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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, 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
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)
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
None Not Applicable
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value (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, 1998, was approximately $295,790,000 based on the
closing price of $28.47 per share.
The number of shares outstanding of the registrant's common stock as of
March 2, 1998 was 18,177,901.
DOCUMENTS INCORPORATED BY REFERENCE:
Proxy Statement for the Annual Meeting of Stockholders to be held on May
20, 1998 (Part III).
ATMI, INC.
Annual Report on Form 10-K
For the Fiscal Year Ended December 31, 1997
TABLE OF CONTENTS
Part I Page
Item 1 Business .................................................... 3
Item 2 Properties .................................................. 16
Item 3 Legal Proceedings ........................................... 17
Item 4 Submission of Matters to a Vote of Security Holders ......... 17
Item 4A Executive Officers of the Registrant ........................ 17
Part II
Item 5 Market for Registrant's Common Equity and Related
Stockholder Matters ......................................... 19
Item 6 Selected Financial Data ...................................... 21
Item 7 Management's Discussion and Analysis of Financial
Condition and Results of Operations ......................... 22
Item 7A Quantitative and Qualitative Disclosures About Market Risk .. 29
Item 8 Financial Statements and Supplementary Data .................. 29
Item 9 Changes In and Disagreements with Accountants on
Accounting and Financial Disclosure ......................... 29
Part III
Item 10 Directors and Executive Officers of the Registrant .......... 30
Item 11 Executive Compensation ...................................... 30
Item 12 Security Ownership of Certain Beneficial Owners and
Management .................................................. 30
Item 13 Certain Relationships and Related Transactions .............. 30
Part IV
Item 14 Exhibits, Financial Statement Schedule, and Reports
on Form 8-K ................................................. 30
Index to Consolidated Financial Statements and Financial
Statement Schedule ................................................... F-1
Signatures ........................................................... S-1
PART I
Item 1. Business.
ATMI, Inc. ("ATMI" or 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
based on chemical vapor deposition ("CVD") technology. 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 three 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 CVD processing in particular, by providing leading edge products
and services in each of its target markets. The Company's ADCS division develops
and markets ultrahigh purity thin film materials and proprietary delivery
systems. ADCS is also the developer of the "Safe Delivery System," or SDS, which
stores dangerous gases as solids in cylinders, providing increased safety and
substantially greater operating efficiencies. The Company believes its EcoSys
division 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 business mix consists 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 is a holding company which performs executive, financial and
administrative functions for its 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.
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 Group have been combined with the Company's NovaMOS
business to create the ADCS division. 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 have been
combined with the Company's Epitronics division, which now offers a wide
spectrum of epitaxial services. Both transactions were accounted for as poolings
of interest.
On February 20, 1998, the Company announced that it had entered into a
definitive merger agreement with NOW Technologies, Inc. ("NOW Technologies")
pursuant to which NOW Technologies would become a wholly-owned subsidiary of the
Company. The closing of the merger agreement is subject to the approval of the
shareholders of NOW Technologies and appropriate government agencies and to the
satisfaction of other customary conditions. While the exact number of shares of
Common Stock to be issued by the Company to the shareholders of NOW Technologies
will not be determined until the third trading day prior to the closing, the
number of shares to be issued will range from 1.32 million to 1.59 million
(excluding shares issuable upon exercise of outstanding options). The merger is
intended to be treated as a tax-free reorganization and to be accounted for as a
pooling of interests. NOW Technologies is a manufacturer and distributor of
semiconductor materials packaging systems, particularly for advanced photoresist
materials.
Semiconductor Industry Background
The semiconductor industry has grown substantially 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 1996 of $142 billion and is estimated to achieve worldwide
sales of over $300 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 and 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 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 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.
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 essentially 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 is growing 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 utilized 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 $200 million per
year.
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 $1.2 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 utilize 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, a full line of point-of-use semiconductor environmental equipment and
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 the following key
elements:
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 the areas of 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 86 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.
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 and 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.
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 $62.0 million
in research funding directed towards the costly development of new thin film
processes and materials for complex electronic devices.
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.
ATMI Businesses and Products
ATMI conducts its operations through three primary divisions: ADCS, EcoSys
and Epitronics. 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
manufacturing industries. 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.
Consistent with its corporate strategy, the Company actively explores new
opportunities to commercialize its core technology. In January 1998, the Company
announced the formation of its Emosyn division. Emosyn intends to develop and
commercialize smart card devices employing the Company's ferroelectric materials
and process integration technology. The Company developed this technology in a
consortium with IBM, Micron Technology and Texas Instruments. Emosyn recently
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 addition, the Company currently
has two other ventures in development that it believes may comprise future
business units for the Company. The first is focused on the development of gas
sensing devices that will allow for the detection and measurement of the many
gases used in thin film processing, and the second is focused on the development
of metrology tools that will detect thin film properties during the deposition
process.
ADCS: Semiconductor Materials and Delivery Systems
The Company believes ADCS 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; and (iv) developing and commercializing patented
low-pressure gas delivery systems for safe handling and delivery of toxic and
hazardous gases to semiconductor process equipment.
ADCS strives to ensure that its materials and related delivery systems meet
and exceed the requirements of its customers, which include semiconductor device
manufacturers and OEMs located throughout the world. In developing its business,
ADCS 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 and response offered and
to remain cost-effective to its customers; (v) to meet customer needs for
statistical quality control and dock-to-stock programs; and (vi) to continue to
meet the industry's needs for advanced thin film materials required for
next-generation devices and beyond.
Products and Services
ADCS has three primary product lines: thin film materials, liquid delivery
systems and gas delivery systems. ADCS also provides services relating to each
of these product lines.
Thin Film Materials. ADCS 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.
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,
therefore, critical. ADCS ULTRAPUR chemicals have purities in excess of
99.99999% to 99.999999% with respect to unwanted metal impurities. 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. ADCS has developed a proprietary COYOTE CLEAN process for
preparation of its containers, which range from quartz and stainless steel
ampules to much larger MINIBULK and SKINNIBULK canisters. Coupled with its
Quality Control Program, ADCS believes that this cleaning and container
technology produces the most consistent, highest purity chemicals in the
industry and ensures their quality as delivered into the reactor. Continuing its
commitment to quality, ADCS achieved ISO 9001 certification in 1997.
Liquid Delivery Systems. ADCS designs, manufactures and sells proprietary
continuous refill and delivery systems and their related hardware. These systems
and hardware products are designed to deliver ultrahigh purity thin film
materials to the CVD reactor under the desired physical conditions. ADCS'
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' 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.
Gas Delivery Systems (SDS). The SDS, or "Safe Delivery System, patented by
ATMI, uses a standard gas cylinder containing an adsorbent material. When the
cylinder is filled with gas, the gas is adsorbed by the material and essentially
"fixed" so that it behaves like a solid. The SDS cylinder is, therefore, not
under pressure, minimizing any potential leak of hazardous gas and allowing more
gas to be introduced into the cylinder. 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, four gases-arsine, phosphine, boron trifloride and silicon
tetrafloride-using the SDS technology have 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 ion implant.
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 second half of 1998. 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 employed in the medical field are possible candidates for SDS.
Services. In addition to its thin film materials and associated delivery
systems equipment, ADCS offers custom services, such as custom stainless steel
and quartz delivery hardware fabrication, custom bulk refill systems, container
cleaning, hardware repair and total chemical supply management services.
EcoSys: 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' 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.
Products and Services
EcoSys has three primary product lines and several developmental products.
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 liquid 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.
EcoSys is engaged in the development of additional product lines to
complement its existing ones in order to meet the evolving needs of
semiconductor manufacturers. Developmental products include ReCAT catalytic
oxidation scrubbers which use proprietary catalysts to destroy volatile organic
compounds ("VOCs"). VOCs arise from the use of solvents in applying photoresists
and other organic materials during device fabrication. EcoSys is also marketing
and continuing to develop effluent treatment systems for the capture of
semiconductor process gases in emergency and cylinder change-out situations.
Such situations might arise at the point of delivery of a gas to a reactor
through gas cylinder rupture or similar catastrophic event. In addition, EcoSys
is investigating the potential for recycling the materials used in thin film
deposition processes in the belief that recycling is ultimately preferred over
destructive abatement. PFCs, for example, are used in various wafer cleaning and
etch processes. As suspected ozone depleting materials, their use is being
limited by production cutbacks and the need for strict environmental control
systems. In conjunction with Praxair Corporation, EcoSys has developed a PFC
recycling system that captures the gas and repurifies it for subsequent reuse.
In 1997, the first unit was installed at a test site.
Epitronics: 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 epitaxial deposition services for silicon, III-V
materials and wide bandgap materials. The Company also distributes certain wafer
products that are manufactured by third parties to provide "one-stop shopping"
for its customers. Several new products are also in varying stages of
commercialization.
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 lattice matched silicon thin films
containing high amounts of boron and germanium that can be used in sensor
applications; and (iii) the selective deposition of silicon on sapphire or other
oxide-patterned substrates.
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 one- to two-inch diameter silicon
carbide and sapphire wafers in Danbury, Connecticut. The silicon carbide wafers
are manufactured in-house and are also offered for sale to external customers.
The Company believes that these substrate sales will promote additional
collaborations, addressing technology development and commercial epitaxial
product introduction issues associated with future optoelectronic, sensor and
power device products.
Distribution Products. Consistent with its marketing strategy of offering a
complete line of specialty epitaxial wafers and advanced substrates, Epitronics
is a distributor of SIMOX (Separation by IMplanted OXygen) wafers for Nippon
Steel Corporation ("NSC") (Japan) and specialty III-V wafers for Wafer
Technology (United Kingdom). These distributed materials complement Epitronics'
epitaxial services and leverage the development of the sales and marketing
organization required to execute its customer service driven marketing plan. NSC
SIMOX wafers are used for fabricating high speed and radiation-hard circuits.
Specialty III-V wafers from Wafer Technology include indium phosphide-based
materials for optical fiber-based communications, gallium arsenide for
optoelectronic devices and indium antimonide for infrared detectors.
Developmental Products. Epitronics is developing both substrate and thin
film technology for solid-state blue light emitting diodes ("LEDs") and lasers.
Blue LEDs will be primarily used in full color displays while blue lasers are
valuable for increasing optical data storage capabilities and in full color
printers. Gallium nitride substrate technology under development by Epitronics
and others may be essential to high yield LED manufacturing processes and to
developing long lifetime blue lasers. Epitronics is collaborating with
Hewlett-Packard, Xerox, SDL and others to develop substrate technology for
commodity blue lasers and is rs and is developing proprietary device designs to
enable penetration of specialty laser markets. Epitronics is the preferred high
performance materials supplier for a consortium which is developing blue lasers
for improved data storage.
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 division of the Company, or are acting as
collaborators on ATMI's development programs. A number of ATMI's customers are
listed below:
Advanced Micro Devices IBM Samsung Electronics
Applied Materials Intel SGS Thomson
Atmel Lucent Technologies Siemens
GEC Plessey Semiconductor Motorola Sony
Goldstar Electronics National Semiconductor Texas Instruments
Hewlett-Packard Novellus Tokyo Electron
Hyundai Electronics Philips TSMC
ADCS primarily distributes its materials and delivery system products to
end-use customers 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. The SDS product is currently
being marketed and sold solely into the ion implant market through an exclusive
distribution agreement with Matheson.
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.
Manufacturing
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. The manufacturing facility for SDS in
Danbury is complemented by contracted manufacturing from Matheson's facility.
The Company believes that these facilities are adequate for its current needs,
but expects to expand to meet anticipated demand.
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.
Manufacture of the Guardian product line had been subcontracted to a third party
which manufactured these products prior to the acquisition of the Guardian
product line by ATMI in 1995. The Company commenced manufacture of this product
line at its San Jose facility in 1997.
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 wafers and produces high performance thin films in Danbury.
Raw materials for ATMI's products and processes are available from multiple
domestic sources.
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.
ADCS' primary competitors in the United States are the Schumacher Division
of 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 SDS product. Several
companies, however, provide gases in high-pressure containers that compete with
the process capability of SDS.
EcoSys' 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 three primary product areas. In
silicon epi, Epitronics competes with Moore Technologies and a number of
specialty wafer manufacturers with their own epi capabilities. In III-V epi,
Epitronics competes with Kopin, Epi Products, Emcore and a number of smaller
manufacturers. In wide bandgap epi, competitors include Cree Research (silicon
carbide) and IBIS Technology (SIMOX wafers).
Research and Development and Strategic Alliances
ATMI's research and development expenditures are partially funded by
external sources, including semiconductor manufacturers, semiconductor equipment
OEMs and various agencies of the federal government. Total sums expended for
research and development in the years ended December 31, 1997, 1996 and 1995
were $18.5 million, $18.2 million and $13.2 million, respectively. Of those
amounts, $7.9 million, $8.3 million and $7.5 million, respectively, were
externally funded and are classified as cost of contract revenues on ATMI's
Consolidated Financial Statements, and $10.6 million, $9.8 million and $5.7
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.
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, intends 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 Systems. 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, SDS 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 participates in United States government funded
research and development contracts. As of December 31, 1997, the Company had
received aggregate awards since its inception of approximately $62.0 million
from United States government agencies, including approximately $54.9 million
recognized as revenue by ATMI through December 31, 1997. 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 $9.1 million, $9.8 million and $8.7
million for the years ended December 31, 1997, 1996 and 1995, respectively. This
represents approximately 9.0%, 11.1% and 14.5% of ATMI's total 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 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.
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, 1997, ATMI had firm backlog of
approximately $17.0 million, consisting of approximately $10.6 million of
product orders and approximately $6.4 million of executed and funded research
contracts. This compares to a firm backlog level of approximately $16.5 million
as of December 31, 1996, which consisted of approximately $8.2 million of
product orders and approximately $8.3 million of executed and funded research
contracts. SDS product backlog is not included because the product is sold and
shipped to Matheson for distribution to the ultimate end user.
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 86 United States patents and currently has 86 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 holds licenses to 12 United States patents. ATMI's United States patents
expire between 2006 and 2014. The United States patents licensed to ATMI expire
during the period from 2006 through 2013.
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.
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, 1997, ATMI employed a total of 376 individuals,
including 124 in sales and administration, 199 in operations and 53 in research
and development. Of these employees, 44 hold Ph.D. degrees and 31 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' 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. Although the
Company believes the existing headquarters and manufacturing facilities are
adequate for the current level of demand, the Company expects to expand the ADCS
manufacturing facilities within the next 18 months to meet anticipated 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.
EcoSys leases a 24,000 square foot facility in San Jose, California, which
lease expires in March 2003. EcoSys has recently leased an additional 21,000
square foot facility in the same San Jose office park, which lease expires March
2003. ATMI believes these facilities are adequate and suitable for EcoSys'
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.
The Company is not a party to any material litigation and is not aware of
any pending or threatened litigation that could have a material adverse effect
either upon the Company's business, operating results or financial condition.
Item 4. Submission of Matters to a Vote of Security Holders.
The Annual Meeting of Stockholders of the Company was held on October 10,
1997. At the annual meeting, the stockholders approved and adopted an Agreement
and Plan of Merger and Exchange by and among the Company, ATM and the ADCS Group
pursuant to which ATM became a wholly-owned subsidiary of the Company and the
Company acquired the ADCS Group. There were 5,087,394 votes for, 12,875 votes
against, and 29,642 abstentions with respect to the Agreement and Plan of Merger
and Exchange. In addition, the stockholders approved and adopted an Agreement
and Plan of Merger, as amended, by and among the Company, ATM and LSL pursuant
to which the Company acquired LSL. There were 5,084,794 votes for, 15,200 votes
against, and 29,917 abstentions with respect to the Agreement and Plan of
Merger.
The stockholders also elected the following persons to the Board of
Directors of the Company: Eugene G. Banucci, Mark A. Adley, John A. Armstrong,
Robert S. Hillas and Stephen H. Mahle. There were 6,894,822 votes for and 23,405
votes withheld for each of the nominees, except Mr. Hillas and Mr. Adley who
received 6,894,642 votes for and 23,585 votes withheld. Dr. Armstrong and Mr.
Hillas were elected for a term which expires at the 1998 Annual Meeting of
Stockholders, Dr. Banucci and Mr. Adley were elected for a term which expires at
the 1999 Annual Meeting of Stockholders, and Mr. Mahle was elected for a term
which expires at the 2000 Annual Meeting of Stockholders. Subsequent to the
annual meeting, the Company's Board of Directors appointed Lamonte H. Lawrence
as a director of the Company for a term expiring at the 1999 Annual Meeting of
Stockholders and appointed Stephen H. Siegele as a director of the Company for a
term expiring at the 2000 Annual Meeting of Stockholders.
The stockholders also approved an amendment to ATM's Certificate of
Incorporation to increase the number of authorized shares of Common Stock from
15,000,000 shares to 16,000,000 shares. There were 5,186,871 votes for, 24,300
votes against, and 30,667 abstentions with respect to such amendment. Finally,
the stockholders approved ATM's 1997 Stock Plan. There were 5,066,644 votes for,
42,835 votes against and 40,967 abstentions with respect to the 1997 Stock Plan.
Because the stockholders also approved the Agreement and Plan of Merger and
Exchange, pursuant to which ATM became a wholly-owned subsidiary of the Company,
neither the amendment to ATM's Certificate of Incorporation nor ATM's 1997 Stock
Plan became effective.
Item 4A. Executive Officers of the Registrant.
The executive officers of ATMI are as follows:
Name Age Position
Eugene G. Banucci,Ph.D. 54 President, Chief Executive Officer, Chairman of the
Board and Director
Peter S. Kirlin, Ph.D 37 Executive Vice President
Daniel P. Sharkey 41 Vice President, Chief Financial Officer and
Treasurer
Ward C. Stevens, Ph.D 43 Vice President - Administration and Secretary
Nicholas J. Wood 33 Vice President and General Manager - Emosyn
Division
Duncan W. Brown, Ph.D 45 President - Epitronics Division
James M. Burns 51 President - EcoSys Division
Stephen H. Siegele 37 President - ADCS Division and Director
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.
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.
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.
Ward C. Stevens, Ph.D., a founder of ATMI, has served as a Vice President
since 1986 and served as a director from 1986 to 1990. Prior to joining ATMI,
Dr. Stevens was a Materials Scientist and Project Leader at American Cyanamid
Company and a Materials Scientist at Celanese Research Company.
Nicholas J. Wood has served as Vice President and General Manager - Emosyn
Division since January 1998. From 1995 through 1997, Mr. Wood served as Vice
President - Marketing of ATMI. From 1985 to 1995, he served in a variety of
sales and marketing positions with Intel Corporation. Most recently, from 1992
to 1995, he served as Northern European Marketing Manager of Intel.
Duncan W. Brown, Ph.D., a founder of ATMI, has served as President,
Epitronics Division since March 1996. From 1986 to October 1997, Dr. Brown
served as Vice President of ATMI and from 1990 to October 1997, he also served
as a director of ATMI. From 1983 to 1986, Dr. Brown was a Research Chemist at
American Cyanamid Company. Previously, Dr. Brown was a Postdoctoral Fellow in
the Departments of Chemistry at the Massachusetts Institute of Technology and
Harvard University, and an Academic Associate at IBM's Research Division.
James M. Burns has served as President - EcoSys Division since joining ATMI
in January 1997. Previously, Mr. Burns served as Executive Vice President and
General Manager at Genus, Inc. from 1995 to 1996, as Assistant Vice President,
Operations at Hughes Network Systems from 1992 to 1995, and as Director,
Customer Satisfaction and Quality at Trimble Navigation, Ltd. from 1991 to 1992.
Prior to that time, Mr. Burns served in a variety of managerial positions in the
high technology electronics industry.
Stephen H. Siegele has served as President - ADCS Division and as a
director of ATMI since October 1997. 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.
Executive officers serve at the discretion of the Board of Directors. There
are no family relationships among any of the executive officers or directors.
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:
High Low
------ ------
Fiscal year ended December 31, 1996
1st Quarter $ 12.75 $ 9.63
2nd Quarter 15.88 10.38
3rd Quarter 13.88 10.75
4th Quarter 18.50 12.25
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
As of March 2, 1998, there were approximately 200 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 BankBoston, N.A.
On September 23, 1997, the Company sold 20,000 shares of Common Stock to
the Connecticut Development Authority pursuant to the partial exercise of a
warrant for aggregate consideration of $222,500.
On October 6, 1997, the Company sold 65,625 shares of Common Stock to
Advest, Inc. pursuant to the exercise of a warrant for aggregate consideration
of $738,281.25.
On October 10, 1997, the Company issued to Lamonte H. Lawrence and The
Arizona State University Foundation an aggregate of 3,671,349 shares of Common
Stock in connection with the merger of a wholly-owned subsidiary of the Company
into LSL.
On October 17, 1997, the Company sold 65,625 shares of Common Stock to
Needham & Company, Inc. pursuant to the exercise of a warrant for aggregate
consideration of $738,281.25.
The foregoing issuances of the Company's securities were made in reliance
upon the exemption from the registration requirements of the Securities Act of
1933, as amended (the "Securities Act"), set forth in Section 4(2) of the
Securities Act. In claiming the Section 4(2) exemption, the Company relied on
the following facts: (i) each of the purchasers (a) had the requisite knowledge
and experience in financial and business matters to evaluate the merits and risk
of an investment in the Company; (b) was able to bear the economic risk of an
investment in the Company; (c) had access to or was furnished with the kinds of
information that registration under the Securities Act would have provided; (d)
acquired the shares for the purchaser's own account in a transaction not
involving any general solicitation or general advertising, and not with a view
to the distribution thereof; and (ii) a restrictive legend was placed on each
certificate or other instrument evidencing the shares of other securities.
Item 6. Selected Financial Data.
The following selected consolidated statements of income data for the years
ended December 31, 1997, 1996, 1995 and 1994 and the balance sheet data as of
December 31, 1997, 1996 and 1995 are derived from the audited consolidated
financial statements of the Company. The statements of income data for the year
ended December 31, 1993 and the balance sheet data as of December 31, 1994 and
1993 are 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.
Fiscal Year Ended December 31,
-----------------------------------------
1997 1996 1995 1994 1993
-----------------------------------------
(in thousands, except per share data)
Consolidated Statements of
Income Data:
Product revenues $ 92,757 $ 78,815 $51,460 $ 27,537 $ 16,998
Contract revenues 9,120 9,846 8,712 7,223 6,070
----- ----- ----- ----- -----
Total revenues 101,877 88,661 60,172 34,760 23,068
Cost of revenues 48,684 41,231 29,723 17,739 2,655
------ ------ ------ ------ -----
Gross profit 53,193 47,430 30,449 17,021 10,413
Operating expenses:
Research and development 10,581 9,838 5,697 3,981 1,864
Selling, general and
administative 23,153 20,590 15,886 9,308 6,415
Non-recurring expenses 9,000(2) 2,000(1) 0 0 0
------- ------- ------ ------ ------
Total operating expenses 42,734 32,428 21,583 13,289 8,270
------ ------ ------ ------ ------
Operating income 10,459 15,002 8,866 3,732 2,134
Interest income (expense), net (328) 4 (357) (250) (338)
Other income (expense), net 233 18 (543) 3,769 123
------ ------ ------ ------- -----
Income before income taxes
and minority interest 10,364 15,024 7,966 7,251 1,919
Income taxes 5,941 3,158 2,888 1,728 1,138
----- ----- ----- ----- -----
Income before minority
interest 4,423 11,866 5,078 5,523 781
Minority interest (2) 151 10 12 269
------ ------ ----- ----- ----
Net income $4,421 $ 12,017(4)$5,088 $ 5,535(3)$1,050
====== ========== ====== ========= ======
Net income per share-
assuming dilution $ 0.24 $ 0.65(4)$ .30 $ 0.33(3)$ 0.07
====== ======== ====== ========= ======
Weighted average shares
outstanding-assuming
dilution 18,660 18,394 17,127 16,637 14,610
December 31,
-----------------------------------------
1997 1996 1995 1994 1993
-----------------------------------------
(in thousands)
Consolidated Balance Sheet Data:
Cash, cash equivalents and
marketable securities $ 29,011 $ 30,812 $ 33,818 $16,474 $ 14,765
Working capital 39,933 36,586 34,221 17,124 15,404
Total assets 103,146 93,191 78,590 40,995 29,518
Long-term debt, less current
portion 14,526 15,769 11,975 7,811 2,022
Minority interest 595 545 535 6 3,179
Total stockholders' equity 61,872 55,473 45,118 22,410 16,825
(1) 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.
(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) Net income and net income per share-assuming dilution in 1994 include a
non-recurring gain of approximately $3.6 million, or $0.22 per
share-assuming dilution, related to the restructuring of a joint venture
and costs incurred in the acquisition of Vector (as defined herein).
(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 $10.5 million and $0.57, respectively, for
the year ended December 31, 1996.
Item 7. Management' Discussion and Analysis of Financial Condition and
Results of Operations.
Overview
ATMI was incorporated in Delaware in 1997 and is the successor registrant
to ATM, which was incorporated in Connecticut in 1986 and reincorporated in
Delaware in 1987. The Company is a leading supplier of specialty thin film
materials and delivery systems, point-of-use environmental equipment and
epitaxial processing services for the semiconductor industry. Product revenues
include revenues from the sale of consumable thin film materials and materials
delivery systems, environmental equipment, consumable resins for effluent
abatement and processed epitaxial wafers. Product revenues are recognized upon
the shipment of those products. The Company also derives revenues from contract
research and development activities related to high performance semiconductor
materials and devices and from royalties generated under various license
agreements. Contract revenues are recognized using a percentage-of-completion
method based upon costs incurred and estimated future costs.
A substantial majority of ATMI's revenues track "wafer starts" within the
semiconductor industry, or the volume of silicon wafers processed into fully
functional semiconductor devices. These include revenues derived from the sale
of speciality thin film materials that are used in CVD processes and the
delivery systems for these materials. Manufacturers seek to replenish these
consumable materials on a continuing basis. Furthermore, once the Company's
specialty materials are qualified for a specific process, the Company's
customers typically source materials from the Company for the lifetime of the
process, generating a recurring revenue stream. Similarly, the Company derives a
recurring revenue stream from the sale of resins that are used in certain of its
environmental equipment products. Additionally, the Company's epitaxial wafer
processing services revenues are directly tied to the number of wafers processed
for the Company's customers. A smaller portion of ATMI's revenues, principally
those derived from environmental equipment sales, track new semiconductor plant
construction. In 1997, approximately 73% of the Company's product revenues were
from product lines that were primarily related to "wafer starts," while
approximately 27% of the Company's product revenues were from product lines that
were primarily related to "fab starts," or new plant construction. Because a
minority of its revenues are tied to fab starts, the Company believes that its
overall business is less volatile than that of a typical semiconductor equipment
supplier.
The Company's products are based primarily on proprietary and patented CVD
technologies used in the manufacture of semiconductor devices. The Company's
strategy has been to use these technologies to develop and, in conjunction with
industry collaborators, sequentially introduce products into high growth markets
of the semiconductor industry. Using this phased commercialization strategy, the
Company has been able to develop its core CVD technologies and establish
businesses to support further commercialization of its products. The Company has
also used a targeted acquisition strategy to assist in building critical mass
and market position in each of the markets it serves.
ADCS comprises the thin film materials and related delivery system products
of the Company and contributed approximately 45% of consolidated revenues in
1997. The Company entered the thin film materials market in February 1992 with a
strategy targeting advanced materials for next-generation devices. As those
next-generation markets were evolving and ATMI's new thin film materials were
nearing commercialization, the Company sought to accelerate this
commercialization by acquiring another supplier currently serving this market
with established products and strong distribution and manufacturing
capabilities. In October 1997, the Company acquired the ADCS Group, a
manufacturer and distributor of ultrahigh purity semiconductor thin film
materials and related delivery systems, and combined the Company's thin film
materials and delivery systems business with the business of the ADCS Group.
EcoSys manufactures, sells and services point-of-use semiconductor
environmental equipment and generated approximately 27% of the Company's
consolidated revenues in 1997. The Company entered the semiconductor
environmental equipment market in 1989 with the introduction of its Novapure dry
chemical scrubber. This product was originally designed pursuant to a contract
with the Environmental Protection Agency. In 1991, this product and several
others resulting from early stage research and development efforts at the
Company were contributed to Novapure Corporation ("Novapure"), a joint venture
with Millipore Corporation ("Millipore"). In 1994, the Company acquired Vector
Technical Group, Inc. ("Vector"), a manufacturer of liquid and combustion
semiconductor environmental equipment. In conjunction with the sale of certain
product lines of Novapure to Millipore in 1994, the Company formed EcoSys by
combining the retained rights to the effluent treatment product line of Novapure
with Vector's product lines. In 1995, the Company acquired the Guardian Systems
product line of combustion semiconductor environmental equipment to further
broaden EcoSys' product offerings.
Epitronics provides end-use customers with thin film epitaxial services
covering a variety of materials in the semiconductor industry and generated
approximately 28% of the Company's consolidated revenues in 1997. The Company's
development of epitaxial processes began in 1987, centered around novel wide
bandgap semiconductor materials such as silicon carbide. Through discussions
with its customers and development collaborators, the Company recognized that an
opportunity existed to create a materials company that could offer epitaxial
services for a wide spectrum of semiconductor materials. To complement its
silicon carbide and gallium nitride epitaxial thin film technology, the Company
acquired Epitronics Corporation, a Phoenix, Arizona-based processor of III-V
epitaxial wafers for the wireless and optoelectronics markets in December 1995.
The Company integrated the operations of Epitronics Corporation with its Diamond
Electronics division in 1996, under the more widely recognized Epitronics name.
In October 1997, ATMI acquired LSL, a Mesa, Arizona-based provider of silicon
epitaxial wafer processing services. ATMI has integrated the operations of LSL
with Epitronics, which now offers a wide spectrum of epitaxial services.
The acquisitions of Vector, the ADCS Group and LSL have been accounted for
as pooling-of-interests transactions. As a result, the Consolidated Financial
Statements of the Company have been restated to include the results of Vector,
the ADCS Group and LSL for all periods presented.
On February 20, 1998, the Company announced that it had entered into a
definitive merger agreement with NOW Technologies, pursuant to which NOW
Technologies would become a wholly-owned subsidiary of the Company. While the
exact number of shares of Common Stock to be issued by the Company to the
shareholders of NOW Technologies will not be determined until the third trading
day prior to the closing, the number of shares to be issued will range from 1.32
million to 1.59 million (excluding shares issuable upon exercise of outstanding
options). The merger is intended to be treated as a tax-free reorganization and
to be accounted for as a pooling of interests. For the twelve months ended
December 31, 1997, NOW Technologies had total revenues of approximately $15.0
million. There can be no assurance that this transaction will be completed.
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:
Percentage of Total Revenues
Fiscal Year Ended December 31,
------------------------------
1997 1996 1995
---- ---- ----
Product revenues 91.0% 88.9% 85.5%
Contract revenues 9.0 11.1 14.5
--- ---- ----
Total revenues 100.0 100.0 100.0
Cost of revenues 47.8 46.5 49.4
---- ---- ----
Gross profit 52.2 53.5 50.6
Operating expenses:
Research and development 10.4 11.1 9.5
Selling, general and administrative 22.7 23.2 26.4
Non-recurring expenses 8.8 2.3 0.0
--- --- ---
Total operating expenses 41.9 36.6 35.9
---- ---- ----
Operating income 10.3 16.9 14.7
Interest income (expense), net (0.3) 0.0 (0.6)
Other income (expense), net 0.2 0.0 (0.9)
--- --- ----
Income before income taxes and minority interest 10.2 16.9 13.2
Income taxes 5.8 3.6 4.8
--- --- ---
Income before minority interest 4.3 13.4 8.4
Minority interest 0.0 0.2 0.0
--- --- ---
Net income 4.3% 13.6% 8.5%
=== ==== ===
Comparison of Fiscal Years Ended December 31, 1997, 1996 and 1995
Revenues. Total revenues increased 15% to $101.9 million in 1997 from $88.7
million in 1996, and increased 47% in 1996 from $60.2 million in 1995. Product
revenues increased 18% to $92.8 million in 1997 from $78.8 million in 1996, and
increased 53% in 1996 from $51.5 million in 1995. Commercial product revenues
have grown rapidly, such that they comprised 91.0% of total revenues in 1997
compared to 88.9% in 1996 and 85.5% in 1995.
Over the three year period, ADCS revenues grew at a rate in excess of the
growth rate of the semiconductor industry. ADCS revenues increased 41% in 1997
when compared to 1996. This growth was primarily attributable to a substantial
increase in SDS product sales as well as the conversion of SDS revenues in the
fourth quarter of 1996 from a royalty stream to a product revenue stream. ADCS
thin film materials revenues increased 17% in 1997 when compared to 1996. This
materials revenue growth included sales to new customers as well as increased
sales to existing accounts. Revenues from the sale of materials delivery
equipment increased only 2% when comparing the two periods, due primarily to a
shift away from an OEM distribution channel to a direct sales channel where,
particularly in the second quarter of 1997, the OEM equipment orders slowed in
advance of any increase in end-user orders.
Sales of materials and delivery systems increased 42% in 1996 when compared
to 1995. This growth was primarily due to market share gains in Europe and Asia
along with increased sales to existing customers. Increased acceptance of the
Company's delivery and refill hardware systems also generated revenue growth
over this period.
The SDS product line began to have a significant impact on the Company's
revenue growth in 1996. The revenue from this product line changed in late 1996
from a royalty stream to a product revenue stream. As a result, sales of this
product represented 5.0% of total revenues in 1996, up from 1.5% of total
revenues in 1995.
By leveraging its technology leadership and full service philosophy in the
market for semiconductor environmental equipment, EcoSys increased market share
in the face of a declining overall capital equipment market in 1996 and the
first half of 1997. EcoSys revenues increased 9% in 1997 when compared to 1996
and increased 48% in 1996 when compared to 1995. The 1997 increase was
attributable to a slight increase in equipment sales and continued growth in
sales of consumable resins. The December 1995 acquisition of the Guardian
Systems product line, which was accounted for as a purchase transaction, was
responsible for a portion of the revenue growth in 1996.
Epitronics revenues increased 2% in 1997 when compared to 1996. Growth in
the smaller gallium arsenide and wide bandgap product lines was tempered by a
slight increase in silicon epitaxial services revenues. The relative flatness in
silicon epi revenues was primarily a result of production downtime associated
with the relocation of manufacturing equipment to the Company's new Mesa,
Arizona facility, which was completed in July 1997. Additionally, a diversion of
management's attention during early 1997 related to the negotiation and sale of
the silicon epi business to ATMI had a slight negative effect on revenue growth
during that period. Prior to 1997, Epitronics revenues had grown significantly,
driven primarily by increased customer demand for the silicon processing
services of the Company. Epitronics revenues increased 50% in 1996 when compared
to 1995.
Contract revenues decreased 7% to $9.1 million, or 9.0% of total revenues,
in 1997 from $9.8 million, or 11.1% of total revenues, in 1996. The decline in
1997 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
specific, commercially relevant efforts. General increases in government funding
of ATMI research resulted in the growth of contract revenues in previous years.
Government funding increased 13% to $9.8 million in 1996 from $8.7 million in
1995. The increased research funding in 1996 was primarily focused on materials
development, device processing and device design activities within ADCS and
Epitronics.
Gross Profit. Cost of revenues is comprised of material, labor and overhead
in differing proportions, depending on the business unit within the Company.
EcoSys' cost of revenues consists primarily of material costs, while ADCS' costs
have a higher relative labor content and Epitronics' costs consist primarily of
indirect costs of maintaining an epi facility. Additionally, contract revenue
costs consist of direct labor and material and indirect costs associated with
the performance of government contracted research activity.
Gross profit increased 12% to $53.2 million in 1997 from $47.4 million in
1996. Gross margin decreased to 52.2% of revenues in 1997 from 53.5% of revenues
in 1996. Gross margin on product revenues decreased to 56.0% in 1997 from 58.3%
in 1996. The decrease of product margins was primarily attributable to lower
margins in the silicon epi business due to 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.
Gross profit increased 56% to $47.4 million in 1996 from $30.4 million in
1995 and gross margin improved to 53.5% of revenues in 1996 from 50.6% of
revenues in 1995. In 1996, ATMI's sales mix continued to shift toward greater
volumes of high-margin products. Gross margin on product revenues increased 57%
to $45.9 million in 1996 from $29.2 million in 1995. Product gross margin
improved to 58.3% of product revenues in 1996, up from 56.8% of product revenues
in 1995. The improved product margins in 1996 were attributable primarily to
higher margins on epitaxial processing due to efficiencies gained with increased
volume and to the significant increases in royalties in connection with SDS
product line growth. Gross profit on contract revenues increased 23% to $1.5
million in 1996 from approximately $1.2 million in 1995, while gross margin on
contract revenues increased to 15.3% in 1996 from 14.0% in 1995. Contract
margins can vary from year to year based on the mix of cost-type, fixed-price
and cost sharing arrangements. Additionally, different fee arrangements and
indirect cost absorption can result in some margin variability.
Research and Development Expenses. Research and development expenses
consist of personnel and other indirect costs for internally funded product
development. These expenses are complemented by the externally funded research
activities relating to contract revenues. Research and development expenses
increased 8% to $10.6 million in 1997 from $9.8 million in 1996, and increased
73% in 1996 from $5.7 million in 1995. The 1997 increase was primarily due to
increased staffing for several development efforts pertaining to certain of the
Company's advanced thin film technology and related applications. The 1996
increase was primarily due to expansion of product development efforts within
EcoSys and ADCS and increased spending to expand and protect the SDS technology
portfolio. Research and development expenses as a percentage of revenues
decreased to 10.4% in 1997, compared with 11.1% in 1996, which was an increase
from 9.5% in 1995. The percentage of research and development expenses to
revenues is expected to remain relatively constant in the foreseeable future.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased 12% to $23.2 million in 1997 from $20.6
million in 1996, and increased 30% in 1996 from $15.9 million in 1995. The
increases were primarily due to increased corporate administrative costs,
increased commissions on higher product revenues and increased product marketing
activity. ATMI's variable selling costs grew in 1996 in line with the Company's
revenue growth. ATMI also added administrative staff in 1996 to support revenue
growth and incurred increased costs related to the businesses acquired in 1995.
Selling, general and administrative expenses as a percentage of revenues
decreased to 22.7% in 1997, compared with 23.2% in 1996 and 26.4% in 1995.
Non-Recurring Expenses. The 1997 operating results included a one-time,
non-recurring charge of $9.0 million related to the costs incurred in
investigating, analyzing and completing the ADCS Group and LSL acquisitions.
These costs included legal, accounting and investment banking fees as well as
miscellaneous expenses incurred in connection with the transactions that closed
in the fourth quarter of 1997. The 1996 operating results included a one-time
charge of $2.0 million accrued in connection with patent litigation involving
LSL, which resulted in a settlement payment in May 1997.
Interest Income (Expense), Net. Interest income is primarily derived from
interest earned on the Company's cash, cash equivalents and marketable
securities. Interest income decreased 10% to $1.5 million in 1997 from $1.6
million in 1996, and increased 70% in 1996 from $1.0 million in 1995. The
Company's invested cash balances were lower in 1997 than in 1996 due to net cash
outflow during the year, primarily from the costs incurred in closing the ADCS
Group and LSL acquisitions in the fourth quarter of 1997. The increase in
interest income in 1996 was due to the Company's invested cash balances
throughout 1996 being significantly higher than in 1995 due to the Company's
public offering of common stock in October 1995. Interest expense increased 11%
to $1.8 million in 1997 from $1.6 million in 1996, and increased 24% in 1996
from $1.3 million in 1995. The 1997 increase was due to larger debt balances
outstanding during 1997, while the 1996 increase was primarily attributable to
increased borrowings under capital lease commitments at Epitronics as well as
the mortgage on the Mesa, Arizona facility.
Income Taxes. ATMI's income tax expense related to United States federal
and state taxes on income generated, partially offset by the utilization of loss
carryforwards and available federal and state tax credits. Income tax expense
increased 88% to $5.9 million in 1997 from $3.2 million in 1996, and increased
9% in 1996 from $2.9 million in 1995. The effective income tax rate increased to
57.3% in 1997 from 21.0% in 1996 and decreased from 36.3% in 1995. 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 has been
taken. The decline in the effective rate in 1996 was the result of the ADCS
Group's being taxed as an S-Corporation for a portion of 1996. The Company
expects the effective tax rate to approach fully taxed rates in 1998.
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, decreased 63%
to $0.24 per share in 1997 from $0.65 per share in 1996, and increased 117% in
1996 from $0.30 per share in 1995. However, after adjusting earnings to exclude
the non-recurring charges recognized in 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, increased 13% to $0.72 per
share in 1997 from $0.64 per share in 1996, and increased 113% in 1996 from
$0.30 per share in 1995.
Basic earnings per share under Financial Accounting Standards Board
Statement No. 128 ("FAS 128") decreased 63% to $0.26 per share in 1997 from
$0.70 per share in 1996, and increased 119% in 1996 from $0.32 per share in
1995.
Liquidity and Capital Resources
To date, the Company has financed its activities through the sale of
equity, external research and development funding, various lease and debt
instruments and operations. The Company's working capital increased to $39.9
million at December 31, 1997 from $36.6 million at December 31, 1996.
In 1997, operations provided cash of approximately $5.9 million. Working
capital increases, most notably in accounts receivable, inventory and other
assets, resulted in significant uses of cash during 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 remained unpaid at December 31, 1997. Net cash
generated from operations in 1996 of approximately $13.3 million was due
principally to the increased profitability of the Company for the year. In 1995,
ATMI generated net cash from operations of $7.2 million, primarily due to the
profitability of operations, which was offset by a significant increase in
accounts receivable because of end-of-the-year product shipments.
The Company's investing activities included capital expenditures of $6.3
million, $11.6 million and $6.3 million in 1997, 1996 and 1995, respectively.
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. In addition, the Company anticipates
the purchase of a reactor for $2.5 million in 1998. 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. Capital
expenditures in 1995 were for renovations and leasehold improvements to the
Company's Danbury and San Jose, California facilities, upgrades to the Company's
information systems and purchases of laboratory equipment.
Among other investing activities, the Company sold $0.8 million in
marketable securities in 1997, while in 1996, ATMI sold $3.6 million in
marketable securities and made a $4.0 million payment in connection with the
1995 acquisition of the Guardian Systems product line. During 1995, ATMI made a
$1.0 million investment in Candescent Technologies Corporation (formerly Silicon
Video Corporation) in conjunction with a joint development program, and
purchased $11.2 million of marketable securities with the proceeds received from
the 1995 public offering of common stock.
As of December 1997, ATMI has financed a significant portion of its capital
equipment purchases, particularly the silicon epitaxial capacity currently in
place, through capital leases with approximately $8.9 million of capital lease
obligations outstanding. Financial institutions have also provided
collateral-based loans for other equipment purchases, and approximately $6.1
million of notes payable to commercial banks was outstanding as of December 31,
1997. In addition, the State of Connecticut has extended loans of $1.8 million
to assist in the renovation of the Company's Danbury facility. At December 31,
1997, $2.0 million remained outstanding on a promissory note related to the
Company's 1995 acquisition of the Guardian Systems product line. At December 31,
1997, $19.9 million of loans and financing remained outstanding. Management
believes that its debt service obligations can be adequately satisfied by cash
flows from operations.
ATMI believes the proceeds from the sale of Common Stock currently being
offered, in combination with 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 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. Other than the proposed acquisition of NOW Technologies, there
are no present understandings, commitments or agreements with respect to any
such acquisition. However, any such transaction may affect ATMI's future capital
needs.
Operations Outside the United States
In the years ended December 31, 1997, 1996 and 1995, sales outside the
United States, including Asia and Europe, accounted for 21.9%, 28.9%, and 25.5%,
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 entered into 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
The Company is aware of the issues associated with the programming code in
existing computer systems as the year 2000 approaches. The "Year 2000" problem
is pervasive and complex, as virtually every computer operation will be affected
in the same way by the rollover of the two digit year value to 00. The issue is
whether computer systems will properly recognize date sensitive information when
the year changes to 2000. Systems that do not properly recognize such
information could generate erroneous data or cause a system to fail.
The Company is utilizing both internal and external resources to identify,
correct or reprogram, and test its systems for Year 2000 compliance. It is
anticipated that all reprogramming efforts will be complete by December 31,
1998, allowing adequate time for testing. This process includes obtaining
confirmations from the Company's primary vendors that plans are being developed
or are already in place to address processing of transactions in the year 2000.
However, there can be no assurance that the systems of other companies on which
the Company's systems rely also will be converted in a timely fashion or that
any such failure to convert by another company would not have an adverse effect
on the Company's systems. Management is in the process of completing its
assessment of the Year 2000 compliance costs. However, based on currently
available information (excluding the possible impact of vendor systems which
management currently is not in a position to evaluate), management does not
believe that these costs will have a material effect on the Company's earnings.
Cautionary Statement for Purposes of the "Safe Harbor" Provisions
of the Private Securities Litigation Reform Act of 1995
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 and semiconductor industry and market segment growth. 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, and technological changes
affecting the competencies of ATMI. 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.
Not applicable.
Item 8. Financial Statements and Supplementary Data.
The Report of Independent Auditors, the consolidated financial statements
and 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 20, 1998 ("1998 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 1998 Proxy Statement.
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 1998
Proxy Statement.
Item 13. Certain Relationships and Related Transactions.
Information regarding certain transactions of ATMI is incorporated by
reference herein to the 1998 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-3 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.
(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 toAdvanced
Technology Materials, Inc. Quarterly Report on Form 10-Qfor the quarter ended
June 30, 1997, File No. 0-22756 ("June 30, 1997Form 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 "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)
3.02
Bylaws of ATMI (Exhibit 3.02 to the Form S-4 Registration Statement). (1)
4.01
Specimen of the ATMI's Common Stock Certificate (Exhibit 4.01 to the 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)
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 Duncan W. Brown and Advanced Technology
Materials, Inc. dated October 10, 1997 (Exhibit 10.03 to the Form S-1
Registration Statement). (1)
10.04
Employment Agreement between James M. Burns and Advanced Technology
Materials, Inc. dated December 31, 1996 (Exhibit 10.04 to the Form S-1
Registration Statement). (1)
10.05
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)
10.06
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)
10.07
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 for the
year ended December 31, 1994, File No. 0-22756 ("1994 Form 10-K")). (1)
10.08(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). (1)
10.08(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)
10.09
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)
10.10(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)
10.10(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 Price Waterhouse LLP. (2)
27.01
Financial data schedule. (2)
(1) Incorporated by reference.
(2) Filed herewith.
b) Reports on Form 8-K
On October 10, 1997, the Company filed a Current Report on Form 8-K dated
October 10, 1997 reporting in Item 2 thereof the consummation of a
reorganization of the Company, pursuant to which ATM became a wholly-owned
subsidiary of the Company, and the acquisitions of the ADCS Group and LSL.
On December 18, 1997, the Company filed Form 8-K/A (Amendment No.1) to Form
8-K previously filed on October 10, 1997.
F-3
ATMI, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE
Page
----
Report of Ernst & Young LLP F-2
Report of Price Waterhouse LLP F-3
Financial Statements
Consolidated Balance Sheets F-4
Consolidated Statements of Income F-5
Consolidated Statements of Stockholders' Equity F-6
Consolidated Statements of Cash Flows F-7
Notes to Consolidated Financial Statements F-8
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, 1997 and 1996, and the related consolidated statements of
income, stockholders' equity and cash flows for each of the three years in the
period ended December 31, 1997. 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 or Valuation and Qualifying
Accounts schedule data of Lawrence Semiconductor Laboratories, Inc., a wholly
owned subsidiary, as of December 31, 1996 and for the two years then ended.
These financial statements reflect total assets constituting 33% at December 31,
1996, and total revenues constituting 23% and 24%, respectively, for each of the
two years in the period ended December 31, 1996 and were audited by other
auditors whose report has been furnished to us, and our opinion, insofar as it
relates to data included for Lawrence Semiconductor Laboratories, Inc. for the
periods indicated above, is based solely on the report of the 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 report of other auditors provide a reasonable
basis for our opinion.
In our opinion, based on our audits and the report 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, 1997 and 1996, and the consolidated results of its operations and its cash
flows for each of the three years in the period ended December 31, 1997, 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 11, 1998
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
of Lawrence Semiconductor Laboratories, Inc. and Affiliate
In our opinion, the combined balance sheet and the related 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 financial position of Lawrence
Semiconductor Laboratories, Inc. and Affiliate at December 31, 1996, and the
results of their operations and their cash flows for each of the two years in
the period 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 audits. We conducted our audits 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 audits provide 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
ATMI, INC.
CONSOLIDATED BALANCE SHEETS
December 31,
1997 1996
---- ----
ASSETS
Current assets:
Cash and cash equivalents (Note 1) $11,550,000 $12,574,000
Marketable securities (Notes 1 and 2) 17,461,000 18,238,000
Accounts receivable, net of allowance for
doubtful accounts of $405,000 in 1997, and
$361,000 in 1996 (Note 3) 19,784,000 13,804,000
Notes and other receivables (Note 3) 1,197,000 2,933,000
Inventories (Notes 1 and 4) 7,717,000 6,503,000
Other 2,873,000 1,984,000
--------- ---------
Total current assets 60,582,000 56,036,000
Property and equipment, net (Notes 1 and 5) 36,032,000 30,660,000
Goodwill and other long-term assets, net
(Notes 1 and 10) 6,532,000 6,495,000
--------- ---------
$103,146,000 $93,191,000
============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable, current portion (Note 6) $ 2,655,000 $ 2,059,000
Capital lease obligations, current portion (Note 7) 2,671,000 1,837,000
Accounts payable 4,977,000 5,219,000
Accrued expenses 6,436,000 4,226,000
Accrued commissions 2,113,000 1,379,000
Accrued litigation settlement (Note 11) - 2,000,000
Income taxes payable (Note 8) 1,078,000 741,000
Deferred income taxes (Note 8) 719,000 1,989,000
------- ---------
Total current liabilities 20,649,000 19,450,000
Notes payable, less current portion (Note 6) 8,288,000 10,342,000
Capital lease obligations (Note 7) 6,238,000 5,427,000
Deferred income taxes (Note 8) 4,829,000 1,873,000
Other long-term liabilities 675,000 81,000
Minority interest 595,000 545,000
Stockholders' equity (Note 9):
Preferred stock, par value $.01: 2,000,000 shares
authorized; none issued and outstanding - -
Common stock, par value $.01: 30,000,000 shares
authorized; Issued 18,149,676 in 1997, and
17,873,128 in 1996 181,000 179,000
Additional paid-in capital 40,451,000 37,431,000
Cumulative translation adjustment (1,099,000) (55,000)
Retained earnings 22,339,000 17,918,000
---------- ----------
Total stockholders' equity 61,872,000 55,473,000
---------- ----------
$103,146,000 $93,191,000
============ ===========
See accompanying notes.
ATMI, INC.
CONSOLIDATED STATEMENTS OF INCOME
Year Ended December 31,
--------------------------------------------
1997 1996 1995
--------------------------------------------
Revenues (Note 1):
Product revenues $ 92,757,000 $ 78,815,000 $ 51,460,000
Contract revenues 9,120,000 9,846,000 8,712,000
--------- --------- ---------
Total revenues 101,877,000 88,661,000 60,172,000
Cost of revenues:
Cost of product revenues 40,817,000 32,890,000 22,232,000
Cost of contract revenues 7,867,000 8,341,000 7,491,000
--------- --------- ---------
Total cost of revenues 48,684,000 41,231,000 29,723,000
---------- ---------- ----------
Gross profit 53,193,000 47,430,000 30,449,000
Operating expenses:
Research and development
(Note 1) 10,581,000 9,838,000 5,697,000
Selling, general and
administrative 23,153,000 20,590,000 15,886,000
Non-recurring expenses
(Notes 10 and 11) 9,000,000 2,000,000 --
--------- --------- ----------
42,734,000 32,428,000 21,583,000
---------- ---------- ----------
Operating income 10,459,000 15,002,000 8,866,000
Interest income 1,482,000 1,639,000 963,000
Interest expense (Note 6) (1,810,000) (1,635,000) (1,320,000)
Other income (expense), net 233,000 18,000 (543,000)
---------- ---------- ----------
Income before taxes and minority
interest 10,364,000 15,024,000 7,966,000
Income taxes (Note 8) 5,941,000 3,158,000 2,888,000
--------- --------- ---------
Income before minority interest 4,423,000 11,866,000 5,078,000
Minority interest (2,000) 151,000 10,000
--------- ---------- ---------
Net income $ 4,421,000 $ 12,017,000 $ 5,088,000
============= ============= =============
Net income per share-basic
(Notes 1 and 9) $ 0.26 $ 0.70 $ 0.32
============= ============= =============
Net income per share-assuming
dilution (Notes 1 and 9) $ 0.24 $ 0.65 $ 0.30
============= ============= =============
Weighted average shares
outstanding(Notes 1 and 9) 17,288,000 17,266,000 16,040,000
========== ========== ==========
Weighted average shares
outstanding-assuming dilution
(Notes 1 and 9) 18,660,000 18,394,000 17,127,000
========== ========== ==========
See accompanying notes.
ATMI, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Additional Cumulative
Common Paid-in Translation Retained
Stock Capital Adjustment Earnings Total
-------- ---------- ----------- ---------- ---------
Balance at
December 31, 1994 $161,000 $19,644,000 $ - $2,605,000 $22,410,000
Issuance of 137,571
common shares
pursuant to the
exercise of
employee stock
options 1,000 183,000 - - 184,000
Sale of 1,525,000
common shares, net
of issuance costs
of $1,489,000 16,000 17,177,000 - - 17,193,000
Issuance of 20,000
common shares
pursuant to the
acquisition of
Epitronics - 203,000 - - 203,000
Compensation from
the issuance of
common stock
options - 50,000 - - 50,000
Cumulative
translation
adjustment - - (10,000) - (10,000)
Net income - - - 5,088,000 5,088,000
------ --------- -------- --------- ---------
Balance at
December 31, 1995 178,000 37,257,000 (10,000) 7,693,000 45,118,000
Issuance of 54,199
common shares
pursuant to the
exercise of employee
stock options 1,000 174,000 - - 175,000
Distributions to
stockholders - - - (1,792,000) (1,792,000)
Cumulative translation
adjustment - - (45,000) - (45,000)
Net income - - - 12,017,000 12,017,000
------- ---------- -------- ---------- ----------
Balance at
December 31, 1996 179,000 37,431,000 (55,000) 17,918,000 55,473,000
Issuance of 82,520
common shares
pursuant to the
exercise of employee
stock options - 411,000 - - 411,000
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
Cumulative translation
adjustment - - (1,044,000) - (1,044,000)
Net income - - - 4,421,000 4,421,000
-------- ---------- --------- ---------- -----------
Balance at
December 31, 1997 $181,000 $40,451,000 $(1,099,000)$22,339,000 $61,872,000
========= =========== =========== ========== ===========
See accompanying notes.
ATMI, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended December 31,
-----------------------------------------
1997 1996 1995
-----------------------------------------
Operating activities
Net income $ 4,421,000 $ 12,017,000 $ 5,088,000
Adjustments to reconcile
net income to net cash
provided by operating
activities:
Depreciation and
amortization 5,274,000 4,678,000 3,179,000
Stock compensation 243,000 - 50,000
Bad debt expense 365,000 191,000 16,000
Deferred income taxes 1,686,000 1,205,000 1,160,000
Loss on sale/leaseback
of equipment - - 542,000
Minority interest in
net earnings of
subsidiaries 2,000 (151,000) (10,000)
Changes in operating
assets and liabilities
Increase in accounts
and notes receivable (4,609,000) (2,031,000) (5,505,000)
Increase in inventory (1,214,000) (4,415,000) (830,000)
Increase in other
assets (1,881,000) (186,000) (249,000)
Increase (decrease)
in accounts payable (242,000) 313,000 1,341,000
Increase in accrued
expenses 944,000 3,350,000 1,062,000
Increase (decrease)
in other liabilities 931,000 (1,701,000) 1,352,000
--------- ---------- ---------
Total adjustments 1,499,000 1,253,000 2,108,000
--------- --------- ---------
Net cash provided by
operating
activities 5,920,000 13,270,000 7,196,000
--------- ---------- ---------
Investing activities
Capital expenditures (6,256,000) (11,591,000 (6,328,000)
Long-term investment (250,000) - (1,000,000)
Sale (purchase) of marketable
securities, net 777,000 3,617,000 (11,213,000)
Advances to LSL stockholder
on notes receivable - (286,000) (256,000)
Payments for acquisitions - (4,000,000) (550,000)
Proceeds from sale of assets - 619,000 384,000
--------- --------- ----------
Net cash used by
investing
activities (5,729,000) (11,641,000) (18,963,000)
---------- ----------- -----------
Financing activities
Proceeds from issuance
of notes payable 141,000 4,447,000 3,226,000
Principal payments on
notes payable (1,599,000) (2,553,000) (1,933,000)
Distribution to ADCS
stockholders - (1,792,000) -
Repayment of amounts
borrowed - (135,000) (235,000)
Payments on capital
lease obligations (2,447,000) (1,274,000) (995,000)
Proceeds from sale of
common stock, net - - 17,193,000
Investment by minority
stockholder 48,000 161,000 539,000
Tax benefit of nonqualified
stock options 678,000 - -
Proceeds from exercise of
stock options and warrants 2,101,000 174,000 113,000
--------- ------- -------
Net cash provided
(used) by financing
activities (1,078,000) (972,000) 17,908,000
---------- -------- ----------
Effects of exchange rate
changes on cash (137,000) (45,000) (10,000)
-------- ------- -------
Net increase (decrease)
in cash and cash equivalents (1,024,000) 612,000 6,131,000
Cash and cash equivalents,
beginning of year 12,574,000 11,962,000 5,831,000
---------- ---------- ---------
Cash and cash equivalents,
end of year $ 11,550,000 $ 12,574,000 $ 11,962,000
============ ============ ============
See accompanying notes.
ATMI, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
Basis of Presentation
Advanced Technology Materials, Inc. underwent a reorganization involving
the creation of a new holding company (ATMI, Inc. the successor registrant of
Advanced Technology Materials, Inc.) by means of a merger resulting in the prior
registrant becoming a wholly-owned subsidiary of the holding company. In
addition, these statements give retroactive effect to the acquisitions of
Advanced Delivery & Chemical Systems Nevada, Inc. and related entities (the
"ADCS Group") and Lawrence Semiconductor Laboratories, Inc. and affiliate
("LSL") which have been accounted for using the pooling-of-interests method.
Both of these acquisitions occurred on October 10, 1997, as part of the
consummation of the transactions 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 based on chemical vapor deposition ("CVD") technology.
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, and specialty epitaxial thin
film deposition services.
Principles of Consolidation
The consolidated financial statements include the accounts of ATMI, Inc.
and all wholly and majority owned subsidiaries. All significant intercompany
accounts and transactions have been eliminated in consolidation.
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 incurred. Revenues under fixed-price contracts from the U.S.
Government were $3,708,000, $4,046,000, and $4,542,000 for the years ended
December 31, 1997, 1996, 1995, respectively. Revenues under
cost-reimbursement-type contracts from the U.S. Government were $5,412,000,
$5,800,000, and $4,170,000 for the years ended December 31, 1997, 1996, 1995,
respectively.
ATMI, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
1. Summary of Significant Accounting Policies (continued)
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 and cost-sharing arrangements with the U.S.
Government, are expensed as incurred.
Cash and Cash Equivalents
The Company considers all highly liquid investments with a maturity of
three months or less when purchased to be cash equivalents.
Marketable Securities
Marketable securities are classified as available for sale and are reported
at fair value, which approximates cost. Management determines the appropriate
classification of debt securities at the time of purchase and reevaluates such
designation as of each balance sheet date. The cost of securities sold is based
on the specific identification method. Interest on these securities is included
in interest income.
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.
ATMI, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-Continued)
1. Summary of Significant Accounting Policies (continued)
Foreign Currency Translation
Adjustments relating to the translation of foreign currency to U.S. dollars
are reported as a separate component of stockholders' equity. Gains or losses
resulting from foreign currency transactions are included in other income
(expense) and are immaterial.
Taxes
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes" (FAS 109).
Under FAS 109, the liability method is used in accounting for income taxes.
Under this method, deferred tax assets and liabilities are determined based upon
differences between financial reporting and tax basis of assets and liabilities
and are measured using the enacted tax rates and laws that will be in effect
when the differences are expected to reverse.
Fair Values of Financial Instruments
The Company's financial instruments include cash and cash equivalents,
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, 1997, no such
impairment existed. Goodwill and other long-term assets are stated net of
accumulated amortization of $585,000, and $293,000 at December 31, 1997 and
1996, 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.
ATMI, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-Continued)
1. Summary of Significant Accounting Policies (continued)
Per Share Data
In 1997, the Financial Accounting Standards Board (FASB) issued SFAS No.
128, "Earnings per Share," which was adopted in the fourth quarter of 1997. This
new rule changes the way earnings per share is calculated and requires
restatement of all reported prior period amounts. Under the new requirements,
basic earnings per share is calculated by dividing net earnings by the
weighted-average number of common shares outstanding during the period. The
diluted earnings per share computation includes the effect of shares which would
be issuable upon the exercise of outstanding stock options, reduced by the
number of shares which are assumed to be purchased by the Company from the
resulting proceeds at the average market price during the period.
New Accounting Pronouncements
During 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income"
and SFAS No. 131. "Disclosures about Segments of an Enterprise and Related
Information." SFAS No. 130 is effective for the first quarter of 1998, while
SFAS No. 131 is effective for the year-end financial reporting in 1998 and on an
interim basis thereafter. Both of these pronouncements require additional
disclosures, but the Company expects no material impact upon adoption.
2. Marketable Securities
Marketable securities are comprised of the following:
December 31,
-------------------------------
1997 1996
----------- -------------
Corporate obligations $10,590,000 $ 7,431,000
U.S. Government obligations 6,407,000 9,538,000
Certificates of deposit 464,000 1,269,000
----------- -----------
$17,461,000 $18,238,000
=========== ===========
All of the Company's marketable securities have maturities of less than two
years.
ATMI, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS0-(Continued)
3. Accounts and Notes Receivable
Amounts due from various agencies of the U.S. Government were approximately
$2,619,000, and $2,063,000 of accounts receivable at December 31, 1997 and 1996,
respectively. Unbilled accounts receivable were $1,019,000, and $757,000, and
customer advances, included in other liabilities, were $612,000, and $276,000 at
December 31, 1997 and 1996, respectively.
Notes receivable from a stockholder assumed in the LSL transaction
represents advances which bear interest at 8% and are due upon demand. The
balances at December 31, 1997, and 1996 were $1,197,000, and $1,099,000,
respectively and included accrued interest of $196,000, and $126,000
respectively. Interest income on the notes totaled $70,000, $56,000, and $32,000
in the years ended December 31, 1997, 1996, and 1995, 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.
4. Inventories
Inventories are comprised of the following:
December 31,
--------------------------------
1997 1996
----------- -----------
Raw materials $ 6,682,000 $ 5,538,000
Work in process 946,000 687,000
Finished goods 1,074,000 937,000
--------- ---------
8,702,000 7,162,000
Obsolescence reserve (985,000) (659,000)
--------- ---------
$ 7,717,000 $ 6,503,000
=========== ===========
ATMI, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
5. Property and Equipment
Property and equipment is comprised of the following:
December 31,
--------------------------------
1997 1996
------------ ------------
Land $ 1,323,000 $ 1,751,000
Buildings 7,243,000 4,947,000
Machinery and equipment 40,963,000 33,646,000
Furniture and fixtures 1,590,000 1,157,000
Leasehold improvements 4,494,000 3,788,000
------------ -----------
55,613,000 45,289,000
Accumulated depreciation and
amortization (19,581,000) (14,629,000)
----------- -----------
$ 36,032,000 $ 30,660,000
============ ============
Depreciation expense for the years ended December 31, 1997, 1996 and 1995,
was $4,976,000, $4,277,000, and $3,104,000, respectively.
6. Notes Payable
Notes payable consist of the following:
December 31,
---------------------------
1997 1996
----------- ------------
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-June 2002 1,713,000 1,800,000
Equipment credit line with a commercial bank,
bearing interest at 9%, due through
June 2000 1,128,000 1,701,000
Notes payable with commercial banks and leasing
companies, bearing interest ranging
between 7.3%-12.42%, due between
April 1997- February 2009 6,102,000 6,835,000
Other notes payable - 65,000
---------- ----------
10,943,000 12,401,000
Less current portion (2,655,000) (2,059,000)
---------- ----------
$ 8,288,000 $ 10,342,000
============ ============
ATMI, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
6. Notes Payable (continued)
The approximate aggregate debt maturities are as follows as of December 31,
1997:
1998 $ 2,655,000
1999 2,113,000
2000 1,111,000
2001 1,442,000
2002 340,000
Thereafter 3,282,000
----------
$10,943,000
===========
The term loans of $1,713,000 are collateralized by various equipment,
leasehold improvements and renovations in the Company's Connecticut facility.
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
or has obtained waivers for the credit line covenants, including maintaining
certain liquidity, leverage, and tangible net worth levels.
The majority of the Company's notes payable are secured by the related real
property or equipment. Certain of the notes payable contain covenants requiring
the Company to maintain compliance with debt to tangible net worth, debt service
coverage and current assets to current liabilities ratios as defined in the
related agreements. The Company is in compliance with the notes payable
covenants.
Interest paid was $1,808,000, $1,631,000, and $1,318,000, for the years
ended December 31, 1997, 1996, and 1996, respectively.
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. 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.
ATMI, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
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:
December 31,
---------------------------
1997 1996
------------ ------------
Machinery and equipment $ 14,060,000 $ 10,151,000
Accumulated depreciation (3,346,000) (2,230,000)
---------- ----------
$ 10,714,000 $ 7,921,000
============ ============
The following is a schedule of future minimum lease payments for capital
leases as of December 31, 1997:
Capital Leases
--------------
1998 $ 3,337,000
1999 2,934,000
2000 2,147,000
2001 1,560,000
2002 366,000
-----------
Total lease payments 10,344,000
Less amount representing interest (1,435,000)
----------
Present value of net capital lease payments 8,909,000
Less current portion (2,671,000)
----------
Long-term portion $ 6,238,000
============
The Company leases office and manufacturing facilities, and certain
manufacturing equipment under several operating leases. The lease for its
Danbury, Connecticut facility expires in August 2005 while the EcoSys San Jose,
California facility leases expire in March 2003 and the Epitronics Phoenix,
Arizona facility lease expires in August 1999. ADCS leases office space under a
lease which expires in May 2000. The manufacturing equipment leases expire in
years 1998 through 2002. Rental expense was $2,507,000, $2,322,000, and
$1,018,000, for the years ended December 31, 1997, 1996 and 1995, respectively.
The following is a schedule of future minimum lease payments for operating
leases as of December 31, 1997:
Operating Leases
-----------------
1998 $ 2,636,000
1999 2,516,000
2000 1,742,000
2001 1,268,000
2002 878,000
Thereafter 1,392,000
---------
Total minimum lease payments $ 10,432,000
============
ATMI, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
8. Income Taxes
Significant components of the provision for income taxes for the periods
presented are as follows:
December 31,
------------------------------------------
1997 1996 1995
--------- --------- ---------
Current:
Federal $3,845,000 $1,421,000 $1,254,000
State 410,000 532,000 305,000
--------- --------- ---------
Total current 4,255,000 1,953,000 1,559,000
Deferred:
Federal 1,433,000 914,000 1,092,000
State 253,000 291,000 237,000
--------- --------- ---------
Total deferred 1,686,000 1,205,000 1,329,000
--------- --------- ---------
$5,941,000 $3,158,000 $2,888,000
========== ========== ==========
Significant components of the Company's deferred tax assets and liabilities
are as follows:
December 31,
------------------------------
1997 1996
--------- ------------
Deferred tax assets:
Accrued liabilities $ 392,000 $ 1,063,000
Net operating loss carryforwards
and tax credits - 829,000
Inventory reserves 382,000 577,000
Other, net 86,000 702,000
---------- ---------
860,000 3,171,000
Valuation allowance - (1,706,000)
Net deferred tax assets 860,000 1,465,000
---------- ---------
Deferred tax liabilities:
Depreciation 2,068,000 1,136,000
Capital leases 1,182,000 1,033,000
Other, net 3,158,000 3,158,000
--------- ---------
(6,408,000) (5,327,000)
---------- ----------
Net deferred tax liabilities $(5,548,000) $(3,862,000)
=========== ===========
For financial reporting purposes, a valuation allowance of $1,706,000 at
December 31, 1996 was established primarily to recognize the cumulative loss
status of the Company's predecessor. As a result of the Company's continued
profitability and the acquisitions of the ADCS Group and LSL, such valuation
allowance was no longer required.
Income taxes paid for the years ended December 31, 1997, 1996, and 1995
were $3,566,000, $3,170,000, and $273,000.
ATMI, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
8. Income Taxes (continued)
The reconciliation of income tax computed at the U.S. federal statutory tax
rates to the Company's tax expense is:
For the Year Ended December 31,
--------------------------------------
1997 1996 1995
-------------------------------------
U.S. statutory rate $ 3,524,000 $ 5,160,000 $ 2,712,000
State income taxes 415,000 669,000 407,000
Effect of nondeductible
acquisition expenses 3,420,000 - -
Income not subject to
federal income taxation - (1,483,000) -
Net operating loss carryforward
and tax credit utilization
(237,000) (1,263,000) (263,000)
Reversal of valuation allowance (1,163,000) - -
Other, net (18,000) 75,000 32,000
---------- --------- --------
$ 5,941,000 $ 3,158,000 $ 2,888,000
=========== =========== ===========
Prior to ATMI's acquisition of 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 $10,534,000 and $0.57, respectively.
South Korea has granted the Company a five year full income tax exemption
from the year in which ADCS-Korea Co., Ltd. ("ADCS-Korea") has taxable income
and an additional three year 50% exemption. Since ADCS-Korea has not yet
generated any taxable income, the expiration date is not currently determinable.
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.
9. Stockholders' Equity
In October 1995, the Company completed a public offering of 1,600,000
shares of common stock at $12.25 per share. Net proceeds to the Company of
$17,193,000 were from 1,525,000 shares sold by the Company while 75,000 shares
were sold for various selling stockholders. Costs of the offering, including
underwriting commissions, were $1,489,000.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
9. Stockholders' Equity (continued)
Stock Plans
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 and ISOs. The 1987 Plan expired in 1997.
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.
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 and one month from the date of grant, and ISOs expire
five to ten years from the date of grant.
Number of Option Price
Shares Per Share
--------- ---------------
Options outstanding at December 31, 1994 833,596 $ 0.28 - $ 7.00
Granted 305,950 $ 6.88 - $13.88
Canceled (27,670) $ 0.53 - $ 6.38
Exercised (137,571) $ 0.28 - $ 5.50
-------- ---------------
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
========= ===============
At December 31, 1997, 1996, and 1995 options for 657,396, 567,066, and
498,204 shares, respectively, were exercisable, and at December 31, 1997 options
for 586,803 shares were available for grant. Exercise prices for 447,086 options
outstanding ranged from $0.28-$5.00; for 351,850 options outstanding ranged from
$5.01-$13.00; and for 629,000 options outstanding ranged from $13.01-$29.38 as
of December 31, 1997.
ATMI, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
9. Stockholders' Equity (continued)
The weighted average exercise price and remaining contractual life of
options outstanding at December 31, 1997 was $11.97 and 7.3 years, respectively.
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:
1997 1996 1995
---------- ----------- ---------
Net income $ 3,687,000 $ 11,695,000 $5,022,000
Net income per share-basic $ 0.21 $ 0.68 $ 0.31
Net income per share-assuming dilution $ 0.20 $ 0.64 $ 0.29
During the initial phase-in period, as required by SFAS No. 123, the pro
forma amounts were determined based on the stock option grants subsequent to
January 1, 1995. Therefore, the pro forma amounts presented may not be
indicative of the effects of compensation cost on net income, net income per
share-basic and net income per share-assuming dilution in future years due to
the timing of grants and considering that options generally vest over a five
year period.
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 for 1997, 1996 and 1995:
1997 1996 1995
---- ---- ----
Expected dividend yield None None None
Risk free interest rate 6.00% 6.25% 6.10%
Expected volatility 56.0% 54.6% 58.2%
Expected life of options 7.5 years 7.5 years 7.5 years
The weighted average fair value of non-canceled stock options granted in
1997, 1996 and 1995 was $17.04, $8.21 and $6.72, respectively.
Warrants
Warrants have been granted to agencies of the State of Connecticut in
connection with certain loan agreements with those agencies. These warrants are
for an aggregate of 50,000 shares at an exercise prices ranging from $11.13 to
$11.75, of which 20,000 were exercisable as of December 31, 1997.
ATMI, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
9. Stockholders' Equity (continued)
Earnings Per Share
The following table presents the computation of basic and diluted earnings
per share:
1997 1996 1995
-----------------------------------------
Numerator:
Net income $ 4,421,000 $12,017,000 $ 5,088,000
=========== =========== ===========
Denominator:
Denominator for basic
earnings per share-
weighted-average share 17,288,000 17,266,000 16,040,000
Dilutive effect of contingent
shares related to the
ADCS Group acquisition 700,000 700,000 700,000
Dilutive effect of employee
stock options and warrants 672,000 428,000 387,000
--------- --------- ---------
Denominator for diluted
earnings per share 18,660,000 18,394,000 17,127,000
---------- ---------- ----------
Net income per share-basic $ 0.26 $ 0.70 $ 0.32
=========== =========== ===========
Net income per share-assuming
dilution $ 0.24 $ 0.65 $ 0.30
=========== =========== ===========
Options to purchase 16,000, 32,000 and 138,000 shares of common stock,
outstanding as of December 31, 1997, 1996 and 1995, 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, Acquisitions and Joint Ventures
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
Company is continuing the business of the ADCS Group and integrating its
semiconductor thin film and delivery systems product lines of the NovaMOS
division into the business of the ADCS Group.
In order to accomplish the tax-free and pooling of interest treatment of
the transaction contemplated by the Merger and Exchange Agreement, Advanced
Technology Materials, Inc. underwent a reorganization involving the creation of
a new holding company (ATMI, Inc. the successor registrant of Advanced
Technology Materials, Inc.) by means of a merger resulting in the prior
registrant becoming a wholly-owned subsidiary of the holding company. Pursuant
to the reorganization, each outstanding share of common stock of Advanced
Technology Materials, Inc. ("ATM") was converted into one share of the Company's
Common Stock. The reorganization has been accounted for as a pooling of
interests.
ATMI, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
10. Mergers, Acquisitions and Joint Ventures (continued)
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 LSL in a merger transaction. As a result,
LSL became a wholly-owned subsidiary of the Company. LSL is an outsourcer of
epitaxial processing of silicon wafers using chemical vapor deposition
technology to meet customer specifications. The Company is continuing the
business of LSL by integrating it with the Epitronics division of the Company
which develops, manufactures, distributes and sells high performance substrates
and thin film deposition services to the semiconductor industry. The acquisition
of LSL has been accounted for as a pooling of interests.
The former securityholders of the ADCS Group and LSL have agreed to
indemnify the Company and certain of its subsidiaries and affiliates 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 have
delivered 750,000 shares of the Company's Common Stock which they received and
the former securityholders of LSL have delivered five percent of the LSL
consideration received into escrow in connection with the acquisitions by the
Company of the ADCS Group and LSL.
Non-recurring costs of approximately $9,000,000, primarily related to legal
costs, accounting costs, investment banker fees and a break-up fee in connection
with another transaction between LSL and another investor, have been 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.
The acquisitions of the ADCS Group and LSL were treated as a pooling of
interests. For the nine month period ended September 30, 1997 and years ended
December 31, 1996 and 1995, prior to the acquisition, revenues and net income of
ATM, the ADCS Group and LSL included in the financial statements are as follows:
Nine Months Ended
Revenues: September 30, 1997 1996 1995
------------------ ----------- -----------
ATM $41,286,000 $46,350,000 $30,048,000
ADCS and LSL $32,262,000 $42,311,000 $30,124,000
Nine Months Ended
Net Income: September 30, 1997 1996 1995
------------------ ----------- -----------
ATM $ 3,979,000 $ 3,321,000 $ 554,000
ADCS and LSL $ 5,134,000 $ 8,696,000 $ 4,534,000
On December 30, 1995, the Company acquired certain assets pertaining to the
Guardian Systems ("Guardian") product line of Messer Greisheim Industries, Inc.
for $6,000,000. In connection with this purchase, the Company recorded
approximately $4,900,000 in goodwill to be amortized over twenty years. The
Guardian product line consists of flame oxidation units used in the treatment of
effluent in the semiconductor industry. The product line has become part of the
Company's EcoSys operation.
ATMI, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
10. Mergers, Acquisitions and Joint Ventures (continued)
On May 8, 1995, the ADCS Group entered into a joint venture agreement with
K.C. Tech Co., Ltd., an unrelated corporation organized under the laws of the
Republic of Korea, whereby the ADCS Group obtained a 70% interest in a South
Korean chusik hoesa, ADCS-Korea. The purpose of the joint venture is to
manufacture, sell and distribute chemicals to the semiconductor and related
industries in South Korea.
During 1995, the Company also acquired the assets of two businesses in
exchange for 20,000 shares of its Common Stock, $550,000 in cash and a $700,000
promissory note bearing interest at prime plus 1%, payable in equal quarterly
installments beginning in September 1995. In 1996, one of those businesses was
subsequently sold, the $700,000 promissory note was paid in full and a note
receivable of approximately $498,000 was recorded. This note receivable bears
interest at 8% and is payable on October 31, 1999.
The pro forma unaudited results of operations for the year ended December
31, 1995, for the purchase business combinations indicated above, consummated as
of the beginning of the period presented, is as follows:
1995
--------------
Revenues $ 65,590,000
Net income $ 5,347,000
Net income per share-basic $ 0.33
Net income per share-assuming dilution $ 0.31
11. 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
committed to purchase 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.
12. Geographic Data
During 1997, 1996, and 1995 the Company had export sales of approximately
22%, 29%, and 25%, respectively. Sales to Asia, primarily South Korea, were
approximately 17%, 23%, and 19%, respectively, of the Company's revenues during
those same periods.
ATMI, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
13. Year 2000 Compliance (unaudited)
The Company is aware of the issues associated with the programming code in
existing computer systems as the year 2000 approaches. The Company is utilizing
both internal and external resources to identify, correct or reprogram, and test
its systems for Year 2000 compliance. Management is in the process of completing
its assessment of the Year 2000 compliance costs. However, based on currently
available information (excluding the possible impact of vendor systems which
management currently is not in a position to evaluate), management does not
believe that these costs will have a material effect on the Company's earnings.
14. Subsequent Events (unaudited)
On February 20, 1998, the Company announced that it had entered into a
definitive merger agreement with NOW Technologies, Inc. ("NOW Technologies")
pursuant to which NOW Technologies would become a wholly-owned subsidiary of the
Company. The closing of the merger agreement is subject to the approval of the
shareholders of NOW Technologies and appropriate government agencies and to the
satisfaction of other customary conditions. While the exact number of shares of
Common Stock to be issued by the Company to the shareholders of NOW Technologies
will not be determined until the third trading day prior to the closing, the
number of shares to be issued will range from 1.20 million to 1.64 million
(excluding shares issuable upon exercise of outstanding options). The merger is
intended to be treated as a tax-free reorganization and to be accounted for as a
pooling of interests. NOW Technologies is a manufacturer and distributor of
semiconductor materials packaging systems, particularly for advanced photoresist
materials.
On February 20, 1998, the Company filed a Registration Statement on Form
S-1 with the Securities and Exchange Commission with respect to the proposed
underwritten public offering of 4,000,000 shares of the Company's Common Stock.
Of such shares, 2,000,000 shares will be offered by the Company and 2,000,000
shares will be offered by certain stockholders of the Company. In addition, such
stockholders will grant to the underwriters an option to purchase up to 600,000
additional shares of Common Stock to cover over-allotments, if any.
Quarterly Results of Operations (unaudited)
(Thousands of Dollars, except per share amounts)
Quarter Year
---------------------------------------- -------
1997 First Second Third Fourth 1997
- - ---- ---------------------------------------- -------
Revenues $ 22,513 $ 23,521 $ 27,514 $ 28,329 $101,877
Gross profit 11,026 12,107 14,973 15,087 53,193
Net income (loss) 2,516 2,616 3,981 (4,692)(1) 4,421
Net income (loss)
per share-basic $ 0.15 $ 0.15 $ 0.23 $ (0.27)(1) $ 0.26
Net income (loss)
per share-assuming
dilution $ 0.13 $ 0.14 $ 0.21 $ (0.27)(1) $ 0.24
Quarter Year
----------------------------------------- -------
1996 First Second Third Fourth 1996
- - ---- ----------------------------------------- -------
Revenues $ 21,185 $ 22,835 $ 23,056 $ 21,585 $ 88,661
Gross profit 12,472 11,628 12,110 11,220 47,430
Net income 2,915 3,258 4,390 1,454(2) 12,017
Net income per
share-basic $ 0.17 $ 0.19 $ 0.26 $ 0.08(2) $ 0.70
Net income per
share-assuming dilution $ 0.16 $ 0.18 $ 0.23 $ 0.08(2) $ 0.65
(1) Includes a non-recurring charge of $9.0 million accrued in connection with
costs incurred in investigating, analyzing and completing the ADCS Group
and LSL acquisitions.
(2) Includes a non-recurring 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.
Schedule II
ATMI, INC.
VALUATION & QUALIFYING ACCOUNTS
Balance at Balance at
Beginning Charged to and
Year Ended of Period Cost/Expense Deduction of Period
---------- ------------ --------- ----------
December 31, 1997
Allowance for doubtful accounts $ 361,000 $ 365,000 $ 321,000 $ 405,000
Obsolescence reserve 659,000 1,134,000 808,000 985,000
December 31, 1996
Allowance for doubtful accounts 109,000 280,000 28,000 361,000
Obsolescence reserve 276,000 380,000 0 659,000
December 31, 1995
Allowance for doubtful accounts 82,000 78,000 51,000 109,000
Obsolescence reserve 276,000 127,000 124,000 279,000
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 25, 1998
By /S/ Eugene G. Banucci
------------------------------
Eugene G. Banucci, Ph.D.,
President, Chief Executive Officer,
Chairman of the Board and Director
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, this report has been signed below by the following persons
on behalf of the registrant and in the capacities and on the dates indicated.
Signature Title Date
- - --------- ----- ----
President, Chief Executive
Officer, Chairman of the Board
/S/ Eugene G. Banucci and Director (principal executive officer) 3/25/98
- - ----------------------
Eugene G. Banucci, Ph.D
Vice President, Chief Financial
Officer and Treasurer (principal financial and
/S/ Daniel P. Sharkey accounting officer) 3/25/98
- - ---------------------
Daniel P. Sharkey
/S/ Mark A. Adley Director 3/25/98
- - -----------------
Mark A. Adley
/S/ John A. Armstrong Director 3/25/98
- - ---------------------
John A. Armstrong, Ph.D.
/S/ Robert S. Hillas Director 3/25/98
- - --------------------
Robert S. Hillas
/S/ Stephen H. Mahle Director 3/25/98
- - --------------------
Stephen H. Mahle
/S/ Stephen H. Siegele Director 3/25/98
- - --------------------
Stephen H. Siegele
/S/ Lamonte H. Lawrence Director 3/25/98
- - -----------------------
Lamonte H. Lawrence
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-Q for the quarter ended
June 30, 1997, File No. 0-22756 ("June 30, 1997Form 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 "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)
3.02
Bylaws of ATMI (Exhibit 3.02 to the Form S-4 Registration Statement). (1)
4.01
Specimen of the ATMI's Common Stock Certificate (Exhibit 4.01 to the 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)
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 Duncan W. Brown and Advanced Technology
Materials, Inc. dated October 10, 1997 (Exhibit 10.03 to the Form S-1
Registration Statement). (1)
10.04
Employment Agreement between James M. Burns and Advanced Technology
Materials, Inc. dated December 31, 1996 (Exhibit 10.04 to the Form S-1
Registration Statement). (1)
10.05
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)
10.06
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)
10.07
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 for the
year ended December 31, 1994, File No. 0-22756 ("1994 Form 10-K")). (1)
10.08(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). (1)
10.08(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)
10.09
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)
10.10(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)
10.10(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 Price Waterhouse LLP. (2)
27.01
Financial data schedule. (2)
(1) Incorporated by reference.
(2) Filed herewith.