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ATMI > SEC Filings for ATMI > Form 10-Q on 24-Jul-2013All 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 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;

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• 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

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.

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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                              Six Months Ended
                                              June 30,                                       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 Sourceฎ ("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.

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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 ฎ 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.

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