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EXCEL - IDEA: XBRL DOCUMENT - ATMI INC | Financial_Report.xls |
EX-32 - EXHIBIT 32 - ATMI INC | c20086exv32.htm |
EX-31.1 - EXHIBIT 31.1 - ATMI INC | c20086exv31w1.htm |
EX-31.2 - EXHIBIT 31.2 - ATMI INC | c20086exv31w2.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 June 30, 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 þ 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 June 30, 2011 was
31,675,707.
ATMI, INC.
Quarterly Report on Form 10-Q
For the Quarter Ended June 30, 2011
Quarterly Report on Form 10-Q
For the Quarter Ended June 30, 2011
TABLE OF CONTENTS
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Exhibits |
||||||||
Exhibit 31.1 | ||||||||
Exhibit 31.2 | ||||||||
Exhibit 32 | ||||||||
EX-101 INSTANCE DOCUMENT | ||||||||
EX-101 SCHEMA DOCUMENT | ||||||||
EX-101 CALCULATION LINKBASE DOCUMENT | ||||||||
EX-101 LABELS LINKBASE DOCUMENT | ||||||||
EX-101 PRESENTATION LINKBASE DOCUMENT | ||||||||
EX-101 DEFINITION LINKBASE DOCUMENT |
2
Table of Contents
PART I FINANCIAL INFORMATION
Item 1. | Financial Statements |
ATMI, Inc.
Consolidated Balance Sheets
(in thousands, except per share data)
June 30, | December 31, | |||||||
2011 | 2010 | |||||||
(unaudited) | ||||||||
Assets |
||||||||
Current assets: |
||||||||
Cash and cash equivalents |
$ | 74,179 | $ | 68,648 | ||||
Marketable securities, current portion |
80,120 | 58,495 | ||||||
Accounts receivable, net of allowances of $781 and $783, respectively |
54,880 | 54,518 | ||||||
Inventories, net |
68,704 | 62,832 | ||||||
Income taxes receivable |
3,262 | 4,627 | ||||||
Deferred income taxes |
6,894 | 6,801 | ||||||
Prepaid expenses |
12,119 | 14,384 | ||||||
Other current assets |
13,084 | 12,695 | ||||||
Total current assets |
313,242 | 283,000 | ||||||
Property, plant, and equipment, net |
117,757 | 119,053 | ||||||
Goodwill |
48,155 | 46,981 | ||||||
Other intangible assets, net |
28,269 | 28,948 | ||||||
Marketable securities, non-current |
13,482 | 25,429 | ||||||
Deferred income taxes, non-current |
2,371 | 2,097 | ||||||
Other non-current assets |
37,555 | 28,081 | ||||||
Total assets |
$ | 560,831 | $ | 533,589 | ||||
Liabilities and stockholders equity |
||||||||
Current liabilities: |
||||||||
Accounts payable |
$ | 21,588 | $ | 21,045 | ||||
Accrued liabilities |
5,508 | 5,918 | ||||||
Accrued salaries and related benefits |
10,851 | 12,163 | ||||||
Income taxes payable |
672 | 3,700 | ||||||
Other current liabilities |
3,828 | 3,911 | ||||||
Total current liabilities |
42,447 | 46,737 | ||||||
Deferred income taxes, non-current |
12,451 | 10,245 | ||||||
Other non-current liabilities |
19,341 | 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;
39,865 and 39,640 issued and 31,676 and 31,495 outstanding in 2011
and 2010, respectively |
398 | 396 | ||||||
Additional paid-in capital |
440,730 | 435,840 | ||||||
Treasury stock at cost (8,189 and 8,145 shares in 2011 and 2010, respectively) |
(231,096 | ) | (230,272 | ) | ||||
Retained earnings |
267,574 | 248,433 | ||||||
Accumulated other comprehensive income |
8,986 | 4,028 | ||||||
Total stockholders equity |
486,592 | 458,425 | ||||||
Total liabilities and stockholders equity |
$ | 560,831 | $ | 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 | ||||||||
June 30, | ||||||||
2011 | 2010 | |||||||
Revenues |
$ | 104,027 | $ | 90,996 | ||||
Cost of revenues |
54,565 | 47,441 | ||||||
Gross profit |
49,462 | 43,555 | ||||||
Operating expenses: |
||||||||
Research and development |
14,251 | 12,465 | ||||||
Selling, general and administrative |
19,763 | 20,446 | ||||||
Total operating expenses |
34,014 | 32,911 | ||||||
Operating income |
15,448 | 10,644 | ||||||
Interest income |
289 | 222 | ||||||
Other expense, net |
(8 | ) | (129 | ) | ||||
Income before income taxes |
15,729 | 10,737 | ||||||
Provision for income taxes |
4,595 | 3,139 | ||||||
Net income |
$ | 11,134 | $ | 7,598 | ||||
Earnings per common share basic |
$ | 0.35 | $ | 0.24 | ||||
Weighted average shares outstanding basic |
31,665 | 31,509 | ||||||
Earnings per common share diluted |
$ | 0.34 | $ | 0.24 | ||||
Weighted average shares outstanding diluted |
32,328 | 31,938 |
See accompanying notes.
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Table of Contents
ATMI, Inc.
Consolidated Statements of Income
(unaudited)
(in thousands, except per share data)
Consolidated Statements of Income
(unaudited)
(in thousands, except per share data)
Six Months Ended | ||||||||
June 30, | ||||||||
2011 | 2010 | |||||||
Revenues |
$ | 204,751 | $ | 176,307 | ||||
Cost of revenues |
107,198 | 91,063 | ||||||
Gross profit |
97,553 | 85,244 | ||||||
Operating expenses: |
||||||||
Research and development |
27,702 | 22,188 | ||||||
Selling, general and administrative |
42,745 | 40,418 | ||||||
Total operating expenses |
70,447 | 62,606 | ||||||
Operating income |
27,106 | 22,638 | ||||||
Interest income |
713 | 428 | ||||||
Other expense, net |
(132 | ) | (95 | ) | ||||
Income before income taxes |
27,687 | 22,971 | ||||||
Provision for income taxes |
8,546 | 6,707 | ||||||
Net income |
$ | 19,141 | $ | 16,264 | ||||
Earnings per common share basic |
$ | 0.60 | $ | 0.52 | ||||
Weighted average shares outstanding basic |
31,674 | 31,527 | ||||||
Earnings per common share diluted |
$ | 0.59 | $ | 0.51 | ||||
Weighted average shares outstanding diluted |
32,325 | 31,985 |
See accompanying notes.
5
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 36 shares of common stock
pursuant to the exercise of employee
stock options |
| 609 | | | | 609 | ||||||||||||||||||
Issuance of 8 shares of common stock
pursuant to the employee stock
purchase plan |
| 153 | | | | 153 | ||||||||||||||||||
Purchase of 44 treasury shares |
| | (824 | ) | | | (824 | ) | ||||||||||||||||
Stock-based compensation |
| 4,130 | | | | 4,130 | ||||||||||||||||||
Other |
2 | (2 | ) | | | | | |||||||||||||||||
Net income |
| | | 19,141 | | 19,141 | ||||||||||||||||||
Reclassification adjustment related to
marketable securities sold in net unrealized
gain position, net of $3 tax provision |
| | | | (5 | ) | (5 | ) | ||||||||||||||||
Change in fair value on available-for-sale
securities, net of deferred income tax of
$133 |
| | | | 228 | 228 | ||||||||||||||||||
Cumulative translation adjustment |
| | | | 4,735 | 4,735 | ||||||||||||||||||
Comprehensive income |
| | | | | 24,099 | ||||||||||||||||||
Balance at June 30, 2011 |
$ | 398 | $ | 440,730 | $ | (231,096 | ) | $ | 267,574 | $ | 8,986 | $ | 486,592 | |||||||||||
See accompanying notes.
6
Table of Contents
ATMI, Inc.
Consolidated Statements of Cash Flows
(unaudited)
(in thousands)
Six Months Ended | ||||||||
June 30, | ||||||||
2011 | 2010 | |||||||
Operating activities |
||||||||
Net income |
$ | 19,141 | $ | 16,264 | ||||
Adjustments to reconcile net income to cash provided by operating activities: |
||||||||
Depreciation and amortization |
13,572 | 13,499 | ||||||
Deferred income taxes |
1,351 | (457 | ) | |||||
Stock-based compensation expense |
4,130 | 4,308 | ||||||
Gain on remeasurement of contingent consideration |
(921 | ) | | |||||
Other |
1,561 | 1,047 | ||||||
Changes in operating assets and liabilities: |
||||||||
Accounts receivable |
412 | (1,931 | ) | |||||
Inventories |
(5,149 | ) | (3,212 | ) | ||||
Other assets |
(412 | ) | (5,089 | ) | ||||
Accounts payable |
311 | 2,024 | ||||||
Accrued expenses, income taxes and other liabilities |
(3,131 | ) | 5,766 | |||||
Net cash provided by operating activities |
30,865 | 32,219 | ||||||
Investing activities |
||||||||
Capital expenditures |
(9,115 | ) | (6,455 | ) | ||||
Purchases of marketable securities |
(62,176 | ) | (51,159 | ) | ||||
Proceeds from sales or maturities of marketable securities |
53,371 | 20,042 | ||||||
Acquisition of cost-basis investment |
(6,746 | ) | | |||||
Other |
49 | 4 | ||||||
Net cash used for investing activities |
(24,617 | ) | (37,568 | ) | ||||
Financing activities |
||||||||
Purchases of treasury stock |
(824 | ) | (704 | ) | ||||
Proceeds from exercise of stock options |
762 | 137 | ||||||
Credit line borrowings |
| 1,724 | ||||||
Credit line repayments |
| (2,207 | ) | |||||
Other |
(22 | ) | (31 | ) | ||||
Net cash used for financing activities |
(84 | ) | (1,081 | ) | ||||
Effects of exchange rate changes on cash and cash equivalents |
(633 | ) | 234 | |||||
Net increase (decrease) in cash and cash equivalents |
5,531 | (6,196 | ) | |||||
Cash and cash equivalents, beginning of period |
68,648 | 64,738 | ||||||
Cash and cash equivalents, end of period |
$ | 74,179 | $ | 58,542 | ||||
See accompanying notes.
7
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 or operating 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 June 30, 2011 and for
the three and six months ended June 30, 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.
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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 | Six Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Numerator: |
||||||||||||||||
Net income |
$ | 11,134 | $ | 7,598 | $ | 19,141 | $ | 16,264 | ||||||||
Denominator: |
||||||||||||||||
Denominator for basic earnings per share
weighted average shares |
31,665 | 31,509 | 31,674 | 31,527 | ||||||||||||
Dilutive effect of employee stock options |
51 | 12 | 45 | 13 | ||||||||||||
Dilutive effect of restricted stock |
612 | 417 | 606 | 445 | ||||||||||||
Denominator for diluted earnings per
common share weighted average shares |
32,328 | 31,938 | 32,325 | 31,985 | ||||||||||||
Earnings per share-basic |
$ | 0.35 | $ | 0.24 | $ | 0.60 | $ | 0.52 | ||||||||
Earnings per share-diluted |
$ | 0.34 | $ | 0.24 | $ | 0.59 | $ | 0.51 |
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 | Six Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Antidilutive shares |
1,045 | 1,530 | 1,060 | 1,530 |
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Table of Contents
Inventories
Inventories include (in thousands):
June 30, | December 31, | |||||||
2011 | 2010 | |||||||
Raw materials |
$ | 17,090 | $ | 16,499 | ||||
Work in process |
2,958 | 2,133 | ||||||
Finished goods |
51,750 | 46,575 | ||||||
71,798 | 65,207 | |||||||
Excess and obsolescence reserve |
(3,094 | ) | (2,375 | ) | ||||
Inventories, net |
$ | 68,704 | $ | 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
June 30, 2011, the carrying value of our portfolio of strategic investments in non-marketable
equity securities totaled $29.3 million ($22.3 million at December 31, 2010), of which $25.4
million are accounted for at cost ($18.6 million at December 31, 2010), and $3.9 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 $78.9
million of undistributed earnings from non-U.S. operations as of June 30, 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 29.2 percent and 30.9 percent for the three and six month
periods ended June 30, 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 six months of 2011,
we recorded a tax provision of $0.7 million related to equity-based compensation, partially offset
by a reversal of $0.5 million of previously established reserves. Without these items our effective
income tax rate for the six month period ended June 30, 2011 would have been 30.3 percent. Our
effective income tax rate is calculated based on full-year assumptions.
10
Table of Contents
At June 30, 2011, the Company has recorded $4.2 million of unrecognized tax benefits. If any
portion of this $4.2 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 $3.5 million is included in the caption Other
non-current liabilities, including $0.4 million of accrued interest (net) on tax reserves and $0
accrued for penalties. In the second quarter of 2011, based on facts and circumstances and recent
interpretation of tax law, we determined that $1.7 million of unrecognized tax benefits will not
impact income taxes; as a result, the classification of this amount was changed from unrecognized
tax benefits to a loss contingency within the caption Other non-current liabilities.
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 change. The range of possible decrease is $0 million to $0.3 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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Table of Contents
Goodwill and Other Intangible Assets
Goodwill and Other intangible asset balances at June 30, 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 June 30, 2011 |
$ | 48,155 | $ | 51,149 | $ | 1,404 | $ | 52,553 | ||||||||
Accumulated amortization |
| (23,836 | ) | (448 | ) | (24,284 | ) | |||||||||
Balance at June 30, 2011 |
$ | 48,155 | $ | 27,313 | $ | 956 | $ | 28,269 | ||||||||
Changes in carrying amounts of Goodwill and Other Intangibles for the six months ended June
30, 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 |
| (1,766 | ) | (66 | ) | (1,832 | ) | |||||||||
Other, including foreign
currency translation |
1,174 | 1,153 | | 1,153 | ||||||||||||
Balance at June 30, 2011 |
$ | 48,155 | $ | 27,313 | $ | 956 | 28,269 | |||||||||
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 of this cost basis investment is $3.9
million at June 30, 2011. 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 June 30, 2011, our maximum exposure to loss is $4.3 million, which consists of $3.9 million of
our carrying value in this investment, plus a $0.4 million reserve for a put option.
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Recently Issued Accounting Pronouncements
In June 2011, the FASB issued ASU 2011-4, Fair Value Measurement (Topic 820): Amendments to
Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRS. This
Update provides guidance which is expected to result in common fair value measurement and
disclosure requirements between U.S. GAAP and IFRS. It changes the wording used to describe many of
the requirements in U.S. GAAP for measuring fair value and for disclosing information about fair
value measurements. It is not intended for this Update to result in a change in the application of
the requirements in Topic 820. Some of the amendments clarify the Boards intent about the
application of existing fair value measurement requirements. Other amendments change a particular
principle or requirement for measuring fair value or for disclosing information about fair value
measurements. The amendments in this Update are to be applied prospectively. For public entities,
the amendments are effective during interim and annual periods beginning after December 15, 2011.
Early application by public entities is not permitted. We do not anticipate any material
impact from this Update.
In June 2011, the FASB issued ASU 2011-5, Comprehensive Income (Topic 220). In this Update, an
entity has the option to present the total of comprehensive income, the components of net income,
and the components of other comprehensive income either in a single continuous statement of
comprehensive income or in two separate but consecutive statements. In both choices, an entity is
required to present each component of net income along with total net income, each component of
other comprehensive income along with a total for other comprehensive income, and a total amount
for comprehensive income. The amendments in this Update do not change the items that must be
reported in other comprehensive income or when an item of other comprehensive income must be
reclassified to net income. They also do not change the presentation of related tax effects,
before related tax effects, or the portrayal or calculation of earnings per share. The amendments
in this Update should be applied retrospectively. The amendment is effective for fiscal years, and
interim periods within those years, beginning after December 15, 2011. Early adoption is permitted,
because compliance with the amendments is already permitted. The amendments do not require any
transition disclosures. We do not anticipate any material impact from this Update.
Other
In the second quarter of 2011, we recognized a $1.2 million benefit in selling, general and
administrative expense in the consolidated statement of income related primarily to a capital-based
tax credit.
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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 June 30, 2011 (in thousands):
# of | ||||||||
# of Shares | Shares | |||||||
Stock Plan | Approved | Available | ||||||
2003 Stock Plan (1) |
3,000 | 119 | ||||||
2010 Stock Plan (1) |
3,000 | 2,891 | ||||||
Employee Stock Purchase Plan (2) |
1,000 | 249 | ||||||
Totals |
7,000 | 3,259 | ||||||
(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 36,129 shares of common stock as a result of exercises by employees under
its employee stock option plans during the first six months of 2011. Such amount was 90,960 shares
of common stock during the fiscal year ended December 31, 2010. The Company issued 297,588 shares
of restricted stock that include solely a time-based vesting requirement in the six months ended
June 30, 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 six months ended June 30,
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 six months 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 June 30, 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 | $ | 1,816 | $ | 2,067 | $ | 251 | $ | 1,545 | $ | 1,796 | ||||||||||||
Government debt
obligations (1) |
30,777 | 100 | 30,877 | 16,661 | 87 | 16,748 | ||||||||||||||||||
GS (2) debt obligations |
27,904 | 40 | 27,944 | 15,004 | 11 | 15,015 | ||||||||||||||||||
U.S. Treasury
obligations (3) |
| | | 8,045 | 2 | 8,047 | ||||||||||||||||||
Subtotal |
58,932 | 1,956 | 60,888 | 39,961 | 1,645 | 41,606 | ||||||||||||||||||
Securities in unrealized loss
position: |
||||||||||||||||||||||||
Government debt
obligations (1) |
10,099 | (10 | ) | 10,089 | 26,138 | (63 | ) | 26,075 | ||||||||||||||||
GS (2) debt obligations |
8,500 | (7 | ) | 8,493 | 8,000 | (9 | ) | 7,991 | ||||||||||||||||
Auction-rate security (4) |
4,707 | (1,806 | ) | 2,901 | 4,695 | (1,794 | ) | 2,901 | ||||||||||||||||
Subtotal |
23,306 | (1,823 | ) | 21,483 | 38,833 | (1,866 | ) | 36,967 | ||||||||||||||||
Securities at amortized cost: |
||||||||||||||||||||||||
Time deposits |
11,231 | | 11,231 | 5,351 | | 5,351 | ||||||||||||||||||
Subtotal |
11,231 | | 11,231 | 5,351 | | 5,351 | ||||||||||||||||||
Total marketable securities |
$ | 93,469 | $ | 133 | $ | 93,602 | $ | 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 $293,000 |
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The amortized cost and estimated fair value of available-for-sale securities, by contractual
maturity, as of June 30, 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 |
$ | 35,263 | $ | 35,286 | ||||
Due between one and three years |
53,248 | 53,348 | ||||||
Auction-rate security (due in 2038) |
4,707 | 2,901 | ||||||
93,218 | 91,535 | |||||||
Common stock |
251 | 2,067 | ||||||
$ | 93,469 | $ | 93,602 | |||||
This table shows the Companys marketable securities that were in an unrealized loss position
at June 30, 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 |
9,785 | (9 | ) | 304 | (1 | ) | 10,089 | (10 | ) | |||||||||||||||
Government sponsored
debt obligations |
8,493 | (7 | ) | | | 8,493 | (7 | ) | ||||||||||||||||
Auction-rate security |
| | 2,901 | (1,806 | ) | 2,901 | (1,806 | ) | ||||||||||||||||
Total |
$ | 18,278 | $ | (16 | ) | $ | 3,205 | $ | (1,807 | ) | $ | 21,483 | $ | (1,823 | ) | |||||||||
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 $3 tax provision (1) |
| (5 | ) | (5 | ) | |||||||
Change in fair value of available-for-sale securities,
net of deferred income tax of $133 |
| 228 | 228 | |||||||||
Cumulative translation adjustment |
4,735 | | 4,735 | |||||||||
Balance at June 30, 2011 |
$ | 8,902 | $ | 84 | $ | 8,986 | ||||||
(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 the auction-rate security 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 June 30, 2011 ($2.9 million at December 31, 2010).
At June 30, 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 June 30, 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 |
$ | 74,179 | $ | 74,179 | | | ||||||||||
Available-for-sale marketable securities
|
||||||||||||||||
Common stock |
$ | 2,067 | $ | 2,067 | | | ||||||||||
Time deposits |
$ | 11,231 | $ | 11,231 | | | ||||||||||
Government debt
obligations |
$ | 40,966 | | $ | 40,966 | | ||||||||||
Government sponsored debt obligations |
$ | 36,437 | | $ | 36,437 | | ||||||||||
Auction Rate Security |
$ | 2,901 | | | $ | 2,901 | ||||||||||
Foreign currency exchange contract liability |
$ | (247 | ) | $ | (247 | ) | | |
There were no transfers of assets or liabilities between Level 1 and Level 2 during the first
six months of 2011.
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During the first six months 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 six months ended June 30,
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 June 30, 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, for the years 2012 through 2014, have a range of possible outcomes
from zero to $23.3 million.
Consistent with prior quarters, the fair value of the Artelis contingent consideration liability
was estimated using a discounted cash flow methodology. Since the value is primarily based on
revenues achieved in the measurement period, our estimate this quarter included a simulation of
revenues undertaken in a Monte Carlo simulation framework. We risk adjusted the revenue estimates
in the simulation in accordance with their market related risks. The amounts calculated based on
the simulated revenues were then discounted to present value at an average rate of 4.3 percent
using a term appropriate risk-free rate plus a spread commensurate to the Companys credit rating
as of the valuation date.
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The fair value of the contingent payments as of March 31, 2011 was $9.6 million.
The fair value of the contingent payments as of June 30, 2011 was $8.9 million. We have recorded a
non-taxable $0.9 million reduction to selling, general and administrative expense in the income
statement to reflect the revaluation of this obligation which includes the effect of foreign
currency. We will continue to use a term appropriate risk-free rate plus a spread commensurate to
our credit rating going forward and would anticipate accretion to have an immaterial effect on our
future results.
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 June 30, 2011, we held foreign currency exchange contracts that are economic hedges with
notional amounts totaling $31.6 million, of which $19.1 million will be settled in Euros, $1.9
million will be settled in Taiwan Dollars, $0.8 million will be settled in Japanese Yen and $9.8
million will be settled in Korean Won. Changes in the fair market value (gain or loss) on these
contracts were not significant as of June 30, 2011.
We recorded net losses of $0.6 million and $0.9 million for the three and six months ended June 30,
2011 and net gains of $0.04 million and $0.1 million for the three and six months ended June 30,
2010, respectively, under the caption Other expense, net in the Consolidated Statements of Income
related to changes in the fair value of our financial instruments for forward foreign currency
exchange contracts.
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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.
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.
ATMIs guarantee is secured by Anjis assets and additional equity interests in Anjis operating
subsidiaries. In June 2011, Anji repaid $2.3 million of the $2.5 million associated with this bank
financing. The remaining $0.2 million in Anjis bank financing was repaid in July 2011. In
accordance with the terms of the bank financing, new amounts cannot be borrowed, so ATMIs maximum
exposure in relation to this bank financing is $0.2 million. We believe that, based on independent
credit rating agency research, and our knowledge of their business, Anji continues to be an
acceptable credit risk.
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. Our estimate
of the fair value of the contingent payments as of June 30, 2011 is $8.9 million. 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.
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Revenues from external customers, by product type, were as follows (in thousands):
Three Months Ended | Six Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Microelectronics |
$ | 94,669 | $ | 83,416 | $ | 184,818 | $ | 160,130 | ||||||||
Life sciences |
9,358 | 7,580 | 19,933 | 16,177 | ||||||||||||
Total |
$ | 104,027 | $ | 90,996 | $ | 204,751 | $ | 176,307 | ||||||||
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Item 2. | Managements Discussion and Analysis of Financial Condition and Results of Operations. |
Three and Six Months Ended June 30, 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 or man-made 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 revise any forward-looking statements, whether as a result of new information,
future developments or otherwise, except as required by law.
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Table of Contents
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 or operating costs, and minimize the
time to develop new products and integrate them into their processes.
Results of Operations
Executive Summary
In the second quarter of 2011, we achieved our second consecutive quarter of record revenues with
revenues of $104.0 million, an increase of 14.3 percent compared to the second 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 second quarter of 2011
declined slightly to 47.5 percent compared to 47.9 percent in the prior year quarter driven by some
anticipated price reductions and product mix. We recognized a $1.2 million benefit in selling,
general and administrative (SG&A) expense primarily related to a capital-based tax credit. We
also recognized a $0.9 million gain in SG&A associated with a reduction in the fair value of our
liability for contingent consideration related to the Artelis acquisition. As a result of the
items noted above, our operating profit margin increased to 14.8 percent in the second quarter of
2011 from 11.7 percent in the second quarter of 2010. Net income increased 46.5 percent to $11.1
million ($0.34 per diluted share) in the second quarter of 2011 compared to $7.6 million ($0.24 per
diluted share) in the second quarter of 2010.
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In the first six months of 2011, our revenues increased by 16.1 percent compared to the first six
months of 2010, reflecting continuing strength in consumer electronics demand which drove higher
wafer starts and increased fab utilization. Our gross profit margin has declined by 70 basis points
to 47.6 percent due to anticipated price reductions, some unanticipated cost overruns, and product
mix. Our operating profit margin increased to 13.2 percent in the first half of 2011 compared to
12.8 percent in the first half of 2010. Operating profit in the first half of 2011 included a $1.2
million benefit primarily associated with a capital-based tax credit and a $0.9 million gain
associated with the reduction in fair value of a contingent consideration liability, noted above.
Net income increased 17.7 percent to $19.1 million ($0.59 per diluted share) in the first half of
2011 compared to $16.3 million ($0.51 per diluted share) in the first half of 2010.
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 June 30, |
$ | 104,027 | $ | 90,996 | 14.3 | % | ||||||
Six months ended June 30, |
$ | 204,751 | $ | 176,307 | 16.1 | % |
Revenues grew in the second quarter of 2011 compared to the second 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 13.5 percent to
$94.7 million in the second quarter of 2011 from $83.4 million in the second quarter of 2010.
Revenue growth in microelectronics was higher than overall market growth associated with continued
increased wafer starts and fab utilization. Revenues in our life sciences product lines increased
23.5 percent in the second quarter of 2011 to $9.4 million compared to $7.6 million in the second
quarter of 2010, primarily driven by stronger demand for our single-use technology solutions and
royalties from intellectual property licensing agreements. While demand, in general, has been
improving, given the ongoing pressures to bring costs down in the consumer and microelectronic
industries, we continue to experience pricing pressure with several of our legacy products.
The growth in revenues in the first six months of 2011 compared to the first six months of 2010
occurred in both our microelectronics and life sciences product lines. Revenues in our
microelectronics product lines grew 15.4 percent to $184.8 million in the first six months of 2011
from $160.1 million in the first six months of 2010. In our life sciences product lines, revenues
increased 23.2 percent to $19.9 million in the first half of 2011 from $16.2 million in the first
half of 2010. We entered into a license agreement with a third party in the first quarter that
included the payment of royalties to ATMI for periods prior to 2011.
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Gross Profit
2011 | 2010 | |||||||||||||||
% of | % of | |||||||||||||||
Amount | Revenues | Amount | Revenues | |||||||||||||
Quarter ended June 30, |
$ | 49,462 | 47.5 | % | $ | 43,555 | 47.9 | % | ||||||||
Six months ended June 30, |
$ | 97,553 | 47.6 | % | $ | 85,244 | 48.3 | % |
Gross profit increased 13.6 percent to $49.5 million in the second quarter of 2011 from $43.6
million in the second quarter of 2010. Gross profit in our microelectronics product lines increased
12.9 percent to $46.8 million in the second quarter of 2011 from $41.5 million in the second
quarter of 2010. Gross profit margins in our microelectronics product lines were approximately 50
percent in the second quarter of 2011, similar to the second 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 26.1 percent to $2.6 million in the second
quarter of 2011 compared to $2.1 million in the second quarter of 2010. Gross profit margins in our
life sciences product lines were approximately 28 percent in each of the second quarters of 2011
and 2010, respectively.
For the six months ended June 30, 2011, gross profit increased 14.4 percent to $97.6 million from
$85.2 million for the six months ended June 30, 2010. Gross profit in our microelectronics product
lines increased 14.0 percent to $90.1 million for the six months ended June 30, 2011 from $79.1
million for the six months ended June 30, 2010. Gross profit margin in microelectronics was
approximately 49 percent in the six months ended June 30, 2011 and 2010. Gross profit in our life
sciences product lines increased 20.0 percent to $7.4 million for the six months ended June 30,
2011 compared to $6.2 million for the six months ended June 30, 2010. Gross profit margins declined
slightly to approximately 37 percent for the six months ended June 30, 2011 compared to
approximately 38 percent for the six months ended June 30, 2010. The decline in gross margin in the
first half of 2011 includes the effect of the U.S. manufacturing capacity we brought online in
mid-2010.
Research and Development Expenses
2011 | 2010 | |||||||||||||||
% of | % of | |||||||||||||||
Amount | Revenues | Amount | Revenues | |||||||||||||
Quarter ended June 30, |
$ | 14,251 | 13.7 | % | $ | 12,465 | 13.7 | % | ||||||||
Six months ended June 30, |
$ | 27,702 | 13.5 | % | $ | 22,188 | 12.6 | % |
Research and development (R&D) expense increased 14.3 percent to $14.3 million in the second
quarter of 2011 from $12.5 million in the second quarter of 2010. The increase in R&D spending was
driven by increased product development spending associated with the November 2010 Artelis
acquisition ($0.7 million) and increases in employee salaries ($0.3 million), legal fees ($0.2
million), prototypes ($0.2 million) and consumables ($0.2 million) partially offset by
lower High Productivity Development (HPD) licensing and maintenance contract costs ($1.0
million).
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R&D expense increased 24.9 percent to $27.7 million in the first six months of 2011 compared to
$22.2 million in the first six months of 2010. The increase in 2011 spending was driven by
increased product development spending associated with the November 2010 Artelis acquisition ($1.3
million), higher employee related spending for salaries ($0.8 million), consumables ($0.4 million),
legal fees ($0.3 million), increased HPD licensing/maintenance ($0.3 million), and prototypes ($0.2
million).
Selling, General and Administrative Expenses
2011 | 2010 | |||||||||||||||
% of | % of | |||||||||||||||
Amount | Revenues | Amount | Revenues | |||||||||||||
Quarter ended June 30, |
$ | 19,763 | 19.0 | % | $ | 20,446 | 22.5 | % | ||||||||
Six months ended June 30, |
$ | 42,745 | 20.9 | % | $ | 40,418 | 22.9 | % |
SG&A expenses decreased 3.3 percent to $19.8 million in the second quarter of 2011 from $20.4
million in the second quarter of 2010. The decrease in the second quarter of 2011 is the result of
a $1.2 million benefit related primarily to a capital-based tax credit and a $0.9 million gain
associated with the change in fair value of the Artelis contingent consideration liability, largely
offset by SG&A expenses associated with the November 2010 Artelis acquisition ($1.2 million) and
increased salaries ($0.8 million).
SG&A increased 5.8 percent to $42.7 million in the first six months of 2011 compared to $40.4
million in the first six months of 2010. The increase in the first half of 2011 is the result of
SG&A expenses associated with the November 2010 Artelis acquisition ($2.4 million) and increased
employee related costs ($2.5 million) from increased salaries of $1.9 million and benefits of $0.6
million, partially offset by a $1.2 million benefit primarily related to a capital-based tax credit
and a $0.9 million gain from the change in fair value of a contingent consideration liability.
Operating Income
2011 | 2010 | |||||||||||||||
% of | % of | |||||||||||||||
Amount | Revenues | Amount | Revenues | |||||||||||||
Quarter ended June 30, |
$ | 15,448 | 14.9 | % | $ | 10,644 | 11.7 | % | ||||||||
Six months ended June 30, |
$ | 27,106 | 13.2 | % | $ | 22,638 | 12.8 | % |
Operating income increased 45.1 percent to $15.4 million in the second quarter of 2011 compared to
$10.6 million in the first quarter of 2010. This change is from a variety of factors, including
continued revenue growth, the SG&A benefits, and other items noted above.
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For the six months ended June 2011, we generated operating income of $27.1 million compared to
operating income of $22.6 million in the first six months of 2010. This change is from a variety of
factors, such as the improvement in revenues due to improved economic conditions, the SG&A
benefits, and other items as noted above.
Interest Income
Interest income increased to $0.3 million in the second quarter of 2011 from $0.2 million in the
second quarter of 2010 and to $0.7 million for the six months ended June 2011 from $0.4 million for
the six months ended June 2010 primarily caused by higher invested balances and slightly improved
average yields.
Provision for Income Taxes
Effective Rate | ||||||||
2011 | 2010 | |||||||
Quarter ended June 30, |
29.2 | % | 29.2 | % | ||||
Six months ended June 30, |
30.9 | % | 29.2 | % |
We have not provided for U.S. federal income and foreign withholding taxes on approximately
$78.9 million of undistributed earnings from non-U.S. operations as of June 30, 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 29.2 percent and 30.9 percent for the three and six month
periods ended June 30, 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 six months of 2011, we
recorded a tax provision of $0.7 million related to equity-based compensation, partially offset by
a reversal of $0.5 million of previously established reserves. Without these items our effective
income tax rate for the six month period ended June 30, 2011 would have been 30.3 percent. Our
effective income tax rate is calculated based on full-year assumptions.
At June 30, 2011, the Company has recorded $4.2 million of unrecognized tax benefits. If any
portion of this $4.2 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 $3.5 million is included in the caption Other
non-current liabilities, including $0.4 million of accrued interest (net) on tax reserves and $0
accrued for penalties. In the second quarter of 2011, based on facts and circumstances and recent
interpretation of tax law, we determined that $1.7 million of unrecognized tax benefits will not
impact income taxes; as a result, the classification of this amount was changed from unrecognized
tax benefits to a loss contingency within the caption Other non-current liabilities.
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 change. The range of possible decrease is $0 million to $0.3 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):
Six Months Ended | ||||||||
June 30, | ||||||||
2011 | 2010 | |||||||
Cash provided by (used for): |
||||||||
Operating activities |
$ | 30,865 | $ | 32,219 | ||||
Investing activities |
(24,617 | ) | (37,568 | ) | ||||
Financing activities |
(84 | ) | (1,081 | ) | ||||
Effects of exchange rate changes on cash and cash
equivalents |
(633 | ) | 234 |
Operating Activities
During the six-month period ended June 30, 2011, we generated $30.9 million of cash from
operations, which was $1.3 million lower than the $32.2 million generated during the six-month
period ended June 30, 2010. Cash generated from operations was primarily from net income, as
adjusted for non-cash items, partially offset by a decrease in income tax receivable, increases in
inventories and decreases in accrued expenses. Inventories increased by $5.9 million primarily
driven by increases in volume and strategic safety stocks.
Investing Activities
Net cash used for investing activities decreased by $13.0 million to $24.6 million in the six
months ended June 30, 2011 compared to the quarter ended June 30, 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 increase in sales and maturities of marketable securities, partially
offset by an increase in purchases of marketable securities, a $6.7 million purchase of a
cost-basis investment in the first half of 2011, and an increase in capital expenditures.
Financing Activities
Financing activities resulted in a use of cash of $0.1 million in the six months ended June 30,
2011, which was a decrease of $1 million in cash used compared to the six months ended June 30,
2010. The decrease was primarily related to proceeds of $0.8 million from the exercise of stock
options and no repayments against our credit line in 2011.
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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 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.
ATMIs guarantee is secured by Anjis assets and additional equity interests in Anjis operating
subsidiaries. In June 2011, Anji repaid $2.3 million of the $2.5 million associated with their
bank financing, which was guaranteed by ATMI. We anticipate that the remaining $0.2 million in
Anjis bank financing will be repaid during the third quarter of 2011. In accordance with the
terms of the bank financing, new amounts cannot be borrowed, so ATMIs maximum exposure in relation
to this bank financing is $0.2 million. We believe that, based on independent credit rating agency
research, and our knowledge of their business, Anji continues to be an acceptable credit risk.
Item 3. | Quantitative and Qualitative Disclosures About Market Risk |
Interest Rate Risk. As of June 30, 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 June 30, 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 $0.7 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 36 percent, of the Companys revenues for the three
and six-month periods ended June 30, 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.
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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.
At June 30, 2011, we held forward foreign currency exchange contracts as economic hedges with
notional amounts totaling $31.6 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 June 30, 2011 would decrease by approximately $0.5 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 second 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
June 30, 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 44,143 shares (at an average price of
$18.66 per share) through net share settlements during the six months ended June 30, 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. |
|||
101 | Interactive data files pursuant to Rule 405 of Regulation S-T. |
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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. | ||||||
July 20, 2011 |
||||||
By | /s/ Timothy C. Carlson
|
|||||
Executive Vice President, | ||||||
Chief Financial Officer and Treasurer | ||||||
By | /s/ David M. Ward
|
|||||
Vice President, Controller and Principal | ||||||
Accounting Officer |
36