SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 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.
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(Exact name of registrant as specified in its charter)
Delaware 06-1236302
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
7 Commerce Drive, Danbury, CT 06810
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(Address of principal executive offices) (Zip Code)
203-794-1100
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
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None Not Applicable
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value
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(Title of each class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes x No __
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K [ x ]
The aggregate market value of the voting stock held by non-affiliates of
the registrant at February 28, 1997, was approximately $158,750,510, based on
the closing price of $19.00 per share.
The number of shares outstanding of the registrant's common stock as of
February 28, 1997 was 8,793,345.
ADVANCED TECHNOLOGY MATERIALS, INC.
Annual Report on Form 10-K
For the Fiscal Year Ended December 31, 1996
TABLE OF CONTENTS
Part I Page
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Item 1. Business.................................................. 3
Item 2. Properties................................................ 15
Item 3. Legal Proceedings......................................... 15
Item 4. Submission of Matters to a Vote of Security Holders....... 15
Part II
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Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters....................................... 16
Item 6. Selected Financial Data................................... 17
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations....................... 18
Item 8. Financial Statements and Supplementary Data............... 22
Item 9. Changes In and Disagreements with Accountants on
Accounting and Financial Disclosure....................... 22
Part III
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Item 10. Directors and Executive Officers of the Registrant........ 23
Item 11. Executive Compensation.................................... 25
Item 12. Security Ownership of Certain Beneficial Owners
and Management............................................ 28
Item 13. Certain Relationships and Related Transactions............ 29
Part IV
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Item 14. Exhibits, Financial Statement Schedule, and Reports
on Form 8-K............................................... 30
Index to Consolidated Financial Statements and Financial Statement Schedule F-1
Signatures..................................................................S-1
2
PART I
Item 1. Business.
Advanced Technology Materials, Inc. ("ATMI" or the "Company") is a supplier
of enabling materials, products, and technologies for the semiconductor
industry. The Company's products are primarily based on proprietary and patented
chemical vapor deposition ("CVD") technologies used for semiconductor thin film
manufacture.
ATMI's strategy is to use these technologies to develop products for high
growth niche markets of the semiconductor industry and to sequentially introduce
these products into these high growth markets with industry collaborators. Using
its phased commercial introduction strategy, ATMI has been able to develop its
CVD core technologies and establish businesses to support further
commercialization of its new products.
ATMI's enabling products and technologies include point-of-use
environmental equipment, next-generation thin film materials and delivery
systems, and high performance semiconductor devices based on wide bandgap and
III-V materials.
Semiconductor Industry Background
The semiconductor industry achieved worldwide sales in 1995 of over $140
billion. While industry revenues decreased in 1996, the Company believes the
decrease was primarily a result of a decline in memory chip prices, not a
reduction in the number of semiconductor devices produced and shipped. Even
during this downturn, the industry is adding substantial capacity to meet
increasing demand for a multitude of end uses from personal computers to
wireless communications.
From a wafer substrate, usually made of silicon, a complex series of
process steps creates semiconductor devices. Important process steps include
deposition, patterning, and etching. During deposition, several layers of
conducting, semi-conducting, or insulating thin films are formed on a wafer.
Controlling the deposition of these films is vital to the ultimate performance
of an individual device.
There are two principal methods of film deposition. One, physical vapor
deposition ("PVD") is now primarily used for depositing conductive metal layers.
The other, CVD, is used for depositing semiconducting and insulating thin films
as well as some conductors. In the CVD process, wafers are usually placed in a
sophisticated reaction chamber, ready for the injection of a specially designed
gas or vaporized liquid. Simultaneously, energy is added to the reactor
resulting in thin film deposition on the surface of the wafer.
The CVD process offers the following production advantages:
* conformality--the ability to coat evenly, especially in holes and
trenches designed into the device
* purity
* ability to coat over large areas
* cost efficiency
3
Thin film deposition technology is migrating to CVD for many films because
of these advantages. This migration increased CVD equipment sales from $500
million in 1989 to over $1.5 billion in 1996. It also created rapid growth for
suppliers of CVD equipment such as Applied Materials, Tokyo Electron, and
Novellus Systems.
ATMI's focus on developing high performance and ferroelectric thin film
fabrication revolves around its core CVD technology. From that core technology
development, ATMI introduces related commercial technologies serving existing
silicon device fabrication needs. First is gas abatement technologies using
ATMI's unique adsorbent materials. These adsorbents allow for nearly complete
adsorption of the reactive gases flowing from a CVD reactor exhaust. ATMI also
sells new commercial CVD raw materials that enable the manufacture of
semiconducting thin films for use in next-generation silicon devices.
ATMI Business Strategy
ATMI was founded in 1986 to develop and commercialize products based on its
core CVD technology. The Company has the following key strategies:
Core Technology Development
Proprietary and patented CVD thin film technology underlies ATMI's
development and commercialization of new products. Its CVD technology is based
on a multidisciplinary approach that draws upon the experience of ATMI's
personnel in the areas of chemistry, physics, materials science and electrical
engineering. ATMI dedicates significant resources to maintaining its expertise
in CVD technology and protecting its intellectual property.
Focus on High Growth Markets
ATMI targets semiconductor market segments with growth rates expected to
exceed the industry's overall growth rate. For example, ATMI believes that the
market for point-of-use abatement equipment is growing at a rate in excess of
the overall growth rate of the semiconductor equipment industry. In addition,
the Company focuses on segments where technology-driven paradigm shifts are
occurring or are enabled by the use of ATMI's core technologies. For example,
the Company believes semiconductor manufacturers are moving strongly towards the
use of new thin film materials, driven by device performance considerations.
Phased Product Commercialization
ATMI has a history of commercializing products using its core CVD
technology. The Company's strategy is to focus initially on products with less
technological complexity and capital risk and in later phases focus on products
with a higher degree of sophistication and financial risk. In its first phase of
commercialization, the Company introduced new products through its subsidiary,
ATMI EcoSys Corporation ("EcoSys") (and its predecessor, Novapure), to abate CVD
effluent streams. EcoSys is now a leader in the manufacture and sale of
point-of-use environmental equipment to the semiconductor industry. In its
second phase of commercialization, ATMI introduced several new materials and
delivery systems through its NovaMOS division for use in the silicon
semiconductor industry. In the third phase of commercialization, ATMI intends to
use its core technology to manufacture and sell devices based on ferroelectric
and other high performance semiconductor thin films. Certain of these
third-phase products are now in development and are expected by ATMI to account
for a significant portion of its long-term growth.
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Strategic Alliances
ATMI has formed many strategic alliances, including joint development
programs and collaborative marketing efforts, to accelerate the introduction of
its products into markets that have manufacturing and/or distribution barriers.
As it grows, ATMI expects to continue to accelerate product introductions
through acquisitions and collaborations with customers, vendors and companies
with significant capabilities outside of ATMI's current markets.
Externally Funded Research and Development
Developing new thin film processes and materials for complex electronic
devices is very expensive. By entering into research contracts with federal
government agencies, and with selected private industry collaborators, ATMI
offsets a significant portion of its research and development costs. ATMI
primarily solicits research contracts that provide opportunities to enhance its
core technology base, or promote the commercial introduction of targeted
products.
ATMI Businesses
ATMI operates three primary business units: EcoSys, NovaMOS, and
Epitronics.
EcoSys, a wholly-owned subsidiary, manufactures and services environmental
equipment for the semiconductor industry. ATMI believes EcoSys is a leader in
the rapidly growing market for point-of-use abatement equipment.
ATMI's NovaMOS division manufactures and sells CVD raw materials (source
reagents) used to manufacture semiconducting thin films. ATMI believes NovaMOS
is a leading provider of source reagents for next-generation silicon device
manufacture.
ATMI's Epitronics division, develops, manufactures, distributes, and sells
advanced high performance substrates and thin films for the optoelectronic and
wireless communications markets.
EcoSys: Point of Use Semiconductor Environmental Equipment
EcoSys Market Background
Manufacturing semiconductors involves many processes with thin film
deposition steps that use toxic or hazardous materials. These materials were
once abated through large systems servicing multiple process effluent streams.
Because of the many thin film processes used, the industry is migrating toward
dedicated point-of-use environmental equipment for individual reactors and
processes.
Demand for environmental equipment reflects the dramatic growth in CVD
processing. Only about a quarter of the original materials entering a CVD
reactor end up deposited as a thin film. The rest, combined with by-products,
becomes the effluent stream requiring abatement that must meet increasingly
strict environmental, safety, and health regulations.
Whole plant environmental systems become inefficient with multiple,
different effluent streams. As process variations grow in the industry, so does
the need for point-of-use environmental equipment. The Company believes the
market for this type of point-of-use equipment exceeds $150 million per year and
that the current growth rate exceeds that of the semiconductor equipment market.
5
EcoSys Business Background
Currently ATMI's primary commercial business, generating about half of the
Company's consolidated revenues, is EcoSys, which manufactures, sells, and
services semiconductor environmental equipment.
ATMI first entered this market in 1989 with the introduction of its
Novapure(r) point-of-use dry chemical scrubber. This product was originally
designed under contract to the Environmental Protection Agency ("EPA"). In 1991,
this product and several others resulting from early stage research and
development efforts at ATMI were contributed to Novapure, a joint venture with
Millipore. In 1994, Novapure was dissolved, with ATMI retaining rights to the
effluent treatment product line. Also in 1994, ATMI acquired Vector Technical
Group, Inc. ("Vector"), a manufacturer of liquid and combustion point-of-use
semiconductor environmental equipment, and merged it with its Novapure line of
products to form EcoSys.
In 1995, ATMI acquired the Guardian Systems product line of combustion
point-of-use semiconductor environmental equipment to broaden its product
offerings. ATMI believes EcoSys is the only company in the world offering all of
the key technologies for effluent gas scrubbing to the semiconductor industry:
dry chemical, liquid, flame oxidation and catalytic oxidation. As a result of
this broad product line, ATMI believes EcoSys is a global market leader in the
manufacture and sale of point-of-use semiconductor effluent abatement equipment.
ATMI's strategy is to maximize EcoSys' market share through the continued
development and acquisition of new semiconductor environmental products and
services. The Company believes that this full line of semiconductor
environmental products, coupled with a comprehensive service strategy, will
allow for continued market penetration by its EcoSys business.
Products
EcoSys provides three major product lines. These products reduce
consumption, offer new recycling techniques, and allow new waste treatment
methods. Typical selling prices for these products range between $20,000 and
$100,000 per unit.
Dry Chemical Scrubbers
Novapure(r) dry chemical scrubbers adsorb and concentrate hazardous
effluent up to 20,000 times that of conventional effluent treatment methods.
ATMI believes that EcoSys, through its unique and patented adsorption materials,
is a market leader for point-of-use semiconductor effluent dry scrubbing
throughout the world.
Liquid Scrubbers
Vector Technology(r) liquid scrubbers are designed for cost effective
removal of acidic and high particulate bearing gases commonly used in the wafer
fabrication process. Vector scrubbers recirculate scrubbing water, minimizing
overall water use, and are highly effective in removing high particulate
effluent.
Oxidation Scrubbers
Guardian(r) active oxidation scrubbers treat combustible materials. The
Guardian product line, acquired at the end of 1995, is an industry standard
designed for low cost of ownership. Next-generation systems operate on
inexpensive methane fuel while achieving exceptional removal efficiencies. These
combustion systems also abate certain global warming gases such as
perfluorinated carbon compounds (PFCs), at high efficiency with near zero
nitrous oxide generation.
EcoSys offers other developmental environmental, safety, and health
products to the semiconductor industry, including:
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Catalytic Oxidizers
ReCAT(tm) catalytic oxidation scrubbers use proprietary catalysts to
destroy volatile organic compounds ("VOCs"). VOCs come from the solvents used in
applying photoresists and other organic materials during chip manufacture. The
ReCAT product line adopts the EcoSys point-of-use approach to organic
destruction, replacing the large plant-scale oxidizer systems most semiconductor
companies use. It uses a fraction of the energy required by conventional
systems, and has the potential to create a true point-of-use effluent treatment
device.
Emergency Release Scrubbers
ATMI is marketing and continuing to develop effluent treatment systems for
the capture of semiconductor process gases in emergency situations. Such
situations might arise at the point of delivery of a gas to a reactor through
gas cylinder rupture or similar catastrophic event.
Vent Gas Scrubbers
Cylinders of hazardous gases are typically used for the delivery of gases
to reactors. Changing these cylinders causes small amounts of hazardous
materials to be vented. EcoSys has developed a vent gas scrubber based on its
dry scrubber technology for use in such applications. EcoSys is collaborating
with Air Products Corporation in the development and current distribution of
this product.
Recycling
EcoSys is investigating the potential for recycling the materials used in
thin film deposition processes in the belief that recycling is ultimately
preferred over destructive abatement. PFCs, as an example, are used in some
wafer cleaning and etching processes. They are under strict environmental
controls and production cutbacks, because they are suspected to deplete the
ozone layer. With Praxair Corporation, EcoSys has developed a PFC recycling
system that captures the gas and repurifies it for subsequent reuse. In 1996,
the first unit was installed at a test site.
Total Effluent Abatement Management
EcoSys has expanded its product and service offerings in response to
semiconductor companies' trend towards wanting their abatement supplier to
provide a full range of abatement equipment and provide on-going management of
their total effluent abatement needs. EcoSys has invested in organizational
infrastructure to provide this capability and began to receive contracts for
this service in 1996.
NovaMOS-Next-Generation CVD Materials and Delivery Systems
NovaMOS Market Background
As semiconductor device capabilities in memory, logic and speed have
expanded exponentially, circuit dimensions have correspondingly decreased. The
Company believes that further reductions will require a change in the materials
used for the many functional thin films required to store, transmit and switch
electricity in the complex circuitry of semiconductor devices. For example,
while existing memory and other very large scale integrated ("VLSI") circuits
may be fabricated using standard silicon dioxide capacitor thin films,
deficiencies in the electrical properties of ultra-thin silicon dioxide will
limit its use in the extremely small dimensions of next-generation, ultra large
scale integrated ("ULSI") devices. Alternate ("next-generation") capacitor
materials, including tantalum oxide and barium titanate, are expected to be used
in the fabrication of ULSI circuits, e.g. 256 Mb and 1 Gb dynamic random access
memory chips ("DRAMs"). As these new materials are adopted, the Company believes
that a strategy of collaborative development with a total systems approach will
allow for significant penetration into the $350 million overall market for
semiconductor thin film precursors.
7
These next-generation materials will be manufactured primarily using CVD
processes. Because many of the raw materials for these new thin films will not
be available in gaseous form, the Company believes that a market is developing
for liquid chemical precursors (specialty chemicals) that allow for the
manufacture of next-generation thin films, as well as for equipment (delivery
systems) that convert liquids to gases before entry into a CVD reactor. CVD raw
materials are consumables, and demand for such materials generally tracks the
number of silicon wafers that are used in semiconductor device manufacture
("wafer starts"), while demand for CVD equipment generally tracks investment in
new plants.
NovaMOS Business Background
ATMI formed NovaMOS in February 1992 to serve markets for CVD semiconductor
thin film manufacture. NovaMOS' two primary product lines are liquid chemical
precursors and delivery systems.
In August 1992, ATMI entered into an agreement with IBM, Texas Instruments
and Micron Technology (the "Collaborating Group") to develop advanced thin film
capacitor materials and CVD process technology delivery equipment for
next-generation memory devices. This agreement focused on developing CVD process
technology to fabricate ferroelectric thin films, such as barium strontium
titanate, for high performance memory devices. Barium strontium titanate can
store over 30 times more electrical charge than conventional thin films. Using
this material should significantly reduce the manufacturing complexity of
advanced memory devices. In April 1993, the Advanced Research Projects Agency
("ARPA") awarded a $5 million contract for the development of thin film
materials technology to the Collaborating Group, with ATMI as prime contractor.
The total cost of the program is approximately $15 million, approximately half
of which will be borne by the Collaborating Group. In February 1994, Varian
Associates joined the Collaborating Group, providing CVD manufacturing hardware.
ATMI's ferroelectric thin film technology has also expanded to non-barium
strontium titanate materials that have broad application in a variety of
applications ranging from non-volatile memory devices to wireless components.
This in turn has led ATMI to expand its device development effort to include
these materials in the belief that these particular market segments may prove to
be an attractive device market opportunity for the Company.
Products
NovaMOS generates approximately one-third of ATMI's consolidated revenues
with approximately half of NovaMOS revenues coming from product sales. This
division offers a bundled product line of materials, equipment, and process
experience which represents a total solution to the controlled delivery of
liquid precursors to CVD reactors.
Safe Delivery Systems
Historically, semiconductor process gases have only been available in high
pressure cylinders that can create an immediate danger over a large area if
inadvertently released. ATMI's Safe Delivery System ("SDS") reduces cylinder
pressures below atmospheric levels. This allows controllable, on-demand release
of certain semiconductor process gases. ATMI has a strategic alliance with
Matheson Gas Products ("Matheson"), a subsidiary of Nippon Sanso, begun in
January 1994, and renewed with amended provisions in 1996. Under a license from
ATMI, Matheson markets and distributes the SDS product to specific semiconductor
niche process applications.
CVD Materials
ATMI develops thin film precursors for semiconductor devices. NovaMOS
manufactures and sells source reagents allowing CVD fabrication of advanced
materials, including titanium nitride, platinum, copper, tantalum oxide, lead
zirconate titanate, bismuth strontium tantalate, and barium strontium titanate
thin films. The Company believes these films will have broad application in
advanced semiconductor devices. NovaMOS EpiGrade(r) source reagents sell at
prices ranging from $2 to $200 per gram.
8
Liquid Delivery Systems
NovaMOS manufactures and sells its proprietary LDS and Sparta(tm) Liquid
Delivery Systems. These vaporize liquid precursors before injection into CVD
reactors. The liquid delivery systems' principal advantage is their ability to
deliver multiple materials as well as handling thermally-sensitive
next-generation materials with minimal decomposition. They are typically used
for both conventional material thin film fabrication and advanced material
deposition. NovaMOS is a supplier to the advanced dielectric, ferroelectric,
barrier layer, and conductor thin film markets of the semiconductor industry.
The liquid delivery systems sell at prices ranging from $35,000 to $200,000.
Epitronics - Advanced Wafers and Thin Film Deposition
Epitronics Market Background
Demand for increased performance from semiconductor devices and the
proliferation of optoelectronic devices are leading designers and process
engineers to consider building electronic circuits and discrete devices from
alternative semiconductors to silicon. Advances in semiconductor materials
fabrication technologies are promoting device development based on materials
such as the III-V semiconductors (including gallium arsenide, indium phosphide)
and the wide bandgap semiconductors such as silicon carbide and gallium nitride.
The III-V semiconductors are finding increasing use in three different
markets: in wireless communication devices where high frequency performance is
critical; in optoelectronic devices where the electronic structure of the III-V
semiconductors allows energy efficient light generation; and in solar cells for
satellite applications where efficient generation of electricity is critical.
The wide bandgap semiconductors offer potential advantages in two areas;
both silicon carbide and gallium nitride-based devices may have advantages in
high power or high temperature operation while gallium nitride-based devices
permit efficient generation of short wavelength light for use in blue LEDs and
in blue laser diodes.
Epitronics Business Background
Through its Epitronics division, ATMI is manufacturing and selling advanced
semiconductor substrates and epitaxial wafers. It is also establishing alliances
and selectively developing devices for emerging market opportunities.
Commercial introduction of wide bandgap semiconductor devices has been
limited to date by several technological barriers, including the availability of
single crystal substrates (wafers). The fabrication of fully operable high
performance semiconductor devices, requires an appropriate wafer as a base to
grow suitable thin film. The most appropriate substrate has the same crystal
structure as the desired thin film. For silicon carbide, ATMI has proprietary
technology to manufacture single crystal silicon carbide substrates and is
developing technology for single crystal gallium nitride substrates. Epitronics
has both silicon carbide and gallium nitride epitaxial thin film technology and
has developed and continues to develop thin film fabrication technology that can
be employed in other developmental high technology products, e. g., displays.
ATMI recognizes that it may be important to develop or acquire additional
technologies to meet the demand for high performance devices in its targeted
market areas.
In December, 1995, ATMI acquired Epitronics Corporation, a Phoenix,
Arizona-based manufacturer of III-V semiconductor thin films for the wireless
and optoelectronics markets. ATMI integrated the operations of Epitronics
Corporation with its Diamond Electronics Division in 1996, under the recognized
Epitronics name. Epitronics III-V semiconductor manufacturing is in Phoenix and
its wide bandgap semiconductor manufacturing and R&D facilities are in Danbury.
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Epitronics Business Strategy
Epitronics specializes in advanced compound semiconductors and focuses on
materials. Its core technology is chemical vapor deposition, the growth of
epitaxial thin films (epi) on semiconductor wafers with precisely controlled
structural and electronic properties. Epitronics focuses on materials for
rapidly growing markets in optoelectronics, wireless communications and power
electronics and provides materials and device fabrication processes for III-V
compound semiconductors (gallium arsenide, indium phosphide) and the wide
bandgap semiconductors (silicon carbide, gallium nitride). Epitronics' business
strategy is to build a business and technology base in the materials while
incubating and subsequently launching value-added device businesses on
proprietary technology.
The Phoenix facility is dedicated to the production of III-V epi products
that are finding increasing use in wireless communications, satellites and
optoelectronics for data and telecommunication market segments. There is an
increasing demand for III-V epi wafers in particular for heterojunction bipolar
transistors (HBTs) for use in power amplifiers.
The Danbury facility focuses on the development of wide bandgap
semiconductor materials (substrates and epi) including silicon carbide and
gallium nitride. Wide bandgap semiconductors are expected to find use in high
power applications such as motor control, high temperature applications such as
automotive electronics, and in high power high frequency applications such as
ground based radar and communication stations. The R&D group continues to
support cathode design and manufacturing by Candescent Technologies Corporation
who is developing a field emission display or Thin CRT.
Products
Current Products
Epitronics currently manufactures III-V epitaxial wafers in Phoenix, AZ.
III-V epi products are finding increasing use in wireless communications,
satellites, and optoelectronics for data and telecommunication market segments.
In particular, there is an increased demand for III-V epi wafers for
heterojunction bipolar transistors (HBTs) for use in power amplifiers.
Epitronics markets its epitaxial services and sells product of the service,
epitaxial wafers, directly to industry and government customers according to
their design specifications. In Danbury, Epitronics manufactures one- to
two-inch diameter silicon carbide wafers. It is expanding capacity to ensure
internal and external supplies. The Company believes that these substrate sales
will promote additional collaborations, addressing technology development and
commercial product introduction issues associated with future optoelectronic,
sensor, and power device products.
Epitronics is a distributor of SIMOX (Separation by IMplanted OXygen)
wafers for Nippon Steel Corporation, Japan and specialty wafers for Wafer
Technology (Milton Keynes, UK). These distributed materials complement the
Epitronics manufactured product line and leverage the development of the sales
and marketing organization required to execute the customer service driven
marketing plan. NSC SIMOX wafers are used for fabricating high speed and
radiation-hard circuits. Specialty III-V wafers from Wafer Technology include
Indium Phosphide based materials for optical fiber-based communications, gallium
arsenide for optoelectronic devices, and indium antimonide for infrared
detectors.
Technology Development
In addition to process improvement that the Company believes will allow for
greater market penetration for its III-V epitaxial wafers and silicon carbide
substrates, Epitronics is focusing its R&D efforts on thin film products for
optoelectronics including blue solid state devices and novel cathode materials
for a thin CRT.
10
Epitronics is developing substrate and thin film technology for solid-state
blue light emitting diodes and lasers. Blue LEDs will be primarily used in full
color displays while blue lasers are valuable for increasing optical data
storage capabilities and in full color printers. Gallium nitride substrate
technology under development by Epitronics and others may be essential to high
yield LED manufacturing processes and to demonstrating long life time blue
lasers. Epitronics is collaborating with Hewlett-Packard, Xerox, SDL, Inc., and
others to develop substrate technology for commodity blue lasers, and is
developing proprietary device designs to enable penetration of specialty laser
markets. Epitronics is the preferred high performance materials supplier for the
Blue Band Consortium which is developing blue lasers for improved data storage.
Epitronics provides thin film technology for cold cathodes under a joint
development program to a strategic alliance with Candescent Technologies
Corporation ("CTC"), formerly called Silicon Video Corporation. Traditional CRTs
use a single, hot cathode (its source of electrons) placed far from the screen.
In a field emission display ("FED"), multiple cathodes replace the single
cathode, giving many electron sources for each pixel. Unique thin films
fabricated with Epitronics high performance materials enhance uniform low power
electron emission. Because image uniformity and power consumption are critically
dependent on cathode materials and design, Epitronics materials are well suited
for inclusion in cold cathodes for FEDs. These cold cathodes enable full-color,
flat panel displays with brightness and resolution equivalent to CRTs, hence
thin CRTs.
Under its agreement with ATMI, CTC has an exclusive license to ATMI
technology for FEDs, and ATMI has license to certain CTC technology outside of
displays. CTC will manufacture and distribute the thin CRTs. As part of the
alliance, ATMI purchased $1,000,000 of CTC's convertible preferred stock. ATMI
and CTC receive significant direct support from the federal government for cold
cathode technology development.
Customers, Sales, and Marketing
ATMI sells and distributes its products worldwide, both directly and
through manufacturers' representatives. The Company also seeks to create
strategic alliances that allow maximum global market penetration at minimal
cost.
Many of ATMI's customers have relationships with more than one division, or
are acting as collaborators on ATMI's development programs. A number of ATMI's
key customers are listed below:
Advanced Micro Devices Hyundai Electronics Samsung Electronics
Atmel IBM SGS Thomson
Digital Equipment Corp. Intel Siemens
GEC Plessey Semiconductor Lucent Technologies Sony
Goldstar Electronics Motorola Texas Instruments
Hewlett-Packard National Semiconductor Tokyo Electron
Manufacturing
ATMI's research and development laboratory and prototype production plant
are located at its Danbury, Connecticut facility. In Danbury, the Company
fabricates, tests, and assembles high performance semiconductor and
ferroelectric thin films and devices. Although ATMI's high performance and
ferroelectric processing technology is very similar to standard semiconductor
manufacturing technology, ATMI has developed certain proprietary equipment and
processes. ATMI believes its facility is adequate for current needs.
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EcoSys manufactures Novapure(r), Vector Technology(r), Phoenix(tm) and
ReCAT(tm) point-of-use scrubbers in San Jose, California. EcoSys manufactures
its proprietary adsorbents for its gas treatment products at ATMI's Danbury,
Connecticut facility. The Guardian(r) product line manufacturing is
subcontracted to a third party who had manufactured these products prior to the
product line acquisition by ATMI in 1995.
ATMI's NovaMOS division produces and integrates its liquid delivery systems
in Danbury, along with chemical manufacture and purification. ATMI manufacturing
facility for the SDS Safe Delivery Source in Danbury is complemented by
contracted manufacturing from Matheson's facility. The Company believes that
these two facilities are adequate for current and anticipated demand.
Epitronics manufactures its III-V semiconductor thin films and devices for
the wireless and optoelectronic industries at its Phoenix, Arizona facility. It
produces wide bandgap wafers and high performance thin films in Danbury.
Raw materials for ATMI's products and processes are available from multiple
domestic sources.
Competition
The semiconductor environmental equipment, materials, and device markets
have rapidly evolving technology and products. Both large and small companies
offer products in these markets, and many of these companies have significantly
greater financial and other resources than ATMI.
EcoSys
EcoSys's primary competition in effluent gas treatment is from companies
focused on water and combustion treatment methods. The primary water scrubber
competitor is Delatech, while combustion scrubber competitors are Delatech and
Alzeta. Dry scrubber competitors include CS-GmbH, Ebara, Japan Pionics, and the
Edwards Division of British Oxygen Corporation.
NovaMOS
NovaMOS's primary competitors in CVD materials and delivery systems in the
U.S. are the Schumacher Division of Air Products, Advanced Delivery & Chemical
Systems, Inc., the Diffusion Systems Division of Olin Hunt Specialty Products,
Inc., and MKS Instruments, Inc. There are several other smaller participants in
this market.
There are no immediate competitors to the patented SDS Safe Delivery Source
product. Several gas companies provide product in high pressure containers that
compete with the process capability of SDS.
Epitronics
High performance semiconductors are a new and rapidly emerging area of
technology. The technology has attracted the interest of a wide variety of both
large and small companies. Potential competitors include Kobe Steel, which has a
high performance electronics subsidiary, and Westinghouse, which has a
substantial silicon carbide electronics effort. Several smaller companies are
also developing high performance semiconductor products, including Cree Research
(silicon carbide) and IBIS Technology (SIMOX wafers). Nichia Chemical, a
Japanese company, sells very bright blue LEDs and is developing a solid-state
blue laser. Cree Research is selling blue LEDs based on silicon carbide, and is
trying to produce commercial quantities of bright blue LEDs based on gallium
nitride. Other groups, including Hewlett-Packard, APA Optics, Inc., and SDL,
Inc. are also working on blue optoelectronics, using similar technology.
12
PixTech, Inc, SI Diamond Technology Inc., FED Corporation, and others are
attempting to develop alternative field emission flat panel display products in
competition with CTC.
Government Contracts
ATMI participates in U.S. government funded research and development
contracts. As of December 31, 1996, the Company had received aggregate awards
since its inception of approximately $55 million from U.S. government agencies,
including approximately $46 million recognized as revenue by ATMI through
December 31, 1996. These contracts fund continued CVD technology development,
development of high performance semiconductor, ferroelectric thin films, and
devices for specific applications, while offsetting the cost of research and
development. Government contract revenues were about $9,846,000 in 1996,
$8,712,000 in 1995, and $7,018,000 in 1994. This is about 21%, 29%, and 36% of
ATMI's total revenues in those years. The government may terminate contracts at
its convenience.
In April 1993, the Collaborating Group of IBM, Texas Instruments and Micron
Technology was awarded a $5 million contract (subsequently increased to $5.7
million) from ARPA to develop next-generation capacitor thin films for DRAMs.
The Collaborating Group contributed matching funds and agreed to make any
technology developed under the contract available to the other group members.
ATMI has numerous contracts from the U.S. Air Force, the Ballistic Missile
Defense Organization ("BMDO"), and the National Science Foundation ("NSF"),
supporting development of CVD core technology for the deposition of dielectric
materials and their uses in alternative applications, such as optical switching
and infrared sensing.
ATMI receives funding for research into high performance semiconductor
programs. Funds come from the U.S. Navy, BMDO, the U.S. Army, ARPA, NSF, the
Department of Energy, and NASA in each of the four primary technical areas
required for device development: substrate manufacture, thin film deposition and
characterization, device processing and device design.
The Office of Naval Research ("ONR"), supports efforts to grow and prepare
surfaces of high performance and silicon carbide thin films. The Army supports
the development of high performance contacting technology, a key step in any
manufacturing process for high performance devices. High performance cold
cathode technology has received significant support from both BMDO (ATMI, prime
contractor) and ARPA (CTC, prime contractor). ATMI will continue to submit
proposals to various government entities for additional research and development
funding.
Backlog
As of December 31, 1996, ATMI had firm backlog of approximately $16.5
million consisting of approximately $8.2 million of product orders and $8.3
million of executed and funded research contracts. This compares to a firm
backlog level of approximately $14.8 million as of December 31, 1995, which
consisted of approximately $4.5 million of product orders and approximately
$10.3 million of executed and funded research contracts.
ATMI considers orders for products shippable within six months of the
backlog date and fully executed and funded research contract awards as of the
backlog date as firm backlog. SDS product backlog is not included since the
product is sold and shipped to Matheson for distribution to the ultimate end
user.
13
Patents and Proprietary Rights
ATMI protects its technology by, among other things, filing patent
applications for technology considered important to the development of its
business. It also relies upon trade secrets, unpatented know-how, continuing
technological innovation and the aggressive pursuit of licensing opportunities
to help develop and maintain its competitive position.
ATMI and its divisions have been awarded 68 U.S. patents and currently have
72 U.S. patent applications pending. Foreign counterparts of certain of these
applications have been filed or may be filed at an appropriate time. ATMI
decides on a case-by-case basis whether, and in what countries, it will file
foreign counterparts of a U.S. patent application. ATMI holds licenses to 12
U.S. patents. ATMI's U.S. patents expire between September 2006 and February
2015. The U.S. patents licensed to ATMI expire during the period from March 2006
through February 2013.
ATMI's ability to compete effectively with other companies will depend, in
part, on its ability to maintain the proprietary nature of its technology.
Although ATMI has been awarded, has filed applications for, or has been licensed
under numerous patents in the United States and foreign countries, there can be
no assurance as to the degree of protection afforded by these patents or as to
the likelihood that pending patents will be issued.
The Company requires all employees and most consultants, outside scientific
collaborators, sponsored researchers and other advisors to execute
confidentiality agreements upon the commencement of employment or consulting
relationships with ATMI. These agreements provide that all confidential
information developed or made known to the individual during the course of the
individual's relationship with the Company is to be kept confidential and not
disclosed to third parties except in specific circumstances. All of ATMI's
employees have entered into agreements providing for the assignment of rights to
inventions made by them while in the employ of the Company.
Epigrade, Scram, Novapure, EcoSys, EcoSys (logo), Vector Technology, Vector
(logo), Advanced Technology Materials (logo), Phoenix, ReCAT, NovaMOS, Sparta,
Guardian, Epitronics, NovaSource, VaporSource, and SDS are trademarks of the
Company.
Research and Development
ATMI's research and development expenditures are substantially funded by
external sources, including various agencies of the federal government. Total
sums expended for research and development in the years ended December 31, 1996,
1995 and 1994 were approximately $15,968,000, $11,697,000 and $9,566,000,
respectively. Of those amounts, approximately $8,341,000, $7,491,000 and
$6,151,000, respectively, were externally funded and are classified as cost of
contract revenues on ATMI's Consolidated Financial Statements, and approximately
$7,627,000, $4,206,000 and $3,415,000, respectively, were internally funded
expenditures by the Company and are classified as research and development
operating expenses on ATMI's Consolidated Financial Statements.
Environmental Regulation
The Company uses, generates and discharges toxic, volatile or otherwise
hazardous chemicals and wastes in its research and development and manufacturing
activities. Therefore, the Company is subject to a variety of federal, state and
local governmental regulations related to the storage, use and disposal of these
materials. The Company believes that it has all the permits necessary to conduct
its business. However, the failure to comply with present or future regulations
could result in fines being imposed on the Company, suspension of production or
a cessation of operations. While the Company believes that it has properly
handled its hazardous materials and wastes and has not contributed to any
on-site contamination or environmental condition at any of its premises, the
premises in Danbury, CT may have been contaminated prior to the Company's
occupancy.
14
The Company is not aware of any environmental investigation,
proceeding or action by federal or state agencies involving these premises.
However, under certain federal and state statutes and regulations, a
governmental agency may seek recovery and response costs from both operators and
owners of property where releases of hazardous substances have occurred or are
ongoing. The prior occupant of the premises has agreed to indemnify the Company
for remediation costs in connection with any pre-existing, on-site contamination
or environmental condition. However, there can be no assurance that this
indemnification will prove adequate to cover any liability imposed on the
Company related to the environmental condition of the premises or the cost of
defending an environmental action, either of which could be substantial. The
Company's activities may also result in its being subject to additional
regulation. Such regulations could require the Company to acquire significant
additional equipment or to incur other substantial expenses to comply with
environmental regulations. Any failure by the Company to control the use of, or
to restrict adequately the discharge of, hazardous substances could subject it
to substantial financial liabilities and could have a material adverse effect on
the Company's business, operating results and financial condition.
Employees
As of December 31, 1996 ATMI employed a total of 188 individuals, including
80 in sales and administration, 51 in operations and 51 who are principally
employed in research and development. Thirty-eight employees hold Ph.D. degrees
and twenty-one hold other advanced degrees in electrical engineering, materials
science, chemistry, physics or related fields. None of the Company's employees
are covered by collective bargaining agreements. ATMI has not experienced any
work stoppages and considers its relations with its employees to be strong.
Item 2. Properties.
ATMI is located in Danbury, Connecticut where it leases a 72,000 square
foot facility in Commerce Park. The Company occupies this facility under a lease
which expires on August 30, 2005. ATMI believes its existing facility is
adequate and suitable for its current needs, although it plans to significantly
expand its production capability, and potential manufacturing space as needed.
EcoSys leases a 25,000 square foot facility in San Jose, California,
expiring March 2002. ATMI believes this facility is adequate and suitable for
current and anticipated EcoSys' needs.
Epitronics leases a 15,000 square foot facility in Phoenix, Arizona,
expiring August 1999. ATMI believes this facility is adequate and suitable for
current and anticipated Epitronics' needs.
Item 3. Legal Proceedings.
ATMI is not a party to any material litigation and is not aware of any
pending or threatened litigation that could have a material adverse effect upon
its business, operating results, or financial condition.
Item 4. Submission of Matters to a Vote of Security Holders.
No matter was submitted to a vote of security holders, through the
solicitation of proxies or otherwise, during the fourth quarter of the fiscal
year ended December 31, 1996.
15
PART II.
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.
ATMI's common stock is traded on The Nasdaq National Market under the
symbol ATMI. The following table sets forth the high and low sales prices for
the common stock as reported on the Nasdaq for the periods indicated.
High Low
---- ---
1995
----
January 1 - March 31 $ 8.13 $ 5.13
April 1 - June 30 10.50 6.63
July 1 - September 30 16.00 10.00
October 1 - December 31 14.38 9.25
1996
----
January 1 - March 31 $12.75 $ 9.63
April 1 - June 30 15.88 10.38
July 1 - September 30 13.88 10.75
October 1 - December 31 18.50 12.25
As of February 28, 1997, there were approximately 4,700 stockholders, of
which approximately 250 were holders of record.
ATMI has never paid cash dividends on its capital stock and currently
intends to retain future earnings, if any, for use in its business. Therefore,
ATMI does not anticipate paying any cash dividends in the foreseeable future.
Certain of the Company's financing arrangements contain prohibitions on the
payment of dividends without the lender's consent or in conjunction with the
Company's failure to comply with various financial covenants.
The Transfer Agent and Registrar for ATMI Common Stock is Boston EquiServe,
L.P. formerly known as The First National Bank of Boston.
16
Item 6. Selected Financial Data.
The consolidated statement of operations data set forth below with respect
to the years ended December 31, 1996, 1995 and 1994 and the consolidated balance
sheet data at December 31, 1996 and 1995 are derived from, and are qualified by
reference to, the audited Consolidated Financial Statements included elsewhere
in this report and should be read in conjunction with those financial statements
and notes thereto. The consolidated statement of operations data for the years
ended December 31, 1993 and 1992 and the consolidated balance sheet data at
December 31, 1994, 1993 and 1992 are derived from consolidated financial
statements not included herein. Amounts for 1993 and all previous years have
been restated to give effect to the acquisition of Vector, which was accounted
for as a pooling of interests.
Consolidated Statement of Operations Data:
(in thousands, except per share data)
Year Ended December 31,
-----------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
Product revenues $36,504 $21,336 $ 12,538 $ 7,174 $ 4,383
Contract revenues 9,846 8,712 7,223 6,070 4,888
----- ----- ----- ----- -----
Total revenues 46,350 30,048 19,761 13,244 9,271
Cost of revenues 24,281 17,099 11,990 8,243 6,459
------ ------ ------ ----- -----
Gross profit 22,069 12,949 7,771 5,001 2,812
Operating expenses:
Research and development 7,627 4,206 3,415 1,864 1,260
Selling, general,
and administrative 11,510 8,558 5,588 3,772 3,066
------ ----- ----- ----- -----
Total operating expenses 19,136 12,764 9,003 5,636 4,326
------ ------ ----- ----- -----
Operating income (loss) 2,933 185 (1,231) (635) (1,514)
Other income, net 628 503 3,991 35 86
--- --- ----- -- --
Income (loss) before taxes
and minority interest 3,561 688 2,760 (600) (1,428)
Income taxes 239 134 124 219 108
--- --- --- --- ---
Income (loss) before
minority interest 3,321 554 2,636 (819) (1,536)
Minority interest 0 0 0 269 380
- - - --- ---
Net income (loss) 3,321 554 2,636 (550) (1,156)
===== === ===== ==== ======
Net income (loss)
per share (1) $ 0.35 $ 0.07 $ 0.35 ($ 0.10) ($ 0.23)
======= ======= ======== ======== =======
Weighted average
shares outstanding (1) 9,359 8,074 7,595 5,473 5,009
===== ===== ===== ===== =====
December 31,
------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
Consolidated Balance Sheet Data:
(in thousands)
Cash, cash equivalents,
and marketable securities $21,406 $25,465 $12,692 $13,444 $ 4,538
Working capital 27,103 26,224 13,341 14,050 4,678
Total assets 50,118 49,798 21,251 20,170 10,029
Long-term obligations,
less current portion 5,004 5,434 1,236 896 1,465
Minority interest -- -- -- 3,179 3,447
Redeemable convertible
preferred stock -- -- -- -- 7,982
Stockholders' equity
(deficiency) 36,393 32,897 14,785 12,099 (6,440)
(1) The calculation of net income (loss) per share and weighted average
shares outstanding gives effect to: (i) shares issued in conjunction with the
1994 acquisition of Vector as if the acquisition occurred prior to all periods
presented, (ii) the 1993 conversion of all outstanding shares of Convertible
Preferred Stock into 4,040,039 shares of Common Stock and (iii) the 1993 payment
of a dividend of 76,102 shares of Common Stock to certain holders of Convertible
Preferred Stock effective upon the closing of the Company's initial public
offering, in each case for all periods presented although such inclusion is
antidilutive.
17
Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations
Overview
Founded in 1986, ATMI generates revenues from product sales and contract
research. Most product sales are point-of-use environmental equipment, specialty
materials, and delivery systems for the semiconductor industry. ATMI also
receives royalties for certain product sales from third parties.
Since 1986, a significant portion of ATMI's revenues has come from
contracts with United States government agencies. The programs in which ATMI
participates may extend for several years, but are usually funded annually.
There can be no assurance that the government will continue its commitment to
programs to which ATMI's development projects are applicable or that ATMI can
compete successfully to obtain program funding.
ATMI has used a targeted acquisition strategy to assist in building
critical mass and market position in the niches the Company serves. In 1994 ATMI
acquired Vector, and in conjunction with the sale of Novapure product lines to
Millipore in September 1994, formed EcoSys by merging the retained operations of
Novapure with those of Vector. In 1995, ATMI acquired the Guardian product line
from Messer Greisheim Industries and folded that product line into EcoSys. In
1995, ATMI acquired Epitronics Corporation, and in early 1996, combined that
business with the formerly known Diamond Electronics division under the
Epitronics name.
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:
Year Ended December 31,
-----------------------
1996 1995 1994
---- ---- ----
Product revenue ................................. 78.8% 71.0% 63.5%
Contract revenue ................................ 21.2 29.0 36.5
---- ---- ----
Total revenues ............................ 100.0 100.0 100.0
Cost of revenues ................................ 52.4 56.9 60.7
---- ---- ----
Gross profit .................................... 47.6 43.1 39.3
Research and development .................. 16.5 14.0 17.3
Selling, general, and administrative ...... 24.8 28.5 28.3
---- ---- ----
Total operating expenses ............ 41.3 42.5 45.6
---- ---- ----
Operating income (loss) ......................... 6.3 0.6 (6.3)
Other income, net................................ 1.4 1.6 20.2
--- --- ----
Income before taxes.............................. 7.7 2.2 13.9
Income taxes..................................... 0.5 0.4 0.6
--- --- ---
Net income....................................... 7.2% 1.8% 13.3%
18
The following table sets forth revenues, cost of revenues and gross profit
for products and contracts, as a percentage of each category:
Year Ended December 31,
-----------------------
1996 1995 1994
---- ---- ----
Products:
Revenues ........................ 100.0% 100.0% 100.0%
Cost of revenues ................ 43.7 45.0 46.6
---- ---- ----
Gross profit ...................... 56.3% 55.0% 53.4%
Contracts:
Revenues ........................ 100.0% 100.0% 100.0%
Cost of revenues ................ 84.7 86.0 85.2
---- ---- ----
Gross profit ..................... 15.3% 14.0% 14.8%
Results of Operations
Years Ended December 31, 1996, 1995, and 1994.
Revenues. In 1996, ATMI's total revenues improved 54.3% to approximately
$46,350,000 from $30,048,000 in 1995. Total revenues for 1995 were 52.1% greater
than 1994's $19,761,000. Product sales were $36,504,000, up 71.1% in 1996, from
1995's product sales of $21,336,000. Product sales for 1996 were 78.8% of ATMI's
total revenues, and in 1995, 71.0%. In turn, 1995 showed a 70.2% increase above
product sales of $12,538,000 in 1994. Product sales in 1994 were 63.4% of ATMI's
total revenues.
EcoSys effluent treatment product sales led ATMI's product revenue growth.
With its technology leadership and full service philosophy in the environmental
niche of the semiconductor market, EcoSys managed to increase market share in
the face of a softening capital equipment market. Sales to Pacific Rim-based
companies continued to be strong. The December 1995 acquisition of the Guardian
product line was also responsible for a portion of the revenue growth.
This year, sales of effluent gas treatment products were approximately 54%
of ATMI's revenues, about $25,076,000. Last year, EcoSys contributed
$16,889,000, about 56% of revenues. In 1994, 51% of ATMI's total sales,
$10,078,000, were EcoSys product sales. While not a significant factor to date,
a continued slowdown in capital equipment spending in the semiconductor industry
could have a negative effect on EcoSys revenue growth during 1997.
The SDS product line has begun to have a significant impact on the
Company's revenue growth. The revenue from this product line changed in late
1996 from a royalty stream to a product revenue steam. As a result, the sale of
this product represented approximately 9% of total revenues in 1996, up from 3%
for the entire 1995 year's revenues.
General increases in government funding of ATMI research resulted in the
growth of contract revenues. For 1996, government funding grew 13.0% to
$9,846,000, from $8,712,000 in 1995 and increased 20.6% in 1995 from $7,222,000
in 1994. The increased research funding in 1996 was primarily focused on
materials development, device processing and device design activities within
NovaMOS and Epitronics. The 1995 growth was primarily related to increased
funding of substrate fabrication and materials development projects.
19
Gross Profit. ATMI's gross profit improved this year by 70.4% to
$22,069,000 compared to 1995, when gross profit of $12,949,000 had grown 66.6%
from $7,771,000 in 1994. As a percentage of revenues, gross profit improved to
47.6% in 1996 from 43.1% in 1995 and increased in 1995 from 39.3% in 1994.
In 1996, ATMI's sales mix continued to shift toward greater volumes of
high-margin products. Consequently, our product revenue gross margin improved
75.3% to $20,565,000 from $11,728,000 in 1995 and increased 75.0% in 1995 from
$6,700,000 in 1994. Product gross margin improved to 56.3% of revenues, up from
55.0% in 1995 and 53.4% in 1994. The improved product margins in 1996 were
attributed primarily to the significant increases in royalties in connection
with SDS product line growth. Additionally, sales of the SDS product commenced
late in the year when the Company began manufacturing the product and recognized
margins higher than the average ATMI product margin. The effect of the SDS more
than offset some slight declines in margin realized on sale of EcoSys products
due to geographic and product mix shifts to comparatively lower margin sales.
Gross profit on contract revenue increased in 1996 by 23.3% to $1,505,000
from $1,221,000 in 1995 which was an increase of 14.0% over 1994 at $1,071,000.
Gross margin on contracts over the last three years have remained relatively
stable. As a percent of contract revenues, gross margin increased to 15.3% in
1996 from 14.0% in 1995 which was a decrease from 14.8% in 1994. Contract
margins can vary slightly from year to year based on the mix of cost-type, firm
fixed price and cost share arrangements. Additionally, different fee
arrangements and indirect cost absorption can contribute to some margin
variability.
Research and Development Expenses. ATMI targets areas to maintain its
competitive advantage. For 1996, our R&D spending rose significantly to
$7,627,000, up 81.3% from last year. Primary drivers for the increase in 1996
was expansion of product development efforts within EcoSys and increased
spending to expand and protect the SDS technology portfolio. R&D expenses of
$4,206,000 in 1995 was an increase of 23.2% from 1994 R&D of $3,415,000. R&D as
a percentage of revenues has increased to 16.5% in 1996, compared with 14.0% in
1995, which was a decrease from 17.3% of revenues in 1994.
Selling, General, and Administrative Expenses. Increasing in line with
ATMI's growth, ATMI's variable selling costs grew in 1996. ATMI also added
administrative staff in 1996 to support revenue growth and incurred increased
costs related to the businesses acquired in 1995. As a result, the 1996 S,G&A
expenses of $11,510,000, were approximately 34.5% above last year's expenses of
$8,558,000 which in turn were up 53.2% from 1994 S,G&A expenses of $5,588,000.
The growth in 1995 was due again to variable selling cost increases and also to
the expansion of the Company's marketing staff. S,G&A as a percentage of
revenues has decreased to 24.8% in 1996, compared with 28.5% in 1995, which was
a slight increase from 28.3% of revenues in 1994.
Other Income, Net. Most of ATMI's other income stems from interest income,
offset by interest expense on the Company's outstanding debt. In 1996, net other
income grew by 24.8% to $628,000. The Company's invested cash balances
throughout 1996 were significantly higher than in 1995 due to the Company's
public offering in October 1995. Increased interest expense in 1996 partially
offset the effect of the increased interest earned on cash investments. In
1995, net other income of $503,000 grew by 29% from the 1994 amount of $390,000,
exclusive of 1994's non-recurring transactions. Again the 1995 interest income
growth was due to having the proceeds of the October 1995 offering for the last
quarter of the year. The 1994 non-recurring transaction involved the
restructuring of the Novapure joint venture and the sale of assets for a $4.6
million gain. Offsetting this gain were transaction and consolidation expenses
of $1 million for the restructuring, acquiring Vector, and combining Vector and
Novapure into EcoSys.
20
Income Taxes. ATMI's income tax expense related primarily to state taxes on
income generated, partially offset by the utilization of loss carryforwards and
available state tax credits. Minimal federal taxes paid in 1996 and 1995 related
to alternative minimum taxes arising from the use of net operating loss
carryforwards. Income tax expense in 1996 was $239,000, up 78.4% from the
$134,000 in 1995 which, in turn, were up 8.5% from $124,000 in 1994.
Liquidity and Capital Resources
The 1996 year was ATMI's first in generating cash from operations. Net cash
generated of $4,280,000 was due principally to the increased profitability of
the Company for the year. In 1995, ATMI used net cash for operations of
$1,226,000, primarily to fund a significant increase in accounts receivable
because of end-of-the-year product shipments. In 1994, $1,342,000 in net cash
was used in operations, primarily funding ATMI operating losses.
The amount of the Company's working capital has not changed significantly
since the closing of the 1995 public offering. Working capital was $27,103,000
at December 31, 1996, compared to $26,224,000 at December 31, 1995.
The Company's investing activities include capital expenditures in 1996,
1995, and 1994 of $4,694,000, $3,604,000 and $1,785,000, respectively. The 1996
capital expenditures were primarily focused on manufacturing expansion for
EcoSys and NovaMOS and laboratory construction for customer application work for
EcoSys. The 1995 and 1994 capital was spent on renovations and leasehold
improvements for the Danbury and San Jose facilities, upgrades to the Company's
information systems and purchase of laboratory equipment.
Among other investing activities for 1996, ATMI sold $4,886,000 in
marketable securities and made a $4 million payment in connection with the 1995
acquisition of Guardian. During 1995, ATMI made a $1 million investment in
Candescent Technologies Corporation (formerly Silicon Video Corporation), and
purchased $11,213,000 of marketable securities with the proceeds received from
the 1995 public offering. When the Company restructured Novapure and sold a
portion of its assets in 1994, ATMI received net proceeds of approximately $2.5
million.
Through the end of 1996, ATMI had used $2.0 million from capital leases in
financing capital equipment purchases. Financial institutions have provided
collateral-based loans for $3.3 million. The State of Connecticut has
contributed loans of almost $2.0 million. About $6.6 million was been extended
to ATMI by parties to the Company's acquisition activities. At year end, nearly
$5.6 million of loans and financing remained outstanding. Notes payable extend
through June 2002 with interest rates from 5.4% to 9.5%. ATMI made payments of
$1,144,000 on notes payable this year. Last year, notes paid were $741,000,
while in 1994, payments totaled $1,050,000. In December 1996, ATMI was extended
a $10 million unsecured line of credit by its commercial bank to assist in
financing future activities.
ATMI believes the cash generated from operations and the proceeds from last
year's common stock offering together with existing sources of liquidity, will
satisfy projected working capital and cash requirements, at least through the
end of 1998. However, ATMI believes the level of financial resources available
to it is an important competitive factor in its industry and may seek additional
capital prior to the end of that period. The Company considers raising
additional capital on an on-going basis as market factors and its needs suggest.
Additionally, ATMI considers, on a continuing basis, potential acquisitions of
technologies and businesses complementary to its current business which may
require additional cash.
21
Inflation
During the last three years, inflation has not had a significant impact on
ATMI's operating results.
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.
Item 8. Financial Statements and Supplementary Data.
The Report of Independent Auditors, the consolidated financial statements
and financial statement schedule that are listed in the Index to Consolidated
Financial Statements and Financial Statement Schedule are included herein on
pages F-1 through F-16.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
There have been no changes in or disagreements with accountants required to
be reported herein.
22
PART III
Item 10. Directors and Executive Officers of the Registrant
The executive officers and directors of the Company are as follows:
Name Age Position with the Company
- ---- --- -------------------------
Eugene G. Banucci, Ph.D. 53 President, Chief Executive Officer,
Chairman of the Board and Director
Peter S. Kirlin, Ph.D. 36 Executive Vice President
Duncan W. Brown, Ph.D. 44 Vice President and Director,
President of Epitronics
Daniel P. Sharkey 40 Vice President, Chief Financial Officer
and Treasurer
Ward C. Stevens, Ph.D. 42 Vice President and Secretary
Nicholas J. Wood 33 Vice President - Marketing
Mark A. Adley 37 Director
Gary A. Andersen 60 Director
John A. Armstrong, Ph.D. 62 Director
Robert S. Hillas 47 Director
Stephen H. Mahle 51 Director
Eugene G. Banucci, Ph.D., a founder of the Company, has served as
President, Chief Executive Officer, Chairman of the Board and a director since
1986. Previously, Dr. Banucci served in a variety of executive and managerial
positions. From 1984 to 1986, he was a director of American Cyanamid Company's
Chemical Research Division, with responsibility for the research, development
and technical service activities of the Chemicals Group.
Peter S. Kirlin, Ph.D., has served as Executive Vice President of the
Company since December 1995. From 1991 to 1995, Dr. Kirlin served as Vice
President of Microelectronics and General Manager of the NovaMOS division, and
from 1988 to 1991, he was Director of Superconductor Materials and Electronics
for the Company. Prior to joining ATMI, Dr. Kirlin was a Project Leader and
Research Engineer for American Cyanamid Company. Dr. Kirlin has written more
than 30 published articles and holds 7 issued U.S. patents.
Duncan W. Brown, Ph.D., a founder of ATMI, has served as a Vice President
since 1986 and as a Director since 1990. Dr. Brown was also named President of
Epitronics Corporation in March 1996. From 1983 to 1986, Dr. Brown was a
Research Chemist at American Cyanamid Company. Previously, Dr. Brown was a
Postdoctoral Fellow in the Departments of Chemistry at MIT and Harvard
University, and an Academic Associate at IBM's Research Division. Dr. Brown
holds 15 issued U.S. patents and has published several technical articles.
Daniel P. Sharkey has served as Chief Financial Officer since joining ATMI
in 1990. He was also elected Vice President and Treasurer in September 1993.
From 1987 to 1990, Mr. Sharkey was Vice President of Finance and Administration
for Adage, Inc., a manufacturer of high-performance computer graphics terminals.
From 1983 to 1987, he was Corporate Controller for CGX Corporation. Previously,
Mr. Sharkey served as Audit Supervisor for KPMG Peat Marwick.
23
Ward C. Stevens, Ph.D., a founder of ATMI, has served as a Vice President
since 1986 and served as a Director from 1986 to 1990. Prior to joining ATMI,
Dr. Stevens was a Materials Scientist and Project Leader at American Cyanamid
Company and a Materials Scientist at Celanese Research Company. Dr. Stevens
holds 12 issued U.S. patents and is the author of numerous scientific
publications.
Nicholas J. Wood has served as the Company's Vice President-Marketing since
August 1995. From 1985 to 1995, Mr. Wood served in a variety of sales and
marketing positions with Intel Corporation. Most recently, from 1992 to 1995, he
served as Northern European Marketing Manager.
Mark A. Adley has served as a director of the Company since 1991. Since
1996, Mr. Adley has been a Managing Director at Credit Suisse First Boston
Corporation where he was a Director from 1994 to 1996. From 1992 through 1993,
Mr. Adley served as an investment manager for Clipper Asset Management
Corporation, the General Partner of The Clipper Group, L.P. ("Clipper"). During
1991, Mr. Adley served as an investment manager for Clipper. Mr. Adley was a
Director at CS First Boston Merchant Bank during 1990 and, at The First Boston
Corporation, was a Vice President from 1989 to 1990 and an Associate from 1985
to 1988.
Gary A. Andersen has served as a director of the Company since 1994. Mr.
Andersen was President, Chief Executive Officer and a director of RF
Monolithics, Inc., a manufacturer of products based on surface acoustic wave
technology, from 1986 to 1996. Previously, Mr. Andersen served as Director of
National Accounts at Valid Logic Systems, National Sales Manager for Memory
Systems at Mostek Corporation and OEM Marketing Manager at Intel Memory Systems.
John A. Armstrong, Ph.D. has served as a director of the Company since
1993. Dr. Armstrong is presently a visiting professor of physics at the
Massachusetts Institute of Technology. Previously, he was Vice President of
Science and Technology for IBM from 1987 until his retirement in 1993.
Robert S. Hillas has served as a director of the Company since 1987. Mr.
Hillas has been a Managing Director of E.M. Warburg, Pincus & Co., Inc. since
1993. From 1985 to 1992, Mr. Hillas served as a General Partner of DSV
Management Ltd., the General Partner of DSV Partners IV, a venture capital
limited partnership, and from 1981 to 1992, as a General Partner of DSV Partners
III, a venture capital limited partnership.
Stephen H. Mahle has served as a director of the Company since March 1996.
Mr. Mahle has been President of the Brady Pacing Business, a division of
Medtronic, Inc., since 1995. From 1989 to 1995, Mr. Mahle served as Vice
President and General Manager of the Brady Pacing Business. Previously, Mr.
Mahle served in a variety of marketing and product development roles for
Medtronic, Inc.
All directors hold office until the next annual meeting of the stockholders
of the Company or until their successors have been duly elected and qualified.
Executive officers serve at the discretion of the Company's Board of Directors.
There are no family relationships among the executive officers and directors nor
are there any arrangements or understandings between any executive officer and
any other person pursuant to which the executive officer was selected.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
the Company's executive officers and directors and persons who beneficially own
more than ten percent of the Company's Common Stock to file reports of ownership
and changes in ownership with the Securities and Exchange Commission. Based
solely on reports and other information submitted by the executive officers,
directors and such beneficial owners, the Company believes that during the
fiscal year ended December 31, 1996, all such reports were timely filed.
24
Item 11. Executive Compensation
Summary Compensation
The following table sets forth certain information regarding the
compensation paid by the Company to the Company's Chief Executive Officer and
each of the other four most highly compensated executive officers for services
in all capacities to the Company and its subsidiaries for the fiscal year ended
December 31, 1996.
SUMMARY COMPENSATION TABLE
Long Term
Compensation
Awards
Annual Compensation ------
------------------- Securities All Other
Underlying Compen-
Name and Principal Position Year Salary($) Bonus($) Options(#) sation($)(1)
- --------------------------- ---- ------------------ ---------- ------------
Eugene G. Banucci 1996 181,300 40,000 -- 2,121
President, Chief Executive 1995 155,250 40,000 35,000 2,875
Officer and Chairman 1994 145,300 40,000 -- 1,530
of the Board
Peter S. Kirlin 1996 111,100 30,000 -- --
Executive Vice President 1995 96,560 35,000 25,000 400
1994 91,300 20,000 -- --
Nicholas J. Wood (2) 1996 121,200 15,000 -- --
Vice President - Marketing 1995 41,667 16,526 36,000 --
1994 -- -- -- --
Daniel P. Sharkey 1996 110,000 20,000 -- 1,678
Vice President, Chief 1995 103,000 25,000 15,000 1,583
Financial Officer 1994 98,000 20,000 -- 529
and Treasurer
Ward C. Stevens 1996 101,000 25,000 -- 890
Vice President, Secretary 1995 96,000 10,000 5,000 1,823
1994 93,000 10,000 -- 579
(1) Represents premiums paid for life insurance and long term disability
policies of which the Company is not the beneficiary and flexible spending
contributions toward health care costs not covered by Company plans.
(2) Mr. Wood joined the Company on August 28, 1995.
25
Option Exercises and Year-End Values
The following table sets forth information concerning option holdings as of
December 31, 1996 with respect to the individuals named in the Summary
Compensation Table.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
Number of Securities Value of Unexercised
Shares Underlying Unexercised in-the Money Options
Acquired Options at FY-End (#) at FY-End ($)(1)
on Value --------------------- ----------------
Name Exercise Realized Exercisable Exercisable
(#) ($) Unexercisable Unexercisable
- ------------- --------------------------------------------------------------
Eugene G. Banucci -- -- 103,975 30,400 1,651,194 238,100
Peter S. Kirlin .. 6,000 73,679 54,234 25,540 847,573 236,057
Nicholas J. Wood . -- -- 7,200 28,800 39,600 158,400
Daniel P. Sharkey 4,000 50,222 69,875 21,000 1,103,247 214,750
Ward C. Stevens .. 9,375 121,245 74,725 5,400 1,231,315 44,850
(1) Based on the fair market value of the Company's Common Stock as of
December 31, 1996 ($17.25) minus the exercise price of the options.
Non-Competition Agreements
Eugene G. Banucci, Duncan W. Brown, Ward C. Stevens and Peter S. Kirlin are
parties to agreements with the Company containing covenants not to compete with
the Company during their employment and for two years thereafter.
Director Compensation
The Company's directors do not receive any cash compensation for service on
the Board of Directors or any committee thereof but are reimbursed for expenses
incurred in connection with attending meetings of the Board of Directors and any
committee thereof. In October 1993, the Company granted options for the purchase
of 22,500 shares of the Company's Common Stock to John A. Armstrong in
consideration of consulting services performed for the Company. The exercise
price of the options is $3.55 per share, which was the fair market value of the
Company's Common Stock on the date of grant, and the options vest ratably over
five years on each of the first five anniversary dates of the grant date. In May
1994, the Company granted options for the purchase of 22,500 shares of the
Company's Common Stock to Gary A. Andersen in consideration of his services on
the Board of Directors. The exercise price of the options is $5.00 per share,
which was the fair market value of the Company's Common Stock on the date of
grant, and the options vest ratably over five years on each of the first five
anniversary dates of the grant date.
26
In December 1994, the Company granted options for the purchase of 22,500
shares of the Company's Common Stock to Robert S. Hillas in consideration of his
services on the Board of Directors. The exercise price of the options is $5.50
per share, which was the fair market value of the Company's Common Stock on the
date of grant, and the options were immediately vested as to 50% of the grant in
consideration of past service on the Board of Directors and vested as to the
remaining 50% of the grant on December 9, 1995. In May 1995, the Company granted
options for the purchase of 22,500 shares of the Company's Common Stock to Mark
A. Adley in consideration of his services on the Board of Directors. The
exercise price of the options is $8.50 per share, which was the fair market
value of the Company's Common Stock on the date of grant, and the options were
immediately vested as to 40% of the grant in consideration of past service on
the Board of Directors and the remaining 60% vest ratably over three years on
each of the first three anniversary dates of the grant date. In March 1996, the
Company granted options for the purchase of 22,500 shares of the Company's
Common Stock to Stephen H. Mahle in consideration of his services on the Board
of Directors. The exercise price of the options is $10.50 per share, which was
the fair market value of the Company's Common Stock on the date of grant, and
the options vest ratably over five years on each of the first five anniversary
dates of the grant date.
27
Item 12. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth certain information regarding beneficial
ownership of the Company's Common Stock as of February 28, 1997 by (i) each
person known by the Company to own beneficially more than five percent of the
outstanding Common Stock of the Company, (ii) each director of the Company,
(iii) each executive officer named in the Summary Compensation Table, and (iv)
all directors and executive officers of the Company as a group. Except as
otherwise indicated, all shares are owned directly. Except as indicated by
footnote, and subject to community property laws where applicable, the persons
named in the table have sole voting and investment power with respect to all
shares of Common Stock indicated.
Shares Percent
Beneficially of
Owned Class
----- -----
Name and Address of Beneficial Owner
- ------------------------------------
J.P. Morgan & Co.,
Incorporated (1)
60 Wall Street
New York, NY 10260 .............. 1,120,950 12.7%
Eugene G. Banucci (2) ............ 314,691 3.5%
Ward C. Stevens (3) ............... 178,764 2.0%
Duncan W. Brown (4) ............... 172,771 1.9%
Daniel P. Sharkey (5) ............. 69,875 *
Peter S. Kirlin (5) ............... 54,234 *
Robert S. Hillas (6) .............. 30,977 *
Mark A. Adley (7) ................. 16,500 *
John A. Armstrong (5) ............. 13,500 *
Gary A. Andersen (5) .............. 9,000 *
Nicholas J. Wood (5) .............. 7,200 *
Stephen H. Mahle (8) .............. 4,600 *
All directors and executive officers
as a group (11 persons) (9) ..... 872,112 9.4%
*less than 1%
(1) The shares shown as beneficially owned by J.P. Morgan & Co.,
Incorporated were those reported as beneficially owned by it as of January 31,
1997 in Amendment No. 3 to its Schedule 13G filed with the SEC. Such schedule
indicates that J.P. Morgan & Co., Incorporated has sole voting power with
respect to 701,100 shares and sole dispositive power with respect to all
1,120,950 shares.
(2) Includes 103,975 shares issuable upon exercise of options that are
exercisable within 60 days of February 28, 1997 and 5,659 shares either owned by
Dr. Banucci's spouse or issuable upon exercise of options within 60 days of
February 28, 1997 by Dr. Banucci's spouse. Dr. Banucci disclaims beneficial
ownership of the shares held by his spouse.
28
(3) Includes 74,725 shares issuable upon exercise of options that are
exercisable within 60 days of February 28, 1997 and 5,537 shares either owned or
issuable upon exercise of options within 60 days of February 28, 1997 by Dr.
Steven's spouse. Dr. Stevens disclaims beneficial ownership of the shares held
by his spouse.
(4) Includes 69,637 shares issuable upon exercise of options that are
exercisable within 60 days of February 28, 1997 and 4,634 shares either owned or
issuable upon exercise of options within 60 days of February 28, 1997 by Dr.
Brown's spouse. Dr. Brown disclaims beneficial ownership of the shares held by
his spouse.
(5) Consists entirely of shares issuable upon exercise of options that are
exercisable within 60 days of February 28, 1997.
(6) Includes 11,250 shares issuable upon exercise of options that are
exercisable within 60 days of February 28, 1997.
(7) Includes 18,000 shares issuable upon exercise of options that are
exercisable within 60 days of February 28, 1997. Does not include 189,500 shares
beneficially owned by Merchant Investments, Inc. ("Merchant"). Mr. Mark A.
Adley, a director of the Company, is employed by Credit Suisse First Boston
Corporation, a wholly-owned subsidiary of Credit Suisse First Boston, Inc.
("CSFBI"), which indirectly wholly owns Merchant. Pursuant to an Asset
Management Agreement among CSFBI, certain affiliates of CSFBI (including
Merchant) and The Clipper Group, L.P. ("Clipper"), Clipper manages certain
investments for such persons, including these shares. Under the Asset Management
Agreement, Clipper has sole power to vote these shares but does not have the
power (sole or shared) to dispose of any such shares. Mr. Adley disclaims any
beneficial ownership of the shares owned by Merchant.
(8) Includes 4,500 shares issuable upon exercise of options that are
exercisable within 60 days of February 28, 1997.
(9) Includes 446,057 shares issuable to executive officers and directors
pursuant to options which are exercisable within 60 days of February 28, 1997.
Does not include an aggregate of 189,500 shares as to which a certain director
disclaims beneficial ownership (See Note (7)).
Item 13. Certain Relationships and Related Transactions
There are no relationships or transactions required to be reported herein.
29
PART IV
Item 14. Exhibits, Financial Statement Schedule, and Reports on Form 8-K.
(a) (1) and (2) Financial Statements and Schedule
The report of independent auditors, consolidated financial statements and
financial statement schedules listed in the Index to Consolidated Financial
Statements and Financial Statement Schedule on page F-1 hereof are filed as part
of this report, commencing on page F-2 hereof.
All other financial statement schedules not listed in the Index are omitted
as the required information is not applicable or the information is given in the
financial statements or related notes.
(a) (3) Exhibits
3.01 (a) Restated Certificate of Incorporation, filed in Delaware on
December 1, 1993 (Filed as Exhibit 3.01 (a) to the Company's Form 10-K for the
year ended December 31, 1993, File No.0-22756 ("1993 Form 10-K") and
incorporated herein by reference)
(b) Certificate of Amendment to Restated Certificate of Incorporation
(Filed as Exhibit 3.01 to Form 10-Q for the quarter ended June 30, 1995, File
No.0-22756 ("June 30, 1995 Form 10-Q") and incorporated herein by reference)
3.02 Bylaws effective on December 1, 1993 (Filed as Exhibit 3.02 (a) to
1993 Form 10-K and incorporated herein by reference)
4.01 Specimen Certificate representing shares of Common Stock, $.01 par
value, of the registrant (Filed as Exhibit 4.01 to the Company's Registration
Statement or amendments thereto on Form S-1, Registration No. 33-69634 ("Form
S-1") and incorporated herein by reference) 10.01 (a) Teaming Agreement for
DARPA Contract Proposal and Resulting Program Relating to Barium Titanate-Based
DRAM Technology dated August 10,1992 between Advanced Technology Materials,
Inc., IBM, Texas Instruments, Micro Semiconductor, Inc. and Lam Research
Corporation (Filed as Exhibit 10.04 (a) to Form S-1 and incorporated herein by
reference)
(b) Amendment No. 1 to the Teaming Agreement dated November 5, 1992 (Filed
as Exhibit 10.04 (b) to Form S-1 and incorporated herein by reference)
(c) Amendment No. 2 to the Teaming Agreement dated February 4, 1993 (Filed
as Exhibit 10.04 (c) to Form S-1 and incorporated herein by reference)
(d) Agreement with the United States Defense Advanced Research Projects
Agency (DARPA) dated April 8, 1993 re: "Ultra-Dense Capacitor Materials
Processing Partnership" for $5,020,194 (Filed as Exhibit 10.04 (d) to Form S-1
and incorporated herein by reference)
10.02 Form of Key Employee Agreement between Advanced Technology Materials,
Inc. and each of Eugene G. Banucci, Duncan W. Brown, Ward C. Stevens and Peter
S. Kirlin (Filed as Exhibit 10.05 to Form S-1 and incorporated herein by
reference)
10.03 (a) License, Marketing and Development Agreement between Advanced
Technology Materials, Inc. and Millipore Corporation dated November 17, 1987
(Filed as Exhibit 10.07 (a) to Form S-1 and incorporated herein by reference)
30
(b) Agreement of Amendment, Amendment #1 to License, Marketing and
Development Agreement dated June 27, 1991 (Filed as Exhibit 10.07 (b) to Form
S-1 and incorporated herein by reference)
(c) Agreement of Amendment, Amendment #2 to License, Marketing and
Development Agreement dated October 1, 1992 (Filed as Exhibit 10.07 (c) to Form
S-1 and incorporated herein by reference)
(d) Agreement of Amendment, Amendment #3 to License, Marketing and
Development Agreement dated September 26, 1994 (Filed as Exhibit 10.06 (d) to
Form 10-K for the year ended December 31, 1994, File No. 0-22756 ("1994 Form
10-K") and incorporated herein reference)
10.04 (a) Letter Agreement between Advanced Technology Materials, Inc. and
Silicon Valley Bank dated September 29, 1994 (Filed as Exhibit 10.08 (a) to 1994
Form 10-K and incorporated herein by reference)
(b) Promissory Note from Advanced Technology Materials, Inc. to Silicon
Valley Bank dated September 7, 1994 (Filed as Exhibit 10.08 (b) to 1994 Form
10-K and incorporated herein by reference)
(c) Negative Pledge Agreement by and between Advanced Technology Materials,
Inc. and Silicon Valley Bank dated August 31, 1994 (Filed as Exhibit 10.08 (c)
to 1994 Form 10-K and incorporated herein by reference)
10.05 Agreement of Lease between Melvyn J. Powers and Mary P. Powers d/b/a
M&M Realty and Advanced Technology Materials, Inc. dated December 23, 1994
(Filed as Exhibit 10.09 to 1994 Form 10-K and incorporated herein by reference)
10.06 Lease Agreement between Montague Oaks Associates, Phase III and ATMI
EcoSys Corporation dated February 7, 1995 (Filed as Exhibit 10.10 to 1994 Form
10-K and incorporated herein by reference)
10.07 (a) Loan and Financing Agreement by and between Advanced Technology
Materials, Inc. and the Connecticut Development Authority dated June 27, 1995
(Filed as Exhibit 10.01(a) to June 30, 1995 Form 10-Q)
(b) Promissory Note from Advanced Technology Materials, Inc. to the
Connecticut Development Authority dated June 27, 1995 (Filed as Exhibit 10.01
(b) to June 30, 1995 Form 10-Q)
(c) Security Agreement by and between Advanced Technology Materials, Inc.
and the Connecticut Development Authority dated June 27, 1995 (Filed as Exhibit
10.01(c) to June 30, 1995 Form 10-Q)
(d) Stock Subscription Warrant granted to the Connecticut Development
Authority dated June 27, 1995 (Filed as Exhibit 10.01(d) to June 30, 1995 Form
10-Q)
10.08 (a) Letter Agreement between Advanced Technology Materials, Inc. and
Silicon Valley Bank dated September 22, 1995 (Filed as Exhibit 10.08(d) to the
Company's Form 10-K for the December 31, 1995, File No. 0-22756 ("1995 Form
10-K") and incorporated herein by reference)
(b) Promissory Note from Advanced Technology Materials, Inc. to Silicon
Valley Bank dated September 22, 1995 (Filed as Exhibit 10.08(d) to the 1995 Form
10-K and incorporated herein by reference)
10.09 Loan Agreement between Advanced Technology Materials, Inc. and
Silicon Valley Bank dated December 27, 1996 (Filed herewith)
11.01 Statement re: computation of per share earnings (Filed herewith)
21.01 Subsidiaries of the registrant (Filed herewith)
23.01 Consent of Ernst & Young LLP (Filed herewith)
27.01 Financial Data Schedule (Filed herewith)
b) Reports on Form 8-K
None
31
F-1
Index to Consolidated Financial Statements and Financial Statement Schedule
Report of Independent Auditors F-2
Consolidated Balance Sheet at December 31, 1996 and 1995 F-3
Consolidated Statement of Income for the years ended December 31, 1996,
1995 and 1994 F-4
Consolidated Statement of Stockholders' Equity for the years
ended December 31, 1996, 1995 and 1994 F-5
Consolidated Statement of Cash Flows for the years
ended December 31, 1996, 1995 and 1994 F-6
Notes to Consolidated Financial Statements F-7
Financial Statement Schedule
Schedule II - Valuation and qualifying accounts F-16
F-1
Report of Independent Auditors
The Board of Directors and Stockholders of
Advanced Technology Materials, Inc.
We have audited the accompanying consolidated balance sheet of Advanced
Technology Materials, Inc. as of December 31, 1996 and 1995, and the related
consolidated statements of income, stockholders' equity and cash flows for each
of the three years in the period ended December 31, 1996. Our audits also
included the financial statement schedule listed in the Index at Item 14 (a).
These financial statements and schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and schedule 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 consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Advanced Technology Materials, Inc. at December 31, 1996 and 1995, and the
consolidated results of its operations and its cash flows for each of the three
years in the period ended December 31, 1996, in conformity with generally
accepted accounting principles. Also, in our opinion, the related financial
statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.
ERNST & YOUNG LLP
Stamford, Connecticut
February 14, 1997
F-2
Advanced Technology Materials, Inc.
Consolidated Balance Sheet
--------------------------
December 31,
Assets 1996 1995
- ------ ---- ----
Current assets:
Cash and cash equivalents (Note 1) $ 4,437,015 $ 3,609,265
Marketable (Notes 1 and 2) 16,969,073 21,855,473
securities
Accounts receivable, net of allowance
for doubtful accounts
of $141,504 in 1996, $93,491 in 1995 (Note 3) 9,377,777 9,233,015
Inventories (Notes 1 and 4) 4,541,282 2,647,142
Other 500,324 345,486
------- -------
Total current assets 35,825,471 37,690,381
Property and equipment, net (Notes 1 and 5) 8,102,218 5,575,343
Long-term investment (Note 6) 1,000,000 1,000,000
Goodwill and other long term assets,
net (Notes 1 and 11) 5,190,758 5,532,216
--------- ---------
$ 50,118,447 $ 49,797,940
============ ============
Liabilities and stockholders' equity
Current liabilities:
Accounts payable $ 3,469,530 $ 3,121,355
Accrued expenses 1,996,587 1,799,322
Accrued commissions 1,378,888 984,443
Accrued payroll and benefits 465,280 210,717
Notes payable, current portion (Note 7) 621,463 4,725,238
Other 790,261 625,495
------- -------
Total current liabilities 8,722,009 11,466,570
Notes payable, less current portion (Note 7) 4,944,517 5,257,155
Other long-term liabilities 59,382 177,086
Stockholders' equity: (Note 10)
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 and outstanding 8,775,810
in 1996 and 8,721,61 87,758 87,216
Additional paid-in capital 37,234,277 37,060,652
Accumulated deficit (929,496) (4,250,739)
-------- ----------
Total stockholders' equity 36,392,539 32,897,129
---------- ----------
$ 50,118,447 $ 49,797,940
============ ============
See accompanying notes.
F-3
Advanced Technology Materials, Inc.
Consolidated Statement of Income
--------------------------------
Year ended December 31
----------------------
1996 1995 1994
---- ---- ----
Revenues (Note 1):
Product revenues $ 36,503,728 $ 21,336,408 $ 12,538,246
Contract revenues 9,845,973 8,711,924 7,222,403
--------- --------- ---------
Total revenues 46,349,701 30,048,332 19,760,649
Cost of revenues:
Cost of product revenues 15,939,051 9,608,831 5,838,310
Cost of contract revenues 8,341,455 7,490,568 6,151,215
--------- --------- ---------
Total cost of revenues 24,280,506 17,099,399 11,989,525
---------- ---------- ----------
Gross profit 22,069,195 12,948,933 7,771,124
Operating expenses:
Research and development (Note 1) 7,626,534 4,205,997 3,414,536
Selling, general,
and administrative 11,509,827 8,557,730 5,588,171
---------- --------- ---------
19,136,361 12,763,727 9,002,707
---------- ---------- ---------
Operating income (loss) 2,932,834 185,206 (1,231,583)
Interest income 1,113,548 737,948 501,884
Interest expense (Note 7) (485,660) (234,951) (111,612)
Other income, net (Notes 11 and 12) -- -- 3,601,042
--------- --------- ---------
627,888 502,997 3,991,314
Income before taxes 3,560,722 688,203 2,759,731
Income taxes (Note 9) 239,479 134,157 123,600
------- ------- -------
Net income $ 3,321,243 $ 554,046 $ 2,636,131
============ ============ ============
Net income per share (Note 1) $ 0.35 $ 0.07 $ 0.35
============ ============ ============
Weighted average shares outstanding
(Note 1) 9,359,021 8,074,032 7,595,193
========= ========= =========
See accompanying notes.
F-4
Advanced Technology Materials, Inc.
Consolidated Statement of Stockholders' Equity
----------------------------------------------
Additional
Common Paid-in Accumulated
Stock Capital Deficit Total
--------- ---------- ----------- ----------
Balance at December 31, 1993 $69,406 $19,470,767 $(7,440,916) $12,099,257
Issuance of 24,440 common shares
pursuant to the exercise of
employee stock options 244 11,529 -- 11,773
Issuance of 74,017 common shares
pursuant to the exercise of
warrants 740 36,760 -- 37,500
Net income -- -- 2,636,131 2,636,131
--------- --------- --------- ---------
Balance at December 31, 1994 70,390 19,519,056 (4,804,785) 14,784,661
Issuance of 137,571 common shares
pursuant to the exercise of
employee stock options 1,376 111,979 -- 113,355
Sale of 1,525,000 common shares,
net of issuance costs 15,250 17,177,317 -- 17,192,567
Issuance of 20,000 common shares
pursuant to the acquisition of
Epitronics 200 202,300 -- 202,500
Compensation from the issuance of
common stock options -- 50,000 -- 50,000
Net income -- -- 554,046 554,046
--------- --------- --------- ---------
Balance at December 31, 1995 87,216 37,060,652 (4,250,739) 32,897,129
Issuance of 54,199 common shares
pursuant to the exercise of
employee stock options 542 173,625 -- 174,167
Net income -- -- 3,321,243 3,321,243
--------- --------- --------- ---------
Balance at December 31, 1996 $87,758 $37,234,277 $ (929,496) $36,392,539
======= =========== =========== ===========
See accompanying notes.
F-5
Advanced Technology Materials, Inc.
Consolidated Statement of Cash Flows
------------------------------------
Year ended December 31,
-----------------------
1996 1995 1994
---- ---- ----
Operating activities
Net income $3,321,243 $554,046 $2,636,131
Adjustments to reconcile net income to net cash
provided (used) by operating activities
Depreciation and amortization 2,295,336 1,409,086 1,058,950
Gain on restructuring of joint venture -- -- (4,609,634)
Stock option compensation -- 50,000 --
Gain on disposal of property and equipment -- -- (20,626)
Changes in operating assets and liabilities
Increase in accounts receivable (144,762) (3,774,193) (904,666)
Increase in inventory (2,118,192) (478,952) (553,327)
Increase in other assets (215,263) (134,087) (16,196)
Increase in accounts payable 348,175 595,692 423,895
Increase in accrued expenses 846,273 324,345 730,414
(Decrease) increase in
other liabilities (52,938) 227,927 (86,669)
Total adjustments 958,629 (1,780,182) (3,977,859)
------- ---------- ----------
Net cash provided (used)
by operating activities 4,279,872 (1,226,136) (1,341,728)
--------- ---------- ----------
Investing activities
Capital expenditures (4,694,246) (3,604,139) (1,784,946)
Long-term investment -- (1,000,000) --
Sale (purchase) of
marketable securities, net 4,886,400 (11,212,815) 2,432,635
Payments to Vector shareholders -- -- (93,309)
Payments for acquisitions (4,000,000) (550,000) --
Proceeds from sale of assets 597,970 -- --
Net cash received from
joint venture restructuring -- -- 2,457,308
--------- ---------- ----------
Net cash (used) provided
by investing activities (3,209,876) (16,366,954) 3,011,688
---------- ----------- ---------
Financing activities
Proceeds from issuance of notes payable 727,216 2,588,169 1,011,438
Principal payments on notes payable (1,143,629) (741,133) (1,049,605)
Proceeds from sale of common stock -- 17,192,567 --
Proceeds from exercise of stock options
and warrants 174,167 113,355 49,273
------- ------- ------
Net cash (used) provided
by financing activities (242,246) 19,152,958 11,106
-------- ---------- ------
Net increase in cash and cash equivalents 827,750 1,559,868 1,681,066
Cash and cash equivalents, beginning
of year 3,609,265 2,049,397 368,331
--------- --------- -------
Cash and cash equivalents, end of year $4,437,015 $3,609,265 $2,049,397
========== ========== ==========
See accompanying notes.
F-6
Advanced Technology Materials, Inc.
Notes to Consolidated Financial Statements
1. Summary of Significant Accounting Policies
Company's Activities
The activities of Advanced Technology Materials, Inc. and its subsidiaries
(the Company") are focused on providing products and services to the
semiconductor industry. The Company is engaged in the development, manufacture
and sale of equipment and materials based on the Company's proprietary chemical
vapor deposition ("CVD") technologies. Revenues are derived from the sale of
point-of-use environmental equipment and specialty materials and delivery
systems for the semiconductor industry. The Company also derives revenues from
contract research and development activities related to high performance
semiconductor materials and devices and royalties generated under various
license agreements.
Principles of Consolidation
The consolidated financial statements include the accounts of Advanced
Technology Materials, Inc. and all wholly and majority owned subsidiaries. All
significant intercompany accounts and transactions have been eliminated in
consolidation.
Revenue Recognition
Product revenues are recognized upon shipment of goods. Contract revenues
under fixed-price and cost-reimbursement-type contracts are recognized using the
percentage of completion method based upon costs incurred and estimated future
costs. Contract revenues from the U.S. Government were $9,845,973, $8,711,924
and $7,018,455 for the years ended December 31, 1996, 1995, and 1994
respectively.
Use of Estimates
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results may differ from those estimates.
Research and Development
Research and development costs, including materials, labor, and overhead
related to self-funded projects and cost sharing arrangements with the U.S.
Government, are expensed as incurred.
Cash and Cash Equivalents
The Company considers all highly liquid investments with a maturity of
three months or less when purchased to be cash equivalents.
Marketable Securities
Marketable securities are classified as available for sale and are reported
at fair value, which approximates cost. Management determines the appropriate
classification of debt securities at the time of purchase and and reevaluates
such designation as of each balance sheet date.
F-7
Advanced Technology Materials, Inc.
Notes to Consolidated Financial Statements
(continued)
The cost of securities sold is based on the specific reevaluates such
designation as of each balance sheet date. The cost of securities sold is based
on the specific identification method. Interest on these securities is included
in interest income.
Inventories
Inventories are stated at the lower of cost or market on the first-in,
first-out (FIFO) method.
Property and Equipment
Property and equipment is stated at cost. Depreciation and amortization of
property and equipment is computed using the straight-line method over the
estimated useful lives of the assets, which vary from three to ten years.
Taxes
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes" (FAS 109).
Under FAS 109, the liability method is used in accounting for income taxes.
Under this method, deferred tax assets and liabilities are determined based upon
differences between financial reporting and tax basis of assets and liabilities
and are measured using the enacted tax rates and laws that will be in effect
when the differences are expected to reverse.
Fair Values of Financial Instruments
Fair values of cash and cash equivalents, short-term investments and
short-term debt approximate cost due to the short period of time to maturity.
The fair value of long term debt approximates the carrying amount.
Long Lived Assets
The Company reviews on a periodic basis the value of its long-lived assets
to determine whether an impairment exists. At December 31, 1996, no such
impairment existed. Goodwill and other long term assets are stated net of
accumulated amortization of $292,500 and $75,386 at December 31, 1996 and 1995,
respectively.
Stock Based Compensation
Effective in fiscal year 1996, the company adopted Financial Accounting
Statement No. 123, "Accounting for Stock-Based Compensation." This statement
defines a fair value based method of accounting for employee stock compensation
plans. However, it also allows an entity to continue to measure compensation
cost for those plans in accordance with Accounting Principle Board (APB) Opinion
No. 25, "Accounting for Stock Issued to Employees." Under APB No. 25,
compensation cost is the excess, if any, of the quoted market price of the stock
at the grant date over the amount the employee must pay to acquire the stock.
The company has elected to continue to account for its employee stock
compensation plans under APB No. 25. Pro forma disclosures of net earnings and
earnings per share, as if the fair value based method of accounting had been
applied, are presented in Note 10.
Per Share Data
Earnings per common share are 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 outstanding have been
restated to include those shares that would have been issued in connection with
the Vector acquisition (see Note 11) in each of the periods presented. Shares
from the assumed exercise of options and warrants granted by the Company have
been included in the computations of earnings per share for all periods, unless
their inclusion would be antidilutive.
F-8
2. Marketable Securities
Marketable securities are comprised of the following:
December 31,
------------
1996 1995
---- ----
U.S. Government Obligations .............. $9,537,690 $14,080,978
Corporate Obligations .................... 7,431,383 7,774,495
--------- ---------
$16,969,073 $21,855,473
=========== ===========
All of the Company's marketable securities have maturities of less than two
years.
3. Accounts Receivable
Amounts due from various agencies of the United States Government were
approximately 22% of accounts receivable for both December 31, 1996 and 1995,
respectively. Unbilled accounts receivable amounted to $757,172 and $586,358 and
customer advances, included in other liabilities, amounted to $275,653 and
$446,995 at December 31, 1996 and 1995, respectively.
Credit is extended to commercial customers based on an evaluation of their
financial condition and collateral is not generally required. Certain
transactions with foreign customers are supported by letters of credit. The
Company maintains an allowance for doubtful accounts at a level that management
believes is sufficient to cover potential credit losses.
4. Inventories
Inventories are comprised of the following:
December 31,
------------
1996 1995
---- ----
Raw materials $4,143,818 $2,252,841
Work in process 686,898 614,069
Finished goods 369,846 59,291
------- ------
5,200,562 2,926,201
Obsolescence reserve (659,280) (279,059)
-------- --------
$4,541,282 $2,647,142
========== ==========
F-9
5. Property and Equipment
Property and equipment is comprised of the following:
December 31,
------------
1996 1995
---- ----
Machinery and equipment .............. $11,610,508 $8,734,575
Furniture and fixtures ............... 708,072 565,020
Leasehold improvements ............... 3,516,401 2,218,837
--------- ---------
15,834,981 11,518,432
Accumulated depreciation
and amortization .................. (7,732,763) (5,943,089)
---------- ----------
$8,102,218 $5,575,343
========== ==========
Depreciation expense for the years ended December 31,1996, 1995 and 1994
was $1,895,142, $1,333,700 and $1,058,950, respectively.
6. Long-Term Investment
On April 1, 1995, the Company purchased $1,000,000 of convertible preferred
stock of Candescent Technologies Corporation ("CTC"), formerly Silicon Video
Corporation, a San Jose-based developer of flat panel displays. This stock is
convertible into common shares on a one-to-one basis and has certain dividend,
liquidation, and voting rights equivalent with other preferred stockholders of
CTC. In conjunction with this investment, the Company has expanded its
collaboration with CTC to include further joint research and development
programs and manufacturing rights related to certain components of CTC's "Thin
CRT." The investment is recorded at cost.
7. Notes Payable
Notes payable consist of the following:
December 31,
------------
1996 1995
---- ----
Note payable in conjunction
with acquisition of Guardian Systems,
bearing interest at 5.4%,
due on January 4, 1996 ..................... $ -- $4,000,000
Note payable in conjunction with
acquisition of Guardian Systems,
bearing interest at 8.5% and 8.25%
at December 31, 1996 and 1995, due
in three annual installments
beginning January 1, 1999 ................... 2,000,000 2,000,000
Term loan with Connecticut state
agency, bearing interest at 6% at
December 31, 1996 and 1995,
respectively, due through June 2002 ......... 1,300,000 1,300,000
Term loan with Connecticut state
agency, bearing interest at 5%,
due on April 1, 2001 ........................ 500,000 --
Equipment credit line with a
commercial bank, bearing interest
at 9% and 9.5% at December 31, 1996
and 1995, respectively, due through
June 2000 ................................... 1,701,453 2,018,808
Other notes payable .......................... 64,527 663,585
------ -------
5,565,980 9,982,393
Less current portion ......................... (621,463) (4,725,238)
-------- ----------
$4,944,517 $5,257,155
========== ==========
F-10
The approximate aggregate debt maturities are as follows:
Year ending December 31:
1997 $ 621,463
1998 687,056
1999 1,246,011
2000 933,562
2001 1,344,731
thereafter 733,157
-------
$5,565,980
==========
The seven-year term loan of $1,300,000 is collateralized by various
equipment, leasehold improvements and renovations in the Company's Connecticut
facility.
The Company's equipment credit lines bear interest at prime plus 1/2% per
annum and are collateralized by certain assets. The Company is in compliance
with the credit line covenants, including maintaining certain liquidity,
leverage, and tangible net worth levels.
In December, 1996, the Company obtained a $10 million unsecured line of
credit with a commercial bank which permits borrowing levels tied to a
percentage of accounts receivable and inventories. This line bears interest at
prime (with LIBOR options) and expires on December 26, 1997. There were no
borrowings under this line at December 31, 1996.
Interest paid was $481,129, $239,482 and $111,612 for the years ended
December 31, 1996, 1995 and 1994, respectively.
8. Leases
The Company leases office and manufacturing facilities under several
operating leases. The lease for its Danbury, Connecticut facility expires in
August 2005 while the EcoSys San Jose, California facility lease expires in
March 2002. Rental expense was $889,594, $435,908 and $345,976 for the years
ended December 31, 1996, 1995 and 1994, respectively.
The following is a schedule of future minimum lease payments for operating
leases as of December 31, 1996:
Operating
Year ending December 31: Leases
- ------------------------ ------
1997 $ 875,356
1998 765,886
1999 763,734
2000 685,865
2001 694,096
thereafter 1,826,849
---------
Total minimum lease payments $5,611,786
==========
F-11
9. Income Taxes
At December 31, 1996, the Company had loss carryforwards for United States
federal income tax purposes of approximately $2,800,000 and research and
development tax credit carryforwards of approximately $326,000 expiring in 2001
through 2010. It also had alternative minimum tax credit carryforwards of
approximately $85,000, with no expiration. For state tax purposes, the Company
had loss carryforwards of approximately $1,800,000 expiring between 1997 and
2000.
Significant components of the Company's deferred tax assets and liabilities
are as follows:
December 31,
------------
1996 1995
---- ----
Deferred tax assets:
Accrued liabilities ...................... $139,000 $282,000
Net operating loss carryforwards
and tax credits ......................... 829,000 1,823,000
Inventory reserves ....................... 577,000 281,000
Other, net ............................... 161,000 482,000
------- -------
1,706,000 2,868,000
Deferred tax liabilities - none ............. - -
Net deferred tax assets ..................... 1,706,000 2,868,000
Valuation allowance ......................... (1,706,000) (2,868,000)
---------- ----------
Amount recognized in the financial statements $ - $ -
The reconciliation of income tax computed at the U.S. federal statutory tax
rates to the Company's tax expense is:
1996 1995 1994
---- ---- ----
U.S. statutory rate ............. $1,210,600 $233,900 $935,700
State income taxes .............. 317,500 149,700 81,900
Net operating loss
carryforward utilization ....... (1,263,100) (263,600) (894,000)
Other, net ...................... (25,271) 14,157 --
------- ------ ------
$239,479 $134,157 $123,600
======== ======== ========
10. Stockholders' Equity
In October 1995, the Company completed a public offering of 1,600,000
shares of common stock at $12.25 per share. Net proceeds to the Company of
$17,192,567 were from 1,525,000 shares sold by the Company while 75,000 shares
were sold for various selling shareholders. Costs of the offering, including
underwriting commissions, amounted to $1,488,683.
An amendment of the Company's Restated Certificate of Incorporation
approved by its shareholders in May 1995, provided for an increase in the
Company's authorized common shares to 15,000,000.
F-12
Stock Plans
In May 1995, the Company's shareholders approved the adoption of the 1995
Stock Plan ("1995 Plan"), which provides for the granting of up to 500,000
nonqualified stock options, "incentive stock options" (ISOs") and stock
appreciation rights to employees, directors and consultants of the Company.
The Company's 1987 Stock Plan (the "1987 Plan"), as amended, provides for
the granting of up to 1,115,833 nonqualified stock options and "incentive stock
options" ("ISOs").
Under the terms of both stock plans, nonqualified options granted may not
be at a price of less than 50% of the fair market value of the common stock, and
ISOs granted may not be at a price of less than 100% of fair market value of the
common stock on the date of grant.
Options are generally exercisable commencing one year after the date of
grant at the rate of 20% per annum on a cumulative basis. Nonqualified options
expire up to ten years and one month from the date of grant, and ISOs expire
five to ten years from the date of grant.
Number of Option price
Shares per share
------ ---------
Options outstanding at December 31, 1993 ........ 724,046 $.28-$7.00
Granted ....................................... 156,900 $5.00-$6.38
Canceled ...................................... (22,910) $.44-$7.00
Exercised ..................................... (24,440) $.28-$ .53
------- ---- -----
Options outstanding at December 31, 1994 ........ 833,596 $.28-$7.00
Granted ....................................... 305,950 $6.88-$13.88
Canceled ...................................... (27,670) $.53-$6.38
Exercised ..................................... (137,571) $.28-$5.50
-------- ---- -----
Options outstanding at December 31, 1995 ........ 974,305 $.28-$13.88
Granted ....................................... 92,500 $9.88-$17.63
Canceled ...................................... (53,590) $.53-$12.50
Exercised ..................................... (54,999) $.28-$12.50
------- ---- ------
Options outstanding at December 31, 1996 ........ 958,216 $.28-$17.63
======= ==== ======
At December 31, 1996, options for 567,066 shares are exercisable, and
options for 239,043 shares are available for grant. The weighted average
exercise price of options are $4.99 and $3.43 for 1996 and 1995, respectively.
The weighted average remaining contractual life of these options is 6.5 years.
If compensation expense for the Company's plans had been determined for all
stock option grants based on the fair value at the grant dates for awards under
those plans, consistent with the method described in SFAS No. 123, the Company's
net income and earnings per share would have been reduced to the pro forma
amounts indicated below:
1996 1995
---- ----
Net earnings: $3,000,000 $488,000
Earnings per share: $.32 $.06
F-13
During the initial phase-in period, as required by SFAS No. 123, the pro
forma amounts were determined based on the stock option grants subsequent to
January 1, 1995. Therefore, the pro forma amounts presented may not be
indicative of the effects of compensation cost on net earnings and earnings per
share in future years due to the timing of stock option grants and considering
that options generally vest over a five year period.
The fair value of each option grant, for pro forma disclosure purposes was
estimated on the date of grant using the Black-Scholes option pricing model with
the following weighted average assumptions for 1996 and 1995:
1996 1995
---- ----
Expected dividend yield none none
Risk free interest rate 6.25% 6.10%
Expected volatility 54.6% 58.2%
Expected life of options 7.5 years 7.5 years
The weighted average fair value of stock options granted in 1996 and 1995
was $8.21 and $6.72, respectively.
Warrants
In connection with its initial public offering, the Company granted
warrants to its underwriters to purchase 131,250 common shares at $11.25 per
share, which became exercisable on November 23, 1994 and expire on November 23,
1998. Additional warrants have been granted to agencies of the State of
Connecticut in connection with certain loan agreements with those agencies.
These warrants are for an aggregate of 70,000 shares at exercise prices ranging
from $10.13 to $11.25, of which 30,000 are vested as of December 31, 1996.
11. Mergers and Acquisitions
On December 30, 1995, the Company acquired certain assets pertaining to the
Guardian Systems ("Guardian") product line of Messer Greisheim Industries, Inc.
for $6,000,000. In connection with this purchase, the Company recorded
approximately $4,900,000 in goodwill to be amortized over twenty years. The
Guardian product line consists of thermal destruction units used in the
treatment of effluent in the semiconductor industry. The product line has become
part of the Company's Ecosys operation.
During 1995, the Company also acquired the assets of two businesses in
exchange for 20,000 shares of its Common Stock, $550,000 in cash and a $700,000
promissory note bearing interest at prime plus 1%, payable in equal quarterly
installments beginning in September 1995. In 1996, one of those businesses was
subsequently sold, the $700,000 promissory note was paid in full and a note
receivable of approximately $498,000 was recorded. This note receivable bears
interest at 8% and is payable on October 31, 1999.
The pro forma unaudited results of operations for the years ended December
31, 1995 and 1994, assuming the purchase of all the above businesses had been
consummated as of the beginning of each period presented, are as follows:
F-14
1995 1994
---- ----
Revenues ................................. $35,466,000 $25,660,000
Net income ............................... 813,000 2,371,000
Net income per common share .............. $.10 $.31
On September 15, 1994, the Company issued 698,505 shares of its Common
Stock and $93,309 in cash in exchange for all of the issued and outstanding
shares of common stock of Vector. In connection with this acquisition
approximately $1.0 million of costs were charged to other income, net, which
were non-recurring in nature and consisted primarily of professional fees,
compensation costs, and provisions for miscellaneous costs associated with the
integration and consolidation of Vector with the Company.
The Vector acquisition was treated as a pooling of interests. For the nine
months ended September 30, 1994 prior to the acquisition, revenues and net
income of Vector included in the financial statements are $3,149,037 and
$207,604.
12. Asset Sale and Restructuring Agreement
On September 28, 1994, the Company executed an Asset Sale and Restructuring
Agreement whereby certain assets of a majority owned subsidiary, valued at $.02
million, were sold in exchange for approximately $2.7 million in cash and a
royalty on future sales of certain products. A gain of approximately $4.6
million was recognized as a result of the transaction which is included in other
income, net. Revenue generated by these assets was $4,568,955. The net loss
incurred was $25,528 for the period from January 1, 1994 to September 28, 1994.
13. Geographic Data
During 1996 and 1995, the Company had export sales of approximately 31% and
29%, respectively. Sales to Asia, primarily Korea, were approximately 27% and
24% of the Company's revenues.
Quarterly Results of Operations (unaudited)
(Thousands of Dollars, except per share amounts)
1996 --------------Quarter----------------- Year
- ---- ----
First Second Third Fourth
----- ------ ----- ------
Net sales ............... $10,062 $12,376 $12,145 $11,767 $46,350
Gross profit ............ 4,780 6,122 5,786 5,381 22,069
Net income .............. 469 640 975 1,237 3,321
Income per share ........ $.05 $.07 $.10 $.13 $.35
1995 -------------Quarter----------------- Year
- ---- ----
First Second Third Fourth
----- ------ ----- ------
Net sales ................ $6,066 $7,185 $7,996 $8,801 $30,048
Gross profit ............. 2,520 3,102 3,343 3,984 12,949
Net income (loss) ........ (158) 166 302 345 554
Income (loss) per share .. $(.02) $.02 $.03 $.04 $.07
F-15
Schedule II
ADVANCED TECHNOLOGY MATERIALS, INC.
VALUATION & QUALIFYING ACCOUNTS
Balance at
Beginning Charged to Balance at
Year Ended of Cost/ End of
---------- Period Expense Deductions Period
------ ------- ---------- ------
December 31, 1994
Allowance for doubtful accounts $ 42,399 $ 48,045 $ 8,003 $ 82,441
Inventory obsolescence reserve 139,117 215,100 77,849 276,368
December 31, 1995
Allowance for doubtful accounts 82,441 62,000 50,950 93,491
Inventory obsolescence reserve 276,368 126,776 124,085 279,059
December 31, 1996
Allowance for doubtful accounts 93,491 60,000 11,987 141,504
Inventory obsolescence reserve 279,059 380,221 0 659,280
F-16
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Advanced Technology Materials, Inc.
March 26, 1997
By /S/ Eugene G. Banucci
Eugene G. Banucci, Ph.D., President, Chief Executive
Officer, Chairman of the Board and Director
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, this report has been signed below by the following persons
on behalf of the registrant and in the capacities and on the dates indicated.
Signature Title Date
- --------- ----- ----
President, Chief Executive
Officer, Chairman of the Board
/S/ Eugene G. Banucci and Director 3/26/97
Eugene G. Banucci, Ph.D.
Vice President, Chief Financial
Officer and Treasurer (Chief
/S/ Daniel P. Sharkey Accounting Officer) 3/26/97
Daniel P. Sharkey
Vice President, President-
/S/ Duncan W. Brown Epitronics, and Director 3/26/97
Duncan W. Brown, Ph.D.
Director
/S/ Mark A. Adley 3/26/97
Mark A. Adley
Director
/S/ Gary Andersen 3/26/97
Gary Andersen
Director
/S/ John A. Armstrong 3/26/97
John A. Armstrong, Ph.D.
Director
/S/ Robert S. Hillas 3/26/97
Robert S. Hillas
Director
/S/ Stephen H. Mahle 3/26/97
Stephen H. Mahle
S-1
EXHIBIT INDEX
Exhibit
No. Description
--- -----------
10.09 Loan Agreement between Advanced Technology Materials, Inc. and
Silicon Valley Bank dated December 27, 1996
11.01 Statement re: computation of earnings per common share
21.01 Subsidiaries of the registrant
23.01 Consent of Ernst & Young LLP
27.01 Financial Data Schedule