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
----------- ----------- -----------
<FN>
The accompanying notes are an integral part of these statements.
</FN>
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
<FN>
The accompanying notes are an integral part of these statements
</FN>
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
========= ========= ========= =========
<FN>
The accompanying notes are an integral part of these statements.
</FN>
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