ATMI 10Q 2013 Q2 Quarterly report

ATMI (ATMI) Inactive 10-Q2013 Q2 Quarterly report

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 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 June 30, 2013

¨	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 June 30, 2013 was 31,901,615.

ATMI, INC.

Quarterly Report on Form 10-Q

For the Quarter Ended June 30, 2013

TABLE OF CONTENTS


	Page
Part I — Financial Information		3
Item 1. Financial Statements		3
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		17
Item 3. Quantitative and Qualitative Disclosures About Market Risk		23
Item 4. Controls and Procedures		24
Part II — Other Information		25
Item 1A. Risk Factors		25
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		25
Item 6. Exhibits		25
Signatures		26
Exhibits

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

ATMI, Inc.

Consolidated Balance Sheets

(in thousands, except per share data)


	June 30, 2013			December 31, 2012
	(unaudited)
Assets
Current assets:
Cash and cash equivalents	$	35,349		$	86,050
Marketable securities, current portion		79,234			70,397
Accounts receivable, net of allowances of $881 and $881, respectively		69,905			60,806
Inventories, net		94,907			87,555
Deferred income taxes		6,385			4,488
Prepaid expenses		14,309			12,199
Other current assets		18,275			9,049

Total current assets		318,364			330,544
Property, plant, and equipment, net		134,876			125,099
Goodwill		46,605			46,830
Other intangibles, net		43,926			46,930
Marketable securities, non-current		10,001			12,073
Deferred income taxes, non-current		7,799			15,065
Other non-current assets		23,591			22,612

Total assets	$	585,162		$	599,153

Liabilities and stockholders’ equity
Current liabilities:
Accounts payable	$	33,855		$	38,573
Accrued liabilities		7,905			7,997
Accrued salaries and related benefits		5,596			5,992
Income taxes payable		6,315			16,256
Other current liabilities		6,471			6,084

Total current liabilities		60,142			74,902
Deferred income taxes, non-current		83			165
Other non-current liabilities		14,452			16,810
Commitments and contingencies (Note 7)
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; 40,893 and 40,476 issued and 31,902 and 31,983 outstanding in 2013 and 2012, respectively		409			405
Additional paid-in capital		464,325			457,669
Treasury stock at cost (8,991 and 8,493 shares in 2013 and 2012, respectively)		(248,376	)		(237,170	)
Retained earnings		288,617			270,744
Accumulated other comprehensive income		5,510			15,628

Total stockholders’ equity		510,485			507,276

Total liabilities and stockholders’ equity	$	585,162		$	599,153

See accompanying notes.

ATMI, Inc.

Consolidated Statements of Comprehensive Income

(unaudited)

(in thousands, except per share data)


	Three Months Ended June 30,
	2013		2012
Revenues	$	102,008	$	105,899
Cost of revenues		53,351		52,425

Gross profit		48,657		53,474
Operating expenses:
Research and development		13,130		13,825
Selling, general and administrative		22,812		22,713

Total operating expenses		35,942		36,538

Operating income		12,715		16,936
Interest income		302		305
Other income (expense), net		1,247		(457	)

Income before income taxes		14,264		16,784
Provision for income taxes		4,817		5,361

Net income	$	9,447	$	11,423

Earnings per common share — basic	$	0.30	$	0.36
Weighted average shares outstanding — basic		31,946		31,938
Earnings per common share — diluted	$	0.29	$	0.35
Weighted average shares outstanding — diluted		32,739		32,669
Comprehensive income	$	1,207	$	13,083

See accompanying notes.

ATMI, Inc.

Consolidated Statements of Comprehensive Income

(unaudited)

(in thousands, except per share data)


	Six Months Ended June 30,
	2013		2012
Revenues	$	201,415	$	198,473
Cost of revenues		106,071		100,817

Gross profit		95,344		97,656
Operating expenses:
Research and development		26,312		28,314
Selling, general and administrative		45,980		46,259

Total operating expenses		72,292		74,573

Operating income		23,052		23,083
Interest income		656		630
Other income (expense), net		1,620		(763	)

Income before income taxes		25,328		22,950
Provision for income taxes		7,455		7,665

Net income	$	17,873	$	15,285

Earnings per common share — basic	$	0.56	$	0.48
Weighted average shares outstanding — basic		31,977		31,873
Earnings per common share — diluted	$	0.55	$	0.47
Weighted average shares outstanding — diluted		32,737		32,683
Comprehensive income	$	7,755	$	13,320

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, 2012	$	405	$	457,669		$	(237,170	)	$	270,744	$	15,628		$	507,276
Issuance of 167 shares of common stock pursuant to the exercise of employee stock options		2		2,781			—			—		—			2,783
Purchase of 498 treasury shares		—		—			(11,206	)		—		—			(11,206	)
Stock based compensation		—		3,877			—			—		—			3,877
Other		2		(2	)		—			—		—			—
Net income		—		—			—			17,873		—			17,873
Other Comprehensive loss		—		—			—			—		(10,118	)		(10,118	)

Total Comprehensive income		—		—			—			—		—			7,755

Balance at June 30, 2013	$	409	$	464,325		$	(248,376	)	$	288,617	$	5,510		$	510,485

See accompanying notes.

ATMI, Inc.

Consolidated Statements of Cash Flows

(unaudited)

(in thousands)


	Six Months Ended June 30,
	2013			2012
Operating activities
Net income	$	17,873		$	15,285
Adjustments to reconcile net income to cash (used for) provided by operating activities:
Depreciation and amortization		14,336			13,349
Stock-based compensation expense		3,877			4,384
Deferred income taxes		7,411			(260	)
Other		(461	)		1,898
Changes in operating assets and liabilities:
Accounts receivable		(10,149	)		(13,786	)
Inventories		(9,698	)		(9,266	)
Other assets		(3,270	)		679
Accounts payable		(4,370	)		10,196
Accrued expenses, income taxes and other liabilities		(12,173	)		8,900

Net cash provided by operating activities		3,376			31,379

Investing activities
Capital expenditures		(23,852	)		(13,208	)
Purchases of marketable securities		(83,052	)		(39,495	)
Proceeds from sales or maturities of marketable securities		70,060			41,594
Purchases of cost and equity method investments		(9,155	)		—
Other		18			97

Net cash used for investing activities		(45,981	)		(11,012	)

Financing activities
Purchases of treasury stock		(11,206	)		(1,266	)
Proceeds from exercise of stock options		2,783			702
Other		349			(18	)

Net cash used for financing activities		(8,074	)		(582	)

Effects of exchange rate changes on cash and cash equivalents		(22	)		319

Net (decrease) increase in cash and cash equivalents		(50,701	)		20,104

Cash and cash equivalents, beginning of period		86,050			34,523

Cash and cash equivalents, end of period	$	35,349		$	54,627

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,” “our” or “we”), a global technology company, is a leading supplier of high performance materials, materials packaging and materials delivery systems used worldwide in various industries including microelectronics and life sciences. 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. Our customers include the leading semiconductor manufacturers in the world who target leading-edge technologies. In our LifeSciences segment, we address an increasing number of single-use development and manufacturing needs for the life sciences markets. Our proprietary containment, mixing, and bioreactor technologies are sold to biotechnology, cell therapy and pharmaceutical companies involved in the manufacture of vaccine, monoclonal antibodies and cell therapy applications, which we believe offer significant long-term 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 June 30, 2013 and for the three and six months ended June 30, 2013 and 2012, 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, 2012 audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2012. 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, 2012 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 June 30,				Six Months Ended June 30,
	2013		2012		2013		2012
Numerator:
Net income	$	9,447	$	11,423		17,873		15,285
Denominator:
Denominator for basic earnings per share—weighted average shares		31,946		31,938		31,977		31,873
Dilutive effect of employee stock options		158		168		153		195
Dilutive effect of restricted stock awards and restricted stock units		635		563		607		615

Denominator for diluted earnings per common share – weighted average shares		32,739		32,669		32,737		32,683

Earnings per share-basic	$	0.30	$	0.36	$	0.56	$	0.48
Earnings per share-diluted	$	0.29	$	0.35	$	0.55	$	0.47

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

June 30,

Six Months Ended

June 30,

2013

2012

2013

2012

Antidilutive shares

885

1,154

906

951

Inventories

Inventories include (in thousands):


	June 30, 2013			December 31, 2012
Raw materials	$	31,420		$	26,874
Work in process		2,568			2,064
Finished goods		64,867			62,003

		98,855			90,941
Excess and obsolescence reserve		(3,948	)		(3,386	)

Inventories, net	$	94,907		$	87,555

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 June 30, 2013, the carrying value of our portfolio of strategic investments in non-marketable equity securities totaled $11.9 million ($8.1 million at December 31, 2012), of which $9.3 million are accounted for at cost ($5.4 million at December 31, 2012), and $2.6 million are accounted for using the equity method of accounting ($2.7 million at December 31, 2012). 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 $96.1 million of undistributed earnings from non-U.S. operations as of June 30, 2013, 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 33.8 percent and 29.4 percent for the three and six month periods ended June 30, 2013. 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. The year-to-date effective income tax rate includes a $1.3 million settlement with the South Korea taxing authority, $1.1 million of benefits for certain 2012 retroactive provisions of The American Taxpayer Relief Act of 2012 (signed into law on January 2, 2013) including the US R&D credit, $1.8 million net benefit for reversals of previously established reserves, and a $0.2 million provision related to equity-based compensation. The 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. We continue to incur losses at Artelis, our iCellis^® and Xpansion™ bioreactor business, and as a result, we have not recorded a tax benefit on these losses. If a tax benefit had been reflected on the foreign losses, our effective income tax rate would have been approximately 29.2 percent and 25.0 percent for the three and six month periods ended June 30, 2013, respectively.

At June 30, 2013, the Company had $4.1 million of unrecognized tax benefits, which if recognized, would favorably affect the effective income tax rate in future periods. $0.2 million of this amount is included in deferred taxes, $1.7 million is included in the caption “Other current liabilities,” and the balance of $2.2 million is included in the caption “Other non-current liabilities” on the consolidated balance sheets, which includes $0.3 million of total accrued interest (net) on tax reserves. In addition, at December 31, 2012, the Company had $27 million of unrecognized tax benefits related to the timing of deduction of certain acquired assets. This uncertainty was resolved in the period ended June 30, 2013 as the Internal Revenue Service completed the audit of tax years 2010 and 2011, for which the Company expects to pay approximately $8.0 million (excluding interest).

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 $1.4 million (excluding interest). While the Company believes it was in complete compliance with existing tax law, it has reached a settlement with the South Korea tax authority to settle income tax issues related to tax years 2008-2012 for a payment of approximately $1.3 million (including interest and penalties).

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 June 30, 2013. 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 June 30, 2013, our maximum exposure to loss is our carrying value in this investment of $3.9 million.

Severance Expense

During the first quarter of 2013, we initiated an action in our Microelectronics business to better streamline business activities with our customers and partners. As a result, we recognized $1.8 million of severance expense under the caption, Selling, general & administrative in the consolidated statements of comprehensive income. During the first half of 2013, we paid $1.6 million associated with this action. At this time, we do not anticipate any material additional charges associated with this action. Because the actions were driven by ATMI’s executive team and were not driven by the Microelectronics segment manager, the severance charge is reflected in the All Other segment.

Recently Adopted Accounting Pronouncements

In December 2011, the FASB issued ASU 2011-11-“Balance Sheet (Topic 210): Disclosures about Offsetting Assets and Liabilities” and in January 2013, the FASB issued ASU 2013-01- “Balance Sheet (Topic 210): Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities.” In ASU 2011-11, entities are required to disclose both gross information and net information about both instruments and transactions eligible for offset in the statement of financial position and instruments and transactions subject to an agreement similar to a master netting arrangement. ASU 2013-01 limits the scope of disclosures to derivatives, repurchase agreements and securities lending arrangements. We were required to apply the amendments retrospectively for annual reporting periods beginning on or after January 1, 2013, and interim periods within those annual periods. There was no material impact from the adoption of these Updates.

In February 2013, the FASB issued ASU 2013-02-“Comprehensive Income (Topic 220): Reporting of Amounts Reclassified out of Accumulated Other Comprehensive Income.” Substantially all of the information that this Update requires was already disclosed in our financial statements under U.S. GAAP, however, this Update requires additional disclosure about amounts reclassified out of accumulated other comprehensive income and their corresponding effect on net income in one place. We were required to apply the amendments prospectively for annual reporting periods beginning after December 15, 2012. See Note 5 for the disclosures as a result of adoption of 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 June 30, 2013 (in thousands):


	# of Shares Approved		# of Shares Available
Stock Plan
2010 Stock Plan⁽¹⁾		3,000		2,189
Employee Stock Purchase Plan⁽²⁾		1,000		230

Totals		4,000		2,419

⁽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 166,788 shares of common stock as a result of exercises by employees under its employee stock option plans during the first six months of 2013. Such amount was 258,446 shares of common stock during the fiscal year ended December 31, 2012. The Company issued 317,815 shares of restricted stock awards that include solely a time-based vesting requirement in the first six months of 2013 and such amount was 321,965 during the fiscal year ended December 31, 2012.

4. Fair Value Measurements and Marketable Securities

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. At June 30, 2013, the Artelis acquisition contingent consideration payment liability, which is categorized as a non-recurring fair value measurement, is the only item valued in this category.

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 June 30, 2013 (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	$	35,349			35,349
Available-for-sale marketable securities
Common stock	$	25,322		$	25,322
Time deposits	$	21,009		$	21,009
Corporate debt obligations	$	7,267					$	7,267
Government debt obligations	$	30,406					$	30,406
Government sponsored debt obligations	$	5,231					$	5,231
Foreign currency exchange contract asset	$	3,408		$	3,408
Foreign currency exchange contract liability	$	(61	)	$	(61	)

During the first six months of 2013, our valuation methodologies were consistent with previous years, and there were no transfers made among the three levels of the valuation hierarchy.

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.

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 2013 through 2014, was calculated using unobservable inputs (primarily using discounted cash flow analysis, a current average discount rate of 5.5 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, subject to movements in currency.

Our estimate of the fair value of the Artelis contingent payments was $4.7 million at June 30, 2013, representing an increase in our estimated payments of $0.1 million from December 31, 2012. This increase was driven by an increase in our assessment of our future payment obligation due to an increase in our assessment of anticipated future revenues.

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

Marketable securities include at June 30, 2013 and December 31, 2012 (in thousands):


	2013							2012
	Cost		Gross Unrealized Gain (Loss) (3)			Estimated Fair Value		Cost		Gross Unrealized Gain (Loss) (3)			Estimated Fair Value
Securities in unrealized gain position:
Common stock	$	18,969	$	6,353		$	25,322	$	22,376	$	13,049		$	35,425
Corporate debt obligations		1,941		2			1,943		4,211		4			4,215
Government debt obligations⁽¹⁾		20,352		10			20,362		4,495		14			4,509
GSE⁽²⁾ debt obligations		—		—			—		3,501		—			3,501
U.S. Treasury obligations		—		—			—		4,023		—			4,023

Subtotal		41,262		6,365			47,627		38,606		13,067			51,673
Securities in unrealized loss position:
Corporate debt obligations		5,329		(5	)		5,324		4,844		(7	)		4,837
Government debt obligations		10,057		(13	)		10,044		—		—			—
GSE debt obligations		5,234		(3	)		5,231		—		—			—
U.S. Treasury obligations		—		—			—		8,251		(1	)		8,250

Subtotal		20,620		(21	)		20,599		13,095		(8	)		13,087
Securities at amortized cost:
Time deposits		21,009		—			21,009		16,920		—			16,920
Corporate debt obligations		—		—			—		790		—			790

Subtotal		21,009		—			21,009		17,710		—			17,710

Total marketable securities	$	82,891	$	6,344		$	89,235	$	69,411	$	13,059		$	82,470

⁽¹⁾	State and municipal government debt obligations.

⁽²⁾	Government sponsored enterprise.

⁽³⁾	Unrealized gains or losses of less than $500 for each category are reflected as a dash. The decrease in the unrealized gain in Common stock was due primarily to the reduction in the market value of our Intermolecular, Inc. shareholdings.

The amortized cost and estimated fair value of available-for-sale securities, by contractual maturity, as of June 30, 2013 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	$	46,971	$	46,972
Due between one and three years		16,951		16,941

		63,922		63,913
Common stock		18,969		25,322

	$	82,891	$	89,235

This table shows the Company’s marketable securities that were in an unrealized loss position at June 30, 2013, and also shows the period 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	$	5,324	$	(5	)	$	—	$	—		$	5,324	$	(5	)
Government debt obligations		5,274		(1	)		4,770		(12	)		10,044		(13	)
GSE⁽¹⁾ debt obligations		—		—			5,231		(3	)		5,231		(3	)
Total⁽²⁾	$	10,598	$	(6	)	$	10,001	$	(15	)	$	20,599	$	(21	)

⁽¹⁾	Government sponsored enterprise.

⁽²⁾	As of June 30, 2013, we had 17 securities in an unrealized loss position.

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			Unrealized Gain (Loss) on Derivative Instruments			Total
Balance at December 31, 2012	$	6,300		$	8,230		$	1,098		$	15,628
Reclassification adjustment related to marketable securities in net unrealized gain at prior period end, net of $685 tax provision⁽¹⁾		—			(1,201	)		—			(1,201	)
Change in fair value of available-for-sale securities, net of deferred income tax of $1,801		—			(2,970	)		—			(2,970	)
Reclassification adjustment related to cash flow hedges at prior period end in a net unrealized loss at prior period end, net of deferred income tax of $214		—			—			(375	)		(375	)
Change in fair value of cash flow hedges, net of deferred income tax of $727		—			—			1,276			1,276
Cumulative translation adjustment		(6,848	)		—			—			(6,848	)

											(10,118	)

Balance at June 30, 2013	$	(548	)	$	4,059		$	1,999		$	5,510

⁽¹⁾	Determined based on the average cost method

The reclassifications out of accumulated other comprehensive income are (in thousands):


Details about Accumulated Other Comprehensive Income Components	Amount Reclassified from Accumulated Other Comprehensive Income			Affected Line Item in the Consolidated Statements of Comprehensive Income
Realized gains and losses on cash flow hedges
Foreign exchange contracts	$	678		Revenues
		(89	)	Cost of revenues

		589		Total before tax
		(214	)	Estimated tax expense

	$	375		Net of estimated tax

Realized gains and losses on available-for-sale securities
Available-for-sale securities	$	1,886		Other income (expense), net

		1,886		Total before tax
		(685	)	Estimated tax expense

	$	1,201		Net of estimated tax

Total reclassifications for the period	$	1,576		Net of estimated tax

6. 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, future cash flows 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. Gains and losses on hedges are reported as a net change in cash provided or used by operating activities. We do not enter into derivative instruments for trading or speculative purposes and all of our derivatives were effective throughout the periods reported.

Counterparties to forward foreign currency exchange contracts are major banking institutions with credit ratings of investment grade or better and no collateral is required. There are no significant risk concentrations. We believe the risk of incurring losses on derivative contracts related to credit risk is remote.

At June 30, 2013, we held foreign currency exchange contracts, not designated as cash flow hedges, with notional amounts totaling $23.0 million of which $9.1 million will be settled in Euros, $1.4 million will be settled in Taiwan Dollars, $2.4 million will be settled in Korean Won, $2.0 million will be settled in Chinese Yuan Renminbi, and $8.1 million will be settled in Japanese Yen. At June 30, 2013, we held forward foreign currency exchange contracts designated as cash flow hedges with notional amounts totaling $19.2 million, which will be settled in Japanese Yen. The cash flow hedges held at June 30, 2013 mature between the third quarter of 2013 and the fourth quarter 2014. At June 30, 2013, the accumulated net unrecognized gains that are expected to be reclassified into earnings during the next twelve months are $1.8 million.

The Company recorded net gains of $0.4 million and $0.7 million for the six months ended June 30, 2013 and 2012, respectively, under the caption “Other income (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 net losses for the three months ended June 30, 2013 and 2012, respectively, were not material. The Company recorded net gains of $0.2 million and $0.9 million for the three and six months ended June 30, 2013 in other comprehensive income related to the change in the fair value of cash flow hedges. The change in fair value of cash flow hedges was not material for the three and six months ended June 30, 2012.

7. 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 anticipated future revenue performance, which is currently valued at $4.7 million. The range of possible outcomes related to the contingent payment obligation is $0 to $23.3 million, subject to movements in currency. See Note 4 for further discussion.

In the first quarter of 2013, we executed a $16.0 million commitment to purchase raw material from a strategic gas supplier over the next two years.

8. 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 for integrated circuit and flat-panel display manufacturing. Microelectronics products consist of ATMI’s patented Safe Delivery Source^® (“SDS”) solutions to deliver ion implant gases, copper materials for plating, post-etch cleans, post-CMP cleans and deposition, 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 determined 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 integrate disposable components into disposable systems, we see growing opportunities. The LifeSciences business unit sells products that address an increasing number of critical process steps for biopharmaceutical manufacturing of vaccines, monoclonal antibodies, and cell therapy applications, including disposable mixers and bioreactors, both considered growth opportunities for ATMI. This unit includes our Newform™ products and Integrity^® suite of single-use technology mixers, bioreactors and bioprocess vessels.

The All Other category includes revenues from early stage resource efficiency businesses such as the eVOLV™ and BrightBlack™ product lines.

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 June 30,				Six Months Ended June 30,
	2013		2012		2013		2012
Microelectronics	$	89,414	$	94,518	$	177,525	$	177,983
LifeSciences		11,944		11,154		23,225		20,263
All Other		650		227		665		227

Total Consolidated	$	102,008	$	105,899	$	201,415	$	198,473

⁽¹⁾	Intersegment sales for the three and six month periods ended June 30, 2013 and 2012 were not material.


	Operating income (loss)
	Three Months Ended June 30,						Six Months Ended June 30,
	2013			2012			2013			2012
Microelectronics	$	26,926		$	30,397		$	52,168		$	51,429
LifeSciences		(1,682	)		(1,104	)		(2,940	)		(3,230	)
All Other		(12,529	)		(12,357	)		(26,176	)		(25,116	)

Total Consolidated	$	12,715		$	16,936		$	23,052		$	23,083

Item 2.

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

Three and Six Months Ended June 30, 2013 as Compared to 2012

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 price reductions, decreases in our shipment volume, reductions or obsolescence of our inventories, shifts in our product mix and changes in foreign currency exchange rates;

•

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;

•

cyclicality in the markets in which we operate;

•

on an ongoing basis, our business may be affected by economic down-turns which could impact the volatility and liquidity of financial and credit markets, the general global economy, and factors such as inflationary or deflationary pressures yielding other market or economic challenges;

•

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;

•

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

•

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

•

inability 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;

•

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

•

highly competitive markets for our products;

•

political and economic instability, the adequacy of country infrastructure and labor resources, currency fluctuations and controls, compliance with foreign laws and intellectual property protection, changes in export controls, health conditions, and possible disruptions in transportation networks;

•

fluctuations in currency exchange rates;

•

climate change and associated regulatory risk and natural events in the locations in which we, our customers, and suppliers operate;

•

inability to accurately forecast customer demand may cause us to incur expedited shipping costs or hold excess or obsolete inventory;

•

competition for attracting and retaining highly skilled scientific, technical, managerial and marketing personnel;

•

inability to realize the anticipated benefits of acquisitions due to slower than expected sales growth or difficulties integrating acquired businesses with our current operations, including risk that our SDS Direct manufacturing transition could be delayed beyond fourth quarter 2013;

•

risk of product liability claims beyond existing insurance coverage levels;

•

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);

•

changing generally accepted accounting principles and related accounting pronouncements and interpretation or changes in underlying assumptions, estimates, or judgments;

•

changing tax laws, taxation and audit by taxing authorities in the various countries in which we operate; 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, 2012, 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 six months ended June 30, 2013 and 2012:


	Three Months Ended June 30,									Six Months Ended June 30,
	2013			2012			% Change			2013			2012			% Change
Revenues	$	102,008		$	105,899			(3.7	)%		201,415			198,473			1.5	%
Cost of revenues		53,351			52,425			1.8	%		106,071			100,817			5.2	%

Gross profit		48,657			53,474			(9.0	)%		95,344			97,656			(2.4	)%
Gross profit margin		47.7	%		50.5	%					47.3	%		49.2	%
Operating expenses:
Research and development		13,130			13,825			(5.0	)%		26,312			28,314			(7.1	)%
Selling, general and administrative		22,812			22,713			0.4	%		45,980			46,259			(0.6	)%

Total operating expenses		35,942			36,538			(1.6	)%		72,292			74,573			(3.1	)%

Operating income		12,715			16,936			(24.9	)%		23,052			23,083			(0.1	)%
Interest income		302			305			(1.0	)%		656			630			4.1	%
Other income (expense), net		1,247			(457	)		372.9	%		1,620			(763	)		312.3	%

Income before income taxes		14,264			16,784			(15.0	)%		25,328			22,950			10.4	%
Provision for income taxes		4,817			5,361			(10.1	)%		7,455			7,665			(2.7	)%

Effective tax rate		33.8	%		31.9	%					29.4	%		33.4	%
Net income	$	9,447		$	11,423			(17.3	)%	$	17,873		$	15,285			16.9	%

Analysis of Consolidated Results

Second quarter 2013 revenues of $102.0 million declined by 3.7 percent compared to the second quarter of 2012 driven by declines in Microelectronics primarily due to lower sales of copper products in a tepid wafer starts environment and continued customer efficiency gains in our cleans chemistries mitigated by growth in Safe Delivery Source^® (“SDS”) sales as well as by continued momentum in LifeSciences due to single-use sales, and increased license revenues. In the second quarter of 2013, we recognized $0.6 million of license revenue for our eVOLV™ technology, our electronic waste solution.

Revenues for the first half of 2013 were $201.4 million, an increase of 1.5 percent compared to the first half of 2012, driven by the growth in our LifeSciences segment primarily due to single-use sales and increased license revenues. The Microelectronics segment was flat for the six months ended 2013 versus the same period in 2012 as weakening wafer starts and improved materials efficiency by our customers were offset by increased SDS volumes.

Consolidated gross profit margin in the second quarter of 2013 was 47.7 percent, a decline of 2.8 percentage points compared to the same quarter of 2012. The decline resulted from a reduced contribution margin on lower sales volume and a less favorable product mix.

Consolidated gross profit margin for the first half of 2013 was 47.3 percent, a decline of 1.9 percentage points from the same period in 2012, due to unfavorable product mix.

Research and development (“R&D”) expense decreased 5.0 percent to $13.1 million in the second quarter of 2013 from $13.8 million in the second quarter of 2012. The decrease in R&D spending was caused mostly by a $0.8 million reduction in high-productivity development (“HPD”) related expenses and reduced consulting services, partially offset by increased depreciation.

R&D expense for the first half of 2013 decreased 7.1 percent to $26.3 million due to lower HPD related spending of $1.8 million, and reductions in spending on prototypes, consulting, and patents, partially offset by the prior year cost reimbursements related to a collaborative development agreement and increased depreciation.

Selling, general & administrative (“SG&A”) expenses in the second quarter of 2013 of $22.8 million were flat compared to the same period in 2012 as lower severance costs in the second quarter of 2012 were offset by minor increases in several other areas.

For the six months ended June 30, 2013, SG&A expenses of $46.0 million were flat as compared to the same period of 2012. During the six months ended June 30, 2013 employee compensation related restructuring savings were partially offset by severance-related costs. The same period in 2012 included the benefit from a reduction in our Artelis contingent consideration.

Operating income for the second quarter of 2013 declined 24.9 percent to $12.7 million compared to $16.9 million in the second quarter of 2012, driven by the factors noted above.

For the six months ended June 2013, operating income was flat at $23.1 million.

Interest income was flat in the second quarter of 2013 compared to the second quarter of 2012 and was also flat for the six months ended June 2013 compared to June 2012.

In the second quarter of 2013, other income was $1.2 million, an increase of $1.7 million from the $0.5 million of expense in the second quarter of 2012. The current quarter income includes $1.1 million from the sale of marketable securities compared to the prior period loss of $0.5 million on the sale of an auction-rate security.

In the first six months of 2013, other income was $1.6 million, compared to expense of $0.8 million in the first half of 2012. The 2013 income includes $1.8 million from the sale of marketable securities partially offset by foreign currency losses of $0.5 million compared to the prior period loss of $0.5 million on the sale of an auction-rate security.

We had an effective income tax rate of 33.8 percent and 29.4 percent for the three and six month periods ended June 30, 2013. 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. The year-to-date effective income tax rate includes a $1.3 million settlement for a South Korean tax audit, $1.1 million of benefits for certain 2012 retroactive provisions of The American Taxpayer Relief Act of 2012 (signed into law on January 2, 2013) including the US R&D credit, a $1.8 million net benefit for reversals of previously established reserves, and a $0.2 million provision related to equity-based compensation. The 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. We continue to incur losses at Artelis, our iCellis^® and Xpansion™ bioreactor business, and as a result, we have not recorded a tax benefit on these losses. If a tax benefit had been reflected on the foreign losses, our effective income tax rate would have been approximately 29.2 percent and 25.0 percent for the three and six month periods ended June 30, 2013, respectively.

Segment Analysis


	Revenue
	Three Months Ended June 30,									Six Months Ended June 30,
	2013			2012			% Change			2013			2012			% Change
Microelectronics	$	89,414		$	94,518			(5.4	)%	$	177,525		$	177,983			(0.3	)%
LifeSciences		11,944			11,154			7.1	%		23,225			20,263			14.6	%
All Other		650			227			186.3	%		665			227			193.0	%

Total Consolidated	$	102,008		$	105,899			(3.7	)%	$	201,415		$	198,473			1.5	%

	Operating income (loss)
	Three Months Ended June 30,									Six Months Ended June 30,
	2013			2012						2013			2012
Microelectronics	$	26,926		$	30,397			(11.4	)%	$	52,168		$	51,429			1.4	%
LifeSciences		(1,682	)		(1,104	)		(52.4	)%		(2,940	)		(3,230	)		9.0	%
All Other		(12,529	)		(12,357	)		(1.4	)%		(26,176	)		(25,116	)		(4.2	)%

Total Consolidated	$	12,715		$	16,936			(24.9	)%	$	23,052		$	23,083			(0.1	)%

Microelectronics: Revenues declined 5 percent to $89.4 million in the second quarter of 2013 compared to the second quarter of 2012 due to declines in our copper products sales, moderated by growth in our SDS product line. Our copper materials product lines declined 10 percent in the second quarter of 2013 compared to the second quarter of 2012 due in part to a tepid wafer start environment and to customer material-usage efficiencies and the strategic decision to stop selling certain very low margin copper plating electrolytes. In addition, 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. Gross profit margins in our microelectronics segment were approximately 49 percent in the second quarter of 2013 compared to approximately 52 percent in the second quarter of 2012. Reduced gross profit margins resulted from lower contribution due to declines in sales volume and less favorable product mix in the second quarter of 2013 compared to the second quarter of 2012. Operating income was $26.9 million in the second quarter of 2013 compared to $30.4 million in the second quarter of 2012 driven primarily by decreased sales volume and less favorable mix partially offset by controlled spending and a reduction in HPD-related costs.

Revenues for the six months ended June 2013 were essentially flat at $177.5 million compared to the same period in 2012. The first half of 2013 results include fully operationalized SDS product sales compared to the same period in 2012, which was a period of transition due to the SDS Direct transaction. The strong SDS sales drove implant product revenue growth of 21 percent compared to the first half of 2012. Our copper materials product lines declined 9 percent in the first half of 2013 compared to the first half of 2012, driven by the wafer start environment, customer material-usage efficiencies and the strategic decision to stop selling certain very low margin copper plating electrolytes. In addition, 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. Gross profit margins in our microelectronics segment were approximately 49 percent in the first half of 2013 compared to approximately 51 percent in the first half of 2012. Gross profit margins were down mostly due to less favorable product mix. Operating income was $52.2 million in the first half of 2013 compared to $51.4 million in the first half of 2012 as lower revenue and weaker product mix was more than offset by controlled spending and the reduction in HPD-related costs.

LifeSciences: Revenues grew 7 percent in the second quarter of 2013 to $11.9 million compared to $11.2 million in the second quarter of 2012 primarily as a result of single-use equipment sales, and increased license revenue. Gross profit margins in our LifeSciences segment were approximately 38 percent in the second quarter of 2013, flat compared to the same period in 2012. Our operating loss was $1.7 million in the second quarter of 2013, a 52 percent increase compared to the second quarter of 2012 driven by increased SG&A spending in support of iCellis^® and Xpansion™ bioreactor commercialization efforts.

Revenues grew 15 percent for the six months ended June 2013 to $23.2 million compared to $20.3 million in the six months ended June 2012, primarily as a result primarily of single-use equipment sales and increased license revenue. Gross profit margins in our LifeSciences segment increased to 37 percent in the first half of 2013 compared to 35 percent in the first half of 2012. The increase was due primarily to the increased contribution margin from higher revenues. Our operating loss was $2.9 million for the six months ended June 2013, a 9 percent improvement compared to the first half of 2012, driven by continued revenue growth, improving product mix, and lower R&D spending, partially offset by increased 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, and cash used for capital expenditures, acquisitions, and stock repurchases.

Until required for use in the business, we invest our cash reserves in bank deposits, certificates of deposit, money market securities, time deposits, U.S. Treasuries, government and government-sponsored enterprise bond obligations, corporate debt obligations, common shares, 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.

In the first quarter of 2013, we executed a $16.0 million commitment to purchase raw material from a strategic gas supplier over the next two years.

We are continuing to construct a new South Korean manufacturing facility, in JangAn, Gyeonggi province, and we expect to begin high volume production in the fourth quarter of 2013.

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


	Six Months Ended June 30,
	2013			2012
Cash provided by (used for):
Operating activities	$	3,376		$	31,379
Investing activities		(45,981	)		(11,012	)
Financing activities		(8,074	)		(582	)
Effects of exchange rate changes on cash and cash equivalents		(22	)		319

Operating Activities

During the six months ended June 30, 2013, we generated $3.4 million of cash from operations, which represents a decrease of $28.0 million compared to the $31.4 million of cash generated from operations during the six months ended June 30, 2012. The cash generated from operations was driven by net income partially offset by increased accounts receivable due to higher days sales outstanding, cash used for the purchase of inventories including certain strategic purchases to secure future supply and favorable pricing, other assets due to prepayment of HPD-related royalties, accounts payable and income taxes payable.

Investing Activities

Net cash used for investing activities was $46.0 million in the six months ended June 30, 2013, an increase of $35.0 million compared to the six months ended June 30, 2012. Our investing activities primarily relate to purchases, sales and maturities of marketable securities, including $5.2 million of cash generated from the sale of a marketable equity security, and the purchases of property, plant and equipment as we continue construction of our new South Korean manufacturing facility. The increase in cash used for investing activities was due to the increase in net purchases of marketable securities and spending on cost and equity-basis investments.

Financing Activities

Financing activities resulted in a use of cash of $8.1 million in the six months ended June 30, 2013, which was an increase of $7.5 million versus the six months ended June 30, 2012. The increase was primarily related to purchases of treasury stock, partially offset by an increase in proceeds from the exercise of stock options.

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 June 30, 2013, the Company’s cash and cash equivalents and marketable securities included bank deposits, time deposits, money market securities, corporate debt obligations, U.S. Treasuries and government and government-sponsored bond obligations. As of June 30, 2013, an increase or decrease 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. Approximately 48 percent of the Company’s revenues for the three and six months ended June 30, 2013 were denominated in Japanese Yen (“JPY”), China Renminbi (“CNY”), 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 payments 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 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. All of our derivatives were highly effective throughout the periods reported.

At June 30, 2013, we held forward foreign currency exchange contracts, not designated as cash flow hedges, with notional amounts totaling $23.0 million and forward foreign currency exchange contracts designated as cash flow hedges with notional amounts totaling $19.2 million, which are being used to hedge recorded foreign denominated assets and liabilities, and future cash flows which will be settled in either JPY, KRW, EUR, CNY, 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 CNY, and NTD, the fair market value of the foreign exchange contracts outstanding at June 30, 2013 would decrease by approximately a net of $1.9 million ($0.6 million would be expected to be fully offset by foreign exchange gains on the amount being hedged, and a loss of $2.5 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.

Changes in Market Risk. Although we have seen mixed signs of stability, the global economy continues to deal with the repercussions of the global recession, as manifest in the recent European economic crisis that caused significant credit and financial market swings. There can be no assurance that there will not be further deterioration in credit and financial markets and deterioration of confidence in economic conditions. These economic uncertainties affect businesses such as ours in a number of ways, making it more difficult to accurately forecast and plan our future business activities.

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 June 30, 2013 we believe materially affected, or will be reasonably likely to materially affect, our internal control over financial reporting.

PART II — OTHER INFORMATION

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, 2012, 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 Part I–Item 2 of this Form 10-Q.

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

Purchases of Equity Securities – This table lists all repurchases (both open market and private transactions) during the three months ended June 30, 2013 of our common stock, by or on behalf of us, or any affiliated purchaser.


	Total Number of Shares Repurchased ⁽²⁾		Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Programs⁽³⁾		Maximum Dollar Value of Shares that May Yet Be Purchased Under the Programs
Period⁽¹⁾
April 2013		15,950	$	21.79		15,950	$	37,471,761
May 2013		120,212	$	22.84		117,596	$	34,791,356
June 2013		40,158	$	24.08		40,158	$	33,825,431

Total		176,320	$	23.03		173,704	$	33,825,431

⁽¹⁾	There were no other repurchases of our common stock by or on behalf of us or any affiliated purchaser during the fiscal quarter ended June 30, 2013.

⁽²⁾	Share repurchases are shown on a trade-date basis. Represents shares repurchased to satisfy employee minimum tax withholding obligations on vesting of restricted stock and shares repurchased under the share repurchase program.

⁽³⁾

In August 2010, the Company’s Board of Directors approved a share repurchase program for up to $50.0 million of ATMI common stock. Under the terms of the share repurchase program, 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 program based upon market conditions or other factors. The program, which has no expiration date, does 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 6.

Exhibits



31.1		Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2		Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32		Certifications of the Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101		Interactive data files pursuant to Rule 405 of Regulation S-T.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


	ATMI, Inc.
July 24, 2013
	By	/s/ Timothy C. Carlson
		Timothy C. Carlson
		Executive Vice President,
		Chief Financial Officer and Treasurer
		(Duly Authorized Officer)

	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