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EX-32 - EXHIBIT 32 - ATMI INC | c15718exv32.htm |
EX-31.2 - EXHIBIT 31.2 - ATMI INC | c15718exv31w2.htm |
EX-31.1 - EXHIBIT 31.1 - ATMI INC | c15718exv31w1.htm |
Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
þ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended March 31, 2011
OR
o | 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: 1-16239
ATMI, Inc.
(Exact name of registrant as specified in its charter)
Delaware | 06-1481060 | |
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) | |
7 Commerce Drive, Danbury, CT | 06810 | |
(Address of principal executive offices) | (Zip Code) |
203-794-1100
(Registrants telephone number, including area code)
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period
that the registrant was required to submit and post such files). Yes o No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated
filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large
accelerated filer, accelerated filer, and smaller reporting company in Rule 12b-2 of the
Exchange Act (Check one):
Large accelerated filer o | Accelerated filer þ | Non-accelerated filer o | Smaller reporting company o |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of
the Exchange Act). Yes o No þ
The number of shares outstanding of the registrants common stock as of March 31, 2011 was
31,645,677.
ATMI, INC.
Quarterly Report on Form 10-Q
For the Quarter Ended March 31, 2011
Quarterly Report on Form 10-Q
For the Quarter Ended March 31, 2011
TABLE OF CONTENTS
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Exhibit 31.1 | ||||||||
Exhibit 31.2 | ||||||||
Exhibit 32 |
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PART I FINANCIAL INFORMATION
Item 1. | Financial Statements |
ATMI, Inc.
Consolidated Balance Sheets
(in thousands, except per share data)
March 31, | December 31, | |||||||
2011 | 2010 | |||||||
(unaudited) | ||||||||
Assets |
||||||||
Current assets: |
||||||||
Cash and cash equivalents |
$ | 76,981 | $ | 68,648 | ||||
Marketable securities, current portion |
53,782 | 58,495 | ||||||
Accounts receivable, net of allowances of $781 and $783, respectively |
53,543 | 54,518 | ||||||
Inventories, net |
65,858 | 62,832 | ||||||
Income taxes receivable |
3,095 | 4,627 | ||||||
Deferred income taxes |
7,147 | 6,801 | ||||||
Prepaid expenses |
12,518 | 14,384 | ||||||
Other current assets |
13,771 | 12,695 | ||||||
Total current assets |
286,695 | 283,000 | ||||||
Property, plant, and equipment, net |
118,414 | 119,053 | ||||||
Goodwill |
47,808 | 46,981 | ||||||
Other intangible assets, net |
28,862 | 28,948 | ||||||
Marketable securities, non-current |
28,913 | 25,429 | ||||||
Deferred income taxes, non-current |
2,206 | 2,097 | ||||||
Other non-current assets |
34,935 | 28,081 | ||||||
Total assets |
$ | 547,833 | $ | 533,589 | ||||
Liabilities and stockholders equity |
||||||||
Current liabilities: |
||||||||
Accounts payable |
$ | 24,739 | $ | 21,045 | ||||
Accrued liabilities |
5,576 | 5,918 | ||||||
Accrued salaries and related benefits |
6,294 | 12,163 | ||||||
Income taxes payable |
4,458 | 3,700 | ||||||
Other current liabilities |
5,149 | 3,911 | ||||||
Total current liabilities |
46,216 | 46,737 | ||||||
Deferred income taxes, non-current |
10,516 | 10,245 | ||||||
Other non-current liabilities |
19,319 | 18,182 | ||||||
Commitments and contingencies (Note 8) |
||||||||
Stockholders equity: |
||||||||
Preferred stock, par value $.01 per share: 2,000 shares authorized;
none issued |
| | ||||||
Common stock, par value $.01 per share: 100,000 shares authorized;
39,833 and 39,640 issued and 31,646 and 31,495 outstanding in 2011
and 2010, respectively |
398 | 396 | ||||||
Additional paid-in capital |
438,765 | 435,840 | ||||||
Treasury stock at cost (8,187 and 8,145 shares in 2011 and 2010,
respectively) |
(231,047 | ) | (230,272 | ) | ||||
Retained earnings |
256,440 | 248,433 | ||||||
Accumulated other comprehensive income |
7,226 | 4,028 | ||||||
Total stockholders equity |
471,782 | 458,425 | ||||||
Total liabilities and stockholders equity |
$ | 547,833 | $ | 533,589 | ||||
See accompanying notes.
3
Table of Contents
ATMI, Inc.
Consolidated Statements of Income
(unaudited)
(in thousands, except per share data)
Three Months Ended | ||||||||
March 31, | ||||||||
2011 | 2010 | |||||||
Revenues |
$ | 100,724 | $ | 85,311 | ||||
Cost of revenues |
52,633 | 43,622 | ||||||
Gross profit |
48,091 | 41,689 | ||||||
Operating expenses: |
||||||||
Research and development |
13,451 | 9,723 | ||||||
Selling, general and administrative |
22,982 | 19,972 | ||||||
Total operating expenses |
36,433 | 29,695 | ||||||
Operating income |
11,658 | 11,994 | ||||||
Interest income |
424 | 206 | ||||||
Other income (expense), net |
(124 | ) | 34 | |||||
Income before income taxes |
11,958 | 12,234 | ||||||
Provision for income taxes |
3,951 | 3,568 | ||||||
Net income |
$ | 8,007 | $ | 8,666 | ||||
Earnings per common share basic |
$ | 0.25 | $ | 0.27 | ||||
Weighted average shares outstanding basic |
31,660 | 31,513 | ||||||
Earnings per common share diluted |
$ | 0.25 | $ | 0.27 | ||||
Weighted average shares outstanding diluted |
32,384 | 32,024 |
See accompanying notes.
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Table of Contents
ATMI, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS EQUITY
(unaudited)
(in thousands)
Accumulated | ||||||||||||||||||||||||
Additional | Other | |||||||||||||||||||||||
Common | Paid-in | Treasury | Retained | Comprehensive | ||||||||||||||||||||
Stock | Capital | Stock | Earnings | Income | Total | |||||||||||||||||||
Balance at December 31, 2010 |
$ | 396 | $ | 435,840 | $ | (230,272 | ) | $ | 248,433 | $ | 4,028 | $ | 458,425 | |||||||||||
Issuance of 22 shares of common stock
pursuant to the exercise of employee
stock options |
| 365 | | | | 365 | ||||||||||||||||||
Purchase of 42 treasury shares |
| | (775 | ) | | | (775 | ) | ||||||||||||||||
Stock-based compensation |
| 2,562 | | | | 2,562 | ||||||||||||||||||
Other |
2 | (2 | ) | | | | | |||||||||||||||||
Net income |
| | | 8,007 | | 8,007 | ||||||||||||||||||
Reclassification adjustment related to
marketable securities sold in net
unrealized
gain position, net of $2 tax provision |
| | | | (4 | ) | (4 | ) | ||||||||||||||||
Change in fair value on available-for-sale
securities, net of deferred income
tax of $335 |
| | | | 571 | 571 | ||||||||||||||||||
Cumulative translation adjustment |
| | | | 2,631 | 2,631 | ||||||||||||||||||
Comprehensive income |
| | | | | 11,205 | ||||||||||||||||||
Balance at March 31, 2011 |
$ | 398 | $ | 438,765 | $ | (231,047 | ) | $ | 256,440 | $ | 7,226 | $ | 471,782 | |||||||||||
See accompanying notes.
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Table of Contents
ATMI, Inc.
Consolidated Statements of Cash Flows
(unaudited)
(in thousands)
Three Months Ended | ||||||||
March 31, | ||||||||
2011 | 2010 | |||||||
Operating activities |
||||||||
Net income |
$ | 8,007 | $ | 8,666 | ||||
Adjustments to reconcile net income to cash provided by operating activities: |
||||||||
Depreciation and amortization |
6,741 | 6,756 | ||||||
Deferred income taxes |
(288 | ) | (328 | ) | ||||
Stock-based compensation expense |
2,562 | 2,422 | ||||||
Other |
1,023 | 1,053 | ||||||
Changes in operating assets and liabilities: |
||||||||
Accounts receivable |
1,323 | 1,500 | ||||||
Inventories |
(2,594 | ) | (2,611 | ) | ||||
Other assets |
822 | (2,098 | ) | |||||
Accounts payable |
3,515 | 1,510 | ||||||
Accrued expenses, income taxes and other liabilities |
(2,898 | ) | 2,675 | |||||
Net cash provided by operating activities |
18,213 | 19,545 | ||||||
Investing activities |
||||||||
Capital expenditures |
(4,756 | ) | (2,169 | ) | ||||
Purchases of marketable securities |
(31,356 | ) | (39,283 | ) | ||||
Proceeds from sales or maturities of marketable securities |
33,612 | 7,083 | ||||||
Acquisition of cost-basis investments |
(6,746 | ) | | |||||
Other |
36 | (5 | ) | |||||
Net cash used for investing activities |
(9,210 | ) | (34,374 | ) | ||||
Financing activities |
||||||||
Purchases of treasury stock |
(775 | ) | (642 | ) | ||||
Proceeds from exercise of stock options |
366 | | ||||||
Credit line borrowings |
| 1,724 | ||||||
Credit line repayments |
| (2,207 | ) | |||||
Other |
(12 | ) | (17 | ) | ||||
Net cash used for financing activities |
(421 | ) | (1,142 | ) | ||||
Effects of exchange rate changes on cash and cash equivalents |
(249 | ) | 73 | |||||
Net increase (decrease) in cash and cash equivalents |
8,333 | (15,898 | ) | |||||
Cash and cash equivalents, beginning of period |
68,648 | 64,738 | ||||||
Cash and cash equivalents, end of period |
$ | 76,981 | $ | 48,840 | ||||
See accompanying notes.
6
Table of Contents
Notes To Consolidated Interim Financial Statements
(unaudited)
1. Description of Business
ATMI, Inc. (together with its subsidiaries, collectively referred to as the Company, ATMI, or
we) believes it is among the leading suppliers of high performance materials, materials packaging
and materials delivery systems used worldwide in the manufacture of microelectronics devices. Our
products consist of front-end semiconductor performance materials, sub-atmospheric pressure gas
delivery systems for safe handling and delivery of toxic and hazardous gases to semiconductor
process equipment, high-purity materials packaging and dispensing systems that allow for the
reliable introduction of low volatility liquids and solids to microelectronics and
biopharmaceutical processes. ATMI targets semiconductor and flat-panel display manufacturers, whose
products form the foundation of microelectronics technology rapidly proliferating through the
consumer products, information technology, automotive, and communications industries. The market
for microelectronics devices is continually changing, which drives demand for new products and
technologies at lower cost. ATMIs customers include many of the leading semiconductor
manufacturers in the world who target leading edge technologies. ATMI also addresses an increasing
number of critical materials handling needs for the life sciences markets. Our proprietary
containment, mixing, and bioreactor technologies are sold to the biotechnology and laboratory
markets, which we believe offer significant growth potential. ATMIs objective is to meet the
demands of our microelectronics and life sciences customers with solutions that maximize the
efficiency of their manufacturing processes, reduce capital costs, and minimize the time to develop
new products and integrate them into their processes.
2. Significant Accounting Policies and Other Information
Basis of Presentation
The accompanying consolidated interim financial statements of ATMI, Inc. at March 31, 2011 and for
the three months ended March 31, 2011 and 2010, respectively, are unaudited, but in the opinion of
management include all adjustments necessary for a fair presentation of the results for the interim
periods. The unaudited consolidated interim financial statements included herein should be read in
conjunction with the December 31, 2010 audited consolidated financial statements and notes thereto
included in the Companys Annual Report on Form 10-K for the year ended December 31, 2010. The
Companys quarterly results are subject to fluctuation and, thus, the operating results for any
quarter are not necessarily indicative of results to be expected for any future fiscal period.
The consolidated balance sheet at December 31, 2010 has been derived from the audited financial
statements at that date, but does not include all of the financial information and disclosures
required by Generally Accepted Accounting Principles (GAAP) for complete financial statements.
7
Table of Contents
Earnings Per Share
This table shows the computation of basic and diluted earnings per share (in thousands, except per
share data):
Three Months Ended | ||||||||
March 31, | ||||||||
2011 | 2010 | |||||||
Numerator: |
||||||||
Net income |
$ | 8,007 | $ | 8,666 | ||||
Denominator: |
||||||||
Denominator for basic earnings per share
weighted average shares |
31,660 | 31,513 | ||||||
Dilutive effect of employee stock options |
125 | 38 | ||||||
Dilutive effect of restricted stock |
599 | 473 | ||||||
Denominator for diluted earnings (loss) per
common share weighted average shares |
32,384 | 32,024 | ||||||
Earnings per share-basic |
$ | 0.25 | $ | 0.27 | ||||
Earnings per share-diluted |
$ | 0.25 | $ | 0.27 |
This table shows the potential common shares excluded from the calculation of weighted-average
shares outstanding because their effect was considered to be antidilutive (in thousands):
Three Months Ended | ||||||||
March 31, | ||||||||
2011 | 2010 | |||||||
Antidilutive shares |
1,165 | 1,724 |
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Table of Contents
Inventories
Inventories include (in thousands):
March 31, | December 31, | |||||||
2011 | 2010 | |||||||
Raw materials |
$ | 17,359 | $ | 16,499 | ||||
Work in process |
2,142 | 2,133 | ||||||
Finished goods |
48,798 | 46,575 | ||||||
68,299 | 65,207 | |||||||
Excess and obsolescence reserve |
(2,441 | ) | (2,375 | ) | ||||
Inventories, net |
$ | 65,858 | $ | 62,832 | ||||
Non-marketable Equity Securities
We selectively invest in non-marketable equity securities of private companies, which range from
early-stage companies that are often still defining their strategic direction to more mature
companies whose products or technologies may directly support an ATMI product or initiative. At
March 31, 2011, the carrying value of our portfolio of strategic investments in non-marketable
equity securities totaled $29.5 million ($22.3 million at December 31, 2010), of which $25.5
million are accounted for at cost ($18.6 million at December 31, 2010), and $4.0 million are
accounted for using the equity method of accounting ($3.7 million at December 31, 2010).
Non-marketable equity securities are included in the consolidated balance sheets under the caption
Other non-current assets. ATMIs share of the income or losses of all equity-method investees,
using the most current financial information available, which is one month behind ATMIs normal
closing date, is included in our results of operations from the investment date forward. In March
2011, we made an incremental investment of $6.7 million in one of our cost basis investees. There
was no change in accounting treatment as a result of this incremental investment.
Income Taxes
We have not provided for U.S. federal income and foreign withholding taxes on approximately $74.0
million of undistributed earnings from non-U.S. operations as of March 31, 2011, because such
earnings are intended to be reinvested indefinitely outside of the United States. These earnings
could become subject to additional tax if they are remitted as dividends, loaned to ATMI, or upon
sale of subsidiary stock. It is not practicable to estimate the amount or timing of the additional
tax, if any, that eventually might be paid on the foreign earnings.
We had an effective income tax rate of 33.0 percent for the three month period ended March 31,
2011. The effective income tax rate differs from the U.S. federal statutory income tax rate of 35.0
percent primarily due to the mix of income attributable to the various countries in which we
conduct business, the increase in the valuation allowance on certain foreign losses, the impact of
our reserves, and the R&D credit. In the first quarter of 2011, we recorded a tax provision of
$0.4 million related to equity-based compensation, partially offset by a reversal of $0.2 million
of previously established reserves. Without these items our effective income tax rate for the three
month period ended March 31, 2011 would have been 30.9 percent. Our effective income tax rate is
calculated based on full-year assumptions.
9
Table of Contents
At March 31, 2011, the Company has recorded $6.1 million of unrecognized tax benefits. If any
portion of this $6.1 million is subsequently recognized, the Company will then include that portion
in the computation of its effective tax rate. On the consolidated balance sheet, $0.7 million of
this amount is included in deferred taxes, and $5.4 million is included in the caption Other
non-current liabilities, including $0.7 million of accrued interest (net) on tax reserves and $0
accrued for penalties.
It is reasonably possible that in the next 12 months, because of changes in facts and
circumstances, the unrecognized tax benefits for tax positions taken related to previously filed
tax returns may decrease. The range of possible decrease is $0 million to $0.6 million (excluding
interest). The Company has been audited in the United States by the Internal Revenue Service
through tax year 2007. During 2010, the Internal Revenue Service initiated a U.S. tax audit of tax
years 2008 and 2009 which is currently pending.
Goodwill and Other Intangible Assets
Goodwill and Other intangible asset balances at March 31, 2011 and December 31, 2010 were (in
thousands):
Patents & | Total Other | |||||||||||||||
Goodwill | Trademarks | Other | Intangibles | |||||||||||||
Gross amount as of December 31, 2010 |
$ | 46,981 | $ | 49,869 | $ | 1,396 | $ | 51,265 | ||||||||
Accumulated amortization |
| (21,943 | ) | (374 | ) | (22,317 | ) | |||||||||
Balance at December 31, 2010 |
$ | 46,981 | $ | 27,926 | $ | 1,022 | $ | 28,948 | ||||||||
Gross amount as of March 31, 2011 |
$ | 47,808 | $ | 50,778 | $ | 1,402 | $ | 52,180 | ||||||||
Accumulated amortization |
| (22,905 | ) | (413 | ) | (23,318 | ) | |||||||||
Balance at March 31, 2011 |
$ | 47,808 | $ | 27,873 | $ | 989 | $ | 28,862 | ||||||||
Changes in carrying amounts of Goodwill and Other Intangibles for the three months ended March
31, 2011 were (in thousands):
Patents & | Total Other | |||||||||||||||
Goodwill | Trademarks | Other | Intangibles | |||||||||||||
Balance at December 31, 2010 |
$ | 46,981 | $ | 27,926 | $ | 1,022 | $ | 28,948 | ||||||||
Amortization expense |
| (875 | ) | (33 | ) | (908 | ) | |||||||||
Other, including foreign
currency translation |
827 | 822 | | 822 | ||||||||||||
Balance at March 31, 2011 |
$ | 47,808 | $ | 27,873 | $ | 989 | $ | 28,862 | ||||||||
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Variable Interest Entity
In July 2005, ATMI made an investment in Anji Microelectronics Co., Ltd. (Anji), an entity in the
development stage of researching and developing advanced semiconductor materials, with primary
operations in Shanghai, China. We have determined that Anji is a variable interest entity.
However, we have determined that we are not the primary beneficiary of Anji because we do not have
the power, through voting or similar rights, to direct the activities of Anji that most
significantly impact the entitys economic performance, and we are also not expected to absorb
significant losses or gains from Anji. ATMIs carrying value is $3.9 million at March 31, 2011,
accounted for using the cost method. The carrying value of our investment in Anji represents the
cash paid, less our share of the cumulative losses during the period we used the equity-method of
accounting. At March 31, 2011, the fair value of a guarantee ATMI provided on behalf of Anji was
$0.1 million (see Note 8) and our maximum exposure to loss is $6.8 million, which consists of $3.9
million of our carrying value in this investment, plus $2.5 million associated with Anjis bank
line of credit, which is guaranteed by ATMI, and a $0.4 million reserve for a put option.
Recently Adopted Accounting Standards
In October 2009, the FASB issued ASU 2009-13, Revenue Recognition (Topic 605). This Update
provides amendments to the criteria in Subtopic 605-24 for separating consideration in
multiple-deliverable revenue arrangements. It establishes a hierarchy of selling prices to
determine the selling price of each specific deliverable which includes vendor-specific objective
evidence (if available), third-party evidence (if vendor-specific evidence is not available), or
estimated selling price if neither of the first two are available. This Update also eliminates the
residual method for allocating revenue between the elements of an arrangement and requires that
arrangement consideration be allocated at the inception of the arrangement. Finally, this Update
expands the disclosure requirements regarding a vendors multiple-deliverable revenue arrangements.
We adopted this new standard effective January 1, 2011 and it had no material impact on our
financial statements.
In July 2010, the FASB issued ASU 2010-20, Disclosures about the Credit Quality of Financing
Receivables and the Allowance for Credit Losses. ASU 2010-20 requires increased disclosures about
the credit quality of financing receivables and allowances for credit losses, including disclosure
about credit quality indicators, past due information and modifications of finance receivables. We
adopted this new standard effective January 1, 2011 and it had no material impact on our financial
statements.
In December 2010, the FASB issued ASU 2010-29, Business Combinations (Topic 805). This Update
requires a public entity to disclose pro forma information for business combinations that occurred
in the current reporting period and specifically requires the same information for the comparative
prior period. We adopted this new standard effective January 1, 2011 and it had no material impact
on our financial statements.
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Table of Contents
3. Equity-Based Compensation
Summary of Plans
This table shows the number of shares approved by stockholders for each plan and the number of
shares that remain available for equity awards at March 31, 2011 (in thousands):
# of | ||||||||
# of Shares | Shares | |||||||
Stock Plan | Approved | Available | ||||||
2003 Stock Plan (1) |
3,000 | 14 | ||||||
2010 Stock Plan (1) |
3,000 | 2,888 | ||||||
Employee Stock Purchase Plan (2) |
1,000 | 257 | ||||||
Totals |
7,000 | 3,159 | ||||||
(1) | Exercise prices for ISOs and non-qualified stock options granted under this plan may not be less than
100 percent of the fair market value for the Companys common stock on the date of grant. |
|
(2) | Employees may purchase shares at 95 percent of the closing price on the day previous to the last day of each
six-month offering period. This plan is not considered to be compensatory. |
The Company issued 22,000 shares of common stock as a result of exercises by employees under
its employee stock option plans during the first quarter of 2011. Such amount was 90,960 shares of
common stock during the fiscal year ended December 31, 2010. The Company issued 272,338 shares of
restricted stock that include solely a time-based vesting requirement in the first quarter of 2011
and such amount was 321,924 during the fiscal year ended December 31, 2010. The Company issued
101,325 shares of restricted stock to its executive officers that include both performance-based
and time-based vesting requirements (PRSAs) in the first quarter of 2011 and such amount was
102,514 during the fiscal year ended December 31, 2010. PRSAs are granted at a theoretical maximum
amount based on a stretch metric equal to 200% of target performance. The actual number of PRSAs
earned ranges from 0% to 200% of the grant value, with 200% representing the theoretical maximum
that can be earned, and 100% being earned for target performance. In the first quarter of 2011,
48,055 of the 102,514 PRSAs granted in 2010 were earned (subject to time-based vesting), while
54,459 shares were cancelled.
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4. Marketable Securities
Marketable securities include at March 31, 2011 and December 31, 2010 (in thousands):
2011 | 2010 | |||||||||||||||||||||||
Gross | Gross | |||||||||||||||||||||||
Unrealized | Estimated | Unrealized | Estimated | |||||||||||||||||||||
Cost | Gain (Loss) | Fair Value | Cost | Gain (Loss) | Fair Value | |||||||||||||||||||
Securities in unrealized gain
position: |
||||||||||||||||||||||||
Common stock |
$ | 251 | $ | 2,447 | $ | 2,698 | $ | 251 | $ | 1,545 | $ | 1,796 | ||||||||||||
Government debt
obligations (1) |
27,634 | 102 | 27,736 | 16,661 | 87 | 16,748 | ||||||||||||||||||
GS (2) debt obligations |
8,500 | 9 | 8,509 | 15,004 | 11 | 15,015 | ||||||||||||||||||
U.S. Treasury
obligations (3) |
| | | 8,045 | 2 | 8,047 | ||||||||||||||||||
Subtotal |
36,385 | 2,558 | 38,943 | 39,961 | 1,645 | 41,606 | ||||||||||||||||||
Securities in unrealized loss
position: |
||||||||||||||||||||||||
Government debt
obligations (1) |
16,458 | (31 | ) | 16,427 | 26,138 | (63 | ) | 26,075 | ||||||||||||||||
GS (2) debt obligations |
18,000 | (48 | ) | 17,952 | 8,000 | (9 | ) | 7,991 | ||||||||||||||||
Auction-rate security (4) |
4,701 | (1,800 | ) | 2,901 | 4,695 | (1,794 | ) | 2,901 | ||||||||||||||||
Subtotal |
39,159 | (1,879 | ) | 37,280 | 38,833 | (1,866 | ) | 36,967 | ||||||||||||||||
Securities at amortized cost: |
||||||||||||||||||||||||
Time deposits |
5,472 | | 5,472 | 5,351 | | 5,351 | ||||||||||||||||||
Government debt
obligations (1) |
1,000 | | 1,000 | | | | ||||||||||||||||||
Subtotal |
6,472 | | 6,472 | 5,351 | | 5,351 | ||||||||||||||||||
Total marketable securities |
$ | 82,016 | $ | 679 | $ | 82,695 | $ | 84,145 | $ | (221 | ) | $ | 83,924 | |||||||||||
(1) | State and municipal government debt obligations |
|
(2) | U.S. Government Sponsored |
|
(3) | U.S. Treasury obligations were included as part of U.S Government Sponsored securities in the Companys Annual
Report on Form 10-K for the year ended December 31, 2010 |
|
(4) | Massachusetts Educational Financing Authority (MEFA) auction rate security Par Value $5,000,000 less unaccreted
non-cash credit loss of $299,000 |
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The amortized cost and estimated fair value of available-for-sale securities, by contractual
maturity, as of March 31, 2011 are shown below; expected maturities may differ from contractual
maturities because the issuers of the securities may exercise the right to prepay obligations
without prepayment penalties.
Estimated | ||||||||
Cost | Fair Value | |||||||
Due in one year or less |
$ | 27,667 | $ | 27,731 | ||||
Due between one and three years |
49,397 | 49,365 | ||||||
Auction-rate security (due in 2038) |
4,701 | 2,901 | ||||||
81,765 | 79,997 | |||||||
Common stock |
251 | 2,698 | ||||||
$ | 82,016 | $ | 82,695 | |||||
This table shows the Companys marketable securities that were in an unrealized loss position
at March 31, 2011, and also shows the duration of time the security has been in an unrealized loss
position:
Less Than 12 Months | 12 Months or Greater | Total | ||||||||||||||||||||||
Unrealized | Unrealized | Unrealized | ||||||||||||||||||||||
Fair Value | Losses | Fair Value | Losses | Fair Value | Losses | |||||||||||||||||||
Government debt
obligations |
16,427 | (31 | ) | | | 16,427 | (31 | ) | ||||||||||||||||
Government sponsored
debt obligations |
17,952 | (48 | ) | | | 17,952 | (48 | ) | ||||||||||||||||
Auction-rate security |
| | 2,901 | (1,800 | ) | 2,901 | (1,800 | ) | ||||||||||||||||
Total |
$ | 34,379 | $ | (79 | ) | $ | 2,901 | $ | (1,800 | ) | $ | 37,280 | $ | (1,879 | ) | |||||||||
See Note 6 for further discussion.
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5. Accumulated Other Comprehensive Income
The components of accumulated other comprehensive income are (in thousands):
Unrealized | ||||||||||||
Gain (Loss) | ||||||||||||
Currency | on Available- | |||||||||||
Translation | for-Sale | |||||||||||
Adjustments | Securities | Total | ||||||||||
Balance at December 31, 2009 |
$ | 3,405 | $ | (1 | ) | $ | 3,404 | |||||
Reclassification adjustment related to marketable
securities in net unrealized gain position at prior period
end, net of $282 tax provision (1) |
| (481 | ) | (481 | ) | |||||||
Change in fair value of available-for-sale securities,
net of deferred income tax of $201 |
| 343 | 343 | |||||||||
Cumulative translation adjustment |
762 | | 762 | |||||||||
Balance at December 31, 2010 |
$ | 4,167 | $ | (139 | ) | $ | 4,028 | |||||
Reclassification adjustment related to marketable
securities in net unrealized gain position at prior period
end, net of $2 tax provision (1) |
| (4 | ) | (4 | ) | |||||||
Change in fair value of available-for-sale securities,
net of deferred income tax of $335 |
| 571 | 571 | |||||||||
Cumulative translation adjustment |
2,631 | | 2,631 | |||||||||
Balance at March 31, 2011 |
$ | 6,798 | $ | 428 | $ | 7,226 | ||||||
(1) | Determined based on the specific identification method |
6. Fair Value Measurements
The Company measures and reports financial assets and financial liabilities on a fair value basis,
consistent with ASC 820 Fair Value Measurements and Disclosures, using the following three
categories for classification and disclosure purposes:
Level 1 Quoted prices in active markets for identical assets and liabilities. Level 1
assets and liabilities consist of cash, money market fund deposits, time deposits, certain of our
marketable equity instruments, and forward foreign currency exchange contracts that are traded in
an active market with sufficient volume and frequency of transactions.
Level 2 Observable inputs other than Level 1 prices such as quoted prices for similar
assets or liabilities; quoted prices in markets with insufficient volume or infrequent transactions
(less active markets); or model-derived valuations in which all significant inputs are observable
or can be derived principally from or corroborated by observable market data for substantially the
full term of the assets or liabilities. Level 2 assets include certain of our marketable debt
instruments with quoted market prices that are traded in less active markets or priced using a
quoted market price for similar instruments.
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Level 3 Unobservable inputs to the valuation methodology that are significant to the
measurement of fair value of assets or liabilities.
In March 2011, the annual auction for our auction-rate security we hold failed for the fourth time
in four years and the tax-exempt coupon rate of interest was reset to 0.7 percent from its previous
rate of 0.68 percent. We will not have access to these funds prior to maturity until a future
auction for this security is successful, the security has been called by the issuer, or until we
sell the security in a secondary market. We have no current intent to sell this security and it is
not more likely than not that we will be required to sell this security before anticipated recovery
of its remaining amortized cost. The valuation of this security incorporated assumptions about the
anticipated term and the yield that a market participant would require to purchase such a security
in the current market environment. The estimated fair value of the auction-rate security was $2.9
million at March 31, 2011 ($2.9 million at December 31, 2010).
At March 31, 2011 and December 31, 2010, we have included the fair value of this security under the
caption Marketable securities, non-current in the Consolidated Balance Sheets.
Assets / Liabilities Measured at Fair Value on a Recurring Basis
This table summarizes the Companys assets and liabilities measured at fair value on a recurring
basis at March 31, 2011 (in thousands):
Fair Value Measured Using | ||||||||||||||||
Quoted | ||||||||||||||||
Prices in | ||||||||||||||||
Active | Significant | |||||||||||||||
Markets for | Other | Significant | ||||||||||||||
Identical | Observable | Unobservable | ||||||||||||||
Assets | Inputs | Inputs | ||||||||||||||
Total | (Level 1) | (Level 2) | (Level 3) | |||||||||||||
Cash & cash equivalents |
$ | 76,981 | $ | 76,981 | | | ||||||||||
Available-for-sale marketable securities |
||||||||||||||||
Common stock |
$ | 2,698 | $ | 2,698 | | | ||||||||||
Time deposits |
$ | 5,472 | $ | 5,472 | | | ||||||||||
Government debt
obligations |
$ | 45,163 | | $ | 45,163 | | ||||||||||
Government sponsered debt obligations |
$ | 26,461 | | $ | 26,461 | | ||||||||||
Auction Rate Security |
$ | 2,901 | | | $ | 2,901 | ||||||||||
Foreign currency exchange contract asset |
$ | 237 | $ | 237 | ||||||||||||
Foreign currency exchange contract liability |
$ | (96 | ) | $ | (96 | ) | | |
There were no transfers of assets or liabilities between Level 1 and Level 2 during the first
quarter of 2011.
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During the first quarter of 2011, our valuation methodologies were consistent with previous years,
and there were no transfers into or out of Level 3 based on changes in observable inputs.
This table presents a reconciliation for all assets and liabilities measured at fair value on a
recurring basis using significant unobservable inputs (Level 3) for the three months ended March
31, 2011 (in thousands).
Fair Value Measurements Using Significant | ||||||||
Unobservable Inputs (Level 3) | ||||||||
Available-For- | ||||||||
Sale Marketable | ||||||||
Securities | Total | |||||||
Balance at December 31, 2010 |
$ | 2,901 | $ | 2,901 | ||||
Total gains, realized and unrealized: |
||||||||
Included in net income |
| | ||||||
Included in accumulated other comprehensive income |
| | ||||||
Purchases, issuances, and settlements, net |
| | ||||||
Transfers into (out of) Level 3 |
| | ||||||
Balance at March 31, 2011 |
$ | 2,901 | $ | 2,901 | ||||
See Note 4 for further discussion
Assets / Liabilities Measured at Fair Value on a Nonrecurring Basis
All assets and liabilities measured at fair value on a nonrecurring basis are categorized as Level
3, requiring significant management judgment due to the absence of quoted market prices or
observable inputs for assets of a similar nature.
On November 2, 2010, ATMIs Belgian subsidiary acquired the remaining 60 percent of the outstanding
shares of Artelis S.A. The total accounting purchase consideration of $21.8 million included a
cash payment of $4.0 million, the fair value of contingent payments tied to future revenue
performance of $8.4 million, the carrying value of $5.9 million related to our original 40 percent
non-controlling ownership interest, and assumed debt of $3.5 million. The contingent payments tied
to future revenue performance have a range of possible outcomes from zero to $23.3 million.
The liability for the fair value of contingent payments tied to future revenue performance for the
fiscal years 2012 through 2014 of $8.4 million was calculated using unobservable inputs (primarily
using discounted cash flow analyses, a discount rate of 17 percent, and reliance on the market and
product knowledge of internal experts), classified as Level 3, requiring significant management
judgment due to the absence of quoted market prices or observable inputs for assets of a similar
nature. As part of the original arrangement, any future annual contingent payments would be based
on results of fiscal 2012 through 2014. There was no change in our estimate of the fair value of
the contingent payments in the first quarter of 2011. The liability increased by $0.7 million
during the quarter due to accretion of imputed interest under the caption Other income (expense),
net.
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Due to their nature, the carrying value of cash, receivables, and payables approximates fair value.
7. Foreign Currency Exchange Contracts
We use forward foreign currency exchange contracts to hedge specific or anticipated exposures
relating to intercompany payments (primarily U.S. export sales to subsidiaries at pre-established
U.S. dollar prices), intercompany loans and other specific and identified exposures. The terms of
the forward foreign currency exchange contracts are matched to the underlying transaction being
hedged, and are typically under one year. Because such contracts are directly associated with
identified transactions, they represent an economic hedge against fluctuations in the value of the
foreign currency underlying the transaction.
Changes in the fair value of economic hedges are recognized in earnings as an offset to the change
in the fair value of the underlying exposures being hedged. Any hedge ineffectiveness is
recognized in earnings immediately. We do not enter into derivative instruments for trading or
speculative purposes and all of our derivatives were highly effective throughout the periods
reported.
Counterparties to forward foreign currency exchange contracts are major banking institutions with
credit ratings of investment grade or better and no collateral is required. There are no
significant risk concentrations. We believe the risk of incurring losses on derivative contracts
related to credit risk is remote.
At March 31, 2011, we held foreign currency exchange contracts that are economic hedges with
notional amounts totaling $29.9 million, of which $16.2 million will be settled in Euros, $1.9
million will be settled in Taiwan Dollars, $2.2 million will be settled in Japanese Yen and $9.6
million will be settled in Korean Won. Changes in the fair market value (gain or loss) on these
contracts were not significant as of March 31, 2011.
The Company recorded gains of $0.3 million and $0.1 million for the three months ended March 31,
2011 and 2010, respectively under the caption Other income (expense), net in the Consolidated
Statements of Income related to changes in the fair value of its financial instruments for forward
foreign currency exchange contracts.
8. Commitments and Contingencies
ATMI is, from time to time, subject to legal actions, governmental audits, and proceedings relating
to various matters incidental to its business including contract disputes, intellectual property
disputes, product liability claims, employment matters, export and trade matters, and environmental
matters. While the outcome of such matters cannot be predicted with certainty, in the opinion of
management, after reviewing such matters and consulting with ATMIs counsel and considering any
applicable insurance or indemnifications, any liability which may ultimately be incurred is not
expected to materially affect ATMIs consolidated financial position, cash flows or results of
operations.
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ATMI has entered into an agreement with Anji Microelectronics Co., Ltd. (Anji) for the issuance
of a financial guarantee up to $2.5 million in order to assist Anji in securing bank financing,
which is to expire no later than December 31, 2011. ATMIs guarantee is secured by Anjis assets
and additional equity interests in Anjis operating subsidiaries. We believe that, based on
independent credit rating agency research, and our knowledge of their business, Anji continues to
be an acceptable credit risk. The fair value of the financial guarantee is $0.1 million at March
31, 2011.
As part of the Artelis acquisition, we recognized a liability for the fair value of contingent
payments tied to future revenue performance for the fiscal years 2012 through 2014 of $8.4 million.
There was no change in our estimate of the fair value of the contingent payments in the first
quarter of 2011. The liability increased by $0.7 million during the quarter due to accretion of
imputed interest under the caption Other income (expense), net. See Note 6 for further
discussion.
9. Segments
ATMI is organized along functional lines of responsibility, whereby each member of the Companys
executive team has global responsibility for each respective functional area, such as supply chain
operations, sales, marketing, finance, and research and development. The executive team is the
chief operating decision maker of ATMI. Discrete financial information is only prepared at the
product-line level for revenues and certain direct costs. Functional results are reviewed at the
consolidated level. ATMIs operations comprise one operating segment.
ATMI derives virtually all of its revenues from providing materials and packaging products and
related integrated process solutions to microelectronics and life sciences manufacturers. ATMIs
products are consumed or used in the front-end manufacturing process. They span many different
technology applications at various stages of maturity and in many cases are inter-related in their
application to a customers process.
Revenues from external customers, by product type, were as follows (in thousands):
Three Months Ended | ||||||||
March 31, | ||||||||
2011 | 2010 | |||||||
Microelectronics |
$ | 90,149 | $ | 76,713 | ||||
Life sciences |
10,575 | 8,598 | ||||||
Total |
$ | 100,724 | $ | 85,311 | ||||
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Item 2. | Managements Discussion and Analysis of Financial Condition and Results of Operations. |
Three Months Ended March 31, 2011 as Compared to 2010
Cautionary Statements Under the Private Securities Litigation Reform Act of 1995
Disclosures included in this Form 10-Q contain 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. Forward-looking statements may be identified by words such as
anticipate, plan, believe, seek, estimate, expect, could, and words of similar
meanings and include, without limitation, statements about the expected future business and
financial performance of ATMI such as financial projections, expectations for demand and sales of
new and existing products, customer and supplier relationships, research and development programs,
market and technology opportunities, international trends, business strategies, business
opportunities, objectives of management for future operations, microelectronics industry (including
wafer start) growth, and trends in the markets in which the Company participates. Forward-looking
statements are based on managements current expectations and assumptions, which are inherently
subject to uncertainties, risks and changes in circumstances that are difficult to predict. Actual
outcomes and results may differ materially from these expectations and assumptions because of
changes in political, economic, business, competitive, market, regulatory, and other factors.
Certain factors that could cause such differences include:
| variation in profit margin performance caused by decreases in shipment volume, product
quality issues, reductions in, or obsolescence of, inventory, inefficiencies in production
facilities and shifts in product mix; |
| cyclicality in the markets in which we operate; |
| disruptions in global credit and financial markets, including severely diminished liquidity
and credit availability, declines in consumer confidence, declines in economic growth,
increases in unemployment rates, inflationary or deflationary pressures, and uncertainty about
economic stability; |
| aggressive management of inventory levels by our customers and their customers; |
| availability of supply from a single or limited number of suppliers or from suppliers in a
single country; |
| highly competitive markets for our products; |
| inability to realize our anticipated gains from investments in new technology; |
| changes in export controls, environmental and other laws or policies, as well as the general
political and economic conditions, exchange rate fluctuations, security risks, health
conditions and possible disruptions in transportation networks, of the various countries in
which we operate; |
| potential natural disasters in locations where we, our customers, or our suppliers operate; |
| climate change and compliance with climate change related country regulations: |
| loss, or significant curtailment, of purchases by one or more of our largest customers; |
| customer-driven pricing pressures adversely affecting our average selling prices and margin;
|
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| inability to meet customer demand from quarter to quarter, causing us to incur expedited
shipping costs or hold excess or obsolete inventory; |
| taxation and audit by taxing authorities in the various countries in which we operate; |
| competition for highly skilled scientific, technical, managerial and marketing personnel; |
| inability to continue to anticipate rapidly changing technologies and market trends, to
enhance our existing products and processes, to develop and commercialize new products and
processes, and to expand through selected acquisitions of technologies or businesses or other
strategic alliances; |
| inability to protect our competitive position via our patents, patent applications, and
licensed technology in the United States and other countries; restrictions on our ability to
make and sell our products as a result of competitors patents; costly and time-consuming
patent litigation; |
| risk of product claims beyond existing insurance coverage levels resulting from the
manufacture and sale of our products, which include thin film and other toxic materials; |
| inability to realize the anticipated benefits of acquisitions due to difficulties integrating
acquired businesses with our current operations; |
| fluctuations in currency exchange rates; |
| governmental regulations related to the storage, use, and disposal of certain toxic or
otherwise hazardous chemicals in our manufacturing, processing and research and development
activities, as well as regulations applicable to both operators and owners of property where
releases of hazardous substances may have occurred (including releases by prior occupants);
and |
| uncertainty regarding compliance matters and higher costs resulting from changing laws,
regulations and standards relating to corporate governance and public disclosure, including
the Sarbanes-Oxley Act of 2002, the Dodd-Frank Wall Street Reform and Consumer Protection Act
and new regulations from the SEC. |
These risks and uncertainties are described in more detail in our Annual Report on Form 10-K for
the fiscal year ended December 31, 2010, and our other subsequent filings with the Securities and
Exchange Commission (SEC) and in materials incorporated by reference in these filings. Like other
companies, we are susceptible to macroeconomic downturns in the United States or abroad that may
affect the general economic climate and our performance and the performance of our customers. The
price of our common stock is subject to volatility due to fluctuations in general market
conditions, differences in our results of operations from estimates and projections generated by
the investment community, and other factors beyond our control. ATMI undertakes no obligation to
update publicly or review any forward-looking statements, whether as a result of new information,
future developments or otherwise, except as required by law.
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Company Overview
ATMI, Inc. (together with its subsidiaries, collectively referred to as the Company, ATMI, or
we) believes it is among the leading suppliers of high performance materials, materials packaging
and materials delivery systems used worldwide in the manufacture of microelectronics devices. Our
products consist of front-end semiconductor performance materials, sub-atmospheric pressure gas
delivery systems for safe handling and delivery of toxic and hazardous gases to semiconductor
process equipment, high-purity materials packaging and dispensing systems that allow for the
reliable introduction of low volatility liquids and solids to microelectronics and
biopharmaceutical processes. ATMI targets semiconductor and flat-panel display manufacturers, whose
products form the foundation of microelectronics technology rapidly proliferating through the
consumer products, information technology, automotive, and communications industries. The market
for microelectronics devices is continually changing, which drives demand for new products and
technologies at lower cost. ATMIs customers include many of the leading semiconductor
manufacturers in the world who target leading edge technologies. ATMI also addresses an increasing
number of critical materials handling needs for the life sciences markets. Our proprietary
containment, mixing, and bioreactor technologies are sold to the biotechnology and laboratory
markets, which we believe offer significant growth potential. ATMIs objective is to meet the
demands of our microelectronics and life sciences customers with solutions that maximize the
efficiency of their manufacturing processes, reduce capital costs, and minimize the time to develop
new products and integrate them into their processes.
Results of Operations
Executive Summary
In the first quarter of 2011, we achieved record revenues of $100.7 million, which were 18.1
percent higher than the first quarter of 2010. The increase was primarily due to strong consumer
electronics demand which drove higher wafer starts and increased fab utilization during the period.
The growth in revenues, which was seen in most of our product lines, was most pronounced in our
copper materials, as customers continued ramping the production of advanced nodes. Gross profit
margin in the first quarter of 2011 declined to 47.7 percent compared to 48.9 percent in the prior
year quarter driven by some anticipated price reductions and unanticipated cost overruns. Revenue increases and
higher gross profit were offset by increased research and development spending and incremental
operating expenses incurred as a result of the Artelis acquisition announced in November 2010
resulting in a 7.6% decline in net income to $8.0 million ($0.25 per diluted share) in the first
quarter of 2011 compared to a net income of $8.7 million ($0.27 per diluted share) in the first
quarter of 2010.
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Going forward, business and market uncertainties may continue to affect results. See Cautionary
Statements Under the Private Securities Litigation Reform Act of 1995 above and Managements
Discussion and Analysis in our Annual Report on Form 10-K for the fiscal year ended December 31,
2010 for a full discussion of the key factors which affect our business and operating results.
Revenues
2011 | 2010 | % Change | ||||||||||
Quarter ended March 31, |
$ | 100,724 | $ | 85,311 | 18.1 | % |
Revenues grew in the first quarter of 2011 compared to the first quarter of 2010 across most
of our product lines and were primarily the result of higher customer demand driven by higher wafer
starts and fab utilization. Revenues in our microelectronics product lines grew 17.5 percent to
$90.1 million in the first quarter of 2011 from $76.7 million in the first quarter of 2010.
Revenue growth in microelectronics in 2010 was consistent with overall market growth associated
with continued increased wafer starts and fab utilization. Revenues in our life sciences product
lines increased 23.0 percent in the first quarter of 2011 to $10.6 million compared to $8.6 million
in the first quarter of 2010, primarily as a result of royalties from intellectual property
licensing agreements. We entered into a license with a third party in the first quarter that
included the payment of royalties for prior periods to 2011. While demand, in general, has been
improving, given the continuing pressures to bring costs down in the consumer and microelectronic
industries, we continue to experience pricing pressure with several of our legacy products,
including SDS and our photo and copper material products.
Gross Profit
2011 | 2010 | |||||||||||||||
% of | % of | |||||||||||||||
Amount | Revenues | Amount | Revenues | |||||||||||||
Quarter ended March 31, |
$ | 48,091 | 47.7 | % | $ | 41,689 | 48.9 | % |
Gross profit increased 15.4 percent to $48.1 million in the first quarter of 2011 from $41.7
million in the first quarter of 2010. Gross profit in our microelectronics product lines increased
15.2 percent to $43.3 million in the first quarter of 2011 from $37.6 million in the first quarter
of 2010. Gross profit margins in our microelectronics product lines were approximately 48 percent
in the first quarter of 2011 compared to approximately 49 percent in the first quarter of 2010. The
increase in gross profit was driven by sales volume increases as a result of improved economic
conditions. Gross profit in our life sciences product lines increased 17.0 percent to $4.8 million
in the first quarter of 2011 compared to $4.1 million in the first quarter of 2010. Gross profit
margins in our life sciences product lines were approximately 45 percent in the first quarter of
2011 down from approximately 48 percent in the first quarter of 2010. In the first quarter of 2011
gross margins from our life sciences product lines would have been approximately 32 percent without
the benefit of licensing revenues described above. The decline in gross margin in the first quarter
of 2011 includes the effect of the U.S. manufacturing capacity we brought online in mid-2010.
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Research and Development Expenses
2011 | 2010 | |||||||||||||||
% of | % of | |||||||||||||||
Amount | Revenues | Amount | Revenues | |||||||||||||
Quarter ended March 31, |
$ | 13,451 | 13.4 | % | $ | 9,723 | 11.4 | % |
Research and development (R&D) expense increased 38.3 percent to $13.5 million in the first
quarter of 2011 from $9.7 million in the first quarter of 2010. The increase in R&D spending was
caused by increased High Productivity Development (HPD) licensing and maintenance contract costs
($1.3 million), consumables ($0.3 million), outside services ($0.1 million), and R&D expenses
associated with the November 2010 Artelis acquisition ($0.5 million).
Selling, General and Administrative Expenses
2011 | 2010 | |||||||||||||||
% of | % of | |||||||||||||||
Amount | Revenues | Amount | Revenues | |||||||||||||
Quarter ended March 31, |
$ | 22,982 | 22.8 | % | $ | 19,972 | 23.4 | % |
SG&A expenses increased 15.1 percent to $23.0 million in the first quarter of 2011 from $20.0
million in the first quarter of 2010. The increase in the first quarter of 2011 is the result of
SG&A expenses associated with the November 2010 Artelis acquisition ($1.2 million), increased
employee related costs ($1.7 million) which were caused by increased payroll on higher headcount
($0.6 million), increased payroll taxes ($0.4 million), increased employee incentives ($0.3
million) and higher benefits costs ($0.4 million). Also contributing to the SG&A increase in the
first quarter was travel ($0.3 million), and increased customer samples to drive future revenues
through customer qualifications ($0.3 million).
Operating Income
2011 | 2010 | |||||||||||||||
% of | % of | |||||||||||||||
Amount | Revenues | Amount | Revenues | |||||||||||||
Quarter ended March 31, |
$ | 11,658 | 11.6 | % | $ | 11,994 | 14.1 | % |
Operating income declined 2.8 percent to $11.7 million in the first quarter of 2011 compared to
$12.0 million in the first quarter of 2010. This change is from a variety of factors, including
increased R&D spending to drive new product generation, as noted above.
Interest Income
Interest income increased slightly to $0.4 million in the first quarter of 2011 from $0.2 million
in the first quarter of 2010.
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Other Income (Expense), Net
In the first quarter of 2011, other income (expense), net, was an expense of $0.1 million.
Provision for Income Taxes
Effective Rate | ||||||||
2011 | 2010 | |||||||
Quarter ended March 31, |
33.0 | % | 29.2 | % |
We have not provided for U.S. federal income and foreign withholding taxes on approximately $74.0
million of undistributed earnings from non-U.S. operations as of March 31, 2011, because such
earnings are intended to be reinvested indefinitely outside of the United States. These earnings
could become subject to additional tax if they are remitted as dividends, loaned to ATMI, or upon
sale of subsidiary stock. It is not practicable to estimate the amount or timing of the additional
tax, if any, that eventually might be paid on the foreign earnings.
We had an effective income tax rate of 33.0 percent for the three month period ended March 31,
2011. The effective income tax rate differs from the U.S. federal statutory income tax rate of 35.0
percent primarily due to the mix of income attributable to the various countries in which we
conduct business, the increase in the valuation allowance on certain foreign losses, the impact of
our reserves, and the R&D credit. In the first quarter of 2011, we recorded a tax provision of
$0.4 million related to equity-based compensation, partially offset by a reversal of $0.2 million
of previously established reserves. Without these items our effective income tax rate for the three
month period ended March 31, 2011 would have been 30.9 percent, and included a valuation allowance
on certain foreign losses. If a tax benefit had been reflected on these foreign losses, our annual
effective tax rate (excluding the first quarter discrete items mentioned above) would have been
27.1 percent.
At March 31, 2011, the Company has recorded $6.1 million of unrecognized tax benefits. If any
portion of this $6.1 million is subsequently recognized, the Company will then include that portion
in the computation of its effective tax rate. On the consolidated balance sheet, $0.7 million of
this amount is included in deferred taxes, and $5.4 million is included in the caption Other
non-current liabilities, including $0.7 million of accrued interest (net) on tax reserves and $0
accrued for penalties.
It is reasonably possible that in the next 12 months, because of changes in facts and
circumstances, the unrecognized tax benefits for tax positions taken related to previously filed
tax returns may decrease. The range of possible decrease is $0 million to $0.6 million (excluding
interest). The Company has been audited in the United States by the Internal Revenue Service
through tax year 2007. During 2010, the Internal Revenue Service initiated a U.S. tax audit of tax
years 2008 and 2009 which is currently pending.
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Liquidity and Capital Resources
We assess liquidity in terms of our ability to generate cash to fund our operating and investing
activities. Of particular importance to management are cash flows generated by operating
activities, cash used for capital expenditures, and cash used for acquisitions.
Until required for use in the business, we invest our cash reserves in bank deposits, certificates
of deposit, money market securities, government and government-sponsored bond obligations, and
other interest bearing marketable debt instruments in accordance with our investment policy. We
have contracted with investment advisers to invest our funds consistent with our investment policy.
The value of our investments may be adversely affected by increases in interest rates, instability
in the global financial markets that reduces the liquidity of securities included in our portfolio,
and by other factors which may result in other-than-temporary declines in value of the investments,
which could impact our financial position and our overall liquidity. Each of these events may cause
us to record charges to reduce the carrying value of our investment portfolio or sell investments
for less than our acquisition cost. We attempt to mitigate these risks with the assistance of our
investment advisors by investing in high-quality securities and monitoring the overall risk profile
of our portfolio. We also maintain a well-diversified portfolio that limits our credit exposure
through concentration limits set within our investment policy.
We have financed our operating needs and capital expenditures through cash flows from our
operations, and existing cash. We expect to continue to finance current and planned operating
requirements principally through cash from operations, as well as existing cash resources. We
believe that these funds will be sufficient to meet our operating requirements for the foreseeable
future. However, we may, from time to time, seek additional funding through a combination of
equity and debt financings or from other sources.
We continue to invest in R&D to provide future sources of revenue through the development of new
products, as well as through additional uses for existing products. We consider R&D and the
development of new products and technologies an integral part of our growth strategy and a core
competency of the Company. Likewise, we continue to make capital expenditures in order to expand
and modernize manufacturing facilities around the globe and to drive efficiencies throughout the
organization. Additionally, management considers, on a continuing basis, potential acquisitions of
strategic technologies and businesses complementary to the Companys current business.
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A summary of our cash flows follows (in thousands):
Three Months Ended | ||||||||
March 31, | ||||||||
2011 | 2010 | |||||||
Cash provided by (used for): |
||||||||
Operating activities |
$ | 18,213 | $ | 19,545 | ||||
Investing activities |
(9,210 | ) | (34,374 | ) | ||||
Financing activities |
(421 | ) | (1,142 | ) | ||||
Effects of exchange rate changes on cash and cash
equivalents |
(249 | ) | 73 |
Operating Activities
During the quarter ended March 31, 2011, we generated $18.2 million of cash from operations, which
was $1.3 million lower than the $19.5 million generated during the quarter ended March 31, 2010.
Cash generated from operations was primarily from net income, as adjusted for non-cash items,
decreases in accounts receivable, other assets and income taxes receivable, and increases in
accounts payable and other liabilities. These items were partially offset by increases in
inventories and decreases in accrued expenses. Accrued expenses were a use of cash of $6.3 million
primarily as a result of the payout of 2010 incentive compensation.
Investing Activities
Net cash used for investing activities decreased by $25.2 million in the quarter ended March 31,
2011 to $9.2 million versus the quarter ended March 31, 2010. Our investing activities primarily
relate to purchases of property, plant and equipment, purchases, sales and maturities of marketable
securities, and acquisitions. The decrease of cash used for investing activities was driven by the
significant reduction in purchases of marketable securities and significant increase in sales and
maturities of marketable securities, partially offset by a $6.7 million purchase of a cost-basis
investment, and an increase in capital expenditures.
Financing Activities
Financing activities resulted in a use of cash of $0.4 million, which was a decrease of $0.7
million in cash used versus the quarter ended March 31, 2010. The decrease was primarily related
to proceeds of $0.4 million from the exercise of stock options.
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Critical Accounting Estimates
There have been no material changes from the methodologies applied by management for critical
accounting estimates previously disclosed in ATMIs most recent Annual Report on Form 10-K.
Off-Balance Sheet Arrangements and Contractual Obligations
ATMI has extended a pledge agreement with Anji Microelectronics Co., Ltd. (Anji) for the issuance
of a financial guarantee up to $2.5 million in order to assist Anji in securing bank financing,
which will expire no later than December 31, 2011. ATMIs guarantee is secured by Anjis assets
and additional equity interests in Anjis operating subsidiaries. We believe that, based on
independent credit rating agency research, and our knowledge of their business, Anji continues to
be an acceptable credit risk. The fair value of the financial guarantee is $0.1 million at March
31, 2011.
Item 3. | Quantitative and Qualitative Disclosures About Market Risk |
Interest Rate Risk. As of March 31, 2011, the Companys cash and cash equivalents and
marketable securities included bank deposits, time deposits, money market securities, government
and government-sponsored bond obligations. As of March 31, 2011, an increase of 100 basis points
in interest rates on securities with maturities greater than one year would reduce the fair value
of the Companys marketable securities portfolio by approximately $0.8 million. Conversely, a
reduction of 100 basis points in interest rates on securities with maturities greater than one year
would increase the fair value of the Companys marketable securities portfolio by approximately
$0.6 million.
Foreign Currency Exchange Risk. Most of the Companys sales are denominated in U.S. dollars
and as a result, the Company does not have any significant exposure to foreign currency exchange
risk with respect to sales made. Approximately 35 percent, of the Companys revenues for the three
month period ended March 31, 2011 were denominated in Japanese Yen (JPY), Korean Won (KRW), and
Euros (EUR), but a majority of the product is sourced in U.S. dollars. Management periodically
reviews the Companys exposure to currency fluctuations. This exposure may change over time as
business practices evolve and could have a material effect on the Companys financial results in
the future. We use forward foreign exchange contracts to hedge specific exposures relating to
intercompany payments and anticipated, but not yet committed, intercompany sales (primarily parent
company export sales to subsidiaries at pre-established U.S. dollar prices). The terms of the
forward foreign exchange contracts are generally matched to the underlying transaction being
hedged, and are typically under one year.
Because such contracts are directly associated with identified transactions, they are an effective
hedge against fluctuations in the value of the foreign currency underlying the transaction. We
recognize in earnings (other income (expense), net) changes in the fair value of all derivatives
designated as fair value hedges that are highly effective and recognize in Accumulated other
comprehensive income any changes in the fair value of all derivatives designated as cash flow
hedges that are highly effective and meet the other related accounting requirements. We generally
do not hedge overseas sales denominated in foreign currencies or translation
exposures. Further, we do not enter into derivative instruments for trading or speculative purposes
and all of our derivatives were highly effective throughout the periods reported.
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At March 31, 2011, we held forward foreign currency exchange contracts as economic hedges with
notional amounts totaling $29.9 million, which are being used to hedge recorded foreign denominated
liabilities and which will be settled in either JPY, EUR, KRW or New Taiwan Dollars (NTD).
Holding other variables constant, if there were a 10 percent decline in foreign exchange rates
against the US dollar for the JPY, NTD, KRW and EUR, the fair market value of the foreign exchange
contracts outstanding at March 31, 2011 would decrease by approximately $0.1 million, which would
be expected to be fully offset by foreign exchange gains on the amounts being hedged. The effect
of an immediate 10 percent change in other foreign exchange rates would not be expected to have a
material effect on the Companys future operating results or cash flows.
Item 4. | Controls and Procedures |
Our management, with the participation of our Chief Executive Officer (CEO) and Chief Financial
Officer (CFO), has evaluated the effectiveness of our disclosure controls and procedures (as such
term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the
period covered by this Form 10-Q. There are inherent limitations to the effectiveness of any system
of disclosure controls and procedures, including the possibility of human error and the
circumvention or overriding of the controls and procedures. Accordingly, even effective disclosure
controls and procedures can only provide reasonable assurance of achieving their control
objectives. Based upon this evaluation, our CEO and CFO concluded that, as of the end of the
period covered by this Form 10-Q, our disclosure controls and procedures were effective in that
they provided reasonable assurance that the information we are required to disclose in the reports
we file or submit under the Exchange Act is recorded, processed, summarized and reported within the
time periods specified in the applicable rules and forms, and that it is accumulated and
communicated to our management, including our CEO and CFO, as appropriate, to allow timely
decisions regarding required disclosure.
We routinely review our internal control over financial reporting and from time to time make
changes intended to enhance the effectiveness of our internal control over financial reporting.
There have been no changes to our internal control over financial reporting, as such term is
defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act, during the first quarter of fiscal
2011 that we believe materially affected, or will be reasonably likely to materially affect, our
internal control over financial reporting.
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PART II- OTHER INFORMATION
Item 1. | Legal Proceedings |
ATMI is, from time to time, involved in legal actions, governmental audits, and proceedings
relating to various matters incidental to its business including contract disputes, intellectual
property disputes, product liability claims, employment matters, export and trade matters, and
environmental claims. While the outcome of such matters cannot be predicted with certainty, in the
opinion of management, after reviewing such matters and consulting with ATMIs counsel and
considering any applicable insurance or indemnifications, any liability which may ultimately be
incurred is not expected to materially affect ATMIs consolidated financial position, cash flows or
results of operations.
Item 1A. | Risk Factors |
There have been no material changes to the Risk Factors, which are described in more detail in our
Annual Report on Form 10-K for the fiscal year ended December 31, 2010, and our other subsequent
filings with the Securities and Exchange Commission and in materials incorporated by reference in
these filings. See also Cautionary Statements Under the Private Securities Litigation Reform Act
of 1995 within this Form 10-Q.
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds |
Purchases of Equity Securities There were no share repurchases during the three months ended
March 31, 2011 of any of our securities registered under Section 12 of the Exchange Act, by or on
behalf of us, or any affiliated purchaser. We withheld 41,604 shares (at an average price of
$18.64 per share) through net share settlements during the three months ended March 31, 2011, upon
the vesting of restricted stock awards to cover minimum tax withholding obligations.
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Item 6. | Exhibits |
31.1 | Certification of the Chief Executive Officer pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002. |
|||
31.2 | Certification of the Chief Financial Officer pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002. |
|||
32 | Certifications of the Chief Executive Officer and Chief Financial
Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned thereunto duly authorized.
ATMI, Inc. | ||||||
April 20, 2011 |
||||||
By | /s/ Douglas A. Neugold
|
|||||
Chairman, President and Chief Executive Officer | ||||||
By | /s/ Timothy C. Carlson
|
|||||
Executive Vice President, | ||||||
Chief Financial Officer and Treasurer |
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