<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q/A
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTER ENDED MARCH 31, 1998
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 0-19032
ATMEL CORPORATION
(Registrant)
CALIFORNIA 77-0051991
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
2325 ORCHARD PARKWAY, SAN JOSE, CALIFORNIA 95131
(Address of principal executive offices)
(408) 441-0311
Registrant's telephone number
Indicate by a 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 [ ]
ON MARCH 31, 1998, REGISTRANT HAD OUTSTANDING 99,176,153 SHARES OF COMMON STOCK.
<PAGE> 2
ATMEL CORPORATION
FORM 10-Q
QUARTER ENDED MARCH 31, 1998
INDEX
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
PART I: FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets at March 31, 1998
and December 31, 1997 1
Condensed Consolidated Income Statements for the three
months ended March 31, 1998 and March 31, 1997 2
Consolidated Statements of Cash Flows for the three months
ended March 31, 1998 and March 31, 1997 3
Consolidated Statements of Comprehensive Income for the
three months ended March 31, 1998 and March 31, 1997 4
Notes to Condensed Consolidated Financial Statements 5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
PART II: OTHER INFORMATION
Item 1. Legal Proceedings 13
SIGNATURES 14
</TABLE>
-i-
<PAGE> 3
PART I: FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ATMEL CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
<TABLE>
<CAPTION>
March 31, 1998 December 31, 1997
-------------- -----------------
(Unaudited)
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 144,599 $ 174,310
Short-term investments 88,879 63,222
Accounts receivable 263,396 216,991
Inventories 190,324 124,336
Prepaid taxes and other current assets 96,297 119,358
---------- ----------
TOTAL CURRENT ASSETS 783,495 698,217
Other assets 51,800 42,338
Long-term investments 93,766 95,536
Fixed assets, net 1,049,120 985,949
---------- ----------
TOTAL ASSETS $1,978,181 $1,822,040
========== ==========
CURRENT LIABILITIES
Current portion of long-term debt $ 174,963 $ 67,522
Trade accounts payable and other accrued liabilities 319,342 290,890
Income taxes payable 21,301 0
Deferred income on shipments to distributors 28,411 25,256
---------- ----------
TOTAL CURRENT LIABILITIES 544,017 383,668
Long-term debt less current portion 610,954 571,389
Deferred income taxes 34,499 34,499
---------- ----------
TOTAL LIABILITIES 1,189,470 989,556
---------- ----------
Put warrants 58,930 46,050
---------- ----------
SHAREHOLDERS' EQUITY
Common stock and other 303,696 334,303
Retained earnings 426,085 452,131
---------- ----------
TOTAL SHAREHOLDERS' EQUITY 729,781 786,434
---------- ----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $1,978,181 $1,822,040
========== ==========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
-1-
<PAGE> 4
ATMEL CORPORATION
CONDENSED CONSOLIDATED INCOME STATEMENTS
(In thousands, except per-share data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-----------------------------
1998 1997
---------- ----------
<S> <C> <C>
NET REVENUES $ 260,392 $ 252,946
EXPENSES
Cost of sales 164,192 136,377
Research and development 36,659 29,171
Selling, general and administrative 27,826 25,943
Nonrecurring charges 32,241 0
---------- ----------
TOTAL EXPENSES 260,918 191,491
---------- ----------
OPERATING INCOME (LOSS) (526) 61,455
Interest and other expenses, net (4,443) (1,858)
---------- ----------
INCOME (LOSS) BEFORE TAXES (4,969) 59,597
Income tax provision 21,077 20,859
---------- ----------
NET INCOME (LOSS) $ (26,046) $ 38,738
========== ==========
BASIC NET INCOME (LOSS) PER SHARE $ (0.26) $ 0.39
========== ==========
DILUTED NET INCOME (LOSS) PER SHARE $ (0.26) $ 0.38
========== ==========
SHARES USED IN BASIC NET INCOME (LOSS) PER SHARE CALCULATIONS 99,127 99,038
========== ==========
SHARES USED IN DILUTED NET INCOME (LOSS) PER SHARE CALCULATIONS 99,127 101,505
========== ==========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
-2-
<PAGE> 5
ATMEL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-----------------------------
1998 1997
---------- ----------
<S> <C> <C>
CASH FROM OPERATING ACTIVITIES
Net income (loss) $ (26,046) $ 38,738
Items not requiring the use of cash
Depreciation and amortization 47,235 34,176
In-process research and development 32,241 0
Other 4,509 4,775
Changes in operating assets and liabilities
Accounts receivable (5,625) (19,588)
Inventories (34,032) (14,199)
Prepaid taxes and other assets 31,084 (6,426)
Trade accounts payable and other accrued liabilities (41,320) (3,743)
Income taxes payable 21,301 20,859
Deferred income on shipments to distributors 3,155 1,816
---------- ----------
NET CASH PROVIDED BY OPERATING ACTIVITIES 32,502 56,408
---------- ----------
CASH FROM INVESTING ACTIVITIES
Acquisition of fixed assets (75,936) (100,863)
Acquisition of other assets (12,534) (1,072)
Acquisition of Temic Telefunken Microelectronic (99,250) 0
Purchase of investments (147,782) (16,265)
Sale or maturity of investments 123,895 18,884
---------- ----------
NET CASH USED BY INVESTING ACTIVITIES (211,607) (99,316)
---------- ----------
CASH FROM FINANCING ACTIVITIES
Proceeds from capital leases and notes 189,426 69,329
Principal payments on capital leases and notes (26,462) (21,738)
Proceeds from settlement of warrants 0 4,425
Repurchase of stock (16,623) 0
Issuance of common stock 4,474 3,601
---------- ----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 150,815 55,617
---------- ----------
EFFECT OF FOREIGN CURRENCY TRANSLATION ADJUSTMENT (1,421) (6,810)
---------- ----------
NET CASH PROVIDED (USED) (29,711) 5,899
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 174,310 104,113
---------- ----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 144,599 $ 110,012
========== ==========
INTEREST PAID $ 8,682 $ 6,303
INCOME TAXES PAID $ 68 $ 2,115
FIXED ASSET PURCHASES IN ACCOUNTS PAYABLE $ 36,849 $ 70,907
PURCHASE OF CALL WARRANTS FROM PROCEEDS OF PUT WARRANTS $ 1,450 $ 0
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
-3-
<PAGE> 6
ATMEL CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-------------------------
1998 1997
-------- --------
<S> <C> <C>
Net income (loss) $(26,046) $ 38,738
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments (3,625) (4,427)
Unrealized gains on securities 44 (88)
-------- --------
Other comprehensive income (loss) (3,581) (4,515)
-------- --------
Comprehensive income (loss) $(29,627) $ 34,223
======== ========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
-4-
<PAGE> 7
ATMEL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1998
(In thousands, except per share data)
(Unaudited)
1. BASIS OF PRESENTATION AND ACCOUNTING POLICIES
These unaudited interim financial statements reflect all normal recurring
adjustments which are, in the opinion of management, necessary to present
fairly, in all material respects, the financial position of Atmel Corporation
(Company or Atmel) and its subsidiaries as of March 31, 1998 and the results of
operations and cash flows for the three month periods ended March 31, 1998 and
1997. Because all of the disclosures required by generally accepted accounting
principles are not included, these interim statements should be read in
conjunction with the audited financial statements and notes thereto in the
Company's Annual Report to Shareholders for the year ended December 31, 1997.
The year-end condensed balance sheet data was derived from the audited financial
statements and does not include all of the disclosures required by generally
accepted accounting principles. The income statements for the periods presented
are not necessarily indicative of results to be expected for any future period,
nor for the entire year.
2. INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out for materials
and purchased parts and average cost for work in progress) or market and
comprise the following:
<TABLE>
<CAPTION>
MARCH 31, 1998 DEC. 31, 1997
-------------- -------------
<S> <C> <C>
Materials and purchased parts $ 12,063 $ 10,527
Finished Goods 28,823 25,590
Work in progress 149,438 88,219
-------- --------
TOTAL $190,324 $124,336
======== ========
</TABLE>
3. NET INCOME (LOSS) PER SHARE
The Company has adopted the provisions of Statement of Financial Accounting
Standards No. 128, Earnings Per Share (SFAS 128) effective with the year ended
December 31, 1997. All prior period net income per-share amounts have been
restated to comply with SFAS 128 as well as the two-for-one stock splits paid on
April 11, 1994, and August 8, 1995.
In accordance with the disclosure requirements of SFAS 128, a reconciliation of
the numerator and denominator of basic and diluted net income (loss) per share
is provided as follows:
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-----------------------------
1998 1997
---------- ----------
<S> <C> <C>
Basic and diluted net income (loss) (numerator) $ (26,046) $ 38,738
========== ==========
</TABLE>
-5-
<PAGE> 8
<TABLE>
<S> <C> <C>
Shares used in basic net income (loss) per share calculations (denominator):
Weighted average shares of common stock outstanding 99,127 99,038
========== ==========
Shares used in diluted net income (loss) per share calculations (denominator):
Weighted average shares of common stock outstanding 99,127 99,038
Dilutive effect of stock options 0 2,467
---------- ----------
99,127 101,505
========== ==========
Basic net income (loss) per share $ (0.26) $ 0.39
========== ==========
Diluted net income (loss) per share $ (0.26) $ 0.38
========== ==========
</TABLE>
In January 1996, the Board of Directors of the Company approved a stock
repurchase program that allows the Company to repurchase up to 5,000 shares of
its common stock. The Board of Directors approved the repurchase of an
additional 5,000 shares in January 1998. The primary purpose of this stock
repurchase program is to increase shareholder value. In connection with this
program, the Company has entered into certain cash-less warrant transactions
(see Note 4 below) which provide the Company with the flexibility to implement
its repurchase plan without immediately impacting the Company's cash resources
needed for planned capital expenditures. Additionally, the Company has purchased
1,000 shares of its common stock during the three months ended March 31, 1998.
The average purchase price of the shares repurchased was $16.62 per share.
4. PUT WARRANTS
The Company has sold put warrants to an independent third party during the three
months ended March 31, 1998 and used the proceeds from the sale of the put
warrants to purchase call warrants in a cash-less transaction. The put warrants
entitle the holder to sell shares of the Company's common stock to the Company
at contractual prices. The call warrants entitle the Company to buy, at
contractual prices, from the same independent third party shares of the
Company's common stock. The outstanding put and call warrants, which expire
between May 1, 1998 and March 5, 1999, are exercisable at any time before
maturity and may be settled in cash, at the Company's option. The maximum
contractual repurchase obligation of $58,930 has been reclassified from
shareholders' equity to put warrants as of March 31, 1998. There was no impact
on basic and diluted net income per share in the three months ended March 31,
1998.
5. TEMIC ACQUISITION
On March 1, 1998, the Company acquired the integrated circuit business of Temic
Telefunken Mircoelectronic (Temic) of Hielbronn, Germany, a wholly owned
subsidiary of Daimler-Benz A.G., for approximately $99,250 cash. Temic designs,
manufactures and sells analog, microcontroller and ASIC products that service
the automotive, telecommunications, consumer and industrial markets. The
Company's operating results for the three months ended March 31, 1998 included
approximately one month of the results of Temic. The Company's consolidated
balance sheet as of March 31, 1998 reflects the final allocation of the purchase
price of Temic, which resulted in an increase in inventory, accounts receivable,
fixed assets and current liabilities. The Company allocated $32,241 of the
purchase price to purchased in-process research and development expense which
was included in the income statement for the first quarter of 1998, as
nonrecurring charges. At the time of acquisition, the technological feasibility
of the acquired in-process technology had not been established and the
-6-
<PAGE> 9
Company believes the technology has no alternative use. The Company intends to
develop the acquired technology; however, it is uncertain whether the Company
will be successful in this regard. If the development of the technology is
unsuccessful, the technology may be abandoned during the development phase.
The following unaudited pro forma summary presents the consolidated results of
operations as if the acquisition had occurred at the beginning of periods
presented and does not purport to be indicative of what would have occurred had
the acquisition been made as of the date or of results which may occur in the
future.
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-------------------------
1998 1997
-------- --------
<S> <C> <C>
Net revenues $303,123 $320,153
======== ========
Net income (loss) $(34,483) $ 33,776
======== ========
Diluted net income (loss) per share $ (0.35) $ 0.33
======== ========
</TABLE>
6. CONTINGENCIES
The Company is involved in certain patent related legal matters, in the ordinary
course of business. No provision for any liability that may result upon the
resolution of these matters has been made in the accompanying financial
statements nor is the amount or range of possible loss, if any, reasonably
estimable.
The Company was named as a defendant in a patent infringement lawsuit that was
filed on January 21, 1998. The plaintiff contends that certain of the Company's
devices infringe seven patents it allegedly owns and is seeking a judgment of
infringement for each of these asserted patents and other costs. The Company
settled the patent disputes and entered into a cross-license agreement with the
plaintiff in August 1998.
7. RECENT ACCOUNTING PRONOUNCEMENT
In April 1998, the American Institute of Certified Public Accountants issued
Statement of Position (SOP) 98-5, Reporting on the Costs of Start-Up Activities.
The SOP is effective for the Company's fiscal year ended December 31, 1999 and
will require the effect of adoption be reported as a cumulative effect of change
in accounting principle. The Company is studying the impact of this change of
accounting principle on its 1999 financial statements.
8. SUBSEQUENT EVENT
In April 1998, the Company completed a zero coupon convertible debt financing,
which raised approximately $115,000. The debt is convertible, at the option of
the holder, into the Company's common stock at the rate of 13.983 shares per
$1,000 principal amount at maturity of the debt. The effective interest rate of
the debt is 5.5 percent per annum. The net proceeds were used to repay a
short-term loan of approximately $110,000 with Nationsbank which was originally
borrowed to finance the acquisition of Temic. The debt is not redeemable by the
Company prior to April 21, 2003. Thereafter, the debt will be redeemable for
cash, at the option of the Company in whole at any time or
-7-
<PAGE> 10
in part from time to time at redemption prices equal to the issue price plus
accrued interest. At the option of the holder as of April 21, 2003, 2008 and
2013, the Company may be required to redeem the debt at prices equal to the
issue price plus accrued interest. The Company may, at its option, elect to
redeem the debt for cash or common stock of the Company, or any combination
thereof.
9. COMPREHENSIVE INCOME
The Company has adopted the provisions of Statement of Financial Accounting
Standards No. 130, Reporting Comprehensive Income (SFAS 130), effective with its
1998 fiscal year. The income tax effect of each element of comprehensive income
for the three months ended March 31, 1998 is as follows:
<TABLE>
<CAPTION>
Tax
Before-Tax (Expense) Net-of-Tax
Amount or Benefit Amount
---------- ---------- ----------
<S> <C> <C> <C>
Foreign currency translation adjustments $(5,578) $ 1,953 $(3,625)
------- ------- -------
Unrealized gain on securities 69 (25) 44
------- ------- -------
Other comprehensive income $(5,509) $ 1,928 $(3,581)
======= ======= =======
</TABLE>
The accumulated balances of other comprehensive income at March 31, 1998 are
summarized as follows:
<TABLE>
<CAPTION>
Current
Beginning Period Ending
Balance Change Balance
--------- -------- --------
<S> <C> <C> <C>
Foreign currency translation adjustments $ (6,449) $ (3,625) $(10,074)
Unrealized gain (loss) on securities (654) 44 (610)
-------- -------- --------
$ (7,103) $ (3,581) $(10,684)
======== ======== ========
</TABLE>
10. NONRECURRING CHARGES
The $32,241 of nonrecurring charges represents the allocation of purchase price
of the Temic acquisition to in-process research and development expense. See
Note 5 above.
-8-
<PAGE> 11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
Investors are cautioned that certain statements in this Form 10-Q are forward
looking statements that involve risks and uncertainties. Words such as
"expects," "anticipates," "intends," "plans," "believes," "seeks," "estimates,"
and variations of such words and similar expressions are intended to identify
such forward looking statements. These statements are based on current
expectations and projections about the semiconductor industry and assumptions
made by the management and are not guarantees of future performance. Therefore,
actual events and results may differ materially from those expressed or
forecasted in the forward looking statements due to factors such as the effect
of changing economic conditions, material changes in currency exchange rates,
conditions in the overall semiconductor market (including the historic
cyclicality of the industry), continued financial turmoil in the Asian markets,
risks associated with product demand and market acceptance risks, the impact of
competitive products and pricing, delays in new product development,
manufacturing capacity utilization, product mix and technological risks and
other risk factors identified in the Company's filings with the Securities and
Exchange Commission, including the Company's Form 10-K Report. The Company
undertakes no obligation to update any forward looking statements in this Form
10-Q.
The following table sets forth for the periods indicated certain operating data
as a percentage of net revenues:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
----------------------
1998 1997
------ ------
<S> <C> <C>
NET REVENUES 100.0 % 100.0 %
EXPENSES
Cost of sales 63.0 53.9
Research and development 14.1 11.5
Selling, general and administrative 10.7 10.3
Nonrecurring charges 12.4 0.0
------ ------
TOTAL EXPENSES 100.2 75.7
OPERATING INCOME (LOSS) (0.2) 24.3
Interest and other expense, net (1.7) (0.7)
------ ------
INCOME (LOSS) BEFORE TAXES (1.9) 23.6
Income tax provision 8.1 8.2
------ ------
NET INCOME (LOSS) (10.0)% 15.4%
====== ======
</TABLE>
NET REVENUES
The Company's net revenues by geographic areas for the three-month periods
ended March 31, 1998 and 1997 are summarized as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
----------------------------
1998 1997
-------- --------
<S> <C> <C>
North America $ 94,315 $ 95,766
Europe 100,358 78,021
Asia 102,605 104,071
Elimination (36,886) (24,912)
-------- --------
Total $260,392 $252,946
======== ========
</TABLE>
Net revenues increased 2.9 percent to $260.4 million in the quarter ended March
31, 1998 from $252.9 million in the corresponding quarter of 1997. This moderate
increase was primarily attributable to the inclusion of revenues from Temic's
integrated business ($22.5 million), a recent acquisition by the Company. See
Note 5 (Temic Acquisition) in Notes to Condensed Financial Statements for a
discussion on Temic acquisition.
-9-
<PAGE> 12
Excluding the revenue contribution from Temic, net revenues for the first
quarter ended March 31, 1998 would have decreased by approximately 5.0 percent
compared to the corresponding quarter of 1997. The decrease was primarily due to
the continued excess manufacturing capacity in the semiconductor industry. The
excess capacity led to abnormal price erosion for the Company's non-volatile
memory products from which the Company derived more than half of its revenues in
the first quarter of 1998. The Company's quarterly revenues and operating
results have become increasingly dependent upon orders booked and shipped within
a given quarter. To the extent this trend continues, the Company's quarterly
results will be less predictable and subject to greater variability.
In recent years, the Company has significantly expanded its international
operations, most recently through its acquisition of Temic. International sales
and operations are subject to a variety of risks, including those arising from
currency fluctuations, tariffs, trade barriers, taxes, export license
requirements and foreign government regulations. Because most of the Company's
foreign sales are denominated in U.S. dollars, the Company's products become
less price competitive in countries with currencies declining in value against
the dollar. In particular, the Company's operating results for the first quarter
of 1998 were adversely impacted in part by a strengthening of the U.S. dollar
against local currencies in the markets in which the Company sells products.
There can be no assurance that the Company will not experience similar adverse
effects in the future. In addition, the continuance or worsening of the adverse
business and financial conditions in Asia, where more than 35.0 percent of the
Company's revenues are generated, would likely have a material adverse effect on
the Company's operating results in the future.
The semiconductor industry has historically been cyclical, characterized by wide
fluctuations in product supply and demand. From time to time, the industry has
also experienced significant downturns, characterized by diminished product
demand, production overcapacity and subsequent accelerated erosion of average
selling-prices. The commodity memory portion of the semiconductor industry, from
which the Company derives more than half of its revenues, has continued to
suffer from excess capacity during 1998. If these conditions continue, the
Company's growth and results of operations would be adversely affected.
The Company's continued success will depend in large part on the continued
growth of various electronics industries that use semiconductors, including
manufacturers of computers, telecommunications equipment, automotive
electronics, industrial controls, consumer electronics equipment and military
equipment. The Company's success will also depend upon a better supply and
demand balance within the industry. While the Company experienced rapid revenues
and net income growth from 1994 through 1996, there can be no assurance that
this growth will resume in future periods, as was evidenced in 1997 and 1998.
COST OF SALES
Cost of sales as a percentage of net revenues increased to 63.0 percent in the
first quarter of 1998, from 53.9 percent in the corresponding period of 1997.
The increase in cost of sales as a percentage of net revenues was primarily due
to excess manufacturing capacity resulting from increases in fixed costs
associated with the expansion of wafer fabrication facilities in Colorado
Springs, Colorado and Rousset, France, lower product margins in many of the
Company's non-volatile memory products and the inclusion of $16.5 million of
additional cost of sales from Temic. The lower product margins were attributable
to a smaller revenue base over which to spread fixed costs and the erosion of
average selling prices that were not matched with a corresponding decrease in
manufacturing cost.
The Company expects competitive pressures to increase in its markets from
existing companies and new entrants, which among other things could further
accelerate the trend of such decreasing average selling price. Accordingly,
there can be no assurance that the Company will be able to sustain its recent
gross margins. The Company has lowered its capital expenditure plan in 1998 and
will focus on implementing chemical, mechanical planarization (CMP), 0.35-micron
and 0.25-micron technologies in its wafer manufacturing facilities.
Implementation of these technologies will enable the Company to achieve cost
reductions through die shrinks. However, production delays, difficulties in
achieving acceptable yields at its Colorado Springs or its Rousset facility or
overcapacity could materially and adversely affect the Company's gross margin
and future operating results.
RESEARCH AND DEVELOPMENT
As a percentage of net revenues, research and development cost increased to 14.1
percent in the first quarter of 1998, from 11.5 percent in the corresponding
quarter of 1997. Research and development expense increased 25.7 percent from
$29.2 million in the first quarter of 1997 to $36.7 million in the
-10-
<PAGE> 13
first quarter of 1998. The increase was primarily due to the Company's continued
investment in the shrinking of the die size of its integrated circuits from
0.65-micron to 0.5-micron line widths, enhancement of mature products,
development of new products, advanced CMOS process technology, manufacturing
improvements, the costs associated with increasing production capacity in
Colorado Springs and Rousset and the inclusion of Temic's research and
development expense. The Company believes that continued investment in process
technology and product development are essential for it to remain competitive in
the markets it serves and is committed to high levels of expenditures for
research and development.
SELLING, GENERAL AND ADMINISTRATIVE
Selling, general and administrative expenses increased by 7.3 percent to $27.8
million in the first quarter of 1998 from $25.9 million in the first quarter of
1997. The increase was largely due to headcount increases in both domestic and
foreign operations, legal costs related to patent infringement lawsuit and the
inclusion of Temic's selling, general and administrative expense. As a
percentage of net revenues, selling, general and administration expenses were
10.7 percent for the first quarter of 1998 and 10.3 percent for the
corresponding quarter of 1997. The Company expects selling general and
administrative expenses to increase due primarily to expansions in international
markets, legal costs associated with intellectual property litigation and
provision for doubtful accounts receivable. The provision for doubtful accounts
receivable may increase as the Company continues to evaluate the status of its
accounts receivable. The increase will likely be due to the aging of accounts
receivable, an anticipated increase in the accounts receivable balance,
continued weakened business conditions and less financially strong customers.
NONRECURRING CHARGES
The Company allocated $32.2 million of the purchase price of Temic to in-process
research and development expense in connection with the Temic acquisition. See
Note 5 (Temic Acquisition) in Notes to Condensed Consolidated Financial
Statements. At the date of acquisition, the technological feasibility of the
acquired in-process technology had not been established. The Company intends to
develop the acquired technology and expects to incur between $10.0 and $20.0
million per year in development costs. If the development is successful, this
technology will allow wireless communication devices to communicate at higher
frequencies and at a lower cost than is currently available with other
technologies. The Company anticipates the development will be completed and
benefits will begin in the 2000-2001 time frame.
INTEREST AND OTHER EXPENSES, NET
The Company reported $4.4 million of net interest and other expenses for the
first quarter of 1998, compared to $1.9 million of net interest and other
expenses for the corresponding period of 1997. The increase in net interest and
other expenses was primarily due to a combination of higher interest expense
associated with the increase in borrowings used to finance the expansion of the
Company's fabrication facilities in Colorado Springs, and Rousset, to finance
the acquisition of Temic during the first quarter of 1998 offset by a portion of
interest expense capitalized in the first quarter of 1997 in connection with the
construction of the Company's fabrication facility in Rousset.
INCOME TAX PROVISION
The Company's effective tax rate was 35.0 percent for the three months ended
March 31, 1997 and 424.0 percent for the three months ended March 31, 1998. The
increase was attributable to certain items associated with the acquisition of
Temic, including the write-off of in-process research and development expense.
For the remainder of 1998, the Company plans to use the tax rates of 40 percent
and 30 percent for Temic and the rest of the Company's consolidated entities.
NET INCOME (LOSS)
Net loss of $26.0 million for the first quarter of 1998 decreased by 167.2
percent from $38.8 million in the corresponding period of the prior year. The
decrease was primarily due to the $32.2 million write-off of in-process research
and development purchased in connection with the Temic acquisition and the
increase in tax expense.
-11-
<PAGE> 14
RISKS ASSOCIATED WITH TEMIC ACQUISITION
The Company acquired Temic on March 1, 1998. While the Company believes the
Temic acquisition is in the best interest of the Company and its shareholders,
there can be no assurance that management of the Company will be successful in
its efforts to integrate the operations of Temic. There are significant risks
associated with the Temic acquisition, including but not limited to difficulties
in integration of product offerings, manufacturing operations and coordination
of sales and marketing and research and development efforts. The difficulties of
Temic integration may be increased by the necessity of coordinating
geographically separated organizations, the complexity of the technologies being
integrated and the necessity of integrating personnel with disparate business
backgrounds and combining two corporate cultures. The integration of operations
following Temic acquisition requires the dedication of management resources that
may distract attention from day-to-day business and may disrupt key research and
development, marketing or sales efforts. The inability of management to
successfully integrate the Temic acquisition could have a material adverse
effect on the business, operating results and financial condition of the
Company.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1998, the Company had $233.5 million in cash and short-term
investments, a decrease of $4.1 million from December 31, 1997, and $239.5
million in net working capital, a decrease of $75.1 million from December 31,
1997. At March 31, 1998, the Company also had long-term investments of $93.8
million, a decrease of $1.8 million from December 31, 1997. These investments
consisted of United States government obligations and state and municipal
securities.
During the three months ended March 31, 1998, net cash used by operations was
$32.5 million. Net cash used in investments was $211.6 million, due to
acquisitions of fixed and other assets of $88.5 million, investment in Temic of
$99.3 million, purchases of marketable securities of $147.8 million, offset by
sale of marketable securities of $123.9 million. Net cash provided from
financing activities was $150.8 million, due to funding from capital leases and
bank borrowings of $189.4 million and proceeds from stock issuance of $4.5
million, offset by payments of capital leases and notes payable of $26.5 million
and payments of $16.6 million for the repurchase of one million shares of the
Company's common stock. The $189.4 million of capital lease and bank borrowings
included a $110.0 million of short-term loan from Nationsbank which was used to
finance the acquisition of Temic. This short-term loan with Nationsbank was
subsequently repaid from the net proceeds received in connection with the zero
coupon convertible debt financing completed in April 1998. See Note 8
(Subsequent Event) in Notes to Condensed Financial Statements.
The Company believes that its existing sources of liquidity, together with cash
flows from operations, leasing financing on equipment and other short- and
medium-term bank borrowing, will be sufficient to meet the Company's liquidity
and capital requirements through 1998. The Company may, however, seek additional
equity or debt financing to fund the expansion of its wafer fabrication capacity
or other projects; the timing and amount of such capital requirements cannot be
precisely determined at this time. There can be no assurance that such financing
would be available in amounts or terms acceptable to the Company.
-12-
<PAGE> 15
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company was named as a defendant in a patent infringement lawsuit that was
filed on January 21, 1998. The plaintiff contends that certain of the Company's
devices infringe seven patents it allegedly owns and is seeking a judgment of
infringement for each of these asserted patents and other costs. The Company
settled the patent disputes and entered into a cross-license agreement with the
plaintiff in August 1998.
-13-
<PAGE> 16
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.
ATMEL CORPORATION
----------------------------------
(Registrant)
SEPTEMBER 28, 1998 /s/ GEORGE PERLEGOS
----------------------------------
GEORGE PERLEGOS
President, Chief Executive Officer
(Principal Executive Officer)
SEPTEMBER 28, 1998 /s/ DONALD COLVIN
----------------------------------
DONALD COLVIN
Chief Financial Officer and
Vice President, Finance
(Principal Financial and
Accounting Officer)
-14-
<PAGE> 17
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------ -----------
<S> <C>
27.1 Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<RESTATED>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 144,599
<SECURITIES> 88,879
<RECEIVABLES> 293,516
<ALLOWANCES> 30,120
<INVENTORY> 190,324
<CURRENT-ASSETS> 783,495
<PP&E> 1,447,417
<DEPRECIATION> 398,297
<TOTAL-ASSETS> 1,978,181
<CURRENT-LIABILITIES> 544,017
<BONDS> 610,954
0
0
<COMMON> 303,696
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 1,978,181
<SALES> 260,392
<TOTAL-REVENUES> 260,392
<CGS> 164,192
<TOTAL-COSTS> 260,918
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 123
<INTEREST-EXPENSE> 10,880
<INCOME-PRETAX> (4,969)
<INCOME-TAX> 21,077
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (26,046)
<EPS-PRIMARY> (0.26)
<EPS-DILUTED> (0.26)
</TABLE>
