10-Q 1 e10-q.txt 10-Q 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTER ENDED June 30, 2000 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM _______ TO _________ COMMISSION FILE NUMBER 0-19032 ATMEL CORPORATION (Registrant) DELAWARE 77-0051991 (State or other jurisdiction of (I.R.S. Employer Identification Number ) incorporation or organization) 2325 ORCHARD PARKWAY, SAN JOSE, CALIFORNIA 95131 (Address of principal executive offices) (408) 441-0311 Registrant's telephone number Indicate by a check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] ON AUGUST 1, 2000 REGISTRANT HAD OUTSTANDING 230,504,928 SHARES OF COMMON STOCK. 2 ATMEL CORPORATION FORM 10-Q QUARTER ENDED JUNE 30, 2000 INDEX
PAGE ---- PART I: FINANCIAL INFORMATION Item 1. Financial Statements Condensed Consolidated Balance Sheets at June 30, 2000 and December 31, 1999 1 Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2000 and June 30, 1999 2 Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2000 and June 30, 1999 3 Condensed Consolidated Statements of Comprehensive Income for the three and six months ended June 30, 2000 and June 30, 1999 4 Notes to Condensed Consolidated Financial Statements 5 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 9 Item 3. Quantitative and Qualitative Disclosures About Market Risk 14 PART II: OTHER INFORMATION Item 1. Legal Proceedings 15 Item 2. Changes in Securities and Use of Proceeds 15 Item 4. Submission of Matters to a Vote of Securities Holders 15 Item 5. Other Information 16 Item 6. Exhibits and Reports on Form 8-K 16 SIGNATURES 17
3 PART I: FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS ATMEL CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands)
JUNE 30, 2000 December 31, 1999 ------------- ----------------- (unaudited) CURRENT ASSETS Cash and cash equivalents $ 841,503 $ 251,272 Short term investments 252,938 161,190 Accounts receivable 340,053 281,843 Inventories 286,455 274,065 Other current assets 85,674 70,938 ----------- ----------- TOTAL CURRENT ASSETS 1,806,623 1,039,308 Fixed assets, net 1,175,027 938,562 Other assets 44,443 37,040 ----------- ----------- TOTAL ASSETS $ 3,026,093 $ 2,014,910 =========== =========== CURRENT LIABILITIES Current portion of long-term debt $ 133,614 $ 147,166 Trade accounts payable 277,078 278,562 Accrued liabilities and other 147,454 94,584 Deferred income on shipments to distributors 32,543 31,500 ----------- ----------- TOTAL CURRENT LIABILITIES 590,689 551,812 Convertible notes 129,330 275,899 Long-term debt less current portion 627,151 378,134 Deferred income taxes 7,586 7,586 ----------- ----------- TOTAL LIABILITIES 1,354,756 1,213,431 ----------- ----------- STOCKHOLDERS' EQUITY Common stock 1,178,004 397,167 Accumulated other comprehensive loss (65,316) (51,160) Retained earnings 558,649 455,472 ----------- ----------- Total stockholders' equity 1,671,337 801,479 ----------- ----------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 3,026,093 $ 2,014,910 =========== ===========
The accompanying notes are an integral part of these condensed consolidated financial statements. 1 4 ATMEL CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share data) (Unaudited)
Three Months Ended Six Months Ended June 30, June 30, 2000 1999 2000 1999 --------- --------- --------- --------- NET REVENUES $ 478,758 $ 311,142 $ 907,944 $ 601,179 Expenses Cost of sales 270,707 194,210 523,429 380,375 Research and development 62,616 43,124 124,529 90,353 Selling, general and administrative 52,433 44,405 97,543 80,325 --------- --------- --------- --------- TOTAL OPERATING EXPENSES 385,756 281,739 745,501 551,053 --------- --------- --------- --------- Operating income 93,002 29,403 162,443 50,126 Interest and other (expenses) income, net 2,818 (5,335) (1,230) 32 --------- --------- --------- --------- Income before taxes 95,820 24,068 161,213 50,158 Income tax provision (34,495) (8,664) (58,036) (18,056) --------- --------- --------- --------- Income before cumulative effect of accounting change 61,325 15,404 103,177 32,102 Cumulative effect of accounting change, net of tax effect -- -- -- (29,068) --------- --------- --------- --------- NET INCOME $ 61,325 $ 15,404 $ 103,177 $ 3,034 ========= ========= ========= ========= Basic net income per share: Income before cumulative effect of accounting change $ 0.27 $ 0.08 $ 0.47 $ 0.16 Cumulative effect of accounting change, net of tax effect -- -- -- (0.14) --------- --------- --------- --------- Net income $ 0.27 $ 0.08 $ 0.47 $ 0.02 ========= ========= ========= ========= Diluted net income per share: Income before cumulative effect of accounting change $ 0.26 $ 0.08 $ 0.45 $ 0.16 Cumulative effect of accounting change, net of tax effect -- -- -- (0.14) --------- --------- --------- --------- Net income $ 0.26 $ 0.08 $ 0.45 $ 0.02 ========= ========= ========= ========= Shares used in basic net income per share calculations 224,583 200,380 219,792 200,182 ========= ========= ========= ========= Shares used in diluted net income per share calculations 241,445 205,850 236,951 205,316 ========= ========= ========= =========
The accompanying notes are an integral part of these condensed consolidated financial statements. 2 5 ATMEL CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) (Unaudited)
Six Months Ended June 30, 2000 1999 --------- --------- CASH FROM OPERATING ACTIVITIES Net income (loss) $ 103,177 $ 3,034 Items not requiring the use of cash: Depreciation and amortization 107,800 101,983 Cumulative effect of accounting change -- 29,068 Loss (Gain) on sales of fixed assets 2,230 (12,383) Other 4,125 1,984 Changes in operating assets and liabilities Accounts receivable (50,236) (19,617) Inventories (1,907) (3,575) Prepaid taxes and other assets (7,476) 9,584 Trade accounts payable and other accrued liabilities 47,814 (8,387) Income taxes payable 44,325 (7,509) Deferred income on shipments to distributors 1,043 (8,008) --------- --------- NET CASH PROVIDED BY OPERATING ACTIVITIES 250,895 86,174 --------- --------- CASH FROM INVESTING ACTIVITIES Acquisition of fixed assets (399,079) (53,334) Sales of fixed assets 1,689 17,600 Acquisitions (12,869) (9,400) Purchase of investments (110,192) (62,780) Sale or maturity of investments 18,670 62,297 --------- --------- NET CASH USED IN INVESTING ACTIVITIES (501,781) (45,617) --------- --------- CASH FROM FINANCING ACTIVITIES Issuance of notes payable 25,272 -- Proceeds from capital leases and notes 284,634 25,649 Principal payments capital leases and notes (84,034) (59,231) Payment from settlement of warrants -- (7,619) Issuance of common stock 619,356 4,033 --------- --------- NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 845,228 (37,168) --------- --------- Effect of foreign currency translation adjustment (4,111) (6,997) --------- --------- Net increase (decrease) in cash 584,212 (3,608) Cash and cash equivalents at beginning of period 251,272 161,721 --------- --------- Cash and cash equivalents at end of period $ 835,484 $ 158,113 ========= ========= Interest paid $ 18,058 $ 17,187 Income taxes paid $ 16,082 $ 9,153 Fixed asset purchases in accounts payable $ 45,735 $ 12,055
The accompanying notes are an integral part of these condensed consolidated financial statements. 3 6 ATMEL CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (In thousands) (Unaudited)
Three Months Ended Six Months Ended June 30, June 30, 2000 1999 2000 1999 --------- --------- --------- --------- Net income $ 61,325 $ 15,404 $ 103,177 $ 3,034 Other comprehensive (loss) income, net of tax: Foreign currency translation adjustments 2,726 (3,441) (13,353) (17,286) Unrealized (loss) on securities (367) (2,449) (803) (1,583) --------- --------- --------- --------- Other comprehensive (loss) income 2,359 (5,890) (14,156) (18,869) --------- --------- --------- --------- Comprehensive income $ 63,684 $ 9,514 $ 89,021 $ (15,835) ========= ========= ========= =========
The accompanying notes are an integral part of these condensed consolidated financial statements. 4 7 ATMEL CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2000 (Unaudited) 1. BASIS OF PRESENTATION AND ACCOUNTING POLICIES These unaudited interim financial statements reflect all normal recurring adjustments which are, in the opinion of management, necessary to present fairly, in all material respects, the financial position of Atmel Corporation (Company or Atmel) and its subsidiaries as of June 30, 2000, and the results of operations, comprehensive income and cash flows for the three and six month periods ended June 30, 2000 and 1999. 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 to Shareholders filed on Form 10-K for the year ended December 31, 1999. The year-end condensed balance sheet data was derived from the audited financial statements and does not include all of the disclosures required by generally accepted accounting principles. The 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. Prior year amounts have been reclassified to conform with current presentation. 2. 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 are comprised of the following:
(In thousands) June 30, 2000 December 31, 1999 ------------- ----------------- Raw materials and purchased parts $ 27,654 $ 19,527 Finished goods 74,425 61,840 Work in progress 184,376 192,698 -------- -------- \Total $286,455 $274,065 ======== ========
3. SHORT TERM INVESTMENTS Short term investments are stated at cost plus any applicable unamortized premium or discount. 4. NET INCOME PER SHARE A reconciliation of the numerator and denominator of basic and diluted net income per share is provided in the following table. All shares have been restated to reflect the 2-for-1 stock split effected in December 1999. 5 8
Three Months Ended Six Months Ended June 30 June 30 (In thousands, except per share data) 2000 1999 2000 1999 ------------------------- ------------------------- Basic net income (numerator) $ 61,325 $ 15,404 $103,177 $ 3,034 Interest saved on convertible bonds, net of taxes 1,118 -- 3,596 -- Diluted net income (numerator) $ 62,443 $ 15,404 $106,773 $ 3,034 ======== ======== ======== ======== Shares used in basic net income per share calculations (denominator): Weighted average shares of 224,583 200,380 219,792 200,182 common stock outstanding (basic) Dilutive effect of stock options 7,344 5,470 7,641 5,134 Dilutive effect of convertible bonds 9,518 -- 9,518 -- Shares used in diluted net income per share calculations (denominator): Weighted average shares of common stock outstanding (diluted) 241,445 205,850 236,951 205,316 ======== ======== ======== ======== Basic net income per share $ 0.27 $ 0.08 $ 0.47 $ 0.02 ======== ======== ======== ======== Diluted net income per share $ 0.26 $ 0.08 $ 0.45 $ 0.02 ======== ======== ======== ========
5. SEGMENT REPORTING We have four reportable segments: Application Specific Integrated Circuits (ASIC), Logic, Nonvolatile Memories (NVM) and Temic. Each segment requires different design, development and marketing resources to produce and sell semiconductor integrated circuits. Information about segments (in thousands):
ASIC Logic NVM Temic Total ---------------------------------------------------------------------------- THREE MONTHS ENDED JUNE 30, 2000 Net revenues from external customers $117,180 $ 35,160 $252,188 $ 74,230 $478,758 Segment operating income 22,217 9,676 75,616 11,847 119,356 THREE MONTHS ENDED JUNE 30, 1999 Net revenues from external customers $ 79,373 $ 26,806 $136,852 $ 68,111 $311,142 Segment operating income 8,398 5,996 14,455 3,158 32,007
6 9
ASIC Logic NVM Temic Total ---------------------------------------------------------------------------- SIX MONTHS ENDED JUNE 30, 2000 Net revenues from external customers $218,696 $ 65,204 $479,872 $144,172 $907,944 Segment operating income 43,354 14,295 125,234 20,511 203,394 SIX MONTHS ENDED JUNE 30, 1999 Net revenues from external customers $158,997 $ 47,066 $260,935 $134,181 $601,179 Segment operating income 26,376 9,182 26,671 4,098 66,327
Reconciliations of segment information to financial statements (in thousands):
Three Months Ended Six Months Ended June 30, June 30, 2000 1999 2000 1999 --------- --------- --------- --------- Total income for reportable segments $ 119,356 $ 32,007 $ 203,394 $ 66,327 Unallocated amounts: Corporate R&D (19,000) 129 (32,000) (13,346) Nonrecurring charges (5,167) -- (5,167) Corporate expenses (2,187) (2,733) (3,784) (2,855) ------------------------------------------------------------------ Consolidated operating income before interest, taxes, and cumulative effect of accounting change $ 93,002 $ 29,403 $ 162,443 $ 50,126 ==================================================================
6. TCS ACQUISITION On May 25, 2000 we acquired Thomson-CSF Semiconducteurs Specifique (TCS), which had been a wholly owned subsidiary of Thomson-CSF. TCS, which has been renamed Atmel Grenoble, brings leading edge capabilities in security and image sensor technologies. 7. CONVERTIBLE NOTES On June 2, 2000 we redeemed our 3.25% Convertible Subordinated Guaranteed Step-Up Notes due in 2002. The aggregate principal amount outstanding was $150 million. Note holders had the option to convert their Notes into shares of Atmel Corporation common stock or redeem for cash. $149,998,000 principal amount of notes was converted into shares of common stock constituting a total of 8,450,578 shares. $2,000 principal amount of notes was presented for cash redemption, totaling $2,161. 8. SUBSEQUENT EVENTS On July 14, 2000 our Board of Directors approved a two-for-one stock spilt, to be effected as a stock dividend. Shareholders of record at the close of business August 11, 2000 will be issued a certificate representing one additional share for each share already held. Certificates will be distributed August 25, 2000. The following table shows net income per share as it would appear after the proposed stock split:
(In thousands, except per share data) 2000 1999 2000 1999 ---- ---- ---- ---- Net income Basic $61,325 $15,404 $103,177 $3,034 Diluted $62,443 $15,404 $106,773 $3,034 Number of shares after stock split Basic 449,166 400,760 439,584 400,364 Diluted 482,890 411,700 473,902 410,632 Net income per share after stock split Basic $0.14 $0.04 $0.24 $0.01 Diluted $0.13 $0.04 $0.23 $0.01
7 10 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS Safe Harbor for Forward-Looking Statements under the Securities Litigation Reform Act of 1995: Investors are cautioned that certain statements in this Form 10-Q are forward looking statements that involve risks and uncertainties. Words such as "expects," "anticipates," "intends," "plans," "believes," "seeks," "estimates," and variations of such words and similar expressions are intended to identify such forward looking statements. These statements are based on current expectations and projections about the semiconductor industry and assumptions made by the management and are not guarantees of future performance. Therefore, actual events and results may differ materially from those expressed or forecasted in the forward looking statements due to factors such as the effect of changing economic conditions, material changes in currency exchange rates, political instability - including war - in countries where the Company manufactures and/or sells its products, or disruptions in production or 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, manufacturing capacity utilization, product mix and technological risks and other risk factors identified in the Company's filings with the Securities and Exchange Commission, including the Company's Report on Form 10-K Report. The Company undertakes no obligation to update any forward looking statements in this Form 10-Q. The following table sets forth for the periods indicated certain operating data as a percentage of net revenues:
Three Months Ended Six Months Ended June 30, June 30, 2000 1999 2000 1999 ------ ------ ------ ------ NET REVENUES 100 % 100 % 100 % 100 % Expenses Cost of sales 57 62 58 63 Research and Development 13 14 14 15 Selling, general and administrative 11 14 11 13 ------ ------ ------ ------ TOTAL EXPENSES 81 91 82 92 ------ ------ ------ ------ OPERATING INCOME 19 9 18 8 Interest and other income (expenses), net 1 -2 0 0 ------ ------ ------ ------ INCOME BEFORE TAXES 20 8 18 8 Income tax provision (benefit) -7 -3 -7 -3 INCOME BEFORE CUMULATIVE EFFECT OF ACCOUNTING CHANGE 13 5 11 5 Cumulative effect of accounting change -- -- -- -4 ------ ------ ------ ------ NET INCOME 13 % 5 % 11 % 1 % ====== ====== ====== ======
8 11 NET REVENUES Revenues for the second quarter of 2000 totaled $478 million, an increase of 54% from the same quarter in 1999, and were the highest in our history. Contributing to our revenue growth were continued product sales strength, a favorable pricing environment, and the continued successful ramp of our manufacturing capacity. NET REVENUES - BY SEGMENT The Company's net revenues by segment are summarized as follows (in thousands):
Three Months Ended Six Months Ended June 30, June 30, Segment 2000 1999 Increase 2000 1999 Increase ---------------------------------------------------- -------- ------------------------- -------- ASIC $117,180 $ 79,373 $ 37,807 $218,696 $158,997 $ 59,699 Logic 35,160 26,806 8,354 65,204 47,066 18,138 Nonvolatile Memory 252,188 136,852 115,336 479,872 260,935 218,937 Temic 74,230 68,111 6,119 144,172 134,181 9,991 ------------------------- -------- ------------------------- -------- Total $478,758 $311,142 $167,616 $907,944 $601,179 $306,765 ========================= ======== ========================= ========
ASIC segment revenues grew by $38 million in the second quarter of 2000 over the same period in 1999 due to continued growth in unit volumes. Sales of ASICs designed for use in wireless communications and smartcard circuits were significant factors in the revenue increase. Logic segment revenues increased $8 million in the second quarter of 2000 compared to the same quarter of 1999 because of higher unit shipments. Nonvolatile Memory revenues increased $115 million in the second quarter of 2000 compared to the same period in 1999. This segment continues to experience higher unit shipments and stronger selling prices than last year. Nonvolatile Memory revenues continue to be strong in part because of strong demand for parts used in wireless telecommunications. Temic segment revenues increased $6 million in the second quarter of 2000 compared to the same period in 1999 due to a significant increase in units shipped and stronger prices. NET REVENUES - BY GEOGRAPHIC AREA The Company's net revenues by geographic areas are summarized as follows (in thousands):
Three Months Ended Six Months Ended June 30, June 30, Region 2000 1999 Increase 2000 1999 Increase ----------------------------------------------- -------- ------------------------- -------- North America $167,247 $ 98,047 $ 69,200 $308,049 $196,833 $111,216 Europe 145,097 114,399 30,698 275,995 192,381 83,614 Asia 153,699 96,754 56,945 299,930 199,811 100,119 Other 12,715 1,942 10,773 23,970 12,154 11,816 ------------------------- -------- ------------------------- -------- Total $478,758 $311,142 $167,616 $907,944 $601,179 $306,765 ========================= ======== ========================= ========
North American sales increased in the second quarter of 2000 compared to 1999 due to more unit shipments at stronger prices. Sales inside North America increased to 35% of total sales compared to 31% of total sales in the same quarter in 1999 while sales to Europe declined to 30% 9 12 of total sales from 37% of total sales in the prior year's quarter. Faster sales growth in North America drove the change in proportions. Sales to Asia maintained their relative share of total sales. In the second quarter of 2000, approximately 22% of sales were denominated in foreign currencies compared to 26% in the second quarter of 1999. Exchange rate changes from the corresponding quarter in 1999 did not have a material effect on revenues. COST OF REVENUES AND GROSS MARGIN Our cost of revenues as a percentage of net revenues decreased to 58% percent in the first half of 2000, from 63% percent in the corresponding period of 1999. The decrease in cost of revenues as a percentage of net revenues is the result of manufacturing efficiencies we continue to gain from greater utilization of our wafer fabrication facilities and a higher unit base over which we spread the fixed costs of operating our fabrication facilities. In 2000 we continue to expect capital expenditures to be about $1 billion, up from $180 million in 1999. These expenditures will be focused on developing leading edge manufacturing capacity. We expect to make equipment purchases to add 0.18 micron capacity and also to incur development expenses for next generation process technologies. Production delays, difficulties in achieving acceptable yields at our manufacturing facilities or industry wide overcapacity could materially and adversely affect our gross margin and future operating results. RESEARCH AND DEVELOPMENT Research and development costs increased to $125 million in the first half of 2000 from $90 million in the first half of 1999. In dollar amounts spent, research and development expenses increased 39% while remaining at approximately the same proportion of revenue as the same period in 1999. The increase has been primarily due to our continued investment in the shrinking of the die size of our integrated circuits from 0.5-micron line widths to 0.35-micron, 0.25-micron, and 0.18-micron line widths; enhancement of mature products; development of new products; advancing CMOS, BiCMOS, and silicon germanium process technologies; and manufacturing improvements. We believe that continued investments in process technology and product development are essential for us to remain competitive in the markets we serve, and we continue to be committed to high levels of expenditures for research and development. SELLING, GENERAL AND ADMINISTRATIVE (SG&A) Selling, general and administrative expenses increased by $17 million in the first half of 2000 compared to the same period in 1999, while declining as a percentage of revenue to 11% from 13%. INTEREST AND OTHER EXPENSES, NET We reported ($1) million of net interest and other expenses for the first half of 2000 compared to $0 million net interest and other expenses for the same period in 1999. In the first half of 1999 we recorded a $15 million pre-tax gain related to the sale of certain assets in other income, whereas no such item was recorded in the first half of 2000. The first half of 2000 reflects the net result of interest income, interest expense and foreign exchange gains. 10 13 INCOME TAX PROVISION The Company's effective tax rate continued to be 36% for the three and six months ended June 30, 2000. LIQUIDITY AND CAPITAL RESOURCES At June 30, 2000 we had $1,094 million of cash, cash equivalents and short term investments. This is an increase of $682 million from December 31, 1999 and is largely attributable to approximately $600 million of net proceeds from a secondary common stock offering in February 2000. The Company's accounts receivable increased by 21% to $340 million at June 30, 2000 from $282 million at December 31, 1999. Despite the increase the average days of accounts receivable outstanding was 65 days in the second quarter of 2000 compared to 67 days in the fourth quarter 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 we expect that average days outstanding will continue to decrease while business conditions remain strong. We believe that our existing sources of liquidity, together with cash flows from operations, lease financing on equipment and other short- and medium-term bank borrowings, will be sufficient to meet our liquidity and capital requirements through 2000. We may, however, seek additional equity or debt financing to fund the expansion of our wafer fabrication capacity or other projects; the timing and amount of such capital requirements cannot be precisely determined at this time. There can be no assurance that such financing would be available in acceptable amounts or terms. CASH FLOW From Operating Activities: During the six months ended June 30, 2000, net cash provided by operations increased $165 million to $251 million compared to $86 million in the same period of 1999. The increase was mainly due to the increase in net income. From Investing Activities: Net cash used in investing activities was $502 million for the six months ended June 30, 2000 compared to net cash used by investing activities of $46 million in the first half of 1999. About 1/5 of the 2000 total, approximately $110 million, was used to purchase investments. $399 million was used for the purchase of fixed assets. We will fund our remaining capital expenditures in 2000 (to be used for equipment purchases and development expense) using a combination of existing cash, sale of short-term investments, and equipment lease financing. From Financing Activities: In the first half of 2000, net cash provided by financing activities was $845 million compared to net cash used in financing activities of $37 million in the first half of 1999, a change of $882 million. The majority of the new cash is from the proceeds of a stock offering completed in February 2000, with the balance coming substantially from lease financing. 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; 11 14 - 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. 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. 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 12 15 do not have significant operations there with which to counterbalance our exposure. Sales denominated in yen were 8% of our revenue in the first half of 2000. Sales denominated in foreign currencies were 22% in the first half of 2000, compared to 23% in the comparable period of 1999. We also face the risk that our accounts receivables 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 receivables denominated in European currencies. However, our accounts receivables in yen are hedged using a loan denominated in yen of approximately equal amount. 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. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK MARKET RISK SENSITIVE INSTRUMENTS We do not use derivative financial instruments in our operations. 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 our current profile of interest rate exposures and the maturities of our 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 $890 million at June 30, 2000. Approximately $612 million of these borrowings have fixed interest rates. Approximately $278 million of floating rate debt 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 13 16 have a $0.5 million adverse impact on income before taxes on Atmel's Consolidated Statements of Operations for the remainder of 2000. 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. PART II OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS We are not a party to any legal proceedings that management believes could have a material adverse effect on our operating results. ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS On June 2, 2000 we redeemed our 3.25% Convertible Subordinated Guaranteed Step-Up Notes due in 2002. The aggregate principal amount outstanding was $150 million. $149,998,000 principal amount of notes was converted to common shares, constituting a total of 8,450,578 shares. The issuances of common shares on conversion of the Notes were exempt from registration under Section 3(a)(9) of the Securities Act because such shares were securities exchanged by the issuer with its existing security holders exclusively where no commission or other remuneration was paid or given directly or indirectly for soliciting such exchange. $2,000 principal amount of notes was presented for cash redemption, totaling $2,161. ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS At our Annual Meeting of Stockholders held on May 3, 2000, the tabulation of proxies representing 188,087,578 shares of Common Stock or 85% of the total outstanding shares resulted in the following votes (in thousands): PROPOSAL I (ELECTION OF DIRECTORS)
Total Vote Total Vote Withheld for Each Each Director Director ------- ------ George Perlegos 173,868 14,220 Gust Perlegos 173,865 14,223 Tsung-Ching Wu 173,841 14,247 Norm Hall 173,864 14,224 Peter Thomas 173,868 14,220
PROPOSAL II (TO RATIFY THE APPOINTMENT OF PRICEWATERHOUSECOOPERS LLP AS THE INDEPENDENT ACCOUNTANTS OF ATMEL CORPORATION FOR 2000.)
FOR AGAINST ABSTAIN ------- ------- ------- 187,685 204 199
14 17 ITEM 5:. OTHER INFORMATION Stockholder Proposals Due for Our 2001 Annual Meeting Stockholder proposals intended to be presented at our 2001 annual meeting of stockholders must be received by our Vice President and General Counsel not later than November 18, 2000 in order to be included in our proxy statement and form of proxy relating to the 2001 annual meeting. (Our Address: 2325 Orchard Parkway; San Jose, CA 95131) ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K (A) Exhibit: 27.1 Financial Data Schedule (B) Reports on Form 8-K: None 15 18 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. ATMEL CORPORATION ------------------------------------ (Registrant) AUGUST 14, 2000 /S/ GEORGE PERLEGOS ------------------------------------ GEORGE PERLEGOS President, Chief Executive Officer (Principal Executive Officer) AUGUST 14, 2000 /S/ DONALD COLVIN ------------------------------------ DONALD COLVIN Chief Financial Officer and Vice President, Finance (Principal Financial and Accounting Officer) 16