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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission file number: 0-19032
ATMEL CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 77-0051991
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2325 Orchard Parkway, San Jose, California 95131
(Address of principal executive offices)
Registrant's telephone number, including area code: (408) 441-0311
---------------------------------
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 $0.001 per share
Preferred Share Right (currently attached to and trading only with the Common
Stock)
---------------------------------
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. YES [X] NO [ ]
The aggregate market value of the Registrant's common stock held by
non-affiliates on March 3, 2000 (based on the last reported price of the Common
Stock on the NASDAQ National Market System on such date) was approximately
$10,000,506,000. Shares of Common Stock held by each officer and director have
been excluded in that such persons may be deemed to be affiliates. This
determination of affiliate status is not necessarily a conclusive determination
for other purposes.
As of March 3, 2000 Registrant had outstanding 221,070,889 shares of Common
Stock.
DOCUMENTS INCORPORATED BY REFERENCE
The Registrant's definitive Proxy Statement for the Annual Meeting of
Stockholders to be held on May 3, 2000 is incorporated by reference in Part III
of this Report on Form 10-K to the extent stated herein.
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ITEM 1. BUSINESS
GENERAL
We are a global semiconductor company that designs, develops, manufactures and
sells a wide range of highly integrated semiconductor integrated circuit
products. We have been instrumental in developing and commercializing
nonvolatile memory, or memory that continues to store information after power is
turned off. We have leveraged our expertise in nonvolatile memories and
incorporated it with new technologies to meet the evolving and growing needs of
our customers. We offer complex system-on-a-chip solutions for a broad array of
markets by combining our leading edge complementary metal oxide semiconductor,
or CMOS, bipolar CMOS, or BiCMOS, and silicon geranium, or SiGe, process
technologies with system level building blocks such as microcontrollers, digital
signal processors, or DSPs, and analog and nonvolatile memory. We believe our
capabilities in these areas enable our customers to rapidly introduce leading
edge electronic products that are differentiated by higher performance, advanced
features, lower cost, smaller form factor, longer battery life and/or more
memory. Our products are used primarily in the following markets:
Communications. Communications, including wireless and wireline
telecommunications and data networking, is currently our largest end user
market, representing nearly half of our revenues for the year ended December 31,
1999. The rapid global acceptance of the wireless phone has resulted in an
increased demand for our products. For the wireless market, we provide
nonvolatile memory, microcontrollers, and ASICs that are used in GSM and CDMA
mobile phones and their base stations, as well as two way pagers, mobile radios,
900 MHz cordless phones and their base stations. We also have a complete range
of products based on Bluetooth, a new short range wireless protocol that enables
instant connectivity between electronic devices. High production volumes in the
wireless communications market have also made it more cost effective for our
customers to incorporate certain advanced technologies into their lower cost or
lower volume products, such as those in the consumer electronics segment. Our
principal customers in the wireless market include Ericsson, Kenwood, Lucent,
Motorola, Nokia, Panasonic, Philips, Qualcomm, Samsung and Sony.
The data networking and wireline telecommunications markets are experiencing
significant growth based on the rapid adoption of the Internet. For these
markets, we provide ASIC, nonvolatile memory and programmable logic products
that are used in the switches, routers, cable modem termination systems and DSL
access multiplexers that are currently being used to build Internet
infrastructure. Our principal data networking and wireline telecommunications
customers include Alcatel, Cisco, Lucent, Nortel, Siemens, 3Com and Xircom.
Consumer Electronics. Our products are also used in a broad variety of consumer
electronics products. We provide multimode audio processors and MPEG2 based
decoders with programmable transport for complex digital audio streams used in
digital TVs, set top boxes and DVD players. For digital cameras, we provide a
single chip digital camera solution. We provide demodulators and decoders for
cable modems. We also offer medium-access controllers for wireless LANs and
baseband controllers and network protocol stacks for voiceover internet
protocol, or VoIP, telephone terminals. In addition, we provide secure,
encryption enabled, integrated, tamper resistant circuits for smart cards. Our
principal consumer electronics customers include GemPlus, LG Electronics,
Matsushita, Mitsubishi, Philips, Samsung, Schlumberger, Sony, and Toppan.
Computing, Storage and Imaging. The computing and computing peripherals markets
are also growing because of the rapid adoption of the Internet. For computing
applications, we provide Flash, universal serial bus, or USB hubs and ASICs for
personal computers and servers. For storage applications, we provide servo
controllers, read channels, and data interfaces for data storage subsystems,
hard drives and DVD players. We provide ASICs, nonvolatile memory and
microcontrollers for laser printers, inkjet printers, copy machines and
scanners. Our principal customers in these markets include ACER, Compaq,
FujiFilm, Hewlett-Packard, IBM, Lexmark, Maxtor, Microsoft, Polaroid, Seagate,
Toshiba, and Western Digital.
We manufacture more than 90% of our products in our own wafer fabrication
facilities, or fabs. We believe that our ability to manufacture a broad range of
leading edge products allows us to offer high performance, good service and
short production cycles at competitive costs. We strive to continuously expand
and upgrade our facilities to meet customer demand. We have developed a broad
portfolio of manufacturing capabilities across multiple process technologies,
including our proprietary CMOS, Logic, CMOS Logic, bipolar, BiCMOS, SiGe, SiGe
BiCMOS, Analog, BCDMOS, and radiation tolerant process technologies. We have
strategic relationships with industry leaders like Anadigics and M/A-COM to
develop products using the SiGe process technology, and today have many foundry
customers for SiGe products. We consider SiGe a key technology for our success
in providing products to serve the telecommunication and data networking
markets.
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Our wafer fabrication facilities are located in:
- Colorado Springs, Colorado: two 6 inch wafer fabs;
- Rousset, France: 8 inch wafer fabs;
- Heilbronn, Germany: 6 inch wafer fabs;
- Nantes, France: 6 inch wafer fabs; and
- Irving, Texas: 8 inch wafer fabs (equipment not yet installed).
We were originally incorporated in California in December 1984. In October 1999
we were reincorporated in Delaware. Our principal offices are located at 2325
Orchard Parkway, San Jose, California 95131 and our telephone number is (408)
441-0311.
SEGMENTS
Our business has four segments, each of which requires different design,
development and marketing resources to produce and sell semiconductor integrated
circuits (see Note 11 of Notes to Consolidated Financial Statements). Each
segment offers products that compete in one or more of the end markets described
previously under the caption "General".
- ASIC -- The products in our ASIC segment include full custom application
specific integrated circuits, custom gate arrays and semicustom cell
based integrated circuits designed to meet specialized customer
requirements for their high performance devices in a broad variety of
applications.
- Logic -- The products in our Logic segment include microcontrollers;
erasable programmable logic devices, or EPLDs; and field programmable
gate arrays, or FPGAs for sale to customers who use them in a broad
variety of applications.
- Nonvolatile Memories -- The products in our Nonvolatile Memories segment
include Flash, electrically erasable programmable read only memories, or
EEPROMs and erasable programmable read only memories, or EPROMs for use
in a broad variety of customer applications.
- Temic -- The Temic segment is a wholly owned European subsidiary
producing analog, microcontroller and specialty products to service the
automotive, telecommunications, consumer and industrial markets.
Although some of its products overlap with one or more of the other
segments, the Temic segment is managed as a discrete business.
We distribute our products directly through 17 U.S. sales offices and 24
international sales offices. In addition, we use distributors for indirect
distribution, including All American, Arrow Electronics, Avnet, Insight and
Pioneer.
RECENT DEVELOPMENTS
Wafer Fabrication Facility. We recently acquired an 8-inch wafer fabrication
facility located in Irving, Texas from Hitachi Semiconductor (America) Inc. We
will begin carrying out an installation plan for 0.18 micron manufacturing
equipment, and intend to have capacity available by the first quarter of 2001.
We acquired the facility to manufacture advanced semiconductors, in particular
those using 0.18 micron digital and SiGe bipolar CMOS processes for wireless and
telecommunication products.
Public Offering. On February 3, 2000 Atmel sold 18,000,000 shares of common
stock at a price of $35.50 per share. We intend to use the net proceeds to fund
capital expenditures and for working capital and general corporate purposes.
TCS Acquisition. On February 16, 2000, we signed a contract to acquire
Thomson-CSF Semiconducteurs Specifique (TCS), a wholly-owned subsidiary of
Thomson-CSF. The purchase will be completed after we receive approvals from
appropriate French government departments. We do not expect any difficulties in
obtaining the necessary approvals. TCS specializes in the development and
manufacture of ASICs, including image sensors, as well as analog, digital and
radio frequency ASICs, and products manufactured using SiGe processes. TCS
products are used in such applications as digital cameras, fingerprint sensors,
GPS and RF chips, which we believe will provide us with an enhanced ability to
provide integrated solutions for the wireless and consumer end markets.
Stock Split. On December 17, 1999 we effected a two-for-one stock split in the
form of a 100% stock dividend to stockholders of record on December 3, 1999. All
of the information in this Annual Report on Form 10-K gives effect to this stock
split.
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MANUFACTURING
We currently fabricate wafers at our wafer fabrication facilities located in
Colorado Springs, Colorado, Heilbronn, Germany, Nantes, France, and Rousset,
France. In addition, we currently expect our new facility in Irving, Texas, to
be operational and producing wafers by the first quarter of 2001. After the
wafers are fabricated we test the individual circuits on them to identify those
which do not function. This saves us the cost of putting packages around
circuits whose failure can be determined in advance. After this initial testing
we send the wafers to one of our independent assembly contractors, located in
China, Hong Kong, Malaysia, Philippines, South Korea, Taiwan and Thailand where
they are cut into individual chips, assembled into packages and, in some cases
given a final test. Most of the integrated circuits, however, are shipped back
to our production facilities, where we perform final testing before shipping
them to customers. Our reliance on independent contractors to assemble our
products into packages involves significant risks, including reduced control
over quality and delivery schedules, a potential lack of capacity at our
subcontractors and a risk the subcontractor may abandon assembly processes we
need. We cannot be sure that our current assembly subcontractors will continue
to assemble, package and test products for us. In addition, because our assembly
subcontractors are located in foreign countries, we are subject to some risks
commonly associated with contracting with foreign suppliers, including currency
exchange fluctuations, political and economic instability, trade restrictions
and changes in tariff and freight rates. As a result, we may experience
production delays, insufficient volumes or inadequate quality of assembled
products, any of which could harm our operations.
We believe that we will be able to substantially meet our production needs from
our wafer fabrication facilities through the end of the fourth quarter of 2002,
although this date may vary depending on, among other things, our rate of
growth. We will be required to hire, train and manage additional production
personnel in order to increase production capacity as planned. We will also be
required to successfully implement new manufacturing technologies such as
0.25-micron, 0.18-micron and chemical and mechanical planarization in our wafer
manufacturing facilities to increase our manufacturing capacity and yields. If
we cannot expand our capacity on a timely basis, we could experience significant
capacity constraints that would prevent us from meeting customer demand. In
addition, the depreciation and other expenses that we will incur in connection
with the expansion of our manufacturing capacity may reduce our gross margins in
future periods. We are exploring alternatives for the further expansion of our
manufacturing capacity, which would likely occur after 2000, including:
- expanding our current wafer fabrication facilities;
- purchasing or building one or more additional wafer fabrication
facilities; and
- entering into strategic relationships to obtain additional
capacity.
The cost of expanding our manufacturing capacity at the Irving, Texas facility
or elsewhere is expected to be funded through a combination of available cash
resources, cash from operations and additional lease, debt or equity financing.
We may not be able to obtain the additional financing necessary to fund the
expansion of our manufacturing facilities.
Expanding our wafer fabrication capacity involves significant risks, including:
- shortages of materials and skilled labor;
- unavailability of semiconductor manufacturing and testing
equipment;
- unforeseen environmental or engineering problems;
- work stoppages;
- approvals and requirements of governmental and regulatory
agencies; and
- unanticipated cost increases.
Any one of these risks could delay the building, equipping and production
start-up of a new facility or the expansion of an existing facility, and could
involve significant additional costs or reduce our anticipated revenues. In
addition, the timing of commencement of operation of our Irving, Texas facility
will depend upon the availability, timely delivery, successful installation and
testing of complex process equipment.
As a result of these and other factors, any expanded or new facility may not be
completed and in volume production on time or within budget. Furthermore, we may
be unable to achieve adequate manufacturing yields in any expanded or new
facility in a timely manner, and our revenues may not increase in proportion to
the anticipated increase in manufacturing capacity associated with any expanded
or new facility.
The fabrication of our integrated circuits is a highly complex and precise
process, requiring production in a tightly controlled, clean environment. Minute
impurities, difficulties in the fabrication process, defects in the masks used
to
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print circuits on a wafer, or other factors can cause a substantial percentage
of wafers to be rejected or numerous die on each wafer to be nonfunctional. We
may experience problems in achieving acceptable yields in the manufacture of
wafers, particularly in connection with the expansion of our manufacturing
capacity and related transitions. The interruption of wafer fabrication or the
failure to achieve acceptable manufacturing yields at any of our wafer
fabrication facilities would harm our business.
In 1997 and 1998, we made substantial capital expenditures to increase our wafer
fabrication capacity at our facilities in Colorado Springs, Colorado and
Rousset, France, and we acquired two wafer fabrication facilities in connection
with our acquisition of Temic. In 1998, our gross margin declined significantly
as a result of the increase in fixed costs and operating expenses related to
this expansion of capacity, and lower product margins in many of our nonvolatile
memory products due to severe price declines. In 1999, the declining gross
margin trend reversed, primarily due to a higher unit sales volume over which to
spread fixed costs and operating expenses; the inclusion of Temic's positive
gross margin for all of 1999 compared to only ten months in 1998; and average
selling prices that stabilized in 1999.
The improved market conditions experienced in 1999 may not continue or may not
permit us to fully utilize our wafer fabrication capacity, and our increases in
fixed costs and operating expenses related to manufacturing overcapacity may
harm our operating results. If net revenues do not continue to increase
sufficiently in future periods our business could be harmed. We experienced
production delays and yield difficulties in connection with earlier expansions
of our wafer fabrication capacity. Production delays, difficulties in achieving
acceptable yields at any of our fabrication facilities or overcapacity could
harm our operations.
We reduce the cost of our products by producing as many wafers as possible in
each plant, by shrinking circuits to fit the most possible on each wafer, and by
keeping production expenses low. We normally expect to produce at unit costs low
enough to provide satisfactory profit margins.
The raw materials and equipment we use to produce our integrated circuits are
available from several suppliers and we are not dependent upon any single source
of supply. Some materials in the past have been in short supply and lead times
for new equipment have lengthened on occasion, but we have not experienced
serious difficulties in obtaining raw materials or equipment to date.
We are subject to a variety of federal, state and local governmental regulations
related to the discharge or disposal of toxic, volatile or otherwise hazardous
chemicals used in our manufacturing processes. While we believe that we have all
environmental permits necessary to conduct our business and that our activities
conform to present environmental regulations, increasing public attention has
been focused on the environmental impact of semiconductor operations. Although
we have not experienced any harm to our operations from environmental
regulations, any changes in such regulations may impose the need for additional
capital equipment or other requirements. If for any reason we fail to control
the use of, or to restrict adequately the discharge of, hazardous substances
under present or future regulations, we could be subject to substantial
liability or our manufacturing operations could be suspended.
MARKETING AND SALES
We market our products worldwide to a diverse base of original equipment
manufacturers (OEMs) serving primarily commercial markets. In the United States
and Canada, we sell our products to large OEM accounts primarily through
manufacturers' representatives and through national and regional distributors.
Our agreements with our representatives and distributors are generally
terminable by either party on short notice, subject to local laws. We support
this sales network from our headquarters in San Jose, California and through
regional offices in Southern California, Colorado, Illinois, Massachusetts,
Minnesota, New Jersey, North Carolina and Texas. Sales to North American OEMs
and distributors, as a percentage of worldwide net revenues, were 25% and 12% in
1999, 25% and 9% in 1998, and 26% and 13% in 1997.
We recognize revenues on products shipped to domestic distributors only after
the distributor sells the product to its end customer. Consistent with industry
practices, we provide our domestic distributors with stock balancing and price
protection rights, which permit them to return slow-moving products for credit
and allow price reductions on inventories they hold of our products if we lower
the price of those products. Generally, distributors may return products for up
to a maximum of 5% of the net value of their purchases during the preceding
quarter.
We sell to foreign customers primarily through international representatives,
who are managed from our headquarters and from our foreign sales offices. Our
sales outside North America were approximately 65%, 65% and 60% of total
revenues in 1999, 1998 and 1997. Although the U.S. government imposes some
restrictions on
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export sales, we have not experienced any serious difficulties because of them.
We expect revenues from our international sales will continue representing a
significant portion of our total revenues. International sales are subject to a
variety of risks, including those arising from currency fluctuations, tariffs,
trade barriers, taxes, export license requirements and foreign government
regulations
We make a significant portion of our sales to satisfy recently received purchase
orders. We also accept purchase orders for deliveries covering periods up to
approximately one year. However, all purchase orders can be revised or cancelled
by the customer without penalty. Considering these practices and our experience
we do not believe our record of customer purchase orders provides meaningful
backlog figures or that they are reliable enough to predict actual sales for
future periods.
In 1999, 1998 and 1997, Motorola, Inc. accounted for 12%, 14% and 13% of our
revenues.
At December 31, 1999, 472 people worked in our marketing, sales and customer
support organization.
RESEARCH AND DEVELOPMENT
We believe significant investment in research and development is vital to our
success, growth and profitability, and we will continue to devote substantial
resources, including management time, to this activity. Our primary objectives
are to increase performance of our existing products, to develop new wafer
processing and design technologies, and to draw upon these technologies to
create new products. If we are unable to design, develop, manufacture, market
and sell new products successfully, our operating results will be harmed. Our
new product development, process development, or marketing and sales efforts may
not be successful, our new products may not achieve market acceptance, and price
expectations for our new products may not be achieved.
At December 31, 1999, we employed approximately 755 individuals in research and
development. During 1999, 1998 and 1997 we spent $194 million, $175 million and
$138 million, on research and development. Included in the 1997 research and
development expense was $15 million of expense related to qualifying our 8 inch
fabrication facility in France. Research and development expenses are charged to
operations as incurred. We expect these expenditures will continue to increase
in the future.
COMPETITION
We compete in markets that are intensely competitive and characterized by rapid
technological change, product obsolescence and price decline. Throughout our
product line, we compete with a number of large semiconductor manufacturers,
such as AMD, Fujitsu, Intel, Sharp and ST Microelectronics. These competitors
have substantially greater financial, technical, marketing and management
resources than we do. As we have introduced our new Flash products, we are
increasingly competing directly with these competitors, and we may not be able
to compete effectively. We also compete with emerging companies attempting to
sell products in specialized markets addressed by our products. We compete
principally on the basis of the technical innovation and performance of our
products, including their speed, density, power usage, reliability and specialty
packaging alternatives, as well as on price and product availability. During
recent periods, we have experienced significant price competition in our
nonvolatile memory business and especially for EPROM and Flash products. We
expect continuing competitive pressures in our markets from existing competitors
and new entrants, which, among other things, could further accelerate the trend
of decreasing average selling prices for our products.
In addition to the factors described above, our ability to compete successfully
depends on a number of factors, including the following:
- our success in designing and manufacturing new products that
implement new technologies and processes;
- our ability to offer integrated solutions using our advanced
nonvolatile memory process with other technologies;
- the rate at which customers incorporate our products into their
systems;
- product introductions by our competitors;
- the number and nature of our competitors in a given market; and
- general market and economic conditions.
Many of these factors are outside of our control, and we may not be able to
compete successfully in the future.
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PATENTS AND LICENSES
We maintain a portfolio of United States patents and we have patent applications
on file with the U.S. Patent and Trademark Office. We also operate an internal
program to identify patentable developments and we file patent applications
wherever necessary to protect our proprietary technologies. However, because
technology changes very rapidly in the semiconductor industry we believe our
continued success depends primarily on the technological and innovative skills
of our employees and their abilities to rapidly commercialize discoveries.
We have from time to time received, and may in the future receive,
communications from third parties asserting patent or other intellectual
property rights covering our products or processes. In the past, we have
received specific allegations from major companies alleging that certain of our
products infringe patents owned by such companies. If any litigation were to
occur as a result of such allegations in the future, and we do not prevail in
any such litigation, and are unable to obtain a satisfactory license, our
results of operations may be adversely affected.
In addition, the semiconductor industry is characterized by vigorous protection
and pursuit of intellectual property rights or positions, which have on occasion
resulted in significant and often protracted and expensive litigation. In the
past, we have been involved in such litigation, which adversely affected our
operating results. We cannot assure you that intellectual property claims will
not be made against us in the future or that we will not be prohibited from
using the technologies subject to any such claims or be required to obtain
licenses and make corresponding royalty payments. In addition, the necessary
management attention to and legal costs associated with litigation can have a
significant adverse effect on operating results.
EMPLOYEES
At December 31, 1999, we employed 7,009 full time equivalent individuals,
including 472 in sales, marketing and customer support, 5,640 in manufacturing,
maintenance and support (including 476 in our Manila assembly operation), 755 in
research and product development and 142 in finance and administration.
Our future success depends in large part on the continued service of our key
technical and management personnel and on our ability to continue to attract and
retain qualified employees, particularly those highly skilled design, process
and test engineers involved in the manufacture of existing products and the
development of new products and processes. The competition for such personnel is
intense, and the loss of key employees, none of whom is subject to an employment
agreement for a specified term or a post-employment non-competition agreement,
could harm our business.
We have never had a work stoppage and we consider our employee relations to be
good.
GEOGRAPHIC AREAS
In 1999 35% of our sales were made to customers in North America, 31% to
customers in Europe, 33% to customers in Asia, and 1% to customers in other
regions. We determine where our sales are made by the destination of our
products when they are shipped. At the end of 1999 we owned long-lived assets in
the U.S. amounting to $534 million, in France, $359 million and in Germany, $42
million (see Note 11 of Notes to Consolidated Financial Statements).
Executive Officers of the Registrant
The executive officers of Atmel, who are elected by and serve at the discretion
of the Board of Directors, and their ages are as follows:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
George Perlegos 50 Chairman, President and Chief Executive Officer
Gust Perlegos 52 Executive Vice President, General Manager
Tsung-Ching Wu 49 Executive Vice President, Technology
Donald Colvin 47 Vice President, Finance and Chief Financial Officer
B. Jeffrey Katz 56 Vice President, Marketing
Mikes N. Sisois 54 Vice President, Planning and Information Systems
</TABLE>
George Perlegos has served as Atmel's President and Chief Executive Officer and
a director from its inception in 1984. George Perlegos holds degrees in
electrical engineering from San Jose State University (B.S.) and Stanford
University (M.S.).
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Gust Perlegos has served as Vice President, General Manager and a director of
Atmel since January 1985, and as Executive Vice President since January 1996.
Gust Perlegos holds degrees in electrical engineering from San Jose State
University (B.S.), Stanford University (M.S.) and the University of Santa Clara
(Ph.D.). Gust Perlegos is a brother of George Perlegos.
Tsung-Ching Wu has served as a director of Atmel since January 1985, and as Vice
President, Technology since January 1986, and as Executive Vice President since
January 1996. Mr. Wu holds degrees in electrical engineering from the National
Taiwan University (B.S.), the State University of New York at Stony Brook (M.S.)
and the University of Pennsylvania (Ph.D.).
Donald Colvin joined Atmel in 1995 as Chief Financial Officer of the Atmel-ES2
subsidiary, and was promoted to Vice President Finance and Chief Financial
Officer of Atmel in March 1998. Before joining Atmel through the Company's
acquisition of ES2, Mr. Colvin spent nine years with Motorola Inc., in Europe in
various financial positions. He left Motorola in 1985 to join ES2 as Financial
Director for France. He became Vice President and Chief Financial Officer of ES2
in 1991. Mr. Colvin holds a B.A. in Economics and an M.B.A. from the University
of Strathclyde, Scotland.
B. Jeffrey Katz has served Atmel as Vice President, Marketing since November
1988. From 1987 to 1988 Mr. Katz was Vice President of Marketing and Sales at
Mosaic Systems, Inc., a multichip module supplier. Mr. Katz was employed by
Intel from 1977 to 1987 where he held various marketing positions, including
Director of Marketing. Mr. Katz holds a B.S. in computer engineering from Case
Western University.
Mikes N. Sisois joined Atmel in February 1985 as Director of Information Systems
and has served as Vice President, Planning and Information Systems since January
1986. Mr. Sisois holds a B.S. in engineering from San Jose State University, and
an M.B.A. and Ph.D. from the University of Santa Clara.
ITEM 2. PROPERTIES
Atmel's headquarters are located in San Jose, California. Atmel owns this
291,000 square-foot building, which is occupied by product design, engineering,
final product testing, research and development, sales, marketing and
administrative personnel. Atmel owns semiconductor wafer fabrication plants and
test facilities, occupying 450,000 square feet, located in Colorado Springs,
Colorado. Atmel also owns a 388,000 square-foot facility that produces 8 inch
silicon wafers using 0.35 and 0.25 micron processes, located in Rousset, France.
We have two additional wafer fabrication facilities with test capabilities, each
of which hosts 6 inch wafer fabrication lines using a 0.5 micron process. These
facilities are located in Heilbronn, Germany and Nantes, France.
In January 2000, Atmel purchased a 650,000 square foot state of the art
fabrication facility in Irving Texas. We will begin carrying out an installation
plan for 0.18 micron manufacturing equipment, and intend to have capacity
available by the first quarter of 2001.
Our capital expenditures in 1999, 1998 and 1997 were $172 million, $188 million
and $312 million, which have resulted in significantly increased manufacturing
capacity.
Atmel leases numerous research and development facilities and sales offices in
North America, Europe and Asia, and we believe that suitable additional or
alternative space will be available as needed on commercially reasonable terms
to meet our current and foreseeable requirements.
ITEM 3. LEGAL PROCEEDINGS
We are not a party to any legal proceedings that we believe could have a
material adverse effect on our operating results and financial position.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS
COMMON STOCK DATA
As of December 31, 1999, there were approximately 1450 record holders of Atmel's
common stock. The last reported sales price on that date was $29.563.
Atmel's common stock is traded on the NASDAQ National Market under the symbol
"ATML." No cash dividends have been paid on the common stock, and we currently
have no plans to pay cash dividends in the future.
In November 1999 the Board of Directors of Atmel approved a 2-for-1 split of its
common stock. On December 17, 1999, we effected this two-for-one stock split in
the form of a 100% stock dividend to stockholders of record on December 3, 1999.
In April 1999, the Board of Directors, and in May 1999, our stockholders,
approved an increase in the number of authorized shares of common stock of Atmel
from 240,000,000 shares to 500,000,000 shares in connection with our
reincorporation in Delaware.
In April 1998, Atmel sold its zero coupon convertible subordinated debentures
due in 2018 ("the Debentures"), in a private offering to qualified institutional
investors. The Debentures, which have a face value of $296 million, were priced
with a yield to maturity of 5.5% and resulted in gross proceeds to Atmel of
approximately $115 million. The Debentures and the Common Stock issuable upon
conversion of the Debentures were not registered under the Securities Act in
reliance on the exemptions afforded by Section 4(2) and Regulation S of the
Securities Act. The Debentures and the Common Stock issuable upon conversion of
the Debentures were offered and sold in the United States by the Initial
Purchaser only to qualified institutional buyers in reliance on Rule 144A under
the Securities Act, and outside the United States to non-United States investors
pursuant to Regulation S under the Securities Act.
In June 1998 Atmel issued 415,932 shares of common stock to the former
stockholders of DCT in connection with Atmel's acquisition of all the
outstanding shares of DCT. The aggregate market value of securities issued was
$2,849,000 at the time of issue. The shares were not registered under the
Securities Act in reliance upon the exemption provided by Section 4(2) thereof.
The shares were issued in a private placement to 22 investors, including three
accredited investors. Except for one accredited investor, all other investors
were employees of DCT who became employees of Atmel. No general solicitation or
other selling efforts were made in connection with the issuance of the shares
and Atmel provided the DCT investors with copies of its appropriate filings
under the Securities Act of 1934, as amended.
In January 1996, the Board of Directors of Atmel approved a stock repurchase
program that allowed the Company to repurchase up to 10,000,000 shares of its
common stock. The Board of Directors approved the repurchase of an additional
10,000,000 shares in January 1998. The primary purpose of this stock repurchase
program was to increase stockholder value. In connection with this program,
Atmel entered into certain cashless warrant transactions which provided us with
the flexibility to implement the repurchase plan, under which Atmel could
repurchase its stock when favorable market conditions existed and without
immediately impacting its cash resources.
In connection with Atmel's stock repurchase program, put warrants were sold to
an independent third party during fiscal years 1998, 1997 and 1996. We used the
proceeds from the sale of the put warrants to purchase call warrants in a
transaction not requiring any net cash outlay at the time.
8
<PAGE> 10
The following table summarizes Atmel's transactions related to its put and call
warrants (in thousands, except Weighted Average Exercise Prices):
<TABLE>
<CAPTION>
Weighted
Cumulative Average Shares Shares
net premium Exercise Covered by Covered by Potential
received Price Put warrants Call Warrants obligation
-------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
DECEMBER 31, 1996 8,133 2,000 1,000 28,250
Sales of put warrants 5,238 11.51 4,000 46,050
Purchases of call warrants (5,238) 13.03 0 2,000 0
Settlement of put warrants (950) 14.13 (2,000) (28,250)
Settlement of call warrants 5,375 16.16 (1,000)
-----------------------------------------------------------------------
DECEMBER 31, 1997 12,558 4,000 2,000 46,050
Sales of put warrants 20,250 9.42 7,400 69,730
Purchases of call warrants (4,600) 10.73 3,700
Settlement of put warrants (18,980) 9.71 (4,400) (42,730)
Settlement of call warrants 780 7.41 (2,000)
Expiration of put warrants 0 10.13 (1,600) (16,200)
Expiration of call warrants 0 13.03 (1,000)
-----------------------------------------------------------------------
DECEMBER 31, 1998 $ 10,008 5,400 2,700 $ 56,850
Settlement of put warrants (9,024) 10.53 (5,400) (56,850)
Settlement of call warrants 1,405 12.0 (2,700)
-----------------------------------------------------------------------
DECEMBER 31, 1999 $ 2,389 -- -- $ --
=======================================================================
</TABLE>
The put warrants entitled the independent third party to sell shares of Atmel's
common stock to Atmel at specified strike prices and exercise dates, while the
call warrants entitled Atmel to buy from the same third party shares of Atmel's
common stock at specified strike prices and exercise dates.
All put and call warrants have been closed out as of May 14, 1999, and
accordingly, no maximum potential repurchase obligations exist as of December
31, 1999. The put warrants were classified separately on the balance sheet to
reflect the maximum potential obligation of Atmel as of December 31, 1998. There
was no impact on basic and diluted net income per share in 1999, 1998 or 1997
resulting from these transactions.
Each of the warrants was exempt from registration under Section 4(2) of the
Securities Act of 1933, as amended (the "Securities Act"). Each transaction was
privately negotiated and each offeree and the purchaser was an accredited
investor/qualified institutional buyer. No public offering or public
solicitation was used by the registrant in the placement of these warrants.
9
<PAGE> 11
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
ATMEL CORPORATION
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------------------------------------------------------------------
(In thousands, except per-share data) 1999 1998 1997 1996 1995
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
NET REVENUES $ 1,330,161 $ 1,111,092 $ 958,282 $ 1,070,288 $ 634,241
INCOME (LOSS)
Before taxes 128,821 (50,931) 6,001 309,153 172,262
Net 53,379 (50,038) 1,801 201,722 113,693
Basic net income per share 0.27 (0.25) 0.01 1.03 0.60
Diluted net income per share 0.26 (0.25) 0.01 1.00 0.58
RETURN ON REVENUES
Before taxes 9.7% (4.6)% 0.6% 28.9% 27.2%
Net 4.0% (4.5)% 0.2% 18.8% 17.9%
RETURN ON AVERAGE STOCKHOLDERS' 7.0% (6.6)% 0.2% 29.3% 24.0%
EQUITY
FIXED ASSETS, NET 938,562 964,126 985,949 867,423 472,285
TOTAL ASSETS 2,014,910 1,962,737 1,822,040 1,455,914 919,621
LONG-TERM DEBT, NET OF CURRENT 654,033 771,069 571,389 278,576 88,455
PORTION
LONG-TERM DEBT AS A PERCENTAGE OF
STOCKHOLDERS' EQUITY 81.6% 105.3% 72.7% 35.3% 15.0%
STOCKHOLDERS' EQUITY 801,479 732,195 786,434 789,751 588,768
</TABLE>
10
<PAGE> 12
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Beginning January 1, 1999, we changed our fiscal year from a 52 or 53-week year
ending on the Monday nearest the last day in December of each year to a calendar
year ending December 31. The quarters have changed from 13 week quarters to
calendar quarters. For presentation purposes, fiscal 1998 and 1997 have been
disclosed as ending on December 31.
OVERVIEW
Atmel's revenues in 1999 increased from 1998. Our revenues increased because we
shipped significantly more units in 1999 than 1998. However, revenues did not
grow proportionately with the unit volume because selling prices fell during the
year. In addition, revenues grew in 1999 because we included a full year of
results from Temic's business, which we acquired in March 1998 (see Note 2 of
Notes to Consolidated Financial Statements). Sales in 1999 increased for all our
segments. As shown in the table below, Atmel's segments include: (1) application
specific integrated circuits (ASIC); (2) logic related products (Logic); (3)
commodity oriented nonvolatile memory (NVM) products; and (4) Temic. In 1998 we
experienced price erosion, caused by weak business conditions and excess
manufacturing capacity in the semiconductor industry that had continued from
1997, which more than offset the effect of higher unit shipments of ASIC and
logic related products. If the Temic segment is excluded from 1998 revenues,
Atmel's revenues would have been about 9% less in 1998 compared to 1997.
Our income before taxes in 1999 improved significantly from 1998. In 1998 we
recorded a large restructuring charge and a write-off of research and
development acquired as part of the purchase of the Temic business, neither of
which occurred in 1999. In addition, during 1999 we gained cost efficiencies
from utilizing our production and overhead structure at a higher rate than in
1998. In 1998 our income before taxes reflected the charge and write-off and we
found we could not reduce our cost structure as rapidly as selling prices
declined. In 1997 our income before taxes represented the effect of rapidly
falling selling prices and weak demand appearing in a year during which we
completed major investments for expansion.
RESULTS OF OPERATIONS
NET REVENUES - SUMMARY
Total net revenues increased 20% to $1,330 million in 1999 from $1,111 million
in 1998 due to significantly higher unit shipments for substantially all our
products, offset by lower average selling prices (ASPs) compared to 1998. Also,
we included Temic's revenues for the full year of 1999 compared to ten months in
1998. The weakened business conditions and excess manufacturing capacity the
industry experienced in 1997, 1998, and the first quarter of 1999 improved
during the second half of 1999. Demand for products in all segments improved in
1999.
Total net revenues increased 16% to $1,111 million in 1998 from $958 million in
1997. The increase was due to the inclusion of revenues from Temic's business,
which Atmel acquired in March 1998. Excluding the sales from Temic, our net
revenues declined 9% in 1998. Revenue declined largely because of price erosion
in our nonvolatile memory business, caused by weakened business conditions and
excess manufacturing capacity in the worldwide semiconductor industry.
NET REVENUES - BY OPERATING SEGMENT
Atmel's net revenues by segment are summarized as follows (in thousands):
<TABLE>
<CAPTION>
SEGMENT 1999 1998 1997
- -------
<S> <C> <C> <C>
ASIC $ 335,061 $ 278,467 $ 212,153
Logic 102,682 100,532 86,644
Nonvolatile Memory 617,128 493,662 659,485
Temic 275,290 238,431 --
---------- ---------- ----------
Total $1,330,161 $1,111,092 $ 958,282
========== ========== ==========
</TABLE>
11
<PAGE> 13
ASIC
The ASIC segment increased 20% or $57 million in 1999 compared to 1998. This
increase was due to (i) new revenue contribution from the April 1, 1999
acquisition of the Smart Information Transfer (SIT) business (see Note 2 of
Notes to Consolidated Financial Statements), (ii) higher shipments in cell based
integrated circuits (CBICs) products, particularly associated with electronic
game related products, and (iii) higher shipments of customer designed circuits.
These increases were offset by erosion of ASPs. We will continue to increase
resources and manufacturing capacity allocated to the ASIC segment in 2000 to
expand smartcard and multimedia products.
ASIC segment revenues increased 31% or $66 million in 1998 compared to 1997
due to increased sales in custom and digital ASICs. ASPs were stable in 1998 and
unit shipments increased.
The ASIC business represented 25% of our net revenues in 1999, 25% in 1998
and 22% in 1997.
LOGIC
The Logic segment increased 2% or $2 million in 1999 compared to 1998 due to
increases in unit shipments, offset by erosion of ASPs.
Logic net revenues increased 16% or $14 million in 1998 primarily because
unit shipments of all products increased in this segment, offset by falling
ASPs.
The Logic business represented approximately 8% of our net revenues in 1999
and 9% for both 1998 and 1997.
NONVOLATILE MEMORY
The NVM business represented 46% of our 1999 net revenues, 44% in 1998 and
69% in 1997, the year before the acquisition of Temic. As we place more
resources in our other segments we expect NVM to represent a declining
proportion of our total revenue.
NVM revenues increased 25% or $123 million in 1999 compared to 1998 due to
much higher unit shipments offset partially by lower ASPs. The increase in unit
shipments was primarily in our high density Flash products which were qualified
at major customers during the year; the decrease in ASPs was primarily in our
lower density Flash products.
NVM revenues declined 25% or $165 million in 1998 compared to 1997 due to
price erosion which more than offset increased unit shipments
We normally expect a steady, predictable rate of price decline throughout a
product's life cycle. However, the semiconductor industry historically has been
cyclical and characterized by wide fluctuations in product supply and demand. As
a result, the industry experiences significant downturns from time to time, as
it did in 1998 and 1997. These downturns are marked by diminished product
demand, production overcapacity and consequent accelerated erosion of ASPs.
Because NVM products are commodity oriented, they are subject to greater
declines in ASPs than other product areas within our company. The commodity
memory portion of the semiconductor industry suffered from excess capacity
during the first quarter of 1999, and all of 1998 and 1997, which led to greater
than normal price erosion during these periods.
TEMIC
Temic segment revenues increased 15% or $37 million in 1999 over 1998
because we included Temic's products for the full year of 1999 compared to ten
months in 1998 and because of higher unit shipments. However this increase was
offset by erosion of ASPs during 1999 and weakened European currencies.
Temic's revenues accounted for 21% of total revenue in both 1999 and 1998.
12
<PAGE> 14
NET REVENUES - BY GEOGRAPHIC AREA
Atmel's net revenues by geographic delivery location (see Note 11 of the
Consolidated Financial Statements) for the three years ended December 31, 1999,
1998 and 1997 are summarized as follows (in thousands):
<TABLE>
<CAPTION>
AREA 1999 1998 1997
- ----
<S> <C> <C> <C>
North America $ 459,050 $ 387,783 $ 381,433
Europe 409,459 308,969 153,734
Asia 359,990 381,631
452,709
Other 8,943 54,350 41,484
---------- ---------- ----------
$1,330,161 $1,111,092 $ 958,282
========== ========== ==========
</TABLE>
Sales outside North America accounted for 65% of our net revenues in 1999, 65%
in 1998, and 60% in 1997.
Our sales to Europe increased 33% or $100 million in 1999 compared to 1998, with
sales increases in almost all European countries in which we conduct business,
particularly Germany. This increase was due to higher unit shipments and the
inclusion of Temic's products, which are sold primarily in Europe, for the full
year in 1999 compared to only ten months in 1998. Revenue did not increase
proportionately with unit shipments because ASPs fell during the year.
Our sales to Europe increased 100% or $155 million in 1998 compared to 1997. The
increase was primarily because of the acquisition of Temic, most of whose
revenue is derived from Europe.
Our sales to Asia increased 26% or $93 million in 1999 to $453 million compared
to $360 million in 1998. Although we shipped more units to Asia, declining ASPs
kept revenue from growing in proportion to shipments. Our sales to Asia, except
to Japan, are denominated in US dollars.
The decrease of $22 million in Asian sales in 1998 was attributable primarily to
the effect of the general weakened business conditions and excess manufacturing
capacity in the semiconductor industry. In addition, in 1998 the dollar
strengthened against the Japanese yen which had an unfavorable impact on our
sales to Japan which are largely denominated in yen.
NET REVENUES - BY CURRENCY
Sales in Japanese yen accounted for 7% in 1999, 6% in 1998, and 9% in 1997 of
our sales. Sales in European currencies, primarily the German mark, French
franc, and the euro amounted to 14%, 17%, and 6% of sales in 1999, 1998 and
1997.
If our 1999 sales denominated in yen had been converted to dollars at the 1998
average yen exchange rate, 1999 sales would have been approximately $13 million
lower. Conversely, if our 1998 sales denominated in yen had been converted to
dollars at the 1997 average yen exchange rate, 1998 sales would have been
approximately $7 million higher. If our 1999 sales denominated in European
currencies had been converted to dollars at their average 1998 exchange rates,
our 1999 sales would have been approximately $8 million higher. Exchange rate
fluctuations did not have a significant effect on our sales denominated in
European currencies in 1998.
COST OF REVENUES AND GROSS MARGIN
Atmel's cost of revenues represents the costs of our wafer fabrication, assembly
and test operations. Our cost of revenues as a percentage of net revenues
fluctuates, depending on product mix, manufacturing yields and the level of
utilization of manufacturing capacity, among other factors. Cost of revenues as
a percentage of net revenues in 1999 was 62%, compared with 65% in 1998 and 63%
in 1997.
The decrease in our cost of revenues as a percentage of net revenues in 1999
compared to 1998 was primarily due to (i) a higher unit shipment base over which
we spread the fixed costs of operating our wafer fabrication facilities and (ii)
production efficiencies gained from shrinking circuits to produce more units
from a single wafer. We will continue our focus on implementing chemical,
mechanical planarization (CMP) and shallow trench isolation (STI), 0.35 micron,
0.25 micron and 0.18 micron technologies in our wafer manufacturing facilities.
These technologies will enable us to continue achieving cost reductions by
shrinking circuits to fit more on each wafer. However, production delays,
difficulties in achieving acceptable yields at any of our manufacturing
facilities, or overcapacity could materially and adversely affect our gross
margin and future operating results.
13
<PAGE> 15
Our cost of revenues as a percentage of net revenues increased in 1998 compared
to 1997 primarily because of increases in fixed costs associated with the
expansion of our wafer fabrication facilities and lower product margins in many
of our memory products. The lower product margins were attributable to rapid
declines of average selling prices that we did not match with a corresponding
decrease in our manufacturing cost per unit. Certain costs, depreciation being
the largest, do not change appreciably with the number of units produced.
Excluding the effect of Temic, cost of goods sold declined by 4%, while the
number of units shipped increased by 18%.
The 1997 percentage of 63% includes an inventory write-off of $53 million, which
resulted from the rapid selling price erosion in the fourth quarter of 1997.
During the first half of 1997, we believed demand for our products was
increasing, as demonstrated by encouraging new orders and business
opportunities, particularly in the emerging Asian markets. Based on these early
indications, we believed revenues and margins would improve for the fourth
quarter of 1997 and built our inventory in mid 1997 to meet the expected demand
and capitalize on what we anticipated would be an industry shortage of
semiconductor products. However, late in the fourth quarter of 1997, it became
apparent that the expected growth would not materialize. Revenues and margins
began to reflect this much tougher business environment. We responded to this
tougher business environment and rapid downturn of the semiconductor industry by
writing off our inventory. The inventory write off consisted of $42 million of
slow moving inventory and $11 million of inventory that was marked to the lower
market value.
We previously capitalized certain costs incurred in the start up phase of our
new manufacturing facilities in Rousset, France. At December 31, 1998 start up
costs associated with these facilities totaled approximately $49 million and
were reported as other assets. Atmel adopted SOP 98-5 "Reporting on the Costs of
Start Up Activities" effective January 1, 1999 and wrote off the capitalized
start up costs in the first quarter of 1999 (see Note 1 of Notes to Consolidated
Financial Statements).
RESEARCH AND DEVELOPMENT
Research and development expenses increased 11% to $194 million in 1999 from
$175 million in 1998. The increase was primarily due to our continuing
investment in shrinking the die size of our integrated circuits; enhancement of
mature products; development of new products, including smartcard products; and
development of new manufacturing techniques. We included Temic's research and
development expense for the full year of 1999 compared to only ten months in
1998, which accounts for approximately $8 million of the increase. We believe
that continued strategic investments in process technology and product
development are essential for us to remain competitive in the markets we serve
and we are committed to appropriate levels of expenditures for research and
development.
Research and development expenses increased to $175 million in 1998 from $138
million in 1997. The $37 million increase in 1998 was primarily due to the
inclusion of Temic's R&D expense, and the same reasons mentioned above.
The 1998 R&D expenses exclude an in-process R&D charge of $23 million related to
the acquisition of Temic, which has been separately presented in the
Consolidated Statements of Operations. This $23 million charge represents
purchased in-process technology for three projects that had not yet reached
technological feasibility and had no alternative future use. At the time we
acquired Temic we expected to incur between $10 and $20 million per year in
development costs to complete these projects. We spent approximately $22 million
in 1999 and $25 million in 1998 on research and development activities necessary
to realize this in-process technology. The projects are substantially complete
as of December 31, 1999.
SELLING, GENERAL AND ADMINISTRATIVE
Selling, general and administrative (SG&A) expenses increased 12% to $167
million in 1999 from $149 million in 1998. The increase was largely due to the
inclusion of Temic's SG&A expense for the full year of 1999 compared to only ten
months in 1998; higher selling costs due to higher revenues, primarily in the
NVM segment; and higher G&A expenses at two of our European subsidiaries. As a
percentage of net revenues, SG&A expenses were 13% in 1999, the same percentage
as in 1998.
SG&A expense of $149 million in 1998, which included approximately $41 million
of SG&A expense associated with Temic, was slightly less than 1997 SG&A of $150
million, and decreased to 13% of revenues in 1998 from 16% of revenues in 1997.
The decrease in 1998 from 1997 is primarily attributable to a $41 million
write-down of accounts receivable in the fourth quarter of 1997 that was not
repeated in 1998. The pre-tax charge was established in response to our
re-assessment of the probability of collection of certain receivables following
the rapid down-turn of the semiconductor industry and the difficult collection
environment due to the financial turmoil in Asia in the fourth quarter of 1997.
More than 40% of our revenues were generated in Asia in 1997.
14
<PAGE> 16
RESTRUCTURING CHARGES
In the second quarter of 1998, we implemented an overall cost reduction plan due
to weakened business conditions in the semiconductor industry. As part of the
plan, we announced a worldwide 10% workforce reduction of approximately 600
people, through early retirement, terminations and attrition in the second half
of 1998 and provided $1 million for severance costs. We completed these
activities by the second quarter of 1999. Approximately 250 employees received
severance benefits totaling $1 million under this program. The rest of our
objective was met primarily through attrition.
In addition to cost reduction actions, we recognized an impairment loss related
to the write down of certain assets in our wafer manufacturing facility in
Colorado Springs. As a result, we recorded a $65 million non-recurring charge in
1998. In making our decision, we examined the relationship between the costs of
fixed assets in our Colorado manufacturing facility and the projected revenues
to be produced from these assets during the next three years. We concluded the
gross margin of our products would decline rapidly based upon the continued
price erosion and the maturity of our products. As a result, we decided to move
toward more advanced manufacturing processes using 0.35 micron technology in our
Colorado facility in an effort to fit more circuits on each wafer and generate
additional revenue per wafer. However, due to the depressed state of average
selling prices in 1998 for semiconductor memory products, even the projected
additional output per wafer did not provide a positive gross margin at the
existing fixed cost structure, leading to the impairment write down.
We recognized the impairment charge when the future undiscounted cash flows of
each asset were estimated to be insufficient to recover its related carrying
value. In measuring impairment, we group assets at the plant level, which is the
lowest level from which there are identifiable, independent cash flows.
Accordingly, the carrying values of our Colorado Springs plant assets were
written down to our 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. We
do not anticipate significant proceeds from their disposal. None of the assets
affected by this action is currently held for sale.
IN-PROCESS RESEARCH AND DEVELOPMENT CHARGES
Atmel recognized an in-process research and development charge of $23 million
relating to the Temic acquisition during the second quarter of 1998. The amount
allocated to in-process technology represents purchased in-process technology
for three projects that had not yet reached technological feasibility and had no
alternative future use. The value of all in-process projects was determined by
estimating the net cash flows resulting from the completion of these projects
reduced to the percentage of completion of the project. Net cash flows were tax
effected using estimated income taxes consistent with our anticipated tax rate
for the foreseeable future and then discounted back to their present value at a
discount rate of 18% based on our required risk adjusted weighted average rate
of return.
In order to develop all purchased in-process technology into commercially viable
products and processes we successfully had to complete several activities,
including planning, designing, prototyping, verifying and testing. These
activities were necessary to establish that the products and processes could
meet their design specifications, which included functions, features and
technical performance requirements. Because these projects were in-process we
were uncertain whether they could be successfully developed and could result in
the net cash flows that were originally estimated at acquisition. It was
reasonably possible that the development of this technology could have failed
because of prohibitive cost, our inability to perform the required completion
efforts, or other factors outside our control such as a change in the market for
the resulting developed products.
As noted above under "Research and Development" we spent approximately $22
million in 1999 and $25 million in 1998 on research and development activities
necessary to realize this purchased in-process technology. The projects are
substantially complete as of December 31, 1999.
We currently believe the aggregate net cash flows originally anticipated at
acquisition will be realized and that there has been no material change in the
expected return on investment related to these projects.
The fair value allocated to each of the in-process projects was as follows (in
thousands):
<TABLE>
<S> <C>
Product developments $ 8,784
Process developments 9,621
System Level Integration 5,020
-------
$23,425
=======
</TABLE>
15
<PAGE> 17
TEMIC PRODUCT DEVELOPMENTS
The ongoing product developments at the time of acquisition included
development of new and significantly enhanced microcontroller, automotive and
communications products that utilize Radio Frequency (RF). 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. It was estimated that, on average, all
in-process product technology was 38% complete at the date of acquisition based
on the cost of research and development to date compared to total estimated cost
expenditure to complete the project.
We expected to incur up to a total of $30 million in development costs
to complete this project. We spent approximately $9 million in 1999 and $12
million in 1998, and the projects are substantially complete as of December 31,
1999.
The estimated revenue includes average compounded annual revenue growth
rates for the projects from 1998 to 2003, and declining growth rates thereafter
through 2005. We based these projections on estimates of market size and growth,
expected trends in technology, and the nature and expected timing of new product
introductions. Estimated cost of revenues was consistent with our current cost
of revenues and future expectations for cost of revenues. Sales and marketing
costs were expected to be consistent with that of our average costs in these
areas. Maintenance research and development costs as a percentage of estimated
revenue are expected to be higher than our average costs in the introduction and
early phases of product sales and then decline to our average costs. This
research and development cost pattern is consistent with our historical
experience through product life cycles.
TEMIC PROCESS DEVELOPMENTS
Process developments at the time of acquisition included Silicon
Germanium (SiGe) technology and UHF process technologies, which will be
incorporated in new products. If the development is successful, these
technologies enable higher product performance while reducing product cost. We
estimated the project was 51% complete at the date of acquisition based on the
cost of research and development to date compared to total estimated cost.
We expected to incur up to a total of $10 million in development costs
to complete these projects. We spent approximately $4 million in 1999 and $5
million in 1998, and the projects are substantially complete as of December 31,
1999.
The value of process technology under development was estimated by
projecting attributable future cost savings. Cost savings were estimated to
begin in 1999 and grow through 2003 and decline to zero through 2006. The
estimates of cost savings (reduction of cost of goods sold) were compared to our
historical results as well as the forecasts we utilized to evaluate the Temic
acquisition. A maintenance research and development charge and income taxes were
then deducted from the cost savings to estimate the free cash flow attributable
to the process technology under development. Maintenance research and
development costs as a percentage of estimated revenue are expected to be higher
than our average costs in the introduction and early phases of process
implementation and then decline to our average costs. This research and
development cost pattern is consistent with our historical experience through
process life cycles.
TEMIC SYSTEM LEVEL INTEGRATION
New manufacturing processes and improved design tools have created a new
market referred to as System Level Integration (SLI) or "system on a chip" which
will result in single chip solutions replacing multi chip sets. We are
aggressively pursuing the SLI market, which could represent a $30 billion market
by 2002. SiGe and RF in-process technologies obtained from Temic will be
integral to our SLI strategy. We estimated the project was 32% complete at the
date of acquisition based on the status of the SiGe and RF projects under
development at that time.
We expected to incur up to a total of $17 million in development costs
to complete this project. We spent approximately $9 million in 1999 and $8
million in 1998, and the projects are substantially complete as of December 31,
1999.
We had identified several products that would incorporate SLI in the
future and their projected total revenue through 2003. We estimated that 25% of
this revenue was attributable to in-process technologies acquired in the Temic
acquisition. We applied an industry projected earnings before interest and taxes
margin of 18.7%, a capital charge of 1.2%, and an estimated tax charge to
estimated revenues and calculated the total cash flow attributable to the
products that will incorporate in-process SLI technology. Net cash inflows were
expected to begin in 1999. Revenue and operating income were estimated to
increase from 1999 to 2001 and decline from 2001
16
<PAGE> 18
to 2003. These estimates were compared to our historical results as well as the
forecasts we used to evaluate the Temic acquisition.
MACHINERY AND EQUIPMENT IMPAIRMENT CHARGE (FAB 6)
In December 1997, we recognized an impairment charge of $43 million relating to
the impairment of machinery and equipment in our wafer fabrication plant (Fab 6)
located in Rousset, France. The impairment charge was caused by the projected
inability of this fabrication plant to produce product at costs acceptable in
today's market and the need to consolidate manufacturing in our new fabrication
plant (Fab 7, also in Rousset, France) to take advantage of advanced
technologies. We recognized the impairment charge when the future undiscounted
cash flows of each asset were estimated to be insufficient to recover its
related carrying value. As such time, the carrying values of these assets were
written down to our 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 expense was reported as a nonrecurring charge in statement of
operations.
In January 1999, we sold the majority of these assets (see Note 2 of Notes to
Consolidated Financial Statements).
INTEREST AND OTHER INCOME AND INTEREST EXPENSE
Interest and other income increased $20 million to $36 million in 1999 compared
to $16 million in 1998. The increase was due primarily to (i) a $15 million
pre-tax gain related to the sale of certain assets (see Note 2 of Notes to
Consolidated Financial Statements), (ii) higher interest income due to higher
cash and investment balances and higher interest rates, (iii) a gain on sale of
equity investments of $5 million, and (iv) foreign exchange translation gains of
$3 million. Interest expense was $2 million higher in 1999 than in 1998
primarily because of additional interest (12 months in 1999 compared to 9 months
in 1998) for the April 1998 $115 million zero coupon convertible debt financing
used to finance our acquisition of Temic in the first quarter of 1998.
Interest and other income increased to $16 million in 1998 from $12 million in
1997. Other income consists of investment gains and losses and realized and
unrealized foreign currency exchange gains and losses. The increase in 1998 from
1997 was primarily due to the significant decline in interest rates that
occurred in the latter part of 1998, resulting in gains taken in our portfolio
of U.S. securities. Interest expense, which includes interest on capital lease
financing, increased to $47 million in 1998 from $31 million in 1997. This was
due primarily to the increase in borrowings used to finance the expansion and
construction of our wafer fabrication facilities located in Colorado Springs,
Colorado and Rousset, France.
TAXES ON INCOME
Atmel's effective tax rate was 36% for 1999 compared to a tax benefit rate of
1.75% for 1998. The 1998 rate was lower than normal due to certain items
associated with the acquisition of Temic, including the deduction of in-process
research and development expenses, for which we recorded no tax benefit in the
first nine months of 1998, and nondeductible permanent differences arising from
foreign operations.
We had an income tax benefit of $1 million in 1998 compared to income tax
expense of $4 million in 1997. The tax benefit rate in 1998 was 1.75% as
compared to an effective tax rate of 70% in 1997. The 1998 effective tax rate
was affected by the treatment of acquisition charges associated with the
acquisition of Temic and the tax effect of foreign operations. We recorded no
tax benefit for the deduction of in-process research and development allocated
in the purchase accounting for Temic, resulting in a reduction of the rate of
20%. Further, an additional rate reduction of 15% was due primarily to
non-deductible permanent differences arising from our foreign operations and
certain losses from our foreign operations being benefited using the local
effective tax rate which is lower than the U.S. statutory rate. The net effect
of other permanent differences increased the tax benefit rate by 2%. The 1997
effective tax rate was caused by valuation allowances for foreign losses, the
tax rate effect of which was magnified due to the lower level income before
taxes.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1999, Atmel had $412 million in cash and short term investments,
an increase of $88 million from $324 million at December 31, 1998; and $487
million in net working capital, a decrease of $5 million from $492 million at
December 31, 1998. Accounts receivable increased 12% to $282 million at December
31, 1999 from $253 million at December 31, 1998. The average days of accounts
receivable outstanding were 77 days and 83 days in 1999 and 1998. The decrease
in average days outstanding was primarily because we increased our focus on
collecting past due receivables and because the collection environment
strengthened in our favor as demand for semiconductor products improved in the
second half of 1999. We monitor collection risks and provide an adequate
allowance for doubtful accounts related to these risks. While there can be no
guarantee of collecting these receivables, we believe that substantially all net
receivables will be collected given customers' current credit ratings and expect
that average days outstanding will decrease with improved business conditions.
In 1999, we wrote off
17
<PAGE> 19
approximately $19 million of accounts receivables. The majority of these
write-offs was previously reserved for at December 31, 1998 and had no impact on
our results of operations.
Inventories increased $34 million to $274 million at December 31, 1999 from $240
million at December 31, 1998, primarily to support a higher sales level and
because Fab 7 in Rousset, France was brought into production at the end of the
second quarter 1999. Inventory turnover increased to 3.4 in 1999 from 3.0 in
1998.
CASH FLOW FROM OPERATING ACTIVITIES
During 1999, our operations provided net cash of $270 million compared to $134
million in 1998, an increase of $136 million. In part, this was because our net
income increased $103 million. We significantly slowed the rate of inventory
growth in 1999 compared to 1998 which contributed to the improved cash flow from
our operations. Also, our trade accounts payable grew during 1999, where they
had fallen during 1998, requiring much less cash in 1999 compared to 1998.
During 1998, we generated net cash flow from operations of $134 million compared
to $79 million in 1997. Our accounts receivable provided $10 million to our cash
flow in 1998 compared to requiring $93 million from our cash flow in 1997. In
1997 we encountered a difficult collection environment during the Asian
financial crisis, which caused our accounts receivable to increase.
The increase in inventory balances to 1998 from 1997 reflects the inclusion of
Temic's inventory, which totaled approximately $36 million.
During 1998 our settlement of trade accounts payable and other accrued
liabilities required $58 million from our cash flow. The majority of this
requirement was related to purchases made in 1997 and paid for in 1998.
CASH FLOW FROM INVESTING ACTIVITIES
Atmel's investing activities used net cash of $154 million for 1999 compared to
$330 million in 1998, a reduction of $176 million. Our 1999 investments were
made primarily to increase capacity and enhance process technology at our wafer
fabrication facilities in Colorado Springs and Rousset. The most significant
factor in the apparent drop of net cash used for investments in 1999 is the
acquisition of Temic in March of 1998 for $99 million for which no similar
acquisition was made in 1999 (see Note 2 of Notes to Consolidated Financial
Statements). The lower investment of cash in 1999 was also due in part to lower
payments for capital, $172 million compared to $188 million in 1998.
Atmel made capital cash investments in 1998 totaling $188 million, primarily to
implement CMP and STI, and to advance process technology in its Colorado Springs
and Rousset wafer fabrication facilities. In 1997, we made capital investments
totaling $312 million to increase wafer fabrication capacity at our Colorado
fabrication plant and to complete construction of our 8 inch plant in Rousset.
Because of high demand for our products, we have increased capacity in our
Rousset wafer fabrication plant and we intend to further increase capacity
throughout 2000. We expect to fund these capital investments using a combination
of existing cash, equity financing, sale of short-term investments and equipment
lease financing.
CASH FLOW FROM FINANCING ACTIVITIES
In 1999, we used $17 million net cash for financing activities compared to
providing $180 million of net cash from financing activities in 1998, a decrease
of $197 million. This decrease was primarily because: (i) we received $59
million less proceeds from capital leases in 1999 compared to 1998, (ii) we
engaged in no new financing in 1999 to compared to the $115 million of proceeds
we received from the issuance of the zero coupon convertible debentures in April
1998, and (iii) we made an $8 million payment to settle warrants in the first
half of 1999. During 1999, Atmel settled all outstanding warrants and no maximum
potential obligation exists. We do not intend to enter into these warrant
programs in the future. Atmel from time to time may repurchase its common stock
under the stock repurchase program (see Note 14 of Notes to Consolidated
Financial Statements) when favorable market conditions exist and funds are
available. We are authorized to repurchase an additional 17.2 million shares. We
cannot estimate when favorable market conditions will exist, the timing, or the
amount of cash that will be used, if any, to repurchase Atmel's common stock.
Atmel financed substantially all of its 1998 asset acquisitions through lease
financing, convertible notes and notes payable. We obtained lease financing of
$142 million to pay for fixed asset acquisitions. We use this form of financing
for substantially all of our fixed asset purchases. The convertible notes of
$115 million were issued principally to finance the acquisition of Temic. Other
notes payable of $41 million were used to finance equipment for Fab 7 located in
Rousset, France.
18
<PAGE> 20
We finance our operations and capital requirements with cash flow from
operations, equipment lease financing and other borrowing arrangements, and
equity offerings.
In January and August 1998, Atmel repurchased 2 million and 0.8 million, of its
shares for $20.0 million. The shares were then retired.
As disclosed under the heading of Put Warrants in Note 14 of Notes to
Consolidated Financial Statements, Atmel entered into certain warrant
transactions that provided Atmel with the flexibility to establish a price range
in which we had the option to repurchase its stock at a later date. These
warrant positions did not have an immediate impact on the cash resources that
were needed to fund the expansion and construction of our wafer fabrication
facilities in Colorado Springs and Rousset. All of the put and call warrants
were closed out as of May 14, 1999.
We believe that our existing cash and cash equivalents, together with cash flows
from operations, lease financing on equipment, and other short or medium term
bank borrowings will be sufficient to meet our operating and capital cash
requirements through 2000. We may, however, in the longer term seek additional
equity, as we did on February 3, 2000 (see Note 15 of Notes to Consolidated
Financial Statements), or debt financing to fund further expansion of our wafer
fabrication capacity, or to fund other projects or acquisitions. We cannot
precisely determine at this time the timing and amount of such capital
requirements which will depend on a number of factors, including demand for our
products, product mix changes, semiconductor industry conditions and competitive
factors.
OTHER FACTORS THAT CAN AFFECT OUR BUSINESS
FORWARD LOOKING STATEMENTS
Investors are cautioned that certain statements in this Report on Form 10-K 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), risks associated with product demand and market
acceptance risks, the impact of competitive products and pricing, delays in new
product development, fab capacity utilization, product mix and technological
risks, ability to integrate and manage acquisitions and other risk factors
identified in the Company's filings with the Securities and Exchange Commission.
The Company undertakes no obligation to update any forward looking statements in
this Report on Form 10-K.
OUR REVENUE AND OPERATING RESULTS FLUCTUATE SIGNIFICANTLY DUE TO A VARIETY OF
FACTORS
Our future operating results will be subject to quarterly variations based upon
a wide variety of factors, many of which are not within our control. These
factors include:
- the cyclical nature of both the semiconductor industry and the markets
addressed by our products;
- fluctuations in manufacturing yields;
- the timing of introduction of new products;
- the timing of customer orders;
- price erosion;
- changes in mix of products sold;
- the extent of utilization of manufacturing capacity;
- product obsolescence;
- availability of supplies and raw materials;
- price competition and other competitive factors; and
- fluctuations in currency exchange rates.
19
<PAGE> 21
Any unfavorable changes in these factors could harm our operating results.
In particular, we believe that our future sales growth will depend substantially
on the success of our new products. Our new products are generally incorporated
into our customers' products or systems at the design stage. However, design
wins may precede volume sales by a year or more. We may not be successful in
achieving design wins or any design win may not result in future revenues, which
depend in large part on the success of the customer's end product or system. We
expect the average selling price of each of our products to decline as
individual products mature and competitors enter the market. To offset average
selling price decreases, we rely primarily on reducing costs in the
manufacturing of those products, increased unit sales to absorb fixed costs, and
introducing new, higher priced products which incorporate advanced features or
integrated technologies to address new or emerging markets. To the extent that
such cost reductions and new product introductions do not occur in a timely
manner, our operating results could be harmed. From time to time, our quarterly
revenues and operating results can become more dependent upon orders booked and
shipped within a given quarter and, accordingly, our quarterly results can
become less predictable and subject to greater variability.
In addition, our 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, data networking
equipment and military equipment. Our success will also depend upon a better
supply and demand balance within the industry.
THE SEMICONDUCTOR INDUSTRY IS CYCLICAL AND COULD CREATE FLUCTUATIONS IN OUR
OPERATING RESULTS
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, often in connection with, or in
anticipation of, maturing product cycles and declines in general economic
conditions. Downturns of this type occurred in 1998 and 1997. These downturns
have been characterized by diminished product demand, production overcapacity,
and accelerated decline of average selling prices; and in some cases have lasted
for more than a year. Our business could be harmed by industry-wide fluctuations
in the future. The commodity memory portion of the semiconductor industry, from
which we derived approximately 46% of our revenues in 1999 and 44% our revenues
in 1998, continued to suffer from excess capacity in 1998, which led to
substantial price reductions during this period. While these conditions improved
in 1999, if they were to resume our growth and operating results would be
harmed. In addition, in the past, our operating results were harmed by
industry-wide fluctuations in the demand for semiconductors, which resulted in
under-utilization of our manufacturing capacity. As mentioned above, our
continued success depends 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, data networking and military equipment, and a
better supply and demand balance within the industry. Our business could be
harmed in the future by cyclical conditions in the semiconductor industry or by
slower growth in any of the markets served by our customer products.
YEAR 2000 RISKS
We have executed a plan designed to make our computer systems, applications,
computer and manufacturing equipment, and facilities year 2000 ready. To date,
none of our systems, applications, equipment or facilities has experienced
material difficulties from the transition to year 2000. However, it is possible
that material difficulties could be discovered or could arise. We cannot
guarantee that our year 2000 readiness plan has been successfully implemented,
and actual results could still differ materially from our plan. In addition, we
have communicated with our critical suppliers to determine the extent to which
we may be vulnerable to such parties' failure to resolve their own year 2000
issues. Where practicable, we have attempted to mitigate our risks with respect
to the failure of these entities to be year 2000 ready. The effect, if any, on
our results of operations from any failure of such parties to be year 2000 ready
cannot yet be determined.
FOREIGN CURRENCY RISK
When we take a foreign order denominated in a local currency we will receive
fewer dollars than we initially anticipated if that local currency weakens
against the dollar before we collect our funds. In addition to reducing revenue,
this risk will negatively affect our operating results.
We partially counterbalance this risk in Europe by our significant operations
there whose costs are denominated in European currencies. Negative impacts on
revenue are offset by positive impacts on costs. In Japan, our yen denominated
sales are also subject to the exchange rate risk, but we do not have significant
operations there with which to counterbalance our exposure. Sales denominated in
yen were 7% of our revenue in 1999.
Sales denominated in foreign currencies were 21%, 23% and 15% of revenues in
1999, 1998 and 1997.
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<PAGE> 22
We also face the risk that our accounts receivable denominated in foreign
currencies will be devalued if such foreign currencies weaken quickly and
significantly against the dollar. Because we have European assets and
liabilities in local currencies, we do not hedge accounts receivable denominated
in European currencies. However, our accounts receivables in yen are hedged
using a loan denominated in yen of approximately equal amount. At December 31,
1999, the yen-denominated loan was $26 million.
No foreign exchange contracts were held at December 31, 1999. Foreign exchange
contracts outstanding, all of which were in yen, were $5 million and $10 million
at December 31, 1998 and 1997. At December 31, 1998, we had a net unrealized
loss from these contracts of ($1) million.
LITIGATION RISKS
We have from time to time received, and may in the future receive,
communications from third parties asserting patent or other intellectual
property rights covering our products or processes. In the past, we have
received specific allegations from major companies alleging that certain of our
products infringe patents owned by such companies. If any litigation were to
occur as a result of such allegations in the future, and we do not prevail in
any such litigation, and are unable to obtain a satisfactory license, our
results of operations may be adversely affected.
In addition, the semiconductor industry is characterized by vigorous protection
and pursuit of intellectual property rights or positions, which have on occasion
resulted in significant and often protracted and expensive litigation. In the
past, we have been involved in such litigation, which adversely affected our
operating results. We cannot assure you that intellectual property claims will
not be made against us in the future or that we will not be prohibited from
using the technologies subject to any such claims or be required to obtain
licenses and make corresponding royalty payments. In addition, the necessary
management attention to and legal costs associated with litigation can have a
significant adverse effect on operating results.
OUR STOCK PRICE HAS FLUCTUATED IN THE PAST AND MAY CONTINUE TO FLUCTUATE IN THE
FUTURE
The market price of our common stock has experienced significant fluctuations
and may continue to fluctuate significantly. The market price of our common
stock may be significantly affected by factors such as the announcement of new
products or product enhancements by us or our competitors, technological
innovations by us or our competitors, quarterly variations in our results of
operations, changes in earnings estimates by market analysts and general market
conditions or market conditions specific to particular industries. Statements or
changes in opinions, ratings, or earnings estimates made by brokerage firms or
industry analysts relating to the market in which we do business or relating to
us specifically could result in an immediate and adverse effect on the market
price of our stock. In addition, in recent years the stock market has
experienced extreme price and volume fluctuations. These fluctuations have had a
substantial effect on the market prices for many high technology companies,
often unrelated to the operating performance of the specific companies.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
INTEREST RATE RISK
We maintain investment portfolio holdings of various issuers, types and
maturities whose values are dependent upon short-term interest rates. We
generally classify these securities as available for sale, and consequently
record them on the balance sheet at fair value with unrealized gains and losses
being recorded as a separate part of stockholders' equity. We do not currently
hedge these interest rate exposures.
Given Atmel's current profile of interest rate exposures and the maturities of
its investment holdings, we believe that an unfavorable change in interest rates
would not have a significant negative impact on our investment portfolio or
statement of operations through December 31, 2000.
Atmel has short term debt, long term debt and capital leases totaling $801
million at December 31, 1999. Approximately $632 million of these borrowings
have fixed interest rates. Atmel has approximately $169 million of floating rate
debt that is based on the Euro and EuroYen interest rates. We do not hedge
either of these interest rates and could be negatively affected should either of
these rates increase significantly. A hypothetical 40 basis point increase in
both of these interest rates would have a $0.7 million adverse impact on income
before taxes on Atmel's Consolidated Statements of Operations for 1999. While
there can be no assurance that both of these rates will remain at current
levels, we believe these rates will not increase significantly (defined as an
increase of more than 40 basis points) and cause any harm to our operations and
financial position.
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<PAGE> 23
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA SELECTED
QUARTERLY FINANCIAL DATA
<TABLE>
<CAPTION>
(Unaudited, in thousands, except per-share data) First Quarter Second Quarter Third Quarter Fourth Quarter
- -----------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, 1999
<S> <C> <C> <C> <C>
Net revenues $ 290,037 $ 311,142 $ 340,244 $ 388,738
Gross margin 103,872 116,932 128,477 154,579
Income before cumulative effect
Of accounting change(*) 16,698 15,404 17,306 33,039
Net income (loss) (12,370) 15,404 17,306 33,039
Basic net income (loss) per share:
Income before accounting change 0.08 0.08 0.09 0.16
Net income (loss) (0.06) 0.08 0.09 0.16
Diluted net income (loss) per share:
Income before accounting change 0.08 0.07 0.08 0.16
Net income (loss) (0.06) 0.07 0.08 0.16
Price range of common stock/share
High 9.41 13.09 20.94 30.38
Low 7.03 8.56 13.19 15.38
YEAR ENDED DECEMBER 31, 1998
Net revenues $ 260,392 $ 288,205 $ 273,814 $ 288,681
Gross margin 96,200 88,530 101,115 108,100
Net income (loss) 26,793 (91,409) 4,618 9,960
Basic net income (loss) per share 0.14 (0.46) 0.02 0.04
Diluted net income (loss) per share 0.13 (0.46) 0.02 0.04
Price range of common stock per
share
High 10.25 10.12 7.31 8.19
Low 7.00 6.37 3.01 3.60
</TABLE>
* See Note 1 of Notes to Consolidated Financial Statements for a discussion
regarding the cumulative effect of accounting charge. (S-K, 302 (a)(3))
Other information required by this Item regarding Consolidated Financial
Statements and supplementary data is set forth in the Consolidated Financial
Statements and related notes, and Report of the Independent Accountants, which
appear on pages 27 to 47 of this Report on Form 10-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
22
<PAGE> 24
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT
Information required by this Item regarding directors and executive officers set
forth under the captions "Election of Directors" and "Section 16(a) Beneficial
Ownership Reporting Compliance" in Registrant's definitive Proxy Statement for
the Annual Meeting of Stockholders to be held on May 3, 2000 (the "2000 Proxy
Statement"), is incorporated herein by reference. Information regarding
identification of Registrant's executive officers is set forth in Part I, Item 1
of this Report on Form 10-K under the caption "Executive Officers of the
Registrant."
ITEM 11. EXECUTIVE COMPENSATION
Information required by this Item regarding compensation of Registrant's
directors and executive officers set forth under the captions "Director
Compensation" and "Executive Compensation" in the 2000 Proxy Statement is
incorporated herein by reference (except to the extent allowed by Item
402(a)(8) of Regulation S-K).
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information required by this Item regarding beneficial ownership of Registrant's
common stock by certain beneficial owners and management of Registrant set forth
under the caption "Security Ownership" in the 2000 Proxy Statement is
incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information required by this Item regarding certain relationships and related
transactions with management set forth under the caption "Compensation Committee
Interlocks and Insider Participation" in the 2000 Proxy Statement is
incorporated herein by reference.
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<PAGE> 25
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of, or incorporated by
reference into, this Report on Form 10-K:
1. Financial Statements.
Consolidated Statements of Operations for the
Three Years Ended December 31, 1999.
Consolidated Balance Sheets as of December 31,
1999 and 1998.
Consolidated Statements of Cash Flows for the
Three Years Ended December 31, 1999.
Consolidated Statements of Stockholders' Equity
for the Three Years Ended December 31, 1999.
Notes to Consolidated Financial Statements.
Report of Independent Accountants.
2. Financial Statement Schedules. The following Financial
Statement Schedules for the years ended December 31,
1999, 1998 and 1997 should be read in conjunction with
the Consolidated Financial Statements, and related notes
thereto.
<TABLE>
<CAPTION>
Schedule Page
-------- ----
<S> <C>
Report of Independent Accountants on
Financial Statement Schedule 48
Valuation and Qualifying Accounts 49
</TABLE>
Schedules not listed above have been omitted because
they are not applicable or are not required or the
information required to be set forth therein is included
in the Consolidated Financial Statements or notes
thereto.
3. Exhibits. The following Exhibits are filed as part of,
or incorporated by reference into, this Report on Form
10-K:
3.1(6) Certificate of Incorporation of Registrant,
as amended to date.
3.2(6) Bylaws of Registrant.
3.3(6) Certificate of Determination of Rights,
Preferences and Privileges of Series A
Preferred Stock (included in Exhibit 4.1).
4.1(6) Amended and restated Preferred Shares Rights
Agreement dated as of October 18, 1999, between
Atmel Corporation and BankBoston, N.A., a
national banking association, including the
Certificate of Determination, the form of
Rights Certificate and the Summary of Rights.
10.1(1)+ 1986 Incentive Stock Option Plan, as amended,
and forms of stock option agreements there
under.
10.2(1)+ 1991 Employee Stock Purchase Plan, as amended.
24
<PAGE> 26
10.3(3) Credit Agreement dated April 20, 1995,
between Wells Fargo Bank and Registrant.
10.4 Form of Indemnification Agreement between
Registrant and its officers and directors.
10.5(2) Consulting Agreement by and between Norman
Hall and Registrant dated March 1, 1990.
10.6(4) 1996 Stock Plan, as amended and forms of
agreements thereunder.
10.7(5) Indenture, dated as of May 17, 1997, by and
among Atmel S.A., Atmel Corporation and State
Street Bank and Trust Company of California,
N.A., as trustee thereunder.
10.8(5) Registration Rights Agreement, dated as of May
15, 1997, by and among Atmel Corporation and
Deutsche Morgan Grenfell Inc., Alex. Brown &
Sons, Incorporated, BNP plc, Credit Lyonnais
Securities, Smith Barney Inc. and Societe
Generale Securities Corp.
10.9(7) Indenture, dated as of April 21, 1998, by and
between the Company and State Street Bank and
Trust Company of California, N.A., as trustee
thereunder (including the form of debenture).
10.10(7) Registration Rights Agreement dated as of April
21, 1998, by and between the Company and Morgan
Stanley & Co. Incorporated.
21.1 Subsidiaries of Registrant.
23.1 Consent of Independent Accountants.
24.1 Power of Attorney (included on the signature
pages hereof).
27.1 Financial Data Schedule.
(1) Incorporated by reference to exhibits to the Company's
Registration Statement on Form S-1 (File No. 33-38882)
declared effective on March 19, 1991.
(2) Incorporated by reference to exhibits to the Company's
Annual Report on Form 10-K for the year ended December
31, 1992.
(3) Incorporated by reference to exhibits to the Company's
Annual Report on Form 10-K for the year ended December
31, 1995.
(4) Incorporated by reference to exhibits to the Company's
Registration Statement on Form S-8 (File No. 333-15823)
filed on November 8, 1996.
(5) Incorporated by reference to exhibits to the Company's
Report on Form 8-K (File No. 000-19032) filed on June 4,
1997.
(6) Incorporated by reference to exhibits to the Company's
Registration Statement on Form 8-A/12G/A (No.000-19032)
filed on December 6, 1999.
(7) Incorporated by reference to exhibits to the Company's
Registration Statement on Form S-3, as amended (File No.
333-59261), filed on July 16, 1998.
+ The item listed is a compensatory plan.
(b) Reports on Form 8-K. The Company filed a report on Form 8-K on
November 5, 1999 to change its state of incorporation effective
October 18, 1999 from California to Delaware.
25
<PAGE> 27
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this Report on Form 10-K to be
signed on its behalf by the undersigned, thereunto duly authorized.
ATMEL CORPORATION
March 14, 2000 By: /s/ George Perlegos
--------------------------------------
George Perlegos
President and Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints George Perlegos and Donald Colvin, and each of
them, jointly and severally, his attorneys-in-fact, each with the power of
substitution, for him in any and all capacities, to sign any and all amendments
to this Report on Form 10-K and to file the same, with exhibits thereto and
other documents in connection therewith, with the Securities and Exchange
Commission, hereby ratifying and confirming all that each of said
attorneys-in-fact, or his substitute or substitutes, may do or cause to be done
by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report
on 10-K has been signed by the following persons on March 14, 2000 on behalf of
the Registrant and in the capacities indicated:
<TABLE>
<CAPTION>
Signature Title
--------- -----
<S> <C>
/s/ George Perlegos President, Chief Executive Officer and Director
- ------------------------------------- (principal executive officer)
(George Perlegos)
/s/ Donald Colvin Vice President, Finance and Chief Financial Officer
- ------------------------------------- (principal financial and accounting officer)
(Donald Colvin)
/s/ Norm Hall Director
- -------------------------------------
(Norm Hall)
/s/ Gust Perlegos Director
- -------------------------------------
(Gust Perlegos)
/s/ T. Peter Thomas Director
- -------------------------------------
(T. Peter Thomas)
/s/ Tsung-Ching Wu Director
- -------------------------------------
(Tsung-Ching Wu)
</TABLE>
26
<PAGE> 28
ATMEL CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Years Ended December 31,
(In thousands, except per share data) 1999 1998 1997
<S> <C> <C> <C>
NET REVENUES $ 1,330,161 $ 1,111,092 $ 958,282
EXPENSES
Cost of revenues 826,301 717,147 602,239
Research and development 193,750 174,808 137,896
Selling, general and administrative 167,132 149,069 150,098
Restructuring and in-process research and
development charges -- 89,725 43,000
-------------------------------------------------
TOTAL EXPENSES 1,187,183 1,130,749 933,233
-------------------------------------------------
OPERATING INCOME (LOSS) 142,978 (19,657) 25,049
Interest and other income 35,623 16,197 12,107
Interest expense (49,780) (47,471) (31,155)
-------------------------------------------------
INCOME (LOSS) BEFORE TAXES 128,821 (50,931) 6,001
Benefit from (provision for) income taxes (46,374) 893 (4,200)
-------------------------------------------------
Income (loss) before cumulative effect of accounting change 82,447 (50,038) 1,801
Cumulative effect of accounting change, net of tax (29,068) -- --
-------------------------------------------------
NET INCOME (LOSS) $ 53,379 $ (50,038) $ 1,801
=================================================
BASIC NET INCOME (LOSS) PER SHARE:
Income (loss) before cumulative effect of accounting change $ 0.41 $ (0.25) $ 0.01
Cumulative effect of accounting change, net of tax (0.14) -- --
-------------------------------------------------
Net income (loss) per share $ 0.27 $ (0.25) $ 0.01
=================================================
DILUTED NET INCOME (LOSS) PER SHARE:
Income (loss) before cumulative effect of accounting change $ 0.40 $ (0.25) $ 0.01
Cumulative effect of accounting change, net of tax (0.14) -- --
-------------------------------------------------
Net income (loss) per share $ 0.26 $ (0.25) $ 0.01
=================================================
SHARES USED IN BASIC NET INCOME (LOSS) PER SHARE CALCULATIONS 200,783 198,716 198,876
=================================================
SHARES USED IN DILUTED NET INCOME (LOSS) PER SHARE CALCULATIONS 207,322 198,716 203,202
=================================================
</TABLE>
The accompanying notes are an integral part of these statements.
27
<PAGE> 29
ATMEL CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
(In thousands, except per share data) 1999 1998
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 251,272 $ 161,721
Short-term investments 161,190 161,844
Accounts receivable, net of allowance for doubtful accounts of
$20,770 in 1999 and $34,610 in 1998 281,843 252,601
Inventories 274,065 240,258
Other current assets 70,938 74,967
------------------------------
TOTAL CURRENT ASSETS 1,039,308 891,391
Fixed assets, net 938,562 964,126
Other assets 37,040 107,220
------------------------------
TOTAL ASSETS $ 2,014,910 $ 1,962,737
==============================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current portion of long-term debt $ 147,166 $ 81,995
Trade accounts payable 278,562 200,101
Accrued liabilities and other 94,584 92,953
Deferred income on shipments to distributors 31,500 24,170
------------------------------
TOTAL CURRENT LIABILITIES 551,812 399,219
Long-term debt 654,033 771,069
Deferred income taxes 7,586 3,404
------------------------------
TOTAL LIABILITIES 1,213,431 1,173,692
------------------------------
Put warrants -- 56,850
------------------------------
Commitments and contingencies (Note 7)
STOCKHOLDERS' EQUITY
Preferred stock: no par value: Authorized: 10,000 shares; None
issued and outstanding -- --
Common stock; par value $0.001: Authorized: 500,000 shares;
Shares issued: 202,089 issued at December 31, 1999
and 199,366 at December 31 1998 397,167 330,073
Accumulated other comprehensive income (loss) (51,160) 29
Retained earnings 455,472 402,093
------------------------------
TOTAL STOCKHOLDERS' EQUITY 801,479 732,195
------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 2,014,910 $ 1,962,737
==============================
</TABLE>
The accompanying notes are an integral part of these statements.
28
<PAGE> 30
ATMEL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
(In thousands) Years Ended December 31,
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
CASH FROM OPERATING ACTIVITIES
Net income (loss) $ 53,379 $ (50,038) $ 1,801
Items not requiring the use of cash
Depreciation and amortization 200,879 199,568 158,382
Restructuring and in-process research and development -- 89,725 43,000
Cumulative effect of accounting change 48,980 -- --
(Gain) loss on sale of fixed assets and investments (14,996) (524) --
Accounts receivable write-off -- -- 41,300
Inventories write-down -- -- 53,100
Provision for doubtful accounts receivable 5,150 16,144 11,105
Provision for excess and obsolete inventory 2,373 (246) 1,452
Other 9,278 (12,644) 16,439
Changes in operating assets and liabilities
Accounts receivable (34,392) 9,611 (92,862)
Inventories (33,401) (83,989) (108,631)
Other assets 5,298 56,879 (61,448)
Trade accounts payable and other accrued liabilities 17,023 (58,382) 17,915
Income taxes payable 3,557 (31,095) --
Deferred income on shipments to distributors 7,330 (1,086) (2,679)
--------- --------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES 270,458 133,923 78,874
--------- --------- ---------
CASH FROM INVESTING ACTIVITIES
Acquisition of fixed assets (171,820) (187,728) (312,066)
Sale of fixed assets 19,285 1,581 --
Acquisition of other assets (200) (41,226) (25,483)
Purchase of other businesses (7,374) (99,250) --
Purchase of investments (96,500) (151,188) (129,642)
Sale or maturity of investments 102,940 148,102 128,668
--------- --------- ---------
NET CASH USED BY INVESTING ACTIVITIES (153,669) (329,709) (338,523)
--------- --------- ---------
CASH FROM FINANCING ACTIVITIES
Issuance of notes payable 21,564 41,044 56,815
Principal payments on notes (51,748) (17,094) (10,853)
Proceeds from capital leases 83,596 142,179 190,705
Principal payments on capital leases (80,669) (89,944) (78,528)
Proceeds from issuance of convertible notes -- 115,004 150,000
Tax benefit from exercise of options 5,235 -- 5,033
Proceeds (payment) from settlement of warrants (7,619) (2,550) 4,425
Repurchase of common stock -- (20,047) --
Issuance of common stock 12,431 11,886 13,170
--------- --------- ---------
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES (17,210) 180,478 330,767
--------- --------- ---------
Effect of foreign currency on cash and cash equivalents (10,028) 2,719 (921)
--------- --------- ---------
Net increase (decrease) in cash and cash equivalents 89,551 (12,589) 70,197
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 161,721 174,310 104,113
--------- --------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 251,272 $ 161,721 $ 174,310
========= ========= =========
INTEREST PAID 38,124 35,648 29,039
INCOME TAXES PAID 13,184 1,161 42,507
ISSUANCE OF STOCK FOR OTHER ASSETS 197 2,652 --
FIXED ASSET PURCHASES IN ACCOUNTS PAYABLE 63,694 19,376 54,326
PURCHASE OF CALL WARRANTS FROM PROCEEDS OF PUT WARRANTS -- 4,450 5,238
NOTE PAYABLE ISSUED FOR PREPAID ROYALTIES -- 9,000 --
</TABLE>
The accompanying notes are an integral part of these statements.
29
<PAGE> 31
ATMEL CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
(In thousands) Accumulated
Common Stock other
Shares Retained comprehensive
Amount Earnings income (loss) Total
------ -------- ------------- -----
<S> <C> <C> <C> <C> <C>
BALANCES, DECEMBER 31, 1996 197,504 $ 346,756 $ 450,330 $ (7,335) $ 789,751
Sales of stock
Exercise of options 1,466 6,522 -- -- 6,522
Employee stock purchase plan 476 6,648 -- -- 6,648
Tax benefit from exercise of options -- 5,033 -- -- 5,033
Proceeds from settlement of warrants -- 4,425 -- -- 4,425
Put warrants reclassification, net -- (17,800) -- -- (17,800)
Other comprehensive income (loss)
Unrealized loss on investments -- -- -- (11,809) (11,809)
Foreign currency translation
adjustment -- -- -- 1,863 1,863
Net income -- -- 1,801 -- 1,801
--------- --------- --------- --------- ---------
Comprehensive income (loss) -- -- 1,801 (9,946) (8,145)
--------- --------- --------- --------- ---------
BALANCES, DECEMBER 31, 1997 199,446 351,584 452,131 (17,281) 786,434
Sales of stock
Exercise of options 1,057 2,624 -- -- 2,624
Employee stock purchase plan 1,247 6,610 -- -- 6,610
Issuance for purchase of DCT 416 2,652 -- -- 2,652
Repurchase of shares (2,800) (20,047) -- -- (20,047)
Payment on settlement of warrants -- (2,550) -- -- (2,550)
Put warrants reclassification, net -- (10,800) -- -- (10,800)
Other comprehensive income
Unrealized gain on investments -- -- -- 540 540
Foreign currency translation
adjustment -- -- -- 16,770 16,770
Net loss -- -- (50,038) -- (50,038)
--------- --------- --------- --------- ---------
Comprehensive income (loss) -- -- (50,038) 17,310 (32,728)
--------- --------- --------- --------- ---------
BALANCES, DECEMBER 31, 1998 199,366 330,073 402,093 29 732,195
Sales of stock
Exercise of options 1,345 6,131 -- -- 6,131
Employee stock purchase plan 1,351 6,300 -- -- 6,300
Issuance for asset acquisition 27 197 -- -- 197
Tax benefit from exercise of options -- 5,235 -- -- 5,235
Payment on settlement of warrants -- (7,619) -- -- (7,619)
Put warrants reclassification, net -- 56,850 -- -- 56,850
Other comprehensive loss
Unrealized loss on investments -- -- -- (3,410) (3,410)
Foreign currency translation
adjustment -- -- -- (47,779) (47,779)
Net income -- -- 53,379 -- 53,379
--------- --------- --------- --------- ---------
Comprehensive income (loss) -- -- 53,379 (51,189) 2,190
--------- --------- --------- --------- ---------
BALANCES, DECEMBER 31, 1999 202,089 $ 397,167 $ 455,472 $ (51,160) $ 801,479
========= ========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
30
<PAGE> 32
ATMEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share and employee data)
NOTE 1
- --------------------------------------------------------------------------------
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS
Atmel Corporation designs, develops, manufactures and markets a broad range of
high-performance nonvolatile memory and logic integrated circuits using its
proprietary complementary metal-oxide semiconductor (CMOS) technologies. The
Company's products are used in a range of applications in the
telecommunications, computing, networking, consumer and automotive electronics
and other markets. The Company's customers comprise a diverse group of U.S. and
non-U.S. original equipment manufacturers (OEMs) and distributors.
FISCAL YEAR CHANGE
Effective January 1, 1999, the Company changed its fiscal year from a 52 or
53-week year ending on the Monday nearest the last day in December of each year
to a calendar year ending December 31. The quarters have changed from a 13-week
quarter to a calendar quarter. For presentation purposes, fiscal 1998 and 1997
have been disclosed as ending on December 31.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company and
its wholly owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities, the disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
CASH AND INVESTMENTS
Investments with an original or remaining maturity of 90 days or less, as of the
date of purchase, are considered cash equivalents, and consist of highly liquid
money market instruments. The carrying amount of these instruments approximates
fair value.
The Company maintains its cash balances at a variety of financial institutions
and has not experienced any material losses relating to such instruments. The
Company invests its excess cash in accordance with its investment policy which
has been reviewed and approved by the Board of Directors to minimize credit
risk.
ACCOUNTS RECEIVABLE
Allowance for doubtful accounts is calculated based on the aging of the
Company's accounts receivable, historical experience, current and future
short-term business conditions and management judgment. The Company writes off
accounts receivable against the allowance when the Company determines a balance
is uncollectible and no longer actively pursues collection of the receivable.
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 are
comprised of the following:
<TABLE>
<CAPTION>
December 31, 1999 1998
- -----------------------------------------------------------
<S> <C> <C>
Materials and purchased parts $ 19,526 $ 14,082
Finished goods 15,703 43,913
Work in progress 238,836 182,263
-------- --------
TOTAL $274,065 $240,258
======== ========
</TABLE>
31
<PAGE> 33
FIXED ASSETS
Fixed assets are stated at cost. Depreciation is computed using the
straight-line method over the following estimated useful lives:
<TABLE>
<S> <C>
Buildings and improvements 10 to 20 years
Machinery and equipment 2 to 5 years
Furniture and fixtures 5 years
</TABLE>
DEFERRED INCOME ON SHIPMENTS TO DISTRIBUTORS
Sales to certain distributors are subject to price protection and rights of
return. Generally, certain distributors may return products for up to a maximum
of 5% of the net value of all products purchased by such distributors during the
immediately preceding period. Accordingly, recognition of such sales to
distributors with return rights is deferred until shipments are made by the
distributors to their customers. Other sales, principally to OEMs, are recorded
at the time products are shipped, net of allowances for estimated returns.
FOREIGN CURRENCY TRANSLATION
The functional currency of foreign subsidiaries is considered to be the United
States dollar, except for Atmel ES2 S.A. and MHS S.A., whose functional currency
is the French franc, and Temic Semiconductor GmbH (Temic), whose functional
currency is the German mark. Translation gains and losses from remeasurement of
the financial statements of other companies whose functional currency is the
U.S. dollar are included in the consolidated statements of operations. The
effect of the translation of the accounts of Atmel ES2, MHS and Temic has been
included in the stockholders' equity as a cumulative foreign currency
translation adjustment. Foreign exchange gain (loss) included in interest and
other income for the years ended December 31, 1999, 1998 and 1997 was $3,244,
($283) and ($2,438).
DERIVATIVES
The Company conducts business on a global basis in several major international
currencies. As a result, it is exposed to adverse movements in foreign currency
exchange rates. The Company occasionally enters into forward foreign exchange
contracts to hedge certain of its foreign currency exposures. These financial
instruments are designed to minimize exposure and reduce risk from foreign
currency exchange rate fluctuations in the regular course of business. The
Company does not enter into forward exchange contracts for trading purposes.
Realized gains and losses on the contracts are included in other income and
offset foreign exchange gains and losses from the revaluation of intercompany
balances or other current assets and liabilities denominated in currencies other
than the functional currency of the reporting entity. The foreign exchange
contracts generally have maturities that do not exceed three months. No foreign
exchange contracts were held at December 31, 1999. Foreign exchange contracts
outstanding at December 31, 1998 amounted to $5,122. At December 31, 1998 net
unrealized loss from these contracts was ($892).
The Company's forward exchange contracts contain credit risk because its
counterparties may be unable to meet the terms of the agreements. The Company
minimizes such risk by limiting its counterparties to a small number of major
financial institutions. In addition, the potential risk of loss with any one
party resulting from this type of credit risk is monitored.
CERTAIN RISKS AND CONCENTRATIONS
The Company sells its products primarily to OEMs and distributors in North
America, Europe and Asia, generally without requiring any collateral. The
Company performs ongoing credit evaluations and maintains adequate allowances
for potential credit losses. The Company has no significant concentration of
credit risk in its accounts receivable at December 31, 1999.
The Company's products are concentrated in the semiconductor industry, which is
highly competitive and rapidly changing. Significant technological changes in
the industry could affect operating results adversely. The Company's inventories
include high-technology parts and components that may be specialized in nature
or subject to rapid technological obsolescence. While the Company has programs
to minimize the required inventories on hand and considers technological
obsolescence in estimating required allowances to reduce recorded amounts to
market values, such estimates could change in the future.
INCOME TAXES
Provision for (benefit from) income tax is comprised of its current tax
liability and change in deferred tax assets and liabilities. Deferred tax assets
and liabilities are recognized for the expected tax consequences of temporary
differences between the tax bases of assets and liabilities and their reported
amounts in the financial statements
32
<PAGE> 34
using enacted tax rates and laws that will be in effect when the difference is
expected to reverse. No United States taxes are provided on earnings of
non-United States subsidiaries to the extent such earnings are deemed to be
permanently invested.
LONG-LIVED ASSETS
The Company periodically evaluates the recoverability of its long-lived assets
in accordance with SFAS 121, "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to Be Disposed Of", based upon the estimated cash
flows estimated to be generated by the related asset. The evaluation is
performed at the lowest level for which there are identifiable, independent cash
flows.
ACCOUNTING FOR START-UP COSTS
The Company adopted Statement of Position (SOP) 98-5, "Reporting on the Costs of
Start-Up Activities" effective January 1, 1999. The Company had previously
capitalized expenditures directly related to and incurred during the start-up
phase for a fabrication facility at its Rousset, France site during and prior to
1998. These start-up costs (which were included in the caption "Other assets" in
the Company's Condensed Consolidated Balance Sheet at December 31, 1998) of
$48,980 were written-off in the first quarter of 1999 and are presented net of
tax for $29,068 under the caption "Cumulative effect of accounting change" in
the Company's Consolidated Statements of Operations. The following unaudited
pro-forma table sets forth the impact on income (loss) before the cumulative
effect of accounting change and net income (loss) from adopting SOP 98-5 in the
periods presented as if SOP 98-5 had been implemented in such periods. The
pro-forma results are not necessarily indicative of the results that would have
occurred had SOP 98-5 been effective in the periods presented, nor are they
indicative of future financial results.
<TABLE>
<CAPTION>
(in thousands, except per share data)
1999 1998 1997
<S> <C> <C> <C>
Net Income (loss) as reported $ 53,379 $(50,038) $ 1,801
Deferred start-up costs expensed (29,068) 19,524 8,860
-------- -------- --------
Proforma net income (loss) $ 82,447 $(69,562) $ (7,059)
======== ======== ========
Diluted earnings per share:
Net Income (loss) as reported
0.26 (0.25) 0.01
Proforma net income (loss)
0.40 (0.35) (0.03)
</TABLE>
COMPREHENSIVE INCOME
Comprehensive income is defined as a change in equity of a company during a
period from transactions and other events and circumstances excluding
transactions resulting from investments by owners and distributions to owners.
The primary difference between net income and comprehensive income for the
Company arises from foreign currency translation adjustments and an unrealized
gain (loss) on securities. Comprehensive income is shown in the statement of
stockholders' equity. As of December 31, 1999, the accumulated other
comprehensive income (loss) consisted of ($3,873) of unrealized loss on
securities and ($47,287) of foreign currency translation adjustments. As of
December 31, 1998, the accumulated other comprehensive income represented ($463)
of unrealized loss on securities and $492 of gain on foreign currency
translation adjustments.
RECENT PRONOUNCEMENTS
- - In December 1999 the SEC issued Staff Accounting Bulletin (SAB) No. 101
"Revenue Recognition in Financial Statements" which provides guidance on
the recognition, presentation and disclosure of revenue in financial
statements filed with the SEC. SAB 101 outlines the basic criteria that
must be met to recognize revenue and provides guidance for disclosures
related to revenue recognition policies. Management believes the impact
of SAB 101 will not have a material impact on the financial position or
results of operations of the Company.
- - In November 1999 the SEC issued Staff Accounting Bulletin (SAB) No. 100
"Restructuring and Impairment Charges." The SAB discusses the accounting
for and disclosure of certain expenses commonly reported in connection
with exit activities and business combinations.
- - In June 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. Changes in fair value shall be
recognized currently in earnings. The Company will adopt SFAS 133, as
amended by SFAS 137, "Accounting for Derivative Instruments and Hedging
Activities - Deferral of the Effective Date of FASB Statement No. 133",
with effect from the quarter ending September 2000.
33
<PAGE> 35
RECLASSIFICATIONS
Certain reclassifications have been made to the 1997 and 1998 amounts to conform
to the 1999 presentation. These reclassifications did not change the previously
reported net income (loss) or the total assets of the Company.
NOTE 2
- --------------------------------------------------------------------------------
ACQUISITIONS AND DISPOSITIONS
ACQUISITION OF TEMIC
On March 1, 1998 the Company acquired the integrated circuit business of Temic
Telefunken Microelectronic (Temic) of Heilbronn, Germany, a wholly owned
subsidiary of Vishay Intertechnology, Inc for $99,250 in cash. The acquisition
of Temic included its wholly owned subsidiary, MHS based in Nantes, France.
Temic designs, manufactures and sells analog, microcontroller and ASIC products
that service the automotive, telecommuni- cations, consumer and industrial
markets.
The fair value of the assets acquired exceeded the purchase price by
approximately $131,000. As a result, the fair value of the long term assets
acquired was reduced. The following is a summary of the allocation of the
purchase price (in thousands).
<TABLE>
<S> <C>
Purchase price $99,250
=======
Purchased technology 19,661
Work force in place 3,681
In-process technology 23,425
Other assets, net of assumed liabilities 52,483
-------
$99,250
=======
</TABLE>
The Company is amortizing purchased technology and work force in place over five
years. In-process technology was charged to operations upon acquisition. At
December 31, 1999 and 1998, purchased technology, net of accumulated
amortization of $3,932 and $1,966, amounted to $7,876 and $17,695. At December
31, 1999 and 1998, work force in place, net of accumulated amortization of $736
and $368, amounted to $2,577 and $3,313.
The amount allocated to in-process technology represents purchased in-process
technology for three projects that had not yet reached technological feasibility
as of the acquisition date and had no alternative future use. For all in-process
projects, value was determined by estimating the net cash flows resulting from
the completion of these projects reduced to the percentage of completion of the
project. Net cash flows were tax effected using estimated income taxes
consistent with the Company's anticipated tax rate for the foreseeable future
and then discounted back to their present value at a discount rate of 18% based
on the Company's required risk adjusted weighted average rate of return.
The nature of the efforts to develop all purchased in-process technology into
commercially viable products and processes principally relates to the completion
of all planning, designing, prototyping, verification and testing activities
that are necessary to establish that the products and processes can meet their
design specification, including function, features and technical performance
requirements. Because these projects were in-process there was uncertainty
whether they could be successfully developed and result in the net cash flows
that were originally estimated at acquisition. It is reasonably possible that
the development of this technology could fail because of either prohibitive
cost, the Company's inability to perform the required completion efforts, or
other factors outside the Company's control such as a change in the market for
the resulting developed products. If the development of the technology is
unsuccessful, the technology may be abandoned during the development phase.
Should the Company's development efforts fail or encounter significant delay
then the Company's future returns may be significantly reduced. If the
development efforts are unsuccessful, the Company may be unable to recover its
investment in these projects, may be less well positioned to benefit from new
product markets in these areas and the Company's future operating results could
be adversely affected. The Company cannot guarantee that it will realize revenue
from these products in the amounts estimated.
The Company currently believes the aggregate net cash flows originally
anticipated at acquisition will be realized and that there has been no material
change in the expected return on investment related to these projects.
34
<PAGE> 36
The fair value allocated to each of the in-process projects was as follows:
<TABLE>
<S> <C>
Product developments $ 8,784
Process developments 9,621
System level integration 5,020
-------
$23,425
=======
</TABLE>
Included within assets, net of assumed liabilities, is an accrual for $6,800 for
the cost of terminating certain employees at Temic's MHS subsidiary. At the
acquisition date, Atmel management had assessed the need to terminate employees
at MHS. Subsequent to the acquisition, Atmel management finalized its plan to
terminate 120 employees representing all departments except the information
systems and product design departments. The Company completed this activity in
the second quarter of 1999.
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>
Years Ended December 31, (unaudited) 1998 1997
- --------------------------------------------------------------------------
<S> <C> <C>
Net revenues $ 1,154,201 $ 1,227,596
------------------------------
Net loss (35,123) (19,011)
------------------------------
Diluted net loss per share $ (0.35) $ (0.19)
------------------------------
</TABLE>
ACQUISITION OF DCT
In June 1998, the Company acquired all of the remaining outstanding common and
preferred stock of DCT for $1,151 cash and 415,932 shares of Atmel common stock.
Certain of the selling stockholders of DCT were officers and family of officers
of Atmel who participated in the transaction on the same terms as other selling
stockholders. Atmel previously owned less than 20% of the preferred stock of DCT
and recorded the investment at cost. DCT is engaged in the design, production
and marketing of data communication products. The excess of the purchase price
over the acquired assets amounted to $5,084 and was allocated to goodwill.
Goodwill is being amortized over its useful life of 5 years. At December 31,
1999, goodwill, net of accumulated amortization, amounted to $2,500. The
pre-acquisition revenue and net income of DCT was not material to the results of
Atmel for the years ended December 31, 1999 and 1998 and, accordingly, no pro
forma results have been presented.
ACQUISITION OF SMART INFORMATION TRANSFER (SIT)
On April 9, 1999, the Company acquired substantially all of the assets and
assumed certain associated liabilities of the SIT business of the Semiconductor
Products Sector of Motorola, Inc. for $7,400. The transaction was accounted for
as a purchase.
DISPOSITION OF ASSETS
In January 1999 the Company completed the sale of certain items of plant and
equipment in Rousset, France for $17,600 in cash. The Company recorded a pre-tax
gain of $14,900 ($9,500 after-tax), after disposal costs, which is included in
the Company's Consolidated Statements of Operations under the caption "Interest
and other income."
NOTE 3
- --------------------------------------------------------------------------------
BALANCE SHEET DETAIL
Other current assets consist of the following:
<TABLE>
<CAPTION>
December 31, 1999 1998
- -------------------------------------------------
<S> <C> <C>
Deferred income taxes $37,396 $29,921
VAT receivable 9,933 10,702
Other 23,609 34,344
---------------------
TOTAL $70,938 $74,967
=====================
</TABLE>
35
<PAGE> 37
Other assets consist of the following:
<TABLE>
<CAPTION>
December 31, 1999 1998
- -------------------------------------------------------------
<S> <C> <C>
Capitalized start-up costs $ -- $ 48,980
Developed technology related to
Temic 7,876 17,695
Prepaid royalty 9,000 11,400
Other 20,164 29,145
-----------------------
TOTAL $ 37,040 $107,220
=======================
</TABLE>
Accrued liabilities and other consist of the following:
<TABLE>
<CAPTION>
December 31, 1999 1998
- ----------------------------------------------------------------
<S> <C> <C>
Accrued returns, royalties and
licenses $16,678 $29,451
Accrued salaries, benefits and other 35,858 35,852
Federal, state, local and foreign
taxes 42,048 27,650
---------------------
TOTAL $94,584 $92,953
=====================
</TABLE>
The Company has entered into a number of technology license agreements with
unrelated third parties. Generally, the agreements require a one-time or annual
license fee. In addition, the Company may be required to pay a royalty on sales
of certain products that are derived under these licensing arrangements. The
royalty expense is accrued in the period in which the revenues incorporating the
technology are recognized.
NOTE 4
- --------------------------------------------------------------------------------
FIXED ASSETS
<TABLE>
<CAPTION>
December 31, 1999 1998
- ------------------------------------------------------------------
<S> <C> <C>
Land $ 14,591 $ 14,591
Buildings and improvements 417,990 416,460
Machinery and equipment 1,030,826 941,316
Furniture and fixtures 15,719 15,622
Construction in progress 63,431 20,902
------------------------------
1,542,557 1,408,891
Less accumulated depreciation
and amortization (603,995) (444,765)
------------------------------
TOTAL $ 938,562 $ 964,126
==============================
</TABLE>
Fixed assets include machinery and equipment acquired under capital leases of
$410,336, and $547,838 at December 31, 1999 and 1998, and related accumulated
amortization amounted to $144,019 and $281,723.
Depreciation expense was $190,249, $190,882 and $153,873, in 1999, 1998 and
1997.
In June 1998, the Company announced a restructuring program that included the
write-down of certain manufacturing equipment and machinery with older process
technology in its Colorado facility. The program was primarily aimed at focusing
the Company's business processes, attaining cost efficiencies and increasing
manufacturing flexibility.
As part of the plan, the Company announced a worldwide workforce reduction of
approximately 600 people, through early retirement, terminations and attrition
in the second half of 1998 and provided $1,300 for severance costs. The
workforce reduction was completed by June 1999. Approximately 250 employees had
received severance benefits totaling $1,300 under this program. The rest of the
Company's objective was met primarily through attrition.
As the Company continued to move toward production with 0.35-micron technology,
the Company recognized an impairment charge of $65,000 in 1998 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. 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
36
<PAGE> 38
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 obtain additional revenue per wafer. However, due to the
depressed state of the average selling prices for semiconductor memory products
at the time of the review, even the additional output per wafer did not provide
a positive gross margin at the existing fixed cost structure.
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. The Company measured impairment at the plant level which is the
lowest level from which there are identifiable, independent cash flows. 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.
In December 1997, the Company recognized an impairment charge of $43,000
relating to the impairment of machinery and equipment from its old manufacturing
facility (Fab 6) located in Rousset, France. The impairment charge was due to
the projected inability of this old fabrication plant to produce product at
costs acceptable in today's market and the need to consolidate manufacturing in
one location in Rousset, France to take advantage of new technologies in the
Company's new manufacturing facility (Fab 7). 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 expense
was reported as a non-recurring charge in the statement of operations. The
Company originally estimated that the proceeds from the eventual disposal of
these assets would not be significant. During 1998 the Company continued to use
these assets at approximately 50% of capacity until manufacturing operations at
Fab 6 were ceased. During November and December 1998, the Company sought to
dispose of the equipment and received offers to purchase certain equipment in
Fab 6.
NOTE 5
- --------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS
All marketable securities are deemed by management to be available for sale and
are reported at fair value with net unrealized gains or losses reported within
stockholders' equity. Realized gains and losses are recorded based on the
specific identification method. For fiscal years 1999, 1998 and 1997, gross
realized gains and losses on short and long term investments were $12, $90 and
$69. The carrying amount of the Company's investments is shown in the table
below (in thousands):
<TABLE>
<CAPTION>
December 31, 1999 1998
- ------------------------------------------------------------------------------------------------------------
Cost Market Value Cost Market Value
<S> <C> <C> <C> <C>
Investments
U.S. Government obligations $ 99,577 $ 98,551 $ 101,838 $ 94,799
State and municipal securities 53,713 53,280 53,124 60,727
Other 9,452 9,359 7,345 6,318
-----------------------------------------------------------
162,742 161,190 162,307 161,844
Allowance for unrealized losses (1,552) -- (463) --
-----------------------------------------------------------
TOTAL $ 161,190 $ 161,190 $ 161,844 $ 161,844
===========================================================
</TABLE>
At December 31, 1999, investments with scheduled maturities within one year were
$53,548 and for one to three years were $107,642. At December 31, 1998,
investments with scheduled maturities within one year were $48,850 and for one
year to three years were $112,994. The Company has classified all investments as
short term since it has the intent and ability to redeem them within the year.
37
<PAGE> 39
NOTE 6
- --------------------------------------------------------------------------------
BORROWING ARRANGEMENTS
Information with respect to the Company's debt obligations is shown in the
following table:
<TABLE>
<CAPTION>
December 31, 1999 1998
- -------------------------------------------------------------------
<S> <C> <C>
Various non-interest-bearing notes $ 37,665 $ 48,372
Various interest-bearing notes
97,347 127,117
Convertible notes
275,493 265,004
Capital lease obligations
390,694 412,571
--------------------------
$ 801,199 $ 853,064
Less amount due within one year
(147,166) (81,995)
--------------------------
LONG-TERM DEBT DUE AFTER ONE YEAR $ 654,033 $ 771,069
==========================
</TABLE>
The non-interest-bearing notes are due in varying amounts through the year 2015
and have been discounted between 7% and 8%. The interest-bearing notes bear
interest at rates between 2.6% and 6.4% and include loans where interest rates
are based on the London Inter-Bank Official Rate and the short-term French
PIBOR. A Japanese currency loan has been recorded net of unrealized foreign
currency loss of $4,582 at December 31, 1999 versus net of unrealized foreign
currency gain of $671 at December 31, 1998. A French currency loan has been
recorded net of unrealized foreign currency gain of $11,104 at December 31, 1999
versus net of unrealized foreign loss of $6,161 at December 31, 1998.
The $150,000 convertible notes bear interest at the rate of 3.25% per annum to
June 1, 2000, and thereafter, at the rate of 8.25% per annum. Interest on the
notes is payable on June 1 and December 1 of each year, commencing December 1,
1997. The notes will mature on June 1, 2002. The notes are convertible into
common stock of the Company at the conversion price of $17.75 per share. The
Company accrues interest based on the effective rate of 5.75%.
In April 1998, the Company completed a zero coupon convertible debt financing,
which raised $115,004. The debt is convertible, at the option of the holder,
into the Company's common stock at the rate of 6.9915 shares per $1,000
principal amount at maturity of the debt. The effective interest rate of the
debt is 5.5% per annum. 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. In addition, the debt is
redeemable at the option of the holder as of April 21, 2003, 2008 and 2013, 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. Pursuant to a Registration Rights Agreement dated April 21,
1998, between the Company and Morgan Stanley and Co, the Company was required to
have an effective registration statement of the above securities 90 days after
issuance. The registration statement filed on Form S-3 became effective August
11, 1999, and in accordance with the Agreement, certain penalties accrued and
were paid out in August 1999.
Future payments of long-term debt and capital leases are as follows:
<TABLE>
<CAPTION>
2000 2001 2002 2003 2004 Thereafter
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Notes payable and convertible
Notes $ 65,523 $ 22,941 $164,880 $126,269 $ 15 $ 71
Capital leases 81,643 82,804 68,774 75,652 38,462 74,165
</TABLE>
The carrying amount of the Company's long-term debt instruments (excluding
capital leases) approximates the fair value of such instruments based upon
management's best estimate of interest rates that would be available to the
Company for similar debt obligations at December 31, 1999.
38
<PAGE> 40
NOTE 7
- --------------------------------------------------------------------------------
COMMITMENTS AND CONTINGENCIES
The Company leases its domestic and foreign sales offices under non-cancelable
operating leases. These leases contain various expiration dates and renewal
options of two to four years. The Company also leases certain manufacturing
equipment under operating leases. Rental expense for 1999, 1998 and 1997 was
$9,311, $7,996 and $7,586. Rental payments over the remaining term of these
leases are as follows (in thousands):
<TABLE>
<CAPTION>
2000 2001 2002 2003 2004 Thereafter
- ---------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$11,865 $ 8,774 $ 1,380 $ 603 $ 148 $ 887
</TABLE>
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. The amount or range of possible loss, if any, is not reasonably
subject to estimation.
NOTE 8
- --------------------------------------------------------------------------------
TAXES ON INCOME
The provision for (benefit from) income taxes consists of the following:
<TABLE>
<CAPTION>
Years Ended December 31, 1999 1998 1997
- ------------------------------------------------------------------------
<S> <C> <C> <C>
Federal Current $ 21,542 $ (1,651) $ 2,196
Deferred (1,770) (5,475) 6,900
State Current 2,927 -- 628
Deferred (1,989) (4,217) (7,524)
Foreign Current 7,250 10,450 2,000
Deferred 18,414 -- --
----------------------------------------
TOTAL INCOME TAX $ 46,374 $ (893) $ 4,200
========================================
</TABLE>
The tax provision for 1999 excludes tax benefit relating to preproduction
start-up costs which has been presented under the caption "Cumulative effect of
accounting change, net of tax" in the Statement of Operations.
<TABLE>
<CAPTION>
December 31, 1999 1998
- ---------------------------------------------------------------------------
<S> <C> <C>
DEFERRED INCOME TAX ASSETS
Allowance for accounts receivable $ 2,729 $ 4,120
Deferred income on shipments to distributors 9,243 6,752
Inventory valuation 984 5,942
Net operating loss 27,125 27,868
Start-up costs 17,956 --
Research and development and other tax
credits 23,261 8,231
Reserve for recurring charges 10,602 4,686
Reserve for restructuring charges -- 10,835
Other 1,456 5,757
------------------------
Total deferred income tax assets 93,356 74,191
Less valuation allowance (20,887) (26,774)
------------------------
Net deferred income tax assets 72,469 47,417
------------------------
DEFERRED INCOME TAX LIABILITIES
Fixed assets (18,905) (11,190)
State taxes (5,042) (3,910)
Deferred grant and other income (5,748) (5,800)
Mark to market (12,964) --
------------------------
Total deferred tax liabilities (42,659) (20,900)
------------------------
TOTAL NET DEFERRED INCOME TAX ASSETS $ 29,810 $ 26,517
========================
</TABLE>
39
<PAGE> 41
For the year ended December 31, 1999, the valuation allowance was reduced to
$20,887. The change in the valuation allowance during 1999 relates primarily to
the realization of preacquisition deferred tax assets of acquired businesses,
the tax benefit of which was recorded to reduce acquired intangibles.
The Company's effective tax rate differs from the United States federal
statutory income tax rate as follows:
<TABLE>
<CAPTION>
Years Ended December 31, 1999 1998 1997
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C>
United States federal statutory income tax
rate 35.00% (35.00)% 35.00%
Foreign operations 2.66 14.97 (85.10)
In-process research and development 0.00 20.24 0.00
State taxes, net of federal income tax
benefit 0.49 (5.38) (35.20)
Research and development credits (3.27) 0.00 (61.80)
Benefit of foreign sales corporation (1.67) 0.00 0.00
Foreign currency translation 1.99 0.00 0.00
Change in valuation allowance 0.00 0.00 240.00
Tax exempt income (1.00) (1.29) (24.50)
Other, net 1.80 4.71 1.60
---------------------------------------
EFFECTIVE TAX RATE (BENEFIT) 36.00% (1.75)% 70.00%
=======================================
</TABLE>
Income before income taxes included income from foreign subsidiaries of $98,874,
($7,676) and ($13,899) in 1999, 1998 and 1997.
The Company has estimated net operating loss carryforwards of approximately
$60,000, the majority of which pertain to its operations in France. There is no
expiration on the use of these losses.
The Company's United States income tax returns for the years 1993 through 1996
are presently under examination by the Internal Revenue Service (IRS) and a
request for an appeals hearing has been filed. Management believes that adequate
amounts of tax and related interest and penalties, if any, have been provided
for any adjustments that may result for the years under examination.
NOTE 9
- --------------------------------------------------------------------------------
EMPLOYEE OPTION AND STOCK PURCHASE PLANS
The Company has two stock option plans--the 1986 Incentive Stock Option Plan
(1986 Plan) and the 1996 Stock Option Plan (1996 Plan). The 1986 Plan expired in
April 1996. The 1996 Plan, which has reserved 18 million shares of Common Stock
for issuance thereunder, was approved by the stockholders on April 26, 1996. On
April 28, 1999 the stockholders approved increasing the number shares authorized
under this plan by 10 million shares. Under the Company's 1996 Plan, the Company
may issue common stock directly or grant options to purchase common stock to
employees, consultants and directors of the Company. Options, which generally
vest over four years, are granted at fair market value on the date of the grant
and generally expire ten years from that date.
Under the 1991 Employee Stock Purchase Plan, qualified employees are entitled to
purchase shares of the Company's common stock at 85 percent of the fair market
value at certain specified dates. Of the 16 million shares authorized to be
issued under this plan, 3,798 shares were available for issuance at December 31,
1999.
40
<PAGE> 42
Activity under the Company's 1986 Plan and 1996 Plan is set forth below:
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------
Outstanding Options
------------------------------------------------------------------------------------
Weighted Average
Exercise Aggregate Exercise
Available Number of Price Per Exercise Price
For Grant Options Share Price Per Share
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
BALANCES, DECEMBER 31, 1996 6,632 9,987 0.38 - 18.44 $ 65,598 $ 6.77
Options granted (2,770) 2,770 10.10 - 21.38 36,204 13.07
Options canceled 368 (368) 0.38 - 16.82 (4,790) 13.02
Options exercised -- (1,466) 2.13 - 21.38 (6,522) 4.45
------------------------------------------------------------------------------------
BALANCES, DECEMBER 31, 1997 4,230 10,923 0.38 - 21.38 90,490 8.57
Options granted (12,528) 12,528 3.69 - 9.53 71,562 5.71
Options canceled 11,302 (11,302) 3.99 - 21.38 (110,311) 9.76
Options expired (1,442) -- -- -- --
Options exercised -- (1,056) 1.07 - 8.63 (2,624) 2.49
------------------------------------------------------------------------------------
BALANCES, DECEMBER 31, 1998 1,562 11,093 0.38 - 18.44 49,117 4.49
Options authorized 10,000 -- -- -- --
Options granted (2,026) 2,026 7.34 - 24.94 28,212 12.93
Options canceled 333 (333) 3.69 - 18.09 (2,132) 6.40
Options expired (21) -- -- -- --
Options exercised -- (1,345) 0.38 - 18.44 (6,151) 4.56
------------------------------------------------------------------------------------
BALANCES, DECEMBER 31, 1999 9,848 11,441 0.38 - 24.94 $ 68,416 $ 5.98
====================================================================================
</TABLE>
The weighted average fair value of options granted during 1999, 1998 and 1997
were $12.93, $5.71 and $13.07 per share. The number of shares exercisable under
the Company's stock option plans at December 31, 1999, 1998 and 1997 were 6,827,
2,812 and 5,468.
The Company's Board of Directors approved option repricing programs effective
January 14, 1998 and October 9, 1998. Under the repricing program, then current
U.S. employees (other than certain insiders) holding outstanding options with
exercise prices above $8.50 and $3.97 per share, could elect to amend such
options to change the exercise price to $8.50 and $3.97 per share, the fair
market value on the effective dates. Accordingly, outstanding options held by
employees electing to participate in the program were amended to change the
exercise price to $8.50 and $3.97 per share. All other terms of such options
remained unchanged, except that the repriced options are not exercisable for a
period of one year after the effective date of the repricing. If an employee
voluntarily terminates his or her employment prior to the end of the one-year
non-exercise period, the amended options will be forfeited and the unexercised
shares returned to the 1996 Plan.
The following table summarizes the stock options outstanding at December 31,
1999:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
----------------------------------------------------- ---------------------------------
Weighted Average
Range of Number Remaining Weighted Average Number Weighted Average
Exercise Prices Outstanding Contractual Life Exercise Price Exercisable Exercise Price
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 0.38-3.69 1,301 3.3 years $ 1.95 1,228 $ 1.85
3.97-3.97 6,692 6.9 3.97 4,282 3.97
4.07-15.66 3,156 7.8 10.52 1,300 8.26
16.66-24.94 292 9.6 20.88 17 18.14
------ ------
$0.38-24.94 11,441 6.8 5.98 6,827 4.44
====== ======
</TABLE>
41
<PAGE> 43
The Company has adopted the disclosure-only provisions of Statement of Financial
Accounting Standards No. 123 (SFAS 123), Accounting for Stock Based
Compensation. Accordingly, no compensation cost has been recognized for the 1986
Plan and 1996 Plan. If the compensation cost for the 1986 Plan and 1996 Plan had
been determined based on the fair value at the grant date for options granted in
1999, 1998 and 1997 consistent with the provisions of SFAS 123, the Company's
net income (loss) and net income (loss) per share for 1999, 1998 and 1997 would
have been reduced to the pro forma amounts indicated below (in thousands except
per share data):
<TABLE>
<CAPTION>
1999 1998 1997
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net income (loss) - as reported $53,379 $(50,038) $ 1,801
Net income (loss) - pro forma $44,852 $(59,447) $(1,197)
Basic net income (loss) per share- as reported $ 0.27 $ (0.25) $ 0.01
Basic net income (loss) per share - pro forma $ 0.22 $ (0.30) $ (0.01)
Diluted net income (loss) per share - as reported $ 0.26 $ (0.25) $ 0.01
Diluted net income (loss) per share - pro forma $ 0.22 $ (0.30) $ (0.01)
</TABLE>
The fair value of each option grant for both 1986 Plan and 1996 Plan is
estimated on the date of the grant using the Black-Scholes option-pricing model
with the following weighted average assumptions:
<TABLE>
<CAPTION>
1999 1998 1997
- --------------------------------------------------------------------------
<S> <C> <C> <C>
Risk-free interest 5.4% 5.3% 5.7%-6.9%
Expected life after vesting 0.69 - 1.22 0.37 - 0.75 0.38 - 1.12
(years)
Expected volatility 60% 55% 51.0%-55.0%
Expected dividend $0 $0 $0
</TABLE>
The weighted average expected life was calculated based on the period from the
vesting date to the exercise date and the exercise behavior of the employees.
NOTE 10
- --------------------------------------------------------------------------------
RETIREMENT PLAN
The Company maintains a 401(k) Tax Deferred Savings Plan for the benefit of
qualified employees. The Company matches each eligible employee's contribution
with up to a maximum of five hundred dollars. The matching contribution made by
the Company was $871, $804 and $713 for 1999, 1998 and 1997.
NOTE 11
- --------------------------------------------------------------------------------
OPERATING SEGMENTS
Effective December 31, 1998, the Company adopted SFAS No. 131, "Disclosures
about Segments of an Enterprise and Related Information." Statement 131 requires
enterprises to report information about operating segments in annual financial
statements and selected information about reportable segments in interim
financial reports. It also establishes standards for related disclosures about
products, geographic areas and major customers.
The Company has four reportable segments, each of which require different
design, development and marketing resources to produce and sell semiconductor
integrated circuits: ASICs , Logic, Nonvolatile Memories, and Temic. The ASIC
segment designs, develops and markets semicustom gate arrays, cell-based
integrated circuits, and full custom application-specific integrated circuits as
well as smartcards to meet specialized customer requirements for high
performance devices in a broad variety of customer-specific applications. The
Logic segment designs, develops and markets microcontrollers, erasable
programmable logic devices (EPLDs), and field programmable gate arrays (FPGAs)
for sale to customers who use them in products for telecommunications,
computers, networking, image processing, industrial and military applications,
and avionics. The Nonvolatile Memories segment designs, develops and markets
erasable programmable read-only memories (EPROMs), electrically erasable
programmable read-only memories (EEPROMs), and Flash memories for a marketplace
characterized by standardized products and commodity pricing. The Temic segment
is a wholly owned European subsidiary producing analog, microcontroller and
specialty products to service the automotive, telecommunications, consumer and
industrial markets. Although some of its products overlap with one or more of
the other segments, the Temic segment is managed as a discrete business with its
own design, development, manufacturing and marketing resources.
The accounting policies of the segments are the same as those described in the
summary of significant accounting policies. The Company evaluates performance
based on income or loss from operations before interest, nonrecurring gains and
losses, foreign exchange gains and losses, and income taxes.
42
<PAGE> 44
The Company's six inch wafer manufacturing facility in Colorado Springs,
Colorado and its eight inch wafer manufacturing facility in Rousset, France are
manufacturing cost centers serving the non-Temic segments. These facilities'
operating costs are reflected in the segments' cost of revenues on the basis of
product standard costs. Because operating segments are defined by the products
they design and sell, they do not make sales to each other. Other than Temic,
whose assets are separately identifiable, the Company does not report assets, or
track expenditures on long-lived assets by operating segment. Three of the
Company's reportable segments are groupings of product families each of which
requires different design, development, selling and distribution capabilities.
The Temic segment is also managed separately as a discrete business unit with
its own design, development, manufacturing and marketing resources.
Information about segments:
<TABLE>
<CAPTION>
Nonvolatile All
ASIC Logic Memories Temic Other Total
---- ----- -------- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1997
Net revenue from external
customers $ 212,153 $ 86,644 $ 659,485 $ - $ - $ 958,282
Depreciation and amortization - - - - 158,382 158,382
Segment operating income (loss) (6,826) 18,401 122,874 - - 134,449
Segment assets - - - - 1,822,040 1,822,040
Expenditures for long lived assets - - - - 312,066 312,066
YEAR ENDED DECEMBER 31, 1998
Net revenue from external
customers $ 278,467 $ 100,532 $ 493,662 $ 238,431 $ - $1,111,092
Depreciation and amortization - - - 14,887 184,681 199,568
Segment operating income 19,749 13,327 43,486 4,905 - 81,467
Segment assets - - - 133,777 1,828,960 1,962,737
Expenditures for long lived assets - - - 14,802 172,926 187,728
YEAR ENDED DECEMBER 31, 1999
Net revenue from external
customers $ 335,061 $ 102,682 $ 617,128 $ 275,290 $ - $1,330,161
Depreciation and amortization - - - 14,830 192,502 207,332
Segment operating income 71,698 16,115 59,809 26,206 - 173,828
Segment assets - - - 240,683 1,774,227 2,014,910
Expenditures for long lived assets - - - 25,807 146,013 171,820
</TABLE>
Temic was acquired on March 1, 1998. Accordingly, no comparative segment
information for 1997 is disclosed and segment operating results for Temic
reflect ten months in 1998.
43
<PAGE> 45
Reconciliations of segment information to financial statements:
- ---------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998 1997
-------------------------------------------------
<S> <C> <C> <C>
Net revenues
Total external revenues for reportable
segments $ 1,330,161 $ 1,111,092 $ 958,282
Other revenues - - -
-------------------------------------------------
Total consolidated revenue $ 1,330,161 $ 1,111,092 $ 958,282
=================================================
Operating income (loss)
Total income for reportable segments $ 173,828 $ 81,467 $ 134,449
Unallocated amounts:
Corporate R&D (25,780) (11,200) (8,850)
Nonrecurring charges - (66,300) (43,000)
Corporate expenses (5,070) (23,624) (57,550)
-------------------------------------------------
Operating Income (loss) $ 142,978 $ (19,657) $ 25,049
=================================================
Assets
Total assets for reportable segments $ 240,683 $ 133,777 $ -
Other unallocated amounts 1,774,227 1,828,960 1,822,040
-------------------------------------------------
Consolidated total assets $ 2,014,910 $ 1,962,737 $ 1,822,040
=================================================
</TABLE>
<TABLE>
<CAPTION>
Geographic Information Long-lived
Revenues Assets
-------- ------
<S> <C> <C>
1999
United States $ 457,450 $ 533,921
Germany 142,081 41,847
France 70,991 358,802
Japan 100,141 -
Rest of Asia 352,568 -
Rest of Europe 196,387 -
Rest of World 10,543 3,992
---------------------------------
Total $1,330,161 $ 938,562
=================================
1998
United States $ 387,783 $ 572,520
Germany 111,248 65,890
France 51,972 323,733
Japan 89,344 -
Rest of Asia 270,646 -
Rest of Europe 145,749 -
Rest of World 54,350 1,983
---------------------------------
Total $1,111,092 $ 964,126
=================================
1997
United States $ 381,433 $ 690,875
Germany 30,949 -
Japan 110,971 -
France 28,121 294,410
Rest of Asia 270,660 -
Rest of Europe 94,664 -
Rest of World 41,484 664
---------------------------------
Total $ 958,282 $ 985,949
=================================
</TABLE>
Revenues are attributed to countries based on delivery locations.
One customer accounted for $160,472, $156,036 and $120,744 of revenues in 1999,
1998 and 1997.
44
<PAGE> 46
NOTE 12
- --------------------------------------------------------------------------------
STOCKHOLDER RIGHTS PLAN
In September 1998, the Board of Directors approved a stockholder rights plan,
and in October, 1999 the Board of Directors approved an amended and restated
rights plan, under which stockholders of record on September 16, 1998 received
rights to purchase ("Rights") one-thousandth of a share of the Company's Series
A preferred stock for each outstanding share of the Company's common stock. The
Rights are now exercisable at an exercise price of $200, subject to adjustment.
The Rights will separate from the common stock and Rights certificates will be
issued and the Rights will become exercisable upon the earlier of: (i) fifteen
(15) days (or such later date as may be determined by a majority of the Board of
Directors) following a public announcement that a person or group of affiliated
associated persons has acquired, or obtained the right to acquire, beneficial
ownership of 20 percent or more of the Company's outstanding common stock, or
(ii) fifteen (15) business days following the commencement of, or announcement
of an intention to make, a tender offer or exchange offer, the consummation of
which would result in the beneficial ownership by a person or group of 20
percent or more of the outstanding common stock of the Company. The Rights
expire on the earlier of (i) October 15, 2009, (ii) redemption or exchange of
the Rights, or (iii) consummation of a merger, consolidation or assets sale
resulting in expiration of the Rights.
NOTE 13
- --------------------------------------------------------------------------------
NET INCOME (LOSS) PER SHARE
Basic net income (loss) per share is computed by dividing income (loss)
available to common stockholders by the weighted average number of common shares
outstanding for that period. Diluted net income (loss) per share is computed
giving effect to all dilutive potential common shares that were outstanding
during the period. Dilutive potential common shares consist of incremental
common shares issuable upon exercise of stock options, warrants and convertible
securities for all periods.
A reconciliation of the numerator and denominator of basic and diluted net
income (loss) per share is provided as follows:
<TABLE>
<CAPTION>
Years Ended December 31, 1999 1998 1997
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Basic and diluted net income (loss) (numerator) $ 53,379 $ (50,038) $ 1,801
------------------------------------------
Shares used in basic net income (loss) per-share
calculations (denominator)
Weighted average shares of common stock
outstanding 200,783 198,716 198,876
==========================================
Dilutive effect of stock options 6,539 -- 4,326
------------------------------------------
Shares used in diluted net income (loss) per-share
calculations (denominator) 207,322 198,716 203,202
------------------------------------------
Basic net income (loss) per share $ 0.27 $ (0.25) $ 0.01
------------------------------------------
Diluted net income (loss) per share $ 0.26 $ (0.25) $ 0.01
------------------------------------------
</TABLE>
The number of common stock equivalents from exercise of stock options and
convertible debt not included in the calculation of diluted net income (loss)
per share because they were anti-dilutive were 11,975, 12,226 and 8,450 in 1999,
1998 and 1997.
NOTE 14
- --------------------------------------------------------------------------------
PUT WARRANTS
In January 1996, the Board of Directors of the Company approved a stock
repurchase program that allows the Company to repurchase up to 10,000 shares of
its common stock. The Board of Directors approved the repurchase of an
additional 10,000 shares in January 1998. The primary purpose of this stock
repurchase program is to increase stockholder value. In connection with this
program, the Company has entered into certain 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 connection with the Company's stock repurchase program, put warrants were
sold to an independent third party during fiscal years 1998, 1997 and 1996. The
Company used the proceeds from the sale of the put warrants to purchase call
warrants in a transaction not requiring any net cash outlay at the time.
45
<PAGE> 47
The following table summarizes the Company's transactions related to its put and
call warrants (in thousands, except Weighted Average Exercise Prices):
<TABLE>
<CAPTION>
Weighted Shares
Cumulative Average Shares Covered
net premium Exercise Covered by by Call Potential
received Price Put warrants Warrants obligation
----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
DECEMBER 31, 1996 8,133 2,000 1,000 28,250
Sales of put warrants 5,238 11.51 4,000 46,050
Purchases of call warrants (5,238) 13.03 0 2,000 0
Settlement of put warrants (950) 14.13 (2,000) (28,250)
Settlement of call warrants 5,375 16.16 (1,000)
----------------------------------------------------------------------
DECEMBER 31, 1997 12,558 4,000 2,000 46,050
Sales of put warrants 20,250 9.42 7,400 69,730
Purchases of call warrants (4,600) 10.73 3,700
Settlement of put warrants (18,980) 9.71 (4,400) (42,730)
Settlement of call warrants 780 7.41 (2,000)
Expiration of put warrants 0 10.13 (1,600) (16,200)
Expiration of call warrants 0 13.03 (1,000)
----------------------------------------------------------------------
DECEMBER 31, 1998 $ 10,008 5,400 2,700 $ 56,850
Settlement of put warrants (9,024) 10.53 (5,400) (56,850)
Settlement of call warrants 1,405 11.96 (2,700)
----------------------------------------------------------------------
DECEMBER 31, 1999 $ 2,389 -- -- $ --
======================================================================
</TABLE>
The put warrants entitle the aforementioned independent third party to sell
shares of the Company's common stock to the Company at specified strike prices
and exercise dates, while the call warrants entitle the Company to buy from the
same third party shares of the Company's common stock at specified strike prices
and exercise dates.
All put and call warrants have been closed out as of May 14, 1999, and
accordingly, no repurchase obligations exist as of December 31, 1999. The put
warrants have been classified separately on the balance sheet to reflect the
maximum potential obligation of the Company as of December 31, 1998. There was
no impact on basic and diluted net income (loss) per share in 1999, 1998 or 1997
resulting from these transactions.
NOTE 15
- --------------------------------------------------------------------------------
SUBSEQUENT EVENTS
On January 6, 2000 the Company completed the purchase of the Hitachi
Semiconductor (America) Inc.'s state-of-the-art 8 inch wafer fabrication
facility located in Irving, Texas. The facility is approximately 650,000 square
feet and the Company intends to install 0.18-micron manufacturing equipment
during 2000.
On February 3, 2000 the Company sold 18,000,000 shares of common stock at a
price of $35.50 per share. The Company intends to use the net proceeds to fund
capital expenditures and for working capital and general corporate purposes.
46
<PAGE> 48
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Stockholders of Atmel Corporation
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, of stockholders' equity and of cash flows
present fairly, in all material respects, the financial position of Atmel
Corporation and its subsidiaries at December 31, 1999 and 1998, and the results
of their operations and their cash flows for each of the three years in the
period ended December 31, 1999, in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with generally accepted auditing standards which 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, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for the opinion expressed
above.
PricewaterhouseCoopers LLP
San Jose, California
January 20, 2000, except for Note 15 which is as of February 3, 2000
47
<PAGE> 49
Report of Independent Accountants on
Financial Statement Schedules
To the Board of Directors
of Atmel Corporation
Our audits of the consolidated financial statements of Atmel Corporation and
subsidiaries referred to in our report dated January 20, 2000, except for Note
15 which is as of February 3, 2000, also included an audit of the financial
statement schedules listed in Item 14(a)(2) of this Form 10-K. In our opinion,
these financial statement schedules present fairly, in all material respects,
the information set forth therein when read in conjunction with the related
consolidated financial statements.
PricewaterhouseCoopers LLP
San Jose, California
January 20, 2000
48
<PAGE> 50
SCHEDULE II
ATMEL CORPORATION
VALUATION AND QUALIFYING ACCOUNTS
FOR THE FISCAL YEARS ENDED DECEMBER 31, 1999, 1998, AND 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE AT BALANCE
BEGINNING CHARGED CREDITED AT END OF
DESCRIPTION OF PERIOD TO EXPENSES EXPENSES DEDUCTIONS OTHER PERIOD
- ----------- --------- ----------- -------- ---------- ----- ------
<S> <C> <C> <C> <C> <C> <C>
ALLOWANCE FOR DOUBTFUL
ACCOUNTS RECEIVABLE:
Fiscal year ended 1997 $ 28,273 $ 52,405 -- $(56,055)(1) -- $ 24,623
Fiscal year ended 1998 $ 24,623 $ 17,642 $ (1,498) $(15,157)(1) $ 9,000(2) $ 34,610
Fiscal year ended 1999 $ 34,610 $ 5,150 -- $(18,990)(1) -- $ 20,770
</TABLE>
<TABLE>
<CAPTION>
BALANCE AT BALANCE
BEGINNING CHARGED CREDITED AT END OF
DESCRIPTION OF PERIOD TO REVENUES REVENUES DEDUCTIONS OTHER PERIOD
- ----------- --------- ----------- -------- ---------- ----- ------
<S> <C> <C> <C> <C> <C> <C>
SALES RETURN AND
ALLOWANCES:
Fiscal year ended 1997 $ 10,551 $ 8,509 $(14,541) $ (95) -- $ 4,424
Fiscal year ended 1998 $ 4,424 $ 13,967 $ (4,301) $ -- -- $ 14,090
Fiscal year ended 1999 $ 14,090 $ 4,000 $ (7,715) $ -- -- $ 10,375
</TABLE>
(1) Represents the write-off of specific accounts receivable balances.
(2) Represents the allowance for doubtful accounts receivable in connection
with the acquisition of Temic (see Note 2 of Notes to Consolidated
Financial Statements).
49
<PAGE> 51
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------- -----------
<S> <C>
3.1 (6) Certificate of Incorporation of Registrant, as amended to date.
3.2 (6) Bylaws of Registrant.
3.3 (6) Certificate of Determination of Rights, Preferences and Privileges
of Series A Preferred Stock (included in Exhibit 4.1).
4.1 (6) Amended and restated Preferred Shares Rights Agreement dated as of
October 18, 1999, between Atmel Corporation and BankBoston, N.A., a
national banking association, including the Certificate of
Determination, the form of Rights Certificate and the Summary of
Rights.
10.1 (1)+ 1986 Incentive Stock Option Plan, as amended, and forms of stock
option agreements thereunder.
10.2 (1)+ 1991 Employee Stock Purchase Plan, as amended.
10.3 (3) Credit Agreement dated April 20, 1995, between Wells
Fargo Bank and Registrant.
10.4 Form of Indemnification Agreement between Registrant and its
officers and directors.
10.5 (2) Consulting Agreement by and between Norman Hall and Registrant dated
March 1, 1990.
10.6 (4) 1996 Stock Plan, as amended and forms of agreements thereunder.
10.7 (5) Indenture, dated as of May 17, 1997, by and among Atmel S.A., Atmel
Corporation and State Street Bank and Trust Company of California,
N.A., as trustee thereunder.
10.8 (5) Registration Rights Agreement, dated as of May 15, 1997, by and
among Atmel Corporation and Deutsche Morgan Grenfell Inc., Alex.
Brown & Sons, Incorporated, BNP plc, Credit Lyonnais Securities,
Smith Barney Inc. and Societe Generale Securities Corp.
10.9 (7) Indenture, dated as of April 21, 1998, by and between the Company
and State Street Bank and Trust Company of California, N.A., as
trustee thereunder (including the form of debenture).
10.10(7) Registration Rights Agreement dated as of April 21, 1998, by and
between the Company and Morgan Stanley & Co. Incorporated.
21.1 Subsidiaries of Registrant.
23.1 Consent of Independent Accountants.
24.1 Power of Attorney (included on the signature pages hereof).
27.1 Financial Data Schedule.
</TABLE>
(1) Incorporated by reference to exhibits to the Company's Registration
Statement on Form S-1 (File No. 33-38882) declared effective on March
19, 1991.
50
<PAGE> 52
(2) Incorporated by reference to exhibits to the Company's Annual Report on
Form 10-K for the year ended December 31, 1992.
(3) Incorporated by reference to exhibits to the Company's Annual Report on
Form 10-K for the year ended December 31, 1995.
(4) Incorporated by reference to exhibits to the Company's Registration
Statement on Form S-8 (File No. 333-15823) filed on November 8, 1996.
(5) Incorporated by reference to exhibits to the Company's Report on Form
8-K (File No. 000-19032) filed on June 4, 1997.
(6) Incorporated by reference to exhibits to the Company's Registration
Statement on Form 8-A/12G/A (No.000-19032) filed on December 6, 1999.
(7) Incorporated by reference to exhibits to the Company's Registration
Statement on Form S-3, as amended (File No. 333-59261), filed on July
16, 1998.
+ The item listed is a compensatory plan.
51
<PAGE> 1
EXHIBIT 10.4 - FORM OF INDEMNIFICATION AGREEMENT BETWEEN REGISTRANT AND ITS
OFFICERS AND DIRECTORS
ATMEL CORPORATION
INDEMNIFICATION AGREEMENT
This Indemnification Agreement ("Agreement") is effective as of October 11,
1999, by and between Atmel Corporation, a Delaware corporation (the "Company"),
and ((NAME)) ("Indemnitee").
WHEREAS, Atmel Corporation, a California corporation, and Indemnitee are parties
to an indemnification agreement;
WHEREAS, effective as of the date hereof, Atmel Corporation, a California
corporation, is reincorporating into Delaware;
WHEREAS, the Company desires to attract and retain the services of highly
qualified individuals, such as Indemnitee, to serve the Company and its related
entities;
WHEREAS, in order to induce Indemnitee to continue to provide services to the
Company, the Company wishes to provide for the indemnification of, and the
advancement of expenses to, Indemnitee to the maximum extent permitted by law;
WHEREAS, the Company and Indemnitee recognize the continued difficulty in
obtaining liability insurance for the Company's directors, officers, employees,
agents and fiduciaries, the significant increases in the cost of such insurance
and the general reductions in the coverage of such insurance;
WHEREAS, the Company and Indemnitee further recognize the substantial increase
in corporate litigation in general, subjecting directors, officers, employees,
agents and fiduciaries to expensive litigation risks at the same time as the
availability and coverage of liability insurance has been severely limited;
WHEREAS; in connection with the Company's reincorporation, the Company and
Indemnitee desire to continue to have in place the additional protection
provided by an indemnification agreement, with such changes as are required to
conform the existing agreement to Delaware law and to provide indemnification
and advancement of expenses to the Indemnitee to the maximum extent permitted by
Delaware law;
WHEREAS, the Company and Indemnitee desire to continue to have in place the
additional protection provided by an indemnification agreement and to provide
indemnification and advancement of expenses to the Indemnitee to the maximum
extent permitted by Delaware law; and
WHEREAS, in view of the considerations set forth above, the Company desires that
Indemnitee shall be indemnified and advanced expenses by the Company as set
forth herein;
NOW, THEREFORE, the Company and Indemnitee hereby agree as set forth
below.
Certain Definitions.
"Change in Control" shall mean, and shall be deemed to have occurred if, on or
after the date of this Agreement, (i) any "person" (as such term is used in
Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended,
(the "Exchange Act")), other than a trustee or other fiduciary holding
securities under an employee benefit plan of the Company acting in such capacity
or a corporation owned directly or indirectly by the stockholders of the Company
in substantially the same proportions as their ownership of stock of the
Company, becomes the "beneficial owner" (as defined in Rule 13d-3 under said
Exchange Act), directly or indirectly, of securities of the Company representing
more than 50% of the total voting power represented by the Company's then
outstanding Voting Securities, (ii) during any period of two consecutive years,
individuals who at the beginning of such period constitute the Board of
Directors of the Company and any new director whose election by the Board of
Directors or nomination for election by the Company's stockholders was approved
by a vote of at least two thirds (2/3) of the directors then still in office who
either were directors at the beginning of the period or whose election or
nomination for election was previously so approved, cease for any reason to
constitute a majority thereof, or (iii) the stockholders of the Company approve
a merger or consolidation of the Company with any other corporation other than a
merger or consolidation which would result in the Voting Securities of the
Company outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into Voting Securities of the
surviving entity) at least 80% of the total voting power represented by the
Voting Securities of the Company or such surviving entity outstanding
immediately after such merger or consolidation, or the stockholders of the
Company approve a plan of complete liquidation of the Company or an agreement
for the sale or disposition by the Company of (in one transaction or a series of
related transactions) all or substantially all of the Company's assets.
52
<PAGE> 2
"Claim" shall mean with respect to a Covered Event: any threatened, pending or
completed action, suit, proceeding or alternative dispute resolution mechanism,
or any hearing, inquiry or investigation that Indemnitee in good faith believes
might lead to the institution of any such action, suit, proceeding or
alternative dispute resolution mechanism, whether civil, criminal,
administrative, investigative or other.
References to the "Company" shall include, in addition to Atmel Corporation, any
constituent corporation (including any constituent of a constituent) absorbed in
a consolidation or merger to which Atmel Corporation (or any of its wholly owned
subsidiaries) is a party which, if its separate existence had continued, would
have had power and authority to indemnify its directors, officers, employees,
agents or fiduciaries, so that if Indemnitee is or was a director, officer,
employee, agent or fiduciary of such constituent corporation, or is or was
serving at the request of such constituent corporation as a director, officer,
employee, agent or fiduciary of another corporation, partnership, joint venture,
employee benefit plan, trust or other enterprise, Indemnitee shall stand in the
same position under the provisions of this Agreement with respect to the
resulting or surviving corporation as Indemnitee would have with respect to such
constituent corporation if its separate existence had continued.
"Covered Event" shall mean any event or occurrence related to the fact that
Indemnitee is or was a director, officer, employee, agent or fiduciary of the
Company, or any subsidiary of the Company, or is or was serving at the request
of the Company as a director, officer, employee, agent or fiduciary of another
corporation, partnership, joint venture, trust or other enterprise, or by reason
of any action or inaction on the part of Indemnitee while serving in such
capacity.
"Expenses" shall mean any and all expenses (including attorneys' fees and all
other costs, expenses and obligations incurred in connection with investigating,
defending, being a witness in or participating in (including on appeal), or
preparing to defend, to be a witness in or to participate in, any action, suit,
proceeding, alternative dispute resolution mechanism, hearing, inquiry or
investigation), judgments, fines, penalties and amounts paid in settlement (if
such settlement is approved in advance by the Company, which approval shall not
be unreasonably withheld), actually and reasonably incurred, of any Claim and
any federal, state, local or foreign taxes imposed on the Indemnitee as a result
of the actual or deemed receipt of any payments under this Agreement.
"Expense Advance" shall mean a payment to Indemnitee pursuant to Section 3 of
Expenses in advance of the settlement of or final judgement in any action, suit,
proceeding or alternative dispute resolution mechanism, hearing, inquiry or
investigation which constitutes a Claim.
"Independent Legal Counsel" shall mean an attorney or firm of attorneys,
selected in accordance with the provisions of Section 2(d) hereof, who shall not
have otherwise performed services for the Company or Indemnitee within the last
three years (other than with respect to matters concerning the rights of
Indemnitee under this Agreement, or of other indemnitees under similar indemnity
agreements).
References to "other enterprises" shall include employee benefit plans;
references to "fines" shall include any excise taxes assessed on Indemnitee with
respect to an employee benefit plan; and references to "serving at the request
of the Company" shall include any service as a director, officer, employee,
agent or fiduciary of the Company which imposes duties on, or involves services
by, such director, officer, employee, agent or fiduciary with respect to an
employee benefit plan, its participants or its beneficiaries; and if Indemnitee
acted in good faith and in a manner Indemnitee reasonably believed to be in the
interest of the participants and beneficiaries of an employee benefit plan,
Indemnitee shall be deemed to have acted in a manner "not opposed to the best
interests of the Company" as referred to in this Agreement.
"Reviewing Party" shall mean, subject to the provisions of Section 2(d), any
person or body appointed by the Board of Directors in accordance with applicable
law to review the Company's obligations hereunder and under applicable law,
which may include a member or members of the Company's Board of Directors,
Independent Legal Counsel or any other person or body not a party to the
particular Claim for which Indemnitee is seeking indemnification.
"Section" refers to a section of this Agreement unless otherwise indicated.
"Voting Securities" shall mean any securities of the Company that vote generally
in the election of directors.
Indemnification.
Indemnification of Expenses. Subject to the provisions of Section 2(b) below,
the Company shall indemnify Indemnitee for Expenses to the fullest extent
permitted by law if Indemnitee was or is or becomes a party to or witness or
other participant in, or is threatened to be made a party to or witness or other
participant in, any Claim
53
<PAGE> 3
(whether by reason of or arising in part out of a Covered Event), including all
interest, assessments and other charges paid or payable in connection with or in
respect of such Expenses.
Review of Indemnification Obligations. Notwithstanding the foregoing, in the
event any Reviewing Party shall have determined (in a written opinion, in any
case in which Independent Legal Counsel is the Reviewing Party) that Indemnitee
is not entitled to be indemnified hereunder under applicable law, (i) the
Company shall have no further obligation under Section 2(a) to make any payments
to Indemnitee not made prior to such determination by such Reviewing Party, and
(ii) the Company shall be entitled to be reimbursed by Indemnitee (who hereby
agrees to reimburse the Company) for all Expenses theretofore paid in
indemnifying Indemnitee; provided, however, that if Indemnitee has commenced or
thereafter commences legal proceedings in a court of competent jurisdiction to
secure a determination that Indemnitee is entitled to be indemnified hereunder
under applicable law, any determination made by any Reviewing Party that
Indemnitee is not entitled to be indemnified hereunder under applicable law
shall not be binding and Indemnitee shall not be required to reimburse the
Company for any Expenses theretofore paid in indemnifying Indemnitee until a
final judicial determination is made with respect thereto (as to which all
rights of appeal therefrom have been exhausted or lapsed). Indemnitee's
obligation to reimburse the Company for any Expenses shall be unsecured and no
interest shall be charged thereon.
Indemnitee Rights on Unfavorable Determination; Binding Effect. If any Reviewing
Party determines that Indemnitee substantively is not entitled to be indemnified
hereunder in whole or in part under applicable law, Indemnitee shall have the
right to commence litigation seeking an initial determination by the court or
challenging any such determination by such Reviewing Party or any aspect
thereof, including the legal or factual bases therefor, and, subject to the
provisions of Section 15, the Company hereby consents to service of process and
to appear in any such proceeding. Absent such litigation, any determination by
any Reviewing Party shall be conclusive and binding on the Company and
Indemnitee.
Selection of Reviewing Party; Change in Control. If there has not been a Change
in Control, any Reviewing Party shall be selected by the Board of Directors, and
if there has been such a Change in Control (other than a Change in Control which
has been approved by a majority of the Company's Board of Directors who were
directors immediately prior to such Change in Control), any Reviewing Party with
respect to all matters thereafter arising concerning the rights of Indemnitee to
indemnification of Expenses under this Agreement or any other agreement or under
the Company's Certificate of Incorporation or Bylaws as now or hereafter in
effect, or under any other applicable law, if desired by Indemnitee, shall be
Independent Legal Counsel selected by Indemnitee and approved by the Company
(which approval shall not be unreasonably withheld). Such counsel, among other
things, shall render its written opinion to the Company and Indemnitee as to
whether and to what extent Indemnitee would be entitled to be indemnified
hereunder under applicable law and the Company agrees to abide by such opinion.
The Company agrees to pay the reasonable fees of the Independent Legal Counsel
referred to above and to indemnify fully such counsel against any and all
expenses (including attorneys' fees), claims, liabilities and damages arising
out of or relating to this Agreement or its engagement pursuant hereto.
Notwithstanding any other provision of this Agreement, the Company shall not be
required to pay Expenses of more than one Independent Legal Counsel in
connection with all matters concerning a single Indemnitee, and such Independent
Legal Counsel shall be the Independent Legal Counsel for any or all other
Indemnitees unless (i) the Company otherwise determines or (ii) any Indemnitee
shall provide a written statement setting forth in detail a reasonable objection
to such Independent Legal Counsel representing other Indemnitees.
Mandatory Payment of Expenses. Notwithstanding any other provision of this
Agreement other than Section 10 hereof, to the extent that Indemnitee has been
successful on the merits or otherwise, including, without limitation, the
dismissal of an action without prejudice, in defense of any Claim, Indemnitee
shall be indemnified against all Expenses incurred by Indemnitee in connection
therewith.
Expense Advances.
Obligation to Make Expense Advances. Upon receipt of a written undertaking by or
on behalf of the Indemnitee to repay such amounts if it shall ultimately be
determined that the Indemnitee is not entitled to be indemnified therefor by the
Company, the Company shall make Expense Advances to Indemnitee.
Form of Undertaking. Any written undertaking by the Indemnitee to repay any
Expense Advances hereunder shall be unsecured and no interest shall be charged
thereon.
Determination of Reasonable Expense Advances. The parties agree that for the
purposes of any Expense Advance for which Indemnitee has made written demand to
the Company in accordance with this Agreement, all Expenses
54
<PAGE> 4
included in such Expense Advance that are certified by affidavit of Indemnitee's
counsel as being reasonable shall be presumed conclusively to be reasonable.
Procedures for Indemnification and Expense Advances.
Timing of Payments. All payments of Expenses (including without limitation
Expense Advances) by the Company to the Indemnitee pursuant to this Agreement
shall be made to the fullest extent permitted by law as soon as practicable
after written demand by Indemnitee therefor is presented to the Company, but in
no event later than forty-five (45) business days after such written demand by
Indemnitee is presented to the Company, except in the case of Expense Advances,
which shall be made no later than twenty (20) business days after such written
demand by Indemnitee is presented to the Company.
Notice/Cooperation by Indemnitee. Indemnitee shall, as a condition precedent to
Indemnitee's right to be indemnified or Indemnitee's right to receive Expense
Advances under this Agreement, give the Company notice in writing as soon as
practicable of any Claim made against Indemnitee for which indemnification will
or could be sought under this Agreement. Notice to the Company shall be directed
to the Chief Executive Officer of the Company at the address shown on the
signature page of this Agreement (or such other address as the Company shall
designate in writing to Indemnitee). In addition, Indemnitee shall give the
Company such information and cooperation as it may reasonably require and as
shall be within Indemnitee's power.
No Presumptions; Burden of Proof. For purposes of this Agreement, the
termination of any Claim by judgment, order, settlement (whether with or without
court approval) or conviction, or upon a plea of nolo contendere, or its
equivalent, shall not create a presumption that Indemnitee did not meet any
particular standard of conduct or have any particular belief or that a court has
determined that indemnification is not permitted by this Agreement or applicable
law. In addition, neither the failure of any Reviewing Party to have made a
determination as to whether Indemnitee has met any particular standard of
conduct or had any particular belief, nor an actual determination by any
Reviewing Party that Indemnitee has not met such standard of conduct or did not
have such belief, prior to the commencement of legal proceedings by Indemnitee
to secure a judicial determination that Indemnitee should be indemnified under
this Agreement or applicable law, shall be a defense to Indemnitee's claim or
create a presumption that Indemnitee has not met any particular standard of
conduct or did not have any particular belief. In connection with any
determination by any Reviewing Party or otherwise as to whether the Indemnitee
is entitled to be indemnified hereunder, the burden of proof shall be on the
Company to establish that Indemnitee is not so entitled.
Notice to Insurers. If, at the time of the receipt by the Company of a notice of
a Claim pursuant to Section 4(b) hereof, the Company has liability insurance in
effect which may cover such Claim, the Company shall give prompt notice of the
commencement of such Claim to the insurers in accordance with the procedures set
forth in the respective policies. The Company shall thereafter take all
necessary or desirable action to cause such insurers to pay, on behalf of the
Indemnitee, all amounts payable as a result of such Claim in accordance with the
terms of such policies.
Selection of Counsel. In the event the Company shall be obligated hereunder to
provide indemnification for or make any Expense Advances with respect to the
Expenses of any Claim, the Company, if appropriate, shall be entitled to assume
the defense of such Claim with counsel approved by Indemnitee (which approval
shall not be unreasonably withheld) upon the delivery to Indemnitee of written
notice of the Company's election to do so. After delivery of such notice,
approval of such counsel by Indemnitee and the retention of such counsel by the
Company, the Company will not be liable to Indemnitee under this Agreement for
any fees or expenses of separate counsel subsequently employed by or on behalf
of Indemnitee with respect to the same Claim; provided that, (i) Indemnitee
shall have the right to employ Indemnitee's separate counsel in any such Claim
at Indemnitee's expense and (ii) if (A) the employment of separate counsel by
Indemnitee has been previously authorized by the Company, (B) Indemnitee shall
have reasonably concluded that there may be a conflict of interest between the
Company and Indemnitee in the conduct of any such defense, or (C) the Company
shall not continue to retain such counsel to defend such Claim, then the fees
and expenses of Indemnitee's separate counsel shall be Expenses for which
Indemnitee may receive indemnification or Expense Advances hereunder.
Additional Indemnification Rights; Nonexclusivity.
Scope. The Company hereby agrees to indemnify the Indemnitee to the fullest
extent permitted by law, notwithstanding that such indemnification is not
specifically authorized by the other provisions of this Agreement, the Company's
Certificate of Incorporation, the Company's Bylaws or by statute. In the event
of any change after the date of this Agreement in any applicable law, statute or
rule which expands the right of a Delaware corporation to
55
<PAGE> 5
indemnify a member of its board of directors or an officer, employee, agent or
fiduciary, it is the intent of the parties hereto that Indemnitee shall enjoy by
this Agreement the greater benefits afforded by such change. In the event of any
change in any applicable law, statute or rule which narrows the right of a
Delaware corporation to indemnify a member of its board of directors or an
officer, employee, agent or fiduciary, such change, to the extent not otherwise
required by such law, statute or rule to be applied to this Agreement, shall
have no effect on this Agreement or the parties' rights and obligations
hereunder except as set forth in Section 10(a) hereof.
Nonexclusivity. The indemnification and the payment of Expense Advances provided
by this Agreement shall be in addition to any rights to which Indemnitee may be
entitled under the Company's Certificate of Incorporation, its Bylaws, any other
agreement, any vote of stockholders or disinterested directors, the General
Corporation Law of the State of Delaware, or otherwise. The indemnification and
the payment of Expense Advances provided under this Agreement shall continue as
to Indemnitee for any action taken or not taken while serving in an indemnified
capacity even though subsequent thereto Indemnitee may have ceased to serve in
such capacity.
No Duplication of Payments. The Company shall not be liable under this Agreement
to make any payment in connection with any Claim made against Indemnitee to the
extent Indemnitee has otherwise actually received payment (under any insurance
policy, provision of the Company's Certificate of Incorporation, Bylaws or
otherwise) of the amounts otherwise payable hereunder.
Partial Indemnification. If Indemnitee is entitled under any provision of this
Agreement to indemnification by the Company for some or a portion of Expenses
incurred in connection with any Claim, but not, however, for all of the total
amount thereof, the Company shall nevertheless indemnify Indemnitee for the
portion of such Expenses to which Indemnitee is entitled.
Mutual Acknowledgment. Both the Company and Indemnitee acknowledge that in
certain instances, federal law or applicable public policy may prohibit the
Company from indemnifying its directors, officers, employees, agents or
fiduciaries under this Agreement or otherwise. Indemnitee understands and
acknowledges that the Company has undertaken or may be required in the future to
undertake with the Securities and Exchange Commission to submit the question of
indemnification to a court in certain circumstances for a determination of the
Company's right under public policy to indemnify Indemnitee.
Liability Insurance. To the extent the Company maintains liability insurance
applicable to directors, officers, employees, agents or fiduciaries, Indemnitee
shall be covered by such policies in such a manner as to provide Indemnitee the
same rights and benefits as are provided to the most favorably insured of the
Company's directors, if Indemnitee is a director; or of the Company's officers,
if Indemnitee is not a director of the Company but is an officer; or of the
Company's key employees, agents or fiduciaries, if Indemnitee is not an officer
or director but is a key employee, agent or fiduciary.
Exceptions. Notwithstanding any other provision of this Agreement, the Company
shall not be obligated pursuant to the terms of this Agreement:
Excluded Action or Omissions. To indemnify Indemnitee for Expenses resulting
from acts, omissions or transactions for which Indemnitee is prohibited from
receiving indemnification under this Agreement or applicable law; provided,
however, that notwithstanding any limitation set forth in this Section 10(a)
regarding the Company's obligation to provide indemnification, Indemnitee shall
be entitled under Section 3 to receive Expense Advances hereunder with respect
to any such Claim unless and until a court having jurisdiction over the Claim
shall have made a final judicial determination (as to which all rights of appeal
therefrom have been exhausted or lapsed) that Indemnitee has engaged in acts,
omissions or transactions for which Indemnitee is prohibited from receiving
indemnification under this Agreement or applicable law.
Claims Initiated by Indemnitee. To indemnify or make Expense Advances to
Indemnitee with respect to Claims initiated or brought voluntarily by Indemnitee
and not by way of defense, counterclaim or cross claim, except (i) with respect
to actions or proceedings brought to establish or enforce a right to
indemnification under this Agreement or any other agreement or insurance policy
or under the Company's Certificate of Incorporation or Bylaws now or hereafter
in effect relating to Claims for Covered Events, (ii) in specific cases if the
Board of Directors has approved the initiation or bringing of such Claim, or
(iii) as otherwise required under Section 145 of the Delaware General
Corporation Law, regardless of whether Indemnitee ultimately is determined to be
entitled to such indemnification or insurance recovery, as the case may be.
Lack of Good Faith. To indemnify Indemnitee for any Expenses incurred by the
Indemnitee with respect to any action instituted (i) by Indemnitee to enforce or
interpret this Agreement, if a court having jurisdiction over such
56
<PAGE> 6
action determines as provided in Section 13 that each of the material assertions
made by the Indemnitee as a basis for such action was not made in good faith or
was frivolous, or (ii) by or in the name of the Company to enforce or interpret
this Agreement, if a court having jurisdiction over such action determines as
provided in Section 13 that each of the material defenses asserted by Indemnitee
in such action was made in bad faith or was frivolous.
Claims Under Section 16(b). To indemnify Indemnitee for expenses and the payment
of profits arising from the purchase and sale by Indemnitee of securities in
violation of Section 16(b) of the Exchange Act, or any similar successor
statute; provided, however, that notwithstanding any limitation set forth in
this Section 10(d) regarding the Company's obligation to provide
indemnification, Indemnitee shall be entitled under Section 3 to receive Expense
Advances hereunder with respect to any such Claim unless and until a court
having jurisdiction over the Claim shall have made a final judicial
determination (as to which all rights of appeal therefrom have been exhausted or
lapsed) that Indemnitee has violated said statute.
Counterparts. This Agreement may be executed in one or more counterparts, each
of which shall constitute an original.
Binding Effect; Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of and be enforceable by the parties hereto and their
respective successors, assigns (including any direct or indirect successor by
purchase, merger, consolidation or otherwise to all or substantially all of the
business or assets of the Company), spouses, heirs and personal and legal
representatives. The Company shall require and cause any successor (whether
direct or indirect, and whether by purchase, merger, consolidation or otherwise)
to all, substantially all, or a substantial part, of the business or assets of
the Company, by written agreement in form and substance satisfactory to
Indemnitee, expressly to assume and agree to perform this Agreement in the same
manner and to the same extent that the Company would be required to perform if
no such succession had taken place. This Agreement shall continue in effect
regardless of whether Indemnitee continues to serve as a director, officer,
employee, agent or fiduciary (as applicable) of the Company or of any other
enterprise at the Company's request.
Expenses Incurred in Action Relating to Enforcement or Interpretation. In the
event that any action is instituted by Indemnitee under this Agreement or under
any liability insurance policies maintained by the Company to enforce or
interpret any of the terms hereof or thereof, Indemnitee shall be entitled to be
indemnified for all Expenses incurred by Indemnitee with respect to such action
(including without limitation attorneys' fees), regardless of whether Indemnitee
is ultimately successful in such action, unless as a part of such action a court
having jurisdiction over such action makes a final judicial determination (as to
which all rights of appeal therefrom have been exhausted or lapsed) that each of
the material assertions made by Indemnitee as a basis for such action was not
made in good faith or was frivolous; provided, however, that until such final
judicial determination is made, Indemnitee shall be entitled under Section 3 to
receive payment of Expense Advances hereunder with respect to such action. In
the event of an action instituted by or in the name of the Company under this
Agreement to enforce or interpret any of the terms of this Agreement, Indemnitee
shall be entitled to be indemnified for all Expenses incurred by Indemnitee in
defense of such action (including without limitation costs and expenses incurred
with respect to Indemnitee's counterclaims and cross-claims made in such
action), unless as a part of such action a court having jurisdiction over such
action makes a final judicial determination (as to which all rights of appeal
therefrom have been exhausted or lapsed) that each of the material defenses
asserted by Indemnitee in such action was made in bad faith or was frivolous;
provided, however, that until such final judicial determination is made,
Indemnitee shall be entitled under Section 3 to receive payment of Expense
Advances hereunder with respect to such action.
Notice. All notices, requests, demands and other communications under this
Agreement shall be in writing and shall be deemed duly given (i) if delivered by
hand and signed for by the party addressed, on the date of such delivery, or
(ii) if mailed by domestic certified or registered mail with postage prepaid, on
the third business day after the date postmarked. Addresses for notice to either
party are as shown on the signature page of this Agreement, or as subsequently
modified by written notice.
Consent to Jurisdiction. The Company and Indemnitee each hereby irrevocably
consent to the jurisdiction of the courts of the State of Delaware for all
purposes in connection with any action or proceeding which arises out of or
relates to this Agreement and agree that any action instituted under this
Agreement shall be commenced, prosecuted and continued only in the Court of
Chancery of the State of Delaware in and for New Castle County, which shall be
the exclusive and only proper forum for adjudicating such a claim.
Severability. The provisions of this Agreement shall be severable in the event
that any of the provisions hereof (including any provision within a single
section, paragraph or sentence) are held by a court of competent jurisdiction to
be invalid, void or otherwise unenforceable, and the remaining provisions shall
remain enforceable to the fullest extent permitted by law. Furthermore, to the
fullest extent possible, the provisions of this Agreement (including
57
<PAGE> 7
without limitation each portion of this Agreement containing any provision held
to be invalid, void or otherwise unenforceable, that is not itself invalid, void
or unenforceable) shall be construed so as to give effect to the intent
manifested by the provision held invalid, illegal or unenforceable.
Choice of Law. This Agreement, and all rights, remedies, liabilities, powers and
duties of the parties to this Agreement, shall be governed by and construed in
accordance with the laws of the State of Delaware without regard to principles
of conflicts of laws.
Subrogation. In the event of payment under this Agreement, the Company shall be
subrogated to the extent of such payment to all of the rights of recovery of
Indemnitee, who shall execute all documents required and shall do all acts that
may be necessary to secure such rights and to enable the Company effectively to
bring suit to enforce such rights.
Amendment and Termination. No amendment, modification, termination or
cancellation of this Agreement shall be effective unless it is in writing signed
by both the parties hereto. No waiver of any of the provisions of this Agreement
shall be deemed to be or shall constitute a waiver of any other provisions
hereof (whether or not similar), nor shall such waiver constitute a continuing
waiver.
Integration and Entire Agreement. This Agreement sets forth the entire
understanding between the parties hereto and supersedes and merges all previous
written and oral negotiations, commitments, understandings and agreements
relating to the subject matter hereof between the parties hereto.
No Construction as Employment Agreement. Nothing contained in this Agreement
shall be construed as giving Indemnitee any right to be retained in the employ
of the Company or any of its subsidiaries or affiliated entities.
IN WITNESS WHEREOF, the parties hereto have executed this Indemnification
Agreement as of the date first above written.
ATMEL CORPORATION
By:__________________________
Mike Ross
Vice President
AGREED TO AND ACCEPTED
INDEMNITEE:
_____________________________
((NAME))
58
<PAGE> 1
EXHIBIT 21.1 - SUBSIDIARIES OF REGISTRANT
ATMEL CORPORATION
SUBSIDIARIES OF REGISTRANT
The following are the subsidiaries of the Registrant:
Atmel (OY) Finland, a Finnish corporation
Atmel Acquisitions Corporation, a United States corporation
Atmel Asia Limited, a Hong Kong corporation
Atmel ES2 GmbH, a German corporation
Atmel ES2 S.A., a French corporation
Atmel ES2, B.V., a Netherlands corporation
Atmel Finance Inc., a United States corporation
Atmel Finland Development Center (OY), a Finnish corporation
Atmel FSC, Inc., a Barbadian corporation
Atmel Helles, a Greek corporation
Atmel Holding GmbH, a German corporation
Atmel Japan K.K., a Japanese corporation
Atmel Korea Limited, a Korean corporation
Atmel Research, a Cayman Islands corporation
Atmel S.A., a French corporation
Atmel SARL, a French corporation
Atmel Singapore Pte. Limited, a Singaporean corporation
Atmel Taiwan Limited, a Taiwanese corporation
Atmel U.K. Limited, a United Kingdom corporation
Dream S.A., a French corporation
ES2 B.V. Netherlands, a Dutch corporation
ES2 Limited, a United Kingdom corporation
ES2 Netherlands B.V., a Dutch corporation
Facility Service GmbH, a German corporation
Inka SARL, a French corporation
MATRA MHS GmbH, a German corporation
MHS Italia Srl, an Italian corporation
MHS S.A., a French corporation
Temic France SNC, A French corporation
Temic Hong Kong Limited, a Hong Kong corporation
Temic Korea Limited, a Korean corporation
Temic Nordic AB, a Norwegian corporation
Temic Philippines, a Philippine corporation
Temic Semiconductor GmbH, a German corporation
Temic Semiconductor N.A. Corporation, a United States corporation
Temic Semiconductor Singapore PTE Limited, a Singaporean corporation
Temic UK Limited, a United Kingdom corporation
59
<PAGE> 1
EXHIBIT 23.1 - CONSENT OF INDEPENDENT ACCOUNTANTS
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the Registration Statements of
Atmel Corporation on Form S-8 (File Nos. 33-39925, 33-93662, 333-15823 and
333-71881) of our report dated January 20, 2000, except for Note 15 which is as
of February 3, 2000 on our audits of the consolidated financial statements of
Atmel Corporation and subsidiaries as of December 31, 1999 and 1998, and for
each of the three years in the period ended December 31, 1999, which report is
included in this Annual Report on Form 10-K and our report dated January 20,
2000 on our audit of the consolidated financial statement schedule which report
is included in this Annual Report on Form 10-K.
/s/ PricewaterhouseCoopers LLP
San Jose, California
March 13, 2000
60
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