SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 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
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
7 Commerce Drive, Danbury, CT 06810
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(Address of principal executive offices) (Zip Code)
203-794-1100
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(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
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None Not Applicable
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value
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(Title of each class)
________________________________________________________________________________
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes x No __
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K [ ]
The aggregate market value of the voting stock held by non-affiliates of
the registrant at March 2, 1999, was approximately $363,177,000 based on the
closing price of $20.88 per share.
The number of shares outstanding of the registrant's common stock as of
March 2, 1999 was 22,251,328.
DOCUMENTS INCORPORATED BY REFERENCE:
Proxy Statement for the Annual Meeting of Stockholders to be held on May
26, 1999 (Part III).
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ATMI, INC.
Annual Report on Form 10-K
For the Fiscal Year Ended December 31, 1998
TABLE OF CONTENTS
Page
Part I
Item 1. Business............................................................3
Item 2. Properties.........................................................17
Item 3. Legal Proceedings..................................................18
Item 4. Submission of Matters to a Vote of Security Holders................18
Item 4A. Executive Officers of the Registrant..............................18
Part II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters................................................20
Item 6. Selected Financial Data............................................21
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations................................23
Item 7A. Quantitative and Qualitative Disclosures About Market Risk........31
Item 8. Financial Statements and Supplementary Data........................31
Item 9. Changes In and Disagreements with Accountants on
Accounting and Financial Disclosure................................31
Part III
Item 10. Directors and Executive Officers of the Registrant................31
Item 11. Executive Compensation............................................31
Item 12. Security Ownership of Certain Beneficial Owners and Management....32
Item 13. Certain Relationships and Related Transactions....................32
Part IV
Item 14. Exhibits, Financial Statement Schedule, and Reports
on Form 8-K.......................................................32
Index to Consolidated Financial Statements and Financial Statement Schedule.F-1
Signatures .................................................................S-1
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PART I
Item 1. Business.
ATMI, Inc. ("ATMI" or the "Company") is a holding company that performs
executive, financial, and administrative functions for its operating
subsidiaries. ATMI was incorporated in Delaware in April, 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 and
which is now a wholly-owned subsidiary of ATMI. As used in this report, "ATMI"
means either ATMI, Inc. itself, or ATMI, Inc. and its consolidated subsidiaries,
including its predecessor registrant, ATM, as the context may indicate.
ATMI 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's customers include most of the
leading semiconductor manufacturers in the world.
ATMI has capitalized on the growth of the semiconductor industry in
general, and chemical vapor deposition ("CVD") processing in particular, by
providing leading edge products and services in each of its target markets. The
Company has recently organized its operations along two business segments: ATMI
Materials and ATMI Technologies. ATMI Materials consists of the ADCS,
NovaSource, and NOW divisions which develop and market ultrahigh-purity thin
film materials and proprietary delivery systems, including the "Safe Delivery
Source," or SDS, and high performance containers and dispensing systems for
advanced purity chemicals used in the manufacture of microelectronics. ATMI
Technologies consists of the EcoSys, Epitronics, Emosyn, and Ventures divisions.
The Company believes EcoSys is the only provider of point-of-use environmental
equipment offering all of the key technologies for semiconductor effluent
abatement. 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. Certain financial information regarding ATMI's two
business segments and geographic areas is contained in Item 7, "Management's
Discussion and Analysis of Financial Condition and Results of Operations," and
in Note 14 to ATMI's Consolidated Financial Statements.
The Company's business mix has evolved to consist predominantly of
consumables and services which track wafer starts, or the volume of silicon
wafers processed into fully functional semiconductor devices. Consequently, ATMI
believes that its overall business is less volatile than that of a typical
semiconductor capital equipment supplier. ATMI Materials and ATMI Technologies
segments accounted for approximately 50.2% and 49.8%, respectively, of ATMI's
revenues in 1998, and approximately 49.1% and 50.9%, and 40.7% and 59.3%
respectively, of ATMI's revenues in both 1997 and 1996.
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On August 4, 1998, ATMI acquired NOW Technologies, Inc. and its
subsidiaries, a manufacturer of 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, in exchange for 1,593,952 shares of
Common Stock. The operations of NOW have become a part of the ATMI Materials
segment. This transaction was accounted for as a pooling of interest.
In October 1997, ATMI acquired Advanced Delivery & Chemical Systems Nevada,
Inc. and its affiliates (collectively, the "ADCS Group"), a manufacturer and
distributor of ultrahigh-purity semiconductor thin film materials and related
delivery systems, in exchange for 5,468,747 shares of Common Stock. The
operations of the ADCS division are part of the ATMI Materials segment. Also in
October 1997, ATMI acquired Lawrence Semiconductor Laboratories, Inc. and its
affiliate (collectively, "LSL"), a provider of silicon epitaxial thin film
deposition services, in exchange for 3,671,349 shares of Common Stock. The
operations of LSL were combined with the Company's Epitronics division, which
offers a wide spectrum of epitaxial services and is an operating division of the
ATMI Technologies segment. Both transactions were accounted for as poolings of
interest.
Semiconductor Industry Background
The semiconductor industry has grown in recent years as semiconductor
devices have proliferated in a wide variety of consumer and industrial products,
especially in computing, networking, and communications equipment. According to
Dataquest Inc., the semiconductor industry achieved worldwide sales in 1998 of
$138 billion and is estimated to achieve worldwide sales of over $235 billion in
2001. This increase in demand for semiconductor devices has been fueled by the
ability of semiconductor manufacturers to deliver products with consistently
enhanced performance characteristics and functionality, improved reliability,
increased memory capacity, reduced size, weight, power consumption, and cost.
These advances have been made possible by innovations in the fabrication
processes, equipment, and the materials used in manufacturing advanced
semiconductor devices. At the same time, as the construction and management of
fabrication facilities has become more complex, semiconductor manufacturers have
sought to streamline their vendor relationships and reduce the number of vendors
upon which they rely, which in turn has driven significant consolidation among
the providers of semiconductor capital equipment and materials and materials
delivery systems.
Semiconductor devices are manufactured by repeating a complex series of
process steps on a wafer substrate, usually made of silicon. The primary process
steps include deposition, patterning, and etch. During deposition, several
layers of conducting, semiconducting, or insulating thin films are formed on a
wafer. Precise and reliable control of the deposition of these films is vital to
the ultimate performance of an individual device. The initial method of thin
film deposition was physical vapor deposition ("PVD"), which has in recent years
been largely supplanted by chemical vapor deposition ("CVD") for the deposition
of semiconducting and insulating thin films. In the CVD process, wafers are
placed in a sophisticated reaction chamber (a "reactor"), and a specially
designed gas or vaporized liquid material is introduced. Simultaneously, a form
of energy (e.g., heat or plasma) is added to the reactor to cause the
decomposition of the material being introduced. As a result of this
decomposition, a thin film of material is deposited on the surface of the wafer.
The advantages of CVD include the relative thinness of the films applied to
the wafer, as well as their conformality (ability to coat evenly, especially in
holes and trenches designed into the device), purity, and the ability to coat
large areas. These advantages have led to rapid growth in sales of reactors and
related CVD process consumables and equipment. Consumables and related equipment
include the raw materials used in the CVD process and the delivery systems
required to transport the materials around a semiconductor plant and to a
reactor. Related equipment also includes specially designed environmental
equipment that is used to abate the toxic or otherwise hazardous effluent from
CVD reactors.
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In addition to deposition on patterned wafers, CVD thin film processes are
used to prepare bare wafers prior to the fabrication of integrated circuits to
provide the wafer surfaces with the desired uniformity of electrical and
physical properties. Such CVD thin film deposition is referred to as epitaxial
deposition, and such wafers when processed are referred to as epitaxial, or
"epi," wafers. The complexity, sensitivity, and capital intensive nature of the
CVD processes used for epitaxy have created a market for epitaxial thin film
deposition services, or contract manufacture of epi wafers using CVD processes.
Materials and Delivery Systems
The market for semiconductor thin film consumables has expanded with the
growth of the market for semiconductor devices. The design of new thin film
deposition materials and equipment to transport these materials around a
semiconductor plant and to reactors has experienced ongoing innovation driven by
the demand for expanding semiconductor device capabilities and corresponding
decreases in circuit dimensions. Safe and effective thin film deposition
requires dedicated systems designed to deliver and vaporize precursor materials
for deposition in reactors without contamination or inadvertent release of toxic
gases. Tetraethylorthosilicate ("TEOS") is a principal liquid precursor material
used in the deposition of silicon dioxide layers, which generally serve as
insulators between the conductive layers in a semiconductor device. Other
important materials include trimethylphosphite ("TMP"), triethylphosphate
("TEPO"), trimethylborate ("TMB"), and triethylborate ("TEB"), which are used
for the deposition of phosphorous and boron containing materials.
Because thin film precursors are consumables, the market for these
materials and delivery systems generally tracks wafer starts, as opposed to the
market for equipment, which generally tracks investment in new plants. The thin
film materials market is also characterized by segmentation into a wide variety
of material types and forms. For example, most thin film precursors are now sold
as pressurized gases, which allows for easy transport around a typical
semiconductor manufacturing plant. However, many of these gases are toxic and/or
hazardous, leading to the development of safer alternatives including the use of
liquid or solid CVD precursors and the adoption of gas handling technologies and
delivery systems that minimize the danger of a catastrophic release of toxic
gas. The Company estimates that the total annual market for thin film precursor
materials and delivery systems exceeds $500 million and has grown historically
at a rate in excess of 15% per year.
Environmental Equipment
The use of CVD processes has also required the development of environmental
equipment designed to abate the effluent from CVD reactors. In general, less
than 25% of the materials entering a CVD reactor are deposited as a thin film.
The remainder of the source materials, and certain by-products, constitute an
effluent stream containing toxic and hazardous material that must be abated to
meet increasingly strict worldwide environmental, safety, and health
regulations. Traditionally, abatement has been accomplished by the use of "whole
plant" environmental systems which aggregate the effluents from an entire
facility. However, growing variations in the processes used and the drive for
increased productivity have led to the growth of point-of-use environmental
systems in which a single environmental unit is attached to a single reactor.
This approach provides for superior abatement because the system can be tuned to
the unique hazards of a particular effluent stream. In addition, point-of-use
environmental systems can improve plant productivity by reducing downtime
associated with servicing environmental systems. The Company believes the market
for this type of point-of-use environmental equipment exceeds $150 million per
year.
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Specialty Epitaxial Deposition Services
The demand for higher performance integrated circuits and discrete
semiconductor devices has driven the use of epitaxial wafers in a wide variety
of applications. Because epitaxy involves a high degree of expertise and
requires significant capital expenditures, a merchant market for epitaxial
wafers, primarily silicon epitaxial wafers, has in recent years grown to more
than $2.3 billion. This market is subdivided into "generic" wafers for high
volume applications such as dynamic random access memory ("DRAM") and
"specialty" wafers for use in applications such as automotive electronics and
sensors, silicon-based low power telecommunications circuits, analog power
controls, and robust application-specific integrated circuits. The Company
believes that specialty epi products currently account for approximately 15% of
the total epi wafer market and will constitute a significant portion of the
overall growth of the merchant market for epitaxial wafers.
The continued drive for improved device performance and new applications
for integrated circuits has led to the development and commercialization of
alternative semiconductor technologies. A newer generation of devices has
emerged that use epitaxial wafers made of III-V and wide bandgap materials, as
opposed to silicon, to achieve this improved performance. III-V semiconductors,
including gallium arsenide and indium phosphide, are finding increasing use in
wireless communication devices where high frequency performance is critical, in
optoelectronic devices where the electronic structure of the III-V
semiconductors allows energy-efficient light generation, and in solar cells for
satellite applications where efficient generation of electricity is critical.
Wide bandgap semiconductors such as silicon carbide and gallium nitride offer
advantages in high power, optoelectronic, and high temperature devices.
ATMI Business Strategy
ATMI is a leading supplier of thin film materials and related delivery
systems, of a full line of point-of-use semiconductor environmental equipment,
and of specialty epitaxial deposition services for the semiconductor industry.
The Company's objective is to establish and enhance leadership positions in each
of the markets it serves. The Company's strategy consists of key elements:
Target High Growth Semiconductor Markets. ATMI targets semiconductor
markets where technology-driven paradigm shifts are occurring or are enabled by
the use of ATMI's core technologies. The Company typically focuses on markets
with high growth rates that require products that are consumed in the production
process, such as thin film materials. For example, ATMI believes that the market
for low pressure gas delivery systems and related consumables, served by the
Company's SDS gas delivery product line, is growing at a rate in excess of the
overall growth rate of the semiconductor equipment industry.
Provide Full Market-Basket Solutions. To address semiconductor
manufacturers' desire to streamline their vendor relationships, ATMI seeks to
provide a full market-basket solution, or "one-stop shopping," in each of its
target markets. To provide such capability, ATMI pursues internal development of
new products and seeks to acquire complementary product lines and services to
continually expand its capabilities. For example, the Company acquired "wet" and
"combustion" scrubber product lines to complement its internally developed "dry"
scrubber product line in order to expand its capabilities to abate effluents
from all major semiconductor front-end processes. This approach allows EcoSys to
serve a wide spectrum of the semiconductor industry's environmental needs and to
provide comprehensive worldwide service.
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Provide a Superior Alternative in Advanced Chemical Packaging and
Dispensing Systems. ATMI has built a business strategy to develop containers and
dispensing systems for advanced purity chemicals that provide greater levels of
purity, productivity, safety, and environmental responsiveness than traditional
containers and dispensing systems. By providing a pure, safe, and convenient
means of chemical packaging and dispensing, ATMI's system results in greater
productivity in industries where minute levels of yield enhancement have large
and rapid paybacks. As performance requirements for high-purity materials are
becoming more demanding, applications are increasingly sensitive to
contamination from sub-micron particle sizes and from parts-per-billion levels
of metal ions. The systems designed by ATMI's NOW business are designed to meet
the demanding requirements of chemical users who scrutinize every aspect of
chemical delivery, from the chemical suppliers' facilities to the point-of-use
production area.
Leverage CVD Technology Leadership. The Company has invested extensively in
developing proprietary and patented CVD thin film technology which it leverages
to commercialize new products to meet customer requirements. Its CVD technology
is based on a multidisciplinary approach that draws upon the experience of
ATMI's personnel in chemistry, physics, materials science, and electrical
engineering. ATMI dedicates significant resources to maintaining its expertise
in CVD technology and protecting its intellectual property, which now includes
118 issued U.S. patents and numerous counterparts outside the United States. The
Company intends to continue to develop new products and new lines of business
that leverage its core competencies.
Accelerate Product Introduction Through Strategic Alliances. ATMI forms
strategic alliances, including joint development programs and collaborative
marketing efforts, to accelerate the introduction of its products into markets
that have manufacturing and/or distribution barriers. Most of ATMI's strategic
alliances are with leading semiconductor manufacturers, such as IBM, Lucent
Technologies, Micron Technology, Siemens, and Texas Instruments, each of which
has participated in advanced materials development programs with the Company.
Such programs enhance ATMI's core technology base and promote the introduction
of targeted products while reducing the Company's need to make research and
development and capital expenditures. In addition, since the Company's
inception, the United States government has provided approximately $69.0 million
in research funding directed towards the costly development of new thin film
processes and materials for complex electronic devices.
ATMI Businesses and Products
ATMI conducts its operations through two primary operating segments; ATMI
Materials and ATMI Technologies, which contain various divisions of the Company.
ATMI Materials consists of ADCS, NovaSource, and NOW. ATMI Technologies consists
of EcoSys, Epitronics, Emosyn, and Ventures. ADCS designs, manufactures, and
markets ultrahigh-purity thin film materials and their related delivery systems
equipment for CVD, diffusion, and etch applications in the semiconductor and
semiconductor equipment industries. NovaSource manufactures and markets SDS,
which stores dangerous high-pressure gases as "no pressure," considerably safer
gases, in cylinders, providing increased safety and substantially greater
operating efficiencies. NOW manufactures high performance packages, containers,
and dispensing systems for advanced purity chemicals used in the manufacture of
various microelectronic applications. EcoSys manufactures, sells, and services
point-of-use environmental equipment for the semiconductor industry. Epitronics
provides specialty epitaxial deposition services to the semiconductor industry
for a wide variety of end-use applications. Emosyn is currently developing and
seeking to commercialize smart card devices employing the Company's advanced
materials and process integration technology. Additionally, ATMI participates in
United States government-funded research and development contracts through its
Ventures division.
<PAGE>
Consistent with its corporate strategy, the Company actively explores new
opportunities to commercialize its core technology. Within the Company's
Ventures division, the Company conducts development and research that it
believes may comprise future business units. Such development is currently
focused on gas-sensing devices that will allow for the detection and measurement
of the many gases used in thin film processing, and on the development of
metrology tools that will detect thin film properties during the deposition
process.
ATMI Materials Segment
Semiconductor Materials and Delivery Systems
The Company believes its Materials segment is one of the fastest growing
suppliers of ultrahigh-purity thin film materials and associated delivery
systems equipment to the semiconductor industry. The Company has taken advantage
of the changes in the market for thin film materials and delivery systems by:
(i) developing and commercializing a wide range of CVD liquid precursors; (ii)
commercializing innovative bulk delivery systems which automatically deliver
materials of the highest purity and consistency to the reactor; (iii) developing
innovative delivery systems that allow for the introduction of low volatility
liquids and even solids to the reactor; (iv) developing and commercializing
patented low-pressure gas delivery systems for safe handling and delivery of
toxic and hazardous gases to semiconductor process equipment; and (v) developing
manufacturing processes to meet the critical purity and integrity requirements
of the microelectronics industry.
The businesses within the Materials segment strive to ensure that their
materials and related delivery systems meet and exceed the requirements of its
customers, which include semiconductor device manufacturers, chemical suppliers,
and OEMs located throughout the world. In developing its business, Materials
seeks: (i) to offer the most complete line of consumable and delivery system
products; (ii) to offer the most consistent, highest purity thin film materials
available; (iii) to offer the most reliable, innovative equipment products; (iv)
to improve the level of customer service, technical support, and response
offered and to remain cost-effective to its customers; (v) to meet customer
needs for statistical quality and process control and dock-to-stock programs;
and (vi) to continue to meet the industry's needs for advanced thin film
materials required for all future generation devices and beyond.
Products and Services
The Materials segment has four primary product lines: thin film materials,
liquid delivery systems, gas delivery systems, and chemical containers and
dispensing systems. The Materials segment also provides services relating to
each of these product lines.
Thin Film Materials. The ADCS division within the Materials segment
produces a broad range of thin film materials that are used in making
semiconductor devices. In addition to the widely used CVD precursors--TEOS, TMP,
TEPO, TMB, and TEB--ADCS also sells thin film materials used in other
semiconductor manufacturing processes, including phosphorous and boron halides
used for doping by diffusion processing. ADCS also manufactures and sells source
reagents that allow CVD of advanced materials, including titanium nitride,
platinum, copper, tantalum oxide, lead zirconate titanate, strontium bismuth
tantalate, and barium strontium titanate thin films.
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All of these thin films must be of very high purity in order to function
properly within the device, particularly with respect to unwanted metallic
contamination. The purity of the starting chemicals used in the process is
critical. A proprietary DOUBLE DISTILLATION purification process is used to
produce these high-purity specifications. In order to preserve this high purity,
the chemicals are packaged and delivered in high quality, carefully constructed
and cleaned containers. Coupled with its Quality Control Program, the Company
believes that ADCS's cleaning and container technology produces the most
consistent, highest purity chemicals in the industry and ensures their quality
as delivered into the reactor. Consistent with this commitment to quality, ADCS
achieved ISO 9001 certification in 1997.
Liquid Delivery Systems. ADCS designs, manufactures, and sells proprietary
continuous refill and delivery systems. These systems and hardware products are
designed to deliver ultrahigh-purity thin film materials to the CVD reactor
under the desired physical conditions. ADCS's delivery hardware products include
stainless steel ampules, stainless steel MINIBULK canisters, stainless steel
SKINNIBULK canisters, quartz bubblers, bulk chemical delivery cabinets, level
sensing systems, manual and continuous refill systems, and other
application-specific equipment.
The Company believes that its continuous refill systems enhance the
performance of the process tools they support by eliminating process downtime
resulting from canister changes. Typically, process tools must cease operation
when canister changes are made to replenish source material. ADCS's bulk refill
systems allow continuous delivery of source material. In addition to the
elimination of the downtime associated with canister changes, this configuration
also minimizes the atmospheric and moisture contamination that can occur during
these change-outs.
Safety Delivery Source (SDS). NovaSource's patented SDS uses a standard gas
cylinder containing an adsorbent material. The cylinder is filled with gas under
conditions such that the gas is adsorbed onto the material, and the SDS cylinder
is at sub-atmospheric pressure, minimizing any potential leak of hazardous gas
and allowing more gas to be introduced into the cylinder than would be possible
under traditional high pressure conditions. Consequently, material delivery via
SDS is both safer and provides higher rates of productivity than traditional
methods. Since most semiconductor processes operate at reduced pressure and the
gas can be desorbed or released from the SDS under vacuum, it can be installed
and operated like a conventional high-pressure gas cylinder. These advantages
have led major chip manufacturers to adopt this technology.
To date, several gases, including arsine, phosphine, boron trifluoride,
silicon tetrafluoride, and germanium tetrafluoride, using the SDS technology has
been introduced. Each is used to "dope" silicon wafers using ion implant
processes. All of these gases are available in different size cylinders, and
some have different adsorbents that allow for additional gas capacity within a
cylinder. These products are manufactured by the Company and, on a toll basis,
by Matheson Gas Products ("Matheson"), the Company's exclusive distributor for
SDS used in ion implant applications.
The Company also believes that significant markets for SDS exist outside
ion implant. The Company is now conducting beta site tests with selected
semiconductor manufacturers and OEMs for CVD applications using SDS. The Company
believes that commercial introduction of SDS products for this market will occur
in the first half of 1999. ATMI also has undertaken extensive development
efforts to identify new markets and products for the SDS technology. The Company
believes that certain etch gases used in the semiconductor industry and certain
gases normally delivered in bulk within the semiconductor industry are possible
candidates for SDS.
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Chemical Containers and Delivery Systems. NOW manufactures three different
types of container assemblies: the "Bag-in-a-Bottle" ("BIB"), Bag-in-a-Can
("BIC"), and "Bag-in-a-Drum" ("BID"). Each features a pre-cleaned collapsible
inner liner, or "bag," inside a rugged, high-density polyethylene or stainless
steel overpack. The standard liner film is made of polytetrafluoroethylene
("PTFE") which provides unmatched inertness to virtually all chemicals. The
empty inner liner is easily removed for waste consolidation and the outer shell
is recyclable or returnable for insertion of a new replacement liner.
NOW's initial and largest market is packaging for photolithography
chemicals used in the manufacture of semiconductor integrated circuits ("IC's").
These chemicals are typically packaged in one liter through ten-liter BIB
containers. NOW's market applications for chemicals used in the manufacture of
active matrix flat panel displays as well as for the pharmaceutical, biotech,
and laboratory markets are typically in 18-20 liter BIB and BIC containers.
Additionally, applications have recently expanded beyond photolithography
chemicals in the semiconductor niche to include ancillary chemicals, polishing
slurries, and process chemicals for which the new 200-liter BID is the package
design of choice.
Services. In addition to its thin film materials and associated delivery
systems equipment, ADCS offers custom manufacturing services, such as stainless
steel and quartz delivery hardware fabrication. ADCS also provides special
services such as custom bulk refill, container cleaning, and hardware repair.
ATMI Technologies Segment
Point-of-Use Semiconductor Environmental Equipment
ATMI believes EcoSys is the only provider of point-of-use environmental
equipment offering all of the key technologies for effluent gas abatement to the
semiconductor industry: dry chemical, liquid, and active oxidation. As a result
of this broad product line, ATMI believes EcoSys is a global market leader in
the manufacture and sale of point-of-use semiconductor effluent abatement
equipment. ATMI's strategy is to grow EcoSys's market share through the
continued development and acquisition of new semiconductor environmental
products and services. The Company believes that this full line of semiconductor
environmental products, coupled with a comprehensive service strategy, will
allow for continued market penetration by its EcoSys business.
EcoSys has three primary product lines. Each of the three major
point-of-use products has cost of ownership advantages for semiconductor
customers in certain applications such as CVD, ion implant, and etch.
Novapure dry chemical scrubbers adsorb and concentrate hazardous effluent
through the use of consumable resins at rates many times that of conventional
effluent treatment methods. ATMI believes that EcoSys, through its patented
adsorption materials, is a market leader for point-of-use semiconductor effluent
dry scrubbing throughout the world. Additionally, demand for consumable resin
material is increasing as the installed base of dry scrubbers increases.
Vector wet scrubbers are designed for cost effective removal of acidic and
high particulate bearing gases commonly used in the wafer fabrication process.
Vector scrubbers recirculate scrubbing water, minimizing overall water use, and
are effective in removing high particulate effluent.
Guardian active oxidation scrubbers treat a variety of combustible
materials used in semiconductor processing. The Guardian product line is
designed for low cost of ownership by operating on inexpensive methane fuel
while achieving very high removal efficiencies. These combustion systems also
abate certain global warming gases such as perfluorinated carbon compounds
("PFCs") at high efficiency, with near zero nitrous oxide generation.
<PAGE>
Specialty Epitaxial Deposition Services
Epitronics is primarily a service business providing specialty epitaxial
deposition services for silicon, III-V, and wide bandgap wafers. Desired
electrical and physical properties of the epitaxial layers are specified by the
customer and developed in collaboration with Epitronics. The properties of the
epitaxial layers are selected to maximize the performance of the customer's
integrated circuit or device while maximizing yield and minimizing cost.
Epitronics' fundamental competitive advantages include the manufacture of high
quality epitaxial layers with high yield. In addition, Epitronics differentiates
itself by offering quality epitaxial deposition services with fast turnaround
and in flexible volumes.
ATMI believes that Epitronics is the only provider offering CVD thin film
deposition services for each of the key materials used in semiconductor devices
today, and that it is now a world leader in specialty epitaxial deposition
services. Epitronics' strategy is to maximize market share through the continued
development and acquisition of new semiconductor thin film products and
services. A key element of the business strategy is to work with the customer in
the early stages of product development to ensure that proven epitaxial
processes are in place when the decision is made to expand into manufacturing.
Products and Services
Epitronics provides commercial epitaxial deposition services for silicon
and III-V materials. Epitaxial services for wide band gap semiconductors and
several new products in silicon and gallium arsenide are in development.
Silicon Epitaxial Wafers. Epitronics currently processes silicon epitaxial
wafers in Mesa, Arizona. Epitronics has experience in a wide range of silicon
epitaxial processes and selects the process that provides the highest value to
the customer. Processes include deposition from trichlorosilane, dichlorosilane,
and silane which can be operated at atmospheric or reduced pressure. Epitronics
is particularly skilled at: (i) the deposition of epitaxial layers on wafers
that already have patterns or buried circuits created by selective implantation
and diffusion; (ii) the deposition of epitaxial layers with highly uniform
values of thickness and resistivity; and (iii) the deposition of lattice-matched
silicon thin films containing high amounts of boron and germanium that can be
used in sensor applications. Epitronics also distributes SIMOX (Separation by
Implanted Oxygen) substrates manufactured by Nippon Steel Corporation in the
United States and Europe.
III-V Epitaxial Wafers. Epitronics processes III-V epitaxial wafers in
Phoenix, Arizona. III-V epi products are finding increasing use in wireless
communications, satellites, and optoelectronics for data and telecommunication
markets. In particular, there is an increased demand for III-V epi wafers for
heterojunction bipolar transistors for use in power amplifiers. Epitronics
markets its epitaxial services and sells the product of the service, epitaxial
wafers, directly to industry and government customers according to their design
specifications.
Wide Bandgap Epitaxial Wafers. Epitronics is developing epitaxial processes
for silicon carbide and gallium nitride on silicon carbide and sapphire
substrates in Danbury, Connecticut and in Phoenix, Arizona. In 1998, Epitronics
signed a technology license agreement that transferred substantially all of its
silicon carbide substrate manufacturing assets and technology to Sterling
Semiconductor of Sterling, Virginia. Under the license, Sterling will continue
the operation of the silicon carbide manufacturing facility in Danbury. The
Company is engaged in several collaborations which address technology
development and commercial epitaxial product introduction issues associated with
future optoelectronic, sensor, and power device products.
<PAGE>
Developmental Products. The Epitronics Silicon Division is developing a
silicon germanium epitaxial process for use in silicon-based heterojunction
devices for high speed communication and computation integrated circuits, and a
ultrathin silicon on sapphire process for use in high frequency, low power
applications. The III-V Division continues development of epitaxial structures
for gallium arsenide-based electronics devices including heterojunction bipolar
transistors (HBTs) and high electron mobility transistors (HEMTs) in
collaboration with its customers. Wide bandgap epitaxial processes for
electronic and optoelectronic devices are under development in collaboration
with, and with funding from, the U. S. government and customers.
Development and Commercialization of Smart Card Devices
Emosyn is currently developing and seeking to commercialize smart card
devices employing the Company's advanced materials and process integration
technology. Emosyn entered into a strategic alliance with a subsidiary of SMH
Swatch, the largest watch maker in Switzerland, to design, develop, manufacture,
and distribute integrated circuits for use in smart cards. In November 1998,
Emosyn also entered into a strategic alliance with Xicor, Inc. focused on the
distribution of integrated circuits to smart card applications. Under the
agreement Emosyn has the right to become Xicor's exclusive sales channel for
Xicor integrated circuit products in chip or module form, to customers who focus
on smart card applications, and holds an option to purchase the product line
beginning in 2001.
Products and Services. Emosyn's first semiconductor products are targeted
at the fast- growing market for micro-controller-based smart card IC's. Emosyn
has teamed up with EM Microelectronics of Marin in Switzerland to bring these
products to market. By combining Emosyn's expertise in non-volatile memory
technology and Emosyn's Rania development environment with EM's expertise in
ultra-low power and radio frequency technology, Emosyn is positioned to uniquely
address the needs of the smart card market. This partnership has defined a
roadmap for contacting, contactless, and combi smartcard IC's and will operate a
unified sales and marketing team.
Development. With no legacy architecture to support, Emosyn is able to
select and apply the best technologies for smartcard IC solutions. Two years of
market research by Emosyn has allowed them to define the "Theseus" architecture
which extends the envelope of existing technologies in terms of density, speed,
power, and memory partitioning. Emosyn's innovative approach to applying memory
technologies provides a silicon solution that significantly reduces the major
problem of time-to-market with no penalty in the die area. Along with Rania, the
Theseus architecture is part of Emosyn's commitment to reducing the total cost
of ownership for its customers.
Customers, Sales, and Marketing
ATMI sells and distributes its products worldwide, both directly and
through manufacturers' representatives. Many of ATMI's customers have
relationships with more than one segment of the Company, or are acting as
collaborators on ATMI's development programs.
The ATMI Materials segment primarily distributes its materials and delivery
system products to end-use customers, chemical suppliers, and equipment
suppliers through its direct sales force in North America and Europe, and
through regional manufacturing representatives in Asia. ADCS distributes its
products in South Korea through ADCS-Korea Co. Ltd. ("ADCS-Korea").
Additionally, the equipment product lines are marketed and sold to semiconductor
equipment OEMs, who in turn resell to end users. NOW generally sells its
containers to chemical suppliers. The chemical companies then sell their high
purity chemicals in NOWPak containers at the request of end-users. NovaSource
currently markets and sells the SDS product solely into the ion implant market
through an exclusive distribution agreement with Matheson.
<PAGE>
The businesses within the ATMI Technologies segment distribute both
directly and through various manufacturing representatives.
EcoSys distributes its point-of-use environmental equipment through
manufacturers' representatives throughout the world. Direct sales personnel
serve as regional managers who coordinate the representatives' activity within
their respective regions. Additionally, EcoSys markets directly to semiconductor
end-user facility managers to provide full-fab environmental solutions as well
as installation and on-going service.
Epitronics markets and sells its thin film deposition services and
epitaxial wafers primarily on a direct basis. In particular, silicon epi wafers
and services are sold directly throughout the world. Wide bandgap and III-V
epitaxial wafers are sold directly in North America and through distributors and
agents in Europe and Asia.
Substantially all of the Company's sales are to customers in the worldwide
semiconductor industry. The Company's results of operations, therefore, are
materially dependent upon economic and business conditions in the semiconductor
industry. The semiconductor industry has historically experienced significant
growth; however periods of reduced semiconductor unit demand and manufacturing
overcapacity, as seen throughout 1998, could result in significantly reduced
demand for semiconductor materials, capital equipment, and wafer processing
services.
Manufacturing
ATMI Materials Segment
ADCS manufactures its thin film materials and delivery systems at its
Burnet, Texas and Danbury, Connecticut facilities. In addition, ADCS-Korea's
facility in Anseong, South Korea manufactures thin film materials to be
distributed in the South Korean market. NovaSource manufacturers SDS in Danbury,
which is complemented by contracted manufacturing from Matheson's facility. NOW
manufactures its chemical containers and dispensing systems at its Bloomington,
Minnesota facility. The Company believes that these facilities are adequate for
its current needs.
ATMI Technologies Segment
EcoSys manufactures the majority of its point-of-use environmental
equipment in San Jose, California. EcoSys manufactures its proprietary
adsorbents for its gas treatment products at ATMI's Danbury facility.
Epitronics processes its specialty silicon epitaxial wafers at its Mesa,
Arizona facility and processes III-V semiconductor wafers for the wireless and
optoelectronic industries at its Phoenix, Arizona facility. It processes wide
bandgap epitaxial wafers and produces high performance thin films in Danbury.
Emosyn conducts its research and development under its alliance agreement
with EM Microelectronics of Marin, Switzerland, in San Jose, California, at its
offices in the United Kingdom, and its Danbury facility.
Raw materials for ATMI's products and processes are available from multiple
domestic and foreign sources.
<PAGE>
Competition
The semiconductor thin film materials and delivery systems, environmental
equipment, and epitaxial deposition services markets are characterized by
rapidly evolving technology and products. Both large and small companies offer
products in these markets, and many of these companies have significantly
greater financial and other resources than ATMI. The Company attempts to compete
by leveraging its substantial investment in CVD thin film technology to expand
product offerings in combination with tactical acquisitions to provide full
market-basket solutions to customers that are increasingly seeking to streamline
their vendor relationships.
ATMI Materials Segment
ADCS's primary competitors in the United States are the Air Products
Corporation and the Diffusion Systems Division of Olin Hunt Specialty Products,
Inc. Outside of North America, ADCS competes with these companies and also with
Yamanaka Hutech Corporation and Kojundo in Asia, and Merck in Europe. There are
several other smaller participants in these markets. There are currently no
direct competitors to the patented NovaSource SDS product. Several companies,
however, provide gases in high-pressure containers that compete with the process
capability of SDS. There are numerous domestic and foreign companies that offer
products that compete with NOW's products. However, NOW believes that its
ability to compete in the markets for containers and dispensing systems is
dependent largely upon its proven ability to continually enhance and improve its
products and technologies.
ATMI Technologies Segment
EcoSys's primary competition in effluent gas treatment is from companies
focused on water and combustion treatment methods. The primary water scrubber
competitor is Delatech, while combustion scrubber competitors include Delatech
and Alzeta. Dry scrubber competitors include CS GmbH, Ebara, Japan Pionics, and
the Edwards Division of British Oxygen Corporation.
As a supplier of a broad-based line of epi services and products,
Epitronics has competitors in each of its primary product areas. In silicon epi,
Epitronics competes with Moore Technologies, Reaction Technologies, and a number
of specialty wafer manufacturers with their own epi capabilities. In some
product areas, Epitronics competes with the major silicon wafer manufacturers
including Wacker, Mitsubishi Silicon America, and Sumitomo. In III-V epi,
Epitronics competes with Kopin, Epitaxial Products International (EPI), Emcore,
and a number of smaller manufacturers.
Emosyn is evolving as a commercial presence in a very large smart card IC
marketplace. Several large companies are also working to provide semiconductor
devices into that marketplace, including Phillips, Atmel, and Samsung.
Research and Development and Strategic Alliances
ATMI's research and development expenses consist of personnel and other
direct and indirect costs for internally funded project development. ATMI's
external funding is almost exclusively from various agencies of the federal
government through its Ventures division. ATMI also participates in joint
development efforts with certain semiconductor manufacturers and semiconductor
equipment OEMs. Total sums expended for research and development for the years
ended December 31, 1998, 1997, and 1996 were $18.3 million, $18.7 million, and
$18.4 million, respectively. Of those amounts, $5.9 million, $7.9 million, and
$8.4 million respectively, were externally funded and are classified as cost of
contract revenues on ATMI's Consolidated Financial Statements, and $12.4
million, $10.8 million, and $10.0 million, respectively, were internally funded
expenditures by the Company and are classified as research and development
expenses on ATMI's Consolidated Financial Statements. Over the last three years,
a significant portion of the Company's research and development has focused on
ferroelectric materials and SDS gas delivery systems.
<PAGE>
Ferroelectric Materials. The Company believes that further reductions in
circuit dimensions will require changes in the materials used for the thin films
required to store, transmit, and switch electricity in the complex circuitry of
semiconductor devices. As a result, in August 1992, the Company entered into an
agreement with IBM, Micron Technology, and Texas Instruments (the "Collaborating
Group") to develop advanced thin film capacitor materials and CVD process
technology delivery equipment for next-generation memory devices. This agreement
focused on developing CVD process technology to fabricate ferroelectric thin
films, such as barium strontium titanate, for high performance memory devices.
Barium strontium titanate can store over 30 times more electrical charge than
conventional thin films. Use of this material could significantly reduce the
manufacturing complexity of advanced memory devices. In April 1993, the Advanced
Research Projects Agency awarded a $5 million contract for the development of
thin film materials technology to the Collaborating Group, with the Company as
prime contractor. This program was successfully completed in 1996 with a total
cost of over $20 million. The Company, through its Emosyn division, continues to
use the technology developed under the program to develop and commercialize
smart card devices pursuant to a strategic alliance with a subsidiary of SMH
Swatch. In addition, ATMI's ferroelectric thin film technology has also expanded
to other ferroelectric materials that have applications ranging from
non-volatile memory devices to wireless components. This in turn has led ATMI to
enter into strategic alliances with Lucent Technologies, Siemens, and Texas
Instruments to develop these materials for commercial markets.
SDS Gas Delivery Source. Simultaneously with the development of these thin
film materials, the Company developed and patented a novel approach to the
delivery of gases to semiconductor reactors. Historically, semiconductor process
gases have only been available in high-pressure cylinders that can create an
immediate danger over a large area if inadvertently released. Through the use of
in-cylinder adsorbents, the SDS product reduces cylinder pressures below
atmospheric levels. This lowered pressure allows controllable, on-demand release
of certain semiconductor process gases. The Company began a strategic alliance
with Matheson in January 1994, under which Matheson exclusively distributes the
SDS product to ion implant users in the worldwide semiconductor industry.
Government Contracts. ATMI Technologies, through it Ventures division,
participates in United States government-funded research and development
contracts. As of December 31, 1998, the Company had received aggregate awards
since its inception of approximately $69.0 million from United States government
agencies, including approximately $62.9 million recognized as revenue by ATMI
through December 31, 1998. These contracts fund continued CVD technology
development, development of high performance semiconductor devices,
ferroelectric thin films, and devices for specific applications, while
offsetting the cost of research and development. Government contract revenues
totaled approximately $7.9 million, $9.1 million, and $9.8 million for the years
ended December 31, 1998, 1997, and 1996, respectively. This represents
approximately 8.1%, 7.8%, and 10.0% of ATMI's consolidated revenues for those
respective periods. The government may terminate contracts with the Company at
its convenience. The government may also exercise "march-in" rights in the event
that the Company fails to continue to develop the technology, whereby the
government may exercise a non-exclusive, royalty-free, irrevocable, worldwide
license to any technology developed under contracts funded by the government.
ATMI Technologies, through its Ventures division, will continue to submit
proposals to various government entities for additional research and development
funding as long as such proposals are consistent with its commercialization
strategy.
<PAGE>
Backlog
Neither ADCS, which conducts significant portions of its business with
open-ended, long-term supply contracts which do not specify quantities, nor
Epitronics, which generally operates with fast turnaround, maintain significant
backlog. Because orders comprising the Company's backlog may be canceled, and
delivery schedules may be changed, the Company's backlog at any particular date
may not be indicative of actual sales for any succeeding period.
ATMI considers orders for products shippable within six months of the
backlog date and fully executed and funded research contract awards as of the
backlog date as firm backlog. As of December 31, 1998, ATMI had firm backlog of
approximately $13.4 million, consisting of approximately $5.5 million of product
orders and approximately $7.9 million of executed and funded research contracts.
This compares to a firm backlog level of approximately $17.5 million as of
December 31, 1997, which consisted of approximately $11.1 million of product
orders and approximately $6.4 million of executed and funded research contracts.
The decline in product backlog when comparing 1998 to 1997 is because of the
softness in capital spending in the semiconductor industry, since EcoSys product
lines normally constitute the majority of the Company's backlog.
Patents and Proprietary Rights
The Company has made a significant investment in securing intellectual
property protection for its technology and products. ATMI protects its
technology by, among other things, filing patent applications for technology
considered important to the development of its business. It also relies upon
trade secrets, unpatented know-how, continuing technological innovation and the
aggressive pursuit of licensing opportunities to help develop and maintain its
competitive position.
ATMI has been awarded 118 United States patents, and currently has 138
United States patent applications pending. Foreign counterparts of certain of
these applications have been filed, or may be filed at an appropriate time. ATMI
decides on a case-by-case basis whether, and in what countries, it will file
counterparts of a United States patent application outside the United States.
ATMI's United States patents expire between 2006 and 2019. ATMI also holds 15
United States trademarks. All United States trademarks are actively being used
by ATMI.
ATMI's ability to compete effectively with other companies will depend, in
part, on its ability to maintain the proprietary nature of its technology.
Although ATMI has been awarded, has filed applications for, or has been licensed
under numerous patents in the United States and other countries, there can be no
assurance concerning the degree of protection afforded by these patents or the
likelihood that pending patents will be issued.
The Company requires all employees and most consultants, outside scientific
collaborators, sponsored researchers, and other advisors to execute
confidentiality agreements upon the commencement of employment or consulting
relationships with ATMI. These agreements provide that all confidential
information developed or made known to the individual during the course of the
individual's relationship with the Company is to be kept confidential and not
disclosed to third parties except in specific circumstances. All of ATMI's
employees have entered into agreements providing for the assignment of rights to
inventions made by them while in the employ of the Company.
<PAGE>
Environmental Regulation
The Company uses, generates, and discharges toxic, volatile, or otherwise
hazardous chemicals and wastes in its manufacturing, processing, and research
and development activities. Therefore, the Company is subject to a variety of
federal, state, and local governmental regulations related to the storage, use,
and disposal of these materials. The Company believes that it has, or is seeking
to obtain, all the permits necessary to conduct its business. However, the
failure to comply with present or future laws, rules, or regulations, or the
failure of the Company to obtain the permits it is currently seeking could
result in fines or other liabilities being imposed on the Company, suspension of
production, or a cessation of operations. While the Company believes that it has
properly handled its hazardous materials and wastes and has not contributed to
any on-site contamination or environmental condition at any of its premises, the
various premises, particularly the premises in Danbury, Connecticut, may have
been contaminated prior to the Company's occupancy. The Company is not aware of
any environmental investigation, proceeding, or action by federal or state
agencies involving these premises. However, under certain federal and state
statutes and regulations, a government agency may seek to recover its response
costs and/or require future remedial measures from both operators and owners of
property where releases of hazardous substances have occurred or are ongoing.
The prior occupant of the Danbury, Connecticut premises has agreed to indemnify
the Company for remediation costs in connection with any pre-existing, on-site
contamination or environmental condition. However, there can be no assurance
that this indemnification will prove adequate to cover any liability imposed on
the Company related to the environmental condition of the premises or the cost
of defending an environmental action, either of which could be substantial. The
Company's activities may also result in its being subject to additional
regulation. Such regulations could require the Company to acquire significant
additional equipment or to incur other substantial expenses to comply with
environmental laws, rules or regulations. Any failure by the Company to control
the use of, or to restrict adequately the discharge of, hazardous substances
could subject it to substantial financial liabilities and could have a material
adverse effect on the Company's business, operating results and financial
condition.
Employees
As of December 31, 1998, ATMI employed a total of 455 individuals,
including 139 in sales and administration, 258 in operations, and 58 in research
and development. Of these employees, 51 hold Ph.D. degrees and 38 hold other
advanced degrees in electrical engineering, materials science, chemistry,
physics, or related fields. None of the Company's employees are covered by
collective bargaining agreements. ATMI has not experienced any work stoppages,
and considers its relations with its employees to be strong.
Item 2. Properties.
ATMI's headquarters are located in Danbury, Connecticut, where it leases a
72,000 square foot facility. The Company occupies this facility under a lease
which expires on August 30, 2005. ATMI believes its existing facility is
adequate and suitable for its current and anticipated needs.
ADCS's headquarters and general corporate offices are located in Austin,
Texas, where it leases approximately 4,000 square feet. This lease expires May
31, 2000. ADCS also owns approximately six acres of property in Burnet, Texas,
on which its 12,000 square foot manufacturing facility is located. The Company
believes that ADCS's existing headquarters and manufacturing facilities with its
potential for expansion are adequate for the current and anticipated level of
demand.
ADCS-Korea owns approximately 1.4 acres in an industrial park in Anseong,
South Korea, where its approximately 9,000 square foot manufacturing facility
and office are located.
<PAGE>
NOW leases a 70,000 square foot facility located in Bloomington, Minnesota,
including approximately 20,000 square feet of cleanroom manufacturing. The lease
expires in 2000, with two, three-year renewal options. ATMI believes these
facilities are adequate and suitable for NOW's current and anticipated needs.
EcoSys leases 45,000 square feet of facilities in San Jose, California,
which leases expires in March 2003. ATMI believes these facilities are adequate
and suitable for EcoSys's current and anticipated needs.
Epitronics owns its corporate headquarters located in Mesa, Arizona. This
facility measures 33,000 square feet, is expandable to 50,000 square feet and
houses the specialty silicon epitaxial service business. Epitronics also leases
a 15,000 square foot facility in Phoenix, Arizona, where the III-V epitaxial
business is located, which lease expires August 1999. The wide bandgap epitaxial
business is housed in ATMI's corporate facility in Danbury, Connecticut. The
Company obtains certain of its manufacturing equipment by entering into capital
leases, while other equipment is held subject to liens on the related equipment
securing notes payable. ATMI believes these facilities are adequate and suitable
for Epitronics' current and anticipated needs.
Item 3. Legal Proceedings.
In the normal course of business, the Company is involved in various
lawsuits and claims. Although the ultimate outcome of any of these legal
proceedings cannot be determined at this time, management, including internal
counsel, does not believe that the outcome of these proceedings, individually or
in the aggregate, will have a material adverse effect on the Company's financial
position or overall trends in results of operations.
Item 4. Submission of Matters to a Vote of Security Holders.
No matter was submitted to a vote of security holders, through the
solicitation of proxies or otherwise, during the fourth quarter of the fiscal
year ended December 31, 1998.
Item 4A. Executive Officers of the Registrant.
<TABLE>
<CAPTION>
The executive officers of ATMI are as follows:
<S> <C> <C>
Name Age Position
Eugene G. Banucci, Ph.D 55 President, Chief Executive Officer, Chairman
of the Board, and Director
Stephen H. Siegele 38 President--ADCS Division, Vice Chairman of
ATMI, and Director
Peter S. Kirlin, Ph.D 38 Executive Vice President--ATMI Technologies
Douglas A. Neugold 40 Executive Vice President--ATMI Materials
Daniel P. Sharkey 42 Vice President, Chief Financial Officer, and
Treasurer
</TABLE>
Eugene G. Banucci, Ph.D., a founder of ATMI, has served as President, Chief
Executive Officer, Chairman of the Board, and Director since 1986. Previously,
Dr. Banucci served in a variety of executive and managerial positions. From 1984
to 1986, he was a director of American Cyanamid Company's Chemical Research
Division, with responsibility for the research, development, and technical
service activities of the Chemicals Group.
<PAGE>
Stephen H. Siegele has served as President of the ADCS Division and as a
Director of ATMI since October 1997, and as Vice Chairman of ATMI's Board of
Directors since February 1999. Mr. Siegele, a co-founder of the ADCS Group,
served as the President and Chief Executive Officer of the ADCS Group from
February 1994 until October 1997, and has served as a director since its
inception in 1988. From 1988 to 1994, Mr. Siegele served as Vice President of
the ADCS Group. Prior to that time, Mr. Siegele served in sales and engineering
positions at Intel Corporation and Olin Hunt Specialty Products, Inc.
Peter S. Kirlin, Ph.D. has served as Executive Vice President of ATMI since
1995. From 1991 to 1995, Dr. Kirlin served as Vice President of Microelectronics
and General Manager of the former NovaMOS division of ATMI. From 1988 to 1991,
Dr. Kirlin served as Director of Superconductor Materials and Electronics for
ATMI. Prior to joining ATMI, Dr. Kirlin was a Project Leader and Research
Engineer for American Cyanamid Company.
Douglas A. Neugold has served as Executive Vice President of the ATMI
Materials segment since February 1999. In January 1998, Mr. Neugold joined ATMI
as Vice President of the NovaSource division, and since July 1998 served as
President of that division. Previously, Mr. Neugold served in a variety of
executive and managerial positions with the Electronic Materials Division of
Johnson Matthey. From 1995 to 1997, he served as Vice President, and later as
President of the Semiconductor Packages business. From 1993 to 1995, Mr. Neugold
served as Director of Asian Operations, and prior to that served in a variety of
business and marketing management positions focused on semiconductor technology.
Daniel P. Sharkey has served as Chief Financial Officer since joining ATMI
in 1990, and has served as Vice President and Treasurer since 1993. From 1987 to
1990, Mr. Sharkey was Vice President of Finance and Administration for Adage,
Inc., a manufacturer of high-performance computer graphics terminals. From 1983
to 1987, he was Corporate Controller for CGX Corporation. Previously, Mr.
Sharkey served as Audit Supervisor for KPMG Peat Marwick.
Executive officers serve at the discretion of the Board of Directors. There
are no family relationships among any of the executive officers or directors.
<PAGE>
PART II.
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.
The Common Stock of ATMI has traded on the Nasdaq National Market under the
symbol ATMI since October 13, 1997, and prior thereto the Common Stock of ATM,
the Company's predecessor, was traded on the Nasdaq National Market from
November 1993 under the same symbol. The following table sets forth for the
periods indicated the high and low sales price for the Common Stock as reported
on the Nasdaq National Market:
<TABLE>
<CAPTION>
<S> <C> <C>
High Low
Fiscal year ended December 31, 1997
1st Quarter ................................. $ 22.00 $ 16.00
2nd Quarter ................................. 29.75 15.75
3rd Quarter ................................. 39.25 25.00
4th Quarter ................................. 42.25 18.13
Fiscal year ended December 31, 1998
1st Quarter ................................. 31.19 20.00
2nd Quarter ................................. 33.75 13.25
3rd Quarter ................................. 20.00 10.88
4th Quarter ................................. 25.38 11.25
</TABLE>
As of March 2, 1999, there were approximately 273 holders of record of the
Common Stock.
The Company has never declared or paid any cash dividends on its capital
stock. The Company currently intends to retain all available earnings for use in
its business and does not anticipate paying any cash dividends in the
foreseeable future. Certain financing agreements of the Company's subsidiaries
contain limitations or prohibitions on the payment of dividends without the
lender's consent or in conjunction with a subsidiary's failure to comply with
various financial covenants.
The Transfer Agent and Registrar for ATMI Common Stock is Boston Equiserve.
<PAGE>
Item 6. Selected Financial Data.
The following selected consolidated statements of income for the years
ended December 31, 1998, 1997, and 1996 and the balance sheet data as of
December 31, 1998 and 1997 are derived from the audited consolidated financial
statements of the Company. The consolidated statements of income for the years
ended December 31, 1995 and 1994 is derived from unaudited consolidated
financial statements. The balance sheet data as of December 31, 1996, 1995, and
1994 is derived from unaudited consolidated financial statements. The unaudited
consolidated financial statements include all adjustments, consisting of normal
recurring accruals, which the Company considers necessary for a fair
presentation of the financial position and the results of operations for these
periods. The data set forth below should be read in conjunction with the
Consolidated Financial Statements and Notes thereto and other financial
information included elsewhere in this Form 10-K.
<TABLE>
<CAPTION>
Fiscal Year Ended December 31,
------------------------------
<S> <C> <C> <C> <C> <C>
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
(in thousands, except per share data)
Consolidated Statements of Income:
Product revenues ............................... $ 89,927 $ 107,612 $ 88,926 $ 61,978 $ 35,739
Contract revenues .............................. 7,947 9,120 9,846 8,712 7,223
----- ----- ----- ----- -----
Total revenues ................................. 97,874 116,732 98,772 70,690 42,962
Cost of revenues ............................... 50,468 56,037 46,759 35,052 21,790
------ ------ ------ ------ ------
Gross profit ................................... 47,406 60,695 52,013 35,638 21,172
Operating expenses:
Research and development ................... 12,415 10,827 10,033 5,854 4,069
Selling, general, and administrative ....... 25,629 28,256 24,847 19,546 11,542
Non-recurring expenses ..................... 2,102 (1) 9,000(2) 2,000(3) 0 0
----- ----- ------- - -
Total operating expenses ................ 40,146 48,043 36,880 25,400 15,611
------ ------ ------ ------ ------
Operating income ............................... 7,260 12,612 15,133 10,238 5,561
Interest income (expense), net ................. 2,421 (349) (100) (238) (239)
Other income (expense), net .................... 541 305 152 (543) 3,769
--- --- --- ----- -----
Income before income taxes and minority interest 10,222 12,568 15,185 9,457 9,091
Income taxes ................................... 3,646 6,637 3,134 3,432 2,398
----- ----- ----- ----- -----
Income before minority interest ................ 6,576 5,931 12,051 6,025 6,693
Minority interest .............................. (111) (2) 151 10 12
---- -- --- -- --
Net income ..................................... $ 6,465 $ 5,929 $ 12,202 (4) $ 6,035 $ 6,705 (5)
========= ========= ========= == ========= ======= ==
Net income per share--assuming dilution ........ $ 0.29 $ 0.29 $ 0.61 (4) $ 0.32 $ 0.37 (5)
========= ========= ========= == ========= ====== ==
Weighted average shares outstanding--assuming .. 22,017 20,254 19,987 18,720 18,230
dilution
</TABLE>
<TABLE>
<CAPTION>
December 31,
------------
<S> <C> <C> <C> <C> <C>
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
(in thousands)
Consolidated Balance Sheet Data:
Cash, cash equivalents, and marketable securities $ 83,061 $ 31,307 $ 31,688 $ 34,637 $ 17,989
Working capital ............................... 96,293 41,578 36,081 33,155 19,261
Total assets .................................. 169,405 113,333 102,145 87,800 45,937
Long-term debt, less current portion .......... 7,345 14,526 15,787 11,975 7,811
Minority interest ............................. 846 595 545 535 6
Total stockholders' equity .................... 138,658 68,071 60,121 49,568 25,866
<PAGE>
<FN>
(1) Represents a one-time charge of $1.7 million accrued in connection with
costs incurred in investigating, analyzing, and completing the NOW acquisition,
and a $0.4 million charge relating to a restructuring charge primarily for
severance at ATMI's EcoSys division.
(2) Represents a one-time charge of $9.0 million accrued in connection with
costs incurred in investigating, analyzing, and completing the ADCS Group and
LSL acquisitions.
(3) Represents a one-time charge of $2.0 million ($1.2 million, net of
taxes) accrued in connection with patent litigation involving LSL, which
resulted in a settlement payment in May 1997.
(4) Net income, and net income per share--assuming dilution, in 1996 include
the effect of the ADCS Group's treatment as an S-Corporation for a portion of
the year. If the ADCS Group had been taxed as a C-Corporation for all of 1996,
the Company's net income, and net income per share--assuming dilution, would have
been approximately $10.7 million and $0.54, respectively, for the year ended
December 31, 1996.
(5) Net income, and net income per share--assuming dilution, in 1994 include
a non-recurring gain of approximately $3.6 million, or $0.20 per share--related
to the restructuring of a joint venture and costs incurred in the acquisition of
The Vector Technical Group, Inc.
</FN>
</TABLE>
<PAGE>
Item 7. 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.
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 recently organized its operations along two business segments--ATMI
Materials and ATMI Technologies.
ATMI's Materials segment consists of the ADCS, NovaSource, and NOW
divisions. ADCS develops and markets ultrahigh-purity thin film materials and
proprietary delivery systems. NovaSource develops and markets SDS, which stores
dangerous gases as solids in cylinders, providing increased safety and
substantially greater operating efficiencies. NOW manufactures high performance
containers and dispensing systems for advanced purity chemicals used in the
manufacture of microelectronics. The Materials segment contributed approximately
50% of consolidated revenues in 1998.
ATMI's Technologies segment consists of the EcoSys, Epitronics, Emosyn, and
Ventures divisions. The Company believes EcoSys is the only provider of
point-of-use environmental equipment offering all of the key technologies for
semiconductor effluent abatement. 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 Technologies business contributed
approximately 50% of consolidated revenues in 1998.
<PAGE>
Results of Operations
The following table sets forth, for the periods indicated, certain items
from the Company's consolidated statements of income expressed as a percentage
of total revenues:
<TABLE>
<CAPTION>
Percentage of Total Revenues
Fiscal Year Ended December 31,
------------------------------
<S> <C> <C> <C>
1998 1997 1996
---- ---- ----
Product revenues ............................... 91.9% 92.2% 90.0%
Contract revenues .............................. 8.1 7.8 10.0
--- --- ----
Total revenues ................................. 100.0 100.0 100.0
Cost of revenues ............................... 51.6 48.0 47.3
---- ---- ----
Gross profit ................................... 48.4 52.0 52.7
Operating expenses:
Research and development .................... 12.7 9.3 10.2
Selling, general, and administrative ........ 26.2 24.2 25.2
Non-recurring expenses ...................... 2.1 7.7 2.0
--- --- ---
Total operating expenses .................. 41.0 41.2 37.4
---- ---- ----
Operating income ............................... 7.4 10.8 15.3
Interest income (expense), net ................. 2.5 (0.3) (0.1)
Other income, net .............................. 0.5 0.3 0.2
--- --- ---
Income before income taxes and minority interest 10.4 10.8 15.4
Income taxes ................................... 3.7 5.7 3.2
--- --- ---
Income before minority interest ................ 6.7 5.1 12.2
Minority interest .............................. (0.1) 0.0 0.2
---- --- ---
Net income ..................................... 6.6% 5.1% 12.4%
=== === ====
</TABLE>
Comparison of Fiscal Years Ended December 31, 1998, 1997, and 1996
Revenues. Revenues decreased 16.2% to $97.9 million in 1998 from $116.7
million in 1997, following an increase of 18.2% in 1997 from $98.8 million in
1996. Product revenues decreased 16.4% to $89.9 million in 1998 from $107.6
million in 1997, and increased 21.0% in 1997 from $88.9 million in 1996. Soft
market conditions in 1998, evidenced by a decline in semiconductor unit demand
in the second and third quarters of 1998 and a significant reduction in
semiconductor equipment spending during most of 1998, were the primary causes of
the revenue decline when comparing 1998 with 1997. The growth in revenues from
1996 to 1997 was driven primarily by a substantial increase in SDS product
sales, increased market penetration within most product lines, and healthy
overall growth in the semiconductor industry in 1997.
Contract revenues decreased 12.9% to $7.9 million, or 8.1% of total
revenues, in 1998 from $9.1 million, or 7.8% of total revenues, in 1997, and
decreased 7.4% in 1997 from $9.8 million in 1996, or 10% of total revenues. The
decline in 1998 and 1997 as compared to the previous years resulted from a
general decrease in government funding of the Company's contract research
activities, reflecting the completion of certain contract research programs and
the Company's decision to focus on research relating to more specific,
commercially relevant efforts.
Gross Profit. Gross profit decreased 21.9% to $47.4 million in 1998 from
$60.7 million in 1997. Gross margin decreased to 48.4% of revenues in 1998 from
52.0% of revenues in 1997. Gross margin on product revenues decreased to 50.4%
in 1998 from 55.2% in 1997, primarily as a result of less efficient fixed cost
absorption attendant to the decrease in revenues experienced in 1998,
particularly within the EcoSys, Epitronics, and NOW businesses. Gross margin on
contract revenues increased to 25.7% in 1998 from 13.7% in 1997. The increase in
contract margins resulted from the completion of various firm-fixed price
contracts during 1998.
<PAGE>
Gross profit increased 16.7% to $60.7 million in 1997 from $52.0 million in
1996. Gross margin decreased to 52.0% of revenues in 1997 from 52.7% of revenues
in 1996. Gross margin on product revenues decreased to 55.2% in 1997 from 56.8%
in 1996. The decrease of product margins was primarily attributable to lower
margins in the silicon epi business because of the relocation of manufacturing
equipment during the first half of 1997 and duplicate facility costs during that
period. Additionally, margin decreases were caused by lower selling prices to
end-user customers of ADCS and the fact that the SDS revenue stream was a
smaller but higher margin royalty stream in 1996. Margin decreases were
partially offset by the improved margin profile of the overall product mix of
EcoSys in 1997. Gross margin on contract revenues decreased to 13.7% in 1997
from 15.3% in 1996. Contract margins varied slightly when comparing the two
periods due to different fee arrangements and indirect cost absorption.
Research and Development Expenses. Research and development expenses
increased 14.7% to $12.4 million in 1998 from $10.8 million in 1997, and
increased 7.9% in 1997 from $10.0 million in 1996. The 1998 increase was
primarily due to the development efforts to extend the SDS technology beyond ion
implant applications into CVD, etch, and bulk gas delivery, and product
development activities within the Company's Emosyn division. The 1997 increase
was primarily due to increased staffing for several development efforts related
to the Company's advanced thin film technology and applications. Research and
development expenses as a percentage of revenues increased to 12.7% in 1998,
compared with 9.3% in 1997, which was a decrease from 10.2% in 1996.
Selling, General, and Administrative Expenses. Selling, general, and
administrative expenses decreased 9.3% to $25.6 million in 1998 from $28.3
million in 1997, and increased 13.7% in 1997 from $24.8 million in 1996. The
1998 decrease was primarily due to a reduction of administrative costs resulting
from reductions in personnel, a decrease in executive compensation, and
decreased commissions on lower product revenues. ATMI's variable selling costs
grew in 1997 in line with the Company's revenue growth from 1996 levels. ATMI
also added administrative staff in 1997 as compared to 1996, to support revenue
growth, and incurred increased costs related to the businesses acquired in 1997.
Selling, general, and administrative expenses as a percentage of revenues
increased to 26.2% in 1998, compared with 24.2% in 1997 and 25.2% in 1996.
Non-Recurring Expenses. The 1998 and 1997 operating results included a
one-time, non-recurring charge of $1.7 million and $9.0 million, respectively,
related to the costs incurred in completing the NOW acquisition in 1998 and the
ADCS Group and LSL acquisitions in 1997. The 1996 operating results included a
one-time charge of $2.0 million in connection with patent litigation involving
LSL, which resulted in a settlement payment in May 1997. Additionally, in the
third quarter of 1998, the Company recorded approximately $400,000 of
non-recurring charges related to workforce reductions in the EcoSys business,
which was recorded in non-recurring charges, and an increase of approximately
$900,000 in general business reserves, deemed necessary by the weakness in the
semiconductor industry in 1998, which was recorded in cost of sales, selling,
general, and administrative expenses.
Interest Income (Expense), Net. Interest income increased 149% to $4.0
million in 1998 from $1.6 million in 1997, and decreased 5.5% in 1997 from $1.7
million in 1996. The 1998 increase in interest income is a direct result of the
increased cash and marketable securities that resulted from the Company's public
offering in the first quarter of 1998. The decrease in interest income in 1997
was due to lower levels of cash on hand from the acquisition cost of ADCS and
LSL in the fourth quarter of 1997. Interest expense decreased 20.4% to $1.6
million in 1998 from $1.9 million in 1997, and increased 8.8% in 1997 from $1.8
million in 1996. The 1998 decrease was due to lower debt balances outstanding
during 1998, as capital lease lines were paid down and certain high-interest
rate debt was retired. Interest expense was higher in 1997 than 1996, due
primarily to increased borrowings under capital lease lines.
<PAGE>
Income Taxes. Income tax expense decreased 45.1% to $3.6 million in 1998
from $6.6 million in 1997, and increased 112% in 1997 from $3.1 million in 1996.
The effective income tax rate decreased to 36.1% in 1998 from 52.8% in 1997, and
increased from 20.4% in 1996. ATMI's income tax expense related to United States
federal and state taxes in 1998, which was partially offset by various foreign
sales corporation benefits, and research and development credits. The 1998
effective tax rate was increased by no tax benefit being taken for the
non-recurring charge of $1.7 million related to the NOW acquisition. The
significant increase in 1997 to a level above statutory rates was due in part to
the 1997 operating results including the $9.0 million non-recurring charge
related to the ADCS Group and LSL acquisitions for which no tax benefit was
taken.
Minority Interest. Minority interest represents the 30% interest held by
K.C. Tech Co., Ltd. ("K.C. Tech") in the operations of ADCS-Korea a South Korean
chusik hoesa, which is a joint venture established to manufacture, sell, and
distribute chemicals to the semiconductor and related industries in South Korea.
Earnings Per Share. Earnings per share, on a diluted basis, remained
constant at $0.29 per share in 1998 and 1997, a decline from $0.61 per share in
1996. However, after adjusting earnings to exclude the non-recurring and
one-time charges recognized in 1998, 1997, and 1996, and to adjust 1996 earnings
on a pro forma basis to treat the ADCS Group as a C-Corporation for all of 1996,
earnings per share, on a diluted basis, decreased 46% to $0.40 per share in 1998
from $0.74 per share in 1997, and increased 37% in 1997 from $0.54 per share in
1996. Basic earnings per share decreased 3.1% to $0.31 per share in 1998 from
$0.32 per share in 1997, and decreased 50.8% in 1997 from $0.65 per share in
1996.
Segment Data
During 1998, the Company adopted FASB Statement No. 131 Disclosure About
Segments of an Enterprise and Related Information. ATMI has two segments--ATMI
Materials and ATMI Technologies. ATMI Materials, which consists of the ADCS,
NovaSource, and NOW divisions, develops and markets ultrahigh purity thin film
materials and proprietary delivery systems. ATMI Technologies consists of the
EcoSys, Epitronics, Emosyn, and Venture divisions. EcoSys is a provider of
point-of-use environmental equipment offering all of the key technologies for
semiconductor effluent abatement. Epitronics is involved in specialty epitaxial
services, providing high quality processing of silicon, and next-generation
III-V and wide bandgap, wafers. Emosyn 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 Company
has a corporate headquarters, which is not a separate operating unit. Activity
of the corporate headquarters has been classified in Corporate listed below. The
reportable segments are each managed separately because they manufacture and
distribute distinct products with different production processes.
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 the same as
those described in the summary of significant accounting policies in ATMI's
Consolidated Financial Statements. Intercompany sales are not material among
segments or operating divisions. The general corporate assets include primarily
cash and marketable securities, goodwill, and other long-lived assets of the
Company.
<PAGE>
<TABLE>
<CAPTION>
The following tables provide reported results for each of these segments:
<S> <C> <C> <C>
Revenues 1998 1997 1996
- - -------- ---- ---- ----
ATMI Materials ................. $ 49,086,000 $ 57,304,000 $ 40,154,000
ATMI Technologies............... 48,788,000 59,428,000 58,618,000
---------- ---------- ----------
Consolidated Revenues .......... $ 97,874,000 $ 116,732,000 $ 98,772,000
============= ============= =============
Operating Income (Loss) 1998 1997 1996
- - ----------------------- ---- ---- ----
ATMI Materials ................. $ 13,452,000 $ 17,771,000 $ 10,871,000
ATMI Technologies .............. (2,201,000) 5,198,000 6,882,000
Non-recurring charges .......... (2,102,000) (9,000,000) (2,000,000)
Corporate ...................... (1,889,000) (1,357,000) (620,000)
---------- ---------- --------
Consolidated Operating
Income ........................ $ 7,260,000 $ 12,612,000 $ 15,133,000
============= ============= =============
Identifiable Assets ............ 1998 1997 1996
- - ------------------- ---- ---- ----
ATMI Materials ................. $ 32,934,000 $ 27,999,000 $ 21,695,000
ATMI Technologies .............. 48,848,000 50,077,000 47,885,000
General Corporate Assets ....... 87,623,000 35,257,000 32,565,000
---------- ---------- ----------
Total Consolidated Assets ...... $ 169,405,000 $ 113,333,000 $ 102,145,000
============= ============= =============
Consolidated Net Income ........ 1998 1997 1996
- - ----------------------- ---- ---- ----
Operating Income from reportable
segments ...................... $ 7,260,000 $ 12,612,000 $ 15,133,000
Other Profit or (Loss) ......... 2,851,000 (46,000) 203,000
Income Taxes (Provision) ....... (3,646,000) (6,637,000) (3,134,000)
---------- ---------- ----------
Consolidated Net Income ........ $ 6,465,000 $ 5,929,000 $ 12,202,000
============= ============= =============
</TABLE>
Business Segments Results
ATMI Materials
Overall revenues in the Materials segment in 1998 declined 14% from 1997
levels, which had increased 43% from 1996 levels. A decline in semiconductor
unit demand during the second and third quarters of 1998 slowed sales of many of
ATMI Materials' product offerings. During the fourth quarter, semiconductor unit
demand began to rebound and caused sequential revenue growth in the Materials
segment. The 1997 Materials revenue growth was spurred by strong industry
conditions and significant market penetration, particularly related to the SDS
and NOW product lines.
Operating income in the Materials segment declined 24% in 1998 from 1997
levels, which had increased 63% from 1996 levels. The revenue decline in 1998
reduced gross margins within the segment and drove the operating income decline.
Alternatively, the revenue growth in 1997 when compared to 1996, increased gross
margins and generated higher operating profitability. Operating income, as a
percentage of revenues, was 27.4%, 31.0%, and 27.1% for 1998, 1997, and 1996,
respectively.
<PAGE>
ATMI Technologies
Overall net revenues in the Technologies segment in 1998 declined 18% from
1997 levels, which had increased 1% from 1996 levels. Semiconductor
manufacturing capacity expansion came to a virtual standstill in early 1998
which caused a significant decline in revenues within the EcoSys and Epitronics
businesses. Although signs of a slow steady recovery have emerged in early 1999,
utilization of existing manufacturing capacity must increase significantly
before substantial capacity expansion occurs. Government contract revenues also
declined in 1998 due to the completion of various programs in 1998. The 1997
revenue growth of EcoSys (9%) and Epitronics (2%) was partially offset by a 7%
decline in contract revenues.
Operating income within the Technologies segment declined to a loss in 1998
based on the decline in EcoSys' operating results to below break-even levels,
and the significantly increased research and development efforts focused on the
Company's Emosyn business and other new business ventures. Epitronics'
profitability also declined in 1998 by virtue of revenue declines on a
relatively fixed cost base. In 1997, the increased operating income generated
through the growth of the EcoSys and Epitronics businesses were offset by
reduced profitability on government contracts and incremental investment in the
Emosyn venture.
Corporate
Corporate expenses continued to increase in 1998 from 1997 and 1996, due to
the overall increase in general and administrative support in 1998 and 1997. The
growth of the Company, driven by three acquisitions in the last five quarters,
has required additional corporate infrastructure. The corporate expenses
increased 12% in 1998 from 1997, which had increased 118% from 1996 levels.
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, and various
lease and debt instruments. The Company's working capital increased to $96.3
million at December 31, 1998 from $41.6 million at December 31, 1997.
In 1998, operations provided cash of approximately $9.7 million. The $1.7
million of non-recurring transaction costs, expensed in the third quarter of
1998, reduced the cash generated from operations by approximately $1.1 million,
as approximately $0.6 million remained unpaid at December 31, 1998. Net cash
generated from operations in 1997 was approximately $8.8 million. Working
capital increases, most notably in accounts receivable, inventory, and other
assets, resulted in significant uses of cash in 1997. The $9.0 million of
non-recurring transaction costs, expensed in the fourth quarter of 1997, reduced
the cash generated from operations by approximately $7.0 million, as
approximately $2.0 million remain unpaid at December 31, 1997. In 1996, ATMI
generated net cash from operations of $13.9 million, primarily due to the
profitability of operations.
The Company's investing activities included capital expenditures of $12.0
million, $6.7 million, and $12.0 million in 1998, 1997, and 1996, respectively.
The 1998 expenditures primarily related to installation of additional
manufacturing capacity in Danbury, Connecticut; San Jose, California; and in
Burnet, Texas. The 1997 expenditures included both the installation of SDS
manufacturing capacity in the Danbury, Connecticut facility and an increase in
epitaxial capacity in Epitronics' Arizona facilities. Capital expenditures for
1996 included final construction of Epitronics' manufacturing facility in Mesa,
Arizona, as well as manufacturing expansion for EcoSys and ADCS-Korea, and
laboratory construction for customer application work for EcoSys.
<PAGE>
Among other investing activities, the Company invested approximately $47.9
million raised primarily from the sale of its Common Stock into marketable
securities for future working capital requirements and potential merger and
acquisition activities. The Company sold $0.8 million in marketable securities,
net in 1997, while in 1996, ATMI sold $3.6 million in marketable securities, net
and made a $4.0 million payment in connection with the 1995 acquisition of the
Guardian Systems product line.
As of December 31, 1998, ATMI has financed a significant portion of its
capital equipment purchases, particularly the silicon epitaxial capacity,
through capital leases with approximately $6.2 million of capital lease
obligations outstanding. During 1998, the Company made payments on capital
leases of approximately $2.7 million. Financial institutions have also provided
collateral-based loans for other equipment purchases. During 1998, the Company
made payments on notes of approximately $5.3 million, with the most significant
payment being the mortgage on the Mesa, Arizona Epitronics facility. The
Company's NOW business has an industrial revenue bond arrangement outstanding in
the amount of $2.7 million, which was used for equipment and improvements at its
manufacturing facility and corporate office. At December 31, 1998, $14.5 million
of loans, bonds, and financing remained outstanding. Management believes that
its debt service obligations can be adequately satisfied by cash flows from
operations.
ATMI believes its existing cash balances, marketable securities, existing
sources of liquidity, and anticipated funds from operations, including those of
the newly acquired businesses, 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 agreements with respect to any such acquisitions.
However, any such transactions may affect ATMI's future capital needs.
Operations Outside the United States
In the years ended December 31, 1998, 1997, and 1996, sales outside the
United States, including Asia and Europe, accounted for 25.4%, 23.6%, and 30.4%,
respectively, of the Company's revenues. The Company anticipates its sales
outside the United States will continue to account for significant percentage of
its revenues. In addition, the Company has a joint venture agreement with K.C.
Tech pursuant to which it has a 70% interest in ADCS-Korea, a South Korean
chusik hoesa, which manufactures, sells, and distributes thin film materials to
the semiconductor and related industries in South Korea.
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").
<PAGE>
ATMI has completed an IT Systems inventory analysis and risk assessment. As
previously planned and budgeted, the Company is actively upgrading its core IT
Systems to incorporate additional desired features and functionality including
Year 2000 compliant operators. ATMI has completed these upgrades. In connection
with such upgrades, the Company expects its core IT Systems will be 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 and 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, no remediation actions were required in
order to be Year 2000 compliant. Because ATMI believes the number of Non-IT
Systems is relatively small and therefore, 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 completing 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. ATMI 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 is making
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.
For the year ending December 31, 1998, the Company has incurred
approximately $550,000 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 primarily to 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
the cost related to the Third Party Systems compliance to be minimal. As of
December 31, 1998, no IT Systems projects have been deferred because of problems
associated with the Year 2000 Issue.
<PAGE>
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 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 7A. 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 the operating results.
Item 8. Financial Statements and Supplementary Data.
The Report of Independent Auditors, the consolidated financial statements,
and the financial statement schedule that are listed in the Index to
Consolidated Financial Statements and Financial Statement Schedule are included
herein on pages F-1 through F-25.
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.
There have been no changes in or disagreements with accountants required to
be reported herein.
Item 10. Directors and Executive Officers of the Registrant.
Information regarding ATMI's directors is incorporated by reference herein
to the Company's Proxy Statement for its Annual Meeting of Stockholders to be
held on May 26, 1999 ("1999 Proxy Statement"). Information regarding ATMI's
executive officers is included as Item 4A in Part I of this Form 10-K.
Item 11. Executive Compensation.
Information regarding compensation of ATMI executive officers, except the
Compensation Committee Report and the Stock Performance Graph, is incorporated
by reference herein to the 1999 Proxy Statement.
<PAGE>
Item 12. Security Ownership of Certain Beneficial Owners and Management.
Information regarding the beneficial ownership of shares of Common Stock of
the Company by certain persons is incorporated by reference herein to the 1999
Proxy Statement.
Item 13. Certain Relationships and Related Transactions.
Information regarding certain transactions of ATMI is incorporated by
reference herein to the 1999 Proxy Statement.
PART IV
Item 14. Exhibits, Financial Statement Schedule, and Reports on Form 8-K.
(a) (1) and (2) Financial Statements and Schedule
The report of independent auditors, consolidated financial statements, and
financial statement schedule listed in the Index to Consolidated Financial
Statements and Financial Statement Schedule on page F-1 hereof, are filed as
part of this report, commencing on page F-5 hereof.
All other financial statement schedules not listed in the Index are omitted
as the required information is not applicable or the information is given in the
financial statements or related notes.
<PAGE>
(a) (3) Exhibits
Exhibit No.
Description
2.01 Agreement and Plan of Merger and Exchange by and among Advanced
Technology Materials, Inc., ATMI Holdings, Inc. (now known as ATMI, Inc.), Alamo
Merger, Inc., Advanced Delivery & Chemical Systems Nevada, Inc., Advanced
Delivery & Chemical Systems Manager, Inc., Advanced Delivery & Chemical Systems
Holdings, LLC, Advanced Delivery & Chemical Systems Operating, LLC and Advanced
Delivery & Chemical Systems, Ltd. dated as of April 7, 1997 (Exhibit 2.01 to
Advanced Technology Materials, Inc. Quarterly Report on Form 10-Q for the
quarter ended June 30, 1997, File No. 0-22756 ("June 30, 1997 Form 10-Q")). (1)
2.02(a) Agreement and Plan of Merger by and among Advanced Technology
Materials, Inc., ATMI Holdings, Inc. (now known as ATMI, Inc.), Welk Acquisition
Corporation, Lawrence Semiconductor Laboratories, Inc. and Lawrence
Semiconductor Laboratories Marketing and Sales, Inc. dated as of May 17, 1997
(Exhibit 2.02(a) to June 30, 1997 Form 10-Q).(1)
2.02(b) First Amendment to Agreement and Plan of Merger dated as of June 6,
1997 (Exhibit 2.02(b) to June 30, 1997 Form 10-Q). (1)
2.02(c) Second Amendment to Agreement and Plan of Merger dated as of July
30, 1997 (Exhibit 2.02(c) to June 30, 1997 Form 10-Q. (1)
2.03 Merger Agreement by and among ATMI, Inc., Glide Acquisition, Inc. and
NOW Technologies, Inc. dated as of February 19, 1998 (Exhibit 2.03 to ATMI's
Registration Statement on Form S-1, Registration No. 333-46609 (the "Form S-1
Registration Statement")). (1)
3.01(a) Certificate of Incorporation of the Registrant (Exhibit 3.01 to the
ATMI's Registration Statement on Form S-4, filed September 10, 1997,
Registration No. 333-35323 (the "1997 Form S-4 Registration Statement")). (1)
3.01(b) Certificate of Amendment to Certificate of Incorporation (Exhibit
4.1(b)to the ATMI's Post-Effective Amendment No. 1 to Registration Statement on
Form S-8, filed October 10, 1997, Registration No. 33- 77060). (1)
3.01(c) Certificate of Amendment to Certificate of Incorporation (Exhibit
3.01(c) to the ATMI's Registration Statement on Form S-4, Registration No.
333-51333). (1)
3.02 Bylaws of ATMI (Exhibit 3.02 to the 1997 Form S-4 Registration
Statement). (1)
4.01 Specimen of the ATMI's Common Stock Certificate (Exhibit 4.01 to The
1997 Form S-4 Registration Statement). (1)
10.01 Employment Agreement between Eugene G. Banucci, Ph.D. and Advanced
Technology Materials, Inc. dated October 10, 1997 (Exhibit 10.01 to the Form S-1
Registration Statement). (1)
<PAGE>
Exhibit No.
Description
10.02 Employment Agreement between Daniel P. Sharkey and Advanced
Technology Materials, Inc. dated October 10, 1997 (Exhibit 10.02 to the Form S-1
Registration Statement). (1)
10.03 Employment Agreement between Stephen H. Siegele and Advanced Delivery
& Chemical Systems Nevada, Inc. dated October 13, 1997 (Exhibit 10.05 to the
Form S-1 Registration Statement). (1)
10.04 Consulting Agreement between Lawrence Semiconductor Laboratories,
Inc. and Lawrence Semiconductor Investments, Inc. dated October 10,1997 (Exhibit
10.06 to the Form S-1 Registration Statement). (1)
10.05 Agreement of Lease between Melvyn J. Powers and Mary P. Powers D/b/a/
M&M Realty and Advanced Technology Materials, Inc. dated December 23, 1994
(Exhibit 10.09 to Advanced Technology Materials, Inc. Annual Report on Form
10-K/A for the year ended December 31, 1994, File No. 0-22756 ("1994 Form
10-K/A")). (1)
10.06(a) Lease Agreement between Montague Oaks Associates Phase III and
ATMI EcoSys Corporation dated February 7, 1995 (Exhibit 10.10 to 1994 Form
10-K/A). (1)
10.06(b) First Amendment to Lease between Montague Oaks Associates Phase
III and ATMI EcoSys Corporation dated September 30, 1997 (Exhibit 10.08(b) to
the Form S-1 Registration Statement). (1)
10.07 Lease Agreement between Montague Oaks Associates Phase I & II and
ATMI EcoSys Corporation dated September 30, 1997(Exhibit 10.09 to the Form S-1
Registration Statement). (1)
10.8(a) Standard Industrial Lease--Net between GKZ Investments and
Epitronics Corporation dated June 20, 1994 (Exhibit 10.10(a) to the Form S-1
Registration Statement). (1)
10.8(b) Lease extension letter between GKZ Investments and Epitronics
Corporation dated September 18, 1996 (Exhibit 10.10(b) to the Form S-1
Registration Statement). (1)
21.01 Subsidiaries of ATMI (Exhibit 21.01 to Form S-1 Registration
Statement). (1)
23.01 Consent of Ernst & Young LLP. (2)
23.02 Consent of PriceWaterhouseCoopers LLP. (2)
23.03 Consent of Deloitte & Touche LLP. (2)
27.01 Financial data schedule. (2) (1) Incorporated by reference. (2) Filed
herewith.
<PAGE>
b) Reports on Form 8-K
On October 10, 1998, the Company filed a Form 8-K/A to amend a previously
filed Form 8-K dated August 4, 1998.
<PAGE>
ATMI, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE
Page
----
Report of Ernst & Young LLP F-2
Report of Deloitte & Touche LLP F-3
Report of PriceWaterhouseCoopers LLP F-4
Financial Statements
Consolidated Balance Sheets F-5
Consolidated Statements of Income F-6
Consolidated Statements of Stockholders' Equity F-7
Consolidated Statements of Cash Flows F-8
Notes to Consolidated Financial Statements F-9
<PAGE>
Report of Independent Auditors
The Board of Directors and Stockholders of
ATMI, Inc.
We have audited the accompanying consolidated balance sheets of ATMI, Inc.
as of December 31, 1998 and 1997, and the related consolidated statements of
income, stockholders' equity and cash flows for each of the three years in the
period ended December 31, 1998. Our audits also included the financial statement
schedule listed in the Index at Item 14 (a). These financial statements and
schedule are the responsibility of the Company's management. Our responsibility
is to express an opinion on these financial statements and schedule based on our
audits. We did not audit the financial statements of NOW Technologies, Inc.,
("NOW"), a wholly owned subsidiary, as of March 31, 1998, which statements
reflect total assets constituting 9% at March 31, 1998 and reflect total
revenues constituting 13% and 10% for the years ended March 31, 1998 and 1997,
respectively, (which were combined with the accounts of ATMI, Inc. at December
31, 1997 and for the two years then ended). Nor did we audit the financial
statements or Valuation and Qualifying Accounts schedule data of Lawrence
Semiconductor Laboratories ("Lawrence"), a wholly-owned subsidiary, for the year
ended December 31, 1996. These financial statements reflect total revenues
constituting 21% of the consolidated financial statement total for the year
ended December 31, 1996. Those statements were audited by other auditors whose
reports have been furnished to us, and our opinion, insofar as it relates to
data included for NOW and Lawrence for the periods indicated above, is based
solely on the reports of such other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits and the reports of the other auditors provide a
reasonable basis for our opinion.
In our opinion, based on our audits and the reports of other auditors, the
consolidated financial statements referred to above present fairly, in all
material respects, the consolidated financial position of ATMI, Inc. at December
31, 1998 and 1997, and the consolidated results of its operations and its cash
flows for each of the three years in the period ended December 31, 1998, in
conformity with generally accepted accounting principles. Also, in our opinion,
the related financial statement schedule, when considered in relation to the
basic financial statements taken as a whole, presents fairly in all material
respects the information set forth therein.
ERNST & YOUNG LLP
Stamford, Connecticut
February 8, 1999
<PAGE>
INDEPENDENT AUDITORS REPORT
Board of Directors
NOW Technologies, Inc. and Subsidiaries
Bloomington, Minnesota
We have audited the consolidated balance sheet of NOW Technologies, Inc.
and Subsidiaries (the Company) as of March 31, 1998 and the related statements
of income, stockholders' equity and cash flows for each of the two years in the
period ended March 31, 1998 (not presented herein). These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of the Company as of March 31,
1998 and the results of its operations and its cash flows for each of the two
years in the period ended March 31, 1998, in conformity with generally accepted
accounting principles.
DELOITTE & TOUCHE, LLP
Minneapolis, Minnesota
May 1, 1998
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
of Lawrence Semiconductor Laboratories, Inc. and Affiliate
In our opinion, the combined statements of income and retained earnings and
of cash flows of Lawrence Semiconductor Laboratories, Inc. and Affiliate (not
presented separately herein) present fairly, in all material respects, the
results of operations and cash flows of Lawrence Semiconductor Laboratories,
Inc. and Affiliate for the year ended December 31, 1996, in conformity with
generally accepted accounting principles. These financial statements are the
responsibility of the company's management; our responsibility is to express an
opinion on these financial statements based on our audit. We conducted our audit
of these statements in accordance with generally accepted auditing standards
which require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for the opinion expressed above.
Price Waterhouse LLP
Phoenix, Arizona
May 17, 1997, except for the last paragraph of Note 3
which is as of July 29, 1997 and
the last paragraph of Note 6 which
is as of December 18, 1997
<PAGE>
<TABLE>
<CAPTION>
ATMI, INC.
CONSOLIDATED BALANCE SHEETS
December 31,
------------
<S> <C> <C>
1998 1997
---- ----
ASSETS
Current assets:
Cash and cash equivalents (Note 1) ...................................... $ 18,510,000 $ 13,846,000
Marketable securities (Notes 1 and 2) ................................... 64,551,000 17,461,000
Accounts receivable, net of allowance for doubtful accounts of
$567,000 in 1998, and $405,000 in 1997 (Note 3) ...................... 16,250,000 20,920,000
Inventories (Notes 1 and 4) ............................................. 11,130,000 9,450,000
Other ................................................................... 5,549,000 4,493,000
--------- ---------
Total current assets ............................................... 115,990,000 66,170,000
Property and equipment, net (Notes 1 and 5) .................................. 45,202,000 40,457,000
Goodwill and other long-term assets, net (Notes 1 and 10) .................... 8,213,000 6,706,000
--------- ---------
$169,405,000 $113,333,000
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes and bonds payable, current portion (Note 6) ....................... $ 4,709,000 $ 5,655,000
Capital lease obligations, current portion (Note 7) ..................... 2,488,000 2,671,000
Accounts payable ........................................................ 3,540,000 5,638,000
Accrued expenses ........................................................ 6,998,000 6,874,000
Accrued commissions ..................................................... 1,248,000 2,113,000
Income taxes payable (Note 8) ........................................... 714,000 1,078,000
Deferred income taxes (Note 8) .......................................... -- 563,000
- ------- -------
Total current liabilities .......................................... 19,697,000 24,592,000
Notes payable, less current portion (Note 6) ................................. 3,609,000 8,288,000
Capital lease obligations (Note 7) ........................................... 3,736,000 6,238,000
Deferred income taxes (Note 8) ............................................... 2,764,000 4,874,000
Other long-term liabilities .................................................. 95,000 675,000
Minority interest............................................................. 846,000 595,000
Stockholders' equity (Note 9):
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 22,160,000 in 1998, and 19,744,000 in 1997.................... 222,000 197,000
Additional paid-in capital............................................... 106,174,000 41,841,000
Retained earnings........................................................ 33,495,000 27,132,000
Accumulated other comprehensive income (Note 11)......................... (1,233,000) (1,099,000)
-- ---------- ----------
Total stockholders' equity.......................................... 138,658,000 68,071,000
----------- ----------
$169,405,000 $113,333,000
============ ============
</TABLE>
See accompanying notes.
<PAGE>
<TABLE>
<CAPTION>
ATMI, INC.
CONSOLIDATED STATEMENTS OF INCOME
Year Ended December 31,
-----------------------
<S> <C> <C> <C>
1998 1997 1996
---- ---- ----
Revenues (Note 1):
Product revenues ............................................... $ 89,927,000 $ 107,612,000 $ 88,926,000
Contract revenues .............................................. 7,947,000 9,120,000 9,846,000
--------- --------- ---------
Total revenues ...................................................... 97,874,000 116,732,000 98,772,000
Cost of revenues:
Cost of product revenues ....................................... 44,561,000 48,170,000 38,418,000
Cost of contract revenues ...................................... 5,907,000 7,867,000 8,341,000
--------- --------- ---------
Total cost of revenues .............................................. 50,468,000 56,037,000 46,759,000
---------- ---------- ----------
Gross profit ........................................................ 47,406,000 60,695,000 52,013,000
Operating expenses:
Research and development (Note 1) .............................. 12,415,000 10,827,000 10,033,000
Selling, general, and administrative ........................... 25,629,000 28,256,000 24,847,000
Non-recurring expenses (Notes 10 and 12) ....................... 2,102,000 9,000,000 2,000,000
-- -- --------- --------- ---------
40,146,000 48,083,000 36,880,000
---------- ---------- ----------
Operating income .................................................... 7,260,000 12,612,000 15,133,000
Interest income ..................................................... 3,966,000 1,592,000 1,684,000
Interest expense (Note 6) ........................................... (1,545,000) (1,941,000) (1,784,000)
Other income, net ................................................... 541,000 305,000 152,000
------- ------- -------
Income before taxes and minority interest ........................... 10,222,000 12,568,000 15,185,000
Income taxes (Note 8) ............................................... 3,646,000 6,637,000 3,134,000
--------- --------- ---------
Income before minority interest ..................................... 6,576,000 5,931,000 12,051,000
Minority interest ................................................... (111,000) (2,000) 151,000
-------- ------ -------
Net income .......................................................... 6,465,000 $ 5,929,000 $ 12,202,000
========= ============= =============
Net income per share--basic (Notes 1 and 9) .......................... $ 0.31 $ 0.32 $ 0.65
============= ============= =============
Net income per share--assuming dilution (Notes 1 and 9) .............. $ 0.29 $ 0.29 $ 0.61
============= ============= =============
Weighted average shares outstanding (Notes 1 and 9) ................. 20,830,000 18,802,000 18,779,000
========== ========== ==========
Weighted average shares outstanding--assuming dilution
(Notes 1 and 9) .................................................. 22,017,000 20,254,000 19,987,000
========== ========== ==========
</TABLE>
See accompanying notes.
<PAGE>
<TABLE>
<CAPTION>
ATMI, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<S> <C> <C> <C> <C> <C>
Accumulated
Additional Other
Common Paid-in Retained Comprehensive
Stock Capital Earnings Income Total
Balance at December 31, 1995 ................ $ 194,000 $ 38,590,000 $ 10,793,000 $ (10,000) $ 49,567,000
Issuance of 54,199 common shares pursuant
to the exercise of employee stock options 1,000 188,000 -- -- 189,000
Distributions to stockholders ............... -- -- (1,792,000) -- (1,792,000)
Net income .................................. -- -- 12,202,000 -- 12,202,000
Cumulative translation adjustment ........... -- -- -- (45,000) (45,000)
--------
Comprehensive income ........................ 12,157,000
-----------------------------------------------------------------------
Balance at December 31, 1996 ................ 195,000 38,778,000 21,203,000 (55,000) 60,121,000
Issuance of 82,520 common shares pursuant
to the exercise of employee stock options -- 454,000 -- -- 454,000
Issuance of 151,250 common shares pursuant
to the exercise of warrants .............. 2,000 1,688,000 -- -- 1,690,000
Compensation for the issuance of common
shares ................................... -- 243,000 -- -- 243,000
Tax benefit related to nonqualified stock
options .................................. -- 678,000 -- -- 678,000
Net income .................................. -- -- 5,929,000 -- 5,929,000
Cumulative translation adjustment ........... -- -- -- (1,044,000) (1,044,000)
------------
Comprehensive income ........................ 4,885,000
------------------------------------------------------------------------
Balance at December 31, 1997 ................ 197,000 41,841,000 27,132,000 (1,099,000) 68,071,000
Issuance of 158,918 common shares pursuant
to the exercise of employee stock options 2,000 647,000 -- -- 649,000
Sale of 2,257,000 common shares, net of
issuance costs of $4,161,000. 23,000 62,403,000 -- -- 62,426,000
Compensation for the issuance of common
shares ................................... -- 184,000 -- -- 184,000
Tax benefit related to nonqualified stock
options .................................. -- 1,099,000 -- -- 1,099,000
Adjustment to reflect change in pooled
entity fiscal year .......................... -- -- (102,000) (102,000)
Net income .................................. -- -- 6,465,000 6,465,000
Unrealized loss on available-for-sale
securities (net of tax benefit of $281,000) . -- -- -- (500,000) (500,000)
Cumulative translation adjustment ........... -- -- -- 366,000 366,000
---------
Comprehensive income........................ 6,331,000
------------------------------------------------------------------------
Balance at December 31, 1998................ $ 222,000 $106,174,000 $ 33,495,000 $ (1,233,000) $138,658,000
=========================================================================
</TABLE>
See accompanying notes.
<PAGE>
<TABLE>
<CAPTION>
ATMI, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended December 31,
-----------------------
<S> <C> <C> <C>
1998 1997 1996
---- ---- ----
Operating activities
Net income ................................................................ $ 6,465,000 $ 5,929,000 $ 12,202,000
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization .......................................... 7,604,000 6,253,000 5,531,000
Stock option compensation .............................................. 184,000 243,000 --
Effect of change of fiscal year of pooled entity ...................... (102,000) -- --
Bad debt expense ....................................................... 242,000 365,000 280,000
Deferred income taxes .................................................. (2,365,000) 1,773,000 1,038,000
Tax benefit of nonqualified stock options ............................. 1,099,000 678,000 --
Minority interest in net earnings of subsidiaries ...................... 111,000 2,000 (151,000)
Changes in operating assets and liabilities
(Increase) decrease in accounts receivable ......................... 4,428,000 (4,281,000) (2,340,000)
Increase in inventory .............................................. (1,680,000) (1,825,000) (4,284,000)
Increase in other assets ........................................... (2,944,000) (2,120,000) (201,000)
Increase (decrease) in accounts payable ............................ (2,098,000) (35,000) 41,000
Increase (decrease) in accrued expenses ............................ (741,000) 1,037,000 3,392,000
Increase (decrease) in other liabilities ........................... (529,000) 791,000 (1,617,000)
-------- ------- ----------
Total adjustments ............................................. 3,209,000 2,881,000 1,689,000
--------- --------- ---------
Net cash provided by operating activities ..................... 9,674,000 8,810,000 13,891,000
--------- --------- ----------
Investing activities
Capital expenditures ...................................................... (11,968,000) (6,664,000) (11,995,000)
Long-term investment ...................................................... -- (250,000) --
Sale (purchase) of marketable securities, net ............................. (47,871,000) 777,000 3,617,000
Advances to LSL stockholder on note receivable ............................ -- -- (286,000)
Payments for acquisitions ................................................. -- -- (4,000,000)
Proceeds from sale of assets .............................................. -- -- 619,000
----------- ---------- -----------
Net cash used by investing activities ......................... (59,839,000) (6,137,000) (12,045,000)
----------- ---------- -----------
Financing activities
Proceeds from issuance of notes payable ................................... -- 141,000 4,475,000
Principal payments on notes and bonds payable ............................. (5,625,000) (2,026,000) (2,754,000)
Distribution to ADCS stockholders ......................................... -- -- (1,792,000)
Repayment of amounts borrowed ............................................. -- -- (135,000)
Payments on capital lease obligations ..................................... (2,685,000) (2,447,000) (1,274,000)
Proceeds from sale of common stock, net ................................... 62,426,000 -- --
Investment by minority stockholder ........................................ -- 48,000 160,000
Proceeds from exercise of stock options and warrants ...................... 649,000 2,144,000 189,000
------- --------- -------
Net cash provided (used) by financing activities .............. 54,765,000 (2,140,000) (1,131,000)
---------- ---------- ----------
Effects of exchange rate changes on cash .................................. 64,000 (137,000) (45,000)
------ -------- -------
Net increase in cash and cash equivalents ................................ 4,664,000 396,000 670,000
Cash and cash equivalents, beginning of year .............................. 13,846,000 13,450,000 12,780,000
---------- ---------- ----------
Cash and cash equivalents, end of year .................................... $ 18,510,000 $ 13,846,000 $ 13,450,000
============ ============ ============
</TABLE>
See accompanying notes.
<PAGE>
ATMI, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
Basis of Presentation
The consolidated financial statements include the accounts of ATMI, Inc.
and its majority-owned subsidiaries, after elimination of intercompany accounts
and transactions. In addition, these consolidated financial statements give
retroactive effect to the acquisition of NOW Technologies, Inc. ("NOW"), which
has been accounted for using the pooling-of-interests method. This acquisition
occurred on August 4, 1998, as part of the consummation of the transaction
described in Note 10.
Certain amounts have been reclassified to conform to current year
presentation.
Company's Activities
ATMI, Inc. together with its subsidiaries (the "Company") 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. Specifically, the Company provides a broad range of
ultrahigh-purity thin film materials and related delivery systems, a full line
of point-of-use semiconductor environmental equipment and services,
state-of-the-art, high performance containers and dispensing systems for
advanced purity chemicals, and specialty epitaxial thin film deposition
services.
Revenue Recognition
Product revenues are recognized upon shipment of goods. Contract revenues
under fixed-price contracts and cost-reimbursement-type contracts are recognized
using the percentage-of-completion method based upon costs incurred and
estimated future costs. Provisions for expected losses on contracts are recorded
in the period when identified. Revenues under fixed-price contracts from the
U.S. Government were $2,739,000, $3,708,000, and $4,046,000 for the years ended
December 31, 1998, 1997, and 1996, respectively. Revenues under
cost-reimbursement-type contracts from the U.S. Government were $5,208,000,
$5,412,000, and $5,800,000 for the years ended December 31, 1998, 1997, and
1996, respectively.
Use of Estimates
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results may differ from those estimates.
Research and Development
Research and development costs, including materials, labor, and overhead
related to self-funded projects, are expensed as incurred. External funding
provided to the Company through cost-reimbursement contracts with the U.S.
Government, are expensed as cost of contract revenues.
<PAGE>
ATMI, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
1. Summary of Significant Accounting Policies (continued)
Marketable Securities and Investments
Highly liquid investments with maturities of three months or less, when
purchased, are classified as cash and cash equivalents. Investments with
maturities greater than three months and less than two years are classified as
marketable securities.
The Company accounts for investments in accordance with SFAS No. 115,
"Accounting for Certain Investments in Debt and Equity Securities." The
Company's policy is to protect the value of its investments portfolio and to
minimize principal risk by earning returns based on current interest rates. All
of the Company's marketable securities are classified as available-for-sale as
of the balance sheet date and are reported at fair value with unrealized gains
and losses recorded in accumulated other comprehensive income, net of tax. The
cost of securities sold is based on the specific identification method. Interest
on these securities is accrued and included in interest income.
Management determines the classification of marketable debt securities at
the time of purchase and reevaluates such designation as of each balance sheet
date.
Inventories
Inventories are stated at the lower of cost or market using the first-in,
first-out (FIFO) method.
Property and Equipment
Property and equipment is stated at cost. Depreciation and amortization of
property and equipment is computed using the straight-line method over the
estimated useful lives of the assets, which vary from three to thirty-five
years.
Foreign Currency Translation
Adjustments relating to the translation of foreign currency to U.S. dollars
are reported as a separate component of accumulated other comprehensive income.
Gains or losses resulting from foreign currency transactions are included in
other income (expense) and have been immaterial.
Taxes
The Company accounts for income taxes in accordance with the liability
method. Under this method, deferred tax assets and liabilities are determined
based upon differences between financial reporting and the tax basis of assets
and liabilities, and are measured using the enacted tax rates and laws that are
expected to be in effect when the differences are expected to reverse.
<PAGE>
ATMI, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
1. Summary of Significant Accounting Policies (continued)
Fair Values of Financial Instruments
The Company's financial instruments include cash and cash equivalents,
marketable securities, accounts receivable, short-term investments, and debt.
Marketable securities are accounted for at fair value. All other financial
instruments are accounted for on an historical cost basis which, due to the
nature of these instruments, approximates fair value at the balance sheet dates.
Long-Lived Assets
The Company reviews, on a periodic basis, the value of its long-lived
assets to determine whether an impairment exists. At December 31, 1998, no such
impairment existed. Goodwill and other long-term assets are stated net of
accumulated amortization of $1,227,000 and $837,000 at December 31, 1998 and
1997, respectively.
Stock Based Compensation
Effective in fiscal year 1996, the Company adopted Financial Accounting
Statement No. 123, "Accounting for Stock-Based Compensation." This statement
defines a fair value-based method of accounting for employee stock compensation
plans. However, it also allows an entity to continue to measure compensation
cost for those plans in accordance with Accounting Principle Board (APB) Opinion
No. 25, "Accounting for Stock Issued to Employees." Under APB No. 25,
compensation cost is the excess, if any, of the quoted market price of the stock
at the grant date over the amount the employee must pay to acquire the stock.
The Company has elected to continue to account for its employee stock
compensation plans under APB No. 25. Pro forma disclosures of net income, net
income per share-basic, and net income per share-assuming dilution, as if the
fair value based method of accounting had been applied, are presented in Note 9.
Per Share Data
Basic and diluted per share is calculated in accordance with FASB Statement
No. 128, "Earnings Per Share." All earnings per share amounts for all periods
have been presented in accordance with, and where appropriate restated to
conform to, the requirements of Statement 128.
<PAGE>
ATMI, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
2. Marketable Securities
<TABLE>
<CAPTION>
Marketable securities are comprised of the following at December 31, 1998:
Gross Unrealized Estimated Fair
Cost Loss Value
<S> <C> <C> <C>
---- ---- -----
Corporate obligations ......................... $49,563,000 -- $49,563,000
U.S. Government obligations ................... 8,695,000 -- 8,695,000
Certificates of deposit ....................... 4,887,000 -- 4,887,000
--------- ---------
Total debt securities ........................ 63,145,000 -- 63,145,000
---------- ----------
Other equity ................................... 2,187,000 $ (781,000) 1,406,000
--------- ----------- ---------
Total available for sale ..................... $65,332,000 $ (781,000) $64,551,000
=========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
Marketable securities are comprised of the following at December 31, 1997:
Estimated Fair
Cost Value
<S> <C> <C>
---- -----
Corporate obligations.................. $10,590,000 $10,590,000
U.S. Government obligations............ 6,407,000 6,407,000
Certificates of deposit................ 464,000 464,000
------- -------
Total marketable securities $17,461,000 $17,461,000
=========== ===========
</TABLE>
All of the Company's marketable securities have maturities of less than two
years.
3. Accounts Receivable
Amounts due from various agencies of the U.S. Government were approximately
$2,054,000 and $2,619,000 of accounts receivable at December 31, 1998 and 1997,
respectively. Unbilled accounts receivable were $620,000 and $1,019,000, and
customer advances, included in other liabilities, were $790,000 and $612,000 at
December 31, 1998 and 1997, respectively.
Credit is extended to commercial customers based on an evaluation of their
financial condition, and collateral is not generally required. The evaluation of
financial condition is performed to reduce the risk of loss. The Company has not
experienced any material losses due to uncollectible accounts receivable since
inception. Certain transactions with foreign customers are supported by letters
of credit. The Company maintains an allowance for doubtful accounts at a level
that management believes is sufficient to cover potential credit losses.
<PAGE>
ATMI, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
4. Inventories
<TABLE>
<CAPTION>
Inventories are comprised of the following:
December 31,
------------
<S> <C> <C>
1998 1997
------------ ------------
Raw materials ...... $ 9,815,000 $ 7,995,000
Work in process .... 544,000 1,040,000
Finished goods ..... 1,894,000 1,478,000
------------ ------------
12,253,000 10,513,000
Obsolescence reserve (1,123,000) (1,063,000)
------------ ------------
$ 11,130,000 $ 9,450,000
============ ============
</TABLE>
5. Property and Equipment
<TABLE>
<CAPTION>
Property and equipment is comprised of the following:
December 31,
<S> <C> <C>
1998 1997
---- ----
Land ....................... $ 1,471,000 $ 1,323,000
Buildings .................. 7,518,000 7,243,000
Machinery and equipment .... 55,748,000 46,897,000
Furniture and fixtures ..... 2,313,000 1,965,000
Leasehold improvements ..... 6,936,000 5,240,000
--------- ---------
73,986,000 62,668,000
Accumulated depreciation and
amortization .............. (28,784,000) (22,211,000)
----------- -----------
$ 45,202,000 $ 40,457,000
============ ============
</TABLE>
Depreciation expense for the years ended December 31, 1998, 1997, and 1996,
was $7,214,000, $5,919,000, and $5,100,000, respectively.
<PAGE>
ATMI, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
6. Notes and Bonds Payable
<TABLE>
<CAPTION>
Notes and bonds payable consist of the following:
December 31,
------------
<S> <C> <C>
1998 1997
---- ----
Note payable in conjunction with acquisition of Guardian Systems,
bearing interest at 8.5%, due in three annual installments beginning January 1, 1999 $ 2,000,000 $ 2,000,000
Term loans with Connecticut state agency, bearing interest ranging between 5%-6%, due
between April 2001 and June 2002 .................................................... 1,649,000 1,713,000
Equipment credit line with a commercial bank, bearing interest at 8.25%, due through
June 2000 ........................................................................... 525,000 1,128,000
Notes payable with commercial banks and leasing companies, bearing interest ranging
between 7.3%-11.52%, due between April 1998 and June 2001
1,444,000 6,102,000
City of Bloomington, Minnesota Industrial Revenue Bond, interest rate is variable
(4.40% and 4.05% at December 31, 1998 and 1997), quarterly payments of $100,000, due
September 2005 ...................................................................... 2,700,000 3,000,000
--------- ---------
8,318,000 13,943,000
Less current portion ................................................................ (4,709,000) (5,655,000)
---------- ----------
$ 3,609,000 $ 8,288,000
============ ============
</TABLE>
<TABLE>
<CAPTION>
The approximate aggregate debt maturities are as follows as of December 31,
1998:
<S> <C> <C>
1999 $2,409,000
2000 1,995,000
2001 1,684,000
2002 1,130,000
2003 400,000
Thereafter 700,000
----------
$8,318,000
==========
</TABLE>
The term loans are collateralized by various equipment, leasehold
improvements, and renovations in the Company's Connecticut facility. The
majority of the Company's notes payable are secured by the related real property
or equipment. The Company's equipment credit line bears interest at prime plus
0.5% per annum and is collateralized by certain assets. The Company is in
compliance with the credit line and notes payable covenants.
Certain of the Company's subsidiaries' financing agreements contain
limitations or prohibitions on the payment of dividends without the lender's
consent or in conjunction with the subsidiary's failure to comply with various
financial covenants. The Company has never declared or paid cash dividends on
its capital stock. The Company does not anticipate paying any cash dividends in
the foreseeable future.
<PAGE>
ATMI, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
6. Notes and Bonds Payable (continued)
The bondholders may tender the City of Bloomington, Minnesota bonds at any
time for the principal amount plus accrued interest. As a result they have been
classified as a current liability. The Company has the option to convert the
bonds to a fixed rate provided all bonds can be remarketed at the fixed rate.
The first fixed rate optional redemption date would be July 1 of the year that
is halfway between the conversion date and July 1, 2005. If redeemed, the
Company must pay 102% and 101% of bond principal in the first and second years
following the first fixed rate optional redemption date, respectively. Prior to
conversion to a fixed rate, the Company has the option to redeem the bonds
without premium.
Interest paid was $1,585,000, $1,940,000, and $1,770,000, for the years
ended December 31, 1998, 1997, and 1996, respectively.
7. Leases
The Company is obligated under capital leases for certain machinery and
equipment that expire at various dates during the next five years. The gross
amount of machinery and equipment under the capital leases and the related
accumulated depreciation were as follows:
<TABLE>
<CAPTION>
December 31,
------------
<S> <C> <C>
1998 1997
---- ----
Machinery and equipment ... $ 11,865,000 $ 14,060,000
Accumulated depreciation .. (2,911,000) (3,346,000)
---------- ----------
$ 8,954,000 $ 10,714,000
============ ============
</TABLE>
<TABLE>
<CAPTION>
The following is a schedule of future minimum lease payments for capital
leases as of December 31, 1998:
<S> <C> <C>
Capital Leases
--------------
1999 ................................................... $ 2,937,000
2000 ................................................... 2,167,000
2001 ................................................... 1,564,000
2002 ................................................... 359,000
-----------
Total lease payments ........................................ 7,027,000
Less amount representing interest . ......................... (803,000)
-----------
Present value of net capital lease payments ................. 6,224,000
Less current portion ........................................ (2,488,000)
-----------
Long-term portion ........................................... $ 3,736,000
===========
</TABLE>
The Company leases office and manufacturing facilities, and certain
manufacturing equipment, under several operating leases expiring between 1999
and 2005. Rental expense was $3,028,000, $2,962,000, and $2,741,000, for the
years ended December 31, 1998, 1997, and 1996, respectively.
<PAGE>
ATMI, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
7. Leases (continued)
<TABLE>
<CAPTION>
The following is a schedule of future minimum lease payments for operating
leases as of December 31, 1998:
Operating
Leases
------
<S> <C> <C>
1999 .............................................. $2,509,000
2000 .............................................. 1,739,000
2001 .............................................. 1,490,000
2002 .............................................. 1,090,000
2003 .............................................. 581,000
Thereafter ........................................ 810,000
----------
Total minimum lease payments ........................... $8,219,000
==========
</TABLE>
8. Income Taxes
<TABLE>
<CAPTION>
Significant components of the provision for income taxes for the periods
presented are as follows:
December 31,
------------
<S> <C> <C> <C>
1998 1997 1996
---- ---- ----
Current:
Federal .................... $ 4,913,000 $ 4,412,000 $ 1,554,000
State ...................... 1,098,000 452,000 542,000
--------- ------- -------
Total current ................... 6,011,000 4,864,000 2,096,000
Deferred:
Federal .................... (1,801,000) 1,520,000 747,000
State ...................... (564,000) 253,000 291,000
-------- ------- -------
Total deferred .................. (2,365,000) 1,773,000 1,038,000
---------- --------- ---------
$ 3,646,000 $ 6,637,000 $ 3,134,000
=========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
Significant components of the Company's deferred tax assets and liabilities
are as follows:
December 31,
------------
<S> <C> <C>
1998 1997
---- ----
Deferred tax assets:
Accrued liabilities ... $ 662,000 $ 392,000
Inventory reserves .... 892,000 382,000
Other, net ............ 218,000 289,000
------- -------
1,772,000 1,063,000
Deferred tax liabilities:
Depreciation .......... (2,737,000) (2,155,000)
Capital leases ........ (1,184,000) (1,182,000)
Other, net ............ (615,000) (3,163,000)
-------- ----------
(4,536,000) (6,500,000)
---------- ----------
Net deferred tax liabilities $(2,764,000) $(5,437,000)
=========== ===========
</TABLE>
<PAGE>
ATMI, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
8. Income Taxes (continued)
Income taxes paid for the years ended December 31, 1998, 1997, and 1996
were $7,495,000, $4,472,000, and $3,550,000.
<TABLE>
<CAPTION>
The reconciliation of income tax computed at the U.S. federal statutory tax
rate to the Company's tax expense is:
For the Year Ended December 31,
-------------------------------
<S> <C> <C> <C>
1998 1997 1996
---- ---- ----
U.S. statutory rate ......................... $ 3,437,000 $ 4,296,000 $ 5,216,000
State income taxes .......................... 353,000 448,000 672,000
Effect of nondeductible acquisition expenses 578,000 3,420,000 --
Income not subject to federal income taxation (58,000) (75,000) (1,571,000)
Net operating loss carryforward utilization . -- (237,000) (1,263,000)
Foreign sales corporation benefit ........... (322,000) -- --
Reversal of valuation allowance ............. -- (1,163,000) --
Tax credits ................................. (200,000) -- --
Other, net .................................. (142,000) (52,000) 80,000
-------- ------- ------
$ 3,646,000 $ 6,637,000 $ 3,134,000
=========== =========== ===========
</TABLE>
Prior to ATMI's acquisition of the Advanced Delivery & Chemical Systems
Nevada, Inc. and its affiliates (collectively, the "ADCS Group"), the
stockholders of Advanced Delivery & Chemical Systems Nevada, Inc. ("ADCS
Nevada") elected S-Corporation status effective April 1, 1996. In October 1996,
as a result of a transfer of shares to an ineligible S-Corporation shareholder,
the S status was terminated. During the period that ADCS Nevada was an
S-Corporation, its earnings were not subject to federal corporate income tax.
Additional federal corporate income tax of $1,483,000 would have resulted if
ADCS Nevada had been taxed as a C-Corporation for all of 1996, and the pro forma
consolidated net income, and net income per share-assuming dilution, for ATMI
for the year ended December 31, 1996 would have been $10,719,000 and $0.54,
respectively.
South Korea has granted the Company a five year full income tax exemption,
which expires in 2003, and an additional three year 50% exemption, which expires
in 2006, for its operations at ADCS-Korea Co., Ltd. ("ADCS-Korea")
The former securityholders of the ADCS Group have agreed to indemnify the
Company against losses arising out of certain tax matters. As security for these
tax matters, the former securityholders of the ADCS Group have delivered 700,000
shares of the Company's common stock which they received into escrow. Any claim
for such tax matters adversely determined against the Company, regardless of the
escrow, would result in a charge to the Company's results of operations. The
former securityholders of the ADCS Group believe that any exposure would be
immaterial, and the Company believes that any successful challenge to the tax
matters is not probable. While the possible exposures, if any, are difficult to
quantify, the Company believes that, regardless of the probability that
liabilities arise, the potential exposures range from $0 to $22 million
depending on the tax matter.
<PAGE>
ATMI, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
9. Stockholders' Equity
In March 1998, the Company completed a registered underwritten public
offering of 5,428,000 shares, including over-allotments, of common stock at
$29.50 per share. Net proceeds to the Company of $62,426,000 were from 2,257,291
shares sold by the Company while 3,170,709 shares were sold by certain
stockholders. Costs of the offering, including underwriting commissions, were
$4,161,000.
Stock Plans
In May 1998, the Company's stockholders approved the adoption of the 1998
Stock Plan ("1998 Plan"), which provides for the granting of up to 2,000,000
nonqualified stock options, stock appreciation rights and restricted stock
awards to employees, directors, and consultants of the Company.
In May 1997, the Company's stockholders approved the adoption of the 1997
Stock Plan ("1997 Plan"), which provides for the granting of up to 900,000
nonqualified stock options, "incentive stock options" ("ISOs"), and stock
appreciation rights to employees, directors, and consultants of the Company.
In May 1995, the Company's stockholders approved the adoption of the 1995
Stock Plan ("1995 Plan"), which provides for the granting of up to 500,000
nonqualified stock options, ISOs and stock appreciation rights to employees,
directors, and consultants of the Company. The Company's 1987 Stock Plan (the
"1987 Plan"), as amended, provided for the granting of up to 1,115,833
nonqualified stock options.
Under the terms of these stock plans, nonqualified options granted may not
be at a price of less than 50% of the fair market value of the common stock, and
ISOs granted may not be at a price of less than 100% of fair market value of the
common stock on the date of grant. All grants have been made at fair market
value under the plans. Options are generally exercisable commencing one year
after the date of grant at the rate of 20% per annum on a cumulative basis.
Nonqualified options expire up to ten years from the date of grant, and ISOs
expire five to ten years from the date of grant.
<TABLE>
<S> <C> <C>
Number of Option Price
Shares Per Share
------ ---------
Options outstanding at December 31, 1995 ...... 974,305 $ 0.28 - $13.88
Granted .................................. 92,500 $ 9.88 - $17.63
Canceled ................................. (54,390) $ 0.53 - $12.50
Exercised ................................ (54,199) $ 0.28 - $12.50
------- ------ ------
Options outstanding at December 31, 1996 ...... 958,216 $ 0.28 - $17.63
Granted .................................. 900,490 $16.88 - $40.13
Canceled ................................. (348,250) $ 0.53 - $40.13
Exercised ................................ (82,520) $ 0.28 - $13.50
------- ------ ------
Options outstanding at December 31, 1997 ...... 1,427,936 $ 0.28 - $29.38
Granted ................................... 752,440 $4.04 - $33.00
Canceled .................................. (110,130) $5.63 - $33.00
Exercised ................................. (158,918) $0.28 - $17.63
-------- ----- ------
Options outstanding at December 31, 1998 ...... 1,911,328 $16.88 - $40.13
========= ====== ======
</TABLE>
<PAGE>
ATMI, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
9. Stockholders' Equity (continued)
At December 31, 1998, 1997, and 1996 options for 773,241, 657,396, and
567,066 shares, respectively, were exercisable, and at December 31, 1998 options
for 1,945,293 shares were available for grant. Exercise prices for 764,158
options outstanding ranged from $0.44-$10.00; for 422,050 options outstanding
ranged from $10.01-$20.00; and for 725,120 options outstanding ranged from
$20.01-$33.00 as of December 31, 1998.
The weighted average exercise price and remaining contractual life of
options outstanding at December 31, 1998 was $14.56 and 7.5 years, respectively.
As a result of the NOW merger in 1998, stock options of NOW were converted
into 205,089 of ATMI stock options. These stock options were converted into ATMI
stock options at historical prices ranging from $4.04 to $8.90.
If compensation expense for the Company's plans had been determined for all
stock option grants based on the fair value at the grant dates for awards under
those plans, consistent with the method described in SFAS No. 123, the Company's
net income, net income per share-basic and net income per share-assuming
dilution would have been reduced to the pro forma amounts indicated below:
<TABLE>
<S> <C> <C> <C>
1998 1997 1996
---- ---- ----
Net income .............................. $4,514,000 $5,090,000 $11,871,000
Net income per share--basic ............. $ 0.22 $ 0.27 $ 0.63
Net income per share--assuming dilution . $ 0.21 $ 0.25 $ 0.59
</TABLE>
The fair value of each option grant, for pro forma disclosure purposes, was
estimated on the date of grant using the Black-Scholes option pricing model with
the following weighted average assumptions:
<TABLE>
<S> <C> <C> <C>
1998 1997 1996
---- ---- ----
Expected dividend yield None None None
Risk free interest rate 5.50% 6.00% 6.25%
Expected volatility ... 62.8% 56.0% 54.6%
Expected life of options 7.5 years 7.5 years 7.5 years
</TABLE>
The weighted average fair value of non-canceled stock options granted in
1998, 1997, and 1996 was $14.74, $17.04, and $8.21, respectively.
Employee Stock Purchase Plan
The Employee Stock Purchase Plan ("ESPP Plan") was approved in May 1998 and
enables all employees to subscribe at six month intervals to purchase shares of
common stock at the lower of 85% of the fair market value of the shares on the
first day or last day of each six month period. A maximum of 500,000 shares are
authorized for subscription. At December 31, 1998 no shares had been issued
under the ESPP Plan.
<PAGE>
ATMI, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
9. Stockholders' Equity (continued)
<TABLE>
<CAPTION>
Earnings Per Share
The following table presents the computation of basic and diluted earnings
per share:
<S> <C> <C> <C>
1998 1997 1996
---- ---- ----
Numerator:
Net income .................................... $ 6,465,000 $ 5,929,000 $12,202,000
=========== =========== ===========
Denominator:
Denominator for basic earnings per share-
Weighted-average share ..................... 20,830,000 18,802,000 18,779,000
Dilutive effect of contingent shares related to
the ADCS Group and NOW acquisitions ........ 780,000 780,000 780,000
Dilutive effect of employee stock options ..... 407,000 672,000 428,000
------- ------- -------
Denominator for diluted earnings per share .... 22,017,000 20,254,000 19,987,000
---------- ---------- ----------
Net income per share--basic ........................ $ 0.31 $ 0.32 $ 0.65
=========== =========== ===========
Net income per share--assuming dilution ............ $ 0.29 $ 0.29 $ 0.61
=========== =========== ===========
</TABLE>
Options to purchase 720,520, 16,000, and 32,000 shares of common stock,
outstanding as of December 31, 1998, 1997, and 1996, respectively, were not
included in the computation of diluted earnings per share because their exercise
prices were greater than the average market price of the common shares and,
therefore, their inclusion would be antidilutive.
10. Mergers and Acquisitions
On August 4, 1998, pursuant to a Merger Agreement, 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. The Merger has been accounted for as a pooling of interests. NOW's fiscal
year ended on March 31. The Company's consolidated financial statements have
been restated to combine NOW's fiscal year end March 31 and ATMI's year end
December 31. Certain adjustments have been made to the financial statements to
combine the operations. An adjustment of $102,000 was made to retained earnings
to adjust for the different fiscal year ends. 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 former securityholders of NOW have agreed to indemnify the Company from
and against certain losses arising out of breaches of representations and
warranties made by the respective securityholders. As security for these
obligations, the former securityholders of NOW delivered approximately 80,000
shares of the Company's Common Stock which they received into escrow in
connection with the acquisition by the Company of NOW.
<PAGE>
ATMI, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
10. Mergers and Acquisitions (continued)
Non-recurring costs of approximately $1,700,000, primarily related to
investment banker, legal, and accounting fees have been recorded as a one-time
charge in 1998 in conjunction with the investigation, analysis, and August 1998
closing of the NOW transaction.
The acquisition of NOW was treated as a pooling of interests. For the six
month period ended June 30, 1998 and years ended December 31, 1997 and 1996,
prior to the acquisition, revenues and net income of ATMI and NOW included in
the financial statements are as follows:
<TABLE>
<CAPTION>
Six Months Ended
<S> <C> <C> <C>
Revenues: June 30, 1998 1997 1996
- - --------- ------------- ---- ----
ATMI .............................. $ 49,006,000 $101,877,000 $ 88,661,000
NOW ............................... $ 6,043,000 $ 14,855,000 $ 10,111,000
Six Months Ended
Net Income: June 30, 1998 1997 1996
- - ----------- ------------- ---- ----
ATMI .............................. $ 5,999,000 $ 4,421,000 $ 12,017,000
NOW ............................... $ 240,000 $ 1,508,000 $ 185,000
</TABLE>
On October 10, 1997, pursuant to an Agreement and Plan of Merger and
Exchange dated April 7, 1997 (the "Merger and Exchange Agreement"), the Company
issued 5,468,747 shares of its Common Stock in exchange for all the ownership
interests of the ADCS Group. The ADCS Group manufactures, markets, and designs
ultrahigh-purity specialty thin film materials and related delivery equipment
for the semiconductor and semiconductor equipment manufacturing industries. The
acquisition of ADCS was accounted for as a pooling of interests.
Also on October 10, 1997, pursuant to an Agreement and Plan of Merger,
dated as of May 17, 1997, as amended (the "Lawrence Merger Agreement"), the
Company issued 3,671,349 shares of the Company's Common Stock in exchange for
all of the outstanding common stock of Lawrence Semiconductor Laboratories, Inc.
and its affiliate (collectively, "LSL") in a merger transaction. As a result,
LSL became a wholly-owned subsidiary of the Company. LSL is a provider of
epitaxial processing of silicon wafers using chemical vapor deposition
technology to meet customer specifications. The acquisition of LSL was accounted
for as a pooling of interests.
The former securityholders of the ADCS Group have agreed to indemnify the
Company from and against certain losses arising out of breaches of
representations and warranties made by the respective securityholders and for
certain tax matters. As security for these obligations, the former
securityholders of the ADCS Group delivered 700,000 shares of the Company's
Common Stock which they received into escrow in connection with the acquisition
by the Company of the ADCS Group.
Non-recurring costs of approximately $9,000,000, primarily related to
investment banker, legal, accounting fees, and a break-up fee in connection with
a transaction between LSL and another investor, were recorded as a one-time
charge in 1997 in conjunction with the investigation, analysis, and October 1997
closings of the ADCS Group and LSL transactions.
<PAGE>
ATMI, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
10. Mergers and Acquisitions (continued)
For the nine month period ended September 30, 1997 and year ended December
31, 1996, prior to the acquisition, revenues and net income of ATM, the ADCS
Group, and LSL included in the financial statements are as follows:
<TABLE>
<CAPTION>
Nine Months Ended
<S> <C> <C>
Revenues: September 30, 1997 1996
- - --------- ------------------ ----
ATM ........................................... $41,286,000 $46,350,000
ADCS and LSL .................................. $32,262,000 $42,311,000
Nine Months Ended
Net Income: September 30, 1997 1996
- - ----------- ------------------ ----
ATM ........................................... $ 3,979,000 $ 3,321,000
ADCS and LSL .................................. $ 5,134,000 $ 8,696,000
</TABLE>
11. Comprehensive Income
During the first quarter of 1998, the Company adopted FASB Statement No.
130, "Reporting Comprehensive Income." Statement No. 130 requires the reporting
of comprehensive income in addition to net income from operations. Comprehensive
income is a more inclusive financial reporting presentation that includes
disclosure of certain financial information that historically has not been
recognized in the calculation of net income.
<TABLE>
<CAPTION>
The components of comprehensive income are as follows:
Currency Unrealized Loss on
Translation Available-for-Sale
Adjustments Securities Total
<S> <C> <C> <C>
----------- ---------- -----
Balance at December 31, 1996 ........... $ (55,000) -- $ (55,000)
Cumulative translation adjustment ...... (1,044,000) -- (1,044,000)
----------- ----------- -----------
Balance at December 31, 1997 ........... (1,099,000) -- (1,099,000)
Unrealized loss on available-for-sale
securities, (net of tax benefit of $281,000) -- $ (500,000) (500,000)
Cumulative translation adjustment ...... 366,000 -- 366,000
------- ------- -------
Balance at December 31, 1998 ........... $ (733,000) $ (500,000) $(1,233,000)
=========== =========== ===========
</TABLE>
12. Restructuring Charge
During the third quarter of 1998, the Company reduced its workforce and
recorded a $400,000 restructuring charge. The Company's initiative was completed
by December 31, 1998.
<PAGE>
ATMI, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
13. Commitments and Contingencies
On May 15, 1997, LSL settled patent infringement litigation with an
equipment manufacturer, related to equipment used by LSL that was purchased from
another manufacturer. Under the terms of the related settlement agreement, LSL
agreed to pay the manufacturer $2,000,000 and to purchase reactors from the
manufacturer assuming LSL's business conditions justify such purchases. LSL has
purchased a reactor at an approximate fair market value of $2,500,000. LSL
accrued the $2,000,000 relating to this settlement in the accompanying financial
statements for the year ended December 31, 1996. The amount was paid to the
manufacturer during the year ended December 31, 1997.
In the normal course of business, the Company is involved in various
lawsuits and claims. Although the ultimate outcome of any of these legal
proceedings cannot be determined at this time, management, including internal
counsel, does not believe that the outcome of theses proceedings, individually
or in the aggregate, will have a material adverse effect on the Company's
financial position or overall trends in results of operations.
14. Segment and Geographic 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
financial statements.
<TABLE>
<CAPTION>
The Company's geographic data for years ended December 31, 1998, 1997, and
1996, are as follows:
Revenues from external customers 1998 1997 1996
- - -------------------------------- ---- ---- ----
<S> <C> <C> <C>
United States ........ $ 73,017,000 $ 89,163,000 $ 68,713,000
Pacific Rim .......... 18,855,000 22,300,000 25,422,000
Europe ............... 6,002,000 5,269,000 4,637,000
--------- --------- ---------
Total revenues from
external customers $ 97,874,000 $116,732,000 $ 98,772,000
============ ============ ============
</TABLE>
Revenues are attributed to countries based on the location of the customer.
No one specific country within the Pacific Rim or Europe accounted for greater
than 10% of consolidated revenues in 1998 and 1997. During 1996, the Company had
export sales of approximately 21% to South Korea. Approximately all assets of
the Company are based in the United States. Assets outside of the United States
are immaterial to the consolidated balance sheet at December 31, 1998 and at
December 31, 1997. Net income recorded by the Company's foreign subsidiaries is
not material to the consolidated operations of the Company for the three years
ended December 31, 1998. The Company utilized one vendor to manufacture product
that accounted for approximately 14% and 11% of revenues in 1998 and 1997,
respectively.
<PAGE>
<TABLE>
<CAPTION>
Quarterly Results of Operations (unaudited)
(Thousands of Dollars, except per share amounts)
Quarter
-------
1998 First Second Third Fourth
- - ---- ----- ------ ----- ------
<S> <C> <C> <C> <C>
Revenues ........................................... $ 30,534 $ 24,516 $ 21,729 $ 21,095
Gross profit ....................................... 16,522 11,851 9,233 9,800
Net income (loss) .................................. 4,565 1,674 (1,120)(1) 1,346
Net income (loss) per share--basic ................. $ 0.24 $ 0.08 $ (0.05)(1) $ 0.06
Net income (loss) per share--assuming dilution ..... $ 0.22 $ 0.07 $ (0.05)(1) $ 0.06
Quarter
-------
1997 First Second Third Fourth
- - ---- ----- ------ ----- ------
Revenues ........................................... $ 26,744 $ 27,386 $ 31,115 $ 31,487
Gross profit ....................................... 13,218 14,118 16,781 16,578
Net income (loss) .................................. 3,057 3,089 4,375 (4,592)(2)
Net income (loss) per share--basic ................. $ 0.16 $ 0.16 $ 0.23 $ (0.24)(2)
Net income (loss) per share--assuming dilution ..... $ 0.15 $ 0.15 $ 0.22 $ (0.24)(2)
<FN>
(1) Includes non-recurring charges of $2.1 million accrued in connection
with costs incurred in completing the NOW acquisition, and severance for
employees, as well as $0.9 million accrued in connection with an increase in
general business reserves. (2) Includes a non-recurring charge of $9.0 million
accrued in connection with the ADCS Group and LSL acquisitions.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Schedule II
ATMI, INC.
VALUATION & QUALIFYING ACCOUNTS
Balance at Balance at
Beginning Charged to End
Year Ended of Period Cost/Expense Deductions of Period
- - ---------- --------- ----------------------- ---------
<S> <C> <C> <C> <C>
December 31, 1998
Allowance for doubtful accounts $ 405,000 $ 242,000 $ 80,000 $ 567,000
Obsolescence reserve .......... 1,063,000 1,173,000 1,113,000 1,123,000
Restructuring reserve ......... 0 402,000 402,000 0
December 31, 1997
Allowance for doubtful accounts 361,000 365,000 321,000 405,000
Obsolescence reserve .......... 752,000 1,134,000 823,000 1,063,000
December 31, 1996
Allowance for doubtful accounts 109,000 280,000 28,000 361,000
Obsolescence reserve .......... 276,000 476,000 0 752,000
</TABLE>
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
ATMI, Inc.
March 29, 1999
Signature Title Date
/S/ Eugene G. Banucci President, Chief Executive 3/29/99
Eugene G. Banucci, Ph.D Officer, Chairman of the Board
and Director(principal executive officer)
/S/ Daniel P. Sharkey Vice President, Chief Financial 3/29/99
Daniel P. Sharkey Officer and Treasurer (principal financial and
accounting officer)
/S/ Mark A. Adley Director 3/29/99
Mark A. Adley
/S/ Robert S. Hillas Director 3/29/99
Robert S. Hillas
/S/ Stephen H. Mahle Director 3/29/99
Stephen H. Mahle
/S/ Stephen H. Siegele Director 3/29/99
Stephen H. Siegele
/S/ Lamonte H. Lawrence Director 3/29/99
Lamonte H. Lawrence
<PAGE>
EXHIBIT INDEX
Exhibit No.
Description
2.01 Agreement and Plan of Merger and Exchange by and among Advanced
Technology Materials, Inc., ATMI Holdings, Inc. (now known as ATMI, Inc.), Alamo
Merger, Inc., Advanced Delivery & Chemical Systems Nevada, Inc., Advanced
Delivery & Chemical Systems Manager, Inc., Advanced Delivery & Chemical Systems
Holdings, LLC, Advanced Delivery & Chemical Systems Operating, LLC and Advanced
Delivery & Chemical Systems, Ltd. dated as of April 7, 1997 (Exhibit 2.01 to
Advanced Technology Materials, Inc. Quarterly Report on Form 10-Qfor the quarter
ended June 30, 1997, File No. 0-22756 ("June 30, 1997 Form 10-Q")). (1)
2.02(a) Agreement and Plan of Merger by and among Advanced Technology
Materials, Inc., ATMI Holdings, Inc. (now known as ATMI, Inc.), Welk Acquisition
Corporation, Lawrence Semiconductor Laboratories, Inc. and Lawrence
Semiconductor Laboratories Marketing and Sales, Inc. dated as of May 17, 1997
(Exhibit 2.02(a) to June 30, 1997 Form 10-Q).(1)
2.02(b) First Amendment to Agreement and Plan of Merger dated as of June 6,
1997 (Exhibit 2.02(b) to June 30, 1997 Form 10-Q). (1)
2.02(c) Second Amendment to Agreement and Plan of Merger dated as of July
30, 1997 (Exhibit 2.02(c) to June 30, 1997 Form 10-Q. (1)
2.03 Merger Agreement by and among ATMI, Inc., Glide Acquisition, Inc. And
NOW Technologies, Inc. dated as of February 19, 1998 (Exhibit 2.03 to ATMI's
Registration Statement on Form S-1, Registration No. 333-46609 (the "Form S-1
Registration Statement")). (1)
3.01(a) Certificate of Incorporation of the Registrant (Exhibit 3.01 to the
ATMI's Registration Statement on Form S-4, filed September 10, 1997,
Registration No. 333-35323 (the "1997 Form S-4 Registration Statement")). (1)
3.01(b) Certificate of Amendment to Certificate of Incorporation (Exhibit
4.1(b)to the ATMI's Post-Effective Amendment No. 1 to Registration Statement on
Form S-8, filed October 10, 1997, Registration No. 33- 77060). (1)
3.01(c) Certificate of Amendment to Certificate of Incorporation (Exhibit
3.01(c) to the ATMI's Registration Statement on Form S-4, Registration No.
33-51333). (1)
3.02 Bylaws of ATMI (Exhibit 3.02 to the 1997 Form S-4 Registration
Statement). (1)
4.01 Specimen of the ATMI's Common Stock Certificate (Exhibit 4.01 to the
1997 Form S-4 Registration Statement). (1)
10.01 Employment Agreement between Eugene G. Banucci, Ph.D. and Advanced
Technology Materials, Inc. dated October 10, 1997 (Exhibit 10.01 to the Form S-1
Registration Statement). (1)
10.02 Employment Agreement between Daniel P. Sharkey and Advanced
Technology Materials, Inc. dated October 10, 1997 (Exhibit 10.02 to the Form S-1
Registration Statement). (1)
10.03 Employment Agreement between Stephen H. Siegele and Advanced Delivery
& Chemical Systems Nevada, Inc. dated October 13, 1997 (Exhibit 10.05 to the
Form S-1 Registration Statement). (1)
10.04 Consulting Agreement between Lawrence Semiconductor Laboratories,
Inc. and Lawrence Semiconductor Investments, Inc. dated October 10,1997 (Exhibit
10.06 to the Form S-1 Registration Statement). (1)
10.05 Agreement of Lease between Melvyn J. Powers and Mary P. Powers d/b/a/
M&M Realty and Advanced Technology Materials, Inc. dated December 23, 1994
(Exhibit 10.09 to Advanced Technology Materials, Inc. Annual Report on Form
10-K/A for the year ended December 31, 1994, File No. 0-22756 ("1994 Form
10-K/A")). (1)
10.06(a) Lease Agreement between Montague Oaks Associates Phase III and
ATMI EcoSys Corporation dated February 7, 1995 (Exhibit 10.10 to 1994 Form
10-K/A). (1)
10.06(b) First Amendment to Lease between Montague Oaks Associates Phase
III and ATMI EcoSys Corporation dated September 30, 1997 (Exhibit 10.08(b) to
the Form S-1 Registration Statement). (1)
10.07 Lease Agreement between Montague Oaks Associates Phase I & II and
ATMI EcoSys Corporation dated September 30, 1997(Exhibit 10.09 to the Form S-1
Registration Statement). (1)
10.8(a) Standard Industrial Lease--Net between GKZ Investments and
Epitronics Corporation dated June 20, 1994 (Exhibit 10.10(a) to the Form S-1
Registration Statement). (1)
10.8(b) Lease extension letter between GKZ Investments and Epitronics
Corporation dated September 18, 1996 (Exhibit 10.10(b) to the Form S-1
Registration Statement). (1)
21.01 Subsidiaries of ATMI (Exhibit 21.01 to Form S-1 Registration
Statement). (1)
23.01 Consent of Ernst & Young LLP. (2)
23.02 Consent of PricewaterhouseCoopers LLP. (2)
23.03 Consent of Deloitte & Touche LLP. (2)
27.01 Financial data schedule. (2) (1) Incorporated by reference. (2) Filed
herewith.
<PAGE>
Exhibit 23.01
Consent Of Independent Auditors
We consent to the incorporation by reference in the Registration Statements
on Form S-8 (Nos. 33-77060, 33-93048, 333-49561, 333-56349, and 333-55827) of
our report dated February 8, 1999, with respect to the consolidated financial
statements and schedule of ATMI, Inc. included in its Annual Report (Form 10-K)
for the year ended December 31, 1998 filed with the Securities and Exchange
Commission.
Ernst & Young LLP
Stamford, Connecticut
March 24, 1999
<PAGE>
Exhibit 23.02
Consent Of Independent Accountants
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-8 (Nos. 33-77060, 33-93048, 333-49561, 333-56349 and
333-55827) of ATMI, Inc. of our report dated May 17, 1997, except for the last
paragraph of Note 3 which is as of July 29, 1997 and the last paragraph of Note
6 which is as of December 18, 1997, pertaining to the combined financial
statements of Lawrence Semiconductor Laboratories, Inc. and Affiliate appearing
on page F-4 of this Form 10-K. It should be noted, however, that such financial
statements are not included separately in the Form 10-K. We also consent to the
application of such report to the Financial Statement Schedule for the year
ended December 31, 1996 appearing on page F-25 of this Form 10-K when such
schedule is read in conjunction with the financial statements referred to in our
report. The audit referred to in such report also included this schedule.
PricewaterhouseCoopers LLP
Phoenix, Arizona
March 24, 1999
<PAGE>
Exhibit 23.03
Independent Auditors' Consent
We consent to the incorporation by reference in the Registration Statement
pertaining to the 1998 Employee Stock Purchase Plan (Form S-8 No. 333-55827),
the 1998 Stock Option Plan (Form S-8 No. 333-56349), the 1997 Stock Option Plan
(Form S-8 No. 333-49561), the 1995 Stock Option Plan (Form S-8 No. 33-93048),
and the 1987 Stock Option Plan (Form S-8 No. 33-77060) of ATMI, Inc. of our
report dated May 1, 1998, relating to the financial statements of NOW
Technologies, Inc. and Subsidiaries appearing on page F-3 of this Form 10-K. It
should be noted, however, that such financial statements are not included
separately in the Form 10-K.
Deloitte & Touche LLP
Minneapolis, Minnesota
March 24, 1999
<PAGE>
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<PERIOD-END> Dec-31-1998
<CASH> 18510
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<PP&E> 45202<F2>
<DEPRECIATION> 0
<TOTAL-ASSETS> 169405
<CURRENT-LIABILITIES> 19697
<BONDS> 2700
0
0
<COMMON> 222
<OTHER-SE> 138436
<TOTAL-LIABILITY-AND-EQUITY> 169405
<SALES> 97874
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<CGS> 50468
<TOTAL-COSTS> 50468
<OTHER-EXPENSES> 12415<F3>
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<NET-INCOME> 6465
<EPS-PRIMARY> .31
<EPS-DILUTED> .29
<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>
<TABLE> <S> <C>
<ARTICLE> 5
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0
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<COMMON> 197
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<FN>
<F1>Net of allowance for doubtful accounts, consistent with balance sheet
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<F2>Net of accumulated depreciation, consistent with balance sheet
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<F3>Research and development expenses
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
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<CASH> 13450
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<RECEIVABLES> 15269<F1>
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<INVENTORY> 7624
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<TOTAL-ASSETS> 102145
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0
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<COMMON> 195
<OTHER-SE> 59926
<TOTAL-LIABILITY-AND-EQUITY> 102145
<SALES> 98772
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<CGS> 46759
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<NET-INCOME> 12202
<EPS-PRIMARY> .65
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<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>
