ATMI Inc. Reports Operating Results (10-Q)

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Oct 21, 2009
ATMI Inc. (ATMI, Financial) filed Quarterly Report for the period ended 2009-09-30.

ATMI Inc. is a leading supplier of materials equipment and related services used worldwide in the manufacture of semiconductor devices. The company specifically target the ``front-end`` semiconductor materials market. Their customers include most of the leading semiconductor manufacturers in the world including Intel Taiwan Semiconductor Hyundai Texas Instruments and IBM. Atmi Inc. has a market cap of $537.2 million; its shares were traded at around $18 with and P/S ratio of 1.6. Atmi Inc. had an annual average earning growth of 43.8% over the past 5 years.

Highlight of Business Operations:

In the first nine months of 2009, our revenues declined by 36.8 percent compared to the first nine months of 2008 due to the severe global economic downturn causing reductions in wafer starts and lower fab utilization, which was magnified by excess inventory in the SDS distribution channel, as well as our customers aggressive management of their inventories. During the first nine months of 2009, we recognized $7.0 million ($3.1 million in cost of revenues, $1.6 million in research and development, and $2.3 million in selling, general and administrative) of impairment charges for long-lived assets that are being held and used, but were deemed either redundant or idled due to uncertainties of future demand, a $2.4 million impairment charge for an auction-rate security, $1.4 million of bad debt expense, and $1.9 million for excess and obsolete inventory expense. We have implemented cost-reduction actions to better align the Companys activities with expectations for customer demand for our products and to preserve cash, without hindering our commitment to make investments that we expect to drive future growth. These actions resulted in lower costs in the first nine months of 2009 compared to the first nine months of 2008 in the following

areas: salaries and incentives ($12.2 million); travel and entertainment ($4.6 million), and recruiting and relocation spending ($0.9 million). We also amended an alliance agreement in order to better align the timing of certain support activities related to our high-productivity development (HPD) platform to the expected timing of our customer integration activities. The amendment reduced the amount we were contractually committed to pay for these support activities in 2009 and confirms commitments to pay for these incremental activities in 2010. These incremental activities in 2010 are expected to add $3.0 million of expense in that year. As a result of the global recession and the charges discussed above, we incurred a net loss of $13.6 million ($0.43 per diluted share) in the first nine months of 2009 compared to net income of $30.1 million ($0.93 per diluted share) in the first nine months of 2008.

Gross profit decreased 52.4 percent to $63.8 million in the first nine months of 2009 from $134.1 million in the first nine months of 2008. Gross profit in our microelectronics product lines decreased 53.0 percent to $58.6 million in the first nine months of 2009 from $124.7 million in the first nine months of 2008. Gross profit margins in our microelectronics product lines were approximately 38 percent in the first nine months of 2009 compared to approximately 51 percent in the first nine months of 2008. Gross profit in the first nine months of 2009 was reduced by $3.1 million of asset impairment charges, due primarily to the planned idling of manufacturing capacity of gas products to eliminate a redundant cost structure. We also recognized $1.9 million of expense to increase our reserves for excess and obsolete inventories to cover expected chemical shelf-life issues in our microelectronics product lines. Sales volume reductions as a result of the global recession and unfavorable product mix caused by excess inventory in the SDS distribution channel were the primary drivers of the remainder of the decline in gross profit. Gross profit in our life sciences product lines decreased 44.7 percent to $5.2 million in the first nine months of 2009 compared to $9.4 million in the first nine months of 2008. Gross profit margins in our life sciences product lines declined to approximately 31 percent in the first nine months of 2009 from approximately 41 percent in the first nine months of 2008, driven primarily by lower revenue volumes due to the global recession and higher quality control expenses.

R&D expense increased 1.7 percent to $28.2 million in the first nine months of 2009 from $27.8 million in the first nine months of 2008. The increase in R&D spending was primarily caused by planned increases in spending associated with HPD activities related to cleans chemistries (including $1.1 million of higher licensing and outsourced development costs), a $1.6 million asset impairment charge related to idled equipment, $0.6 million of higher equipment depreciation costs, and $0.8 million of lower government contract reimbursements, partially offset by cost reduction activities leading to reduced outsourced service spending including patent and trademark services ($2.1 million) and reduced salaries and incentives ($1.3 million). The spending in 2009 was higher as a percent of revenues than we had planned, primarily because revenues were lower than expected for the reasons noted above. As a result of the global economic recession and related impact on our business, we amended an alliance agreement in the first nine months of 2009 in order to better align the timing of certain HPD platform support activities to the expected timing of our customer integration activities. The amendment reduced the amount we were contractually committed to pay for these support activities in 2009 and confirms commitments to pay for these incremental activities in 2010. These incremental activities in 2010 are expected to add $3.0 million of expense in that year. We plan to continue to actively invest in our HPD capabilities in the foreseeable future, because we believe this investment will drive significant new opportunities in cleans chemistries and other new products and will be a competitive advantage for ATMI.

SG&A decreased 15.0 percent to $57.7 million in the first nine months of 2009 from $67.8 million in the first nine months of 2009. The results in the first nine months of 2009 include $2.3 million of asset impairment charges related primarily to redundant enterprise management software and a $1.4 million charge to increase our reserves for bad debt to cover exposures related to customer bankruptcy filings and uncertainties of collections due to current general macroeconomic conditions. As a result of the current economic environment, we implemented cost reduction activities which contributed to the decline in SG&A, excluding the charges noted above. These activities reduced salaries and incentives ($7.3 million), travel and entertainment ($3.1 million), outside professional services ($2.2 million), and trade show cost ($0.6 million). Legal litigation costs were $1.7 million lower in the first nine months of 2009 compared to the same period of 2008 due to the settlement of the litigation with Praxair.

We recognized losses of $0.2 million and $0.9 million due to investments accounted for by the equity method for the three and nine-month periods ended September 30, 2009. The three and nine-month periods ended September 30, 2008 included a gain of $0.3 million and a loss of $0.5 million, respectively. During the third quarter of 2008, we recognized a $1.6 million impairment charge for a strategic investment. The third quarter 2008 results also included $0.3 million of income from investments accounted for by the equity method. During the first nine months of 2008, in addition to the third quarter items noted, we recognized an impairment charge of $1.8 million for a strategic investment and we also recognized a $2.0 million gain from the sale of a marketable equity security.

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