UNITED STATES SECURITIES AND EXCHANGE COMMISSION
| x | QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTER ENDED SEPTEMBER 30, 2003 |
OR
| o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO |
Commission File Number 0-19032
ATMEL CORPORATION
| Delaware (State or other jurisdiction of incorporation or organization) |
77-0051991 (I.R.S. Employer Identification Number) |
2325 Orchard Parkway
San Jose, California 95131
(Address of principal executive offices)
(408) 441-0311
Registrant’s telephone number
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 whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes [X] No [ ]
On October 24, 2003, Registrant had 471,444,223 outstanding shares of Common Stock.
ATMEL CORPORATION
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 2003
INDEX
| Page | ||||||
| Part I: | Financial Information | |||||
| Item 1. | Financial Statements | |||||
| Condensed Consolidated Balance Sheets at September 30, 2003 and December 31, 2002 | 1 | |||||
| Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2003 and September 30, 2002 | 2 | |||||
| Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2003 and September 30, 2002 | 3 | |||||
| Condensed Consolidated Statements of Comprehensive Loss for the three and nine months ended September 30, 2003 and September 30, 2002 | 4 | |||||
| Notes to Condensed Consolidated Financial Statements | 5 | |||||
| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 15 | ||||
| Item 3. | Quantitative and Qualitative Disclosures About Market Risk | 40 | ||||
| Item 4. | Controls and Procedures | 41 | ||||
| Part II: | Other Information | |||||
| Item 1. | Legal Proceedings | 41 | ||||
| Item 2. | Changes in Securities and Use of Proceeds | 43 | ||||
| Item 3. | Defaults Upon Senior Securities | 43 | ||||
| Item 4. | Submission of Matters to a Vote of Security Holders | 43 | ||||
| Item 5. | Other Information | 43 | ||||
| Item 6. | Exhibits and Reports on Form 8-K | 43 | ||||
| Signatures | 44 | |||||
PART I: FINANCIAL INFORMATION
Item 1. Financial Statements
Atmel Corporation
Condensed Consolidated Balance Sheets
(In thousands)
(unaudited)
| September 30, 2003 | December 31, 2002 | |||||||||
Current assets |
||||||||||
Cash and cash equivalents |
$ | 326,427 | $ | 346,371 | ||||||
Short term investments |
56,164 | 99,431 | ||||||||
Accounts receivable, net |
195,001 | 195,182 | ||||||||
Inventories |
262,884 | 276,069 | ||||||||
Other current assets |
49,847 | 107,672 | ||||||||
Total current assets |
890,323 | 1,024,725 | ||||||||
Fixed assets, net |
977,533 | 1,049,031 | ||||||||
Fixed assets held for sale |
157,158 | 174,651 | ||||||||
Other assets |
37,979 | 32,025 | ||||||||
Cash - restricted |
25,120 | 22,127 | ||||||||
Total assets |
$ | 2,088,113 | $ | 2,302,559 | ||||||
Current liabilities |
||||||||||
Current portion of long-term debt and capital leases |
$ | 167,605 | $ | 163,444 | ||||||
Convertible notes |
— | 132,485 | ||||||||
Trade accounts payable |
115,643 | 95,002 | ||||||||
Accrued liabilities and other |
291,318 | 295,725 | ||||||||
Deferred income on shipments to distributors |
18,392 | 20,791 | ||||||||
Total current liabilities |
592,958 | 707,447 | ||||||||
Long-term debt less current portion |
172,607 | 259,261 | ||||||||
Convertible notes |
201,474 | 194,248 | ||||||||
Other long term liabilities |
191,681 | 172,460 | ||||||||
Total liabilities |
1,158,720 | 1,333,416 | ||||||||
Stockholders’ equity |
||||||||||
Common stock |
470 | 466 | ||||||||
Additional paid in capital |
1,262,502 | 1,252,273 | ||||||||
Accumulated other comprehensive income |
134,105 | 55,100 | ||||||||
Accumulated deficit |
(467,684 | ) | (338,696 | ) | ||||||
Total stockholders’ equity |
929,393 | 969,143 | ||||||||
Total liabilities and stockholders’ equity |
$ | 2,088,113 | $ | 2,302,559 | ||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
1
Atmel Corporation
Condensed Consolidated Statements of Operations
(In thousands, except per share data)
(Unaudited)
| Three Months Ended | Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2003 | 2002 | 2003 | 2002 | |||||||||||||
Net revenues |
$ | 335,187 | $ | 298,657 | $ | 950,137 | $ | 889,183 | ||||||||
Expenses |
||||||||||||||||
Cost of revenues |
261,608 | 257,578 | 752,575 | 726,027 | ||||||||||||
Research and development |
61,698 | 65,880 | 191,952 | 191,512 | ||||||||||||
Selling, general and administrative |
34,345 | 31,695 | 102,749 | 96,832 | ||||||||||||
Restructuring and asset impairment charge |
— | 39,630 | (360 | ) | 381,013 | |||||||||||
Total operating expenses |
357,651 | 394,783 | 1,046,916 | 1,395,384 | ||||||||||||
Operating loss |
(22,464 | ) | (96,126 | ) | (96,779 | ) | (506,201 | ) | ||||||||
Interest and other expenses, net |
(6,327 | ) | (6,199 | ) | (23,209 | ) | (25,531 | ) | ||||||||
Loss before taxes |
(28,791 | ) | (102,325 | ) | (119,988 | ) | (531,732 | ) | ||||||||
Provision for income taxes |
(3,000 | ) | — | (9,000 | ) | (93,857 | ) | |||||||||
Net loss |
$ | (31,791 | ) | $ | (102,325 | ) | $ | (128,988 | ) | $ | (625,589 | ) | ||||
Basic net loss per share |
$ | (0.07 | ) | $ | (0.22 | ) | $ | (0.28 | ) | $ | (1.34 | ) | ||||
Diluted net loss per share |
$ | (0.07 | ) | $ | (0.22 | ) | $ | (0.28 | ) | $ | (1.34 | ) | ||||
Shares used in basic net loss
per share calculations |
470,494 | 467,771 | 468,914 | 467,390 | ||||||||||||
Shares used in diluted net loss
per share calculations |
470,494 | 467,771 | 468,914 | 467,390 | ||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
2
Atmel Corporation
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
| Nine Months Ended September 30, | ||||||||||
| 2003 | 2002 | |||||||||
Cash from operating activities |
||||||||||
Net loss |
$ | (128,988 | ) | $ | (625,589 | ) | ||||
Items not requiring the use of cash |
||||||||||
Depreciation and amortization |
205,772 | 179,250 | ||||||||
Recovery of doubtful accounts receivable |
(874 | ) | (610 | ) | ||||||
Deferred income taxes |
(135 | ) | 85,857 | |||||||
Restructuring and asset impairment charge |
(360 | ) | 364,839 | |||||||
Loss (gain) on sales of fixed assets |
(234 | ) | 295 | |||||||
Stock compensation charge |
3,033 | — | ||||||||
Accrued interest on zero coupon convertible debt |
9,381 | 13,196 | ||||||||
Other |
636 | 3,001 | ||||||||
Changes in operating assets and liabilities |
||||||||||
Accounts receivable |
588 | 9,450 | ||||||||
Inventories |
21,710 | 21,843 | ||||||||
Prepaid taxes and other assets |
(12,958 | ) | 19,153 | |||||||
Trade accounts payable and other liabilities |
8,419 | 20,790 | ||||||||
Federal, state, local and foreign taxes |
68,325 | 77,189 | ||||||||
Deferred income on shipments to distributors |
(2,456 | ) | (3,570 | ) | ||||||
Net cash provided by operating activities |
171,859 | 165,094 | ||||||||
Cash from investing activities |
||||||||||
Acquisition of fixed assets |
(39,213 | ) | (93,989 | ) | ||||||
Sales of fixed assets |
3,491 | 15,538 | ||||||||
Purchase of investments |
(49,858 | ) | (43,760 | ) | ||||||
Sale or maturity of investments |
93,243 | 189,914 | ||||||||
Net cash provided by investing activities |
7,663 | 67,703 | ||||||||
Cash from financing activities |
||||||||||
Proceeds from line of credit and capital leases |
16,949 | 5,702 | ||||||||
Principal payments on debt and capital leases |
(116,475 | ) | (208,876 | ) | ||||||
Repurchase of convertible notes |
(134,640 | ) | — | |||||||
Repurchase of Common Stock |
— | (7,479 | ) | |||||||
Issuance of common stock |
8,130 | 10,892 | ||||||||
Net cash used in financing activities |
(226,036 | ) | (199,761 | ) | ||||||
Effect of foreign currency translation adjustment |
26,570 | 22,493 | ||||||||
Net increase (decrease) in cash |
(19,944 | ) | 55,529 | |||||||
Cash and cash equivalents at beginning of period |
346,371 | 333,131 | ||||||||
Cash and cash equivalents at end of period |
$ | 326,427 | $ | 388,660 | ||||||
Supplemental cash flow disclosures |
||||||||||
Interest paid |
$ | 19,446 | $ | 22,309 | ||||||
Income taxes paid (refunded) |
$ | (57,462 | ) | $ | (82,299 | ) | ||||
Fixed asset purchases in accounts payable |
$ | — | $ | 14,458 | ||||||
Intangible asset acquisition in accrued and
other long term liabilites |
$ | 15,636 | $ | — | ||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
3
Atmel Corporation
Condensed Consolidated Statements of Comprehensive Loss
(In thousands)
(Unaudited)
| Three Months Ended | Nine Months Ended | ||||||||||||||||
| September 30, | September 30, | ||||||||||||||||
| 2003 | 2002 | 2003 | 2002 | ||||||||||||||
Net loss |
$ | (31,791 | ) | $ | (102,325 | ) | $ | (128,988 | ) | $ | (625,589 | ) | |||||
Other comprehensive income: |
|||||||||||||||||
Foreign currency translation adjustments |
11,259 | 891 | 79,660 | 77,311 | |||||||||||||
Unrealized loss on securities |
(115 | ) | (558 | ) | (655 | ) | (3,134 | ) | |||||||||
Other comprehensive income |
11,144 | 333 | 79,005 | 74,177 | |||||||||||||
Comprehensive loss |
$ | (20,647 | ) | $ | (101,992 | ) | $ | (49,983 | ) | $ | (551,412 | ) | |||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
4
Atmel Corporation
Notes to Condensed Consolidated Financial Statements
(In thousands, except per share data)
(Unaudited)
1. Basis of Presentation and Accounting Policies
These unaudited interim financial statements reflect all normal recurring adjustments which are, in the opinion of management, necessary to present fairly, in all material respects, the financial position of Atmel Corporation (Company or Atmel) and its subsidiaries as of September 30, 2003, the results of operations and comprehensive loss for the three and nine month periods ended September 30, 2003 and 2002 and the cash flows for the nine month period ended September 30, 2003 and 2002. All material intercompany balances have been eliminated. Because all of the disclosures required by generally accepted accounting principles are not included, these interim statements should be read in conjunction with the audited financial statements and accompanying notes in our Annual Report on Form 10-K for the year ended December 31, 2002. The December 31, 2002 year-end condensed balance sheet data was derived from the audited financial statements and does not include all of the disclosures required by generally accepted accounting principles. The statements of operations for the periods presented are not necessarily indicative of results to be expected for any future period, nor for the entire year. Certain prior year and period amounts have been reclassified to conform to current presentations.
2. Stock Based Compensation
Atmel 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 Incentive Stock Option Plan or 1996 Stock Plan or for grants made under the 1991 Employee Stock Purchase Plan. If the compensation cost for the 1986 Plan, the 1996 Plan and the ESPP had been determined based on the fair value at the grant date consistent with the provisions of SFAS 123, Atmel’s net loss and net loss per share for the three and nine months ended September 30, 2003 and 2002 would have been adjusted to the pro forma amounts indicated below:
| Three months ended | Nine months ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2003 | 2002 | 2003 | 2002 | |||||||||||||
Net loss – as reported |
$ | (31,791 | ) | $ | (102,325 | ) | $ | (128,988 | ) | $ | (625,589 | ) | ||||
Add: compensation expense for ESPP
included in net loss reported |
1,734 | $ | 3,033 | |||||||||||||
Deduct: compensation expense based on
fair value |
(5,598 | ) | (4,218 | ) | (14,395 | ) | (16,422 | ) | ||||||||
Net loss – pro forma |
$ | (35,655 | ) | $ | (106,543 | ) | $ | (140,350 | ) | $ | (642,011 | ) | ||||
Basic net loss per share– as reported |
$ | (0.07 | ) | $ | (0.22 | ) | $ | (0.28 | ) | $ | (1.34 | ) | ||||
Basic net loss per share – pro forma |
$ | (0.08 | ) | $ | (0.23 | ) | $ | (0.30 | ) | $ | (1.37 | ) | ||||
Diluted net loss per share – as reported |
$ | (0.07 | ) | $ | (0.22 | ) | $ | (0.28 | ) | $ | (1.34 | ) | ||||
Diluted net loss per share – pro forma |
$ | (0.08 | ) | $ | (0.23 | ) | $ | (0.30 | ) | $ | (1.37 | ) | ||||
5
The fair value of each option grant for both the 1986 Plan and the 1996 Plan is estimated on the date of the grant using the Black-Scholes option-pricing model with the following weighted average assumptions:
| Three months ended | Nine months ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2003 | 2002 | 2003 | 2002 | |||||||||||||
Risk-free interest |
0.93 | % | 1.60 | % | 1.05 | % | 1.60 | % | ||||||||
Expected life after vesting (years) |
1.47 – 6.23 | 0.97 – 1.34 | 1.47 – 6.23 | 0.97 – 1.34 | ||||||||||||
Expected volatility |
111 | % | 116 | % | 123 | % | 116 | % | ||||||||
Expected dividend |
$ | 0 | $ | 0 | $ | 0 | $ | 0 | ||||||||
The effects of applying SFAS 123 on the pro forma disclosures for the three and nine months ended September 30, 2003 and 2002 are not likely to be representative of the effects on pro forma disclosures in future periods.
At the annual stockholders meeting on May 7, 2003, the stockholders approved an increase in the authorized shares available under the ESPP by an additional 20 million shares. The Company began an ESPP offering on February 14, 2003, intending to offer a discount to employees of 15% for funds contributed for the 6 month offering period of February through August 2003. However, since there were insufficient authorized shares to fund the entire offering, a portion of the award (representing shares issuable on August 14, 2003 but authorized by shareholders on May 7, 2003) is deemed to be measured as of May 7, the date the additional shares were approved, instead of February 14. As the discount under the ESPP is greater than 15% at the shareholders’ approval date, the offering under the plan is a compensatory offering and the Company is accounting for a portion of the award (representing shares issuable on August 14, 2003 but authorized by shareholders on May 7, 2003) relating to the offering period ended August 14, 2003 as a variable award. As a variable award, the Company is required to recognize compensation expense equal to the difference between the fair value of stock and the purchase price of the stock. Based on such calculation, the Company has recorded compensation expense totaling $1.3 million in the quarter ended June 30, 2003 ($1 million of which was recorded in cost of revenues) and $1.7 million in the quarter ended September 30, 2003 ($1.3 million of which was recorded in cost of revenues).
3. Inventories
Inventories are stated at the lower of cost (first-in, first-out for raw materials and purchased parts; and average cost for work in progress) or market, and comprise the following: