UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
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þ
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
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For the quarterly period ended September 30, 2007
or
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o
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the transition period from
to
Commission file Number: 1-16239
(Exact name of registrant as specified in its charter)
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Delaware
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06-1481060
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(State or other jurisdiction of
incorporation or organization)
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(I.R.S. Employer Identification No.)
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7 Commerce Drive, Danbury, CT
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06810
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(Address of principal executive offices)
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(Zip Code)
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203-794-1100
(Registrants 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
þ
No
o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated
filer, or a non-accelerated filer. See definition of accelerated filer and large accelerated
filer in Rule 12b-2 of the Exchange Act (Check one):
Large accelerated filer
þ
Accelerated filer
o
Non-accelerated filer
o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of
the Exchange Act). Yes
o
No
þ
At September 30, 2007 there were 33,712,224 shares of common stock outstanding.
ATMI, INC.
Quarterly Report on Form 10-Q
For the Quarter Ended September 30, 2007
TABLE OF CONTENTS
2
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
ATMI, Inc.
Consolidated Balance Sheets
(in thousands, except per share data)
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September 30,
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December 31,
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2007
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2006
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(unaudited)
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Assets
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Current assets:
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Cash and cash equivalents
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$
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71,586
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$
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73,596
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Marketable securities, current portion
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143,104
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131,091
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Accounts receivable, net of allowances of $669 and $666, respectively
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55,045
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55,867
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Inventories, net
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48,378
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47,339
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Income taxes receivable
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1,104
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3,500
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Deferred income taxes
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6,949
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8,768
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Prepaid expenses and other current assets
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16,318
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12,073
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Total current assets
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342,484
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332,234
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Property, plant, and equipment, net
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102,515
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92,719
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Goodwill
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13,744
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13,734
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Other intangibles, net
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18,143
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20,669
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Marketable securities, less current portion
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14,379
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Other long-term assets
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15,446
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14,302
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Total assets
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$
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492,332
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$
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488,037
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Liabilities and stockholders equity
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Current liabilities:
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Accounts payable
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$
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22,810
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$
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20,144
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Accrued liabilities
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13,362
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15,767
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Accrued salaries and related benefits
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8,024
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11,813
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Income taxes payable
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1,360
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1,186
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Other current liabilities
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5,625
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1,962
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Total current liabilities
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51,181
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50,872
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Deferred income taxes, non-current
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244
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1,165
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Other long-term liabilities
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3,700
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504
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Commitments and contingencies (Note 5)
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Stockholders equity:
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Preferred stock, par value $.01 per share: 2,000 shares authorized; none issued
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Common stock, par value $.01 per share: 100,000 shares authorized; 38,827 and
38,304 issued and 33,712 and 34,710
outstanding in 2007 and 2006, respectively
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388
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383
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Additional paid-in capital
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406,720
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389,346
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Treasury stock at cost, 5,115 and 3,594
shares in 2007 and 2006, respectively
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(146,865
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)
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(100,305
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)
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Retained earnings
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167,355
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140,434
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Accumulated other comprehensive income
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9,609
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5,638
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Total stockholders equity
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437,207
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435,496
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Total liabilities and stockholders equity
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$
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492,332
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$
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488,037
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See accompanying notes.
3
ATMI, Inc.
Consolidated Statements of Income
(unaudited)
(in thousands, except per share data)
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Three Months Ended
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September 30,
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2007
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2006
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Revenues
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$
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91,131
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$
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82,124
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Cost of revenues
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45,158
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40,216
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Gross profit
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45,973
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41,908
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Operating expenses:
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Research and development
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7,225
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6,673
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Selling, general and administrative
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23,617
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22,775
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Total operating expenses
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30,842
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29,448
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Operating income
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15,131
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12,460
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Interest income
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1,956
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2,121
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Other expense, net
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(195
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)
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(32
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)
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Income before income taxes
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16,892
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14,549
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Provision for income taxes
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5,565
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|
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3,195
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|
|
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Net income
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$
|
11,327
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|
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11,354
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Earnings per common share basic
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$
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0.33
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$
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0.32
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Weighted average shares outstanding basic
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34,145
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35,585
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Earnings per common share diluted
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$
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0.32
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$
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0.31
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Weighted average shares outstanding diluted
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35,044
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36,314
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See accompanying notes.
4
ATMI, Inc.
Consolidated Statements of Income
(unaudited)
(in thousands, except per share data)
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Nine Months Ended
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September 30,
|
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2007
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2006
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Revenues
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$
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265,717
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$
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241,544
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Cost of revenues
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135,285
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120,886
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Gross profit
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130,432
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120,658
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Operating expenses:
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Research and development
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21,769
|
|
|
|
19,030
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|
Selling, general and administrative
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74,407
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67,882
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Total operating expenses
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96,176
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86,912
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|
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|
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Operating income
|
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|
34,256
|
|
|
|
33,746
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Interest income
|
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|
5,765
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|
|
|
6,409
|
|
Other income (expense), net
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|
(197
|
)
|
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|
290
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|
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Income before income taxes
|
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|
39,824
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|
|
|
40,445
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|
Provision for income taxes
|
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12,903
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|
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|
11,611
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|
|
|
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|
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Net income
|
|
$
|
26,921
|
|
|
$
|
28,834
|
|
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|
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|
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Earnings per common share basic
|
|
$
|
0.78
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|
$
|
0.79
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|
Weighted average shares outstanding basic
|
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34,425
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|
|
36,497
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|
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|
Earnings per common share diluted
|
|
$
|
0.76
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$
|
0.77
|
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|
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|
|
|
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Weighted average shares outstanding diluted
|
|
|
35,339
|
|
|
|
37,232
|
|
See accompanying notes.
5
ATMI, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
(unaudited)
(in thousands)
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Accumulated
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Other
|
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Additional
|
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Comprehensive
|
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Common
|
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Paid-in
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Treasury
|
|
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Retained
|
|
|
Income
|
|
|
|
|
|
|
Stock
|
|
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Capital
|
|
|
Stock
|
|
|
Earnings
|
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|
(Loss)
|
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|
Total
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
|
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|
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|
Balance at December 31, 2006
|
|
$
|
383
|
|
|
$
|
389,346
|
|
|
|
($100,305
|
)
|
|
$
|
140,434
|
|
|
$
|
5,638
|
|
|
$
|
435,496
|
|
Issuance of 452 shares of common
stock pursuant to the exercise
of employee stock options and
employee stock purchase plan
shares
|
|
|
4
|
|
|
|
10,557
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,561
|
|
Purchase of 1,521 treasury shares
|
|
|
|
|
|
|
|
|
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(46,560
|
)
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|
|
|
|
|
|
|
|
|
(46,560
|
)
|
Equity-based compensation
|
|
|
|
|
|
|
5,837
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,837
|
|
Income tax benefits from
equity-based compensation
|
|
|
|
|
|
|
981
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
981
|
|
Other
|
|
|
1
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
26,921
|
|
|
|
|
|
|
|
26,921
|
|
Losses related to marketable
securities sold reclassified
into earnings from other
comprehensive income net of $84
tax benefit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
144
|
|
|
|
144
|
|
Change in fair value on
available-for-sale securities
net of deferred income tax of
$923
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,571
|
|
|
|
1,571
|
|
Change in fair value of
derivative financial
instruments, net of deferred
income taxes of $65
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
110
|
|
|
|
110
|
|
Cumulative translation adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,146
|
|
|
|
2,146
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30,892
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at September 30, 2007
|
|
$
|
388
|
|
|
$
|
406,720
|
|
|
|
($146,865
|
)
|
|
$
|
167,355
|
|
|
$
|
9,609
|
|
|
$
|
437,207
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes.
6
ATMI, Inc.
Consolidated Statements of Cash Flows
(unaudited)
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
|
|
September 30,
|
|
|
|
2007
|
|
|
2006
|
|
Operating activities
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
26,921
|
|
|
$
|
28,834
|
|
Adjustments to reconcile net income to cash provided by operating activities:
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
16,341
|
|
|
|
15,429
|
|
Provision for inventory obsolescence
|
|
|
492
|
|
|
|
445
|
|
Deferred income taxes
|
|
|
(157
|
)
|
|
|
(2,370
|
)
|
Income tax benefit from share-based payment arrangements
|
|
|
981
|
|
|
|
1,156
|
|
Excess tax benefit from share-based payment arrangements
|
|
|
(669
|
)
|
|
|
(326
|
)
|
Equity-based compensation expense
|
|
|
5,837
|
|
|
|
7,871
|
|
Impairment of investments
|
|
|
|
|
|
|
260
|
|
Loss from equity-method investees
|
|
|
692
|
|
|
|
96
|
|
Other
|
|
|
383
|
|
|
|
154
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
1,594
|
|
|
|
(8,766
|
)
|
Inventories
|
|
|
(137
|
)
|
|
|
(6,862
|
)
|
Other assets
|
|
|
(1,518
|
)
|
|
|
1,245
|
|
Accounts payable
|
|
|
1,566
|
|
|
|
5,877
|
|
Accrued expenses
|
|
|
(6,338
|
)
|
|
|
(2,853
|
)
|
Income taxes
|
|
|
2,540
|
|
|
|
(1,352
|
)
|
Other liabilities
|
|
|
6,672
|
|
|
|
230
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
55,200
|
|
|
|
39,068
|
|
|
|
|
|
|
|
|
Investing activities
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
(26,522
|
)
|
|
|
(18,965
|
)
|
Proceeds from the sale of property, plant and equipment
|
|
|
336
|
|
|
|
46
|
|
Cost-basis and equity-basis investments
|
|
|
(1,362
|
)
|
|
|
(2,578
|
)
|
Proceeds from the sale of a cost-basis investment
|
|
|
|
|
|
|
298
|
|
Purchases of marketable securities
|
|
|
(188,816
|
)
|
|
|
(139,846
|
)
|
Proceeds from sales or maturities of marketable securities
|
|
|
194,133
|
|
|
|
221,730
|
|
|
|
|
|
|
|
|
Net cash (used for) provided by investing activities
|
|
|
(22,231
|
)
|
|
|
60,685
|
|
|
|
|
|
|
|
|
Financing activities
|
|
|
|
|
|
|
|
|
Excess tax benefit from share-based payment arrangements
|
|
|
669
|
|
|
|
326
|
|
Purchases of treasury stock
|
|
|
(45,608
|
)
|
|
|
(67,144
|
)
|
Proceeds from exercise of stock options
|
|
|
10,560
|
|
|
|
8,244
|
|
Other
|
|
|
(49
|
)
|
|
|
(54
|
)
|
|
|
|
|
|
|
|
Net cash used for financing activities
|
|
|
(34,428
|
)
|
|
|
(58,628
|
)
|
|
|
|
|
|
|
|
Effects of exchange rate changes on cash and cash equivalents
|
|
|
(551
|
)
|
|
|
547
|
|
|
|
|
|
|
|
|
Net (decrease) increase in cash and cash equivalents
|
|
|
(2,010
|
)
|
|
|
41,672
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, beginning of period
|
|
|
73,596
|
|
|
|
30,951
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period
|
|
$
|
71,586
|
|
|
$
|
72,623
|
|
|
|
|
|
|
|
|
See accompanying notes.
7
ATMI, Inc.
Notes To Consolidated Interim Financial Statements
(unaudited)
1. Description of Business
ATMI (the Company, ATMI, or we) believes it is a leading supplier of high performance
materials, materials packaging and materials delivery systems used worldwide in the manufacture of
microelectronic devices. ATMI targets both semiconductor and flat panel display manufacturers,
whose products form the foundation of microelectronics technology, which is rapidly proliferating
through the information technology, automotive, communication and consumer products industries. The
market for microelectronics devices is growing and continually changing, which drives demand for
new products and technologies at lower cost. ATMIs objective is to meet the demands of
microelectronic manufacturers with solutions that maximize the efficiency of their manufacturing
processes and minimize the time to ramp new processes and deliver new products. ATMIs customers
include many of the leading semiconductor and flat-panel display manufacturers in the world who
target leading edge technologies.
2. Significant Accounting Policies and Other Information
Basis of Presentation
The accompanying unaudited consolidated interim financial statements of ATMI have been
prepared in accordance with generally accepted accounting principles (GAAP) for interim financial
information and with the instructions to Form 10-Q and Article 10 of Regulation S-X and do not
include all of the financial information and disclosures required by GAAP in the United States.
The accounts of ATMI and all of its subsidiaries are included in the unaudited consolidated
interim financial statements. All significant intercompany accounts and transactions are eliminated
in consolidation.
In the opinion of the management of ATMI, the financial information contained herein has been
prepared on the same basis as the audited consolidated financial statements contained in the
Companys Annual Report on Form 10-K, and includes adjustments (consisting of normal recurring
adjustments) necessary to present fairly the unaudited quarterly results set forth herein. These
unaudited consolidated interim financial statements should be read in conjunction with the December
31, 2006 audited consolidated financial statements and notes thereto included in the Companys
Annual Report on Form 10-K. The Companys 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, 2006 has been derived from the audited
financial statements at that date, but does not include all of the financial information and
disclosures required by GAAP for complete financial statements.
8
Earnings Per Share
The following computation reconciles the differences between the basic and diluted earnings
per share presentations (in thousands, except per share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
11,327
|
|
|
$
|
11,354
|
|
|
$
|
26,921
|
|
|
$
|
28,834
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator for basic earnings per share
weighted average shares
|
|
|
34,145
|
|
|
|
35,585
|
|
|
|
34,425
|
|
|
|
36,497
|
|
Dilutive effect of employee stock options
|
|
|
505
|
|
|
|
499
|
|
|
|
559
|
|
|
|
534
|
|
Dilutive effect of restricted stock
|
|
|
394
|
|
|
|
230
|
|
|
|
355
|
|
|
|
201
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator for diluted earnings per
common share weighted average shares
|
|
|
35,044
|
|
|
|
36,314
|
|
|
|
35,339
|
|
|
|
37,232
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per common share-basic
|
|
$
|
0.33
|
|
|
$
|
0.32
|
|
|
$
|
0.78
|
|
|
$
|
0.79
|
|
Earnings per common share-assuming dilution
|
|
$
|
0.32
|
|
|
$
|
0.31
|
|
|
$
|
0.76
|
|
|
$
|
0.77
|
|
The following potential common shares have been excluded from the calculation of weighted
average shares outstanding, because their effect was considered to be antidilutive (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
Employee stock options
|
|
|
471
|
|
|
|
737
|
|
|
|
325
|
|
|
|
644
|
|
Inventories, Net
Inventories, net, are comprised of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
Raw materials
|
|
$
|
15,480
|
|
|
$
|
13,727
|
|
Work in process
|
|
|
896
|
|
|
|
1,926
|
|
Finished goods
|
|
|
34,044
|
|
|
|
34,039
|
|
|
|
|
|
|
|
|
Gross inventories
|
|
|
50,420
|
|
|
|
49,692
|
|
Excess and obsolescence reserve
|
|
|
(2,042
|
)
|
|
|
(2,353
|
)
|
|
|
|
|
|
|
|
Inventories, net
|
|
$
|
48,378
|
|
|
$
|
47,339
|
|
|
|
|
|
|
|
|
Prepaid Expenses and Other Current Assets
In June 2007, a fire at a contract manufacturer in Taiwan destroyed approximately $1.8 million
of ATMIs assets, including property, plant and equipment with a net book value of $1.6 million and
inventories with a book value of $0.2 million. ATMI expects to be fully reimbursed
9
by its insurance carrier for these losses and as such, has recorded a receivable for this amount,
which has been classified on the consolidated balance sheet under the caption prepaid expenses and
other current assets, representing our current estimate of our insurance recovery. ATMI has
supplied its customers in this region from its U.S. manufacturing operations, and expects to
continue to supply its customers in this region from its U.S. manufacturing operations.
Accordingly, our business has not been, and is not expected to be, materially impacted by the loss
of these assets.
Income Taxes
ATMI adopted the provisions of FASB Interpretation No. 48, Accounting for Uncertainty in
Income Taxesan Interpretation of FASB Statement No. 109 (FIN 48) at the beginning of 2007.
Adoption of FIN 48 on January 1, 2007 did not result in a cumulative effect adjustment to retained
earnings. At January 1, 2007, we had $8.2 million of unrecognized tax benefits on the balance
sheet, which, if recognized, would favorably affect the effective income tax rate in future
periods.
Our continuing practice is to recognize interest and/or penalties related to income tax
matters in income tax expense. We had $0.6 million accrued for interest (net) and $0 accrued for
penalties at December 31, 2006, which was included as a component of the $8.2 million unrecognized
tax benefit noted above.
We are currently under audit by the Internal Revenue Service for the 2004 and 2005 tax years.
It is reasonably possible that the examination phase of the audit for these years may conclude in
the next 12 months, and that the related unrecognized tax benefits for tax positions taken
regarding previously filed tax returns may change from those recorded as liabilities for uncertain
tax positions in our financial statements at January 1, 2007 and September 30, 2007. However,
based on the status of the examination it is not possible to estimate the effect of any amount of
such change to previously recorded uncertain tax positions.
We have not provided for U.S. federal income and foreign withholding taxes on approximately
$29.8 million of undistributed earnings from non-U.S. operations as of September 30, 2007, because
such earnings are intended to be reinvested indefinitely outside of the United States.
10
Goodwill and Other Intangibles, Net
Goodwill and Other intangibles, net, consisted of the following at September 30, 2007 and
December 31, 2006 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Patents &
|
|
|
|
|
|
|
Total Other
|
|
|
|
Goodwill
|
|
|
|
Trademarks
|
|
|
Other
|
|
|
Intangibles
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross amount as of December 31, 2006
|
|
$
|
13,734
|
|
|
|
$
|
27,570
|
|
|
$
|
5,969
|
|
|
$
|
33,539
|
|
Accumulated Amortization
|
|
|
|
|
|
|
|
(8,883
|
)
|
|
|
(3,987
|
)
|
|
|
(12,870
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2006
|
|
$
|
13,734
|
|
|
|
$
|
18,687
|
|
|
$
|
1,982
|
|
|
$
|
20,669
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Amount as of September 30, 2007
|
|
$
|
13,744
|
|
|
|
$
|
27,531
|
|
|
$
|
5,969
|
|
|
$
|
33,500
|
|
Accumulated Amortization
|
|
|
|
|
|
|
|
(10,748
|
)
|
|
|
(4,609
|
)
|
|
|
(15,357
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of September 30, 2007
|
|
$
|
13,744
|
|
|
|
$
|
16,783
|
|
|
$
|
1,360
|
|
|
$
|
18,143
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in carrying amounts of Goodwill and Other intangibles for the nine months ended
September 30, 2007 were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Patents &
|
|
|
|
|
|
|
Total Other
|
|
|
|
Goodwill
|
|
|
|
Trademarks
|
|
|
Other
|
|
|
Intangibles
|
|
Balance at December 31, 2006
|
|
$
|
13,734
|
|
|
|
$
|
18,687
|
|
|
$
|
1,982
|
|
|
$
|
20,669
|
|
Amortization
|
|
|
|
|
|
|
|
(1,865
|
)
|
|
|
(638
|
)
|
|
|
(2,503
|
)
|
Other, including foreign currency translation
|
|
|
10
|
|
|
|
|
(39
|
)
|
|
|
16
|
|
|
|
(23
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at September 30, 2007
|
|
$
|
13,744
|
|
|
|
$
|
16,783
|
|
|
$
|
1,360
|
|
|
$
|
18,143
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11
Recently Issued Accounting Pronouncements
In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets
and Financial LiabilitiesIncluding an Amendment of FASB Statement No. 115. This Standard allows
entities to voluntarily choose, at specified election dates, to measure many financial assets and
financial liabilities (as well as certain nonfinancial instruments that are similar to financial
instruments) at fair value. The election is made on an instrument-by-instrument basis and is
irrevocable. If the fair value option is elected for an instrument, the Statement specifies that
all subsequent changes in fair value for that instrument shall be reported in earnings. SFAS No.
159 is effective for ATMI beginning on January 1, 2008. We do not expect that adoption of this new
Standard will have a material effect on our financial position or results of operations.
In June 2007, the FASB Emerging Issues Task Force (EITF) published Issue No. 07-3,
Accounting for Nonrefundable Advance Payments for Goods or Services to Be Used in Future Research
and Development Activities. The EITF reached a consensus that these payments made by an entity to
third parties should be deferred and capitalized. Such amounts should be recognized as an expense
as the related goods are delivered or the related services are performed. Entities should report
the effects of applying this Issue as a change in accounting principle through a cumulative-effect
adjustment to retained earnings as of the beginning of the year of adoption. EITF Issue No. 07-3
is effective for ATMI beginning on January 1, 2008. Earlier application is not permitted. We do
not expect that adoption of this new Standard will have a material effect on our financial position
or results of operations.
3. Equity-Based Compensation
The following table shows the effect of compensation cost arising from equity-based payment
arrangements recognized in the consolidated statements of income (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues
|
|
$
|
118
|
|
|
$
|
248
|
|
|
$
|
257
|
|
|
$
|
742
|
|
Research and development
|
|
|
138
|
|
|
|
205
|
|
|
|
387
|
|
|
|
615
|
|
Selling, general and administrative
|
|
|
1,320
|
|
|
|
2,055
|
|
|
|
5,193
|
|
|
|
6,514
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity-based compensation expense
|
|
|
1,576
|
|
|
|
2,508
|
|
|
|
5,837
|
|
|
|
7,871
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit from income taxes
|
|
|
552
|
|
|
|
855
|
|
|
|
1,979
|
|
|
|
2,684
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net equity-based compensation expense
|
|
$
|
1,024
|
|
|
$
|
1,653
|
|
|
$
|
3,858
|
|
|
$
|
5,187
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The decrease in equity-based compensation for the three and nine-month periods ended September
30, 2007 compared to the comparable 2006 periods is primarily attributable to true-ups
associated with actual forfeitures and a resulting change in the forfeiture rate assumptions for
future periods.
There was no equity-based compensation cost that was capitalized.
12
Summary of Plans
The following table shows the number of shares approved by shareholders for each equity-based
compensation plan and the number of shares that remain available for equity awards at September 30,
2007 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
# of
|
|
|
# of Shares
|
|
Shares
|
Stock Plan
|
|
Approved
|
|
Available
|
|
|
|
|
|
|
|
|
|
1997 Stock Plan (1) (4)
|
|
|
900
|
|
|
|
26
|
|
1998 Stock Plan (1)
|
|
|
2,000
|
|
|
|
488
|
|
2000 Stock Plan (2)
|
|
|
2,000
|
|
|
|
304
|
|
2003 Stock Plan (2)
|
|
|
3,000
|
|
|
|
1,403
|
|
Employee Stock Purchase Plan (3)
|
|
|
1,000
|
|
|
|
305
|
|
|
|
|
|
|
|
|
|
|
Totals
|
|
|
8,900
|
|
|
|
2,526
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Exercise prices for ISOs granted under this plan may not be less than 100
percent of the fair market value for the Companys common stock on the date of grant.
Exercise prices for non-qualified stock options granted under this plan may not be
less than 50 percent of the fair market value for the Companys common stock on the
date of grant.
|
|
(2)
|
|
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 Companys
common stock on the date of grant.
|
|
(3)
|
|
Effective January 1, 2007, this plan was amended such that 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. Beginning January 1, 2007 this plan is no
longer considered to be compensatory, as defined by SFAS No. 123(R).
|
|
(4)
|
|
This Plan terminated on October 10, 2007.
|
The Company issued 440,472 and 253,944 shares of common stock as a result of exercises by
employees under its employee stock option plans in the first nine months of 2007 and 2006,
respectively. The Company issued 11,522 and 48,478 shares of common stock as a result of purchases
by employees under the employee stock purchase plan in the first nine months of 2007 and 2006,
respectively. The company issued 244,782 and 216,130 shares of restricted stock, with only a
time-based vesting requirement, in the first nine months of 2007 and 2006, respectively. The
Company repurchased 1,521,291 shares of common stock in the first nine months of 2007.
In the first quarter of 2007, the Company issued 92,041 shares of restricted stock to
executive officers that include a performance-based vesting component as well as a time-based
vesting component, as more fully described in the Companys 2006 proxy statement. This change was
made to ensure long-term incentive grants more closely align senior management compensation with
the Companys achievement of longer-term financial objectives that enhance stockholder value and to
afford the executive officers the opportunity to earn higher awards for outstanding performance.
13
4. Comprehensive Income
The components of comprehensive income are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
11,327
|
|
|
$
|
11,354
|
|
|
$
|
26,921
|
|
|
$
|
28,834
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative translation adjustment
|
|
|
1,646
|
|
|
|
423
|
|
|
|
2,146
|
|
|
|
2,316
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in fair value of
available-for-sale securities,
net of deferred income taxes of
$369, $105, $923 and $63
|
|
|
628
|
|
|
|
179
|
|
|
|
1,571
|
|
|
|
107
|
|
Change in fair value of
derivative financial
instruments, net of deferred
income taxes of $65
|
|
|
110
|
|
|
|
|
|
|
|
110
|
|
|
|
|
|
Losses related to marketable
securities sold reclassified
into earnings from other
comprehensive income, net of
$32, $118, $84 and $230 tax
benefit (1)
|
|
|
55
|
|
|
|
201
|
|
|
|
144
|
|
|
|
392
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
$
|
13,766
|
|
|
$
|
12,157
|
|
|
$
|
30,892
|
|
|
$
|
31,649
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Determined based on the specific identification method.
|
5. Commitments and Contingencies
In July 2003, a subsidiary of ATMI filed suit against Praxair, Inc., the parent company of
Praxair Electronics, in the United States District Court for the Southern District of New York,
charging it with infringing two patents ATMI holds for certain gas storage and delivery systems.
In April 2006, the New York District Court granted Praxairs request for summary judgment that all
asserted claims of ATMIs two VAC patents are invalid, and that decision was upheld on appeal in
April 2007.
In December 2003, Praxair, Inc. and Praxair Technology, Inc. filed suit against ATMI, Inc. and
Advanced Technology Materials, Inc. in the United States District Court for the District of
Delaware alleging infringement of three patents owned by Praxair Technology, Inc. related to
certain gas storage and delivery systems. Praxair is seeking damages and an injunction against
ATMI marketing its VAC system. In 2005, the Delaware District Court invalidated one patent by
summary judgment. In June 2007, the Delaware District Court held that the two remaining Praxair
patents were unenforceable due to inequitable conduct. In July 2007, Praxair filed a notice of its
intent to appeal. ATMI intends to continue to pursue a vigorous defense against Praxairs claims.
In 2005, a subsidiary of ATMI filed suit against Praxair, Inc. and Praxair GmbH in Dusseldorf,
Germany, charging infringement of a patent ATMI holds for certain gas storage and delivery systems.
Since the third quarter of 2006, a preliminary injunction against Praxair selling or supplying its
UpTime system in Germany was in effect. In March 2007, ATMI voluntarily withdrew the preliminary
injunction in view of customer concerns, among other considerations. The main infringement action
in Germany is proceeding.
14
In August 2006, a subsidiary of ATMI filed suit in Belgium against Praxair, Inc. and Belgian
affiliates of Praxair, Inc. charging infringement of a patent ATMI holds for certain gas storage
and delivery systems. A preliminary injunction is in place against the public marketing of the
UpTime system worldwide, and in September 2007, ATMI was awarded damages from Praxair for violation
of that injunction. Due to the inherent uncertainty of the ultimate resolution of the suit, this
award has not been recorded in the financial statements. In addition, a preliminary injunction is
in place against Praxairs supply of UpTime in several European countries. The main infringement
action in Belgium is proceeding.
ATMI is, from time to time, subject to various legal actions, governmental audits, and
proceedings relating to various matters incidental to its business including product liability 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 ATMIs counsel and
considering any applicable insurance or indemnifications, any liability which may ultimately be
incurred, including the Praxair litigations, is not expected to materially affect ATMIs
consolidated financial position, cash flows or results of operations.
During the third quarter of 2007, ATMI recognized a $0.7 million liability associated with
increased customs expense on imported goods from the U.S. to an overseas affiliate, which has been
classified on the consolidated balance sheet under the caption accrued liabilities.
During the first quarter of 2007, ATMI entered into a pledge agreement with Anji
Microelectronics Co., Ltd. (Anji), a variable interest entity that ATMI accounts for using the
equity method of accounting, for the issuance of a 3-year standby letter of credit up to $3.1
million in order to assist Anji in securing bank financing. The standby letter of credit was
issued during the second quarter of 2007 and has been secured by Anjis assets and additional
equity interests in Anjis operating subsidiaries. Included in other long-term liabilities at
June 30, 2007 and September 30, 2007 is $0.2 million representing the fair value of the guarantee.
As of September 30, 2007, Anji has not yet drawn down any amounts against the line of credit
secured by the letter of credit.
15
Item 2.
Managements Discussion and Analysis of Financial
Condition and Results of Operations
Three and Nine Months Ended September 30, 2007 as Compared to 2006
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, 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 managements current expectations and assumptions,
which are inherently subject to uncertainties, risks and changes in circumstances that are
difficult to predict. These forward-looking statements are only present expectations as at the
time of the filing of this Quarterly Report. Actual events or results may differ materially.
Factors that could cause such a difference include:
|
|
cyclicality in the microelectronics market;
|
|
|
|
variation in profit margin performance caused by decreases in shipment volume, reductions in,
or obsolescence of, inventory, inefficiencies in production facilities and shifts in product
mix;
|
|
|
|
availability of supply from a single or limited number of suppliers or upon suppliers in a
single country;
|
|
|
|
intensely competitive markets for advanced microelectronics materials, materials packaging
and materials delivery systems;
|
|
|
|
changes in export controls 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 or man-made disasters in locations where we, our customers, or our
suppliers operate;
|
|
|
|
loss, or significant curtailment, of purchases by one or more of our largest customers;
|
|
|
|
inability to meet customer demand from quarter to quarter, causing us to incur expedited
shipping costs or hold excess or obsolete inventory;
|
|
|
|
taxation and audit by taxing authorities in eight different countries;
|
|
|
|
intense competition in the microelectronics industry 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
|
16
|
|
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;
|
|
|
|
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 potential exposure for pre-existing contamination of our facilities,
which may not be covered completely by existing indemnification arrangements; 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, and new regulations from the SEC.
|
These risks and uncertainties are described in more detail in the Companys Annual Report on Form
10-K for the fiscal year ended December 31, 2006, and other of our filings with the Securities and
Exchange Commission (SEC) and in materials incorporated by reference in these filings. These
cautionary statements are not meant to be an exhaustive discussion of risks that apply to companies
like ATMI with broad international operations. 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. Similarly, 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.
Company Overview
ATMI believes it is a leading supplier of high performance materials, materials packaging and
materials delivery systems used worldwide in the manufacture of microelectronic devices. ATMI
targets both semiconductor and flat panel display manufacturers, whose products form the foundation
of microelectronics technology rapidly proliferating through the information technology,
automotive, communication and consumer products industries. The market for microelectronics devices
is growing and continually changing, which drives demand for new products and technologies at lower
cost. ATMIs objective is to meet the demands of microelectronic manufacturers with solutions that
maximize the efficiency of their manufacturing processes and minimize the time to ramp new
processes and deliver new products. ATMIs customers include many of the leading semiconductor and
flat-panel display manufacturers in the world who target leading edge technologies.
17
Results of Operations
Executive Summary
During the third quarter of fiscal 2007, ATMIs revenues grew by 11.0 percent compared to the
third quarter of 2006. Our gross margin decreased to 50.4 percent in the third quarter of 2007
from 51.0 percent in the third quarter of 2006, primarily driven by mix and a $0.7 million charge
associated with increased customs expenses. Research and development expenses (R&D) increased
8.3 percent in the third quarter of 2007 compared to the third quarter of 2006. As a percent of
revenues, R&D decreased slightly to 7.9 percent in the third quarter of 2007 from 8.1 percent in
the third quarter of 2006. Selling, general and administrative expenses (SG&A) increased by 3.7
percent in the third quarter of 2007 vs. the third quarter of 2006. As a percent of revenues, SG&A
decreased to 25.9 percent in the third quarter of 2007 compared to 27.7 percent in the same period
a year ago. Net income for the quarter was flat at $11.3 million ($0.32 per diluted share)
compared to $11.4 million ($0.31 per diluted share) in the third quarter of 2006. Third quarter
2006 net income included recognition of a tax benefit of $1.7 million ($0.04 per diluted share).
In the first nine months of fiscal 2007, ATMIs revenues grew by 10.0 percent compared to the
same nine month period of 2006. Our gross margin decreased slightly to 49.1 percent in the first
nine months of 2007 compared to 50.0 percent in the first nine months of 2006. R&D increased 14.4
percent in the first nine months of 2007 compared to the first nine months of 2006. As a percent
of revenues, R&D increased to 8.2 percent in the first nine months of 2007 compared to 7.9 percent
in the first nine months of 2006. SG&A increased 9.6 percent in the first nine months of 2007
compared to the first nine months of 2006. As a percent of revenues, SG&A decreased slightly to
28.0 percent from 28.1 percent in the first nine months of 2006. A $1.1 million legal fee (associated with a
contingent fee arrangement) recognized in the second quarter of 2007 caused SG&A to increase 0.4
percent of revenues in the first nine months of 2007. Net income for the first nine months of 2007
decreased 6.6 percent to $26.9 million ($0.76 per diluted share) compared to $28.8 million ($0.77
per diluted share) in the first nine months of 2006. The results in the first nine months of 2006
included recognition of a tax benefit of $1.7 million ($0.04 per diluted share).
Going forward, business and market uncertainties may affect results. See Cautionary
Statements Under the Private Securities Litigation Reform Act of 1995 above and Managements
Discussion and Analysis in our Annual Report on Form 10-K for the fiscal year ended December 31,
2006 for a full discussion of the key factors which affect our business and operating results.
18
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
2006
|
|
% Change
|
Quarter ended September 30,
|
|
$
|
91,131
|
|
|
$
|
82,124
|
|
|
|
11.0
|
%
|
Nine Months Ended September 30,
|
|
$
|
265,717
|
|
|
$
|
241,544
|
|
|
|
10.0
|
%
|
Revenues increased 11.0 percent to $91.1 million in the third quarter of 2007 from $82.1
million in the third quarter of 2006. Sales in our wafer-start driven high performance materials
and materials delivery product lines increased in the third quarter of 2007 compared to the third
quarter of 2006, due primarily to growth in wafer starts during this period. Sales in our
materials packaging product lines increased in the third quarter of 2007 compared to the same
period of 2006, primarily because of stronger demand in the Asian flat panel display market.
Revenues increased 10.0 percent to $265.7 million in the first nine months of 2007 from $241.5
million in the first nine months of 2006. Sales in our wafer-start driven high performance
materials and materials delivery product lines increased in the first nine months of
2007 compared to the first nine months of 2006, due primarily to growth in wafer starts during this
period. Sales in our materials packaging product lines decreased in the first nine
months of 2007 compared to the same period of 2006, primarily because of softer demand in the flat
panel display market in the first half of 2007, conversion from an Asia distributor to a direct sales relationship with several
customers, and the effect of a manufacturing defect that became
apparent under certain use conditions by certain customers during the first quarter of 2007, which
was subsequently resolved in the second quarter of 2007.
Gross Profit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
2006
|
|
|
Amount
|
|
% of Sales
|
|
Amount
|
|
% of Sales
|
Quarter ended September 30
|
|
$
|
45,973
|
|
|
|
50.4
|
%
|
|
$
|
41,908
|
|
|
|
51.0
|
%
|
Nine Months Ended September 30
|
|
$
|
130,432
|
|
|
|
49.1
|
%
|
|
$
|
120,658
|
|
|
|
50.0
|
%
|
Gross profit increased 9.7 percent to $46.0 million in the third quarter of 2007 from $41.9
million in the third quarter of 2006. Our gross margin percentage decreased during this time
period from 51.0 percent in 2006 to 50.4 percent in 2007. The decrease in gross margin is
primarily attributable to mix and a $0.7 million charge associated with increased customs expense
on imported goods from the U.S. to an overseas affiliate.
Gross profit increased 8.1 percent to $130.4 million in the first nine months of 2007 from
$120.7 million in the first nine months of 2006. Our gross margin percentage decreased during this
time period from 50.0 percent in 2006 to 49.1 percent in 2007, which was due primarily to lower
revenue volumes in our materials packaging product lines due to softness in the flat panel display
market in the first six months of 2007 and also due to a manufacturing defect in this product line
discovered in the first quarter of 2007 that was subsequently resolved.
19
Research and Development Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
2006
|
|
|
Amount
|
|
% of Sales
|
|
Amount
|
|
% of Sales
|
Quarter Ended September 30
|
|
$
|
7,225
|
|
|
|
7.9
|
%
|
|
$
|
6,673
|
|
|
|
8.1
|
%
|
Nine Months Ended September 30
|
|
$
|
21,769
|
|
|
|
8.2
|
%
|
|
$
|
19,030
|
|
|
|
7.9
|
%
|
R&D increased 8.3 percent to $7.2 million in the third quarter of 2007 from $6.7 million in
the third quarter of 2006. The increase in R&D spending was primarily attributable to spending
associated with the development of high-performance materials, including advanced formulations of
RegenSi and AutoClean.
R&D expenses increased 14.4 percent to $21.8 million in the first nine months of 2007 from
$19.0 million in the first nine months of 2006. The increase in R&D spending was primarily
attributable to collaborative research activities with a strategic investment partner related to
cleans chemistries and the development of new products such as RegenSi and AutoClean. R&D as a
percent of revenues in 2007 is in line with our long-term spending targets and reflects our
continued focus on the development of new products and technologies.
Selling, General and Administrative Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
2006
|
|
|
Amount
|
|
% of Sales
|
|
Amount
|
|
% of Sales
|
Quarter Ended September 30
|
|
$
|
23,617
|
|
|
|
25.9
|
%
|
|
$
|
22,775
|
|
|
|
27.7
|
%
|
Nine Months Ended September 30
|
|
$
|
74,407
|
|
|
|
28.0
|
%
|
|
$
|
67,882
|
|
|
|
28.1
|
%
|
SG&A increased 3.7 percent to $23.6 million in the third quarter of 2007 from $22.8 million in
the third quarter of 2006, but was 25.9 percent of revenues in the third quarter of 2007 vs. 27.7
percent of revenues in the third quarter of 2006, and was below the 11.0% growth in revenues. The
decrease in SG&A as a percentage of revenues is due to management focus on reducing overall
spending levels within the Company, offset by inflation-based increases in some of our structural
costs (e.g., salaries, fringe benefits, etc.) and increased depreciation on facilities.
SG&A increased 9.6 percent to $74.4 million in the first nine months of 2007 from $67.9
million in the first nine months of 2006, which was slightly below the 10.0% growth rate of
revenues. SG&A, as a percentage of revenues, was relatively flat at 28.0 percent in the first nine
months of 2007 compared to 28.1 percent in the same 2006 period. Despite a $0.9 million reduction
in equity-based compensation expense due to true ups associated with forfeitures and a resulting
change in the forfeiture rate estimates for future periods, SG&A has grown in the first nine months
of 2007 compared to 2006 primarily due to increased employee-related costs (e.g., salaries, fringe
benefits, travel, etc.), litigation costs, and depreciation on facilities. A $1.1 million legal
fee (associated with a contingent fee arrangement) recognized in the second quarter of 2007 caused
SG&A to increase 0.4 percent of revenues in the first nine months of 2007.
20
Operating Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
2006
|
|
|
Amount
|
|
% of Sales
|
|
Amount
|
|
% of Sales
|
Quarter Ended September 30
|
|
$
|
15,131
|
|
|
|
16.6
|
%
|
|
$
|
12,460
|
|
|
|
15.2
|
%
|
Nine Months Ended September 30
|
|
$
|
34,256
|
|
|
|
12.9
|
%
|
|
$
|
33,746
|
|
|
|
14.0
|
%
|
Operating income increased 21.4% to $15.1 million in the third quarter of 2007 (representing
16.6 percent of revenues) from $12.5 million in the third quarter of 2006 (representing 15.2
percent of revenues). Operating income increased to $34.3 million in the first nine months of 2007
(representing 12.9 percent of revenues) from $33.7 million in the first nine months of 2006
(representing 14.0 percent of revenues). These changes are from a variety of factors, as noted
above.
Interest Income
Interest income decreased to $2.0 million in the third quarter of 2007 from $2.1 million in
the third quarter of 2006 and decreased to $5.8 million in the first nine months of 2007 from $6.4
million in the first nine months of 2006. The decreases are primarily due to lower invested cash
and marketable securities balances resulting from cash used to repurchase shares of the Companys
common stock and a shift to lower-yielding tax-exempt securities.
Provision for Income Taxes
|
|
|
|
|
|
|
|
|
|
|
Effective Rate
|
|
|
2007
|
|
2006
|
Quarter Ended September 30
|
|
|
32.9
|
%
|
|
|
22.0
|
%
|
Nine Months Ended September 30
|
|
|
32.4
|
%
|
|
|
28.7
|
%
|
In the third quarter of 2006, due to a change in facts and circumstances, we recognized
approximately $1.7 million in tax benefits. The effective tax rates in 2007 are more
representative of our longer-term expected rates. Overall, our effective income tax rates are
affected by the change in the mix of income attributed to the various countries in which we do
business and changes in the levels of tax-exempt interest income. In 2006 our effective tax rate
was also affected by extra-territorial income (ETI) exclusion benefits. As of September 30,
2007, the Company had a net deferred tax asset on the balance sheet of $6.7 million, primarily due
to temporary differences (book vs. tax), state tax credit carry forwards, and state net operating
loss carry forwards.
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 the management of liquidity are cash flows
generated by operating activities, cash used for capital expenditures, cash used to repurchase
common stock, and cash generated from the sale of common stock through exercises of employee stock
options.
21
We manage our worldwide cash requirements considering the cost effectiveness of the funds
available from the many subsidiaries through which we conduct our business. We believe that our
existing cash and cash equivalents and marketable securities positions at this time, and our future
operating cash flows will be sufficient to meet our future operating cash needs for the foreseeable
future. Further, our ability to obtain debt or equity financing provides additional potential
sources of liquidity should they be required.
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
competence of the Company. Likewise, we continue to make capital expenditures in order to expand
and modernize manufacturing 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 Companys current business.
The Companys Board of Directors has approved two share repurchase programs for purchases up
to a total of $225.0 million of ATMI common stock. Share 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 programs based upon market
conditions or other factors. The programs do not require the Company to purchase any specific
number or amount of shares and may be suspended or reinstated at any time at the Companys
discretion and without notice. As of September 30, 2007, $78.1 million remains available for
repurchases under the programs.
22
A summary of our Cash Flows follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
|
September 30,
|
|
|
2007
|
|
2006
|
Cash provided by (used for):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Activities
|
|
$
|
55,200
|
|
|
$
|
39,068
|
|
Investing Activities
|
|
|
(22,231
|
)
|
|
|
60,685
|
|
Financing Activities
|
|
|
(34,428
|
)
|
|
|
(58,628
|
)
|
Effects of exchange rate changes on cash
|
|
|
(551
|
)
|
|
|
547
|
|
Net cash provided by operating activities increased by $16,132 due primarily to:
|
|
|
Increase in cash provided by changes in accounts receivable of $10,360, due to
increased focus on reduction of days sales outstanding in Asia and also due to
timing of collections.
|
|
|
|
|
Decrease in cash used by changes in inventories of $6,725 as a result of the
Companys focus on better supply chain utilization
|
|
|
|
|
Increase in cash used by accrued expenses of $3,485
|
|
|
|
|
Increase in cash provided by other operating or working capital accounts of
$3,260
|
Net cash used by investing activities increased by $82,916 due primarily to:
|
|
|
Decrease in cash proceeds from sales and maturities of marketable securities in
excess of cash used to purchase marketable securities of $76,567
|
|
|
|
|
Increase in capital spending of $7,557 due primarily to the purchase of
high-throughput combinatorial research tools used in our R&D activities
|
|
|
|
|
Decrease in cash paid for cost-basis and equity-basis investments of $1,216
|
Net cash used for financing activities decreased by $24,200 due primarily to:
|
|
|
Decrease in share repurchases of $21,536
|
|
|
|
|
Increase of $2,316 in proceeds from stock option exercises in 2007
|
Critical Accounting Estimates
Except for income taxes, there have been no material changes from the methodology applied by
management for critical accounting estimates previously disclosed in ATMIs most recent Annual
Report on Form 10-K. The methodology applied to managements estimate for income taxes has changed
due to the adoption of a new accounting pronouncement as described below.
23
Income Taxes
In July 2006, the FASB issued Interpretation No. 48, Accounting for Uncertainty in Income
Taxesan Interpretation of FASB Statement No. 109 (FIN 48), which became effective for ATMI
beginning in 2007. FIN 48 addressed the determination of how tax benefits claimed or expected to
be claimed on a tax return should be recorded in the financial statements. Under FIN 48, the
Company must recognize the tax benefit from an uncertain tax position only if it is more likely
than not that the tax position will be sustained on examination by the taxing authorities, based on
the technical merits of the position. The tax benefits recognized in the financial statements from
such a position are measured based on the largest benefit that has a greater than fifty percent
likelihood of being realized upon ultimate resolution. The impact of the Companys reassessment of
its tax positions in accordance with FIN 48 did not have a material effect on the results of
operations, financial condition or liquidity.
For additional information regarding the adoption of FIN 48, see Note 2 under the heading,
Income Taxes. For further discussion of the Companys critical accounting estimates related to
income taxes, see the 2006 Annual Report on Form 10-K.
Off-Balance Sheet Arrangements and Contractual Obligations
The Company does not have any off-balance sheet arrangements that have or are reasonably
likely to have a current or future material effect on its financial condition, changes in financial
condition, results of operations, liquidity, or capital resources.
During the second quarter of 2007, ATMI issued a $3.1 million standby letter of credit on
behalf of Anji Microelectronics Co., Ltd. (Anji), a variable interest entity that ATMI accounts
for using the equity method of accounting, in order to assist Anji in securing bank financing. The
standby letter of credit is secured by Anjis assets and additional equity interests in Anjis
operating subsidiaries. Included in other long-term liabilities at June 30, 2007 and September
30, 2007 is $0.2 million representing the fair value of the guarantee.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Interest Rate Risk
.
As of September 30, 2007, the Companys cash and cash equivalents
and marketable securities included money market securities, corporate and municipal bond
obligations and commercial paper. As of September 30, 2007, an increase of 100 basis points in
interest rates would reduce the fair value of the Companys marketable securities portfolio by
approximately $0.3 million. Conversely, a reduction of 100 basis points in interest rates would
increase the fair value of the Companys marketable securities portfolio by approximately $0.4
million.
Foreign Currency Exchange Risk
.
A substantial portion of the Companys sales are
denominated in U.S. dollars and as a result, the Company has relatively minimal exposure to foreign
currency exchange risk with respect to sales made. Approximately 9 percent of the Companys
revenues for the nine-month period ended September 30, 2007 were denominated in Japanese Yen
(JPY), but a majority of the product is sourced in U.S. dollars. Management periodically reviews
the Companys exposure to currency fluctuations. This exposure may
24
change over time as business practices evolve and could have a material impact on the
Companys financial results in the future. We utilize forward foreign exchange contracts to hedge
specific exposures relating to intercompany payments and anticipated, but not yet committed,
intercompany sales (primarily parent company export sales to subsidiaries at pre-established U.S.
dollar prices). The terms of the forward foreign exchange contracts are generally matched to the
underlying transaction being hedged, and are typically under one year.
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. All of
our foreign exchange contracts are accounted for at fair value based on readily available market
price quotations. We generally do not hedge overseas sales denominated in foreign currencies or
translation exposures. Further, we do not enter into financial instruments for speculation or
trading purposes.
At September 30, 2007, ATMI had $15.6 million notional amount of foreign exchange contracts, which
are being used to hedge recorded foreign denominated assets, all of which will be settled in JPY.
Holding other variables constant, if there were a 10 percent adverse change in foreign exchange
rates for the JPY, the fair market value of the JPY contracts outstanding at September 30, 2007
would decrease by approximately $1.6 million (but would be expected to be fully offset by foreign
exchange gains on the amounts being hedged). The effect of an immediate 10 percent change in other
foreign exchange rates would not be expected to have a material impact on the Companys future
operating results or cash flows.
Changes in Market Risk
. There have been no material quantitative changes in market
risk exposure between December 31, 2006 and September 30, 2007.
25
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 our 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 are effective
in that they provide 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 third quarter of fiscal 2007
that materially affected, or will be reasonably likely to materially affect, our internal control
over financial reporting.
26
PART II OTHER INFORMATION
Item 1. Legal Proceedings
In July 2003, a subsidiary of ATMI filed suit against Praxair, Inc., the parent company of
Praxair Electronics, in the United States District Court for the Southern District of New York,
charging it with infringing two patents ATMI holds for certain gas storage and delivery systems.
In April 2006, the New York District Court granted Praxairs request for summary judgment that all
asserted claims of ATMIs two VAC patents are invalid, and that decision was upheld on appeal in
April 2007.
In December 2003, Praxair, Inc. and Praxair Technology, Inc. filed suit against ATMI, Inc. and
Advanced Technology Materials, Inc. in the United States District Court for the District of
Delaware alleging infringement of three patents owned by Praxair Technology, Inc. related to
certain gas storage and delivery systems. Praxair is seeking damages and an injunction against
ATMI marketing its VAC system. In 2005, the Delaware District Court invalidated one patent by
summary judgment. In June 2007, the Delaware District Court held that the two remaining Praxair
patents were unenforceable due to inequitable conduct. In July 2007, Praxair filed a notice of
their intent to appeal. ATMI intends to continue to pursue a vigorous defense against Praxairs
claims.
In 2005, a subsidiary of ATMI filed suit against Praxair, Inc. and Praxair GmbH in Dusseldorf,
Germany, charging infringement of a patent ATMI holds for certain gas storage and delivery systems.
Since the third quarter of 2006, a preliminary injunction against Praxair selling or supplying its
UpTime system in Germany was in effect. In March 2007, ATMI voluntarily withdrew the preliminary
injunction in view of customer concerns, among other considerations. The main infringement action
in Germany is proceeding.
In August 2006, a subsidiary of ATMI filed suit in Belgium against Praxair, Inc. and Belgian
affiliates of Praxair, Inc. charging infringement of a patent ATMI holds for certain gas storage
and delivery systems. A preliminary injunction is in place against the public marketing of the
UpTime system worldwide and, in September 2007, ATMI was awarded damages from Praxair for violation
of that injunction. Due to the inherent uncertainty of the ultimate resolution of the suit, this
award has not been recorded in the financial statements. In addition, a preliminary injunction is
in place against Praxairs supply of UpTime in several European countries. The main infringement
action in Belgium is proceeding.
ATMI is, from time to time, subject to various legal actions, governmental audits, and
proceedings relating to various matters incidental to its business including product liability 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 ATMIs counsel and
considering any applicable insurance or indemnifications, any liability which may ultimately be
incurred, including the Praxair litigations, is not expected to materially affect ATMIs
consolidated financial position, cash flows or results of operations.
27
Item 1A. Risk Factors
There have been no material changes to our Risk Factors, which are described in more detail in
the Companys Annual Report on Form 10-K for the fiscal year ended December 31, 2006, and other of
our filings with the Securities and Exchange Commission and in materials incorporated by reference
in these filings. See Cautionary Statements Under the Private Securities Litigation Reform Act of
1995 within this document.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Purchases of Equity Securities
The following table lists all repurchases (both open market
and private transactions) during the three months ended September 30, 2007 of any of our securities
registered under Section 12 of the Exchange Act, by or on behalf of us, or any affiliated
purchaser.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Number
|
|
Maximum
|
|
|
|
|
|
|
|
|
|
|
of Shares
|
|
Dollar Value of
|
|
|
|
|
|
|
|
|
|
|
Purchased as
|
|
Shares that May
|
|
|
|
|
|
|
|
|
|
|
Part of
|
|
Yet Be
|
|
|
Total Number of
|
|
Average
|
|
Publicly
|
|
Purchased
|
|
|
Shares
|
|
Price Paid
|
|
Announced
|
|
Under the
|
Period (1)
|
|
Repurchased (2)
|
|
per Share
|
|
Programs (3)
|
|
Programs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
July 2007
|
|
|
117,398
|
|
|
$
|
31.19
|
|
|
|
117,398
|
|
|
$
|
98,481,000
|
|
August 2007
|
|
|
389,486
|
|
|
$
|
29.18
|
|
|
|
389,486
|
|
|
$
|
87,114,000
|
|
September 2007
|
|
|
298,920
|
|
|
$
|
30.04
|
|
|
|
298,920
|
|
|
$
|
78,135,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
805,804
|
|
|
$
|
29.79
|
|
|
|
805,804
|
|
|
$
|
78,135,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
There were no other repurchases of our equity securities by or on behalf of us or any
affiliated purchaser during the fiscal quarter ended September 30, 2007.
|
|
(2)
|
|
Share repurchases are shown on a trade-date basis. At September 30, 2007, $1.8 million
related to these share repurchases had not yet been paid by the Company because the settlement
dates were in October 2007.
|
|
(3)
|
|
In October 2005, the Companys Board of Directors approved a share repurchase program for up
to $75.0 million of ATMI common stock, which was completed on January 9, 2007. In August
2006, the Companys Board of Directors approved a second share repurchase program for an
additional $150.0 million. Share 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 programs based upon market conditions
or other factors. The programs do not require the Company to purchase any specific number or
amount of shares and may be suspended or reinstated at any time at the Companys discretion
and without notice.
|
Item 5. Other Information
None.
28
Item 6. Exhibits
(a) 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.
|
29
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
ATMI, Inc.
October 24, 2007
|
|
|
|
|
|
By
|
/s/ Douglas A. Neugold
|
|
|
|
Douglas A. Neugold
|
|
|
|
President and Chief Executive Officer
|
|
|
|
|
|
|
By
|
/s/ Timothy C. Carlson
|
|
|
|
Timothy C. Carlson
|
|
|
|
Executive Vice President, Chief Financial
Officer and Treasurer
|
|
|
30
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