##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549
 FORM 10-K    [X]
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2003  [   ]
    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. 
  Delaware
    
    06-1481060(State or other jurisdiction of
    
    (I.R.S. Employer Identification No.)incorporation or organization)7 Commerce Drive, Danbury, CT
    
    06810(Address of principal executive offices)
    
    (Zip Code)
  
  Securities registered pursuant to Section 12(b) of the Act: Name of each exchangeTitle of each class
    
    on which registeredNone
    
    Not Applicable
 Securities registered pursuant to Section 12(g) of the Act: Common Stock, $.01 par value 
    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 if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrants knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K [  ] Indicate by check mark whether the registrant is an accelerated filer (as
defined by Rule 12b-2 of the Act). Yes [x] No [  ] The aggregate market value of the voting stock held by non-affiliates of the
registrant at June 30, 2003, was approximately $766,759,000 based on the
closing price of $24.95 per share. The number of shares outstanding of the registrants common stock as of March
8, 2004 was 31,139,195. DOCUMENTS INCORPORATED BY REFERENCE: Proxy Statement for the annual meeting of stockholders to be held on May 25,
2004 (Part III).




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TABLE OF CONTENTS  PART IItem 1. BusinessItem 2. PropertiesItem 3. Legal ProceedingsItem 4. Submission of Matters to a Vote of Security HoldersPART IIItem 5. Market for Registrants Common Equity and Related Stockholder MattersItem 6. Selected Financial DataItem 7. Managements Discussion and Analysis of Financial Condition and Results of OperationsItem 7A. Quantitative and Qualitative Disclosures About Market RiskItem 8. Financial Statements and Supplementary DataItem 9. Changes in and Disagreements with Accountants on Accounting and Financial DisclosureItem 9A. Controls and ProceduresPART IIIItem 10. Directors and Executive Officers of the RegistrantItem 11. Executive CompensationItem 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder MattersItem 13. Certain Relationships and Related TransactionsItem 14. Principal Accountant Fees and ServicesPART IVItem 15. Exhibits, Financial Statement Schedule, and Reports on Form 8-KSIGNATURESINDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULEReport of Independent AuditorsCONSOLIDATED BALANCE SHEETSCONSOLIDATED STATEMENTS OF OPERATIONSCONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITYCONSOLIDATED STATEMENTS OF CASH FLOWSNOTES TO CONSOLIDATED FINANCIAL STATEMENTSVALUATION AND QUALIFYING ACCOUNTSALLIANCE AGREEMENTSTOCK PURCHASE AGREEMENTLEASE AGREEMENTSUBSIDIARIES OF ATMICONSENT OF ERNST & YOUNG LLPCERTIFICATION OF CEOCERTIFICATION OF CFOCERTIFICATION OF CEO AND CFO    Table of Contents  ATMI, INC.
Annual Report on Form 10-K
For the Fiscal Year Ended December 31, 2003 TABLE OF CONTENTS PagePart IItem 1.
    
    Business
    
    
    3Item 2.
    
    Properties
    
    
    12Item 3.
    
    Legal Proceedings
    
    
    13Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    
    13Part IIItem 5.
    
    Market for Registrants Common
Equity and Related Stockholder Matters
    
    
    14Item 6.
    
    Selected Financial Data
    
    
    15Item 7.
    
    Managements Discussion and
Analysis of Financial Condition and Results of Operations
    
    
    17Item 7A.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    
    25Item 8.
    
    Financial Statements and Supplementary Data
    
    
    26Item 9.
    
    Changes In and Disagreements with
Accountants on Accounting and Financial Disclosure
    
    
    26Item 9A.
    
    Controls and Procedures
    
    
    26Part IIIItem 10.
    
    Directors and Executive Officers of the Registrant
    
    
    26Item 11.
    
    Executive Compensation
    
    
    26Item 12.
    
    Security Ownership of Certain
Beneficial Owners and Management and Related Stockholder Matters
    
    
    27Item 13.
    
    Certain Relationships and Related Transactions
    
    
    27Item 14.
    
    Principal Accountant Fees and Services
    
    
    28Part IVItem 15.
    
    Exhibits, Financial Statement Schedule, and Reports on Form 8-K
    
    
    28Signatures
    
    
    31Index to Consolidated Financial Statements and Financial Statement Schedule
    
    
    F-1




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PART I 
 Item 1. Business. 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. ATMI has further refined its market focus to target specialty materials
used in front-end semiconductor manufacturing. These specialty materials are
used in eight key process steps that are used repetitively to add functionality
to a silicon wafer. Despite the downturn in 2001 and 2002, the semiconductor
industry has grown worldwide over time and front-end manufacturing processes
have become increasingly complex, resulting in rapidly changing requirements
for semiconductor materials. ATMI has capitalized on the growth of the
semiconductor industry in general, and front-end processing in particular,
through:  
    
    a comprehensive research and development program that has provided
a stream of proprietary and patented products for this market;  
    
    a strategy of providing a comprehensive array of semiconductor
materials products (ATMI now offers materials consumed in five of the
eight front-end processes used in semiconductor manufacturing); and  
    
    an aggressive acquisition effort that has allowed us to move toward
a complete product portfolio more rapidly. During 2003, ATMI announced its intention to reduce its exposure to the
capital equipment cycles by exiting non-core product lines (which represented
nearly all of our former Technologies segment). 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,
our smartcard device venture, and gallium nitride materials. The Company
intends to complete these exit activities by the end of 2004. As a result of the decision to exit non-core businesses, ATMIs continuing
operations have been effectively reduced to one business segment. ATMI provides:  
    
    a broad range of ultrahigh-purity semiconductor materials and materials delivery systems; and  
    
    ultrahigh-purity semiconductor materials packaging. ATMIs business has evolved to consist of a mix of consumables and
packages that track wafer starts, or the approximate number of silicon wafers
processed into fully functional semiconductor devices. Additional financial
information about the Company and related geographic information can be found
in the Managements Discussion and Analysis of Financial Condition and Results
of Operations section of this Form 10-K. Over the last several years, ATMI has achieved a leadership position in
high-purity materials, materials delivery systems and high-purity semiconductor
packaging products by providing a more complete line of products than its
competitors through innovation and acquisitions. ATMI plans to continue its
growth through product line expansion and to leverage its core technology to
create new high growth businesses. 3




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Semiconductor Industry Background Despite the severe downturn in the semiconductor industry during 2001 and
2002, the industry has grown significantly over time as the use of
semiconductor devices has proliferated in a wide variety of consumer and
industrial products, especially in computing, networking and communications
equipment. This increase in demand for semiconductor devices has been fueled
by the ability of semiconductor manufacturers to deliver products with:  
    
    consistently enhanced performance characteristics and functionality;  
    
    improved reliability;  
    
    increased memory capacity; and  
    
    reduced size, weight, power consumption and cost. These advances have been made possible by innovations in the fabrication
processes and in the materials and delivery systems used in manufacturing
advanced semiconductor devices. At the same time, as the construction and
management of fabrication facilities has become more complex, semiconductor
manufacturers are seeking to streamline their supplier relationships and reduce
the number of suppliers upon which they rely. In turn, this is driving
significant consolidation among the providers of semiconductor materials and
materials delivery systems. Semiconductor devices are manufactured by repeating a complex series of
process steps on a wafer substrate, usually made of silicon. The primary
process steps include various kinds of materials deposition (physical vapor
deposition, chemical vapor deposition, electrochemical deposition, and ion
implant), etch, wafer preparation (chemical mechanical planarization),
patterning (photolithography) and photoresist strip. During deposition processes, several layers of conducting, semi-conducting
or insulating thin films are formed on a wafer. Precise and reliable control
of the deposition of these films is vital to the ultimate performance of an
individual device. The most mature processes for thin film deposition and modification are
physical vapor deposition, also known as PVD or sputtering, and ion
implantation. In PVD, which is used primarily for the deposition of conducting
or metal layers, a high energy beam is directed at a high purity metal target
which in turn causes the displacement of metal atoms that are showered over the
wafer, coating it with a thin metallic film. Ion implantation is a gas-based
process used principally to modify (or dope) semi-conducting layers with a
high-energy beam of material that is implanted into an existing thin film. Chemical vapor deposition, or CVD, is a process used in the deposition of
semi-conducting and insulating thin films. In the CVD process, wafers are
placed in a sophisticated reaction chamber and a specially designed gas or
vaporized liquid material is introduced. Simultaneously, a form of energy,
such as heat or plasma, is added to the reactor to cause the decomposition of
the material being introduced. As a result of this decomposition, a thin film
of material is deposited on the surface of the wafer. The advantages of CVD
over PVD based processes include:  
    
    the relative thinness of the films applied to the wafer;  
    
    conformality (ability to coat evenly, especially in holes and trenches designed into the device);  
    
    purity; and  
    
    the ability to coat large areas. These advantages have led to rapid growth in sales of reactors and related CVD
process consumables and equipment. Consumables and related equipment include
the raw materials used in the CVD process and the delivery systems required to
transport the materials around a semiconductor plant and to a reactor. 4




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Electrochemical deposition, or ECD, is growing rapidly as a result of the
industrys desire to use copper as the conducting layer in certain devices.
The use of copper allows for smaller circuits, because copper greatly reduces
power consumption while increasing integrated circuit (IC) speed. Nature
favors copper over current aluminum wiring because of its higher conductivity
and greater resistance to thermally and electrically induced short circuits.
In ECD, the wafer is submerged in a bath of copper electroplating solution
which, when appropriately charged, deposits a thin film of copper on the wafer. Etch is a process that selectively erodes away certain thin film
materials. It is carried out either dry with corrosive gases or wet with
energized liquids. As semiconductor manufacturing facilities (or fabs)
migrate to copper wiring as the main component inside advanced integrated
circuits, new advanced interconnect materials are required. Chemical mechanical planarization, or CMP, is used to prepare a wafer for
photolithography. As wafers are processed, thin film thicknesses inevitably
vary across the surface of the wafer. Due to the fine line widths used in
photolithography, present-day wafers need to be perfectly flat. CMP flattens
the processed wafer by polishing the wafer using a mechanical polishing pad and
a slurry, which is an abrasive solution containing solid materials and
chemicals which selectively erodes away the appropriate excess materials.
Given the migration to copper, precision surface preparation and cleaning
materials become more critical in the fabrication of advanced interconnect
devices. Photolithography is the process whereby patterns are developed on the
wafer surface. The process is begun by spinning a photosensitive material
called photoresist or resist onto the wafer surface and shining light
through a patterned photomask to selectively harden the resist. Photoresist
strip is the process of stripping or otherwise removing excess resist material
and allowing for the fabrication of the wafers circuitry. Because thin film materials are consumables, the market for these
materials and delivery systems generally tracks wafer starts. The thin film
materials market is also segmented into a wide variety of material types and
forms. For example, many thin film precursors are now sold as pressurized
gases, which allows for easy transport around a typical semiconductor
manufacturing plant. However, many of these gases are toxic and/or hazardous,
leading to the development of safer alternatives including the use of liquid or
solid materials and the adoption of gas handling technologies and delivery
systems that minimize the danger of a catastrophic release of toxic gas. Semiconductor materials have exceptional purity requirements due to the
extremely low tolerances for impurities and particulates in semiconductor
processing. Liquids and solids used in making devices require special packaging
to minimize exposure to air, airborne contamination and particulates. The market for semiconductor thin film materials has expanded and
contracted with the growth and contractions of the market for semiconductor
devices. The design of new thin film materials and delivery systems to
transport these materials around a semiconductor plant has experienced ongoing
innovation. This innovation has been driven by the demand for expanding
semiconductor device capabilities and corresponding decreases in circuit
dimensions. ATMIs Strategy ATMIs objective is to establish and enhance leadership positions in each
of the market segments it serves. ATMIs strategy consists of the following
key elements:  
    
    Target high-growth, high-margin specialty markets that use ATMIs
core materials technologies and require products that are consumed in
the production process.  
    
    Add value through advanced high-purity packaging and dispensing
systems designed to meet the demands of users for greater levels of
purity, productivity, safety and environmental responsiveness. 5




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
    
    Leverage ATMIs technology leadership by investing extensively in
developing proprietary and patented materials and materials handling
technology which the Company uses to commercialize new products and new
services to meet customer requirements.  
    
    Form strategic alliances, including joint development programs and
collaborative marketing efforts, to accelerate the introduction of
ATMIs products into markets that have manufacturing and/or
distribution barriers. In summary, ATMIs strategy does not envision a traditional materials
supplier-to-customer relationship. In those relationships, suppliers tend to
provide materials to customers based on the cost, quantity and quality of the
materials being supplied. Instead, ATMI has worked to establish partnerships
with its customers based on ATMIs ability to improve the efficiency of our
customers manufacturing and supply chain processes - thereby lowering the
integrated costs of materials to our customers. Businesses and Products ATMI believes it is one of the fastest growing and is among the most
innovative suppliers of ultrahigh purity semiconductor materials, delivery
systems and related packaging to the semiconductor industry. ATMI has taken
advantage of the changes in the market for materials, delivery systems and
packaging by:  
    
    developing and commercializing a wide range of front-end
semiconductor materials;  
    
    commercializing innovative bulk delivery systems that automatically
deliver materials of the highest purity and consistency to a process;  
    
    developing innovative high-purity packaging systems that allow for
the introduction of low volatility liquids and solids to semiconductor
processes;  
    
    developing and commercializing patented low-pressure gas delivery
systems for safe handling and delivery of toxic and hazardous gases to
semiconductor process equipment; and  
    
    developing manufacturing processes to meet the critical purity and
integrity requirements of the microelectronics industry. In meeting the needs of its customers, which include semiconductor device
manufacturers, chemical suppliers and semiconductor original equipment
manufacturers, or OEMs, located throughout the world, and anticipating their
future requirements, ATMI seeks:  
    
    to offer the most complete line of consumable and delivery and packaging system products;  
    
    to offer the highest purity materials available;  
    
    to provide a high level of customer service and technical support;  
    
    to meet customer needs for statistical quality and process control and dock-to-stock programs; and  
    
    to meet the industrys needs for advanced materials required for future generation devices. Products and Services.ATMI has three primary product lines, which
consist of gas delivery systems, liquid materials and delivery systems and
advanced high-purity packaging and delivery systems. ATMI also provides
applications and analytical support services relating to each of these product
lines. 6




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Gas Delivery Systems Gas Delivery Systems (the SDS® or Safe Delivery Source).ATMIs patented
SDS® product line uses a standard gas cylinder containing an adsorbent
material. The cylinder is filled with gas under conditions such that the gas
is adsorbed onto the adsorbent material at sub-atmospheric pressure.
Sub-atmospheric storage of hazardous gases eliminates or minimizes potential
leaks of gas during transportation and use, thus providing significant safety
and environmental improvements over the traditional high-pressure cylinders. In
addition, SDS® products allow more gas to be stored in the cylinder, providing
significantly higher rates of productivity than traditional methods of gas
delivery used in ion implantation manufacturing processes. Since ion
implantation processes operate at reduced pressures, the gas can be desorbed or
released from the SDS® gas sources using the ion implanters vacuum pumps.
SDS® gas sources can be installed and operated like conventional high-pressure
gas cylinders with minimal maintenance. These advantages have led major chip
manufacturers to adopt this technology as the industrial standard for dopant
gas delivery. ATMI is a market leader in materials used in ion implantation applications
with its SDS® brand of implant gases. SDS® materials include primarily arsine,
phosphine and boron trifluoride. ATMI introduced several new implant gases in
2002 including indium and antimony sources. These products are manufactured by
ATMI and ATMIs exclusive distributor, Matheson Tri-Gas. In its continuous
effort to improve SDS® technology, ATMI recently introduced the third
generation of SDS® products, called SDS3®. The new product, while still
maintaining all the inherent safety features of previous generation SDS®
products, dramatically increases the gas storage capacity by using a newly
invented adsorbent. The 2 to 3 times capacity improvement over existing
products will allow implanter users to further reduce tool down times and to
generate significant cost savings. ATMI has also successfully adopted the
carbon adsorption technology and introduced new products for semiconductor
deposition processes marketed under the SAGE brand. These applications
include: Low-k plasma-enhanced deposition, or PE-CVD, processes using Low-k
materials, pre-metal dielectric high-density plasma, or HDP-CVD, films
utlilizing phosphine gases and thermal deposition processes using germane
gases. ATMI has also introduced a silane product used in processes such as
HDP-CVD packaged in a novel vacuum-actuated cylinder for improved safety. Liquid Materials and Delivery Systems Deposition.ATMI is also a leader in CVD products used for thin films in
semiconductor manufacturing. ATMI markets these materials under the
UltraPur brand for pre-metal dielectric, dielectric, and barrier
applications. ATMI is well positioned as the industry prepares to move to
low-k dielectric films with the introduction of several new products in this
area including UltraPur OMCTS
(octamethylcyclotetrasiloxane), UltraPur
4MS (tetramethylsilane), and Super Dry TMCTS
(tetramethylcyclotetrasiloxane) and other materials. The low-k dielectric
application is one of the fastest growing applications for dielectric
deposition and is expected to become a mainstream technology at 90 nanometer
device generations. ATMI is also well positioned for the incorporation of
atomic layer deposition (ALD) processes to the semiconductor industry with its
ProE-Vap ampoule. This proprietary container allows for reliable delivery
of low volatility solid precursors required for ALD. ATMI manufactures and markets chemical delivery systems under the
Bulkfill, Unichem, 3Chem, and RPM brands. ATMIs patented canister
technology and proprietary piping manifold purge technology make these systems
a preferred solution, which reliably and safely manage materials in
semiconductor fabs. These systems are designed to enable process tool
efficiency through continuous refill of deposition tools, alleviating the need
for costly tool shutdowns for container changes. The Bulkfill is used for
fab-wide distribution of TEOS (tetraethylorthosilicate), greatly reducing the
frequency of container changes with its large 200-liter reservoirs. The 3Chem
is designed for BPSG (boron phosphorous silica glass) applications, combining
the delivery of the boron, phosphorous, and silicon precursors. The reduced
pressure manifold or RPM gas delivery cabinet is designed to deliver ATMIs
proprietary sub-atmospheric SAGE and VAC gases. Photo Etch.ATMIs AP and ST brand wafer photoresist strip cleaning
materials are proprietary chemistries used for applications such as
semiconductor post-etch residue removal, wafer etching, organics removal,
negative resist removal, edge bead removal and corrosion prevention. The
ST-250 material is recognized as a leading 7




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material for the high-growth copper device post-etch residue removal
application. This proprietary and patented material is used for copper
interconnects in advanced wafer fabs. Copper wiring in semiconductor devices
is a very rapid-growth segment with most major logic segment semiconductor
companies in production at 130 nanometers. Chemical Mechanical Planarization.ATMIs chemical mechanical
planarization CMP products include the PlanarChem brand of materials. ATMI
supplies materials for silicon oxide based film polishing for many different
applications including shallow-trench isolation STI, HDP-CVD and TEOS based
films. The PlanarChem brand of slurries offers improved polishing performance
through the use of tightly controlled colloidial silica materials. CMP is one
of the fastest growing markets in the semiconductor materials industry. ATMI
is also developing copper and barrier polishing materials for the application
of polishing copper-based dual damascene structures. In July 2003, ATMI acquired ESC, Inc., which is now known as the Surface
Preparation Products (SPP) group. SPP is a provider of leading-edge surface
preparation products for advanced copper device fabrication. SPP products are
being used in the most advanced copper fabs around the world for various
surface preparation applications such as post-CMP cleaning and pre-nitride
deposition surface treatment. These materials are marketed under the ESC brand
name. ATMI expects that applications for these products will expand rapidly as
the advanced IC device designs drop below 90 nanometers. The SPP technology
has applications in IC as well as other niches such as LCD (liquid crystal
display), disk drive, and other areas. Copper Plating.ATMI is a market leader in materials used in copper
electrochemical deposition applications with its Viaform® brand of copper
materials. ATMI was granted an exclusive, worldwide license to market and
distribute Viaform® materials in 2003 by Enthone, Inc., a subsidiary of Cookson
Electronics. Viaform® materials include inorganic and proprietary organic
molecules that enable process efficiency in Dual Damascene copper processing
applications. Dual Damascene copper processing in semiconductor devices is a
rapidly growing segment with most major logic segment semiconductor companies
in production at 130 nanometers with ongoing research and development in 90 and
65 nanometer technology nodes. ATMI also supplies CuChem® and CuSuite®
equipment to analyze and deliver copper materials in semiconductor fabs
worldwide. Advanced High Purity Packaging and Delivery Systems Advanced High-Purity Packaging and Delivery Systems.ATMI manufactures
three different types of NOWPak® container assemblies: Bag-in-a-Bottle;
Bag-in-a-Can; and Bag-in-a-Drum, each with its own companion dispense
connection system. Each features a pre-cleaned collapsible inner liner, or
bag, inside a rugged, high-density polyethylene or stainless steel overpack.
The standard liner film is made of polytetrafluoroethylene, which allows
virtually all chemicals to be delivered to the manufacturing process without
compromising their inherent purity. The empty inner liner is easily removed
for waste consolidation, and the outer shell is recyclable or returnable for
insertion of a new replacement liner. The dispense system insures full
utilization of the chemical and improved safety during dispense by sealing and
isolating the chemical from the environment to further protect the chemical and
the operator. It also ensures that the correct chemical is installed on the
process through a key coding system. The largest market for NOWPak packaging is photoresist and related
chemicals used to pattern integrated circuits. These materials are typically
packaged in Bag-in-a-Bottle containers that range in size from 1 to 10 liters.
The NOWPak® is also widely used to package photoresist and related materials
for the manufacture of flat panel displays. Here, larger 18-20 liter
Bag-in-a-Bottle or Bag-in-a-Can containers are used. Other markets for the
larger volume containers include the pharmaceutical, biotech and laboratory
markets. Additionally, applications have recently expanded beyond
photolithography chemicals in the semiconductor niche to include ancillary
chemicals, CMP slurries and process chemicals for which the new 200 liter
Bag-in-a-Drum is well suited. ATMI also produces packages for high-purity solids under the Newform brand
name. The Company makes high-purity flexible Ultra Clean packaging for the
semiconductor and pharmaceutical industries. With its Newform products, ATMI
packages critical materials and components such as sputtering targets, wafer
and disc shippers and cleanroom components as well as container overwraps.
With the NOWPak® liquid packaging system and Newform 8




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solids packaging, ATMI is addressing an increasing number of critical packaging
needs for the microelectronics market. Customers, Sales and Marketing ATMI sells and distributes its products worldwide primarily through a
direct global sales and service organization. For a breakdown of revenue by
geography, see Note 17 to the consolidated Financial Statements. ATMI
distributes its materials products to end-use customers, chemical suppliers and
equipment suppliers through its direct sales force in North America, Europe,
Taiwan, Korea, Japan, China and Singapore, with limited use of regional
manufacturing representatives in certain remote parts of Asia and Europe.
Additionally, ATMIs delivery and analytical systems product lines are marketed
and sold to semiconductor equipment OEMs, who in turn resell to end users.
NOWPak® containers are generally sold to chemical suppliers. The chemical
companies then sell their high purity chemicals in NOWPak® containers at the
request of end-users. Newform packaging products have historically been sold
directly to semiconductor and pharmaceutical companies, predominately in
Europe. ATMI sells its SDS® product into the ion implant market directly and
through an exclusive distribution agreement with Matheson Tri-Gas. The majority of ATMIs sales are to customers in the worldwide
semiconductor industry. Results of operations, therefore, are materially
dependent upon economic and business conditions in the semiconductor industry.
The semiconductor industry has historically experienced significant growth;
however, periods of reduced semiconductor unit demand and manufacturing
overcapacity have resulted and could result again in significantly reduced
demand for semiconductor materials. Manufacturing The following table summarizes the location, products manufactured and
size of ATMIs various manufacturing facilities in its continuing operations as
of December 31, 2003. Location
    
    Products
    
    Square FootageBurnet, TX
    
    
    
    liquid materials
    
    
    75,000Bloomington, MN
    
    
    
    high-purity packaging and
delivery systems
    
    
    96,000Danbury, CT
    
    
    
    SDS®
    
    
    75,000
    
    liquid materials
    
    delivery systemsAllentown, PA
    
    
    
    liquid materials
    
    
    7,000Anseong, South Korea
    
    
    
    liquid materials
    
    
    9,000Hoegaarden, Belgium
    
    
    
    high-purity packaging products
    
    
    70,000
 Competition ATMIs primary competitors in certain product lines of the business are
the Schumacher Division of Air Products and Chemicals, Inc., the EKC Division
of DuPont and the Shipley division of Rohm and Haas. There are several
additional companies outside the United States that compete with ATMI. ATMIs SDS® brand product currently has no widely established direct
competition. Several companies compete with high-pressure gas cylinders and
solid sources. There are numerous domestic and foreign companies that offer
products that compete with ATMIs high-purity packaging and chemical dispensing
system products. However, ATMI believes that its ability to compete in the
markets for containers and dispensing systems is dependent largely upon its
patented NOWPak® technology and its proven ability to enhance and improve its
products and technologies. 9




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Research and Development The Companys research and development expenses consist of personnel and
other direct and indirect costs for internally funded project development. ATMI
also participates in joint development efforts with certain semiconductor
manufacturers, semiconductor equipment OEMs, and various federal government
agencies. Total expenses for research and development for the years ended
December 31, 2003, 2002 and 2001 were $19.2 million, $13.8 million and $9.9
million, respectively, excluding amounts reimbursed by external parties through
contract funding and cost share agreements of $0.8 million, $1.6 million and
$2.4 million in 2003, 2002 and 2001, respectively. Total research and
development expenditures represented 11.2%, 10.1% and 8.9% of revenues in 2003,
2002 and 2001, respectively. Strategic Alliances ATMI forms strategic alliances, including joint development programs and
collaborative marketing efforts, to accelerate the introduction of its products
into markets that have manufacturing and/or distribution barriers. These
programs have led to significant technological advances, including the
development of proprietary advanced materials and semiconductor manufacturing
processes. During 2003, ATMI entered into a strategic alliance with Enthone,
Inc., a Cookson Electronics Company (Enthone), whereby ATMI purchased the
exclusive worldwide selling and distribution rights to Enthones copper
electrochemical deposition (ECD) products, including its ViaForm® products, for
a period of ten years, subject to automatic renewal upon satisfaction of
certain conditions. Under the terms of the agreement, Enthone will continue to
manufacture the ViaForm® products for ATMI. Most of ATMIs other strategic
alliances are with leading semiconductor manufacturers or OEMs, such as Applied
Materials, IBM, Micron Technology, Novellus, Infineon and Texas Instruments,
each of which has participated with the Company in advanced materials and
process development programs. These programs enhance ATMIs core technology
base and promote the introduction of targeted products. Backlog ATMIs materials and packaging businesses do not maintain significant
backlog, since substantial portions of the business are conducted with
open-ended, long-term supply contracts that do not specify quantities. Also,
the SDS® gas delivery source product, marketed through Matheson Tri-Gas as an
exclusive distributor for the ion implant market, carries no backlog.
Therefore, we do not believe that backlog as of any particular date is
indicative of future results. Patents and Proprietary Rights ATMI has made a significant investment in securing intellectual property
protection for its technology and products. ATMI seeks to protect its
technology by, among other things, filing patent applications where appropriate
for technology considered important to the development of its business. The
Company also relies upon trade secrets, unpatented know-how, continuing
technological innovation and the aggressive pursuit of licensing opportunities
to help develop and maintain its competitive position. As of February 15, 2004, ATMI had been awarded 378 United States patents
and had 216 current United States patent applications pending. Foreign
counterparts of certain of these applications have been filed, or may be filed
at an appropriate time. ATMI decides on a case-by-case basis whether, and in
what countries, it will file counterparts of a United States patent application
outside the United States. ATMIs United States patents expire between 2004
and 2024. Approximately 90 of the United States patents awarded to ATMI and 74
of the United States patents pending relate to discontinued operations and will
most likely be sold. ATMI also holds 36 United States registered trademarks,
of which 14 relate to discontinued operations and will most likely be sold. ATMIs ability to compete effectively with other companies will depend, in
part, on its ability to maintain the proprietary nature of its technology.
Although the Company has been awarded, has filed applications for, or has been
licensed under numerous patents in the United States and other countries, there
can be no assurance concerning the degree of protection afforded by these
patents or the likelihood that pending patents will be issued. 10




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ATMI requires all employees and most consultants, outside scientific
collaborators, sponsored researchers and other advisors to execute
confidentiality agreements upon the commencement of employment or consulting
relationships with the Company. These agreements provide that all confidential
information developed or made known to the entity or individual during the
course of the entitys or individuals relationship with ATMI is to be kept
confidential and not disclosed to third parties except in specific
circumstances. All of ATMIs employees have entered into agreements providing
for the assignment of rights to inventions made by them while employed by the
Company. Environmental Regulation ATMI uses, generates and discharges toxic, volatile or otherwise hazardous
chemicals and wastes in its manufacturing, processing, and research and
development activities. As a result, the Company is subject to a variety of
governmental regulations related to the storage, use and disposal of these
materials. ATMIs failure to comply with present or future laws could result
in fines or other liabilities being imposed on the Company, suspension of
production or a cessation of operations. The various premises that ATMI occupies may have been contaminated prior
to occupancy. ATMI is not aware of any material environmental investigation or
action by government agencies involving these premises. However, under federal
and state statutes and regulations, a government agency may seek to recover its
response costs and/or require future remedial measures from both operators and
owners of property where releases of hazardous substances have occurred or are
ongoing. The Company has secured indemnifications for remediation costs in
connection with certain potential pre-existing, on-site contamination or
environmental conditions. However, these indemnifications may not prove
adequate to cover any liability imposed on the Company related to the
environmental condition of the premises or the cost of defending an
environmental action, either of which could be substantial. ATMIs activities may also result in the Companys being subject to
additional regulation. Such regulations could require ATMI to acquire
significant additional equipment or to incur other substantial expenses to
comply with environmental laws. ATMIs failure to control the use of hazardous
substances could subject the Company to substantial liabilities. Employees As of December 31, 2003, ATMIs continuing operations employed 645
individuals, including 292 in sales and administration, 248 in operations and
105 in research and development. Of these employees, 35 hold Ph.D. degrees and
44 hold other advanced degrees in electrical engineering, materials science,
chemistry, physics or related fields. As of December 31, 2003, ATMI employed a
total of 1,044 individuals. Only 3% of the Companys employees are covered by
a collective bargaining agreement, which expires in December 2004. All of the
employees covered by this agreement are based in Europe. ATMI has
never experienced any work stoppages and considers its relations with its
employees to be good. Company Information ATMI was incorporated under the laws of Delaware in 1997, and our
predecessor company was incorporated under the laws of Delaware in 1987.
ATMIs headquarters is located at 7 Commerce Drive, Danbury, Connecticut 06810,
and our telephone number is (203) 794-1100. ATMIs website can be found on the Internet at www.atmi.com. The website
contains information about the Company and its operations. Copies of each of
the Companys filings with the SEC on Form 10-K, Form 10-Q, Form 8-K and Form
S-8 and all amendments to those reports can be viewed and downloaded free of
charge as soon as reasonably practicable after the reports and amendments are
electronically filed with or furnished to the SEC by accessing www.atmi.com and
clicking on Investorand then clicking on SEC Filing. 11




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##### Table of Contents



Any of our reports on Form 10-K, Form 10-Q, Form 8-K and Form S-8 and all
amendments to those reports can also be obtained in print by any stockholder
who requests them from our Investor Relations Department:  Investor Relations
ATMI, Inc.
7 Commerce Drive
Danbury, CT 06810 
 Item 2. Properties The following table summarizes the location and size of ATMIs various
properties as of December 31, 2003 other than headquarters. Location
    
    Square Footage
    
    Lease / OwnBloomington, MN
    
    96,000
    
    LeaseDanbury, CT
    
    75,000
    
    LeaseBurnet, TX (2)
    
    35,000
    
    OwnBurnet, TX
    
    75,000
    
    OwnAllentown, PA
    
    7,000
    
    LeaseHoegaarden, Belgium
    
    70,000
    
    OwnAnseong, South Korea
    
    9,000
    
    OwnHsin-chu, Taiwan
    
    40,000
    
    LeaseSchaumburg, IL (1)
    
    10,000
    
    LeaseDallas, TX (1)
    
    39,000
    
    LeaseMesa, AZ (1)
    
    34,000
    
    OwnNapa, CA (1)
    
    6,000
    
    LeaseChandler, AZ (1)
    
    10,000
    
    LeaseHillsboro, OR (1)
    
    24,000
    
    LeaseGresham, OR (1)
    
    5,000
    
    LeaseAlbuquerque, NM (1)
    
    11,000
    
    LeaseAlbuquerque, NM (1)
    
    9,000
    
    LeaseSan Jose, CA
    
    45,000
    
    LeaseBonn, Germany (1)
    
    21,000
    
    LeaseNewall, Ireland (1)
    
    32,000
    
    LeaseHohenschaeftlarn, Germany (1)
    
    32,000
    
    LeaseBundang, South Korea
    
    3,000
    
    Own
  (1)
    
    These facilities are associated with product lines that are held
for sale at December 31, 2003. Management anticipates that these
facilities will be sold, or the associated leases will be assumed for
facilities held under lease, by the buyers pending the divestiture of
the Companys non-core product lines.(2)
    
    The operations of this Burnet, Texas facility have been moved to
the Companys new state-of-the-art materials manufacturing facility
also in Burnet, Texas. Management expects to dispose of this site by
the end of 2004. ATMIs corporate headquarters is located in Danbury, Connecticut, in a
31,000 square foot leased facility. The lease on this facility expires in
2008. ATMI also has a U.S. sales office located in Austin, Texas (3,000 square
foot leased facility), a sales office located in Witney, Oxfordshire, United
Kingdom (1,000 square foot leased facility), and Asian sales offices located in
Singapore (3,000 square foot leased facility), Tokyo, Japan (1,000 square foot
leased facility), Anseong, South Korea (3,000 square foot leased facility) and
Shanghai, China (1,000 square foot leased facility). 12




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##### Table of Contents



Item 3. Legal Proceedings During 2003, the Company received a favorable judgment from the U.S. Tax
Court regarding an assessment made by the Internal Revenue Service.
Accordingly, the Companys 2003 results of continuing operations reflect a $3.0
million tax benefit related to this favorable judgment. 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. 
 Item 4. Submission of Matters to a Vote of Security Holders. No matter was submitted to a vote of security holders, through the
solicitation of proxies or otherwise, during the fourth quarter of the fiscal
year ended December 31, 2003. 13




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##### Table of Contents



PART II. 
 Item 5. Market for Registrants Common Equity and Related Stockholder Matters. The common stock of ATMI has traded on the Nasdaq National Market under
the symbol ATMI since October 13, 1997, and the common stock of our predecessor
traded under that symbol from 1993 until October 12, 1997. The following table
sets forth for the periods indicated the high and low sales price for the
Common Stock as reported on the Nasdaq National Market: High
    
    LowFiscal year ended December 31, 20021st Quarter
    
    $
    32.63
    
    
    $
    23.642nd Quarter
    
    
    37.10
    
    
    
    19.473rd Quarter
    
    
    24.15
    
    
    
    11.754th Quarter
    
    
    25.00
    
    
    
    11.93Fiscal year ended December 31, 20031st Quarter
    
    $
    23.61
    
    
    $
    16.802nd Quarter
    
    
    27.90
    
    
    
    19.273rd Quarter
    
    
    30.50
    
    
    
    23.254th Quarter
    
    
    27.83
    
    
    
    20.10
 As
of March 8, 2004, there were approximately 241 holders of record of the
Common Stock. The Company has never declared or paid any cash dividends on its capital
stock. The Company currently intends to retain all available earnings for use
in its business and does not anticipate paying any cash dividends in the
foreseeable future. Certain financing agreements of the Companys subsidiaries
contain limitations or prohibitions on the payment of dividends without the
lenders consent. The Transfer Agent and Registrar for ATMI Common Stock is Boston Equiserve
LP. See Item 12 for information about our equity compensation plans. 14




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##### Table of Contents



Item 6. Selected Financial Data. The following selected consolidated statements of operations for the years
ended December 31, 2003, 2002, 2001, 2000, and 1999 and the consolidated
balance sheet data as of December 31, 2003, 2002, 2001, 2000 and 1999 are
derived from ATMIs audited consolidated financial statements. The data set
forth below should be read in conjunction with the consolidated financial
statements and notes thereto and other financial information included elsewhere
in this Form 10-K. Fiscal Year Ended December 31,2003
    
    2002
    
    2001
    
    2000
    
    1999(in thousands, except per share data)Consolidated Statements of Operations:Revenues
    
    $
    171,634
    
    
    $
    136,975
    
    
    $
    111,563
    
    
    $
    132,747
    
    
    $
    96,812Cost of revenues
    
    
    89,902
    (1)
    
    
    68,424
    
    
    
    54,545
    (9)
    
    
    59,783
    
    
    
    41,653Gross profit
    
    
    81,732
    
    
    
    68,551
    
    
    
    57,018
    
    
    
    72,964
    
    
    
    55,159Operating expenses:Research and development
    
    
    19,170
    (2)
    
    
    13,843
    
    
    
    9,896
    
    
    
    7,495
    
    
    
    6,890Selling, general and administrative
    
    
    54,145
    
    
    
    50,572
    
    
    
    51,843
    (10)
    
    
    49,394
    
    
    
    33,218
    (16)Merger and related costs
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,798
    (17)Restructuring and other charges
    
    
    1,731
    (3)
    
    
    
    
    
    
    6,011
    (11)
    
    
    
    
    
    
    Total operating expenses
    
    
    75,046
    
    
    
    64,415
    
    
    
    67,750
    
    
    
    56,889
    
    
    
    41,906Operating income (loss)
    
    
    6,686
    
    
    
    4,136
    
    
    
    (10,732
    )
    
    
    16,075
    
    
    
    13,253Interest income (expense), net
    
    
    (3,862
    )
    
    
    (1,803
    )
    
    
    3,582
    
    
    
    7,156
    
    
    
    3,117Other income (expense), net
    
    
    (5,453
    ) (4)
    
    
    390
    (7)
    
    
    7,003
    (12)
    
    
    7,939
    (14)
    
    
    317Income (loss) before income taxes and
minority interest
    
    
    (2,629
    )
    
    
    2,723
    
    
    
    (147
    )
    
    
    31,170
    
    
    
    16,687Provision (benefit) for income taxes
    
    
    (4,617
    ) (5)
    
    
    951
    
    
    
    (804
    )
    
    
    11,691
    
    
    
    6,851Income before minority interest
    
    
    1,988
    
    
    
    1,772
    
    
    
    657
    
    
    
    19,479
    
    
    
    9,836Minority interest
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (351
    )
    
    
    (263
    )Income from continuing operations
    
    
    1,988
    
    
    
    1,772
    
    
    
    657
    
    
    
    19,128
    
    
    
    9,573Income (loss) from discontinued
operations, net of related income
taxes
    
    
    (11,907
    ) (6)
    
    
    (32,493
    ) (8)
    
    
    (10,353
    ) (13)
    
    
    24,557
    (15)
    
    
    1,250
    (18)Net income (loss)
    
    $
    (9,919
    )
    
    $
    (30,721
    )
    
    $
    (9,696
    )
    
    $
    43,685
    
    
    $
    10,823Diluted earnings (loss) per share:Earnings per share from continuing
operations
    
    $
    0.06
    
    
    $
    0.06
    
    
    $
    0.02
    
    
    $
    0.63
    
    
    $
    0.33Earnings (loss) per share from
discontinued operations
    
    $
    (0.38
    )
    
    $
    (1.05
    )
    
    $
    (0.34
    )
    
    $
    0.81
    
    
    $
    0.04Earnings (loss) per common share
    
    $
    (0.32
    )
    
    $
    (0.99
    )
    
    $
    (0.32
    )
    
    $
    1.44
    
    
    $
    0.38Weighted average shares
outstandingassuming dilution
    
    
    31,208
    
    
    
    30,997
    
    
    
    30,657
    
    
    
    30,290
    
    
    
    28,689Consolidated Balance Sheet Data:Cash, cash equivalents and marketable
securities
    
    $
    128,700
    
    
    $
    166,178
    
    
    $
    210,494
    
    
    $
    131,505
    
    
    $
    92,328Working capital
    
    
    244,934
    
    
    
    282,734
    
    
    
    339,448
    
    
    
    248,711
    
    
    
    153,604Total assets
    
    
    414,442
    
    
    
    416,482
    
    
    
    459,056
    
    
    
    350,805
    
    
    
    228,849Long-term obligations
    
    
    115,406
    
    
    
    115,346
    
    
    
    118,118
    
    
    
    3,455
    
    
    
    5,671Minority interest
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,109Total stockholders equity
    
    
    254,251
    
    
    
    256,390
    
    
    
    280,014
    
    
    
    286,567
    
    
    
    176,356
  (1)
    
    Includes charges of $2.7 million to write down inventory balances in the
liquid chemistries and delivery equipment product lines.(2)
    
    Includes $0.7 million of in-process research and development expensed in
connection with the ESC, Inc. acquisition.(3)
    
    Represents a $2.4 million asset impairment charge related to the
Companys former liquid chemistries manufacturing facility, partially
offset by a $0.7 million gain related to sublease income from a former
tenant in the Companys Danbury, Connecticut facility.(4)
    
    Includes $5.7 million of asset impairment charges related to the
Companys strategic investment portfolio.(5)
    
    Includes $3.0 million of tax benefit recognized as a result of a
favorable U.S. Tax Court judgment.(6)
    
    Includes a $2.6 million (net of $1.5 million tax benefit) charge for
excess and obsolete inventory. 15




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##### Table of Contents



(7)
    
    Includes $1.0 million gain from the sale of available-for-sale
securities, offset by a $0.4 million write-down of other
available-for-sale securities.(8)
    
    Includes an asset impairment charge of $21.8 million (net of tax benefit
of $12.8 million) to recognize the impairment of assets in the Companys
former gallium arsenide epitaxial services business.(9)
    
    Includes a $0.6 million inventory write-down.(10)
    
    Includes a special charge for accounts receivables write down of $2.5
million as a reserve against the possible effects that the weakened
economic environment and semiconductor industry downturn had on ATMIs
customers.(11)
    
    Represents severance and other costs incurred in connection with ATMIs
restructuring efforts.(12)
    
    Includes a gain on settlement of certain patent litigation, net of
related expenses, and a $2.6 million gain on the sale of certain
available-for-sale securities, offset by an asset impairment charge of
approximately $0.4 million on available-for-sale securities.(13)
    
    Includes a $0.7 million (net of tax benefit of $0.4 million) inventory
write-down and a $5.4 million (net of tax benefit of $2.6 million) of costs
incurred in connection with ATMIs restructuring efforts announced in the
first and third quarters of 2001.(14)
    
    Includes a $9.5 million gain on the sale of certain marketable securities
offset by a loss of $1.3 million on certain other investments.(15)
    
    Includes $1.5 million of costs incurred in connection with completing the
ESCA, Inc. acquisition.(16)
    
    Includes $1.9 million of severance expense for several former executives.(17)
    
    Represents $1.3 million incurred in connection with the completion of the
acquisition of NewForm N.V., and $1.1 million incurred in connection with
the acquisition of Advanced Chemical Systems International, Inc., offset
by a reversal of $0.6 million for previously accrued merger costs.(18)
    
    Includes $7.0 million (net of tax benefit of $1.1 million) of costs
incurred in connection with the acquisitions of MST Analytics, Inc.,
Delatech, Inc. and TeloSense Corporation and $0.3 million (net of tax
benefit of $0.1 million) of severance expense for several former
employees. 16




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Item 7.
    Managements Discussion and Analysis of Financial Condition and
Results of Operations. The following discussion and analysis of our financial condition and
results of operations should be read together with the consolidated financial
statements and the related notes thereto appearing in Item 8 of this report. Overview 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 reduce its exposure to the
capital equipment cycles by exiting non-core product lines (which represented
nearly all of our former Technologies segment). 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,
our smartcard device venture, and gallium nitride materials. The Company
intends to complete these exit activities by the end of 2004. The consolidated financial statements have been reclassified for all
periods presented to reflect the non-core product lines as discontinued
operations. See Note 2 to our consolidated financial statements in Item 8 for
additional details. Critical Accounting Policies and Estimates General Managements discussion and analysis of ATMIs financial condition and
results of continuing operations are based upon the Companys consolidated
financial statements, which have been prepared in accordance with accounting
principles generally accepted in the United States. The preparation of these
financial statements requires ATMI to make estimates and judgments that affect
the reported amounts of assets, liabilities, revenues and expenses, and related
disclosure of contingent assets and liabilities. On an on-going basis, the
Company evaluates its estimates, including those related to bad debts,
inventories, marketable securities and investments, intangible assets,
property, plant and equipment, income taxes, restructuring charges, and
contingencies and litigation. The Company bases its estimates on historical
experience and on various other assumptions that are believed to be reasonable
under the circumstances, the results of which form the basis for making
judgments about the carrying values of assets and liabilities that are not
readily apparent from other sources. Actual results may differ from these
estimates under different assumptions or conditions. The Company believes the following critical accounting policies affect its
more significant judgments and estimates used in the preparation of its
consolidated financial statements. Revenue Recognition The Company recognizes revenue in accordance with SEC Staff Accounting
Bulletin No. 101, Revenue Recognition in Financial Statements(SAB 101), as
amended by SAB 101A and 101B. SAB 101 requires that four basic criteria must
be met before revenue can be recognized: (1) persuasive evidence of an
arrangement exists; (2) delivery has occurred or services rendered; (3) the fee
is fixed and determinable; and (4) collectibility is reasonably assured.
Determination of criteria (3) and (4) are based on managements judgments
regarding the fixed nature of the fee charged for products delivered and
services rendered and collectibility of those fees. The Companys revenues
from product sales are recognized upon title transfer, which generally occurs
upon shipment. In instances where final acceptance of equipment is specified
by the purchase agreement, revenue is deferred until all 17




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acceptance criteria have been satisfied. Service revenue is generally
recognized ratably over the period of the related contract, or if not under
contract, when service is provided. Should changes in conditions cause
management to determine these criteria are not met for certain future
transactions, revenue recognized for any reporting period could be adversely
affected. The Company accrues for sales returns, warranty costs and other
allowances based on a current evaluation of its historical experience based on
stated terms of the transactions. Should actual product failure rates or
customer return experience differ from the Companys estimates, revisions to
the estimated accruals would be required. Bad Debt The Company maintains allowances for doubtful accounts for estimated
losses resulting from the inability of its customers to make required payments.
Past due status of accounts receivable is determined primarily based upon
contractual terms. ATMI grants extended payment terms, which vary based on the
geographic location of the customer and generally range from 30 to 90 days.
There are no known material collectibility issues with these extended-term
receivables. If the financial condition of the Companys customers were to
deteriorate, resulting in an impairment of their ability to make payments,
additional allowances may be required. Inventories The Company provides inventory allowances for estimated excess, obsolete
and unmarketable inventory equal to the difference between the cost of
inventory and estimated market value based upon future demand forecasts and
market conditions. If actual market conditions are less favorable than those
projected by management, additional inventory write-downs may be required. Marketable Securities and Investments The Company holds minority interests in companies having operations or
technology in areas within or related to its strategic focus, some of which are
in publicly traded companies whose share prices are highly volatile and some of
which are in private companies whose value is difficult to determine.
Investments in private companies are included in the consolidated balance
sheets under the caption other long-term assets, net. ATMI records an
impairment charge when it believes an investment has experienced a decline in
value that is other than temporary. Future adverse changes in market conditions
or poor operating results of underlying investments could result in losses or
an inability to recover the carrying value of the investments that may not be
reflected in an investments current carrying value, thereby possibly requiring
an impairment charge in the future. Depreciable Lives of Property, Plant and Equipment ATMIs net property, plant and equipment at December 31, 2003 was $64.7
million, representing 15.6% of the Companys consolidated total assets.
Depreciation expense for the year ended December 31, 2003 was $12.5 million, or
7.6% of total operating expenses, including cost of revenues. Managements
judgment is required in the determination of the estimated depreciable lives
that are used to calculate the annual depreciation expense and accumulated
depreciation. Property, plant and equipment is recorded at cost and depreciated over the
assets estimated useful lives on a straight-line basis for financial reporting
purposes. The estimated useful life represents the projected period of time
that the asset will be productively employed by the Company and is determined
by management based on many factors, including historical experience with
similar assets, technological life cycles, and geographic locations.
Circumstances and events relating to these assets are monitored to ensure that
changes in asset lives or impairments are identified and prospective
depreciation expense or impairment expense is adjusted accordingly. 18




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Goodwill The Company accounts for goodwill in accordance with Statement of
Financial Accounting Standards (SFAS) No. 142, Goodwill and Other Intangible
Assets. In accordance with SFAS 142, management reviews goodwill for
impairment annually or when events or circumstances indicate that its value may
have declined. In order to evaluate impairment of goodwill, assumptions about
the future condition and operations of the business unit to which the goodwill
asset relates are made. These assumptions are applied to complex models in
which we estimate the fair value of the business unit utilizing projected
future cash flows, multiples of earnings and sales and other factors. Using
these models, management determines whether an impairment charge is required to
reduce goodwill to its estimated fair value. This estimation process is complex and involves subjective assumptions
about future events and discount factors to be applied to projected cash flows.
Estimated values can be affected by many factors beyond the Companys control
such as business and economic trends, government regulation, and technological
changes. Management believes the assumptions made to evaluate goodwill
impairment are appropriate and reasonable. However, changes in circumstances
or conditions affecting these assumptions could result in impairment charges in
future periods that may be material. Other Identifiable Intangible Assets Other identifiable intangible assets, such as acquired patents and
trademarks, customer base and covenants not to compete are currently amortized
using the straight-line method over their estimated useful lives ranging from 2
to 14 years. These assets are reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of the asset may not
be recoverable. Stock-Based Compensation At December 31, 2003, the Company has six stock-based employee
compensation plans, which are described more fully in Note 13 to the
consolidated financial statements. The Company accounts for these plans under
the recognition and measurement principles of Accounting Principles Board
(APB) Opinion No. 25, Accounting for Stock Issued to Employees, and related
Interpretations. All options granted under those plans had an exercise price
equal to market value of the underlying common stock on the date of grant. See
Note 1 to the consolidated financial statements for the effect on net loss and
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. Restructuring During the fiscal years ended December 31, 2003 and 2001, the Company
recorded significant charges in connection with restructuring and other
initiatives. These charges include costs related to employee separation costs,
plant closing costs, early lease termination expenses and various other asset
and working capital write-offs or write-downs. Although management does not
anticipate significant changes to the 2003 charge, the actual costs may differ
from the estimates used. Income Taxes The carrying value of the Companys net deferred tax assets assumes that
the Company will be able to generate sufficient future taxable income in
certain tax jurisdictions, based on estimates and assumptions. If these
estimates and related assumptions change in the future, the Company may be
required to record additional valuation allowances against its deferred tax
assets resulting in additional income tax expense in the Companys consolidated
statement of operations. Management evaluates the realizability of the deferred
tax assets and assesses the adequacy of the valuation allowance quarterly.
Likewise, in the event that the Company was to determine that it would be able
to realize its deferred tax assets in the future in excess of its net recorded
amount, an adjustment to the deferred tax assets would increase income in the
period such determination was made. 19




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##### Table of Contents



Recent Accounting Pronouncements

See Note 1 to the consolidated financial statements for information
concerning recent accounting pronouncements. Results of Operations The following table sets forth selected financial data as a percentage of
total revenues for the periods indicated: Fiscal Year Ended December 31,2003
    
    2002
    
    2001Revenues
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %Cost of revenues
    
    
    52.4
    
    
    
    50.0
    
    
    
    48.9Gross profit
    
    
    47.6
    
    
    
    50.0
    
    
    
    51.1Operating expenses:Research and development
    
    
    11.2
    
    
    
    10.1
    
    
    
    8.9Selling, general and administrative
    
    
    31.5
    
    
    
    36.9
    
    
    
    46.4Restructuring and other charges
    
    
    1.0
    
    
    
    0.0
    
    
    
    5.4Total operating expenses
    
    
    43.7
    
    
    
    47.0
    
    
    
    60.7Operating income (loss)
    
    
    3.9
    
    
    
    3.0
    
    
    
    (9.6
    )Interest income (expense), net
    
    
    (2.2
    )
    
    
    (1.3
    )
    
    
    3.2Other income (expense), net
    
    
    (3.2
    )
    
    
    0.3
    
    
    
    6.3Income (loss) before income taxes
    
    
    (1.5
    )
    
    
    2.0
    
    
    
    (0.1
    )Provision (benefit) for income taxes
    
    
    (2.7
    )
    
    
    0.7
    
    
    
    (0.7
    )Income from continuing operations
    
    
    1.2
    
    
    
    1.3
    
    
    
    0.6Loss from discontinued operations,
net of related tax benefit
    
    
    (6.9
    )
    
    
    (23.7
    )
    
    
    (9.3
    )Net loss
    
    
    (5.7
    )%
    
    
    (22.4
    )%
    
    
    (8.7
    )%
 Comparison of Years Ended December 31, 2003, 2002 and 2001 Revenues. Revenues increased 25.3% to $171.6 million in 2003 from $137.0
million in 2002, and increased 22.8% to $137.0 million in 2002 from $111.6
million in 2001. Revenues increased in 2003 compared to 2002 primarily due to
increased wafer starts which led to increased demand for liquid chemistries,
SDS® and high purity packaging products, and also due to the ViaForm® licensing
agreement and the acquisition of the ESC product lines. In 2002 the increase
in revenues to $137.0 million from $111.6 million was similarly driven by
increased wafer starts which led to increased demand for liquid chemistries and
SDS® products as well as increased demand for solids packaging products. Gross Profit. Gross profit increased 19.2% to $81.7 million in 2003 from
$68.6 million in 2002. Gross margin decreased to 47.6% in 2003 from 50.0% in
2002. In 2003, the Company recorded a $2.7 million charge for excess and
obsolete inventory primarily related to the outsourcing and standardization of
the Companys materials delivery equipment product lines. Excluding the
inventory charge, gross margins for 2003 would have been 49.1%. The increase
in gross profit in 2003 as compared to 2002 was primarily attributable to
volume increases in the higher margin Ion Implant and high purity packaging
product lines, as well as the ViaForm® licensing agreement and the acquisition
of the ESC product lines in 2003. Gross profit increased 20.2% to $68.6
million in 2002 from $57.0 million in 2001. Gross margin decreased to 50.0% in
2002 compared to 51.1% in 2001. The increase in gross profit was primarily
attributable to volume increases in the SDS® and Solids Packaging product
lines. Gross profit in 2001 includes a $0.6 million inventory write-down. Research and Development Expenses. Research and development expenses
increased 38.5% to $19.2 million in 2003 from $13.8 million in 2002. As a
percentage of revenues, research and development expenses 20




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##### Table of Contents



increased to 11.2% in 2003 compared to 10.1% in 2002. The increase is mainly
attributable to increased research and development efforts in chemical
mechanical planarization (CMP), photoresist and advanced interconnect materials
applications, as well as spending in the ViaForm®; and ESC product lines which
were licensed and acquired, respectively, in 2003. Approximately $0.7 million
of the 2003 increase in research and development expense is attributable to
writing off in-process research and development costs with no alternative
future use acquired in the ESC acquisition. Research and development expenses
increased 39.9% to $13.8 million in 2002 from $9.9 million in 2001, primarily
attributable to increased research and development spending on advanced
interconnect and high-purity packaging applications. As a percentage of
revenues, research and development expenses increased to 10.1% in 2002 from
8.9% in 2001. Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased 7.1% to $54.1 million in 2003 compared to
$50.6 million in 2002. As a percentage of revenues, selling, general and
administrative expenses decreased to 31.5% in 2003 compared to 36.9% in 2002
primarily due to increased sales volumes in 2003 versus 2002. The increase in
selling, general and administrative expenses reflects a half-year of expenses
related to one acquisition and one strategic alliance in 2003, including
amortization expense from intangibles relating to the acquisitions. Direct
selling expenses also increased in 2003 due to several new product launches.
Selling, general and administrative expenses decreased 2.5% to $50.6 million in
2002, compared to $51.8 million in 2001, primarily due to the higher costs
related to the restructuring efforts undertaken in 2001 and a $2.5 million
charge in 2001 to write down uncollectible accounts receivable balances. In
2002, selling, general and administrative expenses were 36.9% of revenues,
compared to 46.4% of revenues in 2001. The decrease was primarily the result
of the restructuring actions taken in 2001. Restructuring and Other Charges. The 2003 results include the recognition
of $1.7 million of restructuring and other charges. The $1.7 million charge
includes $2.4 million for abandoned assets in the Companys former materials
and liquid delivery systems manufacturing facility in Burnet, Texas, including
$1.1 million of liquid chemistry canisters, which were not returned to the
Company by various customers. Offsetting the charge is a $0.7 million gain
related to sub-lease income from a former tenant in the Companys Danbury,
Connecticut research and development facility. Operating results for 2001
include a $6.0 million charge for severance and other costs associated with
restructuring initiatives. The 2001 charge includes costs related to plant
closings, lease termination fees, and various other assets and working capital
write-offs or write-downs. An additional $0.6 million charge related to a
write down of inventory is included in cost of revenues. All restructuring
costs related to the 2001 charge have been fully paid by September 30, 2003. Operating Income (Loss).In 2003, the Company reported operating income
of $6.7 million compared to operating income of $4.1 million in 2002. The 2003
operating income is a result of the positive effect of acquisitions made by the
Company during the year and incremental wafer start growth driving increased
demand for specialty materials packaging products and SDS®. Operating income
was unfavorably impacted by the $2.7 million inventory excess and obsolescence
charge and the $1.7 million restructuring and other charge taken in 2003, both
previously discussed above. The 2002 operating income increased to $4.1
million from an operating loss of $10.7 million in 2001. This significant
increase was due to increased sales volumes in SDS® and liquid chemistries
product lines and a full years cost benefit from the 2001 restructuring
activities. The operating loss in 2001 was affected by the significant
semiconductor industry downturn in 2001, which severely impacted most product
lines volumes, which led to lower gross margins as well as the previously
mentioned $6.0 million restructuring charge taken in 2001. Interest and Other Income (Expense), Net. Interest and other income
(expense) increased to $9.3 million of expense in 2003 from $1.4 million of
expense in 2002. 2003 interest and other income (expense) included a $5.7
million impairment charge related to two of the Companys long-term strategic
venture capital investments. Interest and other income (expense) decreased to
$1.4 million of expense in 2002 from $10.6 million of income in 2001. Interest
and other income (expense) in 2002 includes a $1.0 million gain from the sale
of available-for-sale securities, partially offset by a $0.4 million write-down
on other available-for-sale securities. 2001 includes the positive impact of a
settlement of certain patent litigation, net of related expenses, and a $2.6
million gain from the sale of available-for-sale securities, partially offset
by a write-down of $0.4 million for an other-than-temporary decline in fair
value of other available-for-sale securities. Interest income declined $1.9
million to $3.0 million in 2003 from $4.9 million in 2002 primarily due to
overall lower yields on the Companys cash and marketable 21




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##### Table of Contents



securities portfolio and a reduction of cash balances due to acquisitions in
2003. Interest income increased 6.6% to $4.9 million in 2002 from $4.6 million
in 2001 on higher invested balances, despite significantly lower market
interest rates. Interest expense increased 3.3% in 2003 to $6.9 million from
$6.7 million in 2003, primarily as a result of lower interest capitalization on
construction projects. Interest expense increased to $6.7 million in 2002 from
$1.0 million in 2001, due mainly to a full year of debt service costs related
to the Companys $115.0 million convertible subordinated notes issued in the
fourth quarter of 2001. Income Taxes. In 2003, the income tax benefit was $4.6 million, compared
to an income tax provision of $1.0 million in 2002. The 2003 tax benefit
includes a $3.0 million benefit from the favorable judgment received from the
U.S. Tax Court during 2003. Excluding this one-time benefit, the income tax
benefit for 2003 was $1.6 million. The increase in the tax benefit was the
result of the pre-tax operating losses in 2003 compared to pre-tax operating
income in 2002. The effective tax rate for 2003 was 61.5%, excluding the
one-time $3.0 million tax benefit described above compared to an effective tax
rate of 35.0% for the comparable period a year ago. The effective tax rate of
61.5%, excluding the one-time $3.0 million tax benefit, differs from the
Federal statutory rate of 35.0% primarily because of state and foreign income
taxes, extra-territorial income exclusion benefits, in-process research and
development expenses, and the change in valuation allowances of deferred tax
assets. As of December 31, 2003, the Company has a net deferred tax asset on
its balance sheet of $17.8 million, primarily due to temporary differences, tax
credits and net operating loss and tax credit carryforwards, which are
anticipated to be used to offset future taxable income. The minimum amount of
future taxable income that would have to be generated to realize the net
deferred tax assets is approximately $49.5 million. In 2002, the income tax
provision was $1.0 million, compared to income tax benefit of $0.8 million in
2001. The change was due to the Companys operating losses as a result of the
semiconductor industry downturn, the restructuring efforts undertaken by
management during 2001 offset by the settlement of certain patent litigation.
The effective tax rates for 2001 and 2000 differ from the Federal statutory
rate of 35% primarily because of state and foreign income taxes, foreign sales
corporation benefits, research and development tax credits, and the change in
valuation allowances of deferred tax assets. Loss from Discontinued Operations. The loss from discontinued operations
in 2003, net of income taxes, is $11.9 million compared to a loss of $32.5
million in 2002, net of income taxes. The loss from discontinued operations in
2003 includes a $4.1 million charge for excess and obsolete inventory.
Excluding this charge, the loss was driven by three quarters of reduced demand
for semiconductor equipment as capital spending in the industry continued to
decline. The fourth quarter of 2003 showed some positive volume momentum as
wafer starts increased, leading to higher industry capital spending, which
translated to higher sales volumes. The results for the fourth quarter of 2003
exclude $2.2 million of depreciation and amortization expense as a result of
assets being classified as held for sale. Depreciation and amortization
expense was recognized on these assets in all previous quarters. The 2002
results from discontinued operations included the recognition of a $34.6
million pre-tax asset impairment charge associated with the Companys former
gallium arsenide epitaxial services business in Phoenix, Arizona. The loss
from discontinued operations in 2002 was also driven by the downturn in the
semiconductor industry, particularly the equipment sector, which had a
significant impact on operations. The loss from discontinued operations in
2002 was $32.5 million, net of income taxes, compared to a loss from
discontinued operations of $10.4 million, net of income taxes, in 2001. The
increased loss from discontinued operations in 2002 versus 2001 was driven by
the continued softness of industry capital spending and the $34.6 million
pre-tax charge described above, partially offset by a full year of cost savings
from restructuring initiatives implemented during 2001. Net Loss per Share. Net loss per share, assuming dilution, was $0.32 for
2003 compared to a net loss per share, assuming dilution, of $0.99 for 2002.
Net loss per share, assuming dilution, was $0.99 for 2002, compared to net loss
per share, assuming dilution, of $0.32 for 2001. Weighted average shares
outstanding, assuming dilution was 31.2 million for 2003 compared to 31.0
million for 2002. The difference in weighted average shares outstanding,
assuming dilution, between 2003 and 2002 is primarily the result of the
exercise of employee stock options and employee stock purchase plan shares.
Weighted-average shares outstanding, assuming dilution, was 31.0 million for
2002 compared to 30.7 million in 2001. The difference in weighted-average
shares outstanding, assuming dilution, between 2002 and 2001 is primarily the
result of the exercise of employee stock options and employee stock purchase
plan shares. 22




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##### Table of Contents



Liquidity and Capital Resources

Years ended December 31, 2003, 2002 and 2001 To date, ATMI has financed its activities principally through cash from
operations, the sale of equity, the issuance of convertible debt securities,
external research and development funding 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 decreased to $244.9 million at
December 31, 2003 from $282.7 million at December 31, 2002 primarily as a
result of a decrease in cash to fund acquisition and licensing activity. The
Companys working capital decreased to $282.7 million at December 31, 2002 from
$339.4 million at December 31, 2001 primarily as a result of reductions in cash
due to capital expenditures related to the Companys new manufacturing facility
in Burnet, Texas and payments on long-term financing arrangements. Net cash provided by operations was $7.8 million in 2003, compared to
$15.0 million in 2002. The decrease in cash provided from operations in 2003
compared to 2002 is mainly attributable to collection of federal income tax
receivables and increased operating income before non-cash expenses, offset by
increased inventories to support the strategic alliance with Enthone and also
to support increased sales volumes in various other product lines, increased
accounts receivable as a result of higher sales volumes, and $12.2 million of
cash used by discontinued operations. Net cash provided by operations was
$15.0 million in 2002 compared to $24.1 million in 2001. The reduction in cash
from operations resulted primarily from unfavorable changes in deferred income
taxes and other working capital accounts, reduced operating income before
non-cash expenses, and a reduction in cash provided by discontinued operations
in 2002 compared to 2001. Net cash used by investing activities was $44.6 million, $89.1 million and
$108.3 million in 2003, 2002 and 2001, respectively. Capital expenditures were
$15.3 million, $31.2 million and $21.9 million in 2003, 2002 and 2001,
respectively. The significant 2002 capital spending related primarily to the
construction of the Companys new liquid materials manufacturing facility in
Burnet, Texas, and continued strategic investments in facilities and equipment
for materials research and development capabilities. 2001 capital expenditures
primarily related to the start of the construction of the new liquid materials
manufacturing facility in Burnet, Texas, and the expansion of the Danbury,
Connecticut research and development facility. The significant cash used for
investing activities for discontinued operations in 2001 was primarily related
to the installation of compound semiconductor manufacturing capacity at the
Companys epitaxial services facility in Phoenix, Arizona, which was
subsequently disposed of in 2003. Acquisitions and other equity investments in
2003 included entering into a strategic alliance with Enthone, Inc., which
included purchasing the exclusive worldwide selling and distribution rights to
Enthones copper electrochemical deposition products, namely its ViaForm®
product line, and the acquisition of all the outstanding capital stock of ESC,
Inc. ESC develops, markets and sells novel surface preparation and cleaning
materials for copper and advanced interconnect microelectronic fabrication
processes. Acquisitions and other equity investments in 2002 include a
strategic investment to acquire copper delivery and abatement product lines and
rights to a copper electrochemical deposition management system. During 2001,
the Company paid approximately $6.7 million for equity investments in two
strategic partners for the development of advanced materials, of which $3.5
million has subsequently been written down and $2.0 million for the remainder
of the purchase of K.C. Tech Co. Ltd.s 30% interest in the operations of ADCS
Korea. For the years ended December 31, 2003, 2002 and 2001, the Company
purchased $103.4 million, $225.7 million and $80.7 million of marketable
securities, respectively, consisting primarily of short-term corporate and
municipal debt obligations. For the years ended December 31, 2003, 2002 and
2001, the Company sold $111.0 million, $182.5 million and $44.1 million of
marketable securities, respectively. Net cash provided by financing activities was $3.9 million in 2003,
compared to net cash used by financing activities of $16.2 million in 2002. In
2002, net cash from financing activities from discontinued operations consisted
of the Company paying down the entire amounts outstanding on its $20.0 million
bank financing agreement and approximately $5.1 million of capital lease
obligations, in order to reduce the weighted average interest rate on its
indebtedness, as allowed under the terms of the agreements. During 2001, the
Company completed the sale of $115.0 million of 5.25% convertible subordinated
notes due November 2006, and received net proceeds from the sale of
approximately $111.6 million. Also during 2001, the Company entered into a
$20.0 million bank financing agreement for the purchase of additional silicon
epitaxial capacity, which was paid down in 2002 as noted above. During 2003,
2002 and 2001, the Company received net proceeds from the exercise of employee
stock options and employee stock purchase plan shares of $4.7 million, $4.4
million and $2.6 million, 23




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##### Table of Contents



respectively. At December 31, 2003, $116.3 million of convertible notes, loans,
bonds, capital lease obligations and financing remained outstanding. Following is a summary of consolidated debt, lease, purchase and other
long-term liability obligations at December 31, 2003 (see Notes 7, 9 and 10 of
the consolidated financial statements), in thousands: Payments Due by PeriodLess thanTotal
    
    1 Year
    
    1-3 Years
    
    4-5 Years
    
    ThereafterContractual obligations:Debt:Convertible Notes
    
    $
    115,000
    
    
    
    
    
    
    $
    115,000
    
    
    
    
    
    
    
    Other
    
    
    931
    
    
    
    477
    
    
    
    454
    
    
    
    
    
    
    
    Total debt
    
    
    115,931
    
    
    
    477
    
    
    
    115,454
    
    
    
    
    
    
    
    Leases:Operating leases (1)
    
    
    16,569
    
    
    
    3,693
    
    
    
    5,105
    
    
    
    2,865
    
    
    
    4,906Capital leases
    
    
    416
    
    
    
    279
    
    
    
    137
    
    
    
    
    
    
    
    Total lease obligations
    
    
    16,985
    
    
    
    3,972
    
    
    
    5,242
    
    
    
    2,865
    
    
    
    4,906Purchase obligations:Inventory purchases
    
    
    3,256
    
    
    
    3,256
    
    
    
    
    
    
    
    
    
    
    
    Capital expenditures
    
    
    1,980
    
    
    
    1,980
    
    
    
    
    
    
    
    
    
    
    
    Total purchase obligations
    
    
    5,236
    
    
    
    5,236
    
    
    
    
    
    
    
    
    
    
    
    Other long-term liabilities
    
    
    116
    
    
    
    
    
    
    
    116
    
    
    
    
    
    
    
    Total debt, lease,
purchase and other
long-term liability
obligations
    
    $
    138,268
    
    
    $
    9,685
    
    
    $
    120,812
    
    
    $
    2,865
    
    
    $
    4,906
  (1)
    
    Included in the operating lease commitments shown above is $12.1 million
in operating lease commitments from discontinued operations. The
following table presents the lease obligations associated with
discontinued operations: Less thanTotal
    
    1 Year
    
    1-3 Years
    
    4-5 Years
    
    ThereafterContractual obligations:Total discontinued
operations obligations
    
    $
    12,110
    
    
    $
    2,540
    
    
    $
    2,879
    
    
    $
    1,791
    
    
    $
    4,900
 ATMI has agreed not to allow any of its significant subsidiaries or the
subsidiaries of those significant subsidiaries to incur any subordinated debt
while the convertible subordinated notes are outstanding without such
subsidiary first entering into an unconditional guarantee of the notes on a
subordinated basis. This restriction may limit those subsidiaries ability to
obtain subordinated debt on favorable terms and conditions or at all. 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
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. 24




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##### Table of Contents



Operations Outside the United States For the years ended December 31, 2003, 2002 and 2001, sales outside the
United States, including Asia and Europe, accounted for 58.4%, 50.0% and 55.8%,
respectively, of the Companys revenues. Management anticipates that the
Companys sales outside the United States will continue to account for a
significant percentage of total revenues. The Company has a wholly-owned
subsidiary in Belgium where it manufactures and sells high-purity solids
packaging applications. In addition, the Company has wholly-owned subsidiaries
in Taiwan, Singapore, China and Japan where the Company sells and services
several product lines. The Company also has a wholly-owned subsidiary in South
Korea that manufactures, sells and distributes materials delivery equipment and
thin-film materials to the semiconductor and related industries in South Korea. Cautionary Statements Under the Private Securities Litigation Reform Act of
1995 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 7A. Quantitative and Qualitative Disclosures About Market Risk. Interest Rate Risk As of December 31, 2003 the Companys cash and cash equivalents and
marketable securities included money market securities, corporate and municipal
bond obligations and commercial paper. As of December 31, 2003, an increase of
100 basis points in interest rates would reduce the fair value of our
marketable securities portfolio by approximately $0.6 million. Conversely, a
reduction to interest rates would increase the fair value of our marketable
securities portfolio by approximately $0.5 million. As of December 31, 2003, 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 $146.3 million at
December 31, 2003. 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 December 31, 2003, assuming a 100 basis point increase in
interest rates, the fair value of the notes would decrease by $0.8 million.
Conversely, a 100 basis point decrease in interest rates at December 31, 2003
would increase the fair value of the notes by $0.8 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
December 31, 2003, assuming a 10% increase in the price of our common stock,
the fair value of the notes would increase by $8.5 million. Conversely, a 10%
decrease in the price of our common stock would result in the fair value of the
notes decreasing by $7.4 million. 25




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##### Table of Contents



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 December 31, 2003, ATMI had $6.0 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 December 31, 2003 would decrease
by approximately $0.7 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 years ended December 31, 2003 and December 31, 2002. 
 Item 8. Financial Statements and Supplementary Data. The Report of Independent Auditors, the consolidated financial statements
and the financial statement schedule that are listed in the Index to
Consolidated Financial Statements and Financial Statement Schedule are included
herein on pages F-1 through F-28. 
  Item 9.
    Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure. There have been no changes in or disagreements with accountants required
to be reported herein. 
 Item 9A. 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 December 31, 2003.
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 December 31, 2003. There were no material
changes in the Companys internal control over financial reporting during the
fourth quarter of 2003. 
 PART III. 
 Item 10. Directors and Executive Officers of the Registrant. Information regarding ATMIs directors, executive officers, audit
committee, and audit committee financial experts is incorporated by reference
herein to the Companys Proxy Statement for its Annual Meeting of Stockholders
to be held on May 25, 2004 (the 2004 Proxy Statement). ATMI has adopted a code of ethics that applies to all of its directors,
officers (including its chief executive officer and chief financial officer)
and employees. The Company has made the Code of Ethics (known as the Code of
Conduct) available on its website at www.atmi.com. 
 Item 11. Executive Compensation. Information regarding compensation of ATMI executive officers is
incorporated by reference herein to the 2004 Proxy Statement. 26




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##### Table of Contents



Item 12.
    Security Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters. The following table summarizes information about our equity compensation
plans as of December 31, 2003. All outstanding awards relate to our common
stock. For additional information about our equity compensation plans, see
Note 13 to our consolidated financial statements in Item 8. Number of securitiesNumber of securities
    
    
    
    
    
    remaining available forto be issued upon
    
    
    
    
    
    future issuance underexercise of
    
    Weighted-average
    
    equity compensationoutstanding
    
    exercise price of
    
    plans (excludingoptions, warrants and
    
    outstanding options,
    
    securities reflected inPlan Category
    
    rights (1)
    
    warrants and rights
    
    column (a))(a)
    
    (b)
    
    (c)Equity compensation
plans approved by
security holders
    
    
    4,545,657
    
    
    $
    23.38
    
    
    
    3,812,118Equity compensation
plans not approved
by security holders
    
    
    
    
    
    
    
    
    
    
    Total
    
    
    4,545,657
    
    
    $
    23.38
    
    
    
    3,812,118
  (1)
    
    Includes 42,316 shares issued in January 2004 pursuant to the Companys
Employee Stock Purchase Plan, and 20,000 warrants outstanding at an
exercise price of $11.75 that are fully exercisable and expire on
September 1, 2005. The other information required by this Item is incorporated by reference
to the applicable information in the 2004 Proxy Statement. 
 Item 13. Certain Relationships and Related Transactions. Information regarding certain relationships and related transactions of
ATMI is incorporated by reference herein to the 2004 Proxy Statement. 27




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##### Table of Contents



Item 14. Principal Accountant Fees and Services. Information regarding principal accountant fees and services is
incorporated by reference herein to the 2004 Proxy Statement. 
 PART IV 
 Item 15. Exhibits, Financial Statement Schedule, and Reports on Form 8-K.  (a)
    
    The following documents are filed as part of this Annual Report on Form
10-K:(1)
    
    Financial Statements:Report of Independent Auditors
Consolidated Balance Sheets - December 31, 2003 and 2002
Consolidated Statements of Operations for the years ended December 31, 2003, 2002 and 2001
Consolidated Statements of Stockholders Equity for the years ended December 31, 2001,
2002 and 2003
Consolidated Statements of Cash Flows for the years ended December 31, 2003, 2002 and 2001
Notes to Consolidated Financial Statements(2)
    
    Financial Statement Schedule:Schedule II Valuation and Qualifying AccountsThe Report of Independent Auditors, consolidated financial statements and
financial statement schedule listed in the Index to Consolidated
Financial Statements and Financial Statement Schedule on page F-1 hereof
are filed as part of this report, commencing on page F-2 hereof.All other financial statement schedules are omitted as the required
information is not applicable or the information is shown in the
consolidated financial statements or related notes.(3)
    
    Exhibits Exhibit No.
    
    Description3.01(a)
    
    Certificate of Incorporation dated as of April 7, 1997
(Exhibit 3.01 to ATMIs Registration Statement on Form S-4,
dated September 10, 1997, Registration No. 333-35323 (the
1997 Form S-4 Registration Statement)). (1)3.01(b)
    
    Certificate of Amendment to Certificate of Incorporation dated
as of September 23, 1997 (Exhibit 4.1(b) to the ATMIs
Post-Effective Amendment No. 1 to Registration Statement on
Form S-8, filed October 10, 1997, Registration No. 33-93048).
(1)3.01(c)
    
    Certificate of Amendment to Certificate of Incorporation dated
as of June 16, 1998 (Exhibit 3.01(c) to the ATMIs
Registration Statement on Form S-4/A, dated July 1, 1998, File
No. 333-51333). (1)3.01(d)
    
    Certificate of Designation for Series A Junior Participating
Preferred Stock dated as of October 13, 2000 (Exhibit 4.01 to
ATMIs Current Report on Form 8-K dated October 17, 2000). (1)3.01(e)
    
    Certificate of Amendment to Certificate of Designation for
Series A Junior Participating Preferred Stock dated December
20, 2001 (Exhibit 3.01(e) to ATMIs Annual Report on Form
10-K, dated March 27, 2002) (the 2001 Form 10-K). (1)
 28




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##### Table of Contents



Exhibit No.
    
    Description3.01(f)
    
    Certificate of Amendment to Certificate of Incorporation dated
as of May, 23, 2003. (1)3.02
    
    Bylaws of ATMI (Exhibit 3.02 to the 1997 Form S-4 Registration
Statement). (1)4.01
    
    Specimen of ATMIs Common Stock Certificate (Exhibit 4.01 to
the 1997 Form S-4 Registration Statement). (1)4.02
    
    Rights Agreement, dated as of October 13, 2000, between ATMI,
Inc. and Fleet National Bank, as Rights Agent (Exhibit 4.01 to
ATMIs Current Report on Form 8-K, dated October 17, 2000).
(1)4.03
    
    Registration Rights Agreement, dated November 13, 2001, among
ATMI, Inc., Goldman, Sachs & Co. and Merrill Lynch, Pierce,
Fenner & Smith Incorporated, relating to ATMIs 5.25%
Convertible Subordinated Notes due 2006 (Exhibit 4.1 to ATMIs
Registration Statement on Form S-3, filed January 7, 2002,
Registration No. 333-76378 (the 2002 Form S-3 Registration
Statement)). (1)4.04
    
    Indenture, dated November 13, 2001, between ATMI, Inc. and
State Street Bank and Trust Company, relating to the ATMIs
5.25% Convertible Subordinated Notes due 2006 (Exhibit 4.2 to
the 2002 Form S-3 Registration Statement). (1)4.05
    
    Specimen Note for ATMIs 5.25% Convertible Subordinated Notes
due 2006 (included in pages 26 to 40 of the Indenture filed as
Exhibit 4.2 to the 2002 Form S-3 Registration Statement). (1)10.01*
    
    Employment Agreement between Eugene G. Banucci, Ph.D. and
Advanced Technology Materials, Inc. dated October 10, 1997
(Exhibit 10.01 to ATMIs Registration Statement on Form S-1,
dated February 20, 1998, File No. 333-46609 (the Form S-1
Registration Statement)). (1)10.02*
    
    Employment Agreement between Daniel P. Sharkey and Advanced
Technology Materials, Inc. dated October 10, 1997 (Exhibit
10.02 to the Form S-1 Registration Statement). (1)10.03*
    
    Employment Agreement between Douglas A. Neugold and Advanced
Technology Materials, Inc. dated April 26, 2000 (Exhibit 10.03
to ATMIs Annual Report on Form 10-K, dated April 2, 2001).
(1)10.04
    
    Agreement of Lease between Melvyn J. Powers and Mary P. Powers
d/b/a/ M&M Realty and Advanced Technology Materials, Inc.,
dated December 23, 1994 (Exhibit 10.09 to Advanced Technology
Materials, Inc. Annual Report on Form 10-K/A for the year
ended December 31, 1994, File No. 0-22756). (1)10.05
    
    First Amendment to Agreement of Lease dated as of November 22,
2000 by and between Commerce Park Realty, LLC and Advanced
Technology Materials, Inc. (1)10.06
    
    Second Amendment to Agreement of Lease dated as of March 24,
2003 by and between Commerce Park Realty, LLC and Advanced
Technology Materials, Inc. (1)10.07*
    
    ATMIs 1995 Stock Plan (Exhibit to ATMIs Registration
Statement on Form S-8, File No. 33-93048). (1)10.08*
    
    ATMIs 1997 Stock Plan, dated October 10, 1997, (Exhibit 99.1
to ATMIs Registration Statement on Form S-8, dated April 6,
1998, File No. 333-49561). (1)
 29




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##### Table of Contents



Exhibit No.
    
    Description10.09*
    
    ATMIs 1998 Stock Plan, dated May 20, 1998 (Exhibit 99.1 to
ATMIs Registration Statement on Form S-8, dated June 9, 1998,
File No. 333-56349). (1)10.10
    
    Agreement of Lease between Seymour R. Powers, Leon Griss and
Ruth Griss and Advanced Technology Materials, Inc., dated
November 24, 2000 (Exhibit 10.08 to ATMIs Annual Report on
Form 10-K for the year ended December 31, 2000, File No.
001-16239). (1)10.11*
    
    ATMIs 2000 Stock Plan, dated May 24, 2000 (Exhibit 99.01 to
ATMIs Registration Statement on Form S-8, dated September 20,
2000, File No. 333-46222). (1)10.12*
    
    ATMIs 1998 Employee Stock Purchase Plan, dated May 20, 1998
(Exhibit 99.1 to ATMIs Registration Statement on Form S-8,
dated June 2, 1998, File No. 333-55827). (1)10.13*
    
    ATMIs 2003 Stock Plan, dated May 21, 2003 (Appendix B to
ATMIs Definitive Proxy Statement on Schedule DEF14A, dated
April 21, 2003 (the 2003 Proxy Statement)). (1)10.14*
    
    Amendment to ATMIs 1998 Employee Stock Purchase Plan, dated
May 21, 2003 (Appendix C to the 2003 Proxy Statement). (1)10.15
    
    Alliance Agreement dated as of May 16, 2003 by and between
Advanced Technology Materials, Inc. on its own behalf and on
behalf of its Affiliates and Enthone, Inc. (2)(3)10.16
    
    Stock Purchase Agreement dated as of July 14, 2003 by and
among Advanced Technology Materials, Inc., Lente, LLC and the
Persons listed on the signature page thereto. (2)(3)10.17
    
    Lease Agreement entered in by and between Jennifer Development
Company and Now Technologies, Inc. dated as of January 18,
1995. (2)21.01
    
    Subsidiaries of ATMI (2)23
    
    Consent of Ernst & Young LLP (2)31.1
    
    Certification of Chief Executive Officer pursuant to Rule
13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act,
as amended. (2)31.2
    
    Certification of Chief Financial Officer pursuant to Rule
13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act,
as amended. (2)32
    
    Certification of Chief Executive Officer and Chief Financial
Officer Pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (2)
 *Management contract or compensatory plan arrangement.  (1)
    
    Incorporated by reference.(2)
    
    Filed herewith(3)
    
    Portions omitted pursuant to a request for confidential treatment..  (b)
    
    Reports on Form 8-KThe Company filed the following Reports on Form 8-K:  Date of Report:
    October 22, 2003 (filed on October 23, 2003); Items 7
and 12 (attaching a press release announcing the Companys financial
results for the three months ended September 30, 2003). 30




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##### Table of Contents



SIGNATURES Pursuant to the requirements of Section 13 or15(d)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.March 12, 2004By:
    
    /S/ Eugene G. BanucciEugene G. Banucci, Ph.D.,Chief Executive Officer, Chairmanof the Board and Director
 Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated. Signature
    
    Title
    
    DateChief Executive Officer, Chairman of the Board/S/ Eugene G. Banucci
    
    and Director (principal executive officer)
    
    March 12, 2004Eugene G. Banucci, Ph.D.President, Chief Operating Officer/S/ Douglas A. Neugold
    
    and Director
    
    March 12, 2004Douglas A. NeugoldVice President, Chief FinancialOfficer and Treasurer (principal financial and/S/ Daniel P. Sharkey
    
    accounting officer)
    
    March 12, 2004Daniel P. Sharkey/S/ Mark A. Adley
    
    
    
    March 12, 2004Mark A. Adley
    
    Director/S/ Robert S. Hillas
    
    
    
    March 12, 2004Robert S. Hillas
    
    Director/S/ Stephen H. Mahle
    
    
    
    March 12, 2004Stephen H. Mahle
    
    Director/S/ C. Douglas Marsh
    
    
    
    March 12, 2004C. Douglas Marsh
    
    Director/S/ Michael J. Yomazzo
    
    
    
    March 12, 2004Michael J. Yomazzo
    
    Director
 31




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##### Table of Contents



ATMI, INC. 
 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE PageReport of Ernst & Young LLP
    
    
    F-2Audited Financial StatementsConsolidated Balance Sheets - December 31, 2003 and 2002
    
    
    F-3Consolidated Statements of Operations for the years ended December 31, 2003,
2002, and 2001
    
    
    F-4Consolidated Statements of Stockholders Equity for the years ended
December 31, 2001, 2002, and 2003
    
    
    F-5Consolidated Statements of Cash Flows for the years ended December 31, 2003,
2002, and 2001
    
    
    F-6Notes to Consolidated Financial Statements
    
    
    F-7Financial Statement ScheduleSchedule II - Valuation and Qualifying Accounts
    
    
    F-28
 F-1




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##### Table of Contents



Report of Independent Auditors The Board of Directors and Stockholders of ATMI, Inc. We have audited the accompanying consolidated balance sheets of ATMI, Inc. as
of December 31, 2003 and 2002, and the related consolidated statements of
operations, stockholders equity, and cash flows for each of the three years in
the period ended December 31, 2003. Our audits also included the financial
statement schedule listed in the Index at Item 15(a). These financial
statements and schedule are the responsibility of ATMI, Inc.s management. Our
responsibility is to express an opinion on these financial statements and
schedule based on our audits. We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of ATMI, Inc. at
December 31, 2003 and 2002, and the consolidated results of their operations
and their cash flows for each of the three years in the period ended December
31, 2003, in conformity with accounting principles generally accepted in the
United States. Also, in our opinion, the related financial statement schedule,
when considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein. /s/ ERNST & YOUNG LLP Stamford, Connecticut
January 27, 2004 F-2




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##### Table of Contents



ATMI, INC. 
 CONSOLIDATED BALANCE SHEETS (in thousands, except per share data) December 31,2003
    
    2002ASSETSCurrent assets:Cash and cash equivalents
    
    $
    48,271
    
    
    $
    78,784Marketable securities
    
    
    80,429
    
    
    
    87,394Accounts receivable, net of allowances of $694 in 2003 and $1,355 in 2002
    
    
    38,439
    
    
    
    32,779Inventories, net
    
    
    21,564
    
    
    
    15,230Deferred income taxes
    
    
    7,488
    
    
    
    4,955Income taxes receivable
    
    
    188
    
    
    
    14,096Assets held for sale
    
    
    84,736
    
    
    
    85,157Prepaid expenses and other current assets
    
    
    8,604
    
    
    
    9,085Total current assets
    
    
    289,719
    
    
    
    327,480Property, plant and equipment, net
    
    
    64,673
    
    
    
    63,670Goodwill, net
    
    
    11,959
    
    
    
    5,296Other intangibles, net
    
    
    33,550
    
    
    
    5,773Deferred income taxes
    
    
    10,342
    
    
    
    4,853Other long-term assets, net
    
    
    4,199
    
    
    
    9,410Total assets
    
    $
    414,442
    
    
    $
    416,482LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    11,743
    
    
    $
    11,072Accrued liabilities
    
    
    12,365
    
    
    
    14,118Accrued salaries and related benefits
    
    
    6,961
    
    
    
    5,603Loans, notes and bonds payable, current portion
    
    
    777
    
    
    
    1,178Capital lease obligations, current portion
    
    
    270
    
    
    
    19Income taxes payable
    
    
    1,783
    
    
    
    448Liabilities held for sale
    
    
    7,196
    
    
    
    8,484Other current liabilities
    
    
    3,690
    
    
    
    3,824Total current liabilities
    
    
    44,785
    
    
    
    44,746Loans, notes and bonds payable, less current portion
    
    
    115,154
    
    
    
    115,177Capital lease obligations, less current portion
    
    
    136
    
    
    
    31Other long-term liabilities
    
    
    116
    
    
    
    138Commitments and contingencies (Notes 7, 10 and 16)
    
    
    
    
    
    
    Stockholders equity:Preferred stock, par value $.01: 2,000 shares authorized; none issued
    
    
    
    
    
    
    Common stock, par value $.01: 100,000 shares authorized; 30,973 and 30,673
issued and outstanding in 2003 and 2002, respectively
    
    
    310
    
    
    
    307Additional paid-in capital
    
    
    212,792
    
    
    
    207,412Retained earnings
    
    
    38,249
    
    
    
    48,168Accumulated other comprehensive income
    
    
    2,900
    
    
    
    503Total stockholders equity
    
    
    254,251
    
    
    
    256,390Total liabilities and stockholders equity
    
    $
    414,442
    
    
    $
    416,482
 See accompanying notes. F-3




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##### Table of Contents



ATMI, INC. 
 CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except per share data) Year Ended December 31,2003
    
    2002
    
    2001Revenues
    
    $
    171,634
    
    
    $
    136,975
    
    
    $
    111,563Cost of revenues
    
    
    89,902
    
    
    
    68,424
    
    
    
    54,545Gross profit
    
    
    81,732
    
    
    
    68,551
    
    
    
    57,018Operating expenses:Research and development
    
    
    19,170
    
    
    
    13,843
    
    
    
    9,896Selling, general and administrative
    
    
    54,145
    
    
    
    50,572
    
    
    
    51,843Restructuring and other charges (Note 15)
    
    
    1,731
    
    
    
    
    
    
    
    6,011Total operating expenses
    
    
    75,046
    
    
    
    64,415
    
    
    
    67,750Operating income (loss)
    
    
    6,686
    
    
    
    4,136
    
    
    

    (10,732
    )Interest income
    
    
    3,026
    
    
    
    4,867
    
    
    
    4,564Interest expense
    
    
    (6,887
    )
    
    
    (6,670
    )
    
    
    (982
    )Other income (expense), net
    
    
    (5,454
    )
    
    
    390
    
    
    
    7,003Income (loss) before income taxes

    
    
    (2,629
    )
    
    
    2,723
    
    
    
    (147
    )Provision (benefit) for income taxes
    
    
    (4,617
    )
    
    
    951
    
    
    
    (804
    )Income from continuing operations
    
    
    1,988
    
    
    
    1,772
    
    
    
    657Loss from discontinued operations, net of
related income tax benefit of $5,649,
$18,993 and $5,041
    
    
    (11,907
    )
    
    
    (32,493
    )
    
    
    (10,353
    )Net loss
    
    $
    (9,919
    )
    
    $
    (30,721
    )
    
    $
    (9,696
    )Basic earnings (loss) per shareEarnings per share from continuing operations
    
    $
    0.07
    
    
    $
    0.06
    
    
    $
    0.02Loss per share from discontinued operations
    
    $
    (0.40
    )
    
    $
    (1.09
    )
    
    $
    (0.35
    )Loss per common share
    
    $
    (0.33
    )
    
    $
    (1.03
    )
    
    $
    (0.33
    )Weighted average shares outstanding
    
    
    30,149
    
    
    
    29,896
    
    
    
    29,611Diluted earnings (loss) per shareEarnings per share from continuing operations
    
    $
    0.06
    
    
    $
    0.06
    
    
    $
    0.02Loss per share from discontinued operations
    
    $
    (0.38
    )
    
    $
    (1.05
    )
    
    $
    (0.34
    )Loss per common share
    
    $
    (0.32
    )
    
    $
    (0.99
    )
    
    $
    (0.32
    )Weighted average shares outstanding
    
    
    31,208
    
    
    
    30,997
    
    
    
    30,657
 See accompanying notes. F-4




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##### Table of Contents



ATMI, INC. 
 CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY (in thousands) AccumulatedAdditional
    
    
    
    
    
    OtherCommon
    
    Paid-in
    
    Retained
    
    ComprehensiveStock
    
    Capital
    
    Earnings
    
    Income (Loss)
    
    TotalBalance at December 31, 2000
    
    $
    302
    
    
    $
    198,775
    
    
    $
    88,585
    
    
    $
    (1,095
    )
    
    $
    286,567Issuance of 104 common shares pursuant to the exercise of
employee stock options
    
    
    1
    
    
    
    1,034
    
    
    
    
    
    
    
    
    
    
    
    1,035Issuance of 97 common shares pursuant to the employee
stock purchase plan
    
    
    1
    
    
    
    1,544
    
    
    
    
    
    
    
    
    
    
    
    1,545Equity based compensation
    
    
    
    
    
    
    88
    
    
    
    
    
    
    
    
    
    
    
    88Tax benefit related to nonqualified stock options
    
    
    
    
    
    
    723
    
    
    
    
    
    
    
    
    
    
    
    723Net loss
    
    
    
    
    
    
    
    
    
    
    (9,696
    )
    
    
    
    
    
    
    (9,696
    )Reclassification adjustment for realized gain on
available-for-sale securities sold (net of tax provision
of $637)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,039
    )
    
    
    (1,039
    )Unrealized gain on available-for-sale securities (net of
tax provision of $728)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,187
    
    
    
    1,187Cumulative translation adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (396
    )
    
    
    (396
    )Comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (9,944
    )Balance at December 31, 2001
    
    
    304
    
    
    
    202,164
    
    
    
    78,889
    
    
    
    (1,343
    )
    
    
    280,014Issuance of 179 common shares pursuant to the exercise of
employee stock options
    
    
    2
    
    
    
    2,769
    
    
    
    
    
    
    
    
    
    
    
    2,771Issuance of 82 common shares pursuant to the employee
stock purchase plan
    
    
    1
    
    
    
    1,600
    
    
    
    
    
    
    
    
    
    
    
    1,601Equity based compensation
    
    
    
    
    
    
    11
    
    
    
    
    
    
    
    
    
    
    
    11Tax benefit related to nonqualified stock options
    
    
    
    
    
    
    868
    
    
    
    
    
    
    
    
    
    
    
    868Net loss
    
    
    
    
    
    
    
    
    
    
    (30,721
    )
    
    
    
    
    
    
    (30,721
    )Reclassification adjustment for realized gain on
available-for-sale securities sold (net of tax provision
of $366)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (598
    )
    
    
    (598
    )Unrealized gain on available-for-sale securities (net of
tax provision of $560)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,108
    
    
    
    1,108Cumulative translation adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,336
    
    
    
    1,336Comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (28,875
    )Balance at December 31, 2002
    
    
    307
    
    
    
    207,412
    
    
    
    48,168
    
    
    
    503
    
    
    
    256,390Issuance of 197 common shares pursuant to the exercise of
employee stock options
    
    
    2
    
    
    
    3,034
    
    
    
    
    
    
    
    
    
    
    
    3,036Issuance of 102 common shares pursuant to the employee
stock purchase plan
    
    
    1
    
    
    
    1,620
    
    
    
    
    
    
    
    
    
    
    
    1,621Equity based compensation
    
    
    
    
    
    
    42
    
    
    
    
    
    
    
    
    
    
    
    42Tax benefit related to nonqualified stock options
    
    
    
    
    
    
    684
    
    
    
    
    
    
    
    
    
    
    
    684Net loss
    
    
    
    
    
    
    
    
    
    
    (9,919
    )
    
    
    
    
    
    
    (9,919
    )Reclassification adjustment for realized gain on available-
for-sale securities sold (net of tax provision of $129)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (228
    )
    
    
    (228
    )Unrealized gain on available-for-sale securities (net of
tax provision of $122)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    217
    
    
    
    217Cumulative translation adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,408
    
    
    
    2,408Comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (7,522
    )Balance at December 31, 2003
    
    $
    310
    
    
    $
    212,792
    
    
    $
    38,249
    
    
    $
    2,900
    
    
    $
    254,251
 See accompanying notes. F-5




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##### Table of Contents



ATMI, INC. 
 CONSOLIDATED STATEMENTS OF CASH FLOWS  Year Ended December 31,2003
    
    2002
    
    2001Operating activitiesNet loss
    
    $
    (9,919
    )
    
    $
    (30,721
    )
    
    $
    (9,696
    )Less: Loss from discontinued operations
    
    
    (11,907
    )
    
    
    (32,493
    )
    
    
    (10,353
    )Income from continuing operations
    
    
    1,988
    
    
    
    1,772
    
    
    
    657Adjustments to reconcile income from continuing operations to cash provided
(used) by operating activities from continuing operations:Depreciation and amortization
    
    
    15,039
    
    
    
    11,045
    
    
    
    8,823Restructuring and other charges
    
    
    1,731
    
    
    
    
    
    
    
    5,850Provision for bad debt
    
    
    124
    
    
    
    327
    
    
    
    2,152Provision for inventory obsolescence & lower-of-cost or market
    
    
    3,054
    
    
    
    384
    
    
    
    525Deferred income taxes
    
    
    (4,727
    )
    
    
    (1,915
    )
    
    
    (1,186
    )Tax benefit from nonqualified stock options
    
    
    684
    
    
    
    868
    
    
    
    723Realized gain on sale of marketable securities
    
    
    (357
    )
    
    
    (958
    )
    
    
    (2,605
    )Realized loss on investments
    
    
    5,707
    
    
    
    400
    
    
    
    359Other
    
    
    360
    
    
    
    11
    
    
    
    88Changes in operating assets and liabilities:Accounts receivable
    
    
    (5,164
    )
    
    
    (3,300
    )
    
    
    2,822Inventories
    
    
    (8,597
    )
    
    
    (509
    )
    
    
    1,639Other assets
    
    
    1,722
    
    
    
    2,329
    
    
    
    (7,249
    )Accounts payable
    
    
    570
    
    
    
    1,608
    
    
    
    3,887Accrued expenses
    
    
    87
    
    
    
    820
    
    
    
    8,558Income taxes
    
    
    7,940
    
    
    
    (9,765
    )
    
    
    (9,200
    )Other liabilities
    
    
    (165
    )
    
    
    1,455
    
    
    
    (3,991
    )Cash provided by operating activities from continuing operations
    
    
    19,996
    
    
    
    4,572
    
    
    
    11,852Cash provided (used) by operating activities from discontinued operations
    
    
    (12,228
    )
    
    
    10,467
    
    
    
    12,274Net cash provided by operating activities
    
    
    7,768
    
    
    
    15,039
    
    
    
    24,126Investing activitiesCapital expenditures
    
    
    (15,306
    )
    
    
    (31,150
    )
    
    
    (21,932
    )Acquisition, net of cash acquired, and other equity investments
    
    
    (36,463
    )
    
    
    (5,000
    )
    
    
    (8,683
    )Purchases of marketable securities
    
    
    (103,388
    )
    
    
    (225,734
    )
    
    
    (80,723
    )Sales of marketable securities
    
    
    110,981
    
    
    
    182,512
    
    
    
    44,110Discontinued operations  investing activities
    
    
    (399
    )
    
    
    (9,727
    )
    
    
    (41,114
    )Net cash used by investing activities
    
    
    (44,575
    )
    
    
    (89,099
    )
    
    
    (108,342
    )Financing activitiesBorrowings from loans, notes, and bonds payable
    
    
    
    
    
    
    
    
    
    
    115,000Payments on loans, notes, and bonds payable
    
    
    (523
    )
    
    
    (1,581
    )
    
    
    (2,295
    )Payments on capital lease obligations
    
    
    (142
    )
    
    
    (5
    )
    
    
    Proceeds from exercise of stock options and employee stock purchase plan shares
    
    
    4,657
    
    
    
    4,372
    
    
    
    2,580Discontinued operations  financing activities
    
    
    (106
    )
    
    
    (18,956
    )
    
    
    9,218Net cash provided (used) by financing activities
    
    
    3,886
    
    
    
    (16,170
    )
    
    
    124,503Effects of exchange rate changes on cash
    
    
    2,408
    
    
    
    1,337
    
    
    
    (396
    )Increase (decrease) in cash and cash equivalents from continuing operations
    
    
    (17,779
    )
    
    
    (70,677
    )
    
    
    59,513Decrease in cash and cash equivalents from discontinued operations
    
    
    (12,734
    )
    
    
    (18,216
    )
    
    
    (19,622
    )Net increase (decrease) in cash and cash equivalents
    
    
    (30,513
    )
    
    
    (88,893
    )
    
    
    39,891Cash and cash equivalents, beginning of year
    
    
    78,784
    
    
    
    167,677
    
    
    
    127,786Cash and cash equivalents, end of year
    
    $
    48,271
    
    
    $
    78,784
    
    
    $
    167,677
 See accompanying notes. F-6




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##### Table of Contents



ATMI, INC. 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  1.
    
    Description of Business, Basis of Presentation and Summary of Significant Accounting Policies Description of Business 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. General The preparation of the consolidated financial statements in conformity with
accounting principles generally accepted in the United States requires
management to make estimates and judgments that affect the reported amounts of
assets, liabilities, revenues and expenses, and related disclosure of
contingent assets and liabilities. On an ongoing basis, the Company evaluates
its estimates, including those related to bad debts, inventories, marketable
securities, property, plant and equipment, investments, intangible assets,
income taxes, restructuring charges, and contingencies and litigation. The
Company bases its estimates on historical experience and on various other
assumptions that are believed to be reasonable under the circumstances, the
results of which form the basis for making judgments about the carrying values
of assets and liabilities that are not readily apparent from other sources.
Actual results may differ from these estimates under different assumptions or
conditions and such differences could be material to the financial statements. Basis of Presentation The consolidated financial statements include the accounts of ATMI, Inc. and
its wholly-owned subsidiaries (ATMI, or the Company), after elimination of
intercompany accounts and transactions. During 2003, ATMI announced its intention to reduce its exposure to the capital
equipment cycles by exiting non-core product lines (which represents nearly all
of our former Technologies segment). 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, our smartcard device
venture, and gallium nitride materials. The Company intends to complete these
exit activities by the end of 2004. The consolidated financial statements have been reclassified for all periods
presented to reflect the non-core product lines held for sale as discontinued
operations. See Note 2 for additional details. Certain other prior year amounts have been reclassified to conform to the
current year presentation. F-7




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##### Table of Contents



ATMI, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)  1.
    
    Description of Business, Basis of Presentation and Summary of Significant
Accounting Policies (continued) Significant Accounting Policies Revenue Recognition The Company recognizes revenue in accordance with SEC Staff Accounting Bulletin
No. 101, Revenue Recognition in Financial Statements(SAB 101), as amended by
SAB 101A and 101B. SAB 101 requires that four basic criteria must be met
before revenue can be recognized: (1) persuasive evidence of an arrangement
exists; (2) delivery has occurred or services rendered; (3) the fee is fixed
and determinable; and (4) collectibility is reasonably assured. Determination
of criteria (3) and (4) are based on managements judgments regarding the fixed
nature of the fee charged for products delivered and services rendered and
collectibility of those fees. The Companys revenues from product sales are
recognized upon title transfer, which generally occurs upon shipment. In
instances where final acceptance of equipment is specified by the purchase
agreement, revenue is deferred until all acceptance criteria have been
satisfied. Service revenue is generally recognized ratably over the period of
the related contract, or if not under contract, when service is provided. The
Company accrues for warranty costs, sales returns, and other allowances based
on a current evaluation of its historical experience based on stated terms of
the transactions. Should actual product failure rates or customer return
experience differ from the Companys estimates, revisions to the estimated
accruals would be required. Shipping and Handling Fees and Costs The Company includes all shipping and handling billings within revenues, and
freight costs incurred for product shipments within cost of revenues. Bad Debt Credit is extended to commercial customers based on an evaluation of their
financial condition, and collateral is not generally required. The evaluation
of financial condition is performed to reduce the risk of loss. The Company
grants extended payment terms, which vary based on the geographic location of
the customer and generally range from 30 to 90 days. There are no material
collectibility issues with these extended-term receivables. The Company
maintains allowances for doubtful accounts for estimated losses resulting from
the inability of its customers to make required payments. Amounts are written
off when they are determined to be uncollectible. Past due status of accounts
receivable is determined primarily based upon contractual terms. Risks and Uncertainties Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist primarily of cash and cash equivalents,
marketable securities, accounts receivable, and currency forward exchange
contracts. The Company places its cash and cash equivalents, and marketable
securities primarily in market rate accounts and corporate and municipal debt
obligations. The Company performs ongoing credit evaluations of its customers
financial condition and generally requires no collateral from its customers.
The Company utilized one vendor to manufacture and distribute product that
accounted for approximately 27%, 29% and 30% of consolidated revenues in 2003,
2002 and 2001, respectively. The Company had amounts due from one customer
that accounted for approximately 28% and 29% of accounts receivable at December
31, 2003 and 2002, respectively. F-8




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##### Table of Contents



ATMI, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)  1.
    
    Description of Business, Basis of Presentation and Summary of Significant
Accounting Policies (continued) Research and Development Research and development costs primarily relate to self-funded projects and
include materials, labor, and overhead, and are expensed as incurred. The
Company also incurs research and development costs that are funded by external
sources. Contract funding amounts are classified within cost of revenues and
cost share agreement funding is classified within research and development
expense. Cash and Cash Equivalents, Marketable Securities and Investments Highly liquid investments with maturities of three months or less, when
purchased, are classified as cash and cash equivalents. Investments in publicly
traded securities with maturities greater than three months are classified as
marketable securities. The Company accounts for marketable securities in accordance with Statement of
Financial Accounting Standards (SFAS) No. 115, Accounting for Certain
Investments in Debt and Equity Securities. All of the Companys marketable
securities are classified as available-for-sale as of the balance sheet date
and are reported at fair value, based on quoted market prices, with unrealized
gains and losses recorded in accumulated other comprehensive income (loss), net
of tax. The cost of securities sold is based on the specific identification
method. Interest on these securities is accrued and included in interest
income. The 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. The 2001 results include a gain of
approximately $2.6 million from the sale of available-for-sale equity
securities, offset by a write-down of approximately $0.4 million for an
other-than-temporary decline in fair value of other available-for-sale equity
securities. These amounts are included in other income (expense), net for
the years ended December 31, 2002 and 2001. The Company holds minority interests in companies having operations or
technology in areas within or related to its strategic focus, some of which are
in publicly traded companies whose share prices are highly volatile and some of
which are in private companies whose value is difficult to determine.
Investments in private companies are included in the consolidated balance
sheets under the caption other long-term assets, net, and are accounted for
at aggregate cost. ATMI records an impairment charge when it believes an
investment has experienced a decline in value that is other than temporary.
The 2003 results include an impairment charge of $5.7 million related to these
investments, which are included in other income (expense), net. Inventories Inventories are stated at the lower of cost or market using the first-in,
first-out method. The Company provides inventory allowances for estimated
excess, obsolete and unmarketable inventory equal to the difference between the
cost of inventory and estimated market value based upon future demand forecasts
and market conditions. F-9




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##### Table of Contents



ATMI, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)  1.
    
    Description of Business, Basis of Presentation and Summary of Significant
Accounting Policies (continued) Property, Plant and Equipment Property, plant and equipment are carried at cost, net of accumulated
depreciation. Depreciated is calculated on the straight-line method based on
the estimated useful lives of the assets, as follows: buildings, 15 to 35
years; machinery and equipment, 3 to 15 years; furniture and fixtures, 5 years;
and leasehold improvements are amortized over the lesser of the lease term or
estimated useful life. ATMI uses accelerated depreciation methods for tax
purposes where appropriate. Foreign Currency Translation The Companys foreign subsidiaries operate primarily using local currencies.
Accordingly, all assets and liabilities of these subsidiaries are translated
using exchange rates in effect at the end of the period, and revenues and
expenses are translated using average exchange rates in effect during the
period. Gains and losses from translation adjustments are included in
accumulated other comprehensive income on the consolidated balance sheet. Gains
or losses resulting from foreign currency transactions are included in other
income (expense), net and have not been significant to our operating results
for any period. Income Taxes The Company accounts for income taxes in accordance with the liability method.
Under this method, deferred tax assets and liabilities are determined based
upon differences between the financial reporting and the tax basis of assets
and liabilities and are measured using the enacted tax rates expected to apply
to taxable income in the periods in which the deferred tax assets or
liabilities are expected to be realized or settled. The Company evaluates the
realizability of the deferred tax assets on a quarterly basis. If a portion or
all of the valuation allowance is unnecessary, then the related tax benefits
will reduce the future income tax provision anticipated at that time. Fair Values of Financial Instruments Other than Derivatives The Companys financial instruments consist primarily of cash and cash
equivalents, marketable securities, accounts receivable, accounts payable,
accrued liabilities and debt. Marketable securities are accounted for at fair
value using quoted market prices for those securities. The Companys 5.25%
convertible notes are accounted for at historical cost. The fair value of the
convertible notes is approximately $146.3 million at December 31, 2003. All
other financial instruments are accounted for on a historical cost basis, which
due to the nature of these instruments approximates fair value at the balance
sheet dates. Derivative Instruments ATMI enters into derivative financial instruments solely to manage its exposure
to fluctuating currency rates. These financial instruments are in the form of
forward contracts, and are not entered into for trading purposes. ATMI uses
only commonly traded instruments. F-10




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##### Table of Contents



ATMI, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)  1.
    
    Description of Business, Basis of Presentation and Summary of Significant
Accounting Policies (continued) Effective January 1, 2001, ATMI adopted SFAS No. 133, Accounting for
Derivative Instruments and Hedging Activities, as amended by SFAS Nos. 137,
138 and 149. SFAS No. 133 requires all derivatives to be recorded on the
balance sheet at fair value. ATMI has entered into only forward exchange
contracts to hedge fair value exposures. Fair value exposures relate to
foreign denominated assets. Derivatives that are entered into for risk management purposes, and are not
designated as hedges, are recorded at their fair market values, with changes in
fair market value being recognized in current earnings. The fair values of
currency forward contracts are estimated based on market prices obtained from
independent dealer or market quotes. Such quotes represent the estimated
amount the Company would receive or pay to terminate the agreements taking into
consideration current rates. Long-Lived Assets Long-lived assets and certain identifiable intangible assets to be held and
used are reviewed for impairment whenever indicators of impairment are present.
If indicators of impairment are present, management determines whether the sum
of the estimated undiscounted future cash flows attributable to the long-lived
asset in question is less than its carrying amount. Measurement of an
impairment loss for long-lived assets is based on the excess of the carrying
amount over its respective fair value. Long-lived assets to be disposed of by
sale or other means are reported at the lower of carrying amount or fair value
less costs to sell. Goodwill and Other Intangibles The Company accounts for goodwill in accordance with SFAS No. 142, Goodwill
and Other Intangible Assets. In accordance with SFAS 142, management reviews
goodwill for impairment annually or when events or circumstances indicate that
its value may have declined. In order to evaluate impairment of goodwill,
assumptions about the future condition and operations of the business unit to
which the goodwill asset relates are made. These assumptions are applied to
complex models in which we estimate the fair value of the business unit
utilizing projected future cash flows, multiples of earnings and sales and
other factors. Using these models, management determines whether an impairment
charge is required to reduce goodwill to its estimated fair value. The Statement of Operations for the years ended December 31, 2003 and 2002
includes the effect of adopting this new standard. The effect on reported net
loss for the year ended December 31, 2001 is shown in the following table (in
thousands, except per share data). Goodwill amortization includes amounts
recorded in continuing and discontinued operations: December 31,2001Net loss, as reported
    
    $
    (9,696
    )Goodwill amortization, net of tax
    
    
    465Pro forma net loss
    
    $
    (9,231
    )Loss per share:Basic-as reported
    
    $
    (0.33
    )Basic-pro forma
    
    $
    (0.31
    )Diluted-as reported
    
    $
    (0.32
    )Diluted-pro forma
    
    $
    (0.30
    )
 F-11




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##### Table of Contents



ATMI, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)  1.
    
    Description of Business, Basis of Presentation and Summary of Significant
Accounting Policies (continued) Other intangible assets, such as acquired patents and trademarks, customer
base, purchased systems and manufacturing documentation, and covenants not to
compete, are currently amortized on the straight-line method over their
estimated useful lives ranging from 2 to 14 years. These assets are currently
reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. Stock-Based Compensation At December 31, 2003, the Company had six stock-based employee compensation
plans, which are described more fully in Note 13. The Company accounts for
these plans under the recognition and measurement principles of Accounting
Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to
Employees, and related Interpretations. All options granted under those plans
had an exercise price equal to the fair market value of the underlying common
stock on the date of grant. The following table sets forth the effect on net
income and earnings 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): Year Ended December 31,2003
    
    2002
    
    2001Net loss, as reported
    
    $
    (9,919
    )
    
    $
    (30,721
    )
    
    $
    (9,696
    )Deduct: Total stock-based
employee compensation
expense determined under
fair value based method for
all awards, net of related
tax effect
    
    
    (9,279
    )
    
    
    (11,704
    )
    
    
    (11,032
    )Pro forma net loss
    
    $
    (19,198
    )
    
    $
    (42,425
    )
    
    $
    (20,728
    )Loss per share:Basic-as reported
    
    $
    (0.33
    )
    
    $
    (1.03
    )
    
    $
    (0.33
    )Basic-pro forma
    
    $
    (0.64
    )
    
    $
    (1.42
    )
    
    $
    (0.70
    )Diluted-as reported
    
    $
    (0.32
    )
    
    $
    (0.99
    )
    
    $
    (0.32
    )Diluted-pro forma
    
    $
    (0.62
    )
    
    $
    (1.37
    )
    
    $
    (0.68
    )
 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 were as follows (in thousands): Accrual for ProductWarranty CostsBalance December 31, 2001
    
    $
    777Charged to expense
    
    
    1,770Warranty service costs deducted from accrual
    
    
    (1,531
    )Balance December 31, 2002
    
    $
    1,016Charged to expense
    
    
    580Warranty service costs deducted from accrual
    
    
    (512
    )Balance December 31, 2003
    
    $
    1,084
    (1)
  (1)
    
    Included in the December 31, 2003 balance
above is the warranty reserve for discontinued operations
of $700. F-12




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##### Table of Contents



ATMI, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)  1.
    
    Description of Business, Basis of Presentation and Summary of Significant
Accounting Policies (continued) Recently Issued Accounting Pronouncements During January 2003, the FASB issued Interpretation (FIN) No. 46,
Consolidation of Variable Interest Entities, which requires a company to
consolidate a variable interest entity (VIE) when the company has a majority of
the risk of loss from the VIEs activities or is entitled to receive a majority
of the entitys residual returns or both. A VIE is a corporation, partnership,
trust or other legal entity that does not have equity investors with voting
rights or has equity investors that do not provide sufficient financial
resources for the entity to support its own activities. FIN 46 became
effective for ATMI during 2003 for any newly created entities after January 31,
2003. Adoption of this standard is required for special purpose entities
existing on the Companys balance sheet at December 31, 2003, of which the
Company has none. No variable interest entities were created during 2003 that
fall under the scope of this standard. FIN 46 will become effective for ATMI
in its quarter ending March 31, 2004 for all other variable interest entities.
We do not expect this interpretation to have a material effect on our financial
position or results of operations, but it may impact how future transactions
are accounted for. Other Only 3% of the Companys employees are covered by a collective bargaining
agreement, which expires in December 2004. All of the employees covered by
this agreement are based in Europe.  2.
    
    Discontinued Operations In the fourth quarter of 2003, ATMI announced its intention to reduce its
exposure to the capital equipment cycles of the semiconductor industry by
exiting non-core product lines (which represents nearly all of our former
Technologies segment). 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, our smartcard device venture, and
gallium nitride materials. In accordance with SFAS No. 144, the Company has
accounted for these product lines as discontinued operations. The operating
results of these product lines, including restated prior periods, are shown as a
discontinued operation in the consolidated statements of operations. The
assets and liabilities of the discontinued operations have been classified
separately on the consolidated balance sheets in the current assets and current
liabilities, respectively. The Company intends to complete these exit
activities by the end of 2004. Revenues and losses from discontinued operations were as follows (in
thousands): Year Ended December 31,2003
    
    2002
    
    2001Revenues
    
    $
    71,744
    
    
    $
    75,660
    
    
    $
    101,893Pre-tax loss from discontinued
operations
    
    ($
    17,556
    )
    
    ($
    51,486
    )
    
    ($
    15,394
    )Loss from discontinued operations,
net of income tax benefit
    
    ($
    11,907
    )
    
    ($
    32,493
    )
    
    ($
    10,353
    )
 F-13




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##### Table of Contents



ATMI, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)  2.
    
    Discontinued Operations (continued) The assets and liabilities of the discontinued operations were as follows (in
thousands): December 31,2003
    
    2002Assets:Accounts receivable, net
    
    $
    6,691
    
    
    $
    3,977Inventories, net
    
    
    19,642
    
    
    
    16,237Other current assets
    
    
    4,707
    
    
    
    5,561Property, plant and equipment, net
    
    
    48,383
    
    
    
    54,486Goodwill, net
    
    
    2,888
    
    
    
    2,620Other intangible assets, net
    
    
    2,297
    
    
    
    1,905Other non-current assets
    
    
    128
    
    
    
    371Total assets
    
    $
    84,736
    
    
    $
    85,157Liabilities:Accrued liabilities
    
    $
    6,130
    
    
    $
    5,456Other liabilities
    
    
    1,066
    
    
    
    3,028Total liabilities
    
    $
    7,196
    
    
    $
    8,484
  3.
    
    Mergers and Acquisitions 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. ESC develops, markets and
sells novel wafer preparation and cleaning materials for copper and advanced
interconnect microelectronic fabrication processes. The acquisition was
recorded under the purchase method of accounting and, accordingly, ESCs
results of operations are included in the Companys financial statements
prospectively from the date of acquisition (July 14, 2003). The purchase price
was allocated to assets acquired and liabilities assumed based on an
independent valuation of their respective fair market values at the date of
acquisition as summarized below (in thousands). The excess of the purchase
price over the assessment of fair market value of identifiable assets acquired
has been recorded as goodwill. Identified intangible assets
    
    $
    10,450In-process research and development
    
    
    650Net liabilities assumed
    
    
    (1,706
    )Goodwill
    
    
    7,042Purchase price, net of cash acquired
    
    $
    16,436
 Net liabilities assumed are presented net of cash acquired of $1.7 million.
The $0.7 million of in-process research and development has been charged to
expense in 2003, since it has no alternative future use. The $10.5 million of
identified intangible assets is included in other intangibles and will be
amortized using the straight-line method over 7 years. During May 2003, ATMI entered into a strategic alliance with Enthone, Inc., a
Cookson Electronics Company (Enthone), whereby ATMI purchased the exclusive
worldwide selling and distribution rights to Enthones copper electrochemical
deposition (ECD) products, including its ViaForm® products, for a period of ten
years, subject to automatic renewal upon satisfaction of certain conditions.
Under the terms of the agreement, Enthone will continue to manufacture the
ViaForm® products for ATMI. The asset related to these purchased rights is
included in other intangibles and will be amortized using the straight-line
method over a period of 14 years. F-14




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##### Table of Contents



ATMI, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)  4.
    
    Marketable Securities Marketable securities are comprised of the following at December 31, (in
thousands): 2003
    
    2002Gross
    
    
    
    
    
    
    
    
    
    GrossUnrealized
    
    Estimated
    
    
    
    
    
    Unrealized
    
    EstimatedCost
    
    Gain
    
    Fair Value
    
    Cost
    
    Gain
    
    Fair ValueCommon stock
    
    $
    679
    
    
    $
    2,216
    
    
    $
    2,895
    
    
    $
    679
    
    
    $
    1,474
    
    
    $
    2,153Corporate debt obligations
    
    
    19,769
    
    
    
    21
    
    
    
    19,790
    
    
    
    30,841
    
    
    
    137
    
    
    
    30,978Government obligations
    
    
    57,706
    
    
    
    38
    
    
    
    57,744
    
    
    
    53,848
    
    
    
    415
    
    
    
    54,263Total marketable securities
    
    $
    78,154
    
    
    $
    2,275
    
    
    $
    80,429
    
    
    $
    85,368
    
    
    $
    2,026
    
    
    $
    87,394
 The amortized cost and estimated fair value of available-for-sale securities,
by contractual maturity, as of December 31, 2003 are shown below. Expected
maturities may differ from contractual maturities because the issuers of the
securities may exercise the right to prepay obligations without prepayment
penalties. EstimatedCost
    
    Fair ValueDue in one year or less
    
    $
    19,605
    
    
    $
    19,631Due after one year through three years
    
    
    57,870
    
    
    
    57,90377,475
    
    
    
    77,534Common stock
    
    
    679
    
    
    
    2,895$
    78,154
    
    
    $
    80,429
  5.
    
    Inventories Inventories are comprised of the following at December 31, (in thousands): 2003
    
    2002Raw materials
    
    $
    11,272
    
    
    $
    8,236Work in process
    
    
    725
    
    
    
    1,079Finished goods
    
    
    13,444
    
    
    
    6,86125,441
    
    
    
    16,176Excess and obsolescence reserve
    
    
    (3,877
    )
    
    
    (946
    )Net Inventory
    
    $
    21,564
    
    
    $
    15,230
 As of December 31, 2003, the Company had commitments for inventory purchases of
$3.3 million. F-15




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##### Table of Contents



ATMI, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)  6.
    
    Derivative Instruments ATMI is a party to two Japanese Yen currency exchange forward contracts that
mature within one year, to manage its exposure to volatility in this currency
against the U.S. dollar. At December 31, 2003, ATMI had $6.0 million notional
amount of currency exchange forward contracts outstanding. The forward
contracts were entered into to hedge against foreign currency denominated
receivables and payables on the balance sheet. At December 31, 2003, the fair
value of all derivative instruments is $0.2 million and has been recorded in
the consolidated balance sheet in other current liabilities. A loss of $0.2
million related to these two contracts for the year ended December 31, 2003 has
been recorded in other income (expense), net on the consolidated statement of
operations.  7.
    
    Property, Plant and Equipment Property, plant and equipment is comprised of the following (in thousands): December 31,2003
    
    2002Land
    
    $
    1,216
    
    
    $
    1,206Buildings
    
    
    21,782
    
    
    
    4,214Machinery and equipment
    
    
    76,008
    
    
    
    61,634Furniture and fixtures
    
    
    3,289
    
    
    
    3,050Leasehold improvements
    
    
    11,640
    
    
    
    11,768Construction in progress
    
    
    4,515
    
    
    
    27,169118,450
    
    
    
    109,041Accumulated depreciation and amortization
    
    
    (53,777
    )
    
    
    (45,371
    )$
    64,673
    
    
    $
    63,670
 Depreciation and amortization expense for property, plant and equipment for the
years ended December 31, 2003, 2002, and 2001 was $12.5 million, $10.0 million
and $8.3 million, respectively. The Company capitalizes interest as part of
the cost of constructing major facilities. Interest cost capitalized in 2003,
2002 and 2001 was $0.1 million, $0.9 million and $1.0 million, respectively. As of December 31, 2003, the Company had commitments for capital expenditures
of $2.0 million. F-16




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##### Table of Contents



ATMI, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)  8.
    
    Goodwill and Other Intangibles Intangibles consisted of the following (in thousands): December 31,2003
    
    2002Goodwill, gross
    
    $
    12,237
    
    
    $
    5,574Accumulated amortization
    
    
    (278
    )
    
    
    (278
    )Goodwill, net
    
    $
    11,959
    
    
    $
    5,296Debt issuance costs, gross
    
    $
    4,257
    
    
    $
    4,257Accumulated amortization
    
    
    (1,853
    )
    
    
    (1,012
    )Debt issuance costs, net
    
    $
    2,404
    
    
    $
    3,245Patents and trademarks, gross
    
    $
    27,490
    
    
    $
    545Accumulated amortization
    
    
    (1,270
    )
    
    
    (285
    )Patents and trademarks, net
    
    $
    26,220
    
    
    $
    260Other intangibles, gross
    
    $
    5,969
    
    
    $
    2,642Accumulated amortization
    
    
    (1,043
    )
    
    
    (374
    )Other intangibles, net
    
    $
    4,926
    
    
    $
    2,268
 Amortization expense on intangible assets was $2.5 million, $1.1 million and
$0.6 million for the years ended December 31, 2003, 2002 and 2001,
respectively. Included in amortization expense is the amortization of debt
issuance costs of $0.8 million, $0.8 million and $0.1 million for the years
ended December 31, 2003, 2002 and 2001, respectively, which is included as a
component of interest expense on the Statement of Operations. See Note 2 for
goodwill and other intangibles related to the discontinued operations. The
approximate amortization expenses from continuing operations to be recognized
related to intangible assets for the following years ended are (in thousands): 2004
    
    $
    4,3632005
    
    
    4,3572006
    
    
    4,1752007
    
    
    3,2352008
    
    
    2,944Thereafter
    
    
    14,476$
    33,550
  9.
    
    Loans, Notes and Bonds Payable Loans, notes and bonds payable consist of the following (in thousands): December 31,2003
    
    2002City of Bloomington, Minnesota Industrial Revenue Bonds,
interest rate is variable (1.6% at December 31, 2003 and
3.0% at December 31, 2002), quarterly payments of $0.1
million, due September 2005.
    
    $
    700
    
    
    $
    1,100Notes payable primarily with commercial banks and leasing
companies, bearing interest of 4.55%
    
    
    
    
    
    
    1005.25% Convertible Subordinated Notes due November 15, 2006
    
    
    115,000
    
    
    
    115,000Commercial credit lines and other
    
    
    231
    
    
    
    155115,931
    
    
    
    116,355Less current portion
    
    
    (777
    )
    
    
    (1,178
    )$
    115,154
    
    
    $
    115,177
 F-17




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##### Table of Contents



ATMI, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)  9.
    
    Loans, Notes and Bonds Payable (continued) The balance of loans and notes payable at December 31, 2003 and 2002,
respectively, include amounts due in Euros as follows: 186,000 and 345,000
(equivalent to $231,000 and $354,000, respectively, in U.S. Dollars). The
approximate aggregate debt maturities are as follows as of December 31, 2003
(in thousands): 2004
    
    $
    4772005
    
    
    3772006
    
    
    115,0772007
    
    
    2008
    
    
    Thereafter
    
    
    $
    115,931
 The bond payable is secured by related real property or equipment, which the
bonds were used to finance. Approximately $0.2 million of assets are secured by
the Companys other credit lines. Available borrowing capacity under the other
credit lines is approximately $1.2 million at December 31, 2003. The weighted
average interest rate on the Companys short-term borrowings is 2.0% at
December 31, 2003. The bondholders may tender the City of Bloomington, Minnesota bonds at any time
for the principal amount plus accrued interest. As a result, they have been
classified as a current liability. However, for purposes of displaying the
approximate debt maturities above, the bond payments are shown in the years
they are expected to be paid. On November 13, 2001, the Company sold $115.0 million of convertible
subordinated notes, due in 2006, in a private offering. The notes bear interest
at 5.25% per annum and are convertible by the holders into approximately 5.2
million shares of the Companys common stock, at a conversion price of
approximately $22.19 per share. The notes and related shares, issuable upon
conversion of the notes, were registered with the Securities and Exchange
Commission on February 19, 2002. The notes are redeemable at the Companys
option beginning on November 15, 2004, in whole or in part, at certain premiums
decreasing through the maturity date. Interest is payable semi-annually. Certain of the financing agreements of the Companys subsidiaries contain
limitations or prohibitions on the payment of dividends without the lenders
consent. Interest paid was $6.1 million, $6.1 million, and $0.8 million, for
the years ended December 31, 2003, 2002 and 2001, respectively. The Company has
never declared or paid cash dividends on its capital stock. The Company does
not anticipate paying any cash dividends in the foreseeable future.  10.
    
    Leases The following is a schedule of future minimum lease payments for capital leases
as of December 31, 2003 (in thousands): 2004
    
    $
    2792005
    
    
    137Total lease payments
    
    
    416Less amount representing interest
    
    
    (10
    )Present value of future minimum lease payments
    
    
    406Less current portion
    
    
    270Long-term portion
    
    $
    136
 F-18




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##### Table of Contents



ATMI, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)  10.
    
    Leases (continued) The Company leases office and manufacturing facilities, and certain
manufacturing equipment under several operating leases expiring between 2004
and 2026. Rental expense was $4.2 million, $5.8 million and $5.7 million for
the years ended December 31, 2003, 2002 and 2001, respectively. The following is a schedule of future minimum lease payments for operating
leases as of December 31, 2003 (in thousands): OperatingLeases2004
    
    $
    3,6932005
    
    
    3,0492006
    
    
    2,0562007
    
    
    1,9542008
    
    
    911Thereafter
    
    
    4,906Total minimum lease payments
    
    $
    16,569
    (1)
  (1)
    
    Included in the table above

are future minimum lease payments related to
discontinued operations of $12.1 million.  11.
    
    Income Taxes Pretax income (loss) from continuing operations was taxed in the following
jurisdictions (in thousands): Year Ended December 31,2003
    
    2002
    
    2001Domestic
    
    $
    (11,532
    )
    
    $
    995
    
    
    $
    100Foreign
    
    
    8,903
    
    
    
    1,728
    
    
    
    (247
    )Total pretax income (loss)
    
    $
    (2,629
    )
    
    $
    2,723
    
    
    $
    (147
    )
 Significant components of the provision (benefit) for income taxes for the
periods presented are as follows (in thousands): December 31,2003
    
    2002
    
    2001Current:Federal
    
    $
    (2,501
    )
    
    $
    1,495
    
    
    $
    (232
    )State
    
    
    209
    
    
    
    506
    
    
    
    130Foreign
    
    
    2,402
    
    
    
    865
    
    
    
    484Total current
    
    
    110
    
    
    
    2,866
    
    
    
    382Deferred:Federal
    
    
    (4,488
    )
    
    
    (1,291
    )
    
    
    (568
    )State
    
    
    (280
    )
    
    
    (586
    )
    
    
    (512
    )Foreign
    
    
    41
    
    
    
    (38
    )
    
    
    (106
    )Total deferred
    
    
    (4,727
    )
    
    
    (1,915
    )
    
    
    (1,186
    )$
    (4,617
    )
    
    $
    951
    
    
    $
    (804
    )
 F-19




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##### Table of Contents



ATMI, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)  11.
    
    Income Taxes (continued) Significant components of the Companys deferred tax assets and liabilities are
as follows (in thousands): December 31,2003
    
    2002Deferred tax assets:Accrued liabilities
    
    $
    6,222
    
    
    $
    3,234Inventory adjustments
    
    
    5,098
    
    
    
    2,590Net operating loss and tax credit carryforwards
    
    
    19,901
    
    
    
    11,711Other, net
    
    
    28
    
    
    
    46431,249
    
    
    
    17,999Valuation allowance
    
    
    (956
    )
    
    
    (1,457
    )30,293
    
    
    
    16,542Deferred tax liabilities:Depreciation and amortization
    
    
    (11,493
    )
    
    
    (5,971
    )Unrealized gain on marketable securities
    
    
    (844
    )
    
    
    (763
    )Other, net
    
    
    (126
    )
    
    
    (12,463
    )
    
    
    (6,734
    )Net deferred tax assets
    
    $
    17,830
    
    
    $
    9,808
 The valuation allowance relates to realizability of net operating losses of
foreign entities. As of December 31, 2003, the Company has federal net operating loss
carryforwards for income tax purposes of $26.6 million, of which $2.0 million
is attributable to certain acquired companies. As of December 31, 2003, the
Company has a deferred tax asset related to state net operating loss
carryforwards of $1.8 million. Additionally, the Company has federal and state
tax credit carryforwards of $7.0 million and $1.0 million, respectively. The
net operating loss and tax credit carryforwards will expire at various dates in
2005 through 2023, if not used. Use of the net operating losses and credits may
be subject to a substantial annual limitation because of the change in
ownership provisions of the Internal Revenue Code of 1986 and similar state
provisions. Income taxes paid in the years ended December 31, 2003, 2002, and 2001 were
$2.2 million, $3.0 million, and $4.9 million, respectively. The Company
received refunds of $14.7 million, $9.3 million and $5.8 million in 2003, 2002
and 2001, respectively. The reconciliation of income tax expense (benefit) from continuing operations
computed at the U.S. federal statutory tax rate to the Companys tax expense
(benefit) is as follows (in thousands): For the Year Ended December 31,2003
    
    2002
    
    2001U.S. statutory rate
    
    $
    (920
    )
    
    $
    953
    
    
    $
    (51
    )State income taxes
    
    
    (46
    )
    
    
    (52
    )
    
    
    (257
    )Foreign income taxes
    
    
    (66
    )
    
    
    231
    
    
    
    (111
    )In-process R&D expenses
    
    
    228
    
    
    
    
    
    
    
    ETI / Foreign sales corporation benefit
    
    
    (660
    )
    
    
    (582
    )
    
    
    (512
    )Change in valuation allowance of deferred tax assets

    
    
    (650
    )
    
    
    119
    
    
    
    442Adjustment to prior years tax liabilities
    
    
    (3,000
    )
    
    
    
    
    
    
    Other, net
    
    
    497
    
    
    
    282
    
    
    
    (315
    )$
    (4,617
    )
    
    $
    951
    
    
    $
    (804
    )
 During the second quarter of 1999, the Company was notified by the Internal
Revenue Service of an assessment of $2.1 million, plus interest, for certain
tax matters. The issues were litigated in U.S. Tax Court in 2002, and in 2003,
the Company received a favorable court decision. As a result of the favorable
decision, the Company recognized a $3.0 million income tax benefit in 2003. F-20




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##### Table of Contents



ATMI, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)  12.
    
    Profit Sharing Plan The Company maintains a 401(k) profit sharing plan covering substantially all
of its domestic employees that is subject to the provisions of the Employee
Retirement Income Security Act of 1974. The Companys matching contributions
are discretionary by plan year and were approximately $0.7 million for each of
the three years ended December 31, 2003, 2002, and 2001, respectively.  13.
    
    Stockholders Equity Stock Plans The Company has certain stock plans, which provide for the granting of up to
9,515,833 nonqualified stock options, incentive stock options (ISOs), stock
appreciation rights and restricted stock awards to employees, directors and
consultants of the Company. Under the terms of these stock plans, nonqualified options granted may not be
at a price of less than 50% of the fair market value of the common stock on the
date of grant, and ISOs granted may not be at a price of less than 100% of fair
market value of the common stock on the date of grant. All grants have been
made at fair market value under the plans. Options are generally exercisable
commencing one year after the date of grant at the rate of 20% per annum on a
cumulative basis. Nonqualified options expire up to ten years from the date of
grant, and ISOs expire five to ten years from the date of grant. The following table provides a summary of the status of the Companys stock
option plans as of December 31, 2003, 2002 and 2001, and changes during the
years ending on those dates: 2003
    
    2002
    
    2001Weighted-
    
    
    
    
    
    Weighted-
    
    
    
    
    
    Weighted-Average
    
    
    
    
    
    Average
    
    
    
    
    
    AverageExercise
    
    
    
    
    
    Exercise
    
    
    
    
    
    ExerciseShares
    
    Price
    
    Shares
    
    Price
    
    Shares
    
    PriceOutstanding at beginning of year
    
    
    4,133,167
    
    
    $
    23.85
    
    
    
    3,925,144
    
    
    $
    23.72
    
    
    
    3,432,098
    
    
    $
    25.34Granted
    
    
    910,517
    
    
    $
    20.41
    
    
    
    953,010
    
    
    $
    24.02
    
    
    
    1,149,270
    
    
    $
    19.06Exercised
    
    
    (196,542
    )
    
    $
    15.45
    
    
    
    (179,447
    )
    
    $
    14.64
    
    
    
    (103,737
    )
    
    $
    8.46Terminated or cancelled
    
    
    (363,801
    )
    
    $
    24.39
    
    
    
    (565,540
    )
    
    $
    25.41
    
    
    
    (552,487
    )
    
    $
    27.23Outstanding at end of year
    
    
    4,483,341
    
    
    $
    23.47
    
    
    
    4,133,167
    
    
    $
    23.85
    
    
    
    3,925,144
    
    
    $
    23.72Options exercisable at end of
year
    
    
    2,129,053
    
    
    $
    23.94
    
    
    
    1,754,129
    
    
    $
    22.72
    
    
    
    1,407,124
    
    
    $
    21.02Weightedaverage fair value of
options granted
    
    $
    12.63
    
    
    
    
    
    
    $
    15.35
    
    
    
    
    
    
    $
    13.36
 F-21




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##### Table of Contents



ATMI, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)  13.
    
    Stockholders Equity (continued) The following table summarizes information about the Companys stock options
outstanding at December 31, 2003: Options Outstanding
    
    Options ExercisableNumber of
    
    Weighted-Options
    
    Average
    
    Weighted-
    
    Number of
    
    Weighted-Outstanding at
    
    Remaining
    
    Average
    
    Options
    
    AverageDecember 31,
    
    Contractual
    
    Exercise
    
    Exercisable at
    
    ExerciseRange of Exercise Prices
    
    2003
    
    Life
    
    Price
    
    December 31, 2003
    
    Price$  1.11 to $12.00
    
    
    212,454
    
    
    
    1.9
    
    
    $
    9.78
    
    
    
    212,354
    
    
    $
    9.79$12.01 to $18.00
    
    
    418,120
    
    

    
    5.6
    
    
    $
    16.67
    
    
    
    254,280
    
    
    $
    16.69$18.01 to $24.00
    
    
    2,057,988
    
    
    
    7.9
    
    
    $
    20.56
    
    
    
    507,058
    
    
    $
    20.94$24.01 to $36.00
    
    
    1,490,999
    
    
    
    5.8
    
    
    $
    27.45
    
    
    
    968,361
    
    
    $
    26.94$36.01 to $48.00
    
    
    291,660
    
    
    
    6.3
    
    
    $
    42.22
    
    
    
    179,680
    
    
    $
    42.11$48.01 to $60.00
    
    
    12,120
    
    
    
    6.2
    
    
    $
    51.15
    
    
    
    7,320
    
    
    $
    51.144,483,341
    
    
    
    6.6
    
    
    $
    23.47
    
    
    
    2,129,053
    
    
    $
    23.94
 The fair value of each option grant, for pro forma disclosure purposes (see
Note 1), was estimated on the date of grant using the Black-Scholes
option-pricing model with the following weighted average assumptions: 2003
    
    2002
    
    2001Expected dividend yield
    
    None
    
    None
    
    NoneRisk free interest rate
    
    
    3.75
    %
    
    
    3.5
    %
    
    
    4.5
    %Expected volatility
    
    
    .693
    
    
    
    .713
    
    
    
    .710Expected life of options
    
    5.4 years
    
    5.6 years
    
    5.8 years
 Option valuation models require the input of highly subjective assumptions,
including the expected stock price volatility. Because changes in the
subjective assumptions can materially affect the fair value estimate, in the
opinion of management, the existing models do not necessarily provide a
reliable single measure of the fair value of the Companys employee stock
options. Employee Stock Purchase Plan The Employee Stock Purchase Plan (ESPP Plan) was amended in May 2003 to
authorize a total of 1,000,000 shares for subscription. The ESPP Plan enables
all employees to subscribe at six-month intervals to purchase shares of common
stock at the lower of 85% of the closing price of the shares on the day
previous to the first day or last day of each six-month period. At December
31, 2003, 599,374 shares remain available for grant under the ESPP Plan. F-22




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##### Table of Contents



ATMI, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)  13.
    
    Stockholders Equity (continued) Earnings Per Share The following table presents the computation of basic and diluted earnings per
share (in thousands, except per share data): 2003
    
    2002
    
    2001Numerator:Income from continuing operations
    
    $
    1,988
    
    
    $
    1,772
    
    
    $
    657Denominator:Denominator for basic earnings per share-
Weighted-average shares
    
    
    30,149
    
    
    
    29,896
    
    
    
    29,611Dilutive effect of contingent shares related to
acquisitions subject to escrow
arrangements
    
    
    700
    
    
    
    700
    
    
    
    700Dilutive effect of warrants
    
    
    20
    
    
    
    20
    
    
    
    20Dilutive effect of employee stock options
    
    
    339
    
    
    
    381
    
    
    
    326Denominator for diluted earnings per share
    
    
    31,208
    
    
    
    30,997
    
    
    
    30,657Earnings per share from continuing
operations  basic
    
    $
    0.07
    
    
    $
    0.06
    
    
    $
    0.02Earnings per share from continuing
operations  assuming dilution
    
    $
    0.06
    
    
    $
    0.06
    
    
    $
    0.02
 For the years ended December 31, 2003, 2002 and 2001, respectively, 5,183,096
shares issuable upon conversion of the 5.25% Convertible Subordinated Notes Due
2006 were not included in the computation of diluted loss per share, because
their inclusion would be antidilutive. As of December 31, 2003, 2002 and 2001, there were 20,000 warrants outstanding
at an exercise price of $11.75 that are fully exercisable and expire on
September 1, 2005. At December 31, 2003, there were 8,395,840 shares of common stock reserved for
the conversion of subordinated notes and further grants under the Companys
various stock plans. F-23




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##### Table of Contents



ATMI, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)  14.
    
    Other Comprehensive Income (Loss) The components of other comprehensive income (loss) are as follows (in
thousands): Unrealized GainCurrency
    
    (Loss) onTranslation
    
    Available-for-Adjustments
    
    Sale Securites
    
    TotalBalance at December 31, 2000
    
    $
    (1,880
    )
    
    $
    785
    
    
    $
    (1,095
    )Reclassification adjustment for
realized gain on
available-for-sale securities
sold (net of tax provision of
$637)
    
    
    
    
    
    
    (1,039
    )
    
    
    (1,039
    )Unrealized gain on
available-for-sale securities
(net of tax provision of $728)
    
    
    
    
    
    
    1,187
    
    
    
    1,187Cumulative translation adjustment
    
    
    (396
    )
    
    
    
    
    
    
    (396
    )Balance at December 31, 2001
    
    $
    (2,276
    )
    
    $
    933
    
    
    $
    (1,343
    )Reclassification adjustment for
realized gain on
available-for-sale securities
sold (net of tax provision of
$366)
    
    
    
    
    
    
    (598
    )
    
    
    (598
    )Unrealized gain on
available-for-sale securities
(net of tax provision of $560)
    
    
    
    
    
    
    1,108
    
    
    
    1,108Cumulative translation adjustment
    
    
    1,336
    
    
    
    
    
    
    
    1,336Balance at December 31, 2002
    
    $
    (940
    )
    
    $
    1,443
    
    
    $
    503Reclassification adjustment for
realized gain on
available-for-sale securities
sold (net of tax provision of
$129)
    
    
    
    
    
    
    (228
    )
    
    
    (228
    )Unrealized gain on
available-for-sale securities
(net of tax provision of $122)
    
    
    
    
    
    
    217
    
    
    
    217Cumulative translation adjustment
    
    
    2,408
    
    
    
    
    
    
    
    2,408Balance at December 31, 2003
    
    $
    1,468
    
    
    $
    1,432
    
    
    $
    2,900
  15.
    
    Restructuring and Other Charges During 2003, Dow Corning purchased the operations of Sterling Semiconductor (a
sub-lease tenant and former joint development partner of the Company) from
Uniroyal Technology Corporation. Prior to its sale, the financial condition of
Sterling required that the impact of all commercial transactions with Sterling
be fully reserved. As part of the sale, all of Sterlings debts to ATMI were
paid which resulted in the recognition of a pre-tax gain of $0.7 million
consisting of expense reimbursements included in restructuring and other
charges. Effective January 1, 2003, the Company adopted the provisions of SFAS No. 146,
Accounting for Costs Associated with Exit or Disposal Activities, which
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 loss from discontinued operations for the
year ended December 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. Also during 2003, the Company recognized a $2.4 million pre-tax impairment
charge related to abandoned assets in the Companys former materials and liquid
delivery systems manufacturing facility in Burnet, Texas. This charge is
included on the statement of operations in restructuring and other charges. The loss from discontinued operations in 2002 includes a pre-tax asset
impairment charge of $34.6 million to recognize the impairment of inventory and
long-lived assets in the Companys gallium arsenide epitaxial services business
in Phoenix, Arizona, due to deteriorating market conditions in this product
line. Assets in this line of business were written down to their fair value,
less estimated costs of disposal, using estimated prices for similar assets as
the basis for determining fair value. During the first quarter of 2003, the
assets associated with the gallium arsenide epitaxial F-24




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##### Table of Contents



ATMI, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)  15.
    
    Restructuring and Other Charges (continued) services business were sold pursuant to an asset purchase agreement and the
facility lease associated with this business has been assumed by the buyer
pursuant to a lease assignment agreement. As a result of the sale of these
assets and the buyers assumption of the related facility lease, the Company
recognized a $1.5 million pre-tax gain in 2003, which is included in the 2003
loss from discontinued operations. The 2001 results include the effects of two restructuring charges: the first
was a $12.8 million pre-tax charge for severance and other costs associated
with a restructuring initiative. The second pre-tax 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 2001
restructuring and other charges reflects $6.6 million of the $14.6 million
pre-tax restructuring charges, including $0.6 million included in cost of
revenues related to an inventory write down. The remaining $8.0 million of the
2001 pre-tax restructuring charge is included in the loss from discontinued
operations. The restructuring initiatives include severance costs of $5.4 million,
including the third quarter 2001 initiative of $1.8 million, and represented 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 involved a number of actions that resulted in improved productivity
and aligned the Companys organization more closely with its customers. The
restructuring initiatives and other charges also include $9.2 million for plant
closings, lease termination fees, and various other asset write-offs or
write-downs. The following tables set forth the activity in the restructuring accruals,
which are included in accrued liabilities, as of December 31, 2003 (in
thousands): Accrual  2003 RestructuringBalance January 1, 2003
    
    $
    Restructuring charge
    
    
    1,215Cash payments
    
    
    (567
    )Write offs
    
    
    (440
    )Balance December 31, 2003
    
    $
    208
 Accrual  2001 Restructurings
    
    Severance
    
    Other Charges
    
    Total AccrualBalance January 1, 2001
    
    $
    
    
    
    $
    
    
    
    $
    Restructuring charges
    
    
    5,399
    
    
    
    9,198
    
    
    
    14,597Cash payments
    
    
    (4,379
    )
    
    
    (280
    )
    
    
    (4,659
    )Write offs
    
    
    
    
    
    
    (7,994
    )
    
    
    (7,994
    )Balance December 31, 2001
    
    $
    1,020
    
    
    $
    924
    
    
    $
    1,944Cash payments
    
    
    (1,020
    )
    
    
    (631
    )
    
    
    (1,651
    )Write offs & write downs
    
    
    
    
    
    
    (40
    )
    
    
    (40
    )Balance December 31, 2002
    
    $
    0
    
    
    $
    253
    
    
    $
    253Cash payments
    
    
    
    
    
    
    (240
    )
    
    
    (240
    )Write offs
    
    
    
    
    
    
    (13
    )
    
    
    (13
    )Balance December 31, 2003
    
    $
    
    
    
    $
    
    
    
    $
    
 F-25




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##### Table of Contents



ATMI, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)  16.
    
    Commitments and Contingencies 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 the normal course of business, the Company is involved in various lawsuits
and claims. Although the ultimate outcome of any of these legal proceedings
cannot be determined 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 the Companys financial
position or results of operations.  17.
    
    Geographic Data The Companys geographic data for the years ended December 31, 2003, 2002 and
2001 are as follows: Other
    
    Europe and(In thousands)
    
    United States
    
    Taiwan
    
    Japan
    
    Pacific Rim
    
    Other
    
    TotalDecember 31, 2003Revenues
    
    $
    71,475
    
    
    $
    26,238
    
    
    $
    27,132
    
    
    $
    24,805
    
    
    $
    21,984
    
    
    $
    171,634Long-lived assets
    
    
    107,223
    
    
    
    586
    
    
    
    491
    
    
    
    2,514
    
    
    
    3,567
    
    
    
    114,381December 31, 2002Revenues
    
    $
    68,797
    
    
    $
    19,224
    
    
    $
    18,255
    
    
    $
    15,798
    
    
    $
    14,901
    
    
    $
    136,975Long-lived assets
    
    
    77,737
    
    
    
    899
    
    
    
    90
    
    
    
    2,406
    
    
    
    3,017
    
    
    
    84,149December 31, 2001Revenues
    
    $
    49,291
    
    
    $
    19,686
    
    
    $
    16,856
    
    
    $
    11,475
    
    
    $
    14,255
    
    
    $
    111,563Long-lived assets
    
    
    53,017
    
    
    
    950
    
    
    
    31
    
    
    
    2,066
    
    
    
    2,619
    
    
    
    58,683
 Revenues are attributed to countries based on the location of the customer.
Long-lived assets are located in the respective geographic regions, as shown
above. Other than Taiwan and Japan, no one specific country within the Pacific
Rim or within Europe accounted for greater than 10% of consolidated revenues in
2003, 2002 and 2001. F-26




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##### Table of Contents



ATMI, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)  18.
    
    Quarterly Results of Operations (Unaudited) Summarized quarterly results of operations data is as follows (in thousands,
except per share amounts). Amounts shown have been reclassified to reflect
accounting for continuing and discontinued operations: Quarter2003
    
    First
    
    Second
    
    Third
    
    FourthRevenues
    
    $
    37,039
    
    
    $
    39,983
    
    
    $
    42,260
    
    
    $
    52,352Gross profit
    
    
    18,145
    
    
    
    20,263
    
    
    
    16,569
    (c)
    
    
    26,755Operating income (loss)
    
    
    1,315
    (a)
    
    
    3,417
    (b)
    
    
    (4,379
    )(d)
    
    
    6,333
    (g)Income (loss) from continuing operations
    
    
    924
    
    
    
    108
    
    
    
    (4,656
    )(e)
    
    
    5,612
    (h)Loss from discontinued operations
    
    
    (2,542
    )
    
    
    (2,882
    )
    
    
    (6,117
    )(f)
    
    
    (366
    )Net Income (loss)
    
    ($
    1,618
    )
    
    ($
    2,774
    )
    
    ($
    10,773
    )
    
    $
    5,246Basic income (loss) per common share:Continuing operations
    
    $
    0.03
    
    
    $
    0.00
    
    
    ($
    0.16
    )
    
    $
    0.18Discontinued operations
    
    ($
    0.08
    )
    
    ($
    0.09
    )
    
    ($
    0.20
    )
    
    ($
    0.01
    )Net income (loss) per common share
    
    ($
    0.05
    )
    
    
    ($0.09
    )
    
    ($
    0.36
    )
    
    $
    0.17Diluted income (loss) per common share:Continuing operations
    
    $
    0.03
    
    
    $
    0.00
    
    
    ($
    0.16
    )
    
    $
    0.18Discontinued operations
    
    ($
    0.08
    )
    
    ($
    0.09
    )
    
    ($
    0.20
    )
    
    ($
    0.01
    )Net income (loss) per common share
    
    ($
    0.05
    )
    
    ($
    0.09
    )
    
    ($
    0.36
    )
    
    $
    0.17
 Quarter2002
    
    First
    
    Second
    
    Third
    
    FourthRevenues
    
    $
    29,833
    
    
    $
    36,960
    
    
    $
    32,947
    
    
    $
    37,235Gross profit
    
    
    15,033
    
    
    
    18,896
    
    
    
    15,597
    
    
    
    19,025Operating income (loss)
    
    
    (121
    )
    
    
    2,606
    
    
    
    (277
    )
    
    
    1,928Income (loss) from continuing operations
    
    
    (449
    )(i)
    
    
    1,728
    
    
    
    (858
    )
    
    
    1,351Loss from discontinued operations
    
    
    (2,283
    )
    
    
    (2,720
    )
    
    
    (24,301
    )(j)
    
    
    (3,189
    )Net Income (loss)
    
    ($
    2,732
    )
    
    ($
    992
    )
    
    ($
    25,159
    )
    
    ($
    1,838
    )Basic income (loss) per common share:Continuing operations
    
    ($
    0.01
    )
    
    $
    0.06
    
    
    ($
    0.03
    )
    
    $
    0.04Discontinued operations
    
    ($
    0.08
    )
    
    ($
    0.09
    )
    
    ($
    0.81
    )
    
    ($
    0.10
    )Net income (loss) per common share
    
    ($
    0.09
    )
    
    ($
    0.03
    )
    
    ($
    0.84
    )
    
    ($
    0.06
    )Diluted income (loss) per common share:Continuing operations
    
    ($
    0.01
    )
    
    $
    0.06
    
    
    ($
    0.03
    )
    
    $
    0.04Discontinued operations
    
    ($
    0.08
    )
    
    ($
    0.09
    )
    
    ($
    0.81
    )
    
    ($
    0.10
    )Net income (loss) per common share
    
    ($
    0.09
    )
    
    ($
    0.03
    )
    
    ($
    0.84
    )
    
    ($
    0.06
    )
  (a)
    
    Includes a $0.7 million gain related to sublease income from
a former tenant in the Companys Danbury, Connecticut facility.(b)
    
    Includes a $2.2 million asset impairment charge related to the
Companys strategic investment portfolio.(c)
    
    Includes a $2.7 million charge for excess and obsolete
inventories.(d)
    
    Includes $0.7 million of in-process research and development
expense in connection with the ESC, Inc. acquisition and a $2.4
million asset impairment charge related to the Companys former liquid
chemistries manufacturing facility.(e)
    
    Includes a $2.2 million asset impairment charge related to the
Companys strategic investment portfolio.(f)
    
    Includes a $2.6 million charge (net of $1.5 million tax benefit)
for excess and obsolete inventories.(g)
    
    Includes a $1.3 million asset impairment charge related to the
Companys strategic investment portfolio.(h)
    
    Includes a $3.0 million tax benefit related to a favorable U.S.
Tax Court decision.(i)
    
    Includes a $0.7 million gain (net of tax provision of
$0.3 million) from the sale of available-for-sale
securities, offset by a write-down of $0.3 million (net of tax
benefit of $0.1 million) for an
other-than-temporary decline in fair value of other available-for-sale
securities.(j)
    
    Includes an asset impairment charge of $21.8 million (net of tax
benefit of $12.8 million) to recognize the impairment of assets in the
Companys gallium arsenide epitaxial services business in Phoenix,
Arizona. F-27




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##### Table of Contents



Schedule II ATMI, INC.
VALUATION AND QUALIFYING ACCOUNTS
(In thousands) Balance at
    
    
    
    
    
    
    
    
    
    Balance atBeginning
    
    Charged to
    
    
    
    
    
    EndYear Ended
    
    of Period
    
    Cost/Expense
    
    Deductions
    
    of PeriodDecember 31, 2003Allowance for bad debts and returns
    
    $
    1,355
    
    
    $
    124
    
    
    $
    (785
    )(a)
    
    $
    694Reserve for excess and obsolete
inventories and lower of cost or
market adjustments
    
    
    946
    
    
    
    3,054
    
    
    
    (123
    )(b)
    
    
    3,877December 31, 2002Allowance for bad debts and returns
    
    $
    2,365
    
    
    $
    327
    
    
    $
    (1,337
    )(a)
    
    $
    1,355Reserve for excess and obsolete
inventories and lower of cost or
market adjustments
    
    
    898
    
    
    
    384
    
    
    
    (335
    )(b)
    
    
    946December 31, 2001Allowance for bad debts and returns
    
    $
    213
    
    
    $
    2,152
    
    
    
    
    
    
    $
    2,365Reserve for excess and obsolete
inventories and lower of cost or
market adjustments
    
    
    373
    
    
    
    525
    
    
    
    
    
    
    
    898Severance accrual
    
    
    309
    
    
    
    
    
    
    
    (309
    )(c)
    
    
    
 Notes:
    
    (a) Reflects uncollectible accounts written off, net of recoveries, and
other reductions to the reserve.(b) Reflects disposals of obsolete inventory in 2003, 2002 and 2001 and
reductions to lower-of-cost or market reserve in 2002.(c) Reflects payments made during the year on severance related to 1999
merger activity.
 The financial information of all prior periods has been reclassified to reflect
discontinued operations and assets held for sale. F-28