SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1998
[ ] 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
ATMI, Inc.
(Exact name of registrant as specified in its charter)
Delaware 06-1481060
-------- ----------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
7 Commerce Drive, Danbury, CT 06810
(Address of principal executive offices) (Zip Code)
203-794-1100
(Registrant's telephone number, including area code)
- - --------------------------------------------------------------------------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes x No __
The number of shares outstanding of the registrant's common stock as of July 27,
1998 was 20,500,992.
ATMI, INC.
Quarterly Report on Form 10-Q
For the Quarter Ended June 30, 1998
TABLE OF CONTENTS
Page
Part I - Financial Information
Item 1. Financial Statements
Consolidated Balance Sheet............................ 3
Consolidated Statement of Income...................... 4
Consolidated Statement of Cash Flows.................. 6
Notes to Consolidated Interim Financial Statements.... 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations....................... 10
Item 3. Quantitative and Qualitative Disclosures about Market
Risk...................................................... 15
Part II - Other Information
Item 4. Submission of Matters to a Vote of Security Holders........ 15
Item 6. Exhibits and Reports on Form 8-K........................... 16
Signatures........................................................... 17
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
ATMI, Inc.
Consolidated Balance Sheet
June 30, December 31,
1998 1997
(unaudited)
----------- ------------
Assets
Current assets:
Cash and cash equivalents $ 13,205,000 $ 11,550,000
Marketable securities 73,901,000 17,461,000
Accounts receivable, net of allowance
for doubtful accounts of $475,000 in
1998 and $405,000 in 1997 16,775,000 19,784,000
Notes and other receivables 1,269,000 1,197,000
Inventories 9,815,000 7,717,000
Other 4,612,000 2,873,000
-------------- ------------
Total current assets 119,577,000 60,582,000
Property and equipment, net 38,465,000 36,032,000
Goodwill and other long-term assets, net 6,423,000 6,532,000
-------------- -------------
$ 164,465,000 $ 103,146,000
============== =============
Liabilities and stockholders' equity
Current liabilities:
Accounts payable $ 2,545,000 $ 4,977,000
Accrued expenses 5,440,000 6,436,000
Accrued commissions 2,124,000 2,113,000
Notes payable, current portion 1,694,000 2,655,000
Capital lease obligations, current portion 2,474,000 2,671,000
Income taxes and other current payables -- 1,797,000
------------- -------------
Total current liabilities 14,277,000 20,649,000
Notes payable, less current portion 8,492,000 8,288,000
Capital lease obligations 4,959,000 6,238,000
Deferred income taxes and other long-term
liabilities 5,355,000 5,504,000
Minority interest 663,000 595,000
Stockholders' equity:
Preferred stock, par value $.01:
2,000,000 shares authorized; none
issued and outstanding -- --
Common stock, par value $.01: 50,000,000
shares authorized; issued and
outstanding 20,500,392 in 1998
and 18,149,676 in 1997 205,000 181,000
Additional paid-in capital 103,093,000 40,451,000
Cumulative translation adjustment (917,000) (1,099,000)
Retained earnings 28,338,000 22,339,000
------------- -------------
Total stockholders' equity 130,719,000 61,872,000
------------- -------------
$ 164,465,000 $ 103,146,000
============== ==============
See accompanying notes.
ATMI, Inc.
Consolidated Statement of Income
(unaudited)
Three months ended June 30,
1998 1997
------------ ------------
Revenues:
Product revenues $ 19,564,000 $ 21,239,000
Contract revenues 2,067,000 2,282,000
------------ ------------
Total revenues 21,631,000 23,521,000
Cost of revenues:
Cost of product revenues 9,517,000 9,533,000
Cost of contract revenues 1,622,000 1,881,000
------------ ------------
Total cost of revenues 11,139,000 11,414,000
------------ ------------
Gross profit 10,492,000 12,107,000
Operating expenses:
Research and development 3,265,000 2,643,000
Selling, general and administrative 5,750,000 5,776,000
------------ ------------
9,015,000 8,419,000
------------ ------------
Operating income 1,477,000 3,688,000
Interest income 1,229,000 388,000
Interest expense (385,000) (448,000)
Other income (expense), net 52,000 22,000
------------ ------------
Income before taxes and minority interest 2,373,000 3,650,000
Income taxes 826,000 990,000
------------ ------------
Income before minority interest 1,547,000 2,660,000
Minority interest (13,000) (44,000)
------------ ------------
Net income $ 1,534,000 $ 2,616,000
============ ============
Net income per share-basic $ 0.08 $ 0.15
============ ============
Net income per share-assuming dilution $ 0.07 $ 0.14
============ ============
Weighted average shares outstanding 19,775,000 17,423,000
============ ============
Weighted average shares outstanding-
assuming dilution 21,018,000 18,757,000
============ ============
See accompanying notes.
ATMI, Inc.
Consolidated Statement of Income
(unaudited)
Six months ended June 30,
1998 1997
------------ ------------
Revenues:
Product revenues $ 44,583,000 $ 41,134,000
Contract revenues 4,423,000 4,900,000
------------ ------------
Total revenues 49,006,000 46,034,000
Cost of revenues:
Cost of product revenues 20,141,000 18,862,000
Cost of contract revenues 3,343,000 4,039,000
------------ ------------
Total cost of revenues 23,484,000 22,901,000
------------ ------------
Gross profit 25,522,000 23,133,000
Operating expenses:
Research and development 6,053,000 5,108,000
Selling, general and administrative 11,340,000 10,931,000
------------ ------------
17,393,000 16,039,000
------------ ------------
Operating income 8,129,000 7,094,000
Interest income 1,629,000 781,000
Interest expense (797,000) (825,000)
Other income (expense), net 160,000 17,000
------------ ------------
Income before taxes and minority interest 9,121,000 7,067,000
Income taxes 3,054,000 1,910,000
------------ ------------
Income before minority interest 6,067,000 5,157,000
Minority interest (68,000) (25,000)
------------- -----------
Net income $ 5,999,000 $ 5,132,000
============ ============
Net income per share-basic $ 0.32 $ 0.30
============ ============
Net income per share-assuming dilution $ 0.30 $ 0.27
============ ============
Weighted average shares outstanding 18,681,000 17,388,000
============ ============
Weighted average shares outstanding-assuming
dilution 19,936,000 18,745,000
============ ============
See accompanying notes.
ATMI, Inc.
Consolidated Statement of Cash Flows
(unaudited)
Six months ended June 30,
1998 1997
------------- ------------
OPERATING ACTIVITIES
Net income $ 5,999,000 $ 5,132,000
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 3,025,000 2,763,000
Deferred income taxes (73,000) 732,000
Minority interest in net earnings of consolidated subsidiaries 68,000 25,000
Changes in operating assets and liabilities
Decrease (increase) in accounts and notes receivable 2,937,000 (4,993,000)
Increase in inventory (2,098,000) (903,000)
Increase in other assets (1,780,000) (2,959,000)
(Decrease) increase in accounts payable (2,432,000) 1,593,000
Decrease in accrued expenses (985,000) (1,744,000)
Decrease in other liabilities (1,725,000) (556,000)
----------- -----------
Total adjustments (3,063,000) (6,042,000)
----------- -----------
Net cash provided (used) by operating activities 2,936,000 (910,000)
----------- -----------
INVESTING ACTIVITIES
Capital expenditures (5,308,000) (3,603,000)
Long term investment -- (405,000)
(Purchase) sale of marketable securities, net (56,440,000) 301,000
----------- -----------
Net cash used by investing activities (61,748,000) (3,707,000)
----------- -----------
FINANCING ACTIVITIES
Principal payments on capital lease obligations (1,476,000) (970,000)
Principal payments on notes payable (757,000) (672,000)
Proceeds from sale of common shares, net 62,506,000 --
Proceeds from the exercise of stock options and warrants 160,000 179,000
----------- -----------
Net cash provided (used) by financing activities 60,433,000 (1,463,000)
----------- -----------
Effects of exchange rate changes on cash 34,000 2,000
Net increase (decrease) in cash and cash equivalents 1,655,000 (6,078,000)
Cash and cash equivalents, beginning of period 11,550,000 12,574,000
------------ -----------
Cash and cash equivalents, end of period $ 13,205,000 $ 6,496,000
=========== ===========
See accompanying notes.
ATMI, Inc.
Notes To Consolidated Interim Financial Statements
(unaudited)
1. Basis of Presentation
The accompanying unaudited interim financial statements of ATMI, Inc.
("ATMI" or the "Company") have been prepared in accordance with the instructions
to Form 10-Q and Rule 10.01 of Regulation S-X and do not include all of the
financial information and disclosures required by generally accepted accounting
principles.
In the opinion of the management of ATMI, Inc. the financial information
contained herein has been prepared on the same basis as the audited Consolidated
Financial Statements contained in the Company's Form 10-K for the year ended
December 31, 1997, and includes adjustments (consisting only of normal recurring
adjustments) necessary to present fairly the unaudited quarterly results set
forth herein. The Company's quarterly results have, in the past, been subject to
fluctuation and, thus, the operating results for any quarter are not necessarily
indicative of results for any future fiscal period.
2. Per Share Data
In 1997, the Financial Accounting Standards Board (FASB) issued SFAS No.
128, "Earnings per Share," which was adopted in the fourth quarter of 1997. This
rule changes the way earnings per share is calculated and requires restatement
of all reported prior period amounts. Under the new requirements, basic earnings
per share is calculated by dividing net earnings by the weighted-average number
of common shares outstanding during the period. The diluted earnings per share
computation includes the effect of shares which would be issuable upon the
exercise of outstanding stock options, reduced by the number of shares which are
assumed to be purchased by the Company from the resulting proceeds at the
average market price during the period.
The following table presents the computation of basic and diluted earnings
per share:
Three Months Ended Six Months Ended
June 30, June 30,
1998 1997 1998 1997
----------- ----------- ----------- -----------
Numerator:
Net income $ 1,534,000 $ 2,616,000 $ 5,999,000 $ 5,132,000
=========== =========== =========== ===========
Denominator:
Denominator for basic earnings per share-
weighted-average share 19,775,000 17,423,000 18,681,000 17,388,000
Dilutive effect of contingent shares related
To the ADCS Group acquisition 700,000 700,000 700,000 700,000
Dilutive effect of employee stock options
and warrants, net of tax benefit 543,000 634,000 555,000 657,000
------- ------- ------- -------
Denominator for diluted earnings per share 21,018,000 18,757,000 19,936,000 18,745,000
========== ========== ========== ==========
Net income per share-basic $ 0.08 $ 0.15 $ 0.32 $ 0.30
=========== =========== =========== ===========
Net income per share-assuming dilution $ 0.07 $ 0.14 $ 0.30 $ 0.27
=========== =========== =========== ===========
3. Inventory
Inventory is comprised of the following:
June 30, December 31,
1998 1997
------------ ------------
Raw materials $ 8,455,000 $ 6,682,000
Work in process 660,000 946,000
Finished goods 1,482,000 1,074,000
------------ ------------
10,597,000 8,702,000
Obsolescence reserve (782,000) (985,000)
------------ ------------
$ 9,815,000 $ 7,717,000
============ ============
4. Comprehensive Income
During the first quarter of 1998, the Company adopted FASB Statement No.
130, Reporting Comprehensive Income. Statement No. 130 requires the reporting of
comprehensive income in addition to net income from operations. Comprehensive
income is a more inclusive financial reporting methodology that includes
disclosure of certain financial information that historically has not been
recognized in the calculation of net income.
The following table presents the components of comprehensive income for the
three and six months ended June 30:
Three Months Ended Six Months Ended
June 30, June 30,
1998 1997 1998 1997
------------------------- ------------------------
Net income $1,534,000 $2,616,000 $5,999,000 $5,132,000
---------- ---------- ---------- ----------
Other comprehensive income
Foreign currency translation 9,000 29,000 182,000 2,000
adjustments ---------- ---------- --------- ----------
Other comprehensive income $1,543,000 $2,645,000 $6,181,000 $5,134,000
========== ========== ========== ==========
Accumulated other comprehensive income equals the amount included in
retained earnings for cumulative translation adjustment which is the only
component of other comprehensive income included in the Company's financial
statements.
5. Merger and Acquisition
On February 20, 1998, the Company announced that it had entered into a
definitive merger agreement with NOW Technologies, Inc. ("NOW Technologies")
pursuant to which NOW Technologies would become a wholly-owned subsidiary of the
Company. The closing of the merger agreement is subject to the approval of the
shareholders of NOW Technologies and to the satisfaction of other customary
conditions. While the exact number of shares of Common Stock to be issued by the
Company to the shareholders of NOW Technologies will not be determined until the
third trading day prior to the closing, the number of shares to be issued will
approximate 1.59 million (excluding shares issuable upon exercise of outstanding
options). The merger is intended to be treated as a tax-free reorganization and
to be accounted for as a pooling of interests. NOW Technologies is a
manufacturer and distributor of semiconductor materials packaging systems,
particularly for advanced photoresist materials. A non-recurring charge of
approximately $2,000,000 will be expensed in conjunction with this merger in the
period when the transaction is completed, primarily related to legal costs,
accounting costs and investment banker fees.
6. Public Offering
On March 31, 1998, the Company completed a registered underwritten public
offering of 4,720,000 shares of the Company's Common Stock. Of such shares,
2,000,000 shares were sold by the Company and 2,720,000 shares were sold by
certain stockholders of the Company. In addition, the Company and those certain
stockholders granted to the underwriters an option to purchase up to 257,291 and
450,709 additional shares of Common Stock, respectively, to cover
over-allotments, if any. On April 2, 1998, the over-allotment was exercised in
full.
As a result of the offering at the end of March and exercise by the
underwriters of the over-allotment in early April, the Company received net
proceeds of approximately $62.5 million, from the sale of 2.26 million shares.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Overview
ATMI was incorporated in Delaware in 1997 and is the successor registrant
to Advanced Technology Materials, Inc. which was incorporated in Connecticut in
1986 and reincorporated in Delaware in 1987. The Company is a leading supplier
of specialty thin film materials and delivery systems, point-of-use
environmental equipment and epitaxial processing services for the semiconductor
industry. Product revenues include revenues from the sale of consumable thin
film materials and materials delivery systems, environmental equipment,
consumable resins for effluent abatement and processed epitaxial wafers. Product
revenues are recognized upon the shipment of those products. The Company also
derives revenues from contract research and development activities related to
high performance semiconductor materials and devices and from royalties
generated under various license agreements. Contract revenues are recognized
using a percentage-of-completion method based upon costs incurred and estimated
future costs.
A substantial majority of ATMI's revenues track "wafer starts" within the
semiconductor industry, or the volume of silicon wafers processed into fully
functional semiconductor devices. These include revenues derived from the sale
of specialty thin film materials that are used in chemical vapor deposition
("CVD") processes and the delivery systems for these materials. Manufacturers
seek to replenish these consumable materials on a continuing basis. Furthermore,
once the Company's specialty materials are qualified for a specific process, the
Company's customers typically source materials from the Company for the lifetime
of the process, generating a recurring revenue stream. Similarly, the Company
derives a recurring revenue stream from the sale of resins that are used in
certain of its environmental equipment products. Additionally, the Company's
epitaxial wafer processing services revenues are directly tied to the number of
wafers processed for the Company's customers. A smaller portion of ATMI's
revenues, principally those derived from environmental equipment sales, track
new semiconductor plant construction.
The Company's products are based primarily on proprietary and patented CVD
technologies used in the manufacture of semiconductor devices. The Company's
strategy has been to use these technologies to develop and, in conjunction with
industry collaborators, sequentially introduce products into high growth markets
of the semiconductor industry. Using this phased commercialization strategy, the
Company has been able to develop its core CVD technologies and establish
businesses to support further commercialization of its products.
The Company has used a targeted acquisition strategy to assist in building
critical mass and market position in the niches the Company serves. In 1994, ATM
acquired Vector Technical Group, Inc. ("Vector"), and in conjunction with the
sale of certain Novapure product lines to Millipore Corporation in September
1994, formed ATMI EcoSys Corporation ("EcoSys") by merging the retained
operations of Novapure with those of Vector. In 1995, ATM acquired the Guardian
product line from Messer Griesheim Industries, Inc. and folded that product line
into EcoSys. In 1995, ATM acquired Epitronics Corporation, and in early 1996,
combined that business with ATM's former Diamond Electronics division under the
Epitronics name. In October 1997, ATMI acquired the ADCS Group and LSL. The ADCS
Group manufactures and distributes ultra-high purity semiconductor thin film
materials. LSL was an outsourcer of epitaxial processing of silicon wafers using
chemical vapor deposition technology to meet customer specifications. The
operations of the ADCS Group were integrated with the operations of ATMI's
NovaMOS division under the ADCS name and the operations of LSL with the
operations of ATMI's Epitronics division under the Epitronics name.
The Company recently announced that, as a result of the softening of the
semiconductor market, ATMI expects net income for the third quarter of fiscal
1998 to be as much as 50% below net income for the comparable quarter in 1997.
Because of the industry changes the Company does not expect to see the kind of
growth in 1998 that was experienced in previous years. Management views the
third quarter as an industry recovery period with hopes that the fourth quarter
may present indicators that the industry is back in line with its historical
growth rates. The Company has announced it is taking steps, such as temporary
plant shut-downs, salary reductions for executives and a hiring freeze, to
control costs and reduce expenses in anticipation of the decrease in earnings.
The Company, however, remains positive about its long-term prospects and intends
to remain growth oriented.
The following table sets forth, for the periods indicated, the percentage
relationship to total revenues of certain items in ATMI's Consolidated Statement
of Income:
Three Months Ended Six Months Ended
------------------ ----------------
June 30, June 30,
1998 1997 1998 1997
---- ------ ------- -----
Product revenues 90.4% 90.3% 91.0% 89.4%
Contract revenues 9.6 9.7 9.0 10.6
----- ----- ----- -----
Total revenues 100.0 100.0 100.0 100.0
Cost of revenues 51.5 48.5 47.9 49.7
----- ----- ----- -----
Gross profit 48.5 51.5 52.1 50.3
Operating expenses:
Research and development 15.1 11.2 12.4 11.1
Selling, general and administrative 26.6 24.6 23.1 23.8
----- ----- ----- -----
Total operating expenses 41.7 35.8 35.5 34.9
---- ----- ----- -----
Operating income 6.8 15.7 16.6 15.4
Other income (expense), net 4.1 (0.4) 1.9 (0.1)
---- ----- ----- -----
Income before taxes 10.9 15.3 18.5 15.3
Income taxes 3.8 4.2 6.2 4.1
---- ----- ----- -----
Net income 7.1% 11.1% 12.3% 11.2%
===== ===== ===== =====
Results of Operations
Three Months Ended June 30, 1998 and 1997.
Revenues. Total revenues decreased 8.0% to approximately $21,631,000 in the
three months ended June 30, 1998 from approximately $23,521,000 in the same
three month period in 1997. Product revenues decreased 7.9% to approximately
$19,564,000 in the three months ended June 30, 1998 from approximately
$21,239,000 in the comparable period in 1997. The product revenue decline was
primarily attributable to the softening market conditions in both semiconductor
materials and equipment. Semiconductor unit demand declined in the second
quarter of 1998 and, combined with a semiconductor device inventory correction
within the industry, were primary causes for the decline in the Company's
product revenues. Excess manufacturing capacity within the semiconductor
industry has slowed new plant construction and that has effected the product
revenues derived from the sale of environmental equipment during the quarter.
Contract revenues, which are funded by United States government agencies,
decreased 9.4% to approximately $2,067,000 in the quarter ended June 30, 1998
from approximately $2,282,000 in the same three month period in 1997. The
decrease in the 1998 quarter reflects a general decrease in government funding
of the Company's research activities as well as the completion of various
existing government contracts.
Gross Profit. Gross profit decreased 13.3% to approximately $10,492,000 in
the quarter ended June 30, 1998 from approximately $12,107,000 in the quarter
ended June 30, 1997. As a percentage of revenues, gross margin decreased to
48.5% in the three month period in 1998 from 51.5% of revenues in the three
month period in 1997.
Gross profit from product revenues decreased 14.2% to approximately
$10,047,000 in the three months ended June 30, 1998 from approximately
$11,706,000 in the same three month period a year ago. As a percentage of
product revenues, gross margin decreased to 46.5% in the 1998 period from 55.1%
in the 1997 period due principally to decline in revenues in the EcoSys and
Epitronics businesses, where lower revenue volumes cause less effective fixed
cost absorption and thus, reduced margins.
Gross profit on contract revenues increased 11.0% to approximately $445,000
in the quarter ended June 30, 1998 from approximately $401,000 in the same
quarter a year ago. As a percentage of contract revenues, gross margin increased
to 21.5% in the first quarter of 1998 from 17.6% in the first quarter of 1997.
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 has contributed to margin
variability in 1998 as compared to 1997.
Research and Development Expenses. Research and development expenses
increased 23.5% to approximately $3,265,000 in the first three months of 1998
from approximately $2,643,000 in the first three months of 1997. The increase in
the second quarter of 1998 was due to application-specific product development
efforts within Emosyn, increases in the Company's advanced thin film materials
technology development efforts, as well as continued product development at
EcoSys. As a percentage of revenues, research and development expenses increased
to 15.1% in the 1998 quarter from 11.2% in the 1997 quarter.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses decreased 0.5% to approximately $5,750,000 in the three
months ended June 30, 1998 from approximately $5,776,000 in the same three month
period in 1997. The decrease in the 1998 quarter was primarily due to decreased
selling costs related to commissions which were caused by the decline in
revenues. As a percentage of revenues, these expenses increased to 26.6% in the
three month period in 1998 from 24.6% in the comparable period in 1997.
Other Income, Net. Other income, net, increased to approximately $883,000
in the quarter ended June 30, 1998 from an other expense, net, of approximately
$82,000 in the quarter ended June 30, 1997. The increase in the 1998 quarter
related to a significant increase in interest income due to the increase cash
levels on hand at June 30, 1998 compared to June 30, 1997 and to a decrease in
interest expense as a result of decreases in outstanding debt balances. These
increased cash levels resulted from the recently completed public offering.
Income Taxes. ATMI's income tax expense related primarily to federal and
state taxes on income generated, partially offset by various foreign credits
available. Income tax expense in the quarter ended June 30, 1998 was $826,000
which was a decline from $990,000 in the same quarter a year ago. The Company
had a 35% effective rate for the quarter ended June 30, 1998 compared to an
effective rate of 27% for the quarter ended June 30, 1997. The Company utilized
its loss carryforwards in 1997, which led to a lower effective tax rate for the
quarter ended June 30, 1997.
Earnings per Share. Earnings per share-assuming dilution declined 50% to
$0.07 for the first quarter of 1998 compared with $0.14 in the first quarter of
1997. Earnings per share-assuming dilution in the 1998 period reflects a 12.1%
increase in weighted average shares outstanding from approximately 18,757,000 in
the first quarter of 1997 to approximately 21,018,000 in the first quarter of
1998, as a result of the Company's public offering at the end of March and early
April 1998.
Six Months Ended June 30, 1998 and 1997.
Revenues. Total revenues increased 6.5% to approximately $49,006,000 in the
six months ended June 30, 1998 from approximately $46,034,000 in the same six
month period in 1997. Product revenues increased 8.4% to approximately
$44,583,000 in the six months ended June 30, 1998 from approximately $41,134,000
in the comparable period in 1997. The product revenue growth was primarily
attributable to the continued expansion of SDS product sales and higher material
sales at ADCS. This growth was offset by the decline in equipment sales at
EcoSys. The second quarter decline in revenues when compared with the previous
year's second quarter has reduced the revenue growth rate when comparing the two
comparable six-month periods.
Contract revenues, which are funded by United States government agencies,
decreased 9.7% to approximately $4,423,000 in the six months ended June 30, 1998
from approximately $4,900,000 in the same six month period in 1997. The decrease
in the six months ended June 30, 1998 reflected a general decrease in government
funding plans available to the Company's research activities and the completion
of various existing government contracts.
Gross Profit. Gross profit increased 10.3% to approximately $25,522,000 in
the six months ended June 30, 1998 from approximately $23,133,000 in the six
months ended June 30, 1997. As a percentage of revenues, gross margin increased
to 52.1% in the six month period in 1998 from 50.1% of revenues in the six month
period in 1997.
Gross profit from product revenues increased 9.7% to approximately
$24,442,000 in the six months ended June 30, 1998 from approximately $22,272,000
in the same six month period a year ago. As a percentage of product revenues,
gross margin increased to 54.8% in the 1998 period from 54.1% in the 1997 period
due principally to increased manufacturing margins on SDS product sales and
other consumable product lines which are at levels that are higher than the
average ATMI product margin. The effect of these higher margin sales have been
somewhat offset by the reduced margins in the second quarter of 1998 caused by
the revenue decline in that period.
Gross profit on contract revenues increased 25.4% to approximately
$1,080,000 in the six months ended June 30, 1998 from approximately $861,000 in
the same quarter a year ago. As a percentage of contract revenues, gross margin
increased to 24.4% in the first six months of 1998 from 17.6% in the first six
months of 1997. The increase in contract margin resulted from the completion of
various firm-fixed price contracts in the first half of 1998.
Research and Development Expenses. Research and development expenses
increased 18.5% to approximately $6,053,000 in the first six months of 1998 from
approximately $5,108,000 in the first six months of 1997. The increase was
primarily due to development efforts surrounding application-specific product
efforts within the Emosyn venture. As a percentage of revenues, research and
development expenses increased to 12.4% in the first half of 1998 from 11.1% in
the first half of 1997.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased 3.7% to approximately $11,340,000 in the six
months ended June 30, 1998 from approximately $10,931,000 in the same period in
1997. The increase in the 1998 period was primarily due to increased
administrative costs, increased commissions on higher product revenues and
increased marketing activities. As a percentage of revenues, these expenses
decreased to 23.1% in the first half of 1998 from 23.8% in the comparable period
in 1997.
Other Income, Net. Other income, net, increased to approximately $924,000
for the six months ended June 30, 1998 from an other expense, net of
approximately $52,000 in the six months ended June 30, 1997. The increase in the
1998 period related to a significant increase in interest income due to the
increase cash levels on hand during the second quarter of 1998 compared to 1997,
these increased cash levels resulted from the public offering which was
completed at the beginning of the second quarter, and a decrease in interest
expense as a result of decreases in outstanding debt balances.
Income Taxes. ATMI's income tax expense related primarily to federal and
state taxes on income generated, partially offset by various foreign credits
available. Income tax expense in the for the six months ended June 30, 1998 was
$3,054,000 which was an increase from $1,910,000 for the six months ended June
30, 1997. The Company's loss carryforwards were fully utilized in 1997, causing
a 33.7% effective rate for the six months ended June 30, 1998 compared to a
27.0% effective rate for the six months ended June 30, 1997.
Earnings per Share. Earnings per share-assuming dilution increased to $0.30
for the six months ended June 30, 1998 compared with $0.27 in the first six
months of 1997. Earnings per share-assuming dilution in the 1998 period reflects
a 6.4% increase in weighted average shares outstanding from approximately
18,745,000 in the first six months of 1997 to approximately 19,936,000 in the
first six months of 1998, a primary result of the Company's public offering at
the end of March and early April 1998.
Liquidity and Capital Resources
To date, the Company has financed its activities through the sale of
equity, external research and development funding, various lease and debt
instruments and operations. The Company's working capital increased to $105.3
million at June 30, 1998 from $39.9 million at December 31, 1997, due primarily
to a public offering completed in late March and early April, 1998.
Net cash provided by operations was approximately $2.9 million during the
six months ended June 30, 1998 compared to a use of cash from operations of $0.9
million during the same six month period of 1997. Working capital fluctuations
in the first quarter of 1998 resulted in a significant source of cash, primarily
a decrease in accounts and notes receivable which was partially offset by
decreases in accounts payable and accrued expenses and an increase in inventory.
In March and April 1998, the Company completed a registered underwritten
public offering of 5,428,000 shares of its Common Stock. Of such shares,
2,257,291 shares were sold by ATMI, and 3,170,709 shares were sold by certain
stockholders of ATMI. Net proceeds, from the offering including exercise by the
underwriters of the over-allotment, to ATMI were approximately $62.5 million.
The Company utilized approximately $61.8 million in cash in investing
activities compared to a use of approximately $3.7 million in cash in the same
period a year ago. During the first six months of 1998, cash was used for the
purchase of approximately $5.3 million in capital equipment, primarily related
to installation of additional manufacturing capacity in Danbury, Connecticut and
at the ADCS manufacturing facilities in Burnet, Texas as well as the purchase of
epitaxial reactors for Epitronics. In the previous year's first six months, the
Company incurred approximately $3.6 million in capital expenditures and sold a
net amount of approximately $0.3 million in marketable securities.
The Company generated approximately $60.4 million from financing activities
during the first six months of 1998, primarily due to the completion of the
public offering, compared to a utilization of cash of approximately $1.5 million
in the first six months of 1997. The Company invested approximately $56.5
million of the proceeds raised from the sale of its Common Stock into marketable
securities for future working capital requirements and potential merger and
acquisition activities.
ATMI believes its proceeds from its public offering of Common Stock in
combination with existing cash balances and marketable securities, together with
existing sources of liquidity and anticipated funds from operations, will
satisfy its projected working capital and other cash requirements through at
least the end of 1999. However, ATMI believes the level of financing resources
available to it is an important competitive factor in its industry and may seek
additional capital prior to the end of that period. Additionally, ATMI
considers, on a continuing basis, potential acquisitions of technologies and
businesses complementary to its current business. Other than the proposed
acquisition of NOW Technologies, there are no present understandings,
commitments or agreements with respect to any such acquisition. However, any
such transactions may affect ATMI's future capital needs.
Safe Harbor Statement
Statements which are not historical facts in this report are
forward-looking statements, made on a good faith basis. Such forward-looking
statements, including those expressing confidence about 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 3. Quantitative and Qualitative Disclosures about Market Risk
Not applicable.
PART II- OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders.
The Annual Meeting of the Stockholders of the Company was held on May 20,
1998. At the annual meeting, the stockholders elected the following persons to
the Board of Directors of the Company: John A. Armstrong and Robert S. Hillas.
There were 17,384,941 votes for and 106,692 votes withheld for Dr. Armstrong and
17,386,411 votes for and 105,222 votes withheld for Mr. Hillas. Both individuals
were elected for a term which expires at the 2001 Annual Meeting of
Stockholders. In addition, Eugene G. Banucci, Mark A. Adley and Lamonte H.
Lawrence are currently serving terms on the Board of Directors which expire at
the 1999 Annual Meeting of Stockholders and Stephen H. Mahle and Stephen H.
Siegele are currently serving terms which expire at the 2000 Annual Meeting of
Stockholders.
The stockholders also approved the adoption of the Company's 1998 Employee
Stock Purchase Plan. There were 14,386,015 votes for, 595,717 against, 39,065
abstentions and 2,470,836 broker non-votes with respect to such adoption. The
stockholders also approved the adoption of the Company's 1998 Stock Plan. There
were 10,120,777 votes for, 4,807,456 against, 92,564 abstentions and 2,470,836
broker non-votes with respect to such adoption. The stockholders also approved
the amendment to the Company' Certificate of Incorporation, as amended, to
increase the number of authorized shares of the Company' Common Stock from
30,000,000 shares to 50,000,000 shares. There were 17,258,204 votes for, 197,664
against, and 35,765 abstentions with respect to such amendment. Finally, the
stockholders ratified the appointment by the Board of Directors of Ernst & Young
LLP as the Company's independent auditors for the fiscal year ending December
31, 1998. There were 17,443,563 votes for, 21,170 against, and 26,900
abstentions with respect to such ratification.
Item 6. Exhibits and Reports on Form 8-K.
a. Exhibits.
Exhibit No. Description
3.01 Certificate of Amendment to Certificate of Incorporation
(Exhibit 3.01 (c) to ATMI's Registration Statement on Form
S-4, Registration No. 333-51333 and incorporated by
reference herein)
27.01 Financial Data Schedule (Filed herewith)
b. Reports on Form 8-K.
None.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ATMI, Inc.
August 4, 1998
By _____________________________
Eugene G. Banucci, Ph.D.,
President, Chief Executive Officer,
Chairman of the Board and Director
By _____________________________
Daniel P. Sharkey, Vice President,
Chief Financial Officer and
Treasurer (Chief Accounting Officer)
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ATMI, Inc.
August 4, 1998
By /S/ Eugene G. Banucci
Eugene G. Banucci, Ph.D.,
President, Chief Executive Officer,
Chairman of the Board and Director
By /S/ Daniel P. Sharkey
Daniel P. Sharkey, Vice President,
Chief Financial Officer and
Treasurer (Chief Accounting Officer)
EXHIBIT INDEX
Exhibit No. Description
3.01 Certificate of Amendment to Certificate of Incorporation (Exhibit
3.01 (c) to ATMI's Registration Statement on Form S-4,
Registration No. 333-51333 and incorporated by reference herein)
27.01 Financial Data Schedule (Filed herewith)