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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q

For the quarterly period ended September 30, 2002

For the transition period from_____________to______________

Commission file Number: 0-30130

ATMI, Inc.

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 x No   

The number of shares outstanding of the registrant’s common stock as of November 4, 2002 was 30,641,011.

ATMI, INC.
Quarterly Report on Form 10-Q
For the Quarter Ended September 30, 2002

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PART I — FINANCIAL INFORMATION

Item 1. Financial Statements

ATMI, Inc.
Consolidated Balance Sheets
(in thousands, except per share data)

See accompanying notes.

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ATMI, Inc.
Consolidated Statements of Operations
(unaudited)
(in thousands, except per share data)

See accompanying notes.

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ATMI, Inc.
Consolidated Statements of Operations
(unaudited)
(in thousands, except per share data)

See accompanying notes.

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ATMI, Inc.
Consolidated Statements of Cash Flows
(unaudited)
(in thousands)

See accompanying notes.

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ATMI, Inc.
Notes To Consolidated Interim Financial Statements
(unaudited)

1. Basis of Presentation

         The accompanying unaudited consolidated interim financial statements of ATMI, Inc. (“ATMI” or the “Company”) 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.

         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 Company’s 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, 2001 audited consolidated financial statements and notes thereto included in the Company’s Form 10-K. The Company’s quarterly results have, in the past, been subject to fluctuation and, thus, the operating results for any quarter are not necessarily indicative of results for any future fiscal period.

         The consolidated Balance Sheet at December 31, 2001 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.

         Certain prior year amounts have been reclassified to conform to the current year’s presentation.

2. Recent Accounting Pronouncements

         Effective January 1, 2002, ATMI has adopted the provisions of Statement of Financial Accounting Standards (“SFAS”) No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” which supersedes SFAS No. 121, “Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of.” There was no material impact on ATMI’s financial position or results of operations as a result of adopting this new standard at the date of adoption. However, see Note 10 for a discussion of the impairment charge taken in the third quarter of 2002.

         In April 2002, the Financial Accounting Standards Board (FASB) issued SFAS No. 145, “Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections,” which will become effective for ATMI in fiscal year 2003. SFAS No. 145 changes the way gains and losses from extinguishment of debt are classified in the financial statements, and amends SFAS No. 13 to require that lease modifications having economic effects similar to sale-leaseback transactions be accounted for in the same manner as sale-leaseback transactions. ATMI anticipates that adoption of this standard will not materially impact the Company’s financial position or results of operations.

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         In June 2002, the FASB issued SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities,” which nullifies Emerging Issues Task Force (EITF) Issue No. 94-3, “Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity.” SFAS No. 146 requires that a liability for a cost associated with an exit or disposal activity be recognized when the liability is incurred, rather than on the date of commitment to an exit plan. The provisions of this Statement are effective for exit or disposal activities that are initiated after December 31, 2002. ATMI anticipates that adoption of this standard will not materially impact the Company’s financial position or results of operations.

3. Inventories

         Inventories are comprised of the following (in thousands):

4. Goodwill and Other Intangibles

         The Company adopted the provisions of Statement of Financial Accounting Standards (SFAS) No. 142, “Goodwill and Other Intangible Assets” effective January 1, 2002. SFAS No. 142 changes the way companies account for goodwill in that goodwill is no longer amortized but instead will be tested for impairment at least annually. The Statements of Operations for the three and nine-month periods ended September 30, 2002 include the effect of adopting this new standard. The effect on reported net loss for the three and nine-month periods ended September 30, 2001 is shown in the following table (in thousands, except per share data):

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         Intangibles consisted of the following (in thousands):

5. Long-term Debt

         During the first quarter of 2002, the Company paid down the entire $13.5 million outstanding as of December 31, 2001 on the $20.0 million financing agreement entered into during the first quarter of 2001.

6. Leases

         During the first and second quarters of 2002, the Company paid down the entire $5.1 million of capital lease obligations outstanding as of December 31, 2001.

7. Other Comprehensive Loss

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

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8. Segment Data

         Segment information is included under the caption “Segment Data” in Management’s Discussion and Analysis of Financial Condition and Results of Operations, which is incorporated herein by reference and is an integral part of these unaudited interim financial statements.

9. Income Taxes

         The former securityholders of the ADCS Group have agreed to indemnify the Company against losses arising out of possible tax liabilities of ADCS. As security for these potential liabilities, the former securityholders of ADCS deposited 700,000 shares of the Company’s common stock, which they received in connection with the Company’s acquisition of ADCS, into escrow. While the possible exposures are difficult to quantify, the Company believes that, regardless of the probability that liabilities will arise, the potential exposures range from $0 to $22 million depending on the resolution of the tax matter. Although the former securityholders of ADCS have agreed to indemnify the Company against losses arising out of such tax matters, any assessments, if ultimately determined against the Company, would result in a charge to the Company’s results of operations. During the second quarter of 1999, the Company was notified by the Internal Revenue Service of an assessment of $2.1 million for certain of these tax matters. The current value of the shares held in escrow provides indemnity towards the mid-range of the potential exposure. The Company continues to vigorously defend its position in these tax matters.

10. Restructuring and Other Charges

         The operating results for the nine months ended September 30, 2002 include an asset impairment charge of $34.6 million to recognize the impairment of assets in the Company’s gallium arsenide epitaxial services business in Phoenix, Arizona, due to deteriorating market conditions in this product line, of which $3.1 million is included in cost of revenues related to a write-down of inventory. Assets in the line of business have been written down to their fair value, less estimated costs of disposal, using estimated prices for similar assets as the basis for determining fair value. Excluding the inventory write-down, the impairment charge of $31.5 million is related to long-lived assets, including deposits on fixed assets. The Company intends to withdraw from this business by virtue of a sale or partnership. All of the impaired assets are in the Technologies segment.

         The operating results for the nine months ended September 30, 2001 include two restructuring charges: the first was a $12.8 million charge for severance and other costs associated with a restructuring initiative, of which $0.6 million is included in cost of revenues related to a write-down of inventory. The second charge occurred in the third quarter of 2001 for $1.8 million for severance related costs associated with a restructuring charge. The second initiative became necessary as a result of the severe decline in end-use semiconductor device demand.

         The restructuring initiatives include severance costs of $5.4 million, including the third quarter 2001 initiative of $1.8 million, and represent a reduction of approximately 21% of the Company’s worldwide workforce, including operations, sales and marketing, and other administrative employees. All of the affected employees had left their positions by June 30, 2002. These initiatives involve a number of actions intended to improve productivity and align the Company’s organization more closely with its customers. The restructuring initiatives and other

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charges also include $9.2 million for plant closings, lease termination fees, and various other asset write-offs or write-downs. Management anticipates that all restructuring costs will be paid by December 31, 2002, except for ongoing lease costs for exited facilities, which are expected to be paid over the remaining lease terms.

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         The following tables set forth the activity in the restructuring accruals, which are included in accrued liabilities, as of September 30, 2002 (in thousands):

11. Other Income

         The first nine months of 2002 results include a gain of approximately $1.0 million from the sale of available-for-sale securities, offset by write-downs of approximately $0.4 million for other-than-temporary declines in fair value of other available-for-sale securities and $0.4 million of amortization on bond premiums.

         In July 1999, ATMI filed suit against a company, alleging infringement of certain liquid delivery system patents. Later in 1999, that company filed suit against ATMI alleging infringement of a particular semiconductor process patent. In March 2001, an agreement was reached that addressed the settlement of both claims. Although the terms of the settlement remain confidential, ATMI received a payment in the settlement, which has been recorded in the 2001 financial statements as other income, net of related expenses. During the second and third quarters of 2001, the Company recognized a gain of approximately $2.6 million from the sale of available-for-sale securities, offset by a write-down of approximately $0.4 million for other-than-temporary declines in fair value of other available-for-sale securities.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Overview

         ATMI is a leading supplier of materials, equipment and related services used worldwide in the manufacture of semiconductor devices. ATMI specifically targets the “front-end” semiconductor materials market. This market includes the processes used to convert a bare silicon wafer into a fully functional wafer that contains many copies of a semiconductor device or “chip”. To complete the manufacturing process, this functional wafer is taken through a “back-end” manufacturing process that includes wafer dicing into chips, packaging and testing. ATMI’s customers include most of the leading semiconductor manufacturers in the world.

         ATMI has organized its operations along two business segments: Materials and Technologies. The Materials segment provides products that are used in the semiconductor manufacturing process and related packaging and delivery systems. The Technologies segment provides products and services that sense and environmentally control these materials while also providing specialized thin film deposition and outsourced parts cleaning and tool maintenance services to semiconductor device manufacturers. The Technologies segment also includes ATMI’s venture and government funded research and development activities.

         The semiconductor industry, in general, and the semiconductor equipment industry, in particular, have been highly cyclical and have experienced periods of overcapacity at various times, resulting in significantly reduced demand for semiconductor materials, capital equipment and wafer processing services. In the past year and a half, the semiconductor industry has experienced a severe downturn of unprecedented magnitude. However, wafer starts have shown signs of improvement in 2002, although the rate of improvement slowed considerably in the third quarter and remains about 6% below November 2000 peak levels. Industry equipment orders in September 2002 were 62% lower than peak levels in September 2000, with a decline in order activity experienced in the third quarter of 2002. ATMI’s operating results have been impacted by the industry downturn, especially with regard to its product lines that track industry manufacturing capacity. The second and third quarters of 2002 showed an increase in materials demand compared with the same quarters a year ago, as overall sales increased 16% versus the same two quarters in the previous year. However, lack of visibility remains and the level of recovery in the near term is uncertain. With regard to capital equipment spending, there remains substantial over-capacity on a global basis. Management believes that the likelihood of significant advanced technology capital equipment spending due to capacity expansion is low in the near term.

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Results of Operations

         The following table sets forth selected financial data as a percentage of total revenues for the periods indicated:

Segment Data

         ATMI has two reportable operating segments: Materials and Technologies. The Company evaluates performance and allocates resources based on segment operating profit or loss, excluding non-recurring expenses, interest, other income or expense, and income taxes. The accounting policies of the reportable operating segments are the same as those described in the summary of significant accounting policies in the Company’s Consolidated Financial Statements contained in its Annual Report on Form 10-K for the year ended December 31, 2001. Intercompany sales are not material between operating segments. The general corporate assets include primarily cash, cash equivalents, marketable securities, goodwill and other long-term assets.

         The following tables provide reported results for each of these segments for the three and nine-month periods ended September 30 (in thousands):

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