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ATMI > SEC Filings for ATMI > Form 10-Q on 24-Oct-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 and Nine Months Ended September 30, 2012 as Compared to 2011

Cautionary Statements Under the Private Securities Litigation Reform Act of 1995

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

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

• cyclicality in the markets in which we operate;

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

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

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

• highly competitive markets for our products;

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

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

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

• climate change and compliance with climate change related country regulations:

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

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

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

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

• changing tax laws, taxation and audit by taxing authorities in the various countries in which we operate;

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

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

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

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

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

• fluctuations in currency exchange rates;

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

• governmental regulations related to the storage, use, and disposal of certain toxic or otherwise hazardous chemicals in our manufacturing, processing and research and development activities, as well as regulations applicable to both operators and owners of property where releases of hazardous substances may have occurred (including releases by prior occupants); and

• uncertainty regarding compliance matters and higher costs resulting from changing laws, regulations and standards relating to corporate governance and public disclosure, including the Dodd-Frank Wall Street Reform and Consumer Protection Act and new regulations from the SEC.

These risks and uncertainties are described in more detail in our Annual Report on Form 10-K for the fiscal year ended December 31, 2011, and our other subsequent filings with the Securities and Exchange Commission (SEC) and in materials incorporated by reference in these filings. Like other companies, we are susceptible to macroeconomic downturns in the United States or abroad that may affect the general economic climate and our performance and the performance of our customers. The price of our common stock is subject to volatility due to fluctuations in general market conditions, differences in our results of operations from estimates and projections generated by the investment community, and other factors beyond our control. ATMI undertakes no obligation to update publicly or revise any forward-looking statements, whether as a result of new information, future developments or otherwise, except as required by law.

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Company Overview

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

Results of Operations

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

                                        Three Months Ended                             Nine Months Ended
                                           September 30,                                 September 30,
                                        2012           2011         % Change          2012           2011          % Change
Revenues                              $ 108,847      $ 95,006            14.6 %     $ 307,320      $ 299,757             2.5 %
Cost of revenues                         54,404        50,955             6.8 %       155,221        158,153            (1.9 %)

Gross profit                             54,443        44,051            23.6 %       152,099        141,604             7.4 %
Gross profit margin                        50.0 %        46.4 %                          49.5 %         47.2 %
Operating expenses:
Research and development                 12,272        12,757            (3.8 %)       40,586         40,459             0.3 %
Selling, general and administrative      21,708        19,478            11.4 %        67,967         62,223             9.2 %

Total operating expenses                 33,980        32,235             5.4 %       108,553        102,682             5.7 %

Operating income                         20,463        11,816            73.2 %        43,546         38,922            11.9 %
Interest income                             293           265            10.6 %           923            978            (5.6 %)
Other income (expense), net                 254          (934 )         127.2 %          (509 )       (1,066 )          52.3 %

Income before income taxes               21,010        11,147            88.5 %        43,960         38,834            13.2 %
Provision for income taxes                6,585         3,106           112.0 %        14,250         11,652            22.3 %

Effective tax rate                         31.3 %        27.9 %                          32.4 %         30.0 %
Net income                            $  14,425      $  8,041            79.4 %     $  29,710      $  27,182             9.3 %

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Analysis of Consolidated Results

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

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

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

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

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

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

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

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

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

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

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

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

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

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