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, 1999
[ ] 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: 0-30130
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 30,
1999 was 26,108,525.
<PAGE>
ATMI, INC.
Quarterly Report on Form 10-Q
For the Quarter Ended June 30, 1999
TABLE OF CONTENTS
Part I - Financial Information Page
Item 1. Financial Statements
Consolidated Balance Sheet................................
Consolidated Statement of Income..........................
Consolidated Statement of Cash Flows......................
Notes to Consolidated Interim Financial Statements........
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.........................
Item 3. Quantitative and Qualitative Disclosures about Market
Risk........................................................
Part II - Other Information
Item 2. Changes in Securities and Use of Proceeds...................
Item 4. Submission of Matters to a Vote of Security Holders.........
Item 6. Exhibits and Reports on Form 8-K............................
Signatures...........................................................
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
ATMI, Inc.
Consolidated Balance Sheet
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
------------- -------------
(unaudited)
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 22,427,000 $ 21,128,000
Marketable securities 64,262,000 64,551,000
Accounts receivable, net of allowance
for doubtful accounts of $1,083,000
in 1999 and $794,000 in 1998 28,754,000 20,747,000
Inventories 15,666,000 15,563,000
Other 5,995,000 7,610,000
------------- -------------
Total current assets 137,104,000 129,599,000
Property and equipment, net 49,383,000 50,185,000
Goodwill and other long-term assets, net 4,949,000 8,410,000
------------- -------------
$ 191,436,000 $ 188,194,000
============= =============
Liabilities and stockholders' equity
Current liabilities:
Loans, notes and bonds payable, current
portion $ 3,949,000 $ 6,602,000
Capital lease obligations, current portion 2,270,000 2,493,000
Accounts payable 7,560,000 6,903,000
Accrued expenses 11,420,000 10,485,000
Accrued commissions 1,308,000 1,315,000
Income taxes and other current payables 4,265,000 1,803,000
------------- -------------
Total current liabilities 30,772,000 29,601,000
Loans, notes and bonds payable, less current
portion 2,100,000 5,110,000
Capital lease obligations 2,757,000 3,746,000
Deferred income taxes 3,205,000 2,041,000
Other long-term liabilities 1,921,000 288,000
Minority interest 927,000 846,000
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 26,088,000 in 1999 and 25,941,000
in 1998
261,000 259,000
Additional paid-in capital 114,044,000 113,059,000
Retained earnings 34,857,000 34,547,000
Accumulated other comprehensive income (loss) 592,000 (1,303,000)
------------- -------------
Total stockholders' equity 149,754,000 146,562,000
------------- -------------
$ 191,436,000 $ 188,194,000
============= =============
</TABLE>
See accompanying notes
<PAGE>
ATMI, Inc.
Consolidated Statement of Income
(unaudited)
<TABLE>
<CAPTION>
Three months ended June 30,
1999 1998
---- ----
<S> <C> <C>
Revenues $ 42,976,000 $ 36,905,000
Cost of revenues 20,884,000 20,026,000
------------ ------------
Gross profit 22,092,000 16,879,000
Operating expenses:
Research and development 4,109,000 4,050,000
Selling, general and administrative 12,355,000 11,661,000
Merger and related costs 6,800,000 --
------------ ------------
23,264,000 15,711,000
------------ ------------
Operating income (loss) (1,172,000) 1,168,000
Interest income 990,000 1,229,000
Interest expense (188,000) (410,000)
Other income (expense), net (16,000) (18,000)
------------ ------------
Income (loss) before taxes and minority interest (386,000) 1,969,000
Provision for income taxes 1,002,000 887,000
------------ ------------
Income (loss) before minority interest (1,388,000) 1,082,000
Minority interest (82,000) (13,000)
------------ ------------
Net income (loss) $ (1,470,000) $ 1,069,000
============ ============
Net income (loss) per share-basic $ (0.06) $ 0.04
============ ============
Net income (loss) per share-assuming dilution $ (0.06) $ 0.04
============ ============
Weighted average shares outstanding 25,013,000 24,715,000
============ ============
Weighted average shares outstanding-assuming
dilution 25,013,000 26,295,000
============ ============
</TABLE>
See accompanying notes.
<PAGE>
ATMI, Inc.
Consolidated Statement of Income
(unaudited)
<TABLE>
<CAPTION>
Six months ended June 30,
1999 1998
---- ----
<S> <C> <C>
Revenues $ 75,540,000 $ 83,541,000
Cost of revenues 37,105,000 41,292,000
------------ ------------
Gross profit 38,435,000 42,249,000
Operating expenses:
Research and development 7,704,000 7,667,000
Selling, general and administrative 22,810,000 25,020,000
Merger and related costs 6,800,000 --
------------ ------------
37,314,000 32,687,000
------------ ------------
Operating income 1,121,000 9,562,000
Interest income 2,041,000 1,685,000
Interest expense (451,000) (861,000)
Other income (expense), net 41,000 108,000
------------ ------------
Income before taxes and minority interest 2,752,000 10,494,000
Provision for income taxes 2,198,000 3,921,000
------------ ------------
Income before minority interest 554,000 6,573,000
Minority interest (81,000) (68,000)
------------ ------------
Net income $ 473,000 $ 6,505,000
============ ============
Net income per share-basic $ 0.02 $ 0.28
============ ============
Net income per share-assuming dilution $ 0.02 $ 0.26
============ ============
Weighted average shares outstanding 24,988,000 23,627,000
============ ============
Weighted average shares outstanding-assuming
dilution 26,520,000 25,248,000
============ ============
</TABLE>
See accompanying notes.
<PAGE>
ATMI, Inc.
Consolidated Statement of Cash Flows
(unaudited)
<TABLE>
<CAPTION>
Six months ended June 30,
1999 1998
---- ----
<S> <C> <C>
Operating activities
Net income $ 473,000 $ 6,505,000
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 4,798,000 4,161,000
Long-lived asset impairment 3,386,000 --
Deferred income taxes 1,409,000 896,000
Bad debt expense 290,000 121,000
Effect of change of fiscal year of pooled
entity (163,000) --
Minority interest in net earnings of
consolidated subsidiaries 81,000 68,000
Changes in operating assets and liabilities
Decrease (increase) in accounts receivable (8,297,000) 5,777,000
Increase in inventory (103,000) (2,547,000)
Decrease (increase) in other assets 1,709,000 (2,375,000)
Increase (decrease) in accounts payable 657,000 (2,114,000)
Increase (decrease) in accrued expenses 928,000 (4,928,000)
Increase (decrease) in other liabilities 2,927,000 (897,000)
------------ ------------
Total adjustments 7,622,000 (1,838,000)
------------ ------------
Net cash provided by operating activities 8,095,000 4,667,000
------------ ------------
Investing activities
Capital expenditures (3,849,000) (6,614,000)
(Purchase) sale of marketable securities, net 2,852,000 (56,440,000)
------------ -----------
Net cash used by investing activities (997,000 (63,054,000)
------------ ------------
Financing activities
Principal payments on capital lease obligations (1,212,000) (1,618,000)
Principal payments on loans, notes and bonds
payable, net (5,663,000) (309,000)
Proceeds from sale of common shares, net -- 62,426,000
Proceeds from the exercise of stock options
and warrants 987,000 400,000
------------ ------------
Net cash provided (used) by financing activities (5,888,000) 60,899,000
------------ ------------
Effects of exchange rate changes on cash 89,000 34,000
Net increase in cash and cash equivalents 1,299,000 2,546,000
Cash and cash equivalents, beginning of period 21,128,000 15,122,000
------------ ------------
Cash and cash equivalents, end of period $ 22,427,000 17,668,000
============ ============
</TABLE>
See accompanying notes.
<PAGE>
ATMI, Inc.
Notes To Consolidated Interim Financial Statements
(unaudited)
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated interim financial statements of
ATMI, Inc. ("ATMI" or the "Company") have been prepared in accordance with the
instructions to Form 10-Q and Article 10 of Regulation S-X and do not include
all of the financial information and disclosures required by generally accepted
accounting principles. In addition, these unaudited consolidated interim
financial statements give retroactive effect to the acquisitions of NOW
Technologies, Inc. ("NOW"), TeloSense Corporation ("TeloSense"), Delatech
Incorporated ("Delatech"), and Advanced Chemical Systems International, Inc.,
("ACSI") which have been accounted for using the pooling-of-interests method.
These acquisitions occurred on August 4, 1998, May 5, 1999, May 31, 1999 and May
31, 1999, respectively, and are more fully described in the Company's Form 8-K/A
dated May 31, 1999.
The balance sheet at December 31, 1998 has been derived from the audited
consolidated financial statements at that date but does not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements.
In the opinion of the management of ATMI, Inc. the financial information
contained herein has been prepared on the same basis as the audited Supplemental
Consolidated Financial Statements contained in the Company's Form 8-K/A dated
May 31, 1999, 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
The following table presents the computation of basic and diluted earnings
per share:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Numerator:
Net income (loss) $ (1,470,000) $ 1,069,000 $ 473,000 $ 6,505,000
============ ============ ============ ===========
Denominator:
Denominator for basic earnings per share 25,013,000 24,715,000 24,988,000 23,627,000
Dilutive effect of contingent shares related
to acquisitions -- 1,135,000 1,055,000 1,135,000
Dilutive effect of employee stock options
and warrants, net of tax benefit -- 445,000 477,000 486,000
---------- --------- ----------- -----------
Denominator for diluted earnings per share 25,013,000 26,295,000 26,520,000 25,248,000
============ ============ ============ ===========
Net income (loss) per share--basic $ (0.06) $ 0.04 $ 0.02 $ 0.28
============ ============ ============ ===========
Net income (loss) per share--assuming dilution $ (0.06) $ 0.04 $ 0.02 $ 0.26
============ ============ ============ ===========
</TABLE>
3. INVENTORY
Inventory is comprised of the following:
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
--------------- ------------------
<S> <C> <C>
Raw materials $ 13,560,000 $ 12,542,000
Work in process 530,000 839,000
Finished goods 3,654,000 3,605,000
--------------- ------------------
17,744,000 16,986,000
Obsolescence reserve (2,078,000) (1,423,000)
--------------- ------------------
15,666,000 $ 15,563,000
=============== ==================
</TABLE>
4. INCOME TAXES
The Company was notified by the Internal Revenue Service of an assessment
for certain tax matters in the amount of approximately $2 million. The Company
believes that such assessment is without merit and intends to vigorously defend
its position in these matters. Although the former securityholders of the ADCS
Group have agreed to indemnify the Company against losses arising out of such
tax matters, this assessment, if ultimately determined against the Company,
would result in a charge to the Company's results of operations.
5. COMPREHENSIVE INCOME
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 computation of comprehensive income for
the three and six months ended June 30:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1999 1998 1999 1998
--------------------------------- --------------------------------
<S> <C> <C> <C> <C>
Net income (loss) $ (1,470,000) $ 1,069,000 $ 473,000 $ 6,505,000
--------------------------------- --------------------------------
Cumulative translation adjustment 316,000 9,000 255,000 182,000
Unrealized gain on
available-for-sale
securities (net of taxes of
$911,000 and $922,000) 1,620,000 ---- 1,640,000 ----
--------------------------------- ---------------------------------
Comprehensive income $ 466,000 $ 1,078,000 $ 2,368,000 $ 6,687,000
================================= ==================================
</TABLE>
6. SEGMENT DATA
Segment information included under the caption "Segment Data" in
Management's Discussion and Analysis of Financial Condition and Results of
Operations is incorporated herein by reference and is an integral part of these
unaudited interim financial statements.
7. Merger and Acquisition
On May 5, 1999, pursuant to a Merger Agreement, the Company issued
approximately 0.2 million shares of its common stock in exchange for all of the
ownership interests of TeloSense. TeloSense manufactures and sells toxic gas
sensors and gas monitoring systems used in the semiconductor industry.
On May 31, 1999, pursuant to an Agreement and Plan of Merger, the Company
issued approximately 2.4 million shares of its common stock in exchange for all
of the ownership interests of Delatech. Delatech manufactures and distributes
environmental gas abatement equipment used in the semiconductor industry.
Also on May 31, 1999, pursuant to an Agreement and Plan of Merger, the
Company issued approximately 1.2 million shares of its common stock in exchange
for all of the ownership interests of ACSI. ACSI manufacturers, distributes, and
sells specialty chemicals to integrated circuit manufacturers.
The former securityholders of ACSI and Delatech have agreed to indemnify
the Company from and against certain losses arising out of breach of
representations and warranties made by the respective securityholders. As
security for these obligations, the former securityholders of ACSI and Delatech
delivered into escrow approximately 0.1 million and approximately 0.2 million
shares, respectively, of the Company's common stock which they received in
connection with these acquisitions.
Merger and related costs of approximately $6.8 million include $2.4 million
of investment banker fees, legal and accounting fees recorded in the quarter
ended June 30,1999 in connection with the investigation, analysis and May 1999
closings of the TeloSense, Delatech, and ACSI transactions. The acquisition of
Delatech also resulted in a charge of $4.4 million to recognize the impaired
value of certain inventory ($1 million) and goodwill ($3.4 million) associated
with existing EcoSys product lines. These charges were based on the estimated
shortfall of future cash flows on a discounted basis.
The acquisitions of TeloSense, ACSI and Delatech were treated as pooling of
interests. Both TeloSense's and Delatech's fiscal year ended on November 30. The
financial statements have been restated to combine TeloSense's and Delatech's
fiscal year-end and ACSI's and ATMI's year-end. Certain adjustments have been
made to the financial statements to combine their operations. An adjustment of
$163,000 was made, in the six months ended June 30, 1999, to retained earnings
to adjust for the different fiscal year ends. The following represents unaudited
results of operations of the Company and the merger entities of TeloSense, ACSI
and Delatech for the three months ended March 31, 1999 and 1998:
<TABLE>
<CAPTION>
Three Months Ended Three Months Ended
March 31, 1999 March 31, 1998
------------------ ------------------
<S> <C> <C>
Revenues:
ATMI $ 24,029,000 $ 30,534,000
TeloSense, ACSI and Delatech $ 8,535,000 $ 16,102,000
Net Income:
ATMI $ 1,992,000 $ 4,565,000
TeloSense, ACSI and Delatech $ (49,000) $ 871,000
</TABLE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
OVERVIEW
ATMI, Inc. is a leading supplier of thin film materials, equipment, and
services used worldwide in the manufacture of semiconductor devices. The Company
targets high growth consumable and equipment markets within the semiconductor
industry with proprietary and patented products. The Company currently provides:
(i) a broad range of ultrahigh-purity thin film materials and related delivery
systems; (ii) a full line of point-of-use semiconductor environmental equipment
and services; and (iii) specialty epitaxial thin film deposition services. Over
the last four years, the Company has achieved a leadership position in each of
its target markets by providing a more complete line of products than its
competitors. ATMI's strategy is to continue its growth through product line
expansion in each of its existing markets and to leverage its core technology to
create new high growth businesses. The Company has grown in recent years through
strategic acquisitions in its target markets. Management's Discussion and
Analysis of Financial Condition and Results of Operations give retroactive
effect to the acquisitions of ACSI, Delatech, and TeloSense which have been
accounted for using the pooling of interests method.
ATMI has capitalized on the growth of the semiconductor industry by
providing leading edge products and services in each of its target markets. The
Company has organized its operations along two business segments--ATMI Materials
and ATMI Technologies.
ATMI's Materials segment consists of the ADCS, NovaSource, ACSI and NOW
divisions. ADCS develops and markets ultrahigh-purity thin film materials and
proprietary delivery systems. NovaSource develops and markets Safety Delivery
Source ("SDS"), which stores dangerous gases as solids in cylinders, providing
increased safety and substantially greater operating efficiencies. ACSI
manufacturers and markets specialty materials used in photolithography and
chemical mechanical processing steps in semiconductor manufacturing. NOW
manufactures high performance containers and dispensing systems for advanced
purity chemicals used in the manufacture of microelectronics.
ATMI's Technologies segment consists of the EcoSys, Epitronics, Emosyn, and
Ventures divisions. The Company believes EcoSys, particularly after the May 1999
acquisitions of Delatech and TeloSense, is the only provider of point-of-use
environmental equipment offering all of the key technologies for semiconductor
effluent abatement and monitoring. The Company's Epitronics division is a world
leader in specialty epitaxial services, providing high-quality processing of
silicon and next-generation III-V and wide bandgap wafers. The Company's Emosyn
division is bringing to market a new generation of semiconductor devices,
initially targeted at the high growth market for smart card integrated circuits.
ATMI participates in United States government-funded research and development
contracts through its Ventures division.
The following table sets forth, for the periods indicated, certain items
from the Company's consolidated statement of income expressed as a percentage of
total revenues:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues 100.0% 100.0% 100.0% 100.0%
Cost of revenues 48.6 54.3 49.1 49.4
----- ----- ----- -----
Gross profit 51.4 45.7 50.9 50.6
Research and 9.6 11.0 10.2 9.2
development
Selling, general
and administrative 28.7 31.6 30.2 29.9
Merger and related costs 15.8 0.0 9.0 0.0
----- ----- ----- -----
Total operating expenses 54.1 42.6 49.4 39.1
----- ----- ----- -----
Operating income (loss) (2.7) 3.1 1.5 11.5
Other income (expense), net 1.8 2.2 2.1 1.1
----- ----- ----- -----
Income (loss) before taxes and
minority interest (0.9) 5.3 3.6 12.6
Provision for income taxes 2.3 2.4 2.9 4.7
----- ----- ----- -----
Income (loss) before minority
interest (3.2) 2.9 0.7 7.9
Minority interest (0.2) 0.0 (0.1) (0.1)
===== ===== ===== =====
Net income (loss) (3.4)% 2.9% 0.6% 7.8%
===== ===== ===== =====
</TABLE>
RESULTS OF OPERATIONS
Three Months Ended June 30, 1999 and 1998
Revenues. Revenues increased 16.5% to approximately $42,976,000 in the
three months ended June 30, 1999 from approximately $36,905,000 in the same
three month period in 1998. The revenue increase was primarily attributable to
the improved market conditions for semiconductor materials as compared to the
second quarter of 1998. This market improvement was primarily driven by the
increase in semiconductor wafer starts and semiconductor unit demand in the 1999
period. ATMI's consumable products, most notably SDS, NOW packaging products and
ADCS chemical products, showed strong volume growth during the second quarter of
1999.
Gross Profit. Gross profit increased 30.9% to approximately $22,092,000 in
the quarter ended June 30, 1999 from approximately $16,879,000 in the quarter
ended June 30, 1998. As a percentage of revenues, gross margin increased to
51.4% in the three month period in 1999 from 45.7% of revenues in the three
month period in 1998. This was due principally to an increase in revenues in the
Materials segment, where increased revenues in higher margin product lines
caused a more favorable product mix. The increase in revenue volumes also led to
more effective fixed cost absorption and thus, increased margins.
Research and Development Expenses. Research and development expenses
increased 1.5% to approximately $4,109,000 in the first three months of 1999
from approximately $4,050,000 in the first three months of 1998. The increase in
the second quarter of 1999 was primarily due to continued application-specific
product development efforts within Emosyn. As a percentage of revenues, research
and development expenses decreased to 9.6% in the 1999 quarter from 11.0% in the
1998 quarter.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased 6.0% to approximately $12,355,000 in the three
months ended June 30, 1999 from approximately $11,661,000 in the same three
month period in 1998. The increase in the 1999 quarter was primarily due to
increased selling costs related to commissions, which were caused by the
increase in revenues in the Materials segment, and additional infrastructure
needed for the continued growth of the businesses. As a percentage of revenues,
these expenses decreased to 28.7% in the three month period in 1999 from 31.6%
in the comparable period in 1998.
Merger and Related Costs. The second quarter 1999 operating results,
include merger and related costs of approximately $6,800,000 including
$2,400,000 of investment banker, legal and accounting fees recorded in the
quarter ended June 30, 1999 in connection with the investigation, analysis and
May 1999 closings of the TeloSense, Delatech, and ACSI transactions. The
acquisition of Delatech also resulted in a $4,400,000 asset impairment charge
for inventory ($1,000,000) and goodwill ($3,400,000) associated with certain
existing EcoSys product lines which were determined to be impaired based on the
Company's assessment of estimated net cash flows from such product lines.
Other Income, Net. Other income, net, decreased to approximately $786,000
in the quarter ended June 30, 1999 from other income, net, of approximately
$801,000 in the quarter ended June 30, 1998. The decrease in the 1999 quarter
related to a decline in interest income levels as compared to 1998. The interest
income declined due to lower levels of cash and lower interest rates during the
second quarter of 1999 compared to 1998.
Income Taxes. Income tax expense in the quarter ended June 30, 1999 was
$1,002,000 which was an increase from $887,000 for the same quarter in 1998. The
differences between the consolidated effective income tax rate and the U.S.
Federal statutory rate are primarily attributed to state income taxes and the
effects of certain non-deductible merger related costs.
Earnings per Share. On a pro-forma basis, excluding the after-tax
$5,459,000 charge related to acquisitions closed during the quarter, net income
improved to $3,989,000, or $0.15 per diluted share compared with $1,069,000 or
$0.04 per diluted share, a year ago. Earnings per share-assuming dilution,
including the merger and related cost charge, declined to $(0.06) for the second
quarter of 1999. Earnings per share-assuming dilution in the 1999 period
reflects a 4.9% decrease in weighted average shares outstanding from
approximately 26,295,000 in the second quarter of 1998 to approximately
25,013,000 in the second quarter of 1999.
Six Months Ended June 30, 1999 and 1998
Revenues. Total revenues decreased 9.6% to approximately $75,540,000 in the
six months ended June 30, 1999 from approximately $83,541,000 in the same period
in 1998. Despite sequential revenue growth in the second quarter, year-to-date
revenues are below 1998 levels. While the industry has shown significant signs
of recovery, the market, particularly for equipment products has not returned to
the levels experienced during early 1998. The overall decline was offset by
growth in the Material segment as compared to the first six months of 1998. The
gains in the Materials segment relate to the Company's SDS, NOW dispensing and
packaging products and ADCS chemical product lines.
Gross Profit. Gross profit decreased 9.0% to approximately $38,435,000 in
the six months ended June 30, 1999 from approximately $42,249,000 in the six
months ended June 30, 1998. As a percentage of revenues, gross margin increased
to 50.9% in the first half of 1999 from 50.6% of revenues in the same period in
1998. This increase was due principally to margin gains related to the increased
sales of NOW dispensing and packaging system.
Research and Development Expenses. Research and development expenses
increased 0.5% to approximately $7,704,000 in the first six months of 1999 from
approximately $7,667,000 in the first six months of 1998. Increased efforts to
expand SDS technology beyond ion implant applications into CVD, etch, and bulk
gas delivery, and continued product development activities within the Emosyn
business were offset by reduced R&D spending within EcoSys. As a percentage of
revenues, research and development expenses increased to 10.2% in the first half
of 1999 from 9.2% in the first half of 1998.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses decreased 8.8% to approximately $22,810,000 for the six
months ended June 30, 1999 from approximately $25,020,000 in the same period in
1998. The decrease in the 1999 period was primarily due to decreased
administrative costs and decreased commissions on lower product revenues
primarily at EcoSys. As a percentage of revenues, these expenses increased
slightly to 30.2% in the first half of 1999 from 29.9% in the comparable period
in 1998.
Merger and Related Costs. During the second quarter of 1999, the Company
recorded merger and related costs of approximately $6,800,000 including
$2,400,000 of investment banker, legal and accounting fees recorded in the
quarter ended June 30, 1999 in connection with the investigation, analysis and
May 1999 closings of the TeloSense, Delatech, and ACSI transactions. The
acquisition of Delatech also resulted in a $4,400,000 asset impairment charge
for inventory ($1,000,000) and goodwill ($3,400,000) associated with certain
existing EcoSys product lines which were determined to be impaired based on the
Company's assessment of estimated net cash flows from such product lines.
Other Income, Net. Other income, net, increased to approximately $1,631,000
for the six months ended June 30, 1999 from $932,000 for the six months ended
June 30, 1998. The increase in the 1999 period related to a significant increase
in interest income due to increased cash levels on hand during the first quarter
of 1999 compared to the first quarter of 1998. These increased cash levels
resulted from the public offering that was completed at the beginning of the
second quarter in 1998.
Income Taxes. Income tax expense for the six months ended June 30, 1999 was
$2,198,000, which was an decrease from $3,921,000 for the same six month period
in 1998. The differences between the consolidated effective income tax rate and
the U.S. Federal statutory rate are primarily attributed to state income taxes
and the effects of certain non-deductible merger related costs.
Earnings per Share. On a pro-forma basis, excluding the after-tax
$5,459,000 charge related to acquisitions closed during the first six months of
1999, net income improved to $5,932,000, or $0.22 per diluted share compared
with $6,505,000 or $0.26 per diluted share for the same period in 1998. Earnings
per share-assuming dilution, including the merger charge, decreased to $0.02 for
the six months ended June 30, 1999. Earnings per share-assuming dilution in the
1999 period reflects a 5.0% increase in weighted average shares outstanding to
approximately 26,520,000 in the first six months of 1999 from approximately
25,248,000 in the first six months of 1998.
SEGMENT DATA
ATMI has two segments- ATMI Materials and ATMI Technologies. The Company
evaluates performance and allocates resources based on operating profit or loss,
not including interest and other income or expense and income taxes. The
accounting policies of the reportable segments are more fully described in the
Company's Annual Report on Form 10-K for the year ended December 31, 1998.
The following tables provide reported results for each of these segments
for the three and six months ended June 30:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
1999 1998 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues
ATMI Materials $ 22,315,000 $ 16,878,000 $ 40,199,000 $ 36,340,000
ATMI Technologies 20,661,000 20,027,000 35,341,000 47,201,000
============ ============ ============ ============
Consolidated Revenues $ 42,976,000 $ 36,905,000 $ 75,540,000 $ 83,541,000
============ ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
1999 1998 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Operating Income (Loss)
ATMI Materials $ 5,122,000 $ 2,638,000 $ 9,027,000 $ 7,041,000
ATMI Technologies 1,672,000 (617,000) 986,000 3,845,000
Merger and Related Costs (6,800,000) -- (6,800,000) --
Corporate (1,166,000) (853,000) (2,092,000) (1,324,000)
------------ ------------- ------------- ------------
Consolidated Operating
Income (Loss) $ (1,172,000) $ 1,168,000 $ 1,121,000 $ 9,562,000
============= ============= ============= ============
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
Net Income (Loss) 1999 1998 1999 1998
------------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Operating Income (Loss) from
Reportable Segments $ (1,172,000) 1,168,000 $ 1,121,000 $ 9,562,000
Other Income 704,000 788,000 1,550,000 864,000
Income Taxes (1,002,000) (887,000) (2,198,000) (3,921,000)
------------- ------------ ------------- -----------
Consolidated Net Income
(Loss)
$ (1,470,000) 1,069,000 $ 473,000 $ 6,505,000
============ ============ ============ ============
</TABLE>
The following table provides reported balance sheet data for each of the
segments at June 30, 1999 and at December 31, 1998:
<TABLE>
<CAPTION>
Identifiable Assets 1999 1998
---- ----
<S> <C> <C>
ATMI Materials $ 45,945,000 $ 39,534,000
ATMI Technologies 62,230,000 61,037,000
General Corporate Assets 83,261,000 87,623,000
============== ============
Total Consolidated Assets $ 191,436,000 $ 188,194,000
============== ============
</TABLE>
BUSINESS SEGMENTS RESULTS
ATMI Materials
Revenues in the Materials segment for the three months ended June 30, 1999
increased 32% from 1998 levels. An increase in semiconductor unit demand during
the quarter led to a significant increase in sales of ATMI Materials' product
sales. The 1999 second quarter growth in Materials was spurred by stronger
industry conditions and increased market penetration particularly related to the
SDS and NOW product lines. For the six months ended June 30, 1999 revenues
increased 11% from 1998 levels. This increase reflects market share gains for
several of ATMI Materials' product lines.
Operating income in the Materials segment improved 94% for the three months
ended June 30, 1999 from the same period in 1998. The revenue increase in 1999
combined with strong margins and cost containment initiatives drove operating
income to significant gains within the segment. Operating income, as a
percentage of revenues, was 23% and 16% for the three months ended June 30, 1999
and 1998, respectively. For the six months ended June 30, 1999 operating income
levels increased 28% from 1998 levels. This increase reflects the gains made due
to the improved market conditions within the industry during 1999. Operating
income, as a percentage of revenues, was 23% and 19% for the six months ended
June 30, 1999 and 1998, respectively.
ATMI Technologies
Revenues in the Technologies segment in the second quarter of 1999
increased 3% from second quarter 1998 levels. Semiconductor manufacturing
capacity expansion has begun to improve from depressed 1998 levels. This has led
to an improvement in sales at EcoSys (including Delatech) and Epitronics.
Although signs of a steady recovery have emerged in the first six months of the
year 1999, revenue levels are still trailing first half of 1998 revenues by 25%.
Operating income within the Technologies segment improved to $1.7 million
in the second quarter of 1999 compared to an operating loss of $0.6 million for
the same period in 1998. The income increase was attributable to the improvement
in both EcoSys' and Epitronics product margins due to a favorable product mix
shift and an improvement in profitability of various contract programs. For the
six months ended June 30, 1999 operating income declined 74% from 1998 levels.
This resulted from a significant decrease in profitability in the first quarter
of 1999 compared to 1998 levels.
Corporate
Corporate expenses increased 37% for the three months ended June 30, 1999
compared to the same period in 1998. The increase resulted primarily because of
additional general and administrative support due to the growth of the Company.
The increase in the business of the Company, driven by acquisitions, has
required additional corporate infrastructure. Additionally, in late 1998, the
Company began implementing an ERP system, which has led to an increase in
consultant and planning expenses. Corporate expenses increased 58% for the six
months ended June 30, 1999 compared to the same period in 1998.
Corporate identifiable assets consist primarily of cash and marketable
securities.
Liquidity and Capital Resources
To date, the Company has financed its activities through the sale of
equity, its operations, external research and development funding, various lease
and debt instruments. The Company's working capital increased to $106.3 million
at June 30, 1999 from $100.0 million at December 31, 1998.
Net cash provided by operations was approximately $8.1 million during the
six months ended June 30, 1999, resulting primarily from improvements in working
capital, as compared to cash provided from operations of $4.7 million during the
same six month period of 1998. The improvement in working capital was primarily
caused by a decrease in other assets, and increases in accounts payable, accrued
expenses, and other liabilities. The $6.8 million of merger and related costs
expensed in the second quarter of 1999, reduced cash generated from operations
by approximately $2.0 million during the period ended June 30, 1999. In 1998,
operations provided cash of $6.5 million, offset by a decline in working capital
related to increases in inventory, other assets and decreases in accounts
payable and accrued expenses.
The Company utilized approximately $1.0 million in cash for the six months
ended June 30, 1999 in investing activities compared to a use of approximately
$63.0 million in cash for the same period a year ago. During the first six
months of 1999, cash was used for the purchase of approximately $3.9 million in
capital equipment to support continued growth at the Company's existing
manufacturing facilities. During the first six months of 1998, cash was used for
the purchase of approximately $6.6 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. Additionally, in 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. ATMI received
net proceeds from the offering including exercise by the underwriters of the
over-allotment of approximately $62.4 million. 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.
As of June 30, 1999, ATMI has financed a significant portion of its capital
equipment purchases, particularly the silicon epitaxial capacity, through
capital leases with approximately $5.0 of capital lease obligations outstanding.
During the first six months of 1999 and 1998, the Company made payments on
capital leases of approximately $1.2 million and $1.6 million, respectively.
Financial institutions have also provided collateral-based loans for other
equipment purchases. The Company has also entered into various note arrangements
to finance the purchase of key product lines and other expansion of its
businesses. In the first six months of 1999 and 1998, the Company made payments
on notes of approximately $5.6 million and $0.3 million, respectively. The
Company's NOW business has an industrial revenue bond arrangement outstanding in
the amount of $2.5 million, which was used for the equipment and improvements at
its manufacturing facility and corporate office. At June 30, 1999, $6.0 million
of loans, bonds and financing remained outstanding. In the first six months of
1998, the Company generated approximately $62.4 million from the completion of a
public offering. Management believes that is debt service obligations can be
adequately satisfied by cash flows from operations.
ATMI believes its existing cash balances and marketable securities,
existing sources of liquidity and anticipated funds from operations, will
satisfy its projected working capital and other cash requirements through at
least the end of 2000. 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.
YEAR 2000 COMPLIANCE
ATMI has 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 conducted an IT Systems inventory analysis and risk assessment and has
recently completed upgrades of core IT Systems to incorporate additional desired
features and functionality including Year 2000 compliant operators. As a result
of such upgrades, the Company believes its core IT Systems are Year 2000
compliant. The Company 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, results of operations or cash flows.
ATMI has also completed a Non-IT System inventory analysis and risk
assessment. As a result of the analysis, the Company believes that no
remediation actions are required in order to be Year 2000 compliant. Because
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 has completed its Third Party inventory and risk assessment. As a
result of the analysis, the Company believes that no other actions are necessary
in order to be Year 2000 compliant. However, ATMI still believes that its most
reasonably likely worst-case Year 2000 scenarios would involve Third Party
Systems rather than its internal systems. The Company believes that its greatest
risks would be the partial or complete shutdown of a critical supplier or
strategic partner and its inability to provide critical supplies and services to
the Company on a timely basis. A contingency plan addressing potential issues
related to Third Party Systems has been developed. The contingency plan consists
of ensuring adequate levels of critical supplies used in the Company's
manufacturing processes are on hand at the end of year 1999. The Company has
also compiled a listing of manufacturers of alternative supply sources for its
critical products. In the event a third party supplier is affected by Year 2000
issues, the Company will make arrangements with alternative suppliers for its
critical raw materials.
ATMI has 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.
To date, the Company has incurred approximately $585,000 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 operational budgets and
include the cost of reviewing key operating systems. As of June 30, 1999, no IT
Systems projects have been deferred because of problems associated with the Year
2000 Issue.
FORWARD-LOOKING STATEMENTS
The statements contained in this report which are not historical are
"forward-looking statements" within the meaning of Section 27A of the Securities
Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934,
as amended. Examples of forward-looking statements include, without limitation,
statements by ATMI regarding financial projections, expectations for demand and
sales of new and existing products, market and technology opportunities,
business strategies, business opportunities, objectives of management for future
operations, semiconductor industry and market segment growth and efforts to
achieve Year 2000 compliance. In addition, when used in this report, the words
"anticipate," "plan," "believe," "estimate," "expect" and similar expressions as
they relate to the Company or its management are intended to identify
forward-looking statements. All forward-looking statements involve risks and
uncertainties. Actual results may differ materially from those discussed in, or
implied by, the forward-looking statements as a result of certain factors
including, but not limited to, changes in the pattern of semiconductor industry
growth, the markets for or customer interest in the products of ATMI, product
and market competition, delays or problems in the development and
commercialization of products, technological changes affecting the competencies
of ATMI and unanticipated internal and/or third party delays or failures in
achieving Year 2000 compliance. The cautionary statements made in this report
should be read as being applicable to all related forward-looking statements
wherever they appear in this report.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Market risks relating to the Company's operations result primarily from
changes in interest rates and foreign exchange rates, as well as credit risk
concentrations. The Company's customer base is composed of semiconductor
manufacturers that are located throughout the United States, Europe and the
Pacific Rim. There is no single geographic area of concentration in the United
States, Europe or the Pacific Rim. The Company's market risks related to
interest and foreign exchange rates are not material to its operating results.
PART II- OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds
On May 5, 1999, the Company issued to the former stockholders of TeloSense
an aggregate of 231,594 shares of its common stock in connection with the
acquisition of TeloSense. On May 31, 1999, the Company issued to the former
stockholders of Delatech an aggregate of 2,347,499 shares of its common stock in
connection with the acquisition of Delatech. On May 5, 1999, the Company issued
to the former stockholders of ACSI an aggregate of 1,202,312 shares of its
common stock in connection with the acquisition of ACSI. In each case, the
issued shares were not registered under the Securities Act of 1933, as amended
(the "Act"), in reliance on the exemption from registration provided by Section
4(2) of the Act.
Item 4. Submission of Matters to a Vote of Security Holders.
The Annual Meeting of the Stockholders of the Company was held on May 26,
1999. At the annual meeting, the stockholders elected the following persons to
the Board of Directors of the Company: Eugene Banucci, Mark Adley and Kam Law.
There were 19,347,306 votes for and 18,435 votes withheld for Dr. Banucci and
19,346,806 votes for and 18,935 votes withheld for Mr. Adley and Mr. Law. All
individuals were elected for a term that expires at the 2002 Annual Meeting of
Stockholders.
The stockholders also 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, 1999. There were 19,340,917 votes for, 22,762 against, and
2,062 abstentions with respect to such ratification.
Item 6. Exhibits and Reports on Form 8-K.
a. Exhibits.
Exhibit No. Description
2.01 Agreement and Plan of Merger dated as of May 31, 1999 by and among
Advanced Chemical Systems International, Inc., ATMI, Inc. and Strip
Acquisition Corp. (Filed as Exhibit 2.1 to Current Report on Form
8-K/A dated May 31, 1999, File No. 0-30130, and incorporated by
reference herein.)
2.02 Agreement and Plan of Merger dated as of May 31, 1999 by and among
Delatech Incorporated, ATMI, Inc. and Napa Acquisition Corp. and
certain shareholders of Delatech Incorporated. (Filed as Exhibit 2.2
to Current Report on Form 8-K/A dated May 31, 1999, File No. 0-30130,
and incorporated by reference herein.)
27.01 Financial Data Schedule (Filed herewith)
b. Reports on Form 8-K.
On June 15, 1999, the Company filed a Current Report on Form 8-K dated
May 31, 1999 reporting in Item 2 thereof the acquisitions of ACSI and Delatech.
On July 1, 1999, the Company filed a Current Report on Form 8-K/A dated May 31,
1999 to include supplemental selected financial data, management's discussion
and analysis of financial condition and results of operations and supplemental
consolidated financial statements of ATMI (in each case, as restated to reflect
the acquisitions of ACSI and Delatech).
<PAGE>
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 13, 1999
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)
<PAGE>
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 13, 1999
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)
<PAGE>
EXHIBIT INDEX
Exhibit No. Description
2.01 Agreement and Plan of Merger dated as of May 31, 1999
by and among Advanced Chemical Systems International, Inc.,
ATMI, Inc. and Strip Acquisition Corp.(Filed as Exhibit 2.1
to Current Report on Form 8-K/A dated May 31, 1999, File
No. 0-30130, and incorporated by reference herein.)
2.02 Agreement and Plan of Merger dated as of May 31, 1999 by
and among Delatech Incorporated, ATMI, Inc. and Napa
Acquisition Corp. and certain shareholders of Delatech
Incorporated. (Filed as Exhibit 2.2 to Current Report on
Form 8-K/A dated May 31, 1999, File No. 0-30130, and
incorporated by reference herein.)
27.01 Financial Data Schedule (Filed herewith)
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C> <C>
<PERIOD-TYPE> 6-MOS 6-MOS
<FISCAL-YEAR-END> Dec-31-1999 Dec-31-1998
<PERIOD-END> Jun-30-1999 Jun-30-1998
<CASH> 22427 17668
<SECURITIES> 64262 73901
<RECEIVABLES> 28754<F1> 27011<F1>
<ALLOWANCES> 0 0
<INVENTORY> 15666 17486
<CURRENT-ASSETS> 137104 143744
<PP&E> 49383<F2> 47730<F2>
<DEPRECIATION> 0 0
<TOTAL-ASSETS> 191436 198379
<CURRENT-LIABILITIES> 30772 29492
<BONDS> 2500 2900
0 0
0 0
<COMMON> 261 259
<OTHER-SE> 149493 147246
<TOTAL-LIABILITY-AND-EQUITY>191436 198379
<SALES> 75540 83541
<TOTAL-REVENUES> 75540 83541
<CGS> 37105 41292
<TOTAL-COSTS> 37105 41292
<OTHER-EXPENSES> 7704<F3> 7667<F3>
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 451 861
<INCOME-PRETAX> 2671 10426
<INCOME-TAX> 2198 3921
<INCOME-CONTINUING> 0 0
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 473 6505
<EPS-BASIC> .02 .28
<EPS-DILUTED> .02 .26
<FN>
<F1>Net of allowance for doubtful accounts, consistent with balance sheet
presentation.
<F2>Net of accumulated depreciation, consistent with balance sheet
presentation.
<F3>Research and development expenses
</FN>
</TABLE>
