1
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED)
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
COMMISSION FILE NUMBER: 0-16617
ALTERA CORPORATION
(Exact Name of Registrant as Specified in its Charter)
CALIFORNIA
(State or Other Jurisdiction of
Incorporation or Organization)
77-0016691
(I.R.S. Employer
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
Securities registered pursuant to Section 12(b) of the Act:
NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K (sec. 229.405 of this chapter) is not contained herein,
and will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [ ]
The aggregate market value of the registrant's Common Stock held by
non-affiliates of the registrant was approximately $3,281,013,660 as of February
28, 1997, based upon the closing sale price on the Nasdaq National Market for
that date.
There were 88,133,415 shares of the registrant's Common Stock issued and
outstanding as of February 28, 1997.
DOCUMENTS INCORPORATED BY REFERENCE
Items 5, 6, 7, and 8 of Part II incorporate information by reference from
the Annual Report to Shareholders for the fiscal year ended December 31, 1996.
Items 11, 12, and 13 of Part III incorporate information by reference from
the Proxy Statement for the Annual Meeting of Shareholders to be held May 7,
1997.
================================================================================
2
PART I
ITEM 1. BUSINESS.
GENERAL
Founded in 1983, Altera is a world-wide leader in high-performance,
high-density programmable logic devices and associated computer aided
engineering (CAE) logic development tools. Programmable logic devices are
semiconductor chips that offer on-site programmability to customers using the
Company's proprietary software. The software runs on personal computers and
engineering workstations and interfaces with a large number of industry-standard
electronic design automation environments. User benefits include ease of use,
lower risk, and fast time-to-market. The Company offers the broadest line of
CMOS programmable logic devices that address high-speed, high-density, and lower
power applications. The Company's semiconductor devices range in density from an
estimated 150 to 100,000 useable gates. Altera products serve a broad range of
markets, including telecommunications, data communications, computers, and
industrial applications.
BACKGROUND
The CMOS programmable logic market has developed as a result of two primary
factors: (i) the need for more logic functions on each integrated circuit in
order to achieve the performance and cost objectives of electronic systems
manufacturers; and (ii) shortened product life cycles for end products which put
an increased premium on time to market for the system manufacturer.
The desire of manufacturers for further differentiation and improvement of
their products has generated demand for higher density logic circuits. Higher
density (and thus more "integrated") circuits, which have more logic functions
on each chip, allow the electronic equipment manufacturer to make improvements
to the end product that reduce physical size, cost, and power consumption,
improve performance, and add features for further differentiation. However, the
need for increased integration and greater product differentiation makes it
difficult for electronic system manufacturers to use standard, mass-produced
logic circuits.
In the 1980's, ASICs gained popularity as a solution to the integration
problems noted above. ASICs include a variety of custom and semi-custom
alternatives, such as gate arrays, cell libraries, and silicon compilers. Using
computer aided engineering software tools, ASIC designers are able to combine
sections of standard logic and memory, and generate unique tooling which can
then be used to fabricate a unique custom chip in the manufacturing process.
Although ASICs achieve the goal of higher density and more integration by
combining a variety of low-density parts into a single chip, they do so by
introducing several compromises, resulting from the customized manufacturing
process, that are undesirable to many users of standard low-density chips. These
compromises can include longer lead time to the marketplace, non-recurring
engineering (NRE) fees, dedicated custom product inventory, lack of control over
sources of supply, and inflexibility of design iteration.
Over the past decade, CMOS programmable logic has had a significant impact
on electronic design. PLDs help the Company's customers to meet their
performance and cost objectives while avoiding the significant development
costs, long development lead times, and dedicated custom product inventories
associated with ASICs. Using the Company's PLDs, engineers can complete numerous
iterations of a product design and test and verify the design until it meets
their expectations, while still delivering new products to market relatively
quickly. Since 1984, when the Company introduced the first CMOS PLD, the market
for such devices has grown to over $1.9 billion dollars in 1996.
CMOS programmable logic devices are currently offered to the market by
semiconductor vendors in various architectures, using EPROM
(erasable-programmable-read-only-memory), EEPROM (electrically-
erasable-programmable-read-only-memory), SRAM (static random access memory),
FLASH (non-volatile) memory, and anti-fuse configuration storage elements.
3
BUSINESS STRATEGY
The Company's strategy is to be a leading supplier of CMOS programmable
logic devices and related software development tools by developing and offering
products which provide its customers with effective solutions for quickly
bringing their own products to market. Key elements of the Company's strategy
include:
Standard Components. The Company's PLDs are manufactured as standard
products (i.e., shipped "blank" for programming by the user). The chips use
CMOS technology for low power and use an erasable configuration element:
EPROM, EEPROM, SRAM, or FLASH. This combination allows designers using the
Company's PLDs to shorten the long design cycle associated with ASIC custom
chips by permitting multiple design iterations without the need to have
prototype custom designs fabricated in silicon, redesigned, and
refabricated. The end user benefits because Altera's programmable chips are
configured at the desktop, rather than in the foundry, by means of Altera's
proprietary development software, dramatically shortening the time to
market. Since Altera's integrated circuits are standard products and have a
wide range of uses, inventory risks are minimized for customers,
distributors, and the Company. Altera also benefits from economies of scale
in the manufacturing process by minimizing logistics, inventory, and
overhead costs.
Proprietary Product Architecture. The Company holds patents on
various aspects of its chip architectures which combine speed and density
with the benefits of user programmability. The Altera CPLD architectures
make certain performance paths in the integrated circuits easier to predict
and simplify the task of designing with programmable logic devices.
Software Development Tools. Altera has dedicated a significant
portion of its research and development staff to the development of its
proprietary software. This software permits designers to use their desktop
personal computers or workstations to develop and program Altera chips to
function as custom logic devices quickly and under the designers' own
control. The Company's strategy has been to offer its development software
systems at relatively modest prices in order to achieve an installed base
of design sites that may generate future chip orders.
Broad Product Line. The Company applies its basic technology to a
broad general purpose product line spanning a range of densities, pin
counts, and speeds. Products currently in production range in density from
an estimated 150 to 100,000 usable gates.
Customer Designs. The Company actively seeks to induce designers to
incorporate its PLDs into products early in their design cycle. Such
"design wins" can lead to use of the Company's PLDs in prototyping and,
ultimately, in volume production of a customer's product, potentially for
the life cycle of that product. In addition, system designers who have
become familiar with the Company's PLDs may be more inclined to use them in
future designs, potentially resulting in additional sales for the Company.
The Company's marketing efforts include advertising, seminars, and
demonstrations for potential customers. The Company also provides
applications engineers to assist customers and potential customers in
adapting existing or proposed designs, including those using competitors'
PLDs or gate arrays, to use the Company's PLDs. The Company has observed
that the length of customers' design cycles -- even as they may be reduced
through use of the Company's products -- often results in a lag between the
Company's marketing efforts, particularly when introducing a new PLD
product family, and the commencement of significant product sales resulting
from those efforts.
Diversified Markets. The Company has sold its semiconductor
components to a broad base of customers worldwide in a range of market
segments, including communications, computer, and industrial applications.
International sales constituted 47% of the Company's sales in 1996.
Technology and Production Relationships. Altera has obtained its CMOS
silicon chips through supply arrangements with leading semiconductor
manufacturers. The Company has avoided the full capital commitment and
overhead burden of establishing its own wafer fabrication facility and has
the flexibility to utilize new process technologies as they become
available.
2
4
TECHNOLOGY
Altera's chips incorporate several types of internal architectures which,
combined with advanced CMOS semiconductor technology, provide speed and logic
density for the customer. The Company holds a number of patents on various parts
of its chip architectures. Altera's chips are configured by the Company's
proprietary development software that translates a system logic designer's logic
schematics and hardware descriptions into logic functions on an Altera chip.
Altera Logic Chips
Architectures. Altera believes its architectures offer relatively high
performance across a broad range of user applications. At the same time they
provide simplicity to the system logic designer, making the task of designing
and using Altera's chips relatively easy.
The architectures used in the Company's Classic, MAX 5000, MAX 7000,
FLASHlogic, and MAX 9000 families are known as array-based architectures. These
architectures are very regular, comprised of elements called "macrocells," and
are optimized for combinatorial logic. The Company's FLEX 8000 and FLEX 10K
architectures are optimized for register intensive logic applications. These
architectures consist of fine grained logic elements grouped into higher level
logic array blocks which are then connected together with a proprietary
programmable interconnect structure. The FLASHlogic family uses non-volatile
FLASH memory cells that can be configured as on-board memory or logic.
Process Technology. Through technology relationships, Altera has gained
access to CMOS process technologies from various semiconductor manufacturers.
The Company's Classic and MAX 5000 product families are manufactured using
processes with 0.8 and 0.65 micron effective channel lengths. MAX 7000, MAX
9000, FLEX, and FLASHlogic products are being produced using processes with
effective channel lengths of 0.5 and 0.35 microns and are expected to continue
the migration to more advanced CMOS processes when available. The Company
procures wafers from various semiconductor manufacturers including Sharp, TSMC,
Cypress, and Intel.
EPROM configuration elements, found on certain of the Company's older
Classic and MAX 5000 products, require ultraviolet light for erasure,
necessitating relatively expensive quartz-windowed packages. Devices in
quartz-windowed packages are primarily used by customers for prototyping and
low-volume production. Altera has mitigated this package cost to users by also
making its parts available in plastic one-time programmable packages to permit
reduced costs for volume production. Altera also offers chips incorporating
EEPROM (MAX 7000, MAX 7000S, and MAX 9000) and SRAM (FLEX 8000 and FLEX 10K)
configuration elements. The EEPROM (E(2)) element permits electrical erasure so
that erasure can occur even when packaged in plastic packages, providing further
flexibility and cost advantage for customers. The SRAM element provides low
stand-by power consumption and in-circuit reprogrammability. FLASH memory
elements also offer these features.
The Company routinely evaluates existing and emerging types of programmable
elements. If Altera perceives that such programming methods provide benefits
that complement those of its current products, it will consider incorporating
them into its products.
Development System Software
The Company's development system software and hardware is used to implement
logic designs in its chips. The MAX+PLUS II software runs under the Microsoft
Windows operating environment on personal computers and in the Motif environment
on UNIX workstations. By utilizing these popular graphical user interfaces, the
Company has designed the software for portability to widely used personal
computers and engineering workstations.
The Company provides interfaces to many industry standard third party CAE
tools via the industry standard EDIF net list format and hardware description
languages (Verilog and VHDL, for example). These connections allow the Altera
software to be used in conjunction with software packages including those
offered
3
5
by Cadence Design Systems, Inc., Data I/O Corporation, Exemplar Logic, Inc.,
Intergraph Corporation, Mentor Graphics Corporation, OrCAD Systems Corporation,
Synopsys, Inc., and Viewlogic Systems, Inc.
An Altera chip design for a particular end product application is achieved
in four steps: design entry, implementation, verification, and programming. The
Company's development software provides complete facilities for each step so
that customers can take advantage of a uniform and relatively easy to learn
design environment. Extensive online help is available in the software to
provide relevant information quickly.
Design entry is accomplished using either the proprietary integrated
editors or third party tools. Three basic entry formats are accepted: schematic,
where the logic is represented pictorially; hardware description language, where
textual logic equations define the circuit; and waveform design entry, where a
designer specifies only the input and output waveforms of a circuit. A
combination of the three methods may be used hierarchically in a design.
Implementation of the design is performed by Altera's proprietary logic
synthesis, partitioning, and fitting software. This software takes a design and
uses sophisticated mathematical routines to optimize and compact the user's
logic, partition the logic among several chips (if necessary), and then fit each
partitioned section into one of these chips. Typically this process requires
minimal intervention from the user.
Design verification lets a user confirm the correctness of a design by
using several proprietary tools in addition to third party simulators. The
Company's static timing analyzer allows analysis of the timing of critical logic
paths; integrated functional simulation allows rapid functional logic debugging;
and timing simulation allows the validation of full circuit operation.
Simulation results may be viewed using the Company's waveform editor.
The final step, programming, may be performed using the Company's
programming hardware and integrated software, or third party programmers such as
those from Data I/O Corporation. During this step, the optimized logic design is
programmed into a PLD (or serial EPROM in the case of the FLEX SRAM-based logic
chips), which is then ready for use on a circuit board in an electronic system
product.
PRODUCTS
Altera sells a range of CMOS programmable logic integrated circuits and
associated development software and hardware. The integrated circuits include
products aimed at general logic replacement as an alternative to ASICs and
products targeted at specific functions. The Company's development software
allows the user to take advantage of the features of Altera integrated circuits.
The Company's strategy has been to provide support for users of its newest
integrated circuits from the date of product introduction by developing its
software tools in tandem with the related components. Altera currently markets
seven general purpose families of CMOS programmable logic in over 500
package/chip combinations.
The Company must continue to make significant investments in research and
development in order to continue to develop new products, enhance existing
products, and achieve market acceptance for such products, particularly in light
of the industry pattern of price erosion for mature products. Over the past 12
months, the Company has added further enhanced members of its existing MAX 7000,
FLEX 8000, MAX 9000, and FLEX 10K families. The commercial success of these
products will depend upon the achievement of targeted yield, product cost, and
performance levels and the development of manufacturing, marketing, and support
capabilities. Even if such goals are accomplished, there can be no assurance
that these products will achieve significant market acceptance. See "Research
and Development."
Integrated Circuits
Classic. This is the initial family of integrated circuits introduced to
the market by Altera. It originally consisted of four general-purpose PLDs
targeted to replace multiple small scale integrated circuits. The product family
was expanded with the acquisition of Intel's PLD division and now includes ten
different circuits. This architecture provides densities ranging from an
estimated 150 to 900 usable logic gates in packages ranging from 20 to 68 pins.
Wafers for this family of products were initially provided by Intel and were
subsequently migrated to more advanced CMOS process technologies to provide
faster speed and
4
6
reduced cost. All of these products use wafers with EPROM configuration elements
manufactured by Cypress, Sharp and Intel. The products generally incorporate the
first generation architecture and are currently marketed and sold to customers
as the "Classic" family of products.
MAX 5000. This family of PLDs uses a second generation architecture known
as Multiple Array MatriX (MAX) to provide greater densities than products in the
Classic family. The MAX architecture provides multiple array logic. Signals in
the higher-density devices are routed between multiple arrays by the
Programmable Interconnect Array that delivers a high percentage of routability.
This multiple array architecture enables MAX 5000 PLDs to offer the speed of
smaller arrays with the integration density of larger arrays -- MAX 5000 offers
up to an estimated 3,750 usable gates. Wafers for MAX 5000 products use EPROM
configuration elements and are manufactured by Cypress Semiconductor currently
on 0.65 micron CMOS process technologies. These products are available in
packages ranging from 24 to 100 pins. Cypress has a license to manufacture and
sell certain MAX 5000 products.
MAX 7000. This third family of PLDs incorporates an enhanced MAX
architecture. The MAX 7000 family provides higher integration densities with
faster performance and higher pin count than the MAX 5000 family. Current MAX
7000 products offer a range of densities from an estimated 600 to 5000 usable
gates, in packages ranging from 44 to 208 pins. This family incorporates EEPROM
configuration elements on all of its chips. The Company is currently obtaining
wafers for this product from Sharp and TSMC.
FLEX 8000. The FLEX 8000 family, which uses 0.65 micron CMOS technology
from Sharp, is based on SRAM configuration elements which provide in-system
reconfigurability, and low standby power. The Company also acquires FLEX 8000
wafers from TSMC's facility, using a 0.5 micron CMOS process technology. The
FLEX 8000 architecture provides relatively high register count compared to the
Classic and MAX architectures, with an estimated 16,000 usable gates and 1,500
registers in up to a 304 pin package.
MAX 9000. This further enhanced MAX family is one of the Company's newest
architectures. MAX 9000 is a feature-rich, high-density macrocell architecture
with up to 560 macrocells (an estimated 12,000 usable gates). The EEPROM-based
devices are PCI-compliant and offer non-volatile, 5.0 volt, in-system
programmability (ISP). ISP functionality allows these devices to be programmed
after being soldered onto the circuit board for manufacturing ease. Devices are
offered in packages ranging from 84 to 304 pins and have in-system clock speeds
of up to 100 MHz.
FLEX 10K. The FLEX 10K architecture features an embedded array which can
more efficiently implement a variety of memory and specialized logic functions.
This family includes the Company's largest devices (currently a device with an
estimated 100,000 usable gates). Various combinations of memory configurations
and complex logic functions can be implemented in FLEX 10K devices.
FLASHlogic. Acquired through the Company's purchase of Intel's PLD product
line, this high-speed, medium density family combines volatile SRAM elements and
non-volatile FLASH memory elements to create one of the most feature rich
families in the PLD industry. Features include on-board RAM, ISP, and in-circuit
reconfigurability. Devices are offered in usable gate counts from an estimated
800 to 3,200, with up to 208 pin packages, and in-system clock speeds of up to
100 MHz.
The Company offers a variety of plastic and quartz-windowed ceramic
packages for its chips, including dual-inline, surface mount, ball-grid, and
pin-grid array configurations. Altera provides components to meet the operating
temperature ranges of commercial and industrial users. The Company also offers a
conversion option to its customers on a number of its chips that converts the
programmable chip to a non-programmable gate array format. This option is called
a Mask Programmable Logic Device (MPLD). By hard coding the programming into the
chip with a mask (as with a gate array), Altera is able to provide the customer
a lower cost end solution after prototyping with programmable chips.
Development System Software and Hardware
A cornerstone of Altera's strategy is the market penetration of its
low-cost proprietary software design tools. These tools improve the productivity
of Altera's customers, and the Company, in turn, develops a base of customers
who use Altera's software to design their products. Each development software
package can be used
5
7
repeatedly for different designs on an ongoing basis. A number of these designs
may become incorporated into long-term customer products, which may generate
expanded logic chip sales. As of the end of 1996, Altera had licensed over
29,000 of its development system software packages, although at any given time
only a portion of these are active.
The Company attempts to work closely with its installed base of customers,
tracking the progress of logic chip designs, providing applications design
support, and for those customers who have purchased maintenance agreements,
upgrading the customers' software. Management believes that close contact with
its development software customers is a key element in customer satisfaction and
can also provide insight into new product development areas.
Altera's PC-based development software runs under Microsoft Windows. The
compiler software has also been ported and is available for engineering
workstations, including Sun, IBM, and Hewlett-Packard workstation platforms. The
software is typically delivered to the customer on CD-ROM along with
documentation manuals. The hardware consists of a programming board which plugs
into an expansion slot of the user's personal computer, and a programming unit
which uses hardware that accepts various chip package types. High-volume
production programming equipment is available from Data I/O Corporation and
other companies.
Altera's development software products aid the chip user's design
efficiency by allowing the user to continue with proven, familiar methods rather
than learn new ones. Accordingly, the most widely-used design methodologies are
supported, including Boolean algebra for low-density PLD users, and schematic
capture and hardware description languages for TTL and ASIC users.
The output from any of these design methodologies is translated into a
consistent format for implementation into an Altera chip, and the design is
fitted by Altera's proprietary software into the particular chip chosen. This
approach frees the system design engineer from the unfamiliar task of chip
design and allows the engineer to focus on logic implementation.
MANUFACTURING
The Company does not directly manufacture its silicon wafers. Altera's
chips are produced using other semiconductor manufacturers' high-volume wafer
fabrication processes, thus enabling the Company to take advantage of economies
of scale and process advances. The Company believes that these manufacturers can
produce wafers at lower cost due to their advanced production facilities and
manufacturing economies of scale.
Altera presently has its primary wafer supply arrangements with four
semiconductor vendors: Sharp, TSMC, Cypress, and Intel. See "Patents and
Licenses" for a summary of the license agreements related to the wafer supply
arrangements with Cypress and Intel. The Company continues to negotiate
additional foundry contracts and intends to establish other sources of wafer
supply for its products as such arrangements become useful or necessary.
Although there are a number of new state of the art wafer fabrication facilities
currently under construction around the world, semiconductor foundry capacity
can become limited, and the Company cannot guarantee that manufacturing capacity
constraints will not pose significant problems in the future.
The Company owns a 17% equity interest in Cypress Semiconductor (Texas)
Inc. (CSTI), a subsidiary of Cypress Semiconductor Corporation. Pursuant to the
agreements governing this ownership, Altera can obtain wafer supply from CSTI
approximately in proportion to its percentage ownership in CSTI. This investment
provides Altera with the option to design and market certain sole-sourced
products produced at CSTI. The Company uses this facility for the manufacture of
all of its Classic and MAX 5000 products. Cypress Semiconductor, which has
manufacturing and marketing rights to certain MAX 5000 products, also
manufactures its own products in the CSTI facility.
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. The Company made cash deposits amounting to $2.4 million in
1995 and issued promissory notes for $120.5 million representing partial
prepayments for wafers to be supplied under these agreements. During the second
quarter of 1996, the Company and TSMC renegotiated these agreements, resulting
in the cancellation of all notes payable and a
6
8
refund of certain prepayments, except for a $57.1 million prepayment made in
January 1996 for wafer capacity from 1997 through 2000.
Under the terms of the agreement related to the $57.1 million prepayment,
TSMC agrees to provide the Company with wafers manufactured with TSMC processes
and according to the Company's specifications, and the Company agrees to
purchase and TSMC agrees to supply, a specific capacity of wafers per year
through 2000. Subsequent billings for actual wafers from TSMC will reduce the
prepaid balance. The prepayments are generally nonrefundable if the Company does
not purchase the full prepaid capacity unless the Company identifies a third
party purchaser, acceptable to TSMC, for the capacity.
To further secure capacity, in June 1996, Altera, TSMC, and several other
partners formed WaferTech, a joint-venture company, to build and operate a wafer
manufacturing plant in Camas, Washington. In return for a $140.4 million cash
investment, Altera received 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 two were made
in June and November of 1996 in equal amounts of $42.1 million. The remaining
installment amounts to $56.2 million and is due in November 1997. In addition,
the Company has an obligation to guarantee a pro-rata share of debt incurred by
WaferTech up to a maximum of $45.0 million.
The Company depends upon its foundries to produce wafers at acceptable
yields and to deliver them to the Company in a timely manner. The manufacture of
advanced CMOS semiconductor wafers is a highly complex process, and the Company
has from time to time experienced difficulties in obtaining acceptable yields
and timely deliveries from its suppliers. Good production yields are
particularly important to the Company's business, including its ability to meet
customers' demand for products and to maintain profit margins. The manufacture
of semiconductor products is sensitive to a wide variety of factors, including
the level of contaminants in the manufacturing environment, impurities in the
materials used, and the performance of personnel and equipment. As is common in
the semiconductor industry, the Company has from time to time experienced in the
past and expects that it will experience in the future production yield
problems. Accordingly, no assurance can be given that the Company will not
experience significant production yield problems with one or more of its product
lines. 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. Any prolonged inability to obtain adequate
yields or deliveries could adversely affect the Company's operating results. The
Company expects that, as is customary in the semiconductor business, in order to
maintain or enhance competitive position, it will in the future continue to
convert its fabrication process arrangements to larger wafer sizes, to more
advanced process technologies, or to new suppliers. Such conversions entail
inherent technological risks that can adversely affect yields and delivery
times. In addition, if for any reason the Company were required to seek
alternative sources of supply, shipments could be delayed significantly while
such sources are qualified for volume production, and any significant delay
would have a material adverse effect on the Company's operating results.
After wafer manufacturing is completed, each wafer is tested using a
variety of test and handling equipment. Resulting good die are separated into
individual chips that are then encapsulated in ceramic or plastic packages by
subcontractors in Malaysia, Korea, the Philippines, Hong Kong, Taiwan, and the
United States.
Following assembly, the packaged units receive final testing. Altera has
developed sophisticated proprietary test software and hardware that provides
relatively high speed, back-end testing. After final testing, each unit goes
through marking and final inspection prior to shipment to customers.
Much of the manufacturing, assembly, testing, and packaging of Altera's
development system hardware products is done by outside contractors.
Although the Company's wafer fabrication, assembly, and other
subcontractors have not recently experienced any serious work stoppages, the
social and political situations in countries where certain subcontractors are
located are volatile, and any prolonged work stoppages or other inability of the
Company to manufacture and assemble its products would have a serious adverse
effect on the Company's operating
7
9
results. Furthermore, economic risks, such as changes in tax laws, tariff or
freight rates, or interruptions in air transportation, could have a material
adverse effect on the Company's operating results.
MARKETING, SALES, AND CUSTOMERS
The Company markets its products in the United States and Canada through a
network of direct sales personnel, independent sales representatives, and
electronics distributors to a broad range of customers. The Company's direct
sales personnel and independent sales representatives focus on major target
accounts. Distributors generally focus selling activities on the broad base of
small and medium-size customers and often provide stocking, kitting, and
programming services, even to larger accounts.
In the United States, Altera's major distributors currently include
Arrow/Schweber Electronics Inc. and Wyle Electronics Marketing Group, a division
of Wyle Electronics, Inc. which provide nationwide coverage. From time-to-time
the Company expects that it may add or delete distributors from its selling
organization as it deems appropriate to the level of business.
To support its distribution network and focus on the target accounts and
the direct OEM channel of business, the Company has manufacturer's
representative firms throughout the United States and Canada. The Company also
has domestic sales offices in San Jose and in major metropolitan areas
throughout the country.
The Company's international business is supported by a network of technical
distributors throughout Europe and the Far East. The Company has representation
in every major European country, in Israel, Japan, Australia, South America, and
the Pacific Rim. International sales management offices are located in the
metropolitan areas of Brussels, Hong Kong, London, Munich, Ottawa, Paris, Seoul,
Stockholm, Tokyo, and Turin.
Customer service and support are important aspects of the CMOS programmable
logic integrated circuit business. Altera provides several levels of user
support, including applications assistance, design services, and customer
training. The Company's applications engineering staff publishes data sheets and
application notes, conducts technical seminars, and provides design assistance
via modem links to the customer's design station. Customer service is supported
with inventory maintained both at the factory and at distributors' locations to
provide short-term delivery of chips.
During each of the last three years, export sales constituted nearly half
of the Company's total sales revenue. Through 1996, almost all export sales were
denominated in U.S. dollars. The Company's export sales are subject to those
risks common to all export activities, including governmental regulation,
possible imposition of tariffs or other trade barriers, and currency
fluctuations. Certain export sales must be licensed by the Office of Export
Administration of the U.S. Department of Commerce. From time to time, the
Company has experienced delays in obtaining the necessary licenses, but to date
such delays have not had a material adverse effect on the Company's business.
There can be no assurance that such delays will not occur in the future,
however, or that if such delays do occur, that they will not have a material
adverse effect on the Company's business or operating results.
In the year ended December 31, 1996, worldwide sales through distributors
accounted for approximately 85% of sales. In 1996, the two largest distributors
accounted for 29% and 15% of sales. In 1995, the two largest distributors
accounted for 21% and 15% of sales, whereas in 1994, they each accounted for 15%
and 14% of sales, respectively. No direct OEM customer accounted for more than
10% of the Company's sales in 1996, 1995, or 1994. Export sales constituted 47%,
47%, and 48% of sales in 1996, 1995, and 1994, respectively.
BACKLOG
The Company's backlog of released orders at December 31, 1996 was
approximately $102.6 million as compared to approximately $189.6 million at
December 31, 1995. The Company includes in its backlog OEM customer-released
orders that are requested for delivery within the next six months, and
distributor orders requested for delivery within the next three months. The
Company produces standard products which may be shipped from inventory within a
short time after receipt of an order. The Company's business has been
8
10
characterized by a high percentage of short-term orders with short-term shipment
schedules (turns orders). At times, due to high demand and supply constraints in
certain products, lead times can lengthen, causing an increase in backlog.
However, orders constituting the Company's current backlog are cancelable
without significant penalty at the option of the purchaser, thereby decreasing
backlog during periods of lower demand. In addition, distributor shipments are
subject to price adjustments. Accordingly, backlog as of any particular date
should not be used as a measure of sales for any future period.
PATENTS AND LICENSES
The Company owns more than 100 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. In
addition, there can be no assurance that such additional licenses could be
obtained on terms or conditions acceptable to the Company or that such licenses,
if obtained, would lead to the development of additional products. 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.
An agreement with Cypress Semiconductor covers certain of the Company's MAX
5000 family of products. An initial agreement, entered into in June 1987, was
terminated on November 23, 1993, though product licenses continue after
termination. In April 1990, the Company entered into an additional agreement
with Cypress Semiconductor regarding a 17% equity investment in CSTI and a
related supply agreement. This supply agreement was amended effective November
23, 1993, and currently is in effect. See "Manufacturing."
The Company entered into an intellectual property cross-licensing agreement
with Intel as part of the Company's purchase of Intel's PLD division in October
1994. The agreement continues for the lives of the licensed patents, and is
perpetual with respect to other licensed intellectual property.
In March 1987, the Company and Monolithic Memories, Inc. (MMI) entered into
an agreement cross-licensing all of each others' patents covering programmable
and reprogrammable logic devices and processes for making such devices having a
first filing date prior to April 1, 1989, as part of the settlement of a patent
suit against the Company. This agreement covered only patents, and no products
or non-patented technology was licensed to either company as a result of this
agreement. In March, 1988, AMD succeeded to MMI's rights and responsibilities
under the license agreement, and agreed to be bound by the terms of the
agreement, in connection with its acquisition of MMI. In March 1994, AMD
informed the Company that it believes the scope of the patent license described
above is more limited than the Company has interpreted such license. In August,
1994, AMD sued the Company on patents for which the Company believes it is
licensed. In a June 1996 trial, the Company prevailed in its defense that it is
licensed under some or all of the patents asserted by AMD in the suit. It is not
yet possible to determine what effect, if any, this dispute might have on the
operations of the Company (see Item 3. Legal Proceedings).
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 which would not
have a material and 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
9
11
current litigation with two of its competitors, there can be no assurance that
any necessary licenses could be obtained, and, if obtainable, 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 products
families. It may be necessary or desirable for the Company to incur litigation
expenses to enforce its intellectual property rights. There is no assurance that
any such litigation would be successful, or that the Company's patents would be
upheld if challenged.
RESEARCH AND DEVELOPMENT
The Company's research and development activities have focused primarily on
general purpose programmable logic chips and on the associated development
software and hardware. The Company has developed these related products in
parallel to provide software support to customers simultaneously with circuit
introduction. Altera believes that advanced software tools are a critical factor
in the advancement of programmable semiconductor technology. Since 1991, the
Company's research and development activities have been primarily directed
toward the design of the MAX 7000 integrated circuits and subsequently the FLEX
8000, MAX 9000, and FLEX 10K circuits, as well as the development of new
software and hardware for these circuits, cost reductions and advancements in
other existing products, and development of alternative architectures and
technologies. In the last two years, the Company has introduced the MAX 9000,
FLEX 10K and MAX 7000S families of products, two major new software releases,
and several new package technologies. Additionally, the Company has redesigned a
number of its products to accommodate their manufacture on new wafer fabrication
processes, including a new eight-inch wafer process using triple-layer metal
technology.
The Company's research and development expenditures in 1996, 1995, and 1994
were $49.5 million, $33.8 million, and $22.2 million (excluding an R&D In
Process charge in 1994 of $23.7 million associated with the Intel PLD product
line acquisition), respectively. The Company has not capitalized research and
development or software costs to date. The Company intends to continue to spend
substantial amounts on research and development in order to continue to develop
new products and achieve market acceptance for such products, particularly in
light of the industry pattern of price erosion for mature products and
increasing competition within the programmable logic market. Even if such goals
are accomplished, there can be no assurance that these products will achieve
significant market acceptance. If the Company were unable to successfully
define, develop, and introduce competitive new products, and enhance its
existing products, its future operating results would be adversely affected.
COMPETITION
The semiconductor industry overall is intensely competitive and is
characterized by rapid technological change, rapid rates of product
obsolescence, and price erosion resulting from both product obsolescence and
price competition. The Company competes directly with a number of fast-growing
domestic companies that devote a significant portion of their resources to new
product development and existing product enhancement. The semiconductor industry
also includes many large domestic and foreign companies that have substantially
greater financial, technical, and marketing resources than the Company. The
Company currently experiences direct competition from Lucent, Philips and other
large companies, and others offer products that are indirectly competitive with
the Company's products or have announced their intention to enter the market.
The principal factors of competition in the CMOS programmable logic
marketplace include the capability of software development tools, the
integration capacity and flexibility of the individual circuits, product
performance and features, quality and reliability, pricing, technical service
and support, and the ability to respond rapidly to technical innovation. The
Company believes it competes favorably with respect to these factors, although
it may be at a disadvantage in comparison to larger companies with broader
product lines, greater technical service and support capabilities, and internal
wafer fabrication capabilities. The Company believes, however, that its
proprietary device architecture and its installed base of development systems
with proprietary software may provide some competitive advantage.
10
12
The Company's competition for its general-purpose programmable logic chips
has come from many sources. The Company's licensee, Cypress Semiconductor,
competes on their particular licensed products. Cypress Semiconductor can
compete directly with pin-compatible parts even after a customer has chosen to
design its product using the Company's chips. In anticipation of this, the
Company structured its license so that the licensee has rights to a limited
portion of the Company's overall product line. In addition, the Company's
agreement with Cypress Semiconductor and CSTI allows the Company to manufacture
certain products without granting second source rights.
The Company also experiences significant competition from a number of other
companies which are in the market with products competitive with those of the
Company. These companies include major domestic and international semiconductor
companies, traditional programmable logic and application-specific circuit
manufacturers, and emerging companies. Among these are companies such as Actel
Corporation, AMD (Vantis), Atmel Corporation, Lattice Semiconductor Corporation,
Lucent, and Xilinx. The Company's primary competition is from suppliers of
products marketed as programmable logic devices (PLDs) and field programmable
gate arrays ("FPGAs"), though as the average pin count and functional density
for the Company's products continue to increase, the Company expects to compete
to an increasing extent with ASIC suppliers, such as LSI Logic.
A number of very large, well-financed companies compete with the Company in
its core business. These companies, including Lucent, Motorola, Philips, and
others, have proprietary wafer manufacturing ability, preferred vendor status
with many of the Company's customers, extensive marketing power and name
recognition, much greater financial resources than those of the Company, and
other significant advantages over the Company. The Company expects that as the
dollar volume of the programmable logic market grows, the attractiveness of this
market to larger, more powerful competitors will continue to increase.
Substantial direct or indirect competition could have a significant adverse
effect on the Company's future sales and operating results.
EMPLOYEES
As of December 31, 1996, the Company had 918 employees. The success of the
Company is dependent in large part upon the continued service of its key
management, technical, sales, and support employees and on its ability to
continue to attract and retain additional qualified employees. The competition
for such employees is intense and their loss as employees could have an adverse
effect on the Company. The Company believes employee relations are good.
ITEM 2. PROPERTIES.
The Company's headquarters are in facilities in San Jose, California
totaling approximately 220,000 square feet. Design, limited manufacturing,
research, marketing, and administrative activities are performed in these
facilities. The Company occupies these properties under non-cancelable leases
which expire in 1997. In June 1995, the Company purchased approximately 25 acres
of land near the Company's present headquarters for the development of a
multiple building corporate headquarters. During 1996, $27.0 million was spent
by the Company on construction of 500,000 square feet of office and light
manufacturing space on this land. Construction is expected to be completed in
1997. The Company also leases on a short-term basis office facilities for its
domestic and international sales management offices.
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
11
13
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 case to California has been granted. The California litigation has
been the subject of court-ordered mediation, which to date has not resulted in
resolution of the litigation. 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 any of 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 that 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. Although no assurances can be given as to the
results of this case, based on its present status, management does not believe
that any of such results will have a material adverse effect on the Company's
financial condition or results of operations.
12
14
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The textual portion of the section entitled "About Your Investment" and the
section entitled "Corporate Directory" in the Company's 1996 Annual Report to
Shareholders for the year ended December 31, 1996 ("1996 Annual Report") are
incorporated herein by reference.
The Company believes factors such as quarter-to-quarter variances in
financial results, announcements of new products, new orders, and order rate
variations by the Company or its competitors could cause the market price of its
Common Stock to fluctuate substantially. In addition, the stock prices for many
high technology companies experience large fluctuations, which are often
unrelated to the operating performance of the specific companies. Broad market
fluctuations, as well as general economic conditions such as a recessionary
period or high interest rates, may adversely affect the market price of the
Company's Common Stock.
ITEM 6. SELECTED FINANCIAL DATA.
The section entitled "Selected Consolidated Financial Data/Five-Year
Summary" in the Company's 1996 Annual Report is incorporated herein by
reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
The textual portion of the section entitled "Management's Discussion and
Analysis of Financial Conditions and Results of Operations" in the Company's
1996 Annual Report is incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The consolidated financial statements, together with the report thereon of
Price Waterhouse LLP dated January 22, 1997 and the section entitled "Selected
Consolidated Financial Data/Quarterly Data (Unaudited)" in the Company's 1996
Annual Report are incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
13
15
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The executive officers and directors of the Company and their ages are as
follows:
NAME AGE POSITION WITH THE COMPANY
- ---------------------------- --- ------------------------------------------------
Rodney Smith 56 Chairman of the Board of Directors; President;
and Chief Executive Officer
C. Wendell Bergere 51 Vice President, General Counsel, and Secretary
Denis Berlan 47 Executive Vice President, Chief Operating
Officer
Erik Cleage 36 Vice President, Marketing
John R. Fitzhenry 47 Vice President, Human Resources
Clive McCarthy 50 Senior Vice President, Development Engineering
Paul Newhagen(1)(3) 47 Director; Vice President, Administration
Thomas J. Nicoletti 50 Vice President, Investor Relations and Business
Development
Nathan Sarkisian 38 Vice President, Finance; Chief Financial Officer
Peter Smyth 59 Vice President, Sales
Michael A. Ellison(1)(2)(3) 51 Director
Robert W. Reed(1)(3) 50 Director
William E. Terry(1)(2) 63 Director
Deborah Triant 47 Director
- ---------------
(1) Member of Nominating Committee
(2) Member of Compensation Committee.
(3) Member of Audit Committee.
All directors hold office until the next annual meeting of shareholders or
until their successors have been elected and qualified. There are no family
relationships between any of the directors or executive officers of the Company.
Rodney Smith joined the Company in November 1983 as Chairman of the Board
of Directors, President, and Chief Executive Officer. Prior to that time, he
held various management positions with Fairchild Semiconductor Corporation
("Fairchild"), a semiconductor manufacturer.
C. Wendell Bergere joined the Company in August 1995 as Vice President,
General Counsel, and Secretary. Prior to joining the Company, from 1993 to 1995,
Mr. Bergere was Special Counsel at the law firm of Sheppard, Mullin, Richter &
Hampton. From 1982 to 1993, he was Vice President, General Counsel, and
Secretary of The Perkin-Elmer Corporation, a producer of analytical and life
science systems.
Denis M. Berlan joined the Company in December 1989 as Vice President,
Product Engineering, and was named Vice President, Operations and Product
Engineering in October 1994. In January 1996, he was named Vice President,
Operations. In January 1997, he was named Executive Vice President and Chief
Operating Officer. He was previously employed by Advanced Micro Devices, Inc.
("AMD"), a semiconductor manufacturer, and by Lattice Semiconductor Corporation,
a semiconductor manufacturer, in engineering management capacities.
Erik Cleage joined the Company as International Marketing Manager in
February 1986. He became Director, Japan and Asia Pacific Sales in April 1989,
and was appointed Vice President, Marketing in August 1990. Previously, he was
employed by AMD and Fairchild in various positions.
John R. Fitzhenry joined the Company in May 1995 as Vice President of Human
Resources. From 1983 to May 1995, he was employed by Apple Computer, Inc., a
manufacturer of personal computers, in various human resource management
positions.
14
16
Clive McCarthy joined the Company in February 1984 as Director of
Applications. He was appointed Vice President of Software in March 1987. In
March 1990 he was appointed Vice President of Development Engineering. Prior to
joining the Company, Mr. McCarthy had been employed by Fairchild, Northern
Telecom, and Texas Instruments in various technical and marketing management
positions.
Paul Newhagen, a co-founder of the Company, has served as a director of the
Company since July 1987 and as Vice President of Administration since December
1994. Mr. Newhagen served as Vice President of the Company from November 1992 to
February 1993, Secretary from July 1987 to January 1993, Vice President of
Finance and Administration from June 1983 to November 1992, and Chief Financial
Officer from June 1983 to February 1993. From June 1993 to November 1994, Mr.
Newhagen served as a consultant to the Company.
Thomas J. Nicoletti joined the Company in October 1992 as Vice President of
Finance and was appointed Chief Financial Officer in February 1993. In August
1995 he became Vice President, Investor Relations and Business Development.
Previously, he was Chief Financial Officer for Procase, Inc., a software
company, and for Lam Research Corporation, a semiconductor equipment
manufacturer. Prior to that, Mr. Nicoletti was employed by Fairchild and AMD in
various accounting and financial positions.
Nathan Sarkisian joined the Company in June 1992 as Corporate Controller.
He was appointed Vice President, Finance and Chief Financial Officer in August
1995. Prior to joining the Company, Mr. Sarkisian held various accounting and
financial positions at Fairchild, and at Schlumberger, an oil field services
company.
Peter Smyth joined the Company in May 1990 as Vice President of Sales.
Prior to joining the Company, Mr. Smyth served as Vice President of Sales at
Precision Monolithics, Inc., a semiconductor manufacturer, and Vice President of
North American Sales at Mostek, a semiconductor manufacturer. Mr. Smyth was also
previously associated with Texas Instruments in a variety of sales and marketing
capacities.
Michael A. Ellison has served as a director of the Company since April
1984. Since October 1994, Mr. Ellison has been the Chief Executive Officer of
Steller, Inc., a distributor of electronic parts. Until December 1992, he was a
General Partner at Cable & Howse Ventures, a venture capital investment firm,
and following that a private venture capital investor. Mr. Ellison also served
as a director of Wall Data Incorporated from September 1986 to January 1996.
Robert W. Reed has served as a director of the Company since October 1994.
In 1996, Mr. Reed retired from his position as Senior Vice President of Intel
Corporation, a semiconductor manufacturer. From 1983 to 1991 Mr. Reed was
Intel's Chief Financial Officer.
William E. Terry has served as a director of the Company since August 1994.
Mr. Terry is a former director and Executive Vice President of the
Hewlett-Packard Company, a diversified electronics manufacturing company. At
Hewlett-Packard, he held a number of senior management positions, including
general manager of Hewlett-Packard's Data Products and Instrument Groups, and
subsequently had overall responsibility for the Measurement Systems Sector. He
retired from Hewlett-Packard in November 1993. Mr. Terry also serves as a
director of Key Tronic Corporation.
Deborah Triant has served as a director of the Company since May 1996. Dr.
Triant is the President and Chief Executive Officer of CheckPoint Software
Technologies, Inc. ("CheckPoint"), an Internet security software company, and a
director of CheckPoint's Israeli parent company, CheckPoint Software
Technologies, Ltd. Prior to joining CheckPoint, Dr. Triant held various
marketing and technical executive positions with Adobe Systems Inc., a computer
software company, Sun Microsystems Inc., a computer networking company, and
Xerox Corp., a diversified electronics manufacturer.
The section entitled "Section 16(a) Beneficial Ownership Reporting
Compliance" in the Company's Proxy Statement dated March 20, 1997 filed with the
Securities and Exchange Commission (the "Proxy Statement") is incorporated
herein by reference.
ITEM 11. EXECUTIVE COMPENSATION.
The section entitled "Executive Compensation" and the section entitled
"Changes to Benefit Plans" in the Company's Proxy Statement are incorporated
herein by reference.
15
17
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The section entitled "Security Ownership of Certain Beneficial Owners and
Management" in the Company's Proxy Statement is incorporated herein by
reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The section entitled "Director Compensation" and the section entitled
"Certain Business Relationships" in the Company's Proxy Statement are
incorporated herein by reference.
16
18
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) 1. Financial Statements.
The following documents from the Annual Report to Shareholders are filed
as part of this report:
Consolidated Statements of Operations for each of the three years in the
period ended December 31, 1996
Consolidated Balance Sheets at December 31, 1996 and December 31, 1995
Consolidated Statements of Cash Flows for each of the three years in the
period ended December 31, 1996
Consolidated Statements of Shareholders' Equity for each of the three
years in the period ended December 31, 1996
Notes to Consolidated Financial Statements
Report of Independent Accountants
2. Financial Statement Schedules.
All schedules have been omitted as they are either not required, not
applicable, or the required information is included in the financial
statements or notes thereto.
3. Exhibits.
EXHIBIT
NUMBER EXHIBIT
--------- ---------------------------------------------------------------------------
2.1* Asset Purchase Agreement dated as of July 12, 1994 by and between the
Company and Intel Corporation(8).
2.2* Amendment No. 1 to Asset Purchase Agreement dated as of October 1, 1994 by
and between the Company and Intel Corporation(8).
2.3 Investor Agreement dated as of July 12, 1994 by and between the Company and
Intel Corporation(8).
3.1 Restated Articles of Incorporation of the Company dated December 18, 1996.
3.3 Amended and Restated Bylaws of the Company, as amended through May 8, 1996.
4.1 Specimen copy of certificate for shares of Common Stock of the
Registrant.(7)
4.2 Indenture Agreement dated as of June 15, 1995 by and between Registrant and
the First National Bank of Boston, as Trustee.(11)
4.3 Form of Convertible Subordinated Note due 2002.(11)
10.1* License Agreement dated as of July 12, 1994 with Intel Corporation.(9)
10.2* Supply Agreement dated as of July 12, 1994 with Intel Corporation.(9)
10.3(a)+ 1987 Stock Option Plan, and forms of Incentive and Non statutory Stock
Option Agreements, as amended March 22, 1995 and as restated effective May
10, 1995.(12)
10.4(b)+ 1987 Employee Stock Purchase Plan, and form of Subscription Agreement, as
amended May 10, 1995.(12)
10.6* Technology License and Manufacturing Agreement with Cypress Semiconductor
Corporation, dated June 19, 1987.(1)
10.6(a)* Termination Agreement dated November 23, 1993, regarding Technology License
and Manufacturing Agreement with Cypress Semiconductor Corporation.(7)
10.11 Form of Sales Representative Agreement.(1)
17
19
EXHIBIT
NUMBER EXHIBIT
--------- ---------------------------------------------------------------------------
10.22* Advanced Micro Devices, formerly MMI, Settlement Agreement and associated
Series E Preferred Stock Purchase Agreement and Patent License Agreement,
all dated March 31, 1987.(1)
10.23 Amended and Restated Lease Agreement with Orchard Investment Company Number
611, dated November 10, 1989, for lease of Buildings B and C at 2610
Orchard Parkway, San Jose, California.(3)
10.24 First Amendment, effective February 5, 1990, to Lease Agreement with
Orchard Investment Company Number 611.(3)
10.25 Product Distribution Agreement with Wyle Electronics Marketing Group,
effective May 16, 1984, as amended.(1)
10.26 Form of Indemnification Agreement entered into with each of the Company's
officers and directors.(10)
10.30 Technology License and Manufacturing Agreement with Texas Instruments
Incorporated, dated July 1, 1988.(2)
10.30(a)* Amendment No. 2 to Technology License and Manufacturing Agreement with
Texas Instruments Incorporated, dated effective October 1, 1990.(5)
10.31 Product Distribution Agreement with LEX Electronics, Inc., formerly
Schweber Electronics Corporation effective December 22, 1988, as
amended.(2)
10.31(a) Consent to Assignment of Product Distribution Agreement, effective
September 23, 1991.(6)
10.33(b)+ 1988 Director Stock Option Plan and form of Outside Director Nonstatutory
Stock Option Agreement, as amended January 18, 1995 and as restated
effective May 10, 1995.(10)
10.34* Foundry and PROM II.5 Process Technology License Agreement with Cypress
Semiconductor Corporation and Cypress Semiconductor (Texas) Inc., dated
April 24, 1990.(4)
10.34(a)* Amendment Number 1 dated November 23, 1993, regarding Foundry and PROM II.5
Process Technology License Agreement with Cypress Semiconductor Corporation
and Cypress Semiconductor (Texas) Inc.(7)
10.35 Master Distribution Agreement with Japan Macnics Corporation dated June 26,
1986, as amended effective March 18, 1987.(6)
10.37 LSI Products Supply Agreement with Sharp Corporation, dated October 1,
1993.(7)
10.38+ Altera Corporation Nonqualified Deferred Compensation Plan and Trust
Agreement dated February 1, 1994, and form of Deferred Compensation
Agreement.(7)
10.39 Wafer Supply Agreement dated June 26, 1995 between Registrant and Taiwan
Semiconductor Manufacturing Co., Ltd.(11)
10.40 Option Agreement dated June 26, 1995 between Registrant and Taiwan
Semiconductor Manufacturing Co., Ltd.(11)
10.41 Memorandum of Intent dated October 1, 1995 between Registrant and Taiwan
Semiconductor Manufacturing Co., Ltd.(13)
10.42 Amendment No. 1 dated as of October 1, 1995 to Wafer Supply Agreement dated
as of June 26, 1995 by and between Registrant and Taiwan Semiconductor
Manufacturing Co., Ltd. And to Option Agreement 1 dated as of June 26, 1995
between Registrant and Taiwan Semiconductor Manufacturing Co., Ltd. (13)
10.43 Option Agreement 2 dated as of October 1, 1995 by and between Registrant
and Taiwan Semiconductor Manufacturing Co., Ltd. (13)
18
20
EXHIBIT
NUMBER EXHIBIT
--------- ---------------------------------------------------------------------------
10.44 Option Agreement 3 dated as of October 1, 1995 by and between Registrant
and Taiwan Semiconductor Manufacturing Co., Ltd.(13)
10.45(a)+ 1996 Stock Option Plan.
10.45(b) Form of Stock Option Agreement under 1996 Stock Option Plan.(13)
10.46 Owner/Contractor Agreement for Construction between Registrant and Rudolph
and Sletten, Inc. dated January 10, 1996.(13)
10.47 Amended and Restated Limited Liability Company Agreement of Wafertech, LLC,
a Delaware limited liability company, dated as of August 9, 1996.(14)
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).(14)
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.(14)
11.1 Computation of Earnings per Share.
13.1 Annual Report to Shareholders for the fiscal year ended December 31, 1996
(to be deemed filed only to the extent required by the instructions to
Exhibits for Reports on Form 10-K).
21.1 Subsidiaries of the Registrant.
23.1 Consent of Price Waterhouse LLP (see page 21).
24.1 Power of Attorney (included on page 22).
27.1 Financial Data Schedule.
- ---------------
(1) Incorporated by reference to identically numbered exhibits filed in
response to item 16(a), "Exhibits," of the registrant's Registration
Statement on Form S-1, as amended, (File No. 33-17717) which became
effective March 29, 1988.
(2) Incorporated by reference to identically numbered exhibits filed in
response to Item 14(a), "Exhibits," of the registrant's Report on Form 10-K
for the fiscal year ended December 31, 1988.
(3) Incorporated by reference to identically numbered exhibits filed in
response to Item 14(a), "Exhibits," of the registrant's Report on Form 10-K
for the fiscal year ended December 31, 1989.
(4) Incorporated by reference to identically numbered exhibits filed in
response to Item 6(a), "Exhibits," of the registrant's Report on Form 10-Q
for the quarter ended March 31, 1990, as amended by a Form 8 filed on July
13, 1990.
(5) Incorporated by reference to identically numbered exhibits filed in
response to Item 14(a), "Exhibits," of the registrant's Report on Form 10-K
for the fiscal year ended December 31, 1990.
(6) Incorporated by reference to identically numbered exhibits filed in
response to Item 14(a), "Exhibits," of the registrant's Report on Form 10-K
for the fiscal year ended December 31, 1992.
(7) Incorporated by reference to identically numbered exhibits field in
response to Item 14(a), "Exhibits," of the registrant's Report on Form 10-K
for the fiscal year ended December 31, 1993.
(8) Incorporated by reference to identically numbered exhibits field in
response to Item 7, "Exhibits," of the registrant's Report on Form 8-K
dated October 15, 1994 and 8-KA dated December 15, 1994
(9) Incorporated by reference to identically numbered exhibits filed in
response to Item 6(a), "Exhibits," of the registrant's Report on Form 10-Q
for the quarter ended September 30, 1994
19
21
(10) Incorporated by reference to identically numbered exhibits filed in
response to Item 14(a), "Exhibits," of the registrant's Report on Form 10-K
for the fiscal year ended December 31, 1994.
(11) Incorporated by reference to identically numbered exhibits filed in
response to Item 6(a), "Exhibits," of the registrant's Report on Form 10-Q
for the quarter ended June 30, 1995.
(12) Incorporated by reference to identically numbered exhibits filed in
response to Item 8, "Exhibits," of the registrant's Registration Statement
on Form S-8, as amended (File No. 33-61085) which became effective July 17,
1995.
(13) Incorporated by reference to identically numbered exhibits filed in
response to Item 14(a), "Exhibits," of the registrant's Report on Form 10-K
for the fiscal year ended December 31, 1995.
(14) Incorporated by reference to identically numbered exhibits filed in
response to Item 6(a), "Exhibits," of the registrant's Report on Form 10-Q
for the quarter ended August 14, 1996.
* Confidential treatment has previously been granted for portions of this
exhibit pursuant to an order of the Commission.
+ Management contract or compensatory plan or arrangement required to be
filed as an exhibit to this Report on Form 10-K pursuant to Item 14(c)
thereof.
(b) Reports on Form 8-K.
None
20
22
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (No. 33-22877, No. 33-37159, No. 33-57350, No. 33-61085,
and No. 333-06859) of Altera Corporation of our report dated January 22, 1997
appearing on page 32 of the Annual Report to Shareholders which is incorporated
in this Annual Report on Form 10-K.
/s/ PRICE WATERHOUSE LLP
PRICE WATERHOUSE LLP
San Jose, California
March 21, 1997
21
23
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this Report on Form 10-K to
be signed on its behalf, by the undersigned thereto duly authorized.
ALTERA CORPORATION
Registrant
By: /s/ NATHAN SARKISIAN
--------------------------------------
Nathan Sarkisian,
Vice President - Finance
Chief Financial Officer
March 21, 1997
POWER OF ATTORNEY
Know all persons by these present, that each person whose signature appears
below constitutes and appoints Nathan Sarkisian, his attorney-in-fact, with the
power of substitution, for him in any and all capacities, to sign any amendments
to this Report on Form 10-K, and to file the same, with exhibits thereto and
other documents in connection therewith, with the Securities and Exchange
Commission, hereby ratifying and confirming all that said attorney-in-fact, or
his substitute or substitutes, may do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report on Form 10-K has been signed below by the following persons on behalf of
the registrant and in the capacities and on the dates indicated:
SIGNATURE CAPACITY IN WHICH SIGNED DATE
---------------------------------------- ---------------------------------- ---------------
/s/ RODNEY SMITH President, Chief Executive Officer
---------------------------------------- (Principal Executive Officer), and
Rodney Smith Chairman of the Board of Directors March 12, 1997
/s/ NATHAN SARKISIAN Vice President -- Finance and
---------------------------------------- Chief Financial Officer (Principal
Nathan Sarkisian Financial and Accounting Officer) March 12, 1997
/s/ MICHAEL A. ELLISON
----------------------------------------
Michael A. Ellison Director March 12, 1997
/s/ PAUL NEWHAGEN
----------------------------------------
Paul Newhagen Director March 12, 1997
/s/ ROBERT W. REED
----------------------------------------
Robert W. Reed Director March 12, 1997
/s/ WILLIAM E. TERRY
----------------------------------------
William E. Terry Director March 12, 1997
/s/ DEBORAH TRIANT
----------------------------------------
Deborah Triant Director March 12, 1997
22