Attached files
| file | filename |
|---|---|
| EX-31.3 - EX 31.3 - ATMEL CORP | atml-2012930ex313.htm |
| EX-32.4 - EX 32.4 - ATMEL CORP | atml-2012930ex324.htm |
| EX-31.4 - EX 31.4 - ATMEL CORP | atml-2012930ex314.htm |
| EX-32.3 - EX 32.3 - ATMEL CORP | atml-2012930ex323.htm |
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q/A
(Amendment No. 1)
x | QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarter ended September 30, 2012
or
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number 0-19032
ATMEL CORPORATION
(Registrant)
Delaware (State or other jurisdiction of incorporation or organization) | 77-0051991 (I.R.S. Employer Identification Number) | |
1600 Technology Drive, San Jose, California 95110
(Address of principal executive offices)
(408) 441-0311
(Registrant’s telephone number)
Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer x | Accelerated filer o | |
Non-accelerated filer o (Do not check if a smaller reporting company) | Smaller reporting filer o | |
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x
On October 31, 2012, the Registrant had 439,650,566 outstanding shares of Common Stock.
EXPLANATORY NOTE
Atmel Corporation (the “Company") is filing this Amendment No. 1 (the “Amendment”) to its Quarterly Report on Form 10-Q ("Quarterly Report") for the three months ended September 30, 2012, as filed with the Securities and Exchange Commission on November 7, 2012, to correct an error regarding the historical revenue of the Company's recently sold serial flash product line contained in “Management's Discussion and Analysis of Financial Condition and Results of Operations.”
The fourth sentence in the last paragraph under “Management's Discussion and Analysis of Financial Condition and Results of Operations - Overview,” and the last sentence under “Management's Discussion and Analysis of Financial Condition and Results of Operations - Nonvolatile Memory,” of the Quarterly Report are each hereby amended, in their entirety, as follows: “Revenue for our serial flash product lines was $37.4 million for the nine months ended September 30, 2012 compared to $69.1 million for the nine months ended September 30, 2011.” Except as set forth in the preceding sentence, no other changes are being made to the Quarterly Report, which continues to speak as of the dates set forth therein.
This Amendment should be read in conjunction, and as if filed concurrently, with the Quarterly Report. Except as expressly set forth in this Explanatory Note, this Amendment does not modify or update disclosures contained in the Quarterly Report, and this Amendment, therefore, does not reflect events occurring after the filing of the Quarterly Report.
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Table of Contents
Page | |
PART I: FINANCIAL INFORMATION | |
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This Amendment contains the complete text of the original report with the corrected information appearing in ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion and analysis in conjunction with the Condensed Consolidated Financial Statements and related Notes thereto contained elsewhere in this Quarterly Report on Form 10-Q. The information contained in this Quarterly Report on Form 10-Q is not a complete description of our business or the risks associated with an investment in our common stock. We urge you to review and consider carefully the various disclosures made by us in this Quarterly Report on Form 10-Q and in our other reports filed with the SEC, including our Annual Report on Form 10-K for the year ended December 31, 2011. Atmel’s Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and amendments to such reports are available, free of charge, through the “Investors” section of www.atmel.com. We make these reports available as soon as reasonably practicable after we electronically file them with, or furnish them to, the SEC. The SEC also maintains a website located at www.sec.gov that contains Atmel’s reports filed with, or furnished to, the SEC. The information disclosed on our website is not incorporated herein and does not form a part of this Quarterly Report on Form 10-Q.
This discussion contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, particularly statements regarding our outlook for fiscal 2012 and beyond, the expansion of the market for microcontrollers, revenue for our maXTouch™ products, expectations for our new XSense™ products, our gross margin, anticipated revenue by geographic area, operating expenses and capital expenditures, cash flow and liquidity measures, factory utilization, new product introductions, access to independent foundry capacity and the quality issues associated with the use of third party foundries, the effects of our strategic transactions and restructuring efforts, estimates related to the amount and/or timing of expensing unearned stock-based compensation expense and similar estimates related to our performance-based restricted stock units, our expectations regarding tax matters, the outcome of litigation (including intellectual property litigation in which we may be involved or in which our customers may be involved, especially in the mobile device sector) and the effects of exchange rates and our ongoing efforts to manage exposure to exchange rate fluctuation. Our actual results could differ materially from those projected in any forward-looking statements as a result of a number of factors, risks and uncertainties, including the risk factors set forth in this discussion and in Part II Item 1A — Risk Factors, and elsewhere in this Quarterly Report on Form 10-Q. Generally, the words “may,” “will,” “could,” “should,” “would,” “anticipate,” “expect,” “intend,” “believe,” “seek,” “estimate,” “plan,” “view,” “continue,” the plural of such terms, the negatives of such terms, or other comparable terminology and similar expressions identify forward-looking statements. The information included in this Quarterly Report on Form 10-Q is provided as of the filing date with the Securities and Exchange Commission and future events or circumstances could differ significantly from the forward-looking statements included herein. Accordingly, we caution readers not to place undue reliance on such statements. We undertake no obligation to update any forward-looking statements in this Quarterly Report on Form 10-Q.
OVERVIEW
We are one of the world’s leading designers, developers and suppliers of microcontrollers, which are self-contained computers-on-a-chip. Microcontrollers are generally less expensive, consume less power and offer enhanced programming capabilities compared to traditional microprocessors. Our microcontrollers and related products are used in many of the world’s leading smart phones, tablet devices, e-readers and other consumer and industrial electronics to provide core functionality for touch sensing, sensor management, security, wireless and communication applications and battery management. We offer an extensive portfolio of capacitive touch products that integrate our microcontrollers with fundamental touch-focused intellectual property ("IP") we have developed and we continue to leverage our market and technology advantages to expand our product portfolio within the touch-related eco-system. Toward that end, and as a natural extension of our touch controller business, earlier this year we announced our XSense products, a new type of touch sensor based on proprietary metal mesh technologies. We also design and sell products that are complementary to our microcontroller business, including nonvolatile memory and flash memory products, radio frequency and mixed-signal components and application specific integrated circuits. Our semiconductors also enable applications in many other fields, such as smart-metering for utility monitoring and billing, LED based lighting systems, buttons, sliders and wheels found on the touch panels of appliances, various aerospace, industrial, and military products and systems, and electronic-based automotive components, such as keyless ignition, access, engine control, lighting and entertainment systems, for standard and hybrid vehicles. Over the past several years, we transitioned our business to a “fab-lite” model, lowering our fixed costs and capital investment requirements, and we currently own and operate one wafer manufacturing facility in Colorado Springs, Colorado.
Net revenue was lower in the three and nine months ended September 30, 2012, compared to net revenue in the three and nine months ended September 30, 2011, as we were adversely affected by a slowdown in the global economy and excess inventories held by our distributors, particularly in Asia. Lower sales resulted in lower utilization rates for our Colorado Springs wafer facility, which increased our wafer costs and, as a consequence, adversely affected our gross margin. In response to lower sales, we implemented cost reductions throughout our business in the second quarter of 2012, including labor cost reductions. We expect to continue to monitor our cost structure to ensure that it is properly aligned with global economic conditions.
During the three and nine months ended September 30, 2012, we repurchased 3.8 million and 19.4 million shares of our common stock, respectively, in the open market and subsequently retired those shares under our existing stock repurchase program. As of September 30, 2012, $143.4 million remained available for repurchasing common stock under this program.
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On September 28, 2012, we completed the sale of our serial flash product lines to Adesto. Under the terms of the sale agreement, we transferred certain assets to Adesto, and Adesto assumed certain liabilities, in return for cash consideration of $25.0 million. We also granted Adesto an exclusive option, exercisable prior to November 15, 2012, to purchase our remaining $7.0 million of serial flash inventory. Revenue for our serial flash product lines was $37.4 million for the nine months ended September 30, 2012 compared to $69.1 million for the nine months ended September 30, 2011.
RESULTS OF OPERATIONS
Three Months Ended | Nine Months Ended | ||||||||||||||||||||||
September 30, 2012 | September 30, 2011 | September 30, 2012 | September 30, 2011 | ||||||||||||||||||||
(in thousands, except percentage of net revenue) | |||||||||||||||||||||||
Net revenue | $ | 360,990 | 100 | % | $ | 479,375 | 100 | % | $ | 1,087,027 | 100 | % | $ | 1,419,444 | 100 | % | |||||||
Gross profit | 155,526 | 43 | % | 240,391 | 50 | % | 469,780 | 43 | % | 723,576 | 51 | % | |||||||||||
Research and development | 59,966 | 17 | % | 64,160 | 13 | % | 192,647 | 18 | % | 191,984 | 14 | % | |||||||||||
Selling, general and administrative | 68,036 | 19 | % | 68,467 | 14 | % | 208,881 | 19 | % | 209,593 | 15 | % | |||||||||||
Acquisition-related charges | 1,530 | — | % | 1,019 | — | % | 5,442 | 1 | % | 3,069 | — | % | |||||||||||
Restructuring (credit) charges | (1,404 | ) | — | % | — | — | % | 12,950 | 1 | % | 21,210 | 1 | % | ||||||||||
Credit from reserved grant income | — | — | % | — | — | % | (10,689 | ) | (1 | )% | — | — | % | ||||||||||
Gain on sale of assets | — | — | % | (33,428 | ) | (7 | )% | — | — | % | (35,310 | ) | (2 | )% | |||||||||
Income from operations | $ | 27,398 | 8 | % | $ | 140,173 | 29 | % | $ | 60,549 | 6 | % | $ | 333,030 | 23 | % | |||||||
Net Revenue
Our net revenue totaled $361.0 million for the three months ended September 30, 2012, a decrease of 25%, or $118.4 million, from $479.4 million in net revenue for the three months ended September 30, 2011. Net revenue was $1,087.0 million for the nine months ended September 30, 2012, a decrease of 23%, or $332.4 million, from $1,419.4 million for the nine months ended September 30, 2011. Revenue for the three and nine months ended September 30, 2012 was lower than the comparable periods for 2011 primarily as a result of lower sales throughout our distribution channel, particularly in Asia. We also continued to see softer global demand in the consumer and industrial markets, as the economic slowdown affected our customers and their purchasing requirements.
Net revenue denominated in Euros was 16% and 19% of total net revenue for the three months ended September 30, 2012 and 2011, respectively, and 20% and 21% for the nine months ended September 30, 2012 and 2011, respectively. Average exchange rates utilized to translate foreign currency revenues and expenses in Euros were approximately 1.24 and 1.43 Euro to the dollar for the three months ended September 30, 2012 and 2011, respectively, and 1.29 and 1.38 Euro to the dollar for the nine months ended September 30, 2012 and 2011, respectively. Our net revenue for the three months ended September 30, 2012 would have been approximately $9.2 million higher had the average exchange rate in the current quarter remained the same as the average exchange rate in effect for the three months ended September 30, 2011. Our net revenue for the nine months ended September 30, 2012 would have been approximately $18.4 million higher had the average exchange rate in the current nine-month period remained the same as the rate in effect for the nine months ended September 30, 2011.
Net Revenue — By Operating Segment
Our net revenue by operating segment is summarized as follows:
Three Months Ended | ||||||||||||||
September 30, 2012 | September 30, 2011 | Change | % Change | |||||||||||
(in thousands, except for percentages) | ||||||||||||||
Microcontroller | $ | 226,125 | $ | 301,275 | $ | (75,150 | ) | (25 | )% | |||||
Nonvolatile Memory | 43,948 | 65,922 | (21,974 | ) | (33 | )% | ||||||||
RF and Automotive | 43,289 | 52,021 | (8,732 | ) | (17 | )% | ||||||||
ASIC | 47,628 | 60,157 | (12,529 | ) | (21 | )% | ||||||||
Total net revenue | $ | 360,990 | $ | 479,375 | $ | (118,385 | ) | (25 | )% | |||||
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Nine Months Ended | ||||||||||||||
September 30, 2012 | September 30, 2011 | Change | % Change | |||||||||||
(in thousands, except for percentages) | ||||||||||||||
Microcontroller | $ | 663,993 | $ | 897,293 | $ | (233,300 | ) | (26 | )% | |||||
Nonvolatile Memory | 138,871 | 200,557 | (61,686 | ) | (31 | )% | ||||||||
RF and Automotive | 134,363 | 155,445 | (21,082 | ) | (14 | )% | ||||||||
ASIC | 149,800 | 166,149 | (16,349 | ) | (10 | )% | ||||||||
Total net revenue | $ | 1,087,027 | $ | 1,419,444 | $ | (332,417 | ) | (23 | )% | |||||
Microcontroller
Microcontroller segment net revenue decreased 25% to $226.1 million for the three months ended September 30, 2012 from $301.3 million for the three months ended September 30, 2011. Microcontroller segment net revenue decreased 26% to $664.0 million for the nine months ended September 30, 2012 from $897.3 million for the nine months ended September 30, 2011. Revenue decreased primarily due to weaker demand in industrial and consumer markets, with ARM and maXTouch products most affected. Microcontroller net revenue represented 63% and 61% of total net revenue for the three and nine months ended September 30, 2012, respectively, compared to 63% of total net revenue for both the three and nine months ended September 30, 2011. Inventory held by distributors of our microcontroller products decreased significantly for the three and nine months ended September 30, 2012 as compared to the three and nine months ended September 30, 2011.
Nonvolatile Memory
Nonvolatile Memory segment net revenue decreased 33% to $43.9 million for the three months ended September 30, 2012 from $65.9 million for the three months ended September 30, 2011. Nonvolatile Memory segment net revenue decreased 31% to $138.9 million for the nine months ended September 30, 2012 from $200.6 million for the nine months ended September 30, 2011. The decline in our memory business resulted primarily from reduced market demand, a weaker pricing environment and the end of life for several flash products, including Serial EE and Serial Flash products, which saw revenue decrease by 26% and 38%, respectively, for the three months ended September 30, 2012 compared to the same period in 2011. Revenue from Serial EE and Serial Flash products decreased by 22% and 46%, respectively, for the nine months ended September 30, 2012 compared to the same period in 2011. On September 28, 2012 we sold our serial flash product lines to Adesto and discontinued those products. Revenue for our serial flash product lines was $37.4 million for the nine months ended September 30, 2012 compared to $69.1 million for the nine months ended September 30, 2011.
RF and Automotive
RF and Automotive segment net revenue decreased 17% to $43.3 million for the three months ended September 30, 2012 from $52.0 million for the three months ended September 30, 2011. RF and Automotive segment net revenue decreased 14% to $134.4 million for the nine months ended September 30, 2012 from $155.4 million for the nine months ended September 30, 2011. This decrease was primarily related to continued decline in demand for our non-core radio frequency products within this segment during the first nine months of 2012, related generally to adverse macro-economic conditions and seasonality effects within the automotive sector, partially offset by an increase of 7% in net revenue from sales of our high voltage products, which are used primarily in automotive applications.
ASIC
ASIC segment net revenue decreased 21% to $47.6 million for the three months ended September 30, 2012 from $60.2 million for the three months ended September 30, 2011. ASIC segment net revenue decreased 10% to $149.8 million for the nine months ended September 30, 2012 from $166.1 million for the nine months ended September 30, 2011. Our military and aerospace business revenue, which is approximately 21% of overall ASIC revenue, decreased approximately 26% during the nine months ended September 30, 2012 compared to the nine months ended September 30, 2011 primarily from reduced market demand.
Net Revenue by Geographic Area
Our net revenue by geographic area for the three and nine months ended September 30, 2012, compared to the same period in 2011, is summarized in the table below. Revenue is attributed to regions based on the location to which we ship. See Note 9 of Notes to Condensed Consolidated Financial Statements for further discussion.
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Three Months Ended | ||||||||||||||
September 30, 2012 | September 30, 2011 | Change | % Change | |||||||||||
(in thousands, except for percentages) | ||||||||||||||
Asia | $ | 222,642 | $ | 300,629 | $ | (77,987 | ) | (26 | )% | |||||
Europe | 82,218 | 113,878 | (31,660 | ) | (28 | )% | ||||||||
United States | 49,757 | 57,254 | (7,497 | ) | (13 | )% | ||||||||
Other* | 6,373 | 7,614 | (1,241 | ) | (16 | )% | ||||||||
Total net revenue | $ | 360,990 | $ | 479,375 | $ | (118,385 | ) | (25 | )% | |||||
Nine Months Ended | ||||||||||||||
September 30, 2012 | September 30, 2011 | Change | % Change | |||||||||||
(in thousands, except for percentages) | ||||||||||||||
Asia | $ | 640,587 | $ | 855,298 | $ | (214,711 | ) | (25 | )% | |||||
Europe | 278,103 | 351,757 | (73,654 | ) | (21 | )% | ||||||||
United States | 146,340 | 192,109 | (45,769 | ) | (24 | )% | ||||||||
Other* | 21,997 | 20,280 | 1,717 | 8 | % | |||||||||
Total net revenue | $ | 1,087,027 | $ | 1,419,444 | $ | (332,417 | ) | (23 | )% | |||||
_________________________________________
* Primarily includes South Africa, and Central and South America
Net revenue outside the United States accounted for 86% and 88% of our net revenue for the three months ended September 30, 2012 and 2011, respectively, and 87% and 86% for the nine months ended September 30, 2012 and 2011, respectively.
Our net revenue in Asia decreased $78.0 million, or 26%, for the three months ended September 30, 2012, compared to the same period in 2011, and decreased $214.7 million, or 25%, for the nine months ended September 30, 2012, compared to the same period in 2011. The decrease in this region for the three months and the six months ended September 30, 2012, compared to the three months and nine months ended September 30, 2011 was primarily due to lower shipments of our microcontroller products as result of weaker demand in industrial and consumer markets, with ARM and maXTouch products most affected. In the three months ended September 30, 2012 our distributors in Asia reduced their inventory of our products by 30% as compared to the three months ended June 30, 2012. Net revenue for the Asia region was 62% and 59% of total net revenue for the three months and nine months ended September 30, 2012, respectively, compared to 63% and 60% of total net revenue for the three months and nine months ended September 30, 2011, respectively.
Our net revenue in Europe decreased $31.7 million, or 28%, for the three months ended September 30, 2012, compared to the three months ended September 30, 2011 and decreased $73.7 million, or 21% for the nine months ended September 30, 2012, compared to the nine months ended September 30, 2011. The decrease in this region for the three and nine months ended September 30, 2012, compared to the three and nine months ended September 30, 2011 was primarily a result of the continued decline in industrial markets. Net revenue for the Europe region was 23% and 26% of total net revenue for the three and nine months ended September 30, 2012, respectively, compared to 24% and 25% of total net revenue for the three and nine months ended September 30, 2011, respectively.
Our net revenue in the United States decreased by $7.5 million, or 13%, for the three months ended September 30, 2012, compared to the three months ended September 30, 2011 and decreased by $45.8 million, or 24%, for the nine months ended September 30, 2012, compared to the nine months ended September 30, 2011. This decrease resulted from a continued decline in industrial markets, primarily in the markets for energy related products. Net revenue for the United States region was 14% and 13% of total net revenue for the three and nine months ended September 30, 2012, respectively, compared to 12% and 14% of total net revenue for the three months and nine months ended September 30, 2011, respectively.
Revenue and Costs — Impact from Changes to Foreign Exchange Rates
Changes in foreign exchange rates have historically had an effect on our net revenue and operating costs. Net revenue denominated in foreign currencies was 16% and 19% of our total net revenue for the three months ended September 30, 2012 and 2011, respectively, and 20% and 21% of our total net revenue for the nine months ended September 30, 2012 and 2011, respectively.
Costs denominated in foreign currencies were 15% and 18% of our total costs for the three months ended September 30, 2012 and 2011, respectively, and 20% and 19% of our total costs for the nine months ended September 30, 2012 and 2011,
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respectively.
Average exchange rates utilized to translate foreign currency revenue and expenses in Euros were approximately 1.24 and 1.43 Euros to the dollar for the three months ended September 30, 2012 and 2011, respectively, and 1.29 and 1.38 Euros to the dollar for nine months ended September 30, 2012 and 2011, respectively.
For the three months ended September 30, 2012, changes in foreign exchange rates had an unfavorable overall effect on our operating results. Our net revenue and operating expenses for the three months ended September 30, 2012 would have been approximately $9.2 million higher and $5.7 million higher, respectively, had the average exchange rate in the current year remained the same as the average rate in effect for the three months ended September 30, 2011. Our income from operations would have been approximately $3.5 million higher had the average exchange rate in the three months ended September 30, 2012 remained the same as the average exchange rate in the three months ended September 30, 2011.
For the nine months ended September 30, 2012, changes in foreign exchange rates had an unfavorable overall effect on our operating results. Our net revenue and operating expenses for the nine months ended September 30, 2012 would have been approximately $18.4 million higher and $13.1 million higher, respectively, had the average exchange rate in the current year remained the same as the average rate in effect for the nine months ended September 30, 2011. Our income from operations would have been approximately $5.3 million higher had the average exchange rate in the nine months ended September 30, 2012 remained the same as the average exchange rate in the nine months ended September 30, 2011.
There remains ongoing uncertainty regarding the future of the Euro as a common currency and the Eurozone. While we continue to monitor the situation, the elimination of the Euro as a common currency, the withdrawal of member states from the Eurozone or other events affecting the liquidity, volatility or use of the Euro could have a significant effect on our revenue and operations.
Gross Margin
Gross margin declined to 43.1% and 43.2% for the three and nine months ended September 30, 2012, respectively, compared to 50.1% and 51.0% for the three and nine months ended September 30, 2011, respectively. Gross margin in the three and nine months ended September 30, 2012 was adversely affected by lower sales, which resulted in lower utilization rates at our Colorado Springs wafer facility, and a weaker pricing environment.
Inventory decreased to $335.8 million at September 30, 2012 from $377.4 million at December 31, 2011 primarily related to the sale of our serial flash product lines to Adesto. Our inventory levels, and related write-downs, may require further adjustments during the remainder of 2012 to reflect revised demand forecasts or product lifecycles. Inventory adjustments, if undertaken, may affect our results of operations, including gross margin, depending on the nature of those adjustments. If the demand for certain semiconductor products declines or does not materialize as we expect, we could be required to record additional write-downs, which would adversely affect our gross margin.
For the nine months ended September 30, 2012, we manufactured approximately 57% of our products in our own wafer fabrication facility compared to 51% for the nine months ended September 30, 2011.
Our cost of revenue includes the costs of wafer fabrication, assembly and test operations, inventory write-downs, royalty expense, freight costs and stock compensation expense. Our gross margin as a percentage of net revenue fluctuates depending on product mix, manufacturing yields, utilization of manufacturing capacity, reserves for our excess and obsolete inventory, and average selling prices, among other factors.
Research and Development
Research and development (“R&D”) expenses decreased 7%, or $4.2 million, to $60.0 million for the three months ended September 30, 2012 from $64.2 million for the three months ended September 30, 2011. Research and development (“R&D”) expenses remained relatively flat at $192.6 million for the nine months ended September 30, 2012 compared to $192.0 million for the nine months ended September 30, 2011.
R&D expenses for the three months ended September 30, 2012 decreased compared to the three months ended September 30, 2011 primarily due to reduced stock-based compensation expense as well as lower product development staffing related costs. In addition, R&D expenses for the three months ended September 30, 2012, were favorably affected by approximately $3.1 million due to foreign exchange rate fluctuations, compared to rates in effect and the related expenses for the three months ended September 30, 2011.
R&D expenses for the nine months ended September 30, 2012, compared to the nine months ended September 30, 2011 increased slightly, primarily due to higher employee related expenses related to product development staffing and increased stock-based compensation expense, offset by an increase in R&D grants. In addition, R&D expenses for the nine months ended September 30, 2012, were favorably affected by approximately $8.2 million due to foreign exchange rate fluctuations, compared to rates in effect and the related expenses incurred for the nine months ended September 30, 2011.
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As a percentage of net revenue, R&D expenses totaled 17% and 18% for the three and nine months ended September 30, 2012, respectively, compared to 13% and 14% for the three and nine months ended September 30, 2011, respectively.
Our internally developed process technologies are an important part of new product development. We continue to invest in developing process technologies emphasizing wireless, high voltage, analog, digital, and embedded memory manufacturing processes. Our technology development groups, in partnership with certain external foundries, are developing new and enhanced fabrication processes, including architectures utilizing advanced processes at the 65 nanometer line width node. We believe this investment allows us to bring new products to market faster, add innovative features and achieve performance improvements. We believe that continued strategic investments in process technology and product development are essential for us to remain competitive in the markets we serve.
Selling, General and Administrative
Selling, general and administrative (“SG&A”) expenses remained relatively flat for the three and nine months ended September 30, 2012, compared to the three and nine months ended September 30, 2011.
SG&A expenses for the three months ended September 30, 2012 were favorably affected by approximately $1.6 million due to foreign exchange rate fluctuations, compared to rates in effect and the related expenses incurred for the three months ended September 30, 2011. In addition, SG&A expenses for the nine months ended September 30, 2012 were favorably affected by approximately $3.7 million due to foreign exchange rate fluctuations, compared to rates in effect and the related expenses incurred for the nine months ended September 30, 2011.
As a percentage of net revenue, SG&A expenses totaled 19% for both the three and nine months ended September 30, 2012 compared to 14% and 15% for the three and nine months ended September 30, 2011, respectively.
Stock-Based Compensation
We primarily issue restricted stock units to our employees as equity compensation. Employees may also participate in an Employee Stock Purchase Program that offers the ability to purchase stock through payroll withholdings at a discount to market price.
Stock-based compensation cost for stock options is based on the fair value of the award at the measurement date (grant date). The compensation amount for those options is calculated using a Black-Scholes option valuation model. For restricted stock unit awards, the compensation amount is determined based upon the market price of our common stock on the grant date. Stock-based compensation for restricted stock units, other than performance-based units described below, is recognized as an expense over the applicable vesting term for each employee receiving restricted stock units.
The recognition as expense of the fair value of performance-related stock-based awards is determined based upon management’s estimate of the probability and timing for achieving the associated performance criteria, utilizing the fair value of the common stock on the grant date. Stock-based compensation for performance-related awards is recognized over the estimated performance period, which may vary from period to period based upon management’s estimates of the timing to achieve the related performance goals. These awards vest once the performance criteria are met.
The following table summarizes stock-based compensation included in operating results for the three and nine months ended September 30, 2012 and 2011:
Three Months Ended | Nine Months Ended | ||||||||||||||
September 30, 2012 | September 30, 2011 | September 30, 2012 | September 30, 2011 | ||||||||||||
(in thousands) | |||||||||||||||
Cost of revenue | $ | 2,154 | $ | 1,143 | $ | 6,723 | $ | 5,783 | |||||||
Research and development | 4,925 | 5,557 | 17,568 | 16,325 | |||||||||||
Selling, general and administrative | 11,150 | 9,758 | 31,747 | 27,496 | |||||||||||
Total stock-based compensation expense, before income taxes | 18,229 | 16,458 | 56,038 | 49,604 | |||||||||||
Tax benefit | (2,403 | ) | (2,776 | ) | (6,624 | ) | (7,853 | ) | |||||||
Total stock-based compensation expense, net of income taxes | $ | 15,826 | $ | 13,682 | $ | 49,414 | $ | 41,751 | |||||||
In May 2011, we adopted the 2011 Long-Term Performance Based Incentive Plan (the “2011 Plan”), which provides for
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the grant of restricted stock units to eligible employees. Vesting of restricted stock units granted under the 2011 Plan is subject to the satisfaction of specified performance metrics tied to relative revenue growth rankings and operating margin over the designated performance periods. The performance periods for the 2011 Plan run from January 1, 2011 through December 31, 2013 and consist of three one-year performance periods (calendar years 2011, 2012 and 2013) and a three year cumulative performance period. We did not issue any performance-based restricted stock units in the three months ended September 30, 2012; we issued 0.3 million performance-based restricted stock units in the nine months ended September 30, 2012. We recorded total stock-based compensation expense related to performance-based restricted stock units of $3.3 million and $11.0 million under the 2011 Plan in the three and nine months ended September 30, 2012, respectively. We recorded total stock-based compensation expense related to performance-based restricted units of $3.7 million and $4.3 million under the 2011 Plan in the three and nine months ended September 30, 2011, respectively.
The 2011 Plan performance metrics include revenue growth rankings for us relative to a semiconductor peer group or a microcontroller peer group, as determined by the Compensation Committee. In addition, in order for a participant to receive credit for a performance period, we must achieve a minimum operating margin during such performance period, measured on a pro forma basis, subject to adjustment by the Compensation Committee. We evaluate, on a quarterly basis, the likelihood of meeting our performance metrics in determining stock-based compensation expense for performance share plans.
We recorded total stock based compensation expense related to performance based restricted stock units of $6.5 million under the 2008 Plan in the nine months ended September 30, 2011. No charges were incurred under the 2008 Plan for the three months ended September 30, 2011 since the 2008 Plan ended in May 2011.
Until restricted stock units are vested, they do not have the voting rights of common stock and the shares underlying the awards are not considered issued and outstanding.
Acquisition-Related Charges
We recorded total acquisition-related charges of $1.5 million and $5.4 million for the three and nine months ended September 30, 2012, respectively, related to our acquisitions of Advanced Digital Design and Quantum Research Group Ltd., compared to $1.0 million and $3.1 million for the three and nine months ended September 30, 2011, respectively, related to our acquisition of Quantum Research Group Ltd., associated with customer relationships, developed technology, trade name, non-compete agreements, backlog and deferred compensation arrangements. We estimate amortization of intangibles and deferred compensation arrangements will be approximately $1.8 million for the remainder of 2012.
Restructuring Charges
The following table summarizes the activity related to the accrual for restructuring charges detailed by event for the three and nine months ended September 30, 2012 and 2011:
Third quarter of 2008 | Second quarter of 2010 | Second quarter of 2012 | |||||||||||||
Employee termination costs | Employee termination costs | Employee termination costs | Total 2012 activity | ||||||||||||
(in thousands) | |||||||||||||||
January 1, 2012 | $ | 301 | $ | 1,846 | $ | — | $ | 2,147 | |||||||
Charges | — | — | — | — | |||||||||||
Payments | — | (741 | ) | — | (741 | ) | |||||||||
Foreign exchange gain | — | (226 | ) | — | (226 | ) | |||||||||
March 31, 2012 | 301 | 879 | — | 1,180 | |||||||||||
Charges | — | 1,138 | 13,216 | 14,354 | |||||||||||
Payments | (301 | ) | — | — | (301 | ) | |||||||||
Foreign exchange gain | — | (9 | ) | (301 | ) | (310 | ) | ||||||||
June 30, 2012 | — | 2,008 | 12,915 | 14,923 | |||||||||||
Charges (credits), net of change in estimate | — | 43 | (1,447 | ) | (1,404 | ) | |||||||||
Payments | — | (158 | ) | (1,767 | ) | (1,925 | ) | ||||||||
Foreign exchange (gain) loss | — | (194 | ) | 263 | 69 | ||||||||||
September 30, 2012 | $ | — | $ | 1,699 | $ | 9,964 | $ | 11,663 | |||||||
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Third quarter of 2002 | Second quarter of 2008 | Third quarter of 2008 | Fourth quarter of 2009 | Second quarter of 2010 | |||||||||||||||||||
Termination of contract with supplier | Employee termination costs | Employee termination costs | Other restructuring charges | Employee termination costs | Total 2011 activity | ||||||||||||||||||
(in thousands) | |||||||||||||||||||||||
January 1, 2011 | $ | 1,592 | $ | 3 | $ | 460 | $ | 136 | $ | 1,286 | $ | 3,477 | |||||||||||
Charges | — | — | — | — | 21,210 | 21,210 | |||||||||||||||||
Payments | — | — | — | (45 | ) | (1,972 | ) | (2,017 | ) | ||||||||||||||
Currency translation adjustment | — | — | 16 | — | 735 | 751 | |||||||||||||||||
March 31, 2011 | 1,592 | 3 | 476 | 91 | 21,259 | 23,421 | |||||||||||||||||
Charges | — | — | — | — | — | — | |||||||||||||||||
Payments | — | — | — | (46 | ) | (3,428 | ) | (3,474 | ) | ||||||||||||||
Currency translation adjustment | — | — | 11 | — | 430 | 441 | |||||||||||||||||
June 30, 2011 | 1,592 | 3 | 487 | 45 | 18,261 | 20,388 | |||||||||||||||||
Charges | — | — | — | — | — | — | |||||||||||||||||
Payments | — | — | (12 | ) | (45 | ) | (1,808 | ) | (1,865 | ) | |||||||||||||
Foreign exchange gain | — | — | — | — | (1,166 | ) | (1,166 | ) | |||||||||||||||
September 30, 2011 | $ | 1,592 | $ | 3 | $ | 475 | $ | — | $ | 15,287 | $ | 17,357 | |||||||||||
2012 Restructuring Charges
During the nine months ended September 30, 2012, we implemented cost reduction actions, including actions related to labor costs. We recorded a net restructuring credit of $1.4 million related to these restructuring actions in the three months ended September 30, 2012. We recorded restructuring charges, including applicable severance costs, of $13.0 million related to these restructuring actions in the nine months ended September 30, 2012.
2011 Restructuring Charges
During the nine months ended September 30, 2011, we implemented cost reduction actions, including actions related to labor costs. Although we did not incur restructuring charges in the three months ended September 30, 2011, we incurred restructuring charges of $21.2 million in the nine months ended September 30, 2011 related to the restructuring actions noted in the table above.
Credit from Reserved Grant Income
In March 2012, the Greek government executed a ministerial decision related to an outstanding state grant previously made to a Greek subsidiary of ours. Consequently, we recognized a benefit of $10.7 million in our results for the three months ended March 31, 2012 resulting from the reversal of a reserve previously established for that grant.
Interest and Other Income (Expense), Net
Three Months Ended | Nine Months Ended | ||||||||||||||
September 30, 2012 | September 30, 2011 | September 30, 2012 | September 30, 2011 | ||||||||||||
(in thousands) | |||||||||||||||
Interest and other income (expense) | $ | 439 | $ | (231 | ) | $ | (1,089 | ) | $ | (120 | ) | ||||
Interest expense | (971 | ) | (1,667 | ) | (3,162 | ) | (5,281 | ) | |||||||
Foreign exchange transaction gains | 685 | 1,634 | 464 | 6,319 | |||||||||||
Total | $ | 153 | $ | (264 | ) | $ | (3,787 | ) | $ | 918 | |||||
Interest and other income, net, for the three months ended September 30, 2012 resulted in income when compared to the same period in 2011, which resulted in an expense, primarily due to lower interest expense. Interest and other expense, net, for the nine months ended September 30, 2012 resulted in an expense when compared to the same period in 2011, which resulted in income, primarily due to a loss resulting from a private company investment of $1.9 million and was further impacted by foreign exchange losses. We continue to have balance sheet exposures in foreign currencies subject to exchange rate fluctuations and may incur further gains or losses in the future as a result of such exposures.
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Provision for Income Taxes
We recorded a provision for income taxes of $5.9 million and $14.0 million for the three and nine months ended September 30, 2012, respectively, and we recorded a provision for income taxes of $23.2 million and $51.8 million for the three and nine months ended September 30, 2011, respectively.
We estimate our annual effective tax rate at the end of each quarter. In making these estimates, we, in consultation with our tax advisors, consider, among other things, annual pre-tax income, the geographic mix of pre-tax income and the application and interpretations of tax laws, treaties and judicial developments and the possible outcomes of audits.
Our effective tax rate for the three and nine months ended September 30, 2012 and 2011 was lower than the statutory federal income tax rate of 35%, primarily due to income recognized in lower tax rate jurisdictions.
We file U.S., state and foreign income tax returns in jurisdictions with varying statutes of limitations. Our 2001 through 2011 tax years generally remain subject to examination by federal and most state tax authorities. For significant foreign jurisdictions, the 2001 through 2011 tax years generally remain subject to examination by their respective tax authorities.
Currently, we have tax audits in progress in various foreign jurisdictions. To the extent the final tax liabilities are different from the amounts originally accrued, the increases or decreases are recorded as income tax expense or benefit in the consolidated statements of operations. While we believe that the resolution of these audits will not have a material adverse impact on our results of operations, the outcome is subject to uncertainty.
At September 30, 2012 and December 31, 2011, we had $32.1 million and $25.2 million of unrecognized tax benefits, respectively, which, if recognized, would affect the effective tax rate. Also at September 30, 2012 and December 31, 2011, we had $45.0 million and $42.8 million of unrecognized tax benefits, respectively, which, if recognized, would result in adjustments to other tax accounts, primarily deferred tax assets.
Increases or decreases in unrecognizable tax benefits could occur over the next 12 months due to tax law changes, unrecognized tax benefits established in the normal course of business, or due to the conclusion of ongoing tax audits in various jurisdictions around the world. While it is reasonably possible that some or all of these events may occur within the next 12 months, we are not able to estimate accurately the range of any potential change in unrecognized tax benefits that would result from the occurrence of such events. The calculation of unrecognized tax benefits involves dealing with uncertainties in the application of complex global tax regulations. We regularly assess our tax positions in light of legislative, bilateral tax treaty, regulatory and judicial developments in the countries in which we do business.
Liquidity and Capital Resources
At September 30, 2012, we had $289.1 million of cash, cash equivalents and short-term investments, compared to $332.5 million at December 31, 2011. Our current asset to liability ratio, calculated as total current assets divided by total current liabilities, was 3.10 at September 30, 2012 compared to 3.14 at December 31, 2011. Working capital, calculated as total current assets less total current liabilities, decreased to $649.2 million at September 30, 2012, compared to $708.6 million at December 31, 2011. Cash provided by operating activities was $122.1 million and $177.8 million for the nine months ended September 30, 2012 and 2011, respectively, and capital expenditures totaled $31.8 million and $74.9 million for the nine months ended September 30, 2012 and 2011, respectively, with the decrease resulting primarily from a reduction in the purchase of testing equipment in the 2012 fiscal year.
As of September 30, 2012, of the $289.1 million aggregate cash and cash equivalents and short-term investments held by us, the amount of cash and cash equivalents held by our foreign subsidiaries was $227.3 million. If the funds held by our foreign subsidiaries were needed for our operations in the United States, the repatriation of some of these funds to the United States could require payment of additional U.S. taxes.
Operating Activities
Net cash provided by operating activities was $122.1 million for the nine months ended September 30, 2012, compared to $177.8 million for the nine months ended September 30, 2011. Net cash provided by operating activities for the nine months ended September 30, 2012 was determined primarily by adjusting net income of $42.8 million for certain non-cash charges for depreciation and amortization of $57.2 million and stock-based compensation charges of $56.0 million.
Accounts receivable increased by 17% or $35.2 million to $248.2 million at September 30, 2012, from $212.9 million at December 31, 2011. The average number of days of accounts receivable outstanding increased to 63 days for the three months ended September 30, 2012 from 51 days for the three months ended December 31, 2011. The increase in receivable balances is related to larger shipments toward the end of the quarter and lower collections during the period.
Inventories decreased to $335.8 million at September 30, 2012 from $377.4 million at December 31, 2011. Inventories
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consist of raw wafers, purchased foundry wafers, work-in-process and finished units. Our number of days of inventory decreased to 149 days for the three months ended September 30, 2012 from 173 days for the three months ended December 31, 2011. As a result of the sale of our serial flash product lines to Adesto, inventories were reduced by $25.6 million, of which $18.6 million was transferred to Adesto. We have also granted Adesto an exclusive option, exercisable prior to November 15, 2012, to purchase the remaining $7.0 million of serial flash inventory. We have, therefore, classified that remaining $7.0 million of our serial flash inventory as assets held-for-sale, which are presented as part of other current assets on the condensed consolidated balance sheet at September 30, 2012. Our inventory levels, and related reserves, may require further adjustments during the remainder of 2012 to reflect revised demand forecasts or product lifecycles.
Investing Activities
Net cash provided by investing activities was $0.4 million for the nine months ended September 30, 2012, compared to net cash used in investing activities of $14.7 million for the nine months ended September 30, 2011. For the nine months ended September 30, 2012, we paid $31.8 million for acquisitions of fixed assets as compared to $74.9 million in the nine months ended September 30, 2011 resulting principally from reduced purchases of testing equipment. We also received $25.0 million in cash from the sale of our serial flash product lines in the nine months ended September 30, 2012.
We anticipate expenditures for capital purchases for the remainder of 2012 to be in the range of $5 million to $10 million, depending on business levels. We expect to use those investments principally to maintain existing manufacturing operations and to expand manufacturing capacity for our XSense products.
Financing Activities
Net cash used in financing activities was $162.0 million and $185.3 million for the nine months ended September 30, 2012 and 2011, respectively. The cash used was primarily related to stock repurchases of $163.4 million in the nine months ended September 30, 2012, compared to stock repurchases of $169.1 million in the nine months ended September 30, 2011 and tax payments related to shares withheld for vested restricted stock units of $15.2 million for the nine months ended September 30, 2012, compared to $65.0 million for the nine ended September 30, 2011. During the nine months ended September 30, 2012, we repurchased 19.4 million shares of our common stock in the open market and subsequently retired those shares under our existing stock repurchase program. As of September 30, 2012, $143.4 million remained available for repurchases under this program. Proceeds from the issuance of common stock in respect of stock options and our employee stock purchase plan totaled $14.6 million and $26.6 million for the nine months ended September 30, 2012 and 2011, respectively.
We believe our existing balances of cash, cash equivalents and short-term investments, together with anticipated cash flow from operations, available equipment lease financing, and other short-term and medium-term bank borrowings that we believe would be available to us, will be sufficient to meet our liquidity and capital requirements over the next twelve months.
Since a substantial portion of our operations are conducted through our foreign subsidiaries, our cash flow, ability to service debt, and payments to vendors are partially dependent upon the liquidity and earnings of our subsidiaries as well as the distribution of those earnings, or repayment of loans or other payments of funds by those subsidiaries, to us. Our foreign subsidiaries are separate and distinct legal entities and may be subject to local legal or tax requirements, or other restrictions that may limit their ability to transfer funds to other group entities including the U.S. parent entity, whether by dividends, distributions, loans or other payments.
During the next twelve months, we expect our operations to continue to generate positive cash flow. However, a portion of cash balances may be used to make capital expenditures, repurchase common stock, or make acquisitions. Remaining debt obligations totaled $5.2 million at September 30, 2012. During the remainder of 2012 and in future years, our ability to make necessary capital investments or strategic acquisitions will depend on our ability to continue to generate sufficient cash flow from operations and to obtain adequate financing if necessary. We believe we have sufficient working capital to fund operations with $289.1 million in cash, cash equivalents and short-term investments as of September 30, 2012 together with expected future cash flows from operations.
Off-Balance Sheet Arrangements (Including Guarantees)
See the paragraph under the heading “Guarantees” in Note 6 of Notes to Condensed Consolidated Financial Statements for a discussion of off-balance sheet arrangements.
Critical Accounting Policies and Estimates
Management’s Discussion and Analysis of Financial Condition and Results of Operations are based upon our Condensed Consolidated Financial Statements, which we have prepared in accordance with GAAP. The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities. Management bases its estimates on historical experience and on various other assumptions that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results
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may differ from these estimates under different assumptions or conditions.
We believe that the estimates, assumptions and judgments involved in provisions for revenue, excess and obsolete inventory, sales reserves and allowances, stock-based compensation expense, allowances for doubtful accounts receivable, estimates for useful lives associated with long-lived assets, recoverability of goodwill and intangible assets, restructuring charges, liabilities for uncertain tax positions, deferred tax asset valuation allowances and litigation have the greatest potential impact on our Condensed Consolidated Financial Statements, so we consider these to be our critical accounting policies. Historically, our estimates, assumptions and judgments relative to our critical accounting policies have not differed materially from actual results, although there can be no assurance that results will not differ in the future. The critical accounting estimates associated with these policies are described in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operation” of our Annual Report on Form 10-K filed with the SEC on February 28, 2012.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Amendment No.1 to its Quarterly Report on Form 10-Q to be signed on its behalf by the undersigned, thereunto duly authorized.
ATMEL CORPORATION (Registrant) | |
December 3, 2012 | /s/ STEVEN LAUB |
Steven Laub | |
President & Chief Executive Officer | |
(Principal Executive Officer) | |
December 3, 2012 | /s/ STEPHEN CUMMING |
Stephen Cumming | |
Vice President Finance & Chief Financial Officer | |
(Principal Financial Officer) | |
December 3, 2012 | /s/ JAMIE SAMATH |
Jamie Samath | |
Vice President & Corporate Controller | |
(Principal Accounting Officer) | |
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EXHIBIT INDEX
The following Exhibits have been filed with, or incorporated by reference into, this Report:
31.1 | Certification of Chief Executive Officer pursuant to Securities Exchange Act Rules 13a-14(a) and 15d-14(a).* |
31.2 | Certification of Chief Financial Officer pursuant to Securities Exchange Act Rules 13a-14(a) and 15d-14(a).* |
31.3 | Certification of Chief Executive Officer pursuant to Securities Exchange Act Rules 13a-14(a) and 15d-14(a). |
31.4 | Certification of Chief Financial Officer pursuant to Securities Exchange Act Rules 13a-14(a) and 15d-14(a). |
32.1 | Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.* |
32.2 | Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.* |
32.3 | Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
32.4 | Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
101.INS | XBRL Instance Document* |
101.SCH | XBRL Taxonomy Extension Schema* |
101.CAL | XBRL Taxonomy Extension Calculation Linkbase* |
101.DEF | XBRL Taxonomy Definition Linkbase* |
101.LAB | XBRL Taxonomy Extension Label Linkbase* |
101.PRE | XBRL Taxonomy Extension Presentation Linkbase* |
_________________________________________
* Previously filed with Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 2012, Commission File No. 0-19032 filed on November 7, 2012.
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