2. Significant Accounting Policies and Other Information

Basis of Presentation

The accompanying consolidated interim financial statements of ATMI, Inc. at June 30, 2011 and for the three and six months ended June 30, 2011 and 2010, respectively, are unaudited, but in the opinion of management include all adjustments necessary for a fair presentation of the results for the interim periods. The unaudited consolidated interim financial statements included herein should be read in conjunction with the December 31, 2010 audited consolidated financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 2010. The Company's quarterly results are subject to fluctuation and, thus, the operating results for any quarter are not necessarily indicative of results to be expected for any future fiscal period.

The consolidated balance sheet at December 31, 2010 has been derived from the audited financial statements at that date, but does not include all of the financial information and disclosures required by Generally Accepted Accounting Principles ("GAAP') for complete financial statements.

Earnings Per Share

This table shows the computation of basic and diluted earnings per share (in thousands, except per share data):

		Three Months Ended		Six Months Ended
		June 30,		June 30,
		2011	2010	2011	2010

Numerator:
Net income		$11,134	$7,598	$19,141	$16,264

Denominator:

Denominator for basic earnings per share
	- weighted average shares	31,665	31,509	31,674	31,527
Dilutive effect of employee stock options		51	12	45	13
Dilutive effect of restricted stock		612	417	606	445

Denominator for diluted earnings per
	common share – weighted average shares	32,328	31,938	32,325	31,985

Earnings per share-basic		$0.35	$0.24	$0.60	$0.52
Earnings per share-diluted		$0.34	$0.24	$0.59	$0.51

This table shows the potential common shares excluded from the calculation of weighted-average shares outstanding because their effect was considered to be antidilutive (in thousands):

	Three Months Ended		Six Months Ended
	June 30,		June 30,
	2011	2010	2011	2010

Antidilutive shares	1,045	1,530	1,060	1,530

Inventories

	Inventories include (in thousands):

		June 30,	December 31,
		2011	2010
	Raw materials	$17,090	$16,499
	Work in process	2,958	2,133
	Finished goods	51,750	46,575
		71,798	65,207
	Excess and obsolescence reserve	(3,094)	(2,375)
	Inventories, net	$68,704	$62,832

Non-marketable Equity Securities

We selectively invest in non-marketable equity securities of private companies, which range from early-stage companies that are often still defining their strategic direction to more mature companies whose products or technologies may directly support an ATMI product or initiative. At June 30, 2011, the carrying value of our portfolio of strategic investments in non-marketable equity securities totaled $29.3 million ($22.3 million at December 31, 2010), of which $25.4 million are accounted for at cost ($18.6 million at December 31, 2010), and $3.9 million are accounted for using the equity method of accounting ($3.7 million at December 31, 2010). Non-marketable equity securities are included in the consolidated balance sheets under the caption "Other non-current assets." ATMI's share of the income or losses of all equity-method investees, using the most current financial information available, which is one month behind ATMI's normal closing date, is included in our results of operations from the investment date forward. In March 2011, we made an incremental investment of $6.7 million in one of our cost basis investees. There was no change in accounting treatment as a result of this incremental investment.

Income Taxes

We have not provided for U.S. federal income and foreign withholding taxes on approximately $78.9 million of undistributed earnings from non-U.S. operations as of June 30, 2011, because such earnings are intended to be reinvested indefinitely outside of the United States. These earnings could become subject to additional tax if they are remitted as dividends, loaned to ATMI, or upon sale of subsidiary stock. It is not practicable to estimate the amount or timing of the additional tax, if any, that eventually might be paid on the foreign earnings.

We had an effective income tax rate of 29.2 percent and 30.9 percent for the three and six month periods ended June 30, 2011. The effective income tax rate differs from the U.S. federal statutory income tax rate of 35.0 percent primarily due to the mix of income attributable to the various countries in which we conduct business, the increase in the valuation allowance on certain foreign losses, the impact of our reserves, and the R&D credit. In the first six months of 2011, we recorded a tax provision of $0.7 million related to equity-based compensation, partially offset by a reversal of $0.5 million of previously established reserves. Without these items our effective income tax rate for the six month period ended June 30, 2011 would have been 30.3 percent. Our effective income tax rate is calculated based on full-year assumptions.

At June 30, 2011, the Company has recorded $4.2 million of unrecognized tax benefits. If any portion of this $4.2 million is subsequently recognized, the Company will then include that portion in the computation of its effective tax rate. On the consolidated balance sheet, $0.7 million of this amount is included in deferred taxes, and $3.5 million is included in the caption "Other non-current liabilities," including $0.4 million of accrued interest (net) on tax reserves and $0 accrued for penalties. In the second quarter of 2011, based on facts and circumstances and recent interpretation of tax law, we determined that $1.7 million of unrecognized tax benefits will not impact income taxes; as a result, the classification of this amount was changed from unrecognized tax benefits to a loss contingency within the caption "Other non-current liabilities."

It is reasonably possible that in the next 12 months, because of changes in facts and circumstances, the unrecognized tax benefits for tax positions taken related to previously filed tax returns may change. The range of possible decrease is $0 million to $0.3 million (excluding interest). The Company has been audited in the United States by the Internal Revenue Service through tax year 2007. During 2010, the Internal Revenue Service initiated a U.S. tax audit of tax years 2008 and 2009 which is currently pending.

Goodwill and Other Intangible Assets

Goodwill and Other intangible asset balances at June 30, 2011 and December 31, 2010 were (in thousands):

	Goodwill	Patents & Trademarks	Other	Total Other Intangibles

Gross amount as of December 31, 2010	$46,981	$49,869	$1,396	$51,265
Accumulated amortization	-	(21,943)	(374)	(22,317)
Balance at December 31, 2010	$46,981	$27,926	$1,022	$28,948

Gross amount as of June 30, 2011	$48,155	$51,149	$1,404	$52,553
Accumulated amortization	-	(23,836)	(448)	(24,284)
Balance at June 30, 2011	$48,155	$27,313	$956	$28,269

Changes in carrying amounts of Goodwill and Other Intangibles for the six months ended June 30, 2011 were (in thousands):

	Goodwill	Patents & Trademarks	Other	Total Other Intangibles

Balance at December 31, 2010	$46,981	$27,926	$1,022	$28,948
Amortization expense	-	(1,766)	(66)	(1,832)
Other, including foreign currency translation	1,174	1,153	-	1,153
Balance at June 30, 2011	$48,155	$27,313	$956	28,269

Variable Interest Entity

In July 2005, ATMI made an investment in Anji Microelectronics Co., Ltd. ("Anji"), an entity in the development stage of researching and developing advanced semiconductor materials, with primary operations in Shanghai, China. We have determined that Anji is a variable interest entity. However, we have determined that we are not the primary beneficiary of Anji because we do not have the power, through voting or similar rights, to direct the activities of Anji that most significantly impact the entity's economic performance, and we are also not expected to absorb significant losses or gains from Anji. ATMI's carrying value of this cost basis investment is $3.9 million at June 30, 2011. The carrying value of our investment in Anji represents the cash paid, less our share of the cumulative losses during the period we used the equity-method of accounting. At June 30, 2011, our maximum exposure to loss is $4.3 million, which consists of $3.9 million of our carrying value in this investment, plus a $0.4 million reserve for a put option.

Recently Issued Accounting Pronouncements

In June 2011, the FASB issued ASU 2011-4, "Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRS." This Update provides guidance which is expected to result in common fair value measurement and disclosure requirements between U.S. GAAP and IFRS. It changes the wording used to describe many of the requirements in U.S. GAAP for measuring fair value and for disclosing information about fair value measurements. It is not intended for this Update to result in a change in the application of the requirements in Topic 820. Some of the amendments clarify the Board's intent about the application of existing fair value measurement requirements. Other amendments change a particular principle or requirement for measuring fair value or for disclosing information about fair value measurements. The amendments in this Update are to be applied prospectively. For public entities, the amendments are effective during interim and annual periods beginning after December 15, 2011. Early application by public entities is not permitted. We do not anticipate any material impact from this Update.

In June 2011, the FASB issued ASU 2011-5, "Comprehensive Income (Topic 220)." In this Update, an entity has the option to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. In both choices, an entity is required to present each component of net income along with total net income, each component of other comprehensive income along with a total for other comprehensive income, and a total amount for comprehensive income. The amendments in this Update do not change the items that must be reported in other comprehensive income or when an item of other comprehensive income must be reclassified to net income. They also do not change the presentation of related tax effects, before related tax effects, or the portrayal or calculation of earnings per share. The amendments in this Update should be applied retrospectively. The amendment is effective for fiscal years, and interim periods within those years, beginning after December 15, 2011. Early adoption is permitted, because compliance with the amendments is already permitted. The amendments do not require any transition disclosures. We do not anticipate any material impact from this Update.

Other

In the second quarter of 2011, we recognized a $1.2 million benefit in selling, general and administrative expense in the consolidated statement of income related primarily to a capital-based tax credit.