SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission file Number: 0-30130
ATMI, Inc.
(Exact name of registrant as specified in its charter)
Delaware 06-1481060
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
7 Commerce Drive, Danbury, CT 06810
(Address of principal executive offices) (Zip Code)
203-794-1100
(Registrant's telephone number, including area code)
- - --------------------------------------------------------------------------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes x No __
The number of shares outstanding of the registrant's common stock as of October
29, 1999 was 26,200,638.
<PAGE>
ATMI, INC.
Quarterly Report on Form 10-Q
For the Quarter Ended September 30, 1999
TABLE OF CONTENTS
Part I - Financial Information
Item 1. Financial Statements
Consolidated Balance Sheet
Consolidated Statement of Income
Consolidated Statement of Cash Flows
Notes to Consolidated Interim Financial Statements
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Part II- Other Information
Item 6. Exhibits and Reports on Form 8-K
Signatures
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
ATMI, Inc.
Consolidated Balance Sheet
September 30, December 31,
1999 1998
(unaudited)
Assets -----------------------------
Current assets:
Cash and cash equivalents $25,871,000 $21,128,000
Marketable securities 60,597,000 64,551,000
Accounts receivable, net of allowance
for doubtful accounts of $1,267,000 in
1999 and $794,000 in 1998 32,160,000 20,747,000
Inventories 17,465,000 15,563,000
Other 6,352,000 7,610,000
----------- -----------
Total current assets 142,445,000 129,599,000
Property and equipment, net 50,325,000 50,185,000
Goodwill and other long-term assets, net 5,179,000 8,410,000
------------ ------------
$197,949,000 $188,194,000
============ ============
Liabilities and stockholders' equity
Current liabilities:
Loans, notes and bonds payable,
current portion $ 3,383,000 $ 6,602,000
Capital lease obligations,
current portion 2,271,000 2,493,000
Accounts payable 7,989,000 6,903,000
Accrued expenses 9,786,000 10,485,000
Accrued commissions 2,250,000 1,315,000
Income taxes and other current payables 5,926,000 1,803,000
----------- -----------
Total current liabilities 31,605,000 29,601,000
Loans, notes and bonds payable, less
current portion 2,102,000 5,110,000
Capital lease obligations 2,296,000 3,746,000
Deferred income taxes 3,790,000 2,041,000
Other long-term liabilities 391,000 288,000
Minority interest 1,037,000 846,000
Stockholders' equity:
Preferred stock, par value $.01: 2,000,000
shares authorized; none issued
and outstanding - -
Common stock, par value $.01: 50,000,000
shares authorized; issued and outstanding
26,193,000 in 1999 and 25,941,000 in 1998 262,000 259,000
Additional paid-in capital 114,961,000 113,059,000
Retained earnings 40,004,000 34,547,000
Accumulated other comprehensive income (loss) 1,501,000 (1,303,000)
------------- -------------
Total stockholders' equity 156,728,000 146,562,000
------------- -------------
$ 197,949,000 $ 188,194,000
============= =============
See accompanying notes.
<PAGE>
ATMI, Inc.
Consolidated Statement of Income
(unaudited)
Three months ended September 30,
1999 1998
--------------------------------
Revenues $45,628,000 $29,485,000
Cost of revenues 21,820,000 17,066,000
----------- -----------
Gross profit 23,808,000 12,419,000
Operating expenses:
Research and development 4,705,000 3,670,000
Selling, general and administrative 11,830,000 10,248,000
Merger and related costs -- 2,102,000
----------- -----------
16,535,000 16,020,000
----------- -----------
Operating income (loss) 7,273,000 (3,601,000)
Interest income 1,302,000 1,213,000
Interest expense (253,000) (388,000)
Other income (expense), net (43,000) 102,000
---------- ----------
Income (loss) before taxes and minority interest 8,279,000 (2,674,000)
Provision for income taxes 3,022,000 (411,000)
---------- ----------
Income (loss) before minority interest 5,257,000 (2,263,000)
Minority interest (110,000) (3,000)
---------- ------------
Net income (loss) $ 5,147,000 $ (2,266,000)
============ ============
Net income (loss) per share-basic $ 0.21 $ (0.09)
============ ============
Net income (loss) per share-assuming dilution $ 0.19 $ (0.09)
============ ============
Weighted average shares outstanding 25,093,000 24,759,000
============ ============
Weighted average shares outstanding-assuming
dilution 26,876,000 24,759,000
============ ============
See accompanying notes.
ATMI, Inc.
Consolidated Statement of Income
(unaudited)
Nine months ended September 30,
1999 1998
----------------------------
Revenues $121,168,000 $113,026,000
Cost of revenues 58,925,000 58,358,000
------------ ------------
Gross profit 62,243,000 54,668,000
Operating expenses:
Research and development 12,409,000 11,337,000
Selling, general and administrative 34,640,000 35,268,000
Merger and related costs 6,800,000 2,102,000
------------ ------------
53,849,000 48,707,000
------------ ------------
Operating income 8,394,000 5,961,000
Interest income 3,343,000 2,898,000
Interest expense (704,000) (1,249,000)
Other income (expense), net (2,000) 210,000
------------ ------------
Income before taxes and minority interest 11,031,000 7,820,000
Provision for income taxes 5,220,000 3,510,000
------------ ------------
Income before minority interest 5,811,000 4,310,000
Minority interest (191,000) (71,000)
------------ ------------
Net income $ 5,620,000 $ 4,239,000
============ ============
Net income per share-basic $ 0.22 $ 0.18
============ ============
Net income per share-assuming dilution $ 0.21 $ 0.16
============ ============
Weighted average shares outstanding 25,024,000 24,008,000
============ ============
Weighted average shares outstanding-assuming
dilution 26,631,000 25,749,000
============ ============
See accompanying notes.
ATMI, Inc.
Consolidated Statement of Cash Flows
(unaudited)
<TABLE>
<CAPTION>
Nine months ended
September 30,
1999 1998
---------------------------------
<S> <C> <C>
Operating activities
Net income $ 5,620,000 $ 4,239,000
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 7,092,000 6,375,000
Long-lived asset impairment 3,386,000 --
Deferred income taxes 241,000 124,000
Bad debt expense 470,000 181,000
Effect of change of fiscal year of pooled entity (163,000) --
Minority interest in net earnings of consolidated subsidiaries 191,000 71,000
Changes in operating assets and liabilities
Decrease (increase) in accounts receivable (11,883,000) 10,717,000
Increase in inventory (1,902,000) (1,193,000)
Decrease (increase) in other assets 930,000 (2,707,000)
Increase (decrease) in accounts payable 1,086,000 (1,362,000)
Increase (decrease) in accrued expenses 236,000 (5,064,000)
Increase (decrease) in other liabilities 4,226,000 (1,113,000)
----------- ------------
Total adjustments 3,910,000 6,029,000
----------- ------------
Net cash provided by operating activities 9,530,000 10,268,000
----------- ------------
Investing activities
Capital expenditures (7,059,000) (10,665,000)
(Purchase) sale of marketable securities, net 8,142,000 (57,585,000)
------------ ------------
Net cash provided (used) by investing activities 1,083,000 (68,250,000)
------------ ------------
Financing activities
Principal payments on capital lease obligations (1,672,000) (2,080,000)
Principal payments on loans, notes and bonds payable, net (6,227,000) (1,065,000)
Proceeds from sale of common shares, net -- 62,426,000
Proceeds from the exercise of stock options and warrants 1,905,000 590,000
------------ ------------
Net cash provided (used) by financing activities (5,994,000) 59,871,000
------------ ------------
Effects of exchange rate changes on cash 124,000 165,000
Net increase in cash and cash equivalents 4,743,000 2,054,000
Cash and cash equivalents, beginning of period 21,128,000 15,122,000
------------ ------------
Cash and cash equivalents, end of period $ 25,871,000 $ 17,176,000
============ ============
</TABLE>
See accompanying notes.
ATMI, Inc.
Notes To Consolidated Interim Financial Statements
(unaudited)
1. Basis of Presentation
The accompanying unaudited consolidated interim financial statements of
ATMI, Inc. ("ATMI" or the "Company") have been prepared in accordance with the
instructions to Form 10-Q and Article 10 of Regulation S-X and do not include
all of the financial information and disclosures required by generally accepted
accounting principles. In addition, these unaudited consolidated interim
financial statements give retroactive effect to the acquisitions of NOW
Technologies, Inc. ("NOW"), TeloSense Corporation ("TeloSense"), Delatech
Incorporated ("Delatech"), and Advanced Chemical Systems International , Inc.
("ACSI") which have been accounted for using the pooling-of-interests method.
These acquisitions occurred on August 4, 1998, May 5, 1999, May 31, 1999 and May
31, 1999, respectively, and are more fully described in the Company's Form 8-K/A
dated August 4, 1998 and May 31, 1999.
The balance sheet at December 31, 1998 has been derived from the audited
consolidated financial statements at that date but does not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements.
In the opinion of the management of ATMI, Inc. the financial information
contained herein has been prepared on the same basis as the audited Supplemental
Consolidated Financial Statements contained in the Company's Form 8-K/A dated
May 31, 1999, and includes adjustments (consisting only of normal recurring
adjustments) necessary to present fairly the unaudited quarterly results set
forth herein. The Company's quarterly results have, in the past, been subject to
fluctuation and, thus, the operating results for any quarter are not necessarily
indicative of results for any future fiscal period.
2. Per Share Data
The following table presents the computation of basic and diluted earnings
per share:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1999 1998 1999 1998
------------------------------------------------------------
<S> <C> <C> <C> <C>
Numerator:
Net income (loss) $ 5,147,000 $ (2,266,000) $ 5,620,000 $ 4,239,000
============ ============ ============ ==============
Denominator:
Denominator for basic earnings per share 25,093,000 24,759,000 25,024,000 24,008,000
Dilutive effect of contingent shares related
to acquisitions 1,055,000 -- 1,055,000 1,135,000
Dilutive effect of employee stock options
and warrants, net of tax benefit 728,000 -- 552,000 606,000
----------- ----------- ----------- -------------
Denominator for diluted earnings per share 26,876,000 24,759,000 26,631,000 25,749,000
=========== =========== =========== =============
Net income (loss) per share--basic $ 0.21 $ (0.09) $ 0.22 $ 0.18
============ ============ ============ ==============
Net income (loss) per share--assuming dilution $ 0.19 $ (0.09) $ 0.21 $ 0.16
============ ============ ============ ==============
</TABLE>
3. Inventory
Inventory is comprised of the following:
September 30, December 31,
1999 1998
------------- ------------
Raw materials $ 15,359,000 $ 12,542,000
Work in process 1,010,000 839,000
Finished goods 2,923,000 3,605,000
------------ ------------
19,292,000 16,986,000
Obsolescence reserve (1,827,000) (1,423,000)
------------ ------------
$ 17,465,000 $ 15,563,000
============ ============
4. Income Taxes
The Company was notified by the Internal Revenue Service of an assessment
for certain tax matters in the amount of $2,100,000. The Company believes that
such assesssment is without merit and intends to vigorously defend its position
in these matters. Although the former securityholders of the ADCS Group have
agreed to idemnify the Company against losses arising out of such tax matters,
this assessment, if ultimately determined against the Company, would result in a
charge to the Company's results of operations.
5. Comprehensive Income
Comprehensive income is a more inclusive financial reporting methodology
that includes disclosure of certain financial information that historically has
not been recognized in the calculation of net income.
The following table presents the computation of comprehensive income for
the three and nine months ended September 30:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1999 1998 1999 1998
---------------------------------------------------------
<S> <C> <C> <C> <C>
Net income (loss) $ 5,147,000 $(2,266,000) $ 5,620,000 $ 4,239,000
----------- ----------- ----------- -----------
Cumulative translation adjustment (131,000) (20,000) 124,000 162,000
Unrealized gain on available-for-
sale securities (net of taxes of
$611,000 and 1,547,000) 1,040,000 -- 2,680,000 --
------------ ------------ ----------- -----------
Comprehensive income (loss) $ 6,056,000 $(2,286,000) $ 8,424,000 $ 4,401,000
=========== =========== =========== ===========
</TABLE>
6. Segment Data
Segment information included under the caption "Segment Data" in
Management's Discussion and Analysis of Financial Condition and Results of
Operations is incorporated herein by reference and is an integral part of these
unaudited interim financial statements.
7. Merger and Acquisition
On May 5, 1999, pursuant to a Merger Agreement, the Company issued
approximately 250,000 shares of its common stock in exchange for all of the
ownership interests of TeloSense. TeloSense manufactures and sells toxic gas
sensors and gas monitoring systems used in the semiconductor industry.
On May 31, 1999, pursuant to an Agreement and Plan of Merger, the Company
issued approximately 2,400,000 shares of its common stock in exchange for all of
the ownership interests of Delatech. Delatech manufactures and distributes
environmental gas abatement equipment used in the semiconductor industry.
Also on May 31, 1999, pursuant to an Agreement and Plan of Merger, the
Company issued approximately 1,200,000 shares of its common stock in exchange
for all of the ownership interests of ACSI. ACSI manufacturers, distributes, and
sells specialty chemicals to integrated circuit manufacturers.
The former securityholders of ACSI and Delatech have agreed to indemnify
the Company from and against certain losses arising out of breach of
representations and warranties made by the respective securityholders. As
security for these obligations, the former securityholders of ACSI and Delatech
delivered into escrow approximately 100,000 and approximately 200,000 shares,
respectively, of the Company's common stock that they received in connection
with these acquisitions.
Merger and related costs of approximately $6.8 million include $2.4 million
of investment banker fees, legal and accounting fees recorded in the quarter
ended June 30, 1999 in connection with the investigation, analysis and May 1999
closings of the TeloSense, Delatech, and ACSI transactions. The acquisition of
Delatech resulted in a charge of $4.4 million to recognize the impaired value of
certain inventory ($1 million) and goodwill ($3.4 million) associated with
existing EcoSys product lines. These charges were based on the estimate of
future cash flows on a discounted basis compared with the carrying value of
these assets.
The acquisitions of TeloSense, ACSI and Delatech were treated as pooling of
interests. Both TeloSense's and Delatech's fiscal year ended on Novemeber 30.
The financial statements have been restated to combine TeloSense's and
Delatech's fiscal year-end and ACSI's and ATMI's year-end. Certain adjustments
have been made to the financial statements to combine their operations. An
adjustment of $163,000 was made, in the six months ended June 30, 1999, to
retained earnings to adjust for the different fiscal year ends. The following
represents unaudited results of operations of the Company and the merger
entities of TeloSense, ACSI and Delatech for the three months ended March 31,
1999 and the nine months ended September 30, 1998:
Three Months Ended Nine Months Ended
March 31, 1999 September 30, 1998
------------------------------------------
Revenues:
ATMI $ 24,029,000 $ 76,779,000
Telosense, ACSI and Delatech $ 8,535,000 $ 36,247,000
Net Income (Loss):
ATMI $ 1,992,000 $ 5,119,000
Telosense, ACSI and Delatech $ (49,000) $ (880,000)
On October 15, 1999, the Company signed a definitive agreement and plan of
merger with Newform N.V. of Hoegaarden, Belgium for 550,000 shares of ATMI
common stock in a pooling-of-interests share exchange transaction. The
completion of the transaction is subject to regulatory approvals and other
closing conditions. Following the transaction, which is expected to close during
the fourth quarter of 1999, Newform's products will join ATMI's specialty
materials packaging product lines that include the SDS(R) Gas Source and the
NOWPak(R) liquid delivery systems.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Overview
ATMI, Inc. is a leading supplier of thin film materials, equipment, and
services used worldwide in the manufacture of semiconductor devices. The Company
targets high growth consumable and equipment markets within the semiconductor
industry with proprietary and patented products. The Company currently provides:
(i) a broad range of ultrahigh-purity thin film materials and related delivery
systems; (ii) a full line of point-of-use semiconductor environmental equipment
and services; and (iii) specialty epitaxial thin film deposition services. Over
the last four years, the Company has achieved a leadership position in each of
its target markets by providing a more complete line of products than its
competitors. ATMI's strategy is to continue its growth through product line
expansion in each of its existing markets and to leverage its core technology to
create new high growth businesses. The Company has grown in recent years through
strategic acquisitions in its target markets. Management's Discussion and
Analysis of Financial Condition and Results of Operations give retroactive
effect to the acquisitions of ACSI, Delatech, and TeloSense which have been
accounted for using the pooling of interests method.
ATMI has capitalized on the growth of the semiconductor industry by
providing leading edge products and services in each of its target markets. The
Company has organized its operations along two business segments--ATMI Materials
and ATMI Technologies.
ATMI's Materials segment consists of the ADCS, NovaSource, ACSI and NOW
divisions. ADCS develops and markets ultrahigh-purity thin film materials and
proprietary delivery systems. NovaSource develops and markets Safety Delivery
Source ("SDS"), which stores dangerous gases as solids in cylinders, providing
increased safety and substantially greater operating efficiencies. ACSI
manufacturers and markets specialty materials used in photolithography and
chemical mechanical polishing steps in semiconductor manufacturing. NOW
manufactures high performance containers and dispensing systems for advanced
purity chemicals used in the manufacture of microelectronics.
ATMI's Technologies segment consists of the EcoSys, Epitronics, Emosyn, and
Ventures divisions. The Company believes EcoSys, particularly after the May 1999
acquisitions of Delatech and Telosense, is the only provider of point-of-use
environmental equipment offering all of the key technologies for semiconductor
effluent abatement and monitoring. The Company's Epitronics division is a world
leader in specialty epitaxial services, providing high-quality processing of
silicon and next-generation III-V and wide bandgap wafers. The Company's Emosyn
division is bringing to market a new generation of semiconductor devices,
initially targeted at the high growth market for smart card integrated circuits.
ATMI participates in United States government-funded research and development
contracts through its Ventures division.
The following table sets forth, for the periods indicated, certain items
from the Company's consolidated statement of income expressed as a percentage of
total revenues:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1999 1998 1999 1998
---------------------------------------------------
<S> <C> <C> <C> <C>
Revenues 100.0% 100.0% 100.0% 100.0%
Cost of revenues 47.8 57.9 48.6 51.6
---- ---- ---- ----
Gross profit 52.2 42.1 51.4 48.4
Operating expenses:
Research and development 10.3 12.5 10.2 10.0
Selling, general and administrative 25.9 34.7 28.6 31.2
Merger and related costs 0.0 7.1 5.6 1.9
--- --- --- ---
Total operating expenses 36.2 54.3 44.4 43.1
---- ---- ---- ----
Operating income (loss) 16.0 (12.2) 7.0 5.3
Other income (expense), net 2.1 3.1 2.1 1.6
--- --- --- ---
Income (loss) before taxes and minority interest 18.1 (9.1) 9.1 6.9
Provision for income taxes 6.6 (1.4) 4.3 3.1
--- ---- --- ---
Income (loss) before minority interest 11.5 (7.7) 4.8 3.8
Minority interest (0.2) 0.0 (0.2) (0.0)
---- --- ---- ----
Net income(loss) 11.3% (7.7)% 4.6% 3.8%
==== ==== === ===
</TABLE>
Results of Operations
Three Months Ended September 30, 1999 and 1998
Revenues. Revenues increased 54.8% to approximately $45,628,000 in the
three months ended September 30, 1999 from approximately $29,485,000 in the same
three month period in 1998. The revenue increase was primarily attributable to
the improved market conditions for semiconductor materials and equipment as
compared to the third quarter of 1998. This market improvement was primarily
driven by the increase in semiconductor wafer starts and semiconductor unit
demand in the 1999 period. ATMI's consumable products, most notably SDS, NOW
packaging products and ADCS chemical products, showed strong volume growth
during the third quarter of 1999. ATMI's equipment products, primarily within
EcoSys, experienced significant increases during the third quarter of 1999 as
compared to the same period in the prior year when semiconductor capital
spending was severely constrained.
Gross Profit. Gross profit increased 91.7% to approximately $23,808,000 in
the quarter ended September 30, 1999 from approximately $12,419,000 in the
quarter ended September 30, 1998. As a percentage of revenues, gross margin
increased to 52.2% in the three month period in 1999 from 42.1% of revenues in
the three month period in 1998. This was due principally to an increase in
revenues in the Materials segment, where a more favorable product mix led to an
increase in higher margins. The increase in revenue volumes also led to more
effective fixed cost absorption and thus, increased margins. The improved demand
of the EcoSys product lines as compared to the same period of the prior year
also contributed to the improvement in gross margins.
Research and Development Expenses. Research and development expenses
increased 28.2% to approximately $4,705,000 in the three months ended September
30, 1999 from approximately $3,670,000 in the three months ended September 30,
1998. The increase in the third quarter of 1999 was primarily due to continued
application-specific product development efforts within Emosyn and increased
product development efforts within the Materials segment. As a percentage of
revenues, research and development expenses decreased to 10.3% in the 1999
quarter from 12.5% in the 1998 quarter.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased 15.4% to approximately $11,830,000 in the
three months ended September 30, 1999 from approximately $10,248,000 in the same
three month period in 1998. The increase in the 1999 quarter was primarily due
to increased selling costs related to commissions, which were caused by the
increase in revenues in the Materials segment, and additional infrastructure
needed for the continued growth of the Materials and Technologies businesses. As
a percentage of revenues, these expenses decreased to 25.9% in the three month
period in 1999 from 34.7% in the comparable period in 1998.
Merger and Related Costs. The third quarter 1998 operating results include
merger and related costs of approximately $2,102,000, including $1,698,000 of
investment banker fees, legal and accounting fees and related costs in
connection with the investigation, analysis and August 1998 closing of NOW
Technologies. The charge also includes a cost of approximately $404,000 related
to a reduction in workforce at the EcoSys business in the third quarter of 1998.
Other Income, Net. Other income, net, increased to approximately $1,006,000
in the quarter ended September 30, 1999 from other income, net, of approximately
$927,000 in the quarter ended September 30, 1998. The increase in the 1999
quarter related to an increase in interest income levels as compared to 1998.
The interest income improved due to lower levels of outstanding debt during the
third quarter of 1999 compared to 1998.
Income Taxes. Income tax expense in the quarter ended September 30, 1999
was $3,022,000, compared to an income tax benefit of $411,000 for the same
quarter in 1998. The differences between the consolidated effective income tax
rate and the U.S. Federal statutory rate are primarily attributed to state
income taxes and the effects of certain non-deductible merger related costs.
Earnings per Share. Earnings per share-assuming dilution improved to $0.19
on net income of $5,147,000 for the quarter ended September 30, 1999 from a loss
of $0.09, on a net loss of $2,266,000 which included merger and related cost
charge for the quarter ended September 30, 1998. Earnings per share-assuming
dilution in the 1999 period reflects a 8.6% increase in weighted average shares
outstanding to approximately 26,876,000 in the third quarter of 1999 from
approximately 24,759,000 in the third quarter of 1998.
Nine Months Ended September 30, 1999 and 1998
Revenues. Total revenues increased 7.2% to approximately $121,168,000 in
the nine months ended September 30, 1999 from approximately $113,026,000 in the
same period in 1998. The increase in revenues was primarily attributable to the
industry's recovery, particularly for consumable products. There were
significant gains in the Materials segment related to the Company's SDS, NOW
dispensing and packaging products and ADCS chemical product lines for the nine
months ended September 30, 1999 as compared to the same period in the prior
year. Product revenues driven by capital equipment spending declined after a
first quarter 1998 peak until the second quarter of 1999 where revenues have
again begun to increase.
Gross Profit. Gross profit increased 13.9% to approximately $62,243,000 in
the nine months ended September 30, 1999 from approximately $54,668,000 in the
nine months ended September 30, 1999. As a percentage of revenues, gross margin
increased to 51.4% for the nine months ended September 30, 1999 from 48.4% of
revenues in the same period in 1998. This increase was due principally to margin
gains related to the increased sales and a change in product mix of SDS, NOW
dispensing and packaging system and ADCS chemical product lines.
Research and Development Expenses. Research and development expenses
increased 9.5% to approximately $12,409,000 for the nine months ended September
30, 1999 from approximately $11,337,000 for the nine months ended September 30,
1998. Increased efforts to expand SDS technology beyond ion implant applications
into CVD, etch, and bulk gas delivery, and continued product development
activities within the Materials segment and the Emosyn business resulted in
growth of the research and development efforts. As a percentage of revenues,
research and development expenses increased to 10.2% for the nine months ended
September 30, 1999 from 10.0% for the same period in 1998.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses decreased 1.8% to approximately $34,640,000 for the nine
months ended September 30, 1999 from approximately $35,268,000, in the same
period in 1998. The decrease in the 1999 period was primarily due to decreased
administrative costs and cost-savings resulting from the integration of recent
business acquisitions. As a percentage of revenues, these expenses decreased to
28.6% in the nine months ended September 30, 1999 from 31.2% for the nine months
ended September 30, 1998.
Merger and Related Costs. The nine months ended September 30, 1999
operating results include merger and related costs of approximately $6,800,000,
including $2,400,000 of investment banker fees, legal and accounting fees in
connection with the investigation, analysis and May 1999 closing of the
TeloSense, Delatech and ACSI transactions. The acquisition of Delatech also
resulted in a $4,400,000 asset impairment charge during the second quarter of
1999 for inventory ($1,000,000) and goodwill ($3,400,000) associated with
certain existing EcoSys product lines which were determined to be impaired. The
nine months ended September 30, 1998 operating results include merger and
related costs of approximately $2,102,000, in connection with the August 1998
closing of NOW Technologies and reduction in workforce at the EcoSys business in
the third quarter of 1998.
Other Income, Net. Other income, net, increased to approximately $2,637,000
for the nine months ended September 30, 1999 from $1,859,000 for the nine months
ended September 30, 1998. The increase in the 1999 period related to a
significant increase in interest income due to increased cash levels on hand
during the first quarter of 1999 compared to the first quarter of 1998. These
increased cash levels resulted from the public offering that was completed at
the beginning of the second quarter in 1998. Increased interest rate levels in
the current year have also resulted in increased interest income. Interest
expense has declined in the current year due to lower levels of debt outstanding
at September 30, 1999 compared to September 30, 1998.
Income Taxes. Income tax expense for the nine months ended September 30,
1999 was $5,220,000, which was an increase from $3,510,000 for the same period
in 1998. The differences between the consolidated effective income tax rate and
the U.S. Federal statutory rate are primarily attributed to state income taxes
and the effects of certain non-deductible merger related costs.
Earnings per Share. Earnings per share-assuming dilution, including merger
charges, net of tax, of $5,459,000, increased to $0.21 for the nine months ended
September 30, 1999 as compared to $0.16, including merger charges, for the nine
months ended September 30, 1998. Earnings per share-assuming dilution in the
1999 period reflects a 3.4% increase in weighted average shares outstanding to
approximately 26,631,000 for the nine months ended September 30, 1999 from
approximately 25,749,000 in the nine months ended September 30, 1998.
Segment Data
ATMI has two segments- ATMI Materials and ATMI Technologies. The Company
evaluates performance and allocates resources based on operating profit or loss,
not including interest and other income or expense and income taxes. The
accounting policies of the reportable segments are more fully described in the
Company's Annual Report on Form 10-K for the year ended December 31, 1998.
The following tables provide reported results for each of these segments
for the three and nine months ended September 30:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
Revenues 1999 1998 1999 1998
- - -------- ---------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ATMI Materials $ 24,552,000 $ 14,902,000 $ 64,751,000 $ 51,242,000
ATMI Technologies 21,076,000 14,583,000 56,417,000 61,784,000
---------- ---------- ---------- ----------
Consolidated Revenues $ 45,628,000 $ 29,485,000 $ 121,168,000 $ 113,026,000
============ ============ ============= =============
Three Months Ended Nine Months Ended
Operating Income (Loss) 1999 1998 1999 1998
- - ----------------------- ---------------------------------------------------------------------------
ATMI Materials $ 6,087,000 $ 750,000 $ 14,000,000 $ 7,272,000
ATMI Technologies 1,186,000 (2,249,000) 1,194,000 791,000
Merger and Related Costs -- (2,102,000) (6,800,000) (2,102,000)
----------- ---------- ---------- ----------
Consolidated Operating
Income (Loss) $ 7,273,000 $ (3,601,000) $ 8,394,000 $ 5,961,000
=========== ============ ============== ===========
Three Months Ended Nine Months Ended
Net Income (Loss) 1999 1998 1999 1998
- - ---------------- --------------------------------------------------------------------------
Operating Income (Loss) from
Reportable Segments $ 7,273,000 $ (3,601,000) $ 8,394,000 $ 5,961,000
Other Income 896,000 924,000 2,446,000 1,788,000
Income Taxes (3,022,000) 411,000 (5,220,000) (3,510,000)
---------- ------------ -------------- ------------
Consolidated Net Income (Loss) $ 5,147,000 $ (2,266,000) $ 5,620,000 $ 4,239,000
============ ============= =============== ============
</TABLE>
The following table provides reported balance sheet data for each of the
segments at September 30, 1999 and at December 31, 1998:
Identifiable Assets 1999 1998
------------------- ------------------------------------
ATMI Materials $ 50,911,000 $ 39,534,000
ATMI Technologies 62,160,000 61,037,000
General Corporate Assets 84,878,000 87,623,000
---------- ----------
Total Consolidated Assets $ 197,949,000 $ 188,194,000
============== =============
Business Segments Results
ATMI Materials
Revenues in the Materials segment for the three months ended September 30,
1999 increased 65% from 1998 levels. An increase in semiconductor unit demand
during the quarter led to a significant increase in sales of ATMI Materials'
product sales. The 1999 third quarter growth in Materials was spurred by
stronger industry conditions and increased market penetration particularly
related to the SDS and the NOW packaging product lines. For the nine months
ended September 30, 1999 revenues increased 26% from 1998 levels. This increase
reflects market share gains for several of ATMI Materials' product lines.
Operating income in the Materials segment improved seven times for the
three months ended September 30, 1999 from the same period in 1998. The
significant revenue increase in three month period in 1999 combined with
stronger margins and cost containment initiatives drove operating income to
significant gains within the segment. Operating income, as a percentage of
revenues, was 25% and 5% for the three months ended September 30, 1999 and 1998,
respectively. For the nine months ended September 30, 1999 operating income
levels increased 93% from 1998 levels. This increase reflects the gains made due
to the improved market conditions within the industry and increased market share
penetration during 1999. Operating income, as a percentage of revenues, was 22%
and 14% for the nine months ended September 30, 1999 and 1998, respectively.
ATMI Technologies
Revenues in the Technologies segment in the third quarter of 1999 increased
45% from third quarter 1998 levels. Semiconductor manufacturing capacity
expansion has somewhat rebounded from depressed 1998 levels. This has led to an
improvement in sales at EcoSys (including Delatech) and Epitronics. Although
signs of a steady recovery emerged in the nine month period ended September 30,
1999, revenue levels trailed the comparable period of 1998 by 9%.
Operating income within the Technologies segment improved to $1.2 million
in the third quarter of 1999 compared to an operating loss of $2.2 million for
the same period in 1998. The income increase was attributable to the improvement
in both EcoSys' and Epitronics product margins due to a favorable product mix
shift and an improvement in profitability of various contract programs. For the
nine months ended September 30, 1999, operating income improved 51% from 1998
levels. This resulted primarily from an increase in profitability in the third
quarter of 1999 compared to 1998 levels.
Corporate
Corporate identifiable assets consist primarily of cash and marketable
securities.
Liquidity and Capital Resources
To date, the Company has financed its activities through the sale of
equity, its operations, external research and development funding, various lease
and debt instruments. The Company's working capital increased to $110.8 million
at September 30, 1999 from $100.0 million at December 31, 1998.
Net cash provided by operations was approximately $9.5 million during the
nine months ended September 30, 1999, resulting primarily from improvements in
working capital, as compared to cash provided from operations of $10.3 million
during the same nine month period of 1998. The decrease in cash flow from
operations for the period ended September 30, 1999 relates primarily to the
increase in accounts receivable. The improvement in working capital for the nine
months ended September 30, 1999 was primarily caused by a decrease in other
assets, and increases in accounts payable, accrued expenses, and other
liabilities.
The Company utilized approximately $1.1 million in cash for the nine months
ended September 30, 1999 in investing activities compared to a use of
approximately $68.3 million in cash for the same period a year ago. During the
nine months ended September 30, 1999, cash was used for the purchase of
approximately $7.1 million in capital equipment to support continued growth at
the Company's existing manufacturing facilities. During the nine months ended
September 30, 1998, cash was used for the purchase of approximately $10.7
million in capital equipment, primarily related to installation of additional
manufacturing capacity in Danbury, Connecticut and at the ADCS manufacturing
facilities in Burnet, Texas as well as the purchase of epitaxial reactors for
Epitronics. Additionally, in April 1998, the Company completed a registered
underwritten public offering of 5,428,000 shares of its common stock. Of such
shares, 2,257,291 shares were sold by ATMI, and 3,170,709 shares were sold by
certain stockholders of ATMI. ATMI received net proceeds from the offering
including exercise by the underwriters of the over-allotment of approximately
$62.4 million. The Company invested approximately $57.6 million of the proceeds
raised from the sale of its common stock into marketable securities for future
working capital requirements and potential merger and acquisition activities.
As of September 30, 1999, ATMI has financed a portion of its capital
equipment purchases, particularly the silicon epitaxial capacity, through
capital leases with approximately $4.6 million of capital lease obligations
outstanding. During the nine months ended September 30, 1999 and 1998, the
Company made payments on capital leases of approximately $1.7 million and $2.1
million, respectively. Financial institutions have also provided
collateral-based loans for other equipment purchases. The Company has also
entered into various note arrangements to finance the purchase of key product
lines and other expansion of its businesses. During the nine months ended
September 30, 1999 and 1998, the Company made payments on notes of approximately
$6.3 million and $1.1 million, respectively. The Company's NOW business has an
industrial revenue bond arrangement outstanding in the amount of $2.4 million,
which was used for equipment and improvements at its manufacturing facility and
corporate office. At September 30, 1999, $5.5 million of loans, bonds and
financing remained outstanding. During the nine months ended September 30, 1998,
the Company generated approximately $62.4 million from the completion of a
public offering. Management believes that is debt service obligations can be
adequately satisfied by cash flows from operations.
ATMI believes its existing cash balances and marketable securities,
existing sources of liquidity and anticipated funds from operations, will
satisfy its projected working capital and other cash requirements through at
least the end of 2001. However, ATMI believes the level of financing resources
available to it is an important competitive factor in its industry and may seek
additional capital prior to the end of that period. Additionally, ATMI
considers, on a continuing basis, potential acquisitions of technologies and
businesses complementary to its current business.
Year 2000 Compliance
ATMI has an internal compliance team to evaluate its internal information
technology infrastructure and application systems ("IT Systems") and other
non-IT infrastructure systems ("Non-IT Systems") to determine whether such
systems will operate correctly with regard to the import, export, and processing
of date information, including correct handling of leap years, in connection
with the change in the calendar year from 1999 to 2000 (the "Year 2000 Issue"),
and to evaluate the Year 2000 Issue with respect to the systems of third party
partners and suppliers with which the Company has a material relationship
("Third Party Systems").
ATMI conducted an IT Systems inventory analysis and risk assessment and has
completed upgrades of core IT Systems to incorporate additional desired features
and functionality including Year 2000 compliant operators. As a result of such
upgrades, the Company believes its core IT Systems are Year 2000 compliant. The
Company does not expect that any additional costs of addressing the Year 2000
Issue for its IT Systems will have a material adverse impact on the Company's
financial position, results of operations or cash flows.
ATMI has also completed a Non-IT System inventory analysis and risk
assessment. As a result of the analysis, the Company believes that no
remediation actions are required in order to be Year 2000 compliant. Because
ATMI believes the number of Non-IT Systems is relatively small, ATMI does not
expect that any additional costs of addressing the Year 2000 Issue for Non-IT
Systems will have a material adverse impact on its operations or its financial
position, results of operations or cash flows.
ATMI has completed its Third Party inventory and risk assessment. As a
result of the analysis, the Company believes that no other actions are necessary
in order to be Year 2000 compliant. However, ATMI still believes that its most
reasonably likely worst-case Year 2000 scenarios would involve Third Party
Systems rather than its internal systems. The Company believes that its greatest
risks would be the partial or complete shutdown of a critical supplier or
strategic partner and its inability to provide critical supplies and services to
the Company on a timely basis. A contingency plan addressing potential issues
related to Third Party Systems has been developed. The contingency plan consists
of ensuring adequate levels of critical supplies used in the Company's
manufacturing processes are on hand at the end of year 1999. The Company has
also compiled a listing of manufacturers of alternative supply sources for its
critical products. In the event a third party supplier is affected by Year 2000
issues, the Company will make arrangements with alternative suppliers for its
critical raw materials.
ATMI has tested its products for Year 2000 compliance and has determined
that all ATMI products currently available for sale have either successfully
passed Year 2000 compliance testing or are not subject to Year 2000 compliance
because such products do not import, export, or process date information in any
manner.
To date, the Company has incurred approximately $600,000 of expense
relating to inventory analysis and risk assessment. The funds to cover the cost
incurred to date were derived from general operations. The costs primarily
relate to desktop compliance and standardization to Year 2000 compliance. These
Year 2000 expenditures are within the Company's planned operational budgets and
include the cost of reviewing key operating systems. As of September 30, 1999,
no IT Systems projects have been deferred because of problems associated with
the Year 2000 Issue.
Forward-Looking Statements
The statements contained in this report which are not historical are
"forward-looking statements" within the meaning of Section 27A of the Securities
Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934,
as amended. Examples of forward-looking statements include, without limitation,
statements by ATMI regarding financial projections, expectations for demand and
sales of new and existing products, market and technology opportunities,
business strategies, business opportunities, objectives of management for future
operations, semiconductor industry and market segment growth and efforts to
achieve Year 2000 compliance. In addition, when used in this report, the words
"anticipate," "plan," "believe," "estimate," "expect" and similar expressions as
they relate to the Company or its management are intended to identify
forward-looking statements. All forward-looking statements involve risks and
uncertainties. Actual results may differ materially from those discussed in, or
implied by, the forward-looking statements as a result of certain factors
including, but not limited to, changes in the pattern of semiconductor industry
growth, the markets for or customer interest in the products of ATMI, product
and market competition, delays or problems in the development and
commercialization of products, technological changes affecting the competencies
of ATMI and unanticipated internal and/or third party delays or failures in
achieving Year 2000 compliance. The cautionary statements made in this report
should be read as being applicable to all related forward-looking statements
wherever they appear in this report.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Market risks relating to the Company's operations result primarily from
changes in interest rates and foreign exchange rates, as well as credit risk
concentrations. The Company's customer base is composed of semiconductor
manufacturers that are located throughout the United States, Europe and the
Pacific Rim. There is no single geographic area of concentration in the United
States, Europe or the Pacific Rim. The Company's market risks related to
interest and foreign exchange rates are not material to its operating results.
PART II- OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
a. Exhibits.
Exhibit No. Description
27.01 Financial Data Schedule (Filed herewith)
b. Reports on Form 8-K.
The Company did not file any reports on Form 8-K during the three months
ended September 30, 1999.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ATMI, Inc.
November 12, 1999
By _____________________________
Eugene G. Banucci, Ph.D.,
President, Chief Executive
Officer, Chairman of the
Board and Director
By _____________________________
Daniel P. Sharkey, Vice President,
Chief Financial Officer and Treasurer
(Chief Accounting Officer)
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ATMI, Inc.
November 12, 1999
By /S/ Eugene G. Banucci
President, Chief Executive
Officer, Chairman of the
Board and Director
/S/ Daniel P. Sharkey
Daniel P. Sharkey, Vice President,
Chief Financial Officer and Treasurer
(Chief Accounting Officer)
EXHIBIT INDEX
Exhibit No. Description
27.01 Financial Data Schedule (Filed herewith)
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C> <C>
<PERIOD-TYPE> 9-MOS 9-MOS
<FISCAL-YEAR-END> Dec-31-1999 Dec-31-1998
<PERIOD-END> Sep-30-1999 Sep-30-1998
<CASH> 25871 17176
<SECURITIES> 60597 75046
<RECEIVABLES> 32160<F1> 22011<F1>
<ALLOWANCES> 0 0
<INVENTORY> 17465 16132
<CURRENT-ASSETS> 142445 138855
<PP&E> 50325<F2> 49421<F2>
<DEPRECIATION> 0 0
<TOTAL-ASSETS> 197949 195531
<CURRENT-LIABILITIES> 31605 29754
<BONDS> 2400 2800
0 0
0 0
<COMMON> 262 259
<OTHER-SE> 156466 146182
<TOTAL-LIABILITY-AND-EQUITY>197949 195531
<SALES> 121168 113026
<TOTAL-REVENUES> 121168 113026
<CGS> 58925 58358
<TOTAL-COSTS> 58928 58358
<OTHER-EXPENSES> 12409<F3> 11337<F3>
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 704 1249
<INCOME-PRETAX> 10840 7749
<INCOME-TAX> 5220 3510
<INCOME-CONTINUING> 0 0
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 5620 4239
<EPS-BASIC> .22 .18
<EPS-DILUTED> .21 .16
<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>
