SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] Quarterly Report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended September 30, 1996
[ ] 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: 0-22756
Advanced Technology Materials, Inc.
(Exact name of registrant as specified in its charter)
Delaware 06-1236302
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
7 Commerce Drive, Danbury, CT 06810
(Address of principal executive offices) (Zip Code)
203-794-1100
(Registrant's telephone number, including area code)
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
The number of shares outstanding of the registrant's common stock as of October
31, 1996 was 8,754,810.
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Advanced Technology Materials, Inc.
Consolidated Balance Sheet
September 30, December 31,
1996 1995
---- ----
(unaudited)
Assets
Current assets:
Cash and cash equivalents $ 4,449,217 $ 3,609,265
Marketable securities 16,860,651 21,855,473
Accounts receivable, net of allowance for
doubtful accounts of $123,501 in 1996 and
$93,491 in 1995 10,450,503 9,233,015
Inventory 4,169,377 2,647,142
Other 429,460 345,486
------- -------
Total current assets 36,359,208 37,690,381
Property and equipment, net 7,425,404 5,575,343
Long-term investment 1,000,000 1,000,000
Goodwill and other intangibles 5,252,925 5,532,216
--------- ---------
$ 50,037,537 $ 49,797,940
============ ============
Liabilities and stockholders' equity
Current liabilities:
Accounts payable $ 3,111,758 $ 3,121,355
Accrued expenses 4,739,541 2,994,482
Notes payable 810,787 4,725,238
Other 860,900 625,495
------- -------
Total current liabilities 9,522,986 11,466,570
Notes payable, less current portion 5,318,848 5,257,155
Other long-term liabilities 175,243 177,086
Stockholders' equity:
Preferred stock, par value $.01:
1,000,000 shares authorized; none
issued and outstanding - -
Common stock, par value $.01:
15,000,000 shares authorized; issued
8,747,710 in 1996 and 8,721,611 in 1995 87,477 87,216
Additional paid-in capital 37,099,210 37,060,652
Accumulated deficit (2,166,227) (4,250,739)
---------- ----------
Total stockholders' equity 35,020,460 32,897,129
---------- ----------
$ 50,037,537 $ 49,797,940
============ ============
See accompanying notes.
Advanced Technology Materials, Inc.
Consolidated Statement of Operations
(unaudited)
Three months ended September 30,
--------------------------------
1996 1995
---- ----
Revenues
Product revenues $ 9,361,238 $ 5,784,638
Contract revenues 2,783,966 2,211,169
--------- ---------
Total revenues 12,145,204 7,995,807
Cost of revenues:
Cost of product revenues 3,956,454 2,755,710
Cost of contract revenues 2,402,663 1,897,312
--------- ---------
Total cost of revenues 6,359,117 4,653,022
--------- ---------
Gross profit 5,786,087 3,342,785
Operating expenses:
Research and development 1,648,901 1,067,140
Selling, general, and administrative 3,224,417 2,106,283
--------- ---------
4,873,318 3,173,423
--------- ---------
Operating income 912,769 169,362
Interest income 276,851 137,852
Interest expense (124,983) (57,124)
-------- -------
Net income before taxes 1,064,637 250,090
Income taxes 90,019 49,455
------ ------
Net income $ 974,618 $ 200,635
========== ==========
Net income per share $0.10 $0.03
----- -----
Weighted average shares outstanding 9,375,964 7,791,378
========= =========
See accompanying notes.
Advanced Technology Materials, Inc.
Consolidated Statement of Operations
(unaudited)
Nine months ended September 30,
-------------------------------
1996 1995
---- ----
Revenues:
Product revenues $27,104,746 $14,824,446
Contract revenues 7,478,717 6,422,345
--------- ---------
Total revenues 34,583,463 21,246,791
Cost of revenues:
Cost of product revenues 11,563,699 6,819,892
Cost of contract revenues 6,331,271 5,461,722
--------- ---------
Total cost of revenues 17,894,970 12,281,614
--------- ----------
Gross profit 16,688,493 8,965,177
Operating expenses:
Research and development 5,697,116 2,814,909
Selling, general, and administrative 9,144,365 5,999,536
--------- ---------
14,841,481 8,814,445
--------- ---------
Operating income 1,847,012 150,732
Interest income 826,777 376,762
Interest expense (387,684) (142,975)
-------- --------
Income before taxes 2,286,105 384,519
--------- -------
Income taxes 201,593 175,374
------- -------
Net income $ 2,084,512 $ 209,145
=========== ===========
Net income per share $0.22 $0.03
----- -----
Weighted average shares outstanding 9,362,307 7,693,801
========= =========
See accompanying notes.
Advanced Technology Materials, Inc.
Consolidated Statement of Cash Flows
(unaudited)
Nine months ended September 30,
-------------------------------
1996 1995
---- ----
Operating activities
Net income $ 2,084,512 $ 209,145
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization 1,745,116 1,037,685
Stock option compensation - 50,000
Changes in operating assets and liabilities
Increase in accounts receivable (1,217,488) (1,295,184)
(Increase) decrease in inventory (1,522,235) 82,555
Increase in other assets (156,514) (418,475)
(Decrease) increase in accounts payable (9,597) 244,536
Increase in accrued expenses 1,745,059 117,543
Increase in other liabilities 233,562 397,443
------- -------
Total adjustments 817,903 216,103
------- -------
Net cash provided by operating activities 2,902,415 425,248
--------- -------
Investing activities
Capital expenditures (3,243,346) (2,416,629)
Long term investment - (1,000,000)
Sale of marketable securities 4,994,822 2,173,724
Other asset purchases - (300,000)
--------- --------
Net cash provided (used) by investing activities 1,751,476 (1,542,905)
--------- ----------
Financing activities
Proceeds from issuance of notes payable 727,217 2,335,611
Principal payments on notes payable (4,579,975) (550,126)
Proceeds from the exercise of stock options 38,819 50,903
------ ------
Net cash (used) provided by financing activities (3,813,939) 1,836,388
---------- ---------
Net increase in cash and cash equivalents 839,952 718,731
Cash and cash equivalents, beginning
of period 3,609,265 2,049,397
--------- ---------
Cash and cash equivalents, end of period $ 4,449,217 $ 2,768,128
============ ===========
See accompanying notes.
Advanced Technology Materials, Inc.
Notes To Interim Consolidated Financial Statements
(unaudited)
1. Basis of Presentation
The accompanying unaudited interim financial statements of Advanced
Technology Materials, Inc. ("ATMI" or the "Company") have been prepared in
accordance with the instructions to Form 10-Q and Rule 10.01 of Regulation S-X
and do not include all of the financial information and disclosures required by
generally accepted accounting principles.
In the opinion of the Company's management, the financial information
contained herein has been prepared on the same basis as the audited Consolidated
Financial Statements contained in the Company's Form 10-K for the year ended
December 31, 1995, and includes adjustments (consisting only of normal recurring
adjustments) necessary to present fairly the unaudited quarterly results set
forth herein. The Company's quarterly results have, in the past, been subject to
fluctuation and, thus, the operating results for any quarter are not necessarily
indicative of results for any future fiscal period.
2. Per Share Data
Earnings per common share is computed using the treasury stock method based
on the weighted average number of common shares and common stock equivalent
shares outstanding during the period. Shares from the assumed exercise of
options and warrants granted by the Company have been included in the
computation of earnings per share for all periods, unless their inclusion would
be antidilutive.
3. Inventory
Inventory is comprised of the following:
September 30, December 31,
1996 1995
-------------- ---------------
Raw materials $ 3,715,775 $ 2,252,841
Work in process 818,789 614,069
Finished goods 28,847 59,291
------ ------
4,563,411 2,926,201
Obsolescence reserve (394,034) (279,059)
-------- --------
$ 4,169,377 $ 2,647,142
=========== ===========
4. Income taxes
Income tax expense consists primarily of state taxes arising due to the
Company's unitary tax filing status in California and Arizona. The Company has
adequate loss carryforwards and research and development tax credit
carryforwards to offset any United States federal income tax liability and other
state tax liabilities for the periods presented.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Overview
ATMI was founded in 1986 and has generated revenues from both product sales
and contract research. Product sales have been derived from the sale of
point-of-use environmental equipment and specialty materials and delivery
systems for the semiconductor industry, as well as royalties from the sale of
certain products by third parties. A significant portion of the Company's
revenues has been derived from contracts with United States government agencies.
The programs in which ATMI participates may extend for several years, but are
normally funded on an annual basis. There can be no assurance that the
government will continue its commitment to programs to which ATMI's development
projects are applicable or that the Company can compete successfully to obtain
funding available pursuant to such programs.
During 1995, ATMI acquired the Guardian Systems product line of thermal
destruction units used in the point-of-use treatment of effluent in the
semiconductor industry from Messer Griesheim Industries, Inc. This acquisition
has broadened the product offerings and increased the business of the Company's
EcoSys unit. In addition, the Company made several smaller acquisitions and
investments to further expand its product mix and technology.
ATMI has experienced substantial growth in revenues over the past several
years, particularly in product sales. This was due in part to significant growth
in the semiconductor industry over that period. Recent indicators have served to
create a widely-held opinion that the semiconductor industry and, in particular
the semiconductor equipment industry, will endure a period of slowed growth or
perhaps contraction over the next six to twelve months. This industry condition
could have an adverse impact on ATMI, most notably within its EcoSys subsidiary.
However, continued growth in other ATMI business units could help to offset the
effects of such trends. Commercial backlog at the end of the third quarter of
1996 was approximately $4.8 million, compared with a backlog of $1.5 million at
the end of the third quarter of 1995.
The following table sets forth, for the periods indicated, the percentage
relationship to total revenues of certain items in ATMI's Consolidated Statement
of Operations:
Three Months Nine Months
Ended Ended
----- -----
September 30, September 30,
------------- -------------
1996 1995 1996 1995
----- ----- ----- -----
Product revenues 77.1% 72.3% 78.4% 69.8%
Contract revenues 22.9 27.7 21.6 30.2
---- ---- ---- ----
Total revenues 100.0 100.0 100.0 100.0
Cost of revenues 52.4 58.2 51.8 57.8
---- ---- ---- ----
Gross profit 47.6 41.8 48.2 42.2
Operating expenses:
Research and development 13.6 13.3 16.5 13.2
Selling, general, & administrative 26.5 26.4 26.4 28.3
---- ---- ---- ----
Total operating expenses 40.1 39.7 42.9 41.5
---- ---- ---- ----
Operating income 7.5 2.1 5.3 0.7
Other income, net 1.3 1.0 1.3 1.1
--- --- --- ---
Income before taxes 8.8 3.1 6.6 1.8
Income taxes .8 0.6 0.6 0.8
-- --- --- ---
Net income 8.0% 2.5% 6.0% 1.0%
The following tables set forth revenues, cost of revenues, and gross profit
for products and contracts, as a percentage of each category:
Three Months Nine Months
Ended Ended
----- -----
September 30, September 30,
------------- -------------
1996 1995 1996 1995
---- ---- ---- ----
Products:
Revenues 100.0% 100.0% 100.0% 100.0%
Cost of revenues 42.3 47.6 42.7 46.0
---- ---- ---- ----
Gross profit 57.7% 52.4% 57.3% 54.0%
Contracts:
Revenues 100.0% 100.0% 100.0% 100.0%
Cost of revenues 86.3 85.8 84.7 85.0
---- ---- ---- ----
Gross profit 13.7% 14.2% 15.3% 15.0%
Results of Operations
Three Months Ended September 30, 1996 and 1995.
Revenues
Total revenues increased 52% to approximately $12,145,000 in the three
months ended September 30, 1996 from approximately $7,996,000 in the same three
month period in 1995. Product revenues increased 62% to approximately $9,361,000
in the three months ended September 30, 1996 from approximately $5,785,000 in
the comparable period in 1995. The increases in product revenues resulted
primarily from continued growth in sales of effluent treatment systems by EcoSys
and sales of specialty semiconductor wafers and materials through the Company's
Epitronics subsidiary, as well as growth in royalty revenues generated from the
increased market acceptance of the Company's SDS(TM) Gas Source product.
Contract revenues increased 26% to approximately $2,784,000 in the quarter ended
September 30, 1996 from approximately $2,211,000 in the same three month period
in 1995.
Gross Profit
Gross profit increased 73% to approximately $5,786,000 in the quarter ended
September 30, 1996 from approximately $3,343,000 in the quarter ended September
30, 1995. Gross margin increased to 48% of revenues in the three month period in
1996 compared with 42% for the same period in 1995. Gross profit from product
revenue increased 78% to approximately $5,405,000 in the quarter ended September
30, 1996 from approximately $3,029,000 in the quarter ended September 30, 1995.
As a percentage of product revenues, gross margin increased to 58% in 1996 from
52% in 1995. The increase in 1996 resulted primarily from improved margins
within the EcoSys product lines due to the addition of the Guardian product, and
the increase in royalty revenue to 14% of product revenues in 1996 from 6% in
1995.
Gross profit on contract revenues increased 20% to approximately $381,000
in the quarter ended September 30, 1996 from approximately $314,000 in the same
quarter last year. As a percentage of contract revenues, gross margin remained
at 14% from the 1995 quarter to the 1996 quarter.
Research and Development Expenses
Research and development expenses increased 55% to approximately $1,649,000
in the third quarter of 1996 from approximately $1,067,000 in the third quarter
of 1995. The increase in the 1996 quarter was principally due to new product
development within EcoSys and technology development and intellectual property
protection activity within NovaMOS. As a percentage of revenues, research and
development expenses increased to 14% in the 1996 quarter from 13% in the 1995
quarter.
Selling, General, and Administrative Expenses
Selling, general, and administrative expenses increased 53% to
approximately $3,224,000 in the three months ended September 30, 1996 from
approximately $2,106,000 in the same three month period in 1995. The increase in
the 1996 quarter was primarily due to an increase in variable selling expenses,
most notably commissions, which directly relate to increased product revenue. In
addition, administrative expenses continue to increase in line with the
continued overall growth of the Company. As a percentage of revenues, these
expenses remained at 26% from the 1995 quarter to the 1996 quarter.
Other Income, Net
Other income increased 88% to approximately $152,000 in the quarter ended
September 30, 1996 from approximately $81,000 in the quarter ended September 30,
1995. The increase in the 1996 quarter related to interest earned on the
Company's increased cash balances as a result of its October 1995 follow-on
public offering. This was partially offset by an increase in interest expense on
larger debt balances in 1996.
Earnings per Share
Earnings per share improved to $.10 for the third quarter of 1996 compared
with earnings per share of $.03 in the second quarter of 1995. The 1996 earnings
per share reflects the 20% increase in weighted average shares outstanding from
approximately 7,791,000 in the third quarter of 1995 to approximately 9,376,000
in the third quarter of 1996. The share increase is primarily due to the October
1995 public offering of 1,600,000 shares of the Company's stock.
Nine Months Ended September 30, 1996 and 1995.
Revenues
Total revenues increased 63% to approximately $34,583,000 in the nine
months ended September 30, 1996 from approximately $21,247,000 in the same
period in 1995. Product revenues increased 83% to approximately $27,105,000 in
the nine months ended September 30, 1996 from approximately $14,824,000 in the
comparable period in 1995. This increase resulted from growth in sales of EcoSys
product lines including the recently acquired Guardian products, increased
market acceptance of the NovaMOS delivery systems and materials, increased sales
of semiconductor materials by Epitronics as well as substantial increases in
royalty revenue. Contract revenues increased 16% to approximately $7,479,000 in
the nine months ended September 30, 1996 from approximately $6,422,000 in the
same period in 1995. The growth in 1996 was from a general increase in the
government funding of the Company's contract research activities.
Gross Profit
Gross profit increased 86% to approximately $16,688,000 in the nine months
ended September 30, 1996 from approximately $8,965,000 in the nine months ended
September 30, 1995. Gross margin increased to 48% of revenues in the first nine
months of 1996 from 42% of revenues in the first nine months of 1995. As a
percentage of product revenues, gross margin increased to 57% in the 1996 period
from 54% in the 1995 period primarily due to product mix and the increase in
royalty revenue to 10% of product revenues in 1996 from 4% in 1995. As a
percentage of contract revenues, gross margin remained at 15% from the first
nine months of 1995 to the first nine months of 1996.
Research and Development Expenses
Research and development expenses increased 102% to approximately
$5,697,000 in the first nine months of 1996 from approximately $2,815,000 in the
first nine months of 1995. The increase in 1996 resulted primarily from the
increase in product development within EcoSys, and added research activities
pertaining to the recently acquired Guardian and Epitronics businesses.
Additionally, ATMI has and will continue to invest in the protection of its
intellectual property. As a percentage of revenues, research and development
expenses increased to 16% in the first nine months of 1996 from 13% in the first
nine months of 1995.
Selling, General, and Administrative Expenses
Selling, general, and administrative expenses increased 52% to
approximately $9,144,000 in the nine months ended September 30, 1996 from
approximately $6,000,000 in the same period in 1995. The increase in 1996
related primarily to selling costs directly linked to increased product
shipments, increases in marketing and sales staff, and increased administrative
expenses related to the newly acquired businesses. As a percentage of revenues,
these expenses decreased to 26% in the first nine months of 1996 from 28% in the
comparable period in 1995.
Other Income, Net
Other income increased 88% to approximately $439,000 in the nine months
ended September 30, 1996 from approximately $234,000 in the nine months ended
September 30, 1995. The increase in the 1996 period is a direct result of
increased cash balances derived from the follow-on public offering in October
1995, partially offset by higher interest expense due to increases in debt
balances.
Earnings per Share
Earnings per share improved to $.22 for the first nine months of 1996
compared with earnings per share of $.03 in the first nine months of 1995. The
1996 earnings per share reflects the 22% increase in weighted average shares
outstanding from approximately 7,694,000 in the first nine months of 1995 to
approximately 9,362,000 in the first nine months of 1996. The share increase is
primarily due to the October 1995 public offering of 1,600,000 shares of the
Company's stock.
Liquidity and Capital Resources
For the nine months ended September 30, 1996, operations generated cash of
approximately $2,902,000 compared to the generation of approximately $425,000
for the comparable 1995 period. A substantial increase in net income to
approximately $2,085,000 in 1996 compared to $209,000 in 1995 was the principal
cause for the increase in cash generation from operations. Increases in non-cash
expenses, such as depreciation, and fluctuations in working capital further
enhanced the cash provided by operations in the first nine months of 1996.
For the nine month period ended September 30, 1996, investing activities
generated approximately $1,751,000 in cash compared with the use of
approximately $1,543,000 in the nine months ended September 30, 1995. Investing
activities in the 1996 period generated cash through the sale of approximately
$4,995,000 in marketable securities, offset by capital expenditures of
approximately $3,243,000. These capital expenditures related primarily to
expansion of manufacturing and laboratory capacity in the Company's Danbury
facility. In the 1995 period, the Company incurred approximately $2,417,000 in
capital expenditures, primarily leasehold improvements, and sold approximately
$2,173,000 of marketable securities. Additionally, in 1995 ATMI made a long term
investment of $1,000,000 in Candescent Technologies Corporation, formerly known
as Silicon Video Corporation.
The Company used approximately $3,814,000 of cash in financing activities
during the nine months ended September 30, 1996 compared with the generation of
approximately $1,836,000 for the same period in 1995. Debt payments of
approximately $4,580,000 during the 1996 period included the payment of a $4
million promissory note related to the acquisition of the Guardian Systems
product line. The Company incurred new debt of approximately $727,000 in the
first nine months of 1996 including $500,000 from an agency of the State of
Connecticut and advances under the Company's equipment line of credit. For the
same period in 1995, the Company received a $1.3 million loan from an agency of
the State of Connecticut and approximately $1,036,000 in advances under the
Company's equipment line of credit, partially offset by approximately $550,000
in payments on all notes payable.
ATMI believes the combination of existing cash balances, marketable
securities, existing sources of liquidity, and anticipated funds from
operations, will satisfy its projected working capital and other cash
requirements through at least the end of 1997. However, ATMI believes the level
of financing resources available to it is an important competitive factor in its
industry and may seek additional capital prior to the end of that period.
Additionally, ATMI considers, on a continuing basis, potential acquisitions of
technologies and businesses complementary to its current business. There are no
present understandings, commitments, or agreements with respect to any such
acquisition. However, any such transaction may affect ATMI's future capital
needs.
Safe Harbor Statement
Statements which are not historical facts in this report are forward
looking statements, made on a good faith basis. Such forward looking statements,
including those concerning the Company's expectations for demand and sales of
new and existing products, semiconductor industry and market segment growth, and
market and technology opportunities, all involve risk and uncertainties. Actual
results may differ materially from forward looking statements, for reasons
including, but not limited to, changes in the pattern of semiconductor industry
growth or the markets the Company sells products for, customer interest in the
Company's products, product and market competition, delays or problems in the
development and commercialization of the Company's products, or technological
change affecting the Company's core thin film competencies.
PART II- OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
a. Exhibits.
Exhibit No. Description
- ----------- -----------
11.01 Statement re: computation of earnings per share (Filed herewith)
27.01 Financial Data Schedule (Filed herewith)
b. Reports on Form 8-K.
No reports on Form 8-K were filed during the quarter ended September 30, 1996.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Advanced Technology Materials, Inc.
-----------------------------------
November 9, 1996
By /S/ Eugene G. Banucci
--------------------------------
Eugene G. Banucci, Ph.D., President, Chief
Executive Officer, Chairman of the Board and
Director
By /S/ Daniel P. Sharkey
--------------------------------
Daniel P. Sharkey, Vice President, Chief
Financial Officer and Treasurer (Chief
Accounting Officer)