ATMI 10Q 2012 Q3 Quarterly report

ATMI (ATMI) Inactive 10-Q2012 Q3 Quarterly report

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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

¨	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):

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.

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

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.

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.

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.

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.

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.

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.

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

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.

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

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.

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.

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.


	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.

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.

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.

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.

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.

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.


	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.

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;

•

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.

Company Overview

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	%

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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

Positive
Negative
Uncertain
Constraining
Legalese
Litigous
Readability	H.S. junior Avg

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company