ATMI Atmi Inc. (MM)

 

 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2007

or

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                      to                     

Commission file Number: 1-16239

ATMI, Inc.

 

(Exact name of registrant as specified in its charter)

Delaware		06-1481060
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

7 Commerce Drive, Danbury, CT		06810
(Address of principal executive offices)		(Zip Code)

203-794-1100
(Registrant’s telephone number, including area code)

     Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes 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

				Page
Part I — Financial Information
Item 1.		Financial Statements (Unaudited)
		Consolidated Balance Sheets			3
		Consolidated Statements of Income			4
		Consolidated Statements of Stockholders’ Equity			6
		Consolidated Statements of Cash Flows			7
		Notes to Consolidated Interim Financial Statements (Unaudited)			8
Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations			16
Item 3.		Quantitative and Qualitative Disclosures about Market Risk			24
Item 4.		Controls and Procedures			26
Part II — Other Information
Item 1.		Legal Proceedings			27
Item 1A.		Risk Factors			28
Item 2.		Unregistered Sales of Equity Securities and Use of Proceeds			28
Item 5.		Other Information			28
Item 6.		Exhibits			29
Signatures					30
Exhibits					31
EX-31.1: CERTIFICATION
EX-31.2: CERTIFICATION
EX-32: CERTIFICATIONS

PART I — FINANCIAL INFORMATION

See accompanying notes.

See accompanying notes.

See accompanying notes.

See accompanying notes.

ATMI, Inc.

     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):

Prepaid Expenses and Other Current Assets

     In June 2007, a fire at a contract manufacturer in Taiwan destroyed approximately $1.8 million of ATMI’s 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

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 Taxes—an 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.

Goodwill and Other Intangibles, Net

     Goodwill and Other intangibles, net, consisted of the following at September 30, 2007 and December 31, 2006 (in thousands):

     Changes in carrying amounts of Goodwill and Other intangibles for the nine months ended September 30, 2007 were as follows (in thousands):

Recently Issued Accounting Pronouncements

     In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities—Including 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):

     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.

     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 Company’s 2006 proxy statement. This change was made to ensure long-term incentive grants more closely align senior management compensation with the Company’s 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.

4. Comprehensive Income

     The components of comprehensive income are as follows (in thousands):

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 Praxair’s request for summary judgment that all asserted claims of ATMI’s 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 Praxair’s 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 Praxair’s 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 ATMI’s 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 ATMI’s 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 Anji’s assets and additional equity interests in Anji’s 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.

Item 2.

		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 Company’s 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. ATMI’s 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. ATMI’s customers include many of the leading semiconductor and flat-panel display manufacturers in the world who target leading edge technologies.

Results of Operations

Executive Summary

     During the third quarter of fiscal 2007, ATMI’s 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, ATMI’s 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 Management’s 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.

     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 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.

     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

     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.

     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 Company’s common stock and a shift to lower-yielding tax-exempt securities.

Provision for Income Taxes

     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.

     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 Company’s current business.

     The Company’s 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 Company’s discretion and without notice. As of September 30, 2007, $78.1 million remains available for repurchases under the programs.

     A summary of our Cash Flows follows (in thousands):

     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 Company’s 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 ATMI’s most recent Annual Report on Form 10-K. The methodology applied to management’s estimate for income taxes has changed due to the adoption of a new accounting pronouncement as described below.

Income Taxes

     In July 2006, the FASB issued Interpretation No. 48, “Accounting for Uncertainty in Income Taxes—an 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 Company’s 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 Company’s 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 Anji’s assets and additional equity interests in Anji’s 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 Company’s 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 Company’s 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 Company’s marketable securities portfolio by approximately $0.4 million.

      Foreign Currency Exchange Risk . A substantial portion of the Company’s 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 Company’s 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 Company’s exposure to currency fluctuations. This exposure may

change over time as business practices evolve and could have a material impact on the Company’s 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 Company’s 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.

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.

PART II — OTHER INFORMATION

Item 1A. Risk Factors

     There have been no material changes to our Risk Factors, which are described in more detail in the Company’s 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.

Item 6. Exhibits

     (a) Exhibits

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

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