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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 June 30, 1996 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 June 30, 1996: 43,721,685
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ALTERA CORPORATION
FORM 10-Q
FOR THE QUARTER ENDED
JUNE 30, 1996
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)
June 30, Dec.31,
1996 1995
----------- -----------
ASSETS (Unaudited)
Current assets:
Cash, cash equivalents $ 104,067 $ 79,409
Short-term investments 187,284 285,810
----------- -----------
Total cash, cash equivalents, and
short-term investments 291,351 365,219
Accounts receivable, less allowance
for doubtful accounts of $1,662 and $1,005 40,048 54,518
Inventories 101,124 55,421
Deferred income taxes 43,840 37,339
Other current assets 3,250 5,510
----------- -----------
Total current assets 479,613 518,007
Property and equipment, net 64,067 54,846
Investments and other assets 218,630 142,701
----------- -----------
$ 762,310 $ 715,554
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 21,455 $ 17,049
Accrued liabilities 85,036 72,209
Notes payable and short-term obligations 42,120 61,920
Accrued compensation 11,071 16,347
Income taxes payable 924 4,240
----------- -----------
Total current liabilities 160,606 171,765
Notes payable and long-term obligations 56,160 58,600
Convertible notes 230,000 230,000
----------- -----------
Total liabilities 446,766 460,365
----------- -----------
Shareholders' equity:
Common stock; no par value: 80,000,000
shares authorized, 43,721,685 and 43,558,321
shares issued and outstanding 88,095 83,445
Retained earnings 227,449 171,744
----------- -----------
Total shareholders' equity 315,544 255,189
----------- -----------
$ 762,310 $ 715,554
=========== ===========
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ALTERA CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)
THREE MONTHS ENDED SIX MONTHS ENDED
------------------ ----------------
June 30, June 30, June 30, June 30,
1996 1995 1996 1995
-------- -------- -------- --------
Sales $116,295 $ 92,165 $253,393 $167,203
-------- -------- -------- --------
Costs and expenses:
Cost of sales 44,849 37,489 97,903 67,540
Research and development 11,343 7,677 23,866 14,263
Selling, general, and administrative 22,574 17,014 45,894 32,396
-------- -------- -------- --------
Total costs and expenses 78,766 62,180 167,663 114,199
-------- -------- -------- --------
Operating income 37,529 29,985 85,730 53,004
Interest and other income 387 1,177 1,310 2,122
-------- -------- -------- --------
Income before taxes 37,916 31,162 87,040 55,126
Provision for income taxes 13,651 11,530 31,335 20,397
-------- -------- -------- --------
Net income $ 24,265 $ 19,632 $ 55,705 $ 34,729
======== ======== ======== ========
Income per share:
Primary $ 0.53 $ 0.43 $ 1.21 $ 0.77
======== ======== ======== ========
Fully diluted $ 0.52 $ 0.43 $ 1.18 $ 0.77
======== ======== ======== ========
Shares and equivalents used in
calculation of income per share:
Primary 45,774 45,524 45,889 45,339
======== ======== ======== ========
Fully diluted 50,269 46,077 50,373 45,791
======== ======== ======== ========
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ALTERA CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
(In thousands)
(Unaudited)
SIX MONTHS ENDED ENDED
----------------------
June 30, June 30,
1996 1995
--------- ---------
Cash flows from operating activities:
Net income $ 55,705 $ 34,729
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 9,691 5,573
Changes in assets and liabilities:
Accounts receivable, net 14,470 (21,241)
Inventories (45,703) 194
Deferred income taxes (6,501) (6,000)
Other current and non-current assets 2,260 (1,385)
Accounts payable 4,406 6,225
Accrued liabilities 12,827 15,699
Accrued compensation (5,276) 615
Income taxes payable (3,316) --
--------- ---------
Cash provided by operating activities 38,563 34,409
--------- ---------
Cash flows from investing activities:
Purchases of property and equipment (15,841) (30,780)
Net change in short-term investments 98,526 (218,744)
Long-term investments (44,120) --
--------- ---------
Cash provided by (used for) investing activities 38,565 (249,524)
--------- ---------
Cash flows from financing activities:
Long-term debt, net of issuance costs -- 224,825
Net proceeds from issuance of common stock 4,650 2,605
Payment on notes payable (57,120) --
--------- ---------
Cash provided by (used for) financing activities (52,470) 227,430
--------- ---------
Net increase in cash and cash equivalents 24,658 12,315
Cash and cash equivalents at beginning of period 79,409 41,639
--------- ---------
Cash and cash equivalents at end of period $ 104,067 $ 53,954
========= =========
Supplemental disclosure of cash flow information:
Cash paid during the period for income taxes $ 39,000 $ 27,989
Cash paid during the period for interest $ 6,613 $ --
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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, 1995. Results for the interim period presented are not
necessarily indicative of results for the entire year.
Note 2 - Balance Sheet Detail:
.
(In Thousands)
June 30, Dec. 31,
1996 1995
--------- ---------
(Unaudited)
Inventories:
Purchased parts and raw materials $ 1,683 $ 2,067
Work-in-process 70,917 38,617
Finished goods 28,524 14,737
--------- ---------
$ 101,124 $ 55,421
========= =========
Property and equipment:
Land $ 19,925 $ 19,925
Building 5,109 1,605
Equipment 73,195 64,703
Office furniture and equipment 8,446 4,908
Leasehold improvements 3,496 3,512
--------- ---------
110,171 94,653
Less accumulated depreciation and
amortization (46,104) (39,807)
--------- ---------
$ 64,067 $ 54,846
========= =========
Note 3 - Earnings Per Share:
Primary 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. The
Convertible Subordinated Notes issued in June 1995 are not common stock
equivalents and, therefore, have been excluded from the computation of primary
earnings per share.
Fully diluted net income per share is computed by adjusting the primary shares
outstanding and net income for the potential effect of the conversion of the
weighted convertible subordinated notes into shares of common stock outstanding
during the respective periods and the elimination of the related interest
requirements (net of income taxes).
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ALTERA CORPORATION
NOTES TO FINANCIAL INFORMATION (continued)
(Unaudited)
Note 4 - Notes Payable:
In 1995, the Company entered into several agreements with TSMC, whereby it
agreed to make certain deposits to TSMC for future wafer capacity allocations
extending into 2001. During the second quarter of 1996, the Company and TSMC
renegotiated these agreements, resulting in the cancellation of all notes
payable and a refund of certain prepayments, except for a $57.1 million
prepayment made in January 1996 for wafer capacity from 1997 through 2000.
Note 5 - Joint Venture Agreement:
In June 1996, Altera, TSMC, and several other partners formed a joint venture
company, called WaferTech, to build and operate a wafer manufacturing plant in
Camas, Washington. See Item 5 - Other Events.
In return for a $140.4 million cash investment, Altera will receive an 18%
equity ownership in the joint venture company and certain rights to procure
output from the fab at market price. The investment is to be made in three
installments of which the first was made in June 1996 in the amount of $42.1
million. The remaining two installments amount to $42.1 million and $56.2
million, due in November 1996 and August 1997, respectively. In addition, the
Company has an obligation to guarantee its pro rata share of debt incurred by
WaferTech, up to a maximum of $45 million. The Company intends to apply equity
basis of accounting to its investment in WaferTech.
Note 6 - Subsequent Event:
On July 15, 1996, the Board of Directors authorized the repurchase of up to
2,000,000 shares of the Company's common stock. In addition, the Board of
Directors approved an ongoing program to provide for the repurchase of
additional shares of the Company's common stock in order to fund the issuance of
stock under the Company's stock option and employee stock purchase plans.
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ALTERA CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
Sales. Second quarter 1996 sales of $116.3 million were 26% higher than
the $92.2 million reported for the same period last year, and were down 15% from
first quarter 1996 sales of $137.1 million. Sales were higher than the second
quarter of 1995 primarily as a result of higher sales of the Company's MAX 7000
and FLEX 8000 product lines. As compared to the first quarter of 1996, lower
sales were primarily a result of reduced sales of the FLEX 8000 family.
Geographically, the reduction in sales from the first to the second quarter in
1996 was mainly driven by lower sales in North America.
During 1996, improved availability of the Company's products and
slowing growth rates in end-markets, have resulted in a rapidly changing
business climate for the Company. As a result of increased wafer supply from the
Company's vendors, the delivery lead times for many of the Company's products
were reduced significantly, enabling customers to hold less inventories and
place orders for the Company's products on an as-needed basis. This was a
significant change from 1995 when wafer supplies were constrained and the
Company's customers held greater inventories and placed orders prior to
requested delivery dates by as much as six months in order to secure a supply of
the Company's products.
Given the significantly increased availability of the Company's
products at the end of the first quarter, end-customers started reducing their
inventories by purchasing significantly less product during the second quarter.
The 15% decrease in sales from the first quarter to the second quarter of 1996
reflects this inventory correction at the Company's end-customers. Although
management believes that most of the anticipated correction occurred in the
second quarter, additional inventory adjustments at the end-customers are likely
to occur in the third quarter. In general, given the possibility of continued
inventory corrections and slowing growth rates in end-markets, management
believes that the prospects for near term revenue growth are limited and that
revenues may actually decline in the short-term.
Historically, semiconductor prices decline as products mature. New
product introductions from competitors may also increase pricing pressure and
compete for overall unit sales. Periodically, the Company responds to these
pricing pressures with the introduction of new, higher margin products. In 1995
the Company began shipping two new product families, the MAX 9000 and FLEX 10K
families, which are currently gaining market acceptance. Future growth rates
will be
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highly dependent on, among other things, full market acceptance of these
new product lines. There can be no assurance that these 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.
Gross Margin. Gross margin percentage in the second quarter of 61.4%
was essentially equal to the prior quarter, but up from 59.3% in the same period
a year ago. The gross margin improvement over the prior year was due to a
greater proportion of proprietary product shipments at higher margins and
improved manufacturing yields. Despite reductions in book prices on the MAX 7000
and FLEX 8000 product lines in the first and second quarters of 1996, the gross
margin was maintained as a result of lower manufacturing costs resulting from
improved yields and scale economies on higher manufacturing volumes. In
addition, during the second quarter, the Company benefited from a strengthening
dollar against the yen, resulting in decreased costs of silicon wafers.
Although yields improved in the first six months of 1996 as compared to
the prior year, there can be no assurances that recently achieved yield
improvements will continue or that yields will not deteriorate. The Company
continues to spend significant research and development resources to improve
production yields on its products. The need to improve production yields also
exists with the new products and fabrication processes used by the Company.
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 and may encounter
similar startup difficulties with such process technologies. Production
throughput times also vary considerably among the Company's wafer suppliers and
the Company has experienced delays from time to time in processing some of its
products. In addition, gross margins may be negatively affected by lower
manufacturing volumes which result in manufacturing inefficiencies.
As a result of the lower than anticipated sales levels during the
second quarter and the Company's limited flexibility to reduce wafer supply
arrangements with its vendors in the short-term, inventories on hand increased
$26 million during the second quarter, from $75.1 million at March 31, 1996 to
$101.1 million at June 30, 1996. As the inventory growth consists primarily of
the Company's main stream products (MAX 7000 and FLEX 8000) and the Company's
newer products (MAX 9000 and FLEX 10K), management believes that the increase
will allow the Company to support the customers' desire to order on a shorter
lead time basis. In order to limit further inventory increases and improve
control over inventory levels, during the second quarter management reduced the
level of wafer procurement from its vendors.
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Reduced wafer supplies in the third and fourth quarters will result in
lower manufacturing volumes, which may cause manufacturing inefficiencies and a
higher per unit cost. In anticipation of the lower manufacturing volumes,
management laid off approximately 100 of its employees in its domestic
manufacturing operations. Management believes that cost reductions stemming from
the lay off, combined with recently improved manufacturing yields and lower
wafer prices, will mitigate to some extent the effect of anticipated
manufacturing inefficiencies and price reductions of the Company's products
which were implemented in the first and second quarters of 1996. There can be no
assurance that such costs reductions will be achieved or maintained and that
such price reductions or manufacturing inefficiencies will not result in the
deterioration of gross margins.
Research and Development. Research and development expenditures were
$11.3 million for the quarter ended June 30, 1996, or $3.7 million higher than
the quarter ended a year ago, and down $1.2 million from the prior quarter. The
increase in research and development expenditures compared to the quarter ended
a year ago reflects increased headcount, higher prototype and pre-production
costs and higher expenditures for development of process technology, development
of software to support new products and design environments, and development of
new packages. The decrease from the first quarter to the second quarter of 1996
is due to higher than normal prototype and pre-production expenditures in the
first quarter of 1996 for the MAX 9000 and FLEX 10K product families. Management
of the Company expects to continue to make significant investments in research
and development. The Company is focusing its research and development efforts on
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, 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. Second quarter selling, general,
and administrative expenses of $22.6 million increased by $5.6 million from a
year ago, and decreased $0.7 million from the prior quarter. The increase as
compared to the prior year was mainly due to increased commission and incentive
expenses (on the increased sales volume), as well as increased advertising and
promotional expenditures, and increased salary expenses due to increased field
sales, marketing, and administrative headcounts. Decreased commission and
incentive expenses, consistent with the lower sales volume, were the primary
reasons for the decrease compared to the prior quarter.
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The Company uses three methods to market its products: sales through
licensed domestic and foreign distributors, direct sales to electronics
manufacturers via independent sales representatives, and direct sales to
customers by Altera sales department personnel. The Company has approximately
twenty field sales offices. Approximately 80% percent of the Company's current
worldwide sales are made through distributors.
Operating Income. Second quarter 1996 operating income of $37.5
million, representing 32.3% of sales, was lower than the second quarter of 1995
(32.5%) and the most recent prior quarter (35.2%). The decrease in operating
income on a percentage of revenue basis is mainly attributed to lower revenues
than anticipated.
Interest and Other Income. Interest income decreased during the last
six months as compared to the same period in the prior year as a result of
decreased cash balances and lower yields. The Company's cash balance has
decreased throughout 1996 as a result of a $57.1 million payment made on a note
payable to TSMC and a $42.1 million investment in the joint venture with TSMC.
In addition, during the second quarter of 1996, management started investing a
larger portion of the Company's investment portfolio in tax exempt versus
taxable investments, which resulted in lower pre-tax yields. During the six
months ended June 30, 1996, interest income was partially offset by interest
expense of approximately $6.0 million related to the Convertible Subordinated
Notes issued in June 1995.
Income Taxes. The Company's provision for income taxes was 36% in 1996
compared to 37% in 1995. The decrease in the income tax rate is primarily due to
an increased amount of earned interest from tax exempt investments.
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 normal process variations could have a material
adverse effect on the Company's future operating results. Competitive
break-throughs, and particularly competitive pricing could also impact future
operating results. Additionally, litigation relating to competitive patents and
intellectual property could have an adverse impact on the Company's financial
condition or operating results.
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The Company owns more than 50 United States patents and has additional
pending United States patent applications on its semiconductor products. The
Company also has technology licensing agreements with AMD, Cypress, Intel, and
Texas Instruments giving the Company royalty-free rights to design, manufacture,
and package products using certain patents they control. Other companies have
filed applications for, or have been issued, other patents and may develop, or
obtain proprietary rights relating to, products or processes competitive with
those of the Company. From time to time the Company may find it desirable to
obtain additional licenses from the holders of patents relating to products or
processes competitive with those of the Company. Although its patents and patent
applications may have value in discouraging competitive entry into the Company's
market segment and the Company believes that its current licenses will assist it
in developing additional products, there can be no assurance that any additional
patents will be granted to the Company, that the Company's patents will provide
meaningful protection from competition, or that any additional products will be
developed based on any of the licenses that the Company currently holds. The
Company believes that its future success will depend primarily upon the
technical competence and creative skills of its personnel, rather than on its
patents, licenses, or other proprietary rights.
The Company, in the normal course of business, from time-to-time
receives and makes inquiries with respect to possible patent infringements. As a
result of inquiries received from companies, it may be necessary or desirable
for the Company to obtain additional licenses relating to one or more of its
current or future products. There can be no assurance that such additional
licenses could be obtained, and, if obtainable, could be obtained on conditions
that would not have a material adverse effect on the Company's operating
results. If the inquiring companies were to allege infringement of their
patents, as is the case in the Company's current litigation with two of its
competitors, there can be no assurance that any necessary licenses could be
obtained, and, if obtainable, that such licenses would be on terms or conditions
that would not have a material adverse effect on the Company. In addition, if
litigation ensued, there can be no assurance that these companies would not
succeed in obtaining significant monetary damages or an injunction against the
manufacture and sale of one or more of the Company's product families. It may be
necessary or desirable for the Company to incur significant litigation expenses
to enforce its intellectual property rights.
Liquidity and Capital Resources
The Company's cash, cash equivalents and short-term investments
decreased by $73.8 million in the first six months of 1996, from $365.2 million
at the end of 1995 to $291.4 million at June 30, 1996. The decrease is mainly
attributable to a $57.1 million deposit paid to TSMC in January 1996 for future
wafer capacity, a $42.1 million investment in the joint venture company with
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TSMC made in June 1996, and $15.8 million of capital expenditures. These cash
outflows were partially offset by cash from operating activities in the amount
of $38.6 million. Cashflows from operating activities during the first half of
1996 were positive, despite significant increases in the balances for
inventories and accounts receivable of $45.7 million and $6.5 million,
respectively.
During the six months ended June 30, 1996, the Company invested
approximately $15.8 million in capital, mainly consisting of computer and test
equipment (approximately $9.2 million) and the construction of the new corporate
headquarters (approximately $3.5 million). The Company expects to invest
approximately $40 million of additional capital during the remainder of 1996,
including approximately $25 to 30 million for the construction of its corporate
headquarters.
During the second quarter of 1996, the Company and TSMC renegotiated
the agreements for future wafer capacity, resulting in the cancellation of all
notes payable ($63.4 million) and a refund of certain prepayments ($2.4
million). At June 30, 1996, the only remaining deposit with TSMC for future
wafer capacity is a $57.1 million prepayment made in January 1996 for wafer
capacity from 1997 through 2000.
In June 1996, Altera finalized a joint venture agreement with TSMC and
several other partners to build and operate a U.S.-based wafer fab. Altera will
receive an 18% equity ownership in the joint venture company, called WaferTech,
in return for a $140.4 million investment. The investment is to be made in three
installments of which the first was made in June 1996 in the amount of $42.1
million. The remaining two installments amount to $42.1 million and $56.2
million, due in November 1996 and August 1997, respectively. See Item 5, Other
Events.
On July 15, 1996, the Board of Directors authorized the repurchase of
up to 2,000,000 shares of the Company's common stock. In addition, the Board of
Directors approved an ongoing program to provide for the repurchase of
additional shares of the Company's common stock in order to fund the issuance of
stock under the Company's stock option and employee stock purchase plans.
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, obligations under the joint
venture agreement, 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
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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. During 1996, the Company did not hold or
purchase any forward Yen contracts. Effects of inflation on Altera's financial
results have not been significant.
Safe Harbor Notice
This report contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. Actual results could differ materially from those
projected in the forward-looking statements as a result of the risk factors
described in this report and in the Company's Annual Report on Form 10-K on file
with the Securities and Exchange Commission.
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ALTERA CORPORATION
FORM 10-Q
FOR THE QUARTER ENDED
JUNE 30, 1996
PART II
OTHER INFORMATION
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ITEM 3. LEGAL PROCEEDINGS.
In June 1993, Xilinx, Inc. ("Xilinx") brought suit against the Company
seeking monetary damages and injunctive relief based on the Company's alleged
infringement of certain patents held by Xilinx. In June 1993, the Company
brought suit against Xilinx, seeking monetary damages and injunctive relief
based on Xilinx's alleged infringement of certain patents held by the Company.
In April 1995, the Company filed a separate lawsuit against Xilinx in Delaware,
Xilinx's state of incorporation, seeking monetary damages and injunctive relief
based on Xilinx's alleged infringement of one of the Company's patents. In May
1995, Xilinx counterclaimed against the Company in Delaware, asserting defenses
and seeking monetary damages and injunctive relief based on the Company's
alleged infringement of certain patents held by Xilinx. A motion by Xilinx to
transfer the Delaware cases to California has been granted. The California
litigation is presently the subject of court-ordered mediation. Due to the
nature of the litigation with Xilinx and because the lawsuits are still in the
pre-trial stage, the Company's management cannot estimate the total expense, the
possible loss, if any, or the range of loss that may ultimately be incurred in
connection with the allegations. Management cannot ensure that Xilinx will not
succeed in obtaining significant monetary damages or an injunction against the
manufacture and sale of the Company's MAX 5000, MAX 7000, FLEX 8000, or MAX 9000
families of products, or succeed in invalidating any of the Company's patents.
Although no assurances can be given as to the results of these cases, based on
the present status, management does not believe that such results will have a
material adverse effect on the Company's financial condition or results of
operations.
In August 1994, Advanced Micro Devices ("AMD") brought suit against the
Company seeking monetary damages and injunctive relief based on the Company's
alleged infringement of certain patents held by AMD. In September, 1994 Altera
answered the complaint asserting that it is licensed to use the patents which
AMD claims are infringed and filed a counterclaim against AMD alleging
infringement of certain patents held by the Company. In a June, 1996 trial
bifurcated from the infringement claims, the Company prevailed in its defense
that it is licensed under some or all of the patents asserted by AMD in the
suit. A second phase of the bifurcated licensing trial will determine the
specific AMD patents which are covered by the license. Due to the nature of the
litigation with AMD, and because the infringement portion of the lawsuit is
still in the pre-trial stage, the Company's management cannot estimate the total
expense, the possible loss, if any, or the range of loss that may ultimately be
incurred in connection with the allegations. Management cannot ensure that AMD
will not succeed in obtaining significant monetary damages or an injunction
against the manufacture and sale of the Classic, MAX 5000, MAX 7000, FLEX 8000,
MAX 9000, FLEX 10K, and FLASHlogic product families, or succeed in invalidating
any of the Company's patents remaining in the suit. Although no assurances can
be given as to the results of this case, based on its present status, management
does not believe that such results will have a material adverse effect on the
Company's financial condition or results of operations.
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Item 4. Submission of Matters to a Vote of Security Holders
The annual meeting of shareholders of the Company was held on May 8,
1996 at 10:00 a.m., at which time the following matters were acted upon:
Votes
For Votes Withheld/ Broker
Matter Acted Upon Votes Against Abstentions Non-Votes
1. Rodney Smith 37,454,410 0 406,083 0
Michael A. Ellison 37,507,926 0 352,567 0
Paul Newhagen 37,455,785 0 404,708 0
Robert Reed 37,446,145 0 414,348 0
William Terry 37,507,853 0 352,640 0
Deborah Triant 37,446,145 0 414,348 0
2. Approval of amendment to the 28,746,571 4,289,523 63,080 4,761,319
1988 Director Stock Option Plan to
increase the Common Stock
available for issuance by 70,000
shares
3. Approval of the 1996 Stock Option 23,102,468 9,912,059 84,647 4,761,319
Plan and reservation of 2,000,000
shares of Common Stock for
issuance thereunder
4. Ratification of Price Waterhouse 37,821,626 11,422 27,445 0
LLP as independent accountants
of the Company for the year
ending December 31, 1996
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Item 5. Other Events
On June 25, 1996, the Company entered into a joint venture with Taiwan
Semiconductor Manufacturing Co., Ltd. ("TSMC"), two other companies, and several
individual investors for the construction and operation of a semiconductor
fabrication facility ("fab") in Camas, Washington. The joint venture is
organized as a limited liability company under the name WaferTech, LLC
("WaferTech"). The following summarizes the principal terms of the joint
venture:
1. Project
The fab will be built on land acquired by WaferTech located in Camas,
Washington. The fab is expected to be at full operating capacity in
1999.
2. Investment
The Company will invest a total of $140,400,000 in cash for an 18%
equity interest in WaferTech, of which $42,120,000 was paid on June 25,
1996, $42,120,000 is to be paid on November 30, 1996 and the remaining
$56,160,000 is to be paid on August 31, 1997. Significant penalties may
be imposed if the Company fails to pay the second or third installment
of its capital contribution when due. In addition, the Company has an
obligation to guarantee its pro rata share of debt incurred by
WaferTech, up to a maximum for the Company of $45,000,000. In addition,
the Company may be required to contribute additional capital in order
to avoid dilution of its interest should the need arise in the future
for additional capital. The Company intends to apply equity basis of
accounting to its investment in WaferTech.
3. Take or Pay Purchase Obligations
Each of the Company and the other two principal equity members of
WaferTech is committed to take or pay for at least 85% of its pro rata
share of the capacity of the fab at prevailing market prices. The
Company will have the right, but not the obligation, to purchase up to
27% of the capacity of the fab.
4. Management
TSMC (which owns approximately 57% of the venture) will have
controlling interest in WaferTech, subject to certain veto powers for
the Company and the other two principal equity participants (which own
18% and 4%, respectively). Specified matters will require the approval
of holders of at least 71% of the interests in WaferTech, and a more
limited set of matters will require approval by holders of at least 87%
of the interests. WaferTech will be managed by a Board of Directors,
consisting of seven directors, of whom four shall be designated by TSMC
and one by each of the Company and the other two principal equity
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participants. Each director (one "voting" director in the case of TSMC)
will have as many votes as the percentage interest held by the member
who designated that director.
5. Intellectual Property Rights
TSMC has contributed to WaferTech non-exclusive rights to its existing
and certain future process technologies in consideration for a portion
of its equity interest in WaferTech. Some of TSMC's process technology
is licensed from others, and WaferTech is obligated to pay TSMC the
same royalties as TSMC is required to pay to its licensors. In
addition, TSMC has agreed to license to WaferTech rights to its
sub-0.25 micron process if, as, and when developed, for a royalty based
on net sales. WaferTech may also be required to obtain licenses from
third parties which could impose additional royalty costs on WaferTech.
6. Limited Liability Company Status
WaferTech is organized as a Delaware limited liability company which is
expected to be treated as a partnership for federal income tax
purposes. As a result, WaferTech will not incur any federal income tax
expense; each of the participants will reflect its distributive share
of WaferTech's taxable income or loss on its own tax return. TSMC has
reserved the right to convert WaferTech to a regular corporation at any
time, subject to the approval of either the Company or the venture's
other 18% equity owner. If WaferTech is converted to a regular
corporation, it would become a separate taxable entity and the tax
benefits to the Company could be somewhat diminished. The participants
have agreed to significantly limit their right to sell or transfer
their interests in WaferTech.
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Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
3.3 Amended and Restated Bylaws of the Registrant, as amended
through May 8, 1996.
10.47 Amended and Restated Limited Liability Company
Agreement of Wafertech, LLC, a Delaware limited
liability company, dated as of August 9, 1996.
10.48 Purchase Agreement by and between Taiwan Semiconductor
Manufacturing Co., Ltd., as Seller, and Analog Devices,
Inc., the Registrant, and Integrated Silicon Solutions,
Inc., as Buyers (dated as of June 25, 1996).
10.49 Rescission (dated as of June 25, 1996) of Option
Agreement 1 dated as of June 26, 1995 by and between the
Registrant and Taiwan Semiconductor Manufacturing Co.,
Ltd.
11.1 Computation of earnings per share
27. Financial Data Schedule
(b) Reports on Form 8-K
None.
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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/ Nathan Sarkisian
------------------------------
Nathan Sarkisian, Vice President
(duly authorized officer), and Chief
Financial Officer (principal financial
officer)
Date: August 12, 1996
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