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 March 31, 1997
[ ] 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
Advanced Technology Materials, Inc.
-----------------------------------
(Exact name of registrant as specified in its charter)
Delaware 06-1236302
-------- ----------
(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
April 28, 1997 was 8,797,770.
<PAGE>
ADVANCED TECHNOLOGY MATERIALS, INC.
Quarterly Report on Form 10-Q
For the Period Ended March 31, 1997
TABLE OF CONTENTS
Page
Part I - Financial Information
Item 1. Financial Statements
Consolidated Balance Sheet.............................................. 3
Consolidated Statement of Operations.................................... 4
Consolidated Statement of Cash Flows.................................... 5
Notes to Consolidated Interim Financial Statements...................... 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations..................................... 8
Part II - Other Information
Item 6. Exhibits and Reports on Form 8-K............................... 11
Signatures............................................................. 12
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
<CAPTION>
Advanced Technology Materials, Inc.
Consolidated Balance Sheet
March 31, December 31,
1997 1996
Assets (unaudited)
----------- -----------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 2,208,497 $ 4,437,015
Marketable securities 17,218,296 16,969,073
Accounts receivable, net of
allowance for doubtful
accounts of $165,946 in
1997 and $141,504 in 1996 11,486,733 9,377,777
Inventory 5,033,592 4,541,282
Other 1,144,720 500,324
--------- -------
Total current assets 37,091,838 35,825,471
Property and equipment, net 8,626,441 8,102,218
Long-term investment 1,250,003 1,000,000
Goodwill and other intangibles 5,237,961 5,190,758
--------- ---------
$ 52,206,243 $ 50,118,447
========= =========
Liabilities and stockholders' equity
Current liabilities:
Accounts payable $ 4,318,575 $ 3,469,530
Accrued expenses 1,521,771 1,996,587
Accrued commissions 1,664,202 1,378,888
Accrued payroll and benefits 705,566 465,280
Notes payable 572,207 621,463
Other 892,128 790,261
------- -------
Total current liabilities 9,674,449 8,722,009
Notes payable, less current portion 4,838,806 4,944,517
Other long-term liabilities 52,967 59,382
Stockholders' equity:
Preferred stock, par value
$.01: 1,000,000 shares
authorized; none issued
and outstanding - -
Common stock, par value
$.01: 15,000,000 shares
authorized; issued and
outstanding 8,796,870
in 1997 and 8,775,810
in 1996
87,969 87,758
Additional paid-in capital 37,374,977 37,234,277
Retained earnings (accumulated
deficit) 177,075 (929,496)
------- --------
Total stockholders' equity 37,640,021 36,392,539
---------- ----------
$ 52,206,243 $ 50,118,447
========== ==========
</TABLE>
See accompanying notes
<PAGE>
Advanced Technology Materials, Inc.
Consolidated Statement of Operations
(unaudited)
<TABLE>
<CAPTION>
Three months ended March 31,
1997 1996
---- ----
<S> <C> <C>
Revenues:
Product revenues $ 9,847,454 $ 7,579,077
Contract revenues 2,618,241 2,482,994
--------- ---------
Total revenues 12,465,695 10,062,071
Cost of revenues:
Cost of product revenues 4,611,030 3,249,158
Cost of contract revenues 2,157,710 2,032,786
--------- ---------
Total cost of revenues 6,768,740 5,281,944
--------- ---------
Gross profit 5,696,955 4,780,127
Operating expenses:
Research and development 1,938,063 1,862,882
Selling, general and administrative 2,718,556 2,575,528
--------- ---------
4,656,619 4,438,410
--------- ---------
Operating income 1,040,336 341,717
Interest income 274,231 278,268
Interest expense (101,660) (122,539)
-------- --------
Income before income taxes 1,212,907 497,446
Income taxes 106,336 28,000
------- ------
Net income $ 1,106,571 $ 469,446
============ ============
Net income per share $ 0.12 $ 0.05
------------ ------------
Weighted average shares outstanding 9,592,503 9,331,666
========= =========
</TABLE>
See accompanying notes.
<PAGE>
Advanced Technology Materials, Inc.
Consolidated Statement of Cash Flows
(unaudited)
<TABLE>
<CAPTION>
Three months ended March 31,
1997 1996
---- ----
<S> <C> <C>
Operating activities
Net income ..................................... $ 1,106,571 $ 469,446
Adjustments to reconcile net income
to net cash used by operating
activities:
Depreciation and amortization ................. 672,620 497,502
Changes in operating assets
and liabilities
Increase in accounts receivable .............. (2,108,956) (1,427,633)
Increase in inventory ........................ (492,310) (978,462)
Increase in other assets ..................... (767,059) (84,202)
Increase in accounts payable ................. 849,045 547,759
Increase in accrued expenses ................. 50,784 479,562
Increase (decrease) in other liabilities ..... 95,452 (70,282)
------ -------
Total adjustments .............................. (1,700,424) (1,035,756)
---------- ----------
Net cash used by operating activities .......... (593,853) (566,310)
-------- --------
Investing activities
Capital expenditures ........................... (1,121,383) (1,229,308)
Long term investment ........................... (250,003) --
(Purchase) sale of marketable
securities ................................... (249,223) 4,158,678
-------- ---------
Net cash (used) provided by
investing activities ......................... (1,620,609) 2,929,370
---------- ---------
Financing activities
Proceeds from issuance of notes
payable ...................................... -- 203,890
Principal payments on notes payable ............ (154,967) (4,162,947)
Proceeds from the exercise of
stock options and warrants ................... 140,911 1,916
------- -----
Net cash used by financing activities .......... (14,056) (3,957,141)
------- ----------
Net decrease in cash and cash
equivalents .................................. (2,228,518) (1,594,081)
Cash and cash equivalents,
beginning of period .......................... 4,437,015 3,609,265
--------- ---------
Cash and cash equivalents,
end of period ................................ $ 2,208,497 $ 2,015,184
=========== ===========
</TABLE>
See accompanying notes
<PAGE>
Advanced Technology Materials, Inc.
Notes To Consolidated Interim Financial Statements
(unaudited)
1. Basis of Presentation
The accompanying unaudited interim financial statements of Advanced
Technology Materials, Inc. ("ATMI" or the "Company") have been prepared in
accordance with the instructions to Form 10-Q and Rule 10.01 of Regulation S-X
and do not include all of the financial information and disclosures required by
generally accepted accounting principles.
In the opinion of the Company's management, the financial information
contained herein has been prepared on the same basis as the audited Consolidated
Financial Statements contained in the Company's Form 10-K for the year ended
December 31, 1996, 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
Earnings per common share is computed using the treasury stock method based
on the weighted average number of common shares and common stock equivalent
shares outstanding during the period. Shares from the assumed exercise of
options and warrants granted by the Company have been included in the
computation of earnings per share for all periods, unless there inclusion would
be antidilutive.
In February 1997, the Financial Accounting Standards Board issued Statement
No. 128, Earnings per Share, which is required to be adopted on December 31,
1997. This Statement simplifies the computation of earnings per share and makes
the computation more consistent with those of other countries. The
implementation will require the disclosure of basic and diluted earnings per
share. The Company will adopt this Statement during the fourth quarter of 1997.
The Company does not expect the adoption of this new standard to significantly
effect reported earnings per share amounts.
3. Inventory
Inventory is comprised of the following:
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
---- ----
<S> <C> <C>
Raw materials $ 4,606,657 $ 4,143,818
Work in process 1,021,473 686,898
Finished goods 60,093 369,846
------ -------
5,688,223 5,200,562
Obsolescence reserve (654,631) (659,280)
======== ========
$ 5,033,592 $ 4,541,282
=========== ===========
</TABLE>
4. Income taxes
ATMI's income tax expense relates primarily to state taxes on income
generated, partially offset by the utilization of loss carryforwards and
available state tax credits. Minimal federal taxes paid in 1997 and 1996 relate
to alternative minimum taxes arising from the use of net operating loss
carryforwards.
5. Subsequent event
On April 7, 1997, the Company executed a Merger and Exchange Agreement (the
"Agreement") to acquire all of the issued and outstanding equity interests in
Advanced Delivery & Chemical Systems Nevada, Inc. and its related entities
("ADCS"). ADCS is engaged in the manufacture and sale of ultra-high purity
semiconductor thin film materials and associated delivery systems. The Agreement
is subject to approval by ATMI's stockholders and the satisfaction of other
customary conditions. Transaction costs of approximately $2 million are expected
to be recognized in the period the transaction closes.
Pursuant to the Agreement, holders of interests in ADCS will receive
between 5,468,750 and 6,250,000 shares of common stock of a newly created
holding company in exchange for their interests. The actual number of shares to
be issued to the holders of equity interests in ADCS depends upon the average
closing price of ATMI's common stock during a 20 day trading period ending five
days prior to stockholder approval of the Agreement. Additionally, as part of
the transaction, ATMI will become a subsidiary of the holding company. The
acquisition is intended to be accounted for as a pooling of interests
transaction. ATMI intends to continue the business currently performed by ADCS
by combining it with the semiconductor thin film and delivery system product
lines of the NovaMOS division of ATMI, under the name ADCS.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Overview
Founded in 1986, ATMI generates revenues from product sales and contract
research. Most product sales are point-of-use environmental equipment, specialty
materials, and delivery systems for the semiconductor industry. ATMI also
receives royalties for certain product sales from third parties.
Since 1986, a significant portion of ATMI's revenues has come from
contracts with United States government agencies. The programs in which ATMI
participates may extend for several years, but are usually funded annually.
There can be no assurance that the government will continue its commitment to
programs to which ATMI's development projects are applicable or that ATMI can
compete successfully to obtain program funding.
ATMI has used a targeted acquisition strategy to assist in building
critical mass and market position in the niches the Company serves. In 1994,
ATMI acquired Vector Technical Group, Inc. ("Vector"), and in conjunction with
the sale of Novapure product lines to Millipore Corporation in September 1994,
formed ATMI EcoSys Corporation ("EcoSys") by merging the retained operations of
Novapure with those of Vector. In 1995, ATMI acquired the Guardian product line
from Messer Griesheim Industries, Inc. and folded that product line into EcoSys.
In 1995, ATMI acquired Epitronics Corporation, and in early 1996, combined that
business with the formerly known Diamond Electronics division under the
Epitronics name. In April 1997, ATMI announced an intended pooling of interests
acquisition of ADCS. ADCS manufactures and distributes ultra high purity
semiconductor thin film materials. ATMI intends to combine the operations of
ADCS with the operations of ATMI's NovaMOS division following shareholder
approval of the transaction, which is anticipated during the third quarter of
1997.
A continued slowdown in the semiconductor capital equipment industry has
had some impact on commercial backlog. At the end of the first quarter of 1997,
commercial backlog was approximately $7.0 million, compared with a backlog of
$8.7 million at the end of the first quarter of 1996.
The following table sets forth, for the periods indicated, the percentage
relationship to total revenues of certain items in ATMI's Consolidated Statement
of Operations:
<TABLE>
<CAPTION>
Three Months Ended March 31,
1997 1996
---- ----
<S> <C> <C>
Product revenues................................ 79.0% 75.3%
Contract revenues............................... 21.0 24.7
Total revenues............................ 100.0 100.0
Cost of revenues................................ 54.3 52.5
Gross profit.................................... 45.7 47.5
Operating expenses:
Research and development.................. 15.5 18.5
Selling, general, and administrative...... 21.8 25.6
Total operating expenses............ 37.3 44.1
Operating income ............................... 8.4 3.4
Other income, net............................... 1.4 1.6
Income before taxes............................. 9.8 5.0
Income taxes.................................... 0.9 0.3
Net income ..................................... 8.9% 4.7%
</TABLE>
The following table sets forth revenues, cost of revenues and gross profit
for products and contracts, as a percentage of each category:
<TABLE>
<CAPTION>
Three Months Ended March 31,
1997 1996
---- ----
<S> <C> <C>
Products:
Revenues............................................ 100.0% 100.0%
Cost of revenues.................................... 46.8 42.9
Gross profit........................................ 53.2% 57.1%
Contracts:
Revenues........................................... 100.0% 100.0%
Cost of revenues................................... 82.4 81.9
Gross profit....................................... 17.6% 18.1%
</TABLE>
Results of Operations
Three Months Ended March 31, 1997 and 1996.
Revenues. Total revenues increased 23.9% to approximately $12,466,000 in
the three months ended March 31, 1997 from approximately $10,062,000 in the same
three month period in 1996. Product revenues increased 29.9% to approximately
$9,847,000 in the three months ended March 31, 1997 from approximately
$7,579,000 in the comparable period in 1996. The product revenue growth was
primarily attributable to the continued expansion of SDS product sales. Contract
revenues increased 5.4% to approximately $2,618,000 in the quarter ended March
31, 1997 from approximately $2,483,000 in the same three month period in 1996.
The increase in the 1997 quarter reflects a general increase in government
funding of the Company's research activities.
Gross Profit. Gross profit increased 19.2% to approximately $5,697,000 in
the quarter ended March 31, 1997 from approximately $4,780,000 in the quarter
ended March 31, 1996. As a percentage of revenues, gross margin decreased to
45.7% in the three month period in 1997 from 47.5% of revenues in the three
month period in 1996.
Gross profit from product revenues increased 20.9% to approximately
$5,236,000 in the three months ended March 31, 1997 from approximately
$4,330,000 in the same three month period a year ago. As a percentage of product
revenues, gross margin decreased to 53.2% in the 1997 period from 57.1% in the
1996 period due principally to product mix variability within the EcoSys product
lines offset by manufacturing margins on SDS product sales which are at a level
that is higher than the average ATMI product margin. Prior to November 1996,
revenues for the SDS product line consisted of royalty payments.
Gross profit on contract revenues increased 2.4% to approximately $461,000
in the quarter ended March 31, 1997 from approximately $450,000 in the same
quarter a year ago. As a percentage of contract revenues, gross margin decreased
to 17.6% in the first quarter of 1997 from 18.1% in the first quarter of 1996.
Contract margins can vary slightly from year to year based on the mix of
cost-type, firm fixed price and cost share arrangements. Additionally, different
fee arrangements and indirect cost absorption can contribute to some slight
margin variability.
Research and Development Expenses. Research and development expenses
increased 4.0% to approximately $1,938,000 in the first three months of 1997
from approximately $1,863,000 in the first three months of 1996. Increased
development efforts surrounding the Company's ferroelectric thin film technology
and related applications was the primary cause for the increase, offsetting
reduced spending related to other technology development efforts. As a
percentage of revenues, research and development expenses decreased to 15.5% in
the 1997 quarter from 18.5% in the 1996 quarter.
Selling, General, and Administrative Expenses. Selling, general, and
administrative expenses increased 5.6% to approximately $2,719,000 in the three
months ended March 31, 1997 from approximately $2,576,000 in the same three
month period in 1996. The increase in the 1997 quarter was primarily due to
increased administrative costs, including expenses related to the ISO 9000
certification process underway at the Company. As a percentage of revenues,
these expenses decreased to 21.8% in the three month period in 1997 from 25.6%
in the comparable period in 1996.
Other Income, Net. Other income increased 10.9% to approximately $173,000
in the quarter ended March 31, 1997 from approximately $156,000 in the quarter
ended March 31, 1996. The increase in the 1997 quarter related to a decrease in
interest expense as a result of decreases in outstanding debt balances.
Income Taxes. ATMI's income tax expense related primarily to state taxes on
income generated, partially offset by the utilization of loss carryforwards and
available state tax credits. Minimal federal taxes paid in 1997 and 1996 related
to alternative minimum taxes arising from the use of net operating loss
carryforwards. Income tax expense in the quarter ended March 31, 1997 was
$106,000, up from $28,000 in the same quarter a year ago. The Company's loss
carryforwards are expected to be substantially utilized by mid-1997, causing
effective tax rates to approach approximately 40% by the end of the current
year.
Earnings per Share. Earnings per share improved to $.12 for the first
quarter of 1997 compared with a $.05 earnings per share in the first quarter of
1996. Earnings per share in the 1997 period reflects the 2.8% increase in
weighted average shares outstanding from approximately 9,332,000 in the first
quarter of 1996 to approximately 9,593,000 in the first quarter of 1997, a
result of exercised stock options under the Company's existing stock plans and
the dilutive effect of a higher stock price when calculating common stock
equivalents.
Liquidity and Capital Resources
Net cash used by operations was approximately $594,000 during the three
months ended March 31, 1997 compared to $566,000 used during the same three
month period in 1996, despite generating approximately $637,000 more of net
income in the 1997 quarter than the preceding year's first quarter. Working
capital fluctuations in the first quarter of 1997 resulted in a significant use
of cash, primarily increases in accounts receivable, inventory, and a long term
note receivable which were partially offset by increases in accounts payable and
accrued expenses.
The Company utilized approximately $1,621,000 in cash in investing
activities compared to a generation of approximately $2,929,000 in cash in the
same quarter a year ago. During the first quarter of 1997, cash was used for the
purchase of approximately $1.1 million in capital equipment, primarily related
to installation of SDS manufacturing capacity in Danbury and epitaxial capacity
at Epitronics' Phoenix facility. In the previous year's first quarter, the
Company incurred approximately $1,200,000 in capital expenditures and sold a net
amount of approximately $4,200,000 in marketable securities.
The Company utilized approximately $15,000 from financing activities during
the 1997 quarter compared to a utilization of cash of approximately $3,957,000
in the first quarter of 1996. The 1996 quarter included a $4 million debt
payment related to the Company's acquisition of its Guardian line of
environmental equipment.
ATMI believes its existing cash balances and marketable securities,
together with existing sources of liquidity and anticipated funds from
operations, will satisfy its projected working capital and other cash
requirements through at least the end of 1998. 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 which may
require additional cash.
Safe Harbor Statement
Statements which are not historical facts in this report are forward
looking statements, made on a good faith basis. Such forward looking statements,
including those expressing confidence about the Company's expectations for
demand and sales of new and existing products, semiconductor industry and market
segment growth, and market and technology opportunities, all involve risk and
uncertainties. Actual results may differ materially from forward looking
statements, for reasons including, but not limited to, changes in the pattern of
semiconductor industry growth or the markets the Company sells products for,
customer interest in the Company's products, product and market competition,
delays or problems in the development and commercialization of the Company's
products, or technological change affecting the Company's core thin film
competencies.
PART II- OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
a. Exhibits.
Exhibit No. Description
----------- -----------
11.01 Statement re: computation of per share earnings (Filed herewith)
27.01 Financial Data Schedule
b. Reports on Form 8-K.
On April 21, 1997, the Company filed a Current Report on Form 8-K dated
April 7, 1997 reporting in Item 5 thereof the execution of a Merger and Exchange
Agreement (the "Agreement") to acquire all of the issued and outstanding equity
interests in Advanced Delivery & Chemical Systems Nevada, Inc. and its related
entities ("ADCS"). The Agreement is subject to shareholder approval and other
customary conditions.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Advanced Technology Materials, Inc.
May 12, 1997
By /S/ Eugene G. Banucci
Eugene G. Banucci, Ph.D., 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)
<PAGE>
EXHIBIT INDEX
Exhibit No. Description
- ----------- -----------
11.01 Statement re: computation of per share earnings
27.01 Financial Data Schedule
EXHIBIT 11.01
ADVANCED TECHNOLOGY MATERIALS, INC.
COMPUTATION OF EARNINGS PER COMMON SHARE
<TABLE>
<CAPTION>
Quarter Ended Quarter Ended
3/31/97 3/31/96
------- -------
<S> <C> <C>
Net income .................................. $1,106,571 $ 469,446
========== ==========
Average common shares
outstanding ................................ 8,791,194 8,722,064
Incremental shares issuable
pursuant to employee stock
options and warrants (if
dilutive) .................................. 801,309 609,602
========== ==========
Total
shares ..................................... 9,592,503 9,331,666
========== ==========
Net income per
share ...................................... $ 0.12 $ 0.05
========== ==========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> Dec-31-1997
<PERIOD-END> Mar-31-1997
<CASH> 2208
<SECURITIES> 17218
<RECEIVABLES> 11487<F1>
<ALLOWANCES> 0
<INVENTORY> 5034
<CURRENT-ASSETS> 37092
<PP&E> 8626<F2>
<DEPRECIATION> 0
<TOTAL-ASSETS> 52206
<CURRENT-LIABILITIES> 9674
<BONDS> 0
0
0
<COMMON> 88
<OTHER-SE> 37552
<TOTAL-LIABILITY-AND-EQUITY> 52206
<SALES> 9847
<TOTAL-REVENUES> 12466
<CGS> 4611
<TOTAL-COSTS> 6769
<OTHER-EXPENSES> 1938<F3>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 102
<INCOME-PRETAX> 1213
<INCOME-TAX> 106
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1107
<EPS-PRIMARY> .12
<EPS-DILUTED> .12
<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>
