ATMI (ATMI) 10-Q 2006 Q3 Quarterly report

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 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, 2006

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 (State or other jurisdiction of incorporation or organization)	06-1481060 (I.R.S. Employer Identification No.)
7 Commerce Drive, Danbury, CT (Address of principal executive offices)	06810 (Zip Code)

203-794-1100(Registrant’s telephone number, including area code)

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

     Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act (Check one):

Large accelerated filer þ     Accelerated filer o     Non-accelerated filer o

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

     The number of shares outstanding of the registrant’s common stock as of October 19, 2006 was 34,913,674.

ATMI, INC.
Quarterly Report on Form 10-Q
For the Quarter Ended September 30, 2006

TABLE OF CONTENTS

		Page
Part I — Financial Information
Item 1.	Financial Statements (Unaudited)
	Consolidated Balance Sheets	3
	Consolidated Income Statements	4
	Consolidated Statement of Stockholders’ Equity	6
	Consolidated Statements of Cash Flows	7
	Notes to Consolidated Interim Financial Statements	8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	20
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	29
Item 4.	Controls and Procedures	30
Part II — Other Information
Item 1.	Legal Proceedings	31
Item 1A.	Risk Factors	31
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	32
Item 5.	Other Information	32
Item 6.	Exhibits	33
Signatures		34
Exhibits		35
EX-31.1: CERTIFICATION
EX-31.2: CERTIFICATION
EX-32: CERTIFICATION
EX-99: 1998 EMPLOYEE STOCK PURCHASE PLAN

2

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements

ATMI, Inc.
Consolidated Balance Sheets
(in thousands, except per share data)

	September 30,			December 31,
	2006			2005
	(unaudited)
Assets
Current assets:
Cash and cash equivalents	$	72,623		$	30,951
Marketable securities		124,410			178,900
Accounts receivable, net of allowances of $681 and $695, respectively		54,887			47,125
Inventories, net		46,951			39,850
Deferred income taxes		8,733			8,875
Income taxes receivable		1,104			—
Prepaid expenses and other current assets		14,526			12,800
Total current assets		323,234			318,501
Property, plant, and equipment, net		88,797			82,821
Goodwill		13,724			13,681
Other intangibles, net		21,502			24,088
Marketable securities		20,308			46,286
Other long-term assets		14,653			14,459
Total assets	$	482,218		$	499,836
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable	$	18,504		$	11,910
Accrued liabilities		16,702			21,246
Accrued salaries and related benefits		9,567			8,423
Income taxes payable		147			102
Other current liabilities		2,170			1,975
Total current liabilities		47,090			43,656
Deferred income taxes		942			3,131
Other long-term liabilities		349			329
Commitments and contingencies (Note 5)
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; 37,943 and 37,877 issued and 35,003 and 37,446 outstanding in 2006 and 2005, respectively		379			379
Additional paid-in capital		379,158			367,393
Deferred equity based compensation		—			(5,506	)
Treasury stock at cost, 2,940 and 431 shares in 2006 and 2005, respectively		(79,921	)		(12,118	)
Retained earnings		129,307			100,473
Accumulated other comprehensive income		4,914			2,099
Total stockholders’ equity		433,837			452,720
Total liabilities and stockholders’ equity	$	482,218		$	499,836

See accompanying notes.

3

ATMI, Inc.
Consolidated Income Statements
(unaudited)
(in thousands, except per share data)

	Three Months Ended
	September 30,
	2006			2005
Revenues	$	82,124		$	69,736
Cost of revenues		40,216			34,595
Gross profit		41,908			35,141
Operating expenses:
Research and development		6,673			5,745
Selling, general and administrative		22,775			19,152
Total operating expenses		29,448			24,897
Operating income		12,460			10,244
Interest income		2,121			1,895
Interest expense		(14	)		(9	)
Other income (expense), net		(18	)		(59	)
Income before income taxes		14,549			12,071
Provision for income taxes		3,195			3,818
Net income	$	11,354		$	8,253
Earnings per common share — basic	$	0.32		$	0.22
Weighted average shares outstanding — basic		35,585			37,342
Earnings per common share — diluted	$	0.31		$	0.22
Weighted average shares outstanding — diluted		36,314			38,078

See accompanying notes.

4

ATMI, Inc.
Consolidated Income Statements
(unaudited)
(in thousands, except per share data)

	Nine Months Ended
	September 30,
	2006			2005
Revenues	$	241,544		$	205,102
Cost of revenues		120,886			100,965
Gross profit		120,658			104,137
Operating expenses:
Research and development		19,030			16,740
Selling, general and administrative		67,882			57,092
Total operating expenses		86,912			73,832
Operating income		33,746			30,305
Interest income		6,409			5,111
Interest expense		(17	)		(1,852	)
Other income (expense), net		307			(468	)
Income before income taxes		40,445			33,096
Provision for income taxes		11,611			10,825
Net income	$	28,834		$	22,271
Earnings per common share — basic	$	0.79		$	0.63
Weighted average shares outstanding — basic		36,497			35,125
Earnings per common share — diluted	$	0.77		$	0.62
Weighted average shares outstanding — diluted		37,232			35,688

See accompanying notes.

5

ATMI, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY
(unaudited)
(in thousands)

															Accumulated
							Deferred								Other
				Additional			Equity								Comprehensive
	Common			Paid-in			Based			Treasury			Retained		Income
	Stock			Capital			Compensation.			Stock			Earnings		Income (Loss)		Total
Balance at December 31, 2005	$	379		$	367,393			($5,506	)		($12,118	)	$	100,473	$	2,099	$	452,720
Issuance of 338 shares of common stock pursuant to the exercise of employee stock options		3			7,236			—			—			—		—		7,239
Issuance of 48 shares of common stock pursuant to the ESPP		—			1,005			—			—			—		—		1,005
Purchase of 2,509 treasury shares		—			—			—			(67,803	)		—		—		(67,803	)
Reclassification of 359 shares of unvested restricted stock		(3	)		3			—			—			—		—		—
Reclassification of deferred equity based compensation		—			(5,506	)		5,506			—			—		—		—
Equity based compensation		—			7,871			—			—			—		—		7,871
Income tax benefits from equity based compensation		—			1,156			—			—			—		—		1,156
Net income		—			—			—			—			28,834		—		28,834
Reclassification adjustment for realized loss on available-for-sale securities sold (net of tax provision of $230)		—			—			—			—			—		392		392
Unrealized gain on available-for-sale securities (net of tax benefit of $63)		—			—			—			—			—		107		107
Cumulative translation adjustment		—			—			—			—			—		2,316		2,316
Comprehensive income		—			—			—			—			—		—		31,649
Balance at September 30, 2006	$	379		$	379,158			—			($79,921	)	$	129,307	$	4,914	$	433,837

See accompanying notes.

6

ATMI, Inc.
Consolidated Statements of Cash Flows
(unaudited)
(in thousands)

	Nine Months Ended
	September 30,
	2006			2005
Operating activities
Net income	$	28,834		$	22,271
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation and amortization		15,429			13,600
Provision for inventory obsolescence		445			93
Deferred income taxes		(2,370	)		1,428
Tax benefit realized from equity based compensation arrangements		1,156			2,418
Excess tax benefit from equity based payment arrangements		(326	)		—
Equity based compensation expense		7,871			1,660
Impairment of investments		260			—
Other		250			(10	)
Changes in operating assets and liabilities:
Accounts receivable		(8,766	)		(1,807	)
Inventories		(6,862	)		(1,052	)
Other assets		1,245			3,199
Accounts payable		5,877			(7,547	)
Accrued expenses		(2,853	)		(5,578	)
Income taxes		(1,352	)		202
Other liabilities		230			955
Net cash provided by operating activities		39,068			29,832
Investing activities
Capital expenditures		(18,919	)		(21,909	)
Acquisitions of cost-basis investments		(2,578	)		(7,695	)
Proceeds from the sale of cost-basis investments		298			3,116
Purchases of marketable securities		(139,846	)		(114,749	)
Proceeds from sales or maturities of marketable securities		221,730			93,519
Net cash provided by (used for) investing activities		60,685			(47,718	)
Financing activities
Payments on loans, notes payable, and capital lease obligations		(54	)		(185	)
Excess tax benefit from equity based payment arrangements		326			—
Purchases of treasury stock		(67,144	)		—
Proceeds from exercise of stock options and sale to ESPP		8,244			16,336
Net cash provided by (used for) financing activities		(58,628	)		16,151
Effects of exchange rate changes on cash and cash equivalents		547			(884	)
Net increase (decrease) in cash and cash equivalents		41,672			(2,619	)
Cash and cash equivalents, beginning of period		30,951			36,395
Cash and cash equivalents, end of period	$	72,623		$	33,776
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Non-cash conversion of subordinated notes to equity	$	—		$	115,000
Non-cash conversion of unamortized debt issuance costs to equity	$	—		$	(1,333	)
Non-cash conversion of unpaid interest accrual to equity relating to subordinated notes	$	—		$	2,365

See accompanying notes.

7

ATMI, Inc.
Notes To Consolidated Interim Financial Statements
(unaudited)

1. Description of Business

     ATMI, Inc. (the “Company”, “ATMI”, or “we”) believes it is a leading supplier of materials, materials delivery systems and high-purity materials packaging and dispensing products used worldwide in the manufacture of microelectronic devices. ATMI specifically targets semiconductor manufacturers, whose silicon “chips” form the foundation of microelectronics technology proliferating through information technology, automotive, communication and consumer products industries. ATMI’s customers include many of the leading semiconductor and flat-panel display manufacturers in the world, targeting leading edge technologies in semiconductor manufacturing.

2. Significant Accounting Policies and Other Information

Basis of Presentation

     The accompanying unaudited consolidated interim financial statements of ATMI have been prepared in accordance with generally accepted accounting principles (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X and do not include all of the financial information and disclosures required by GAAP in the United States.

     The accounts of ATMI and all of its subsidiaries are included in the unaudited consolidated interim financial statements. All significant intercompany accounts and transactions are eliminated in consolidation.

     In the opinion of the management of ATMI, the financial information contained herein has been prepared on the same basis as the audited consolidated financial statements contained in the Company’s Annual Report on Form 10-K, and includes adjustments (consisting of normal recurring adjustments) necessary to present fairly the unaudited quarterly results set forth herein. These unaudited consolidated interim financial statements should be read in conjunction with the December 31, 2005 audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K. 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, 2005 has been derived from the audited financial statements at that date, but does not include all of the financial information and disclosures required by GAAP for complete financial statements.

Equity Based Compensation

     Effective January 1, 2006, the Company adopted Statement of Financial Accounting Standards (“SFAS”) No. 123 (Revised 2004), “Share-Based Payment” (SFAS No. 123(R)) and related interpretations which require the measurement and recognition of compensation expense

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for all equity based payments to employees and directors based on their fair value. Prior to 2006, the Company accounted for stock options using the intrinsic value method under Accounting Principles Board Opinion No. 25 (APB 25), “Accounting for Stock Issued to Employees” as permitted under SFAS No. 123, “Accounting for Stock-Based Compensation.” Accordingly, equity based compensation expense was not recognized in net income as the exercise price of options granted was equal to the market value of the stock on the date of grant. The Company provided pro forma net income and earnings per share amounts as if equity based compensation expense had been recognized based on fair value in the footnotes, as required.

     The Company elected the modified-prospective-transition method as permitted by SFAS No. 123(R) and, therefore, prior periods have not been restated to reflect the impact of equity based compensation expense. Equity based compensation expense is recorded for all new and unvested stock options that are expected to vest over the service period beginning on January 1, 2006.

     Prior to the adoption of SFAS No. 123(R), the Company presented tax benefits resulting from equity based compensation as operating cash flows in the consolidated statements of cash flows. SFAS No. 123(R) requires that cash flows resulting from tax deductions in excess of recognized compensation cost be classified as financing cash flows.

     As a result of adopting SFAS No. 123(R) on January 1, 2006, the Company’s income before income taxes for the three and nine-month periods ended September 30, 2006 is $1.5 million and $4.9 million lower, respectively, and net income for the three and nine-month periods ended September 30, 2006 is $1.0 million and $3.3 million lower, respectively, than if it had continued to account for equity based compensation under APB 25. Basic and diluted earnings per share for the three and nine-month periods ended September 30, 2006 are $0.03 and $0.09 lower, respectively, than if the Company had continued to account for equity based compensation under APB 25.

Under SFAS No. 123(R), equity based compensation expense is generally recognized on a straight-line basis over the stated vesting period.

9

Earnings Per Share

     The following computation reconciles the differences between the basic and diluted earnings per share presentations (in thousands, except per share data):

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2006		2005		2006		2005
Numerator:
Net income	$	11,354	$	8,253	$	28,834	$	22,271
Denominator:
Denominator for basic earnings per share - - weighted average shares		35,585		37,342		36,497		35,125
Dilutive effect of employee stock options		499		611		534		464
Dilutive effect of restricted stock		230		117		201		89
Dilutive effect of warrants		—		8		—		10
Denominator for diluted earnings per common share — weighted average shares		36,314		38,078		37,232		35,688
Earnings per common share-basic	$	0.32	$	0.22	$	0.79	$	0.63
Earnings per common share-diluted	$	0.31	$	0.22	$	0.77	$	0.62

     The following potential common shares have been 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,
	2006		2005		2006		2005
Employee stock options		737		106		644		209

     The company issued 221,030 shares of restricted stock during the nine-month period ended September 30, 2006.

Inventories

     Inventories are comprised of the following (in thousands):

	September 30,			December 31,
	2006			2005
Raw materials	$	11,651		$	9,192
Work in process		2,302			2,392
Finished goods		35,118			30,340
Gross inventory		49,071			41,924
Excess and obsolescence reserve		(2,120	)		(2,074	)
Inventories, net	$	46,951		$	39,850

10

Income Taxes

     The Company’s effective tax rates for the three and nine-month periods ended September 30, 2006 were 22.0 percent and 28.7 percent, respectively. In the third quarter of 2006, due to a change in facts and circumstances, the Company reduced its income tax provision by $1.7 million. Excluding this adjustment, the effective tax rate for both the three and nine-month periods ended September 30, 2006 was 32.5 percent. Differences between the U.S. federal statutory tax rate and the Company’s effective tax rate for 2006 are the result of the $1.7 million adjustment to the current provision, state and foreign income taxes, lower tax rates on foreign earnings, extra-territorial income (“ETI”) exclusion benefits, and tax-exempt interest. For details of the reconciliation of the U.S. federal statutory tax rate to the income tax provision recognized in 2005, see the Company’s December 31, 2005 Annual Report on Form 10-K. The Company has not provided for U.S. federal income and foreign withholding taxes on approximately $22.9 million of undistributed earnings from non-U.S. operations as of September 30, 2006, because such earnings are intended to be reinvested indefinitely outside of the United States.

Goodwill and Other Intangible Assets

     Goodwill and Other intangibles consisted of the following at September 30, 2006 and December 31, 2005 (in thousands):

			Patents &						Total Other
	Goodwill		Trademarks			Other			Intangibles
Gross amount as of December 31, 2005	$	13,681	$	27,530		$	6,076		$	33,606
Accumulated Amortization		—		(6,357	)		(3,161	)		(9,518	)
Balance as of December 31, 2005	$	13,681	$	21,173		$	2,915		$	24,088
Gross Amount as of September 30, 2006	$	13,724	$	27,537		$	5,969		$	33,506
Accumulated Amortization		—		(8,249	)		(3,755	)		(12,004	)
Balance as of September 30, 2006	$	13,724	$	19,288		$	2,214		$	21,502

     Changes in carrying amounts of Goodwill and Other intangibles for the nine months ended September 30, 2006 were as follows (in thousands):

			Patents &						Total Other
	Goodwill		Trademarks			Other			Intangibles
Balance at December 31, 2005	$	13,681	$	21,173		$	2,915		$	24,088
Amortization		—		(1,885	)		(688	)		(2,573	)
Other, including foreign currency translation		43		—			(13	)		(13	)
Balance at September 30, 2006	$	13,724	$	19,288		$	2,214		$	21,502

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Other

     In August 2006, the Company’s Board of Directors approved a second share repurchase program for an additional $150.0 million. Share repurchases are made from time to time in open market transactions at prevailing market prices or in privately negotiated transactions. Management determines the timing and amount of purchases under the programs based upon market conditions or other factors. The programs do not require the Company to purchase any specific number or amount of shares and may be suspended or reinstated at any time at the Company’s discretion and without notice.

     Certain 2005 amounts in the accompanying consolidated interim financial statements have been reclassified to conform to the 2006 presentation.

3. Equity Based Compensation

     The following table shows the effect of compensation cost arising from equity based payment arrangements recognized in the consolidated income statements (in thousands):

	Three Months Ended				Nine months Ended
	September 30,				September 30,
	2006		2005		2006		2005
Cost of revenues	$	248	$	—	$	742	$	—
Research and development		205		—		615		—
Selling, general and administrative		2,055		561		6,514		1,660
Total equity based compensation expense		2,508		561		7,871		1,660
Income tax benefit		855		176		2,684		540
Net equity based compensation expense	$	1,653	$	385	$	5,187	$	1,120

     No equity based compensation cost was capitalized.

Summary of Plans

     We currently have five equity based compensation plans which provide for the granting of up to 8,900,000 nonqualified stock options, incentive stock options (“ISOs”), stock appreciation rights and restricted stock awards to employees, directors and consultants of the Company. Stock options typically vest over periods ranging from one to four years with a maximum contractual term of ten years. Restricted stock awards typically vest over periods ranging from three to five years. Shares issued as a result of stock option exercises are primarily funded with issuance of new shares.

12

     The following table shows the number of shares approved by shareholders for each plan and the number of shares that remain available for equity awards as of September 30, 2006 (in thousands):

			# of
	# of Shares		Shares
Stock Plan	Approved		Available
1997 Stock Plan (1)		900		103
1998 Stock Plan (1)		2,000		457
2000 Stock Plan (2)		2,000		267
2003 Stock Plan (2)		3,000		1,632
Employee Stock Purchase Plan (3)		1,000		353
Totals		8,900		2,812

(1)	Exercise prices for ISOs 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. Exercise prices for non-qualified stock options granted under this plan may not be less than 50 percent of the fair market value for the Company’s common stock on the date of grant.
(2)	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.
(3)	This plan enables all employees to subscribe at six-month intervals to purchase shares of common stock at the lower of 85 percent of the closing price of the shares on the day previous to the first day or the last day of each six-month period and is a compensatory plan, as defined by SFAS No. 123(R).

Fair Value

     The Company utilizes the Black-Scholes-Merton options-pricing model to determine the fair value of stock options under SFAS No. 123(R), consistent with that used for pro forma disclosures in prior years. Management is required to make certain assumptions with respect to selected model inputs, including anticipated changes in the underlying stock price (i.e., expected volatility) and option exercise activity (i.e., expected term). For awards granted subsequent to January 1, 2006, expected volatility is based on the historical volatility of ATMI common stock for a period shorter than the expected term of the options. We have excluded the historical volatility prior to the public announcement regarding the sale of our non-core businesses in 2004, because those businesses that were sold represented a significant portion of ATMI’s consolidated business and were subject to considerable cyclicality associated with the semiconductor equipment industry, which drove increased volatility in ATMI’s stock price. The expected term of options granted is derived using the “simplified” method as allowed under the provisions of the Securities and Exchange Commission’s Staff Accounting Bulletin No. 107 and represents the period of time that options granted are expected to be outstanding. The risk-free rate is based on the U.S. Treasury yield curve in effect at the time of grant for a period commensurate with the estimated expected life. If factors change and result in different assumptions in the application of SFAS No. 123(R) in future periods, the equity based compensation expense that the Company records for future grants may differ significantly from what the Company has recorded in the current period.

     In accordance with SFAS No. 123(R), in the determination of equity based compensation cost, the Company estimates the total number of instruments that will be forfeited as a result of a

13

failure to provide the requisite service to earn the award. Prior to the adoption of SFAS No. 123(R), for purposes of the pro forma disclosures under SFAS No. 123, the Company did not make an estimate of forfeitures, but instead subsequently reversed pro forma compensation cost for forfeited awards when the awards were actually forfeited. The effect of forfeitures on restricted stock was not material in periods prior to January 1, 2006.

     The weighted-average fair value of options granted during the nine-month period ended September 30, 2006 was $12.07 ($12.36 in the nine-month period ended September 30, 2005) based on the Black-Scholes-Merton options-pricing model. The following weighted-average assumptions were used for grants in the periods indicated:

	Nine months Ended
	September 30,
	2006			2005
Stock Option Grants:
Risk-free interest rate		4.70	%		4.00	%
Expected term, in years		6.25			4.60
Expected volatility		32.4	%		66.6	%
Dividend yield		0	%		0	%

     Prior to January 1, 2006 and the adoption of SFAS 123(R), the Company’s expected volatility on shares of its common stock was based on historical volatility over a period commensurate with the expected term of the options. However, as a result of adopting SFAS 123(R), for the reasons stated above, the Company has determined that the historical volatility used for grants in 2006 is limited to the period subsequent to the sale of our non-core businesses, which is less than the expected term of the options.

     The Company uses historical data to estimate forfeitures of awards due to employee terminations in order to estimate compensation cost for awards expected to vest. In addition, we separate employees into groups that have similar characteristics for purposes of making forfeiture estimates.

14

Stock Option and Restricted Stock Activity

     The following table summarizes the option activity under the plans as of September 30, 2006 and changes during the nine-month period then ended (options are expressed in thousands; averages are calculated on a weighted basis; life in years; intrinsic value expressed in thousands):

				Average
	Number of			Exercise		Average Remaining		Aggregate Intrinsic
	Options			Price		Life		Value
Outstanding at December 31, 2005		3,556		$	24.02
Granted		214		$	28.88
Exercised		(338	)	$	21.42
Forfeited		(310	)	$	23.65
Outstanding at September 30, 2006		3,122		$	24.62		5.4		$  17,384
Exercisable at September 30, 2006		2,103		$	25.14		4.3		$  11,748

     The aggregate intrinsic value represents the difference between the company’s closing stock price of $29.07 as of September 30, 2006 and the exercise price of dilutive options at that date, multiplied by the number of dilutive options outstanding as of that date. The total intrinsic value of stock options exercised during the three and nine-month periods ended September 30, 2006 was $0.7 million and $3.2 million, respectively ($5.3 million and $9.3 million for the comparable 2005 periods, respectively). The total fair value of options which vested during the three and nine-month periods ended September 30, 2006, respectively, was $0.7 million (56,000 shares) ($1.0 million and 80,000 shares in 2005) and $5.9 million (431,000 shares) ($6.8 million and 436,000 shares in 2005).

     The tax benefit realized from equity based compensation totaled $1.2 million for the nine months ended September 30, 2006.

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     The following table summarizes restricted stock activity under the 2003 Stock Plan as of September 30, 2006 and changes during the nine-month period then ended (shares are expressed in thousands; averages are calculated on a weighted basis):

				Average
				Grant
	Number of			Date Fair
	Shares			Value
Nonvested at December 31, 2005		359		$	22.54
Granted		221		$	28.94
Vested		(34	)	$	21.87
Forfeited		(20	)	$	24.45
Nonvested at September 30, 2006		526		$	25.20

     The total fair value of restricted stock which vested during the nine-month period ended September 30, 2006 was approximately $0.7 million ($0 in the comparable period of 2005).

     As of September 30, 2006, $8.8 million of unrecognized compensation cost related to non-vested stock options is expected to be recognized over a weighted-average period of approximately 1.5 years. As of September 30, 2006, $7.7 million of unrecognized compensation cost related to restricted stock is expected to be recognized over a weighted-average period of approximately 2.3 years.

     In November 2005, the FASB issued FSP No. FAS 123(R)-3, “Transition Election Related to Accounting for the Tax Effects of Share-Based Payment Awards.” This FSP provides an elective alternative simplified method for calculating the pool of excess tax benefits available to absorb tax deficiencies recognized subsequent to the adoption of SFAS No. 123(R) and reported in the consolidated statements of cash flows. Companies may take up to one year from the effective date of the FSP to evaluate the available transition alternatives and make a one-time election as to which method to adopt. We will complete our evaluation of the alternative methods during the fourth quarter of 2006.

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     The following table, which addresses the disclosure requirements of SFAS No. 148, “Accounting for Stock-Based Compensation—Transition and Disclosure,” illustrates the effect on net income and earnings per share if the fair value recognition provisions of SFAS 123 had been applied to all outstanding and unvested awards in the prior year comparable period (in thousands, except per share data):

	Three Months Ended			Nine months Ended
	September 30, 2005			September 30, 2005
Net income, as reported	$	8,253		$	22,271
Add: Total equity based employee compensation expense included in reported net income, net of tax effect		385			1,120
Deduct: Total equity based employee compensation expense determined under fair value based method for all awards, net of tax effect		(1,605	)		(5,419	)
Pro forma net income	$	7,033		$	17,972
Income per share:
Basic-as reported	$	0.22		$	0.63
Basic-pro forma	$	0.19		$	0.51
Diluted-as reported	$	0.22		$	0.62
Diluted-pro forma	$	0.19		$	0.50

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4. Comprehensive Income

     The components of comprehensive income are as follows (in thousands):

	Three Months Ended					Nine months Ended
	September 30,					September 30,
	2006		2005			2006		2005
Net income	$	11,354	$	8,253		$	28,834	$	22,271
Cumulative translation adjustment		423		(1,361	)		2,316		(2,686	)
Unrealized gain (loss) on available-for-sale securities (net of tax provision (benefit) of $105 and $63 in 2006 and $(258) and $(107) in 2005)		179		(440	)		107		(182	)
Reclassification adjustment for realized losses on securities sold (net of tax benefit of $118 and $230 in 2006 and $22 and $46 in 2005)(1)		201		42			392		79
Comprehensive income	$	12,157	$	6,494		$	31,649	$	19,482

(1) Determined based on the specific identification method.

5. Commitments and Contingencies

     In July 2003, a subsidiary of ATMI filed suit against Praxair, Inc., the parent company of Praxair Electronics, in the United States District Court for the Southern District of New York, charging it with infringing two patents ATMI holds for certain gas storage and delivery systems. ATMI is seeking damages and an injunction against Praxair marketing its UpTime system. On December 22, 2003, Praxair, Inc. and Praxair Technology, Inc. filed suit against ATMI, Inc. and Advanced Technology Materials, Inc. in the United States District Court for the District of Delaware alleging infringement of three patents owned by Praxair Technology, Inc. related to certain gas storage and delivery systems. Praxair is seeking damages and an injunction against ATMI marketing its VAC system.

     Late in 2005, the Delaware District Court granted ATMI’s request for summary judgment that all asserted claims of one of Praxair’s patents are invalid. At trial, a jury found the remaining claims asserted by Praxair valid and infringed by ATMI’s VAC products. ATMI seeks to have those remaining claims held unenforceable by the Court. The determination of any damage amount has been deferred to a later proceeding. ATMI intends to continue to pursue a vigorous defense against Praxair’s claims.

     In April 2006, the New York District Court granted Praxair’s request for summary judgment that all asserted claims of ATMI’s two VAC patents are invalid. ATMI has appealed the decision and will continue to pursue its claims vigorously.

     Late in 2005, a subsidiary of ATMI filed suit against Praxair, Inc. and Praxair GmbH in Dusseldorf, Germany, charging infringement of a patent ATMI holds for certain gas storage and delivery systems. During the third quarter of 2006, the German court issued a temporary injunction against Praxair marketing its UpTime system in Germany.

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     In August 2006, ATMI obtained a temporary injunction against the distribution of the UpTime system by Belgian affiliates of Praxair, Inc. This action was followed in September 2006 with the filing of a request for preliminary injunction against Praxair, Inc. and its Belgian affiliates, charging infringement of a patent ATMI holds for certain gas storage and delivery systems. A decision of the court in Antwerp, Belgium is expected shortly.

     ATMI is, from time to time, subject to various legal actions, governmental audits, and proceedings relating to various matters incidental to its business including product liability 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, including the Praxair litigations, is not expected to materially affect ATMI’s consolidated financial position, cash flows or results of operations.

6. Recent Accounting Pronouncements

     In June 2006, the FASB issued Interpretation No. 48, “Accounting for Uncertainty in Income Taxes—an Interpretation of FASB Statement No. 109” (“FIN 48”). FIN 48 clarifies the accounting for uncertainty in income taxes recognized in a company’s financial statements in accordance with SFAS No. 109, “Accounting for Income Taxes.” FIN 48 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FIN 48 is effective for ATMI beginning on January 1, 2007. We are currently reviewing this new standard to determine its effects, if any, on our financial position or results of operations.

     In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements.” SFAS No. 157 provides enhanced guidance for using fair value to measure assets and liabilities. The standard also responds to investors’ requests for expanded information about the extent to which companies measure assets and liabilities at fair value, the information used to measure fair value, and the effect of fair value measurements on earnings. The standard will apply whenever other standards require (or permit) assets or liabilities to be measured at fair value. The standard does not expand the use of fair value in any new circumstances. SFAS No. 157 is effective for ATMI beginning on January 1, 2008. We do not expect that this standard will have a material effect on our financial position or results of operations.

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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, 2006 as Compared to 2005

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, research and development programs, market and technology opportunities, international trends, business strategies, business opportunities, objectives of management for future operations, semiconductor 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. These forward-looking statements are only present expectations as at the time of the filing of this Quarterly Report. Actual events or results may differ materially. Factors that could cause such a difference include:

• cyclicality in the semiconductor market;

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

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

• intensely competitive markets for advanced semiconductor materials and high-purity materials and dispensing solutions;

• changes in export controls 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;

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

• 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 eight different countries;

• intense competition in the semiconductor industry 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;

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• 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;

• 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 potential exposure for pre-existing contamination of our facilities, which may not be covered completely by existing indemnification arrangements; and

• uncertainty regarding compliance matters and higher costs resulting from changing laws, regulations and standards relating to corporate governance and public disclosure, including the Sarbanes-Oxley Act of 2002, and new regulations from the SEC.

Theses risks and uncertainties are described in more detail in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2005, and other of our filings with the Securities and Exchange Commission (SEC) and in materials incorporated by reference in these filings. These cautionary statements are not meant to be an exhaustive discussion of risks that apply to companies like ATMI with broad international operations. 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. Similarly, the price of our common stock is subject to volatility due to fluctuations in general market conditions, differences in our results of operations from estimates and projections generated by the investment community, and other factors beyond our control. ATMI undertakes no obligation to update publicly or review any forward-looking statements, whether as a result of new information, future developments or otherwise.

Company Overview

     ATMI believes it is a leading supplier of materials, materials delivery systems and high-purity materials packaging and dispensing products used worldwide in the manufacture of microelectronic devices. ATMI specifically targets semiconductor manufacturers, whose silicon “chips” form the foundation of microelectronics technology proliferating through information technology, automotive, communication and consumer products industries. The market for semiconductor “chips” or devices is rapidly growing and continually changing, which drives demand for new products and technologies at lower cost. ATMI’s objective is to meet the demands of semiconductor and other microelectronic manufacturers with solutions that maximize the efficiency of their manufacturing processes and minimize the time to ramp new processes and deliver new products. ATMI’s customers include many of the leading semiconductor and flat-panel display manufacturers in the world, targeting leading edge technologies in semiconductor manufacturing.

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Results of Operations

Executive Summary

     During the third quarter of fiscal 2006, ATMI’s revenues grew by 17.8 percent compared to the third quarter of 2005. Net income for the quarter increased 37.6 percent to $11.4 million ($0.31 per diluted share) compared to $8.3 million ($0.22 per diluted share) in the third quarter of 2005. Third quarter 2006 net income includes a one-time tax benefit of $1.7 million ($0.04 per diluted share). We recognized approximately $2.5 million in equity based compensation expense in the third quarter of 2006 vs. $0.6 million (prior to 123(R) adoption) in the third quarter of 2005. Our gross margin increased to 51.0 percent in the third quarter of 2006 from 50.4 percent in the third quarter of 2005 due primarily to reduced freight costs and improved product mix. Despite incremental equity based compensation expense of $1.5 million reflected in selling, general and administrative (“SG&A”) expenses in the third quarter of 2006 vs. the third quarter of 2005, our SG&A was relatively flat (27.7 percent in 2006 vs. 27.5 percent in 2005) as a percentage of revenues.

     In the first nine months of fiscal 2006, ATMI’s revenues grew by 17.8 percent compared to the same nine-month period of 2005. Net income increased 29.5 percent in the nine months ended September 30, 2006 to $28.8 million ($0.77 per diluted share) compared to $22.3 million ($0.62 per diluted share) in the comparable period of 2005. The results in the first nine months of 2006 include a one-time tax benefit of $1.7 million ($0.04 per diluted share). We recognized approximately $7.9 million in equity based compensation expense in the first nine months of 2006 vs. $1.7 million (prior to 123(R) adoption) in the comparable period of 2005. Our gross margin declined from 50.8 percent in the first nine months of 2005 to 50.0 percent in the first nine months of 2006 due primarily to incremental 2006 first quarter costs associated with ramping a new high-volume packaging production line in the U.S. Despite incremental equity based compensation expense of $4.9 million reflected in SG&A in the first nine months of 2006 vs. the first nine months of 2005, our SG&A as a percent of revenues was relatively flat (28.1 percent in 2006 vs. 27.8 percent in 2005) due to lower patent litigation expenses and an overall better leveraging of our cost structure.

     Going forward, business and market uncertainties may affect results. See “Cautionary Statements Under the Private Securities Litigation Reform Act of 1995” above and Management’s Discussion and Analysis in our Annual Report on Form 10-K for the fiscal year ended December 31, 2005 for a full discussion of the key factors which affect our business and operating results.

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     The following table shows the effect of compensation cost arising from equity based payment arrangements on the consolidated income statements (in thousands):

					Nine months
	Three Months Ended				Ended
	September 30,				September 30,
	2006		2005		2006		2005
Cost of revenues	$	248		—	$	742		—
Research and development		205		—		615		—
Selling, general and administrative		2,055	$	561		6,514	$	1,660
Total equity based compensation expense		2,508		561		7,871		1,660
Benefit from income taxes		855		176		2,684		540
Net equity based compensation expense	$	1,653	$	385	$	5,187	$	1,120

Revenues

	2006		2005		% Change
Quarter ended September 30,	$	82,124	$	69,736		17.8	%
Nine months Ended September 30,	$	241,544	$	205,102		17.8	%

     Revenues increased 17.8 percent to $82.1 million in the third quarter of 2006 from $69.7 million in the third quarter of 2005. This increase was broad-based across our product portfolio. Strength in wafer starts drove volume increases in our copper advanced interconnect materials such as cleans and plating products, and also drove volume increases in our SDS^® products.

     Revenues increased 17.8 percent to $241.5 million in the first nine months of 2006 from $205.1 million in the first nine months of 2005. This increase was broad-based across our product portfolio. Wafer start-driven volume increases benefited the Company’s copper advanced interconnect materials (such as cleans and plating products) and increased SDS^® product sales volumes. Strength in the Asian flat panel display market in the first half of 2006 drove volume increases in our advanced high-purity materials packaging and dispensing systems.

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Gross Profit

	2006					2005
	Amount		% of Revenues			Amount		% of Revenues
Quarter ended September 30	$	41,908		51.0	%	$	35,141		50.4	%
Nine months Ended September 30	$	120,658		50.0	%	$	104,137		50.8	%

     Gross profit increased 19.3 percent to $41.9 million in the third quarter of 2006 from $35.1 million in the third quarter of 2005. The adoption of SFAS No. 123(R) in 2006 increased cost of goods sold by $0.2 million in the third quarter of 2006, or about 30 basis points compared to the comparable period in 2005. Our gross margin percentage increased from 50.4 percent in 2005 to 51.0 percent in 2006. This increase is due primarily to lower freight costs in 2006, efficiencies beginning to be realized on new manufacturing lines in the U.S., and product mix, partially offset by the adoption of SFAS No. 123(R) mentioned above.

     Gross profit increased 15.9 percent to $120.7 million in the first nine months of 2006 from $104.1 million in the first nine months of 2005. The adoption of SFAS No. 123(R) in 2006 increased cost of goods sold by $0.7 million in the first nine months of 2006, or about 30 basis points compared to the same period in 2005. Our gross margin percentage decreased from 50.8 percent in 2005 to 50.0 percent in 2006. This reduction in gross margin was due primarily to incremental costs in the first quarter of 2006 associated with ramping a new high-volume packaging production line in the U.S. and the adoption of SFAS No. 123(R) in 2006 mentioned above. Offsetting these negative items were lower freight costs and favorable changes in product mix in 2006.

Research and Development Expenses

	2006					2005
	Amount		% of Revenues			Amount		% of Revenues
Quarter ended September 30	$	6,673		8.1	%	$	5,745		8.2	%
Nine months Ended September 30	$	19,030		7.9	%	$	16,740		8.2	%

     Research and development (“R&D”) expenses increased 16.2 percent to $6.7 million in the third quarter of 2006 from $5.7 million in the third quarter of 2005. This increase was mainly attributable to R&D efforts related to copper advanced interconnect applications and high purity microelectronics packaging product lines (increased salaries, supplies, equipment depreciation, etc.). Although R&D spending increased in dollar terms, as a percentage of revenues, R&D expenses were relatively flat due to the 17.8 percent increase in revenues quarter over quarter. These amounts, as a percent of revenues in 2006, are in line with our long-term spending targets and reflect our continued focus on the development of new products and technologies.

     R&D expenses increased 13.7 percent to $19.0 million in the first nine months of 2006 from $16.7 million in the first nine months of 2005. This increase was mainly attributable to

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R&D efforts related to copper advanced interconnect applications and high purity microelectronics packaging product lines (increased salaries, supplies, equipment depreciation, etc.). Although R&D spending increased in dollar terms, as a percentage of revenues, R&D expenses decreased due to the 17.8 percent increase in revenues period-over-period. These amounts, as a percent of revenues in 2006, are in line with our long-term spending targets and reflect our continued focus on the development of new products and technologies.

Selling, General and Administrative Expenses

	2006					2005
	Amount		% of Revenues			Amount		% of Revenues
Quarter ended September 30	$	22,775		27.7	%	$	19,152		27.5	%
Nine months Ended September 30	$	67,882		28.1	%	$	57,092		27.8	%

     Selling, general and administrative expenses (“SG&A”) increased 18.9 percent to $22.8 million in the third quarter of 2006 from $19.2 million in the third quarter of 2005. SG&A was 27.7 percent of revenues in the third quarter of 2006 vs. 27.5 percent of revenues in the third quarter of 2005. In addition to the impact of adopting SFAS No. 123(R) mentioned above, our SG&A expenses have grown due to increased employee-related costs (e.g. salaries, incentive compensation, recruitment, fringe benefits, etc.) consistent with our revenue growth model, and the costs associated with the closure of an office site in San Jose, California, which were partially offset by reduced spending in 2006 for patent litigation costs.

     SG&A increased 18.9 percent to $67.9 million in the first nine months of 2006 from $57.1 million in the first nine months of 2005. SG&A was 28.1 percent of revenues in the first nine months of 2006 vs. 27.8 percent of revenues in the same 2005 period. In addition to the impact of adopting SFAS No. 123(R) mentioned above, overall our SG&A expenses have grown due to increased employee-related costs (e.g. salaries, incentive compensation, recruitment, fringe benefits, etc.) consistent with our revenue growth model, the costs associated with the closure of an office site in San Jose, California and increased depreciation, which were partially offset by reduced spending in 2006 for patent litigation costs.

Operating Income

	2006					2005
	Amount		% of Revenues			Amount		% of Revenues
Quarter ended September 30	$	12,460		15.2	%	$	10,244		14.7	%
Nine months Ended September 30	$	33,746		14.0	%	$	30,305		14.8	%

     Operating income increased 21.6% to $12.5 million in the third quarter of 2006 (representing 15.2 percent of revenues) from $10.2 million in the third quarter of 2005 (representing 14.7 percent of revenues). Operating income increased 11.4% to $33.7 million in the first nine months of 2006 (representing 14.0 percent of revenues) from $30.3 million in the first nine months of 2005 (representing 14.8 percent of revenues). These changes are from a variety of factors, as noted above.

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Interest Income

     Interest income increased to $2.1 million in the third quarter of 2006 from $1.9 million in the third quarter of 2005 and increased to $6.4 million in the first nine months of 2006 from $5.1 million in the first nine months of 2005. The primary reason for these increases is higher short-term investment returns due to recent interest rate increases.

Interest Expense

     Interest expense was negligible in both the third quarter of 2006 and 2005. Interest expense was negligible in the first nine months of 2006 and $1.9 million in the first nine months of 2005. This reduction is attributable to the conversion of our convertible subordinated notes into 5.2 million shares of common stock early in the second quarter of 2005.

Provision for Income Taxes

	Effective Rate
	2006			2005
Quarter ended September 30,		22.0	%		31.6	%
Nine months Ended September 30,		28.7	%		32.7	%

     In the third quarter of 2006, due to a change in facts and circumstances, we recognized approximately $1.7 million in tax benefits. Overall, our effective income tax rates are impacted by the change in the mix of income attributed to the various countries in which we do business and changes in the levels of tax-exempt interest income and extra-territorial income (“ETI”) exclusion benefits. As of September 30, 2006, the Company had a net deferred tax asset on the balance sheet of $7.8 million, primarily due to temporary differences, state tax credit carry forwards, and state net operating loss carry forwards

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 the management of liquidity are cash flows generated by operating activities, cash used for capital expenditures, cash used to repurchase common stock, and cash generated from the sale of common stock.

     We manage our worldwide cash requirements considering the cost effectiveness of the funds available from the many subsidiaries through which we conduct our business. We believe that our existing cash and cash equivalents and marketable securities position at this time are sufficient to meet current and anticipated requirements for the foreseeable future. We do not rely on debt or off-balance sheet financing arrangements for our liquidity needs.

     We continue to invest in research and development 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 competence of the Company. Likewise, we continue to make capital expenditures in order to expand and modernize manufacturing facilities around the globe. Additionally, management considers, on a continuing basis, potential acquisitions of strategic technologies and businesses complementary to the Company’s current business.

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     A summary of our Cash Flows follows (in thousands):

	Nine months Ended
	September 30,
	2006			2005
Cash provided by (used for):
Operating Activities	$	39,068		$	29,832
Investing Activities		60,616			(47,718	)
Financing Activities		(58,628	)		16,151
Effects of exchange rate changes on cash		547			(884	)

     Net cash provided by operating activities increased by $9,236 due primarily to:

• Increase in net income of $6,563

• Increase in non-cash depreciation and amortization expense of $1,829

• Increase in non-cash equity based compensation expense of $6,211

• Increase in cash used by deferred income taxes of $3,798

• Decrease in cash provided by operating or working capital accounts of $853 due primarily to decreased cash generated from accounts receivable and inventories (driven by the increase in sales), offset by increased cash generated from accounts payable

     Net cash provided by investing activities increased by $108,403 due primarily to:

• Reduction in capital spending of $2,990 due primarily to timing

• Reduction in cash paid for acquisitions of cost-basis investments of $5,117

• Reduction in cash proceeds of $2,818 from sales of cost-basis investments

• Increase in cash proceeds of $103,114 due to sales and maturities of marketable securities in excess of purchases

     Net cash used for financing activities increased by $74,779 due primarily to:

• Treasury Stock purchases of $67,144 in 2006 (none in the comparable 2005 period) under our share repurchase programs

• Decrease of $8,123 in proceeds from stock option exercises in 2006

Critical Accounting Policies and Estimates

There have been no significant changes to the Company’s critical accounting policies and estimates in the nine-month period ended September 30, 2006, with the exception of the expensing of equity based compensation as required by SFAS No. 123(R).

Equity Based Compensation

Effective January 1, 2006, the Company adopted SFAS No. 123(R) and related interpretations which require the measurement and recognition of compensation expense for all equity based

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payments to employees and directors based on their fair value. Prior to 2006, the Company accounted for equity based compensation using the intrinsic value method under Accounting Principles Board Opinion No. 25 (APB 25), “Accounting for Stock Issued to Employees” as permitted under SFAS No. 123, “Accounting for Stock-Based Compensation.” Accordingly, stock option expense was not recognized in net income as the exercise price of options granted was equal to the market value of the stock at the date of grant. The Company provided pro forma net income and earnings per share amounts as if stock option expense had been recognized based on fair value in the footnotes, as required.

The Company has elected the modified-prospective-transition method as permitted by SFAS No. 123(R). Prior periods have not been restated to reflect the impact of equity based compensation expense. Equity based compensation expense will be recorded for all new and unvested stock options that are expected to vest over the service period beginning on January 1, 2006.

The Company utilizes the Black-Scholes-Merton options-pricing model to determine the fair value of stock options under SFAS No. 123(R), consistent with that used for pro forma disclosures in prior years. Management is required to make certain assumptions with respect to selected model inputs, including anticipated changes in the underlying stock price (i.e., expected volatility) and option exercise activity (i.e., expected term). For awards granted subsequent to January 1, 2006, expected volatility is based on the historical volatility of ATMI common stock for a period shorter than the expected term of the options. We have excluded the historical volatility prior to the public announcement regarding the sale of our non-core businesses in 2004, because those businesses that were sold represented a significant portion of ATMI’s consolidated business and were subject to considerable cyclicality associated with the semiconductor equipment industry, which drove increased volatility in ATMI’s stock price. The expected term of options granted is derived using the “simplified” method as allowed under the provisions of the Securities and Exchange Commission’s Staff Accounting Bulletin No. 107 and represents the period of time that options granted are expected to be outstanding. The risk-free rate is based on the U.S. Treasury yield curve in effect at the time of grant for a period commensurate with the estimated expected life. If factors change and result in different assumptions in the application of SFAS No. 123(R) in future periods, the stock option expense that the Company records for future grants may differ significantly from what the Company has recorded in the current period.

As of September 30, 2006, $8.8 million of unrecognized compensation cost related to non-vested stock options is expected to be recognized over a weighted-average period of approximately 1.5 years. As of September 30, 2006, $7.7 million of unrecognized compensation cost related to restricted stock is expected to be recognized over a weighted-average period of approximately 2.3 years.

Prior to the adoption of SFAS No. 123(R), the Company presented tax benefits resulting from the equity based compensation as operating cash flows in the consolidated statements of cash flows. SFAS No. 123(R) requires that cash flows resulting from tax deductions in excess of recognized compensation cost be classified as financing cash flows.

In accordance with SFAS No. 123(R), in the determination of equity based compensation cost, the Company estimates the total number of instruments that will be forfeited as a result of a failure to provide the requisite service to earn the award. Prior to the adoption of SFAS No. 123(R), for purposes of the pro forma disclosures under SFAS No. 123, the Company did not

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make an estimate of forfeitures, but instead subsequently reversed pro forma compensation cost for forfeited awards when the awards were actually forfeited. The effect of forfeitures on restricted stock was not material in periods prior to January 1, 2006.

Equity based compensation expense is generally recognized on a straight-line basis over the stated vesting period.

Recent Accounting Pronouncements

See Note 6 to the consolidated interim financial statements for discussion of recent accounting pronouncements.

Off-Balance Sheet Arrangements and Contractual Obligations

There have been no material changes to off-balance sheet arrangements or contractual obligations outside the ordinary course of business since December 31, 2005.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

     Interest Rate Risk.As of September 30, 2006, the Company’s cash and cash equivalents and marketable securities included money market securities, corporate and municipal bond obligations and commercial paper. As of September 30, 2006, an increase of 100 basis points in interest rates would reduce the fair value of the Company’s marketable securities portfolio by approximately $0.8 million. Conversely, a reduction of 100 basis points in interest rates would increase the fair value of the Company’s marketable securities portfolio by approximately $0.4 million.

     Foreign Currency Exchange Risk.A substantial portion of the Company’s sales are denominated in U.S. dollars and as a result, the Company has relatively minimal exposure to foreign currency exchange risk with respect to sales made. Approximately 10 percent of the Company’s revenues for the nine-month period ended September 30, 2006 were denominated in Japanese Yen (“JPY”), but 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 impact on the Company’s financial results in the future. The Company currently utilizes forward exchange contracts to hedge certain JPY exposures, but does not use any other derivative financial instruments for trading or speculative purposes. At September 30, 2006, ATMI had $12.8 million notional amount of foreign exchange contracts, which are being used to hedge recorded foreign denominated assets, which will be settled in JPY. Holding other variables constant, if there were a 10 percent adverse change in foreign exchange rates for the JPY, the fair market value of the contracts outstanding at September 30, 2006 would decrease by approximately $1.4 million (but would be expected to be 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 impact on the Company’s future operating results or cash flows.

     Changes in Market Risk. There have been no material quantitative changes in market risk exposure between December 31, 2005 and September 30, 2006.

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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 our 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 are effective in that they provide 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 2006 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

     In July 2003, a subsidiary of ATMI filed suit against Praxair, Inc., the parent company of Praxair Electronics, in the United States District Court for the Southern District of New York, charging it with infringing two patents ATMI holds for certain gas storage and delivery systems. ATMI is seeking damages and an injunction against Praxair marketing its UpTime system. On December 22, 2003, Praxair, Inc. and Praxair Technology, Inc. filed suit against ATMI, Inc. and Advanced Technology Materials, Inc. in the United States District Court for the District of Delaware alleging infringement of three patents owned by Praxair Technology, Inc. related to certain gas storage and delivery systems. Praxair is seeking damages and an injunction against ATMI marketing its VAC system.

     Late in 2005, the Delaware District Court granted ATMI’s request for summary judgment that all asserted claims of one of Praxair’s patents are invalid. At trial, a jury found the remaining claims asserted by Praxair valid and infringed by ATMI’s VAC products. ATMI seeks to have those remaining claims held unenforceable by the Court. The determination of any damage amount has been deferred to a later proceeding. ATMI intends to continue to pursue a vigorous defense against Praxair’s claims.

     In April 2006, the New York District Court granted Praxair’s request for summary judgment that all asserted claims of ATMI’s two VAC patents are invalid. ATMI has appealed the decision and will continue to pursue its claims vigorously.

     Late in 2005, a subsidiary of ATMI filed suit against Praxair, Inc. and Praxair GmbH in Dusseldorf, Germany, charging infringement of a patent ATMI holds for certain gas storage and delivery systems. During the third quarter of 2006, the German court issued a temporary injunction against Praxair marketing its UpTime system in Germany.

     In August 2006, ATMI obtained a temporary injunction against the distribution of the UpTime system by Belgian affiliates of Praxair, Inc. This action was followed in September 2006 with the filing of a request for preliminary injunction against Praxair, Inc. and its Belgian affiliates, charging infringement of a patent ATMI holds for certain gas storage and delivery systems. A decision of the court in Antwerp, Belgium is expected shortly.

     ATMI is, from time to time, subject to various legal actions, governmental audits, and proceedings relating to various matters incidental to its business including product liability 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, including the Praxair litigations, 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 our Risk Factors, which are described in more detail in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31,

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2005, and other of our filings with the Securities and Exchange Commission and in materials incorporated by reference in these filings. See “Cautionary Statements Under the Private Securities Litigation Reform Act of 1995” within this document.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

     Purchases of Equity Securities— The following table lists all repurchases (both open market and private transactions) during the three months ended September 30, 2006 of any of our securities registered under Section 12 of the Exchange Act, by or on behalf of us, or any affiliated purchaser.

					Total Number of		Maximum Dollar
					Shares Purchased as		Value of Shares
	Total Number of				Part of Publicly		that May Yet Be
	Shares Repurchased		Average Price Paid		Announced Programs		Purchased Under the
Period (1)	(2)		per Share		(3)		Programs
July 1—31, 2006		554,055	$	23.54		554,055	$	15,741,000
August 1—31, 2006		516,353	$	27.65		516,353	$	156,341,000
September 1—30, 2006		380,000	$	28.92		380,000	$	145,353,000
Total		1,450,408	$	26.41		1,450,408	$	145,353,000

(1)	There were no other repurchases of our equity securities by or on behalf of us or any affiliated purchaser during the fiscal quarter ended September 30, 2006.
(2)	Share repurchases are shown on a trade-date basis. At September 30, 2006, $1.5 million related to these share repurchases had not yet been paid by the Company because the settlement dates were in October 2006.
(3)	In October 2005, the Company’s Board of Directors approved a share repurchase program for up to $75.0 million of ATMI common stock over the subsequent 12 months. In August 2006, the Company’s Board of Directors approved a second share repurchase program for an additional $150.0 million. Share repurchases are made from time to time in open market transactions at prevailing market prices or in privately negotiated transactions. Management determines the timing and amount of purchases under the programs based upon market conditions or other factors. The programs do not require the Company to purchase any specific number or amount of shares and may be suspended or reinstated at any time at the Company’s discretion and without notice.

Item 5. Other Information

     None.

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Item 6. Exhibits

(a) 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.
99	1998 Employee Stock Purchase Plan (as amended effective February 28, 2003 and January 1, 2007).

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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 25, 2006

By	/s/ Douglas A. Neugold
	Douglas A. Neugold
	President and Chief Executive Officer
By	/s/ Daniel P. Sharkey
	Daniel P. Sharkey
	Executive Vice President, Chief Financial Officer and Treasurer (Chief Accounting Officer)

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