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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 
 FORM 10-K
 (Mark One)þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
 For the fiscal year ended January 1, 2006
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
 Commission file number 0-21970
 
 ACTEL CORPORATION
  California
    
    77-0097724(State or other jurisdiction of
    
    (I.R.S. Employerincorporation or organization)
    
    Identification No.)2061 Stierlin CourtMountain View, California
    
    94043-4655(Address of principal executive offices)
    
    (Zip Code)
 (650) 318-4200
  None
 Common Stock, $.001 par value
Preferred Stock Purchase Rights


o No þ


o No þ




Yes þ o


þ




Large accelerated filer
    
    o
    
    Accelerated filer
    
    þ
    
    Non-accelerated filer
    
    o


o No þ


$327,587,327




25,778,940 shares of Common Stock outstanding as of March 10,
2006









In this Annual Report on Form 10-K , Actel Corporation and its consolidated subsidiaries are
referred to as we, us, our, or Actel. You should read the information in this Annual
Report with the Risk Factors in Item 1A. Unless otherwise indicated, the information in this
Annual Report is given as of March 10, 2006, and we undertake no obligation to update any of the information,
including forward-looking statements. All forward-looking statements are made under the safe
harbor provisions of the Private Securities Litigation Reform Act of 1995. Statements containing
words such as anticipates, believes, estimates, expects, intends, plans, seeks, and
variations of such words and similar expressions are intended to identify the forward-looking
statements. Actual results could differ materially from those projected in the forward-looking
statements due to the risks identified in the Risk Factors or for other reasons.






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TABLE OF CONTENTS  PART IITEM 1. BUSINESSITEM 1A. RISK FACTORSITEM 1B. UNRESOLVED STAFF COMMENTSITEM 2. PROPERTIESPART IIITEM 5. MARKET FOR THE REGISTRANTS COMMON STOCK, RELATED SHAREHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIESPART IIITEM 6. SELECTED FINANCIAL DATAITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSUREITEM 9A. CONTROLS AND PROCEDURESITEM 9B. OTHER INFORMATIONPART IIIITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANTITEM 11. EXECUTIVE COMPENSATIONITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENTITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONSITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICESPART IVITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULESSIGNATURESExhibit IndexEXHIBIT 21EXHIBIT 23EXHIBIT 24EXHIBIT 31.1EXHIBIT 31.2EXHIBIT 32    Table of Contents  
 PART I
 
 ITEM 1. BUSINESS
 Overview
     1




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http://www.actel.com
 Industry Background
  2




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3




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4




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Strategy
   l PSC Market
  l Value-Based Market
  5




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l System-Critical Market
  Products and Services
  4
 4
 4
 4
  l PSCs
  6




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l FPGAs
    £ Flash FPGAs
  7




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¤ ProASIC3/E and M7 ProASIC3/E
   ¤ ProASIC PLUS
  ¤ ProASIC
  8




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£ Antifuse FPGAs
  ¤ Axcelerator
  ¤ eX
  ¤ SX-A and SX
    9




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¤ MX




¤ Legacy Products




¡ DX and XL








¡ ACT 3




10



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¡ ACT 2
  ¡ ACT 1
  £ HiRel FPGAs
    11




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¤ Automotive
  ¤ Mil/Av
    12




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¤ Rad Tolerant
     13




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¤ Rad Hard
   l Supporting Products and Services
   £ IP Products
   14




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£ Design and Development Software
   15




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£ Programming Hardware
  £ Debugging Tool Kits and Demonstration Boards
   16




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£ Services
    £ Resource Center
   ¤ Live at Power-Up (LAPU)
  17




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¤ Power
  ¤ Packaging
  ¤ Soft/Firm Errors
  18




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¤ Design Security
  ¤ Total System Cost
  19




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Markets and Applications
  l Military and Aerospace
    20




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l Industrial
   l Communications
   l Consumer and Computer
  21




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l Automotive
  Sales and Distribution
    22




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Backlog
  Customer Service and Support
    Manufacturing and Assembly
  4
 4
 23




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4
    
    Matsushita in Japan using 1.0-, 0.9-, 0.8-, and 0.25-micron design rules;4
    
    UMC in Taiwan using 0.25/ 0.22- and 0.15-micron design rules; and4
    
    Winbond in Taiwan using 0.8- and 0.45-micron design rules.
     Strategic Relationships
   24




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Research and Development
   Competition
   25




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26




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Patents and Licenses
      Employees
  27




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ITEM 1A. RISK FACTORS
  l
    
    Our future revenues and operating results are likely to fluctuate and may fail to meet
expectations, which could cause our stock price to decline, perhaps significantly.
  £
    
    A variety of booking and shipping uncertainties may cause our quarterly revenues
and/or operating results to fall short of expectations.
  ¤
    
    We derive a large percentage of our quarterly revenues from bookings
received during the quarter, making quarterly revenues difficult to predict.
  ¤
    
    We derive a significant percentage of our quarterly revenues from shipments
made in the final weeks of the quarter, making quarterly revenues difficult to
predict.
  28




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¤
    
    Our military and aerospace shipments tend to be large and are subject to
complex scheduling uncertainties, making quarterly revenues difficult to
predict.
  ¤
    
    We derive a majority of our quarterly revenues from products resold by our
distributors, making quarterly revenues difficult to predict.
  £
    
    An unanticipated shortage of products available for sale may cause our quarterly
revenues and/or operating results to fall short of expectations.
  29




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£
    
    Unanticipated increases, or the failure to achieve anticipated reductions, in the
cost of our products may cause our quarterly operating results to fall short of
expectations.
  £
    
    Unanticipated reductions in the average selling prices of our products may cause our
quarterly revenues and operating results to fall short of expectations.
  l
    
    In preparing our financial statements, we make good faith estimates and judgments that may
change or turn out to be erroneous.
  30




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l
    
    Our gross margin may decline as we increasingly compete with hard-wired ASICs and serve the
value-based market.
  l
    
    We may not win sufficient designs, or the designs we win may not generate sufficient
revenues, for us to maintain or expand our business.
  l
    
    Our products are complex and may contain errors or defects that could have a materially
adverse effect on our business, financial condition, and operating results.
   31




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4
    
    more than 2.7 million hours of testing has been conducted on approximately
4,125 space-grade RTSX-SU devices with one to three failures observed (depending upon
how a failure is defined); and4
    
    more than 3.9 million hours of testing has been conducted on approximately
2,750 commercial-grade SX-A devices with 13 to 21 failures observed (using the same
definitions of failure).
  £
    
    Any error or defect in our products could have a material adverse effect on our
business, financial condition, and operating results.
  £
    
    Any product liability claim could pose a significant risk to our business, financial
condition, and operating results.
  32




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l
    
    We may be unsuccessful in defining, developing, or selling competitive new or improved
products at acceptable margins.
  4
    
    We announced our intention to develop SRAM-based FPGA products in 1996 and
abandoned the development in 1999 principally because the product would no longer have
been competitive.4
    
    We introduced our VariCore embeddable reprogrammable gate array (EPGA) logic
core based on SRAM technology in 2001. Revenues from VariCore EPGAs did not
materialize and the development of a more advanced VariCore EPGA was cancelled. In
this case, a market that we believed would develop did not emerge.4
    
    In 2001, we also launched our BridgeFPGA initiative to address the I/O problems
created within the high-speed communications market by the proliferation of interface
standards. We introduced the antifuse-based Axcelerator FPGA, which has dedicated I/O
circuits that can support multiple interface standards, in 2002. However, the
development of subsequent BridgeFPGA products was postponed in 2002 due principally to
the prolonged downturn in the high-speed communications market. The development was
cancelled in 2003 primarily because the subsequent BridgeFPGA products would no longer
have been competitive.
  £
    
    Our introduction of the Actel Fusion PSC presents numerous significant challenges.
  33




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£
    
    Numerous factors can cause the development or introduction of new products to fail
or be delayed.
  4
    
    anticipate future customer demand and the technology that will
be available to meet the demand;4
    
    define the product and its architecture, including the
technology, silicon, programmer, IP, software, and packaging specifications;4
    
    obtain access to advanced manufacturing process technologies;4
    
    design and verify the silicon;4
    
    develop and release evaluation software;4
    
    layout the FPGA and other functional blocks along with the
circuitry required for programming;4
    
    integrate the FPGA block with the other functional blocks;4
    
    simulate (i.e., test) the design of the product;4
    
    tapeout the product (i.e., compile a database containing the
design information about the product for use in the preparation of photomasks);4
    
    generate photomasks for use in manufacturing the product and
evaluate the software;4
    
    manufacture the product at the foundry;4
    
    verify the product; and4
    
    qualify the process, characterize the product, and release production software.
  34




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£
    
    New products are subject to greater design and operational risks.
  £
    
    New products are subject to greater technology risks.
  £
    
    New products generally have lower gross margins.
  l
    
    We face intense competition and have some competitive disadvantages that we may not be able
to overcome.
  £
    
    Many of our current and potential competitors are larger and have more resources.
  35




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£
    
    Our antifuse technology is not reprogrammable, which is a competitive disadvantage
in most cases.
  £
    
    Our Flash and antifuse technologies are not manufactured on standard processes,
which is a competitive disadvantage.
  l
    
    Our business and operations may be disrupted by events that are beyond our control or the
control of our business partners.
  36




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l
    
    We have only limited insurance coverage.
  l
    
    Our business depends on numerous independent third parties whose interests may diverge from
our interests.
  £
    
    Our independent wafer manufacturers may be unable or unwilling to satisfy our needs
in a timely manner, which could harm our business.
  ¤
    
    We will not generate significant revenues from the sale of RH products for
some time after our supply of RH1020 and RH1280 parts is exhausted.
  37




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¤
    
    Our limited volume and customized process requirements generally make us
less attractive to independent wafer manufacturers.
  ¤
    
    Identifying and qualifying new independent wafer manufacturers is difficult
and might be unsuccessful.
  £
    
    Our independent assembly subcontractors may be unable or unwilling to meet our
requirements, which could delay product shipments and result in the loss of customers
or revenues.
  38




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£
    
    Our independent software and hardware developers and suppliers may be unable or
unwilling to satisfy our needs in a timely manner, which could impair the introduction
of new products or the support of existing products.
  £
    
    Our future performance will depend in part on the effectiveness of our independent
distributors in marketing, selling, and supporting our products.
  ¤
    
    Distributor contracts generally can be terminated on short notice.
  39




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¤
    
    Fluctuations in inventory levels at our distributors can affect our
operating results.
  l We are subject to all of the risks and uncertainties associated with the conduct of
international business.
  £
    
    We depend on international operations for almost all of our products.
  £
    
    We depend on international sales for a substantial portion of our revenues.
  40




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l
    
    Our revenues and operating results may be adversely affected by downturns or other changes
in the general economy, in the semiconductor industry, in our major markets, or at our major
customers.
  £
    
    Our revenues and operating results may be adversely affected by future downturns in
the semiconductor industry.
  £
    
    Our revenues and operating results may be adversely affected by future downturns in
the communications market.
  £
    
    Our revenues and operating results may be adversely affected by future downturns in
the military and aerospace market.
  £
    
    Our revenues and operating results may be adversely affected by changes in the
military and aerospace market.
  41




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£
    
    Our revenues and/or operating results may be adversely affected by future downturns
at any our major customers.
  l
    
    Any acquisition we make may harm our business, financial condition, and/or operating
results.
  4
    
    In 1999, we acquired AGL for consideration valued at $7.2 million. We acquired
AGL for technology used in the unsuccessful development of an SRAM-based FPGA.
 4
    
    In 2000, we acquired Prosys Technology, Inc. (Prosys) for consideration valued
at $26.2 million. We acquired Prosys for technology used in our VariCore EPGA logic
core, which was introduced in 2001 but for which no market emerged.
 4
    
    Also in 2000, we completed our acquisition of GateField for consideration
valued at $45.7 million. We acquired GateField for its Flash technology and ProASIC
FPGA family. We introduced the second-generation ProASIC PLUS product family in 2002
and the third-generation ProASIC3/E families in 2005. We also introduced the
Flash-based Actel Fusion PSC in 2005. Actel is currently the only company offering
FPGAs with a nonvolatile, reprogrammable architecture.
  42




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l
    
    Changing accounting, corporate governance, public disclosure, or tax rules or practices
could have a materially adverse effect on our business, financial condition, and operating
results.
  £
    
    Changes in accounting for equity compensation will adversely affect our operating
results and may adversely affect our ability to attract and retain employees.
   £
    
    Compliance with the Sarbanes-Oxley Act of 2002 and related corporate governance and
public disclosure requirements has resulted in significant additional expense and
uncertainty.
  43




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l
    
    We may face significant business and financial risk from claims of intellectual property
infringement asserted against us, and we may be unable to adequately enforce our intellectual
property rights.
    44




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l
    
    We may be unable to attract or retain the personnel necessary to successfully develop our
technologies, design our products, or operate, manage, or grow our business.
  l
    
    We have some arrangements that may not be neutral toward a potential change of control and
our Board of Directors could adopt others.
    45




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l
    
    Our stock price may decline significantly, possibly for reasons unrelated to our operating
performance.
  4
    
    quarterly fluctuations in our financial results or the financial results of our
competitors or other semiconductor companies;4
    
    changes in the expectations of analysts regarding our financial results or the
financial results of our competitors or other semiconductor companies;4
    
    announcements of new products or technical innovations by Actel or by our
competitors; or4
    
    general conditions in the semiconductor industry, financial markets, or economy.
 l
    
    If our stock price declines sufficiently, we would write down our goodwill, which may have a materially adverse affect
on our operating results.
  
 ITEM 1B. UNRESOLVED STAFF COMMENTS
  46




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ITEM 2. PROPERTIES
   ITEM 3. LEGAL PROCEEDINGS
  ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  
 PART II
 
 ITEM 5.
    
    MARKET FOR THE REGISTRANTS COMMON STOCK, RELATED SHAREHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
  2005
    
    
    2004High
    
    
    Low
    
    
    High
    
    
    LowFirst Quarter
    
    $
    18.64
    
    
    $
    14.78
    
    
    $
    28.51
    
    
    $
    20.14Second Quarter
    
    
    15.54
    
    
    
    13.65
    
    
    
    23.98
    
    
    
    16.62Third Quarter
    
    
    15.98
    
    
    
    13.35
    
    
    
    17.46
    
    
    
    13.02Fourth Quarter
    
    
    15.25
    
    
    
    12.52
    
    
    
    18.19
    
    
    
    13.54
   47




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Securities Authorized for Issuance under Equity Compensation Plans
  Equity Compensation Plan Information
 (a)
    
    
    (b)
    
    
    (c)Number ofsecuritiesremaining availableNumber of
    
    
    
    
    
    
    for future issuancesecurities to be
    
    
    
    
    
    
    under equityissued upon
    
    
    Weighted-average
    
    
    compensation plansexercise of
    
    
    exercise price of
    
    
    (excludingoutstanding
    
    
    outstanding
    
    
    securitiesoptions, warrants
    
    
    options, warrants
    
    
    reflected in columnPlan Category
    
    and rights
    
    
    and rights
    
    
    (a)Equity compensation
plans approved by
security holders
    
    
    8,587,260
    
    
    $
    19.62
    
    
    
    1,580,829
    (1)(2)Equity compensation
plans not approved
by security holders (3)
    
    
    1,059,227
    
    
    $
    19.11
    
    
    
    2,406,083Total
    
    
    9,646,487
    (4)
    
    $
    19.57
    (4)
    
    
    3,986,912
    (2)
 
 (1)
    
    Consists of 390,859 shares available for issuance under our Amended and Restated 1986 Equity
Incentive Plan (Equity Plan), 362,500 shares available for issuance under our 2003 Director
Stock Option Plan, and 737,943 shares available for issuance under our Amended and Restated
1993 Employee Stock Purchase Plan.(2)
    
    Does not include 895,816 shares added to our Equity Plan on January 3, 2006, under the annual
replenishment provision of the Plan, which provides that, on the first day of each fiscal
year during the term of the Plan, the number of shares that may be optioned and sold under the
Plan will be automatically increased so that the maximum aggregate number of shares that may
be optioned and sold under the Plan is equal to 5% of the Common Stock issued and outstanding
at the close of business on the last day of the immediately preceding fiscal year.(3)
    
    Consists of options granted and available for issuance under our 1995 Employee and
Consultant Stock Plan.(4)
    
    Includes information for options assumed in connection with mergers and acquisitions. As of
January 1, 2006, a total of 89,527 shares of Common Stock with a weighted-average exercise
price of $19.62 were issuable upon exercise of such outstanding options. 48




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Summary of 1995 Employee and Consultant Stock Plan
  Administration; Eligibility; Terms of Options; Exercise of Options
  Termination of Status as Employee or Consultant
  Adjustments; Dissolution; Mergers and Asset Sales
  Amendment and Termination
  49




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PART II
 
 ITEM 6. SELECTED FINANCIAL DATA
 ACTEL CORPORATION
 SELECTED CONSOLIDATED FINANCIAL DATA
 Years Ended December 31,(1)2005
    
    
    2004
    
    
    2003
    
    
    2002
    
    
    2001(In thousands, except per share data)Consolidated Statements of Operations Data:Net revenues
    
    $
    179,397
    
    
    $
    165,536
    
    
    $
    149,910
    
    
    $
    134,368
    
    
    $
    145,559Costs and expenses:Total Cost of revenues(2)
    
    
    73,392
    
    
    
    70,451
    
    
    
    59,734
    
    
    
    52,935
    
    
    
    62,210Research and development
    
    
    48,173
    
    
    
    45,360
    
    
    
    39,602
    
    
    
    39,349
    
    
    
    38,172Selling, general, and administrative
    
    
    50,056
    
    
    
    48,269
    
    
    
    44,650
    
    
    
    43,033
    
    
    
    41,464Amortization of goodwill and other
acquisition-related intangibles(3)
    
    
    1,908
    
    
    
    2,651
    
    
    
    2,670
    
    
    
    2,724
    
    
    
    14,757Total costs and expenses
    
    
    173,529
    
    
    
    166,731
    
    
    
    146,656
    
    
    
    138,041
    
    
    
    156,603Income (loss) from operations
    
    
    5,868
    
    
    
    (1,195
    )
    
    
    3,254
    
    
    
    (3,673
    )
    
    
    (11,044
    )Interest income and other, net of expense
    
    
    3,924
    
    
    
    2,935
    
    
    
    3,210
    
    
    
    5,530
    
    
    
    7,280Gain (loss) on sales and write-downs of equity
investments
    
    
    
    
    
    
    
    
    
    
    91
    
    
    
    (3,707
    )
    
    
    Income (loss) before tax (benefit) provision and
equity interest in net (loss) of equity method
investee
    
    
    9,792
    
    
    
    1,740
    
    
    
    6,555
    
    
    
    (1,850
    )
    
    
    (3,764
    )Tax (benefit) provision
    
    
    2,756
    
    
    
    (654
    )
    
    
    327
    
    
    
    (1,925
    )
    
    
    937Net income (loss)
    
    $
    7,036
    
    
    $
    2,394
    
    
    $
    6,228
    
    
    $
    75
    
    
    $
    (4,701
    )Net income (loss) per share:Basic
    
    $
    0.28
    
    
    $
    0.09
    
    
    $
    0.25
    
    
    $
    0.00
    
    
    $
    (0.20
    )Diluted
    
    $
    0.28
    
    
    $
    0.09
    
    
    $
    0.24
    
    
    $
    0.00
    
    
    $
    (0.20
    )Shares used in computing net income (loss) per share:Basic
    
    
    25,277
    
    
    
    25,584
    
    
    
    24,808
    
    
    
    24,302
    
    
    
    23,743Diluted
    
    
    25,556
    
    
    
    26,421
    
    
    
    26,300
    
    
    
    25,252
    
    
    
    23,743
 As of December 31,(1)2005
    
    
    2004
    
    
    2003
    
    
    2002
    
    
    2001(In thousands)Consolidated Balance Sheet Data:Working capital
    
    $
    175,381
    
    
    $
    194,472
    
    
    $
    191,078
    
    
    $
    169,939
    
    
    $
    161,246Total assets
    
    
    339,384
    
    
    
    315,290
    
    
    
    316,757
    
    
    
    293,321
    
    
    
    290,082Total shareholders equity
    
    
    272,721
    
    
    
    264,793
    
    
    
    264,433
    
    
    
    242,314
    
    
    
    237,680
 
 (1)
    
    Our fiscal year ends on the first Sunday after December 30. For ease of presentation,
December 31 has been indicated as the year end for all fiscal years.(2)
    
    During the fourth quarter of 2004 we incurred incremental charges included in cost of
revenues of $3.2 million for expenses associated with the testing of the RTSX-S space
qualified FPGAs and the write down of RTSX-S inventory from the original manufacturer.(3)
    
    Beginning in 2002, we ceased to amortize goodwill in accordance with SFAS No. 142, Goodwill
and Other Intangible Assets. Instead, goodwill is subject to annual impairment tests and
written down only when identified as impaired. Non-goodwill intangible assets with definite
lives continue to be amortized under SFAS No. 141 and 142. See Notes 1 and 2 of Notes to
Consolidated Financial Statements for further information. 50




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ITEM 7.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 Overview
   
    
    Semiconductors
  
    
    Logic
  
    
    PLDs
  
    
    Strategy
  
    
    Technologies
  51




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
    
    Antifuse
  
    
    Flash
  
    
    Markets
  
    
    PSC
  
    
    Value-Based
  
    
    System-Critical
 52




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
    
    Key Indicators
  53




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Results of Operations
  Years Ended December 31,2005
    
    
    2004
    
    
    2003Net revenues
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %Cost of revenues
    
    
    40.9
    
    
    
    42.6
    
    
    
    39.8Gross margin
    
    
    59.1
    
    
    
    57.4
    
    
    
    60.2Research and development
    
    
    26.8
    
    
    
    27.4
    
    
    
    26.4Selling, general, and administrative
    
    
    27.9
    
    
    
    29.1
    
    
    
    29.8Amortization of acquisition-related intangibles
    
    
    1.1
    
    
    
    1.6
    
    
    
    1.8Income (loss) from operations
    
    
    3.3
    
    
    
    (0.7
    )
    
    
    2.2Interest income and other, net of expense
    
    
    2.2
    
    
    
    1.8
    
    
    
    2.1Gain on sales of equity investments
    
    
    0.0
    
    
    
    0.0
    
    
    
    0.1Income before tax provision (benefit)
    
    
    5.5
    
    
    
    1.1
    
    
    
    4.4Tax (benefit) provision
    
    
    1.6
    
    
    
    (0.3
    )
    
    
    0.2Net income
    
    
    3.9
    %
    
    
    1.4
    %
    
    
    4.2
    %
  
    
    Net Revenues
      
    
    Gross Margin
  54




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##### Table of Contents




    
    Research and Development (R&D)
   
    
    Selling, General, and Administrative (SG&A)
   
    
    Amortization of Other Acquisition-Related Intangibles
  55




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##### Table of Contents




    
    Interest Income and Other, Net of Expense
  
    
    Tax Provision (Benefit)
  Financial Condition, Liquidity, and Capital Resources
  56




---



##### Table of Contents



Cash, cash equivalents, and short-term investments
    
    
    17.0
    %Accounts receivable, net
    
    
    46.1Inventories
    
    
    (9.3
    )Current deferred income taxes
    
    
    (3.3
    )Prepaid expenses and other current assets
    
    
    94.5Long-term investments
    
    
    (20.7
    )Property and equipment, net
    
    
    4.6Other assets, net (primarily deferred income taxes and purchased intangible assets other than goodwill)
    
    
    6.6Total assets
    
    
    7.6Total current liabilities
    
    
    25.4Total liabilities
    
    
    32.0Shareholders equity
    
    
    3.0
 
    
    Cash, Cash Equivalents, and Investments
       Payments Due by Period2011Total
    
    
    2006
    
    
    2007
    
    
    2008
    
    
    2009
    
    
    2010
    
    
    and Later(In thousands)Operating leases
    
    $
    23,083
    
    
    $
    2,886
    
    
    $
    2,841
    
    
    $
    2,689
    
    
    $
    2,756
    
    
    $
    2,797
    
    
    $
    9,114
  57




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##### Table of Contents




    
    Accounts Receivable
  
    
    Inventories
   
    
    Property and Equipment
  
    
    Goodwill
  
    
    Other Assets
  58




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##### Table of Contents




    
    Current Liabilities
  
    
    Shareholders Equity
  Impact of Recently Issued Accounting Standards
    Critical Accounting Policies and Estimates
  59




---



##### Table of Contents




    
    Inventories
    
    
    Income Taxes
  60




---



##### Table of Contents




    
    Legal Matters and Loss Contingencies
  
    
    Revenues
  Risks
  Quarterly Information
  61




---



##### Table of Contents



Quarterly Operating Results Three Months EndedDec. 31,
    
    
    Sep. 30,
    
    
    Jun. 30,
    
    
    Mar. 31,
    
    
    Dec. 31,
    
    
    Sep. 30,
    
    
    Jun. 30,
    
    
    Mar. 31,2005
    
    
    2005
    
    
    2005
    
    
    2005
    
    
    2004
    
    
    2004
    
    
    2004
    
    
    2004(Unaudited, in thousands except per share amounts)Statements of
Operations Data:Net revenues
    
    $
    43,708
    
    
    $
    46,378
    
    
    $
    45,327
    
    
    $
    43,984
    
    
    $
    40,256
    
    
    $
    39,439
    
    
    $
    43,688
    
    
    $
    42,153Gross profit
    
    
    25,825
    
    
    
    27,345
    
    
    
    26,767
    
    
    
    26,068
    
    
    
    19,392
    
    
    
    23,403
    
    
    
    26,634
    
    
    
    25,656Income (loss) from operations
    
    
    829
    
    
    
    2,435
    
    
    
    1,789
    
    
    
    815
    
    
    
    (5,400
    )
    
    
    (855
    )
    
    
    2,541
    
    
    
    2,519Net income(loss)
    
    
    1,154
    
    
    
    2,238
    
    
    
    2,207
    
    
    
    1,437
    
    
    
    (3,167
    )
    
    
    517
    
    
    
    2,504
    
    
    
    2,540Net income(loss) per share:Basic
    
    $
    0.05
    
    
    $
    0.09
    
    
    $
    0.09
    
    
    $
    0.06
    
    
    $
    (0.12
    )
    
    $
    0.02
    
    
    $
    0.10
    
    
    $
    0.10Diluted(1)
    
    $
    0.05
    
    
    $
    0.09
    
    
    $
    0.09
    
    
    $
    0.06
    
    
    $
    (0.12
    )
    
    $
    0.02
    
    
    $
    0.09
    
    
    $
    0.09Shares used in computing net
income (loss) per share:Basic
    
    
    25,425
    
    
    
    25,388
    
    
    
    25,183
    
    
    
    25,111
    
    
    
    25,368
    
    
    
    25,600
    
    
    
    25,749
    
    
    
    25,620Diluted(1)
    
    
    25,577
    
    
    
    25,596
    
    
    
    25,400
    
    
    
    25,652
    
    
    
    25,368
    
    
    
    25,930
    
    
    
    26,584
    
    
    
    27,324
 
 (1)
    
    For the fourth quarter of 2004, we incurred a quarterly net loss and the inclusion of stock
options in the shares used for computing diluted earnings per share would have been
anti-dilutive and reduced the loss per share. Accordingly, all Common Stock equivalents (such
as stock options) have been excluded from the shares used to calculate diluted earnings per
share for that period. Three Months EndedDec. 31,
    
    
    Sep. 30,
    
    
    Jun. 30,
    
    
    Mar. 31,
    
    
    Dec. 31,
    
    
    Sep. 30,
    
    
    Jun. 30,
    
    
    Mar. 31,2005
    
    
    2005
    
    
    2005
    
    
    2005
    
    
    2004
    
    
    2004
    
    
    2004
    
    
    2004As a Percentage of Net Revenues:Net revenues
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %Gross profit
    
    
    59.1
    
    
    
    59.0
    
    
    
    59.1
    
    
    
    59.3
    
    
    
    48.2
    
    
    
    59.3
    
    
    
    61.0
    
    
    
    60.9Income(loss) from operations
    
    
    1.9
    
    
    
    5.3
    
    
    
    3.9
    
    
    
    1.9
    
    
    
    (13.4
    )
    
    
    (2.2
    )
    
    
    5.8
    
    
    
    6.0Net income(loss)
    
    
    2.6
    
    
    
    4.8
    
    
    
    4.9
    
    
    
    3.3
    
    
    
    (7.9
    )
    
    
    1.3
    
    
    
    5.7
    
    
    
    6.0
 ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
    62




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##### Table of Contents



ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
 ACTEL CORPORATION
 CONSOLIDATED BALANCE SHEETS
 December 31,2005
    
    
    2004(In thousands, exceptshare and per shareamounts)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    24,033
    
    
    $
    6,405Short-term investments
    
    
    117,577
    
    
    
    114,610Accounts receivable, net
    
    
    25,831
    
    
    
    17,686Inventories
    
    
    37,372
    
    
    
    41,218Deferred income taxes
    
    
    21,489
    
    
    
    22,230Prepaid expenses and other current assets
    
    
    7,005
    
    
    
    4,831Total current assets
    
    
    233,307
    
    
    
    206,980Long-term investments
    
    
    26,706
    
    
    
    33,687Property and equipment, net
    
    
    23,859
    
    
    
    22,804Goodwill
    
    
    32,142
    
    
    
    32,142Deferred tax asset
    
    
    9,979
    
    
    
    12,165Other assets, net
    
    
    13,391
    
    
    
    7,512$
    339,384
    
    
    $
    315,290LIABILITIES AND SHAREHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    14,503
    
    
    $
    11,397Accrued salaries and employee benefits
    
    
    4,994
    
    
    
    6,776Accrued royalty
    
    
    5,714
    
    
    
    Other accrued liabilities
    
    
    3,477
    
    
    
    4,364Deferred income on shipments to distributors
    
    
    29,238
    
    
    
    23,658Total current liabilities
    
    
    57,926
    
    
    
    46,195Deferred compensation plan liability
    
    
    3,667
    
    
    
    3,258Deferred rent liability
    
    
    1,242
    
    
    
    1,044Long term accrued royalty, net
    
    
    3,828
    
    
    
    Total liabilities
    
    
    66,663
    
    
    
    50,497Commitments and contingenciesShareholders equity:Preferred stock, $.001 par value per share;
4,500,000 shares authorized; 1,000,000
issued and converted to common stock; and
none outstanding
    
    
    
    
    
    
    Series A Preferred stock, $.001 par value
per share; 500,000 shares authorized;
none issued or outstanding
    
    
    
    
    
    
    Common Stock, $.001 par value; 55,000,000
shares authorized; 25,733,490 and
25,409,155 shares issued and outstanding at
December 31, 2005 and 2004, respectively
    
    
    26
    
    
    
    25Additional paid-in capital
    
    
    194,916
    
    
    
    188,631Retained earnings
    
    
    78,519
    
    
    
    76,577Accumulated other comprehensive loss
    
    
    (740
    )
    
    
    (440
    )Total shareholders equity
    
    
    272,721
    
    
    
    264,793$
    339,384
    
    
    $
    315,290
  63




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##### Table of Contents



ACTEL CORPORATION
 CONSOLIDATED STATEMENTS OF INCOME
 Years Ended December 31,2005
    
    
    2004
    
    
    2003(In thousands, except per shareamounts)Net revenues
    
    $
    179,397
    
    
    $
    165,536
    
    
    $
    149,910Costs and expenses:Cost of revenues
    
    
    73,392
    
    
    
    70,451
    
    
    
    59,734Research and development
    
    
    48,173
    
    
    
    45,360
    
    
    
    39,602Selling, general, and administrative
    
    
    50,056
    
    
    
    48,269
    
    
    
    44,650Amortization of acquisition-related intangibles
    
    
    1,908
    
    
    
    2,651
    
    
    
    2,670Total costs and expenses
    
    
    173,529
    
    
    
    166,731
    
    
    
    146,656Income (loss) from operations
    
    
    5,868
    
    
    
    (1,195
    )
    
    
    3,254Interest income and other, net of expense
    
    
    3,924
    
    
    
    2,935
    
    
    
    3,210Gain on sale of equity investments
    
    
    
    
    
    
    
    
    
    
    91Income before tax provision (benefit)
    
    
    9,792
    
    
    
    1,740
    
    
    
    6,555Tax provision (benefit)
    
    
    2,756
    
    
    
    (654
    )
    
    
    327Net income
    
    $
    7,036
    
    
    $
    2,394
    
    
    $
    6,228Net income per share:Basic
    
    $
    0.28
    
    
    $
    0.09
    
    
    $
    0.25Diluted
    
    $
    0.28
    
    
    $
    0.09
    
    
    $
    0.24Shares used in computing net income per share:Basic
    
    
    25,277
    
    
    
    25,584
    
    
    
    24,808Diluted
    
    
    25,556
    
    
    
    26,421
    
    
    
    26,300
  64




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##### Table of Contents



ACTEL CORPORATION
 CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY AND ACCUMULATED OTHER
COMPREHENSIVE INCOME/(LOSS)
 AccumulatedUnearned
    
    
    Other
    
    
    TotalCommon
    
    
    Additional
    
    
    Retained
    
    
    Compensation
    
    
    Comprehensive
    
    
    Shareholders'Stock
    
    
    Paid-in Capital
    
    
    Earnings
    
    
    Cost
    
    
    Income (Loss)
    
    
    Equity(In thousands, except share amounts)Balance at December 31, 2002
    
    $
    24
    
    
    $
    168,428
    
    
    $
    73,290
    
    
    $
    (179
    )
    
    $
    751
    
    
    $
    242,314Net income
    
    
    
    
    
    
    
    
    
    
    6,228
    
    
    
    
    
    
    
    
    
    
    
    6,228Other comprehensive income (loss):Change in unrealized loss on
investments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (491
    )
    
    
    (491
    )Total Comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,737Issuance of 1,212,206 shares of
Common Stock under employee stock
plans
    
    
    1
    
    
    
    16,246
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    16,247Amortization of unearned
compensation cost
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    135
    
    
    
    
    
    
    
    135Balance at December 31, 2003
    
    
    25
    
    
    
    184,674
    
    
    
    79,518
    
    
    
    (44
    )
    
    
    260
    
    
    
    264,433Net income
    
    
    
    
    
    
    
    
    
    
    2,394
    
    
    
    
    
    
    
    
    
    
    
    2,394Other comprehensive income (loss):Change in unrealized loss on
investments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (700
    )
    
    
    (700
    )Total Comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,694Issuance of stock option to
consultant
    
    
    
    
    
    
    74
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    74Issuance of 682,106 shares of
Common Stock under employee stock
plans
    
    
    1
    
    
    
    8,174
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,175Repurchase of 661,697 shares of
Common Stock
    
    
    (1
    )
    
    
    (4,888
    )
    
    
    (4,738
    )
    
    
    
    
    
    
    
    
    
    
    (9,627
    )Cashless exercise of options to
purchase 54,563 shares of Common
Stock using 30,563 mature shares of
Common Stock
    
    
    
    
    
    
    597
    
    
    
    (597
    )
    
    
    
    
    
    
    
    
    
    
    Amortization of unearned
compensation cost
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    44
    
    
    
    
    
    
    
    44Balance at December 31, 2004
    
    $
    25
    
    
    $
    188,631
    
    
    $
    76,577
    
    
    $
    
    
    
    $
    (440
    )
    
    $
    264,793
  65




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ACTEL CORPORATION
 CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY AND ACCUMULATED OTHER
COMPREHENSIVE INCOME/(LOSS)
 AccumulatedOther
    
    
    TotalCommon
    
    
    Additional
    
    
    Retained
    
    
    Comprehensive
    
    
    Shareholders'Stock
    
    
    Paid-in Capital
    
    
    Earnings
    
    
    Income (Loss)
    
    
    Equity(In thousands, except share amounts)Balance at December 31, 2004
    
    $
    25
    
    
    $
    188,631
    
    
    $
    76,577
    
    
    $
    (440
    )
    
    $
    264,793Net income
    
    
    
    
    
    
    
    
    
    
    7,036
    
    
    
    
    
    
    
    7,036Other comprehensive income (loss):Change in unrealized loss on
investments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (300
    )
    
    
    (300
    )Total Comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,736Issuance of 951,835 shares of
Common Stock under employee stock
plans
    
    
    1
    
    
    
    10,987
    
    
    
    
    
    
    
    
    
    
    
    10,988Repurchase of 627,500 shares of
Common Stock
    
    
    
    
    
    
    (4,702
    )
    
    
    (5,094
    )
    
    
    
    
    
    
    (9,796
    )Balance at December 31, 2005
    
    $
    26
    
    
    $
    194,916
    
    
    $
    78,519
    
    
    $
    (740
    )
    
    $
    272,721
  66




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##### Table of Contents



ACTEL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
 Years Ended December 31,2005
    
    
    2004
    
    
    2003(In thousands)Operating activities:Net income
    
    $
    7,036
    
    
    $
    2,394
    
    
    $
    6,228Adjustments to reconcile net income to net cash provided by operating activities:Depreciation and amortization
    
    
    11,033
    
    
    
    10,496
    
    
    
    10,168Stock compensation cost recognized
    
    
    
    
    
    
    118
    
    
    
    135Changes in operating assets and liabilities:Accounts receivable
    
    
    (8,145
    )
    
    
    2,851
    
    
    
    (2,922
    )Inventories
    
    
    3,846
    
    
    
    (2,554
    )
    
    
    (4,073
    )Deferred income taxes
    
    
    2,201
    
    
    
    (517
    )
    
    
    8,363Prepaid expenses and other current assets
    
    
    (526
    )
    
    
    (1,270
    )
    
    
    1,407Accounts payable, accrued salaries and employee benefits, and other accrued
liabilities
    
    
    1,560
    
    
    
    (2,736
    )
    
    
    4,512Deferred income on shipments to distributors
    
    
    5,580
    
    
    
    1,113
    
    
    
    (3,914
    )Net cash provided by operating activities
    
    
    22,585
    
    
    
    9,895
    
    
    
    19,904Investing activities:Purchases of property and equipment
    
    
    (10,180
    )
    
    
    (10,714
    )
    
    
    (11,229
    )Purchases of available-for-sale securities
    
    
    (72,252
    )
    
    
    (166,356
    )
    
    
    (179,276
    )Sales and maturities of available for sale securities
    
    
    75,767
    
    
    
    161,657
    
    
    
    149,315Changes in other long term assets
    
    
    516
    
    
    
    (273
    )
    
    
    480Net cash used in investing activities
    
    
    (6,149
    )
    
    
    (15,686
    )
    
    
    (40,710
    )Financing activities:Issuance of Common Stock under employee stock plans
    
    
    10,988
    
    
    
    8,175
    
    
    
    16,247Repurchase of Common Stock
    
    
    (9,796
    )
    
    
    (9,627
    )
    
    
    Net cash provided by (used in) financing activities
    
    
    1,192
    
    
    
    (1,452
    )
    
    
    16,247Net increase (decrease) in cash and cash equivalents
    
    
    17,628
    
    
    
    (7,243
    )
    
    
    (4,559
    )Cash and cash equivalents, beginning of year
    
    
    6,405
    
    
    
    13,648
    
    
    
    18,207Cash and cash equivalents, end of year
    
    $
    24,033
    
    
    $
    6,405
    
    
    $
    13,648Supplemental disclosures of cash flow information:Cash paid/(received) during the year for income taxes
    
    $
    435
    
    
    $
    431
    
    
    $
    (12,367
    )Supplemental schedule of non-cash activities:Accrual of long-term royalty agreements
    
    $
    10,678
    
    
    $
    
    
    
    $
    
  67




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##### Table of Contents



ACTEL CORPORATION
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 1.
    
    Organization and Summary of Significant Accounting Policies
   
    
    Advertising and Promotion Costs
  
    
    Basis of Presentation
   
    
    Cash Equivalents and Investments
     68




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##### Table of Contents




    
    Concentration of Credit Risk
    
    
    Fair Value of Financial Instruments
  
    
    Accounts PayableThe carrying amount reported in the balance sheets for accounts payable approximates fair value.
 69




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##### Table of Contents




    
    Cash and Cash EquivalentsThe carrying amounts reported in the balance sheets for cash and cash equivalents approximate fair value.
    
    Insurance Contracts
  
    
    Investment Securities
  
    
    Goodwill and other Acquisition-Related Intangibles
    
    
    Impact of Recently Issued Accounting Standards
   70




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##### Table of Contents




    
    Income Taxes
  
    
    Inventories
     71




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##### Table of Contents




    
    Legal Matters and Loss Contingencies
  
    
    Property and Equipment
  Equipment
    
    2 to 5 yearsFurniture and fixtures
    
    3 to 5 yearsLeasehold improvements
    
    Shorter of useful life or remaining term of lease
  
    
    Revenue Recognition
   72




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##### Table of Contents




    
    Stock-Based Compensation
     Stock Options
    
    

Stock Purchase Plan RightsYear Ended December 31,
    
    2005
    
    
    2004
    
    
    2003
    
    
    2005
    
    
    2004
    
    
    2003Expected life of options (years)
    
    
    3.90
    
    
    
    4.18
    
    
    
    4.29
    
    
    
    1.29
    
    
    
    1.24
    
    
    
    1.26Expected stock price volatility
    
    
    0.51
    
    
    
    0.57
    
    
    
    0.62
    
    
    
    0.48
    
    
    
    0.56
    
    
    
    0.62Risk-free interest rate
    
    
    3.7
    %
    
    
    3.0
    %
    
    
    2.3
    %
    
    
    3.7
    %
    
    
    2.3
    %
    
    
    1.8
    %
   Years Ended December 31,2005
    
    
    2004
    
    
    2003(In thousands, except per share amounts)Net income as reported
    
    $
    7,036
    
    
    $
    2,394
    
    
    $
    6,228Add back:Stock-based employee compensation included in reported net income
    
    
    
    
    
    
    118
    
    
    
    135Less:Total stock-based employee compensation expense determined under
the fair value method for all awards, net of tax
    
    
    (12,401
    )
    
    
    (12,411
    )
    
    
    (12,094
    )Pro forma net loss
    
    $
    (5,365
    )
    
    $
    (9,899
    )
    
    $
    (5,731
    )Earnings per share as reported:Basic
    
    $
    0.28
    
    
    $
    0.09
    
    
    $
    0.25Diluted
    
    $
    0.28
    
    
    $
    0.09
    
    
    $
    0.24Pro forma loss per share:Basic
    
    $
    (0.21
    )
    
    $
    (0.39
    )
    
    $
    (0.23
    )Diluted
    
    $
    (0.21
    )
    
    $
    (0.39
    )
    
    $
    (0.23
    )
 73




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##### Table of Contents




    
    Use of Estimates
  
    
    Reclassifications
  2.
    
    Balance Sheet Detail
 December 31,2005
    
    
    2004(In thousands)Accounts receivable:Trade accounts receivable
    
    $
    25,490
    
    
    $
    17,312Interest receivable
    
    
    1,549
    
    
    
    1,253Allowance for doubtful accounts
    
    
    (1,208
    )
    
    
    (879
    )$
    25,831
    
    
    $
    17,686Inventories:Purchased parts and raw materials
    
    $
    6,403
    
    
    $
    8,636Work-in-process
    
    
    25,599
    
    
    
    27,358Finished goods
    
    
    5,370
    
    
    
    5,224$
    37,372
    
    
    $
    41,218Property and equipment:Equipment
    
    $
    77,547
    
    
    $
    72,754Furniture and fixtures
    
    
    2,656
    
    
    
    2,604Leasehold improvements
    
    
    3,461
    
    
    
    3,07983,664
    
    
    
    78,437Accumulated depreciation and amortization
    
    
    (59,805
    )
    
    
    (55,633
    )$
    23,859
    
    
    $
    22,804
   December 31,2005
    
    
    2004(In thousands)Goodwill:Goodwill
    
    $
    48,575
    
    
    $
    48,575Less accumulated amortization
    
    
    (16,433
    )
    
    
    (16,433
    )$
    32,142
    
    
    $
    32,142Other Assets:Prepaid long-term license fees
    
    $
    8,457
    
    
    $
    907Deferred compensation plan assets
    
    
    3,350
    
    
    
    3,026Identifiable intangible assets from acquisitions
    
    
    12,728
    
    
    
    12,728Acquired patents
    
    
    1,842
    
    
    
    1,842Other
    
    
    1,569
    
    
    
    1,656Subtotal
    
    
    27,946
    
    
    
    20,159Less accumulated amortization
    
    
    (14,555
    )
    
    
    (12,647
    )$
    13,391
    
    
    $
    7,512
 74




---



##### Table of Contents



AccumulatedGross Assets
    
    
    Amortization
    
    
    Net(In thousands)Acquisition-related developed technology
    
    $
    11,454
    
    
    $
    (11,454
    )
    
    $
    Other acquisition-related intangibles
    
    
    2,600
    
    
    
    (2,600
    )
    
    
    Acquired patents
    
    
    516
    
    
    
    (501
    )
    
    
    15Total identified intangible assets
    
    $
    14,570
    
    
    $
    (14,555
    )
    
    $
    15
  AccumulatedGross Assets
    
    
    Amortization
    
    
    Net(In thousands)Acquisition-related developed technology
    
    $
    11,454
    
    
    $
    (9,833
    )
    
    $
    1,621Other acquisition-related intangibles
    
    
    2,600
    
    
    
    (2,343
    )
    
    
    257Acquired patents
    
    
    516
    
    
    
    (471
    )
    
    
    45Total identified intangible assets
    
    $
    14,570
    
    
    $
    (12,647
    )
    
    $
    1,923
  2005
    
    
    2004
    
    
    2003(In thousands)Acquisition-related developed technology
    
    $
    1,621
    
    
    $
    2,290
    
    
    $
    2,291Other acquisition-related intangibles
    
    
    257
    
    
    
    331
    
    
    
    331Acquired patents
    
    
    30
    
    
    
    30
    
    
    
    48Total amortization expense
    
    $
    1,908
    
    
    $
    2,651
    
    
    $
    2,670
  3.
    
    Financial Instruments
  Gross
    
    
    GrossUnrealized
    
    
    Unrealized
    
    
    Estimated FairCost
    
    
    Gains
    
    
    Losses
    
    
    Values(In thousands)December 31, 2005Commercial Paper
    
    $
    7,179
    
    
    $
    1
    
    
    $
    
    
    
    $
    7,180Money market mutual funds
    
    
    300
    
    
    
    
    
    
    
    
    
    
    
    300Corporate bonds
    
    
    62,788
    
    
    
    5
    
    
    
    (584
    )
    
    
    62,209U.S. government securities
    
    
    62,983
    
    
    
    10
    
    
    
    (541
    )
    
    
    62,453Floating rate notes
    
    
    7,132
    
    
    
    3
    
    
    
    (18
    )
    
    
    7,117Municipal obligations
    
    
    12,613
    
    
    
    
    
    
    
    (109
    )
    
    
    12,504Total available-for-sale securities
    
    $
    152,995
    
    
    $
    19
    
    
    $
    (1,252
    )
    
    $
    151,762Included in cash and cash equivalents
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    7,480Included in short term investments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    117,577Included in long term investments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    26,706Total available-for-sale securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    151,762
 75




---



##### Table of Contents



Gross
    
    
    GrossUnrealized
    
    
    Unrealized
    
    
    Estimated FairCost
    
    
    Gains
    
    
    Losses
    
    
    Values(In thousands)December 31, 2004Money market mutual funds
    
    $
    681
    
    
    $
    
    
    
    $
    
    
    
    $
    681Auction Market Preferred
    
    
    1,000
    
    
    
    
    
    
    
    
    
    
    
    1,000Corporate bonds
    
    
    51,667
    
    
    
    80
    
    
    
    (268
    )
    
    
    51,479U.S. government securities
    
    
    73,178
    
    
    
    
    
    
    
    (505
    )
    
    
    72,673Floating rate notes
    
    
    16,000
    
    
    
    10
    
    
    
    
    
    
    
    16,010Municipal obligations
    
    
    7,186
    
    
    
    
    
    
    
    (51
    )
    
    
    7,135Total available-for-sale securities
    
    $
    149,712
    
    
    $
    90
    
    
    $
    (824
    )
    
    $
    148,978Included in cash and cash equivalents
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    681Included in short term investments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    114,610Included in long term investments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    33,687Total available-for-sale securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    148,978
  Aggregate
    
    
    AggregateValue of
    
    
    Fair ValueUnrealized
    
    
    ofLoss
    
    
    InvestmentsUnrealized loss position for less than twelve months
    
    $
    (541
    )
    
    $
    56,978Unrealized loss position for greater than twelve months
    
    $
    (711
    )
    
    $
    72,574
    (In thousands)Available-for-sale debt securities:Due in less than one year
    
    $
    69,110Due in one to five years
    
    
    71,721Due in five to ten years
    
    
    Due after ten years
    
    
    3,451$
    144,282
  4.
    
    Commitments and Contingencies
 
    
    Commitments
 76




---



##### Table of Contents



Payments Due by Period2011Total
    
    
    2006
    
    
    2007
    
    
    2008
    
    
    2009
    
    
    2010
    
    
    and Later(In thousands)Operating leases
    
    $
    23,083
    
    
    $
    2,886
    
    
    $
    2,841
    
    
    $
    2,689
    
    
    $
    2,756
    
    
    $
    2,797
    
    
    $
    9,114
   
    
    Contingencies
  5.
    
    Retirement Plan
   77




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##### Table of Contents



6.
    
    Shareholders Equity
 
    
    Stock Repurchase
  
    
    Shareholder Rights Plan
  
    
    Stock Option Plans
     2005
    
    
    2004
    
    
    2003Weighted
    
    
    
    
    
    
    Weighted
    
    
    
    
    
    
    WeightedAverage
    
    
    
    
    
    
    Average
    
    
    
    
    
    
    AverageNumber
    
    
    Exercise
    
    
    Number
    
    
    Exercise
    
    
    Number
    
    
    Exerciseof Shares
    
    
    Price
    
    
    of Shares
    
    
    Price
    
    
    of Shares
    
    
    PriceOutstanding at January 1
    
    
    8,979,409
    
    
    $
    19.94
    
    
    
    8,344,940
    
    
    $
    19.55
    
    
    
    8,327,898
    
    
    $
    19.26Granted
    
    
    1,219,365
    
    
    
    15.45
    
    
    
    1,413,042
    
    
    
    21.87
    
    
    
    1,215,180
    
    
    
    18.26Exercised
    
    
    (250,166
    )
    
    
    11.02
    
    
    
    (289,722
    )
    
    
    12.76
    
    
    
    (889,048
    )
    
    
    14.28Cancelled
    
    
    (302,121
    )
    
    
    21.06
    
    
    
    (488,851
    )
    
    
    23.16
    
    
    
    (309,090
    )
    
    
    21.79Outstanding at December 31
    
    
    9,646,487
    
    
    $
    19.57
    
    
    
    8,979,409
    
    
    $
    19.94
    
    
    
    8,344,940
    
    
    $
    19.55
  78




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##### Table of Contents



December 31, 2005Options Outstanding
    
    
    Options ExercisableWeightedAverageRemaining
    
    
    Weighted
    
    
    
    
    
    
    WeightedContract
    
    
    Average
    
    
    
    
    
    
    AverageNumber of
    
    
    Life
    
    
    Exercise
    
    
    Number of
    
    
    ExerciseRange of Exercise Prices
    
    Shares
    
    
    (In Years)
    
    
    Price
    
    
    Shares
    
    
    Price$0.07  13.06
    
    
    1,004,828
    
    
    
    2.43
    
    
    $
    11.81
    
    
    
    982,893
    
    
    $
    11.8113.53  15.13
    
    
    982,718
    
    
    
    6.44
    
    
    
    14.26
    
    
    
    576,787
    
    
    
    14.0915.15  15.25
    
    
    699,586
    
    
    
    7.08
    
    
    
    15.15
    
    
    
    331,702
    
    
    
    15.1515.70  17.13
    
    
    1,168,158
    
    
    
    8.11
    
    
    
    15.96
    
    
    
    299,615
    
    
    
    16.4817.27  19.73
    
    
    1,277,883
    
    
    
    6.68
    
    
    
    19.29
    
    
    
    646,894
    
    
    
    19.3619.91  21.75
    
    
    906,364
    
    
    
    5.49
    
    
    
    20.37
    
    
    
    835,194
    
    
    
    20.3721.90  22.94
    
    
    1,022,050
    
    
    
    5.50
    
    
    
    21.98
    
    
    
    836,046
    
    
    
    22.0023.03  24.76
    
    
    1,208,583
    
    
    
    7.44
    
    
    
    24.46
    
    
    
    275,486
    
    
    
    23.8825.00  27.50
    
    
    1,038,768
    
    
    
    4.70
    
    
    
    26.80
    
    
    
    941,860
    
    
    
    26.9428.07  54.45
    
    
    337,549
    
    
    
    5.50
    
    
    
    31.57
    
    
    
    230,874
    
    
    
    32.439,646,487
    
    
    
    6.02
    
    
    $
    19.57
    
    
    
    5,957,351
    
    
    $
    19.65
  
    
    Employee Stock Purchase Plan
  7.
    
    Comprehensive Income (Loss)
  Years Ended December 31,2005
    
    
    2004
    
    
    2003(In thousands)Net income
    
    $
    7,036
    
    
    $
    2,394
    
    
    $
    6,228Change in
gain on available-for-sale securities, net of tax of ($210) in 2005, ($468) in 2004, ($131) in 2003
    
    
    (315
    )
    
    
    (702
    )
    
    
    (198
    )Less reclassification adjustment for gains or losses included in net income, net of tax
$11 in 2005, $1 in 2004, ($196) in 2003
    
    
    15
    
    
    
    2
    
    
    
    (293
    )Other comprehensive (loss), net of tax of ($199) in 2005, ($467) in 2004, ($327) in 2003
    
    
    (300
    )
    
    
    (700
    )
    
    
    (491
    )Total comprehensive income
    
    $
    6,736
    
    
    $
    1,694
    
    
    $
    5,737
  8.
    
    Tax Provision
  Years Ended December 31,2005
    
    
    2004
    
    
    2003(In thousands)Federal  current
    
    $
    150
    
    
    $
    (512
    )
    
    $
    (8,454
    )Federal  deferred
    
    
    2,719
    
    
    
    958
    
    
    
    9,396State  current
    
    
    50
    
    
    
    10
    
    
    
    10State  deferred
    
    
    (518
    )
    
    
    (1,475
    )
    
    
    (1,033
    )Foreign  current
    
    
    355
    
    
    
    365
    
    
    
    408$
    2,756
    
    
    $
    (654
    )
    
    $
    327
  79




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##### Table of Contents



December 31,2005
    
    
    2004
    
    
    2003(In thousands)Provision/(benefit) at federal statutory rate
    
    $
    3,419
    
    
    $
    609
    
    
    $
    2,294Change in valuation allowance
    
    
    
    
    
    
    
    
    
    
    (445
    )Tax exempt interest income
    
    
    (31
    )
    
    
    (62
    )
    
    
    (122
    )Federal research credits
    
    
    (452
    )
    
    
    (534
    )
    
    
    (843
    )State taxes, net of federal benefit
    
    
    (304
    )
    
    
    (774
    )
    
    
    (664
    )Other
    
    
    124
    
    
    
    107
    
    
    
    107Tax (benefit) provision
    
    $
    2,756
    
    
    $
    (654
    )
    
    $
    327
  December 31,2005
    
    
    2004(In thousands)Deferred tax assets:Depreciation
    
    $
    214
    
    
    $
    448Deferred income on shipments to distributors
    
    
    10,414
    
    
    
    8,965Intangible assets
    
    
    2,468
    
    
    
    2,268Inventories
    
    
    5,168
    
    
    
    6,373Net operating losses
    
    
    17,452
    
    
    
    33,030Capitalized research and development expenses
    
    
    2,983
    
    
    
    3,737Research and development tax credit
    
    
    5,391
    
    
    
    6,605Other, net
    
    
    5,950
    
    
    
    2,46650,040
    
    
    
    63,892Valuation allowance
    
    
    (18,572
    )
    
    
    (28,915
    )Net deferred tax assets
    
    $
    31,468
    
    
    $
    34,977Deferred tax liabilities:Intangible assets
    
    $
    
    
    
    $
    581
    80




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##### Table of Contents



9.
    
    Segment Disclosures
   Years Ended December 31,2005
    
    

2004
    
    

2003(In thousands, except percentages)United States
    
    $
    99,609
    
    
    
    56
    %
    
    $
    90,109
    
    
    
    55
    %
    
    $
    91,652
    
    
    
    61
    %Export:Europe
    
    
    49,042
    
    
    
    27
    %
    
    
    45,198
    
    
    
    27
    %
    
    
    37,521
    
    
    
    25
    %Japan
    
    
    10,296
    
    
    
    6
    %
    
    
    9,787
    
    
    
    6
    %
    
    
    6,489
    
    
    
    4
    %Other international
    
    
    20,450
    
    
    
    11
    %
    
    
    20,442
    
    
    
    12
    %
    
    
    14,248
    
    
    
    10
    %$
    179,397
    
    
    
    100
    %
    
    $
    165,536
    
    
    
    100
    %
    
    $
    149,910
    
    
    
    100
    %
  December 31,2005
    
    
    2004(In thousands)United States
    
    $
    21,629
    
    
    $
    20,323Europe
    
    
    662
    
    
    
    410Japan
    
    
    93
    
    
    
    191Other international
    
    
    1,475
    
    
    
    1,880$
    23,859
    
    
    $
    22,804
 10.
    
    Earnings Per Share
  Years Ended December 31,2005
    
    
    2004
    
    
    2003(In thousands, except per share amounts)Basic:Weighted-average common shares outstanding
    
    
    25,277
    
    
    
    25,584
    
    
    
    24,808Net income
    
    $
    7,036
    
    
    $
    2,394
    
    
    $
    6,228Net income per share
    
    $
    0.28
    
    
    $
    0.09
    
    
    $
    0.25Diluted:Weighted-average common shares outstanding
    
    
    25,277
    
    
    
    25,584
    
    
    
    24,808Net effect of dilutive stock options based on the treasury stock method
    
    
    279
    
    
    
    837
    
    
    
    1,492Shares used in computing net income per share
    
    
    25,556
    
    
    
    26,421
    
    
    
    26,300Net income
    
    $
    7,036
    
    
    $
    2,394
    
    
    $
    6,228Net income per share
    
    $
    0.28
    
    
    $
    0.09
    
    
    $
    0.24
    81




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##### Table of Contents



11. Subsequent Event   82




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##### Table of Contents



REPORT OF ERNST & YOUNG LLP
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
     
 83




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##### Table of Contents



REPORT OF ERNST & YOUNG LLP
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 The Board of Directors and Shareholders of Actel Corporation
     .
  
 84




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##### Table of Contents



ITEM 9.
    
    CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
  
 ITEM 9A. CONTROLS AND PROCEDURES
 Evaluation
of Disclosure Controls and Procedures
  Managements Report on Internal Control over Financial Reporting
    
 ITEM 9B. OTHER INFORMATION
  85




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##### Table of Contents



PART III
 
 ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
  Name of Director
    
    Age
    
    Principal Occupation
    
    Director SinceJohn C. East
    
    
    61
    
    
    President and Chief Executive
Officer, Actel Corporation
    
    
    1988James R. Fiebiger (1)(2)
    
    
    64
    
    
    Business Consultant
    
    
    2000Jacob S. Jacobsson (1)(3)
    
    
    52
    
    
    President and Chief Executive
Officer, Blaze, Inc.
    
    
    1998J. Daniel McCranie (2)(3)
    
    
    62
    
    
    Business Consultant
    
    
    2004Henry L. Perret (1)
    
    
    60
    
    
    President and Chief Executive
Officer and Acting Chief Financial Officer, Legerity, Inc.
    
    
    2003Robert G. Spencer (2)(3)
    
    
    62
    
    
    Principal, The Spencer Group
    
    
    1989
 
 (1)
    
    Member of Audit Committee.(2)
    
    Member of Compensation Committee.(3)
    
    Member of Nominating Committee.    86




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87




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##### Table of Contents



Executive Officers
  Name
    
    Age
    
    PositionJohn C. East
    
    
    61
    
    
    President and Chief Executive OfficerEsmat Z. Hamdy
    
    
    56
    
    
    Senior Vice President of Technology & OperationsDennis G. Kish
    
    
    42
    
    
    Senior Vice President of Sales & MarketingFares N. Mubarak
    
    
    44
    
    
    Senior Vice President of EngineeringJon A. Anderson
    
    
    47
    
    
    Vice President of Finance and Chief Financial OfficerAnthony Farinaro
    
    
    43
    
    
    Vice President & General Manager of Design ServicesBarbara L. McArthur
    
    
    55
    
    
    Vice President of Human ResourcesDavid L. Van De Hey
    
    
    50
    
    
    Vice President & General Counsel and Secretary
     88




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##### Table of Contents



Audit Committee and Audit Committee Financial Expert
  Section 16(a) Beneficial Ownership Reporting Compliance
  Code of Ethics
  89




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ITEM 11. EXECUTIVE COMPENSATION
 l Summary of Officer Compensation
  Summary Compensation Table (1)
 Long TermCompensationAnnual Compensation
    
    AwardsOther Annual
    
    SecuritiesName and Principal Position
    
    Year
    
    Salary
    
    Bonus (2)
    
    Compensation
    
    Underlying OptionsJohn C. East
    
    
    2005
    
    
    $
    406,250
    
    
    $
    98,408
    
    
    $
    0
    
    
    
    140,000President and Chief Executive
    
    
    2004
    
    
    
    395,427
    
    
    
    0
    
    
    
    1,500
    (3)
    
    
    130,000Officer
    
    
    2003
    
    
    
    364,391
    
    
    
    63,929
    
    
    
    0
    
    
    
    107,000Esmat Z. Hamdy
    
    
    2005
    
    
    
    314,969
    
    
    
    47,696
    
    
    
    0
    
    
    
    45,000Senior Vice President of
    
    
    2004
    
    
    
    290,904
    
    
    
    0
    
    
    
    1,500
    (3)
    
    
    45,000Technology & Operations
    
    
    2003
    
    
    
    280,957
    
    
    
    31,355
    
    
    
    0
    
    
    
    40,000Paul V. Indaco
    
    
    2005
    
    
    
    274,720
    
    
    
    43,977
    
    
    
    8,700
    (4)
    
    
    45,000Vice President of Sales
    
    
    2004
    
    
    
    268,227
    
    
    
    0
    
    
    
    10,200
    (3)(4)
    
    
    45,0002003
    
    
    
    259,064
    
    
    
    28,911
    
    
    
    8,700
    (4)
    
    
    40,000Dennis G. Kish
    
    
    2005
    
    
    
    263,250
    
    
    
    42,441
    
    
    
    0
    
    
    
    45,000Vice President of Marketing
    
    
    2004
    
    
    
    252,708
    
    
    
    0
    
    
    
    1,500
    (3)
    
    
    45,0002003
    
    
    
    235,000
    
    
    
    26,226
    
    
    
    0
    
    
    
    40,000Fares N. Mubarak
    
    
    2005
    
    
    
    289,871
    
    
    
    46,403
    
    
    
    0
    
    
    
    45,000Vice President of Engineering
    
    
    2004
    
    
    
    283,040
    
    
    
    0
    
    
    
    1,500
    (3)
    
    
    45,0002003
    
    
    
    273,420
    
    
    
    30,514
    
    
    
    0
    
    
    
    40,000
 
 (1)
    
    Except as set forth in this table, there was no reportable compensation awarded to, earned
by, or paid to the named executive officers in 2005.(2)
    
    The Company pays bonuses in the year following that in which the bonuses were earned.(3)
    
    The Company made a make a profit-sharing contribution under the Actel Corporation 401(k)
Profit Sharing Plan to eligible employees for the Companys 2004 fiscal year in an amount
equal to 1% of each eligible employees gross earnings for the 2004 calendar year, up to a
maximum contribution of $1,500. The contribution was paid in 2005.(4)
    
    Other compensation related to car allowance. 90




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##### Table of Contents



l Option Values
  Aggregated Option Exercises in Last Fiscal Year
and Fiscal Year End Option Values
 Number of SecuritiesUnderlying
    
    Value of UnexercisedUnexercised Options
    
    In-the-Money Optionsat Fiscal Year-End
    
    at Fiscal Year-End (1)Shares Acquired
    
    ValueName
    
    On Exercise
    
    Realized (2)
    
    Exercisable
    
    Not Exercisable
    
    Exercisable
    
    Not ExercisableJohn C. East
    
    
    0
    
    
    $
    0
    
    
    
    478,428
    
    
    
    313,063
    
    
    $
    0
    
    
    $
    0Paul V. Indaco
    
    
    0
    
    
    
    0
    
    
    
    314,499
    
    
    
    107,501
    
    
    
    0
    
    
    
    0Esmat Z. Hamdy
    
    
    0
    
    
    
    0
    
    
    
    180,499
    
    
    
    107,501
    
    
    
    0
    
    
    
    0Dennis G. Kish
    
    
    0
    
    
    
    0
    
    
    
    247,499
    
    
    
    107,501
    
    
    
    0
    
    
    
    0Fares N. Mubarak
    
    
    0
    
    
    
    0
    
    
    
    243,547
    
    
    
    107,501
    
    
    
    0
    
    
    
    0
 
 (1)
    
    Calculated on the basis of the difference between the closing sale price at the fiscal
year end ($12.73) and the exercise price.(2)
    
    Calculated on the basis of the difference between the exercise price and (i) the sale price
when the exercised option is sold on the same day or (ii) the closing sale price on the
exercise date. 91




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l Option Grants
  Option Grants in Last Fiscal Year
 Potential RealizableValue at AssumedAnnual Rates of StockPrice Appreciation forIndividual Grants (1)
    
    Option Term (2)% of TotalOptionsNumber of
    
    Granted toSecurities
    
    Employees
    
    Per ShareUnderlying
    
    in Fiscal
    
    Exercise
    
    ExpirationName
    
    Options (3)
    
    Year
    
    Price
    
    Date
    
    5%
    
    10%John C. East
    
    
    140,000
    (4)
    
    
    12.10
    %
    
    $
    15.70
    
    
    
    01/07/15
    
    
    $
    1,382,310
    
    
    $
    3,503,046Esmat Z. Hamdy
    
    
    45,000
    (4)
    
    
    3.89
    
    
    
    15.70
    
    
    
    01/07/15
    
    
    
    444,314
    
    
    
    1,125,979Paul V. Indaco
    
    
    45,000
    (4)
    
    
    3.89
    
    
    
    15.70
    
    
    
    01/07/15
    
    
    
    444,314
    
    
    
    1,125,979Dennis G. Kish
    
    
    45,000
    (4)
    
    
    3.89
    
    
    
    15.70
    
    
    
    01/07/15
    
    
    
    444,314
    
    
    
    1,125,979Fares N. Mubarak
    
    
    45,000
    (4)
    
    
    3.89
    
    
    
    15.70
    
    
    
    01/07/15
    
    
    
    444,314
    
    
    
    1,125,979
 
 (1)
    
    The exercise price of these options is equal to the fair market value of Common Stock
on the date of grant, as determined by our Board of Directors. The options expire ten years
from the date of grant, are not transferable by the optionee (other than by will or the laws
of descent and distribution), and are exercisable during the optionees lifetime only by the
optionee. To the extent exercisable at the time of termination, options may be exercised
within 12 months following termination of the optionees employment, unless termination is the
result of death, in which case the options become fully vested and may be exercised at any
time within 12 months following death by the optionees estate or a person who acquired the
right to exercise the option by bequest or inheritance.(2)
    
    The 5% and 10% assumed annual rates of appreciation are mandated by the rules of the SEC and
do not represent our estimate or projection of future Common Stock prices. The potential
realizable value was calculated at the assumed rates of appreciation using the applicable
exercise price as the base.(3)
    
    Options vest and are fully exercisable upon an involuntary termination other than for
cause, or a voluntary termination for good reason, following a change of control.(4)
    
    Option begins vesting January 7, 2005, and vests quarterly at a rate of 6.25% until
January 7, 2009. 92




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Director Compensation
 l Cash Compensation
  l 2003 Director Stock Option Plan
  Change-in-Control Arrangements
    93




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Compensation Committee Interlocks and Insider Participation
  
 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
 Security Ownership of Certain Beneficial Owners
  Amount andNature ofBeneficial
    
    Percent ofName and Address of Beneficial Owner
    
    Ownership
    
    Class (1)Artisan
Partners Limited Partnership

875 East Wisconsin Avenue, Suite 800

Milwaukee, Wisconsin 53202
    
    
    1,295,000
    (2)
    
    
    5.0
    %Dimensional
Fund Advisors Inc.

1299 Ocean Avenue, 11th Floor

Santa Monica, California 90401
    
    
    1,725,276
    (3)
    
    
    6.7
    %Franklin
Resources, Inc.

One Franklin Parkway

San Mateo, California 94403-1906
    
    
    3,756,363
    (4)
    
    
    14.6
    %Kern Capital
Management, LLC

114 West 47th Street, Suite 1926

New York, New York 10036
    
    
    1,456,300
    (5)
    
    
    5.7
    %Lazard Asset
Management LLC

30 Rockefeller Plaza

New York, New York 10112
    
    
    1,489,551
    (6)
    
    
    5.8
    %
 
 (1)
    
    Calculated as a percentage of shares of Common Stock outstanding as of March 1, 2006. 94




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##### Table of Contents



(2)
    
    As reported by the beneficial owner as of December 31,
2005, in a Schedule 13G filed with the SEC on February 6, 2006. The reporting person, which is
an investment adviser, has sole voting power and sole dispositive power with respect to all
1,295,000 shares of Common Stock, which are owned by investment advisory client(s) of the
reporting person.(3)
    
    As reported by the beneficial owner as of December 31, 2005, in a Schedule 13G filed with the
SEC on February 3, 2006. The reporting person, which is an investment adviser, has sole
voting power and sole dispositive power with respect to all 1,725,276 shares of Common Stock,
which are owned by investment advisory client(s) of the reporting person. The reporting
person disclaims beneficial ownership in any of such shares.(4)
    
    As reported by the beneficial owner as of December 31, 2005, in a Schedule 13G (Amendment No.
3) filed with the SEC on February 7, 2006. The reporting person (FRI), which is a parent
holding company, has direct and indirect investment advisor subsidiaries that advise one or
more open or closed-end investment companies or other managed accounts (Advisor Subsidiaries).
Franklin Mutual Advisers, LLC (FMA), an indirect wholly owned investment advisory subsidiary
of FRI, has sole voting with respect to 2,090,580 shares of Common Stock and sole dispositive
powers with respect to 2,111,480 shares of Common Stock. Franklin Templeton Portfolio
Advisors, Inc. (FTPA), a wholly owned investment advisory subsidiary of FRI, has sole voting
and dispositive powers with respect to 1,411,683 shares of Common Stock. Franklin Templeton
Investments Corp., an Advisor Subsidiary, has sole voting and dispositive powers with respect
to 233,200 shares of Common Stock. FMI and FPCG reported the securities over which they hold
investment and voting power separately from FAI, FPCG, and all other Advisor Subsidiaries
because such powers are exercised independently. FPCG may hold some or all of such shares
under investment management arrangements under which the underlying clients may retain the
power to vote the shares beneficially held by FPCG. To the extent any underlying clients
retain voting power of any shares, FPCG disclaims sole power to vote or direct the vote for
such shares. Charles B. Johnson and Rupert H. Johnson, Jr. (Principal Shareholders) each own
in excess of 10% of the outstanding Common Stock of FRI and are the principal shareholders of
FRI. FRI and the Principal Shareholders may be deemed to be, for purposes of Rule 13d-3 under
the Exchange Act, the beneficial owner of securities held by
persons and entities advised by FRI subsidiaries. FRI, the Principal Shareholders, and each
of the Adviser Subsidiaries disclaim any economic interest or beneficial ownership in any of
the securities covered by the Schedule 13G.(5)
    
    As reported by the beneficial owner as of December 31, 2005, in a Schedule 13G filed with the
SEC on February 14, 2006. The reporting person, which is an investment adviser, has sole
voting power and sole dispositive power with respect to all 1,456,300 shares of Common Stock.
Robert E. Kern Jr. and David G. Kern are Principals and controlling members of the reporting
person and have shared voting power and shared dispositive power with respect to all 1,456,300
shares of Common Stock, but disclaim beneficial ownership in any of such shares.(6)
    
    As reported by the beneficial owner as of December 31, 2005, in a Schedule 13G filed with the
SEC on February 3, 2006. The reporting person, which is an investment adviser, has sole
voting power with respect to 1,440,890 shares of Common Stock and sole dispositive power with
respect to all 1,489,551 shares of Common Stock. 95




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Security Ownership of Management
  Shares
    
    PercentageBeneficially
    
    BeneficiallyName
    
    Owned (1)
    
    Owned (2)John C. East (3)
    
    
    587,520
    
    
    
    2.2
    %James R. Fiebiger (3)
    
    
    32,500
    
    
    
    *Esmat Z. Hamdy (3)
    
    
    79,859
    
    
    
    *Jacob S. Jacobson (3)
    
    
    42,500
    
    
    
    *Dennis G. Kish (3)
    
    
    39,379
    
    
    
    *J. Daniel McCranie (3)
    
    
    25,000
    
    
    
    *Fares N. Mubarak (3)
    
    
    100,306
    
    
    
    *Henry L. Perret (3)
    
    
    44,238
    
    
    
    *Robert G. Spencer (3)
    
    
    57,666
    
    
    
    *All Directors and Executive Officers as a Group (13 persons) (3)
    
    
    1,238,689
    
    
    
    4.9
    %
 
 *
    
    Less than one percent.(1)
    
    Except as indicated in the footnotes to this table and pursuant to applicable community
property laws, the persons and entities named in the table have sole voting and sole
investment power with respect to all shares of Common Stock beneficially owned.(2)
    
    Calculated as a percentage of shares of Common Stock
outstanding as of March 1, 2006. For
each named person, Common Stock that the person has the right to acquire either currently or
within 60 days of March 1, 2006 including through the exercise of an option, is included in
the shares beneficially owned by that person and in the total number of shares of Common Stock
outstanding; however, such Common Stock is not deemed outstanding for the purpose of computing
the percentage owned by any other person.(3)
    
    Includes for each indicated director and officer shares issuable pursuant to stock options
that are exercisable within 60 days after March 1, 2006 for Mr. East, 510,116 shares; for
Dr. Fiebiger, 96




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##### Table of Contents



32,500 shares; for Mr. Hamdy, 39,186 shares; for Mr. Jacobsson, 42,500 shares; for Mr.
Kish, 39,062 shares; for Mr. McCranie, 25,000 shares; for Mr. Mubarak, 95,110 shares; for
Mr. Perret, 20,000 shares; for Mr. Spencer, 50,000 shares; and for all directors and
officers as a group, 1,063,035 shares. Securities
Authorized for Issuance under Equity Compensation Plans
  
 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
  
 ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
 Audit Fees
  2005
    
    2004Audit Fees (1)
    
    $
    1,048,205
    
    
    $
    909,210Audit Related Fees (2)
    
    $
    4,500
    
    
    $
    210,250Tax Fees (3)
    
    $
    100,741
    (4)
    
    $
    170,344
(4)All Other Fees
    
    $
    0
    
    
    $
    0
 
 (1)
    
    Represents the aggregate fees billed for professional services rendered for the audit of our
annual financial statements, the review of the financial statements included in our quarterly
reports during such period, the review and consent procedures for
our S-8 Registration Statements during rush period, and Section 404 attestation.(2)
    
    Represents the aggregate fees billed for professional advice and assistance to management in
documentation of certain internal control processes in preparation for reporting managements
assessment under Section 404.(3)
    
    Consists of tax-related services performed in connection with the preparation of state and
federal tax returns as well as other tax consulting matters, including an analysis regarding
the realizability of net operating losses, international tax planning (including the set-up of
a sales office in China), and assistance with an IRS audit.(4)
    
    Includes $98,000 in fees for services performed in connection with the preparation of
state and federal tax returns. 97




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##### Table of Contents



Audit Committees Pre-Approval Policies and Procedures
  
 PART IV
 
 ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
  Financial Statements
      Financial Statement Schedule
 Exhibits
 98




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##### Table of Contents



Exhibits
 Exhibit Number
    
    Description3.1
    
    Restated Articles of Incorporation, as amended (filed as Exhibit 3.1 to
the Registrants Annual Report on Form 10-K (File No. 0-21970) for the
fiscal year ended January 5, 2003).3.2
    
    Restated Bylaws (filed as Exhibit 3.1 to the Registrants Annual Report on
Form 10-K (File No. 0-21970) for the fiscal year ended January 5, 2003).3.3
    
    Certificate of Amendment to Certificate of Determination of Rights,
Preferences and Privileges of Series A Participating Preferred Stock of
Actel Corporation (filed as Exhibit 3.3 to the Registrants Registration
Statement on Form 8-A (File No. 000-2197), filed on October 24, 2003).4.1
    
    Preferred Stock Rights Agreement, dated as of October 17, 2003, between
the Registrant and Wells Fargo Bank, MN N.A., including the Certificate of
Amendment of Certificate to Determination, the form of Rights Certificate
and the Summary of Rights attached thereto as Exhibits A, B, and C,
respectively (filed as Exhibit 4.1 to the Registrants Registration
Statement on Form 8-A (File No. 000-2197), filed on October 24, 2003).10.1 (1)
    
    Form of Indemnification Agreement for directors and officers (filed as
Exhibit 10.1 to the Registrants Registration Statement on Form S-1 (File
No. 33-64704), declared effective on August 2, 1993).10.2 (1)
    
    Amended and Restated 1986 Equity Incentive Plan (filed as Exhibit 10.1 to
the Registrants Quarterly Report on Form 10-Q (File No. 0-21970) for the
fiscal quarter ended July 3, 2005).10.3 (1)
    
    2003 Director Stock Option Plan (filed as Exhibit 4.4 to the Registrants
Registration Statement on Form S-8 (File No. 333-112215), declared
effective on January 26, 2004).10.4 (1)
    
    Amended and Restated 1993 Employee Stock Purchase Plan (filed as Exhibit
10.2 to the Registrants Annual Report on Form 10-K (File No. 0-21970) for
the fiscal quarter ended July 3, 2005).10.5
    
    1995 Employee and Consultant Stock Plan, as amended and restated (filed as
Exhibit 10.2 to the Registrants Quarterly Report on Form 10-Q (File No.
0-21970) for the fiscal quarter ended July 7, 2002).10.6 (1)
    
    Amended and Restated Employee Retention Plan (filed as Exhibit 10.6 to the
Registrants Current Report on Form 8-K (File No. 0-21970) field with the
Securities and Exchange Commission on December 5, 2005).
 99




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##### Table of Contents



Exhibit Number
    
    Description10.7 (1)
    
    Deferred Compensation Plan, as amended and restated (filed as Exhibit 10.7
to the Registrants Annual Report on Form 10-K (File No. 0-21970) for the
fiscal year ended December 31, 2000).10.8
    
    Form of Distribution Agreement (filed as Exhibit 10.13 to the Registrants
Registration Statement on Form S-1 (File No. 33-64704), declared effective
on August 2, 1993).10.9
    
    Patent Cross License Agreement dated April 22, 1993 between the Registrant
and Xilinx, Inc. (filed as Exhibit 10.14 to the Registrants Registration
Statement on Form S-1 (File No. 33-64704), declared effective on August 2,
1993).10.10
    
    Manufacturing Agreement dated February 3, 1994 between the Registrant and
Chartered Semiconductor Manufacturing Pte Ltd (filed as Exhibit 10.17 to
the Registrants Annual Report on Form 10-K (File No. 0-21970) for the
fiscal year ended January 2, 1994).10.11
    
    Foundry Agreement dated as of June 29, 1995, between the Registrant and
Matsushita Electric Industrial Co., Ltd and Matsushita Electronics
Corporation (filed as Exhibit 10.25 to the Registrants Quarterly Report
on Form 10-Q (File No. 0-21970) for the fiscal quarter ended July 2,
1995).10.12
    
    License Agreement dated as of March 6, 1995, between the Registrant and
BTR, Inc. (filed as Exhibit 10.20 to the Registrants Annual Report on
Form 10-K (File No. 0-21970) for the fiscal year ended December 29, 1996).10.13
    
    Patent Cross License Agreement dated August 25, 1998, between the
Registrant and QuickLogic Corporation. (filed as Exhibit 10.19 to the
Registrants Annual Report on Form 10-K (File No. 0-21970) for the fiscal
year ended January 3, 1999).10.14
    
    Development Agreement by and between the Registrant and Infineon
Technologies AG effective as of June 6, 2002 (filed as Exhibit 10.19 to
the Registrants Annual Report on Form 10-K (File No. 0-21970) for the
fiscal year ended January 5, 2003).10.15
    
    Supply Agreement by and between the Registrant and Infineon Technologies
AG effective as of June 6, 2002 (filed as Exhibit 10.20 to the
Registrants Annual Report on Form 10-K (File No. 0-21970) for the fiscal
year ended January 5, 2003).10.16
    
    Office Lease Agreement for the Registrants facilities in Mountain View,
California, dated February 27, 2003 (filed as Exhibit 10.21 to the
Registrants Annual Report on Form 10-K (File No. 0-21970) for the fiscal
year ended January 5, 2003).14
    
    Code of Ethics for Principal Executive and Senior Financial Officers
(filed as Exhibit 14 to the Registrants Annual Report on Form 10-K (File
No. 0-21970) for the fiscal year ended January 4, 2004).21
    
    Subsidiaries of Registrant.23
    
    Consent of Ernst & Young LLP,
Independent Registered Public Accounting Firm.
 100




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##### Table of Contents



Exhibit Number
    
    Description24
    
    Power of Attorney.31.1
    
    Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer.31.2
    
    Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer.32
    
    Section 1350 Certifications.
 
 (1)
    
    This Exhibit is a management contract or compensatory plan or arrangement. Financial Statement Schedule
 Schedule
    
    Description
    
    PageII
    
    Valuation and qualifying accounts
    
    103
  101




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##### Table of Contents



SIGNATURES
  ACTEL CORPORATIONDate: March 16, 2006
    
    By:
    
    /s/ John C. EastJohn C. East
President and Chief Executive Officer
  Signature
    
    Title
    
    Date/s/ John C. East

(John C. East)
    
    President and Chief
Executive Officer
(Principal
Executive Officer)
and Director
    
    March 16, 2006/s/ Jon A. Anderson

(Jon A. Anderson)
    
    Vice President of
Finance and Chief
Financial Officer
(Principal
Financial and
Accounting Officer)
    
    March 16, 2006/s/ James R. Fiebiger

(James R. Fiebiger)
    
    Director
    
    March 16, 2006/s/ Jacob S. Jacobsson

(Jacob S. Jacobsson)
    
    Director
    
    March 16, 2006/s/ J. Daniel McCranie

(J. Daniel McCranie)
    
    Director
    
    March 16, 2006/s/ Henry L. Perret

(Henry L. Perret)
    
    Director
    
    March 16, 2006/s/ Robert G. Spencer

(Robert G. Spencer)
    
    Director
    
    March 16, 2006
 102




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##### Table of Contents



SCHEDULE II
 ACTEL CORPORATION
 
 Valuation and Qualifying Accounts
 Balance at
    
    
    
    
    
    
    
    
    
    Balance atBeginning
    
    
    
    
    
    
    
    
    
    End ofof Period
    
    Provisions
    
    Write-Offs
    
    Period(In thousands)Allowance for doubtful accounts:Year ended December 31, 2003
    
    
    1,078
    
    
    
    355
    
    
    
    355
    
    
    
    1,078Year ended December 31, 2004
    
    
    1,078
    
    
    
    28
    
    
    
    227
    
    
    
    879Year ended December 31, 2005
    
    
    879
    
    
    
    329
    
    
    
    
    
    
    
    1,208
 103




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##### Table of Contents



Exhibit Number
    
    Description3.1
    
    Restated Articles of Incorporation, as amended (filed as Exhibit 3.1 to
the Registrants Annual Report on Form 10-K (File No. 0-21970) for the
fiscal year ended January 5, 2003).3.2
    
    Restated Bylaws (filed as Exhibit 3.1 to the Registrants Annual Report on
Form 10-K (File No. 0-21970) for the fiscal year ended January 5, 2003).3.3
    
    Certificate of Amendment to Certificate of Determination of Rights,
Preferences and Privileges of Series A Participating Preferred Stock of
Actel Corporation (filed as Exhibit 3.3 to the Registrants Registration
Statement on Form 8-A (File No. 000-2197), filed on October 24, 2003).4.1
    
    Preferred Stock Rights Agreement, dated as of October 17, 2003, between
the Registrant and Wells Fargo Bank, MN N.A., including the Certificate of
Amendment of Certificate to Determination, the form of Rights Certificate
and the Summary of Rights attached thereto as Exhibits A, B, and C,
respectively (filed as Exhibit 4.1 to the Registrants Registration
Statement on Form 8-A (File No. 000-2197), filed on October 24, 2003).10.1 (1)
    
    Form of Indemnification Agreement for directors and officers (filed as
Exhibit 10.1 to the Registrants Registration Statement on Form S-1 (File
No. 33-64704), declared effective on August 2, 1993).10.2 (1)
    
    Amended and Restated 1986 Equity Incentive Plan (filed as Exhibit 10.1 to
the Registrants Quarterly Report on Form 10-Q (File No. 0-21970) for the
fiscal quarter ended July 3, 2005).10.3 (1)
    
    2003 Director Stock Option Plan (filed as Exhibit 4.4 to the Registrants
Registration Statement on Form S-8 (File No. 333-112215), declared
effective on January 26, 2004).10.4 (1)
    
    Amended and Restated 1993 Employee Stock Purchase Plan (filed as Exhibit
10.2 to the Registrants Annual Report on Form 10-K (File No. 0-21970) for
the fiscal quarter ended July 3, 2005).10.5
    
    1995 Employee and Consultant Stock Plan, as amended and restated (filed as
Exhibit 10.2 to the Registrants Quarterly Report on Form 10-Q (File No.
0-21970) for the fiscal quarter ended July 7, 2002).10.6 (1)
    
    Amended and Restated Employee Retention Plan (filed as Exhibit 10.6 to the
Registrants Current Report on Form 8-K (File No. 0-21970) field with the
Securities and Exchange Commission on December 5, 2005).10.7 (1)
    
    Deferred Compensation Plan, as amended and restated (filed as Exhibit 10.7
to the Registrants Annual Report on Form 10-K (File No. 0-21970) for the
fiscal year ended December 31, 2000).10.8
    
    Form of Distribution Agreement (filed as Exhibit 10.13 to the Registrants
Registration Statement on Form S-1 (File No. 33-64704), declared effective
on August 2, 1993).




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##### Table of Contents



Exhibit Number
    
    Description10.9
    
    Patent Cross License Agreement dated April 22, 1993 between the Registrant
and Xilinx, Inc. (filed as Exhibit 10.14 to the Registrants Registration
Statement on Form S-1 (File No. 33-64704), declared effective on August 2,
1993).10.10
    
    Manufacturing Agreement dated February 3, 1994 between the Registrant and
Chartered Semiconductor Manufacturing Pte Ltd (filed as Exhibit 10.17 to
the Registrants Annual Report on Form 10-K (File No. 0-21970) for the
fiscal year ended January 2, 1994).10.11
    
    Foundry Agreement dated as of June 29, 1995, between the Registrant and
Matsushita Electric Industrial Co., Ltd and Matsushita Electronics
Corporation (filed as Exhibit 10.25 to the Registrants Quarterly Report
on Form 10-Q (File No. 0-21970) for the fiscal quarter ended July 2,
1995).10.12
    
    License Agreement dated as of March 6, 1995, between the Registrant and
BTR, Inc. (filed as Exhibit 10.20 to the Registrants Annual Report on
Form 10-K (File No. 0-21970) for the fiscal year ended December 29, 1996).10.13
    
    Patent Cross License Agreement dated August 25, 1998, between the
Registrant and QuickLogic Corporation. (filed as Exhibit 10.19 to the
Registrants Annual Report on Form 10-K (File No. 0-21970) for the fiscal
year ended January 3, 1999).10.14
    
    Development Agreement by and between the Registrant and Infineon
Technologies AG effective as of June 6, 2002 (filed as Exhibit 10.19 to
the Registrants Annual Report on Form 10-K (File No. 0-21970) for the
fiscal year ended January 5, 2003).10.15
    
    Supply Agreement by and between the Registrant and Infineon Technologies
AG effective as of June 6, 2002 (filed as Exhibit 10.20 to the
Registrants Annual Report on Form 10-K (File No. 0-21970) for the fiscal
year ended January 5, 2003).10.16
    
    Office Lease Agreement for the Registrants facilities in Mountain View,
California, dated February 27, 2003 (filed as Exhibit 10.21 to the
Registrants Annual Report on Form 10-K (File No. 0-21970) for the fiscal
year ended January 5, 2003).14
    
    Code of Ethics for Principal Executive and Senior Financial Officers
(filed as Exhibit 14 to the Registrants Annual Report on Form 10-K (File
No. 0-21970) for the fiscal year ended January 4, 2004).21
    
    Subsidiaries of Registrant.23
    
    Consent of Ernst & Young LLP, Independent Regisered Public Accounting Firm.




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##### Table of Contents



Exhibit Number
    
    Description24
    
    Power of Attorney.31.1
    
    Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer.31.2
    
    Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer.32
    
    Section 1350 Certifications.
 
 (1)
    
    This Exhibit is a management contract or compensatory plan or arrangement.