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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 March 31, 1995 or
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from __________ to __________
Commission file number 0-16617
ALTERA CORPORATION
(Exact name of registrant as specified in its charter)
California 77-0016691
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2610 Orchard Parkway, San Jose, California 95134
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (408) 894-7000
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 at least the past 90 days.
Yes X No
_____ _____
Number of shares of common stock outstanding at March 31, 1995: 21,599,083
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ALTERA CORPORATION
FORM 10-Q
FOR THE QUARTER ENDED
MARCH 31, 1995
PART I
FINANCIAL INFORMATION AND
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
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ALTERA CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts)
March 31, Dec. 31,
1995 1994
--------- --------
(Unaudited)
ASSETS
Current assets:
Cash, cash equivalents $ 57,445 $ 41,639
Short-term investments 50,710 50,955
Total cash, cash equivalents, and -------- --------
short-term investments 108,155 92,594
Accounts receivable, less allowance
for doubtful accounts of $769 and $727 43,904 31,662
Inventories 37,403 38,477
Deferred income taxes 12,365 12,365
Other current assets 3,383 2,244
-------- --------
Total current assets 205,210 177,342
Property and equipment, net 21,187 18,212
Investments 17,650 18,328
-------- --------
$244,047 $213,882
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $14,115 $11,313
Accrued liabilities 40,267 34,573
Accrued compensation 5,444 8,631
Income taxes payable 9,294 1,346
-------- --------
Total current liabilities 69,120 55,863
-------- --------
Shareholders' equity:
Common stock; no par value: 40,000,000
shares authorized, 21,599,083 and 21,487,814
shares issued and outstanding 74,957 73,146
Retained earnings 99,970 84,873
-------- --------
174,927 158,019
-------- --------
$244,047 $213,882
======== ========
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ALTERA CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)
THREE MONTHS ENDED
---------------------------
1995 1994
--------- ---------
Sales $75,038 $43,510
Costs and expenses: ------- -------
Cost of sales 30,051 16,979
Research and development 6,586 4,732
Selling, general, and administrative 15,382 9,909
------- -------
Total operating expenses 52,019 31,620
------- -------
Operating income 23,019 11,890
Interest and other income 945 265
------- -------
Income before taxes 23,964 12,155
Provision for income taxes 8,867 4,498
------- -------
Net income $15,097 $ 7,657
======= =======
Net income per share $ 0.67 $ 0.36
======= =======
Shares and equivalents used in
calculation of net income per share 22,531 21,388
======= =======
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ALTERA CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
(In thousands)
(Unaudited)
THREE MONTHS ENDED
--------------------------------
March 31, March 31,
1995 1994
--------- ---------
Cash flows from operating activities:
Net income $15,097 $7,657
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 2,666 2,293
Changes in assets and liabilities:
Accounts receivable, net (12,242) (2,684)
Inventories 1,074 (271)
Other current assets (1,139) 254
Accounts payable 2,802 1,142
Accrued liabilities 6,011 1,178
Accrued compensation (3,187) (2,617)
Income taxes payable 7,948 2,923
------- -------
Cash provided by operating activities 19,030 9,875
------- -------
Cash flows from investing activities:
Purchases of property and equipment (5,280) (1,522)
Net change in short term investments 245 (8,350)
------- -------
Cash used for investing activities (5,035) (9,872)
------- -------
Cash flows from financing activities:
Net proceeds from issuance of common stock 1,811 1,870
------- -------
Net increase in cash and cash equivalents 15,806 1,873
Cash and cash equivalents at beginning of period 41,639 16,832
------- -------
Cash and cash equivalents at end of period $57,445 $18,705
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Supplemental disclosure of cash flow information:
Cash paid during the period for income taxes $910 $1,500
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ALTERA CORPORATION
NOTES TO FINANCIAL INFORMATION
(Unaudited)
Note 1 - Interim Statements:
In the opinion of the Company, the accompanying unaudited financial data
contain all adjustments, consisting only of normal, recurring adjustments,
necessary to present fairly the financial information included therein. This
financial data should be read in conjunction with the audited financial
statements and notes thereto included in the Company's Annual Report to
Shareholders for the year ended December 31, 1994. Results for the interim
period presented are not necessarily indicative of results for the entire year.
Note 2 - Balance Sheet Detail:
.
(In Thousands)
Mar. 31, Dec. 31,
1995 1994
----------- -----------
(Unaudited)
Inventories:
Purchased parts and raw materials $ 2,312 $ 2,185
Work-in-process 20,893 22,230
Finished goods 14,198 14,062
------- -------
$37,403 $38,477
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Property and equipment:
Equipment $46,626 $43,284
Office furniture and equipment 4,412 4,124
Leasehold improvements 3,170 2,852
------ ------
54,208 50,260
Less accumulated depreciation and
amortization (33,021) (32,048)
------ ------
$21,187 $18,212
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Note 3 - Net income per Share:
Income per share is computed using the weighted average number of common and
dilutive common equivalent shares outstanding during the period. Dilutive
common equivalent shares consist of the assumed net shares issuable upon the
exercise of dilutive stock options using the treasury stock method.
Note 4 - Subsequent Event:
The Company has announced a 2-for-1 split of its outstanding Common Stock. The
Record Date for the split is May 10, 1995, and the Payment Date is May 31, 1995,
both subject to adjustment at the discretion of the Company. Effective on the
Record Date, the number of authorized shares of the Company's Common Stock will
increase from 40,000,000 to 80,000,000.
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ALTERA CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
Sales. First quarter 1995 sales of $75.0 million were 72% higher than
the $43.5 million reported for the same period last year, and were up 27% from
fourth quarter 1994 sales of $59.2 million. Sales were higher than the first
quarter of 1994 primarily as a result of higher sales of the Company's MAX 7000
and FLEX 8000 product lines, as well as sales of products acquired from Intel
on October 1, 1994, including the Classic and FLEXlogic (now called FLASHlogic)
product lines. As compared to the same period last year, revenues increased in
all geographic areas with a 73% improvement in North America, and a 72%
improvement internationally. International sales growth over the last year has
been balanced amongst the geographic regions with Europe and Asia generating
comparable growth. Compared to last quarter, MAX 7000 sales increased 29% and
FLEX 8000 increased 20%. Sales of the Company's Classic family increased 46%
driven by the business purchased from Intel. By region, the highest percentage
growth rates from prior quarter occurred in Europe.
Historically, semiconductor prices decline as products mature. New
product introductions from competitors may also increase pricing pressure and
compete for overall unit sales. Historically, the Company has responded to
these pressures with the introduction of new, higher margin products. The
Company introduced the FLEX 8000 line of products in early 1993. In order to
generate customer acceptance of this product, and to stimulate selling
activity, the Company significantly reduced prices on this product line in
1994. Although the Company has taken actions to reduce the manufacturing cost
of the family, margins are still lower than Company's margins on average. The
Company anticipates that the FLEX 8000 family will constitute a proportionately
higher share of revenues in future quarters, and unless continued efforts to
reduce manufacturing costs are successful, the increased sales will reduce
margins for the Company as a whole. There can be no assurance that the FLEX
8000 family, or other new products will be successful in securing broad market
acceptance or achieving higher margins, or that the average selling price
decline on existing products will not accelerate.
In general, economic conditions in many of the end markets that use
the Company's products have been favorable in recent quarters. The favorable
economic climate has been a positive factor in stimulating demand for the
Company's products. There can be no assurance that general economic
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conditions will continue to improve, or that they will not deteriorate. The
Company's business prospects in the next several quarters will depend, in part,
on worldwide economic conditions, and may weaken due to the factors discussed
above. Altera's sales history cannot be used to predict future results.
Gross Margin. In dollar terms, gross margin for the first quarter
was $45.0 million, an increase from $26.5 million in the same period last year
and also an improvement from the $35.6 million recorded in the fourth quarter
of 1994. Gross margin as a percentage of sales in the first quarter was 60.0%,
compared to 61.0% in the year earlier quarter and 60.1% in the fourth quarter
of 1994. The degradation in margin percentage as compared to the year earlier
period resulted primarily from lower prices to end customers and higher costs
for purchased silicon wafers. The majority of the Company's silicon wafers are
purchased in Yen, and the appreciation of the Yen versus the Dollar has
resulted in higher costs to the Company. Although measures to reduce other
costs have achieved success in the last year, the cost reductions have not been
sufficient to fully counter the effects of lower selling prices and higher
silicon wafer costs. Moreover, the Yen continued to gain strength late in the
quarter. At the current exchange rate, the recent rise in the value of the Yen
is expected to have an even greater adverse impact on the Company's margins in
forthcoming quarters.
The degradation in margin percentage of 0.1 points compared to last
quarter resulted primarily from lower manufacturing yields which were only
partially offset by improved scale economies on higher manufacturing volumes.
Yields on the MAX 7000 and FLEX 8000 lines of products have decreased as
compared to quarter four of 1994. The Company continues to spend significant
research and development resources improving production yields on its products
to commercially acceptable levels. However, there can be no guarantee that
yield problems the Company is presently experiencing will abate, or that yields
will not deteriorate even further in the future. Also, even if the Company is
successful in improving yields in the short term, there can be no assurance
that they will not deteriorate again in the future, or that the need to improve
product yields might not recur with existing or new products or fabrication
processes. The Company recently began obtaining wafers from Taiwan
Semiconductor Manufacturing Corporation (TSMC) of Taiwan and is now commencing
commercial volume production at this vendor. Management is hopeful that TSMC's
aggressive manufacturing processes will enable the Company to lower its costs,
particularly on the FLEX 8000 family, as mentioned above. However, there can
be no assurances that these cost reductions will be achieved. Start-up
difficulties often occur when beginning production of products on new
processes, and these difficulties could potentially result in higher costs and
reduced product availability. Management also expects to introduce products in
the future using other process technologies new to the Company. Production
throughput times also vary considerably among the Company's wafer suppliers.
The Company has experienced delays from time to time in processing some of its
products and recently
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experienced long lead times from vendors on some of its newer products. Long
vendor lead times impair the Company's ability to respond to rapidly changing
market conditions. Many other uncertainties exist that could adversely impact
future margins, including deterioration of production yields, delays in new
product availability, shortages from other suppliers, or lack of market
acceptance of new products.
Research and Development. Research and development expenditures were
$6.6 million, or $1.9 million higher than the quarter ended a year ago, and
approximately equal to the prior quarter's expenditures of $6.5 million
(excluding the fourth quarter 1994 research and development in process charge
of $23.7 million associated with the purchase of the PLD product line from
Intel). The increase as compared to the previous year is the result of higher
expenditures on prototype and development wafers, especially for the MAX 9000
family of products announced by the Company in September of 1994. Additional
increases in research and development spending included process development
costs and greater development software efforts. Management of the Company
expects to continue investing significant research and development efforts into
the development of programmable logic chips, related development software and
hardware, and advanced semiconductor wafer fabrication processes. However,
even if the Company accomplishes its goals for the development of new products
and manufacturing processes, there is no assurance that these products will
achieve market acceptance or that the new manufacturing processes will be
successful, or that the suppliers will provide the Company with the quality or
quantity of wafers and materials that the Company requires. The Company must
continue to develop and introduce new products in a timely manner to counter
the industry's historical trend of prices declining as products mature.
Selling, General, and Administrative. First quarter selling, general,
and administrative expenses of $15.4 million increased $5.5 million from a year
ago, and $2.2 million from the prior quarter. The increase as compared to the
prior year was due to increased commission and incentive expenses (on the
increased sales volume), increased advertising and promotional expenditures,
increased field sales, and marketing and administrative headcounts. As a
percentage of revenue, first quarter selling, general and administrative
expenses at 20.5% were down from both of the referenced quarters.
The Company uses three methods to market its products: direct sales to
electronics manufacturers via independent sales representatives, sales through
licensed domestic and foreign distributors, and direct sales to customers by
Altera sales department personnel. The Company has twelve U.S. and eight
international sales offices. Approximately seventy-five percent of the
Company's worldwide sales are made through distributors. As a percent of
revenue, selling expenses were lower than they were in the prior quarter and in
the quarter ended one year ago.
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Operating Income. First quarter 1995 operating income ($23.0 million)
represented 31% of sales in the quarter, and was considerably higher than both
the first quarter of 1994 and the most recent prior quarter on a percentage of
revenue basis. This improvement is attributed to the growth in revenues, which
have grown faster than operating expenses.
Interest and Other Income. Interest income improved over last quarter
and prior year as a result of increased cash balances.
Income Taxes. The Company's provision for income taxes was 37%,
consistent with the first quarter of 1994. The tax provision rate in the
fourth quarter of 1994 was -35% owing to the tax effects of the research and
development in process write-off associated with the Intel PLD product line
purchase. Excluding these effects, the fourth quarter tax provision rate was
37%.
Future Results. Future operating results depend on the Company's
ability to develop, manufacture, and sell complicated semiconductor components
and complex software that offer customers greater value than competing vendors.
The Company's efforts in this regard may not be successful. Also, a number of
factors outside of the Company's control, including general economic conditions
and cycles in world markets, exchange rate fluctuations, or a lack of growth in
the Company's end markets could impact future results. The Company is highly
dependent upon subcontractors to manufacture silicon wafers and perform
assembly and testing services. Disruptions or adverse supply conditions
arising from market conditions, political strife, labor disruptions, natural or
man-made disasters, other factors, and even normal process variations could
have extreme adverse consequences on the Company's future operating results.
Orders for the Company s products have been rising rapidly over the last
several quarters. If the growth in orders continues at its present rate, the
Company may not be able to satisfy all of the demand for its products over the
next several quarters on a timely basis. Competitive break-throughs, and
particularly competitive pricing could also impact future operating results.
Additionally, litigation relating to patents and intellectual property could
have an adverse impact on future operating results. Past financial
performance is not an indicator of future results and investors should not rely
on historical trends to anticipate future results.
The Company attempts to ensure that its products and processes do not
infringe the patent and proprietary rights of others, but cannot be certain
that they are not doing so. As a result of its various technology licensing
agreements, the Company has been granted rights to design, manufacture,
package, and sell products using certain patents controlled by AMD, Cypress
Semiconductor, Intel, and Texas Instruments. Other companies have filed
applications for, or have been issued, other patents and
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may obtain additional patents and proprietary rights relating to products or
processes competitive with those of the Company. As a result, it may be
necessary or desirable for the Company to obtain additional licenses relating
to one or more of its current or future products. There is no assurance that
such additional licenses could be obtained, and, if obtainable, could be
obtained on conditions that would not have a materially adverse financial
effect on the Company.
Liquidity and Capital Resources
In the quarter total cash, equivalents, and short term investments
increased by $15.6 million to $108.2 million. The Company has no debt or
capitalized lease obligations.
Capital expenditures through the first three months of 1995 totaled
$5.3 million. The Company expects to invest approximately $35.0 million of
additional capital during the last nine months of 1995, including approximately
$20 million for a land purchase which is presently in escrow and is anticipated
to close in the second quarter of this year. The Company intends to purchase
this land, approximately 25 acres near its present headquarters, with cash, for
the long term development of a corporate campus and headquarters. The Company
is presently formulating development plans for the site and anticipates
building approximately 350,000 square feet of office space and light
manufacturing on the new site, with capacity for an additional 150,000 square
feet of expansion. The first phase of construction might be completed as soon
as 1997. Although the Company might consider outside financing for the
development and construction of the site, management believes that the total
costs could be provided by existing cash balances and future cash flows from
operations.
The Company believes that its cash, cash equivalents, and short-term
investments, combined with cash generated from ongoing operations, will be
adequate to finance the Company's operations and capital investment needs for
at least the next year.
Impact of Currency and Inflation. The Company purchases the majority
of its materials and services in U.S. Dollars, and most of its foreign sales
are transacted in U.S. dollars. However, Altera does have Yen denominated
purchase contracts with Sharp Corporation of Japan for processed silicon
wafers. The Company historically has engaged in a variety of foreign exchange
hedging strategies to mitigate the exposure from these Yen denominated
purchases. This hedging has included the purchase of forward contracts and the
use of offsetting Yen receipts. Throughout 1994 and thus far this year, the
Company has held no forward Yen contracts. Recent results have been adversely
impacted by the recent increase in the Yen, and the concomitant increase in
material costs. Continued or increasing
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strength in the value of the Yen will continue to unfavorably impact the
Company's material costs. Effects of inflation on Altera's financial results
have not been significant.
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ALTERA CORPORATION
FORM 10-Q
FOR THE QUARTER ENDED
MARCH 31, 1995
PART II
OTHER INFORMATION
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Item 3. Legal Proceedings
In June 1993, a lawsuit was filed against the Company in San Jose,
California by Xilinx, Inc., alleging infringement of certain patents held by
Xilinx. The complaint seeks unspecified compensatory damages and costs and
attorneys' fees, and an injunction prohibiting continuing infringement. Xilinx
subsequently filed a Motion for Preliminary Injunction to prohibit the
manufacture and sale of FLEX 8000 products by Altera. In February 1994,
Xilinx expanded its infringement claims to cover the Company's MAX 5000 and MAX
7000 products in addition to the FLEX 8000 products. The court ruled against
the Motion for Preliminary Injunction in April 1994. Limited discovery has
taken place in the case, and the court has not yet set a schedule for trial.
The Company disputes the merits of Xilinx's allegations and intends to defend
this action vigorously.
In June 1993, a lawsuit was filed by the Company in San Jose,
California against Xilinx for infringement of certain of the Company's patents
by the Xilinx XC3000 and XC4000 product families. The complaint seeks
unspecified compensatory damages and costs and attorneys' fees, and an
injunction prohibiting continuing infringement. The complaint was amended in
July 1993 to add allegations of infringement of an additional patent. In June
1994, Xilinx filed motions for Summary Judgment asking the court to dismiss
most of Altera's suit against Xilinx. In December 1994, the court denied these
motions. Significant discovery has taken place, but the court has not yet set
a schedule for trial. The Company intends to pursue this action vigorously.
Xilinx has moved to consolidate the two lawsuits, and in October 1994,
the court denied this motion. Also, the court directed that Altera's case
would be heard after the Xilinx case. Recently (March 1995) a special master
was appointed by the court to assist in both lawsuits, though the duties of the
special master have not yet been fully established.
In April 1995, a separate lawsuit was filed by the Company against
Xilinx in Delaware, Xilinx's state of incorporation, for infringement of one of
the Company's patents by the Xilinx XC5000 product family. The complaint seeks
unspecified compensatory damages and costs and attorneys' fees, and an
injunction prohibiting continuing infringement. The case has recently been
assigned to a judge, but Xilinx has not yet answered the complaint and no
substantive actions have taken place to date beyond the filing of the
complaint. The Company intends to pursue this action vigorously.
Due to the nature of the litigation with Xilinx and because the
lawsuits are still in pre-trial stage, management cannot estimate the total
expenses, the possible loss, if any, or the range of loss that may ultimately
be incurred in connection with the allegations. Management cannot ensure that
Xilinx will not
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succeed in obtaining an injunction against the manufacture and sale of the MAX
5000, MAX 7000, or FLEX 8000 families of products, or succeed in invalidating
any of the Company's patents. However, based on the facts currently known,
management does not believe that these matters will have a material adverse
effect on the financial position of the Company.
In August 1994, a lawsuit was filed against the Company by Advanced
Micro Devices (AMD) alleging infringement of certain patents held by AMD by the
MAX 7000 product family. The complaint seeks unspecified compensatory damages
and costs and attorneys fees, and an injunction prohibiting continuing
infringement. In September 1994 Altera filed a counter-claim against AMD
alleging infringement of certain patents held by the Company. Limited
discovery has taken place. The Company intends to defend against AMD's claim,
and to pursue its counterclaim, vigorously. Due to the nature of the
litigation with AMD, and because the lawsuit is at an early stage, management
cannot estimate the total expenses, the possible loss, if any, or the range of
loss that may ultimately be incurred in connection with the allegations.
Management cannot ensure that AMD will not succeed in obtaining an injunction
against the manufacture and sale of the MAX 7000 product family, or succeed in
invalidating any of the Company's patents. However, based on the facts
currently known, management does not believe that this matter will have a
material adverse effect on the financial position of the Company.
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Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
11.1 Computation of earnings per share (see Note 3 to
Financial Information in Part 1 of this Form 10-Q).
27. Financial Data Schedule
(b) Reports on Form 8-K
None
SIGNATURES
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.
ALTERA CORPORATION
/s/ Thomas J. Nicoletti
--------------------------------------
Thomas J. Nicoletti, Vice President
(duly authorized officer), and Chief
Financial Officer (principal financial
officer)
Date: May 9, 1995