UNITED STATES SECURITY AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------------------------------
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
AND EXCHANGE ACT OF 1934
For Quarterly Period Ended March 31, 1995
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Transition Period from to
Commission File Number I-9281
ATARI CORPORATION
(Exact name as specified in its charter)
NEVADA 77-0034553
(State or other jurisdiction (IRS Employer
incorporation or organization) Identification No.)
1196 Borregas Avenue, Sunnyvale, CA 94089
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (408) 745-2000
NONE
(Former name, former address and former fiscal year, if changed since last
report.)
Indicate by check mark whether the registrant (1) has filed all reports to be
filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
YES X NO
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
CLASS SHARES OUTSTANDING AT APRIL 10, 1995
Common Stock 63,701,035
<PAGE>
ATARI CORPORATION
TABLE OF CONTENTS
PAGE
PART I. FINANCIAL INFORMATION
ITEM 1. CONDENSED FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS
March 31, 1995; and December 31, 1994 3
CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE
QUARTER ENDED March 31, 1995 and March 31, 1994 4
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR
THE QUARTER ENDED
March 31, 1995 and March 31, 1994 5
CONDENSED NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION 7
PART II.OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS 9
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 9
SIGNATURE 10
<PAGE>
ATARI CORPORATION
CONSOLIDATED BALANCE SHEETS
MARCH 31, 1995 AND DECEMBER 31, 1994 March 31, Dec 31,
(In Thousands, Except Share Amounts) 1995 1994
(Unaudited)
ASSETS
CURRENT ASSETS:
Cash and equivalents (including $1,875 and
$4,450 held as restricted balances at
March 31, 1995 and December 31, 1994) $ 9,522 $ 22,592
Marketable securities 59,823 58,432
Accounts receivable (less allowances for returns
and doubtful accounts: March 31, 1995 $1,712;
December 31, 1994 $1,957) 4,297 9,262
Inventories (See Note 2) 22,236 18,185
Other current assets 4,474 4,717
Total current assets 100,352 113,188
GAME SOFTWARE DEVELOPMENT COSTS - Net 7,417 5,145
EQUIPMENT AND TOOLING - Net 1,361 1,315
REAL ESTATE HELD FOR SALE 10,666 10,741
OTHER ASSETS 629 653
TOTAL $120,425 $131,042
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 6,583 $ 15,341
Accrued Liabilities 5,933 5,177
TOTAL CURRENT LIABILITIES 12,516 20,518
LONG-TERM OBLIGATIONS 43,354 43,454
SHAREHOLDERS' EQUITY:
Preferred stock, $.01 par value - authorized,
10,000,000 shares; none outstanding
Common stock, $.01 par value - authorized,
100,000,000 shares; (outstanding :
March 1995, 63,701,035; December 1994,
63,648,535) 637 636
Additional paid-in capital 196,222 196,138
Unrealized gain on marketable securities 2,378 542
Accumulated translation adjustments (1,735) (1,724)
Accumulated deficit (132,947) (128,522)
Total shareholders' equity 64,555 67,070
TOTAL $ 120,425 $ 131,042
(See Condensed Notes to Consolidated Financial Statements)
<PAGE>
ATARI CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
MARCH 31, 1995 AND MARCH 31, 1994
(Amounts in Thousands, Except Per Share Amounts)
Quarter Ended
March 31, March 31,
1995 1994
NET SALES $ 4,874 $ 8,156
COST AND EXPENSES:
Cost of sales 3,846 6,778
Research and development 1,815 1,310
Marketing and distribution 2,576 1,730
General and administrative 1,795 1,710
Total operating expenses 10,032 11,528
OPERATING LOSS $ (5,158) $ (3,372)
Exchange gain 5 272
Other income(expense), net (See note 3 and 4) 355 2,392
Interest income 953 353
Interest expense (581) (572)
Loss before income taxes $ (4,426) $ (927)
Provision for Income Taxes --- ---
NET LOSS $ (4,426) $ (927)
LOSS PER COMMON SHARE: $ (0.07) $ (0.02)
Number of shares used in computations 63,701 57,219
(See Condensed notes to Consolidated Financial Statements)
<PAGE>
ATARI CORPORATION
(Unaudited)
CONSOLIDATED STATEMENTS OF CASH FLOWS Quarter Ended
(in thousands) March 31, March 31,
1995 1994
CASH FLOWS FROM OPERATING ACTIVITIES:
Net cash provided (used) by operations $ (10,813) $ 1,596
CASH FLOWS FROM INVESTING ACTIVITIES:
Sale of marketable securities 492 -
Property purchases (51) (70)
Stock dividend received on investment 82 -
Increase in other assets 99 111
Increase in Software Development Costs (2,864) (536)
Net cash provided (used) by investing activities (2,242) (495)
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments of borrowings (100) ---
Proceeds on early debt retirement (46) ---
Issuance of common stock 84 19
Net cash provided (used) by financing activities (62) 19
EFFECT OF EXCHANGE RATE CHANGES ON CASH
& EQUIVALENTS 47 63
NET INCREASE (DECREASE) IN CASH & EQUIVALENTS (13,070) 1,183
CASH & EQUIVALENTS:
Beginning of period 22,592 23,059
End of period $ 9,522 $ 24,242
OTHER CASH FLOW INFORMATION FROM
CONTINUING OPERATIONS:
Interest paid $ 581 $ ---
Income taxes paid --- 63
NON CASH INVESTING ACTIVITIES:
Unrealized gain on marketable securities $ 1,836 $ 514
(See Condensed Notes to Consolidated Financial Statements)
<PAGE>
ATARI CORPORATION
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Basis of Presentation
The condensed financial statements included herein have been prepared by the
Company, without audit, pursuant to the rules and regulations of the Securities
and Exchange Commission. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such rules and
regulations. However, the Company believes that the disclosures are adequate to
make the information presented not misleading. It is suggested that these
condensed financial statements be read in conjunction with the financial
statements and notes thereto included in the Company's 1994 Annual Report on
Form 10-K, filed with the Securities and Exchange Commission.
The unaudited condensed financial statements included herein reflect all
adjustments (which include only normal, recurring adjustments), which are, in
the opinion of management, necessary to state fairly the results for the periods
presented. The results for such periods are not necessarily indicative of the
results to be expected for the full fiscal year.
The Company operates with a 52/53 week fiscal calendar. Both quarters covered
by this report have 13 weeks and for simplicity of presentation, the calendar
quarter date is used to represent the quarter end. The actual fiscal closing
date for the first quarter of 1995 and 1994 was April 1, and April 2,
respectively.
Note 2. INVENTORIES
Inventories consist of the following (in thousands):
March 31, December 31,
1995 1994
Finished goods $ 20,988 $ 15,799
Raw materials and
work-in-process 1,248 2,386
Total $ 22,236 $ 18,185
Note 3. Repurchase of 5 1/4% Subordinated Convertible Debentures.
In the first quarter of 1995, the Company repurchased a portion of its 5 1/4%
subordinated convertible debentures. The Company repurchased 100 bonds at face
value of $1,000 each, and recorded a gain of $47,250, which is included in Other
Income (Expense), net for the quarter.
Note 4. Settlement of Patent Litigation.
In the first quarter of 1994, the Company settled with one of its competitors
certain patent litigation and received $2.2 million. This amount is reflected
in Other Income (Expense), net for the first quarter of 1994.
<PAGE>
Management Discussion and Analysis for the First Quarter of 1995 Compared to the
First Quarter of 1994
Net Sales for the first quarter 1995 were $4.9 million as compared to $8.2
million for the first quarter of 1994, a reduction of $3.3 million. Sales of
Jaguar, the Company's 64-bit multimedia entertainment system, represented 72% of
total revenue as compared to 70% of total sales in 1994. Partially as a result
of impending higher priced ($300-$450) new product introductions from Sony and
Sega the video game industry is in a state of flux. With close to 30 million
units of installed base in the United States, the older 16-bit systems with
price points between $99 - $129 presently make up the vast majority of video
game sales and which have slowed considerably in recent months. As a result of
the Company's technology advances, cost savings and its marketing opportunity,
the Company lowered the wholesale price of Jaguar, 64-bit technology, to allow
retailers to sell Jaguar in a price range of $149-$159. The Company commenced
the sale of Jaguar at this new price late in the quarter allowing for existing
retail inventories to sell out. As a result of this strategy, the Company had
lower unit volumes and lower average selling prices for Jaguar than compared to
the first quarter of 1994. The Company currently markets seventeen titles for
Jaguar. In addition, independent software vendors publish seven titles,
bringing the grand total of titles between Atari and third parties to twenty
four. During the first quarter of 1995, the Company achieved a 4:1 software to
hardware ratio on its sales. The Company believes the development of game
software and Jaguar's new low price point to be critical parts to make Jaguar a
mass market success. The Company has taken measures to improve the timeliness of
software introductions by adding and repositioning key personnel and focusing
more of its efforts on the development of titles.
Gross margin for the first quarter of 1995 was 21% of sales as compared to 17%
for the first quarter of 1994. The improvement in the gross margin was mainly a
result of improved sales mix between hardware and software in 1995 over the
comparable period of 1994. As stated above, the Company currently markets 17
titles for Jaguar as compared to 4 titles during the first quarter of 1994.
Research and Development expenses were $1.8 million as compared to $1.3 million
in the first quarter of 1994. In addition, during the quarter the Company
expended an additional $2.9 million for software development that was
capitalized as Game Software Development. The Company develops software both
internally through its development staff as well as through third party
developers under contract with the Company. As of March 31, 1995, the Company
has capitalized $7.4 million of development costs. These costs will be
recovered through sales of the related products.
Marketing and Distribution expenses were $2.6 million as compared to $1.8
million for the first quarter of 1994. These expenses reflect the Company's
continued investment in television and print advertising and other promotional
activity for Jaguar. The Company believes these investments are necessary to
insure the long term success of Jaguar.
General and Administrative expenses for the first quarter 1995, were $1.8
million as compared to $1.7 million for the same period in 1994. The Company has
consolidated many of its operations around the world and now maintains
operations in California and in the United Kingdom.
Other Income (Expense), net for the first quarter of 1995 was $0.4 million.
During the quarter the Company re-purchased a portion of its 5 1/4 % Convertible
Subordinated Debentures and recorded a gain of $47,250, and included that amount
in Other Income (Expense), net for the quarter. For the same quarter of 1994,
the Company settled certain patent litigation with one of its competitors and
recorded a gain of $2.2 million which together with other income items brought
Other Income (Expense), net for 1994 to $2.4 million. In addition, during the
1995 quarter the Company sold a portion of its Marketable Securities and
realized a gain from these sales of $0.1 million.
<PAGE>
Interest Income for the quarter was $1.0 million as compared to $0.4 million for
the 1994 first quarter, reflecting the Company's significantly greater cash
balances during the first quarter of 1995, which were derived from agreements
reached with Sega Enterprises, Ltd. in the fourth quarter of 1994. Interest
expenses for the 1995 and 1994 quarters were $0.6 million which represents
interest due on the Company's 5 1/4% Convertible Subordinated Debentures. In
April 1995, the Company made an annual payment of interest on its bonds that
totaled $2.2 million.
For the first quarter of 1995, the Company incurred a loss of $4.4 million as
compared to $.9 million loss for the first quarter of 1994.
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 1995 , the Company had cash and marketable securities balances
totaling $69.3 million as compared to $81.0 million as of December 31, 1994
for a reduction of $11.7 million.
In the first quarter of 1995, the Company used $10.8 million in operating
activities. The use of cash was substantially attributable to the Net Loss of
$4.4 million for the quarter and an increased inventory of $4.0 million.
Changes in other working capital items accounted for the remaining use of funds
totaling $2.4 million.
A major portion of the Company's investing activities related to the development
of game software for the Jaguar. During the quarter, the Company invested $2.9
million in the further development of over 75 game titles. The Company expects
to publish most of these titles during 1995 and the first quarter of 1996. In
addition, during the first quarter of 1995, the Company commenced the sale of a
portion of its holdings of Dixon PLC common shares and recorded a gain in the
amount of $0.1 million and transfered to cash $0.5 million.
In the first quarter, the Company repurchased a portion of its 5 1/4%
convertible subordinated debentures and reduced its debt obligations by $0.1
million substantially representing the cash flow from financing activities for
the quarter.
<PAGE>
FINANCIAL CONDITION
PART II
OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
The Company is not aware of any other pending legal proceedings against
the Company and its consolidated subsidiaries other than routine litigation
incidental to their normal business.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits - None
(b) Reports on Form 8-K - None
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THE
REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED THEREUNTO DULY AUTHORIZED.
ATARI CORPORATION
-----------------------------------
(Registrant)
DATE: May 15, 1995
By /S/ August J. Liguori
AUGUST J. LIGUORI
Vice President, Finance
(Duly authorized Officer
Chief Financial Officer,
Chief Accounting Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-30-1995
<PERIOD-END> APR-01-1995
<CASH> 9,522
<SECURITIES> 59,823
<RECEIVABLES> 4,297
<ALLOWANCES> 0
<INVENTORY> 22,236
<CURRENT-ASSETS> 12,520
<PP&E> 12,027<F1>
<DEPRECIATION> 0
<TOTAL-ASSETS> 120,425
<CURRENT-LIABILITIES> 12,516<F2>
<BONDS> 43,354
<COMMON> 637
0
0
<OTHER-SE> 63,918<F3>
<TOTAL-LIABILITY-AND-EQUITY> 120,425
<SALES> 4,874
<TOTAL-REVENUES> 4,874
<CGS> 3,846
<TOTAL-COSTS> 10,032
<OTHER-EXPENSES> 1,313<F4>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (581)
<INCOME-PRETAX> (4,426)
<INCOME-TAX> 0
<INCOME-CONTINUING> (4,426)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,426)
<EPS-PRIMARY> (0.07)
<EPS-DILUTED> (0.07)
<FN>
<F1>Includes PP&E (net) $1,361 and Real Estate held for Sale $10,666.
<F2>Includes Accounts Payable $6,583 and Accrued Liabilities $5,933.
<F3>Includes Paid in Capital $196,222; Accumulated Deficit $132,947;
Accumulated Tran. Adjustment $1,735; and Gain Market Securities $2,378.
<F4>Includes Exchange Gain $5; Other Income $355; and Interest Income $953.
</FN>
</TABLE>
