10-Q 1 q22001.txt QUARTERLY REPORT ON FORM 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 -------------------------------------- FORM 10-Q (Mark One) X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended July 1, 2001 OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission file number 0-21970 -------------------------------------- ACTEL CORPORATION (Exact name of Registrant as specified in its charter) California 77-0097724 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 955 East Arques Avenue Sunnyvale, California 94086-4533 (Address of principal executive offices) (Zip Code) (408) 739-1010 (Registrant's telephone number, including area code) -------------------------------------- Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes X No Number of shares of Common Stock outstanding as of August 10, 2001: 23,861,791 PART I -- FINANCIAL INFORMATION Item 1. Financial Statements.
ACTEL CORPORATION CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS (unaudited, in thousands except per share amounts) Three Months Ended Six Months Ended ---------------------------------------- -------------------------- Jul. 1, Jul. 2, Apr. 1, Jul. 1, Jul. 2, 2001 2000 2001 2001 2000 ------------ ------------ ------------ ------------ ------------ Net revenues................................ $ 36,460 $ 55,544 $ 45,034 $ 81,494 $ 106,210 Costs and expenses: Cost of revenues......................... 17,572 20,949 16,874 34,446 40,157 Research and development................. 9,103 8,888 9,764 18,867 17,239 Selling, general, and administrative..... 10,289 11,827 11,184 21,473 23,356 Amortization of goodwill and other acquisition-related intangibles........ 3,729 1,544 3,749 7,478 2,567 Purchased in-process research and development............................ -- 5,558 -- -- 5,558 ------------ ------------ ------------ ------------ ------------ Total costs and expenses........... 40,693 48,766 41,571 82,264 88,877 ------------ ------------ ------------ ------------ ------------ Income (loss) from operations............... (4,233) 6,778 3,463 (770) 17,333 Interest income and other, net.............. 2,023 1,859 2,085 4,108 3,164 Gain on sale of Chartered Semiconductor common stock............................... -- 28,329 -- -- 28,329 ------------ ------------ ------------ ------------ ------------ Income (loss) before tax provision and equity in net loss of equity method investee.... (2,210) 36,966 5,548 3,338 48,826 Equity in net (loss) of equity method investee -- (356) -- -- (479) Tax provision............................... 421 16,498 2,753 3,174 20,136 ------------ ------------ ------------ ------------ ------------ Net income (loss)........................... $ (2,631) $ 20,112 $ 2,795 $ 164 $ 28,211 Net income (loss) per share: Basic.................................... $ (0.11) $ 0.86 $ 0.12 $ 0.01 $ 1.23 ============ ============ ============ ============ ============ Diluted.................................. $ (0.11) $ 0.77 $ 0.11 $ 0.01 $ 1.09 ============ ============ ============ ============ ============ Shares used in computing net income (loss) per share: Basic.................................... 23,642 23,263 23,472 23,557 23,015 ============ ============ ============ ============ ============ Diluted.................................. 23,642 26,186 25,126 25,113 25,907 ============ ============ ============ ============ ============
ACTEL CORPORATION CONSOLIDATED CONDENSED BALANCE SHEETS (unaudited, in thousands) Jul. 1, Dec. 31, 2001 2000 ------------ ------------ ASSETS Current assets: Cash and cash equivalents.................. $ 5,576 $ 9,266 Short-term investments..................... 128,334 131,544 Accounts receivable, net................... 14,490 29,256 Inventories, net........................... 33,438 25,503 Deferred income taxes...................... 26,118 26,118 Prepaid expenses and other current assets.. 4,232 7,598 ------------ ------------ Total current assets................. 212,188 229,285 Property and equipment, net................... 13,363 12,137 Goodwill, net................................. 43,699 47,470 Other assets, net............................. 25,923 23,542 ------------ ------------ $ 295,173 $ 312,434 ============ ============ LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable........................... $ 11,902 $ 14,921 Accrued salaries and employee benefits..... 9,490 17,200 Other accrued liabilities.................. 4,586 5,354 Income taxes payable....................... 1,497 -- Deferred income............................ 31,091 44,858 ------------ ------------ Total current liabilities............ 58,566 82,333 Deferred compensation plan liability....... 1,934 -- ------------ ------------ Total liabilities.................... 60,500 82,333 Commitments and contingencies Shareholders' equity: Common stock............................... 24 23 Additional paid-in capital................. 154,169 150,709 Retained Earnings.......................... 80,072 79,908 Note receivable from officer............... (368) (368) Unearned compensation cost................. (430) (922) Accumulated other comprehensive income..... 1,206 751 ------------ ------------ Total shareholders' equity........... 234,673 230,101 ------------ ------------ $ 295,173 $ 312,434 ============ ============ ACTEL CORPORATION CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (unaudited, in thousands) Six Months Ended ---------------------- Jul. 1, Jul. 2, 2001 2000 --------- --------- Operating activities: Net income ....................................... $ 164 $ 28,211 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization .................. 10,995 6,538 Equity in net loss of equity method investee ... -- 479 Unearned compensation cost recognized .......... 157 -- Gain on sale of Chartered Semiconductor stock .. -- (28,329) Purchased in-process research and development .. -- 5,558 Changes in operating assets and liabilities: Accounts receivable .......................... 14,766 (5,143) Inventories .................................. (7,935) (1,437) Other current assets ......................... 3,366 (187) Accounts payable, accrued salaries and employee benefits, and other accrued liabilities ................................. (11,668) 7,767 Deferred compensation plan net assets ........ (124) -- Deferred income .............................. (13,767) 5,799 Deferred income taxes ........................ (664) (822) --------- --------- Net cash (used in) provided by operating activities (4,710) 18,434 --------- --------- Investing activities: Purchases of property and equipment .............. (4,743) (2,169) Purchases of available-for-sale securities ....... (97,180) (154,935) Sales of available-for-sale securities ........... 101,295 113,840 Proceeds from sale of Chartered Semiconductor common stock .................................... -- 39,009 Cash acquired in Prosys acquisition .............. -- 43 Note receivable from GateField ................... -- (1,000) Other assets ..................................... (2,313) 24 --------- --------- Net cash (used in) investing activities .......... (2,941) (5,188) --------- --------- Financing activities: Receipt of note payable from officer ............. -- (368) Proceeds from sale of common stock ............... 3,961 9,827 --------- --------- Net cash provided by financing activities ........ 3,961 9,459 --------- --------- Net increase (decrease) in cash and cash equivalents (3,690) 22,705 Cash and cash equivalents, beginning of period ...... 9,266 4,939 --------- --------- Cash and cash equivalents, end of period ............ $ 5,576 $ 27,644 ========= ========= Supplemental disclosures of cash flow information: Cash paid for taxes .............................. $ 199 $ 10,371 Supplemental disclosures of non-cash transactions: Issuance of common stock in conjunction with Prosys aquisition ............................... -- $ 7,526 1. Basis of Presentation and Summary of Significant Accounting Policies The accompanying unaudited consolidated financial statements of Actel Corporation (Actel) have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, these financial statements do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. The consolidated financial statements include the accounts of Actel and its wholly owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. The interim financial statements should be read in conjunction with the audited financial statements included in Actel's Annual Report on Form 10-K for the year ended December 31, 2000. The results of operations for the three and six months ended July 1, 2001, are not necessarily indicative of results that may be expected for the entire fiscal year, which ends January 6, 2002. 2. Derivatives and Hedging On January 1, 2001, Actel adopted Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative Instruments and Hedging Activities." SFAS 133 requires that all derivatives be recognized on the balance sheet at fair market value. Derivatives that are not hedges must be adjusted to fair value through earnings. If the derivative is a hedge, depending on the nature of the hedge, changes in the fair value of the derivative are either offset against the change in the fair value of the hedged item through earnings or recognized in other comprehensive income until the hedged item is recognized in earnings. The ineffective portion of a derivative's change in fair value is immediately recognized in earnings. The adoption of SFAS 133 did not have a material impact on Actel's consolidated financial position or operating results. Actel purchases a portion of its wafers used in production from a Japanese supplier denominated in Japanese Yen. The amount of US Dollars that are necessary to purchase wafers is subject to fluctuations in foreign currency exchange rates between the US Dollar and Yen. Actel enters into foreign exchange forward contracts to reduce the variability in the amount of US Dollars that will be required to settle forecasted wafer purchases denominated in Yen. Actel's accounting policies for these forward contracts are based on Actel's designation of the Yen forward contracts as foreign currency cash flow hedges. The criteria Actel uses for designating an instrument as a hedge includes its effectiveness in exposure reduction and one-to-one matching of the derivative financial instrument with the underlying transaction being hedged. Hedge effectiveness is assessed by comparing the change in fair value of the forward contract with the change in fair value of the forecasted payments. Gains and losses on these contracts are recognized upon usage of the contracts and are included in cost of sales along with the offsetting gain or loss on the underlying transactions being hedged. If the criteria for designation of these instruments as hedging transactions are not met, then the instruments would be marked to market, with gains and losses recognized in that period. At July 1, 2001, and December 31, 2000, Actel had no forward foreign exchange contracts outstanding and no amounts related to valuation of derivative financial instruments were included in other comprehensive income at either date. Actel limits the amount of forward foreign exchange contract to the amount sufficient to hedge forecasted Yen-based payments for a maximum of three months. Actel does not use forward foreign exchange contracts for speculative or trading purposes. During the second quarter of 2001, Actel did not enter into or hold any forward foreign exchange contracts. During the first quarter of 2001, Actel recognized $15,000 in loss on the income statement related to forward foreign exchange contracts. The forward contracts were perfectly effective as hedges and offset gains of $15,000 on payments for Yen denominated wafer purchases during the quarter. 3. Equity Accounting During 1998, Actel entered into a product marketing rights agreement with GateField Corporation (GateField) and made investments in GateField common stock and GateField convertible preferred stock, which were valued at cost. During 1999, Actel made additional investments in GateField, which resulted in Actel accounting for its investments in GateField under the equity method commencing July 1, 1999. On May 31, 2000, GateField and Actel announced the signing of a definitive agreement to merge. On November 15, 2000, the acquisition was completed and Actel paid cash consideration of $5.25 for each share of GateField common stock not already owned by Actel. Equity accounting was discontinued as a result of the acquisition on November 15, 2000. 4. Inventories Inventories consist of the following: July 1, Dec. 31, 2001 2000 ------------ ------------ (in thousands) Inventories: Purchased parts and raw materials............. $ 9,702 $ 5,334 Work-in-process............................... 19,533 11,443 Finished goods................................ 4,203 8,726 ------------ ------------ $ 33,438 $ 25,503 ============ ============ Inventories are stated at the lower of cost (first-in, first-out) or market (net realizable value). Given the volatility of the market for its products, Actel makes inventory provisions for potentially excess and obsolete inventory based on backlog and forecast demand. However, such backlog demand is subject to revisions, cancellations, and rescheduling. Actual demand will inevitably differ from such backlog and forecast demand, and such differences may be material to the financial statements. Excess inventory increases handling costs and the risk of obsolescence, is a non-productive use of capital resources, and delays realization of the price and performance benefits associated with more advanced manufacturing processes. 5. Earnings Per Share The following table sets forth the computation of basic and diluted earnings per share in accordance with SFAS No. 128, "Earnings per Share":
Three Months Ended Six Months Ended ---------------------------------------- -------------------------- Jul. 1, Jul. 2, Apr. 1, Jul. 1, Jul. 2, 2001 2000 2001 2001 2000 ------------ ------------ ------------ ------------ ------------ (in thousands, except per share amounts) Basic: Average common shares outstanding........... 23,642 23,263 23,472 23,557 23,015 Shares used in computing net income (loss) per shar ................................ 23,642 23,263 23,472 23,557 23,015 ============ ============ ============ ============ ============ Net income (loss)........................... $ (2,631) $ 20,112 $ 2,795 $ 164 $ 28,211 ============ ============ ============ ============ ============ Net income (loss) per share................. $ (0.11) $ 0.86 $ 0.12 $ 0.01 $ 1.23 ============ ============ ============ ============ ============ Diluted: Average common shares outstanding........... 23,642 23,263 23,472 23,557 23,015 Net effect of dilutive stock options - based on the treasury stock method............. -- 2,923 1,654 1,556 2,892 ------------ ------------ ------------ ------------ ------------ Shares used in computing net income (loss) per share.................................... 23,642 26,186 25,126 25,113 25,907 ============ ============ ============ ============ ============ Net income (loss)........................... $ (2,631) $ 20,112 $ 2,795 $ 164 $ 28,211 ============ ============ ============ ============ ============ Net income (loss) per share................. $ (0.11) $ 0.77 $ 0.11 $ 0.01 $ 1.09 ============ ============ ============ ============ ============
For the three-month period ended July 1, 2001, 1.4 million shares issuable upon the exercise of stock options were not included in the computation because their inclusion would have been antidilutive. 6. Comprehensive Income (Loss) The components of comprehensive income (loss), net of tax, are as follows:
Three Months Ended Six Months Ended ---------------------------------------- -------------------------- Jul. 1, Jul. 2, Apr. 1, Jul. 1, Jul. 2, 2001 2000 2001 2001 2000 ------------ ------------ ------------ ------------ ------------ Net Income/(Loss)........................... $ (2,631) $ 20,112 $ 2,795 $ 164 $ 28,211 Unrealized gain/(loss) on available-for-sale securities............................... 179 (5,738) 275 455 777 Less reclassification adjustment for (gains)/losses included in net income.... -- (17,189) -- -- (17,178) ------------ ------------ ------------ ------------ ------------ Other Comprehensive Income/(Loss)........... 179 (22,927) 275 455 (16,401) ------------ ------------ ------------ ------------ ------------ Total Comprehensive Income/(Loss)........... $ (2,452) $ (2,815) $ 3,070 $ 619 $ 11,810 ============ ============ ============ ============ ============
Accumulated other comprehensive income (loss) presented in the accompanying consolidated condensed balance sheets consists of the accumulated net unrealized gain (loss) on available-for-sale securities. 7. Infringement Claims On March 29, 2000, Unisys Corporation (Unisys) brought suit in the United States District Court for the Northern District of California, San Jose Division (Court), against Actel seeking monetary damages and injunctive relief. The summons and complaint were served on Actel on April 10, 2000. Actel and Unisys orally agreed to settle the case on April 25, 2001, and executed a definitive written settlement agreement on June 29, 2001. The Court dismissed the case with prejudice on July 13, 2001. The settlement was immaterial to Actel's business, financial condition, and operating results. As is typical in the semiconductor industry, Actel has been and expects to be notified from time to time of claims that it may be infringing patents owned by others. During the past year, Actel has held discussions regarding potential patent infringement issues. As it has in the past, Actel may obtain licenses under patents that it is alleged to infringe. When probable and reasonably estimable, Actel has made provision for the estimated settlement costs of claims for alleged infringement prior to the balance sheet date. While Actel believes that reasonable resolution will occur, there can be no assurance that these claims will be resolved or that the resolution of these claims will not have a materially adverse effect on Actel's business, financial condition, or results of operations. In addition, Actel's evaluation of the probable impact of these pending disputes could change based upon new information learned by Actel. Subject to the foregoing, Actel does not believe that any pending disputes are likely to have a materially adverse effect on Actel's financial condition, results of operations, or liquidity. The foregoing is a forward-looking statement subject to all of the risks and uncertainties of patent claims, including the discovery of new information and unpredictability as to the outcome of any proceeding. 8. Recent Accounting Pronouncements In July 2001, the Financial Accounting Standards Board issued Statements of Financial Accounting Standards (SFAS) No. 141, "Business Combinations," and SFAS No. 142, "Goodwill and Other Intangible Assets." These standards become effective for fiscal years beginning after December 15, 2001. Beginning in Actel's 2002 fiscal year, the first quarter of which ends April 7, 2002, goodwill will no longer be amortized but will be subject to annual impairment tests. All other intangible assets will continue to be amortized over their estimated useful lives. Actel is currently evaluating the impact that the adoption of SFAS 141 and SFAS 142 will have on future results of operations or financial position. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. All forward-looking statements contained in this Quarterly Report on Form 10-Q, including all forward-looking statements contained in any document incorporated herein by reference, are made pursuant to the safe harbor provisions of the Public Securities Litigation Reform Act of 1995. Words such as "anticipates," "believes," "estimates," "expects," intends," "plans," "seeks," and variations of such words and similar expressions are intended to identify the forward-looking statements. In addition, all forward-looking statements are based on current expectations and projections about the semiconductor industry and programmable logic market, and assumptions made by Actel's management that reflect its best judgment based on other factors currently known by management, but they are not guarantees of future performance. Accordingly, actual events and results may differ materially from those expressed or forecast in the forward-looking statements due to the risk factors identified herein or for other reasons. Actel undertakes no obligation to update any statement, including any forward-looking statement, contained or incorporated by reference in this Quarterly Report on Form 10-Q. Results of Operations Net Revenues Net revenues were $36.5 million for the second quarter of 2001, a decrease of 19% from the first quarter of 2001 and of 34% from the second quarter of 2000. Quarterly net revenues declined sequentially due to a 17% decrease in overall unit shipments of field programmable gate arrays (FPGAs) and a 2% decrease in the overall average selling price (ASP) of FPGAs. Quarterly net revenues declined from a year ago due to a 34% decrease in unit shipments and a 1% decrease in ASP. Net revenues were $81.5 million for the first six months of fiscal 2001, a decrease of 23% from the first six months of fiscal 2000. Six-month net revenues declined from a year ago due to a 25% decrease in unit shipments, which was offset in part by a 2% increase in ASP. Gross Margin Gross margin was 51.8% of net revenues for the second quarter of 2001, compared with 62.5% for the first quarter of 2001 and 62.3% for the second quarter of 2000. Gross margin was 57.7% of net revenues for the first six months of 2001, compared with 62.2% of net revenues for the first six months of 2000. The decline in gross margin was due to higher inventory reserves taken in the second quarter of 2001 as a result of lower customer demand and reduced manufacturing and operating efficiencies associated with lower net revenues. Actel seeks to improve gross margin by reducing costs. These cost reduction activities include improving wafer yields, negotiating price reductions with suppliers, increasing the level and efficiency of its testing and packaging operations, achieving economies of scale by means of higher production levels, and increasing the number of die produced per wafer by shrinking the die size of its products. There can be no assurance that these efforts will be successful. The ability of Actel to shrink the die size of its FPGAs is dependent on the availability of more advanced manufacturing processes. Due to the custom steps involved in manufacturing antifuse-based FPGAs, Actel typically obtains access to new manufacturing processes later than its competitors using standard manufacturing processes. Research and Development (R&D) R&D expenditures were $9.1 million, or 25% of net revenues, for the second quarter of 2001, compared with $9.8 million, or 22% of net revenues, for the first quarter of 2001 and $8.9 million, or 16% of revenues, for the second quarter of 2000. The sequential reduction of $0.7 million in R&D spending was the result of cost reduction activities undertaken by Actel in response to declining net revenues. These cost reduction activities reductions included required time off for employees. R&D expenditures were $18.9 million, or 23.2% of net revenues, for the first six months of 2001, compared with $17.2 million, or 16.2% of net revenues, for the first six months of 2000. R&D spending increased from a year ago primarily as a result of Actel's acquisitions of Prosys Technology (Prosys), an embedded FPGA intellectual property (IP) developer, in June 2000 and of GateField Corporation (GateField), a developer of flash-based FPGA products, in November 2000. During the second quarter, Actel announced a new corporate initiative to address interoperability problems created by the proliferation of high-performance interface standards. Actel plans to increase R&D spending in support of the interface initiative by $8.0 to $10.0 million over the next six or seven quarters, after which R&D spending as a percentage of sales should return to levels more consistent with Actel's historical experience. Selling, General, and Administrative (SG&A) SG&A expenses were $10.3 million, or 28% of net revenues, for the second quarter of 2001, compared with $11.2 million, or 25% of net revenues, for the first quarter of 2001 and $11.8 million, or 21% of net revenues, for the second quarter of 2000. SG&A expenses were $21.5 million, or 26% of net revenues, for the first six months of 2001, compared with $23.4 million, or 22% of net revenues, for the first six months of fiscal 2000. SG&A expenses declined primarily as a result of lower selling costs associated with lower net revenues and general cost reduction activities. Amortization of Goodwill and Other Acquisition-Related Intangibles and Expenses Amortization of goodwill and other acquisition-related intangibles and expenses was $3.7 million for the second quarter of 2001, compared with $3.7 million for the first quarter of 2001 and $1.5 million for the second quarter of 2000. Amortization of goodwill and other acquisition-related intangibles was $7.5 million for the first six months of 2001, compared with $2.6 million for the first six months of 2000. The quarterly and six-month increases from a year ago were due to the effects of the Prosys acquisition, which occurred late in the second quarter of 2000, and the GateField acquisition, which occurred in the middle of the fourth quarter of 2000. Interest Income and Other (Net) Interest income and other (net) were $2.0 million for the second quarter of 2001, compared with $2.1 million for the first quarter of 2001 and $1.9 for the second quarter of 2000. Interest income and other (net) were $4.1 million for the first six months of 2001, compared with $3.2 million for the first six months of 2000. The six-month increase from a year ago was due primarily to increased cash, cash equivalents, and short-term investments available for investing by Actel, as well as the elimination of losses booked on account of Actel's equity investments in GateField. Tax Provision Actel's effective rate was 30% for the three months ended July 1, 2001, compared with 30% for the first quarter of 2001 and 32% for the second quarter of 2000. The decrease in the effective rate from a year ago was due primarily to increased R&D credits and tax-exempt income as a percentage of projected pre-tax book income. Actel's effective rate for the six months ended July 1, 2001, was 30%, compared with 42% for the first six months of 2000. The effective tax rate was higher a year ago due to a one-time gain on the sale of Chartered Semiconductor common stock by Actel in the second quarter of 2000. Excluding the one-time gain, the rate for the first six months of 2000 was 30%. The effective tax rates are based on the estimated annual tax rate in compliance with SFAS No. 109, "Accounting for Income Taxes." This rate differs from the federal statutory rate due primarily to state income taxes (net of federal benefit), the benefits of R&D credits and tax exempt income, and the recognition of certain deferred tax assets subject to valuation allowances as of December 31, 2000. Liquidity and Capital Resources Actel's cash, cash equivalents, and short-term investments were $133.9 million at the end of the second quarter of 2001, compared with $140.8 million at the beginning of 2001. The amount of cash and cash equivalents decreased principally because of the growth in inventory. During the first six months of 2001, $4.7 million of cash was used in operating activities and $2.9 million of cash was used in investing activities, net of $4.1 million provided by net maturities of available-for-sale securities that were not re-invested and $4.7 million purchases of property and equipment. Financing activities provided cash of $4.0 million, which was generated from sales of common stock under employee option and stock purchase plans. Actel has a line of credit with a bank that provides for borrowings not to exceed $5 million. The agreement contains covenants that require Actel to maintain certain financial ratios and levels of net worth. As of July 1, 2001, Actel was in compliance with the covenants for the line of credit. Borrowings against the line of credit bear interest at the bank's prime rate. There were no borrowings against the line of credit at July 1, 2001. The line of credit, which expires in May 2002, may be terminated by either party upon not less than thirty days' prior written notice. Actel believes that existing cash, cash equivalents, and short-term investments, together with cash from operations, will be sufficient to meet its cash requirements for the next four quarters. A portion of available cash may be used for investment in or acquisition of complementary businesses, products, or technologies. Wafer manufacturers are increasingly demanding financial support from customers in the form of equity investments and advance purchase price deposits, which can be substantial. If Actel requires additional capacity, it may be required to incur significant expenditures to secure such capacity. Actel believes that the availability of adequate financial resources is a substantial competitive factor. To take advantage of opportunities as they arise, or to withstand adverse business conditions when they occur, it may become prudent or necessary for Actel to raise additional capital. Actel intends to continue monitoring the availability and cost of potential capital resources, including equity, debt, and off-balance sheet financing arrangements, and may consider raising additional capital on terms that are acceptable to Actel. There can be no assurance that additional capital will become available on acceptable terms. Other Factors Affecting Future Operating Results Actel's operating results are subject to general economic conditions and a variety of risks characteristic of the semiconductor industry (including booking and shipment uncertainties, wafer supply fluctuations, and price erosion) or specific to Actel, any of which could cause Actel's operating results to differ materially from past results. For a discussion of such risks, see "Risk Factors" in Part I of Actel's Annual Report on Form 10-K for 2000, which is incorporated herein by this reference. Item 3. Quantitative and Qualitative Disclosures About Market Risk As of July 1, 2001, Actel's investment portfolio consisted primarily of corporate bonds, floating rate notes, and federal and municipal obligations. The principal objectives of Actel's investment activities are to preserve principal, meet liquidity needs, and maximize yields. To meet these objectives, Actel invests only in high credit quality debt securities with average maturities of less than two years. Actel also limits the percentage of total investments that may be invested in any one issuer. Corporate investments as a group are also limited to a maximum percentage of Actel's investment portfolio. Actel is exposed to financial market risks, including changes in interest rates, foreign currency exchange rates, and marketable equity security prices. All of the potential changes noted below are based upon sensitivity analysis performed on Actel's financial position and expected operating levels at July 1, 2001. Actual results may differ materially. Actel's investments are subject to interest rate risk. An increase in interest rates could subject Actel to a decline in the market value of its investments. These risks are mitigated by the ability of Actel to hold these investments to maturity. A hypothetical 100 basis point increase in interest rates would result in a reduction of approximately $1.9 million in the fair value of Actel's available-for-sale securities held at July 1, 2001. Actel purchases a portion of the wafers it uses in production from Japanese suppliers, which are denominated in Japanese Yen. An adverse change in the foreign exchange rate would affect the price Actel pays for a portion of the wafers used in production over the long term. Actel attempts to mitigate its exposure to risks from foreign currency fluctuations by purchasing forward foreign exchange contracts to hedge firm purchase commitments denominated in foreign currencies. Forward exchange contracts are short term and do not hedge purchases that will be made for anticipated longer-term wafer needs. An adverse change of 10% in exchange rates would result in a reduction in income before taxes of approximately $1.5 million based on projected Yen denominated wafer purchases for the next year. Actel's strategic investments in marketable equity securities are subject to equity price risks. Actel typically does not attempt to reduce or eliminate market exposure on these securities. Assuming a 10% adverse change, Actel's marketable strategic equity securities would decrease in value by approximately $0.6 million, based on the value of the portfolio as of July 1, 2001. Additional Quarterly Information The following table presents certain unaudited quarterly results for each of the eight quarters in the period ended July 1, 2001. In the opinion of management, all necessary adjustments (consisting only of normal recurring accruals) have been included in the amounts stated below to present fairly the unaudited quarterly results when read in conjunction with the audited consolidated financial statements of Actel and notes thereto included in Actel's Annual Report on Form 10-K for the year ended December 31, 2001. These quarterly operating results are not necessarily indicative of the results for any future period.
Three Months Ended -------------------------------------------------------------------------------------- Jul. 1, Apr. 1, Dec. 31, Oct. 1, Jul. 2, Apr. 2, Jan. 2, Oct. 3, 2001 2001 2000 2000 2000 2000 2000 1999 ======== ======== ======== ======== ======== ======== ======== ======== (in thousands, except per share amounts) Statements of Operations Data: Net revenues ........................... $ 36,460 $ 45,034 $ 60,129 $ 60,080 $ 55,544 $ 50,666 $ 46,042 $ 43,162 Gross profit ........................... 18,888 28,160 38,060 37,626 34,595 31,458 28,546 26,503 Income (loss) from operations .......... (4,233) 3,463 7,497 13,648 6,778 10,555 7,175 7,492 Net income (loss) ...................... $ (2,631) $ 2,795 $ 3,455 $ 9,779 $ 20,112 $ 8,099 $ 5,823 $ 5,668 Net income (loss) per share: Basic ............................... $ (0.11) $ 0.12 $ 0.14 $ 0.41 $ 0.86 $ 0.36 $ 0.26 $ 0.26 ======== ======== ======== ======== ======== ======== ======== ======== Diluted ............................. $ (0.11) $ 0.11 $ 0.13 $ 0.36 $ 0.77 $ 0.32 $ 0.24 $ 0.25 ======== ======== ======== ======== ======== ======== ======== ======== Shares used in computing net income (loss) per share: Basic ............................... 23,642 23,472 23,890 23,869 23,263 22,767 22,048 21,748 ======== ======== ======== ======== ======== ======== ======== ======== Diluted ............................. 23,642 25,126 26,107 26,999 26,186 25,467 24,015 23,003 ======== ======== ======== ======== ======== ======== ======== ========
Three Months Ended -------------------------------------------------------------------------------------- Jul. 1, Apr. 1, Dec. 31, Oct. 1, Jul. 2, Apr. 2, Jan. 2, Oct. 3, 2001 2001 2000 2000 2000 2000 2000 1999 ======== ======== ======== ======== ======== ======== ======== ======== (in thousands, except per share amounts) 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............................... 51.8 62.5 63.3 62.6 62.3 62.1 62.0 61.4 Income (loss) from operations.............. (11.6) 7.7 12.5 22.7 12.2 20.8 15.6 17.4 Net income (loss) ......................... (7.2) 6.2 5.7 16.3 36.2 16.0 12.6 13.1
PART II -- OTHER INFORMATION Item 1. Legal Proceedings On March 29, 2000, Unisys Corporation (Unisys) brought suit in the United States District Court for the Northern District of California, San Jose Division (Court), against Actel seeking monetary damages and injunctive relief. The summons and complaint were served on Actel on April 10, 2000. Actel and Unisys orally agreed to settle the case on April 25, 2001, and executed a definitive written settlement agreement on June 29, 2001. The Court dismissed the case with prejudice on July 13, 2001. The settlement was immaterial to Actel's business, financial condition, and operating results. Currently, there are no pending legal proceedings of a material nature to which Actel is a party or of which any of its property is the subject. There are no such legal proceedings known by Actel to be contemplated by any governmental authority. As is typical in the semiconductor industry, Actel has been and expects to be notified from time to time of claims that it may be infringing patents owned by others. During the past year, Actel has held discussions regarding potential patent infringement issues. As it has in the past, Actel may obtain licenses under patents that it is alleged to infringe. When probable and reasonably estimable, Actel has made provision for the estimated settlement costs of claims for alleged infringement prior to the balance sheet date. While Actel believes that reasonable resolution will occur, there can be no assurance that these claims will be resolved or that the resolution of these claims will not have a materially adverse effect on Actel's business, financial condition, or results of operations. In addition, Actel's evaluation of the probable impact of these pending disputes could change based upon new information learned by Actel. Subject to the foregoing, Actel does not believe that any pending disputes are likely to have a materially adverse effect on Actel's financial condition, results of operations, or liquidity. The foregoing is a forward-looking statement subject to all of the risks and uncertainties of patent claims, including the discovery of new information and unpredictability as to the outcome of any proceeding. Item 4. Submission of Matters to a Vote of Security Holders The Annual Meeting of Shareholders of Actel was held on May 18, 2001. At the Annual Meeting, Actel shareholders (i) elected directors to serve until the next Annual Meeting of Shareholders and until their successors are elected; (ii) approved Actel's 1986 Incentive Stock Option Plan as amended and restated to prohibit stock option repricings and cancellation/replacement awards that result in variable award accounting, prohibit the granting of any option at less than fair market value, and extend the term of the Plan until May 2011; and (iii) ratified the appointment of Ernst & Young LLP as Actel's independent auditors for the fiscal year ending January 6, 2002. The vote for nominated directors was as follows:
Nominee For Withheld ------------------------------------- ------------------------------------- ------------------------------------- John C. East......................... 17,246,221 2,273,874 James R. Fiebiger.................... 19,394,379 125,716 Jos C. Henkens....................... 14,476,592 5,043,503 Jacob S. Jacobsson................... 19,394,179 125,916 Frederic N. Schwettmann.............. 19,394,079 126,016 Robert G. Spencer.................... 19,394,379 125,716
The vote on approval of Actel's 1986 Incentive Stock Option Plan as amended and restated was as follows:
For Against Abstain ------------------------------------- ------------------------------------- ------------------------------------- 15,042,882 4,456,294 20,919
The vote on ratification of the appointment of Ernst & Young LLP was as follows:
For Against Abstain ------------------------------------- ------------------------------------- ------------------------------------- 19,383,983 126,230 9,882
Item 6. Exhibits and Reports on Form 8-K (a) Exhibits Exhibit Number Description ---------------------- ------------------------------------------------------- 10.1* Form of Management Continuity Agreement, as amended and restated. *This Exhibit is a management contract or compensatory plan or arrangement. (b) Reports on Form 8-K None. SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. ACTEL CORPORATION Date: August 13, 2001 /s/ Henry L. Perret ------------------------------------- Henry L. Perret Vice President of Finance and Chief Financial Officer (as principal financial officer and on behalf of Registrant)