UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

FORM 10-Q

Commission file Number: 1-16239

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   

Indicate by check mark whether the registrant is an accelerated filer (as defined by Rule 12b-2 of the Act). Yes x No   

The number of shares outstanding of the registrant’s common stock as of April 28, 2004 was 31,207,779.

ATMI, INC.
Quarterly Report on Form 10-Q
For the Quarter Ended March 31, 2004

TABLE OF CONTENTS

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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 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, 2003 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, 2003 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. Discontinued Operations

     In March of 2004, we completed the sale of our former gallium nitride materials business for $10.3 million. A gain of $1.0 million, net of tax, was recognized on the sale of this business unit, which is presented separately in the statement of operations. Cash generated by discontinued operations is recorded in the continuing operations balance sheet.

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     Revenues and losses from discontinued operations were as follows (in thousands):

     The assets and liabilities of the discontinued operations were as follows (in thousands):

3. Inventories

     Inventories are comprised of the following (in thousands):

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4. Other Intangibles

     Other intangibles consisted of the following (in thousands):

5. Warranty Accrual

     ATMI’s equipment products are generally sold with a 12 to 24-month warranty period. Parts and labor are covered under the terms of the warranty agreement. The warranty provision is based on historical experience by product type. Changes in the warranty accrual during the first three months of 2004 were as follows (in thousands):

     A warranty reserve of approximately $1.1 million related to discontinued operations is included in liabilities held for sale, but is not included in the table above.

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6. Stock-Based Compensation

     The Company has several stock-based employee compensation plans, which are described more fully in ATMI’s December 31, 2003 Annual Report on Form 10-K. The Company accounts for these stock-based compensation plans under the recognition and measurement principles of Accounting Principles Board (“APB”) Opinion No. 25, “Accounting for Stock Issued to Employees,” and related Interpretations. On January 2, 2004, the Board of Directors authorized the issuance of 50,494 restricted shares of ATMI, Inc. common stock to executive officers, certain key employees and the directors. The awards vest 50% after three years, and 25% in each of years four and five. Upon issuance of the restricted shares, unearned compensation equivalent to the market value of ATMI, Inc. common stock at the date of grant of approximately $1.2 million was recorded as deferred compensation in stockholders’ equity and is being charged to expense over the five-year vesting period. ATMI has charged approximately $0.05 million of this deferred compensation to expense during the three months ended March 31, 2004.

     The following table sets forth the effect on net income (loss) and income (loss) per share if the Company had applied the fair value recognition provisions of SFAS No. 123, “Accounting For Stock-Based Compensation”, to stock-based employee compensation (in thousands, except per share data):

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7. Other Comprehensive Income (Loss)

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

8. Restructuring Charges

     The loss from discontinued operations for the quarter ended March 31, 2003 includes a $1.2 million pre-tax charge for costs associated with a restructuring initiative to close a service facility in Colorado Springs, Colorado due to significantly reduced demand subsequent to the shutdown of a large customer facility in the area. The charge relates primarily to asset write offs and lease exit costs. Management expects to pay the remaining lease exit costs by September 2004.

     The following tables set forth the activity in the restructuring accrual, which is included in accrued liabilities, as of March 31, 2004 (in thousands):

9. Commitments and Contingencies

     On July 14, 2003, ATMI acquired all of the outstanding capital stock of ESC, Inc. (“ESC”) of Bethlehem, PA for $16.4 million, net of cash acquired, plus a possible future payment of up to $27.0 million which is contingent on future product revenues through the end of 2005. Of the initial purchase price, $3.6 million remains in escrow in accordance with the purchase agreement in order to secure certain indemnity obligations of the sellers.

     On July 11, 2003, ATMI's subsidiary, Advanced Technology Materials, Inc., filed suit against Praxair, Inc., the parent company of Praxair Electronics, in the United States District Court of the Southern District of New York charging it with infringing upon two patents ATMI holds for certain sub-atmospheric gas delivery technologies. ATMI is seeking treble damages and an injunction against Praxair. On December 22, 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 licensed to Praxair, Inc. and Praxair Technology, Inc. related to pressurized container components. Praxair is seeking treble damages and an injunction against ATMI.

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Item 2.

Management’s Discussion and Analysis of Financial
Condition and Results of Operations
Three Months Ended March 31, 2004 and 2003

Overview

     The descriptive analysis contained herein compares the financial results of the three months ended March 31, 2004 (“First Quarter-2004”) to the three months ended March 31, 2003 (“First Quarter-2003”).

     ATMI is a leading supplier of materials, materials delivery systems, and high-purity materials packaging products 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 many of the leading semiconductor manufacturers in the world.

     During 2003, ATMI announced its intention to exit non-core product lines. The non-core product lines that we expect to exit include the following: environmental abatement equipment, materials sensing and monitoring equipment, specialty thin-film deposition services, outsourced parts cleaning and tool maintenance services and our smartcard device venture. During the first quarter of 2004, we completed the sale of our former gallium nitride materials business for proceeds of $10.3 million and an after-tax gain of $1.0 million. The Company intends to complete the remainder of these exit activities by the end of 2004.

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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:

     Revenues. Revenues increased 51.2% to $56.0 million in the First Quarter-2004 from $37.0 million in the First Quarter-2003, primarily due to increased revenues in SDS ^® and ST-250™ photoresist strip product as well as continued strong sales in all other materials products. In addition, our high purity packaging business increased primarily as a result of the capital spending in the integrated circuits (“IC”) market with a recovery in dispenser sales and increased package volumes for IC producers as well as the continuing strength driven by the ramp in production of the flat panel producers. In addition, revenues increased due to the ViaForm ^® licensing agreement, acquired in May of 2003 and the purchase of the ESC product lines, in July of 2003.

     Gross Profit. Gross profit increased 50.0% to $27.2 million in the First Quarter-2004 from $18.1 million in the First Quarter-2003. Gross margin decreased to 48.6% in the First Quarter-2004 from 49.0% in the First Quarter-2003. The increase in gross profit is a result of increased revenues and manufacturing efficiencies offset in part by product mix changes within our materials portfolio, and additional costs incurred to ramp production and expedite shipments of our ST-250™ photoresist strip product to Asia, as a result of meeting greater than expected demand.

     Research and Development Expenses. Research and development expenses increased 12.8% to $4.7 million in the First Quarter-2004 from $4.2 million in the First Quarter-2003. This increase is mainly attributable to research and development efforts to support new product development in advanced interconnect and SDS® product lines. As a percentage of revenues, research and development expenses decreased to 8.5% in the First Quarter-2004 from 11.3% in the First Quarter-2003, which is in line with our long-term target range.

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     Selling, General and Administrative Expenses. Selling, general and administrative expenses increased 24.2% to $15.7 million in the First Quarter-2004 from $12.6 million in the First Quarter-2003, primarily related to the increased infrastructure related to the ESC acquisition and the Enthone license agreement in 2003, including amortization expense from intangibles related to the acquisition and the license agreement. As a percentage of revenues, selling, general and administrative expenses decreased to 28.0% in the First Quarter-2004 from 34.1% in the First Quarter-2003.

     Operating Income. Operating income increased to $6.8 million in the First Quarter-2004 from $1.3 million in the First Quarter-2003, primarily as a result of increased wafer starts driving increased demand for liquid chemistries, SDS ^® and high purity packaging products, and also due to the incremental contribution margin from the ViaForm ^® licensing agreement, acquired in May of 2003, and the purchase of the ESC product lines, in July of 2003.

     Interest and Other Expense, Net. Interest and other expense, net, increased to $0.7 million of expense in the First Quarter-2004 from $0.02 million of expense in the First Quarter-2003. This overall increase primarily reflects a decrease in interest income of $0.8 million due to lower overall yields on the Company’s cash and marketable securities portfolio and a reduction in cash balances due to payments associated with the ESC acquisition and Enthone license agreement in 2003. Given the fixed interest rate on the convertible debt, interest expense and other expense were relatively flat in the First Quarter-2004 compared to the First Quarter-2003.

     Income (Loss) from Operations of Discontinued Operations. In the First Quarter-2004, income from operations of discontinued operations, net of income taxes, was $1.1 million, compared to a loss, net of taxes, of $2.5 million in the First Quarter-2003. The difference is primarily attributable to the contribution margin realized on the strong environmental abatement equipment and the thin-film deposition services revenues driven by the increased capital equipment spending and wafer start growth, combined with a strong product ramp in our Emosyn smart card venture.

     Gain on Disposal of Discontinued Operations. In the First Quarter-2004, we recognized an after-tax gain of $1.0 million on the sale of our former gallium nitride materials business.

     Income Taxes. Provision for income taxes increased to $2.1 million in the First Quarter-2004 from $0.4 million in the First Quarter-2003, due mostly to higher taxable income. The effective tax rate for the First Quarter-2004 and the First Quarter-2003 was 35.0% and 28.7%, respectively, due primarily to the timing of recognition of certain deferred tax items. As of March 31, 2004, the Company has a net deferred tax asset on its balance sheet of $15.7 million, primarily due to temporary differences, net operating loss and tax credit carry forwards, which are anticipated to be used to offset future taxable income. The minimum amount of future taxable income that needs to be generated to realize the net deferred tax assets is approximately $44.9 million.

     Diluted net Earnings (Loss) per Share. In the First Quarter-2004, diluted earnings per share was $0.19, which includes $0.04 per share from discontinued operations and a gain of $0.03 per share relating to the sale of the gallium nitride materials business. In the First Quarter-2003, diluted net loss per share was $0.05, which included a loss of $0.08 per share from discontinued operations. Diluted weighted average shares outstanding were approximately 31.7

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million and 30.9 million for the First Quarter-2004 and the First Quarter-2003, respectively. The increase in diluted weighted average shares outstanding is primarily the result of the exercise of employee stock options and the issuance of employee stock purchase plan shares.

Liquidity and Capital Resources

     The Company finances its activities principally through cash from operations, the sale of equity, the issuance of convertible debt securities and various lease and debt instruments. All of the assets and liabilities associated with the discontinued operations are classified as held for sale in the consolidated balance sheets. The Company’s working capital increased to $254.5 million at March 31, 2004 from $244.9 million at December 31, 2003, primarily as a result of increased accounts receivable and inventory balances associated with the increased sales in the First Quarter-2004.

     Net cash used by operating activities of continuing operations was approximately $7.1 million and $2.4 million for the First Quarter-2004 and First Quarter-2003, respectively. The increase in net cash used by operations is primarily attributable to increases in the net working capital accounts associated with increases in inventories for our copper-based materials products in Asia and our liquid packaging products in Japan. Accounts receivable also increased as a result of strength in revenues in the First Quarter-2004. Net cash provided by operating activities of discontinued operations was approximately $7.2 million and $5.6 million for the First Quarter-2004 and First Quarter-2003, respectively.

     Net cash provided (used) by investing activities of continuing operations was approximately $11.1 million and ($7.4) million for the First Quarter-2004 and First Quarter-2003, respectively. The Company had net proceeds of $15.8 million and $0.7 million, during the First Quarter-2004 and First Quarter-2003, respectively, relating to purchases and sales of marketable securities, consisting mainly of short-term corporate and municipal debt obligations. Capital expenditures were $3.7 million and $8.1 million for the First Quarter-2004 and First Quarter-2003, respectively. In 2003, the significant capital spending was primarily related to the construction of the new liquid materials manufacturing facility in Burnet, Texas. During the First Quarter-2004, the Company made a strategic investment of $1.0 million to purchase equity in an entity that is a leader in next generation implant materials. Net cash provided by investing activities of discontinued operations was approximately $10.3 million for the First Quarter-2004, as a result of the proceeds received from the sale of the Company’s gallium nitride materials business.

     Net cash provided by financing activities of continuing operations was approximately $3.4 million and $1.0 million for the First Quarter-2004 and First Quarter-2003, respectively. During the First Quarter-2004 and First Quarter-2003, the Company received net proceeds from the exercise of stock options and employee stock purchase plan shares of $3.6 million and $1.3 million, respectively.

     ATMI believes that the Company’s existing cash and cash equivalents and marketable securities balances, existing sources of liquidity, available lines of credit and anticipated proceeds from disposal of assets and liabilities held for sale will satisfy the Company’s projected working capital and other cash requirements through at least the end of 2004. However, management also believes the level of financing resources available to ATMI is an important

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competitive factor in its industry, and management may seek additional capital prior to the end of that period. Additionally, management considers, on a continuing basis, potential acquisitions of strategic technologies and businesses complementary to ATMI’s current business. There are no present definitive agreements with respect to any such acquisitions. However, any such transactions may affect ATMI’s future capital needs. In addition, the activities the Company is currently undertaking to exit non-core businesses and reduce its exposure to the cyclical capital equipment spending environment may generate additional sources of liquidity and also affect ATMI’s future capital needs.

Forward-Looking Statements

     The statements contained in this report which are not historical are “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. Examples of forward-looking statements include, without limitation, statements by ATMI regarding financial projections, expectations for demand and sales of new and existing products, market and technology opportunities, business strategies, business opportunities, objectives of management for future operations and semiconductor industry and market segment growth. In addition, when used in this report, the words “anticipate,” “plan,” “believe,” “estimate,” “expect” and similar expressions as they relate to the Company or its management are intended to identify forward-looking statements. All forward-looking statements involve risks and uncertainties. Actual results may differ materially from those discussed in, or implied by, the forward-looking statements as a result of certain factors including, but not limited to, changes in the pattern of semiconductor industry demand, the markets for or customer interest in the Company’s products, product and market competition, delays or problems in the development and commercialization of products, technological changes affecting the competencies of ATMI, problems or delays associated with its restructuring and proposed divestiture activities, problems or delays in integrating acquired operations and businesses into ATMI, and unanticipated internal and/or third-party delays. The cautionary statements made in this report should be read as being applicable to all related forward-looking statements wherever they appear in this report.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

     Interest Rate Risk. As of March 31, 2004, the Company’s cash and cash equivalents and marketable securities included money market securities, corporate and municipal bond obligations and commercial paper. As of March 31, 2004, an increase of 100 basis points in interest rates would reduce the fair value of our marketable securities portfolio by approximately $0.5 million. Conversely, a reduction to interest rates would increase the fair value of our marketable securities portfolio by approximately $0.3 million.

     As of March 31, 2004, we had $115.0 million of fixed rate, long-term convertible notes outstanding. Interest rate changes and changes in the value of our common stock would likely result in changes in the market value of these notes. The fair value of these notes was approximately $156.2 million at March 31, 2004. We perform a sensitivity analysis on our fixed rate long-term convertible debt to assess the risk of changes in fair value. The model to determine interest rate sensitivity assumes a hypothetical 100 basis point shift in interest rates, while keeping the price of our common stock constant. At March 31, 2004, assuming a 100 basis point increase in interest rates, the fair value of the notes would decrease by $1.0 million. Conversely, a 100 basis point decrease in interest rates at March 31, 2004 would increase the fair

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value of the notes by $1.0 million. The model to determine equity price sensitivity assumes a hypothetical 10% change in the price of our common stock, while keeping the interest rate constant. At March 31, 2004, assuming a 10% increase in the price of our common stock, the fair value of the notes would increase by $9.7 million. Conversely, a 10% decrease in the price of our common stock would result in the fair value of the notes decreasing by $8.4 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. 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. The Company currently utilizes forward exchange contracts to hedge certain Japanese Yen exposures, but does not use any other derivative financial instruments for trading or speculative purposes. At March 31, 2004, ATMI had $3.0 million notional amount of foreign exchange contracts, which are being used to hedge recorded foreign denominated assets. Holding other variables constant, if there were a 10% adverse change in foreign exchange rates for the Japanese Yen, the fair market value of the contracts outstanding at March 31, 2004 would decrease by approximately $0.4 million. The effect of an immediate 10% 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 the fiscal period ended March 31, 2004 and December 31, 2003.

Item 4. Controls and Procedures

     The Company’s management, with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the Company’s disclosure controls and procedures as of March 31, 2004. Based on that evaluation, the Company’s Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective as of March 31, 2004. There were no material changes in the Company’s internal control over financial reporting during the first quarter of 2004.

     Reference is made to the Certifications of the CEO and CFO about these and other matters attached as Exhibits 31.1, 31.2 and 32 to this report.

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PART II- OTHER INFORMATION

Item 1. Legal Proceedings

     On July 11, 2003, ATMI’s subsidiary, Advanced Technology Materials, Inc., 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 upon two patents ATMI holds for certain sub-atmospheric gas delivery technologies. ATMI is seeking treble damages and an injunction against Praxair. On December 22, 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 licensed to Praxair, Inc. and Praxair Technology, Inc. related to pressurized container components. Praxair is seeking treble damages and an injunction against ATMI.

     In addition, in the normal course of business, ATMI is involved in various lawsuits and claims. Although the Company cannot determine the ultimate outcome of any of these legal proceedings at this time, management, including internal counsel, does not believe that the outcome of these proceedings, individually or in the aggregate, will have a material adverse effect on ATMI’s financial position or results of operations.

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Item 6. Exhibits and Reports on Form 8-K

     (a) Exhibits

	10.1		Form of restricted stock agreement under the 2003 Stock Plan.
	10.2		Form of non-qualified stock option agreement under the 2003 Stock Plan.
	31.1		Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
	31.2		Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
	32		Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

     (b) Reports on Form 8-K:

     During the First Quarter-2004, ATMI filed the following current reports on form 8-K:

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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.
April 30, 2004
	By /s/ Eugene G. Banucci
	Eugene G. Banucci, Ph.D.
	Chief Executive Officer

	By /s/ Daniel P. Sharkey
	Daniel P. Sharkey
	Vice President, Chief Financial Officer and Treasurer (Chief Accounting Officer)

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