Attached files
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EX-32 - EXHIBIT 32 - ATMI INC | c23405exv32.htm |
EX-31.2 - EXHIBIT 31.2 - ATMI INC | c23405exv31w2.htm |
EX-31.1 - EXHIBIT 31.1 - ATMI INC | c23405exv31w1.htm |
EXCEL - IDEA: XBRL DOCUMENT - ATMI INC | Financial_Report.xls |
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 September 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 | (I.R.S. Employer Identification No.) | |
incorporation or organization) | ||
7 Commerce Drive, Danbury, CT | 06810 | |
(Address of principal executive offices) | (Zip Code) |
203-794-1100
(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 September 30, 2011 was
31,682,234.
ATMI, INC.
Quarterly Report on Form 10-Q
For the Quarter Ended September 30, 2011
Quarterly Report on Form 10-Q
For the Quarter Ended September 30, 2011
TABLE OF CONTENTS
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32 | ||||||||
32 | ||||||||
33 | ||||||||
34 | ||||||||
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)
September 30, | December 31, | |||||||
2011 | 2010 | |||||||
(unaudited) | ||||||||
Assets |
||||||||
Current assets: |
||||||||
Cash and cash equivalents |
$ | 121,872 | $ | 68,648 | ||||
Marketable securities, current portion |
56,602 | 58,495 | ||||||
Accounts receivable, net of allowances of $781 and $783, respectively |
48,831 | 54,518 | ||||||
Inventories, net |
69,322 | 62,832 | ||||||
Income taxes receivable |
3,102 | 4,627 | ||||||
Deferred income taxes |
7,476 | 6,801 | ||||||
Prepaid expenses |
10,096 | 14,384 | ||||||
Other current assets |
13,685 | 12,695 | ||||||
Total current assets |
330,986 | 283,000 | ||||||
Property, plant, and equipment, net |
116,069 | 119,053 | ||||||
Goodwill |
46,968 | 46,981 | ||||||
Other intangible assets, net |
26,264 | 28,948 | ||||||
Marketable securities, non-current |
7,711 | 25,429 | ||||||
Deferred income taxes, non-current |
2,370 | 2,097 | ||||||
Other non-current assets |
36,774 | 28,081 | ||||||
Total assets |
$ | 567,142 | $ | 533,589 | ||||
Liabilities and stockholders equity |
||||||||
Current liabilities: |
||||||||
Accounts payable |
$ | 20,006 | $ | 21,045 | ||||
Accrued liabilities |
6,403 | 5,918 | ||||||
Accrued salaries and related benefits |
10,335 | 12,163 | ||||||
Income taxes payable |
3,306 | 3,700 | ||||||
Other current liabilities |
5,028 | 3,911 | ||||||
Total current liabilities |
45,078 | 46,737 | ||||||
Deferred income taxes, non-current |
13,256 | 10,245 | ||||||
Other non-current liabilities |
18,692 | 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;
39,873 and 39,640 issued and 31,682 and 31,495 outstanding in 2011
and 2010, respectively |
399 | 396 | ||||||
Additional paid-in capital |
442,446 | 435,840 | ||||||
Treasury stock at cost (8,191 and 8,145 shares in 2011 and 2010,
respectively) |
(231,131 | ) | (230,272 | ) | ||||
Retained earnings |
275,615 | 248,433 | ||||||
Accumulated other comprehensive income |
2,787 | 4,028 | ||||||
Total stockholders equity |
490,116 | 458,425 | ||||||
Total liabilities and stockholders equity |
$ | 567,142 | $ | 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 | ||||||||
September 30, | ||||||||
2011 | 2010 | |||||||
Revenues |
$ | 95,006 | $ | 94,960 | ||||
Cost of revenues |
50,955 | 49,299 | ||||||
Gross profit |
44,051 | 45,661 | ||||||
Operating expenses: |
||||||||
Research and development |
12,757 | 12,852 | ||||||
Selling, general and administrative |
19,478 | 22,121 | ||||||
Total operating expenses |
32,235 | 34,973 | ||||||
Operating income |
11,816 | 10,688 | ||||||
Interest income |
265 | 279 | ||||||
Other income (expense), net |
(934 | ) | 2,383 | |||||
Income before income taxes |
11,147 | 13,350 | ||||||
Provision for income taxes |
3,106 | 3,873 | ||||||
Net income |
$ | 8,041 | $ | 9,477 | ||||
Earnings per common share basic |
$ | 0.25 | $ | 0.30 | ||||
Weighted average shares outstanding basic |
31,683 | 31,483 | ||||||
Earnings per common share diluted |
$ | 0.25 | $ | 0.30 | ||||
Weighted average shares outstanding diluted |
32,318 | 31,819 | ||||||
See accompanying notes.
4
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)
Nine Months Ended | ||||||||
September 30, | ||||||||
2011 | 2010 | |||||||
Revenues |
$ | 299,757 | $ | 271,267 | ||||
Cost of revenues |
158,153 | 140,362 | ||||||
Gross profit |
141,604 | 130,905 | ||||||
Operating expenses: |
||||||||
Research and development |
40,459 | 35,040 | ||||||
Selling, general and administrative |
62,223 | 62,539 | ||||||
Total operating expenses |
102,682 | 97,579 | ||||||
Operating income |
38,922 | 33,326 | ||||||
Interest income |
978 | 707 | ||||||
Other income (expense), net |
(1,066 | ) | 2,288 | |||||
Income before income taxes |
38,834 | 36,321 | ||||||
Provision for income taxes |
11,652 | 10,580 | ||||||
Net income |
$ | 27,182 | $ | 25,741 | ||||
Earnings per common share basic |
$ | 0.86 | $ | 0.82 | ||||
Weighted average shares outstanding basic |
31,686 | 31,512 | ||||||
Earnings per common share diluted |
$ | 0.84 | $ | 0.81 | ||||
Weighted average shares outstanding diluted |
32,332 | 31,929 |
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 37 shares of common stock
pursuant to the exercise of employee
stock options |
1 | 627 | | | | 628 | ||||||||||||||||||
Issuance of 8 shares of common stock
pursuant to the employee stock
purchase plan |
| 154 | | | | 154 | ||||||||||||||||||
Purchase of 46 treasury shares |
| | (859 | ) | | | (859 | ) | ||||||||||||||||
Stock-based compensation |
| 5,827 | | | | 5,827 | ||||||||||||||||||
Other |
2 | (2 | ) | | | | | |||||||||||||||||
Net income |
| | | 27,182 | | 27,182 | ||||||||||||||||||
Reclassification adjustment related to
marketable securities sold in net
unrealized
gain position, net of $2 tax provision |
| | | | (3 | ) | (3 | ) | ||||||||||||||||
Change in fair value on available-for-sale
securities, net of deferred income
tax of $352 |
| | | | 599 | 599 | ||||||||||||||||||
Cumulative translation adjustment |
| | | | (1,837 | ) | (1,837 | ) | ||||||||||||||||
Comprehensive income |
| | | | | 25,941 | ||||||||||||||||||
Balance at September 30, 2011 |
$ | 399 | $ | 442,446 | $ | (231,131 | ) | $ | 275,615 | $ | 2,787 | $ | 490,116 | |||||||||||
See accompanying notes.
6
Table of Contents
ATMI, Inc.
Consolidated Statements of Cash Flows
(unaudited)
(in thousands)
Nine Months Ended | ||||||||
September 30, | ||||||||
2011 | 2010 | |||||||
Operating activities |
||||||||
Net income |
$ | 27,182 | $ | 25,741 | ||||
Adjustments to reconcile net income to cash provided by operating activities: |
||||||||
Depreciation and amortization |
20,286 | 20,009 | ||||||
Deferred income taxes |
1,427 | 1,589 | ||||||
Stock-based compensation expense |
5,827 | 6,058 | ||||||
Gain on remeasurement of contingent consideration |
(921 | ) | | |||||
Other |
2,186 | (853 | ) | |||||
Changes in operating assets and liabilities: |
||||||||
Accounts receivable |
5,609 | (5,959 | ) | |||||
Inventories |
(7,628 | ) | (9,793 | ) | ||||
Other assets |
446 | (2,208 | ) | |||||
Accounts payable |
(1,024 | ) | 3,393 | |||||
Accrued expenses, income taxes and other liabilities |
1,611 | 17,261 | ||||||
Net cash provided by operating activities |
55,001 | 55,238 | ||||||
Investing activities |
||||||||
Capital expenditures |
(14,215 | ) | (10,760 | ) | ||||
Purchases of marketable securities |
(83,586 | ) | (78,034 | ) | ||||
Proceeds from sales or maturities of marketable securities |
103,202 | 39,964 | ||||||
Acquisition of cost-basis investment |
(6,746 | ) | | |||||
Proceeds from sale of cost and equity-basis investments |
| 5,175 | ||||||
Other |
50 | 83 | ||||||
Net cash used for investing activities |
(1,295 | ) | (43,572 | ) | ||||
Financing activities |
||||||||
Purchases of treasury stock |
(859 | ) | (2,545 | ) | ||||
Proceeds from exercise of stock options |
782 | 137 | ||||||
Credit line borrowings |
| 1,724 | ||||||
Credit line repayments |
| (2,207 | ) | |||||
Other |
28 | (35 | ) | |||||
Net cash used for financing activities |
(49 | ) | (2,926 | ) | ||||
Effects of exchange rate changes on cash and cash equivalents |
(433 | ) | 304 | |||||
Net increase in cash and cash equivalents |
53,224 | 9,044 | ||||||
Cash and cash equivalents, beginning of period |
68,648 | 64,738 | ||||||
Cash and cash equivalents, end of period |
$ | 121,872 | $ | 73,782 | ||||
See accompanying notes.
7
Table of Contents
Notes To Consolidated Interim Financial Statements
(unaudited)
(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 September 30, 2011 and
for the three and nine months ended September 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.
8
Table of Contents
Earnings Per Share
This table shows the computation of basic and diluted earnings per share (in thousands, except per
share data):
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Numerator: |
||||||||||||||||
Net income |
$ | 8,041 | $ | 9,477 | $ | 27,182 | $ | 25,741 | ||||||||
Denominator: |
||||||||||||||||
Denominator for basic earnings per share
weighted average shares |
31,683 | 31,483 | 31,686 | 31,512 | ||||||||||||
Dilutive effect of employee stock options |
40 | 2 | 44 | 9 | ||||||||||||
Dilutive effect of restricted stock |
595 | 334 | 602 | 408 | ||||||||||||
Denominator for diluted earnings per
common share weighted average shares |
32,318 | 31,819 | 32,332 | 31,929 | ||||||||||||
Earnings per sharebasic |
$ | 0.25 | $ | 0.30 | $ | 0.86 | $ | 0.82 | ||||||||
Earnings per sharediluted |
$ | 0.25 | $ | 0.30 | $ | 0.84 | $ | 0.81 |
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 | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Antidilutive shares |
1,665 | 1,784 | 1,700 | 1,715 |
Inventories
Inventories include (in thousands):
September 30, | December 31, | |||||||
2011 | 2010 | |||||||
Raw materials |
$ | 19,586 | $ | 16,499 | ||||
Work in process |
2,616 | 2,133 | ||||||
Finished goods |
49,992 | 46,575 | ||||||
72,194 | 65,207 | |||||||
Excess and obsolescence reserve |
(2,872 | ) | (2,375 | ) | ||||
Inventories, net |
$ | 69,322 | $ | 62,832 | ||||
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Table of Contents
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
September 30, 2011, the carrying value of our portfolio of strategic investments in non-marketable
equity securities totaled $28.7 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 $3.3 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.
Income Taxes
We have not provided for U.S. federal income and foreign withholding taxes on approximately $82.9
million of undistributed earnings from non-U.S. operations as of September 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 27.9 percent and 30.0 percent for the three and nine month
periods ended September 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 nine months of 2011,
we recorded a tax provision of $0.8 million related to equity-based compensation, partially offset
by a reversal of $0.7 million of previously established reserves. In the third quarter, we recorded
a $0.6 million reversal of a valuation allowance. Without these discrete items enumerated above,
our effective income tax rate for the nine month period ended September 30, 2011 would have been
31.4 percent. Our effective income tax rate is calculated based on full-year assumptions.
At September 30, 2011, the Company has recorded $3.9 million of unrecognized tax benefits. If any
portion of this $3.9 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 $3.2 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.
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 $0.4 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 September 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 September 30, 2011 |
$ | 46,968 | $ | 49,887 | $ | 1,396 | $ | 51,283 | |||||||||
Accumulated amortization |
| (24,548 | ) | (471 | ) | (25,019 | ) | ||||||||||
Balance at September 30, 2011 |
$ | 46,968 | $ | 25,339 | $ | 925 | $ | 26,264 | |||||||||
Changes in carrying amounts of Goodwill and Other intangibles for the nine months ended
September 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 |
| (2,651 | ) | (98 | ) | (2,749 | ) | ||||||||||
Other, including foreign
currency translation |
(13 | ) | 64 | 1 | 65 | ||||||||||||
Balance at September 30, 2011 |
$ | 46,968 | $ | 25,339 | $ | 925 | 26,264 | ||||||||||
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 September 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 September 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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Table of Contents
Recently Issued Accounting Pronouncements
In September 2011, the FASB issued ASU 2011-08, Intangibles Goodwill and Other (Topic 350).
The objective of this Update is to simplify how entities test goodwill for impairment. This Update
permits an entity to first assess qualitative factors to determine whether it is more likely than
not that the fair value of a reporting unit is less than its carrying amount as a basis for
determining whether it is necessary to perform the two-step goodwill impairment test. The Update is
effective for annual and interim goodwill impairment tests performed for fiscal years beginning
after December 15, 2011. Early adoption is permitted, including for annual and interim goodwill
impairment tests performed as of a date before September 15, 2011. We do not anticipate any
material impact from this Update.
Collaborative Arrangements
ATMI entered into a collaborative development agreement (CDA) with an advanced memory integrated
circuit manufacturer for the purpose of developing molecules, including chemical precursors, and
material systems for next generation semiconductor products. ATMI will use its High Productivity
Development platform to collaboratively work with this customer on specific statements of work
designed to develop next-generation materials. The agreement, which was signed in September 2011
and expires in August 2012, requires the customer to make quarterly payments to ATMI over the
contract term. The arrangement has been determined to be a reimbursement of research and
development costs and will be recognized as a reduction of expense under the caption, Research and
development in the Consolidated Statements of Income. In the third quarter of 2011, we recognized
$0.5 million related to the CDA.
Each CDA we execute will be reviewed based on the unique terms and conditions associated with such
arrangement to determine, using applicable accounting guidance, the timing of recognition, whether
the arrangement is revenue producing or represents a reimbursement of research and development
costs, and the appropriate amounts to be recognized. If an arrangement is determined to be revenue
producing, we apply applicable accounting standards to ensure proper timing and amounts of revenue
recognition. If an arrangement is determined to represent a reimbursement of research and
development costs, we apply accounting standards for reimbursements to ensure proper timing,
amounts and classification as an offset to research and development expenses.
12
Table of Contents
3. Equity-Based Compensation
Summary of Plans
This table shows the number of shares approved by stockholders for each plan and the number of
shares that remain available for equity awards at September 30, 2011 (in thousands):
# of | ||||||||
# of Shares | Shares | |||||||
Stock Plan | Approved | Available | ||||||
2003 Stock Plan (1) |
3,000 | 127 | ||||||
2010 Stock Plan (1) |
3,000 | 2,892 | ||||||
Employee Stock Purchase Plan (2) |
1,000 | 249 | ||||||
Totals |
7,000 | 3,268 | ||||||
(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 37,129 shares of common stock as a result of exercises by employees under
its employee stock option plans during the first nine months of 2011. Such amount was 90,960
shares of common stock during the fiscal year ended December 31, 2010. The Company issued 306,088
shares of restricted stock that include solely a time-based vesting requirement in the nine months
ended September 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 nine months ended
September 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 nine months of 2011, 48,055 of the 102,514 PRSAs granted in 2010 were
earned (subject to time-based vesting), while 54,459 of such shares were forfeited.
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4. Marketable Securities
Marketable securities include at September 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 | $ | 1,011 | $ | 1,262 | $ | 251 | $ | 1,545 | $ | 1,796 | ||||||||||||
Government debt
obligations (1) |
29,253 | 88 | 29,341 | 16,661 | 87 | 16,748 | ||||||||||||||||||
GS (2) debt obligations |
13,000 | 21 | 13,021 | 15,004 | 11 | 15,015 | ||||||||||||||||||
U.S. Treasury
obligations (3) |
| | | 8,045 | 2 | 8,047 | ||||||||||||||||||
Subtotal |
42,504 | 1,120 | 43,624 | 39,961 | 1,645 | 41,606 | ||||||||||||||||||
Securities in unrealized loss
position: |
||||||||||||||||||||||||
Government debt
obligations (1) |
6,750 | (5 | ) | 6,745 | 26,138 | (63 | ) | 26,075 | ||||||||||||||||
GS (2) debt obligations |
3,500 | (3 | ) | 3,497 | 8,000 | (9 | ) | 7,991 | ||||||||||||||||
Auction-rate security (4) |
4,714 | (1,013 | ) | 3,701 | 4,695 | (1,794 | ) | 2,901 | ||||||||||||||||
Subtotal |
14,964 | (1,021 | ) | 13,943 | 38,833 | (1,866 | ) | 36,967 | ||||||||||||||||
Securities at amortized cost: |
||||||||||||||||||||||||
Time deposits |
6,746 | | 6,746 | 5,351 | | 5,351 | ||||||||||||||||||
Subtotal |
6,746 | | 6,746 | 5,351 | | 5,351 | ||||||||||||||||||
Total marketable securities |
$ | 64,214 | $ | 99 | $ | 64,313 | $ | 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) | The cost basis of the Massachusetts Educational Financing Authority (MEFA) auction rate security is equal to the par
value of $5,000,000 less unaccreted non-cash credit losses of $286,000 and $305,000 at September 30, 2011 and
December 31, 2010, respectively. |
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The amortized cost and estimated fair value of available-for-sale securities, by contractual
maturity, as of September 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 |
$ | 31,669 | $ | 31,686 | ||||
Due between one and three years |
27,580 | 27,664 | ||||||
Auction-rate security (due in 2038) |
4,714 | 3,701 | ||||||
63,963 | 63,051 | |||||||
Common stock |
251 | 1,262 | ||||||
$ | 64,214 | $ | 64,313 | |||||
This table shows the Companys marketable securities that were in an unrealized loss position
at September 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 |
6,745 | (5 | ) | | | 6,745 | (5 | ) | ||||||||||||||||
Government sponsored
debt obligations |
3,497 | (3 | ) | | | 3,497 | (3 | ) | ||||||||||||||||
Auction-rate security |
| | 3,701 | (1,013 | ) | 3,701 | (1,013 | ) | ||||||||||||||||
Total |
$ | 10,242 | $ | (8 | ) | $ | 3,701 | $ | (1,013 | ) | $ | 13,943 | $ | (1,021 | ) | |||||||||
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) |
| (3 | ) | (3 | ) | |||||||
Change in fair value of available-for-sale securities,
net of deferred income tax of $352 |
| 599 | 599 | |||||||||
Cumulative translation adjustment |
(1,837 | ) | | (1,837 | ) | |||||||
Balance at September 30, 2011 |
$ | 2,330 | $ | 457 | $ | 2,787 | ||||||
(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 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. In September 2011, we determined that the fair value was $3.7
million ($2.9 million at December 31, 2010) due to lower market interest rates in the third quarter
of 2011. We 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.
At September 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 September 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 |
$ | 121,872 | $ | 121,872 | | | ||||||||||
Available-for-sale marketable securities |
||||||||||||||||
Common stock |
$ | 1,262 | $ | 1,262 | | | ||||||||||
Time deposits |
$ | 6,746 | $ | 6,746 | | | ||||||||||
Government
debt obligations |
$ | 36,086 | | $ | 36,086 | | ||||||||||
Government sponsored debt obligations |
$ | 16,518 | | $ | 16,518 | | ||||||||||
Auction Rate Security |
$ | 3,701 | | | $ | 3,701 | ||||||||||
Foreign currency exchange contract assets |
$ | 76 | $ | 76 | | |
There were no transfers of assets or liabilities between Level 1 and Level 2 during the first
nine months of 2011.
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During the first nine 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 nine months ended September
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 |
800 | 800 | ||||||
Purchases, issuances, and settlements, net |
| | ||||||
Transfers into (out of) Level 3 |
| | ||||||
Balance at September 30, 2011 |
$ | 3,701 | $ | 3,701 | ||||
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 September 30, 2011 was $8.2 million compared to
$8.9 million as of June 30, 2011. The decline was currency related driven by the weakening of the
Euro in the third quarter of 2011. We will continue to use a term appropriate risk-free rate plus a
spread commensurate to our credit rating going forward.
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 September 30, 2011, we held a foreign currency exchange contract with an economic hedge with a
notional amount totaling $1.9 million which will be settled in Taiwan Dollars. The change in the
fair market value (gain or loss) on this contract was not significant as of September 30, 2011.
We recorded net losses of $0.4 million and $1.3 million for the three and nine months ended
September 30, 2011 and net losses of $0.5 million and $0.4 million for the three and nine months
ended September 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.
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 September 30, 2011 is $8.2 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.
Revenues from external customers, by product type, were as follows (in thousands):
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Microelectronics |
$ | 85,803 | $ | 88,031 | $ | 270,620 | $ | 248,161 | ||||||||
Life sciences |
9,203 | 6,929 | 29,137 | 23,106 | ||||||||||||
Total |
$ | 95,006 | $ | 94,960 | $ | 299,757 | $ | 271,267 | ||||||||
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Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations.
Three and Nine Months Ended September 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 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.
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
22
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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 third quarter of 2011, revenue was $95.0 million which was flat compared to the third
quarter of 2010. Slowing consumer electronics demand resulted in reduced wafer starts, fab
utilization and customer inventory management during the quarter. Revenues from copper materials
represented approximately 51 percent of our total revenues for the third quarter of 2011 and grew 7
percent compared to the third quarter of 2010. Revenues from our non-copper Microelectronic
materials declined in the quarter driven in part by distributor channel inventory burn of our SDS
and Display products. Gross profit margin in the third quarter of 2011 declined to 46.4 percent
compared to 48.1 percent in the prior year quarter driven mainly by unfavorable product mix. As a
result of lower selling, general and administrative (SG&A) expenses, our operating profit margin
increased to 12.4 percent in the third quarter of 2011 from 11.3 percent in the third quarter of
2010. Driven by flat revenue and lower gross profit margin due to unfavorable product mix, net
income decreased 15.1 percent to $8.0 million ($0.25 per diluted share) in the third quarter of
2011 compared to $9.5 million ($0.30 per diluted share) in the third quarter of 2010. The third
quarter 2010 results included a $0.05 per diluted share gain from the sale of an investment.
In the first nine months of 2011, our revenues increased by 10.5 percent compared to the first nine
months of 2010, reflecting strength in the first half of 2011 in consumer electronics demand which
drove higher wafer starts and increased fab utilization. Our gross profit margin declined by 110
basis points to 47.2 percent in the nine months ended September 30, 2011 due to anticipated price
reductions, some unanticipated cost overruns, and product mix. Our operating profit margin
increased 70 basis points to 13.0 percent in the first nine months of 2011 compared to 12.3 percent
in the first nine months of 2010. Operating profit in the first nine months 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. Net income
increased 5.6 percent to $27.2 million ($0.84 per diluted share) in the first nine months of 2011
compared to $25.7 million ($0.81 per diluted share) in the first nine months of 2010.
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Going forward, business and market uncertainties may continue to affect results. See Cautionary
Statements Under the Private Securities Litigation Reform Act of 1995 above and Managements
Discussion and Analysis of Financial Condition and Results of Operations 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 September 30, |
$ | 95,006 | $ | 94,960 | 0 | % | ||||||
Nine months ended September 30, |
$ | 299,757 | $ | 271,267 | 10.5 | % |
Revenues were flat in the third quarter of 2011 compared to the third quarter of 2010. Growth in
copper materials offset the decline in non-Copper related materials. Revenues in our
microelectronics product lines declined 2.5 percent to $85.8 million in the third quarter of 2011
from $88.0 million in the third quarter of 2010. Copper materials revenues which were
approximately 51 percent of our total revenues in the third quarter of 2011 grew 7 percent in the
third quarter of 2011 compared to the third quarter of 2010, on stronger demand at the advanced
semiconductor nodes. Revenues in non-copper materials product lines declined 6 percent in the same
period, mainly due to customer and distribution channel inventory reductions of SDS and Display
products. Revenues in our life sciences product lines increased 32.8 percent in the third quarter
of 2011 to $9.2 million compared to $6.9 million in the third quarter of 2010, primarily driven by
stronger demand for our single-use technology solutions and royalties from intellectual property
licensing agreements. 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 nine months of 2011 compared to the first nine months of 2010
occurred in both our microelectronics and life sciences product lines. Driven by a strong first
half of 2011, revenues in our microelectronics product lines grew 9.1 percent to $270.6 million in
the first nine months of 2011 from $248.2 million in the first nine months of 2010. In our life
sciences product lines, revenues increased 26.1 percent to $29.1 million in the first nine months
of 2011 from $23.1 million in the first nine months of 2010. We entered into a license agreement
with a third party in the first quarter of 2011 that included the payment of royalties to ATMI for
periods prior to 2011.
Gross Profit
2011 | 2010 | |||||||||||||||
% of | % of | |||||||||||||||
Amount | Revenues | Amount | Revenues | |||||||||||||
Quarter ended September 30, |
$ | 44,051 | 46.4 | % | $ | 45,661 | 48.1 | % | ||||||||
Nine months ended September 30, |
$ | 141,604 | 47.2 | % | $ | 130,905 | 48.3 | % |
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Gross profit declined 3.5 percent to $44.1 million in the third quarter of 2011 from $45.7 million
in the third quarter of 2010. Gross profit in our microelectronics product lines decreased 5.5
percent to $41.3 million in the third quarter of 2011 from $43.7 million in the third quarter of
2010. Gross profit margin in our microelectronics product lines was approximately 48 percent in
the third quarter of 2011, down from 50 percent in the third quarter of 2010 driven by
unfavorable product mix from SDS revenues. Gross profit in our life sciences product lines
increased 39.8 percent to $2.7 million in the third quarter of 2011 compared to $2.0 million in the
third quarter of 2010. Gross profit margin in our life sciences product lines was approximately 30
percent in the third quarter of 2011 compared to 28 percent in the third quarter of 2010.
For the nine months ended September 30, 2011, gross profit increased 8.2 percent to $141.6 million
from $130.9 million for the nine months ended September 30, 2010. Gross profit in our
microelectronics product lines increased 7.1 percent to $131.4 million for the nine months ended
September 30, 2011 from $122.7 million for the nine months ended September 30, 2010. Gross profit
margin in microelectronics was approximately 49 percent in the nine months ended September 30, 2011
compared to 50 percent for the nine months ended September 30, 2010. The reduction was mainly a
result of unfavorable product mix from reduced SDS revenues. Gross profit in our life sciences
product lines increased 24.8 percent to $10.2 million for the nine months ended September 30, 2011
compared to $8.2 million for the same period in 2010. Life sciences gross profit margin was flat at
approximately 35 percent for the nine months ended September 30, 2011 and 2010, respectively. Our
gross margin for the first nine months 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 September 30, |
$ | 12,757 | 13.4 | % | $ | 12,852 | 13.5 | % | ||||||||
Nine months ended September 30, |
$ | 40,459 | 13.5 | % | $ | 35,040 | 12.9 | % |
Research and development (R&D) expense declined 0.7 percent to $12.8 million in the third quarter
of 2011 from $12.9 million in the third quarter of 2010. The decline in R&D spending resulted from
a combination of reduced employee incentives of $0.7 million and a $0.5 million cost reimbursement
related to a collaborative development agreement (CDA), partially offset by increased product
development spending associated with the November 2010 Artelis acquisition ($0.9 million).
The CDA was executed in the third quarter of 2011 with an advanced memory integrated circuit
manufacturer for the purpose of developing molecules, including chemical precursors, and material
systems for next generation semiconductor products. Beyond the third quarter reimbursement
previously noted, we expect to recognize a $0.4 million benefit in the fourth quarter of 2011, and
up to $2.9 million of benefit in 2012.
R&D expense increased 15.5 percent to $40.5 million in the first nine months of 2011 compared to
$35.0 million in the first nine months of 2010. The increase in 2011 spending was driven by
increased product development spending associated with the November 2010 Artelis acquisition ($2.2
million), higher consumables ($0.8 million), intellectual property fees ($0.4 million),
outside
services ($0.3 million), and increased temporary labor ($0.2 million), partially offset by lower
High-Productivity Development licensing and maintenance ($0.7 million), and CDA reimbursements
($0.5 million).
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Selling, General and Administrative Expenses
2011 | 2010 | |||||||||||||||
% of | % of | |||||||||||||||
Amount | Revenues | Amount | Revenues | |||||||||||||
Quarter ended September 30, |
$ | 19,478 | 20.5 | % | $ | 22,121 | 23.3 | % | ||||||||
Nine months ended September 30, |
$ | 62,223 | 20.8 | % | $ | 62,539 | 23.1 | % |
SG&A expenses decreased 12.0 percent to $19.5 million in the third quarter of 2011 from $22.1
million in the third quarter of 2010. The decrease in the third quarter of 2011 is the result of
reduced employee compensation ($1.9 million) driven by lower incentives of $2.3 million partially
offset by increased salaries of $0.4 million, and lower legal costs ($0.3 million), recruitment
($0.2 million) and customer samples ($0.2 million).
SG&A declined 0.5 percent to $62.2 million in the first nine months of 2011 compared to $62.5
million in the first nine months of 2010. The decrease in the first nine months of 2011 is the
result of a $1.2 million benefit related to a capital-based tax credit, $0.9 million gain from the
change in fair value of a contingent consideration liability, lower maintenance ($0.5 million),
legal fees ($0.4 million), asset impairments ($0.3 million), material consumables ($0.2 million),
utilities ($0.2 million) and advertising ($0.2 million), partially offset by expenses associated
with the Artelis acquisition ($3.6 million).
Operating Income
2011 | 2010 | |||||||||||||||
% of | % of | |||||||||||||||
Amount | Revenues | Amount | Revenues | |||||||||||||
Quarter ended September 30, |
$ | 11,816 | 12.4 | % | $ | 10,688 | 11.3 | % | ||||||||
Nine months ended September 30, |
$ | 38,922 | 13.0 | % | $ | 33,326 | 12.3 | % |
Operating income increased 10.6 percent to $11.8 million in the third quarter of 2011 compared to
$10.7 million in the third quarter of 2010. This change is from a variety of factors, including
the CDA reimbursement, reduced SG&A spending, and other items noted above.
For the nine months ended September 30, 2011, we generated operating income of $38.9 million
compared to operating income of $33.3 million in the first nine months of 2010. This change is
mainly the result of increased revenues and other items as noted above.
Interest Income
Interest income remained at $0.3 million in the third quarter of 2011, equal to the third quarter
of 2010 and increased to $1.0 million for the nine months ended September 2011 from $0.7 million
for the nine months ended September 30, 2010, primarily caused by higher invested balances and
slightly improved average yields.
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Other income (expense), net
In the third quarter of 2011, other expense was $0.9 million compared to other income of $2.4
million in the third quarter of 2010. In the third quarter of 2011 we recognized a $0.8 million
loss on foreign currency exchange due to the weakening of the Euro and South Korean Won. In the
third quarter of 2010 we recognized a $2.4 million gain from the sale of equity shares.
In the first nine months of 2011, other expense, net was $1.1 million, compared to other income,
net of $2.3 million in the first nine months of 2010. In the first nine months of 2011 we
recognized a foreign currency exchange loss of $0.8 million. The first nine months of 2010
included $2.9 million of gains associated with sales of equity shares.
Provision for Income Taxes
Effective Rate | ||||||||
2011 | 2010 | |||||||
Quarter ended September 30, |
27.9 | % | 29.0 | % | ||||
Nine months ended September 30, |
30.0 | % | 29.1 | % |
We have not provided for U.S. federal income and foreign withholding taxes on approximately $82.9
million of undistributed earnings from non-U.S. operations as of September 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 27.9 percent and 30.0 percent for the three and nine month
periods ended September 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 nine months of 2011,
we recorded a tax provision of $0.8 million related to equity-based compensation, partially offset
by a reversal of $0.7 million of previously established reserves. In the third quarter, we recorded
a $0.6 million reversal of valuation allowance. Without these discrete items enumerated above, our
effective income tax rate for the nine month period ended September 30, 2011 would have been 31.4
percent. Our effective income tax rate is calculated based on full-year assumptions.
At September 30, 2011, the Company has recorded $3.9 million of unrecognized tax benefits. If any
portion of this $3.9 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 $3.2 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.
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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 $0.4 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.
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):
Nine Months Ended | ||||||||
September 30, | ||||||||
2011 | 2010 | |||||||
Cash provided by (used for): |
||||||||
Operating activities |
$ | 55,001 | $ | 55,238 | ||||
Investing activities |
(1,295 | ) | (43,572 | ) | ||||
Financing activities |
(49 | ) | (2,926 | ) | ||||
Effects of exchange rate changes
on cash and cash equivalents |
(433 | ) | 304 |
Operating Activities
During the nine-month period ended September 30, 2011, we generated $55.0 million of cash from
operations, which was $0.2 million lower than the $55.2 million generated during the nine-month
period ended September 30, 2010. Cash generated from operations was primarily from net income, as
adjusted for non-cash items and decreases in accounts receivable, partially offset by increases in
inventories and decreases in accounts payable. Inventories increased by $6.5 million primarily
driven by increases in volume and strategic safety stocks. Accounts receivable decreased by $5.7
million due to improved collections.
Investing Activities
Net cash used for investing activities decreased by $42.3 million to $1.3 million in the nine
months ended September 30, 2011 compared to the nine months ended September 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 $0.05 million in the nine months ended September
30, 2011, which was a decrease of $2.9 million in cash used compared to the nine months ended
September 30, 2010. The decrease was primarily related to the reduction of cash used for purchases
of treasury stock of $1.7 million, a $0.6 million increase in proceeds from the exercise of stock
options and no repayments against credit lines 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.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Interest Rate Risk. As of September 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 September 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 $0.5 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 $0.5 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 nine-month periods ended September 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.
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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In the third quarter of 2011, the Euro and South Korean Won weakened compared to the US dollar by 8
percent and 11 percent, respectively. At September 30, 2011, we held forward foreign currency
exchange contracts as economic hedges with notional amounts totaling $1.9 million, which are being
used to hedge recorded foreign denominated liabilities and which will be settled in 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 NTD, the fair market value of the
foreign exchange
contracts outstanding at September 30, 2011 would decrease by approximately $0.2 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 third 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
September 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 1,859 shares (at an average price of
$18.98 per share) through net share settlements during the three months ended September 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. |
||||
October 19, 2011 | By | /s/ Timothy C. Carlson | ||
Timothy C. Carlson | ||||
Executive Vice President, Chief Financial Officer and Treasurer |
By | /s/ David M. Ward | |||
David M. Ward | ||||
Vice President, Controller and Principal Accounting Officer |
34