ALTERA CORP - FORM 8-K - EX-99.1 - EXHIBIT - October 23, 2014

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INVESTOR CONTACT
 
MEDIA CONTACT
Scott Wylie - Vice President
 
Sue Martenson - Senior Manager
Investor Relations
 
Public Relations
(408) 544-6996
 
(408) 544-8158
swylie@altera.com
 
newsroom@altera.com


ALTERA ANNOUNCES THIRD QUARTER RESULTS




San Jose, Calif., October 23, 2014 — Altera Corporation (NASDAQ: ALTR) today announced third quarter sales of $499.6 million, up 2 percent from the second quarter of 2014 and up 12 percent from the third quarter of 2013. Third quarter net income was $118.0 million, $0.38 per diluted share, compared with net income of $127.0 million, $0.41 per diluted share, in the second quarter of 2014 and $119.4 million, $0.37 per diluted share, in the third quarter of 2013.

Year-to-date cash flow from operating activities was $515.4 million. Altera repurchased approximately
4.2 million shares during the quarter at a cost of approximately $144.2 million.

Altera's board of directors has declared a quarterly cash dividend of $0.18 per share, to be paid on December 1, 2014 to shareholders of record on November 10, 2014.

"Sales were at the high end of expectations, on the back of solid new product growth, led by strong 28 nm gains," said John Daane, president, chief executive officer, and chairman of the board. "We continue to be encouraged by the positive feedback from early access customers of our first-ever FinFET-based FPGAs, the high-end Stratix 10 family.  Utilizing a new proprietary HyperFlex architecture and manufactured with 14 nm Intel TriGate process technology, Stratix 10 devices will offer dramatic improvements in logic density, performance, and power consumption, significantly expanding the reach of Altera FPGA solutions."


 



1



Several recent accomplishments mark the company's continuing progress:

•
Altera has released early access design software for Stratix® 10 FPGAs and SoCs, the industry’s first design software targeting 14 nm FPGAs. Customers today can start their Stratix 10 designs and experience firsthand the doubling, on average, in core performance they can achieve as a result of the Stratix 10 HyperFlex™ architecture and the 14 nm Intel Tri-Gate FinFET process. Stratix 10 FPGAs and SoCs are designed to enable the most advanced, highest performance applications in the communications, military, broadcast and computer and storage markets. For high-performance systems that have strict power budgets, Stratix 10 devices will allow customers to achieve up to a 70 percent reduction in power consumption compared with Stratix V FPGAs. Stratix 10 FPGAs and SoCs will also provide the industry’s highest levels of system integration, including:
- The highest density monolithic device with greater than four million logic elements.
- A high-performance, quad-core 64-bit ARM® Cortex-A53 processor system.
- Multi-die solutions capable of integrating DRAM, SRAM, ASIC, processors and analog components in a single package.
- Over 10 TeraFLOPs of single-precision, hardened floating point DSP performance.
- More than 4X serial transceiver bandwidth compared to previous generation FPGAs, including 28-Gbps backplane-capable transceivers and a path to 56-Gbps transceivers.
        
•
Altera and Baidu, China’s largest online search engine, are collaborating on the use of FPGAs and convolutional neural network (CNN) algorithms for deep learning applications. These applications are set to play a critical role in the development of more accurate and faster online search. Altera demonstrated its work with Baidu at the recent High Performance Computing for Wall Street conference. In key search functions, such as image classification and recognition tasks, CNNs are considered to be state-of-the-art and provide record-setting accuracy. To dramatically simplify the implementation of parallel processing applications, Baidu is leveraging Altera's Stratix V FPGAs and the Altera SDK for OpenCL™, which achieved Khronos OpenCL conformance testing certification in May 2013. Altera remains the only FPGA supplier with such certification.

•
Altera has signed a three-year strategic agreement with China Mobile Research Institute (CMRI) to research and prototype next-generation green wireless network infrastructure solutions based on the Centralized Radio Access Network (C-RAN) architecture that leverages network function virtualization (NFV). Cooperation between Altera and CMRI will center on joint research and development for centralized baseband processing of wireless base stations, with a goal of delivering lower power consumption, lower total operating costs and higher scalability than conventional infrastructure. The new, jointly developed C-RAN architecture will enable operators to increase the spectrum efficiency and to add or upgrade processing capabilities with ease via NFV of the baseband processing resources. This will allow operators to reduce their operating expense and create new business models while leveraging existing investments. FPGAs serve key roles in data processing acceleration, component connectivity and front-haul data transportation.




2



•
Altera has announced the availability of non-volatile MAX® 10 FPGAs, Altera’s latest addition to its Generation 10 portfolio. Using TSMC’s 55 nm embedded flash process technology, MAX 10 FPGAs revolutionize non-volatile FPGAs by delivering dual-configuration flash, analog and embedded processing capabilities in a small-form-factor, low-cost, instant-on programmable logic device.  The highly integrated FPGAs provide up to 50 percent board area savings compared to other low-cost FPGAs and provide several important system functions, such as an instant-on configuration, fail-safe upgrades, and system monitoring and control.  MAX 10 FPGAs are shipping today and are supported by Quartus® II software, evaluation kits, design services through the Altera Design Services Network (DSN), documentation and training to accelerate system development.



3


SELECTED THIRD QUARTER REVENUE AND RELATED RESULTS


($ in thousands) Key Ratios & Information
 
September 26, 2014
 
June 27, 2014
Current Ratio
 
6:1

 
6:1

Liabilities/Equity
 
3:4

 
2:3

Quarterly Operating Cash Flows
 
$
214,049

 
$
170,958

TTM Return on Equity
 
13
%
 
13
%
Quarterly Depreciation Expense
 
$
11,874

 
$
12,222

Quarterly Capital Expenditures
 
$
13,691

 
$
9,620

Inventory MSOH (1): Altera
 
3.4

 
3.2

Inventory MSOH (1): Distribution
 
0.6

 
0.6

Cash Conversion Cycle (Days)
 
154

 
160

Turns
 
37
%
 
42
%
Book to Bill
 
<1.0

 
>1.0

 
 
 
 
 
Note (1): MSOH: Months Supply On Hand
 
 
 
 

                



4



ALTERA CORPORATION
NET SALES SUMMARY
(Unaudited)

 
Three Months Ended
 
Quarterly Growth Rate
 
September 26,
2014
 
June 27,
2014
 
September 27,
2013
 
Sequential Change
 
Year-
Over-Year
Change
Geography
 
 
 
 
 
 
 
 
 
Americas
16
%
 
16
%
 
18
%
 
7
 %
 
1
 %
Asia Pacific
42
%
 
43
%
 
39
%
 
0
 %
 
20
 %
EMEA
29
%
 
27
%
 
28
%
 
6
 %
 
15
 %
Japan
13
%
 
14
%
 
15
%
 
(7
)%
 
(1
)%
Net Sales
100
%
 
100
%
 
100
%
 
2
 %
 
12
 %
Product Category
 
 
 
 
 
 
 
 
 
New
56
%
 
53
%
 
44
%
 
9
 %
 
45
 %
Mainstream
21
%
 
21
%
 
26
%
 
(3
)%
 
(13
)%
Mature and Other
23
%
 
26
%
 
30
%
 
(10
)%
 
(14
)%
Net Sales
100
%
 
100
%
 
100
%
 
2
 %
 
12
 %
Vertical Market
 
 
 
 
 
 
 
 
 
Telecom & Wireless
45
%
 
46
%
 
41
%
 
(1
)%
 
23
 %
Industrial Automation, Military & Automotive
21
%
 
21
%
 
23
%
 
—
 %
 
3
 %
Networking, Computer & Storage
16
%
 
15
%
 
19
%
 
14
 %
 
(5
)%
Other
18
%
 
18
%
 
17
%
 
1
 %
 
18
 %
Net Sales
100
%
 
100
%
 
100
%
 
2
 %
 
12
 %
FPGAs and CPLDs
 
 
 
 
 
 
 
 
 
FPGA
85
%
 
84
%
 
82
%
 
3
 %
 
17
 %
CPLD
8
%
 
8
%
 
9
%
 
(6
)%
 
(10
)%
Other Products
7
%
 
8
%
 
9
%
 
(6
)%
 
(7
)%
Net Sales
100
%
 
100
%
 
100
%
 
2
 %
 
12
 %

Product Category Description

•
New Products include the Arria® 10, Stratix® V, Stratix IV, Arria V, Arria II, Cyclone® V, Cyclone IV, MAX® 10, MAX V, HardCopy® IV devices and Enpirion PowerSoCs.

•
Mainstream Products include the Stratix III, Cyclone III, MAX II and HardCopy III devices.

•
Mature and Other Products include the Stratix II, Stratix, Arria GX, Cyclone II, Cyclone, MAX 3000A, MAX 7000, MAX 7000A, MAX 7000B, MAX 7000S, MAX 9000, HardCopy II, HardCopy, FLEX® series, APEX™ series, Mercury™, Excalibur™ devices, configuration and other devices, intellectual property cores, and software and other tools.



5


Business Outlook for the Fourth Quarter 2014

Sales and Income Statement
Sequential Sales
-2% to -6%
Gross Margin
66.5% +/- 0.5%
Research and Development (1)
$111 - $113 million
SG&A
$78 - $80 million
Other Income/Expense, Net (2)
Net expense of approximately $4 - $5 million
Tax Rate
12% - 13%
Diluted Share Count
Less than 310 million
Turns
Low 40's
Inventory MSOH
Mid 3's
Note (1): The business outlook for Research and Development expense includes amortization of acquisition-related intangible assets
Note (2): Other Income/Expense, Net includes Interest income and other and Interest expense in our consolidated statements of comprehensive income.
        
Vertical Market                         
Telecom & Wireless
Down
Industrial Automation, Military & Automotive
Flat
Networking, Computer & Storage
Down
Other
Down

Third Quarter Earnings Conference Call
 
A conference call will be held today at 1:45 p.m. Pacific time to discuss the quarter's results and management's current business outlook. The web cast and subsequent replay will be available in the Investor Relations section of the company's website at www.altera.com. A telephonic replay of the call may be accessed later in the day by calling (719) 457-0820 and referencing confirmation code 258712. The telephonic replay will be available for two weeks following the live call.


 

 



6


Forward-Looking Statements
 
Statements in this press release that are not historical are "forward-looking statements" as the term is defined in the Private Securities Litigation Reform Act of 1995. Forward-looking statements are generally written in the future tense and/or preceded by words such as "will," "expects," "anticipates," or other words that imply or predict a future state. Forward-looking statements include, but are not limited to, statements regarding both absolute and relative product performance and features, product development schedules, potential FPGA market expansion, and any projection of revenue, gross margin, expense or other financial items discussed in the Business Outlook section or elsewhere in this press release. Investors are cautioned that all forward-looking statements in this release involve risks and uncertainty that can cause actual results to differ materially from those currently anticipated, due to a number of factors, including without limitation, current global economic conditions, customer business environment, customer inventory levels, product availability, vertical market mix, market acceptance of the company's products, the performance of products once introduced, product introduction schedules, the rate of growth of the company's new products including Cyclone® V, Cyclone IV, Arria® 10, Arria V, Arria II, Stratix® V, Stratix IV, MAX® 10 FPGAs, MAX V CPLDs, HardCopy® IV device families and Enpirion PowerSoCs, as well as changes in economic conditions and other risk factors discussed in documents filed by the company with the Securities and Exchange Commission (SEC) from time to time. Copies of Altera's SEC filings are posted on the company's website and are available from the company without charge. Forward-looking statements are made as of the date of this release, and, except as required by law, the company does not undertake an obligation to update its forward-looking statements to reflect future events or circumstances.

About Altera
 
Altera® programmable solutions enable designers of electronic systems to rapidly and cost effectively innovate, differentiate and win in their markets. Altera offers FPGAs, SoCs, CPLDs, ASICs and complementary technologies, such as power management, to provide high-value solutions to customers worldwide. Visit www.altera.com.
 
###
 
ALTERA, ARRIA, CYCLONE, ENPIRION, MAX, MEGACORE, NIOS, QUARTUS and STRATIX words and logos are trademarks of Altera Corporation and registered in the U.S. Patent and Trademark Office and in other countries. All other words and logos identified as trademarks or service marks are the property of their respective holders as described at www.altera.com/legal.





 
###

7


ALTERA CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
 
 
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended
 
Nine Months Ended
(In thousands, except per share amounts)
 
September 26,
2014
 
June 27,
2014
 
September 27,
2013
 
September 26,
2014
 
September 27,
2013
 
 
 
 
 
 
 
 
 
 
 
Net sales
 
$
499,606

 
$
491,517

 
$
445,945

 
$
1,452,216

 
$
1,278,205

Cost of sales
 
166,019

 
162,391

 
141,525

 
480,279

 
402,712

Gross margin
 
333,587

 
329,126

 
304,420

 
971,937

 
875,493

Operating expense
 
 
 
 
 
 
 
 
 
 
Research and development expense
 
112,078

 
101,121

 
95,336

 
310,856

 
278,542

Selling, general, and administrative expense
 
77,724

 
78,974

 
78,907

 
231,205

 
235,376

Amortization of acquisition-related intangible assets
 
2,465

 
2,464

 
1,846

 
7,394

 
2,974

Total operating expense
 
192,267

 
182,559

 
176,089

 
549,455

 
516,892

Operating margin (1)
 
141,320

 
146,567

 
128,331

 
422,482

 
358,601

Compensation (benefit)/expense — deferred compensation plan
 
(487
)
 
3,126

 
3,462

 
4,093

 
6,724

Loss/(gain) on deferred compensation plan securities
 
487

 
(3,126
)
 
(3,462
)
 
(4,093
)
 
(6,724
)
Interest income and other
 
(4,558
)
 
(7,819
)
 
(2,214
)
 
(18,362
)
 
(6,651
)
Gain reclassified from other comprehensive (loss)/income
 
(59
)
 
(43
)
 
(33
)
 
(150
)
 
(129
)
Interest expense
 
10,774

 
10,877

 
2,511

 
32,139

 
8,365

Income before income taxes
 
135,163

 
143,552

 
128,067

 
408,855

 
357,016

Income tax expense
 
17,154

 
16,548

 
8,635

 
47,328

 
15,885

Net income
 
118,009

 
127,004

 
119,432

 
361,527

 
341,131

 
 
 
 
 
 
 
 
 
 
 
Other comprehensive (loss)/income:
 
 
 
 
 
 
 
 
 
 
Unrealized (loss)/gain on investments:
 
 
 
 
 
 
 
 
 
 
Unrealized holding (loss)/gain on investments arising during period, net of tax of ($6), $23, $30,$41 and ($12)
 
(4,929
)
 
14,471

 
2,419

 
22,102

 
(6,613
)
Less: Reclassification adjustments for gain on investments included in net income, net of tax of $11, $6, $11, $21 and $21
 
(48
)
 
(37
)
 
(22
)
 
(129
)
 
(108
)
Other comprehensive (loss)/income
 
(4,977
)
 
14,434

 
2,397

 
21,973

 
(6,721
)
Comprehensive income
 
$
113,032

 
$
141,438

 
$
121,829

 
$
383,500

 
$
334,410

 
 
 
 
 
 
 
 
 
 
 
Net income per share:
 
 
 
 
 
 
 
 
 
 
Basic
 
$
0.38

 
$
0.41

 
$
0.37

 
$
1.16

 
$
1.07

Diluted
 
$
0.38

 
$
0.41

 
$
0.37

 
$
1.15

 
$
1.05

 
 
 
 
 
 
 
 
 
 
 
Shares used in computing per share amounts:
 
 
 
 
 
 
 
 
 
 
Basic
 
308,215

 
311,000

 
320,445

 
311,853

 
320,266

Diluted
 
310,184

 
313,513

 
323,505

 
314,130

 
323,355

 
 
 
 
 
 
 
 
 
 
 
Dividends per common share
 
$
0.18

 
$
0.15

 
$
0.15

 
$
0.48

 
$
0.35

 
 
 
 
 
 
 
 
 
 
 
Tax rate
 
12.7
%
 
11.5
%
 
6.7
%
 
11.6
%
 
4.4
%
% of Net sales:
 
 
 
 
 
 
 
 
 
 
Gross margin
 
66.8
%
 
67.0
%
 
68.3
%
 
66.9
%
 
68.5
%
Research and development (1)
 
22.9
%
 
21.1
%
 
21.8
%
 
21.9
%
 
22.0
%
Selling, general, and administrative
 
15.6
%
 
16.1
%
 
17.7
%
 
15.9
%
 
18.4
%
Operating margin(2)
 
28.3
%
 
29.8
%
 
28.8
%
 
29.1
%
 
28.1
%
Net income
 
23.6
%
 
25.8
%
 
26.8
%
 
24.9
%
 
26.7
%


8


Notes:
 
 
 
 
 
 
 
 
 
 
(1) Research and development expense as a percentage of Net sales includes amortization of acquisition-related intangible assets.

(2) We define operating margin as gross margin less research and development expense, selling, general and administrative expense and amortization of acquisition-related intangible assets, as presented above. This presentation differs from income from operations as defined by U.S. Generally Accepted Accounting Principles ("GAAP"), as it excludes the effect of compensation associated with the deferred compensation plan obligations. Since the effect of compensation associated with our deferred compensation plan obligations is offset by losses/(gains) from related securities, we believe this presentation provides a more meaningful representation of our ongoing operating performance. A reconciliation of operating margin to income from operations follows:
 
 
 
 
 
 
 
 
 
Three Months Ended
 
Nine Months Ended
(In thousands, except per share amounts)
 
September 26,
2014
 
June 27,
2014
 
September 27,
2013
 
September 26,
2014
 
September 27,
2013
Operating margin (non-GAAP)
 
$
141,320

 
$
146,567

 
$
128,331

 
$
422,482

 
$
358,601

Compensation (benefit)/expense — deferred compensation plan
 
(487
)
 
3,126

 
3,462

 
4,093

 
6,724

Income from operations (GAAP)
 
$
141,807

 
$
143,441

 
$
124,869

 
$
418,389

 
$
351,877



9


ALTERA CORPORATION
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands, except par value amount)
 
September 26,
2014
 
December 31,
2013
 
 
 
 
 
Assets
 
 
 
 
Current assets:
 
 
 
 
Cash and cash equivalents
 
$
2,680,085

 
$
2,869,158

Short-term investments
 
134,059

 
141,487

Total cash, cash equivalents, and short-term investments
 
2,814,144

 
3,010,645

Accounts receivable, net
 
406,708

 
483,032

Inventories
 
186,338

 
163,880

Deferred income taxes — current
 
54,402

 
63,228

Deferred compensation plan — marketable securities
 
65,492

 
66,455

Deferred compensation plan — restricted cash equivalents
 
15,897

 
16,699

Other current assets
 
41,260

 
48,901

Total current assets
 
3,584,241

 
3,852,840

Property and equipment, net
 
197,213

 
204,142

Long-term investments
 
1,744,830

 
1,695,066

Deferred income taxes — non-current
 
21,929

 
10,806

Goodwill
 
74,341

 
73,968

Acquisition-related intangible assets, net
 
74,756

 
82,150

Other assets, net
 
83,720

 
76,676

Total assets
 
$
5,781,030

 
$
5,995,648

 
 
 
 
 
Liabilities and stockholders' equity
 
 
 
 
Current liabilities:
 
 
 
 
Accounts payable
 
$
47,910

 
$
44,163

Accrued liabilities
 
41,403

 
41,218

Accrued compensation and related liabilities
 
73,354

 
51,105

Deferred compensation plan obligations
 
81,389

 
83,154

Deferred income and allowances on sales to distributors
 
397,002

 
487,746

Total current liabilities
 
641,058

 
707,386

Income taxes payable — non-current
 
310,199

 
276,326

Long-term debt
 
1,492,436

 
1,491,466

Other non-current liabilities
 
7,629

 
8,403

Total liabilities
 
2,451,322

 
2,483,581

Stockholders' equity:
 
 
 
 
Common stock: $.001 par value; 1,000,000 shares authorized; outstanding - 305,851 shares at September 26, 2014 and 317,769 shares at December 31, 2013
 
306

 
318

Capital in excess of par value
 
1,171,744

 
1,216,826

Retained earnings
 
2,163,647

 
2,322,885

Accumulated other comprehensive loss
 
(5,989
)
 
(27,962
)
Total stockholders' equity
 
3,329,708

 
3,512,067

Total liabilities and stockholders' equity
 
$
5,781,030

 
$
5,995,648

 
 
 
 
 

10


ALTERA CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, in thousands)
 
 
Nine Months Ended
 (In thousands)
 
September 26,
2014
 
September 27,
2013
 
 
 
 
 
Cash Flows from Operating Activities:
 
 
 
 
Net income
 
$
361,527

 
$
341,131

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
 
Depreciation and amortization
 
42,426

 
34,256

Amortization of acquisition-related intangible assets
 
7,394

 
2,974

Amortization of debt discount and debt issuance costs
 
2,337

 
844

Stock-based compensation
 
70,518

 
73,011

Net gain on sale of available-for-sale securities
 
(150
)
 
(129
)
Amortization of investment discount/premium
 
1,900

 
2,575

Deferred income tax expense/(benefit)
 
11,509

 
(5,629
)
Tax effect of employee stock plans
 
7,434

 
5,405

Excess tax benefit from employee stock plans
 
(4,719
)
 
(4,165
)
Changes in assets and liabilities, net of effects of acquisitions:
 
 
 
 
Accounts receivable, net
 
76,324

 
(111,231
)
Inventories
 
(22,458
)
 
(2,494
)
Other assets
 
3,939

 
28,673

Accounts payable and other liabilities
 
32,581

 
12,509

Deferred income and allowances on sales to distributors
 
(90,744
)
 
95,961

Income taxes payable
 
21,477

 
(8,753
)
Deferred compensation plan obligations
 
(5,858
)
 
(5,489
)
Net cash provided by operating activities
 
515,437

 
459,449

Cash Flows from Investing Activities:
 
 
 
 
Purchases of property and equipment
 
(34,946
)
 
(31,216
)
Sales of deferred compensation plan securities, net
 
5,858

 
5,489

Purchases of available-for-sale securities
 
(276,867
)
 
(258,809
)
Proceeds from sale of available-for-sale securities
 
79,424

 
84,900

Proceeds from maturity of available-for-sale securities
 
175,280

 
143,392

Acquisitions, net of cash acquired
 
—

 
(145,321
)
Purchases of intangible assets
 
(1,269
)
 
—

Purchases of other investments
 
(8,224
)
 
(2,101
)
Net cash used in investing activities
 
(60,744
)
 
(203,666
)
Cash Flows from Financing Activities:
 
 
 
 
Proceeds from issuance of common stock through stock plans
 
29,871

 
38,748

Shares withheld for employee taxes
 
(20,852
)
 
(24,787
)
Payment of dividends to stockholders
 
(149,844
)
 
(112,175
)
Holdback payment for prior acquisition
 
(3,353
)
 
—

Payment of debt assumed in acquisitions
 
—

 
(22,000
)
Long-term debt and credit facility issuance costs
 
(1,321
)
 
—

Repurchases of common stock
 
(502,986
)
 
(60,276
)
Excess tax benefit from employee stock plans
 
4,719

 
4,165

Net cash used in financing activities
 
(643,766
)
 
(176,325
)
Net (decrease)/increase in cash and cash equivalents
 
(189,073
)
 
79,458

Cash and cash equivalents at beginning of period
 
2,869,158

 
2,876,627

Cash and cash equivalents at end of period
 
$
2,680,085

 
$
2,956,085


11

ALTERA CORP Reports