XNAS:ATMI Quarterly Report 10-Q Filing - 9/30/2012

Effective Date 9/30/2012

Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

 

FORM 10-Q

 

 

 

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly period ended September 30, 2012

OR

 

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from             to             

Commission file number: 1-16239

 

 

ATMI, Inc.

(Exact name of registrant as specified in its charter)

 

 

 

Delaware   06-1481060

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

7 Commerce Drive, Danbury, CT   06810
(Address of principal executive offices)   (Zip Code)

203-794-1100

(Registrant’s telephone number, including area code)

 

 

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

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  x    No  ¨

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   ¨    Accelerated filer   x
Non-accelerated filer   ¨    Smaller reporting company   ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x

The number of shares outstanding of the registrant’s common stock as of September 30, 2012 was 32,012,379.

 

 

 


Table of Contents

ATMI, INC.

Quarterly Report on Form 10-Q

For the Quarter Ended September 30, 2012

TABLE OF CONTENTS

 

     Page  
Part I - Financial Information   
Item 1.    Financial Statements   
           Consolidated Balance Sheets (unaudited)      3   
           Consolidated Statements of Comprehensive Income (unaudited)      4   
           Consolidated Statement of Stockholders’ Equity (unaudited)      6   
           Consolidated Statements of Cash Flows (unaudited)      7   
           Notes to Consolidated Interim Financial Statements (unaudited)      8   
Item 2.    Management’s Discussion and Analysis of Financial Condition and Results of Operations      22   
Item 3.    Quantitative and Qualitative Disclosures About Market Risk      31   
Item 4.    Controls and Procedures      32   
Part II – Other Information   
Item 1.    Legal Proceedings      33   
Item 1A.    Risk Factors      33   
Item 2.    Unregistered Sales of Equity Securities and Use of Proceeds      33   
Item 6.    Exhibits      34   
Signatures      35   
Exhibits   

 

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Table of Contents

PART I - FINANCIAL INFORMATION

 

Item 1. Financial Statements

ATMI, Inc.

Consolidated Balance Sheets

(in thousands, except per share data)

 

     September 30,
2012
    December 31,
2011
 
     (unaudited)        

Assets

    

Current assets:

    

Cash and cash equivalents

   $ 80,463     $ 34,523  

Marketable securities, current portion

     50,460       75,632  

Accounts receivable, net of allowances of $881 and $781, respectively

     66,903       51,563  

Inventories, net

     83,235       73,622  

Income taxes receivable

     707       3,721  

Deferred income taxes

     6,255       4,409   

Prepaid expenses

     13,853       14,439  

Other current assets

     9,637       13,279  
  

 

 

   

 

 

 

Total current assets

     311,513       271,188  

Property, plant, and equipment, net

     120,411       116,275  

Goodwill

     46,465       46,546  

Other intangibles, net

     34,039       36,571  

Marketable securities, non-current

     8,332       3,329  

Deferred income taxes, non-current

     19,069       19,139  

Other non-current assets

     22,683       20,638  
  

 

 

   

 

 

 

Total assets

   $ 562,512     $ 513,686  
  

 

 

   

 

 

 

Liabilities and stockholders’ equity

    

Current liabilities:

    

Accounts payable

   $ 25,603     $ 20,779  

Accrued liabilities

     8,467       7,940  

Accrued salaries and related benefits

     7,190       10,469  

Income taxes payable

     13,521       1,229  

Other current liabilities

     4,052       4,539  
  

 

 

   

 

 

 

Total current liabilities

     58,833       44,956  

Deferred income taxes, non-current

     114       162  

Other non-current liabilities

     18,489       18,237  

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; 40,277 and 39,912 issued and 32,012 and 31,718 outstanding in 2012 and 2011, respectively

     403       399  

Additional paid-in capital

     452,526       444,642  

Treasury stock at cost (8,265 and 8,194 shares in 2012 and 2011, respectively)

     (232,735     (231,173

Retained earnings

     258,124       228,414  

Accumulated other comprehensive income

     6,758       8,049  
  

 

 

   

 

 

 

Total stockholders’ equity

     485,076       450,331  
  

 

 

   

 

 

 

Total liabilities and stockholders’ equity

   $ 562,512     $ 513,686  
  

 

 

   

 

 

 

See accompanying notes.

 

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Table of Contents

ATMI, Inc.

Consolidated Statements of Comprehensive Income

(unaudited)

(in thousands, except per share data)

 

     Three Months Ended
September 30,
 
     2012      2011  

Revenues

   $ 108,847       $ 95,006   

Cost of revenues

     54,404         50,955   
  

 

 

    

 

 

 

Gross profit

     54,443         44,051   

Operating expenses:

     

Research and development

     12,272         12,757   

Selling, general and administrative

     21,708         19,478   
  

 

 

    

 

 

 

Total operating expenses

     33,980         32,235   
  

 

 

    

 

 

 

Operating income

     20,463         11,816   

Interest income

     293         265   

Other income (expense), net

     254         (934
  

 

 

    

 

 

 

Income before income taxes

     21,010         11,147   

Provision for income taxes

     6,585         3,106   
  

 

 

    

 

 

 

Net income

   $ 14,425       $ 8,041   
  

 

 

    

 

 

 

Earnings per common share — basic

   $ 0.45       $ 0.25   

Weighted average shares outstanding — basic

     31,964         31,683   

Earnings per common share — diluted

   $ 0.44       $ 0.25   

Weighted average shares outstanding — diluted

     32,609         32,318   

Comprehensive income

   $ 15,099       $ 11,205   
  

 

 

    

 

 

 

See accompanying notes.

 

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Table of Contents

ATMI, Inc.

Consolidated Statements of Comprehensive Income

(unaudited)

(in thousands, except per share data)

 

     Nine Months Ended
September 30,
 
     2012     2011  

Revenues

   $ 307,320      $ 299,757   

Cost of revenues

     155,221        158,153   
  

 

 

   

 

 

 

Gross profit

     152,099        141,604   

Operating expenses:

    

Research and development

     40,586        40,459   

Selling, general and administrative

     67,967        62,223   
  

 

 

   

 

 

 

Total operating expenses

     108,553        102,682   
  

 

 

   

 

 

 

Operating income

     43,546        38,922   

Interest income

     923        978   

Other expense, net

     (509     (1,066
  

 

 

   

 

 

 

Income before income taxes

     43,960        38,834   

Provision for income taxes

     14,250        11,652   
  

 

 

   

 

 

 

Net income

   $ 29,710      $ 27,182   
  

 

 

   

 

 

 

Earnings per common share — basic

   $ 0.93      $ 0.86   

Weighted average shares outstanding — basic

     31,904        31,686   

Earnings per common share — diluted

   $ 0.91      $ 0.84   

Weighted average shares outstanding — diluted

     32,659        32,332   

Comprehensive income

   $ 28,419      $ 24,099   
  

 

 

   

 

 

 

See accompanying notes.

 

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Table of Contents

ATMI, INC.

CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY

(unaudited)

(in thousands)

 

     Common
Stock
     Additional
Paid-in
Capital
    Treasury
Stock
    Retained
Earnings
     Accumulated
Other
Comprehensive
Income
    Total  

Balance at December 31, 2011

   $ 399       $ 444,642      $ (231,173   $ 228,414       $ 8,049      $ 450,331   

Issuance of 63 shares of common stock pursuant to the exercise of employee stock options

     1         1,010        —          —           —          1,011   

Issuance of 8 shares of common stock pursuant to the employee stock purchase plan

     —           146        —          —           —          146   

Purchase of 72 treasury shares

     —           —          (1,562     —           —          (1,562

Stock based compensation

     —           6,605        —          —           —          6,605   

Income tax benefit from stock based compensation

     —           126        —          —           —          126   

Other

     3         (3     —          —           —          —     

Net income

     —           —          —          29,710         —          29,710   

Reclassification adjustment related to marketable securities sold in net unrealized gain position, net of $502 tax provision

     —           —          —          —           866        866   

Change in fair value on available-for-sale securities, net of deferred income tax of $1,631

     —           —          —          —           (3,786     (3,786

Change in fair value of derivative financial instruments, net of deferred income tax of $106

     —           —          —          —           (182     (182

Cumulative translation adjustment

     —           —          —          —           1,811        1,811   
              

 

 

 

Comprehensive income

     —           —          —          —           —          28,419   
  

 

 

    

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Balance at September 30, 2012

   $ 403       $ 452,526      $ (232,735   $ 258,124       $ 6,758      $ 485,076   
  

 

 

    

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

See accompanying notes.

 

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ATMI, Inc.

Consolidated Statements of Cash Flows

(unaudited)

(in thousands)

 

     Nine Months Ended
September 30,
 
     2012     2011  

Operating activities

    

Net income

   $ 29,710      $ 27,182   

Adjustments to reconcile net income to cash provided by operating activities:

    

Depreciation and amortization

     20,203        20,286   

Stock-based compensation expense

     6,605        5,827   

Provision for inventory obsolescence

     1,796        684   

Non-cash royalty

     (2,600     —     

Other

     1,687        2,692   

Changes in operating assets and liabilities:

    

Accounts receivable

     (15,291     5,609   

Inventories

     (11,047     (7,628

Other assets

     4,125        446   

Accounts payable

     4,433        (1,024

Accrued expenses, income taxes and other liabilities

     12,648        927   
  

 

 

   

 

 

 

Net cash provided by operating activities

     52,269        55,001   
  

 

 

   

 

 

 

Investing activities

    

Capital expenditures

     (18,420     (14,215

Purchases of marketable securities

     (65,462     (83,586

Proceeds from sales or maturities of marketable securities

     81,081        103,202   

Acquisitions of assets and investments

     (3,250     (6,746

Other

     117        50   
  

 

 

   

 

 

 

Net cash used for investing activities

     (5,934     (1,295
  

 

 

   

 

 

 

Financing activities

    

Purchases of treasury stock

     (1,562     (859

Proceeds from exercise of stock options

     1,157        782   

Other

     (29     28   
  

 

 

   

 

 

 

Net cash used for financing activities

     (434     (49
  

 

 

   

 

 

 

Effects of exchange rate changes on cash and cash equivalents

     39        (433
  

 

 

   

 

 

 

Net increase in cash and cash equivalents

     45,940        53,224   
  

 

 

   

 

 

 

Cash and cash equivalents, beginning of period

     34,523        68,648   
  

 

 

   

 

 

 

Cash and cash equivalents, end of period

   $ 80,463      $ 121,872   
  

 

 

   

 

 

 

See accompanying notes.

 

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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 Microelectronics segment 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, and high-purity materials packaging and dispensing systems that allow for the reliable introduction of low volatility liquids to microelectronics 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 that have improved performance at lower cost. ATMI’s customers include many of the leading semiconductor manufacturers in the world who target leading-edge technologies. In our LifeSciences segment, 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, vaccine, laboratory and cell therapy markets, which we believe offer significant growth potential. ATMI’s objective is to meet the demands of our microelectronics and life sciences customers with solutions that maximize the efficiency and safety of their manufacturing processes, reduce capital or operating costs, and minimize the time to develop new products and integrate them into their processes.

2. Basis of Presentation and Other Information

Basis of Presentation

The accompanying consolidated interim financial statements of ATMI, Inc. at September 30, 2012 and for the three and nine months ended September 30, 2012 and 2011, 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, 2011 audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2011. The Company’s quarterly results are subject to fluctuation and, thus, the operating results for any quarter are not necessarily indicative of results to be expected for any future fiscal period.

The consolidated balance sheet at December 31, 2011 has been derived from the audited financial statements at that date, but does not include all of the financial information and disclosures required by United States Generally Accepted Accounting Principles (“GAAP”) for complete financial statements.

 

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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
September 30,
     Nine Months Ended
September 30,
 
     2012      2011      2012      2011  

Numerator:

           

Net income

   $ 14,425       $ 8,041       $ 29,710       $ 27,182   

Denominator:

           

Denominator for basic earnings per share - weighted average shares

     31,964         31,683         31,904         31,686   

Dilutive effect of employee stock options

     145         40         178         44   

Dilutive effect of restricted stock

     500         595         577         602   
  

 

 

    

 

 

    

 

 

    

 

 

 

Denominator for diluted earnings per common share – weighted average shares

     32,609         32,318         32,659         32,332   
  

 

 

    

 

 

    

 

 

    

 

 

 

Earnings per share-basic

   $ 0.45       $ 0.25       $ 0.93       $ 0.86   

Earnings per share-diluted

   $ 0.44       $ 0.25       $ 0.91       $ 0.84   

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
September 30,
     Nine Months Ended
September 30,
 
     2012      2011      2012      2011  
Antidilutive shares      1,085         1,665         1,117         1,700   

 

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Table of Contents

Inventories

Inventories include (in thousands):

 

     September 30,
2012
    December 31,
2011
 

Raw materials

   $ 23,918     $ 20,508  

Work in process

     2,149       1,681  

Finished goods

     60,384       53,986  
  

 

 

   

 

 

 
     86,451       76,175  

Excess and obsolescence reserve

     (3,216     (2,553
  

 

 

   

 

 

 

Inventories, net

   $ 83,235     $ 73,622  
  

 

 

   

 

 

 

Non-marketable Equity Securities

We selectively invest in non-marketable equity securities of private companies, which range from early-stage companies to more mature companies whose products or technologies may directly support an ATMI product or initiative. At September 30, 2012, the carrying value of our portfolio of strategic investments in non-marketable equity securities totaled $8.5 million ($8.0 million at December 31, 2011), of which $5.3 million are accounted for at cost ($4.6 million at December 31, 2011), and $3.2 million are accounted for using the equity method of accounting ($3.4 million at December 31, 2011). Non-marketable equity securities are included in the consolidated balance sheets under the caption “Other non-current assets.” ATMI’s share of the income or losses of all equity-method investees, using the most current financial information available, which is one month behind ATMI’s normal closing date, is included in our results of operations from the investment date forward.

Income Taxes

We have not provided for U.S. federal income and foreign withholding taxes on approximately $106.3 million of undistributed earnings from non-U.S. operations as of September 30, 2012, 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 31.3 percent and 32.4 percent for the three and nine month periods ended September 30, 2012, respectively. 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, and the impact of our reserves. Our effective income tax rate is calculated based on full-year assumptions and is affected by the mix of income attributable to the various countries in which we conduct business, and excludes any benefit associated with the U.S. Federal research and development (“R&D”) credit which was not renewed at the end of 2011. In the first nine months of 2012, if a tax benefit had been reflected on the foreign losses, and the U.S. Federal R&D credit had been taken into account, our effective income tax rate would have been below 30 percent.

 

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At September 30, 2012, the Company had $4.3 million of unrecognized tax benefits, which if recognized, would favorably affect the effective income tax rate in future periods. $0.3 million of this amount is included in deferred taxes, and the balance of $4.0 million is included in the caption “Other non-current liabilities” on the Consolidated Balance Sheets, together with $0.5 million of accrued interest (net) on tax reserves and $0 accrued for penalties.

It is reasonably possible that in the next 12 months, because of changes in facts and circumstances, the unrecognized tax benefits for tax positions taken related to previously filed tax returns may decrease. The range of possible decrease is $0 million to $1.3 million (excluding interest). In January 2012, the Internal Revenue Service completed a U.S. tax audit of tax years 2008 and 2009, and during the current quarter it has initiated the audit of tax year 2010.

Goodwill and Other Intangible Assets

Goodwill and Other intangible asset balances at September 30, 2012 and December 31, 2011 were (in thousands):

 

     Goodwill          Patents,
Licenses &
Trademarks
    Other     Total Other
Intangibles
 

Gross amount as of December 31, 2011

   $ 46,546           $ 49,404      $ 13,195      $ 62,599   

Accumulated amortization

     —               (25,338     (690     (26,028
  

 

 

        

 

 

   

 

 

   

 

 

 

Balance at December 31, 2011

   $ 46,546           $ 24,066      $ 12,505      $ 36,571   
  

 

 

        

 

 

   

 

 

   

 

 

 

Gross amount as of September 30, 2012

   $ 46,465           $ 52,539      $ 10,871      $ 63,410   

Accumulated amortization

     —               (27,917     (1,454     (29,371
  

 

 

        

 

 

   

 

 

   

 

 

 

Balance at September 30, 2012

   $ 46,465           $ 24,622      $ 9,417      $ 34,039   
  

 

 

        

 

 

   

 

 

   

 

 

 

 

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Changes in carrying amounts of Goodwill and Other Intangibles for the nine months ended September 30, 2012 were (in thousands):

 

     Goodwill          Patents,
Licenses &
Trademarks
    Other     Total Other
Intangibles
 

Balance at December 31, 2011

   $ 46,546           $ 24,066      $ 12,505      $ 36,571   

Acquisition

     —               3,250        —          3,250   

Amortization expense

     —               (2,599     (764     (3,363

Other, including foreign currency translation (1)

     (81          (95     (2,324     (2,419
  

 

 

        

 

 

   

 

 

   

 

 

 

Balance at September 30, 2012

   $ 46,465           $ 24,622      $ 9,417      $ 34,039   
  

 

 

        

 

 

   

 

 

   

 

 

 

 

(1) Through September 30, 2012, the Company has recorded $2.3 million of adjustments, captured in the “Other” category, to decrease the value of the intangible assets associated with the Company’s SDS Direct transaction, originally recorded in October 2011 as part of the asset acquisition, because of cash recoveries from the seller.

In the third quarter of 2012, we acquired license rights to manufacture, distribute and sell certain technology in our LifeSciences segment for a period of 10 years for $3.3 million.

Variable Interest Entity

We hold a variable interest in the equity of Anji Microelectronics Co., Ltd. (“Anji”), an entity that produces advanced semiconductor materials, with primary operations in Shanghai, China. We have determined that we are not the primary beneficiary of Anji because we do not have the power, through voting or similar rights, to direct the activities of Anji that most significantly impact the entity’s economic performance, and we are also not expected to absorb significant losses or gains from Anji. ATMI’s carrying value of this cost basis investment is $3.9 million at September 30, 2012. The carrying value of our investment in Anji represents the cash paid, less our share of the cumulative losses during the period that we used the equity-method of accounting. At September 30, 2012, 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.

Recently Issued Accounting Pronouncements

In July 2012, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“Update”) 2012-02, “Intangibles — Goodwill and Other (Topic 350).” This Update permits an entity to first assess qualitative factors to determine whether it is more likely than not that the fair value of the indefinite-lived intangible asset is less than the carrying amount as a basis for determining whether it is necessary to perform the quantitative impairment test making the evaluation consistent with the evaluation of goodwill. The Update is effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012. Early adoption is permitted, including for annual and interim impairment tests performed as of a date before July 27, 2012. We do not anticipate any material impact from this Update.

 

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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 September 30, 2012 (in thousands):

 

Stock Plan

   # of Shares
Approved
     # of Shares
Available
 

2003 Stock Plan (1)

     3,000         50   

2010 Stock Plan (1)

     3,000         2,582   

Employee Stock Purchase Plan (2)

     1,000         238   
  

 

 

    

 

 

 

Totals

     7,000         2,870   
  

 

 

    

 

 

 

 

(1) Exercise prices for ISOs and non-qualified stock options granted under this plan may not be less than 100 percent of the fair market value for the Company’s common stock on the date of grant.
(2) Employees may purchase shares at 95 percent of the closing price on the day previous to the last day of each six-month offering period. This plan is not considered to be compensatory.

The Company issued 70,986 shares of common stock as a result of exercises by employees under its employee stock option plans during the first nine months of 2012. Such amount was 59,129 shares of common stock during the fiscal year ended December 31, 2011. The Company issued 317,965 shares of restricted stock that include solely a time-based vesting requirement in the first nine months of 2012 and such amount was 368,588 during the fiscal year ended December 31, 2011.

In the first nine months of 2012, as part of our executive officer long-term incentive compensation structure, the Company issued 77,858 awards of restricted stock units to its executive officers that consist of Total Shareholder Return Performance Restricted Stock Unit Awards (“PRSUs”), compared to 101,325 shares of restricted stock issued to its executive officers that included both performance-based and time-based vesting requirements (“PRSAs”) during the fiscal year ended December 31, 2011. The ultimate amount of shares issuable pursuant to PRSUs earned will be determined based on relative total stockholder return of the Company’s stock versus the performance of the Russell 2000 index. PRSUs are initially granted at a target level of achievement, with a payout potential, payable in common stock, of 0% to 175% of target. In the first nine months of 2012, 49,462 of the 101,325 PRSAs granted in 2011 were earned (subject to time-based vesting), while 51,863 shares were forfeited and cancelled.

 

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4. Marketable Securities

Marketable securities include at September 30, 2012 and December 31, 2011 (in thousands):

 

            2012                   2011        
     Cost      Gross
Unrealized
Gain (Loss)
    Estimated
Fair Value
     Cost      Gross
Unrealized
Gain (Loss)
    Estimated
Fair Value
 

Securities in unrealized gain position:

               

Common stock

   $ 22,376      $ 6,272     $ 28,648      $ 22,376      $ 12,241     $ 34,617  

Corporate debt obligations

     3,273        14       3,287        —           —          —     

Government debt obligations (1)

     11,460        20       11,480        22,612        69       22,681  

GS (2) debt obligations

     6,004        —          6,004        7,000        6       7,006  
  

 

 

    

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

Subtotal

     43,113        6,306       49,419        51,988        12,316       64,304  

Securities in unrealized loss position:

               

Corporate debt obligations

     3,831        (4     3,827        —           —          —     

Government debt obligations

     791        —          791        4,437        (2     4,435  

GS debt obligations

     4,506        (1     4,505        —           —          —     

Auction-rate security

     —           —          —           4,720        (1,391     3,329  
  

 

 

    

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

Subtotal

     9,128        (5     9,123        9,157        (1,393     7,764  

Securities at amortized cost:

               

Time deposits

     —           —          —           6,893        —          6,893  

Government debt obligations

     250        —          250        —           —          —     
  

 

 

    

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

Subtotal

     250        —          250        6,893        —          6,893  
  

 

 

    

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

Total marketable securities

   $ 52,491      $ 6,301     $ 58,792      $ 68,038      $ 10,923     $ 78,961  
  

 

 

    

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

 

(1) State and municipal government debt obligations.
(2) Government sponsored.

The amortized cost and estimated fair value of available-for-sale securities, by contractual maturity, as of September 30, 2012 are shown below (in thousands); expected maturities may differ from contractual maturities because the issuers of the securities may exercise the right to prepay obligations without prepayment penalties.

 

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     Cost      Estimated
Fair Value
 

Due in one year or less

   $ 12,500       $ 12,520   

Due between one and three years

     17,615         17,624   
  

 

 

    

 

 

 
     30,115         30,144   

Common stock

     22,376         28,648   
  

 

 

    

 

 

 
   $ 52,491       $ 58,792   
  

 

 

    

 

 

 

This table shows the Company’s marketable securities that were in an unrealized loss position at September 30, 2012, and also shows the duration of time the security had been in an unrealized loss position (in thousands):

 

     Less Than 12 Months      12 Months or Greater     Total  
     Fair Value      Unrealized
Losses
     Fair Value      Unrealized
Losses
    Fair Value      Unrealized
Losses
 

Corporate debt obligations

   $ —         $ —         $ 3,827       $ (4   $ 3,827       $ (4

Government debt obligations

     791         —           —           —          791         —     

GS (1) debt obligations

     —           —           4,505         (1     4,505         (1
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

    

 

 

 

Total

   $ 791       $ —         $ 8,332       $ (5   $ 9,123       $ (5
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

    

 

 

 

 

(1) Government sponsored.

As of September 30, 2012, we had 8 securities in an unrealized loss position.

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):

 

     Currency
Translation
Adjustments
     Unrealized Gain
(Loss) on
Available-for-Sale
Securities
    Total  

Balance at December 31, 2011

   $ 1,070      $ 6,979      $ 8,049  

Reclassification adjustment related to marketable securities in net unrealized gain at prior period end, net of $502 tax provision (1)

     —           866       866  

Change in fair value of available-for-sale securities, net of deferred income tax of $1,631

     —           (3,786     (3,786

Change in fair value of derivative financial instruments, net of deferred income tax of $106

     —           (182     (182

Cumulative translation adjustment

     1,811        —          1,811  
  

 

 

    

 

 

   

 

 

 

Balance at September 30, 2012

   $ 2,881      $ 3,877     $ 6,758  
  

 

 

    

 

 

   

 

 

 

 

(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.

Level 3 – Unobservable inputs to the valuation methodology that are significant to the measurement of fair value of assets or liabilities.

 

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In May 2012, we liquidated our only auction-rate security holding for $4.2 million resulting in a recognized loss of $0.5 million, which is included in the consolidated statements of comprehensive income in the caption “Other expense, net.”

Assets / Liabilities Measured at Fair Value on a Recurring Basis

This table summarizes the Company’s assets and liabilities measured at fair value on a recurring basis at September 30, 2012 (in thousands):

 

           Fair Value Measured Using  
     Total     Quoted Prices
in Active
Markets for
Identical
Assets

(Level 1)
    Significant
Other
Observable
Inputs
(Level 2)
     Significant
Unobservable
Inputs
(Level 3)
 

Cash & cash equivalents

   $ 80,463     $ 80,463       —           —     

Available-for-sale marketable securities

         

Common stock

   $ 28,648     $ 28,648       —           —     

Corporate debt obligations

   $ 7,114       —        $ 7,114        —     

Government debt obligations

   $ 12,521       —        $ 12,521        —     

Government sponsored debt obligations

   $ 10,509       —        $ 10,509        —     

Foreign currency exchange contract asset

   $ 140      $ 140        —           —     

Foreign currency exchange contract liability

   $ (401   $ (401     —           —     

During the first nine months of 2012, our valuation methodologies were consistent with previous years, and there were no transfers made among the three levels of the valuation hierarchy.

 

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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, 2012 (in thousands).

 

     Fair Value Measurements Using
Significant Unobservable Inputs  (Level 3)
 
     Available-For-Sale
Marketable Securities
    Total  

Balance at December 31, 2011

   $ 3,329      $ 3,329   

Total losses, realized and unrealized:

    

Included in net income

     (530     (530

Included in accumulated other comprehensive income

     889        889   

Deferred tax effect

     510        510   

Purchases, issuances, and settlements, net

     (4,198     (4,198

Transfers into (out of) Level 3

     —          —     
  

 

 

   

 

 

 

Balance at September 30, 2012

   $ 0      $ 0   
  

 

 

   

 

 

 

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.

In the third quarter of 2012, our Microelectronics segment received $2.6 million of research and development equipment as compensation for a royalty agreement with a third party. The fair value of the equipment was determined using Level 3 inputs, including cash flow analysis and also the use of market comparables for similar equipment. The fair value of the equipment is recorded as revenues in the consolidated statements of comprehensive income.

Consistent with prior quarters, the liability for the Artelis contingent consideration payments, which is classified as Level 3, and is tied to future revenue performance for the fiscal years 2012 through 2014, was calculated using unobservable inputs (primarily using discounted cash flow analyses, a current average discount rate of 8.1 percent, and reliance on the market and product knowledge of internal experts). The contingent payments have a range of possible outcomes from $0 to $23.3 million.

Our estimate of the fair value of the Artelis contingent payments was $6.8 million at September 30, 2012, representing a reduction in our estimated payments of $0.3 million from December 31, 2011 including $0.1 million of foreign currency translation impact. The benefit associated with the reduction has been reflected as a reduction of $0.3 million in SG&A expense for the nine months ended September 30, 2012.

Due to their nature, the carrying value of cash, receivables, and payables approximates fair value.

 

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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. 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.

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. The changes in fair value of derivatives that are designated as cash-flow hedges are deferred in accumulated other comprehensive income (loss) and are recognized in earnings when the underlying hedged transaction occurs. Any 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, 2012, we held foreign currency exchange contracts, not designated as cash flow hedges, with notional amounts totaling $19.8 million of which $7.3 million will be settled in Euros, $2.1 million will be settled in Taiwan Dollars, $9.5 million will be settled in Korean Won, and $0.9 million will be settled in Japanese Yen. At September 30, 2012, we held forward foreign currency exchange contracts designated as cash flow hedges with notional amounts totaling $22.2 million, which will be settled in Japanese Yen. The cash flow hedges held at September 30, 2012 mature between fourth quarter 2012 and 2014. At September 30, 2012, the accumulated net unrecognized losses that are expected to be reclassified into earnings during the next twelve months is $0.2 million.

The Company recorded a net loss of $0.1 million and a net gain of $0.6 million for the three and nine months ended September 30, 2012, and net losses of $0.4 million and $1.3 million for the three and nine months ended September 30, 2011, respectively, under the caption “Other expense, net” in the Consolidated Statements of Comprehensive Income related to changes in the fair value of the foreign currency exchange contract economic hedges. The Company recorded a net loss of $0.2 million for the three and nine months ended September 30, 2012 in other comprehensive income related to the change in the fair value of cash flow hedges. Reclassification of deferred losses in other comprehensive income into earnings was $0.1 million and $ 0.2 million for the three and nine months ended September 30, 2012.

 

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8. Commitments and Contingencies

ATMI is, from time to time involved in legal actions, governmental audits, and proceedings relating to various matters incidental to its business including contract disputes, intellectual property disputes, product liability claims, employment matters, export and trade matters, and environmental claims. While the outcome of such matters cannot be predicted with certainty, in the opinion of management, after reviewing such matters and consulting with ATMI’s counsel and considering any applicable insurance or indemnifications, any liability which may ultimately be incurred is not expected to materially affect ATMI’s consolidated financial position, cash flows or results of operations.

As part of the Artelis acquisition, we recognized a liability for the fair value of contingent payments tied to future revenue performance, which is currently valued at $6.8 million. The range of possible outcomes related to the contingent payment obligation is $0 to $23.3 million. See Note 6 for further discussion.

9. Segments

ATMI has two reportable operating segments, Microelectronics and LifeSciences. Our Chief Executive Officer regularly reviews financial information which separately identifies each segment’s results.

The Microelectronics business unit sells high-purity materials and materials delivery systems directly to integrated circuit manufacturers and to chemical suppliers for flat-panel display manufacturing. Microelectronics products consist of ATMI’s patented Safe Delivery System® (“SDS”) solutions, copper integration and surface preparation products, deposition materials and high-purity liquid materials packaging solutions. Microelectronics products represent the largest portion of ATMI’s business and development activities. The principal drivers for this market are technical performance, yield improvement, time to market, cost, utilization of capital, and risk reduction. The success of an electronic component or device is driven by the increased functionality it can deliver at an acceptable cost.

The life sciences industry has been using disposable components like filters, connectors, and disposable storage bags for several years; however, as customers migrate toward processes which combine disposable components and integrate them into disposable systems we see growing opportunities. The LifeSciences business unit sells products that address an increasing number of critical process steps for the biotechnology, laboratory and cell therapy markets, including disposable mixers and bioreactors, both considered growth opportunities for ATMI. This unit includes our Newform™ products and Integrity™ mixers, bioreactors and bioprocess vessels.

The Company evaluates performance and allocates resources based on profit or loss from operations. The accounting policies of the reportable segments are the same as those described in the summary of significant accounting policies.

 

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     Revenue (1)  
     Three Months Ended
September 30,
    Nine Months Ended
September 30,
 
     2012     2011     2012     2011  

Microelectronics

   $ 98,477      $ 85,795      $ 276,460      $ 270,270   

LifeSciences

     10,388        9,203        30,651        29,137   

All Other

     (18     8        209        350   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total Consolidated

   $ 108,847      $ 95,006      $ 307,320      $ 299,757   
  

 

 

   

 

 

   

 

 

   

 

 

 
     Operating income (loss)  
     Three Months Ended
September 30,
    Nine Months Ended
September 30,
 
     2012     2011     2012     2011  

Microelectronics

   $ 34,388      $ 24,324      $ 85,817      $ 76,864   

LifeSciences

     (2,137     (2,223     (5,367     (4,549

All Other

     (11,788     (10,285     (36,904     (33,393
  

 

 

   

 

 

   

 

 

   

 

 

 

Total Consolidated

   $ 20,463      $ 11,816      $ 43,546      $ 38,922   
  

 

 

   

 

 

   

 

 

   

 

 

 

 

(1) Intersegment sales were not significant for the three and nine month periods ended September 30, 2012 and 2011.

 

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Three and Nine Months Ended September 30, 2012 as Compared to 2011

Cautionary Statements Under the Private Securities Litigation Reform Act of 1995

Disclosures included in this Form 10-Q contain “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements may be identified by words such as “anticipate,” “plan,” “believe,” “seek,” “estimate,” “expect,” “could,” and words of similar meanings and include, without limitation, statements about the expected future business and financial performance of ATMI such as financial projections, expectations for demand and sales of new and existing products, customer and supplier relationships, research and development programs, market and technology opportunities, international trends, business strategies, business opportunities, objectives of management for future operations, microelectronics industry (including wafer start) growth, and trends in the markets in which the Company participates. Forward-looking statements are based on management’s current expectations and assumptions, which are inherently subject to uncertainties, risks and changes in circumstances that are difficult to predict. Actual outcomes and results may differ materially from these expectations and assumptions because of changes in political, economic, business, competitive, market, regulatory, and other factors. Certain factors that could cause such positive or negative differences include:

 

   

variation in profit margin caused by increases or decreases in shipment volume, product quality issues, reductions in, or obsolescence of, inventory, inefficiencies in production facilities and shifts in product mix;

 

   

cyclicality in the markets in which we operate;

 

   

disruptions in global credit and financial markets, including severely diminished liquidity and credit availability, declines in consumer confidence, declines in economic growth, increases in unemployment rates, inflationary or deflationary pressures, and uncertainty about economic stability;

 

   

aggressive management of inventory levels by our customers and their customers;

 

   

availability of supply from a single or limited number of suppliers or from suppliers in a single country;

 

   

highly competitive markets for our products;

 

   

inability to realize our anticipated gains from investments in new technology;

 

   

changes in export controls, environmental and other laws or policies, as well as the general political and economic conditions, exchange rate fluctuations, security risks, health conditions and possible disruptions in transportation networks, of the various countries in which we operate;

 

   

potential natural disasters in locations where we, our customers, or our suppliers operate;

 

   

climate change and compliance with climate change related country regulations:

 

   

loss, or significant curtailment, of purchases by one or more of our largest customers;

 

   

customer-driven pricing pressures adversely affecting our average selling prices and margin;

 

   

inability to meet customer demand from quarter to quarter, causing us to incur expedited shipping costs or hold excess or obsolete inventory;

 

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customer-driven manufacturing efficiencies resulting in the dilution of our materials on their tools or extension of the bath-life that our materials are used in, both of which could negatively impact our revenues

 

   

changing tax laws, 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 liability 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;

 

   

risk of information technology system failures which could lead to security breaches, loss of data or network disruptions;

 

   

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, 2011, 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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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 Microelectronics segment 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, and high-purity materials packaging and dispensing systems that allow for the reliable introduction of low volatility liquids to microelectronics 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 that have improved performance at lower cost. ATMI’s customers include many of the leading semiconductor manufacturers in the world who target leading-edge technologies. In our LifeSciences segment, 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, vaccine, laboratory and cell therapy markets, which we believe offer significant growth potential. ATMI’s objective is to meet the demands of our microelectronics and life sciences customers with solutions that maximize the efficiency and safety 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

The following table provides a summary of consolidated results of operations for the three and nine months ended September 30, 2012 and 2011:

 

     Three Months Ended
September 30,
          Nine Months Ended
September 30,
       
     2012     2011     % Change     2012     2011     % Change  

Revenues

   $ 108,847      $ 95,006       14.6   $ 307,320      $ 299,757       2.5

Cost of revenues

     54,404        50,955       6.8     155,221        158,153       (1.9 %) 
  

 

 

   

 

 

     

 

 

   

 

 

   

Gross profit

     54,443        44,051       23.6     152,099        141,604       7.4

Gross profit margin

     50.0     46.4       49.5     47.2  

Operating expenses:

            

Research and development

     12,272        12,757       (3.8 %)      40,586        40,459       0.3

Selling, general and administrative

     21,708        19,478       11.4     67,967        62,223       9.2
  

 

 

   

 

 

     

 

 

   

 

 

   

Total operating expenses

     33,980        32,235       5.4     108,553        102,682       5.7
  

 

 

   

 

 

     

 

 

   

 

 

   

Operating income

     20,463        11,816       73.2     43,546        38,922       11.9

Interest income

     293        265       10.6     923        978       (5.6 %) 

Other income (expense), net

     254       (934     127.2     (509     (1,066     52.3
  

 

 

   

 

 

     

 

 

   

 

 

   

Income before income taxes

     21,010        11,147       88.5     43,960        38,834       13.2

Provision for income taxes

     6,585        3,106       112.0     14,250        11,652       22.3
  

 

 

   

 

 

     

 

 

   

 

 

   

Effective tax rate

     31.3     27.9       32.4     30.0  

Net income

   $ 14,425      $ 8,041       79.4   $ 29,710      $ 27,182       9.3
  

 

 

   

 

 

     

 

 

   

 

 

   

 

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Analysis of Consolidated Results

Third quarter 2012 revenue of $108.8 million increased by 14.6 percent compared to the third quarter of 2011 driven primarily by the strong positive contribution from the SDS Direct Transaction which was completed last year, a one-time $2.6 million royalty and continued single-use growth in our LifeSciences segment.

Revenues for the nine months ended 2012 were $307.3 million, up 2.5 percent compared to the first nine months of 2011, driven by the growth in our Microelectronics segment which was due to the SDS Direct Transaction, and a one-time $2.6 million royalty. Our copper materials business was flat year-over-year as growth in new product sales was offset by improved customer material efficiencies on certain of our existing products and our NOWPak® products declined as customers continue to migrate to higher volume packages. Revenue growth was further enhanced by our LifeSciences segment due to strong bioreactor and mixing-related consumable sales.

Consolidated gross profit margin in the third quarter of 2012 was 50.0 percent, an increase of 3.6 percentage points compared to the prior year quarter. In the third quarter of 2012, the increase was mainly caused by the contribution from the SDS Direct Transaction completed in the fourth quarter of last year and a one-time royalty.

Consolidated gross profit margin for the nine months ended September 30, 2012 was 49.5 percent, an increase of 2.3 percentage points over the same period in 2011, driven by improved contribution margins from SDS and the one-time royalty.

Research and development (“R&D”) expense decreased 3.8 percent to $12.3 million in the third quarter of 2012 from $12.8 million in the third quarter of 2011. The decrease in R&D spending was caused mostly by the successful conclusion of a collaborative development agreement resulting in expense reimbursements to us of $1.9 million partially offset by spending on consumables ($0.6 million) and increased spending in employee costs, and outside services.

R&D expense for the first nine months of 2012 increased 0.3 percent to $40.6 million driven by the successful conclusion of a collaborative development agreement resulting in expense reimbursements to us of $2.4 million, partially offset by increases in spending on legal, consumables and increased outside services.

Selling, general & administrative (“SG&A”) expenses increased 11.4 percent to $21.7 million in the third quarter of 2012 from $19.5 million in the third quarter of 2011. The increase was caused by increased employee costs ($1.2 million) due to increased salaries, equity incentives and medical costs, and the increased marketing expenses associated with the SDS Direct Transaction.

For the nine months ended September 30, 2012, SG&A expense increased 9.2 percent to $68.0 million compared to the same period of 2011 driven by approximately $3.0 million of costs associated with the SDS Direct Transaction, prior year benefits for a capital based tax credit of $1.2 million, and a $0.9 million gain due to the change in fair value of a contingent consideration liability.

 

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Operating income increased 73.2 percent to $20.5 million in the third quarter of 2012 compared to the third quarter of 2011, driven by the factors noted above.

For the nine months ended September 30, 2012, operating income increased 11.9 percent to $43.5 million, driven by factors noted above.

In the third quarter of 2012, other income (expense), net, was $0.3 million due to gains on equipment sales and foreign exchange. In the third quarter of 2011, we recognized a $0.8 million loss on foreign currency.

For the nine months ended September 30, 2012, other expense, net, was $0.5 million primarily due to a recognized loss on the sale of an Auction Rate Security. In the first nine months of 2011, other expense, net was $1.1 million primarily due to a foreign currency exchange loss of $0.8 million.

Our effective income tax rate was 31.3 percent and 32.4 percent for the three and nine month periods ended September 30, 2012, respectively. Our effective income tax rate is calculated based on full-year assumptions and is affected by the mix of income attributable to the various countries in which we conduct business, the increase in the valuation allowance on certain foreign losses, such as Artelis, and the impact of our reserves. It excludes the benefit of the U.S. Federal R&D credit which expired at the end of 2011. In the nine months ended September 30, 2012, if a tax benefit had been reflected on the foreign losses, and the U.S. Federal R&D credit had been taken into account, our effective income tax rate would have been below 30 percent.

 

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Segment Analysis

 

     Revenue        
     Three Months Ended
September 30,
    %     Nine Months Ended
September 30,
    %  
     2012     2011     Change     2012     2011     Change  

Microelectronics

   $ 98,477      $ 85,795        14.8   $ 276,460      $ 270,270        2.3

LifeSciences

     10,388        9,203        12.9     30,651        29,137        5.2

All Other

     (18     8        (323.8 %)      209        350        (40.3 %) 
  

 

 

   

 

 

     

 

 

   

 

 

   

Total Consolidated

   $ 108,847      $ 95,006        14.6   $ 307,320      $ 299,757        2.5
  

 

 

   

 

 

     

 

 

   

 

 

   
     Operating income (loss)        
     Three Months Ended
September 30,
    %     Nine Months Ended
September 30,
    %  
     2012     2011     Change     2012     2011     Change  

Microelectronics

   $ 34,388      $ 24,324        41.4   $ 85,817      $ 76,864        11.6

LifeSciences

     (2,137     (2,223     3.9     (5,367     (4,549     (18.0 %) 

All Other

     (11,788     (10,285     (14.6 %)      (36,904     (33,393     (10.5 %) 
  

 

 

   

 

 

     

 

 

   

 

 

   

Total Consolidated

   $ 20,463      $ 11,816        73.2   $ 43,546      $ 38,922        11.9
  

 

 

   

 

 

     

 

 

   

 

 

   

Microelectronics: Revenues grew 14.8 percent to $98.5 million in the third quarter of 2012 compared to the third quarter of 2011. Microelectronics revenues included a $2.6 million one-time royalty. Our implant product revenues grew 54.4 percent compared to the third quarter of 2011 as a result of increased SDS revenues due to the SDS Direct Transaction. Our copper materials product lines grew 1.1 percent in the third quarter of 2012 compared to the third quarter of 2011 due to growth in our plating products. Given the ongoing and normal pressures to bring costs down in the consumer and microelectronics industries, we continue to experience pricing pressure with several of our legacy products, including SDS, high-purity packaging, photo and copper materials. Gross profit margins in our microelectronics product lines were approximately 52 percent in the third quarter of 2012 compared to approximately 48 percent in the third quarter of 2011. Gross profit margins benefited from improved contribution margins from the SDS Direct Transaction and the positive impact of the one-time royalty of $2.6 million. Operating income was $34.4 million in the third quarter of 2012 compared to $24.3 million in the third quarter of 2011 driven primarily by the SDS Direct Transaction and the one-time royalty.

Revenues for the nine months ended September 30, 2012 were $276.5 million, an increase of 2.3 percent compared to the same period in 2011, driven primarily by stronger SDS sales and a one-time royalty. Our copper materials business was flat year-over-year as growth in new product sales was offset by improved customer material efficiencies on certain of our existing products and our NOWPak® products declined as customers continue to migrate to higher volume packages. Operating income increased by 11.6 percent to $85.8 million driven primarily by increased contribution from the SDS Direct Transaction.

 

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LifeSciences: Revenues grew 12.9 percent in the third quarter of 2012 to $10.4 million compared to $9.2 million in the third quarter of 2011, primarily as a result of strong bioreactor and mixing-related equipment sales. Gross profit margins in our Life Sciences product lines were approximately 28 percent in the third quarter of 2012 compared to 30 percent in the third quarter of 2011. The decline in 2012 was due to an increased mix of equipment, which has lower margins than consumables, but should ultimately lead to increases in higher margin consumables sales in future periods. Operating loss was $2.1 million in the third quarter of 2012, a 3.9 percent improvement compared to the third quarter of 2011 driven by continued revenue growth partially offset by continued R&D and SG&A spending in support of iCellis™ and Xpansion™ bioreactor commercialization efforts.

LifeSciences revenues for the nine months ended September 30, 2012 of $30.7 million were up 5.2 percent compared to same period in 2011. The results for the nine months ended September 30, 2011 included licensing revenues that related to a settlement of periods prior to 2011. Excluding the impact of the one-time licensing revenues, revenues would have been up 13.2 percent. Operating loss for the first nine months of 2012 was $5.4 million compared to $4.6 million for the nine months ended September 30, 2011, an increase of 18.0 percent. The increased loss is a result of the continued R&D and SG&A spending in support of iCellis™ and Xpansion™ bioreactor commercialization efforts.

 

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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, corporate debt 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 and R&D facilities around the globe and to drive efficiencies throughout the organization. Additionally, management considers, on a continuing basis, potential acquisitions of strategic technologies and businesses complementary to the Company’s current business.

 

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Table of Contents

A summary of our cash flows follows (in thousands):

 

     Nine Months Ended
September 30,
 
     2012     2011  

Cash provided by (used for):

    

Operating activities

   $ 52,269      $ 55,001   

Investing activities

     (5,934     (1,295

Financing activities

     (434     (49

Effects of exchange rate changes on cash and cash equivalents

     39        (433

Operating Activities

During the nine months ended September 30, 2012, we generated $52.3 million of cash from operations, which represents a decrease of $2.7 million from the $55.0 million generated from operations during the nine months ended September 30, 2011. The cash generated from operations was driven by net income, increased accounts payable and income taxes payable, partially offset by increased accounts receivable and cash used for the purchase of inventories, both primarily due to the SDS Direct transaction. Inventories increased by $9.6 million in the nine months ended September 30, 2012 driven by SDS finished goods inventories. The increase in accounts payable of $4.8 million was primarily driven by an increase in SDS related purchases. Accounts receivable increased by $15.3 million primarily as a result of increased SDS revenues and longer payment terms associated with agreements assumed from the former SDS distributor.

Investing Activities

Net cash used for investing activities was $5.9 million in the nine months ended September 30, 2012, an increase of $4.6 million compared to the nine months ended September 30, 2011. Our investing activities primarily relate to purchases of property, plant and equipment, and purchases, sales and maturities of marketable securities, including $4.2 million in cash received from the sale of an auction rate security. The increase in cash used for investing activities was due to the decline in net proceeds from the sale and maturities of marketable securities and the acquisition of intangibles of $3.3 million.

Financing Activities

Financing activities resulted in a use of cash of $0.4 million in the nine months ended September, 30 2012, which was an increase of $0.4 million in cash used versus the first nine months of 2011. The increase was primarily related to purchases of treasury stock associated with the vesting of equity awards.

 

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Table of Contents

Critical Accounting Estimates

There have been no material changes from the methodologies applied by management for critical accounting estimates previously disclosed in ATMI’s most recent Annual Report on Form 10-K.

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Interest Rate Risk. As of September 30, 2012, the Company’s cash and cash equivalents and marketable securities included bank deposits, money market securities, corporate debt obligations, and government and government-sponsored bond obligations. As of September 30, 2012, an increase of 100 basis points in interest rates on securities with maturities greater than one year would reduce the fair value of the Company’s marketable securities portfolio by approximately $0.1 million. Conversely, a reduction of 100 basis points in interest rates on securities with maturities greater than one year would not have a material impact on the fair value of the Company’s marketable securities.

Foreign Currency Exchange Risk. The majority of the Company’s sales are denominated in U.S. dollars and as a result, the Company has limited exposure to foreign currency exchange risk with respect to sales made. Approximately 46 percent and 47 percent, respectively, of the Company’s revenues for the three and nine months ended September 30, 2012 were denominated in Japanese Yen (“JPY”), Korean Won (“KRW”), and Euros (“EUR”), but a majority of the product is sourced in U.S. dollars. Management periodically reviews the Company’s exposure to currency fluctuations. This exposure may change over time as business practices evolve and could have a material effect on the Company’s financial results in the future. We use forward foreign exchange contracts to hedge specific exposures relating to intercompany receivables and payables and anticipated, but not yet committed, sales from our U.S. entity to a Japanese customer denominated in JPY. The terms of the forward foreign exchange contracts are generally matched to the underlying transaction being hedged, and are typically two years or less.

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 that are designated as economic hedges and recognize in accumulated other comprehensive income any changes in fair value of all derivatives designated as cash flow hedges that are highly effective and meet the other related accounting requirements. Gains and losses associated with contracts designated as cash flow hedges are recognized in earnings when the underlying hedged transaction occurs. 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 September 30, 2012, we held forward foreign currency exchange contracts, not designated as cash flow hedges, with notional amounts totaling $19.8 million and forward foreign currency exchange contracts designated as cash flow hedges with notional amounts totaling $22.2 million, which are being used to hedge recorded foreign denominated assets and liabilities which will be settled in either JPY, KRW, EUR, 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, KRW, EUR and NTD, the fair market value of the foreign exchange contracts outstanding at September 30, 2012 would decrease by approximately a net of $1.5 million ($0.7 million would be expected to be fully offset by foreign exchange gains on the amount being hedged, and a loss of $2.2 million would be reported in accumulated other comprehensive income, until the forecasted hedged transactions occurred). The effect of an immediate 10 percent change in other foreign exchange rates would not be expected to have a material effect on the Company’s future operating results or cash flows.

 

31


Table of Contents
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 quarter ended September 30, 2012 we believe materially affected, or will be reasonably likely to materially affect, our internal control over financial reporting.

 

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Table of Contents

PART II- OTHER INFORMATION

 

Item 1. Legal Proceedings

ATMI is, from time to time, involved in legal actions, governmental audits, and proceedings relating to various matters incidental to its business including contract disputes, intellectual property disputes, product liability claims, employment matters, export and trade matters, and environmental claims. While the outcome of such matters cannot be predicted with certainty, in the opinion of management, after reviewing such matters and consulting with ATMI’s counsel and considering any applicable insurance or indemnifications, any liability which may ultimately be incurred is not expected to materially affect ATMI’s consolidated financial position, cash flows or results of operations.

 

Item 1A. Risk Factors

There have been no material changes to the Risk Factors, which are described in more detail in our Annual Report on Form 10-K for the fiscal year ended December 31, 2011, 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 Part I–Item 2 of 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, 2012 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 14,606 shares (at an average price of $20.30 per share) through net share settlements during the three months ended September 30, 2012, upon the vesting of restricted stock awards, to cover minimum tax withholding obligations.

 

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Table of Contents

Item 6. Exhibits

 

10.1    1998 Employee Stock Purchase Plan (as amended effective February 28, 2003, January 1, 2007, and September 12, 2012)
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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Table of Contents

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 24, 2012    
  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

 

35

XNAS:ATMI Quarterly Report 10-Q Filling

XNAS:ATMI Stock - Get Quarterly Report SEC Filing of XNAS:ATMI stocks, including company profile, shares outstanding, strategy, business segments, operations, officers, consolidated financial statements, financial notes and ownership information.

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