<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 JUNE 30, 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 JUNE 30, 1998, REGISTRANT HAD OUTSTANDING 99,239,218 SHARES OF COMMON STOCK.
<PAGE> 2
ATMEL CORPORATION
FORM 10-Q/A
QUARTER ENDED JUNE 30, 1998
INDEX
<TABLE>
<CAPTION>
PAGE
PART I: FINANCIAL INFORMATION
<S> <C> <C>
Item 1. Financial Statements
Condensed Consolidated Balance Sheets at June 30, 1998 and December 31,
1997 1
Condensed Consolidated Income Statements for the three and six months
ended June 30, 1998 and June 30, 1997 2
Consolidated Statements of Cash Flows for the six months ended June 30,
1998 and June 30, 1997 3
Consolidated Statements of Comprehensive income for the three and six
months ended June 30, 1998 and June 30, 1997 4
Notes to Condensed Consolidated Financial Statements 5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10
PART II: OTHER INFORMATION
Item 1. Legal Proceedings 15
Item 4. Submission of Matters to a Vote of Security Holders 15
Item 6. Exhibits and Reports on Form 8-K 15
SIGNATURES 16
</TABLE>
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<PAGE> 3
PART I: FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ATMEL CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
<TABLE>
<CAPTION>
JUNE 30, 1998 DECEMBER 31, 1997
------------- -----------------
(UNAUDITED)
CURRENT ASSETS:
<S> <C> <C>
Cash and cash equivalents $ 117,026 $ 174,310
Short-term investments 66,027 63,222
Accounts receivable, net 254,281 216,991
Inventories 214,381 124,336
Other current assets 115,772 119,358
---------- ----------
TOTAL CURRENT ASSETS 767,487 698,217
Other assets 79,551 42,338
Long-term investments 133,791 95,536
Fixed assets, net 970,955 985,949
---------- ----------
TOTAL ASSETS $1,951,784 $1,822,040
========== ==========
CURRENT LIABILITIES:
Current portion of long-term debt $ 76,212 $ 67,522
Trade accounts payable and other accrued liabilities 313,067 290,890
Income taxes payable 11,891 0
Deferred income on shipments to distributors 33,576 25,256
---------- ----------
TOTAL CURRENT LIABILITIES 434,746 383,668
Convertible notes 266,058 150,000
Long-term debt less current portion 483,053 421,389
Other long-term liabilities 19,063 34,499
---------- ----------
TOTAL LIABILITIES 1,202,920 989,556
---------- ----------
Put warrants 69,730 46,050
---------- ----------
SHAREHOLDERS' EQUITY:
Common stock 297,517 334,303
Retained earnings 381,617 452,131
---------- ----------
TOTAL SHAREHOLDERS' EQUITY 679,134 786,434
---------- ----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $1,951,784 $1,822,040
========== ==========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements
-1-
<PAGE> 4
ATMEL CORPORATION
CONDENSED CONSOLIDATED INCOME STATEMENTS
(In thousands, except per-share data)
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
1998 1997 1998 1997
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
NET REVENUES: $ 288,205 $ 224,936 $ 548,597 $ 477,882
EXPENSES:
Cost of sales 195,975 125,900 360,167 262,277
Research and development 43,394 29,357 80,053 58,528
Selling, general and administrative 39,115 24,361 66,941 50,304
Nonrecurring charges 70,000 0 102,241 0
--------- --------- --------- ---------
TOTAL EXPENSES 348,484 179,618 609,402 371,109
--------- --------- --------- ---------
Operating income (loss) (60,279) 45,318 (60,805) 106,773
Other expenses, net (9,338) (3,156) (13,781) (5,014)
--------- --------- --------- ---------
Income (loss) before taxes (69,617) 42,162 (74,586) 101,759
Income tax provision (benefit) (25,149) 14,754 (4,072) 35,613
--------- --------- --------- ---------
NET INCOME (LOSS) $ (44,468) $ 27,408 $ (70,514) $ 66,146
========= ========= ========= =========
BASIC NET INCOME (LOSS) PER SHARE $ (0.45) $ 0.28 $ (0.71) $ 0.67
========= ========= ========= =========
DILUTED NET INCOME (LOSS) PER SHARE $ (0.45) $ 0.27 $ (0.71) $ 0.65
========= ========= ========= =========
SHARES USED IN BASIC NET INCOME (LOSS) PER-SHARE
CALCULATION 99,223 99,354 99,136 99,251
========= ========= ========= =========
SHARES USED IN DILUTED NET INCOME (LOSS) PER-SHARE
CALCULATION 99,223 102,625 99,136 102,522
========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
-2-
<PAGE> 5
ATMEL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
1998 1997
--------- ---------
<S> <C> <C>
CASH FROM OPERATING ACTIVITIES
Net income (loss) $ (70,514) $ 66,146
Items not requiring the use of cash
Depreciation and amortization 100,697 70,660
Write-down of fixed assets 65,000 0
Other (2,142) 9,939
Changes in operating assets and liabilities
Accounts receivable 7,434 (40,532)
Inventories (58,217) (32,725)
Other current assets 16,074 (12,674)
Trade accounts payable and other accrued liabilities (24,210) (55,161)
Income taxes payable 11,891 2,598
Deferred income on shipments to distributors 8,320 (723)
--------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES 54,333 7,528
--------- ---------
CASH FROM INVESTING ACTIVITIES
Acquisition of fixed assets (123,178) (181,709)
Acquisition of other assets (24,946) (2,510)
Acquisition of Temic Telefunken Microelectronic (99,250) 0
Purchase of investments (183,107) (34,904)
Sale or maturity of investments 142,047 37,716
--------- ---------
NET CASH USED BY INVESTING ACTIVITIES (288,434) (181,407)
--------- ---------
CASH FROM FINANCING ACTIVITIES
Proceeds from issuance of convertible bonds 115,004 150,000
Proceeds from capital leases, short-term loan and notes 228,908 136,234
Principal payments on capital leases, short-term loan and notes (154,480) (43,697)
Proceeds from settlement of warrants 0 4,425
Repurchase of stock (16,623) 0
Issuance of Common Stock 4,813 7,723
--------- ---------
NET CASH PROVIDED BY FINANCING ACTIVITIES 177,622 254,685
--------- ---------
EFFECT OF FOREIGN CURRENCY TRANSLATION ADJUSTMENT (805) (12,309)
--------- ---------
NET CASH PROVIDED (USED) (57,284) 68,497
CASH AT BEGINNING OF PERIOD 174,310 104,113
--------- ---------
CASH AT END OF PERIOD $ 117,026 $ 172,610
========= =========
INTEREST PAID $ 18,693 $ 12,495
INCOME TAXES PAID $ 642 $ 29,748
FIXED ASSET PURCHASES IN ACCOUNTS PAYABLE $ 13,071 $ 30,548
PURCHASE OF CALL WARRANTS FROM PROCEEDS OF PUT WARRANTS $ 4,450 $ 2,088
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
-3-
<PAGE> 6
ATMEL CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
1998 1997 1998 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net income (loss) $(44,468) $ 27,408 $(70,514) $ 66,146
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments 2,783 (3,574) (842) (8,001)
Unrealized gains (losses) on securities (71) (129) (27) (217)
-------- -------- -------- --------
Total other comprehensive income (loss) 2,712 (3,703) (869) (8,218)
-------- -------- -------- --------
Comprehensive income (loss) $(41,756) $ 23,705 $(71,383) $ 57,928
======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
-4-
<PAGE> 7
ATMEL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998
(In thousands)
(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 June 30, 1998 and the results of
operations and cash flows for the three month and six month periods ended June
30, 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.
<TABLE>
<CAPTION>
JUNE 30, 1998 DEC. 31, 1997
------------- -------------
<S> <C> <C>
Materials and purchased parts $ 19,605 $ 10,527
Finished Goods 31,465 25,590
Work in progress 163,311 88,219
-------- --------
TOTAL $214,381 $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 per share is
provided as follows:
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<PAGE> 8
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1998 1997 1998 1997
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Numerator:
Basic and diluted net income (loss) $ (44,468) $ 27,408 $ (70,514) $ 66,146
========= ========= ========= =========
Denominator:
Shares used in basic net income per share calculations
Weighted average shares of common stock outstanding 99,223 99,354 99,136 99,251
========= ========= ========= =========
Shares used in diluted net income per share calculations
Weighted average shares of common stock outstanding 99,223 99,354 99,136 99,251
Dilutive effect of stock options 0 3,271 0 3,271
--------- --------- --------- ---------
99,223 102,625 99,136 102,522
========= ========= ========= =========
Basic net income (loss) per share $ (0.45) $ 0.28 $ (0.71) $ 0.67
========= ========= ========= =========
Diluted net income (loss) per share $ (0.45) $ 0.27 $ (0.71) $ 0.65
========= ========= ========= =========
</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
which provide the Company with the flexibility to implement its repurchase plan,
under which the Company could repurchase its stock when favorable market
conditions existed and without immediately impacting the Company's cash
resources. In addition, the Company paid approximately $16,600 in cash to
repurchase 1,000 shares of its common stock in January 1998.
4. PUT WARRANTS
The Company has sold put warrants to an independent third party during the six
months ended June 30, 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 October 26, 1998 and May 4, 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 $69,730 has been reclassified from
shareholders' equity to put warrants as of June 30, 1998. There was no impact on
basic and diluted net income per share in the six months ended June 30, 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 $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 six months ended June 30, 1998 included approximately four
months of the results of Temic, which included $95,002 of net revenues. The
Company's consolidated balance sheet
-6-
<PAGE> 9
as of June 30, 1998 reflects the final allocation of the purchase price of
Temic, which resulted in an increase in inventory, accounts receivable, fixed
assets, current and long-term liabilities. The Company allocated $32,241 of the
purchase price to purchased in-process research and development expense, which
was charged against earnings for the first quarter of 1998. At the date of the
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 $10,000 and $20,000 per year in development costs
for the next two to three years. 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 that a CMOS like silicon germanium process
will begin to be incorporated into the Company's products in the year
2000 - 2002 time frame.
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 do 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>
Six Months Ended
June 30,
1998 1997
--------- ---------
<S> <C> <C>
Net revenues $ 591,706 $ 616,983
========= =========
Net income (loss) $ (79,024) $ 57,390
========= =========
Diluted Net income (loss) per share $ (0.80) $ 0.56
========= =========
</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 contended that certain of the Company's
devices infringe seven patents it allegedly owns and was seeking a judgment of
infringement for each of these asserted patents and other costs. The amount of
judgment sought by the plaintiff was not specified in the lawsuit. 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. Upon adoption of the SOP, the Company expects to record
a charge against earnings. At June 30, 1998, start-up costs of $38,661 was
reported as other assets.
In June of 1998, the Financial Accounting Standards Board issued Statement of
Financial Standards No. 133 (SFAS 133), Accounting for Derivative Instruments
and Hedging Activities, which establishes accounting and reporting standards
for derivative instruments, and for hedging activities. It requires that an
entity recognize all derivatives as either assets or liabilities in the
statement of financial position and measure those instruments at fair value.
The Company has not yet evaluated the effects of this change on its operations.
The Company will adopt SFAS 133 as required for its first quarterly filing of
fiscal year 2000.
8. ZERO COUPON CONVERTIBLE DEBT
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 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.
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<PAGE> 10
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
is summarized as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, 1998
Tax
Before-Tax (Expense) Net-of-Tax
Amount or Benefit Amount
---------- ---------- ----------
<S> <C> <C> <C>
Foreign currency translation adjustments $ 4,282 $(1,499) $ 2,783
------- ------- -------
Unrealized gain (loss) on securities (110) 39 (71)
------- ------- -------
Other comprehensive income $ 4,172 $(1,460) $ 2,712
======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, 1998
Tax
Before-Tax (Expense) Net-of-Tax
Amount or Benefit Amount
---------- ---------- ----------
<S> <C> <C> <C>
Foreign currency translation adjustments $(1,296) $ 454 $ (842)
------- ------- -------
Unrealized gain (loss) on securities (41) 14 (27)
------- ------- -------
Other comprehensive income $(1,337) $ 468 $ (869)
======= ======= =======
</TABLE>
The accumulated balances of other comprehensive income at June 30, 1998 are
summarized as follows:
<TABLE>
<CAPTION>
Current
Beginning Period Ending
Balance Change Balance
--------- -------- --------
<S> <C> <C> <C>
Foreign currency translation adjustments $(6,449) $ (842) $(7,291)
Unrealized gain (loss) on securities (654) (27) (681)
------- ------- -------
$(7,103) $ (869) $(7,972)
======= ======= =======
</TABLE>
10. NONRECURRING CHARGES
During the second quarter of fiscal 1998, the Company announced a restructuring
plan which included a 10 percent work force reduction and the write-down of
certain manufacturing equipment and machinery with older process technology. The
program is primarily aimed at focusing the Company's business processes,
attaining cost efficiencies and increasing manufacturing flexibility. The
majority of the 10 percent of employees to be terminated will be factory workers
in the Company's manufacturing facilities located in the U.S. and Europe. The
restructuring and nonrecurring charges of $70,000 included a provision of $5,000
for severance costs which are anticipated to be paid primarily in the second
half of fiscal 1998.
-8-
<PAGE> 11
As the Company continued to move toward production with 0.35-micron technology,
the Company recognized an impairment charge of $65,000 relating to manufacturing
equipment with 0.65-micron and 0.5-micron technologies. The decision to
accelerate implementation of 0.35-micron technology was prompted by the
continued price erosion of the Company's Flash memory products, and weakening
business conditions for its EPROM products have further negatively affected the
Company's gross margin. In making its decision, the Company examined the
relationship between the costs of fixed assets in its Colorado manufacturing
facility and the projected revenues produced from these assets during the next
three years, and concluded that the gross margin of its products would decline
rapidly based upon the continued price erosion and maturity of its products.
Accordingly, the Company decided to move toward more advanced manufacturing
processes using 0.35-micron technology in its Colorado facility, in an effort to
maintain its revenues and reduce its costs. However, due to the current
depressed state of the average selling prices for the semiconductor memory
products, even the additional output per wafer does not provide a positive gross
margin (without reducing depreciation charges from the manufacturing equipment).
The Company recognized the impairment charge when the future undiscounted cash
flows of each asset were estimated to be insufficient to recover its related
carrying value. At such time, the carrying values of these assets were written
down to the Company's estimates of fair value and will continue to be
depreciated over their remaining useful lives. Fair value was based on sales of
similar assets or other estimates of fair value such as estimated future cash
flows. The Company does not anticipate significant proceeds from disposal. None
of the assets affected by this action are currently held for sale.
-9-
<PAGE> 12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND 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.
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated certain operating data
as a percentage of net revenues:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
1998 1997 1998 1997
------ ------ ------ ------
<S> <C> <C> <C> <C>
NET REVENUES 100.0 % 100.0 % 100.0% 100.0%
EXPENSES
Cost of sales 67.9 56.0 65.7 54.9
Research and development 15.1 13.1 14.6 12.2
Selling, general and administrative 13.6 10.8 12.2 10.5
Nonrecurring charges 24.3 0.0 18.6 0.0
----- ----- ----- -----
TOTAL EXPENSES 120.9 79.9 111.1 77.7
OPERATING INCOME (LOSS) (20.9) 20.1 (11.1) 22.3
Other income (expense), net (3.2) (1.4) (2.5) (1.0)
----- ----- ----- -----
INCOME (LOSS) BEFORE TAXES (24.1) 18.7 (13.6) 21.3
Income tax provision (benefit) (8.7) 6.6 (0.7) 7.5
----- ----- ----- -----
NET INCOME (LOSS) (15.4)% 12.1 % (12.9)% 13.8 %
===== ===== ===== =====
</TABLE>
NET REVENUES
The Company's net revenues by geographic destinations for the three-month and
six-month periods ended June 30, 1998 and 1997 are summarized as follows:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
North America $ 76,806 $ 92,733 $171,121 $188,499
Europe 144,675 57,355 245,033 135,376
Asia 110,972 97,032 213,577 201,103
Elimination (44,248) (22,184) (81,134) (47,096)
-------- -------- -------- --------
Total $288,205 $224,936 $548,597 $477,882
======== ======== ======== ========
</TABLE>
Net revenues increased 28.1 percent to $288.2 million in the three months ended
June 30, 1998 from $224.9 million in the corresponding quarter of 1997. Net
revenues for the first six months ended June 30, 1998 increased 14.8 percent to
$548.6 million from $477.9 million in the same period of 1997. This increase was
primarily attributable to the inclusion of revenues from Temic's business, a
recent acquisition by the Company. See Note 5 (Temic Acquisition) in Notes to
Condensed Consolidated Financial Statements. The revenue decrease in the North
American region was primarily due to continued price erosion of the Company's
memory products. The increase in revenues in the European region was primarily
due to the revenue contribution from Temic. The increase in revenues in the
Asian region was largely due to an increase in intercompany sales between the
Company and its wholly-owned subsidiary located in Hong Kong which are
eliminated on consolidation.
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<PAGE> 13
Excluding the $71.7 million revenue contribution from Temic, net revenues for
the three months ended June 30, 1998 would have decreased by approximately 3.7
percent compared to the corresponding quarter of 1997. During the three months
ended June 30, 1998, revenues from the Company's ASIC products increased 59.0
percent while revenues from its logic and memory products decreased 11.1 percent
and 13.3 percent, respectively, compared to the corresponding quarter of 1997.
The Company expects its ASIC revenues to continue to grow as the Company is
repositioning itself in the vanguard of the system-on-a-chip movement. The
decrease in logic revenues was primarily attributable to the declining prices of
the Company's EPROM and EEPROM products. During the three months ended June 30,
1998, EPROM revenues decreased 47.2 percent while EEPROM revenues decreased 37.1
percent, compared to the corresponding period of 1997. The decline in memory
revenues was primarily due to abnormal price erosion (caused by excess
manufacturing capacity in the semiconductor industry). For the six months ended
June 30, 1998, the decrease in net revenues was approximately 5.1 percent,
excluding the revenue from Temic of $95.0 million. The decrease was primarily
due to the reasons discussed above with respect to the three months ended
June 30, 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 second
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 40.0 percent
of the Company's revenues are generated, would have a material adverse effect on
the Company's operating results in the future.
The Company faces exposure to adverse movements in foreign currency exchange
rates. These exposures change over time and could have a material adverse impact
on the Company's financial results. Historically, the Company's primary exposure
related to non-dollar denominated sales in Japan and Europe. At the present
time, the Company hedges only currency exposures associated with Japan. The
hedging activity undertaken by the Company is intended to offset the impact of
currency fluctuations on accounts receivable that are denominated in Japanese
yen. To the extent that these forecasts are overstated or understated during
periods of currency volatility, the Company could experience unanticipated
currency gains and losses.
The Company's foreign exchange contracts generally have maturities between three
and nine months. Foreign exchange contracts outstanding, all of which were in
Japanese currency, amounted to $12.9 million at June 30, 1998.
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 67.9 percent in the
second quarter of 1998, from 56.0 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 $63.5 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.
-11-
<PAGE> 14
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 decreasing average selling prices. 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 Rousset facility, overcapacity or difficulties
in integrating the Temic acquisition (see discussion in Risk Associated with
Temic Acquisition below) 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 expense increased to
15.1 percent in the second quarter of 1998, from 13.1 percent in the
corresponding quarter of 1997. Research and development expense increased 47.8
percent from $29.4 million in the second quarter of 1997 to $43.4 million in the
second 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 and from 0.5-micron to 0.35-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 of $16.1 million.
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.
The primary technology which the Company acquired through the Temic acquisition
is the silicon germanium manufacturing process. The Company intends to develop
the acquired technology and expects to incur between $10.0 and $20.0 million
per year in development costs for the next two to three years. 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 that a
CMOS like silicon germanium process will begin to be incorporated into the
Company's products in the year 2000 - 2002 time frame.
SELLING, GENERAL AND ADMINISTRATIVE
Selling, general and administrative expenses increased by 60.6 percent to $39.1
million in the second quarter of 1998 from $24.4 million in the second quarter
of 1997. The increase was largely due to headcount increases in both domestic
and foreign operations, provision for bad debts expense, legal costs related to
patent infringement lawsuit and the inclusion of Temic's selling, general and
administrative expense of $17.9 million. As a percentage of net revenues,
selling, general and administration expenses were 13.6 percent for the second
quarter of 1998 and 10.8 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 primarily be due to the aging of accounts receivable, an
anticipated increase in accounts receivable, continued weakened business
conditions and less financially strong customers.
NONRECURRING CHARGES
During the second quarter of fiscal 1998, the Company announced a restructuring
plan which included a 10 percent work force reduction and the write-down of
certain manufacturing equipment and machinery with older process technology. The
majority of the 10 percent of employees to be terminated will be factory workers
in the Company's manufacturing facilities located in the U.S. and Europe. The
program is primarily aimed at focusing the Company's business processes,
attaining cost efficiencies and increasing manufacturing flexibility. The
effects of the restructuring programs are expected to reduce the Company's cost
of sales, salary cost and depreciation and improve its profit margins in the
future. The Company does not believe the restructuring programs will generate
increased costs in other areas or lead to diminished revenues. The full
implementation of the restructuring programs will take place over the next two
quarters and the Company expects these programs to generate pre-tax savings of
approximately $30.0 million per quarter during such time. However, no assurance
can be given as to the eventual cost savings under these restructuring programs.
The Company is converting its manufacturing process to use 0.35-micron
technology and is developing 0.25-micron technology. Until these migrations are
completed, the older equipment and associated manufacturing process are still
being used. The nonrecurring charges of $70.0 million included a provision of
$5.0 million for severance costs and a reserve of $65.0 million for write-down
of fixed assets. See Note 10 (Nonrecurring Charges) in Notes to Condensed
Consolidated Financial Statements.
As the Company continued to move toward production with 0.35-micron technology,
the Company recognized an impairment charge of $65.0 million relating to
manufacturing equipment with 0.65-micron and 0.5-micron technologies. The
Company recognized the impairment charge when the future undiscounted cash flows
of each asset were estimated to be insufficient to recover its related carrying
value. At such time, the carrying values of these assets were written down to
the Company's estimates of fair value. Fair value was based on sales of similar
assets or other estimates of fair value, such as estimated future cash flows.
The Company does not anticipate significant process from disposal. None of the
assets affected by this action are currently held for sale.
-12-
<PAGE> 15
Additionally, as previously indicated, a $32.2 million purchased in-process
research and development expense related to the acquisition of Temic in March
1998 has been charged against the first quarter's operating results. At the time
of the acquisition, the technological feasibility of the acquired in-process
technology had not been established and the Company believes the technology has
no alternative use. The Company intends to develop the acquired technology (see
Research and Development); 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. See Note 5 (Temic
Acquisition) in Notes to Condensed Consolidated Financial Statements.
OTHER EXPENSE, NET
The Company reported $9.3 million of net interest and other expenses for the
second quarter of 1998, compared to $3.2 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 to finance the expansion of the
Company's fabrication facilities in Colorado Springs and Rousset and to finance
the acquisition of Temic during the first quarter of 1998, as well as the result
of a portion of interest expense being capitalized in the second quarter of 1997
(in connection with the construction of the Company's fabrication facility in
Rousset). Foreign exchange gain (loss) included in Other Expenses, Net for the
six months ended June 30, 1998 and 1997 was $103 and $(2,888), respectively.
INCOME TAX PROVISION (BENEFIT)
The Company's effective tax rate was 35.0 percent for the first six months of
1997 and 5.5 percent for the first six months of 1998. The reduction in tax
rate is due to the tax effect of the Temic acquisition.
NET INCOME (LOSS)
The Company reported a net loss of $44.5 million for the second quarter of 1998,
compared to net income of $27.4 million in the corresponding period of 1997. Net
loss for the first six months of 1998 was $70.5 million, compared to net income
of $66.1 million in the corresponding period of 1997. The substantial decrease
in net income was primarily due to the nonrecurring charges incurred during the
first six months of 1998. See Nonrecurring Charges above for detail.
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.
YEAR 2000 RISKS
The Company initiated a program during 1997 to review its computer hardware and
software systems to determine the impact of and to provide solutions for Year
2000 requirements. The Year 2000 program is being conducted in five phases --
(i) planning, (ii) inventory/impact, (iii) remediation, (iv) testing and (v)
monitoring.
As of August 1, 1998, the Company had completed the planning phase of the Year
2000 program for both information technology (IT) and non-information
technology (Non-IT) systems. The inventory/impact phase has been completed for
IT systems and is substantially completed for Non-IT systems. The Company has
completed the remediation phase for most of its IT systems (i.e., factory
management system, order entry and tracking system, electronic data interchange
(EDI) and financial information systems). The remediation phase for the
remaining IT systems is approximately 35 percent completed and is expected to
be fully completed by mid 1999. The Company has begun the remediation process
for Non-IT systems and expects this remediation process to be completed in mid
1999. The testing phase had been completed for the EDI system and is
approximately 80 percent completed for the order entry and tracking system and
the financial information system. Depending upon the timing of the remediation
phase, the testing phase for the remaining IT systems and Non-IT systems will
begin immediately following the completion of the remediation process. The
Company expects phases (i) through (iv) of the Year 2000 program to be
completed during the third quarter of 1999. The Company has also begun the
process of identifying its top 100 suppliers and sending these suppliers a Year
2000 compliance survey. The Company expects this process to be completed by mid
1999. The Company has not yet established a contingency plan for any Year 2000
issues that may arise, but expects to establish such a plan during its
completion of phases (i) through (v) of the Year 2000 program.
The Company's cost related to identifying and addressing Year 2000 issues are
not expected to be material. Thus far, the major cost associated with
identifying and addressing Year 2000 issues has been in-house labor costs. The
Company does not anticipate costly replacements for Non-IT equipment, since the
Company expects that substantially all of this equipment can be upgraded to be
Year 2000 compliant. If the Company were unable to successfully upgrade its IT
and Non-IT systems to be Year 2000 compliant, its wafer productions system and
business and financial information systems could be materially and adversely
affected, which in turn could result in a material adverse effect on the
Company's business, operating results and financial conditions.
-13-
<PAGE> 16
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1998, the Company had $183.1 million in cash and short-term
investments, a decrease of $54.5 million from December 31, 1997, and $332.7
million in net working capital, an increase of $18.2 million from December 31,
1997. Accounts receivable increased 17.2 percent to $254.3 million at June 30,
1998 from $217.0 million at December 31, 1997. The increase was primarily due to
the inclusion of Temic's accounts receivable of $48.1 million. The average days
of accounts receivable outstanding were 88.2 and 74.8 days for the six month
periods ended June 30, 1998 and 1997, respectively. The increase in average days
outstanding was due primarily to the Company extending longer payment terms to
its customers due to competitions and a more difficult collection environment
due to weakened business conditions and less financially strong customers.
Inventories increased 72.4 percent to $214.4 million at June 30, 1998 from
$124.3 million at December 31, 1997. The increase in inventory was primarily due
to the combination of decline in sales and the continuation of production. The
inventory increase was also due, in part, to the inclusion of Temic's inventory
of $28.1 million. The inventory turnover for the six months ended June 30, 1998
was 2.1 times compared to 3.0 times of the corresponding period of 1997. At June
30, 1998, the Company had long-term investments of $133.8 million, an increase
of $38.3 million from December 31, 1997. These investments consisted of United
States government obligations and state and municipal securities. In April 1998,
the Company completed a zero coupon convertible debt financing, which raised
approximately $115.0 million. See Note 8 (Zero Coupon Convertible Debt) in Notes
to Condensed Consolidated Financial Statements.
During the six months ended June 30, 1998, the Company generated net cash flows
from operations of $54.3 million. Net cash used in investing activities was
$288.4 million, due to acquisitions of fixed and other assets of $148.1 million,
investment in Temic of $99.3 million, purchases of marketable securities of
$183.1 million, offset by sale of marketable securities of $142.0 million. Net
cash provided from financing activities was $177.6 million, due to funding from
capital leases and bank borrowings of $228.9 million, issuance of zero coupon
convertible notes of $115.0 million and proceeds from stock issuance of $4.8
million, offset by payments of capital leases and notes payable of $44.5
million, payment of $110.0 million loan with Nationsbank and payments of $16.6
million for the repurchase of one million shares of the Company's common stock.
The $228.9 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 (Zero Coupon
Convertible Debt) in the Notes to Condensed Consolidated 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.
-14-
<PAGE> 17
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 contended that certain of the Company's
devices infringe seven patents it allegedly owns and was seeking a judgment of
infringement for each of these asserted patents and other costs. The amount of
judgment sought by the plaintiff was not specified in the lawsuit. The Company
settled the patent disputes and entered into a cross-license agreement with the
plaintiff in August 1998.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS
At the Company's Annual Meeting of Stockholders held on April 29, 1998, the
following matters were voted upon by stockholders pursuant to proxies solicited
pursuant to Regulation 14A.
The following individuals were reelected to the Board of Directors (share
numbers in thousands):
<TABLE>
<CAPTION>
Votes For Votes Withheld
--------------------- ---------------------
<S> <C> <C>
George Perlegos 85,040 2,536
Gust Perlegos 85,019 2,557
Tsung-Ching Wu 85,051 2,525
Norm Hall 85,030 2,546
T. Peter Thomas 84,786 2,790
</TABLE>
The following proposal was approved at the Company's Annual Meeting of
Stockholders:
<TABLE>
<CAPTION>
Affirmative Negative
Votes Votes Abstained
----------- ---------- ----------
<S> <C> <C> <C>
Ratify the appointment of
PricewaterhouseCoopers LLP as independent
accountants for the fiscal year ending
December 31, 1998 87,127 221 228
</TABLE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) Exhibit:
27.1 Financial Data Schedule
(B) Reports on Form 8-K:
A Form 8-K was filed on April 16, 1998 in connection with the
Registrant's press release dated April 9, 1998 (announcing the
operating results for the first quarter ended March 31, 1998).
A Form 8-K was filed on April 22, 1998 in connection with the
Registrant's press release dated April 16, 1998 (announcing the
pricing of zero coupon convertible subordinated debentures).
-15-
<PAGE> 18
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)
November 9, 1998 /S/ GEORGE PERLEGOS
---------------------------------------------
GEORGE PERLEGOS
President, Chief Executive Officer
(Principal Executive Officer)
November 9, 1998 /S/ DONALD COLVIN
---------------------------------------------
DONALD COLVIN
Chief Financial Officer and
Vice President, Finance
(Principal Financial and Accounting Officer)
-16-
<PAGE> 19
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------ -----------
<S> <C>
27.1 Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 117,026
<SECURITIES> 66,027
<RECEIVABLES> 284,764
<ALLOWANCES> 30,483
<INVENTORY> 214,381
<CURRENT-ASSETS> 767,487
<PP&E> 1,515,081
<DEPRECIATION> 544,126
<TOTAL-ASSETS> 1,951,784
<CURRENT-LIABILITIES> 434,746
<BONDS> 749,111
0
0
<COMMON> 297,517
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 1,951,784
<SALES> 548,597
<TOTAL-REVENUES> 548,597
<CGS> 360,167
<TOTAL-COSTS> 609,402
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 4,269
<INTEREST-EXPENSE> 21,716
<INCOME-PRETAX> (74,586)
<INCOME-TAX> (4,072)
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (70,514)
<EPS-PRIMARY> (0.71)
<EPS-DILUTED> (0.71)
</TABLE>
