-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, CoU/ydZIuiEGJF9IJTJYz40jW6P/qrm2i0IaXVtrsQe/VdMVIMhJplhJQtfQxPr0 3e7JTGMXYYywu2RNplysHA== 0000950005-97-000340.txt : 19970328 0000950005-97-000340.hdr.sgml : 19970328 ACCESSION NUMBER: 0000950005-97-000340 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970327 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: ATMEL CORP CENTRAL INDEX KEY: 0000872448 STANDARD INDUSTRIAL CLASSIFICATION: SEMICONDUCTORS & RELATED DEVICES [3674] IRS NUMBER: 770051991 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-19032 FILM NUMBER: 97565038 BUSINESS ADDRESS: STREET 1: 2325 ORCHARD PKWY CITY: SAN JOSE STATE: CA ZIP: 95131 BUSINESS PHONE: 4084410311 MAIL ADDRESS: STREET 1: 2325 ORCHARD PKWY CITY: SAN JOSE STATE: CA ZIP: 95131 10-K 1 FORM 10-K ------------------------------------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ---------------------- FORM 10-K |X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED] For the fiscal year ended December 31, 1996 OR |_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] Commission file number: 0-19032 ATMEL CORPORATION (Exact name of registrant as specified in its charter) California 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, no par value --------------------------------- 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 voting stock held by non-affiliates of the registrant, based upon the closing sale price of the Common Stock on March 7, 1997 as reported on the Nasdaq National Market, was approximately $2,270,674,000. 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 7, 1997, Registrant had outstanding 100,695,000 shares of Common Stock. DOCUMENTS INCORPORATED BY REFERENCE The Registrant's Annual Report to Shareholders for the fiscal year ended December 31, 1996 is incorporated by reference in Parts II and IV of this Form 10-K to the extent stated herein. The Registrant's definitive Proxy Statement for the Annual Meeting of Shareholders to be held on April 30, 1997 is incorporated by reference in Part III of this Form 10-K to the extent stated herein. - -------------------------------------------------------------------------------- ITEM 1. BUSINESS General Atmel Corporation (Atmel or the Company) designs, develops, manufactures and markets a broad range of high performance non-volatile memory and logic integrated circuits using its proprietary complementary metal-oxide semiconductor (CMOS) technologies. Atmel's strategy is to offer products that provide the enabling technology and features that allow the Company's customers to develop and bring to market new, high value-added systems and products. The Company's non-volatile memory products consist primarily of erasable programmable read-only memories (EPROMs), electrically erasable programmable read-only memories (EEPROMs) and Flash memories; and its logic products consist of programmable logic devices (EPLDs and FPGAs), application-specific integrated circuits (ASICs) and Flash-based microcontrollers. The Company's products are differentiated by speed, density, power usage and specialty packaging. These products are used in a range of applications in the computing, telecommunications, industrial control and instrumentation, consumer electronics, automotive and avionics markets. Products The Company's products consist primarily of EPROMs, parallel-interface and serial-interface EEPROMs, Flash memories, EPLDs, Flash-based microcontrollers and ASICs. Substantially all of the Company's products are based on its proprietary CMOS process technology. Within each product family, the Company offers its customers products with a range of speed, density, power usage, specialty packaging and other features. EPROMs. The Company shipped its first EPROM in early 1986. The worldwide EPROM market is intensely competitive and characterized by commodity pricing. The Company's strategy is to target the high performance end of this market by offering faster speed, higher density and lower power usage devices, often in specialty packages not commonly available from other manufacturers. The Company currently offers EPROMs with access speeds of 150 nanoseconds to 45 nanoseconds and densities of 256 kilobits to 8 megabits. These products are generally used to contain the operating programs of embedded microcontroller or DSP-based systems, such as hard disk drives, CD-ROM drives and modems. Parallel-Interface EEPROMs. The Company is the leading supplier of high performance parallel-interface EEPROMs. The Company introduced its first parallel-interface EEPROM product, a 64K-bit EEPROM, in February 1986. The Company believes that its parallel-interface EEPROM products, all of which are full featured, represent the most complete parallel-interface EEPROM product family in the industry. The Company has maintained this leadership role through early introduction of high speed and low power consumption CMOS devices. The Company was the industry's first supplier of a sub-100 nanoseconds 256K parallel-interface EEPROM and the first volume producer of a 1-megabit and 4-megabit devices. The Company is the sole-source supplier for several customers for certain parallel-interface EEPROM devices. In the design of its product family, the Company has emphasized device reliability, achieved partly through the incorporation of on-chip error detection and correction features. The Company currently offers parallel-interface EEPROMs with access speeds of 300 nanoseconds to 55 nanoseconds and densities of 16 kilobits to 4 megabits. These products are generally used to contain frequently updated data in cellular telephones, communications infrastructure equipment and avionics navigation systems. 2 Serial-Interface EEPROMs. Atmel used its parallel-interface EEPROM technology leadership and 6-inch sub-micron fabrication capability by entering the serial-interface EEPROM market in 1991. This move allowed the Company to substantially broaden its EEPROM product offerings to include most package and temperature configurations required by customers in certain segments of the serial-interface EEPROM market (i.e., the 2-wire, 3-wire and 4-wire market segments). The serial-interface EEPROM product line incorporates many of the reliability, speed and other features of the Company's parallel-interface EEPROM products. The Company currently offers serial-interface EEPROMs with access speeds of 20 to 4 milliseconds and densities of 1 kilobit to 256 kilobits. These products are generally used to contain user-preference data in cellular and cordless telephones, home appliances and computer peripherals. Flash Memories. Flash memories represent the latest technology in non-volatile devices that can be reprogrammed in-system. Flash memories offer a middle ground in price and features between EPROMs, which can be reprogrammed only a few times and only if removed from a system, and relatively more expensive parallel-interface EEPROMs, in which any individual byte of data can be reprogrammed on the device in-system tens to hundreds of thousands of times. The Company believes that many of its competitors in the Flash memory market offer devices based on EPROM technology. The Company's use of EEPROM technology as the basis for its Flash memories affords the Company's Flash memory products a number of technical advantages that the Company believes currently are not offered by its competitors' products. The Company's EEPROM-based Flash memories can be written using a much lower power, use a simple self-timed write sequence and avoid the additional system complexity and time required to reprogram Flash memories that are designed based on EPROM technology. These features offer system designers considerable improvements in convenience, system cost and reliability over other Flash memories. Introduced in late 1989, Atmel's Flash memories, based on its EEPROM technology, were the industry's first Flash memory that can be reprogrammed using only a single 5 volt power source, a single 3 volt power source or a single 2.7 volt power source as opposed to the heavier, larger and more expensive 12 volt power source typically utilized by many EPROM-based Flash memories. These lower power requirements are particularly important in portable telecommunications and consumer electronic products and other systems where small size and weight and longer battery life are critical customer requirements. In early 1997, the Company expanded its Flash product offerings by introducing a range of products based on its EPROM technology. These new products are being introduced into the market place. The Company currently offers Flash memories with densities of 256 kilobits to 8 megabits. The flexibility and ease of use of the Company's Flash memories make them an attractive alternative to EPROMs in systems where program information stored in memory must be rewritten after the system leaves its manufacturing environment. In addition, many customers use Flash memories within the system manufacturing cycle, affording the customer in-system diagnostic and test programming prior to reprogramming for final shipment configuration. The reprogrammability of Flash memories also serves to support later system upgrades, field diagnostic routines and in-system reconfiguration, as well as capturing voice and data messages for later review. The Company's memory products are used to provide non-volatile program and data storage in digital systems for a variety of applications and markets, including computing, telecommunications, data communications, consumer electronics, automotive, industrial/instrumentation and military/avionics. EPLDs. Atmel shipped its first erasable programmable logic device (EPLD) product in November 1987. Atmel has developed a line of EPLDs, ranging from 500 to 5,000 gates, that are 3 reprogrammable and that incorporate non-volatile elements from its CMOS EEPROM technology. These devices are often used as prototyping and pre-production devices, and allow for later conversion to gate array products for volume production. Atmel offers customers the ability to migrate from EPLDs (either its own or competitors') to Atmel gate arrays with minimal conversion effort. The Company offers CMOS EPLDs with high performance and low power consumption. Atmel's EPLDs have device speeds as fast as 5 nanoseconds and can support high speed microprocessor-based applications. Atmel has adopted the use of industry standard computer-aided engineering (CAE) design tools for customer programming of its EPLDs. The Company's EPLD product architecture facilitates support from a variety of design tool vendors, affording the customer greater flexibility and lower cost than competing architectures, which typically incorporate proprietary programming requirements. The Company has cultivated close working relationships with leading independent CAE tool vendors to supply low cost, industry-standard design and programming equipment for the Company's customers. Currently, the Company's EPLDs are supported with software tools from vendors including Viewlogic, Data I/O Corporation, IS Data, Logical Devices and MINC. Atmel's EPLD products are used in a broad range of markets and applications including telecommunications, computers, industrial and military/avionics. FPGAs. In March 1993, Atmel acquired the technology and certain technical personnel of Concurrent Logic, Inc., a designer of field programmable gate arrays (FPGAs), to expand the breadth of the Company's user-configurable logic device product offerings. The Company believes that its FPGA designs are well suited for data and computation intensive applications and will also afford its customers a migration path among logic solutions as their volume and cost requirements change. Atmel's AT6000 FPGAs were first shipped by the Company in the first quarter of 1994 and are being used in graphics, image processing, networking and telecommunications applications, often as a co-processor to a digital signal processor (DSP) to speed-up certain software routines by implementing them in hardware. The devices range in density from 2,000 to 20,000 usable gates. ASICs. The Company manufactures and markets semicustom gate arrays and cell-based integrated circuits (CBICs), as well as full custom application-specific integrated circuits (ASICs), to meet customer requirements for high performance logic devices in a broad variety of customer-specific applications. These logic devices are designed to achieve highly integrated solutions for particular applications by combining a variety of logic functions on a single chip rather than using a multi-chip solution. In mid-1990, the Company introduced its CMOS gate array product family to satisfy high gate count and high performance requirements, primarily in computer, avionics and military applications. The Company's gate array family consists of devices ranging from 2,000 gates to more than 1,120,000 gates. Each of these gate arrays utilizes logic elements from the Company's 1.0 and 0.5-micron cell libraries and minimizes gate delays to as little as 256 picoseconds. In 1995, through the acquisition of European Silicon Structures (now, Atmel ES2), the Company entered the CBIC business, with a range of products that may include standard digital and analog functions, as well as non-volatile memory elements and large pre-designed macro functions all mixed on a single chip. The Company's ASIC products are targeted primarily at customers whose high-end applications require high-speed, high-density or low or mixed-voltage devices. However, Atmel offers special versions of its devices to serve as upgrade and consolidation paths for users of one or more of the Company's EPLDs or competing vendors' complex PLDs or FPGAs. To develop gate arrays and CBICs, system designers require sophisticated development aids. These CAE tools include logic synthesizers, logic circuit simulators, timing analysis and verification 4 tools, test pattern generators and testability graders, automated circuit placement and interconnection programs and mask tooling generators. As with its EPLDs and FPGAs, the Company has chosen to rely on industry-standard CAE design tools to provide its customers access to reliable, state-of-the-art development tools. Currently, the Company's ASICs are supported with software tools from vendors including Cadence Design Systems, Viewlogic, Mentor Graphics, Synopsys, High Level Design Systems and Very Test. The Company is working closely with certain customers to develop and manufacture custom ASIC products for the Company to sell on a sole-source basis. The Company also has agreements to produce custom products including radio-frequency powered identification chips targeted at smart card devices. Microcontrollers. Atmel offers 3 families of microcontrollers. The first integrates the industry standard 8-bit Intel 80C31 controller with the Company's EEPROMs and Flash memories. The Company licensed this controller technology from Intel on a non-exclusive basis. The second is a similar integration utilizing a proprietary 8-bit reduced-instruction-set computer (RISC) architecture that is significantly higher performance and lower cost than the standard Intel 80C31 architecture. The third is a licensed 16/32-bit RISC, the ARMTM, from Advanced RISC Machines, offered first as a macro function in the Company's CBIC library. The Company is targeting these 8-bit microcontrollers for use in embedded control applications in consumer electronics, automotive, computer, telecommunications and industrial markets. The incorporation of the Company's non-volatile memory technology in this microcontroller line offers customers increased configuration flexibility and field programmability. Technology Since its formation, Atmel has focused its efforts on developing advanced CMOS processes that can be used to manufacture reliable non-volatile elements for memory and logic integrated circuits. The Company believes that it is a leader in single and multiple-layer metal, non-volatile CMOS processing, which enables it to produce its high-density, high-speed and low-power memory and logic products. Increasing the number of layers of a CMOS device raises a number of technological issues. First, each additional layer requires an additional photomask, adding complexity to the manufacturing process. Also, because non-volatile circuit elements typically generate higher internal voltages, the layers of isolation material are required to be thicker and more effective than other devices. Adding more and thicker layers increases surface irregularities in the device, further complicating the manufacturing process. These surface irregularities can cause brittle metal layers to break, which result in device failure. The Company believes that by virtue of its expertise in manufacturing CMOS and non-volatile integrated circuits, it is able to produce multiple-layer metal devices that are as fast as or faster than comparable single-layer devices manufactured by its competitors. The Company's current integrated circuits incorporate effective feature sizes as small as 0.5 microns and, on its memory products, oxide tunnels within the silicon semiconductor layers of less than 80 angstroms. To enable it to continue to serve the high performance requirements of its customers, the Company is developing CMOS and BiCMOS processes which support effective feature sizes as small as 0.35 microns. 5 Manufacturing The Company processes wafers for its integrated circuits primarily at its manufacturing facility located in Colorado Springs, Colorado. This facility, which consists of a Class 10 wafer fabrication line and a Class 1 wafer fabrication line and additional buildings for engineering and test operations, enables the Company to process in volume 6-inch wafers, with effective feature sizes as small as 0.35 microns. The Company also has two semiconductor fabrication facilities located in Rousset, France - an original plant and a newly constructed facility. The original 6-inch fabrication area was converted from a prototype plant to a production facility, which allowed the Company to increase manufacturing output fourfold. In addition, the construction of a new 388,000 square-foot manufacturing plant was completed during the year. This facility will produce 8-inch silicon wafers using a new 0.35-micron process. Because the Company relies on its Colorado Springs and Rousset facilities for wafer fabrication, its business and operating results would be adversely affected if wafer fabrication at these facilities were interrupted for any reason, including factors beyond the Company's control. The Company plans to make substantial capital expenditures during 1997 to increase its wafer fabrication capacity at its existing facilities and also for installation of equipment at its new facility in Rousset. The fabrication of semiconductor products such as those sold by the Company is highly complex and sensitive to dust and other contaminants, thus requiring production in a highly controlled and clean environment. Minute impurities, difficulties in the fabrication process or defects in the masks used to print circuits on the wafers or other factors can cause a substantial percentage of the wafers to be rejected or numerous die on each wafer to be nonfunctional. The Company has, from time to time, experienced delays in product shipments due to yield problems and may experience problems in achieving acceptable yields in the manufacture of wafers, particularly in connection with the planned expansion of its capacity. To optimize wafer yield and minimize quality problems, the Company tests its products at various stages in the fabrication process, performs high-temperature burn-in qualification and continuous reliability monitoring on all products, and conducts numerous quality control inspections throughout the entire production flow using analytical manufacturing controls. While the Company's personnel have substantial experience in the fabrication process, the Company may experience production delays or difficulties in achieving or maintaining acceptable yields of functional devices. Any such prolonged delays or difficulties would adversely affect the Company's operating results. Average selling prices typically decrease over the life of a product as volumes increase and competitors enter the market. The Company relies primarily on obtaining cost reductions in the manufacture of products, increased unit demand to absorb fixed costs and introducing new, higher-priced products which incorporate advanced features in order to offset such selling price declines. To the extent that such cost reductions, increased unit demand and new product introductions do not occur in a timely manner, operating results will be adversely affected. In general, the raw materials and equipment used in the production of the Company's integrated circuits are available from several suppliers and the Company is not dependent upon any single source of supply. Although shortages have occurred and lead times have been extended in the industry on occasion, the Company has not experienced any material difficulties in obtaining raw materials or equipment to date. Federal, state and local regulations impose various environmental controls on the discharge or disposal of toxic, volatile or otherwise hazardous chemicals and gases used in the manufacturing process. While the Company believes it has all environmental permits necessary to conduct its 6 business and that its activities conform to present environmental regulations, increasing public attention has been focused on the environmental impact of semiconductor operations. While the Company has not experienced any material adverse effect on its operations from governmental regulations, there can be no assurance that changes in such regulations will not impose the need for additional capital equipment or other requirements. Any failure by the Company to control the use of, or to restrict adequately the discharge of, hazardous substances under present or future regulations could subject it to substantial liability or could cause its manufacturing operations to be suspended. The Company manufactures wafers for its products in its Colorado Springs and Rousset facilities. The wafers are then sorted and probed at the Company's facilities. After wafer probing, the wafers are shipped to one or more of the Company's independent assembly contractors, located in Hong Kong, The Philippines, South Korea, Taiwan and Thailand where the wafers are separated into die, packaged and, in some cases, tested. Once packaged, most of the integrated circuits are shipped back to Atmel's facilities, where the Company performs final testing before shipment to its customers. The Company's reliance on independent contractors to assemble and package its products involves significant risks, including reduced control over quality and delivery schedules, the potential lack of adequate capacity and discontinuance or phase-out of such contractors' assembly processes. There can be no assurance that such contractors will continue to assemble, package and test products for the Company. In addition, because the Company's assembly contractors are located in foreign countries, the Company is subject to certain risks generally associated with contracting with foreign suppliers, including currency exchange fluctuations, political and economic instability, trade restrictions and changes in tariff and freight rates. The Company offers its customers numerous packaging options for its standard products. The Company believes that by providing multiple packaging options, it can target its products to niche markets, which are less susceptible to competitive pricing pressures than commodity markets. An example of this is the Company's surface mount packaging, which allows greater ease of assembly, higher reliability and reduced overall system size. Marketing and Sales The Company markets its products worldwide to a diverse base of original equipment manufacturers (OEMs) serving primarily commercial markets. In the United States and Canada, the Company sells its products to large OEM accounts primarily through manufacturers' representatives and through national and regional distributors. The Company supports this sales network from the Company's headquarters in San Jose, California and through regional offices in Southern California, Colorado Illinois, Massachusetts, Minnesota, New Jersey, North Carolina and Texas. Sales to domestic OEMs and to domestic distributors, as a percentage of worldwide net revenues were 32 percent and 11 percent in 1996, 35 percent and 13 percent in 1995, and 39 percent and 13 percent in 1994, respectively. The Company recognizes revenues on products shipped to domestic distributors only after the product has been shipped by the distributor to its end customer. Consistent with industry practice, the Company provides its distributors with stock balancing and price protection rights, which permit distributors to return slow-moving products for credit and allow price adjustments on product inventories if the Company lowers the price of those products. Sales to foreign customers are made primarily through international distributors, who are managed from the Company's headquarters in San Jose and from its foreign sales offices in: Kanata, 7 Canada; Camberley, England; Frankfurt and Raubling, Germany; Helsinki, Finland; Hong Kong; Paris, France; Agrate Brianza, Italy; Tokyo, Japan; Seoul, South Korea; Singapore; and Taipei, Taiwan. Foreign product sales were approximately 57 percent, 52 percent and 48 percent of total revenues in 1996, 1995 and 1994, respectively. Although foreign sales are subject to certain government export restrictions, to date the Company has not experienced any material difficulties because of these restrictions. Atmel expects that revenues derived from international sales will continue to represent a significant portion of net revenues. International sales are subject to a variety of risks, including those arising from currency fluctuations, tariffs, trade barriers, taxes and export license requirements. Because the majority of the Company's foreign sales are denominated in United States dollars, the Company's products may become less price competitive in countries with currencies declining in value against the dollar. The Company believes that its network of manufacturers' representatives and distributors provides effective coverage of existing and potential OEM customers while minimizing the costs associated with a large direct sales force. The Company's agreements with its manufacturers' representatives and domestic and international distributors are generally terminable by either party on short notice, subject to local laws. The Company's marketing, sales and support organization at December 31, 1996 consisted of 217 persons. In 1996, 1995 and 1994, Motorola, Inc. accounted for 12.0 percent, 16.9 percent and 21.5 percent of the Company's net revenues, respectively. The Company typically has agreements with its customers, including Motorola, Inc., that allow the customers to cancel their orders on short notice and without penalty, and therefore these agreements may not be a meaningful indicator of future revenues. Research and Development The Company believes that significant investment in research and development is critical to its continued success, growth and profitability, and therefore intends to continue to devote substantial resources, including management time, to achieve its objectives. These objectives include increasing the performance of its existing product lines, developing new product lines drawing on its expertise in CMOS non-volatile process and design technologies, and developing new process and design technologies. The Company focuses its efforts on improving the speed, density, power usage and reliability of its existing product families. The Company continues to develop new products and revise some of its current products with smaller effective feature sizes, the fabrication of which will be substantially more complex than fabrication of the Company's current products. No assurance can be given that the Company's product and process development efforts will be successful or that its new products will achieve market acceptance. At December 31, 1996, approximately 203 employees were engaged in research and development at the Company. During 1996, 1995 and 1994 the Company spent $110.2 million, $69.8 million, and $43.0 million, respectively, on research and development. Research and development expenses are charged to operations as incurred. The Company expects that these expenditures will continue to increase in the future. 8 Competition The semiconductor industry is intensely competitive and is characterized by rapid technological change, rapid product obsolescence and price erosion. The semiconductor industry has historically been 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. These downturns have been characterized by diminished product demand, production overcapacity and subsequent accelerated erosion of average selling prices, and in some cases have lasted for more than a year. The Company's business could be materially and adversely affected by an industry-wide downturn. The Company's competitors include many large domestic and foreign companies which have substantially greater financial, technical, marketing and management resources than the Company, as well as emerging companies attempting to sell products to specialized markets, including those addressed by the Company. The Company believes that no single competitor offers products that compete across the Company's entire product line. The Company competes principally on the basis of the technical innovation and performance of its CMOS products, including their speed, density, power usage, reliability and specialty packaging alternatives as well as on price and product availability. The Company believes that it competes favorably with respect to each of these factors. While the Company's strategy is to target niche markets, which the Company believes are typically less susceptible to competitive pricing pressure than commodity markets, the Company experiences significant price competition, particularly in connection with the sale of non-volatile memory products, and may experience increased price competition in other niche markets in the future, which would adversely affect its operating margins. The ability of the Company to compete successfully depends on a number of factors, including its success in designing and manufacturing new products that implement new technologies, the rate at which customers incorporate the Company's products into their systems, product introductions by the Company's competitors, the number and nature of its competitors in a given market, and general market and economic conditions. Many of these factors are outside of the Company's control. The Company is continually in the process of designing and commercializing new and improved products to maintain its competitive position. The success of new product introductions depends upon several factors, including timely completion and introduction of new product designs, achievement of acceptable fabrication yields and market acceptance. The development of new products by the Company and their design-in to customers' systems can take as long as three years, depending upon the complexity of the device and the application. Accordingly, new product development requires a long-term forecast of market trends and customer needs, and the successful introduction of the Company's products may be adversely affected by competing products or technologies serving markets addressed by the Company's products. There can be no assurance that the Company will be able to compete successfully in all areas in the future. Patents and Licenses The Company currently maintains a portfolio of United States patents and has patent applications on file with the U.S. Patent and Trademark Office. In addition, the Company has adopted an internal patenting program and expects to continue to file patent applications where appropriate to protect its proprietary technologies. However, the Company believes that its continued success depends primarily on factors such as the technological skills and innovative abilities of its personnel 9 rather than on its patents. In addition, no assurance can be given that patents issued to the Company will not be challenged, invalidated or circumvented, or that the rights granted thereunder will provide competitive advantages to the Company. As is typical in the semiconductor industry, the Company has from time to time received, and may in the future receive, communications from third parties asserting patent or other intellectual property rights covering the Company's products or processes. In the past, the Company has been involved in such litigation, which adversely affected its operating results. There can be no assurance that intellectual property claims will not be made against the Company in the future, or that the Company will not be prohibited from using the technologies subject to such claims by third parties or be required to obtain licenses and make related royalty payments. In addition, the necessary management attention to and legal costs associated with technology litigation can have a significant adverse affect on operating results. Employees At December 31, 1996, the Company had 3,914 full-time equivalent employees, including 217 in sales, marketing and customer support, 3,320 in manufacturing, maintenance and support, 203 in research and product development and 174 in finance and administration. The Company's future success depends in large part on the continued service of its key technical and management personnel and on its 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 post-employment non-competition agreement, could have a material adverse effect on the Company. The Company has never had a work stoppage, no employees are represented by a labor organization and the Company considers its employee relations to be good. Executive Officers of the Registrant The executive officers of the Company, who are elected by and serve at the discretion of the Board of Directors, and their ages are as follows: Name Age Position ---- --- --------- George Perlegos 47 Chairman, President and Chief Executive Officer Gust Perlegos 49 Executive Vice President, General Manager Tsung-Ching Wu 46 Executive Vice President, Technology Kris Chellam 46 Vice President, Finance and Administration, and Chief Financial Officer B. Jeffrey Katz 53 Vice President, Marketing Jack Peckham 55 Vice President, General Manager, ASIC Operations Mikes N. Sisois 51 Vice President, Planning and Information Systems George Perlegos has served as the Company'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.). 10 Gust Perlegos has served as Vice President, General Manager and a director of the Company 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 the Company 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.). B. Jeffrey Katz has served the Company 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 multi-chip 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. Kris Chellam has served the Company as its Vice President, Finance and Administration and Chief Financial Officer since September 1991. From 1979 until joining the Company, Mr. Chellam held various financial management positions with Intel Corporation in Europe and the United States. He is a member of the Institute of Chartered Accountants in England and Wales. Mr. Chellam completed his Cambridge Certificate of Education in Malaysia and obtained his chartered accountancy certification in London. Jack Peckham joined the Company in June 1985 as Director of Sales and was elected Vice President, Sales in January 1986 and General Manager, ASIC Operations in January 1992. Mr. Peckham holds a degree in marketing from Burdette College. Mikes N. Sisois joined the Company 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 The Company's headquarters are located in San Jose, California. The Company completed construction of its own building in April 1996 and moved into this new building shortly thereafter. This 291,000-square-foot building is occupied by product design, engineering, final product testing, research and development, sales, marketing and administrative personnel. The Company owns a semiconductor wafer fabrication plant and test facilities, occupying 450,000 square feet, located in Colorado Springs, Colorado. The Company also has two semiconductor fabrication facilities located in Rousset, France - an original plant and a newly constructed facility. The original 6-inch fabrication area was converted from a prototype plant to a production facility, which allowed the Company to increase manufacturing output fourfold. In addition, the construction of a new 388,000 square-foot manufacturing plant was completed during the year. This facility will produce 8-inch silicon wafers using a new 0.35-micron process. 11 The Company also leases a research and development facility in Columbia, Maryland and sales offices in: Anaheim Hills, California; Denver, Colorado; Hoffman Estates, Illinois; Braintree, Massachusetts; Bloomington, Minnesota; Princeton, New Jersey; New York, New York; Raleigh, North Carolina; Austin and Dallas, Texas, as well as in Kanata, Canada; Camberley, England; Frankfurt and Raubling, Germany; Helsinki, Finland; Paris, France; Hong Kong; Agrate Brianza, Italy; Tokyo, Japan; Seoul, South Korea; Singapore; and Taipei, Taiwan. The Company's 1996 aggregate average monthly rental payments for its facilities are approximately $182,000. The Company believes that suitable additional or alternative space will be available as needed on commercially reasonable terms to meet its current and foreseeable requirements. ITEM 3. LEGAL PROCEEDINGS. Not applicable. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. 12 PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SHAREHOLDER MATTERS The information required by this Item is incorporated by reference to the sections entitled "Selected Quarterly Financial Data" and "Common Stock Data" of the Registrant's 1996 Annual Report to Shareholders. ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA The information required by this Item is incorporated by reference to the section entitled "Financial Highlights" of the Registrant's 1996 Annual Report to Shareholders. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The information required by this Item is incorporated by reference to the section entitled "Management's Discussion and Analysis of Financial Condition and Results of Operations" of the Registrant's 1996 Annual Report to Shareholders. ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The information required by this Item is incorporated by reference to the Consolidated Financial Statements, related notes thereto and Report of Independent Accountants and to the section entitled "Selected Quarterly Financial Data" which appear in the Registrant's 1996 Annual Report to Shareholders. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Not applicable. With the exception of the information incorporated by reference from the 1996 Annual Report to Shareholders in Parts II and IV of this Form 10-K, the Registrant's Annual Report to Shareholders is not to be deemed filed as part of this Report. 13 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 "Compliance with Section 16(a) of the Exchange Act" in Registrant's definitive Proxy Statement for the Annual Meeting of Shareholders to be held on April 30, 1997 (the "1997 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 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 1997 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 1997 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 1997 Proxy Statement is incorporated herein by reference. 14 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) The following documents are filed as part of this Report on Form 10-K: 1. Financial Statements. The following Consolidated Financial Statements of Atmel Corporation and Report of Independent Accountants are incorporated by reference to the Registrant's 1996 Annual Report to Shareholders: Consolidated Statements of Income for the Three Years Ended December 31, 1996 Consolidated Balance Sheets as of December 31, 1996 and 1995 Consolidated Statements of Shareholders' Equity for the Three Years Ended December 31, 1996 Consolidated Statements of Cash Flows for the Three Years Ended December 31, 1996 Notes to Consolidated Financial Statements Report of Independent Accountants 2. Financial Statement Schedules. The following financial statement schedules of Atmel Corporation for the years ended December 31, 1996, 1995 and 1994 are filed as part of this Report on Form 10-K and should be read in conjunction with the Consolidated Financial Statements, and related notes thereto, of Atmel Corporation. Schedule Page -------- ---- Report of Independent Accountants on Financial Statement Schedule S-1 II Valuation and Qualifying Accounts S-2 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(3) Articles of Incorporation of Registrant, as amended to date. 15 3.2(1) Bylaws of Registrant. 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(1) 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. 11.1 Computation of Earnings Per Share. 13.1 Registrant's Annual Report to Shareholders for the fiscal year ended December 31, 1996 (except for the portions of the 1996 Annual Report to the Shareholders expressly incorporated by reference in the Report on Form 10-K, the 1996 Annual Report to Shareholders is furnished for the information of the Securities and Exchange Commission and is not to be deemed "filed"). 21.1 Subsidiaries of Registrant. 23.1 Consent of Independent Accountants 24.1 Power of Attorney (included on the signature pages hereof) (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. + The item listed is a compensatory plan. 16 (b) Reports on Form 8-K. No reports on Form 8-K were filed by the Company during the quarter ended December 31, 1996. 17 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 27, 1997 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 Kris Chellam, 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 in the capacities and on the dates indicated: Signature Title Date --------- ----- ----
/s/ George Perlegos President, Chief Executive March 27, 1997 - --------------------------------- Officer (Principal Executive (George Perlegos) Officer) and Director /s/ Kris Chellam Vice President, Finance and March 27, 1997 - --------------------------------- Administration and Chief Financial (Kris Chellam) Officer (Principal Financial and Accounting Officer) /s/ Norm Hall Director March 27, 1997 - --------------------------------- (Norm Hall) /s/ Gust Perlegos Director March 27, 1997 - --------------------------------- (Gust Perlegos)
18 /s/ T. Peter Thomas Director March 27, 1997 - --------------------------------- (T. Peter Thomas) /s/ Tsung-Ching Wu Director March 27, 1997 - --------------------------------- (Tsung-Ching Wu)
19 REPORT OF INDEPENDENT ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULE Our report on the consolidated financial statements of Atmel Corporation and subsidiaries has been incorporated by reference in this Form 10-K from page 22 of the 1996 Annual Report to Shareholders of Atmel Corporation. In connection with our audit of such financial statements, we have also audited the related financial statement schedule listed in the index on page 15 of this Form 10-K. In our opinion, the financial statement schedule referred to above, when considered in relation to the basic financial statements taken as a whole, presents fairly the information required to be included therein. /s/ Coopers & Lybrand L.L.P. San Jose, California January 16, 1997 S-1 Schedule II ATMEL CORPORATION VALUATION AND QUALIFYING ACCOUNTS For the fiscal years ended December 31, 1996, 1995, and 1994 (In thousands)
Balance at Charged Charged Beginning of (Credited) (Credited) Balance at Description Period to Expenses to Revenues Deductions End of Period - ----------- ------ ----------- ----------- ---------- ------------- Allowance for doubtful accounts receivable: Fiscal year ended 1994 $ 2,951 $ 3,305 $ (266) $ (377)(1) $ 5,613 Fiscal year ended 1995 5,613 8,267 (1,180) -- 12,700 Fiscal year ended 1996 12,700 19,425 (1,211) (2,641)(1) 28,273 Estimated liability for product warranty: Fiscal year ended 1994 $ 8,915 $ 7,000 $ (972) $ (1,638) $ 13,305 Fiscal year ended 1995 13,305 2,314 (1,784) -- 13,835 Fiscal year ended 1996 13,835 9,190 (12,423) (51) 10,551 (1) Represents write-off of specific accounts receivable balances.
S-2 EX-11.1 2 EXHIBIT-11.1 Exhibit 11.1 ATMEL CORPORATION COMPUTATION OF EARNINGS PER SHARE For the fiscal years ended December 31, 1996, 1995, and 1994 (In thousands, except per share data)
1996 1995 1994 -------- -------- -------- Actual weighted average shares outstanding for the period Common stock 98,005 94,549 86,284 Dilutive employee stock options 2,579 3,058 3,282 -------- -------- -------- Total common and common equivalent shares 100,584 97,607 89,566 ======== ======== ======== Net income $201,722 $113,693 $ 59,450 ======== ======== ======== Net income per share $ 2.01 $ 1.16 $ 0.67 ======== ======== ========
Fully diluted earnings per share does not differ significantly from primary earnings per share. All shares and per share data reflect the 2-for-1 split of the Company's Common Stock effected on April 11, 1994 and August 8, 1995. EX-13.1 3 EXHIBIT-13.1 EXHIBIT 13.1 Financial Highlights (Dollars in thousands, except per-share data) Years Ended December 31, - ------------------------------------------------------------------------------------------------------------------------------------
1996 1995 1994 1993 1992 Net revenues $1,070,288 $ 634,241 $ 375,093 $ 221,724 $ 139,801 Income Before taxes 309,153 172,262 90,076 44,789 19,906 Net 201,722 113,693 59,450 30,017 13,934 Per share 2.01 1.16 0.67 0.37 0.19 Return on revenues Before taxes 28.9% 27.2% 24.0% 20.2% 14.2% Net 18.8% 17.9% 15.8% 13.5% 10.0% Return on average shareholders' equity 29.3% 24.0% 20.6% 17.1% 11.3% Revenues per employee 298 260 235 195 150 Fixed assets, net 867,423 472,285 264,800 90,207 28,887 Total assets 1,455,914 919,621 540,946 300,882 183,450 Long-term debt, net of current portion 278,576 88,455 46,514 23,957 23,047 Long-term debt as a percentage of shareholders' equity 35.3% 15.0 % 13.0 % 11.0% 17.5 % Shareholders' equity 789,751 588,768 358,088 218,202 131,990 Page 1
Consolidated Statements of Income (Amounts in thousands, except per-share data) Years Ended December 31, - ------------------------------------------------------------------------------------------------------------------------------------
1996 1995 1994 Net revenues $ 1,070,288 $ 634,241 $ 375,093 Expenses Cost of sales 539,215 323,530 195,955 Research and development 110,239 69,795 43,035 Selling, general and administrative 115,362 73,474 48,301 ----------- ----------- ----------- Total expenses 764,816 466,799 287,291 ----------- ----------- ----------- Operating income 305,472 167,442 87,802 Interest income 16,532 13,100 5,096 Interest expense (12,851) (8,280) (2,822) ----------- ----------- ----------- Income before taxes 309,153 172,262 90,076 Taxes on income 107,431 58,569 30,626 ----------- ----------- ----------- Net income $ 201,722 $ 113,693 $ 59,450 =========== =========== =========== Net income per common and common equivalent share $ 2.01 $ 1.16 $ 0.67 ----------- ----------- ----------- Shares used in per-share calculations 100,584 97,607 89,566 ----------- ----------- ----------- The accompanying notes are an integral part of these statements.
Page 2 Consolidated Balance Sheets (Amounts in thousands) December 31, - -------------------------------------------------------------------------------- 1996 1995 Assets Current assets Cash and cash equivalents $ 104,113 $ 105,534 Short-term investments 53,165 74,454 Accounts receivable, net of allowance for doubtful accounts of $28,273 in 1996 and $12,700 in 1995 174,515 101,599 Inventories 70,320 48,542 Deferred income taxes and other current assets 57,910 35,933 ---------- ---------- Total current assets 460,023 366,062 Fixed assets, net 867,423 472,285 Long-term investments 104,619 71,590 Other assets 23,849 9,684 ---------- ---------- Total assets $1,455,914 $ 919,621 ========== ========== Liabilities and shareholders' equity Current liabilities Current portion of long-term debt $ 71,615 $ 47,203 Trade accounts payable 137,535 96,243 Accrued liabilities and other 99,317 68,071 Deferred income on shipments to distributors 27,935 21,948 ---------- ---------- Total current liabilities 336,402 233,465 Long-term debt 278,576 88,455 Deferred income taxes 22,935 8,933 ---------- ---------- Total liabilities 637,913 330,853 ---------- ---------- Put Warrants 28,250 -- Commitments (Note 6) Shareholders' equity Preferred stock, no par value; Authorized: 5,000 shares; None issued and outstanding -- -- Common stock, no par value; Authorized: 240,000 shares; Shares issued: 98,752 at December 31, 1996 and 97,207 at December 31, 1995 339,421 340,160 Retained earnings 450,330 248,608 ---------- ---------- Total shareholders' equity 789,751 588,768 ---------- ---------- Total liabilities and shareholders' equity $1,455,914 $ 919,621 ========== ========== The accompanying notes are an integral part of these statements. Page 3 Consolidated Statements of Cash Flows (Dollars in thousands) Years Ended December 31, - ------------------------------------------------------------------------------------------------------------------------------------
1996 1995 1994 Cash from operating activities Net income $ 201,722 $ 113,693 $ 59,450 Items not requiring the use of cash Depreciation and amortization 110,988 58,918 34,076 Other 935 (12,416) 851 Changes in operating assets and liabilities Accounts receivable (74,362) (26,455) (16,836) Inventories (21,779) (9,773) 2,530 Other assets (7,935) (4,064) (6,221) Trade accounts payable and other accrued liabilities 94,545 33,420 28,582 Income taxes payable (9,766) 9,406 2,167 Deferred income on shipments to distributors 5,987 9,633 5,279 --------- --------- --------- Net cash provided by operating activities 300,335 172,362 109,878 --------- --------- --------- Cash from investing activities Acquisition of fixed assets (511,019) (229,097) (183,135) Acquisition of other assets (9,756) (9,446) (8,373) Purchase of investments (101,417) (77,674) (67,289) Sale or maturity of investments 89,678 59,406 43,117 --------- --------- --------- Net cash used by investing activities (532,514) (256,811) (215,680) --------- --------- --------- Cash from financing activities Issuance of notes payable 39,241 16,198 5,398 Principal payments on notes (2,152) (1,580) (2,555) Proceeds from capital leases 234,239 69,843 59,679 Principal payments on capital leases (54,784) (40,439) (21,169) Proceeds from settlement of warrants 8,133 -- -- Issuance of common stock 10,079 110,876 73,524 --------- --------- --------- Net cash provided by financing activities 234,756 154,898 114,877 --------- --------- --------- Effect of foreign currency translation adjustment (3,998) (471) -- --------- --------- --------- Net increase (decrease) in cash (1,421) 69,978 9,075 Cash at beginning of period 105,534 35,556 26,481 --------- --------- --------- Cash at end of period $ 104,113 $ 105,534 $ 35,556 ========= ========= ========= Interest paid $ 12,015 $ 8,009 $ 5,451 Income taxes paid $ 103,912 $ 32,265 $ 31,975 Issuance of stock for technology and asset acquisitions $ 12,625 $ 3,083 $ 4,997 Other non-cash acquisitions $ 2,320 $ -- $ -- Fixed asset purchases in accounts payable $ 5,706 $ 15,413 $ 16,778 The accompanying notes are an integral part of these statements
Page 4 Consolidated Statements of Shareholders' Equity Common Stock Retained Total (Amounts in thousands) Shares Amounts Earnings Amounts - ------------------------------------------------------------------ --------- --------- --------- ---------
Balances, December 31, 1993 82,988 $ 142,737 $ 75,465 $ 218,202 Sales of Stock Secondary public offering 5,060 67,999 -- 67,999 Exercise of options 1,756 2,438 -- 2,438 Employee stock purchase plan 384 3,002 -- 3,002 Issuance for asset acquisition 542 4,997 -- 4,997 Other 32 85 -- 85 Unrealized loss on investments and other assets -- (1,477) -- (1,477) Tax benefit from exercise of options -- 3,392 -- 3,392 Net income -- -- 59,450 59,450 --------- --------- --------- --------- Balances, December 31, 1994 90,762 223,173 134,915 358,088 Sales of Stock Secondary public offering 4,600 104,278 -- 104,278 Exercise of options 1,394 2,729 -- 2,729 Employee stock purchase plan 314 3,869 -- 3,869 Issuance for asset acquisition 137 3,083 -- 3,083 Unrealized gain on investments and other assets -- 474 -- 474 Foreign currency translation adjustment -- (471) -- (471) Tax benefit from exercise of options -- 3,025 -- 3,025 Net income -- -- 113,693 113,693 --------- --------- --------- --------- Balances, December 31, 1995 97,207 340,160 248,608 588,768 Sales of Stock Exercise of options 874 4,606 -- 4,606 Employee stock purchase plan 236 5,473 -- 5,473 Issuance for asset acquisition 435 12,625 -- 12,625 Proceeds from settlement of warrants -- 8,133 -- 8,133 Unrealized loss on investments and other assets -- (1,863) -- (1,863) Foreign currency translation adjustment -- (3,998) -- (3,998) Tax benefit from exercise of options -- 2,535 -- 2,535 Put warrants reclassification -- (28,250) -- (28,250) Net income -- -- 201,722 201,722 --------- --------- --------- --------- Balances, December 31, 1996 98,752 $ 339,421 $ 450,330 $ 789,751 ========= ========= ========= ========= The accompanying notes are an integral part of these statements.
Page 5 Notes to Consolidated Financial Statements (Amounts in thousands, except per-share data) Note 1. Summary of Significant Accounting Policies Nature of Operations Atmel Corporation (the Company) designs, develops, manufactures and markets a broad range of high-performance non-volatile 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 domestic and foreign original equipment manufacturers (OEMs) and distributors. 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. For purposes of presentation, the Company has indicated that its year ends on December 31, although the Company operates on a 52-week or 53-week year ending on the Monday closest to December 31. Fiscal 1996 and 1995 were 52-week years while 1994 was a 53-week year. 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 which consist of highly liquid money market instruments. The carrying amount of these instruments approximates fair value. Inventories Inventories are stated at the lower of cost (first-in, first-out for materials and purchased parts and average cost for work in progress) or market and comprise the following: Page 6 December 31, - -------------------------------------------------------------------------------- 1996 1995 Materials and purchased parts $11,123 $ 6,340 Work in progress 59,197 42,202 ------- ------- Total $70,320 $48,542 ======= ======= Fixed Assets Fixed assets are stated at cost. Depreciation is computed using the straight-line method over the estimated useful lives of the assets (normally two to twenty years). Deferred Income on Shipments to Distributors Sales to distributors are subject to price protection and right of return. Recognition of such sales 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 whose functional currency is the French franc. Foreign translation gains and losses from remeasurement are included in the consolidated statements of income. The effect of the translation of the accounts of Atmel ES2 has been included in the shareholders' equity as a cumulative foreign currency translation adjustment. The Company has entered into forward exchange contracts to hedge certain of its foreign currency exposures. These financial instruments are designed to minimize exposure and reduce risk from exchange rate fluctuations in the regular course of business. Foreign exchange contracts outstanding, all of which were in Japanese currency, amounted to $5,407 and $7,200 at December 31, 1996 and 1995, respectively. The foreign exchange contracts generally have maturities that do not exceed three months. The counter parties to these contracts consist of a limited number of major financial institutions. The Company does not expect any significant losses as a result of default by the other parties. 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 maintains adequate allowances for potential credit losses and performs ongoing credit evaluations. Page 7 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. Net Income Per Share Net income per share is computed using the weighted average number of common and common equivalent shares outstanding during the period. Common equivalent shares consist of outstanding stock options. All share and per share amounts for all periods presented have been adjusted to reflect the two-for-one stock splits paid on April 11, 1994 and August 8, 1995. Put Warrants In connection with the Company's stock repurchase program, put warrants were sold to an independent third party during fiscal year 1996. The put warrants entitle the holder to sell shares of the Company's common stock to the Company at specified prices. The warrants expire on May 28, 1997 and may be settled in cash at the Company's option. The maximum potential repurchase obligation of $28,250 has been reclassified from shareholders' equity to put warrants as of December 31, 1996. There was no impact on earnings per share during 1996. Additionally, during the same period the Company used the proceeds from the sale of the put warrants to purchase call warrants. These warrants entitle the Company to buy from the same independent third party shares of the Company's common stock. The call warrants have similar expiry dates as the put warrants and may be settled in cash at the Company's option. Accounting For Long-Lived Assets The Company adopted the Financial Accounting Standards Board Statement No. 121 (SFAS 121), Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of, which requires the Company to review the impairment of long-lived assets, certain identifiable intangibles and goodwill related to those assets whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The adoption of SFAS 121 did not have a material impact on the Company's financial condition or results of operations. Page 8 Note 2. Fixed Assets December 31, ----------------------------------- 1996 1995 Land $ 14,591 $ 19,489 Buildings and improvements 180,680 114,515 Machinery and equipment 806,187 352,925 Furniture and fixtures 7,467 1,622 Construction in progress 72,103 101,840 ---------------------------- 1,081,028 590,391 Less accumulated depreciation and amortization (213,605) (118,106) ---------------------------- Total $ 867,423 $ 472,285 ============================ Fixed assets include machinery and equipment acquired under capital leases of $334,613 and $173,584 at December 31, 1996 and 1995; related accumulated amortization amounted to $81,684 and $45,847, respectively. Depreciation expense was $102,752, $56,417 and $26,497, in 1996, 1995 and 1994, respectively. Note 3. Short- And Long-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 shareholders' equity. Realized gains and losses are recorded based on the specific identification method. The carrying amount of the Company's investments is shown in the table below:
December 31 1996 1995 ------------------------ ------------------------ Market Market Cost Value Cost Value ----- ------ ---- --------- Investments U.S. Government obligations $99,378 $98,750 $37,350 $37,099 State and municipal securities 55,669 55,317 105,264 104,542 Other 3,740 3,717 4,433 4,403 ------------------------- ------------------------- 158,787 157,784 147,047 146,044 Allowance for unrealized losses (1,003) -- (1,003) -- ------------------------- ------------------------- $157,784 $157,784 $146,044 $146,044 ========================= =========================
Page 9 At December 31, 1996, scheduled maturities of investments within one year were $53,165 and for one year to five years were $104,619. At December 31, 1995, scheduled maturities of investments within one year were $74,454 and for one year to five years were $71,590. Note 4. Borrowing Arrangements Information with respect to the Company's debt obligations is shown below: December 31, ------------------------------ 1996 1995 Various non-interest bearing notes $ 9,464 $ 10,320 Various interest bearing notes 46,703 19,380 Capital lease obligations 294,024 105,958 -------------------------- 350,191 135,658 Less amount due within one year (71,615) (47,203) -------------------------- Long-term debt due after one year $ 278,576 $ 88,455 ========================== The non-interest bearing notes are due in varying amounts through the year 2015 and have been discounted between 7.0 percent and 8.0 percent. The interest bearing notes bear interest at rates between 2.6 percent and 8.2 percent and include loans where interest rates are based on the London Inter-Bank Official Rate and the short-term French PIBOR. A loan with an interest rate of 2.6 percent ($22,988 at December 31, 1996) has been recorded net of a foreign currency translation adjustment of $2,009 at December 31, 1996. The Company leases certain manufacturing equipment under capital leases with an average annual interest rate of 6.7 percent. The obligations are recorded net of $45,632 which represents future interest at December 31, 1996. At December 31, 1996, the Company had $50,000 available under lease lines of credit that expire in December 1997. Payments required for long-term debt and capital leases are as follows: --------------------------------------------------------------------------------------------------------------- 1997 1998 1999 2000 2001 Thereafter --------------------------------------------------------------------------------------------------------------- Long-term debt $ 7,381 $ 2,294 $27,291 $17,920 $ 868 $13,132 Capital leases (including interest) 87,894 64,228 50,049 44,920 31,306 61,259
Long-Term Debt Page 10 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, 1996. Note 5. Accrued Liabilities and Other Accrued liabilities and other comprise the following: December 31, --------------------- 1996 1995 Accrued returns, royalties and licenses $49,170 $31,443 Accrued salaries, benefits and other 23,499 13,593 Federal, state, local and foreign taxes 26,648 23,035 --------------------- Total $99,317 $68,071 ===================== Note 6. Commitments 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 expiring at various dates through 2001. Rental expense for 1996, 1995 and 1994 was $7,402, $2,896 and $2,272, respectively. Rental payments over the term of these leases are as follows: - -------------------------------------------------------------------------------- 1997 1998 1999 2000 2001 - -------------------------------------------------------------------------------- $6,555 $6,148 $6,351 $6,012 $1,455 Note 7. Taxes on Income The provision (benefit) for income taxes consists of the following: Years Ended December 31, --------------------------------------------
1996 1995 1994 Federal Current $ 92,632 $ 45,886 $ 23,680 Deferred (6,618) 2,529 414 State Current 10,458 7,619 5,673 Deferred (161) 417 437 Foreign Current 2,209 883 422 Deferred 8,911 1,235 -- ------------------------------------------------ Total income taxes $107,431 $ 58,569 $ 30,626 ================================================
Page 11 Current deferred income tax assets included in deferred income taxes and other current assets at December 31, 1996 and 1995 were $38,859 and $24,817, respectively. The components of the net deferred income tax asset are set forth below: December 31, -------------------------- 1996 1995 Deferred income tax assets Sales returns, deferrals and allowances $ 10,634 $ 12,141 Allowance for doubtful accounts 10,048 4,070 State income taxes 3,450 2,400 Inventory valuation 1,273 1,813 Other 13,454 4,393 ----------------------- 38,859 24,817 Deferred income tax liabilities Depreciation and other (22,935) (8,933) ----------------------- Net deferred income tax asset $ 15,294 $ 15,884 ======================= The Company's effective tax rate differs from the United States federal statutory income tax rate as follows: Years Ended December 31, -------------------------------------------------
1996 1995 1994 U.S. federal statutory income tax rate 35.0% 35.0 % 35.0 % State taxes, net of federal income tax 2.2 2.8 4.0 benefit Research and development tax credits (0.5) (0.3) (2.0) Benefit of foreign sales corporation (2.9) (2.2) (2.2) Tax exempt income (0.7) (1.2) (1.7) Other, net 1.7 (0.1) 0.9 ------------------------------------------------- 34.8% 34.0% 34.0% =================================================
Income before income taxes included income from foreign subsidiaries of $22,724, $12,465 and $830 in 1996, 1995 and 1994, respectively. Note 8. Employee Option and Stock Purchase Plans The Company's 1986 Incentive Stock Option Plan (1986 Plan) expired in April 1996. On April 24, 1996, the shareholders approved the Company's 1996 Stock Plan (1996 Plan) and the reservation of 4,000 shares of Common Stock for issuance thereunder. 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 Page 12 at fair market value on the date of the grant and generally expire five to ten years from that date. At December 31, 1996, the Company had 8,449 shares of common stock reserved for the issuance pursuant to the exercise of stock options, of which 2,463 shares (2,045 shares at December 31, 1995) were exercisable. 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 3,000 shares authorized to be issued under this plan, 937 shares were available for issuance at December 31, 1996. Activity under the Company's 1986 Plan and 1996 Plan is set forth below: Outstanding Options --------------------------------------------------------------------------
Aggregate Weighted Average Available Number Exercise Exercise Price For Grant of Options Per Share Price Per Share ----------- ---------- -------------- -------- ------------------ Balances, December 31, 1993 2,984 5,631 $ 0.50 - 8.75 $ 13,204 $ 2.34 Options granted (975) 975 11.50 - 17.31 11,529 11.82 Options canceled 104 (104) 0.50 - 17.31 (631) 6.07 Options exercised -- (1,756) 0.75 - 17.31 (2,438) 1.39 ----------- --------------- ------------------- ------------- ------------ Balances, December 31, 1994 2,113 4,746 0.75 - 17.31 21,664 4.56 Options granted (1,896) 1,896 15.41 - 33.63 37,474 19.76 Options canceled 101 (101) 1.75 - 33.31 (1,075) 10.64 Options exercised -- (1,394) 0.75 - 21.38 (2,729) 1.95 ----------- --------------- ------------------- ------------- ------------ Balances, December 31, 1995 318 5,147 0.75 - 33.63 55,334 10.75 Options authorized 4,000 -- -- -- -- Options granted (576) 576 20.15 - 36.88 14,555 25.27 Options canceled 122 (122) 2.16 - 36.88 (2,134) 17.49 Options expired (142) -- -- -- -- Options exercised -- (874) 0.75 - 33.63 (4,606) 5.27 ----------- --------------- ------------------- ------------- ------------ Balances, December 31, 1996 3,722 4,727 $0.75 - 36.88 $ 63,149 $ 13.36 ----------- --------------- ------------------- ------------- ------------
The weighted average fair value of options granted during 1996, 1995 and 1994 was $25.27, $19.76 and $11.82 per share, respectively. 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. Had compensation cost for the 1986 Plan and 1996 Plan been determined based on the fair value at the grant date for options granted in 1996 consistent with the provisions of SFAS 123, the Company's net income and net income per share for 1996 and 1995 would have been reduced to the pro forma amounts indicated below: Page 13 1996 1995 Net income - as reported $201,722 $ 113,693 ======== =========== Net income - pro forma $196,641 $ 110,058 ======== =========== Earnings per share - as reported $ 2.01 $ 1.16 ======== =========== Earnings per share - pro forma $ 1.95 $ 1.13 ======== =========== 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: Risk-free interest 5.11% - 7.58% Expected life 0.95 - 1.56 years Expected volatility 38% - 40% Expected dividend $0 The weighted average expected life was calculated based on the vesting period and the exercise behavior of the employees. The following table summarizes the stock options outstanding at December 31, 1996: Options Outstanding Options Exercisable ----------------------------------------------------------- ------------------------------------
Weighted Average Weighted Weighted Range of Number Remaining Average Number Average Exercise Prices Outstanding Contractual Life Exercise Price Exercisable Exercise Price ---------------- ------------- ---------------- -------------- ------------- -------------- $ 0.75 - $ 4.25 1,424 5.7 years $ 3.13 1,334 $ 3.06 4.53 - 15.25 1,761 7.6 12.45 714 11.26 16.59 - 26.63 1,172 8.7 21.44 343 20.65 27.56 - 36.88 370 9.1 31.42 72 32.22 ---------------- ---------------- 0.75 - 36.88 4,727 7.4 13.36 2,463 8.73 ================ ================
Note 9. Retirement Plan The Company has a 401(k) Tax Deferred Savings Plan (Plan) for the benefit of qualified employees. In fiscal year 1996, the Company began matching each eligible employee's contribution with up to a maximum of five hundred dollars. The matching contribution made by the Company was $581 for 1996. The Company did not make any contribution to the Plan in 1995 or 1994. Note 10. Geographic Information, Export Sales and Major Customers Page 14 The Company's foreign operations consist principally of its subsidiaries in the United Kingdom and France. All of their sales are made to unaffiliated European customers. The following table summarizes the Company's European operations: Years Ended December 31, ------------------------------------------- 1996 1995 1994 Net revenues $185,427 $124,718 $ 47,454 Operating income 21,811 12,261 593 Total assets 295,506 95,382 10,294 Export revenues for the years 1996, 1995 and 1994 were $610,171, $327,449 and $182,493 respectively. One customer accounted for 12.0 percent, 16.9 percent and 21.5 percent of net revenues in 1996, 1995 and 1994, respectively. Page 15 Report of Independent Accountants Board of Directors and Shareholders Atmel Corporation We have audited the accompanying consolidated balance sheets of Atmel Corporation and subsidiaries as of December 31, 1996 and 1995, and the related consolidated statements of income, cash flows and shareholders' equity for each of the three years in the period ended December 31, 1996. 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 in accordance with generally accepted auditing standards. Those standards 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. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Atmel Corporation and subsidiaries as of December 31, 1996 and 1995, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1996, in conformity with generally accepted accounting principles. /s/ Coopers & Lybrand L.L.P. San Jose, California January 16, 1997 Page 16 Selected Quarterly Financial Data (Unaudited, dollars in thousands, except per First Second Third Fourth share data) Quarter Quarter Quarter Quarter - ------------------------------------------------------------------------------------------------------------------------------------
Year ended December 31, 1996 Net revenues $ 240,096 $ 268,748 $ 280,332 $ 281,112 Gross margin 119,453 133,789 138,821 139,010 Net income 44,909 50,291 52,878 53,644 Net income per share 0.45 0.50 0.53 0.53 Price range of common stock per share High 33.50 42.38 33.75 38.00 Low 18.13 23.88 21.88 25.13 Year ended December 31, 1995 Net revenues $ 119,260 $ 145,906 $ 168,784 $ 200,291 Gross margin 57,869 71,033 82,653 99,156 Net income 19,827 24,533 31,207 38,126 Net income per share 0.21 0.26 0.31 0.38 Price range of common stock per share High 21.19 29.41 36.75 34.00 Low 15.38 18.63 27.69 19.50
Page 17 Management's Discussion and Analysis of Financial Condition and Results of Operations The following discussion should be read in conjunction with the Company's consolidated financial statements and notes thereto included elsewhere herein. Overview The Company's operating results in 1996 improved significantly over 1995 driven by demand for specialized non-volatile memories in the computer peripheral, telecommunications and consumer markets. These products included Flash memories, erasable programmable read-only memories (EPROMs) and parallel- and serial-interface electronically erasable programmable read-only memories (EEPROMs). Results of Operations Net Revenues The Company experienced a 69.0 percent growth in net revenues from $634.2 million in 1995 to $1,070.3 million in 1996 due to increases in unit shipments of products sold to the telecommunication, computer peripheral and consumer markets and also the revenue contribution from it's subsidiary, Atmel ES2 B.V., a Netherlands holding company with its principal operations and assets in Rousset, France. Net revenues also increased as a result of sales of several new logic products, such as Flash microcontrollers, Flash PLDs, integrated analog devices and application-specific integrated circuits (ASICs). Net revenues increased $259.1 million in 1995 from 1994 as a result of greater volume shipments of new and continuing products. The Company believes future sales growth will depend substantially on the success of new products. New products are generally incorporated into customers' products or systems at the design stage. However, design wins may precede volume sales generation by a year or more. No assurance can be given that any design win will result in future revenues, which depends in large part on the success of the customer's end product or system. The Company expects the average selling price of each product to decline as individual products mature and competitors enter the market. To offset average selling price decreases, typically experienced over the life of any particular product, the Company relies primarily on attaining cost reductions in the manufacturing of those products and on 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, the Company's operating results could be adversely affected. Page 18 The semiconductor industry has historically been cyclical, characterized by wide fluctuations in product supply and demand. From time to time, the industry has also experienced significant downturns, characterized by diminished product demand, production overcapacity and subsequent accelerated erosion of average selling prices. The semiconductor industry experienced a downturn in 1996 and continuation of these conditions could adversely affect the Company's operating results. The growth rates and results of operations achieved by the Company in 1995 and 1996 may not be indicative of 1997 growth rates and results of operations. Cost of Sales and Gross Margin The Company's cost of sales represents the costs of its wafer fabrication, assembly and test operations. Cost of sales as a percentage of net revenues fluctuates, depending on product mix, manufacturing yields and the level of utilization of manufacturing capacity. Cost of sales as a percentage of net revenues in 1996 was 50.4 percent, compared with 51.0 percent in 1995. The improvement in cost of sales as a percentage of net revenues was primarily due to increased unit output from all of its fabrication facilities resulting in lower fixed costs attributed to each product. Cost of sales as a percentage of net revenues was 52.2 percent in 1994. The Company plans to incur substantial capital expenditures during 1997 to increase its wafer fabrication capacity in its existing facilities and also for installation of equipment at its new facility in Rousset, France. As a result of the increase in fixed costs and operating expenses related to this planned expansion of capacity, the Company expects that its gross margin could deteriorate in the future. Research and Development Research and development expenses increased to $110.2 million in 1996 from $69.8 million in 1995 and $43.0 million in 1994. The increase was primarily due to the Company's continued investment in the shrinking of the die size from 0.65-micron to 0.5-micron line widths, enhancement of mature products, development of new products, advanced CMOS and BiCMOS process technology, manufacturing improvements and costs associated with expanding its fabrication facility in Rousset, France during 1996. The Company believes that continued investment in process technology and product development are essential for it to remain competitive in the markets it serves and is committed to high levels of expenditures for research and development. Selling, General and Administrative Selling, general and administrative expense increased 56.9 percent to $115.3 million in 1996 from $73.5 million in 1995, while declining as a percentage of net revenues to 10.8 percent in 1996 from Page 19 11.6 percent in 1995. This increase in expense is due to the addition of sales and administrative personnel and other expenses associated with the Company's higher sales volume. In 1994, the Company spent $48.3 million or 12.9 percent of net revenues. Interest Income and Expense Interest income increased to $16.5 million in 1996 from $13.1 million in 1995 and $5.1 million in 1994. The increase was primarily due to higher average cash and investment balances during 1996 compared to the previous years. Interest expense which includes the interest on capital lease financing was $12.9 million in 1996, $8.3 million in 1995 and $2.8 million in 1994. Taxes on Income The Company's effective tax rate was 34.8 percent in 1996 and 34.0 percent in 1995 and 1994. Liquidity and Capital Resources The Company has financed its operations and capital requirements through cash flow from operations, equipment lease financing arrangements and other borrowing arrangements. During 1996, the Company generated net cash flow from operations of $300.3 million. Accounts receivable increased by $74.4 million due to increased sales activity and a higher proportion of the Company's revenues coming from exports to Asia and Europe where payment terms are generally slower than in the United States. Inventory balances increased by approximately $21.8 million from 1995 to 1996, reflecting the higher level of sales and increased manufacturing capacity. Trade accounts payable and other accrued liabilities increased by approximately $94.5 million from 1995 to 1996. This increase primarily reflects the acquisition of capital equipment and construction costs, the timing of payment of certain other trade payables, as well as the effects of the Company's higher sales volume. The Company made substantial capital investments in 1996 totaling $511.0 million to increase manufacturing capacity at all its fabrication plants and to construct a new 8-inch plant in Rousset, France. To finance the capital expansion, the Company took on a number of debt obligation totaling $273.5 million from equipment lease lenders, banks in Europe and Japan and drew down its credit facility from a French bank. At December 31, 1996 the Company had $157.3 million in cash and short-term investments, a decrease of $22.7 million from December 31, 1995, and $123.6 million in working capital, a decrease of $9.0 million from December 31, 1995. At December 31, 1996, the Company also had long-term Page 20 investments of $104.6 million, an increase of $33.0 million from December 31, 1995. These consisted of state and municipal securities and United States government obligations. The Company plans to make substantial additional capital expenditures during 1997 to increase its wafer fabrication capacity in its facility in Colorado Springs and also complete its new 8-inch, 0.35-micron facility in Rousset. In connection with such expansion, the Company intends to spend an aggregate of approximately $400.0 million during 1997. The Company believes that its existing sources of liquidity, together with cash flows from operations, lease financing on equipment and other short- or medium-term bank borrowing, will be sufficient to meet the Company's liquidity and capital requirements through 1997. The Company may, however, seek additional equity or debt financing to fund further expansion of its wafer fabrication capacity, or to fund other projects or acquisitions. The timing and amount of such capital requirements cannot be precisely determined at this time and will depend on a number of factors, including demand for the Company's products, product mix changes, semiconductor industry conditions and competitive factors. Investors are cautioned that certain statements in this Annual Report are forward looking and involve risk and uncertainties. Words such as "expects," "anticipates," "intends," "plans," "believes," "seeks," "estimates," 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 that reflect its best judgment based on factors currently known to 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), risk associated with dependencies on silicon wafer suppliers, product demand and market acceptance risks, the impact of competitive products and pricing, delays in new product development and technological risks and other risk factors identified in the Company's filings with the Securities and Exchange Commission, including the Company's Form 10-K Report. The Company undertakes no obligation to update any forward looking statements in this Annual Report. Page 21 Shareholders' Information Annual Meeting The annual meeting of shareholders will be held at 2:00 p.m. on Wednesday, April 30, 1997, at the Company's facility located at 2325 Orchard Parkway, San Jose, California 95131. Form 10-K Annual Report The Company's Form 10-K as filed with the Securities and Exchange Commission is available without charge upon written request to: Investor Relations, Atmel Corporation, 2325 Orchard Parkway, San Jose, California 95131. Telephone: (408) 451-ATML. Transfer Agent and Registrar ChaseMellon Shareholder Services 50 California Street Tenth Floor San Francisco, California 94111 Independent Accountants Coopers & Lybrand L.L.P. Ten Almaden Boulevard San Jose, California 95113 Common Stock Data As of December 31, 1996, there were approximately 1,848 record holders of the Company's common stock. The last reported sales price on that date was $33.13. The Company'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 the Company currently has no plans to pay cash dividends in the future. Page 22 EX-21.1 4 EXHIBIT-21.1 Exhibit 21.1 ATMEL CORPORATION SUBSIDIARIES OF REGISTRANT The following are the subsidiaries of the Registrant: Atmel Asia Limited, a Hong Kong corporation Atmel ES2 B.V., a Netherlands corporation Atmel Finance Inc., a United States corporation Atmel (OY) Finland, a Finnish corporation Atmel FSC, Inc. a Barbadian corporation Atmel GmbH, a German corporation Atmel Japan K.K., a Japanese corporation Atmel Korea Limited, a Korean corporation Atmel SARL, a French corporation Atmel Semiconductor Corporation, a United States corporation Atmel Singapore Pte. Limited, a Singaporean corporation Atmel Taiwan Limited, a Taiwanese corporation Atmel U.K. Limited, a United Kingdom corporation EX-23.1 5 EXHIBIT-23.1 Exhibit 23.1 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 and 333-15823) of our report dated January 16, 1997 on our audit of the consolidated financial statements of Atmel Corporation and subsidiaries as of December 31, 1996 and 1995, and for each of the three years in the period ended December 31, 1996, which report has been incorporated by reference from the 1996 Annual Report to Shareholders of Atmel Corporation and our report dated January 16, 1997, on our audit of the consolidated financial statement schedule which report is included in this Annual Report on Form 10-K. /s/ Coopers & Lybrand L.L.P. San Jose, California March 27, 1997 -----END PRIVACY-ENHANCED MESSAGE-----