UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 1994
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 1-9281
ATARI CORPORATION
(Registrant)
NEVADA 77-0034553
-------------------------- -------------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
1196 Borregas Ave.
Sunnyvale, CA 94089
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(Address of principal (Zip Code)
executive offices)
Telephone: (408) 745-2000
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
Common Stock (par value $.01)
5 1/4% Convertible Subordinated Debentures
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ X ]
The aggregate market value of the voting stock held by non-affiliates of
the Registrant, based upon the closing sale price of its Common Stock on March
23, 1995 on the American Stock Exchange was $49,292,900. Shares of Common Stock
held by each officer and director and by each person who owns 5% or more of the
outstanding Common Stock have been excluded and such persons may under certain
circumstances be deemed to be affiliates. This determination of officer or
affiliate status is not necessarily a conclusive determination for other
purposes.
Common Stock (par value $.01) of Registrant outstanding at March 23, 1995 -
63,674,785 shares.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement to be filed with the Securities and
Exchange Commission in connection with the Annual Meeting of Shareholders to be
held June 5, 1995 are incorporated by reference into Part III hereof.
<PAGE>
PART I
Item 1. BUSINESS
General
Atari Corporation ("Atari" or the "Company") designs and markets
interactive multimedia entertainment systems and related software and peripheral
products. Atari was incorporated under the laws of Nevada in May 1984. In July
1984, Atari acquired certain video game and microcomputer assets from the Atari
Inc. subsidiary of Warner Communications, Inc. ("WCI") (now Time Warner, Inc.),
in exchange for, among other considerations, 14,200,000 shares of the Company's
common stock. As more fully described in Note 11 to the Consolidated Financial
Statements, the Company entered into an agreement on March 24, 1994 to sell an
additional 1,500,000 shares of common stock to Time Warner, Inc. After the
completion of this transaction and the transaction described in the following
sentence, Time Warner holds approximately 25% of the Company's outstanding
shares of common stock. As more fully described in Note 11 to the consolidated
financial statements, the Company entered into agreements on September 26, 1994
with Sega Enterprises, Ltd. ("Sega") in which the Company sold 4,705,883 common
shares to Sega. Sega currently holds approximately 7.4% of the Company's
common stock.
The Company operates in one industry segment - the design and sale of
consumer electronic video game consoles, and associated software.
Principal Product
The Company's principal products are:
. Jaguar, a 64-bit interactive multimedia entertainment system.
. Jaguar software, which incorporates an array of licensed and
nonlicensed titles, utilizing 3-D graphics, high speed animation,
16.8 million colors, full motion video, motion capture techniques and
16-bit stereo sound. The software library includes titles which are
cartridge based and will soon include CD based media.
. Jaguar peripherals, which include a CD-ROM player, to be shipped in
the second quarter of 1995, a six-button controller and other
accessory items.
Jaguar
The Company introduced the Atari 64-bit Jaguar interactive multimedia
entertainment system in late November 1993 into the New York and San Francisco
markets. During 1994, the Company rolled out a nationwide program and commenced
initial shipments into Europe.
From its launch through the end of 1994, the Jaguar's suggested retail
price was $249.99. As a result of competition and cost reductions, during the
first quarter of 1995 the Company reduced the wholesale price of the Jaguar to
allow retailers to offer the Jaguar at a retail price range of $149.99 to
$159.99. The Company believes this price reduction was necessary in order for
the Jaguar to reach its market potential and to improve sales of associated
software.
<PAGE>
The Jaguar is a 64-bit interactive multimedia system that incorporates two
proprietary chips specialized for multimedia entertainment. The chips, which
were developed in the Company's own facilities, are code-named "Tom" and
"Jerry." The Jaguar incorporates five processors:
Located in "Tom"
. Graphics Processing Unit (GPU)
. Object Processor
. Blitter
Located in "Jerry"
. Digital Signal Processor (DSP)
Motorola 68000
The first four processors above are located in the proprietary chips and
the 68000 is a standard Motorola microprocessor. The computational speed of the
system is approximately 55 MIPS and the bus bandwidth is 106.4 megabytes per
second. The video features include 24-bit graphics with up to 16 million colors
and a 3-D engine which can render 3-D shaded or texture mapped polygons in real
time. The Company believes the graphics of the Jaguar video are equal to or
superior to any other system currently available.
The sound system is based on a high-speed custom DSP dedicated to audio.
The audio is 16-bit CD quality from cartridge-based software, and can be
processed from simultaneous sources of audio data. This allows for very
realistic sounds in the software and includes human voices.
Through the use of a compression technology customized by the Company
(called "JAGPEG"), software developers can compress data to the point that a
100-megabit game can fit into a 16-megabit ROM cartridge. This allows for more
exciting experiences both visually and in game play due to the vast amount of
data available.
The Company has developed a CD-ROM peripheral for the Jaguar and software
is currently being developed to take advantage of the benefits that CD-ROM
brings to the user, such as full motion video and much more data than is
available on cartridges. Publishers can take advantage of lower media cost and
quicker turnaround on orders with CD-ROM as compared to ROM cartridge. The CD
peripheral is a double speed player and can also play back regular audio CD's
and CD + G (graphics). The Company is also developing a VCR-quality Full Motion
Video plug-in cartridge utilizing an MPEG chip which will allow for the playback
of any software compatible to "White Book" specifications, such as many CD
videos. The Company expects to ship the CD-ROM peripheral in the second quarter
of 1995. The suggested retail price will be $149.99.
The success of the CD-ROM peripheral depends in part on the size and growth
rate of the installed base of cartridge-based Jaguar consoles. In addition, the
size and growth rate of the CD-ROM peripheral is a significant factor in
determining whether software title developers will allocate resources to
developing titles for the Jaguar CD-ROM peripheral.
The Company is further developing the Jaguar hardware and is now working on
the second generation of the Jaguar architecture. It is intended that titles
developed for the current version of the Jaguar console will play on the
successor version of Jaguar. The second generation Jaguar console will also be
able to play even more advanced software with more animation and realistic
texture mapping.
The Jaguar console is currently being assembled by Comptronix in the U.S.A.
The proprietary chips "Tom" and "Jerry" are manufactured by Motorola.
<PAGE>
Jaguar Software Titles
The Company develops titles for the Jaguar through its internal staff and
under contract with third party software developers. The Company has published
and is presently marketing approximately 17 software titles for the Jaguar. In
addition, the Company is developing approximately 55 titles which the Company
may publish in either cartridge or CD format, or both.
In addition to the Company's software development, the Company has licensed
Independent Software Vendors ("ISVs") to develop and publish titles for Jaguar.
The Company receives a royalty on all such publishing. The Company estimates
that the ISVs are currently publishing 8 titles and have in development 17
titles. In order to improve its profitability, the Company from time to time
publishes titles that have been developed by ISVs.
The types of software under development by the Company include fighting
games, sports simulations, driving and flight simulators, and puzzle and action
games. Due to the popularity of certain genres of videogames, certain of the
software titles being developed by the Company will compete directly with
software titles developed by other third party software developers.
Due to the sophistication and complexity of the Company's development
system and demand for high quality software titles, the time to develop software
titles can typically range from as little as seven months to as long as 20
months, depending upon the complexity, graphics and audio of the game. The
Company estimates that by December 1995 approximately 50 to 75 titles will be
available for the Jaguar.
During 1994, the Company experienced substantial delays in releasing
software titles. These delays are attributable to (i) the unforeseen length of
time required to develop Jaguar programming expertise internally and at
independent software developers (ISV's), and (ii) the Company and the ISV's
underestimated the time required to develop Jaguar games. The Company and the
ISV's have developed Jaguar programming expertise, which the Company believes
has placed the development of Jaguar titles on a more steady stream. However,
there can be no assurance that the Company or the ISV's will have completed
software titles as of any particular date, that any software title will be of
high quality, or that any software title will achieve market acceptance.
Licensed Properties
The Company considers certain licensed properties to be important in the
marketing of software titles and has entered into arrangements in which it will
publish Mortal Kombat III (expected to be released during 1996) and Defender
2000 (expected to be in 1995), licensed from Williams Entertainment, Inc., and
Batman Forever, licensed from DC Comics (expected to be released first quarter
1996). In addition, the Company has entered into an agreement to develop and
distribute in late 1995 and early 1996 Jaguar versions of three titles
containing licensed properties and published by Acclaim Entertainment: Frank
Thomas "Big Hurt" Baseball, NBA Jam Tournament Edition, and a third title to be
announced publicly in late 1995. In addition, the Company has licensed the
popular Highlander animated series developing three CDs for Jaguar and PC
platforms. The Company has licensed from Kushner-Locke the new Wes Craven
horror movie, the Mindripper, the video game version is scheduled to be
published in 1996. The Company has published Alien vs. Predator, which is
currently the best selling title for Jaguar thus far.
<PAGE>
PC Software
As a result of the Company's investment in game design, art and programming
for its Jaguar software, the Company has decided to port and publish certain of
its Jaguar titles on the IBM PC compatible platform. The Company intends to
leverage its investment in development by selling additional quantities of
software of a title over a larger installed hardware base. The Company has
recently made this decision, and expects to publish four titles in CD media by
the end of 1995, the first of which will be the Jaguar top-selling title,
Tempest 2000.
Competition
Although the Company believes that the Jaguar offers greatly enhanced
performance characteristics, there can be no assurance that the Jaguar will be a
broadly accepted, industry standard video game console, or that the Jaguar
technology will be broadly adopted by software title developers. In addition,
the video game industry is characterized by unpredictable and rapid shifts in
the popularity of certain platforms, by severe price competition, and by
frequent new technology and product introductions.
As described above, numerous companies have introduced or have developed
and are expected to introduce videogame consoles that are or may become
competitive with the Jaguar. The Company competes with the following companies:
. Nintendo of America, Inc. and its affiliates ("Nintendo"), which has
commenced development, in collaboration with Silicon Graphics, Inc. of
the Ultra 64 player, expected to be released in Autumn 1995;
. Sega Enterprises, Ltd. and its affiliates ("Sega"), which has (i)
previously released its 32X peripheral device for the Sega Genesis;
and (ii) announced the availability of the Sega Saturn (previously
released in Japan) in the United States in September 1995 at a price
range of $350 to $450;
. Sony Corporation and its affiliates ("Sony") which has released the
Sony PlayStation in Japan and is expected to introduce the console in
the United States in Fall 1995; and
. The 3DO Company, which continues to license the 3DO Interactive
Multiplayer System console architecture to Goldstar and Panasonic for
retail sale worldwide.
Most of the above companies have substantial experience and expertise in 3D
graphics and multimedia technology and in manufacturing products through retail
distribution, and also have substantially greater engineering, marketing and
financial resources than the Company.
Atari Lynx and Falcon Computers
The Company offers a color portable hand-held video game system called the
Atari Lynx. The Lynx provides 16-bit color graphics, stereo sound, fast action
and depth of game play. Over 65 different games are currently available. The
Company is currently selling off its remaining inventory. In addition, the
Company has exited the computer business and is selling off those remaining
inventories as well.
<PAGE>
The percentage breakdown of the Company's sales for the last three fiscal
years is as follows:
Video
Games Computers
1994 84% 16%
1993 33% 67%
1992 34% 66%
Marketing and Distribution
The Company distributes its products domestically through various
independent channels. Interactive multimedia entertainment systems are sold
primarily through national retailers, consumer electronic specialty stores and
distributors of electronic products. European sales are conducted from the
Company's European headquarters in London, U.K. The European markets are served
through substantially the same channels of distribution as those in the United
States market.
Net sales outside North America for fiscal years 1994, 1993 and 1992
constituted approximately 41%, 75% and 85% , respectively, of total net sales.
The Company's sales are subject to seasonality which is characteristic of
the consumer electronics market. This seasonality has historically been
characterized by increased sales in the fourth quarter. The Company expects
that its future sales will continue the typical seasonality of the market.
No single customer accounted for 10% or more of total net sales for the
years ended December 31, 1994, 1993 or 1992.
Backlog
The Company purchases products and components according to its forecast of
near-term demand, and not primarily to specific customer orders. Warehoused
inventories of finished products are maintained in advance of receipt of orders.
Orders are usually placed by purchasers on an as-needed basis, are cancelable
before shipment, and are usually filled from inventory shortly after receipt.
Accordingly, in line with industry practice, the backlog of orders at any time
is generally not material and not indicative of actual sales in any future
period.
Research and Development
The Company's ability to compete depends, in large measure, on its ability
to adapt to the rapid technological changes, including hardware systems, related
software, and peripheral products. In this regard, the Company is committed to
an ongoing program of research and development, focused substantially on the
Jaguar product line. Most of the Company's products, including Jaguar, have
been developed by its internal engineering and software groups as well as
independent software developers under contract with the Company. The Company's
research and development expenditures totaled $5.8 million, $4.9 million and
$9.2 million, in 1994, 1993, and 1992, respectively.
<PAGE>
The Company is engaged in an on-going program to develop software for
Jaguar. As part of this development process, the Company enters into agreements
with third parties to develop and/or license properties. Under these
agreements, the Company will make payments to these parties as either
development fees and/or advance royalties, and will possibly contractually
obligate itself to minimum royalty guarantees on future sales. Payments for
development and advance royalties are capitalized as software development costs
and are amortized to cost of sales as the developed products are sold or with
the passage of time, whichever is shorter. As of December 31, 1994, the Company
has capitalized software development costs of $5.1 million.
The Company periodically assesses, by reference to current and estimated
sales, the recoverability of these costs and charges to current operations costs
that are determined to no longer be recoverable. In this regard, there can be
no assurance that all payments for development fees and/or advance royalties
will be recoverable through future sales of products.
Manufacturing
The Jaguar console unit is assembled in the United States by a third-party
subcontractor under an agreement covering various terms of this manufacturing
arrangement. The agreement may be canceled by either party with a 90-day notice
period. Cancellation of the agreement could have a material adverse impact on
the Company's ability to achieve its near-term plans. The Company intends to
secure an alternative manufacturing source for Jaguar in 1995.
The Jaguar console unit is assembled from component parts purchased from
various suppliers. The Company's custom 64-bit RISC processor chip set is
currently purchased from Motorola as a single source. The Company's business
would be adversely impacted by added costs or delays if deliveries from this
supplier are interrupted. The Company has available a second source, which it
is currently not using, for its custom chips. Other component parts are
acquired from multiple sources and have been readily available.
Jaguar software products and accessories are manufactured by several
suppliers and are assembled by subcontractors. The Company believes that, in
comparison to the Jaguar console unit, it is less dependent on these
manufacturers and subcontractors and that it could replace these sources of
supply and assembly more readily.
Exports
Export information is contained in Note 14 of the notes to consolidated
financial statements. Gross margins on sales of products internationally and on
sales of products that include components from foreign suppliers may be
adversely or positively affected by foreign currency exchange rate fluctuations
and by current and proposed international trade regulations, including tariffs
and anti-dumping penalties.
Intellectual Property Rights
The Company's most significant trademarks are its "Atari" name and logo,
both of which the Company has exclusive use in all areas other than coin-
operated arcade video game use. The Company also has a portfolio of
intellectual properties including patents, trademarks, and copyrights associated
with its video game and computer businesses. The Company believes the ownership
of its patents, trademarks and other intellectual property to be important
assets and it considers such rights to be important in the marketing of its
products along with technological innovation and expertise, efficient
production, and marketing strength. The Company holds 178 utility patents on a
worldwide basis and applications pending for 3 additional utility patents. The
Company's existing utility patents expire between the years 1995 and 2010.
<PAGE>
The Company's rights to make, use and sell certain computer and video game
software are held through licenses from third parties. Although not currently
significant, the Company has an exclusive right to the TOS operating system and
non-exclusive right to certain development tools developed by Digital Research,
Inc., a subsidiary of Novell, Inc., for the ST, TT and Falcon030 series of
computers. The operating system license is fully paid and includes the right to
produce unlimited copies in perpetuity.
As the Jaguar entertainment console has been internally developed, the
Company does not have any license arrangements with third parties.
The Company has, from time to time, been notified of claims that it may be
infringing patents owned by others. The Company assesses such claims on a
case-by-case basis and seeks licenses under such patents where appropriate.
Based upon industry practice, the Company believes that if it is found to have
infringed such patents, it will be able to implement the necessary modifications
to avoid infringement or obtain licenses on terms which will not have a material
effect on its operations, although no assurance can be given that the terms of
any offered license will be acceptable to the Company. However, there can be no
assurance that the Company or its software licensees will be able to obtain from
third parties any required license at all; a failure by the Company to obtain
such a license would have a material adverse impact on the Company.
Employees
As of December 31, 1994, the Company had approximately 101 employees in the
U.S., including 58 in engineering and product development, 18 in marketing,
sales and distribution, 5 in purchasing and production, and 20 in general
administration and management; in addition, the Company had approximately 16
employees outside the U.S.
None of the employees are represented by a labor union. The Company
considers its employee relations to be good.
Many of the Company's employees are highly skilled. The Company's business
depends, to a great extent, on its ability to attract and retain highly skilled
employees. The interactive multimedia industry is characterized by a high level
of employee mobility and aggressive recruiting of skilled personnel, and as
such, the Company competes for its employees with interactive multimedia
companies and other high technology companies, many of which have greater
resources.
Item 2. PROPERTIES
The Company leases its 46,000 square foot headquarters facility and 86,000
square feet of warehousing space in Sunnyvale, California. The Company leases
international sales facilities in or near Slough, England and Amsterdam, the
Netherlands. The Company believes that its properties are well maintained and
in good operating condition.
The Company holds certain properties for sale and/or lease. These
properties are reported as real estate held for sale in the accompanying
consolidated financial statements.
All leases are with third parties otherwise unaffiliated with the Company.
<PAGE>
Item 3. LEGAL PROCEEDINGS
The Company and three other parties are defendants in a civil action
brought in the United States District Court for the Northern District of
California by Light Impressions, Inc. and Stephen P. McGrew in September 1986
seeking unspecified damages for activities in restraint of trade (an antitrust
claim for which damages, if awarded, could be trebled) relating to holography
patents rights sold by the Company in 1986. The Company believes this action
will have no material adverse effect on the Company's consolidated financial
condition or results of operations.
The Company is a defendant and cross-complainant in a civil action brought
in the Superior Court of the State of California in and for the County of Santa
Clara by Magnetics Electronic, Ltd., a subsidiary of Termbray Industries
International (Holding) Ltd., a former manufacturing subcontractor, in June 1993
seeking damages in the amount of $3.4 million, together with interest at the
rate of 10% per year from May 1992, for alleged breach of contract. The Company
believes this action will have no material adverse effect on the Company's
consolidated financial condition or results of operations.
The Company is a defendant in a civil action brought in the Superior Court
of the State of California in and for the County of Santa Clara by Citizen
America Corporation, a former supplier, in February 1994 seeking damages in the
amount of $0.9 million for alleged breach of contract, open book account, goods
furnished and account stated. The Company believes this action will have no
material adverse effect on the Company's consolidated financial condition or
results of operations.
The Company is a defendant and counter claimant in a civil action for
alleged breach of contract brought in U.S. District Court for the Northern
District of New York, case number 95 Civ. 1935, by Tradewell, Inc., a New York
corporation, seeking specific performance for release of goods having a value of
$1.6 million. The Company has counterclaimed seeking specific performance for
the purchase of media, or alternatively, damages in the amount of $3.3 million.
The Company believes this action will have no material adverse effect on the
Company's consolidated financial condition or results of operations.
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 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
<PAGE>
PART II
Item 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS
The Company's common stock has publicly traded on the American Stock
Exchange since November 7, 1986 under the symbol ATC.
The following table sets forth the high and low sale prices for the
Company's stock for the respective periods shown, as reported on the
consolidated transaction system:
<TABLE>
<CAPTION>
Calendar Period High Low
<S> <C> <C>
1993:
1st Quarter $1 7/16 $1
2nd Quarter 4 1/2 1/2
3rd Quarter 5 1/2 3 1/4
4th Quarter 12 3/4 4 3/8
1994:
1st Quarter 8 1/8 5 5/8
2nd Quarter 6 5/8 2 7/8
3rd Quarter 7 3/4 2 7/8
4th Quarter 7 3/8 3 9/16
</TABLE>
As of March 23, 1995, the Company had 2,779 shareholders of record of
common stock. The Company has no other shares outstanding. The Company has not
paid cash dividends on shares of its common stock since its inception and the
Company currently intends to reinvest earnings in the business. Accordingly, it
is anticipated that no cash dividends will be paid in the foreseeable future.
<PAGE>
Item 6. SELECTED FINANCIAL DATA
The selected financial data have been derived from the Company's
Consolidated Financial Statements. The information set forth below should be
read in conjunction with the Company's Consolidated Financial Statements and
related notes and with Management's Discussion and Analysis of Financial
Condition and Results of Operations.
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------------------------------------
1994 1993 1992 1991 1990
(In thousands, except per share data)
<S> <C> <C> <C> <C>
Statement of operations data:
Net sales $ 38,444 $ 28,805 $ 127,340 $ 257,992 $ 411,471
Operating income (loss) (24,047) (47,499) (79,008) (18,683) (25,220)
Income (loss) from continuing operations 9,394 (48,866) (82,719) 23,659 (20,847)
Income (loss) before extraordinary credit 9,394 (48,866) (73,719) 23,659 (6,213)
Net income (loss) 9,394 (48,866) (73,615) 25,619 14,874
Per common share data:
Income (loss) from continuing operations $ 0.16 $ (0.85) $ (1.44) $ 0.41 $ (0.36)
Income (loss) before extraordinary credit $ 0.16 $ (0.85) $ (1.29) $ 0.41 $ (0.11)
Net income (loss) $ 0.16 $ (0.85) $ (1.28) $ 0.44 $ 0.26
December 31,
-----------------------------------------------------------------------
1994 1993 1992 1991 1990
(in thousands)
Balance sheet data:
Working capital $ 92,670 $ 33,896 $ 75,563 $ 159,831 $ 131,901
Total assets 131,042 74,833 138,508 253,486 272,638
Long-term obligations
(including current portion) 43,454 52,987 53,937 48,805 49,016
Shareholders' equity 67,070 4,354 50,583 125,529 101,260
</TABLE>
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
Over the past several years, the Company has undergone significant change.
In 1992 and 1993, the Company significantly downsized operations, decided to
exit the computer products business and refocused on its video game business.
These actions resulted in restructuring charges for closed operations and in
write-downs of computer and older video game inventories in 1992 and 1993.
During the same period, the Company developed its 64-bit interactive
multimedia entertainment system, Jaguar, which was launched in the fourth
quarter of 1993. In 1994, Jaguar contributed a substantial portion of net
sales, and in early 1995 the Company lowered the retail price of the Jaguar
console unit to make it more price competitive in the market place. During
1994, the Company invested significantly in the development of software game
titles to be used on the Jaguar system and expects to increase this level of
investment in 1995.
<PAGE>
RESULTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1994
Net sales for the year ended 1994 were $38.4 million as compared to $28.8
million for 1993, or a 33% increase. The increased sales were primarily a
result of the Company's national rollout of its new 64-bit Jaguar entertainment
system and related software. Sales of the Jaguar represented 77% of total sales
in 1994 as compared to 13% in 1993. The Jaguar was launched into two markets in
late fall of 1993, and approximately 100,000 units were sold by the end of 1994
at a suggested retail price of $249.99. In the first quarter of 1995, as a
result of its research and development and manufacturing process efforts and
competitive analysis, the Company reduced the wholesale selling price of Jaguar
enough to allow retailers to sell it from $149.99 to $159.99. This price
reduction will make Jaguar very competitive with older-technology 16-bit systems
currently being offered in the market today. In addition, the Company is
presently publishing approximately 20 Jaguar game software titles. Sales of
Lynx (a portable hand-held video game), Falcon 030 computers and other older
products represented 23% of sales in 1994 as compared to 87% for 1993.
The gross margin for the year ended 1994 was $3.4 million or 8.7% of sales
as compared to a gross loss of $13.7 million for 1993. Included in the gross
margins are inventory write-downs of $3.6 million and $18.1 million for 1994 and
1993, respectively, and a write-down in software development costs of $2.0
million in 1993. In the fourth quarter of 1994, the Company adjusted the value
of its finished and in-process Jaguar consoles to reflect reduced manufacturing
and selling prices. During 1993, the Company wrote down inventories by $7.5
million and $10.6 million in the third and fourth quarters, respectively. These
write-downs were attributable to older 16-bit and below personal computers and
8-bit video game products and write-downs of Lynx and Falcon products to
estimated realizable values that were made concurrently with the introduction
and change in marketing focus to the Company's Jaguar line of products.
Eliminating these write-downs from the gross margins would have resulted in
gross margins of 18% and 22% for 1994 and 1993, respectively. The gross margin
percentage for 1994 was primarily a result of the limited software library of
game titles for the Jaguar. Jaguar console units were sold with little, or no,
margin while significantly higher margins were achieved on software sales.
Through the first nine months of 1994, six titles were available for Jaguar, and
by year end seventeen titles were available. The gross margin percentage for
1993 reflects the effects of restructuring and refocusing, as the Company sold
its older inventories of games and computer products at low average selling
prices.
Research and development expenses for 1994 were $5.8 million as compared to
$4.9 million for 1993. The increase resulted from increased expenditures for the
Jaguar product line. The Company is committed to an ongoing program of software
development and continued enhancements of the custom chip set for Jaguar which
includes cost reductions and design enhancements. The Company employs people in
both the hardware and software areas for Jaguar. In addition to its internal
staff, the Company contracts with third-party software developers to develop
Jaguar games. Payroll and other operating costs for internal development are
expensed as incurred. Payments to third-party developers are capitalized and
amortized over the lower of estimated rates of sale of the related software or
12 months from game introduction. At December 31, 1994 and 1993, the Company
had $5.1 million and $0.8 million, respectively, of capitalized game software
development costs.
Marketing and distribution expenses were $14.5 million for 1994 as compared
to $8.9 million for 1993. The increase in expenditures was primarily the result
of the national rollout in 1994 of the Company's Jaguar entertainment system.
Such costs included TV and print media promotions and other activities. The
Company believes that TV advertising is the most effective means to promote
Jaguar and plans to continue to invest through 1995 and beyond to allow Jaguar
to reach its market potential.
<PAGE>
General and administrative expenses for 1994 were $7.2 million as compared
to $7.6 million for 1993. The marginally lower general and administrative
expenses are primarily due to the full impact of the Company's restructuring
programs in 1993. During 1993, the Company made provisions for restructuring
totaling $12.4 million. These provisions included closing many of the Company's
operations in Europe, Asia and Australia, including, but not limited to,
severance payments, rental commitments and other closure costs.
For 1994, the Company experienced a gain on exchange of $1.2 million as
compared to a loss on exchange of $2.2 million in 1993. This change was a
result of fluctuation in exchange rates, a lower foreign asset exposure and a
greater percentage of sales made in U.S. dollars, thereby further reducing
exposure to foreign currency transaction fluctuations.
As a pioneer of the video game industry back in the mid to late seventies,
the Company developed certain process to create and move images on video
displays. During 1994, the Company settled with two of its competitors with
respect to pending infringement litigation. During the first quarter of 1994,
the Company received $2.2 million with respect to the settlement of litigation
between the Company, Atari Games Corporation and Nintendo. Although not part of
the litigation, Time Warner Inc. (parent company of Atari Games Corporation)
purchased 1.5 million shares of the Company's stock for $8.50 per share, or
$12.8 million. During the fourth quarter of 1994, the Company reached an
agreement with Sega Enterprises Ltd., which resulted in a gain of $29.8 million,
after contingent legal fees, and the sale of approximately 4.7 million shares of
the Company's stock for $8.50 per share, or $40 million.
For 1994 and 1993, interest expense was approximately $2.3 million on the
Company's 5.25% convertible subordinated debentures.
Interest income for 1994 and 1993 was $2 million. Although the Company
achieved the same level of interest income each year, this was primarily the
result of lower average cash balances in the first nine months of 1994 offset
somewhat by higher interest rates and significantly higher cash balances in the
fourth quarter of 1994.
As a result of the Company's net operating loss carryforwards and timing
differences between financial and tax reporting, no taxes were provided in 1994.
Operating loss and tax credit carryforwards are described in Note 12 to the
consolidated financial statements.
As a result of the factors discussed above, the Company reported net income
for 1994 of $9.4 million as compared to a net loss of $48.9 million in 1993.
RESULTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1993
Net sales in 1993 were $28.8 million as compared to $127.3 million in 1992,
a decline of 77%. Sales declined significantly as the Company downsized, closed
operations and changed its product focus. Sales of the Jaguar product line
began in the fourth quarter of 1993 with approximately 17,000 console units
shipped which, along with related software sales, resulted in $3.8 million of
Jaguar product sales in the quarter.
For the reasons discussed under "General" above, there was a steady decline
from 1992 to 1993 in unit sales and in sales prices of older technology video
games and computer products. The sales mix in 1993 was 13% Jaguar sales, 20%
other video game sales and 67% computer product sales.
<PAGE>
Gross margin for 1993 was negative $13.7 million. Because of reduced sales
and the conditions discussed under "General" above, the Company recorded
write-downs of inventories of $18.1 million and of software development costs of
$2.0 million, and charged these write-downs to cost of sales. Without these
write-downs, gross margin would have been 22%, compared to a similarly-adjusted
margin of 26% for 1992. The decline in this adjusted gross margin resulted
primarily from lower unit sales prices in 1993 than in 1992.
Research and development, marketing and distribution and general and
administrative expenses were all significantly lower in 1993 than in 1992 due to
the factors discussed under "General" above. As a percentage of sales, however,
each of these groups of expenses increased, due in part to the significant
decline in sales, due to some level of costs being relatively fixed and to
selected expenditures made for development and introduction of the Jaguar
product line.
In 1993, substantially all research and development expenses related to the
Jaguar product line. At December 31, 1993, $0.8 million of Jaguar software
development costs were capitalized and will be amortized in 1994. Market and
distribution costs included approximately $3.0 million incurred in the second
half of 1993 for promotion of the Jaguar product line.
The restructuring charges recorded in 1993 are discussed in Note 1 to the
consolidated financial statements. These charges were for closure of operations
in a number of foreign locations, and included approximately $6.9 million of
noncash charges, primarily for elimination of accumulated translation
adjustments with the closure of those entities and losses on the anticipated
sales of real estate in Europe. Cash charges of $5.5 million included the costs
of closure and employee termination and severance costs.
Loss on exchange was lower than in 1992 due to the reduction in foreign
operations. Interest income was lower than in 1992 due to the lower level of
invested funds due to losses in 1992 and 1993 and, to a lesser extent, due to
lower interest rates on invested funds.
The Company adopted Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes," which requires that deferred income taxes be
computed using an asset and liability approach. Due to operating losses in
recent years, the Company had no income tax provision and only a modest tax
recovery for loss carryback.
For the reasons discussed above, the Company incurred a net loss of
$48.9 million in 1993.
FUTURE OPERATING RESULTS
As stated above, the Company has refocused itself as an interactive
multimedia entertainment company with its Jaguar product line and its planned
entry into entertainment software for the PC platform. Sales of Jaguar hardware
and software products constituted approximately 77% of net sales in 1994 and 13%
in 1993 (46% in the fourth quarter of 1993).
The Company believes that net sales and operating results for 1995 will
depend largely on the success of the Jaguar system, primarily game software. To
achieve profitable operations in the longer term, the Company needs to (1)
increase the number of Jaguar console units in the market and (2) increase the
number of software titles, which have significantly higher profit margins than
the Jaguar console unit.
In 1995, the Company has:
. Lowered the retail price point for its Jaguar console unit to make it
more price competitive.
<PAGE>
. Continued to invest heavily in Jaguar game development and entered
into arrangements to publish certain licensed proprietary titles.
At the same time, there can be no assurance that Jaguar will be
commercially successful or that the Company will achieve profitable operations
through its Jaguar product line. Factors affecting the success of Jaguar
include the continuous development of a broad library of software, the marketing
of hardware and software and the timing of competitive product introductions to
the market during the next 12 to 24 months.
As many of these factors are beyond the control of the Company, no
assurance can be made that Jaguar will achieve broad market acceptance or that
the Company will be successful.
INTERNATIONAL SALES
Net sales outside North America for 1994, 1993 and 1992 were $15.6 million,
$21.7 million and $108 million (41%, 75% and 85% of total sales), respectively.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1994, cash and marketable securities were $81.0 million as
compared to $30.7 million at December 31, 1993. The increase in cash and
marketable securities primarily was a result of the sale of additional common
stock of the Company for $53.7 million in connection with settlement of patent
litigation with Nintendo and Sega Enterprises Ltd. For 1994, net income was
$9.4 million. Cash provided by earnings was invested in inventory, capitalized
software development and increased receivables which resulted in net funds
provided by operations of $1.7 million.
At December 31, 1994, the Company was obligated under outstanding letters
of credit of $4.5 million, which were collateralized by cash balances.
Management believes that existing cash and marketable securities balances
are sufficient to meet its cash requirements through at least 1995. Beyond 1995,
refer to "Future Operating Results," above.
<PAGE>
ITEMS 8 AND 14(a)
ATARI CORPORATION AND SUBSIDIARIES
Index to Consolidated Financial Statements
and Financial Statement Schedules
Pages in
this Report
Consolidated Financial Statements:
Independent Auditors' Report 16
Consolidated Balance Sheets at December 31, 1994 and 1993 17
Consolidated Statements of Operations for the Years
Ended December 31, 1994, 1993 and 1992 18
Consolidated Statements of Shareholders' Equity for the
Years Ended December 31, 1994, 1993 and 1992 19
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1994, 1993 and 1992 20-21
Notes to Consolidated Financial Statements 22-30
Financial Statement Schedules:
II Valuation and Qualifying Accounts 35
All other schedules are omitted because they are not required or the
required information is shown in the financial statements or the notes thereto.
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Shareholders and Board of Directors
of Atari Corporation:
We have audited the accompanying consolidated balance sheets of Atari
Corporation and subsidiaries as of December 31, 1994 and 1993, and the related
consolidated statements of operations, shareholders' equity, and cash flows for
each of the three years in the period ended December 31, 1994. Our audits also
included the financial statement schedule listed in the Index at Items 8 and
14(a). These financial statements and financial statement schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on the financial statements and financial statement schedule based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Atari Corporation and subsidiaries
at December 31, 1994 and 1993, and the results of their operations and their
cash flows for each of the three years in the period ended December 31, 1994 in
conformity with generally accepted accounting principles. Also, in our opinion,
such financial statement schedule, when considered in relation to the basic
consolidated financial statements taken as a whole, presents fairly in all
material respects the information set forth therein.
DELOITTE & TOUCHE LLP
San Jose, California
March 17, 1995
<PAGE>
ATARI CORPORATION
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1994 AND 1993
(Amounts in Thousands, Except Share and Per Share Amounts)
------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
ASSETS 1994 1993
CURRENT ASSETS:
Cash and equivalents (including $4,450 and $18,965 held
as restricted balances in 1994 and 1993 - Note 9) $ 22,592 $ 23,059
Marketable securities (Note 2) 58,432 7,680
Accounts receivable (less allowances for returns and
doubtful accounts: 1994, $1,957; 1993, $1,048) 9,262 5,929
Inventories (Note 4) 18,185 12,548
Other current assets (Note 2) 4,717 1,383
--------- ---------
Total current assets 113,188 50,599
GAME SOFTWARE DEVELOPMENT COSTS - Net (Note 5) 5,145 789
EQUIPMENT AND TOOLING - Net (Note 6) 1,315 1,020
REAL ESTATE HELD FOR SALE (Note 7) 10,741 20,924
OTHER ASSETS 653 1,501
--------- ---------
TOTAL $ 131,042 $ 74,833
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 15,341 $ 11,621
Accrued liabilities (Note 8) 5,177 5,871
--------- ---------
Total current liabilities 20,518 17,492
--------- ---------
LONG-TERM OBLIGATIONS (Note 10) 43,454 52,987
--------- ---------
COMMITMENTS AND CONTINGENT LIABILITIES (Note 15) - -
SHAREHOLDERS' EQUITY (Note 13):
Preferred stock, $.01 par value - authorized,
10,000,000 shares; none outstanding - -
Common stock, $.01 par value - authorized, 100,000,000
shares; outstanding: 1994, 63,648,535 shares; 1993,
57,214,587 shares 636 572
Additional paid-in capital 196,138 142,497
Notes receivable from sale of common stock - (3)
Unrealized gain on marketable securities 542 -
Accumulated translation adjustments (1,724) (796)
Accumulated deficit (128,522) (137,916)
--------- ---------
Total shareholders' equity 67,070 4,354
--------- ---------
TOTAL $ 131,042 $ 74,833
========= =========
</TABLE>
See notes to consolidated financial statements.
<PAGE>
ATARI CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
(Amounts in Thousands, Except Per Share Amounts)
------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
1994 1993 1992
--------- --------- ---------
NET SALES $ 38,444 $ 28,805 $ 127,340
COST AND EXPENSES:
Cost of sales 35,093 42,550 132,455
Research and development 5,775 4,876 9,171
Marketing and distribution 14,454 8,895 31,125
General and administrative 7,169 7,558 16,544
Restructuring charges - 12,425 17,053
--------- --------- ---------
Total operating expenses 62,491 76,304 206,348
--------- --------- ---------
OPERATING LOSS (24,047) (47,499) (79,008)
Settlements of patent litigation (Note 11) 32,062 - -
Exchange gain (loss) 1,184 (2,234) (5,589)
Other income 484 854 927
Interest income 2,015 2,039 4,039
Interest expense (2,304) (2,290) (3,522)
--------- --------- ---------
Income (loss) before income taxes 9,394 (49,130) (83,153)
Income tax credit (Note 12) - 264 434
--------- --------- ---------
INCOME (LOSS) FROM CONTINUING OPERATIONS
BEFORE EXTRAORDINARY CREDIT 9,394 (48,866) (82,719)
Discontinued operations (Note 3) - - 9,000
--------- --------- ---------
INCOME (LOSS) BEFORE EXTRAORDINARY CREDIT 9,394 (48,866) (73,719)
Extraordinary credit - gain on extinguishment
of 5 1/4% convertible subordinated
debentures, no tax effect due to utilization
of loss carryforwards - - 104
--------- --------- ---------
NET INCOME (LOSS) $ 9,394 $ (48,866) $ (73,615)
========= ========= =========
EARNINGS (LOSS) PER COMMON SHARE:
Income (loss) from continuing operations $ 0.16 $ (0.85) $ (1.44)
Income (loss) before extraordinary credit $ 0.16 $ (0.85) $ (1.29)
Net income (loss) $ 0.16 $ (0.85) $ (1.28)
Number of shares used in computations 58,962 57,148 57,365
</TABLE>
See notes to consolidated financial statements.
<PAGE>
ATARI CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
(Amounts in Thousands)
------------------------------------------------------------
<TABLE>
<CAPTION>
Notes Accumu-
Receivable lated
Addi- from Trans- Unrealized
tional Sale of lation Gain on Accumu-
Common Stock Paid-In Common Adjust- Marketable lated
Shares Amount Capital Stock ments Securities Deficit Total
--------- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCES, JANUARY 1, 1992 57,584 $576 $143,116 $(199) $(2,529) $ - $(15,435) $125,529
Common stock repurchased (447) (5) (801) (806)
Payments on notes receivable 180 180
Translation adjustments (705) (705)
Net loss (73,615) (73,615)
--------- --------- --------- --------- --------- --------- --------- ---------
BALANCES, DECEMBER 31, 1992 57,137 571 142,315 (19) (3,234) - (89,050) 50,583
Stock options exercised 89 1 191 192
Common stock repurchased (11) (9) 9 -
Payments on notes receivable 7 7
Translation adjustments 2,438 2,438
Net loss (48,866) (48,866)
--------- --------- --------- --------- --------- --------- --------- ---------
BALANCES, DECEMBER 31, 1993 57,215 572 142,497 (3) (796) - (137,916) 4,354
Sale of common stock 6,277 63 53,270 53,333
Stock options exercised 157 1 371 372
Payments on notes receivable 3 3
Translation adjustments (928) (928)
Unrealized gain on marketable
securities 542 542
Net income 9,394 9,394
--------- --------- --------- --------- --------- --------- --------- ---------
BALANCES, DECEMBER 31, 1994 63,649 $636 $196,138 $ - $(1,724) $542 $(128,522) $67,070
========= ========= ========= ========= ========= ========= ========= =========
</TABLE>
See notes to consolidated financial statements.
<PAGE>
ATARI CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
(Amounts in Thousands)
------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
1994 1993 1992
--------- --------- ---------
OPERATING ACTIVITIES -
Net cash provided (used) by continuing
operations $ 1,689 $ (17,429) $ (7,318)
INVESTING ACTIVITIES:
Sale of marketable securities - 2,525 -
Purchase of marketable securities (50,000) - (10,180)
Purchases of property, equipment and tooling (1,207) (663) (3,243)
Sale of property 7,543 - 187
Game software development costs (4,356) (789) -
Other assets 482 541 (90)
--------- --------- ---------
Net cash provided (used) by
investing activities (47,538) 1,614 (13,326)
--------- --------- ---------
FINANCING ACTIVITIES:
5 1/4% convertible subordinated
debentures extinguished - - (92)
Repayments of borrowings (7,642) (259) (12,733)
Issuance of common stock 53,708 199 180
Repurchase of common stock - - (806)
--------- --------- ---------
Net cash provided (used) by
financing activities 46,066 (60) (13,451)
--------- --------- ---------
EFFECT OF EXCHANGE RATE CHANGES ON
CASH AND EQUIVALENTS (684) (356) 3,668
--------- --------- ---------
NET DECREASE IN CASH AND EQUIVALENTS (467) (16,231) (30,427)
CASH AND EQUIVALENTS:
Beginning of year 23,059 39,290 69,717
--------- --------- ---------
End of year $ 22,592 $ 23,059 $ 39,290
========= ========= =========
OTHER CASH FLOW INFORMATION (FROM CONTINUING
OPERATIONS):
Interest paid $ 2,303 $ 3,023 $ 6,994
========= ========= =========
Income taxes refunded $ (426) $ (225) $ (786)
========= ========= =========
NONCASH INVESTING AND FINANCING ACTIVITIES:
Issuance of debt in exchange for
land and building $ - $ - $ 6,387
========= ========= =========
Exchange of inventory for advertising
services $ 3,179 $ - $ -
========= ========= =========
Exchange of property for retirement of debt $ 1,891 $ - $ -
========= ========= =========
</TABLE>
(Continued on next page)
<PAGE>
ATARI CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
(Amounts in Thousands)
------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
1994 1993 1992
--------- --------- ---------
RECONCILIATION OF NET INCOME (LOSS)
TO NET CASH PROVIDED (USED) BY
CONTINUING OPERATIONS:
Net income (loss) $ 9,394 $ (48,866) $ (73,615)
Discontinued operations - - (9,000)
Gain from extinguishment of 5-1/4%
convertible subordinated debentures - - (104)
Depreciation and amortization 3,423 361 2,776
Provision for doubtful accounts 194 232 986
Provision for sales returns and allowances 1,563 457 3,560
Provision for restructuring - 12,425 17,053
Gain on sale of marketable securities - (324) -
Provision for inventory valuation 5,362 18,100 36,900
Provision for valuation of marketable
securities - - 300
Changes in operating assets and
liabilities:
Accounts receivable (5,383) 16,863 46,190
Inventories (14,177) 951 12,827
Other assets (1,790) 3,178 2,940
Accounts payable 3,763 (4,925) (31,220)
Accrued liabilities (660) (15,881) (16,911)
--------- --------- ---------
Net cash provided (used) by
continuing operations $ 1,689 $ (17,429) $ (7,318)
========= ========= =========
</TABLE>
See notes to consolidated financial statements. (Concluded)
<PAGE>
ATARI CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1994, 1993 and 1992
1. COMPANY
Company - The Company designs and markets interactive multimedia
entertainment systems and related software and peripheral products.
Manufacture of these products is performed primarily by third parties. The
principal methods of distribution are through mass market retailers,
consumer electronic specialty stores and distributors of electronic
products.
Product Focus - Since 1992, the Company has focused its research and
development effort on its 64-bit interactive multimedia entertainment
system, Jaguar. This product was introduced in 1993 and, in 1994, 77% of
net sales were associated with this product. In 1995, the Company plans to
increase the level of expenses for Jaguar game development and marketing.
Future profitability is dependent upon the success of this product.
As a result of continued technological developments associated with the
Jaguar chipset, the cost to manufacture the Jaguar hardware units is
declining. In December 1994, the Company planned price reductions
beginning in early 1995 and recognized the impact of this decision on
finished and in-process inventory through a write down of inventory of
$3,600,000, which is included in cost of sales in the fourth quarter.
The Company continues to carry limited quantities of its older 8-bit and
16-bit video games and computer product lines. As a result of rapid
technological change and intense competition, the Company wrote down
inventories of these products by $18.1 million in 1993 and $36.9 million in
1992. All of these write-downs have been included in cost of sales.
Settlements of Patent Litigation - In the first and fourth quarters of
1994, the Company settled certain patent infringement suits. Both
settlements resulted in cash payments to Atari and the sale of the
Company's common stock. Settlement receipts, net of settlement costs,
recorded in other income were $2.2 million in the first quarter and $29.8
million in the fourth quarter.
Restructuring - The Company has active operations in the United States, the
Netherlands and the United Kingdom. During 1993 and 1992, the Company
significantly restructured its operations around the world, closing
operations in Australia and the Far East, in several European countries and
in Canada and Mexico. These operational closures resulted in the
bankruptcy of subsidiaries in Australia and Germany and may result in the
voluntary or involuntary liquidation or bankruptcy of other subsidiary
companies.
Charges for restructuring have been separately reported in the consolidated
statements of operations for 1993 and 1992. Accruals for restructuring
costs are included in accrued liabilities (see Note 8) and relate primarily
to lease obligations in Australia, which continue until August 1995.
2. SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation - The consolidated financial statements include
the Company and its subsidiaries. All transactions and balances between
the companies are eliminated.
<PAGE>
Cash and Equivalents - Cash equivalents are stated at cost, which
approximates market value, have maturities not exceeding ninety days upon
acquisition and generally consist of certificates of deposit, time
deposits, treasury notes and commercial paper.
Marketable Securities - Effective January 1, 1994, the Company adopted
Statement of Financial Accounting Standards No. 115, "Accounting for
Certain Investments in Debt and Equity Securities." Marketable securities
are carried as available-for-sale securities and reported at the fair
market value. The cumulative effect of adoption of SFAS 115 as of January
1, 1994 was not material. Unrealized gains and losses are reported as a
separate component of shareholders' equity. Realized gains and losses are
recorded in the statement of operations and have not been material to date.
The amounts reported and the related cost, market value and unrealized gain
at December 31, 1994 are (in thousands):
Number Market Unrealized
Issue of Shares Cost Value Gains
Available-for-sale:
Equity securities -
Dixon common stock 2,851 $ 7,890 $ 8,432 $ 542
Foreign government debt securities -
Eurdollar notes (Mature May 15, 1995) 50,000 50,000 $ -
------- ------- -------
Total marketable securities $57,890 $58,432 $ 542
======= ======= =======
Inventories - Inventories are stated at the lower of cost or market. Cost
is computed using standard costs which approximate actual cost on a first-
in, first-out basis. Market for each of the Company's product lines is
determined by reference to expected sales prices less direct selling
expenses.
Prepaid Advertising - Included in other current assets at December 31, 1994
is $3.2 million of prepaid advertising resulting from a barter transaction.
The amount recorded as prepaid advertising equals the carrying value of
Lynx inventory exchanged for advertising credits. The Company expects to
expense the prepaid advertising as utilized during 1995.
Equipment and Tooling - Equipment and tooling are stated at cost.
Depreciation on equipment is computed using the straight-line method based
on estimated useful lives of the assets of three to five years. Tooling is
depreciated on a units of production basis. Leasehold improvements are
amortized over the estimated useful life or lease term, as appropriate.
Fully depreciated assets, and related depreciation, are excluded from the
consolidated financial statements.
Real Estate Held for Sale - Real property associated with closed operations
in the U.S. is stated at estimated market value as determined by recent
valuations, appraisals or pending sales offers.
Revenue Recognition - Sale of consoles, software game cartridges and
related products are recorded as revenue at the time of shipment to
customers. Concurrently, the Company establishes reserves for estimated
returns, which are recorded as a reduction of sales, and for cooperative
advertising allowances, which are recorded as marketing and distribution
expense.
Concentration of Credit Risk - The Company sells to mass market retailers,
consumer electronic specialty stores and to distributors of electronic
products throughout the United States and Europe. The Company makes
ongoing credit evaluations of customers and, at times, requires letters of
credit from some foreign customers. Sales to foreign customers are
generally stated in the currency of the customer. To date, the Company has
not entered into hedges of these foreign currency exposures.
<PAGE>
Income Taxes - The Company adopted Statement of Financial Accounting
Standards No. 109 (SFAS 109) "Accounting for Income Taxes" in the first
quarter of 1993. SFAS 109 requires an asset and liability method for
financial accounting and reporting of income taxes. Prior to 1993, the
Company accounted for income taxes in accordance with SFAS 96. The impact
of the adoption of SFAS 109 was not material.
Foreign Currency Translation - Assets and liabilities of operations outside
the United States, except for operations that are highly integrated with
operations of the Company, are translated into United States dollars using
current exchange rates, and the effects of foreign currency translation
adjustments are deferred and included as a component of shareholders'
equity.
Income (Loss) per Common Share- Per share amounts are computed based on the
weighted average number of common and, when dilutive, common equivalent
shares (stock options) outstanding during each period.
Fully diluted income (loss) per share includes, when dilutive, the effect
of the assumed conversion of the 5 1/4% convertible subordinated debentures
and the additional dilutive effect of stock options. These impacts were
antidilutive in 1993 and 1992.
Fiscal Year - The Company has a 52/53 week fiscal year which ends on the
Saturday closest to December 31. For simplicity of presentation, the date
December 31 is used to represent the fiscal year end.
Reclassifications - Certain items have been reclassified in the 1993 and
1992 financial statements to conform to the 1994 presentation.
3. DISCONTINUED OPERATIONS
In 1988, the Company decided to discontinue its consumer electronics and
home entertainment products retail stores operation, which was acquired in
1987, and provided a reserve for discontinued operations. In 1992, $9.0
million of the previously estimated loss was determined not to be required
(no tax effect due to utilization of loss carryforwards). This reversal
was reported as a credit in "discontinued operations" in 1992.
Net sales of the discontinued operation for 1994, 1993 and 1992 were nil.
Remaining net assets of the discontinued operation are reported as real
estate held for sale (see Note 7).
4. INVENTORIES
Inventories at December 31 consist of the following (in thousands):
1994 1993
Finished goods $15,799 $10,354
Raw materials and work-in-process 2,386 2,194
------- -------
Total $18,185 $12,548
======= =======
<PAGE>
5. GAME SOFTWARE DEVELOPMENT COSTS
The Company has an ongoing program to develop game software internally and
externally. External development costs are capitalized once technological
feasibility has been determined. Internal development costs are expensed
as incurred as these costs relate primarily to development tools. During
1994 and 1993, the Company capitalized $5,901,000 and $820,000,
respectively, of amounts paid to third parties, primarily as prepaid
licenses, in connection with game development for the Jaguar platform. The
Company amortizes such costs over the shorter of 12 months from game
introduction or the estimated unit sales of the game title. The Company
assesses the recoverability of capitalized games software development costs
in light of many factors, including, but not limited to, anticipated future
revenues, estimated economic useful lives and changes in software and
hardware technologies. Amortization expense was $1,545,000 and $31,000 for
the years ended December 31, 1994 and 1993, respectively.
6. EQUIPMENT AND TOOLING
Equipment and tooling at December 31 consists of the following (in
thousands):
1994 1993
Equipment and tooling $ 1,874 $ 2,601
Furniture and fixtures 708 718
Leasehold improvements 43 73
------- -------
Total 2,625 3,392
Accumulated depreciation and amortization (1,310) (2,372)
------- -------
Equipment and tooling - net $ 1,315 $ 1,020
======= =======
7. REAL ESTATE HELD FOR SALE
Property held for sale at December 31, 1994 consists of nine properties in
California and Texas, from the discontinued consumer electronics and home
entertainment products operation. Certain of the properties have rental
tenants, although all properties are available for sale. Rental income,
net of rental expense and continued depreciation, is included in other
income (expense). Disposals in 1994 were the Company's building in Germany
and land and building in France, which were disposed of with no significant
gain or loss.
8. ACCRUED LIABILITIES
Accrued liabilities at December 31 consist of the following (in thousands):
1994 1993
Accrued interest $ 1,513 $ 1,521
Net liabilities of closed operations - 1,229
Accrued royalties 320 811
Accrued restructuring charge 719 959
Other 2,625 1,351
------- -------
Total $ 5,177 $ 5,871
======= =======
<PAGE>
9. LETTERS OF CREDIT AND RESTRICTED CASH
The Company's Jaguar console is assembled by a third-party subcontractor.
At the time the Company places an order for Jaguar units, it provides the
subcontractor with a commercial letter of credit. At December 31, 1994
cash balances of $4.5 million were collateral for outstanding commercial
letters of credit. At December 31, 1993, cash balances of $19.0 million
were collateral for outstanding letters of credit.
10. LONG-TERM DEBT OBLIGATIONS
Convertible Subordinated Debentures - The Company has $43.5 million of
5 1/4% convertible subordinated debentures due April 29, 2002. The market
value of these debentures was approximately $22 million at December 31,
1994 and $29 million at December 31, 1993. The debentures may be redeemed
at the Company's option, upon payment of a premium. The debentures, at the
option of the holders, are convertible into common stock at $16.31 per
share. At December 31, 1994, 2,664,255 shares of common stock were
reserved for conversion. Default with respect to other indebtedness of
Atari Corporation in an aggregate amount exceeding $5 million would result
in an event of default whereby the outstanding debentures would be due and
payable immediately.
In 1992, the Company reacquired in the open market and extinguished $.2
million face value of these debentures for $0.1 million, resulting in an
extraordinary credit of $.1 million.
Term Loans on Real Estate in Europe - At December 31, 1993, the Company had
two secured term loans outstanding totaling $7.5 million for its building
in Germany and a term loan of $2.0 million for its land and building in
France. These loans were repaid or exchanged in 1994 from the sale or
transfer of the properties.
11. SETTLEMENTS OF PATENT LITIGATION
During the first quarter of 1994, the Company received $2.2 million with
respect to the settlement of litigation between the Company, Atari Games
Corporation and Nintendo. Although not part of the litigation, the Company
sold 1,500,000 shares of its common stock to Time Warner (parent company of
Atari Games Corporation), Inc. for $12.8 million.
During the fourth quarter of 1994, the Company completed a comprehensive
agreement ("Agreement") with Sega Enterprises, Ltd. ("Sega") concerning
resolution of disputes, equity investment and patent and product licensing
agreements. The results of the Agreement were as follows: (i) Sega
acquired 4,705,883 shares of the Company's common stock for $40.0 million;
(ii) the Company received payment of $29.8 million ($50.0 million from
Sega, net of $20.2 million of legal fees and associated costs) in exchange
for a license from Atari covering the use of a library of Atari patents
issued between 1977 through 1984 (excluding patents which exclusively claim
elements of the Company's JAGUAR and LYNX products) through the year 2001;
and (iii) the Company and Sega agreed to cross-license up to five software
game titles each year through the year 2001.
<PAGE>
12. INCOME TAXES
The credit for income taxes consists of the following (in thousands):
1994 1993 1992
Current:
Federal $ - $ - $ -
Foreign (264) (434)
State - - -
------- ------- -------
Income tax credit $ - $ (264) $ (434)
======= ======= =======
The current portion of the credit for foreign income taxes is net of
benefits from loss carryforwards of $0, $0, and $3,041,000 in 1994, 1993
and 1992, respectively. Income (loss) before income taxes for the years
1994, 1993 and 1992 include losses of $(2,641,000), $(33,482,000), and
$(26,983,000), respectively, from the Company's foreign subsidiaries.
At December 31, 1994, the Company has a U.S. income tax net operating loss
carryforward of $120.4 million which expires in 2006 through 2009, a
research and development tax credit carryforward of $1.4 million which
expires in 2003 through 2009, and a California income tax loss carryforward
of $38.6 million which expires as follows: $2.3 million in 1995, $16.4
million in 1997, $16.7 million in 1998 and $1.6 million in 1999.
The effective income tax rates for 1994, 1993 and 1992 were 0%, (1)%, and
(1)%, respectively, and differ from the federal statutory rate of 35% in
1994, 35% in 1993 and 34% in 1992 as follows (in thousands):
1994 1993 1992
Computed at federal statutory rates $ 3,288 $(17,103) $(25,177)
Foreign income not subject to income tax - - (7,942)
Effect of losses providing no current tax benefit 924 16,821 34,655
Tax benefit of foreign loss carryforwards - - (3,041)
Effect of foreign tax rates different than
statutory rates and utilization of foreign
loss carrybacks - 16 1,033
Reduction of valuation allowance (4,212) - -
Other - 2 38
-------- --------- ---------
Income tax credit $ - $ (264) $ (434)
======== ========= =========
<PAGE>
The components of the net deferred tax asset consist of:
December 31, December 31,
1994 1993
Deferred tax assets:
U.S. operating loss carryforwards $ 42,149 $ 25,846
State operating loss carryforwards 2,321 2,164
Capital loss carryforwards 1,804 2,062
Research and development tax credit carryforwards 1,370 1,210
Inventory reserves 2,781 10,222
Restructuring charges 239 4,360
Other items 5,826 6,414
------------ ------------
Subtotal 56,490 52,278
Valuation allowance (56,490) (52,278)
------------ ------------
Net deferred tax asset $ - $ -
============ ============
Due to the uncertainty surrounding the timing and realization of the
benefits of its favorable tax attributes in future years, the Company has
established a valuation allowance to offset its otherwise recognizable
deferred tax assets.
13. STOCK OPTIONS
The Company's stock option plan and restricted stock plan provide for the
issuance of up to 3,000,000 shares of common stock through the issuance of
incentive stock options to employees and nonqualified stock options and
restricted stock to employees, directors and consultants. Under the plans,
stock options or restricted stock may be granted at not less than fair
market value as determined by the Board of Directors. Stock options become
exercisable as established by the Board (generally ratably over five years)
and expire up to ten years from date of grant. The Company's right to
repurchase restricted stock lapses over a maximum period of five years. At
December 31, 1994 options for 488,733 shares were exercisable and options
for 1,334,805 shares were available for future grant. At December 31,
1994, no restricted stock under the restricted stock plan had been issued.
<PAGE>
Additional information with respect to the stock option plan is as
follows:
<TABLE>
<CAPTION>
Option Price
Number of Range Per Share
Options Low High Total
<S> <C> <C> <C> <C>
Outstanding, January 1, 1992 1,981,608 $1.880 - $13.00 $ 7,620,900
Granted 150,000 1.500 - 3.00 $ 315,000
Cancelled (1,161,208) 2.000 - 13.00 $(4,804,450)
----------- ------------
Outstanding, December 31, 1992 970,400 1.500 - 7.50 $ 3,131,450
Granted 535,583 0.875 - 4.75 1,045,093
Exercised (89,300) 0.875 - 3.00 (195,463)
Cancelled (222,500) 0.875 - 6.00 (831,625)
----------- ------------
Outstanding, December 31, 1993 1,194,183 0.875 - 7.50 3,149,455
Granted 289,500 2.250 - 7.00 1,467,750
Exercised (157,065) 0.875 - 6.25 (372,403)
Cancelled (18,160) 1.675 - 7.50 (93,980)
----------- ------------
Outstanding, December 31, 1994 1,308,458 $0.875 - $ 7.00 $ 4,150,822
=========== ============
</TABLE>
14. SEGMENT INFORMATION
The Company operates in one industry segment _ the design, sale and
servicing of consumer electronic products.
The Company's foreign operations at December 31, 1994 consist of sales and
distribution facilities in Europe. Transfers between geographic areas are
accounted for at amounts generally above cost and in accordance with the
rules and regulations of the respective governing tax authorities.
Corporate assets are primarily cash and equivalents and real estate held
for sale.
The following tables present a summary of operations by geographic region:
<TABLE>
<S> <C> <C> <C>
1994 1993 1992
Revenues from unaffiliated customers:
North America $ 22,854 $ 7,087 $ 19,359
Export sales from North America 8,538 - 2,745
Europe 7,052 18,548 98,439
Other - 3,170 6,797
--------- --------- ---------
Total $ 38,444 $ 28,805 $127,340
========= ========= =========
Transfer between geographic areas
(eliminated in consolidation):
North America 1,046 17,781 102,622
Europe 1,895 25,284 17,055
Other - 102 12,968
--------- --------- ---------
Total $ 2,941 $ 43,167 $132,645
========= ========= =========
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
1994 1993 1992
Operating income (loss):
North America $(21,600) $(14,025) $(50,051)
Europe (2,447) (19,741) (24,660)
Other (13,733) (4,297)
--------- --------- ---------
Total $(24,047) $(47,499) $(79,008)
========= ========= =========
Identifiable assets at December 31:
North America $ 37,627 $ 17,369 $ 14,450
Europe 1,650 5,801 53,727
Other - - 21,161
Corporate assets 91,765 51,663 49,170
--------- --------- ---------
Total $131,042 $ 74,833 $138,508
========= ========= =========
</TABLE>
15. COMMITMENTS AND CONTINGENT LIABILITIES
The Company leases various facilities and equipment under noncancellable
operating lease arrangements. These leases generally provide renewal
options of five additional years. Minimum future lease payments under
noncancellable operating leases as of December 31, 1994 are as follows (in
thousands):
1995 $ 1,192
1996 572
1997 333
1998 98
-------------
Total minimum lease payments $ 2,195
=============
Rent expense for operating leases was $1,218,000, $1,251,000 and $2,227,000
for the years 1994, 1993 and 1992, respectively.
Certain claims and suits arising in the ordinary course of business have
been filed or are pending against the Company. In the opinion of
management, all such matters have been adequately provided for, are without
merit, or are such that if settled unfavorably would not have a material
adverse effect on the Company's consolidated financial position and results
of operations.
* * * * *
<PAGE>
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information required by this Item is incorporated herein by reference to
the Company's definitive Proxy Statement for the 1995 annual meeting of
shareholders.
Item 11. EXECUTIVE COMPENSATION
Information required by this Item is incorporated herein by reference to
the Company's definitive Proxy Statement for the 1995 annual meeting of
shareholders.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information required by this Item is incorporated herein by reference to
the Company's definitive Proxy Statement for the 1995 annual meeting of
shareholders.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information required by this Item is incorporated herein by reference to
the Company's definitive Proxy Statement for the 1995 annual meeting of
shareholders.
Trademarks Used in This Form 10-K
"ATARI", and the Atari logo are registered trademarks of Atari Corporation.
"Jaguar", "Lynx" and "Tempest 2000" are trademarks of Atari Corporation.
"Mortal Kombat III" and "Defender 2000" are trademarks of Williams Entertainment
Company. "Batman Forever" is a trademark of DC Comics. "Frank Thomas `Big
Hurt' Baseball" and "NBA Jam Tournament Edition" are trademarks or registered
trademarks of, or licensed to, Acclaim Entertainment, Inc. "Highlander" is a
registered of Bohbot Communications. "Alien" and "Predator" are [TM] and O
Twentieth Century Fox Film Corporation. "Nintendo" and "Ultra 64" are
trademarks or registered trademarks of Nintendo Company, Ltd. "Sega", Genesis"
and "Saturn" are trademarks or registered trademarks of Sega Enterprises, Ltd.
"Sony" and "PlayStation" are trademarks or registered trademarks of Sony
Corporation. "3DO" is a registered trademark of The 3DO Company. All other
trademarks are the properties of their respective owners.
<PAGE>
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Documents filed as part of this Report:
1. Financial Statements.
The financial statements required to be filed hereunder are listed in
the accompanying Index to Consolidated Financial Statements and
Financial Statement Schedules on Page 15 hereof.
2. Financial Statement Schedules
The financial statement schedules required to be filed hereunder are
listed in the accompanying Index to Consolidated Financial Statements
and Financial Statement Schedules on Page 15 hereof.
3. Exhibits
The exhibits listed under Item 14(c) are filed as part of this annual
Report on Form 10-K.
(b) Reports on Form 8-K: None.
(c) Exhibits
Exhibit Notes Description
3.1 (1) Articles of Incorporation of Registrant, as filed May
17, 1984.
3.2 (1) Certificate of Amendment of Articles of Incorporation
as filed July 11, 1984.
3.3 (1) Certificate of Amendment of Articles of Incorporation,
as filed September 12, 1986.
3.4 (1) Amended and Restated Bylaws of Registrant.
4.1 (1) Form of Indenture.
0.1 (1) OEM Software License Agreement with Digital Research
(California) Inc., dated August 22, 1984.
0.2 (1) License Funding and Sale Agreement with Epyx Inc. dated
January 5, 1990.
0.3 (2) Hardware Technology Assignment and License Agreement
with Epyx Inc. dated June 3, 1989.
0.4 (2) Software Production and Distribution License Agreement
with Epyx Inc. dated June 3, 1989.
0.5 (2) Manufacturing Services Agreement with Epyx Inc. dated
June 21, 1989.
<PAGE>
Exhibit Notes Description
10.6 (2) OEM Purchase and Distribution Agreement with Epyx Inc.
dated June 12, 1989.
10.7 (1) Lease Agreement for 1196 Borregas Avenue, Sunnyvale,
California, dated July 1980, with Assignment to
Registrant.
10.8 (1) Industrial Lease Agreement for Warehouse at 360
Caribbean Drive, Sunnyvale, California, Dated May 10,
1986.
10.9 (1) Industrial Lease Agreement for Warehouse at 390
Caribbean Drive, Sunnyvale, California, Dated December
17, 1986.
10.10 (3) Agreement and Plan of Merger with The Federated Group,
Inc. dated August 28, 1987.
10.11 (2) Agreement for Sale of Assets dated November 8, 1989
among Silo California Inc., The Federated Group, Inc.
and Atari Corporation.
10.12 (1) Amended 1986 Stock Option Plan.
10.13 (1) Amended form of Incentive Stock Option Agreement.
10.14 (4) Amended Stock Option Plan.
10.15 (1) Memorandum of Agreement among Registrant, Jack Tramiel,
Atari Holdings, Inc., Productions et Editions
Cinematographiques Francais S.A.R.L., Atari
International (UK) Inc., Warner Communications Inc. and
certain subsidiaries of Atari Holdings, Inc., dated
August 29, 1986.
10.16 (1) Assets Purchase Agreement with Atari, Inc. and certain
subsidiaries and affiliates of Atari, Inc., dated July
1, 1984.
10.17 (1) Agreement with Atari, Inc. and Jack Tramiel, dated July
1, 1984.
10.18 (1) Intellectual Property Rights Heads of Agreement with
Atari, Inc., dated July 1, 1984.
10.19 (6) Agreement for Purchase and Sale of Real Estate-Taiwan.
10.20 (6) General Agreement of Sale - Irish Facility.
10.21 (7) Stock Purchase Agreement with Time Warner, Inc. dated
March 24, 1994.
10.22 (8) Stock Purchase Agreement with Sega Holdings USA, Inc.
dated September 26, 1994.
22.0 (5) Subsidiaries of the Company.
<PAGE>
(1) Incorporated by reference to the Company's Form S-1 Registration
Statement, Registration No. 33-12753, filed with the Commission
on July 2, 1987.
(2) Incorporated by reference to the Company's Annual Report on Form
10-K for the fiscal year ended December 31, 1989.
(3) Incorporated by reference to the Company's Form 14D-1 and 13D
Statement, filed with the Commission on August 28, 1987.
(4) Incorporated by reference to the Company's Proxy Statement
relating to its Annual Meeting of Shareholders held on May 16,
1989.
(5) Subsidiaries of the Company (see Page 42 hereof).
(6) Incorporated by reference to the Company's Annual Report on Form
10-K for the fiscal year ended December 31, 1991.
(7) Incorporated by reference to the Company's Quarterly Report on
Form 10-Q for the fiscal period ended March 31, 1994.
(8) Incorporated by reference to the Company's Quarterly Report on
Form 10-Q for the fiscal period ended September 30, 1994.
<PAGE>
SCHEDULE II
ATARI CORPORATION
VALUATION AND QUALIFYING ACCOUNTS
(Amounts in Thousands)
<TABLE>
<CAPTION>
Charged
Balance at to Costs Balance
Beginning and at End of
of Period Expenses Deductions Period
<S> <C> <C> <C> <C> <C>
December 31, 1992:
Allowance for doubtful accounts $3,975 $ 986 $ 2,428 (1) $2,533
Accrued sales returns and
allowances 2,627 3,560 1,887 (2) 4,300
December 31, 1993:
Allowance for doubtful accounts $2,533 $ 232 $ 2,293 (1) $ 472
Accrued sales returns and
allowances 4,300 457 4,181 (2) 576
December 31, 1994:
Allowance for doubtful accounts $ 472 $ 194 $ 72 (1) $ 594
Accrued sales returns and
allowances 576 1,563 776 (2) 1,363
</TABLE>
(1) Amounts written off, net
(2) Customer returns allowed
<PAGE>
EXHIBIT 22
SUBSIDIARIES OF THE COMPANY
Name Jurisdiction
Atari (Benelux) B.V. Holland
Atari Corp. (U.K.) Ltd. England
Atari Computer Corporation Nevada
<PAGE>
SIGNATURE
Pursuant to the requirements of Section 13 or 15(d) of the Securities and
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)
By: /S/ Jack Tramiel
-------------------------
Jack Tramiel
Chairman of the Board
/S/ Sam Tramiel
-------------------------
Sam Tramiel
President, Chief Executive Officer
and Director
/S/ Michael Rosenberg
-------------------------
Michael Rosenberg
Director
/S/ Leonard I. Schreiber
-------------------------
Leonard I. Schreiber
Director
/S/ August J. Liguori
-------------------------
August J. Liguori
Vice President, Treasurer,
Director and
Chief Accounting Officer
<PAGE>
CORPORATE DIRECTORY
DIRECTORS OFFICERS CORPORATE INFORMATION
JACK TRAMIEL JACK TRAMIEL TRANSFER AGENT
Chairman of the Board Chairman of the Board Registrar and Transfer Company
10 Commerce Drive
SAM TRAMIEL SAM TRAMIEL Cranford, NJ 07016
President President
Chief Executive Officer Chief Executive Officer AUDITORS
Deloitte & Touche LLP
MICHAEL ROSENBERG AUGUST J. LIGUORI 60 South Market Street,
Chairman & Vice President - Ste. 800
Chief Executive Finance, Treasurer San Jose, CA 95113
Officer-Ross & Roberts, Chief Financial Officer
Inc. Secretary ANNUAL MEETING
The Annual Meeting of
LEONARD I. SCHREIBER LAURI SCOTT Shareholders will be held on
Partner-Schreiber & Vice President - June 5, 1995 at 2:00p.m. at
McBride Technology the Atari Corporate Offices:
1196 Borregas Avenue
AUGUST J. LIGUORI LEONARD TRAMIEL Sunnyvale, CA 94089
Vice President - Vice President -
Finance, Treasurer Advanced Software FORM 10-K ANNUAL REPORT
Chief Financial Officer Development A copy of the Company's Annual
Report on Form 10-K (exclusive
DEAN FOX of exhibits) as filed with the
Senior Vice President - Securities and Exchange
Marketing Commission is included in this
report.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> DEC-31-1994
<CASH> 22,592
<SECURITIES> 58,432
<RECEIVABLES> 9,262
<ALLOWANCES> 0
<INVENTORY> 18,185
<CURRENT-ASSETS> 10,515
<PP&E> 12,056<F1>
<DEPRECIATION> 0
<TOTAL-ASSETS> 131,042
<CURRENT-LIABILITIES> 20,518<F2>
<BONDS> 43,454
<COMMON> 636
0
0
<OTHER-SE> 66,434<F3>
<TOTAL-LIABILITY-AND-EQUITY> 131,042
<SALES> 38,444
<TOTAL-REVENUES> 38,444
<CGS> 35,093
<TOTAL-COSTS> 62,491
<OTHER-EXPENSES> 35,745<F4>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (2,304)
<INCOME-PRETAX> 9,394
<INCOME-TAX> 0
<INCOME-CONTINUING> 9,394
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9,394
<EPS-PRIMARY> 0.16
<EPS-DILUTED> 0.16
<FN>
<F1>Includes PP&E (net) $1,315 and Real Estate held for Sale $10,741.
<F2>Includes Accounts Payable $15,341 and Accrued Liabilities $5,177.
<F3>Includes Paid in Capital $196,138; Accumulated Deficit $128,522;
Accumulated Tran. Adjustment $1,724; and Gain Market Securities $542.
<F4>Includes Litigation Settlement $32,062; Exchange Gain $1,184;
Other Income $484; and Interest Income $2,015.
</FN>
</TABLE>
