SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 6-K
REPORT OF FOREIGN ISSUER
PURSUANT TO RULE 13a-16 OR 15d-16 OF
THE SECURITIES EXCHANGE ACT OF 1934
For the month of October, 2002
ATI TECHNOLOGIES INC.
- --------------------------------------------------------------------------------
(Translation of Registrant's Name into English)
1 Commerce Valley Drive East, Markham, Ontario, Canada L3T 7X6
- --------------------------------------------------------------------------------
(Address of Principal Executive Offices)
(Indicate by check mark whether the registrant files or will file
annual reports under cover of Form 20-F or Form 40-F.)
Form 20-F Form 40-F X
-------- --------
(Indicate by check mark whether the registrant by furnishing the
information contained in this form is also thereby furnishing the information to
the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of
1934.)
Yes No X
------------- --------
Page 1 of 23 Pages
Index is located on Page 2
2
INDEX
Document Page Number
- -------- -----------
Press Release dated October 2, 2002 3
Signature Page 23
[ATI LOGO ATI TECHNOLOGIES INC. 1 Commerce Valley Drive East Telephone: (905) 882-2600
OMITTED] Markham, Ontario Canada Facsimile: (905) 882-2620
L3T 7X6 www.ati.com
ATI Reports Fourth Quarter and Year-End Financial Results
Breakthroughs in Target Markets Set the Stage for 2003
Markham, Ontario-- October 2, 2002-- ATI Technologies Inc. (TSX: ATY, NASDAQ:
ATYT), a world leader in the design and manufacture of innovative 3D graphics
and digital media silicon solutions, today announced financial results for the
fourth quarter and year ended August 31, 2002.
Revenue for the fourth quarter was $239.5 million, down 10 per cent from $266.2
million in the third quarter of fiscal 2002, but was up five per cent from the
fourth quarter a year ago. Gross margin was 30.1 per cent, down from 35.0 per
cent in the third quarter. Operating expenses, excluding amortization of
intangible assets, increased slightly to $70.1 million from $69.2 million in the
previous quarter.
Adjusted net income(1) for the fourth quarter was $2.4 million or $0.01 per
share. Net loss on a GAAP basis for the fourth quarter was $32.2 million or
$0.14 per share.
"Fiscal 2002 was a year in which ATI made great strides and breakthrough
achievements in our target markets," said David Orton, President and Chief
Operating Officer, ATI Technologies Inc. "In the past few months we have claimed
the technology leadership crown with the introduction of our RADEON(TM) 9700
family of products. Major OEM design wins, independent evaluations and customer
response confirm that ATI has broken through to become the clear choice for
speed, performance and value in visual processing products."
(1)Adjusted net income excludes the after-tax effect of gain (loss) on long-term
investments (net), amortization of intangible assets related to the Company's
acquisitions, and the deferred tax recovery of future tax liability pertaining
to intangible assets acquired. Each of these items has been excluded from
adjusted net income as they are not considered to be part of the Company's
normalized ongoing operations. While the Company recognizes that adjusted net
income does not have any standardized meaning described by generally accepted
accounting principles, or GAAP, and that its adjusted net income calculation
cannot be used as a comparison to other companies' financial performance, ATI
believes that its adjusted net income more appropriately reflects the Company's
operating performance. Please see the table titled "Adjusted Net Income -
Reconciliation" in the Management's Discussion and Analysis of Interim Financial
Results in this news release for the reconciliation between adjusted net income
and net income which is determined in accordance with GAAP. All dollar amounts
are stated in U.S. dollars unless otherwise noted. All per share amounts are
stated on a fully diluted basis unless otherwise noted.
ATI Reports Fourth Quarter and Year-End Financial Results
ATI's adjusted net income for the year increased to $49.7 million or $0.20 per
share from a loss of $16.3 million or $0.07 in 2001. Revenue for fiscal 2002
declined two per cent to $1.02 billion, and gross margins increased 9.6
percentage points to 32.8 per cent, compared to fiscal 2001.
"The transition of our business from a board to a chip model, while it had a
constraining effect on our revenues for this fiscal year, has had a direct
impact on improving margins and our profitability compared to last year," said
Terry Nickerson, Senior Vice President and Chief Financial Officer, ATI
Technologies Inc.
"We are delivering new and innovative products across a broad range of the
graphics business with the features, performance and price points that address
every segment of our market," said K.Y. Ho, Chairman and Chief Executive
Officer, ATI Technologies Inc. "Technology leadership and new market successes
are enabling ATI to grow the core market, capture marketshare and enter exciting
new digital consumer markets."
Outlook
ATI expects the success of the RADEON (TM) 9700 family of products, as well as
contributions from the new integrated graphics processor chip sales, to result
in stronger performance in the first quarter of fiscal 2003, relative to the
fourth quarter of 2002. The Company is expecting a double-digit percentage
increase in revenues for the first quarter, as well as a slight improvement in
gross margin. Operating expenses are expected to increase over the fourth
quarter of 2002 due to the acquisition of NxtWave, increased product development
costs, and the ramp of the new consumer businesses. Based on these factors, ATI
is targeting to achieve adjusted net income per share of between $0.03 and $0.05
in the first quarter of fiscal 2003.
2
ATI Reports Fourth Quarter and Year-End Financial Results
Operational Highlights
During the fourth quarter, ATI introduced and started shipping the RADEON (TM)
9700, RADEON (TM) 9000 and MOBILITY (TM) RADEON (TM) 9000 to become the first
graphics company in history to have the top performing products in the desktop
market - mainstream and enthusiast - as well as the notebook market,
simultaneously. These products captured new design wins with major OEMs,
including Apple, Hewlett-Packard, Dell and others. The Company also announced a
series of design wins for its new products aimed at the growing integrated,
digital TV, and wireless hand-held markets.
Other operational highlights during the quarter:
o ATI announced in August that its RADEON (TM) 9700-based technology
would be rolled out to the workstation market with the introduction of
the FIRE GL (TM) X1.
o ATI's share of the market for notebook discrete chips increased by 4
points to 66 per cent in the second calendar quarter of 2002 according
to Mercury Research.
o On the desktop, ATI's share of the discrete market in the second
calendar quarter increased by one percentage point to 28 per cent
according to Mercury Research.
o ATI began shipping integrated chipset products in volume in the fourth
quarter and the Company believes this product represents a significant
opportunity for market share over the fiscal year.
o Over 30 models of Pentium 4-based notebooks shipping in the fourth
quarter featured ATI RADEON (TM) chips.
ATI achieved breakthroughs beyond the PC market with key design wins for the
Company's digital TV and set-top box silicon solutions and wireless hand-held
silicon products.
o Key design wins with Scientific-Atlanta and Pace Micro, two of the
world's largest manufacturers of set-top boxes, represent an important
foothold in the set-top device market.
o ATI's IMAGEON(TM)100 was selected for Toshiba's e740 PocketPC, one of
the most powerful PDAs available.
The launch of Super Mario Sunshine, the latest version of one of the world's
most popular games, sparked a new wave of enthusiasm for Nintendo's GAMECUBE(TM)
late in the quarter. According to Nintendo, more than 350,000 games were sold in
the first 10 days of availability.
3
ATI Reports Fourth Quarter and Year-End Financial Results
Management's Discussion and Analysis of Interim Financial Results
ATI's revenue for the fourth quarter declined 10 per cent to $239.5 million,
compared to the third quarter, and was five per cent higher than the fourth
quarter of fiscal 2001. Continuing weakness in the worldwide PC market in
general and weakness in the notebook business in particular were factors in the
decline in revenue compared to the third quarter of the fiscal year. An increase
in both desktop and notebook market share accounted for the increase in revenues
for the fourth quarter compared to the prior period a year ago, but was somewhat
offset by a mix shift from boards to chips.
Gross margin for the fourth quarter was 30.1 per cent of sales, compared to 35.0
per cent in the third quarter, and 29.6 per cent in the same quarter a year
earlier. The sequential quarterly decline occurred primarily because of a weaker
market for notebooks. The increase in gross margin in the fourth quarter of 2002
compared with the same period a year earlier is generally attributable to a
richer chip mix. The Company recognizes that its gross margin is too low and is
working to bring it into the target range of 32 to 35 per cent.
Operating expenses, excluding amortization of intangibles, were $70.1 million,
or 1.3 per cent higher than the third quarter, and 4.5 per cent higher than the
same quarter a year earlier. The sequential quarterly increase in this expense
was largely due to increased R&D spending resulting from the acquisition of
NxtWave Communications in the fourth quarter, offset by lower administrative and
selling and marketing costs. Compared to the same period a year earlier, the
increase is largely attributable to higher R&D expense associated with increased
costs for new semiconductor technologies as well as the acquisition of NxtWave
Communications.
Total operating expenses increased $12.7 million in the fourth quarter to $103.6
million compared to the third quarter and were 17.4 per cent higher than the
fourth quarter of fiscal 2001. The increase in the fourth quarter, compared to
both the prior quarter and the fourth quarter a year ago, was largely due to the
writedown of core technology and goodwill associated with the prior acquisition
of the intangible assets of ArtX and Chromatic Research, as well as the increase
in R&D and amortization expense associated with the acquisition of NxtWave
Communications.
4
ATI Reports Fourth Quarter and Year-End Financial Results
During the fourth quarter, the Company recorded a net writedown of the value of
its long-term investments by an aggregate of $3.1 million to reflect the other
than temporary decline in their value.
Adjusted net income(1) for the fourth quarter was $2.4 million or $0.01 per
share, compared to adjusted net income of $19.2 million or $0.08 per share for
the previous quarter. This decrease in adjusted net income compared to the third
quarter was primarily a result of lower revenue and gross margin due to weakness
in the notebook market. Adjusted net income in the fourth quarter of 2002 was
essentially flat compared to the same period a year ago.
ATI's net loss, on a GAAP basis, in the fourth quarter of fiscal 2002 was $32.2
million or $0.14 per share, compared with a net loss of $2.0 million or $0.01
per share for the third quarter and a net loss of $11.6 million or $0.05 per
share for the fourth quarter a year ago. The decline in sequential quarterly net
income was largely a result of lower revenues and margins, the writedown of
intangible assets related to the acquisitions of ArtX and Chromatic Research,
and to a lesser extent the net writedown of the Company's long-term investments.
Inventory levels stood at $175.4 million at the end of the fourth quarter
compared with $127.7 million at the end of the third quarter. The increase in
inventory occurred, to a large extent, as a result of the Company rapidly
ramping up production to support the introduction of new products.
(1)Adjusted net income excludes the after-tax effect of gain (loss) on long-term
investments (net), amortization of intangible assets related to the Company's
acquisitions, and the deferred tax recovery of future tax liability pertaining
to intangible assets acquired. Each of these items has been excluded from
adjusted net income as they are not considered to be part of the Company's
normalized ongoing operations. While the Company recognizes that adjusted net
income does not have any standardized meaning described by generally accepted
accounting principles, or GAAP, and that its adjusted net income calculation
cannot be used as a comparison to other companies' financial performance, ATI
believes that its adjusted net income more appropriately reflects the Company's
operating performance.
5
ATI Reports Fourth Quarter and Year-End Financial Results
ATI's financial position remained strong in the fourth quarter. As of August 31,
2002, ATI had working capital of $361.7 million, compared to $370.1 million at
the end of the third quarter. The Company's cash position was $236.9 million as
of August 31, 2002, compared to $265.7 million at the end of the prior period.
The decline was largely due to a cash payment associated with the acquisition of
NxtWave Communications as well as increased inventory to support the
introduction of new products.
Intangible assets, largely consisting of goodwill associated with the
acquisition of ArtX, declined to $209.7 million as of August 31, 2002, from
$223.9 million in the third quarter. The decline in intangible assets was
largely due to the continued amortization in intangible assets related to the
acquisition of ArtX, as well as the writedown of $10.6 million in core
technology and goodwill associated with its acquisition, offset by the
intangible assets associated with the acquisition of NxtWave Communications
which was recorded during the fourth quarter.
Accounts receivable increased by $2.6 million during the quarter to $164.3
million. Accounts payable increased by $47.4 million in the fourth quarter to
$172.1 million. The increase in accounts payable was primarily associated with
the inventory buildup of new products.
6
ATI Reports Fourth Quarter and Year-End Financial Results
Adjusted Net Income - Reconciliation
The table below presents adjusted net income (loss) and adjusted net income
(loss) per share, which excludes the after-tax effect of gain (loss) on
long-term investments, amortization of intangible assets related to the
Company's acquisitions, and deferred tax recovery of future tax liability
pertaining to intangible assets acquired, related to the Company's acquisitions.
Three months ended Twelve months ended
August 31 August 31
(Thousands of US dollars,
except per share amounts) 2002 2001 2002 2001
- -------------------------------------------------------------------------------------------------------
(unaudited)
Net loss - GAAP basis $ (32,156) $ (11,633) $ (47,465) $ (54,205)
Loss (gain) on long-term investments 3,355 (6,364) 3,355 (61,216)
Amortization of intangible assets 33,468 21,129 97,501 114,507
Net tax on sale of investment (152) -- (152) 991
Deferred tax recovery of future tax
liability on intangible assets* (2,090) (897) (3,547) (16,329)
- -------------------------------------------------------------------------------------------------------
Adjusted net income (loss) $ 2,425 $ 2,235 $ 49,692 $ (16,252)
- -------------------------------------------------------------------------------------------------------
Adjusted net income (loss) per share
Basic $ 0.01 $ 0.01 $ 0.21 $ (0.07)
Diluted $ 0.01 $ 0.01 $ 0.20 $ (0.07)
- -------------------------------------------------------------------------------------------------------
Weighted average number of shares
(000s):
Basic 236,848 231,938 234,895 230,880
Diluted 244,874 245,118 246,872 230,880
- -------------------------------------------------------------------------------------------------------
*The future tax recovery for the twelve months ended August 31, 2001, is
primarily due to the amortization of purchased-in-process R&D relating to the
acquisition ArtX.
7
ATI Reports Fourth Quarter and Year-End Financial Results
Forward-looking Statements and Uncertainties
Certain statements in this press release constitute "forward-looking
statements." When used in this press release, words such as "plans," "intends,"
"anticipates," "should," "estimates," "expects," "believes," "indicates,"
"targeting," "suggests," and similar expressions are intended to identify
forward-looking statements. Forward-looking statements are based on current
expectations and entail various risks and uncertainties that are outlined in
this press release and in the Company's 2001 Annual Report and Annual
Information Form. As a result of these risks and uncertainties, the Company's
operating results and common share price may be subject to significant
volatility, particularly on a quarterly basis. For example, the markets for the
Company's products are characterized by changing market conditions, frequent new
product introductions, seasonal and variable demand and rapid technology
changes. Other factors that could cause the Company's results to vary include,
but are not limited to, lack of anticipated growth in the demand for PCs, gaming
consoles and consumer electronic devices in which the Company's products are
incorporated, reductions in the Company's average selling prices for its
products due to competitive pressures and other factors, the introduction of new
products by the Company's competitors which render the Company's products
non-competitive, delays encountered by the Company in developing new products or
enhancements, including integrated graphics and core logic components, in the
time frame required by its customers, delays in manufacturing or unfavourable
manufacturing yields experienced by the Company's independent foundries,
unexpected variances in material costs, including silicon wafer, memory and
printed circuit boards, and constraints on the supply of components utilized in
the Company's products and in the PC industry generally. These risks and
uncertainties could cause or contribute to actual results that are materially
different from those anticipated or experienced in the past. Additional
information concerning factors that could cause the Company's financial results
to fluctuate is contained in the Company's filings with Canadian and U.S.
securities regulatory authorities. ATI disclaims any obligation or intention to
update or revise any forward-looking statement, whether as a result of new
information, future events or otherwise.
Conference Call Information
ATI Technologies Inc. will host a conference call to discuss its financial
results for the fourth quarter, ending August 31, 2002 at 10:00 AM (EDT) (7:00
AM Pacific, 9:00 AM Central, 8:00 AM Mountain) today.
To participate in the conference call, please dial 416-405-9328 ten minutes
before the scheduled start of the call. No password is required.
A live web cast of the conference call will be available at
http://www.ati.com/companyinfo/ir/quarterlyresults.html
under the Financial Information section, under 2002 Conference Calls - Q4 2002
or at http://www.customwebcasting.com/e/webcasts/ati/021002/
Replays of the conference call will be available through October 9, 2002 Please
call 416-695-5800, passcode 1191694.
A web cast replay will be available at the web sites noted above.
About ATI Technologies
ATI Technologies Inc. is a world leader in the design and manufacture of
innovative 3D graphics and digital media silicon solutions. An industry pioneer
since 1985, ATI is the world's foremost visual processor unit (VPU) provider and
is dedicated to deliver leading-edge performance solutions for the full range of
PC and Mac desktop and notebook platforms, workstation, set-top and digital
television, game console and handheld markets. With 2002 revenues in excess of
US $1 billion, ATI has more than 1,900 employees in the Americas, Europe and
Asia. ATI common shares trade on NASDAQ (ATYT) and the Toronto Stock Exchange
(ATY).
8
ATI Reports Fourth Quarter and Year-End Financial Results
Copyright 2002 ATI Technologies Inc. All rights reserved. ATI and ATI product
and product feature names are trademarks and/or registered trademarks of ATI
Technologies Inc. All other company and product names are trademarks and/or
registered trademarks of their respective owners. Features, pricing,
availability and specifications are subject to change without notice.
For media or industry analyst support, please visit our web site at
http://www.ati.com or contact:
Anne Ferguson, Acting Public Relations Manager, ATI Technologies Inc., at
(416) 422-7154 or aferguson@bmporternovelli.com
Allison Mudge, Public Relations Manager, BenchMark Porter Novelli,
at (416) 422-7153 or amudge@bmporternovelli.com
For investor relations' support, please contact:
Janet Craig, Director, Investor Relations, ATI Technologies Inc.,
at (905) 882-2600, Ext. 2631 or jcraig@ati.com
- 30 -
--Financial Statements Attached--
9
ATI TECHNOLOGIES INC.
INTERIM CONSOLIDATED STATEMENTS OF OPERATIONS
(Thousands of US dollars, except per share amounts)
Three months ended Twelve months ended
August 31 August 31 August 31 August 31
2002 2001 2002 2001
- -----------------------------------------------------------------------------------------------------------------------------------
(unaudited)
Revenues $ 239,480 100.0% $ 229,132 100.0% $ 1,021,722 100.0% $ 1,037,809 100.0%
Cost of goods sold 167,289 69.9% 161,238 70.4% 686,210 67.2% 797,096 76.8%
- -----------------------------------------------------------------------------------------------------------------------------------
Gross Margin 72,191 30.1% 67,894 29.6% 335,512 32.8% 240,713 23.2%
Expenses
Selling and marketing 18,625 7.8% 17,522 7.6% 78,069 7.6% 75,541 7.3%
Research and
development 42,850 17.9% 39,629 17.3% 164,609 16.1% 149,465 14.4%
Administrative 8,672 3.6% 9,999 4.4% 35,662 3.5% 37,261 3.6%
Amortization of
intangible assets 33,468 13.9% 21,129 9.2% 97,501 9.5% 114,507 11.0%
- -----------------------------------------------------------------------------------------------------------------------------------
103,615 43.2% 88,279 38.5% 375,841 36.7% 376,774 36.3%
- -----------------------------------------------------------------------------------------------------------------------------------
Loss from operations (31,424) (13.1%) (20,385) (8.9%) (40,329) (3.9%) (136,061) (13.1%)
Interest and other income 1,321 0.6% 1,994 0.8% 4,087 0.4% 2,915 0.3%
(Loss) gain on long-term
investments, net (3,355) (1.4%) 6,364 2.8% (3,355) 0.3% 61,216 5.9%
Interest expense:
Short-term (146) (0.1%) (12) -- (226) -- (1,180) (0.1%)
Long-term (262) (0.1%) -- -- (433) (0.1%) -- --
- -----------------------------------------------------------------------------------------------------------------------------------
Loss before income taxes (33,866) (14.1%) (12,039) (5.3%) (40,256) (3.9%) (73,110) (7.0%)
Income taxes (1,710) (0.7%) (406) (0.2%) 7,209 0.7% (18,905) (1.8%)
- -----------------------------------------------------------------------------------------------------------------------------------
Net loss $ (32,156) (13.4%) $ (11,633) (5.1%) $ (47,465) (4.6%) $ (54,205) (5.2%)
- -----------------------------------------------------------------------------------------------------------------------------------
Net loss per share
Basic and diluted $ (0.14) $ (0.05) $ (0.20) $ (0.23)
- -----------------------------------------------------------------------------------------------------------------------------------
Weighted average
number of shares
(000's)
Basic and diluted 236,848 231,938 234,895 230,880
Outstanding number of
shares at the end of
the quarter (000's) 236,871 232,119 236,871 232,119
- -----------------------------------------------------------------------------------------------------------------------------------
See accompanying notes to interim consolidated financial statements
10
ATI TECHNOLOGIES INC.
INTERIM CONSOLIDATED BALANCE SHEETS
(Thousands of US dollars)
August 31 August 31
2002 2001
- --------------------------------------------------------------------------------
Assets
Current assets
Cash and cash equivalents $ 187,126 $ 171,455
Short-term investments 49,801 45,000
Accounts receivable 164,259 134,852
Inventories 175,348 98,970
Prepayments and sundry receivables 21,131 20,704
Future income tax assets 3,630 4,658
- --------------------------------------------------------------------------------
Total current assets 601,295 475,639
Capital assets 95,838 71,487
Intangible assets 209,673 285,869
Long-term investments 7,405 11,008
Future income tax assets 844 4,887
- --------------------------------------------------------------------------------
Total Assets $ 915,055 $ 848,890
- --------------------------------------------------------------------------------
Liabilities and Shareholders' Equity
Current liabilities
Bank indebtedness $ 12,015 $ 8,749
Accounts payable 172,093 79,719
Accrued liabilities 51,087 48,965
Deferred revenue 250 354
Income taxes payable 170 9,573
Current obligation under capital lease 568 -
Future income tax liabilities 3,459 4,719
- --------------------------------------------------------------------------------
Total current liabilities 239,642 152,079
Obligation under capital lease 15,798 -
Future income tax liabilities 12,588 15,176
Shareholders' Equity
Share capital 561,477 551,217
Contributed surplus 4,630 2,033
Retained earnings 72,646 120,111
Currency translation adjustment 8,274 8,274
- --------------------------------------------------------------------------------
Total shareholders' equity 647,027 681,635
- --------------------------------------------------------------------------------
Total Liabilities and Shareholders' Equity $ 915,055 $ 848,890
- --------------------------------------------------------------------------------
See accompanying notes to interim consolidated financial statements
11
ATI TECHNOLOGIES INC.
INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS
(Thousands of US dollars)
Three months ended Twelve months ended
August 31 August 31
- ----------------------------------------------------------------------------------------------------------
2002 2001 2002 2001
- ----------------------------------------------------------------------------------------------------------
(unaudited)
Cash provided by (used in):
Operating activities:
Net loss $ (32,156) $ (11,633) $ (47,465) $ (54,205)
Add items not affecting working capital:
Amortization of intangible assets 33,468 21,129 97,501 114,507
Future income taxes 5,083 (1,744) 1,223 (18,430)
Depreciation 6,569 5,276 22,921 20,955
Loss (gain) on long-term investments 3,355 (6,364) 3,355 (61,216)
Foreign exchange (gain) loss (164) (53) 620 431
Net changes in non-cash working capital
balances relating to operations:
Accounts receivable (2,572) 12,598 (29,362) 45,543
Inventories (47,621) 41,070 (76,378) 143,728
Prepayments and sundry receivables 2,110 5,527 (3) 12,487
Accounts payable 46,990 9,822 91,916 (104,189)
Accrued liabilities (9,746) (614) 2,121 500
Deferred revenue (88) (555) (104) (3,304)
Income taxes payable (7,911) (4,153) (9,403) 5,136
- ----------------------------------------------------------------------------------------------------------
(2,683) 70,306 56,942 101,943
- ----------------------------------------------------------------------------------------------------------
Financing activities:
Increase (decrease) in bank indebtedness (243) 3,457 3,266 8,749
Principal payment under capital lease obligation (131) -- (312) --
Issuance of common shares 241 1,265 12,495 4,687
Repayment of share purchase loans -- -- 362 --
- ----------------------------------------------------------------------------------------------------------
(133) 4,722 15,811 13,436
- ----------------------------------------------------------------------------------------------------------
Investing activities:
Purchase of short-term investments -- (45,000) (54,233) (45,000)
Maturity of short-term investments -- -- 49,584 4,403
Additions to capital assets (5,841) (9,074) (30,111) (31,091)
Investment in other assets -- -- -- (2,500)
Proceeds from sale of long-term investments -- -- -- 65,061
Acquisitions, net of cash acquired (20,050) (6,501) (22,118) (9,201)
- ----------------------------------------------------------------------------------------------------------
(25,891) (60,575) (56,878) (18,328)
- ----------------------------------------------------------------------------------------------------------
Foreign exchange gain (loss) on cash held
in foreign currency (175) 53 (204) (431)
- ----------------------------------------------------------------------------------------------------------
Increase (decrease) in cash (28,882) 14,506 15,671 96,620
Cash and cash equivalents - beginning of period 216,008 156,949 171,455 74,835
- ----------------------------------------------------------------------------------------------------------
Cash and cash equivalents - end of period 187,126 171,455 187,126 171,455
Short-term investments 49,801 45,000 49,801 45,000
- ----------------------------------------------------------------------------------------------------------
Cash position - end of period $ 236,927 $ 216,455 $ 236,927 $ 216,455
- ----------------------------------------------------------------------------------------------------------
Cash position is defined as cash and cash equivalents and short-term
investments. See accompanying notes to interim consolidated financial
statements.
12
ATI TECHNOLOGIES INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
August 31, 2002
The principal business activities of ATI Technologies Inc. (the "Company") are
the design, manufacture and sale of graphics and multimedia products for
personal computers and consumer electronics devices. The Company markets its
products to original equipment manufacturers, system builders, distributors and
retailers primarily in North America, Europe and Asia-Pacific.
1. SIGNIFICANT ACCOUNTING POLICIES:
The accompanying unaudited financial statements are prepared in accordance with
Canadian generally accepted accounting principles for interim financial
statements and do not include all the information required for complete
financial statements. These interim financial statements and notes related
thereto should be read in conjunction with the Company's most recent annual
consolidated financial statements, as at and for the year ended August 31, 2001.
These interim consolidated financial statements follow the same accounting
policies and methods of their application as the most recent annual consolidated
financial statements with the exception of the following:
(a) As a result of the new Canadian Institute of Chartered Accountants (CICA)
Handbook Section 3500 "Earnings per share", the Company is required to
retroactively use the treasury stock method for calculating diluted
earnings per share. This change results in an earnings per share
calculation that is consistent with United States GAAP. Previously
reported diluted earnings per share have been restated to reflect this
change.
The following table presents a reconciliation of the numerators and
denominators of the basic and diluted earnings per share calculations:
Three months ended Twelve months ended
August 31 August 31
(Thousands of US dollars, except per share
amounts) 2002 2001 2002 2001
- -------------------------------------------------------------------------------------------------------
(unaudited)
Net loss $ (32,156) $ (11,633) $ (47,465) $ (54,205)
Weighted average number of common shares
outstanding:
Basic 236,848 231,938 234,895 230,880
Effect of stock options -- -- -- --
- -------------------------------------------------------------------------------------------------------
Diluted 236,848 231,938 234,895 230,880
Net loss per share:
Basic $ (0.14) $ (0.05) $ (0.20) $ (0.23)
Diluted $ (0.14) $ (0.05) $ (0.20) $ (0.23)
13
ATI TECHNOLOGIES INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
August 31, 2002
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
As at August 31, 2002, options to purchase 32,813,005 (2001-29,109,372)
shares of common stock were outstanding but were not included in the
calculation of diluted earnings per share because the Company had a net
loss for the year and to do so would have been anti-dilutive.
(b) As a result of the new Canadian Institute of Chartered Accountants (CICA)
Handbook Section 1581 "Business Combinations", goodwill acquired in
business combinations completed after June 30, 2001 was not amortized. In
addition, the criteria for recognition of intangible assets apart from
goodwill and the valuation of the shares issued in a business combination
has been applied to business combinations completed after June 30, 2001.
2. PENDING ACCOUNTING STANDARDS
(a) CICA Handbook Section 3870, Stock-based compensation and other stock-based
payments In December 2001, the CICA issued Handbook Section 3870, which
establishes standards for the recognition, measurement and disclosure of
stock-based compensation and other stock-based payments made in exchange
for goods and services provided by employees and non-employees. The
standard requires that a fair value based method of accounting be applied
to all stock-based payments to non-employees and to employee awards that
are direct awards of stock, that call for settlement in cash or other
assets or are stock appreciation rights that call for settlement by the
issuance of equity instruments. However, the new standard permits the
Company to continue its existing policy of recording no compensation cost
on the grant of stock options to employees. Consideration paid by employees
on the exercise of stock options is recorded as share capital. The standard
is effective for the Company's fiscal year beginning September 1, 2002 for
awards granted on or after that date.
(b) CICA Handbook Section 1581, Business Combinations, and Section 3062,
Goodwill and Other Intangible Assets
In September 2001, the CICA issued Handbook Sections 1581 "Business
Combinations" and 3062 "Goodwill and Other Intangible Assets". The new
standards mandate the purchase method of accounting for business
combinations and require that goodwill no longer be amortized but instead
be tested for impairment at least annually. The standards also specify
criteria that intangible assets must meet to be recognized and reported
apart from goodwill. The standards require that the value of the shares
issued in a business combination be measured using the average share price
for a reasonable period before and after the date the terms of the
acquisition are agreed to and announced. Previously, the consummation date
was used to value the shares issued in a business combination. The new
standards are substantially consistent with United States GAAP.
Upon full adoption of the standards beginning September 1, 2002, the
Company will discontinue the amortization of all existing goodwill,
evaluate existing intangible assets and make any necessary
reclassifications in order to conform to the new criteria for recognition
of intangible assets apart from goodwill and test for impairment in
accordance with the new standards.
In connection with Section 3062's transitional goodwill impairment
evaluation, the Company is required to assess whether goodwill is impaired
as of September 1, 2002. The Company has up to six months to determine the
fair value of its reporting units and compare that to the units' carrying
amounts. To the extent a reporting unit's carrying amount exceeds its fair
value, the Company must perform a second step to measure the amount of
impairment in a manner similar to a purchase price allocation. This second
step is to be completed no later than August 31, 2003. Any transitional
impairment will be recognized as an effect of a change in accounting
principle and will be charged to opening retained earnings as of September
1, 2002.
14
ATI TECHNOLOGIES INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
August 31, 2002
2. PENDING ACCOUNTING STANDARDS (CONTINUED):
As of August 31, 2002, the Company had unamortized goodwill of $187.8
million and unamortized intangible assets of $21.9 million, all of which
are subject to the transitional provisions of Sections 1581 and 3062.
Amortization expense related to goodwill was $83.5 million for 2002.
Because of the extensive effort required to comply with the remaining
provisions of Sections 1581 and 3062, the Company has not estimated the
impact of these provisions on its financial statements, beyond
discontinuing goodwill amortization.
(c) CICA Handbook Section 1650, Foreign currency translation and hedging
relationships:
CICA Handbook Section 1650 has been amended to eliminate the deferral and
amortization of foreign currency translation gains and losses on long-lived
monetary items, effective January 1, 2002 with retroactive restatement of
prior periods. The Company is not impacted by this change. The CICA issued
Accounting Guideline No. 13 (AcG-13), which establishes criteria for hedge
accounting effective for the Company's 2004 fiscal year. The Company has
not yet determined the impact the adoption of AcG-13 will have on its
financial statements.
3. CAPITAL LEASE:
In February 1999, the Company entered into a 50% ownership joint venture
agreement for the purpose of constructing a new building facility in Markham,
Ontario. The facility was completed during the third quarter of 2002. The
completed cost of this facility amounts to $33.3 million. During the third
quarter, the Company entered into a lease agreement with the joint venture,
which is recorded as a capital lease. The building under capital lease is
initially recorded at the present value of minimum lease payments at the
inception of the lease. Depreciation is provided using the straight-line method
over a period of 15 years.
In October 1999, the joint venture arranged interim construction financing. On
September 5, 2002, the Company obtained a mortgage commitment from a lender to
replace the interim financing. As at August 31, 2002, the Company's proportional
share of the interim construction financing amounts to $12.0 million. The
underlying liability is denominated in Canadian dollars.
The Company's obligation under the capital lease owed to the third party
venturer is as follows:
(Thousands of US dollars)
- --------------------------------------------------------------------------------
Year ending August 31:
2003 1,585
2004 1,585
2005 1,585
2006 1,585
2007 1,650
Later years, through 2017 17,574
- --------------------------------------------------------------------------------
Total minimum lease payments 25,564
Less : amount representing interest at 6.31% 9,198
- --------------------------------------------------------------------------------
Present value of net minimum capital lease payments 16,366
Current portion of obligation under capital lease 568
- --------------------------------------------------------------------------------
15
ATI TECHNOLOGIES INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
August 31, 2002
3. CAPITAL LEASE (CONTINUED):
Interest of $0.26 million and $0.43 million relating to capital lease
obligations have been included in interest expense for the current quarter and
fiscal 2002 respectively.
4. ACQUISITIONS
On June 28, 2002, ATI acquired NxtWave Communications Inc. for (US) $20.2
million cash. NxtWave Communications is in the business of delivering broadband
communications silicon using proprietary digital signal processing technologies
adapted for applications in digital terrestrial and cable receivers. The
acquisition was accounted for using the purchase method whereby the results of
NxtWave Communications have been included in the consolidated statements of
operations and retained earnings and cash flows from the date of acquisition.
The fair values of the assets acquired were as follows:
(Thousands of US dollars)
- --------------------------------------------------------------------------------
Net assets:
Current assets, including cash of $165 $ 538
Capital assets 899
Non current assets 59
Purchased in-process R & D 5,300
Core Technology 9,200
Goodwill 4,678
Liabilities assumed (459)
--------
Cash consideration $ 20,215
--------
Purchased in process R & D and core technology are being amortized as following:
Purchased in process R & D 1 year
Core technology 2 to 5 years
16
ATI TECHNOLOGIES INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
August 31, 2002
5. INTANGIBLE ASSETS
The net book values of the intangible assets acquired related to NxtWave
Communications, FGL Graphics, ArtX and Chromatic Research Inc. at August 31,
2002 are as follows:
- --------------------------------------------------------------------------------
Intangible asset type Cost Accumulated Net book
(Thousands of US dollars) amortization value
- --------------------------------------------------------------------------------
Purchased in-process R&D $105,550 $101,133 $ 4,417
Workforce 11,400 9,120 2,280
Core technology 32,544 17,383 15,161
Goodwill 380,957 193,142 187,815
- --------------------------------------------------------------------------------
Total $530,451 $320,778 $209,673
- --------------------------------------------------------------------------------
Amortization expense related to intangible assets amounted to $33.5 million and
$97.5 million for the current quarter and fiscal 2002 respectively.
During the current quarter, the Company conducted a comprehensive review of the
carrying values of the intangible assets arising from the ArtX acquisition and
concluded that there was a permanent impairment in these values. As a result,
the Company wrote down the carrying values of the intangible assets by an
aggregate amount of $10.6 million to reflect the permanent impairment in these
values.
6. LONG-TERM INVESTMENTS
Pursuant to the original agreement with Broadcom Corporation, the Company
received an additional 107,387 shares, valued at $2.1 million out of escrow in
the current quarter. The Company then wrote down its total investment in
Broadcom by $4.7 million to reflect the other than temporary decline in its
value. The Company also realized a loss of $0.3 million on the sale of another
investment and also wrote down its value by $0.5 million to reflect the other
than temporary decline in its value. This investment has been reclassified as a
short-term investment as the Company no longer intends to hold the investment
for long-term purposes.
7. SUPPLEMENTAL CASH FLOW INFORMATION
Three months Twelve months
ended ended
August 31 August 31
(Thousands of US dollars) 2002 2001 2002 2001
- ------------------------------------------------------------------------------------------
(unaudited)
Cash paid for:
Interest $ 484 $ 5 $ 573 $ 1,180
Income taxes 98 328 893 1,500
Interest received 724 1,256 4,889 3,507
Non-cash investing and financing activities:
Acquisition of building through capital lease -- -- 16,262 --
17
ATI TECHNOLOGIES INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
August 31, 2002
8. SEGMENTED INFORMATION
The Company operates in one operating segment, that being the design,
manufacture and sale of graphics and multimedia products for personal computers
and consumer electronics devices.
The following tables provide revenues by geographic area and by product, as well
as capital and intangible assets by geographic area:
Three months ended Twelve months ended
August 31 August 31
(Thousands of US dollars) 2002 2001 2002 2001
- --------------------------------------------------------------------------------------------------
(unaudited)
Revenues:
Canada $ 2,699 $ 3,566 $ 15,441 $ 23,104
United States 64,146 75,570 293,808 325,464
Europe 24,282 36,253 149,412 247,795
Asia-Pacific 148,353 113,743 563,061 441,446
- --------------------------------------------------------------------------------------------------
Consolidated revenues $ 239,480 $ 229,132 $1,021,722 $1,037,809
- --------------------------------------------------------------------------------------------------
Product revenues:
Components $ 142,109 $ 122,375 $ 543,769 $ 481,083
Boards 88,928 105,105 449,938 548,053
Other 8,443 1,652 28,015 8,673
- --------------------------------------------------------------------------------------------------
Consolidated revenues $ 239,480 $ 229,132 $1,021,722 $1,037,809
- --------------------------------------------------------------------------------------------------
Capital and intangible assets:
Canada $ 78,842 $ 54,162
United States 220,811 297,417
Europe 4,644 5,071
Asia-Pacific 1,214 706
- --------------------------------------------------------------------------------------------------
Consolidated capital and intangible assets $ 305,511 $ 357,356
- --------------------------------------------------------------------------------------------------
18
ATI TECHNOLOGIES INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
August 31, 2002
9. U.S. GAAP
The following table reconciles the net loss as reported on the consolidated
statements of operations prepared in accordance with Canadian GAAP to the
consolidated net loss that would have been reported had the financial statements
been prepared in accordance with U.S. GAAP:
Three months ended Twelve months ended
August 31 August 31
(Thousands of US dollars, except per
share amounts) 2002 2001 2002 2001
- ----------------------------------------------------------------------------------------------
(unaudited)
Net loss in accordance with Canadian
GAAP $ (32,156) $ (11,633) $ (47,465) $ (54,205)
Tax effect of stock options exercised (60) (78) (1,868) (346)
Write-off of purchased in-process R&D (5,300) -- (5,300) --
Amortization of purchased in-process
research and development 883 -- 883 30,151
Amortization difference between
Canadian and U.S. GAAP 6,031 2,235 7,837 7,326
Stock compensation expenses* 4,738 (1,339) 997 (1,694)
- ----------------------------------------------------------------------------------------------
Net loss in accordance with U.S.
GAAP $ (25,864) $ (10,815) $ (44,916) $ (18,768)
- ----------------------------------------------------------------------------------------------
Net loss per share
Basic $ (0.11) $ (0.05) $ (0.19) $ (0.08)
Diluted $ (0.11) $ (0.05) $ (0.19) $ (0.08)
- ----------------------------------------------------------------------------------------------
Weighted average number of shares
(000's):
Basic 236,848 231,938 234,895 230,880
Diluted 236,848 231,938 234,895 230,880
- ----------------------------------------------------------------------------------------------
* Under U.S. GAAP, options granted after January 18, 2001, with an exercise
price denominated in a currency other than the currency of the primary economic
environment of either the employer or the employee, should be accounted for
under the variable accounting method. Under Canadian GAAP, there is currently no
equivalent requirement. The comparative figures for the three months and twelve
months ended August 31, 2001 have been amended to include the impact of this
difference between Canadian and U.S. GAAP.
19
ATI TECHNOLOGIES INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
August 31, 2002
10. SUBSEQUENT EVENT
On September 5, 2002, the joint venture in which the Company has a 50% ownership
obtained a mortgage commitment from a lender to finance the new building
facility in Markham, Ontario. The Company's proportional share of the mortgage
is expected to amount to $10.8 million (Cdn. $16.8 million), and the mortgage
contemplates having a repayment term of 12 years bearing interest at a rate of
6.96% per annum. The underlying mortgage would be denominated in Canadian
dollars. Funding under the mortgage is expected to be received in the first
quarter of fiscal 2003.
20
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
ATI TECHNOLOGIES INC.
Date: October 31, 2002 By: /s/ Terry Nickerson
-------------------------------------
Name: Terry Nickerson
Title: Senior Vice-President,
Finance and Chief Financial
Officer