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ATMI > SEC Filings for ATMI > Form 10-Q on 25-Apr-2012All Recent SEC Filings

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Form 10-Q for ATMI INC


Quarterly Report

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

Three Months Ended March 31, 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 differences include:

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

cyclicality in the markets in which we operate;

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

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

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

highly competitive markets for our products;

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

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

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

climate change and compliance with climate change related country regulations:

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

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

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

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

taxation and audit by taxing authorities in the various countries in which we operate;

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

inability to continue to anticipate rapidly changing technologies and market trends, to enhance our existing products and processes, to develop and commercialize new products and processes, and to expand through selected acquisitions of technologies or businesses or other strategic alliances;

inability to protect our competitive position via our patents, patent applications, and licensed technology in the United States and other countries; restrictions on our ability to make and sell our products as a result of competitors' patents; costly and time-consuming patent litigation;

risk of product claims beyond existing insurance coverage levels resulting from the manufacture and sale of our products, which include thin film and other toxic materials;

inability to realize the anticipated benefits of acquisitions due to difficulties integrating acquired businesses with our current operations;

fluctuations in currency exchange rates;

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 Sarbanes-Oxley Act of 2002, 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 review any forward-looking statements, whether as a result of new information, future developments or otherwise, except as required by law.

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Company Overview

ATMI, Inc. (together with its subsidiaries, collectively referred to as the "Company," "ATMI," or "we") believes it is among the leading suppliers of high performance materials, materials packaging and materials delivery systems used worldwide in the manufacture of microelectronics devices. Our Microelectronics segment products consist of "front-end" semiconductor performance materials, sub-atmospheric pressure gas delivery systems for safe handling and delivery of toxic and hazardous gases to semiconductor process equipment, and high-purity materials packaging and dispensing systems that allow for the reliable introduction of low volatility liquids to microelectronics processes. ATMI targets semiconductor and flat-panel display manufacturers, whose products form the foundation of microelectronics technology rapidly proliferating through the consumer products, information technology, automotive, and communications industries. The market for microelectronics devices is continually changing, which drives demand for new products and technologies that have improved performance at lower cost. ATMI's customers include many of the leading semiconductor manufacturers in the world who target leading-edge technologies. In our LifeSciences segment, ATMI also addresses an increasing number of critical materials handling needs for the life sciences markets. Our proprietary containment, mixing, and bioreactor technologies are sold to the biotechnology, vaccine, laboratory and cell therapy markets, which we believe offer significant growth potential. ATMI's objective is to meet the demands of our microelectronics and life sciences customers with solutions that maximize the efficiency and safety of their manufacturing processes, reduce capital or operating costs, and minimize the time to develop new products and integrate them into their processes.

Results of Operations

The following table provides a summary of consolidated Results for the quarters
ended March 31, 2012 and 2011:

                                             Three Months Ended
                                                  March 31,
                                             2012          2011          % Change
     Revenues                              $ 92,574      $ 100,724            (8.1 )%
     Cost of revenues                        48,392         52,633            (8.1 )%

     Gross profit                            44,182         48,091            (8.1 )%
     Gross profit margin                       47.7 %         47.7 %           0.0 %
     Research and development                14,489         13,451             7.7 %
     Selling, general and administrative     23,546         22,982             2.5 %

     Total operating expenses                38,035         36,433             4.4 %

     Operating income                         6,147         11,658           (47.3 )%
     Interest income                            325            424           (23.4 )%
     Other expense, net                        (306 )         (124 )         146.8 %

     Income before income taxes               6,166         11,958           (48.4 )%
     Provision for income taxes               2,304          3,951           (41.7 )%

     Effective Tax Rate                        37.4 %         33.0 %
     Net income                            $  3,862      $   8,007           (51.8 )%

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Consolidated Summary

Revenues were $92.6 million in the first quarter of 2012, representing an 8.1 percent decline compared to the first quarter of 2011, primarily driven by anticipated industry softness.

Consolidated gross profit margin in the first quarter of 2012 was flat at 47.7 percent compared to the prior year quarter. The main drivers in the first quarter of 2012 were the decline in revenues noted above, increased reserves for excess and obsolete inventories ($0.8 million), and asset impairments ($0.4 million), partially offset by capitalization of certain costs into inventory ($1.5 million) and improved contribution margins from the Safe Delivery System ("SDS") Direct transaction.

Research and development ("R&D") expense increased 7.7 percent to $14.5 million in the first quarter of 2012 from $13.5 million in the first quarter of 2011. The increase in R&D spending was caused by increased spending in the LifeSciences segment ($0.5 million) associated with bioreactor and cell therapy applications and increases in the Microelectronics segment for prototypes ($0.6 million) partially offset by a $0.4 million cost reimbursement related to a collaborative development agreement ("CDA").

Sales, general & administrative ("SG&A") expenses increased 2.5 percent to $23.5 million in the first quarter of 2012 from $23.0 million in the first quarter of 2011. The increase was driven by increased consulting as we seek to more rapidly commercialize certain new products ($0.8 million), a reduction in marketing reimbursements as a result of the SDS Direct transaction ($0.7 million), severance ($0.4 million), partially offset by an insurance recovery ($0.4 million) and reduced recruitment costs ($0.2 million).

Operating profit declined 47.3 percent to $6.1 million in the first quarter of 2012 compared to the first quarter of 2011, driven by the revenue decline and increased operating expenses, as noted above.

Interest income decreased slightly to $0.3 million in the first quarter of 2012 from $0.4 million in the first quarter of 2011.

In the first quarter of 2012, other income (expense), net, was an expense of $0.3 million.

We had an effective income tax rate of 37.4 percent for the three month period ended March 31, 2012. Our effective income tax rate is calculated based on full-year assumptions and excludes the benefit of the US Federal R&D credit which expired at the end of 2011. If a tax benefit had been reflected on the foreign losses, and the US Federal R&D credit had been taken into account, our effective income tax rate would have been approximately 26.5%.

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SDS Direct Transition

Revenues in the first quarter of 2012 were negatively impacted by $2.5 million, associated with a cash payment of $1.7 million to repurchase previously recognized product shipments into our former distributor's channel, as well as an estimated $5.3 million impact due to excess inventory in the SDS distribution channel in regions where the former distributor continued to sell product until ATMI secured the appropriate licenses to fully conduct business, which was partially offset by incremental revenues of $4.5 million from regions that are fully transitioned. In the first quarter of 2012, we successfully transitioned the SDS business in Taiwan, Korea, Singapore, and Malaysia, however, due to regional complications in the process, the transition date was slightly later than originally anticipated. We expect to transition the SDS business in China, which is the only remaining region to be transitioned, in the second quarter of 2012, which is anticipated to have a negative $1.5 million impact on SDS revenues in the second quarter. We spent $1.4 million on incremental cost of revenues associated with integration related activities in the first quarter of 2012. We continue to anticipate that the financial benefits disclosed as part of our SDS Direct announcement in November 2011 will be realized. We expect to conclude the transition of the SDS business in the second quarter of 2012, and once completed, we anticipate increased revenues of $7 million to $8 million per quarter; an approximately 2 percent improvement in gross margins, a $1 million to $2 million increase to selling, general and administrative ("SG&A") expense per quarter, and $0.08 to $0.09 of incremental quarterly earnings per diluted share, compared to our pre-transaction run rate.

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