SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 30, 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 October
30, 1998 was 22,137,391.
ATMI, INC.
Quarterly Report on Form 10-Q
For the Quarter Ended September 30, 1998
TABLE OF CONTENTS
Page
Part I - Financial Information
Item 1. Financial Statements
Consolidated Balance Sheet....................................... 1
Consolidated Statement of Operations............................. 2
Consolidated Statement of Cash Flows............................. 4
Notes to Consolidated Interim Financial Statements............... 5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.............................. 8
Item 3. Quantitative and Qualitative Disclosures about Market Risk.......... 16
Part II - Other Information
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
(unaudited)
September 30, December 31,
1998 1997
--------------- -------------
Assets
Current assets:
Cash and cash equivalents $ 14,059,000 $ 13,924,000
Marketable securities 75,046,000 17,461,000
Accounts receivable, net of
allowance for doubtful accounts
of $683,000 in 1998 and $405,000
in 1997 16,608,000 21,182,000
Notes and other receivables -- 1,197,000
Inventories 11,243,000 9,228,000
Other 5,930,000 3,157,000
------------- -------------
Total current assets 122,886,000 66,149,000
Property and equipment, net 44,131,000 40,545,000
Goodwill and other long-term assets, net 6,910,000 6,708,000
------------- -------------
$ 173,927,000 $ 113,402,000
============= =============
Liabilities and stockholders' equity
Current liabilities:
Accounts payable $ 3,902,000 $ 5,149,000
Accrued expenses 7,609,000 7,197,000
Accrued commissions 1,556,000 2,113,000
Notes payable 4,411,000 5,763,000
Capital lease obligations 2,496,000 2,671,000
Income taxes and other current payables 43,000 1,904,000
------------- -------------
Total current liabilities 20,017,000 24,797,000
Notes payable, less current portion 8,017,000 8,300,000
Capital lease obligations 4,331,000 6,238,000
Deferred income taxes and other
long-term liabilities 4,628,000 5,504,000
Minority interest 666,000 595,000
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
22,136,991 in 1998 and 19,743,628
in 1997 221,000 197,000
Additional paid-in capital 104,831,000 41,839,000
Cumulative translation adjustment (934,000) (1,099,000)
Retained earnings 32,150,000 27,031,000
------------- -------------
Total stockholders' equity 136,268,000 67,968,000
------------- -------------
$ 173,927,000 $ 113,402,000
============= =============
See accompanying notes.
ATMI, Inc.
Consolidated Statement of Operations
(unaudited)
Three months ended September 30,
1998 1997
------------- -------------
Revenues:
Product revenues $ 19,814,000 $ 28,894,000
Contract revenues 1,915,000 2,220,000
------------ ------------
Total revenues 21,729,000 31,114,000
Cost of revenues:
Cost of product revenues 11,192,000 12,399,000
Cost of contract revenues 1,304,000 1,935,000
------------ ------------
Total cost of revenues 12,496,000 14,334,000
------------ ------------
Gross profit 9,233,000 16,780,000
Operating expenses:
Research and development 3,110,000 2,819,000
Selling, general and administrative 6,263,000 7,401,000
Non-recurring and restructuring expenses 2,102,000 --
------------ ------------
11,475,000 10,220,000
------------ ------------
Operating income (loss) (2,242,000) 6,560,000
Interest income 1,209,000 249,000
Interest expense (372,000) (314,000)
Other income (expense), net 141,000 (14,000)
------------ ------------
Income (loss) before taxes and minority
interest (1,264,000) 6,481,000
Income taxes (benefit) (147,000) 2,084,000
------------ ------------
Income (loss) before minority interest (1,117,000) 4,397,000
Minority interest (3,000) (23,000)
------------ ------------
Net income (loss) $ (1,120,000) $ 4,374,000
============ ============
Net income (loss) per share-basic ($0.05) $0.23
============ ============
Net income (loss) per share-assuming
dilution ($0.05) $0.21
============ ============
Weighted average shares outstanding 21,333,000 19,354,000
============ ============
Weighted average shares outstanding-assuming
dilution 22,113,000 20,514,000
============ ============
See accompanying notes.
ATMI, Inc.
Consolidated Statement of Operations
(unaudited)
Nine months ended September 30,
1998 1997
-------------- -------------
Revenues:
Product revenues $ 70,441,000 $ 78,123,000
Contract revenues 6,338,000 7,121,000
------------ ------------
Total revenues 76,779,000 85,244,000
Cost of revenues:
Cost of product revenues 34,526,000 35,154,000
Cost of contract revenues 4,647,000 5,974,000
------------ ------------
Total cost of revenues 39,173,000 41,128,000
------------ ------------
Gross profit 37,606,000 44,116,000
Operating expenses:
Research and development 9,309,000 8,042,000
Selling, general and administrative 20,107,000 20,856,000
Non-recurring and restructuring expense 2,102,000 --
------------ ------------
31,518,000 28,898,000
------------ ------------
Operating income 6,088,000 15,218,000
Interest income 2,909,000 1,063,000
Interest expense (1,239,000) (1,197,000)
Other income (expense), net 353,000 25,000
------------ ------------
Income before taxes and minority interest 8,111,000 15,109,000
Income taxes 2,921,000 4,540,000
------------ ------------
Income before minority interest 5,190,000 10,569,000
Minority interest (71,000) (48,000)
------------ ------------
Net income $ 5,119,000 $ 10,521,000
============ ============
Net income per share-basic $0.25 $0.55
============ ============
Net income per share-assuming dilution $0.23 $0.52
============ ============
Weighted average shares outstanding 20,582,000 19,245,000
============ ============
Weighted average shares outstanding-assuming
dilution 21,968,000 20,404,000
============ ============
See accompanying notes.
ATMI, Inc.
Consolidated Statement of Cash Flows
(unaudited)
Nine months ended September 30,
1998 1997
-------------- -------------
Operating activities
Net income $ 5,119,000 $ 10,521,000
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 4,988,000 4,665,000
Deferred income taxes (77,000) (1,231,000)
Minority interest in net earnings of
subsidiaries 71,000 33,000
Changes in operating assets and
liabilities
Decrease (increase) in accounts
and notes receivable 5,771,000 (6,756,000)
Increase in inventory (2,015,000) (1,890,000)
Increase in other assets (3,264,000) (1,279,000)
Decrease in accounts payable (1,247,000) (729,000)
Decrease in accrued expenses (145,000) (3,550,000)
(Decrease) increase in other
liabilities (2,495,000) 2,565,000
------------ ------------
Total adjustments 1,587,000 (8,172,000)
------------ ------------
Net cash provided by operating activities 6,706,000 2,349,000
------------ ------------
Investing activities
Capital expenditures, net (8,327,000) (5,834,000)
Long term investment -- (250,000)
(Purchase) sale of marketable securities, net (57,585,000) 2,409,000
------------ ------------
Net cash used by investing activities (65,912,000) (3,675,000)
------------ ------------
Financing activities
Principle payments on capital lease
obligations (2,082,000) (1,594,000)
Principal payments on notes payable (1,635,000) (1,390,000)
Proceeds from sale of common shares, net 62,426,000 --
Proceeds from the exercise of stock options 590,000 533,000
------------ ------------
Net cash provided (used) by financing
activities 59,299,000 (2,451,000)
------------ ------------
Effect of exchange rate changes on cash 42,000 7,000
Net increase (decrease) in cash and cash
equivalents 135,000 (3,770,000)
Cash and cash equivalents, beginning
of period 13,924,000 13,450,000
------------ ------------
Cash and cash equivalents, end of period $ 14,059,000 $ 9,680,000
============ ============
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 addition these statements give retroactive effect to the
acquisition of NOW Technologies, Inc. ("NOW") which has been accounted for using
the pooling-of-interest method. The restated statement of operations were
derived using the three month period and nine month period ended December 31,
1997. This acquisition was completed on August 4, 1998, as part of the
consummation of the transaction described in Note 5.
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 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, assuming their inclusion would not be
anti-dilutive, and the dilutive effect of contingent shares related to
acquisitions.
The following table presents the computation of basic and diluted earnings
per share:
Three Months Ended Nine Months Ended
September 30, September 30,
1998 1997 1998 1997
-------------- ------------ ------------ -------------
Numerator:
Net income (loss) $ (1,120,000) $ 4,374,000 $ 5,119,000 $ 10,521,000
============= ============ ============ ============
Denominator:
Denominator for basic earnings per share-
weighted-average share 21,333,000 19,354,000 20,582,000 19,245,000
Dilutive effect of contingent shares related
to the ADCS Group and NOW acquisitions 780,000 780,000 780,000 780,000
Dilutive effect of employee stock options
and warrants, net of tax benefit -- 380,000 606,000 379,000
------------ ------------ ------------ ------------
Denominator for diluted earnings per share 22,113,000 20,514,000 21,968,000 20,404,000
============ ============ ============ ============
Net income (loss) per share--basic $(0.05) $0.23 $0.25 $0.55
============ =========== ============ ============
Net income (loss) per share--assuming dilution $(0.05) $0.21 $0.23 $0.52
============ ============ ============ ============
3. Inventories
Inventories are comprised of the following:
September 30, December 31,
1998 1997
------------ ------------
Raw materials $ 10,317,000 $ 8,182,000
Work in process 398,000 946,000
Finished goods 1,700,000 1,085,000
------------ ------------
12,415,000 10,213,000
Obsolescence reserve (1,172,000) (985,000)
------------ ------------
$ 11,243,000 $ 9,228,000
============ ============
4. Comprehensive Income (Loss)
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 (loss) 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 (loss).
The following table presents the components of comprehensive income (loss)
for the three and nine months ended September 30:
Three Months Ended Nine Months Ended
September 30, September 30,
1998 1997 1998 1997
--------------------------------- ----------------------------------
Net income (loss) $ (1,120,000) $ 4,374,000 $ 5,119,000 $10,521,000
--------------------------------- ----------------------------------
Other comprehensive income (loss)
Foreign currency translation (17,000) (9,000) 165,000 (7,000)
adjustments
--------------------------------- ----------------------------------
Other comprehensive income (loss) $ (1,137,000) $ 4,365,000 $ 5,284,000 $ 10,514,000
================================= ==================================
Accumulated other comprehensive income equals the amount included in
stockholders' equity 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 August 4, 1998, pursuant to a Merger Agreement dated February 19, 1998
by and among NOW Technologies, Inc., a Minnesota corporation, ATMI, and Glide
Acquisition, Inc., a newly-formed, wholly-owned Delaware subsidiary of ATMI
("Merger Subsidiary"), Merger Subsidiary merged with and into NOW, with NOW
being the surviving corporation (the "Merger"). As a result of the Merger, NOW
became a wholly-owned subsidiary of ATMI. Pursuant to the Merger, each
outstanding share of NOW Common Stock was converted into .865338 shares of ATMI
Common Stock. In the aggregate, 1,593,952 shares of ATMI Common Stock were
issued in the Merger. In addition, each outstanding option to purchase one share
of NOW Common Stock was converted into a stock option to purchase .865338 shares
of ATMI Common Stock. In the aggregate, 205,089 options were issued in the
Merger. The Merger is intended to be a tax-free transaction under the Internal
Revenue Code of 1986, as amended, and has been accounted for as a pooling of
interests. All historical financial results presented have been restated to
include the pooling of interests of NOW. For the nine month period ended
September 30, 1997 and December 31, 1997, prior to acquisition, revenues and net
income of ATMI and NOW included in the financial statements were $73,548,000 and
$9,113,000 and $11,696,000 and $1,408,000, respectively.
NOW manufactures proprietary, state-of-the-art, high performance containers
and dispensing systems for advanced purity chemicals used in the manufacture of
microelectronics, particularly semiconductor integrated circuits and active
matrix flat panel displays.
6. Non-recurring and Restructuring Charge
A non-recurring charge of approximately $1.7 million was expensed during
the quarter in conjunction with the Merger, primarily related to legal costs,
accounting costs and investment banker fees.
During the quarter, the Company recorded restructuring charges of
approximately $0.4 million for costs primarily related to work-force reductions
within the EcoSys business. In addition, the Company incurred a charge of
approximately $0.9 million to increase general business reserves, deemed
necessary by the continued weakening of the semiconductor industry. This charge
is included in cost of sales and selling, general and administrative expenses.
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. ("ATM") 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, high performance dispensing systems 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, dispensing systems for advanced purity chemical 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. In August
1998, ATMI acquired NOW Technologies. NOW manufactures proprietary,
state-of-the-art, high performance containers and dispensing systems for
advanced purity chemicals used in the manufacture of microelectronics,
particularly semiconductor integrated circuits and active matrix flat panel
displays.
The semiconductor industry has undergone a significant slowing in its
growth rate during most of 1998. The total number of semiconductor units sold in
1998 is expected to be less than those sold in 1997. That factor, along with the
substantial decrease in capital spending in the industry has had a sizable
impact on the Company's business in the three quarters ended September 30, 1998.
The Company also does not expect to see the kind of growth in the fourth quarter
of 1998 that was experienced in previous years, although the industry is
beginning to show some initial signs of strength with a seasonal increase in
semiconductor unit demand. Management views the fourth quarter with caution and
has taken steps, such as temporary plant shut-downs, salary reductions for
executives and a hiring freeze, to control costs and reduce expenses in reaction
to the slowdown in the industry. 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 Operations:
Three Months Ended Nine Months Ended
September 30, September 30,
1998 1997 1998 1997
---- ---- ---- ----
Product revenues 91.2% 92.9% 91.8% 91.7%
Contract revenues 9.8 7.1 8.2 8.3
----- ----- ----- -----
Total revenues 100.0 100.0 100.0 100.0
Cost of revenues 57.5 46.1 51.0 48.3
----- ----- ----- -----
Gross profit 42.5 53.9 49.0 51.7
Operating expenses:
Research and development 14.3 9.1 12.1 9.4
Selling, general and administrative 28.8 23.8 26.2 24.5
Nonrecurring and restructuring expense 9.7 0.0 2.7 0.0
---- ----- ----- -----
Total operating expenses 52.8 32.9 41.0 33.9
---- ----- ----- -----
Operating income (loss) (10.3) 21.0 8.0 17.8
Other income (expense), net 4.4 (0.2) 2.5 (0.1)
----- ----- ----- -----
Income (loss) before taxes (5.9) 20.8 10.5 17.7
Income taxes(benefit) (0.7) 6.7 3.8 5.3
----- ----- ----- -----
Net income (loss) (5.2)% 14.1% 6.7% 12.4%
===== ===== ===== =====
Results of Operations
Three Months Ended September 30, 1998 and 1997.
Revenues. Total revenues decreased 30.2% to approximately $21,729,000 in
the three months ended September 30, 1998 from approximately $31,114,000 in the
same three month period in 1997. Product revenues decreased 31.4% to
approximately $19,814,000 in the three months ended September 30, 1998 from
approximately $28,894,000 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 remained soft
in the third quarter of 1998 and, the continued effect from a customer inventory
build-up within the Company's SDS product line, were primary causes for the
decline in the Company's product revenues. Capacity expansion was virtually
non-existent in the third quarter which led to the EcoSys business being down
approximately 45% from revenue levels in the prior year. Contract revenues,
which are funded by United States government agencies, decreased 13.7% to
approximately $1,915,000 in the quarter ended September 30, 1998 from
approximately $2,220,000 in the same three month period in 1997. The decrease in
the 1998 quarter reflected a general decrease in government funding of the
Company's research activities.
Gross Profit. Gross profit decreased 45.0% to approximately $9,233,000 in
the quarter ended September 30, 1998 from approximately $16,780,000 in the
quarter ended September 30, 1997. As a percentage of revenues, gross profit
decreased to 42.5% in the three-month period in 1998 from 53.9% of revenues in
the three-month period in 1997.
Gross profit from product revenues decreased 47.7% to approximately
$8,622,000 in the three months ended September 30, 1998 from approximately
$16,495,000 in the same three-month period a year ago. As a percentage of
product revenues, gross margin decreased to 43.5% in the 1998 period from 57.1%
in the 1997 period due principally to decline in revenues in the EcoSys
business, where lower revenue volumes cause less effective fixed cost absorption
and thus, reduced margins. Excluding one-time charges to increase inventory
reserves, product margins would have decreased to 47.1% in the three months
ended September 30, 1998.
Gross profit on contract revenues increased 114% to approximately
$611,000 in the quarter ended September 30, 1998 from approximately $285,000 in
the same quarter a year ago. As a percentage of contract revenues, gross margin
increased to 31.9% in the third quarter of 1998 from 12.8% in the third quarter
of 1997. Contract margins varied significantly from the current year to the
prior year due to the mix of cost-type, firm fixed price and cost share
arrangements, currently being worked on at the Company. Additionally, different
fee arrangements and indirect cost absorption has contributed to a margin
increase in the third quarter 1998 as compared to the third quarter 1997.
Research and Development Expenses. Research and development expenses
increased 10.3% to approximately $3,110,000 in the third three months of 1998
from approximately $2,819,000 in the third three months of 1997. The increase in
the third quarter of 1998 was due to application-specific product development
efforts within Emosyn, and increases in the Company's advanced thin film
materials technology development efforts. As a percentage of revenues, research
and development expenses increased to 14.3% in the 1998 quarter from 9.1% in the
1997 quarter.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses decreased 15.4% to approximately $6,263,000 in the three
months ended September 30, 1998 from approximately $7,401,000 in the same
three-month period in 1997. The decrease in the 1998 quarter was primarily due
to decreased variable selling costs related the significant decline in revenues,
a reduction in workforce, principally at EcoSys, and other cost cutting measures
instituted by the Company. As a percentage of revenues, these expenses increased
to 28.8% in the three- month period in 1998 from 23.8% in the comparable period
in 1997.
Non-Recurring and Restructuring Expenses. The quarterly operating results
for the third quarter of 1998 included a one-time, non-recurring charge of
$2,102,000 related to the cost incurred in investigating, analyzing and
completing the acquisition of NOW Technologies and expenses related to a
reduction in workforce at the EcoSys business unit. The NOW acquisition cost was
approximately $1,698,000 and included legal, accounting, and investment banking
fees, as well as miscellaneous expenses incurred in connection with the
transaction which closed in August of 1998. The restructuring expense was
approximately $404,000 and related to costs incurred as part of the reduction in
workforce, primarily at EcoSys.
Other Income, Net. Other income, net, increased to approximately $978,000
in the quarter ended September 30, 1998 from an other expense, net, of
approximately $79,000 in the quarter ended September 30, 1997. The increase in
the 1998 quarter related to a significant increase in interest income due to the
increased cash and marketable securities levels on hand at September 30, 1998
compared to September 30, 1997 and to a decrease in interest expense as a result
of decreases in outstanding debt balances. These increased cash and marketable
securities levels resulted from the Company's public offering which occurred in
March and April of 1998.
Income Taxes. ATMI recorded an income tax benefit in the third quarter of
1998 due to the operating loss for the period. The operating loss for the period
was a result of the previously mentioned one-time non-recurring charges and
decline in revenues. Income tax benefit in the quarter ended September 30, 1998
was $147,000 which compared to an income tax expense of $2,084,000 in the same
quarter a year ago. The effective tax benefit rate in the 1998 quarter was lower
than current effective rates because certain of the non-recurring charges
related to the NOW acquisition were non-deductible. The Company had a 32%
effective rate for the quarter ended September 30, 1997 due to its utilization
of loss carryforwards in that period.
Earnings (Loss) per Share. Earnings (loss) per share-assuming dilution
declined 124% to ($0.05) for the third quarter of 1998 compared with $0.21 in
the third quarter of 1997. Excluding non-recurring charges of approximately $3.0
million for the three months ended September 30, 1998, earning per
share-assuming dilution decreased to $0.05 for the third quarter of 1998 from
$0.21 in same period of 1997. Earnings per share-assuming dilution in the 1998
period reflected a 7.8% increase in weighted average shares outstanding from
approximately 20,514,000 in the three months ended September 30, 1997 to
approximately 22,113,000 in the three months ended September 30, 1998, as a
result of the Company's public offering in March and April 1998.
Nine Months Ended September 30, 1998 and 1997.
Revenues. Total revenues decreased 9.9% to approximately $76,779,000 in the
nine months ended September 30, 1998 from approximately $85,244,000 in the same
nine month period in 1997. Product revenues decreased 9.8% to approximately
$70,441,000 in the nine months ended September 30, 1998 from approximately
$78,123,000 in the comparable period in 1997. The product revenue decline was
primarily attributable to a reduction in SDS product sales during the third
quarter of 1998 and a significant decline in equipment sales at EcoSys. The
third quarter decline in revenues when compared with the previous year's third
quarter has reduced the revenue growth rate when comparing the two comparable
nine-month periods.
Contract revenues, which are funded by United States government agencies,
decreased 11.0% to approximately $6,338,000 in the nine months ended September
30, 1998 from approximately $7,121,000 in the same nine-month period in 1997.
The decrease in the nine months ended September 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 decreased 14.8% to approximately $37,606,000 in
the nine- months ended September 30, 1998 from approximately $44,116,000 in the
nine months ended September 30, 1997. As a percentage of revenues, gross profit
decreased to 49.0% in the nine- month period in 1998 from 51.8% of revenues in
the nine month period in 1997.
Gross profit from product revenues decreased 16.4% to approximately
$35,915,000 in the nine months ended September 30, 1998 from approximately
$42,969,000 in the same nine month period a year ago. As a percentage of product
revenues, gross margin decreased to 51.0% in the 1998 period from 55.0% in the
1997 period due principally to reduced volume of epi sales, and higher fixed
cost absorption at Epitronics and EcoSys, which has suffered margin erosion due
to the significant revenue decline. Excluding one-time charges to increase
inventory reserves, product margins would have decreased to 52.0% in the nine
months ended September 30, 1998.
Gross profit on contract revenues increased 47.4% to approximately
$1,691,000 in the nine months ended September 30, 1998 from approximately
$1,147,000 in the same period a year ago. As a percentage of contract revenues,
gross margin increased to 26.7% in the first nine months of 1998 from 16.1% in
the first nine months of 1997. The increase in contract margin resulted from the
completion of various firm-fixed price contracts during 1998.
Research and Development Expenses. Research and development expenses
increased 15.8% to approximately $9,309,000 in the first nine months of 1998
from approximately $8,042,000 in the first nine months of 1997. The increase was
primarily due to development efforts to extend the SDS technology beyond ion
implant applications into CVD and bulk gas delivery, and product development
activities within the Company's Emosyn venture. As a percentage of revenues,
research and development expenses increased to 12.1% in the nine-month period of
1998 from 9.4% in the nine-month period of 1997.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses decreased 3.6% to approximately $20,107,000 in the nine
months ended September 30, 1998 from approximately $20,856,000 in the same
period in 1997. The decrease in the 1998 period was primarily due to decreased
administrative costs, resulting from reductions in personnel, a decrease in
executive compensation, and decreased commissions due to lower product revenues.
As a percentage of revenues, these expenses increased to 26.2% in the nine
months ended September 30, 1998 from 24.5% in the comparable period in 1997.
Non-Recurring and Restructuring Expenses. The nine-month period ended
September 30, 1998 included a one-time, non-recurring charge of $2,102,000
related to the cost incurred in investigating, analyzing and completing the
acquisition of NOW Technologies and expenses related to a reduction in workforce
at the EcoSys business unit. The NOW acquisition cost was approximately
$1,698,000 and included legal, accounting, and investment banking fees, as well
as miscellaneous expenses incurred in connection with the transaction which
closed in August of 1998. The restructuring expense was approximately $404,000
and related to costs incurred as part of the reduction in workforce primarily at
EcoSys which occurred in the third quarter of 1998.
Other Income, Net. Other income, net, increased to approximately $2,024,000
for the nine months ended September 30, 1998 from an other expense, net of
approximately $109,000 in the nine months ended September 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 nine months 1998 compared to 1997.
The increased cash levels and marketable securities resulted from the Company's
public offering which was completed in March and April 1998, 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 for the nine months ended September 30, 1998 was
$2,921,000 which was a decrease from $4,540,000 for the nine months ended
September 30, 1997. The Company's loss carryforwards were fully utilized in
1997, causing an increase to 36.0% in the Company's effective tax rate for the
nine months ended September 30, 1998 compared to a 30.0% effective tax rate for
the nine months ended September 30, 1997. The effective tax rate for the
nine-month period ended September 30, 1998 was impacted because certain of the
non-recurring charges related to the NOW acquisition were non-deductible.
Earnings per Share. Earnings per share-assuming dilution decreased to $0.23
for the nine months ended September 30, 1998 compared with $0.52 in the first
nine months of 1997. Excluding non-recurring charges of approximately $3.0
million for the nine months ended September 30, 1998, earning per share-assuming
dilution decreased to $0.34 in the 1998 period from $0.52 in the 1997 period.
Earnings per share-assuming dilution in the 1998 period reflected a 7.7%
increase in weighted average shares outstanding from approximately 20,404,000 in
the first nine months of 1997 to approximately 21,968,000 in the first nine
months of 1998, a primary result of the Company's public offering in March and
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 $102.9
million at September 30, 1998 from $41.4 million at December 31, 1997, due
primarily to a public offering completed in March and April, 1998.
Net cash provided by operations was approximately $6.7 million during the
nine months ended September 30, 1998 compared to cash provided from operations
of $2.3 million during the same nine month period of 1997. Working capital
fluctuations in the third 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 to ATMI from the offering, including exercise
by the underwriters of the over-allotment, were approximately $62.4 million.
The Company utilized approximately $65.9 million in cash in investing
activities during the nine months ended September 30, 1998 compared to a use of
approximately $3.7 million in cash in the same period a year ago. During the
first nine months of 1998, cash was used for the purchase of approximately $8.3
million in capital equipment, primarily related to installation of additional
manufacturing capacity in Danbury, Connecticut, San Jose, California 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 nine months, the
Company incurred approximately $5.8 million in capital expenditures and sold a
net amount of approximately $0.3 million in marketable securities.
The Company generated approximately $59.3 million from financing activities
during the first nine months of 1998, primarily due to the completion of the
public offering, compared to a utilization of cash of approximately $2.5 million
in the first nine months of 1997. The Company invested approximately $57.6
million raised primarily 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
early 1998, 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. 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.
Year 2000 Compliance
ATMI has formed an internal compliance team to evaluate its internal
information technology infrastructure and application systems ("IT Systems") and
other non-IT infrastructure systems ("Non-IT Systems") to determine whether such
systems will operate correctly with regard to the import, export, and processing
of date information, including correct handling of leap years, in connection
with the change in the calendar year from 1999 to 2000 (the "Year 2000 Issue"),
and to evaluate the Year 2000 Issue with respect to the systems of third party
partners and suppliers with which the Company has a material relationship
("Third Party Systems").
ATMI expects to complete an IT Systems inventory analysis and risk
assessment by December 31, 1998. As previously planned and budgeted, the Company
is actively upgrading its core IT Systems to incorporate additional desired
features and functionality. ATMI expects to complete these upgrades by March 31,
1999. In connection with such upgrades, the Company expects its core IT Systems
will be Year 2000 compliant. The Company expects to complete the IT Systems
initiative as planned and, accordingly, does not expect that any additional
costs of addressing the Year 2000 Issue for its IT Systems will have a material
adverse impact on the Company's financial position and results of operations or
cash flows.
ATMI also expects to complete a Non-IT System inventory analysis and risk
assessment by December 31, 1998. Any remediation actions required in order to be
Year 2000 compliant have not been budgeted to date. As ATMI believes the number
of Non-IT Systems is relatively small, ATMI does not expect that any additional
costs of addressing the Year 2000 Issue for Non-IT Systems will have a material
adverse impact on its operations or its financial position, results of
operations or cash flows.
ATMI is in the process of creating a plan to complete a Third Party
inventory and risk assessment. ATMI expects to verify Year 2000 compliance of
Third Party Systems no later than June 30, 1999. ATMI believes the number of
material Third Party Systems is relatively small: however; until Year 2000
compliance of all Third Party Systems is ascertained and written assurances are
received, the risk to ATMI's operations and any additional costs relating to
such Third Party Systems is unknown. A contingency plan addressing potential
issues related to Third Party Systems, is currently being developed and should
be completed no later than September 30, 1999.
ATMI has also tested its products for Year 2000 compliance and has
determined that all ATMI products currently available for sale have either
successfully passed Year 2000 compliance testing or are not subject to Year 2000
compliance because such products do not import, export or process date
information in any manner.
For the year ending December 31, 1998, the Company estimates it will spend
a total of $525,000 on inventory analysis and risk assessment. To date, the
Company has incurred approximately $455,000 of expense relating to inventory
analysis and risk assessment. The funds to cover the cost incurred to date were
derived from general operations. The costs primarily relate to desktop
compliance and standardization to Year 2000 compliance. These Year 2000
expenditures are within the Company's planned organizational budgets and include
the cost of reviewing of key operating systems. The remaining planned
expenditures for Year 2000 relate to IT Systems, Non-IT Systems, Third Party
System reviews and internal resources working on the Year 2000 issue as well as
planned upgrades or planned replacement systems which will have a positive
impact on resolving the Year 2000 Issue. ATMI expects to complete its risk
assessment and any additional cost estimates relating to the Year 2000 Issue no
later than December 31, 1998 and to establish a contingency plan relating to the
remediation and prioritization of its IT Systems, Non-IT Systems and Third Party
Systems shortly thereafter. As of September 30, 1998, no IT Systems projects
have been deferred due to problems associated with the Year 2000 Issue.
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 and
statements regarding the Company's efforts to achieve Year 2000 compliance 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, technological change affecting the Company's core thin film
competencies internal and/or third party delays or failures in achieving Year
2000 compliance and other risks described in this report and the Company's other
filings with the Securities and Exchange Commission.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Not applicable.
PART II- OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
a. Exhibits.
Exhibit No. Description
27.01 Financial Data Schedule (Filed herewith)
b. Reports on Form 8-K.
On August 12, 1998, the Company filed a Current Report on Form 8-K dated
August 4, 1998 reporting in Item 2 thereof the acquisition of NOW Technologies.
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.
November 13, 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.
November 13, 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
Sequentially
Numbered
Exhibit No. Description Page
27.01 Financial Data Schedule (Filed herewith)