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Table of Contents

 
 
UNITED STATES
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
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes 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 registrant’s 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
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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.

 

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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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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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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.

 

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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. ATMI’s 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. ATMI’s 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 Company’s Annual Report on Form 10-K for the year ended December 31, 2010. The Company’s 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.

 

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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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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.” ATMI’s share of the income or losses of all equity-method investees, using the most current financial information available, which is one month behind ATMI’s 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.

 

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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 entity’s economic performance, and we are also not expected to absorb significant losses or gains from Anji. ATMI’s 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 Anji’s 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 vendor’s 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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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 Company’s 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 Company’s 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 Company’s 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 Company’s 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, ATMI’s 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 ATMI’s counsel and considering any applicable insurance or indemnifications, any liability which may ultimately be incurred is not expected to materially affect ATMI’s 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. ATMI’s guarantee is secured by Anji’s assets and additional equity interests in Anji’s 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 Company’s 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. ATMI’s 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. ATMI’s 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 customer’s 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.  
Management’s 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 management’s 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. ATMI’s 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. ATMI’s 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 Management’s 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 Company’s 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 ATMI’s 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. ATMI’s guarantee is secured by Anji’s assets and additional equity interests in Anji’s 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 Company’s 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 Company’s 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 Company’s marketable securities portfolio by approximately $0.6 million.
Foreign Currency Exchange Risk. Most of the Company’s 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 Company’s 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 Company’s exposure to currency fluctuations. This exposure may change over time as business practices evolve and could have a material effect on the Company’s 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 Company’s 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 ATMI’s counsel and considering any applicable insurance or indemnifications, any liability which may ultimately be incurred is not expected to materially affect ATMI’s 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
 
Douglas A. Neugold
   
 
      Chairman, President and Chief Executive Officer    
 
           
 
  By   /s/ Timothy C. Carlson
 
Timothy C. Carlson
   
 
      Executive Vice President,    
 
      Chief Financial Officer and Treasurer    

 

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