (5) |
During 2002, we realized losses on sales and write downs of our
strategic equity investments totaling $3.7 million. See
Note 3 of Notes to Consolidated Financial Statements for
further information. |
| |
| (6) |
During the second quarter of 2000, we sold all of our shares of
Chartered Semiconductor Manufacturing Ltd. common stock for
proceeds of $39.0 million, resulting in a one-time gain of
$28.3 million. |
| |
| (7) |
Represents our equity share of net losses of GateField in
accordance with the equity method of accounting prior to our
acquisition of GateField, which was completed on
November 15, 2000. |
40
|
|
| ITEM 7. |
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS |
Overview
The purpose of this overview is to provide context for the
discussion and analysis of our financial statements that follows
by briefly summarizing the most important known trends and
uncertainties, as well as the key performance indicators, on
which our executives are primarily focused for both the short
and long term.
We design, develop, and market FPGAs and supporting products and
services. FPGAs are ICs that adapt the processing and memory
capabilities of electronic systems to specific applications.
FPGAs are used by designers of automotive, communications,
computer, consumer, industrial, military and aerospace, and
other electronic systems to differentiate their products and get
them to market faster. We are the leading supplier of FPGAs
based on Flash and antifuse technologies, and believe that we
are the leading supplier of high reliability FPGAs.
According to the Semiconductor Industry Association (SIA),
worldwide sales of semiconductors rose to a record
$213 billion in 2004, up 28% from $166 billion in
2003. The previous industry peak of $204 billion was
reached in 2000, followed by a drop of 32% to $139 billion
in 2001. While the setback in 2001 was of extraordinary
proportions, the semiconductor industry has always been cyclical
and it appears that the drop was consistent with the historical
pattern of contraction after a period of significant growth. It
is possible, though, that the industry has matured to the point
where it will no longer be able to achieve the long-term growth
rates it has experienced in the past.
According to SIA, worldwide sales of digital logic ICs were
$37 billion in 2003, of which ASICs accounted for
$10 billion. ASICs include conventional gate arrays,
standard cells, and PLDs. As they have gotten faster and cheaper
over the last decade, PLDs have gained a sizeable share of the
ASIC market. We believe that this long-term trend will continue
because customers are willing to forego some of the price and
performance advantages of “hard-wired” ASICs in order
to obtain the “time to market” as well as the design
and manufacturing flexibility benefits of PLDs.
PLDs include simple PLDs, CPLDs, and FPGAs. FPGAs have gained
share in the PLD market because they generally offer greater
capacity, lower total cost per usable logic gate, and lower
power consumption than simple PLDs and CPLDs. We believe that
this long-term trend will continue. Our three larger
competitors, Xilinx, Altera, and Lattice, offer CPLDs as well as
FPGAs.
As the fourth biggest vendor in our market, we do not believe
that we can compete across the board, but must choose
technologies and markets in which to differentiate ourselves.
Our strategy involves considerable risk. Unique technologies and
products can take years to develop, if at all, and markets that
we target may fail to emerge. We have at times faltered in these
areas. Still, we believe that our strategic positioning is the
best it has ever been in our history.
Our Flash and antifuse technologies are non-volatile, so they
retain their circuit configuration even in the absence of power.
In contrast to the SRAM and other memory technologies used by
our larger competitors, our FPGAs don’t need a separate
boot device, are “live at power up,” generally require
less power, and offer practically unbreakable design security.
41
|
|
| |
The one-time programmability of our antifuse FPGAs is desirable
in certain military and aerospace applications, but commercial
customers generally prefer to use reprogrammable FPGAs, and
FPGAs based on all other types of technologies are
reprogrammable. In addition, we are the only sizeable company
that uses antifuse technology, which means that we bear the
entire burden of developing and proving antifuse processes
(including yields and reliability) and products (including
switching elements and architectures). It also means that our
FGPAs using antifuse technology are at least one and often two
generations behind the FPGAs of our competitors using SRAM and
other technologies manufactured on standard processes. |
|
|
| |
We believe that our long-term future lies with Flash technology,
which permits us to make FPGAs that are both non-volatile and
reprogrammable. While our Flash technology is unique, the
process is very similar to the standard embedded Flash memory
process, so we will be able to share with others most of the
burden of developing and proving the process. While Flash
technology has trailed SRAM technology by only about one half of
a generation, our Flash FPGAs are still at least one generation
behind the SRAM FPGAs of our competitors. |
The inherent advantages of our non-volatile technologies give us
a big advantage with some groups of customers, but are of little
or no value to others.
|
|
| |
We think that the value based market, which is primarily
concerned about cost, will grow the most of any FPGA market
segment and is the best fit for our technologies. Xilinx and
Altera are also aggressively offering low-priced products, so we
might not gain share even in this segment of the FPGA market,
but we’re optimistic because we think these customers most
value the advantages of our technologies. Selling more low-price
products may make it more difficult to maintain our gross
margins from quarter to quarter. |
|
|
| |
We believe that we are the world’s leading supplier of
military, avionics, and space-grade FPGAs, but we are seeing
increased competition from Xilinx and Aeroflex Incorporated.
This is a market in which the customers are extremely
conscientious and demand the very highest levels of quality and
reliability. To that end, we have conducted analysis of and
experiments on the reliability of our RTSX-S space-qualified
FPGAs over the last eighteen months at the behest of an ad-hoc
industry group, and we anticipate that those investigations will
continue for at least several more months. See the Risk Factors
set forth at the end of Item 1 of this Annual Report on
Form 10-K for more information. |
Although we measure the condition and performance of our
business in numerous ways, the key quantitative indicators that
we generally use to manage the business are bookings, design
wins, margins, yields, and backlog. We also carefully monitor
the progress of our product development efforts. Of these, we
think that bookings and backlog are the best indicators of
short-term performance and that designs wins and product
development progress are the best indicators of long-term
performance. Our bookings (measured as end-customer orders
placed on us and our distributors) were higher during 2004 than
during 2003, and our backlog was higher at the end of 2004 than
at the end of 2003. Our design wins were higher in 2004 than in
2003, with most of the growth coming in Flash. Our product
development progress was mixed.
42
Results of Operations
The following table sets forth certain financial data from the
Consolidated Statements of Operations expressed as a percentage
of net revenues:
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Years Ended December 31, | |
| |
|
| |
| |
|
2004 | |
|
2003 | |
|
2002 | |
| |
|
| |
|
| |
|
| |
|
Net revenues
|
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
Cost of revenues
|
|
|
42.6 |
|
|
|
39.8 |
|
|
|
39.4 |
|
| |
|
|
|
|
|
|
|
|
|
|
Gross margin
|
|
|
57.4 |
|
|
|
60.2 |
|
|
|
60.6 |
|
|
Research and development
|
|
|
27.4 |
|
|
|
26.4 |
|
|
|
29.3 |
|
|
Selling, general, and administrative
|
|
|
29.1 |
|
|
|
29.8 |
|
|
|
32.0 |
|
|
Amortization of goodwill and other acquisition-related
intangibles
|
|
|
1.6 |
|
|
|
1.8 |
|
|
|
2.0 |
|
| |
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations
|
|
|
(0.7 |
) |
|
|
2.2 |
|
|
|
(2.7 |
) |
|
Interest income and other, net of expense
|
|
|
1.8 |
|
|
|
2.1 |
|
|
|
4.1 |
|
|
Gain (loss) on sales and write-downs of equity investments
|
|
|
0.0 |
|
|
|
0.1 |
|
|
|
(2.8 |
) |
| |
|
|
|
|
|
|
|
|
|
|
Income (loss) before tax (benefit) provision
|
|
|
1.1 |
|
|
|
4.4 |
|
|
|
(1.4 |
) |
|
Tax (benefit) provision
|
|
|
(0.3 |
) |
|
|
0.2 |
|
|
|
(1.5 |
) |
| |
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
1.4 |
% |
|
|
4.2 |
% |
|
|
0.1 |
% |
| |
|
|
|
|
|
|
|
|
|
Our fiscal year ends on the first Sunday after December 30.
Fiscal 2004 ended on January 2, 2005; fiscal 2003 ended on
January 4, 2004; and fiscal 2002 ended on January 5,
2003. For ease of presentation, December 31 has been
indicated as the year end for all fiscal years.
• Net
Revenues
We derive our revenues primarily from the sale of FPGAs, which
accounted for 96% of net revenues in 2004, 2003, and 2002.
Non-FPGA revenues are derived from our Protocol Design Services
organization, royalties, and the licensing of software and sale
of hardware used to design and program our FPGAs. We believe
that we derived more than 60% of our revenues in 2004, 2003, and
2002 from sales of FPGAs to customers serving the military and
aerospace and the communications markets. We have experienced,
and may again in the future experience, substantial
period-to-period fluctuations in operating results due to
conditions in each of these markets as well as in the general
economy.
Net revenues in 2004 were $165.5 million, a 10% increase
over 2003. This increase was due primarily to a 14% increase in
the number of FPGA units shipped, which was partially offset by
a 4% decrease in the overall average selling price (ASP) of
FPGAs. The increase in unit shipments was driven by our new
products, which include ProASIC Plus, RTSX-S, SX-A, eX, and AX.
The overall ASP declined principally because we derived a higher
percentage of our revenues from our newer product families,
which typically have lower ASPs than their predecessors.
Net revenues in 2003 were 12% higher than in 2002. This increase
was due primarily to a 15% increase in the number of units
shipped offset by a 3% decline in the overall ASP of FPGAs. The
increase in units shipped was broad based, with increases in
both our new and mature product families. The overall ASP
declined principally because we derived a lower percentage of
revenues from shipments to our military and aerospace customers,
which we estimate accounted for 36% of our revenue in 2003 and
41% in 2002. FPGAs shipped to military and aerospace customers
tend to have higher ASPs than those shipped to our commercial
customers.
43
We shipped approximately 67% of our net revenues through the
distribution sales channel in 2004, compared with 69% in 2003
and 65% in 2002. On March 1, 2003, we consolidated our
distribution channel by terminating our agreement with Pioneer,
leaving Unique as our sole distributor in North America. The
following table sets forth the percentage of revenues derived
from each customer that accounted for 10% or more of our net
revenues in any of the last three years:
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2004 | |
|
2003 | |
|
2002 | |
| |
|
| |
|
| |
|
| |
|
Pioneer
|
|
|
— |
|
|
|
6 |
% |
|
|
26 |
% |
|
Unique
|
|
|
33 |
% |
|
|
41 |
% |
|
|
22 |
% |
|
Lockheed Martin
|
|
|
4 |
% |
|
|
11 |
% |
|
|
3 |
% |
We generally do not recognize revenue on product shipped to a
distributor until the distributor resells the product to its
customer.
Sales to customers outside the United States accounted for 46%
of net revenues in 2004, 39% in 2003, and 38% in 2002. The
largest portion of export sales was to European customers, which
accounted for 27% of net revenues in 2004, 25% in 2003, and 23%
in 2002.
• Gross
Margin
Gross margin was 57.4% of revenues in 2004 compared with 60% in
2003 and 61% in 2002. Gross margin in 2004 was unfavorably
impacted by a $3.2 million write down that we booked in the
fourth quarter. This charge included a write down of
$2.1 million of RTSX-S inventory from the original
manufacturer for which we determined there was no demand. In
addition, $1.1 million of the charge was a write-off of
certain boards and sockets, purchased solely to test the RTSX-S
units, that have no future use to us in the production process.
See the Risk Factors set forth at the end of Item I of this
Annual Report on Form 10-K for more information about
the ongoing investigations regarding the reliability of our
RTSX-S space-qualified FPGAs. We also experienced a reduction in
gross margins during 2004 due to a higher concentration of our
newer products, as a percentage of total revenue, which tend to
have lower gross margins than our more mature products. We
expect to continue to see some pressure on our gross margins as
our product mix continues to shift to our newer product families.
Gross margin is affected by changes in excess and slow moving
inventory write downs. Gross margin was negatively impacted in
2004 by $3.2 million, or 2.0% by inventory write downs and
write-offs of certain boards and sockets. Gross margin was
positively impacted by the sell through of previously written
down inventory of $4.1 million, or 2.7% in 2003 and
$3.2 million, or 2.4% in 2004.
We seek to reduce costs and improve gross margins by improving
wafer yields, negotiating price reductions with suppliers,
increasing the level and efficiency of our 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 our products. No
assurance can be given that these efforts will be successful.
Our capability to shrink the die size of our 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, we typically obtain access to
new manufacturing processes later than our competitors using
standard manufacturing processes.
|
|
| • |
Research and Development (R&D) |
R&D expenditures were $45.4 million, or 27% of net
revenues, in 2004 compared with $39.6 million, or 26% of
net revenues, in 2003 and $39.3 million, or 29% of net
revenues, in 2002. R&D expenditures increased
$5.8 million in 2004 due to our expanded efforts and
increased headcount needed to concurrently research and develop
future commercial and radiation tolerant generations of both
flash and antifuse-based product families; additional costs
incurred in connection with the ongoing investigations regarding
the reliability of our RTSX-S space qualified FPGAs; and the
institution of the first company-wide salary increase since the
year 2000. R&D spending as a percentage of revenue in 2004
was higher than 2003 mainly due to increased
44
development activities. R&D as a percentage of revenue was
lower in 2003 than 2002 because we held R&D spending levels
relatively flat while net revenues grew by 12%.
Our R&D consists of circuit design, software development,
and process technology activities. We believe that continued
substantial investment in R&D is critical to maintaining a
strong technological position in the industry. Since our
antifuse and (to a lesser extent) flash FPGAs are manufactured
using customized processes that require a substantial time to
develop, our R&D expenditures will probably always be higher
as a percentage of net revenues than that of our major
competitors using standard manufacturing processes.
|
|
| • |
Selling, General, and Administrative (SG&A) |
SG&A expenses in 2004 were $48.3 million, or 29% of net
revenues, compared with $44.7 million, or 30% of net
revenues, in 2003 and $43.0 million, or 32% of net
revenues, in 2002. SG&A expenses in 2004 increased by
$3.6 million from 2003 primarily as a result of higher
selling expense associated with increased net revenues; the
first company-wide salary increases since 2000; and additional
spending of approximately $0.9 million related to
compliance with the Sarbanes-Oxley Act of 2002. SG&A
spending in 2004 decreased slightly as a percentage of sales
over 2003 levels. This was the result of 10% higher revenue
levels in 2004, even though absolute spending in 2004 increased.
SG&A expenses in 2003 increased by $1.7 million
compared with 2002 primarily as a result of higher selling
expense associated with increased net revenues. SG&A was
favorably impacted by a $0.6 million reduction in accruals
for estimated legal liabilities in the third quarter of 2003.
SG&A spending in 2003 as a percentage of revenue was lower
than 2002 due to higher revenues in 2003.
|
|
| • |
Amortization of Goodwill and Other Acquisition-Related
Intangibles |
Amortization of goodwill and other acquisition-related
intangibles was $2.7 million in 2004, 2003, and 2002. We
implemented SFAS No. 142, “Goodwill and Other
Intangible Assets,” at the beginning of fiscal 2002, which
eliminated the amortization of goodwill. See Notes 1 and 2
of Notes to Consolidated Financial Statements for further
information regarding the impact of SFAS No. 142.
|
|
| • |
Interest Income and Other, Net of Expense |
Interest income and other, net of expense, was $2.9 million
in 2004, $3.2 million in 2003, and $5.5 million in
2002. The decrease in interest and other income experienced in
both 2004 and 2003 compared with preceding years was primarily a
result of lower interest rates available in the market and lower
gains realized on our short-term investments, which were
partially offset in 2003 by higher cash balances. For 2004, our
average investment portfolio return on investment was 1.9%
compared with 2.5% in 2003 and 4.7% in 2002. Our average
investment portfolio balance was $154.0 million in 2004
compared with $135.0 million in 2003 and
$121.5 million in 2002. We invest excess liquidity in
investment portfolios consisting primarily of corporate bonds,
floating rate notes, and federal and municipal obligations. In
periods where market interest rates are falling, and for some
time after rates stabilize, we typically experience declines in
interest income and other as our older debt investments at
higher interest rates mature and are replaced by new investments
at the lower rates available in the market.
|
|
| • |
Losses on Sales and Write-Downs of Equity Investments |
We occasionally make equity investments in public or private
companies for the promotion of business and strategic
objectives. During 2002, we realized losses and recorded
impairment write-downs totaling $3.7 million in connection
with our strategic equity investments, which consisted of
$1.6 million related to an equity investment in a publicly
traded company and $2.1 million related to an equity
investment in a private company. The $1.6 million of losses
related to the investment in a publicly traded company was
comprised of $0.7 million of realized losses on shares sold
during the first and second quarters of 2002 and
$0.9 million of impairment write-downs recorded in the
second and fourth quarters of 2002. These impairment write-downs
were recorded as a result of declines in the market value of
shares we still held. The $2.1 million loss related to the
equity investment in a private company consisted entirely of an
impairment write-down that was recorded
45
when the estimated fair value of the private company was
determined to be below its carrying value after the private
company received new financing in the fourth quarter of 2002 at
a per share price significantly less than our initial
investment. We sold all of our remaining strategic equity
investment in the publicly traded company in 2003, realizing a
gain of $0.1 million from the sale. As of December 31,
2004, we had $0.1 million of strategic equity investments
remaining on the balance sheet.
|
|
| • |
Tax (Benefit)/Provision |
Significant components affecting the effective tax rate include
pre-tax net income or loss, federal R&D tax credits, income
from tax-exempt securities, the state composite tax rate, and
recognition of certain deferred tax assets subject to valuation
allowances. We recorded a tax benefit of $0.7 million in
2004 resulting from the combined effect of a small pre-tax
income offset by R&D tax credits and state tax benefits. Our
tax provision for 2003 was $0.3 million, which represents
an effective tax rate of 5% for the year. Our $1.9 million
tax benefit for 2002 was based on the combined effects of a
small pre-tax loss, the benefit of R&D tax credits, and
state tax benefits.
Financial Condition, Liquidity, and Capital Resources
Our total assets were $315.3 million at the end of 2004
compared with $316.8 million at the end of 2003. The
decrease in total assets was attributable principally to
decreases in cash, cash equivalents, accounts receivable and
other assets. The following table sets forth certain financial
data from the consolidated balance sheets expressed as a
percentage change from December 31, 2003, to
December 31, 2004:
| |
|
|
|
|
|
Cash, cash equivalents, and short-term investments
|
|
|
(2.3 |
)% |
|
Accounts receivable, net
|
|
|
(13.9 |
) |
|
Inventories
|
|
|
6.6 |
|
|
Current deferred income taxes
|
|
|
18.3 |
|
|
Prepaid expenses and other current assets
|
|
|
35.7 |
|
|
Property and equipment, net
|
|
|
14.4 |
|
|
Other assets, net (primarily deferred income taxes and purchased
intangible assets other than goodwill)
|
|
|
(20.4 |
) |
|
Total assets
|
|
|
(0.5 |
) |
|
Total current liabilities
|
|
|
(5.5 |
) |
|
Total liabilities
|
|
|
(3.5 |
) |
|
Shareholders’ equity
|
|
|
0.1 |
|
|
|
| • |
Cash, Cash Equivalents, and Short-Term Investments |
Our cash, cash equivalents, and short-term investments were
$154.7 million at the end of 2004 compared with
$158.4 million at the end of 2003. This decrease of
$3.7 million from the end of 2003 was due primarily to
$10.7 million of property and equipment purchases and
$1.5 million of cash used in financing operating activities
($9.6 million used to repurchase Actel Common Stock netted
against $8.2 million from the issuance of Common Stock
under employee stock plans), which were partially offset by
$9.9 million of net cash provided by operating activities.
The significant components within operating activities that
provided cash during 2004 included $2.4 million from the
net income for the year and a $2.9 million increase in
accounts receivable adjusted for non-cash items
($10.5 million of which relates to depreciation and
amortization). The significant components within operating
activities that resulted in a reduction of cash from operations
in 2004 included $2.6 million in cash used to increase
inventories and a $2.7 million decrease in accounts payable
and other accrued liabilities.
Spending on property and equipment amounted to
$10.7 million in 2004 compared with $11.2 million in
2003 and $8.8 million in 2002. The increase in spending on
property and equipment in 2003 related primarily
46
to leasehold improvements on our new worldwide headquarters to
which we relocated in August of 2003. Our capital budget for
2005 is $18.0 million.
Cash from the issuance of Common Stock under employee stock
plans amounted to $8.2 million in 2004, $16.2 million
in 2003, and $9.4 million in 2002. The increase in employee
stock plan activity that occurred in 2003 was mostly driven by
the increase in the market price of our Common Stock, which had
an average closing price per share of $18.81 in 2004, $21.95 in
2003, and $18.25 in 2002. Employee stock activity was especially
heavy during the last six months of 2003, when the average
closing price was $25.50 per share.
We meet all of our funding needs for ongoing operations with
internally generated cash flows from operations and with
existing cash and short-term investment balances. We believe
that existing cash, cash equivalents, and short-term
investments, together with cash generated from operations, will
be sufficient to meet our cash requirements for 2005. A portion
of available cash may be used for investment in or acquisition
of complementary businesses, products, or technologies. Wafer
manufacturers have at times demanded financial support from
customers in the form of equity investments and advance purchase
price deposits, which in some cases have been substantial.
Should we require additional capacity, we may be required to
incur significant expenditures to secure such capacity.
The following represents contractual commitments not accrued on
the balance sheet associated with operating leases and royalty
and licensing agreements as of December 31, 2004:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Payments Due by Period | |
| |
|
| |
| |
|
|
|
2010 | |
| |
|
Total | |
|
2005 | |
|
2006 | |
|
2007 | |
|
2008 | |
|
2009 | |
|
and Later | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| |
|
(In thousands) | |
|
Operating leases
|
|
$ |
25,693 |
|
|
$ |
2,862 |
|
|
$ |
2,837 |
|
|
$ |
2,846 |
|
|
$ |
2,695 |
|
|
$ |
2,652 |
|
|
$ |
11,801 |
|
|
Royalty/licensing agreements
|
|
$ |
26,028 |
|
|
|
9,281 |
|
|
|
6,456 |
|
|
|
4,206 |
|
|
|
2,380 |
|
|
|
2,005 |
|
|
|
1,700 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
51,721 |
|
|
$ |
12,143 |
|
|
$ |
9,293 |
|
|
$ |
7,052 |
|
|
$ |
5,075 |
|
|
$ |
4,657 |
|
|
$ |
13,501 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase orders or contracts for the purchase of raw materials
and other goods and services are not included in the table
above. We are not able to determine the aggregate amount of such
purchase orders that represent contractual obligations as
purchase orders may represent authorizations to purchase rather
than binding agreements. For the purposes of this table,
contractual obligations for purchase of goods or services are
defined as agreements that are enforceable and legally binding
on us and that specify all significant terms, including: fixed
or minimum quantities to be purchased; fixed, minimum or
variable price provisions; and the approximate timing of the
transaction. Our purchase orders are based on our current
manufacturing needs and fulfilled by our vendors within short
time horizons. We do not have significant agreements for the
purchase of raw materials or other goods specifying minimum
quantities or set prices that exceed our expected requirements
for three months. We also enter into contracts for outsourced
services; however, the obligations under these contracts were
not significant and the contracts generally contain clauses
allowing for cancellation without significant penalty.
We believe 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 us to raise additional capital. No assurance can be given
that additional capital would become available on acceptable
terms if needed.
Our net accounts receivable was $17.7 million at the end of
2004 compared with $20.5 million at the end of 2003. This
decrease was due primarily to the linearity of sales in the
fourth quarter of 2004, which allowed us to collect a higher
percentage of the quarters receivables prior to year end
compared with the fourth quarter of 2003. Net accounts
receivable represented 37 days of sales outstanding at the
end of 2004 compared with 44 days at the end of 2003.
47
Our net inventories were $41.2 million at the end of 2004
compared with $38.7 million at the end of 2003. The growth
in inventory was primarily the result of increased wafer
purchases with our foundry partners related to the ramp of our
new product families. In addition, we continue to hold material
from “last time buy” inventory purchases made in 2003
from two wafer manufacturers for some of our mature product
families. Last time buys occur when a wafer supplier is about to
shut down the manufacturing line used to make a product and we
believe that the then-current inventories are insufficient to
meet foreseeable future demand. Inventory purchased in last time
buy transactions is evaluated on an ongoing basis for
indications of excess or obsolescence based on rates of actual
sell through, expected future demand for those products, and any
other qualitative factors that may indicate the existence of
excess or obsolete inventory. Inventory at December 31,
2004, included $4.5 million of inventory purchased in last
time buys. Inventory days of supply decreased from 230 days
at the end of 2003 to 180 days at the end of 2004 due to
the higher cost of sales associated with increased revenues and
$3.2 million of write-downs in cost of sales recorded in
the fourth quarter of 2004.
Our FPGAs are manufactured using customized steps that are added
to the standard manufacturing processes of our independent wafer
suppliers, so our manufacturing cycle is generally longer and
more difficult to adjust in response to changing demands or
delivery schedules than our competitors using standard
processes. Accordingly, our inventory model will probably always
be higher than that of our major competitors using standard
processes.
Our net property and equipment was $22.8 million at the end
of 2004 compared with $19.9 million at the end of 2003. We
invested $10.7 million in property and equipment in 2004
compared with $11.2 million in 2003. The increase in
capital expenditures in 2003 was related primarily to
$2.3 million of leasehold improvements at our new principal
facilities and executive offices in Mountain View, California,
to which we relocated in August 2003. Other capital expenditures
during the past two years have been primarily for engineering,
manufacturing, and office equipment. Depreciation of property
and equipment was $7.8 million in 2004 compared with
$7.5 million in 2003.
Our net goodwill was $32.1 million at the end of both 2004
and 2003. Goodwill is recorded when consideration paid in an
acquisition exceeds the fair value of the net tangible and
intangible assets acquired. At the beginning of 2002, we adopted
SFAS No. 142, “Goodwill and Other Intangible
Assets,” which addresses the financial accounting and
reporting standards for goodwill and other intangible assets
subsequent to their acquisition. Under SFAS No. 142,
we do not amortize goodwill, but instead test for impairment
annually or more frequently if certain events or changes in
circumstances indicate that the carrying value may not be
recoverable. We completed our annual goodwill impairments tests
during the fourth quarter of 2004, and noted no indicators of
impairment.
Our other assets were $19.7 million at the end of 2004
compared with $24.7 million at the end of 2003. The
decrease was due primarily to $2.6 million amortization of
identified intangible assets and a $3.3 million reduction
in our non-current deferred tax asset that was the result of a
reclassification between current and non-current deferred tax
assets. These decreases were offset in part by a
$0.7 million increase in a technology license agreement.
Our total current liabilities were $46.2 million at the end
of 2004 compared with $48.9 million at the end of 2003. The
decrease was due to reductions in accounts payable and various
other accrual balances of $2.7 million and in income tax
payables of $1.1 million, which were offset in part by a
$1.1 million increase in deferred income on shipments to
distributors.
48
Shareholders’ equity was $264.8 million at the end of
2004 compared with $264.4 million at the end of 2003. The
slight increase in 2004 included proceeds of $8.2 million
from the sale of Common Stock under employee stock plans and net
income of $2.4 million, which were offset by stock
repurchases of $9.6 million and unrealized losses from
short term investments of $0.7 million.
Impact of Recently Issued Accounting Standards
In November, 2004, the FASB issued SFAS No. 151,
“Inventory Costs — An Amendment of ARB
No. 43, Chapter 4.” SFAS No. 151 amends
the guidance in ARB No. 43, Chapter 4, “Inventory
Pricing,” to clarify the accounting for abnormal amounts of
idle facility expense, freight, handling costs, and wasted
material (spoilage). Among other provisions, the new rule
requires that items such as idle facility expense, excessive
spoilage, double freight, and rehandling costs be recognized as
current period charges regardless of whether they meet the
criterion of “so abnormal” as stated in ARB
No. 43. Additionally, SFAS No. 151 requires that
the allocation of fixed production overheads to the costs of
conversion be based on the normal capacity of the production
facilities. SFAS No. 151 is effective for fiscal years
beginning after June 15, 2005, and is required to be
adopted by Actel in the first quarter of fiscal 2006. We are
currently evaluating the effect that the adoption of
SFAS No. 151 will have on our consolidated results of
operations and financial condition but do not expect it to have
a material impact.
In December 2004, the FASB issued SFAS No. 123
(revised 2004), “Share-Based Payment”
(SFAS No. 123(R)), which replaces
SFAS No. 123, “Accounting for Stock-Based
Compensation” (SFAS No. 123), and supersedes APB
Opinion No. 25, “Accounting for Stock Issued to
Employees.” SFAS No. 123(R) requires all
share-based payments to employees, including grants of employee
stock options, to be recognized in the financial statements
based on their fair values beginning with the first interim or
annual period after June 15, 2005, with early adoption
encouraged. The pro forma disclosures previously permitted under
SFAS No. 123 no longer will be an alternative to
financial statement recognition. Actel is required to adopt
SFAS No. 123(R) in the third quarter of fiscal 2005,
beginning July 4, 2005. We are evaluating the requirements
of SFAS No. 123(R) and expect that the adoption of
SFAS No. 123(R) will have a material effect on
Actel’s consolidated results of operations and earnings per
share. Actel has not yet determined the method of adoption or
the whether the adoption will result in amounts that are similar
to the current pro forma disclosures under
SFAS No. 123.
In December 2004, the FASB issued SFAS No. 153,
“Exchanges of Nonmonetary Assets-An Amendment of the APB
Opinion No. 29, Accounting for Nonmonetary
Transactions.” SFAS No. 153 eliminates the
exception from fair value measurement for nonmonetary exchanges
of similar productive assets in paragraph 21(b) of APB
Opinion No. 29, “Accounting for Nonmonetary
Transactions,” and replaces it with an exception for
exchanges that do not have commercial substance.
SFAS No. 153 is effective for the fiscal periods
beginning after June 15, 2005. We do not believe the
adoption of SFAS No. 153 will have a material impact
of our consolidated results of operations and financial
condition.
FASB Staff Position (FSP) No. 109-2, “Accounting
and Disclosure Guidance for the Foreign Earnings Repatriation
Provision within the American Jobs Creation Act of 2004,”
provides guidance under the FSAS No. 109, “Accounting
for Income Taxes,” with respect to recording the potential
impact of the repatriation provisions of the American Jobs
Creation Act of 2004 (Jobs Act) on an enterprise’s tax
accounts. The Jobs Act was enacted on October 22, 2004. We
do not believe the repatriation provisions of the Jobs Act will
have any impact on our consolidated results of operations and
financial condition.
Critical Accounting Policies and Estimates
Our discussion and analysis of our financial condition and
results of operations is based upon our consolidated financial
statements, which have been prepared in accordance with
accounting principles generally accepted in the United States
(GAAP). The preparation of these financial statements requires
us 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
U.S. Securities and Exchange Commission
49
has defined the most critical accounting policies as those that
are most important to the portrayal of our financial condition
and results and also require us to make the 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, our most critical policies include revenue
recognition, inventories, intangible assets and goodwill, income
taxes, and legal matters. These policies, as well as the
estimates and judgments involved, are discussed below. We also
have other key accounting policies that either do not generally
require us to make estimates and judgments that are as difficult
or as subjective or they are less likely to have a material
impact on our reported results of operations for a given period.
We base our estimates on historical experience and on various
other assumptions that we believe 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. In addition, if
these estimates or their related assumptions change in the
future, it could result in material expenses being recognized on
the income statement.
We believe 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 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 develop other than
anticipated, inventory levels may be materially and adversely
affected.
We write down our inventory for estimated obsolescence or
unmarketable inventory 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, we apply a methodology that includes assumptions and
estimates to arrive at the net realizable value. First, we
identify any inventory that has been previously written down in
prior periods. This inventory remains written down until sold,
destroyed, or otherwise dispositioned. Second, we examine
inventory line items that may have some form of non-conformance
with electrical and mechanical standards. Third, we assess the
inventory not otherwise identified to be written down against
product history and forecasted demand (typically for the next
six months). Finally, we analyze the result of this methodology
in light of the product life cycle, design win activity, and
competitive situation 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 we have projected,
additional inventory write-downs may be required. During 2004 we
wrote down $2.1 million of inventory related to our RTSX-S
product from the original manufacturer for which we determined
there was no demand.
During 2003, we modified our inventory valuation policies to
properly account for “last time buy” inventory
purchases. Last time buys occur when a wafer supplier is about
to shut down the manufacturing line used to make a product and
we believe that our then current inventories are insufficient to
meet foreseeable future demand. We made last time buys of
certain products from our wafer suppliers in 2003. Since this
inventory was not acquired to meet current demand, we did not
believe the application of our existing inventory write down
policy was appropriate, so a discrete write down policy was
established for inventory purchased in last time buy
transactions. As a consequence, these transactions and the
related inventory are excluded from the standard excess and
obsolescence write down policy. Inventory purchased in last time
buy transactions will be evaluated on an ongoing basis for
indications of excess or obsolescence based on rates of actual
sell through; expected future demand for those products over a
longer time horizon; and any other qualitative factors that may
indicate the existence of excess or obsolete inventory.
Evaluations of last time buy inventory in 2004 did not result in
any write downs. In the event that actual sell through does not
meet expectations or estimations of expected future demand
decrease, write-downs of last time buy inventory may be required.
50
|
|
| • |
Intangible Assets and Goodwill |
In past years we made business acquisitions that resulted in the
recording of a significant amount of goodwill and identified
intangible assets.
Beginning in 2002, we adopted SFAS No. 142,
“Goodwill and Other Intangible Assets,” which
addresses the financial accounting and reporting standards for
goodwill and other intangible assets subsequent to their
acquisition. In accordance with SFAS No. 142, we
ceased to amortize goodwill and instead test for impairment
annually or more frequently if certain events or changes in
circumstances indicate that the carrying value may not be
recoverable. We completed our annual goodwill impairment tests
during the fourth quarter of 2004 and noted no impairment. The
initial test of goodwill impairment requires us to compare our
fair value with our book value, including goodwill. We are a
single reporting unit as defined by SFAS No. 142 and
use the entity wide approach to compare fair value to book
value. Based on our total market capitalization, which we
believe represents the best indicator of our fair value, we
determined that our fair value was in excess of our book value.
Since we found no indication of impairment, we did not proceed
with the second step of the annual impairment analysis.
At December 31, 2004, we had identified intangible assets
arising from prior business acquisitions that are being
amortized on a straight line basis over their estimated lives.
In accordance with SFAS No. 144, “Accounting for
the Impairment or Disposal of Long-Lived Assets,” we
recognize impairment losses on identified intangible assets when
indicators of impairment are present and the undiscounted cash
flows estimated to be generated by those assets are less than
the net book value of those assets. The impairment loss is
measured by comparing the fair value of the asset to its
carrying value. Fair value is based on discounted cash flows
using present value techniques identified in
SFAS No. 144. We assessed our identified intangible
assets for impairment in accordance with SFAS No. 144
as of December 31, 2004, and noted no impairment. If these
estimates or their related assumptions change in the future, it
could result in lower estimated future cash flows that may not
support the current carrying value of these assets, which would
require us to record impairment charges for these assets.
We account for income taxes in accordance with
SFAS No. 109, “Accounting for Income Taxes,”
which requires that deferred tax assets and liabilities be
recognized using enacted tax rates for the effect of temporary
differences between the book and tax bases of recorded assets
and liabilities. SFAS No. 109 also requires that
deferred tax assets be reduced by a valuation allowance if it is
more likely than not that some or all of the deferred tax assets
will not be realized. We evaluate annually the realizability of
our deferred tax assets by assessing our valuation allowance
and, if necessary, we adjust the amount of such allowance. The
factors used to assess the likelihood of realization include our
forecast of future taxable income and available tax planning
strategies that could be implemented to realize the net deferred
tax assets. We assessed our deferred tax assets at the end of
2004 and determined that it was more likely than not that we
would be able to realize approximately $34.4 million of net
deferred tax assets based upon our forecast of future taxable
income and other relevant factors.
As is typical in the semiconductor industry, we have been and
expect to be notified from time to time of claims, including
claims that we may be infringing patents owned by other. When
probable and reasonably estimable, we make provision for
estimated liabilities. As we sometimes have in the past, we may
settle disputes and/or obtain licenses under patents that we are
alleged to infringe. We can offer no assurance that any pending
or threatened claim will be resolved or that the resolution of
any such claims will not have a materially adverse effect on our
business, financial condition, or results of operations. In
addition, our evaluation of the impact of these pending and
threatened claims could change based upon new information we
learn. Subject to the foregoing, we do not believe that the
resolution of any pending or threatened legal claim is likely to
have a materially adverse effect on our business, financial
condition, or results of operations.
51
We sell our products to OEMs and to distributors who resell our
products to OEMs or their contract manufacturers. We recognize
revenue on products sold to OEMs upon shipment. Because sales to
distributors are generally made under agreements allowing for
price adjustments, credits, and right of return under certain
circumstances, we generally defer recognition of revenue on
products sold to distributors until the products are resold.
Deferred income and the corresponding deferred cost of sales are
recorded in the caption deferred income on shipments to
distributors in the liability section of the consolidated
balance sheet. Revenue recognition depends on notification from
the distributor that product has been resold. This reported
information includes product resale price, quantity, and end
customer information as well as inventory balances on hand. Our
revenue reporting is dependant on us receiving timely and
accurate data from our distributors. In determining the
appropriate amount of revenue to recognize, we use this data
from our distributors and apply judgment in reconciling
differences between their reported inventory and sell through
activities.
Risks
Our operating results are subject to general economic conditions
and a variety of risks characteristic of the semiconductor
industry or specific to us, including booking and shipment
uncertainties, wafer supply fluctuations, and price erosion, any
of which could cause our operating results to differ materially
from past results. See the Risk Factors set forth at the end of
Item 1 of this Annual Report on Form 10-K.
Quarterly Information
The table on the next page presents certain unaudited quarterly
results for each of the eight quarters in the period ended
December 31, 2004. In our opinion, this information has
been presented on the same basis as the audited consolidated
financial statements appearing elsewhere in this Annual Report
on Form 10-K and 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 our audited consolidated financial
statements and notes thereto. However, these quarterly operating
results are not indicative of the results for any future period.
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Quarterly Operating Results Three Months Ended | |
| |
|
| |
| |
|
Dec. 31, | |
|
Sep. 30, | |
|
Jun. 30, | |
|
Mar. 31, | |
|
Dec. 31, | |
|
Sep. 30, | |
|
Jun. 30, | |
|
Mar. 31, | |
| |
|
2004 | |
|
2004 | |
|
2004 | |
|
2004 | |
|
2003 | |
|
2003 | |
|
2003 | |
|
2003 | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| |
|
(Unaudited, in thousands except per share amounts) | |
|
Statements of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues
|
|
$ |
40,256 |
|
|
$ |
39,439 |
|
|
$ |
43,688 |
|
|
$ |
42,153 |
|
|
$ |
40,555 |
|
|
$ |
38,405 |
|
|
$ |
36,609 |
|
|
$ |
34,341 |
|
|
Gross profit
|
|
|
19,392 |
|
|
|
23,403 |
|
|
|
26,634 |
|
|
|
25,656 |
|
|
|
25,220 |
|
|
|
23,319 |
|
|
|
22,025 |
|
|
|
19,612 |
|
|
(Loss)/income from operations
|
|
|
(5,400 |
) |
|
|
(855 |
) |
|
|
2,541 |
|
|
|
2,519 |
|
|
|
2,462 |
|
|
|
1,965 |
|
|
|
441 |
|
|
|
(1,614 |
) |
|
Net/(loss) income
|
|
|
(3,167 |
) |
|
|
517 |
|
|
|
2,504 |
|
|
|
2,540 |
|
|
|
2,328 |
|
|
|
2,283 |
|
|
|
1,386 |
|
|
|
231 |
|
|
Net (loss)/income per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Basic
|
|
$ |
(0.12 |
) |
|
$ |
0.02 |
|
|
$ |
0.10 |
|
|
$ |
0.10 |
|
|
$ |
0.09 |
|
|
$ |
0.09 |
|
|
$ |
0.06 |
|
|
$ |
0.01 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Diluted(1)
|
|
$ |
(0.12 |
) |
|
$ |
0.02 |
|
|
$ |
0.09 |
|
|
$ |
0.09 |
|
|
$ |
0.09 |
|
|
$ |
0.08 |
|
|
$ |
0.05 |
|
|
$ |
0.01 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares used in computing net income (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Basic
|
|
|
25,368 |
|
|
|
25,600 |
|
|
|
25,749 |
|
|
|
25,620 |
|
|
|
25,339 |
|
|
|
25,005 |
|
|
|
24,550 |
|
|
|
24,338 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Diluted(1)
|
|
|
25,368 |
|
|
|
25,930 |
|
|
|
26,584 |
|
|
|
27,324 |
|
|
|
27,235 |
|
|
|
27,101 |
|
|
|
25,776 |
|
|
|
25,087 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (1) |
For the fourth quarter of 2004, we incurred a quarterly net loss
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 that period. |
52
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Three Months Ended | |
| |
|
| |
| |
|
Dec. 31, | |
|
Sep. 30, | |
|
Jun. 30, | |
|
Mar. 31, | |
|
Dec. 31, | |
|
Sep. 30, | |
|
Jun. 30, | |
|
Mar. 31, | |
| |
|
2004 | |
|
2004 | |
|
2004 | |
|
2004 | |
|
2003 | |
|
2003 | |
|
2003 | |
|
2003 | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
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
|
|
|
48.2 |
|
|
|
59.3 |
|
|
|
61.0 |
|
|
|
60.9 |
|
|
|
62.2 |
|
|
|
60.7 |
|
|
|
60.2 |
|
|
|
57.1 |
|
|
(Loss)/income from operations
|
|
|
(13.4 |
) |
|
|
(2.2 |
) |
|
|
5.8 |
|
|
|
6.0 |
|
|
|
6.1 |
|
|
|
5.1 |
|
|
|
1.2 |
|
|
|
(4.7 |
) |
|
Net (loss)/income
|
|
|
(7.9 |
) |
|
|
1.3 |
|
|
|
5.7 |
|
|
|
6.0 |
|
|
|
5.7 |
|
|
|
5.9 |
|
|
|
3.8 |
|
|
|
0.7 |
|
|
|
| ITEM 7A. |
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK |
As of December 31, 2004, our investment portfolio consisted
primarily of corporate bonds, floating rate notes, and federal
and municipal obligations. The principal objectives of our
investment activities are to preserve principal, meet liquidity
needs, and maximize yields. To meet these objectives, we invest
excess liquidity only in high credit quality debt securities
with average maturities of less than two years. We also limit
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 our investment portfolio.
Our debt security investments, which totaled $148.3 million
at December 31, 2004, are subject to interest rate risk. An
increase in interest rates could subject us to a decline in the
market value of our investments. These risks are mitigated by
our ability to hold these investments to maturity. A
hypothetical 100 basis point increase in interest rates
compared with interest rates at December 31, 2004, and
December 31, 2003, would result in a reduction of
approximately $1.5 million in the fair value of our
available-for-sale debt securities held at December 31,
2004, and $1.4 million in the fair value of our
available-for-sale debt securities held at December 31,
2003.
The potential changes noted above are based upon sensitivity
analyses performed on our financial position and expected
operating levels at December 31, 2004. Actual results may
differ materially.
53
|
|
| ITEM 8. |
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA |
ACTEL CORPORATION
CONSOLIDATED BALANCE SHEETS
| |
|
|
|
|
|
|
|
|
|
|
| |
|
December 31, | |
| |
|
| |
| |
|
2004 | |
|
2003 | |
| |
|
| |
|
| |
| |
|
(In thousands, except | |
| |
|
share and per share | |
| |
|
amounts) | |
|
ASSETS |
|
Current assets:
|
|
|
|
|
|
|
|
|
| |
Cash and cash equivalents
|
|
$ |
6,405 |
|
|
$ |
13,648 |
|
| |
Short-term investments
|
|
|
148,297 |
|
|
|
144,765 |
|
| |
Accounts receivable, net
|
|
|
17,686 |
|
|
|
20,537 |
|
| |
Inventories
|
|
|
41,218 |
|
|
|
38,664 |
|
| |
Deferred income taxes
|
|
|
22,230 |
|
|
|
18,786 |
|
| |
Prepaid expenses and other current assets
|
|
|
4,831 |
|
|
|
3,561 |
|
| |
|
|
|
|
|
|
| |
|
Total current assets
|
|
|
240,667 |
|
|
|
239,961 |
|
|
Property and equipment, net
|
|
|
22,804 |
|
|
|
19,935 |
|
|
Goodwill
|
|
|
32,142 |
|
|
|
32,142 |
|
|
Other assets, net
|
|
|
19,677 |
|
|
|
24,719 |
|
| |
|
|
|
|
|
|
| |
|
$ |
315,290 |
|
|
$ |
316,757 |
|
| |
|
|
|
|
|
|
| |
|
LIABILITIES AND SHAREHOLDERS’ EQUITY |
|
Current liabilities:
|
|
|
|
|
|
|
|
|
| |
Accounts payable
|
|
$ |
11,397 |
|
|
$ |
13,140 |
|
| |
Accrued salaries and employee benefits
|
|
|
6,776 |
|
|
|
7,081 |
|
| |
Other accrued liabilities
|
|
|
4,364 |
|
|
|
6,117 |
|
| |
Deferred income on shipments to distributors
|
|
|
23,658 |
|
|
|
22,545 |
|
| |
|
|
|
|
|
|
| |
|
Total current liabilities
|
|
|
46,195 |
|
|
|
48,883 |
|
|
Deferred compensation plan liability
|
|
|
3,258 |
|
|
|
2,658 |
|
|
Deferred rent liability
|
|
|
1,044 |
|
|
|
783 |
|
| |
|
|
|
|
|
|
| |
|
Total liabilities
|
|
|
50,497 |
|
|
|
52,324 |
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
|
Shareholders’ equity:
|
|
|
|
|
|
|
|
|
| |
Preferred stock, $.001 par value; 4,500,000 shares
authorized; 1,000,000 issued and converted to common stock; and
none outstanding
|
|
|
— |
|
|
|
— |
|
| |
Series A Preferred stock, $.001 par value;
500,000 shares authorized; none issued or outstanding
|
|
|
— |
|
|
|
— |
|
| |
Common Stock, $.001 par value; 55,000,000 shares
authorized; 25,409,155 and 25,388,746 shares issued and
outstanding at December 31, 2004 and 2003, respectively
|
|
|
25 |
|
|
|
25 |
|
| |
Additional paid-in capital
|
|
|
188,631 |
|
|
|
184,674 |
|
| |
Retained earnings
|
|
|
76,577 |
|
|
|
79,518 |
|
| |
Unearned compensation cost
|
|
|
— |
|
|
|
(44 |
) |
| |
Accumulated other comprehensive (loss)/income
|
|
|
(440 |
) |
|
|
260 |
|
| |
|
|
|
|
|
|
| |
|
Total shareholders’ equity
|
|
|
264,793 |
|
|
|
264,433 |
|
| |
|
|
|
|
|
|
| |
|
$ |
315,290 |
|
|
$ |
316,757 |
|
| |
|
|
|
|
|
|
See Notes to Consolidated Financial Statements
54
ACTEL CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Years Ended December 31, | |
| |
|
| |
| |
|
2004 | |
|
2003 | |
|
2002 | |
| |
|
| |
|
| |
|
| |
| |
|
(In thousands, except per share | |
| |
|
amounts) | |
|
Net revenues
|
|
$ |
165,536 |
|
|
$ |
149,910 |
|
|
$ |
134,368 |
|
|
Costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Cost of revenues
|
|
|
70,451 |
|
|
|
59,734 |
|
|
|
52,935 |
|
| |
Research and development
|
|
|
45,360 |
|
|
|
39,602 |
|
|
|
39,349 |
|
| |
Selling, general, and administrative
|
|
|
48,269 |
|
|
|
44,650 |
|
|
|
43,033 |
|
| |
Amortization of acquisition-related intangibles
|
|
|
2,651 |
|
|
|
2,670 |
|
|
|
2,724 |
|
| |
|
|
|
|
|
|
|
|
|
| |
|
Total costs and expenses
|
|
|
166,731 |
|
|
|
146,656 |
|
|
|
138,041 |
|
| |
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations
|
|
|
(1,195 |
) |
|
|
3,254 |
|
|
|
(3,673 |
) |
|
Interest income and other, net of expense
|
|
|
2,935 |
|
|
|
3,210 |
|
|
|
5,530 |
|
|
Gain (loss) on sales and write-downs of equity investments
|
|
|
— |
|
|
|
91 |
|
|
|
(3,707 |
) |
| |
|
|
|
|
|
|
|
|
|
|
Income (loss) before tax (benefit) provision
|
|
|
1,740 |
|
|
|
6,555 |
|
|
|
(1,850 |
) |
|
Tax (benefit) provision
|
|
|
(654 |
) |
|
|
327 |
|
|
|
(1,925 |
) |
| |
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$ |
2,394 |
|
|
$ |
6,228 |
|
|
$ |
75 |
|
| |
|
|
|
|
|
|
|
|
|
|
Net income per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Basic
|
|
$ |
0.09 |
|
|
$ |
0.25 |
|
|
$ |
0.00 |
|
| |
|
|
|
|
|
|
|
|
|
| |
Diluted
|
|
$ |
0.09 |
|
|
$ |
0.24 |
|
|
$ |
0.00 |
|
| |
|
|
|
|
|
|
|
|
|
|
Shares used in computing net income per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Basic
|
|
|
25,584 |
|
|
|
24,808 |
|
|
|
24,302 |
|
| |
|
|
|
|
|
|
|
|
|
| |
Diluted
|
|
|
26,421 |
|
|
|
26,300 |
|
|
|
25,252 |
|
| |
|
|
|
|
|
|
|
|
|
See Notes to Consolidated Financial Statements
55
ACTEL CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY AND
OTHER
COMPREHENSIVE INCOME/(LOSS)
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
Accumulated | |
|
|
| |
|
|
|
|
|
|
|
Notes | |
|
Unearned | |
|
Other | |
|
Total | |
| |
|
Common | |
|
Additional | |
|
Retained | |
|
Receivable | |
|
Compensation | |
|
Comprehensive | |
|
Shareholders’ | |
| |
|
Stock | |
|
Paid-in Capital | |
|
Earnings | |
|
from Officer | |
|
Cost | |
|
Income | |
|
Equity | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| |
|
(In thousands, except share amounts) | |
|
|
|
Balance at December 31, 2001
|
|
$ |
24 |
|
|
$ |
162,324 |
|
|
$ |
75,207 |
|
|
$ |
(368 |
) |
|
$ |
(314 |
) |
|
$ |
807 |
|
|
$ |
237,680 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
— |
|
|
|
— |
|
|
|
75 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
75 |
|
|
Other comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Change in unrealized gain (loss) on investments
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(56 |
) |
|
|
(56 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Comprehensive income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19 |
|
|
Issuance of 784,073 shares of Common Stock under employee
stock plans,
|
|
|
— |
|
|
|
9,430 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
9,430 |
|
|
Repurchase of 663,482 shares of Common Stock
|
|
|
— |
|
|
|
(5,907 |
) |
|
|
(1,992 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(7,899 |
) |
|
Repayment of note receivable from officer
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
368 |
|
|
|
— |
|
|
|
— |
|
|
|
368 |
|
|
Amortization of unearned compensation cost
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
135 |
|
|
|
— |
|
|
|
135 |
|
|
Tax benefit from exercise of stock options
|
|
|
— |
|
|
|
2,581 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
2,581 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2002
|
|
$ |
24 |
|
|
$ |
168,428 |
|
|
$ |
73,290 |
|
|
$ |
— |
|
|
$ |
(179 |
) |
|
$ |
751 |
|
|
$ |
242,314 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
— |
|
|
|
— |
|
|
|
6,228 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
6,228 |
|
|
Other comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Change in unrealized gain (loss) on investments
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(491 |
) |
|
|
(491 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Comprehensive income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,737 |
|
|
Issuance of 1,212,206 shares of Common Stock under employee
stock plans
|
|
|
1 |
|
|
|
16,246 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
16,247 |
|
|
Amortization of unearned compensation cost
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
135 |
|
|
|
— |
|
|
|
135 |
|
|
Balance at December 31, 2003
|
|
$ |
25 |
|
|
$ |
184,674 |
|
|
$ |
79,518 |
|
|
$ |
— |
|
|
$ |
(44 |
) |
|
$ |
260 |
|
|
$ |
264,433 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See Notes to Consolidated Financial Statements
56
ACTEL CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY AND
OTHER
COMPREHENSIVE INCOME/(LOSS) — (Continued)
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
Accumulated | |
|
|
| |
|
|
|
|
|
|
|
Notes |
|
Unearned | |
|
Other | |
|
Total | |
| |
|
Common | |
|
Additional | |
|
Retained | |
|
Receivable |
|
Compensation | |
|
Comprehensive | |
|
Shareholders’ | |
| |
|
Stock | |
|
Paid-in Capital | |
|
Earnings | |
|
from Officer |
|
Cost | |
|
Income | |
|
Equity | |
| |
|
| |
|
| |
|
| |
|
|
|
| |
|
| |
|
| |
| |
|
(In thousands, except share amounts) | |
|
Balance at December 31, 2003
|
|
$ |
25 |
|
|
$ |
184,674 |
|
|
$ |
79,518 |
|
|
$ |
— |
|
|
$ |
(44 |
) |
|
$ |
260 |
|
|
$ |
264,433 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
— |
|
|
|
— |
|
|
|
2,394 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
2,394 |
|
|
Other comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Change in unrealized gain (loss) on investments
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(700 |
) |
|
|
(700 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Comprehensive income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,694 |
|
|
Issuance of stock options to consultant
|
|
|
— |
|
|
|
74 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
74 |
|
|
Amortization of unearned compensation cost
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
44 |
|
|
|
— |
|
|
|
44 |
|
|
Issuance of 682,106 shares of Common Stock under employee
stock plans
|
|
|
1 |
|
|
|
8,174 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
8,175 |
|
|
Repurchase of 691,697 shares of Common Stock
|
|
|
(1 |
) |
|
|
(4,888 |
) |
|
|
(4,738 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(9,627 |
) |
|
Cashless exercise of options to purchase 54,563 shares of
Common Stock using 30,563 mature shares of Common Stock
|
|
|
|
|
|
|
597 |
|
|
|
(597 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2004
|
|
$ |
25 |
|
|
$ |
188,631 |
|
|
$ |
76,577 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
(440 |
) |
|
$ |
264,793 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See Notes to Consolidated Financial Statements
57
ACTEL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Years Ended December 31, | |
| |
|
| |
| |
|
2004 | |
|
2003 | |
|
2002 | |
| |
|
| |
|
| |
|
| |
| |
|
(In thousands) | |
|
Operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Net income
|
|
$ |
2,394 |
|
|
$ |
6,228 |
|
|
$ |
75 |
|
| |
Adjustments to reconcile net income to net cash provided by
operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Depreciation and amortization
|
|
|
10,496 |
|
|
|
10,168 |
|
|
|
10,012 |
|
| |
|
Stock compensation cost recognized
|
|
|
118 |
|
|
|
135 |
|
|
|
135 |
|
| |
|
Impairment of equity investments
|
|
|
— |
|
|
|
— |
|
|
|
3,041 |
|
| |
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
Accounts receivable
|
|
|
2,851 |
|
|
|
(2,922 |
) |
|
|
(856 |
) |
| |
|
|
Inventories
|
|
|
(2,554 |
) |
|
|
(4,073 |
) |
|
|
1,747 |
|
| |
|
|
Deferred income taxes
|
|
|
(517 |
) |
|
|
8,363 |
|
|
|
104 |
|
| |
|
|
Prepaid expenses and other current assets
|
|
|
(1,270 |
) |
|
|
1,407 |
|
|
|
246 |
|
| |
|
|
Accounts payable, accrued salaries and employee benefits, and
other accrued liabilities
|
|
|
(2,736 |
) |
|
|
4,512 |
|
|
|
(4,002 |
) |
| |
|
|
Deferred income on shipments to distributors
|
|
|
1,113 |
|
|
|
(3,914 |
) |
|
|
(299 |
) |
| |
|
|
Tax benefits from exercise of stock options
|
|
|
— |
|
|
|
— |
|
|
|
2,581 |
|
| |
|
|
|
|
|
|
|
|
|
| |
Net cash provided by operating activities
|
|
|
9,895 |
|
|
|
19,904 |
|
|
|
12,784 |
|
|
Investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Purchases of property and equipment
|
|
|
(10,714 |
) |
|
|
(11,229 |
) |
|
|
(8,827 |
) |
| |
Purchases of available-for-sale securities
|
|
|
(166,356 |
) |
|
|
(179,276 |
) |
|
|
(177,473 |
) |
| |
Sales and maturities of available for sale securities
|
|
|
161,657 |
|
|
|
149,315 |
|
|
|
181,763 |
|
| |
Changes in other long term assets
|
|
|
(273 |
) |
|
|
480 |
|
|
|
149 |
|
| |
|
|
|
|
|
|
|
|
|
| |
Net cash used in investing activities
|
|
|
(15,686 |
) |
|
|
(40,710 |
) |
|
|
(4,388 |
) |
|
Financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Repayment of note-receivable from officer
|
|
|
— |
|
|
|
— |
|
|
|
368 |
|
| |
Issuance of Common Stock under employee stock plans
|
|
|
8,175 |
|
|
|
16,247 |
|
|
|
9,430 |
|
| |
Repurchase of Common Stock
|
|
|
(9,627 |
) |
|
|
— |
|
|
|
(7,899 |
) |
| |
|
|
|
|
|
|
|
|
|
| |
Net cash (used in) provided by financing activities
|
|
|
(1,452 |
) |
|
|
16,247 |
|
|
|
1,899 |
|
|
Net (decrease) increase in cash and cash equivalents
|
|
|
(7,243 |
) |
|
|
(4,559 |
) |
|
|
10,295 |
|
|
Cash and cash equivalents, beginning of year
|
|
|
13,648 |
|
|
|
18,207 |
|
|
|
7,912 |
|
| |
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of year
|
|
$ |
6,405 |
|
|
$ |
13,648 |
|
|
$ |
18,207 |
|
| |
|
|
|
|
|
|
|
|
|
|
Supplemental disclosures of cash flow information and
non-cash investing and financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid/(received) during the year for income taxes
|
|
$ |
431 |
|
|
$ |
(12,367 |
) |
|
$ |
(157 |
) |
See Notes to Consolidated Financial Statements
58
ACTEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
| 1. |
Organization and Summary of Significant Accounting
Policies |
Actel Corporation (Actel or us, we, or our) was incorporated
under the laws of California on October 16, 1985. We
design, develop, and market FPGAs and supporting products and
services. We utilize third-party manufacturers for our wafer
requirements. Net revenues from the sale of FPGAs accounted for
approximately 96% of our net revenues in 2004, 2003, and 2002.
Our Protocol Design Services organization accounted for
approximately 1% of our net revenues in 2004, 2003, and 2002.
Royalties and the licensing of software and sale of hardware
that are used to design and program FPGAs accounted for
approximately 3% of our net revenues in 2004, 2003, and 2002.
FPGAs are ICs that adapt the processing and memory capabilities
of electronic systems to specific applications. FPGAs are used
by designers of communications, computer, consumer, industrial,
military and aerospace, and other electronic systems to
differentiate their products and get them to market faster. We
are the leading supplier of FPGAs based on Flash and antifuse
technologies, and believe we are the leading supplier of high
reliability FPGAs. See Note 9 for information on our sales
by geographic area.
|
|
| • |
Advertising and Promotion Costs |
Our policy is to expense advertising and promotion costs as they
are incurred. Our advertising and promotion expenses were
approximately $3.2 million in 2004, $3.3 million in
2003, and $3.7 million in 2002.
The consolidated financial statements include the accounts of
Actel Corporation and our wholly owned subsidiaries. We use the
U.S. Dollar as the functional currency in our foreign
operations. All significant intercompany accounts and
transactions have been eliminated in consolidation.
Our fiscal year ends on the first Sunday after December 30.
Fiscal 2004 ended on January 2, 2005; fiscal 2003 ended on
January 4, 2004; and fiscal 2002 ended on January 5,
2003. For ease of presentation, December 31 has been
indicated as the year end for all fiscal years.
|
|
| • |
Cash Equivalents and Investments |
For financial statement purposes, we consider all highly liquid
debt instruments with insignificant interest rate risk and a
maturity of three months or less when purchased to be cash
equivalents. Cash equivalents consist primarily of cash deposits
in money market funds that are available for withdrawal without
restriction. Short-term investments consist principally of
corporate, federal, state, and local municipal obligations. See
Note 3 for further information regarding short-term
investments.
We account for our investments in accordance with the provisions
of SFAS No. 115, “Accounting for Certain
Investments in Debt and Equity Securities.” We determine
the appropriate classification of debt securities at the time of
purchase and re-evaluate such designation as of each balance
sheet date. At December 31, 2004, all debt securities were
designated as available-for-sale. We may also make long term
equity investments for the promotion of business and strategic
objectives.
We monitor all of our equity investments for impairment on a
periodic basis. In the event that the carrying value of the
equity investment exceeds its fair value and the decline in
value is determined to be other than temporary, the carrying
value is reduced to its current fair market value.
Non-marketable equity investments valued at $0.1 million
are included in other assets. See Note 3 for further
information regarding investments.
Available-for-sale securities are carried at fair value, with
the unrealized gains and losses reported as a component of
comprehensive income in shareholders’ equity. The amortized
cost of debt securities in this category is adjusted for
amortization of premiums and accretion of discounts to maturity.
Such amortization
59
ACTEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
and accretion is included in interest and other income, net of
expense. The cost of securities sold is based on the specific
identification method. Interest and dividends on securities
classified as available-for-sale are included in interest income
and other.
In accordance with SFAS No. 115, if a decline in value
below cost is determined to be other than temporary, the
unrealized losses will be recorded as expense in the period when
that determination is made. In the absence of other overriding
factors, we consider a decline in market value to be other than
temporary when a publicly traded stock has traded below book
value for a consecutive six-month period. If an investment
continues to trade below book value for more than six months,
and mitigating factors such as general economic and industry
specific trends are not present, this investment would be
evaluated for impairment and written down to a balance equal to
the estimated fair value at the time of impairment, with the
amount of the write-down realized as expense on the income
statement. During 2002, we held an investment in a publicly
traded company that had traded below book value. Based on our
assessment of industry trends, as well as the volatility and
trading volumes of this equity security, we concluded that the
declines in value at the end of the second and fourth quarters
of 2002 were other than temporary. Accordingly, we recorded as
expense, in accordance with SFAS No. 115, impairment
write-downs of $0.5 million in the second quarter and
$0.4 million in the fourth quarter. At December 31,
2002, we held an investment in the publicly traded equity
security with a market value of $0.2 million in short-term
investments. During 2003, this publicly-traded equity security
was sold for a gain of $0.1 million.
Under our accounting policy, the carrying value of a cost method
non-marketable investment is the amount paid for the investment
unless it has been determined to be other than temporarily
impaired, in which case we write the investment down to its
impaired value. We review all of our investments periodically
for impairment; however, for non-marketable equity securities,
the impairment analysis requires significant judgment. This
analysis includes assessment of the investee’s financial
condition, the business outlook for its products and technology,
its projected results and cash flows, the likelihood of
obtaining subsequent rounds of financing, and the impact of any
relevant contractual equity preferences held by us or others. If
an investee obtains additional funding at a valuation lower than
our carrying amount, we presume that the investment is other
than temporarily impaired, unless specific facts and
circumstances indicate otherwise (for example, if we hold
contractual rights that give us a preference over the rights of
other investors). During 2002, a sufficient market for a U.K.
company’s technology, that we held a strategic equity
investment in, did not develop and additional financing was
raised from an existing shareholder during the fourth quarter to
enable the company to continue operations. The market value of
the company implied in the 2002 financing indicated significant
impairment of our investment in the company. In accordance with
our accounting policy, we wrote the investment down to
$0.1 million, a balance equal to the estimated fair value
of our investment in the company at the time of the financing.
The $0.1 million balance is included on the
December 31, 2004, 2003 and 2002 balance sheets in other
assets. The impairment write-down of $2.1 million was
realized as an expense on the income statement in the fourth
quarter of 2002.
We maintain trading assets to generate returns that offset
changes in liabilities related to our deferred compensation
plan. The trading assets consist of insurance contracts and our
Common Stock contributed to the plan by participants and are
stated at fair value. Recognized gains and losses are included
in interest income and other, net of expense, and generally
offset the change in the deferred compensation liability, which
is also included in interest income and other, net of expense.
Net losses on the trading asset portfolio were $0.1 million
in 2004 and insignificant for 2003 and 2002. The deferred
compensation assets were $3.0 million in 2004 and
$2.5 million in 2003 and the deferred compensation
liabilities were $3.3 million and $2.7 million
respectively in those years.
60
ACTEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
|
|
| • |
Concentration of Credit Risk |
Financial instruments that potentially subject us to
concentrations of credit risk consist principally of cash and
cash equivalents, short-term investments, and trade receivables.
We limit our exposure to credit risk by investing excess
liquidity only in securities of A, A1, or P1 grade. We are
exposed to credit risks in the event of default by the financial
institutions or issuers of investments to the extent of amounts
recorded on the balance sheet.
We sell our products to customers in diversified industries. We
are exposed to credit risks in the event of non-payment by
customers to the extent of amounts recorded on the balance
sheet. We limit our exposure to credit risk by performing
ongoing credit evaluations of our customers’ financial
condition and generally require no collateral. We are exposed to
credit risks in the event of insolvency by our customers and
manage such exposure to accounting losses by limiting the amount
of credit extended whenever deemed necessary. Our distributors
accounted for approximately 67% of our revenues in 2004, 69% in
2003, and 65% in 2002. During 2003, we consolidated our
distribution channel by terminating our agreement with Pioneer,
leaving Unique as our sole distributor in North America. The
loss of Unique as a distributor could have a materially adverse
effect on our business, financial condition, or results of
operations. Lockheed Martin, an end customer, accounted for 11%
of net revenues in 2003.
As of December 31, 2004, we had accounts receivable
totaling $18.6 million, net of an allowance for doubtful
accounts of $0.9 million. If sales levels were to increase
the level of receivables would likely also increase. In the
event that customers were to delay their payments to us, the
levels of accounts receivable would also increase. We maintain
allowances for doubtful accounts for estimated losses resulting
from the inability of our customers to make required payments.
The allowance for doubtful accounts is based on past payment
history with the customer, analysis of the customer’s
current financial condition, outstanding invoices older than
90 days, and other known factors. If the financial
condition of our customers were to deteriorate, resulting in an
impairment of their ability to make payments, additional
allowances may be required and our operating results would be
negatively impacted.
|
|
| • |
Fair Value of Financial Instruments |
We use the following methods and assumptions in estimating our
fair value disclosures for financial instruments:
|
|
| |
The carrying amount reported in the balance sheets for accounts
payable approximates fair value. |
|
|
|
| |
• |
Cash and Cash Equivalents |
|
|
| |
The carrying amounts reported in the balance sheets for cash and
cash equivalents approximate fair value. |
|
|
| |
The fair value of our insurance contracts (entered into in
connection with our deferred compensation plan) is based upon
cash surrender value. |
|
|
| |
The fair values for marketable debt and equity securities are
based on quoted market prices. Strategic equity investments in
non-public companies with no readily available market value are
carried on the balance sheet at cost as adjusted for impairment
losses. If reductions in the market value of marketable equity
securities to an amount that is below cost are deemed by us to
be other than |
61
ACTEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
|
|
| |
temporary, the reduction in market value will be realized, with
the resulting loss in market value reflected on the income
statement. |
|
|
| • |
Goodwill and other Acquisition-Related Intangibles |
In past years we made business acquisitions that resulted in the
recording of a significant amount of goodwill and identified
intangible assets. At December 31, 2004 and
December 21, 2003,we had $32.1 million of remaining
net book value assigned to goodwill from those acquisitions and
$1.9 million as of December 31, 2004 and
$4.6 million as of December 31, 2003 of remaining net
book value assigned to identified intangible assets, such as
patents and completed technology.
In accordance with SFAS No. 142, “Goodwill and
Other Intangible Assets,” which addresses the financial
accounting and reporting standards for goodwill and other
intangible assets subsequent to their acquisition, we test
goodwill for impairment annually or more frequently if certain
events or changes in circumstances indicate that the carrying
value may not be recoverable. We completed our annual goodwill
impairment tests during the fourth quarter of 2004, and noted no
impairment. The initial test of goodwill impairment requires us
to compare our fair value with our book value, including
goodwill. Based on our total market capitalization, which we
believe represents the best indicator of our fair value, we
determined that our fair value was in excess of our book value.
Since we found no indication of impairment, no further testing
was necessary.
At December 31, 2004, and December 31, 2003, we had
identified intangible assets arising from prior business
acquisitions with a net book value of $1.9 million and
$4.6 million, respectively, which are being amortized on a
straight line basis over their estimated lives. These
non-goodwill intangible assets will be fully amortized in 2005.
In accordance with SFAS No. 144, “Accounting for
the Impairment or Disposal of Long-Lived Assets,” we
recognize impairment losses on identified intangible assets when
indicators of impairment are present and the undiscounted cash
flows estimated to be generated by those assets are less than
the net book value of those assets. The impairment loss is
measured by comparing the fair value of the asset to its
carrying value. Fair value is based on discounted cash flows
using present value techniques identified in
SFAS No. 144. We assessed our identified intangible
assets for impairment in accordance with SFAS No. 144
as of December 31, 2004, and noted no impairment. If these
estimates or their related assumptions change in the future, it
could result in lower estimated future cash flows that may not
support the current carrying value of these assets, which would
require us to record impairment charges for these assets.
|
|
| • |
Impact of Recently Issued Accounting Standards |
In November, 2004, the FASB issued SFAS No. 151,
“Inventory Costs — An Amendment of ARB
No. 43, Chapter 4”. SFAS No. 151 amends
the guidance in ARB No. 43, Chapter 4, “Inventory
Pricing,” to clarify the accounting for abnormal amounts of
idle facility expense, freight, handling costs, and wasted
material (spoilage). Among other provisions, the new rule
requires that items such as idle facility expense, excessive
spoilage, double freight, and rehandling costs be recognized as
current period charges regardless of whether they meet the
criterion of “so abnormal” as stated in ARB
No. 43. Additionally, SFAS No. 151 requires that
the allocation of fixed production overheads to the costs of
conversion be based on the normal capacity of the production
facilities. SFAS No. 151 is effective for fiscal years
beginning after June 15, 2005 and is required to be adopted
by Actel in the first quarter of fiscal 2006. Actel is currently
evaluating the effect that the adoption of
SFAS No. 151 will have on its consolidated results of
operations and financial condition but does not expect it to
have a material impact.
In December 2004, the FASB issued SFAS No. 123
(revised 2004), “Share-Based Payment”
(SFAS 123R), which replaces SFAS No. 123,
“Accounting for Stock-Based Compensation,”
(SFAS 123) and supersedes APB Opinion No. 25,
“Accounting for Stock Issued to Employees.”
SFAS No. 123(R) requires all share-based payments to
employees, including grants of employee stock options, to be
recognized in the financial statements based on their fair
values beginning with the first interim or annual period after
62
ACTEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
June 15, 2005, with early adoption encouraged. The pro
forma disclosures previously permitted under
SFAS No. 123 no longer will be an alternative to
financial statement recognition. Actel is required to adopt
SFAS No. 123(R) in the third quarter of fiscal 2005,
beginning July 4, 2005. We are evaluating the requirements
of SFAS No. 123(R) and expect that the adoption of
SFAS No. 123(R) will have a material effect on
Actel’s consolidated results of operations and earnings per
share. Actel has not yet determined the method of adoption or
the whether the adoption will result in amounts that are similar
to the current pro forma disclosures under
SFAS No. 123.
In December 2004, the FASB issued SFAS No. 153,
“Exchanges of Nonmonetary Assets-An Amendment of the APB
Opinion No. 29, Accounting for Nonmonetary
Transactions.” SFAS No. 153 eliminates the
exception from fair value measurement for nonmonetary exchanges
of similar productive assets in paragraph 21(b) of APB
Opinion No. 29, “Accounting for Nonmonetary
Transactions,” and replaces it with an exception for
exchanges that do not have commercial substance.
SFAS No. 153 is effective for the fiscal periods
beginning after June 15, 2005. We do not believe the
adoption of SFAS No. 153 will have a material impact
of our consolidated results of operations and financial
condition.
FSP No. 109-2, “Accounting and Disclosure Guidance for
the Foreign Earnings Repatriation Provision within the American
Jobs Creation Act of 2004,” provides guidance under FSAS
No. 109, “Accounting for Income Taxes,” with
respect to recording the potential impact of the repatriation
provisions of the American Jobs Creation Act of 2004 (Jobs Act)
on an enterprise’s tax accounts. The Jobs Act was enacted
on October 22, 2004. We do not believe the repatriation
provisions of the Jobs Act will have any impact on our
consolidated results of operations and financial condition.
We account for income taxes in accordance with
SFAS No. 109, “Accounting for Income Taxes,”
which requires that deferred tax assets and liabilities be
recognized using enacted tax rates for the effect of temporary
differences between the book and tax bases of recorded assets
and liabilities. Under SFAS No. 109, the liability
method is used in accounting for income taxes. Deferred tax
assets and liabilities are determined based on the differences
between financial reporting and the tax basis of assets and
liabilities, and are measured using the enacted tax rates and
laws that will be in effect when the differences are expected to
reverse. SFAS No. 109 also requires that deferred tax
assets be reduced by a valuation allowance if it is more likely
than not that some or all of the deferred tax asset will not be
realized. We evaluate annually the realizability of our deferred
tax assets by assessing our valuation allowance and by adjusting
the amount of such allowance, if necessary. The factors used to
assess the likelihood of realization include our forecast of
future taxable income and available tax planning strategies that
could be implemented to realize the net deferred tax assets.
As of December 31, 2004, we had an inventory balance of
$41.2 million, stated at the lower of cost (first-in,
first-out) or market (net realizable value). We believe 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 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 demand, strategic relationships with foundries,
and competitive situations in the marketplace. Should any of
these factors develop other than anticipated, inventory levels
may be materially and adversely affected.
We write down our inventory for estimated obsolescence or
unmarketability equal to the difference between the cost of
inventory and the estimated realizable value based upon
assumptions about future demand
63
ACTEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
and market conditions. To address this difficult, subjective,
and complex area of judgment, we apply a methodology that
includes assumptions and estimates to arrive at the net
realizable value. First, we identify any inventory that has been
previously written down in prior periods. This inventory remains
written down until sold, destroyed, or otherwise dispositioned.
Second, we examine inventory line items that may have some form
of non-conformance with electrical and mechanical standards.
Third, we assess the inventory not otherwise identified to be
written down against product history and forecasted demand
(typically for the next six months). Finally, we analyze the
result of this methodology in light of the product life cycle,
design win activity, and competitive situation 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 we have projected, additional inventory
write-downs may be required.
During the second quarter of 2004, we recommended that customers
switch to RTSX-S parts manufactured by UMC if their schedules
permitted, and we offered to accept RTSX-S parts from the
original manufacturer in exchange for the UMC parts. By the
fourth quarter of 2004, most customers had decided to switch to
UMC devices, and we determined that the demand for parts from
the original manufacturer no longer supported our inventory
levels. As a result, we took a charge of $2.1 million in
the fourth quarter of 2004 related to the unmarketability of
RTSX-S parts from the original manufacturer.
We made “last time buys” of certain products from our
wafer suppliers during 2003, when we modified our inventory
valuation policies to properly account for last time buy
inventory purchases. Last time buys occur when a wafer supplier
is about to shut down the manufacturing line used to make a
product and current inventories are insufficient to meet
foreseeable future demand. Since this inventory was not acquired
to meet current demand, we did not believe the application of
our existing inventory write down policy was appropriate, so a
discrete write down policy was established for inventory
purchased in last time buy transactions. As a consequence, these
transactions and the related inventory are excluded from our
standard excess and obsolescence write down policy. Inventory
purchased in last time buy transactions is evaluated on an
ongoing basis for indications of excess or obsolescence based on
rates of actual sell through; expected future demand for those
products over a longer time horizon; and any other qualitative
factors that may indicate the existence of excess or obsolete
inventory. In the event that actual sell through does not meet
expectations and estimations of expected future demand decrease,
last time buy inventory may be written down. Evaluations of last
time buy inventory in 2004 did not result in any write downs. At
December 31, 2004, $4.5 million related to last time
buy purchases was included in inventory on the balance sheet a
reduction from the level of $5.4 million at
December 31, 2003.
As is typical in the semiconductor industry, we have been and
expect to be notified from time to time of claims, including
claims that we may be infringing patents owned by others. When
probable and reasonably estimable, we make provision for
estimated liabilities. As we sometimes have in the past, we may
settle disputes and/or obtain licenses under patents that we are
alleged to infringe. During 2003, we settled a threatened patent
infringement claim and obtained licenses under the patents that
we were alleged to infringe. As a result of the settlement, we
reduced our accruals for estimated legal liabilities by
$0.6 million, which had a favorable impact on SG&A
spending in the third quarter of 2003. We can offer no assurance
that any pending or threatened claim will be resolved or that
the resolution of any such claims will not have a materially
adverse effect on our business, financial condition, or results
of operations. In addition, our evaluation of the impact of
these pending and threatened claims could change based upon new
information we learn. Subject to the foregoing, we do not
believe that the resolution of any pending or threatened legal
claim is likely to have a materially adverse effect on our
business, financial condition, or results of operations.
64
ACTEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Our product warranty accruals may include specific accruals for
known product issues or estimates of incurred but unidentified
product issues based on historical activity. We booked no
warranty accrual in 2004, 2003, or 2002.
Property and equipment is carried at cost less accumulated
depreciation and amortization. Depreciation and amortization
have been provided on a straight-line basis over the following
estimated useful lives:
| |
|
|
|
|
|
Equipment
|
|
|
2 to 5 years |
|
|
Furniture and fixtures
|
|
|
3 to 5 years |
|
|
Leasehold improvements
|
|
|
Remaining term of lease |
|
See Note 2 for information on property and equipment
amounts.
In accordance with SEC Staff Accounting
Bulletin No. 104, revenue is recognized when there is
evidence of an arrangement, delivery has occurred or services
have been completed, the price is fixed or determinable, and
collectability is reasonably assured. Revenue from product
shipped to end customers is recorded when all of the foregoing
conditions are met and risk of loss and title passes to the
customer. Revenue related to products shipped subject to
customers’ evaluation is recognized upon final acceptance.
Shipments to distributors are generally made under agreements
allowing certain rights of return and price protection on unsold
merchandise. For that reason, we generally defer recognition of
revenues and related cost of revenues on sales of products to
distributors until such products are sold by the distributor and
title transfers. Royalty income is recognized upon notice to us
of the sale by others of products subject to royalties. Revenues
generated by the Protocol Design Services organization are
recognized as the services are performed.
We record a provision for price adjustments on unsold
merchandise shipped to distributors in the same period as the
related revenues are recorded. If market conditions were to
decline, we may need to take action with our distributors to
ensure the sell-through of inventory already in the channel.
These actions during a market downturn could result in
incrementally greater reductions to net revenues than otherwise
would be expected. We also record a provision for estimated
sales returns on products shipped directly to end customers in
the same period as the related revenues are recorded. The
provision for sales returns is based on historical sales
returns, analysis of credit memo data, and other factors. If our
calculation of these estimates does not properly reflect future
return patterns, future net revenues could be materially
different.
|
|
| • |
Stock-Based Compensation |
We have employee stock plans that are described more fully in
Note 6. We account for our stock options and equity awards
in accordance with the provisions of APB Opinion No. 25,
“Accounting for Stock Issued to Employees,” and
related interpretations and have elected to follow the
“disclosure only” alternative prescribed by
SFAS No. 123, “Accounting for Stock-Based
Compensation.”
We account for stock-based awards to employees using the
intrinsic value method in accordance with APB Opinion
No. 25 and FASB Interpretation (FIN) No. 44,
“Accounting for Certain Transactions Involving Stock
Compensation — an Interpretation of APB Opinion
No. 25.” Accordingly, no compensation cost has been
recognized for our fixed-cost stock option plans because
stock-based awards are issued at fair market value on the date
of grant for our stock option plans or 85% of fair market value
at the date of grant for our employee stock purchase plan.
Options and warrants granted to consultants and vendors are
accounted for at fair value determined by using the
Black-Scholes method in accordance with Emerging Issues Task
Force
65
ACTEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
(EITF) Issue No. 96-18, “Accounting for Equity
Instruments that are Issued to Other than Employees for
Acquiring, or in Conjunction with Selling, Goods or
Services” and FIN No. 44.
Pro forma information regarding net income and net income per
share is required by SFAS No. 148, “Accounting
for Stock-Based Compensation — Transition and
Disclosure an Amendment of FASB Statement No. 123,”
which also requires that the information be determined as if we
had accounted for our stock-based awards to employees granted
under the fair value method. Our stock based awards consist of
options and employee stock purchase rights. The fair value for
these stock-based awards to employees was estimated at the date
of grant using the Black-Scholes pricing model with the
following weighted-average assumptions:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Stock Options | |
|
Stock Purchase Plan Rights | |
| |
|
| |
|
| |
| Year Ended December 31, |
|
2004 | |
|
2003 | |
|
2002 | |
|
2004 | |
|
2003 | |
|
2002 | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
Expected life of options (years)
|
|
|
4.18 |
|
|
|
4.29 |
|
|
|
4.14 |
|
|
|
1.24 |
|
|
|
1.26 |
|
|
|
1.14 |
|
|
Expected stock price volatility
|
|
|
0.57 |
|
|
|
0.62 |
|
|
|
0.66 |
|
|
|
0.56 |
|
|
|
0.62 |
|
|
|
0.66 |
|
|
Risk-free interest rate
|
|
|
3.0 |
% |
|
|
2.3 |
% |
|
|
3.7 |
% |
|
|
2.3 |
% |
|
|
1.8 |
% |
|
|
2.2 |
% |
The weighted-average fair value of options granted during 2004
was $10.43, during 2003 was $9.05, and during 2002 was $10.19.
The weighted-average fair value of ESPP rights granted during
2004 was $6.01, during 2003 was $6.38, and during 2002 was $6.27.
For purposes of pro forma disclosures, the estimated fair value
of our stock-based awards to employees is amortized to expense
using the graded method for options and during the purchase
periods for employee stock purchase rights. Our pro forma
information is as follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Years Ended December 31, | |
| |
|
| |
| |
|
2004 | |
|
2003 | |
|
2002 | |
| |
|
| |
|
| |
|
| |
| |
|
(In thousands, except per share | |
| |
|
amounts) | |
|
Net income applicable to common shareholders, as reported
|
|
$ |
2,394 |
|
|
$ |
6,228 |
|
|
$ |
75 |
|
|
Add back:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Stock-based employee compensation included in reported net income
|
|
|
118 |
|
|
|
135 |
|
|
|
135 |
|
|
Less:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Total stock-based employee compensation expense determined under
the fair value method for all awards, net of tax
|
|
|
(12,411 |
) |
|
|
(12,094 |
) |
|
|
(17,827 |
) |
| |
|
|
|
|
|
|
|
|
|
|
Pro forma net loss applicable to common shareholders
|
|
$ |
(9,899 |
) |
|
$ |
(5,731 |
) |
|
$ |
(17,617 |
) |
| |
|
|
|
|
|
|
|
|
|
|
Earnings per share as reported:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Basic
|
|
$ |
0.09 |
|
|
$ |
0.25 |
|
|
$ |
0.00 |
|
| |
|
|
|
|
|
|
|
|
|
| |
Diluted
|
|
$ |
0.09 |
|
|
$ |
0.24 |
|
|
$ |
0.00 |
|
| |
|
|
|
|
|
|
|
|
|
|
Pro forma (loss) earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Basic
|
|
$ |
(0.39 |
) |
|
$ |
(0.23 |
) |
|
$ |
(0.72 |
) |
| |
|
|
|
|
|
|
|
|
|
| |
Diluted
|
|
$ |
(0.39 |
) |
|
$ |
(0.23 |
) |
|
$ |
(0.72 |
) |
| |
|
|
|
|
|
|
|
|
|
The Black-Scholes option valuation model was developed for use
in estimating the fair value of traded options, which have no
vesting restrictions and are fully transferable. In addition,
option valuation models require the input of highly subjective
assumptions, including the expected stock price volatility.
Because our stock-based awards to employees have characteristics
significantly different from those of traded options, and
66
ACTEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
because changes in the subjective input assumptions can
materially affect the fair value estimate, in our opinion the
existing models do not necessarily provide a reliable single
measure of the fair value of our stock-based awards to
employees. In addition, the effects on pro forma disclosures of
applying SFAS Nos. 123 and 148 are not likely to be
representative of the effects on pro forma disclosures in future
years. See Note 6 for further information regarding our
stock option plans and “Impact of Recently Issued
Accounting Standards” above for information regarding
pending changes in the accounting for share-based payments to
employees.
The preparation of financial statements in conformity with
accounting principles generally accepted in the United States
requires us 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.
We base our estimates on historical experience and on various
other assumptions that we believe 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. In addition, any
change in these estimates or their related assumptions could
have a materially adverse effect on our operating results.
| |
|
|
|
|
|
|
|
|
|
| |
|
December 31, | |
| |
|
| |
| |
|
2004 | |
|
2003 | |
| |
|
| |
|
| |
| |
|
(In thousands) | |
|
Accounts receivable:
|
|
|
|
|
|
|
|
|
| |
Trade accounts receivable
|
|
$ |
17,312 |
|
|
$ |
20,457 |
|
| |
Interest receivable
|
|
|
1,253 |
|
|
|
1,158 |
|
| |
Allowance for doubtful accounts
|
|
|
(879 |
) |
|
|
(1,078 |
) |
| |
|
|
|
|
|
|
| |
|
$ |
17,686 |
|
|
$ |
20,537 |
|
| |
|
|
|
|
|
|
|
Inventories:
|
|
|
|
|
|
|
|
|
| |
Purchased parts and raw materials
|
|
$ |
8,636 |
|
|
$ |
5,243 |
|
| |
Work-in-process
|
|
|
27,358 |
|
|
|
29,243 |
|
| |
Finished goods
|
|
|
5,224 |
|
|
|
4,178 |
|
| |
|
|
|
|
|
|
| |
|
$ |
41,218 |
|
|
$ |
38,664 |
|
| |
|
|
|
|
|
|
|
Property and equipment:
|
|
|
|
|
|
|
|
|
| |
Equipment
|
|
$ |
72,754 |
|
|
$ |
63,377 |
|
| |
Furniture and fixtures
|
|
|
2,604 |
|
|
|
2,521 |
|
| |
Leasehold improvements
|
|
|
3,079 |
|
|
|
2,346 |
|
| |
|
|
|
|
|
|
| |
|
|
78,437 |
|
|
|
68,244 |
|
| |
Accumulated depreciation and amortization
|
|
|
(55,633 |
) |
|
|
(48,309 |
) |
| |
|
|
|
|
|
|
| |
|
$ |
22,804 |
|
|
$ |
19,935 |
|
| |
|
|
|
|
|
|
Depreciation expense was approximately $7.8 million in
2004, $7.5 million in 2003, and $7.3 million in 2002,
and is included with amortization expense in the Consolidated
Statement of Cash Flows.
During 2004, we removed certain fully depreciated assets
including test and computer equipment with a cost of
$0.7 million that were no longer being utilized, which had
no impact on the income statement.
67
ACTEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
| |
|
|
|
|
|
|
|
|
|
|
| |
|
December 31, | |
| |
|
| |
| |
|
2004 | |
|
2003 | |
| |
|
| |
|
| |
| |
|
(In thousands) | |
|
Goodwill:
|
|
|
|
|
|
|
|
|
| |
Goodwill
|
|
$ |
48,575 |
|
|
$ |
48,575 |
|
| |
Less accumulated amortization
|
|
|
(16,433 |
) |
|
|
(16,433 |
) |
| |
|
|
|
|
|
|
| |
|
$ |
32,142 |
|
|
$ |
32,142 |
|
| |
|
|
|
|
|
|
|
Other Assets:
|
|
|
|
|
|
|
|
|
| |
Prepaid long-term license fees
|
|
$ |
907 |
|
|
$ |
1,215 |
|
| |
Deferred compensation plan assets
|
|
|
3,026 |
|
|
|
2,476 |
|
| |
Identifiable intangible assets from acquisitions
|
|
|
12,728 |
|
|
|
12,728 |
|
| |
Acquired patents
|
|
|
1,842 |
|
|
|
1,842 |
|
| |
Non-current deferred tax asset (net of related deferred tax
liability of $581 in 2004 and $1,603 in 2003)
|
|
|
12,166 |
|
|
|
15,429 |
|
| |
Other
|
|
|
1,655 |
|
|
|
1,025 |
|
| |
|
|
|
|
|
|
| |
|
Subtotal
|
|
|
32,324 |
|
|
|
34,715 |
|
| |
Accumulated amortization expenses
|
|
|
(12,647 |
) |
|
|
(9,996 |
) |
| |
|
|
|
|
|
|
| |
|
$ |
19,677 |
|
|
$ |
24,719 |
|
| |
|
|
|
|
|
|
In accordance with SFAS No. 142, “Goodwill and
Other Intangible Assets,” Actel ceased to amortize
goodwill. Instead, we test for impairment of goodwill annually
or more frequently if certain events or changes in circumstances
indicate that the carrying value may not be recoverable. We
completed our annual goodwill impairment tests during the fourth
quarter of 2004 and noted no indicators of impairment.
Goodwill was adjusted during the three years ended
December 31, 2004, as follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Years Ended December 31, | |
| |
|
| |
| |
|
2004 | |
|
2003 | |
|
2002 | |
| |
|
| |
|
| |
|
| |
| |
|
(In thousands) | |
|
Balance at January 1
|
|
$ |
32,142 |
|
|
$ |
32,142 |
|
|
$ |
37,180 |
|
| |
|
|
|
|
|
|
|
|
|
| |
Additions
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
| |
Amortization
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
| |
Adjustment for recognition of deferred tax asset
|
|
|
— |
|
|
|
— |
|
|
|
(5,038 |
) |
| |
|
|
|
|
|
|
|
|
|
|
Balance at December 31
|
|
$ |
32,142 |
|
|
$ |
32,142 |
|
|
$ |
32,142 |
|
| |
|
|
|
|
|
|
|
|
|
The reduction in goodwill in 2002 was due primarily to a balance
sheet reclassification of $5.0 million from goodwill to
deferred tax assets. The goodwill was reclassified because we
believed (based on a number of factors, including our estimate
of future taxable income) that a portion of the net operating
losses generated by GateField and valued at zero when we
acquired GateField in 2000 will be used by us to reduce taxes
payable in the future. During 2004 and 2003, no goodwill was
acquired or determined by us to be impaired.
68
ACTEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
We assess identified intangible assets for impairment in
accordance with SFAS No. 144, “Accounting for the
Impairment or Disposal of Long-Lived Assets,” and recognize
impairment losses when indicators of impairment are present and
the undiscounted cash flows estimated to be generated by those
assets are less than the net book value of those assets. We
assessed our identified intangible assets for impairment in
accordance with SFAS No. 144 as of December 31,
2004, and noted no impairment. Identified intangible assets as
of December 31, 2004, consisted of the following:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
Accumulated | |
|
|
| |
|
Gross Assets | |
|
Amortization | |
|
Net | |
| |
|
| |
|
| |
|
| |
| |
|
(In thousands) | |
|
Acquisition-related developed technology
|
|
$ |
11,454 |
|
|
$ |
(9,833 |
) |
|
$ |
1,621 |
|
|
Other acquisition-related intangibles
|
|
|
2,600 |
|
|
|
(2,343 |
) |
|
|
257 |
|
|
Acquired patents
|
|
|
516 |
|
|
|
(471 |
) |
|
|
45 |
|
| |
|
|
|
|
|
|
|
|
|
| |
Total identified intangible assets
|
|
$ |
14,570 |
|
|
$ |
(12,647 |
) |
|
$ |
1,923 |
|
| |
|
|
|
|
|
|
|
|
|
Identified intangible assets as of December 31, 2003,
consisted of the following:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
Accumulated | |
|
|
| |
|
Gross Assets | |
|
Amortization | |
|
Net | |
| |
|
| |
|
| |
|
| |
| |
|
(In thousands) | |
|
Acquisition-related developed technology
|
|
$ |
11,454 |
|
|
$ |
(7,543 |
) |
|
$ |
3,911 |
|
|
Other acquisition-related intangibles
|
|
|
2,600 |
|
|
|
(2,012 |
) |
|
|
588 |
|
|
Acquired patents
|
|
|
516 |
|
|
|
(441 |
) |
|
|
75 |
|
| |
|
|
|
|
|
|
|
|
|
| |
Total identified intangible assets
|
|
$ |
14,570 |
|
|
$ |
(9,996 |
) |
|
$ |
4,574 |
|
| |
|
|
|
|
|
|
|
|
|
All of our identified intangible assets are subject to
amortization. Amortization of identified intangibles included
the following:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2004 | |
|
2003 | |
|
2002 | |
| |
|
| |
|
| |
|
| |
| |
|
(In thousands) | |
|
Acquisition-related developed technology
|
|
$ |
2,290 |
|
|
$ |
2,291 |
|
|
$ |
2,291 |
|
|
Other acquisition-related intangibles
|
|
|
331 |
|
|
|
331 |
|
|
|
330 |
|
|
Acquired patents
|
|
|
30 |
|
|
|
48 |
|
|
|
103 |
|
| |
|
|
|
|
|
|
|
|
|
| |
Total amortization expense
|
|
$ |
2,651 |
|
|
$ |
2,670 |
|
|
$ |
2,724 |
|
| |
|
|
|
|
|
|
|
|
|
Based on the carrying value of identified intangible assets
recorded at December 31, 2004, and assuming no subsequent
impairment of the underlying assets, we expect the annual
amortization expense to be $1.9 million for 2005, less than
$0.1 million in 2006, and none thereafter.
69
ACTEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
|
|
| 3. |
Available-for-Sale Securities |
The following is a summary of available-for-sale securities at
December 31, 2004 and 2003:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
Gross | |
|
Gross | |
|
|
| |
|
|
|
Unrealized | |
|
Unrealized | |
|
Estimated Fair | |
| |
|
Cost | |
|
Gains | |
|
Losses | |
|
Values | |
| |
|
| |
|
| |
|
| |
|
| |
| |
|
(In thousands) | |
|
December 31, 2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Auction Market Preferred
|
|
$ |
1,000 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
1,000 |
|
|
Corporate bonds
|
|
|
51,667 |
|
|
|
80 |
|
|
|
(268 |
) |
|
|
51,479 |
|
|
U.S. government securities
|
|
|
73,178 |
|
|
|
— |
|
|
|
(505 |
) |
|
|
72,673 |
|
|
Floating rate notes
|
|
|
16,000 |
|
|
|
10 |
|
|
|
— |
|
|
|
16,010 |
|
|
Municipal obligations
|
|
|
7,186 |
|
|
|
— |
|
|
|
(51 |
) |
|
|
7,135 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total available-for-sale securities
|
|
$ |
149,031 |
|
|
$ |
90 |
|
|
$ |
(824 |
) |
|
$ |
148,297 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2003
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Auction Market Preferred
|
|
$ |
4,800 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
4,800 |
|
|
Corporate bonds
|
|
|
49,168 |
|
|
|
396 |
|
|
|
(47 |
) |
|
|
49,517 |
|
|
U.S. government securities
|
|
|
63,529 |
|
|
|
76 |
|
|
|
(53 |
) |
|
|
63,552 |
|
|
Floating rate notes
|
|
|
17,750 |
|
|
|
13 |
|
|
|
— |
|
|
|
17,763 |
|
|
Municipal obligations
|
|
|
9,085 |
|
|
|
48 |
|
|
|
— |
|
|
|
9,133 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total available-for-sale securities
|
|
|
144,332 |
|
|
|
533 |
|
|
|
(100 |
) |
|
|
144,765 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
The following is a summary of available for-sale-securities that
were in an unrealized loss position as of December 31, 2004:
| |
|
|
|
|
|
|
|
|
| |
|
Aggregate | |
|
Aggregate | |
| |
|
Value of | |
|
Fair Value | |
| |
|
Unrealized | |
|
of | |
| |
|
Loss | |
|
Investments | |
| |
|
| |
|
| |
|
Unrealized loss position for less than twelve months
|
|
$ |
(682 |
) |
|
$ |
102,708 |
|
|
Unrealized loss position for greater than twelve months
|
|
$ |
(142 |
) |
|
$ |
17,243 |
|
Approximately $72.3 million of investment securities,
representing 48.5% of our total investment portfolio, has been
in an unrealized loss position for greater than six months. It
is our intention and within our ability, as necessary, to hold
these securities in an unrealized loss position for a period of
time sufficient to allow for an anticipated recovery of fair
value up to (or greater than) the cost of the investment and
therefore the impairments noted are not other-than-temporary.
The adjustments to unrealized losses on investments, net of
taxes, included as a separate component of shareholders’
equity totaled approximately $0.7 million for the year
ended December 31, 2004, $0.5 million for the year
ended December 31, 2003, and $0.1 million for the year
ended December 31, 2002. See Note 7 for information
regarding other comprehensive income/(loss). Net realized gains
and losses in 2004 were immaterial. Realized gains were
$0.5 million during 2003, and $0.2 million during 2002.
We occasionally make equity investments in public or private
companies for the promotion of business and strategic
objectives. During 2002, we recognized losses and recorded
impairment write-downs totaling $3.7 million in connection
with our strategic equity investments, which consisted of
$1.6 million related to an equity investment in a publicly
traded company and $2.1 million related to an equity
investment in a private company. The $1.6 million loss
related to the investment in a publicly traded company was
comprised of $0.7 million of realized losses on shares sold
during the first and second quarters of 2002 and
$0.9 million of
70
ACTEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
impairment write-downs recorded in the second and fourth
quarters of 2002. These impairment write-downs were recorded as
a result of declines in the market value of shares we still
held. The $2.1 million loss related to the equity
investment in a private company consisted entirely of an
impairment write-down that was recorded when the estimated fair
value of the private company was determined to be below its
carrying value after the private company received new financing
in the fourth quarter of 2002 at a per share price significantly
less than our initial investment. We sold all of our remaining
strategic equity investment in a publicly traded company in
2003, realizing a gain of $0.1 million from the sale. As of
December 31, 2004, we had less than $0.1 million of
strategic equity investments remaining on the balance sheet.
The expected maturities of our investments in debt securities at
December 31, 2004, are shown below. Expected maturities can
differ from contractual maturities because the issuers of the
securities may have the right to prepay obligations without
prepayment penalties.
| |
|
|
|
|
|
| |
|
(In thousands) | |
| |
|
| |
|
Available-for-sale debt securities:
|
|
|
|
|
| |
Due in less than one year
|
|
$ |
51,277 |
|
| |
Due in one to five years
|
|
|
87,771 |
|
| |
Due in five to ten years
|
|
|
— |
|
| |
Due after ten years
|
|
|
9,249 |
|
| |
|
|
|
| |
|
$ |
148,297 |
|
| |
|
|
|
A portion of our securities represents investments in floating
rate municipal bonds with contractual maturities greater than
one year with some greater than ten years. However, the interest
rates on these debt securities generally reset every ninety
days, at which time we have the option to sell the security or
roll over the investment at the new interest rate. Since it is
generally not our intention to hold these floating rate
municipal bonds until their contractual maturities, these
amounts have been classified in the accompanying consolidated
balance sheet as short-term investments.
|
|
| 4. |
Commitments and Contingencies |
We lease our facilities under non-cancelable lease agreements.
The current primary facilities lease agreement expires in
January 2014 and includes an annual increase in lease payments
of three percent per year. Facilities lease expense is recorded
on a straight-line basis over the term of the lease. Since cash
payments in 2004 were less than rent expense recognized on a
straight-line basis we recorded a deferred rent liability of
$1.0 million in 2004. The equipment lease terms are
month-to-month. Our facilities and equipment leases are
accounted for as operating leases and require us to pay property
taxes, insurance and maintenance, and repair costs. At
December 31, 2004 and 2003, we had no capital lease
obligations.
We have entered into non-cancelable licensing agreements with
external software developers to enable us to include their
proprietary technology in our design and programming software.
The following represents contractual commitments associated with
operating leases and royalty and licensing agreements:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Payments Due by Period | |
| |
|
| |
| |
|
|
|
2010 | |
| |
|
Total | |
|
2005 | |
|
2006 | |
|
2007 | |
|
2008 | |
|
2009 | |
|
and Later | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| |
|
(In thousands) | |
|
Operating leases
|
|
$ |
25,693 |
|
|
$ |
2,862 |
|
|
$ |
2,837 |
|
|
$ |
2,846 |
|
|
$ |
2,695 |
|
|
$ |
2,652 |
|
|
$ |
11,801 |
|
|
Royalty/licensing agreements
|
|
|
26,028 |
|
|
|
9,281 |
|
|
|
6,456 |
|
|
|
4,206 |
|
|
|
2,380 |
|
|
|
2,005 |
|
|
|
1,700 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
51,721 |
|
|
$ |
12,143 |
|
|
$ |
9,293 |
|
|
$ |
7,052 |
|
|
$ |
5,075 |
|
|
$ |
4,657 |
|
|
$ |
13,501 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
71
ACTEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Purchase orders or contracts for the purchase of raw materials
and other goods and services are not included in the table
above. We are not able to determine the aggregate amount of such
purchase orders that represent contractual obligations as
purchase orders may represent authorizations to purchase rather
than binding agreements. For the purposes of this table,
contractual obligations for purchase of goods or services are
defined as agreements that are enforceable and legally binding
on us and that specify all significant terms, including: fixed
or minimum quantities to be purchased; fixed, minimum or
variable price provisions; and the approximate timing of the
transaction. Our purchase orders are based on our current
manufacturing needs and are fulfilled by our vendors within
short time horizons. We do not have significant agreements for
the purchase of raw materials or other goods specifying minimum
quantities or set prices that exceed our expected requirements
for three months. We also enter into contracts for outsourced
services; however, the obligations under these contracts were
not significant and the contracts generally contain clauses
allowing for cancellation without significant penalty.
Rental expense under operating leases was approximately
$3.8 million for 2004, $4.2 million for 2003, and
$4.2 million for 2002. Amounts amortized under
royalty/licensing agreements were approximately
$6.0 million in 2004, $5.5 million in 2003, and
$4.1 million in 2002.
We have established an irrevocable standby letter of credit in
favor of CA-Shoreline Technology Park Limited Partnership in the
amount of $0.5 million pursuant to the terms and conditions
of the lease for our principal facilities and executive offices
located in Mountain View, California. In addition, we have
established an irrevocable letter of credit in favor of
Matsushita Electric Industrial. Co., Ltd., one of our foundry
partners, in the amount of JPY 120,000,000. Our agreement with
Wells Fargo Bank under which these letters of credit were issued
require us to maintain certain financial ratios and levels of
net worth. At December 31, 2004, we were in compliance with
these covenants for the letters of credit.
From time to time we are notified of claims, including claims
that we may be infringing patents owned by others, or otherwise
become aware of conditions, situations, or circumstances
involving uncertainty as to the existence of liability or the
amount of the loss. When probable and reasonably estimable, we
make provision for estimated liabilities. As we sometimes have
in the past, we may settle disputes and/or obtain licenses under
patents that we are alleged to infringe. We can offer no
assurance that any pending or threatened claim or other loss
contingency will be resolved or that the resolution of any such
claim or contingency will not have a materially adverse effect
on our business, financial condition, or results of operations.
In addition, our evaluation of the impact of these claims and
contingencies could change based upon new information we learn.
Subject to the foregoing, we do not believe that the resolution
of any pending or threatened legal claim or loss contingency is
likely to have a materially adverse effect on our business,
financial condition, or results of operations.
Effective December 10, 1987, we adopted a tax deferred
savings plan for the benefit of qualified employees. The plan is
designed to provide employees with an accumulation of funds at
retirement. Employees may elect at any time to have salary
reduction contributions made to the plan.
We may make contributions to the plan at the discretion of the
Board of Directors. We made a discretionary contribution to the
plan in 2004 of approximately $0.5 million. No
contributions to the plan were made in 2003 or 2002. The
contributions vest annually, retroactively from an eligible
employee’s date of hire, at the rate of 25% per year.
In addition, contributions become fully vested upon retirement
from Actel at age 65. There is no guarantee we will make
any contributions to the plan in the future, regardless of our
financial performance.
72
ACTEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Our Board of Directors authorized a stock repurchase program in
September 1998 whereby shares of our Common Stock may be
purchased from time to time in the open market at the discretion
of management. Additional shares were authorized for repurchase
in each of 1999, 2002 and 2004. In 2002, we repurchased
663,482 shares of Common Stock for $7.9 million. No
shares were repurchased in 2003. In 2004, we repurchased
661,697 shares for $9.6 million. As of
December 31, 2004, we have remaining authorization to
repurchase up to 1,238,303 shares.
|
|
| • |
Shareholder Rights Plan |
Our Board of Directors adopted a Shareholder Rights Plan in
October 2003. Under the Plan, we issued a dividend of one right
for each share of our Common Stock held by shareholders of
record as of the close of business on November 10,
2003. Each right entitles the shareholder to purchase a
fractional share of our Preferred Stock for $220.00. However,
the rights will become exercisable only if a person or group
acquires, or announces a tender or exchange offer that would
result in the acquisition of, 15% or more of our Common Stock
while the Plan remains in place. Then, unless we redeem the
rights for $0.001 per right, each right will become
exercisable by all rights holders (except the acquiring person
or group) for shares of Actel (or shares of the third party
acquirer) having a value equal to twice the right’s
then-current exercise price.
We have adopted stock option plans under which officers,
employees, and consultants may be granted incentive stock
options or nonqualified options to purchase shares of our Common
Stock. In connection with our acquisitions of AGL in 1999 and
Prosys and GateField in 2000, we assumed the stock option plans
of AGL, Prosys, and GateField and the related options are
incorporated in the amounts below. At December 31, 2004,
18,682,078 shares of Common Stock were reserved for
issuance under these plans, of which 2,786,051 were available
for grant. There were no options granted to consultants in 2003
or 2002. Options granted to consultants in 2004 were recorded at
fair value of $0.07 million using the Black-Scholes model
in accordance with EITF 96-18 and FIN No. 44.
We also adopted a new Directors’ Stock Option Plan in 2003,
under which directors who are not employees of Actel may be
granted nonqualified options to purchase shares of our Common
Stock. The new Directors’ Stock Option Plan replaced a 1993
plan that expired in 2003. At December 31, 2004,
500,000 shares of Common Stock were reserved for issuance
under such plan, of which 425,000 were available for grant.
We grant stock options under our plans at a price equal to the
fair value of our Common Stock on the date of grant. Subject to
continued service, options generally vest over a period of four
years and expire ten years from the date of grant.
73
ACTEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
The following table summarizes our stock option activity and
related information for the three years ended December 31,
2004:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2004 | |
|
2003 | |
|
2002 | |
| |
|
| |
|
| |
|
| |
| |
|
|
|
Weighted | |
|
|
|
Weighted | |
|
|
|
Weighted | |
| |
|
|
|
Average | |
|
|
|
Average | |
|
|
|
Average | |
| |
|
Number | |
|
Exercise | |
|
Number | |
|
Exercise | |
|
Number | |
|
Exercise | |
| |
|
of Shares | |
|
Price | |
|
of Shares | |
|
Price | |
|
of Shares | |
|
Price | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
Outstanding at January 1
|
|
|
8,344,940 |
|
|
$ |
19.55 |
|
|
|
8,327,898 |
|
|
$ |
19.26 |
|
|
|
7,508,292 |
|
|
$ |
18.70 |
|
|
Granted
|
|
|
1,413,042 |
|
|
|
21.87 |
|
|
|
1,215,180 |
|
|
|
18.26 |
|
|
|
1,492,076 |
|
|
|
19.15 |
|
|
Exercised
|
|
|
(289,722 |
) |
|
|
12.76 |
|
|
|
(889,048 |
) |
|
|
14.28 |
|
|
|
(514,727 |
) |
|
|
10.57 |
|
|
Cancelled
|
|
|
(488,851 |
) |
|
|
23.16 |
|
|
|
(309,090 |
) |
|
|
21.79 |
|
|
|
(157,743 |
) |
|
|
20.02 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31
|
|
|
8,979,409 |
|
|
$ |
19.94 |
|
|
|
8,344,940 |
|
|
$ |
19.55 |
|
|
|
8,327,898 |
|
|
$ |
19.26 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table summarizes information about stock options
outstanding at December 31, 2004:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
December 31, 2004 | |
| |
|
| |
| |
|
Options Outstanding | |
|
Options Exercisable | |
| |
|
| |
|
| |
| |
|
|
|
Weighted | |
|
|
|
|
| |
|
|
|
Average | |
|
|
|
|
| |
|
|
|
Remaining | |
|
Weighted | |
|
|
|
Weighted | |
| |
|
|
|
Contract | |
|
Average | |
|
|
|
Average | |
| |
|
Number of | |
|
Life | |
|
Exercise | |
|
Number of | |
|
Exercise | |
| Range of Exercise Prices |
|
Shares | |
|
(In Years) | |
|
Price | |
|
Shares | |
|
Price | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
$0.07 - 12.82
|
|
|
963,186 |
|
|
|
2.64 |
|
|
$ |
11.20 |
|
|
|
906,481 |
|
|
$ |
11.15 |
|
|
12.88 - 14.88
|
|
|
899,179 |
|
|
|
5.37 |
|
|
|
13.71 |
|
|
|
718,222 |
|
|
|
13.62 |
|
|
15.00 - 16.38
|
|
|
915,959 |
|
|
|
7.64 |
|
|
|
15.27 |
|
|
|
126,432 |
|
|
|
15.77 |
|
|
16.44 - 19.50
|
|
|
571,579 |
|
|
|
8.07 |
|
|
|
17.87 |
|
|
|
209,665 |
|
|
|
17.32 |
|
|
19.73 - 19.73
|
|
|
925,607 |
|
|
|
7.20 |
|
|
|
19.73 |
|
|
|
345,843 |
|
|
|
19.73 |
|
|
19.91 - 21.30
|
|
|
936,548 |
|
|
|
6.52 |
|
|
|
20.35 |
|
|
|
789,190 |
|
|
|
20.32 |
|
|
21.75 - 21.93
|
|
|
940,385 |
|
|
|
6.58 |
|
|
|
21.90 |
|
|
|
618,390 |
|
|
|
21.90 |
|
|
22.07 - 24.76
|
|
|
1,407,624 |
|
|
|
8.15 |
|
|
|
24.23 |
|
|
|
355,035 |
|
|
|
23.37 |
|
|
25.00 - 27.50
|
|
|
1,069,743 |
|
|
|
5.72 |
|
|
|
26.80 |
|
|
|
888,728 |
|
|
|
27.08 |
|
|
28.07 - 54.45
|
|
|
349,599 |
|
|
|
6.51 |
|
|
|
31.58 |
|
|
|
188,723 |
|
|
|
32.71 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
8,979,409 |
|
|
|
6.44 |
|
|
$ |
19.94 |
|
|
|
5,146,709 |
|
|
$ |
19.52 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2003, 4,462,344 outstanding options were
exercisable; and at December 31, 2002, 4,028,287
outstanding options were exercisable.
• Employee Stock Purchase
Plan
We have adopted an Employee Stock Purchase Plan (ESPP), under
which eligible employees may designate not more than 15% of
their cash compensation to be deducted each pay period for the
purchase of Common Stock (up to a maximum of $25,000 worth of
Common Stock each year). At December 31, 2004,
3,519,680 shares of Common Stock were authorized for
issuance under the ESPP. The ESPP is administered in
consecutive, overlapping offering periods of up to
24 months each, with each offering period divided into four
consecutive six-month purchase periods beginning August 1
and February 1 of each year. On the last business day of each
purchase period, shares of Common Stock are purchased with
employees’ payroll deductions accumulated during the prior
six months at a price per share equal to 85% of the market price
of the Common Stock on the first day of the applicable offering
period or the last day of the purchase period, whichever is
lower. There were 422,947 shares issued in 2004 under the
ESPP, 361,688 shares issued in 2003,
74
ACTEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
and 269,346 shares in 2002. 439,612 shares remained
available for issuance under the ESPP at December 31, 2004.
|
|
| 7. |
Comprehensive Income (Loss) |
The components of comprehensive income (loss), net of tax, are
as follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Years Ended December 31, | |
| |
|
| |
| |
|
2004 | |
|
2003 | |
|
2002 | |
| |
|
| |
|
| |
|
| |
| |
|
(In thousands) | |
|
Net income
|
|
$ |
2,394 |
|
|
$ |
6,228 |
|
|
$ |
75 |
|
|
Change in gain on available-for-sale securities, net of tax of
($468) in 2004, ($131) in 2003, and $60 in 2002
|
|
|
(702 |
) |
|
|
(198 |
) |
|
|
91 |
|
|
Less reclassification adjustment for gains or losses included in
net income, net of tax $1 in 2004, ($196) in 2003, and ($98) in
2002
|
|
|
2 |
|
|
|
(293 |
) |
|
|
(147 |
) |
| |
|
|
|
|
|
|
|
|
|
|
Other comprehensive (loss), net of tax of ($467) in 2004, ($327)
in 2003, and ($38) in 2002
|
|
|
(700 |
) |
|
|
(491 |
) |
|
|
(56 |
) |
| |
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
$ |
1,694 |
|
|
$ |
5,737 |
|
|
$ |
19 |
|
| |
|
|
|
|
|
|
|
|
|
Accumulated other comprehensive income for 2004 and 2003 is
presented on the accompanying consolidated balance sheets and
consists solely of the accumulated net unrealized gain on
available-for-sale securities.
The tax provision (benefit) consists of:
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Years Ended December 31, | |
| |
|
| |
| |
|
2004 | |
|
2003 | |
|
2002 | |
| |
|
| |
|
| |
|
| |
| |
|
(In thousands) | |
|
Federal — current
|
|
$ |
(512 |
) |
|
$ |
(8,454 |
) |
|
$ |
(177 |
) |
|
Federal — deferred
|
|
|
958 |
|
|
|
9,396 |
|
|
|
(1,052 |
) |
|
State — current
|
|
|
10 |
|
|
|
10 |
|
|
|
10 |
|
|
State — deferred
|
|
|
(1,475 |
) |
|
|
(1,033 |
) |
|
|
(914 |
) |
|
Foreign — current
|
|
|
365 |
|
|
|
408 |
|
|
|
208 |
|
| |
|
|
|
|
|
|
|
|
|
| |
|
$ |
(654 |
) |
|
$ |
327 |
|
|
$ |
(1,925 |
) |
| |
|
|
|
|
|
|
|
|
|
75
ACTEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
The tax provision (benefit) reconciles to the amount computed by
multiplying income before tax by the U.S. statutory rate as
follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
December 31, | |
| |
|
| |
| |
|
2004 | |
|
2003 | |
|
2002 | |
| |
|
| |
|
| |
|
| |
| |
|
(In thousands) | |
|
Provision/(benefit) at federal statutory rate
|
|
$ |
609 |
|
|
$ |
2,294 |
|
|
$ |
(648 |
) |
|
Change in valuation allowance
|
|
|
— |
|
|
|
(445 |
) |
|
|
625 |
|
|
Tax exempt interest income
|
|
|
(62 |
) |
|
|
(122 |
) |
|
|
(455 |
) |
|
Federal research credits
|
|
|
(534 |
) |
|
|
(843 |
) |
|
|
(989 |
) |
|
State taxes, net of federal benefit
|
|
|
(774 |
) |
|
|
(664 |
) |
|
|
(588 |
) |
|
Meals and Entertainment
|
|
|
88 |
|
|
|
70 |
|
|
|
70 |
|
|
Other
|
|
|
19 |
|
|
|
37 |
|
|
|
60 |
|
| |
|
|
|
|
|
|
|
|
|
|
Tax (benefit) provision
|
|
$ |
(654 |
) |
|
$ |
327 |
|
|
$ |
(1,925 |
) |
| |
|
|
|
|
|
|
|
|
|
Significant components of our deferred tax assets and
liabilities for federal and state income taxes are as follows:
| |
|
|
|
|
|
|
|
|
|
|
| |
|
December 31, | |
| |
|
| |
| |
|
2004 | |
|
2003 | |
| |
|
| |
|
| |
| |
|
(In thousands) | |
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
| |
Depreciation
|
|
$ |
448 |
|
|
$ |
1,333 |
|
| |
Deferred income on shipments to distributors
|
|
|
8,965 |
|
|
|
8,569 |
|
| |
Intangible assets
|
|
|
2,268 |
|
|
|
3,444 |
|
| |
Inventories
|
|
|
6,373 |
|
|
|
5,534 |
|
| |
Net operating losses
|
|
|
33,030 |
|
|
|
30,750 |
|
| |
Capitalized research and development expenses
|
|
|
3,737 |
|
|
|
4,823 |
|
| |
Research and development tax credit
|
|
|
6,605 |
|
|
|
5,584 |
|
| |
Other, net
|
|
|
2,466 |
|
|
|
3,276 |
|
| |
|
|
|
|
|
|
| |
|
|
63,892 |
|
|
|
63,313 |
|
| |
Valuation allowance
|
|
|
(28,915 |
) |
|
|
(27,496 |
) |
| |
|
|
|
|
|
|
| |
|
Net deferred tax assets
|
|
$ |
34,977 |
|
|
$ |
35,817 |
|
| |
|
|
|
|
|
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
| |
Intangible assets
|
|
$ |
581 |
|
|
$ |
1,603 |
|
| |
|
|
|
|
|
|
The valuation allowance increased by approximately
$1.4 million in 2004 and $3.7 million in 2003. The
valuation allowance in 2004 and 2003 includes a
$5.5 million tax benefit and a $4.1 million tax
benefit respectively, associated with stock option deductions.
This amount will be credited to additional paid-in capital when
the benefit is realized. Approximately $22.8 million of the
valuation allowance at December 31, 2004, will be allocated
to reduce goodwill or other non-current intangible assets from
the acquisition of GateField when realized.
At December 31, 2004, we had $63.3 million of gross
deferred tax assets in excess of deferred tax liabilities. Based
on the factors cited above, including our forecast of future
taxable income and limitations under Section 382 of the
Internal Revenue Code, we determined at December 31, 2004,
that it is more likely than not that $34.4 million of
deferred tax assets will be realized. This resulted in a
valuation allowance of
76
ACTEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
$28.9 million. In order to fully utilize the
$34.4 million of net deferred tax assets, taxable income in
the amount of approximately $91 million must be earned in
future periods. Factors that may affect our ability to achieve
sufficient future taxable income include, but are not limited
to, increased competition, a decline in sales or margins, delays
in product availability, and technological obsolescence.
We have a federal operating loss carryforward of approximately
$91.0 million. Net operating loss carryforwards net of a
valuation allowance will expire at various times beginning in
2011 and ending in 2024. We also have federal research and
development credits of approximately $3.1 million, which
will expire at various times beginning in 2013 and ending in
2024. In addition, we have California research and development
and manufacturer’s investment credits of approximately
$5.3 million that will expire beginning in 2006. Pre-tax
income from foreign subsidiaries was $0.9 million in 2004
and was immaterial in prior years.
We operate in a single operating segment: designing, developing,
and marketing FPGAs. FPGA sales accounted for 96% of net
revenues for 2004, 2003, and 2002. We derive non-FPGA revenues
from our Protocol Design Services organization, royalties, and
the licensing of software and sale of hardware that is used to
design and program our FPGAs. The Protocol Design Services
organization, which we acquired from GateField in the third
quarter of 1998, accounted for 1% of our net revenues for 2004,
2003 and 2002.
We market our products in the United States and in foreign
countries through our sales personnel, independent sales
representatives, and distributors. Our geographic sales were as
follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Years Ended December 31, | |
| |
|
| |
| |
|
2002 | |
|
2003 | |
|
2003 | |
| |
|
| |
|
| |
|
| |
| |
|
(In thousands, except percentages) | |
|
United States
|
|
$ |
90,109 |
|
|
|
55 |
% |
|
$ |
91,652 |
|
|
|
61 |
% |
|
$ |
83,276 |
|
|
|
62 |
% |
|
Export:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Europe
|
|
|
45,198 |
|
|
|
27 |
% |
|
|
37,521 |
|
|
|
25 |
% |
|
|
30,716 |
|
|
|
23 |
% |
|
Japan
|
|
|
9,787 |
|
|
|
6 |
% |
|
|
6,489 |
|
|
|
4 |
% |
|
|
8,398 |
|
|
|
6 |
% |
|
Other international
|
|
|
20,442 |
|
|
|
12 |
% |
|
|
14,248 |
|
|
|
10 |
% |
|
|
11,978 |
|
|
|
9 |
% |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
$ |
165,536 |
|
|
|
100 |
% |
|
$ |
149,910 |
|
|
|
100 |
% |
|
$ |
134,368 |
|
|
|
100 |
% |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
We generate a majority of our revenues from the sale of our
products through distributors. As of December 31, 2004, our
principal distributor was Unique. The following table sets forth
the percentage of revenues derived from each customer that
accounted for 10% or more of our net revenues in any of the last
three years:
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2004 | |
|
2003 | |
|
2002 | |
| |
|
| |
|
| |
|
| |
|
Pioneer
|
|
|
— |
|
|
|
6 |
% |
|
|
26 |
% |
|
Unique
|
|
|
33 |
% |
|
|
41 |
% |
|
|
22 |
% |
|
Lockheed Martin
|
|
|
4 |
% |
|
|
11 |
% |
|
|
3 |
% |
77
ACTEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Our property and equipment is located primarily in the United
States. Property, plant, and equipment information is based on
the physical location of the assets at the end of each of the
fiscal years. Net property, plant, and equipment by geographic
region was as follows:
| |
|
|
|
|
|
|
|
|
| |
|
December 31, | |
| |
|
| |
| |
|
2004 | |
|
2003 | |
| |
|
| |
|
| |
| |
|
(In thousands) | |
|
United States
|
|
$ |
20,323 |
|
|
$ |
17,031 |
|
|
Europe
|
|
|
410 |
|
|
|
535 |
|
|
Japan
|
|
|
191 |
|
|
|
187 |
|
|
Other international
|
|
|
1,880 |
|
|
|
2,182 |
|
| |
|
|
|
|
|
|
| |
|
$ |
22,804 |
|
|
$ |
19,935 |
|
| |
|
|
|
|
|
|
The following table sets forth the computation of basic and
diluted earnings per share:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Years Ended December 31, | |
| |
|
| |
| |
|
2004 | |
|
2003 | |
|
2002 | |
| |
|
| |
|
| |
|
| |
| |
|
(In thousands, except per share | |
| |
|
amounts) | |
|
Basic:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Weighted-average common shares outstanding
|
|
|
25,584 |
|
|
|
24,808 |
|
|
|
24,302 |
|
| |
|
|
|
|
|
|
|
|
|
| |
Net income
|
|
$ |
2,394 |
|
|
$ |
6,228 |
|
|
$ |
75 |
|
| |
|
|
|
|
|
|
|
|
|
| |
Net income per share
|
|
$ |
0.09 |
|
|
$ |
0.25 |
|
|
$ |
0.00 |
|
| |
|
|
|
|
|
|
|
|
|
|
Diluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Weighted-average common shares outstanding
|
|
|
25,584 |
|
|
|
24,808 |
|
|
|
24,302 |
|
| |
Net effect of dilutive stock options, warrants, and convertible
preferred stock — based on the treasury stock method
|
|
|
837 |
|
|
|
1,492 |
|
|
|
950 |
|
| |
|
|
|
|
|
|
|
|
|
| |
Shares used in computing net income per share
|
|
|
26,421 |
|
|
|
26,300 |
|
|
|
25,252 |
|
| |
|
|
|
|
|
|
|
|
|
| |
Net income
|
|
$ |
2,394 |
|
|
$ |
6,228 |
|
|
$ |
75 |
|
| |
|
|
|
|
|
|
|
|
|
| |
Net income per share
|
|
$ |
0.09 |
|
|
$ |
0.24 |
|
|
$ |
0.00 |
|
| |
|
|
|
|
|
|
|
|
|
For 2004, options outstanding under our stock option plans to
purchase approximately 5,783,000 shares of our Common Stock
were excluded from the calculation to derive diluted income per
share because their inclusion would have had an anti-dilutive
effect.
For 2003, options outstanding under our stock option plans to
purchase approximately 1,913,000 shares of our Common Stock
were excluded from the calculation to derive diluted income per
share because their inclusion would have had an anti-dilutive
effect.
For 2002, options outstanding under our stock option plans to
purchase approximately 5,160,000 shares of our Common Stock
were excluded from the calculation to derive diluted income per
share because their inclusion would have had an anti-dilutive
effect.
78
REPORTS OF ERNST & YOUNG LLP,
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
|
|
|
The Board of Directors and Shareholders, Actel
Corporation |
We have audited the accompanying consolidated balance sheets of
Actel Corporation as of January 2, 2005 and January 4,
2004, and the related consolidated statements of income,
shareholders’ equity, and cash flows for each of the three
years in the period ended January 2, 2005. Our audits also
included the financial statement schedule listed on
Item 15(a). These consolidated financial statements and
schedule are the responsibility of the Company’s
management. Our responsibility is to express an opinion on these
consolidated financial statements and schedule based on our
audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards 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. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the
consolidated financial position of Actel Corporation at
January 2, 2005 and January 4, 2004, and the
consolidated results of its operations and its cash flows for
each of the three years in the period ended January 2,
2005, in conformity with accounting principles generally
accepted in the United States. Also, in our opinion, the related
financial statement schedule, when considered in relation to the
basic financial statements taken as a whole, presents fairly in
all material respects the information set forth therein.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
effectiveness of Actel Corporation’s internal control over
financial reporting as of January 2, 2005, based on
criteria established in Internal Control — Integrated
Framework issued by the Committee of Sponsoring Organizations of
the Treadway Commission and our report dated March 9, 2005
expressed an unqualified opinion thereon.
San Jose, California
March 9, 2005
|
|
|
The Board of Directors and Shareholders, Actel
Corporation |
We have audited management’s assessment, included in the
accompanying Management’s Report on Internal Control over
Financial Reporting, that Actel Corporation maintained effective
internal control over financial reporting as of January 2,
2005, based on criteria established in Internal
Control — Integrated Framework issued by the Committee
of Sponsoring Organizations of the Treadway Commission (the COSO
criteria). Actel Corporation’s management is responsible
for maintaining effective internal control over financial
reporting and for its assessment of the effectiveness of
internal control over financial reporting. Our responsibility is
to express an opinion on management’s assessment and an
opinion on the effectiveness of the company’s internal
control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control
over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of
internal control over financial reporting, evaluating
management’s assessment, testing and evaluating the design
and operating effectiveness of internal control, and performing
such other procedures as we considered necessary in the
circumstances. We believe that our audit provides a reasonable
basis for our opinion.
79
A company’s internal control over financial reporting is a
process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. A company’s
internal control over financial reporting includes those
policies and procedures that (1) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions
are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of
management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the
company’s assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
In our opinion, management’s assessment that Actel
Corporation maintained effective internal control over financial
reporting as of January 2, 2005, is fairly stated, in all
material respects, based on the COSO criteria. Also, in our
opinion, Actel Corporation maintained, in all material respects,
effective internal control over financial reporting as of
January 2, 2005, based on the COSO criteria.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
balance sheets of Actel Corporation as of January 2, 2005
and January 4, 2004 and the related statements of income,
stockholders’ equity and cash flows for each of the three
years in the period ended January 2, 2005 and our report
dated March 9, 2005, expressed an unqualified opinion
thereon.
San Jose, California
March 9, 2005
80
|
|
| ITEM 9. |
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE |
None.
|
|
| ITEM 9A. |
CONTROLS AND PROCEDURES |
Disclosure Controls and Procedures
Our management evaluated, with the participation of our Chief
Executive Officer and our Chief Financial Officer, the
effectiveness of our disclosure controls and procedures as of
the end of the period covered by this Annual Report on
Form 10-K. Based on this evaluation, our Chief Executive
Officer and our Chief Financial Officer concluded that our
disclosure controls and procedures (as defined in
Rules 13a-15(e) and 15d-15(e) under the Securities Exchange
Act of 1934, as amended) are effective to ensure that
information we are required to disclose in this Annual Report on
Form 10-K was recorded, processed, summarized, and reported
within the time periods specified in the SEC’s rules and
instructions for Form 10-K.
Management’s Report on Internal Control over Financial
Reporting
Our management is responsible for establishing and maintaining
adequate internal control over our financial reporting. There
are inherent limitations in the effectiveness of any internal
control, including the possibility of human error and the
circumvention or overriding of controls. Accordingly, even
effective internal controls can provide only reasonable
assurances with respect to financial statement preparation. In
addition, because of changes in conditions, the effectiveness of
internal controls may vary over time.
Management assessed the effectiveness of our internal control
over financial reporting as of January 2, 2005. In making
this assessment, management used the criteria set forth by the
Committee of Sponsoring Organizations of the Treadway Commission
(COSO) in Internal Control — Integrated
Framework. Based on this assessment using those criteria,
management concluded that, as of January 2, 2005, our
internal control over financial reporting is effective.
Our independent registered public accountants audited the
financial statements included in this Annual Report on
Form 10-K and have issued an audit report on
management’s assessment of our internal control over
financial reporting. This report appears on pages 79 and 80
of this Annual Report on Form 10-K.
ITEM 9B. OTHER INFORMATION
None.
PART III
Except for the information is incorporated by reference from our
Proxy Statement to be filed in connection with our 2005 Annual
Meeting of Shareholders scheduled to be held on June 3,
2005, in Part III of this Annual Report on Form 10-K,
the Proxy Statement shall not be deemed to be filed as part of
this Report. Without limiting the foregoing, the information
under the captions “Compensation Committee Report,”
“Audit Committee Report,” and “Company Stock
Performance” in the Proxy Statement are not incorporated by
reference in this Annual Report on Form 10-K.
|
|
| ITEM 10. |
DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT |
The information about directors required for this Item is
incorporated by reference from our Proxy Statement to be filed
in connection with our 2005 Annual Meeting of Shareholders.
Information about executive officers that is required for this
Item can be found in Item 4A of this report.
81
Code of Ethics
We have adopted a Code of Ethics that applies to our Chief
Executive Officer, Chief Financial Officer, and Controller. This
Code of Ethics is posted on our website at http://www.actel.com.
We intend to satisfy the disclosure requirement under
Item 10 of Form 8-K regarding any amendment to, or
waiver from, a provision of this Code of Conduct by posting such
information on our website at http://www.actel.com on the
investors’ relations page.
|
|
| ITEM 11. |
EXECUTIVE COMPENSATION |
The information required for this Item is incorporated by
reference from our Proxy Statement to be filed in connection
with our 2005 Annual Meeting of Shareholders.
|
|
| ITEM 12. |
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT |
The information required for this Item is incorporated by
reference from our Proxy Statement to be filed in connection
with our 2005 Annual Meeting of Shareholders.
|
|
| ITEM 13. |
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS |
The information required for this Item is incorporated by
reference from our Proxy Statement to be filed in connection
with our 2005 Annual Meeting of Shareholders.
|
|
| ITEM 14. |
PRINCIPAL ACCOUNTANT FEES AND SERVICES |
The information required for this Item is incorporated by
reference from our Proxy Statement to be filed in connection
with our 2005 Annual Meeting of Shareholders.
PART IV
|
|
| ITEM 15. |
EXHIBITS, FINANCIAL STATEMENT SCHEDULES |
(a) The following documents are filed as part of this
Annual Report on Form 10-K:
|
|
| |
(1) Financial Statements. The following
consolidated financial statements of Actel Corporation are filed
in Item 8 of this Annual Report on Form 10-K: |
|
|
| |
Consolidated balance sheets at December 31, 2004 and 2003 |
| |
| |
Consolidated statements of operations for each of the three
years in the period ended December 31, 2004 |
| |
| |
Consolidated statements of shareholders’ equity and other
comprehensive income/(loss) for each of the three years in the
period ended December 31, 2004 |
| |
| |
Consolidated statements of cash flows for each of the three
years in the period ended December 31, 2004 |
| |
| |
Notes to consolidated financial statements |
|
|
| |
(2) Financial Statement Schedule. The
financial statement schedule listed under 15(c) hereof is filed
with this Annual Report on Form 10-K. |
| |
| |
(3) Exhibits. The exhibits listed under
Item 15(b) hereof are filed with, or incorporated by
reference into, this Annual Report on Form 10-K. |
82
(b) Exhibits. The following exhibits are filed as
part of, or incorporated by reference into, this Report on
Form 10-K:
| |
|
|
|
|
| Exhibit |
|
|
| Number |
|
Description |
| |
|
|
| |
3 |
.1 |
|
Restated Articles of Incorporation, as amended (filed as
Exhibit 3.1 to the Registrant’s Annual Report on Form
10-K (File No. 0-21970) for the fiscal year ended
January 5, 2003). |
| |
3 |
.2 |
|
Restated Bylaws (filed as Exhibit 3.1 to the
Registrant’s Annual Report on Form 10-K (File
No. 0-21970) for the fiscal year ended January 5,
2003). |
| |
3 |
.3 |
|
Certificate of Amendment to Certificate of Determination of
Rights, Preferences and Privileges of Series A
Participating Preferred Stock of Actel Corporation (filed as
Exhibit 3.3 to the Registrant’s Registration Statement
on Form 8-A (File No. 000-2197), filed on October 24, 2003). |
| |
4 |
.1 |
|
Preferred Stock Rights Agreement, dated as of October 17,
2003, between the Registrant and Wells Fargo Bank, MN N.A.,
including the Certificate of Amendment of Certificate to
Determination, the form of Rights Certificate and the Summary of
Rights attached thereto as Exhibits A, B, and C,
respectively (filed as Exhibit 4.1 to the Registrant’s
Registration Statement on Form 8-A (File No. 000-2197), filed on
October 24, 2003). |
| |
10 |
.1(1) |
|
Form of Indemnification Agreement for directors and officers
(filed as Exhibit 10.1 to the Registrant’s
Registration Statement on Form S-1 (File
No. 33-64704), declared effective on August 2, 1993). |
| |
10 |
.2(1) |
|
1986 Incentive Stock Option Plan, as amended and restated (filed
as Exhibit 10.1 to the Registrant’s Quarterly Report
on Form 10-Q (File No. 0-21970) for the fiscal quarter ended
July 7, 2002). |
| |
10 |
.3(1) |
|
2003 Director Stock Option Plan (filed as Exhibit 4.4
to the Registrant’s Registration Statement on Form S-8
(File No. 333-112215), declared effective on
January 26, 2004). |
| |
10 |
.4(1) |
|
Amended and Restated 1993 Employee Stock Purchase Plan (filed as
Exhibit 10.4 to the Registrant’s Annual Report on Form
10-K (File No. 0-21970) for the fiscal year ended
January 5, 2003). |
| |
10 |
.5 |
|
1995 Employee and Consultant Stock Plan, as amended and restated
(filed as Exhibit 10.2 to the Registrant’s Quarterly
Report on Form 10-Q (File No. 0-21970) for the fiscal quarter
ended July 7, 2002). |
| |
10 |
.6(1) |
|
Employee Retention Plan, as amended and restated (filed as
Exhibit 10.6 to the Registrant’s Annual Report on Form
10-K (File No. 0-21970) for the fiscal year ended
January 6, 2002). |
| |
10 |
.7(1) |
|
Deferred Compensation Plan, as amended and restated (filed as
Exhibit 10.7 to the Registrant’s Annual Report on Form
10-K (File No. 0-21970) for the fiscal year ended
December 31, 2000). |
| |
10 |
.8 |
|
Form of Distribution Agreement (filed as Exhibit 10.13 to
the Registrant’s Registration Statement on Form S-1
(File No. 33-64704), declared effective on August 2,
1993). |
| |
10 |
.9 |
|
Patent Cross License Agreement dated April 22, 1993 between
the Registrant and Xilinx, Inc. (filed as Exhibit 10.14 to
the Registrant’s Registration Statement on Form S-1
(File No. 33-64704), declared effective on August 2,
1993). |
| |
10 |
.10 |
|
Manufacturing Agreement dated February 3, 1994 between the
Registrant and Chartered Semiconductor Manufacturing Pte Ltd
(filed as Exhibit 10.17 to the Registrant’s Annual
Report on Form 10-K (File No. 0-21970) for the fiscal year
ended January 2, 1994). |
| |
10 |
.11 |
|
Foundry Agreement dated as of June 29, 1995, between the
Registrant and Matsushita Electric Industrial Co., Ltd and
Matsushita Electronics Corporation (filed as Exhibit 10.25
to the Registrant’s Quarterly Report on Form 10-Q (File No.
0-21970) for the fiscal quarter ended July 2, 1995). |
| |
10 |
.12 |
|
License Agreement dated as of March 6, 1995, between the
Registrant and BTR, Inc. (filed as Exhibit 10.20 to the
Registrant’s Annual Report on Form 10-K (File No. 0-21970)
for the fiscal year ended December 29, 1996). |
| |
10 |
.13 |
|
Patent Cross License Agreement dated August 25, 1998,
between the Registrant and QuickLogic Corporation. (filed as
Exhibit 10.19 to the Registrant’s Annual Report on
Form 10-K (File No. 0-21970) for the fiscal year ended
January 3, 1999). |
83
| |
|
|
|
|
| Exhibit | |
|
|
| Number | |
|
Description |
| | |
|
|
| |
10 |
.14 |
|
Development Agreement by and between the Registrant and Infineon
Technologies AG effective as of June 6, 2002 (filed as
Exhibit 10.19 to the Registrant’s Annual Report on
Form 10-K (File No. 0-21970) for the fiscal year ended
January 5, 2003). |
| |
10 |
.15 |
|
Supply Agreement by and between the Registrant and Infineon
Technologies AG effective as of June 6, 2002 (filed as
Exhibit 10.20 to the Registrant’s Annual Report on
Form 10-K (File No. 0-21970) for the fiscal year ended
January 5, 2003). |
| |
10 |
.16 |
|
Office Lease Agreement for the Registrant’s facilities in
Mountain View, California, dated February 27, 2003 (filed
as Exhibit 10.21 to the Registrant’s Annual Report on
Form 10-K (File No. 0-21970) for the fiscal year ended
January 5, 2003). |
| |
14 |
|
|
Code of Ethics for Principal Executive and Senior Financial
Officers (filed as Exhibit 14 to the Registrant’s
Annual Report on Form 10-K (File No. 0-21970) for the fiscal
year ended January 4, 2004). |
| |
21 |
|
|
Subsidiaries of Registrant. |
| |
23 |
|
|
Consent of Ernst & Young LLP, Independent Auditors. |
| |
24 |
|
|
Power of Attorney. |
| |
31 |
.1 |
|
Rule 13a-14(a)/15d-14(a) Certification of Chief Executive
Officer. |
| |
31 |
.2 |
|
Rule 13a-14(a)/15d-14(a) Certification of Chief Financial
Officer. |
| |
32 |
|
|
Section 1350 Certifications. |
|
|
| (1) |
This Exhibit is a management contract or compensatory plan or
arrangement. |
(c) Financial Statement Schedule. The
following financial statement schedule of Actel Corporation is
filed as part of this Report on Form 10-K and should be
read in conjunction with the Consolidated Financial Statements
of Actel Corporation, including the notes thereto, and the
Report of Independent Auditors with respect thereto:
| |
|
|
|
|
|
|
|
|
| Schedule |
|
Description | |
|
Page | |
| |
|
| |
|
| |
|
II
|
|
Valuation and qualifying accounts |
|
|
86 |
|
All other schedules for which provision is made in the
applicable accounting regulations of the Securities and Exchange
Commission are not required under the related instructions or
are inapplicable and therefore have been omitted.
84
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 to be signed on its behalf by the undersigned,
thereunto duly authorized.
|
|
| |
|
| |
John C. East |
| |
President and Chief Executive Officer |
Date: March 11, 2005
Pursuant to the requirements of the Securities Exchange Act of
1934, this Annual 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 |
|
Title |
|
Date |
| |
|
|
|
|
| |
/s/ John C. East
(John
C. East) |
|
President and Chief Executive Officer (Principal Executive
Officer) and Director |
|
March 11, 2005 |
| |
/s/ Jon A. Anderson
(Jon
A. Anderson) |
|
Vice President of Finance and Chief Financial Officer (Principal
Financial and Accounting Officer) |
|
March 11, 2005 |
| |
/s/ James R. Fiebiger
(James
R. Fiebiger) |
|
Director |
|
March 11, 2005 |
| |
/s/ Jacob S. Jacobsson
(Jacob
S. Jacobsson) |
|
Director |
|
March 11, 2005 |
| |
/s/ J. Daniel McCranie
(J.
Daniel McCranie) |
|
Director |
|
March 11, 2005 |
| |
/s/ Henry L. Perret
(Henry
L. Perret) |
|
Director |
|
March 11, 2005 |
| |
/s/ Robert G. Spencer
(Robert
G. Spencer) |
|
Director |
|
March 11, 2005 |
85
SCHEDULE II
ACTEL CORPORATION
Valuation and Qualifying Accounts
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Balance at | |
|
|
|
|
|
Balance at | |
| |
|
Beginning | |
|
|
|
|
|
End of | |
| |
|
of Period | |
|
Provisions | |
|
Write-Offs | |
|
Period | |
| |
|
| |
|
| |
|
| |
|
| |
| |
|
(In thousands) | |
|
Allowance for doubtful accounts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Year ended December 31, 2002
|
|
$ |
1,328 |
|
|
$ |
86 |
|
|
$ |
336 |
|
|
$ |
1,078 |
|
| |
Year ended December 31, 2003
|
|
|
1,078 |
|
|
|
355 |
|
|
|
355 |
|
|
|
1,078 |
|
| |
Year ended December 31, 2004
|
|
|
1,078 |
|
|
|
28 |
|
|
|
227 |
|
|
|
879 |
|
86
EXHIBIT INDEX
| |
|
|
|
|
| Exhibit | |
|
|
| Number | |
|
Description |
| | |
|
|
| |
3 |
.1 |
|
Restated Articles of Incorporation, as amended (filed as
Exhibit 3.1 to the Registrant’s Annual Report on Form
10-K (File No. 0-21970) for the fiscal year ended
January 5, 2003). |
| |
3 |
.2 |
|
Restated Bylaws (filed as Exhibit 3.1 to the
Registrant’s Annual Report on Form 10-K (File
No. 0-21970) for the fiscal year ended January 5,
2003). |
| |
3 |
.3 |
|
Certificate of Amendment to Certificate of Determination of
Rights, Preferences and Privileges of Series A
Participating Preferred Stock of Actel Corporation (filed as
Exhibit 3.3 to the Registrant’s Registration Statement
on Form 8-A (File No. 000-2197), filed on October 24, 2003). |
| |
4 |
.1 |
|
Preferred Stock Rights Agreement, dated as of October 17,
2003, between the Registrant and Wells Fargo Bank, MN N.A.,
including the Certificate of Amendment of Certificate to
Determination, the form of Rights Certificate and the Summary of
Rights attached thereto as Exhibits A, B, and C,
respectively (filed as Exhibit 4.1 to the Registrant’s
Registration Statement on Form 8-A
(File No. 000-2197), filed on October 24, 2003). |
| |
10 |
.1(1) |
|
Form of Indemnification Agreement for directors and officers
(filed as Exhibit 10.1 to the Registrant’s
Registration Statement on Form S-1 (File
No. 33-64704), declared effective on August 2, 1993). |
| |
10 |
.2(1) |
|
1986 Incentive Stock Option Plan, as amended and restated (filed
as Exhibit 10.1 to the Registrant’s Quarterly Report
on Form 10-Q (File No. 0-21970) for the fiscal quarter ended
July 7, 2002). |
| |
10 |
.3(1) |
|
2003 Director Stock Option Plan (filed as Exhibit 4.4
to the Registrant’s Registration Statement on Form S-8
(File No. 333-112215), declared effective on
January 26, 2004). |
| |
10 |
.4(1) |
|
Amended and Restated 1993 Employee Stock Purchase Plan (filed as
Exhibit 10.4 to the Registrant’s Annual Report on Form
10-K (File No. 0-21970) for the fiscal year ended
January 5, 2003). |
| |
10 |
.5 |
|
1995 Employee and Consultant Stock Plan, as amended and restated
(filed as Exhibit 10.2 to the Registrant’s Quarterly
Report on Form 10-Q (File No. 0-21970) for the fiscal quarter
ended July 7, 2002). |
| |
10 |
.6(1) |
|
Employee Retention Plan, as amended and restated (filed as
Exhibit 10.6 to the Registrant’s Annual Report on Form
10-K (File No. 0-21970) for the fiscal year ended
January 6, 2002). |
| |
10 |
.7(1) |
|
Deferred Compensation Plan, as amended and restated (filed as
Exhibit 10.7 to the Registrant’s Annual Report on Form
10-K (File No. 0-21970) for the fiscal year ended
December 31, 2000). |
| |
10 |
.8 |
|
Form of Distribution Agreement (filed as Exhibit 10.13 to
the Registrant’s Registration Statement on Form S-1
(File No. 33-64704), declared effective on August 2,
1993). |
| |
10 |
.9 |
|
Patent Cross License Agreement dated April 22, 1993 between
the Registrant and Xilinx, Inc. (filed as Exhibit 10.14 to
the Registrant’s Registration Statement on Form S-1
(File No. 33-64704), declared effective on August 2,
1993). |
| |
10 |
.10 |
|
Manufacturing Agreement dated February 3, 1994 between the
Registrant and Chartered Semiconductor Manufacturing Pte Ltd
(filed as Exhibit 10.17 to the Registrant’s Annual
Report on Form 10-K (File No. 0-21970) for the fiscal year
ended January 2, 1994). |
| |
10 |
.11 |
|
Foundry Agreement dated as of June 29, 1995, between the
Registrant and Matsushita Electric Industrial Co., Ltd and
Matsushita Electronics Corporation (filed as Exhibit 10.25
to the Registrant’s Quarterly Report on Form 10-Q (File No.
0-21970) for the fiscal quarter ended July 2, 1995). |
| |
10 |
.12 |
|
License Agreement dated as of March 6, 1995, between the
Registrant and BTR, Inc. (filed as Exhibit 10.20 to the
Registrant’s Annual Report on Form 10-K (File No. 0-21970)
for the fiscal year ended December 29, 1996). |
| |
10 |
.13 |
|
Patent Cross License Agreement dated August 25, 1998,
between the Registrant and QuickLogic Corporation. (filed as
Exhibit 10.19 to the Registrant’s Annual Report on
Form 10-K (File No. 0-21970) for the fiscal year ended
January 3, 1999). |
| |
10 |
.14 |
|
Development Agreement by and between the Registrant and Infineon
Technologies AG effective as of June 6, 2002 (filed as
Exhibit 10.19 to the Registrant’s Annual Report on
Form 10-K (File No. 0-21970) for the fiscal year ended
January 5, 2003). |
| |
|
|
|
|
| Exhibit | |
|
|
| Number | |
|
Description |
| | |
|
|
| |
10 |
.15 |
|
Supply Agreement by and between the Registrant and Infineon
Technologies AG effective as of June 6, 2002 (filed as
Exhibit 10.20 to the Registrant’s Annual Report on
Form 10-K (File No. 0-21970) for the fiscal year ended
January 5, 2003). |
| |
10 |
.16 |
|
Office Lease Agreement for the Registrant’s facilities in
Mountain View, California, dated February 27, 2003 (filed
as Exhibit 10.21 to the Registrant’s Annual Report on
Form 10-K (File No. 0-21970) for the fiscal year ended
January 5, 2003). |
| |
14 |
|
|
Code of Ethics for Principal Executive and Senior Financial
Officers (filed as Exhibit 14 to the Registrant’s
Annual Report on Form 10-K (File No. 0-21970) for the fiscal
year ended January 4, 2004). |
| |
21 |
|
|
Subsidiaries of Registrant. |
| |
23 |
|
|
Consent of Ernst & Young LLP, Independent Auditors. |
| |
24 |
|
|
Power of Attorney. |
| |
31 |
.1 |
|
Rule 13a-14(a)/15d-14(a) Certification of Chief Executive
Officer. |
| |
31 |
.2 |
|
Rule 13a-14(a)/15d-14(a) Certification of Chief Financial
Officer. |
| |
32 |
|
|
Section 1350 Certifications. |
|
|
| (1) |
This Exhibit is a management contract or compensatory plan or
arrangement. |